臺灣銀行之困境：台灣銀行業及其不成比例的國際影響力成因之分析 - 政大學術集成

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(1)國立政治大學亞太研究英語碩士學位學程 International Master’s Program in Asia-Pacific Studies College of Social Sciences National Chengchi University 碩士論文 Master’s Thesis. 立. 政治大. ‧ 國. 學. 臺灣銀行之困境：台灣銀行業及其不成比例的國際影響力. ‧. 成因之分析. sit. y. Nat. An Analysis of the Agents Behind Taiwan’s Banking System. n. al. er. io. and its Disproportional International Influence. Ch. engchi. i n U. v. Student: Robert Edwards Advisor: Tsoyu Calvin Lin. 中華民國 106 年 7 月 July 2017. 臺灣銀行之困境：台灣銀行業及其不成比例的國際影響力 i|Page.

(2) 成因之分析 An Analysis of the Agents Behind Taiwan’s Banking System and its Disproportional International Influence. 研究生：羅德翰. Student: Robert Edwards. 指導教授：林左裕. Advisor: Tsoyu Calvin Lin. 國立政治大學. 學. 亞太研究英語碩士學位學程碩士論文. Nat. A Thesis. er. io. sit. y. ‧. ‧ 國. 立. 政治大. n. a l Master’s Program ini vAsia-Pacific Studies Submitted to International n U engchi National Chengchi University. Ch. I 中華民國 106 年 7 月 July 2017. ii | P a g e.

(3) Authorized Page. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. iii | P a g e. Ch. engchi. i n U. v.

(4) Acknowledgements. In the development of this thesis I would like to sincerely thank a number of people and organizations. First and foremost, I would like to thank Professor Calvin Lin for his excellent guidance and assistance throughout my two years at National Chengchi University and most importantly as my thesis supervisor. I would also like to thank my committee members Professor Lo and Professor Fang, again their input on this thesis has been extremely valuable as they have pushed me to achieve greater things. Finally, in relation to this thesis I would like to thank the British Chamber of Commerce, they have been very supportive providing useful contact to conduct original research on the topic.. 立. 政治大. ‧. ‧ 國. 學. My two years at NCCU I am sure will be among the most formative of my life, I have had the good fortune to make a great many friends for life. All of this has been possible because of the generous support given by the Taiwanese government on their many sponsorship programs. I have developed great affection for this island nation and take great pleasure in being able to call it home for this short time.. n. er. io. sit. y. Nat. al. iv | P a g e. Ch. engchi. i n U. v.

(5) Abstract This paper has considered a number of previously unconsidered issues affecting the disproportional international influence of Taiwanese banks. Those issues have been considered together with issues prominent in the existing literature. New issues have been identified through an Analytical Hierarchy Process (AHP) based questionnaire distributed to industry professionals. The issues identified as most salient are then raised in interviews with experts to identify cause and effect. The most prominent issues were found to be serious overbanking and access to capital as well as domestic government policies that limit banks access to the Chinese market. The paper recommends serious structural reform of the banking sector in Taiwan to strengthen private banks through encouraging further mergers and acquisitions.. 立. 政治大. 論文摘要. ‧. ‧ 國. 學. Key words: Overbanking, Cross-Strait relations, Access to Capital, Financial Regulation. y. sit. io. n. er. Nat. 本研究思考了關於台灣銀行業及其不成比例的國際影響力成因，一些以前沒有想到的議題。尤其是將這些議題和一些早已突顯在先行研究中存在的議題一併思考。透過 AHP 調查問卷的方式，將這些新的議題提供給台灣的銀行專業人員填寫作答。然後，再將其中被認為最重要的因素和銀行業專家們面 al iv n 談論證其因果關係。其中發現最不成比例的國際影響力成因是銀行過度競爭 Ch engchi U 和獲取資本，以及國內政府政策限制台灣銀行進入中國市場。因此，本研究建議台灣政府對銀行業進行結構性的重大改革，透過鼓勵合併及收購的方式進一步強化台灣的私營銀行。關鍵詞：銀行過度競爭、海峽兩岸關係、獲取資本、金融管制. v|Page.

(6) TABLE OF CONTENTS 1.. Introduction ……………………………………………….…………………….…...1. 2.. Literature Review and Theoretical Approach…………………………4 2.1 Taiwan’s Financial Holding Companies and their Influence ……...12 2.2 The State of the Current International Banking Sector…………..…14 2.3 Theoretical Approach.………………………………………………………..21. 3. Research. Overview and Structure …………………………………………..24. 治政 4. Methodology …………………………………………………………………….……26 大立 5. Questionnaire Results ………………………………………………….…………29 ‧ 國. 學. 5.1 Main Topics …………………………………………………………………....32 5.2 Political Issues ……………………………………………………………..…..32. ‧. 5.3 Economic Issues…………………………………………………………….….33. Nat. sit. y. 5.4 Globalisation Issues …………………………………………………………..35. er. Data and Discussion ……………………………………….……..…38 a v. n. 6. Interview. io. 5.5 Ease of Doing Business ………………………………………………………36. i l C n hengchi U. 6.1 Political Issues …………………………………………………………………38 6.2 Economic Issues…………………………………………………………..……40 6.3 Globalisation Issues ………………………………………………………..…41 6.4 Ease of Doing Business ………………………………………………………42 7. Conclusion. and Implications………………………………………………...…44. 7.1 Limitations and Future Study Direction………………………………..47 8. Bibliography………………………………………………………………….…….….49 9. Appendix…………………………………………………………………………….….54. vi | P a g e.

(7) CHAPTER 1. INTRODUCTION: TAIWAN’S BANKING INTERNATIONALISATION ANOMALY Paldam shows Taiwan holds a key position in the Asia Pacific region as one of the ‘Asian Tiger’ economies, it remains a source of quality goods and services and an economy that while only growing slowly in recent years, it does continue to show growth. 1 Taiwan ranks as the world's 22nd largest economy when ranked by GDP and 8th on the world's wealth index, as a result of a. 政治大 suggests a strong national economy 立 with expected global influence. To add to this many global high trade surplus the country also holds the world's 5th largest foreign reserves. 2 All of this. ‧ 國. 學. companies, have operations in Taiwan and it is home to some truly global brands especially in the technology based industries, that continue to flourish. According to the World Bank Ease of. ‧. al. er. io. sit. Nat. population to add to that, all the immediate signs are strong. 3. y. Doing Business Index, Taiwan finds itself in the 11th position and with a well-educated. iv n C international impact, however the opposite the case. None h eis n g c h i Uof Taiwan’s banks are considered n. All of these statistics would suggest a country that has a strong financial sector with measured. Globally Systemically Important Banks, and are poorly represented beyond Taiwan. To add to that the capital Taipei is not considered an international financial centre by any means. There seems to be a considerable anomaly here. It is from these figures that the interest in this topic began and as such this paper aims to further explore the anomaly behind Taiwan’s banking. 1. Paldam, M. "Economic Freedom and the Success of the Asian Tigers: an essay on controversy", European Journal of Political Economy, vol. 19, no. 3, pp. 453-477, 2003. 2 Taiwan Profile", CIA World Factbook, 2017. [Online]. Available: https://www.cia.gov/library/publications/the-worldfactbook/geos/tw.html. [Accessed: 15- Jul- 2017]. 3 Doing Business in Taiwan, China - World Bank Group", Doingbusiness.org, 2017. [Online]. Available: http://www.doingbusiness.org/data/exploreeconomies/taiwan-china. [Accessed: 15- Jul- 2017].. 1|Page.

