KRIZ T.

ELMIDO BSA II-A

AEC 219 FINANCIAL MARKETS DATE:
WEEK 13

Activity 1: Research from the internet the operations of Commercial banks and know the following:

a. Banks assets ,Bank liabilities, Bank capital and their management

ANSWER:
Bank Asset
All physical and financial properties of a bank are that bank’s assets. Physical property includes
building, land furniture and equipment’s. Financial assets of a bank include loans, overdrafts, and
customers’ liability under letter of credit, bonds, security, stock and checks on other banks. The
most important assets of banks are loans and reserves. Loan generates interest revenue and
reserves keep deposits safe.

Bank Liability
The bank’s main liabilities are its capital (including cash reserves and often, subordinated debt)
and deposits. The latter may be from domestic or foreign sources (corporations and firms, private
individuals other banks and even governments). They may be repayable on demand or after a
period of time. The liabilities of commercial banks are claim on it. These are the items which
form the sources to its funds. Of the liabilities, the share capital of the bank is the first item which
is contributed by its shareholders and is a liability to them. The second item is the reserve fund. It
consists of accumulated resources which are meant to meet contingencies such as losses in any
year

Bank capital and their management

Commercial bank capital is the margin by which the bank’s assets are covered should the bank be
liquidated. The FDIC requires that the margin is above a specific minimum amount. A
commercial bank must acquire and maintain enough capital to satisfy the FDIC minimal
requirement.

b.) Bank pro-forma balance sheet

ANSWER:

A pro-forma balance sheet summarizes the projected future status of a company after a planned
transaction, based on the current financial statements. In business, pro forma financial statements are
prepared in advance of a planned transaction, such as a merger, an acquisition, a new capital investments,
or a change in capital structure such as incurrence of new debtor issuance of equity. The pro forma
models the anticipated results of the transaction, with particular emphasis on the projected cash flows, net
revenues and taxes. Consequently, pro forma statements summarize the projected future statues of a
company, based on the current financial statements.

c.) Bank objectives

ANSWER:
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AEC 219 FINANCIAL MARKETS DATE:
The objectives of Commercial banks is two-fold: to offer a wide variety of services to individual and
business customers, and to collect payments including fees, charges and interest of the products and
services provided to customers for the purpose of generating profits for shareholders.

d.) Managing bank risks

ANSWER:

Major risk for banks include credit, operational, market, and liquidity risk. Since banks are exposed to a
variety of risks, they have well-constructed risk management infrastructures and are required to follow
government regulations. The ability of a bank to manage risk also affects investor’s decisions. Even if a
bank can generate large revenues, lack of risk management can lower profits due to losses on loans.

e.) Sources of Bank Funds

ANSWER:

A commercial bank is a financial institution that helps community members open checking and savings
accounts and manage money market accounts. However, as the name implies, a commercial bank also has
a broader, business-oriented focus. Most commercial banks offer business loans and trade financing in
addition to the more traditional deposit, withdrawal and transfer services. With such a diverse business
profile, the sources of funds in commercial banks are varied.

 Savings Deposit- deposits remain the main sources of funds for a commercial bank. The money
collected can go toward paying on interest-bearing accounts, completing customer withdrawals
and other transactions.
 Reserve Funds- a commercial bank builds a reserve fund with deposits so it can pay interest on
accounts and complete withdrawals. A bank’s reserves fund should be equal to its capital. A
banks builds it reserve fund by accumulating surplus profits during healthy financial years so that
the funds can be used in leaner times.
 Shareholders Capital- some commercial banks that trade on the stock exchange can use
shareholder’s capital to receive the money it needs to stay in business. Each time a bank makes a
profit it can generally make two choices that include paying dividends to their shareholders or
reinvesting the money bank into the bank. Most banks utilize both options as they will retain a
portion of the profit and pay the reminder to their shareholders.
 Retained Earnings- a lot of commercial banks earn retained earnings or fees to help fund their
business. A retained earning can be collected through overdrafts fees, loan interest payments,
securities and bonds. Banks also charge fees for providing customers with services such as
maintaining an account, offering overdraft protection and also monitoring customer’s credit
scores.

ACTIVITY 2: Based on the information gathered answer the following:

1.) Enumerate and explain the basic and important assets, liabilities and capital of the commercial
bank.
ANSWER:
Assets earn revenue for the bank and includes cash, securities, loans and property and equipment
that allows it to operate.
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AEC 219 FINANCIAL MARKETS DATE:
A bank uses liabilities to but assets, which earns its income. By using liabilities, such as deposits
or borrowing, to finance assets, such as loans to individuals or businesses, or to buy interest
earning securities, the owners of the banks can leverage their bank capital to earn much more that
would otherwise be possible using only the bank’s capital.
Working capital should be sufficient to meet current liabilities. However, it should not be
excessive, since capital in the form of long-term assets usually has a higher return.
2.) How bank generate and invest funds?
ANSWER:
Commercial banks create money, in the form of bank deposits, by making new loans. When a
bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not
typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their
bank account with a bank deposit of the size of the mortgage. At that moment, new money is
created.
3.) What are the three basic type of risks that banks face
ANSWER:
Credit Risk
Credit risk is the biggest risk for banks. It occurs when borrowers or counterparties fail to meet
contractual obligations. An example is when borrowers default on a principal or interest payment
of a loan. Defaults can occur on mortgages, credit cards, and fixed income securities. Failure to
meet obligational contracts can also occur in areas such as derivatives and guarantees provided.

