WELCOME ADDRESS
Twelfth Asia-Pacific High Level Meeting on Banking Supervision
Jointly organised by the Basel Committee on Banking Supervision (BCBS), the
Financial Stability Institute (FSI), and the Executives' Meeting of East Asia-
Pacific Central Banks Working Group on Banking Supervision (EMEAP WGBS),
hosted by Bank Indonesia
"Taking stock of post-crisis regulatory reforms in Indonesia -
progress made and challenges ahead"
Bali, Indonesia, 22-23 March 2017
Remarks by Mr. Erwin Rijanto, Deputy Governor of Bank Indonesia
Honorable
 Mr. Fernando Restoy, Chairman FSI, BIS
 Mr. Nestor A. Espenilla, Chairman EMEAP WGBS and Deputy
Governor Bank of Sentral Ng Pilipinas,
 Mr William Coen, Secretary General BCBS, BIS
 and fellow delegates from financial stability authorities and
representatives of the financial industry
Good morning to all of you,
1. It is my pleasure to welcome you to the 12th Asia-Pacific High Level
Meeting on Banking Supervision. Together with the Bank for
International Settlement and EMEAP, Bank Indonesia is honoured to
host this event in the beautiful island of Gods.
2. In my welcome address today, I will slightly touch upon the global
financial sector reform initiatives to give a flavour of the speech and
emphasize more on the progress and challenges in Indonesia. I
would like to highlight that the progress so far is due to the joint
efforts of relevant authorities and the support from the industry.
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Ladies and Gentlemen,
3. The costs of the financial crisis are significant. According to the
Financial Stability Board (FSB), the cumulative loss of output since
the crisis, compared to its pre-crisis trend, is estimated around 25%
of one year's world GDP.
4. To address the fault lines that caused the financial crisis, the G20
Leaders in 2008 agreed to initiate a comprehensive programme of
regulatory reforms which covers 4 (four) core elements: 1.) Building
resilient financial institutions; 2.) Ending too-big-to-fail; 3.) Making
derivatives markets safer; and 4.) Transforming shadow banking
into resilient market-based finance.
5. As a member of the FSB and the Basel Committee on Banking
Supervision (BCBS), Indonesia endevours to implement the reforms
in a full, timely and consistent manner albeit challenges due to
differences in the characteristic of our financial market with that of
advance economies, in which the regulation is build upon.
Ladies and Gentlemen,
6. Building resilient financial institutions. The first element of
reforms centered on the Basel III package. The quality and level of
capital has been increased and new standards for liquidity has
been introduced. In addition, leverage has been constrained and
explicit macroprudential dimension has been introduced.
7. Although we started a year late, Basel III implementation in
Indonesia has been in accordance with BCBS phase-in
arrangements since 2014. I am pleased to inform you that
Indonesian banks are not facing significant challenges, especially
with regards to the capital reform, due to the high levels of capital
ratio dominated by Common Equity Tier 1. Indonesia has also
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implemented the countercyclical capital buffer and capital
conservation buffer in addition to the minimum capital requirement.
8. In terms of Liquidity Coverage Ratio, banks that are required to
adopt the standard have no major difficulties complying.
Nonetheless, we continued to monitor the long run impact of the
requirement.
9. Ending too-big-to-fail. The next core element is ending too-big-
to-fail. A set of measures, known as the Systemically Important
Financial Institutions (SIFI) Framework, has been introduced.
10. Although Indonesia is not home jurisdiction of the Global
Systemically Important Banks, a number of domestic banks are
required to meet capital surcharge that varies between 1% to 2.5%
to reflect their systemic importance in the domestic financial
system.
11. Indonesia has also passed the Law on Prevention and Resolution of
Financial System Crisis in April 2016. The law enables related
financial stability authorities to implement a more rigorous banking
regulation and supervision, particulary for Domestic Systemically
Important Banks, including the provision of recovery plans. It also
provides legal foundation of bail-in mechanism.
