The central bank wants to main its supervisory powers over the country’s banks, although under the law, it should transfer this function to a new financial service authority by the end of this year.

“The best organizational structure to minimize problems is by placing bank supervision in the hands of Bank Indonesia,” BI Deputy Governor Budi Rochadi, who oversees banking supervision said during a hearing with members of the House of Representatives’ Commission XI overseeing financial affairs on Tuesday.

Under article 34 of the 2004 law on BI, banking supervision — currently the domain of the central bank — will be taken over by a financial services authority (OJK), which must be established before Dec. 31.

BI and the Finance Ministry are now drafting the law on the establishment of the OJK.

While the initial design of the OJK is to build a powerful supervisory body tasked to oversee the whole financial sector, the recent financial crisis has provided different perspectives of whether the OJK is needed by Indonesia, said another BI Deputy Governor Muliaman D. Hadad, who oversees the banking system, during the hearing.

G20 countries are now considering whether to place banking supervision under the central bank or a financial services authority after the crisis, he said. “Many countries that have a financial services authority now want to return [banking supervision] to the central bank,” he said.

Analysts said placing banking supervision under the central bank or the OJK has its costs and benefits.

BI itself feels the stripping of its supervisory tasks will reduce its capacity to manage monetary policies, in pursuit of stability in the payment system and the financial system.

Muliaman said if the supervision role is transferred to another institution, it will be difficult for the central bank to encourage banks to manage their funds in accordance with its monetary targets.

BI said banks have yet to perform their intermediary functions well to support the real sector. While the Indonesian economy grew at an average rate of about 5 percent in the past five years, the real sector did not grow as expected as lending rates remained high.

Budi, however, suggested that if the supervision of banks was transferred to the OJK, then one of the BI deputy governors should be appointed as a member of its board of commissioners to help ensure that banks would channel their funds to productive activities to support the economy as a whole.

“Information sharing and coordination between the OJK and BI will go well if the chief supervisory officer role for the banking supervision authority will be taken on by a BI deputy governor,” said Budi.

Lawmakers questioned BI’s persistence in seeking to retain the supervision of the banking system.

They suggested the House Commission XI and BI form a working committee to further discuss the establishment of the OJK.

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