MONETARY POLICY AND

CENTRAL BANKING
PAMANTASAN NG LUNGSOD NG MARIKINA
COLLEGE OF MANAGEMENT & TECHNOLOGY
Business Administration, Entrepreneurship, & Accountancy

By:
NILO N. IGLESIAS, CPA, MBA, REA
The Philippine
Financial System
Financial System
Definition:
• network of various institutions which generates,
circulates, and controls money and credit.
• provides intermediation between the suppliers and users
of credit.
• provides loans to poor families, small producers, big
businessmen and industrialists.
• stimulates the social and economic development of the
country
Elements of Financial System
a) Financial Claims – right to receive money
under specific circumstances, as evidenced by
financial instruments that specify the terms of the
claims.
- categories of claims: debts and equities
b) Financial Institutions – private or government
organizations whose assets consist primarily
of claims or incomes derived from performing
services in connection with claims.
Elements of Financial System
- FinancialIntermediaries – Financial Institutions
which deal with creation and issuance of claims
against themselves and use the proceeds to
acquire and hold claims against others. They act
as middlemen between suppliers and users of
money.
c) Financial
Markets – institutions which expedite
transactions in financial claims.
ex. Stock exchange market, Fx market, PDS
Elements of Financial System:
d) Government Agencies – the Bangko Sentral ng
Pilipinas, the Monetary Authority in the Philippines, that
implements laws and policies on money, banking and
credit. Its primary goal are to maintain stability of peso.

e) Laws and Policies – the national government

regulates and supervise the behavior of the whole
economy, thru issuance of laws and policies to ensure the
desired level of investment, employment, production,
income and consumption.
Participants in the Financial System
1. Money
2. Financial Instruments
3. Financial Markets
4. Financial Institutions
5. Regulatory Agencies
6. Central Bank
 Concept of a Financial System

RISK
SHARING Financial LIQUIDITY
System

Financial
Households Funds Markets Funds Households
Firms Firms
Governments Financial Governments
Intermediaries
Returns Returns

Savers Borrowers

Source: Hubbard, R.G. (1997) INFORMATION

Money, the Financial System and
the Economy. Addision-Wesley
Longman, Inc.
 Flow of Funds in the Financial System

Bank Deposits Purchase or

Investment in
Bonds/Bills
INVESTORS

Purchase/ Investment in
Investment in Shares
Bonds
BANKS GOVERNMENTS

Bank Loans
COMPANIES
 Link of the Financial System to the
Economy
Stable Financial System
Increased
production
and
investment
activities

Efficient flow
of funds in
the economy

Sustainable Economic Growth

Functions of Financial Institutions
• General function is to facilitate the transfer of
funds from the savers to the users
• Specific functions includes:
- investigation and credit analysis
- matching the supply and demand for funds
- provisions for liquidity
 Financial Intermediation Process
(Banking System)
Deposit Taking Lending
75% Corporate
13% Consumer
0.5 deposit account per
person

Returns
Returns on loans
on deposits

Banking System
12 % SMEs

Pooling Allocating
capital from capital to the
many savers most
important
uses
Structure of the Philippine Financial System
Shared Oversight of the Philippine Financial System
BSP* and PDIC
Banking System
 Universal Banking System
 Commercial Banking System
 Thrift Banking System
 Rural and Cooperative Banking System
* Other supervised entities of the BSP are
off-shore banking units and foreign banks.
BSP, SEC and IC
Non-Bank Financial Institutions
 Non-banks with Quasi-Banking Function:
Investment Houses and Financing Companies
 Non-banks without Quasi-Banking Function:
Investment Houses, Financing Companies,
Investment Companies, Securities
Dealers/Brokers, Lending Investors,
Pawnshops, Venture Capital Corporations,
Government Non-Bank FIs, Non-stock
Savings and Loan Associations, Credit Card
Companies
 Other FIs: Insurance Companies and Mutual
Funds
Banking Institutions
• Private Banking
• Government Banking
- Land Bank of the Philippines
- Development Bank of the Philippines
- Al Amanah Islamic Bank
Non-Bank Financial Institutions
• Private Non-Bank Financial Institution
• Government Non-Bank Financial Institution
- Government Service Insurance System
- Social Security System
- Pag-Ibig Fund
 BSP Supervised/Regulated Financial Institutions
Physical Network: Number of Offices (27,751)
As of July 31, 2020

