By Cho Jin-seo
Staff Reporter
Seoul will not follow the global banking reform plans initiated by U.S. President Barack Obama and British Prime Minister Gordon Brown, which include capping the size of banks and the creation of a global bank tax, a ranking financial regulator said Thursday.
The remarks by Yi Jong-goo, a standing commissioner at the Financial Services Commission (FSC), shows that global coordination may not be as easy as countries had hoped when it was discussed during the peak of the recession.
Yi, who is in charge of international affairs at the FSC, said that the government is currently not thinking about adopting the global bank tax or transaction tax, because banks are already tightly controlled by the government here.
"We pursue an open market economy, so our basic stance is not to have such things," he said with a hint of irony, after briefing reporters about the role of the Korean government in the Financial Stability Board (FSB), Thursday. "Our banks and bank holding companies are watched very closely by the government. Every nation has its own circumstances, so we don't need to follow every rule drawn up by developed nations."
On Wednesday, U.K. Prime Minister Brown said the establishment of a global bank tax is close. "I'm interested in the way support is building for international action," he said in an interview with The Financial Times, hoping a solution can be reached at the G-20 meeting in June. "People are now prepared to consider the best mechanism by which a levy could be raised."
To his disappointment, the "international action" Brown is hoping for is not likely to come from South Korea, which will be hosting the G-20 summit in November in Seoul. Korea is also one of the steering committee members at the FSB, through which 32 nations are working together to form an international standard of new bank regulations.
"We will not simply follow other countries. We will insist on what we want, and we will reflect what we need. There is a moral responsibility for member nations to comply with the agreements made at the FSB, but we have to check whether we are legally responsible as well."
Yi also played down U.S. President Obama's bank reform plan, often called the ``Volcker Rule,'' as a domestic solution.
"As you know, the position of the U.S. president is very powerful. So when he talks, it becomes an international agenda. But as you also know, our banking industry is not subject to the situation described by the Volcker Rule. We will not hurry in deciding our position in that matter," he said.
The Volcker Rule intends to cap the size of banks, so the government can let them go bankrupt with a minimum impact on the economy, instead of bailing them out with taxpayer money.
Despite Yi's confidence, Korea has not fully recovered from the trauma of the Asian financial crisis 12 years ago. Of 168.6 trillion won of public money spent in bailing out large banks and companies since 1998, only 56.9 percent has been recovered.
But the Lee Myung-bak administration has become more confident this year. Kwak Seung-jun, one of Lee's top policymakers, said last week that Korean financial firms need to get bigger in order to compete in the global market against the likes of Goldman Sachs, and create more high-salary jobs for ambitious bankers.
Government officials and academics also say that the major problem of the Korean economy is not its bankers' greed, but its vulnerable foreign exchange system. When a crisis hits, foreign investors pull out their investments en masse, which leads to large fluctuations in the foreign exchange rate. Even though the government has tight control over local banks, foreign investors are out of its reach.
Widely known as the Tobin Tax, the global banking transaction tax is one of the proposed systems that can reduce such volatility in international money flow. Other proposed measures include the forming of a single regional currency between Korea, Japan and China, and the creation of a multilateral foreign reserve pool.
Ruling out the banking tax scheme, Yi said it is the presidential office's role to introduce a viable solution to the problem.