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Deputy managing editor
The nation's financial sector has made efforts to improve its competitiveness since the outbreak of the 1997 Asian currency crisis. But such efforts were not successful in turning local banks and other financial companies into global giants.
A total of 168 trillion won of taxpayers' money was injected into the financial sector following the crisis in a desperate bid to bring the shaky banking and financial system back to normal. Early in the 2000s, domestic banks ostensibly appeared to have regained their health with the help of the public funds.
But now, their future is still not bright as they have failed to present a new vision or set out a strategy to keep their growth momentum. We should not be optimistic about any quick fix.
One of the most serious obstacles to the development of the financial industry is "gwanchi," or government control on banks and nonbank financial institutions. Gwanchi has been too deeply-entrenched to be eliminated in the banking sector.
State control has long been blamed for fostering cronyism and corruption among bureaucrats and bankers. It was one of the major causes of the Asian financial woes. It is regrettable that government officials still refuse to ease or lift their control, despite their repeated pledges for deregulatory reform and liberalization.
In other words, policymakers are addicted to gwanchi. They keep trying to tighten their grip on the banking system in an apparent attempt to exercise their influence on finance and economy. They have formed a network of "gwanfia," a combination of bureaucracy and mafia.
Gwanfia can be traced back to "mofia" as far as finance is concerned. Mofia was a portmanteau of mafia and the acronym for the Ministry of Finance (MOF), the old name for the Ministry of Strategy and Finance.
Mofia was widely used in the media in the 1980s and ‘90s, although its use is now eclipsed by gwanfia as seen in the case of the Sewol ferry disaster, the embedded cause of which is attributed to corrupt ties among bureaucrats, regulators and ship owners.
Mofia refers to the network of the elite bureaucrats who take top positions at government agencies, regulatory bodies, banks and other financial companies after their retirement. This network has helped develop crony capitalism in collaboration with owners of chaebol, or family-run conglomerates.
Mofia members are still active in the financial sector regardless of who rules the country ― conservatives or liberals. They have solidified their foothold without being influenced by political transition. They have even lobbied policymakers, politicians and lawmakers to protect the self-interests of banks and financial companies.
One of those members is Lim Young-rok, chairman of KB Financial Group, who has come under mounting criticism for causing an internal feud with the CEO of the group's flagship unit, Kookmin Bank, over the change of its computer system.
Lim, who was a vice finance minister between 2007 and 2008, took the helm of the financial holding company in July last year. He has been at odds with former Kookmin Bank CEO Lee Kun-ho. The feud between Lim and Lee came to a head when the board of directors decided to replace the bank's IBM computer system with a Unix one in April this year. Lee was strongly against the new system.
The dispute led the Financial Services Commission to slap Lim with a three-month suspension for mismanaging the internal dispute with Lee, who resigned early this month after the Financial Supervisory Service upgraded penalties for both of them from "cautionary" to "punitive warnings."
However, Lim has refused to resign voluntarily, defying the disciplinary action. He has also tenaciously resisted the KB Financial board's Sept. 17 agreement to dismiss him for mismanagement, threatening to take his case to court.
The dispute is seen as a power struggle between Lim and Lee. Apparently, Lim will not give up his post in order to wield his power as a member of the mofia as well as gwanfia.
We must learn a lesson from the KB Financial case.
The nation should get rid of government control of the banking and financial sector. Gwanchi has destroyed the market system and blocked fair and free competition, while allowing bureaucrats to flex their muscle and fatten their own pockets.
To do this, the authorities should no longer try to "parachute" retired bureaucrats into banks and other financial companies. Policymakers and politicians have to bear in mind that banks and non-bank institutions can never be a booty or trophy that is available for those who are loyal to the inner circle of political power. They must not repeat their mistake of bringing all the evils to the financial sector in the name of gwanchi.
