Kim Yong-beom Vice Minister "Need to Consider Excess Liquidity Withdrawal, Asset Imbalance Resolution, etc." (Comprehensive)

Winter Policy Seminar of the Korean International Finance Association on the 15th
"Measures to Ensure the Soundness of Non-Bank Financial Institutions to Be Announced Soon"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Kim Yong-beom, the 1st Vice Minister of the Ministry of Economy and Finance, stated on the 15th, "We will soon announce measures to secure the soundness of non-bank financial institutions, which caused the expansion of the crisis in the early stages of the COVID-19 outbreak in March this year, including improvements to the foreign currency soundness system and liquidity supply system."

Vice Minister Kim made these remarks during a congratulatory speech at the 'Korea International Finance Association Winter Policy Seminar' held at the Bankers' Hall in Myeong-dong, Seoul. He said, "Globally, the share of non-bank financial intermediation has expanded to about 50% of total global financial assets," adding, "The asset size of non-bank financial institution funds has more than doubled compared to the financial crisis period." He also pointed out that these factors were among the causes of the crisis expansion in March this year.

He continued, "In Korea as well, the short-term foreign currency funding demand from the non-bank sector, such as margin calls on overseas derivatives products by securities firms in March, surged and exacerbated market instability." He added that the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) have warned that vulnerabilities in non-bank financial institutions, such as insufficient global dollar funding capacity and maturity mismatches in insurers' foreign currency liabilities, could spread to a financial system crisis.

Furthermore, Vice Minister Kim emphasized, "Learning from this crisis experience, continuous supplementation and inspection are necessary to strengthen the soundness of the non-bank sector and stabilize the market going forward."

Meanwhile, Vice Minister Kim also expressed concerns about the rapid increase in global liquidity due to major central banks' concentrated liquidity supply in response to the COVID-19 crisis, which has led to an expansion of asset market bubbles.

He said, "After the COVID-19 situation is resolved, managing liquidity will be a major challenge for policymakers," adding, "A hasty shift to a tightening policy stance could cause unnecessary market turmoil similar to past quantitative easing (QE) shocks." He further stated, "Proactive consideration is needed for withdrawing excess liquidity and resolving asset imbalances."

He also said, "We will manage so that abundant liquidity flows into productive investments such as the Korean New Deal and that support for face-to-face and service industries and small business owners facing difficulties is strengthened," emphasizing, "We will closely monitor external risk factors such as global asset price bubbles and increased volatility in capital flows in emerging markets, and strive to secure macroprudential stability in the foreign exchange sector."

The seminar's theme was "Instability in the International Financial Market after the Pandemic and Korea's Policy Response." Dr. Kim Hyun-tae of the Korea Institute of Finance presented on "High-risk, High-return Overseas Investment Risks and Policy Responses after the Pandemic," Dr. Jung Young-sik of the Korea Institute for International Economic Policy spoke on "Emerging Market Financial Markets after the Pandemic - Focusing on the Financial Stress Index," and Professor Choi Sang-yeop of Yonsei University presented on "Increased Uncertainty and International Capital Flows." This was followed by a comprehensive discussion on "Trends in the International Financial Market and Future Policy Tasks after the Pandemic and the U.S. Presidential Election," moderated by Professor Kim In-cheol of Sungkyunkwan University.

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