FM3 Midterm Exam Reviewer

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GSU CORE VALUES AND MISSION

 CORE VALUES
God Fearing
People-Centered
Pro- Environment
Selfless Public Service
Respect for Human Dignity
 MISSION
GSU is committed to produce globally-competitive, technologically-equipped and research-
oriented graduates of quality and innovative advanced and higher education programs in
sustainable agriculture, fisheries, forestry and tourism, entrepreneurship, liberal arts, education,
healthcare, sciences and good governance.

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)

REHABILITATION FINANCE CORPORATION


It was created by virtue of Republic Act 85. Its main objective was the rehabilitation of the war-
ravaged country as well as to step up economic development.

E-BANKING
The instruments or devices used to provide e-banking services are called e-money. E-money can
be divided into three groups:
1. Access Devices – These allow people to withdraw or deposit cash, transfer funds and pay bills
from their bank accounts without physically going to the banks or writing a check.
2. Card-based Products – These are prepaid cards in which funds are stored in electronic form
on a computer chip embedded in the cards. They are also called stored-value card (SVC)
products.
3. Prepaid Software Products or Network Money – These involve funds that are stored in
electronic form and are transferred over communication networks among participants in the
network.

TYPES OF BANKS
As to Ownership:
❖ Privately Owned – Organized and capitalized by private citizens for their profit.
❖ Publicly Owned – Organized by the state and sometimes has a minimum private ownership.
As to Place of Incorporation:
❖ Domestic – Incorporated under the laws of the Philippines.
❖ Foreign – Incorporated under the laws of another country
As to Structure:
❖ Stock Corporation – When they sell shares of stocks to the general public to raise capital.
❖ Non-stock Corporation – The organization is on a membership basis.
As to Function and Line of Development:
❖ Commercial Bank – It is one that receives demand deposits and gives out short term loans.
❖ Trust Company – An institution which deals in fiduciary activities
❖ Savings Bank – It is one which primarily receives for safekeeping funds from persons who have
no immediate need for cash and invests these funds in long term investments.
❖ Rural Bank – Organized primarily to cater to the needs of small farmers, small businesses,
small cottage industries and cooperative associations.
❖ Development Bank – Takes care of giving loans to be used for developing the economy and
may therefore engage in medium and long-term lending.
❖ Cooperative Bank – It is organized to furnish the credit needs of duly registered and operating
cooperative associations of different kinds.
❖ Investment Bank – Assist government bodies and newly organized corporations to raise funds
for capital through sale of stocks and bonds.
❖ Central Bank – Banks of 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:
❖ Unit Bank – It is one where ownership is concentrated on one corporation which does banking
business independent of others. It has one place of business and its own board of
directors.
❖ Group Bank – A bank where majority portion of the stocks of two or more banks are held by a
holding company.
❖ Branch Bank – Is one where there is a head office and two or more branches. The head office
and its branches are controlled by one board of directors.
❖ Chain Bank – A bank where one or more persons control the activities of banks.

REPUBLIC ACT NO. 9160 OR ANTI-MONEY LAUNDERING ACT OF 2001


 Passed into law on September 29, 2001.
 Five salient features of the Anti-Money Laundering Law:
✓ Criminalizing, meaning that money laundering is now a crime in the Philippines.
✓ The establishment of a system of covered transaction reporting. It identifies the forms of
business institutions or covered institutions which are required to submit reports about
suspicious or covered transactions to authorized persons.
✓ The creation of an Anti-Money Laundering Council that will administer the implementation of
RA 9160.
✓ The amendment of the Bank Secrecy Law which has been blamed for making our country a
potential haven for money laundering.
✓ The institution of procedures and arrangements that facilitate cooperation between the
Philippines and foreign governments in the investigation, tracking and prosecution of money
launderers.

GENERAL ASPECTS IN ESTABLISHING BANKS


1. Economic justification for 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.
2. Selection of stockholders. This is an essential consideration in setting up a bank because on
such choice may depend its success or failure.
3. The determination of the kind of bank to be formed. Determination of the type of bank
depends upon the economic survey.
4. 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 bank.

