Integrated Risk Management and Capital Adequacy in Financial Holding Company
Date Issued
2004
Date
2004
Author(s)
Chen, Yan-Chi
DOI
en-US
Abstract
The current financial trend is toward the cross-sectoral operation and establishment of financial holding companies; two of the achievements are the foundation of universal banks in Germany and the creation of financial holding companies in the United States of America. Similarly, the Financial Holding Company Act was eventually promulgated in Taiwan on July 9 2001, following the global tendency toward financial integration, so as to remove the restrictions on the cross-sectoral operation among banks, securities firms and insurance companies. By the end of 2003, there were 14 financial holding companies in our country. Notwithstanding, the core business and risk profiles of the three major types of financial institutions vary, and affiliating these three types of financial institutions with a financial holding company brings about new risks. As a result, the establishment of a comprehensive and integrated risk management mechanism becomes the most important issue following the foundation of a financial holding company.
The first step of the risk management process is to identify risks. Focusing on domestic financial environments, not only do the core business and risk profiles differ between domestic and foreign financial institutions, but also the magnitude of the effect of the risk differs between domestic and foreign financial institutions. The effect of “risk concentrations”, “reputation risk”, “spillover risk”, “supervision risk” and “double gearing” is intensified in domestic financial holding companies. On the other hand, the problem from conflicts of interest is likely to be solved, after the merger between subsidiaries within the same industry as well as the restructuring across subsidiaries from the perspective of customers.
The second step of the risk management process is risk measurement, which is essential to monitor and manage risk. “Economic Capital” is widely utilized by contemporary practitioners, supervisors and researchers in the field of finance. For example, the majority of countries around the world use the Basel Capital Accord proposed by the Basel Committee to measure economic capital against risks. Rules governing capital adequacy in financial holding companies in Taiwan also use the New Basel Capital Accord Consultative Documents to determine regulatory capital, in the hope of aggrandizing financial stability and further encouraging financial holding companies to establish integrated risk management processes as soon as possible.
In accordance with the character of domestic financial environments, conflicts and barriers arise from implementing the guidelines of the New Basel Capital Accord without adjustments to supervise the capital adequacy of domestic financial holding companies. In the last section of this thesis, these barriers, as well as suggestions, will be described in the hope of contributing to future amendments to existing regulations.
Subjects
金融控股公司
整合性風險管理
資本適足
Financial Holding Company
Integrated Risk Manageme
SDGs
Type
thesis
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