Thu, September 19, 2024 at 02:07

• 

  Kang-hoon

  • Hello, Annie.

  • Today, I have some significant news regarding the recent actions taken by the U.S. Federal Reserve and the subsequent response from the Financial Supervisory Service (FSS) in Korea.

  • 
• Annie

  • Oh, interesting!

  • What exactly did the Federal Reserve do?😊

  
• 

  Kang-hoon

  • The Federal Reserve made a 'big cut,' reducing the benchmark interest rate by 0.50 percentage points.

  • This move was aimed at addressing financial market volatility.

• Annie

  • A big cut, huh?

  • How did the FSS respond to this?

  
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• 

  Kang-hoon

  • The FSS decided to liquidate yen carry funds and intensify inspections on rising household debt and deferred real estate project financing defaults.

  • They are taking these measures to stabilize the financial market.

• Annie

  • Wow, that's quite a response!

  • What did the BOK do?

  
• 

  Kang-hoon

  • The Bank of Korea (BOK) held a 'Financial Situation Review Meeting' chaired by Governor Lee Bok-hyun immediately after the Fed's big cut.

  • They are closely monitoring the financial markets and preparing to respond quickly in the future monetary policy transition process.

• Annie

  • Governor Lee mentioned something about past interest rate cuts.

  • What did he say?

  
• 

  Kang-hoon

  • He noted that in past cases of U.S. interest rate cuts, there were instances of a soft landing of the U.S. economy within a year, but sometimes it led to a recession, causing volatility in the financial markets.

  • Hence, they are being cautious.

• Annie

  • That makes sense.

  • What about the international financial markets?

  
• 

  Kang-hoon

  • Governor Lee highlighted that as countries differentiate their monetary policies, volatility in international financial markets may increase due to differences in economic indicators and market expectations.

  • There's a possibility of rapid capital movements, so they need to maintain stable foreign exchange conditions.

• Annie

  • How are they planning to manage household debt?

  
• 

  Kang-hoon

  • They are examining the effectiveness of household debt management measures, such as the two-stage stressed DSR and the strengthening of voluntary examination standards for banks.

  • They aim to maintain a stable management framework for household loans and prepare for timely implementation of macroprudential management measures.

• Annie

  • And what about real estate project financing?

  
• 

  Kang-hoon

  • The second round of business performance evaluation of PF businesses should be strictly conducted by November, with thorough follow-up management to ensure there is no deferral or concealment of non-performing PF loans.

  • However, they also encourage financial support for businesses that are in good health or have recovered through reorganization and restructuring.

• Annie

  • What about second-tier financial companies?

  
• 

  Kang-hoon

  • For second-tier financial companies with deteriorating asset quality, such as rising delinquency rates, they need to clean up non-performing assets and increase capital.

  • Weak financial companies should strengthen prudential management through management evaluation and on-site inspections.

• Annie

  • It sounds like they are taking comprehensive measures.

  • What is the ultimate goal here?

  
• 

  Kang-hoon

  • The ultimate goal is to ensure that financial companies are prepared to provide sufficient funds to productive sectors, especially now that interest rates are starting to be cut.

  • This is crucial for the economy to take off.

• Annie

  • Got it.

  • So, do you think this news is good or bad for the market?

  
• 

  Kang-hoon

  • I would say it's more of a negative development.

  • The need for such extensive measures indicates underlying instability and potential risks in the financial system.

  • 

  • This could lead to increased market volatility in the short term.

  • Upon comprehensive consideration, this news is perceived as a 😱Bearish.