Banking and Other Financial Institutions: La Consolacion College Bais City FM 32

La Consolacion College
Bais City
FM 32
BANKING AND OTHER

FINANCIAL INSTITUTIONS
Rolin Cadallo Obina

Instructor/Facilitator
CHAPTER 1
THE FINANCIAL SYSTEM
This is a personal property of the Rolin Cadallo Obina. No portion of this presentation material shall be reproduced or used in any
manner without the written consent of the owner.
OVERVIEW OF THE FINANCIAL SYSTEM
 A vibrant and healthy economy requires a

financial system that makes or channels
funds from people who save to people
who have productive investment
opportunities.
 A developed economy relies on financial
markets and institutions for efficient
transfer of funds.
 Every person’s life, family, business and
government are affected by the financial
system.
 A strong financial system is a

necessary ingredient for a
growing and prosperous
economy.
 Changing technology and
improving communications
have increased cross-border
transactions and expanded the
scope and efficiency of the
global financial system.
The 1997 Asian Financial Crisis
 The Asian Financial Crisis is a crisis caused by the collapse of the currency
exchange rate and hot money bubble. It started in Thailand in July 1997 and
swept over East and Southeast Asia. The financial crisis heavily damaged
currency values, stock markets, and other asset prices in many East and
Southeast Asian countries.
 On July 2, 1997, the Thai government ran out of foreign currency. No longer
able to support its exchange rate, the government was forced to float the
Thai baht, which was pegged to the U.S. dollar before. The
currency exchange rate of the baht thus collapsed immediately.
 Two weeks later, the Philippian peso and Indonesian rupiah underwent
major devaluations as well. The crisis spread internationally, and Asian stock
markets plunged to their multi-year lows in August. The capital market of
South Korea maintained relatively stable until October. However, the Korean
won dropped to its new low on October 28th, and the stock market
experienced its biggest one-day drop to that date on November 8th.
Causes of the Financial Crisis
 The causes of the Asian Financial Crisis are complicated and disputable.
 A major cause is considered to be the collapse of the hot money bubble.
 During the late 1980s and early 1990s, many Southeast Asian countries,
including Thailand, Singapore, Malaysia, Indonesia, and South Korea,
achieved massive economic growth of an 8% to 12% increase in their
gross domestic product (GDP).
 The achievement was known as the “Asian economic miracle.”
 However, a significant risk was embedded in the achievement.
 The economic developments in the countries mentioned above were mainly
boosted by export growth and foreign investment.
 Therefore, high interest rates and fixed currency exchange rates (pegged to
the U.S. dollar) were implemented to attract hot money.
 Also, the exchange rate was pegged at a rate favorable to exporters.
 However, both the capital market and corporates were left exposed to
foreign exchange risk due to the fixed currency exchange rate policy.
Causes of the Financial Crisis
 In the mid-1990s, following the recovery of the U.S. from a recession, the
Federal Reserve raised the interest rate against inflation.
 The higher interest rate attracted hot money to flow into the U.S. market,
leading to an appreciation of the U.S. dollar.
 The currencies pegged to the U.S. dollar also appreciated, and thus hurt
export growth.
 With a shock in both export and foreign investment, asset prices, which
were leveraged by large amounts of credits, began to collapse.
 The panicked foreign investors began to withdraw.
 The massive capital outflow caused depreciation pressure on the currencies
of the Asian countries.
 The Thai government first ran out of foreign currency to support its
exchange rate, forcing it to float the baht.
 The value of the baht thus collapsed immediately afterward.
 The same also happened to the rest of the Asian countries soon after.
Effects of the Financial Crisis
 The countries that were most severely affected by the Asian Financial Crisis
included Indonesia, Thailand, Malaysia, South Korea, and the Philippines.
They saw their currency exchange rates, stock markets, and prices of other
assets all plunge. The GDPs of the affected countries even fell by double
digits.
 From 1996 to 1997, the nominal GDP per capita dropped by 43.2% in
Indonesia, 21.2% in Thailand, 19% in Malaysia, 18.5% in South Korea, and
12.5% in the Philippines. Hong Kong, Mainland China, Singapore, and Japan
were also affected, but less significantly.
 Besides its economic impact, the Asian Financial Crisis also resulted in
political repercussions. The Prime Minister General of Thailand,
Yongchaiyudh, and the President of Indonesia, Suharto, resigned. An anti-
Western sentiment was triggered, especially against George Soros, who was
blamed for triggering the crisis with large amounts of currency speculation
by some individuals.
Nature and Objective of the Financial System
Indirect Finance
Financial
Funds Funds
Intermediaries
Funds
Lender-Savers Borrower-Spender
Households Funds Financial Markets Funds Households
Business Firms Business Firms
Government Government
Foreigners Foreigners
Direct Finance
Flow of Funds through the Financial System
Key Components of the Financial System