Operational Risk
Operational risk is the risk of loss due to errors, interruptions, or damages caused by people,
systems, or processes. The operational type of risk is low for simple business operations such as
retail banking and asset management, and higher for operations such as sales and trading. Losses
that occur due to human error include internal fraud or mistakes made during transactions.

Market Risk
Market risk mostly occurs from a bank’s activities in capital markets. It is due to the
unpredictability of equity markets, commodity prices, interest rates, and credit spreads. Banks are
more exposed if they are heavily involved in investing in capital markets or sales and trading.
4.) What basic strategy do commercial banks follow to maximize return on its assets?
ANSWER:
Assets are used by businesses to generate income. Loans and securities are a bank's assets and are
used to provide most of a bank's income. However, to make loans and to buy securities, a bank
must have money, which comes primarily from the bank's owners in the form of bank capital,
from depositors, and from money that it borrows from other banks or by selling debt securities —
a bank buys assets primarily with funds obtained from its liabilities.
5.) Describe how compliance with reserve requirements of BSP affects the financial position of a
commercial bank.
ANSWER:
Reserve requirements refer to the percentage of bank deposits and deposits substitute liabilities
that bank must set aside in deposits with the BSP which they cannot lend out, or where available
through reserve-eligible government securities. Changes in reserve requirements have a
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AEC 219 FINANCIAL MARKETS DATE:
significant effect on money supply in the banking system, making them a powerful means of
liquidity management by the BSP. The eligible forms of compliance to the reserve requirements
included bank’s deposits in their demand deposits account (DDA) with the BSP, reserve-eligible
government securities, and vault can.
6.) How are return on assets and return on equity of commercial banks computed?
ANSWER:

The ROA for banks:

FEE INCOME
ROA= + NET INTEREST INCOME
_ OPERATING COSTS
AVERAGE TOTAL ASSETS

NET INCOME
= AVERAGE TOTAL ASSETS
Average total assets are used in calculating ROA because a company’s asset total can vary over
time due to the purchase or sale of vehicles, land or equipment, inventory changes, or seasonal
sales fluctuations. As a result, calculating the average total assets for the period in question in
more accurate that the total assets for one period.
Net profit or net income which is found at the bottom of the income statement is used as
the numerator. Net income is the amount of total revenue that remains after accounting for all
expenses for production, overhead, operations, administrations, debt service, taxes, amortization,
and depreciation, as well as for one time-expenses for unusual events such as lawsuits or large
purchases.

ROE = RETURN ON ASSETS x LEVERAGE RATIO

= NET INCOME x BANK ASSETS
BANK ASSETS x BANK CAPITAL

= NET INCOME

BANK CAPITAL

Shareholder equity is assets minus liabilities on a firm’s balance sheet and is the
accounting value that’s left for shareholders should a company settle its liabilities with its
reported assets.

ROE can also be calculated at different periods to compare its change in value over time.
By comparing the change in ROE’s growth rate from year to year or quarter to quarter, for
example, investors can tract changes in management’s performance.

ASSESSMENT: From the following are the account balances of a Domestic bank

Account title Amount

Cash and cash item for collection P121,000
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AEC 219 FINANCIAL MARKETS DATE:
Non-interest bearing deposits 275,000
Deposits with BSP 190,000
Commercial loans 253,000
Long-term bonds (issued by bank) 439,000
Real estate loans 460,000
Commercial paper and other short-term borrowing 70,000
Consumer loan 187,000
Securities 311,000
Interest bearing deposits 717,000
Building and equipment 16,000
Other assets 685,000
Other liabilities 491,000

Required: Prepare the balance sheet for Domestic Bank.

KRIZ T. ELMIDO BSA II-A
AEC 219 FINANCIAL MARKETS DATE:

WEEK 14

Activity 1: Study researched information from the internet or related books. Understand the following:

1.) 5 major changes in bank activities for past 5 decades.

