In the Philippines financial system, the government plays an active role in the flow of money in the economy through

the
Bangko Sentral ng Pilipinas (BSP). The BSP regulates the operation of financial institutions and financial intermediaries.
The basic elements of a financial system are as follows:
1. Financial institutions 3. Financial instruments
2. Financial markets 4. Lenders and borrowers
Only the first three elements will be discussed in the succeeding sections since these concepts are new to you.

Money, credit, and finance are used as medium of exchange in financial system. They serve as a medium of known value for
which goods and services can be exchanged as an alternative to bartering. A modern financial system may include banks (public
sector or private sector), financial markets, financial instruments, and financial services. Financial system allows funds to be
allocated, invested, or share the associated risks.

Financial Institutions
People commonly equate financial institutions with banks. However, the term does not simply refer to banks. Financial institutions
are institutions or organization that provide financial services, among others, in the form of loan, credit, funds administration,
financing, depository, and safekeeping. Financial institutions, therefore, is a broad term that encompasses all organization that
provide the aforementioned financial services.
Financial institutions, based on the financial services provided, are generally classified as follows:
1. Depository instructions 2. Financial intermediaries 3. Investment institutions

1. DEPOSITORY INSTITUTIONS are financial institutions that accept deposits (savings, current, and time deposits) from individuals
and corporate entities, extend loans to borrowers, transfer funds, and manage funds or investment purposes.
Depository institutions include the following:
1. Banks 3. Trust companies
2. Savings and loan association 4. Credit unions

Banks. Banks are institutions authorized to operate and regulated by the BSP under the General Banking Law of 2000. They
accept deposits and bills payment, provide loans, and facilitate the transfer of funds domestically or abroad.
Under BSP Circular No. 271, the major classifications of banks operating the Philippines are as follows:
a. Universal bank d. Rural bank
b. Commercial bank e. Cooperative bank
c. Thrift bank f. Islamic bank

Universal bank. A universal bank is considered the biggest bank in terms of assets, loan portfolio, and revenue. In addition to
ordinary services, a universal bank may perform the following:
a. Involve in underwriting activities engage in financial activities of investment houses
b. Engage in financial activities of investment houses
c. Invest in equities of non-banking institutions

Less than 50 universal banks are operating in the Philippines as of this writing. The minimum capital requirement of a universal
bank with more than 100 branches is set by the BSP at ₱20 Billion in compliance with BASEL III requirements.

Commercial bank. It is a type of bank that provides commercial loans and offers investment products in addition to the regular
banking services of accepting deposits. Compared to a universal bank, it has more limited banking services. Commercial banks
are bank ranked next to universal banks in terms of assets, revenue, general loan portfolio, and number of branches operating
across the country. The minimum capital requirement of a commercial bank is also lower compared to that of a universal bank.

Thrift bank. Thrift banks, as defined in Republic Act. No. 7906, include savings and mortgage banks, private development banks
that are organized under existing laws for the following purposes:
a. Accumulating and investing the savings of depositors
b. Providing working capital to business engaged in agriculture, services, and housing
c. Providing diversified financial services to individuals and small and medium enterprises
 Rural bank and cooperative bank. Rural and cooperative bank are organized and operating in rural areas. They are
intended to promote and expand the rural economy by providing the people with basic financial services. Rural and cooperative
banks differ from each other by ownership. Rural banks are privately owned and managed while cooperative banks are
organized and owned by cooperatives or a federation of cooperatives.
Islamic bank. The Islamic bank, which has been created and organized under R.A. No. 6848, aims to promote and accelerate
the socio-economic development of the Autonomous Region of Muslim Mindanao by performing banking, financial, and
investment operation and establish and participate in agricultural, commercial, and industrial ventures based on Islamic concept
of banking.
All business dealings and activities of the Islamic bank are subject to basic principles and rulings of Islamic Sharia Law-is a
religious law forming part of the Islamic tradition. It derived from the religious precepts of Islam, particularly the Quran and the
Hadith.
Savings and Loan Association. A savings and loan association, sometimes referred to as a financing and mortgage loan
company, is a financial institution that the engaged in the business of accumulating the savings of its members and
stockholders, and using such accumulations for loans or investments in securities in productive enterprises. The savings and loan
association, which can be stock or non-stock, is created and regulated under R.A. No. 3779, as amended by R.A. No. 4378.
Trust Companies. A trust company is a legal business entity, usually a major division of a universal or commercial bank, that
acts as a fiduciary agent or trustee on behalf of a individual person or corporate entity for the purpose of management,
administration, and final transfer of property to the beneficiary.
In other word, the trust company acts as the custodian of the property for and on behalf of the beneficiary for a fee. It also
performs the following related custodial tasks:
a. Asset Management c. Stock transfer
b. Ownership registration for the beneficiary d. Custodial arrangement like in court proceedings

Credit Unions. A credit union is a financial depository institution that is mainly controlled and operated by its member for the
following purposes:
a. Extending credit to members c. Promoting the concepts of thrift
b. Offering competitive interest rates d. Providing other types of financial services