 Financial Instruments
 Financial Markets and Financial Institutions
 The Central Bank and Other Financial Regulators
Functions of the Financial System

 Economists believe that there are three key services that the financial
system provides to savers and borrowers:
1. Risk Sharing
2. Liquidity
3. Information
 Risk Sharing
 Risk is the chance that the value of financial assets will change relative to
what one expects
 One advantage of using the financial system to match individual savers and
borrowers is that it allows the sharing of risk
 The splitting of wealth into many assets to reduce risk is known as
diversification
 Allows savers to hold many assets, hence, makes savers more willing to buy
stock, bonds and other financial assets
 In turn, the ability of the borrowers to
raise funds in the financial systems
increases
 Liquidity
 Is the ease with which an asset can be exchanged for money which savers
view as benefit.
 Generally, assets created by the financial system such as stocks, bonds or
checking accounts, are more liquid than are physical assets such as cars,
machinery or real estate.
 Financial markets and intermediaries help make financial assets more liquid.
Investors can easily sell their holdings of government securities and the
stocks of bonds of large corporations, making those assets very liquid.
 The financial system has increased the liquidity of many assets besides
stocks and bonds through the process of securitization. This process has
made it possible to buy and sell securities based on loans. As a result,
mortgages and other loans have become more desirable assets for savers to
hold.
 Information
 The 3rd service of the financial system is the collection and communication
of information, or facts about borrowers and expectations of returns on
financial assets.
 Banks collect information on borrowers to forecast their likelihood of
repaying loans.
THE PHILIPPINE BANKING SYSTEM
History of the Banking System
 Traces is origin to the 16th century with the organization of obras pias where
religious foundations that accumulated large funds from the legacies of
wealthy Catholics who made out wills before going out on dangerous
expeditions bequeathing their estates to the Catholic church or to lay
confraternities.
 The first bank, Español-Filipino de Isabel II (now the Bank of the Philippine
Islands) was established in 1851.
 Later on, non-bank financial
institutions, together with banks,
redistribute the country’s financials
resource.
Financial Sector Reforms in Recent Years
 1993: Establishment of the Bangko Sentral ng Pilipinas (BSP) as the central
monetary authority of the Philippines under Republic Act 7653.
 The BSP replaced the Central Bank established in 1949.
 BSP is more policy-independent (compared to Central Bank), financially solid
and technically able monetary authority, market participants are assured of
a business environment characterized by policy consistency and
professionalism.
 May 18, 1994: The liberalism of the entry of
foreign banks under Republic Act 7721 (after
more than 4 decades of prohibition).
 The reform conforms to the continuing thrust
for globalization and internalization in finance,
allowing the economy into the path of
sustainable growth.
Financial Sector Reforms in Recent Years
 The deregulation of bank branching that made it easier for banks to
establish their office network nationwide resulting to the decline of
personnel density ratio from a high of 17,160 in 1990 to 11, 442 by the end
of year 1998.
 1990: The gradual reduction in legal reserve requirement from 25% in 1990
to 14%.
 July 4, 1997: reserve requirement further reduced to 13%, resulting to
reduction in intermediation cost.
 August 14, 1997: BSP increased the reserve requirements to 18%.
 January 1, 1997: End of the liberalization of domestic borrowings of foreign