(8) industry and its disproportional international influence.. Using both quantitative and qualitative data the question will be examined to reveal the catalysts behind the irregularity between a strong internationally focussed economy and an inward looking financial system. This will be done first by taking into account existing literature looking for explanations already considered, importantly examining the current literature will also take into account the structure of the banking system in Taiwan and the changes it has experienced in. 治政 and political pressures it faces; this will then be related back 大 to the Taiwan case to consider any 立. recent years as well as the structure of the international banking system and the current economic. relevant impact it places on the topic.. ‧ 國. 學 ‧. A Liberal Economic Theory base is used throughout the paper, ageing the merits of a free hand economy especially when considering how the government goes about the regulation of banks at. y. Nat. er. io. sit. domestically and internationally. Not content on using secondary data alone, this paper adds new primary research to the topic using an Analytical Hierarchy Process (AHP) based questionnaire. n. al. Ch. i n U. v. distributed to industry professional in domestic banks to gain an insight into how the issue is. engchi. viewed from those working inside the sector. This data is then used to inform interview topic in a round table discussion with senior industry experts from international banks based in Taiwan, all interviewees ae Taiwanese nationals with extensive experience in the market their position with international banks offers a new perspective to broaden the discussion. All data collected is focussed around key issue areas of Political Issues, economic Issues, Globalisation Issues, and Issues relating to Ease of Doing Business; these focus areas give clear structure to the research allowing for the easy identification of problem areas in the internationalisation of Taiwanese. 2|Page.

(9) banks. Finally, the data and discussion is summed up in a conclusion that considers the implications of the research and possible implications and recommendations for Taiwan’s banks and its government.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. 3|Page. Ch. engchi. i n U. v.

(10) CHAPTER 2. LITERATURE REVIEW AND THEORETICAL APPROACH While the English language based literature focussing on the banking sector in Taiwan is limited it is also exceptionally well written and offers the reader a great understanding of the fundamentals of the financial industry in Taiwan. Taiwan’s banking sector has often been overlooked in favour of focus on neighbouring financial centres in the region such as Hong Kong, Singapore and Japan and the lack of in depth literature on the subject can be explained by this. 4 Throughout the literature there are a number of common themes that appear regularly across a. 政治大 of the government, financial reform, cross strait relations, international competitiveness, 立. range of papers, denoting their importance to the topic. Topics such as bank ownership, the role. ‧ 國. 學. overbanking and mergers and acquisitions are all of crucial importance to fully gauge the issues that face the Taiwanese banking sector. There have also been found to be a number of holes in. ‧. the existing literature; where noteworthy topics have not been adequately researched, or. sit. y. Nat. considered when looking at the disproportional influence of Taiwanese banks in the global. io. al. er. financial system. We will start by discussing the common themes using the literature before. n. going on to analyse which topics are necessary to delve deeper into.. Ch. engchi. i n U. v. Bank ownership arises often in much of the literature, the varying role of state owned banks (SOBs) and privately owned banks (POBs) is questioned as the situation in Taiwan is compared with other regional and global financial centres. Chan and Liu observe that up until the early 1990’s Taiwan’s banking system was almost entirely managed by prominent SOBs and while there have been great changes since then, Taiwan’s banking industry is still heavily angled. 4. Yeandle, M. "GFCI 19 Asia/Pacific", Longfinance.net, 2017. [Online]. Available: http://www.longfinance.net/global-financialcentre-index-19/982-gfci-19-asia-pacific.html. [Accessed: 15- Jul- 2017].. 4|Page.

(11) toward the SOBs. 5 Huang and Wu found that of Taiwan’s largest nine banks only two can be classed as POBs while the top five positions are held by SOBs. 6 The problem here lies in the suggestions that many SOBs are grossly inefficient and less profitable than their POB counterparts. While SOBs have been found to be an absolute necessity especially in times of economic uncertainty their sheer scale and number in Taiwan is cause for concern. 7 This is a remnant of Taiwan’s past that successive reform policies have failed to shake off. When one considers the size of Taiwan’s economy as the 22nd largest by GDP it would be easy to assume. 治政大way to explain this phenomenon. is simply not the case. The next common theme can go a long 立 the SOB’s would be large enough to command considerable international influence, though that 8. ‧ 國. 學. Overbanking is a serious concern in Taiwan and the Federal Reserve Bank of San Francisco. ‧. found this to have originated in the first financial reform era in 1991, as the government opened up the banking sector to POBs they did so hesitantly, only partially privatising many SOBs so. y. Nat. er. io. sit. rather than follow established market principles where by competition allows only the most efficient banks to succeed as less efficient ones are left behind and fail or become merged, many. n. al. Ch. i n U. v. inefficient banks remained; and the access to capital was spread across a much larger than. engchi. normal spread creating a considerably lower concentration of capital in the country’s top banks compared to neighbouring financial centres. 9 While overbanking isn’t necessarily a negative. 5. Chen, P. and Liu, P. "Bank ownership, performance, and the politics: Evidence from Taiwan", Economic Modelling, vol. 31, pp. 578-585, 2013. 6 Hwang, D. and Wu, W. "Financial system reform in Taiwan", Journal of Asian Economics, vol. 18, no. 1, pp. 21-41, 2007. 7 Chen, P. and Liu, P. "Bank ownership, performance, and the politics: Evidence from Taiwan", Economic Modelling, vol. 31, pp. 578-585, 2013. 8 Taiwan Economy: 2016 Q3. British Office Taipei, 2016, pp. http://www.bcctaipei.com/wp-content/uploads/2016/11/Taiwan2016-Q3-Economic-Report.pdf. 9 Borst, N. and Li, C. "Fixing Taiwan's Crowded Banking Sector", Federal Reserve Bank of San Francisco, 2017. [Online]. Available: http://www.frbsf.org/banking/asia-program/pacific-exchange-blog/taiwan-banking-sector-reform/. [Accessed: 15- Jul- 2017].. 5|Page.

(12) point domestically, offering greater choice for the consumer creates greater competition to offer better services; it does reduce Taiwanese banks’ ability to gain influence when operating abroad when competing with banks of considerably larger capital. A number of reform initiatives have attempted to change this situation with a connected element often seen in the literature base. encouraging mergers and acquisitions has been a major policy of successive governments to fix the ‘overbanking crisis’ in Taiwan. 10 The problem arises though in looking at the specific mergers that have taken place, one author describes it as ‘small fish eating big fish’. 11 In 2002. 治政大sold for considerably lower than industry professionals believed the SOB Taipei Bank had been 立 when Taipei Bank and Fubon Financial Holding Co. merged there was a public outcry as. its market value, leading to allegations of corruption. 12 A report by Hwang found the price paid. ‧ 國. 學. for the deal was reasonable in line with market prices however this still remains topic of hot. acquisitions. 13. ‧. debate and has created difficulty for the government to push further with encouraging more. er. io. sit. y. Nat. The role of the government is a regular focus in the literature when we look at the way the. n. al. Ch. i n U. v. government regulates the banking sector in Taiwan and how that prepares Taiwanese banks. engchi. when operating abroad. In an attempt to protect the local financial industry, the Taiwanese government has afforded local banks certain protections. At the same time, they have introduced a number of regulations that can be seen to limit the strength of international banks in the market. 14 Regulations that limit the percentage of overseas investments that can be held on 10. Lee, W. "Taiwan's Politics in the 21st Century: Changes and Challenges", Singapore World Scientific Publishing, 2010.. Tan, A. "The Politics of Financial Reform in Taiwan: Actors, Institutions, and the Changing State", Asian Affairs: An American Review, vol. 36, no. 4, pp. 201-212, 2009. 12 Dean, J. "Fubon to Acquire Taipei Bank in $2.4 Billion All-Stock Deal", Wall Street Journal, 2002. [Online]. Available: https://www.wsj.com/articles/SB1028828700960610960. [Accessed: 15- Jul- 2017]. 13 Hwang, D. and Wu, W. "Financial system reform in Taiwan", Journal of Asian Economics, vol. 18, no. 1, pp. 21-41, 2007. 14 Lin, S. "Taiwan and the Advent of a Cross-Strait Financial Industry", University of Virginia, 2013. 11. 6|Page.

