BSP now looks at 'shadow banking' deals

By Prinz P. Magtulis, The Philippine Star

Posted at Oct 01 2012 08:03 AM | Updated as of Oct 01 2012 07:30 PM

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is expanding its radar to a relatively untouched sector blamed for the global financial crisis in 2008.

The central bank is now looking at transactions related to “shadow banking” or financial transactions which usually do not fall under its oversight, BSP Governor Amando Tetangco Jr. said in a recent speech.

“(We are) obtaining the components of shadow banking so that the unregulated activities are brought to the surface,” Tetangco said in his speech before financial executives in Makati City last week. A copy of the speech was sent to reporters over the weekend.

Sought for details, the BSP chief told reporters in an e-mail: “We are looking into transactions such as these so we may better identify the potential sources of systemic risk, and thereby determine the appropriate regulatory framework.”

Bankers Association of the Philippines president Alberto Villarosa declined to comment on the matter. Other bank officials could not be reached for comment.

Global regulators have pointed to shadow banking as one of the root causes of the financial turmoil in 2008, seen as the worst since the Great Depression in the 1930s. Specifically, banks were seen to have taken too much risk beyond what they can take to the detriment of their businesses.

Then US investment bank giant Lehman Brothers, in particular, was noted for issuing large amounts of mortgage-backed securities which later on ended up unfunded. This was after house owners – who are supposed to fund those securities through mortgage payments – defaulted into their dues.

Other investment institutions followed Lehman Brothers’ practice, sparking the fall of financial markets.