Key Terms

Monetary Policy – measures or actions taken by the Central Bank to regulate the supply of money in the economy.

Inflation Targeting – focuses mainly on achieving price stability as the ultimate objective of monetary policy.

Rural Banks – specialize in the extension of small loans for agricultural purposes as well as retail traders.

Saving Banks – serve primarily as thrift institutions drawing funds from households and individual savers and investing such funds, together with its capital, in bonds, or in loans secured by bonds, real estate mortgages and other forms of security.Offshore Banking Units – this are branches subsidiaries or affiliates of foreign banks which are authorize to transport offshore banking business in the country.

Trading terminals – also known as MarketWorks terminals, which are computer-based and run the MarketWorks program.

Investment House – exclusively vested with the guaranteed underwriting function and also offers a wide array of financial services.

INTRODUCTION

The evolution of the Philippine Financial System in the Philippines can be viewed from the major political milestone of the country namely: 1) the Spanish period; 2) the American period; 3) the Japanese occupation; 4) the Post-War and Independence period; 5) the New society period; 6) the Post-Marcos era; and 7) The Ramos, Estrada, and Macapagal- Arroyo adminisrations.

The Spanish Period

1594 – “ Obras Pias” was established and represented the first organized financial institution in the Philippines.

August 2, 1882 – the first savings bank in the country was founded by Father Felix Huertas and named “Monte de Piedad y Caja de Ahorros de Manila.”

Within a short span of four years a branch of BancoPeninsula Ultramarino of Madrid was also opened.

1898 – the end of Spanish regime , four banks – three commercial and one savings – were doing business in the Philippines.

The American Period1901 – Other foreign and domestics banks

were opened during the American era including American Bank which operated for four years.

1902 - the Wai Hung Bank and the Abrue, Newberry and Reyes Bank both founded

1904- 1906 - the first provincial banks , Bank of Pangasinan.

1904-1908 – Bank of Zamboanga .

1906 – The S. Misaka Bank was opened to serve the local Japanese community.

The Postal Saving Bank was created as a division of the Bureau of Post to promote the habit of thrift among the people and to bring banking to the rural areas.

Act No. 2612, funds were transferred to the Philippine National Bank.

1916 - called for the establishment of the PNB.

1900 – the first Philippine Commission pass Act No. 52 providing for the regular examination and inspection of banks of the Bureau of Treasury.

1929 – the Bureau of banking was created assuming the power of supervision over this institutions from the Bureau of Treasury.

The Japanese

Occupation January 2, 1942 - the entry of the

Japanese Imperial forces in Manila, place the operation of the 17 existing banks at a standstill.

The Eighties: Universal Banking

1980 – effected a revision in the Philippine Banking structure including administrative regulations.

Universal Banking – is the conduct of variety of financial services such as trading of financial instruments; foreign exchange activities; underwriting new debt and equity issues; investment management, insurance; as well as extension of credit and deposit gathering.

Advantages of Universal Banking: Risk Diversification and Expanded

Business Opportunities

Universal Bank – it can spread its costs over a broader base of activities and generate more revenues by offering bundle of products. Diversification in turn, reduces risk.

Insurance companies, investment banks and other suppliers of financial services are moving toward building financial conglomerates;

Technology firms (such as Microsoft) are hammering away at banks’ network-building the electronic gateways into financial services.

Post-Marcos Era

1986 – Mrs. Corazon C. Aquino assumed presidency after a successful People Power that ended 2 decades of the Marcos rule.

1991-the asset sold resulted to proceeds of P14.3 billion, and another P16 billion worth of assets were added to the net total.

The Nineties: The New

Central Bank

(Banko Sentral Ng Pilipinas) On June 14, 1993 – President Ramos signed

into law R.A 7653 entitled “The New Central Bank Act,” pursuant to the requirements of the 1987 Constitution for the establishment of an independent Central Monetary Authority. Among the major changes incorporated in the law are the following:

1. A change in the composition of the Monetary Board: two (2) members from the government and five (5) full-time members from the private sector.

2. The adoption of price stability, conducive to a balanced sustained growth of the economy and the maintenance of monetary stability and the convertibility of the peso is its primary objectives.

3. Strengthening of the regulations and supervision framework for banks and quasi-banks through, among others, indemnification of Monetary Board members and other officials of Bangko Sentral, including personnel in departments performing supervisions and examination functions.

Abolition of two suspense accounts, the Monetary Adjustment Accounts(MAA) and the (ESAA).

5. The phase-out of regulatory functions, e.g., issuing and servicing of government securities,w/n the period of five years, the same to be transferred to the Securities and Exchange Commission.

6. The phase-out of regulatory functions over finance companies without quasi-banking functions…..

7. Additional mandatory reports to assure accountability.

8. Financial Restructing of the CB upon effectivity of the law.

9. The imposition of requirements on trust accounts by the Monetary Board are authorized under the new law.

10. The imposition of interest on loans and advances made by the CB to any bank w/c has been placed under receivership, even after the bank is closed.

Overview of the BSP

Bangko Sentral ng Pilipinas was established on July 3, 1993 pursuant to the provisions of the 1987 Philippine Constitution and the New Central Bank Act of 1993.BSP is autonomous in its fiscal and administrative functions from the National Government as it pursues its mandated responsibilities. As its primary objective, BSP’s monetary policy is to promote a “ low and stable inflation conducive to a balance and sustainable economic growth.”

Functions of the

BSPa. Liquidity management

b. Currency issue

c. Lender of last resort

d. Financial Supervision

e. Management of foreign currency reserves

f. Determination of exchange rate policy

g. Other activities

The BSP

OrganizationThe Monetary exercises the powers and

functions of the BSP, such as the conduct of monetary policy and supervision of the financial system. Its chairman is the BSP Governors, with five full-time members from the private sector and one member from Cabinet.