SECTION 8. ORGANIZATION
 The Monetary Board may authorize the organization of a bank or quasi-bank subject to the
following conditions:
 8.1. That the entity is a stock corporation;
 8.2. That its funds are obtained from the public, which shall mean twenty (20) or more
persons; and
 8.3. That the minimum capital requirements prescribed by the Monetary Board for each
category of banks are satisfied.
SECTION 11. FOREIGN STOCKHOLDINGS.
 Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of
the voting stock of a domestic bank. This rule shall apply to Filipinos and domestic non-bank
corporations.
SEC. 17. DIRECTORS OF MERGED OR CONSOLIDATED BANKS.
 In the case of a bank merger or consolidation, the number of directors shall not exceed twenty-
one (21).
SEC. 18. COMPENSATION AND OTHER BENEFITS OF DIRECTORS AND OFFICERS.
 To protect the funds of depositors and creditors, the Monetary Board may regulate the payment
by the bank of its directors and officers of compensation, allowance, fees, bonuses, stock
options, profits sharing, and fringe benefits only in exceptional cases and when the
circumstances warrant, such as but not limited to the following:
 18.1. When a bank is under comptrollership or conservatorship; or
 18.2. When a bank is found by the Monetary Board to be in an unsatisfactory financial
condition.

BANK LOCATION
 Anyone imbued with business sense will perhaps know that a poor location will be a deterrent
to an otherwise profitable venture. Customers always look for places which offer a wide variety
of conveniences in meeting their needs. Thus, a major importance to any organizer is the suitable
location of the proposed business. 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.

QUALIFICATIONS BOARD MEMBERS MUST POSSES:


 Every director shall own at least one share of the capital stock of the corporation of which he is
a director; the share shall stand in his name in the books of the corporation. The board may
provide for additional qualifications of a director such as, but not limited to the following:
 Educational attainment
 Adequate competency and understanding of business
 Age requirement
 Integrity/probity
 Assiduousness
 At least two thirds 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.

DUTIES AND RESPONSIBILITIES OF BOARD OF DIRECTOS AND OFFICERS

 They are duty-bound to adopt measures that shall safeguard the depositor’s interest. They must
be sure to compensate the stockholders fairly enough in exchange for the risk they undertake
and the capital they invest.

BOARD COMITTEES AND ITS FUNCTION


 The Executive Committee – this committee deals with administrative matters. It often
meets to prepare the groundwork for board meetings. It acts as an advisory body to the
board.
 The Loans and Discount Committee – all matters pertaining to loans and discounts, to
lines of credits, and others related to the loaning function of a bank are deliberated on by this
committee.
 The Investment Committee – this committee concerns itself with the bank’s investment
portfolio. It passes judgement on what securities the bank should purchase in what amounts,
how to diversity investments and related matters.
 The Trust Committee – the fiduciary function of a bank will be the main concern of this
committee.
 The Examination Committee – in order that the bank will always be in shipshape condition
regarding its operations, the internal examination and the audit of its accounts is an essential
feature of good management. It is the duty of this committee to improvise methods to conduct
such internal examination and supervision.
__________________________________________________________________________________
PURPOSE OF EXAMINATION AND SUPERVISION

 The first purpose of examination is to find out whether banks are doing their business in
conformity with the banking laws and that of the rules and regulations of the central bank and
other governmental agencies.
 The examiners should establish the fact that the bank examined owns the assets that the titles
to property are good, that the assets are properly valuated in the books, and that they are of
acceptable quality.
SEC.29 APPOINTMENT AND CONSERVATOR
 Whenever the Monetary Board finds that a bank or quasi-bank is in a state of continuing
inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a conservator.
 The conservator should be competent and knowledgeable in bank operations and
management. The conservation should not exceed one (1) year.
 The conservator shall receive remuneration to be fixed by Monetary Board in an amount not to
exceed two thirds (2/3) of the salary of the president of the institution in one (1) year, payable
in twelve (12) equal monthly payments
SECTION 30. EQUITY INVESTMENTS OF A COMMERCIAL BANK.
 30.1. The total investment in equities of allied enterprises shall not exceed thirty-five percent
(35%) of the net worth of the bark; and
 30.2. The equity investment in any one enterprise shall not exceed twenty-five percent (25%)
of tile net worth of the bank.
SECTION 31. EQUITY INVESTMENTS OF A COMMERCIAL BANK IN FINANCIAL ALLIED
ENTERPRISES.
 A commercial bank may own up to one hundred percent (100%) of the equity of a thrift bank
or a rural bank.
SECTION 32. EQUITY INVESTMENTS OF A COMMERCIAL BANK IN NON-FINANCIAL ALLIED
ENTERPRISES.
 A commercial bank may own up to one hundred percent (100%) of the equity in a non-
financial allied enterprise.
SEC. 34. REFUSAL TO MAKE REPORTS OR PERMIT EXAMINATION.
 Be punished by a fine of not less than fifty thousand pesos (P50,000)or one hundred thousand
pesos( P100,000) or by imprisonment of not less than one year(1) or not more than (5) years,
or both discretion of the court.

