Chapter 16
FINANCIAL SYSTEM
REGULATORS – PART 1
Banko Sentral ng Pilipinas (BSP) and
Philippine Deposit Insurance Corporation (PDIC)
Alyssa Joan Narito
Lorenz Amor Galelio
Russel Anne Valdez
INTRODUCTION
Among the most heavily regulated sectors of the
nation’s economy is the financial system.
The principal regulatory agencies of the Philippine
Financial System, their basic subject and nature of
regulations are as follows:
• Bangko Sentral ng Pilipinas
• Philippine Deposit Insurance Corporation
• Securities and Exchange Commission
• Insurance Commission
Regulatory
Subject of Regulation Nature of Basic Regulation
Agency
Bangko Sentral All depository institution Examines the books of commercial banks
ng Pilipinas that are members of the system, sets
reserve requirements for all banks
Philippine Deposit Commercial banks, Provides insurance of up to P500,000 for
Insurance mutual savings banks, each depositor at a bank, examine the
Corporation savings and loan books of insured banks, and imposes
association restrictions on assets they can hold
Securities and Organized exchanges Requires disclosure of information, restricts
Exchange and financial markets insider trading
Commission
Insurance Insurance companies, Charter and examine the books insurance
Commission brokers companies, impose restrictions on assets
they can hold, and impose restrictions on
branching
Objectives of Financial Regulation
The government regulates financial markets and
financial institutions for three main reasons
a. To ensure the soundness of the financial system,
b. To increase the information available to investors,
and
c. To improve control of the financial system
a. Ensuring the Soundness of a Financial System
To protect the public and the economy from financial panics, the
government has implemented the following types of regulation:
1. Restrictions of Entry
2. Stringent Reporting Requirements
3. Restriction on Assets and Activities
4. Deposit Insurance
5. Limits on Competition
6. Restriction on Interest Rate
b. Increasing Information Available to Investors
c. Improving Control of the Financial System
Part A.
The Role of Banko Sentral ng Pilipinas
(BSP) in Financial Regulation
On June 14, 1993, President Ramos signed into law
R.A. 7653 entitled "The New Central Bank Act", pursuant
to the requirement of the 1987 Constitution for the
establishment of an independent Central Monetary
Authority.
Primary Objective of the BSP
The BSP's primary objective is to maintain price
stability conducive to a balanced and sustainable
economic growth. The BSP also aims to promote and
preserve monetary stability and the convertibility of the
national currency.
Responsibilities
The BSP provides policy directions in the areas of
money, banking and credit. It supervises operations of
banks and exercises regulatory powers over non-bank
financial institutions with quasi-banking functions.
Under the New Central Bank Act, the BSP performs
the following functions, all of which relate to its status
as the Republic's central monetary authority.
Liquidity Management. The BSP formulates and implements
monetary policy aimed at influencing money supply consistent
with its primary objective to maintain price stability.
Currency issue. The BSP has the exclusive power to issue
the 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.
Lender of last resort. The BSP extends discounts, loans and
advances to banking institutions for liquidity purposes.
Financial Supervision. The BSP supervises banks and
exercises regulatory powers over non-bank institutions
performing quasi-banking functions.
Management of foreign currency reserves. The BSP
seeks to maintain sufficient international reserves to meet
any foreseeable net demands for foreign currencies in order
to preserve the international stability and convertibility of the
Philippine peso.
Determination of exchange rate policy. The BSP
determines the exchange rate policy of the Philippines.
Currently, the BSP adheres to a market-oriented foreign
exchange rate policy such that the role of Bangko Sentral is
principally to ensure orderly conditions in the market.254
Chapter 16
Other activities. The BSP functions as the banker,
financial advisor and official depository of the Government,
its political subdivisions and instrumentalities and
government-owned and -controlled corporations.
Bangko Sentral as a Fiscal Agent
As a fiscal agent of the government, the Bangko
Sentral has the following functions:
1. To be the official representative of the government
to financial entities;
2. To be the depository banker of the government;
3. To be the financial adviser of the government; and
4. To manage public debts.
GOVERNANCE OF THE BANGKO
SENTRAL NG PILIPINAS
MONETARY BOARD
GOVERNOR
MONETARY
FINANCIAL CURRENCY CORPORATE
AND
SUPERVISION MANAGEMENT SERVICE
ECONOMIC
SECTOR SECTOR SECTOR
SECTOR
The MONETARY BOARD exercises
the powers and functions of the BSP,
such as the conduct of monetary
policy and supervision of the financial
system. Its chairman is the BSP
Governor, with five full-time members
from the private sector and one
member from the Cabinet.
