Definition of Blanket Guarantee
Blanket guarantee is 100% guarantee of customer funds in banking by the government. Indeed, if we make an analogy, this policy seems to provide a blanket of protection for all customer funds stored in banks. Simply put, the customer’s money stored in the bank will be guaranteed not to be lost by the government, and if it is lost, the government will replace it. Surely you know the Deposit Insurance Corporation (LPS) right? LPS guarantees customer funds in banks up to a maximum of 2 billion per person per bank, but if the blanket guarantee does not have a maximum limit, putting hundreds of billions is also safe and guaranteed by the government.
The blanket guarantee itself is not a popular policy, and is usually only applied to extraordinary events such as a crisis or when there is a problem in a country’s banking system for a while until the problem passes (temporary policy). The main purpose of the blanket guarantee is to prevent customers from withdrawing their money from the bank. The thing most feared by banks is the massive withdrawal of funds by customers (rush), this will cause banks to lack liquidity and experience banking system failure. The result is as we can see in the 1998 economic crisis in asia, where many banks collapsed when the public ran a rush. It is different if there is a blanket guarantee, rush can be prevented or minimized so that banks do not collapse.
In a crisis or banking problems, the ones that will be greatly affected in the event of a rush are mostly small banks with low liquidity. Furthermore, these conditions can also trigger capital outflows or capital movements abroad. The problem is that in a crisis, there is great uncertainty about the security of funds. This is where the blanket guarantee will play an important role and foster public confidence so as not to rush.
Blanket guarantees were implemented in several countries during the global crisis in 2008. At that time, Malaysia, Singapore and Hong Kong implemented this policy to prevent foreign investors from fleeing. At that time, many experts thought that a blanket guarantee should also be applied in america, because foreign investors might be more interested in moving their money in america to Singapore because in Singapore the money is 100% guaranteed by the government. But as far as I know, america itself has never implemented this policy until now. Naturally, because the blanket guarantee policy has the potential to burden the state’s finances if the worst happens. In addition to the bureaucratic character in asia, the blanket guarantee has the potential to trigger moral hazard and other fraud in the use of this policy.
Blanket guarantie is a policy model for the safety net of the banking system where the government through an official institution formed provides a full guarantee mechanism for the security of customer funds / depositors stored in national commercial bank accounts in order to create public trust, especially customers, in the performance of national banking institutions as well as to anticipate the occurrence potential problem banks or failed banks that could have a systemic impact that could disrupt and affect the stability of the banking system as a whole.
The safety net policy of the national banking system in practice will protect the security of customer deposit funds where each banking customer will be guaranteed a maximum of 2 billion for each asset stored in commercial bank accounts and the institution that provides guarantees for the security of customer funds is the Deposit Insurance Corporation (LPS). ) in accordance with the implementation of the mandate of the law on the banking system.
Purpose of the Blanket Guarantee Policy
One of the objectives of the policy of full guarantee of customer funds (Blanket Guarante) stored in national commercial bank accounts include:
One form of protection and guarantee for the security of customer/depositor assets stored in commercial bank accounts.
Improve, create and restore public confidence in the performance of banking institutions.
Prevent and anticipate the occurrence of chaos and rush actions due to customer panic when a bank is threatened with liquidity problems or is marked as a failed bank that has the potential for systemic impact.
Blanket Guarantee also minimizes the emergence of moral hazard and aims to reduce the operational risks faced by the bank in the future.
The blanket guarantee policy is aimed at anticipating and preventing depositors/bank customers in asia from diverting their deposits to overseas banks which could trigger capital outflows.
The Blanket Guarantee policy is also expected to effectively prevent and reduce speculators from speculating on releasing the local currency which causes the dollar to weaken.
Blanket Guarantee is a guarantee from the government against public funds that are in the bank when there is a financial crisis or systemic problems in the financial system. It can be said that the blanket guarantee is an action to calm the public so that they do not make large withdrawals (bank run).
Bank run is a phenomenon that is least desired by any government when a crisis occurs. This is because a bank run will make the financial crisis worse, for example, like the 1998 monetary crisis which triggered a public bank run. To prevent this, the government issued a blanket guarantee so that people do not panic because their funds are guaranteed to be one hundred percent or in accordance with existing policies.
The government itself cannot arbitrarily issue blanket guarantees because the costs are quite expensive, namely fiscal contingencies and moral hazard. Fiscal contingencies are opportunities to increase the fiscal burden of having to bail out customer funds and absorb the assets of failed banks. Meanwhile, moral hazard refers to an increase in risk because other parties bear the risk. Regardless of the costs incurred in the blanket guarantee, the government only needs to increase the tax in exchange for the payment.
Thus, a blanket guarantee is a tool that can be used in an emergency, has a temporary nature and is used to prevent the occurrence of a financial crisis in the banking sector. As I said before, where the blanket guarantee is used to prevent money rush and capital flight, with this scheme, the negative events above can be avoided. With this blanket guarantee, the amount of guarantee covered is not limited. The benefits of this concept are none other than helping banks experiencing liquidity, avoiding capital outflows, balancing interest rates, and strengthening the country’s currency exchange rates.
example
Several countries such as Malaysia and Singapore have implemented the concept scheme because it is needed to deal with the impending crisis. It is different with our country where our country is still debating whether this policy of balanket guarantee really needs to be implemented or the LPS concept alone is enough. It is undeniable that by rolling out this concept, it is necessary to take into account the state’s financial capacity originating from the APBN. This incident was based on yesterday’s 1998 which stated that our country had already rolled out the blanket guarantee concept but this failed because the timing of its implementation was too late so that the crisis could not be avoided.
