The recent disagreement between the Financial Supervisory Commission (FSC) and the central bank about asset bubbles and the “hot money” situation shows just how much the mindsets of financial officials can differ. However, this disagreement could send the wrong message to the market if the commission and the central bank cannot find a way to work things out.
FSC Chairman Sean Chen (陳冲) appears less concerned than the bank’s Deputy Governor George Chou (周阿定) about the formation of property bubbles in several areas of the country. During a legislative session last week, Chen assured lawmakers that the banking sector’s loans to property-related businesses account for 25 percent of its total loans.
At the same session, however, Chou said the bank believed the ratio had exceeded the ceiling and was somewhere between 30 percent and 35 percent “depending on a different calculation basis.”
Chou would not clarify the central bank’s “calculation basis,” except to say that asset bubbles in some metropolitan areas have triggered its concern.
It was natural that many people would assume Chou was talking about high-end luxury projects in Taipei City, especially after bank Governor Perng Fai-nan (彭淮南) complained about the pricing of a residential project in Shilin District (士林) by the Shining Group. Chou might be subtly giving the commission a warning that it should do more to rein in speculation-driven price hikes in Taipei City and the greater Taipei area.
The central bank has more experience in targeting speculative business activities, while the commission has developed something of an ostrich reputation for downplaying the asset bubble situation and focusing solely on the banking sector’s overall lending statistics. However, the central bank has not performed much better than the commission at actually bringing speculative activities under control. There is plenty of evidence that Taipei’s property boom has continued regardless of the government’s efforts to cool down the sector.
As for hot money, or capital inflows aimed at speculating on New Taiwan dollar gains, Chen disagreed with the central bank stance, which is to consider foreign funds sitting idle in local accounts after a certain period of time to be involved in currency speculation. Taking a free-market approach, he told lawmakers that not all idle overseas funds are being used for speculation.
Chen’s remarks echo those of some local bankers who have recommended that the central bank be more tolerant and turn those idle foreign accounts into investments in the TAIEX. That, however, is more easily said than done, since some of those idle funds, if not the majority of them, are targeted at the NT dollar, not local shares. It is also within the FSC’s purview, not the central bank’s, to turn idle inflows into investments in shares.
If Chen thinks the central bank’s stance is wrong, he should have the commission take action. Otherwise, his comments do nothing but confuse the market about what the central bank is trying to do.
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