Is South Korea Ready to Make the Subtle Change: A Review of Their Compliances with Basel Norms

Abstract

The paper aims to highlight the importance and challenges of introduction of Basel II. Basel II in itself has the ability to meaningfully capture and suggest probable solutions for virtually all dimensions and segments of banking risks. Diversity of approaches and methodology has brought with it criticism and challenges since it may encourage and incentivize some intended and unintended behaviors and practices, while adding to the cost of doing business. The challenges, however, bring new opportunities for global banking systems to adopt more robust risk management approaches which should serve industry well for capital leveraging and taking higher but still manageable risks.The new Basel Accord framework relies on markets and supervisors to discipline banks. Yet both markets and supervisors fail, and more so in developing countries than in high income countries. Therefore, the new Accord is not, as its designers claim, suitable for wide application. Nevertheless, developing country policymakers have little choice but to implement it in part or in whole. Hence there are problems of governance in international regulation. I offer seven general principles for the design of a prudential regime more robust to government and market failure. Four alternative capital regimes are evaluated in the light of these principles. Simpler and harsher regimes are likely to achieve greater safety with a given level of resources.Hence the paper with special emphasis on South Korea aims to study the path traversed and visualise the future of compliance with the basel Norms in the country's banks.