ANALYSIS OF HISTORICAL

DEVELOPMENT OF
BANKING SYSTEM, AND
THE EFFECTS OF
FINANCIAL INNOVATION ON
THE COMPETITIVE
ENVIRONMENT
by: Febie Kris O. Padua
Maila Grace Geverola
ESTABLISHMENT OF RELATIONSHIP
 The History of the Philippine banking
system revealed development role to our modern
finance system. Unfortunately, it also weakens
the economy of our country, as several banks
collapsed. However, the occurrence of the
financial crisis led to rethink ways to strengthen
banking systems. As of today, Central bank,
Securities and Exchange Commission(SEC),
are responsible in implementing monetary policy
and prudential supervision and regulation to
banking system. As well as Banko Sentral ng
Pilipinas(BSP) implemented a comprehensive
reform program.
ESTABLISHMENT OF RELATIONSHIP
 This led to financial sophistication and
greater diversification on Financial businesses
and services. As a result, it called for a greater
strengthening of conduct of supervision, policy,
and regulation. As well as complex financial
analysis and planning.
 However, the proper implementation of
monetary policy and regulations and the
emergence of many Financial forms, improve the
quality of financial management and lessen the
financial weakness and vulnerability.
DEFINITION OF TERMS
 Financial Innovations- According to Tufano (2002) , Financial
Innovation is the act of creating and then popularizing new
financial instruments as well as new financial technologies,
institutions, and markets.
 Central bank- A central bank is a financial institution given
privileged control over the production and distribution of money
and credit for a nation or a group of nations. In modern
economies, the central bank is usually responsible for the
formulation of monetary policy and the regulation of member
banks.
 SEC- stands for Securities and Exchange Commission. It is
the government agency formed in 1934 as part of the New Deal, to
oversee the stock and bond trades that take place on American
Stock exchanges. The SEC was created by the Securities
Exchange Act.
 Banko sentral ng Pilipinas- is the central bank of the Republic
of the Philippines
THEORIES
1. Circumvention Innovation Theory- Kane (1981)
pioneered circumvention innovation theory where he
postulated that many forms of government regulations and
controls, sophisticate the profitable activity engaged by the
company and the opportunity of earning profit, so the
market innovation and regulation innovation should be
regarded as the continuous fighting process between
independent economic force and political force.
2. Constraint-Induced Financial Innovation Theory -
American economist Silber (1983) advanced constraint
induced financial innovation theory. This theory pointed
out that the purpose of profit maximization of financial
institution is the key reason of financial innovation.
3. Regulation Innovation Theory -Scylla et al (1982)
pioneered this theory which proposes that financial
innovation should connects with social regulation , and it is
a regulation that deals with mutual influence and mutual
causality with economic regulation.
POINT OF VIEW
The historical development of the banking
system have emerged the financial innovation in
the economy, undergoing a profound
transformation and owing to changes in the
global financial system.

These financial innovation addressed the

competitive environment within the market
through the help of BSP, SEC, Central bank ,and
other agencies.
CONCLUSION
In our careful analysis, we conclude that monetary
regulations and policies are essential to financial
innovation. As we learned in the past that the weak
supervision and under regulation of some banks in the
Philippines were the caused of the emergence of financial
crisis and weakens the country’s economy. In the help of
BSP, SEC, Central bank ,and other agencies that could
help regulate the financial system, it improves the trust
and confidence of many financial system. In addition, it
improves the quality of bank management and
enhancement on the analysis and transaction to be able to
adopt efficiently on the competitive environment. This
positively affects the competitive environment because it
can help the financial system to grow and be well-regulated
for the emerging of mutual influence and mutual causality
with social and economic regulations. Lastly, it could
lessen financial risks and its vulnerable to crisis.
REFERENCES
 Bautista, M. (1999). The Past Performance of the
Phillipine Banking Sector and Challenges in the
Postcrisis Period. Retrieved from
http://aric.adb.org/financialmarket/philippines/phil_b
nk/
 Błach, J. (2011). Financial Innovations And Their
Role In The Modern Financial System – Identification
And Systematization Of The Problem. Retrieved from
https://www.econstor.eu/obitstream/
 Cherotich, K. M. (2013). The Effect Of Financial
Innovations On Financial Performance Of
Commercial Banks In Kenya. Retrieved from
http://erepository.uonbi.ac.ke/bitstream/handle/
 Segal, T. (2019). Central Bank. Retrieved from
https://www.investopedia.com/terms/c/centralbank.as
p