Focus on Hwang is misplacedThe Financial Supervisory Service’s sanctions committee has imposed a suspension of duty on Hwang Young-key, chairman of KB Financial Group. Hwang is alleged to have made inappropriate purchases of financial derivatives, such as credit default swaps and collateralized debt obligations, while running Woori Finance Holdings Co., and inflicted $1.3 billion of investment losses upon the bank.
Woori Bank is in a miserable situation, forced to take 1.3 trillion won ($1 billion) from the watchdog’s capital fund to help it survive. Although it was hit by the unprecedented worldwide financial meltdown, someone should be held responsible for this management failure.
However, we find it wrong to convict Hwang based on our 20/20 hindsight. His argument - that he did not give a direct order to make the investments and that the losses only become a huge problem after his resignation - makes sense. Now all the buzz in the financial world is about him, saying that he was the victim of a “witch hunt” or a “character assassination.” Most of all, we are worried about the aftermath of the sanctions. From now on, financial firms will not be able to help but glance behind themselves - going from acting according to their convictions to defending their interests.
In fact, the Korea Deposit Insurance Corporation and the Financial Supervisory Service should shoulder a greater degree of responsibility in this regard. The KDIC, as the largest shareholder of Woori, was in a position to examine its investments in financial derivatives in detail as they were being made. However, they have begun to take an interest only later, making Hwang their scapegoat.
The same may be said of the Financial Supervisory Service. It vowed to shift its focus of financial supervision long ago, from a follow-up approach to a precautionary one. However, it overlooked the illegal and inappropriate purchases of financial derivatives in its overall examination of Woori Bank in May 2007. This failure in financial supervision contributed to a huge part of the Woori Bank crisis.
This ban is a harsh punishment, putting an abrupt end to a thriving financial career. It is of greater importance to examine the factors behind the failure, rather than accuse Hwang of being responsible for it. No matter how difficult it may be to regulate them, we can no longer avert our eyes from these high-return investments. We should provide a firm foundation for building our risk management capabilities before we have another Woori on our hands.