(13) clients’ portfolios for instance make international banks less competitive as they are limited to use their global reach to benefit consumers looking to invest larger amounts internationally. 15 Local banks however still attract customers that are more focussed on investing domestically with small overseas investment portfolios. While this action can be seen as beneficial for the Taiwanese economy as it keeps domestic investment high and limits capital outflows through regulation. It also limits access to an international investment market even when those investments are highly profitable and beneficial to the investor.. 治政 The effect does not end there however, as the literature shows大 that when Taiwanese banks 立. operate abroad they are not as familiar with international norms, reducing their competitiveness. ‧ 國. 學. and even putting them at risk of breaching international and national regulations. In 2016. ‧. Megabank was fined US$180 million for involvement in money laundering, while not conclusive the New York State Department of Financial Services viewed this issue as a lack of familiarity. y. Nat. er. io. sit. with international regulations. 16 The Taiwanese government has not succeeded in bringing local regulations in line with international norms meaning Taiwanese banks abroad are operating. n. al. Ch. i n U. v. under a set of unfamiliar rules that do not afford them the same protections as their domestic. engchi. market does. As such when Taiwanese banks are subject to scandal operating abroad the stories reduce the desire of Taiwanese banks to expand internationally. 17 Protections at home do not extend abroad and for banks operating under new rules and without protection from competitors, Taiwanese banks struggle to gain influence abroad.. 15. Chen, Y. "Taiwan Must Reform Its Economy", Taipeitimes.com, 2016. [Online]. Available: http://www.taipeitimes.com/News/editorials/archives/2016/02/22/2003639918. [Accessed: 15- Jul- 2017]. 16 Chou, C. "Cabinet probes Mega Bank money laundering allegations", www.ChinaPost.com.tw, 2016. [Online]. Available: http://www.chinapost.com.tw/taiwan-business/2016/08/23/476331/Cabinet-probes.html. [Accessed: 15- Jul- 2017]. 17 Chen, H. Chuo, Y. Chang, J. and Yu, S. Does Banking Competition Improve Industry Performance? Evidence from Taiwan. Journal of Informatics and Data Mining, 2016, p. https://datamining.imedpub.com/does-banking-competition-improveindustry-performance-evidence-from-taiwan.pdf.. 7|Page.

(14) Financial system reforms have been a common feature of various government administrations and they have had varied levels of success. Their implementation follows Taiwan's history as an authoritarian regime and follows its democratisation from the first direct presidential election in 1996. Tan sees Taiwan financial reform as a product of political reform. In looking at Taiwan’s past as a developmental state he sees unelected officials are less constrained when making economic policy decisions in the interest of the state, a democratic government however has a. 治政 involved. As with many previously authoritarian nations, the大 SOB’s have remained a formidable 立 longer and more complicated decision-making process that reduces the win set for actors. presence in the financial industries of the countries involved. For Taiwan Tan observes, the state. ‧ 國. 學. was previously the only institution capable of providing funds to promote private business, in. ‧. turn creating economic growth. 18The first financial system reform began in 1991 in the form of liberalising the industry, Wang notes that at this time the government began issuing licenses to. y. Nat. er. io. sit. new banks as well as encouraging foreign banks to enter the local market. As a result, too many banks were joining the market and competition drove down service prices for the consumer and. n. al. Ch. i n U. v. profitability for the institutions. Since joining the WTO in early 2002 competition from. engchi. international banks has continued to impact the success of local banks. 19. In 2001 Chen Shui Bian made a speech in which he suggested financial system reform was to be a top priority. In his term however, several questionable mergers took place including the Taipei Fubon merger addressed above as well as a merger between the smaller private CTBC bank and the considerably larger SOB Mega Financial Holdings which itself was a merger of two 18. Tan, A. "The Politics of Financial Reform in Taiwan: Actors, Institutions, and the Changing State", Asian Affairs: An American Review, vol. 36, no. 4, pp. 201-212, 2009. 19 Wang, H. The Financial Reforms in Korea and Taiwan. Asian Banking Association, 2003.. 8|Page.

(15) previously SOBs Bank of Communications (BOC) and the International Commercial Bank of China (ICBC) these deals and others were subject to extreme criticism in later trials in which former president Chen Shui Bian was found guilty of corruption. 20 By the end of 2005 the government had achieved two major aims, having three banks with at least 10% market share and halving the number of SOB’s. Hwang is quick to notice however, this has been achieved by merging SOB’s with other SOB’s, strengthening the state sector rather than the already weaker private sector. 21 A second reform by President Chen however was much more successful,. 治政大 since the target was set in 2001. lower in all banks and have a capital ratio of 5% within two years 立. referred to as the 258 policy the aim was to bring the Non-Performing Loan ratio down to 8% or. The aims of this policy were achieved by all but the most heavily burdened banks achieving. ‧ 國. 學. great success and fixing a pressing problem that was facing the Taiwanese banking sector. 22 In. ‧. the time since the end of Chen’s administration banking reform has remained an emotive issue, some changes have taken place in the laws governing banks aimed at making merger options. y. Nat. n. al. er. io. take in this process.. sit. more attractive, there is difficulty however in how much involvement the government should. Ch. engchi. i n U. v. According to normal market mechanisms the most efficient banks will grow and consume smaller less efficient banks without need for the government to intervene, such a strong SOB sector will make growth difficult for some commercial banks as SOB’s that were previously used to finance government infrastructure and other public spending are now entering the same profit. 20. Branigan, T. "Taiwan court jails former president Chen Shui-bian for corruption", The Guardian, 2009. [Online]. Available: https://www.theguardian.com/world/2009/sep/11/taiwan-jails-former-president-corruption. [Accessed: 15- Jul- 2017]. 21 Hwang, D. and Wu, W. "Financial system reform in Taiwan", Journal of Asian Economics, vol. 18, no. 1, pp. 21-41, 2007. 22 Leou, C. Financial Liberalisation under Democratisation: The Long Journey of the Reform on the State-Owned Banks in Taiwan. SOAS,University of London, 2006.. 9|Page.

(16) driven market as commercial banks. 23 The current administration had so far not made much of stand on any new financial reforms however the decision of Lee Ruey-tsang as chairman of the Financial Supervisory Commission is quite telling. He is not viewed as experienced as previous officials to hold the post and will need to show he is more willing to push reform initiatives than his predecessors. The next few years will reveal what kind of reforms he is able to direct. 24. When discussing Taiwan, few topics can be discussed in isolation without considering the effect. 治政大the Taiwanese banking system. frequently discussed, and are found to have varied impact upon 立 of Cross Strait Relations to the topic. Throughout the literature, the relations with China are. Some promote greater financial industry engagement across the strait while others continue to. ‧ 國. 學. see such arrangement as putting Taiwan’s wider geopolitical security at risk. Lin, a partner with. ‧. JP Morgan's Asian banking operations argues that greater cross strait financial engagement is a way to build Taiwan as a global financial centre, a goal that has crossed the consciousness of. y. Nat. io. sit. many administrations since the announcement of Lee Deng Hui’s Asia-Pacific Regional. n. al. er. Operations Centre initiative with finance as one of its six pillars. 25 During his two terms in office. Ch. i n U. v. President Ma Ying-Jeou was particularly focussed on liberalising financial cross-strait relations,. engchi. the FSC even began to promote a ‘financial industry with cross-strait characteristics’ promoting Taiwan as a destination for the offshore RMB industry was among the main focusses. 26 However, as China’s own financial sector began to show the stress of enormous domestic debt many experts in Taiwan saw greater financial integration across the strait to risk the stability of. 23. Tan, A. "The Politics of Financial Reform in Taiwan: Actors, Institutions, and the Changing State", Asian Affairs: An American Review, vol. 36, no. 4, pp. 201-212, 2009. 24 The Man to Help with Financial Reform", Taipeitimes.com, 2016. [Online]. Available: http://www.taipeitimes.com/News/editorials/archives/2016/10/24/2003657790. [Accessed: 15- Jul- 2017]. 25 Lin, S. "Taiwan and the Advent of a Cross-Strait Financial Industry", University of Virginia, 2013. 26 "Cross-Strait Financial Businesses", Fsc.gov.tw, 2016. [Online]. Available: http://www.fsc.gov.tw/en/home.jsp?id=99&parentpath=0,2,98. [Accessed: 15- Jul- 2017].. 10 | P a g e.

