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If you want to properly understand the history of banking in the Philippines, it would do you good to realize that in this country "business is born, and flourishes or fails, not so much in the market place as in the halls of the legislature or in the administrative offices of the government."

That quote is perhaps the most memorable from Booty Capitalism: The Politics of Banking in the Philippines. I just finished my whirlwind reading of the book and I highly, highly recommend it, especially to bankers, if you want to get a big picture of your field. Just skip the first few chapters if theory bores you. But I expect that you'll be surprised, just as I had been, to discover that banking here has a colorful history of scandal and conflict. It's not clean; it's not a field devoid of politics.

I summarize in bullet points my major takeaways:

• One thing is consistent: our banking sector is and has always been dominated by major families. Families went into banking, not so much for profit and productive enterprise, but to fund their business interests (look up DOSRI loans). The loan portfolios of many banks were milked excessively by their owners. This led to the major bank failures (and bank runs) of the 60's, 70's, and 80's.

• Government regulation by the Central Bank is influenced by personal, familial connections. Owners of banks which failed but had ties with the administration were bailed out, even if the state of the bank was hopeless, costing millions and then billions in taxpayers money. They took our money and ran. This is true pre, during, and post martial law years.

• Government regulation of the sector is weak. Central Bank officers can be sued personally for duties done officially. So whenever some anomaly was discovered by bank regulators, the strategy was to sue their asses off, intimidate with lawsuits. Now I'm not sure if I read it in this book or some other, but I remember reading about how the Central Bank never won a case. If that's true, it's incredible.

• Consumer banking remains an incredibly protected industry, with the top 5-ish banks essentially forming a cartel. I just confirmed with a friend yesterday that foreign banks are not allowed to establish more than 6 branches. You can confirm this by experience - have you ever seen a lot of Citibank branches? The author contends that this is the reason why real interest rates for savings deposits by major banks are so low while they are able to charge high lending rates. (No wonder my peso accounts do not yield me as much as my dollar ones abroad!)

In the end, the book has urged me to reflect seriously about banking reform in the Philippines. What should be its scope? Ramos tried to break up the cartel by attempting liberalizing the banking sector just as he had successfully done in telecommunications (now we have a more efficient PLDT and BayanTel) and in the airline industry (hurray for Cebu Pacific competing with Philippine Airlines). Should this administration push for the same kind of liberalization and see if it succeeds where Ramos failed?

What can be done to strengthen bank supervision? Incidentally, there is this bill in consideration that provides immunity to BSP officials from charges arising from shutting down errant banks. But I am not sure if this is the right way to proceed. Perhaps we should also revisit bank secrecy laws that protect DOSRI loans.

You did not hear at all about banking reform during Monday's SONA, and it's probably safe to say it is not in this administration's agenda. The priority appears to lie in infrastructure, social development programs, and corruption. Perhaps, rightly so. But the financial sector plays such a key part in all of this, in development - indeed, it almost seems like a prerequisite - that I think this should also be reviewed.