New BSP law gives more power to banking regulator


The amended Bangko Sentral ng Pilipinas (BSP) Charter, signed into law by President Duterte last Friday, empowers the banking regulator to have proactive policies, improved corporate viability and to issue its own debt papers to better manage liquidity.

MB file photo. (MB file photo)

In a statement over the weekend, BSP Governor Nestor A. Espenilla Jr. said the new BSP Charter will “enhance its capacity for crafting proactive policies amid rising interlinkages in the financial markets and the broader economy.”

Republic Act No. 11211 or “An Act Amending Republic Act No. 7653, Otherwise Known as the ‘New Central Bank Act’, and for Other Purposes” also raised the BSP capitalization from P50 billion to P200 billion and restored its authority to issue debt papers as part of its regular operation, thus allowing the BSP greater flexibility in determining the timing and size of its monetary operations, it said.

“The BSP appreciates the support of the Office of the President, the Senate and the House of Representatives in passing the law that bolsters the BSP’s capability to promote the stability of prices and the financial system,” Espenilla said in the statement. “The amendments to the BSP Charter are both timely and attuned to a fast-evolving market landscape.”

The BSP has been waiting for its charter changes for 20 years.

The BSP said that aligned with international trends, the law “removes money supply and credit levels as basis for determining monetary policy.” It said central banks’ focus on these indicators has declined since “fostering price stability now considers a broader set of indicators.”

The central bank’s primary mandate is inflation targeting and management and focusing on price and financial stability instead of targeting monetary aggregates, as the ultimate objective of monetary policy, noted the BSP.

The BSP said the amended law also expands its coverage of supervised financial institutions to include money service businesses, credit granting businesses and payment system operators. “This puts the BSP in a strategic position to address potential risks arising from the linkages of banks and these financial entities.”

The additional P150 billion capitalization, on the other hand, will come from dividends declared by the BSP.

The BSP is also now exempt from taxes on income derived from its governmental functions. These reforms place the BSP in a stronger position to pursue its price and financial stability mandate amidst a growing economy and the increasing sophistication of the financial system, it said.

According to Espenilla, the new BSP Charter “provides the central bank with an enhanced legal and regulatory framework in providing a steadying hand to the financial system.”

Basically, the amended BSP law gives it more power and protection as an independent institution.

One key change is the provision of legal protection to BSP personnel in the course of the performance of official duties. With it, the BSP can better perform its banking supervision function, such as by imposing corrective actions against unsound banking practices, without being hampered by lawsuits.

The BSP law, established in 1993, replaced the old law which created the Central Bank of the Philippines. The BSP then transferred assets and liabilities to the Central Bank – Board of Liquidators that it did not assume. The CB-BOL was closed down in July last year after its 25-year term lapsed. The government considers CB-BOL liabilities as part of consolidated public sector financial deficit.