The nation’s chief financial regulator has picked stabilization of the foreign exchange market as the most urgent task in the financial market.
Over the weekend, Financial Services Commission Chairman Kim Seok-dong pledged to put priority on securing liquidity in banks’ foreign currency trading, saying that the issue was “the No. 1 regulatory target for this year.”
His remarks come amid growing anxiety over possibly massive outflow of foreign capital in Korea, as a group of experts point to a possible financial crisis due to fiscal difficulties in several European countries.
Many officials at the FSC and the Financial Supervisory Service seemingly view the recent woes in Greece as quite serious.
The FSS recently formed a task force with local banks to intensify their monitoring of foreign capital liquidity.
The task force, which consists of several inspectors of FSC and FSS as well as executives from 12 local banks, held its first meeting on Friday.
During the meeting, the task force called in bank executives in charge of finance and asked them to review their overall foreign capital liquidity situations more closely and better prepare for any future turbulence.
“Concerns are growing over Europe’s fiscal debt problems and many lingering risk factors confronting major advanced nations, including deepening unemployment in the U.S.,” an FSC official said.
He said the three parties have decided to form the task force on worries that foreign capital, in particular, European capital, could leave the country at any time in droves.
He also said the financial crisis that Korea has suffered from the most started in the foreign currency sector, saying that the meeting is part of precautionary efforts to brace for the worst.
During their meeting, participants said, the FSC and the FSS, called for local banks to apply strengthened standards in their “stress tests” on their foreign capital liquidity, while finding more stable overseas borrowing channels.
A participant said there was a consensus that the nation should remain alert as there are uncertainties over how the fiscal crisis in Europe could unfold.
The financial authorities have been paying close attention to sharply growing short-term foreign debt held by local financial institutions amid worries that an abrupt exodus of foreign capital could cripple the nation’s financial stability.
Many analysts and public officials, however, say that there is less chance that the current situation could develop into a critical foreign exchange crisis.
