In the four short months since the Financial Supervisory Commission (FSC) appointed the Central Deposit Insurance Corporation as receiver of the Taitung Business Bank, the government has used the Financial Restructuring Fund (colloquially referred to in the industry as the RTC in a nod to the former Resolution Trust Corporation of the US, upon which the fund is modeled) to take a total of four banks into receivership, namely the Taitung Business Bank, the Enterprise Bank of Hualien, the Chinese Bank (owned by Wang You-theng's Rebar Group), and China United Trust and Investment. Receivership procedures have gone smoothly, without major public panic or harm to the interests of bank customers.

With the government moving forcefully to clean up poorly run domestic banks, Citibank and the Bank of Overseas Chinese (BOC) announced in early April that Citibank would be buying out the BOC at NT$11.62 per share, for a total price of over NT$14 billion. The deal could be completed as early as September.

If it goes through, the BOC will be delisted from the OTC market and pass out of existence after 46 years in business, with the Citibank sign going up at its 55 branches. Citibank would then have 66 business locations in Taiwan, making it far and away the biggest foreign-owned bank in Taiwan and ranking it at number 13 among all banks here.

BOC's marriage with Citibank represents a new model for market exit by the less stellar performers among Taiwan's domestic banks, and may trigger accelerated implementation of financial reforms. It has thus been very happily received in both industry and government circles.

An editorial in the Chinese-language Commercial Times credits the BOC buyout to the passage early this year of an amendment to the Deposit Insurance Act which increased the size of the deposit insurance reserve and provided the government with more ammunition to move in and deal decisively with troubled banks. Banks that have long sought to stall their way out of ever worsening crises are being prodded at last, by the threat of being forced by the government into receivership, to accept the idea of being bought out. Without these low-quality banks around to foul up the market with lowball competitive tactics, properly run institutions should finally be able to make reasonable profits.

Prior to the deal between Citibank and BOC, the UK's Standard Chartered Bank had already announced plans last September to acquire strong-performing Hsinchu International Bank (HiBank) for NT$24.5 per share, which represents a healthy premium of 30% over the current market price of HiBank shares. The deal has basically been completed, and only awaits approval from the two parties' shareholders meetings and the financial regulator. Once these final procedures have been completed, HiBank will be renamed Standard Chartered Bank (Taiwan) Ltd.

Standard Chartered's buyout of HiBank highlights the serious interest of foreign banks in Taiwan's financial markets. Recent years have seen a string of equity deals involving foreign parties and local banks. Newbridge Capital of the US and the Nomura Group of Japan own 16% and 3% respectively of the highly profitable Taishin Financial Holding Company. The GE Group of the US has taken a 10% stake in Cosmos Bank. Singapore's Temasek Holdings owns 6.3% of E. Sun Financial Holding. And Japan's Shinsei Bank holds a 31.8% stake in Jih Sun Holdings.

Foreign investors are attracted to Taiwan by its sizable middle class and the nimble business operations of its small and medium enterprises. They also see Taiwan partaking in the bright future of Asia, and China in particular. Taiwan's government does not currently allow domestic banks to operate in mainland China, but foreign financial institutions are still maneuvering to ensure themselves a foothold in the Taiwan market in hopes that the financial industry talent here will help them penetrate the Chinese market ahead of their competitors.

When foreign financial institutions invest in domestic banks, they often bring with them more flexible handling of financial products, thereby improving management efficiency and bringing Taiwan more closely into line with international business practices. These investments also chip away at many longstanding problems in our banking industry, where many banks are either too tightly controlled by big government shareholders or sloppily run by family dynasties prone to malpractice on many fronts. Experience in South Korea, where foreign institutions have bought up the country's two biggest banks, would seem to indicate that such investments are, on balance, a positive thing. But will the Taiwan market get gobbled up by foreign competitors? That will depend on how competitive our domestic banks are.