The Bangko Sentral ng Pilipinas (BSP) participated in the virtual meeting of the Financial Stability Board (FSB) to review the response of financial stability authorities to the dislocations caused by COVID-19, as well as to look ahead and coordinate their efforts on climate risk.
The FSB was created in 2009 and takes on the primary mandate of promoting global financial stability by assessing vulnerabilities in the global financial system and making recommendations in response to evolving market developments. Although the FSB was initially organized around the G20 economies, the FSB created six Regional Consultative Groups in 2011 to reach out to non-FSB member jurisdictions.
BSP Governor Benjamin E. Diokno is the incumbent co-chair of the FSB Regional Consultative Group for Asia (RCGA), representing the region in the high-level FSB meetings. He has co-chaired the RCGA, made up of 17 jurisdictions in Asia, since July 2019. In the virtual meeting on 23 March, BSP Assistant Governor Dr. Johnny Noe E. Ravalo attended on behalf of the Governor.
Third-party institutions all agree that the unprecedented interventions of financial authorities softened the impact of COVID-19. There are indications that the global economy is now recovering at a pace faster than initially anticipated, although financial stability authorities suggest that the socio-economic dislocations are still significant.
The FSB meeting highlighted that there are costs to an early withdrawal of support measures, just as there are costs to withdrawing too late. The participants at the meeting agreed that the timing of this exit will have to depend on domestic market circumstances as conditions are still likely to evolve in the quarters ahead.
Governor Diokno said that “we intervened early and in decisive amounts to assure the market that we would provide them with needed support.” “We continue to do so,” he added.
The Governor, who also chairs the BSP Board-level Financial Stability Policy Committee (FSPC) and the inter-agency Financial Stability Coordination Council (FSCC), has previously noted that the authorities are continuously assessing the state of stability and will act with the public’s welfare in mind as the country transitions to the New Economy.
While COVID-19 is a present-day risk that is cascading heavily on the macro-financial markets, the FSB meeting also discussed its work program around climate risk.
“While we are accustomed to physical risks such as typhoons and earthquakes, we should focus our attention as well to the transition risks that arise from migrating out of fossil fuels,” the Governor noted. “This may seem like a very long-term risk, but in reality, it also takes a long period to properly move towards low greenhouse gas (GHG) emissions, especially for a country that is traditionally dependent on fossil fuels,” he added.
Meeting participants all recognized the long path ahead but also agreed that the work will be defined by disclosures, data, stress tests, and financial stability considerations.
Governor Diokno noted that the two policy issues may look so different – one that is an issue today versus another that will take us generations ahead – but they are bound by the same concern, which is improving the welfare of society now and into the future.
“This is the very point of financial stability. We have to assess the systemic risks, most especially those that we do not readily see, and make choices with the welfare of the general public in mind, across various constituents, across varying conditions, and across periods of time,” Governor Diokno highlighted.
