THE ROLE OF THE BSP IN FINANCIAL REGULATION 4.

To manage public debts

Established on July 3, 1993, pursuant to the provision of

Republic Act 7653 or the New Central Bank Act of 1993
GOVERNANCE OF THE BSP
as amended by Republic Act 11211 or the New Central
Act of 2019.

Primary objective is to maintain price stability

conducive to a balanced and sustainable economic
growth.

Aims to promote and preserve monetary stability and

the convertibility of the national currency.

 BSP Main Complex

o Located in A. Mabini St, Malate, Manila,
Monetary Board
1004 Metro Manila
 BSP - Security Plant Complex  Exercises the powers and functions of the BSP,
o East Ave., Quezon City such as the conduct of monetary policy and
supervision of the financial system.
RESPONSIBILITES
The BSP Monetary Board Chairman
 Liquidity Management
 Benjamin E. Diokno
 Currency issue
 Members
 Lender of last resort  Carlos G. Dominguez III
 Felipe M. Medalla
 Financial supervision  Juan De Zuniga, Jr.
 Peter B. Favila
 Management of foreign currency reserves
 Antonio S. Abacan, Jr.
 Determination of exchange rate policy  V. Bruce J. Tolentino

 Other activities

BANGKO SENTRAL AS A FISCAL AGENT

FUNCTIONS

1. To be the official representative of government
to financial entities.
2. To be the depository banker of the
government
3. To be the financial adviser of the government;
and
 Chief Executive Officer, required to direct and
supervise the operations and internal
administration of the BSP.
 A deputy governor heads each of the BSP’s
operating sector.
Financial Supervision Sector (FSS)

 Mainly responsible for the regulation of banks and other BSP-supervised financial institutions, as well as the
oversight and supervision of financial technology and payment systems.

Monetary and Economics Sector (MES)

 Mainly responsible for the operations/activities related to monetary policy formulation, implementation, and
assessment.

Corporate Services Sector (CSS)

 Mainly responsible for the effective management of corporate strategy and communications, as well as the
BSP’s human, financial, technological, and physical resources to support the BSP’s core functions

ADVOCACIES

1. Microfinance and Financial Institution

2. Financial Education and Consumer Protection

3. Overseas Filipino Workers

INTERNATIONAL COOPERATION

1. BSP's Role in the The Association of the Southeast Asian Nation (ASEAN) Financial Integration Process

2. BSP Participation in the South East Asian Central Banks (SEACEN) Process

3. BSP’s Participation in the Asian Development Bank (ADB) Process

 Philippines' gross international reserves (GIR) level rose by US$350 million to $98.95 billion as of end-August 2020
from the end-July level of $98.6 billion.
 End-August GIR level represents a more than adequate external liquidity buffer. Buffer is equivalent to nine months'
worth of imports of goods and payments of services and primary income

 The Bangko Sentral enhances Philippine banknotes, now responsive to the needs of the elderly and the visually
impaired, and feature the latest anti-counterfeiting technology.
The Bangko Sentral ng Pilipinas launched Digital Personal Equity and Retirement Account (PERA)

 Established under Republic Act No. 9505 as a means to help Filipinos build funds which they can use upon
retirement.

Objectives:

 Complementing existing pension and retirement benefits

 Promoting capital market development.
 As of July 29, 2020, only 1,586 Filipinos had been investing in PERA, with total contributions of P137 million. Of
the total contributors, 1,099 or 69 percent are locally employed, 273 or 17 percent are Overseas Filipino
Workers (OFWs), and 214 or 14 percent are self-employed.
 On average, OFWs have higher contributions at P110,000; local employed workers at P82,000; and the self-
employed at P76,000.

RISE OF DIGITAL PAYMENTS

 Targeted to hit about 20 percent of total transactions by 2020.

 The results of a BTCA survey, done in 2013 in coordination with the BSP, showed that only 1 percent of about
2.5 billion monthly payment transactions in the country are done electronically. 

PROGRAMS TO ENCOURAGE FILIPINOS TO USE DIGITAL PAYMENTS

InstaPay

 Provides consumers a safe, affordable, and real-time electronic payment mode for up to PHP 50,000 per
transaction without limit in a day. 