Ladies and Gentlemen,
12. Making derivatives markets safer. The third fundamental area
of reform is in the OTC derivatives market. The crisis highlighted
how the opaque inter-connections across financial institutions
engaged in trading complex derivative contracts over-the-counter
and poor risk management led to rapid contagion and systemic
crisis.
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13. The reform has focused on 5 (five) areas: standardization of
derivative contracts; platform trading; central clearing; higher
margin and capital requirements for non-centrally cleared trades;
and mandatory reporting of all trades. Indonesia has implemented
reporting requirement for banks engaging in OTC derivatives
transactions. In addition, platform trading are required for both
equities and commodities derivatives. National authorities are also
in the proceses of establishing a CCP for OTC derivatives. This step
would complement the higher capital requirement for Non-Centrally
Cleared OTC derivatives regulation issued in September 2016.
14. Transforming shadow banking into resilient market-based
finance. Compared to other elements of the reform,
internationally-wide implementation of the agreed reforms related
to shadow banking remains at relative early stage. The FSB and
jurisdictions are planning to conduct more work to assess and
respond to potential financial stability risk in this area.
15. With regards to monitoring and regulation of non-bank financial
entities (NBFEs), the Indonesian FSA is responsible to supervise
these institutions. It also has the authority to pass regulations on
new and existing NBFEs activities. Bank Indonesia also performs
periodic assessments of emerging non-bank financial intermediary
activities from a macroprudential perspective. Efforts to reduce gaps
between the risk assessment framework for NBFEs and the banking
system are on-going.
Ladies and Gentlemen,
16. Implementation of the reforms is challenging. Of importance, is
ensuring that the implementation of the regulatory reforms does
not impair the ongoing economic recovery process and that
resilience of the banking system is preserved.
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17. We noted several challenges need to be address. First, with regards
to BCBS review of the regulatory treatment of sovereign
risk. We underline the need to undertake due consideration on the
important role of sovereign debt in monetary operation, the
financial market and economic development financing, especially in
emerging economies. A one-size-fits-all approach may not be
suitable due to different sovereign instrument and financial market
characteristics among regions.
18. Second, revision on the standardized approach for credit risk
and market risk. BCBS is working on revising the standardized
approaches for credit risk and has revised the framework for market
risk to enhance robustness and risk sensitivity of both framework.
Consequently, the standardized approach will be more granular and
complex. On the other hand, Indonesian banks mostly engage in
traditional banking activities. Hence, regulators and the industry will
need to adjust their skills and information system accordingly.
19. Last but not least, as a number of regulatory reforms are
finalized, member jurisdictions including Indonesia are expected to
implement these reforms expeditiously according to the commited
time line. Given limited resources, authorities will need to
strengthen coordination to ensure full and timely implementation.
Ladies and Gentlemen,
20. I have no doubt the 12th Asia-Pacific High Level Meeting on
Banking Supervision will be fruitful as we have an excellent line of
speakers, who will be deliberating current and critical issues in
Supervision and Banking in this post crisis era.
21. I believe there is no right or wrong when discussing frameworks for
effective supervision and banking regulation. The effectiveness of
the agreed standards depends on many aspects and that there is no
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one-size-fits-all approach. As many have said: "Economics is the
only field in which two people can get a Nobel Prize for saying the
opposite thing" is true.
22. Before I close my welcome address, allow me to offer my warmest
welcome to you all and express my deepest gratitude to your visit. I
hope you will make the most of your stay in Bali and take home
with you warm memories of your visit.
23. I would also like to remind you that Indonesia will be hosting IMF -
World Bank Annual Meeting on October 2018 in this beautiful island
of Bali. I would like to invite you to visit Bali, not only to attend the
workshops, but also to participate in a series of activities in
connection to the Annual meeting. Please save the date, and mark
your agenda.
Thank You.
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