Bank of Korea Gets More Financial-Sector Oversight Power With Revised Law

The Bank of Korea said a revised law passed by parliament today will expand its financial-sector oversight, including letting it jointly inspect financial institutions with regulators.

Parliament approved the bill by a 147 to 55 vote, the Bank of Korea said in a statement today. The law also empowers the central bank to require domestic lenders to set aside cash reserves for bonds they issued, whereas banks now only need to have reserves for customer deposits, it said.

The revision gives the central bank more power to oversee the financial sector to avoid “systemic risks,” Bank of Korea Governor Kim Choong Soo said today. Basel III capital rules agreed by global regulators last year are likely to force banks to hold more equity and easy-to-sell assets, in the aftermath of the 2008 global financial crisis.

“The financial firms are not going to like it as they will now have two inspectors,” said Sung Byung Soo, a banking analyst at Tong Yang Securities Inc. in Seoul. “But, it won’t affect their earnings and sales much right away, though it may impose some more restrictions on their operations.”

Authority to supervise local banks was transferred to the Financial Supervisory Service, the financial regulator, in 1998 as part of a revision of the law regulating the Bank of Korea that made price stability the central bank’s top priority.

The revised law will also let the Bank of Korea request non-banking institutions to provide information on their operations, the central bank said.

To contact the reporters on this story: William Sim in Seoul at wsim2@bloomberg.net; Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net