BOK aims to redress wrongs with review of banks

Bank of Korea Governor Kim Choong-soo underscored the timeliness of the central bank’s new mandate to maintain financial stability as it gets ready to embark on a joint review of Korea’s banking sector with financial regulators starting next week.

Speaking at a joint conference for the Bank of Korea, the Bank for International Settlements and the International Monetary Fund yesterday in central Seoul, Kim noted that the central bank’s recent empowerment is part of an international trend.

“Up until the [financial] crisis, supervisory authorities focused solely on micro-prudential supervision related to individual financial institutions, consequently neglecting to identify and respond to systemic risks,” said Kim. “[Based on this reflection] the global trend is for the ongoing restructuring of national financial supervisory frameworks to be undertaken in such a way as to strengthen the macro-prudential supervisory functions.”

“Korea’s move to revise the Bank of Korea Act in August 2011 and grant the Bank of Korea a financial stability mandate that calls on it to play a more proactive role in financial stability can also be seen to have reflected this global trend,” he added.

Kim emphasized the need to balance the two mandates.

“Along with this, the governance structure of macroprudential policies is crucial in order to prevent coordination failure in the implementation of monetary and macroprudential policies, and for the balanced operation of these two policies ... In this regard, the central bank needs to take responsibility for financial stability and play its role as one of the policy authorities carrying out macroprudential policy.”

The BOK’s new mandate will get its first field test next week when a review of seven commercial banks is conducted.

By Lee Jung-yoon [joyce@joongang.co.kr]