firms with the abolition of the Inter-Agency Committee (IAC) on domestic
borrowings of foreign firms.
 This effect eliminated the bureaucratic red tape of securing prior
government approval on peso borrowings by foreign companies.
Structure of the Philippine Financial System
I. Bangko Sentral ng Pilipinas
II. Banking Institutions
A. Private Banking Institutions
1. Expanded Commercial Banks/Universal Banks (EKB/UB)
2. Commercial Banks (KB)
3. Thrift Banks (TB)
a. Stocks Savings and Mortgage Banks (SMB)
b. Private Development Banks (PDB)
c. Stock Savings and Loan Associations (SSLA)
4. Rural Banks (RB)
5. Cooperative Banks
B. Government Banking Institutions
1. Development Bank of the Philippines (DBP)
2. Land Bank of the Philippines (LBP)
3. Philippine Al-Amanah Islamic Investment Banks
III. Non-Bank Financial Institutions
A. Private Non-Bank Financial Institutions
1. Investment Houses
2. Investment Banks
3. Financing Companies
4. Securities Dealers/Brokers
5. Savings and Loan Associations
6. Mutual Funds
7. Pawnshops
8. Lending Investors
9. Pension Funds
10. Insurance Companies
11. Credit Union
B. Government Non-Bank Financial Institutions
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Pag-IBIG
I. Bangko Sentral ng Pilipinas (separate discussion)
II.Banking Institutions
1. Expanded Commercial Banks/Universal Banks (EKB/UB) – is any commercial bank,
which performs the investment house function in addition to its commercial banking
authority. It may invest in the equities of allied (either financial or non-financial) and
non-allied enterprises.
2. Commercial Banks (KB) – is any commercial bank that is confined only to commercial
bank functions such as accepting drafts and issuing letters of credit, discounting and
negotiating promissory notes, drafts and bills of exchange, and other evidence of
debts, accepting or creating demand deposits, receiving other types of deposits and
deposit substitutes, buying and selling foreign exchange, and gold or silver bullions,
acquiring marketable bonds and other debut securities, and extending credit subject
o rules that the Monetary Board may promulgate.
3. Thrift Banks (TB) – shall include savings and mortgage banks, stock savings and loan
associations and private development banks. Their function is to accumulate the
savings of depositors and invest them together with their capital, loans secured by
bonds, mortgages in real estate and insured improvements thereon, chattel
mortgages, bonds and other forms of security or loans for personal or household
finance, whether, secured or unsecured, or in financing for home building and home
development; in readily marketable and debt securities; in commercial papers and
accounts receivables, drafts, bills of exchange, acceptances or notes arising out of
commercial transactions; and in such other investments and loans which the
Monetary Board may determine as necessary in the furtherance of national
economic objectives.
a. Stocks Savings and Mortgage Banks (SMB) – is any corporation organized for the purpose
of accumulating the savings of depositors and investing them, together with its capital,
readily marketable bonds and debt securities; checks, bills of exchange, acceptances or
notes arising out of commercial transactions or in loans secured by bonds, mortgages or
real estate and insured improvements thereon and other forms of security or in loans for
personal household finances whether secured or unsecured, and financing for home
building and home development.
b. Private Development Banks (PDB) – is a bank that exercises all the powers and assumes
all obligations of the savings and mortgage bank as provided in the General Banking Act
except as otherwise stated. The private development bank helps construct, expand and
rehabilitate agricultural and industrial sectors. The Development Bank of the Philippines
is the government counterpart of the private development banks and helps the private
development banks augment their capitalization as provided under R.A. 4093, as
amended.
c. Stock Savings and Loan Associations (SSLA) – is any corporation engaged in the business
of accumulating the savings of its members or stockholders and using such accumulated
funds, together with its capital for loans and investment in securities of productive
enterprises, or in securities of the government and its instrumentalities, provided that
they are primarily engaged in servicing the needs of households by providing personal
finance and long-term financing for home building and development.
4. Rural Banks (RB) – is any bank authorized by Bangko Sentral ng Pilipinas to accept
deposits and make credit available for farmers, businessmen and cottage industries in
the rural areas. Loans may be granted by the rural banks on the security of land without
Torrens title where the owner of private property can show five (5) years or more of
peaceful continuous and uninterrupted possessions of the land in the concept of
ownership. This will include portions of friar land estates or other lands administered by
the Bureau of Lands that are covered by sale contracts and purchases and have paid at
least five (5) years installment thereon, without the necessity of prior approval and
consent of the Director of Lands or portions of other estates under the administration of
the Department of Agrarian Reform.
4. Rural Banks (RB)
5. Cooperative Banks – are banks established to assist the various cooperatives by lending
those funds at reasonable interest rates.
II.Banking Institutions
4. Rural Banks (RB)
1. Development Bank of the Philippines (DBP) – provides loans for developmental purposes,
gives loans to the agricultural sector, commercial sector and the industrial sector.
4. Rural Banks (RB)
2. Land Bank of the Philippines (LBP) – is a government bank, which provides financial
support in the implementation of the Agrarian Reform Program (CARP) of the
government.
4. Rural Banks (RB)
3. Philippine Al-Amanah Islamic Investment Banks: Republic Act No. 6048 provides for the
charter of the Al-Amanah Islamic Investment Bank. This Act authorizes the bank to
promote and accelerate the socio-economic development of the Autonomous Region of
Muslim Mindanao by performing banking, financing and investiment operations, and to
establish and participate in agriculture, commercial and industrial ventures based on the
Islamic concept of banking.
1. Investment Houses – is any enterprise, which engages in
underwriting securities of other corporations. It also generates
income from sale of investments from securities.
2. Investment Banks
6. Mutual Funds
7. Pawnshops
9. Pension Funds
11. Credit Union
2. Investment Banks – such as Goldman Sachs and Morgan Stanley,
differ from commercial banks in that they do not take in deposits
and until very recently rarely lent directly to households. They
provide advice to firms issuing stocks and bonds or considering
mergers with other firms. They also engage in underwriting, in
which they guarantee a price to a firm issuing stocks or bonds at
a higher price.
2. Investment Banks
3. Financing Companies – is any business enterprise where the primary
purpose is to extend credit facilities to consumers and to industrial,
commercial or agricultural entities either by discounting or factoring
commercial papers or accounts, or by buying installment contracts,
leases, chattel mortgages, or other evidences of indebtedness, or by
leasing motor vehicles, heavy equipment and industrial machineries
and business and office equipment, appliance and other movable
properties.
5. Savings and Loan Association
ASSIGNMENT
DESCRIBE EACH OF THE FOLLOWING:

