The Financial Early-Warning System of the Central Deposit Insurance Corporation (CDIC Taiwan) is a statistical model for financial regulators to regularly assess the operational condition of all financial institutions that accept deposits, including banks, credit cooperatives, and the credit departments of farmers' and fishermen's associations. The Risk-based Premium Rating System is part of this system.

Last updated 2013/12/20

The Risk-based Premium Rating System was formulated by referring the Uniform Financial Institutions Rating System (often referred to as "CAMELS") of the U.S. Federal Financial Institutions Examination Council. The system applies seven categories of indexes for assessment, including capital adequacy, asset quality, management ability, earnings, liquidity, market risk sensitivities and others. Moreover, based on the characteristics of each peer group of financial institutions, assessment indexes for each assessment category are selected. These indexes are then weighted and allocated according to their attributes and importance. A composite score is then calculated for each financial institution. Based on the composite score, each financial institution is assigned one of the following five rankings (A, B, C, D, and E) based on its operational condition:

A: Strong Performance

B: Satisfactory Performance

C: Fair Performance

D: Unsatisfactory Performance

E: Hazardous Performance

The composite score generated by the Risk-based Premium Rating System serves as one risk indicator to calculate the risk premium rate of an insured institution.

Last updated 2013/12/20

The interests of depositors and financial stability are greatly affected by the operational condition of insured financial institutions. In order to fully understand the up-to-date financial conditions and changes of insured institutions, CDIC Taiwan needs to regularly assess the business risks of such institutions in order to adopt appropriate measures in a timely manner and thereby protect the rights and interests of depositors. The CDIC Taiwan’s Financial Early-Warning System was established to this end.

Last updated 2013/12/20

CDIC Taiwan is designated as the agency in charge of establishing, maintaining, and producing early warning data for the Financial Early-Warning System. The system was officially put into operation in 1993. CDIC Taiwan periodically provides the early-warning results with supervisory agencies to create a mechanism for sharing supervisory information and thereby improve the efficiency and effectiveness of financial supervision.

Last updated 2013/12/20

A financial institution assessed to meet one of the following criteria will be defined as a financial institution in poor operating condition and should be subject to attention:
(1) It gets an "E" ranking under the Risk-based Premium Rating System ; or
(2) Its adjusted net worth is less than two-thirds of its net worth, share capital or reserved funds; or
(3) Its capital adequacy ratio falls short of the requirement set by the competent authority; or
(4) Its operations are at risk due to management frauds, serious conflicts among internal factions or other major incidents.

Last updated 2013/12/20

When a financial institution is identified as a financial institution in poor operating condition under the CDIC Taiwan’s Financial Early-Warning System, the relevant competent authority can by law take supervisory measures depending on the circumstances. The main measures include the following:
(1) Strengthen supervision of the institution's operating condition;
(2) Require the institution to submit an improvement plan;
(3) Adopt necessary measures stipulated by law, such as curtailing business operations, restricting earnings distribution or replacing persons in charge;
(4) Require institutions with inadequate capital or serious losses to submit a concrete improvement plan or recapitalize within a specified time;
(5) Dispatch officers by law to provide guidance;
(6) Dispatch officers by law to place the institution under superintendence or conservatorship or to exercise the functions and powers of the persons in charge; or
(7) Adopt other supervisory measures.

Last updated 2013/12/20

The CDIC Taiwan's Financial Early-Warning System is not a panacea. It is only one of the several supervisory tools used primarily to assess the financial condition of a financial institution. Its main function is to use financial data to assess general financial changes at a financial institution, but as a statistical model it is not effective for early detection of non-quantifiable factors involved in major or special cases of fraudulence or managerial problems. The system must therefore be complemented by on-site examinations and other supervisory measures.

Last updated 2013/12/20