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(Yonhap Interview) S. Korean financial sector to play role in unification process

All Headlines 16:01 May 03, 2018

By Kim Boram

SEOUL, May 3 (Yonhap) -- A former senior official of the U.S. federal deposit insurer said Thursday that South Korean financial institutions will play a big part in the highly anticipated process of inter-Korean economic cooperation and in possible unification down the road.

The historic summit between South Korean President Moon Jae-in and North Korean leader Kim Jong-un on Friday promised to build peace on the Korean Peninsula. The two Koreas are still technically at war as the 1950-53 Korean War ended in an armistice and not a peace treaty.

Also, the Moon-Kim agreement, dubbed the "Panmunjom Declaration," included an article about connecting and upgrading railways and roads between the two countries.

Although the current U.S.-led economic sanctions against North Korea make this almost impossible, expectations are high for wider economic cooperation, such as opening a joint inter-Korean complex and laying the foundation for unification.

"If you are to continue to move towards unification, or whatever your goals are, I think the financial sector will play a major role. I mean, by definition, it's very important," said Thomas Hoenig, who just finished his six-year vice-chairmanship at the Federal Deposit Insurance Corp. (FDIC) on Monday.

"First of all, you have to merge currencies and how you count, for we learned that with the German reunification," he said. "When you do that, your banks will also play (more of a role) in that effort."

For the stable and smooth process of unifying the two different financial systems, Hoenig said the state-run deposit insurer, the Korea Deposit Insurance Corp. (KDIC), will likely give confidence and provide a safety net to people both from the South and the North.

"It may not be the first thing on the agenda. But as the financial industry develops, it almost necessarily has to be," he said.

To prevent possible financial crisis stemming from South Korea's massive household debt, which surpassed 1,450 trillion won (US$1.35 billion) last year, Hoenig called on local banks to judge the amount of debt that they have as a first step.

"The second is ... the banking industry has to increase the amount of equity capital it has in its banks," he said. "So that should there be a downturn, they can absorb the negative shock without bringing forward a bankruptcy or a crisis."

At the same time, he suggested the financial authorities here, including the KDIC and central bank, keep close tabs on the financial stability of the banking industry and ring an alarm bell in advance before a risk becomes a crisis.

"I've learned that is very difficult when times are good. Everyone is ready to spend money and borrow money," said Hoenig, who once served as a voting member of the Federal Open Market Committee in the United States. "So that's where the deposit insurer and the central bank has to play a very key role in identifying where the vulnerabilities are and the weaknesses are. That's what they have to do over time."

This photo shows Thomas Hoenig, former vice-chairman of the U.S. Federal Deposit Insurance Corp. (Yonhap)


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