Banking

History of banking
The history banking began with the first prototype banks which
were the merchants of the world, who gave grain loans to farmers
and traders who carried goods between cities.
This was around 2000 BC in Assyria, India and Sumeria. Later, in 
ancient Greece and during the Roman Empire, lenders based in
temples gave loans, while accepting deposits and performing the 
change of money.
Archaeology from this period in ancient China and India also
shows evidence of money lending.
• Many histories position the crucial historical development of a banking system
to medieval and Renaissance Italy and particularly the affluent cities of 
Florence, Venice and Genoa.
• The Bardi and Peruzzi Families dominated banking in 14th century Florence,
establishing branches in many other parts of Europe.[1] 
• The most famous Italian bank was the Medici Bank, established by 
Giovanni Medici in 1397.[2] 
• The oldest bank still in existence is Banca Monte dei Paschi di Siena,
headquartered in Siena, Italy, which has been operating continuously since
1472.[3] 
• Until the end of 2019, the oldest bank still in operation was the Banco di Napoli
 headquartered in Naples, Italy which has been operating since 1463.
• Development of banking spread from northern Italy throughout the 
Holy Roman Empire, and in the 15th and 16th century to northern Europe.
• This was followed by a number of important innovations that took place in 
Amsterdam during the Dutch Republic in the 17th century, and in London
since the 18th century.
• During the 20th century, developments in telecommunications and
computing caused major changes to banks' operations and let banks
dramatically increase in size and geographic spread. The 
financial crisis of 2007–2008 caused many bank failures, including some
of the world's largest banks, and provoked much debate about 
bank regulation.
• China[edit]
• Main : History of banking in China
• In ancient China, starting in the Qin Dynasty (221 to 206 BC), 
Chinese currency developed with the introduction of
standardized coins that allowed easier trade across China, and
led to development of letters of credit. These letters were issued
by merchants who acted in ways that today we would
understand as banks.[70]
• Ancient Egypt[edit]
• Further information: Egypt § Government and economy
• Some scholars suggest that the Egyptian grain-banking system
became so well-developed that it was comparable to major modern
banks, both in terms of its number of branches and employees, and
in terms of the total volume of transactions. During the rule of the
Greek Ptolemies, the granaries were transformed into a network of
banks centered in Alexandria, where the main accounts from all of
the Egyptian regional grain-banks were recorded. This became the
site of one of the earliest known government central banks, and may
have reached its peak with the assistance of Greek bankers.[71]
• According to Muir (2009) there were two types of banks operating
within Egypt: royal and private.[72] Documents made to show the
banking of taxes were known as peptoken-records.[73]
• Religious restrictions on interest[edit]
• Most early religious systems in the ancient Near East, and the
secular codes arising from them, did not forbid usury.
• These societies regarded inanimate matter as alive, like plants,
animals and people, and capable of reproducing itself. Hence if you
lent 'food money', or monetary tokens of any kind, it was legitimate
to charge interest.[124] Food money in the shape of olives, dates,
seeds or animals was lent out as early as c. 5000 BCE, if not earlier.
• Among the Mesopotamians, Hittites, Phoenicians and Egyptians,
interest was legal and often fixed by the state.[125]
• Judaism[edit]
• Main articles: Loans and interest in Judaism and 
Jewish views of poverty, wealth and charity
• The Torah and later sections of the Hebrew Bible criticize
interest-taking, but interpretations of the Biblical prohibition vary.
One common understanding is that Jews are forbidden to
charge interest upon loans made to other Jews, but obliged to
charge interest on transactions with non-Jews, or Gentiles.
However, the Hebrew Bible itself gives numerous examples
where this provision was evaded.
• Deuteronomy 23:19 Thou shalt not lend upon interest to thy
brother: interest of money, interest of victuals, interest of any
thing that is lent upon interest. 
• Deuteronomy 23:20 Unto a foreigner thou mayest lend upon
interest; but unto thy brother thou shalt not lend upon interest;
that the LORD thy God may bless thee in all that thou puttest
thy hand unto, in the land whither thou goest in to possess it.[126]
• Israelites were forbidden to charge interest on loans made to
other Israelites, but allowed to charge interest on
transactions with non-Israelites, as the latter were often
amongst the Israelites for the purpose of business anyway, but
in general, it was seen as advantageous to avoid debt at all, to
avoid being bound to someone else.
• Debt was to be avoided and not used to finance consumption,
but only when in need. However, laws against usury were
among many the prophets condemn the people for breaking.[128]
• It was the interpretation that interest could be charged to non-
Israelites that would be used in the 14th century for Jews living
within Christian societies in Europe to justify lending money for
profit. As this conveniently side stepped the rules against usury
in both Judaism and Christianity as the Jews could lend to the
Christians as they are not Israelites and the Christians were not
involved in the lending but were still free to take the loans.
• Christianity[edit]
• Main article: Usury
• Originally, the charging of interest, known as usury, was banned by
Christian churches. This included charging a fee for the use of money,
such as at a bureau de change. However over time the charging of
interest became acceptable due to the changing nature of money, the term
came to be used for interest above the rate allowed by law.[citation needed]
• The rise of Protestantism in the 16th century weakened Rome's influence,
and its dictates against usury became irrelevant in some areas. That
would free up the development of banking in Northern Europe.
• Islam[edit]
• Main article: Riba
• In Islam it is strictly prohibited to take interest; the Quran strictly prohibits lending
money on Interest. "O you who have believed, do not consume usury, doubled and
multiplied, but fear Allah that you may be successful" (3:130) "and Allah has
permitted trade and has forbidden interest" (2:275).
• The Quran states that taking of interest and making money through unethical means
is not prohibited for Muslims only but were prohibited for earlier communities as well.
Two verses (Al Quran – 4:160–161) clearly states that "Because of the wrongdoing of
the Jews We forbade them good things which were (before) made lawful unto them,
and because of their much hindering from Allah's way, And of their taking usury when
they were forbidden it, and of their devouring people's wealth by false pretences, We
have prepared for those of them who disbelieve a painful doom."
• Riba is forbidden in Islamic economic jurisprudence (fiqh). Islamic
jurists discuss two types of riba: an increase in capital with no services
provided, which the Qur'an prohibits—and commodity exchanges in
unequal quantities, which the Sunnah prohibits; trade in promissory
notes (e.g. fiat money and derivatives) is forbidden.[citation needed]
• Despite the prohibition of charging interest, during the 20th century a
number of developments took place that would lead to an 
Islamic banking model where no interest is charged but banks would
still operate for profit. This would be done through charging for loans in
different ways such as through fees and using method of risk sharing
and different ownership models such as leasing.
• Major events in the history of banking[edit]
• 1100 – Knights Templar run earliest European wide/Mideast banking until the
14th century.
• 1397 – The Medici Bank of Florence is established in Italy and operates until
1494.
• 1542 – The Great Debasement, the English Crown's policy of coin
debasement during the reigns of Henry VIII and Edward VI.
• 1553 – The first joint-stock company, the 
Company of Merchant Adventurers to New Lands, was chartered in London.
• 1602 – The Amsterdam Stock Exchange was established by the 
Dutch East India Company for dealings in its printed stocks and bonds.
• 1609 – The Amsterdamsche Wisselbank (Amsterdam
Exchange Bank) was founded.
• 1656 – The first European bank to use banknotes opened in
Sweden for private clients, in 1668 the institution converted to a
public bank.[207][208][209]
• 1690s – The Massachusetts Bay Colony was the first of the 
Thirteen Colonies to issue permanently circulating banknotes.
• 1694 – The Bank of England was founded to supply money to
