[Opinion] Absence of supervision at financial watchdog

As the Dongbang Mutual Savings and Finance Co.'s illegal loan scandal has taken to new heights since Oct. 21, a rather absurd poem came to mind: "Waiting for the bloom of the chrysanthemum," a verse in a poem titled "Standing Beside the Chrysanthemum" by Suh Jung-Ju.

If an early inspection of the financial institution had been made, such a disastrous scandal could have been avoided.

With the takeover last year by Lee Kyung-Ja and Korea Digital Line president Jung Hyung-Joon of the Daeshin Mutual Savings in May and the Dongbang in October, an owl screeched a warning. Then a massive illegal loan to the major stockholders of 3.4 billion won last December by Daeshin sounded an alarm like a thunder. If the government had taken proper steps at such times, the chrysanthemum might not have bloomed so fully.

However, the responsible individual at the time of the illegal loan, Lee Soo-Won (currently the president of the financial institution), received a dismissal warning and received two-month suspension of duties after which he was promoted to the position of the president. Upon his promotion, he authorized an illegal loan of 2.7 billion won to Jung Hyung-Joon and handed over at no cost the 330,000 stocks of the Pyongchang Information and Communication, which were bought with the institution's fund. The promotion was an encouragement to continue his misbehavior.

Dongbang has enjoyed, since 1997, three years and seven months of inspection-free management. With Jung and Lee Kyung-Ja becoming the major stockholders last October of Dongbang and the disclosure of the massive illegal loan to the two by Daeshin, the government failed to investigate the possible illegality occurring in Dongbang.

The Dongbang installed a formal Banking Supervisory Authority member only known as Chung, as an advisor in June this year. It necessarily gives rise to the suspicion of a miserable attempt to block the scrutiny of the Financial Supervisory Service.

The accusation that the current crisis was one fostered by the laxity in the investigation by the FSS is indeed persuasive. The Hanvit Bank illegal loan scandal also could have been prevented if an early investigation had been conducted.

With the installment of the Kim Dae-Jung administration, supervisory bodies for the banks, the securities, the insurance agencies and the creditor financial institutions all have been unified into the Financial Supervisory Service.

The justification for the unification had been to conduct more effective investigations. However, the current scandal clearly exemplifies the old adage that size does not guarantee effectiveness.

Hong Chan-Sun hcs@donga.com