A council that will identify, measure, and mitigate risk in the country’s financial system has just been created upon the signing of a memorandum of agreement (MOA) between the government’s five major financial regulators.
On Wednesday, the Bangko Sentral ng Pilipinas (BSP), Department of Finance (DOF), Insurance Commission (IC), Philippine Deposit Insurance Corp. (PDIC) and Securities and Exchange Commission (SEC) signed the agreement formalizing the creation of the Financial Stability Coordination Council (FSCC).
The FSCC is a voluntary interagency council whose key objective is to identify, manage and mitigate the buildup of systemic risks, which is consistent with the overall prudential objective of financial stability.
During the signing, BSP Governor Amando Tetangco Jr. explained that the central bank defines financial stability as the existence of a government’s framework for the market, and financial infrastructure for the banks and the rest of financial system to enable the smooth functioning of the financial system that could be conducive to sustainable and equitable economic growth.
He said that there is also a need to look at the relationships or interconnectedness between and among institutions, as this would generally result in certain risk that should be addressed.
“In cooperation with other agencies of the government, within the FSCC, we like to be able to precise those risks. What are those risks, how can we mitigate and how can we address it,” he said.
Furthermore, the BSP governor mentioned that the main risks that country’s financial system is are facing now include shadow banking, capital flows, asset bubbles especially in real estate sector, and capital market reforms.
“Market developments continue to evolve and therefore it is not easy to identify which are the main risks because development occur from day to day, month to month, and the risks as a result also changes.
What we are looking at now in the FSCC and other committees are issues related to global reform initiatives,” he said.
Meanwhile, National Treasurer Rosalia de Leon said that the importance of the mechanism like FSCC to the regulators is that these agencies will be able to know what each of them are doing to achieve a stable financial system.
“We are actually synchronized in terms of our actions, particularly mitigating some of the risk that we see, that would also help in trying to step up some of the necessity of some fiscal interventions,” she said. De Leon also said that there would be always a role for both the monetary and the fiscal policy to be able to work together in stepping up, and managing mechanisms and options to be able to manage the risks.
“This organized forum is something that would allow us to work together in coming out with more prudent resolutions in case of all these risks,” de Leon added.
Organizationally, the FSCC structure has an executive committee, a steering committee, and five working groups.
Sitting in the policy-making executive committee are the five principals and a designated senior official from each of the member agencies.
Meanwhile, the steering committee, consisting of senior officers of the five agencies, is tasked to design the strategic direction of the council, while the working groups, also composed of senior officials of the five agencies, look at critical issues that may be a factor in generating systemic risks.