Understanding “Government-Led Finance” in Today’s Economy
In recent years, economic terms with the prefix “gwan (官)”, meaning state or government, have become more frequent in public discourse. After phrases like “gwan-bong-gwon” (state-backed bonds) made headlines, another concept is drawing attention in times of economic slowdown: “government-led finance,” or in Korean, gwan-chi keum-yung (관치금융).
Let’s break this down.
What Is “Government-Led Finance”?
The term 관치금융 is a combination of 관(官), meaning government, and 금융, meaning finance. Together, it refers to a system in which the government directly intervenes in the financial sector — especially in personnel appointments and capital allocation.
In many cases, “관치” (government-led or state-controlled) carries a negative connotation. It often implies that decisions in the financial sector are made not transparently through market mechanisms or legal frameworks, but rather behind the scenes, under administrative discretion.
Governments, of course, prefer softer terminology — financial supervision. In fact, many regulatory bodies around the world are designed with this oversight role in mind. Korea’s Financial Supervisory Service (FSS) is one such example. Similarly, the UK operates the Financial Conduct Authority (FCA), which even evaluates the fitness of executives in financial institutions. Each year, the FCA identifies a handful of unqualified individuals through rigorous screening of tens of thousands. The European Central Bank (ECB) conducts similar suitability assessments across 129 major European banks.
Interest Rates: The Double Standard?
Now let’s talk about something closer to home: why are deposit rates falling while loan rates remain high? Financial authorities cite the record-high household debt as the reason why banks are reluctant to lower loan interest rates. Yet, this policy disproportionately affects lower-income households, who rely on borrowing just to survive. Wealthier individuals, with easier access to collateral, are finding this a golden opportunity.
With interest rates low and borrowing accessible to the few, some wealthy individuals are reportedly taking out maximum loans, combining them with existing deposits, and snapping up real estate assets offloaded by over-leveraged households — the so-called “young-and-rich squeeze buyers” phenomenon.
Who's the real winner : Customers, Banks, or Government?
All of this is incredibly profitable for banks. Their net interest margin (NIM) — the difference between what they pay on deposits and what they earn on loans — has widened significantly.
Just a year ago, NH Nonghyup was the only major bank with a NIM over 1%. Hana Bank’s margin was just 0.41%. Today, net interest margins hover around 1.38–1.55% across major commercial banks. To put it in simple terms: if a bank offers a 3% interest rate on a ₩1 million deposit and lends that same amount at 4.5%, the ₩15,000 difference is the bank’s profit.
This might not seem huge — until you multiply it by millions of accounts and loans. Banks that were barely earning ₩5,000 per ₩1 million in deposits are now pulling in three times as much.
No wonder some investors say it makes more sense these days to buy bank stocks rather than park money in savings accounts. In Q1 alone, the top four Korean banks (KB Kookmin, Woori, Shinhan, Hana) earned ₩10.6421 trillion (about $7.8 billion) in interest income. That’s enough money to run a small country.
The Ironic Question: Who Is This “Supervision” Really Helping?
So here’s the big question: Is this government-led financial control truly about protecting the economy? Household lending is being tightly controlled under the premise that it's a threat to national stability. Yet, the policy results in banks raking in profits, while everyday borrowers are squeezed out of the credit market.
In the name of “financial supervision,” are we witnessing state-controlled finance at its most aggressive?
P.S:
When economic hardship meets policy opacity, it’s always worth asking: Who benefits from the control — and who bears the cost?
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