Recent Posts

Breaking News

BSP considers new instrument to channel liquidity

To keep a lid on threats of systemic risks in the financial system, the Bangko Sentral ng Pilipinas (BSP) will come up with a new instrument that banks can use or tap to mobilize their funds.

In a statement Wednesday, the BSP said the Financial Stability Policy Committee (FSPC), which BSP Governor Benjamin E. Diokno convened in January as a committee composed of BSP board members, said the committee is proposing measures to ensure financial stability amid the COVID-19 pandemic and the recession, and this include the mobilization of bank liquidity.

“Among the steps that the FSPC is considering is a new instrument that will allow banks to mobilize the liquidity already with them by taking a view on future GDP growth,” said the BSP. 

This new instrument is a “critical initiative” in the “strengthening of risk valuation practices so that the pricing of bank credit is continuously aligned with spot yields in the securities market,” the BSP explained. “And, with the quality of outstanding credit expected to face difficulties due to the weakened corporate performance in the first half of the year, the ongoing dialogue with all market stakeholders is a high priority.”

The BSP said this is an intervention that is “in line with the transition to the New Economy” brought on by the global pandemic.

“The situation calls for everyone to pitch in, from exercising prudent health protocols to the financial authorities thinking out-of-the-box to address a once-in-a-lifetime shock,” said Diokno.

Diokno said systemic risks are always a possibility they have to watch out for, especially with the global recession.

“Systemic risks may seem like a high-level concept but it really just means that financial authorities are looking for any sign that the operations of the financial market may be impaired to the detriment of the general public,” he said, adding that “pursuing financial stability requires us to manage systemic risks and we do this because our primary goal it to protect the welfare of the public.”

Since the pandemic began, the BSP has provided the market with some P1.25 trillion in extra liquidity through various liquidity-enhancing measures such as the reduction of reserve requirement and interest rates, and buying government securities.

The task now for the FSPC is to have this much liquidity to circulate or “more actively mobilized” in the financial market which is critical for the recovery and transition to the New Economy, said the BSP.

Diokno said the domestic market, mirroring the global market, has become risk-averse. “If we want to move forward, we need to pro-actively reduce the risk aversion so there is a more fundamentally-sound balance between risks and rewards,” he said.

The FSPC, a board-level committee, was created under the BSP’s revised charter which was approved in February 2019.


Source: Manila Bulletin (https://mb.com.ph/2020/08/27/bsp-considers-new-instrument-to-channel-liquidity/?utm_source=rss&utm_medium=rss&utm_campaign=bsp-considers-new-instrument-to-channel-liquidity)

No comments