On Friday, South Korea’s Financial Services Commission announced two plans to “enhance existing regulations to facilitate the government’s render greater support to financial institutions in need of further recapitalization.” Details of the plans are: Korea Asset Management Corp. (KAMCO) Bonds

  • The government is proposing new legislation that would contemplate the issuance by KAMCO of up to KRW 40 trillion of government-guaranteed bonds to fund the purchase non-performing loans (NPLs) and troubled assets of financial institutions and other restructuring companies
  • The program would be operated for a limited period of time, ending in 2014
  • Any retained gains would belong to the government

Financial Market Stabilization Fund

  • The government also proposes new legislation that would authorize the formation of a new Financial Market Stabilization Fund that would be funded by issuing government guaranteed bonds
  • The fund would make equity investments in and extend loans and loan guarantees to, on a voluntary basis ”eligible beneficiaries” consisting of deposit-guaranteed (banking) and non-guaranteed (non-banking) financial institutions, including credit financing agencies and financial holding companies
  • Further details will be determined based on the need expressed by the financial services industry
  • A follow-up monitoring system will be set up to oversee and report on banks’ commitments to provide liquidity support to economic sectors, including small- and medium-sized enterprises

The South Korean government stated that “under these new initiatives, financial institutions’ soundness will greatly improve and their ability to shore up real economic sectors will also be strengthened.” South Korea previously announced a $130 billion bank aid package in October.