Banks

and
Banking
Perspective
CHAPTER 2

Reported by: Jasmin Macalino & Trishia Paras

OBJECTIVES :
At the end of this chapter, the students will be able to:

 Increase knowledge on the current and historical

highlights of the Philippine banking industry.
 Identify the different principles in banking business.

 Determine the different types of Banks.

 Learn and appreciate the significance of banks in

the economy.

 Analyze the logical reason why the government

should supervise these banks.
Historical Perspective Worldwide
The development of the banking system and early
banking practices started in the temple of Babylon 2,000 B.C
Temples, public bodies, and private firms were dealing
in the receipt of deposits and the loaning of funds. 4th Century B.C.

Transaction were registered by

public notaries. 2nd Century A.D.

Bank drafts and checks were in

wide use in Assyria. 8th Century B.C.

The sedentary bankers of the Mediterranean cities, particularly Venice,

Genoa, and Barcelona gave impetus to the commercial banking system.

Medici Family in the 2nd period

of Florentine financial Power 2nd Period

The greatest moneylenders

were the Fugger Family. 16th Century
Philippine Banking History
 SPANISH ERA

 Obras Pias
 It is the first financial institution was organized flourishing galleon
trade between the Philippines and Mexico.
 o Its capital camefrom pious catholics and funds were loaned out
interest.
 o a charity foundation by laymen used for charity works and religious
activities. It became a banking institution run by the friars.

 Rodriguez Bank  Banco Español – Filipino (1828)

 One of the first banks to  First established commercial bank performing general banking
emerge in the 19th century. functions and partly financed foreign trade.
 October 17, 1854 - it was given a privilege note of issue.
 Today’s name: Bank of the Philippine Islands (Banco delas Islas Filipinas)
• Suez Canal (1869)
 The opening led to accessibility of European
Markets.

• Chartered Bank of India, Australia, and China

 Establishes branched in the country.

• Monte de Piedad (1882)

 A savings bank.

• Banco Peninsula Ultramarino in Madrid

 Put up a branch in the Philippines in 1853
 AMERICAN ERA

• Banks continue to do business and soon joined

by the branches of International Banking
Corporation and the Guaranty Trust Company.
• Postal Savings Bank was also created as
parcel to the Bureau of Post.

• Banks established after World War I:

 Yokohama Specie Bank (1919)
 China Banking Corporation (1920)
 Peoples Bank and Trust Company, and;
 Mercantile Bank of China (1926)

• Upon establishment of Commonwealth, Netherlands

Indische Handels bank opened (1973)
• Philippine Bank of Commerce - was the first private bank
with genuine Filipino capital. (1938).

• In 1939, Bank of the Commonwealth, Philippine Bank

of Communications and the government-owned
Agricultural- Industrial bank commenced commercial
banking operations.
 JAPANESE ERA
• During the Japanese occupation, only
Filipino and Japanese-owned banks
were given permission to operate.
• Southern Development Bank –
opened a branch in Manila in 1942

 POSTWAR ERA
• All Japanese occupation deposits
were invalidated by Presidential
Directive, Executive Order 96.
• Executive Order 48 – paved the way
for the re-opening of the pre-war
banks.
• Rehabilitation Finance Corporation –
was created by virtue of Republic Act
85
 Republic Act No. 7653 or
the “New Central Bank Act of 1993”

- it governs Philippine Banking today.

- It provides for the establishment of an independent
monetary authority to be known as Bangko Sentral ng
Pilipinas (BSP).
- The business of banking has changed irreversibly. Developments in technology have more contributions in these
irreversible changes in the banking system.

- Technology has brought us E-Banking, the provision of banking services. The devise used to provide e-banking
services are called E-money which can be divided into three groups:

1) Access Devices 2) Card-based Devices 3) Prepaid Software products or network money

- these allow people to withdraw or - these are prepaid cards in - involve funds that are stored in electronic form and are
deposit cash, transfer funds and pay bills which funds are stored in transferred over communication networks among participants
from their bank accounts without electronic form on a in network
physically going to the banks orwriting a computer chip embedded in
check. cards.
 Republic Act No. 8791 or “General Banking Law • Republic Act No. 9160 or “Anti-Money
of 2000” Laundering Act of 2001”
 It provides regulation of the organization and operation of banks,  Was passed into law on September 29, 2001.
quasi-banks, and trust entities.  Bank Mergers and consolidations are distinguished as
 Institutionalized a certain mass of banking reforms in the follows:
Philippines.
• Merger – absorption of one or more corporations by
 Under Sec. 3 of New General Banking Law in the Philippines:
another existing corporations.
• Consolidation – union of two or more corporations
“Banks shall refer to entities engaged in into a single new corporation.
the lending of funds obtained in the form
of deposits.”
What is the difference between bank and banking?

