By Kim Jae-kyoung
BusinessFocus editor

With former finance minister Kang Man-soo taking the helm of state-run KDB Financial Group, the obsolete idea of a ”mega bank” has been revived, spawning speculation that he was appointed to spearhead the creation of such a super-sized entity.

Together with the Four-River Project and 747 Plan, creating a giant bank capable of competing globally has been one of the key agenda items for the Lee Myung-bak administration, and Kang, a special advisor to the President on economic affairs, was the architect of the mega bank theory.

Kang once aggressively pushed for this vision with support from President Lee but stepped back after meeting mounting criticism both from inside and outside that privatization should precede expansion.

He may first seek to merge KDB with Woori Financial Group, another state-run entity up for sale. If the two are merged, the resulting total assets are expected to reach over 500 trillion won ($444.04 billion), the biggest among local banking groups. Or Kang will probably try to create an investment bank by merging policy lenders, such as the Industrial Bank of Korea (IBK).

While serving as finance minister, the 65-year-old life-time bureaucrat strongly claimed that the country needs to build a mega bank by merging Woori with KDB and IBK to globalize the financial industry.

It is still unclear what’s in Kang’s mind but it is highly probable that he will soon pull out this theory again. What is of concern is that this is way behind the times. The global crisis gave us a big lesson. Big mega-size global banks went belly up, while many small but healthy lenders weathered the crisis.

Also, Kang and other policymakers should remember that the size of a bank does not guarantee the birth of a global financial player. What is more important is a place and environment where banks play and do a business.

In other words, policymakers should focus more on finding ways to create an environment in which it can employ armies of the world’s best financial talent and work at the international level.

Korea has yet to build a culture that will accept, attract, motivate and stimulate this talent, let alone provide structures that will satisfy them and incentives.

In this regard, the market environment should be overhauled to help domestic banks enhance their global competitiveness. Markets should be a flexible place where banks can employ a variety of business strategies. To that end, a flexible labor market and flexible regulations are essential.