Financial Supervisory System Should be Reformed

It has been indicated that the reason why credit card delinquency is aggravated to a financial crisis is that a financial supervisory system did not work organically as well as the Department of Finance and Economy (DFE) and the Financial Supervisory Commission (FSC) had hoped.

In fact, it has been revealed that the DFE--whose role is to set policy and draw a bills on credit cards--failed in information-sharing and policy cooperation with the FSC and the Financial Supervisory Service (FSS)—responsible for management and supervision in the field. Accordingly, experts point out that special inspection of credit card delinquency of the Board of Audit and Inspection should be focused on finding problems of the financial supervisory system and that they should create fundamental procedures to avoid the second crisis.

Unstable system cooperation: The DFE criticized that the recent mobility crisis of credit card firms came from the neglect in supervision of the authorities concerned.

Park Jae-sik, an insurance system department director of the DFE, pointed out that “the DFE said that it does not have a supervisory function in the finance section and that it is the FSC’s duty.” Park also said, “The authorities had to take measures supervising the soundness of the cards, but they seem to be too aware of critical eyes about ‘government-controlled finance’ after the measure in April this year.”

The FSC refuted, saying, “There is a limitation on supervising cards since we are working in a big frame that is created by the Financial Supervisory Commission to increase the use of credit cards.”

Lee Du-hyung, a press secretary of the FSC, said, “The seed of this credit card disaster is that the credit card business law and installment purchase law were unified into what is called a ‘loan business law.’” Lee emphasized that “the Financial Supervisory Commission made an institutional frame to allow credit card companies’ external enlargement by allowing loans of card companies and removing loan limitation of banks.”

Experts say the problem itself is a system where the FSC, a public organization, and the FSS, a private organization throw responsibility to one another.

It is known that there were many problems even among the authorities, such as the lack of information-sharing between the FSC and the FSS.

Suggestion of need to change of supervisory system: It is also suggested that special inspections on the FSS is followed by unification of the FSC and the FSS, as well as setting up a new relationship among the DFE, the FSC and the FSS.

The head of the the FSS, Jeoun Yoon-cheol, insisted on a reform of those bodies when he was a minister of the Ministry of Planning and Budget in early 2001. At that time, he emphasized that “the Financial Supervisory Service should be changed as a public organization.”

The FSS explained that “the inspection is checking problems of the financial supervisory system and devising means rather than finding and punishing a specific person.”

Private organizations also suggest a need to reform of the system.

Lyo Seung-chang, an analyst of Hana Security Cooperation said, “Because credit card business is ‘a new kind of business,’ the Department of Finance and Economy, supervisory organizations and private firms did not know exactly when taking risks goes wrong and they also failed in sharing information.” In addition, Lyo said, “Given this opportunity, there is a strong need to reform the financial supervisory system.”