PESONet

 A batch electronic fund transfer (EFT) credit payment scheme. This is for business-to-business as well as people-
to-business transactions like credit salaries to employees existing accounts.
ANTI-MONEY LAUNDERING

 In September 2001, the Anti-Money Laundering Act, or AMLA, was made into law.
 AMLA defined money laundering a criminal offense, and prescribed corresponding penalties. It also provided the
foundation for a central monitoring and implementing council called the Anti-Money Laundering Council (AMLC).

MONEY MARKET

 Network of corporation, financial institutions, investors and governments which deal with the flow of short-term
capital.

 Unregulated and informal market and not structured like the capital markets

- Informal siya kasi unlike capital market hindi na siya dumadaan sa Philippine stock exchange.
- Do not exist in particular place or operate into a single set of rules or do they offer a single set of posted
prices with one current interest rate for money.

 High liquidity and short-term maturitie s are traded. (one year or less)

- Low risk = lesser term, lesser return

- high liquidity = easily convertible to cash

 Provide loans for day-to-day operations.

- Operating expenses

 Withdrawing money from the money market is easier.

- Mabilis kasi yung term, short period lang walang additional cost and penalty kapag winidraw.
- Unline capital market na maturity is 5yrs. Mahirap or matagal kunin

 Gives lesser return to investors who invest in it but provides a variety of products.

- Conservative type of investment because of lower risk

- Ex. Savings, emergency funds, life insurance

 It is a wholesale market, as the transaction volume is large.

- Users: large companies, banks, private sectors, government thru wholesales

- Transaction are in bulk / wholesale then eventually offered by banks to individuals or investors
- Retailed na ang money markets pag dating sating mga individual
- For as low as 5,000 we can invest in money market

 Web of borrowers and lenders, all linked by telephone and computers.

- The product and transaction can be settled electronically

- Done thru online, computers
- No need to go to branch of banks
- At the center of each web is a central bank.
- Central bank – policy that determines the short interest rate for that currency

 Low risk, high liquidity

 - Short term period (1yr)
- Easily convertible into cash
- Lesser the term, lower the risk
- High risk, low return
- Low interest

Common misconception:

- Hindi nakikipagexchange ng currency or peso or cash, it is done thru financial instrument. Sinasabi na money
kasi high liquid (easily convertible into cash) good as cash but not literally money yung tinitrade.

Who uses the Money Market?

 Primary function of money market is for banks and other investors with liquid assets to gain a return
on their cash or loan
 They provide borrowers such other banks brokerages and hedge funds with quick access to short term
funding
 Money market is dominated with professional investors also retail investors (50k can be invest pero
now kahit may 5k kalang pede ka ng maginvest ng money market)

Mutual funds

- Pool of funds and diversified; may option ka na hindi pillin ang money market. Stocks or bonds

Money market funds

- Limited to short term fund unlike mutual fund may option kana na ang piliin mo ay hindi money market,
stocks or bond na longer term.

Money market mutual fund

- pool of funds and diversified pero limited to short term funds lang. Selected na sya na ang mga funds na
nadoon ay galing sa mga short term lang like bank deposits, time deposits,commercial papers, treasury bills,
etc. ito yung mga usually invested into mutual fund na money market.

Companies

- Meron silang mga urgent means

- Mga dapat naiprovide ng company:
o Kailangan nila magpasweldo
- So kapag naubusan sila meron sila shortage sa fund they may issue commercial paper (para makakuha sila
ng pera) – mga naissue non ay ang mga private companies. Unsecured instrument (CP).
- Ex. Ang investor kapag bumili ng commercial paper, at discount so mas mura don kung ano man yung
nakalagay na price sa principal amount or face value dun sa commercial paper.
- Thru issue commercial paper, si company makakaipon sya ng fund para pampasahod sa mga employees nya.
- (CP) 1 to 9 months pero meron din na up to 12 months

 For payroll

 “Park” money for a time in short-term, debt-based financial instruments

  May extra na fund - cash surplus

 Park – temporarily dun muna yung pera mo para kahit papaano kumikita naman sya

 Debt based FI – such as treasury bills, commercial papers, certificate of deposits

 Kasi ang lumalabas dun ay nangungutang yung issuer (example yung sa commercial
paper (magbibigay ng pera then babayaran at maturity date))

Banks

Demand for long term loans and mortgages is not covered by deposits from savings account

- Meaning, yung bangko na yon madaming customer na nagloloan pero hindi nila kayang iprovide yung loan
na kailangan ng mga customers thru the use of savings account kasi umiikot lang naman yung pera galling
lang din naman yun sa mga deniposito ng mga tao sakanila. So hindi enough yung savings account para
ipautang so, ginagawa nila nagiissue sila ngayon ng certificate of deposits with a set interest rate and fixed-
term.
- Meaning, the bank cannot provide all the customers who wants to make a loan by using only the savings
account

 Issues certificate of deposits with a set interest rate and fixed-term of up to 5 years.

