the problem with charter

BSP says charter rules out help for non-bank firms
by BWorld/11.26.08

THE BANGKO Sentral ng Pilipinas (BSP) cannot open its lending facilities to non-bank financial corporations because this is not allowed by its charter.

BSP Governor Amando M. Tetangco, Jr. said the central bank charter states that the BSP’s lending facility, particularly its repurchase or overnight lending window, is exclusively for banks’ use.

"One of the important channels of transmission of monetary policy is credit, which is intermediated by banks," Mr. Tetangco told BusinessWorld in a mobile "text" message.

"Therefore, dealing directly with the non-financial corporate sector will run counter to this provision of law and may undermine this important transmission channel."

In its Regional Economic Outlook for Asia and the Pacific released Monday, the International Monetary Fund urged policymakers to ensure liquidity in their respective economies in order to contain the impact of the global financial turmoil and maintain economic activity.

One of its policy recommendations was for central banks to open its facilities to non-bank financial institutions and even to non-financial corporations to address any possible liquidity crunch.

But Mr. Tetangco said there is enough cash circulating in the system, especially after it doubled the budget for its rediscounting window to P40 billion from P20 billion, and after it cut banks’ reserve requirement ratio by two percentage points that freed up P60 billion in the system.

It also opened dollar-denominated lending and borrowing facilities for banks, allowed banks to reclassify their financial assets to trim their losses, and eased its rules on asset cover on banks’ foreign currency deposit liabilities.

Money circulating in the economy grew by 13.5% in September, which, according to monetary officials, was sufficient to sustain economic activity. — Gerard S. dela Peña