Second Pillar of Central Banking

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NARANJA

INVENTOR DESCARTIN

ABARING
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ESPIRITU
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DELA CRUZ
PILARTA
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MAGBANUA

QUIATCHON
SIASON

TADIFA
VALLARTA
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TAÑO LIBRANDO
 INTRODUCTION: Financial Stability
— Financial systems play a critical role
for consumers – both corporates and
individuals – because they bridge the
aspirations of today with the economic
fortunes of tomorrow. Historically,
financial systems developed through the
banking industry because of the nature
of fiat money. In this context, making
sure that banks operate in a safe and
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sound manner is in the public interest.

 The Global Financial Crisis (GFC), however, highlighted how the
financial system is more than just the sum of its parts. There is a
unique sense of “systemic-ness” that arises from the way each market
player interacts with another party, creating a network of
interconnected and sequenced transactions. This leads to risk choices
being interlinked within the network and as a result, societal outcomes
that can differ from the intentions of private entities. This provides the
basis for the global initiative to manage the health of the financial
system as an explicit and separate policy objective. Its focus is on
managing so-called “systemic risks” and this is done through
macroprudential policy.
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 2 CATEGORIES
1
Systematic Risk Management
1 Macroprudential Framework

2 Institutional Arrangement

3 Recent Initiatives
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 2 Financial Supervision
1 Supervisory Framework

2 Banking Regulations

3 Directories of Supervised Fls

4 Banking Statistics

5
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Advisories for Supervised Fls

 1 SYSTEM RISK MANAGEMENT
1ST CATEGORY
• The promotion of “Financial Stability” is a formal mandate that is
uniquely ascribed to the Bangko Sentral ng Pilipinas (BSP). This is
provided for in the amended BSP Charter (Republic Act No. 11211)
which was signed by President Duterte in February 2019.

• The objective of “Financial Stability” is to enhance the resilience of

the financial system, in its totality and in its components, from
shocks. This is done by managing systemic risks that could affect
the financial system so that finance continues to be a value
proposition to consumers in normal times while remaining resilient
when disruptions do arise. This is the overarching global norm in
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financial system oversight.

 ORGANIZATIONAL
STRUCTURE

• This structure is centered at the BSP – consistent with our

Charter – and works in collaboration with other financial
authorities, taking on a holistic view of the financial system.
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Macroprudential
Framework
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The Macroprudential Policy Strategy Framework reflects the thinking of

financial authorities, the institutional arrangements as well as the tools that will
be used to sustain and enhance the health of the financial system. This health is
specifically defined in terms of system’s resilience against systemic risks.

Macroprudential policies are interventions used to manage systemic risks. The

scope of concern is the financial system taken as a single unit. We do not focus
on the health of individual institutions (which is the ambit of the micro regulator)
and the system is not simply the sum of the different institutions. While some
institutions may be designated as “systemically Important,” the extent to which
macroprudential policy has interest with them is limited to their impact on the
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system and Not on the propriety of their day-to-day operations.

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Are there different types of

macroprudential policy Interventions?
Macroprudential policies are typically classified either as those that
manage systemic risks across different segments the financial
market or those that can create systemic risks over periods of time.
With the former, the objective is to of address structural imbalances
at any point in time among the different financial market components
Issues of concentration, for example, come to mind. In the latter, the
issue is whether incentives/regulations create risk behaviors that
build up over time which, in the judgement of the authorities, should
not be allowed to be sustained over prolonged periods. Here,
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macroprudential policy is deliberately countercyclical in intent

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What makes macroprudential policy distinct

from other policy objectives?
There are similarities between macroprudential policy and other longstanding policy objectives of
financial authorities. Like monetary policy, macroprudential policy is ultimately concerned with a
strong macroeconomy. This is the point about systemic Risks being defined specifically as having the
ability to adversely affect the rest of the economy. And like banking supervision, macroprudential
policy focuses on the financial market in the service of the financial consumer. But there are also
important differences. There will certainly be bank-level concerns that need not concern the
Macroprudential authority, just as there are macroprudential issues that are not specific to banks. In
the same manner, Inflation need not always be a macroprudential concern just as there are issues
faced by the macroprudential authority that got beyond market liquidity. The point is that
macroprudential policy has a different objective and is most concerned with the connectedness,
complementarities, contagion, and correlation between risk behaviors that cause social outcomes to
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differ from the private choices of institutions.

