By Kang Seung-woo
Is the governor-designate of the Financial Superivisory Service (FSS) too close to lose its independency from its Financial Services Commission (FSC)?
The Financial Services Commission (FSC) announced its decision to propose its Vice Chairman Kwon Hyouk-se as governor of the Financial Supervisory Service (FSS), the former group’s executive body.
The 54-year-old candidate needs the final nod from President Lee Myung-bak and if approved will replace current head Kim Jong-chang, whose term expires on March 26.
Critics say that the appointment of Kwon, a long-time government official, as the FSS governor could undermine the organization’s neutrality.
“Although the FSS is a subordinate of the FSC, it should be independent from its decision-making body in wielding supervisory power. But with a former FSC vice chairman at the helm, the FSS may come under the FSC’s control,” a Seoul-based economist said on condition of anonymity.
“The two regulating agencies have clashed previously, and the FSS wants its boss from its own pool or non-government sectors. It is not easy to cut the tradition if a government official being select as governor of the FSS.”
Since its establishment in January 1999, the FSS has seen a total of eight governors including Kwon and all of them were government officials.
The FSS union opposed the Kwon’s appointment over his stance as the leader of the financial watchdog.
“The FSS’ surveillance must be independent under any circumstances, but former government officials tend to easily change position in the face of strong external influences,” a member of the labor union said. “When Kwon served as FSC vice chairman, he attempted to rein in the FSS’s supervisory power. How can he become the head of the organization to which he did this to?”
The economist said that the government is likely to require much more from the FSS with Kwon at the helm than now.
“Kim (Jong-chang) did not come up with jaw-dropping achievements during his three-year tenure, while there are whispers that he failed to gain the confidence of his staff. (I think) the Kwon nomination is aimed at refreshing the ‘unproductive’ FSS, as Kim Seok-dong was tapped to head the FSC in January,” he said.
Right after taking office, the FSC Chairman, another life-long bureaucrat, took aggressive measures against debt-strapped savings banks, halting operations of eight due to capital shortages triggered by mounting insolvent construction project financing (PF) loans.
As Kwon and Kim are both from the finance ministry, there is conjecture there might be a power struggle between them.
“It is possible,” the union member said.
“Current FSS Governor Kim Jong-chang passed the examination in 1970, earlier than former FSC Chairman Chin Dong-soo, who treated Kim with respect.
“If Kwon takes office, the balance of power is more likely to shift to the FSC and eventually, there could be resistance from the FSS.”
The economist also said that given that both passed the test in the same period, the rapport between them could become a touch-and-go situation.
If Kwon is confirmed as the eighth governor, he is expected to face a mountain of problems. “He will have to finalize the saving bank crisis and take care of soaring household debt,” the economist said.
Savings banks’ troubled project financing loans came to light as a housing market slump that started in the 2008 global financial crisis sharply drove up defaults on loans backed by construction projects.
According to the FSC, the delinquency rate of such loans reached 12.84 percent as of the end of September last year, compared with 6.37 percent a year earlier.
The financial regulators plan to push to limit savings banks’ excessive lending and increase punitive measures in a bid to boost savings banks’ financial health.
Local financial firms’ lending to households expanded by 34.8 trillion won ($31.2 billion) last year to reach 746 trillion won as of the end of December, driven mostly by the growth of mortgage loans. The government plans to come up with measures to deal with household debt later this month.