The GOVERNOR is the chief executive
officer of the BSP and is required to
direct and supervise the operations and
internal administration of the BSP. A
deputy governor (or a Senior Assistant
Governor in the case of the Currency
Management Sector) heads each of the
BSP's operating sector as follows:
FINANCIAL SUPERVISION SECTOR
- is 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 - is mainly responsible
for the operations/activities
related to monetary policy
formulation, implementation, and
assessment.
CURRENCY MANAGEMENT SECTOR
- is mainly responsible for the
forecasting, production, distribution and
retirement of Philippine currency, as well
as security documents, commemorative
medals, and medallions.
CORPORATE SERVICES SECTOR
- is mainly responsible for the
effective management of corporate
strategy, communications, and risks,
as well as the BSP's human,
financial, technological, and physical
resources to support the BSP's core
functions.
ADVOCACIES
The BSP is deeply involved in various projects and activities
aimed towards alleviating poverty, contributing to the global fight
against money laundering, increasing transparency of monetary
policy and improving the financial literacy of the public.
● The BSP has declared microfinance as its flagship program for
poverty alleviation in Year 2000 and has since then played a key
role in the development of sustainable microfinance in the
country. The BSP initiatives have focused on the policy and
regulatory environment, training and capacity building as well as
on promotion and advocacy.
●The BSP has been conducting public information campaigns in line with
the effort to increase public awareness on the role of the BSP in the
economy and the financial system and to further enhance the transparency
of monetary policy.
• The BSP has also taken a proactive stance in embarking on a consumer
education program that aims to improve the basic financial literacy of the
public.
The BSP undertakes various bank-related initiatives to improve the
remittance environment and to channel remittances to productive
undertakings. Through these initiatives, the BSP intends to maximize the
benefits of remittance aimed at: (1) ensuring the smooth inflow of
remittances, and (2) promoting their use for development by channeling
them to the financial sector so that these funds can be mobilized for lending
and other productive activities.
INSTRUMENTS OF CENTRAL BANK
ACTIONS
In orders to achieve the BSP's objective which is maintain
monetary stability within and out of the country, the Bangko
Sentral endeavors to control the expansion or contraction of the
money supply, the level of credit, or any rise or fall in prices.
Monetary authorities are empowered to institute a number of
devices for purposes of proper regulations of the volume of
money supply.
The devices that may be used by BSP are the following:
1.) Control of legal bank reserve requirement
2.) Control of the discount and rediscount rates on loans
3.) Purchases and sales of government securities
4.) Open market operation
5.) Control of collaterals required on bank loans
6.) Portfolio ceiling imposition
7.) Minimum capital ratio
8.) Margin requirements against letter of credit
9.) Moral suasion
OTHER MONETARY POLICIES OF THE BSP
TO STABILIZE BANKING OPERATION
1. Bangko Sentral may also fix the maximum interest that the bank may pay on
deposit substitutes for the purpose of preventing competition among banks in
attracting depositors.
2.Bangko Sentral may establish priorities for bank loans especially with respect to
funds, which has been borrowed from the Bangko Sentral.
3. Bangko Sentral may fix maturities in bank loans for the purpose of credit control
or as a means of payment.
4. Bangko Sentral makes periodic examination of the banks accounting records
and required banks to submit their financial statement at the end if every quarter.
5. Bangko Sentrak looks into the character and integrity of the bank's incorporators
and members of the board as well as the top-ranking executives of the bank.
Part II.
The Role of Philippine Deposit Insurance
Corporation (PDIC)
in Financial Regulation
PDIC is a government instrumentality created in 1963
by Republic Act 3591, as amended, to insure the deposits
of all banks. PDIC exists to protect depositors by
providing deposit insurance coverage for the depositing
public and help promote financial stability.
Functions of PDIC
1. Deposit Insurance
2. Risk Mitigation
3. Receivership and Liquidation
BOARD OF DIRECTORS
BOARD RISK BOARD BOARD AUDIT
MANAGEMENT GOVERNANCE COMMITTEE
COMMITTEE COMMITTEE
PRESIDENT
RISK CORPORATE OFFICE OF THE INTERNAL
MANAGEMENT GOVERNANCE CORPORATE
AUDIT GROUP
OFFICE OFFICE SECRETARY
CORPORATE INFORMATION
AFFAIRS TECHNOLOGY
GROUP GROUP
RECEIVERSHIP EXAMININATION DEPOSIT CORPORATE LEGAL MANAGEMENT
& LIQUIDATION & RESOLUTION INSURANCE SERVICES AFFAIRS SERVICES
SECTOR SECTOR SECTOR SECTORS SECTORS SECTOR
Receivership & Bank Human Resource Litigation & Corporate Planning
Examination Group 1 Claim Groups
Management Group Group Investigation Group Group
Asset Management & Administrative Legal Services Comptrollership
Disposal Group
Examination Group 2 Treasury Group
Services Group Group Group
Loan Management
Resolution Group Insurance Group
Group
Receiving & Liqui-
dation Support Group
Examination & Reso-
lution Support Group
Organizational Structure of PDIC as of Dec. 31, 2018
Relevant Notes on Deposit Insurance
A deposit insurance is essentially the assured
amount a bank depositor gets in the case that the
bank cannot fulfill its obligations. It is mandatory by
law and designed to maintain financial stability.
