While the global financial sector is strengthening regulation and supervision for an improved financial system, it seems necessary for the Korean financial sector to move towards more deregulation, less government intervention, but more effective supervision. This is because the existing level of financial regulation in Korea is very high relative to that in most other developed countries.
In this paper, I set “back to basics” as a vision for the Korea’s financial sector in the post-crisis era. I then discuss related policy issues that are believed to be important for achieving sustainable growth of the Korean economy moving forward.
First, more deregulation and less government intervention should be in place. In particular, the government should stop intervening in the markets so that civilian participation can be maximized. The government should instead concentrate on rule settings on the basis of which the financial sector can creatively provide financial intermediation services needed.
Second, financial institutions should provide intermediation services necessary for achieving sustainable growth of the Korean economy. Long-term annuities and savings accounts should be offered to the aging people that would channel their long-term funds to entrepreneurial activities by ventures and SMEs.
Third, while Korea appears to be in need of help from capital markets in achieving sustainable growth, their development has not been satisfactory. For this the government should abolish unnecessary regulations, encourage competition in the markets, and improve financial infrastructure.
Finally, reforms of the financial supervisory structures are necessary. The new supervisory structures should be free from political and government influences, let alone industry captures. They should also be capable of effective macroprudential supervision and consumer protection.
Korean financial sector in the post-crisis era
Vision and policy issues
Seoul:Korea Institute of Finance
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||kif; KDI School|