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Who are the authorities for macroprudential

policy?
The revised charter (R.A. No. 11211) of the Bangko Sentral ng Pilipinas
(BSP) explicitly recognizes Financial Stability to be a mandate of the
BSP. This makes it the only authority in the country which has
financial stability explicitly indicated in its Charter A Board-level
Financial Stability Policy Committee (FSPC) has been created to
discuss and act upon the different financial stability concerns. The
RSP Charter further states that in pursuing this policy agenda, we will
coordinate with other government agencies, such as the Department
of Finance, the Insurance Commission, the Philippine Deposit
Insurance Corporation, and the Securities and Exchange Commission.
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These agencies, in fact, convene as the FSCC

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Who benefits from having a national strategy

framework for macroprudential policy?
Having a national macroprudential framework in place that is
specifically available to all benefits individuals as well as institutions.
All stakeholders can better understand how the authorities think of
systemic risks while being given the assurance that the pursuit of
financial stability and the corresponding mitigation of systemic risks
are being addressed at the highest vel. Releasing the document also
reflects the commitment of the FSCC to ensure that our financial
market remains a value Proposition that meets the needs of the
public.
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Institutional
Arrangement
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Local
Financial Stability Policy Committee of the BSP

- The Monetary Board approved the creation of the

FSPC.
- To oversee and decide on the financial stability
initiatives of the BSP.
- Convened on 26 February 2020.
- The BSP Governor as its Chairman, counting on the
other Monetary Board Members as FSPC members.
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- The FSPC meets six times a year.

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Financial Stability Coordination

Council
- an inter-agency council where the principals from the
BSP, the Department of Finance, the Securities and
Exchange Commission, the Insurance Commission,
and the Philippine Deposit Insurance Corporation
convene quarterly.
- To assess possible systemic risks and to decide
appropriate macroprudential policy interventions.
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- Convened on 4 October 2011 and then formalized on

29 January 2014.
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Office of Systemic Risk

Management
- The BSP created OSRM as the designated financial stability
unit of the BSP in January 2017.
- OSRM reports directly to the BSP Governor.
- Technical and Administrative Secretariat of both the FSPC
and the FSCC
- Supporting the Governor in the Regional Consultative Group
for Asia of the Financial Stability Board (FSB-RCGA)
- OSRM is led by BSP Assistant Governor Dr. Johnny Noe E.
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Ravalo.
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Regional
FSB-RCGA (Regional Consultative Group for Asia of the
Financial Stability Board)
- an international institution that recommends risk
and prudential standards for the financial markets.
- BSP Governor Benjamin E. Diokno is the current co-
chair of FSB-RCGA, serving a two-year term until
June 30, 2021.
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FS Network
- a venue to raise awareness on financial stability issues
and a means for facilitating an active exchange of
knowledge, insights, information, and experiences
among members in their respective pursuit of financial
stability.
- Launched on 21 January 2019
- Communication and queries are often coursed through
OSRM which serves as the central point of contact for
the network.
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- OSRM provides the means to bilaterally connect members.

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Recent
Initiatives
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Recent Initiatives
The BSP has been focusing on financial stability
since mid-2009 but, in this journey, the most
notable developments have arguably transpired
more recently. This section contains the recent
initiatives of the BSP and the Financial Stability
Coordination Council (FSCC) in the collective pursuit
on Financial Stability.
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Financial Stability Reports (FSR)

The FSR provides a thematic approach and an in-depth
analysis of recent developments and potential risks that may
have financial stability implications to the Philippine
financial system. From an annual release, the FSR shifted to
a semestral publication to respond to the need of the times.

