By Cho Jin-seo
Two of Korea’s major financial groups called for leniency on banks in emerging countries in the global discussion on adopting stricter regulations at the G20 meetings.
Bankers from Shinhan and Woori financial groups represented the Korean financial industry’s voice, in a conference on Thursday held at Grand Intercontinental Hotel in Seoul, where the G20’s financial regulators and central bankers were contemplating harsher banking regulatory standards such as new capital, liquidity and leverage ratios in an adjacent room.
Choi Buhm-soo, chief financial officer of Shinhan Financial Group, insisted that Korean regulators should not be overwhelmed by the global discussions of raising regulatory standards. Such an initiative is led by Western, advanced economies where conditions and the history of the banking industry differ, he said, with an allegory of the football industry.
“The budget of the Manchester United club is very bad, because the salary they pay to their players is too high. But we cannot say that the Korean football league has the same problem, because football players here are poor,” he said. “In designing the new regulatory framework for this New normal, we can only hope that our regulators and politicians do not lose the balance between short term stability and long term economic dynamism.”
Hwang Sung-ho, chief executive of Woori Investment & Securities, was more outright.
“We believe it is inappropriate to apply tougher and homogeneous regulations on systematically important financial institutions in Asia given the need for Asian financial institutions, each having to perform under the different tasks under varying local environments. In our view, Korea needs to nurture our financial industry to grow competitively, not preemptively regulating its natural evolution toward regional and global markets,” he said in a presentation.
While the large investment banks are still blamed for aggravating the most recent financial crisis, “there are no true investment banks in Asia or in emerging nations,” he said.
The conference was jointly hosted by the Korea Institute of Finance (KIF) and the Institute of International Finance (IIF), on the sidelines of the official conference of the G20-Financial Stability Board (FSB) conference being held Friday. As a cure for the recent financial crisis, the G20 and the FSB are going to announce the new banking codes, often dubbed Basel III, at the Seoul Summit. Friday’s conference is a preamble to November’s main event.
Along with Choi and Hwang, a number of experts joined the discussion during Thursday’s less formal seminar.
Yim Jong-yong, the vice finance minister of South Korea, said that changes are inevitable in the global and domestic banking regulations, and Korean financial firms should try to take advantage of the changes.
“Regulators make the rules of a game. But the game must be won by the players of the private sector. The private sector must embrace the chances of the regulatory regime. The government will help them make a soft landing.”
Paul Wright, senior director of IIF who worked at the Britain’s Financial Services Authority until last year, refuted the Korean bankers’ claim, by stressing the role of international coordination in coping with the increasingly globalized nature of the banking industry.
“Industry supports tighter more, more effective regulation. This must be focused and properly calibrated and its economic impact should be fully understood,” he said. “It must also be internationally coordinated within the G20 - FSB process. A plethora of national initiatives will be counter-productive.”
One of the most interesting remarks came from Hung Tran, deputy managing director and counselor of the IIF. The former deputy director of the International Monetary Fund alluded that modern society has been caught in an urban myth that banks are allowed to pursue excessive, risky profits. “Banks have had a high return on equity, because the high return was demanded by their investors, such as pension funds and hedge funds,” he said.