TheJakartaPost
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Handling distressed nonbank financial firms
The Financial Services Authority (OJK) might have the mandate as current laws place nearly all financial entities under its regulatory purview. But to extend a Maiden-Lane-like facility, the OJK needs to swiftly create a massive liquidity cushion for the firm in need.
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The Financial Services Authority (OJK) logo is seen on the frontispiece at its headquarters in Jakarta. (kontan.co.id/File)
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welve years ago in March 2008 Bear Stearns, an investment bank, notified the United States Federal Reserve that it would default on its short-term obligations unless the Fed extended liquidity support to the rapidly deteriorating company.
The Fed immediately authorized loans typically available to commercial banks through JPMorgan and the creation of the financial vehicle, Maiden Lane LLC.
Although for regulatory purposes Bear Stearns was not a bank, the Fed still managed to dispense the US$43-billion support to the failing firm. The move ultimately avoided, or at least postponed, a financial meltdown caused by a nonbank financial institution (NBFI) going bust.
This intervention was replicated in the aftermath of the Lehman Brothers’ collapse and was effective in restoring confidence during the financial panic of 2008.
If the same thing happened in Indonesia, would there be any authority capable of furnishing similar support to prevent a crisis?
Unfortunately, within the current regulatory frameworks, no entity could embark on such intervention because it requires both explicit mandate and actual capability.
The Financial Services Authority (OJK) might have the mandate as current laws place nearly all financial entities under its regulatory purview. But to extend a Maiden-Lane-like facility, the OJK needs to swiftly create a massive liquidity cushion for the firm in need.
