VZCZCXRO3008
RR RUEHGH
DE RUEHIN #1989/01 2411053
ZNR UUUUU ZZH
R 291053Z AUG 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 6589
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3804
RUEHBJ/AMEMBASSY BEIJING 7186
RUEHUL/AMEMBASSY SEOUL 8859
RUEHGP/AMEMBASSY SINGAPORE 6982
RUEHKO/AMEMBASSY TOKYO 9025
RUEHML/AMEMBASSY MANILA 0133
RUEHJA/AMEMBASSY JAKARTA 4124
RUEHKL/AMEMBASSY KUALA LUMPUR 3804
RUEHHI/AMEMBASSY HANOI 3378
RUEHBY/AMEMBASSY CANBERRA 4584
RUEHWL/AMEMBASSY WELLINGTON 1858
RUEHHK/AMCONSUL HONG KONG 8442
RUEHGH/AMCONSUL SHANGHAI 1317
RUEHGZ/AMCONSUL GUANGZHOU 0502

UNCLAS SECTION 01 OF 02 TAIPEI 001989 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH AND STRATFORD 
USDOC FOR 3132/USFCS/OIO/EAP 
TREASURY FOR OASIA/TTYANG 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, SAN FRANCISCO FRB/TERESA CURRAN, AND NEW YORK FRB MARI 
BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT:  Taiwan - Another Insolvent Bank Under Receivership 
 
REF: (A) TAIPEI 1270, (B) TAIPEI 1324 
 
¶1.  SUMMARY:  Bowa Bank has been put under receivership.  After the 
announcement on August 10, a run on the bank by the depositors 
required the infusion of additional funds, but the run did not 
spread to other problem banks.  The Central Deposit Insurance 
Corporation (CDIC) plans to auction the bank within four to six 
months and plans to dispose of two other banks in receivership in 
October.  Unfortunately the CDIC does not have the money to make 
this happen.  END SUMMARY. 
 
Bowa Bank under Receivership 
---------------------------- 
 
¶2.  On August 10, the Financial Supervisory Commission (FSC) 
instructed the CDIC to put Bowa Bank under receivership.  The bank's 
net worth stood at minus NT$24.7 billion (US$748 million).  With the 
CDIC workforce already stretched thin managing other banks already 
under receivership, the FSC permitted the CDIC to contract the 
state-owned Land Bank of Taiwan (LBT) to manage and operate Bowa 
Bank. 
 
¶3.  Bowa Bank is one of seven insolvent Taiwan banks placed under 
surveillance in July 2005.  Including Bowa, five of these seven 
banks have been placed under receivership.  Two have already been 
disposed of and three, including Bowa, are scheduled for disposition 
in the next few months. 
 
Bank Run 
-------- 
 
¶4.  As with the other banks currently under receivership, the FSC 
has announced that it will guarantee 100% of all deposits with Bowa 
Bank, even though Taiwan law guarantees protection up to NT$1.5 
million (US$45,455) per depositor.  (Note.  The 100% deposit 
protection is available for the seven banks put under surveillance 
in July 2005.  End Note.)  Nonetheless, withdrawals from Bowa Bank 
on the first working day after the takeover shot up to NT$3 billion 
(US$91 million), ten times the amount in a normal business day.  In 
response, the LBT moved NT$10 billion (US$303 million) to Bowa Bank 
to calm depositor concerns and meet the needs of any further 
withdrawals.  Taiwan's central bank has also assured depositors that 
their funds are safe. 
 
¶5.  Bank runs have not spread to the other two insolvent banks still 
under FSC surveillance.  Net withdrawals from ChinFon Commercial 
Bank on August 13, for example, amounted to only NT$20 million 
(US$606,000), according to the FSC. 
 
Planned Auction 
--------------- 
 
¶6.  The CDIC plans to auction off Bowa Bank in four to six months. 
The CDIC has auctioned off two of the other four insolvent banks put 
under receivership, including Enterprise Bank of Hualien (EBH) to 
China Trust Commercial Bank (CTCB) (ref A) and Taitung Business Bank 
(TBB) to ABN AMRO (ref B).  Compensation paid to these two bid 
winners totaled NT$11.4 billion (US$345 million), reducing Taiwan's 
resolution funds to NT$40.4 billion (US$1.2 billion). 
 
COMMENT 
------- 
 
¶7.  Putting Bowa into receivership brings Taiwan one step closer to 
resolving the problems of its troubled banks.  The question remains, 
however, where Taiwan will get the money to finish the job.  In 
October the CDIC is scheduled to auction two other banks - Chinese 
 
TAIPEI 00001989  002 OF 002 
 
 
Bank and China United Trust and Investment - which were put into 
receivership back in January.  The CDIC does not have the money to 
dispose of all of them.  This means that it will need to delay the 
auctions or reach some kind of deal with a state-owned institution 
to take on the distressed assets.  No additional infusion of funds 
is expected from the Executive Yuan. 
 
WANG