THE

FINANCIAL
SYSTEM
Financial intermediation
 Finacial Intermediation

channels funds between third parties with a surplus and

those with a lackof funds. A financial intermediary does not
only act as an agent for other institutional units, but places
itself at risk by acquiring financial assets and
incurring liabilities on its own account. It
facilitatesfinancial transaction between 2 parties.They
reallocate otherwise uninvested capital to
productiveenterprises through a variety of debt, equity, or
hybrid stakeholding structures. 1
 ECONOMIC ROLE OF
FINANCIAL INTERMEDIARIES

(1) taking deposits from savers and lending themoney to

borrowers;(2) pooling the savings of many and investing in a
variety of stocks, bonds, andother financial assets; and (3) making
loans to small businesses and consumers.Banks as Financial
Intermediaries Banks act as financial intermediaries because they
stand between savers and borrowers.

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 Banks as Financial
Intermediaries Banks act as
financial intermediaries because
they stand between savers and
borrowers

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 RISK AND COST WITHOUT
FINANCIAL INTERMEDIATION
-asymmetric information
a situation where one person has more information about a
transaction than the other contracting party or person.

Adverse Selection
This is the tendency for those persons with the highest
profitability of experiencing financial problems to seek
out for loans e
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 Moral Hazard
-Occurs a loan is made. This arises because the debt
contract allows the borrower to keep any and all returns
that exceed the fixed payments called for in the loan
agreement.
Transaction Cost

involves the money and time spent carrying out financial

transactions. An important element of this cost is the
search cost . And the other elements is the time and
money . 5
 BENEFITS OF INTERMEDIATION
The process intermediation does not only
benefit both surplus and deficet spending units
but also the society at large that is because it
increases economic efficiency and raises living
standards.
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 BENEFITS OF INTERMEDIATION
BENEFITS OF SURPLUS UNITS
financial intermediaries provide certain benefits by
pooling the funds of thousands of individuals to
overcome the obstacles that stop savers from purchasing
primary claims directly.

Diversification
the spreading of risk made possible by pooling of
funds, is extremely important for the individual
saver 7
 BENEFITS OF DEFICIT
UNITS

financial intermediaries also broaden the range of

instruments, denominations, and maturities an
institution can issue, which significantly reduces
transactions cost.

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 THE PHILIPPINE FINANCIAL SYSTEM

The Philippine financial system plays a vital role in our

society and economy as a whole. It affects the lives of every
person, family, business and government.
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 STRUCTURE OF THE PHILIPPINE
FINANCIAL SYSTEM

2.Government banking Institutions

A. Bangko Sentral Ng Pilipinas a. Development Bank of the Philippines (DBP)
b. Land Bank of the Philippines (LBP)
B. Banking Institutions
c. Philippine Al-Amanah Islamic Investment Bank
1. Private Banking Institutions
a. Expanded commercial banks/Universal Banks (EKB/UB
b. Commercial Banks (KB)
c.Thrift Banks (TB)
*savings and mortgage bank (SMB)
*Private Development Banks (PDB)
*Stock Savings and Loan Associations(SSLA)
d. Rural Banks (RB)
e.cooperative bamks
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 C. Non- Bank Financial Institutions
1. Private non-financial Institutions
a. Investment houses 2. Government Non-Bank financial Institution
b. Investment companies a.Government Service Insurance
c. Financing Companies b.Social Security System (GSIS)
d. Securities dealers/brokers c. Pag-ibig
e.Non-Stock savings and loan association
f.building and loan association
g. Pawnshops
h. Lending investors
i. Fund managers
j. Trust companies/departments
k.insurance companies
l. Vinture capital corporations
PRIVATE BANKING INSTITUTIONS
1.Commercial Banking Institutions.

The Banks that fall under commercial banking institutions are the
ordinary commercial banks or non-expanded commercial banks. These
banks continue to account for the bulk of the total resources of
banking industry.

2. The Thrift Banks.

Thrift banks are primarily engaged in mobilizing the small savings of

the people. They provide funds for agriculture and industry at
reasonable interest rates. The small producers like farmers, fishermen,
craftsmen, and poor consumers can rely on such banks for financing
their production and consumptions inputs. The following banks fall
under the category of Trift Banks
 The Savings and Mortrages Banks.

The primary function of a savings and mortrage bank is to recieve time deposit of different
types and to invest its funds in long term investment.

The Savings and Loan Association.

Very simular to the savings and mortrage banks are the savings and loans

associations nowadays. However, these institutions may either be stock or non-stock

corporations.

The Private Development Banks.

This is quite different from the government institution of the same name. It is a government
entity, formely the Rehabilitation Finance Corporations.

The Rural Banks.

Rural Banks fulfill the investment function by allowing small farmers to finance their needs
through the granting of loans for capital or other uses. text
 Government Banking Institutions

1. The Philippine National Bank.

The Philippine National Bank (PNB) operates under the provision of Executive Order No. 80, the 1996 revised charter of PNB.

2. The Development Bank of the Philippines.

The Development Bank of the Philippines (DBP) started operating in 1935 as the National Loan and Investment Board. Its first
mission was to coordinate and manage trust funds.

3. The Land Bank of the Philipines.

The Agrarian Reforms Code created the Land Bank of the Philippines (LBP) to finance the acquisition and distribution of
agricultural estates for division and resell these small landholders.

4. The Al-Amanah Islamic Investment Bank of the Philippines.

The Al-Amanah Islamic Investment Bank of the Philippines (Islamic Bank) was created under Republic Act No. 6848 for the
purpose of promoting and accelerating the socio-economic growth of Mindanao, particularly the provinces of Cotabato, Lanao del
Sur, Lanano del Norte, Zamboanga del Sur, Zamboanga del Norte, and Sulu.