Newsletter
NON-DEPOSIT LIABILITIES OF A BANK WILL BE SUBORDINATED TO THE REPAYMENT OF DE-POSITS IN BANK LIQUIDATION
When the Banking Act was amended in May 2006, a new Article 64-1 was added, providing that if the operations of a failing bank or other failing financial institution are suspended in or-der to rehabilitate or liquidate the institution’s liabilities, its non-deposit liabilities should be subordinated to the repayment of NT Dollar check deposits, demand deposits, time deposits, savings deposits, trust funds, and other deposits approved by the competent authority as insurable by the Central Deposit Insurance Corporation.
Accordingly, counterparties that trade with banks or other financial institutions should note that if the institution's liabilities are not deposit liabilities and the institution's operations are suspended for rehabilitation or liquidation, such liabilities will be subordinated to deposit liabili-ties of the institution. When a financial institu-tion runs into difficulties, the total amount of its deposit liabilities usually exceeds its total assets. Therefore, unless such a counterparty has ob-tained other forms of security, it is unlikely to receive any repayment.
Although Article 64-1 enhances the protection of depositors, it is disadvantageous to others who deal with financial institutions. To avoid unex-pected losses, they should pay extra attention to this provision before trading with financial in-stitutions.