BANKING AND FINANCIAL

INSTITUTION
BY: JULSAR T. CALONIA

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FINANCIAL SYSTEM
CHAPTER 1
 Topics

Brief History of Banking/The

01 Financial
.
System

02 Banks and their

Services/Banking Trends
Organization and Structure of
03 Banks
Government Policy and
04 Regulation
Financial Statements/ Performance
05 Measurement of Banks
 Financial System by: Rose, Kolari and Fraser

The institutional Consisting of Government

mechanism
The regulatory
established by the
the business customers authorities that
society to produce firms
and deliver
Name Here

supplying
Director
of financial- enforce the
rules prevailing
financial service
financial service within the
and allocate
resources services firms financial sector
Financial System by: Kaufman
..Encompassing the
instruments,
institutions, markets and
rules governing the
conduct of trade that
expedite the routing of
funds from buyers to
sellers and from savers
to lenders.
 H istory
Financial System
in the Philippines
In the Philippines settings, Financial System is
composed of banking institutions and nonbank
financial intermediaries, including commercial
banks, specialized government banks, thrift banks
and rural banks. It is also composed of offshore
banking units, building and loan associations,
investment and brokerage houses and finance
BY: MANILYN
companies. The Bangko Sentral ng Pilipinas and
DR. NATABA the Securities and Exchange Commission
maintained the regulatory and supervisory control. 
BRIEF HISTORY
The first credit institution in
the Philippines, "The Obras
Pias" was started by Father
Juan Fernandez de Leon in
1754 and ended in 1820..

It was in 1851 that the first

Philippine Bank was
established, the "Banco
Espanol-Filipino de Isabela
II". Banco Español-Filipino
de Isabela II is now known
as Bank of the Philippine
Islands
It is the oldest standing bank in the
Philippines and in the whole of
Southeast Asia. It was established
on August 1, 1851 and named after
the mother of then Spanish King
Alfonso XII. Her mother's name was
Isabella. The bank only came into
being after 23 years after Spanish
Monarch Ferdinand VII decreed that
a public bank was to be established
in the Spanish colonized country of
the Philippines. 
 Functions of the financial system
Credit
Credit is supplied by
the financial system to
Money is artificially created
by the financial system Money
three types of through the services, of
borrowers:
1. Consumers
supplying credit and
providing a mechanism of
Creation
2. Business making payments.
3. Government
.

Payments The payments system

takes the form of
This made through the
means of accepting Savings
currency, checking deposits and loan
accounts, and various agreements with the use
transactions media of various financial
instruments
 Components of Financial System
The evidences of debt that are brought
and sold in the market. They consist of
FINANCIAL INSTRUMENTS. money, loans (debts), and ownership
shares.
Financial Markets is a mechanism by which
savings in one sector of the economy
Financial institution is an organization through
which funds in the form of money or claims in
FINANCIAL SECTOR: FINANCIAL money area assembled and transferred from
MARKETS AND INSTITUTION . individuals with surplus funds to other
individuals and firms needing extra funds.

Rules governing the conduct of trade

1. Pertinent laws concerning financial
RULES GOVERNING CONDUCT OF
institution
TRADE.
2. Memoranda, circulars, and issuance of
concerned government agencies
3. Pertinent ordinance of local government
units where the financial institution is
situated
4. Customs and traditions inherit to the area
where the financial institution is situated.
 Financial System and its Components
FINANCIAL SYSTEM

Rules
Financial Financial governing the
Instruments Sector conduct of
trade

Financial Financial
Markets Institution
Household income comes from
wages, dividends, royalties, and
interest and paid by firms

4 sectors of
This income is spent economy
mostly on goods and
services and some
are loaned.
Household

The financial system Firms

absorbs most of the savings
Government
and channel them to firms.

Foreigners
 Financial System and flow of funds
HOUSEHOLD
FIRM’S EXPENSES
INCOME

FIRMS HOUSEHOLD

Expenditure

EXCESS
INVESTMENT
FUNDS
EXPENDITURE

BORROWINGS LENDING
FINANCIAL
SYSTEM
 Financial System and the flow of funds with
government
Wages, Dividends
interest

FIRMS HOUSEHOLD

Purchases
Purchasing

savings
Taxes
x es
Ta

nds
ide
Div
es, rest
g te
Wa in
FINANCIAL
Government SYSTEM

Lending
 Why Household save and lend
Stage in the Life Income Financial
cycle of the Decision
house hold
New Smaller than Spend savings or
expenses borrow
Middle age Bigger than Build up savings
expenses and liquidate
borrowings
Retirement Smaller than Spend savings
expenses
 Why Firms invest and borrow

2016 2017 2018 2019 2020

For Expand their New New Address

additional business Equipment Facilities their
operations for the financial
investment business needs
operations
 Transferring Funds from lenders to borrowers

The financial system is concerned with transferring funds from lenders.

