Handling Problem Insured Institutions

a. Pursuant to Article 28 of the Deposit Insurance Act, in the event that an insured institution shall have been closed by the competent authority, CDIC should, in order to maintain an orderly credit system and protect the interests of that insured institution's depositors, fulfill its responsibility as a deposit insurer by means of any one of the following four methods:

1. By directly making pay-out in relation to principal and interest from its insured deposits in accordance with the failed institution's own accounting records or based on evidence of outstanding amounts provided by the depositors.
2. By holding consultations with other insured institutions that are in close proximity to the failed institution, and transferring the deposit accounts of the depositors in the failed institution to those institutions so that the claims of depositors can be met.
3. By extending financial assistance to other insured institutions or financial holding companies through the provision of funds, loans, deposits or guarantee, or purchase of subordinated debts issued by them, in order to facilitate the sound institutions to merge with the closed institution or else to assume its operations, assets and liabilities either in whole or in part.

It needs to be noted, however, that the cost to CDIC of proceeding with any one of the last two methods needs to be less than the losses that would arise from directly making a payout on the basis of the first method.

b. Entrusted by the Financial Restructuring Fund to deal with problem insured institutions
According to Article 49 of the Deposit Insurance Act, CDIC shall, as entrusted by the Executive Yuan's Financial Restructuring Fund (PDF) , continue to settle the liabilities and deal with the assets of problem insured institutions that were listed to be disposed prior to the Fund's expiration date on July 10, 2005, as well as other unfinished matters related to the Fund.

c.Upon the closing of an insured institution, CDIC, in addition to performing the insurance obligation mentioned above, shall, pursuant to paragraph 1 of Article 41 of the Deposit Insurance Act, be appointed by the competent authority as the receiver to commence the winding up of the closed institution. In addition, according to paragraph 2 of Article 41 of the Deposit Insurance Act, CDIC may, in order to meet the liquidity needs of the creditors of the closed institution, without increasing the costs incurred by CDIC and after having calculated the value of the closed institution's assets, make advance payment against claims filed by depositors beyond the coverage limit and non-depositors based on the anticipated reimbursement ratio. Any such advance payments should be recorded item by item in order of payment and set against any amounts recovered arising from such claims. Such amounts may first be deducted from the total sum of money finally realized from the liquidation and repaid to CDIC.

Handling of Systemic Crises

Systemic crises can not be resolved solely by the deposit insurer itself, but by close coordination and cooperation of all financial safety net participants. In the amended Deposit Insurance Act passed in January 2007, a formal mechanism for handling systemic crises has been set up, which includes the exemption from the least-cost resolution restriction and the adoption of a bridge-bank mechanism to deal with such crises.