ANSWER:
Banking, one of the world’s oldest businesses, is constantly changing. The number of banks is on
the decline. According to the Federal Reserve Bank, the number of independent commercial
banks declined by 36. 2 percent from 2007 to 2018. It’s not just the number of banks that is
changing. The technological age has brought vast changes. With all benefits of online banking,
physical branches are less of a necessity. ATM’s and online banking caused long lines at a banks
to disappear. Customer services is offered by phone, chat or email. Online banking is becoming a
top priority when choosing a bank. The banking system has altered significantly from just 10
years ago. Online and mobile banking are now key to the industry. The future of regulations and
their impact is unclear.
2.) Off-balance-sheet activities and its effect on balance sheet.
ANSWER:
Off-balance sheet (OBS) items is a term for assets or liabilities that do not appear on a company’s
balance sheet, they are still assets and liabilities of the company. Off-balance sheet items are
typically those not owned by or are a direct obligation of the company. Off-balance sheet
activities include items such as loan commitments, letters of credit, and revolving underwriting
facilities. The use of off-balance sheet activities may improve earnings ratios because earnings
generated from the activities are included in the income numerator, while the balance of total
assets included in the denominator remains unchanged.
3.) Investment bank: nature; role; division and types
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AEC 219 FINANCIAL MARKETS DATE:
ANSWER:
An investment bank is a financial intermediary that performs a variety of services. Most
investment banks specialize in large and complex financial transactions, such as underwriting,
acting as an intermediary between a securities issuer and the investing public, facilitating mergers
and other corporate reorganizations and acting as a broker or financial adviser for institutional
clients.
4.) Areas of business of an investment bank
ANSWER:
Investment banking is comprised of three main areas: investment banking division (IBD), sales
and trading (S&T), and asset management. The large global banks typically offer all three
services, with smaller banks usually focusing more on the investing banking division side
covering advisory and mergers and acquisitions (M&A)
• Investing banking division-is sometimes referred to as corporate fiancé and is broadly
split into sectors, products and industries. The purpose of both is to provide advisory on
transactions, mergers and acquisitions and to arrange financing for these transactions
• Sales and Trading- Banks match up buyers and sellers as well as buy and sell securities
out of their own account to facilitate the trading of securities, thus, making a market in the
particular security which provides liquidity and prices for investors. In return for these services,
investment banks charge commission fees.
• Asset Management- investment banks are split up into front office, middle office and
back office. Each sector is very different yet plays an important role in making sure that the bank
makes money, manage risk and runs smoothly.
5.) How investment banks make or lose money
ANSWER:
Investment banks make money through the following:

Brokerage and Underwriting Services

Like traditional intermediaries, investment banks connect buyers and sellers in different markets.
For this service, they charge a commission on successful trades. The trades range from megadeals
to simple stock trades.Investment banks also perform underwriting services for capital raises.

Mergers and Acquisitions

Investment banks charge fees to act as advisors for spinoffs and mergers and acquisitions (M&A).
In a spinoff, the target company sells a piece of its operation to improve efficiency or inject cash
flow. Acquisitions occur whenever one company buys another company. Mergers take place
when two companies combine to form one entity. These are often extremely complicated deals
and require a lot of legal and financial help, especially for companies unfamiliar with the process.

Creating Collateralized Products

Investment banks might take lots of smaller loans, such as mortgages, and then package those
into one tradable security. The concept is somewhat similar to a bond-mutual fund, except the
instrument is a collection of smaller debt obligations rather than corporate and government bonds.
Investment banks have to purchase the loans to package and sell them, so they profit by buying
cheap and selling at higher prices on the market.
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AEC 219 FINANCIAL MARKETS DATE:

Proprietary Trading
In the proprietary trading process, the investment bank deploys its own capital into the financial
markets. Company traders look for arbitrage opportunities or other strong, shorter-term
investments.

Dark Pools
Investment banks established dark pools to attract institutional sellers to a secretive and
anonymous market to prevent front-running. The bank charges a fee for the service.

Swaps
Investment bankers sometimes make money through swaps. Swaps create profit opportunities
through a complicated form of arbitrage, where the investment bank brokers a deal between two
parties that are trading their respective cash flows. The most common swaps occur whenever two
parties realize they might mutually benefit from a change in a benchmark, such as interest rates or
exchange rates.

Market Making
Market making works best when the bank has a large inventory of stock with high trade
frequency. The bank can quote a buy price and sell price and earn the small difference between
the two prices, also known as the bid-ask spread.

Investment bank lose money and fail because bank it can’t meet its financial obligations to
creditors and depositors. This could occur because the bank in question has become insolvent, or
because it no longer has enough liquid assets to fulfil its payment obligations.

Activity 2: Apply the theory learned on the following situations:

