Philippine

Financial
System
 The Role of Bangko Sentral ng Pilipinas (BSP)

 What is the role of Bangko

Sentral ng Pilipinas?
 The Role of Bangko Sentral ng Pilipinas (BSP)

 The BSP's main responsibility is

to formulate and implement policy in the
areas of money, banking, and credit with
the primary objective of preserving price
stability.
Price stability refers to a condition of low
and stable inflation.
Mandate of BSP under Citizens Charter
 The Role of Bangko Sentral ng Pilipinas (BSP)

 The primary objective of the Bangko Sentral is to

maintain price stability conducive to a balanced and
sustainable growth of the economy and employment. It
shall also promote and maintain monetary stability and
the convertibility of the peso.
 The Bangko Sentral shall promote financial stability and
closely work with the National Government, including, but
not limited to, the Department of Finance, Securities and
Exchange Commission, the Insurance Commission, and
the Philippine Deposit Insurance Corporation.
Mandate of BSP under Citizens Charter
 The Role of Bangko Sentral ng Pilipinas (BSP)

 Mandate of BSP under Citizens Charter:The Bangko

Sentral shall oversee the payment and settlement
systems in the Philippines, including critical financial
market infrastructures, in order to promote sound and
prudent practices consistent with the maintenance of
financial stability.
 In the attainment of its objectives, the Bangko Sentral
shall promote broad and convenient access to high-
quality financial services and consider the interest of the
general public.
Mandate of BSP under Citizens Charter
 The Role of Bangko Sentral ng Pilipinas (BSP)
 Mandate

 The primary objective of the Bangko Sentral is to maintain price stability
conducive to a
balanced and sustainable growth of the economy and employment. It shall also
promote
and maintain monetary stability and the convertibility of the peso.

 The Bangko Sentral shall promote financial stability and closely work with the
National
Government, including, but not limited to, the Department of Finance,
Securities and
Exchange Commission, the Insurance Commission, and the Philippine Deposit
Insurance
Corporation.

 The Bangko Sentral shall oversee the payment and settlement systems in the
Philippines,
including critical financial market infrastructures, in order to promote sound
and prudent
practices consistent with the maintenance of financial stability.

 In the attainment of its objectives, the Bangko Sentral shall promote broad and
convenient
access to high-quality financial services and consider the interest of the
general public.
 The Bangko Sentral ng Pilipinas (BSP)

 The Bangko Sentral ng Pilipinas (BSP) was created by

Republic Act. No. 7653 otherwise known as the New
Central Bank Act of 1993.
 The BSP is now the Philippines Central Monetary
Authority that provides policy directions in the areas of
money, banking and credit.
 The BSP’s powers and functions are exercised by its
Monetary Board composed of seven members appointed
by the President of the Philippines.
 The Bangko Sentral ng Pilipinas (BSP)

 The Bangko Sentral ng Pilipinas (BSP) was created by

Republic Act. No. 7653 otherwise known as the New
Central Bank Act of 1993.
 The BSP is now the Philippines Central Monetary
Authority that provides policy directions in the areas of
money, banking and credit.
 The BSP’s powers and functions are exercised by its
Monetary Board composed of seven members appointed
by the President of the Philippines.
 The Bangko Sentral ng Pilipinas (BSP)

 One of the government sector members of the

board must be members of the cabinet designated
by the President of the republic, which position is
currently held by the Secretary of Finance.
 The new Central Bank Act authorizes the Governor
of the BSP to appoint up to three Deputy
Governor, subject to the approval of the Monetary
Board.
 The Bangko Sentral ng Pilipinas (BSP)

 The Governor is the Chief Executive Officer of the BSP

and is required to direct and supervise the operations and
interval administration of the BSP.
 The BSP is aided in its bank monitoring and examination
processes by credit rating agencies and financial
conglomerates.
 The BSP is also into the upgrading of its domestic
prudential standards in areas of capitalization, connected
or pooled lending, loan provisioning, data disclosure, and
qualifications of owners and managers.
 The Bangko Sentral ng Pilipinas (BSP)

 the BSP likewise imposes the requirements on the

operations on e-bankers.
 The BSP is backstopped in this regard by the
passage of e-commerce law in June 2000 which
facilitated the exchange of information and
promoted the security of electronic transactions.
 The Banking Institution

 The banking institution of the Philippines can be

categorized as private banking and government banking.
 The private banking institution are comprised of
commercial banking such as universal banks and
ordinary commercial banks, thrift banks like savings and
mortgage banks, private development banks, and stock
savings and loan association, and the rural banks.
 Private Banking Institution

1. Commercial Banking Institutions

2. The Thrift Banks
3. Savings and Mortgages Banks
4. The Savings and Loan Associations
5. Private Development Banks
6. The Rural Banks
 The Banking Institution

