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Lawmakers pass amendment to Banking Law

Lawmakers passed an amendment to the Banking Law (銀行法) yesterday requiring the Financial Supervisory Commission (FSC) to take a more proactive approach in shutting down troubled banks.

In the past, the commission was not required to take action within a certain period of time against banks whose losses had exceeded one-third of their paid-in capital and to demand that they improve their financial structure.

The commission was therefore slow to take action to regulate troubled banks, as the non-mandatory "indefinite" period of time stipulated previously often led to long drawn-out negotiations, Chinese Nationalist Party (KMT) Legislator Lee Jih-Chu (李紀珠) said.

THREE-MONTH PERIOD

The amendment stipulates that the commission must issue an order calling for financial restructuring of troubled banks within three months of the banks reporting difficulties. Banks that fail to show an improvement after the grace period given by the commission could then be taken over by the government or forced to go out of business.

The commission will also be required to order banks that are too financially ill to liquidate or pay off their deposits to suspend all or part of their business and operations and undergo financial restructuring within a given period. The commission will have to supervise or take over the management of the banks, as well as request that the banks' management be restricted from leaving the country.

Under the old regulations, these requests and actions were optional and dependent on the commission's judgment.

In response to the passage of the amendment, the financial watchdog said it would closely monitor bank's business and financial conditions.

The commission has yet to determine the number of banks that would be affected by the new requirements, spokesperson Susan Chang (張秀蓮) said yesterday.

EXIT MECHANISM

The commission is formulating a so-called exit mechanism for financially troubled lenders that would provide better supporting measures when it comes to shutting down troubled banks in the future, Chang said.

Legislation to that effect has not been submitted to the legislature for approval, she said.

Four financial institutions are blacklisted by the government's restructuring fund, including Bowa Bank (寶華銀行) and Chinfon Bank (慶豐銀行), which are struggling to find outsider investors to inject fresh capital to improve their finances.

"Their capital restructuring plans are proceeding as planned," Chang said.

She said the new amendment would not affect already financially troubled lenders.
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