Start of Yeojeonchae Purchase and 1st Additional Capital Call... FSC Checks '50 Trillion Won + α Liquidity'

Financial Services Commission Holds Meeting to Review Financial Market Status

[Asia Economy Reporter Sim Nayoung] On the 4th, the Financial Services Commission held a meeting to review the current status of the financial market together with the Financial Supervisory Service, Financial Associations, and Policy Financial Institutions. They discussed domestic financial market trends following the 0.75 percentage point (p) increase in the U.S. Federal Open Market Committee (FOMC) benchmark interest rate, future risk factors, and the progress of the '50 trillion won + α liquidity support measures.'

At the meeting, they reviewed and discussed financial market trends focusing on the impact on the short-term funding market such as corporate bonds and commercial papers (CP) following the FOMC results, and shared the implementation status, future plans, and industry responses regarding the '50 trillion won + α liquidity support measures.'

The Financial Services Commission stated that the Bond Market Stabilization Fund has been purchasing CPs since last week, and this week it will start purchasing asset-backed securities (ABS) that are difficult for the market to absorb, operating flexibly according to market conditions. They also plan to complete the first additional capital call within this week. Korea Securities Finance Corporation has supplied 930 billion won to small and medium-sized securities firms through repurchase agreements (RP) and loans so far.

Industrial Bank of Korea and others have also expanded the scale of their corporate bond and CP purchase programs, and began purchasing CPs issued by securities firms from the 1st of this month. Going forward, the Bond Market Stabilization Fund, Korea Securities Finance Corporation, and Industrial Bank of Korea’s corporate bond and CP purchase programs will enhance their market response functions through more flexible and proactive operations.

At the meeting of the heads of the five major financial holding companies on the 1st, the financial sector announced a plan to provide 95 trillion won in funding support to stabilize the market and agreed to hold meetings every two weeks.

Currently, banks are working to stabilize the market by reducing the issuance volume of bank bonds and expanding liquidity support in the market. They are also continuously monitoring the effects of regulatory easing measures such as the temporary suspension of the Liquidity Coverage Ratio (LCR) regulatory ratio normalization and the relaxation of the loan-to-deposit ratio regulations.

The financial authorities have also taken measures to improve liquidity by continuously collecting opinions from the insurance sector. They expanded the scope of assets recognized under the liquidity ratio regulation (from assets maturing within 3 months to include immediately cashable assets such as bonds with maturities over 3 months that can be traded in active markets), and decided to temporarily relax the liquidity evaluation criteria for insurance companies (applying a one-grade upward adjustment to liquidity indicators in insurance company management evaluations).

The financial investment sector plans to start accepting purchase applications next week for the securities industry’s PF-ABCP purchase program announced on the 27th of last month. Nine comprehensive financial investment business operators will invest a total of 450 billion won to purchase ABCP guaranteed by small and medium-sized securities firms with an A2(-) rating or higher.

The financial authorities will support securities firms’ market stabilization efforts by ▲allowing securities firms to directly purchase ABCP they have guaranteed and apply risk weights, ▲temporarily suspending the application of adjusted liquidity ratios during management evaluations, and ▲postponing the regulation schedule on the proportion of asset-backed securities included in hedge assets for derivative-linked securities (from 2023, limited to 8% or less).

Kim Soyoung, Vice Chairman of the Financial Services Commission, urged, "Given the increased uncertainty that the recent U.S. FOMC results will have on domestic and international financial markets, please strengthen the cooperation system among financial authorities, the financial sector, and policy financial institutions and respond swiftly to stabilize the financial market." She also requested, "Closely monitor the PF ABCP market, which is acting as a source of instability in the short-term funding market, and seek support measures to stabilize it."

Attendees included the Vice Chairman, Standing Commissioners, and responsible directors of the Financial Services Commission; the Vice Governor, Deputy Vice Governor, and responsible directors of the Financial Supervisory Service; executives from the Korea Federation of Banks, Korea Financial Investment Association, Industrial Bank of Korea, Korea Development Bank, Korea Securities Finance Corporation, and the Korea Deposit Insurance Corporation.

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