The Financial Supervisory Service began checking domestic banks' foreign-currency liquidity to prepare for a rise in exchange rates amid instability in the Middle East.
The Financial Supervisory Service (FSS) said on Mar. 11 that it held a foreign-currency liquidity review meeting chaired by Vice Governor for Banks Gwak Beom-jun with deputy CEOs in charge of foreign-currency funding at major domestic banks.
The meeting was attended by the head of the FSS Foreign Exchange Supervision Department and deputy CEOs overseeing foreign-currency funding at eight major domestic banks. They reviewed the status of foreign-currency funding and operations at domestic banks and potential risk factors as exchange-rate volatility widens and financial-market uncertainty grows due to recent geopolitical tensions in the Middle East.
Participants agreed that, unlike during past financial crises, the domestic banking sector has largely established foreign-currency management systems and has the capacity to respond to market risk factors. However, they said that with external uncertainties such as the Middle East situation persisting, there is a need for thorough management to ensure banks' foreign-currency liquidity and soundness are not impaired.
Vice Governor Gwak said thorough preparation by banks, the key intermediaries of domestic foreign-currency funding, is needed amid heightened financial-market volatility. In particular, he asked that, in preparation for a prolonged Middle East situation, they review tools to secure foreign-currency liquidity and, if necessary, obtain it preemptively.
The Financial Supervisory Service (FSS) plans to intensively review domestic financial companies' foreign-currency liquidity management in preparation for geopolitical risks stemming from the Middle East. To that end, it will shorten the frequency of foreign-currency liquidity stress tests from quarterly to monthly to strengthen crisis response capabilities. It also plans to swiftly gather on-the-ground information on foreign-currency funding and operations through hotlines with domestic banks and to expand cooperation with relevant agencies.