Freedom Voice #52: Let the Bankers Solve their own Problems

The original Korean version of “Freedom Voice #52: Let the Bankers Solve their own Problems” was written by Freedom Factory's CEO, Chung-ho Kim, on September 17^th 2014. It can be found here.

Looking at the problems that plague Kookmin Bank nowadays, it becomes clear by Korea's financial industry can't grow. Korea's financial watchdog, Financial Supervisory Service (FSS) and the Financial Services Commission (FSC), which is the central government's body responsible for financial policy and financial supervision, wield so much influence that financial companies cannot even dream of growing.

The issue at hand is regarding the problem with Kookmin Bank's introduction of a new computer system. Apparently, whereas the bank wishes to replace its current system with a Unix system, holding companies are opposed to the change.

The FSC has since gotten itself involved in the foray and have formally issued reprimands against the bank's senior managers. Naturally, this has done nothing but to worsen the conflict.

I do not know the details of this conflict. To be honest, I don't even want to know. But what I want to know is why the authorities have decided to get involved in a dispute about a bank wanting to change its computing system. If there is a conflict between a bank and its holding companies, it is a conflict that ought to be resolved by the parties involved.

However, what started off as a small conflict now involves the FSS, the FSC, and the Prosecutors Service. Those who should be the ones to resolve this conflict have been relegated to the back seat.

I wish that the FSS and the FSC would not get involved in every single mundane problem that exists in the financial industry. Whether people choose to engage in litigation or reach a compromise, it is a much better idea to let those directly involved to solve their own mess.

The Keumsan Separation Law (a law that requires financial institutions to separate financial capital from industrial capital) is what causes confusion when people need to determine who is exactly running the banks. And it is for such reasons that banks lack the ability to resolve their own problems.

The only way for banks to resolve their problems is via trial and error. If the government steps in every time a problem arises, just how are banks supposed to learn to resolve their own problems? If this trend continues, private banks will be private in name only whereas in practice, they will all be nationally-run banks. Sometimes, however, it does feel like they are already nationally-run.

I am not denying the importance of the FSS. The FSS does, indeed, have a legitimate role to play in the market. After all, financial collapse is a real possibility that the FSS must guard against. If one bank fails, others can follow suit and then the entire economy could fall apart.

Therefore, the FSS needs to be involved to a certain extent in the industry that it oversees in order to ensure that the economy does not collapse due to market failure. However, monitoring the industry's every move and its near constant interventions in the financial industry is a clear overstepping of its functions.

The fact that senior bank managers are given golden parachutes is one of the worst kept secrets in the world. Shareholders have no say whatsoever. But what does any of that have to do with market stability? As we can see from this fiasco at Kookmin Bank, all it does is to create factions that are constantly at each others' throats.

The FSS also ought to stay out of the daily business practices of the financial industry. Any time that a bank or any other financial institution wants to introduce a new service, it needs to seek permission from the FSS every step of the way. The financial institutions themselves ought to make such decisions without having to need to ask for every single permission. Consumers are more than able to determine for themselves as to whether those services in question are beneficial for them or not.

Whether its the FSS or the FSC or the Blue House, they all ought to take their hands off of the industry's mundane everyday business practices. They should stop treating the industry like a child. Believe it or not, Korea's financial industry is more than 60 years old. It is more than capable of governing itself. Whether we are talking about the people who work in the industry or the customers that they serve, people already already know the rules of the game.

The authorities' overbearing involvement in the industry is forcing the financial industry to accept being nothing more than a big fish in a small pond.

If we want Korea's financial industry to be as successful and world-renowned like Samsung Electronics or Hyundai Motors, they should be set free. They should wake up from their delusions that they somehow know better than the sum total of individual consumers.

CEO of Freedom Factory

Chung-ho Kim