The Major Sources of Commercial Bank Funds are as Follows:

Deposit Accounts

1. Transaction deposits - demand deposit accounts or checking account

a. Demand Deposit Account- can be withdrawn through issuing a check; usually non-
interest bearing (no risk); the money should be available anytime

NO INTEREST- compensates for the cost in handling checks (checking, clearing-

additional costs); to compensate for its accessibility

2. Savings deposits- access to the saving account is thru withdrawal (not check)
3. Time deposits
o Deposits that cannot be withdrawn until a specified maturity date.
● Earns higher than SA deposits, has a specified maturity date
● Usually with a term of 30 to 360 days
○ The longer the term, the higher the interest rate (interest rates are reduced in the
pandemic)
○ Anytime you want to access, you will be subject to pre termination penalties
● Certificates of deposit, no secondary market for CDs/NCD (not tradeable)
● Subject to pre-termination penalties

○ Withdrawing funds before maturing date

Bank Sources of Funds

Borrowed Funds

1. Due to Other Banks

2. Bills Payable (indebtedness to other banks)
A. BSP (rediscounting and other advances)
B. Interbank Loans Payable
C. Other Deposit Substitutes
D. Others

> Interbank Call Money Market

● An interbank call money market is a short-term money market which allows for large financial
institutions to borrow and lend money at interbank rates.
● The loans in the call money market are very short, usually lasting no longer than a week.
● These so-called money market loans are often used to help banks meet reserve requirements.

○ To satisfy the bank’s compliance to the reserve requirements

 ○ Banks are required to setup account in BSP, equivalent to the reserve requirement

○ In the PH, they need to meet 12% of their total deposits (savings and demand deposit)

> BSP rediscounting facility - is a privilege of qualified banks that have approved and active
rediscounting line with the BSP to obtain loans or advances BSP using the eligible papers of its end-user
borrowers as collaterals. It is a standing credit facility to help banks meet temporary liquidity needs by
refinancing the loans they extend to their clients.

3. Repurchase (repo)/reverse repurchase (reverse repo) agreements

➢ Represents the sale of securities by one party to another with an agreement to repurchase the
securities at a specified date and price. (repo)
○ You are using your securities as collateral to obtain funds
➢ Reverse repo is a short-term agreement to purchase securities in order to sell them back at a
slightly higher price.
➢ Reverse repo/repos are used for short term borrowing and lending, often overnight.
➢ The bank sells some of its government securities (such as Treasury Bills) to a corporation with a
temporary excess of funds and buys those securities back shortly thereafter.
➢ The government securities involved in the repo transaction serve as collateral for the corporation
providing the funds to the bank.

Long-term Sources of Funds

1. Bonds issued by the Bank

a. To raise long term funds
b. To finance long term assets- fixed assets (lands, building)
2. Bank Capital
● Primary capital - common stock, preferred stock, retained earnings
● Secondary capital - from issuing subordinated notes and bonds