CDIC calls for change, wider financial power

The state-run Central Deposit Insurance Corp (CDIC, 中央存保) will seek to strengthen its role as an independent public authority to safeguard the interest of depositors in the face of heightening financial risks, company officials said yesterday.

"Keen competition is driving financial institutions to try new investment tools in search of higher profits, but that also has complicated the risks that we are facing," CDIC's new president Howard Wang (王南華) said at a handover ceremony yesterday.

Wang over the position from Johnson Chen (陳戰勝), who retired.

Wang that change through measures such as regulatory amendments was needed to transform CDIC into an independent authority promoting information transparency and public accountability.

"How can CDIC -- a firm set up in accordance with the Company Law -- have the power to act as a financial policeman and protect the interests of depositors during a crisis?" Chen asked.

Without authority to keep it from unlawful intervention, CDIC would have very little say except to provide cash to cover bank runs as ordered, he said.

CDIC operates under the supervision of the Financial Supervisory Commission (FSC).

Chen that although local depositors receive a maximum insurance coverage of NT$1.5 million (US$46,200) per insured institution under the amended Deposit Insurance Act (存款保險條例) that went into effect on July 1, more reforms were needed to strengthen CDIC's role in stabilizing the financial market and reducing ethical risks.

He said CDIC was drafting a policy research report to lobby for a regulatory revision of its role.

"There should be checks and balances in addition to the present cooperation and coordination between the central bank, the Ministry of Finance, the Financial Supervisory Commission and the CDIC," Chen said. "Only when CDIC becomes the fourth pillar can the four institutions form a strong `safety net' for our financial system."

CDIC eight troubled banks and shuttered 45 financial institutions over the past six years, saving the treasury from a potential loss of NT$20 billion, said Liu Teng-cheng (劉燈城), vice minister of finance and CDIC's new chairman.

CDIC over five debt-ridden banks last year alone -- the Enterprise Bank of Hualien (花蓮企銀), Taitung Business Bank (台東企銀), China United Trust and Investment Corp (中聯信託), The Chinese Bank (中華銀行) and Bowa Commercial Bank (寶華銀行).

CDIC it planned to offer insurance coverage to banks that are performing well at no cost after its funds reached NT$200 billion late last year.

Meanwhile, in response to CDIC's comments, Financial Supervisory Commission Vice Chairwoman Susan Chang (張秀蓮) said yesterday that the commission needed to study CDIC's recommendations first.

However, speaking in a personal capacity, Chang said she did not think it was appropriate to transform CDIC from a corporation into an independent government agency.

Instead, she said she would recommend that CDIC be changed into a legal public entity, which can act independently as an insurance corporation for the nation's banking sector.

Additional reporting by Joyce Huang