Within a period of one year from the end of 2001, fourteen new financial holding companies were established in Taiwan. The growth and performance of these financial holding companies has become crucial to Taiwan’s financial development. Thus how to pursue suitable strategies to upgrade the competitiveness of these financial holding companies has become an important issue. In recent years, enlarging the size of companies through mergers and acquisitions to take advantage of economies of scale and economies of scope has become an international trend. The government of Taiwan has also encouraged local financial institutions, including financial holding companies, to consider consolidating their operations to improve their performance. Compared with their counterparts in other countries, Taiwan’s financial institutions are relatively small. Different viewpoints exist as to whether mergers and acquisitions are beneficial or not. Several issues come to light in relation to the above topic, including the suitability of keeping at least one state-owned financial institution, the content of government measures, the pressure from labor unions, the appropriate role of the government in the process of privatization, and so on. This study provides an analytical framework that summarizes these different viewpoints. Several policy recommendations are proposed that relate to the following aspects: financial soundness, the state’s ownership of financial institutions, a fair and competitive environment, the social costs involved, and other strategies related to financial internationalization.
