Don’t mess with deposit-taking institutions – TK Chua

It is true citizens should not unwittingly pass comments on the status and performance of banks, deposit taking investment institutions and superannuation funds. These institutions are the lifeblood of the economy. Any misinformation or information that is not correctly interpreted could inflict far reaching implications on the wellbeing of depositors, investors and the institutions concerned. 

Confidence is the key. Erosion of confidence due to any reason, be it unfounded rumour, impropriety or fiduciary irresponsibility, could cause great distress to the economy.

Depositors, investors, and contributors are most sensitive to information when come to putting their hard earned money. It is natural for them to be concerned when they heard news, rumours or allegations of impropriety or imprudence in institutions where they have placed their trust.

I agree groundless rumours and false accusations levelled against financial/investment institutions should be dealt with sternly. No one has the right to disrupt the smooth operations of these institutions.However, the best defence against falsehood is impeccable records and complete propriety of these institutions.   Not giving any quarter an iota of doubt or apprehension should provide the best defence mechanism to these institutions.

First, financial institutions and deposit taking investment funds must be manned by professionals with impeccable track records.  Public money and public interests must be jealously guarded against expediency and interference from any quarters. Let’s not indulge in wishful thinking; interference per se is bad because rarely are there any done for the benefits of depositors or the institutions concerned. For example, who would want to intervene to help a bank or an investment institution to make more money than it is capable of doing on its own? 

Second, these institutions must strictly adhere to all rules and regulations as stipulated, with no exceptions. They are managing and investing other people’s money; it is only fair that they are compelled not to take excessive and unreasonable risks. They must be made to avoid moral hazard, i.e. taking excessive risks without having to face the consequences of their decisions.

Third, the regulators and overseers must ensure strict compliance of all rules and regulations, again without exceptions or exemptions. Financial/deposit taking institutions that violate prudential rules must be reprimanded and punished without fear and favour. We have Bank Negara Malaysia, Security Commission, Company Commission, Cooperative Commission, Registrar of Societies and other agencies. Surely these are not wall flowers powerless to act against “adventurism” and imprudence.  

A sound financial system is the last bastion of a functioning economy. Confidence in the system must be unblemished. No financial institutions and investment funds would be able to survive if depositors and investors lose confidence and decide to withdraw their deposits/investment at one go.

Usually it is rather futile to provide explanations after allegations of wrong doings have surfaced or rumours have started. To me, it is better to manage the institutions in such a manner that there is no reason for any quarter to start the rumours or accusations in the first place.

Strict adherence to professional standards and integrity is the key. Don’t just talk good governance, practise it.

*TK Chua reads The Malaysian Insider.