Regulators out to bring ‘shadow bankers’ to light

MANILA, Philippines—Financial institutions and highly leveraged conglomerates now face stricter scrutiny as government regulators take steps to detect so-called “systemic risks” that may adversely affect the economy.

Four regulating agencies, along with the Department of Finance, formalized the creation of the Financial Stability Coordination Council (FSCC)—a new body that aims to improve supervision of the financial system and deal with problems hidden within regulatory cracks.

Apart from the Department of Finance (DOF), the Bangko Sentral ng Pilipinas (BSP), the Insurance Commission, the Philippine Deposit Insurance Corp., and the Securities and Exchange Commission (SEC) make up the new body.

The heads of the various agencies will sit on the FSCC’s policy-making executive committee.

“We will be looking at the relationships and interconnectedness between institutions,” BSP Governor and FSCC Chairman Amando M. Tetangco Jr. said during a press conference.

He cited rising levels of corporate leverage and potential “shadow banking” activities as the main risks that regulators would look into.

“It’s not easy to identify the main risks. Developments occur from day to day and from month to month. What we are looking at right now are issues related to global reform initiatives,” he said.

The BSP, as part of proposed amendments to its charter, is currently pushing for the authority to look into corporate bank accounts, citing unregulated, or “shadow,” transactions between banks and their sister firms.

Regulators across the globe have focused on financial stability to prevent the recurrence of the 2008 global financial crisis. The BSP noted that the collapse of financial giants in advanced markets at the time, which drove the world into a recession, forced governments to use taxpayers’ funds to bail out “systemically important” firms.

National Treasurer Rosalia de Leon said the FSCC would prevent this from happening in the Philippines.

“Fiscal resources are not endless. We want to know what the left and right hands are doing to mitigate the necessity of fiscal intervention (in the event of a financial crisis),” De Leon said.—Paolo G. Montecillo