Prosecution authorities have finally completed probes into suspected irregularities involving the second round of financial reforms, with former President Chen Shui-bian indicted over bribe-taking and money laundering. Senior executives and major shareholders of several financial holding companies were also indicted for helping with Chen's money laundering. The indictments have again highlighted the need to address the aftermath of the botched second round of financial reforms and have rekindled concern as to when financial reforms will re-start. The focus of financial reforms tends to shift with the times and changing market developments. Taiwan's first round of financial reforms focused on cleaning up bad debts in the banking system and mapping out exit rules for poorly managed banks, while the second round concentrated on the privatization of state-owned banks and augmentation of financial institutions. Although the direction of the second round of financial reforms was correct, it was mismanaged. The government should not stop banking reforms using the excuse of illegal dealings involved in the reforms and should instead reaffirm its determination to reactivate reform by grappling with the issues left by the earlier failed reforms. In dealing with the aftermath, the Financial Supervisory Commission should factor in both legal provisions and practical reality in drafting solution packages on a case-by-case basis in order to maintain financial stability while upholding rule of law and the principles of fairness and justice. For instance, the commission should refer to existing regulations and insist that banking institutions review the qualifications of their heads and major shareholders in terms of 'fit and proper' principles. In line with existing bank spin-off and investment laws, the commission can also ask banking institutions that have failed to acquire controlling shares of other banks within the legal deadlines to sell off their stakes in those banks. Meanwhile, the government should accelerate reform steps, including capital increment, improving merger and acquisition regulations, consistency in releasing government stakes in local banks and management supervision. The government should also review whether its control of over 40 percent of the stakes in many local banks hampers operational efficiency, innovation and competition. Otherwise, a new financial crisis could be in the offing. 