Bank of Korea and Financial Supervisory Service Inspect Domestic Banks' Soundness... Also Estimate Overseas Losses

[Image source=Yonhap News]

The Bank of Korea and the Financial Supervisory Service announced on the 24th that they have decided to participate in the 'Global Stress Test (GST)' jointly conducted by member countries under the supervision of international supervisory organizations starting this month.

GST is a system that measures changes in the capital ratios of banks by country under crisis scenarios and the contagion effects between countries based on unified standards, and compares and evaluates the results.

It is supervised by the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB).

The Bank of Korea and the Financial Supervisory Service, both BCBS members, have agreed to cooperate in assessing the soundness of domestic banks according to international supervisory standards and plan to jointly conduct the stress test.

In this GST, losses on overseas exposures held by domestic financial companies will be estimated, and the contagion effects of insolvency among financial companies will be analyzed by extending to overseas financial companies.

GST is the first attempt for central banks and supervisory authorities worldwide to compare and analyze the soundness of their domestic banks under common crisis scenarios.

It enables sophisticated financial stability assessments by identifying potential risk factors through comparison of the soundness of domestic banks with foreign banks and understanding contagion effects caused by global interconnectedness.

The Bank of Korea explained, "We plan to use the comparative evaluation of GST results as an opportunity to advance stress test models and improve financial stability assessment methods."

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