Financial

Intermediaries
& other participants
 FINANCIAL
INTERMEDIARIES
Overview
Benefits of Financial
Intermediaries

Classifications of Financial
Intermediaries
Acceleration of flow of
funds between entities Financial
intermediaries
FINANCIAL facilitate by providing
INTERMEDIARIES a platform for
borrowers and
lenders to meet and
FINANCIAL transact, which
LENDERS BORROWERS
MARKETS reduces the time and
effort required for
such transactions.
 Efficient of
allocations of funds
Financial intermediaries help to allocate funds
efficiently by providing access to a diverse range of
investment opportunities and pooling resources to
enable small investors to participate in larger
transactions.

Money Creation
Financial intermediaries have the ability to
create money through the process of
fractional reserve banking, which involves
lending out a portion of the deposits they
hold, thereby increasing the money supply and
stimulating economic growth.

MONEY CREATED = NEW DEPOSIT

RESERVE REQUIREMENT
 P rice
o rt in
Supp ery
Disc ov

Financial intermediaries help to support

price discovery by providing market
participants with information on market
conditions, supply and demand, and other
relevant factors that affect the pricing of
financial assets.
Improve Liquidity
for Lenders
Financial intermediaries help to
improve liquidity for lenders by
providing a secondary market
where lenders can sell their
assets, thereby freeing up
capital for other investments.
 Reduced Financial intermediaries
help to reduce price risk for
Price risk lenders by pooling funds

for Lenders from different sources and

diversifying their
investments, which helps to
spread risk and reduce the
impact of any single
investment on the overall
portfolio.
Diversification of
Lenders
Financial intermediaries help to
diversify lenders by providing
access to a range of different
borrowers and investment
opportunities, which helps to
spread risk and reduce the impact
of any single borrower or
investment on the overall portfolio.
Financial intermediaries benefit from economies of scale by
pooling resources, which allows them to achieve lower
transaction costs and provide better returns for investors.
Economies of scale are cost advantages companies
experience when production becomes efficient, as costs can
be spread over a larger amount of goods.

Economies of Scale
Payments system
Financial intermediaries
provide a payments
system that enables
individuals and businesses
to transfer funds securely
and efficiently.
Financial intermediaries help to mitigate risk by providing
services such as insurance, hedging, and risk assessment,
which help to protect investors against unexpected events
and market fluctuations.

Risk Mitigation
Implementation of
monetary policy
function
Financial intermediaries play a crucial
role in implementing monetary policy
by providing a platform for the
transmission of interest rate and other
policy signals from central banks to the
wider economy.
 Financial intermediaries
help to intermediate
between investors with
different maturity
preferences, by borrowing
short-term funds and
lending them out over a
longer period, which helps
to match the needs of
Maturity different types of investors.

Intermediation
Risk reduction through
Diversification
Financial intermediaries help to
reduce risk through diversification,
by pooling funds from different
sources and investing in a diverse
range of assets, which helps to
spread risk and reduce the impact
of any single investment on the
overall portfolio.
Financial intermediaries help to reduce costs associated with
contracting and information processing by providing
expertise, standardizing contracts, and providing access to
information and analysis, which helps to reduce transaction
costs and improve efficiency.

Cost reduction for

contracting and
Information Processing
CLASSIFICATIONS
OF FINANCIAL
INTERMEDIARIES
 DEPOSITORY INSTITUTIONS
depositories are buildings, offices, and warehouses that allow consumers and businesses to
deposit money, securities, and other valuable assets for safekeeping. Depositories may
include banks, safehouses, vaults, financial institutions, and other organizations.

a. Commercial banks b. Thrift Banks C. Savings banks

COMMERCIAL BANKS
a. Commercial banks
Commercial banks are the largest and most
diverse type of depository institution in the
Philippines. They offer a range of financial
services, including savings and checking
accounts, loans, credit cards, and other
financial products. Commercial banks are
also involved in investment banking activities,
such as underwriting and issuing securities,
and provide various financial services to
businesses and government entities.
Examples of commercial banks in the
Philippines include Banco de Oro (BDO),
Metrobank, and BPI.
THRIFT BANKS
a. Commercial banks
Thrift banks are a type of depository
institution that specialize in accepting
deposits and providing loans to individuals
and small businesses. Thrift banks typically
offer higher interest rates on deposits and
charge lower interest rates on loans
compared to commercial banks. They are
often smaller than commercial banks and
focus on serving local communities.
Examples of thrift banks in the Philippines
include Philippine Savings Bank (PSBank), Asia
United Bank, and Sterling Bank of Asia.