Investors

IndividualS seeking to invest large sum of money at relatively low risk na iinvest at financial instrument. Pero pede
naman din 5k lang ang iinvest. We can invest for as low as 5k to 50k.

 Investing large sums of money at relatively low risk. Sums of less than 50,000 can also be invested in money
market funds.

The money market does not exist in particular place to operate according to a single set of rules.

- Informal, unregulated, not structure

- Walang specific place na dun mangyayari ang buy and sell ng securities and walang rin syang isang set of
rules. Iba iba ang offer na price, depende kung anong type ng instrument ang inuooffer.
- How to effectively manage ang pera ng company.
- Pang matagalan – capital market.
- Concern with the cash management or financing their portfolio with the money market.

Participants in the money market

 Bureau of Treasury

 They sell government securities to raise funds.

 Issued treasury bills, short term issuances of government securities, allowance of the government to
obtain cash until cash revenue are collected

 So meron silang mga panghangailangan na hindi napoprovide agad dahil scheduled lang naman yung
pagcollect ng tax, hindi nman every day yon. Regular but not in a daily basis but yung expenses lagi.
Kapag nagshort ang government nagiisue sya ng treasury bills.
  Commercial banks

 Issued treasury security, sell certificate of the proceeds, offers individual investor accounts that can be
used to invest in money market.

 Offers certificate of deposits, time deposits, bankers acceptances in repurchase agreement.

 Private Individual

 Ordinary person that can invest in money market mutual funds.

 Commercial Non-financial Institutions

 They buy and sell money market securities to manage their cash.

 They temporarily store excess funds or park their cash surplus in exchange of high return and obtain
shorter funds.

 Investment Companies

 Finance/Commercial leasing companies

 They raise money market instrument.

 Example: They used commercial paper to lend funds to individual borrowers.

 Insurance companies

 They also need money market in case magklano ng unexpected demands most especially for property
and casualty insurance companies.

 Pension funds

 To maintain funds in preparation for long term investing in stocks and bonds market.

 Money market mutual funds

 This funds permits small investors to invest in money market by accumulating funds from numerous
small investors to buy large denomination money market securities

TYPES OF MONEY-MARKET INSTRUMENTS

Commercial paper

 Short-term debt obligation of a private sector firm or a government-sponsored corporation.

 Typically issued for the financing of payroll, accounts payable, inventories, and meeting other short-term
liabilities.

 Only companies with good credit ratings issue CPs

 Unsecured, no collateral (hindi pedeng habulin ni company kapag may nangyare sa market or economy)

 Can issue commercial paper called credit worthiness or companies with good credit ratings. SEC knows kung
sino lang pedeng magissue ng Commercial paper.
  Maturity is greater than 90 days but less than nine months.

 Denis Uy – Business man, based In Davao. Issued CP na worth 10.10B in Phoenix Petroleum (oil company)

 Usually unsecured although a particular commercial paper issue may be secured by a specific asset of the issuer
or may be guaranteed by a bank.

 Usually issued at a discount from face value and reflects prevailing market interest rates.

 Should be registered in SEC but there are some cases na pedeng hindi na basta mameet yung mga certain
requirements.

 Requirements: (w/o SEC)

 Payable to a specific person

 Neither negotiable nor assignable in held on to maturity in the amount not exceeding 50M

Banker’s acceptances (BA)

 Form of payment that is guaranteed by a bank rather than an individual account holder.

 Typically 90 days from the date of issue, but can range from 1 to 180 days.

 Most frequently used in international trade (import and export) to finalize transactions with relatively little risk
to either party.

  Traded at a discount in the secondary money markets.

 BA used as a means of insuring payments

 Example: an importer and exporter – mostly thru banks hindi company to company para segurado sa bayad.