(17) Taiwan's own financial sector. As such, recent initiatives have been focussed on isolating Taiwan from any risk in the event of any future financial fall out in China. 27 Taiwan’s bipolar politics also makes cross strait relations a contentious issue when discussing the financial industry, traditionally the KMT party a remnant of the authoritarian past, support closer relations with China. On the other hand, the DPP party, seen as supporting independence, see great risk in closer economic relations with China, instead supporting greater engagement with other regional partners. 28 The key point is thus that poor financial cross strait relations are a result of Taiwanese. 治政大can foresee however the one must question is this issue as one sided as it appears. One 立. domestic politics and restrictive policies for Taiwanese banks in China are a clear factor, though 29. challenges for Taiwanese banks to operate successfully internationally without open access to the. ‧ 國. 學. world's second largest economy just 160 km across the Taiwan Strait. 30. ‧. While the above issues are addressed and discussed to great extent through the literature, few if. y. Nat. er. io. sit. any pieces are successful at bringing the issues together and considering the broader implications relating to the international competitiveness of Taiwanese banks. This thesis therefore aims to. n. al. Ch. i n U. v. fill that niche in the literature, by bringing together the political, economic, global and cultural. engchi. aspects of the problem; the research will offer greater depth and understanding into a multifaceted issue that has thus far only been considered in isolation with singular issues raised. The existing literature does exceptionally well at identifying issues through statistical studies and engagement with government officials, however the issues are often insufficiently discussed to 27. "Fitch: Taiwan Banks' Pivot from China Has Lowered Contagion Risk", Reuters, 2017. [Online]. Available: http://www.reuters.com/article/idUSFit988774. [Accessed: 15- Jul- 2017]. 28 "'New Southward Policy'", Ministry of Economic Affairs, 2016. [Online]. Available: https://www.moea.gov.tw/MNS/english/news/News.aspx?kind=6&menu_id=176&news_id=54317. [Accessed: 15- Jul2017]. 29 Lin, S. "Taiwan and the Advent of a Cross-Strait Financial Industry", University of Virginia, 2013. 30 "Taiwan Strait", Encyclopedia Britannica, 1998. [Online]. Available: https://global.britannica.com/place/Taiwan-Strait. [Accessed: 15- Jul- 2017].. 11 | P a g e.

(18) identify their broader effects. The research will go further still to engage with professionals working within the Taiwanese banking industry to lend greater perspective to issues already identified by previous scholars of the existing literature base. The role of this thesis is thus, to bring together existing research with further primary research into a sector of expertise not yet brought into the discussion, with the role of furthering academic and professional debate into a pressing and topical issue. The literature sees Taiwan as being over banked domestically and underrepresented internationally, the research will offer a well-rounded discussion of the agents. 治政大 theoretical understanding of the global financial system. 立. behind this phenomenon and offer potential solutions through international examples and. ‧ 國. 學. 2.1 Taiwan’s Financial Holding Companies and their Influence. ‧. Focusing purely on the banks in Taiwan comes with limitations and may risk a narrow-minded. sit. y. Nat. perception of the issues affecting the local banks disproportional influence overseas. Some of the. io. al. er. largest banks in Taiwan both state and privately owned are suabsidiaries of larger financial holding companies (FHC’s) this may influence their practices; their influence abroad may also. n. iv n C be affected by this ownership structure. h In November 2001,U e n g c h i the Taiwanese government passed the Financial Holding Company Act, the law was introduced to create synergy across the. financial industry and develop the financial sector further, though critics argue it has in fact harmed the banking sector. 31 A paper produced by professors at National Dong Hwa University and North Carolina State University used Data Envelopment Analysis to compare bank profitability and efficiency before and after FHC Act among banks that became part of a larger FHC. Data was taken between 1997-2001 and compared with result from 2003-2007, the results 31. 金融監督管理委員會-英譯法規內容(外部版)", Law.fsc.gov.tw, 2014. [Online]. Available: http://law.fsc.gov.tw/law/EngLawContent.aspx?Type=E&id=1286. [Accessed: 15- Jul- 2017].. 12 | P a g e.

(19) showed that before FHC Act banks were considerably more efficient than in the years after. 32 They argue that while the intent of the act to consolidate an over serviced financial sector is clear, the strains it places on management processes for managing such diverse entities has led to reduced growth in profit and efficiency for the bank subsidiaries.. Further research finds that all though the grouping of financial entities can create more synergy in the sector it still faces many similar problems to before the FHC Act was introduced, the most. 治政 profitability than seen in countries with fewer banks relative 大 to the population. 立. notable is the overbanking issue that leads to diseconomies of scale that fuel a relatively lower 33. In essence, the. FHC Act has not addressed the issues associated with Taiwan’s banking industry but has simply. ‧ 國. 學. redefined it with the same outcomes, both research papers make the case for further mergers and. ‧. acquisitions to take place in the financial sector, of which 54 have taken place since September 2004, while this is improving the economies of scale for the financial sector in the Taiwan. y. Nat. er. io. sit. market, it remains ‘too many, too small’ further mergers and acquisitions are needed. 34 As FHC’s acquire more entities this could be an opportunity to address the overbanking issue,. n. al. Ch. i n U. v. creating banks that have the strength and backing to compete outside of Taiwan.. engchi. 2.2 The State of the Current International Banking Sector The challenges facing Taiwanese banks cannot be viewed by looking at issues with Taiwanese banks or the domestic system of regulations and practices in Taiwan itself. Looking at the issue in isolation like this would lead to great criticism of the Taiwanese banking system without 32. Zhu, D. Chen, Y. and White, L. "A study on profitability and marketability of Taiwanese bank firms before and after the Financial Holding Company Act", International Journal of Business Performance Management, vol. 15, no. 3, p. 207, 2014. 33 Chow, P. Economic Integration Across the Taiwan Strait: Global Perspectives. Cheltenham: Edward Elgar Publishing Limited, 2013. 34 M&A Deals since September 2004 (53 Deals). British Chamber of Commerce Taipei, 2017.. 13 | P a g e.

(20) applying it to the global situation. The current structure of the global banking system itself limits the ability for smaller banks to grow and challenge the established primacy of the majority western banks that remain the most prevalent of the Globally Systemically Important Banks, often labelled as banks that are ‘too big to fail’. 35 Not only is there are structure in place that limits the ability of other financial institution to take on global significance, there is also the wider economic environment to consider. The year 2008 saw a global banking crisis triggered by the trading in mortgage backed securities that were based on poorly considered loans backed by. 治政 More recently we have also seen大 the rise of populist movements 立. the US government. That crash shook the global banking system and its effects continue to be felt almost a decade later.. 36. most clearly shown in the Brexit vote in the UK and in the US President Trump victory. 37 Both. ‧ 國. 學. of these events came as a surprise to many financial institutions and political think tanks, such. ‧. surprises lead to greater uncertainty in the global governance system. Uncertainty poses great risk to a financial system that is promoting long term investments based on expert analysis of. y. Nat. er. io. sit. what we can expect from the global economy in the years to come. 38 In the following pages, we will discuss the impact of the global banking structure, the rise of populism as well as recent. n. al. Ch. i n U. v. financial regulation changes that are having global impact. These topics will be considered as to. engchi. how they impact the Taiwanese banking system, as banks consider entering the global market.. The structure of the global banking system has been built over many centuries and is predominantly European and North American focussed, in recent years we have seen the rise of 35. "Banks and “too big to fail” Kash call", Economist.com, 2016. [Online]. Available: https://www.economist.com/news/financeand-economics/21710258-veteran-financial-crisis-says-banks-need-much-more-capital-kash-call. [Accessed: 15- Jul2017]. 36 Coggan, P. "That 2008 comparison (again)", Economist.com, 2016. [Online]. Available: https://www.economist.com/blogs/buttonwood/2016/09/financial-markets. [Accessed: 15- Jul- 2017]. 37 Cadwalladr, C. "The great British Brexit robbery: how our democracy was hijacked", the Guardian, 2017. [Online]. Available: https://www.theguardian.com/technology/2017/may/07/the-great-british-brexit-robbery-hijacked-democracy. [Accessed: 15- Jul- 2017]. 38 Buch, C. Buchholz, M. and Tonzer, L. Uncertainty and International Banking. Amsterdam: De Nederlandsche Bank, 2014.. 14 | P a g e.

