South Korean banks turned for US dollars to the Fed

A woman walks past a commuter bus of Korea Development Bank (KDB)
at its headquarters in Seoul September 10, 2008.
Reuters/Jo Yong-Hak

South Korean banks, viewed by investors as among the weakest in Asia, turned for the first time to the U.S. Federal Reserve for dollars as they stepped up efforts to resolve a dollar funding crisis.

The move comes as Asia's fourth-largest economy tries to keep the global financial storm at bay. South Korea's consumer sentiment hit a three-month low and its currency slumped to a 10- year trough against the dollar with investors growing ever more worried about a global recession and a liquidity squeeze.

State-owned Korea Development Bank (KDB) said on Tuesday it would sell up to $830 million in 3-month bonds to the Federal Reserve, while top bank Kookmin Bank said it had gotten the U.S. central bank's permission to directly sell short-dated bonds.

On Monday, the Bank of Korea announced that it would for the first time buy domestic bonds issued by local banks.

Being picked as one of the beneficiaries of the Federal Reserve's funding facility means both banks have met conditions set by the Fed. It will likely take more time (for dollar funding conditions to improve for domestic banks. Dollar funding problems are not because of problems with South Korea, but because companies in the world are deleveraging and reducing their assets to shore up their capital ratios."

But others were skeptical of the significance of the funding. It certainly is a relief for them to win the Fed's approval. But $800 million would not be enough to resolve the dollar funding shortage.

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Sources :

Reuters: South Korean banks go to Federal Reserve for dollars, October 28, 2008 04:59 am EDT

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