Liquidation debate<\/p>\n
Bank Indonesia Governor J. Soedradjad Djiwandono should have
\nfelt uncomfortable at having to answer questions from reporters
\nbefore Wednesday's cabinet meeting on the possible liquidation of
\ntroubled banks, even though the questions would have been
\nexpected after Finance Minister Mar'ie Muhammad touched on the
\nsame sensitive topic Tuesday.<\/p>\n
Soedradjad was quite right to reiterate bluntly that
\nliquidating a troubled bank was not a simple process and was
\nmeant to be the last resort after all rescue efforts had failed.
\nWe reckon the central bank governor wanted to stop any
\nunnecessary debates. After all, Bank Indonesia has established
\nmonitoring and supervision mechanisms to minimize the risks of
\nhaving to close down banks. Soedradjad's top priority now is to
\nfurther improve the effectiveness of the mechanisms and to
\nenforce the rules imposed on the banking industry consistently.<\/p>\n
The crux of the problem is that many aspects of banking
\noperations are sensitive, as can be seen from the banking secrecy
\nprovisions in the banking law. Debating in public the troubles of
\na particular bank, let alone disclosing its name, could have
\ndevastating repercussions.<\/p>\n
Banks and finance companies are special because of their
\nfiduciary responsibilities and the crucial role of public trust
\nin their survival. Moreover, an unexpected bank failure could
\ntrigger a domino-like collapse throughout the entire banking
\nsystem. So it would not only be counter-productive but might also
\nthreaten the survival of the finance companies or banks if their
\nproblems and names were laundered publicly.<\/p>\n
The US$1.2-billion run on deposits at financially distressed
\nfinance companies in Bangkok last week and early this week is a
\nvivid example of what could ensue if the existence of troubled
\nbanks or financial institutions was announced in such a manner
\nthat the general public could accurately guess their names. It
\nhas not helped that many banks and finance companies in Thailand
\n(like their Indonesian counterparts) have incurred bad loans
\nestimated at $2.5 billion, as a result of too-aggressive lendings
\nto the property sector. Financial analysts would agree that these
\nbad loans should be addressed to maintain the soundness of the
\nfinancial system.<\/p>\n
But the bad loans alone would not have triggered the massive
\nrun on the troubled Thai finance companies over the last few days
\nhad the central bank of Thailand handled properly the
\nannouncement of the finance companies that had to increase their
\nregistered capital. The virtual singling out of the troubled
\nfinance companies worsened the situation instead of helping to
\naccelerate the solving of their problems. The affected
\ninstitutions lost the trust of most of their depositors and
\ncreditors who understandably ran for their money. One should
\nremember that most banks own maximally only between 10 percent
\nand 12 percent of their total assets while the remainder belong
\nto depositors and creditors.<\/p>\n
It is because of their fiduciary responsibility that banks and
\nfinance companies are always subject to tougher disclosure
\nrequirements. Their financial reports must be audited by publicly
\ncertified accountants and scrutinized by examiners of the central
\nbank. This does not mean that problems do not crop up now and
\nagain but they should not be disastrous if the central bank's
\nearly-warning system is effective enough.<\/p>\n
It would therefore be much better to stop the latest debate on
\nbank liquidation right now. The question as to whether a problem
\nbank should be liquidated or not has been clearly answered by
\nGovernment Regulation No.68\/1996. Issued last December, this
\nregulation stipulates the procedures for liquidating a bank and
\nthe measures which have to be taken before a bank can be put into
\nliquidation.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/liquidation-debate-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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