Government of Indonesia Empowers Indonesian Deposit Insurance Corporation to Prevent Banks From Failing

The Government of Indonesia has issued a regulation on the 7th of July 2020, empowering the Indonesian Deposit Insurance Corporation (LPS) to self-manage its liquidity and to avoid banks from failing. Prior to this regulation, LPS was only able to pursue a reactive role, as it was responsible for rescuing insolvent banks by liquidating them and taking on shareholder responsibilities, selling or moving assets, and evaluating and cancelling unviable arrangements to help address their liquidity issues.

Under the new regulation, the LPS will be allowed to place a maximum 2.5% of its assets in one bank and a maximum 30% of its assets in all banks. However, these fund placements will be temporary as the regulation only allows...