MANILA, Philippines — A central bank-led government group in charge of insulating the local financial system from internal and external market shocks yesterday said its member agencies have adopted a broader, more far reaching goal on top of the group’s original mandate.
In a statement, the head of the Financial Stability Coordination Council said it is taking steps not only to enhance the strength of the financial system, but also to address the financial needs of the public and eventually serve as an anchor for economic recovery.
“The mandate of the FSCC is to make sure that the financial system is functioning properly,” said the group’s chair, Bangko Sentral ng Pilipinas Governor Benjamin Diokno.
He added that the council also understands that the ultimate goal is not just a strong financial system, but a financial system that supports a thriving economy.
“This is why mitigating systemic risk is all about public welfare,” he said.
The FSCC is composed of the BSP, the Department of Finance, the Insurance Commission, the Philippine Deposit Insurance Corporation and the Securities and Exchange Commission. It is the venue for financial market authorities to identify, monitor, manage and mitigate the build up of systemic risks in the Philippine financial system.
Systemic risks are defined as disruptions to the financial system which can negatively affect the rest of the economy.
The FSCC chair noted that “the ‘systemic-ness’ of risks is not defined by the initial shock but rather the pervasiveness of its full effects.”
He said the group is concerned about small shocks that can escalate to bigger and more extensive risks to the system, as he compared this with the spread of the coronavirus disease, which he said “epitomizes systemic risk”.
The FSCC chair said the group sees the financial system as a network that links various stakeholders, their transactions and shares their views on risks. The council then assesses both strengths and vulnerabilities of the system in the context of this network.
Diokno assured the public that the health of the financial system is a continuous concern at the highest level of policy.
On Tuesday, the council released the latest edition of the Financial Stability Report which provided a snapshot of the environment as of the end of April 2020. This report will henceforth be released on a semestral basis to reflect the group’s commitment to being “responsive to the times.”
Diokno said the council is also set to release its Macroprudential Policy Strategy Framework, which will highlight the intervention of authorities for managing systemic risks. The group is also working on a Systemic Risk Crisis Management Framework.
“We fully understand that the best use of crisis management framework is when it is not in use, but we will be fully prepared when the times call for it,” he said.