THE PHILIPPNE FINANCIAL SYSTEM

THE STRUCTURE OF THE PHILIPPNE FINANCIAL SYSTEM

FNANCIAL SYSTEM – a network that generates, circulates, and controls money and
credit.

SURPLUS INCOME – refers to the excess incomes of an individual.

OBRAS PIAS – the first credit institution n the Philippines; started by Fr. Juan
Fernandez de Leon in 1754 and ended in 1820.

BANCO ESPAÑOL – Filipino de Isabella II the First Philippine Bank establish in 1851

FIRST AGRICULTURAL BANK OF THE PHILIPPINES – established n 1906 and in 1916 all
of its asset and liabilities were transferred to the newly organized PNB.

FNANCIAL MARKET – are physical locations or electronic forums that facilitate the
flow of funds among nvestors, businesses and governments. It provides the
mechanism for allocating financial resources of funds from savers to
borrowers.

ROLES OF THE FNANCIAL MARKET:

1. Money market operation

2. Expedites the transaction of financial claims
3. Serves as a mean of bringing the forces of demand and supply of financial
clams
4. Facilitates the flow of funds among investors, business, and governments.
5. Provides the mechanisms for allocating financial resources or funds from
savers to borrowers.
6. Raises money by selling shares to investors and its existing share can be
bought or sold.
7. Where lenders and their agents can meet borrowers.
8. Convenes many interested sellers n one place.
9. Provides the place where many commodities are traded.
10.Used to match those who want capital to who have it.
11.Facilitates:
• The raising capital in capital markets
• The transfer of risk in the derivatives market
• International trade in the currency market

1942 – PNB closes its doors because of the coming of the Japanese imperial Forces.

Rehabilitation Finance Corporation – formed in 1946 to provide credit facilities for

the rehabilitation of agricultural, commerce and industry reconstruction of
war-damaged properties and later become the Development Bank of the
Philippines.

Offshore Banking Units – any branch, subsidiary of affiliate of Foreign Banking

Corporation that conduct banking transactions in foreign currencies.
BANGKO SENTRAL NG PILIPINAS AND ITS ROLE N THE DEPOSIT EXPANSION AND
MONEY SUPPLY

CENTRAL BANK – a financial institution vested by the State with the function of
regulating the supply, cost and use of money with a view to promoting
national and international economic stability and welfare.

DEVELOPMENT OF THE BANGKO SENTRALNG PILIPNAS

The central bank of countries within the region of Southeast Asia are
comparatively young having been established mostly only after the end of
the Second World War. The Philippines, a young nation, is not an exception. It
established its central bank only on January 3, 1949,

The concept of a central bank was developed in 1933 by Miguel Cuaderno,

the first governor of the Central Bank of the Philippines. The Central Bank of
the Philippines was patterned after similar central banks established in
Paraguay and Guatemala, two countries which, like the Philippnes have the
same export economies. The Central Bank of the Philippines came to
existence as a result of the approval by the former President Elpdio Qurino pf
Republic Act No. 265, otherwise known as the “Central Bank Act” on June 15,
1948. However, actual operations did not commence until January 3, 1949
when the bank open its doors for business in the old Intendencia Building
located at Intramuros, Manila.

With the accumulation of losses incurred by the Central Bank, P317B as of

December 1992, there emerged the CMA bill to transform the Central Bank
into Central Monetary Authority. This CMA bill is also in response to a call of
the International monetary Bank and World Bank to ease the foreign debt
burden and strengthen the credit standing of the Philippines. And then when
the CMA law also known as “The New Central Bank Act” took effect on June
14, 1993 there is established an independent Central Monetary Authority
which is known as the “Bangko Sentral ng PilipInas” and has a capital of P50
billion.

THE FUNCTION OF THE BANGKO SENTRAL NG PILIPNAS

• Liqudity Management
• Currency Issue
• Lender of Last Resort
• Financial Supervsion
• Management of Foreign Currency Reserves
• Determination of Exchange Rate Policy
• Other Activities (Functions as the banker, financial advisor and official
depository of the Government)
OBJECTIVES OF BSP

1. To maintain price stability conducive to a balanced and sustainable growth of

the economy
2. To promote and maintain monetary stability and convertibility of the
Philippine peso
THE BSP ON MONEY SUPPLY AND DEPOSIT EXPANSION

MONEY SUPPLY – the sum of notes and coins in the circulation and peso demand
depositions subject to withdrawal by check

DEPOSIT EXPANSION – the change in money supply as a result of an increase in

bank reserve

MONETARY BOARD – policy making body of the BSP; exercise the powers and
functions of the BSP

THE MAIN FUNCTONS OF THE MONETARY BOARD

1. Issues rules and regulations it considers necessary for the effective discharge
of the responsibilities and exercise the powers vested upon it.
2. Direct the management, operations and administration of the BSP
3. Establish a human resource management system
4. Adopt an annual budget for and authorize such expenditures by Bangko
Sentral
5. Indemnify uts members and other officials of Bangko Sentral

THE BSP MONETARY BOARD

Chairman: Armando M. Tetangco, Jr.

Members: Juanito D. Amatong
Alfredo C. Antonio
Raul A. Boncan
Ignacio R. Bunye
Peter Favila
Nelly F. Villafuerte

MONETARY POLICY AND ITS OBJECTIVES

MONETARY POLICY – the management of the expansion and contraction of the
volume of money in circulation for the explicit purpose for attaining a specific
objective.

CENTRAL BANK OF THE PHILIPPINES – responsible for executing the monetary policy;
gives primary and immediate importance to the maintenance of monetary
stability

CONFIDENCE OF MONEY – basis for all economic activities in a society based upon
credit

ADVANTAGES

1. Impersonal
2. Flexible in operation
3. Operates for the most part free from the weight of political pressures

DISADVANTAGES

1. Attempts to change available money supply through the banking system

2. Results to high-priced goods and services

QUANTITATIVE AND SELECTIVE INSTRUMENTS

1. QUANTITATIVE (Open Market Operations) – used to regulate total quality of

money available for all purposes
2. SELECTIVE – employed to limit the amount of money available for certain
specific purposes

RELATION OF INTEREST RATES TO SAVINGS AND INVESTMENT

INVESTMENT – induce a significant increase when the depressions of driving interest

rates down

SAVINGS – it is contended when there is an increase in interest rate

TIGHT MONEY POLICY AND EASY MONEY POLICY

TIGHT MONEY SUPPLY – contraction of money supply

EASY MONEY POLICY – expansion of money supply

FINANCIAL STABILITY SSUES AND CHALLENGES

KEY FACTORS THAT AFFECTS THE FINANCIAL SYSTEM:

1. Financial Resources
2. Banking System
3. Non-Bank Financial institution

ISSUES ARISNG

1. Financial Stability
2. Integrated Regulator (s)
3. Financial Transparency
4. Deregulation of Financial Market
5. Rapid Financial Innovation
6. Space Age Technology]

CHALLENGES ENCOUNTERED

1. Improving Asset Quality

2. Managing Risk Exposure
3. Developing the Domestic Capital Market