Di­rec­tor of Su­per­vi­sion Depart­ment at Mon­gol Bank dis­cusses prospect of stronger cen­tral bank


The new amend­ments pro­posed to be made to the Bank­ing Law are be­ing dis­cussed in Par­lia­ment. Re­form in the law is set to trans­form Mon­gol Bank’s reg­u­la­tion and su­per­vi­sion of the bank­ing sec­tor to one that is risk-based.

In light of this in­for­ma­tion, some have crit­i­cized the move as mak­ing Mon­gol Bank too pow­er­ful and likely to in­ter­vene in the in­ter­nal op­er­a­tions of com­mer­cial banks. Cen­tral bank of­fi­cials have noted that banks are dif­fer­ent from any other type of busi­ness and re­quire more reg­u­la­tion.

Di­rec­tor of Mon­gol Bank’s Su­per­vi­sion Depart­ment N.Bat­saikhan gave clarifications about the cur­rent reg­u­la­tion and su­per­vi­sion of com­mer­cial banks and if it was nec­es­sary to re­form the sys­tem cur­rently in place.

Ac­cord­ing to N.Bat­saikhan, in ac­cor­dance to the cur­rent leg­is­la­ture, Mon­gol Bank im­ple­ments its reg­u­la­tion and su­per­vi­sion based on ex­e­cu­tion. In other words, the cen­tral bank is only able to cor­rect and elim­i­nate risks that have al­ready been made. The new amend­ments to the law will al­low the cen­tral bank to in­ter­vene and take cer­tain mea­sures if any po­ten­tials for risk are ob­served, even if the bank’s op­er­a­tions are sta­ble at the time. Mon­gol Bank will work to de­ter­mine and al­le­vi­ate risks that could po­ten­tially arise within the op­er­a­tions of banks.

Re­gard­ing the be­lief that the cen­tral bank will be­come too strong and be­gin to in­ter­fere with the op­er­a­tions of com­mer­cial banks, N.Bat­saikhan said that Mon­gol Bank will not have to in­ter­vene if banks are able to re­solve their is­sues in­ter­nally. If there is a bank with high risk and in­ad­e­quate risk man­age­ment, the cen­tral bank will have to in­ter­vene and take cer­tain mea­sures, said N.Bat­saikhan.

The new Bank­ing Law will in­tro­duce a new con­cept of a sta­bi­liza­tion plan. In sim­ple terms, it is a plan out­lin­ing how a bank will over­come risks in the event of po­ten­tial risks to their op­er­a­tions. If a bank is able to con­trol and over­come risks that might arise in line with its sta­bi­liza­tion plan, there is no need to en­force re­quire­ments to banks. If the plan is in­ad­e­quate and will not be able to re­al­is­ti­cally man­age risks, the cen­tral bank will in­ter­vene.

The cur­rent leg­is­la­ture only re­quires that such a plan be drafted in the event that a risk arises. If the as­sets of a bank be­gin to be de­pleted, a plan to in­crease as­sets is re­quired from a bank. A sta­bi­liza­tion plan will take into ac­count the busi­ness plan of a bank and must take into ac­count the vari­ables of a bank’s op­er­a­tions. This ul­ti­mately gives banks a chance to man­age risks in­ter­nally and pro­tect the bank’s op­er­a­tions with­out in­volve­ment from the cen­tral bank, con­cluded N.Bat­saikhan.

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