Regulator Dismisses Possible Financial Crisis

South Korea's financial watchdog Tuesday ruled out the possibility of a fresh financial crisis similar to the one it underwent in 1997-98.

"Global financial markets are in trouble and there is some talk about another financial crisis, but the current financial situation in South Korea is different from that of the United States and Europe," Rhee Chang-yong, vice president of the Financial Services Commission (FSC), was quoted as saying by Yonhap News in a meeting with local analysts.

"Local banks can withstand the current foreign currency liquidity situation even if they cannot raise funds for at least three months. Unlike in 1997-98, South Korean banks can secure short-term funds."

His remarks come as South Korea's currency market suffers from a dollar shortage, with banks and companies rushing to the safer greenback on concerns over a financial crisis sparked by the collapse of investment bank Lehman Brothers Holdings Inc.

The South Korean currency tumbled to an over 6-year low against the U.S. dollar Monday on concerns that local banks and other companies may suffer funding shortages caused by the global financial turmoil.

The won was trading at 1,336.25 won as of 9:44 a.m., down 67.25 won from Monday's close. The KOSPI fell 1.6 percent to 1,337.02 as of 9:44 a.m.

Meanwhile, the government repeated its pledges to use the country's foreign exchange reserves as a way to provide liquidity.

"The foreign reserves are the safest assets to liquidate immediately," said Shin Je-yoon, deputy finance minister for international affairs, shrugging off market concerns about the availability of the reserves.

South Koreans shudder at painful memories of the 1997 Asian financial crisis. The country had to receive a $57 billion bailout from the International Monetary Fund as foreign investors pulled their money out of Korean assets, causing exchange reserves to dip to a mere $8.87 billion.

According to South Korea's central bank, the country's foreign exchange reserves amounted to $239.7 billion, the world's sixth-largest, as of the end of September,

Rhee said there are no concerns about local banks' financial soundness and that the loan-to-deposit ratios of local lenders remain at a stable level.

The watchdog said it will unveil measures to calm the local stock markets soon.