pension foundations and other institutional investors benefit from being able to invest in such products. and if the banks ’ balance sheets are relieved of the credit risk and investors with capital take on the risk, it is a positive development for financial stability. it increases the system ’ s capacity to manage shocks. however, not all of the credit risk has moved from the banks to financially strong investors. in recent years, many banks have started special investment companies that are separate legal entities outside of the banks ’ balance sheets. what these have in common is that they invest in assets with a high return and long duration, for instance, structured credit products, and finance themselves by issuing certificates in the short - term money market. the certificates are called asset backed commercial paper ( abcp ). depending on how they are constructed, the investment companies are often called " conduits ” or structured investment vehicles ( siv ). ” conduits ” are the more common of the two and account for almost 80 per cent of the outstanding stock of asset - backed commercial paper. an siv has a more advanced construction than a “ conduit ”. it is usually highly leveraged, 15 - 20 times the equity capital. it is not necessarily tied to a bank and the financing is largely for longer durations. but the need for financing in the short - term money market is nevertheless crucial. although the investment companies in themselves are not banks, they conduct bank - like operations ; they have their own balance sheets and names and are in principal independent of the banks. but if an investment company is for some reason unable to issue new corporate certificates when the old ones fall due for payment, the bank guarantees the ability to pay, wholly or partly. the guarantees may be of a formal nature, where the bank commits itself to redeeming the certificate if the investment company is unable to do so. but a guarantee can also be of a more informal nature and based on the bank being unwilling to abandon its investment company in order to protect its name and reputation. whichever is the case, it means that if an investment company linked to a bank faces financing difficulties, the problem is referred back to the bank, which must provide the company with sufficient liquidity for a short period of time. this is to some extent reminiscent of the situation during the swedish financial company crisis, which started the 1990s bank crisis. this construction with companies that have invested in assets that are difficult to value and have a long duration and which have financed themselves in

benjamin e diokno : supervision in challenging times speech by mr benjamin e diokno, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the sap financial services live, 16 november 2020. * * * thank you, peter for the introduction. good day to everyone. it is with great pride that i welcome you all to the central bank stream of sap financial services live 2020. i understand that while this global flagship event has been regularly held for more than a decade, this is the first time that it is having a central bank stream. with this, i am very pleased. financial supervision has always been a challenging undertaking. while it is continuously made more exciting by the rapid pace of digital transformation all over the world, it is also made much more complicated by the covid - 19 pandemic. that said, digital transformation has affected the philippine financial system and is profoundly changing bank supervision. just like in other countries in asia and around the world, the digital transformation of the philippine financial system has started long before this pandemic. as we speak, asia ’ s high - income economies, for example, continue to leverage long - standing strengths in information and communications technology policy vision and implementation in accelerating fiber deployment, cementing plans for 5g rollout and advancing ai development. based on the 2018 asian digital transformation index, asian countries continue building supportive environments for technology - led change, such as the availability of open data and investment in infrastructure. the covid - 19 pandemic, however, has served as an unexpected catalyst for digital transformation ’ s rapid acceleration by encouraging the use of digital financial services such as cashless payments and electronic fund transfers. when the bangko sentral ng pilipinas ( bsp ) conducted a baseline survey of the impact of covid - 19 pandemic on philippine banks, we found out that while the big banks are generally on pace with their digitization initiatives, smaller banks are yet to catch up. the discrepancy is because of the lack of right technology, insufficient in - house skills, lack of budget, and over - reliance on legacy technology. however, despite these challenges, the pandemic has forced all financial institutions in the philippines to fast track their digitization initiatives to cope with movement restrictions and social distancing measures. banks which fail to keep up with this digital transformation face the risk of losing a significant part of their client base and market share.