A new BSP publication: Risk and Resilience in the Philippine Financial System

I recently came across an interview with Mervyn King, former Governor of the Bank of England, in Central Banking magazine (“Mervyn King on his career and big ‘mistakes’,” Central Banking). Looking back on the Global Financial Crisis (GFC), he said that the problem was not only the scale of the threat facing major banks but also the lack of preparedness of authorities to deal with it. While recognizing the need for emergency intervention, he cautioned against treating massive public support as the primary answer to financial crises. Instead, he stressed the importance of building robust institutional frameworks beforehand to limit fiscal costs and make future crises more manageable.

King’s point resonated with me because countries like the Philippines cannot assume that vast fiscal resources will be available when a crisis hits. We therefore have to learn from crisis episodes and ensure that institutions do the hard work beforehand. This is what Risk and Resilience in the Philippine Financial System: How Much Has Changed? is about. The book examines how the Philippines has confronted successive episodes of financial stress over four decades and how each episode prompted reforms and gradually strengthened the country’s capacity to withstand future shocks.

HOW THE BOOK CAME TO BE
The idea started with a lecture. I had listened to Dr. Ramon Moreno talk about three American financial crises — the Savings and Loan debacle, the GFC, and the collapse of Silicon Valley Bank — and came away thinking: We need something like this for the Philippines. I suggested to Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. that we commission a volume grounded in our own experience. He agreed. In his foreword, he puts it plainly: the story is “one of resilience built slowly and unevenly, but deliberately.” That accurately describes what the book delivers.

The book’s key contribution is preserving something that policy papers and staff reports cannot: the judgment behind the decisions. Former Prime Minister Cesar Virata and former Central Bank Governor Jaime Laya recount what it was like to manage the fallout from the 1981 Dewey Dee crisis: the panic, the improvisation, and the discovery that conventional tools weren’t working. Bancom insiders Walter Wassmer and Jose Querubin, now themselves Monetary Board members, describe the shock of watching a thriving institution collapse around them. These are not academic reconstructions but the recollections of people who were in the room.

The editors, Ramon Moreno and Veronica B. Bayangos, tie the episodes together in their overview chapter by tracking two threads across four decades: the country’s macro-financial buffers (reserves, debt sustainability, fiscal space) and recurring cycles of credit expansion and correction. What emerges is a picture of vulnerability that narrowed over time, unevenly and not always by design, but with enough cumulative effect to change how the system absorbed each successive shock.

The individual crisis chapters each bring something distinct. Justin Ray Angelo J. Fernandez and Governor Remolona use Minsky’s framework to show how the debt-led growth of the 1970s systematically narrowed the country’s margins of safety until the 1983 moratorium became inevitable, and then trace the painful decade it took to achieve real balance-sheet resolution through the Brady Plan. Johnny Noe E. Ravalo reframes the 1981 Dewey Dee default, less than one percent of outstanding private credit, as a textbook case of systemic contagion through liquidity interlinkages; his 10 action items for managing systemic risks read less like academic recommendations and more like an agenda for the next Financial Stability Coordination Council (FSCC) meeting.

Subsequent chapters show how resilience was built and tested across successive shocks. Diwa C. Guinigundo and Faith Christian Q. Cacnio trace the reforms that followed the Asian Financial Crisis, from inflation targeting and reserve accumulation to banking and exchange rate reforms, which proved decisive when the GFC arrived. As Dante B. Canlas, Hazel C. Parcon-Santos, and Jose Adlai M. Tancangco show, the BSP was then able to respond forcefully through monetary easing, liquidity support, and FX intervention. Ms. Bayangos, Zeno Ronald R. Abenoja, and Dennis D. Lapid document how a combination of fiscal-monetary coordination, regulatory forbearance, the FIST Act, and digitalization helped the system weather the pandemic, while Ms. Bayangos, Elisha G. Lirios, and Benjamin E. Radoc, Jr. examine smaller stress episodes that underscore the value of continued vigilance.

WHO SHOULD READ IT, AND WHERE THE WORK STILL LIES
The natural audience is policymakers and regulators, but the book has broader value than that. Educators will find case studies, rich with institutional detail and grounded in a developing-country context. Students of economics and finance will see that real-world crises are shaped as much by political economy, institutional history, and human error as by the models they study in class. Finance professionals working in the Philippine system will better understand why the rules they operate under exist — because every major regulation traces back to a crisis that exposed a gap. Too, the book is for the next generation, who have no memory of financial crises and may be inclined to assume, “this time is different.”

Any book that covers this much ground will raise more questions, which is part of its value. The comparative framing across episodes raises a natural next question: can we distill what we have learned into frameworks and tools that regulators can reach for before the next shock, rather than reconstruct them after it arrives? This points to the next stage work of building the operational architecture that would let the BSP and the FSCC turn these historical lessons into standing protocols and crisis simulations. Several things stand out as priorities:

1. Legislation that gives regulators the authority and flexibility to act quickly when systemic risks emerge outside traditional banking.

2. Stronger oversight of non-bank financial intermediaries, where risks increasingly migrate and where regulatory perimeters have not kept pace.

3. Preparedness for technology-driven risks, including those posed by artificial intelligence, which could amplify contagion or create entirely new channels of financial instability.

These are areas where the BSP, Congress, the Securities and Exchange Commission, Philippine Deposit Insurance Corp., and the Insurance Commission need to work together — and with industry.

WHY I AM WRITING THIS
Over the course of my career (two decades as a board director at BPI, public service up to Undersecretary at the Department of Finance, engagements with the IMF, World Bank, and ADB, years as an economist at GlobalSource Partners, and independent directorships across industries), I have learned that you do not build a resilient financial system by waiting for the next crisis to reveal what should have been done earlier. You build it by studying past episodes, talking about them, and doing the institutional work before the pressure is on.

That is what this book makes possible. It is a foundation. Now we need to build on it.

Romeo Bernardo is a member of the Monetary Board. The views herein do not necessarily reflect those of the Bangko Sentral. The entire book may be downloaded for free through this link: https://t.co/Dvv2DGjwTm

romeo.lopez.bernardo@gmail.com