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,
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 (
KMT legislators originally supported the proposal on Tuesday. But Liu Gwan-hua (
"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 (
"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 (
"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.
Sean Chen (
Based on the figures, the fund appears to fall short of money -- well short.
In 1999, Taiwan's GDP was NT$9.74 trillion, according to Directorate General of Budget, Accounting and Statistics (
Just last month Finance Minister Yen Ching-chang said his ministry will not set up an RTC-style agency for local banks, saying the problem isn't serious enough to warrant such measures.
The ministry's latest proposal -- targeted at reviving troubled regional credit cooperatives and the credit arms of farmers' and fishermen's associations -- must overcome a major financial hurdle.
Bad loans at such "grassroots" financial institutions have the highest overdue loan ratio -- in some cases more than 50 percent.
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