Philippine Banking System

Creation of the Central Bank of the Philippines

• In 1933, a group of Filipinos conceptualized a central bank for the Philippines, drafting a bill for its establishment after studying the economic provisions of the Hare-Hawes Cutting Bill, the Philippine independence bill approved by the US Congress.

Early Development of the Central Bank

• In the Commonwealth period (1935-1941), discussions about a Philippine central bank that would promote price stability and economic growth continued.
• The country's monetary system was administered by the Department of Finance and the National Treasury, using the US dollar as the standard currency.
• In 1939, the Philippine legislature passed a law establishing a central bank, but President Franklin D. Roosevelt disapproved it due to strong opposition from vested interests.

Establishment of the Central Bank of the Philippines

• In 1944, during the Japanese occupation, a second law was passed, but its implementation was aborted by the American liberalization forces.
• In 1946, President Manuel Roxas instructed Finance Secretary Miguel Cuaderno, Sr. to draft a charter for a central bank.
• The Joint Philippine-American Finance Commission, chaired by Mr. Cuaderno, recommended a shift from the dollar exchange standard to a managed currency system, making a central bank necessary.

Bangko Sentral ng Pilipinas (BSP)

• On June 14, 1993, President Fidel V. Ramos signed into law Republic Act No. 7653, also known as the New Central Bank Act, establishing the Bangko Sentral ng Pilipinas (BSP).
• The law provides for the establishment of an independent monetary authority with the primary objective of maintaining price stability.

Functions of the BSP

• Maintaining monetary stability and promoting economic growth
• Supervising banks and exercising regulatory powers over non-bank financial institutions
• Managing foreign currency reserves
• Determining exchange rate policy
• Acting as the banker, financial advisor, and official depository of the government and its instrumentalities

Monetary Board

• Exercises the powers and functions of the BSP
• Comprises seven members, including the Governor of the BSP
• Meets at least once a week to discuss monetary policy and the exercise of its powers

Organizational Structure of the BSP

• Divided into four sectors: Monetary and Economics, Financial Supervision, Currency Management, and Corporate Services
• Each sector is headed by a deputy governor or senior assistant governor

Governor of the BSP

• Chief executive officer of the BSP
• Directs and supervises the operations and internal administration of the BSP
• Represents the Monetary Board and the BSP in all dealings with other offices, agencies, and instrumentalities### Financial Intermediation
• Financial intermediaries channel funds from savers (lenders) to borrowers.
• They transform assets or liabilities into different assets or liabilities.
• Examples of financial intermediation services: collection of bills, payment of insurance premiums, purchase and sale of securities, issue of travelers' checks, credit cards, and locker facilities.

Philippine Banking System

• The Bangko Sentral ng Pilipinas is the regulating body of all banking institutions in the country.
• The Monetary Board is the policy-making body that issues policies and guidelines for banks.
• The banking system consists of universal and commercial banks, thrift banks, rural and cooperative banks.

Universal and Commercial Banks

• They offer the widest variety of banking services.
• They are authorized to engage in underwriting and other functions of investment houses.
• They can invest in equities of non-allied undertakings.

Thrift Banks

• They accumulate savings of depositors and invest them.
• They provide medium- and long-term financing to businesses and individuals.

Rural and Cooperative Banks

• They are the most popular type of banks in rural communities.
• They provide basic financial services to people in rural communities.
• They promote and expand the rural economy.
• They help farmers through the stages of production.

Non-Bank Financial Institutions

• They offer financial services but do not hold banking licenses.
• Examples: insurance companies, brokerage firms, companies offering microloans.
• They cannot accept deposits from customers.

Types of Non-Bank Financial Institutions

• Institutional Investors: pension funds, mutual funds that trade securities in volumes.
• Other Non-Bank Financial Institutions: leasing companies, market makers, management companies, financial advisors, and securities brokers.
• Investment Houses: individuals or organizations engaged in investment banking and financing activity.
• Financing companies: concerned with providing money, primarily for short-term loans.
• Securities Dealers: buy and sell securities.
• Investment Companies: corporations engaged in the business of investing the pooled capital of investors in financial securities.
• Fund Managers: employees or departments of a large institution that manage the investment of money.
• Lending Investors: corporations engaged in granting loans from its own capital funds or from funds sourced from not more than nineteen (19) persons.
• Pawnshops: offer secured loans to people, with items of personal property used as collateral.
• Government Nonbank Financial Institutions: institutions that offer loans and financial products but do not have a full banking license.
• Venture Capital Corporation: a type of private equity that provides financing to small, early-stage, emerging firms with high growth potential.
• Risk Pooling Institutions: organizations that spread financial risk among a large number of entities, such as insurance companies.