1. Commercial Banking Institutions

• the banks that full under commercial banking
institutions are the ordinary commercial and
universal banks. These banks continue to
account for full bulk of the total resources of
banking industry.
 The Banking Institution

2. The Thrift Banks

• Thrift banks are primarily engaged in mobilizing
small savings of the people.
• They provide funds for agriculture and industry
at reasonable interest rates.
• The small producers like farmers, fishermen,
craftsmen poor consumers can rely in such
banks for financing their production and
consumptions inputs.
 Private Banking Institution

3. The Savings and Mortgages Bank

• The primary functions of savings and mortgages bank
is to receive time deposit of different types and to
invest its funds in long term investment.
4. The Savings and Loan Associations
• Very similar as savings and mortgages bank however
these institutions may either be stock or non-stock
institutions.
 Private Banking Institution

5. Private Development Banks

• A private development bank may establish
branches and agencies subject to the approval
of the Monetary Board of the Central Bank. For
the purpose of this Act, a private development
bank, together with its branches and agencies,
shall be considered as a unit. (REPUBLIC ACT
NO. 4093, June 19, 1964 )
 Private Banking Institution

6. The Rural Bank

• Banks which are privately managed and largely
privately owned that provide credit facilities to
farmers and merchants, or to cooperatives of such
farmers or merchants at reasonable terms and in
general, to the people of the rural community.
• in particular, the primary objective of rural banks is to
meet the credit needs of farmers and fishermen as
well as of cooperatives and merchants in rural areas.
 Private Banking Institution

6. The Rural Bank

• Banks which are privately managed and largely
privately owned that provide credit facilities to
farmers and merchants, or to cooperatives of such
farmers or merchants at reasonable terms and in
general, to the people of the rural community.
• in particular, the primary objective of rural banks is to
meet the credit needs of farmers and fishermen as
well as of cooperatives and merchants in rural areas.
 Non-Bank Financial Institution

 These are other financial institutions which

engage in specific functions. They provide
services related to claims, financial information
and advice, manage portfolios of financial assets
on behalf of other economic units, buy and sell
claims on institutions from clients and assist in
finding sources for those economic units seeking
loans.
 Non-Bank Financial Institutions

1. Investment House/Banks
2. Securities Broker/Dealers
3. Building and Loan Associations
4. Credit Unions
5. Private Insurance
6. The Pawnshop
7. Trust Companies
8. Non-Stock Savings and Loan Associations
9. Financing Companies
10.Other Non-Bank Financial Institutions
 Non-Bank Financial Institutions

1. Investment House/Banks
• The term “investment house” is defined to mean as “
any enterprise” which engages in the underwriting of
securities of other corporations. “Underwriting is the
act or process of guaranteeing the distribution and
sale of securities of any king of ownership, interest, or
participation in any enterprise or written evidences of
indebtedness of a person or enterprise.
 Non-Bank Financial Institutions

2. Securities Brokers/Dealers
• Pursuant to the provision of the Revised Act, no broker, dealer or
salesman must engage in business in the Philippines as such broker,
dealer or salesman or sell any securities including securities
exempted under the said law.
• The Real Estate Service Act of the Philippines, or to the law books,
Republic Act No. 9646, or to the common laypeople of our country,
referred to as the RESA law, protects the rights of those people who
own property or those who imbibe the term a “real estate
professional”.
 Non-Bank Financial Institutions

3. Building and Loan Associations

• A building and loans associations is a special type of savings
institution. Because of its very nature, however, it fall under this
category in view of the fact that it also received savings from
members and lends fund to them.
• Building and loan association is a state-chartered financial
organization that makes use of customer subscriptions and
deposits to invest in the members residential mortgage loans.
• They do this to ensure that they increase homeownership in the
building and loan association.
 Non-Bank Financial Institutions

4. Credit Unions
• Another type of savings institutions. It also has for its purpose the
inculcation of
the habit of thrift, frugality, and the idea of helping one another.
• Credit unions are financial cooperatives that provide traditional banking
services to their members.
• Credit unions have fewer options than traditional banks, but offer clients
access to better rates and more ATM locations because they are not publicly
traded and only need to make enough money to continue daily operations.
• However, credit unions have considerably fewer brick-and-mortar locations
than most banks, which can be a drawback for clients who like in-person
service.
• Credit unions are exempt from paying corporate income tax on their earnings.
 Non-Bank Financial Institutions