the English King.
• 1695 – The Parliament of Scotland created the 
Bank of Scotland.
• 1716 – John Law opened Banque Générale in France.
• 1717 – Master of the Royal Mint Sir Isaac Newton established a new
mint ratio between silver and gold that had the effect of driving silver
out of circulation (bimetalism) and putting Britain on a gold standard.
• 1720 – The South Sea Bubble and John Law's Mississippi Scheme
 failure caused a European financial crisis and forced many bankers
out of business.
• 1775 – The first building society, Ketley's Building Society, was
established in Birmingham, England.
• 1782 – The Bank of North America opened.[210]
• 1791 – The First Bank of the United States was chartered by the
United States Congress for 20 years.
• 1800 – The Rothschild family establishes European wide banking.
• 1800 – Napoleon Bonaparte founds the Bank of France on 18 January.[211][212]
• 1811 – The Senate tied on a vote to renew the charter of the 
First Bank of the United States charter. Vice President George Clinton broke
the tie and voted against renewal, and the bank was dissolved.
• 1816 – The Second Bank of the United States was chartered for five years
after the First Bank of the United States lost its charter. This charter was also
for 20 years. The bank was created to finance the country in the after the 
War of 1812.
• 1817 – The New York Stock Exchange Board was established.[210]
• 1818 – The first savings bank of Paris was established.[212]
• 1825 – Panic of 1825 in which 70 UK banks fail
• 1862 – To finance the American Civil War, the federal government under
U.S. President Abraham Lincoln issued legal tender paper money, called "
greenbacks".
• 1874 – The Specie Payment Resumption Act was passed provided for the redemption of
United States paper currency, in gold, beginning in 1879.
• 1913 – The Federal Reserve Act created the Federal Reserve System, the central banking
system of the United States, and granted it the legal authority to issue legal tender.
• 1930–33 – In the wake of the Wall Street Crash of 1929, 9,000 banks close, wiping out one
third of the money supply in the United States.[213]
• 1933 – Executive Order 6102 signed by U.S. President Franklin D. Roosevelt forbade
ownership of gold coin, gold bullion, and gold certificates by US citizens beyond a certain
amount, effectively ending the convertibility of US dollars into gold.
• 1971 – The Nixon Shock was a series of economic measures taken by U.S. President 
Richard Nixon which canceled the direct convertibility of the United States dollar to gold by
foreign nations. This essentially ended the existing Bretton Woods system of international
financial exchange.
• 1986 – The "Big Bang" (deregulation of London financial markets) served as a catalyst to
reaffirm London's position as a global centre of world banking.
• 2007 – Start of the Late-2000s financial crisis that saw the credit crunch that led to the failure
and bail-out of a large number of the world's biggest banks.
• 2008 – Washington Mutual collapses, the largest bank failure in history up to that point.
•History of the Philippine Banking
• Obras Pias (Pious works)– banking in the Philippines began in the
16thCentury bye establishment of this organization composing of layman
associated with religious order.
• Rodriquez Bank was among the first bank that emerged in the early
19thcentury which was more of a loan association than a regular bank.
• Banco Espanol-Filipino de Isabel II was the first state bank in the
Philippines that was established on August 1, 1851 by the Board of
Authorities (Junta de Autoridades) in Manila because of the need for more
extensive bank services and facilities. In January 1, 1912 the named was
changed to Bank of the Philippine Islands
• In 1906 Postal Savings Bank was put up and it was the first agricultural bank. Later on
its assets and liabilities was transferred in 1916 to the Philippine National Bank.
• Three years after the American Regime ended, the Central Bank of the Philippines
was created, establishing a managed monetary system in the Philippines. It was given
the sole authority to issue the republic’s new paper money and regulate and supervise
the country’s banking system.
• In 1873, British-Oriented banks opened branches in the country as a result of the
expanded Philippine=European trade following the opening of the Suez Canal in 1869.
• In 1872, the chartered bank of India, Australia and China opened branches in Manila
and la8terin Iloilo and Cebu.
• In 1875 the Hong Kong and Shanghai Banking Corporation establish a branch in
Manila.
• Monte de Piedad y Caja de Ahorrosis the first mutual savings in the country. A unique
combination of savings banks and pawnshop opened in 1982 was provided initial
capital by theObras Pias. The bank was then renamed Monte de Piedad and Savings
bank
•What Is a Bank?
• A bank is a financial institution licensed to receive deposits and make
loans. Banks may also provide financial services such as wealth
management, currency exchange, and safe deposit boxes.
• In the Philippines context, the meaning of bank is emphasized in Section 3
of the New General Banking Law to wit:
• “Bank shall refer to entities engaged in the
lending of funds obtained in the form of
deposits”
•Understanding Banks
• Banks are a very important part of the economy because they provide vital
services for both consumers and businesses. As financial services providers,
• they give you a safe place to store your cash. Through a variety of account
types such as checking and savings accounts, and certificates of deposit (CDs),
• you can conduct routine banking transactions like deposits, withdrawals,
check writing, and bill payments.
• You can also save your money and earn interest on your investment.
• Banks also provide credit opportunities for people and corporations. The
money you deposit at the bank—short-term cash—is used to lend to others
for long-term debt such as car loans, credit cards, mortgages, and other debt
vehicles. This process helps create liquidity in the market—which creates
money and keeps the supply going.
• Just like any other business, the goal of a bank is to earn a profit for
its owners. For most banks, the owners are their shareholders. Banks
do this by charging more interest on the loans and other debt they
issue to borrowers than what they pay to people who use their
savings vehicles. Using a simple example, a bank that pays 1% interest
on savings accounts and charges 6% interest for loans earns a gross
profit of 5% for its owners.
• Banks make a profit by charging more interest to borrowers than they
pay on savings accounts.
•Classification of Bank on the basis of Ownership
• According to the economy, different countries have different types of bank ownership.
• Government Bank:
• The bank which is established, directed, managed, and controlled by the government is
called a government-owned bank. When the bank is governed by the management,
control, organizing from the beginning to the organization, it is called a public bank or
government bank. Generally, these banks are stated for service motive not for earning a
profit. Sometimes a non-government bank is converted into government bank by
nationalization. The main objective of these sectors is social welfare.
• Private Bank:
• Private Banks are privately owned, directed and controlled. Banks that are controlled and
managed by a particular person are called private banks. These banks are those banks
that are owned and controlled by the private sector or individuals. Overall, these banks are
owned by private individuals or corporations and not by the government or co-operative
societies. Those banks are enlisted by the central bank. Indirectly these banks are
controlled by the government. The main objective of the private sector is to earn a profit.
For example, we can mention UBS Bank, Merrill Lync (The Bank of American
Corporation), RBC (Royal Bank of Canada), HSBC Bank as a private bank, etc.
• Joint Ownership Bank:
• Joint ownership banks are controlled by the government as well as by
the non-government entity. 51% of the shares are belonging to the
government and private entity holds the rests. The main objective of
these banks is to help its members. State cooperative banks, District
cooperative bank and Primary loan society are included in these banks.
• Autonomous Bank:
• These banks are established by the special order of the government
and the president. Such banks are formed by the special law of the
government and through the special ordinance of the constitution. The
government has no direct influence on the user of these banks. Bank of
America Tower in New York City is one of the best parts of the
autonomous bank in America. Such banks are independently regulated
in the control system.
As to place of incorporation, banks are classified as either
domestic or foreign.

