Mark Vincent N.

Angeles
3AA

Assignment in Special Commercial Law

Question:

1. Differentiate Bank Deposits and Bank Substitutes.

Answer:

Bank Deposits are fund obtained by a bank form the public which are relent by such
bank to its own borrower. Deposit Substitutes are alternative forms of obtaining funds
from the public other than deposits through the issuance, endorsement, or acceptance
of debt instruments for the own account of the borrower for the purpose of relending or
purchasing of receivables and other obligations.

These instruments may include, but not limited to: 1. Banker’s Acceptance; 2.
Promissory Notes; 3. Participations; 4. Certificate of Assignments; and 5. Similar
Instruments with recourse; and 6. Repurchase Agreements.

Furthermore, a bank is the one that obtains the fund from the public, whilst, quasi-bank
is the one engaged in the substitute deposits such as those stated in the immediately
preceding paragraph. It is also important to note that there is no creditor-debtor
relationship in trust is formulated in quasi-banking, where the substitute deposit is
obtained.

Additionally, only deposits are insured with PDIC. The funds of quasi-banking on the
other hand is not insured with PDIC.

Noting these differences is very crucial, because it will determine what kind of
relationship and concurrent obligations will arise from the funds obtained based on
where it was sourced out. It will also determine the liability of the entity obtaining such
funds.

Therefore, such distinctions are discussed to enable the proper application of governing
laws and regulations applicable whenever funds are involved, which usually imbued
with public interest.
Mark Vincent N. Angeles
3AA

Assignment in Special Commercial Law

Question:

2. What are the inherent Banking Functions that cannot be outsourced? Why?

Answer:

Outsourcing is a contractual arrangement between a bank and a qualified service

provider for the latter to perform designated activities on a continuing basis on behalf
of the bank. This definition found under the circular of BSP, allows the bank to
outsource some functions by virtue of the authority given. However, below are the
inherent functions, that cannot be outsourced as it involves public interest:

Subsection X162.2 of Manual of Regulations for Banks (MORB)

as amended by Circular No. 940 Series of 2017. Prohibition
against Outsourcing of Inherent Banking Functions:

No bank shall outsource inherent banking functions such as follows:

a. Taking deposits from the public;

b. Granting of loans and extension of other credit exposures;
c. Managing of risks exposures; and
d. General management

The reason for this prohibition, foremost, is the presence of risks involved. Outsourcing
these functions will open the floodgate for possible fraud, loss, and detriment, not only
of the bank who outsourced such functions, but may also redound to the detriment of
the market and economy. Said functions, if outsourced, has the potential to expose the
whole banking complexities, because it will reflect to the governance of the banking
institution.
Inherent functions of the bank, therefore, must be borne out of strict standards for the
protection of the banking industry imbued with public and economic interests that affect
the viability and stability of the nation itself.