BANK BANKING
 Tangible objects  Intangible (Service)
 Refers to physical  Refers to the output
resources (financial services)
 (e.g. building, staffs, of the bank by
furniture, etc.) utilizing those
resources.
 Principles of Banking Business
 Nature of Banking Business  Principles of Banking Business
 Partial Reserve System - certain amount
“A bank makes deposited will support several times as
money out of much as in credit.
other people’s
money.”  A greater portion of deposits in commercial
banks arises out of the proceeds of loans.

Example:
o Mr. A borrows money and the bank
approved his application for the loan. Mr. A
could either get the proceed in cash or
simply request the bank to open a current
account under his name.

o If Mr. A asked the bank to open a current

account under his name. the entry would
be: Loans and Discount P100,000
Demand Deposits P100,000
 As to Ownership: Types of Banks

1. Privately Owned 2. Publicly Owned

- organized and capitalized by - organized by the state and sometimes
private citizens for their profit. has a minimum private ownership.

 As to the Place of Incorporation

1. Domestic 2. Foreign
- incorporated under Philippine - incorporated under laws of other country although the bank
Laws. Majority of the stocks might be doing business in the Philippines.
are owned by Filipinos.
 As to Structure:

1. Stock Corporation 2. Non-Stock Corporation

- when they sell shares of stocks to - the organization is on a membership basis. Such
the general public to raise capital as savings and loans associations.

 As to Function and Line of Development:

1. Commercial Banks
2. Trust Company
3. Savings or Thrift Banks
4. Rural Banks
5. Development Banks
6. Cooperative Banks
7. Investment Banks
8. Central Banks
1. Commercial Bank
- it is one that receives demand deposits and give
short-term loans.

2. Trust Company
- an institution which deals in fiduciary activities such as
administrator of estates, guardian of minor’s interests,
executor of last wills and testaments etc. This function
was originally a legal function and was handled by
legal officers and lawyers.

3. Savings or Thrift Banks

- it is one primarily receives money for safekeeping
from person who have no immediate need for cash and
invest these funds in long-term investments.

4. Rural Bank
- organized primarily to cater to the needs of small
farmers, small businesses, small cottage industries
and cooperative associations. They also receive
deposits and loan our of funds..
5. Development Bank
- takes care of giving loans to be used for developing the
economy and may therefore engage in medium and long-
term lending. The organization of private development
banks shall be, under the control and supervision of
the Development Bank of the Philippines (formerly
Rehabilitation Finance Corporation)

6. Cooperative Bank
- it is organized to furnish the credit needs of duly registered
and operating cooperative associations of different kinds.

7. Investment Bank
- assist government bodies and newly organized corporations
to raise funds for capital through sale of stocks and bonds.

8. Central Bank
- banks of all banks; it does not directly deal with the public. It
is the supervisory and regulatory agency which makes all
banks “tow the line”.
 As to Management:

1. Unit Bank 3. Branch Bank

- refers to a bank that is a - refers to a bank that is
single, usually small bank connected to one or more other
that provides financial banks in an area or outside of it;
services to its local to its customers, this bank
community. A unit bank is provides all the usual financial
independent and does not services but is backed and
have any connecting ultimately controlled by a larger
banks — branches — in financial institution.
other areas.

2. Group Bank 4. Chain Banking

- owned by two or - is a group of banks (minimum is 3) held
more banks. together by a group of individuals for
effective banking activities while the banks
function independently without any
hindrance of a holding company. These
activities don't overlap so that the revenue
is maximized to the best possible extent.
Economic Significance of Banks

o A bank facilitates
dealings between
debtors and creditors
because it acts as an
intermediary in the flow of
credit funds. It allows
others the use of idle
funds of the community in
productive activities.

o Creates money
out of proceeds
of loans.

o A bank maintains
foreign trade
Why the State supervises Banks

“The state does Reasons:

not only I. The banks are entrusted with other people’s money.
supervise
II. The state wants to assure that the banks will perform their
banks, but functions in the best interest of their clients through honest
with the and efficient conduct of their functions.
advent of
central III. The banks may either abuse their power or use them
prudently.
banking. It
also controls IV. The banks are quasi-public corporations and as in all other
the bank’s corporations of this calling, the state must exert its
operation.” restraining influence to safeguard the welfare of its
constituents.
ACTIVITY
TIME!