The Government Is Ready If There Is A Sick Bank In The Middle Of The Covid-19 Pandemic

The government is ready if there is a sick bank in the middle of the Covid-19 pandemic

Bank illustration

Jakarta - The government has prepared policies to prevent and handle crises in the financial sector, especially banks that are sick due to the Covid-19 pandemic. The mechanism for handling this is in the hands of the Deposit Insurance Corporation ( LPS ).

Minister of Finance Sri Mulyani Indrawati explained that the government has issued Government Regulation (PP) Number 33 of 2020 which gives additional authority to the LPS for placement of funds in banks. The goal is to maintain the health of the bank.

"All countries need mechanisms to maintain stability. At the same time we also prepare for any urgent situations and require us to face the issue of handling failed banks or bank resolutions," said Sri Mulyani in the LPS webinar, Wednesday (9/16/2020).

He said that Indonesia has a fairly good track record in failing bank resolutions when it passed the economic crises in 1998 and 2008. Therefore, the government does not want to repeat the same mistakes amidst the economic crisis this year.

"Indonesia is experienced in the 1998 and 2008 crises, we must realize that the 2020 situation is different and this is why some of our policies must be continued to adopt this to the LPS ," added Sri Mulyani.

For your information, LPS itself has 4 options for non-systemic bank resolution methods. These methods are the transfer of part or all of the assets at the receiving bank (Purchase and Assumption), the transfer of part or all of the assets at the intermediary bank (Bridge Bank), carrying out temporary equity participation (bail-out), and liquidation.

Meanwhile, in PLPS Number 3 of 2020, as a derivative rule of PP Number 33 of 2020, LPS can now place funds for a sick bank. Where this is done to anticipate a more severe disruption in a bank that can disrupt liquidity and the broader financial system.

Reporter: Dwi Aditya Putra


Previously, the Financial Services Authority ( OJK ) and the Deposit Insurance Corporation (LPS) renewed a cooperation agreement for economic recovery due to the Covid-19 pandemic. This reform is intended to facilitate coordination in order to maintain financial system stability, particularly banking problems.

The two institutions signed an understanding in mid-August. This MoU is a follow-up to Law Number 2/2020 concerning Stipulation of Perppu 1/2020, Government Regulation Number 33/2020 and LPS Regulation Number 3/2020.

"The new Memorandum of Understanding between the OJK and LPS was signed by the Chairman of the OJK Board of Commissioners Wimboh Santoso and the Chairman of the Board of Commissioners of the LPS Halim Alamsyah in mid-August 2020, in Jakarta," said Deputy Commissioner for Public Relations and Logistics of the OJK, Anto Prabowo, in a press release, Jakarta. , Tuesday (8/9).

This understanding serves as a guideline for supporting the implementation of the duties and functions of the OJK and LPS. Among other things, in the exchange of data and or information, bank inspections, and implementation of deposit insurance.

Then the handling of banks with the status of Banks Under Intensive Supervision (BDPI) and Banks under Special Supervision (BDPK). Including the handling of unhealthy banks and the placement of LPS funds with banks during economic recovery as a result of the Covid-19 pandemic.

The scope of this agreement between OJK and LPS is also carried out to support the effectiveness of the implementation of deposit insurance and bank supervision, follow-up on the results of bank supervision and analysis, and the handling of systemic and non-systemic banks.

Then the handling of banks whose business licenses have been revoked, the handling of banks that endanger the economy and the establishment of intermediary banks. Then the handling of banks which are issuers or public companies.

"With the entry into force of this new Memorandum of Understanding, the old OJK and LPS Memorandum of Understanding will be revoked and declared invalid," said Anto.

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