• Classification On The Basis Of Domicile

• On the basis of domicile, the banks can be divided into two types as
follows:
• The banks which are registered and incorporated within the country
are called domestic banks. These banks provide financial assistance
domestically.
• 18 The banks which have their origin and head offices in the foreign
country are called foreign banks. Foreign banks are the branches of
the banks incorporated abroad.
• Classification On The Basis Of Functions:
• 1. Central Bank:
• The most important bank in a country is the central bank. It stands at the
top of all other banks. The main aim of a central bank is to maintain
monetary and economic stability of a country. It enjoys the monopoly of
note issue. Every country has a central bank of its own with different
names.
• 2. Commercial Bank:
• Commercial banks are the most common type of banks. They conduct
their business purely on profit motive. The main function of a
commercial bank is to accept deposits from those who have surplus
funds and lend on interest to those who require funds.
• 3. Cooperative Banks:
• Cooperative banks are operated on cooperative lines. Co-operative
credit institutions are organized under a cooperative society’s law and
play a significant role in meeting financial needs in rural areas.
• 4. Industrial banks
• are those which meet the long-term credit needs of industries. The
leading countries of the world have separate industrial banks to
provide industrial finance.
• 5. Agricultural banks
• provide long-term, medium-term and short-term finance to
agriculture sector.
• 6. Foreign exchange banks
• are those specialized banks which carry on foreign exchange business.
Foreign trade transactions are settled through these banks. Exchange
banks purchase, sell and collect foreign bills, issue letter of credit,
facilitate foreign remittances through bank draft, telegraphic transfer, etc.
• 7. Savings Bank
• The principal aim of saving banks is to collect and pool together the
scattered savings of the community. Saving banks are usually
departments of commercial banks.
• A savings bank is a financial institution whose primary purpose is
accepting savings deposits and paying interest on those deposits.
• 8. Investment banks
• purchase and sell shares, bonds and securities. They assist joint stock
companies and government bodies to raise money through the sale of
shares and bonds. Investment banks also perform the usual banking
functions of receiving deposits and advancing loans.
• 9. Mortgage Bank:
• Mortgage banks provide long-term loan against the mortgage of
agricultural lands, houses and other such immovable property.
• 10. Micro-finance bank:
The main objectives of micro-finance banks is to provide small loans to small
traders, the loans are granted for short-term and medium terms. In Pakistan
micro-finance banks and Khush-hali bank are the examples of this type of bank.
• 11. Trust Company?
• A trust company is a legal entity that acts as a fiduciary, agent, or trustee on
behalf of a person or business for the purpose of administration, management,
and the eventual transfer of assets to a beneficial party. The trust company acts
as a custodian for trusts, estates, custodial arrangements, asset management,
stock transfer, beneficial ownership registration, and other related arrangements.

• A trust company is a legal entity that acts as a fiduciary, agent, or trustee on behalf of a
person or business for a trust.
• A trust company is typically tasked with the administration, management, and the eventual
transfer of assets to beneficiaries.
• A trust company acts as a custodian for trusts, estates, custodial arrangements, asset
management, stock transfer, and beneficial ownership registration.
• Trusts are managed for profit, which it may take out of the assets annually or upon transfer
to the beneficial third party.
• 12. Rural banks 
• Rural banks are private, unit banking institutions based in
the rural areas which mobilise financial resources and control
and extend credits to farmers, cottage industrialists and
other rural-based economic operators in their defined area of
operation.
• 13. Development Banks?
• Development banks are those which have been set up mainly to
provide infrastructure facilities for the industrial growth of the
country. They provide financial assistance for both public and
private sector industries.
Types of banks as to management
• Unit Banking
– it is one where ownership is concentrated to one corporation,
- independent to others
- one place of business
- its own board of directors
- rural bank is the best example
• Group Banking
- When the majority portion of the stocks of two or more banks are held by
a holding company.
• Branch Banking
- where there is ahead office and two or more branches
• Chain Banking
- When one or more persons/corporation control the activities of banks.
Economic Significance of Banks.
• Facilitate trade transaction, particularly credit transactions.
• Facilitates the dealings between debtors and creditors, it acts as an
intermediary in the flow of credit funds.
• It allows others the use of otherwise idle funds of he community in
the productive activities.
• They can create money out of loan proceeds.
• Giving expert advice to businessmen.
• The major link between the international buyers and sellers.
Why the State or Government Supervises and
Control Banks?
• To see to it that people’s trust in banks must not be destroyed or
maligned.
• To ensure that the banks will perform their functions in the best
interest of their clients through the honest and efficient conduct of
their functions.
• It will peent the banks to create any untoward incidents that could
bring disaster to country.
• To protect the interest of the citizens.
BANK ORGANIZATION
Any business, whether big or small must be formed under the accepted
principles of organizing and financing.
GENERAL ASPECTS IN ESTABLISHING BANKS
In determining this particular aspect,
the organizers must be armed with facts and figures which they have to analyze
carefully before they can proceed with their project.
Selection of stockholders
The organizers also have to contend themselves with the selection of
stockholders. This is an essential consideration in setting up a bank because on such
choice may depend its success or failure.
BASIC GUIDELINES IN ESTABLISHING BANKS

• (Note: Except those to be established under R.A. No. 7721 which shall
continue to be governed by Circular No.51 dated 14 October 1994, as
amended. The authority to operate as an expanded commercial bank, on
the other hand, may be granted only to a non -expanded commercial bank
with satisfactory performance for the last two (2) years preceding its
application for such authority.)
• A. Guiding Principle (39)
• B. The Application (40)
• C. Capital Requirement/Stockholdings (58)
• D. Incorporators/Subscribers, Directors and Officers (62)
• E. Requirements for the Issuance of Authority to Operate (77)
• F. Inauguration/Opening of the Bank for Business after the Certificate of Authority to
Operate has been Issued. (83)
• G. Requirements within 30 Days after First Day of Operations (83)
• H. Revocation of Authority to Establish a Bank(84)
• A. Guiding Principle
• The new banking organization must have suitable shareholders,
adequate financial strength, a legal structure in line with its
operational structure, and a management with sufficient expertise
and integrity to operate the bank in a sound and prudent manner.
Where the proposed owner or parent organization is a foreign bank,
the prior consent of its home country supervisor should be obtained.
B. The Application