2nd Semester 2021 Financial Stability Report

1st Semester 2021 Financial Stability Report
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1st Semester 2021 Financial

Stability Report
This Financial Stability Report narrates parts of their
transition. They look at the technical details of what and
where are their pressure points. It is short and clear but they
do take a view on the current state of financial stability.
They have been arguing that with the uncertainties created
by COVID-19, it would be useful to paint what the future
arrangements would be so that stakeholders can work
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backwards to identify what needs to be done today.

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2nd Semester 2021 Financial

Stability Reports (FSR)
In this 2nd Semester 2021 Financial Stability Report (FSR), it
reiterate the high-level focus the FSCC chairman and BSP
governor invest upon systemic risk management and display
the out-of-the-box mindset that the current unusual times
require. They do not simply monitor the risks but offer
concrete interventions for specific underlying risks.
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2ND CATEGORY

Financial
Supervision
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 Financial Supervision
The Bangko Sentral has supervision over the operations of
banks and exercises such regulatory powers as provided in
the New Central Bank Act and other pertinent laws over the
operations of finance companies and non-bank financial
institutions performing quasi-banking functions. 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
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Supervisory
Framework
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SUPERVISORY FRAMEWORK
The Supervisory Assessment Framework (SAFr) is the Bangko
Sentral ng Pilipinas' (BSP) risk-based supervisory framework. It aims
to facilitate robust, dynamic and forward-looking assessments of
BSP-supervised financial institutions (BSFls). It explicitly links the
systemic importance and risk profile of a BSFI to the crafting of
supervisory plans for each supervised institution such that: (i)
supervisory attention continues to be proportionately focused on
financial institutions that are of greater impact and higher risk;
and (ii) prompt and calibrated enforcement actions are deployed
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to reinforce prudent risk-taking behavior

 Elements of the SAFr
The SAFr incorporates three major elements:
(a) the BSFl's impact to the financial system,
(b) the BSFl's risk profile, and
(c) supervisory intensity.

A. Impact Assessment

* The assessment of impact captures the systemic importance of a BSFI. It involves

evaluating the potential impact of the institution in the event of distress, such as doubts
about solvency, prolonged business disruption, or major conduct of business problems.
* Aims to enhance the BSP's practice of risk-based supervision by calibrating its
supervisory focus and the allocation of its resources.
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* A BSFl's impact is assessed as Low, Moderate, Above Average or High.

 B. Risk Assessment
The assessment of risk renders a judgment on the
resilience of the BSFI to adverse business and economic
conditions. It reflects the BSP's evaluation of the safety
and soundness of the BSFI after considering: (a) how
effectively inherent risks emanating from significant
activities are managed and controlled; and (b) how
strongly capital, earnings, liquidity and governance
support the institution's overall net risk.
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 Overall Net Risk
Significant activities are
assessed in terms of the
risks that they attract.
The risk categories are
summarized below:
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A net risk rating shall be assigned to each risk category, which pertains to
the residual risk after considering the mitigating effect of risk
management. The rating will be Low, Moderate, Above Average or High.

Separate ratings (Strong, Acceptable, Inadequate or Weak) for compliance

and internal audit are assigned to capture the extent of their
effectiveness.

The net risk assessments and the assessments of the compliance and
internal audit functions are taken together in order to come up with an
assessment of the BSFl's overall net risk. This will either be Low,
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Moderate, Above Average or High.

 Institutional Level Support

The BSFl's risk buffers or institutional level support consist of

capital, earnings, liquidity and governance. They are
assessed as Strong, Acceptable, Inadequate or Weak.

Composite Rating
* Determined by combined assessments of overall net risk and
institutional level support.
* Represents a judgment of the resilience of the BSFI to
adverse business and economic conditions.
* Ranges from 1 to 4, with BSFIs rated 4 being those that are
deemed most resilient to adverse events
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Composite ratings description

Supervisory Intensity

• Refers to the depth of supervisory attention required for

and applied to the BSFI.
• Depth of supervisory attention- defined by the
supervisory activities that may be undertaken by the BSP
with respect to the BSFI.
• Determination is anchored on the BSFI’s impact on the
financial system and risk profile as represented by the
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Composite Rating.
 Composite Rating
* Determined by combined assessments of overall net risk and institutional level support.
* Represents a judgment of the resilience of the BSFI to adverse business and economic conditions.
* Ranges from 1 to 4, with BSFIs rated 4 being those that are deemed most resilient to adverse events
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 Composite ratings description
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 C. Supervisory Intensity

Refers to the depth of supervisory attention

required for and applied to the BSFI.

