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Experts warn of moral hazard, uncertainty as House plans to let BI supervises banks
In a draft revision of the 1999 and 2004 BI laws, the House's Legislative Body (Baleg) proposed that the central bank take over the job of supervising banks from the Financial Services Authority (OJK).
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A man walks past the Financial Services Authority (OJK) building in Central Jakarta on May 15, 2013. (Tribunnews/Herudin)
T
he House of Representatives' proposal to bring back banking supervision to Bank Indonesia (BI) has drawn criticism as experts warn of possible moral hazard and regulatory uncertainty.
In a draft revision of the 1999 and 2004 BI laws, the House's Legislative Body (Baleg) proposed that the central bank take over the job of supervising banks from the Financial Services Authority (OJK). The gradual takeover process is expected to be completed by Dec. 31, 2023, at the latest.
The OJK was established in 2011 to oversee the financial industry and it was modeled on the financial services regulatory structure that prevailed in the United Kingdom. It assumed the role of regulator and supervisor of banks in 2013, taking the responsibility from the central bank.
The plan to return the role to the central bank will put the credibility of lawmakers and the government at stake, said University of Indonesia (UI) economist Fithra Faisal, adding that the bill would result in a “policy flip-flop”.
Read also: ‘Bill will push central bank into dark age’: Experts voice concerns over BI Laws revision
“The current regulation exists because back then, the central bank was considered overwhelmed with its many policy objectives,” he told The Jakarta Post on Tuesday. “If the government and the House want to be fair, the OJK must be given time and more resources to function properly.”
The proposal came after media reports emerged in July saying President Joko “Jokowi” Widodo was considering issuing an emergency decree to return the banking regulation to the central bank over his dissatisfaction with the OJK’s performance during the pandemic.
