Banks urged to brace for fallout from 2 bank failures in U.S.

SEOUL, March 16 (Yonhap) -- South Korea's financial authorities called on local banks to ramp up efforts to prepare for possible crises amid the fallout from the collapses of two U.S. banks, officials said Thursday.

The call came after the recent failures of Silicon Valley Bank and Signature Bank, which sparked concerns over their impact on the global financial market and America's monetary tightening.

A day earlier, Seoul's financial regulators called a meeting of working-level bank officials on how to improve their financial soundness to absorb potential losses from crises.

"The impact of the U.S. banks on the South Korean financial market is limited but financial authorities will keep tabs on market conditions and do their level best to maintain financial stability," Kim So-young, vice head of the Financial Services Commission (FSC), was quoted as saying at the meeting.

Now is the time to raise financial institutions' soundness amid higher financial volatility and uncertainty, and there is a need to push for measures to expand their capital base and boost their ability to brace for losses, he added.

Possible measures under consideration include a move to bolster local banks' equity capital, which will help them cope with possible losses from financial crises.

According to the FSC, the average ratio of local banks' common equity to their total capital came to 12.26 percent as of September 2022, lower than 14.74 percent for the European Union, 15.65 percent for Britain and 12.37 percent for the U.S.

The FSC said it will also push to conduct stress-tests on banks and require them put aside more capital, depending on test results.

In addition, the current system for local banks' loan-loss reserves will be overhauled, which may include the introduction of special loss provisions, the regulator said.

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