LIQUIDITY IS MORE IMPORTANT THAN CAPITAL ADEQUACY RATIO OF BANKS

Budi Atmaka, Controller of OJK disclosed that in critical time, liquidity was more important than Capital Adequacy Ratio [CAR] of a bank.

"In critical time, to anticipate the undesirable, the controller was constantly monitoring liquidity, since liquidity is more important than existing capital.", Budi Atmaka stated to Business News 12161.

Budi's statement was related to the court ses­sion of Bank Century with Budi Mulya as the accused. "When a bank had good CAR or high capital and sud­denly there was rush, the bank would die instantly."

Budi elaborted his "theory" by comparing with the experience of BCA during the crisis of 1 997­ 1998, which was trusted by the public at that time for their excellent health. But since the sutuation was chaotic, the moment rush stormed BCA the bank col­lapsed instantly.

Budi, with background as ex controller in Bank Indonesia saw sameness in customers restlessness in certain period of banking. The connection between li­quidity and CAR was: liquidity handled banks finance for the short term, while car was related to capital as the soul of banks.

"As a bank had a problem in low liquidity, bank's asset could serve as solution, but in the event of rush, it could erode capital."

Meanwhile observer of Law and banking Pr­adjoto said that change of requirement in the exten­tion of Short Term Loan IFPJP] by BI to Bank Century had been in accordance with the effective Law.

"Is the change of requirement in FPJP extention in a day against the law ? The change in FPJP stems from Perppu Law No 2/2008 and the Law had is underlying philosophy the 1945 Constitution which clearly stated that in case of emergency the President could adopt a policy based on Perpu," Prad­joto told Business News [2/6].

What was meant by 'emergency' was an oc­currence like Financial Crisis, when banks was hav­ing low liquidity amidst global financial crisis. "The FPJP requirement standard was changed in a day. It was not how long change was made but how fast the action to solve problem. So was the policy of the Board of Governors legally accountable?

Every high official being authorized to take action on the basis of Law, the authority was by na­ture attributive and generally protected by the Law and the policy could not be sanctioned based in the principle that the policy was adopted with good in­tention and was no disadvantage to the country. "An official cannot be punished in making decisions"

Pradjoto explained that if a state official had bad intention and take advantage in making a Law it could be called abuse of power. "At that time the choice was limited, why limited ?

Pradjoko also referred to the fact that on No­vember 1997 16 banks were closed at the moment when the CAR of Bank Century on September 2008 was critical. The 16 banks in 1997 did not have sys­temic impact, not even any of them But at that time there was no blanket guarantee in Indonesia so the choice to close 16 banks was inevitable, causing ex­tremely high turbulence. "The historic fact of 1997 was undeniable." (SS)

Business News - June 6, 2014