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(LEAD) BOK closely monitoring impact of SVB collapse on financial markets, economy

All News 10:30 March 13, 2023

(ATTN: ADDS FSS's review in paras 7-8; UPDATES last para)

SEOUL, March 13 (Yonhap) -- The Bank of Korea (BOK) said Monday that it will closely monitor any impact of last week's collapse of a U.S. tech startup-focused lender on domestic financial market and economic conditions, though it dismissed worries that the issue could turn into a systemic risk.

On Friday, U.S. banking regulators shut down Silicon Valley Bank (SVB) and took control of its customer deposits in the largest failure of a U.S. bank since the 2008 financial crisis. It was followed by the collapse of another U.S. bank, Signature Bank.

The regulators have announced measures to protect depositors, a move aimed at stemming the possibility that those events could turn into a systemic risk for the overall banking system and financial institutions.

"At this time, the likelihood of SVB and Signature Bank closures spilling over into systemic risk across banks and other financial institutions is not determined to be significant." the BOK said in a release after holding a market review meeting presided over by Deputy Gov. Lee Seung-heon.

"However, depending on the impact of the incident on investor sentiment and the outcome of the U.S. CPI release (on March 14), volatility in global financial markets is likely to increase," it added. "The BOK will closely monitor the impact ... on price variables such as domestic interest rates, stock prices, and exchange rates, as well as capital inflows and outflows."

The BOK vowed to take "appropriate market stabilization measures if necessary."

After holding a separate market review meeting, the Financial Supervisory Service (FSS) assured that local banks have different asset-liability structures from those of SVB, saying that they are capable of tiding over "temporary shocks."

"Given that both banks and nonbank financial firms have asset-liability structures that differ from those of SVB, as well as fundamental differences, such as good capital and liquidity ratios and robust profitability, we found that domestic financial firms have considerable capacity to withstand temporary shocks," the FSS said in a press release.

Concerns still remain high that South Korea's financial markets could be hard-hit by the fallout from the failures of banks in the U.S. just as they did in the wake of the Lehman Brothers debacle in 2008.

South Korea's economy has also been faced with rising uncertainty, such as falling exports and the lagging impact of the BOK's aggressive inflation-fighting rate increases on growth going forward.

Last month, the BOK froze its policy rate for the first time in about a year amid concerns over an economic slowdown. Market watchers say that the central bank might find it harder to rev up borrowing costs in its next rate-setting meeting in April due to the latest incident in the U.S.

South Korea's stock markets got off to a weak start on Monday, with the benchmark KOSPI trading about 0.7 percent lower than the previous session's close as of 10:19 a.m. The local currency was gaining ground against the U.S. dollar despite expectations that risk aversion will intensify.

(LEAD) BOK closely monitoring impact of SVB collapse on financial markets, economy - 1


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