Taiwan’s Banking Regulator Toughens Capital Adequacy Requirements
The Financial Supervisory Commission (FSC) has recently tightened capital adequacy requirements for banks in Taiwan, as part of efforts to ensure financial stability and prevent bank failures.
New Guidelines
The new guidelines set out a range of capital grades, based on the total capital adequacy ratio, tier 1 capital ratio, and common equity tier 1 ratio. Banks with inadequate capital will be required to submit a plan for restructuring or improving their finances and business operations, while those with significantly inadequate capital may face stricter measures, including the removal of responsible persons from their positions.
Capital Grades and Requirements
- Adequate Capital: Total capital adequacy ratio of 9.875% or more, tier 1 capital ratio of 7.875% or more, and common equity tier 1 ratio of 6.375% or more.
- Inadequate Capital: Total capital adequacy ratio of 7.875-9.875%, tier 1 capital ratio of less than 7.875%, or common equity tier 1 ratio of less than 6.375%.
- Significantly Inadequate Capital: Total capital adequacy ratio of 2-7.875%, with stricter measures to be applied.
- Seriously Inadequate Capital: Total capital adequacy ratio of less than 2%, with the bank potentially being placed into liquidation.
Consequences for Non-Compliance
Banks that fail to meet the new capital adequacy requirements may face severe consequences, including:
- Suspension or revocation of banking licenses
- Mandatory mergers or acquisitions
- Removal of responsible persons from their positions
- Potential liquidation
Clarification on Foreign Ownership
The FSC has also clarified its rules on foreign ownership of banks, stating that there are currently no general restrictions on foreign ownership, except for certain limitations on investment by persons from the People’s Republic of China.
Implications for Controlling Entities
Entities controlling banks will be subject to stricter regulations and reporting requirements under Taiwan’s Financial Holding Company Act. They will also be required to obtain prior approval from the FSC for certain transactions, including acquisitions of banks.
In the event that a bank becomes insolvent, there are no criminal or administrative sanctions that would be imposed on entities or individuals controlling the bank simply due to their status as controlling parties.
Conclusion
The new capital adequacy requirements and regulations on foreign ownership and control of banks aim to strengthen Taiwan’s banking system and ensure financial stability in the face of growing global economic uncertainty.