ARMY SERVICE FORCES MANUAL M365-5 Civil Affairs

CIVIL AFFAIRS HANDBOOK THE PHILIPPINES SECTION 5: MONEY AND BANKING

OF RESTRICTED MATTER. The information SDISSEMINATION gven characteristics of restricted material may be contained in restricted documents and the essential to any person known to be in the service of the United States and topersons of undoubted loyalty and Mar 44.)tothe work, but will not be communicated to the public5 discretionwho are cooperating in Government 44.) presecp yatole also par.23b, AR 380-5,15 IMar public relations agencies. (See press except by authorized military

HEADQUARTERS, ARMY SERVICE FORCES, DECEMBER 1944 ARMY SERVICE FORCES MANUAL M 365-5 Civil Affairs

CIVIL AFFAIRS HANDBOOK - THE PHILIPPINES SECTION 5: MONEY AND BANKING

Headquarters, Army Service Forces, December 1944

DISSEMINATION OF RESTRICTED MATTER. The information contained in restricted documents and the essential characteristics of restricted material may be given to any person known to be in the service of the United States and to persons of undoubted loyalty and discretion who are cooperating in Government work, but will not be communicated to the public or to the press except by authorized military public relations agencies. (See also par. 23b, AR 380-5, 15 Mar 44.)

United States Government PrintingOffice, Washington, 1944 NUMBERING SYSTEM OF ARMY SERVICE FORCES MANUALS

The main subject matter of each Army Service Forces Manual is indicated by consecutive numbering within the following categories:

M1- M99 Basic and Advanced Training M100-M199 Army Specialized Training Program and Pre-Induction Training M200-M299 Personnel and Morale M300-M399 Civil Affairs M400-M499 Supply and Transportation M500-M599 Fiscal M600-M699 Procurement and Production M700-M799 Administration M800-M899 Miscellaneous M900-up Equipment, Mat6riel, Housing and Construction

HEADQUARTERS, ARMY SERVICE FORCES WASHINGTON 25, D. C., 28 December 1944

Army Service Forces Manual M 365-5, Civil Affairs Handbook, Philippine Islands-Money and Banking, has been prepared under the supervision of the Provost Marshal General and is published for the information and guidance of all concerned.

[SPX 461 (21 Sep 43)]

BY COMMAND OF LIEUTENANT GENERAL SOMERVELL:

W. D. STYER Major General, General Staff Corp, :hief of !Std

OFFICIAL: J. A. ULIO Major General The Adjutant General INTRODUCTION

Purposes of the Civil Affairs Handbook The basic purposes of civil. affairs officers are (1) to assist the Commanding General by quickly establishing those orderly conditions which will contribute most effectively to the conduct of military operations, (2) to reduce to a minimum the human suffering and the material damage resulting from disorder, and (3) to create the conditions which will make it possible for civilian agencies to function effectively. The preparation of Civil Affairs Handbooks is a part of the effort to carry out these responsibilities as efficiently and humanely as possible. The Handbooks do not deal with plans or policies (which will depend upon changing and unpredict- able developments). It should be clearly understood that they do not imply any given official program of action. They are rather ready reference source books con- taining the basic factual information needed for planning and policy making.

This study on Money and Banking in the Philippine Islands was prepared for the Military Government Division, Office of the Provost Marshal General by the Division of Research and Statistics, Board of Governors of the Federal Reserve System. Officers using this material are requested to make suggestions and criticisms indicating the revisions or additions which would make this material more useful for their purposes. These criticisms should be sent to the Chief of the Liaison and Studies Branch, Military Government Division, PMGO, 2807 Munitions Building, Washington 25, D. C. CIVIL AFFAIRS HANDBOOKS TOPICAL OUTLINE

1. Geographical and Social Back- 9. Labor ground 10. Public Works and Utilities 2. Government and Administration 11. Transportation Systems 3. Legal Affairs 12. Communications 4. Government Finance 13. Public Health and Sanitation 5. Money and Banking 14. Public Safety 6. Natural Resources 15. Education 7. Agriculture 16. Public Welfare 8. Industry and Commerce 17. Cultural Institutions

This study on Money and Banking in the Philippine Islands was prepared for the Military Government Division, Office of the Provost Marshal General, by the Division of Research and Statistics, Board of Governors of the Federal Reserve System. TABLE OF CONTENTS

PART I. MONEY AND BANKING IN 1941

Page Forew ord ...... 3

1. C urrency ...... 4 (Notes and coins-Gold-Transfer of domestic funds)

2. Banking ...... 6 A. General Statement ...... 6

B . C om m ercial B anking...... 8 (Banking law-Banking control and regulation-Foreign banks-Trust corpor- ations-Bank taxes-Bank operations-Interest rates-Individual domestic banks: Philippine National Bank; Bank of the Philippine Islands; People's Bank and Trust Company; Philippine Trust Company; Philippine Bank of Commerce; Philippine Bank of Communications; China Banking Corporation; Bank of the Commonwealth-Branches of foreign banks: Hongkong and Shang- hai Banking Corporation; National City Bank of New York; Chartered Bank of India, Australia, and China; Yokohama Specie Bank; Nederlandsch Indische Handelsbank; Bank of Taiwan)

C. Agricultural Credit...... 19 (Agricultural and Industrial Bank: Funds subject to investment by the Agricul- tural and Industrial Bank; Rural banks; Rural credit associations)

D . Savings and M ortgage Banking ...... 23 (Private incorporated banks: Monte de Piedad y Caja de Ahorros; Banco Hipo- tecario de Filipinas-Building and loan associations-Philippine Postal Savings Bank)

3. Manila Stock Exchange...... 25

4. Insurance Companies ...... 26 (Insurance law-Insurance business: Life insurance; Fire insurance; Marine Insur- ance; Miscellaneous insurance)

PART II. WARTIME DEVELOPMENTS

1. General Statement ...... 31

2. Currency and Central Banking ...... 31 (Currency of the Commonwealth-Currency under the Japanese-Gold-Central bank-The purchasing power of the Peso-Counter-inflationary measures--Domestic transfers of funds-Foreign funds control under the Commonwealth-Foreign ex- change control under the Japanese)

3. Banking ...... 35 (Deposit restrictions--Bank operations-Philippine National Bank branches-Liqui- dation of foreign banks-Interest rates-Bank control-Building and loan associations -Agricultural credit-Postal savings system)

4. Insurance Companies ...... 39

SUMMARY

The following report is divided into two principal Philippines was the grant of an overdraft secured sections, dealing with (I) the money and credit sys- by a "quedan," which was a pledge of stored com- tem in 1941, and (II) wartime developments. modities without transfer of title and its value de- Part I gives a detailed description of the currency pended largely on the good faith of the borrower. and banking institutions in the Philippine Islands There was little investment banking in the Philip- prior to the Japanese occupation. Enough back- pines other than that done by the government insti- ground information has been included to make clear tutions; indeed, aside from mining, sugar cultivation, the development of the financial structure of the and a few other fields, capital was represented chiefly Commonwealth, and the setting in which it operated. by government corporations. Part II describes wartime changes insofar as they One of the most persistent and important prob- may be ascertained from available information. This lems in the Philippines was that of agricultural is of a fragmentary and unreliable character, and credit which in turn grew partly out of the land the contents of this section must be accepted with tenure, agricultural production, and marketing sys- reserve. tems. Credit facilities were available to large land- owners but the bulk of the farming population was Part I sniall producers seeking loans of 50 P to 200 P. This business was unattractive to commercial banks, and The economy of the Philippine Islands is pre- the credit cooperative system, dominantly although encouraged agricultural and, except ,for the financ- by the Government, had been ineptly managed and ing of foreign trade, the credit structure in 1941 was failed to meet the need. The chief source still of agricul- rudimentary. As in all countries where the finan- tural credit, aside from usurers to whom small cial system bor- is not highly developed, currency was rowers mostly turned, was first more important than the Philippine bank credit as a means of pay- National Bank, and after 1939, the Agricultural and ment. After 1903, the Philippine currency was linked Industrial Bank. In general there were three types by law with that of the United States. The unit of of agricultural loans: long-term monetary value loans of one to 30 was the, Peso, two Pesos being equal years against mortgaged real estate; loans to one dollar. The against currency of the Islands was kept standing crops running up to one year; and three at par with the dollar through the operation of an months' loans against Exchange harvested and stored crops. Standard Fund. In practice most foreign It was only in the latter type, so far as it applied exchange transactions to were handled through ordi- export goods, that ordinary commercial banks were nary banking channels, but the existence of the interested. Fund acted as a stabilizing influence. Paper money Mortgage and savings banking was little in the form of Treasury certificates devel- (covered 100 per oped. There was only one bank which operated cent by silver Pesos or dollar deposits) made up the primarily for collecting savings bulk of the although commer- circulation, while coins and bank notes cial banks accepted savings deposits. Most accounted for only small a small proportion. savers used the facilities of the Postal Savings Bank. Banking in the Philippines was concentrated There were a number largely of building and loan associa- in Manila. The provincial centers of Cebu tions, mostly in Manila, but and their operations were Iloilo each had branches of several banks, and on a small scale, and their Zamboanga one, structure was shaky. but the rest of the islands were There was little mortgage business aside from that dependent for banking facilities upon branches or done by the government agencies institutions mentioned of the Philippine National Bank. This above. The lack of a market for fixed Government-owned interest securi- institution was the most impor- ties hampered the flotation of mortgage bonds. tant single bank in the country and performed the There was one stock functions exchange in the country, in of central bank, Government depository, Manila. The bulk of the listed securities were stocks investment bank, and commercial bank. Private of mining corporations with small par value. Super- Filipino capital was represented by only a few small visory and registration banks functions were fulfilled by a and building and loan associations, but for- Securities and Exchange eign capital played Commission. Speculative an important role through owner- activity, which ship of domestically incorporated had been intense during the gold institutions and boom of branches of foreign banks. The latter were particu- the mid-'thirties, had tapered off by the end of the decade. larly prominent in the financing of foreign trade and Under the influence of the disturbed took relatively little part in supplying domestic international conditions growing out of the war, the credit needs. An exception was capital from Chinese market was unsettled in 1941. In June of that year, sources, but in this case credit reached the Filipino the Securities and Exchange Commission pegged producer chiefly in the form of advances (often in prices to prevent a collapse, suspended short sale kind) to enable him to plant a crop and to carry him dealing, and eliminated trading in futures. through the growing season. Even banks granted In 1940, there were 95 insurance companies oper- credit largely on a personal basis (mainly in the ating in the Philippines of which 18 were domestic, form of overdrafts), and for internal financing little 25 were American, and 52 foreign companies. Most use was made of commercial paper in the western of the insurance business was done by the last group, sense. A common. type of accommodation in the and a very substantial part of the risks underwritten by domestic insurers were ceded to foreign reinsurers. the two Japanese banks operating in the Islands, The most important branch was life insurance fol- closely followed by the Philippine National Bank lowed by fire and marine. Other types of risks were and two other domestic commercial banks. The written only in insignificant amounts. Japanese banks, including the Southern Develop- ment Bank, granted credit (but only to Japanese) Part II as well as handled deposits to which the operations of the Philippine banks were confined. Restrictions During the war period preceding Pearl Harbor, were placed on the amounts which might be with- money and banking conditions in the Philippines drawn. Banks which were branches of foreign banks were affected chiefly by the application of foreign or were owned by foreign interests, remained closed. exchange, control. The regulations of the United Later it was announced that they would be liqui- States Treasury applied to interests and property of dated under the administration of the Bank of Tai- Island residents who were nationals of Axis or Axis- wan after an amount equal to their capital had been dominated countries. In the brief interval between confiscated. Several liquidation payments are re- the outbreak of war with Japan and the fall of ported to have been made. Manila, the Commonwealth and United States Gov- The Japanese took various counter-inflationary ernments took certain measures to safeguard measures in addition to limitating deposit with- currency and bank assets and prevent misuse of drawals. They included reductions in wages and Philippine Island funds by the enemy. salaries and setting ceiling prices on necessary com- With Japanese occupation the usual pattern of modities. Controls have been ineffective, however, integration of the economy of an invaded area into. and inflation in the circulatory medium and in prices the Greater East Asia Co-Prosperity Sphere was has occurred oh a large scale. Under this pressure followed. Military peso notes were issued, one peso the Japanese have found it necessary to lift mini- being considered the equivalent of one yen for Japa- mum wages and maximum prices several times. The nese military bookkeeping purposes. (This would distributive and productive systems were disorgan- have represented a depreciation of about 50 per cent ized, and the Japanese have been more concerned in the Peso.) Later, after the Philippine "Republic" with exploiting Philippine resources to satisfy the was declared in October 1943, plans were laid for needs of their war effort than with normalizing the the creation of a central bank to issue notes secured by a yen-exchange fund. So far as can be learned, disrupted economy of the Islands. however, the bank never has begun to operate. The In the spring of 1942, three life insurance com- Southern Development Bank (an official Japanese panies were permitted to reopen. They were required institution) performed the function of note issue for to cooperate closely with the Japanese military the military administration after the middle of 1942. administration to which they had to submit periodic The banks, which had been closed in the last days statements. Payments to enemy nationals had to be of 1941, were kept closed by the Japanese until the kept in blocked accounts. Later additional compan- beginning of February 1942. Lack of cash was given ies were reported to have opened. In 1944, the as the reason why only a few banks could open at insurance companies were placed under close super- first. Those selected to do so were the branches of vision of a Philippine "Republic" official.

viii CIVIL AFFAIRS HANDBOOK

on

THE PHILIPPINE ISLANDS

Section Five

on

MONEY AND BANKING

PART

The. bankting and currency system of the Philippine Commonwealth, at the out- break of war with Japan, was the product of the agricultural economy of the' Islands and of the important international trade, particularly with the United States. Currency was of more significance than bank credit as means of payment for the local population. Government institutions were the chief source of bank credit, with private native capital making only a small contribution. Commercial banks, the largest of them controlled by foreign capital, concentrated largely in Manila, catered primarily to the needs of business.

THE PHILIPPINE ISLANDS

PART I. MONEY AND BANKING IN 1941

Foreword

For centuries, the Philippine monetary and finan- a later period the Spanish Government minted spe- cial system, like the political and economic systems cial coins for the Philippines, but the variations in of the Islands, had ,been dependent on those of other the silver content suited them admirably to arbitrage countries. Under the United States, Commonwealth transactions once commercial relations were opened status was achieved in November 1935 and steps with other countries. Trading was confined to the were being taken in anticipation of independence in City of Manila. Its financing fell into the hands of 1946. At the time of the Japanese occupation in 1941, those best equipped-through their connections with however, both the currency and the financial struc- outside markets-to. handle it: the two branches of ture were still closely tied in with the United States British banks which the Spaniards authorized to economy. open offices there. The only other commercial bank The long Spanish regime left its mark. Intercourse was the Spanish Banco Espanol-Filipino which with the rest of the world was prohibited until 1830. issued notes, accepted deposits, and made loans but The Philippines for a long time were administered was not permitted to engage in financing foreign from Mexico and were allowed to dispatch one ship- trade. Credit needs of small borrowers were met load of goods a year to that country. The first-paper chiefly by money lenders and in some part from currency in the Islands grew out of this, trade; allot- funds administered by the Catholic Church. Because ments of space on the annual vessel were transfer- the,Spaniards wished to keep a market for their own able and circulated within a limited orbit at a fixed manufactured goods, the Philippines remained an value. The currency standard of the Islands became agricultural economy. Thus was the pattern set; it the Mexican silver dollar, several millions of which persisted during the American Administration with were shipped each year in payment for the goods, only gradual modification, and it was still the back- and to cover the expenses of the Administration. At ground in 1941. 1. Currency million P and sold 433 million P while the Treasury bought none and sold 52 million P. Currency paid in After 1903, the Philippine currency was linked by for the purchase of dollars was to be withdrawn from law with that of the United States. Final executive circulation by the Treasurer and held until it was authority over currency and coinage in the Islands needed as outpayment against the sale of dollars. was reserved to the President of the United States The volume of money in circulation thus was to be even in the Philippine Independence Act of 1935,'and kept in equilibrium with the demands of trade, as in the constitution of the Commonwealth drawn up reflected in imports and exports. (Above 75 per cent in accordance with the provisions of that Act. In of total Philippine foreign trade was with the United 1903, when the present currency system was estab- States.) Except for a brief period in the early 'twen- lished, an estimated 36 million P was in circulation ties, when an unfavorable balance of trade con- of which 2 million P was in notes of the Banco bined with the dissipation of the Exchange Fund Espanol-Filipino and the balance, in silver coins of (see page 12) and the Peso was at a considerable varying weights and fineness; their exchange value discount, this system did operate to keep the Peso fluctuated with the price of silver. The Philippine at par with the dollar. In the late 'thirties, however, Currency Law of March 2, 1903, set up a standard two extraneous influences affected the automatic based upon a fixed relation to the United States operation of the system. One was the large volume dollar. This basic system, except for modifications of payments made to and on account of United to meet changed conditions, remained in effect until States forces stationed in the Philippines, and the the Japanese occupation of the Philippines in 1941. other was the payments representing the refund of The unit of monetary value was the Peso (100 sugar duties and the coconut oil processing tax.' Both centavos), two Pesos being equal in value to one of these added to the supply of dollars in the Fund, dollar "in any currency which is legal tender for and the 'volume of circulation in the Philippines public and private debts in the United States." Be- without being reflected in the volume of trade. The fore the United States went off gold the Philippine consequence was a mild degree of inflation. The standardwas a gold Peso of 12.9 grains of gold nine- expansion in the circulating medium is shown on tenths fine, the silver Peso being the actual circu-. the table on page 5. The per capita circulation as of lating coin. In the early 'thirties the Peso followed June 30, 1940, was 11.38 P and it rose to 13.6 P on the depreciation of the dollar in terms of gold cur- September 30, 1941. These figures are relatively high rencies. Some time after the latter was revalued in for the Far East. However, the volume of currency 1934, the gold Peso was formally abandoned and the in circulation exceeded total bank deposits of indi- Philippine standard defined in relation only to the viduals, a condition to be expected in countries new dollar. The currency of the Islands was kept at where the financial system is not highly developed. par with the dollar through the operation of an "Exchange Standard Fund" the legal minimum of Notes and coins which was not less than 15 per cent of total govern- Originally silver Pesos formed the bulk of the ment, currency (coins and Treasury certificates but circulating medium. But the Island Treasury was not bank notes) in circulation or legally available permitted to issue Treasury certificates in lieu of for circulation. This fund was held on deposit in the the silver coins, and these gradually came to replace United States (with the Secretary of the Treasury' the metallic currency as the chief means of payment. or designated banks) or in the vaults of the Treas- Treasury certificates and bank notes together made ury in Manila. Were the fund to amount to more up 88 per cent of the money in circulation on Sep- than 25 per cent of the circulation, the excess might tember 30, 1941, the former alone accounting for be transferred to the General Fund of the Treasury. 86 per cent (see table on page 6). The Treasury The Treasurer of the Philippine Islands was certificates were supposed to be covered by a 100 authorized and directed to sell on demand, for per cent reserve of silver Pesos or half Pesos; later Philippine currency offered in sums of not less than modification permitted the inclusion of legal tender 10,000 P, or in currency "issued by and/or under currency of the United States or dollar deposits in the authority of the United States," offered in sums the United States as a '"temporary" substitute. In of not less than $5,000, exchange for equivalent practice the fund was held mainly in the last form. amounts on the Exchange Standard Fund, charging Treasury certificates were issued in denominations a premium which in practice was 1/2 of 1 per cent of 1, 2, 5, 10, 20, 50, 100, and 500 Pesos. These cer- for demand drafts and 7/8 of 1 per cent for tele- tificates were prepared at the Bureau of Engraving graphic transfers. Depositaries in the United States and Printing in Washington and transmitted to the were authorized to handle similar operations. The paUnder the United States Revenue Act of 1934, a processing tax was bulk of the exchange business actually was done placed upon coconut oil with the proviso that such proceeds of this banking channels, but the, exist- tax as derived from oil imported from the Philippines were to be through ordinary returned to the Commonwealth to be used in ways it was hoped would ence of the Fund and the rates at which the Treasury. soften the eventual impact of severance from the United States economy which would follow the establishment of Philippine independence. bought and sold stabilized the operations. The rela- Litigation tied up the funds for several years and the first payments tive importance of the banks and the Treasury is were made only in 1937. From then until the end of 1941, a total of $128.8 million was paid illustrated by figures for the year ending June 30, over on this account. 2 This wording was inserted as reassurance to people accustomed to 1940. In that period, banks bought a total of 330 hard money so that the certificates might be accepted readily in the early days of the system. When it was found that paper money found 3 Authorized by special Congressional action after bank failures in unexpected favor, there was no compulsion to keep the Fund in coin the early 'thirties resulted in some loss to the Phiippine Government. rather than deposits in United States banks where interest could be Interest of 2 per cent is paid on such deposits up to $55 million. earned. Commonwealth authorities through the office of the The Philippine National Bank was authorized by High Commissioner. the legislation which created it, to issue notes up to The status of the Exchange Standard Fund and 100 per cent of its paid-up capital and surplus. Set the Treasury Certificate Fund are shown in the originally at 20 million P and later raised to 50 mil- table below. lion, the capital had been reduced to 10 million P by 1941. The Bank was required to maintain a cash Exchange Standard and Treasury Certificate Funds, reserve of 25 per cent behind its outstanding notes. December 31, 19401 In 1938, the Bank deposited Treasury certificates Exchange Standard Fund Million P with the Treasurer equal to the amount of its bank In Philippine Treasury: notes outstanding and the liability for them .was maintained a deposit with Philippine cuirrency...... 1.18 transferred. The Bank United States banks which had served as a currency U. S. currency (equivalent)...... 7.60 reserve so that at any time it might issue notes with- On deposit in U. S. (in dollars): out particular authorization. The Bank, with the With U. S. Treasury (equivalent) ...... 40.25 approval of the President of the Philippines, was With Chase National Bank (equivalent) ...... 3.03 permitted to issue "emergency" notes secured by 6 Total cash surplus...... 52.06 months' commercial paper covering imports or ex- ports. The emergency note issue might not exceed Government circulation...... 186.02 75 per cent of the value of the underlying paper, and 25 per cent of the value of the issue had to be Ratio of Fund to circulation (per cent)...... 28.0 deposited in currency in the Treasury of the Philip- Treasury Certificate Fund: pines as a redemption reserve. These emergency In Philippine Treasury, silver Pesos and notes were subject to a tax of 1/4 of 1. per cent a half Pesos...... 18.45 month. On June 30, 1940, there were 54,613 P of On deposit in U. S. (dollars): such notes outstanding in denominations from 10 centavos to 1 P. The notes of the Bank were legal With U. S. Treasury (equivalent)...... 146.48 tender for all sums due to the Government. They Total cash balance...... 164.93 were redeemable in lawful money of the Philippines: and the Government guaranteed their eventual re- Treasury certificates issued (in circulation and demption. available for circulation)...... 164.93 Minor coins were produced at the Mint of the Reserve Ratio (per cent)...... :...... 100.0 Philippines in Manila, the expenses of which were

