Financial System is widespread. Its various institutions touch the lives of people all over the world

The financial system does not only include banks, credit unions, pawnshops or usurers, but also other financial institutions such as insurance companies, investment companies, lending investors, etc.

World Bank, International Monetary Fund, and the Asian Development bank are part of the Philippine Financial System. (Great Implementation of our banking laws and monetary policies)

Finance most of big projects

Central Bank together with laws and policies affecting money, credit and banking are part of the financial system

• Financial System is a network of various institutions which generate, circulate, and control money and credit.

• Provides intermediation between suppliers and users of credit- (extends loans to individual families, small producers, big businessmen and industrialists, finances the social and economic development of the country)

• Funds programs for development towards industrialization and modernization

Some have excess money, others needs funds for consumption or production

Services of financial institutions like a bank should be made available to both parties.

PRIMARY JOB OF A BANK AND OTHER FINANCIAL INSTITUTIONS SPECIALISTS ARE NEEDED TO SATISFY THE BUSINESS INTERESTS OF BOTH SUPPLIERS AND USERS OF FUNDS.

Financial System acts as an intermediary between the lender and borrower of funds.

• Financial claims- these are the money and the rights to receive money under specific circumstances.

• 2 broad categories of claims:

a. debts- financial obligations which are to be paid

b. Equities-claims of ownerships like shares of stock

• Financial Institutions-private or government organizations whose assets consist primarily of claims or incomes primarily derived from dealing in and/or performing services in connection with claims.

• Financial Intermediaries- commercial banks, savings and loan associations, and finance companies

• Financial markets- expedite transactions in financial claims. (Manila Stock Exchange)

• Government Agencies- The central Bank supervises and regulates the banking institutions and other financial institutions. Controls money credit and banking operations in the country

• Laws and Policies- Laws are legislated by Congress. The main job of implementing said laws falls on the Central Bank of the Philippines.

The general function of financial institutions is to facilitate the transfer of funds from the savers to the users.

Financial institutions perform specific functions such as:

a. Investigation and credit analysis

b. Matching the supply and demand for funds- bringing the lender and borrowers together. Specializing in matching the supply of savings with the demand for funds

C. Provisions for Liquidity- the investor can find a buyer for his debt or ownership claims. In case a saver decides to liquidate his claim, the financial institution can pay him with its current funds it has received from other savers.

d. Provides Payment System- Whenever we like a good, we just exchange money for it. We pay goods and services in order to acquire the rights to use them. Checks and credit cards are being used for convenience and safety

Central Bank of the Philippines Banking Institutions:

1. Private Banking Institutions a. Commercial Bank b. Thrift Banks c. Rural Banks 2. Government Banking Institutions: a. PNB b. DBP c. Land Bank

1. Private- Non- Bank Financial Institutions: a. Investment houses b. Investment Companies c. Financing Companies d. Securities/ dealers/ brokers e. Non- stock savings and loan associations f. Building and loan associations g. Pawnshops h. Lending Investors i. Retirement/ Pension Plans j. Trust Companies k. Insurance Companies l. Credit Cooperatives

A. Government Service insurance System

Social Security System

One of the financial reforms was the increase of the capital base of commercial banks from P20M to P100m. Such capital requirement has forced several commercial banks to merge their resources with foreign banks.

The objectives of the 1980 financial reforms are:

1. To attain greater efficiency through increased competition and scale of economies

2. To obtain greater availability and use of long- term funds

Introduction of Universal Banking

Removal of most ceiling on interest rates of deposits and loans

Increase of the powers and functions of quasi banks

Elimination of all functional distinctions between private development banks and savings banks

Are international financial institutions which operate in many countries throughout the world. They specialize in international finance and their clients are primarily the multinational corporations, governments, big companies, and wealthy individuals in the developing countries

Owned by highly industrialized countries- US, Japan, UK, France, and Canada

Have huge resources therefore they can decide which countries can be saved from serious economic crisis

The World Bank, International Monetary Fund, and the Asian Development Bank are owned mostly by the governments of the industrialized countries.

US- Biggest stock holder of all the three international financial institutions

President of World Bank- American, managing director of the International Monetary Fund is always European and the president of the Asian Development Bank is Japanese.

US has strong influence in all three institutions because of its large voting power.

Initial objective of the WB and IMF was to assist in the reconstruction of Western Europe, which was devastated in WWII.

WB then shifted its goals to financing developing programs of developing countries

IMF’s principal was to ensure an international monetary system that will promote international free trade dominated by the US and other industrialized nations.

ADB’s function is to help promote economic and social development of its member countries, especially the less developed ones.

The Philippines is a member of WB, IMF and ADB. It is also one of the biggest borrowers from said institutions.

One particular condition for the approval of a WB- IMF loan is to implement political, fiscal and monetary reforms. They also decide the specific type of project they want to finance

Adoption of floating rate system Devaluation of the peso Import liberalization Export Promotion Encouragement of Foreign investment Raising of specific tax on oil products Removal of price control over essential goods for

domestic use Limiting of growth of money supply and domestic

credit Reduction or elimination of consumption subsidies

like rice subsidy Limiting of budget deficit of the national government

Financial system plays a vital role in economy and society. It holds funds for investment, business and development.

The central bank which is the leader of the financial system has been entrusted with the very great responsibility of promoting monetary stability and economic growth for the whole country.

The financial system should channel its resources into the development of the depressed regions of the country, and into the projects of the poor.