EFFORTS to provide the Bangko Sentral ng Pilipinas (BSP) greater supervisory power, operational flexibility and financial resources have commenced in the Senate with the introduction of a bill that seeks to amend “The New Central Bank Act” in plenary last January.
Senator Francis Escudero, the chairman of the Senate Committee on Banks, Financial Institutions and Currencies, sponsored Senate Bill (SB) 1297 or “An Act Amending Republic Act [RA] 7653,” the law that created the BSP.
SB 1297 is a consolidation of four Senate bills filed by Senate Minority Leader Franklin Drilon (SB 16), Senate President Pro Tempore Ralph Recto (SB 859) and Senators Joseph Victor “JV” Ejercito (SB 1148) and Escudero (SB 1027).
Senators were proposing to amend the country’s two-decade-old central bank law in order to keep pace with innovations of a modern globalized economy.
The Philippine Congress in 1993 enacted RA 7653 creating the BSP pursuant to Section 20, Article XII, of the 1987 Constitution mandating the establishment of an independent central monetary authority.
The BSP replaced the old Central Bank of the Philippines, which had been established by RA 265 in 1948.
Since its enactment more than 20 years ago, there have been a lot of changes in the economic setting of the country and globalization has increased integration of financial markets, and scope of operations of financial institutions has evolved.
The changes have raised the need to respond to contemporary challenges by amending RA 7653 in order that the BSP shall remain effective in its conduct of monetary policy and supervision of entities within the financial system.
According to Escudero, the BSP needs to keep abreast with changing times and a capital boost will enable it to monitor, supervise and examine the web of transactions in the banking system.
“The proliferation of computerized banking transactions necessitates technical development for BSP to fully discharge its mandate in the banking and financial systems,” he said.
In his proposed SB 1027, Escudero seeks to strengthen the BSP’s monetary-stability function and supplement mechanisms in protecting savings of depositors and in ensuring smooth flow of transactions in the financial system.
In a committee hearing on the bill, BSP Governor Amando Tetangco Jr., who expressed his support to the proposals, noted that the BSP’s capitalization has remained constant for the past 23 years even after experiencing two financial crises: the Asian financial crisis in 1997 and the global financial crisis in 2007.
From its current P50-billion capitalization, SB 1297 seeks to increase Central Bank’s capitalization to P150 billion, which will be payable immediately upon effectivity of the Act in order to strengthen the corporate and financial viability of the country’s monetary authority.
Apart from raising the BSP’s capitalization to P150 billion in order to strengthen BSP’s Corporate and Financial Viability, SB 1297 also seeks to grant the institution flexibility to establish adequate loss allowances and create reserve buffers against future risks and contingencies, and restoration of tax exemption, similar to other central banks in the world.
It is also pushing for the enhancement of credit operations by granting exemption from court processes relating to collateral obtained from banks, similar to that enjoyed by Land Bank of the Philippines (LBP).
Lawmakers also want to provide authority to deputize the BSP legal staff in extrajudicial foreclosure of mortgaged property in the same manner that the legal staff of LBP and Development Bank of the Philippines (DBP) may so be deputized under their respective charters.
A review for every five years, by the Monetary Board, Department of Finance (DoF) and Department of Budget and Management (DBM), to verify if the central bank requires additional capital is also being proposed.
The fund will be automatically appropriated, and be considered as an off-budget item, meaning that it will not have to pass through the scrutiny of Congress anymore.
In strengthening the BSP’s monetary-stability function, SB 1297 is pushing for the restoration of authority to obtain data from private persons or entities for purposes of statistical and policy development.
The restoration of such authority is also aimed at ascertaining compliance with laws and banking regulations, and authority to issue negotiable certificates of indebtedness even during normal times, both of which were powers granted to the old Central Bank of the Philippines.
The bill also seeks the removal of thresholds in the growth of monetary aggregates, credit and prices as guiding principles in monetary administration, in view of current international trends in monetary policy frameworks adopting inflation targeting.
Proponents of SB 1297 also wants to strengthen the BSP’s financial- stability function through formal statutory recognition of the BSP’s mandate of promoting and maintaining financial stability in close coordination with other relevant agencies.
They are also pushing for the granting of statutory oversight of payment and settlement systems.
To enhance the central bank’s prudential-supervision function, the bill seeks to strengthen the BSP’s supervisory authority by expanding the entities it supervises to include other categories of financial institutions; and granting authority to impose sanctions on transfers and acquisitions of substantial shares of banks and quasi-banks without BSP approval.
Authors of the bill also wants to provide the BSP full flexibility in conducting risk-based supervision of financial institutions; strengthening of administrative and criminal sanctions to include, forfeiture of profits from unauthorized financial transactions; and improving resolution mechanisms to deal with problematic financial institutions.
The bill also provides legal protection for BSP officials and staff when performing official duties similar to that provided to officers and employees of the Philippine Deposit Insurance Corporation (PDIC) under RA 9576 as amended by RA 10846.