1Latest date for which full details are available. covered by appropriations from the Exchange Stan- dard Fund. The seigniorage reverted to the Fund. In addition to the coins (see table on page 6) and Silver coins were minted in the United States, and Treasury certificates, notes of two banks in the bank notes as well as the Treasury certificates were Islands were part of the money in circulation, Dur- printed at the United States Bureau of Engraving ing the Spanish occupation, the Banco Espanol- and Printing in Washington. had the exclusive privilege of issuing notes Filipino Gold up to three times the amount of its capital secured by a 25 per cent metallic reserve. With increases in Considerable gold is mined in the Philippines capital the permissible maximum rose to 30 million (Baguio, Masbate, and Mambulao districts), and in P, but this figure never was actually approached. the 'thirties there was almost a "gold rush" as new It continued to issue notes when its name was mines were placed in operation supplementing placer changed to the Bank of the Philippine Islands under dredging. Production rose from 250,000 ounces of the American administration, contending that its bullion in 1932 to nearly 470,000 ounces in 1935 and exclusive franchise was infringed by the issue of to 717,000 ounces, valued at 49.6 million P, in 1937. Treasury certificates. An early act of the Philippine Two large companies produced nearly half of this Commission was to amend the charter to limit the amount. After the United States placed an embargo note circulation of this bank to the amount of the on the export or private holding of gold, the entire unimpaired paid-in capital and surplus but in no production of the Islands were shipped to the United event to exceed 9 million P. The bank gave up its States. Exports of gold bullion were valued at claim to the exclusive right to issue paper money. In 64,307,467 P, and of ore at 1,101,688 P in 1940. 1928 the franchise of the bank had been extended Philippine Currency in Actual Circulation for 15 years with provision for an increment to the reserve fund amounting annually to 5 per cent of Year Per capita Total the notes in circulation. The sinking fund thus estab- (Pesos) (Million P) lished was to be kept on deposit with the Treasurer 1906 ...... 15.0 of the Philippines and was to be used only to redeem 1919 ...... 14.2 73.3 December 31, 1935...... 8.8 116.7 the notes of the bank. The Treasurer was directed December 31, 1936...... 10.4 139.8 December 31, 1937...... 13.1 161.5 to withdraw from circulation and cancel a portion December 31, 1938...... 13.5 172.7 of the notes equal to the annuity paid in, so that in December 31, 1939...... 12.4 162.9 June30, 1940...... 11.4 150.7 September 1941 only 1.4 million P of them were still June 30, 1941...... 12.5 183.1 outstanding. Sept. 30, 1941 (latest date available)... 13.6 200.4 Composition of Philippine Currency in Circulation, tional City Bank of New York. It was said that a September 80, 19411 large part of the inter-bank clearing did not go In Treasury In actual through the Association. During the Fall of 1941, vaults irculation Total transactions varied between 3 and 6 million P a available for cireson circulation circulation (Pesos) .day; clearings in the last week of October 1941 were said to have reached a record total of 32 million P. Silver Pesos ...... 1,247 4,177,110 4,178,357. Silver half Pesos...... 379,108 4,523,720 4,902,828 Total clearings in the year ending June 30, 1940, Subsidiary silver coin...... 24,585 11,205,370 11,229,955 Minor coins...... 110,741 4,066,110 4,176,851 were 323.9 million P. Treasury certificates...... 21,446,695 172,814,921 194,261,616 Since banks served business concerns rather than Bank of Phil. Islands notes...... 1,358,385 1,358,385 Phil. National Bank notes...... 2,299,816 2,299,816 the general public, bank checks were in less common Total ...... 21,962,376 200,445,432222,407,808 use than in the United States but considerable ad- 1 Latest date available. vantage was taken of postal money order facilities. A money order service was set up by the American .Treasury Certificates and Bank Notes Outstanding or military authorities at the time of the occupation Available for Circulation, June 30, 19401 of the Islands, and carried on under Philippine ad- Notes of the- ministration. In 1913, 16 million P were transmitted by money orders and in 1920 such transfers Denomination Treasury Bank of the Philippine Certificates Ph. Islands National amounted to 34 million P. Use of this service ex- (million P) Bank panded greatly. In January 1941, 45.1 million P of I Peso ...... 9.8 ... .1 money orders were issued and 44.9 million P were 2 Pesos ...... 11.6 ... .1 5 Pesos ...... 13.4 .5 .1 paid. In addition 43.3 million P of money orders 10 Pesos ...... 19.9 .7 .6 originating abroad were paid by the Philippine post 20 Pesos...... 24.5 .3 1.1 50 Pesos ...... 7.2 .1 .3 offices. Telegraphic transfers of funds began in 1907. 100Pesos ...... 7.6 .1 .8 200Pesos ...... 500Pesos...... 61.8 .1 .. 2. Banking Total...... 155.8 1.8 23.2 A. General Statement 1 Latest available. SExclusive of 54,613 P of emergency notes in denominations of 10 The most important single bank in the Philippine centavos to 1 P. Islands was the Government-owned Philippine Na- Coins in Circulation, September 80, 1941 tional Bank. The congeries of functions-central bank, bank of issue, Government depository, invest- Diameter Thick- Legal Amount ment bank, and commercial bank-performed by Denomina- Alloy Weight Diamet ness Tender inlation eircu- tion (per cent) (grams) up to (lationl- this institution illustrates the difficulty of classifying (Millimeters) (pesos) lionP) banks in the Islands under neat headings. No other 1 Peso...... Silver 80 20 35.7 2.5 lun- 1 4.2 single bank in the country approached it in size, Copper 20 i- 1 although the Government-owned ted Agricultural and. 50 Centavos.. rSilver 75 10 27.0 1.7 4.5 Industrial Bank (more of an investment trust than 20 Centavos.. Copper 25 4 20.6 1.1 20 11.2 10Centavos.. 2 16.6 0.92 20 a bank) had larger capital. A comparison of data for two groups of banks as in the table on page 7 5 Centavos... -NickeltCopper 25 75 4.87 19.0 2.1 2 not only reveals the outstanding place of the National Bank, but also brings out one of the char- 1 Centavos... Copper 95 5.184 24.6 1.2 r 4.1 SCentavos.. Tin and 2 acteristics of Philippine banking: the significant zinc5 2.592 17.8 1.14 1 contribution of foreign banks. 'For the three years 1938, 1939, and 1940, the Transfer of Domestic Funds National Bank held an average of 40 per cent of all bank assets in the Currency was a more important means of pay- country (excluding the Agricultural and Industrial ment in the Philippines than bank deposits, and Bank). All other domestic' banks combined held there was only one bank clearing house in the coun- 29 per cent of the total assets as compared with 31 try. Organized in October 1930, the Manila Clearing per cent for the banks which were branches of for- House Association originally had a membership of eign banks. six banks covering all domestic institutions. These The special status of the National'Bank is evident were the Philippine National Bank, the Bank of the in several respects: not only did it hold virtually all Philippine Islands, the China Banking Corporation, public deposits, but a far larger part of its total the Philippine Trust Company, the People's Bank assets was invested in the form of stocks and bonds and Trust Company, and the Mercantile Bank of (mostly Government paper or that of Government China. By the end of 1932, the membership had been corporations) than was true for the other domestic reduced to four through the failure of the Mercantile banks, while the foreign banks invested very little Bank and the withdrawal from the Association of in securities. Domestic banks as a group, and the the People's Bank. In that year checks cleared ag- National Bank in particular, held a relatively larger gregated 188 million P. Clearings were held twice share of their funds in cash on hand. Another strik- a day. 1 "Domestic" banks were those incorporated locally. In several in- In 1941, there were nine member banks: the four stances, however, capital and direction was supplied by local residents listed above, the People's Bank which had rejoined, of foreign nationality, and in at least one case, a domestically, incor- porated bank was a subsidiary of a foreign bank-the Chinese Bank the Bank of Commerce, the Bank of the Common- of Communications. "Foreign" banks were branches of banks organized under the laws of other countries, licensed to operate in the Philippines wealth, the Bank of Communications, and the Na- and theoretically subject to Philippine laws and regulations. ing difference between the domestic and foreign which it received in the United States market. By banks was the large proportion of total assets shown the same token, however,. the Exchange Standard in the table as "Other assets." This item covered Fund (see page 4) made the transfer of funds bank premises and other real estate of which the through the Philippines to the New York money foreign banks owned little (or carried at only nomi- market an easy matter for foreign banks with nal amounts in their balance sheets.) The capital branches in the Islands. accounts of the two types of banks-domestic and Partly as a consequence of the importance of the foreign-show clearly the branch status of the latter foreign banks, the various fields of banking had which operated on advances from and drafts on their been developed unevenly. The more lucrative and

PrincipalAssets. and Liabilities of Philippine Banks, 1938-40 Average 1938-40 1

Total for all Foreign3 banks Domestic banks 8 banks

Balance sheet items Total Philippine Other domestic Millions Millions Per cent of domestic National Bank banks of pesos of pesos totallbanks Millions Per cent of Millions Per cent of Millions Per cent of of pesos all banks totalforf pesos totalttal fr. Mfor.n total for ofpesos all banks all banksfor of pesos all banks Assets: Cash...... 57.8 14.9 26 42.9 74 24.0 41 18.9 33 Loans, discounts and overdrafts...... 203.3 75.2 37 128.1 63 79.4 39 48.7 24 Stocks, bonds and other securities.... 40.3 .3 1 40.0 99 32.8 81 7.2 18 Due from banks...... 50.7 19.1 38 31.6 62 16.1 32 15.5 30 Other assets...... 37.9 11.8 31 26.1 69 5.2 14 20.9 55 Total...... 390.0 121.3 31 268.7 69 157.5 40 . 111.2 29 Liabilities: Capital stock...... 28.3 2.0 7 26.3 93 10.0 35 16.3 58 Surplus, reserves, and undivided profits 26.0 .3 1 25.7 99 16.8 65 8.9 34 Individual demand deposits...... 73.5 31.8 43 41.7 57 17.8 24 23.9 33 Savings and time deposits...... 88.8 25.3 28 63.5 72 19.3 22 44.2 50 Deposits of public funds...... 73.9 0 73.9 100 73.3 99 .6 1 Due to other banks...... 60.9 50.0 82 10.9 18 3.8 6 7.1 12 Other liabilities...... 38.6 11.9 31 26.7 69 16.5 43 10.2 26 Total...... 390.0 121.3 31 268.7 69 157.5 40 111.2 29

