Going Cap in Hand
Taxpayers' Money Should Not Be Wasted
The nation's bank recapitalization fund has started its operation to help commercial banks increase their capital base, expand lending to businesses and promote corporate restructuring amid the unprecedented economic crisis. At the end of last month, the 20-trillion-won fund injected 3.96 trillion won ($2.86 billion) in capital to eight local banks. It appeared inevitable that the lenders needed the capital to avoid the contagion effect of the global financial turmoil and maintain stability in the banking sector.
It is global phenomenon that many troubled banks are going cap in hand to governments for money in the face of the worldwide turbulence. In South Korea, commercial banks and other financial firms have yet to be in a crisis mode, as seen in the United States and European nations. It is safe to say that the local banking sector is doing better now than it was in the 1997-98 Asian financial crisis. The government provided a total of 168 trillion won in public funds to banks, brokerage houses and insurers during and after the previous crisis.
But now, the specter of public fund is haunting the nation again, as the Lee Myung-bak administration mobilized 20 trillion won in taxpayers' money to steer banks away from potential systemic risks. This time, policymakers and regulators are refusing to use the term ``public fund.'' Instead, they call taxpayers' money ``recapitalization fund.'' They insisted that the fund has been raised as a preventive measure designed to get money flowing into the real economy and promote corporate restructuring.
No one can deny that the fund is actually public. Therefore, its use should be based on public consensus. As such, it's disappointing that the government has failed to seek approval from the National Assembly or reflect public opinion for the mobilization of the fund. We must not forget that people have been angered by a set of embezzlements and the misuse of huge sums of public funds since the Asian currency crisis.
Most worrisome is Woori Bank receiving 1.3 trillion won after getting 12.8 trillion won in public funds in 1998 and 2001. It's unusual that the government came to the rescue of Woori for the third time. Critics argue that such a weak bank should have been liquidated in order to prevent the ``moral hazard'' problem and the wasting of taxpayers' money. Executives of Woori Bank must take responsibility for its current woes as they have recklessly expanded its operations without paying sufficient attention to credit risks. But they pocketed huge sums of pay, bonuses and stock options regardless of the bank's snowballing losses and bad debts.
The government ought to ensure transparency, accountability and fairness in additional injection of the fund into the lenders. Foreign investors are majority shareholders of four of the banks. In this regard, the capital injection might only turn into subsidies to protect the interests of foreign stakeholders. It is urgent that policymakers, regulators and bankers do their best to avoid the arrogance, incompetence and greed seen in troubled U.S. insurance giant AIG.