Moving from 'cruel finance' to basic finance?

Suh Kyoung-ho The author is an editorial writer of the JoongAng Ilbo. Kim Yong-beom, the presidential chief of staff for policy, posted a four-part series titled "The Structure of Finance" on social media earlier this month. He pointed out that the current credit rating system, which looks only to the past, has problems; that banks are excluding borrowers with medium and low credit scores because of a badly designed structure; and that financial institutions for ordinary people enjoy tax-exemption benefits while failing to fulfill their proper role of helping ordinary people. He said that when President Lee Jae Myung first asked, "Why must the most desperate people pay the highest interest rates?" he let out a hollow laugh and thought it was a question from someone who did not understand the basics of credit. But he said that led him to ask, "Whom, exactly, is finance protecting?" and that he could no longer laugh after the president's words — "Why is Korean finance so cruel?" — pierced his heart like an awl. He also used the expression that banks are "quasi-public institutions." His point was that banks are not fully private companies because they operate on state licenses, are backed by the public safety net of depositor protection and receive the protection of bailouts in times of crisis. A few days later, at a Cabinet meeting, President Lee gave Kim his support, saying, "Do as you wish." Times have changed a great deal. After the 1997 Asian financial crisis, as an era arrived in which banks, too, could fail, banks' profitability became important. In official documents in 2001, the government also began using the term "financial companies" instead of "financial institutions." The wording carried the meaning that banks, too, are companies that clearly pursue commercial interests. But since then, whenever banks have made large profits, they have been engulfed in controversy. After 1997, restructuring reduced the number of banks, and thanks to entry restrictions under a strict "license business," banks were guaranteed "oligopolistic operations" by the state. In this respect, the expression that banks are "quasi-public institutions" contains, to some extent, an uncomfortable truth. Banks' practice of lending mainly against real estate collateral is criticized as "pawnshop-style business," but it is not easy to change. That is because the practice itself is a product of regulation. If prudential regulations are mishandled and banks collapse, taxpayer money will ultimately be used. Korea should consider a system like that of the United States, where mortgage lending is handled not by banks but by institutions such as Fannie Mae. This is not a problem that can be solved simply by pressuring banks. Conservative administrations have also emphasized the public nature of banks. Former President Yoon Suk Yeol pressured banks in 2023 for "win-win finance," saying, "Banks are public goods." The Lee Jae Myung administration's view of banks as quasi-public institutions has deeper roots. It is connected to the dream of a basic society that the president has nurtured since his time as mayor of Seongnam. In April 2023, when he was leader of the Democratic Party (DP), Lee attended a forum on basic finance hosted by the party's Basic Society Committee and said: "We must now move toward a basic society that guarantees a basic life in every area of life, not welfare that merely guarantees a minimum life for the people." He saw basic finance as one pillar of such a basic society. Kim said his argument was not a sympathetic appeal simply to lower interest rates, nor an irresponsible claim that risks should be ignored, nor an attempt to twist banks' arms. But President Lee's thinking from three years ago appears somewhat different. He said differences in interest rates according to ability are natural from the standpoint of a market economy, but "that is the market's position," and "finance is not something created in the market, but a product...