The government is mulling legal revisions that would revive the Financial Restructuring Fund to help stabilize the nation’s financial sector because many institutions have incurred heavy losses amid the global financial storm.
The Financial Supervisory Commission (FSC) is drawing up stabilization measures that would seek to revive the restructuring fund — similar to the US’ Resolution Trust Corp fund — with NT$1 trillion (US$29 billion) in new funds to buy bad loans or bail out troubled financial institutions, the Chinese-language Commercial Times reported yesterday.
Set up in July 2001, the restructuring fund expired four years later after the legislature rejected a government proposal to inject more funds. The Central Deposit Insurance Corp (中央存保) has since taken over responsibility for rescuing problematic lenders.
The report said that the commission was fine-tuning a response measure to cope with the aftermath of the financial crisis by strengthening the restructuring fund’s size and function.
With a scale of between NT$500 billion and NT$1 trillion, the envisioned fund would be able to step in and buy shares of, or invest in, ailing financial institutions, in addition to underwriting their loans and acquiring their debt, the daily said without naming a source.
As the source of funding was expected to pose the biggest challenge, the Cabinet is soon to hold a briefing on the plans and Premier Liu Chao-shiuan (劉兆玄) would personally settle the issue, it said.
Norman Yin (殷乃平), a finance and banking professor at National Chengchih University, said the insurance sector should not be included in the rescue plan as it would strain the proposed fund’s resources.
Yin said local lenders emerged relatively unscathed from the credit crunch this time, but insurance companies suffered heavy losses.
“Many insurance companies retain more debt than their balance sheets reveal,” Yin said by telephone. “No one would want to take over their unprofitable assets. It would prove more difficult than expected to clean that up.”
Yin, a former lawmaker, also said the proposed fund should not be allowed to invest in securities and buy shares, which would render the fund a regular institution rather than an ad hoc mechanism.
“The fund should disband once it has fulfilled its duty,” Yin said. “Lawmakers would question its need after the crisis is over. They will also debate the source of funding, given its huge size.”
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