Kim Seok-dong, chairman of the Financial Services Commission, said Monday the European fiscal crisis is having the greatest economic impact since the Great Depression.

“The fiscal crisis that started in Greece in October 2009 has spread from Europe’s marginal states to central nations, and to the banking sector. We are now seeing heightened concerns of a banking crisis in Spain,” Kim said in a meeting of senior FSC officials.

Kim stressed that a banking crisis in Spain, an economy five times the size of Greece, would shock the global economy and financial markets beyond expectations and deal a blow to the real economy.

“The European fiscal crisis can be recorded for having an impact next to the Great Depression in 1929,” he said, hinting at a shift from neoliberalism to a new economic paradigm similar to the way laissez-faire capitalism was replaced by modified capitalism after the Great Depression.

“The financial sector should embrace the major changes that will be brought forward by this paradigm shift,” he said, calling on his senior staff to step up efforts to revise rules to secure market stability and financial soundness.

Mentioning that the government has taken various measures to stabilize financial markets including the restructuring of mutual savings banks, Kim vowed to contain potential risks to the Korean economy such as rising household debts and ease capital market volatility.

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