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Y2K Related Liquidity Measures

11.19.1999

THE PACKAGE OF POLICIES

The Bangko Sentral announced today that the monetary board has approved a menu of schemes to provide assistance to banking institutions in the event that they encounter any Y2K-related liquidity problem. The schemes include the following: (a) the establishment of a special repurchase facility; (b) the establishment of an emergency year 2000 loan facility; (c) the lengthening of the period for compliance with the reserve position; and (d) the lowering of the reserve requirement on interbank loans from one percent to zero percent.

SPECIAL REPURCHASE FACILITY

The special repurchase facility shall be open during the period 15 December 1999-15 January 2000 for qualified borrowers. Acceptable collateral for availments under this facility includes peso-denominated government securities (under a relaxed valuation schedule) and selected foreign currency-denominated government securities. The relaxed valuation will allow banks to borrow greater amount from this facility.

EMERGENCY YEAR 2000 LOAN FACILITY

The emergency year 2000 loan facility is intended to provide temporary back-up assistance to banks in the event that they are unable to obtain funding from the market to meet any unusual increase in liquidity demand during the millennium changeover. It is believed that the very availability of a special Y2K financing facility could be a reassuring factor to help forestall potential liquidity problems. This facility is consistent with the relevant provisions of R.A. No. 7653, which state that the Bangko Sentral can provide liquidity to the banking system in periods of national and/or local emergency which directly threaten monetary and banking stability. Availments under this facility is allowed from 1 December 1999 to 31 January 2000. The pre-qualification period to gain quick-disbursing access to this facility has been set for the period on or before 26 November.

The specific guidelines to implement the special REPO facility and the emergency year 2000 loan facility have been approved by the monetary board.

LONGER COMPLIANCE PERIOD FOR RESERVE REQUIREMENT

The board also approved the lengthening of the compliance period for reserve position to cover the reserve period 17 December 1999-6 January 2000. The objective of this policy measure is to spread out the time required for banks to cover their reserves, thus reducing the pressure on interest rates.

LOWER RESERVE REQUIREMENT ON INTERBANK LOANS

Meanwhile, the reserve requirement on interbank loans was also reduced from one percent to zero percent, consistent with the broad policy thrust of the BSP to reduce banks’ intermediation cost and bring down interest rates. Moreover, the policy will not significantly affect liquidity since interbank transactions involve only a transfer of funds among banks.

The monetary board emphasized that all these privileges, accommodations and facilities will be made available to ease whatever liquidity pressure maybe occasioned by the millennium crossover. Proceeds of availments are not, therefore, to be used for speculative investments.

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