# **_Integrating the measures into the regulations on supervision in July 2007_**

The supervisory authority has made numerous announcements regarding measures for risk management of housing mortgage loans since 2002. In actuality, the announced measures were treated as requirements. However, the structure of the administrative guidelines did not support either a stronger administrative power or a strong legal basis for implementation.

In July 2007, a series of measures to strengthen the risk management of mortgage lending were rearranged into the Regulation<sup>20</sup> and the Detailed Regulation<sup>21</sup> on Supervision of Banking Business (Box 2). The measures that applied to non-banking financial institutions were also written in during the same time.<sup>22</sup> The official integration of the measures sent a signal that these measures would not easily be weakened within a short period of time.

The Regulation contains a section entitled “Standards for Risk Management of Housing Mortgage Loan” (see Appendix C). The separate Detailed Regulation contains a section entitled “Detailed Standards for Risk Management of Housing Mortgage Loan.”<sup>23</sup> Box 2. Excerpt from the Regulation on Supervision of Banking Business<sup>a</sup> The regulation on risk management on housing mortgage loans reads as follows: Article 29‐2 (1) A financial institution, when dealing with housing mortgage loans, shall abide by LTV (Loan‐to‐Value ratio), DTI (Debt‐ to‐Income ratio) and other restrictions, etc. on granting housing mortgage loans and extensions of maturity provided for in Appendix 6 in order to maintain the sound management pursuant to Article 45 of the Act.

(2) In cases where the Governor deems it urgently necessary in view of the management soundness of financial institutions, the Governor may adjust LTV and DTI provided for in Appendix 6 within the limit of adding or reducing 10 percentage points. In such cases, the Governor shall immediately report the details of such adjustment to the FSC (Financial Services Commission).

(3) The detailed criteria on calculation methods and applicable objects of the LTV and DTI provided for in Paragraph (1), and the details of handling housing mortgage loans and limitations on extending maturity shall be subject to the determination of the Governor.

_Source_ : FSS, Regulation on Supervision of Banking Business. a. The regulation of Risk Management on Housing Mortgage Loans was newly established on July 26, 2007.

20 “The purpose of the Regulation is to prescribe matters necessary for the enforcement of matters within the jurisdiction of the Financial Services Commission in relation to the supervision of financial institutions pursuant to the Banking Act and the Enforcement Decree thereof, and other relevant Acts and subordinate statutes” (FSS, Regulation on Supervision of Banking Business).

21 “The purpose of the Detailed Regulations is to prescribe matters relating to the enforcement of those under the jurisdiction of the Governor of the Financial Supervisory Service provided for in the Banking Act and the Enforcement Decree of the Banking Act, and other relevant Acts and subordinate statutes, or regulations established by the Financial Services Commission, such as the Regulations on Supervision of Banking Business” (FSS, Detailed Regulation on Supervision of Banking Business).

22 Those measures consisted of the Regulation (and Detailed Regulation) on Supervision of Insurance Business, the Regulation (and Detailed Regulation) on Supervision of Mutual Savings Bank Business; the Regulation (and Detailed Regulation) on Supervision of Mutual Financial Business; and the Regulation (and Detailed Regulation) on Supervision of Credit-Specialized Financial Business.

23 Available on the FSS website at “Detailed Regulation on Supervision of Banking Business <Appendix 18>”, <<http://english.fss.or.kr/fsseng/emdc/prs/fss_v.jsp?btmIndex=174&fssIndex=10090&selectType=0&find=>>.

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