Biden's win signals stricter regulations for Korean banks in US
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By Park Jae-hyuk
The victory of Democratic candidate Joe Biden in the U.S. presidential election has raised new hopes for both the U.S. and the global community, but his commitment to stricter financial regulations is apparently weighing on Korean banks doing business in the world's largest market.
Domestic think tanks warned that lenders may face deteriorating profits because most of the Donald Trump administration's Wall Street-friendly rules could be abolished by the new U.S. government.
According to the Korea Center for International Finance (KCIF), the U.S. president-elect's pledges are unfavorable to the banking industry and the financial market as he has pursued heavier taxes and tougher regulations.
“Biden is considering imposing financial transaction taxes,” KCIF researcher Park Ji-eun said. “This can decrease financial transactions, leading to worsening profitability of banks and negatively impacting their valuations eventually.”
The Bank of Korea also pointed out the new administration will take more aggressive measures against unhealthy investments in Wall Street and poor customer protection measures there.
“The Democrats will revise the Trump administration's rules which have allowed financial advisory firms to prioritize their own interests, rather than their customers',” the central bank said in its report.
From that standpoint, market observers are paying keen attention to the forthcoming transfer of political power in the U.S., wondering whether Biden's policies could put the brakes on Korean financial companies that have sought to expand their presence there.
Korea's four largest financial groups have pursued two-track strategies for their expansions in both the emerging and developed markets.
In developed markets like the U.S., they have enhanced their investment banking capabilities.
“We will make more non-interest profits in developed financial markets by pursuing investment banking and global transaction banking,” Shinhan's global business department head Jeong Ji-ho said in a previous interview with The Korea Times.
KB has also sought expansion in the U.S., which Korean investors prefer because of the country's stability. Woori is running a global investment banking desk in New York to handle more superior syndicate loans.
Some forecast financial firms may focus more on the Chinese and European markets in response to the tightened financial regulations under the Biden administration.
Local banks, however, have maintained a wait-and-see stance on the new government.
“We have yet to have any plan to adjust our overseas investment portfolio at this moment,” a domestic banking industry official said on condition of anonymity.
Meanwhile, the KCIF said tougher regulations on conventional financial companies can be an opportunity for fintech firms to seek further growth.
“Through peer-to-peer apps and digital currencies, Biden is expected to prefer direct connections between the Fed and consumers,” its researcher said. “This will lead to the development of fintech firms and could be a threat to the banking industry.”