Directions for Auditing Liquid Reserves of Financial Institutions

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Title：

Directions for Auditing Liquid Reserves of Financial Institutions

Inactive Regulations

Announced Date： January 24, 1983

Amended Date： March 21, 2006

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2. These Directions are prescribed by the Central Bank of the Republic of China (Taiwan)(hereafter referred to as "the Bank") for the purpose of implementing the provisions of article 43 of the Banking Law and article 25 of the Central Bank of the Republic of China (Taiwan) Act.

4. The term "financial institutions" as used in these Directions includes banks (domestic banks, local branches of foreign banks, medium business banks), credit departments of farmers' associations, credit departments of fishermen's associations and credit cooperative associations.

6. The New Taiwan dollar-denominated liabilities against which financial institutions are required to put up liquid reserves shall be listed as follows:

(1)Checking deposits (including checking accounts deposits, certified checks and traveler's checks)

(2)Demand deposits

(3)Savings deposits (including passbook Savings deposits, lumpdeposit/ lump-payment Savings deposits, installment-deposit/lumppayment Savings deposits, lump-deposit/installment-payment Savings deposits, interest-bearing Savings deposits, and bank employees' savings accounts, provided those portions already pledged are deducted)

(4)Time deposits (including time savings deposits and negotiable certificates of deposit, provided those portions already pledged are deducted)

(5)Government Treasury deposits (the net balance after deducting the re-deposits at the Bank's Treasury Department)

(6)Net dues to banks in call loan market

(7)Net trading balance of repurchase agreements in bonds/bills markets

(8)Other liabilities as designated by the Bank.

5. All types of New Taiwan dollar-denominated liabilities of financial institutions shall be subject to a minimum liquid reserve requirement ( hereafter referred to as "liquidity ratio"), which shall be set by the Bank in consultation with the Financial Supervisory Commission, Executive Yuan ( hereafter referred to as "the FSC").

7. Qualified liquid reserve assets for various financial institutions shall be limited to the followings:

(1) Excess reserves

(2) Net dues from banks in call loan market

(3) Treasury bills

(4) Certificates of deposits issued by the Bank

(5) Negotiable certificates of deposit (net balance of each bank's holdings after deducting negotiable certificates of deposit it has issued)

(6) Banker's acceptances (net balance of each bank's holdings after deducting drafts it has honored)

(7) Trade acceptances

(8) Commercial papers (net balance of each bank's holdings after deducting face value of commercial papers it has guaranteed)

(9) Government bonds

(10) Corporate bonds (net balance of each bank's holdings after deducting face value of corporate bonds it has guaranteed)

(11) Bank debentures (including subordinate bank debentures, the amount of which being limited to the net-debit position of its bank debentures issued by other banks after subtracting those issued by itself)

(12) Re-deposits at designated banks with term to maturity no more than one year (either bank re-deposits with the Bank or grassroot financial institution re-deposits with banks mandated by the Bank)

(13) New Taiwan dollar-denominated bonds issued in Taiwan by international financial organizations approved both by the Bank and FSC; and corporate bonds issued in Taiwan by foreign issuers in accordance with the "Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers".

(14) Beneficial securities issued by financial institutions pursuant to Financial Asset Securitization Act” or “Real Estate Securitization Act” shall comply with the following requirements:

1. Beneficial securities for collateralized corporate loan obligations;

2. With an effective registration with the FSC;

3. With credit-rating at or above a prescribed level set forth in Direction 4 of “Directions Governing Limitations on the Securities in Which a Commercial Bank May Invest”; and

4. Excluding beneficial securities repurchased by originators.

(15) Other liquid assets as approved by the Bank.

The holding positions of bonds and bills referred to in the preceding paragraph shall include reverse repurchase agreements but exclude repurchase agreements.

Bills as listed in subparagraphs 6 through 8 under paragraph 1 are limited to those issued in accordance with the provision of paragraph 1, article 4 of "The Law Governing Bills Finance Business" and purchased from the money market.

For the beneficial securities listed in Subparagraph 14, paragraph 1, trustees shall fill out “List of Beneficial Securities for Collateralized Corporate Loan Obligations” form (attachment)which should be filed with Department of Banking of the Bank.

Established pledge rights and portions provided as guarantees shall be deducted from the assets mentioned in subparagraph 3 through 15 of the paragraph 1 except those pledged to the Bank as collaterals for intra-day overdrafts. The portion of intraday overdraft that remains outstanding at the close of business shall be deducted from the liquid assets on a daily basis.

7. With respect to the "net dues to banks in call loan market " as indicated in subparagraph 6, paragraph 1, Direction 3 and the "net dues from banks in call loan market" as indicated in subparagraph 2, paragraph 1, Direction 4, the total of net dues to and from inter-bank call loans for the entire month shall be calculated first. If the total is net due to banks, a daily average shall be filled in on a daily basis and the liquid reserves shall be calculated and put up. If the total is net due from banks, a daily average shall be filled in on a daily basis and serve as the liquid reserve.

9. Required liquid reserves of a financial institution shall be calculated on a monthly basis and conducted by its headoffice.

Daily average liquid reserve requirement for a given month shall be average daily balance of all types of New Taiwan dollar-denominated liabilities referred to in Direction 3 multiplied by the liquidity ratio.

9. Financial institutions shall self-adjust their daily average balances of actual daily liquid reserves for a given month to ensure they do not fall below the Bank's minimum liquidity ratio, and shall compile a monthly liquid reserve requirement report (as the attached format)to be submitted together with a table of relevant details before the 15th of the following month to the Department of Banking of the Bank (hereafter referred to as " the Department of Banking ") (for banks) or to the banks mandated by the Bank for scrutiny ( for farmers' and fishermen's association credit departments, credit cooperatives)

11. The Bank shall audit the monthly liquid reserve requirement report submitted by each financial institution with its daily financial statements and relevant information and compile a consolidated monthly liquid reserve requirement report for all the financial institutions and refer such report to the FSC .

The mandated banks shall compile the monthly liquid reserve requirement reports and relevant statements of the farmers' and fishermen's association credit departments and credit cooperatives that they supervise. The full report covering all relevant institutions shall be submitted to the Department of Banking prior to the end of the following month for examination and recordation.

The format of the full report of monthly liquid reserve requirement in preceding paragraph shall be set by the Department of Banking.

11. The Bank and the mandated banks audit the monthly liquid reserve requirement reports filed by banks and farmers' and fishermen's association credit departments and credit cooperatives. Where there are violations of the minimum liquid reserve requirement as defined in Direction 4, the Bank shall ask the FSC to notify the financial institution in question to adjust its reserves within a specified period of time. Where there are serious instances of falsification or fabrication, the Bank may conduct an on-site examination.