President Roh Asserts Government Intervention Necessary In Case of Financial Crisis

President Roh mentioned on Wednesday that “in case of a financial crisis, major creditors have to hold full responsibility in principle. However, measures have to be prepared so that the creditors can request for government intervention.”

President Roh invited 21 heads of government-run banks, private banks, and financial related associations to Chong Wa Dae on Wednesday.

During the meeting, President Roh said, “The financial industry has to be entrusted with a great deal of autonomy since the industry has to be run in accordance with the market principle. On the other hand, the industry needs to be considered as public in that it is a part of vital national infrastructures, which need to maintain their public aspects.”

Additionally, President Roh said, “A financial system has to be more than an entangled competition among individual financial institutions. Even though risk management at an individual company’s level is important, it is indispensable to establish a risk management system to prevent and resolve risks that are faced by the industry as a whole.”

President Roh continued, “If a crisis occurs from an inclined phenomenon (a phenomenon that is driven to collect bonds and loans simultaneously), it is advisable to establish a mechanism to voluntarily prevent finger-pointing among financial institutions. If such mechanism is not created, it can be seen as moral hazard by the people, who can lead to damage to the credibility of the industry.”

President Roh mentioned, “The problems related to household loans and credit defaulters have eventually stemmed from the financial industry. When such problems arose, the financial industry did not deal with the problems collectively from a national risk management level. Rather, the institutions have put into effect a unilateral risk management system to rescue its own institution, which has led to a situation where no one benefits.”

Jeong-Hoon Kim jnghn@donga.com