Probe Begins

An 11 trillion won recapitalization fund will be arranged based on indirect investment by the Bank of Korea and the Industrial Bank of Korea (IBK).
An 11 trillion won recapitalization fund will be arranged based on indirect investment by the Bank of Korea and the Industrial Bank of Korea (IBK).

 

The Bank of Korea and the Financial Supervisory Service (FSS) launched joint inspections of four branches of leading foreign banks, including BNP Paribas and JP Morgan, after joint inspections of five regional banks such as Daegu Bank. In addition, they will jointly inspect the government-run IBK after Shinhan Bank and Woori Bank.

According to sources in the financial industry on Oct. 13, the BOK and FSS began to probe four branches of leading foreign banks in Korea on Oct. 11 for four weeks. The two financial watchdogs will inspect BNP Paribas and, after that, JP Morgan Chase, Deutsche Bank, and Credit Suisse Bank in order.

This joint inspection was decided because, strangely, derivative trades rose sharply at these banks, while the volume of derivative trading by financial companies decreased overall last year.

“Since last year, the volume of derivative trades such as forward contracts, futures, options, and swaps fell overall. But it significantly increased at these four branches,” said a financial industry source. “I understand that the BOK judged that it is necessary to inspect the four branches in connection with monetary policies such as the effects on the nation’s foreign exchange reserve in a situation where internal and external uncertainties such as the tendency of the U.S.’s interest rate hike, and asked the FSS for the joint inspection.”

Total derivative trades added up to 43.649 quadrillion won (US$38.002 trillion) last year, according to the status of derivative trades by financial companies in 2014 released by financial regulators at the end of April. The figure is a drop of 16.3 percent from 52.145 quadrillion won (US$45.398 trillion) in 2013. So the volume has dropped for three straight years since 2011.

“The FSS will inspect the four branches in partnership with the BOK,” said a financial official at the FSS. “But we will check their overall business such as internal control to avoid overlapped inspections with the BOK.”

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