Taiwan moves to halt bank run

By CNN's Alex Frew McMillan

TAIPEI, Taiwan -- Taiwan moved Monday to stem a growing financial crisis.

The finance ministry said banks would take over 36 troubled small cooperatives in the next one to two months.

Over the weekend, Taiwanese officials promised a 100 percent government guarantee of deposits at the cooperatives, mainly agricultural and fisherman's cooperatives.

Officials have been sent to the 36 co-ops, which have liabilities that are greater than their assets, meaning they're close to collapse.

Unidentified banks stepping in

Taiwan's financial reconstruction funds would absorb the losses, officials guaranteed.

On Monday, Finance Minister Yen Chin-chang said designated banks will take over the healthy operations of the co-ops in question. He did not identify the banks.

"There is no need for the public to worry [about deposits], they will become depositors in one of the banks," Yen said.

The news helped Taiwan's bank stocks to close up 4.9 percent, on a day Taiwan's overall market rose 1.0 percent.

That was a good day for Asian stocks, where Japan hitting a 16-year low pushed most markets into negative territory.

Chi Lo, northern Asia economist with Standard Chartered, said the Taiwanese government now has to push ahead with bank reform.

"This is a positive move if there's a follow up move by the government later," he said.

Similar collapse lingers

The collapse of 10 similar institutions during the 1997 Asian financial crisis hurt Taiwan's stock market and the whole economy.

"But there wasn't any progress in further reform," Lo said. "If this time around there's a difference, this would be a positive move."

The potential collapse of the institutions had rattled confidence in Taiwan's financial system.

The co-ops in question account for a small about of Taiwan's banking system, with around $13.4 billion (T$463 billion) in assets, or around 2 percent of Taiwan's total bank assets of $780 billion (T$27 trillion).

Observers worried that, without the government stepping in, depositors could also lose confidence in Taiwan's small banks.

One analyst who did not want to be identified said the government's solution merely moves a problem into the banking system, which faces bad-loan troubles of its own.

It didn't do anything to solve the situation, the analyst said.

Lo agreed it was too early to "jump for joy" over reform in Taiwan.

"What need to see next is how far and how fast the Taiwanese government will push reform," he said.

Most Asian countries have a similar problem with their banks and bad debts.

"It seems to me now a race as to who will do reform faster, and those countries will get most of the foreign investment," he said.

Reuters contributed to this report.