AMID warnings against lingering “potential financial shocks” across the globe, Senator Sherwin T. Gatchalian pressed for the “outright exclusion” of the Bangko Sentral ng Pilipinas (BSP) “as a fund source” of the Maharlika Investment Fund (MIF).
In a four-page letter, Gatchalian conveyed his recommendation to Senator Mark A. Villar, chairman of the Senate Committee on Banks, Financial Institutions and Currencies (BFIC), currently tackling the Senate version of a bill creating the MIF.
According to the BFIC Committee Vice-Chairman, the BSP’s declared dividends should be removed as a source of funds both for the capitalization of the MIF and the Maharlika Investment Corp. (MIC). The latter is envisioned to be an independent body that would govern and manage the MIF.
Gatchalian aired concerns that “by approving the proposal to include BSP as a source of MIF, we will be exposing our financial system to uncertainties.” The senator also noted that “we will be hindering the BSP from enabling itself to meet the challenges to the economy since anything can happen in a span of 17 years.”
Moreover, Gatchalian said it will take that same number of years “for BSP to fully realize its capitalization requirements if the central bank is mandated to contribute its dividends to the MIF.”
Current liquidity crunch
THE senator cited as an example the current liquidity crunch facing the banking sector in the United States—triggered by the collapse of Silicon Valley Bank (SVB) and Signature Bank—that is shaking investor confidence across the globe.
He also noted reports that SVB’s shutdown was caused by concerns about the bank’s solvency causing a wider sell-off in stocks that prompted an increase in clients pulling out their deposits. Gatchalian said that “concerns over the health of the global financial system were further stoked by Credit Suisse’s largest single-day sell-off on US and European markets.”
The lawmaker further recalls “these developments are reminiscent of the 2008 collapse of Lehman Brothers that prompted a market meltdown and a global recession, leading central banks all over the world to execute dramatic easing of monetary policy rates.”
Gatchalian laments that “instead of fortifying and readying the BSP to handle crises facing the banking sector, the proposed MIF bill weakens the very institution capable to quickly intervene and take action during a banking crisis.”
“It constrains BSP’s capability to take extraordinary measures to reduce bank run risks and shore up confidence in the financial system during uncertain times,” he added.
Contradicting Senate vote
AT the same time, the senator observed that agreeing to the current proposal to source from the BSP’s declared dividends the MIC’s capitalization would mean “contradicting the Senate’s vote in the 18th Congress” when it approved Republic Act (RA) 11211 (The New Central Bank Act).
With the passage of RA 11211, the capitalization of the BSP was increased from P50 billion to P200 billion.
“We were made to understand the urgency to increase the capitalization of the BSP to ensure the financial strength of the institution given the growth of the banking industry through the years,” Gatchalian said.
The senator added that mandating the BSP to declare dividends in favor of the MIC will affect central bank’s independence and credibility in performing its price and financial stability mandates.
“By declaring dividends to contribute to MIC’s capitalization, BSP will have lesser funds to take full action against inflationary pressures which entail huge costs on the financial markets and can result to output loss and unemployment and eventually affecting the public’s perception on the track record of the BSP in anchoring inflation expectations,” he said.
