New laws urged to boost financial regulation

Business industry leaders expressed alarm over the failure of some rural banks, urging legislators to give bank regulators more teeth to deal with bank fraud that victimize depositors.

In a position paper circulated over the weekend, the private sector representatives of the Capital Market Development Council (CMDC) said they are concerned that remedial actions undertaken by the central bank are being blocked by court interventions.

According to CMDC members, regulators should be given immunity from suits, except in cases of bad faith and grave abuse of discretion, to allow them to promptly and fully dispense their duties.

Immunity from suit is one of the proposed critical amendments to the charter of the Bangko Sentral ng Pilipinas (BSP) that has been pending before Congress for over five years.

The group expressed “grave concern” over the so-called Legacy Group of rural banks that had to be shut down by the Bangko Sentral ng Pilipinas (BSP) as the fraudulent schemes started to cave in.

The CMDC is an advocacy group headed by the Financial Executives Institute of the Philippines (FINEX), co-chaired by the Department of Finance and the Securities and Exchange Commission.

But the backbone of the council is the membership of private industry advocacy associations of stockbrokers, bankers, investment houses, dealers, pre-need and insurance groups and other players in the financial market.

The group said it was alarmed at how courts have often steamrolled the BSP which had been unable to cut through the schemes to prevent subsequent collapse.

The CMDC said Congress should step in to restore public confidence by bolstering the authority of bank regulators and strengthening their legal recourse — initiatives that multilateral funding institutions have also been pushing, particularly the International Monetary Fund (IMF).

“Clearly, the brazen acts of rogue bankers to subvert the authority of regulators and abuse the protection presently afforded depositors cannot be allowed to continue,” the CMDC said. “Prompt and strong legislative action is called for to restore public confidence and achieve the much-needed stability in the financial system.”

The members said the controversy over the collapse of the rural banks turned out to involve a syndicate of small companies that used certain rural banks to engage in fraudulent Ponzi-like schemes.

“It is extremely alarming that vital regulatory actions of the Bangko Sentral ng Pilipinas over banks have been impeded by undue Court interventions via issuance of temporary restraining order (TRO),” the CMDC members said.

“While our economy may have been spared the direct hit of giant financial institution failures in the US, we need to brace ourselves for the full impact of the global economic and financial crisis,” the group added.

With financial institutions suffering from a serious crisis in confidence around the globle, the CMDC group said the country’s financial market needed to be kept stable. — With Ted Torres