Principals of the Financial Stability Coordination Council (FSCC) held a roundtable discussion recently that focused on enhancing the resilience of the country’s financial system.
Joining FSCC chairman and Bangko Sentral ng Pilipinas (BSP) governor Felipe Medalla in the roundtable discussion were Securities and Exchange Commission (SEC) chairman Emilio B. Aquino, Philippine Deposit Insurance Corporation (PDIC) president Roberto B. Tan, and Insurance Commission (IC) commissioner Dennis B. Funa.
“We have achieved considerable momentum in economic growth and the banking industry continues to be a pillar of strength. But financial stability involves the entire financial system and we have to pay attention to the underlying linkages among banks, between banks and non-bank financial institutions as well financial institutions with the rest of the economy,” Medalla said in a press statement.
For his part, SEC Chairman Aquino noted that different parts of the financial system may react differently to the same market conditions. “We saw the capital market expand just as the loan market tightened as the pandemic unfolded. This made sure that funding remained available to corporations just when they needed it most,” observed the SEC Chair.
The critical role of financial literacy raised
During the discussions, PDIC President Tan also raised the issue of the critical role of financial literacy, which is an advocacy of the PDIC. He pointed out that economic growth improves welfare but there is still much to be done in developing a culture of saving in the Philippines.
“What we would like to see is for savers and depositors to become investors but doing so means that they must also manage risks. This is why financial literacy is not just about individuals, but it is also about managing system-level risks,” the PDIC president explained.
IC Commissioner Funa, meanwhile, commented that the issue of financial literacy and interlinkages within and across markets must be taken together.
“For the financial market to be really stable and serve the needs of the public, it must provide different options to different stakeholders. This means that shocks in one area may be opportunities elsewhere. Rising interest rates, for example, increased the cost of financing but for long-term markets like the insurance sector, this also is an opportunity to improve our yields versus actuarial estimate,” emphasized the commissioner.
He also said that understanding all these opportunities would require financial literacy and the ability to manage risks.
Areas for improvement to ensure financial stability, moving forward
In closing the discussion, the FSCC principals were also asked what their vision would be for the council’s systemic risk work moving forward.
Tan talked about taking a holistic view of risk behaviours and aligning not just the regulations but also incentives and safety nets.
IC Commissioner Funa, for his part, highlighted the need to develop a long-term funding market to avoid recurring short-term volatilities. This was seconded by SEC Chair Aquino, who suggested that a developed capital market is not only about long-term funding but also about mitigating risks.
In his final thoughts, Medalla noted that there is a need to continuously invest in analytics for systemic risk management.
“Data requirements are formidable, but the work remains critical to ensure financial stability. The strength of our market should not be a reason to be complacent because it is in periods of stability that instabilities develop,” he said.