Lee Eogwon Orders Middle East-Driven Financial Sector Stress Test... Directs Review of 'Leveraged Investment' Risks

Kim Eogwon, Vice Chairman of the Financial Services Commission, has instructed the implementation of scenario-based stress tests to assess risk factors in financial markets and by industry sector, in preparation for increased uncertainty in the financial sector stemming from escalating instability in the Middle East. He especially emphasized the need to examine risks associated with leveraged investments, such as margin loans, and to take thorough measures to protect investors.

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On the morning of March 11, Kim held a "Financial Market Risk Assessment Meeting" with experts from the Financial Supervisory Service, Korea Capital Market Institute, credit rating agencies, and securities firms, where he issued these directives. The meeting was convened to examine the various channels through which the recent Middle East-driven increase in oil prices could impact the domestic financial sector, as well as to identify potential risk factors within the financial system.

Kim stressed, "It is essential to comprehensively analyze and review the impact and risk factors across financial markets, financial sectors, and industry groups," adding, "If uncertainty persists for an extended period, it is especially important to identify the 'weak links' within the financial market, such as vulnerable financial sectors or high-risk financial products, which may be the first to be shaken by external shocks."

He further noted the necessity of checking risk factors related to leveraged investments, such as margin loans, and strengthening investor protection measures in anticipation of heightened volatility in financial markets, including stock prices. In addition, he called for a reassessment of response plans by sector and scenario, and urged the proactive implementation of market stabilization measures optimized for the evolving financial environment.

The participants stated, "This external shock originating in the Middle East could accelerate capital concentration, thereby amplifying market volatility during external shocks, making it necessary to prepare accordingly." They also remarked, "Given the impact of supply shocks-such as the closure of the Strait of Hormuz and rising oil prices-on interest rates, inflation, and exchange rates, it is crucial to prepare thoroughly for these triple challenges affecting the financial sector."

An official from the Financial Services Commission stated, "We plan to continuously monitor financial market and industry risk factors, as well as response plans for each scenario." The official added, "To stabilize the bond and money markets, we are currently operating the '100 trillion won plus alpha market stabilization program' by purchasing corporate bonds and commercial paper (CP), and we are also preparing to promptly expand this program further depending on market conditions."

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