PMCF7

Module 1

BANGKO
SENTRAL NG PILIPINAS:
AN OVERVIEW

This module is a combination of

synchronous & asynchronous learning
and will last for one week.

February 20, 2022

Date Initiated
February 28, 2022
Date of Completion

San Mateo Municipal College PMCF1 – BANKING and FINANCIAL INSTITUTIONS

BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
 MODULE 1

This module is designed to be discussed for a period of two weeks. Lesson delivery will be done in synchronous and
asynchronous learning. The platform to be used will be facebook messenger, google classroom and google meet created for
the class.

LEARNING OBJECTIVES:

At the end of the module, you are expected to learn the following:
Nature, origin and development of Central Banking.
Define Central Banking
Study the Bangko Sentral ng Pilipinas Logo.
Trace the Brief history of the BSP
Familiarize the vision and mission of the BSP
Functions and operations of the BSP
Organizational Structure of BSP
Advocacies of BSP.

INPUT INFORMATION

The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the Philippines. It was established on 3
July 1993 pursuant to the provisions of the 1987 Philippine Constitution and the New Central Bank Act of 1993. The BSP took
over from Central Bank of Philippines, which was established on 3 January 1949, as the country’s central monetary authority.
The BSP enjoys fiscal and administrative autonomy from the National Government in the pursuit of its mandated responsibilities.

The Basic Nature of Central Banking can be enumerated as follows:

1. The Central Bank does not aim at profits but aims at national welfare.
2. The Central Bank does not compete with the member banks.
3. The Central Bank has special relationship with government and with commercial banks.
4. The Central Bank is generally free from political influence.
5. The Central Bank is the apex body of the banking structure of the country.
6. The Central Bank should have overall control over the financial system.

Definition of Central Banking

A Central Bank is simply a bank which other bank have in common.
A Central Bank is an independent national authority that conducts monetary policy, regulates banks, and provides financial
services including economic research. Its goals are to stabilize the nation’s currency, keep unemployment low, and prevent
inflation.

ORIGIN of CENTRAL BANKING

Creating a Central Bank for the Philippines
A group of Filipinos had conceptualized a central bank for the Philippines as early as 1933. It came up with the
rudiments of a bill for the establishment of a central bank for the country after a careful study of the economic provisions
of the Hare-Hawes Cutting bill, the Philippine independence bill approved by the US Congress.
During the Commonwealth period (1935-1941), the discussion about a Philippine central bank that would promote
price stability and economic growth continued. The country’s monetary system then was administered by the Department
of Finance and the National Treasury. The Philippines was on the exchange standard using the US dollar—which was
backed by 100 percent gold reserve—as the standard currency.
In 1939, as required by the Tydings-McDuffie Act, the Philippine legislature passed a law establishing a central
bank. As it was a monetary law, it required the approval of the United States president. However, President Franklin D.
Roosevelt disapproved it due to strong opposition from vested interests. A second law was passed in 1944 during the
Japanese occupation, but the arrival of the American liberalization forces aborted its implementation.
San Mateo Municipal College PMCF1 – BANKING and FINANCIAL INSTITUTIONS
BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
 Shortly after President Manuel Roxas assumed office in 1946, he instructed then Finance Secretary Miguel
Cuaderno, Sr. to draw up a charter for a central bank. The establishment of a monetary authority became imperative a
year later as a result of the findings of the Joint Philippine-American Finance Commission chaired by Mr. Cuaderno. The
Commission, which studied Philippine financial, monetary and fiscal problems in 1947, recommended a shift from the dollar
exchange standard to a managed currency system. A central bank was necessary to implement the proposed shift to the
new system.
Immediately, the Central Bank Council, which was created by President Manuel Roxas to prepare the charter of
a proposed monetary authority, produced a draft. It was submitted to Congress in February1948. By June of the same
year, the newly-proclaimed President Elpidio Quirino, who succeeded President Roxas, affixed his signature on Republic
Act No. 265, the Central Bank Act of 1948. The establishment of the Central Bank of the Philippines was a definite step
toward national sovereignty. Over the years, changes were introduced to make the charter more responsive to the needs
of the economy. On 29 November 1972, Presidential Decree No. 72 adopted the recommendations of the Joint IMF-CB
Banking Survey Commission which made a study of the Philippine banking system. The Commission proposed a program
designed to ensure the system’s soundness and healthy growth. Its most important recommendations were related to the
objectives of the Central Bank, its policy-making structures, scope of its authority and procedures for dealing with problem
financial institutions.
Subsequent changes sought to enhance the capability of the Central Bank, in the light of a developing economy,
to enforce banking laws and regulations and to respond to emerging central banking issues. Thus, in the 1973 Constitution,
the National Assembly was mandated to establish an independent central monetary authority. Later, PD 1801 designated
the Central Bank of the Philippines as the central monetary authority (CMA). Years later, the 1987 Constitution adopted
the provisions on the CMA from the 1973 Constitution that were aimed essentially at establishing an independent monetary
authority through increased capitalization and greater private sector representation in the Monetary Board.
The administration that followed the transition government of President Corazon C. Aquino saw the turning of
another chapter in Philippine central banking. In accordance with a provision in the 1987 Constitution, President Fidel V.
Ramos signed into law Republic Act No. 7653, the New Central Bank Act, on 14 June 1993. The law provides for the
establishment of an independent monetary authority to be known as the Bangko Sentral ng Pilipinas, with the maintenance
of price stability explicitly stated as its primary objective. This objective was only implied in the old Central Bank charter.
The law also gives the Bangko Sentral fiscal and administrative autonomy which the old Central Bank did not have. On 3
July 1993, the New Central Bank Act took effect.

