South Korea's Financial Services Commission is assessing financial market risks related to growing uncertainties in the Middle East, preparing for worst-case scenarios including stress tests.
Amid rising uncertainties regarding the situation in the Middle East, South Korea's financial authorities have initiated a review of the financial markets, taking into account the potential for prolonged unrest and other worst-case scenarios. The Financial Services Commission (FSC) held a risk assessment meeting chaired by Chairman Lee Ok-won, which included representatives from the Financial Supervisory Service, research institutions, and experts in financial markets. This proactive measure aims to identify vulnerable points in the financial market to mitigate potential external shocks.
During the meeting, Chairman Lee emphasized the great uncertainty surrounding the developments in the Middle East, cautioning that elongated tensions could disrupt energy supply chains, lead to increased prices, and broadly affect the financial market and industry. To this end, the FSC has mandated scenario-based stress testing to evaluate risk factors and prepare for severe impacts that could arise from the situation.
Additionally, the FSC noted the heightened volatility in the stock market and the risks associated with leveraged investments, prompting a call to assess the potential for investor losses due to margin buying and forced sales. To ensure stability in the bond and money markets, the FSC is re-examining existing stabilizing measures. The Commission is also considering expanding the existing '100 trillion won + Ξ± market stabilization program,' which provides liquidity in the bond market through the purchase of company bonds and commercial paper.
