Directions for Auditing Liquidity of Financial Institutions

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[Related Circulars]

Title：

Directions for Auditing Liquidity of Financial Institutions

Inactive Regulations

Announced Date： January 24, 1983

Amended Date： Amended on December 21, 2017; effective from January 1, 2018

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(Purpose)

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 following provisions:

(1) Article 25 of the Central Bank of the Republic of China Act;

(2) Article 43 of the Banking Act of the Republic of China (hereafter referred to as the "Banking Act") and Article 123 of the same Act to which Article 43 applies mutatis mutandis;

(3) Article 70 of the Regulations Governing the Banking Activity and the Establishment and the Investment by Financial Institution Between the Taiwan Area and the Mainland Area to which Article 123 of the Banking Act applies mutatis mutandis;

(4) Articles 26 and 33 of the Agricultural Finance Act and Article 37 of the Credit Cooperatives Act of the Republic of China to which Article 43 of the Banking Act applies mutatis mutandis.

(Application)

3. The term "financial institutions" as used in these Directions includes banks (domestic banks, local branches of foreign banks, Mainland commercial banks and Mainland-funded banks in Taiwan), agricultural financial institutions (credit departments of farmers' associations, credit departments of fishermen's associations and the Agricultural Bank of Taiwan), and credit cooperatives.

(Liabilities subject to liquidity reserve requirements)

4. New Taiwan Dollar (NTD)-denominated liabilities of financial institutions which are subject to liquidity reserve requirements are as follows:

(1) Checking deposits;

(2) Demand deposits;

(3) Savings deposits;

(4) Time deposits;

(5) Government treasury deposits;

(6) Net borrowing from financial institutions in the call loan market;

(7) Liabilities of bills/bonds sold under repurchase agreements;

(8) Principals received from the sale of structured products by banks;

(9) Other liabilities as prescribed by the Bank.

(Eligible liquidity reserve assets)

5. Eligible liquidity reserve assets held by financial institutions to meet liquidity reserve requirements shall be limited to the following NTD-denominated assets:

(1) Excess reserves;

(2) Net lending to financial institutions in the call loan market;

(3) Re-deposits at designated banks with a maturity not exceeding one year;

(4) Certificates of deposit issued by the Bank;

(5) Government bonds;

(6) Treasury bills;

(7) Negotiable certificates of deposit issued by banks;

(8) Banker's acceptances;

(9) Commercial papers;

(10) Commercial acceptances;

(11) Bank debentures;

(12) Corporate bonds;

(13) NTD-denominated bonds issued in Taiwan by international financial organizations approved by the competent authority;

(14) NTD-denominated corporate bonds issued in Taiwan by foreign issuers in accordance with the Regulations Governing the Offering and Issuance of Securities by Foreign Issuers;

(15) Other assets as approved by the Bank.

[Authorized Circulars]

(Liquidity reserve ratio)

6. The term "liquidity reserve ratio" as used in these Directions means the percentage of the sum of eligible liquidity reserve assets as provided in the preceding Direction that are held by a financial institution divided by the sum of liabilities subject to liquidity reserve requirements as provided in Direction 3.

The instructions and forms for the calculation of liquidity reserve ratio are as provided in the Attachments.

(Minimum liquidity reserve ratio)

7. The daily liquidity reserve ratio of a financial institution shall not be lower than the minimum standard prescribed by the Bank (hereafter referred to as "minimum liquidity reserve ratio").

The minimum liquidity reserve ratio mentioned in the preceding paragraph shall be set by the Bank in consultation with the Financial Supervisory Commission (hereafter referred to as the "FSC") and the Council of Agriculture, Executive Yuan (hereafter referred to as the "COA").

[Authorized Circulars]

(Preparation of the Report of Liquidity Reserve Ratio and reporting of reserve shortfall)

8. Financial institutions shall set aside liquidity reserve assets on a daily basis, fill out a Report of Liquidity Reserve Ratio with liquidity reserve data of the previous month in accordance with the instructions and forms for the calculation of liquidity reserve ratio under Paragraph 2 of Direction 5, and submit the report to the audit institutions prior to the 15th of each month; banks and the Agricultural Bank of Taiwan shall submit their reports to the Bank's Department of Banking for auditing, whereas credit departments of farmers' associations, credit departments of fishermen's associations, and credit cooperatives shall submit their reports to the entrusted banks designated by the Bank for auditing.

Financial institutions whose daily liquidity reserve ratio falls below the minimum liquidity reserve ratio shall promptly report the matter to the audit institution mentioned in the preceding paragraph. In the case of credit departments of farmers' associations, credit departments of fishermen's associations, and credit cooperatives, a copy of the report shall also be sent to the Bank's Department of Banking.

If deemed necessary, the Bank may, at any time, demand a financial institution to report its liquidity reserve ratio data with explanations provided, and may conduct an on-site examination.

(Compilation and reporting of liquidity reserve data of grassroots financial institutions)

9. The entrusted banks shall collect the liquidity reserve data of credit departments of the farmers' associations, credit departments of fishermen's associations, and credit cooperatives, fill out an Audit Summary of Liquidity Reserves in accordance with the calculation instructions and forms under Paragraph 2 of Direction 5, and submit the report to the Bank's Department of Banking prior to the 23rd of each month for recordation.

[Authorized Circulars]

(Enforcement)

10. When the daily liquidity reserve ratio of a financial institution falls below the minimum liquidity reserve ratio, the Bank shall ask the FSC or the COA to notify the financial institution in question to make necessary adjustment within a specified period of time.

[Authorized Circulars]

(Managing the maturity gap of NTD cash flow)

11. Banks, the Agricultural Bank of Taiwan, and credit cooperatives shall submit a "Term to Maturity Analysis of NTD Assets/Liabilities report" on a monthly basis, and manage their end-of-month ratio of maturity gaps of future cash flow ranging from 0 to 30 days to total NTD assets (hereafter referred to as "maturity gap ratio").

Banks, the Agricultural Bank of Taiwan, and credit cooperatives whose maturity gap ratio as mentioned in the preceding paragraph falls below the minimum set by the Bank shall promptly report the matter to the Bank's Department of Banking. The Bank shall forward the report to the FSC or the COA.

If deemed necessary, the Bank may, at any time, demand banks, the Agricultural Bank of Taiwan, and credit cooperatives to report maturity gap data with explanations provided, and may conduct an on-site examination.

(Reporting of maturity gap parameters)

12. Financial institutions shall report the reference parameters based on past experience used in preparing the Term to Maturity Analysis of NTD Assets/Liabilities and subsequent changes thereto, if any, to the Bank's Department of Financial Inspection for recordation.

[Authorized Circulars]

(Report format)

13. The format of reports that should be filled out or prepared by financial institutions in accordance with Paragraph 2 of Direction 7, and Paragraph 1 and Paragraph 2 of Direction 10 shall be prescribed by the Bank.