Republic of Korea: Financial Sector Assessment Program-Technical Note-Macroprudential Policy Frameworks and Tools

IMF Staff Country Reports, September 18, 2020

Source details

Canonical URL: Republic of Korea: Financial Sector Assessment Program-Technical Note-Macroprudential Policy Frameworks and Tools

Past experience with financial crises places systemic risk oversight at the core of Korea’s approach to the financial system.
The Korean authorities have amassed over a decade of experience with macroprudential policies.
Authorities have established rigorous and sophisticated processes for risk monitoring and publish first-rate analysis.
Authorities have actively developed measures to mitigate risks to the financial system—notably from FX exposures, and from household indebtedness—as circumstances have changed.
The system has evolved to be highly complex, posing challenges for coordination, communication, and transparency; the macroprudential toolkit needs to be extended.
These areas (coordination, communication, transparency, and toolkit extension) should be the focus of efforts to strengthen the policy framework.

Strengths:
- Over a decade of practical macroprudential policy experience.
- Rigorous and sophisticated risk monitoring processes.
- High-quality published analysis.
- Active development of measures addressing FX exposures and household indebtedness.
Weaknesses and challenges:
- Systemic complexity impedes coordination among authorities.
- Communication and transparency are challenged by institutional complexity.
- The macroprudential toolkit is incomplete and requires extension to address evolving risks.

Strengthen coordination mechanisms among relevant authorities to address systemic complexity.
Improve communication strategies and transparency of macroprudential policy decisions and frameworks.
Extend and adapt the macroprudential toolkit to cover remaining vulnerabilities (including, but not limited to, FX exposures and household indebtedness).
Continue rigorous risk monitoring and dissemination of high-quality analysis to support policy actions.