A deputy governor heads each

of the BSP’s operating sector as

follows: Banking Services serves the banking needs of all banks such as accepting deposits, servicing withdrawals, and extending credit through the rediscounting facility.

Supervision and Examination Sector enforces and monitors compliance to banking laws to promote a sound and healthy banking system.

Resource Management Sector serves the human, financial, and physical resource needs of the BSP.

Monetary Policy

Measures or actions taken by the Central Bank to regulate the supply of money in the economy constitute what is called monetary policy.

Reforming the

Banking Law The opening of the Philippine

economy further saw light under Joseph Estrada’s abbreviated presidency.

The securities regulation code aims at strengthening the regulation and supervision of securities market.

Inflation Targeting The BSP formally adopted inflation

targetting as the framework for monetary policy at the beginning of 2002.

January 24, 2000 - BSP’s policy-making body, the Monetary Board, approved in principle, the shift to inflation targeting as a framework for conducting monetary policy.

It focuses mainly on achieving price stability as the ultimate objective of monetary policy.

Advantages of the

Establishment of the New

Central Bank/Bangko

Sentral ng Pilipinas The government’s assumption of certain

liabilities of the old CB will lower inflation and interest rates and will result to higher economic growth, since the BSP will be relieved of the burden of servicing these liabilities,, w/c in the past, resulted in large CB deficit and exerted expansionary influences on money, and, consequently, on prices.

Focusing on the

Challenges of

Globalization The world is definitely changing, and with it are challenges that face present businesses, financial institutions and the economy as a whole.

The GFI participants include: the Development Bank of the Philippines, LBP,PEICA,SSS,QRCGC, NLSF, and PCFC. The DTI will serve as the lead agency for the entire project.

The SULONG program will provide a faster way for companies to obtain short-and-long term funds by simplifying and standardizing lending procedures and regulations implemented by the government financial institution.

Classification of

Financial SystemThe Banking Sector

For purposes of uniformity, and simplicity, and equality of treatment, R.A. 7653 entitled “the New Central Bank Act,” classified bank institution into the following categories

a. An expanded commercial bank or a universal bank and commercial bank;

b. Thrift banks, composed of savings and loan associations;

C.Private development banks;

D. Regional unit banks, composed of rural banks.

Strengthening the

Banking System Some of the steps to ensure that the banking

system will grow stronger are:a. Changes in the regulatory framework for banks.b. General guidelines for those banks planning to

offer e-banking services to ensure that banks have rigorous internal controls and comprehensive risk management systems that can adequately take into account the risk involved in these new banking activities.

c. Mergers and acquisitions and through greater participation of foreign financial institutions.

The Social Security

System (SSS)

The SSS administers social security protection to workers in private sector. On the other hand, the Government Service Insurance System (GSIS) take care of workers in the public sector.

The SSS administers two programs namely:

1. The Social Security Program; and

2. The Employees’ Compensation (EC) Program.

SS provides replacement income for workers in times of death, disability, sickness, maternity, and old age.

Philippine Stock

Exchange

Towards a World-

Class Equity Market The PSE is a private organization that provides and ensures a fair, efficient, transparent and orderly market for the buying and selling of securities.

Listed Companies and

Trading Participants

a. Banks and Financial Services-include companies who provide banking, investment and financial services.

b. Commercial and Industrial Sector- are those categorized as holding firms, telecommunications, food beverage and tobacco, constructions, power and energy, transportation services, manufacturing, distribution and trading, ,hotel, recreation and other related services.

Land Property Sector

Mining Sector- consist of companies involved in the extractions of minerals.

Oil Sector- composed of companies engaged in the exploration, extraction production of oil.

Trading

Mechanism MakTrade system- is composed of hardware, software and network that allow the trading of securities in a broker to broker market.

Center Order Bank- the center of the network, connected to four trading hub servers.

Trading Terminals- also known as MarketWorks terminals , which are PC-based and run the MarketWorks program

Central Clearing and

Depository The Philippine Central Depositary(PCD)- is

primarily a provider of depository and settlement system for securities.

The Securities Clearing Corporation of the Philippines- is the private institutions that acts as a clearance and settlement agency of eligible trades executed in the PSE. On January 17, 2002, SCCP received a permanent license to operate, and since then has been responsible for:

Establishing the liabilities between trading participants of the PSE

Synchronizing the settlement of funds and transfer of securities.

Guaranteeing the settlement of trades in the event of trading participant default and administering the appropriate risk management functions in order ensure settlement.

Small and Medium

EnterprisesIn support of SME’s the Philippine Stock Exchange opened a fourth board of SME companies who wish to enter the equity market, as they have grown exponentially and now play an import role in the economy. This gives them the chance to acquire their capital requirements of debt financing.

PSE Dollar

Board Philippine Long Distant Telephone Co.(PLDT)- is the first listed company that trades its shares in the dollar board.

The Central Bank approved the dollar board under the conditions that the PSE and its designated cash settlements.

Private Non Financial

Intermediaries o Investment houseo investment Companies o Finance Companieso Securities Dealerso Securities Brokerso Private insurance companieso Pawnshops or Pawnbrokerso Nonstock saving and loan associationso Mutual and Building loan associationso Credit unions o Trust and pension fund managers

Central Bank/BSP Governors

Name Tenure

Miguel Cuaderno, Sr. 1949-1960Andres V. Castillo 1961-1967Alfonso Calalang 1968-1970Gregorio S. Licaros 1970-1981Jaime C. Laya a 1981-1984Jose B. Fernandez, Jr. 1984-1990Gabriel C. Singson 1993-1999Rafael B. Buenaventura 1999-2005Amando M. Tetangco, Jr. 2005-Present