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• Liberalization of entry of foreign banks into the country's financial sector.
• The currency and financial turmoil in East Asia in recent months has raised concerns about the financial systems and macroeconomic policies in East Asia in the context of capital account liberalization and increased international financial integration.
• The recent turmoil has brought to the fore issues related to the health and stability of the financial sectors of East Asian countries, problems related to the regulatory climate and the institutional capacity of the regulatory institutions in these countries, macroeconomic challenges posed by large capital flows, and the structural adjustment problems facing the economies themselves.
• Most of the countries that have been affected by the current currency and financial turmoil in the region also experienced financial and/or economic crises in the early and mid-1980s, i.e., Korea, Thailand, Philippines, Malaysia and Indonesia.
• The crises of the 1980s were local although largely contemporaneous, while the recent turmoil is a regionwide contagion, starting from Thailand.
• The Philippines, which experienced the deepest economic decline and worst financial and economic crisis in the early 1980s among the East Asian countries, has been less adversely affected by the current currency and economic turmoil in the region.
• Analysts and observers consider that an important reason behind the greater resilience of the Philippine economy to the current regional crisis is its apparently more robust financial sector compared to those of the other more adversely affected countries.
• The apparent greater resilience of the country's financial sector stems from the policy and institutional reforms the country undertook during the past one and a half decades.
• Some of the reforms redirected the nature of governance in the financial sector but most of them centered on the overall economy and policy environment.
• Empirical studies indicate that the scope, quality and efficiency of the financial system contribute to economic growth.
• The contribution of finance to growth is best seen in terms of an efficient and adaptable payments system and in terms of saving mobilization and resource pooling.
• Financial markets improve the utilization of capital and productive efficiency of the whole economy and enhance the international competitiveness of the economy by screening and monitoring "investment projects," managing and diversifying various kinds of risks, and designing contracts and institutional arrangements to address the problems of adverse selection and moral hazard.
• Finance is special, not only because it is an input to much economic activity but also because it involves the exchange of a generally certain current asset with an uncertain future asset and return.
• Financial markets are particularly Vulnerable to economic booms and busts because of the intertemporal nature of financial transactions, the leveraged nature of banks, and the problems of asymmetric information and imperfect information markets.
• The management of the macroeconomy consistent with the long-term interests of the economy is a key area of concern.
• As the information base and analytic capacity deepens within the financial institutions and external specialized information gathering and analysis institutions in a country develop, and as the secondary market for financial instruments grows, the distinct advantages of equity financing and bonds become more salient.
• Within the formal financial sector, banks rather than the securities or bond markets are the major sources of financing because debt contracts with fixed repayment schedules prevail over equity financing in cases where there are productivity risks, asymmetry of information between lenders and borrowers, and costly monitoring processes.
• Financial development is a long process of building institutions, deepening the information base and analytic capacities, and developing niches in value creation in financial services through a widening array of instruments, arrangements and contracts in response to the changing environment and needs of firms, households and other economic agents.
• Informal finance is likely most prevalent in the early stages of economic development because traders and money lenders have greater and longer access at less cost to local- and person-specific information needed for effective screening and monitoring.
• Financial system has important implications on the use of alternative financial instruments and the development of financial institutions.
• The same characteristics of the financial system and financial transactions that require a long period of time in order for the financial system to deepen, widen and strengthen are also the same characteristics that make the financial system Vulnerable to and intimately involved in economic booms and busts and financial crises.
• The government plays a critical role in the management and development of the financial sector.
• The development of financial institutions and markets is another major area of concern.
• Universal banks, which can hold shares of enterprises and are represented in the management boards of enterprises, may have advantages over regular banks in attenuating the problems of asymmetry of information and the conflict of interest between shareholders and lenders.
• The third major area of concern is the management of financial crises.
• The development of the financial sector is intimately related to the development of the whole economy.
• Instability in the macroeconomy usually reverberates into the financial sector, and vice versa.
• The scope, quality and efficiency of the financial system contribute to economic growth.
• Macroeconomic crises lead to financial disintermediation as the Philippine experience during the mid-1980s shows.
• The ineffective prudential regulatory climate was aggravated by distortions in incentives in the financial market, especially through the subsidized directed credit schemes, that further discouraged sound credit decisions especially by the undercapitalized rural banking sector.
• The money multiplier is linked to the significant reductions in the reserves-to-deposit ratio and the currency-to-deposit ratio.
• Capital inflows have a significant bearing on the country's financial expansion and whether such financial expansion is "excessive" enough to bring its own dynamic of future crisis.
• The stable macroeconomy in recent years, with the implicit low inflation expectations, has encouraged the expansion of formal financial institutions deeper into the countryside and the urban informal sector, thereby providing a stronger competitive pressure vis-a-vis informal financial intermediaries.
• Prudential regulation and supervision is central to the robust growth of the financial sector.
• The financial crisis in the Philippines in the early 1980s was substantially caused by lax prudential regulations and supervision and loose banking practices.
• The reduction in the reserves-to-deposit ratio is the result of the reduction in the reserve requirement from 24 percent in 1993 to 15 percent in 1995 and 14 percent in early 1997.
• In recent years, monetary aggregates in the Philippines expanded faster than the gross national product, providing a measure of financial deepening in the country.
• The result was inefficient allocation and utilization of investment and a worsening external debt service problem at the start of the 1980s.
• The robust economic recovery since 1994 in the Philippines has encouraged greater financial deepening.
• The financial reforms during the past one and a half decades, together with overall reforms in the economy and the strengthening of macroeconomic fundamentals in the Philippines, have resulted in the strengthening of the financial sector.