[Reporter’s Notebook] The Fair Trade Commission’s "Sword" Must Not Become a "Weapon" Threatening the Financial System

Weak Grounds for Viewing LTV Information Sharing as "Collusion"
Risk Costs May Ultimately Be Passed on to Consumers

"The amount is not what matters. The moment we accept this penalty, we become a greedy bank trading information for greater profit, even though we simply complied with the financial authorities’ administrative guidance in managing household debt."

This is the lament of a banking industry official following the decision by the Fair Trade Commission (FTC) to impose a total fine of 272 billion won on the four major commercial banks (KB Kookmin, Shinhan, Hana, and Woori) for allegedly colluding over loan-to-value (LTV) ratios.

The FTC determined that the four banks colluded by sharing LTV information and lowering LTV ratios by about 10 percentage points to restrict loan limits. For information sharing to be recognized as collusion, the banks must have derived profit from the act. In reality, however, the banks’ interest income decreased. The FTC argued instead that by setting lower LTVs and thus reducing loan amounts, the banks induced customers to take out additional unsecured loans, thereby earning extra interest income. However, consumers could have chosen other financial institutions that offered higher LTVs. Above all, the use of unsecured loans was a voluntary choice by consumers, not something the banks forced upon them.

Even setting aside the FTC’s excessive interpretation of collusion, the banks’ sense of unfairness is understandable. The LTV is a policy tool designed by the Financial Services Commission to ensure macroprudential stability, and the Financial Supervisory Service oversees its implementation. In other words, LTV information itself should be regarded as a financial risk management tool. Furthermore, considering that the financial authorities convened several meetings of vice presidents from these banks to review household debt, the sharing of LTV information between banks was closer to a "cooperative act" aimed at achieving the policy goal of managing household debt.

The FTC’s decision also diverges from global trends. The European Union, the United Kingdom, and Australia, for example, sometimes encourage the sharing of LTV information to promote consumer protection and risk management. They view information sharing not as a means of restricting competition, but as a public good that benefits consumers. There is a saying, "A sword is most dangerous when it remains in its sheath." We have already experienced, through the "Negotiable Certificate of Deposit (CD) interest rate" case, the negative impact that can occur when the FTC, holding such power, abuses it in the market. Despite four years of investigation, the FTC ultimately found no evidence and issued a verdict of innocence due to lack of proof, yet the costs of risk management and uncertainty that arose in the meantime were borne entirely by banks and consumers.

This latest penalty not only imposes a direct cost of 272 billion won on the four major banks, but also leaves them with a structural burden, as they must reflect approximately 1.632 trillion won in operational risk as risk-weighted assets (RWA) over the next ten years. In a situation where, since the launch of the new government, banks are expected to simultaneously support productive finance and manage the quality of household debt, if even risk management activities for financial stability and consumer protection are retrospectively labeled as collusion, the banks will have no choice but to respond with more conservative business practices. Ultimately, those costs are highly likely to be passed on to consumers.

The sword meant to restore competitive order must not become a weapon that severs the arteries of the financial system. The time has come for the FTC to more carefully consider whether what truly needs protection is competition itself, or the trust and foundation that make competition possible in the marketplace.

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