The government is reviewing a plan to defer supervisory measures that were scheduled to be carried out against financial companies that failed the "foreign-currency liquidity stress test," according to reports on the 3rd. The move is meant to respond to the recent strong-dollar, weak-won exchange rate. The idea is that easing the burden on financial companies to hold dollars above a certain level would release dollars into the market and help lower the exchange rate.
The foreign-currency liquidity stress test evaluates whether a financial company can withstand a crisis scenario in which foreign-currency funding rapidly flows out. A company passes only if, one month and three months after the crisis begins, it can maintain a state where foreign-currency inflows exceed outflows. Currently, all commercial banks, 18 securities firms, and 10 insurers are subject to the stress test.
The stress test was tightened in June last year. It established that supervisory measures, such as requiring financial companies that fail to submit liquidity-boosting plans, would be taken. These supervisory measures were set to be implemented based on the results of the third-quarter foreign-currency liquidity stress test conducted at the end of September. But with the recent strong-dollar exchange-rate environment, the government began reviewing a plan to defer implementation of the supervisory measures.
A market official said, "If a financial company that fails the stress test does not receive supervisory measures, it effectively frees the company from the obligation to hold dollars above a certain level," adding, "If that happens, dollars will be released into the market, and we can expect an effect of lowering the exchange rate."
Another market official said, "As far as I know, there are no financial institutions that have yet failed to pass the tightened stress test."