Financial cleanupKorea, the United States and Japan are taking action to modify the systems that oversee the financial sector. All three countries are motivated by concerns following the onset of the U.S. subprime mortgage crisis, which revealed serious problems with the global financial system.
In Korea, the Financial Services Commission is now handling financial policies and overseeing financial institutions that were previously overseen by different bodies. The chairman and the vice chairman of the commission were hired from the private sector. This decision falls in line with President Lee Myung-bak’s call to reform the government-led financial sector in order to revive the financial industry.
As the reformers restructure organizations and human resources, they are also dismantling old financial regulations.
The other day, the FSC underscored its determination to ease a ban that stops non-financial companies from owning banks. It also emphasized its desire to employ experts from the private sector, foreigners or locals at public financial corporations.
The United States is also evaluating the situation, its biggest rethink of the financial market since the Great Depression in the 1930s. One new measure is to give the Federal Reserve Board the right to oversee commercial and investment banks, securities, hedge funds and insurance companies. As a result, the Federal Reserve will have a greater role to play when crises occur.
Meanwhile, the Bank of Japan has been without a governor for nearly two weeks. The Liberal Democratic Party nominated two people who used to serve in the Ministry of Finance. But the Democratic Party, which took control of the Upper House of the Diet, rejected both choices, pointing out that neither candidate is suitable to be head of the central bank because independence is key.
In all three countries, financial regulations are getting eased while supervision of the market is enhanced. This is a belated but ultimately appropriate move.
For the past decade, the world’s financial markets have expanded like never before. So regulations were drastically eased, leaving the financial sector with nothing to rely on except its own competitiveness and efficiency. However, regulation and supervision should be treated separately. Supervision of the market should be strengthened while regulations are eased.
Famed economist John M. Keynes said, “The financial market is an incomplete one that is affected by psychological factors.”