FSB Completes Peer Review Of Korea

The Financial Stability Board (FSB) published today its peer review of Korea.

The peer review examined two topics relevant for financial stability in Korea: the crisis management and resolution framework, and the regulation and supervision of non-bank depository institutions (NBDIs).1 The review focused on the steps taken by the Korean authorities to implement reforms in these areas, including by following up on relevant International Monetary Fund (IMF)-World Bank Financial Sector Assessment Program (FSAP) recommendations and FSB commitments.

The peer review finds that good progress has been made in recent years on both topics. The resolution framework already includes a number of the resolution powers set out in the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) and has been tested in previous crises, while reforms are underway to strengthen it further. The authorities have also taken steps to strengthen and more closely align prudential standards in the NBDI sector to those of banks, and to enhance regulatory cooperation on mutual credit cooperative (MCC) issues through the establishment of the MCC Policy Council in 2013. Recent measures relating to household debt indicate the authorities’ proactive stance in identifying emerging risks and enhancing regulation and supervision to address them.

Notwithstanding this progress, the review concludes that there is additional work to be done:

• On crisis management and resolution:

  • implementing, on a timely basis, planned resolution reforms to close the gaps vis-à-vis the Key Attributes with respect to recovery and resolution planning requirements as well as bail-in and temporary stay powers;

  • developing triggers that facilitate early entry into resolution and permit the use of the full range of resolution tools under the framework; and

  • further strengthening crisis preparedness arrangements.

• On the regulation and supervision of NBDIs:

  • strengthening the role of the Financial Services Commission and the Financial Supervisory Service in the regulation and supervision of MCCs;

  • enhancing MCC and mutual savings bank (MSB) prudential requirements;

  • increasing the focus on MCC federations, in terms of regulatory and supervisory oversight and systemic risk analysis;2 and

  • developing measures to proactively manage the orderly consolidation of the MCC/MSB sectors.

The peer review report includes recommendations to the Korean authorities in order to address these issues.

1. The main NBDI types are mutual savings banks and mutual credit cooperatives, both of which have traditionally offered basic deposit services and small-scale credit to individual borrowers and small to medium-sized enterprises, particularly for local communities and lower-income households. NBDIs made up 13% of financial system assets (equivalent to 43% of gross domestic product) and almost 30% of deposits as at end-2016. [←]
2. Each MCC entity type has a national federation that promotes common goals, provides deposit insurance and liquidity management, and is involved in examinations of the credit business of its member cooperatives. [←]