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Financial System & BSP

The document discusses the Philippine financial system and the role of the Bangko Sentral ng Pilipinas (BSP). It defines the financial system and describes its key participants. The BSP is mandated to oversee the financial system and ensure monetary stability and sustainable economic growth. It uses various monetary policy tools like open market operations, reserve requirements, and interest rates to influence money supply and achieve its goals of price stability, financial stability, and an efficient payments system.

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Zenedel De Jesus
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303 views

Financial System & BSP

The document discusses the Philippine financial system and the role of the Bangko Sentral ng Pilipinas (BSP). It defines the financial system and describes its key participants. The BSP is mandated to oversee the financial system and ensure monetary stability and sustainable economic growth. It uses various monetary policy tools like open market operations, reserve requirements, and interest rates to influence money supply and achieve its goals of price stability, financial stability, and an efficient payments system.

Uploaded by

Zenedel De Jesus
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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The

Philippine
Financial
System
OBJECTIVES

• Define what a financial system is and illustrate the role it


plays in the economy of a nation
• Discuss the roles of the different participants in a
financial system
• Elaborate the role of the Bangko Sentral ng Pilipinas
• Explain the monetary policy and the role it plays in the
economic development of a country
• Discuss the relationship between monetary policy and
the financial system
• Illustrate how the tools of monetary policy are used to
influence money supply and interest rates
FINANCIAL SYSTEM
• Describes collectively the financial
markets, the participants and the
instruments and securities that are traded
in the said markets
FUNCTIONS OF THE FINANCIAL
SYSTEM
• Channel the funds from the saving units –
(lenders) to the deficit units (borrowers)
• Provide a medium of exchange
• Provide mechanism for risk sharing
• Provide a channel through which the
central bank can influence the economy, in
general and the financial system in
particular
PARTICIPANTS
– Households and consumers
– Financial institutions/intermediaries
– Non-financial firms
– The government
– The central bank
– Foreign participants
PHILIPPINE FINANCIAL
SYSTEM

BSP

NON-BANK
GOVERNMENT SPECIALIZED GOVT
COMMERCIAL BANK THRIFT BANKS FINANCIAL
BANKS BANKS
INSTITUTION

INVESTMENT
HOUSES,
PNB,DBP,LANDBANK
INSURANCE
COMPANIES ETC
THE PHILIPPINE FINANCIAL
SYSTEM
• THE BANGKO SENTRAL NG PILIPINAS
(BSP)
– Mandated to oversee the financial system of
the country
– Agency that is tasked to ensure that the
country has a healthy financial system and a
healthy ECONOMY
– Central monetary authority
BANGKO SENTRAL NG
PILIPINAS
• Is charged to supervise and regulate the
financial system of the Philippines
• Regulates the flow of money and credit
into the whole economy in order to obtain
– Monetary stability
– Sustainable economic growth
History of BSP
• 1933 – developed by Miguel Cuaderno,
the first governor of the Central Bank of
the Philippines
• 1946- formal preparations for the
establishment of the Central Bank of the
Philippines under President Manuel Roxas
with Guatemala charter as the model
• June 14,1993- changed to Bangko
Sentral ng Pilipinas (BSP) under the New
Central Bank Act (RA 7653) under
President Fidel V. Ramos (capital P50
billion)
REASONS FOR THE
CHANGE
• The old Central Bank (CB) was heavy in
debt caused mainly by the Marcos
administration
– CB was used as the piggy bank of the government
– Advanced money for membership to IMF/WB
– Backed and absorbed questionable loans for cronies
– Provided subsidies and took huge debts for Philippine
companies and banks
Reasons for the change
• Its quasi-fiscal operations constrained
income maximization
– Continuing support by the CB to the national
government
– Emergency loans and overdrafts to distressed
financial institutions
– Provided subsidized credits to priority sectors
( agriculture/ exports)
Provisions for the transfer
Capitalization= P 50B
Transfer of assets and liabilities  3 members of the
monetary board
Transfer of powers
 Phase out regulatory powers over finance companies
without quasi banking
 Phase out fiscal agency functions transfer to the
Department of Finance
 Prohibited from acquiring shares as collateral ; no
participation in ownership or management of any enterprise
 Prohibited from engaging in development banking and
financing
BSP ORGANIZATIONAL
STRUCTURE
THE GOVERNOR

