No more faith in finance

The local financial industry and authorities are in a crisis of confidence. They have been at the center of major scandals, blunders, malpractices and poor oversight. In a recent report by the Board of Audit and Inspection, banks have been reported for having raked in handsome profits by charging disproportionately high lending rates. Borrowers kept on paying high interest rates on loans even after their credit ratings improved.

Banks lacked guidelines on interest rate spreads, bestowing on branch managers unilateral authority to charge rates. A Kookmin Bank branch was raided by police on charges that it rigged documents in order to retrieve loans ahead of their maturity. If all these allegations are proven true, we would have to ask if honest trade was really behind last year’s record net profits of the banking industry.

Controversy is brewing over systematic manipulation of interest rates on certificates of deposit that serve as benchmarks for mortgages and other loans as well as derivative products. Bank customers are poised to take class-action suits against banks for colluding to make the key borrowing rate higher, and the suspicion of rate-rigging could also spark international lawsuits over derivative transactions.

Consumers have lost so much faith in authorities that they are likely to take individual actions even if the Fair Trade Commission dismisses collusion in its investigation. The financial sector has lost that much credibility. Widespread mistrust in the domestic financial system could jeopardize the entire industry.

Financial authorities gave sufficient reasons for consumers to turn against them. Consumers generally have complaints over a financial industry that sells products without thorough explanations. Subscribers of equity-linked life insurance were enraged that the products that insurers advertised as post-retirement safety nets generated little or no returns.

Most believe the authorities exist for the industry rather than consumers. In the recent rate-rigging scandal, authorities advocated for financial companies and soft-pedaled actions against them. In order to reinstate order, authorities must hasten a law to better protect consumers. Steps must be taken to prevent dereliction of duty and strengthen consumer relief programs. The financial consumer protection bureau under the Financial Supervisory Service would serve more effectively as an independent agency.