The Role of the
Financial Early-warning System
Dr. & Professsr Wei-Yi Lin
Abstract
Ever since financial liberalization became a
popular world trend in the 1980s
the global financial markets becoming
increasingly integrated and efficient
financial technology being upgraded and new
financial products on financial supervision
financial institutions need to consolidate their
risk management
add emphasis on financial discipline and
financial supervision
Abstract
the impact of financial liberalization and
globalization has greatly increased the
operational risk borne by financial institutions
I would now like to discuss with you all the
following four topics
The Importance of Establishing a Financial
Early-warning System
The supervisory authorities need to strengthen
financial supervision in the following aspects:
(1) Placing added emphasis on financial
discipline(Table2).
(2) Maintaining financial stability(Table3).
(3) Safeguarding the rights and interests of
depositors.
(4) Handling the problem financial institutions
promptly.
Table 2 Financial Risk Management Model
- for good corporate governance
Table 3
The Importance of Establishing a Financial
Early-warning System
 Practices of Early-Warning system in the U.S. system: set up bank appraisal
system financial institutions were evaluated on Capital adequacy, Asset quality,
Management, Earnings , Liquidity and Sensitivity to market risks :CAMELS.
 FDIC’s Risk-Related Premium System (RRPS)
Supervisory Subgroup
Capital Group
A
B
C
1.Well Capitalized
23
26
29
2. Adequately Capitalized
26
29
30
3. Undercapitalized
29
30
31
＊ Rates are in cents per $100 of insured deposits.
The Current Operating Conditions of the
Financial Early-warning System in Taiwan
 The Examination Data Rating System referred to the Federal Financial
Institutions Examinations Council of the U.S., that is , the so called CAMELS
rating system.
 CDIC’s Risk-Based Premium System (RBPS)
Examination Data Rating Score
Capital Adequacy
A
B
C
1.Well Capitalized
5.0
5.0
5.5
2. Adequately Capitalized
5.0
5.5
6.0
3. Undercapitalized
5.5
6.0
6.0
＊ Rates are in cents per $100 of insured deposits.
The Contribution of the Taiwan’s Financial
Early-warning System
Effectively Utilizing Financial Supervisory
Resources and Strengthening the Handling of
Problem Financial Institutions
To Immediately Implement Effective
Response Policies
Determining the Risk-base Assessment Rate
Criteria for each Financial Institution.
The Operational Performance of Deposittaking Financial Institutions in Taiwan
Pastdue Loans Ratio
Unit:%, multiples
Banks in General
Credit Cooperative
Associations
Credit Dep. of Farm’s
and Fishermen’s
Associations
1996
3.74
6.13
8.5
1997
3.71
6.19
10.8
1998
4.14
7.55
13.2
1999
4.96
10.54
16.18
2000
5.47
12.45
17.9
2001
7.48
11.66
19.3
2002
6.12
10.34
18.62
2003
4.33
6.91
17.57
2004
2.78
3.17
14.46
2005
2.24
2.09
10.92
2006
2.13
1.55
8.13
2007
1.84
1.29
6.25
Category Of
Institution
Year-end
2008
1.54
1.24
5.16
Note: set up RTC fund to resolve of financial institutions operational crises in the 2001.7
Conclusion and Recommendations
The government in regard to the financial earlywarning system and both financial supervision
and the deposit insurance mechanism will in the
future need to give careful consideration to the
following:
1.The financial early-warning system will need to
expand and to integrate relating to banking,
insurance, securities business and futures trading
on the financial services groups to effectively
unify the work of financial supervision.
Conclusion and Recommendations
2.Financial early-warning system “in order to be
able to detect abnormal capital ratios and
quickly take corrective measures”.
3.A basis for implementing the deposit insurance
risk-based premium system, in order to reflect
the operational risk of financial institutions and
avoid moral hazard.
4.To avoid the occurrence of delays in handling
problem financial institutions.
The end