The Korea Herald along with many Korean language papers on March 2, 2007 reported that the proposed consolidation of the bank, insurance, and security laws is unlikely to pass because of opposition from banks, some prominent lawmakers, and academics.
A plan to consolidate government acts related to banks, insurance and securities firms could hit a snag amid controversy over allowing brokerages to engage in banking transactions for customers.
Several lawmakers, academics and banks are opposing the idea, arguing that it would give banking business to securities firms.
They say securities firms are currently exempted from banking regulations, such as the restrictions on the ownership of non-financial corporations, reserve requirements and the 8 percent BIS (Bank for International Settlements) capital ratio.
Authorizing brokerages to process payments should be dealt with separately from the capital market consolidation act, they insist.
Observers say that if the bill fails to pass the National Assembly in April, the upcoming presidential election campaigns will make it hard for the legislature to handle it in the remaining months of this year. After the presidential election in December and the special parliamentary session in February, the last one before new lawmakers are elected in April 2008, all pending bills will die with the closing of the 17th National Assembly, they noted.
The capital market consolidation bill submitted to the National Assembly states that brokerages are considered as financial institutions under the banking law. The bill also gives securities firms new functions such as transferring money within the investor's deposit limit and processing payments for customers.
"The act seems to be a move to give the green light to brokerages' banking operations as it identifies the money customers entrusted to the brokerage as a deposit or a means for payment," said Jeon Sung-in, an economics professor at Hongik University. "This is just doing an end run to let the securities firms start a banking business without falling under banking regulations, such as the cap on ownership of industrial capital."
The financial holding company system already enables subsidiaries to engage in different financial business fields.
"It is against the initial purpose of the capital market consolidation act that was to integrate the banking, insurance and securities firms but maintain clear boundaries between each sectors," Jeon said.
Rep. Park Young-sun of the ruling Uri Party also said that it is absurd that the Ministry of Finance and Economy revised the bill to allow brokerages to process payments and provide them with emergency liquidity support from the central bank.
The ministry insists that it is preposterous to take the act as granting banking rights to brokerages. They are to receive liquidity support from the central bank during emergencies because the Bank of Korea saw the need to limit the possible risks of processing transactions, the ministry said.
By Kim So-hyun