5. Private Insurance
• Private insurance companies contribute to the
country’s socio-economic development as well as to
the insured.
• The word "private" is used to describe any health
insurance plan that is not run by the federal or state
government.
• Private insurance can be purchased from a variety of
sources: your employer, a state or federal
marketplace, or a private marketplace.
 Non-Bank Financial Institutions
7. The Pawnshop
• pawnshop provides credit to small borrowers who are not
qualified to obtain small loans from financial institutions. In
pawnshop, the cost of borrowing in terms of payment are
generally fair.
• The two primary ways pawnshops make money is by making
personal loans and by reselling retail items.
• A pawnshop owner makes a loan to a customer who turns over
the custody of an item that acts as collateral for the loan.
• Because the risk of loan default is high, the pawnshop owner will
charge the customer a higher interest rate for the loan than a
traditional bank loan.
 Non-Bank Financial Institutions

7. The Pawnshop
• If the customer fails to repay the loan plus the interest
(or at the very least, the interest charge), the customer
forfeits the property put up as collateral to the
pawnshop.
• Pawnshops can also make money from retail sales,
either selling merchandise purchased directly from
customers or items pledged as loan collateral from
customers who subsequently defaulted on their loans.
 Non-Bank Financial Institutions

8. Non-Stock Savings and Loan Associations

• a corporation engage in the business
accumulating the savings of its member.
• NSSLAs are engaged exclusively in the business of
collecting savings from their members and financing
their personal loans. Profits are generated primarily from
lending and investing activities, which are given back
to members through net income distribution.
 Non-Bank Financial Institutions

9. Financing Companies
• Financing companies or partnerships, except
those regulated by BSP, the Insurance
Commissioner, the Cooperative Administration
office which primarily organized for the purpose
of extending credit, facilitates to consumer and
to industrial, commercial, or agricultural
enterprise.
 Non-Bank Financial Institutions

9. Financing Companies
• Republic Act No. 8556, otherwise known as the
Financing Company Act of 1998, as amended, is
the key legislation governing Financing
Companies in the Philippines. This legislation has
been amended in recent years (in particular, by
RA No. 10881) – so always ensure that you are
reviewing the most up-to-date version!
 Non-Bank Financial Institutions
9. Financing Companies
• Under the 1998 Act, a Financing Company is a corporation which
is primarily organized for the purpose of extending credit facilities
to consumers and to industrial, commercial, or agricultural
enterprises, by direct lending or by discounting or factoring
commercial papers or accounts receivable, or by buying and
selling contracts, leases, chattel mortgages, or other evidences
of indebtedness, or by financial leasing of movable and
immovable property.
• Banks, investments houses, savings and loan associations,
insurance companies, cooperatives, and other financial
institutions organized or operating under other special laws are
not included in the definition of a Financing Company.
 Non-Bank Financial Institutions

10. Other Non-Bank Financial Institutions

• These are financial institutions that are known to many people,
fund managers, lending and venture capital corporations.
• A non-bank financial institution (NBFI) is a financial institution that
does not have a full banking license and cannot accept deposits
from the public. However, NBFIs do facilitate alternative financial
services, such as investment (both collective and individual), risk
pooling, financial consulting, brokering, money transmission, and
check cashing.
 Non-Bank Financial Institutions

10.Other Non-Bank Financial Institutions

• NBFIs are a source of consumer credit (along with
licensed banks). Examples of nonbank financial
institutions include insurance firms, venture capitalists,
currency exchanges, some microloan organizations,
and pawn shops. These non-bank financial institutions
provide services that are not necessarily suited to
banks, serve as competition to banks, and specialize in
sectors or groups.
 Government Banking Institution

 Bangko Sentral ng Pilipinas

 Land Bank of the Philippines
 Development Bank of the Philippines
 The Al-Amanah Islamic Investment Bank
of the Philippines
 What Is a 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.
 What Is a Central Bank?

 Central banks are inherently non-market-

based or even anti-competitive institutions.
Although some are nationalized, many
central banks are not government agencies,
and so are often touted as being politically
independent. However, even if a central
bank is not legally owned by the government,
its privileges are established and protected
by law.
 Bangko Sentral ng Pilipinas