Private Non-Bank Financial Institutions
3. Mutual Funds
4. Pawnshops
6. Pension Funds
8. Credit Union
Government Non-Bank Financial Institutions

1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Pag-IBIG
CHAPTER 2
FINANCIAL INSTITUTIONS & INTERMEDIARIES
FINANCIAL INSTITUTIONS AND INTERMEDIATIES: OVERVIEW
What is a Financial Institution?
 A financial institution is a company engaged in business of dealing with
financial and monetary transactions such as deposits, loans
investments, and currency exchange.
 It encompass a broad range of business operations within the financial
services sector including banks, trust companies, insurance companies,
brokerage firms and investment dealers.
 Financial institutions can operate at several scales from local community
credit unions to international investment banks.
 The financial system matches savers and borrowers through two
channels:
1. Financial Markets
2. Banks and Other Financial Intermediaries
 Funds flow from lenders to borrowers directly through financial markets
such as the Philippine Stocks Exchange or indirectly through financial
intermediaries such as banks.
What is a Financial Intermediary?
 A financial intermediary is a financial firm, such as a bank, that borrows
funds from savers and lends to borrowers.
Basic Structure of Financial Institutions/Intermediaries?

A. Depository Institutions
1. Commercial Banks/Universal Banks
2. Savings and Loans Associations
3. Mutual Savings Bank
4. Credit Union
B. Contractual Savings Institutions
2. Pension Funds
Basic Structure of Financial Institutions/Intermediaries?

C. Investment Intermediaries
1. Investment Banks
2. Mutual Funds
3. Hedge Funds
4. Finance Companies
5. Money Market Mutual Funds
Depository Institutions
A. Commercial Banks are the most important intermediaries. It plays an
important role by taking deposits from households and firms and
investing most of those deposits, either as loans or buy securities, such
as government bonds. It is a major player in credit and financing.
B. Universal Banks also referred as full-service financial institutions, it
provides large array of services including those of commercial and
investment banks.
Services include:
a. Deposit accounts such as checking and savings
b. Loans and credit
c. Assets and wealth management
d. Buying and selling securities
e. Financial and investment advice
f. Insurance products
Depository Institutions
Example of Universal Banks: Deutsche Bank, ING Bank, UBS, Credit Service,
HSBC, Banks of America, JP Morgan Chase, Wells Fargo, BPI, BDO
C. Savings and Loans Associations, Mutual Savings Bank, Credit Union are
the other depository institutions (to be discussed later)
Contractual Savings Institutions

These are financial intermediaries that receive payments from individual as
a result of a contract and uses the funds to make investments.
A. Insurance Companies specialize in writing contracts to protect

policyholders from the risk of financial losses associated with particular
events, such as automobile accidents. They collect premiums from
policyholders which are then invested to obtains funds needed to pay
claims.
Contractual Savings Institutions

A. The insurance industry has two segments:
1. Life Insurance Companies sell policies to protect against loss of earning
from disability, retirement or death of the insurance person. Example:
Insular Life Corporation and Philam Life Insurance Corporation
2. Property and Casualty to protect from risks of illnesses, theft, fire,
accidents and natural disasters. Example: Standard Insurance Company
and Malayan Insurance Corporation
B. Pensions Fund is a financial intermediary that invests contributions of
workers and firms in stocks, bonds and mortgages to provide pension
benefit payments during workers’ retirements.
Types of Pensions Fund Plans:
1. Defined Contribution Plan
2. Defined Benefit Plan
Investment Intermediaries
. . . are financial firms that raise funds to invest in loans and securities. These
include investment banks, mutual funds, hedge funds finance
companies and money market mutual fund.
A. Investment Banks, such as Goldman, Sachs and Morgan Stanley, Merrill
Lynch differ from commercial banks because they do not take deposits. It
was only recently that they lend directly to households.
B. Mutual Funds are FI that allow savers to purchase shares in portfolio of
financial assets, including stocks, bonds, mortgages, and money market
securities.
Types of Mutual Funds:
1. Closed-end Mutual Funds
2. Open-end Mutual Funds
Hedge Funds are financial firms organized as a partnership of wealthy

investors that make relatively high risk, speculative investments. They
accept money from investors and use the funds to buy portfolio of assets,
however, it typically has no more than 99 investors, all of whom are rich
individuals or institutions such as pension funds.
Finance Companies are non-bank financial intermediaries that raise funds

through sales of commercial papers and other securities and use the funds
to make small loans to households and firms. They raise funds by selling
commercial paper (short term debt investment) and issues stocks and
bonds.
Three Types of Finance Companies:
1.Consumer Finance
2.Business Finance
3.Sales Finance
Money Market Mutual Funds has the attributes of mutual funds but also
function as depositing institutions.
Type of Primary Liabilities Primary Assets

