Liberalisation and Reform of the Financial System

Abstract

The liberalisation of interest rate had gone through several legislations, as follows: 1. The First Amendment of the Bank Act, Article 33, on 1 September 1947, stated that the maximum interest rates for deposits and lending of banks have to be determined jointly by the associations of banks and financial institutions and the Central Bank. (Bank of Taiwan was then the acting authority.) 2. On 19 December 1947, the ‘Regulations for the Control of Interest Rate’ were promulgated, which stated that the deposit rate of banks should not exceed the lending rate, and which authorised the Central Bank to determine the maximum lending rate. 3. An Amendment to the Bank Act in 1971 stated that the Central Bank had the power to determine the maximum interest rates for various types of deposits, and that the range (maximum and minimum) of lending rate should be proposed by the Association of Banks and approved by the Central Bank. 4. The New Bank Act, Article 41, promulgated on 4 July 1975, restated the aforesaid Amendment. 5. On 7 November 1980, the Central Bank announced ‘the Major points of Consideration of Interest Rates of Banks’, which stated that (i) the Association of Banks could, in consideration of the money-market condition, propose to the Central Bank a range of deposit rates, although the maximum deposit rate was still determined by the Central Bank; and (ii) the Association of Banks could propose to the Central Bank a range of lending rates for the latter’s approval; the range was to be widened to allow flexibility in operation. Moreover, interest rates in the money market and NCDs (Negotiable Certificate of Deposits) are not subject to the limitation of the maximum deposit rate.