[Opinion] Putting the Whip to Financial Structural Adjustment

Recently, there has been much discussion between commercial banks on mergers. After the newly merged Kookmin Bank came on the scene, other banks have been proposing mergers as a tool for survival.

Korea First Bank and Hana Bank are discussing possibilities of merging while Seoul, Shinhan, Chohung, and Korea Exchange Bank are looking into finding suitable partners for merging. The merger between Kookmin and Jootaek Banks has brought about a positive and stimulating result and is compelling other banks to consider the same. This indicates that the market system is undergoing a change.

Bank mergers consolidate overlapping sectors, reduce spending, create synergy and allows the bank to become more economically competitive. Furthermore, from the perspective of the banking industry, mergers alleviate the chronic problem of excess capacity and help accelerate structural adjustments in the industry. Compared to other industrialized nations, Korea has had a disproportionate amount of banks relative to its population. Consequently, there was excessive competition between banks which had a negative impact on bank earnings.

The successful adjustment of the bank industry is the key to our nation`s financial structural reform. The success of the newly proposed mergers, therefore, must be successful. The government, bank management, and labor unions must objectively consider what their tasks are in order to make this a reality.

The government`s role is the most important. As the supervisor for helping the financial system regain its health, the government has lead the structural reforms in an efficient and responsible manner. The actual merger between top banks may be left to the market, but insolvent banks invested with public funds need the a strong structural adjustment kick.

Simply introducing a financial holdings company system will not resolve the current financially weakened economy nor will it revive these banks` economic strength. Insolvent banks should be consolidated through mergers and public funds – this cannot be helped. If a fundamental structural reform is not carried out for these banks, the possibility of a successful financial structural adjustment will become remote.

The government must also implement the mechanism which will prevent insolvent bank with major stock holdings or have public funds from forming `autonomous finances` and guarantee self-regulated management. The market no longer allows the government to force others to give aid to weak businesses, which only eats away at the confidence in the hard won economic progress. Finding a mechanism for preventing pressuring the banks is an urgent necessity.

An environment that will strictly monitor bank operations and create responsible management is also necessary in light of the fact that the 150 trillion won in public funds allocated for financial structural adjustment belongs to the people. The recent resignation of Wilfred Horie from First Korea Bank who accepted responsibility for management failure can teach us many important lessons.

Bank management must not reject structural adjustment out of its own selfish interests. Insolvent banks especially must move toward scaling down and accept the cost of doing so. Labor unions must also cooperate with the structural adjustments for the sake of the bigger picture. One sympathizes with the bank employees whose job security has suddenly disappeared. But the bank unions and management must understand and take responsibility for the people`s feelings after watching the insolvency continue despite the enormous amount of public money invested in the banks.

Furthermore, unions and the management must acknowledge that the introduction of internet and global banking will permanently affect job security and take steps to strengthen job training for employees in order to make them marketable. This is a positive way for providing greater job security for bank employees.

We hope that the present financial structural adjustments will be properly carried out and that our banks will step on to the world stage as super financial organizations.