ID :
204369
Tue, 08/30/2011 - 14:06
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https://oananews.org//node/204369
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BOK head urges swift passage of central bank bill
SEOUL, Aug. 30 (Yonhap) -- South Korea's parliament should lose no time in passing an amendment to the central bank law to help widen its role in coping with financial instability and conducting macro-prudential policy, the top central banker said Tuesday.
A bill to empower the Bank of Korea (BOK) to maintain financial stability as its policy priority, along with price stability, has been pending in parliamentary extra sessions, which will end on Wednesday, raising the likelihood that the bill will never be voted on.
The National Assembly's regular sessions will open in September, but the revision bill is widely expected to take a back seat ahead of next year's presidential and parliamentary elections.
In a meeting with reporters, BOK Gov. Kim Choong-soo rebutted arguments against the bill passage, claiming that the law should be revised to strengthen the BOK's role in stabilizing the financial system.
"The financial watchdog inspects each financial firm, but in terms of macro-prudential policies, the central bank should play a role in setting those policies," Kim said.
The amendment has been drifting for more than a year in the National Assembly amid sharply divided opinions among stakeholders. The regulator and local banks have been opposing the revision, claiming that the move will decentralize the watchdog's regulatory rights, thereby increasing burdens on financial firms due to potential frequent inspections.
The law regulating the BOK's activities was last revised in 1998, making price stability the central bank's top priority while its authority to supervise local banks was transferred to the Financial Supervisory Service (FSS), the financial regulator.
But the global financial crisis and recent scandals over ailing savings banks have lent support to revising the BOK law so as to strengthen its role in stabilizing financial markets.
The bill, if passed, would legally guarantee the BOK's right to request the FSS to jointly inspect financial firms. If the BOK requests a joint probe, the FSS would be required to launch an investigation within one month.
The central bank could also demand the financial watchdog share information on non-bank institutions like savings banks.
"A joint probe would increase burdens on local banks to some degree, but it is necessary to prevent another financial crisis," Kim said.
Meanwhile, the governor also claimed that it is fair to say that requiring lenders to park cash reserves for bank bonds is a global trend and such a move would not dent local banks' competitiveness.
Currently, Korean banks are required to set aside a certain amount of customer deposits in cash at the central bank. If the bill is passed, lenders would be required to put aside cash reserves for their bank bonds. Local banks are opposed to such a move as it will likely hurt their profitability.
South Korean banks had sold a huge volume of bonds over the past few years ahead of the 2008 global financial crisis in a bid to secure cash to finance excessive lending. But heavy sales of bank bonds contributed to bringing about a funding squeeze when the financial crisis cropped up.
"In 2004-2005, the weight of financial bonds accounted for a paltry 4 to 5 percent (of banks' funding sources). But it sharply rose to 19 percent right before the global financial turmoil. We cannot neglect problems stemming from excessive liquidity," Kim said.
The BOK said in times of normalcy, the required reserve ratio will be zero for bank bonds, but when signs of financial problems appear, lenders will be required to put aside reserves for bank bonds.
A bill to empower the Bank of Korea (BOK) to maintain financial stability as its policy priority, along with price stability, has been pending in parliamentary extra sessions, which will end on Wednesday, raising the likelihood that the bill will never be voted on.
The National Assembly's regular sessions will open in September, but the revision bill is widely expected to take a back seat ahead of next year's presidential and parliamentary elections.
In a meeting with reporters, BOK Gov. Kim Choong-soo rebutted arguments against the bill passage, claiming that the law should be revised to strengthen the BOK's role in stabilizing the financial system.
"The financial watchdog inspects each financial firm, but in terms of macro-prudential policies, the central bank should play a role in setting those policies," Kim said.
The amendment has been drifting for more than a year in the National Assembly amid sharply divided opinions among stakeholders. The regulator and local banks have been opposing the revision, claiming that the move will decentralize the watchdog's regulatory rights, thereby increasing burdens on financial firms due to potential frequent inspections.
The law regulating the BOK's activities was last revised in 1998, making price stability the central bank's top priority while its authority to supervise local banks was transferred to the Financial Supervisory Service (FSS), the financial regulator.
But the global financial crisis and recent scandals over ailing savings banks have lent support to revising the BOK law so as to strengthen its role in stabilizing financial markets.
The bill, if passed, would legally guarantee the BOK's right to request the FSS to jointly inspect financial firms. If the BOK requests a joint probe, the FSS would be required to launch an investigation within one month.
The central bank could also demand the financial watchdog share information on non-bank institutions like savings banks.
"A joint probe would increase burdens on local banks to some degree, but it is necessary to prevent another financial crisis," Kim said.
Meanwhile, the governor also claimed that it is fair to say that requiring lenders to park cash reserves for bank bonds is a global trend and such a move would not dent local banks' competitiveness.
Currently, Korean banks are required to set aside a certain amount of customer deposits in cash at the central bank. If the bill is passed, lenders would be required to put aside cash reserves for their bank bonds. Local banks are opposed to such a move as it will likely hurt their profitability.
South Korean banks had sold a huge volume of bonds over the past few years ahead of the 2008 global financial crisis in a bid to secure cash to finance excessive lending. But heavy sales of bank bonds contributed to bringing about a funding squeeze when the financial crisis cropped up.
"In 2004-2005, the weight of financial bonds accounted for a paltry 4 to 5 percent (of banks' funding sources). But it sharply rose to 19 percent right before the global financial turmoil. We cannot neglect problems stemming from excessive liquidity," Kim said.
The BOK said in times of normalcy, the required reserve ratio will be zero for bank bonds, but when signs of financial problems appear, lenders will be required to put aside reserves for bank bonds.
