effect onmanyweaker insured institutions. This, and thedownturn in the real estate
market, led to a steadydeterioration in asset quality and agradual rise inNPL ratios
in the banking system. In addition, the 921 Earthquake that struck central Taiwan
in 1999 seriously affected the real estatemarket, adding fuel to the fire for weak
insured institutions andput Taiwan into the throesof a rising systemic financial crisis.
At the time, the CDIC's deposit insurance payout special reserves were woefully
insufficient to cope with the crisis. Mechanisms for handling systemic financial
crisis were also lacking. The Executive Yuan and Legislative Yuan therefore jointly
appended and revised the related laws to respond to potential systemic risks. In
July 2001, the president promulgated the
Financial Restructuring Fund Statute
.
The government also formulated the
Financial HoldingCompany Act
, the
Financial
InstitutionsMergerAct
, and the
ActGoverningBillsFinanceBusiness
and revised the
BankingAct
, the
Deposit InsuranceAct
, the
Business TaxAct
, and the
InsuranceAct
,
as well as actively encouraged the establishment of asset management companies
to facilitate the handling of the extensiveNPLs in the banking system. Through the
coordination of legal, capital, andmarket measures, tax incentives, and resolution
tools, thegovernmentwas able to smoothlydeal with the systemic financial crisis.
During this period, the CDIC was entrusted by the Financial Restructuring Fund
to implement policies and resolutions, becoming the sole platform for the fund in
handling the resolution of unsound financial institutions. Since then, the CDIC's
missionof handling failed financial institutionshasenteredanewera.
During this time, the CDIC served as conservators and exercised themanagement
rights and property disposition rights of institutions under conservatorship. It also
suspended shareholder (or associationmember) meetings to handle the affairs of
failed financial institutions. This approach of maintaining banking services without
interruption andmaking no direct payouts on covered deposits, in conjunction
with the temporary blanket deposit guaranteemeasures, accorded with the four
handlingprinciples of the Financial Restructuring Fund: stabilize the financial order,
safeguard depositor rights, maintain uninterrupted financial services, andminimize
social cost. It also effectively reduced the impact of extensive financial institution
collapseon social stabilityandeconomicdevelopment.
44
Central Deposit Insurance Corporation 30Years inRetrospect
