Local banks have automatically blacklisted some 20 poor-performing financial institutions from making high-risk inter-banking transactions since the government's Financial Restructuring Fund (金融重建基金) may not cover such liabilities, People First Party (PFP) legislator Norman Yin (殷乃平) said yesterday.
"Such market disciplines have been existed for years, but have recently stood out as a result of the controversial coverage of the fund [as it passes through the legislature]," Yin said. He refused to reveal names of banks on the blacklist.
Risk-based market disciplines will help weed out some poor-performing lenders in the marketplace if they fail to beef up their competitiveness, Yin said, adding that the government should step in to intervene in failing banks earlier, before they become insolvent.
During the last legislative sessions, opposition parties shelved the review of the bill proposed by the ministry and threatened to reduce the size of the restructuring fund from NT$680 billion to NT$320 billion, thereby preventing banks from covering the liabilities
The ministry hopes the draft bill can be passed by the year's end.
But the PFP insisted that the fund, a mechanism adopted from the US Resolution Trust Corporation in the 1980s, is designed to clean up troubled credit cooperatives and other financial institutions, and it shouldn't non-depository liabilities for fear of morale hazards.
The ministry, on the other hand, argues that non-depository liabilities should be covered lest a systemic crisis damaging the nation's financial stability.
Non-depositary liabilities include inter-bank lending, commercial paper and negotiable certificates of deposit, which account for approximately 20 to 40 percent of banks' overall liabilities, according to Democratic Progress Party Legislator Lin Chung-cheng (林忠正).
Regardless of whether the fund will cover non-depository liabilities, Citibank spokeswoman Joyce Chen (陳昭如) yesterday said that every bank should have a sound internal crediting rating to assess risk of all their transactions, be it inter-banking or corporation borrowers.
Chen said that Citibank rates credit of all local banks and refrains from making high-risk deals with marginal bank players when it comes to businesses such as the issuance of commercial papers, credit line extension and syndicated loans.
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