Vision
 The BSP aims to be a world-class monetary
authority and a catalyst for a globally competitive
economy and financial system that delivers a high quality of
life for all Filipinos
 The Bangko Sentral ng Pilipinas
Mission
BSP is committed to promote and maintain price stability
and provide proactive leadership in bringing about a strong
financial system conducive to a balanced and sustainable
growth of the economy. Towards this end, it shall conduct
sound monetary policy and effective supervision over
financial institutions under its jurisdiction..
“While the strong foundation of the BSP brand remains the
same, its visual representation in the form of the logo requires
an update to infuse the institution with renewed vitality,
underscore its integrity and competence,and further promote
the understanding of its mandates,” BSP Governor Benjamin
Diokno.
• “The BangkoSentral said in a statement that the
new logo "is intended to represent the BSP as
well as the Filipino people which it serves."
 PRIMARY OBJECTIVESOF BSP:
 To maintain price stability conducive to a balanced
and sustainable growth of the economy.
 promote and maintain the financial stability and the
convertibility of the peso
 To provide policy directions in the areas of money,
banking, and credit, with supervision over the
operations of banks and with regulatory powers over
the operations of finance companies and non- bank
financial institutions performing quasi- banking
functions. (Sec 3 of RA 7653)
 PRIMARY MANDATES OF BSP:
 The primary objectives of BSP is to maintain
price stability conducive to a balanced and
sustainable growth of the economy and
employment.
 It shall also promote and maintain monetary
stability and the convertibility of peso.
 BSP Governor
• Eli M. Remolona Jr. is a Filipino economist serving as the governor of
the Bangko Sentral ng Pilipinas (BSP), the central monetary authority of
the Philippines, and the ex officio chairman of the Anti-Money Laundering
Council, the central anti-money laundering/counter-terrorism financing
authority of the Philippines, under the Bongbong Marcos
administration since July 3, 2023.
• He previously worked for 14 years at the Federal Reserve Bank of New
York and for 19 years at the Bank for International Settlements (BIS),
where he was regional head for Asia and the Pacific from 2008 to 2018.
He was an editor of the BIS Quarterly Review and was an associate
editor for finance of the International Journal of Central Banking, as of
2005.
 The current members of the Monetary
Board are:

 Eli M. Remolona, Jr. -BSP Governor

 Ralph Recto - Secretary of the Department of Finance (DoF)
 Benjamin Diokno - Monetary Board Member.
 V. Bruce J. Tolentino - Private Sector/Economist
 Anita Linda Aquino - Monetary Board Member.
 Rosalia V. De Leon - Monetary Board Member, former National
Treasurer.
 Romeo L.Bernardo
 Monetary Board
The powers and functions of the Central Bank shall be exercised by
a Monetary Board, which shall be composed of seven members, as
follows:
a.The Governor, who shall be the Chairman of the Monetary Board.
The Governor shall be appointed for a term of six years by the
President of the Philippines. Whenever the Governor is unable to
attend a meeting of the Board, the Senior Deputy Governor shall
act as Chairman;
b.The Minister of Finance. Whenever the Minister of Finance is
unable to attend a meeting of the Board, he shall designate a
deputy to attend as his alternate;
c.The Director General of the National Economic and Development
Authority. Whenever the Director General is unable to attend a
meeting of the Board, he shall designate a deputy director
general of the Authority to attend as his alternate;
 Monetary Board
d. TheChairman of the Board of Investments. Whenever the Chairman
of the Board of Investments is unable to attend a meeting of the
Board, he shall designate a governor of the Board of Investments
to attend as his alternate;
e.The Minister of the Budget. Whenever the Minister of the Budget
is unable to attend a meeting of the Board, he shall designate a
deputy to attend as his alternate;
f.In lieu of any officials named in sub-section (c) or (d) above,
such head of any other financial or economic agency or department
of the Government as the President of the Philippines may
determine;
g.Two part-time members from the private sector, to be appointed
for terms of four years by the President: Provided, however, That
the first member appointed under the provisions of this sub-
section shall have terms of office of two and four years
respectively.
 The BSP : Guardian of price stability

The primary objective of the Bangko Sentral is to

maintain price stability conducive to a balanced
and sustainable growth of the economy.
-Sec. 3, RA 7653
(New Central Bank Act)

The BSP formulates and implements monetary policy

consistent with its price stability objective.
 What is pricestability?

Price stability
•“An environment in which inflation is sufficiently low
that it is no longer a consideration in the economic
decisions of households and firms” – Alan Greenspan
•“Prices are stable when ordinary people stop talking
about inflation.” - Alan Blinder
 What is pricestability?

Price stability
•On average, prices neither
increase nor decrease
markedly
•There is low and stable
inflation
 What is MonetaryPolicy?
Level of
Money and
Monetary Policy Credit
Price of
Money and Credit
Actions by a
central bank to

attain
to
manage the
availability and
cost of money
and credit to
attain stable prices PRICESTABILITY
 02|CoreFunctionsoftheBSP

01
03

through the conduct 01 02

03 by providing channels through
of monetary policy PRICE FINANCIAL
EFFICIENT which funds are transferred
STABILIT STABILITY
PAYMENTS & among banks and other
Y
SETTLEMENT institutions

S SYSTEM

by managing systemic risks and promoting a secure and

reliable banking system by
02
ensuring the safe and sound operation of banks and other
BSP-supervised financial
institutions (BSFIs)
02|CoreFunctionsoftheBSP:PriceStability

01
PRICE
STABILITY
Price Stability is achieved through
the conduct of Monetary
Policy
02|CoreFunctionsoftheBSP:PriceStability

What is Price Stability &

Why is it important?