4 Average of consolidated bank balance sheet data for December 31, 1938, and June 30, 1939, and 1940, excluding the Postal Savings Bank and Agricultural and Industrial Bank. Compiled from data in the 3rd and 4th Annual Reports of the United States High Commissioner to the Philippine Islands and from the Annual Report of the Bank Commissioner of the Philippines for 1939. 2 Six banks, including the National City Bank of New York. 8 Eight banks in 1938 and 1939 and 10 banks in 1940, excluding the Postal Savings Bank and Agricultural and Industrial Bank in all three years. head offices (reflected in "Due to other banks") less risky business of financing international trade rather than on invested capital. Thus comparisons was primarily in the hands of foreign banks. Do- based on the relationship between the value of vari- mestic banks and the merchants themselves financed ous balance sheet items and bank capital are not local business and trade. Investment banking and valid in the case of the Philippines. In relation to the extension of agricultural credit was primarily the total assets of the different groups, however, it in the hands of the Government institutions. The can be seen that domestic banks had a relatively Commonwealth Government, looking forward to the greater share of demand and savings deposits than day when the Philippine economy was to be severed did the foreign banks. from the close connection which it had enjoyed with The important role played by branches of foreign the United States, followed a policy of encouraging banks in Philippine banking carries certain impli- domestic industry but had made only a beginning cations. Domestic capital resources were inade- when the war overtook the Islands. Because of the quately mobilized, and the foreign banks made imminent prospect of independence with all the available funds without which the financing of unknown consequences which it might hold, foreign Philippine international trade would have been capital hesitated to venture into any long-term severely handicapped. However, the local economy investments. It was the Philippine National Bank was at a disadvantage because of the ease with and the Agricultural and Industrial Bank, operating which funds might be withdrawn through inter- with Government funds, which provided long-term branch bookkeeping when earning prospects ap- investment, and mortgage credit. Agricultural credit peared more attractive elsewhere. The financial posed special problems, and students of the situation system of the Philippines was thus peculiarly sensi- were inclined to believe that the solution was not to tive to international economic conditions and the be found in financial remedies such as making abun- available supply of credit depended only partly on dant credit at low rates more readily available so local demand. Such sensitivity is common to all much as in a thorough over-hauling of the whole capital-poor countries operating with a relatively agricultural production and marketing system. large volume of short-term foreign funds, but in the One of the consequences of a banking structure Philippines the existence of the foreign banks made composed of such disparate and independent ele- the financial system particularly vulnerable. Off- ments as that of the Philippines was to put great setting these disadvantages was the protection difficulties in the way of adequate supervision and afforded the Philippine economy by the preferences control. Contributing to this were the banking laws. In many of his annual reports, the Bank Commis- ippines:. the Banco Espanol-Filipino established by sioner characterized existing laws as "deficient and Royal Spanish charter; a branch of the Chartered unsatisfactory," "obsolete," and "ambiguous." Sev- Bank of India, Australia, and China, established in eral of the banks operated under separate statutes '1872; and a.branch of the Hongkong and Shanghai and charters rather than under the general bank- Banking Corporation, established in 1876. The last ing law which in any event was written primarily in two were wholly British owned and directed from the form of sections of the general corporation law. their head offices, one in London and the other in This hampered regulation of banks despite the con- Hongkong. Soon after the civil government was centration of financial resources in the City of established in the Islands (1903) the International Manila which was the chief port and market and Banking Corporation (foreign subsidiary of a group it was natural that banking should center here first. of banks headed by the National City Bank of New But as the economic resources of the Island were York) opened a Manila office. In 1916 the Philippine developed, there was no parallel spreading out of National Bank was established, the stimulus being banking facilities beyond the establishment of a few the desire to break the British monopoly of foreign branches in Cebu, Iloilo, and Zamboanga. trade financing which was hampering the export Bank statistics by provinces are available only for business of the Islands since the British banks re- the end 'of 1937, but these reflect the characteristics fused credit to firms suspected of dealing with of the system for later years. Those for leading areas countries at war with England. After the war other are given in the table below which supplies striking banks were established: the Yokohama Specie Bank evidence of the concentration of banking resources opened an office in Manila in 1919, devoting itself and activities in Manila. That province, with a little to the development of Philippine-Japanese trade; less than 3 per cent of the population, had at its dis- the Asia Banking Corporation, a' group venture of a posal 83 per cent of total bank assets, received 71 number of American banks headed by the Guaranty per cent of total advances, and accounted for 86 per Trust Company of New York also opened a Manila cent of total deposits by others than the Govern- branch in that year as did the American Foreign ment. The next most important center, with twice Banking Corporation. Both of the American banks the population, fell far below with total bank assets later withdrew. Two other banks were established of 18.6 million P compared with Manila's 327.8 with the aid of resident American capital: the Phil- million P. With 70 per cent of the population 38 of ippine Trust Company (under the control of the the 50 provinces had slightly under 2 per cent of Archbishop of Manila); and the People's Bank and 'total bank assets, got less than 3 per cent of the Trust Company. Chinese capital organized the advances, and made less than 3 per cent of non- China Banking Corporation, and the Mercantile public deposits. Bank of China (which failed in 1931). It is indicative of the static condition of Philip- Distribution of Banke Assets, Deposits, and Loans, pine banking that the banks which had been the December 31, 1937 five largest in 1930, were still the five largest in 1940. The only Popula- Total Govern- difference in ranking between the two years Total private, ment tion Total was that the Bank of Province bank deposits deposits the Philippine Islands dropped (thou- advances sands) assets from second to third place in 1940, while the Hong- (Thousand P) kong and Shanghai Banking Corporation moved Manila...... 361.7 327,878.5 150,881.8 35,549.8 119,831.8 from Iloilo...... 611.2 18,562.5 5,344.0 398.5 16,474.4 third to second place. Ranked in order of size, Negros Occidental. 499.9 13,576.9 1,491.3 '980.7 12,667.2 the others were the Philippine National Bapk, the Cebu...... 1,090.3 11,481.5 5,826.9 3,498.3 5,628.0 Nueva Ecija...... 335.7 2,532.7 806.6 182.7 2,214.9 Manila office of the National City Bank, and the 158.1 Davao...... 2,408.8 1,332.2 805.5 666.2 China Banking Corporation. Each of these five 'zamboanga...... 204.9 2,216.4 1,375.8' 523.3 927.9 Five Others'.. 21,013.9 7,715.0 4,447.2 686.9 5;477.7 banks had total assets in 1940 of more than 30 mil- All others...... 8,950.0 4,712.2 6,993.9 184.0 3,726.0 lion P. The sixth largest bank, the Chartered Bank Total...... 13,225.7 393,366.2 176,218.0 42,809.6 167,614.1 of India, Australia, and China, had SProvinces with total bank assets of more than 1 million P but less assets of 23 than 2 million P: Tarlac, Baguio, Tayabas, Albay, Pampanga.' 'million P, while no other bank had assets of as much 2 Population for Baguio not given. as 12 million P. The following sections treat of the various bank- Banking Law ing fields and the institutions which operated in them. In some instances classification has not been .Banks in the Philippines operated under various simple. Thus the Philippine National Bank has been. authority. Two of the domestic banks were estab- included with the commercial banks because na- lished originally by royal decree of the Spanish tional policy intended that it should rid itself of sovereigns. One of these, the Monte de Piedad and long-term credit activities. The Agricultural and Savings Bank (see page 24), contiiued under the Industrial Bank has been considered under agri- original decree. The other, the Bank of the Philip- cultural credit because it was that field which was pine Islands was reorganized under a special charter hoped would benefit from its activities. granted by the Philippine Commission. In 1930 this was amended by act of the Philippine legislature. B. Commercial Banking The Philippine National Bank also operated under special legislation while other banks were responsive At the time of the .American occupation (1898) to general banking and corporation law. The pro- there were only three. commercial banks in the Phil- visions were, for the most part, originally sections of the Administrative Code. They were codified, as was 48.4 million P or 31.3 million P in excess. This amended, by the Bureau of Banking in 1940. situation was not unusual since cash reserves rarely Commercial banking, corporations were legally fell even as low as one and a half.times in excess of defined as those which received money on deposit required amounts. Banks were forced to maintain a and used it in the making of loans, and the purchase, large volume of cash on hand because loans were sale, or collection of bills of exchange or other kinds granted not in the form of a deposit credit but gen- of negotiable paper. They were permitted to discount erally as an overdraft in an amount immediately and negotiate evidence of indebtedness, receive required by the borrower. The proceeds of a loan deposits, buy and sell exchange, make loans against thus usually were withdrawn in full rather than left personal security or secured by personal property or on deposit with the lending bank. Hence the expan- first mortgages on improved real estate and insured sion ratio was much lower than in the United States improvements. Real estate loans made by a bank where-the proceeds of bank loans normally are dis- were limited to 5 years and 60 per cent of the. pensed by the borrower by check and not withdrawn appraised value of the property and insured im- in cash, and thus remain in the banking system. provements, and the aggregate of such loans might Commercial banks were required to devote 10 per not exceed 25 per cent of the unimpaired capital and cent of their annual net profits to buildiig up a surplus of the bank or one-half of its total savings surplus account until it equaled 20 per cent of the deposits, whichever was the lower. Minima were set capital. No dividends might be paid until this yearly for capitalization of commercial banks operating in allotment had been made. centers of various sizes: Any banking corporation with 1 million P of paid-in capital might establish a branch with the Capital of at least In cities with a (Pesos) population of approval of the Bank Commissioner; branches and 500,000 ...... 200,000 or over agencies might be established outside the Philippines. 100,000 ...... 50,000 to 200,000 if the parent bank agreed to bear the expenses of 50,000...... 50,000 or less examination and inspection of such offices. Commercial banks might not accept deposits in A separate law permitted the establishment of excess of ten times the capital and surplus, and "special" banks but apparently no institutions ever deposits with any other one firm, bank, corporation, were incorporated under its terms. This law would or individual could not exceed 25 per cent of the have permitted banks to be established with capital capital and surplus. This latter provision probably of only 50,000 P irrespective of location. They were was intended to prevent making loans in the guise empowered to make one year loans on, real estate of placing deposits. No one person, firm, or corpora- up to 60 per cent of their capital and surplus or 50 tion was allowed to borrow more than 15 per cent of per cent of their deposits, whichever was lower, and the total capital and surplus of a bank. An additional not to amount to more than 40 per cent of the value 15 per cent could be borrowed if it was secured by of the underlying property. They might also make certain types of very liquid paper. Paper secured by crop loans up to 60 per cent of the market value of marketable commodities might be discounted by a the harvested and stored crop, or up to 50 per cent bank in excess of these amounts, but the liability of of standing crops. These banks might accept deposits members of firms had to be taken into account when but were required to keep a 20 per cent reserve determining the credit line of such firms. Loans on against them rather than the 18 per cent required corporate stock might not be made if the aggregate of other banks. A special provision in the law per- market value of all such stock held as collateral mitted employees and officials of the Commonwealth exceeded 15 per cent of the capital and surplus of Government to take an active part in the organiza- the bank making the loan. Banks were prohibited tion and operation of such banks on the written from buying their own stock or making loans against assent of the Secretary of the Department concerned. it. It may have been that such "banks" were intended Commercial banks had to maintain a reserve on to encourage the incorporation of savings and loan hand in lawful money of the Philippines or of the associations which functioned as consumer credit United States amounting to 18 per cent of the aggre- organizations in many Government bureaus and gate demand deposits plus time deposits falling due offices and, in their existing form, were not subject. within 30 days, and of 5 per cent against their sav- to regulation by the Bank Commissioner, and not ings deposits. Deposits with National Banks in the specifically sanctioned by law. Furthermore, it was United States might be counted as part of the 18 hoped that private Filipino capital might be encour- per cent reserve, while bonds of the United States or aged to start banks in the provinces which would Philippine Governments might form part of the 5 thus be relieved of dependency on branches of per cent reserve. No new loans or discounts might be Manila banks. made in the event that the reserve became deficient. A fine of 1 per cent per month was imposed for any Banking Control and Regulation deficiency, and continuous deficiency for 30 days Prior to 1921, there was no real supervision of entitled the Bank Commissioner to close the bank. banks and banking activities in- the Philippines Actually, reserves of commercial banks far exceeded although in 1911 the Legislature had enacted a law the required amounts. Thus on June 30, 1941, providing for their examination by the Insular demand deposits totaled 95 million P, requiring a Treasurer at least once a year, reports to be made reserve of only 17.1 million P; total cash on hand to the Governor General. Apparently it was never put into effect, probably because the bulk of all The annual reports of the Commissioner reveal a bank capital in the Islands was controlled by insti- struggle with inadequate personnel (a large part of tutions which were branches of foreign banks. After which had to be devoted to the liquidation of the the Philippine National Bank encountered difficul- Mercantile Trust Company which dragged on all ties, emphasizing the lack of supervision of banks, through the 'thirties), against traditional and anti- efforts were made to establish more effective control. quated banking methods, and general lack of coop- In the late 'twenties a Bureau of Banking and Exam- eration by bankers. This was particularly true in ination was set up in the Office of the Insular the case of the building and loan associations (See Treasurer by Executive Order of the Governor page 24) which were also under the supervision of General to operate until appropriate legislation this office. The type of banking practice encountered could be enacted. is shown by reports of the Commissioner's office The Bureau of Banking in the Department of which stated that one of the associations examined Finance was created in February 1929 by act of the made excessive loans to its directors, was lax in Philippine Legislature. It was headed by a Bank collecting on loans, and that such payments as were Commissioner who was to supervise banks or any made were applied to amortization of principal and institution doing a banking business. Appeal from not to reduction of arrears of interest, that loans the decisions of the Commissioner might be made to were made to borrowers, already in arrears on old the Secretary of Finance, and from him to the Presi- loans, and that its accounting methods were poor. dent of the Philippines. The Commissioner might Another practice in which building and loan asso- not be connected with a banking institution in any ciations sometimes engaged was to make loans at a capacity (as officer, director, stockholder, etc.) and high rate of interest (11 per cent) and then withhold he was required to hold confidential any information a large part of the amount of the loan on which it received in the prosecution of his duties. Banks were allowed 2 per cent interest. Since these associations required to make quarterly reports of their condition were not authorized by law to accept deposits, this and a condensation of these statements had to be was illegal., Partly because of deficiencies in the law, published. Banks doing a business in the Islands as the Bureau of Banking made little headway in a branch of a foreign institution were required to bringing about reforms. supplement the statement of their own condition with a recent statement of the financial condition Foreign Banks of their principals. The Commissioner was to make In order to establish a branch in the Philippines, an examination of each bank at least once a year. a bank organized under the laws of the United States If a bank was found to be insolvent, the Commis- or a foreign country had to secure a license from the sioner might order it to suspend business, take over Secretary of Commerce on order from the Secretary its assets, and liquidate it. Recourse to the courts of Finance and at the recommendation of the Bank might be had to compel the Commissioner to show Commissioner. The branch was required to comply cause for such action. On the other hand the Com- with the laws and regulations applying to domestic missioner might obtain a court order to compel banking corporations of the same class,.except that compliance with his directives. Fines could be it was not necessary for it to be independently capi- imposed for refusal to permit examination but on talized. A branch of a foreign bank undertaking a the whole the law lacked sanctions. No bank might trust business was an exception (see page 17) and be incorporated, nor an existing bank establish a a further exception was made in the case of the Bank branch, without the approval of the Commissioner. of Taiwan which was required to assign capital of This portion of the law was confirmed as extending .500,000 P to its Manila office. It was provided that to the Philippine National Bank by a court decision any foreign banking corporation which accepted in 1933. deposits payable in the Philippines had to keep Support for the Bureau came from a fee imposed assets equal to at least 90 per cent of the deposits on the banks to be paid each six months in July and so payable within the Philippines (or if outside, with January. It was assessed at 1/76th of 1 per cent of an approved trustee). Permission was given to the the average total assets during the preceding half Bank Commissioner .to suspend this rule. It was year, with a minimum of 50 P. It was provided, stipulated that residents and citizens of the Philip- however, that not more than 65,000 P could be pines who were creditors of a foreign banking cor- collected in such fees in the aggregate in any one poration doing business there had a prior lien on year, and if the assessments exceeded this amount its assets. the fees were to be reduced pro rata which was The total permissible liability of one individual, usually the case. A number of banks refused to pay firm, or corporation to a foreign bank branch was the assessments, and the arrears to December 31, different from that of domestic banks. It was 1938, totaled 201,178 P of which 19,834 P was due restricted to 5 per cent of the average deposits for from the Manila Office of the National City Bank. the previous year plus 15 per cent of the amount The courts upheld the constitutionality of this- sec- due by the branch to the home office and branches. tion but made an exception of the National City on A like indebtedness might be incurred in addition the ground that, as an instrumentality of the Federal by a single borrower provided it was secured by Government it was not subject to taxation by a documents covering readily marketable staple political subdivision. During the first quarter of commodities. 1939 the remaining arrears were collected. Foreign banks operating in the Philippines did not establish a capital account, except to qualify or other form of draft, and to other documentary for conducting a trust business. However, a formula stamp taxes. Mutual savings banks or associations was provided for determining their capitalization were exempt from the tax on capital. as a basis for the tax on bank capital (see below) to which they as well as banks incorporated domesti- Bank Operations cally were liable. Under the law the total amount Commercial bank operations in the Philippines of the capital of the parent bank, the net earnings of fell into two distinct groups: those involving the the preceding six months, and the total net earnings financing of foreign trade, and those concerned with from the bank's business in the Philippines was to domestic trade. Native Filipino capital played an be ascertained. The proportion of the bank's capital important role through that characteristic feature, considered as being employed in the Philippines was the Government-owned corporation (the Philippine that which corresponded to the proportion which National Bank), but private Filipino banking inter- net earnings in the Philippines bore to tbtal net ests were small. Since the Chinese held the dominant earnings. In no event, however, might a branch of place in retail trade-a place encroached on to some a foreign bank be considered as being capitalized at extent only after the middle 'thirties by the Japa- less than the minimum required for domestically nese-it was the Chinese capitalized banks which incorporated banks operating in the same locality. financed the resident Chinese wholesaler and mer- chant, the latter in turn providing credit to the Trust Corporations small Filipino cultivator and producer. The private Commercial banks might take on a trust business money lender also figured prominently. if they met the requirement for capitalization: Credit was granted chiefly on a personal basis, the 500,000 P in cities of 200,000 population or over, lender having intimate knowledge of his client's and 250,000 P in places with less than 200,000 business, and there was little use of commercial inhabitants. Trust business had to be kept separate paper in the western sense. This was one of the from other bank business. Trust funds might be reasons why foreign banks-unfamiliar with the loaned or invested in accordance with the laws gov- techniques-did not invade the dbmestic field to any erning loans and investments of savings banks (see great extent. Lack of suitable paper also explains in page 23). Although no bond for the performance of part the absence of a rediscount market. One com- their trust was required, those undertaking such mon type of accommodation in the Philippines, as business had to deposit with the Treasurer of the in some other oriental countries, was the grant of Philippines securities or cash of not less than 100,000 an overdraft secured by a "quedan." These were P, or more at the discretion of the Bank Commis- pledges of stored commodities without transfer of sioner. title, and thus were not negotiable warehouse receipts. Their value depended largely on the good Consolidated Statement of Trust Companies and faith of the borrower as the merchandise might be Commercial Banks Doing a Trust Business, June 30, 1940 removed and sold or substitutions made so that the Assets: Thousand Pesos bank's "collateral" could disappear entirely. It was Stocks and bonds...... 6,872.7 for this reason that some banks operated their own Real estate...... 4,915.1 warehouses. Notes and mortgages...... 1,036.5 Cash on hand and in banks...... 1,165.0 The Chinese were not only a chief source of Miscellaneous ...... 484.3 domestic commercial credit, but. also, financed a Total ...... 14,473.6 large part of the foreign trade with China. The Liabilities: Japanese institutions, in addition to providing bank- Court trusts...... 3,079.6 ing facilities for local Jap residents,. handled trade Corporate trusts...... 159.1 with their homeland. The chief export crops, how- Private trusts...... 11,234.9 ever, were financed by western bankers represented Total ...... 14,473.6 by the foreign bank branches. They concentrated on foreign trade financing and foreign exchange trans- Bank Taxes actions, with some deposit and.personal loan activi- Banks were subject to certain special taxes in ties among European or American residents of the addition to normal corporation taxes and fees. These Philippines. included a tax of 1/24 of 1 per cent per month on The banks in operation in 1941 are discussed the capital of the bank, 1/18 of 1 per cent per month individually beginning on page 12. The table below on the average amount of deposits, and 1/12 of 1 compares for two dates combined balance sheet per cent on the circulating notes of banks entitled figures for loans and investments of all banks in the to issue them. These taxes became due every six Philippines (excluding agencies of the Philippine months. The last tax, of course, had applied only to National Bank). Neither the small amount of the Bank of the Philippine Islands and the Philip- domestic bills purchased nor the relatively large pine National Bank. When the latter transferred the total of foreign bills is surprising, in view of what liability for its notes to the Treasurer of the Com- has been said about practices in the. Philippine monwealth (see page 5), the tax ceased to be levied. money market. The importance of overdrafts as a These taxes were in addition to fees and penalties form of advance is evident. The absence of a market previously mentioned, and to a documentary stamp for fixed interest securities other than government tax of 2 centavos paid by the drawer on each check obligations (useful as part of required reserves) is also demonstrated by these figures. Nor was there for fixed deposits on which interest would be allowed much greater interest in stocks of domestic cor- ranged from 100 P to 500 P with no maximum limit. porations. The small sum reported was primarily Interest rate scales for 1940 are shown in the table investments of the Philippine National Bank in below. Government corporations. Interest Rates allowed on deposits and charged on loans, Classification of Loans, Discounts, and Other Advances and Year ending June 30, 1940 Investments of All Banks, Exclusive of Agencies of the Philippine National Bank In Manila In Provinces Mini- Maxi- Mini- Maxi- Dec. 31, June 30, mum mum mum mum 1936 1940 (Per Cent) (Thousand Pesos) _~ - I On deposits: Loans, Discounts, and Advances Current account...... 1 .... 1 Loans and discounts: Savings ...... 2.5 3.5 2 2.25 Two-name paper...... 5,843.1 10,630.7 Time...... 5 5 .5 2.5 Single name paper...... 1,212.9 1,920.4 Paper secured by collateral...... 19,909.8 26,460.9 On loans: Secured by real estate mortgage, etc...... 32,877.0 46,534.2 Overdrafts...... 5 12 5 12 Bills purchased (commercial) : Demand loans...... 5 12 5 12 Domestic...... 417.6 543.6 Time loans...... 5 12 5 12 Foreign...... 16,184.5 26,835.3 Mortgage loans..... 7 12 6 10 M iscellaneous...... 462.4 Crop loans...... 6 7 6 7 Total ...... 76,444.9 113,387;4 Bills discounted: Overdrafts : Domestic...... 5 12 5 12 Foreign...... 5 9 5 9 Secured by real estate mortgage...... 30,288.5 39,230.3 With personal guarantee...... 2,288.8 3,173.1 By other securities...... 41,606.4 42,524.5 Temporary...... 6,183.2 8,542.9 Individual Domestic Banks Total ...... 80,366.9 93,470.9 Philippine National Bank Investments Established in 1916 by special legislation with Bonds, notes and debentures: U. S. Government bonds ...... 19,990.8 7,388.5 capital of 20 million P from government funds, to U. S. State and municipal bonds...... 17,010.5 2,972.1 break the virtual monopoly of foreign trade financ- Philippine Government bonds...... 15,279.4 15,923.6 Bonds of domestic corporations...... 1,032.4 212.8 ing by the British, this Bank was made the sole Bonds of foreign corporations ...... 515.7 189.0 Stocks and corporate certificates: depositary of the Government. A thoroughgoing Domestic corporations...... 2,732.6 3,242.8 reorganization of the bank became necesary when it Foreign corporations ...... 15.9 17.3 Obligations of foreign central governments: was discovered that the Exchange Standard Fund Bonds...... 20.9 Other securities...... (then known as the Gold Exchange Fund) had been Miscellaneous bonds and other securities...... 8.3 '5.5 dissipated. Operations through the Fund, which had Total...... 56,606.4 29,951.6 come under the control of the Bank, had been so from dollar Interest Rates managed that the assets were converted exchange into long-term loans for speculative char- The usury law set 6 per cent (originally 12 per acter in the Islands. The crisis was brought on when cent) as the rate of interest which might be charged a heavy demand for-dollar exchange could no longer for the loan of money in the absence of an express be met. This not only compromised the Insular contract. The highest permissible rate in the case of Treasury's position and affected the exchange value loans secured by real estate mortgages was 12 per of the Peso, but the Bank also suffered heavy losses cent while the maximum allowed for other loans on its own account. In 1924, a rehabilitation was .was 14 per cent. This was defined to include com- effected by the Government when the Bank's capital, missions, premiums, and other items which previ- which had been raised to 50 million P, was reduced ously had been .added (particularly by building and to 10 million P.1 Government deposits were written' loan associations, see page 24) to the stipulated rate off the books and government stock holdings were of interest. The element of risk involved in the exten- cancelled. The Government was to be reimbursed sion of credit in the Philippines was sufficiently great from the Bank's profits and from the salvage of bad to keep the level of interest rates relatively high debts. The status of the rehabilitation account on even in periods of easy money. This is illustrated June 30, 1940, is shown in the table on page 14. by the considerable spread between maximum and Despite the unfortunate start, the National Bank minimum rates charged in 1940. There is no infor- later made favorable progress, although it frequently mation on the volume of business done at the various had to engage in activities not usually considered rates. Commercial accommodations (generally over- within the province of commercial banks. In some drafts) were negotiated at lower rates of interest respects, it operated like a central bank coming to than real estate loans. the aid of other domestic banks and extending credit Practice differed among the banks in regard to in- to the Government. It was also used as an instru- terest paid on deposits. In the case of demand depos- ment for .carrying out Filipino national policy. One its, the minimum balance on which interest was paid aspect of this policy was the encouragement of Fili- ranged between 1,000 P and 3,000 P. In the case :of pino agricultural and industrial enterprise. Financ- savings deposits, some banks set a minimum of 10 P ing of these enterprises was arranged to some extent while others paid on any balance. The maximum through the National Loan and Investment Board

savings balance on which interest was paid varied SDuiring 1938, the surplus account reached 10 million P thus meeting between 10,000 P and 100,000 P while some banks the requirements of the charter with respect to the accumulation of this account. Thereafter annual profits might be devoted entirely to other paid on deposits up to any amount. The minimum uses. but often the Bank made long-term investments out loans made by the bank, securities in appropriate of keeping with its activities as a commercial bank. stipulated amounts to be deposited with the Treas- The report of the National Economic Council in urer of the Philippines. A small amount of such 1938 recommended separation of its investment from bonds was issued in the early 'thirties. The amount its commercial banking activities and led to the outstanding reached a peak of 1.2 million P by creation of the Agricultural and Industrial Bank (see December 31, 1932. These bonds were redeemed sub- page 20). After this bank began to function in 1939, sequently and none were outstanding in 1941. Fur- the National Bank operated along more strictly ther assistance to agriculture might be extended in commercial lines, although its authorization to ex- the form of loans secured by harvested and stored tend long-term agricultural credit and to issue real crops up to 70 per cent of their market value on the estate bonds remained on the legislative books. day of the loan. Such loans were to be for no more The Bank was administered by a board of nine than 3 months with the right to renew for a further directors elected by the stockholders. Since the Gov- three months' term on the Bank's discretion. Loans ernment held almost all the stock, the directors on standing crops might be made up to %ths of their were in fact government appointees. The President value. of the Philippines was empowered to delegate the The charter gave the Bank further special author- voting rights. Directors might not be associated in izations and imposed further restrictions which set any capacity with any other banking institution. it apart from ordinary commercial banks. The Bank The Act creating the Bank provided for a chairman might make one-year renewable loans to provincial of the board to be chosen by the members from or municipal governments or other civil divisions among themselves, for a president and at least one in the Philippines against promissory notes guaran- vice-president to be appointed by the board of direc- teed by the Commonwealth Government. Although tors with the "advice and consent" of the President documentary bills of exchange might be discounted of the Philippines. The Auditor-General of the Is- in full, other collateral had to exceed by 30 per cent lands was the ex-officio auditor for the National the value of the loan. As in the case of other com- Bank, and was required to submit quarterly reports mercial banks, the total liability to the Bank of a to the Government. In addition the Bank was spe- natural or legal person was limited to 15 per cent of cifically subjected to examination by the Bank Com- the Bank's unimpaired capital and surplus. How- missioner. ever, in contrast "to other banks for which, under In 1941, the chairman of the board of directors certain circumstances a maximum of 30 per cent was Jose Abad Santos, the Secretary of Justice. The might be lent to one individual (see page 9), in the vice chairman of the board and president of the case of the National Bank the maximum was 25 per Bank was Vicente Carmona, and the secretary was cent. The Bank was permitted to invest 10 per cent Eulogio Reyes. The members of the board included of its paid-in capital in the shares of a banking insti- Jorge B. Vargas, Secretary to the President of the tution incorporated under the laws of the United Philippines who was later head of the Executive States. (This was to permit the incorporation of the Committee under the Japanese, and first Ambas- New York agency but was never done.) The Bank sador of the Republic to Japan. Other members might guarantee bonds issued by a corporation for were: Rafael R. Alunan, Secretary of the Interior; the purpose of expanding or improving industrial Benigno S. Aquino, Secretary of Agriculture and installations intended for the processing of Philip- Commerce; Eulogio Rodriguez, Mayor of Manila; pine products. It might purchase the bonds of the Guillermo Gomez, Under-Secretary of Finance; and National Development Company, and together with Victor Buencamino, manager of the Rice and Corn that organization was directed to build and main- Corporation. tain bonded warehouses for the storage of commod- In addition to giving the Bank authority to engage ities against which it made loans. in general banking activities as defined in the Cor- In addition to the funds of the Commonwealth poration law, the Act carried certain special provi- Government and political sub-divisions in the Phil- sions. The Bank might make real estate loans for ippines which were required to be deposited with the agricultural purposes in an aggregate amount not to Bank, it might hold deposits for individuals, firms, exceed 75 per cent of its capital and surplus, utiliz- and corporations. It was required ,to hold the same ing for this purpose the proceeds realized from the reserve against these deposits as other commercial sale of real estate bonds. Such loans might be up to banks. 60 per cent of the value of the underlying property, The Philippine National Bank established which was to be hypothecated to the Bank. The branches and agencies throughout the Islands. Other loans might be for a term of not less than one year banks were little interested in provincial business, nor more than 30 years; interest was to be paid and there were few bank branches outside of Manila. semi-annually, but periodic amortization was not The branches of the National Bank were fully necessary. On June 30, 1940, the Bank had 9.5 mil- staffed banking offices with a considerable degree of lion P of real estate mortgage loans outstanding. The autonomy in their operations. Agencies were created Bank might issue real estate bonds in an aggregate with the Provincial Treasurers, municipal treasurers sum not more than 90 per cent of the total real estate acting as sub-agents, and they did not have a full- T'he Government held shares with a combined par value of 9,874,700 time trained banking staff. Hence their activities P out of a total of 10 million P issued. Government funds were avail- more able to repurchase the remainder of the stock held by the public, and were restricted, many of them acting solely as the charter' prohibited further p'xblic sal'e after 1924. paying and receiving tellers. Until 1933, there were only 13 agencies; in that year a number of additional in 1852. The capital, set originally at 400,000 P, agencies were opened and some were authorized to was raised several times, the final increase under the grant loans in a limited amount. In 1941, branches Spaniards being to 3 million P in 1896. Under Span- and agencies of the bank were located in the follow- ish rule the Governor General exercised supervision ing places: over this bank, approved the members of the elected board of directors, and appointed one inspector to Philippine National Bank serve with them. After 1896 the Spanish administra- Branches and Agencies Branches at: tion reserved the right to borrow from the Bank Bacolod Davao free of interest for six months in each year any sum Baguio Iloilo not in excess of one-third of the bank's paid-in Cabanatuan (Nueva Ecija) Legaspi (Albay) Cebu Lucena (Tayabas) capital at the time of the loan. Dagupan (Pangasinan) Tarlac (Tarlac) .The bank was authorized to discount drafts and Agencies at: Bangued, Abra Boac, Marinduque promissory notes, to grant secured loans to indi- Butuan, Agsaun Masbate, Masbate viduals (including loans on farms), to handle gov- Albay, Albay Calapan, Mindoro San Jose, Antique Bontoc, Mountain Province ernment funds, accept deposits, and draw drafts. Balanga, Bataan Cabantuan, Nueva Ecija Batangas, Batangas Bayombong, Nueva Vizcaya It was not permitted to make advances on ships or Tagbilaran, Bohol Oroquieta, Occidental Misamis cargoes or to engage in exchange transactions. It was Malaybalay, Bukidnen Cagayan, Oriental Misamis Malolos, Bulacan Bacolod, Occidental Negros also authorized to issue notes up to three times the Tuguegarao, Cagayan Dumaguete, Oriental Negros amount of its capital, and no other bank with a Daet, Camarines Norte Puerto Princess, Palawan Naga, Camarines Sur San Fernando, Pampanga capital of less than 20 million P might issue notes. Capiz, Capis Lingayen, Pangasinan Cavite, Cavite Pasig, Rizal The Administrative Code required that a sum equal Cebu, Cebu Catbalogan, Samar to at least 25 per cent of the deposits, current ac- Cotabato, Cotabato Sorsogon, Sorsogon Laoag, Ilocos Norte Jolo, Sulu counts, and notes in circulation be held in cash. Vigan, Ilocos Sur Surigao, Surigao This charter was reaffirmed Iloilo, Iloilo Tarlac, Tarlac (with certain exceptions, Ilagan, Isabela Lucena, Tayabas see page 5) for a 40 year period (to January 1, Santa Cruz, Laguna Iba, Zambales Dansalan, Lanao Zamboanga, Zamboanga 1943). San Fernando, La Union New York, New York After American occupation and in 1912 the name Tacloban, Leyte was changed to-its present form. The bank's capital Philippine National Bank. (authorized at 10 million P) was increased twice: Comparative Balance Sheets to 4,500,000 P in 1912 and to 6,750,000 P in 1919. In Dec. 31, June 30, 1931, the bank's charter was again renewed and 1930 1940 some changes made. One provided for the gradual (Thousand P) retirement of its notes, and the deposit of yearly sums with the Treasurer of the Philippines to re- Assets: Loans and discounts...... 53,727.5 72,479.2 deem those still outstanding (see page 5). The bank Overdrafts...... 6,570.3 10,918.4, was required to keep a reserve fund equal to not Customers' liability on acceptances...... 790.1 1,932.4 Stocks, bonds, etc...... 13,746.9 24,122.1 less than 15 per cent of its capital stock issued and Premises, etc...... 109.8 2,242.6 Other real and chattel property owned...... 2,498,7 2,782.4 outstanding. This was in addition to the 25 per cent Due from banks...... 10,008.8 12,671.8 reserve against the currency, and the reserve against Cash ...... 5,344.6 15,996.1 Checks and other cash items...... 462.0 68.8 deposit liabilities, set at 20 per cent in the charter Other assets...... 57.3 .899.6 but by agreement actually conformed to that re- Total:...... 93,316.1 144,113.5 quired of other commercial banks-18 per cent of Liabilities: Capital ...... 10,000.0 10,000.0 the demand and 30-day time deposits. Surplus ...... 6,037.1 10,000.0 In exchange for renunciation by the bank of the Reserves...... 3,399.7 6,771.4 Undivided profits ...... 20.3 exclusive note issue privilege, the Government of the Bank notes outstanding...... 9,515.9 Due to banks...... 1,541.4 5,741.8 Philippine Islands renounced all rights to appoint Cashier's etc. checks...... 480.8 2,190.8 officers of the bank or to interfere in its administra- Demand deposits...... 9,261.3 15,747.3 Savings and time deposits...... 13,637.0 19,638.9 tion except for the regular examinations and super- Public deposits ...... 35,361.6 62,978.3 vision by the Bank Commissioner, and also all loan Other liabilities...... 4,081.3 11,024.6 Total...... 93,316.1 144,113.5 rights which might have been inherited from the Spanish Administration under the terms of the RehabilitationAccount, June 80, 1940 Treaty of Paris. Thousand Pesos The operations of the bank covered a wider field Total repayment during the year...... 2,696.8 Repayment in former years...... 31,488.1 than under the earlier charters. In addition to dis- Total ...... 34,184.9 counting' bills of exchange (6 months) and promis- Total repayment required...... 61,951.9 sory notes (1 year), and making advances on drafts, Balance due...... 27,767.0 it might negotiate and draw bills of exchange both Bank of the Philippine Islands domestic and foreign, make loans on bills of lading Although a Royal Spanish decree of 1828 ordered up to 75 per cent of the current market value of the that a bank be established in the Islands with funds goods covered, and make loans on vessels (1 year) of the Caja de Comunidad de- Indias, it was not up to 50 per cent of the value of the ship, the aggre- until 1851 that a provisional board was installed for gate of such loans not to exceed 10 per cent of the an institution to be known as the Banco Espanol paid-up capital of the bank. Loans on real estate Filipino de Ysabel 2nd, and operations began only (covered by a marketable title) might be granted up to 50 per cent of the value of the hypothecated prop- People's Bank and Trust Company erty, but the total of such loans might not exceed This bank was founded chiefly by American capi- 20 per cent of the bank's paid-up capital. Unsecured tal,, and devoted a large part of its resources to loans might not run for more than 90 days. Agricul- financing certain American concerns. After the min- tural loans (not to aggregate more than 40 per cent ing boom got under way in the mid-'thirties it made of the bank's capital) might be for as long as five a considerable volume of loans and advances on years. In addition to buying and selling securities mining stock. It engaged only in a small way in the bank might make loans on readily marketable foreign trade financing. stocks and bonds up to 75 per cent of their value; In 1941, J. W. Haussermann, was president (presi- in certain instances the maximum loan value might dent also of several mining companies) and W. reach 90 per cent. Douglas, manager. Other members of the board of The Bank of the Philippines was required by its directors were HI J. Belden, Amos G. Bellis, A. A. charter to publish monthly condition statements Bryan, and R. I. Fitzsimmons. The bank had pro- and report to the Banking Commissioner at least vincial branches in San Pablo, Laguna Province; five times a year. This was a rather more stringent Baguio, Mountain Province; Tarlac, Tarlac Pro- requirement than was made of other banks (see vince; and San Fernando, Pampanga. On Septem- page 10). ber 30, 1941, it had total assets of 11,971,974 P and In 1941, the president of the bank was Pedro J. capital, surplus, reserves, and undivided profits of Campos and the vice-presidents were Santiago 1,362,256 P. Freixas and Rafael Moreno. Members of the board of directors were: Luis Ablaza former Examiner People's Bank and Trust Company of Comparative Balance Sheets the Bureau of Banking, who was managing director of the Monte de Piedad, and a director of the Philip- Dec. 31, June 30, 1930 1940 pine Trust Company; Jose Araneta, a director of the Monte de Piedad; and E. J. Deymek, president of (Thousand P) the Monte de Piedad and a director of the Philip- Assets: Loans and discounts ...... 2,371.7 2,512:7 pine Trust Company. Other directors were Manuel Overdrafts ...... 2,977.7 3,020.8 Elizalde, Adrian Got, Jose de Leon y Joven, and Customers' liability acceptances ...... 417.2 207.9 Stocks, bonds, etc...... 410.8 1,181.1 Enrique Zobel. There were branches at Cebu, Iloilo, Premises, etc...... 153.3 75.7 and Other real and chattel property owned...... 12.0 1.0 Zamboanga. Due from banks...... 516.4 1,272.9 In 1940, the latest date for which comprehensive Cash...... 651.5 2,438.8 Checks and other cash items...... 67.2 71.1 balance sheet details are available, the bank was Other assets...... 68.9 533.7 the third largest in the country having total assets Total ...... 7,646.7 11,315.6 only slightly less than the Hongkong and Shanghai Liabilities: Banking Corporation which followed at some dis- Capital...... 1,000.0 1,000.0 Surplus ...... 125.0 225.0 tance behind the Philippine National Bank. Most Reserves ...... 16.9 9.4 Undivided profits...... 21.8 77.0 of its business was in overdrafts but it held a large Due to banks...... 150.7 105.8 volume of savings and time deposits. This is shown Cashier's, etc. checks...... 11.4 36.0 Demand deposits ...... 2,988.7 5,397.1 on the balance sheets below. Savings and time deposits ...... 3,099.5 4,175.0 Bank of the Philippine Islands Other liabilities ...... 232.6 290.4 Total...... Comparative Balance Sheets 7,646.7 11,315.6 Dec. 31, June 30, June 30, Philip'pine Trust Company 1930 1940 1941 This bank concentrated on the financing of mer- (Thousand P) chants and Catholic institutions. It was backed by Assets: American capital and managed by American per- Loans and discounts...... 4782.1 7,176.7 223,902.33 Overdrafts...... 17,336.9 16,733.2 } ,92.3 sonnel, but it appears that it was not too strict in Customers' liability acceptances. 978.7 1,104.1 1}47 its observance of sound banking practice.. At one Stocks, bonds, etc...... 2,829.5 811.6 1,473.8 Premises, etc...... 836.9 858.8 ) time, for instance, about one-third of its total loans Other real and chattel 1,098.3 property owned...... 282.7 361.8 1 were in the form of unsecured, non-interest-bearing Due from banks...... 5,899.1 3,105.4 advances to the Archbishop of Manila. It engaged Cash ...... 4,018.5 7,684.8 9,715.7 Checks and other casn items... 31.5 38.4 ) in ordinary commercial banking operations in addi- Other assets ...... 3,021.9 566.8 1,248.2 tion to doing a trust business. It was connected with Total...... 40,017.8 38,441.6 37,438.3 the Fidelity and Surety Co. of the Philippine Is- Liabilities: Capital ...... 6,750.0 6,750.0 6,750.0 lands which handled fire, life, and marine insurance. Surplus ...... 1,012.5 1,687.5 1,703.5 E. B. Ford was president and P. M. Poblete vice- Reserves ...... 200.0 1,601.4 1,650.0 Undivided profits ...... 35.2 11.1 1 president in 1941. It had a number of agencies in Bank notes outstanding...... 7,441.4 1,624.6 1,380.6 Due to banks...... 1,715.4 1,118.5 988.8 the Manila area such as at Fort Mills and Fort Cashier's, etc. checks...... 365.3 458.9 1 Stotsenberg. Dividends nayable...... 1.1 239.5 236.3 Demand deposits...... 8,412.2 8,485.0 Bank of Commerce Savings and time deposits...... 12,041.2 15,701.9 . 23,856.3 Philippine Deposits of public funds...... 362.7 283.9 This bank was established in June 1938 with Bills payable...... 10.5 9.3 1 Other liabilities...... 1,670.4 469.9 872.7 authorized capital of 2 million P and paid-in capi- Total...... 40,017.8 38,441.6 37,438.3 tal of 500,000 P. The president was Miguel Cua- 1 Included in "Other liabilities". derno, Sr., formerly vice-president of the Philippine Philippine Trust Company provided the Chinese with a financial outpost in Comparative Balance Sheets what was (because of the Exchange Standard Fund) Dec. 31, June 30,l June 30, to all intents and purposes a dollar area. Thus, under 1930 1940 1941 United States Treasury orders controlling: transac- (Thousand P) tions with China, remittances could be made through

