Critycal Analysis Of Deposit Guarantee Institution Liquidity Gaps And The Impact Of Restructuring Premiums On Small-Scale Banks: Deposit Insurance Corporation (LPS) Liquidity Gap, The Impact of Restructuring Premiums on Small Scale Banks, Mitigation Strategies to Reduce Liquidity Gaps and Restructuring Premium Expenses

Abstract

This study examines the liquidity gap faced by the Deposit Insurance Corporation (LPS) and the impact of restructuring premiums on small-scale banks in Indonesia, while proposing relevant mitigation strategies. The liquidity gap arises due to LPS's reliance on long-term assets that are inflexible for emergency needs, increased liquidity demands, and high levels of Non-Performing Loans (NPL). These factors hinder LPS's ability to provide swift support to small banks, which heavily depend on external liquidity for their operational sustainability. Moreover, the restructuring premiums imposed by LPS add an additional burden on small-scale banks with limited resources. The premium-to-asset ratio for small banks is higher than that for large banks, thereby reducing their liquidity and potentially undermining customer trust. Case studies reveal that small banks in underprivileged regions face significant challenges, including a reduction in operational branches as a cost-efficiency measure. To address these challenges, this study proposes several strategies, including diversifying LPS's asset portfolio, establishing a liquidity contingency fund, implementing risk-based premium systems, and providing tax incentives for small banks. Comparative studies with Japan and Singapore highlight that adopting practices such as special reserve funds, subsidies, and incentives can enhance LPS's policy effectiveness. In conclusion, close collaboration between LPS, regulators, the government, and small banks is essential to create a more resilient and inclusive financial system. These strategic measures are expected to enhance public confidence in the national banking system.