(21) more Asian institutions as Asia has gained importance in the global economy. However, the main power centres for the financial industry remain firmly in European and US centres, most notably in London and New York. When we observe the list of GSIB’s issued by the FSB each year, we see that of the top 12 most important banks to the global economy only two are not North American or European banks, those two are the Industrial and Commercial Bank of China Limited and the Mitsubishi UFJ FG Bank. If we widen that list further to all 18 banks that are considered GSIB’s only 7 are Asian institutions all of which are Chinese state banks or Japanese banking institutions. None of the banks in the list are Taiwanese owned banks. 39 For centuries,. 治政 the global banking system has been dominated by Europe and大 the US; however, changes are 立 emerging; the rise of Chinese banks has coincided with the rise of China itself and a general. ‧ 國. 學. resurgence in the global importance of Asia. Recent years have seen a considerable rise in the. ‧. importance of Asian banks and financial centres such as Hong Kong and Singapore. This year, DBS a Singaporean bank purchased the commercial banking arm of ANZ bank throughout the. y. Nat. er. io. sit. Asia Pacific region. 40 Furthermore, this year saw China surpass the Eurozone as the world largest bank system, the Financial Times attributes this to its increasing influence in the global. n. al. Ch. i n U. v. financial system, though also more worryingly its reliance on national debt to drive it through the. engchi. 2008 financial crisis that caused an enormous drop in the demand for Chinese made goods, the traditional driver of the manufacturing based economic model in China. Prassad describes this as “sign of an economy overly dependent on bank-financed investment, beset by inefficient resource allocation, and subject to enormous credit risks” one must therefore wonder if such a rise is sustainable and to what lengths can the global banking system separate itself from the risk. 39 40. 2016 list of global systemically important banks (G-SIBs). Basel: Financial Stability Board, 2016. Freed, J. and Azhar, S. "Singapore's DBS pounces on ANZ assets to extend Asia private banking push", Reuters, 2017. [Online]. Available: http://www.reuters.com/article/us-anz-bank-asia-dbs-idUSKBN12V0YR. [Accessed: 15- Jul2017].. 15 | P a g e.

(22) posed by the rise of the Chinese banking system. 41. Early 2016 saw shocks in the Chinese stock market driven by ‘mom and pop traders’, statistics began to show signs of risk as the market value dropped 18% in just 11 days, leaving the global community and the ruling CCP unsure on what steps to take to stabilize such ‘turbulence’. 42 As we see, even Chinese banks that are emerging as some of the most important financial institutions of the global financial system cannot be assured of their place in that exclusive group. 治政大 institutions have spread growth is only as strong as the country itself. Many western banking 立 for long, their own growth is based on the growth of the giant that is China and as such their. such risk however; by becoming truly global institutions, with offices, investments, and capital. ‧ 國. 學. coming from across the globe, while firmly based in European and US markets. In this way, they. ‧. are far more protected from global political and economic changes as well as being so strongly connected with the global market place that any potential fall out of these institutions will. y. Nat. er. io. sit. warrant government bailouts that ensure they cannot fail. This Brenner sees as the “international financial system placing itself systematically within the world imperialist structure of power”. n. al. Ch. i n U. v. one is thus left to wonder how can smaller banks achieve growth in a global market already. engchi. saturated and dominated by institutions that are now a vital part of the very global system they are based in. 43 All of this does indeed suggest the path to internationalisation for Taiwanese banks is far from simple, especially if they wish to become more than bases for the Taiwanese diaspora abroad. It does not however render such development as an impossibility, banks like DBS have been very successful at gaining greater international influence beyond Singapore, 41. Prasad, E. "China overtakes eurozone as world’s biggest bank system", Ft.com, 2017. [Online]. Available: https://www.ft.com/content/14f929de-ffc5-11e6-96f8-3700c5664d30?mhq5j=e2. [Accessed: 15- Jul- 2017]. 42 "China’s stockmarket crashes—again", Economist.com, 2016. [Online]. Available: https://www.economist.com/news/businessand-finance/21685146-chinas-stocks-and-currency-start-2016-big-tumbles-chinas-stockmarket. [Accessed: 15- Jul2017]. 43 Norfield, T. The City London and the Global Power of Finance. New York: Verso Books, 2016.. 16 | P a g e.

(23) through mergers, take overs, and aggressive growth policies they have shown that Asian banks still have enormous potential in the global marketplace. Though the structure of the global banking system has been built over a great many centuries there are also more recent concerns that must be addressed in the political sphere.. The rise of populism shocked the global financial system most clearly reflected in the UK’s vote to leave the European Union on the 23rd June 2016 and with Trump’s rise to the Whitehouse in. 治政 shown most strongly in democracies across the world. The 大 Philippines voted in Duterte as 立. January 2017, these are not seen as isolated incidents but rather part of a wider global movement 44. president in in June 2016, France voted Macron as president in elections in June 2017 and. ‧ 國. 學. Taiwan itself voted independent Mayor Ko Wen-je as Mayor of Taipei along with the rise of the. ‧. New Power Party in a system usually viewed as a two-party system. 45 Changes are happening globally and the financial system is having to adjust to an ever more unpredictable political. y. Nat. er. io. sit. environment. Traditionally uncertainty has been seen as the number one enemy of the financial system, as this trend was emerging the financial systems even betted against such outcomes, in. n. al. Ch. i n U. v. the night before the Brexit vote sterling prices rose to 1.50USD showing the strongly felt belief. engchi. that the vote would end in favour of staying in the European union, when markets had opened the next day sterling had dropped to just 1.33USD. 46 This showed a financial system that seemed detached from the people, countless televised interviews with industry experts had been ignored and rather than choose a clear and certain path of remaining in the EU, the public had chosen 44. Shuster, S. "How Populism Is Splitting Europe", TIME.com, 2017. [Online]. Available: http://time.com/time-person-of-theyear-populism/. [Accessed: 15- Jul- 2017]. 45 Laksai, L. "Taiwan’s Newest Political Party Was Co-Founded by a Tattooed Rockstar", Foreign Policy, 2015. [Online]. Available: http://foreignpolicy.com/2015/11/19/taiwan-politics-china-new-power-party-beijing-ma-xi-kmt-dpp/. [Accessed: 15- Jul- 2017]. 46 Treanor, J. Goodley, S. and Allen, K. "Pound slumps to 31-year low following Brexit vote", The Guardian, 2016. [Online]. Available: https://www.theguardian.com/business/2016/jun/23/british-pound-given-boost-by-projected-remain-win-ineu-referendum. [Accessed: 15- Jul- 2017].. 17 | P a g e.