Assets: the Philippine Bank of Communications as an "ap- Loans and discounts...... 2,710.8 4,821.0 6,345.5 pointed" bank. (These were designated by the Cen- Overdrafts...... 1,417.4 2,371.2 j 6,345.5 Customers' liability acceptances 274.8 246.5 tral Bank of China to accept oversea remittances to Stocks, bonds, etc...... 1,387.2 1,561.4 1,609.6 be credited to the account of the Stabilization Board Premises ...... 22.5 38.2 51.5 Other real and chattel of China with the Central Bank of China.) Since property owned...... 115.1 71.7 1 Due from banks ...... 959.8 989.0 1,674.7 the balance sheets given below are for a date no later Cash...... 626.5 937.3 1,201.0 than June 1940, they do not reflect transactions Checks and other cash items.. 10.0 29.4 1 Other assets...... 59.8 109.9 302.1 carried out under these arrangements. Total...... 7,584.0 11,175;7 11,184.3 Articles of incorporation for this bank were ap- Liabilities: plied for by Sooyii K. Shen, Huai-Tuck Chang, Capital ...... 1,00.0 1,000.0 1,000.0 Surplus ...... 25.0 200.0 350.0 Tsae-Tsin Linn, Tsai-Ming Cheng, and Pei Yuan Reserves ...... 329.5 319.0 Ho. Presumably these were all Chinese residents in Undivided profits...... 103.7 79.9 Due to banks...... 54.7 35.4 1 the Philippines. When the bank began operations on Cashier's, etc.checks...... 9.0 43.3 1 Demand deposits ...... 2,145.4 2,995.3. 9,291.5 September 4, 1939, the president was Chengting T. Savings and time deposits..... 4,075.8 6,343.2 1 Wang. Bills payable.. 5.7 1 143.9 Other liabilities...... 274.0 119.6 Philippine Bank of Communications 11,175.7 11,184.3 Total...... 7,584.0 Comparative Balance Sheets 1Not given separately. Sept. 30,1 June 30, National Bank, and the vice-president Alfonso 1939 1940 chairman of the Calalang. Nicanor Jacinto was (Thousand P) board of directors, the membership of which in- Assets:Loans cluded, in addition to the officers just named, Jose and discounts...... 494.0 559.7 Cojuangco, Vicente Rufino, Antonio Cojuangco, Overdrafts...... 12.7 150.8 Customers' liability acceptances...... 326.1 Arsenio J. Jison, and Lorenzo Sumulong. Stocks, bonds, etc ...... 419.1 347.1 Premises...... 5.6 35.8 Philippine Bank of Commerce Other real and chattel property owned...... Comparative Balance Sheets Due from banks...... 2,396.4 2,592.3 Cash...... 1,601.1 3,630.8 Dec. 31,1 June 30, June 30, Checks and other cash items...... 97.9 48.4 1938 1940 1941 Other assets...... 135.1 385.0 Total ...... 5,161.9 8,076.1 (Thousand P) Liabilities: Capital...... 2,000.0 2,000.0 Assets: ...... 623.8 1,001.5 Surplus ...... Loans and discounts ...... S2,099.6 Reserves ...... 64.8 Overdrafts...... 245.1 628.2 111.7 84.8 703.7 445.8 Undivided profits ...... Customers' liability acceptances 2 Due to banks ...... 42.2 339.3 Stocks, bonds,. etc...... 2.0 5.6 14.0 13.8 Cashier's, etc. checks...... Premises, etc...... 9.7 Demand deposits...... 405.6 562.8 Other real and chattel Savings and time deposits...... 2,572.0 4,433.3 property owned...... 777.8 Other liabilities...... 140.2 558.6 Due from banks...... 783.1 805.3 Cash ...... 381.5 495.9 645.1 Total...... 5,161.9 8,076.1 Checks and other cash items... 2.3 1.2 S2 Loss...... 19.2 IBegan operations September 5, 1939. Other assets...... 11.1 14.2 9.7 Total...... 2,160.5 3,636.5 4,019.3 China Banking Corporation Liabilities: This bank was established in 1920 by local Chi- Capital...... 500.0 611.8 617.8 Surplus...... nese capital. It specialized in financing Chinese retail Reserves...... 4.3 12.1 14.7 trade within the country, and foreign trade with Undivided profits...... 26.2 45.8 Due to banks...... 25.0 83.6 1.7 China, and in remitting funds for immigrants. To Cashier's, etc. checks...... 18.0 15.6 17.4 facilitate this business it maintained a branch in Demand deposits...... 963.2. 1,767.5 2,108.3 Savings and time deposits...... 389.8 937.7 862.2 Shanghai, and one in Kulangsu, Amoy. It was the Bills payable...... Other liabilities ...... 260.0 181.9 351.3 fifth largest bank in the couhtry. On June 30, 1941, Total...... 2,160.5 3,636.5 4,019.3 it reported total resources of 41,787,400 P with paid- 1 Began operations July' 1938. in capital of 5,713,300 P out of 10 million P author- 2 Not given separately; included in "other assets." ized. This figure for total assets is not comparable Philippine Bank of Communications with that for the previous year shown on the bal- This bank, an affiliate of the Bank of Communi- ance sheet below as it is believed to include some cations controlled by the National Government in "contra" items which were excluded from the 1940 China; was established in 1939. Although actually data. a branch of the parent bank in Chungking, its incor- In 1941, it was headed by Dee C. Chuan as presi- poration in the Philippines gave it the status of a dent and Albino Z. SyCip as vice-president and foreign bank so far as Chinese .laws were concerned, manager. In addition to these officers the board of and a "domestic" bank according to Philippine law. directors included Oei Tjoe, Uy Yet, Chong Su See, With the existing disturbed political and financial Marcelo Nubla, Li Seng Giap, H. L. Huang, Tsuyee situation, this was a most useful position since it Pei, G. Dy Buncio, and Dee Kee Chiong. China Banking Corporation below), it concentrated on foreign trade and ex- Comparative.Balance Sheets Dec 31 ue0 change financing. It was the second largest bank in Dee. 31, June 30, the country in 1940. 1930 1940 The chief source of the bank's operating funds was (Thousand P) advances from the head office in Hongkong, al- Assets: though deposits were not insignificant. Until the Loans and discounts...... 6,165.7 4,777.5 'thirties the bank had no "assigned" capital but in Overdrafts...... 4,478.5 2,825.5 Customers' liability on acceptances...... 1,211.5 9,458.1 1938 this was set at 1 million P which was neces- Stocks, bonds, etc...... 277.9 605.1 sary in order to Premises, etc...... 726.4 679.2 comply with the law governing Other real and chattel property owned...... 31.0 317.8 corporations doing a trust business for which the Due from banks ...... 5,445.4 11,151.7 Cash...... 1,535.7 2,941.0 bank received authorization in July 1938. This capi- Checks and other cash items...... 227.0 98.5 talization was quite out of proportion to its total Other assets...... 192.7 625.2 assets of over Total...... 20,291.9 33,479.6 40 million P. The ability to draw on Liabilities: the head office for needed funds likewise was re- Capital ...... 5,713.3 5,713.3 flected in the amount of cash held; this was smaller Surplus...... 526.5 1,418.0 Reserves...... 170.5 1,368.0 in relation to total assets than was the case for Undivided profits ...... 415.0 1,388.0 "domestic" banks in the Islands. The bank opened Due to banks...... 311.7 5,491.7 Cashier's. etc. checks...... 53.6 238.0 current accounts in Pesos, and accepted fixed de- Demand deposits...... 4,950.9 5,342.4 Savings and time deposits...... 7,920.5 9,116.7 posits in sterling and dollars as well as in Pesos. Bills payable...... 42.9 In 1941, the Manager at Manila was C. Farns- Other liabilities ...... 229.8 3,360.7 worth, while Total...... 20,291.9 33,479.6 C. G. Adams handled the agency in Iloilo. There was also a correspondent office in Cebu. Bank of the Commonwealth Hongkong and Shanghai Banking Corporation This bank began operations in March 1937 as a Philippine Offices savings and mortgage bank under the name of the Comparative Balance Sheets Savings Bank of the Commonwealth. It had an Dec. 31, June30, authorized capital of 1 million P of which 200,000 P 1930 1940 were paid in at the time of incorporation. In 1939, the paid-up capital was increased to 500,000 P (Thousand P) (the minimum for a commercial bank doing Assets: business Loans and discounts...... 763.1 .4,200.4 in Manila) and permission was granted for its con- Overdrafts...... 18,084.8 35,615.2 Customers' liability acceptances...... 2,561.6 3,273.2 version into a commercial bank. At the same time Stocks, bonds, etc...... 307.2 the name was changed. The president and general Premises, etc...... 1,200.0 Other real and chattel property owned...... 51.0 manager was Vicente Villanueva, and the vice- Due from banks...... 8,622.3 452.2 president Cash ...... 908.3 2,783.4 was R. F. Navarro. Its operations were on Checks and other cash items...... 79.1 64.2 a small scale only. Other assets ...... 1.0 14.9 Total...... 31,020.1 47,961.6 Bank of the Commonwealth Liabilities: Comparative Balance Sheets Capital...... 1,000.0 Surplus...... Dec. 31,1 June 30, Reserves...... 1,379.7 1937 1940 Undivided orofits...... 250.0 Due to banks...... 24,180.0 30,842.4 (Thousand P) Cashier's, etc. checks...... 15.5 78.6 Demand deposits...... 2,106.6 8,101.0 Assets: Savings and time deposits...... 2,820.4 5,623.0 Loans and discounts...... 100.9 Bills payable...... 216.6 34.2 276.5 Other liabilities...... 301.4 Overdrafts ...... 435.6 2,032.5 Customers' liability acceptances...... 24.6 Total...... 31,020.1 47,961.6 Stocks, bonds, etc...... Premises, etc...... 8.8 28.0 Other real and chattel property owned...... National City Bank of New York, Philippine Offices Due from banks...... 174.5 43.8 Cash...... 20.5 74.4 Establishment of a Manila branch of this New Checks and other cash items...... 4.1 York institution was first proposed in 1926 but was Loss...... 3.7 Other assets...... 2.1 17.0 prevented when the Attorney General of the Philip- Total ...... 310.9 903.6 pines ruled that the Philippine National Bank Act Liabilities: forbidding the establishment of any other bank Capital ...... 200.0 500.0 Surplus and reserves ...... 9 using the word "National" in its title was applicable Undivided profits.,.,...... to branches Due to banks...... 24.0 of foreign banks. Subsequently, legisla- Cashier's, etc. checks ...... 2.3 tion was enacted which exempted "any national Demand deposits...... 117.5 Savings and time deposits...... 103.2 256.1 bank organized under the laws of the United States, Billspayable...... the name of which is so distinctive Other liabilities...... 6.8 3.7 that it could not Total...... 310.9 903.6 reasonably be confused with the Philippine National Bank." Thereupon, in 1930, the National City 1Began operations March 1937 as Savings Bank of the Commonwealth. Bank established a branch in Manila and a sub-branch in Branches of Foreign Banks Cebu (closed in 1934), taking over the business of Hongkong and. Shanghai Banking Corporation, Philippine Offices the International Banking Corporation (which had The Manila office of. this institution was estab- become a wholly-owned subsidiary of the National lished in 1875, and like the other British bank (see City) in those areas. With no "assigned" capital it relied for its working never was so large as its compatriot the Hongkong funds on advances from the head office and on de- and Shanghai Banking Corporation. Its business posits, of which it had a respectable amount, largely was chiefly in the form of overdrafts and accept- from the American colony. In 1940, the Philippine ances. Its deposit liabilities compared favorably with office was in a highly liquid position with over half those of other banks, and it placed relatively more of its total assets in cash and "Due from banks." reliance on these than on advances from the head The balance sheets below indicate that the bank fol- office as a source of working funds than did most of lowed a conservative accounting practice with prem- the other foreign banks. ises, real estate, and holdings of securities (in 1940) CharteredBank of India, Australia, and China entered at nominal amounts. Philippine Offices In 1941, the manager in Manila was A. D. Cal- Comparative Balance Sheets houn. Dec. 31, June 30, National City Bank of New York 1930 ' 1940 Philippine Offices Comparative Balance Sheets (Thousand P)

Dec. 31, June 30, Assets: 1930 1940 Loans and discounts ...... 542.2 695.0 Overdrafts ...... 4,704.0 10,976.5 acceptances...... 126.5 4,777.4 (Thousand P) Customers' liability Stocks, bonds, etc...... Premises, etc...... 10.0 159.0 Assets: Other real and chattel property...... Loans and discounts ...... 10,706.2 11,083.1 Due from banks...... 3,275.2 2,952.8 Overdrafts...... 6,316.7 5,932.5 Cash ...... 259.8 2,523.2 466.0 ...... Customers' liability acceptances ...... Checks and other cash items ...... Stocks, bonds, etc...... 1,147.1 1 Other assets...... 5,275.5 1,207.8 Premises...... Total ...... 14,193.1 23,291.8 Other real and chattel property ...... 58.1 3 Due from banks...... 1,326.3 11',691.0 Liabilities: Cash...... 2,143.1 7,113.6 Capital...... Checks and other cash items...... 142.4 Surplus and reserves...... Other assets...... 119.7 79.2 Undivided profits...... Total...... 21,817.1 36,508.7 Due to banks...... 4,578.1 4,901.0 Cashier's, etc.checks...... 14.7 49.5 Liabilities: Demand deposits...... 3,595.9 7,793.2 Capital ...... Savings and time deposits...... 2,107.7 4,238.8 Surplus ...... Bills 451.5 10.4 251.9 79.7 payable...... Reserves ...... Other liabilities...... 3,445.1 6,299.0 Undivided profits ...... Due to banks ...... 3,981.3 9,015.9 Total...... 14,193.1 23,291.8 Cashier's, etc. checks...... 27.2 208.8 Demand deposits ...... 5,746.3 13,590.3 Savings and time deposits...... 11,227.9 11,073.1 Yokohama Specie Bank, Philippine Office Bills payable ...... 14.9 497.5 Other liabilities...... 567.5 2,043.6 The Manila branch of this bank, the official ex- Total...... 21,817.1 36,508.7 change institution of the Japanese Government, was

