The state-run Central Deposit Insurance Corp (CDIC,
The four state-banks include the Taiwan Cooperative Bank (
The regulation to allow the formation of the body -- similar to a resolution trust company -- was still pending in the Legislative Yuan as of press time last night.
According to the report, the new body will focus on as many as 30 to 40 problematic institutions with zero net assets and those incapable of honoring their debts.
Taiwan's credit cooperatives and unions recorded non-performing loans totaling some 20 percent or higher of total loans as of early June, said an unidentified banking analyst.
The body would need some US$7 billion to absorb the bad debts, the analyst said.
The new mechanism aims to offer further coverage for public depositor accounts when a problematic credit cooperative is disposed of.
Currently, the CDIC insures deposits up to NT$1 million per account.
Since the interest of depositors is likely to be covered in full, the chance of a bank run is minimal, finance ministry officials said.
As to the difference between the total amount of liability and assets of the problematic institutions, the regulations stipulate that financial bonds could be issued to raise money from government and private investors.
Meanwhile, the CDIC could borrow money from the central bank in order to clean up credit cooperatives which are unable to meet their liabilities.
If the problematic assets taken over by the corporation and the four state banks are not able to be disposed of within a certain time frame -- still yet to be defined -- the remaining assets would then be transferred to the National Property Bureau (國有財產局), after the mechanism of resolution work trust company is concluded.
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