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Research Monograph
A Political Economic Study on Korea’s Financial Supervisory System

December 30, 2017

PDF
Research Monograph
A Political Economic Study on Korea’s Financial Supervisory System

December 30, 2017

PDF
In a free and competitive financial market, resources are efficiently allocated via interest rates—i.e, the price of money—not only enhancing total output, investment and employment but also driving out or restructuring inefficient firms. Indeed, a well-functioning financial market, by allocating financial resources, fosters new firms consistently to enable competition between efficient firms, promotes investment to enhance productivity and increases employment to nurture economic growth. However, there is the possibility that private financial institutions will take unduly high risks driven by excessive profit seeking, and such a practice, if unchecked or poorly managed, can pose a serious threat to the entire financial system. This is why financial regulations and supervision are needed.

As such, certain premises are assumed for an efficient and stable financial market, which include an advanced private financial market, minimized government role and guaranteed independence of the financial supervisory authority. Nevertheless, governments are often tempted to intervene in the private financial market for a range of reasons—underdeveloped financial market, pressure from concerned interest groups/political parties, industrial upgrading, short-term economic stimulus and so on. Given the high information asymmetry in the financial market, government intervention will disrupt the allocation of credit into where it could be used most efficiently, meaning a loss of the financial market’s functional efficacy. Even in such cases, if the government remains only as a ‘regulator,’ the supervisory authority―independent from the government―would be able to put certain restrictions on government intervention, but if the government holds the authority to supervise, too, its intervention in the financial market would be like a car without brakes.

This study adopts various angles to address the structural problems within the financial market in which conflicts of interest reside over pressure from interest groups/ political parties, industrial upgrading and short-term economic stimulus. Furthermore, the ultimate purpose of this study is to redefine the role of government in the financial market and to draw upon measures to minimize the problems arising from conflicts of interest.
 
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The Department of Macroeconomics is conducting researches on the macro economy and macroeconomic policy, particularly focusing on suggesting the analysis of macroeconomic trends and current status of the economy at home and abroad, the economic forecast, and the policy direction of the macro economy. The Department is also in charge of establishing, sustaining and maintaining various econometric models, based on which it analyses policy effects and develops a long-term economic forecast.

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Department of Macroeconomic Policy
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  • CHO, Byungkoo On leave

    Director and Vice President, Department of North Korean Economy

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  • LEE, Jongkyu

    Fellow

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  • WEE, Hyeseung Dispatched

    Research Associate

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  • NAM, Jinwook On leave

    Specialist

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  • KIM, Seulki

    Research Associate

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  • CHUN, Eunkyung

    Research Associate

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