Regulatory system overhaulRegulatory system overhaul
The Bank of Korea and the Financial Supervisory Service concluded a memorandum of understanding on sharing almost all financial information last week. It was also agreed that the financial watchdog would launch joint inspections within a month of receiving a request from the BOK.
The decision to give the BOK the authority to investigate financial companies on its own is a huge step toward resolution of the conflict between the two institutions over this issue. Now, it is imperative that both parties actively cooperate to implement the provisions of the memorandum. We extend this earnest request to them, with the knowledge that previous memoranda have not been properly executed. Therefore, we urge both institutions to look beyond their own interests in order to make this new deal work.
Furthermore, a more detailed analysis of the memorandum will be necessary in order to achieve the ultimate goals of strengthening macroeconomic supervision and securing economic stability. Despite the need for a fundamental overhaul of the nation’s regulatory system, some people point out that the memorandum is nothing but a temporary compromise signed by the two institutions.
In fact, we understand the significance of macroeconomic supervision given the economic meltdown. It appears that the kind of microeconomic supervision conducted by the watchdog on a regular basis does little to reduce the risk to the financial system as a whole.
Despite the optimistic belief that the average equity ratio for the Bank for International Settlements will exceed 8 percent, real estate property and household loans have become unstable in the face of the crisis. The government made a lot of noise about the state of the nation’s foreign exchange reserves, but failed to understand the flow of foreign capital. It was revealed that they have paid little attention to adjusting the maturity structure of foreign currency denominated debt and bonds. All of these things are evidence that developing an exact understanding of the economic cycle is of great importance to financial supervision. This is the very reason that other developed countries, such as the United States, are pondering ways to further strengthen their regulatory structures.
We should not be content with this agreement. Instead, we should try to figure out how to solve this problem. If necessary, we should consider overhauling the system of financial supervision across the board. We should also explore ways to help prevent another economic crisis from occurring.
We expect the BOK and the Financial Supervisory Service to work together to promote national development.