Stiffer sanctions on banks eyed

by Jun Vallecera / Reporter

b. mirror/ Monday, 20 April 2009 23:04

THE Bangko Sentral ng Pilipinas (BSP) is pursuing a more aggressive penalty schedule for erring banks and financial institutions to replace an existing schedule that merely slaps the wrists of business executives.

BSP general counsel Juan de Zuñiga Jr. said some banks and financial institutions would normally rather suffer monetary penalties than waste an opportunity to earn immeasurably more by consciously breaking antiquated rules and guidelines that were imposed when the financial world was much simpler.

He told reporters the existing schedule of monetary sanctions for each violation is so puny that banks are more than willing to accept penalties or pay for them, rather than toe the line and lose untold billions.

In view of this, Zuñiga said the BSP is proposing a new schedule of fines to be determined by the policymaking Monetary Board of the Bangko Sentral to replace the hard-coded P30,000-per-day-per-violation that the banks can quickly pay for their infractions.

The proposed stiffer penalties form part of a much broader effort to empower the BSP to undertake quick-resolution schemes for ailing banks by compelling shareholders to infuse more capital, merge with stronger banks or undertake a quasi-reorganization and come out from them much stronger than before.

Zuñiga said banks are more than “happy” to receive what amounts to a mere slap in the wrist at the moment for deliberate breach of banking rules, “because the monetary penalty is just P30,000 per day per violation.”

Banks that engage in unauthorized activities, such as derivatives trading without the necessary license, earn hundreds of millions of pesos and pay only a fraction as penalty, Zuniga said.

“The proposal leaves the determination of the penalty to the Monetary Board plus possible forfeiture of profits,” he said.

The puny schedule of monetary penalties once forced former BSP governor Rafael Buenaventura to resort to a name-and-shame campaign against big-name banks who shamelessly exploited the country’s weak external sector and its sad political foibles to their advantage, forcing Buenaventura to take a defensive stance on the peso and make it more difficult for him to stabilize its value.

Buenaventura broke tradition and deliberately named the banks that took positions at the local currencies market and made the peso weaker by the minute.

Zuñiga said a higher penalty schedule for each infraction imposed in tandem with moral suasion could stop the deliberate violation of central bank rules.