[Reporter’s Notebook] The Fair Trade Commission’s "Sword" Must Not Become a "Weapon" Threatening the Financial System

Weak Grounds for Viewing LTV Information Sharing as "Collusion"
Risk Costs May Ultimately Be Passed on to Consumers

"The amount is not what matters. The moment we accept the penalty, we become a greedy bank exchanging information for greater profits. All we did was comply with the financial authorities' administrative guidance for household debt management."

This is the lament of a banking industry insider in response to the Korea Fair Trade Commission imposing a total fine of 272 billion won on the four major commercial banks (KB Kookmin, Shinhan, Hana, and Woori), accusing them of colluding over the loan-to-value (LTV) ratio.

The Fair Trade Commission determined that the four banks had colluded by sharing LTV information and lowering the LTV ratio by about 10 percentage points, thereby restricting loan limits. For information exchange to be recognized as collusion, the banks must have benefited from the act. In reality, however, their interest income decreased. The Fair Trade Commission argued that by setting a lower LTV, banks reduced loan amounts but induced customers to take out additional unsecured loans, thereby earning extra interest income. However, consumers had the option to choose other financial institutions that offered higher LTVs. Above all, using unsecured loans was a voluntary decision by consumers; it is difficult to argue that banks forced them to do so.

Even setting aside the Fair Trade Commission's excessive interpretation of collusion, the banks' sense of unfairness is understandable. The LTV ratio is a policy tool designed by the Financial Services Commission for macroprudential purposes and is supervised by the Financial Supervisory Service. In other words, LTV information itself should be regarded as a financial risk management tool. Moreover, considering that the financial authorities repeatedly summoned vice presidents of the banks to hold meetings on household debt management, the sharing of LTV information among banks is closer to a 'cooperative act' aimed at achieving the policy goal of managing household debt.

The Fair Trade Commission's decision is also out of step with global trends. The European Union, the United Kingdom, and Australia, for example, encourage the sharing of LTV information for consumer protection and risk management purposes. They view information sharing not as a means of restricting competition, but as a public good that benefits consumers. There is a saying, "A sword is most frightening when it remains in its sheath." We have already seen, in the case of the negotiable certificate of deposit (CD) interest rate, the negative impact on the market when the Fair Trade Commission, wielding such power, abuses it. Despite investigating for four years, the Fair Trade Commission ultimately found no evidence and cleared the case, but the costs of risk management and uncertainty during that period were borne entirely by the banks and consumers.

This latest penalty not only imposes a direct cost of 272 billion won on the four major banks, but also leaves a structural burden by requiring them to reflect approximately 1.632 trillion won in operational risk as risk-weighted assets (RWA) over the next ten years. If risk management activities for financial stability and consumer protection are retroactively defined as collusion at a time when the new administration is demanding both productive finance and qualitative management of household debt, banks will have no choice but to respond with more conservative business practices. Ultimately, these costs are likely to be passed on to consumers once again.

The sword that corrects the order of competition must not become a weapon that severs the lifeblood of the financial system. The Fair Trade Commission must carefully consider whether what truly needs protection is competition itself or the foundations and trust that make competition possible in the market.