Intermediary (Source of Funds) (Uses of Funds)
Depository Institutions:
Commercial Banks Deposits Business and consumer loans, mortgages,
national government securities and
municipal bonds
Savings and Loans Deposits Mortgages
Associations
Mutual Savings Bank Deposits Mortgages
Credit Unions Deposits Consumer loans

Contractual Savings Institutions:
Life Insurance Premiums from
Corporate bonds and mortgages
Companies policies
Fire and casualty Premiums from Government bonds, corporate bonds and
insurance companies policies stock, national government securities
Pension Funds, Employer and
Government employee Corporate bonds and stock
Retirement Funds contributions

Investment Intermediaries:
Mutual Funds Shares Stocks, bonds
Hedge Funds Shares Stocks, bonds, derivatives
Commercial paper,
Finance Companies Consumer and business loans
stocks, bonds
Money Market
Shares Money market instruments
Mutual Funds
CHAPTER 3
FINANCIAL SYSTEM REGULATORS – PART 1
The Principal Regulatory Agencies of the Philippine Financial System,

the Basic Subject and Nature of Regulations
Regulatory Subject of
Nature of Basic Regulations
Agency Regulation
Examines the books of commercial banks
Bangko Sentral All depository
that are members of the system, sets reserve
ng Pilipinas institutions
requirements for all banks
Philippine Commercial banks, Provides insurance of up to P500,000 for
Deposit mutual savings, each depositor at a bank, examine the books
Insurance savings and loans of insured banks, and imposes restrictions
Corporation associations on assets they can hold
Securities and Organized
Requires disclosure of information, restricts
Exchange exchanges and
insider trading
Commission financial markets
Charter and examine the books of insurance
Insurance Insurance companies, impose restrictions on assets
Commission companies, brokers they can hold, impose restrictions on
branching
Objectives of Financial Regulations

 To ensure the soundness of the financial system.
 To increase the information available to investors.
 To improve control of the financial system.

 To ensure the soundness of the financial system.
What is asymmetric information?

How does this lead to financial panic?
What are the effects of financial panic?
To protect the public and the economy from financial panics, the
government has implemented the following types of restrictions:
1. Restrictions to Entry
a. Obtainment of a charter from the SEC & the respective government
agency
b. SEC & GA review the credentials of the applicant organization
c. Large amount of initial funds is required

2. Stringent Reporting Requirements
a. Strict observance of International Accounting and Reporting
Standards
b. Accounting must comply with strict principles, books subject to
periodic inspection, must make certain information available to the
public
3. Restrictions on Assets and Activities
a. Restrictions on what assets to hold, and what to do with it
b. Not allowed to engage in certain risky activities, or to hold certain
risky assets, or at least from holding a greater quantity of these risky
assets that is prudent

4. Deposit Insurance
a. Government ensures that people’s deposits (up to a maximum of
P500,000) can be recovered in case of institutional failure
b. PDIC is the official government insurance provider
5. Limits on Competition
a. Restriction on the opening of additional branches in the same location
b. Restriction on the opening of branches in another location
6. Restriction on Interest Rate
a. Competition has also been reduced by regulations that impose
restrictions on interest rates that can be paid on deposits

 To increase the information available to investors.
1. Asymmetric information in financial markets means that investors may

be subject to adverse selection and moral hazard problems that may
hinder the efficient operations of financial markets.
2. Risky firms or outright crooks may be the most eager to sell securities to
unwary investors, and the resulting adverse selection problem may keep
investors out of financial market.
3. The presence of this moral hazard problem may also keep investors away
from financial markets.

 Improving Control of the Financial System
1. What is reserve requirements?

2. What is the role of PDIC in improving the control of the financial system?
THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

On June 14, 1993, President Ramos signed into law R.A. 7653 entitled “The
New Central Bank Act”, pursuant to the requirement of the 1987
Constitution for the establishment of an independent Central Monetary
Authority.

 Responsibilities of BSP
1. Liquidity Management. The BSP formulates and implements monetary
policy aimed at influencing money supply consistent with its primary
objective to maintain price stability.
2. Currency Issue. The BSP has the exclusive power to issue the national
currency. All notes and coins issued by the BSP are fully guaranteed by
the government and are considered legal tender for all private and public
debts.
3. Lender of Last Resort. The BSP extended discounts, loans and advances
to banking institutions for liquidity purposes.
4. Financial Supervision. The BSP supervises banks and exercises regulatory
powers over non-bank institutions performing quasi-banking functions.

