Bank Nationalization, Restructuring and Reprivatization: The Case of Korea Since the Asian Financial Crisis

Korea Observer, Vol. 41, No. 1, pp. 1-30, Spring 2010

30 Pages Posted: 10 Aug 2011

See all articles by Hyekyung Cho

Hyekyung Cho

Free University of Berlin (FUB)

Thomas Kalinowski

Ewha Womans University

Date Written: March 10, 2010

Abstract

This article is a case study of the political economy of bank restructuring, privatization and market liberalization in the South Korean banking sector since the 1997/1998 financial crisis. We show that the most crucial factor in that post-crisis bank restructuring was the quick and massive state intervention that involved nationalization or closure of failed banks and a "clean-up" of banks’ bad assets through an injection of a huge amount of public funds. This strategy was feasible because the government successfully managed to suppress the vested interests of domestic market participants, including shareholders, employees, and borrowers. We argue that the process of bank restructuring and (re-) privatization in Korea cannot be explained just by market dynamics. On the contrary, we stress that a political economic approach offers a more consistent explanation of the government’s rush to sell nationalized banks to foreign investors and international banks. Foreign ownership of domestic banks was a politically motivated agenda of the government designed to create an independent and profit-oriented banking sector that could curb the seemingly omnipotent power of the chaebol conglomerates within the Korean economy.

Keywords: Korea, Bank Privatization, Banking Reform, Financial Liberalization, Financial Crisis

Suggested Citation

Cho, Hyekyung and Kalinowski, Thomas, Bank Nationalization, Restructuring and Reprivatization: The Case of Korea Since the Asian Financial Crisis (March 10, 2010). Korea Observer, Vol. 41, No. 1, pp. 1-30, Spring 2010, Available at SSRN: https://ssrn.com/abstract=1907834

Hyekyung Cho

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

Thomas Kalinowski (Contact Author)

Ewha Womans University ( email )

11-1 Daehyun-dong
Seodaemun-gu
Seoul 120-750, Seoul Seoul 120
Korea, Republic of (South Korea)

HOME PAGE: http://www.thomas-kalinowski.net

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