THE PHILIPPINE FINANCIAL SYSTEM

BUSFIN (FINALS) | FIRST YEAR | 1ST SEMESTER

BANGKO SENTRAL NG PILIPINAS July 3, 1993
● The Bangko Sentral ng Pilipinas (BSP) was
THE HISTORY established to replace the CBP as the country’s
central monetary authority.
1900
● Act No. 52 was passed by the First Philippine
Commission placing all banks under the Bureau of BANGKO SENTRAL NG PILIPINAS
Treasury.
● The Bangko Sentral ng Pilipinas (BSP) is the central
● The Insular Treasurer was authorized to supervise
bank of the Republic of the Philippines.
and examine banks and banking activities.
● It was established on 3 July 1993 pursuant to the
provisions of the 1987 Philippine Constitution and
1933
the New Central Bank Act of 1993.
● A particular group of Filipinos were trying to
● The BSP took over from the Central Bank of
conceptualize a central bank for the Philippines.
Philippines, which was established on 3 January
● Resulted from a careful understanding of the
1949, as the country’s central monetary authority.
economic provisions of the HARE HAWES CUTTING
● The BSP enjoys fiscal and administrative autonomy
BILL.
from the National Government in the pursuit of its
mandated responsibilities.
February 1929
● The Bureau of Banking under the Department of
Vision
Finance took over the task of banking supervision.
Ø The BSP aims to be a world-class monetary
1939 authority and a catalyst for a globally
● A bill establishing a central bank was drafted by competitive economy and financial system that
Secretary of Finance Manuel Roxas and delivers a high quality of life for all Filipinos.
approved by the Philippine Legislature. However, Mission
the bill was returned by the US government, Ø BSP is committed to promote and maintain price
without action, to the Commonwealth stability and provide proactive leadership in
Government. bringing about a strong financial system
conducive to a balanced and sustainable
February 1948
growth of the economy.
● President Manuel Roxas submitted to Congress a
bill “Establishing the Central Bank of the Ø Towards this end, it shall conduct sound
Philippines, defining its powers in the monetary policy and effective supervision over
administration of the monetary and banking financial institutions under its jurisdiction.
system, amending pertinent provisions of the
Administrative Code with respect to the currency
and the Bureau of Banking, and for other FUNCTIONS AND OPERATIONS
purposes.

June 15, 1948 Objectives

● The bill was signed into law as Republic Act No. Ø The BSP’s primary objective is to maintain
265 (The Central Bank Act) by President Elpidio price stability conducive to balanced and
Quirino. sustainable economic growth. The BSP also
aims to promote and preserve monetary
January 3, 1949 stability and the convertibility of the national
● The Central Bank of the Philippines (CBP) was
currency.
inaugurated and formally opened with Hon.
Miguel Cuaderno, Sr. as the first governor.
Responsibilities
Ø The BSP provides policy directions in the
areas of money, banking, and credit. It
supervises the operations of banks and

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exercises regulatory powers over non-bank
financial institutions with quasi-banking
GOVERNANCE OF THE BANK
functions.
The Monetary Board
Ø Under the New Central Bank Act, the BSP
● Exercises the powers and functions of the BSP,
performs the following functions, all of which such as the conduct of monetary policy and
relate to its status as the Republic’s central supervision of the financial system.
monetary authority: ● Its chairman is the BSP Governor, with five full-time
members from the private sector and one
member from the Cabinet.
Liquidity Management
● formulates and implements monetary policy
The Governor
aimed at influencing money supply consistent ● The Chief Executive Officer of the BSP is required
with its primary objective to maintain price to direct and supervise the operations and
stability.
internal administration of the BSP.
Currency Issue
● has the exclusive power to issue the national A DEPUTY GOVERNOR heads each of the BSP's
currency. All notes and coins issued by the BSP are operating sector as follows:
fully guaranteed by the Government and are Ø Monetary Stability Sector – takes charge of the
considered legal tender for all private and public formulation and implementation of the BSP’s
debts.
monetary policy, including serving the banking
Lender of last resort needs of all banks through accepting deposits,
● the BSP extends discounts, loans, and advances servicing withdrawals, and extending credit
to banking institutions for liquidity purposes. through the rediscounting facility.
Ø Supervision and Examination Sector – enforces
Financial Supervision and monitors compliance with banking laws to
● the BSP supervises banks and exercises regulatory promote a sound and healthy banking system.
powers over non-bank institutions performing Ø Resource Management Sector – serves the
quasi-banking functions.
human, financial and physical resource needs of
the BSP.
Management of foreign currency reserves
● the BSP seeks to maintain sufficient international
reserves to meet any foreseeable net demands BSP’S IN THE PHILIPPINES
for foreign currencies in order to preserve the ● The BSP has three regional offices performing cash
international stability and convertibility of the operations, cash administration, loans and
Philippine peso. rediscounting, bank supervision, and gold buying
operations. These regional offices are located in
La Union, Cebu City, and Davao City, and have
Determination of exchange rate policy 19 branches all over the Philippines.
● determines the exchange rate policy of the
Philippines.
BSP Main Complex
● Currently, the BSP adheres to a market oriented
● The BSP Main Complex in Manila houses the
foreign exchange rate policy such that the role of
offices of the Governor, the Monetary Board and
Bangko Sentral is principally to ensure orderly
the different operating departments/ offices.
conditions in the market.
● The Complex has several buildings, namely: 5-
Storey building, Multi-storey building, the EDPC
Other activities
building and the BSP Money Museum, which
● the BSP functions as the banker, financial advisor
showcases the Bank's collection of currencies.
and official depository of the Government, its
political subdivisions and instrumentalities, and
government-owned and controlled corporations.

