(Jan. 28, 2009) On December 30, 2008, the President of the Republic of China (on Taiwan) promulgated amendments to the Banking Law. The Law now specifies that the Financial Supervisory Commission (FSC) of the Executive Yuan (Cabinet) is the competent authority referred to in the Law; formerly, it was the Ministry of Finance (MOF) (art. 19). The Financial Supervisory Commission is an independent Cabinet body established in July 2004. According to its website, “[t]he primary objectives of the Commission are to consolidate the supervision of banking, securities and insurance sectors, and to act as a single regulator for all of these industries.”(Introduction: Taiwan Financial Supervisory Commission, http://www.fscey.gov.tw/ct.asp?xItem=508412&CtNode=2225&mp=5 (last visited Jan. 14, 2008).)
Under the revised Law, the provisions on a bank's controlling shareholders are extensively revised and new ones are added. Thus, for example, the threshold requirement has been lowered for the reporting of bank-share holdings for approval to the competent authority. The revised Law stipulates that the same person or same concerned party that individually, jointly, or in combination holds more than five percent of the same bank's issued shares with voting rights must, within 10 days of the date the holding commences, report the fact to the FSC; the same applies to a cumulative increase or decrease of one percentage point after the shares held exceed five percent. The previous threshold was holdings of more than 15 percent, notice of which had to be given to the bank, which in turn had to report it to the MOF for approval; there were also monthly reporting requirements in regard to changes in conditions of the shareholding and set qualifications. While the previous Law placed a limit of 25 percent on the total bank-issued shares with voting rights that could be held by the same person or same concerned party (with certain specified exceptions), the revised Law stipulates that if the same person or same concerned party plans to individually, jointly, or in combination hold, respectively, more than 10 percent, 25 percent, or 50 percent of such bank shares, it should be reported for approval, before the fact, to the FSC (art. 25). A newly added article 25-1 greatly expands on the definition of such terms as “same person” and “same concerned party.”
The amended Law now provides that the ratio of risk-free to risky assets cannot be less than a fixed ratio; formerly, the Law stipulated that that ratio was eight percent and that it could be increased when necessary by the MOF in accordance with international rates. Banks are now to differentiate four levels of capital based on the ratio of risk-free to risky assets, including adequate, inadequate, markedly inadequate, and seriously inadequate. The latter is defined as being when the ratio of risk-free to risky capital is lower than 2 percent, and if a bank's net value is made up of a gross asset ratio lower than 2 percent, it will be deemed to have seriously inadequate capital. The fixed ratio and the differentiated levels of capital mentioned above are to be determined by the FSC (art. 44).
Another newly added provision stipulates the circumstances in which a bank may not use cash to distribute earnings or buy back shares: 1) when its level of capital is inadequate, markedly inadequate, or seriously inadequate or 2) if the distribution of buy-back would cause an adequate level of capital be reduced to a level indicated in (1) (art. 44-1). The Law also now sets forth measures to be taken, as a whole or in part, by the FSC when bank capital is inadequate, markedly inadequate, or seriously inadequate. The FSC may at any time examine a recapitalization or financial business improvement plan undertaken by a bank in connection with these circumstances and, when necessary, may consult with other relevant agencies or institutions and engage specialized agencies to assist in handling the matter (art. 44-2).
Among other changes, the amended Law provides additional conditions under which information about a bank customer's deposits, loans, and remittances may be disclosed. It also has revised and new provisions on the bank's legal reserve, on conditions under which the FSC can take over a bank or order the mandatory suspension of its operations; and on penalties for violation of the Law. (Amendment to Banks Law, 6839 GAZETTE OF THE OFFICE OF THE PRESIDENT 1-16 (Dec. 30, 2008), available at http://content.glin.gov/summary/214382; Download [The Banking Act of the Republic of China, an English translation of the May 30, 2006 Law], Laws and Regulations Retrieving System of the Banking Bureau, http://law.banking.gov.tw/Eng/EngContent.asp?MsgID=204 (last visited Jan. 23, 2009).)