Joint regulatory panel proposed

Financial Services Commission Chairman Shin Je-yoon delivers a keynote speech at the annual Institute of International Finance Asia CEO Summit held at the Westin Chosun Hotel in central Seoul, Thursday. KB Financial Group sponsored the event. / Yonhap

By Na Jeong-ju

Financial Services Commission (FSC) Chairman Shin Je-yoon called for the establishment of a joint committee of financial regulators from Asian countries to better counter challenges to regional capital markets, Thursday.

“Today, financial crises spill over national boundaries - at a rapid speed,” Shin said in a keynote speech at the annual Institute of International Finance (IIF) Asia CEO Summit in Seoul.

“This is undermining policy effectiveness at the national level. Therefore, at the regional level, we need to set up a framework for coordinating financial regulation and supervision.”

The joint regulatory system, if established, should examine regulations and market practices in Asian countries, formulate regional regulatory standards and make decisions regarding common financial issues, Shin said.

Shin’s proposal came as Asian capital markets are being exposed to greater risks due to quantitative easing policies being implemented principally by Japan and the United States. Japan’s weak-yen policy, for example, is fueling currency fluctuations across Asia. The weakening yen has cut earnings of Korean exporters and poured cold water on the government’s ongoing stimulus program.

KB Financial Group Chairman Euh Yoon-dae echoed Shin’s concerns.

Euh cautioned that the capital markets in emerging Asian countries could be paralyzed if advanced countries take a U-turn to drop expansionary fiscal policies.

“Their quantitative easing has spurred capital flow into Asian countries. That, however, means they could experience a massive capital outflow at some time,” Euh said in his opening remarks at the forum. “That’s why Asian countries should cooperate together. Policy coordination among Asian countries is becoming more important than ever.”

Chairman Shin cited an African proverb - “Move alone if you want to go fast. But move together if you want to go far,” - indicating the need for closer collaboration among Asian countries.

“Asia’s financial integration is far from complete. Asian countries must keep pursuing mutual understanding and cooperation. The Korean government is fully committed to regional market integration,” Shin said.

He shared his experience as a policymaker when the financial crisis hit Asia in 1997 and 2008.

“The trigger of the 1997 Asian crisis was the collapse of Thailand’s currency. Asia suffered from sudden capital outflows. When the global crisis hit in 2008,

Asia also experienced capital reversal again, even though its economic fundamentals were relatively sound,” Shin said. “There is a common denominator. That is, the ‘original sin’ of not having its own settlement currency. When there is ample global liquidity, their foreign currency debt increases. This makes them more vulnerable to external and internal risks.”

He said sudden capital outflows lead to the burst of economic bubbles, causing panic, the primary cause of Asia’s previous financial crisis.

Shin emphasized the need for Asia to set up its own systems to be able to ward off any future crisis as well as containing “spillovers.”

“The first line of defense is national, it is securing enough foreign reserves. Central banks and finance ministries should remain keen on the level of foreign reserves,” he said. “The second and third lines of defense are regional and global financial safety nets.”

Shin noted that Asian economies should join hands and take the lead in containing systemic risks at the regional and global level, saying cooperation of Asian economies is the key to regional financial stability and growth.

Participants of the conference engaged in round-table discussions on how to weather the financial problems caused by the European debt crisis and deal with uncertainties in the capital markets across Asia.

The two-day forum, hosted by KB Financial, will end Friday. Choi Soo-hyun, governor of the Financial Supervisory Service, and Kim Choong-soo, governor of the Bank of Korea, will also give keynote speeches on Asian financial integration Friday.