FSS Checks Foreign Currency Liquidity Amid Middle East Crisis: "Banks to Take Preemptive Action"

As tensions continue in the Middle East and financial market uncertainty grows-reflected in factors such as rising exchange rates-the Financial Supervisory Service (FSS) has moved to inspect foreign currency liquidity at banks.

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On March 11, the FSS announced that Deputy Governor for Banking Affairs, Kwak Beomjun, convened a foreign currency liquidity review meeting with vice presidents in charge of foreign currency funds from eight major domestic banks. The meeting was held to examine recent trends in the foreign exchange and foreign currency funding markets in light of the situation in the Middle East.

This meeting was arranged to identify on-the-ground trends in foreign currency funding and potential risk factors as perceived by banks.

The attending vice presidents expressed the view that, compared to the 2008 global financial crisis, domestic banks' foreign currency liquidity and foreign exchange position management systems have improved significantly, and that they are equipped to respond to temporary instability factors.

According to the results of a foreign currency liquidity stress test conducted at the end of last year on 17 domestic banks, it was found that even under scenarios more severe than the 2008 global financial crisis, banks would still meet foreign currency liquidity regulations.

However, the participants noted that uncertainty related to the Middle East remains high, and stated that they would exercise particular caution to ensure that foreign currency liquidity and soundness are not compromised.

Deputy Governor Kwak emphasized, "As banks are the key intermediaries for supplying foreign currency funds in the domestic market, they must be thoroughly prepared for increased market volatility," and instructed, "Re-examine contingency response plans in preparation for the prolonged uncertainty in the Middle East."

He also urged banks to review their means of securing foreign currency liquidity-such as immediately operable committed lines-and, if necessary, to proactively secure foreign currency funds according to each bank's situation.

Going forward, the FSS plans to strengthen management and supervision to ensure that domestic financial institutions maintain sufficient foreign currency liquidity to respond to geopolitical risks stemming from the Middle East.

To this end, the frequency of foreign currency liquidity stress tests will be shortened from quarterly to monthly, and foreign currency funding and management situations will be monitored in real time through a hotline with banks.

The FSS will actively cooperate with relevant agencies to monitor trends in the foreign currency funding market and will consider response measures as necessary.

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