1.) Enumerate/ describe the classification of firms engaged in investment banking according to
size.
ANSWER:
The firms engaged in the investment banking industry are commonly classified into three
categories: bulge bracket banks, middle-market banks, and boutique banks. The classification of
investment banks is primarily based on size; however, “size” can be a relative term in this context
and may refer to the size of the bank in terms of the number of employees or offices, or to the
average size of M&A deals handled by the banks.
 Boutique banks- are often further divided into regional boutiques and elite boutique
banks. Regional boutique banks, the smallest of the investment banks, both in terms of
firms size and typical deal size, are the banks referred to as regional boutique banks. It
usually have no more than a handful to a few dozen employees. Because of the small size
of most regional boutiques, they do not typically offer all the services offered by bulge
bracket investment banks, and may simply specialize in a single are, such as handling
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AEC 219 FINANCIAL MARKETS DATE:
M&A in a particular market sector. On the other hand, Elite boutique investment banks
are usually altogether different from regional boutique. Elite boutique more closely
resemble bulge bracket banks in regard to the dollar value of the deal they manage, which
is frequently over $1 billion, although they may handle some smaller deals as well. Most
elite boutique banks begins as regional boutique and then gradually work up to the elite
status through handling successions of larger and larger deals for more prestigious
clients.
 Middle-Market Banks- middle-market investment banks are generally what the
designation implies. They occupy the middle ground between smaller regional
investment banking firms and the massive bulge bracket investment banks. It usually
work on deals that begin around the regional level and go up to near the bulge bracket
level, typically ranging from about $50 million. Unlike boutique banks, middle-market
firms usually provide the same full range of investment banking services as bulge bracket
banks, including equity capital market and debt capital market services, a full
complement of financing and asset management services and M&A and restructuring
deals. Some of the middle-market banks resemble regional boutiques in that they
specialize in offering services to a particular industry or sector.
 Bulge Bracket Banks- the bulge bracket banks are the major, international investment
banking firms with easily recognizable names such as Goldman Sachs, Deutsche Bank,
Credit Suisse Group AG, Morgan Stanley and Bank of America. The bulge bracket firm
are the largest in terms of number of offices and employees, and also in terms of handling
the largest deals and the largest corporate clients. The overwhelming majority of clients
are Fortune 500, if not Fortune 100, firms. Bulge bracket investment banks regularly
handle multibillion-dollar M&A deals, although, depending on the overall state of the
economy or the particular client, a bulge brackets bank may sometimes handle deals
valued in the low hundred millions.

2.) What are the sources of income of investment banks?

ANSWER:
 Trading: an investment banks undertakes market making activities whereby it stands ready
any time a client requests it to quote a bid price or an offer price (or both at the same time) on
different types of securities and derivatives. For example, if the client wants to buy a swap,
the bank will assume the role of a counterparty (swap seller), and if the client seeks to sell a
swap, the bank will act as a swap buyer. Market making is all about capturing the bid-ask
spread, i.e., the difference between the price at which the bank stands ready to buy (bid price)
and the price at which it stands ready to sell (ask, or offer price). Trading income takes the
form of realized and unrealized profit and losses.
 Commissions: investment banks generate revenue from agency transactions where they act
as intermediaries between different market players. More specifically, banks receive a
percentage of the transaction value as their compensation for bringing transaction parties
together.
 Asset management: investment banks receive fees from asset management activities such as
the management of assets on behalf of their clients (portfolio management, sale of mutual
funds, etc).
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AEC 219 FINANCIAL MARKETS DATE:
 Securities: investment banks generate revenue from securities-related activities such as
advisory fees from mergers and acquisitions (M&As), dividends and interest from investment
accounts, and so on.
 Underwriting: investment banks are well-known for their active role in underwriting
security issues (initial public offerings). For their services, they receive underwriting income.
 Interest: other sources of income for investment banks include margin interest and interest
from investment accounts. Income from margin interest is what a bank charges a client
borrowing against the value of its securities to finance purchases (buying on margin).
3.) Why are investment banks considered engaged in “shadow banking”?
ANSWER:
A shadow banking system is the group of financial intermediaries facilitating the creation of
credit across the global financial system but whose members are not subject to regulatory
oversight. The shadow banking system consist of lenders, brokers and other credit intermediaries
who fall outside the realm of tradition regulated banking. It played a major role in the expansion
of housing credit in the run up to the 2008 financial crisis, but has grown in size and largely
escaped government oversight even since then.
4.) Distinguish between the industry coverage groups and financial services group within the
organization of investment banks.
ANSWER:
Being in a coverage group, means that specialize in a particular market industry and work on
variety of financial deals with that market. Industry groups commonly include: Consumer Product
& Retail, Energy & Power, Financial Institutions, Manufacturing, Healthcare, Global Industrial
Group, Real Estate, TMT (Technology, Media and Telecommunication) and Utilities. Industry
groups cover all companies in a specified industry, but have exposure to a variety of products
including debt, equity and M&A. Financial Sponsors is a unique coverage group as it does not
cover a specified industry but instead serves only Private Equity firms.

WEEK 15

Activity 1: Research on the following:

1.) Republic Act No. 11211 & R.A. 11127

ANSWER:
Republic Act No. 11211, an Act Amending Republic Act Number 7653, Otherwise Known As
“The New Central Bank Act”, and for other Purposes.
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AEC 219 FINANCIAL MARKETS DATE:
Republic Act No. 11127, or the National Payment Systems regulatory framework which supports
the twin objectives of maintaining a payment system that is necessary to control systematic risk
and providing an environment conductive to the sustainable growth of the economy.

