Seoul: The Bank of Korea (BOK) announced its decision to provide emergency liquidity to financial institutions by accepting their loan assets as collateral during large-scale deposit withdrawals or other liquidity crises.

According to Yonhap News Agency, under a new rule approved by the BOK Monetary Policy Board, the central bank will offer additional emergency funding backed by loan receivables, if necessary, alongside its existing lending program that is collateralized by marketable securities. Currently, the BOK provides funds only against marketable securities held by financial institutions during instances of liquidity stress.

"There have been rising liquidity risks due to the accelerating digitalization of finance, and the need to strengthen liquidity backstops has grown," the BOK stated in a release. Loans represent the largest share of financial institutions' assets, and their use as collateral is seen as an effective measure to address severe liquidity shocks.

As of the end of June, loans made up 69.8 percent of banks' total assets, compared to 18.6 percent for marketable securities. The new rule is set to be implemented next month, with the BOK planning to conduct simulations and establish systems to ensure quick execution during emergencies, according to officials.