B. Revising Insurable Standards toControl InsuranceRisk
The voluntary nature of thedeposit insurance scheme required theCDIC to initially
adopt lenient insurable standards to encourage qualified financial institutions to
join the system. In March 1995, the CDIC added the capital and net worth ratio
of financial institutions to its insurable standards in reference to the capital-based
supervisory measures used in advanced countries. In March 1998, the insurable
criterionof “susceptibility to impeding soundbusinessmanagement”wasquantified
and covered the NPL ratio, NPL plus bad loan ratio, loan concentration ratio, and
ratioof adversely classifiedassets toadjustednetworth.
After the compulsory deposit insurance systemwas implemented in February 1999,
there were 36 institutions unable tomeet the CDIC’s insurable standards yet still
became CDIC insured institutions. To control insurance risk, the CDIC asked these
institutions to submit concretecorrectiveplans tobecarriedoutwithin three years. It
also required that progress reportson improvement be submitted regularly.Among
these institutions, 12 failed to improve their operations andhadnegativenet worth.
They were withdrawn from themarket under the Financial Restructuring Fund in
2001 through assumption by other banks. The remaining 24 institutions were put
under a general monitoring guidancemechanism by the CDIC in June 2002 with
theapproval of the competent authority.
C. PioneeringRisk-basedPremiums inAsia
In order to harmonize premium rates with the different levels of risk presented by
individual institutions, the CDIC drafted the “Proposal for a Deposit Insurance Risk-
based Premium System.” The proposal was submitted to theMOF, which ratified
and officially enacted the
“Implementation Scheme for the Deposit Insurance Risk-
based Premium System”
on July 1, 1999, making Taiwan the first Asian country to
implement sucha system.
The risk indicators adopted for the risk-based premium scheme were the capital
adequacy ratio (CAR) of the insured institutions and the Composite Score of the
ExaminationDataRatingSystemunder theNational Financial Early-WarningSystem.
Each of the two indicators was divided into three grades. The insured institutions
were categorized in nine risk groups and a three-grade premiumwas applied to
each of these groups. At the time of the system’s implementation on July 1, 1999,
theminimum premiumwas set at 0.015%, themiddle premium at 0.0175%, and
themaximum premium at 0.02%. In order to build an adequate deposit insurance
payout special reserve, the CDIC, following active communication with the insured
25
ReviewandOutlook
