Amando M Tetangco, Jr: Leveraging capabilities and synergies for
banking excellence
Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the
central bank of the Philippines), at the First General Membership Meeting of the Bankers
Institute of the Philippines (BAIPhil), Makati City, 15 July 2016.
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It is always a pleasure to be at the general assembly of the officers and members of BAIPHIL,
the training arm of the Philippine banking industry, one of the most important pillars of our
economy.
Given that the environment within which we operate is far from static and is in reality, quite
dynamic, BAIPHIL's role is quite challenging. I am glad therefore that BAIPHIL is up to this
challenge.
Under the leadership of its immediate past president Rhoneil Fajardo, BAIPHIL adopted for its
theme "Building Capacity Towards Financial Inclusion and Integration." This reflected the
industry's efforts in support of the BSP's thrust to develop an inclusive financial system to
promote inclusive growth and long-term stability. And you walked your talk. We also saw this
in the way BAIPHIL escalated its increasingly popular financial education program for teachers
and parents and for other marginalized sector groups. Congratulations!
This time, with BAIPHIL President Liza Ortiz at the helm (from July 2016 to June 2017), your
theme is "Leveraging Capabilities and Synergies for Banking Excellence." Indeed, this is the
call of the times.
The dramatic changes we have been seeing in the financial system are unparalleled. We are
witnessing a sea change via global reforms, regional initiatives and domestic developments.
The market's underlying architecture is being re-shaped and this has also changed what we
expect of bankers as professionals.
Global best practices continue to evolve and the bar set to ever higher standards. But beyond
standards, what all these really mean is that it is no longer enough for financial professionals
to focus only on their own institutions. Proper planning requires a more holistic view of market
developments and how these changes can create and possibly lead up to system-wide
dislocations.
It is the identification and mitigation of these system-wide dislocations that now drive the efforts
of financial regulators. The build-up of systemic risk should be a collective concern because
we have seen the extent of dislocation and the high costs that it can bring.
This is the mindset for the pursuit of "financial stability" as the new global prudential norm --
our efforts are organized towards preventing another systemic collapse of the financial
markets.
This is very apparent in the global reform agenda where containing "too-big-to-fail" financial
institutions and addressing the consequences of inter-connectedness are prominent
objectives. Basel 3 runs under the mantra of "making banks stronger". It does so by
institutionalizing better quality capital, introducing loss-absorbency parameters for
capitalcompliant instruments, improving market transparency and setting prescriptive caps/floors for
prudential purposes.
On the other hand, new standards completely redefine the risk governance for Financial Market
Infrastructures or FMI. This is done with an increased appreciation for contagion risk and the
need for stronger IT security protocols. Consumer protection and financial literacy are now
considered prudential norms rather than as optional add-ons. This is because the decisions
and behavior of informed financial consumers are itself effective stabilizers against market
shocks.
From the perspective of the market, these reforms increase the cost of doing business.
Granted, these regulatory premia have cost implications; but it would be costly to have yet
another crisis.
We should also factor in, that new standards now cover more risks and look at the same risks
at a higher prudential bar. The "new market landscape" is defined not only by tighter regulations
but by wider coverage of risks and a more definitive handling to mitigate further build-up of
known risks into systemic proportions.
It can be said that new norms change our understanding of the market -- from allocating scarce
resources into one that allocates risk capital. By extension then, the key commodity is
information that drives decisions across various options. It is important that reforms are put in
place and safeguards continuously updated to uphold the integrity of that information so that it
is not abused.
Excellence starts from core competencies
Ladies and gentlemen, it should be apparent that the preferred market architecture today is
substantially different from what we had in the past. If we aspire to excellence in banking, it
must start from developing core competencies.
However, let me be clear -- the need for continuing education has not changed; what has
changed is the mindset for achieving "banking excellence". We still need to know about market,
credit and operational risks; but beyond these, we now need to also appreciate risks that are
not so apparent -- like contagion, concentration, leverage and liquidity.
These four risks -- of 2 Cs and 2 Ls -- are important. At the BSP, we refer to them as "CL-2
risks". These CL-2 risks are systemic because exposures to them are formed through a chain
of bilateral transactions. Once any single point of the chain is compromised, the entire chain is
weakened. Monitoring this chain of counterparty dealings is a challenge for each institution,
but it is precisely the basis for systemic risk that concerns regulators.
An added challenge is that financial stability cannot be defined in absolute terms. Building core
competencies therefore will be an exercise not only of "what is" but increasingly more of "what
can be". This is where judgment, perspective and collaboration play a critical role. While the
market may be more complex and empirics-based, in the end, it is still the human factor that
will be needed to execute transactions.
In many ways, the task of achieving banking excellence thru synergies is no different from
operating a dragon boat.
• There is a sweep whose task it is to steer the boat with an oar and to protect the safety
of the crew by avoiding collisions.
• There is a drummer whose rhythmic pounding of the drum establishes synchronicity.
Considered the heartbeat of the dragon boat, the drummer decides when it is
appropriate to increase or decrease the pace of the team.
• And there are the paddlers whose collective and coordinated strokes move the boat.
If the dragon boat crew does not work together, the boat itself will not move. But as a team,
one can see that the beauty of cadence and the commitment to collaborate will propel the
dragon boat to move with direction, purpose and urgency.
Final thoughts
Ladies and gentlemen, all these simply reiterate that financial markets warrant a strong
framework for risk governance because of the network of linkages between transactions,
stakeholders and product lines. Thus, the reform agenda has instigated a tighter framework
that now recognizes new risks and treats old risks in a different light.
The responsibility of achieving financial stability and sustaining the strength of the financial
market rests on all industry stakeholders. We are all in this together, and therefore, we should
work together. Like wisdom, strength cannot be granted; strength must be earned.
To move forward stronger and better requires that we all collaborate and work on a common
vision and policy direction. To me, this is the essence of your theme: "Leveraging Capabilities
and Synergies for Banking Excellence."
I see BAIPhil scaling up its role within the banking industry. You can serve as the dragon boat
drummer, be the heartbeat of the industry thru trainings, calibrating coverage and content to
what is needed most at any point in time.
And BAIPHIL's role should continue to go beyond addressing gaps in technical skill sets. It is
important for BAIPHIL to broaden and deepen its coverage of human behavior, values, ethics,
and the need to maintain financial integrity at all times. In particular, BAIPHIL can address the
need to cascade governance standards across banks to levels below Directors.
And through BAIPHIL, the banking industry stands to benefit even more, from having global
experts you can learn from and benchmark with, in your conferences and training courses.
Ladies and gentlemen. It has been said that we can have a good future only if we prepare
ourselves today. We need the cadence and rhythm of a dragon boat to navigate uncertain
waters that challenge stability and the pursuit of excellence.
Under its new set of officers, I am confident that BAIPHIL will continue to be a positive force in
the banking industry.
Mabuhay ang BAIPHIL at ang ating banking industry!
Mabuhay ang ating mahal na bansang Pilipinas!
Mabuhay po tayong lahat!
Maraming salamat!