Lee Chang-yong: "Discussion on SPV Restart if Necessary... Monetary Policy Preconditions Remain Unchanged"

Choo Kyung-ho and Lee Chang-yong's 'Emergency Macroeconomic and Financial Meeting'
Expanding Liquidity Supply Amid Legoland-Induced Funding Squeeze

Bank of Korea Governor Lee Chang-yong and Chief Economic Secretary Choi Sang-mok attended the 'Emergency Macroeconomic and Financial Meeting' held at the Bankers' Hall in Jung-gu, Seoul on the 23rd. After the meeting, they responded to questions from the press. Photo by Yoon Dong-joo doso7@/Photo by Yoon Dong-joo doso7@

Lee Chang-yong, Governor of the Bank of Korea, stated that to support liquidity in the tightened funding market, the Financial Monetary Policy Committee meeting scheduled for the 27th will consider including public institution bonds and bank bonds in the eligible collateral securities for loans.

He explained that the option of reactivating the Special Purpose Vehicle (SPV), which purchases corporate bonds and commercial papers (CP), to supply liquidity to the market will be discussed later if necessary.

Governor Lee made these remarks during a Q&A session with reporters after an emergency macroeconomic and financial meeting held on the 23rd at the Seoul Banking Hall. The meeting was attended by Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, Financial Services Commission Chairman Kim Ju-hyun, Financial Supervisory Service Governor Lee Bok-hyun, and Presidential Office Economic Secretary Choi Sang-mok.

Governor Lee said, "The Bank of Korea will discuss this week at the Monetary Policy Committee the plan to include bank bonds and public institution bonds, in addition to government bonds, as eligible collateral securities."

Currently, banks provide only government bonds, Monetary Stabilization Bonds, and government-guaranteed bonds as collateral (eligible collateral securities) when borrowing from the Bank of Korea. If bank bonds are included in the eligible collateral securities, banks can use the bank bonds they already hold as loan collateral, thereby easing funding pressure.

Previously, during the COVID-19 outbreak in March 2020, the Bank of Korea recognized bank bonds as eligible collateral securities but ended this temporary measure at the end of March last year.

When asked whether including public institution bonds and bank bonds in the eligible collateral securities would contribute to market stability, Governor Lee replied, "The effects of expanding the eligible collateral securities will be discussed in detail at this week's Monetary Policy Committee meeting. It is not appropriate to comment on this here."

Governor Lee showed some caution regarding the reactivation of the SPV or the special financial stability loan.

He said, "Other measures such as the SPV were excluded from this current plan, but if it is deemed necessary after comprehensively reviewing the impact of this plan on the market and the volatility of international financial markets, it can be discussed again at the Monetary Policy Committee."

The special financial stability loan system requested by securities firms involves the Bank of Korea providing loans secured by high-quality corporate bonds (AA- or higher) from general companies or financial firms such as securities companies, insurance companies, and banks, which can resolve liquidity shortages in emergencies.

Governor Lee explained that despite the recent tightening in the funding market, the monetary policy stance has not changed.

He said, "The market measures announced today are micro-level actions addressing the heightened credit concerns centered on the asset-backed commercial paper (ABCP) market. I do not believe that the operation of monetary policy from a macro perspective has changed or that its preconditions have been altered."

This is interpreted as meaning that while measures to alleviate funding and credit tightening in the corporate bond and CP markets will continue, the monetary policy stance focused on interest rate hikes to reduce inflationary pressures will be maintained.

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