VISSION, MISSION AND CORE VALUES

The BSP aims to be recognized globally as the monetary authority and primary financial system supervisor that supports a
strong economy and promotes a high quality of life for all Filipinos.

MANDATE, FUNCTIONS AND RESPONSIBILITIES

Monetary Policy
San Mateo Municipal College PMCF1 – BANKING and FINANCIAL INSTITUTIONS
BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
 The primary objective of BSP’s monetary policy is to promote a low and stable inflation conducive to
a balanced and sustainable economic growth. The adoption of inflation targeting framework for monetary
policy in January 2002 is aimed at achieving this objective.

Monetary Operations
Monetary operations refer to the buying/selling of government securities, lending/borrowing against underlying assets
as collateral, acceptance of fixed-term deposits, foreign exchange swaps and other use of other monetary instruments of the
Bangko Sentral aimed at influencing the underlying demand and supply conditions for central bank money.
• Overnight Reverse Repurchase Facility – the RRP is the primary monetary instrument of the BSP. The RRP interest
rate signals the policy rate of the BSP. The overnight RRP is offered using a fixed-rate and full allotment method.
• Issuance of BSP Security-BSP securities are monetary instruments issued by the BSP for its monetary policy
implementation and liquidity management operations to steer short-term market interest rates towards the policy rate
and influence liquidity conditions in the financial system.
• Term Deposit Facility- the TDF is the key liquidity absorption facility, commonly used by CBs for liquidity management.
Currently, three tenors -7 days, 14 days, and 28 days-are offered in weekly auction.
• Standing Liquidity Facilities- these standing overnight facilities (lending and deposit) are available on demand to
qualified counterparties during BSP business hours in order to help them adjust their liquidity positions at the end of
the day.

Systematic Risk Management

The promotion of “Financial Stability” is a formal mandate that is uniquely ascribed to the
Bangko Sentral ng Pilipinas (BSP). This is prohibited for in the amended BSP Charter (RA No.
11211) which was signed by President Duterte in 2019.

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 develop
through the banking industry because of the nature of fiat money. In this context, making sure that banks operate in a safe and
sound manner is in the public interest. Banks, after all, manage our savings, offer critical services in the transfer of funds and
the payment of obligations, while providing a venue for entrepreneurs to pursue their economic plans through credit. Banking
authorities nurture this by defining the regulatory framework that encourages innovation while monitoring that banks operate
within prescribed governance guidelines.

Systematic Risk Management

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 financial system oversight.
Given its different objective, not all bank-specific vulnerabilities are “systemic” just as macroprudential issues cover
other issues beyond banking. And since macroprudential policy focuses on interlinked risk behaviors, its concern can extend
beyond liquidity or inflation. Welfare consideration, in particular, is handled differently in macroprudential policy because
adverse outcomes have a greater impact on society than when expected outcomes are likely to be buoyant.

Financial Supervision
• Supervisory framework
• Banking regulations
• Directories of Supervised FI’s

Price Stability
The BSP's main responsibility is to formulate and implement policy in the areas of money, banking and credit with the
primary objective of preserving price stability. Price stability refers to a condition of low and stable inflation. By keeping price
stable, the BSP helps ensure strong and sustainable economic growth and better living standards.
https://youtu.be/TZ7EXUd3ohA

Financial Stability
San Mateo Municipal College PMCF1 – BANKING and FINANCIAL INSTITUTIONS
BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
 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 develop through the banking industry
because of the nature of fiat money. In this context, making sure that banks operate in a safe and sound manner is in the public
interest. Banks, after all, manage our savings, offer critical services in the transfer of funds and the payment of obligations, while
providing a venue for entrepreneurs to pursue their economic plans through credit. Banking authorities nurture this by defining
the regulatory framework that encourages innovation while monitoring that banks operate within prescribed governance
guidelines.

