The legislature may slash the size of the Financial Restructuring Fund (金融重建基金) from the previously-agreed NT$680 billion to NT$320 billion, following yesterday's inter-party legislative negotiations.
"Despite strong reservations expressed by the finance minister, a consensus has been reached that the government will not be allowed to bail out distressed banks' non-depository liabilities after the bill takes effect," PFP Legislator Thomas Lee (李桐豪) said yesterday.
Non-depositary liabilities include inter-bank lending, commercial papers and negotiable certificates of deposit, which account for approximately 20 to 40 percent of banks' overall liabilities, according to DPP Legislator Lin Chung-cheng (
In accordance with the limited use restrictions of the bill, the fund's size is expected to shrink to approximately NT$320 billion, Lin said.
Lee, however, said that the new revision to the fund's bill is not retroactive, meaning it won't be binding on any troubled banks that have been taken under the government's custody before the bill's passage.
The government will still be allowed to use the fund to cover debt-ridden Chung Shing Commercial Bank's (
Lin said there is a likelihood that the bill will be passed next week if the Ministry of Finance is willing to make concessions and accepts the opposition's version of the bill, which will increase the fund from NT$140 billion to around NT$320 billion.
Even if the amount of NT$320 billion is agreed upon, the ministry will have just over NT$200 billion remaining in the fund, having already spent well over NT$100 billion to bail out 36 community-level credit cooperatives.
The ministry had previously proposed boosting the reconstruction fund to NT$1.05 trillion. This proposal was later reduced to NT$680 billion.
Lin expressed his disappointment with the new revision, saying that if the government is prevented from covering distressed banks' non-depository liabilities, some weak banks may run into a liquidity crunch.
This could create cash-flow problems when combined with a failure to secure business clients, thus damaging the banking sector's stability.
Lin said that the bill should be passed immediately so the nation's financial reforms won't be stalled. The later the bill is passed, the more taxpayers will have to pay, he said.
Hsu Chen-ming (
Hsu said that NT$200 billion is even not enough to bail out Ching Shing, which owes five other banks NT$150 billion and has a liability of NT$85 billion, if the government plans to handle its non-depository liabilities.
But Lee said that NT$200 billion is good enough for the government to bail out Ching Shing, Kaohsiung Business Bank and 12 other distressed banks.
"If it finds the funds are insufficient, the government can still allocate budget from other sources of revenue, such as sales of government-owned bank shares to fund its bank-bailout plan," Lee said.