Taiwan introduced a Deposit Insurance Risk-based Premium System on July 1, 1999. In the beginning phase, in order to reduce industry resistance to the new system and minimize the burden it posed on insured institutions, premium rates were initially based on three levels of risk. The lowest rate was the original flat premium rate of 0.015% of covered deposits, while the higher two rates were set at 0.0175% and 0.02%, representing a difference of 0.0025% between successive rate categories.
Since Taiwan had long adopted a voluntary deposit insurance system with the lowest premium rates in the world, deposit insurance fund accumulated too slowly to fully meet the needs of handling problem institutions. While remaining true to the principle that premiums be used for the benefit of those that pay them, CDIC submitted a proposal to the Ministry of Finance to increase the premium rates to a level sufficient to ensure a sound deposit insurance system, establish a sufficient deposit insurance fund, and maintain the confidence of depositors. The Ministry of Finance accepted the proposal and raised the premium rates to 0.05%, 0.055% and 0.06%, effective from January 1, 2000. The premium rates were changed to five tiers in July, 2007,when the assessment base was changed from covered deposits to eligible deposits, the risk premium rates were changed to five tiers for covered deposits, and a flat rate was charged for eligible deposits above the coverage limit.
Since 2001, the Taiwan Government combined the usage of the Financial Restructuring Fund with the Deposit Insurance Fund to handle 56 failed financial institutions to smoothly exit from the market. In order to improve the status of the deposit insurance fund for insured institutions, to reflect the increase of coverage limit from NTD 1.5 million to NTD 3 million in Jan. 2013, and to provide better incentives for insured institutions to enhance their business operations, CDIC, starting from Jan. 1 2011, raised the premium rates and spreads of the five-tiered premium rate system for domestic commercial banks and local branches of foreign and mainland Chinese banks whereas the premium rates for credit departments of farmers' and fishermen's associations remained unchanged.
Under the risk-based premium system, CDIC used to determine the premium rates of insured institutions based on their capital adequacy rate and composite score of the examination data rating system. For promptly and fairly reflecting the most current financial conditions of the insured institutions, CDIC had changed the data sources used for generating composite scores for risk-based premium rates to financial call reports which are directly submitted by the insured institutions on a quarterly basis. It is called the composite score of the risk-based premium rating system (CSRPRS). Moreover, If CDIC receives the examination reports from the Financial Supervisory Commission within the half year before the standard date for calculating the deposit insurance premiums, CDIC uses the data from the examination reports to generate the scores instead. The abovementioned new system began to implement from Jan. 1, 2011.
In the light that the domestic finanical environment has changed due to several economic cycles, CDIC revised the indicators and weights of the Risk-based Premium Rating System (RPRS) and changed the data sources from combined usage of insured institutions' financial call reports and examination reports to solely financial call reports. In additions, in accordance to the amended Regulations Governing the Capital Adequacy and Capital Category of Banks modified and announced in Nov. 26 2012, CDIC revised the levels of capital adequacy rate which is one of the indicators of determining the risk-based premium rates, for domestic commercial banks and local branches of foreign and mainland Chinese banks. CDIC starts to use this new level of CAR from Jan. 1, 2014.
The Development History of Risk-based Premium System
Date |
Participation
Terms |
Rate System |
Premium Rate |
09/1985 |
Voluntary |
Flat Rate |
0.05% |
07/1987 |
Voluntary |
Flat Rate |
0.04% |
01/1988 |
Voluntary |
Flat Rate |
0.015% |
07/1999 |
Mandatory * |
Risk-based
(9 grades/3 levels) |
0.015%, 0.0175%, 0.02% |
01/2000 |
Mandatory |
Risk-based
(9 grades/3 levels) |
0.05%, 0.055%, 0.06% |
07/2007 |
Mandatory application ** |
Risk-based
(9 grades/5 levels) |
For domestic banks, local branches of foreign banks and credit cooperatives, they are 0.03%, 0.04%, 0.05%, 0.06%, and 0.07% of covered deposits. Eligible deposits in excess of coverage limit applied to the flat rate of 0.0025%. From Jan. 1, 2010, the flat rate changes to 0.005%.
For credit departments of farmers' and fishermen's associations, they are 0.02%, 0.03%, 0.04%, 0.05%, and 0.06% of covered deposits. Eligible deposits in excess of coverage limit applied to the flat rate of 0.0025%. |
01/2011 |
Mandatory application |
Risk-based
(9 grades/5 levels) |
For domestic banks and local branches of foreign and mainland Chinese banks, five-tiered rates are 0.05%, 0.06%, 0.08%, 0.11%, and 0.15% of covered deposits. Eligible deposits in excess of coverage limit applied to the flat rate of 0.005%.
For credit cooperatives, five-tiered rates are 0.04%,0.05%,0.07%,0.10% and 0.14% of covered deposits. Eligible deposits in excess of coverage limit applied to the flat rate of 0.005%.
For credit departments of farmers' and fishermen's associations, five-tiered rates are 0.02%, 0.03%, 0.04%, 0.05%, and 0.06% of covered deposits. Eligible deposits in excess of coverage limit applied to the flat rate of 0.0025%. |
Note:
*The voluntary system was replaced by a mandatory application system in February 1999.
**All depository institutions must apply for deposit insurance by submitting application forms to CDIC, but CDIC has the right of determination to approve or disapprove the membership.