Top Regulator Calls for Reinvigorating Reform Momentum

By Cho Jin-seo

Staff Reporter

The global reform drive of financial market systems is losing steam because of the recent economic recovery, Korea's chief financial regulator warned Wednesday.

Chin Dong-soo, chairman of the Financial Services Commission, said the Group of 20 (G-20) nations may fall into a "race to the bottom," meaning that each nation is tempted to pursue its own interest while undermining global coordination.

His remark shows the increasing worries on the efficacy of the G-20 Summit planned in November in Seoul, as well as next week's meeting of finance ministers in Washington, D.C.

"The momentum on financial reform has weakened recently because of the rebound in the global economy and stabilizing of financial markets," Chin said in a speech at a conference on global finance held at the Grand Hyatt Hotel in Seoul.

"There are concerns that the expectation on the role of the G-20 has been lowered since the sense of crisis has been alleviated. (The nations) should not forget the original intention of the meeting and should not feel relaxed," he said. "International society must execute its promise of solving the vulnerability of the financial system, which was the cause of the crisis."

The G-20, which is comprised of the world's 19 largest economies plus the European Union, has been upgraded to summit level thanks to the global crisis as rich nations sought help from emerging economies such as China. Since last year, their officials have been working together to produce a cohesive package of solutions to fix the global financial system at the November summit.

Next Friday in Washington, finance ministers will be discussing various options to draw a draft of the global reform plan. So far, the United States has been the most active in proposing two plans of action - a bank levy and the Volker rule.

Not all member nations have agreed on the U.S. initiative so far. While the United Kingdom, Germany and France are reportedly favorable to the ideas of imposing more regulations, Canada and Australia are in general opposed to them.

The disagreement among countries is understandable because of their different economic interests. The U.S. government spent $450 billion in saving financial firms during the crisis, larger than the total used by all other nations. About 60 percent of the emergency injection has not been recovered yet, so it is imperative for them to find ways to recoup the money.

The United Kingdom and Germany have also spent considerable sums of taxpayers' money. But Canada, Australia and South Korea did not inject state funds during this crisis, and thus are feeling less urgency on both the bank levy and the Volker rule.

In part because of its political relationship with the Americans, the Korean government has kept a low profile in this international debate. Chin and other top government officials have been refraining from making comments on the global regulatory issues, and only said they are open to all options.

On Wednesday, Chin again kept mum on Korea's stance on the two regulatory issues. He reiterated his usual parlance of international harmony in policy making.

"If the pace and the direction of the financial reform drive are not aligned globally, the global capital flow will be distorted, and speculators will profit from different level of regulations between countries. We need to watch carefully for such malfunctions," he said.