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The Korean Financial System: Overcoming the Global Financial Crisis and Addressing Remaining Problems

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  • Masahiko Tsutsumi
  • Randall S. Jones
  • Thomas F. Cargill
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    Abstract

    The intensification of the global financial crisis in late 2008 led to large capital outflows from Korea and turmoil in its capital markets. However, the prompt response by the government and the central bank stabilised Korea’s financial sector in early 2009 and recovery followed relatively quickly. In contrast to 1997, financial institutions have overcome the crisis without significant damage. Increased assistance for small and medium-sized enterprises has played a large role in overcoming the crisis, but should be scaled back to avoid supporting non-viable firms and to expand banks’ capacity for risk appraisal, leading to a more market-oriented financial system. As a small open economy, Korea also needs to reduce its vulnerability to sudden capital outflows. In addition, it is important to use prudential regulations effectively to limit the risk of mortgage lending, upgrade the corporate governance of financial institutions and develop securitisation by ensuring transparency. Le système financier coréen : Surmonter la crise financière mondiale et régler les problèmes qui subsistent L’intensification de la crise financière mondiale à la fin de 2008 s’est traduite par d’amples sorties de capitaux et de fortes turbulences sur les marchés financiers coréens. Mais la prompte réponse du gouvernement et de la banque centrale a stabilisé le secteur financier coréen au début de 2009 et la reprise s’est engagée assez rapidement. Contrairement à ce qui s’était passé en 1997, les institutions financières ont surmonté la crise sans sévères dommages. Les aides renforcées aux petites et moyennes entreprises ont joué un grand rôle pour surmonter la crise, mais il faudrait les éliminer afin de ne pas soutenir des entreprises non viables et de faire en sorte que les banques développent leurs capacités d’évaluation des risques ; le système financier reposerait ainsi davantage sur les mécanismes du marché. Petite économie ouverte, la Corée doit aussi prendre des mesures pour être moins sensible à de soudaines sorties de capitaux. Il faut en outre utiliser efficacement la réglementation prudentielle en vue de limiter les risques liés aux prêts hypothécaires, améliorer le gouvernement d’entreprise des institutions financières et développer la titrisation dans la transparence.

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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 796.

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    Date of creation: 28 Jul 2010
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    Handle: RePEc:oec:ecoaaa:796-en

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    Keywords: small and medium-sized enterprises; securitisation; capital injections; credit rating agencies; housing prices; LTV; DTI; foreign exchange reserves; Basel II; Korean financial sector; Bank of Korea; KAMCO; capital markets; bank; global financial crisis; short-term foreign debt; capital adequacy rules; FSS; FSC; LTV; DTI; petites et moyennes entreprises; injections de capitaux; agences de notation financières; KAMCO; prix de l'immobilier d'habitation; FSS; Banque de Corée; Bâle II; Secteur financier coréen; FSC; crise financière mondiale; règles relatives aux fonds propres; titrisation; banque; marchés de capitaux;

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    Cited by:
    1. Nerina Reyna & Carlos F. Suárez Dóriga & Matías Vicens, 2011. "Monetary Policy of Main Central Banks During the 2007-2011 Crisis," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(61-62), pages 189-249, January -.

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