* Depth of supervisory attention- defined by the

supervisory activities that may be
undertaken by the BSP with respect to the
BSFI.

Determination is anchored on the BSFI’s impact on

the financial system and risk profile as
represented by the Composite Rating.
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Banking
Regulations
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BSP ISSUANCES
Number Date Issued Subject

1138 2022-03-01 Regulatory Reporting Standards for Operators of Payment System (OPS)

1137 2022-02-18 Amendments to Regulations on Outsourcing and IT Risk Management

1136 2022-02-11 Amendments to the Regulations on Confirmation of the Election/Appointment of

Directors/Trustees/Officers

1135 2022-01-21 Guidelines on the Settlement of Electronic Payments Under the National Retail
Payment System (NRPS) Framework

1137 2022-02-18 Amendments to Regulations on Outsourcing and IT Risk Management

1136 2022-02-11 Amendments to the Regulations on Confirmation of the Election/Appointment of

Directors/Trustees/Officers

1135 2022-01-21 Guidelines on the Settlement of Electronic Payments Under the National Retail
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Payment System (NRPS) Framework

1138 2022-03-01 Regulatory Reporting Standards for Operators of Payment System (OPS)
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BANKING LAWS
A. Republic Acts (RA) and 10. R.A. 8556 23. R.A. 10167
Implementing Rules and 11. R.A. 9160 24. R.A. 10168
Regulations (IRR) of RAs 12. R.A. 9182 25. R.A. 10574
13. R.A. 9182 IRR 26. R.A. 10641
1. R.A. 3765 14. R.A. 9194 27. Amendments to the IRR of
2. R.A. 6426 15. R.A. 9194 IRR R.A. 10000
3. R.A. 3591, as amended 16. R.A. 9238 28. R.A. 11127
4. R.A. 7353 17. R.A. 9294 29. R.A. 11211
5. R.A. 7653 18. R.A. 9505 30. Amendments to the IRR of
6. R.A. 7721 19. R.A. 9505 IRR R.A. 10000
7. R.A. 7906 20. R.A. 9505 IRR 2019
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8. R.A. 8366 21. R.A. 10000

9. R.A. 8367 22. R.A. 10000 IRR
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B. Presidential Decrees (PDs)

1. P.D. 114
2. P.D. 129
3. Batas Pambansa 66
4. P.D. 1034
5. P.D. 1035
6. P.D. 1246
7. P.D. 1797
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C. Frequently Asked Questions

(FAQ) on BSP Issuances

1. BSP Circ. 858

2. BSP Circ. 855
3. BSP Circ. 736
4. BSP Circ. 730
5. BSP M-2012-034
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GUIDELINES AND OTHER

REGULATIONS
A. Foreign Exchange Regulation
B. Guidelines on the Establishment of Banks
C. Implementation of Basel Standards in the Philippines

1. Risk-Based Capital Adequacy Framework in the Philippines

2. Basel III Leverage Ratio Framework
3. Basel III Framework for Dealing with Domestic Systemically
Important Bank (DSIBs)
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4. Basel III Framework for Liquidity Coverage Ratio (LCR)

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D. Compliance with PFRS/PAS

News and Releases on Accounting Standards/Guidelines
1. Regulations on Accounting Standards/Guidelines
2. Regulations on Financial Reports
3. FRP Report Formats and Schedules

E. Financial Sector Assessment Program

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F. Other Regulations
1. Registration of Pawnshops and Money Service
Businesses (MSBs)
2. Request for Monetary Board Opinion on Domestic
Government Borrowings
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MANUAL OF
REGULATIONS
The Manual of Regulations for Banks (MORB) is the
primary source of regulations governing entities
supervised by the Bangko Sentral ng Pilipinas. It
provides the rules and policy issuances that implement
the broader provisions of Republic Act No. 8791, also
known as the General Banking Law of 2000, as wella s
other pertinent banking laws.
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Directories of
Supervised Fls
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​Directories and Lists

