Yet another government is attempting to shore up its crippled banking system with a guarantee.South Korea is considering guaranteeing bank debts and offering tax breaks for investors in an effort to shore up confidence in markets a day after stocks fell to a three year low. On top of the significant stock decline, the Korean won, Asia’s worst performing currency, fell by the most since the 1997 Asian financial crisis.

Kang Man Soo,Korea’s Finance Minister, attempted to bolster investor confidence.He noted that “[The government] will take preemptive, decisive, and sufficient measures” in order to limit the depth of the market declines.Korea held an emergency meeting of policy makers immediately preceding the comments.

The Finance Minister also hinted that, if necessary, the Korean government would consider similar measures taken recently in the United States, including injecting capital directly into financial firms, guaranteeing interbank lending, and expanding bank deposit guarantees.More specific and potentially additional relief measures will be announced by the Finance Ministry on October 19 at 2 P.M. in Seoul

Without such guarantees the Korean economy may see significant capital outflows in coming weeks as governments across the globe take drastic steps to guarantee various bank debts.The Vice Finance Minister, Kim Dong Soo, further noted that the government may provide tax benefits to long-term share investors in a move designed to limit stock sell-offs.

A decline in Korea’s property market gives analysts fear that loans made to property owners may sour in coming months.  This could cause a further deterioration of bank balance sheets during an environment in which the banks already have sustained significant losses.

Korean’s won fell by nearly 10 percent yesterday, marking the steepest decline since the International Monetary Fund was required to bail out the South Korean government in December 1997.One bit of positive news is that South Korea is currently the world’s sixth largest holder of foreign currency reserves, though the reserve amount fell again in September, marking the sixth straight monthly decline.The significant reserve should help soften the blow of capital outflows and limit additional currency depreciation.