Controversy Over the Relocation of Policy Banks and 24-Hour Foreign Exchange Dealing Rooms

Discussions about the regional relocation of policy banks are intertwining with the operation of the 24-hour foreign exchange market and the internationalization of the Korean won, leading to controversy over the placement of foreign exchange dealing rooms. Korea Development Bank, IBK Industrial Bank, and Export-Import Bank of Korea are being mentioned as candidates for relocation, with concerns raised that moving the dealing rooms outside of Seoul could weaken the connection with market participants and clients.

According to Yonhap Infomax, it was reported on the 25th that the government is considering KDB, IBK, and KEXIM as targets for the second round of public institution relocations. Specific targets, regions, and timelines have yet to be confirmed. NH Nonghyup Bank is also monitoring the impact of the potential relocation of the National Agricultural Cooperative Federation.

The key issue is whether the foreign exchange dealing rooms should also be moved if the headquarters relocation materializes. The Seoul foreign exchange market has operated with the Bank of Korea, commercial banks, foreign bank branches, securities firms, and foreign exchange brokerage firms concentrated in the Jung-gu and Yeouido areas of Seoul. Major clients are also concentrated in Seoul, so relocating the dealing rooms to the provinces would increase the physical distance from trading counterparts.

Typically, liquidity in the foreign exchange market is formed where participants and information gather. The Seoul Foreign Exchange Market Operation Council discusses major issues face-to-face, and the structure allows banks, brokerage firms, and clients to match quotes and demand in a short time, relying on this agglomeration effect.

Conversely, if the dealing rooms remain in Seoul, the headquarters and core sales organizations would be separated. One institutional official stated, "If only financial public enterprises relocate to the provinces while trading counterparts are concentrated in Seoul, it would lead to a decline in sales competitiveness and significant inefficiencies." This suggests that adjustments are needed between the policy effects of regional relocation and the maintenance of market functions.

Another institutional official noted that if participating institutions of the Foreign Exchange Market Operation Council relocate to the provinces, it could become difficult to attend meetings. There are also observations that financial institutions being considered for relocation are closely monitoring government policy directions.

The controversy is also linked to the policy trend of broadening the trading base of the won. The Ministry of Strategy and Finance began the 24-hour opening of the foreign exchange market on July 6. The previous trading hours were from 9 AM to 2 AM the next day, but now it operates virtually non-stop from 6 AM on Monday to 6 AM on Saturday.

After the transition to 24-hour trading, interbank spot foreign exchange transactions have also increased. From July 6, when the Seoul foreign exchange market changed to a 24-hour system, to August 23, the average daily interbank spot foreign exchange transaction volume, excluding domestic holidays, was recorded at $19.423 billion (approximately 26.858 trillion KRW). This is an increase of 11.7% compared to the average of $17.39 billion (approximately 24.48 trillion KRW) in the first half of this year.

Previously, it was reported that the average daily spot foreign exchange transaction volume increased to $19.14 billion (approximately 27.1405 trillion KRW) over the month following the transition to the 24-hour foreign exchange market, and the average transaction volume increased to $19.423 billion by August 23.

The 24-hour operation of the foreign exchange market is a measure to widen the time for overseas investors to access the domestic spot foreign exchange market. Until now, during the hours when the domestic market was closed, risk management for the won was mainly conducted through offshore non-deliverable forward (NDF) contracts. The foreign exchange authorities are also promoting improvements in offshore won trading infrastructure and systems, as well as expanding won liquidity supply.

KDB is one of the seven leading banks in the dollar-won market this year. NH Nonghyup Bank is also maintaining its status as a leading bank. The debate arises over whether it is appropriate to physically disperse institutions that hold major market-making functions while the foreign exchange authorities are promoting late-night liquidity expansion and the establishment of offshore won trading bases.

The issue of securing specialized personnel also remains. In a 24-hour trading system, personnel are needed to respond during night and early morning hours. One foreign exchange dealer remarked, "In the past, many young employees used to come to the dealing room, but now it seems they are not as preferred. It is difficult to schedule evening appointments, making daily life challenging, especially with early morning commutes."

Citing overseas examples, there are opinions that separating financial centers and dealing rooms is difficult. A senior official from a foreign bank stated, "Looking abroad, it is hard to find cases where the dealing rooms of major banks are not located in financial centers."

Unions of policy banks have already begun opposing actions. On the 11th, unions of KDB, IBK, and KEXIM held a joint rally in Yeouido, Seoul, attended by approximately 2,000 participants, according to organizers, to oppose the regional relocation. It was previously reported that the unions of the three policy banks had announced plans for a large-scale joint rally. The financial union has also announced a general strike next month, demanding the halt of regional relocations.

There are also mentions of cases where institutions have re-established operational bases in Seoul after regional relocation. The National Pension Service's Fund Management Headquarters, which relocated to Jeonju, North Jeolla Province in 2017, established a smart work center in Seoul in 2023 due to ongoing demand for meetings with institutions in Seoul and global investment firms. If the relocation of policy banks is actually decided, how to divide the functions of dealing rooms, headquarters, and the operation scope of the Seoul office will remain a key issue.