Government didnot join thedeposit insurance systemduring the voluntaryperiod.Thisdeterred
themajority of local financial institutions from participating as well, posing the biggest obstacle
for the CDIC in promoting its operations. The eight banks did not join the deposit insurance
systemuntil February1999,whenamandatory systemwas implemented.
B. Implementation of a Flat PremiumBasis
In theearly stages, thedeposit insurance systemadopteda flat premiumbasis,with thepremium
rate set at 0.05% by the MOF. At the time, interest in joining the system was dampened by
concern among some financial institutions that the premium was high and that joining the
deposit insurance systemwould increase the cost of business. TheCDIC therefore got approval
from theMOF to reduce the premium, first to 0.04% from July 1987 and again to 0.015% from
January 1988. The two rate drops achieved the short-term objective of lightening the burden
on insured institutions and increasing the willingness of these institutions to participate in the
deposit insurance system. However, with subsequent financial liberalization, domestic financial
institutions faced steadily higher operational risks. This, along with a series of financial crises,
raised questions over the fairness of applying a flat premium rate to all financial institutions
regardless of their nature or the soundness of their business. A risk-based premium systemwas
thereforeadopted in1999.
C. MaximumCoverage and Scope of Coverage
Themaximum coverageunder Taiwan'sdeposit insurance systemwas initially set atNT$700,000.
To increase thewillingnessof financial institutions to join the system, the coveragewas increased,
withapproval from theMOF, toNT$1millionperdepositor onAugust 15, 1987.To furtherprotect
small depositors theCDIC subsequently increased themaximum coverage toNT$1.5millionwith
approval from theFSC, theMOFand theCentral Bank.
The deposit insurance system was established mainly to protect small depositors. Under
provisions in
the Deposit Insurance Act
, at that time the system covered checking deposits,
passbook deposits, time deposits, savings deposits, trust funds, and other deposits which the
competent authorityhadapprovedas insurable.
D. Financial Examination
Before the establishment of the CDIC, financial examinations in Taiwan were the responsibility
of the MOF and the Central Bank, as stipulated in Article 45 of the
Banking Act
, Article 38
of the
Central Bank of China Act
, and the "Regulations Governing the Ministry of Finance's
CommissioningExaminationof Financial Institutions to theCentral Bank."
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ReviewandOutlook