SAVINGS BANKS
a. Commercial banks
Savings banks are similar to thrift banks in
that they primarily accept deposits and
provide loans to individuals and small
businesses. However, savings banks are
usually owned by larger commercial banks
and offer a wider range of financial services
than thrift banks. Savings banks also offer
higher interest rates on deposits than
commercial banks.
Examples of savings banks in the Philippines
include RCBC Savings Bank, China Bank
Savings, and BPI Family Savings Bank.
Insurance
Companies
An insurance company is a business that sells
the promise to pay for certain expenses or losses
in exchange for a regular fee, called a premium.
An insurance company can provide insurance or
annuity contracts or reinsure risks underwritten
by other insurance companies. An insurance
company's primary and predominant business
activity is the issuing or reinsuring of insurance.
An insurance company is different from an
insurance agency, which is a service provider
that distributes the insurance product to
consumers.
 Examples of Insurance
Companies
1 LIFE INSURANCE 2 HEALTH INSURANCE

3 PROPERTY & 4 LIABILITY INSURANCE

CASUAL INSURANCE
STRUCTED
5 LONG-TERM INSURANCE 6 SETTLEMENTS
7 FINANCIAL GUARANTEE INSURANCE
LIFE INSURANCE Beneficiaries on your death.
Life insurance policies provide a death benefit to the policyholder's
beneficiaries in the event of their death. These policies can also provide
additional benefits such as savings or investment components. Life
insurance policies are typically used to provide financial security for
dependents in the event of the policyholder's death.

EXAMPLES
Term Insurance - life insurance policy that provides coverage for a
certain period of time.
Whole - Life Insurance - a permanent life plan that provides
coverage throughout your entire life.
HEALTH INSURANCE Covers medical expenses.

Health insurance policies provide coverage for medical expenses

incurred by the policyholder or their dependents. These policies
can cover a range of medical expenses, including hospitalization,
surgery, prescription drugs, and preventive care. Health insurance
policies are typically used to help individuals manage the costs of
healthcare.
EXAMPLES
PhilHealth (Philippine Health Insurance Corporation)
HMO (Health Maintenance Organizations)
Private Health Insurance
PROPERTY & CASUALTY Covers damages to property.
INSURANCE
Property and casualty insurance policies provide coverage for
damage to property or injury to individuals. This type of insurance
includes auto insurance, homeowner's insurance, and business
insurance. Property and casualty insurance policies are typically used
to protect individuals and businesses from financial losses resulting
from damage or injury.

BPI/MS Insurance Corp.

EXAMPLES
PNB General Insurers Company, Inc.
Commonwealth Insurance Company
 Protects policyholders from
LIABILITY INSURANCE lawsuits or claims.
Liability insurance policies provide coverage for legal liabilities
that may arise from personal injury or property damage. This type
of insurance includes general liability insurance, professional
liability insurance, and product liability insurance. Liability
insurance policies are typically used to protect individuals and
businesses from financial losses resulting from legal liabilities.

EXAMPLES
BPI/MS Insurance Corporation
AXA Philippines
Comprehensive General Liability/Public and Products Liability
LONG - TERM INSURANCE Covers the cost of long-term
care services.
Long-term care insurance policies provide coverage for long-term
care services, such as nursing home care, in-home care, and assisted
living. These policies can help cover the costs of long-term care,
which can be expensive and can quickly deplete an individual's
savings. Long-term care insurance policies are typically used to help
individuals manage the costs of long-term care.

EXAMPLES
SUN Safer Life
The Philippine American Life and General Insurance Co.,
The Insular Life Assurance Company, Ltd., Inc.
 STRUCTURED Covers medical expenses.
SETTLEMENTS
Structured settlements are financial arrangements in which a party
agrees to pay another party a stream of payments over time, instead
of a lump sum payment. These settlements are typically used to
resolve legal claims or lawsuits, and can be purchased by insurance
companies. Structured settlements are typically used to help
individuals manage the financial implications of a legal settlement
or judgment.

Section 104(a)(2) of the Internal Revenue Code EXAMPLES

Manulife Insurance Company
SUN Safer Life
Financial Guarantee Protects against financial losses.
Insurance
Financial guarantee insurance provides coverage for losses
that may result from a financial transaction or investment. This
type of insurance includes bond insurance and mortgage
insurance. Financial guarantee insurance policies are typically
used to protect individuals and businesses from financial
losses resulting from a financial transaction or investment.

EXAMPLES
Philippine Guarantee Corporation
AXA Philippines
 INVESTMENT
INTERMEDIARIES
Organizations whose primary objective is to
maximize return from investments in various
financial instruments to add value for the investors
 TYPES OF INVESTMENT
INTERMEDIARIES
Asset Management Firms companies that manage funds owned by
individuals, companies or government through buying and selling of
financial instruments. They charge their clients fees to compensate their
management service.

Regulated Investment Companies (RIC) - Financial Intermediaries that

sells shares to the general public in exchange of cash. Once they receive
the proceeds, they invest the money in a diversified portfolio of financial
instruments. Normally, Asset Management Firms are contracted to
manage the investment of RIC.
 Exchange Traded Funds - are like mutual funds, but the
shares of the portfolio funds trade in an exchange like a
regular share offered by a company.

Hedge Funds - organized as limited partnerships that

are only made available to "Accredited" or "Qualified"
investors.

Key characteristics distinguishing hedge funds and their strategies from traditional investments include the
following:
1) lower legal and regulatory constraints;
2) flexible mandates permitting use of shorting and derivatives;
3) a larger investment universe on which to focus;
4) aggressive investment styles that allow concentrated positions in securities offering exposure to credit,
volatility, and liquidity risk premiums;

5) relatively liberal use of leverage;

6) liquidity constraints that include lock-ups and liquidity gates; and
7) relatively high fee structures involving management and incentive fees.