1 3.00. licensed in 1918. The organization was wholly in SP 4.00. Japanese hands and the home office remained closely SP6.00. in touch with its management. (In 1940 the Man- ager was Tsuneo Yamamoto.) It concentrated on Chartered Bank of India, Australia, and China, Philippine Offices financing Japanese activities in the Islands, and Jap The Manila branch of this London bank was trade with the Philippines. After the Manchurian established in 1872, and together with the other incident, Chinese merchants, who had been the main British bank in the Islands had the sole privilege of importing Mexican dollars which gave them control Yokohama Specie Bank, Ltd. the Islands, and permitted Philippine Office of the money supply of Comparative Balance Sheets them to engage in lucrative arbitrage transactions in silver. This state of affairs persisted for a .time Dec. 31, June 30, even after the American occupation. These two 1930 1940 banks continued to enjoy a virtual monopoly of (Thousand P) financing of the Islands' foreign trade. During the Assets: First World War the British banks enforced the Loans and discounts ...... 2,768.1 3,732.2 Overdrafts ...... 380.2 3,761.3 economic warfare policy of the British Government. Customers' liability acceptances...... 80.3 238.0 the Stocks, bonds, etc...... Prior to the outbreak of hostilities between Premises, etc ...... 16.1 7.5 United States and the Central Powers, firms in the Other teal and chattel property ...... Due from banks ...... 1,427.8 1,823.8 Philippines dealt freely with nationals of countries Cash...... 575.2 668.7 Great Britain. Such firms were black- Checks and other cash iterhs ...... 23.9 17.4 at war with Other assets ...... 1.6 1.5 listed and refused credit facilities by these banks, Total...... - 5,273.3 10,250.4 a circumstance which greatly handicapped the inter- Liabilities: trade of the Islands and worked hardship Capital...... national Surplus and reserves ...... on the population. After April 1917, of course, Phil- Undivided profits ...... Due to banks ...... 3,247.5 6,520.0 ippine and American banks likewise were precluded Cashier's, etc. checks...... 16.9 30;4 from trading with the enemy. Demand, deposits...... 862.9 591.5 Savings and time deposits...... 836.0 2,323.9 The Chartered Bank's office in the Philippines Bills payable...... 3.1. 11.5 (the main office was in Manila-C. E. Stewart, Other liabilities...... 306.9 773.2 Manager-with sub-agencies in Cebu and Iloilo) Total...... 5,273.3 10,250.4

18 outlet for Jap goods imported into the Islands re- bank was granted in March 1938 upon condition that fused to handle this trade any longer. The Japanese 500,000 P be assigned as capital. The head office was then set up their own retail shops and managed to in Taihoku on the Island of Formosa where it was compete successfully with the old-established Chi- the bank of issue. Operations began on August 1, nese. They preferred, however, to do business on a 1938, under the management of T. Mitsuda. As the cash basis at the consumer level and thus did not balance sheets below show the bank functioned on a play the same role as the Chinese merchants in limited scale; it specialized in the financing of trade granting credit to small cultivators. As a larger pro- with Japan and immigrants' remittances. portion of the retail trade of the Islands passed into The Bank of Taiwan Ltd. Jap hands, the operations of the Specie Bank ex- Philippine Office panded. Thus, as the accompanying balance sheet Comparative Balance Sheets shows, total assets of the Philippines office nearly Dec. 31,1 June 30, doubled between 1930 and 1940. Although the bank 1938 1940 accepted deposits, and was the repository of savings of Japanese in the Islands, it did not cultivate this (Thousand P) business particularly. It was strictly a branch of the Assets: Loans and discounts...... 275.6 945.4 parent institution and operated on the basis of funrds Overdrafts...... 60.6 Customers' liability acceptances...... 27.9 84.7 supplied by it rather than on invested capital or Premises, etc...... deposits. This is reflected in the relative importance Other real and chattel property...... Due from banks ...... 496.0 394.2 of the item "Due to banks" on the balance sheet. Cash...... 48.5 126.8 Checks and other cash items...... Nederlandsch Indische Handelsbank, Philippine Office Loss...... 31.6 7.3 Other assets...... 224.2 20.5 A license to transact business in the Philippines Total ...... 1,103.7 1,639.5 was granted this bank, the head office of which was Liabilities: in Amsterdam, in April 1937. The manager of the Capital assigned...... 500.0 500.0 Surplus ...... Manila branch was J. M. E. Nikkels who remained Reserves...... Due to banks...... 228.1 728.9 in that post until the Japanese occupation. In 1938, Cashier's, etc.checks ...... 9 in compliance with the laws regulating foreign bank Demand deposits...... 70.7 177.4 Savings and time deposits...... 27.9 116.5 branches, 500,000 P was assigned as capital. How- Bills payable ...... ever, the bank depended primarily on advances from Other liabilities ...... 276.2 116.6 the head office for its working funds. T otal...... 1,103.7 1,639.5 This bank was temporarily handicapped 1 Began business August 1938. in 1940 2 800 when the Germans over-ran the Netherlands and P. freezing regulations were applied by the United C. Agricultural Credit States Treasury to corporations and individuals of Nazi-occupied countries. After a short time, how- In the words of the National Economic Council ever, it received a special license which permitted it report of 1936, "One of the most important and per- to continue business. sistent problems of agriculture in the Philippines is that of adequate agricultural credit. The banks can Nederlandsch Indische Handelsbank Philippine Office only give accommodation to the big sugar planters Comparative Balance Sheets and farmers, while the small landowners must de- pend partly on the rural credit associations [properly Dec. 31,1 June 30, 1937 ,1940 the Agricultural Credit Cooperative Associations] and chiefly on usurers." In a memorandum on (Thousand P) "Banking and Credit Reforms" published early in Assets: examined the problem more Loans and discounts...... 824.3 1,740.4 1939, the Council again Overdrafts...... 234.0 189.0 thoroughly. It found that there were no credit facil- Customers' liability acceptances...... 153.4 935.5 Stocks, bonds, etc...... ities for small farmers seeking loans of from 50 P to Premises...... 200 P. On loans of such small size administrative Other real and chattel property ...... Due from banks...... 1,719.8 1,685.3 costs were greater than the slight return, rendering Cash...... 213.3 210.4 Checks and other casht items ...... 6 1.5 this business unattractive to commercial banks. The Other assets ...... 25.1 17.9 Philippine National Bank could grant loans only on Total...... 3,170.7 4,780.0 real property which bore a Torrens' title-and since Liabilities: Capital assigned...... 500.0 the cadastral survey of all property in the Islands Surplus...... was far from completed this made a very large pro- Reserves,...... 4.3 Undivided profits...... portion of land ineligible. At that time the usual Due to banks...... 2,588.2 2,942.7 interest charged by banks on long-term agricultural Cashier's, etc. checks...... 7.4 9.7 Demand deposits ...... 386.1 813.5 credit was 8 per cent, but the private money lenders Savings and time deposits...... 92:0 156.6 Bills payable...... 11.2 8.0 upon whom the bulk of the small people had to de- Other liabilities...... 85.8 345.2 pend, charged from 12 to 24 per cent. Despite all the Total...... 3,170.7 4,780.0 legislation on the books to remedy these conditions, 1 Began operations April 1937. little improvement had been seen by 1941. The tradi- The Bank of Taiwan, Ltd., Philippine Office 1 Title to property covered by the cadastral survey and registered in accordance with a Torrens type land registration act which assured Permission to establish a Manila branch of this clear title. tional system which kept the peasant cultivator in and time deposits. Sums accepted for deposit might debt from one year's end to the next, continued in be invested only in bonds of the United States and force. The cultivator operated on a very slim mar- Philippine Governments (and local governments in gin; at the beginning of a season he would borrow the Philippines) or guaranteed by them, in real from the local merchant (often Chinese) to secure estate loans on agricultural or urban property, or in seed and other necessaries. Throughout the growing collateral trust bonds or notes secured by real estate season he and his family would live on credit. When mortgages which had been outstanding for at least the crop was harvested it often brought no more than three years. In addition, the National Investment was needed to settle the indebtedness, and the unfor- Board was abolished and the government funds pre- tunate circle began all over again. So widespread and viously administered by it transferred to the control ingrained was this system that something more than of the Agricultural and Industrial Bank. The amount legislation was needed to correct it. so transferred on August 19, 1939 (the date upon The following pages cover some of the institutions which the bank began operations), was 47,601,821 P. created to extend various types of agricultural credit. Appearing below is a list of these Funds and the Statistics are available, however, only for the Agri- purposes for which they might be employed. cultural and Industrial Bank. This institution has The tables below indicate the extent of the bank's been included here because the emphasis in its oper- operations on June 30, 1940, and balance sheet data ations was on this type of business although it sup- for September 30, 1939, are given on page 22. As of plied other than agricultural credit, from its own October 18, 1941, the latest date for which summary and administered funds. It may be noted that in gen- data are available, outstanding loans of the bank eral there were three types of agricultural loans: totaled 22.7 million P, of which 20.1 million P had long-term loans of from one to 30 years against been granted to agriculture, and 2.6 million P to mortgaged real estate; loans against standing crops industry. Total assets amounted to 34,111,487 P. running up to one year and usually covering a grow- The trust funds were separately administered and ing season; and three months' loans against har- there are no data concerning them later than what vested and stored crops. The lack of any real mar- is given below. ket for fixed-interest securities hampered the issu- Agricultural and Industrial Bank ance of real estate mortgage bonds, and the money Comparative Balance Sheets to be lent to agriculture had to be drawn from bank Sept. 30, . June 30, and credit association capital and deposits, and from 1939 1940 government trusts. (Thousand P)

Agricultural and Industrial Bank Assets: Loans: This bank was created in 1939, following the rec- Agricultural ...... 7,012.5 Economic Council Industrial...... 34.8 1,182.6 ommendation of the National Premises...... 2.8 45.0 that the short-term and long-term investment activ- Due from banks and National Treasury.... 30,301.4 . 23,867.8 Cash...... 6.5 3.3 ities of the Philippine National Bank be separated. Checks and other cash items...... 24.1 r 28.9 It had authorized capital of 150 million P fully sub- Loss...... 6 131.9 Other assets...... 5.7 13.8 scribed by the Government to be appropriated from Trust department accounts-contra...... 49,060.1 53,684.6 coconut oil tax refunds. Twenty-five million P was Total ...... 79,436.1 85,970.4 supplied immediately and the remainder was to be Liabilities: Capital...... 25,000.0 25,000.0 provided upon call in annual installments not to Bills payable...... 5,375.9 7,285.8 exceed 15 million P in any one year. Great hopes Trust liabilities-contra...... 49,060.1 53,684.6 were entertained that this bank would make a sig- Total...... 79,436.1 85,970.4 nificant contribution to the solution of the agricul- June 30SO,1940 tural credit problem, but it had barely begun to Loans operate before the Japanese. occupation. The bank Agricul- Industrial intended to open its own branches but had done so Total only in Iloilo and Cebu. Elsewhere it operated (Pesos) through the branches of the Philippine National Less than 5 years...... 23,320 3,776 27,096 5 to lessthan 10 years...... 1,647,952 299,723 1,947,675 Bank. 10 to less than 20 years...... 4,234,277 879,061 5,113,339 20 to 30 years...... 1,107,000 ... 1,107,000 Members of the board of directors were Begigno Total...... 7,012,549 1,182,561 8,195,110 S. Aquino (chairman), Elpidio Quirino, Roman Ozaeta, Benito Razon, Salvador Lagdameo (general Funds Subject to Investment by the Agricultural manager), Isauro Gabaldon, Maximo Rodriguez, and Industrial Bank. and Jose L: Celeste. The bank was empowered to Special conditions and limitations surrounded the grant agricultural credit (up to 30 years), industrial employment of many of these Funds, set by the loans (1 year), and real estate loans; to establish terms of the Acts creating them. In addition, the and operate a bonded warehouse; underwrite, pur- Act establishing the Bank limited to 20 per cent the chase, or guarantee agricultural and industrial bonds proportion of any Fund which might be invested in and bonds secured by real estate the proceeds of discounting notes, securities, or other such obliga- which were to be used for commercial purposes; to tions. The following Funds were administered by issue bonds secured by real estate mortgages up to the Bank: the full amount of its capital; and to accept savings Loan Fund-for loans to provinces, municipal- ities, and chartered cities at a rate not to exceed States or Commonwealth Governments, or in 4 per cent, for the construction or acquisition one-year loans on such securities, up to 80 per of permanent public improvements, and for the cent of their market value; in a loan to the payment of provincial or municipal shares of Commonwealth Government* not to exceed the cost of cadastral surveys. A maximum of 500,000 P, or in 10 year loans to provincial or 150,000 P in the case of provinces, and of 50,000 municipal governments at not more than 6 per P to other borrowers was set on a single loan; cent interest, for the construction of public im- the usual term was 10 years, but in certain provements. Various restrictions were placed circumstances this might be extended to 15 upon loans against real estate and on bonds of years. public service corporations, intended to protect Municipal Loan Fund-forloans to municipalities the funds of the Postal Savings Bank. for construction of market buildings, municipal Teachers' Retirement and Disability Fund-the warehouses, and waterworks, conditions and conditions under which this fund-the purpose regulations to be prescribed by the Bank. of which is self-explanatory-was to be invested FriarsLands Loan Fund-forthe making of mort- were those agreed upon by the Government gage loans upon growing crops and salable com- Service Insurance Board and the Agricultural modities- manufactured from them, work ani- and Industrial Bank. mals, warehouses, mill houses and machinery, Government Service Insurance Fund-the premia and other property belonging to actual 'culti- received as compulsory contributions from civil vators of the "Friars Estates" for encourage- servants and military personnel together with ment of agricultural pursuits and the extension the Government contribution were invested by of the cultivated areas of these estates. Not the Bank, on conditions determined by the more than 100 P might be loaned for each Board. Certain specific permissions were con- hectare cultivated by the mortgagor. tained in the Act creating the Fund, which San Lazaro Estate Loan Fund-made up of reve- allowed those sums not necessary for the pay- nue from various sources deposited with the ment of claims to be invested in policy loans, Treasury, subject to investment at not less than and in first liens upon improved real estate (up 6 per cent by the Bank, the proceeds to be used to 50 per cent of its value and for not more than for the care of lepers. Loans to the Government 10 years) not only in the City of Manila, but for the construction of toll bridges might be in the Cities of ]Baguio, Iloilo, Cebu, Davao, made from this Fund. Zamboanga, and in loans to the Commonwealth PrivateSurveyors' Loan Fund-for the making of Government for the construction of toll bridges. loans in case of necessity exclusively to corpora- Land Title Assurance Fund-composed of fees tions of private surveyors to aid them in the amounting to 1/10 of 1 per cent of the value of completion of the survey work on a cadastral real estate at the time of registration. This fund project. The security was the fees remaining to might be invested in interest-bearing deposits to be collected by the municipal treasurers from with government depositaries, in loans up to 10 the occupants or claimants of lots included in years to provincial or municipal governments the survey, the loan not to exceed 50 per cent for construction of public works, or in such of the total of such fees. loans or investments as were authorized for the Postal Savings Bank Fund2-to be invested in funds of the Postal Savings Bank. bonds, etc. of the United States, of the Com- Agricultural Cooperative Fund-loansto agricul- monwealth Government, the City of Manila, or tural credit cooperatives for the purpose of in- any municipality in the Philippines, not more creasing the production of rice and corn in the than 10 per cent of the funds to be invested in Philippines, encouraging and stimulating the the last; in interest-bearing deposits in any breaking and cultivation of new areas for this bank in the United States or Philippines with purpose, or for-the purchase of work animals or unimpaired paid-up capital equivalent to 1.5 agricultural implements. Individual loans made million P or over; not more than 10 per cent to by these associations from these funds to their be invested in shares of banks doing business members might not exceed 1,000 P. Loans might in the Philippines having a paid-up capital of also be made to cooperative marketing associa- 1.5 million P or over; upon first mortgages, etc. tions to promote the orderly and stable market- of improved and unencumbered real estate with ing of these products. a Torrens title-up to 60 per cent of the value Property Insurance Fund-the conditions sur- of the property; in first mortgages or deeds of rounding the investment of this Fund were trust to the Bank of leasehold property of land identical with those imposed for the Land Title with not less than 50 years to run, the title of Assurance Fund. which was in the Commonwealth Government; Revolving Loan Fund-for loans to provinces, in mortgages on cultivated land but no more municipalities, and chartered cities for the con- than 10,000 P upon any one piece of land, and struction of permanent public markets, slaugh- no more than 60 per cent of the value of the ter houses, and waterworks at 4 per cent. land; in securities guaranteed by the United The amounts held in these funds and the method 1 Part of the public domain opened to homesteaders. of their employment in the aggregate as of June 30, IPostl Savings Bank assets administered by the Agricultural and Industrial Bank, see page 25. 1940 are shown in the table on page 22. Agricultural and Industrial Bank, June 30, 1940 crop to liquidate the debt. A loan for more than one Trust Assets Peso8 year but not more than ten might be made if pro- Stocks ...... :...... 1,600 vision was made for installment repayment and it Bonds ...... :...... 13,458,209 was secured by a first mortgage upon Real estate owned...... productive 1,172,079 farm lands with a Torrens title, equal Notes and mortgages ...... 26,407,919 to at least Cash on hand and in banks...... 12,627,411 twice the value of the loan. The only funds which Others ...... 17,416 might be used to make loans for periods of more than Toal 53 4QAfA one year were those derived from one-half the paid- Trust Liabilities in capital and surplus plus such sums as might be Agricultural Cooperative Fund...... 298,029 borrowed from the Philippine National Bank upon Friar Lands Loan Fund...... 330,838 Government Service Insurance Investment pledge of such loans. Funds deposited with the asso- Fund. 8,688,931 ciation might not be used Land Title Assurance Fund...... 406,379 for making loans unless Loan Fund...... 5,076,142 they were left on time for at least a year. Loans Municipal Loan Fund...... 1,917,318 might be made against property without a Torrens Natioilal Public Markets, Slaughterhouses, title provided there was also the signature of one and Waterworks Revolving Fund...... 4,981,837 Postal Savings Bank Fund...... solvent person living in the same municipality as 18,871,623 the debtor. Private Surveyors' Loan Fund...... 635,590 Permission was given the Philippine Property Insurance Fund...... 1,219,342 National Bank to liquidate any rural credit associa- San Lazaro Loan Fund...... 2,064,393 tion if one-fourth of the total loans due such an Teachers' Retirement and Disability Fund...... 9,194,211 association had been past due for more than 90 days Total ...... 53,684,634 from the original maturity date. No member might Rural Banks borrow from the association in excess of 200 P unless Such banks might be established upon application the paid-in capital and surplus were sufficient to to the Philippine National Bank which would deter- permit each member 200 P on the assumption that mine the amount of the authorized capital and draw all borrowed at the same time. Excess funds of the up by-laws for their operation. They might make associations had to be deposited with the National loans to farmers with or without security, and obtain Bank or invested in liquid securities at its direction. loans at the National Bank at a preferential rate. One association might lend to another. The Philippine National Bank exercised supervisory A general meeting had to be held annually and a and directory powers over these banks. A special majority of the members constituted a quorum. All form of encouragement was accorded them in exemp- loan applications had to be submitted at this meet- tion from all tax charges (including documentary ing with the recommendations of the board of direc- stamp taxes) except the income tax. No rural banks. tors. No loans might actually be granted, however, were established. All efforts to encourage the founda- until approval of the action of the general assembly tion of privately owned rural banks failed because had been secured from the Philippine National Bank. the average small farmer and tenant of the Philip- Detailed regulations were incorporated in the law pines did not have the security to offer for documen- concerning the administration of these associations, tary loans, and because those who had sufficient the duties of officers, and the types of statements funds to capitalize such banks could make more which had to be rendered. Exemption from certain profit as licensed money lenders than by conform- taxes and fees was granted these associations as a ing to standard banking procedure. form of encouragement, and they likewise were given certain legal privileges. Stringest penalty Rural Credit Associations provisions were attached for infractions of the laws These were organized under the Philippine Na- or rules promulgated by the Philippine National tional Bank, and had to file a copy of their organi- Bank, including power to that institution to liqui- zation papers with the Bureau of Commerce as a date any rural credit association at its discretion. matter of public record. They were specifically Until ten rural credit associations organized and excluded from the operation of the Corporation Law. established under the provisions of this Act had Local government treasurers were to serve ex-officio been in successful operation for at least five years, as treasurers of these associations, more than one of not more than that number might be organized at which might be established in a single municipality. any one time. The theory behind this obviously was They might not have less than 20 nor more than 100 to test the legislation. The limitation did not apply members, and capital of not less than 1,000 P nor to agricultural credit cooperative associations 'pre-, more than 50,000 P. At least 1/10 of this had to be viously organized which might wish to operate under paid in in cash before operations could begin. The the provisions of this Act providing the Philippine par value of the stock was set at 50 P, and it was National Bank found them in sufficiently sound provided that no member might own more than 10 condition to do so. They had the option of continu- shares. ing under the original legislation which had set them The purpose of these associations was to extend up, but which had been found to be extremely de- credit to the members of the association by granting ficient in securing sound operation one-year loans for crop production purposes, or for A report made in 1938 covered some of the difficul- promoting agricultural operations in general provid- ties surrounding the AgriculturalCredit Cooperative ing that it was evident that the member applying Associations which were registered with the Bureau for the loan would have sufficient income from his of Commerce and were limited to one in each munic- ipality. Par value of the shares was set at 2 P and These banks were not permitted to accept deposits members were not permitted to own more than 250 in excess of ten times the amount of their unimpaired shares. capital and surplus. The first such association was established at Cab- Loans made by savings or mortgage banks might anatuan in Nueva Ejica in 1916. By 1918, there be for not more than five years unless provision was were 242; by 1920 the number had leaped to 527, made for periodic amortization in which case they and by 1936 the total number established had risen might be for ten years. Only certain kinds of loans to 582 of which 11 had been dissolved. Although and investments might be made. If the security was the Auditor General was supposed to audit the a mortgage or deed of trust on unencumbered im- books, and the Bureau of Commerce to make inspec- proved urban or cultivated agricultural land, 60 per tions at least once every six months, for lack of per- cent of the appraised value might be lent. The bank sonnel and other reasons this had not been done. might also invest in collateral trust bonds or notes The Report summarized some of the weaknesses of secured by first mortgages or by participation in a these associations and the system, noting the fact first mortgage. Real estate covered by such mort- that there was no means by which surplus funds gages, or any real estate used as collateral for a loan could move from one association to others in need had to have a title registered in accordance with the of extra funds. Their capital resources were limited Land Registration or Cadastral Act. Loans secured despite the power to borrow from the Rice and Corn by the pledge of gold or silver bullion might run up Fund (see page 21). Members often used credit for to 90 per cent of the pledge. Loans secured by bonds consumption purposes rather than for the further- or other evidences of indebtedness of, or guaranteed ance of agricultural production; the management as to payment of principal and interest by, the Gov- often failed to demand payment when loans fell due, ernment of the Philippines or a province, city, or and accepted defective documents as security. In municipality, or the Government of the United the event of foreclosure the original owner frequent- States, might not exceed the face value of the secu- ly was allowed to remain as a tenant on the land. rity or the market value whichever was smaller. Not There were instances in which the appraised value more than 10 per cent of the total assets of a savings of the land given in security was less than the or mortgage bank might be invested in drafts, bills amount of the loan. Where stock had been accepted of exchange, acceptances, or notes arising out of in pledge, inspectors sometimes found that loans 20 current commercial transactions guaranteed by a years overdue continued to run against the original solvent bank operating in the Philippines. Loans security long since deceased. The existence of these secured by such paper were included in this amount. conditions makes clear the reason for the insertion The direct or indirect indebtedness of any person, of some of the provisions mentioned in the law set- firm, corporation, or entity was limited to 25 per ting up rural credit associations under the Philippine cent of the unimpaired capital stock and surplus of National Bank. The new system, however, did not a savings or mortgage bank, and the amount which have time for real trial before the Japanese occu- the bank might deposit with another was similarly pation. restricted. It might, however, borrow up to 50 per cent of its paid-up unimpaired capital. No divi- D. Savings and Mortgage Banking dends could be paid until 10 per cent of the net profits had been set aside in a reserve Savings accounts were carried fund. When by all the commer- this fund amounted to 20 per cent of the total lia- cial banks, but in addition there were specialized bilities, annual increments might cease to savings institutions, including banks, building be made. and Savings banks were loan associations, and the Government Postal Sav- permitted to require up to ings Bank. In the same way, mortgage 90 days notice of the intention to withdraw funds loans were on the part of depositors. made by commercial banks and an important And they were forbidden source to renounce the right to.require at least 30 days, but of long-term real estate credit was the Agricultural and .Industrial Bank. in practice notice was waived. No withdrawals or payments of interest were to be made without pres- entation of a passbook, although under certain Private Incorporated Banks circumstances the courts might so order. The banks Savings and mortgage banks in the Philippines were required to keep on hand or on deposit with were defined as those established "primarily for the the Treasurer of the Philippines in lawful money purpose of accumulating small savings of depositors of the Philippine Islands or of the United States, and investing them; together with its capital, in or in bonds of either Government, an amount equal bonds or in loans secured by bonds, bullion, or real to 5 per cent of the total deposit liabilities. Any estate mortgages." Special legislation controlled the deficiency in this reserve was to be taxed at the establishment and operations of these institutions rate of 1 per cent a month until it was eliminated. which like other banks were subject to supervision As pointed out earlier (see page 7) savings and and examination by the Banking Commissioner. mortgage banking in the Philippines had.not proved Their paid-in capital might not be less than 200,- d very attractive field for the investment of private 000 P if the head office or a branch was in a city with capital. Indeed, at the end of 1941, there were only a population of 75,000 or more; smaller capitaliza- two banks of this class in the country. In 1939, tion with a minimum of 50,000 P was permitted for there had been another which became a commercial such banks in communities: with fewer inhabitants. bank in 1940. Details on the remaining two follow. Monte de Piedad y Caja de Ahorros Banco Hipotecario de Filipinasl This bank, the second oldest in the country, was Balance Sheet June 30, 1940 created in 1880 as a semi-governmental institution Assets: (Thousand P) headed by the Governor General. Loans and discounts...... 669.6 Its board of direc- Premises ...... 8.1 tors was made up of 17 representatives of govern- Due from banks...... 178.3 Cash ...... 2.2 ment, the church, business, and the public. It began Checks and other cash items...... 8.1 operation in 1882 with capital of 33,959.67 Loss ...... 1.1 P Other assets...... 5.9 advanced from the Obras Pias (a fund adminis- Total ...... 873.2 tered by the Catholic Church made up of bequests Liabilities: Capital ...... 852.8 left by the pious to be lent to worthy causes, the Savings and time deposits ...... 15.9 interest earned to be used for saying Masses). The Other liabilities...... 4.5 Total ...... 873.2 operations of the bank were carried on in two sep- 1 erate divisions: a pawn shop (the Monte de Piedad), Began operations April 1940. and a savings bank (the Caja de Ahorros) which oldest one in operation in 1940 had been established accepted small deposits and paid 4 per cent interest in 1904 in Manila. In the intervening years a num- on them. Its business increased rapidly and it ber had been organized, some of which had later secured additional working funds in grants from gone out of business so that in 1940 there were the Government, and a loan (later repaid in full) only 9 such associations in operation, six of them' from the Banco Espanol-Filipino. In 1898, it made in Manila. Although a considerable body of laws 27,000' loans amounting to 630,000 P and renewed had been enacted controlling their operations, the 12,000 loans amounting to 317,000 P. In August business practices of many of them did not conform 1899, deposits amounted to 214,000 P. After the to a very high standard (see page 10). American occupation it was taken over by the The law defines these associations as "All corpora- Catholic Church but the charter remained un- tions whose capital stock is required or is permitted changed. to be paid in by the stockholders in regular, equal, As the balance sheets below show, it declined periodical payments and whose purpose is to accum- somewhat in importance between 1930 and 1940. ulate the savings of its stockholders, to repay to The bank had no invested capital, but presumably said stockholders their accumulated savings and the implicit responsibility of the Church was suffi- profits upon surrender of their stock, to encourage cient guarantee to attract depositors. industry, frugality, and home building among its stockholders, and to loan its funds and funds bor- Monte de Piedad and Savings Banlk Comparative Balance Sheets rowed for the purpose to stockholders on the security of unencumbered real estate and the pledge of Dec. 31, June 30, shares of capital stock owned by the stockholders 1930 1940 as collateral security." The words "mutual building (Thousand P) and loan association" must form part of the name Assets: of every such association. Certain types of property, Loans and discounts...... 6,547.7 5,586.2 such Overdrafts ...... as manufacturing plants, theatres, schools, Customers' liability acceptances ...... clubs, hotels, or other public buildings were excluded Stocks, bonds, etc ...... 2,962.7 1,031.7 Premises, etc..:...... 390.7 143.1 from the benefits of loans from these associations. Other real and chattel property owned...... 1,522.8 2,396.5 A single loan might not amount to more than 10,000 Due from banks...... 71.0 957.5 Cash ...... 298.4 446.3 P in the case of associations with capital of less than Checks and other cash items...... 8.8 100,000 P, or 10 per Other assets ...... 9.5 193.9 cent of the capital of larger Total...... 11,802.8 10,763.9 associations. Three types of capital stock were Liabilities: recognized: installment, paid-up, and investment Capital ...... shares. Payments on the first type were equal Surplus...... 806.4 1,000.0 and Reserves ...... 113.0 113.9 periodic and known as dues; investment stock might Undivided profits...... 74.3 38.2 also be paid for Savings and time deposits...... 10,791.9 8,898.5 in installments. Investment and Other liabilities ...... 17.2 713.2 paid-up stock might receive dividends but did not Total ...... 11,802.8 10,763.9 share otherwise in the earnings of the associations. Par value was set at 200 P and total capital was Banco Hipotecario de Filipinas limited to 20 million P. Building and loani associa- Beginning operations in April 1940 with an au- tions were authorized to borrow to further their thorized capital of 2.5 million P of which 852,800 ends, but their total indebtedness was limited to was paid in, it was intended that this bank should 50 per cent of the capital stock of all classes actually absorb the business of "La Urbana" building and paid in. loan association without the latter going through All loans made by these associations had to be the process of formal liquidation. Andres Soriano y secured by a first mortgage or deed of trust on unen- Roxes was the president and Enrique Vasquez-Prada cumbered real estate, and also by the pledge to the first vice-president. association of shares of stock the matured value of which was at least equal to the amount Building and Loan Associations loaned. Only real estate with a Torrens title was acceptable, and Building and loan associations were an early form the amount of the loan was limited to 70 per cent of of small-credit institution in the Philippines. The the appraised value of the hypothecated property and insured improvements. A maximum of 12 per El Ahorro Insular, sociedad mutua de construc- cent was set as the rate of interest which might be cion y prestamos of Manila, established June charged, including premiums, fines, penalties, and 1929; Alberto Barretto, president. Total as- so on. Three months in arrears rendered a loan due sets: 811,927 P. and collectible. Five per cent of annual net earnings La Salvacion, sociedad mutua de construccion y had to be devoted to building up a reserve fund until prestamos of Manila, established April 1932; it should reach five per cent of the total assets, Panfilo Laconico, president. Total assets: where it had to be maintained. The remainder of 558,236 P. the annual net earnings might be apportioned among Cebu Mutual Building and Loan Association the stockholders. Building and loan associations of Cebu, established August 1922; Ramon were subject to inspection and regulation by the Aboitiz, president. Total assets: 2,077,996 P. Bank Commissioner. "The Helpers," mutual building and loan asso- The building and loan associations in operation ciation of Cebu, established July 1932; Jose on June 30, 1940, are listed below. Combined bal- S. Leyson, president. Total assets: 155,670 P. ance sheets are given below. Zamboanga Mutual Building and Loan Asso- Manila Building and Loan Association of Ma- ciation of Zamboanga, established January nila, established July 1904; J. W. Ferrier, 1912; John Spring, president. Total assets: president. Total assets: 881,614 P. 536,667 P. El Hogar Filipino, sociedad mutua de construc- cion y prestamos of Manila, established De- Philippine Postal Savings Bank cember 1910; Manuel Camus, president. Each of the 1,049 post offices in Total the Islands acted assets: 5,568,393 P. as a branch for this institution which was operated La Urbana, sociedad mutua de construccion y by the Bureau of Posts. A postal prestamos savings system had of Manila, established August been established in 1907 and by 1913 had 40,000 1923; Enrique Vasquez-Prada, president and depositors and 2,480,000 P of deposits. In 1920, the manager. Total assets: 1,493,332 P. corresponding figures La were 107,000 and 6,654,000 P. Previsora Filipina,,sociedad mutua de con- By the end of June 1939 (the latest date for which struccion y prestamos of Manila, established complete figures are available), 366,436 depositors February 1926; Eulogia P. Revilla, president. had savings of Total assets: 960,684 15.6 million P with this bank. Interest P. of 2.5 per cent was paid.' Building and Loan Associations After the establishment in 1936 of the National Comparative Balance Sheets-End of the fiscal year Loan and Investment Board, investment of the funds 1919 1929 1939 of the bank was administered by that organization. Along with the other trust funds handled by the (Thousand P) I ' Board, the Postal Savings Bank Fund was trans- Assets: ferred to the Agricultural and Industrial Bank in Real estate loans...... 6,987.7 18,885.3 10,672.7 Stock loans...... 111.2 .863.4 491.1 August 1939 (see pages 20 and 21). The bank was Cash ...... 607.6 241.1 1,013.5 Premises ...... 407.0 636.6 19.4 not subject to inspection by the Bank Commissioner. Other real estate...... 434.3 981.8 Other. assets ...... 366.2 730.7 1,891.3 Postal Savings Bank Total ...... 8,479.7 21,791.4 15,070.0 Comparative Balance Sheets Liabilities: June 30, 1940 Assets: Capital (Thousand P) paid in...... 6,928.0 17,438.7 12,019.6 Cash Surplus ...... 1,920:6 589.9 477.4 443.1 Investments and securities Legal. reserves...... 18,842.5 72.7 Other assets...... 109.5 Borrowed money ...... 545.8 2,196.2 714:5 Other liabilities...... 416.0 1,606.4 1,892.8 Total ...... 20,872.7 Total ...... 8,479.7 21,791.4 15,070.0 Liabilities: Surplus and reserves...... 3,313.1 Savings and time deposits...... 15,955.9 Combined Statement of Building and Loan Associations, Other. liabilities ...... 1,603.7 June 30, 1940 Total ...... 20,872.7 Thousand P Assets: SAdministered as trust funds by the Agricultural and .Industrial Bank. Loans on mortgage...... 8,857.8 Loans on stocks of the Association ...... 388.6 Cash on hand and in bank...... 753.7 3. Manila Stock Exchange Real estate owned...... 959.1 Furniture and fixtures...... 11.2 During the gold boom of the mid-'thirties there Interest, fees, etc., due and unpaid...... 108.5 were two other stock exchanges, but the oldest, and Advance for taxes, etc...... 153.1 Other assets ...... 1,812.4 the only one which stood the test of years, was the Total ...... 13,044.5 Manila Stock Exchange. Prior to its foundation in Liabilities: August 1927, there had been no organized trading in 'Capital paid in...... 9,707.1 Reserve ...... 454.8 securities in the Islands. The original organizers Reserve for unallocated .loans...... 913.3 were a group of prominent Manila businessmen: Undivided profits...... 129.4 W. P. Eliot, W. E. Little, J. W. Wakefield, G. W. Advanced dues ...... 17.5 Unearned profits...... 383.1 Mackay, and J. J. Russell. There were only 10 seats Due to borrowers on mortgage loans...... 40.2 3 The Administrative Bills payable and money borrowed...... 1,178.3 ' Code of the Philippines provided that interest should be paid at 2.5per cent "or at such other rate as may be author- Other liabilities...... 221.0 ized at the beginning of any calendar year." There is no record that Total ...... 13,044.5 any change ever was made.

