FIDF 'returns to old role'
The Financial Institutions Development Fund (FIDF), which garnered losses amounting to Bt1.4 trillion during the 1997 financial crisis, looks set to resume its original role as "lender of last resort" under a draft amendment to the Bank of Thailand Act.
However, the power will be returned with an essential twist: It cannot launch future actions as it sees fit, as all these must be approved by the Cabinet.
The Cabinet yesterday approved the draft amendment, according to which the FIDF will act as the lender of last resort of financial institutions, said Deputy Government Spokesman Pakdiharn Himathongkham.
It will be allowed to extend collateralised or clean loans to financial institutions according to conditions approved by the finance minister, to buy and hold shares in financial institutions, and to provide a window for bond or loan claim repurchases.
The Finance Ministry, which proposed the bill, said that as the Deposit Protection Agency was set up in 2008 and the FIDF’s role was abolished, there had been no law or new agency tasked with extending help to financially ailing institutions. It resolved that the FIDF should resume that role, given its experience and adequate resources. The central bank would be authorised to adjust the resources for the fund as it sees fit.
Under the bill, once any financial institution shows a symptom that might lead to a systemic risk, the Bank of Thailand’s Financial Institutions Policy Committee can ask for the FIDF’s financial help. It is obliged to draw up a plan and convince the fund’s board of directors that the plan would benefit the financial system. Once approved, the plan still needs endorsement from the Cabinet.
The FIDF’s losses from its operations during the 1997 financial crisis were a factor in tarnishing the Bank of Thailand’s public image, aside from the operations in the foreign-exchange market that led to the baht’s devaluation.
Without the government’s participation in its operations, the fund injected a huge amount of money into several financial institutions, including the defunct Bangkok Bank of Commerce. Huge losses were, however, later included in Thailand’s public debt. The Bank of Thailand in the middle of this year was forced to levy fees on commercial banks to help address the losses, now amounting to Bt1.1 trillion.
According to the Cabinet secretariat, after the Cabinet’s approval yesterday, the Council of State will review the wording and the draft will then go for parliamentary screening.
