Research Report
Ⅰ. Background
□ Reforming insolvent financial institutions that have brought about the financial crisis is one of main agenda for G20 summit meetings and it will be discussed as one of main issues in 2010.
□ It is expected that efforts to improve structure of insolvent financial institutions will be made in Korea following the international trend.
Ⅱ. Financial regulation reforms
□ Due to the globalisation of the financial industry, the financial crisis does not develop and disappear in a single country.
□ Rather, once it develops in one country, it tends to spread to other countries that are financially instable with massive side effect. Since the financial crisis of the globe in 2008, major countries and international organizations have enacted and revised systems and laws to prevent financial institutions from going bankrupt.
○ For example, a few countries including Korea, have adopted measures to establish public fund to prevent poor management of financial institutions.
□ However, some have criticised that mitigating loss of massive financial institutions by means of public fund, can bring about another loss of bigger institutions because it damages market principles of capitalism.
○ In addition, it is a temporary measure to prevent bank run and system risk, not to seek structural improvement of financial institutions.
○ Moreover, injection of public fund is transformed into taxpayers' burden, “privatizing profits, socializing loss.”
Ⅲ. For structural improvement of the financial industry
□ Therefore, providing capital to financial institutions should be made to the extent that it does not cause additional loss of taxes by strengthening structures of the national economy and developing healthy financial institutions, considering the characteristics of “financial institutions.”
○ This is because injected fund to restore insolvent financial crisis, for example, nationalization of financial institutions, liquidation, takeover by another institutions, is established by taxpayers' money.
○ Based on such basic principles concerning restructuring of the financial industry, the financial system of Korea needs to be established in a way that it prevents financial crises in other countries from spreading crisis.
○ Since the global financial crisis, the Anglo-American global standards that have been focused, are now revised country by country.
□ Measures that are considered include options to maintain harmony and balance between opening market and control; liberalization and regulation; and real economy and financial system.