By Lee C. Chipongian
With financial market pressures expected to continue for some time, the Bangko Sentral ng Pilipinas (BSP), along with other central banks (CBs) in Asia, are engaging in a regional dialogue focusing on financial stability amid potential threats of systemic risks.
BSP Deputy Governor Chuchi G. Fonacier, speaking on behalf of Governor Nestor A. Espenilla Jr., who is on a two-week medical leave until yesterday (January 21), said financial stability and all efforts to ensure it, will “not take away the relevance and urgency of our work in mitigating the build-up of systemic risks.”
Fonacier addressed the participants of the two-day BSP-International Monetary Fund (IMF) Regional Dialogue on Financial Stability for ASEAN Central Banks in Manila yesterday. She said the dialogues should result to methods, models and metrics for financial stability, as they also launch the Financial Stability (FS) Network for Regional Peers or FS Network in ASEAN. The FS Network is another venue to discuss systemic risk concerns.
The first financial stability regional dialogues primarily will address ASEAN integration benefits and how this will relate to potential financial instability risks. Besides central bank officials, the private sector, and the IMF, the dialogues will also be participated by the World Bank, the Bank for International Settlements, and the South East Asian Central Banks Research and Training Centre.
In Espenilla’s keynote speech delivered by Fonacier, she said financial stability while defined in various ways by different countries, it is “ultimately about a thriving and well-functioning financial system. By this we mean that the financial system efficiently serves the needs of all financial consumers – especially the traditionally excluded, from corporates to households and to individuals – while mitigating the build-up of systemic dislocations.”
“Financial stability is therefore more than just the absence of instability or preventing the next crisis,” said the BSP official. “There is a positive side to it, which is to ensure that the financial system continues to be a transformative tool for the public.”
Fonacier said that the financial system are two things: the institutions that she said “make up the market” and the “market outcomes” that affects the interaction among institutions, products, and individuals. “If our stated policy is to nurture a well-functioning financial system, we therefore need to understand the institutions that we oversee and nature of the interactions within the financial system,” she said.
“Let me be clear that we are not advocating one over the other. It remains essential that banks operate in a safe and sound manner,” Fonacier added. “What we now realize, however, is that there are risks that can develop from an interconnected system, even when banks are within established parameters of safety and soundness.”
Central banks have changed the ways they view financial markets. “We cannot take the financial market as a passive add-on to the macro-economy. Rather we must view it as one that can directly cause systemic risks. In turn, systemic risks are inherent to the financial market because of the way financial choices are interlinked across agents, across markets and across time,” said Fonacier. “Systemic risk cannot be assessed whether it is present or absent but rather by our ability to manage the disruptions that they may cause.”