FSS Conducts Risk Check on Financial Institutions

Korea’s Financial Supervisory Service (FSS) is said to have launched a wide-ranging investigation into a number of financial institutions, including overseas offices of six commercial banks and four insurance corporations and the Seoul offices of two foreign banks.

The supervisory agency aims to look into financial weakness and risks of the institutions. This industry-wide investigation is noteworthy as it covers almost all types of financial institutions, such as banks, insurance companies, securities firms, mutual savings banks, loan businesses, credit service companies and private equity firms.

Analysts in the financial sector see this movement as a preemptive action to prevent potential risks of global financial crises, initiated by the subprime bubble in the U.S., from spreading into the domestic market.

The FSS began its probe into overseas branches of six commercial banks (Woori Bank, Shinhan Bank, Korea Exchange Bank, etc.) and four insurance corporations (Samsung Fire and Marine Insurance, LIG Insurance, Hyundai Marine and Fire Insurance and Dongbu Insurance) on August 27.

Sixteen overseas offices of six commercial banks – located in New York and Shanghai – are to be investigated on the spot; most of which are said to have problems in risk management or profitability after preliminary investigations.

The supervisory service will examine the details of capital raising and asset management of banks’ overseas offices and analyze the capital which domestic companies have sent to their overseas offices through the foreign branches of the banks. All inquiries are being carried out to stop the failures of overseas offices from spreading into the domestic market.

The government’s investigation list includes the Indonesian offices of Samsung Fire and Marine Insurance and LIG Insurance, Japanese office of Hyundai Marine and Fire Insurance and the Guam office of Dongbu Insurance. Under investigation at these offices are details of capital management and overall risk management.

The FSS is also carrying out an inspection of the Seoul offices of UBS and Development Bank of Singapore, both global financial service companies, behind closed doors. The Investigation team of the FSS is looking into all variables which could affect these companies’ soundness and profitability, including the total volume of short-term foreign loans. The team nearly ended the investigation into UBS and informed its Seoul office of requirements to be met according to the investigation.

As weakness in the subprime mortgage crisis becomes more likely to place stress on derivatives, the FSS has set out to analyze the current status of the derivatives managed and transacted by banks and insurance companies and devise methods to deal with possible failures by grasping the details of investments in high-risk assets by insurance companies.

The FSS’ simultaneous investigations (comprehensive or partial) cover three domestic insurance companies (Kyobo Life Insurance, Dongbu Life Insurance and Samsung Fire and Marine Insurance), several foreign insurance firms, six securities firms, eleven mutual savings banks (including Moodeung Mutual Savings Banks), 58 loan businesses, 20 credit service companies and four private equity firms.

“This is a regular investigation. If there are problems discovered, we will deal with them in due time,” said an official of the FSS.

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