South Korea warns of further market instability following U.S. banking crisis

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho [Photo by Yonhap]

South Korea warned about the possibility of further instability in the global financial market following the latest banking crisis sparked by the failure in the U.S.

“We cannot rule out the possibility of further instability in the global financial market following the recent crisis facing smaller U.S. banks, as the global economy is adapting to a new environment of aggressive monetary tightening following a long period of low interest rates,” said Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho during an emergency meeting in Seoul on the macroeconomic situation Thursday. “We will keep a high level of vigilance and closely monitor the situation.”

The government and the Bank of Korea will maintain a round-the-clock market monitoring system on a real-time basis and will closely check the financial soundness of the country’s financial system and related companies, Choo said, vowing to “implement market stabilization measures swiftly if needed.”

Choo also vowed to make sure that related government agencies will thoroughly manage potential risks in financially vulnerable sectors, such as marginal companies, vulnerable real estate businesses, and multiple debtors, to prevent these risks from materializing in tandem with market instability.

Furthermore, Choo pointed out that the financial sector itself needs to enhance its ability to absorb losses by accumulating sufficient reserves and promoting capital expansion in preparation for uncertainties.

Choo also noted that the U.S. Federal Reserve raised its key interest rate by a quarter percentage point Wednesday, prompting government bond yields and stocks to fall in the international financial market early in the morning, as expectations for a change in the Fed’s policy stance weakened.

Regarding the global financial instability triggered by the collapse of U.S. Silicon Valley Bank, Choo said that the situation is being contained by each country’s quick response.

“Our financial market remains generally stable,” Choo said. “The stock market has recovered to the level before the incident and the volatility in the foreign exchange market has also eased, with the exchange rate fluctuating at around 1,300 won. The corporate bond and short-term financial markets are also maintaining a stable trend.”

Choo said the stability in Korea’s financial market is because Korean investments in overseas financial institutions aren’t big and that the financial health and liquidity situation of Korea’s financial companies are good.