South Korean financial authorities have decided to actively implement bond and money market stabilization programs to mitigate potential instability in financial markets arising from policy rate hikes in major economies and subsequent rises in domestic market rates.
The Financial Services Commission (FSC) announced on the 1st that it held a “financial market situation review meeting” chaired by Chairperson Lee Eog-weon. The meeting was attended by officials from the Ministry of Economy and Finance, the Financial Supervisory Service (FSS), the Korea Institute of Finance, and financial market experts from credit rating agencies and securities firms. Convened to assess the impact of rising domestic and overseas interest rates—driven by successive policy rate hikes by central banks in major economies, including South Korea—on the financial markets and the broader financial industry.
Participants emphasized the necessity of continuous and comprehensive reviews of latent market risk factors. These include liquidity risks stemming from maturity mismatches between funding and investment, sectoral concentration of funds, clustering of bond issuances and maturities at specific times, increased repayment burdens on vulnerable borrowers, and uncertainties surrounding the outlooks for key industries such as artificial intelligence (AI) and semiconductors.
Chairperson Lee ordered a thorough review of financial market risk factors and the timely execution of necessary measures. Specifically, the FSC called for a multifaceted analysis of market risks, including “tail risk”—extreme events with very low probabilities—and their transmission channels. Authorities also urged the prompt implementation of “contingency plans” across institutional sectors should market anxiety escalate.
Given the persistent upward pressure on market rates, the FSC vowed to maintain an active stance in executing bond and money market stabilization programs. Chairperson Lee instructed officials to make thorough advance preparations to ensure that support can be expanded rapidly should bond market volatility widen excessively.
The government will also preemptively review the issuance scale and maturity profiles of bank bonds and bonds from specialized credit finance companies during the fourth quarter. This measure aims to prevent supply-demand imbalances in the bond market resulting from clustered issuance. Additionally, authorities ordered close assessments of the financial sector’s asset quality, liquidity buffers, and funding structures to prepare for a sustained period of rising interest rates.
Authorities are preparing for the potential lagged effects of policy rate hikes on market rates, which could disproportionately impact vulnerable borrowers with limited repayment capacity. The relevant agencies will immediately implement the “support plan for vulnerable borrowers in a rising-rate period,” jointly released on August 28. Officials will closely monitor trends in rising lending rates and the potential for increased repayment burdens across institutional sectors, preparing complementary measures in a timely manner as needed.
The Financial Services Commission plans to continuously strengthen its financial market monitoring framework through close cooperation with relevant agencies, including the Ministry of Economy and Finance and the Financial Supervisory Service. Furthermore, the FSC will regularly convene the “financial market situation review meeting” under the chair of the chairperson to gather diverse perspectives from the financial industry and market participants, ensuring ongoing vigilance and assessment of emerging market risk factors.