A payment system provides the channels through which funds are transferred among banks and
other institutions to discharge payment obligations arising from economic and financial
transactions across the entire economy. An efficient, secure and reliable payment system reduces
the cost of exchanging goods and services. It is an essential tool for the effective implementation
of monetary policy, and the smooth functioning of money and capital markets.
2.) Financial Soundness of the Philippine Banking Sector
ANSWER:
The positive performance of the banking system was evidenced by the sustained growth in assets,
loans, deposits, capital and profit that was evident across banking groups. The universal and
commercial banks (UKBs) channelled resources mostly to loans and investments in line with the
economy’s growing demand and improved business climate and consumer sentiment. Meanwhile,
thrift banks (TBs), and rural and cooperative banks (RCBs) allocated most of their resources for
lending to agriculture and consumer-related markets.
The Philippine banks’ cross-border financial position has been steadily rising but still modest as a
share of total assets. Relative to this, the Box Article 1 on common lender channel underscores
the importance of diversifying the sources of external financing to reduce vulnerability to
common lenders by banks across jurisdictions.
3.) The BSP Financial Soundness Indicators
ANSWER:
The financial soundness indicators affirm that the banking system is stable and resilient despite
global uncertainties. Capital, mainly comprised of common equity and retained earnings,
remained well above domestic and global benchmarks; credit quality was satisfactory
notwithstanding double-digit loan growth; profits generated primarily from core income were at
record high; and the banks’ high quality liquid assets were sufficient to absorb shocks while
adequately providing the financing needs of the growing economy. The BSP’s surveillance
activities are complemented with proactive engagement with supervised financial institutions
promoting effective management and monitoring of incipient risk to the system.
4.) Capital adequacy ratio
ANSWER:
The Capital Adequacy Ratio (CAR) is a measurement of a bank’s available capital expressed as a
percentage of bank’s risk-weighted credit exposures. The capital adequacy ratio, also known as
capital-to-risk weighted assets ratio (CRAR), is used to protect depositors and promote the
stability and efficiency of financial systems around the world. It set standards for banks by
looking a bank’s ability to pay liabilities, and respond to credit risk and operation risk. A bank
that has a good CAR has enough capital to absorb potential losses. Thus, it has less risk of
becoming insolvents and losing depositor’s money.
5.) Foreign currency deposit unit
ANSWER:
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Foreign currency deposit unit or “FCDU”, shall refer to that unit of a local banks or of a local
branch of a foreign banks authorized by the Central Bank to engage in foreign currency-
denominated transactions, pursuant to the provisions of R.A. 6426.
6.) Trust operations
ANSWER:
Trust Operations provides the services needed to process record keeping, confirmation
requirements, tax reporting, income collecting, disbursement processing, asset movements,
statements and customer service. Trust Operations creates and follows rules, as-well-as policy
and procedures in relation to these services. This department is subject to compliance, internal
audit, external audit and regulatory exams.
7.) Foreign Bank Branches and subsidiaries
ANSWER:
The number of operating foreign banks in the country as of end-year 2012 was the same banks
the previous year ( composed of the four foreign banks branches originally granted access into the
country prior to the 1994 liberalization, the 10 foreign banks branches ushered in R.A. No. 7721,
and the five foreign bank subsidiaries). However, the number of branches and other offices went
down to 119 from 139 last year due to temporary and permanent closures of certain branches by 2
foreign bank subsidiaries.

Activity 2: Apply the theory learned on the following situations:

1.) Why is banking sector considered a key anchor of the country’s growing economy?
ANSWER:
The banking system plays an important role in the modern economic world. Banks collect the
savings of the individuals and lend them out to business- people and manufacturers. Bank loans
facilitate commerce.

Manufacturers borrow from banks the money needed for the purchase of raw materials and to
meet other requirements such as working capital. It is safe to keep money in banks. Interest is
also earned thereby. Thus, the desire to save is stimulated and the volume of savings increases.
The savings can be utilised to produce new capital assets. Thus, the banks play an important role
in the creation of new capital (or capital formation) in a country and thus help the growth process.
2.) Give and explain the major forces that led to the growth of the Philippine Banking system.
ANSWER:
THE PHILIPPINE financial system sustained its growth in the second half of 2018 on the back of
the banking industry’s expansion, ending the year with an uptrend in assets, loans, deposits, and
capital, according to the Bangko Sentral ng Pilipinas (BSP).

“With the banking system at its core, the Philippine financial system has exhibited resilience
amid evolving domestic and global environment. It continued to expand its assets, particularly its
lending and investment portfolios, to support private and public financing needs and in turn
promote economic growth. Its activities brought higher profitability, while maintaining adequate
capitalization and liquidity buffers to absorb potential shocks to operations.
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The Philippine banking system sustained its growth story capping the year 2018 with notable
uptrends in assets, loans, deposits and capital. The banking system maintained its solid footing as
evidenced by its satisfactory asset quality, ample liquidity and solvency, profitable operations and
streamlined physical network.

