Minister of Finance talks about reform

Taipei Times: Has the recession in Taiwan made the government hesitant to put more bite into its financial reforms such as the shutdown of bad banks or the elimination of redundant staff resulting from banking sector consolidation?

Yen Ching-chang (顏慶章): That is possible. Your question reminds me of an experience I had while at the July 2001 APEC financial minister's meeting in Suzhou.

Ministers from several countries congratulated me on our strong determination to undertake financial reform during an economic slowdown, saying the move would create much healthier financial markets and become the cornerstone of continued economic development.

Even though the job of reform during an economic slowdown is quite challenging, that is the most appropriate policy for the government to undertake. Over the last year, the reaction of our securities markets reflected the endorsement of our financial reforms.

The strong support of the Ministry of Finance by President Chen Shui-bian (陳水扁) was very important for the reforms [made].

TT: What successes did the government have in terms of financial sector consolidation last year?

Yen: Taiwan's financial market is really over-crowded and therefore has long been fragmented. Also most financial institutions have a poor economy of scale and scope and so we think that Taiwan, in the course of globalization, must prepare to face the challenges from participation in the market of foreign financial institutions currently and in the future.

So that is the reason that we put a priority on encouraging our financial institutions to consolidate. We have been very successful in terms of getting the support of our legislature.

It passed the Company Merger Law (企業合併法) and the Financial Holding Company Law (金融控股公司法), and through their enactment we have provided tax and non-tax incentives for our financial institutions to merge on their own initiative.

In addition the holding company law also allows financial institutions to engage in cross selling [of shares] which can help increase their economy of scope.

So these laws provide our financial institutions with better opportunities to consolidate in accordance with Taiwan's globalization plan.

TT: So the boisterous legislature was cooperative on helping push through financial reforms?

Yen: The public in Taiwan is always criticizing the efficiency of our lawmakers. However in this particular area I need to extend my thanks to them.

They passed the six financial reform bills during the regular session by May of last year. And then, under pressure, went into a special session in November to deliberate financial reform bills and passed the holding company law. So last year was really a great success for the ministry.

We want to provide a world-class environment for financial institutions to change their structure on their own initiative via mergers or financial holding companies (FHCs). And that environment will accommodate large-sized financial institutions and still provide a good environment for niche players in the market as well.

TT: What progress did the ministry make last year on cleaning up bad banks?

Yen: A very impressive reform last year was the creation of Taiwan's Financial Restructuring Fund (金融重建基金), modeled after the US Resolution Trust Corporation (RTC). In the past we didn't have the mechanism to [act on] any financial institutions that suffer from negative value.