Philippine Banking System

Universal Banks 6,421
Private 5,792
Government 617
Foreign Banks 12
Commercial Banks 573
Private 452
Foreign Bank Subsidiaries 99
Foreign Banks 22
Thrift Banks 2,654
Rural and Cooperative Banks 3,265
Total 12,913
 BSP Supervised/Regulated Financial Institutions
Physical Network: Number of Offices (27,751)
As of July 31, 2020
Non-Bank Financial Institutions With Quasi-Banking Functions
Investment Houses 3
Financing Companies 131
Other 1

Total 135

Non-Bank Financial Institutions Without Quasi-Banking Functions

Investment House with Trust Functions 2
Non-Stocks Savings & Loan Association 200
Pawnshops 14,381
Others (1 OFB) 120

Total 14,703
 • World Bank
Other
• International
Participants Fund Monetary
in the
Philippine • Asian Development
Bank
Financial
System • Anti-Money Laundering
Council
 World Bank performs the following functions:
• Granting reconstruction loans to war devastated countries.
• Granting developmental loans to underdeveloped
countries.
• Providing loans to governments for agriculture, irrigation,
Role of power, transport, water supply, educations, health, etc
• Providing loans to private concerns for specified projects.

World Bank • Promoting foreign investment by guaranteeing loans

provided by other organizations.
• Providing technical, economic and monetary advice to
in the member countries for specific projects
• Encouraging industrial development of underdeveloped

Philippine countries by promoting eco­nomic reforms.

Resources:

Financial
• The World Bank had initially authorized capital of $10
billion subscribed by the member countries in accordance
with their economic strength. The United States of America

System is the largest subscriber. The Bank collects funds from

members as well as by issue of international bonds.
 IMF performs the following functions
• Providing short terms credit to member countries
for meeting temporary difficulties due to adverse
balance of payments.
• Reconciling conflicting claims of member
countries.
Role of • Providing a reservoir of currencies of member-
countries and enabling members to bor­row on
IMF in the another's currency.
• Promoting orderly adjustment of exchange rates.
Philippine • Advising member countries on economic,
monetary and technical matters.
Financial Resources
• IMF is a pool of central bank reserves and
System national currencies that are available to member
countries under specified conditions.
• The capital of the IMF consists of the aggregate of
the quotas allotted to the member countries
member can pay its quota in its national currency.
• The IMF utilizes its gold holdings to acquire
dollars and other currencies for its opera­tions.
 Rationale Why ADB was established

• The ADB was established by Asian

countries to foster the economic growth
Role of and cooperation in the region of Asia
and the Far East, including the South
ADB in Pacific.
the • Asia has about 30 per cent of world
population, But the pace of
Philippine development is slow and inadequate to
support the population.
Financial • There was need for institution to
mobilize additional resources and to
System attract investment from outside the
region.
• ADB was set up to meet this need. It
started functioning on December 19,
1966.
 The objectives of the Asian Devt. Bank
Role of • To promote economic cooperation and
growth in Asia and the Far East.
ADB in the • To encourage member countries to work
both collectively and individually.
• To promote economic growth of
Philippine member countries by reducing poverty.
• To provide technical assistance in the
Financial planning and execution of projects of
member countries.
System • To support human development
activities such as education, health,
nutrition, popula­tion planning, etc.
• To provide support for policy reforms in
order to create more opportunities for
the poor.
 The main functions of the Bangko Sentral

Role of the 1. Liquidity management, by formulating and implementing

monetary policy aimed at influencing money supply,
consistent with its primary objective to maintain price
Bangko stability
2. Currency issue. The BSP has the exclusive power to issue the