 So an importer wants to import a product from a foreign country (kukuha sya ng letter of credit from his banks
and send it to the exporter)

 Letter of credit- a document issued by a bank (importer) that guarantees the payment of importers draft for
specified amount in time. The exporter can rely on the banks credit rather than the importers.

 The exporter will present the shipping document and the letter of credit to his domestic banks which pays for
the letter of credit at a discount because the exporter’s bank won’t receive the money from the importers bank
until later. The exporter’s bank then, sends a time draft to importer’s banks which then stump as accepted. And
thus, converting the time draft into banker’s acceptance.

 This negotiable instrument is back up by importer’s promise to pay together with the imported goods, the banks
guarantee of payment.

 BP has low credit risk because they are back up by the importer and the importer banks and the imported
goods.

 Bank Charges – it does not only depend on its own fees or commission for creating. It also commensurate the
general market bills of other from money market instrument
Treasury Bills (T-bills)

 With a maturity of one year or less, issued by national governments.

 The government can create money to pay you. So, it’s impossible na hindi ka nila bayaran.

 Low interest, low return.

 Considered the safest of all possible investments in that currency.

Three tenors of T-bills

 91 day (Cash Management Bills)

 182 day
 364-day

 Virtually zero default risk since the government can always print more money that they can use redeems these
securities at maturity. (advantage)

 Market for Treasury bills is both deep and liquid.

 Safest investment instrument in the market.

 T-bills are issued at a discount (meaning lower price than the par value at maturity)

Can be sold via two methods:

1. Auctions or Competitive bidding

 Magpapabid si bureau of auction, magiissue ng securities so, kung sino makapagbid sakanya iohonor ang
securities (sa highest bidder). Not secured kasi iohonor lang yun sa pinakamataas na bidder.

2. Noncompetitive bidding

 No bidding so, si investors ang magseset kung magkano yung gusto nyang bilhin na securities. Secured
kasi ikaw ang naseset ng amount.

Government agency notes

Local government notes

 Issued by provincial or local governments

 Debt issued by state and local governments to finance capital expenditures, such as construction projects.
Municipal notes are appealing to investors because they mature in one year or less

Interbank loans

 Loans extended from one bank to another

 Used by the borrowing institution to re-lend to its own customers

 Overnight loans are short-term unsecured loans from one bank to another. Used to help borrowing banks
finance loans to customers.
  To maintain reserve of banks for regulatory purposes

 Interbank loans may be made to ensure that banks meet their capital requirements at the end of each day.

Certificates of Deposit or Time Deposit

 Securities issued by banks which records a deposit made.

 Cannot be withdrawn without penalty before a specified date.

 Usual term is 5 years, but there are CDs with terms as brief as 30 days

 If kinuha mo sya in less than 5 year may certain penalties

 Interest rates depend on length of maturity, with longer terms getting better rate.

 The shorter the term, the lower the return pero kapag mas mahaba o mas mataas yung time deposit mo, mas
mataas yung interest rate na iooffer ng bank.

Repurchase agreements or Repos (Binenta mo tas bibilhin mo ulit)

 A short-term agreement to sell securities in order to buy them back at a slightly higher price. (government
securities)

 Usually on an overnight basis.

 Term repurchase agreements, on the other hand, can be as long as one year with a majority of term repos
having duration of three months or less.

 A combination of two transactions.

 In the first the securities dealer, such as a bank, sells securities it owns to an investor, agreeing to repurchase
the securities at a specified higher price at a future date.

 In the second transaction, days or months later, the repo is unwound as the dealer buys back the securities from
the investor.

 The amount the investor lends is less than the market value of the securities, a difference is called the spread or
haircut, to ensure that it still has sufficient collateral if the value of the securities should fall before the dealer
repurchases them.

 Typically used to raise short-term capital.

 Used as a short-term financing solution or cash-investment alternative with a fixed term lasting from overnight
to a few weeks to several months.

 It sell fixed income securities like bonds

 If dumating yung future date na yon at hindi yun binili, the buyer can sell the assets to the third party to offset
his loss.
 Example:
si seller nagbenta ng government securities ng November 1 in the amount of 10,167,671 euros. agreement is
bibihin niya ulit (buyback) ng November 8 at a slightly higher price.the difference in the amount is the reurn or
gain ni buyer. If sa agreed date hindi binuyback ni seller, pwede ibenta ni buyer yun sa 3 rd party to offset his loss.