Separately Managed Accounts - also referred as Managed Money

Account
is an individually managed investment account, usually offered
by a brokerage firm and administered by a money manager.

Investment Banks Offerings - highly leveraged institutions that

have significant influence on how primary and secondary market
work. They assist entities (household, corporate, individuals,
government) in raising money to fund their initiatives. They serve
as the dealer or broker of transactions in the secondary market.
Public Offering Securities
Private Placement of Securities
Trading of Securities
Advisory services for mergers and acquisitions and Financial
restructuring
Merchant banking
Securities Finance and Prime Brokerage Service
Asset Management


Public Offering Securities - Securities that are available for purchase by

the general public through the stock market.
Private Placement of Securities - The sale of securities to a limited group
of investors, rather than the public at large.
Trading of Securities - The buying and selling of securities in financial
markets.
Advisory services for mergers and acquisitions and Financial restructuring -
Investment banks offer advice to companies looking to merge, acquire,
divest, or restructure their operations.
Merchant banking - Investment banks provide financing and advisory
services to companies in exchange for equity ownership.
Securities Finance and Prime Brokerage Service - Services provided by
investment banks to hedge funds and other institutional clients.
Asset Management - The management of investment portfolios on behalf
of individuals, institutions, and corporations to achieve their investment
objectives
Research - Analysis and recommendations on investment opportunities
provided by investment banks to their clients.

REITS(Real estate investment trusts)

REITs are investment vehicles that allow investors to pool their money together to
invest in a portfolio of income-generating real estate properties. REITs own and
manage a portfolio of income-producing real estate properties such as apartments,
hotels, office buildings, shopping malls, and other types of commercial real estate.
REITs provide investors with a way to invest in real estate without having to directly
purchase, manage, or finance the properties themselves. The income generated by
REITs is typically distributed to shareholders as dividends.
REITs typically offer two types of shares: common shares and preferred shares. Common
shares are traded on stock exchanges and offer investors the opportunity to invest in a
diversified portfolio of real estate properties. Preferred shares typically offer a fixed
dividend payment and are less volatile than common shares. REITs are required by law to
distribute at least 90% of their taxable income as dividends to shareholders, which makes
them a popular choice for income-seeking investors.


Unit Investment Trust Funds (UITFs)

UITFs are a type of investment vehicle that pools money from different investors and
invests it in a portfolio of assets such as stocks, bonds, and other securities. UITFs are
managed by professional fund managers who make investment decisions based on the
fund's investment objectives and risk tolerance.
UITFs offer investors a way to invest in a diversified portfolio of assets without having to
purchase and manage the securities themselves. UITFs offer different types of funds with
varying levels of risk and returns. Investors can choose a UITF that aligns with their
investment goals and risk appetite.
UITFs typically offer two types of units: participation units and trust units. Participation
units represent an investor's share in the UITF's portfolio of assets, while trust units
represent an investor's share in the trust itself. Investors in UITFs can make money through
capital appreciation, or by receiving income from the fund in the form of interest or
dividends.
 FINANCE
COMPANIES
TYPES OF FINANCE
COMPANIES
These financial intermediaries specialize in providing loans to
individuals for personal use. They may offer different types of
consumer credit, such as car loans, personal loans, mortgages, and
credit cards. Personal credit institutions may also offer debt
consolidation loans to help individuals manage their existing debt.
Example: Credit unions , Payday lenders and Online lenders
These finance companies provide financing to consumers for
the purchase of goods or services, often through
partnerships with retailers or manufacturers.

Example: Auto financing companies , Retail credit companies and

Healthcare financing companies.
These finance companies provide loans and financing
services to businesses, such as small business loans,
equipment financing, and factoring services. They may also
offer lines of credit and other forms of business credit.

Example: Commercial banks , Alternative lenders and Venture

capital firms.
 OTHER
PARTICIPANTS
Household sector Objectives
Government1

Corporate sector Foreign sector

Non-profit Organization
Household Sector
This includes individuals or families who consume
goods and services and save money in financial
institutions such as banks, insurance companies or
pension funds to meet future expenses like
education, healthcare or retirement.
Government
This includes national, state or local government
entities that raise funds through taxes or borrowing,
and channelize them through financial
intermediaries like central banks or development
banks to finance public infrastructure or social
welfare programs.
Corporate Sector
This includes businesses that produce goods or
services, and raise funds through equity or debt
issuance to invest in expansion, research or
development. They may also hold cash reserves in
financial intermediaries like money market funds or
corporate bonds.
Foreign Sector
This includes non-resident individuals, businesses or
governments that engage in cross-border trade,
investment or lending activities. They use financial
intermediaries like foreign exchange markets or
international banks to transfer funds, manage risks
or earn returns in different currencies or regions.
Non-profit Organization
This includes charities, foundations or social
enterprises that raise funds from donations or
grants and use financial intermediaries like
community development financial institutions or
impact investors to finance projects or programs
that address social or environmental issues.