LECTURE 10

Our Team

Braulio, Jane Ann Masambal, Chriszel

Frutas, Cindy Salazar,

Mckenzie Sean
 Topic
CENTRAL BANK : BSP
BANKS : STRUCTURES AND TYPES

GOVERNMENT SPENDING
TAXATION
 CENTRAL
BANK : BSP
 “Bangko Sentral ng
Pilipinas”

is the central bank of the Philippines, responsible for formulating

and implementing monetary policy, issuing currency, and
overseeing the stability of the country's financial system.
Establishment of BSP and
Historical Significance

1.
Reorganization and Independence :
- Reorganized central banking functions from the Central Bank of the
Philippines (CBP).
- Aimed to enhance autonomy and align with global trends recognizing
independent central banks.

Economic Reforms :

2. - Part of broader early 1990s economic reforms in the Philippines.

- Objectives included modernizing the financial sector, attracting
foreign investments, and promoting economic stability.
Establishment of BSP and
Historical Significance

3.
Monetary Policy and Inflation Targeting :
- Formulates and implements monetary policy for price stability.
- Crucial role in managing inflation, interest rates, and overall
money supply.

4.
Currency Issuance and Financial Supervision :
- Assumed responsibility for currency issuance and regulation.
- Undertakes supervision and regulation of banks and financial
institutions.
Establishment of BSP and
Historical Significance

Global Standards and Best Practices :

5.
- Aligns the Philippines with international standards in central
banking.
- Essential for fostering trust in financial institutions and attracting
foreign investments.
 Core Functions of BSP
Monetary Stability : Currency Issuance :
- Control and regulation of inflation - Sole issuer and regulator of the
rates. Philippine Peso.
- Ensuring the stability of the Philippine - Responsible for currency issuance
Peso. and distribution.

Financial Institution Supervision : Payment and Settlement Systems :

- Key supervisor and regulator of banks - Maintenance and oversight of payment
and non-bank financial entities. and settlement systems.
- Ensuring the soundness and efficiency of - Facilitating smooth economic
the financial system. transactions through secure systems.
BANKS : STRUCTURES
AND TYPES
Banks are essential financial institutions that provide
various services to individuals, businesses, and
governments. Understanding the structures and
types of banks is crucial in comprehending their
roles in the economy.
 Structures of Banks
Banks have evolved into complex, multi-layered financial organizations. The typical organizational
structure in a commercial bank includes a financial holding company at the top, the bank itself, and
subsidiary companies involved in various financial activities such as credit card lending, commercial
finance, and equipment leasing.

Commercial banks are generally stock corporations whose principal obligation is to make a profit for their
shareholders. They receive deposit insurance from the Federal Deposit Insurance Corporation (FDIC) to
protect depositors' funds.

The Federal Reserve System, the central banking system of the United States, consists of the Board of
Governors, the Federal Reserve Banks, and the Federal Open Market Committee. Bank executives oversee
specific business areas, such as community banking, consumer lending, and commercial lending, and are
responsible for making sound decisions based on capital adequacy, asset management, and interest rate
risks.
 Types of Banks
1. Retail Banks - These banks offer
financial services to the general public,
including checking and savings
accounts, loans, mortgages, and basic
investment services such as CDs.
3. Investment Banks - These banks focus
on providing corporate clients with complex
services and financial transactions such as
underwriting, mergers and acquisitions, and
securities trading.
2. Commercial Banks - They take
deposits, provide checking account
services, make loans, and offer basic
financial services to individuals and
businesses.
4. Central Banks - Responsible for
overseeing the monetary system for a
nation or group of nations, setting interest
rates, and regulating the money supply.
GOVERNMENT
SPENDING
 What is Government
Spending?
Government spending refers to money spent by the
public sector on the acquisition of goods and provision
of services such as education, healthcare, social
protection, and defense.
Sources of Government Spending
Government spending is financed
primarily through two sources :

1. Tax collections by
the government 2. Government borrowing
Direct taxes Borrowing money
Indirect taxes from its own citizens
Borrowing money
from foreigners
Purposes of Government Types of Spending
Spending
The public sector provides goods and
services not supplied by the private Current
sector, such as defense, roads, and Spending
bridges, merit goods like hospitals and
schools, welfare payments, and
financial support to industries that Capital
cannot meet private sector Spending
requirements.
 Government
Borrowings
The government funds economy spending through tax
revenues, but when revenue is insufficient, it borrows,
selling bonds and Treasury bills to raise cash.
TAXATION
 What is Taxation?
Taxation refers to the act of levying or imposing a tax
by a taxing authority, usually a government, on its
citizens or residents. It includes various mandatory
levies, such as income, capital gains, or estate taxes.
 Types of Taxes
In microeconomics, there are three general systems of taxation :
Regressive Taxes - These create a smaller burden on the rich
and a greater burden on the poor.
Progressive Taxes - These impose a higher tax rate on higher-
income individuals and a lower tax rate on lower-income
individuals.
Proportional Taxes - Also known as a flat tax, these impose the
same tax rate on all individuals regardless of income.
 Tax Incidence
Tax incidence is the manner in which the tax burden is divided
between buyers and sellers. It depends on the relative price elasticity
of supply and demand. When supply is more elastic than demand,
buyers bear most of the tax burden, and vice versa.

Tax Efficiency
Tax efficiency refers to paying the least amount of taxes required by law. It involves
making financial decisions that result in lower tax outcomes compared to alternative
financial structures that achieve the same end. Strategies for achieving tax efficiency
include using tax-deferred income-producing accounts, investing in tax-efficient mutual
funds, and opting for tax-exempt municipal bonds.
 Tax Equity
Tax equity aims to achieve fairness in the distribution of the tax
burden among different individuals or groups. It involves designing
tax systems that promote social welfare and minimize disincentives
for economic activity, especially for lower-income individuals.
Question
Time