Banks and other financial institutions are indispensable to our economy and their stability and health

largely impact the state of the country's economy. This is the reason that perhaps one of the most
highly regulated sectors in the Philippine economy is the banking industry

FINANCIAL INTERMEDIARIES - are components of a financial market that move funds from people who
save to people who have productive investment opportunities.

BSP- defines financial intermediaries - as "persons or entities whose principal functions include the
lending, investing or placement of funds

"Functions" - shall "mean actions, activities or operations of a person or entity by which his/its business
or purpose is fulfilled or carried out.

Financial intermediaries may be banks and non-banks. Non-bank financial intermediaries include
insurance companies, financing companies, credit and Joan association, mutual companies, investment
houses, lending corporations, pawnshops, and quasi banking institutions. They all participate in what is
known as the financial markets.

Fund transfers are accomplished in three ways:

(1) direct finance; - borrower and lender meet each other and exchange funds in return for financial
assets" (e.g., purchasing bonds directly from the company issuing them).

(2) semi-direct finance; - a securities broker or dealer brings surplus and deficit units together, thereby
reducing information costs.

- The limitations of both direct and semi-direct finance stimulated the development of indirect financial
transactions, carried out with the help of financial intermediaries" " or financial institutions, like banks

(3) indirect finance

"Depository institutions [such as banks] accept deposits from surplus units and provide credit to deficit
units through loans and purchase of [debt] securities.

Non-depository institutions, like mutual funds, issue securities of their own (usually in smaller and
affordable denominations) to surplus units and at the same time purchase debt securities of deficit
units

KINDS OF FINANCIAL INTERMEDIARIES.

Lending Companies - Section 3(a) of R.A. No. 9474 provides that "lending company shall refer to a
corporation engaged in granting loans from its own capital funds or from funds sourced from not more
than 19 persons. It shall not be deemed to include banking institutions (ELEMENTS OF FINANCIAL
INSTITUTION?)

Savings and Loan Associations - Non-stock savings and loan association" as "a non-stock, non-profit
corporation engaged in the business of accumulating the savings of its members and using such
accumulations for loans to members to service the needs of households by providing long term
financing for home building and development and for personal finance."

Financing Companies - "Financing companies" is defined as "corporations, except banks, savings and
loan associations, insurance companies, cooperatives, and other financial institutions organized or
operating under other special laws, which are primarily organized for the purpose of extending credit
facilities to consumers and to industrial, commercial, or agricultural enterprises, by direct lending or by
discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts,
leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as
well as immovable property. The transactions entered into by Financing companies include financial
lease, assignment of credit and receivables financing.

Credit' shall mean any loan, mortgage, financial lease, deed of trust, advance or discount, any
conditional sales contract, contract to sell, or sale or contract of sale of property or service, either for
present or future delivery, under which, part of all or the price is payable subsequent to the making of
such sale or contract;

Receivables financing is a mode of extending credit through the purchase by or assignment to a

financing company of evidence of indebtedness or open accounts by discounting or factoring.

Insurance Companies - Insurance companies are also financial intermediaries. In traditional insurance
contracts, part of the total premiums paid by the policyholders is invested in different activities
subject to pertinent regulations.

Investment Houses - heir powers, as provided for under Section 7 of P.D. No. 126 as amended, include
the power to:

(1) arrange to distribute on a guaranteed basis securities of other corporations and of the
Government or its instrumentalities;
(2) Participate in a syndicate undertaking to purchase and sell, distribute or arrange to
distribute on a guaranteed basis securities of other corporations and of the Government or its
instrumentalities;
(3) Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best-
efforts basis securities of other corporations and of the Government or its instrumentalities; and

(4) subject to prior approval by the Monetary Board, engage in foreign exchange operations
which the Monetary Board identified as directly related under Subsection 8 of this section.

Investment Company - An Investment Company is a corporation primarily engaged or holds itself out as
being engaged primarily, or proposes to engage, in the business of investing, reinvesting and trading in
securities.

Pawnshops. "Pawnshop" shall refer to a person or entity engaged in the business of lending money on
personal property delivered as security for loans and shall be synonymous, and may be used
interchangeably, with pawnbroker or pawn brokerage.
Quasi-Banks. Quasi-Banks refer to entities engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of
relending or purchasing of receivables and other obligations.'° Section 3(c) of R.A. No. 9474, otherwise
known as the Lending Company Regulation Act of 2007, defines the term quasi bank as follows:

Trust Corporations. A trust corporation is a corporation that is authorized by the Bangko Sentral to
engage in trust and other fiduciary business

under Section 79 of the GBL: “Trust business shall refer to any activity resulting from a trustor-trustee
relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration,
holding, management of funds and/or properties of the trustor by the trustee for the use benefit or
advantage of the trustor or of others called beneficiaries."

BANKS. Banks constitute the largest group of entities that are engaged in financial intermediation in
the Philippines. They play an important role in the economy. The banks' strength bolsters the economy
and their weakness endangers the economy

Article XII (National Economy and Patrimony), 1987 Constitution - Section 20, Article XII of the 1987
Constitution provides:

“Section 20. The Congress shall establish an in dependent central monetary authority, the members of
whose governing board must be natural-born Filipino citizens, of known probity, integrity, and
patriotism, the majority of whom shall come from the private sector. They shall also be subject to such
other qualifications and disabilities as may be prescribed by law. The authority shall provide policy
direction in the areas of money, banking, and credit. It shall have supervision over the operations of
banks and exercise such regulatory powers as may be provided by law over the operations of finance
companies and other institutions performing similar functions. Until the Congress otherwise provides,
the Central Bank of the Philippines operating under existing laws, shall function as the central monetary
authority."

R.A. No. 8791, The General Banking Law of 2000 “expresses the State policy concerning banks in this
wise: "The State recognizes the vital role of banks providing an environment conducive to the sustained
development of the national economy and the fiduciary nature of banking that requires high standards
of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable
and efficient banking and financial system that is globally competitive, dynamic and responsive to the
demands of a developing economy."
GENERAL CONCEPTS:

Banks refer to entities engaged in the lending of funds obtained in the form of deposits.' A bank must
be a stock corporation and its funds must be obtained from the public, meaning deposits of 20 or more
persons

The very business of a bank is to have a place where deposits are received and paid out and where
money is loaned on security. Thus, even if the entity is referred to by a different name, it is still
considered a bank if it performs such basic functions.

Quasi-Banking. Banks should be distinguished from "Quasi-Banks" which are entities that do not accept
deposits. Quasi-Banking refers to borrowing of funds through the issuance endorsement or
assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing
of receivables and other obligations. The purpose of which is (1) relending, or (2) purchasing
receivables or other obligations.