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[Opinion] A Second ”Big Bang”

Posted June. 22, 2007 03:23,   

한국어

Korea Financial Supervisory Commission Chairman Yoon Jeung-hyun said two days ago, “The Korean financial industry requires a big bang.” It is a shocking remark to Koreans who went through the “financial big bang” during the 1997 financial crisis when up to 30,000 employees at financial institutions lost their jobs. The issue is being talked about again now because the Financial and Economic Committee at the National Assembly passed the Capital Market Integration Act (CMIA) recently. On top of that, the negotiation for Korea-U.S. FTA is concluded, and a bill to list life insurance companies was also passed.

Advanced countries and cities in the financial field include the U.K., the U.S., Singapore, Hong Kong and Australia. All of them depend on the financial systems and legal schemes imported from the U.K. and the U.S., which basically are broad enough to “allow all except for what is banned” in the name of all-inclusive principles. By contrast, Continental Law in Germany and France is based on the schedule system that “lists what is put into action.” For example, the U.S. defines securities by feature. Therefore, new types of securities can be developed anytime by satisfying the features. In the case of Korea, the definition goes, “Securities refer to national and corporate securities…” making it impossible to create new products.

As such, new financial transactions on futures options, swaps and so forth started from the U.K. and the U.S. The idea of the CMIA is to convert current capital market-related laws based on the Continental Law into Common Law-based. If the act is implemented in 2009 as expected, Korea will have a somewhat advanced capital market system. The CMIA integrates six different laws in different financial companies: that is, companies involved in securities, futures, asset management and trusts, and merchant banks, enabling systematic management.

The financial industry is Korea’s most solid future growth engine. And yet, the International Institute for Management Development (IMD) evaluated Korea’s competitiveness in finance as ranking only 38th in the world. Stronger competitiveness comes from a shift for securities companies toward major investment banks like Goldman Sachs of the U.S. However, the total assets of 54 domestic securities companies are even less than one tenth of Goldman Sachs’. As for Australia, the size of the capital market doubled in four years since the Financial Service Reform Act was legislated in 2001, a similar version of Korea’s CMIA. I wonder if Korea’s capital market could grow that much.

Heo Seung-ho, Editorial Writer, tigera@donga.com