An ugly turf warThere was a saying in Europe about a century ago: “Occupy the bank and you occupy the world.” That underscores the power of finance and capital. In Korea’s case, we could substitute the word bank with “financial supervisory authority.” The financial authority has all the power in the structuring of the financial industry. One misstep from the financial authority could put the country’s economy in severe jeopardy.
The authority of the financial watchdog is that broad and deep. A turf war between the Financial Services Commission (FSC), a government organization, and the Financial Supervisory Service (FSS), a non-government regulator, has been ongoing. We lose count on what round we’re in as the two authorities clash at the beginning of every government.
In late June, a task force of the FSC drew up a framework to revamp the regulatory system. Under the plan, the consumer protection unit within the FSS would be enhanced with greater sovereignty and the supervisory authority of the FSC strengthened. In other words, the FSS would hold onto a powerful unit and the FSC would gain greater practical authority. But the plan has been sent back by President Park Geun-hye and needs to be revised.
No matter what changes are made, the core of the problem in the financial supervisory system isn’t likely to go away. In essence, it is a turf war. Both the FSC and FSS want to mark out a bigger share in their turf. Otherwise, they would not be hypersensitive about reorganization plans.
The FSS response is understandable. When the Board of Audit and Inspection investigated the government failure in policies following the bursting of the credit card bubble in 2004, it largely laid the blame on the FSS. Similar blame was laid after the mismanagement and lax supervision that led to the closure of savings banks in May 2011. President Lee Myung-bak visited the office of the FSS and scolded its executives for the savings bank crisis. The FSC escaped blame. The FSS staff, therefore, can’t be blamed for bearing hard feelings against their peers at FSC.
The FSC also has its complaints about the FSS. Bureaucrats resent that FSS employees have all the power and at the same time are well paid. Their envy is understandable as the average salary of officials at the FSC hovers at around 92 million won ($81,102) even though their organization is the top authority in the financial hierarchy.
But at the end of the day, the benefits the FSC and FSS enjoy even out. Bureaucrats receive less pay now but enjoy bigger pensions after retirement. Their jobs are guaranteed until retirement age and they can get a golden parachute to land high-paying jobs in the private sector after they leave the government. It is an eyesore to watch the relatively well-off greedily wanting more. One side picking on every little bit of authority and the other getting all wounded as if it has been invaded are both pitiful to witness.
As they busy themselves fighting for turf and perks, they are neglecting their jobs and their primary concern. What they should focus on is reinforcing financial supervision and enhancing neutrality and accountability. Which government has ever had a will to reform the regulatory system? Did we ever have financial authorities live up to their roles as protectors and watchdogs over the market? They merely did what they were told to do. We could hardly expect political neutrality from current financial authorities.
The financial authority must be upgraded in several areas in order to better meet public expectations. It must be equipped with professional foresight to see the market with clarity and wisdom, a supervisory structure balancing cooperation and constraint, neutrality to keep political influence at bay, and a no tolerance attitude toward corruption. A supervisory role cannot be improved by reorganization alone.
There is no need to care about position formations in football matches among amateurs just playing to while away an afternoon. An amateur game does not become professional through clever formations. Two agencies waging a turf war are no different.
In his 2004 book “Aligning Financial Supervisory Structures with Country Needs,” Jeffrey Carmichael, former chairman of the Australian Financial Commission, pointed out that makeshift changes in a regulatory system would only place the country in another crisis. His advice should hit home with our regulators.
*The author is an editorial writer of the JoongAng Ilbo.
by Nam Yoon-ho