[Desk Column] Financial Supervisory System Reform... A Challenge for the New Administration

Unlike advanced countries, Korea reorganizes government structures every 5 years
Both ruling and opposition parties call for reform of financial policies and supervisory systems
Confusion inevitable amid internal and external crises... Wise choices are necessary

[Asia Economy Reporter Lee Cho-hee] As expected. New wine should be put in new bottles. Ahead of the presidential election, the call for government organization reform has come up as usual. This has been the case with every administration. Every five years, the functions and names of government ministries have been revised. This time, the Ministry of Economy and Finance and the Ministry of Gender Equality and Family are the 'targets.' Lee Jae-myung, the Democratic Party presidential candidate, has pledged to reform the Ministry of Economy and Finance, while Yoon Seok-youl, the People Power Party candidate, has promised to dismantle the Ministry of Gender Equality and Family.

Among the numerous ministry reorganization proposals, there are some differences between the ruling and opposition parties, but there are also areas of agreement. One is the reform of financial policy and supervisory systems. The common point is that policy functions should be separated from the Financial Services Commission and transferred to the Ministry of Economy and Finance, while supervision and enforcement should be consolidated under the Financial Supervisory Service, operating as a Financial Supervisory Commission?Financial Supervisory Service structure. Regardless of who wins, reforming the current financial supervisory organization seems inevitable.

Korea's financial supervisory system has repeatedly undergone dismantling and integration whenever major incidents occurred. In the late 1990s, during the economic crisis, supervisory bodies that were divided by sector were unified. In 2008, when the Lee Myung-bak administration took office, the Financial Services Commission was established as a large institution monopolizing industrial policy and supervisory functions. This also marked the starting point of the 'turf war' between the Financial Services Commission and the Financial Supervisory Service.

The need for changes in financial policy and supervisory systems has been a long-standing issue discussed for a long time. Every time a new government takes office, it has been treated as an important task, with attempts to split or merge functions.

The problem is that while focusing on designing the system well, insufficient attention was paid to ensuring that the organization and institutions could function properly.

This is evident even when looking at the heads of financial supervisory authorities. The Financial Services Commission chairman and the Financial Supervisory Service chief, both with three-year terms, have found it difficult to serve beyond an average of two years. Especially the Financial Supervisory Service, a semi-governmental agency often called the 'financial prosecutor,' has had only 3 out of 12 chiefs complete their terms.

All past administrations have failed to resist the temptation of 'government control' over the financial industry. Financial authorities tightly controlled and manipulated financial companies. Given the powerful nature of these positions, it was difficult to escape the fate of being a 'fly life'?subject to change according to the administration's preferences. How much continuity and stability could policies created by an organization with leadership changes every one to two years have?

The side effects of repeated government organization reforms driven by political slogans fall directly on the public service and the people. Treating government organizations and bureaucrats as 'spoils' and needlessly tearing them apart and reassembling them only increases policy uncertainty.

This is a critical time with domestic and international financial variables like the ongoing COVID-19 pandemic, inflation concerns, the U.S. tapering (asset purchase reduction), and soaring household debt all lying like landmines.

The economic and financial ministries, which bear the heavy responsibility of preventing crises in advance, may waste the 'golden time' fumbling with hastily prepared government reorganization plans. This makes the new government's choices all the more important. Every administration has emphasized the independence and fairness of financial supervisory policies. It remains to be seen how well these promises will be kept.

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