WEEK 16

Activity 1: Research on the following:

A.) Functions of BSP and PDIC

ANSWER:
Functions of BSP
The BSP’S primary objective is to maintain price stability conductive to a balanced and
sustainable economic growth. The BSP provides policy directions in the areas of money, banking
and credit. It supervise operations of banks and exercises regulatory powers over non-banks
financial institutions with quasi non-bank functions.
Under the New Central Bank Act, the BSP performs the following functions, all of which relate
to its status as the Republic’s central monetary authority
1. Liquidity Management- the BSP formulates and implements monetary policy aimed at
influencing money supply consistent with its primary objective to maintain price stability.
2. Currency Issue- the BSP has the exclusive power to issue the national currency. All notes
and coins issued by the BSP are fully guaranteed by the Government and are considered legal
tender for all private and public debts.
3. Lender of last resort- The BSP extends discount, loans and advances to banking institutions
for liquidity purposes.
4. Financial Supervision- the BSP supervises banks and exercises regulatory powers over non-
bank institutions performing quasi-banking functions.
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5. 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 Philippines pose.
6. Determination of exchange rate policy- The BSP determines the exchange rate policy of the
Philippines. Currently, 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.
7. 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.

Functions of PDIC
PDIC is government instrumentality created in 1963 by virtue of Republic Act 3591 to
insure the deposits of all banks. PDIC exists to protect depositors by providing deposit insurance
coverage for the depositing public and help promote financial stability. The following are the
function of PDIC; Deposit Insurer, Co-regulator of Banks and Receiver and Liquidator of Close
Banks

B.) The objectives of financial regulations.

ANSWER:
Financial regulation is a form of regulation or supervision, which subjects financial institutions to
certain requirements, restrictions and guidelines, aiming to maintain the stability and integrity of
the financial system. This may be handled by either a government or non-government
organization. Financial Regulation has also influenced the structure of banking sectors by
increasing the variety of financial products available.
C.) Subject of regulation of BSP and PDIC
ANSWER:
Subject for BSP
To all Universal and Commercial Banks and their subsidiary Banks and non-banks with banking
function.

SUBJECT: Guidelines on the electronic submission of the Basel III Capital Adequacy Ratio
(CAR) Report.

Subject for PDIC

To all member banks
Subject: Revised Rules and Regulations on Assessment of Member Banks

Pursuant to Sections 2 and 6 of Republic Act (RA) No. 3591 as amended by RA 9576, the Board
of Directors of the Philippine Deposit Insurance Corporation (PDIC), by virtue of Resolution No.
2010-11-150 dated November 10, 2010, approved the following Revised Rules and Regulations
on Assessment of Member Banks.
Section 1. Policy Consideration
Section 2. Coverage
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Section 3. Determination of the Assessment Base
Section 3.1 Assessment Base
Section 3.2 Semi-Annual Assessment Base
Section 3.3 Conversion Rates for Foreign Currency Deposits

Section 4. Determination of the Assessment

4.1 Assessment Rate

4.2 Semi-Annual Assessment

Section 5. Filing of Certified Statements and Remittance of Assessment

Section 6. Actions against Non-Compliance with Rules on Filing of Certified Statement and/or
Payment of Assessment by a Member Bank

Section 7. Conduct of Onsite Assessment Audit

Section 8. Rules on Contested Assessment

Section 9. Rules on Excess Assessment Payment

Section 10. Repealing Clause

Section 11. Effectivity

D.) Nature of basic regulations of BSP and PDIC

ANSWER:
Nature of Regulation of BSP
A new banking organization must have suitable/fit shareholders, adequate financial strength, a
legal structure in line with its operational structure, a management with sufficient expertise and
integrity to operate the bank in a sound and prudent manner. In establishing a new banking
organization, the documentary requirements to be submitted to the Bangko Sentral are listed in
Appendix 37. The revised rules and regulations governing the organization, membership,
establishment, administration, activities, supervision and regulation of cooperative banks are
found in Appendix 38
Nature of Regulation of PDIC
PDIC is a government instrumentality created in 1963 by virtue of Republic Act 3591 to insure
the deposits of all banks. PDIC exists to protect depositors by providing deposit insurance
coverage for the depositing public and help promote financial stability.

Consistent with its public policy objectives, the PDIC has the following mandates:

I. Deposit Insurance. The PDIC provides a maximum deposit insurance coverage of PHP500,000
per depositor per bank. To pay insured deposits, the PDIC builds up the Deposit Insurance Fund
primarily through assessments of member-banks at an annual flat rate of 1/5 of 1% of their total
deposit liabilities.
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AEC 219 FINANCIAL MARKETS DATE:
II. Examination and Resolution. The PDIC works closely with the Bangko Sentral ng Pilipinas
(BSP) to help maintain stability in the banking system. PDIC is authorized to issue regulations to
implement its Charter, conduct bank examinations and investigations to assess financial safety
and soundness of banks and their adherence to banking and deposit insurance rules and
regulations, and extend financial assistance to eligible distressed banks.

