"Big Tech's Financial Participation Must Comply with the Principle of Same Function, Same Regulation"

Financial Research Institute's Report: "Will Banks Still Be Special?"

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] It has been argued that for the stability of the financial system, big tech's participation in finance must comply with the principle of same function, same regulation.

On the 20th, Kim Ja-bong, a senior researcher at the Korea Institute of Finance, stated in a report titled "Will Banks Still Be Special?" that "digital finance by fintech and big tech can significantly impact the banking intermediation function depending on whether open banking follows the same function, same regulation principle."

Researcher Kim explained, "Open banking mainly involves open APIs and allowing comprehensive payment service providers to open transaction accounts. If these functions are expanded beyond the same function, same regulation principle to fully encompass banking intermediation functions, the banking intermediation function will undergo significant changes." He added, "Especially if big tech platforms with big data and network effects hold a position to directly or indirectly perform intermediation functions, the banking service market could be reorganized around these platforms."

He further explained, "When the same function, same principle regulation is applied to big tech participating in open banking, similar to bank holding companies, big tech platforms are likely to pursue cooperation methods with existing financial companies within the scope that does not require them to be banks."

Researcher Kim noted that the reason banks' intermediation function is special is due to their liquidity creation function, which supports economic activities by converting highly liquid short-term deposit liabilities into less liquid long-term loan assets. Considering this, he judged that if big tech platforms perform intermediation functions without strict special regulations, there is a high possibility of undermining financial soundness and stability.

He expressed concern, saying, "Due to relatively lower regulatory costs, intermediation functions by platforms may be activated beyond socially desirable levels, while intermediation functions of banks under strict regulation may relatively decrease. Moreover, despite the special importance of intermediation functions, allowing big tech platforms to perform intermediation without banking licenses under the Banking Act could lead to the mistaken interpretation that intermediation functions are no longer special."

Researcher Kim emphasized, "Since banks' intermediation functions, based on depositor protection and public safety nets such as ultimate lenders, have the highest stability within the financial system, if intermediation functions by institutions other than banks expand, system stability will correspondingly deteriorate. Therefore, to maintain the stability of financial intermediation, it is desirable to ensure that big tech's financial participation complies with the same function, same regulation principle for the stability of the financial system."

This content was produced with the assistance of AI translation services.