Searchable Directories

Directory of Banks and Non-Bank Financial Institutions

BSP List of Selected External Auditors
Financial Service Access Points
Directory of BSFI Consumer Assistance Channels
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Lists Issuers (EMIs)

List of Unbanked Cities and Municipalities in
List of Banks with Additional Derivatives the Philippines
Authorities List of BSP-Supervised Pawnshops
List of BSP Supervised Financial Institutions List of Money Service Business
with Trust Authority List of Delisted Pawnshops
List of Supervised Financial Institutions with List of Delisted Money Service Business
FCDU/EFCDU Authority List of Banks Offering Basic Deposit Accounts
List of Thrift and Rural Banks Authorized to List of Virtual Asset Service Providers (VASP)
Accept Demand Deposit
List of BSP Supervised Electronic Money
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Banking
Statistics
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Statistics
The BSP monitors and compiles various
statistical series on monetary, financial and
external variables useful for the
formulation and analysis of monetary,
banking, credit and exchange policies.
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Financial Statements
A significant benefit of financial statements is that it can
reflect many financial risks and provide a warning for bank to
avoid risks, such as credit risk and interest rate risk.
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Loan Account
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A loan is an amount of money borrowed for a set period within an agreed

repayment schedule. The repayment amount will depend on the size and duration
of the loan and the rate of interest.
Loans are generally most suitable for:

* paying for assets – e.g. vehicles and computers

* start-up capital
* instances where the amount of money you need is not going to change

The terms and price of loans will vary between providers and will reflect the risk
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and cost to the bank in providing the finance. For larger sums, the pricing and
terms may be negotiable.
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Banks will loan money to businesses on the basis of an adequate return for their
investment, to reflect the risks of defaulting and to cover administrative costs. If you
have an established relationship with your bank, they will have developed a good
understanding of your business. This will help them to advise you about the best product
for your financial needs.

Different types of bank loan include:

* working capital loans - for short notice or emergency situations

* fixed asset loans - for buying assets where the asset itself is collateral
* factoring loans - loans based on money owed to your business by customers
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* hire purchase loans - for long-term purchase of assets such as vehicles or machinery
 Selected Performance Indicators

Key performance
indicators (KPIs), both fi
nancial and non-fi
nancial, are an
important component of
the information needed
to explain a company’s
progress towards its
stated goals, for all of
these types of narrative
reporting.
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Mandate Credit
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Republic Act No. 11127, or the National Payment Systems Act

(NPSA), provides a comprehensive legal and regulatory framework
which supports the twin objectives of maintaining a payment
system that is necessary to control systemic risk and providing an
environment conducive to the sustainable growth of the economy.

The NPSA mandates the BSP to oversee payment systems in the

Philippines and exercise supervisory and regulatory powers for the
purpose of ensuring the stability and effectiveness of the monetary
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and financial system.

 Deposit Account
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In 2018, BSP introduced basic deposit accounts (BDA) to bolster

financial inclusion among Filipinos across social classes. It’s affordable
and easy to open with a low opening amount of P100 or less, no
maintaining balance, no dormancy charges and simple identification
requirements. It also allows banks to customize their BDA offerings
based on the needs of their customers, so it can be an interest- or non-
interest bearing account. But to avoid misuse, the BSP has set a
maximum of P50,000 in deposit. “Should the depositor exceed the
maximum balance, the bank should convert the basic deposit account
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to a regular deposit account,” BSP mandates.

