Policymakers Clash on Financial Regulation

By Cho Jin-seo
Staff Reporter

A conference on the global financial crisis revealed Wednesday that a power game between government agencies may be leaving firms uncertain about regulatory policies.

Top officials from the presidential office, finance ministry and financial regulatory authorities disagreed on how much freedom bankers should enjoy, while bankers themselves were more concerned about whom they should trust.

Kwak Seung-jun, a top lieutenant of President Lee Myung-bak, was the first to insist that South Korea should defy the global trend of tighter regulations by giving more autonomy to Korean bankers and expanding the market.

But his laissez-faire view was instantly rejected by Minister of Finance Yoon Jeung-hyun and several officials from the financial authorities who favor closer monitoring and controlled growth.

Kwak said that the financial industry in South Korea is growing up from the level of "elementary school to middle school," so it was wrong to assume that it was at the same level as in Anglo-Saxon countries which are like "college students" and have had much more liberty than their Korean counterparts.

"If we accept international discussions and tighten our financial regulations, it is like going back to elementary school," the chairman of the Presidential Council for Future and Vision, said in a speech.

"We need to have strategic thinking. The global tightening of regulations could be an opportunity for us to make our financial industry more competitive."

Kwak, who has a doctorate in economics from Vanderbilt University and is a former professor of Korea University, also claimed that the financial industry should create more high-salary jobs that meet the expectations of the young generation - a rather unique and simplistic statement in the regulatory climate, considering that bankers' pay has become a symbol of unfair distribution of wealth globally.

Minister Yoon was polite but not shy in rebutting Kwak's ideas one by one.

"It is too early to relax. We still need more caution," he said in a following speech. "Reestablishing the relationship between the financial and real economies is a very important task for us. If financial firms take excessive risks, it will make not only the financial system but also the real economy collapse," he said.

The conference was co-hosted by Kwak's council, Yoon's ministry and the regulatory Financial Services Commission (FSC). Chairman of the FSC, Chin Dong-soo, didn't take sides and remained ambivalent, by just saying it was "not adequate" to simply adapt global trends to Korea. But secretary general Kim Joo-hyun was more outspoken.

"The government bailed out credit card firms in 2003, and this is an example of why we need to be fussier with financial firms at the macro level. There are also voices saying there should be more regulation on hedge funds and derivatives," he said.

"Our stance is that we will follow all new international guidelines on the financial industry. And we will establish some measures even before other countries do. We believe the Obama administration's policy is moving in the right direction as well."

Market players were less excited about the discussion on the level of regulations and the future of South Korea's financial industry. Instead, they said they wanted governments to draw up more consistent and predictable policies.

Steven Butters from Deloitte said that the main problem the industry faces is the uncertainty in the financial market caused by a "tsunami wave" of regulations proposed by numerous government and international organizations.

Park Jin-hei of Citibank also stressed that what banks wanted was "transparency and fairness" in regulations, no matter how tight or loose they were.

The conference, titled "Takeoff in the Post-Crisis Era," was held in the largest and most expensive hall of the Lotte Hotel, central Seoul. Despite the disagreement on the future of the financial industry, the three host organizations seemed to agree that the economy was back on track, by offering a five-course lunch to hundreds of participants and audience members at the taxpayers' expense.

cjs@koreatimes.co.kr