Today, the South Korean government announced a bank aid package similar to those announced in other major countries “to avoid placing domestic banks at a comparative disadvantage in terms of overseas funding and to allay fears in the financial market.” The South Korean government “will provide guarantees to Korean banks’ external debt after securing approval of the National Assembly,” with the Korea Development Bank and Korea Eximbank providing the guarantees until National Assembly approval is obtained. The guarantee program will begin immediately and run until June 30, 2009; each debt guarantee will last three years. The total guarantees will be capped at $100 billion.

In addition, the South Korean government and the Bank of Korea will “provide additional dollar liquidity, amounting to $30 billion, to the banking sector by utilizing foreign exchange reserves.” The Bank of Korea will provide Korean Won liquidity into domestic financial markets through repurchase agreements, “buying government bonds and early redemption of monetary stabilization bonds.” The South Korean government also announced it “will make an investment in kind, equivalent to Korean Won 1 trillion, expanding the capital base of the Industrial Bank of Korea,” which “is likely to translate into additional loan facility worth Won 12 trillion available to small and mid-sized companies.” However, the South Korean government has decided not to institute a broader bank recapitalization program or expand bank deposit guarantees, however, “should the need arise to pursue such measures, the government will take proper actions.”