Taiwan - Banking and securities

Many banking institutions are either owned or controlled by the government. There were eleven public banks in 1998, with total assets of $261 billion, or 44%. The Bank of Taiwan (with 75 branches) used to issue currency notes, handle foreign exchange, act as the government's bank, and perform central banking functions in addition to its commercial banking activities; before reactivating the Central Bank of China (CBC) in T'aipei in 1961. The functions of the Central Bank include regulation of the money market, management of foreign exchange, issuance of currency, and service as fiscal agent for the government. The Bank of China is a foreign exchange bank with branch offices in major world capitals. The Bank of Communications is an industrial bank specializing in industrial, mining, and transportation financing. The Export-Import Bank of China, inaugurated 1 February 1979, assists in the financing of Taiwan's export trade. The Central Trust of China acts as a government trading agency and handles most of the procurements of government organizations. The Postal Savings System accepts savings deposits and makes domestic transfers at post offices.

At the end of 2002 there were 48 domestic commercial banks, five medium business banks, and 39 foreign banks. There were also 48 credit cooperatives, 287 farmers' credit unions, and 27 fishermen's credit unions. The government holds majority status in several of the most important banks, including the Bank of Taiwan, the Cooperative Bank of Taiwan, and the First Commercial Bank. The two largest private banks are the International Commercial Bank of China and the Overseas Chinese Commercial Banking Corp. By 1998, three large government-owned provincial banks were privatized, and others were set to follow.

In 1990 the government announced the goal of establishing the island as a regional financial center. Its original target of 1996 was far too optimistic, and liberalization will have to be far more thoroughgoing than that to which the authorities are at present committed, but various steps are being taken towards this end. Restrictions on bringing in capital from abroad, limits on capital transfers both in and out of Taiwan by domestic firms and individuals, and the operations of foreign banks have been liberalized. On 18 February 1997, the Finance Ministry set up a 37-member financial reform task force, headed by the finance minister. This group spent ten months devising proposals in the following four areas: improving the overall efficiency of the banking system; development of capital and derivatives markets, and relaxation of the rules governing the kinds of business banks may conduct; improving market-regulating procedures such as credit evaluation systems, asset management, investor insurance, and insider trading rules; and strengthening banks' internal financial controls.

Taiwan's first private corporate bond issue was floated in 1958. The first stock exchange in Taiwan opened on 4 February 1962. Volume was low until liberalization measures opened the market to foreigners, and the Taiwan stock market surged in the early months of 1997, with the index smashing through the 8,000-point barrier for the first time since 5 March 1990. This milestone immediately prompted rumblings from the CBC that the market was overheated. Yet by May 1997, the market was flirting with the next resistance level, at 8,500 points. Authorities raised the limits to foreign ownership in companies listed on the TAIEX from 30% to 50% in 1999. Most limits on foreign ownership were ended in 2000, and the index was up by the 10,000 mark in that year. However, it has since dropped off considerably, especially in the wake of the Asian financial crisis of 1998. The TAIEX was at 5,551.2 at the end of 2001, and trading value, at $545 billion, was only slightly more than half of the previous year's level.