PRICE STABILITY
There is low and stable inflation (rate of
change in the average prices of goods and
services).
The average prices of goods and services do
not change substantially over time.

Stable prices preserve purchasing power and allow consumers and businesses
to
make sound economic and financial decisions.
02 | Core Functions of the BSP:
Price Stability Case:
Inflationary pressures due to excessive demand Required
action:
BSP to slow down inflation by implementing

contractionary monetary policy by raising policy rate

How does the BSP promote Price
Stability?

Monetary Policy
actions by a central bank

Instruments of Level of Money Price of Money

Monetary Policy and Credit and Credit

Influences overall demand

Exerts influence on prices

Any change in the BSP’s policy rate takes one to two years before it
is fully felt across the economy. The BSP looks at
inflation forecast for the next two years and takes action NOW, if
needed, to achieve inflation target.
 02|CoreFunctionsoftheBSP:PriceStability

EXPANSIONARY CONTRACTIONARY
o Central bank lowers policy rate oCentral bank raises policy
rate
o Reduces cost of borrowing oIncreases cost of borrowing
o Increases money supply/liquidity oSlows down money
supply/liquidity
o Increases spending (demand) or investment to oReduces spending (demand)
or investment to slow inflation
stimulate t h e economy (can increase inflation)
 Defining Financial System Stability
• A financial system is in a range of stability
whenever it is capable of facilitating (rather
than impeding) the performance of an
economy, and of dissipating financial
imbalances that arise endogenously or as a
result of significant adverse and
unanticipated events.
 Defining Financial System Stability
The concept of a range of stability
represents the concept of a continuum as a
key building block. The continuum for
financial stability can be thought of as
multidimensional and occurring across a
multitude of observable and measurable
variables.
 Defining Financial System Stability
The concept of a range of stability
represents the concept of a continuum as a
key building block. The continuum for
financial stability can be thought of as
multidimensional and occurring across a
multitude of observable and measurable
variables.
 Defining Financial System Stability
A second phrase that needs some explanation is
facilitating (rather than impeding) the performance of
an economy.
This phrase means, among other things, that finance is
contributing to (rather than impeding) the efficient allocation
of real resources, the rate of growth of output, and the
processes of saving, investment, and wealth creation—and
may also entail and include other observable and measurable
aspects of economic performance.
 Defining Financial System Stability
Third, the term, “dissipate financial imbalances,”
means a movement along the continuum in the direction of
stability (away from boundaries) and not instability.
for example in asset prices and portfolio flows, implicitly
through self-corrective mechanisms. Such adjustments would
include the exit and entry of market participants (financial
institutions or nonfinancial entities acting on behalf of others
or individuals acting directly in the markets)
 What is Financial Stability?

• Financial stability means that the financial

system is robust to disturbances in the
economy, so that it is able to mediate
financing, carry out payments, and
redistribute risk in a satisfactory manner.
 Key Principles for Defining Financial Stability

1. The first principle is that financial stability is a broad

concept, encompassing the different aspects of
finance (and the financial system)—infrastructure,
institutions, and markets. Both private and public
persons participate in markets and in vital components
of the financial infrastructure (including the legal
system and official frameworks for financial regulation,
supervision, and surveillance)

Garry J. Schinasi
 Key Principles for Defining Financial Stability
Governments borrow in markets, hedge risks, operate
through markets to conduct monetary policy and
maintain monetary stability, and own and operate
payments and settlement systems.
Accordingly, the term “financial system” can be seen
as encompassing both the monetary system with its
official understandings, agreements, conventions, and
institutions as well as the processes, institutions, and
conventions of private financial activities.

Garry J. Schinasi
 Key Principles for Defining Financial Stability
 Given the tight interlinkages between all of these
components of the financial system, (expectations of)
disturbances in any of the individual components can
undermine the overall stability, requiring a systemic
perspective.
At any given time, stability or instability could be the
result of either private institutions and actions, or official
institutions and actions, or both simultaneously and/or
iteratively

Garry J. Schinasi
 Key Principles for Defining Financial Stability
2. A second useful principle is that financial stability not only implies that
finance adequately fulfills its role in allocating resources and risks,
mobilizing savings, and facilitating wealth accumulation,
development, and growth;
it should also imply that the systems of payment throughout the economy
function
smoothly (across official and private, retail and wholesale, and formal and
informal
payments mechanisms).
This requires that fiat (or central bank) money—and its close-substitute,
derivative
monies (such as demand deposits and other bank accounts)—can adequately
fulfill its
role as the universally accepted means of payment and unit of account and,
when
appropriate, as a (short-term) store of value.
In other words, financial stability and what is usually regarded as a vital
part of
monetary stability overlap to a large extent.

