In an unprecedented move, Taiwan's banking authorities will perform “stress tests” on local financial institutions starting in 2010, according to sources familiar with the issue. Top financial officials said Thursday that a task force has been commissioned for the initiative. Team members include representatives from the Cabinet-level Financial Supervisory Commission, the Central Bank of the Republic of China (Taiwan), the Bankers Association of the Republic of China (Taiwan) and the Joint Credit Information Center. The task force is in the process of setting benchmark indexes for different scenarios. Test results will be used as the basis with which to require banks to improve their risk management and reinforce their capital structures through fundraising, the sources pointed out. However, it has yet to be decided whether such tests will be performed on all banks, or at different stages according to the sizes of different banks. After the financial tsunami broke out in 2008, the United States government launched stress tests on major US banks in April 2009. Following suit, the Finance Committee of Taiwan's Legislature also demanded that the FSC take similar actions by conducting a full-scale review on the financial health of local banking institutions. With the assistance of Taipei Economic and Cultural Office in New York, the FSC is requesting its US counterpart to offer related information on its stress tests. – SFC