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BSP Security Plant Complex Private Banking Institutions

● The Security Plant Complex which is located in ● comprised of commercial banking such as
Quezon City houses a banknote printing plant, a universal banks and ordinary commercial banks;
securities printing plant, a mint and a gold refinery. thrift banks like savings and mortgage banks,
● The banknote printing plant and the mint take private development banks, and stock savings
care of producing currency notes and coins, and loan association; and the rural banks.
respectively.
Government Banking Institutions
● consist of Philippine National Bank, Development
THE BANGKO SENTRAL NG PILIPINAS Bank of the Philippines, Land Bank of the
● The Bangko Sentral ng Pilipinas (BSP) was created Philippines, and the Philippine Amanah Bank.
by the Republic Act No. 7653, otherwise known as
the New Central Bank Act of 1993.
● The BSP is now the Philippines’ central monetary PRIVATE BANKING INSTITUTIONS
authority that provides policy directions in the
areas of money, banking, and credit.
Commercial Banking Institutions
● The BSP’s powers and functions are exercised by
● the Banks that fall under commercial banking
its Monetary Board, consisting of seven members
institutions are ordinary commercial banks or non-
appointed by the president of the Philippines.
expanded commercial banks. These banks
● One of the government sector members of the
continue to account for the bulk of the total
Monetary Board must be a member of the
resources of the banking industry.
Cabinet designated by the President of the
Republic, which position is currently held by the
Secretary of Finance. The Thrift Banks
● The New Central Bank Act authorizes the ● Thrift banks are primarily engaged in mobilizing
Governor of BSP to appoint up to three Deputy the small savings of the people wherein they
Governors, subject to the approval of the provide funds for agriculture and industry at
Monetary Board. reasonable interest rates. The small producers like
● The Governor is the Chief Executive Officer of the farmers, fishermen, craftsmen, and poor
BSP and is required to direct and supervise the consumers can rely on such banks for financing
operations and interval administration of the BSP. their production and consumption inputs. The
● The BSP is aided in its bank monitoring and following banks fall under the category of Thrift
examination processes by credit rating agencies Banks.
and financial conglomerates.
● The BSP is also into the upgrading of its domestic The Savings and Mortgages Banks
prudential standards in areas of capitalization, ● the primary function of a savings and mortgage
connected or pooled lending, loan provisioning, bank is to receive time deposits of different types
data disclosure, and qualifications of owners and and to invest its funds in long-term investments.
managers.
● The BSP likewise imposes the requirements on the
operations of e-bankers. The Savings and Loan Association
● The BSP is backstopped in this regard by the ● very similar to the savings and mortgage banks
passage of e-commerce law in June 2000 which are the savings and loans associations nowadays.
facilitated the exchange of information and However, these institutions may either be stock or
promoted the security of electronic transactions. non-stock corporations.

THE BANKING INSTITUTION The Private Development Banks

● The Banking Institution in the Philippines can be ● this is quite different from the government
categorized as private banking and government institution of the same name. It is a government
banking.

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THE PHILIPPINE FINANCIAL SYSTEM
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entity, formerly the Rehabilitation Finance ● These either private or government non-bank
Corporation. financial institution.

The Rural Banks

● Rural Banks fulfill the investment function by PRIVATE NON-BANK INSTITUTIONS
allowing small farmers to finance their needs Investments House/Banks
through the granting of loans for capital or for ● The term “investment house” is defined to mean
other uses. “any enterprise” which engages in the
underwriting of securities of other corporations.
● Underwriting is the act or process of guaranteeing
GOVERNMENT BANKING INSTITUTIONS
the distribution and sale of securities of any kind
issued by another corporation. Securities are
written evidence of ownership, interest, or
The Philippine National Bank
participation in any enterprise, or written
● The Philippine National Bank (PNB) operates under
evidence of indebtedness of a person or
the provision of Executive Order No. 80, the 1996
enterprise.
revised charter of PNB.
Securities Brokers/dealers
The Development Bank of the Philippines ● Pursuant to the provision of the Revised Securities
● The Development Bank of the Philippines (DBP) it Act, no broker, dealer, or salesman must engage
started operating in 1935 as the National Loan in business in the Philippines as such broker,
and Investment Board. Its first mission was to dealer, or salesman or sell any securities, including
coordinate and manage trust funds. securities exempted under the said law.

