萬國法律事務所

After negotiating with the Taiwan banking industries, Taiwan's Banking Bureau of the Financial Supervisory Commission ("Banking Bureau") has decided to adopt an amendment that will relax the capital requirement of banks on investing in affiliates.

Under the amended regulations for capital requirements of banks, it will be easier to fulfill the requirement for the ratio of equity capital to risk-based assets and, therefore, the impacts on the banking industry will be lessened. Details regarding the new regulations should be released later in 2019.

Pursuant to the present regulations on capital requirements, when a bank invests in a finance-related enterprise (including its affiliates), the amount of investment must be deducted on the basis of 50% from Tier 1 capital, including 25% from common equity, and 50% from Tier 2 capital. However, in order to comply with international regulations, the Banking Bureau was planning to amend the regulations and had proposed three different means, as follows:

(a) Retain the present regulations.

(b) If an investment is a "Material Holding", which is an investment collectively exceeding 10% of a bank's common equity, the excess amount must be deducted from the bank's common equity. However, when investing in its affiliates, the amount of investment must be entirely deducted from the bank's common equity.

(c) If an investment, including investment in the banks’ own affiliates, is a "Material Holding", the excess amount must be deducted from the bank's common equity.

In order not to place excessive much pressure on the banking industry, the Banking Bureau eventually decided to adopt means (c) for the new regulations on capital requirements for banks. Under these new regulations, the amount of investment required to be deducted from common equity will depend on whether the investment is a Material Holding, even where a bank invests in its own affiliate.