By Lee C. Chipongian
The central bank will release Tuesday, August 28, its first Financial Stability Report (FSR), which will contain “concepts” of domestic systemically important banks (D-SIBs) to better inform the public and to promote feedback in aid of improved banking regulation.
D-SIBs are "banks whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy.”
The Bangko Sentral ng Pilipinas (BSP) has never released the list of these "too big to fail" local banks, unlike some central banks in the region. In 2015, the BSP announced that they have classified D-SIBs based on its size, interconnectedness, complexity and market importance.
BSP Governor Nestor A. Espenilla Jr. said the report, which will be released tomorrow (Tuesday/August 28) is not a recommendatory report. “(But rather) this is where we want to go, in the future,” he said.
The FSR, similar with the BSP’s adoption of D-SIBs, addresses systemic risk in the banking sector.
BSP Assistant Governor Johnny Noe E. Ravalo for the Office of Systemic Risk Management under the Financial Supervision Sector, said the FSR does include “concepts” of D-SIBs and they prepared the report not by industry but by topic. “So, what are the types of risk … that should be monitored a little bit more” given the market condition such as the inflation environment, foreign exchange and liquidity risks, he said.
Ravalo said the report was of particular challenge for the BSP because this is the first time they will be releasing a version of it to the public. All previous FSRs were internal and for the BSP’s eyes only.
The data used for the FSR is publicly available, said Ravalo, but the systemic risks are not included in the balance sheet, and this is where the BSP scrutinized the information. Due to its broad coverage, the FSR report will only be released once a year.
Another challenge is how to encourage the public to read the report. “If you take a look at the other FSRs in other countries – these have equations etc. Our FSR is clearly not targeted for the academe and we’re hoping it will be read by the public. This way, we can get feedback one way or another.”
“We want to be transparent,” added Ravalo. He said the public should not fear terms such as “systemic risks” and in fact, financial consumers but should rather understand what these risks are when they bank or invest. “This will be just a short report … it’s clear (and to the point) because we have to have an informed public.”
The D-SIBs classification is part of Basel 3 reform, and the BSP as early as 2014 had guidelines for determining banks which are deemed systemically important within the domestic banking industry. The list is updated every year.
In a 2015 report, there were 14 banks identified as DSIBs out of 36 universal and commercial banks at the time. This portion of the report has since been deleted from the BSP website.
The FSR was reviewed by the BSP-led Financial Stability Coordination Council (FSCC). The FSCC, chaired by Espenilla, earlier said that threats to the global economy have increased but the Philippines is well able to balance the risks to prevent potential systemic problems for the financial system.
Ravalo said the FSR is a collective effort and approved by the FSCC. The local FSR is, however, different from that of the US and Europe. “It was deliberate on our part that banking, securities, and insurance are looked from the risks standpoint,” he said.
The FSCC, which reviews on a quarterly basis various risks that could slow economic growth, has noted a need for continued vigilance in monitoring systemic risk amid an evolving and unfolding market developments.