BSP simplifies reserve requirement, excludes vault cash

Starting April 6, local banks and non-bank financial institutions will follow a new set of reserve requirements, which the policy making body of the Bangko Sentral ng Pilipinas (BSP) approved Thursday.   In a statement issued Friday, the BSP said the Monetary Board (MB) decided to unify the statutory reserve and the liquidity reserve into just a singe set of reserve requirement.   The MB also opted to exclude vault cash from the computation of banks’ reserves while the non-bank financial institutions with quasi-banking functions shall exclude demand deposits from their stock of reserves.   “The Monetary Board expects that the rationalization of the reserve requirement policy will increase the effectiveness of reserve requirement as a monetary policy tool, simplify its implementation, and improve the monitoring of banks’ compliance,” the BSP said in the statement.   A three-percentage-point cut in the reserve requirement ratio was also approved. This will apply to the reservable liabilities of universal/commercial banks, thrift banks, rural banks, cooperative banks, and non-bank financial institutions with quasi-banking functions   “The Monetary Board stressed that the operational changes will achieve the two-pronged objectives of simplifying the BSP’s reserve requirement regime and ensuring adequate liquidity in support of economic growth, especially given the prevailing weak global economic conditions,” the BSP also said.   With the reserve requirement ratio trimming, “the operational changes should not affect banks’ lending and deposit rates or their service fees,” it added.   The BSP is mandated by law—the New Central Bank Act or Republic Act 7653—to “control the volume of money created by the credit operations of the banking system” by requiring all banks operating in the country to maintain reserves against their deposit liabilities.   The higher the reserve requirement, the less money circulates in the financial system, thereby taming inflation pressures. — ELR, GMA News