 Responsibilities of BSP
5. Management of Foreign Currency Reserves. The BSP seeks to maintain
sufficient international reserves to meet any demands for foreign
currencies in order to preserve international stability and convertibility of
the Philippine Peso.
6. Determination of Exchange Rate Policy. The BSP determines the
exchange rate policy of the Philippines. Currently, the BSP adheres to a
market-oriented foreign exchange rate policy such that the role of BSP is
to principally ensure orderly conditions in the market.
7. Other Activities. The BSP functions as the banker, financial advisor and
official depository of the Government, its political subdivisions and
instrumentalities and government-owned and –controlled corporations.

 BSP as Fiscal Agent
As a fiscal agent of the government, the BSP has the following functions:
1. To be the official representative of the government to financial entities;
2. To be the depository banker of the government;
3. To be the financial adviser of the government; and
4. To manage public debts.

 Governance of the Bangko Sentral ng Pilipinas
The BSP’s Organizational Structure as of July 18, 2018

MONETARY BOARD
GOVERNOR
Financial Monetary & Currency Corporate

Supervision Economics Management Services
Sector Sector Sector Sector
Exercises the powers and

functions of the BSP, such
as the conduct of
Chief Executive Officer monetary policy and
and is required to direct
MONETARY BOARD supervision of the
and supervise the financial system. Its
operations of BSP. He is chairman is the Governor
assisted by a Deputy plus 5 Cabinet.
GOVERNOR
Governor and Senior
Assistant Governors


is mainly responsible is mainly responsible is mainly responsible is mainly responsible
for the regulation of for the operations/ for the forecasting, for the effective
banks and other BSP- activities related to production, management of
supervised financial monetary policy distribution, and corporate strategy,
institutions, as well as formulation, retirement of communications, and
the oversight and implementation, and Philippine currency, as risks, as well as the
supervision of assessment. well as security BSP’s human,
financial technology documents, financial,
and payment systems. commemorative technological, and
medals, and physical resources to
medallions. support the BSP’s core
functions.

 Advocacies of BSP
1. Microfinance – a flagship program for poverty alleviation
2. Public Information Campaigns – to increase public awareness on the role
of the BSP in the economy and the financial system and to further
enhance the transparency of the monetary policy
3. Consumer Education Program – aims to improve the basic financial
literacy of the public

 Instruments of Central Bank Actions
1. Control of legal reserve requirement
2. Control of discount and rediscount
3. Open market operation
4. Control of collateral required on bank loans
5. Imposition of portfolio ceiling
6. Minimum capital ratio
7. Margin requirement of L/C
8. Moral suasion
Philippine Deposit Insurance Corporation
GERELYN C. PEÑEZ
REPORTER
Prepared by: Francis C. Abordo
All national and international markets make up the
financial market. It incorporates banks, funds (pension,
insurance, currency), and many other economic
institutions that help accumulate and redistribute
money.
As a complex system, the financial market has a

multilevel structure that includes 5 market segments:
foreign exchange market, credit market, insurance
market, investment market, and securities market.
As you can imagine, the Forex currency market
represents one-fifth of the financial market.
5 MARKET SEGMENTS
1.FOREIGN EXCHANGE MARKET

‐The foreign exchange market (also known as forex, FX, or the
currencies market) is an over-the-counter (OTC) global
marketplace that determines the exchange rate for currencies
around the world.
Type of Forex Markets

Three are three key types of forex markets: spot, forward, and
futures.
Spot Forex Market

- The spot market is the immediate exchange of currency
between buyers and sellers at the current exchange rate. The
spot market makes up much of the currency trading.
 Forward Forex Market
- In the forward markets, two parties agree to trade a
currency for a set price and quantity at some future date. No
currency is exchanged when the trade is initiated. The two
parties can be companies, individuals, governments, or the
like.
 Futures Forex Market

