Bank strikes end

After five rounds of marathon talks, the government and the Korean Financial Industry Union have made a compromise at the eleventh hour.

The government has agreed to abolish the government-controlled financial system by posting it as Prime Minister`s instruction and introduce a financial holding company law before the end of this year.

But, the government may not forcibly merge financial institutions in the process of implementing such a measure. If banks are integrated under a holding financial company, the government would pour public funds to expand its paid-in capital to meet the BIS-based capital adequacy ratio of 10%. Also, the projected partial guarantee of deposit will be implemented from next year as scheduled, but the ceiling of 20 million won will be adjusted in a flexible manner.

The government and KFIU has reached such an agreement after 13 hours of negotiation on Tuesday. And they are expected to announce it at 10:00 a.m. Wednesday after a meeting between the labor and the government.

In this connection, KFIU has declared an end to the general strike as of 8:00 p.m. Tuesday and union members will return to work for normalization of bank operation.

Kim Ho-Jin, chairman of the labor-management-government committee, announced that the dialog between the government and the union regarding development of the financial industry reached an agreement, adding that details of the agreement will be disclosed after the joint meeting among the labor, management and the government.

Kim Byung-Suk, spokesman of the labor-management-government committee, said that the projected approval by the labor-management-government committee meeting is designed to forcibly implement the agreement as a social promise and the entire process of its implementation will be reported to the committee.

Lee Yong-Deuk, chairman of KFIU, said that the union and the government have reached a complete agreement and that the government promised there wouldn`t be any forcible merger of financial institutions even with introduction of financial holding company system.

Lee also noted that the government will establish a legal system that would prevent any government involvement in banking operations and that the government will pay as soon as possible if there is any legal responsibility for the government to make the payment.

Accordingly, the government will post abolition of government-controlled financial system as Prime Minister`s instruction and will pay a total of 6 trillion won, including 1.3 billion dollars that is claimed by the union for being an insolvency triggered by the government, 4 trillion won of loan to Deposit Insurance Corporation before the end of the year.

The government is expected to officially announce that it wouldn`t forcibly integrate banks in the process of financial restructuring, but it will not accommodate the union`s request for postponement of financial holding company system and relaxation of partial deposit guarantee.

The government and the union removed the difference in their views at the third round of negotiation, which lasted for six hours over night, and reached an agreement in most of the pending issues. The final agreement was made between Financial Supervisory Commission head Lee Yong-Keun and KFIU president Lee Yong-Deuk.

Meanwhile, most banks were in normal operation on the day that KFIU`s declaration for general strike and none of them were closed with manpower shortage. Some banks with active participation in the strike such as Hanvit Bank, Cho Hung Bank, Korea Exchange Bank and Seoul Bank and some regional banks, experienced trouble in operation, but there wasn`t any chaotic situation.

Highlight of the Agreement:

- Introduction of financial holding company system before the end of the year.

- Banks will not be forcibly merged.

- Implementation of partial deposit system from next year.

- Removal of government-controlled financial system will be posted as Prime Minister`s instruction.

Park Hyeon-Jin witness@donga.com