Korea to Sell Suspended Savings Banks: Some Suggestions

Korea To Sell Suspended Savings Banks
Today, the KDIC (Korea Deposit Insurance Corporation), which is similar to the FDIC in the U.S., announced plans to sell failed savings banks. As those that have read previous posts here, the failure of these banks is not symptomatic of system-wide banking system weakness, but rather a problem resulting from two other forces. First, these savings banks have made loans to construction projects, which have been struggling for years. Second, depositors are largely located outside of Seoul, where the deposit base is smaller. Therefore, when there are rumors of problems at a particular bank, then the depositors get nervous, and attempt to withdraw their deposits en masse. That is called a “run on the bank.” Add failing assets (construction projects), to a shrinking deposit base, and voila! Bank failure.

Let’s Hope The KDIC Doesn’t Screw This Up
How the KDIC conducts itself will be very interesting indeed. Korea does not have a favorable history in disposing failed banks, especially to foreigners. Amazingly, incredulously, the Lone Star – KEB debacle continues, with still no end in sight, as deadline after deadline passes without resolution. Foreign investors, especially private equity investors, are leery, and rightfully so. The lack of a diverse private equity investor base in Korea is only hurting Korea, a place where entrepreneurs should exist everywhere, given the creativity, experience, and qualifications of its citizens. No matter: laws are erected and disassembled based on the political whim of the population and the political agenda of the government. The world will watch the KDIC to see how it conducts itself this time.

Some Suggested Rules
Here are a few suggested ground rules for the disposal. They are fundamental and simplistic. You don’t need a degree in finance (I have one) to understand them.
1. All information must be shared equally among all potential bidders in advance.
2. Highest price wins. The party that wants to pay the most for the banks should be the winner.
3. Rules for approval must be published in advance (i.e. if Rule #1 is followed, then Rule #2 governs)
4. Once approval has been granted, no “take backs,” no “I changed my mind”, no “I got picked off”, no “I didn’t think of that earlier,” etc. Any new laws that are enacted after the fact have no bearing on the result of the sale.

Conclusion
Look at the list; silly that it needs to be written, right? WRONG. Korea has violated each of these, with the entire world as a witness. It has been, it is, and it will be, the central thesis of this blog; Korea can achieve more, much more, but must resolve societal juxtapositions in order to take its place among the global elite. While the size of the savings banks to be sold is almost trivial, Korea has such a poor track record on this type of transaction, it will receive attention at the international level.

Unfortunately, the Seoul Gyopo Guide fears that instead, we will look back at this example, and be singing this oldie but goodie (in K-Pop terms). Somehow, I don’t think that this is what Jewelry had in mind. Or the KDIC.