International financial crisis experience, including in Indonesia, has taught authorities the importance of Crisis Management Protocol (CMP). The definition of protocol is an accepted or established system of rules clarifying the conduct and procedures in a formal situation. Crisis Management Protocol (CMP) is critical within a financial system for crisis resolution purposes by ensuring the financial authorities can react and respond quickly through appropriate and coordinated measures.
CMP in Indonesia is regulated in accordance with Act No. 9 of 2016 concerning Financial System Crisis Prevention and Handling. Based on that law, the Financial System Stability Committee has the mandate for financial system crisis prevention and handling, whose members include the Ministry of Finance (as chair), Bank Indonesia, Indonesian Financial Services Authority (OJK) and Deposit Insurance Corporation (LPS). The Financial System Stability Committee is a coordination, cooperation and information exchange forum amongst the relevant authorities in order to monitor and maintain financial system stability as well as resolve financial system crises and issues at systemically important banks (SIB) under normal and crisis conditions.
The National Crisis Management Protocol (CMP) has been translated into a CMP for each respective member institution of the Financial System Stability Committee, including Bank Indonesia. Bank Indonesia undertakes crisis prevention efforts by monitoring and maintaining monetary-exchange rate, macroprudential and payment system sub-protocols.
As a central bank, Bank Indonesia consistently implements its function as lender of last resort (LoLR) under normal and crisis conditions. Within the LoLR framework, Bank Indonesia provides short-term liquidity assistance to the national banking industry, which aims to overcome short-term liquidity problems in order to maintain financial system stability and public trust.
Under normal conditions, short-term liquidity assistance is only provided to illiquid but solvent banks with high-value liquid collateral and adequate repayment capacity. Under crisis conditions, however, the potential systemic impact is a major consideration, while still requiring solvency and collateral.
The Financial System Stability Committee (KSSK) was established to prevent and handle financial system crises in the national interest and to maintain economic resilience.
In accordance with the Financial System Crisis Prevention and Mitigation (PPKSK) Act, the members of the Financial System Stability Committee include the Minister of Finance as coordinator and member with voting rights, the Governor of Bank Indonesia as a member with voting rights, the Chairman of the Board of Commissioners of the Financial Services Authority (OJK) as a member with voting rights and the Chairman of the Board of Commissioners of the Deposit Insurance Corporation (LPS) as a member without voting rights. Each member of the Financial System Stability Committee acts for and on behalf of the institution of which they lead in accordance with prevailing laws and regulations.
The Financial System Stability Committee is tasked with coordinated monitoring and maintaining financial system stability, implementing financial system crisis resolution measures as well as resolving issues at systemic banks under normal and crisis conditions. In the execution of duties, the Financial System Stability Committee determines the criteria and indicators used to assess financial system stability conditions, evaluate conditions, determine coordinated crisis prevention measures and recommend any changes in the status of financial system stability and crisis prevention measures to the President of the Republic of Indonesia.
