CENTURY GATE

It's on again. The media as always play a leading role in making it on again. It's everywhere. Some say that they are targetting the Vice President (Tempo, 26 Nov-2 Dec, 2012). Some other say they need a sexy topic to redicrect the issues. Whatever the reason behind the exposure of the news, The Century Gate is there! My concern to this case focus on the classficiation of bank systemic risk.

The concept of system could be traced back to Ludwig von Bertallanfy, a biologist,  in the year of 1940. Von Bertalanffy was reacting against reductionism brought by Cartesian rationality view and made an atempt to revive the unity of science. To make a pragmatic explanation I would say that Von Bertallanfy had witnessed and felt the danger of the scientific atomistic approach in which every object in this reality is treated as a separate entity. In General System theory  “The whole is more that the sum of its parts.” Constitutive characteristics are not explainable from the characteristics of the isolated parts. The characteristics of the complex, therefore, appear as new or emergent.

Back again to the case of Century Bank, one of the reasons for providing liquidity assistance was based on the new criteria of systemic bank. Previously it was based on on quantitative scale. Banks with large capital were classified as systemic risk bank and would therefore be in the priority list to get assistance. Failure to one of them is assumed to have a systemic or domino impacts on the entire banking system. With the introduction of psychological criteria Century Bank which was previously not categorized as systemic banks was then included into the systemic banks.

If we trace the concept of systemic banks into the original theory of general system theory, the entire banks are to be considered as a system. Every banks are interconnected and interdependent of each other. The relationships are not solely based on economic reason. Psychological, political, biological and all spectrum of espitemology  are to be considered. Both the central bank and the government had circumsized the concept of system and left quantitative reason as the only consideration to name a system. Even a small bank will have impacted the system. It's just a matter of time. The small bank will take longer time compared to the big banks. In the end each impacts all.