Managing Non-Core Liabilities and Leverage of the Banking System: A Building Block for Macroprudential Policy Making in Korea

IMF Working Papers, January 1, 2012

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Korea has been active in implementing targeted macroprudential policies to address specific financial stability concerns.
The paper develops a conceptual model that could serve as a building block for the broader framework of macroprudential policy making in Korea.
It is assumed that the policy maker imposes taxes on key aggregate financial ratios in the banking system to mitigate excessive leverage over the economic cycle.
The model is calibrated for Korea.
The results illustrate how countercyclical tools, such as simple taxes on key financial ratios, could be incorporated to enrich the broader macroprudential policy framework in the Korean context.

Conceptual macroprudential model focused on aggregate financial ratios in the banking system.
Policy lever: taxes on key aggregate financial ratios to influence banking system leverage.
Calibration: the model is calibrated specifically for Korea.

Countercyclical tools can be implemented through simple taxes on key financial ratios.
Such tools could mitigate excessive leverage in the banking system over the economic cycle.
Incorporating taxes on aggregate financial ratios can enrich Korea's broader macroprudential framework.

Consideration of targeted, countercyclical macroprudential tools that tax key banking-system ratios to manage leverage.
Use of the presented conceptual model as a building block within a broader macroprudential policy framework tailored to Korea.

1. Korea: Macroprudential Model Simulations, 2002–2010
- 1. Korea: Macroprudential Model Simulations, 2002–2010 (Markdown version)
- 1. Korea: Macroprudential Model Simulations, 2002–2010 (PDF)