G20 adviser to Preside Lee wins essay contest on banking regulation

By Jung Sung-ki

A Princeton University professor who served as an adviser to President Lee Myung-bak won an annual essay contest on banking regulation sponsored by the International Center for Financial Regulation and the Financial Times newspaper.

Shin Hyun-song, who taught at Oxford University and the London School of Economics before moving to Princeton, scooped up the prize with an entry on how the Group of 20 leading nations could bolster financial stability with so-called macroprudential tools that lean against the credit cycle, the Financial Times said.

Shin has provided theoretical ground to the Korean government in the adoption of new, innovative banking regulations last year. These include a leverage cap on banks’ foreign exchange positions, as well as a bank levy on non-core, foreign currency-denominated liabilities.

Drawing on examples from South Korea, the United Kingdom and the United States, Shin advocates a global bank levy as the best way to deflate financial bubbles. He compares the idea to the traffic congestion charges in London and Seoul, which are used to discourage people from driving into congested roads in city center.

Shin was quoted as saying that the essay grew out of his work last year helping Korea steer the G20 meetings in Seoul. He was on sabbatical most of last year to advise President Lee.

He is now back in the United States and is teaching a seminar on international banking regulation.

“When you are an open economy, there is a limit on how much you can affect liquidity with conventional monetary policy. You need something more intrusive,” he said.

The contest, in its second year, drew entries from around the world, and this year’s topic was “The Future of the G20 and Financial Regulation.”

Shin will receive a prize of $7,500.