ASEAN Economic Bulletin98Vol. 23, No. 1, April 2006
ASEAN Economic Bulletin Vol. 23, No. 1 (2006), pp. 98–113
ISSN 0217-4472 print / ISSN 1793-2831 electronic© 2006 ISEASDOI: 10.1355/ae23-1g
Designing an Integrated FinancialSupervision Agency
Selected Lessons and Challenges for Indonesia
Reza Y. Siregar and William E. James
Having initiated reforms in the financial sector in late 1997, the government of Indonesia alsointroduced a new Central Bank Independence Act in early 1999. The next task for thegovernment is to devise a safety net system for the financial sector, which includes the possibility of establishing an integrated financial sector supervisory agency. This study drawsessential lessons from the experiences of other countries to highlight a number of keychallenges facing Indonesia in designing its integrated financial sector supervisory agency,especially at the early stages.
unified financial sector supervisory agency, bancassurance, central bank, Indonesia.
With the creation of new financial instruments andservices offered by various financial institutions,countries have found that boundaries between thedifferent types of financial institutions such asbanking, securities, and insurance have blurred(Taylor and Fleming 1999). In their study of fourteen countries, Martinez and Rose (2003)found that at the end of 2001, the market shares of financial conglomerate in the banking sector, thesecurities industry, and the insurance industryhad significantly and rapidly climbed to around71 per cent, 63 per cent, and 70 per cent,respectively.
The increasing presence of financialconglomerates is also highly visible in majorSoutheast Asian economies.
The role of
(whereby commercial banksactively distribute insurance products as well)has seen a phenomenal growth as a result of broad-based financial deregulation in a largenumber of Asian economies. By 2006,
can potentially account for 13 percent of total premiums collected in Asia’s lifeinsurance sector, and 6 per cent of the non-lifeinsurance sector (Sigma 2002).As in neighbouring economies, the commercialbanks in Indonesia have also been permitted toplay active roles in the security and insurancesectors (Table 1). While at present financialconglomerates in Indonesia are arguably still in anearly stage, they are by no means insignificant. Byend 2003, it is estimated that at least ten banks