1. Corporate Government and Financial Intermediation Yin-Hua Yeh Graduate Institute of Finance, Fu-Jen University, Taiwan

2. Yin-Hua Yeh, Fu-Jen University2 The Myth of Financial Institutions’ Size Big means good ? Good must be big ? FIs are more likely to enlarge their size through M&A Corporate governance ? Risk management ? Bring much risk ? FIs should enhance competitiveness through CG and RM before launching M&A for the purpose of size augmentation.

3. Yin-Hua Yeh, Fu-Jen University3 The relationship between the concentration (CR3) and ROE of the largest three banks

4. Yin-Hua Yeh, Fu-Jen University4 The relationship between the variation of concentration ( △ CR3) and variation of ROE ( △ ROE) of the largest three banks

5. Yin-Hua Yeh, Fu-Jen University5 The Problems of CG to Taiwan FIs The function of boards needs to be substantially improved  17% shareholdings control more than half of board seats (around 60%)  serve the post of chairman and/or CEO. Crises embedded in risk management  Has been written off NT$1.5 trillion NPL in 2000-2005.  The turmoil of over-financing credit/cash cards in the past two years  Consecutive events of operational risk and internal-control flaws

6. Yin-Hua Yeh, Fu-Jen University6 The Problems of CG to Taiwan FIs Information disclosure needs to be substantially improved  The controlling shareholders of FIs tend to use the insurance companies, banks, securities houses and oversea subsidiaries under their control to launch M&As at same time.  Many banks dispose the losses from factoring NPLs to AMCs on assets. It is legal bur go against GAAP to apportion the losses in five years. The assets of the state-controlled banks comprise around 50% of the total assets of all banks

7. To Strengthen the Competitiveness through CG and RM INPUT Capital IT/ Fix Asset Human Resource etc. OUTPUT Loan Investment Off-Balance-Sheet Activities etc. Create value Performance Value Efficiency Return Risk Management Credit Liquidity Market Operation etc. Sound Corporate Governance Yin-Hua Yeh, Fu-Jen University

8. 8 To enhance the function of board of directors To require at least one third independent directors on the board the profession of directors must be helpful and useful for the future developing of FIs The Board of Directors should set up audit committee and risk management committee to take charge of the information transparency and risk management.

9. Audit committee in financial holding company External AuditorsInternal Auditors BankSecurityInsurance External Auditors To unitize of financial and risk information in financial holding company CFO Internal Auditors CFO External Auditors Internal Auditors CFO External Auditors Internal Auditors CFO Yin-Hua Yeh, Fu-Jen University

10. Board of Directors Risk Management Committee CEO Risk Management Committee BankSecurityInsurance Risk Management Policy Monitoring Risk Management Source Measure Management Division Risk Management Division Risk Management Division Risk Management Audit Committee Cooperation Yin-Hua Yeh, Fu-Jen University

11. 11 The role of government in a state- controlled financial institution To improve the CG and RM of State-controlled FIs  Being the early adopter of high CG standards  Enhance the expertise and incentive of board members and top managers  Enhance the function of audit committee/RMcommittee  One-shot privatization- the cession of shareholdings and control in once and for all