Foreign bank branches in Korea have gradually gained importance, increasing their share of the total assets of the Korean banking industry from 6.3 percent in 2000 to 14.2 percent in 2009. But recently, both their growth and profitability have been stagnant. The likelihood of either closures or asset sales is increasing, especially with the rapidly deteriorating performance of US and European bank branches. Thus, monitoring the repatriation of funds from Korea to the foreign banks’ headquarters should be strengthened, while the Bank of Korea and Financial Supervisory Committee should put in place a plan to handle potential large-scale capital outflows. Read more
Bruegel blog
-
The state of foreign bank branches in Korea
16th May 2012
-
G20: Decreasing returns
16th May 2012
Macroeconomic coordination, the hallmark of the first few G20 summits, went through three successive phases. The first phase, from Washington to Pittsburgh, focused on stimulating the global economy across the board. The second phase, from Toronto to Cannes, shifted towards a more complex set of objectives, with the aim of avoiding a resurgence of global imbalances. The third phase, from Cannes onwards, put the focus on the European crisis. The initial achievement was major. But the story is one of diminishing returns. The effectiveness of the G20 in macroeconomic coordination declined from one phase to the next. Read more
-
Effects of IFRS on Korean banks, and future prospects
11th May 2012
Korean firms’ business activities, such as risk management and foreign investment, have been affected by the obligation since 2011 to adopt International Financial Reporting Standards (IFRS). Korean banks may need to reshape their credit-rating models and enhance their loan-collection systems to prepare for further changes in loan-loss accounting. In addition, the financial authorities must provide adequate guidelines to minimise discretionary accounting and organise regulatory acts in order to prevent false disclosure. Korea’s accounting standards, and the quality of financial information, have improved since the adoption of IFRS in 2011, but comparability between financial statements has declined. IFRS was first adopted for listed companies in EU member countries in 2005. Since then, it has expanded rapidly across the globe, leading Korea… Read more
-
Move the financial stability board’s secretariat to Asia
8th May 2012
On the face of it, the financial crisis of 2007-08 has helped rebalance global financial governance, partially correcting the prior under-representation of emerging economies and particularly of Asia. From November 2008 to April 2009, the G7/G8 was superseded by the G20, the Financial Stability Board (FSB) was empowered and enlarged to include major non-Western economies, and discussions began on reconfiguring the governance of the International Monetary Fund and World Bank. The Basel Committee on Bank Supervision was also adjusted to broaden its membership. Much remains to be done to enable Asians to feel a genuine sense of ownership, however. Membership may have been broadened, but these institutions, which were generally created by Westerners for Westerners, remain predominantly run by Westerners… Read more
-
Prospects for the yen carry trade
2nd February 2012
Certain carry trade strategies could contribute to financial market volatility and should thus be monitored by institutions responsible for financial stability. The volume of open carry trade positions also carries information about the risk appetite of investors. This contribution assesses the prospects for the Japanese yen carry trade on currency markets.‘Carry trade’ refers to a risky financial position in which an investor borrows in a low-yield instrument and invests in a high-yield instrument, or engages in a transaction similar to this. A bank borrowing from a central bank and lending these funds to its customers at a higher interest rate, or purchasing higher-yielding securities, is also a kind of carry trade. If customers repay and the securities do not default,… Read more
-
Development of the mobile payments market in Korea
2nd February 2012
Figure 1: Use of mobile banking in KoreaSource: Bank of Korea. Improved mobile communications, and links to credit card providers, along with the smartphone boom, has encouraged growth in Korea's domestic mobile payments market. In February 2010, SK Telecom secured a 49 percent share of the Hana SK Card to become the first limited partnership offering a form of 'communication-card'. Then, in June 2011, KT Capital acquired 38.86 percent of BC Card, becoming the largest shareholder. As of March 2011, the number of smartphone subscribers in Korea had already exceeded 10 million, while the use of mobile banking has expanded strongly since late 2009. Recently, NFC (Near Field Communication) technology has been added to USIM (Universal Subscriber Identity Module) cards.… Read more
-
Global financial authorities must adapt to a changed world
1st February 2012
The first G20 summits in 2008 and 2009 were dedicated to overhauling global financial regulation, empowering international financial authorities and combating the economic downturn. Since then, progress has been uneven and priorities have shifted. The 2011 summit in Cannes was dominated by discussion of the policy chaos in Europe; financial regulatory matters were little more than an afterthought. The world still needs a functioning international financial regulatory framework, however, if the vision of a globally integrated financial system is to be sustained – and there would be huge economic costs if that vision were to be jettisoned. The crisis has demonstrated the perils of unregulated or poorly regulated financial activities. Coordination between different jurisdictions does not happen spontaneously, and the… Read more
-
Internationalisation of Asian Currencies and the International Monetary System
30th January 2012
The US dollar still accounts for more than 60 percent of foreign exchange reserves held worldwide, but history tells us that large macroeconomic changes are usually followed by important changes in the monetary system. Yet these changes are not mechanic and rarely abrupt. Eichengreen and Flandreau (2011) recently highlighted how the pound sterling was overtaken by the US dollar as the world leading currency in the interwar period and was eventually crowned as the central currency of the international monetary system after Bretton Woods. The collapse of the Bretton Woods system opened the possibility of a challenger to the dollar but the contenders have been moderately successful so far. The internationalisation of the Japanese yen in the early 1980s effectively… Read more
-
Weathering the storm: differences in crisis response in the EU and Korea
27th January 2012
There is a striking difference between the ways in which the EU and Korea responded to the crisis. While the initial shock was broadly similar after the collapse of Lehman Brothers in September 2008, Korea has recovered very quickly and output in 2011Q3 exceeded by almost 10 percent the pre-crisis level, but the EU’s output has not yet returned to pre-crisis values. What could explain this difference?Figure 1 shows quarterly developments in GDP and its main components in the EU27 and Korea. There are indeed striking differences. In the EU, the decline in GDP started a few quarters before the collapse of Lehman Brother and the fall accelerated up to 2009Q1, while in Korea there was a sudden drop in… Read more
-
Green financial innovation to boost private investment
27th December 2011
Decarbonising the economy is one of the key challenges of the twenty-first century. Due to the limited carbon-reduction potential of incumbent transport and energy technologies, a major shift in the way we produce and consume energy is needed to avert potentially disastrous climate change.This transition will only be possible through substantial upfront investment. It is unrealistic that these considerable sums will come only from the public sector. Pure public finance would imply a nationalisation of the energy sector; and public budgets are already over-stretched, even in times of relative stability.Private investment is crucial for the success of the post-carbon transition. However, private actors are reluctant to engage heavily in 'green projects' that are markedly different from their usual lines of… Read more