The separation of financial institutions and industrial firms has again drawn attention, after an asset management unit of Pau Jar Group — a New Taipei City-based developer and builder — reportedly acquired a more than 5 percent stake in Taishin Financial Holding Co and SinoPac Financial Holdings Co, raising concern from the Financial Supervisory Commission.
Pau Jar already owns a nearly 10 percent stake in COTA Commercial Bank and is also interested in China Bills Finance Corp, media reports said.
Commission Chairman Wellington Koo (顧立雄) last month said the government does not like to see over-concentration of financial institutions’ shares in the hands of a few industrial conglomerates and that he is skeptical about business groups owning shares in more than two financial institutions at the same time.
The separation of financial firms and industrial corporations was one of the key issues that emerged in the aftermath of the government’s receivership of The Chinese Bank in 1997 due to financial troubles at the lender’s parent company, the now-defunct Rebar Asia Pacific Group, which once controlled more than 120 enterprises.
While Taiwan has since adopted the principle of separating commercial banks and industrial companies through such means as imposing ceilings on individuals or companies’ ownership shares, and restricting their right to sit on boards or hold voting stocks, the government has not enacted effective regulations to prevent business conglomerates from using banks as their private cashboxes.
The judicial authorities’ investigation earlier this year of questionable loans extended by SinoPac Financial’s banking and leasing units to companies whose proprietors are related to SinoPac’s founding Ho family only proves that the financial regulator has failed to carry out its duty. It also indicates that the regulations governing the separation of banking and commerce are either inadequate or flawed.
In its Taiwan Industrial Reform and Competition Strategy Proposal released in October, Academia Sinica mostly discussed issues that are crucial to the financial industry in the digital era, but added that it is necessary to have an appropriate separation between banking and commerce, as evidenced by some industrial conglomerates’ ownership of securities, investment trusts, insurance or banking businesses, as well as the risks posed by family-controlled financial institutions.
It is easy to understand the links between financial fraud and the separation of banking and commerce. One of the arguments for such a separation is that it would prevent the over-concentration of economic power held by financial-industrial conglomerates.
However, there are still questions about how the government could assure a complete separation of the financial and industrial sectors, whether this goal is viable and what alternative policies could ensure the financial industry’s sustainable development.
Financial services have been intertwined with commercial and industrial activities for as long as banks have existed, so a clear-cut separation appears paradoxical.
If a complete separation is not viable, devising a regulatory system that can accommodate close relationships between financial and industrial conglomerates would also be no easy task.
Against this backdrop, what the government can do is to reinforce its precautionary measures — such as public disclosure of information about shareholders and beneficiaries — and to further strengthen its regulatory supervision of deals between related parties, as well as internal audits and controls.
Corporate governance practices and management transparency need to be enhanced.
Finally, developing a societal consensus regarding a separation will need a thorough consideration of the benefits and downsides.
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