25 at first, sold at a price of 500 P. Increased specula- in general dullness and lack of interest in trade on \tive activity pushed up the price of seats until a the Exchange. Market prices fell rapidly during the high of 85,700 P was reached in November 1936. first quarter of the year, and on June 11, 1940, in The next year 15 additional seats were established, order to prevent a complete collapse, the Securities and by April 1938 the membership had grown to 38. and Exchange Commission pegged prices at prevail- By the end of 1940, however, there were only 35 ing quotations. Short sale dealing was suspended, members. An initiation fee of 500 P was charged in and trading in futures eliminated. This control was addition to the purchase price of a seat. Expenses maintained although later in the year market oper- were pro-rated among the members on a monthly ators began to agitate for a return to free trading, basis. Financial statements were required only upon and there was some revision in pegged prices. Total application for membership, but the directors of the sales of mining stocks, the most active type of listed Exchange had power to require without notice that security, were 80 per cent less in 1940 than in 1939, the books and records of any member be submitted and amounted to only 21.5 million P. Transactions for purpose of investigation. The Exchange had no in commercial and industrial issues during the year rules concerning insolvency, and none on ratios of increased substantially over 1939, but totaled only indebtedness to capital. 2.7 million P for all of 1940. Aggregate statistics for The rules of the Exchange provided that "All 1941 are not available, but on November 27, 1941, business between members shall be transacted by the last date for which the figures are known, and for the account of a partnership of two or more 4,250,000 shares with a total value of 125,422 P members or by and for the account of a corporation;. were traded. provided, however, that seats shall be held by indi- Associated with the Manila Stock Exchange was vidual members only, the said partnerships or cor- the Stock Quotations Company, the majority of its porations having no interest therein." There were a shares being held by members of the Stock Ex- few rules designed to prevent manipulation and deal- change. It had been organized in January 1937, with ing for own account to the detriment of the customer, an authorized capital of 150,000 P of which 87,100 P but on the whole practice was flexible. Brokers' com- was paid in, to provide technical communication missions were levied at the rate of one per cent of facilities for brokers. It operated a ticker system, the sale value of transactions, one-half paid to the covering security markets throughout the world, and selling broker and one-half to the buying broker. reported transactions on the Manila Exchange. The There was a minimum service charge of 5 P to each ticker and telephone reporting services were supple- buyer and to each seller, on any one transaction. mented by broadcast summaries of trading informa- Brokers were required to post a bond with the tion. The official quotation sheet issued daily by the Government to guarantee performance of their Manila Exchange, and the monthly Manila Stock obligations. Exchange Bulletin were published by the Stock Prior to the establishment of the Commonwealth, Quotations Company. permission to sell corporate stock had to be secured from the Insular Treasurer who issued licenses only 4. Insurance Companies' after careful investigation. Corporations had to be Insurance Law registered with the Bureau of Commerce. In 1938, Insurance in the Philippine Islands was regulated both supervisory and registration functions were by the Insurance Act of December 11, 1914, which transferred to the newly created Philippine Securi- was amended in 1929 and 1930. According to Section ties and Exchange Commission, organized along 169 of this law, the Insular Treasurer was to act as lines similar to the cognate body in the United Insurance Commissioner, with the duty of seeing States. The United States Securities and Exchange that all laws relating to insurance were obeyed. All Commission, ceased to have jurisdiction over the companies desirous of transacting insurance opera- Manila Stock Exchange in November 1935. Before tions in the Philippines required a license, subject to that time the Exchange had had the status of an annual renewal, from the Commissioner. Before "exempted" exchange. beginning insurance transactions, domestic com- Stocks were listed on the Exchange after the Phil- panies had to have a minimum paid-up capital of ippine Securities and Exchange Commission had 125,000 P, which had to be increased to at least given permission for their sale to the public. No 250,000 P within one year from the date of incorpo- securities were admitted to unlisted trading privi- ration. A foreign insurance company could be per- leges. The par value of most stock was very small. mitted to transact business upon making a deposit For instance, in the fiscal year July 1, 1939, to June of 100,000 P. The Insurance Commissioner was 30, 1940, the volume of business on the Exchange authorized to revoke or suspend a license if a" amounted to 776,711,366 shares with a market value company appeared to be in an unsound financial of 53,285,868 P. During the height of speculative condition. Insurance companies had to furnish to activity in the 'thirties, at least one company the Commissioner annual reports containing detailed brought out stock with a par value of 1 centavo per statements concerning their operations and financial share; the authorized issue amounted to 500,000,000 condition. shares. Of particular interest are the provisions of the Transactions on the Manila Stock Exchange dur- Insurance Act concerning investments of the funds ing 1940 were restricted largely to selected stocks. 'Section prepared by Foreign Research Division of the Federal Re- The unsettled international situation was reflected serve Bank of New York. of insurance companies. The assets of life insurance 1.5 million P. The Insurance Commissioner could companies could be invested only as follows: (a) In authorize insurance companies to invest or loan their loans upon first -mortgages or deeds of trust of net surplus in or upon the securities of another com- unencumbered, improved real estate in the Philip- pany, even though the returns earned on such pines up to 60 per cent of the value of such real securities were below the prescribed standards. estate, or upon first mortgages or deeds of trust of unencumbered, actually cultivated agricultural lands Insurance Business up to 40 per cent of the value of such lands. Loans On June, 30, 1940, there were 95 insurance com- could be extended also upon the security of insur- panies operating in the Philippines, of which 18 were ance policies, and against bonds and other obliga- domestic companies, 25 were American, and 52 tions of the Philippine Government, the City of foreign (33 companies were British, 4 Japanese, 4 Manila, and other Philippine municipalities author- Swiss, 3 Canadian, 2 German, and 6 of various other ized to issue bonds. Policy loans could be extended nationalities). Most of the Philippine insurance up to the amount of the premium reserves under- business was done by the foreign companies. A very lying the respective policies at the time the loans substantial part of the risks underwritten by domes- were made. (b) In buildings in which the insurance tic insurers was ceded to foreign reinsurers. By far companies conducted their business, in bonds of the the most important branch was the life insurance United States Government, the Philippine Govern- sector, followed by fire and marine. Other types of ment, and of the City of Manila and other Philip- risks were written only in insignificant, amounts. At pine municipalities authorized to issue bonds, and the end of 1938, the eighteen domestic companies in other real and personal property acquired by had a paid-up capital of 9.3 million P. Their gross insurance companies in payment or by reason of income during the year was 8.8 million P, and dis- loans; however, such property was to be sold within bursements amounted to 7.3 million. Total disclosed five years after acquisition. (c) In common, pre- assets of the domestic industry were 32.2 million P. ferred, or guaranteed stocks or bonds of any solvent By far the largest domestic insurance company institution incorporated under the laws of the Phil- was the Insular Life Assurance Company, Ltd. of ippines or of the United States or of any State Manila, the gross earnings of which in 1938 thereof, provided that such stocks or bonds had amounted to almost 4 million P, and whose dis- earned during each of the preceding five years cer- closed assets at the end of the year amounted to tain specified rates of return and had regularly paid 13.6 million P. Second in importance among Philip- dividends or interest in full. However, no life insur- pine insurance companies was a property insurer, ance company was to invest more than 10 per cent the "Filipinas" Compania de Seguros ("Filipinas" of its capital in the stock of any other entity, nor Insurance Company) with disclosed assets in the was it to acquire more than 10 per cent of the total amount of 4.6 million P. Four other companies had issued and outstanding securities of such entities. assets in excess of 1 million P each: the Filipinas Non-life insurance companies could invest in Life Assurance Company, the Philippine Guaranty stocks or bonds of companies not engaged in- insur- Company, the Metropolitan Insurance Company, ance operations, up to 15 per cent of their own and the National Life Insurance Company of the capital or 20 per cent of the total outstanding securi- Philippines. ties of such companies, whichever was smaller. In Life Insurance. On June 30, 1940, there were 11 the .case of investments in insurance stocks, the companies authorized to write life insurance in the respective percentages were 25 and 20 per cent. All Philippines, of which 3 were domestic, 5 American, stocks or bonds in which non-life insurance com- and 3 foreign. The face value of the 58,800 life panies invested were to have made regular dividend insurance policies in force at the end of 1939 or interest payments for a period of at least three amounted to 201 million P, and premium income of years preceding the time of the investment. .life insurers during the year was 10.8 million. Insur- By way of exception to the above rules, neither ance policies worth 25.8 million P terminated in life nor non-life insurance companies could invest 1939, but of this only 1.3 million P were by death in the shares of mining, oil, or insurance holding of policyholders and 1.6 million by maturity of companies; nor were they permitted to invest di- policies, while 22.8 million were by lapses and other rectly or indirectly in stocks of banks and trust causes, reflecting the inability of most buyers of companies unless the unimpaired, paid-up capital life insurance in the Philippines to maintain their and surplus of such companies amounted to at least policies. The total number of policies issued, revived,

Premium Income and Claim Payments of the Philippine Insurance Industry--199 (Thousands of pesos)

Net Premium Receipts Net Claim Payments Domestic American Foreign Total Domestic American Foreign Total

