South Korea announced measures on Thursday aimed at tightening control over foreign exchange liquidity to make the banking system less vulnerable to the capital flight seen during the financial crisis. The Financial Services Commission, a financial watchdog, said the measures would enhance the soundness of banks' foreign currency assets in Asia's fourth-largest economy that is heavily reliant on exports.
But the regulator said the country would not try to directly control foreign currency liquidity conditions at foreign bank branches in the country, although the branches would be subject to new regulations on forward deals. Authorities appear to be looking at ways to avoid a repeat of the capital flight that occurred during the global financial crisis, partly triggered by worries about the ability of companies to roll over their foreign debt liabilities during the global credit crunch.
One measure called on banks to hold at least 2 percent of their total foreign assets in foreign treasury bonds rated A or above, or set aside a certain amount of safe foreign assets, such as treasuries, in proportion to the value of liabilities maturing within a year.
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