Lee Bok-hyun, Financial Supervisory Service Chief: "Chairman Appointment Procedures at Financial Firms Should Not Be a Black Box... Must Become Transparent"

Financial Supervisory Service to Hold Regular Communication with Financial Company Boards Starting This Year

Communication Methods and Content Disclosed... Checks and Balances Needed

Financial Supervisory Service Governor Lee Bok-hyun is attending and speaking at the 'Private Fund Management Company CEO Meeting' held on the 13th at the Kensington Hotel in Yeouido, Seoul. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporters Sim Nayoung and Boo Aeri] Lee Bokhyun, Governor of the Financial Supervisory Service (FSS), raised the question, "What criteria were used to select the longlist of (chairman candidates)?" regarding the chairman appointment process of financial holding companies, including Woori Financial Group, emphasizing that "the fairness and transparency of the succession process must be enhanced to improve governance."

At the 2023 FSS business plan press briefing held on the 6th, he stated, "Since there are shortcomings compared to global standards, we will strengthen direct communication with the boards of financial companies and conduct on-site inspections of board operations," expressing this view.

Will Provide Direction Through Communication Between Boards and Financial Authorities

Governor Lee explained, "If the longlist was requested from an external headhunter, does that mean entrusting the fate of the financial holding company to the headhunter? (If not,) wouldn’t it be possible to tell the headhunter company or directly the nomination committee the standards shareholders want, so that candidates matching those standards can be selected?" He added, "The issue awareness that transparent, objective, and advanced standards must be created was the starting point of the (board system improvement plan)."

He continued, "Considering the importance of financial holding companies in the national economy, the authorities also share the concern that the chairman appointment process might be happening inside a black box," emphasizing, "Since controversies over government intervention have arisen in various procedures and become an issue, it is better to make it public, institutionalize necessary parts, and for parts that cannot be institutionalized, create social discourse to raise the level one step further."

Regarding the announcement to regularize direct communication between supervisory authorities and bank boards, Governor Lee said, "There was a misunderstanding that meeting the board at a specific time was for a specific purpose, but the authorities’ stance is that they can provide direction with a principled approach regarding board transparency," explaining, "Board communication can be meaningful, for example, by the FSS conveying its wish for the board to review key inspections."

He also added, "It is my personal view that it would be desirable to publicly disclose or announce the content of communication methods with the board," stating, "From an internal and external control perspective, it would be good if mutual cooperation between financial authorities and bank holdings achieves checks and balances."

Monetary Policy Effects Are Already Sufficient... No Problem Even If Deposit and Loan Interest Rates Are Lowered

Regarding criticism that the financial authorities’ order to lower deposit and loan interest rates offsets the effects of the Bank of Korea’s monetary policy, he said, "Most citizens have already individually felt the effects of interest rate hikes, and since economic recession due to consumption contraction has been worsening since the second half of last year, the authorities’ position is that it is not a concern that the interest rate hike effect is absent."

On the demand to lower deposit interest rates, he said, "(Due to instability in the bond market) excessive concentration of funds in the banking sector has caused confusion, so restraint on deposit interest rates and bank bond issuance has been maintained to some extent to prevent financial market disruption," adding, "We will observe the first quarter situation this year to see if the market can return to a market-centered state."

Regarding banks’ record-breaking profits and bonus celebrations, he warned, "Considering the role of banks in supporting the real economy that is struggling, it is necessary to sufficiently build loss absorption capacity," and added, "It is difficult to gain public consensus on performance bonuses for some senior executives amounting to tens of billions or at least several billion won during such difficult times."

He continued, "Banks recorded operating profits exceeding 10 trillion won last year and are likely to exceed that this year as well. Although operating profits exceed 10 trillion won, considering losses from non-interest income, the interest income profit reaches tens of trillions," and said, "We need to consider whether distributing all of that solely as performance bonuses to shareholders and executives is appropriate given the banks’ structurally monopolistic system and functions. There is a need to share such fruits in the spirit of coexistence and solidarity."

Regarding the announcement of effective exemplary cases of banks’ financial support for vulnerable groups, he said, "Banks announced support of 400 billion won for small and medium enterprises and social contributions worth 500 billion won, but if the content includes, for example, the employer saying they will continue paying wages as before and asking to consider this as support for workers, which worker would accept that?" He added, "We will check whether the programs included are just repackaged routine practices."

Governor Lee said, "Since banks’ support measures are collectively packaged, there are financial companies that are more willing and better at it and others that are relatively less so, so a competitive environment has not been created," and responded, "We will carefully monitor from the first quarter of this year whether there is effective support and which financial companies performed well, as this can become an ESG indicator for banks."