Forecast 'Financial Risk View'... "Reform of Daemabulsa, Reduction of Moral Hazard in Financial Companies" Research Also

[Asia Economy Reporter Song Seung-seop] A study has found that the Too Big to Fail reform reduces moral hazard among large financial institutions, thereby lowering the likelihood of financial crises.

On the 28th, in the "Too Big to Fail Reform Evaluation Report" published in Volume 18, Issue 1 of the "Financial Risk Review" by the Korea Deposit Insurance Corporation (KDIC), senior investigator Cho Hyun-seok of KDIC mentioned, "Regulations for further implementation of the domestic Too Big to Fail reform should be considered in the medium to long term."

Too Big to Fail refers to the logic that extremely large corporations and financial institutions have such significant negative spillover effects in the event of bankruptcy that the government and the state have no choice but to bail them out. It is considered one of the main causes of moral hazard, where large financial institutions engage in risky operations without concern for soundness.

The evaluation report analyzed the achievements and impacts of the Too Big to Fail reform, which includes strengthened capital regulations, enhanced supervision, and resolution system reforms aimed at preventing moral hazard among large financial institutions since the 2008 global financial crisis. Empirical analysis showed that these measures reduce risk-taking behavior by large financial companies, thereby decreasing the likelihood and cost of financial crises.

This Risk Review released by KDIC contains expert analyses and risk information on current financial market issues. It also includes content related to industry topics such as sustainable finance, digital innovation, and central bank digital currency issuance.

Im Hyung-seok, senior research fellow at the Korea Institute of Finance, emphasized in "The Impact and Implications of the Spread of Sustainable Finance on the Financial Industry" that legal infrastructure and arrangements must be established for sustainable finance to thrive. He explained that systematic standards for economic activities subject to green finance (green taxonomy) need to be developed.

There was also a proposal that comprehensive preparedness is necessary for digital transformation (DT). Cho Young-seo, head of KB Management Research Institute, advised in "Digital Transformation of Finance," "We must promote the digitalization of existing business models and the establishment of disruptive innovative business models," adding, "Overall organizational readiness in technology, talent, organization, and culture is required."

In risk analysis, senior investigator Gong Eun-jung of KDIC stated, "Personal business loans from savings banks have relatively high borrower credit risk and are concentrated in economically sensitive industries and real estate-secured loans," and noted, "If the economic downturn prolongs due to the ongoing COVID-19 pandemic, there is a possibility of defaults caused by declining collateral values and deteriorating borrower repayment capacity."

This content was produced with the assistance of AI translation services.