Sentral in national currency. All notes and coins issued by the BSP are
fully guaranteed by the Government and are considered
legal tender for all private and public debts,
the 3. Lender of last resort, by extending discounts, loans and
advances to banking institutions for liquidity purposes,
Philippine 4. Financial supervision, by supervising banks and exercising
regulatory powers over non-bank institutions performing

Financial quasi-banking functions,

5. Management of foreign currency reserves, by maintaining
sufficient international reserves to meet any foreseeable net
System demands for foreign currencies in order to preserve the
international stability and convertibility of the Philippine
peso,
6. Determination of exchange rate policy, by determining the
exchange rate policy of the Philippines. Currently, the BSP
adheres to a market-oriented foreign exchange rate policy,
and
7. Being the banker, financial advisor and official depository of
the Government, its political subdivisions and
 Role of AMLC in the Financial System
 The Anti-Money Laundering Council
Role of the is composed of the Governor of the
Bangko Sentral ng Pilipinas (BSP) as
Anti-Money Chairman and the Commissioner of
Laundering the Insurance Commission (IC) and
the Chairman of the Securities and
Council - Exchange Commission (SEC) as
AMLC members.
 It acts unanimously in the discharge
of its functions.
 The AMLC is assisted by a
Secretariat headed by an Executive
Director
 Functions of AMLC
• Require and receive covered or suspicious transaction
reports from covered institutions (banks and all other
institutions and their subsidiaries and affiliates
supervised or regulated by the BSP; insurance
companies and all other institutions supervised or
regulated by the IC; and securities dealers and other
entities supervised or regulated by the SEC); 
• Issue orders addressed to the appropriate Supervising
Functions of Authority (the BSP, IC or SEC) or the covered institution
to determine the true identity of the owner of any
AMLC monetary instrument/property subject of a covered or
suspicious transaction report or request for assistance
from a foreign State, or believed by the AMLC, on the
basis of substantial evidence, to be representing,
involving, or related to the proceeds of an unlawful
activity;
• Institute civil forfeiture proceedings and all other
remedial proceedings through the Office of the
Solicitor General;
• Cause the filing of complaints with the Department of
Justice or the Ombudsman for the prosecution of
money laundering offenses;
 Functions of AMLC

• Investigate suspicious transactions and

covered transactions deemed suspicious
after an investigation by AMLC, money
laundering activities, and other violations of
the AMLA, as amended;
• Apply before the Court of Appeals, ex parte,
Functions of for the freezing of any monetary
instrument/property alleged to be
AMLC proceeds of any unlawful activity as defined
in the AMLA;
• Implement such measures as may be
necessary and justified to counteract
money laundering;
•  Receive and take action in respect of any
request for assistance from foreign states in
their own anti-money laundering
operations;
 Functions of AMLC
• Develop educational programs on the pernicious
effects of money laundering, the methods and
techniques used in money laundering, the viable
means of preventing money laundering and the
effective ways of prosecuting and punishing
offenders;
Functions of • Enlist the assistance of any branch, department,
bureau, office, agency or instrumentality of the
AMLC government, including government-owned and –
controlled corporations in undertaking any and all
anti-money laundering operations, which may
include the use of its personnel, facilities and
resources for the more resolute prevention,
detection and investigation of money laundering
offenses and prosecution of offenders; 
• Impose administrative sanctions for the violation
of laws, rules, regulations and orders and
resolutions issued pursuant thereto; and
 Functions of AMLC

• Inquire or examine any particular deposit or

investment, including related accounts, with
any banking institution or non-bank financial
institution upon order of any court based on
an ex parte application in cases of violation of
the AMLA, as amended, when it has been
established that there is probable cause that
the deposits or investments, including related
Functions accounts involved, are related to an unlawful
activity or a money laundering offense under
of AMLC the AMLA as amended.

• To ensure compliance with the AMLA, as

amended, the BSP may, in the cause of a
periodic or special examination, check the
compliance of a covered institution with the
requirements of the AMLA and its
implementing rules and regulations.
Questions/ Next …….
Reactions… Central
…… Banking
 THANK YOU……
KEEP SAFE
The
Philippine
Financial AND
System BE
HEALTHY!!!