Mon, Jan 15, 2007 page12

• Analysis: Rebar scandal shows FSC defects

  DENTED REPUTATION The failure of the supervisory body to see the brewing storm at Rebar highlights the fundamental problems that have long lied at its core

  • By Amber Chung / STAFF REPORTER
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  On Friday night, Shih Jun-ji (施俊吉) unexpectedly announced he was stepping down as chairman of the Financial Supervisory Commission, in the wake of bank runs triggered by the snowballing Rebar Group scandal.

  Shih's resignation, which came only five months after he assumed the position, made him the third head of the financial supervisory body to step down since its establishment in July 2004.

  "The turnover is way too frequent for such a crucial position," said Shen Chung-hua (沈中華), professor at the department of money and banking at National Chengchi University.

  

  Financial Supervisory Commission Chairman Shih Jun-ji, left, speaks at a press conference Friday night.

  PHOTO: LO PEI-DER, TAIPEI TIMES

  Such frequent shakeups could have a negative impact on the nation' financial policymaking and policy continuity, said Shen, one of the winners of the US Eisenhower Fellowship last year.

  This could also lead to an unwanted situation wherein government officials are less willing to bring up policies of vision, as they may be easily blamed for every move they make, Shen added.

  The Cabinet approved Shih's resignation after it came under heavy fire over the commission's policy turnaround and carelessness, which some believe may have contributed to the expanding troubles in the financial sector.

  On Jan. 4, two member firms of the Rebar Asia Pacific Group (力霸亞太企業集團) announced they had filed for insolvency protection a week earlier, triggering a run on affiliate The Chinese Bank (中華銀行) the next day, which caused losses of NT$19 billion (US$580 million) in a single day.

  The situation forced the commission to eat its words and take over the already troubled bank at midnight on Jan. 5, five hours after Shih assured the public there was no takeover plan for the lender.

  Shen said Shih's handling of the crisis was flawed, probably due to lack of experience or incorrect information.

  Nevertheless, as Rebar's financial problems is a longstanding issue, it will be necessary that officials involved be investigated to find out who failed to take action or who prevented the system from bringing the wrongdoers to justice, he added.

  The incident dealt an additional blow to the commission, whose reputation had already been seriously dented by a string of scandals.

  Last October, former commission member Lin Chung-cheng (林忠正) was taken into custody on charges of corruption. Lee Chin-cheng (李進誠), former director general of the commission's Examination Bureau, was sentenced to 10 years in jail for corruption in June last year.

  Last May, the commission's first chairman, Kong Jaw-sheng (龔照勝), was suspended for jobbery in his previous job and was sentenced to seven years in prison on charges of corruption.

  A series of proposed policies that were later shelved -- such as the second-stage financial reform to halve the number of financial holding firms, US-dollar denominated offshore stock exchange, lengthened stock trading sessions and anexit mechanism for stocks of petty prices -- have also put the commission at the center of controversies.

  If the commission that oversees the nation's financial sector and capital markets cannot adjust its mindset and modus operandi, similar scandals will surely continue to occur, pundits have warned.

  "As an umbrella body that regulates both financial institutions and public traded firms, the commission appears to have lacked the concept and mechanism of conglomerate supervision," said Charles Yeh (葉銀華), professor of Finance at Fu Jen Catholic University.

  For instance, Rebar Group controls a conglomerate of companies including The Chinese Bank, Union Insurance Co (友聯產險), China Rebar Co (中國力霸), Chia Hsin Food & Synthetic Fiber Co (嘉新食品化纖) and Asia Pacific Broadband Telecom Co (亞太固網), which operate in the financial, manufacturing and telecommunications sectors.

  The commission should establish a group profile containing all data on affiliate companies to get a broader picture and thereby make it easier to detect possible misconduct and enact damage control measures in the early stage of a crisis, Yeh said.

  Strengthening communication and cooperation among parallel agencies within the commission and with other agencies is necessary, he added.

  Yeh proposed a mandatory disclosure by all affiliates, perhaps coming in the form of an organizational chart, to help investors see through companies that have complex cross-holdings or an unusual number of affiliates -- all factors which, as in the Rebar case, can facilitate embezzlement and other offenses.
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