There Is a Reason for "Productive Finance"... Policy Reflects Lessons Learned After the Financial Crisis

Reflection on Financial Policy After the Global Financial Crisis
Financial Services Commission Questions Real Estate-Centered Capital Flows
New Administration Drives "Productive Finance"

Lee Eokwon, Chairman of the Financial Services Commission, is attending the Bank Presidents' Meeting held at the Bankers' Hall in Jung-gu, Seoul on September 29, delivering opening remarks. 2025.09.29 Photo by Yoon Dongju

The key word for the Lee Jaemyung administration's financial policy is "productive finance." The administration aims to redirect funds that have been tied up in interest income or real estate into the real economy, such as advanced industries, to drive a new leap forward for the Korean economy. The prevailing view is that "productive finance" has been reborn as a result of both the self-reflection of public officials in charge of financial policy after the global financial crisis and the new administration's national policy direction coming together.

The concept of "productive finance" dates back to the 2008 global financial crisis. At that time, there were sporadic reflections within the government agencies responsible for financial policy regarding the need for a major policy shift.

An official from the Financial Services Commission explained, "Until now, financial policy has focused on the development of the financial industry and the stability of financial markets, but after the collapse of Lehman Brothers in 2008, there was reflection on whether existing financial policies had truly contributed to national economic development."

The official added, "During this process, one of the main internal concerns was the imbalance of capital allocation. Coincidentally, the new administration included 'a major shift in finance' as a national agenda item, and as we began to flesh out our policies, we gained the momentum needed to properly pursue 'productive finance.'"

The key figure in driving "productive finance" is widely considered to be Kim Yongbeom, Chief Policy Officer at the Presidential Office. Kim has pointed out the need for a shift toward "productive finance and inclusive finance" for nearly a decade.

At a joint academic conference of the financial sector at the time, he stated, "Our financial industry has seen a deepening imbalance, with capital being concentrated in household loans and real estate rather than in productive and innovative sectors such as innovative small and medium-sized enterprises. We must revisit the fundamental functions of finance and actively seek ways to resolve the economic and financial imbalances that have accumulated over time."

Moon Sunghak, Vice Minister of the Ministry of Trade, Industry and Energy, Kwon Daeyoung, Vice Chairman of the Financial Services Commission, and Ryu Jemyung, Second Vice Minister of the Ministry of Science and ICT (from left), are discussing the government's fund management plans at the "Joint Meeting of Government, Industry, and Financial Sector for the Success of the National Growth Fund" held on the 1st at the Korea Development Bank in Yeouido, Seoul. Provided by the Financial Services Commission

The Financial Services Commission's recent moves to ease regulations on risk-weighted assets (RWA) and corporate venture capital (CVC) investments are also in line with this approach. RWA regulations refer to capital adequacy standards that require financial institutions to hold more capital when they own loans or assets, based on the level of risk involved.

RWA regulations generally favor mortgage loans secured by collateral, as the average RWA for corporate loans is higher. In particular, when banks invest in venture funds, the RWA can rise to as much as 400%. For banks, this means that real estate loans are more advantageous than corporate loans or venture investments, which require more capital reserves.

By easing RWA regulations, the Financial Services Commission has lowered the RWA to around 100% for investments in venture funds that support regional innovation companies. This is the first time that a special RWA provision has been applied to venture funds. In addition, the minimum RWA for household loans has been raised from the current 15% to 20%. In effect, regulations on corporate loans have been eased, while those on household loans have been tightened.

A senior government official explained, "This is a policy that involved considerable deliberation. The new administration is strongly pursuing 'productive finance' by reflecting these concerns."