(24) years of uncertainty by opting to leave the EU, a clear point of critical juncture for the future of the UK. For the UK and the global financial system this was to have much greater impact, London is often regarded as the global financial centre. 47 Part of the reason for its eminence is because of so called passporting rights that allow institutions in the UK to sell EU financial products, that vote to leave has risked the future of such rights and will form a major part of the UK-EU negotiation process.. 治政 European and wider global locations, shaking the structure of大 the entire financial system. 立. Many financial institutions are already looking to move staff and offices out of London to other 48. Eminent Politicians in the UK such as London Mayor Sadiq Khan see this leading to an increase. ‧ 國. 學. in the role Asian financial centres such as Hong Kong and Singapore may begin to play in the. ‧. future. 49 Trump’s rise to the Whitehouse over his rival Hillary Clinton seen by many as too close to Wall street has also sent waves through the global banking system. 50 Trump entered office. y. Nat. er. io. sit. based on the premise of ‘making America great again’, promising to roll back free trade agreements and enforce protectionisms in to US market that would encourage greater. n. al. Ch. i n U. v. manufacturing in the US. However, the global community that has been built on the rise of free. engchi. trade and the development of truly global markets has not welcomed such moves.. 47. Smith, R. "London holds off New York to keep its title as world's top financial centre", Cityam.com, 2017. [Online]. Available: http://www.cityam.com/261819/london-holds-off-new-york-keep-its-top-spot-worlds-number. [Accessed: 15- Jul2017]. 48 Donnell, J. "The EU is planning to make it a lot easier for British banks to Leave the UK", The Independent, 2017. [Online]. Available: http://www.independent.co.uk/news/business/news/brexit-latest-news-uk-banks-new-incentive-leavelondon-eu-plans-european-central-bank-a7643081.html. [Accessed: 15- Jul- 2017]. 49 Treanor, J. "Sadiq Khan warns hard Brexit will cost millions of jobs across UK", The Guardian, 2016. [Online]. Available: https://www.theguardian.com/business/2016/oct/27/sadiq-khan-to-warn-hard-brexit-will-cost-millions-of-jobs-acrossuk. [Accessed: 15- Jul- 2017]. 50 Appelbaum, B. "Trump Nominates Randal K. Quarles to Oversee Wall Street Banks", Nytimes.com, 2017. [Online]. Available: https://www.nytimes.com/2017/07/10/us/politics/trump-nominates-randal-quarles-to-oversee-wall-street-banks.html. [Accessed: 15- Jul- 2017].. 18 | P a g e.

(25) Negotiations for global agreements like the Trans Pacific Partnership that Taiwan had hoped to be a part of have fell flat, losing all support from the Trump Administration, new hope now lies in Japan’s ability to lead negotiations without US involvement. 51 These changes affect people’s perception of risk, and that in turn affects the way the banking sector is perceived, the prices of traditional investment items like gold and fine art has continued to rise in recent years as more reliable investment options are sought. 52 When trust and uncertainty are rising, the environment becomes considerably more difficult for a new bank to gain influence internationally, rather. 治政大 for the issues associated with unknown or troubled international record, thus the spiral continues 立 those larger banks are seen as better locations for investments rather than banks with an. Taiwanese banks looking to gain greater influence internationally.. ‧ 國. 學 ‧. The final point to consider when evaluating the current state of the global financial sector and its impact on Taiwanese banking institutions is the recent changes to international regulations,. y. Nat. er. io. sit. looking specifically at Basel III which aims to increase the resilience of the global financial system in order to avoid another global financial crisis. Most poignantly it increases bank capital. n. al. Ch. i n U. v. requirements in relation to their lending. 53 Reducing bank leverage and enhancing liquidity,. engchi. preventing a potential run on the bank where by customers withdraw their investments in the bank on mass as happened with Northern Rock in the UK in 2007 the first British bank to suffer such an event in over 150 years. 54. 51. Nadeau, P. "Can Japan Lead Asia's Economic Order?", The Diplomat, 2017. [Online]. Available: http://thediplomat.com/2017/01/time-for-japan-to-lead-the-economic-order/. [Accessed: 15- Jul- 2017]. 52 Goodley, S. "Gold, fine wine, art or under the bed: what's the safest place for your cash?", The Guardian, 2011. [Online]. Available: https://www.theguardian.com/business/2011/jul/25/safe-havens-investors-cash. [Accessed: 15- Jul- 2017] 53 "Basel III: international regulatory framework for banks", Bis.org, 2017. [Online]. Available: http://www.bis.org/bcbs/basel3.htm. [Accessed: 15- Jul- 2017]. 54. "The Bank that failed", The Economist, 2007. [Online]. Available: http://www.economist.com/node/9832838. [Accessed: 15Jul- 2017].. 19 | P a g e.

(26) The new regulations start date has continually been put back and now stands at the end of March 2019, while these regulations are more stringent and enforce grater requirement on the banks it seems they will have a much greater impact for European and US banks as oppose to Asian banks. The Federal Reserve Bank of San Francisco argues that Basel III will be of little consequence to Asian banks, they show that as a result of the 1997-1998 Asian Financial Crisis many domestic policies of banks already meet and even exceed those of Basel III they argue that traditionally “Asian banks rely on less leverage and fewer hybrid capital instruments than their. 治政 that Asian banks in many cases are more ready to handle any大 crisis than the European and US 立. western counterparts, resulting in both higher levels and quality of capital” the result of this is. giants. 55 Such a situation could be an opportunity to capitalize on their already stringent. ‧ 國. 學. regulations to develop an image of trust and stability internationally.. ‧. Overall the global banking system is undergoing changes that have not yet been experienced, an. y. Nat. er. io. sit. emerged China as well as strong growth in wider Asia. The rise of unpredictable global populist movements many of which are seen as protectionist and inward looking in their motivations as. n. al. Ch. i n U. v. oppose to the global predecessors. As well as new regulations aiming to reign in banks in an. engchi. effort to create stability and resilience in an increasingly turbulent global arena. These are not ideal situations for a Taiwan banking sector that is safe and well positioned in a domestic market to begin considering entering in to new markets or expand their existing presence there to cater to a wider clientele. While the research suggests these are strong reasons to hinder banks branching beyond their shores it is also important to work with industry experts to expose further. 55. Yao, W. "Why Asian Banks are Well Positioned for Basel III", Federal Reserve Bank of San Francisco, 2016. [Online]. Available: http://www.frbsf.org/banking/asia-program/pacific-exchange-blog/why-asian-banks-are-well-positioned-forbasel-iii/. [Accessed: 15- Jul- 2017].. 20 | P a g e.

(27) points that may have a role in the Taiwanese banking systems disproportional international influence.. 2.3 Theoretical Approach All academic works need to base themselves in the existing literature where possible and also connect to an existing framework from which a topic can be understood, this paper will be written predominantly from the stand point of Liberal Economic Theory. Adopting a theoretical. 政治大 as well as most crucially it offers critics a standpoint on which to build criticism. Only through 立. approach ensures the final result can be easier connected to the current understanding of a topic. ‧ 國. 學. continual constructive criticism can ideas be built upon and strengthened. Liberal Economic Theory has been adopted as it encourages free hand economic practices where by market. ‧. principals of competition, quality, and efficiency are responsible for driving economic. sit. y. Nat. development. When this is related to the banking sector it argues that greater regulation and state. io. er. involvement in the industry will lead to a lack of efficiency and competition internationally as banks are protected at home. The Taiwan SOB dominated banking sector can be seen as such. 56. al. n. iv n C State Owned Banks are seen to be far less private counterparts in part because h efficient i U e n g cthanh the of the protection their relationship with the government provides. 57 Alternatively, it is argued if. the government is less involved in the sector then natural competition will result in the most efficient banks that profit the most and offer the best services will begin to acquire their weaker less efficient rivals without government encouragement to do so. 58 The difficulty thus rises in establishing where one must draw the line between too much and too little involvement in the 56. 57. 58. Appel, H. "The Ideological Determinants of Liberal Economic Reform: The Case of Privatization", Cambridge University, 2000. Chen, P. and Liu, P. "Bank ownership, performance, and the politics: Evidence from Taiwan", Economic Modelling, vol. 31, pp. 578-585, 2013. Hwang, D. and Wu, W. "Financial system reform in Taiwan", Journal of Asian Economics, vol. 18, no. 1, pp. 21-41, 2007. 21 | P a g e.

