Data shows practice leads to collusion between lenders and watchdog
One in three savings banks suspended in the last decade had hired former officials from the financial watchdog or the central bank as auditors, a report said.
Analysts said the data demonstrates long-held collusive ties that public agencies have had with the lenders they supervise.
The findings by the Korea Federation of Savings Banks on Monday said a total of 10 savings banks among the 31 suspended since 2002 had auditors and executives who worked at the Financial Supervisory Services and the Bank of Korea.
“This supposedly shows the moral hazard ex-officials would have faced when the banks were suspended,” Chung Ok-nim, a member of the State Affairs Committee in the National Assembly, said.
It supports the government’s drive to reform the FSS, which has been hit by corruption and bribery scandals aimed at breaking the agency’s monopoly on auditing and cutting possible collusive ties with the private sector.
Invest Savings Bank, suspended in 2004, had a former FSS staffer as its CEO and biggest shareholder. Good Mutual Savings Bank, suspended in 2006, had a former FSS official as its president and an ex-official who had worked at the BOK, FSS as an auditor.
Top officials from public agencies retiring to the private sector have caused public fury after reportedly helping cover the banks’ troubles through their networks among regulators. A total of eight savings were suspended this year alone.
According to the report, a total of 123 auditors in the industry had worked at the FSS, BOK and other public agencies including the Korea Deposit Insurance Corp.
The media spotlight is on FSS staffers moving to top spots in the financial industry but it actually is a much bigger problem about former public servants landing onto top spots in the private sector,” Chung said.
The FSS has been under fire for its failure to prevent illegal withdrawals at Busan Savings Bank, one of eight suspended this year. Majority shareholders and management took out 4.6 trillion won ($4.23 billion) from the lender and its four affiliates days before the bank was suspended.
A series of arrests of FSS officials on charges of bribery has also led President Lee Myung-bak to make a rare visit to the agency’s Wednesday, where he described the problem as “chronic corruption.”
The Prime Minister’s Office on Monday launched a taskforce to push for reform of the agency. The reform proposal includes shifting some supervisory power to independent accounting firms or semi-government agencies such as the Korea Deposit Insurance Corp.
By Cynthia J. Kim (email@example.com)