III. Receivership and Liquidation. The PDIC is the statutory receiver and liquidator of closed
banks. Upon order of the Monetary Board of the BSP, PDIC takes over closed banks; administers
their assets, records and affairs; and manages and preserves these assets for the benefit of the
closed banks' creditors. Under RA 10846 or the amended PDIC Charter, a closed bank transitions
seamlessly from closure to liquidation, enabling PDIC to dispose and distribute assets and settle
claims of creditors in accordance with the preference and concurrence of credits as provided by
the Civil Code of the Philippines.

Activity 2: Apply the theory learned on the following situations:

A.) Give the coverage of PDIC deposit insurance

ANSWER:
PDIC provides a maximum deposit insurance coverage of PhP500, 000 per depositor per bank. It
covers all types of bank deposits in bank whether denominated in local or foreign currencies. All
deposit accounts of a depositor in a closed bank maintained in the same right and capacity shall
be added together. A joint account shall be insured separately from any individual- owned deposit
account. Effective June 1, 2009, the maximum deposit insurance coverage is P500, 000 per
depositor. All deposit accounts by a depositor in a closed bank maintained in the same right and
capacity shall be added together.
B.) Give examples of unsafe and unsound banking practices
ANSWER:
 Very high interest rates compared to market rates
 Deposit incentives not commensurate to amount of deposit
 Dubious customer pool, fraudulent loans and real estate investments
C.) Describe how a bank depositor of a closed bank can claim the deposit insurance.
ANSWER:
He must prepare the following documents:
• Original evidence of deposits such as savings passbook, certificate of time deposit, bank
statement, unused checks, and ATM card.
• Two (2) valid photo-bearing IDs with signature of the depositor/claimant.
• If the depositor is below 18 years old, a photocopy of his/her birth certificate from the NSO or
duly certified copy from the local civil registrar and valid IDs of the parent.
• Original copy of a notarized Special Power of Attorney (SPA) for claimants who are not the
signatories in the bank records. In the case of minor depositor, the SPA must be executed by the
parent.
If filling personally
The PDIC representatives at the premises of the closed bank during Claims Settlement Operations
(CSO) or to the PDIC Public Assistance Center at the 3rd Floor, SSS Bldg., 6782 Ayala Avenue
corner V.A. Rufino Street, Makati City after the onsite CSO.
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AEC 219 FINANCIAL MARKETS DATE:

D.) Describe the role of monetary board of BSP and board of directors of PDIC
ANSWER:
The Monetary Board exercises the power and functions of the BSP, such as the conduct of
monetary policy and supervision of the financial system. Its chairman is the BSP Governor, with
five full-time members from the private sector and one member from the cabinet. The Governor
is the chief executive officer of the BSP and is required to direct and supervise the operations and
internal administration of BSP. A deputy governor heads each of the BSP’s operating sector;
Monetary and Economics Sector, Financial Supervision Sector, Currency Management Sector,
Corporate Services Sector and Corporate Services Sector.

ASSESSMENT: Identify the following:

1. Examines the books of commercial banks that are members of the system, sets reserve requirements
for all banks. Federal Reserve’s System

2. Provides insurance of up to P500, 000 for each depositor at a bank. Deposit Insurance

3. The maximum amount of deposit the government ensures depositor to be recovered if the institution
that holds these deposits should fail. P500,000

4. Republic Act known as The New Central Bank Act. Republic Act No. 11211

5. The main primary objective of BSP. The BSP’S primary objective is to maintain price stability
conductive to a balanced and sustainable economic growth.

6. The chief executive officer of the BSP. The Governor

7. The BSP’s flagship program for poverty alleviation. Microfinance

8. Refers to that portion of the bank’s deposit liability cannot be available for lending. Reserve
Requirements

9. Primarily responsible for the governance of the corporation. Directors

10. The assured amount a bank depositor gets in case the bank cannot fulfil its obligations. Deposit
Insurance
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WEEK 17

Activity 1: Search on the following:

1.) SEC’s vision /mission statement

ANSWER:
SEC’s Vision statement “By 2022, SEC is the champion of investor protection: the judicious
administrator of an automated, reliable and secured company registration and information
systems: and the progressive overseer of a robust and inclusive capital market in the ASEAN and
Asia-Pacific Region”.

SEC’s Mission statement is “We develop and regulate the capital market and company
registration: promote good corporate governance; empower investors, corporators, and
entrepreneurs; and facilitate access to financial products and resources”.
2.) Mandate of SEC
ANSWER:
The Securities and Exchange Commission (SEC) or the commission is the national government
regulatory agency charged with supervision over the corporate sector, the capital market
participants and the securities and investment instruments market, and the protection of the
investing public. Created on October 26, 1936 by Commonwealth Act (CA) 83 also known as
The Securities Act, the Commission was tasked to regulate the sale and registration of securities,
exchanges, brokers, dealers and salesman. Subsequent laws were enacted to encourage
investments and more active public participation in the affairs of private corporations and
enterprises, and to broaden the Commissions mandates. Recently enacted laws gave greater focus
on the Commission’s role to develop and regulate the corporate and capital market toward good
corporate governance, protection of investors, widest participation of ownership and
democratization of wealth.
3.) Securities used in the Securities Regulation Code.
ANSWER:
(a) Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or participation in a profit sharing agreement,
certifies of deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation, trust certificates, voting trust
certificates or similar instruments
(f) Proprietary or non-proprietary membership certificates in corporations;
(g) Other instruments as May in the future be determined by the
Commission.

