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Securitization in Taiwan: A Failed Experience
Securitization,Financialization,Mortgage-Backed Security (MBS),Mortgage,Consumer Loan,Subsidy,Field,
|Publication Year :||2019|
As its financial sector expands in recent decades, Taiwan has been widely viewed as a financialized society, which might be easily undermined by market booms or bursts. By investigating a sub-field of the Taiwanese financial sector, the securitization market, this study will examine the proposition above and evaluates how much systematic risk is Taiwan society bearing.
Invented in the 1960s U.S. society, securitization is a financial technique that helps banks to collect and transforms their tremendous loans into a commodity that can be traded in the market, enhancing the liquidity of those assets. Compared with the U.S. and its neighbor countries, Japan and Korea, there are three unique aspects of the Taiwanese securitization market: first, the market had gradually developed since the initial product issued in 2003, but soon perished after the global crisis in 2008 while its counterparts survived; second, the bonds traded in the market were most backed by corporate loans or foreign bonds rather than mortgage, which is common in other societies; third, there was no clear incumbent that formulates the order or a shared culture in the market.
The exceptional fragility and instability of the Taiwanese securitization market, according to this study, stemmed from both the interaction between the state and other actors in the field and the character of mortgages—the most common securitized asset in other markets—in Taiwanese political-economical context.
During its development in the mid-2000s, neither did the Taiwanese government set any policy aim for the market, nor did the officials actively intervene in the field to coordinate the interest between actors, lowering financial institution’s willingness to keep issuing products. Only in few consequences did the state and the financial sector reach a consensus that brought about temporary prosperity to the market. Furthermore, the indifferent attitude of the state was caused by its housing finance policy tradition: since mortgage has been widespread for decades and there has not been any systematic real estate crisis, Taiwan government has been used to providing low-interest mortgage to subside homebuyers and promote homeownership with state-owned banks, restricting the profitability and necessity of mortgage securitization.
Above all, this study argues that the traditional explanations of the decline of the Taiwanese securitization market—such as the products’ low-interest rate, the incomplete law system, or the conservative attitude of local banks—fail to perceive the institutional origin of the market. Besides, the local securitization experience suggests that the link between consumer loan and financial market has not been formed, lowering the financial risk of Taiwan and the difficulty of governance for the government. However, since the Taiwan housing finance policy highlights direct subsidies rather than indirect statecrafts, the legacy might intensify the government’s financial burden and limit its willingness to expand new welfare services.
|Appears in Collections:||社會學系|
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