Bank bailout bill passes 1st reading

The Financial Committee of the Legislative Yuan yesterday passed the first reading of the drawn-out amendments to the Resolution Trust Committee Fund Regulatory Provisions (金融重建基金設置及管理條例), agreeing to pour another NT$125 billion worth of capital into the Financial Restructuring Fund (金融重建基金) to help bail out troubled banks.

The restructuring fund, also known as RTC, was established in July 2001 with capital of NT$140 billion. The fund is slated to expire on July 10 and will hand over its clean-up mission to the Central Depositary Insurance Corp (CDIC, 中央存保) thereafter. Unlike the RTC, which fully covers the losses of problematic banks, the CDIC will only cover depositors' loss of bank savings within NT$1 million in the future.

In addition, the problematic banks with a capital adequacy ratio below 2 percent will be asked to improve within three months, said Kong Jaw-sheng (龔照勝), chairman of the Financial Supervisory Commission (FSC) during a question and answer session at the legislature yesterday.

The relief mechanism would not intervene unless these ill-fated banks failed to improve their financial conditions within the grace period, Kong said.

The amendments will allow the bail-out fund to continue exist for another five years until the end of 2010, in a bid to finish the unresolved restructuring issues like the sale of mortgages, collecting business taxes paid by financial institutions and repay the fund's debts built up during the bail-out process.

"The extension of the fund relieves the shortage of capital of nearly NT$60 billion caused by the drawn-out restructuring process of Chung Shing Bank (中興銀行)," Kong told legislators.

There remaining seven banks that see negative net value and are engaged in the self-help process through measures like raising funds, Kong said, and the RTC's extension can help prevent the potential confidence crisis if some of these banks fail to bail themselves out in the future.

To facilitate the self-help process, the amendments allow problematic banks' non-saving debts taking place within two months after July 10 to be covered by the fund.

Such non-saving debts are estimated to be around NT$7 billion, or 20 percent of these banks' total debts, according to Gary Tseng (曾國烈), director general of the FSC's Bureau of Monetary Affairs.

Nevertheless, Chinese Nationalist Party (KMT) Legislator Lee Jih-chu (李紀珠) opposed including all non-saving debts occurring in the two-month grace period to be relieved by the RTC, citing concern over the unpredictable compensation costs in the future.

Lee advocated compensation only to the creditors that aided the debt-ridden banks by request of the government previously.

Lee also retained her power of objection to the regulation. She is therefore entitled to bring up her disagreement during the second reading of the bill, which may overturn the regulation.

The bill also allows authorities to make public the borrowers of the non-performing loans from indebted banks, if the loan is over NT$1 million.

People First Party Legislator Christina Liu (劉憶如), however, disagreed with the regulation, saying that it violates the banks' confidentiality obligation imposed by the Banking Law (銀行法) and would hurt the nation's small and medium enterprises, which already have difficulty in raising funds.

Meanwhile, the legislators watered down a regulation that terminates the levy of business taxes on financial institutions, the RTC's fund source, at the end of 2010 along with the RTC's expiration.