Monetary Shocks as Legal Risk: Exchange Rate Depreciation, Stock Market Decline, and Bank Credit Quality in Indonesia
DOI:
https://doi.org/10.68211/nomosethica.v1i2.31Keywords:
Monetary, Stock Price Index, Bank Credit Quality, Financial System StabilityAbstract
This article aims to examine the legal implications of rupiah depreciation and declines in the Composite Stock Price Index (CSPI/IHSG) for bank credit quality within the framework of Indonesian banking and monetary law. Using normative legal research with statutory, conceptual, and law-and-economics approaches, the study analyses the Banking Act, the Bank Indonesia Act, the Financial Services Authority (OJK) Act, the Financial System Crisis Prevention and Resolution Act (PPKSK), and the Financial Sector Development and Strengthening Act (P2SK), complemented by scholarly literature on monetary instability, credit risk, and financial-system stability. The analysis demonstrates that exchange-rate depreciation and equity-market decline affect bank credit quality through multiple transmission channels, including rising financing costs, deteriorating debtor solvency, collateral devaluation, heightened non-performing loan (NPL) risk, and pressure on bank liquidity and capital adequacy. These consequences operate on two interconnected legal dimensions. At the private-law level, banks are required to strengthen prudential standards, enhance risk-management practices, and implement credit-restructuring measures to preserve portfolio quality. At the public-law level, Bank Indonesia, the Financial Services Authority (OJK), the Financial System Stability Committee (KSSK), and the Deposit Insurance Corporation (LPS) bear coordinated responsibilities for preventing the transmission of monetary shocks into systemic financial crises. The article argues that exchange-rate depreciation and stock-market decline should be understood not merely as sources of economic risk but as forms of legal risk capable of transforming banking obligations and activating regulatory responsibilities. It further proposes four regulatory reforms: the integration of mandatory foreign-exchange stress testing into supervisory review mechanisms, enhanced disclosure of debtor foreign-currency exposure, risk-sensitive supervisory frameworks calibrated to external shocks, and real-time crisis-monitoring infrastructure within the KSSK framework.
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