Life...... 3,798 2,896 4,133 10,827 628 1,551 2,966 Fire...... 852 1,740 2,210 4,801 1,037 1,030 2,245 Marine...... 379 776 1,288 2,443 267 451 857 923 87 582 1,593 4 141 300 Miscellaneous...... '----~--'-----'-L-----' - --- Total...... 5,952 1 5,499 j 8,214 19,665 1,259 1,936 3,172 6,368 or increased during the year was 17,702 aggregating general agents and subagents, but no brokers. The 43.7 million P. The largest premium income (3.1 tariff was simple and was interpreted by the Fire million P) was earned by the Sun Life Insurance Insurance Association (associated with the Fire Company of Canada,whose total insurance in force Offices Committee of London), which also issued amounted to 52.9 million P at the end of 1939. This special rates. There was no rate checking bureau, company sold policies to the wealthier buyers of life and members of the Association were simply on insurance. The total number of its policies in force their honor to maintain rates. Reinsurance cessions on December 31, 1939, was 8,496, substantially were placed chiefly in England, Switzerland, and below the 22,270 policies outstanding with the com- the United States. pany which was doing the second largest volume of Loss ratios in the fire business for many companies life insurance business in the Philippines, the Insular.. were relatively large, reflecting the high moral haz- Life Assurance Company, Ltd. Premium receipts of ards which were characteristic of the Philippine fire this company were 2.5 million P, and insurance in insurance business. The inferior construction of force at the end of 1939 was 48.5 million. The third buildings outside of Manila was also a factor con- largest life company was a United States insurance tributing to the difficulties of fire business in the corporation, the West Coast Life Insurance Com- Islands. The ratio of claims filed in 1939 to net pany of San Francisco. Premium receipts of the premiums received was 61.8 per cent, but many West Coast were 1.7 million P, insurance in force companies showed losses far in excess of their pre- 29.0 million, and the total number of policies out- mium receipts. standing 9,814. Two other life insurers of importance Marine Insurance. Of the 69 companies authorized were the FilipinasLife Assurance Company and the on June 30, 1940, to write marine business, 14 were Asia Life Insurance Company. domestic, 18 American, and 37 alien. Gross premium Fire Insurance. On June 30, 1940, there were 78 receipts of these companies in 1939 were 3.4 million companies authorized to write fire insurance in the P, of which 1 million P were ceded to reinsurers. By Philippines. Of these companies, 15 were domestic, far the most important marine underwriter was the 21 American, and 44 foreign. At the end of 1939 Union Insurance Society of Canton, Ltd., which in property worth 617.5 million P was insured against 1939 earned gross premiums of more than 500,000 P, fire. Gross premium income of the fire companies in of which it retained 467,000 P, equivalent to almost 1939 amounted to 8.4 million P, but owing to heavy 20 per cent of the total net premium receipts of reinsurance cession, net premiums were only 4.8 marine underwriters in the Philippines. The second million, while claims filed amounted to 3 million P. largest marine insurer was the Hanover Fire Insur- Most of the business was written by foreign com- ance Company, with 1939 gross premium receipts panies, chiefly British insurers. The outstanding fire in the amount of 436,000 P. Two Philippine under- insurance group in the Philippines, however, was writers, the TabacaleraInsurance Company and the American and consisted of the Hanover Fire Insur- MetropolitanInsurance Company did a considerable ance Company with a gross premium income of marine business, but both these companies ceded 994,000 P, the National Union Fire Insurance Com- almost all their risk to reinsurers. This was not true pany with 583,000 P, and the Firemen's Insurance of another Philippine company of importance,. the Company of Newark with 566,000 P. These three Commonwealth Insurance Company, with 1939 net companies were managed by the American Interna- premium receipts of almost 300,000 P. tional Underwriters Corporation of New York. All Miscellaneous Insurance. Miscellaneous business, other American insurance companies active in the principally fidelity and surety insurance, was Philippines, with the exception of the Insurance written by 61 companies in 1939-40. Net premiums Company of North America, were members of a received in 1939 were 1.6 million P, of which 774,000 pool operated by the American Foreign Insurance P were earned in the fidelity insurance branch and Association. Two Philippine fire insurance com- 272,000 P in the automobile sector. The miscellane- panies, the "Filipinas" Compania de Seguros and the Metropolitan Insurance Company, earned more ous business, though relatively insignificant, was, than 500,000 P each, but both companies heavily quite profitable, net losses amounting to only 300,000 reinsured their risks, bringing their net premium P during 1939, or less than 20 per cent of premium receipts down to 233,000 P and 131,000 P respec- receipts. Most important among the companies tively. doing this type of business was the Commonwealth Fire insurance in the Philippines was conducted Insurance Company, with net receipts in 1939 of chiefly in Manila. A small amount of business was 167,000 P. A considerable business was also done by also done in Iloilo, Cebu, and Zamboanga. On the the Fidelity and Surety Company of the Philippine whole, insurance business was conducted- in much Islands, whose net premium receipts were 116,000 P the same way as in the United States. There were in 1939. CIVIL AFFAIRS HANDBOOK

on

THE PHILIPPINE ISLANDS

Section Five

on

MONEY AND BANKING

PART II

Japanese occupation of the Philippines has resulted in inflation of the currency and prices, and a channeling of the whole economy to meet the needs of the Japanese war effort. Foreign banking interests other than Japanese have been eliminated, and domestic banking permitted to operate only with severe restric- tions. The entire financial system has fallen into desuetude.