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.

Payments and Settlements

Payment systems are essential to the effective functioning of financial systems worldwide. They provide the channels
through which funds are transferred among banks and other institutions to discharge payment obligations arising from economic
and financial transactions across the entire economy. An efficient, secure and reliable payment system reduces the cost of
exchanging goods and services, and it is an essential tool for the effective implementation of monetary policy, and the smooth
functioning of money and capital markets. It is this key role played by payment and settlement system (PSS) in the smooth
functioning of an economy in general and its financial and monetary system in particular that gives the central bank (CB) a
strong incentive for ensuring that an effective, reliable and secure payment and settlement system is in place.

In the Philippines, the BSP takes the lead in promoting an efficient payments and settlements system by providing:

• the necessary infrastructure through the operations of the Philippine Payment and Settlement System or the
“PhilPaSS”; and
• a policy and regulatory framework, also known as the National Retail Payment System or NRPS, to establish a safe,
efficient and reliable retail payment system in the country.

Roles of BSP
The BSP performs the following roles in the payments and settlement system:
1. Operator of the real time gross settlement system known as PhilPaSS
The BSP, through its Payments and Settlements Office (PSO), serves as the payment system operator responsible for
the operation and maintenance of PhilPaSS and its critical components. It ensures that the operation of PhilPaSS is continuous,
safe and efficient so that time-critical payments are completed as expected to facilitate and enhance economic processes,
manage risks, and absorb shocks in order to promote financial stability.

2. Provider of credit facilities to banks as a lender of the last resort

As payment systems affect the daily demand for liquidity of banks/financial institutions and may therefore affect the
level of money market interest rates, the BSP, as a lender of last resort, provides the following liquidity tools
to PhilPaSS participants:
i. Intraday Liquidity Facility (ILF) – a fully collateralized facility established to maintain the smooth and efficient
operation of the payments system in order to avoid interbank payments gridlock in the settlement process
within PhilPaSS business hours.
ii. Overdraft Credit Line (OCL) – another collateralized facility which aims to assist bank experiencing unexpected or
higher than usual volume of inward check transactions. The governing policies and procedures are provided under
BSP Circular 681 in order to provide additional liquidity for banks encountering liquidity problems due to check
clearing losses as well as protect the BSP against settlement exposures.

3. Overseer of the payments and settlements system

The BSP, through the Payment Systems Oversight Department of the Supervision and Examination Sector, oversees
the payment systems in the country to ensure safeguards are in place to mitigate systemic risks arising from settlement, credit
and liquidity risks of payments and settlement systems participants.

4. User of its own RTGS system

The BSP, through its different departments, also make use of the payments and settlements system for the settlement
of its own transactions with its stakeholders, such as: The automated collection and settlement of Supervision and Examination
Sector annual supervisory fees;
San Mateo Municipal College PMCF1 – BANKING and FINANCIAL INSTITUTIONS
BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
 ‘The Peso RealTime Cross Settlement Payment System (RTCS PS) is critical for maintaining price and financial stability, as
well as preserving public interest. This payment system ensures the smooth flow of funds between financial institutions that maintain
settlement accounts (SAs) with the Bangko Sentral. lt also facilitates funds transfers in financial markets where these institutions trade
securities and foreign currencies for business and risk management purposes. By providing the settlement facility for the open market
operations of the Bangko Sentral, the RTCS PS also supports the Bangko Sentral's mandate of maintaining price stability. Moreover,
this system plays an indispensable role in upholding public welfare, enabling the efficient and low-risk settlement of retail payments
in central bank money. In this regard, the Bangko Sentral adopts rules in its capacity as owner and operator of the RTCS PS to govern
the operation of this designated payment system. These rules shall apply to the participants of the RTCS PS, including banks and
other financial institutions, financial market infrastructures (FMls), clearing switch operators (CSOs), and critical service providers
(CSPs)’.

