[Exclusive] Will Loan Volume Regulations Be Lifted? Yoon's Side Asks Financial Services Commission and Financial Supervisory Service, "What Is the Legal Basis?"

Rep. Yoon Chang-hyun Questions Financial Authorities on Total Loan Volume Regulation
When Asked About Legal Basis, FSC and FSS Say "Moral Persuasion"
Camp States "Arbitrary Regulation by Financial Authorities Is Difficult to Maintain"

Yoon Seok-yeol, the president-elect of the 20th Republic of Korea, is delivering a greeting at the People Power Party's campaign headquarters disbandment ceremony held at the National Assembly Library on the 10th. Photo by National Assembly Press Photographers Group

[Asia Economy Reporter Song Seung-seop] The possibility of abolishing or easing the total household loan volume regulation, which is currently enforced across the entire financial sector, has increased. This policy has been consistently criticized by Yoon Seok-yeol, the president-elect from the People Power Party, and it is understood that efforts such as requesting legal grounds from financial authorities have also been underway.

According to the financial sector on the 11th, Yoon Chang-hyun, a member of the People Power Party who served as the head of the financial policy headquarters during Yoon's candidacy, sent an inquiry letter to the Financial Services Commission and the Financial Supervisory Service regarding the total household loan volume regulation. The inquiry included questions about the basis and reasons for the current total volume regulation target rate, the legal grounds for the recommendations, and official letters sent to banks.

The financial authorities are currently regulating the total household loan volume to return the pace of household debt increase to pre-COVID-19 levels. This year, the target growth rate for household loans at commercial banks is set at 4-5%, which is stricter than last year's rate in the 6% range. At the end of last year, many banks stopped lending due to the total volume regulation.

The financial authorities explained that there is no legal basis and that the system is advisory in nature. The Financial Services Commission stated, "Total volume management is a kind of 'moral suasion' where financial supervisory authorities seek voluntary cooperation from financial companies to manage systemic risk," and added, "There is no official letter sent by the FSC to banks." The Financial Supervisory Service also replied, "Total volume management is implemented by seeking voluntary cooperation from financial companies."

"It is difficult to maintain arbitrary regulations imposed on financial companies"

The camp also expressed opinions that the total volume regulation should be maintained. The Financial Policy Division of the FSC argued, "During periods of rapid credit expansion, appropriate loan handling by individual financial companies can pose significant risks overall," and added, "In such situations, it is necessary and the fundamental role of financial authorities to provide direction and seek voluntary cooperation." The Bank Supervision Department of the Financial Supervisory Service also mentioned, "If household debt accumulates excessively, there are concerns about macroprudential deterioration," and "It is necessary to manage household debt so that it does not become a burden on our economy in the future."

On the other hand, there is a consensus within the camp that arbitrary financial regulations need to be reorganized. The practice of financial authorities implementing desired policies without even minimal legal grounds or regulations is fundamentally wrong. A camp official said, "Financial holding companies are also KOSPI-listed companies, but the financial authorities effectively decide the business policies and maximum sales of affiliates under the name of recommendations," and added, "It is difficult for this system to continue."

It seems inevitable to revise the total volume regulation to realize the loan easing policy promised by the president-elect. During his candidacy, Yoon pledged to increase the loan-to-value ratio (LTV) up to 80% for first-time homebuyers and newlyweds. The LTV for single-home real demand borrowers will also be eased up to 70%.

The president-elect is also known to have a strong will. During the election campaign, Yoon criticized the total volume regulation as a "typical Moon Jae-in-style reckless ideological policy."