CHAPTER 3: BANKING

SYSTEM
PREPARED BY: SUBJECT: FIN121
KISEO, CHRISTINE (05735)
SCHEDULE: TTHS 3:30-
TONGCUA, SHENNA
4:30 PM.
IBALE, TERESE AIN
PEPITO, LOVELY KATE
SENO, JOHANIE FAITH
LEARNING COMPETENCIES
AFTER STUDYING THIS CHAPTER, THE LEARNERS ARE EXPECTED TO:
1. NARRATE THE ORIGIN OF THE MODERN BANKING SYSTEM UP TO THE
RISE OF MODERN CENTRAL BANKS.
2. COMPARE AND EXPLAIN THE DIFFERENT CLASSIFICATION OF BANKS.
3. ENUMERATE AND DISCUSS THE DIFFERENT TYPES OF BANK
ACCOUNTS.
4. ENUMERATE THE MAJORITY SERVICES OFFERED BY BANKS.
5. TELL A STORY ABOUT YOUR EXPERIENCES IN THE DIFFERENT
SERVICES OFFERED BY BANKS.
THE HISTORY OF BANKING
SYSTEM
THE GOLDSMITHS: FROM KEEPERS TO
LENDERS.
KEEPER: It was the business of the goldsmith to deal with valuable commodities the
goldsmith would build strong vaults to protect their inventory from theft. The
residents of the town wanted to rent the goldsmiths secure vault in order to keep their
money safe. The goldsmith therefore started taking deposits and this was in a way the
birth of modern banking.
LENDER: Over a period of time, the goldsmiths realized that the deposits are usually
far in excess of the withdrawals. Therefore, the goldsmiths started lending out the
money that they had held on deposit even though it did not belong to them! This was
the birth of the second major function of modern banking i.e. lending money.
LOOSE BANKING ERA

Banking during this era was entrepreneurial in nature.

Therefore, anyone who wanted to could set up a bank and
enter the business. There were no licenses required and
there was no regulation. This era continued till the 1600’s.
ISSUANCE OF PRIVATE BANK NOTES

Private Banks would issue private bank notes. The notes

were nothing but a receipt for gold that had been deposited
at the bank and could be withdrawn if the receipt was
presented. Some of these notes were bearer notes i.e. the
gold would be paid out to whoever brought in the note to
the bank.
THE RISE OF CENTRAL BANKS
Central banks were banks created by special grant by the
government. They would act as a banker to the government. Also,
they would be responsible for the proper functioning of the other
banks within their domain. This is when licenses became a
requirement for banking business. It may have other duties as
well, such as some degree of regulatory power over the financial
system, operating a check-clearing system, or performing general
banking services for the central government.
FRACTIONAL RESERVE SYSTEM (FRS)
The bankers only need to keep a fraction of the funds on deposit.
Therefore, if a bank receives “100” as deposit, it needs to
maintain, let’s say “10” as deposit and the rest can be used for
lending.
Nowadays bank notes themselves form the reserves based on
which more bank notes are issued. Some banks have excess
reserves whereas others are deficient in their reserves. As a result
of this, reserves are traded in interbank markets.
BANGKO SENTRAL NG PILIPINAS (BSP)
Objectives
 The BSP’s primary objective is to maintain price stability conducive to a
balanced and sustainable economic growth. The BSP also aims to
promote and preserve monetary stability and the convertibility of the
national currency.
Responsibilities
 The BSP provides policy directions in the areas of money, banking and
credit. It supervises operations of banks and exercises regulatory powers
over non-bank financial institutions with quasi-banking functions.
  Currency issue. All notes and coins
Under the New Central Bank Act, the
issued by the BSP are fully guaranteed by
BSP performs the following functions,
the Government and are considered legal
all of which relate to its status as the
tender for all private and public debts.
Republic’s central monetary authority.
 Lender of last resort. The BSP extends
 Liquidity Management. The BSP
discounts, loans and advances to banking
formulates and implements monetary
institutions for liquidity purposes.
policy aimed at influencing money
supply consistent with its primary  Financial Supervision. The BSP
objective to maintain price stability. supervises banks and exercises regulatory
powers over non-bank institutions
performing quasi-banking functions.
 Management of foreign currency reserves. The BSP seeks to maintain
sufficient international reserves to meet any foreseeable net demands for
foreign currencies in order to preserve the international stability and
convertibility of the Philippine peso.
 Determination of exchange rate policy. The BSP adheres to a market-
oriented foreign exchange rate policy such that the role of Bangko Sentral is
principally to ensure orderly conditions in the market.
 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.
 CLASSIFICATION OF BANKS

