The Korean Economic Forum
Financial Supervision and Central Banking: A Review in Search of Ways to Organize Financial Supervision in Korea
Hong-Bum Kim (Gyeongsang National University)Year 2022Vol. 15No. 1
This paper carefully looks at global trends in organizing financial supervision for over the last three and a half decades (specifically, 1987~2022) covering the post-crisis years (the Global Financial Crisis, the Covid-19 Crisis, and their respective aftermaths) as well as the pre-crisis ones (Great Moderation). It finds that the extent of institutional integration of financial supervision has been consistently increasing for the whole period. This implies that the complementarities between financial supervisory policy functions have been increasingly made much of. It also finds that central banks, being at the forefront of such integration, have been charged with more and more supervisory responsibilities especially since the Global Financial Crisis. The paper then turns to the concerns over the recent outright politicization of finance and the seemingly increasing political capture in financial supervision in Korea. In line with those global trends and such domestic concerns, it finally puts forward the reform proposal that financial supervision be organized in the direction of putting the Bank of Korea, being equipped with new microprudential and macropudential policy functions, at the center of financial supervision. This will certainly make a realistic solution that uniquely removes chronic vulnerabilities―such as ‘dual institutional structure’ and ‘conflicts of interest between supervisory responsibilities and financial industrial policies’―that have long been notoriously embedded in the current financial supervisory architecture in Korea.