/ languages

Choisir langue

World financial crisis

Seoul announces bank guarantees, Icelanders demand bank chief quits

Article published on the 2008-10-19 Latest update 2008-10-19 13:47 TU

Japanese tourists walk past a bank in Seoul(Photo: Reuters)

Japanese tourists walk past a bank in Seoul
(Photo: Reuters)

South Korea on Sunday became the latest country to rush to the aid of its financial system with a fund to help banks worth billions. In Iceland, which has been particularly badly hit by the crisis, thousands demonstrated to demand the resignation of the Central Bank Governor.

Seoul says it will guarantee foreign borrowings by its banks with a 74-billion-euro fund.

It will also supply 30 billion dollars (22 billion euros) from foreign reserves as soon as possible to local banks and exporters to ease a dollar shortage which has been pushing down the value of its currency, the won.

"As other major economies start providing guarantees to interbank loans, the Korean government will take similar measures to avoid placing domestic banks at a comparative disadvantage in terms of overseas funding and to allay fears in the financial markets," a government statement said.

"As global currency markets have tightened and liquidity has tightened up, these South Korean businesses find that they are at the short end of the stick trying to get their hands on dollars and euro," says Seoul-based reporter Evan Ramstad. "So the banks, particularly the smaller and the mid-size banks that do a lot of work with these companies, also find that they are down the line in the rank of order in terms of getting access to foreign currencies."

Explainer: Evan Ramstad, Financial Tmes, Seoul

19/10/2008 by Philip Turle

The package includes a three-year government guarantee for interbank foreign-currency loans, the additional liquidity supply by the central bank to the banking sector, tax incentives and other measures.

South Korea is Asia's fourth-largest economy.

In the Icelandic capital, Rejkyavik, more than 2,000 people demonstrated on Saturday to demand the resignation of central bank chief David Odsson and a new monetary policy.

Iceland has been severely hit by the financial crisis and the govnerment has nationalised its three top banks.