South Korea's financial regulator said Wednesday that it will boost the super short-term call money market among banks, while reducing participation of non-bank financial institutions, as part of efforts to preemptively counter possible systemic risks from call market volatility.
Participation in the one-day unsecured call money market will be restricted in principle to commercial banks from 2015, according to the Financial Services Commission (FSC).
Here in South Korea, the call money market has been open to banks, which seek to meet excess and deficiency for reserve funds imposed by the central bank via the call market, as well as to other non-bank institutions that try to borrow short-term, low- rate funds through the call market and operate the funds for long- term investment.
The one-day call money transactions, which account for 99.9 percent of overall call money trade, was established originally to help the banks meet the reserve funds, but the participation of higher-risk non-bank institutions raised credit risks in the market, leading to higher potential for systemic risks.
Participants of the call money, or borrowing money via the call money market, will be limited in principle to banks, but some securities firms, including primary dealers in the Korea Treasury Bond (KTB) market and participants in the central bank's open market operations, will be allowed to join the call market.
For the securities firms, ceiling will be imposed to reduce their dependence on the call money market. The limit will be set at 15 percent of equity capital from the first half of 2014, down from the current 25 percent.
For the call loan, or lending money via the call money market, participants will be restricted to banks in principle, but asset managers will be allowed to join the market temporarily as the asset management firms are the main money provider in the market.