1. The Application for Authority to Establish a Bank (For m No. 1) shall be

accomplished in triplicate. The original copy and duplicate copy shall be
submitted to the Office of Supervisory Policy Development, Bangko Sentral ng
Pilipinas (BSP). The third copy shall be retained by the organizers.
2. The required papers/documents and other information in support of the
application are, as follows:
a. “Agreement to Organize a Bank” (Form No. 2).
b. Accomplished bio-data sheet of each of the incorporators, proposed
directors and officers, and subscribers (Form No. 3).
c. Evidence of Filipino citizenship of each of the incorporators, proposed
directors and officers, and subscribers if he/sheclaims to be a Filipino citizen.
C-1. In case of a natural-born Filipino citizen, original or certified true copy
of birth certificate from issuing office. In case the birth certificate
cannot be produced by reason of destruction or otherwise, an affidavit
to that effect by the civil registrar concerned should be submitted
accompanied by an affidavit of the incorporator, director, officer or
subscriber himself stating, among other things, the date and place of
his birth and the names of his parents and their citizenship at the time
of the affiant’ birth; and joint affidavit of two (2) disinterested/unrelated
persons stating, among other things, the date and place of the
subject’s birth and the names of his parents and their citizenship at the
time of the subject’s birth; or
C-2. In case of a naturalized citizen of the Philippines, the
naturalization
certificate, certificate of registration thereof with the civil
registrar and other pertinent papers; or
C-3. In the absence of the abovementioned documents, a photocopy
of the passport (with original to be presented for verification).
d. Statement of Assets and Liabilities as of a date not earlier than
ninety (90) days prior to the filing of application of each of the
subscribers, sworn to by the subscriber himself and duly notarized, or
certified by a Certified Public Accountant, with supporting schedules
showing the following information:
D-1 In the case of cash in banks:
(a) name of depository bank,
(b) nature of deposit, and
(c) amount of deposit with each bank as of balance sheet date;
D-2 In the case of securities:
(a) name and address of issuing corporation/entity,
(b) number of shares owned as of balance sheet date,
(c) par value,
(d) date and cost of acquisition, and
(e) information as to whether the securities are actively traded in
the stock market and, if so, their current market price;
D-3 In the case of land:
(a) description (agricultural, etc);
(b) area;
(c)location;
(d) date and cost of acquisition;
(e) transfer certificate of title or tax declaration number;
(f) amount of encumbrance or lien, if any;
(g) assessed value; and
(h) current market value (state basis of valuation);
D-4) In the case of real estate improvements:
(a) description of improvement (residential house, etc.)
(b) location;
(c) date and cost of acquisition/construction;
(d) assessed value; and
(e) current market value (state basis of valuation);
D-5) In the case of accounts receivable
state the name and address of each debtor and the amount due from
each; and

D-6) In the case of accounts payable or other liabilities,

state the name and address of each creditor and the amount owed to
each.(Evidences of asset ownership such as bank certification/statement,
savings passbook, certificate of time deposit, bond or stock certificate,
transfer certificate of title, tax declaration, etc. and waiver of rights under
Republic Act. No. 1405, as amended, shall be submitted/presented for
verification).
 e. Statement of Income and Expense for the last three (3) calendar years of
each of the subscribers, sworn to by the subscriber himself and duly
notarized, or certified by a Certified Public Accountant.
f. Certified photocopies of Income Tax Returns for the last three (3 calendar
years of each of the incorporators, proposed directors and officers, and
subscribers.
g. Clearances from the National Bureau of Investigation (NBI) and Bureau of
Internal Revenue (BIR) of each of the incorporators, proposed directors and
officers, and subscribers.
h. For corporate subscribers:
1) Copy of the Board Resolution authorizing the corporation to invest in such bank and
designating the person who will represent the corporation in connection therewith;
2) Copy of the latest Articles of Incorporation and By-Laws;
3) List of directors and principal officers;
4) List of major stockholders, indicating the citizenship and the number, amount and
percentage of the voting and non-voting shares held by them;
5) A copy of the corporation’s audited financial statements for the last two (2) years
prior to the filing of application;
6) A copy of the corporation’s annual report to the stockholders for the year
immediately preceding the date of filing of application;
7) Certified photocopies of Income Tax Returns for the last two (2) calendar years; and
8) BIR clearance.
i. For foreign bank subscribers:

1) A copy of the Board Resolution authorizing the bank to invest in a

bank in the Philippines, and designating the person who will
represent the bank in connection therewith;
2) Historical background of the bank, as follows:
a) Date and place of incorporation;
b) List of domestic branches, agencies, other offices, subsidiaries
and affiliates and their line of business (if different from banking) in
the home country;
 c) List of foreign branches, agencies, other offices, subsidiaries and
affiliates, and their location and line of business (if different from
banking);
d) Range of banking services offered; and
e) Financial and commercial relationship with the Philippine
Government, local banks, business entities and residents, past or
present.
3) A copy each of the bank’s latest Amended Articles of Incorporation
and By-Laws;
4) List of the bank’s directors and their citizenship;
5) List of principal officers of the bank’s head office;
6) List of major stockholders, indicating the citizenship and the number,
amount and percentage of the voting and non-voting shares held by
them;
7) A copy of the bank’s audited financial statements for the last two (2)
years prior to the filing of application;
8) A copy of the bank’s annual report to the stockholders for the year
immediately preceding the date of filing of application; and
9) A certification from the bank’s home country supervisory authority
that the bank’s home country supervisory authority has no objection
to the bank’s investment in a bank in the Philippines, and that
adequate information on the bank and its subsidiaries will be
provided to the Bangko Sentral ng Pilipinas to the extent allowed
under existing laws.
j. Detailed Plan of Operation and Economic Justification for
Establishing the Bank. The plan of operation should:
1) Describe and analyze the market area from which the bank
expects to draw the majority of its business and establish a strategy for
the bank’s ongoing operations;
2) Describe how the bank would be organized and controlled
internally;
3) Include a brief discussion about the credit program, systems and
procedures as envisioned by the organizers.
The economic justification for establishing the bank should provide
information on the economic profile of the region, e.g., population,
agricultural/industrial/service projects to be financed).
k. Projected monthly financial statements for the first three (3) years of
operations,
together with reasonable assumptions. (The financial projections
should be consistent and realistic in relation to the bank’s proposed strategic
plan, and should show sufficient capital to support the bank’s strategy,
especially in the light of start-up costs and possible operational losses in the
early stages. Also, the projections should be supported by reasonable
assumptions and should include a Plantilla of organization, the salaries and
allowances of the officers and employees as well as the members of the
board of directors, a schedule of proposed banking premises, furniture,
fixtures and equipment indicating their estimated cost and monthly
depreciation and such other information as may be necessary. See
suggested forms.)
l. Proposal by each of the subscribers on how they will raise the
amount to pay for their proposed paid-up capitalization in the
bank.
3. The application shall be considered filed on a first-come, first-served
basis, provided all the required documents are complete and properly
accomplished.
4. Pursuant to Section 26 of R.A. No. 7653, approval of application shall be subject,
among others, to the condition that any director, officer or stockholder who, together
with his related interest, contracts a loan or any form of financial accommodation
from:
(1) his bank; or
(2) from a bank
(a) which is a subsidiary of a bank holding
company of which both his bank and the lending bank are subsidiaries or
(b) in which a controlling proportion of the shares is owned by the same interest that owns
a controlling proportion of the share s of his bank, in excess of five percent (5%) of the capital
and surplus of the bank, or in the maximum amount permitted by law, whichever is lower, shall
be required by the lending bank to waive the secrecy of his deposits of whatever nature in all
banks in the Philippines. Any information obtained from an examination of his deposits shall be
held in strict confidence and may be used by the examiners only in connection with their
supervisory and examination responsibility or by the Bangko Sentral in an appropriate legal
action it has initiated involving the deposit account.
5. Prescribed application form, together with other forms, is available
at the Office of Supervisory Policy Development Studies and Chartering
Group, Supervisory Reports and Studies Office.
C. Capital Requirement/Stockholdings

