By Kim Tae-gyu
Financial Services Commission (FSC) Chairman Kim Seok-dong was believed to be of a different breed than his predecessors but that seems not to be the case in light of his recent remarks.
Kim told a press conference this week that he is against the idea of reforming the structure of the Financial Supervisory Service (FSS) in the aftermath of the savings bank trouble.
The FSC is the nation’s top financial policymaker while the FSS is a watchdog under the control of the FSC. The FSS has come under fire of late regarding its failure to properly oversee troubled savings banks.
As a result, some critics have claimed that the FSS should be split or that at least the two entities are required to integrate to prevent similar problems.
Even President Lee Myung-bak upped the ante against the chronic corruption at the FSS in a surprise visit to the financial regulator early this month, saying it is ``facing the biggest-ever crisis.’’
Yet Kim refused to ease the power monopoly of the FSS. In other words, he vowed to keep the status quo as far as the monitoring system is concerned. Even though the FSS pledges to entrust outside agencies to carry out inspections, it is merely a delegation, not a transfer of authority.
``If we focus on changing the supervisory organization, we will not be able to come up with the right answer,’’ said Kim, a life-time bureaucrat who took the reins of the FSC earlier this year.
``We experienced similar requests in the past to little avail. In the case we turn the FSS into a government agency it would be hard to attract talented staffers. If the FSC and FSS combined, they would be too big to efficiently cope with any crisis.’’
He concluded that there will be no future for Korea Inc. should the nation do away with the supervisory functionality of the FSS.
``The distribution of power is in line with the Constitution. The organizational shift of the financial supervisory authority might end up generating controversies that hurt constitutional principles,’’ Kim said. ``We went through legal disputes for 20 years to finalize the present regulatory system.’’
The comment disappointed many observers, who had expected Kim to take a different approach in helping the FSS map out ways to get out of the unprecedented contingency.
``The FSC and the FSS have been at odds with each other in so many cases. Many predicted that the former would not go all out to safeguard the latter,’’ said a professor at a Seoul university.
``In particular, Kim has the reputation as a troubleshooter who doesn’t compromise in grappling with problems. But he appears to have changed his style this time around for some reason.’’
The FSS has taken a lot of flak from the public with regard to the Busan Savings Bank whose operations were suspended this February together with its affiliates due to its bad financial status.
As the prosecution tries to get to the bottom of the case, a series of unlawful practices and irregularities were detected with the management of the secondary bank as well as the FSS.
Prosecutors learned that the bank’s majority shareholders and executives borrowed upside of $4 billion illegally from Busan Savings Bank and its subsidiaries.
There was public uproar as scores of its clients who had connections with the employees of Busan Savings and its units were found to have withdrawn their money after business hours on the eve of the bank’s suspension.
On top of the fury that it failed to prevent all the hitches at the banks, the FSS is currently under suspicion that some of its workers and ex-employees colluded with the banks to overlook the wrongdoings.
Such doubts spread since the FSS could not find all the illicit activities at the banks and their capital shortage despite months of intensive inspections last year.
The prosecution plans to summon dozens of FSS employees this year, at the earliest.
In this climate, the FSS and the FSC has been pressed to ease their regulatory and supervisory power monopoly, which many believe resulted in all the problems involving savings banks.
With Kim at the chairmanship of the FSC, operations of eight savings banks were halted this year mostly because of financial problems. One was sold to the Woori Financial Group and the remaining seven will be put up for auction in the near future.
To deal with all this the FSS announced a self-reform plan including such steps as banning retired employees from working for financial companies as auditors and carrying out regular in-house inspection on all of its employees.
A host of domestic financial outfits including savings banks employed retired staff from the FSS as auditors but they have been accused of turning a blind eye to malpractices at their new workplaces.
The measures seemingly fall short of the expectations of the public, who are demanding drastic reforms.
This would be the right time for the FSC chairman to give a second thought to the proposal of conducting sweeping organizational change at the financial watchdog.
And it would be a good strategy to keep his reputation of confronting and not conceding facts and realities in addressing problems. Otherwise, chances are that he and his outfit will suffer further woes.