President Barack Obama will sign the financial re-regulation bill into law next week following its passage in Congress Thursday. The law ultimately ends the era of the government's
hands-off policy toward Wall Street and strengthens the protection of consumers. It rules out, in principle, a state bailout of troubled financial companies.
The new regulatory regime may be the toughest since the Great Depression in 1939. The government would have the authority to seize and shut down failing financial institutions through liquidation of assets. Instead of a state bailout, shareholders and creditors would be forced to take losses.
This is to preclude the possibility of abusing taxpayers' money to prevent the ``too-big-too-fail'' myth.
The Federal Reserve will create a powerful consumer protection board. The Securities & Exchange Commission will toughen the monitoring of hedge funds, private equity firms and credit rating agencies. Risky behavior on Wall
Street will be checked. Under the so-called Volcker rule, named after a former FRB Chairman, banks will face restrictions in investing in and
trading on their own accounts as well as in dealing with derivatives trading, which was at the heart of the 2008 U.S. crisis.
The legislation was not as tough as was originally envisaged. It is a political compromise between legislators and banking lobbyists. The Obama administration may draw criticism from financiers for only picking Wall
Street banks as a scapegoat. The legislation does not reflect the fact that regulators were also responsible for the Wall Street fiasco.
Its impact on the Korean financial market will be limited. Ironically Korea could have minimized the 2008 global financial crisis because the
domestic financial market is underdeveloped and unsophisticated.
The re-regulation will influence Korean policymakers. No more proactive deregulation will be possible worldwide. The American central bank, unlike the Bank of Korea, can have a greater say in consumer protection. In Korea, there are a few consumer protection units scattered among different agencies. Korea also needs to rewrite its rules to limit or prevent the use of taxpayers' money for a bailout. Shareholders and creditors should shoulder the loss. The recent injection of taxpayers' funds into troubled
savings banks and small-scale community banks, was made without endorsement from the National Assembly. The government should no longer arbitrarily use taxpayers' money for bailouts.
De-politicizing is the most urgent issue facing local banks. The United States is a rule-based society. In Korea, those in power ignore written financial rules. The case in point is the KB Financial Group. Foreigners
hold 80 percent of KB shares. President Lee Myung-bak installed his crony as its chairman.
The role of the government is to monitor the market, not to appoint their cronies in high positions at private banks. Financial repression has become more palpable now than three years ago. The Financial Supervisory Service
has become a slave to power. It picked KB for an arbitrary, personalized and unprincipled audit until its CEO resigned. The nation needs to introduce legislation to prevent state intervention in personnel appointments of
private financial companies.