Focus on improving the systemMoves to designate the government-run banks, like the Korea Development Bank and the Export Import Bank of Korea as public corporations, are active. No one would argue that the government-run banks, which are owned by the state, should be made public corporations and be managed strictly. But there could be sensitive issues.
Attempts to designate state-run banks as public corporations have been made for a long time, but, this year, efforts are pushed further due to accumulated losses and sluggish restructuring. The loss of state-run banks could require injection of taxpayers’ money, so they need to be thoroughly managed. Yet, government-run banks were given wide autonomy for a reason.
Government-run banks take deposits and issue bonds to raise funds through competition with private financial companies and provide funds based on a market mechanism.
If government-run banks are designated as public corporations and are applied more strict regulations, it may be expected to show visible outcomes such as cost reduction or improved management, but undermined competitiveness is likely to cause malfunction as policy financial institutions.
The most concerning issue of designating state-run banks as public corporations is the requirement for prior consultation with the Minister of Strategy and Finance for investment or funding. One major jobs of the Korea Development Bank is investing in venture companies, and it makes hundreds of investments every year.
The decisive factor on the success of investment on venture companies is to have a system to make swift and flexible decisions in response to the fast-changing market environment.
We need an apparatus to check on slack management and the laid-back attitude of government-run banks. But a wiser prescription is to focus on improving the system rather than designating them as public corporations and making them harder to function as policy financial institutions.
*Professor of management at Chung-Ang University