The BSP monitors and compiles various indicators on the Philippine banking
system.
In the Philippines, banks shall be classified into:
 Universal and Commercial Banks - represent the largest single group,
resource-wise, of financial institution in the country. They offer the widest
variety of banking services among financial institutions.
 Rural
 Cooperative
UNIVERSAL AND COMMERCIAL BANK

Universal banks have the same powers and functions as with commercial banks.
In addition, universal banks may perform the following:
Power of an investment house
Power to invest in non-allied enterprises
Power to own up to 100% of the equity in a thrift bank, rural bank, a financial allied
enterprise or a non-financial allied enterprise.
In case of listed universal banks, the power to own up to 100% of voting stock of only one
universal bank or commercial bank.
Universal Bank
Universal banks are defined as  accepting or creating demand
commercial with additional deposits, receiving other types of
authority to exercise all such powers deposit substitutes
of an investment house. Carry out  buying and selling foreign exchange
commercial banking such: and gold or silver bullion, acquiring
accepting drafts and issuing letters marketable bonds and other debt
of credit discounting and securities, and extending credit.
negotiating promissory notes drafts
Commercial Bank
- is a financial institution that provides services like loans, certificates of
deposits, savings bank accounts, bank overdrafts, etc. to its customers.
These institutions make money by lending loans to individuals and
earning interest on loans.

The two primary characteristics of a commercial bank are lending and

borrowing. The bank receives the deposits and gives money to various
projects to earn interest (profit).
Thrift Bank
- are financial institutions that focus on basic banking services for their clients, with
an emphasis on individuals and small businesses. This core of services is built around
the offering of home mortgage along with savings accounts that carry a competitive
rate of interest.
Thrift banks composed the following:
 savings
 mortgage banks
 private development banks

Thrift banks may perform the
following:
 grant secured or unsecured loans
 invest in readily marketable bonds
 dept securities
 commercial papers
 accounts receivable
 Acts as correspondent for other financial
 drafts; bills of exchange,
 acceptances or commercial notes; issue
domestic letters of credit; extend credit
facilities to private and government
employees; extend credit against the
security of jewelry and similar items;
accept savings and time deposits;
rediscount paper with Land Bank of the
Phils. (LBP), Development Bank of the
Phils. (DBP), and other government-owned
and controlled corporations (GOCCs);
accept foreign currency deposits;
institutions; purchase, hold or convey real
estate; and, offer other banking services
provided in Section 53 of RA8791.
Thrift banks may also;
 open current/checking accounts; engage in trust, quasi- banking function
 money market operations
 act as collection agent for government entities
 act as official depository of national agencies and local government funds
in the local government unit the bank is located
 issue mortgage and chattel mortgage certificates
 invest in equity of allied undertakings
 issue foreign letters of credit; pay/accept/negotiate import/export draft bills
of exchange.
RURAL AND COOPERATIVE BANK

Rural and cooperative banks are the more popular type of banks
in the rural communities. Their role is to promote and expand
the rural economy in an orderly and effective manner by
providing the people in the rural communities with basic
financial services. Rural and cooperative banks help farmers
through the stages of production, from buying seedlings to
marketing of their produce.
 A Coop Bank shall primarily provide financial, banking, and credit services
to cooperatives and their members, and to general public. It may also
perform any or all of the banking services offered by other types of banks
subject to prior approval of the BSP.