1. Banks to be established shall comply with the required minimum capital enumeratedbelow or
as may be prescribed by the Monetary Board:

Type of Bank(s) (In Million Pesos)

a. Universal Banks P 4,950.0

b. Commercial Banks P 2,400.0
c. Thrift Banks
- with head office within Metro Manila P 325.0
- with head office outside Metro Manila P 52.0
d. Rural Banks
- within Metro Manila P 26.0
- cities of Cebu and Davao P 13.0
- in 1st, 2nd & 3rd class cities and
1st class municipalities P 6.5
- In 4th, 5th & 6th class cities and
in 2nd, 3rd & 4th class municipalities P 3.9
- In 5th & 6th class municipalities P 2.6
2. At least 25% of the total authorized capital stock shall be subscribed by the
subscribers of the proposed bank, and at least 25% of such subscription shall be
paid-up, provided that in no case shall the paid-up capital be less than the
minimum required capital stated in Item 1 above.
3. The Stockholdings of an individual, family, corporate or business group in any
bank shall be subject to the following limits:
a. Foreign individuals and non-bank corporations may own or control up to
forty percent (40%) of the voting stock of a domestic bank: Provided, That the
aggregate foreign-voting stocks owned by the foreign individuals and nonbank
corporations in a domestic bank shall not exceed forty percent (40%) of
the outstanding voting stock of the bank. The percentage of foreign owned
voting stock in a bank shall be determined by the citizenship of the individual
stockholders in that bank.
 b. A Filipino individual and a domestic non-bank corporation may each
own up to forty percent (40%) of the voting stock of a domestic bank. There
shall be
no aggregate ceiling on the ownership by such individuals and corporations
in a domestic bank.
c. The citizenship of the corporation which is a stockholder of a bank
shall follow the citizenship of the controlling stockholders of the
corporation, irrespective of the place of incorporation. For purposes hereof,
the term “controlling stockholders” shall refer to individuals holding more
than fifty percent (50%) of the voting stock of the corporate stockholders of
the bank.
4. At least 60% of voting stock of any commercial bank shall be owned
by Filipino citizens. For any thrift bank, at least 40% of its voting stock
shall be owned by Filipino citizens. Subject to Section 4 of Republic Act.
No. 7353, all of the capital stock of any rural bank shall be fully owned
and held, directly or indirectly, by Filipino citizens or corporations,
associations or cooperatives qualified under Philippine laws to own and
hold such capital stock.
D. Incorporators/Subscribers, Directors and Officers

1. The incorporators /subscribers and proposed directors and

officers must be persons of integrity and of good credit standing in the
business community. The subscribers must have adequate financial
strength to pay for their proposed subscriptions in the bank.
2. The incorporators/subscribers and proposed directors and officers
must not have been convicted of any crime involving moral turpitude,
and unless otherwise allowed under the provisions of existing laws are
not officers and employees of a government agency, instrumentality,
department or office charged with the supervision of, or the granting of
loans to banks.
3. A bank may be organized with not less than five (5) nor more than fifteen
(15)
incorporators. In case there are more than fifteen (15) persons initially
interested in
organizing and investing in the proposed bank, the excess may be listed among
the
original subscribers in the Articles of Incorporation.
4. The number of members of the board of directors of the bank shall not be
less than five (5) nor more than fifteen (15) and shall always be in odd
numbers and at least two (2) of the directors are “independent directors”. An
independent director shall mean a person who –
a. Is not or has not been an officer or employee of the bank/quasi-bank/
trust entity, its subsidiaries or affiliates or related interests during the past
three (3) years counted from the date of his election;
b. Is not a director or officer of the related companies of the institution’s majority
stockholder;
c. Is not a majority shareholder of the institution, any of its related companies, or
of its majority shareholder;
d. Is not a relative within the fourth degree of consanguinity or affinity, legitimate
or common-law of any director, officer or majority shareholder of the
bank/quasi-bank/trust entity, or any of its related companies;
e. Is not acting as a nominee or representative of any director or substantial
shareholder of the bank/quasi-bank/trust entity, any of its related companies
or any of its substantial shareholders; and,
f. Is free from any business or other relationship with the institution or any of
its major stockholders which could materially interfere with the exercise of his
judgment, i.e., has not engaged and does not engage in any transaction with
the institution, any of its related companies or any of its substantial
shareholders, whether by himself or with other persons or through a firm of
which he is a partner or a company of which he is a director or substantial
shareholder, other than transactions which are conducted at arm’s length and
could not materially interfere or influence with the exercise of his judgments.
5. At least two-thirds (2/3) of the members of the board of directors of
any commercial bank shall be Filipino citizens; at least a majority of the
members of the board of directors of any thrift bank shall be Filipino
citizens; and all members of the board of directors of a rural bank shall
be Filipino citizens.
6. No appointive or elective public official, whether full-time or part-
time shall at the same time serve as officer of a commercial bank or a
thrift bank except in cases where such service is incident to financial
assistance provided by the government or a government-owned or –
controlled corporation to the Bank.
7. The proposed directors and officers of the bank shall be subject to
qualifications and other requirements of existing laws, rules and
regulations of the BSP, as follows:
a. Qualifications of a director. A director shall have the following
minimum qualifications:

