Minister of Finance Shea Jia-dong (許嘉棟) yesterday proposed an asset management agency similar to the US' Resolution Trust Corporation (RTC) to sort out Taiwan's troubled banking sector.
But while recognizing the necessity of the idea, industry watchers are skeptical, saying the plan would cost too much money.
Shea said yesterday that an asset management company (資產管理公司) would be necessary because the Central Deposit Insurance Corporation's (CDIC, 中央存保) role is only to insure bank deposits.
Shea said in a written proposal earlier this week that the new administration is planning to establish such a management company.
Using government money, the agency would fill the gap between assets and liabilities at problematic financial institutions -- after insured deposits are first paid out.
The proposed asset management agency would be similar to the Resolution Trust Corporation, which during its six-year life cleaned up the books of US savings and loan institutions that went belly-up during the 1980s.
Former Minister of Finance Paul Chiu (
The big variation in Shea's proposal is that he appears willing to tackle the entire financial sector crisis -- not just the credit cooperative eyesore.
Shea said in his proposal that after the deposit insurance regulations were amended in January last year, the ability of the CDIC to deal with problematic financial institutions has been greatly improved.
But because the CDIC doesn't cover bank deposits beyond NT$1 million per account, another structure is required to manage the problem -- and that's where the idea of an asset management firm comes in.
Shea said if the new administration uses the government budget to bridge the funding gap -- which is the total negative net-worth of problematic financial institutions minus deposits insured by the CDIC -- then other banks would be more willing to take over problematic institutions.
Shea's model to solve the overdue loan problem is a good one, analysts say, but the real question is how will it work and who's going to pay for it.
"Shea's idea on asset management is correct," said Chengchi University professor Norman Yin (
"Take for example Malaysia -- one of the most successful cases -- when it created an RTC in cooperation with Morgan Stanley. Morgan Stanley successfully assisted Malaysia in unloading bank collateral," Yin said.
"But China on the other hand had a bad experience with their version of an RTC. One of the major problems was that China's RTC took over bad loans at face-value instead of at market value."
Yin noted that the road to starting up a Taiwan version of a RTC will be long and filled with potholes.
"Several stages of preparatory work needs to be done first," Yin said. "We need to first enact the Bankruptcy Law so that when the RTC does have to take over assets from a problematic institution, the law will provide the basic legal framework to foster the restructuring process. Then other banks will take over the failed institutions by paying their residual value.
The RTC will carry all non-performing loans and collateral and unload the assets over a period of time."
Another key problem with the asset management system idea is whether the government has the backbone to use state money to solve the banking industry's woes.
"Currently we have over NT$1 trillion in overdue loans nationwide, of which at least NT$500 billion are bad loans," Yin said. "If the new administration wants to use the government budget to answer the bad loan trouble, where is the money going to come from? With NT$2.3 trillion in fiscal debt and no tax hike in sight, realization of the proposal in the near term is highly questionable."
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