Risks and Supervisory Challenges ofFinancial Conglomerates in Korea
This paper studies implications of financial conglomeration for both financial risk of individual conglomerates and systemic risk potential in post-crisis Korea. Our analyses suggest that we cannot conclude that financial conglomerates are taking on higher risks relative to non-conglomerate independ...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Korea Development Institute
2006-06-01
|
| Series: | KDI Journal of Economic Policy |
| Subjects: | |
| Online Access: | https://doi.org/10.23895/kdijep.2005.28.1.145 |
| _version_ | 1831814021622267904 |
|---|---|
| author | Hahm, Joon-Ho Kim, Joon-Kyung |
| author_facet | Hahm, Joon-Ho Kim, Joon-Kyung |
| author_sort | Hahm, Joon-Ho |
| collection | DOAJ |
| description | This paper studies implications of financial conglomeration for both financial risk of individual conglomerates and systemic risk potential in post-crisis Korea. Our analyses suggest that we cannot conclude that financial conglomerates are taking on higher risks relative to non-conglomerate independent institutions. We also find that larger financial institutions show a significantly higher profitability and lower variability in profitability operating on a superior efficient frontier. However, it turns out that the consolidation has raised systemic risk potential as direct and indirect interdependencies among large banking institutions have substantially increased. Furthermore, financial conglomerates have become more vulnerable to contagion risks from non-bank sectors and capital markets. In the face of the shifting risk structure, financial supervisory and regulatory systems must be upgraded toward a more risk-based, consolidated supervision. Prompt corrective action provision for financial conglomerates must be based upon fully consolidated group risks, and effective supervisory devices need to be introduced to avoid inadvertent extension of public safety net to cross-sectoral activities of financial conglomerates. It is also critical to strengthen internal control and risk management capacities at financial conglomerates, and to establish strong market discipline by improving information transparency and monitoring incentives in the financial market. |
| first_indexed | 2024-12-22T22:06:00Z |
| format | Article |
| id | doaj.art-ce011859b0124c099830e03cffc73f6e |
| institution | Directory Open Access Journal |
| issn | 2586-2995 2586-4130 |
| language | English |
| last_indexed | 2024-12-22T22:06:00Z |
| publishDate | 2006-06-01 |
| publisher | Korea Development Institute |
| record_format | Article |
| series | KDI Journal of Economic Policy |
| spelling | doaj.art-ce011859b0124c099830e03cffc73f6e2022-12-21T18:10:59ZengKorea Development InstituteKDI Journal of Economic Policy2586-29952586-41302006-06-0128114519110.23895/kdijep.2005.28.1.145Risks and Supervisory Challenges ofFinancial Conglomerates in KoreaHahm, Joon-Ho0Kim, Joon-Kyung1Associate Professor, International Economics and Finance, Graduate School of International Studies, Yonsei UniversitySenior Fellow, Korea Development InstituteThis paper studies implications of financial conglomeration for both financial risk of individual conglomerates and systemic risk potential in post-crisis Korea. Our analyses suggest that we cannot conclude that financial conglomerates are taking on higher risks relative to non-conglomerate independent institutions. We also find that larger financial institutions show a significantly higher profitability and lower variability in profitability operating on a superior efficient frontier. However, it turns out that the consolidation has raised systemic risk potential as direct and indirect interdependencies among large banking institutions have substantially increased. Furthermore, financial conglomerates have become more vulnerable to contagion risks from non-bank sectors and capital markets. In the face of the shifting risk structure, financial supervisory and regulatory systems must be upgraded toward a more risk-based, consolidated supervision. Prompt corrective action provision for financial conglomerates must be based upon fully consolidated group risks, and effective supervisory devices need to be introduced to avoid inadvertent extension of public safety net to cross-sectoral activities of financial conglomerates. It is also critical to strengthen internal control and risk management capacities at financial conglomerates, and to establish strong market discipline by improving information transparency and monitoring incentives in the financial market.https://doi.org/10.23895/kdijep.2005.28.1.145Financial Consolidation(금융대형화)Financial Conglomerate(금융그룹)Risk(리스크)Supervision(금융감독) |
| spellingShingle | Hahm, Joon-Ho Kim, Joon-Kyung Risks and Supervisory Challenges ofFinancial Conglomerates in Korea KDI Journal of Economic Policy Financial Consolidation(금융대형화) Financial Conglomerate(금융그룹) Risk(리스크) Supervision(금융감독) |
| title | Risks and Supervisory Challenges ofFinancial Conglomerates in Korea |
| title_full | Risks and Supervisory Challenges ofFinancial Conglomerates in Korea |
| title_fullStr | Risks and Supervisory Challenges ofFinancial Conglomerates in Korea |
| title_full_unstemmed | Risks and Supervisory Challenges ofFinancial Conglomerates in Korea |
| title_short | Risks and Supervisory Challenges ofFinancial Conglomerates in Korea |
| title_sort | risks and supervisory challenges offinancial conglomerates in korea |
| topic | Financial Consolidation(금융대형화) Financial Conglomerate(금융그룹) Risk(리스크) Supervision(금융감독) |
| url | https://doi.org/10.23895/kdijep.2005.28.1.145 |
| work_keys_str_mv | AT hahmjoonho risksandsupervisorychallengesoffinancialconglomeratesinkorea AT kimjoonkyung risksandsupervisorychallengesoffinancialconglomeratesinkorea |