The “Big Bang” of 1990 injected new energy into the financial sector by ending the near-monopoly of state-owned banking institutions.
Taiwan’s rapid economic growth in the 1980s earned it an international reputation — along with Hong Kong, Singapore, and Korea — as one of the dynamic “Four Asian Tigers.” The booming export-oriented manufacturing sector created large trade surpluses and a steady rise in foreign exchange reserves.
But at the same time, it was clear that Taiwan’s conservative and inefficient banking system was unable to keep up with the economic expansion. Of the 24 domestic banks at the time, all but three were government-owned or controlled, and even those three private banks had limited market impact. Small and medium-sized enterprises (SMEs) often faced difficulties getting access to loans to support their expansion plans.
“The banks were top-down bureaucracies where no one was prepared to make any kind of innovative decisions and things just continued to be done the way they had always been done before,” says Thomas McGowan, who has been working as a foreign legal consultant in Taiwan — chiefly dealing with financial services — since 1982.
To inject new energy into the banking sector, the Banking Law was amended in 1989. Government controls over interest and exchange rates were abolished, and private investors were given the opportunity to apply for licenses to establish new banks. On April 10, 1990, the Ministry of Finance released the “Criteria for the Establishment of Commercial Banks” as a basis for approving banking licenses. It began accepting applications two days later.
The capital requirement for these new banks was set at NT$10 billion (equal to around US$372 million at the time), much more than the regulatory capital of the public banks. In addition, they were allowed to establish only five branches a year, while the state-owned public banks had on average 50 branches.
Despite those restrictions, investors jumped at the opportunity to enter the banking business. By October 12, 1990, 19 applications for licenses were submitted. Although the Ministry of Finance had not specified how many would be approved, it was generally expected that the number would come out to five to 10.
But to the surprise of most observers, 15 new private banks were given the go-ahead. Lanyang Commercial Bank (backed by Yilan Hometown Association and Goldsun Development), Wuzhou Commercial Bank (backed by Collins Co. and Romastone Co.), Huitong Commercial Bank (backed by Cathay Group), and Fuguo Commercial Bank (backed by Kaohsiung Chamber of Commerce members and Hong Bang Construction) were rejected. Entie Commercial Bank was approved a year later, in 1992.
The 16 new banks [see the accompanying chart] were popular with consumers for a number of reasons. They provided better service and catered to a wider range of customers. For example, lending to consumers and small and medium-sized businesses — downplayed by the traditional banks for fear of its unreliability — became a mainstay of the new institutions. By 1994, 47% of Bank SinoPac’s business came from consumer lending, and SMEs accounted for more than 30% of the loans held by Grand Commercial, Baodao Commercial, and Asia Pacific Commercial Bank.
Credit cards, stock investments, and foreign exchange dealings also became popular products. In September 1992 the Ministry of Finance and Central Bank started allowing designated banks to issue financial bonds, expanding the channels for them to raise medium- to long-term capital. By the end of June the following year, the value of the bonds exceeded NT$90 billion.
As of the end of 1994, deposits at the 16 new banks came to the equivalent of US$34.6 billion, accounting for a 9.5% market share. Outstanding loans came to US$33 billion, 10.3% of the market total. Ten of the new banks experienced a 90% increase in deposits in 1994, and seven saw an increase in loans of at least 70%.
Aside from helping to modernize Taiwan’s economy, the “Big Bang” reforms also spurred development of a more mature regulatory system for financial services, which in turn created a more favorable operating environment for the banks, McGowan notes.
In addition to the 16 newly created banks, some existing financial institutions, including some government-owned banks, were restructured into commercial banks, including transformation of the Chinatrust Investment Co. into CTBC Bank. The number of private banks rose from 11 in 1990 to 47 in 1999, while the number of state-owned banks was reduced from 13 to five. By 2001, the proportion of assets held by private banks had increased from 8.9% in 1991 to 51.5%.
However, the sudden influx of private banks and increased competition led to its own problems. The return on equity in the banking system dropped from 20.8% in 1990 to 3.6% in 2001. The non-performing loan ratio rose from 0.88% in 1989 to 11.26% in 2001.
Among reforms instituted as part of Taiwan’s response to the impact of the 1997 Asian Financial Crisis, the government passed the Financial Institutions Merger Act in 2000. The act promoted mergers between private banks with tax incentives and simplified the merger process, and foreign financial institutions were also encouraged to buy smaller, local banks. In 2004, the Financial Supervisory Commission was established, and from 2000 to 2008, the number of local banks declined from 48 to 37.
Between September 2004 and October 2025, 67 financial mergers and acquisitions took place in Taiwan, and only about a third of the original 16 banks are still operating today as originally constituted. However, McGowan says this result was the market expectation, and he views the reforms as successful in building up Taiwan’s domestic banking industry, which, in turn, has helped both the industry and regulators understand and interact with the operations of the rest of the banking world.
“Looking at it with hindsight, it achieved what it could achieve within the greater environment,” McGowan says. “If your choice was doing it or not doing it, doing it was a whole lot better idea than not doing it.”
