[2020 National Audit] Lee Ju-yeol "BOK Needs Loss Minimization Mechanism for Direct Corporate Bond Purchases"

October 16 National Assembly Planning and Finance Committee 'Bank of Korea National Audit'

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Lee Ju-yeol, Governor of the Bank of Korea, stated that regarding the establishment plan of the 'SPV (Special Purpose Vehicle for purchasing low-credit corporate bonds and CPs)' where the central bank directly purchases corporate bonds, "there need to be several measures and principles such as the government's role to minimize losses and prior discussions with the National Assembly."

Governor Lee made this remark on the 16th during the National Assembly's Planning and Finance Committee audit when asked by Jo Hae-jin, a member of the People Power Party, about the SPV establishment.

Rep. Jo said, "Regarding the amendment of the Bank of Korea Act, there is concern that if the Bank of Korea directly purchases corporate bonds, the principle and trust that 'the central bank does not incur losses' might be damaged," adding, "If trust is damaged, a crisis could arise in all areas including financial market control."

Governor Lee emphasized, "The amendment of the Bank of Korea Act will be decided by the National Assembly, but even if it is amended, there must be several principles."

He added, "Various measures must be in place, and since the Bank of Korea is currently operating within the legal framework and observing the effects of the SPV, it is not too late to proceed with the amendment of the law."

Meanwhile, the current SPV is operated in a way that the Korea Development Bank establishes it, and the Bank of Korea supports the corporate bond purchase funds after the Monetary Policy Committee's resolution.