Garry J. Schinasi
 Key Principles for Defining Financial Stability
3.A third principle is that the concept of financial stability relates not only to
the absence of actual financial crises but also to the ability of the financial
system to limit, contain, and deal with the emergence of imbalances
before they constitute a threat to itself or economic processes.
In a well-functioning and stable financial system, this occurs in part through
self-
corrective, market-disciplining mechanisms that create resilience and prevent
problems
from festering and growing into system-wide risks.
In this respect, there may be a policy-related trade-off entailing the choice
between
allowing market mechanisms to work to resolve potential difficulties and
intervening
quickly and effectively—through liquidity injections via markets, for example
—to restore
risk-taking and/or to restore stability.
Thus, financial stability entails both preventive and remedial dimensions.

Garry J. Schinasi
 Key Principles for Defining Financial Stability

4. A fourth important principle is that financial stability be couched in terms of

the
potential consequences for the real economy.
Disturbances in financial markets or at individual financial institutions need
not be considered
threats to financial stability if they are not expected to damage economic
activity at large.
In fact, the incidental closing of a financial institution, a rise in asset-
price volatility, and sharp
and even turbulent corrections in financial markets may be the result of
competitive forces,
the efficient incorporation of new information, and the economic system’s
self-correcting and
self-disciplining mechanisms.
By implication, in the absence of contagion and the high likelihood of systemic
effects, such
developments may be viewed as welcome—if not healthy—from a financial
stability
perspective

Garry J. Schinasi
 Key Principles for Defining Financial Stability

5. A fifth principle—consistent with those already discussed

and the actual dynamism of finance—is that financial
stability be thought of as occurring along a continuum.
An example that is more transparent is the health of an organism,
which also occurs along a continuum. A healthy organism can
usually reach for a greater level of health and well being, and the
range of what is normal is broad and multi-dimensional.

Garry J. Schinasi
 Key Principles for Defining Financial Stability
In addition, not all states of unhealth (or illness) are significant,
systemic, or life threatening. And some illnesses, even temporarily
serious ones, allow the organism to continue to function
productively and can have a cleansing effect, leading to greater
health.
One implication of seeing financial stability in this way is that
maintaining financial stability does not necessarily require that
each part of the financial system operate persistently at peak
performance; it is consistent with the financial system operating on
a “spare tire” from time to time.

Garry J. Schinasi
What is financial stability in Banking Sector?

• A stable financial system is capable of

efficiently allocating resources, assessing and
managing financial risks, maintaining
employment levels close to the economy's
natural rate, and eliminating relative price
movements of real or financial assets that will
affect monetary stability or employment levels.
 Financial stability in BSP

• Financial stability is the state when prospective

systemic risks are mitigated so as to allow financial
consumers, both individuals and corporate
entities, to pursue viable economic goals while
avoiding disruptions to the smooth functioning of
the financial system that can negatively affect the
rest of the economy.
02|CoreFunctionsoftheBSP:FinancialStability

02
FINANCIA
L
STABILIT
Y Managing systemic risks and promoting a
secure and reliable banking system by ensuring
the safe and sound operation of banks and other
BSP Supervised Financial Institutions (BFSIs)
 Financial Stability

• The central bank often acts as lender of last resort in order to maintain
financial stability. For instance, most commercial banks need short-
term loans in order for them to be able to align their assets and
liabilities.
• On occasion, a commercial bank may have to pay a loan to another
financial institution, but their assets are tied up in long-term loans and
other illiquid assets. As a result, they need some short-term liquidity to
meet their obligations, which is where the central bank comes into
play.
 02 | Core Functions of the BSP: Financial Stability
Overview of the Philippine Financial System

Savers
Borrowers
Financial
Intermediaries
(have excess funds)
(need

funds)

Supervised and Regulated

Regulated by
by the BSP
SEC, IC,CDA
Banking Other FIs
NBFIs without Quasi-
Institutions
Banking Functions

Universal Commercial with Quasi-

Investment Houses
Pawnshops
Lending Companies
Banks Banks Banking Functions

Bank-affiliated Non- Non-Stock Savings

Financing Capital Market
Thrift Banks Rural Banks Bank Financial and Loans

Companies Participants
Institutions Associations

Cooperative
Pre-Need Insurance
Islamic Banks Money Service
Banks
Companies Companies
Businesses

Digital Banks
Cooperatives
 Promoting FinancialStability

FINANCIAL
SYSTEM
 Financial Stability (FS) is about managing
financial system risks so that these risks
do not
create negative consequences to the rest of
the
economy.

