About time the BSP charter is amended (Part 4)

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By Atty. Ignacio R. Bunye

Speaking Out

Sunday, August 24, 2014

IN THREE previous articles, we started discussing proposed amendments to the 21-year-old Bangko Sentral charter or Republic Act 7653.

We covered some of the more salient provisions that seek to strengthen 1) the corporate and financial viability of the Bangko Sentral and 2) the monetary stability capabilities of the BSP.

In this concluding article, we will try to zero in on a few proposed amendments that seek to strengthen the supervisory capabilities of the BSP.


With the integration of financial markets and the rapid evolution of the operations of financial institutions, the BSP has correspondingly stepped up its supervision of banks in the Philippines.

The BSP has upgraded its supervision and examination approaches in line with internationally accepted standards. At the core of all these are the institutionalization of sound governance, adequate risk management and clear business models. The BSP has also endeavored to promote an environment where banks and other supervised institutions can flourish and grow.

But still, critical changes have to be made in the BSP charter, which will enable the BSP to take banking supervision to the next level.

Here in the Philippines, conglomerates have become a fact of life. Conglomerates have their advantages in terms of reducing costs by using fewer resources and also in mitigating risks inherent in operating in a single market.

But conglomerates can also become so diversified and complicated that they are too difficult to manage efficiently. And that can have implications especially if one or more of the companies in the conglomerate are banks.

One of the proposed amendments seeks to address this situation through the conduct of expanded consolidated supervision and bank examination. This amendment seeks to authorize BSP not just to look into banks and subsidiaries but also into banks’ affiliates engaged in non-allied activities. The previous authority extends only up to banks’ subsidiaries and affiliates engaged in allied activities.

The objective is to allow BSP “to obtain information for supervisory purposes on transactions between a supervised institution and its parent or other affiliate companies….. that have material impact on the safety and soundness of the bank and the banking system.”

Enhanced consolidated supervision will promote systemic stability, institutional safety and soundness and better protection of the public.

Another proposed amendment seeks to provide legal protection for bank supervisors.

Actions performed by the Monetary Board and BSP’s officers and employees can expose them to litigations, even criminal complaints and other harassments that can deter or hinder effective supervision.

The proposed amendment seeks “to hold free and harmless to the fullest extent provided by law from any liability and to indemnify them (BSP officials) from any claims and expenses that may arise in the performance of duties done in good faith.” Needless to say, the proposed protection will not cover acts performed in bad faith, or those done with malice and/or gross negligence.

Incidentally, this protection has been previously given to officers and staff of the Philippine Deposit Insurance Corporation.

Procedures are already in place for the resolution of financially distressed banks, but this is not the case with regards to other BSP-supervised institutions. Thus, one proposed amendment seeks to make explicit the application of the rules on receivership to institutions like non-stock savings and loan associations.

“The authority of the monetary board to place a bank or quasi-bank under receivership … may also be exercised over non-stock savings and loan associations, based on the same applicable grounds.” But instead of PDIC acting as receiver, in such case, “any person of recognized competence in banking, credit or finance may be designated as receiver.”

All the proposed amendments have been submitted separately by House Speaker Feliciano Belmonte (together with Rep. Nelson Collantes) and Senate President Franklin Drilon.

President Aquino has included them among the priority bills during the 16th Congress.

After 21 years, it is about time that Congress seriously tackle the BSP charter amendments.

Note: For feedback, you may email us at totingbunye2000@gmail.com.


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