TAIWAN Law and Practice Contributed by: James Huang, Eddie Hsiung and Maggie Huang, Lee and Li, Attorneys-at-Law
Capital Adequacy Requirements The current capital adequacy requirements are generally in line with the standards under the Basel III framework, including: • Common Equity Tier 1 Ratio (ie, net Common Equity Tier 1 divided by total risk-weighted assets) of 7%; • Tier 1 Capital Ratio (ie, net Tier 1 Capital divided by total risk-weighted assets) of 8.5%; and • Total Capital Adequacy Ratio (ie, aggregate amount of net Tier 1 Capital and net Tier 2 Capital divided by total risk-weighted assets) of 10.5%. Countercyclical Capital Buffers To enhance the risk-bearing capacity and inter - national competitiveness of domestic banks, the FSC has authorised the implementation of countercyclical capital buffers. The FSC will con - sult with the CBC and other relevant authorities, when necessary, to impose on banks an addi - tional provision of a countercyclical capital buffer of up to 2.5%. Liquidity Requirements To enhance banks’ short-term liquidity recovery ability, the FSC implemented the liquidity cov - erage ratio (LCR) framework in 2015. The LCR is calculated by dividing a bank’s high-quality liquid assets by its total net cash flows over a 30-day period. Since 1 January 2019, banks incorporated under the laws of Taiwan must maintain an LCR of at least 100%. The LCR requirement is not applicable to a branch office of a foreign bank in Taiwan. How - ever, a foreign bank applying to establish a branch office in Taiwan must specify the liquid - ity risk management framework adopted by the
financial institutions. The total capital provided by the Ministry of Finance and the CBC exceeds 50%. Financial institutions duly authorised to take deposits must take part in deposit insur - ance provided by the CDIC, and must pay pre - miums for deposit insurance. 7. Prudential Regime 7.1 Capital, Liquidity and Related Risk Control Requirements Adherence to Basel III Standards The principal rule regarding the capital adequacy of a bank is contained in the Regulations Gov - erning the Capital Adequacy and Capital Cat - egory of Banks, which adopted a number of ele - ments of the Basel III framework. Risk Management Rules A bank is required to self-assess its capital adequacy and to establish its strategy for main - taining its capital adequacy. Based on a bank’s self-assessment, the FSC may request that a bank improve its risk management. If the bank fails to comply with such request, the FSC may order the bank to adjust its regulatory capital and risk-weighted assets, or to submit a capital restructuring plan within a certain period. Capital Requirements The minimum paid-in capital for establishing a commercial bank in Taiwan is NTD10 billion. The promoters of the bank should subscribe up to 80% of the total paid-in capital of the bank, and the remaining shares should be publicly offered; the capital contribution should be made in cash. Subject to certain exceptions, a branch of a for - eign bank in Taiwan must allocate a minimum operating capital of NTD250 million if the Taiwan branch plans to conduct retail deposit business.
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