4.) Powers and function of SEC.

ANSWER:
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The Commission shall have the power and functions provided by the Securities Regulation Code,
Presidential Decree No. 902-A, as amended, the Corporation Code, the Investment Houses Law,
the Financing Company Act, and other existing laws.

Under Section 5 of the Securities Regulation Code, Rep. Act 8799, the Commission shall have,
among others, the following powers and functions:

a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the
grantees of primary franchises and/or a license or permit issued by the Government;
b) Formulate policies and recommendations on issues concerning the securities market, advise
Congress and other government agencies on all aspects of the securities market and propose
legislation and amendments thereto;
c) Approve, reject, suspend, revoke or require amendments to registration statements, and
registration and licensing applications;
d) Regulate, investigate or supervise the activities of persons to ensure compliance;
e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other
SROs;
f) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant
thereto;
g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance on and supervise compliance with such rules, regulations and orders;
h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the
Government, civil or military as well as any person in the implementation of its powers and
functions under this Code;
i) Issue cease and desist order to prevent fraud or injury to the investing public;
j) Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent
provisions of and penalties prescribed by the Rules of Court;
k) Compel the officers of any registered corporation or association to call meetings of stockholders
or members thereof under its supervision;
l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the examination, search and seizure of all documents,
papers, files and records, tax returns, and books of accounts of any entity or person under
disposition of the cases before it, subject to the provisions of existing laws;
m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law; and
n) Exercises such other powers as may be provided by laws as well as those which may be implied
from, or which are necessary or incidental to the carrying out of, the express power granted the
Commission to achieve the objectives and purposes of these laws
5.) SEC requirements relative to the sale or offer for sale to public of any pre-need plan.
ANSWER:
 requiring the registration of pre-need plans,
 licensing persons involved in the sale of pre- need plans, requiring disclosures to
prospective plan holders
 prescribing advertising guidelines
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AEC 219 FINANCIAL MARKETS DATE:
 providing for uniform accounting system
 reports and recording keeping with respect to such plans
 imposing capital
 bonding and other financial responsibility
 establishing trust funds for the payment of benefits under such plans
6.) Functions and responsibilities of insurance commission.
ANSWER:
The functions of the Commission are:
 To maintain surveillance over the insurance market
 To promote and encourage sound and prudence insurance management and business practices
 To advise the Minister responsible for insurance matter regarding the insurance market
 To ensure that the provisions of the Financial Transactions Reporting Act, and other anti-
money laundering legislation are being complied with
 To do such other things as may be prescribed by this Act or any other written law.
7.) Entities that are regulated by the Insurance commission
ANSWER:
Regulated entities as well as private corporations expressed desire to tap into emerging modes to
distribute insurance products which are convenient and practical to prospective clients.

Activity 2: Answer the following:

1.) Name regulated entities by the insurance commission.

ANSWER:
 Cooperative Insurance System of the Philippines Life and General Insurance
 AFP General Insurance Corporation
 Allied Banker Insurance Corporation
 Asia United Insurance Inc.
 Bankers Assurance Incorporation

2.) Give examples of securities that are not required to be registered with SEC before they are
issued.
ANSWER:
 Privately-owned Corporation may issue shares of stock to its executives and board
members. However, the new stockholders must notify the SEC before selling the stock to
anyone else.
3.) List of basic requirements covering the sale of Pre-need Plans.
ANSWER:
 requiring the registration of pre-need plans,
 licensing persons involved in the sale of pre- need plans, requiring disclosures to
prospective plan holders
 prescribing advertising guidelines
 providing for uniform accounting system
 reports and recording keeping with respect to such plans
 imposing capital
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 bonding and other financial responsibility
 establishing trust funds for the payment of benefits under such plans

ASSESSMENT: Write the term being described in the following statement:

1. An agency of the government of the Philippines responsible for regulating the securities industry
in the Philippines.
ANSWER: SEC
2. SEC is an agency within the Department of
ANSWER: Department of Finance
3. Core values of SEC are
ANSWER: Integrity, Professionalism, Accountability, Teamwork, Independence and
Initiative.
4. These are share, participation or interests in a corporation or in a commercial enterprise of profit
–making venture and evidenced by a certificate, contract, instruments, whether written or
electronic in character.
ANSWER: Securities
5. An organization which has one of its objectives is to promote growth and financial stability of
insurance, pre-need, and HMO companies.
ANSWER: Insurance Commission