The Financial Supervisory Commission yesterday denied a local media report that it had finalized a policy proposal to extend the deadline of its blanket deposit guarantee to the end of next year.
“We are still studying the local banking sector’s liquidity level and no conclusion has been reached,” commission chief secretary Lu Ting-chien (盧廷劼) told a media briefing yesterday.
The commission has set no timetable for when such an extension proposal would be finalized, he said.
“The commission believes the policy has worked effectively to maintain depositors’ confidence and the sector’s stability [in the past year], but the question is whether such a confidence level can be sustained till next year [after the policy expires],” he added.
The Chinese-language Commercial Times, citing an anonymous commission official, yesterday reported that the commission planned to extend the blanket deposit guarantee for another year — a proposal to be finalized by next month at the earliest, as most Asian governments were doing the same.
Hwang Dar-yeh (黃達業), a member of the Central Deposit Insurance Corp’s (CDIC, 中央存保) consultant committee, yesterday confirmed that the deposit insurer and its committee had one month earlier voted for the extension proposal, which has been delivered to the commission as a reference.
“Although we believe that the local banking sector’s liquidity is not a problem, our conclusion was that depositors’ money should be fully insured to maintain the nation’s financial stability,” Hwang said over the phone.
With or without the government’s blanket guarantee, the CDIC has already taken out insurance premiums on local banks that will insure all bank deposits, said Hwang, who is currently director of the Center for the Study of Banking and Finance at National Taiwan University.
However, Hwang expressed concern that such a policy could theoretically leave room for moral irregularities or distort market discipline.
Jonathan Lee (李信佳), senior director of the financial institutions group at Fitch Ratings Ltd’s Taiwan branch, yesterday said the extension policy was an important lifeline to some under-performing banks.
“Once the [lifeline] is removed, it is hard to say if any of these [under-performing] banks would run into difficulty,” he said over the phone.
Unevenly distributed liquidity is the biggest problem facing the domestic banking sector, with top-tier and state-run banks having absorbed most of the nation’s deposits, he said.
Lee urged the regulator to keep an eye on banks whose capital adequacy ratio falls below 10 percent, instead of just the statutory 8 percent level, and intervene if necessary to improve their health by requiring shareholders to beef up bank capital.