(28) sector. 59 As seen in the literature, it is wise for the government to keep at least one strong State Bank that can be used when needed to finance important government projects that offer the chance to build the national economy. 60 Another line must be considered when looking at how much the government should look to protect its own domestic banking sector against larger foreign rivals. While the Taiwanese market is heavily banked, no one local bank can rival the size of the larger Globally Systemically Important Banks from outside. The competition can therefore to seen not to start from a level playing field. 61 Throughout the paper, this argument is. 政治大. continued, focussing on the role of the government in relation to the international competitiveness of Taiwanese banks.. 立. ‧ 國. 學. In connection to this issue the author will also look at the path the Taiwanese government has. ‧. taken with their banking sector to improve the banks’ ability to operate domestically and internationally. Specifically, we will look for points of ‘Critical Juncture’, these are points where. y. Nat. er. io. sit. government has made choices to take one path that has resulted in a series of actions and decisions that are ultimately based in one earlier decision. The theory argues that the longer an. n. al. Ch. i n U. v. actor has followed a certain path the higher the losses will be if the actor later wishes to change 62. engchi. paths. The author has already identified the point where Taiwan began to liberalise its banking sector and grant licensees to private banks without privatising state banks as one of those critical junctures, that was a step toward creating a liberal free market economy but also a decision that. 59. Schuman, M. "State capitalism vs the free market: Which performs better? | TIME.com", TIME.com, 2011. [Online]. Available: http://business.time.com/2011/09/30/state-capitalism-vs-the-free-market-which-performs-better/. [Accessed: 15- Jul2017].. 60. Hwang, D. and Wu, W. "Financial system reform in Taiwan", Journal of Asian Economics, vol. 18, no. 1, pp. 21-41, 2007. Vives, X. Competition and Stability in Banking. Princeton: Princeton University Press, 2016. 62 Soifer, H. "The Causal Logic of Critical Junctures", Comparative Political Studies, vol. 45, no. 12, pp. 1572-1597, 2012. 61. 22 | P a g e.

(29) created a situation of over banking. 63 Identifying these points of critical juncture is essential to ensure one understands the decisions of the past and their modern day implications.. The final theoretical concept the author finds both valuable and necessary to the research to include is the issue of ‘Salience’. Frankel wrote about the importance of identifying issues of salience in his book National Interest. 64 For this research, this will be a crucial point, by identifying which issues are salient to which actor, the author hopes to show how the issue of. 治政大 and connecting their solutions. Much of the research focuses on finding issues of salience 立. international competitiveness of the Taiwanese banking sector is being framed and tested for. importance to the research question to give greater clarity, understanding and depth to a multi-. ‧ 國. 學. faceted and complicated issue.. ‧. n. er. io. sit. y. Nat. al. 63. Ch. engchi. i n U. v. Tan, A. "The Politics of Financial Reform in Taiwan: Actors, Institutions, and the Changing State", Asian Affairs: An American Review, vol. 36, no. 4, pp. 201-212, 2009. 64 Frankel, J. National Interest. London: Macmillan, 1970.. 23 | P a g e.

(30) CHAPTER 3. RESEARCH OVERVIEW AND STRUCTURE The aim of this research project is to delve deeper into the reasons why Taiwan’s banking sector has thus far struggled to establish itself abroad while also considering why Taiwan has not managed to establish itself as a global or regional financial centre; and why a country with so much wealth has few banks that are large enough to carry international influence. To effectively achieve this aim four key research areas have been identified.. 政治大 and beyond, the country is not a member of the UN and has only limited membership in 立. 1. Political Issues - Taiwan is not recognised as a sovereign nation by all the G20 countries. ‧ 國. 學. other international organisations. 65 The complicated cross-strait relations with China. affect the country’s ability to participate in the international stage and it is feasible to. Nat. sit. y. ‧. suggest this also has an effect on Taiwan’s financial sector.. io. al. er. 2. Economic Issues - Using a number of the figures above and more, the economic scale of Taiwan nationally will be considered and compared with other regional centres. More. n. iv n C specifically however, Taiwan’s most banks will be assessed. examining their h einfluential ngchi U. own economic scale when compared with the top banks of other similarly economically positioned countries. If any anomalies are found further research will be conducted to discover the reasons behind such oddities.. 3. Globalisation Issues - Taiwan’s banks and the government have had a number of strategic pushes to make the country’s banking sector more engaged in operations abroad while 65. Winkler, S. "Taiwan’s UN Dilemma: To Be or Not To Be", Brookings, 2012. [Online]. Available: https://www.brookings.edu/opinions/taiwans-un-dilemma-to-be-or-not-to-be/. [Accessed: 15- Jul- 2017].. 24 | P a g e.

(31) also trying to make Taipei a more desirable choice for large international banks to base their Asian operations from, in this regard they must compete with the regional financial giants of Hong Kong and Singapore however.. 4. Ease of Business - In this section, two aspects will be explored, one will look at the country’s laws and regulations within the financial sector that could limit international banks desire to base themselves here. The second will consider the Taiwanese work force,. 政治大. looking at education levels and English and other linguistic competencies.. 立. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. 25 | P a g e. Ch. engchi. i n U. v.

(32) CHAPTER 4. METHODOLOGY In order to produce a well-researched piece with a wide range of positions taken, the research for this paper will have both quantitative and qualitative research; taking a meticulous and scientific approach to the analysis of all data collected.. Quantitative Data – Qualitive Data will be collected via questionnaire, the format of which will follow Saaty’s AHP method that uses pair wise comparisons to give experts the opportunity to. 政治大 The subject is offered a scale that varies by level of salience, the numbers from the 立. value one item’s importance over another in relation to complex issues and subjective judgements. 66. ‧ 國. 學. scale can then be calculated to rate which factors were seen as most permeant to the question across the data set. The pair wise comparisons are separated into two tiers. The first compares the. ‧. broader topics relating to the research question. The second tier then compares specific topics of. sit. y. Nat. interest taken from the broader issues in tier one. In this way both the broader issues and the. io. al. er. more topic specific issues can be ranked by salience to the research issue. In order to ensure variety, the dataset took in 20 participants all in mid to high level positions at Taiwanese. n. iv n C domestic banks. The questionnaire was made digitally to encourage greater h e navailable gchi U. questionnaire completion rate. A sample of the questionnaire is provided in the appendix. In addition to the questionnaire such sources as quarterly reports from the banks themselves as well as reports published by Taiwan’s own central bank will be used. In addition to this, financial think tank reports will be used to collect more valuable data. The AHP based questionnaire is arranged according to the table below.. 66. Saaty, T. "Decision making with the analytic hierarchy process", International Journal of Services Sciences, vol. 1, no. 1, p. 83, 2008.. 26 | P a g e.

(33) An Analysis of the Agents Behind Taiwan’s Banking System and Its Disproportional International Influence 灣銀行之困境：台灣銀行業及其不成比例的國際影響力成因之分析. B- Economic Issues - 經濟議題. 政治大. 入中國市場. A4- Domestic Party Politics - 國內政黨政治. 27 | P a g e. Regulations - 金融監管. B2- Currency NTD -. C2- Strength of. 新台幣關係. y. State Banks - 國家. B3- Economic. al. D- Ease of Doing Business 企業經營難易度. D1- English Proficiency - 英語能力. D2- Education Quality - 教學質量. er. 銀行強度. n. Chinese Market - 進. 行過度競爭. io. A3- Access to the. C1- Financial. Nat. Status - 非國際地位. B1-Overbanking - 銀. ‧. A2- Non-Country. 學. Relations - 兩岸關. ‧ 國. 立 A1- Cross-Strait. C- Globalisation Issues - 全球化議題. sit. A- Political Issues - 政治議題. Stability - 經濟穩定. Ch. engchi. v. C3- Competitor Financial Centres -. i n U. 競爭金融中心. D3- Taiwanese Business Culture 台灣商業文化. B4- Access to Capital - 獲取資本. C4- Innovation - 創. D4- Access to Talent. 薪. - 人才取得等.

