Directions for the Conduct of Intraday Overdrafts of the Central Bank of the Republic of China (Taiwan)

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Title：

Directions for the Conduct of Intraday Overdrafts of the Central Bank of the Republic of China(Taiwan)

Amended Date： July 08, 2002

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I. General Provisions

(Basis of Establishment)

1.

1. In order to facilitate the smooth operation of the real-time gross settlement mechanism, the Central Bank of the Republic of China (Taiwan)(hereafter referred to as "the Bank") hereby prescribes the Directions in accordance with provisions of Paragraph 2, Direction 9 of the Directions for the Central Bank of the Republic of China Accommodations to Banks. All matters not covered under the Directions shall be handled according to other pertinent regulations of the Bank.

(Eligible Parties)

2.

2. Eligible parties of intraday overdrafts include domestic banks, branches of foreign banks in Taiwan, the Chunghwa Post Co., Ltd., trust investment companies, bills finance corporations and other financial institutions approved by the Bank.

II. Operation and Accounting

(Account Opening)

3.

3. A financial institution shall apply for intraday overdrafts to the Bank after signing a contract of intraday overdrafts and opening a "guarantee of overdraft" account with the Department of Banking of the Bank (hereafter referred to as "the Department of Banking").

The Bank may refer to Article 19 of the Directions for the Central Bank of the Republic of China (Taiwan)Accommodations to Banks to give its approval.

(The Conduct Of Intraday Overdrafts)

4.

4. A financial institution utilizes the interbank funds transfer and settlement system of the Bank to conduct its interbank funds transfer and settlement business. When the book balance of its "Interbank Funds" account at the Bank is short for payment, the Bank may make payments in advance for the amount of intraday overdrafts within the limit permitted.

(The limit of Intraday Overdrafts)

5.

5. The limit of intraday overdrafts shall be determined by the Bank according to total value of the collateral pledged by the financial institution. Whenever necessary, the Bank may change the limit by considering factors, such as the bank's operating performance, credit rating, support of monetary policies, and deposits and other debt reserves.

When collateral is saliently insufficient to pay off intraday overdrafts in the case of a substantial market price decline, the Bank may lower the limit of intraday overdrafts.

(Termination of Overdrafts)

6.

6. If a financial institution fails to repay any intraday overdraft before the deadline, the Bank will send a notice stating the amount of unpaid overdrafts to the institution electronically.

If an institution fails to repay any overdraft after the payback deadline, the Bank may charge penalty interest on the unpaid overdrafts, and has first priority to deduct it from its "Interbank Funds" account at the Bank on the next business day.

III. Collateral

(Guaranty and Eligible Collateral)

7.

7. A financial institution applying for intraday overdrafts to the Bank shall pledge eligible collateral that covers the value of the overdraft in full.

Eligible collateral as referred to in the preceding Paragraph are limited to the following classes:

(1) Class 1 collateral: Negotiable certificates of time deposit and certificates of time deposit issued by the Bank, book-entry central government bonds, book-entry treasury bills, and other book-entry securities approved by the Bank.

(2) Class 2 collateral: Physical central government bonds and treasury bills, and other physical securities approved by the Bank.

(3) Class 3 collateral: Deposits in use at the financial institution at that time, reserve accounts B minus a certain percentage of the balance after other accommodation pledges; the percentage shall be adjusted by the Bank in the light of financial circumstances.

(Valuation)

8.

8. The valuation methods of eligible collateral are as follows:

(1) Central government bonds, treasury bills, negotiable certificates of time deposit and certificates of time deposit issued by the Bank, and other securities issued with a face value shall be valued at face value.

(2) Central government bonds, treasury bills, and other securities issued at a discount shall be valued at the issue price.

(The Pledging of Collateral)

9.

9. A financial institution shall send a "Provision for Pledge" order to notify the Bank for transferring Classes 1 and 2 collateral to collateral accounts, which become valid. If a financial institution provides book-entry central government bonds or book-entry treasury bills as collateral, it shall fill out " Application Form of Pledging of Bookentry Central Government Bond" (including "Intraday overdrafts"words in the column of "Notes") to the settlement bank. The pledge shall be made automatically after the settlement bank has sent a message to the Bank.

(Application Documentation and Online Confirmation)

10.

10. A financial institution providing class 2 collateral shall firstly register the collateral of the particulars online, and then submit the relevant documents to apply for the delivery of the physical securities to the Department of Banking. An institution may send pledge message online only after a confirmation has been received from the Department of Banking.

(Priority of Pledges)

11.

11. If the balances of a financial institution's classes 1 and 2 collateral pledged to the Bank are still insufficient to cover the intraday overdrafts , the Bank may transfer class 3 collateral, within its limit, to the collateral account as a pledge for intraday overdrafts.

(Application for Pledge Cancellation)

12.

12. A financial institution providing collateral may apply for canceling its pledge to the Bank, except for the amount of intraday overdrafts not yet repaid. For those who provide book-entry central government bonds and book-entry treasury bills as collateral, the settlement bank shall be notified electronically to take it out of pledge after the confirmation has been received from the Bank. ("Application for Cancellation of Pledge" is not required).

(Pledge Cancellation and Revolving Pledge)

13.

