OTHER FINANCIAL INSTITUTIONS

These acts as agents, advisors, especially in more sophis- ticated financial matters. These specialist offer
expertise to cus tomers as their ability to collect and disburse funds. These are investment banks, venture
capitalists, brokerage houses and se- curities exchanges.

Investment Banks buy new securities from the issuing company and resells them to the public thru the
process of un- derwriting. When security's price starts to fall shortly after issue, the underwriter will buy
back enough share to stabilize price, the rketable. corporation pays price for this service which is called
'making a market in the issue'.

Venture Capitalists are individuals or institutions that buy that pool original stock issues of new
companies, expecting to make enough profits on one successful issue.

Brokerage Houses buy and sell securities for clients while completing all the documentation each
transaction requires.

Securities Exchanges are voluntary association of broker- age houses that are formed to provide
organized, indoor market place for trading securities.

FUNCTIONS OF COMMERCIAL BANKS

Commercial banks extend functions of collection, paying, loaning, receiving and trust.

Collection function. Commercial banks administer col- lection items of clients. Collection items are those
credited to the account of the depositor after presentation to the party whom they are drawn and funds had
been collected. A spe cial fee known as collection charge is credited to the depositors account. Collection
items may be classified as follows:

1. As to point of destination

a. Clearing items are checks, bills, notes drawn within Metro Manila.

b. Transit items are checks, bills, notes drawn out- side Metro Manila but within the country.

c. Remittance items are checks, bills, notes drawn outside the Philippines. These are foreign col- lections,
export or foreign collections, import

2. As to type of item

a. Bank draft

b. Notes or acceptances
c. Real estate contracts or mortgages

d. Bonds and coupons

e. Stock certificates

3. As to date of payment

a. Demand or sight draft

b. Draft payable upon arrival of goods

c. Draft payable after specified number of days

Transit letter is a document on which all transit items are listed, drawn againts another bank outside the
metropo- lis. This letter is sent to drawee bank for collection and cred- ited as deposit if drawer has an
account with the drawee bank.

Remittance letter is a document on which all remittance items are listed, drawn againts another bank
outside the Phil- ippines. In this case, the receiving bank does not maintain an account with sending bank.

Clearing house in an association of banks in a city estab- lished to facilitate the clearing of checks, drafts,
notes and other items among the members.

Paying function. The basic reason why a bank needs on to the party ited for clearing. Paying checks are
those drawn for the same cash on hand or within its vault is in order to honor withdraw als of its clients.
Paying teller is the person administering cash and performing paying function over the counter. He bank.
Cashing checks are for checks drawn on another bank but are accomodated by the bank as per request by
its client. These checks are encashed on a guaranty that the customer has a deposit more than the face
value of the check.

Loaning function. Loan is an advance of money or a credit in exchange for a written promise to pay in
accordance with the terms of agreement. In granting loans, risk is an ele ment which is always present.
Because of credit risk, or possibility for delayed or non-payment, banks measure degree of liquidity to
meet the demands for cash by its clientele. Li- quidity of loans can be measured as follows:

a. Self-liquidating loans may include short-term loans with chattel mortgages.

b. Loans on securities which covers maketability of securities for investments.

c. Eligible loans are assured of liquidity by requiring notes, drafts, checks, acceptances which may be
rediscounted, or issuance of post-dated checks
Kinds of Loans

1. As to maturity

a. Demand loan is also known as callable loan. It does not have fixed maturity date. Bank may collect on
demand, or client may voluntarily terminate loans by payments.

b. Time loan has a specified maturity date which is a minimum of thirty (30) days to ninety (90) days or
more. Borrower must pay on maturity or earl lier than the specified date.

2. As to security

a. Secured loan is a type in which a collateral is re quired for availment of loan. Collateral may be a real
or personal property like stocks, bonds, or ware house recripts.

b Unsecured loan does not have specific property as pledge to a bank it simply relies on borrowers en
dorsement and goodwill as debtor

3. As to borrowers

a Loans to customers are those approved for regular bank depositors

Loans to others are those extended to businessmen or non customers.

4. As to purpose

a. Real estate loans are for house and lot acquisition, house improvement or lot purchase.

b. Agriculture loans are for tenant-farmers for farm implements acquisition and development.

c. Cnsumer loans are for household needs which may be installment account, charge account, revolving or
lay-away plan

d. Industrial loans are for business acquisition of fixed assets, raw materials or building development

Recieving Function Deposits are bank's liabilities to de positors Since they must be paid upon clients'
withdrawal from their accounts. It is the totality of money entrusted by a de positor to a bank to be
utilized according to banking practice Deposits may enter a bank, in any of the following forms:

a. Cash money
b. Checks from other banks or cashing checks

c. Collection items clearing, transit, remittance items

d. Discounted loan proceeds

e. Travellers checks

f. Bill of exchange or bank draft

g. Promissory notes

h. Money orders. These deposits received by commercial banks can beprimary or derivative deposits.
Primary deposits are those currency, cash or check deposits. Derivative deposits are those added to bank
assets and are not liabilities such as payment for loans, discounts and investments. Deposits received by
banks are coursed through receiving tellers where clients/depositors or his representative may go to a
bank for deposit. Deposits are also received through mail or postal system, telegraphic transfers or any
bank de partments aside from operations department.

