Republic of Korea: Financial Sector Assessment Program-Detailed Assessment of Compliance on the Basel Core Principles for Effective Banking Supervision
IMF Staff Country Reports, October 14, 2014
Source details
- Canonical URL
- Republic of Korea: Financial Sector Assessment Program-Detailed Assessment of Compliance on the Basel Core Principles for Effective Banking Supervision
Other formats
Bibliographic details
- Published: October 14, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498330992.002
Summary and key findings
- The Republic of Korea has a moderate level of compliance with the Basel Core Principles for Effective Banking Supervision (BCP).
- Authorities have taken resolute steps to strengthen regulation and supervision since the 2003 FSAP recommendations.
- The assessment identified gaps that need addressing despite a strong—albeit overly complex—regulatory framework and thorough supervisory practices.
- Areas requiring attention:
- broader powers to apply minimum capital requirements to individual banks;
- full implementation of Pillar 2 and ICAAP;
- a more comprehensive approach to conglomerates.
- The application of Basel II to Financial Holding Companies (FHCs) would complement transition to group supervision initiated by the FHC Act.
- Overall vulnerability of the Korean banking system has diminished since the 2008 crisis with stronger capitalization across the sector.
Supervisory framework and practices
- Supervision is structured around:
- sound off-site supervision techniques; and
- onsite inspections.
- Strengths:
- sophisticated offsite monitoring capabilities; and
- an extensive onsite capability.
- The FSC-FSS collects and analyzes a broad suite of information including detailed financial and management information.
- The supervisory approach relies heavily on off-site monitoring and notifications of exceptions, supplemented by biannual full-scope on-site examinations.
- Challenges:
- multiple points of responsibility, where subject matter experts are responsible for different areas of surveillance, pose coordination challenges and hinder deriving an overall understanding of risk to an institution.
Context of the assessment and methodology
- The Republic of Korea is one of the first countries assessed under the revised Basel Core Principles (BCP) issued by the Basel Committee in September 2012.
- The Republic of Korea agreed to be assessed and rated on both essential and additional criteria under the new methodology.
- Since the last assessment in 2003, the bar of standards has been raised twice by the BCBS (the BCP methodology was revised in 2006 and again in 2012).
- Consequences of the revised methodology:
- this assessment is not comparable with the previous assessment; and
- more is expected of supervision and regulation; what was previously “desirable” may now be considered essential.
- The assessment places new relevance on observed implementation and practices.
Subjects and keywords
- Subject: Bank soundness, Bank supervision, Banking, Capital adequacy requirements, Credit risk, Financial regulation and supervision, Financial sector policy and analysis, Internal controls, Market risk, Operational risk
- Keywords: Asia and Pacific, Bank soundness, Bank supervision, central bank, commercial bank, correspondent bank, CR, Credit risk, Global, ISCR, Market risk, Operational risk, risk management, risk profile, senior management