The Financial Supervisory Service is checking whether the sub-prime mortgage defaults in the U.S. will affect overseas branches of Korean financial institutions. The FSS said Wednesday that it asked Korean financial institutions if they have participated in the U.S. sub-prime mortgage market and how much they invested in residential mortgage-backed securities.

An FSS official said, "The request was a preventative measure to manage a possible risk. We believe that Korean financial institutions don’t directly participate in the U.S. mortgage market and their investments would be small."

FSS banking regulator Park Dong-soon said the financial watchdog is closely watching the situation because if the U.S. sub-prime mortgage defaults expand, foreign capital will flow out of the country and possibly cause the Korean stock market to falter.

There has rising concern that the U.S. economy is in for a hard landing as sub-prime mortgage companies go bankrupt one after another. Sub-prime mortgage lenders, which make up 13 percent of the U.S. mortgage market, provide relatively expensive loans to people with poor credit history.

(englishnews@chosun.com )