20120525 Create ‘financial firewall’ for banks, legislators say

Create ‘financial firewall’ for banks, legislators say

‘GRAY AREAS’: Lawmakers said political uncertainty in China and ambiguities in the MOU on cross-strait financial management make a Banking Act amendment necessary

By Chris Wang / Staff reporter

Financial Supervisory Commission Banking Bureau Deputy Director-General Jean Chiu, left, accompanied by Democratic Progressive Party Legislator Hsu Tain-tsair, center, and Taiwan Solidarity Union Legislator Hsu Chung-hsin, speaks at a press conference at the legislature in Taipei yesterday.
Photo: Lo Pei-der, Taipei Times

Lawmakers across party lines yesterday proposed an amendment to demand financial independence for Taiwanese banks’ overseas branches, in particular those in China, amid fears of a negative impact on Taiwan’s economy in potential future crises.

Local banks are allowed to establish overseas branches in countries that have signed free-trade agreements with Taiwan, but Taiwan’s financial stability could suffer a severe impact if the branches seek compensation from their head offices after a financial crisis breaks out, Democratic Progressive Party Legislator Hsu Tain-tsair (許添財), People First Party Legislator Thomas Lee (李桐豪) and Taiwan Solidarity Union Legislator Hsu Chung-hsin (許忠信) told a press conference.

The situation in China would be of greater concern because of the political uncertainty and the “gray areas” in the memorandum of understanding (MOU) on cross-strait financial management, they said, adding that was why they proposed amending the Banking Act (銀行法) to make sure Taiwan would be shielded in case a financial crisis or political incident occurs.

Articles 21 and 22 of the MOU stated that the head office would be responsible for all compensation and emergency liquidity assistance for its overseas branches, Hsu Chung-hsin said.

Citing the example of the US, Hsu Chung-hsin said that the US did not establish the principle until the 1980s, when a large number of account holders at US bank branches in the Philippines and Cuba sought compensation from US banks, as the political situations worsened under then-Philippine president Ferdinand Marcos and then-Cuban president Fidel Castro.

“Without the principle, Taiwanese banks would also be exposed to great risks,” he said.

Hsu Tain-tsair said the amendment would serve as a “financial firewall” across the Taiwan Strait to prevent local businessmen from “borrowing money from Taiwanese banks and saving their profits in China” and to safeguard the local banks if their overseas branches proved to be unprofitable.

The principle of independence for overseas bank branches would be “inappropriate and unnecessary,” Financial Supervisory Commission Banking Bureau Deputy Director-General Jean Chiu (邱淑貞) said.

The principle is not yet an internationally accepted convention, she said, adding that current regulations and laws, such as the investment protection agreement, would be able to deal with force majeure conditions and political uncertainty.

The establishment of the principle could cause panic among Taiwanese businesspeople in China instead, Chiu said.

She said that Taiwan has sufficient mechanisms and regulations in place to monitor, assess and manage cross-strait financial credit, investment and risk.