History of Financial System Financial System is like the heart of the human beings, if it

stops working then the person is dead in the same way that if the financial system stops working, then
the economy would collapse. It is inherent in every society the law of supply and demand. There will
always be those who have surplus resources and others will have deficit. Financial System is crucial to
the allocation of these resources. In the Philippines settings, Financial System is composed of
banking institutions and nonbank financial intermediaries, including commercial banks, specialized
government banks, thrift banks and rural banks. It is also composed of offshore banking units, building
and loan associations, investment and brokerage houses and finance companies. The Bangko Sentral ng
Pilipinas and the Securities and Exchange Commission maintained the regulatory and supervisory
control. The first credit institution in the Philippines, "The ObrasPias"was started by Father Juan
Fernandez de Leon in 1754 and ended in 1820. It was in 1851 that the first Philippine Bank was
established, the "Banco Espanol-Filipino de Isabela II". Banco Español-Filipino de Isabela II is now known
as Bank of the Philippine Islands. It is the oldest standing bank in the Philippines and in the whole of
Southeast Asia. It was established on August 1, 1851 and named after the mother of then Spanish King
Alfonso XII. Her mother's name was Isabella. The bank only came into being after 23 years after Spanish
Monarch Ferdinand VII decreed that a public bank was to be established in the Spanish colonized
country of the Philippines. The bank began its operations in 1852 and was given the honor of being the
first to issue paper money. In 1906 "First Agricultural Bank of the Philippines"was established and in
1916 all of its assets and liabilities were transferred to the newly organized Philippine National Bank.
The Philippine National Bank (PNB), created during the American colonial period on July 22 1916, is
among the top banking institutions in the Philippines and considered as one of the countrys economic
pillars. It is the countrys first universal bank, and functioned as the de facto Central Bank of the
Philippines until the 1940s. It was given a special power to issue circulating notes.It is also the first to
offer automated tellering services in the country through the self-service tellering machine (ATMs). In
1942, PNB closes its doors because of the coming of the Japanese imperial forces. In 1935, the National
Loan and Investment Board (NLIB) was created to coordinate and manage the various government trust
funds such as the Postal Savings Fund and the Teachers Retirement Fund. In 1939, the NLIB was
abolished and its functions were transferred to a new body, the Agricultural and Industrial Bank (AIB).
AIB continued operations until the outbreak of World War II.After the war, in 1947, the AIB was
abolished and the Rehabilitation Finance Corporation was formed. On October 29, 1946, an Act Creating
the Rehabilitation Finance Corporationalso called the Republic Act No. 85 was introduced. Its primary
purpose was to provide credit facilities for the rehabilitation and development and expansion of
agriculture, and industry, the reconstruction of property damaged by war, and the broadening and
diversification of the national economy, and to promote the establishment of private development
banks in provinces and cities. This later becomes the Development Bank of the Philippines.Financial
crises in the late 70s and early 80s have significant impact on the entire Philippine economy. A number
of policy reforms were made to strengthen the financial system. The financial community has
undertaken recovery efforts since 1986. Until the economic crisis of mid 80s, the largest commercial
bank in the Philippines was the government-owned Philippine National Bank. It accounted for 25% to
30% of commercial bank assets in the 1970s and early 1980s. As the result of the accumulation of
nonperforming assets by 1987 the asset share of the Philippine National Bank had fallen by half.The
privatization started in 1989 when 30 per cent of its shares were offered to the public and it was listed
on the stock exchange. In 1992, PNB became the first Philippine bank to reach P100 billion in assets.
Later that year, privatization continued with a second public offering of its shares. In 1995, PNB moved
to its headquarters to the PNB Financial Center, Central Boulevard (now Diosdado Macapagal
Boulevard), Pasay City. In 1996, the Securities and Exchange Commission approved the Banks new
Articles of Incorporation and by-laws and the change in the status of PNB from a government-based to a
private corporation with he control of the government reduced to 46 per cent. In 1988, there were
twenty privately-owned domestic banks and four branches of foreign banks engaged in commercial
banking. Control of banking and credit was limited to Filipinos with the passage of the General Banking
Act in 1948. Since the implementation of the said act, foreign investment in banking has been limited to
40 percent of domestic bank equity. In 1991, the Philippine government controlled three specialized
banks. Those were the Development Bank of the Philippines, the Land Bank of the Philippines and the
Philippine Amanah Bank.DBP is the seventh-largest bank in the Philippines in terms of assets and the
second largest government-owned bank next to Land Bank. Land Bank was established on August 8,
1963 as part of the Agricultural Land Reform Code, or Republic Act No. 3844 to help with land reform,
especially the purchase of agricultural estates for division and resale to small landholders and the
purchase of land by the agricultural lessee. The Philippine Amanah Bank was established by President
Ferdinand Marcos in 1973 by virtue of Presidential Decree No. 264 with an initial capital of 100 million
pesos.Its charter originally allowed it to open in 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. Its charter was amended in 1974, allowing it to open
branches in Maguindanao and Sultan Kudarat. In 1989, the bank was re-chartered and re-capitalized
pursuant to Republic Act No. 6848, and was subsequently renamed the Al-Amanah Islamic Investment
Bank of the Philippines, with a capital of one billion pesos.
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