1. Comment on “Receivership and Resolution” & Taiwan Experience Johnson Chen President Central Deposit Insurance Corporation March 29, 2007 At ARC 5 th Annual Meeting & Conference Hanoi, Vietnam

2. 1 IADI’s Guidance for Resolution of Bank Failures International Association of Deposit Insurers (IADI) issued “General Guidance for the Resolution of Bank Failures” in early 2006. –General issues –Interrelationships and cross-border issues –Statutory powers accorded to the deposit insurers –Operational and administrative issues –The resolution of failing or failed banks For more information, please visit: www.iadi.orgwww.iadi.org

3. 2 Major Comments on “Receivership and Resolution”

4. 3 Major Comments - 1 How to transform and more actively help stabilize financial markets is one of the major challenges for DI in those countries whose financial environment is in the normal stage

5. 4 Major Comments - 2 NPLs of problem financial institutions could be disposed via publicly-owned or private AMCs

6. 5 Major Comments - 3 Timely and effective resolution, appropriate valuation and transparent sales process are important.

7. 6 Major Comments - 4 When setting up bridge bank mechanism, particular considerations should be given to the demands and financial environment of each country. One size doesn't fit all !

8. 7 Taiwan Experience Current developments in Taiwan’s banking sector Main amendments to the Deposit Insurance Act Card debt problem in Taiwan & Rebar Group scandal The focus of the CDIC’s work in the future

9. 8 Total assets have gradually increased Current Developments in Taiwan’s Banking Sector Source of data: Financial Supervisory Commission website: http://www.fscey.gov.tw/ Unit: US$100 million Total Assets of All FIs

10. 9 Unit:% Source of data: Banking Bureau, Financial Supervisory Commission- http://www.banking.gov NPL Ratio of All FIs Current Developments in Taiwan’s Banking Sector Credit Cooperatives Credit Department of Fishermen’s and Farmers’ Associations Total Domestic Banks Asset quality has improved significantly

11. 10 Source of Data: Banking Bureau, Financial Supervisory Commission, website: http://www.banking.gov.tw ROE ROA Unit:% Current Developments in Taiwan’s Banking Sector ROE and ROA of All FIs Profitability has gradually increased

12. 11 Source of Data: Central Bank of China Indirect Finance Direct Finance Current Developments in Taiwan’s Banking Sector The proportion of direct finance is gradually increasing Direct and Indirect Finance

13. 12 Source of Data: Banking Bureau, Financial Supervisory Commission, website: http://www.banking.gov.tw Current Developments in Taiwan’s Banking Sector The process of mergers among financial institutions is speeding up Numbers of Total FIs

14. 13 Main Amendments to the Deposit Insurance Act Replenishing and reforming the deposit insurance fund Strengthening risk control Strengthening the mechanism for handling problem financial institutions and systemic crisis Taiwan Experience

15. 14 Replenishing and Reforming the Deposit Insurance Fund Separate Deposit Insurance Funds –Regular Banking Sector –Agricultural Financial Sector Set the Target Ratio of the Deposit Insurance Fund : 2% of Insured Deposits Assessment Base: Insured Deposit Insurable Deposit Taiwan Experience

16. 15 Way of participation in DIS –Mandatory application for newly established financial institutions, but CDIC has the right of approval or disapproval. Mechanism for facilitating coordination among financial safety net participants & clear division of responsibilities of each financial safety net player Special inspection and investigation powers Strengthening Risk Control Taiwan Experience

17. 16 Exempt from the cost restriction Special premiums Bridge bank Strengthening the Mechanism for Handling Problem Financial Institutions and Systemic Crisis Taiwan Experience

18. 17 Card Debt Problem in Taiwan Card Debt Problem in Taiwan and the Rebar Group Scandal Severe competition Banks lacking the ability to design & innovate new products ; r apidly expanding their consumer banking business Huge bad debts; seriously affect the economic and social order Result in Issuance of huge number of cards w/o appropriate RM & credit analysis Taiwan Experience

19. 18 The Rebar Group Scandal Card Debt Problem in Taiwan and the Rebar Group Scandal Conglomerate Financial Holding CompanyNon-financial subsidiaries Risk Transfer others banks securities insurance Investment trustconstructionothers telecommunication Taiwan Experience

20. 19 Card Debt Problem in Taiwan and the Rebar Group Scandal Six reasons why the Rebar Group triggered the unfortunate event involving The Chinese Bank –The group falsely established shell companies –Funds transferred by false transactions –Incorrect financial statements –Insider trading –Manipulating stock prices –Illegal bill discounted, loan fraud, or else loans borrowed from banks based on untrue values attributed to collateral Taiwan Experience

21. 20 The Focus of the CDIC’s Work in the Future

22. 21 The Focus of the CDIC’s Work in the Future Strengthening the risk control function –Immediately measure and detect, and control risk –Independent in powers, but not isolated in cooperation –Good fences make good neighbors –Transparency is the key factor of fraud prevention Taiwan Experience

23. 22 The Focus of the CDIC’s Work in the Future Reducing the cost of dealing with problem financial institutions and enhancing efficiency –Time is the key to handling problem financial institutions –Developing complete complementary measures Taiwan Experience

24. 23 Thank You! http://www.cdic.gov.tw