A Radical But Workable Restructuring Plan for Korea

Efforts to restructure the South Korean economy via financial sector reform and privately engineered "big deals" among the chaebol, the large conglomerate firms that dominate the South Korean economy, have not yet delivered the desired result of restoring the economy to health. South Korea should consider more radical approaches. One successful model that might be followed is that of the Resolution Trust Corporation (RTC). This was a state-owned enterprise created to resolve the crisis in the United States created in the late 1980s by the failure of significant numbers of savings and loan associations (S&Ls). S&Ls were a type of bank created to take long-term savings deposits from households and relend these mostly as residential mortgages. These banks, during the 1980s, were deregulated so as to allow them to hold more diverse assets and to remove interest rate ceilings that had been imposed during earlier times. As a result, many of them restructured their asset portfolios away from low return (but low risk) mortgages to higher return (but higher risk) assets such as so-called "junk bonds."