TOPIC 5: GLOBAL FINANCIAL TURBULENCE AND OTHER FACTORS AFFECTING DEPOSIT INSURANCE IN KOREA
Kim, as Korean deposit insurer’s head researcher, expressed confidence in his nation’s financial safety net after having weathered through the 1997 Asian Financial Crisis. He revealed that Korean financial institutions had an exposure of US$434 million, or 0.9 percent of total sub-prime investments linked to bankrupt Bear Sterns in July as well as an exposure of US$550 million, or 0.16 percent of total investments linked to the troubled US mortgage giants Fannie Mae and Freddie Mac. The Korean financial sector’s total sub-prime exposure appeared to be relatively low, he said, adding that JP Morgan’s acquisition of Bear Sterns and the Fed’s provision of emergency liquidity minimized the possibility of wider losses on Korean financial firms. But the Korean government has been swift in addressing any possible threat from the sub-prime crisis by setting up committees to monitor its economic and financial conditions and share information with the general public. To address concerns over the nation’s increased provided fund (PF) loans, Kim’s KDIC has requested the financial regulator to improve its PF loan system since 2006 by lifting the bank’s ratio of loan loss provision and placing a cap on the bank to lend less than 30 percent of each borrower’s total loan.CREDIT RISK MANAGEMENT KEY TO FINANCIAL SECTOR’S HEALTH
CDIC president Howard Wang (王南華) reiterated the importance of risk management on a regular basis by installing an early warning system to detect problematic financial firms or loans that may soon turn non-performing as early as possible so as to cut losses. For example, the Taipei deposit insurer’s early warning system computerizes bank operation data on a regular basis, which will also be reported to the financial regulator and the central bank for review. On a daily basis, CDIC further asks domestic financial institutions to update their latest finances and business operation through the Internet while deploying account officers to look into the data and analyze for so-called dynamic management. Any irregularities, a warning will be given, which prompts either the CDIC or the financial regulator to re-examine the banking sector’s or any given bank’s health and financial transparency. The CDIC has been authorized by the Financial Restructuring Fund to take over failed banks under its conservatorship. But before any bail-out, the insurer will take any necessary action to ensure the banking sector’s viability by either talking to bank managements, taking part in their board meetings or requesting the access to the minutes of their board meetings afterwards. Wang also urged financial institutions in the world to reinforce corporate governance and stay alert to potential risk, which will also end up boosting their own business credibility.
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