Lee Chang-yong: "Central Bank's Macroprudential Role Needs Strengthening"... Requests Exclusive Inspection Rights to National Assembly

[Financial News] Lee Chang-yong, Governor of the Bank of Korea (pictured), stated on the 16th, "There is a need to supplement legal and institutional mechanisms to strengthen the macroprudential role of the central bank." Unlike major advanced countries, there is a significant concern about the lack of promptness in policy response as there are no independently held macroprudential policy tools to directly respond to financial imbalances, hence the need to strengthen the Bank of Korea's authority, including exercising exclusive inspection rights.
Governor Lee revealed this in a keynote speech at the 'ADB-BOK-JIMF Conference' held at the Bank of Korea's annex in Jung-gu, Seoul, on the same day. He explained, "When multiple institutions hold policy tools, close cooperation between institutions is crucial," adding, "In Korea, the Ministry of Strategy and Finance, the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service meet weekly to share economic and financial conditions."
He continued, "These communication channels serve as a foundation for effectively carrying out policy coordination in necessary areas while each institution independently operates its own policies," emphasizing the importance of policy coordination between the central bank and the government.
On the same day, Governor Lee introduced the case from last August when the policy stance shifted to interest rate cuts, emphasizing the importance of combining monetary policy and macroprudential policy. Despite the conditions allowing for easing the intensity of monetary tightening due to the slowdown in inflation at that time, the rapid surge in Seoul's housing prices, reaching an annual rate of 20%, made it difficult for the Bank of Korea to hastily lower interest rates, according to Governor Lee.
He explained, "I judged it appropriate to propose strengthening macroprudential policies to the government first, and after confirming the policy effects, adjust monetary policy," adding, "Through policy consultations with the government, I proposed strengthening related regulations." The government, accepting the Bank of Korea's proposal, implemented measures such as expanding the application scope and intensity of the Debt Service Ratio (DSR) regulation, and the Bank of Korea decided to freeze the base rate in August.
He stated, "Since September, the upward trend in Seoul's housing prices and the increase in household loans have begun to slow down, allowing for consecutive interest rate cuts in October and November," explaining, "This organic coordination between monetary policy and macroprudential policy is a good example of confirming the usefulness of applying an integrated policy framework (IPF) in countries with significant structural vulnerabilities in household debt."
Governor Lee emphasized the need to continue the macroprudential policy strengthening stance, especially during the interest rate cut phase that began last October. However, noting that unlike major countries, the Bank of Korea does not hold direct macroprudential policy tools and micro-supervision authority, he pointed out, "There is a concern that the promptness and effectiveness of policy response may be reduced if there are disagreements on policy intensity or direction during the coordination process with the government."
This aligns with the Bank of Korea's recent communication to the National Assembly that "microprudential supervision authority is necessary from a policy efficiency perspective." It implies the need for the Bank of Korea to have the authority to directly examine individual institutions' capital ratios and internal control states, beyond curbing system risks such as household debt growth.
Accordingly, the Bank of Korea presented the current status of major countries' financial stability policy frameworks to the National Assembly. In Korea, the Financial Services Commission is responsible for establishing microprudential policies, and the Financial Supervisory Service is responsible for execution, but it highlighted that major countries' central banks directly intervene. Currently, central banks in the United States, the United Kingdom, France, New Zealand, and the Netherlands all hold microprudential policy tools.
In particular, it is known that the Bank of Korea has requested the authority to conduct exclusive inspections of financial institutions, separate from the Financial Supervisory Service. Currently, it can only request inspections or joint inspections of financial institutions to the Financial Supervisory Service, but it is impossible for the Bank of Korea to conduct inspections independently. The Bank of Korea argued to the National Assembly, "We will support macroprudential policy through the exercise of exclusive inspection rights," and "not only banks but also non-bank financial institutions should be included as targets for exclusive inspections."
After the keynote speech, Governor Lee met with reporters and explained, "There is a need for tools to jointly decide to ensure that macroprudential policies can be properly implemented," adding, "We have continuously stated that we should also have the authority to jointly inspect non-bank financial institutions." However, he added, "We do not want supervisory agencies to fight," cautioning against interpreting the claim for expanding macroprudential authority as a power struggle between agencies.

eastcold@fnnews.com Kim Dong-chan Reporter