Vice Premier Paul Chiu (邱正雄) said the government would take over failing banks if they suffered losses greater than one-third of their capital and were incapable of raising capital, the Chinese-language Commercial Times reported yesterday.
Chiu said the government would request that local banks implement risk-control and asset-valuation mechanisms, and recruit professionals rather than overrelying on assessments by rating agencies.
As the government has promised to guarantee all bank deposits before the end of next year, Chiu said that financial institutions must take this opportunity to improve their fundamentals, maintain a capital adequacy ratio (CAR) above 8 percent and strengthen credit risk management.
The Financial Supervisory Commission will request that banks establish a mechanism in the near term, with all deposits and securities-related asset allocations, risk predictions and assessments to be done by computer to make it easier for the government to supervise financial institutions, the report said.
The paper said that a major reshuffle could happen in the local banking industry before the government’s guarantee on bank deposits expires.
Chiu said small banks had been less affected by the financial crisis and could develop products that build on their strengths, with a likelihood, however, of smaller profit. For large banks operating at the international level and that face higher risks, the CAR requirement would be higher, Chiu said.
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