Ⅰ. Introduction

 

Good morning.

Welcome to Seoul.

Congratulations on the 1st

IPAF Summit Meeting and

International Conference.

My special thanks go to

ADB Vice President 빈두 로하니 (Bindu Lohani),

and KAMCO Chairman & CEO 장영철.

Let me also thank

former Chancellor of Germany,

Mr. 게르하르트 슈뢰더 (Gerhard Schroeder)

for giving us the opportunity

to hear his exclusive presentation.

Ladies and gentlemen,

We are still in the shadows of

the 2008 global financial crisis

and the European fiscal crisis.

Last month, the IMF warned that

the financial crisis could turn “chronic.”

In many ways,

a financial crisis is like a influenza virus.

It comes with many symptoms.

It can cause serious or even deadly illness.

It cannot be treated with a single cure.

It constantly changes form.

And it is highly contagious.

Distinguished guests,

In my speech today,

I want to focus on two topics.

First—

Korea’s experience with crises

and the lessons on financial stability.

Second—

the importance of regional cooperation

among public AMCs.

 

 

Ⅱ. Korea's Experience: The Lessons Learned

 

Let me begin with Korea’s experience

and the lessons.

The crisis taught us two important

lessons on financial stability.

Lesson number one:

A country should establish

a financial stability framework.

It needs a regulatory infrastructure

to maintain financial stability.

This is essential to tackle crises

and help distressed financial institutions.

There are key elements to

a financial stability framework.

To name some:

timely interventions by financial authorities,

the role of central banks as “lenders of last resort,”

deposit insurance—and resolution scheme for

Non-Performing Loans (NPLs).

There is no one-size-fits-all answer to

how these elements should look and function.

It differs from country to country

based on national circumstances.

A good example:

the ownership structure of

asset management organizations.

In many emerging countries,

private markets for non-performing assets

are not fully developed yet.

So emerging countries are setting up

public asset management companies (AMCs).

The public AMCs are a vital part

of the financial stability framework

in the emerging economies.

Lesson number two:

Speed is more important than price

in resolving NPLs.

A delay in resolving NPLs

will only lead to greater losses.

The IMF noted in 2009 that

cooperation is imperative to

resolve NPLs.

Indeed,

further cooperation is required among

AMCs, financial authorities,

and deposit insurers.

This brings me back to public AMCs.

They are well-positioned to

foster cooperative relationship

with financial authorities

and deposit insurers—

especially in times of crisis.

This holds true for Korea.

Public AMCs in Korea enabled

close links between financial authorities

and deposit insurers.

And in times of crisis,

Korea was able to resolve NPLs

and inject public funds—

in a timely and effective way.

From the 1997 Asian crisis

up to November 2002,

the KAMCO spent 39.2 trillion KRW

to purchase NPLs.

The recovery rate stands at 123%.

This far exceeds that of the U.S. (87%),

Sweden (86%), and Finland (42%).

 

 

Ⅲ. Regional Cooperation of Public AMCs

 

Let me move on to the second topic.

Why do we need to strengthen

cross-border cooperation of public AMCs?

Ladies and gentlemen,

Globalization is not a new trend.

It has been here with us since the 1980s.

Complex financial instruments

and cross-border asset holdings

have significantly increased.

Cross-border presence of financial firms

has grown as well.

Global financial markets

are closely intertwined,

beyond national borders.

National efforts are not enough

to guard against external shocks.

Regional cooperation of public AMCs

is important in two aspects,

especially for emerging Asia.

First,

regional cooperation of public AMCs

is crucial for sharing information

about potential investors.

A powerful investor network

enables us to successfully resolve

non-performing assets.

Going forward,

we can consider building

a permanent Regional Investment Network.

Ultimately, this will help us

achieve an economy of scale

to resolve non-performing assets.

Second,

the IPAF members' efforts

to standardize regulatory frameworks

for resolving non-performing loans

will improve market efficiency.

Standardization of infrastructure

will reduce risks for investors.

This will help us attract more investors

and ensure reasonable pricing.

Lower transaction costs for NPLs

will help form a regional market

for asset management in Asia.

Distinguished guests,

There is an old Korean saying,

“If united we stand, if divided we fall.”

 

Asian economies should join hands

and take lead in containing systemic risks

at the regional & global levels.

Cooperation is the key to

regional financial stability and growth.

Therefore, we should build a system

for mutual cooperation of public AMCs,

and strengthen the regional safety net.

I hope the ADB will launch a platform to

study various cases of NPL resolution

and develop better resolution models.

Of course, Korea stands ready to

support the ADB in such efforts.