, 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 investors, businesses and governments. It provides the mechanism for allocating financial resources of funds from savers to borrowers. ROLES OF THE FNANCIAL MARKET: • • • • • • • • • • • Money market operation Expedites the transaction of financial claims Serves as a mean of bringing the forces of demand and supply of financial clams Facilitates the flow of funds among investors, business, and governments. Provides the mechanisms for allocating financial resources or funds from savers to borrowers. Raises money by selling shares to investors and its existing share can be bought or sold. Where lenders and their agents can meet borrowers. Convenes many interested sellers n one place. Provides the place where many commodities are traded. Used to match those who want capital to who have it. 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 Philippines 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 • • • • • • • Liquidity Management Currency Issue Lender of Last Resort Financial Supervision 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 • To maintain price stability conducive to a balanced and sustainable growth of the economy • 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 • Issues rules and regulations it considers necessary for the effective discharge of the responsibilities and exercise the powers vested upon it.


• • •

Direct the management, operations and administration of the BSP Establish a human resource management system Adopt an annual budget for and authorize such expenditures by Bangko Sentral

Indemnify its 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 • Impersonal


• •

Flexible in operation Operates for the most part free from the weight of political pressures

DISADVANTAGES • Attempts to change available money supply through the banking system • Results to high-priced goods and services

QUANTITATIVE AND SELECTIVE INSTRUMENTS • QUANTITATIVE (Open Market Operations) – used to regulate total quality of money available for all purposes • 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



Non-Bank Financial institution

ISSUES ARISNG • • • • • • Financial Stability Integrated Regulator (s) Financial Transparency Deregulation of Financial Market Rapid Financial Innovation Space Age Technology]

CHALLENGES ENCOUNTERED • • • Improving Asset Quality Managing Risk Exposure Developing the Domestic Capital Market

The Philippine Financial System Structure
Financial Institutions
Financial Institutions are the intermediaries that allocations of funds in an efficient manner. mobilize savings and facilitate the

Central Bank
TheBANGKO SENTRAL NG PILIPINAS (BSP) is the Central bank of the

Republic of the Philippines. It was established on 3 July 1993 pursuant to the provisions of the 1987 Philippines Constitution and the New Central Bank Act of 1993.The BSP took over from the Central Bank of Philippines, which was established on 3 January 1949, as the country’s central monetary authority. The BSP enjoys fiscal and administrative autonomy from the National Government in the pursuit of its mandated responsibilities.

Banking Institutions


Private Banking • Commercial banks

An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses. An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses. • Universal Banks

Refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, insurance etc, Universal banking is a combination of commercial banking, investment banking and various other activities including insurance. • Thrift Banks Mobilization of small savings, provide loans generally longer and easier terms. Rural Banks Banks entrenched to ensure sufficient institutional credit for agriculture and other rural sectors. Mobilize financial resources from rural / semi-urban areas, grant loans small farmers. Cooperative Banks is a business organization owned and operated by a group of individuals for their mutual benefit. Cooperatives are defined by the International Co-operative Alliance's Statement on the Co-operative Identity as autonomous associations of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through jointly owned and democratically controlled enterprises. A cooperative may also be defined as a business owned and controlled Ordinary Commercial Banks


equally by the people who use its services or by the people who work there. Cooperative enterprises are the focus of study in the field of cooperative economics. Microfinance banks Is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services. More broadly, it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund

transfers. Those who promote microfinance generally believe that such access will help poor people out of poverty.