FOR the last two weeks, we have been examining the history of banking in the Philippines. In this article, we will focus on the development of financial and legal reforms in the country.

The Bangko Sentral ng Pilipinas' ''The General Banking Law Annotated: Book 2'' identified the year 1949 as ''a turning point in the monetary history of the Philippines.''

It marked the beginning of the country's ''post-independence monetary history'' with the 1948 enactment of the Charter of the Central Bank of the Philippines - setting into motion the operation of the country's monetary authority.

It would also be important to note that the General Banking Act (GBA) became effective on the same day that the Central Bank started its operations on January 3, 1949. For the first time, explicit rules and regulations governing bank organization and operations were laid down.

The GBA prescribed rules covering the establishment of domestic banks, the licensing of foreign banks, and the powers of banking institutions, branches, and agencies of foreign banks.

Another major banking statute, the Rural Banks Act, was enacted in 1952. Two years later, the Agricultural and Industrial Bank merged with the Reconstruction and Rehabilitation Fund to form the Development Bank of the Philippines (DBP).

During this period, the Central Bank was actively engaged in the establishment of development banks. It also provided rural banks with 100% counterpart financing for equity and access to rediscounting facility at highly subsidized terms.

Another major piece of legislation enacted under the Philippine Republic was the Law on Secrecy of Bank Deposits, which discouraged private hoarding by encouraging the public to deposit their money in banking institutions.

By the 1960s, the ability of banks to mobilize funds via deposit accounts was constrained primarily by relatively low yields of these instruments. This was because of regulations imposed upon traditional deposit accounts, including the reserve requirement, ceilings on interest rates, and taxes.

In response to the growing corporate demand for funds, a small number of non-bank financial institutions started trading short-term instruments of banks. The banks followed suit by issuing unregulated short-dated instruments such as repurchase agreements, certificates of assignment, certificates of participation, and dealer promissory notes-collectively known as deposit substitutes.

It was during this time that the trust fund management services were first offered by commercial banks.

Another significant law, which created the Philippine Deposit Insurance Commission (PDIC), was passed in 1963.

In the 1970s, the Central Bank imposed prudential measures. Within this decade, banks widened their market by extending trust business services to corporations and individuals with high net worth.

The system, however, had relatively limited access in attracting investors to channel their excess funds to foreign currency deposit units due to strict foreign exchange regulations.

In 1971, the Joint International Monetary Fund-Central Bank of the Philippines Banking Survey Commission was created. The Commission studied the banking system and proposed several measures that resulted in the promulgation of Presidential Decree Nos. 71 (amending the General Banking Act) and 72 (amending the Central Bank Act).

In the 1980s, the Central Bank issued rules creating investment management accounts that did not qualify as trust accounts. The new regulation encouraged the trust department to introduce a new financial product called the common trust fund.

It was in this decade that universal banking was introduced in the country. This system was adopted by the Central Bank upon the recommendation of the World Bank-to enable certain banks to invest in allied and non-allied undertakings while engaging in commercial banking functions.

A significant circular issued by the Central Bank in the 1980s was Circular No. 905 (issued in 1983), which lifted the interest rate ceilings imposed by the Usury Law.

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