1. He shall be at least twenty-five (25) years of age at the time of his election or
appointment;
2. He shall be at least a college graduate or have at least five (5) years
experience in business;
3. He must have attended a special seminar for board of directors conducted or
accredited by the BSP: Provided, That incumbent directors as well as those
who will be elected after the approval of this circular must attend said seminar
within a period of six (6) months from the date of this circular or from the date
of their election, as the case may be; and
4. He must be fit and proper for the position of a director of the bank/quasibank/
trust entity. In determining whether a person is fit and proper for the position of a director, the
following matters must be considered:
- integrity/probity;
- competence;
- education;
- diligence; and
- experience/training .
For thrift banks and rural banks, at least one (1) of the members of the Board
of Directors must, in addition to the abovementioned minimum qualifications,
have at least one (1) year experience in banking and/or finance, provided that
this requirement may be waived if the thrift bank or rural bank is to be
established in a municipality or city where there is no existing bank.
The foregoing qualifications for directors shall be in addition to those already
required or prescribed under existing laws.
b. Qualifications of an officer. An officer shall have the following
minimum
qualifications:
1. He shall be at least twenty-one (21) years of age;
2. He shall be at least a college graduate, or have at least five (5) years
experience in banking or trust operations or related activities or in a field
related to his position and responsibilities, or have undergone training in
banking or trust operations acceptable to the appropriate supervising and
examining department of the BSP: Provided, however, That trust officers
shall have at least two (2) years of actual experience or training in trust
operations or fund management or other related fields; and
3. He must be fit and proper for the position he is being proposed/appointed to. In
determining whether a person is fit and proper for a particular position, the following
matters must be considered:
- integrity/probity;
- competence;
- education;
- diligence; and
- experience/training.
For commercial banks, the President must, in addition to the abovementioned
minimum qualifications, have at least two (2) years experience in banking and/or
finance. For thrift banks and rural banks, any one of the President, Chief Operating
Officer or General Manager must, in addition to the abovementioned minimum
qualifications, have at least two (2) years experience in banking and/or finance. The
foregoing qualifications for officers shall be in addition to those already required or
prescribed under existing laws.
c. prescribing disqualifications for directors, the following are
disqualified from becoming directors:
a. Permanently disqualified Directors / officers / employeepermanently disqualified by
the Monetary Board from holding a director position:
1. Persons who have been convicted by final judgment of the court for offenses
involving dishonesty or breach of trust such as, estafa, embezzlement, extortion,
forgery, malversation, swindling and theft;
2. Persons who have been convicted by final judgment of the court for violation of
banking laws;
3. Persons who have been judicially declared insolvent, spendthrift or incapacitated
to contract; or
4. Directors, officers or employees of closed banks/quasi-banks/trust
entities who were responsible for such institution’s closure as determined by the
monetary board.
b. Temporarily disqualified
Directors/officers/employees disqualified by the Monetary Board from holding
a director position for a specific/indefinite period of time. Included are:
1. Persons who refuse to fully disclose the extent of their business
interest to the appropriate supervising and examining department when
required pursuant to a provision of law or of a circular, memorandum or rule
or regulation of the BSP. This disqualification shall be in effect as long as the
refusal persists;
2. Directors who have been absent or who have not participated for
whatever reasons in more than fifty percent (50%) of all meetings, both
regular and special, of the board of directors during their incumbency, or any
twelve (12) month period during said incumbency. This disqualification applies
for purposes of the succeeding election;
 3. Persons who are delinquent in the payment of their obligations as
defined hereunder:
a. Delinquency in the payment of obligations means that an
obligation of a person with a bank/quasi bank/trust entity where
he/she is a director or officer, or at least two obligations with other
banks/financial institution, under different credit lines or loan
contracts, are past due pursuant to Secs. X306 and 4308Q of the
Manual of Regulations;
b. Obligations shall include all borrowings from a bank/quasi
bank obtained by:
i. A director or officer for his own account or as the
representative or agent of others or where he/she acts as a guarantor,
endorser, or surety for loans from such financial institutions;
 ii. The spouse or child under the parental authority of the director or
officer;
iii. Any person whose borrowings or loan proceeds were credited to
the account of, or used for the benefit of a director or officer;
iv. A partnership of which a director or officer, or his/her spouse is the
managing partner or a general partner owning a controlling interest in
the partnership; and
v. A corporation, association or firm wholly owned or majority of the
capital of which is owned by any or a group of persons mentioned in the
foregoing
vi. Items (i), (ii) and (iv);
This disqualification shall be in effect as long as the delinquency persists.
4. Persons convicted for offenses involving dishonesty, breach of trust or
violation of banking laws but whose conviction has not yet become final
and executory;
5. Directors and officers of closed banks/quasi-banks/ trust entities
pending their clearance by the Monetary Board;
6. Directors disqualified for failure to observe/discharge their duties and
responsibilities prescribed under existing regulations. This disqualification
applies until the lapse of the specific period of disqualification or upon
approval by the Monetary Board on recommendation by the appropriate
supervising and examining department of such directors’
election/reelection;
7. Directors who failed to attend the special seminar for board of directors
required under item 3 of subsecs. X141.2/4141Q.2. This disqualification
applies until the director concerned had attended such seminar;
8. Persons dismissed/terminated from employment for cause. This
disqualification shall be in effect until they have cleared themselves of
involvement in the alleged irregularity;
9. Those under preventive suspension; or
10. Persons with derogatory records with the National Bureau of
Investigation (NBI), court, police, Interpol and monetary authority
(central bank) of other countries (for foreign directors and officers)
involving violation of any law, rule or regulation of the Government or
any of its instrumentalities adversely affecting the integrity and/or
ability to discharge the duties of a bank/quasi bank/trust entity
director/officer. This disqualification applies until they have cleared
themselves of involvement in the alleged irregularity.
E. Requirements for the Issuance of Authority to Operate

