In 2000, finance, insurance, real estate, and business services accounted for over half of GDP. The Bank of Korea serves as the central bank, the bank of issue, and the depository for government funds. It was established in 12 June 1950. The banking system is regulated by the Financial Supervisory Service. Other banking services are provided by the state-run Korea Development Bank, the Export-Import Bank of Korea, and nine state-run specialized banks. Commercial banking operations in 1999 were handled by 11 nationwide commercial banks, 10 provincial banks, and 42 foreign banks. Total assets of Korea's commercial banks at the end of 1998 were $300 billion.
By 1986, as part of the government's economic stabilization program initiated in 1980, all of the five commercial banks previously under government control were denationalized. In 1993, the Korean government began a five-year financial sector reform program, including the deregulation of interest rates, and liberalization of foreign exchange. During the financial crisis of late 1997 and 1998, non-performing loan levels skyrocketed. The credit hunger of South Korean corporations can be explained in part by the failure of the stock exchange to generate the equity capital they needed. On 25 June 1998, the Korean government ordered the takeover of five failing banks, and seven other banks were put on a warning list. Of the seven, five merged, and two continued operations. Banks directly affected by these measures included Shinhan Bank, the Housing and Commercial Bank, Kookmin Bank, KorAm Bank, Hana Bank, and Hanvit Bank, among others. In 1998, efforts continued to stabilize the banking sector by increasing the capital adequacy ratio to 8%, and the government encouraged lending to small and medium-sized companies as opposed to the large conglomorate chaebols. By 2003 the government had nationalized eight failing private banks, spending $120 billion on bailouts. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $41.4 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $362.2 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 4.7%.
The Korean Stock Exchange, a share-issuing private corporation, functions as the country's only stock exchange. Clearly, all was not well with the stock market in 1996, when the stock price index late in was lower than that of 1988, although the economy had virtually doubled in size in real terms over the same period. Direct access by foreigners to the stock market has been allowed since 1992; Seoul implemented unrestricted foreign access in 1998. Stock issues raised $32 billion in 1999, as opposed to $11 billion in 1997. International links were being forged in 2000, and the KOSDAQ was to begin stock transactions for small- and medium-sized firms.