The push to suspend interest income on pension funds’ holdings of government securities to shore up Covid-19 projects seemed game.
First, Covid-19 spending is perpetuating a semi-permanent structural impediment and policy weakness that drains deposits from the liabilities of the commercial banks to government securities at the expense of financial intermediation (credit to the private sector on the assets side) retarding the growth of investment.
Banks holding some 54.6 percent of government total domestic debt — fed from pooled liabilities owned mostly by bank customers, including deposits of assets under management — then convert the assets under management resources to government securities in their investment portfolios.
Our commercial banking system is under capture by government securities absorbing key assets of pensions, institutional investors, and bank depositors.
It further downgraded commercial banks holding domestic debt from stable to negative on risk exposure in their holdings of government securities in their asset portfolios.