 Physical Networks
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Advisories for
Supervised Fls
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Advisory Management
• It is the provision of professional, personalized investment guidance, usually for
a fee.
• Individuals, independent teams, or a group of professionals within a private
bank, investment management firm, or specialist advisory boutique can carry
out advisory management.
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Banking Advisory Services

• Anti-Money Laundering Act (AMLA) Seminars
– For Proprietors/Partners, Directors, Presidents or Officers of Equivalent Rank, Overall
Heads of Pawnshops or Money Service Business Operations, and Heads of Compliance
Units of Pawnshops and Money Service Businesses
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 Comparative Median Rates Across Provinces
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 Notice to All Pawnshops
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SP Cash Department Business Hours to Accept

Payments for Pawnshop Related Transactions
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List of Banking Offices Authorized to be Established but Not

Yet Opened The list mainly composed of the branches of banks
that will be established in other places
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FSF – Customer Identification and Verification

Guidelines for FinTech Stakeholders
These guidelines, as agreed upon by the member SAs of the FSF, are designed to guide both the SAs and
Covered FIs on the basic principles and requirements of remote electronic customer due diligence
measures for customers, their agents and beneficial owners in relation to FinTech. These Guidelines do
not, in any way, prescribe a “one size fits all” framework. Hence, the principle of proportionality is
considered in the application of the provisions hereof. SAs may set additional requirements specific to the
Covered FIs under their jurisdiction and pursuant to their own respective customer due diligence and risk
management policies and procedures.
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FSF Consumer Protection Guidelines for FinTech

Stakeholders
The member supervising authorities (SAs) of the Financial Sector Forum (FSF)1
Financial Technology Committee (“FinTech Committee”) are jointly issuing these guidelines
to establish standards for consumer protection for all financial institutions that engage in
FinTech (“Covered FIs”) under the regulatory authority of the member SAs of the FSF. The
rapid development of FinTech demands the improvement of existing regulatory frameworks
to reflect the deepening and complex nature of digital financial services.
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The BSP Statement on the New Generation

Philippine Banknotes
• The Bangko Sentral ng Pilipinas welcomes all constructive comments and suggestions concerning our New
Generation Philippine Banknotes. We know that our people have been looking forward to the launching of
our new banknotes. Afterall, this is our people’s money.
• We also know that as in all major undertakings, there will be questions raised, as well as very specific
recommendations on how it should be.
• We take pride in our newly-designed banknotes that honor Filipinos who played significant roles at various
moments of our nation’s history as well as the world heritage sites and iconic natural wonders we are
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proud of as Filipinos.
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The BSP Statement on the New Generation

Philippine Banknotes
• On the matter of the map of the Philippines, our banknotes used an artist's rendition or abstraction of the
Philippine map that cannot be expected to reflect all of our islands and the precise coordinates of each
site. The BSP’s intention is to indicate the general location of the world heritage sites and iconic natural
wonders.
• On the color of the blue napped parrot highlighted at the reverse of our 500-piso banknote, we are not able
to fully reflect the true colors on account of printing limitations. While specialized machines for printing
money can imprint security features on our banknotes, it has limited capability for printing colors, unlike
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machines used to print magazines and books. This is not an error therefore but a function of printing
capability limitation.
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Warning Against the Improper Handling of

Philippine Currency
The Bangko Sentral ng Pilipinas (BSP) warns the public that the willful defacement, mutilation, tearing,
burning or destruction of Philippine banknotes and coins are punishable by a fine of not more than
PHP20,000.00 and/or imprisonment of not more than five years, under Presidential Decree No. 247. It also
states that Philippine “banknotes and coins are issued for circulation as medium of exchange and to
utilize them for other purposes does not speak well of the due respect and dignity befitting our currency.”
The following are among the prohibited acts of defacement and/or mutilation of Philippine currency:
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Warning Against the Improper Handling of

Philippine Currency
• writing or putting marks on banknotes;
• willful tearing, burning, or destruction, in any manner, of Philippine currency;
• willful and excessive folding or crumpling that results in a breakdown of the structure and limpness of the
banknote;
• willfully causing multiple random folds across the entire banknote that toughly affect its visual appearance; and
• willfully exposing banknotes or coins to chemicals or other materials resulting in the acceleration of the
defacement, destruction, or natural wear and tear of the note or coin.
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• The public is also discouraged to staple banknotes and/or use adhesives to put on banknotes and coins as these
will compromise their structural integrity.
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