[Editorial] Financial Watchdog Fails to Supervise

When the currency crisis hit Korea, Woori Bank survived thanks to government support. The bank is asking the government for a bailout fund again. A decade ago, the government injected 8.7 trillion won (6.1 billion U.S. dollars) into the bank, but Woori recorded a deficit of 691 billion won (492 million dollars) in the fourth quarter last year. Corporate restructuring has negatively affected commercial banks’ performance, but this cannot fully explain Woori’s failure. The bank is asking for a whopping two trillion won (1.4 billion dollars). It cannot lend money to the people without external support.

Woori’s performance has gotten worse due to its excessively aggressive management adopted three years ago. The bank’s former presidents Hwang Yeong-gi (March 2004 – March 2007) and Park Hae-chun (March 2007 – May last year) only struggled to increase the bank’s volume. Their unreasonable growth policy has only presented the bank with difficulties in the wake of the global financial crisis. They might answer that they had no other options when they led the bank. But it is undeniably unreasonable to increase lending volume more than 30 percent and invest 1.6 billion dollars into derivatives, moves which have fueled the recent global crisis. They just struggled to expand the bank’s volume rapidly and aggressively invested in new financial vehicles, while ignoring credit risks.

Embarrassed by Woori’s rapid growth, other banks also pursued volume growth. Woori`s own problems have contaminated other banks, too. Cash-strapped banks are shirking lending. Other domestic banks have stayed in their traditional business areas instead of following major commercial banks, and this could generate a surplus regardless of the global financial crisis.

Bank managers have struggled to expand their volume to survive. Then what has the Financial Supervisory Service done? It said it will reshuffle its supervisory system, introduce a new system under which bank faults are adjusted timely, and implement a management evaluation system. But its argument has rung hollow.

The watchdog should supervise financial institutions to protect financial order. Moreover, it has the authority ask rescue fund-injected financial institutions to suggest reports on operations, assets and materials and summon bank staffs. Even when it eases regulations in the pursuit of market opening and self-control, it should closely supervise soundness of financial institutions. Consider the United States. Loose financial supervision only invites disaster. The Korean government should find out what problems the watchdog has.