How has Korea Development Bank's

rescue of an affiliate led to penalty?

Korea Development Bank was fined 15.4 billion won ($15.1 million) for acquiring debts from its finance leasing affiliate at below market rates to prevent it from collapsing, the Fair Trade Commission said.

State-run Korea Development Bank bought KDB Capital's debts worth 350 billion won between 2004 and 2005 at an interest rate significantly lower than the market rate, the agency said in an e-mailed statement. The move resulted in “excessive economic benefits” to KDB Capital, it said.

“Preventing the collapse of an insolvent unit through improper support is an act that significantly distorts market functions,” the agency said in the statement.
Korea Development Bank will take the case to the court, spokesman Sung Joo Yung said by telephone in Seoul.

Separately, Mirae Asset Investments was warned for giving higher stock-trading fees to its brokerage affiliate. Mirae Asset Securities was paid at a higher rate than local competitors between June and November in 2006, but later received similar fees, the agency said.

How does a regulatory agency such as the Fair Trade Commission prevent “[distortions of] market functions”?