Booty Capitalism: The Politics of Banking in the Philippines

By Paul D. Hutchcroft | Go to book overview

"the irregularities that rocked . . . the foundation of the local banking system in recent months would persist and generate greater confusion in the national economy."54 As we shall see in subsequent chapters, "greater confusion" was indeed yet to come.


Conclusion

Implicit in Pedrosa's list of corrective measures was an awareness of two major problems. First, many family conglomerates were milking the loan portfolios of their own banks. In the course of the 1960s it became ever more apparent that the roots of bank instability were to be found, first of all, in the purposes for which banks were initially formed. As Central Bank Governor Licaros was later to explain, "the average Filipino banker is in banking not for banking profits; he uses his bank for allied businesses."55 Loyalty was rarely to banking per se, but rather to the family conglomerate that the bank was meant to serve. The most abused banks soon encountered serious liquidity problems. Second, the Central Bank lacked the strength and capacity to regulate the banks effectively and curb behavior that was creating instability for the banking system as a whole. As the episodes in this chapter reveal, the mushrooming of family-owned banks in the early 1960s was accompanied--and followed--by a high degree of bank instability. Indeed, by the end of the decade one scholar observed that the Philippines "has probably had more financial scandals or financial institutions in distress than any other Southeast Asian country."56 Like the American bank robber Willie Sutton, many families had gone into banking "because that's where the money is." The regulations of an ineffectual bureaucratic apparatus were not going to deter them from using their banks as a source of funds for related family enterprises, and the problem of bank instability endured.

In the course of only half a decade, there had been major changes in the structure of the financial system, as a host of new entrants--representative of powerful social forces--had flocked to the banking industry. Private domestic commercial banks were increasing their dominance within the system as a whole, although PNB and the four foreign banks remained very influential actors. In the midst of this rapid change, regulatory capacity

____________________
54
Daily Mirror, January 4, 1969 ( the exact wording of the quote is from the Daily Mirror not from Pedrosa). Pedrosa was at the time president of Prudential Bank and Trust Company, one of the most conservative and stable of the family-owned banks. He had been finance secretary between 1949 and 1951 (during the Quirino administration).
55
FEER, April 7, 1978, 80 (the exact wording of the quote is from FEER, not Licaros).
56
Robert F. Emery, The Financial Institutions of Southeast Asia: A Country-by-Country Study, ( New York: Praeger Publishers, 1970), 482.

-108-

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