Could the catfish effect work this time?

Authorities must change if they really want to bring liberalism into the banking sector.

The government is considering employing the catfish effect — or the motivating effects through strong competition to shatter the oligopoly of five majors in the banking sector. Under the outline to improve management and business practices of banks by the Financial Services Commission (FSC) and Financial Supervisory Service (FSS) after four-month taskforce activity, the government plans to lower the entry barriers in the banking sector and invite new players into the field.

Currently, the financial authorities must decide on an opening first to license new players. But in the future, any smaller bank or internet-only bank can apply for nationwide banking service license if it has the sufficient capital and viable business outline. The government will welcome smaller regional banks’ conversion to nationwide scale.

Daegu-based DGB is the most eager and will apply first. If it is accepted, it could make the first new commercial bank player after Peace Bank (currently Woori Bank) in 1992. Regulations on outlets of savings banks, regional banks, or foreign banks will be eased so that they can compete better in the economies of scale with bigger players.

The discussion on specialty or boutique banks was shelved in the wake of the bankruptcy of Silicon Valley Bank after a taskforce was launched to deal with the issue. FSC Vice Chairman Kim So-young said the banking industry will become more competitive if the financial authorities allow new players to come in at any time. “The fact that it faces potential competitors can bring competition effect into the market,” he said.

But industry insiders and outsiders are skeptical. Online players — KakaoBank, K Bank and Toss, for instance — have been invited into the banking sector to induce the catfish effect from 2017. Consumer choices have widened by broadening IT services, but the effect of weakening the oligopolistic practices by bank majors through the enhancement of competition and innovation has been minimal.

Instead, commercial lenders benefited big from the spike in interest rates and enjoyed a bonus binge based on their fat and easy revenue despite worsening economy and hardship of borrowers. President Yoon Suk Yeol criticized such practices, defining banks as “public assets.” He ordered actions to dismantle the “banking cartel” through increased competition.

Although the action is necessary, it may produce small results as it had been the case with online players. The idea about increasing competition through new players is a cliché. Financial authorities have never given up its habit of domineering over the banking sector by seating people they favor as the CEOs or board members of the commercial banks. Authorities must change if they really want to bring liberalism into the banking sector.