Conclusion

This doctrine, fired from the hip to preempt asset dissipation against banks proven insolvent, is self-explanatory. Upon insolvency and where there is an imminent danger that an insolvent bank’s assets may be dissipated, then authorities invoke the doctrine. In summary fashion, they preemptively cuff a bank under receivership even before hearings for explanations or curative measures are discussed.

The process appears draconian. It is not. It does not deny due process. At least, theoretically. It simply places due process as an afterthought, the carriage before the horse where closure, seizure and receivership are preemptively applied before a panic-induced bank run squanders assets.

In reality, however, its threatened application, combined with disinformation spun by paid hacks or underpaid beat reporters, becomes self-fulfilling. Compromise confidence and fundamentals matter less and less. The threat alone induces a run. But since bank runs are panic attacks, often devoid of reason, inordinate importance is placed upon illusions, and here media is critical.

Last week we saw where 10 banks with proven financial probity and fundamentals surpassing even the most demanding might be threatened by entities recklessly alluding to insolvency.

The bank’s 2008 consolidated fundamentals debunk illusions woven by paid hacks, and yet, ploys to foment panic seem to be in play. Never mind that a 17.06-percent consolidated liquidity ratio and a robust current ratio exceed safeguards against illiquidity and insolvency and erase iffy conditionalities that justify the doctrine.

More important, fresh capital was systematically infused to gear up capital bases. Yet, from some dark and dank shadow, directed at an unknowing public, someone yelled, “Fire!”

Truth be told, first in 2005 and then in 2007, the bank’s capital was insufficient against rising requisites that compel capital infusions. But that was 2005 and 2007. This is 2008. As of June, the banks are currently over 12.76 percent in official capital-adequacy ratios (CAR), way beyond the requisite 10 percent set by the Bangko Sentral ng Pilipinas (BSP).

Unfortunately, payolas fattened by illegal lotteries swell open palms. The fears of a smear campaign were confirmed recently when a runner spreading prepackaged derogatory and unsigned “white papers” was arrested after attempts to extort from the banks failed, eventually triggering retaliatory disinformation.

Nevertheless, someone should train predisposed beat reporters how to count with more than their fingers. The 10 banks’ updated solvency ratio based on total assets of P16,301,778,866.24 over total liabilities of P14,457,553,552.09 is beyond a 1.1276 multiple. That’s a liability cover way over 112.76 percent.

Analyzed with fresh funds booked as deposits for capital subscription temporarily lodged under “other liabilities,” this increases the solvency ratio and insures against asset dissipation. Neither prospective nor illusory, this infusion is real and verifiable.

Solvency simply matches assets against liabilities. By including Tiers 1 and 2 capital, coverage exceeds the most demanding safety requisites. For the 10 banks, the only way to lure their CAR into the web of the Close-Now, Hear-Later Doctrine is through undervaluation or an outright disregard for as much as P1.23 billion of consolidated assets.

Is that the gambit? A dated document arguing a related issue cited three aspects mulled over against what were loosely described as “financially troubled banks.”

One refers to “serious problems affecting solvency as manifested in their insolvent financial condition” (itals supplied). Another refers to “critical under capitalization.” The last refers to “poor asset quality.”

The document is a 19-months old memorandum dated February 13, 2007, and referring to dated audits and one conducted nearly four years ago on April 30, 2005. Before, “recommendation[s] placing the banks under receivership,” some people should grab those free calendars handed out when they purchase anti-senility medication.

CAR is the ratio of qualifying capital over gross risk-weighted assets. While there is a list for qualifying capital, only Tier 1 is definitive. Qualifying capital includes Tier 2, comprised of long-term liabilities subject to variable aging, redemption values and other moving targets.

Risk-weighted assets, specifically receivables, are, likewise, aged and can improve or deteriorate within an audit period. Because of lags, examination reports are never in real time and capital and asset counts will always be in the past tense.

Updating is critical. For the 10 banks, should deficiencies have ballooned as of July 31, 2007, these were erased by June 2008 when combined capital increased from P250 million to P1.95 billion following a P1.8-billion infusion booked as “deposits for subscriptions,” the latter pending approval of amended capital ceilings.

Upon approval, P1.8 billion is reclassified to capital accounts reflecting its true nature, thus, increasing the current ratio. In 2008, to be insolvent, “poor asset quality” needs to breach P1.23 billion. The freshly infused P1.8 billion adequately covers those.

A P1.8-billion infusion into the rural economic system is needed. Never mind if it threatens competitors paling in financial stature. More when we consider a 12-percent CAR and the prospect of even more infused increasing capital adequacy to 48 percent, surpassing even the commercial banks’ systemwide benchmark.

Freshly infused funds, solvency and capital adequacy cannot be dismissed. Section 30 of Republic Act (RA) 7653 declares, “The Monetary Board may summarily and without need for prior hearing forbid the institution from doing business.” Premised where “a bank has insufficient realizable assets. . . to meet its liabilities,” the genetic DNA is Section 29 of RA 265 covering the Central Bank, the BSP’s forerunner, where an assessment leads to a finding that “such condition to be one of insolvency” (itals supplied).

Thus, solvency is central. But so are updated fundamentals, capital adequacy and the truth critical in rural economies ruled by political sycophants and jueteng kingpins who perpetuate poverty to keep victims dependent on gambling as a revenue source. Strong rural banks offering revenue-generating financial facilities provide antijueteng options. Unfortunately, media-induced insolvency can result from reckless threats of the Close-Now, Hear-Later Doctrine.

If we value capital investments to counter jueteng-operated rural economies, then it behooves us to do the math before we succumb to illusions conjured by those threatened by imminent rural prosperity.

Editorial: Taking stock

WE have a recent Associated Press (AP) dispatch from Washington to remind us how Ronald Reagan defined economic downturns.

Through the Looking Glass: The Close-Now, Hear-Later Doctrine

Conclusion 

This doctrine, fired from the hip to preempt asset dissipation against banks proven insolvent, is self-explanatory. Upon insolvency and where there is an imminent danger that an insolvent bank’s assets may be dissipated, then authorities invoke the doctrine.

Sway: The nature of our leaders

Almost always, nature offers the simplest explanation for a person’s why, what and how. This is the case even for politics, if only to explain President Arroyo’s decision to run in 2004 despite making earlier pronouncements that she wouldn’t, or why President Marcos opted for declaring martial law in 1972 to bypass the presidential election of 1973.

Omerta: Morales has got to go

All the signs are pointing in one direction. These suggest that Customs Commissioner Morales, based on his bureau’s huge revenue-collection shortfall over the past 21 months, may, sooner than you think, be among the first major casualties of the Lateral Attrition Act of 2005.

The Essential Thing: Criminal, administrative raps vs the same person

If a public official is charged criminally for an alleged wrongdoing proscribed by the penal laws, may he be charged administratively as well? Yes, since his single act of wrongdoing may constitute both a crime (for which he must be imprisoned) and a service-related misconduct (for which he must be disciplined).

Servant Leader: Part I: Creation–a network of life

We are blessed with a Cardinal who loves to teach us. Last month, this column featured the pastoral teaching of His Eminence entitled “Weakness and sickness—the way to fullness of life.” This week and the next few weeks, I will share with you the Cardinal’s latest teaching, Life is one!