President Lee Myung-bak on Wednesday chided the nation’s top financial watchdog for its failure to reform itself despite the lessons of the 1997-98 financial crisis and to properly supervise mutual savings banks, eight of which had their operations suspended so far this year.

Having championed efforts to seek a “fair society” through the second half of his term, Lee slammed the Financial Supervisory Service for not working hard enough to prevent the kind of financial irregularities that are “only seen in developing countries.”

He told senior officials of the FSS during a surprise visit there in the morning that the high-paid bureaucrats should focus on their supervisory jobs, instead of preparing to take up high-profile positions after retirement, if they care about their public image.

The average annual income of some 1,500 employees of the FSS is nearly 90 million won, Lee noted.

The president made the visit as the prosecution zeroes in on how major shareholders of Busan Savings Bank, which was suspended in February, allegedly siphoned off a total of 7.6 trillion won through illicit lending to companies they set up, embezzlement and other schemes.

Prosecutors on Monday arrested 10 major shareholders and executives of Busan Mutual Savings Bank Group, including Chairman Park Yeon-ho, and indicted 11 others without detention on charges of unlawful lending, window dressing and embezzlement.

Expecting the second-tier bank to be suspended, the 21 suspects withdrew their deposits from the bank several days before the suspension, paying no heed to the huge loss to other depositors due to their business failure.

“As people watched something so unjust take place, they wondered ‘what did the FSS do?’” Lee said after he was briefed by FSS governor Kwon Hyouk-se on how the regulator plans to reform itself by not recommending incumbent and former employees as auditors of financial companies and tightening internal supervision.

“I’m sure the proposals by the FSS, if executed properly, would help the FSS improve. But looking back on our past experiences, I am not so sure if we can just leave the job in your hands,” Lee said.

“We should launch a taskforce to get rid of old habits and turn over a new leaf.”

Lee said he didn’t want to believe a former FSS official’s confession that many FSS officials start looking for their next jobs years before retiring from the financial regulator.

Noting that the watchdog’s complacency has repeatedly allowed many financial players to take advantage of loopholes in the regulatory system, Lee stressed that the FSS was now facing its biggest crisis.

“The public anger … could make it hard to legally guarantee your status any longer,” the president said.

“It is not just about individuals’ posts, but is a matter of national trust. We cannot call our society fair if we compensate the losses of major shareholders (of the suspended banks who are responsible for the suspension) or the more powerful people with taxpayers’ hard-earned money.”

Lee went on to reiterate his “fair society” slogan which was introduced in August last year as the president entered the second half of his five-year term amid concerns that Lee may follow the footsteps of his predecessors who became a lame duck as early as in their fourth year of presidency.

“Irregularities committed by the privileged and the powerful should never be forgiven,” he said.

“Public officials who colluded with them should never be forgiven.”

The prosecution was looking into whether the Busan Mutual Savings Bank Group amassed slush funds by illegally lending some 500 billion won to firms set up by major shareholders to run real estate development projects in Cambodia.

Most of the bank’s overseas investment was made, in the form of project financing loans, in projects to build an airport, a highway and a new town in Cambodia, most of which have been suspended.

By Kim So-hyun (sophie@heraldcorp.com)