The impact of the global financial crisis on the Philippine financial system – an assessment
The impact of the global financial crisis on the
Philippine financial system – an assessment
“The problem in politics is this: you don’t get any credit for disasters averted.”
Henry M Paulson Jr, Former US Treasury Secretary
I. Introduction
The crisis that originated from the US subprime mortgage market escalated into a global phenomenon. Earlier debates on “decoupling”2 died down as the crisis’ contagion effects proved headstrong, cascading to the financial markets of advanced and emerging economies and unleashing a full-blown systemic crisis. Aside from causing huge wealth destruction, this development eroded confidence in financial institutions and markets worldwide, causing intensified concerns over liquidity, as well as a plethora of bankruptcies, forced mergers and massive monetary intervention from financial authorities, thereby leading to a drastically reshaped financial landscape.3 Nonetheless, East Asia in particular was in a much better position to weather a financial crisis compared to a decade ago. At the time of the crisis until today, its economic fundamentals have been generally stronger. Banking systems in the region have, in general, become more resilient, sound and stable. The region has accumulated high levels of foreign reserves that have also helped it to absorb shocks well. The adoption of conservative financial policies has paid off. In addition, regional economic integration and open global markets have expanded and deepened East Asia’s production networks and export markets.4 In the case of the Philippines, the conservative attitude of Philippine banks led to only marginal exposure to derivatives/structured products. Adequate information disclosure practices and the implementation of banking reforms are now yielding fruit, particularly in terms of better risk management and consolidated supervision. These have contributed to the limited impact of the crisis on Philippine financial
Philippine financial system – an assessment
“The problem in politics is this: you don’t get any credit for disasters averted.”
Henry M Paulson Jr, Former US Treasury Secretary
I. Introduction
The crisis that originated from the US subprime mortgage market escalated into a global phenomenon. Earlier debates on “decoupling”2 died down as the crisis’ contagion effects proved headstrong, cascading to the financial markets of advanced and emerging economies and unleashing a full-blown systemic crisis. Aside from causing huge wealth destruction, this development eroded confidence in financial institutions and markets worldwide, causing intensified concerns over liquidity, as well as a plethora of bankruptcies, forced mergers and massive monetary intervention from financial authorities, thereby leading to a drastically reshaped financial landscape.3 Nonetheless, East Asia in particular was in a much better position to weather a financial crisis compared to a decade ago. At the time of the crisis until today, its economic fundamentals have been generally stronger. Banking systems in the region have, in general, become more resilient, sound and stable. The region has accumulated high levels of foreign reserves that have also helped it to absorb shocks well. The adoption of conservative financial policies has paid off. In addition, regional economic integration and open global markets have expanded and deepened East Asia’s production networks and export markets.4 In the case of the Philippines, the conservative attitude of Philippine banks led to only marginal exposure to derivatives/structured products. Adequate information disclosure practices and the implementation of banking reforms are now yielding fruit, particularly in terms of better risk management and consolidated supervision. These have contributed to the limited impact of the crisis on Philippine financial