S. Korea considers guarantees for inter-bank loans

SEOUL, Oct. 17 (Yonhap) -- South Korea is considering providing state guarantees
for inter-bank loans as part of efforts to stabilize financial markets and stave
off their negative impact on the real economy, officials said Friday.
Earlier in the day, senior policymakers held a meeting and discussed measures to
ease growing concerns in the market. In attendance were Finance Minister Kang
Man-soo, chief presidential economic secretary Bahk Byong-won and Financial
Services Committee Chairman Jun Kwang-woo.
During the gathering, participants explored ways to guarantee inter-bank loans
and transactions, a move that would follow similar actions taken by some advanced
nations in the wake of the global financial meltdown.
Such a move could foster a sense of crisis among market participants but the
government is reviewing the option seriously as local banks are under heavy
pressure caused by the currency shortage, officials said.
Earlier this week, Finance Minister Kang Man-soo raised the possibility of
providing inter-bank loan guarantees. "South Korea will consider whether or not
to take such an action after reviewing measures taken by Hong Kong, Japan and
other Asian countries."
South Korea is struggling to unfreeze the tightening credit conditions sparked by
the collapse of U.S. investment giant Lehman Brothers Holdings Inc. last month
and the resulting financial fiasco that followed. Dollar shortage has pushed down
the won and local stocks over the past few weeks.
The government recently provided a combined US$15 billion into the won-dollar
swap market and local banks in order to ease a dollar shortage in the financial
sector.
Earlier in the day, the nation's central bank said that it will supply liquidity
by trading directly with banks in competitive biddings in the currency swap
market, a move designed to allow local banks to secure dollars more easily.