Senator Win Gatchalian is seeking the outright exclusion of the Bangko Sentral ng Pilipinas (BSP) as a fund source for the proposed Maharlika Investment Fund (MIF) bill amid growing concerns of financial shocks across the globe.
Gatchalian made the recommendation in a 4-page letter addressed to Senator Mark Villar, chair of the Senate Committee on Banks, Financial Institutions and Currencies, which is currently tackling a Senate version of a bill creating the MIF.
According to Gatchalian, the BSP’s declared dividends should be removed as a source of funds both for the capitalization of the MIF and the Maharlika Investment Corporation (MIC), envisioned to be an independent body that would govern and manage the state fund.
“By approving the proposal to include BSP as a source of MIF, we will be exposing our financial system to uncertainties. 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,” said Gatchalian, specifying that it will take 17 years for BSP to fully realize its capitalization requirements if the central bank is mandated to contribute its dividends to the MIF.
He 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, shaking investor confidence across the globe. Reports say SVB’s shutdown was caused by concerns about the bank’s solvency causing a wider sell-off in stocks and prompted an increase in clients pulling out their deposits. Concerns over the health of the global financial system were further stoked by Credit Suisse’ largest single-day sell-off on US and European markets. 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 said.
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, Gatchalian said. 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.
Gatchalian further said 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 11211, also known as The New Central Bank Act.
“With the passage of RA 11211, we have approved the increase in the capitalization of the BSP 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.
He added that mandating the BSP to declare dividends in favor of the MIC will affect BSP’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.