S. Korea develops tool to assess bank risks

South Korea's central bank has developed an analysis tool to assess for systemic risks of local banks.

The Bank of Korea claims that it has become the first central bank in Asia to develop such a tool, called the Systemic Risk Assessment Model for Macroprudential Policy.

Systemic risks refer to risks that could have grave impacts on the real economy by spurring the whole or partial malfunctioning of the financial system.

The framework will be used to measure the impacts of macroeconomic shocks on the financial system and the ripple effects of risk amplification.

The central bank said it plans to unveil the results of stress tests for local banks based on the new model in late October when the BOK will publish a financial stability report.

"The tool will help the BOK give early warning about a potential systemic risk," said Lee Seung-hwan, the head of the BOK's systemic risk analysis team.

The BOK said that as the analysis tool was tailored to 18 local banks in assessing the systemic risk, it will make efforts to expand the usage of the tool into non-bank institutions.

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