 FS is about managing risks that can disrupt

the
availability and effective delivery of
financial
Systemic risk management products and services
is crucial to avoid the next crisis
 02 | Core Functions of the BSP: Financial Stability
How does the BSP conduct financial supervision and regulation

Conduct of
Issuance of rules
examination/regu
of
lar investigation
conduct/standar
d of operations
 safety & soundness of
FIs
 smooth functioning of
financial markets
 protection of interests
of
depositors & investors
Inquiring into
solvency/liquidi
Risk profiling
ty
 02|CoreFunctionsoftheBSP:EfficientPayments&SettlementsSystem

03
EFFICIENT
PAYMENTS &
SETTLEMENT
S
SYSTEM Providing channels through which funds
are transferred among banks and other
institutions
 What is an efficient payments and
settlements system?

o includes institutional and

infrastructure
arrangements and processes through
which
money is transferred from one party
to
another

o provides channels through which

funds are
transferred to discharge payment
obligations
arising from economic and financial
transactions
A safe, sound, &efficient payment system is (includes digital transactions such
as use of online
a critical market infrastructure of a facility and electronic wallet)
stable financial system
 02 | Core Functions of the BSP: Efficient Payments & Settlements System
How does the BSP take the lead in promoting an efficient payments & settlements
system?

RA No. 11127 or “The National Payment Systems Act” (NPSA)

OVERSEER, REGULATOR, & OWNER

& OPERATOR OF REAL
SUPERVISOR OF PAYMENT TIME
GROSS SETTLEMENT
SYSTEMS
SYSTEM
Provide a policy and regulatory framework, also known as the
Provide the necessary infrastructure through the operations
National Retail Payment System or NRPS, to
of the Philippine Payments and Settlements System or
establish safe, efficient, and reliable retail payment
the “PhilPaSS.”
system in the country.
03|OtherFunctionsoftheBSP

ISSUER OF MONEY MANAGER OF OFFICIAL

RESERVES BANK OF BANKS/LENDER OF
Only t he BSP can issue legal t ender The BSP manages the
country’s GIR LAST RESORT

The BSP transacts with banks only, and

gives loans when warranted

OFFICIAL DEPOSITORY AND ADVISOR OF

DETERMINATION OF THE
NATIONAL GOVERNMENT
EXCHANGE RATE
The NG maintains deposits with the BSP, while the BSP
POLICY
advises the NG on borrowings
BSP is in charge of the exchange

rate policy
 LAND BANK OF THE PHILIPPINES

• The Agrarian Reforms Code created the Land Bank of

the Philippines (LBP) to finance the acquisition and
distribution of agricultural estates for division and
resell these small landholders.
• Central banks (BSP) has the monopoly function to issue notes and
currency.
• Central Banks issue metal coins and paper notes.
• For this, central banks need to keep a reserve in the form of gold and
foreign securities as per the rules.
• Along with the issuance, central banks have the authority to destroy
the damaged currency or which are not in circulation.
 Manager of Official Reserve /
Custodian of Cash Reserve

• It is a practice of the commercial banks of a country to keep a part of their

cash
balances in the form of deposits with the central bank.
• The commercial banks can draw that balance when the requirement for cash is
high and pay back the same when there is less requirement of cash.
• It is for this reason that the central bank is regarded as the banker’s bank.
• Central bank also plays an important role in the credit creation policy of
commercial banks.
 Bank of Banks /
Lender of Last Resort

• The BSP extends discounts, loans and advances to banking

institutions for liquidity purposes.
• Financial supervision – The BSP supervises banks and exercises
regulatory powers over non-bank institutions performing
quasi-banking functions.
 What measures are undertaken by the BSP to maintain
order and stability in the foreign exchange market?

• The BSP uses three general tools to operationalize the

exchange rate policy, namely:
1. participation in the foreign exchange market;
2. monetary policy measures; and
3. foreign exchange regulations.
 DETERMINATION OF THE EXCHANGE RATE
POLICY -BSP is in charge of the exchange rate policy
• Under a market‐determined exchange rate framework, the BSP does
not set the foreign exchange rate but instead allows the value of the
peso to be determined by the supply of and demand for foreign
exchange.
• A fixed or pegged rate is determined by the government through its
central bank. The rate is set against another major world currency (such
as the U.S. dollar, euro, or yen). To maintain its exchange rate, the
government will buy and sell its own currency against the currency to
which it is pegged.
 BSP as Depository and Advisor of National
Government

• under the New Central Bank Act, the BSP functions

as the banker, financial advisor and official depository
of the Government, its political subdivisions and
instrumentalities and GOCCs.
 DEVELOPMENT BANK OF THE PHILIPPINES

• The Development Bank of the Philippines (DBP)

started operating in 1935 as the National Loan and
Investment Board.
• Its first mission was to coordinate and manage trust
funds.
 DEVELOPMENT BANK OF THE PHILIPPINES

