[The Editors' Verdict]No New Growth Can Arise from Outdated Finance

Tasks for the Next Administration: Making Finance the Engine of the Economy
Financial Policy Must Be Redesigned as a Catalyst for Growth

In September of last year, Mario Draghi, former President of the European Central Bank (ECB), released an unusual report titled "The Future of European Competitiveness." It was notable not only because a former central bank president discussed Europe's industrial strategy, but also because the most striking part of the report focused on finance. Draghi diagnosed that "the European financial system is no longer properly fulfilling its role of supplying funds to high-growth industries," and emphasized the need for a structural transformation of finance, going beyond mere regulatory easing. He proposed solutions such as shifting from a bank-centered financial market to a capital market-centered structure, regulatory flexibility, and expanding private investment. This awareness stemmed from the realization that, for Europe to regain competitiveness in strategic sectors such as digital transformation, energy transition, and the defense industry, finance must once again function as the 'engine' of industry.

This report poses a meaningful question for Korea today. Is finance truly functioning as a growth engine for the Korean economy? In June, Korea will welcome a new government. Whenever the political season returns, policy expectations and demands pour in, but only one demand has remained consistent: the need for a new engine to drive the economy forward. At the center of this must now be finance. It is time to redefine finance not just as a controller of risk, but as a facilitator of growth.

Over the past decade, Korea's financial policy has established an increasingly rigid control system under the pretext of crisis response and market stability. Regulations have been consistent, procedures strict, and supervision thorough. But what has been the result? While industries are rapidly reorganizing and technology is breaking down the boundaries of finance, our financial sector remains focused on risk avoidance. Corporate lending has been restrained, and product innovation has been stifled. Finance is no longer acting as a catalyst for growth.

Now is the time for a transition. There is a need to redesign regulations, not simply to relax them, but to enable growth. The task for the next administration's financial policy is to find a balance between capital and lending, consumer protection and innovation, and control and autonomy. Finance must be designed to function productively once again. The current capital adequacy regulation structure discourages corporate lending. Risk weights need to be adjusted to reflect reality, and incentives for lending that supports industrial growth must be restored. Strategic autonomy in capital management for financial companies must also be regained. The key is to ensure that finance functions as a dynamic ecosystem, not as a sector managed in isolation from the market.

Balancing consumer protection and innovation is also crucial. Excessive transfer of responsibility for complex financial products hinders innovation and ultimately limits consumer choice. Regulation must not become a tool for suppression rather than protection. In the era of digital finance, function-based regulation?so-called "same function, same regulation"?is essential. Creating a level playing field for competition between big tech (large information technology companies) and traditional finance will allow the market to evolve more rapidly.

Flexible institutional design for future finance is also urgently needed. Barriers that hinder entry into new industries and mergers and acquisitions (M&A) must be removed. This is not simply an issue of the financial industry's interests, but is directly linked to the national industrial growth strategy. Finally, building a trusted financial system must be the foundation of reform. Internal controls should be redesigned to focus on prevention rather than sanctions, thereby enhancing effectiveness and restoring market trust.

The next administration must consider not "reform that eliminates regulation," but "balanced reform" that enables finance to once again become a facilitator of growth. In the changed economic and industrial environment, finance must become a key partner in the national growth strategy. The economy will only accelerate if finance changes. It is time to shift the paradigm of financial policy so that finance can become the engine of growth that drives the national economy.