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Taiwanese Financial Reform. Huang, Chia-Teng (Ken) Wu, Chia-Hsuan (Dominic). Agenda. Background on financial system in Taiwan Current economic environment and problem recognition Source of the problem— Lack of complete Financial regulation Conclusion. Background. First financial reform: - PowerPoint PPT Presentation
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Taiwanese Financial Reform
Huang, Chia-Teng (Ken)
Wu, Chia-Hsuan (Dominic)
Agenda Background on financial system in Taiwan
Current economic environment and problem recognition
Source of the problem— Lack of complete Financial regulation
Conclusion
BackgroundFirst financial reform: Before 1991, the majority of Taiwanese
banks were government owned. 18 private owned banks were established
during the First Financial Reform in 1991. In 2001, there were more than 447
financial institutions and 5,841 branches in the small island
BackgroundOver-banking over bad debt The lack of government monitoring, Asia’s
financial crisis, and market’s vicious competition result in over irrecoverable loans and credits.
Series bankruptcies.
Background:Asian financial crisis No debt/no deficit Foreign exchange reserves Fiscal policy: stable exchange rate in the
beginning to defeat foreign investors (Ex: Soros). Let market adjust the exchange rate later on.
Background:
Two rates in Taiwan are always stable after the first financial reform and the Asian Crisis
Foreign exchange rate are stable
Commit suicide rate is stably increasing
Background:Second financial reform in 2001 Release government owned banks to
public/release government holding shares of existing government banks to less than 20%.
Integrate over-existing financial institutions to financial holding corporations.
Background:Advantages of financial holdings: Reduce financial institutions Prevent vicious competition Reduce the over irrecoverable loans Synergy and better service Global competitive advantages Increase government monitoring ability
Financial Reform
14 financial holding companies in total in 2002 Net total capital over 333 billion U.S. dollars Only the strongest seven financial holding
companies were allowed to operate at the end of 2006
Aiming to be able to compete against foreign companies entering the domestic financial market through WTO framework
Problems of financial reform
Financial holding companies benefit from synergy (commercial banks, investment banks, insurance companies, securities/stocks brokers)
Efficient synergy of smaller companies was ignored by the government
To become the top seven, 14 financial holding companies would need to merge others or to be merged
Issues in financial reform
Only short period of time was given for financial holding companies to complete merger process
Government manipulation in merger process, benefiting certain financial holding companies
Misallocation of public fortune
Financial Holding Company Law
Established and became effective on November 1, 2001 for financial form
Major financial regulation for financial holding companies
FHC are only allowed to invest in new business and manage the invested ones
Total investment amount cannot exceed 15% of its own capital, and cannot hold more than 5% of the invested business.
Problems of the Financial Holding Company Law Only restricts financial holding companies,
but not their subsidiaries Possible cheating to cover their own
losses by subsidiaries Risky venture capital business are likely to
harm the bank depositors
Conclusion
By 2006, the total number of financial holding companies had to be reduced to seven
However, 14 financial holding companies still operating on the financial market
Government has lost control of the financial holding companies
Ineffective financial supervising system Unfair dealing with certain financial holding
companies by the government
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