Just to prove that government in Taiwan isn’t all legislative fighting and intra-party power struggles, yesterday legislators were debating one of President Chen’s promised reforms – Changes to the banking sector:

Legislators from the Kuomintang yesterday urged the government to stop intervening in Taiwan’s financial services market and allow the market to develop naturally.

The remark was made in a televised debate between three KMT legislators and three government officials regarding the second stage of financial reform, which aims to halve the number of state-run banks to six and increase the market share of three domestic banks to more than 10 percent each by year’s end, to reduce the number of financial holding firms to seven from the existing 14 and allow at least one financial institution to be fully-operated by a foreign company by the end of next year.

The thing that strikes me about this is that there are currently 12 state-run banks in Taiwan. Note that this is the state after several years of reform (there were about 50 banks 10 years ago). Huge numbers of banks I can understand (one of Taiwan’s characteristics is the large number of small companies that continually pop up then disappear and generally help the Taiwanese economy), but what is the possible advantage of huge numbers of state run banks? It goes some way to explain the sad state of Taiwanese banking.

Personal banking

I’m not an economist, so I don’t want to say too much about corporate banking – but personal banking is certainly a mess in Taiwan. Apart from historical reasons, there is one big easily solvable problem holding banks back.

Most employers in Taiwan will require their employees to bank at a particular branch of a particular bank – and will only pay salaries into that branch. What this means is that most people in Taiwan have no real choice as to which bank they use. Banks do not compete on quality and service that they provide to their customers – they compete on attracting companies.

So successful banks are the ones that are good at wining and dining CFOs from large companies (and of course giving them suitable ‘gifts’), while providing the most basic and cheap service they can manage.

A simple law requiring all companies to be able to pay salaries into any bank would solve this overnight: people would slowly gravitate towards banks which provide the best service, the inefficient or incompetently run banks would feel the pinch and have to merge or face collapse.

Why hasn’t this been changed already? Well, it’s currently a pretty cozy arrangement for the CFOs & bank managers of Taiwan – and what government wants to piss off the people who control all the money in the country?