The Bangko Sentral ng Pilipinas intends to dig into the “shadow banking” activities of certain establishments and come up with measures to prevent those engaged in these operations from disrupting the financial stability of the country.
Shadow banking activities include lending by unregulated individuals, entities charging higher-than-market interest rates, sale of dubious securities and other investment products, as well as in-house financing by real estate developers.
BSP Governor Amando Tetangco Jr. said the central bank would undertake a study of shadow banking in the country. The BSP intends to determine its extent, its impact on consumers, and what regulators can do about it.
“Many more reforms [to be initiated by the BSP] lie ahead. [One is] obtaining the components of shadow banking so that the unregulated activities are brought to the surface,” Tetangco said in a speech last week before capital market players.
In an e-mail, Tetangco said the sale of unregulated structured products was prevalent prior to the collapse of Lehmman Brothers in 2008, which triggered a global financial crisis.
“We are looking into transactions such as these so we may better identify the potential sources of systemic risk, and thereby determine the appropriate regulatory framework that can create the environment where regulated financial institutions can service the needs of the public within the risks banks can absorb,” Tetangco said.
Earlier this year, the BSP released a study that showed 8 out of 10 Filipinos did not have bank accounts, reflecting difficulty in accessing formal banking services. Also, more individuals tend to tap “shadow banking services,” such as credit from loan sharks.
The BSP believes that, because people in remote areas of the country do not have access to banks and formal financial institutions, they are forced to deal with unregulated individuals or entities.
According to the BSP, shadow banking threatens the financial stability of households and the economy as a whole.
Tetangco urged members of the capital market industry to make consumer protection one of the key elements of their services. He said the BSP would soon require regulated entities to come up with consumer protection frameworks.
There is talk in the regulatory circle that consumer protection will be elevated to a core function and not simply an advocacy of regulated banks and non-banking institutions, he said.