Analysts welcome halt in financial reform

The government should tighten these rules and demand that financial institutions enhance trans-parency and corporate governance through measures such as including foreign investors into their boards before approving takeover attempts in the future, Yeh said.

Chi Schive (薛琦), the president of Taiwan Academy of Banking and Finance, said that the government should reopen licensing for the establishment of new bank branches and financial holding companies, as well as formulating an exit mechanism for banks.

"This will expedite market competition and naturally weed out weak players through market-driven consolidation," Schive said.

The financial regulator should further liberalize the market, allowing local banks to expand across the Strait to serve Taiwanese corporate clients who are investing in the fast-growing Chinese market, he said.

"Instead of intervening, the government should create an environment to stimulate internationalization and free competition," Schive said.