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Thu, Jan 04, 2001 - Page 18 News List

KMT kills resolution trust fund

VETO Though they initially supported the measure, KMT legislators yesterday defeated the plan to create a fund to absorb the assets of troubled banks

By Stanley Chou  /  STAFF REPORTER , WITH BLOOMBERG

A Finance Ministry plan to set up a fund to absorb the assets of troubled financial institutions and guarantee bank deposits was vetoed by opposition KMT legislators yesterday.

Pundits say the proposal will require much more detailed planning to succeed.

The Resolution Trust Fund, mainly aimed at reviving regional credit cooperatives, is to be loosely modeled on the defunct US Resolution Trust Corp, which bought bad loans from banks and sold them to investors to revive troubled lenders.

Under the ministry's proposal, the fund -- under the Central Depository Insurance Company (CDIC, 中央存保) -- would unconditionally honor all deposits made at the institutions, though the lenders will have to surrender their assets and reshuffle management.

KMT legislators vetoed the NT$50 billion Resolution Trust Fund proposal yesterday, effectively delaying the issue until the next Legislative session.

After the finance ministry proposed a NT$50 billion fund through amending current laws earlier this week, the KMT, the majority party in the Legislative Yuan, formally opposed the proposal yesterday.

"The KMT caucus has decided not to support the proposal, and will withdraw the draft completely," said Ho Chi-huei (何智輝), convener of KMT caucus, yesterday morning.

KMT legislators originally supported the proposal on Tuesday. But Liu Gwan-hua (劉光華), a KMT legislator, held a press conference yesterday morning to oppose the proposal made by finance ministry.

"The depository insurance system has been controversial among economic academics for years," said Liu. "To enlarge the scale of the current deposit insurance system in Taiwan will require further study."

"Furthermore, the proposal made by the Ministry of Finance has been too rough. Many supporting measures have not been included, such as the mechanism to utilize and manage the fund. It's an irresponsible and premature proposal. The KMT has decided to postpone the issue and leave it to the next session," said Liu.

Academics also in attendence at the press conference yesterday expressed mixed opinions on the issue.

"It's correct to set up a resolution trust fund," said Lee Tong-how (李桐豪), a finance professor at National Chengchi University (政治大學). "But it will require a whole set of rules and regulations to solve the problems in the banking sector. It's not suitable for the Central Depository Insurance Company (CDIC, 中央存保) to take over all problematic financial institutions," Lee said. Lee's colleague at the university remained skeptical on the idea.

"Current credit cooperative deposits are nearly NT$1.5 trillion, while the resolution trust fund is designed to have only NT$50 billion," said Norman Yin (殷乃平), a banking professor at Chengchi University.

"Also the fund would only cover the banking, insurance, and finance bills sectors. Whether the government has the capacity to take over problematic financial institutions is highly questionable," said Yin.

"The government should establish a management committee of resolution trust fund, and designate all business tax of the financial service sector into the fund," said Yin.

Yin also questioned the current content in the draft proposed by finance ministry.

"If the ministry would take over all the problematic financial institutions, when some financial groups eroded and pocketed all the deposit in their own banks, how would the government would be able to cover all the losses? And if the general public would have to pay for the losses, it would be extremely unfair," said Yin.

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