Risk management of banking industry in Taiwan

Abstract

This study focuses upon the factors affecting the risk-taking behaviour of Taiwan's banking industry during the period from 1994 through 2003, and also analyses separately the differences of new-private and state-owned banks, pre- and post-New Basel Capital Accord. It further compares the differences of risk-taking behaviour in Taiwan's banking industry. The results show that the more liquidity, the higher the total risk as well as the market risk. The higher the number of rational investors, franchise value and capital adequacy ratio, the less default risk for Taiwan's banking industry. Furthermore, the larger the number of rational investors and higher the franchise value, the less market risk and insolvency risk. However, the larger the bank size, the more default risk, market risk and insolvency risk in Taiwan's banking industry. By implementing the New Basel Capital Accord, for state-owned and new-private banks, the results are consistent. This study infers that the banks in Taiwan are definitely affected by rational investors, franchise value, capital adequacy ratio, size and liquidity.