• Channels and Communication Standards

a. Messoging Chonnels. A participant may use one or more of the following payment messag ing channels:
(1) Society for Worldwide lnterbonk Finonciol Telecommunicotion (SWIFT) messoging system - an internationally accepted
messaging system that runs through a leased line;
(2) Porticipont Browser - a web-based messaging system provided by the Bangko Sentral to certain RTCS PS participants;
and
(3) Virtual Private Network – Straight Through Processing (VPN-STP) Gateway - a communication module that provides a
means of financial message exchanges between the central node and the participants' platforms using a VPN connection.

Due to changes in the operating environment of the Peso RTGS PS, the Bangko Sentral may terminate or enhance
any of the above channels, as well as provide additional means of system access. A transitory period shall be set out to
ensure the smooth implementation of any of these changes.

Types of Transactions:
The RTGS system shall settle Peso-denominated funds transfers. These transfers represent time-critical and high-value
payments, which include:
a. Movements of funds between the individual participants' proprietary accounts;
b. Interbank/inter-institution transfers for proprietary transactions; Interbank/inter-institution transfers for further credit to
customer accounts;
c. Government collections;
d. Withdrawals from and deposits into the accounts maintained with the Bangko Sentral;
e. Transactions with the Bangko Sentral Financial Markets, including placements in deposit facilities and maturities of
deposits, availments and maturities of the Overnight Lending Facility, and purchase or sale of FX and securities;
f. Settlements related to the Bangko Sentral's Intraday Liquidity Facility (lLF);
g. The money settlement leg of security trades;
h. The Peso leg of FX trades;
i. Clearing results for checks, automated teller machine (ATM) transactions, digital payments, and other types of retail
payments;
k. and Other large value transactions or those that are not considered as retail payments under Bangko Sentral regulations

5. Initiate changes/reforms for the payments

The BSP initiates the conduct of studies/research relating to payments system to ensure that it grows and matures in
accordance with the global standards. Among the studies conducted which initiated reform to the retail payment systems in the
country is the National Retail Payment System.

THE BSP SEAL

The Bangko Sentral ng Pilipinas (BSP) has introduced a new logo in keeping with the
changing times. In contrast to the stylized eagle profile design of the current logo, the new one
features a full-bodied Philippine eagle rendered in gold, taking inspiration from various wildlife
photographs of actual Philippine eagles. The use of the Philippine eagle in the new logo is intended
to represent the BSP as well as the Filipino people which it serves.

Design Elements:
GOLDEN PHILIPPINE EAGLE. The logo employs a photorealistic rendering of a Philippine eagle in flight, signifying the strength
of leadership and foresight that the BSP provides in the financial sector and the economy.

1. The eagle's outstretched wings and tail feathers symbolize the BSP's balanced, inclusive approach to growth and
development, while also conveying the central monetary authority's mastery over its field.
San Mateo Municipal College PMCF1 – BANKING and FINANCIAL INSTITUTIONS
BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
 2. The eagle's head and eyes face east, expressing the BSP's vigilance and readiness to seize challenges and
opportunities that rise over the horizon.
3. The talons represent the strong will, resolve, and the monetary and financial tools that the central bank uses in
discharging its mandates.

SHAPE . The logo is contained within a perfect circle—without sides, a beginning, or an end—accentuated by a bold border,
to convey the singular and integrative nature of the BSP and its impartial approach to holistic growth and development.

GOLDEN STARS. The three golden stars represent the three pillars of central banking (price stability, stable banking system,
and a safe and efficient payments and settlements system), as well as the BSP's commitment to promote and sustain a high
quality of life for all Filipinos, across Luzon, Visayas, and Mindanao.

CORPORATE TEXT. The name of the Bangko Sentral ng Pilipinas is rendered in gold, using a clean sans-serif font, to signify
the Bank's operational efficiency, clarity of vision, and single-mindedness of purpose.

DOMINANT COLORS. Yellow gold and midnight blue dominate the new logo’s color scheme to evoke the BSP’s stature as a premier
government agency.
1. The yellow gold foreground elements represent the BSP's aim to promote economic growth and prosperity,
and the high standards of ethics and performance it holds.
2. The two-tone midnight blue background is evocative of the honor, dignity, and noble character of the Filipino
people, and the BSP's unwavering commitment to serve the nation.

LEARNING ACTIVITIES
Answer the following questions according to your understanding about the module and discussion:

1. What can you say about the new BSP logo?

2. Based on the stated BSP function, is it true that they do not complete with the bank?

Assessment:
Graded recitation.

LEARNING RESOURCES

www.bsp.gov.ph

San Mateo Municipal College PMCF1 – BANKING and FINANCIAL INSTITUTIONS

BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.