PART II. WARTIME DEVELOPMENTS

1. General Statement represented money withdrawn from circulation since Wartime developments in Philippine money and part came from Treasury vaults and was merely banking fell into two periods: before and after Japa- available for circulation, and part may have been unissued nese occupation. In the interval between Pearl note stock. Circumstances at the time pre- Harbor and the fall of Manila, the Commonwealth cluded the keeping of accurate records. Taking all and United States Governments took certain meas- these factors into account, an expert estimate places the amount of Commonwealth currency left in the ures to safeguard the currency and bank, assets, and hands of the public at the time of the Japanese to prevent misuse of Philippine funds by the enemy. After Japanese occupation regulations were at first occupation at about 200 million P. Against this sum the Philippine issued by the Military Administration and the Exec- Government has continued to main- tain the statutory reserves utive Committee composed of Filipinos appointed as the table below shows: by the Japs. On October 14, 1943, "independence" Commonwealth Currency Reserve was accorded the Philippines by the Japanese, and Funds Held in the United States a Republic established. Control is nominally in the June s0, 1942 Pesos hands of officials of the Republic Government but Treasury certificate fund: all matters of importance are in practice subject Time deposit in U. S. Treasury ...... :...... 83,300,000 to Demand deposit in U. S. Treasury...... 132,477,607 the veto of the Japanese civil and military adminis- Exchange standard fund: trations whose "advisers" Time deposit in U. S. Treasury...... 26,700,000 and "experts" stand at Demand deposit in U. S. Treasury...... 25150,198 the elbow of every Filipino official. Balance in Chase National Bank...... 711,662 The usual Japanese pattern of integration of the Cold :...... 2,721,242 Total ...... economy of an invaded area into the Greater East 271,060,709 Asia Co-Prosperity Sphere has been followed in the In the estimate given above allowance was made Philippines. This included the issue of military notes, for the fact that Treasury certificates continued to the planning for a central bank (in this case appar- be paid out in parts of the Islands other than Luzon ently not yet functioning), and the appropriation of (for the purchase of supplies and as salary to troops) resources for the benefit of the Japanese war ma- as late as the 20th of May, 1942. The emergency chine. Despite much talk about "the Philippines for notes issued by the branches of the Philippine Na- Filipinos" the welfare of the country has been sub- tional Bank in Cebiu, Iloilo, and Bacolod were not ordinated to the satisfaction of Japanese needs. included. Price controls and purchasing and distributing Only small amounts of Philippine currency were agencies have operated less to supply the Filipino taken from the Islands at the time of and after the people than to make possible the supply of the Japa- withdrawal of the American forces. These Peso notes nese forces. Developments have been what might carried out by refugees and military and naval per- have been expected: inflation in the circulating sonnel were exchanged mainly at banks in the Neth- medium and very great increases in prices, creation erlands East Indies and in Australia. A call for the of extensive black markets, and general disruption deposit of all Philippine currency held outside the of the economy. Islands was issued on January 14, 1942. After Feb- Such fragmentary information as is available on ruary 1, 1942, the final deposit date, it was assumed developments in the financial system under the Japa- that all outstanding Philippine Peso notes had come nese is pieced together in the following pages. under the control of the enemy unless satisfactory evidence to the contrary could be adduced. The Jay- 2. Currency and Central Banking asche Bank (in Batavia) reported holding slightly Currency of the Commonwealth' less than 100,000 P in Philippine currency as of Feb- ruary 1, which was supposed to have been shipped The latest date for which official data on currency to the United States for redemption but never circulation are available as noted earlier (see page arrived. A somewhat larger sum (215,000 6), is September 30, 1941, when 200,445,432 P was P) was exchanged through the Commonwealth Bank of in the hands of the public, and 21,962,376 P in Australia which received a credit in New York. Treasury vaults "available for circulation." From that date until the fall of Manila at the end of the Currency under the Japanese year, currency circulation is known to have increased substantially. An estimate for November 30 places Almost immediately (on January 3, 1942) upon the amount at 240 million P, and there was further taking over the City of Manila, the Commander-in- expansion in December. Some of this cash (deposited Chief of the Japanese forces proclaimed that the by banks and individuals with the American High Army would use "war-notes" or Japanese military Commissioner) was removed to Corregidor and sub- currency' in the occupied areas. He stated that these sequently destroyed. Furthermore, the Common- SIn much of the material about currency in the Philippines under the wealth authorities also destroyed a quantity of Japanese there are references to "military yen". This would appear to be an error since, so far as can be established, the only Japanese notes currency, but it cannot be assumed that: all of this issued in the Philippines were denominated.in Peso, and the circulation of other Japanese military currency was specifically prohibited (see 1 "Victory" Peso notes of the Commonwealth, secured by reserve. page 32). A few yen notes may have reached the Islands in the pockets funds in the United States, are being used by invasion forces in 1944. of sailors and troops, but it is unlikely that they circulated at all They.are equal to the old Commonwealth Peso with a parity of $1=2P. extensively. notes had been issued by the Imperial Japanese cies of foreign countries." A temporary exception Governmentl which took "full responsibility for was made in favor of U. S. dollar currency; its cir- their usage having the correct amount to back them culation was banned on February 6. Foreign cur- up." People in the occupied areas were enjoined to rency apparently still continue to circulate, however, accept these notes at face value for all types of since even as late as August 1943 the Japs were still payments, and warned that anyone attempting to issuing notices calling attention to the order quoted interfere with their circulation (by rejecting them above. or issuing rumors concerning them) would be United States dollars, Philippine Pesos, and coins severely punished. It was stated that the military disappeared into hoards which may aggregate as currency (known as "apa") would be issued in much as 100 million P; there have been reports that denominations of 10, 5, and 1 P, 1 centavo, 5 centa- only Japanese military currency was in actual cir- vos, 10 centavos, and 50 centavos. Import and export culation. The progress of United States forces in the of any of the currency circulating in the Islands Pacific was reflected in the premia which the old was forbidden. Peso notes and the dollar bills commanded over apa. Apparently the apa did not find ready acceptance. Whereas at first dollars changed hands at a discount, Early in February 1942, the Japanese authorities by September 1943, they were at a premium, one began issuing proclamations warning against the dollar bringing about 12 apa, and Philippine Peso use of forgeries, and explaining that certain marks notes were worth 6 apa per Peso. No information is which appeared on the genuine notes (said to have now available on the official peso-yen rate but before been printed upon very poor stock) did not imply Pearl Harbor a yen had an exchange value of about a difference in the value but were serial indications. 23.4 U. S. cents which would have made the rate This "explanation" was reiterated in a later notifi- upon occupation about 1 Peso equals 2 yen. Military cation which threatened severe punishment to any- pesos were declared equal to Philippine Pesos but one refusing to accept these notes. Nonetheless, when no statement was made regarding the military peso the banks reopened, the Filipino institutions made and yen rate. However, if the same pattern as is it clear that deposits of apa would be earmarked found in the cases of the Netherlands East Indies, and could not be withdrawn in future in any other Malaya, and other Japanese-occupied areas was currency. From the time the Japanese forces came followed in the Philippines, it can be assumed that into control of the Philippines until September 1943 the rate in force (significant chiefly for Japanese it is estimated that apa to a value of 300 million P military bookkeeping) has been 1 Peso - 1 yen. It were issued. This, although once and a half again has been reported that the Central Bank intended as large an amount as the circulation of Philippine to adopt this as the value of the Peso. .Commonwealth currency, would appear small for an A shortage of currency appears to exist in the occupying army were it not that the Japs have been Islands. This is indicated not only by the issue of reported to have been pursuing a policy of requisi- apa in higher denominations, but also by the report tion without payment, using apa only for the that old, soiled, and torn banknotes were accepted payment of soldiers and other Japanese employees for deposit or exchange for new ones only if pre- and as loans to the banks and the quisling govern- sented by soldiers or civilians connected with the ment. It is not known how much apa may have been Japanese armed forces. Olds notes were to be kept issued in the past year. The projected Central Bank in circulation as long as the denomination was legi- (see page 33) was intended to assume the note issue ble. The former Philippine bank notes and Treasury function and the Japanese promised to stop putting certificates had been printed in the United States out apa. So far as can be determined, however, the (see page 4) as no adequate facilities existed in the Bank never has begun to function. In May 1944, Islands. There have been reports that experiments there was a. report that the military authorities were were undertaken under the Japanese to make suit- issuing apa in denominations of 100 P compared to able paper from local materials, but these efforts do the previous largest denomination of 10 P (or pos- not appear to have been attended with success. sibly 20 P). Indeed, inability to manufacture notes may be one In a Japanese proclamation of January 10, 1941, of the chief reasons why the new Central Bank never specific sanction had been given to the continued has begun to function. circulation of existing Peso currency with the excep- At the time (March 1944) the new central bank tion of the "emergency notes" issued by the branches law was adopted a currency bill was also passed. of the Philippine National Bank which were declared Few particulars are known, but the major difference valueless. The same proclamation prohibited the from the system under the Commonwealth appears circulation of "yen paper money (paper money to be substitution of a yen-exchange standard for a issued by the Japanese Imperial Government, Yen dollar-exchange standard. The Peso of 100 centavos notes issued by the Bank of Japan, Yen notes issued. remains the monetary unit under the new law, and by the Bank .of Chosen, Yen notes issued by the the new Central Bank is required to maintain an Bank of Taiwan, and the military notes other than exchange standard fund in yen amounting to 25 per Peso military notes), piastre currency (notes issued cent of the total amount of money in circulation. by the Bank of Indo-China), and all other curren-, Another provision is the requirement of a 100 per 1 At first the Army issued these notes directly. Later they were put cent reserve against the bank's total demand liabili- into circulation through the Southern Development Bank. They prob- ably were not obligations of the bank but were the same military peso 1 An iniportant motive for this restriction may be a desire to prevent as had been used by the Army. "unreliable" elements such as guerillas from securing new currency. ties including notes. Part of this reserve might be in discounting of bills, transactions in government foreign exchange or currencies, but it is not clear bonds and other evidences of debt issued after the whether the 25 per cent yen fund was intended as an establishment of the bank, and in securities of other addition to the 100 per cent reserve, or included as "Greater East Asia" nations, the purchase and sale part of it. The note issue was to be consolidated, and discount of commercial bills, and the custody Philippine Government notes and bank notes, Japa- of the deposits of the government and banks. From nese. military currency, and other "emergency cur- the latter provision it is possible to infer that some rency" to be exchanged at par for paper currency sort of. compulsory reserve system was to be set up issued by the new bank with the approval of the to which all banks would have to adhere. The Cen- Minister of Finance. The loan of 200 million yen tral Bank, under the law, would act as a rediscount which the Japanese are reported to have made to the institution, and make advances to banks on duly Philippines in November 1944 may have been in- secured promissory notes. It would also engage in tended as the nucleus of the Bank's reserve fund, open market operations, and attempt to channel although it was said to be an obligation (repayable credit into directions where it would "most effec- in annual installments over a five year period) of tively aid the economic development of the country." the Philippine Republic Government and was en- The last phrase probably is a euphemism for "most tered as a revenue item in the budget. effectively assist the Japanese war effort." Further- more, the bank was empowered to make provisional Gold advances to the government for expenses authorized At the time the Office of the High Commissioner in its annual budget. This likewise would be of was removed to Corregidor (i)ecember 24, 1941), assistance to the Japanese who had been forced to 10,800 pounds of gold in bars were taken along. This support the Republic, and earlier, the Executive gold, belonging to mining companies, subsequently Commission, through "loans" which were later was sent to the United States, along with 269 bars cancelled. of gold weighing 1,343,493.95 grams owned by the The reserve which it was required to hold, amount- Commonwealth Government. On June 30, 1942, gold ing to 100 per cent of the bank's total note and to a value of 2,721,000 P, available for use as a deposit liabilities, might be composed of gold, silver, currency reserve, was held in the United States for coin, bullion,-foreign currency, securities, promissory the account of the Philippine Government. notes, drafts, or bills of exchange, as well as other Although mine installations in the Philippines types of commercial paper specified in the law. were destroyed before the Japanese took control, some have been put into working order again. Pro- The Purchasing Power of the Peso duction, however, has not reached the pre-war level, There is general agreement among those informed which was reported at 80,103,000 P for the calendar on developments in the Philippines since Japanese year 1941. Machinery needed for gold mining was occupation that inflation has developed very far diverted to copper and other mining, and gold is there, but few concrete facts are available for illus- secured only as a by-product. Output may amount tration. A break-down in inter-island transportation to 2 million P a quarter. undoubtedly has given rise to considerable price variations as between different parts of the country. Central Bank Manila, as the most thickly populated center' most As one of the usual steps in the Japanese program heavily dependent upon supplies from elsewhere, for organizing the economies of invaded countries, probably has been hardest hit. Official Japanese a central bank for the Philippines was projected ceilings give some clue to the situation. In June 1943, early in the occupation. No concrete action was the maximum price for rice-the most important taken, however, until December 1943 when a bill staple in the country-was reported at 22 P in com- was introduced in the assembly of the Philippine parison with an official ceiling in December 1941 of "Republic." This legislation was enacted, and ap- 6.20 P for the same quantity (a sack of 57 kg.). proved by the "President" in March 1944. A com- Market prices just before Pearl Harbor actually mission was appointed to confer with Japanese were slightly under the ceilings. In the Spring of experts on the details of establishing the new bank, 1944, new Japanese ceilings were announced. These but so far as is known it has never actually com- were 65 P for a sack of palay (unhusked rice) and menced operations. The capital of the new bank 135 P for a sack of rice in Pangasinan, Tarlac, Pam- has been reported variously, but 50 million P divided panga, Bulacan, Nueva Ecija, Zambales, and Ilocos into 50,000 shares of 1,000 P each to be supplied Norte. In Manila, Albay, Rizal, Bataan, La Union, entirely by the government appears to be the most Ilocos Sur, Baguio, Mountain Province, Abra, Cama- reasonable figure quoted. The administration of the rines Sur, Mindoro, Laguna, -and Marinduque the bank was to be in the hands of a board of directors corresponding prices were 80 P and 200 P. Prices of made up of a president and five other members. 100 P and 250 P were set for Batangas, Tayabas, They were to hold office for 5 years, except that the Cavite, Sorsogon, Camarines Norte, and Masbate. 2 1 terms of the initial members of the board were to be The number of inhabitants in Manila is estimated to have risen replacement. from about 600,000 in the pre-war period to 1,930,000 at the end of so arranged as to permit staggered 1943, allowing for some response to the Japanese program of moving According to the law, the operations of the bank people out of the city. note issue 2Reports from liberating forces on Leyte in October 1944 stated that would include in addition to the exclusive the local price of rice was 25 U. S. dollars for a "small sack" (exact privilege discussed above, the purchase, sale and amount unspecified). Under Japanese policy emphasis had been placed year. Former maximum transferable amounts upon the use of rice substitutes. The retail price of had been 100 P. A compulsory savings law was potatoes had risen from 20 centavos a kilo in 1941 enacted at the same time. Other measures were to 3 P for the same quantity in the spring of 1944. increases in interest rates on bank deposits (see This inflation in prices has favored the farmer. A page 38) to make them more attractive, and encour- statement of a Philippine Republic official reveals agement to the Philippine National Bank to reopen that the pre-war price which the farmer received for its provincial branches and agencies so that they a sack of rice was just about equal to the cost of a might draw people's savings from hoards into bank pair of shoes but that at "the present price in Ma- deposits. Deposits, of course, are much easier to nila" he would be able to buy three pairs of shoes control, and, although there have been reports that even though the price per pair had risen from 8 P limitations on the amount of withdrawals have been to 200 P. If this report is correct it indicates a market lifted it is not unlikely that some other means of price for rice of three times the official ceiling, and regulating withdrawals was substituted. Other the existence of an extensive black market. Even on counter inflationary measures adopted included the basis of official prices, the cost of living index price fixing, but the degree of success attained in (1941 = 100) stood at 385 in November 1943. that respect may be judged from the ceilings and Wages have failed entirely to keep pace with the market prices for rice quoted on page 33. upward flight of prices. A new minimum set in August 1944 for all employed persons in the Manila Domestic Transfers of Funds area was 3.5 P per day for 25 working days a month, After the postal money order service was reinsti- and 100 P for government employees. Although far tuted, limitations were placed on the amounts which below requirements in terms of real wages, such a might be transmitted by this means. As inflation monthly income represented a marked increase over developed in the Islands, the original ceilings had the pre-war level of wages. In 1940, when over 1 to be lifted. Thus, in July 1944, the maximum million people received a daily wage, only three- amount which might be sent by postal money order tenths of 1 per cent received as much as 3 to 4 P was increased from 200 P to 500 P if payable at or over. More than half of the wage earners (59 per Manila, Baguio, Cebu, or Davao; and from 200 P cent) received between 20 and 60 centavos a day, to 1,000 P if payable at the capital of Bataan, or in while 40 per cent received between 4 and 20 centa- the cities of Iloilo, Cavite, or San Pablo. No expla- vos. Of salaried workers, only one per cent received nation for the different treatment accorded various the equivalent of 3.5 P a day or 87 P a month, and areas has been given, but it may have been intended 79 per cent got less than 40 P. The increase in as encouragement to shift funds to areas which were August 1944 came after a raise ordered in 1943, relatively short of currency. when the minimum salary for government workers The transfer of funds seems to have posed a prob- was lifted from 30 P to 60 P a month, indicating lem ever since the early days of Jap occupation. abandonment of the Japanese policy of holding The slowness with which post offices were reopened down incomes in order to combat inflation. prevented the postal money order system from being Counter-inflationary fully effective. Consequently a special system of Measures drafts was introduced by the Philippine National Simultaneously with the start of the Japanese Bank. These orders were to be accepted both at occupation, the invading military administration banks and post offices. decreed measures intended to control incipient infla- It was not until June 1, 1943, that the Manila tion. Bank deposits were blocked (see page 36) and Clearing House Association was reopened. It was only limited withdrawals permitted. Moreover, all reported that the members were the Bank of the government offices, banks, and business firms were Philippine Islands, the Bank of Taiwan, the Philip- required to deduct on each pay day a certain per- pine Bank of Commerce, the Philippine National centage from all salaries in excess of 200 P a month Bank, and the Yokohama Specie Bank. Prior to and deposit it to their account in a bank. No salary that time banks refused to accept for deposit checks of over 500 P after deductions, might be paid in cash. drawn on other banks. It is doubtful, in the light of the figures cited above, if this measure affected many persons and its use- Foreign Funds Control under the Commonwealth fulness as a brake on inflation is therefore question- Foreign funds control was instituted in the Philip- able. The policy of requisitioning supplies without pines at the same time as in the United States (1940) payment in cash has been attributed in part to a and regulations of the U. S. Treasury Department desire to hold down the note circulation (see page had full force in the Islands. Transactions in which 32). Because currency in an undeveloped economy nationals of countries overrun by the Germans had is the chief means of payment and its volume and an interest were made subject to license, and prop- velocity of prime significance for inflation, much of erty owned by such persons had to be reported. the attack on the problem has been in the form of Those involved in the Philippines in 1940 were inducements to increase bank deposits. An example chiefly nationals of France and the Netherlands, is the measure adopted in the spring of 1944 per- and applications to engage in foreign exchange mitting Chinese merchants to remit as much as 500 transactions were largely to cover operations be- P to Nanking provided the remitter had at least tween banks in the Philippines and banks in Hong- 1,000 P in a Philippine bank on fixed deposit for a kong, French Indo-China, and the Netherlands East Indies. In 1941, thefreezing order was extended to privilege was extended to Chinese residents of the additional countries, including such neutral coun- Visayas. It is not known whether further extensions tries as Spain, Portugal, and Switzerland. The were permitted. The Japanese blocked or confiscated inclusion of Spain, nationals of which had very large assets of enemy aliens. The treatment of foreign interests in the Philippines, increased the volume of banks is discussed on page 37. work involved in administering this program. Since 3. Banking the foreign funds control program evolved from an When the Japanese entered Manila they found effort to prevent misuse of funds belonging to in- the banks closed and business at a standstill. The vaded countries, to a weapon of positive economic commander of the military authorities took charge warfare, it was closely integrated with an export and ordered the banks to remain closed until further control program. notice. Gradually the banking system was put into From the point of view of the Philippines, the working order with modifications imposed to meet most important inclusion in the freezing order Japanese requirements. occurred in July 1941 when China and Japan were The order to reopen the Japanese banks in Manila covered. Subsequently, Thailand, Hongkong, and (the Yokohama Specie Bank, the Bank of Taiwan, other Asiatic invaded areas (eventually including and the Manila Japanese Mutual Credit Associa- the Philippines) were blocked by the United States. tion) was issued on January 23, 1942. On February In this connection American bank examiners were 2, the Philippine National Bank', the Bank of the assigned to the two Japanese banks to supervise Philippine Islands2 , and the Philippine Bank of their transactions which might involve a violation Commerce were ordered to reopen the following day. of the foreign funds control regulation. All family In the cases of all five banks, the Japanese are sup- remittances of Chinese in the Philippines were chan- posed to have extended loans composed in part of neled through the Philippine Bank of Communica- cash confiscated from the Philippine Treasury, to tions in Manila (see page 16). A census of alien make their reopening possible. The assets of the owned property was taken; the records were used Japanese banks had been confiscated after Pearl in administering the foreign funds control, but later Harbor while the cash and securities of the other destroyed to prevent them from falling into Japa- banks and their balances in the Manila Clearing nese hands. A black list of persons and firms from House Association had been removed to Corregidor neutral and allied countries suspected of dealing (see page 31). Banks were required to submit bal- with the enemy, who did not automatically come ance sheets and ledgers as of December 8, 1941 (the under the freezing regulations, was compiled and date on which the Japanese banks had been closed their resources blocked on November 22, 1941. Each by the Commonwealth authorities), and December was given a 30-day license permitting him to do 31, 1941, and balance sheets for each week after business only within the Islands; transactions out opening. of the Islands would require a special license. After Banks at first did business from 9 a.m. until noon the evacuation of Manila, financial control in the each day. After May 26, 1942, however, when ac- Philippines by the Commonwealth ceased. cording to the Japanese, Manila "financial and busi- To protect bona fide holders of Philippine cur- ness activities [had] been remarkably returned to rency and securities after the occupation by the normalcy and steadiness," banking hours on week Japanese, the Resident Commissioner in the United days were declared to be 9 a.m. to 2:30 p.m., and on States, after consultation with the United States Saturdays, 9 a.m. to noon. The Japanese banks were Treasury and Interior Departments, issued an order permitted to do a general business but might extend on January 14, 1942, requiring the deposit of such credit only to Japanese nationals. The three Filipino paper in a bank before February 1, 1942. Full ac- banks were not permitted to engage in operations counts of these deposits were to be rendered to the beyond accepting deposits and making out-pay- New York agency of the Philippine National Bank, ments from current and savings accounts, and col- and all securities and currency not registered by the lecting outstanding debts. Later these restrictions stipulated date was presumed to have come under were probably modified to enable banks to employ enemy control. their funds profitably. Certainly investment in gov- Foreign Exchange Control under the Japanese ernment bonds must have been encouraged. The Philippine National Bank later made loans to farm- Import and export of any currency circulating in ers (see page 38). Bank management continued in the Islands either legally or illegally was forbidden the hands of former officials with Jap "advisers" on as soon as the Japanese assumed control of Manila. hand. Even when the banks reopened, they were specific- ally forbidden to engage in foreign exchange trans- Deposit Restrictions actions. Subsequently (April 1943), these were cen- Withdrawals in excess of 200 P per month were tralized with the Bank of Taiwan. forbidden from accounts with any of the reopened vThe chairman of the board, Jose Abad Santo, was reported killed. After a while Chinese in Manila were permitted Vargas became chief of the Executive Commission, and later Ambassa- to make remittances in limited amounts to the dor to Japan. Begigno Aquino collaborated with the Japanese, even leading a "Gratitude Mission" to Japan. Carmona remained in control Japanese occupied areas of China. It was reported of the bank. 2The president of this bank, Pedro Campos, was reported to have that such transfers for the first six months of 1943 died in the spring of 1944, but subsequently his name was used in came to only a little over 470,000 P or far below the Japanese propaganda broadcasts as that of an active collaborationist. Another report spoke of "Teodoro" Campos as being the present level of pre-war remittances. In June 1943, the president of this bank. banks belonging to American citizens, British sub- portedly at Legaspi, Davao, Baguio, Bacolod, and jects, or nationals of the Netherlands, Canada, Aus- Cebu. Moreover, the Southern Development Bank tralia, New Zealand, the Exiled Polish Government, established an office in Manila in July 1942. It was Union of South Africa, Guatamala, Honduras, Nica- stated that it would handle all financial transactions ragua, Dominica, Haiti, Cuba, Costa Rica, Salvador involving the Japanese Government', and would Panama, and Mexico. Other persons were permitted "take over" the investment activities of the two to withdraw as much as 500 P a month; special existing Japanese banks. Capital assigned to the licenses could be applied for in excess of this amount, Philippine branch was reported to be 31.8 million P. and sums needed to pay utility bills' were not in- It made loans exclusively to Japanese residents of cluded in the stipulated maximum. These restrictions the Islands, primarily to permit them to buy up applied not only to natural persons but to business Philippine enterprises and businesses. This bank, firms and corporations as well. An explanation at- under the terms of its charter, was to make long- tached to this order stated that "sudden and heavy term loans, leaving the extension of short-term credit withdrawals of deposits threatened to disturb the to the local Jap banks. However, there.is reason to financial world" when the banks were first opened, believe that the bank did not make any loans direct- so that some limitation had become necessary. Since ly but through the other banks. At the end of Octo- only Japanese banks were opened at first, and the ber 1943, total loans of this bank in the Philippines limitation order was issued simultaneously, this were reported at 181,137,000 P compared with 131,- must have been a convenient fiction. It was later 401,822 P at the end of August 1943. Deposits in the stated that withdrawals from "new" deposits (those Southern Development Bank likewise exhibited a made in cash after the reopening of the banks) marked increase according to the few figures avail- might be made at will. This probably was intended able. In August 1943, bank time deposits held by it to combat hoarding which had developed on a large had increased to over 13 million P compared to 2 1 scale, and to suppress inflation, symptoms of which The bank of Japan was reported to have opened a Manila branch later, but this probably meant appointing the Southern Development began to appear almost immediately. The people Bank as agent. were advised to deposit as much money as possible with banks which had reopened, and were enticed Seventeen Banks in the Philippines, to do so by a promise that those who had increased Consolidated Balance Sheet-June 30, 1941 Assets: Thousand P their deposits would receive favored treatment in Cash ...... 40,666 Due from banks...... 61,894 securing licenses for withdrawals from their old Customers' liability on acceptances ...... 260 balances. After 20 months of Japanese occupation, Loans, discounts, and overdrafts...... 246,692 Investments ...... 31,054 in September 1943, it was announced that an average Prem ises, etc ...... 5,360 of 10,000 P had been paid out per depositor, and that Other real estate owned ...... 6,570 Other assets ...... 8,994 onljr 40 million P of frozen deposits remained "unre- Total ...... 396,490 funded," with restrictions gradually being removed. Liabilities: These frozen deposits, said to comprise all deposits Capital ...... 55,742 Surplus ...... 14,742 accepted by Philippine banks before the war, were R eserves ...... 12,640 Undivided profits ...... 1,846 reported at 120 million P when the banks were first Total deposits: ...... 277,272 reopened in January 1942. This is a substantial drop Demand ...... (156,290) Time (including postal savings)...... (116,476) from the total of 167 million P (excluding deposits Other (including cashier's checks)...... (4,508) of 54 million P of public funds) reported on the com- Acceptances ...... 260 Bills payable ...... 5,244 bined balance sheet for November 1, 1941 (see page Other liabilities ...... 28,744 37). Either there were considerable withdrawals Total ...... 39 ,490 between that date and the fall of Manila, or some Distribution of Loans, Discounts, and Investments exclusions have been made from the later figures. Loans and Discounts: • Thousand P Commercial and industrial loans...... 63,324 Agricultural loans ...... 6,402 Bank Operations Open market paper ...... 2238 Loans on securities...... 178 Domestic banks, other than those allowed to re- Real estate loans: ...... 62,474 On farm land...... (36,862) open immediately, remained closed except for the On residential property ...... (22,974) opened on Other ...... (2,638) Banco Hipotecario de Filipinas which All other loans ...... 112,0718 April 19, 1942. Lack of cash was given as the reason Total ...... 246,692 for the failure of the others to resume operations Investments: of U. S. Government obligations ...... 4,352 although it may have been partly unwillingness Obligations of political subdivisions...... 18,246 the management to collaborate since two of this Obligations of U. S. Government corporations not guaranteed by U.S ...... 2,024 group were the Monte de Piedad and the Philippine Domestic public utilities...... 1,124 which were under the control of the Foreign, public and private ...... 1,982 Trust Company Stock : ...... 3,326 Archbishop of Manila who was an Irish Free State Domestic ...... (3,186) finally, however, that they Foreign ...... (140) citizen. It was announced, Total ...... 31,054 had opened in March 1944. SIncludes: Bank of Communications, Bank of the Philippine Islands, The Japanese banks flourished. Additional Hongkong and Shanghai Banking Corp., Banco Hipotecario, Philippine National Bank, Philippine Trust Co., Bank of Commerce, China Bank- branches of the Bank of Taiwan were opened, re- ing Corp., People's Bank and Trust Co., Yokohama Specie, Chartered Bank, Monte de Piedad, Bank of Taiwan, Nederlandsch Indische f The utility companies had been put under Japanese management and and control immediately upon occupation, and even after nominal Handelsbank, Bank of the Commonwealth, Postal Savings Bank, "independence" was accorded the Philippines in October 1943, the Agricultural and Industrial. Japanese kept these services in their own hands. Excludes: Manila branch of the National City Bank of New York. Combined Condition Statement of all' Tayabas, Zambales, Zamboanga, Albay, Batangas, Banks in the Philippines Nov. 1,.1941 Bulacan, Cagayan, Camarines Norte, Camarines Assets: (Million P) Sur, Cavite, Ilocos Norte, Isabela, Laguna, Total loans, discounts, and overdrafts...... 206.4 Min- Total investments ...... 31.1 doro, Nueva Ecija, Nueva Vizcaya, Negros Occi- Due from head offices ...... Due from banks in the Philippines...... 1.8 dental, Pampanga, Rizal, and Surigao. So-called Due from banks outside the Philippines...... 29.2 "sub-agencies" were opened at Bauad and Taal in Cash on hand...... 60.4 Balances in clearing account...... 23.5 Batangas, at Baliuag, San Miguel, Santa Maria, All other assets ...... 18.1 Balacan, Hagony, and Meycauayan in Balacan, and Total ...... :...... 370.3 Angeles, San Fernando, and Guagua in Pampanga. Liabilities: Total net circulation ...... 1.3 In March of 1944, it was reported that all but five Demand deposits ...... 88.5 of the provincial branches of the Philippine National Savings deposits ...... 57.9 Time deposits ...... 20.4 Bank had been reopened. Those which remained Deposits of public funds...... 53.7 Due to head offices of foreign banks...... 35.1 closed were said to have been destroyed during the Total capital of domestic banks...... 28.9 fighting, and their records lost. Two branches were Surplus, reserves, undivided profits ...... 28.4 Due to other banks in the Philippines...... 1.6 added later: at Viagan in Ilocos Sur and at Orani in Due to banks in the clearing house ...... 23.5 Bataan. Due to banks outside the Philippines...... 11.2 All other liabilities...... 19.6 Total ...... 370.3 Liquidation of Foreign Banks s Excluding the Agricultural and Industrial Bank and the Postal Savings Bank. Foreign banks in the Philippines were put under the administration of the Bank of Taiwan for ad- million P in April of that year, while "correspond- ministration and liquidation. With the announce- ent" deposits during the same period jumped from ment of intended liquidation it was stated that an 200,000 P to 32.8 million P. Early in 1944, it was amount equivalent to the capital of each bank said to hold 200 million P bankers' deposits on which plus the deposits of enemy nationals was to be con- it paid interest of 3.5 per cent. It opened branches in fiscated.' Debts were to be paid from the balance Cebu, Bacolod, and Gaguo. and the remainder distributed among depositors No statements of condition of banks operating in excluding enemy nationals who might make with- the Philippines under the Japanese are available. A drawals of 200 P on authorized occasions. This had consolidated statement for the end of the fiscal year been done three times up to August 1943. In calcu- (June 30, 1941), is given on page 36 together with lating the capital of those banks to be liquidated details on loans and investments for the same date. which were not domestically incorporated, presum- The last reported before the occupation is given in ably use was to be made of the formula devised to the table above. The only subsequent information is determine the bank capital tax (see page 11). Some in regard to deposits, but reports are conflicting and of the assets of the foreign banks had been removed appear unreliable. Total deposits were said to have before the Japanese reached Manila. Cash and a con- been 275 million P on June 30, 1943, and 312 million siderable quantity of securities were deposited with P on September 30 of this year. Total savings depos- the High Commissioner (see page 31). In addition, its on June 30, 1944, were put at 416 million P, of these banks held largely import and export bills, and which 190 million was said to have been held by Jap had made advances against exportable goods in banks, and 226 million by 7 Filipino banks. Latest warehouses. The assets of the domestically incor- reports place total deposits at the end of August 1944 porated People's Bank probably were more largely at 561.6 million P, said to be an increase of 166.5 made up of domestic loans. million P over the total at the end of July. These Liquidation dividends are reported to have been figures compare with 167 million P deposited in all made four times. The second was made on May 7, banks in November 1941, exclusive of deposits of 1943, for the following banks: National City Bank public funds. Including the latter, total deposits at of New York, the Philippine Bank of Communica- that time were 221 million P. tions', the Chartered Bank of India, Australia, and China, the Nederlandsch Indische Handelsbank, the Philippine National Bank Branches People's Bank and Trust Co., and the Hongkong and Shanghai Banking Corporation.The third liqui- On March 19, 1942, three branches of the Philip- dation dividend of foreign banks was made on Sep- pine National Bank were authorized to reopen. tember 1, 1943. A fourth liquidation payment on These were the Cabanatuan, Legaspi, and Tarlac peso deposits in the enemy banks was announced branches. Restrictions for the branches were more for October 1944, in the amount of 500 P to Japa- severe than for the Manila banks. Withdrawals nese, Filipinos, and third-party nationals (but pre- were, limited to 100 P a month to meet living ex- sumably not enemy aliens since receipt of payment penses, except in the case of new deposits when involved personal appearance at the Bank of withdrawals to the amount of 500 P a month were Taiwan). An exception to the 500 P limit was said permitted. Daily cash reports were required to be to have been made in the case of the Hongkong and made to the Japanese Military Administration. By Shanghai Banking Corporation from which total September 1943, there were branches in operation again at Bayombong, Dagupan, %Although the Bank of Communications was included in this list, Baguio, Lucena, a later report stated that in October 1943 this bank was making its Cebu, Iloilo, Davao, Tuguegarao, Ilagan, and Baco- first payment of 50 per cent of the sums due to creditors and depositors. This may have been a confusion with the domestic Bank of the lod. Agencies had been, reestablished at Tarlac, Commonwealth which was not reopened. remaining balances might be withdrawn. The right Building and Loan Associations to balances unclaimed within a short time would be Once conditions under the Japanese forfeited. stabilized, It is not clear whether the China Banking the associations presumably were able to resume Corporation was included among the banks liqui- operations, although the only reference to their dated under the administration of the Bank of activities is to be found in a report that they were Taiwan. Although a domestically incorporated bank, to be permitted a wider field of investment it under appears to have been treated as enemy property. an ordinance which allowed them to invest in bonds like the People's Bank, and not reopened. The man- issued or guaranteed by the Republic of the Philip- ager, Albino SyCip was reported to have been ex- pines. Since they always had been allowed to invest ecuted immediately after the occupation. in government bonds (see page 24) it is rather sur- prising that this required special permission and Interest Rates something less obvious may be meant. Conflicting reports have been received on interest rates. Thus it was reported on April 29, 1943, that Agricultural Credit new rates of interest were to be paid on. deposits. The problem of agricultural credit has proved as These were 3 per cent (up one-half per cent) on time vexatious to the Japanese as to others. In their case deposits, 2 per cent on special exchange deposits (up the urgent necessity for putting the Philippines on a one-half per cent), and 2 per cent on long-term self-supporting basis in regard to food supply en- deposits (up seven-tenths per cent). Two months hanced the anxiety to see an adequate flow of credit later there was a report that rates of interest on into the hands of farmers. Announcements have been May 1 had been raised from 5 to 10 per cent on made from time to time of activities of branches and demand deposits, and to 16.6 per cent on fixed de- agencies of the Philippine National Bank in extend- posits. These seem very high and it is difficult to see ing small loans on easy .terms to cultivators. Propa- how banks, prevented from engaging in profitable ganda to the contrary notwithstanding, this appears activities (see page 35), could have earned enough to be merely a continuation of the operations of this to pay such rates. bank prior to the occupation. It has also been an- nounced that the Bureau of Plant Industry would extend loans at the rate of 20 P Bank Control per hectare to small farmers for the purpose of increasing rice production, Under the new government, as set up by the Japa- and 700,000 P were reported to have been appro- nese, there was a Bureau of Financing in the Depart- priated in the fall of 1943 for this purpose. This ment of Finance. This Bureau was charged with the probably represented merely a transferral of the supervision and inspection of banks and banking function of the Agricultural and Industrial Bank institutions, insurance companies, mutual benefit, which previously had made such loans out of the relief and benevolent associations, trusts for chari- Agricultural Cooperative Fund (see page 21). This table uses, and other institutions engaged in the bank did not reopen until January 10, 1944, despite extension of credit facilities. For the time being, numerous earlier statements that it was about to do however, banks and other financial institutions re- so. During the interval, after the latter part of 1942, mained under the direct control of the Japanese it merely collected on outstanding loans. It has been Military Administration which exercised close reported that it was finally given a loan by the supervision "with a view to prevent funds from Japanese to permit it to begin operations again. being used for purposes not urgent or inappro- priate". The first head of the Bureau of Financing Postal Savings System was Pedro de Jesus who had been Bank Commis- The first Japanese order concerning the reopening sioner under the Commonwealth. of the Postal Administration in the Philippines, Other instrumentalities of control of the financial. dated February 21, 1942, specified that "rates of system were devised later. A Bureau of Credits and interest on postal savings shall be, for the time being Investments was established in 1944 to coordinate same as hitherto. Before reopening the services of all financial activities. Its functions were to include postal money order and the savings bank, neces- the prevention of speculation on the part of local sary preparation such as setting a limit in the investors, and the maintenance of a steady balance amount of money to be withdrawn, shall be made in between the production of goods and the amount of order to smoothly carry out the work." This had money in circulation. A bill signed at about the been done already the previous day by Executive same time subjected credit institutions, for the dura- Order No. 8 issued in the name of Vargas, Chairman tion, to such orders, rules, and regulations as the of the Executive Commission. Without special per- President of the Philippines might promulgate. This mission from the Commissioner of Public Works and apparently superseded supervision and regulation Communications, withdrawals by married deposi- by the. Bank Commissioner. The President later tors were limited to 50 P a month, and those of delegated this power to the Minister of Finance who unmarried depositors to 30 P. The restrictions did was to "assume and exercise" the powers generally not apply to deposits made after the reopening of exercised by the board of directors of each bank. the Postal Savings Bank. One million P of the 2 mil- There are indications that a number of "fly-by- lion deposited by the Chief of the Military Adminis- night" investment and loan enterprises had sprung tration in the Philippine National Bank for the use up to fish in the troubled waters of inflation. of the Central Administrative Organization was ear- marked for payment of withdrawals from deposits holder, whatever his nationality, resulted from in the Postal Savings Bank and for cashing postal direct or indirect hostile action against the Japanese money orders. It is curious that the Postal Savings forces. (3) Investments of insurance companies were Bank did not have any funds of its own with which to be governed by regulations to be issued in due to meet withdrawals. It is possible that they had course by the Chief of the Financial Department of been confiscated during the course of the occupation. the Military Administration Office. (4) Payments Postal services of all kinds were re-instituted only of operating expenses, bonuses to directors,. and gradually, beginning with Manila. In September payments of dividends were subject to permission 1943, it was announced that 411 post offices through- from the Japanese Military Administration Office. out the Islands were doing postal savings business., (5) Insurance companies were to submit to the This compared with 1,049 for December 1941. Sub- Japanese Military Administration Office a balance sequently additional offices resumed this business, sheet showing their financial condition as of the end but no more recent total is known. of each month. (6) The Japanese Military Adminis- tration Office was authorized to ask for the submis- 4. Insurance Companies' sion of statements, reports, and other data whenever In the spring of 1942, the Director-General of the considered necessary. The Administration Office was Japanese Military Administration announced that also authorized to appoint inspectors or examiners the Commander-in-Chief of the Imperial Japanese to inspect books, accounts, minutes of stockholders' forces in the Philippines had approved the reopening and directors' meetings, and other records of insur- of the Filipinas Life Assurance Company, the Insu- ance companies, and to supervise their business lar Life Assurance Company, Ltd., and the Na- operations. tional Life Insurance Company of the Philippines. Simultaneously, the Financial Department of the These companies were required to cooperate closely Military Administration Office announced that addi- with the Japanese Military Administration and to tional companies would be permitted to reopen for conduct their operations in conformity with the fol- business, provided they could show that they were lowing stipulations: (1) Claim payments to na- financially strong and not connected with enemy in- tionals of enemy countries were to be deposited in a terests. It is not known which, if any, other com- bank account in the name of the insurance company panies were reopened. and were to be blocked. Applications for withdrawals A radio broadcast from Tokyo in April 1944, an- from such accounts, if considered absolutely neces- nounced that insurance companies in the Philippines sary, were to be filed with the Financial Department had been placed under governmental supervision of the Japanese Military Administration Office. through an executive order amending a previous (2) Payments to beneficiaries of life insurance ordinance regarding insurance, and that a trust and policies were prohibited- if the death of the policy- investment chief would supervise the companies and issue orders and regulations with the approval of the SSection prepared by Foreign Research Division of the Federal Reserve Bank of New York. "Minister" (presumably the Minister of Finance).

A U. S. GOVERNMENT PRINTING OFFICE: 1944-621262