Bangko Sentral relieves banks of same-day check-clearing risks

Bangko Sentral relieves banks of same-day check-clearing risks

MONDAY, 15 NOVEMBER 2010 19:45     JUN VALLECERA / REPORTER  

STARTING on Jan. 1, 2011, banks will no longer bear the risk of an unfunded check under new regulations approved by the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) requiring same-day clearing instead of the following day as practiced at present.

The same-day clearing rule shifts the risk of an unfunded check and its accompanying responsibility from the bank to the issuer where it properly belongs.

The shift, BSP managing director Johnny Noe Ravalo said, means that starting next year one should refrain from issuing any check knowing that the instrument is not backed by funds at the bank.

Under present regulations, the issuer of a bounced check has until 4 p.m. of the following day to make good on his obligations.

Well, the BSP found in a study it commissioned that existing regulations unduly puts the entire banking system at risk of defaulting check issuers, especially in cases where large sums of money are involved, Ravalo said.

For instance, a bankrupt financial institution merely writes hundreds of millions of pesos worth of unfunded checks to panicky clients just so it escapes collective public ire at an institution that should have practiced more financial prudence in the first place.

“The BSP did a study on clearing risks and the fundamental message is we don’t want to get away from the message that if you write a check you must have the funds to back it,” Ravalo said.

“There is an antibouncing check law. The current process allows for next-day clearing. This one says same-day clearing. It is not a tightening. We’re only taking away the potential for risk and abuse,” he quickly explained.

He cited the case of a bank that is about to fail, but its officers insisting on writing checks with the full knowledge that its vaults of have been taken to the cleaners.

“What happens to banks that are about to fail? What happens to incoming checks which are claims against the bank and those checks have not been funded? The Monetary Board approved the change in regulation already. It kicks on Jan. 1 next year. The risk here is not to the individual check writer anymore but to the system,” Ravalo said.

He said further the Monetary Board agreed to rewrite the regulations in recognition of the systemic nature of the risks involved in unfunded checks, which could mean either the bank or the check writer really had solvency problems.

Also, Ravalo said, the Monetary Board recognized that consumer issues are likewise involved where an unwitting client accepts a check that was never funded from the beginning.

In any case, the practice of next-day check clearing has got to stop for the greater protection and comfort of the one who writes it and also for the person, juridical or otherwise, who accepts it in good faith.

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