1. Within sixty (60) days from receipt of advice of approval by the Monetary
Board/Governor of their application for authority to establish the bank, the
organizers shall:
a. Submit the Articles of Incorporation, Treasurer’s Sworn Statement and By
Laws in seven (7) copies; and
b. Deposit with any commercial bank (for commercial banks and thrift banks)
and any bank (for rural banks) the initial paid-up capital of the proposed bank.
2. Within thirty (30) days after the Articles of Incorporation and By Laws had
been passed upon by the Office of the General Counsel and the corresponding
certificates of Authority to Register had been issued, the organizers shall effect
the filing and registration of said documents with the Securities and Exchange
Commission.
3. Within six (6) months (for commercial banks and thrift banks) and eight (8) months (for
rural banks) from receipt of advice of approval by the Monetary Board/Governor of their
application for authority to establish the bank, the organizers shall:
a. Complete the construction and furnishing of the bank building, which shall be
equipped with vault and appropriate security devices such as lighting system, time
delay device, tamper resistant locks, alarm systems, etc., and provided with furniture,
fixtures, equipment and bank forms;
b. Effect and complete the recruitment and hiring of officers and employees of the bank;
c. Submit the following documentary requirements at least thirty (30) days before the scheduled
start of operations:
1) Proof of registration of Articles of Incorporation and By- Laws;
2) Certification of compliance with the conditions of approval duly signed by the incorporators;
3) List of principals and junior officers and their respective designations and salaries;
4) Bio-data sheet, evidence of citizenship and NBI and BIR clearances of each of the officers (who
have not had the previous approval of the Monetary Board/Governor) which are needed for the
evaluation of their qualifications as officers;
 5) Chart of Organization (The chart should show the names of
departments/units/offices with their respective functions and responsibilities, and
the designations of positions in each department/unit/office with their respective
duties and responsibilities. The internal organization should provide for a
management structure with clear accountability, a board of directors with ability to
provide independent check on management, and independent audit and
compliance functions, and should follow the “four eyes” principle, e.g., segregation
of various functions crosschecking, dual control of assets, double signatures, etc.);
6) Manual of Operations embodying the policies and operating procedures of
each department/ unit/office, covering such areas as signing/delegated authorities,
etc. (for commercial banks and thrift banks);
7) Plantilla showing the positions with corresponding salaries, the total of which
should more or less conform with the amount of salaries shown in the submitted
projected statement of earnings and expenses;
8) Two (2) sets of specimens of principal bank accounting and other forms;
9) Bond policy on officers and custodial employees;
10) Insurance policy on bank properties required to be insured;
11) Blueprint of floor layout of bank premises;
12) Contract of lease on bank’s premises, if the same are to be leased;
13) Excerpts of the minutes of the organizational meetings confirming
all organizational and pre-opening transactions relative to activities
undertaken to prepare the bank to operate (such as appointment of
officers, contract of lease, etc.);
14) An alphabetical list of stockholders with the number and percentage
of voting stocks owned by them;
15) A separate list containing the names of persons who own voting
stocks in banks and who are related to each other within the 3rd degree of
consanguinity or affinity, with proper indication of the combined
percentage of voting stocks held by them in the particular bank, as well as
corporations which are wholly-owned or a majority of the stock of which
is owned by any of such persons, including their wholly or majority-
owned subsidiaries;
16) Certification by the President that no person who is the spouse or
relative within the 2nd degree of consanguinity or affinity of any person
holding the position of Chairman, President, Executive Vice-President or
any position of equivalent rank, General Manager, Treasurer, Chief Cashier
or Chief Accountant will be appointed to any of said positions in the bank;
17) Appointment of an officer of the proposed bank who shall have
undergone orientation on the reportorial requirements with the
Department of Thrift Banks and Non-Bank Financial
Institutions(DTBNBFI), and a certification by the Manager that he is
fully aware of said reportorial requirements and the respective
deadlines for submission to the BSP (for thrift banks); and
18) Other documents/papers which may be required; and

d. File with Supervisory Reports and Studies Office a request for ocular
inspection ofthe bank premises at least thirty (30) days before the
scheduled start of operation.
F. Inauguration/Opening of the Bank for Business after the Certificate
of Authority to Operate has been Issued.

G. Requirements within 30 Days after First Day of Operations

1. Inform the BSP of the first day of operation and the banking hours
and days; and
2. Submit a Statement of Condition as of the first day of operation.
H. Revocation of Authority to Establish a Bank
The authority to establish a bank shall be automatically revoked if the
bank is not organized and opened for business within six (6) months
(for commercial banks and thrift banks) and eight (8) months (for rural
banks) after receipt by the organizers of the notice of approval by the
Monetary Board/Governor of their application. Extension may be
granted upon presentation of justifiable reason for failure to open the
bank within the prescribed period, and proof that the bank can be
opened within the extension period.
• The determination of the kind of bank to be formed  Determination
of the type of bank depends upon the economic survey. The survey
will include the level of income of the community, the businesses and
industries, the population of the place, the number of banks or
financial institutions, and factors which will lead to a decision on the
size of the organization to be set up.
• 6. Determination of the amount of capital to be raised  The
organizers will find it easier to determine the amount of capital to be
raised after they have agreed on the type of the bank. They must be
aware that at least the minimum requirements should be met.
• Organization, Management, and Administration In this regard, the
Philippine banking laws and the Corporation Code shall serve as guide
to the organizers.
• 8. Sec. 8 Organization
• 9. Sec. 9 Issuance of Stocks
• 10. Sec. 10 Treasury Stocks
• 11. Sec. 12 Stockholdings of Family Groups or Related Interests
• 12. Sec. 13 Corporate Stockholdings
• 13. Sec. 14 Certificate of Authority to Register
• 14. Sec. 15 Board of Directors
• 15. Sec. 16 Fit and Proper Rule
• 16. Sec. 17 Directors of Merged or Consolidated Banks
• 17. Sec. 18 Compensation and Other Benefits of Directors and Officers
• 18. Sec. 19 Prohibition on Public Officials
• 19. Sec. 20 Bank Branches
• 20. Sec. 21 Banking Days and Hours
• 21. Sec. 22 Strikes and Lockouts
• 22. Licensing of Foreign Banks
• 23. Sec. 72 Transacting Business in the Philippines
• 24. Sec. 73 Acquisition of Voting Stock in a Domestic Bank
• 25. Sec. 74 Local Branches of Foreign Banks
• 26. Sec. 75 Head Office Guarantee
• 27. Sec. 76 Summons and Legal Process
• 28. Sec. 77 Laws Applicable
• 29. Sec. 78 Revocation of License of a Foreign Bank
• Why banks are established as corporations  A corporation is formed by
a number of persons who pool in their resources to enter a business for
profit.  Banks, which by their very nature, deal in large amounts of
capital. Furthermore, loans are given out for a long durations in some
instances and only an entity with a long tenure could be beneficial in
such a case.
• 31.  The delegation of management to a few who compose the board
of directors, will allow flexible management, expansion, as well as
departmentalization. This method of administration leads to
specialization and division of labor which favor’s bank’s function.
• 32. Bank Location  Anyone imbued with business sense will perhaps
know that a poor location will be deterrent to an otherwise profitable
venture.  Customers always look for places which offer a wide variety of
conveniences in meeting their needs.
• There are many factors which will influence the choice of the bank’s location. To
fulfill the needs of strategic sites, the organizers must have in mind the
availability of transportation. Whether the location is within the commercial
district or not, the accessibility of the place both to human and vehicular traffic
should be considered.  This will enhance the chances of the bank attract the
greatest number of potential depositors and customers.
• 34. Role of Regulatory Government Bodies in Bank Organization  The role of
the regulatory government bodies in the bank organization is to facilitate the
processing and approval of pertinent documents to make the organization legal.
• 35. The Securities and Exchange Commission  For its part, also duly examines
the paper to see to it that all requirements are met before issuing the certificate
of incorporation.
Bank-supervision
The act of monitoring the financial performance and operations of
banks in order to ensure that they are operating safely and soundly and
following rules and regulations. Bank supervision is conducted by
governmental regulators and occurs in order to prevent bank failures.
What Is a Bank Examination?
A bank examination is an evaluation of the financial health and
resilience of a bank. Bank examinations are primarily concerned with
the strength of the bank’s balance sheet. However, they also include a
review of its regulatory compliance and internal controls.
How Does Bank Examination Work?
In order to ensure their financial strength, banks must undergo
periodic examinations by a federal agency (usually the Office of the
Comptroller of the Currency). These examinations include analyses of a
bank's loans and investments, how it manages its funds, the risk profile
of the bank (that is, the liquidity and profitability of the bank), and the
bank's compliance with consumer banking laws. OCC examiners also
review the bank's internal controls and management ability.
Bank examiners issue numerical ratings to the bank as a result of the
examination. Dubbed the CAMELS system in the United States,
examiners score each bank in six areas: capital level, asset quality,
management, earnings, liquidity, and sensitivity to market risk. Banks
score between 1 and 5 in each category, with 1 being the highest.
Why Does Bank Examination Matter?
Bank examinations have two parts: the objective CAMELS score and
the more subjective notes section. Bank examination documents
generally are not public—in fact, Exemption 8 of the Freedom of
Information Act explicitly protects them from disclosure. This is
ostensibly because disclosure would reveal which banks are in poor
condition, which could panic shareholders and depositors. However,
national banks must submit a Report of Condition and Income each
quarter to the Federal Deposit Insurance Corp. (FDIC), and this is
available to the public.
CREDIT INSTRUMENTS
Credit instrument- is a document evidencing the existence of a credit
obligation which defines the responsibility of a debtor towards his
creditor and the right of the creditor to collect from the debtor on the
maturity date.
FEATURES OF A CREDIT INSTRUMENT:
1. It is a written evidence of the existence of an obligation on the part
of the debtor, or a claim on the part of the creditor.
2. It shows the degree of risk that confronts the creditor with respect to
the collection ofthe debt.
3. It shows the nature of the debtor-creditor relationship.
FUNCTIONS OF CREDIT INSTRUMENTS:

