Bank of Korea (BOK), South Korea's central bank, collected 759,000 U.S. dollars for a macro- prudential stability levy from Australia's ANZ Banking Group in late February. The receipt was the first of its kind since the levy was introduced in Aug. 2011 to alleviate rapid capital flows in and out of the country.

The so-called'bank levy'was one of three key macro-prudential policy tools that the South Korean government adopted to mitigate vulnerabilities to the potential financial crisis. Other anti- crisis measures were caps on banks'foreign exchange forward positions and taxes on foreign investment in local bonds that were introduced in October 2010 and January 2011 respectively.

Here in South Korea, the financial crisis arose from exodus of foreign capital caused by external shocks as seen in the 1998 Asian foreign exchange crisis and the 2008 global financial crisis. The nation's macro-prudential tools naturally focused on moderating capital flows.

Those three tools received high scores from global credit rating agencies, but doubts remained if the measures could address the future crisis as South Korean banks lack foreign currency- denominated retail deposits in grain.

ASSESSMENT

Following the adoption of macro-prudential measures, South Korea's external payment positions were improved significantly as seen in the assessment by global credit rating agencies.

Thomas Byrne, a senior vice president at Moody's, said in a report released a month earlier that South Korea became better insulated from the types of external funding market shocks due to steady reduction in short-term external debts and sharp increase in official foreign reserves.

In November last year, another credit appraiser Fitch revised up the outlook for South Korea's'A-plus'sovereign credit rating to positive from stable, saying that rising foreign reserves and falling reliance on short-term external debts were strengthening the country's external liquidity.

Among those two factors, reduction in short-term foreign borrowing better reflected the effectiveness of macro-prudential measures as the growth in foreign reserves stemmed mainly from better economic fundamentals such as the maintenance of a current account surplus.