In a wake of financial reform after the currency crisis in 1997, Korean government strengthened the capital regulation measures, which were already institutionalized in the early 90's but were never been enforced. Faced with the harsh implementation of the capital regulation, Korean commercial banks responded with drastic cut-down on the outstanding loans. This is because the only way to meet the BIS ratio is to reduce the denominator, the risk-adjusted assets, since the bearish capital market combined with the loss in the bank P/L makes it almost impossible to raise the numerator, the capital. In consequence, the capital regulation aggravated the funding capacity of the banks, leading to the serious credit crunch in 1998.
This report surveyed the academic literature on the theory of capital regulation and empirical findings on the western countries's capital regulation experiences to seek the regulatory improvements. The empirical works on the Korean case showed the different behavior of the Korean banks, as opposed to the those of US and some European countries. Some financially ailing banks continued the loan squeeze even after the government's capital injection. The report concluded with policy recommendations that the BIS ratio regulation may be an effective way to rehabilitate the banking soundness. During a period of business recession and weak stock market, it may be better to focus on the surveillance of bank asset soundness rather than sticking to the capital ratio.
자기자본규제와 은행경영(The effects of capital regulation on the bank portfolio)
[서울] : 한국금융연구원
|Series Title; No||금융조사보고서 / 2002-04|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|