BANKING HISTORY

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.

Note: You may email us at totingbunye2000@gmail.com. Past articles may be viewed at http://speakingout.ph/speakingout.php.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • China ignores global outcry vs reclamation
    China ignores global outcry vs reclamation

    On Wednesday, G-7 foreign ministers issued a Declaration on Maritime Security expressing alarm over “unilateral actions, such as large scale land reclamation, which change the status quo and increase tensions” in the region. In their communiqué, which did not specifically mention China, the ministers expressed belief that reclamation activities were meant to “change the status quo” in the West Philippine Sea and South China Sea, through which 40 percent of global trade passes. …

  • Project NOAH exec receives recognition
    Project NOAH exec receives recognition

    Project NOAH executive director and University of the Philippines professor Mahar Lagmay recently received recognition from the European Geosciences Union (EGU) for his work in disaster risk reduction and mitigation in the Philippines. …

  • Nightclub ban for US troops
    Nightclub ban for US troops

    The US Pacific Command has banned its troops in the Philippines from bars and nightclubs, a spokesman said yesterday, with the trial under way of a US Marine accused of murdering a transgender Filipino he met in a bar. Thousands of American and Filipino soldiers will kick off tomorrow the 10-day annual military exercises, according to Capt. Alex Lim, a spokesman for the US forces, but there will be strict controls on their free time. Lim would not say why the restrictions were imposed but …

  • US-Phl war games to start under China’s shadow
    US-Phl war games to start under China’s shadow

    Thousands of American and Filipino soldiers will kick off tomorrow expanded wargames, showcasing a deepening  defense alliance as alarm bells ring over China. The 10-day exercises in the Philippines are an annual affair between the longtime allies, but this time they will involve double the number of soldiers as last year in a sign of their expanding military partnership. The Philippines is seeking more US military and diplomatic support to fend off China’s increasing forcefulness in its bid …

  • Palace defends legal tack in sea row
    Palace defends legal tack in sea row

    There is nothing weak about taking the legal and diplomatic approach to push for the country’s claims in the disputed West Philippine Sea, Malacañang maintained yesterday. On Friday, Bayan Muna Rep. Neri Colmenares led a rally in front of the Chinese consulate in Makati City to protest China’s massive reclamation activities in the Spratly island group to fortify its presence in the disputed waters. Colmenares also criticized the Philippine government for supposedly not doing enough to defend …

  • Veloso sons urge authorities to save mother from death
    Veloso sons urge authorities to save mother from death

    The sons of Mary Jane Veloso, who is facing execution in Indonesia for drug smuggling, yesterday appealed to government officials to do everything to spare their mother from death. “We love you,” Mark Daniel, 12, said when asked for a message for his mother following a press conference at the University of the Philippines in Diliman, Quezon City. Mark Daniel, an incoming Grade 8 student, reiterated his appeal to those in power to help save his mother from death. His younger brother, …

  • US-Philippines wargames to start under China's shadow
    US-Philippines wargames to start under China's shadow

    Thousands of American and Filipino soldiers on Monday will kick off expanded wargames, showcasing a deepening defence alliance as alarm bells ring over China. The 10-day exercises in the Philippines are an annual affair between the longtime allies, but this time they will involve double the number of soldiers as last year in a sign of their expanding military partnership. The Philippines is seeking more US military and diplomatic support to fend off China's increasing forcefulness in its bid …

  • Bar ban for US troops in Philippines amid murder trial
    Bar ban for US troops in Philippines amid murder trial

    The US Pacific Command has banned its troops in the Philippines from bars and nightclubs, a spokesman said Saturday, with the trial under way of a US Marine accused of murdering a transgender Filipina he met in a bar. Thousands of American and Filipino soldiers will on Monday kick off 10-day annual military excercises, according to Captain Alex Lim, a spokesman for the US forces, but there will be strict controls on their free time. Lim would not say why the restrictions were imposed but …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options