Government eyes preemptive measures vs disruptions

MANILA, Philippines — The Philippines is finalizing a framework as a pre-emptive initiative should a systemic disruption to financial markets occur during periods of vulnerabilities such as the coronavirus disease 2019 or COVID-19 pandemic.

Financial Stability Coordination Council (FSCC) chairman and Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in a virtual press conference the body is formalizing the systemic risk crisis management framework as part of efforts to assess and act should a systemic disruption to financial markets occur.

“We are pursuing this not because we see any imminent vulnerability that rises to the threshold of being systemic. Rather, the framework is a pre-emptive initiative, fully cognizant that its best use is when it is not in use but fully prepared nonetheless when the times call for it,” Diokno said.

Diokno said having a crisis management framework does not suggest any imminent vulnerability, but rather a preemptive move.

“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,” Diokno said.

The FSCC is also releasing the national macroprudential policy strategy framework to provide a clear narrative of the policy mindset in place when thinking of systemic risk issues.

Diokno said that the pandemic has been a direct hit on the economy and is already causing systemic dislocations.

“Let me use COVID-19 as an analogy. COVID-19 may have started with infected individuals, but it has spread so massively that we are now treating both individuals and economies. This epitomizes systemic risk,” Diokno said.

Diokno said the FSCC wants to ensure is that the difficulties due to the pandemic do not spill over into the financial system that remains strong.

“Maintaining such strength keeps the economy anchored on recovery efforts, but making sure that the financial needs of the general public continue to be met. It would be so much harder to move forward if we compound the macro difficulties with another layer of financial market disruptions,” Diokno said.

The FSCC looks at the interactions of risk behaviors throughout the financial system – a network of connected chains and any chain is only as strong as its most vulnerable link.

“As chairperson of the FSCC, I want to assure the public that the health of the financial system – the details of the underlying interlinkages – is a continuous concern at the highest level of policy. We want to ensure the sustained health of the financial system to serve the financial needs of the public as well as be an anchor for our ongoing recovery efforts,” Diokno said.

The BSP chief pointed out that the world is facing the deepest global recession.