Reporter's notebook Nudging private sector to follow regulators

Financial Services Commission Chairman Choi Jong-ku, center, speaks during a National Assembly National Policy Committee meeting at the Assembly in Seoul, Nov. 27. / Yonhap

By Nam Hyun-woo

Korea Financial Investment Association (KOFIA) Chairman Hwang Young-key will not run for a second consecutive term as the chief of domestic capital market investors.

Hwang’s tenure at the office seemed certain until he told reporters Monday, “I found myself on a different page with the leaders of the current administration. Hence, I will quit pursuing another term as KOFIA chairman.”

Hwang continued: “The current policy direction seems to be different from my opinion and I often feel no one is listening to my suggestions.”

Quoting the Latin phrase “persona non grata,” he likened himself to a foreigner who is banned from entering or remaining in a country by its government and found himself as an unwanted person in the current administration.

At first, the abrupt remarks by Hwang, an avid advocate of the free market, appeared to be an explicit display of his discontent with the Moon Jae-in administration. In consideration of the circumstances, however, Hwang may be hinting that the government is “nudging” him to step aside.

Last month, Financial Services Commission Chairman (FSC) Choi Jong-ku said in a press briefing, “There have been many undesirable cases in which someone became an association chairman after getting support from the member company from which they came.”

The comment seemed to be directed at Hwang because leaders from the private sector head only two finance-related associations _ one is KOFIA and the other is Korea Life Insurance Association headed by Lee Soo-chang, former Samsung Life CEO, who will be replaced by KB Life CEO Shin Yong-gil this week.

Hwang has been described as Samsung Group’s financial specialist. He was chief of the international financial team at Samsung group’s control tower from 1989 to 1994 and CEO of Samsung Securities from 2001 to 2004. After serving top posts at Woori Bank and KB Financial Group, he became the third chairman of KOFIA in 2015.

Analysts say the government’s influence on financial leadership has changed its form from direct to indirect.

In the past, the government swayed the financial industry by parachuting in former bureaucrats it liked. The current administration, though, has set up guidelines, as Choi remarked, to prevent people not to its liking from getting key posts.

KOFIA is not the only organization where this has happened. On Nov. 29, the Korea Federation of Banks appointed Kim Tae-young, former chief of the National Agricultural Cooperative Federation’s credit business, as its new chairman.

The appointment came as a surprise as he was an underdog compared to other candidates including former ranking bureaucrats. Kim even said he didn’t expect to be appointed.

Back then, Rep. Choi Woon-youl of the ruling Democratic Party of Korea remarked, “Old bureaucrats are coming back as financial association chiefs,” during a National Assembly audit in October and FSC Chairman Choi said, “If there is concern about this, the government will take care of it.”

Then, Kim won the competition for the office. Ex-bureaucrats were ruled out from candidate lists of both bank and life insurance associations, and private sector figures were appointed.

This is why market observers cite the “nudge theory” to describe the current administration’s influence over the financial sector. Nobel Prize winner Richard Thaler coined the term through his highly successful 2008 book “Nudge.”

Though the theory is typically about positive reinforcement and indirect suggestions to bring out better outcomes, it is uncertain whether the government’s nudging will influence a desirable outcome.

“The government controlled associations or financial firms through former bureaucrats or parachuted people in. But at the same time they played a crucial role of defending the associations and firms from the government’s excessive influence,” a bank official said.

“Rather, the problem seems to be that the financial authority is still trying to sway private associations and large financial firms.”