1. Written documents make claims enforceable. The credit instrument enables the
creditor to hold the host instrument to collect from his debtor. The debtor on the
other hand is protected of his rights with respect to the amount of the obligation,
interest and maturity date.
2. Credit instruments facilitate exchange transactions. To increase volume of
production, producer's farmers, manufacture and merchants avail themselves credit
both use of the proper credit instrument.
3. Credit instrument minimize disputes among the contracting parties. Such
instruments define the extent of the obligations and claims of debtors and creditors.
Once both parties are bound by the same instruments, future disputes are avoided.
4. Credit instrument facilitates production and consumption. Stocks and bonds
certificates issued by corporations that are engaged in production activities.
Consumers avail themselves of the use of book accounts, installment and checks to
fulfill their instrument.
(2) TWO BROAD CLASSIFICATIONS
1. The credit instrument with General Acceptability
- the only instrument that meets the qualification of general acceptability is credit money. It
may be in the form of bank notes or treasury certificates.
- credit instruments which all persons within a country are willing to take in payment for
goods or services.
-Credit Instruments widely acceptable without questioning the integrity of the person offering
it. The only credit instrument that meets the qualification of general acceptability is credit
money.

CREDIT MONEY:
Bank Notes or Paper Money
-Issued by the Central Bank
Treasury Certificates
-a short-term obligation of the treasury, usually maturing in one year, paying interest
periodically on a coupon basis: no longer issued publicly.
CREDIT MONEY QUALITIES
1.) Must be issued by a promissory in which all the people have
confidence.
2). Must be in convenient denominations
3). Easily recognizable
4). Must be difficult to counterfeit.
2. The Credit Instrument with Limited Acceptability
- are issued under conditions as to make them an acceptable means
of payment only within a restricted field.
-Credit Instruments for Investment Purposes are subdivided into
stock certificates, bond certificates, and money market bills.
Stock Certificates- Evidences of ownership in a corporation
Preferred stocks- having special privileges & carry certain limitations.
Common stocks- having entitled to residual claims on the business.
Bond Certificates-Issued by a government or corporation in order to
raise money
Money Market Bills-Negotiable financial instruments bought and
sold in the market.
-Money market- a meeting place for users and suppliers of short term
funds.
Parties to a money market transaction:
a.) Fund
b.) Fund Supplier- are individuals or corporations with excess
liquidity who are looking for possible investment outlets for their
excess funds.
c.) Broker- are individuals or institutions engaged in the buying and
selling of money market instruments.
Kinds of Money Market Instruments
1.Interbank loans- loans which should be paid upon demand or call
by the lending institutions ad have no definite maturity.
2. Promissory notes- also called dealer papers. They are short term
indebtedness issued by institutions as direct obligors.
3. Repurchase agreement- are papers sold y dealers to buyers at an
agreed price. The dealer undertakes to buy the same paper from the
buyer at a specifies futures time and at aprice agreed upon
4. Certificates of assignments- are debt instruments which
evidences lawful ownership of the holder to the extent of the Peso
value indicated on the face of the instruments or a batch of an original
lump sum of promissory notes.
 5. Certificates of participation- are debt instruments which evidence
lawful ownership of the holder to the extent of the Peso value indicated on
the face of the instruments or a portion of an original lump sum obligation
subsequently broken down and denominated into a different Peso value.
6. Commercial papers- an instrument which is issued, endorsed, sold,
transferred or conveyed to another person, or entity with or without
recourse, specifying the indebtedness of any person or entity. May either
be: Financial institutions- issue the financial type of commercial paper,
non-financial- public utilities agricultural and industrial firms
7. C.B.C.I. - tax-free and earn reasonable rate of interest, they are the
Central Bank Certificate of Indebtedness.
8. Treasury Bills- are bearer notes of debt instruments sold every week
at a discount by the Central Bank through competitive auction.
 9. C.B.P. Progress Bonds- issued by the Development Bank of the
Philippines and secured by their assets, they are tax-free and
convertible.
10. Other government securities:
a. PW and Ed Bonds
b. LBP Bonds
c. Treasury Bonds
d. Treasury Notes
e. Capital Bonds
f. CCP bonds
g. ACA Notes
h. EPZA Bonds
i. Socio-economic Bonds
j. Premyo Savings Bonds
k. Biglang Bahay Bonds
l. LRT Notes
m. NDC Bonds
n. NFA Bonds
o. NAWASA Bonds
p. Bahayan Certificates
 Dealer - as an intermediary in the exchange process actually
becomes a party to a market transaction. He maintains an inventory of
securities sells his securities to other buyers and hopes to make a profit
in the process of buying and selling these securities
Broker - only acts as an agent and adviser for his clients who are
either buyers or sellers, he makes them meet.
Underwriter - a dealer who handles new lines of securities. He
purchases securities ad then sells them to make profit.
Transactions:
In primary market- involve the issuance of new securities. In secondary
market- are confines to already issued and outstanding security.
Dealers Intermediating 1. Individual Investors 8. National
in the Money Market 2. Trust Funds and Government
1. Commercial Banks Pension Funds 9. Other institutions
2. Savings Banks 3. Government a) Development
3. Investment Houses Insurance-SSS/GSIS Bank of the Philippines
4. Investment 4. Private Insurance b) Land Bank of the
Companies Companies Philippines
5. Finance Companies 5. Other government c) Islamic Bank
6. Securities Dealers Corporations
Investors in the Money 6. Other private
Market Corporations
7. Lending Investors