- Future markets are similar to forward markets in terms of
basic function. However, the big difference is that future
markets use centralized exchanges. Thanks to centralized
exchanges, there are no counterparty risks for either party.
This helps ensure future markets are highly liquid, especially
compared to forward markets.
2. BOND MARKET
-The bond market often called the debt market, fixed-income
market, or credit market—is the collective name given to all
trades and issues of debt securities. Governments typically issue
bonds in order to raise capital to pay down debts or fund
infrastructural improvements.
3. INSURANCE MARKET
‐An insurance market simply means the buying and selling of
insurance and includes the entities involved in the process as
well as customers. Insurance companies sell contracts that
provide risk management to buyers.
4. INVESTMENT MARKETS
‐The investment market refers to the buying and selling of
financial assets with the aim of generating a return on
investment. Financial assets can include stocks, bonds, mutual
funds, exchange-traded funds (ETFs), real estate, and
commodities. Investors can invest in these assets directly or
through investment vehicles such as managed funds or hedge
funds.
5. SECURITIES MARKETS
‐Securities markets are financial marketplaces where various
financial instruments, such as stocks, bonds, and other
securities, are traded. These markets are essential for
businesses and governments to raise capital, and for investors
to buy and sell securities to achieve their financial goals
 Debt Market
- The debt market, or bond market, is the arena in which
investment in loans are bought and sold. There is no single
physical exchange for bonds. Transactions are mostly made
between brokers or large institutions, or by individual
investors.
 Equity Market
- Equity, or stock, represents a share of ownership of a
company. The owner of an equity stake may profit from
dividends. Dividends are the percentage of company profits
returned to shareholders. The equity holder may also profit
from the sale of the stock if the market price should increase
in the marketplace.
 Financial Markets
- Financial markets refer broadly to any marketplace where
the trading of securities occurs, including the stock market,
bond market, forex market, and derivatives market, among
others. Financial markets are vital to the smooth operation of
capitalist economies.
 Stocks Markets
- The term stock market refers to several exchanges in which
shares of publicly held companies are bought and sold. Such
financial activities are conducted through formal exchanges
and via over-the-counter (OTC) marketplaces that operate
under a defined set of regulations.
 Stocks of Exchange
- A stock exchange is an important factor in the capital

market. It is a secure place where trading is done in a
systematic way. Here, the securities are bought and sold as
per well-structured rules and regulations.
- Securities mentioned here includes debenture and share

issued by a public company that is correctly listed at the stock
exchange, debenture and bonds issued by the government
bodies, municipal and public bodies.
Functions of Stock Exchange
Following are some of the most important functions that are
performed by stock exchange:
1. Role of an Economic Barometer

2. Valuation of Securities
3. Transactional Safety
4. Contributor to Economic Growth
5. Making the public aware of equity investment
6. Offers scope for speculation
7. Facilitates liquidity
8. Better Capital Allocation
9. Encourages investment and savings
Functions of Stock Exchange
Following are some of the most important functions that are
performed by stock exchange:
1. Role of an Economic Barometer

- Stock exchange serves as an economic barometer that is
indicative of the state of the economy. It records all the major
and minor changes in the share prices.
2. Valuation of Securities
- Stock market helps in the valuation of securities based on
the factors of supply and demand. The securities offered by
companies that are profitable and growth-oriented tend to be
valued higher. Valuation of securities helps creditors,
investors and government in performing their respective
functions.
3. Transactional Safety
- Transactional safety is ensured as the securities that are
traded in the stock exchange are listed, and the listing of
securities is done after verifying the company’s position. All
companies listed have to adhere to the rules and regulations
as laid out by the governing body.
4. Contributor to Economic Growth

- Stock exchange offers a platform for trading of securities of
the various companies. This process of trading involves
continuous disinvestment and reinvestment, which offers
opportunities for capital formation and subsequently, growth
of the economy.
5. Making the public aware of equity investment

- Stock exchange helps in providing information about
investing in equity markets and by rolling out new issues to
encourage people to invest in securities.
6. Offers scope for speculation
- By permitting healthy speculation of the traded securities,
the stock exchange ensures demand and supply of securities
and liquidity.
7. Facilitates liquidity
- The most important role of the stock exchange is in ensuring
a ready platform for the sale and purchase of securities. This
gives investors the confidence that the existing investments
can be converted into cash, or in other words, stock exchange
offers liquidity in terms of investment.
8. Better Capital Allocation

- Profit-making companies will have their shares traded
actively, and so such companies are able to raise fresh capital
from the equity market. Stock market helps in better
allocation of capital for the investors so that maximum profit
can be earned.
9. Encourages investment and savings
- Stock market serves as an important source of investment in
various securities which offer greater returns. Investing in
the stock market makes for a better investment option than
gold and silver.
THE HISTORY OF PHILIPPINE OF STOCK EXCHANGE
On February 3, 1936, the Securities and Exchange Commission

announced that it had "relinquished control of the Manila Stock
Exchange.“ The Philippine Stock Exchange was formed on
December 23, 1995, from the merger of the Manila Stock
Exchange (MSE) (established on August 12, 1927, based on Muelle
de la Industria, Binondo, Manila) and the Makati Stock Exchange
(MkSE) (established on May 15, 1963, based in the Makati Central
Business District, within Ayala Tower One). Both exchanges
traded the same stocks of the same companies.
THE HISTORY OF PHILIPPINE OF STOCK EXCHANGE
In June 1998, the Securities and Exchange Commission (SEC)

granted the PSE a "Self-Regulatory Organization" (SRO) status,
which meant that the bourse can implement its own rules and
establish penalties on erring trading participants (TPs) and listed
companies.
In 2001, the PSE was transformed from a non-profit, non-stock,