• Represents the monetary board and the


BSP in all external dealings
• Sign contracts
• Represent the BSP
• Delegate his powers to represent the BSP

• AMANDO M. TETANGCO, JR.


MONETARY BOARD
• Issue rules and regulations
• Direct the management, operations and
administration of the BSP
• Establish human resources
• Adopt an annual budget
• Indemnify the members and other officials
for any cause of litigation
BSP MONETARY BOARD
MEMBERS
Cesar V. Purisima
Alfredo C. Antonio
Felipe M. Medalla
Armando L. Suratos
Juan D. De Zuñiga, Jr.
Valentin A. Araneta
BSP MONETARY BOARD
MEMBERS
OBJECTIVES OF THE BSP
• Maintain monetary policies conducive to a balanced and
sustainable growth of the economy
• To maintain price stability
• To promote and maintain monetary stability and
convertibility of the Peso
• Maintain stability of the financial system
• Provide payment and other financial servicesto the
government, the public, financial institutions and foreign
official institutions
• Supervise and regulate depository institutions
THE 3 PILLARS OF THE BSP

PRICE STABILITY
FINANCIAL STABILITY

EFFICIENT PAYMENTS &


SETTLEMENT SYSTEM
PRICE STABILITY
• Low and stable inflation
• Strong and sustainable economic growth
FINANCIAL STABILITY
• Ensure prudent management of deposits
and funds through bank supervision
•
EFFICIENT PAYMENTS &
SETTLEMENT SYSTEM
• Maintaining a safe, sound and efficient
payments and settlement system for the
country
• PHILPASS= Philippine payment ans
settlement system
• Final and irrevocable settlement of
interbank transactions
FUNCTIONS OF THE BSP
• Bank of issue
• Government’s banker, agent and adviser
• Custodian of cash reserves of banks
• Custodian of nation’s reserves of
international currency
• Lender of last resort
• Bank of central clearance and settlement
• Controller of credit
Operations of the BSP

• Research and statistics


– Forecast of balance of payments
– Statistics on monthly movements
• Reports and publications
– General balance sheet
– Gold and foreign exchange
– Budget profit and loss statements
– State f the financial system
– Abnormal movements and general price level
• Annual reports
– Analysis of economic and financial circumstances
INSTRUMENTS OF THE
BSP
Moral suasion
Operations in gold and foreign exchange
Regulation of forex operations of banks
Loans to banking and other financial institutions
Open markets operations
Reserve requirements
Selective regulation of bank operations
As bank of the government
Supervision and examination
Appointment of a conservator
GOVERNMENT POLICIES
• FISCAL POLICY
– REVENUES AND GOVERNMENT
SPENDING
– TAXES AND BUDGET
• MONETARY POLICY
– CONTROL OF MONEY SUPPLY
• TRADE POLICY
– INTERNATIONAL TRADE
MONETARY POLICY
• Main/ primary objective of the BSP is to
maintain monetary stability
• Without monetary stability it will be difficult
to achieve high rate of savings
• Management of the expansion and
contraction of the volume of new in
circulation is very important
 MONETARY POLICY
MONETARY POLICY
• Includes all measure taken by the
government, the BSP and the Treasury to
affect the amount, availability and the use
of money and credit
• Regulations regulating the money supply
• Expansionary-> to stimulate economic
activity
• Restrictive-> to dampen inflationary
tendencies
Goals and Tools of Monetary
Policy
• The goal of monetary policy is to achieve and
maintain price-level stability, full employment, and
economic growth.
• The three tools of monetary control are:
– Open-market operations: buying and selling of government
securities to change money supply.
– Changing the reserve ratio to influence the ability of the
commercial banks to lend. It is used very seldom.
– Discount rate - the interest rate that the BSP charge on the
loans they make to commercial banks and thrifts.

