A Systemic Regulator for Financial Markets

Squam Lake Working Group | A presentation by Group 3, Class F141

Presenters | Content

Introduction

I. What Should The Systemic Regulator Do?

II. Why It Is Important To Separate Systemic Regulation

From Other Financial Regulation

III. Why Central Banks Should Serve As Systemic Regulators

IV. 5 Recommendations For Establishing Systemic Regulators

Systemic Regulators in Indonesia

Conclusion

Camelia Indah

Annisa Ayuningtyas

Anugrah Adeputra

Arsya Chairunnisa

Ayu Savitri Meriany

Andika Dyah Paramita

Angela Jessica

Arieta Aryanti

Introduction

One regulatory organization in each country should be responsible for overseeing the health and stability of the overall financial system

The role : gathering, analyzing, and reporting information about significant interactions between and risks among financial institutions; designing and

implementing systemically sensitive regulations, including capital requirements; and coordinating with the fiscal authorities and other

government agencies in managing systemic crises

The central bank should be charged with this important new responsibility

I. What Should

The Systemic Regulators Do

Prevent Crisisby Gathering & Analyzing

Information (Systemic Reports)Covers broad range of financial

institutions with standardize measure

So they can understand trend & the emerging risk

by Designing & Implementing Financial Regulations with a

Systemic FocusSystemic regulators have to balance the risks of financial

institutionsThrough Regulatory Authorities

Systemic Regulators contribute Crises MitigationIf The Crises does erupt

II. Why It Is Important To Separate

Systemic Regulation From

Other Financial Regulation?

Financial Regulators

Protect Consumers

Enforce Conduct of Business Rules

Systemic Regulators

Expertise to monitor financial innovations

Diagnose likely weaknesses in financial system

Pursue policies that can head off likely systemic problems

Lawyers and Accountants who specialize in Rule-Making &Enforcement

A Regulator charged with both roles will devote to much of its attention to rule enforcement, because severe systemic crises are rare events

Political pressure may interfere Regulators independence and ability to perform systemic regulation

PROBLEMS

III. Why Central Bank Should Serve as

Systemic Regulators

1. CB has an access to daily trading of market participants

2. CB has been mandated to preserve macroeconomic stability

3. CB is the most independent among the government agency

4. CB is the lender of last resort

Each CB should have an explicit mandate to maintain stability ofthe financial system so that it properly balances its role as asystemic regulator with its other mandate; since every mandategiven to CB could be different from one to another country

IV. RECOMMENDATIONS FOR ESTABLISHING

SYSTEMATIC REGULATORS

Recommendation 1 The regulatory structure for financial markets and institutions should include a systematic regulator that oversees the health and stability of the overall financial system

Recommendation 2The central bank should be the systemic financial regulator

Recommendation 3The systemic regulator / central bank should not be involved in consumer protection and business-practices regulation

IV. RECOMMENDATIONS FOR ESTABLISHING

SYSTEMATIC REGULATORS

Recommendation 4

The systemic regulator/central bank must be given adequate resources

Recommendation 5

The central bank should be given an explicit mandate for stability of the financial system

Systemic Regulators

in Indonesia

PERPU NO. 4 TAHUN 2008

Jaringan Pengaman Sistem Keuangan

Objective : To Create & maintain Financial Stability

Scope : Crises prevention & mitigation

Komite Stabilitas Sistem Keuangan (KSSK)

Who? Minister of Finance, BI Governor, Ketua Dewan Komisioner LPS, Secretariats (Ministry of Finance, BI, LPS & Professionals)

Regulatory Authorities

Emergency Funding Facilities (Fasilitas Pembiayaan Darurat)For Whom? For banks, in a format of liquidity (LKBB)

State Budget through publishing State Obligation (SBN)

Taking responsibility to maintain monetary stability & banks health

also security & continuity of payment systemArranging Regulations

on Financial Sectors & providing fund forCrises Mitigation

Guaranteeing customers bank savings also giving resolution for troubled banks

UU no 21/2011 OJK(Otoritas Jasa Keuangan)

Objective

Regulating systematic, fair, transparent & accountable practices

Establishing financial system with stable & sustainable growth

Protecting consumers & society

Function

Holding a regulatory & supervisory system which is integrated with the whole activities in financial market

Forum of Financial System Stability

(Forum Stabilitas Sistem Keuangan)

Formed on 30 Desember 2005

3 Stages

Leading Forum (Forum Pengarah)

Execution Forum (Forum Pelaksana)

Working Teams (Tim Kerja)This forum is to coordinate in

facing risks or systemic effect, of which resolution demands

effective & responsive mutual decisions/agreements

UU no 21/2011 OJK

Normal Condition

Obliged to supervise & evaluate financial system stability

Hold at least 1 meeting in 3 months

Prepare a recommendation for every member to arrange action/regulation to maintain financial system stability

Information exchange - Synergy

Abnormal Condition

The condition with potential of crisis or when crises erupts

Hold meetings to decide crises prevention/mitigation, step by step

ConclusionSq

uam

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e W

ork

ing

Gro

up

o Systemic Risk in Financial System which has an impact to the stability of economy that could causing the crisis should be managed independently by Systemic Regulator, apart from the Financial Regulator

o Central Bank as Systemic Regulator

MoFMinistry of

Finance

BIMonetary Authority

OJKSupervisory Authority

LPSDeposit

Insurance

Financial System

Safety Net

JaringPengaman

SistemKeuangan

Coordination Forum

Forum KoordinasiStabilitas

Sistem Keuangan

Financial System Stability

JPSK

Syst

emic

Reg

ula

tors

in In

do

nes

ia

Financial Stability and Financial Crisis Prevention & Management

FKSSK