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Task force fails to inspire share traders

Despite moves by the new head of the economic task force to signal a fresh policy direction with two new measures, the TAIEX failed to recover from its earlier losses and closed down 142 points yesterday.

Analysts attributed the decline to disappointing investor sentiment over the meeting's results and news that military tensions were brewing between Israel and Palestinians, which could ultimately raise fuel costs for Taiwan's shipping companies.

Turnover fell to NT$59.4 billion from last Saturday's NT$92.4 billion.

The new measures -- announced yesterday morning by Vice Premier Lai In-jaw (賴英照) -- aim to encourage mergers in the banking industry and eliminate amateur stock traders from the market.

"Since retail investors still make up 87 percent of the stock market currently, the [investment] risk is too high [for retail investors], which generates unreasonable market volatility," Lai said. "Therefore, the Executive Yuan has decided to approve amendments to rules and regulations governing the securities investment trust and advisory industry immediately ... [therefore allowing] securities investment trust and advisory companies and banks with trust department businesses to engage in the discretionary managed account [代客操作] business.

"The move could help improve the investor structure in the stock market by enticing a portion of the NT$2.4 trillion in savings from the private sector, which has a savings rate of 26 percent. Such funds could be invested through investment professionals in the securities and banking industry, [assisting] the stock market's return to normal functioning."

Lai said the Executive Yuan will promulgate the amendments immediately. The Ministry of Finance will begin accepting license applications starting yesterday. Seeking to strengthen the troubled banking industry, the vice premier also introduced new incentives for sector players to merge.

"On the issue of the soundness of financial institutions, there are simply too many domestic banks, which is creating vicious competition and is forcing many banks to take on greater risk," resulting in widespread overdue loan difficulties, Lai said.

As a means of encouraging bank mergers, the ministry may develop new tax breaks for the industry, Lai said. Also, the scale of these banks is too small. Therefore, the Executive Yuan has decided to complete the Financial Institutions Merger Law (金融機構合併法) draft as soon as possible. The draft would use examples from the US Financial Modernization Act, Lai said.

"The draft has passed its first reading in the Legislative Yuan, and the finance ministry will be responsible for accelerating its passage," Lai said.

The finance ministry will also complete a draft of the Financial Holding Company Law (金融控股公司法) within the next six months. The new law will allow financial institutions to conduct banking, finance bills, securities, insurance and other financial services by allowing firms to establish financial holding companies, Lai said.

The measure is aimed at increasing the efficiency and competitiveness of financial conglomerates. In addition, Lai said that Minister of Finance Yen Ching-chang (顏慶章) will remain executive secretary of the National Stabilization Fund for the time being, and the task force will hold weekly meetings.
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