Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said a new executive order (EO) has granted the central bank-led Financial Stability Coordination Council (FSCC) more legal standing to act “collectively on brewing systemic risks” as a single body and sharper claws for intervention.

Malacanang has signed EO No. 144 last Tuesday, which institutionalizes the FSCC, first established as a voluntary council in 2011. The FSCC includes as members, besides BSP, the Department of Finance, the Securities and Exchange Commission, the Insurance Commission, and the Philippine Deposit Insurance Corp.

The EO basically empowers the FSCC to issue regulations, to collaborate with third parties to collect data and to streamline initiatives on financial stability. It also give it authority to coordinate with other financial stability authorities in other jurisdictions.

There have been calls for FSCC to do more defensive strategy on top of its monitoring of systemic risks. The International Monetary Fund said the FSCC should have more influence such as in a “comply-or-explain mechanism” rather than being more focused on risk monitoring.

Diokno, during his weekly “GBED Talks” online, said the EO will strengthen the FSCC’s efforts to gather data “that may not be readily available today”. These crucial information “is our foundation for doing appropriate analysis, which serves as basis for formulating policy actions as necessary,” he added.

“This is not going to be an effort limited to crisis situations,” he also said.

Diokno said the EO also gives the FSCC a more coordinated approach since systemic risks “can arise from anywhere (and) there may be risks that would not necessarily fall under the literal scope of our existing charters.”

“Rather than focus on who should be handling the risk based on what the respective charters of the regulators say, the (FSCC) would rather focus on the systemic risk itself,” he explained, adding that systemic risks are different and varied depending on individual institutions or specific persons. Interlinkages, in short, create systemic risks that are different from the sum of all risks.

“The risks by the system and to the system need a separate handling, particularly when trade-offs are necessary when designing a policy for the whole that is more than the individual policy components,” he said.

The EO also formalizes underlying systemic risks not yet identified in the BSP Charter, and the charters of the other members. “The EO gives us both coverage and depth in managing systemic risks, which is at the heart of financial stability,” said Diokno.

As an institution, the FSCC can now have a coordinated approach which they prefer, because systemic risks could be: due to issues not within typical mandates; indirectly impact stakeholders with some lag; nurture “inaction bias”; and require balancing different mandates to achieve a higher objective.

Source: Manila Bulletin (