 Rural banks may perform the following: extends loans and advances to
farmers, fishermen, farm families, cooperatives, merchants, private and
public employees; accept savings and time deposits; act as correspondent for
other financial institution; rediscount paper with Land Bank of the Phils.,
Development Bank of the Phils., or any other banks., act as collection agent;
offer other banking services provided in Section 53 of RA 8791. With
prior approval of the Monetary Board, a rural bank may perform the
following: accept current or checking account provided rural bank has a
net asset of at least P5 million; accept negotiable order of withdrawal
accounts; act as trustee over estates/properties of farmers and merchants;
act as official depository of local government unit in the local government
unit where the bank is located; sell domestic drafts; and invest in allied
undertakings.
DIFFERENT TYPES OF
BANK ACCOUNTS IN THE
PHILIPPINES
 WHAT IS BANK ACCOUNT?

 In Philippines we associate bank accounts as

deposit placement or cash and savings
 Is a connected to a broad range of products such
as credit card, debit card, loan and investment
account.
THE FOLLOWING ARE THE DIFFERENT TYPES
OF BANK ACCOUNT IN THE PHILIPPINES
 SAVINGS ACCOUNT
It is low initial deposit and low maintaining balance,
savings account (SA) is usually the preferred choice
for Filipinos when they open an account with the
bank.
 savings account pays low interest, usually 1% and if
you avail of ATM facilities with another bank, there is
another deduction from your account as service
charge.
 A. SAVINGS ACCOUNT VS. PAYROLL
ACCOUNT

• Saving account and payroll accounts have similarities such

as ATM withdrawals and debit card facilities.
• Distinction between the two is that payroll account has no
maintaining balance.
B. ATM VS PASSBOOK SAVINGS ACCOUNT

ATM accounts have lower maintaining balance and initial deposit

requirements compared with passbook accounts.
If you do not touch your money more often, passbook savings
account is a better choice. It is ideal for those who prefer
traditional banking where transactions and account balances are
printed in a booklet type.
 CHECKING ACCOUNT
 It is also called current account, is a basic deposit account that is
different from a savings account. First , it requires higher amount
upon opening and maintaining balance is also higher. Second,
checking does not earns very minimal interest.
 This type of bank account is appropriate for those who have
businesses as well as to individuals who have regular cash flow such
as revenue, payment of expenses, amortizations, and loans.
 TIME DEPOSIT ACCOUNT
 A bank account that pays interest higher that the usual savings
account.
 Opening a time deposit means keeping your funds in the account for
a fixed period of one month to seven years.
 You cannot use your money within the time agreed with the bank.
 There is a term called pre-termination, meaning early withdrawal is
possible but it comes with a penalty that can deplete the earnings of
the account.
 FOREIGN CURRENCY ACCOUNTS
 It allows you to withdraw in peso or dollar or other account
depending on what currency the account was opened.
 Depositors with foreign currency account have a chance to earn
money without having to physically deposit or withdraw money
from bank.
 Most foreign currency bank accounts in the Philippines come
with a passbook and are typically available in the following
dominant and flexible currencies: Dollar, Yen, Pound, Yuan, etc.
 JOINT ACCOUNT
 Bank account appropriate for business partners, associations, and couples for
convenience and transparency in managing their shared inflows and
outflows.
 Joint account means that the deposit will be under more than one name.
 There are two types:
Joint “ AND” – needs the signature of both account holders for withdrawals.
Joint “ Or” – allows co-owners to withdraw anytime without the other
person’s signature.
SERVICES OFFERED

