The promotion of “Financial Stability” is a formal mandate that is uniquely ascribed to the Bangko Sentral ng Pilipinas (BSP). This is provided for in the amended BSP Charter (Republic Act No. 11211) which was signed by President Duterte in February 2019. The objective of “Financial Stability” is to enhance the resilience of the financial system, in its totality and in its components, from shocks. This is done by managing systemic risks that could affect the financial system so that finance continues to be a value proposition to consumers in normal times while remaining resilient when disruptions do arise. This is the overarching global norm in financial system oversight. Given its different objective, not all bank-specific vulnerabilities are “systemic” just as macroprudential issues cover other issues beyond banking. And since macroprudential policy focuses on interlinked risk behaviors, its concern can extend beyond liquidity or inflation. Welfare consideration, in particular, is handled differently in macroprudential policy because adverse outcomes have a greater impact on society than when expected outcomes are likely to be buoyant. There is a defined organizational structure in the handling of “Financial Stability.” This structure is centered at the BSP – consistent with our Charter – and works in collaboration with other financial authorities, taking on a holistic view of the financial system. As market conditions evolve and the risk behaviors of stakeholders are constantly rebalancing, the pursuit of Financial Stability has been a journey and some of the more recent developments can be seen in here.
The term “Financial Stability” took on a specific context as a result of the GFC. It is now specifically understood to mean as addressing the build up of systemic risks which in turn is defined as disruptions to the financial system that can adversely affect the real economy. Macroprudential policy is the means for mitigating these systemic risks.
Effectively managing systemic risks is a shared undertaking across many different stakeholders. As such, the objective of Financial Stability warrants an institutional arrangement to ensure continuous focus while setting clear accountabilities.
The BSP has been focusing on financial stability since mid-2009 but, in this journey, the most notable developments have arguably transpired more recently. This section contains the recent initiatives of the BSP and the FSCC in the collective pursuit on Financial Stability.
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