Republic of Korea Financial Sector Assessment Program Technical Note : Crisis Preparedness and Crisis Management Framework
Korea experienced a financial crisis in the late 1990s, which it overcame successfully. The rich experiences gained in handling past crises have helped in the establishment of a broad crisis management framework in Korea. The successful management of the 1997 financial crisis is reported to have been guided by the following principles: (i) bold and decisive measures are required to regain market confidence, rather than incremental ones; (ii) though Government will take the lead in crisis management initiatives, private capital should be encouraged to fully participate in the process; (iii) bank recapitalization and creation of a bad bank are not mutually exclusive options; the crisis management measures should be politically acceptable and have built-in exit strategies with clear time-frames; (iv) moral hazard should be minimized; and (v) all forms of financial protectionism must be rejected. Korea responded to the 2008 global financial crisis with certain policy measures that helped the Korean financial and real sectors to weather the immediate effects of the global crisis. These included policy and financial support to stabilize the money, securities, and bond markets, to extend financial support to corporate and financial entities, and to support small and medium enterprise (SME) and micro finance sectors. The authorities introduced a series of measures to contain the stress in Mutual Savings Banks (MSBs) during 2011 and 2012 and turned them around. The stress in MSBs was largely due to an extensive industry-wide exposure to troubled real estate project financing as well as shareholder and management misconduct.4 Faced with sector-wide stress and declining depositor confidence the financial sector regulatory agencies jointly announced new mitigating measures for the MSB sector.
| Summary: | Korea experienced a financial crisis in
the late 1990s, which it overcame successfully. The rich
experiences gained in handling past crises have helped in
the establishment of a broad crisis management framework in
Korea. The successful management of the 1997 financial
crisis is reported to have been guided by the following
principles: (i) bold and decisive measures are required to
regain market confidence, rather than incremental ones; (ii)
though Government will take the lead in crisis management
initiatives, private capital should be encouraged to fully
participate in the process; (iii) bank recapitalization and
creation of a bad bank are not mutually exclusive options;
the crisis management measures should be politically
acceptable and have built-in exit strategies with clear
time-frames; (iv) moral hazard should be minimized; and (v)
all forms of financial protectionism must be rejected. Korea
responded to the 2008 global financial crisis with certain
policy measures that helped the Korean financial and real
sectors to weather the immediate effects of the global
crisis. These included policy and financial support to
stabilize the money, securities, and bond markets, to extend
financial support to corporate and financial entities, and
to support small and medium enterprise (SME) and micro
finance sectors. The authorities introduced a series of
measures to contain the stress in Mutual Savings Banks
(MSBs) during 2011 and 2012 and turned them around. The
stress in MSBs was largely due to an extensive industry-wide
exposure to troubled real estate project financing as well
as shareholder and management misconduct.4 Faced with
sector-wide stress and declining depositor confidence the
financial sector regulatory agencies jointly announced new
mitigating measures for the MSB sector. |
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