The purpose of this study is to seek directions on reasonable ownership regulations for financial institutions through theoretical discussions related to the ownership of monetary institutions.
One of the reasons why ownership of financial institutions is a subject of debate is that the source of regulation is based on controlling shares within institutions. However, ownership does not include the term ‘control,’ so the focus here is whether financial institutions can be controlled exclusive of bank ownership. In other words, control must take into account if financial institutions can stand on their own strategic positions. The ownership group that controls financial institutions not only has interest in management outcomes , but also in financing and distribution, which is vastly different from the control structure of a general business. Financial information at monetary institutions is often influenced by the government, which can lead to market failure . Therefore, in theory, ownership control of financial institutions cannot be patterned after that of non-financial enterprises.
If financial institutions were controlled by conglomerates, the present situation of a monetary oligopoly would be even more concentrated than it is now. When one sector receives more priority than others, a rapid increase in credit risk often follows alongside funding by financial institutions. Thus, there is a need to disperse the risk by decentralizing the control of financial institutions. Furthermore, through financial regulation, large conglomerates will increase their political concentration towards financial institutions. And along with governing of financial institutions, they can receive loans from banks by securing the institutions’ stocks, which they control.
There is a possibility that if ownership of financial institutions were extremely spread out, corporations would be more passive about profits compared to conglomerates, and investment profit would decrease as resources are distributed ineffectively. If the issue of business ownership were to become problematic, ultimately, stockholders or creditors in relevant corporations would also be negatively affected. The appropriateness of limiting ownership is directly connected to interference by major stockholders in personnel management. When considering the last fifty years of efforts to privatize banks, the movement failed because major stockholders had excessive influence on the management of financial institutions. Limiting ownership is inevitable. There are three major instruments in limiting concentration and risk; regulating ownership limits, regulating credit lines, which in turn limit ownership and risk, and regulating certifying payments.
In order to decide if a corporation should have control and ownership of a financial institution, the government must analyze and take into account how much the ownership is dispersed, whether the owner is a person, family, manufacturing company or financial institution, and if there are ties among the owners. From the public policy perspective, under the current economy and law, there is no substitute tool for when the market fails as a result of increased ownership of financial institutions. The system, therefore, must be improved. Also, the government should regulate the imbalance that occurs if ownership and control of financial institutions become stronger. In particular, in order to supplement weaknesses within the financial information market, the government must come up with more detailed governance principles. Furthermore, regulatory measures on limiting the concentration of economic and political powers, which is connected to the ownership of a financial institution, must be set in place. Finally, policies preventing mutual investments, benefits, and insider trading are also necessary.
금융산업의 합리적 소유구조(Reasonable ownership structure of the financial industry)
[서울] : 한국개발연구원
|Series Title; No||정책연구시리즈 / 91-14|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||KDI; KDI School|