Pundits pessimistic about fund's funding

Pundits yesterday said that the opposition alliance's proposal to reduce the Financial Restructuring Fund (金融重建基金) to NT$320 billion is expected to water down the government efforts to enact financial reforms, due to insufficient capital.

"There are approximately 15 failed banks awaiting a governmental bailout, which is expected to cost NT$310 billion, according to the Ministry of Finance's esti-mates," Eric Chen (陳聖德), the president of Chinatrust Commercial Bank (中國信託銀行), said at a seminar in Taipei yesterday.

The seminar, on the progress of the nation's financial reforms, was organized by the Taiwan Thinktank.

After having spent NT$100 billion on bailing out grassroots credit-cooperatives, the fund's size should be expanded to NT$410 billion, Chen said.

Chung Chun-wen (鍾俊文), a professor of international business at Soochow University, agreed, saying that an additional NT$100 billion will be needed to handle poorly performing credit cooperatives.

Chung thinks the fund should have more than NT$500 billion.

Another panelist, Ko Chen-en (柯承恩), dean of the management college at National Taiwan University, however, threw his full support behind the ministry, which is sticking to its final proposal of NT$680 billion.

"NT$680 billion is a good starting size," Ko said.

He said it was too bad that the legislature vetoed the ministry's initial proposal for a NT$1.05 trillion fund, noting that the fund's size is relatively small compared to similar funds in Japan and South Korea.

In his speech to the seminar, Taiwan Thinktank chairman Chen Po-chih (陳博志) took the former KMT administration to task for the banking sector's woes.

"Ninety percent of the current banking troubles were left behind by the KMT government to burden the DPP government," Chen said.

He said he saw no reason for the opposition alliance to boycott the DPP's financial reforms.

The government finances the fund by collecting a 2 percent business tax on banks' financial services but the finance ministry is planning to scrap this tax in 2011.

Chung said that the 2-percent tax should remain "forever" since it's the major source of income for the fund and that the tax was not a burden on banks' clients.

He also urged the government to kick-start measures to force failed banks to exit the marketplace should their capital adequacy ratio drop below 2 percent.

Meanwhile, despite several rounds of inter-party negotiations, the fund's size is still up in the air, a DPP negotiator said yesterday.

"No conclusion has been reached," DPP Legislator Lin Chung-cheng (林忠正) said, adding that he was concerned the fund proposal may not be passed in the three-day special legislative session that opens today.

Last Friday, the Legislative Yuan proposed restricting the government from bailing out distressed banks' non-depository liabilities by halving the fund's size to NT$320 billion from the NT$680 billion that had been agreed between the ministry and opposition lawmakers.

According to Lin, non-depositary liabilities include inter-bank lending, commercial paper and negotiable certificates of deposit, which account for approximately 20 to 40 percent of banks' overall liabilities.

Seminar panelists also urged the legislature and the government to set up a professional financial supervisory board as soon as possible.