The National Assembly passed the bailout plan last Thursday, with 218 in favor, 10 against and another 10 abstaining. Under the plan, the government would offer a US$100-billion payment guarantee to 18 local banks over the next three years covering debts recently incurred or maturing by the end of June next year.

With a view to minimizing the financial burden on the public, however, the lawmakers put six conditions on the scheme to compel banks to make efforts of their own. The government must rationalize salaries and stock option benefits for bank executives and ensure sufficient dividends for shareholders. In addition, the government will offer variable limits and rates of guarantee to each bank, depending on banks’ own efforts, which could include selling their overseas assets. And if the government covers a bank’s debt, it will acquire the right to indemnity.

Banks would benefit because it would enable them to bring in foreign currency more cheaply and reliably. But according to the MOU, the bank would then be subject to government intervention in certain matters for the next three years, and some banks owned by financial holding companies and foreign banks fear such intervention would shake their whole management structure, such as the selection of executives.

If banks decide not to seek government guarantees, that will probably reduce the amount of cash flowing into small and medium-sized companies and to ordinary citizens.

An official at the Financial Services Commission said, “The government guarantee for banks will have long-term benefits to them as it will rationalize dividends for shareholders and make the bank’s management sound. If banks skive off, it reflects that selfish executives are trying to hold on to their individual profits.”

(englishnews@chosun.com )