CAUSES OF PECULATION.
1. Gambling. Many men have been ruined because of gambling. At first it is simply a
“recreation’’ then it becomes a “habit’’ and finally a “status symbol’’ that must be maintained.
2. Pride and Envy. Even Christian doctrine condemns these capital sins a man working in a
bank consumed by pride and envy will do most everything to get even.
3. Living beyond one’s income. Keeping up with rich neighbors and thus spending well
beyond one’s income could also lead to embezzlement. Sometimes income is spent ever before
it is earned.
4. Unsound salary policies. The rising prices without commensurate salary adjustments may
invite one to commit peculation.
5. Poor employee relations. Officers may look down on their subordinates and even go to
the extent of the emphasizing this cleavage between them in public places.
6. Immorality. Bank officers and employees are not free from temptation to commit crimes
against morality. For example, a person who is honest could, through laxity of supervision,
become totally dishonest.
CREDIT INSTRUMENTS
 PROMISE TO PAY
 Promissory Note. A promissory is an unconditional promise of the maker to pay a sum
certain in money to order or to bearer on demand or at a future determinable time. When
the note is secured, it is called a collateral promissory note.
 Bank note. A bank note is an unconditional promise of a bank to pay a sum certain in
money on demand.
 Banker’s Acceptance. A banker’s acceptance contains the bank’s promise to pay a draft
that is presented to it for acceptance. To constitute the bank’s intention of honoring the
instrument, the word “ACCEPTED” Is stamped on the face of the draft and it is duly
signed by the bank’s representative.
 Letter of Credit. A letter of credit is also a promise of a bank to honor drafts drawn
against it or for its account.
 ORDERS TO PAY
 Bill of exchange. A bill of exchange is an order of one person/bank (drawer) to another
person/bank (drawee) to pay a third person (payee) a sum certain in money or demand
or at some specified future time.
 Check. A check is the order of the depositor to his bank to pay a third person or himself
a sum certain of money on demand. Such is commonly known as personal check.
 NOW account. NOW is an acronym that stands for “Negotiable Order of Withdrawal.”
NOW accounts earn interest and accounts holders can write as many NOW checks as
they want on the account.
 Draft. A draft is also an order to pay and is a bill of exchange. Drafts are classified as
sight or demand, time, commercial or bank drafts.
MONEY MARKET INSTRUMENTS
 Treasury Bills. Are short- term securities issued by the country’s Treasury . This will
reduce a bank’s ability to lend to its clients leading to a contraction of money supply.
 Banker’s Acceptance / Letter of Credit. Although BA’s have their origin in trade bills
issued by merchants, today they are an important money market instrument.
 Negotiable Certificates of Deposit. NCD’s are like fixed deposits except they are bearer
documents. They offer a market related rate of interest and are completely liquid because
they can be negotiated during the term of the deposit.
 Commercial Paper. Short- term commercial paper is a debt instrument commonly issued
by the corporations to fund a temporary capital requirement.
 Bank Guarantees. A Guarantee by Bank (bankers guarantee) is a written undertaking
wherein the bank agrees to make a stipulated payments on your behalf should you fail to
fulfill or carry out specified terms of a contract.

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