amando m tetangco, jr : financial stability and financial inclusion – two facets of the same policy objective speech by mr amando m tetangco, jr, governor of bangko sentral ng pilipinas ( the central bank of the philippines ), to the financial sector forum at the asian development bank, manila, 7 february 2012. * * * officials of the asian development bank, resource persons, forum participants, my colleagues in government and in the financial market, ladies and gentlemen, good afternoon. i am happy to join you this afternoon and have this opportunity to discuss two policy issues which command prime attention today. for this reason, this session is a timely intervention, providing us a venue to further our appreciation of the dynamics between inclusion and stability. let me start with financial inclusion. our foray into this policy objective has been driven by our socio - economic profile. spread over 17administrative regions, the philippine archipelago is prone to physical fragmentation. with the population typically drawn along ethnocentric lines, we have as much diversity as distinction. the economics of this divide is evident in our income distribution. data from our family income and expenditure surveys ( fies ) will show that on average only 20 percent of family saving is generated by 80 percent of families. this disparity was the case in the 1997 fies and it still is the case in the latest ( 2009 ) fies. in the banking market, limited family saving is validated by the metric of having 3 deposit accounts per 5 filipinos nationwide. this is quite low in absolute terms specially when compared with the rest of the region. what is worse though is that only 26 % of the adult population use banking services. this suggests that the 3 deposit accounts likely belong to repeat customers. to compound matters, about 37 % of municipalities still do not have banking offices. quite expectedly, the majority of banking offices are in the cities and first and second class municipalities. these information are significant because they reflect the basic gap in the footprint strategy of the banking community vis - a - vis the population. left as they are, the numbers do give us strong reasons to intervene with a formal policy on financial inclusion. this call for intervention is premised on socio - economic diversity. this is again another important consideration because it is a reminder that it is diversity which financial inclusion must precisely address. from this perspective, financial inclusion is about tailor - fitting a response for a defined problem. it is about advancing

that is where a borrowing bank itself has originated, or has some other close financial links to, the assets comprising the collateral. other features of the dwf are very different from those underpinning the sls. first, dwf borrowings typically have a term of 30 - days. 7 the dwf is intended to act as a bridge in the event of a liquidity shock. for a relatively mild shock that might support a counterparty to the next regular iltr, 8 or to planned debt issuance. for greater shocks, the solution might require more fundamental changes in the firm ’ s balance sheet ( e. g. asset disposals ). in any case, before it will agree to lend in the discount window, the bank of england will need to be convinced that there is a credible path to a point where access is no longer required. crucially, the dwf is only intended to provide short - term liquidity support to banks – and is not intended to be used as a replacement for funding, which can only be sourced in a sustained way from private markets. and it is vital to stress that the dwf is not a 100 % committed facility. at the point of application, the bank will make a fresh, independent assessment of whether it deems the counterparty to be solvent and viable. to guard against moral hazard, the dwf charges fees which make it unattractive in normal times, but which would be more attractive under stressed market conditions. because the for more information, see fisher ( 2011 ), “ recent developments in the sterling http : / / www. bankofengland. co. uk / publications / documents / speeches / 2011 / speech487. pdf. for more information see john, roberts and weeken ( 2012 ), “ the bank of england ’ s special liquidity scheme ”, in the bank ’ s spring 2012 quarterly bulletin. currently the bank also offers at its discretion the option of a drawing of up to 364 - days, for an additional fee. although counterparties are not guaranteed an allocation in these auctions, they are able to bid up for liquidity, increasing their chances of being allocated. bis central bankers ’ speeches monetary framework ”, dwf is structured as a liquidity upgrade, the fees charged are linked to the type and liquidity of collateral delivered. the more illiquid the collateral, the greater the value of the upgrade, and hence the higher the fee