President Chen Shui-bian (陳水扁) ordered the Cabinet yesterday to set up a bank clean-up fund by the end of this month, in a move to demonstrate the government's resolve in addressing the problem of troubled grassroots financial institutions.
The order comes after lawmakers passed the legal framework for the NT$140 billion fund last week. The fund will be similar to the Resolution Trust Corp in the US, which disposed of the assets of that country's failed savings and loan institutions in the 1980s.
The fund will operate for four years and will focus on absorbing bad loans from the nation's 362 farmers' and fishermen's credit cooperatives, which have seen at least 17 percent of their loans go bad.
The Ministry of Finance is expected to initially target 15 to 18 problematic credit cooperatives located in central and southern counties, which are currently operating with a negative net worth.
Just last week Minister of Finance Yen Ching-chang (顏慶章) toughened his stance on grassroots banks, saying, "Weak or insolvent financial institutions should not be allowed to continue operations."
He also stressed that the clean-up of grassroots institutions would not affect the general stability of Taiwan's banking sector.
The fund is scheduled to start in the final 10 days of this month, and be completed in three months and involve a three-step process, according to ministry officials.
First, the institution would be closed down. The accounts of depositors would then be transferred to healthy financial institutions. Finally, the collateral backing the bank's bad loans would be sold off.
Finance ministry officials declined to disclose which financial institutions would be closed first.
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