How to confuse the market and consumers

A public policy should be consistent, constant and foreseeable. But the government’s loan policy has failed in all of these areas.

Financial Supervisory Service (FSS) Gov. Lee Bok-hyun apologized for his confusing remarks on the bank loan policy. He apologized to “the people, consumers and bank staff” for causing an inconvenience with his “unrefined” remarks pertinent to the surge in household debt. The apology came after commercial banks reacted to his series of verbal rambles and flip-flops, which caused much confusion for lenders.

Commercial banks sharply raised their lending rates after the FSS governor ordered a restraint to contain the dramatic surge in household debt in July. In a strange development, the loan rates rose while the interest rate of the market yields fell. Last month, Gov. Lee criticized banks for resorting to the expedient way of raising loan rates and vowed to have a more aggressive “intervention.” A few days later, the FSS announced it would keep special watch on banks with outsized household debts.

In reaction, banks scrambled to roll back their loan ceilings and restrict their loans to single homeowners. Earlier this month, Lee called for protections for “genuine home consumers,” which banks interpreted as an order to ease their loan regulations. Banks and the housing market grumble that the FSS governor himself has become the biggest risk in the real estate market due to his heedless rambling streak.

Confusion over bank loans will likely continue despite Lee’s recent apology. Under the name of “autonomy,” the FSS has forced commercial banks to take responsibility for curbing household debt as well as protecting actual home buyers. Banks would have to find an ingenious way to keep up loans to real home buyers without having to increase the total household debt balance. Because actions by banks may differ, consumers may have to endure a taxing stress test to borrow money from them.

The government’s loan policy has become muddled because financial authorities turned to regulations to cool the heat in the housing market. Interventionist control ended up distorting the market. Consumers are confounded for being turned away by commercial banks even when they can prove the collateral and affordability. The government itself is not unified for its loan policy. Land Minister Park Sang-woo said that the government will not rolling back state-backed mortgage loans even after the alarming surge in household debt.

A public policy should be consistent, constant and foreseeable. But the government’s loan policy has failed in all of these areas. Financial authorities should be backing the market to help the market function properly. Otherwise, the FSS chief may have to apologize for any policy fiasco next time.