13. A financial institution shall repay the intraday overdrafts secured by class 1 and 2 collateral only after repaying those secured by Class 3 collateral. The Bank shall automatically cancel the pledge of Class 3 collateral.

A financial institution shall submit an "Application for Cancellation of Pledge " order to cancel the pledge of Classes 1 and 2 collateral. The Bank shall continually pledge it to secure intraday overdrafts before the application for cancellation has been approved.

Class 2 collateral mentioned in the preceding paragraph may be collected only after submitting the documentation and application to the Department of Banking following the revocation of the right of pledge.

The collateral out of pledge may be pledged in revolution.

(Disposal of Collateral)

14.

14. If a financial institution fails to repay its intraday overdrafts in full by deadline, the Bank may, whenever necessary, proceed to dispose of the pledged collateral in part or full, to cover the amount of intraday overdrafts. Items to be disposed of are, in order, negotiable certificates of time deposit and certificates of time deposit issued by the Bank, book- entry treasury bills, book-entry central government bonds, physical treasury bills, physical central government bonds, other securities, and reserve accounts B.

A financial institution shall still be liable for its repayment obligations if the proceed from the disposal of collateral in the preceding Paragraph is insufficient. The Bank shall refund any excess proceed. The Bank may reduce the size of the financial institution's intraday overdrafts at an appropriate time.

(Over-the-Counter Processing for Offline Institutions)

15.

15. A financial institution that is not connected to the Bank's Interbank Funds System shall submit the "Application Table of Contact Personnel for Financial Institution's Intraday Overdrafts" in advance, and submit the "Application form of the Quota and Pledge for Intraday Overdraft" and the "Application form of Cancellation of Pledge for Intraday Overdrafts "to the Department of Banking for making and canceling a pledge.

(Query and Printout)

16.

16. A financial institution may make online queries concerning its pledged collateral and the amount of a ready overdraft and still available at any time. A print out of the relevant statements can be produced to form the basis for accounting. The Bank will not issue any receipt. When in doubt, a financial institution may query and check the particulars of the collateral transaction. If a financial institution finds any error, it shall immediately notify the personnel of the Department of Banking to make the necessary correction.

(Online Monitoring)

17.

17. The Bank may monitor pledges and pledge cancellations, time and amount of intraday overdrafts for all or specific financial institutions to watch their fund positions and financial conditions.

IV. Assessment of Interest

[Related Circulars]

(Assessment of Overdraft Interest)

18.

18. Intraday overdrafts interest shall be assessed as the product of the amount and number of minutes for which the financial institution's account is overdrawn as follows:

(1) Interest on intraday overdrafts pledged by Classes 1 and 2 collateral is payable at a rate of the Bank's rate of accommodation with collateral in effect on that day.

(2) Interest on intraday overdrafts pledged by Class 3 collateral is payable at a rate of 1.5 times of the Bank's rate of accommodation with collateral in effect on that day.

For the first six months of the implement of these Directions, the intraday overdrafts pledge by Classes 1 and 2 collateral shall be free from interest charges, and the interest on intraday overdrafts pledged by Class 3 collateral shall be payable at the Bank's rate of accommodations with collateral. After six months, the Bank may adjust the interest rates according to the effectiveness and its service needs.

(Collection of Overdraft Interests)

19.

19. Interest on intraday overdrafts shall be assessed once a month. The Department of Banking shall deduct interest from the financial institution's "Interbank Funds" account at the Bank on the 15th day of the following month.

V. Penalties

[Related Circulars]

(Assessment of Penalty Interest)

20.

20. If a financial institution fails to repay any intraday overdrafts by deadline , the Bank, besides keeping the original pledge, may on the following business day impose an penalty interest in the following manner, until the unpaid overdrafts is paid in full:

(1) The penalty interest on overdrafts pledged by classes 1 and 2 collateral is payable at a rate of 1.2 times of the Bank's rate of accommodations without collateral in effect on that day.

(2) The penalty interest on overdrafts pledged by classes 3 collateral is payable at a rate of 1.5 times of the Bank's rate of accommodations without collateral in effect on that day.

If a financial institution fails to repay any intraday overdrafts for two consecutive business days after the deadline, the penalty interest for the second business day shall be imposed in the following manner, until the unpaid overdrafts is paid in full, and the Bank may suspend the qualification of intraday overdrafts starting on the third business day:

(1) The penalty interest on overdrafts pledged by classes 1 and 2 collateral is payable at a rate of 2.4 times of the Bank's rate of accommodations without collateral in effect on that day.

(2) The penalty interest on overdrafts pledged by classes 3 collateral is payable at a rate of 3 times of the Bank's rate of accommodations without collateral in effect on that day.

(Collection and Disposal of Penalty Interest)

21.

21. A financial institution that fails to repay its intraday overdrafts by deadline shall repay the overdrafts and pay penalty interest in full on the next business day as a first priority. The Department of Banking shall deduct the payment from the financial institution's "Interbank Funds" account at the Bank, and take appropriate measures in light of its violation. Such events shall serve as a major reference guiding the financial institution's subsequent participation in the Bank's various services.

(Suspension of Overdraft Qualifications)

22.

22. If a financial institution has had intraday overdrafts suspended twice during the past year, in accordance with Paragraph 2, Direction 20, the Bank may take appropriate measures and suspend its eligibility for intraday overdrafts for a certain period.