• The Development Bank of the Philippines is a development

banking institution dedicated to nation-building by assisting
critical industries and sectors, promoting entrepreneurship
particularly in the countryside, helping build more productive
communities, advancing environmental protection, and
contributing to the improvement of lives of Filipino across the
nation.
 PHILIPPINE VETERANS BANK

 Philippine Veterans Bank (PVB) is a private

commercial bank owned by World War II
veterans and their descendants while Philippine
Veterans Affairs Office (PVAO) is the agency of
the Philippine government under the Department
Of National Defense.
 Government Non-Bank Financial
Institutions
1. The Government Service Insurance System
2. The Social Security System
3. The Philippine Export and Foreign Loan Guarantee
Corporation
4. The National Home Mortgage Finance Corporation
 Government Non-Bank Financial
Institutions
1. The Government Service Insurance System (GSIS)
• The Government Service Insurance System (Filipino:
Paseguruhan ng mga Naglilingkod sa Pamahalaan,
abbreviated as GSIS) is a government-owned and controlled
corporation (GOCC) of the Philippines. Created by
Commonwealth Act No. 186 and Republic Act No. 8291 (GSIS
Act of 1997), GSIS is a social insurance institution that
provides a defined benefit scheme under the law. It insures its
members against the occurrence of certain contingencies in
exchange for their monthly premium contributions.
 Government Non-Bank Financial
Institutions
1. The Government Service Insurance System
(GSIS)
• GSIS members are entitled to an array of social security
benefits, such as life insurance benefits, separation or
retirement benefits, and disability benefits.
• GSIS is also the administrator of the General Insurance Fund
by virtue of RA 656 (Property Insurance Law). It provides
insurance coverage to government assets and properties
that have government insurable interests.
 Government Non-Bank Financial
Institutions
1. The Government Service Insurance System (GSIS)
• on May 13, 1937, the Government Service Insurance
System (GSIS) started its operations. Presently GSIS
administer the following:
 Life insurance fund;
 Health insurance Fund/Medicine
 State Insurance fund/Employees’ Compensation
 General Insurance Fund/Property Insurance; and
 Barangay Official Life Insurance.
 Government Non-Bank Financial
Institutions
2. The Social Security System (SSS)
• The Social Security System (SSS; Filipino: Paseguruhan ng
Kapanatagang Panlipunan) is a state-run, social insurance
program in the Philippines to workers in the private, professional
and informal sectors. SSS is established by virtue of Republic Act
No. 1161, better known as the Social Security Act of 1954. This law
was later amended by Republic Act No. 8282 in 1997.
Government employees, meanwhile, are covered under a
separate state-pension fund by the Government Service
Insurance System (GSIS).
 Government Non-Bank Financial
Institutions
2. The Social Security System (SSS)
• SSS provides death, funeral, maternity leave,
permanent disability, retirement, sickness and
involuntary separation/unemployment benefits.
• The Employees' Compensation (EC) Program which
started in 1975 provided double compensation to
workers who had illness, accident during work-related
activities, or died. EC benefits are granted only to
members with employers other than themselves.
 Government Non-Bank Financial
Institutions
2. The Social Security System (SSS)
• SSS members can make 'salary' or 'calamity' loans.
Salary loans are calculated based on a member's
particular monthly salary credit. Calamity loans are for
instances when the government has declared a state
of calamity in the area where an SSS member lives,
following disasters such as flooding and earthquakes.
 Classification of Banks in the Philippines
Banks shall be classified into:
1. Universal banks;
2. Commercial banks;
3. Thrift banks, composed of:
i. Savings and mortgage banks,
ii. Stock savings and loan associations, and
iii. Private development banks, as defined in the Republic Act No. 7906
(hereafter
the “Thrift Banks Act”);
4. Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks
Act");
5. Cooperative banks, as defined in Republic Act No 6938 (hereafter the
"Cooperative
Code");
6. Islamic banks as defined in Republic Act No. 6848, otherwise known as the
"Charter
of Al Amanah Islamic Investment Bank of the Philippines"; and
7. Other classifications of banks as determined by the Monetary Board of the Bangko
Sentral ng Pilipinas.
General Banking Law of 2000 (RA 8791
 Islamic Banks
• Charter of Al Amanah Islamic Investment Bank of the Philippines.
• Al-Amanah Islamic Bank traces its roots to the Philippine Amanah Bank,
established by President Ferdinand Marcos in 1973 by virtue of Presidential
Decree No. 264. With an initial capital of 100 million pesos, it was one of the
world's first Islamic banks.
• Its charter originally mandated it to provide financial services to the provinces
of Basilan, Cotabato, Lanao del Norte, Lanao del Sur, Palawan, Sulu, Tawi-
Tawi, Zamboanga del Norte and Zamboanga del Sur, where there are large, if
not predominant, Muslim populations
Philippine Deposit Insurance Corporation (PDIC)