THE EFFECTS OF REQUIRED RESERVE RATIO OF UNIVERSAL/COMMERCIAL BANKS ON TOTAL RESOURCES OF UNIVERSAL/COMMERCIAL BANKS
THE EFFECTS OF REQUIRED RESERVE RATIO OF UNIVERSAL/COMMERCIAL BANKS ON TOTAL RESOURCES OF UNIVERSAL/COMMERCIAL BANKS
By:
Salonga, Gerard V.
Poco, Magnolia Pamela C.
Galita, JemmieAleinn M.
Soriano, Ray-Anne A.
Marinay, Joel Jr. A.
Cabrera, Mark Angelo T.
CHAPTER 1
INTRODUCTION
INTRODUCTION OF THE STUDY:
The BangkoSentralngPilipinas or BSP is the central monetary authority of the Republic of the Philippines. The BSP’s primary objective is to maintain price stability conducive to a balanced and sustainable economic growth. The BSP controls the Supply of Money in the Philippines. In order to control the volume of money created by the credit operations of the banking system, all banks operating in the Philippines shall be required to maintain reserves against their deposit liabilities
According to the Chapter IV, Article VII – BANK RESERVES, Reserve Requirements are set by the BangkoSentral ng Pilipinas to all banks operating in the Philippines. The required reserves of each bank shall be proportional to the volume of its deposit liabilities and shall ordinarily take the form of a deposit in the BangkoSentral. Reserve requirements shall be applied to all banks of the same category uniformly and without discrimination.Regular Reserves can be seen as Demand, Savings and Time Deposits rate.Reserve Requirements influences the country’s borrowing and interest rates
Total Resource of the Philippine Financial System contains the total assets of Universal/Commercial Banks (U/KBs), Thrift Banks (TBs), Rural Banks (RBs) and Non-Banks Financial Intermediaries (NBFIs) gross of provision for probable losses, accumulated bond discount and accumulated market gains/losses. Total Resource of Philippine Financial System are classified according to bank types.
The reserve requirements is implemented by the BSP so that banks reserves that can be used as a tool in monetary policy, influencing the country’s borrowing and interest rates by changing the amount of funds available for banks to make loans with. It affects banks’ transactions since the more required reserves the BSP imposed the banks will somehow have less funds for their transactions. Less transactions of banks, less earnings which makes up the total resources of banks. The required reserves shall at least be 25 percent in the form of deposit balances with the Bangko Sentral ng Pilipinas and 75 percent in the form of cash vaults.
For this paper, we focused with the Universal/Commercial Banks which makes up 90% of total banks resources. There are 38 Universal/Commercial Banks here in the Philippines, example are well known banks like Banco De Oro Unibank INC., Bank of The Philippine Islands, PNB, Metrobank and Landbank of the Philippines. It represents the largest single group, resource-wise, of financial institutions in the country.
In February of 2006, the BangkoSentral’s Monetary Board decided to approve three operational adjustments in the BSP’s reserve requirement policy. One of them is unification of the existing statutory reserve requirement and liquidity reserve requirement into a single set of reserve requirement. The Monetary Board expects that the rationalization of the reserve requirement policy will increase the effectiveness of reserve requirement as a monetary policy tool, simplify its implementation, and improve the monitoring of banks’ compliance. However, the Board also anticipates that the operational reforms may have some impact on banks’ intermediation costs.
The Monetary Board stressed that the operational changes will achieve the two-pronged objectives of simplifying the BSP’s reserve requirement regime and ensuring adequate liquidity in support of economic growth, especially given the prevailing weak global economic conditions. The Board noted that with the reduction in the reserve requirement ratio, the operational changes should not affect banks’ lending and deposit rates or their service fees. The said adjustment took effect in the reserve week on 6 April, 2012