Bahk counsels against changing bank stake cap

In response to promises by the two main presidential candidates to enhance regulations aimed at keeping domestic banks out of the reach of big conglomerates, Korea’s finance minister showed his opposition yesterday by saying the current controls are sufficient.

“Compared to the regulatory levels of other countries, it is appropriate to maintain the current [9 percent] level, unlike arguments by some [politicians] that it should be lowered to 4 percent,” said Minister of Strategy and Finance Bahk Jae-wan at a forum in Seoul yesterday.

Bahk’s remarks came amid growing calls for restrictions on conglomerates in a bid to realize “economic democratization” in the political sector. Ahead of the Dec. 19 presidential election, both Saenuri Party candidate Park Geun-hye and Moon Jae-in of the opposition Democratic United Party have pledged to keep a lid on how much influence conglomerates can wield over banks, reducing the maximum-allowed stake from 9 percent to 4 percent. The current administration raised the ceiling for non-financial businesses to 9 percent in 2009.

At the time, the government pushed to ease the regulation by arguing that imposing stringent rules on owning stakes in banks goes against the global trend, which aims to help banks grow in tandem with industry.

“Strict rules separating the financial sector from conglomerates would undermine synergy effects between the two,” said an official at the Financial Services Commission.

The United States, which pioneered the idea of separating the two, increased the ceiling in 2008 from 10 to 15 percent to help banks secure capital, he added.

The European Union, Britain and Japan also allow nonfinancial companies to own up to 10 percent of banks, he said.

The former Roh Moo-hyun administration kept the rate at 4 percent to prevent conglomerates from using banks like their private coffers.

Bahk also highlighted that efforts to privatize state-owned banks must go on.

“Government-owned banks need to be privatized in order to increase competitiveness of the financial sector,” he said.

The current Lee Myung-bak administration has made three attempts to privatize Woori Bank without success. Plans to list Korea Development Bank may also collapse.

The minister, however, expressed concern about reckless expansion in the financial sector, saying it could trigger increasing systemic risks that would affect the real economy, as seen during the last global financial crisis.

“The financial sector should take ‘social responsibility’ and work hard to regain people’s trust,” he said.

By Song Su-hyun [ssh@joongang.co.kr]