Chen made the remarks during a leadership changeover ceremony in which he formally replaced Gordon Chen, who announced his resignation last Friday.

Commenting on financial reform, the new head said it must continue, despite the bad press received on the issue.

It has been alleged that former president Chen Shui-bian used "financial reform" -- a series of merger and acquisition deals between banks -- to collect bribes -- billions and billions of them -- for himself and his family.

"Mergers and acquisition are normal business deals between banks; they should be encouraged, not looked down upon," Chen said. "Also, Taiwan's bank merger law is complete and transparent -- any M&A deals should be carried out based on the law."

The FSC is also considering a plan to ask financial institutions to sell bonds to boost their capital strength as the global economic recession deepens, Chen said.

"We want financial institutions to strengthen capital and guard against credit risks following the global financial crisis that forced government bailouts of financial institutions in the U.S.," he said.

The regulator may ask the state-owned funds and overseas funds to buy these bonds, he said.

Chen added the FSC will re-examine a new accounting rule on inventories scheduled to take effect next year, which could put added pressure on profit. The regulator wants to make sure the government is doing all it can to help banks during the global financial crisis.

The average non-performing loan ratio for Taiwan banks rose to 1.54 percent as at the end of October, from 1.53 percent a month earlier, the FSC said on Nov. 27. The outstanding loans rose to NT$18.5 trillion, from NT$141.7 billion at the end of September.

Chen's appointment came after Taiwan on Nov. 28 partially removed a ban on short selling of stocks, earlier than an original timeframe of end-December. Short sales are now allowed when shares are trading above their previous closing price.

Taiwan's stocks reacted positively to Chen's appointment, with the TAIEX index rising 57.94, or 1.3 percent, to 4,518.43 at the close of trade yesterday, climbing for the fifth straight day to its highest since Nov. 12. In individual stocks, Advanced Semiconductor Engineering Inc. fell 20 cents, or 1.7 percent, to NT$11.35. The world's largest chip packaging and testing company said it completed the repurchase of 28.7 million shares at an average NT$10.74 each.

Jih Sun Financial Holdings Co. surged 19 cents, or by the 6.9 percent limit, to NT$2.95. The Taipei-based company said it will receive a NT$10 billion capital injection from shareholder Shinsei Bank Ltd.

Powerchip Semiconductor Corp., Taiwan's largest memory-chip maker, surged 21 cents, or 6.8 percent, to NT$3.3. The stock climbed by the daily limit for the third straight day after it said it will reduce its stake in Rexchip Electronics Corp. to allow Elpida Memory Inc. to take a controlling stake in the venture.