Faulty regulatory logic

United States President Barack Obama is pushing for a tougher and more extensive overhaul of the American financial system, creating turmoil on Wall Street that is rippling here as well.

Seoul’s government has been working on its own set of financial measures designed to encourage financial activities by easing in regulations, which is the opposite of Washington’s regulatory strategy. The local government planned to announce the new measures, dubbed “Vision to Advance the Financial Industry,” next week. But it is considering rewriting the measures following the U.S. government’s proposal to curb the size and scope of large financial institutions.

Seoul may not have been sensitive to Washington’s regulatory steps if not for its chairmanship of the November G-20 conference. Some government officials are arguing that the country cannot diverge too much from the strategies of key members in the same year it hosts the conference, the agenda of which is geared mainly toward economic cooperation. With the U.S., a financial powerhouse, taking unprecedented steps to rein in the activities of financial institutions, Korea cannot solely rally for more freedom and an easing of regulations in the financial industry. But this logic is faulty, as it ignores the realities of the domestic financial industry and international financial regulations.

The U.S. and other countries with strong financial industries are taking hard line on their financial institutions because they have capitalized too much on free-market principles, growing too big to fail and therefore demanding government bailouts. Their reckless bets with risky investments have brought about a financial meltdown across the globe.

Korean financial institutions, on the other hand, remain mostly tied to the government and stringent regulations, meaning they are largely incapable of moving beyond the domestic frontier. The government could still ease regulations and take other similar measures yet still meet the toughened international regulations.

The Korean financial industry will stay underdeveloped if the government chooses to follow the international trend without consideration for the reality here. Authorities must study the differences between the local and international markets first and then decide on the extent and methods of measures that will enhance the domestic industry.

We will become a competent and wise chair-country when we voice the needs of less-developed financial markets in the reform steps sought by advanced countries.