Five credit cooperative banking institutions in Kaohsiung City violated the Fair Trade Law for their concerted action in determining the adjustment limit of time deposit interest
Chinese Taipei
Case:
Five credit cooperative banking institutions in Kaohsiung City violated the Fair Trade Law for their concerted action in determining the adjustment limit of time deposit interest
Key Words:
concerted action, credit cooperative banking institution, agreement on adjustment of interest rates
References:
Fair Trade Commission Decision of September 9, 1992 (the 49th Commission Meeting); Disposition (81) Kung Chu Tzu 023
Industry:
Financial Business (Credit Cooperative Bank) (6520)
Relevant Laws:
Article 14 of Fair Trade Law
Summary:
1. According to newspaper reports, five credit cooperative banks in Kaohsiung City had a meeting on May 18, 1992 to discuss matters relating to interest rates adjustment and adopted a resolution on the adjustment limit of two basic units (1 basic unit = 0.25 percent) of time deposit interest rates. In order to find out whether such resolution represents a concerted action or not, the FTC requested China Credit Cooperative Association, Kaohsiung Branch to provide the minutes of the said May 18 meeting and relevant information which were subsequently provided by the said Branch as requested.
According to the information provided by China Credit Cooperative Association, Kaohsiung Branch in its reply letter, the said Branch has three Business Panels which are composed of the responsible persons and managerial personnel of various credit cooperative banks in Kaohsiung City. Members of each Business Panel will meet at intervals of two months to review the business status as well as to provide a chance to develop social connections among agencies of the same trade. The May 18 meeting was the 19th regular meeting of Standing Directors and the 330th business meeting of the Credit Operation Panel. Discussions at the meeting covered business review and other matters. With regard to the discussion of interest rates, the trend of banking interest rates in the recent two months was reported and a range of interest rates adjustment for loans and deposits was agreed upon by participants in that meeting. The said agreed range of interest rates adjustment was provided as a reference for all credit cooperative banks to decide their own operation costs and standard interest rates standard, rather than serving as a mandatory interest rate standard compulsorily enforced under a written contract or agreement with default punishment clause made at that meeting as so described in the newspaper.
2. In the course of investigation, the FTC received a letter from the Investigation Bureau under the Ministry of Justice. The letter indicated that to avoid adverse competition in obtaining capital funds, five credit cooperative banks in Kaohsiung City had a meeting on May 18, 1992 to discuss matters pertaining to interest rates. At the meeting, the five credit cooperative banks discussed the current upper and lower limits of interest rates they adopted respectively and reached a consensus that the interest rates posted on January 14, 1992 by credit cooperative banks would be used as the standard ( 2% per annum for demand deposit; 5.75% for one to two month time deposit; 7% for three to six month time deposit; 8% for one year time deposit; 8.125 for two year time deposit; 8.25% for three year time deposit); and that each credit cooperative bank may adjust the upper and lower limit of loan interest rates at their own discretion provided that the adjustment range shall not exceed two basic units of interest rate adjustment (one basic unit equals to 0.125%). In addition, in order to avoid any disciplinary action which might be taken by the FTC against them for violation of the Fair Trade Law, the five credit cooperative banks agreed that no written record of the consensus on the foregoing interest rates adjustment will be made, and that they also agreed to meet semiannually to review the interest rates.
3 A credit cooperative bank is a corporate entity which is incorporated for the purposes of facilitating the flow of capital funds, extending loans as required by its members in conducting production and manufacturing business, and accepting the deposits from its members and non-member depositors. It is categorized as a financial institution under the business classification criteria for taxation purpose established by Chinese Taipei and is also one of the enterprises defined in Article 2 of the Fair Trade Law. In the present case, as the five credit cooperatives in Kaohsiung City are engaged in credit cooperative activities, they are certainly of the type of enterprise governed by the Fair Trade Law.
As the interest represents the cost payable for use of capital funds, and the interest rate is the basis for calculating the amount of interest, therefore, the interest rate is deemed the price of commodities to be offered by a financial enterprise. If a financial enterprise works jointly with other enterprises having competition relations with it to determine the standards of interest rates by agreement or other form of mutual understanding, their joint act shall be considered as making joint decision on the price of goods or services, and thus constituting a "concerted action" defined in Article 7 of the Fair Trade Law. "Concerted action" is prohibited unless otherwise approved in accordance with the provision set forth in Article 14 of the Fair Trade Law.
Concluding the above analyses, the act of the said five credit cooperative banks to discuss and set up the interest rates adjustment standard at a meeting held on May 18, 1992 has the same nature as that of the "concerted action" defined in Article 7 of the Fair Trade Law. In addition, the average amount of monthly balance of deposits in the accounts of the five credit cooperative banks at issue during the period from July 1991 till the end of June 1992 has made them enjoy a market share in the financial market in Kaohsiung City to the extent as set forth Article 2(1) of the Enforcement Rules of Fair Trade Law. As they had not obtained an approval from the FTC prior to taking such "concerted action", they are certainly in violation of Article 14 of the Fair Trade Law.
On September 9, 1992, at the 49th Commission meeting of the FTC, a resolution was adopted which determined that the act of the First Credit Cooperative and four other credit cooperatives in Kaohsiung City to discuss and to set up the interest rates adjustment standards at the meeting is sufficient to affect the function of the financial market in Kaohsiung City and therefore is in violation of Article 14 of e Fair Trade Law.
Summarized by Lin, Yi Chao
Supervised by Pai, Yu Chuang
＄: For information of translation, click here
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