A Systemic Regulator for Financial Markets

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

Presenters

| Content

Camelia Indah Introduction

Annisa Ayuningtyas I. What Should The Systemic Regulator Do?
Anugrah Adeputra II. Why It Is Important To Separate Systemic Regulation
From Other Financial Regulation
Arsya Chairunnisa III. Why Central Banks Should Serve As Systemic Regulators
Ayu Savitri Meriany IV. 5 Recommendations For Establishing Systemic Regulators
Andika Dyah Paramita Systemic Regulators in Indonesia
Angela Jessica
Arieta Aryanti Conclusion

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 Crisis
by 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 Focus
Systemic regulators have to
balance the risks of financial
institutions
Through Regulatory Authorities

Systemic Regulators contribute Crises Mitigation

If 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
Lawyers and Accountants who specialize
in Rule-Making &Enforcement

Systemic Regulators

Expertise to monitor financial

innovations
Diagnose likely weaknesses in
financial system
Pursue policies that can head
off likely systemic problems

PROBLEMS
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

III. Why Central Bank Should Serve as

Systemic Regulators
1.
2.
3.
4.

CB has an access to daily trading of market participants

CB has been mandated to preserve macroeconomic stability
CB is the most independent among the government agency
CB is the lender of last resort

Each CB should have an explicit mandate to maintain stability of

the financial system so that it properly balances its role as a
systemic regulator with its other mandate; since every mandate
given 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 2
The central bank should be the systemic financial regulator
Recommendation 3
The 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
Scope

: To Create & maintain Financial Stability

: 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)

Arranging Regulations
on Financial Sectors &
providing fund for
Crises Mitigation

Taking responsibility to maintain

monetary stability & banks health
also security & continuity of
payment system

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

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

Financial System
Stability
Systemic Regulators in Indonesia

Squam Lake Working Group

Conclusion

MoF

BI

OJK

LPS

Ministry of
Finance

Monetary
Authority

Supervisory
Authority

Deposit
Insurance

JPSK

FKSSK

Financial
System
Safety Net

Coordinati
on Forum

Jaring
Pengaman
Sistem
Keuangan

Financial Stability and Financial Crisis Prevention & Management

Forum
Koordinasi
Stabilitas
Sistem
Keuangan