LO: 10-2
Open Market Operations
• Open market operations are the most important
instrument for influencing the money supply.
• Buying securities increases the reserves of
commercial banks.
– Excess reserves allow the banking system to expand the
money supply through loans.
• Selling securities reduces the reserves of
commercial banks.
– Lower reserves result in a multiple contraction of the
money supply.
LO: 10-2
Reserve Ratio
• If the BSP raises the reserve ratio, the amount of
required reserves that banks must keep increases.
– Banks will either lose excess reserves, diminishing their
ability to create money by lending, or reduce their
checkable deposits, and therefore the money supply, due
to deficient reserves.
• If the BSP lowers the reserve ratio, the banks’
required reserves will decrease.
– Banks with more excess reserves are able to create new
money by lending.

LO: 10-2
Discount Rate
• The BSP make short-term loans to commercial banks in their
district.
• In providing loans, the BSP increases the reserves of the
borrowing bank, enhancing its ability to extend credit.
• From the commercial banks’ perspective, the discount rate is
the cost of acquiring reserves.
• Increasing the discount rate discourages commercial banks
from obtaining additional reserves through borrowing from
the BSP
• When the BSP raises the discount rate, it wants to restrict
the money supply.

LO: 10-2
ADVANTAGES OF
MONETARY POLICY
• Impersonal
• Non-discriminatory
• Minimal gov’t interference
• Flexible in operation
WEAKNESS OF MONETARY
POLICY
• Inability to expand income and investment
• It can only improve the opportunity for
private business to expand them
WITH POWER
COMES
RESPONSIBILITY
The end
ASSIGNMENT
• Go to the website of the BSP.
www.bsp.gov.ph
• Find the latest Monetary policies issued by
the BSP
• Find out what is meant by inflation
targeting
• Find what is the most recent inflation
target of the BSP.
Monetary policy Aug 2015
• At its meeting today, the Monetary Board
decided to maintain the BSP's key policy
rates at 4.00 percent for the overnight
borrowing or reverse repurchase (RRP)
facility and 6.00 percent for the overnight
lending or repurchase (RP) facility. The
interest rates on term RRPs, RPs and
special deposit accounts (SDA) were also
kept steady. The reserve requirement
ratios were likewise left unchanged.
INFLATION TARGETING
• Inflation targeting is focused mainly on
achieving a low and stable inflation,
supportive of the economy’s growth
objective.
• This approach entails the announcement
of an explicit inflation target that the BSP
promises to achieve over a given time
period.
INFLATION TARGETING
• The government’s inflation target is defined in terms of
the average year-on-year change in the consumer price
index (CPI) over the calendar year. In line with the
inflation targeting approach to the conduct of
monetary policy, the Development Budget
Coordination Committee (DBCC) through its
Resolution No. 2015 – 1 dated 27 January 2015,
decided to keep the current inflation target at 3.0
percent ± 1.0 percentage point for 2015 – 2016 and
approved the inflation target of 3.0 percent ± 1.0
percentage point for 2017 – 2018.
INFLATION RATE
QUIZ 40 PTS:
• Define what is a financial system. 5 PTS
• Identify the participants in the financial system 5 PTS
• Describe the components of money supply 5 PTS
• Discuss the 3 pillars of the BSP 15 PTS
• Identify the tools of monetary policy and and describe
how these are used for expansionary and restrictive
monetary policiesby filling the table below 10 PTS
MONETARY POLICY EXPANSIONARY RESTRICTIVE
TOOLS
1.

2.

3.

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