The Philippine Financial System BAF63 Banking and Financial Institutions

What does BSP stand for and what is its role in the Philippine financial system?

Bangko Sentral ng Pilipinas; the central bank of the Philippines, established 3 July 1993, with fiscal and administrative autonomy to regulate and oversee the monetary system.

Define ‘fiscal autonomy’ for the BSP.

Freedom from outside control; authority to adopt its own budget and expenditures without congressional budgetary appropriation.

Define ‘administrative autonomy’ for the BSP.

Freedom from intervention by other agencies; BSP decisions are not subject to executive review but are reviewable through the judiciary.

Which two general groups of financial system does the BSP regulate?

Banking institutions and non-bank financial institutions (NBFI).

Who oversees non-bank financial institutions such as insurance companies and investment houses?

Insurance Commission oversees insurance companies; Securities and Exchange Commission oversees investment houses.

Private Banking Institutions are categorized into which groups?

Universal Banks, Commercial Banks, Thrift Banks (Savings & Mortgage Banks, Stock Savings & Loan Associations, Private Development Banks), Rural and Cooperative Banks, and Digital Banks.

Name the government banking institutions in the Philippines.

Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), Al-Amanah Islamic Investment Bank of the Philippines.

What is a Universal Bank?

A commercial bank with the authority to exercise investment house powers and invest in non-allied enterprises.

What functions do Commercial Banks perform?

Accept deposits, offer checking accounts, and make loans; typically operate on a branch banking structure.

As of 31 March 2022, which bank had the highest total assets among universal/commercial banks?

BDO Unibank, Inc. with assets of 3,530,797.42 million pesos.

Which thrift bank topped the Thrift Bank Group by total assets?

Philippine Savings Bank.

Name two examples of Private NBFI Investment Houses (3.a.1).

First Metro Investment Corporation; RCBC Capital Corporation.

Name two financing companies listed under 3.a.2.

RCBC Leasing and Finance Corporation; ORIX METRO Leasing and Finance Corporation.

What is 3.a.3: Other Non-Bank Investment Houses?

Philippine Depository and Trust Corporation.

What is GSIS and what is its mandate?

Government Service Insurance System; a government NBFI providing defined-benefit social insurance and administering the General Insurance Fund for government assets.

What is SSS and its purpose?

Social Security System; a government NBFI providing social security protections to workers (funds RA 11199 reference in the notes).

What are the twin mandates of Pag-IBIG Fund (HDMF)?

Provident savings and shelter financing (housing).

What is the NHMFC and its mandate?

National Home Mortgage Finance Corporation; created to increase affordable housing loan availability and develop a secondary housing market.

What is the National Development Corporation (NDC)?

A GOCC attached to the DTI that acts as the government's investment arm, managing portfolios and developing development-oriented projects.

Describe Rural and Cooperative Banks and their role.

Banks serving rural areas; promote rural economic development by providing basic financial services; rural banks are privately owned, cooperative banks are owned by cooperatives.

What is Adverse Selection in banking?

Borrowers have more information about fund use than lenders, making it hard to distinguish risk and often leading to higher-risk lending.

What is Moral Hazard in lending?

Borrowers may take on risk after receiving funds; lenders mitigate with monitoring, collateral, and covenants.

How do banks cope with information asymmetries?

Gather borrower information, screen applicants, establish long-term relationships, and require collateral or down payments.

What does LOLR stand for and what is its role?

Lender of Last Resort; central banks provide liquidity to banks during shortfalls, typically via rediscounting.

What is Rediscounting in BSP terms?

A facility allowing BSP-supervised banks to obtain loans from the BSP using end-user borrowers’ eligible papers as collateral.

What is the Depository Function of banks?

Accept deposits (current/savings/term) and lend; derivative deposits are created by loans and government securities holdings.

What is the Trust Function of banks?

Banks engage in fiduciary/trust activities (trust accounts, safe deposit boxes) with assets that may be segregated from bank assets.

What is UITF and what does NAVPU stand for?

Unit Investment Trust Fund; NAVPU is Net Asset Value Per Unit, the price per unit of the UITF.

What is PDIC and its deposit insurance limit?

Philippine Deposit Insurance Corporation; insures deposits up to 500,000 per depositor.

What is RA 8791 about?

The General Banking Law; regulates the organization and operations of banks, quasi-banks, trust entities, and related purposes.

What is RA 1405?

Secrecy Law on Bank Deposits.

What is RA 6426?

Foreign Currency Deposit Act.

What is Batas Pambansa Blg. 22 about?

Bouncing Check Law.

Give examples of ancient banking practices in Babylon and Greece.

Babylon: temples safeguarded wealth and lent deposits; Greece: temples as depositories and early lending; moratorium concept appeared.

What was the first registered banking institution in Europe and when?

Bank of Venice, established in 1157 AD.

Name some early European banks and dates.

Bank of Barcelona (1401), Bank of Amsterdam (1609), Bank of Hamburg (1619), Bank of Nuremberg (1621), Bank of England (1694 privately owned, government bank 1946).

Which families dominated European banking in the Middle Ages/early modern period?

Medici (Florence), Fuggers (Germany), Rothschild (19th century influence).

What major French bank emerged under Napoleon and gained note-issuing privilege in 1848?

Banque de France (Bank of France).

Why are goldsmiths considered precursors to modern banking?

They safekept valuables and began lending a portion of deposits, forming the basis of modern banking functions.

What is the significance of 1781 and 1791 in U.S. banking history?

1781: Bank of North America established; 1791: First Bank of the United States chartered to serve government and public.

What did the National Banking Act of 1863 accomplish?

Unification of national currency and reform of the pre-war banking system.

What did the Federal Reserve Act of 1913 establish?

Created the Federal Reserve System with 12 regional banks to oversee monetary policy.

Where are the 12 Federal Reserve Banks located?

Boston, New York, Philadelphia, Cleveland, Richmond, St. Louis, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, San Francisco.

What is the role of the Federal Reserve Board and FOMC?

Board of Governors oversees policy; FOMC conducts monetary policy operations; together with regional banks supervise and maintain financial system stability.

What is Obras Pias and its relevance to Philippine banking history?

A religious foundation (1594