Surplus spending Units (SSUs)

The lenders are those whose

revenue exceeded their
expenditures providing enough
reason.

The borrowers have

expenditures exceeding their
revenues.

Deficit spending Units

(DSUs)
 Transfer SSUs to DSUs
Direct finance

Refers to lending by ultimate

borrowers with no intermediary

Indirect finance

Are called financial

intermediation
 Direct finance
Methods of direct financing

These direct
financial when you
arrangements purchase
take place stocks or Borrowing Private
Invest-
through financial bonds  money place- Broker
markets, markets
directly Dealers ment
in which lenders  from  ment
from the banker
(investors) lend
corporate friends.
their savings
directly to issuing
borrowers them. . Act
intermediary Provides
between One who is in financial advise
buyer and the security and who
sellers but business underwrites
Refers to the selling of securities by private
negotiation directly to insurance does not take acting as a and distributes
companies, commercial banks pension title to the principal new
plan, large-scale corporate investors, and securities rather than investment
wealthy individual investor an agent securities
traded
 INDIRECT FINANCE
It is refer to lending by an
ultimate lender to a Also called as
financial intermediary that
then relends to ultimate financial
borrowers intermediation

Financial intermediaries
purchase direct claims with one
set of characteristics (e.g. term to The transformation
maturity, denomination) from
borrowers and transform them process is called
into direct claims with a different intermediation
set of characteristics, which they
sell to the lenders

Notice that in the Depository institution,

financial intermediation Mutual funds, investment
market the lender's claim intermediaries. ect
is against the financial
intermediaries rather than
the borrower
The benefits of financial
intermediation

Financial intermediaries
can substantially reduce
transaction costs.

Reduction of moral
hazard
Kinds of financial intermediation
This refers to the intermediation performed by financial
Denomination intermediaries where large-denomination claims in the
Intermediation form of loans and securities are accepted from
borrowings

This refers to the intermediation performed by the

Default risk financial intermediary where risky claims in the form
intermediation of loans and security are accepted against borrowing
customers while simultaneously issuing relatively safe
Maturity financial instruments to savers to attract their funds
intermediation This refers to the practice of borrowing comparatively
short-term funds from savers and making long-term
loans to borrowers who require a lengthy commitment
Information of funds.
Intermediation
This refers to the process by which financial intermediaries
substitute their skill in the marketplace for that of savers
who frequently have neither the time nor the access to
relevant information about market condition and
investment opportunities.
 CATEGORIES OF FINANCIAL
INTERMEDIARIES
They are called as This type enter
such because the
sources of their Depository Contractual into contracts
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deposit s received and or financial
from business,
household, and protection against
government. included lost of life or
in this group are property. GSIS,
commercial bank, SSS, private
credit unions, pension plan
savings and loan
associations, and funds and others
savings bank
 CATEGORIES OF FINANCIAL
INTERMEDIARIES Offers the public
They depend securities that
heavily on their can be held
financial Secondary Investment indefinitely as a
Intermediaries Intermediaries
intermediaries long-term
like commercial investment and
banks for which can be sold
quickly when
loanable funds.
customer needs
Included his funds
finance returned
company, investments
mortgage bank, intermediaries
real state include mutual
investment stock funds, bond
trust. funds, money
market funds
Regulation of the Financial System
To make sure that the financial system perform its
mandated task, the government, through its
various mechanism, monitor and control the
activities of the different components of financial
system

General banking act, The revise

Securities act, The Philippine deposit
insurance law, Uniform currency act,
Corporation Code, and Negotiable
Instruments Law
Contents
Here Banko Sentral ng Pilipinas, ,
Money Board, Security and
Exchange Commission.

Financing Company Act of

1998 and Implementing Rules
and Regulations
 Financial Intermediaries and their funds
Types of Intermediary Sources of Funds
Commercial Bank Deposit (Checking, savings and time)
Savings and loan Association Deposit (Checking, savings and time)
Mutual Savings Banks(or Cooperatives) Deposit (Checking, savings and time)

Credit Union Deposit (Checking, savings and time)

Life Insurance Companies Premiums from policyholder

Nonlife Insurance Companies Premiums from policyholder
Pension Fund Companies, GSIS, SSS Employer and employee contributions

Finance Companies Issues of commercial paper, stocks, bonds

Mutual Funds Issues of shares
Money market mutual funds Issues of shares