Philippine Deposit Insurance Corporation
PDIC was established to promote and safeguard the
interests of the depositing public by way of providing
insurance coverage on all insured deposits. PDIC also
aims to strengthen the mandatory deposit insurance
coverage system to generate, preserve, and maintain
faith and confidence in the country's banking system,
and protect it from illegal schemes and machinations
What are covered by PDIC Déposit
Insurance?
PDIC insures valid deposits in domestic offices of its member-bank:
By Deposit Type
• Savings
• Special Savings
• Demand/ Checking
• Time Deposits
• Negotiable Order of Withdrawal (NOW)
By Deposit Account
• Single
• Joint account
• Account "By", "In Trust For" (ITF) or "For the Account
of" (FA) another person
By Currency
• Philippine Peso
• Foreign Currencies considered as part of BSP's
International reserves
What are not covered by PDIC
Deposit Insurance?
• Investment products such as bonds and securities, trust
accounts and other similar instruments.
• Deposit accounts of transactions that:
• Are unfunded, fictitious or fraudulent
• Constitute and / or emanate from unsafe and unsound
banking practice(s)
• Are determined to be proceeds of an unlawful activity as
defined in the Anti-Money Laundering Act (as amended)
What may be considered as unsafe/ unsound
banking practices?
• Solicitation and acceptance of deposits outside bank premises,
including branches, without BSP authority
• Non-compliance with minimum identification and documentation
requirements from depositors in the opening of deposit accounts
• Allowing depositors to deposit, withdraw and / or transfer funds without
proper documentation such as duly accomplished deposit withdrawal
forms
• Granting high interest rates when bank has
(i) negative unimpaired capital and
(i) either a liquid assets-to-deposits ratio of less than 10% or as
operating loss
Who are required to file a claim against the assets of
a closed bank
Creditors of a closed bank including depositors ("creditors" for
brevity) are required to file their claim against the assets of a
closed bank.
When should claims be filed
Creditors must file their claim within sixty (60) days from the
date of publication of the notice of closure of a bank in a
newspaper of general circulation.
How should claim be filed
a. Claims shall be filed in writing preferably using the prescribed
Claim Form;
b. Claims shall be supported by photocopies of documents that will
establish the liability of the closed bank, such as, but not limited
to;
The submitted supporting documents shall be validated against the
records of the bank. The originals of the supporting documents shall
be presented to PDIC for comparison. For claims filed through mail or
electronic mail (e-mail), original supporting documents shall be
submitted to PDIC before release of payment/s.
Where to file the claim
a. Claims may be filed personally at the bank premises during
takeover operations, or directly at the 3rd Floor, PDIC Public
Assistance Center, located at the 3rd Floor, SSS Bldg., 6782
Ayala Avenue corner V.A. Rufino St., Makati City, Monday to
Friday, 8:00 AM to 5:00 PM.
b. Claims may also be filed through mail addressed to the Public
Assistance Department, PDIC, 6" Floor, 6782 Ayala Avenue
corner V.A. Rufino St., Makati City or via email at
pad@pdic.gov.ph.
PDIC's Procedures in Receiving and Validating
Filed Claims
a. Acknowledge the receipt of the claim and inform the creditor in
writing to submit documentary deficiency/ies, if any. The
creditor must submit the complete supporting documents or
documentary deficiency/ies to PDIC within the period provided
in Secs. 3 and 4.
b. If the claim is verified to be valid, a Claim Certificate shall be
issued in favor of the creditor for this purpose.
c. If the claim is disallowed, the creditor shall be notified in
writing of the reason for the disallowance of his/her claim.
Disallowance of Claim due to absence/insufficiency of
supporting documents and filing beyond the 60-day period
for filing of claims
The absence or insufficiency of documents to support the claim
shall result in the disallowance of the claim. However, the period to
submit the documentary deficiencies may be extended for a
maximum period of fifteen (15) working days upon written request
of the claimant and on meritorious grounds. Claims filed beyond the
prescribed 60-day period for filing of claims shall likewise be
disallowed.
Remedy from disallowance
The claimant has sixty (60) days after receipt of the notice of
denial of claim to file his/her claim by request in writing for
extension to the liquidator or file with the liquidation court.
