U.S. Treasury Secretary Scott Bessent announced that "modernizing financial regulation" will be one of the key agenda items at this year's G20 summit in February. Korea's financial sector described the move as "unprecedented," as discussions on easing financial regulations are beginning to emerge on the international stage. Since the 2008 global financial crisis, ensuring financial soundness has been the international rule.
"While Secretary Bessent used the term 'modernizing,' the consensus is that he was essentially signaling deregulation," a financial industry official said Wednesday. "Considering there hasn't been much to watch in the G20's financial track for a while, this is an unusual situation."
Indeed, the United States is rolling out a series of financial capital deregulation measures. The Federal Reserve recently relaxed stress test-related risk regulations and eased additional capital requirements imposed on global systemically important banks. As a result, capital burdens for large banks such as JPMorgan Chase and Bank of America are expected to decrease by 4.8 percent. Capital requirements for small and mid-sized banks will fall by 7.8 percent.
Japan is also easing bank capital regulations to stimulate its economy. A notable example is allowing loans exceeding regulatory limits to companies that need large sums for mergers and acquisitions. Currently, Japanese financial authorities restrict total loans to a specific company to within 25 percent of basic capital. Market observers interpret this deregulation as an effort to supply sufficient funding to 17 strategic sectors, including artificial intelligence and semiconductors, emphasized by the cabinet of Sanae Takaichi.
The United Kingdom is following suit. The Bank of England decided in December last year to lower its basic capital ratio threshold from 14 percent to 13 percent.
Financial industry observers suggest these movements are closely related to the revival of industrial policy and deepening protectionism. "With intensifying protectionism, more countries are trying to break away from international financial regulatory norms that were strengthened after the 2008 global financial crisis," a former senior financial official said.
Korean financial authorities are also promoting a rationalization of capital regulations to revitalize productive finance. One example is reducing the risk weight applied to banks' equity holdings from 400 percent to 250 percent. However, many point out that Korea falls short compared to competitor nations in terms of the speed and extent of deregulation.
Furthermore, under Basel III regulations, the internal ratings-based approach floor for risk-weighted assets, currently at 65 percent compared to the standardized approach, must be gradually raised to 72.5 percent by 2028, which could increase capital burdens on banks.
Analysis also suggests that major banks' Common Equity Tier 1 (CET1) ratios are already sufficiently high, regardless of countercyclical and stress buffer capital regulations. If stress buffer capital is introduced at its maximum level, the CET1 ratio that major banks must maintain would approach 11.5 percent. However, major banks' CET1 ratios generally far exceed this level. As of the end of last year, KB Kookmin Bank's CET1 ratio stood at 14.91 percent, while Shinhan Bank (14.57 percent) and Woori Bank (14.13 percent) both exceeded 14 percent. Hana Bank (16.42 percent) and NH NongHyup Bank (15.23 percent) had CET1 ratios above 15 percent.
"Ultimately, it will be important for authorities to operate financial regulations flexibly according to economic conditions," said Kim Yong-jin, a professor at Sogang University's School of Business. "The banking sector's argument that they have accumulated sufficient buffer capital also has merit."
