It increasingly looks like Korea Exchange Bank (KEB) will be taken over by Kookmin Bank, which would become a massive financial institution as a result. That is not entirely a good thing, however, when you consider the strange comments from the government's financial supervisory authorities, the effects it would have on the market, and the close to W3 trillion margin Lone Star would walk away with after the competition to acquire KEB.
The Financial Supervisory Commission's (FSC) comments on the matter have been rash and inappropriate. It said there would be problems with Development Bank of Singapore (DBS) qualifications to be the main shareholder, and that it would not create a monopoly to have Kookmin acquire KEB. Even if it is right about DBS, the issue of a monopoly is not something that can be discussed in such simple terms. The law stipulates the condition that when the FSC approves a merger, it must not do so in a way that limits competition. Also, determining what is permissible requires prior consultation with the Fair Trade Commission (FTC). The FSC is therefore going beyond its authority and is in violation of the legal procedures. There are some who ask whether the FSC is backing Kookmin in its bid, and indeed, if it is trying to encourage the birth of a mega bank, it will be accused of believing in the dogma of "big is good" and failing to move beyond the government-orchestrated finance of years past.
A bank does not increase its competitiveness just by being big, and among the experts the jury is still out on whether making bigger banks is a good idea. Kookmin CEO Kang Chung Won once actually said his bank was plenty competitive enough at it current size. Meanwhile, the instability of an overconcentrated industry is not something to be taken lightly. The bank that would emerge from the merger would have a 33 to 57 percent share in various sectors of the market. That would not be in violation of fair trade laws that say a bank is in a dominant position when it has more than 50 percent of the market, if you exclude KEB's 57 percent. However, that is not an absolute standard. More important is whether, given the nature of the banking industry, it could affect actual competition.
Other concerns have to be taken into account as well. The stability of the finance market would be determined by Kookmin's successes and failures. It's the same principle about it being dangerous to put all your eggs in the same basket. If, by chance, Kookmin were to have problems, the whole economy would be shaken by a single bank. 85 percent of Kookmin is owned by foreigners, and you don't know what kind of change that could lead to. One should be careful suggesting what should happen when there is competition over who gets to acquire KEB, and we are not trying to say KEB should not go to Kookmin. But the supervisory authorities need to give these issues ample and careful consideration. It is terribly irresponsible to say there are no problems right off the bat.
The Hankyoreh, 23 March 2006.
[Translations by Seoul Selection]
[Editorial] A Big Bank is Not Necessarily a Good Bank |
