Regulator poised to intervene in KDIC’s probe of savings banks


Financial regulators are sticking their noses into the Korea Deposit Insurance Corp.’s independent investigative authority over mutual savings banks, many of which it failed to supervise.

The situation comes after the Financial Services Commission and the Financial Supervisory Service hindered the National Assembly from allowing the Bank of Korea to independently conduct a probe of financial firms last year.

The FSS is in talks with the state-run debt clearer to ink a memorandum of understanding to share the KDIC’s probe results in advance.

The KDIC’s investigative rights were expanded under a revised law earlier this year as alleged corruptions among some regulatory officials kept it from uncovering the secondary lenders’ poor management sooner.

Strengthening the KDIC’s nominal investigative power was the result of a three-month deliberation by a financial regulatory innovation task force after President Lee Myung-bak called for measures to prevent a lack of supervision last year as savings bank corruption cases implicated financial authorities as well as politicians and government officials.

Twenty savings banks have been suspended since last year including four in May, dealing a blow to depositors.

Under current rules, the results of the KDIC’s probe are reported to the deposit insurance committee and then to the Financial Services Commission. If measures such as suspension are necessary, the probe results are handed over to the FSS, the executive arm of the FSC.

But once the MOU is signed, the FSS can look into the KDIC’s probe results before they are reported to the committee, which may allow the FSS to censor or influence the investigation.

The People’s Solidarity for Participatory Democracy accused the KDIC and the FSS of attempting collusion to cover up whatever they want.

“If they try to conceal problems and do not keep each other in check, damage will be done to the ordinary people and a lot of taxpayer money will be wasted,” said Kim Nam-geun, deputy chief of the civic group’s executive panel.

The MOU comes as the FSS fears a weakening inspection power and the FSC is wary of discord among subordinate agencies.

The FSS said the main idea of the MOU was to keep investigations by the FSS and the KDIC from overlapping.

“The MOU under discussion is about preventing overlapping inquiries and promising that the FSS will not argue about the KDIC’s probe,” said Ahn Jong-shik, head of the savings bank supervision department at the FSS.

“It is also about how to handle things when the KDIC needs the FSS to take certain measures such as suspension as a result of its independent inspection.”

Ruling and opposition lawmakers had agreed last year to give the Bank of Korea an independent investigative authority amid public criticism against the FSS.

The FSS and the FSC strongly opposed the plan, however, with FSC chairman Kim Seok-dong saying it could be “unconstitutional.”

The central bank was given a joint investigative right instead and began a joint inquiry with the FSS into banks over household debts in April, arousing complaints over conflicts between the two.

By Kim So-hyun (sophie@heraldcorp.com)