[Inside Chodong]When Financial Authorities Move Away from the Market

Speed and Connectivity Are Crucial in Responding to Financial Crises
Physical Distance Affects Supervision, Policy, and Safety Net Functions
Market Access and Response Capabilities Matter More Than Relocation

The more the financial authorities distance themselves from the market, the closer financial risks may come. As the government announces the principles and policy direction for the second round of public institution relocations, renewed attention is focused on the locations of financial authorities and public financial institutions. This should not be viewed simply as an issue of public institution placement. The key is not where they are located, but where they can perform their functions to the fullest. Any relocation plan must first present a design that ensures there is no reduction in market surveillance and crisis response capabilities.

Balanced regional development is important. However, financial authorities are different in nature from general administrative agencies, as they must detect risks in the financial market early and take action before the situation worsens.

Financial supervision is not just about reviewing documents and figures. Issues such as delinquencies in real estate project financing (PF), strains in the short-term money market, sudden changes in the liquidity of financial companies, and shifts in investment sentiment frequently appear in the market before they do in the statistics. Informal information, such as conversations between staff, fund flows, and subtle changes in market prices, often serve as the first signals. While it is possible to receive data through computer systems and hold meetings virtually, a financial crisis does not unfold according to a predetermined schedule. What matters is the time it takes to connect scattered signals, assess the level of risk, and decide on a course of action.

On August 24, union members spoke at a joint press conference held by the Deposit Insurance Corporation and the Financial Supervisory Service labor unions in front of the Blue House Sarangchae in Seoul to firmly oppose the relocation of government agencies. At the press conference, they urged to "exclude the Deposit Insurance Corporation and the Financial Supervisory Service from the second plan for relocating public institutions to local areas, and to reconsider from the beginning based on the effectiveness of safeguarding the financial system and crisis response." Yonhap News Agency

The Financial Services Commission and the Financial Supervisory Service cannot operate separately. When the Financial Supervisory Service detects risks through inspections, supervision, and market monitoring, the Financial Services Commission links these to policy measures and market stabilization actions. If physical distance increases the time lag between information and judgment, it can pose a threat to financial stability.

The Korea Deposit Insurance Corporation is also a pillar of the financial safety net. Since it is responsible for protecting depositors and the resolution of insolvent financial institutions, it is imperative that, during a crisis, everything from information sharing to decision-making and execution is conducted swiftly in cooperation with the Financial Services Commission, Financial Supervisory Service, Bank of Korea, and others. Although these functions are divided under normal circumstances, they must operate as a single response system in times of crisis.

While policy banks differ in nature, the fact that their location cannot be divorced from their function is equally true. Institutions like Korea Development Bank, Export-Import Bank of Korea, and Industrial Bank of Korea serve as the bridge between markets and companies in areas such as corporate finance, capital procurement, restructuring, and export finance, and become key channels for policy-based finance during market instability. It is essential to ensure that relocation does not compromise their market access or ability to execute policy finance.

In this respect, the financial cluster in London provides a useful example. London's competitiveness is not simply due to the concentration of financial institutions. The close interconnection among banks, securities companies, insurers, asset managers, as well as professional services like law and accounting, and the policy, supervisory, and regulatory functions, forms its real strength. In finance, what matters is how closely the market, information, specialized professionals, and decision-making capabilities are linked.

In Korea, we should prioritize this connectivity over the sheer number of relocated institutions. Local finance will not grow automatically just by moving a few institutions. Instead, an ecosystem strategy that brings together companies, financial firms, investors, and skilled professionals is required. Therefore, key functions such as inspection and supervision, market monitoring, financial policy decision-making, and crisis response need to remain in Seoul as a matter of principle. If an alternative approach is to be considered, it must be clearly demonstrated that these functions will not be weakened. While relocation costs can be calculated in advance, the cost of missing the right timing for action becomes apparent only after a crisis strikes.

This content was produced with the assistance of AI translation services.