Financial Services Commission's Financial Market Issues Review and Communication Meeting on the 23rd
Financial market stabilization measures worth 37 trillion won, which have been in operation since last year, will be extended until the end of next year. Financial regulatory easing measures, including the loan-to-deposit ratio, will also be maintained until the first half of next year.
The Financial Services Commission (FSC) announced on the 23rd that it held a financial market issue review and communication meeting, checked the bond and short-term money market conditions, and made this decision.
The FSC stated, "As the financial market has stabilized this year, the demand for the use of market stabilization programs has significantly decreased compared to last year," but added, "Considering that uncertainty may continue next year, programs whose operation period is about to end will be extended by one year."
The bond and short-term market stabilization measures consist of a bond market stabilization fund of up to 20 trillion won and a corporate bond and commercial paper (CP) purchase program worth 10 trillion won. According to the FSC's decision, these programs will be extended and operated until the end of next year.
The securities company project financing (PF) - asset-backed commercial paper (ABCP) purchase program worth 1.8 trillion won will be extended until the end of February 2025.
The market stabilization primary collateralized bond obligation (P-CBO) program worth 5.7 trillion won, scheduled to operate until the end of next year, will also be maintained as planned.
The FSC also decided to extend the financial regulatory easing measures that are set to expire at the end of this year.
The easing of the liquidity coverage ratio (LCR) regulation for banks (from 100% to 95%), the easing of the loan-to-deposit ratio regulation for savings banks (from 100% to 110%), and the easing of the liquidity ratio regulation for credit finance companies in Korean won (from 100% to 90%) will be extended until June next year.
The deferral of the reduction in the proportion of credit finance company bonds included in hedge assets for equity-linked securities (ELS) applied to financial investment companies (from 12% to 8%) and the application of a 32% risk weight on net capital ratio (NCR) for self-guaranteed PF-ABCP purchases will also be maintained until the first half of next year.
The FSC explained, "As the overall interest rate level rises, corporate cost burdens increase, and market participants' caution regarding credit risk remains high, the spread between high-quality and low-quality bonds has widened. For vulnerable industries, market accessibility has deteriorated, and difficult market conditions for corporate financing have persisted since the second half of the year."
It added, "Although expectations for a monetary policy shift and interest rate cuts have recently increased, since high interest rates may continue for a considerable period next year, it is necessary to maintain a policy stance focused on market stability."
Kim So-young, Vice Chairman of the FSC, said, "Conditions for a monetary policy shift are being established as inflation in the US and Europe slows, but central banks in each country are likely to maintain a tightening stance for a considerable period," and evaluated, "Excessive expectations for interest rate cuts can be risky."
She continued, "As high interest rates persist for a considerable period, this year may require economic agents to build resilience to withstand high interest rates," and urged, "Households and companies should accumulate sufficient resilience to prepare for high interest rates."
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