FPO urges financial safety net
Call to reinstate power of FIDF on bailouts
The Fiscal Policy Office (FPO) will propose that Finance Minister Apisak Tantivorawong reinstate the power of the Financial Institutions Development Fund (FIDF) to bail out failing financial institutions in a bid to avert future financial meltdowns. The call comes after the Finance Ministry and the Bank of Thailand had agreed that the FIDF should play a role in solving financial i nstitutions’ problems, said FPO director-general Krisada Chinavicharana.
To re tu r n power to the FIDF, the law needs to be amended to allow the FIDF to address financial institutions’ problems, he said, adding that the rescue fund will remain under the central bank’s supervision.
The FIDF, an independent unit under the Bank of Thailand, was established in 1985 as a channel to provide financial assistance to troubled financial institutions.
It acted as the lender of last resort for ailing financial institutions during the 1997 financial crisis, when more than a dozen financial institutions collapsed. Its bailouts at that time led to a hefty loss of 1.4 trillion baht. As a result, the rescue fund was disempowered through the enactment of the Deposit Protection Agency Act in 2008. Since that time, its powers have been curtailed solely to managing its own assets to lower its debt.
Mr Krisada said that under the central bank’s supervision, there would be no conflict of interest in the FIDF playing a role in overseeing financial institutions, as the ability to probe such establishments had been increased under current law.
He said the law prevents central bank officials from sweeping problems under the rug as had been done in the past. For instance, the central bank must instruct financially ailing institutions to propose their business rehabilitation plans within 60 days of discovering that their capital adequacy ratio (CAR) has dropped below the minimum requirement of 8.5% of riskweighted assets. Furthermore, ailing institutions’ operations will be taken over by the central bank if their CAR drops lower than 6% to prevent a spillover effect to other financial institutions.
Mr Krisada said that allowing the FIDF to resume its role did not signal that local financial institutions were struggling. He added that Thai financial institutions are now strong, with CAR averaging 17.5%.
The FIDF last year expected that it would be able to pay off the debt incurred from bailing out troubled financial institutions during the 1997 financial crisis in less than 15 years, earlier than the 24 years previously projected, after its debt burden fell below 1 trillion baht.
The central bank’s net profits, the rescue fund’s assets, dividend payments from banks in which the FIDF holds a stake and commercial banks’ contribution of 0.46% of the deposit base are all being used to pay off the debt.
The FIDF is the major shareholder in state-owned Krungthai Bank with a 55.07% stake. It also wholly owns Bangkok Commercial Asset Management.