The Bank of Korea Announces "Securities and Insurance Company Loans Ending on February 3"
[Asia Economy Reporter Kim Eun-byeol] The Bank of Korea has decided to discontinue direct loans to securities and insurance companies, an unusual measure implemented after the outbreak of the novel coronavirus disease (COVID-19). Although the recent spread of COVID-19 continues, the financial market is showing signs of stability.
The Monetary Policy Committee of the Bank of Korea announced on the 28th, "The operation of the Financial Stability Special Loan Program will be terminated as scheduled on February 3, 2021."
The Financial Stability Special Loan Program is a system that provides loans secured by corporate bonds to 61 financial companies, including 39 banks, 15 securities firms, 6 insurance companies (with capital of 3 trillion won or more), and Korea Securities Finance Corporation.
Last year, as the spread of COVID-19 caused funding instability in the secondary financial sector such as securities firms, the Bank of Korea prepared this measure, which was considered exceptional. During the 1997 Asian financial crisis, the Bank of Korea supported secondary financial institutions through Korea Securities Finance Corporation and others. At that time, 3 trillion won was provided to support mutual savings banks through Korea Securities Finance Corporation (2 trillion won) and the Credit Management Fund (1 trillion won). Direct loans were first implemented after the COVID-19 outbreak.
The program was first implemented on May 4 last year, and its operation period was extended twice in three-month increments, but it will not be extended further this time.
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A Bank of Korea official stated, "Considering that the financial market has generally stabilized recently and the liquidity conditions of financial institutions such as securities firms are favorable, as well as the operation of the Special Purpose Vehicle (SPV) for purchasing corporate bonds and commercial paper (CP)," the decision was made. However, the official added, "Even though the operation of the Financial Stability Special Loan Program is terminated this time, if the financial market becomes unstable again in the future, the possibility of resuming this program will be considered."
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