Regulator to apply stricter rules on financial soundness of banks, card firms, insurers
June. 5. 2022
Regulator must enforce tougher rules on financial soundness of banks, card companies and insurers
|Financial Services Commission (FSC) Vice Chairman Kim So-young attends a financial risk monitoring meeting on May 18 at the government complex in central Seoul. Yonhap|
By Anna J. Park
The government plans to strengthen national regulations on soundness requirements for financial firms from early next month, in a bid to proactively respond to growing external financial risks.
Financial authorities have not applied an ultra-rigid approach on the soundness requirements of financial companies since April 2020, with the aim of providing the necessary liquidity to households and companies in difficulty during the pandemic.
However, authorities have now decided it is time to tighten the reins again, as increasingly clear warning signs indicate that Korea’s economy faces threats.
“A typhoon, which includes economic crises, has entered our country’s backyard,” President Yoon Suk-yeol said last Friday, expressing the need for caution amid adverse macroeconomic factors. He made the comments to reporters on his way to work in Yongsan District, Seoul.
Those words are in line with JPMorgan Chase CEO Jamie Dimon, who issued a warning earlier this month at a financial conference in New York.
“This hurricane is right out there on the road heading our way,” Dimon said. “We just don’t know if this is a minor hurricane or super hurricane Sandy. ‘non-benign environment.’
As the US Federal Reserve plans to shrink its balance sheet by $8.5 trillion starting this month through quantitative tightening ― the opposite of quantitative easing, aimed at reducing the money supply in the economy ― Local financial companies urgently need to prepare for heightened uncertainties in the global macro environment.
In this context, financial authorities aim to ensure that domestic financial companies prepare with ample capital reserves in times of growing uncertainties. The authorities’ move to strengthen the regulations on the financial soundness requirements of companies must be carried out from next month.
The Financial Services Commission (FSC), the country’s main financial regulator, explained that the fundamental direction is a standardization of the soundness requirements imposed on financial companies, which have been temporarily relaxed over the past two years due to the pandemic.
“As the lax measures imposed temporarily are expected to come into effect until the end of this month, it could be considered, as of now, that the soundness requirements imposed on financial companies would be normalized from next month,” said an official from the agency. the FSC to Korea. Hours, Sunday.
As part of this decision, the current liquidity coverage ratio (LCR) of 85%, the proportion of highly liquid assets to guarantee a financial institution’s ability to meet its short-term obligations, imposed on banks during of the last two years, will be gradually increased. to the previous 100% starting next month.
Other relaxed strength requirements are also expected to be tightened again from July.