Dispute resurfaces over the central bank’s supervisory authority 


A fresh dispute is brewing over the mandate of financial supervision as the Bank of Korea is stepping up its demand for the right to inquire into financial institutions independently.

The primary authority to investigate banks, securities, insurance and other financial companies currently belongs to the Financial Supervisory Service. The central bank can only conduct joint investigations with the top regulator.

A proposed revision to the law on the BOK aiming to allow the central bank to conduct independent inquiries and expand the areas it can probe into has been pending at the National Assembly for more than a year in the face of opposition from the regulator.

The BOK is pushing hard for the passage of the revision in the current session, citing an increasing need to ensure transparency and control uncertainty in the market.

“The issue has recently been highlighted by several lawmakers, probably due to the BOK’s continued demand and active lobbying,” an FSS official said Sunday.

The FSS is opposed to the change, saying it would result in overlapping responsibilities and bring about confusion in both the regulatory regime and the industry.

The BOK gave up the regulatory power over financial companies in the late 1990s when the FSS was established, combining the regulatory bodies responsible for banking, securities and insurance.

The dispute came to the fore after BOK Governor Kim Choong-soo publicly raised the issue during a meeting with reporters last week.

He said today’s market conditions require central banks to take a bigger responsibility beyond the traditional role of stabilizing prices.

He pointed out that central bankers around the world are playing broader roles in macroeconomic management while Korea lags behind the trend.

“There are only three national central banks ― in Korea, Japan and Canada ― which engage only in monetary policies,” he said.

Since the financial crisis in 2008, central banks in major economies have been actively coordinating policies among themselves and with fiscal policymakers.

“To network (with world central banks) we must be doing the same work,” he said. “How can there be a network when our role is significantly limited and our counterparts do things that we cannot do?”

But regulatory officials refute the argument.

“Few officials of other countries say the 2008 financial crisis was because of central banks’ restricted supervisory rights,” an FSS official said.

In Europe, he said, the central banks of major countries such as the U.K., Belgium, Sweden, Demark and Switzerland are barred from conducting inquiries into financial companies on their own.

The Ministry of Strategy and Finance has taken a wait-and-see attitude, downplaying the urgency of the issue.

Asked by lawmakers about his position last month, Finance Minister Yoon Jeung-hyun said, “I believe that maintaining the current regulatory system (at least for several years) is still desirable for market stability.”

Several lawmakers of the ruling Grand National Party and the main opposition Democratic Party have begun to raise the issue since early March.

“The bill should be passed as soon as possible … so that the BOK could supplement the function of financial regulators,” Rep. Seo Byung-soo of the GNP said.

The proposed revision has been pending at the Legislation and Judiciary Committee of the National Assembly.

Its key opponents include financial industry unions who say that the resulting dual supervisory system would double the burden on financial companies.

Formerly, the BOK had to seek consent from the FSS for joint investigations of commercial banks. Beginning in 2009, the regulator has been required to accept most of the central bank’s requests.

“Now the BOK is seeking to obtain independent supervisory right (in some parts),” a commercial banker said. “I propose the central bank be faithful to its basic role of stabilizing consumer prices.”

By Kim Yon-se (kys@heraldcorp.com)