LyrArc Article Gist
Lee Myung-Bak says Korea's experience with its banks and troubled assets in 1998 can provide useful guide to solving the problems at American banks. First take strong decisive action rather take incremental steps. Korea raised money from various sources for a fund of $127 billion, or 32% of GDP between 1997-2002, to resolve impaired assets and recapitalize its banks. Second, recapitalization and bad bank solution were both applied simultaneously. Korea setup the Korea Asset Mnagement Corporation (Kamco) as its bad bank. And the Korea Deposit Insurance Corporation helped recapitalize the banks. Kamco also did things in a unique way which may have lessons for the USA. Kamco purchased the bad assets and settled the gains or losses with the banks once their assets recovered in value. It acquired assets at $30.9 billion, the book value which was $85.1 billion by 2002, and recovered $33.9 billion by 2008 by reselling to private investors through various methods including public auctions, direct sales, international tenders, securitization and debt-equity swaps. Lee points out that its useful fro government to purchase the impaired assets at a price agreed to with the banks , and make the final settlement of gains and losses with the banks after reselling. Another useful lesson for the US is to have a clear exit strategy with a clear time frame. This makes nationalization a temporary measure only and with a time frame by which shares held by the government in banks or nationalized failed banks, should be turned over to the private sector. This is Korea's contribution to the G-20 summit in London in early April 2009.