Before incorporating a company or living in a country, understanding its financial system is crucial as it supports the country’s economy which may affect the quality of life. If the country’s banks fail, it will cause problems for the people who live there as well as the businesses that have invested heavily in those banks.
Banks may fail if the bank’s management makes poor financial judgments or if enough money does not circulate within the economy. These circumstances may result in an economic collapse and, as a result, a long-term recession in the country where the banks are based.
As a result, bank regulation is essential to avoid such unfavorable scenarios from occurring. Bank regulation oversees the banks’ investment decisions. Bank regulations in a specific country also specify the minimum and maximum capital that banks must hold within a fiscal year.
In general, these laws assist banks to avoid any unforeseen failures. Regular audits and economic reforms essential for the banks’ improvement are also mandated by government legislation.
Laws Governing Indonesian Banks
In Indonesia, a number of rules control the operation of both international and domestic banks. The banking industry in Indonesia is regulated by Bank Indonesia (BI). It executes numerous monetary policies and ensures the rupiah’s stability.
Law No. 7 of 1992 governs banks in Indonesia, which has since been revised by Law No. 10 of 1998. Law No. 7 was enacted to encourage Islamic banking where commercial and rural banks can both operate on Islamic banking principles under Law No. 10. The monetary policy regulations are governed by Law No. 21 of 2011. It also controls and supervises banking institutions, monitors the solvency of banks, and conducts bank examinations.
The Bureau of Industry and Security (BI) has issued Regulation No. 14/24/PBI/2012, which addresses the Single Presence Policy (SPP). This rule increases the competitiveness of the Indonesian banking industry by improving supervisory standards and streamlining bank ownership.
In order to comply with this rule, banks in Indonesia must meet certain requirements. One of these requirements is that any foreign exchange obtained from exports must be received through an Indonesian foreign exchange bank within three months of receipt. Exporters must also disclose all export declarations for every export valued at more than $10,000 USD.