member-governed organization into a shareholder-based,
revenue-earning corporation headed by a president and a board
of directors and on December 15, 2003, listed its own shares on
the exchange (traded under the ticker symbol PSE).
On March 28, 2022, The Philippine Stock Exchange launched the
PSE Thematic Index Series, with two new indices, namely PSE
Dividend Yield Index, and PSE MidCap Index.
 Formal Markets
- In the formal market, each seller has a fixed location; i.e. a

store. In order to attract buyers, formal sellers advertise their
posted price and location. The location and the price of each
seller are common knowledge. In order to capture these
market features, we use the directed search framework of
Burdett et al. (2001).
- Each buyer in the formal market can visit one seller per
period, and buyers’ visits of sellers are not coordinated. Buyers
are more likely to visit the seller with the lowest posted price.
But since buyers are not coordinated, they may face more
competition at these locations. If multiple buyers choose to
visit the same seller, then only one of the buyers can purchase
the good, while the rest of buyers receive a payoff of 0. On the
other hand, if no buyers visit a seller, then he cannot sell his
good, so he receives a payoff of 0.
 OVER THE COUNTER MARKETS
- An over-the-counter (OTC) market is a decentralized market

in which market participants trade stocks, commodities,
currencies, or other instruments directly between two parties
and without a central exchange or broker.
- In an OTC market, dealers act as market-makers by quoting

prices at which they will buy and sell a security, currency, or
other financial products. A trade can be executed between two
participants in an OTC market without others being aware of
the price at which the transaction was completed.
FACTORS THAT SHAPE MARKET TRENDS
Government
-Government holds much sway over the free markets. The fiscal
and monetary policies that governments and their central banks
put in place have a profound effect on the financial marketplace.
International Transactions
‐The flow of funds between countries affects the strength of a
country's economy and its currency. The more money that is
leaving a country, the weaker the country's economy and currency.
 Speculation and Expectation
‐ Speculation and expectation are integral parts of the financial
system. Consumers, investors, and politicians all hold different
views about where they think the economy will go in the future,
and that affects how they act today. The expectation of future
action is dependent on current acts and shapes both current and
future trends.
 Supply and Demand

‐ Supply and demand for products, services, currencies, and other
investments creates a push-pull dynamic in prices. Prices and
rates change as supply or demand changes. If something is in
demand and supply begins to shrink, prices will rise. If supply
increases beyond current demand, prices will fall. If supply is
relatively stable, prices can fluctuate higher and lower as
demand increases or decreases.

Banking and Other Financial Institutions: La Consolacion College Bais City FM 32

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La Consolacion College

BANKING AND OTHER

Rolin Cadallo Obina

 A vibrant and healthy economy requires a

 A strong financial system is a

Key Components of the Financial System

Functions of the Financial System

 January 1, 1997: End of the liberalization of domestic borrowings of foreign

DESCRIBE EACH OF THE FOLLOWING:

Government Non-Bank Financial Institutions

Basic Structure of Financial Institutions/Intermediaries?

Basic Structure of Financial Institutions/Intermediaries?

Contractual Savings Institutions

A. Insurance Companies specialize in writing contracts to protect

Contractual Savings Institutions

Hedge Funds are financial firms organized as a partnership of wealthy

Finance Companies are non-bank financial intermediaries that raise funds

Type of Primary Liabilities Primary Assets

Type of Primary Liabilities Primary Assets

Type of Primary Liabilities Primary Assets

The Principal Regulatory Agencies of the Philippine Financial System,

Objectives of Financial Regulations

Objectives of Financial Regulations

What is asymmetric information?

Objectives of Financial Regulations

Objectives of Financial Regulations

Objectives of Financial Regulations

1. Asymmetric information in financial markets means that investors may

Objectives of Financial Regulations

1. What is reserve requirements?

THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

The BSP’s Organizational Structure as of July 18, 2018

Financial Monetary & Currency Corporate

THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

Exercises the powers and

Financial Monetary & Currency Corporate

THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

Financial Monetary & Currency Corporate

THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

THE ROLE OF BANGKO SENTRAL NG PILIPINAS IN FINANCIAL REGULATIONS

As a complex system, the financial market has a

1.FOREIGN EXCHANGE MARKET

Type of Forex Markets

Spot Forex Market

 Futures Forex Market

- A stock exchange is an important factor in the capital

- Securities mentioned here includes debenture and share

1. Role of an Economic Barometer

1. Role of an Economic Barometer

4. Contributor to Economic Growth

5. Making the public aware of equity investment

8. Better Capital Allocation

On February 3, 1936, the Securities and Exchange Commission

In June 1998, the Securities and Exchange Commission (SEC)

In 2001, the PSE was transformed from a non-profit, non-stock,

- In the formal market, each seller has a fixed location; i.e. a

- An over-the-counter (OTC) market is a decentralized market

- In an OTC market, dealers act as market-makers by quoting