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Taiwan’s Banking Sector Strengthens with Adequate Capital and Liquidity Requirements

In its ongoing efforts to strengthen the financial system, Taiwan’s Financial Supervisory Commission (FSC) has implemented various elements of the Basel III framework, ensuring that banks maintain adequate capital and liquidity standards.

Minimum Capital Requirement

To establish a commercial bank in Taiwan, promoters must pay a minimum paid-in capital of NTD 10 billion, with at least 80% subscribed by the bank’s founders. Foreign banks setting up branches in Taiwan must allocate a minimum operating capital of NTD 250 million.

Capital Adequacy Requirements

Taiwanese banks are required to maintain:

  • Common Equity Tier 1 Ratio: 7%
  • Tier 1 Capital Ratio: 8.5%
  • Total Capital Adequacy Ratio: 10.5%

These ratios are in line with international standards set by the Basel III framework.

Liquidity Coverage Ratio (LCR)

To enhance banks’ short-term liquidity recovery ability, Taiwan introduced the LCR framework in 2015. Banks must maintain an LCR of at least 100%, calculated by dividing high-quality liquid assets by total net cash flows over a 30-day period.

Leverage Ratio

The FSC has also introduced a leverage ratio to prevent excessive leverage and ensure banks maintain adequate capital buffers. The ratio is calculated by dividing net Common Equity Tier 1 by the total risk amount, and banks must maintain a minimum leverage ratio of 3%.

Total Loss-Absorbing Capacity (TLAC)

In response to the increasing importance of TLAC in global banking, Taiwan has introduced regulations to enhance capital quality and risk-taking capacity. Banks are required to disclose their TLAC and maintain adequate levels.

Domestic Systemically Important Banks (D-SIBs)

Six banks have been designated as D-SIBs by the FSC, subjecting them to stricter capital standards. Designated banks must allocate an additional 2% of statutory capital requirement and 2% of internal management capital requirement over a four-year period.

Customer Protection

Taiwanese banks are required to:

  • Conduct thorough know-your-customer processes
  • Assess suitability of financial products for different customer types
  • Provide comprehensive product information, including risks and scenario analysis
  • Refrain from offering customers financial products that are not aligned with their risk tolerance level

Financial Ombudsman Institution (FOI)

The FOI was established to provide a reliable alternative dispute resolution mechanism for handling disputes between financial consumers and institutions. Customers can file complaints with the FSC or seek mediation through the FOI, which will assess cases and determine whether further review is necessary.

These strengthened regulations demonstrate Taiwan’s commitment to maintaining a stable and resilient banking system, ensuring the protection of depositors and investors while promoting economic growth.