ABSTRACT
The Taiwanese regulatory authority adopted the Basel Accord both to ensure banking sector stability and to protect Taiwanese bank's international businesses. The intention of maintaining banking sector stability through Accord adoption was reflected in the Taiwanese Basel Accord rules (TBAR), which were constructed largely in line with the Accord. There was thus no arbitrary provision in the TBARs for inflating Taiwanese bank's BIS capital ratios. However, although Taiwan weathered the 1997 Asian financial crisis largely unscathed, the financial conditions of its banks began to deteriorate from the late 1990s. The analysis of Taiwanese bank's compliance record highlights the following two points. First, given that most of them were in formal compliance with the Basel Accord despite their growing compliance costs, it appears that they were under pressure to comply. Second, while maintaining their formal compliance, Taiwanese banks shifted from reasonably effective to merely cosmetic compliance from the mid-1990s onward.