Kinds of Deposits

+ As to source of deposit

a. Private sector includes individuals, business enti ties who save idle funds.

b. Government sector

+ As to terms of withdrawal

a. Demand deposit is also known as current or check- ing accounts, where withdrawal can be made
any- time by indorsing a check. This account, generally. Does not earn interest.

b. Savings deposits are accounts without maturity dates. Clients can withdraw their deposits anytime
during banking hours with their passbook, or any- time with their automated teller machines
cards.

c. Time deposits represent accounts with stated period of maturity. These accounts earn higher
interest rates making it possible for the funds to be placed by banks in long-term investments.

Kinds of Accounts
 a. Individual account. This is a single-named account where the person whose name appears on the
pass book has the sole right to withdraw funds.

b. Survivorship account. This is an account where two or more persons are named therein and both
autho rized to withdraw funds. Signature of anyone of them can be valid for withdraw. This is
“and/or account.

c. Joint account. This has two or three names of de positors and their signatures are all required dur
ing withdrawal of funds. This is the “and” account.

d. Partnership or corporation account. An account by business partners or board members of a

corporation or partnership. A board resolution is needed for opening this type of account,
specifying authorized board members as signatories for their funds.

Trust function. Trust institutions administer wealth and accounts of Clients. They serve in a fiduciary
capacity for the administration or disposition of assets and for the performance of acts for beneficiaries of
trust arrangements. A fiduciary acts in a capacity of trust, integrity, contemplates good faith rather than
legal obligations. This service is rendered by a bank in its various capacities as trustee, agent, custodian,
receiver, administrator, executor, guardian, or depository of money, securities, or other properties
deposited for the use, benefits or behalf of others. The bank acts as the trustee client is the trustor, a
beneficiary is designated by the trustor Personal Trust Services”

1. Employees’ benefit trust. The administration of workers job-related benefits.

2. Living trust. This ensures a convenient means of providing a reasonable income for a
person’s family without immedi ate transfer of property. The beneficiary, a widow or
minor child receives income from the trust principal during the term of the trust. This
agreement is often used by people of older age who are in doubt of their continuing
capacity to manage their financial affairs.

This agreement can be revocable or irrevocable. Revocable trust is one which the trustor has the right to
re voke the agreement after its creation. Irrevocable trust proviides for complete and final transfer of
assets to the beneficiary.

Trusteeship under will is an agreement for people wha prefer their estate be maintained and administered
for the benefit of the heirs rather than turning over to the heirs directly. A testamentary trust may be
established. The trust company acts as executor in a will. It liquidates per ishable assets, account assets,
pay debts and taxes and distribute assets of the estate according to the provisions of the will. It may also
act as administrator, guardians, or conservator under court appointment.

3. Escrow arrangement. When two or more persons or entities agree to appoint the bank as
escrow agent for money, securities instruments, or properties deposited to it. The escrow
agent shall grant money or property to the beneficia- ries appointed by the trustor. Often
used in sale of real properties where the vendor, vendee and escrow the purchase or agent
are bound to comply with terms and conditions of the Escrow Agreement before the
escrow deposited or other securities/instruments may be released.
4. Custodianship. Involves the safekeeping and preservation of securities and other
important documents, and occasionally performing ministerial acts acts for the client as
provided under the Custodianship Agreement. Includes collection of interest from
maturing investments, of dividends, and depositing the same to the client’s account.

5. Insurance trust. The bank is responsible in conserving. Managing, and disposing of the
insurance proceeds in accor- dance with provisions of the Trust Agreement for the best
interest of the designated beneficiaries. This agreement can be: unfunded insurance trust
or funded insurance trust.

6. Property administration. An agency arrangement whereby the bank undertakes

management and administration or real pro- perties of a client in accordance with the
terms of the Trust Agreement. The coverage of services may include payment of realty
taxes, fire insurance, other permits and fees; collection of rentals, repairs and
maintenance; acceptance and eject- ment of tenant, and others.

7. Guardianship. Bank is appointed guardian by a court of com petent jurisdiction to care

for the person or property or both of a minor or incompetent person.

8. Educational trust. A trust build-up program designed for future education of assigned
beneficiaries. The bank may be appointed as trustee in the management of trust funds set
aside for Pre-need Educational Plans to ensure payment of future obligations of the
company

9. Trust loans. Credit facilities extended by Trust institutions to borrowers, whose credit
worthiness have been properly estab lished. These loans are funded by various trust
accounts, and are generally secured by a hold-out on, assigment or pledge of deposits,
deposit substitutes, mortgage, or chattel mortgage bonds issued by the trustee, real estate
and chattels.

Trust Services for Corporations

This is a trusteeship under indenture, which involves holding of mortgage against which
bonds are issued by the corpora