CTBC Bank (中國信託銀行), Cathay United Bank (國泰世華銀行), Taipei Fubon Bank (台北富邦銀行), Mega International Commercial Bank (兆豐銀行) and Taiwan Cooperative Bank (合庫銀行) are categorized as “domestic systemically important banks (D-SIB)” and are therefore subject to higher capital standards, the Financial Supervisory Commission (FSC) announced on Thursday last week.
These D-SIBs would also be subject to tighter supervision and new rules, as their failure would cause significant disruption to the nation’s banking system and the overall economy, FSC Chairman Wellington Koo (顧立雄) told a news conference.
The commission would require these banks to maintain a minimum common equity tier-1 ratio of 11 percent, a minimum tier-1 capital ratio of 12.5 percent and no less than 14.5 percent in total capital adequacy ratio, Koo said.
The new capital cushion standards are 4 percentage points higher than those for regular banks, he said, adding that the five banks would have four years to increase their capital to meet the new standards.
Overall, banks in Taiwan reported an average common equity tier-1 ratio of 11.37 percent, tier-1 capital ratio of 12.04 percent and total capital adequacy ratio of 14.14 percent, Banking Bureau data showed.
The commission formed a task force two years ago to set the criteria for identifying D-SIBs to limit potential contagion risks in times of crisis.
The five banks were selected based on their market capitalization, their interconnection with peers, their substitutability by peers in terms of functions and services, as well as the complexity of their operations, which are in line with the standards set by the Basel Committee on Banking Supervision, Koo said.
“Being a D-SIB is honorable, but also means more responsibility. There is an advantage, as they will have privileges when applying to launch new business or products,” Koo said.
However, he rejected the idea that the D-SIBs are “too big to fail,” saying that every bank matters, given that they all have a similar shares of the Taiwan market.
Among the five banks, only CTBC has met the new standards, while Cathay United, Taipei Fubon and Mega do not meet one or two ratios and Taiwan Cooperative does not meet any, the Banking Bureau data showed.
The commission said it plans to review and update its D-SIB designations annually.
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