BANKING AND FINANCIAL

INSTITUTION

TOPIC: BANGKO SENTRAL NG PILIPINAS

 THE CENTRAL BANK OF THE PHILIPPINES

The Central Bank is the monetary authority of the Philippines charged with regulating the banking and financial
system, principal function of the Central Bank is to control the country's supply of money and credit. To efficiently
carry out this function, the Central Bank was granted by law the sole right to issue currency. This monopoly of note
issue provides great convenience because it ensures, not only the uniformity of the notes placed in circulation, but also
their general acceptance as legal tender. The Central Bank also prevents the undue expansion of credit by banks as they
would have to borrow from it the additional supply of notes arising from increased demand which the banks cannot
issue themselves.

By means of this control function, the Central Bank can expand money and credit when business is on a slump and
unemployment is spreading. At such times, the Central Bank can increase availability of loanable funds to boost
spending and investments. Also, it can contract money and credit by tightening the availability of funds when there is
too much spending and prices are rising faster than jobs can be filled. These are carried out by means of the
instruments of monetary policy of the Central Bank such as reserve requirements, open market operations,
rediscounting, and other measures allowed by law.
The Central Bank is often referred to as the "bank of banks" as it serves banks in much the same way that
banks serve the general public. It is the depository of the cash reserves of the banks. This centralization of
reserves makes the settlement or "clearing of checks between banks easier and faster. Most importantly, the
centralization of reserves gives the banking system stability and strength by providing a large pool of cash and
a flexible credit mechanism that none of the scattered banks could do individually. The banks can borrow the
pooled cash to meet any cash requirement during seasonal demands or sudden emergencies instead of having to
carry more cash to meet such contingencies.
As a supervisory and regulatory body, the Central Bank, not only issues appropriate rules and regulations
which have the force of law, but also oversees the banking system to ascertain that regulations are complied
with. It examines banking institutions to determine whether they are conducting their business on a sound
financial basis.
The Central Bank also administers special funds in support of the country's overall economic development
efforts. In this way, it serves as the government's fiscal agent and banker. It carries out the sale and purchase of
the government securities for bonds. The Central Bank of the Philippines was organized in January 3, 1949, by
virtue of Republic Act No. 265 as amended.
 T H E B A N G K O S E N T R A L N G P I L I P I N A S

The BSP is responsible for maintaining price stability conducive to balanced and sustainable
growth of the economy. The BSP keeps prices of goods and services steady and at reasonable levels so
the economy can run unhampered.

The BSP provides policy directions in the areas of money, credit, and banking. To
keep prices at reasonable levels, BSP must protect at all times the value of the peso. It supervises the
operations of banks to promote the soundness and safety of banking. As provided for by Republic Act
7653 and other pertinent laws, the BSP also regulates the operations of finance companies and non-
bank financial institutions with quasi-banking functions.
The BSP was created under Section 2 of RA 7653, better known as "The New
Central Bank Act." It traces its roots and fundamental structure to its predecessor, the Central Bank of
the Philippines. The Bank began formal operations on July 3, 1993.
The BSP performs several important functions that have a significant effect on the value of money.

1. Money Manager. The BSP manages the amount of money available to the public to keep
prices from increasing faster than the usual rate. It does this to preserve the value of our money
so that our earnings and savings are not eroded by abnormal increases in prices of goods and
services.

2. The Supplier of Money. Only the BSP can legally issue money in paper notes and coins
and in amounts consistent with the country's economic program. The money it issues is fully
guaranteed by the Government and can be used to pay for any goods or services in the
country. The BSP also prints the paper money and mints the coins. It has in its vaults a ready
supply of money to replace old ones or add to those currently being used
3. The Banker's Bank. The BSP grants loans to and accepts deposits only from banks, it grants
loans to banks for commercial, production, and similar purposes as in exports and agricultural
activities. It also lends cash to banks in times of national or local emergencies or if financial
problems directly threaten the stability of banks. Even during normal times, the BSP can grant an
emergency loan to a bank that is experiencing problems. The bank, however, must have enough first-
class assets that are acceptable to the BSP, to cover a special loan. BSP also accepts deposits from
banks as part of their required reserves. In line with its management of the money supply, the BSP
requires banks to set aside a portion of their deposits, which it cannot lend out. To comply with this
requirement, banks keep a portion of the cash in their vaults, and a specified portion is deposited
with the BSP or invested in government securities bought directly from BSP.
4. The Supervisor of all Banks. In the exercise of its responsibility to supervise banks, the
BSP regularly monitors and examines the operations of banks as well as their compliance
with banking rules and regulations. Even with proper supervision, some banks may
become financially troubled. When this happens, BSP has the option to assign a
conservator to temporarily manage that bank's operations until it can get back on its feet.
If BSP's evaluations show that the bank cannot be restored to a healthy condition, it stops
the bank's operations to prevent it from incurring more losses and affecting other banks.

