The Taiwan Banker

It has been 100 years since Taiwan’s first financial merger. In 1899, Taiwan Savings Bank, Taiwan’s first private bank, was established by a few Japanese investors. Its start was disastrous. It was difficult to convince the Taiwanese, who had just lived under Qing Dynasty rule a few years earlier, to deposit the silver they stored under their beds into an unfamiliar bank. With the growth of financial literacy and the development of industry and commerce, however, Taiwan Savings Bank gradually grew in size and had insufficient capital to meet its needs. Coupled with competition from new banks such as Chang Hwa Bank, in 1912, the bank decided to merge with the Industrial & Commercial Bank of Taiwan, in Taiwan’s first bank merger. The Ministry of Finance and the Taiwan Governor-General's Office, the regulators at the time, even said that they were “happy to see the merger happen.” This was the first privately owned bank in Taiwan operated by the government, and also Taiwan’s first consensual merger. The significance of this early merger lies in market forces. After considering its own development limitations and the increasingly competitive market, the bank persuaded its shareholders to merge, helping create synergy. After 1920, Industrial & Commercial Bank of Taiwan successively acquired Chiayi Bank and Hsin Kao Bank, which had seen sharp increases in bad debts due to the recession following World War I, becoming the largest private bank at the time. More than 100 years later, Taiwan's financial industry has grown several times larger, and has experienced a large-scale opening of private capital to establish banks and financial holding companies. However, liberalization resulted in financial chaos with too many banks, and loose corporate governance, which was why former President Chen Shui-bian pushed for two financial reforms. The first, in addition to rectifying bad debts, also significantly consolidated grassroots financial institutions, but the hasty pace triggered ongoing street protests. In the second reform, the government pushed to halve the number of financial holding companies, which did lead to the establishment of several large financial holding companies, but also left behind a legacy of corruption. Lawsuits between business families left a big scar on financial consolidation. For more than a decade, no one has been willing to pick at this scar. During this period, government agencies advocated to play the Asian Cup, hoping to merge the Bank of Taiwan, Land Bank, and Export-Import Bank to form a large financial holding company, but all of them failed, which was due to many reasons. The government was stuck in the mindset that large scale is a beautiful thing, and its policy planning from the top down did not take into account complementary business and market mechanisms. The failure of these efforts was natural. However, the financial M&A market has really been blowing up recently, which we can call “M&A 3.0.” In contrast to the previous two policy-driven mergers, this time, following more than a decade of silence, financial M&A is clearly market-driven, based on business complementarity. The targets have also been diversified, not just mergers between financial holding companies or with banks, but also acquisitions of investment trusts and securities companies, ensuring a more complete and powerful financial landscape for the next decade. Although the Financial Supervisory Commission (FSC) encourages the merger of financial holding companies, this time it will not make slogans, but will only set the rules of the game and act as a fair market arbiter. Having learned from the rich history of the past, the government does not need to take the lead. Only by allowing what grows out of the market itself can it encourage institutions to take root and prosper.