The central deposit insurance system should work as a risk minimizer to be able to anticipate, detect and manage financial risk, instead of as a cash box for bail outs once the damage is already done, pundits said yesterday at a seminar.
"The regulators should be active in addressing initial risk, undertaking ongoing risk assessment and management to resolve troubled banks," visiting Jean Pierre Sabourin, president of the International Association of Deposit Insurers (IADI), told a seminar in Taipei.
Before chairing the IADI, which Taiwan joined as a founding member among 50 participant countries last May, Sabourin built up extensive expertise in sorting out 40 problem banks in Canada while working as head of the Canada Deposit Insurance Corp.
With a clear mandate and well-defined responsibilities, the deposit insurance corporation in Canada was fully empowered to supervise bank's entry to and exit from the marketplace, to assess financial risk, to establish sound business standards as an early warning system monitoring bank performance and to take the necessary corrective measures to intervene in problem banks before triggering a large-scale financial crisis, Sabourin said, sharing his Canadian experience in the seminar organized by Taiwan's Central Deposit Insurance Corp (CDIC) yesterday.
Financial losses were successfully reduced from 52 cents on the dollar to only 17 cents on the dollar after the Canadian insurance system upgraded its role from a cash box to a risk minimizer, costing no taxpayers' money at all, Sabourin said.
Urging that Taiwan try to emulate Canada's professionalism in dealing with financial troubles, Hwang Da-yeh (黃達業), a finance professor at National Taiwan University, said that the nation's financial regulatory system was seriously flawed.
Hwang said that political interference had complicated and added difficulties to the regulatory system's future operation, which he said was sure to create chaos in the financial sector in the near future.
For example, he said that the government shouldn't have licensed 14 financial holding companies (FHCs) before the establishment of a financial supervisory board (金監會), which is designed to oversee the sector's performance.
Former Finance Minister Lee Yung-san (李庸三), who initiated the FHC policy in his six-month term, however, did not respond to Hwang's criticism. Instead, he urged the legislature to soon approve the Financial Restructuring Fund (金融重建) to bail out failed banks, otherwise, taxpayers may have to pick up a tab of over NT$100 million each month.
Louis Chen (陳春山), a law professor and an attorney at the law firm of Chen & Associates (亞卓), agreed that responsibilities of Taiwan's CDIC needed to be clarified, saying the body should be further empowered to work as a risk-minimizing facility with sufficient funding to manage risk.
Chen, moreover, stressed the importance of an "exit system" to force under-performing banks out of the marketplace.
He said that the nation's banking sector is too fragmented and overcrowded with over 50 banks, needing sector consolidation.
"As a long-term goal, the nation's top five players should be able to grab a combined market share of over 50 percent, securing their profitability and survival," Chen said.
Morris Li (
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