BY
BANK
ACCEPTING LOAN ATMs
DEPOSIT ACCEPTING DEPOSIT
SERVICES SERVICES
Basic banking functions
Acceptance of deposits • Banks need to lend such as deposits,
from depositors or client money to the withdrawals, account
is the primary function public to generate inquiries.
of a bank. Banks accept revenue in the
deposit from those who form of interest. Key Advantage:
have money but cannot • Business entity, a. 24-hour availability
utilize it in profitable need to gain profit b. Elimination of labor
activities if it is to continue cost
its existence. c. Convenience of
location
 BANK CHECK COLLECTION AND
GUARANTEE PAYMENT PAYMENT
 Customers have to
• Account holders
ARRANGEMENT
deposit certain • Bill of exchange,
can draw check
fund in promissory notes, and
upon the bank to
governmental checks are used. Bank
pay money. Banks
offices or courts for deal with these
pay for checks of
a specific purpose, instruments by collecting
customers after
a bank can present and paying different types
formal verification
itself as the of credit instrument
and official
guarantee for the
procedures.
customer.
CONSULTANCY CREDIT CARDS DEBIT CARDS

 Provide advice to • To make • Used to

customers purchases of electronically
regarding goods and withdraw funds
investment, services on credit. directly from the
industry, trade, • The credit card cardholders`
income, tax, and provider accounts.
other issues of immediately pays
financial concern. for the goods and
service.
DISCOUNTING FOREIGN HOME
OF BILLS CURRENCY BANKING
EXCHANGE EXCHANGE

 Another popular • Essential to settle • Is the process of

type of lending by down the dues in doing financial
the modern banks. the international transactions from
trade and import- one`s own home
 A holder of a bill of
export transaction. instead of going to
exchange can have it a branch of a
discounted by the bank.
bank.
 MOBILE ONLINE OVERDRAFT
• Provides
BANKING BANKING
• Service offered by banks that allows overdraft
 Used for facilities to its
account holders to access their
performing balance multiple account
account data via the internet.
checks, account • holders or valued
It is also known as “Internet
transactions, clients through
banking” or “Web banking”.
payments, credit • which they are
enables to perform all routine
applications and allowed to
transactions, such as account
other banking withdraw more
transfers, balance inquiries, bill
transactions
payments and stop-payment requests, than their
through a mobile deposits on an
and some even offer online loan and
device such as a account.
credit card applications.
mobile phone.
 PRIORITY PRIVATE REMITTANCE
BANKING BANKING OF FUNDS
 Bank service today is • Personalized financial • Helps in transferring
auto debit arrangement and banking services that funds from one place to
for payment of the are traditionally offered to another through checks
depositor`s payables like the bank`s rich clients and and drafts.
electricity, water, high net worth • Give bank clients
communication and individuals. flexibility in terms of
credit card bills. • Aim to match such transferring money
 Includes various of individuals with the most from one branch to
service like free appropriate options. another.
checking, online bill pay,
etc.
 ORGANIZATION
AND STRUCTURE OF
BANKS
 EXECUTIVES
 Executive for community banking • A small team of senior directors to
focuses on local branches and
offices at the local level.
 They are also responsible for
overseeing consumer lending,
which provides personal and
family loans.
 There is generally a separate chief
of wealth management, which
focuses on serving clients in need
of tax, estate planning, investing
advice.
DIRECTORS
closely manage business functions.
• Executives will assign a senior leader
to manage the distribution of products
and another to focus on business
development.
• Commercial lending will assign some
leaders to focus on small start-ups and
other to larger corporate clients, while
the wealth management group might
branch off into trust services and asset
management.
 DEPARTMENT
MANAGERS BANK STAFF
• They define the direction and objectives of 
Are the front lines and are
a business unit, the managers on the other
often the face of the company
hand will decide how to implement them.
to clients and potential
• Commercial banking will often have
employees alike.
managers working in a department for
global transactions and another for  Community banks may offer a
corporate portfolio management. broader range of direct
• Wealth management divisions will further consumer services and have
divide their planning services into specific more frontline staff like tellers,
departments for securities, mutual funds, personal bankers, and courier
and commodities. services.