Who`s to blame in the savings bank scandal?

VIPs, bank employees and their relatives withdrew their deposits the day before Busan Savings Bank received a business suspension order. Prosecutors are tracing more than 3,500 accounts from which depositors pulled out their money because the depositors are suspected of getting an advance tip of the suspension. Most of the 37,000 customers had no such information and will incur a loss of 6.7 million won (6,270 U.S. dollars) per person, because of deposit insurance protects up to 50 million won (46,800 dollars) in deposits per person. How did such a crooked incident occur in a society where the incumbent administration has stressed fairness?

Suspicions abound that behind the leak of information is lawmakers from the Busan region and staff of the Financial Supervisory Service. Rumors suggest that certain bank workers even received money in return for granting illegal withdrawals. People who had preferential relationships with the bank withdrew all of their deposits by using their intelligence capacity. But the relatively underprivileged “individual clients” were doomed to incur losses. Moreover, the bank`s majority stakeholders led the illegal operations, an act tantamount to serious and unforgivable moral hazard.

The Supreme Prosecutors Office’s central investigation department, which critics have demanded the dismantlement of, is probing the incident. The department had effectively suspended its functions since the investigation into the late former President Roh Moo-hyun, who committed suicide in connection with a financial scandal in 2009, and has effectively resumed its investigative activities for the first time in two years. Crucial to this case is an inquiry into lawmakers, staff at the financial watchdog, and majority stakeholders of the savings bank. The department will demonstrate its raison d´être only when it thoroughly investigates who tipped off the customers who withdrew their deposits in advance and which information providers were paid.

The probe could also significantly affect the demand for the dismantlement of the investigative department as well. It was intended to eradicate “serious’ misdeeds by political powers, ranking government officials and conglomerates in the past, but was often criticized for probes at the instruction of those in power. Only when it discloses the truth based on a fair and stern investigation can it demonstrate its worth to the public. If certain figures are immune because they are too powerful to be investigated, critics will demand an independent investigation and the department will face more calls for its dismantlement.

Certain lawmakers from the Busan region have submitted to the National Assembly a revision bill to the Depositor Protection Act on temporary guarantees of the full value of deposits at savings banks and subordinate bonds through next year. Certain customers of such banks are set to lose their hard-earned money, but a principle of a financial market is that high return entails high risk. Guaranteeing the full amount of deposits at savings banks will spawn moral hazard and undermine order in the financial market due to populist politics.