(LEAD) FSS chief voices regret over failure in timely responding to global tightening

All News 15:27 October 11, 2022

(ATTN: ADDS more remarks in last 5 paras, photo)

SEOUL, Oct. 11 (Yonhap) -- South Korea's financial regulator on Tuesday expressed regret over failure in taking timely action against rising household debt amid global monetary tightening that has led to a sharp rise in borrowing costs.

"I share the disappointment that we had to make preparations for the possibility of quantitative tightening or interest rate trends in advance," Lee Bok-hyun, chief of the Financial Supervisory Service (FSS), told lawmakers during a parliamentary audit session.

He added that financial authorities had failed to recognize the urgent need to curtail household debt or change its composition for which he apologized.

Household debt has been emerging as a major risk factor for the local economy as borrowers are under a rising debt-servicing burden from fast-increasing interest rates amid global monetary tightening.

The Bank of Korea has hiked its policy rate seven times by a combined 2 percentage points since August last year to rein in inflation.

The central bank is widely expected to deliver another rate hike at a meeting Wednesday.

Asked about the possibility of a ban on stock short selling amid heightened market volatility, Lee said that all relevant agencies are ready to take "any market stabilization measures."

The FSS, the Financial Services Commission, another financial regulator, and the finance ministry are "in close communication" to respond to sharp market fluctuations, he added.

He noted that the FSS has been looking into "several" cases of illegal stock short selling and other related unfair business practices, adding the outcome of the probe will be shared sooner or later.

Short selling is a trading technique in which investors sell stocks they borrowed on expectations that share prices will fall. When the prices decline, they can make a profit by buying back the stocks at lower prices.

Supporters say short selling is necessary to increase liquidity but critics have called for banning the practice as it causes excessive market volatility.