2017年-FSB全球金融稳定委员会_Peer_Review_of_Korea_71页_1mb

Summary of the Peer Review of Korea

Core Content

The Peer Review of Korea conducted by the Financial Stability Board (FSB) in 2017 focused on two key areas: crisis management and resolution and the regulation and supervision of non-bank depository institutions (NBDIs). The review aimed to assess the progress of Korea in implementing reforms aligned with FSB standards and to identify areas for further improvement.

The report is based on responses to a questionnaire from Korean financial authorities and includes discussions from the FSB's Standing Committee on Standards Implementation (SCSI). It highlights both achievements and ongoing challenges in Korea's financial sector governance.

Main Findings

Crisis Management and Resolution

• Progress Made: Korea has made good progress in strengthening its resolution framework, incorporating several elements from the FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions (KAs).
• Reforms Underway: A pilot Recovery and Resolution Planning (RRP) exercise has been initiated, and reforms are planned to introduce a statutory bail-in power and a temporary stay on early termination rights.
• Need for Improvement:
  • The resolution framework should be further aligned with the KAs, particularly by implementing early resolution triggers that allow the use of all resolution tools, not just capital injections.
  • The decision-making process should be reviewed and strengthened to enable early entry into resolution.
  • A requirement should be introduced for the Korea Deposit Insurance Corporation (KDIC) to recover the costs of any temporary public funding used during resolution from shareholders, unsecured creditors, or the financial system.

Crisis Preparedness

• Coordination: There is no dedicated forum for crisis preparedness coordination, though some cooperation occurs through the Macroeconomic Finance Meeting (MEFM) and the Emergency Operation Office (EOO).
• Recommendation: A dedicated forum should be established to improve coordination and early detection of troubled institutions.
• Testing: Authorities should conduct periodic crisis simulations to test the robustness of resolution plans and tools, especially for systemic banks.

Regulation and Supervision of NBDIs

Overview of NBDI Sector

• Main Institutions: Mutual Savings Banks (MSBs) and Mutual Credit Cooperatives (MCCs) are the main types of NBDIs in Korea.
• Sector Size: As of end-2016, NBDIs accounted for 13% of financial system assets (equivalent to 43% of GDP) and 30% of total deposits.
• Regulatory Bodies:
  • FSC (Financial Services Commission) and FSS (Financial Supervisory Service) regulate and supervise MSBs and most MCCs.
  • MoIS (Ministry of the Interior and Safety) regulates Community Credit Cooperatives (CCCs).

Regulatory Alignment

• Alignment with Banks: Prudential standards for MSBs and MCCs have been largely aligned with banks, including asset classification norms, loan-to-value (LTV) and debt-to-income (DTI) limits, and loan loss provisioning rules.
• Capital Requirements: Starting in 2018, MSBs with assets over KRW 1 trillion will be subject to an 8% capital requirement, while the remaining 64 MSBs (accounting for 45% of total MSB assets) will remain under 7%.
• Ownership Limits: Currently, MSBs can be wholly owned by a single shareholder, which differs from the 10% limit for banks. This raises concerns about corporate governance and should be reconsidered.
• Liquidity Standards: The current basic liquidity ratio requirement does not accurately reflect asset-liability mismatches and liquidity transformation. A more robust asset-liability management (ALM) system should be introduced for larger MCCs.

Supervision of MCCs

• Supervisory Imbalance: The FSS allocates similar numbers of examiners to the MCC sector (excluding CCCs) as it does to the MSB sector, despite the MCC sector being significantly larger in terms of assets and deposits.
• Need for Resources: The FSS should increase its focus and resources on the MCC sector to ensure consistent and effective supervision.
• Federations’ Role: National MCC federations play a crucial role in examinations, liquidity management, handling financial difficulties, and deposit insurance. However, their supervisory practices vary due to different laws and regulations.
• Corporate Governance: The FSC/FSS should consider enhancing corporate governance rules for federations to manage conflicts of interest, including:
  • Fit-and-proper requirements for federation directors.
  • Firewalls between financial activities and public policy functions.
  • Annual onsite examinations of federations to assess governance arrangements.

Deposit Insurance

• Coverage: Deposits with banks, MSBs, and merchant banks are covered by the KDIC, while MCC deposits are covered by federation-run schemes.
• Coverage Ratio: MCCs have a much higher deposit coverage ratio (80%-98%) compared to banks (around 30%), due to their retail clientele and small deposit sizes.
• IADI Compliance: The private deposit insurance schemes of federations should be assessed against the IADI Core Principles, particularly regarding operational independence and transparency.
• Public Information: There is a lack of publicly available information on the operations of these schemes, which could hinder transparency and accountability.

Recommendations

• Implement resolution reforms to fully align with the KAs.
• Establish a dedicated forum for crisis preparedness coordination.
• Conduct systemic bank resolution simulations.
• Enhance supervisory capacity for the MCC sector.
• Introduce annual onsite examinations for federations.
• Review and align capital requirements across MCC types.
• Improve corporate governance for federations to manage conflicts of interest.
• Assess MCC deposit insurance schemes against IADI standards.

Conclusion

The peer review of Korea highlights significant progress in crisis management and resolution and NBDI regulation, but also identifies key areas for improvement, particularly in supervisory consistency, resolution readiness, and deposit insurance frameworks. Strengthening these areas will be essential for enhancing financial stability and systemic risk management in Korea.