Republic of Korea: Financial Sector Assessment Program-Crisis Preparedness and Crisis Management Framework-Technical Note
IMF Staff Country Reports, January 9, 2015
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- Republic of Korea: Financial Sector Assessment Program-Crisis Preparedness and Crisis Management Framework-Technical Note
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Bibliographic details
- Published: January 9, 2015
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498309981.002
Summary
- Korea experienced significant financial distress in the late 1990s and faced fallout from the global financial crisis in 2007–08; these experiences helped establish a broad crisis management framework in Korea.
- Improving and formalizing the framework for crisis management would help preserve and build upon institutional memory.
- Authorities can consider formally setting up an apex forum for leading the inter-agency cooperation and coordination work on crisis preparedness and crisis management.
- To avoid duplication, authorities may consider upgrading the Macroeconomic Financial Meeting (MEFM) with participation by the heads of the Ministry of Strategy and Finance (MOSF), Financial Services Commission (FSC), Financial Supervisory Service (FSS), Bank of Korea (BOK), and Korea Deposit Insurance Corporation (KDIC) as members, and by including crisis preparedness and crisis management as an explicit mandate.
Financial safety net: current status and improvements
- The essential elements of a financial safety net are available in Korea.
- Emergency Liquidity Assistance (ELA) framework and deposit insurance system can be improved to make the safety net more responsive.
- ELA: review and revise the legal and procedural aspects to remove any scope for delays in actual disbursement of funds.
- Deposit insurance system: bring the deposit insurance fund out of deficit, and assure a back-up funding.
Financial sector supervision and corrective action framework
- The financial safety net is well supported by an efficient framework of financial sector supervision.
- The corrective action framework has some of the main elements in place but could be improved to enhance effectiveness:
- Review the triggers for corrective actions and improve their objectivity to enable timely intervention, including even before banks breach regulatory thresholds.
- Put in place norms and guidance determining the use of the powers to postpone or suspend corrective actions.
Subject areas and keywords
- Subject: Banking, Crisis management, Crisis prevention, Deposit insurance, Financial crises, Financial regulation and supervision, Financial sector stability
- Keywords: bank deposit, banking sector, bond market, capital ratio, CR, Crisis management, Crisis prevention, cross subsidization, Deposit insurance, due diligence, financial crisis, financial support, Global, holding company, insurance fund, ISCR, KDIC power, payment suspension, public funds