BANKING AND FINANCIAL INSTITUTIONS

Banking Theories

 The Commercial Loan Theory. This holds that banks should lend only on short term, self
liquidating commercial paper. A short term loan is one that matters in less than one year. Self
liquidating loans are those that generate the funds necessary to pay them off. A commercial
paper refers to the dets that arise in the course of commerce, which is the processing the
moving and the marketing of goods
The theory suggests that a bank must be liquid. Loans granted should be limited to financing the
production of goods. In this way, loans have lesser risks because repayment will depend on the
sales of goods. Thus, loans will be safe because thy are supported by the existence of goods and
loans will be self-liquidating because when goods are sold, collections will be used to pay the
loans on banks.
Banking Theories

 The Shiftability theory. This holds that the liquidity of a bank depends on its ability to shits its
assests to another entity at a predictable price. Liquidity is tantamount to shiftability. Bankers
and banking institutions must be directed towards investments as a source of bank liquidity
rather than to loans.
 The Anticipated income theory – this holds that there is no such thing as self-liquidating loans.
Goods will not sell themselves nor is there any guarantee that the goods will be as valuable
tomorrow as they are today. This theory encourages banks to extend long term loans,
consumer installment loans and amortized real estate mortgage loans.
Bank Terminologies

ATM
abbreviation of Automated Teller Machine: a machine, usually in a wall outside a bank, from
which you can take money out of your bank account using a special card.

Offsite ATM – ATMs located away from the bank branch

Onsite ATM - ATMs located at the bank premises
Bank Terminologies

 bank balance - the amount of money in a bank account.

 bank charges - sums of money paid by a customer for a bank's services

(falling below the maintaining balance, dormancy charges, late funding fees)
 bank statement - a printed record of the money put into and removed from a bank account
 Bounce -when a check cannot be paid or accepted by a bank because of a lack of money in
the account:
 credit card - a small plastic card which can be used as a method of payment, the money
being taken from you at a later time.
 Dormant account – account without transaction for a period of two years
Bank Terminologies
 direct debit - an arrangement for making payments, usually to an organization, in which your
bank moves money from your account into the organization's account at regular times:
 NSF - Non Sufficient Fund

 Overdraft - The act of overdrawing a bank account.

 Maintaining Balance – bank balance required for an account to avoid penalties and charges

 Balance to earn Interest – required balance of an account to be able to earn interest

 ADB – Average Daily Balance total of balances in a month divided by the days in that month.
Bank Terminologies

 References

 Money Credit and Banking by Feliciano Fajardo and Manuel M. Manansala

 Introduction to Philippine Money Credit and Banking by Ruby Alminar Mutya
 Banking Theories and Management by Michael Brandl

Prepared by: Prof. Ma. Nonette M. Merene MBA, LPT