By Choonsik Yoo and Jihoon Lee
SEOUL (Reuters) – South Korea’s financial regulator said on Thursday it would delay by six months a plan to require banks to hold more liquid assets, citing signs of stress in the short-term money market due to a fast rise in interest rates.
The Financial Service Commission (FSC) said in a statement it would delay by six months its plan to raise the liquidity coverage ratio (LCR) requirement for banks from the beginning of January 2023 to 95% from 92.5% at present.
The FSC had lowered the LCR requirement – a proportion of net cash outflows that each bank has to hold as highly liquid assets – during the COVID-19 pandemic period and was in the middle of bringing it back to previous levels.
The FSC said the decision was made based on the outcome of a meeting between it and officials from major banks on Thursday.
FSC Chairman Kim Joo-hyun said earlier in the day his agency was watching the “increased volatility in the short-term money market” and would strengthen its response to stop any instability from spreading.
The move came amid signs of stress in the short-term money market after the country’s central bank raised the policy interest rate by a total of 250 basis points since August last year from a record-low 0.5% to contain inflation.
(Reporting by Choonsik Yoo; Editing by Stephen Coates and Tom Hogue)