(34) Sample Selection – The sample selection for the questionnaire has targeted 20 people working in the Taiwanese banking sector, in order to ensure results are balanced ten have been taken from private banks and another ten were taken from state banks. State banks are defined as those where the government has a minimum of a 20% share in the bank. 67. Qualitative Data - Interviews were conducted with some of the more influential people within Taiwan’s banking industry as well as with professors in Taiwan that have previously. 治政大 alongside the quantitative from these interviews appropriately places these expert opinions 立. researched or taken an interest in the topic of the internationalisation of Taiwan’s banks. Data. data collected. In order to provide the specific points that should be focussed on in interviews,. ‧ 國. 學. the author has observed what points where believed to be most salient in the AHP. ‧. questionnaire based research. Using these points to inform the discussion creates greater. sit. y. Nat. opportunities to go further in the analysis of the quantitative data collected, bringing together. io. al. er. expert opinion with the authors own wide spread research. Furthermore, previous research done in the area will be taken into account and built upon to develop further the existing. n. v i n research and inspire new academic C discussion debate of the topic. A model of the h e n and gchi U identified as most salient is shown on the following page.. Using both qualitative and qualitative data will provide a rounded approach to the research that recognises both expert opinion and existing statistical analysis based research. Only by combining the two approaches can one expect to offer greater insight in to the research question at hand.. 67. Taiwan Financial Services Conference, Investor Presentation. Taipei: Ministry of Finance Taiwan, 2005.. 28 | P a g e.

(35) CHAPTER 5. QUESTIONNAIRE RESULTS Using a questionnaire based on the AHP format completed by a total of 20 banking professionals represented equally from both state and private banking sectors, we have collected results that reveal the most pivotal issues facing the Taiwanese banking sector today. All topics used in the questionnaire are the results of in depth discussions with Taiwanese banking professionals as well as commonly observed topics in the existing research base. 68 In this section results will be presented and shown in relation to the original assumptions of the author and the prevailing literature. In the next section Interviews have been conducted to. 政治大. present further discussion of the results.. 立. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. 68. Ch. engchi. i n U. v. An example of the questionnaire can be found in the appendix as well as the results collected from each section.. 29 | P a g e.

(36) Main Topics Economic Issues. Political Issues. Globalisation Issues. Ease of Doing Business 0.00%. 5.00%. 10.00%. 15.00%. 20.00%. 25.00%. 35.00%. 治政 Political Issues 大. 立. ‧ 國. 學. Non-Country Status. ‧. Cross-Strait Relations. er. io. sit. y. Nat. Domestic Party Politics. Access to the Chinese Market. 30.00%. al. n. v i n 5.00%C 10.00% 15.00% 20.00% h e n g c h i U 25.00%. 0.00%. 30.00%. 35.00%. 40.00%. Economic Issues Currency NTD. Economic Stability. Access to Capital. Overbanking 0.00%. 30 | P a g e. 10.00%. 20.00%. 30.00%. 40.00%. 50.00%. 60.00%.

(37) Globalisation Issues Innovation. Competitor Financial Centres. Strength of State Banks. Financial Regulations 0%. 10%. 20%. 30%. 40%. 50%. 60%. 50.00%. 60.00%. 政治大. 立 Ease of Doing Business. ‧ 國. 學. English Proficiency. ‧. Taiwanese Business Culture. 31 | P a g e. sit. n. 0.00%. al. er. io Access to Talent. y. Nat. Education Quality. Ch. 10.00%. i n U. i e20.00% n g c h30.00%. v. 40.00%.

(38) 5.1 Main Topics The first section assessed the relevance of the main topics being considered, these are: Political Issues, Economic Issues, Globalisation Issues, and Issues Related to the Ease of Doing Business in Taiwan. Participants were asked to rank these issues against each other, the results are then assessed to show the percentage value of the salience of each issue. In this first section, the following results shown in ascending order were found:. Ease of Doing Business 31.7% Globalisation Issues 25.7% Political Issues 25.1%. 立. Economic Issues 17.5%. 政治大. ‧ 國. 學. These results highlight some important factors facing the Taiwanese banking industry, many. ‧. previous works focussed on the political and economic factors and often miss factors related. sit. y. Nat. to the ease of doing business. However, the results here show that ease of doing business. io. al. er. factors cannot be ignored. While political aspects remain of high importance, economic. v i n C importance to political issues. To betterhunder i Uand understand what specific e n these g c hresults n. issues fall to the lowest position in our results. Globalization factors are of almost equal. issues are of importance the following sections of the questionnaire break down the topics to offer greater depth from which observe where greatest salience is put.. 5.2 Political Issues Breaking down the political section using the same process the following topics were used and analysed to reveal the results shown below:. Access to the Chinese Market 34.7% 32 | P a g e.

(39) Domestic Party Politics 31.8% Cross-Strait Relations 22.4% Non-Country Status 11.1%. In these results, the topic of greatest importance is also one that features regularly in the literature, Professor Lin of the University of Virginia also places particular importance to the issue. 69 The banking community in this situation wants greater engagement in the Chinese market rather than less. The next issue is one that is very much connected with the first;. 治政大 10% between domestic party with China, though evidently there is a clear split of more than 立. domestic party politics, direct the policies that influence the banking sectors ability to engage. politics and Cross-Strait Relation suggesting there is much more being considered here than. ‧ 國. 學. any one party’s policies toward engagement with Mainland China. The fourth topic related to. ‧. the international recognition Taiwan receives, the Non-Country status is seen as particularly. sit. y. Nat. low with just 11.1 percent salience associated with the issues. While all these topics seem. io. al. er. similar at first glance by comparing them with one another we can observe the subtle differences that have a measurable impact of the Taiwanese banking sector’s success when. n. v i n operating abroad. These issues can C thushbe further explored e n g c h i Uthrough discussion with industry experts.. 5.3 Economic Issues Breaking down economic issues within the topic we received results that were both reassuring and surprising, these results will ensure discussion is directed to the most salient topics. The results and topics analysed are as follows:. Overbanking 57.1 % 69. Lin, S. "Taiwan and the Advent of a Cross-Strait Financial Industry", University of Virginia, 2013.. 33 | P a g e.

(40) Access to Capital 29.0% Economic Stability 8.4% Currency NTD 5.5%. The results here are clearly aligned with the literature, overbanking is perhaps the topic most commonly discussed in the contemporary literature and greatly impacts the size and strength any one bank can achieve because the second topic access to capital, even with considerable wealth among the population, with so many banks present that wealth is too thinly spread.. 治政大 as seen in the literature they were considered for the questionnaire. Economic Stability 立. Given the extremely low importance given to the final topic it is necessary to justify why. review is a topic that is widely discussed globally, with potential economic troubles in. ‧ 國. 學. Europe after Brexit and the uncertainty associated with the Trump presidency in the United. ‧. States, an export driven economy like Taiwan may be effected by a decrease in demand for. sit. y. Nat. Taiwanese goods. 70 This would affect the economy and inevitably the Taiwanese banking. io. al. er. sector also, in order to operate with strength in the international banking sector it must also remain strong in the domestic sphere. The fourth sector is one that is also approached with. n. v i n C h in the literature review uncertainty by many, however, as shown e n g c h i U the Taiwanese currency the NTD is one that is occasionally looked at with great scepticism by the US government and with a Trump administration there is worry that Taiwan could fall out of favour and be listed as a currency manipulator. 71 Issues like this affect the long-term expectation of the Taiwan banking industry and individuals desire to use their services in foreign markets. However, by those working within the industry this is evidently not their greatest worry and has little impact when considered against the issues of overbanking and access to capital. 70. 71. "Overseas Business Risk - Taiwan - GOV.UK", Gov.uk, 2017. [Online]. Available: https://www.gov.uk/government/publications/overseas-business-risk-taiwan/overseas-business-risk-taiwan--2. [Accessed: 15- Jul- 2017]. "Donald Trump’s anger at Asian currency manipulators misses target", Ft.com, 2017. [Online]. Available: https://www.ft.com/content/d2aeb4bc-ef71-11e6-930f-061b01e23655?mhq5j=e2. [Accessed: 15- Jul- 2017].. 34 | P a g e.