South Korea’s Experience with Banking Sector Liberalisation
South Korea has seen a rapid financial development in the past decade in line with financial liberalization policies that the government rigorously pursued. The government’s ambition to make South Korea a financial hub in Northeast Asia supported by the self-serving financial industry pushed the financial expansion far beyond the ability of the Korean economy to deal with risks and dangers inherent in financial development.
Eventually, the Korean financial sector has become the victim of its own success, suffering ill-fated overstretch. Benefits of the financial expansion for the overall economy remain elusive. The widespread belief that financial liberalization would deliver an efficient allocation of capital and smooth external shocks proved to be an illusion.