Group photo of CDIC Presiednt Howard N. W. Hwang (3rd from the left), International Relations and Research Office Acting Director Yvonne Fan (1st from the left) as well as Fitch Ratings Associate Director of Asia Sovereign Ratings Vincent Ho (3rd from the right), Director of Asia Sovereign Ratings Ai Ling Ngiam (2nd from the right), General Manager of Head of Taiwan Daniel Ho (2nd from the left) and Senior Director of Financial Institutions Jonathan Lee (1st from the right).
Update date:2009-10-21
- Background to the Implementation
In view of the current international financial instability, and in order to avoid systemic risk, various countries have successively expanded the scope of their deposit insurance coverage to full coverage. Similarly, the Taiwan government has,in order to stabilize its financial system,strengthen the confidence of depositors and the structure of financial institutions, as well as promote the healthy long-term development of financial markets, on October 7 2008 announced that,up until December 31, 2009, the deposits of epositors in all inancial institutions participating in deposit insurance (hereafter referred to as insured institutions) will receive full coverage.
On October 8, 2009, the Financial Supervisory Commission (hereafter referred to as the FSC), the Ministry of Finance, and the Central Bank together announced that the “Supplementary Measures for the Adoption of Full Deposit Insurance Coverage”has been extended to December 31,2010 to ensure stability of the financial market, because of the overall global and domestic economic and financial conditions have not yet fully recovered, and in consideration of matching the period of full coverage policy with neighboring counties till 2010 in order to prevent capital flight. This extension has been carried out with the approval of the Executive Yuan, in accordance with Paragraph 1 of Article 29, which allows the use of Subparagraph 3 of Paragraph 1 and the proviso of Paragraph 2 of Article 28 of the Deposit Insurance Act.
- The Scope of Full Coverage:
- Deposits
- Checking deposits.
- Passbook deposits.
- Time deposits.
- Deposits required by law to be deposited in certain financial institutions.
- Foreign currency deposits.
- Negotiable certificates of deposit.
- Deposits from all levels of governments.
- Deposits from the Central Bank.
- Deposits of banks, postal savings institutions that handle postal savings andremittances- related business, credit cooperatives, farmers' and fishermen's associations that establish credit departments, and the Agricultural Bank of Taiwan.
- Other deposits that have been approved as insurable by the competent authority.
- Interbank call loans
- Any expenses, which under the CDIC's conservatorship are necessary to sustain the business operations of insured institutions, as well as pension payments, redundancy pay and related tax payments in accordance with law.
- Bank debentures issued before or on June 23, 2005.
- Period of Implementation: To December 31, 2010.
- Strengthening the Functions of Financial Supervision:
- In line with the measures to provide full coverage, the Financial Supervisory Commission will actively strengthen the following financial supervisory measures:
- It will urge financial institutions to strengthen the management of assets and liabilities and enhance the transparency of financial business information.
- It will strengthen financial institutions' corporate governance, internal controls and internal audit mechanisms. At the same time it will examine the practice rules for corporate governance and will also determine the reasonableness of the emoluments of directors, supervisors and managers of financial institutions and strengthen disclosure.
- It will strengthen the management of financial institutions' capital adequacy and financial soundness, and encourage financial institutions to merge.
- It will strengthen the management of financial institutions' liability structure to make sure liquidity.
- For financial institutions at adequate capital levels but with high operating risk, it will strengthen the implementation of Paragraph 1 of Article 44-1 and Article 61-1 of the Banking Act to retain safety and soundness of financial institutions.
- For financial institutions at inadequate capital levels, it will strengthen the implementation and operation of prompt corrective actions (PCA) in accordance with Article 44-1, 44-2, 62 and 64 of the Banking Act in order to resolve managerial crisis in the early stage.
- It will together with the Central Bank carefully examine financial institutions' interbank call loans for possible anomalies, in order to guard against moral hazard.
- If, during the period in which full coverage is implemented, the Financial Supervisory Commission discovers that a financial institution's capital adequacy ratio is below 8% or there are legal violations, it shall severely punish such an offender in accordance with the Banking Act and other relevant regulations. If a financial institution is deficient in terms of its corporate governance and internal controls, or it shall replenish its capital or make other necessary improvements, it will be required to improve such conditions within a stipulated time period. If the financial institution fails to make the necessary mprovements within the stipulated time period, the Financial Supervisory Commission shall appropriately punish the offending financial institution in accordance with the Banking Act and other relevant regulations, for example by replacing the persons responsible, restricting business activities and implementing other such measures.
- A special assessment charge on interbank call loans
- In order to prevent moral hazard as well as to enhance the accumulation of the deposit insurance special reserve, from November 1, 2008 to December 31, 2010, insured institutions in Taiwan will be charged a special assessment. Individual insured institutions will be charged on the basis of a benchmark quota, which is 120% of the average outstanding balance of interbank call loans during the period from April 1 to September 30, 2008. Insured institutions will be charged a basic rate if their interbank call loans are below or equal to the benchmark quota of NT$500 million, and a surcharge rate will be assessed for amounts in excess of NT$500 million (see Appendix 1). In addition, in line with government policies aimed at strengthening banks' lending capacity, the policies regarding the charging of a special assessment on interbank call loans have included some special conditions such as lending growth as factors for exemption(see Appendix 2).
- During the implementation of the temporary blanket guarantee, after being notified by the competent authority, the CDIC has the discretion to charge punitive premium rates from 5 basis points to 300 basis points on any insured institutions that violate the laws or regulations under the scope of the competent authority, or engage in unsound business operations that require rectification within a stipulated timeframe(see Appendix 3).
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