5. The Main Bank of the Government. The BSP is the official depository of the
government. Some of the tax collection proceeds from the sale of government securities
and foreign loans are deposited with BSP. When the government needs to repay its foreign
debts or disburse money to pay expenses, it withdraws funds from BSP. Since these funds
form a significant portion of the total deposits with the BSP, coordinating the timing of
government deposits and withdrawals contribute to the Bank's overall management of
money supply.
 The BSP aims to be a world-class monetary authority and a catalyst
for a globally competitive economy and financial system that delivers a high
quality of life for all Filipinos. The BSP is committed to promoting and
maintaining price stability and providing proactive leadership to bring about
a strong financial system conducive to the balanced and sustainable growth
of the economy. Toward this end, it shall conduct sound monetary policy and
effective supervision over financial institutions under its jurisdiction.
To carry out its mandate, BSP focuses on three main pillars: price
stability, financial stability, and efficient payments and settlements system.
PRICE STABILITY

The BSP's main responsibility is to formulate and implement policy in the areas of money, banking,
and credit with the primary objective of preserving price stability, which is the condition of low and stable
inflation. By keeping inflation low, the BSP helps ensure strong and sustainable economic growth and better
living standards. . With price stability, prices of goods do not rise too quickly. Monetary policy refers to the
measures or actions taken by the BSP to help keep inflation low and stable. Under this approach, the BSP
commits to keep inflation at a preannounced average rate in a given year and acts according to what it thinks
will happen to prices in the future since it takes time for monetary policy to take full effect on the economy.
BSP can tighten monetary policy by increasing policy on interest rates, selling government securities to reduce
the amount of money in the financial system, or raising reserve requirements of banks. It can also accept
fixed-term deposits from banks and non-bank financial institutions. To ease monetary policy, it can reduce
policy rates, buy government securities, or bring down the reserve. It can also offer its rediscounting facility to
banks to make them more liquid. Its main policy is focused on policy interest rates, including the overnight
reverse repurchase rate or borrowing and the overnight repurchase lending rate.
FINANCIAL STABILITY

BSP supervises banks, quasi-banks, and their subsidiaries as well as affiliates,

making sure they comply with rules and regulations. This is an assurance that conduct of
business is safe and sound. It also regulates non-bank financial institutions, including non-
stock savings and loan associations as well as pawnshops, under special laws. BSP
undertakes a risk-based supervisory approach and practices consolidated supervision in the
case of banking groups. It requires banks to adopt the Philippine Financial Reporting
Standards, which are based on International Accounting and Financial Reporting Standards.
Efficient Payments and Settlement System

The BSP supervises transactions settled in cash, checks, stored value cards, involving
small amount as well as transactions on interbank loans, purchases and sales of government
securities, foreign currency sales and purchases, and high-value customer payment. The BSP
provides the necessary infrastructure for facilitating these transactions between banks through their
accounts maintained with the BSP. This is known as the Philippine Payments and Settlements
System or PhilPaSS. As the real- time gross settlement system operated and maintained by BSP,
PhilPaSS facilitates the processing of payments and settlements between banks and enables the
final and irrevocable settlement of interbank transactions. Transactions processed and settled in
real time eliminate risks. PhilPaSS sees to it that technological advances used in the design of
payment systems meet the highest standards for safety, soundness, and operational resilience.
END OF THE TOPIC

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