By Eileen A. Mencias

Bangko Sentral Gov. Amando Tetangco Jr. yesterday said the central bank will not clamp down on derivatives, stressing that improvements in disclosure and transparency standards are needed.

?I believe there is a place for financial innovation but embracing innovations must be coupled with prudential regulations, including improvements in disclosure and transparency standards,? he said before an economic forum sponsored by Security Bank Corp.

?We shouldn?t go to the extreme of over regulation, but rather create an atmosphere to increase accountability,? Tetangco said.

Financial innovations, specifically derivatives such as collateralized debt obligations, were the main reasons behind the sub-prime crisis in the US that resulted in the collapse of institutions such as Lehman Brothers.

To help banks limit losses and prevent a contraction of their assets, the central bank has eased its financial reporting requirements.

Some banks have reported taking advantage of the easing of accounting rules, specifically the flexibility to shift assets from one category to another, in line with the steps taken by the International Accounting Standards Board in light of the extraordinary circumstance in the global financial markets.

Allied Banking Corp., Banco de Oro Unibank Inc., Metropolitan Bank and Trust Co., Security Bank and Union Bank of the Philippines have announced the reclassification of their financial assets in disclosures to the stock exchange.

The key to avoiding a contraction in financial assets is in moving them to the held-to-maturity account, or as unquoted debt securities classified as loans, instead of keeping them as available for sale securities or securities for trading.