The Land Bank of the Philippines

Building and Loan Association
● The Agrarian Reforms Code created the Land
● A building and loan association is a special type
Bank of the Philippines (LBP) to finance the
of savings institution. Because of its very nature,
acquisition and distribution of agricultural estates
however, it falls under this category in view of the
for division and resell these small landholders.
fact that it also receives savings from members
and lends funds to them.
The Al-Amanah Islamic Investment Bank of the
Philippines
● The Al-Amanah Islamic Investment Bank of the Credit Union
Philippines (Islamic Bank) was created under ● A credit union is another type of savings institution.
Republic Act No. 6848 for the purpose of It also has for its purpose the inculcation of the
promoting and accelerating the socio-economic habit of thrift, frugality, and the idea of helping
growth of Mindanao, particularly the provinces of one another.
Cotabato, Lanao del Sur, Lanano del Norte,
Zamboanga del Sur, Zamboanga del Norte, and
Sulu.
Private Insurance
NON-BANK FINANCIAL INSTITUTION ● Private insurance companies contribute to the
country's socio-economic development as well as
● These are other financial institutions which to the insured.
engage in specific functions.
● They provide services related to claims, financial The BSP Monetary Board Chairman: Benjamin E.
information, and advice, manage portfolios of Diokno
financial assets on behalf of other economic units,
buy and sell claims on institution from clients, and
assist in finding sources for those economic units Members:
seeking loans. ● Carlos G. Dominguez III
● Felipe M. Medalla

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THE PHILIPPINE FINANCIAL SYSTEM
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● Juan De Zuniga, Jr. Financial Supervision Sector
● Peter B. Favila Ø is mainly responsible for the regulation of
● Antonio S. Abacan, Jr. banks and other BSP-supervised financial
● V.Bruce J. Tolentino institutions, as well as the oversight and
supervision of financial technology and
Offices under Monetary Board payment systems.
1. Office of the Secretary, Monetary Board
Ø Provides secretarial and administrative
Currency Management Sector
support to the Monetary Board
Ø is mainly responsible for the forecasting,
2. Office of the General Counsel and Legal Services production, distribution, and retirement
Ø Renders legal advisory services to the of Philippine currency, as well as security
Monetary Board and other BSP units on documents, commemorative medals,
matters relating to policies, functions, and medallions.
operations, and regulations of the BSP
Ø Prosecutes and defends cases involving the Corporate Services Sector
BSP, the Monetary Board, and Ø is mainly responsible for the effective
Management in juridical and administrative management of corporate strategy,
proceedings communications, and risks, as well as the
BSP’s human, financial, technological,
3. Office of Special Investigation and physical resources to support the
Ø Investigates, mediates, and when BSP’s core.
necessary, prosecutes bank irregularities
and anomalies noted in the examination
CORPORATE PLANNING OFFICE
reports submitted by the Supervision and
Examination Sector Offices under the Office of the Governor

4. Internal Audit Office 1. Treasury Department

Ø Reviews and appraises the effectiveness ● Manages the BSP’s international reserves, in
of operating control systems of the BSP accordance with monetary and foreign
and makes recommendations to exchange policies, at a level and a mix that
address findings allows the BSP to meet any demands for foreign
Ø Monitors utilization of security materials currency
and other resources of the BSP ● Undertakes open market operations and
transacts with accredited government securities
dealers and the rest of the members of the
OFFICE OF THE GOVERNOR banking system
The Governor is the chief executive officer of the BSP ● Participates in the Philippine Dealing System to
and is required to direct and supervise the operations ensure the competitiveness of the Philippine peso
and internal administration of the BSP. A deputy and its convertibility into other acceptable foreign
currencies
governor (or a Senior Assistant Governor in the case
of the Currency Management Sector) heads each of
2. Systems and Methods Office
the BSP’s operating sector as follows: ● Ensures a well-organized and integrated
Monetary and Economics Sector Bankwide effort to develop and maintain efficient
Ø is mainly responsible for the systems and procedures
● Provides recommendations along the areas of
operations/activities related to
manualization, business process reengineering,
monetary policy formulation,
and systems support
implementation, and assessment.
3. Corporate Planning Office

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● Provides technical support to management in the Anti-Money Laundering Act of 2001 (RA 9160)
formulation and application of strategic plans ● An act defining the crime of money laundering,
and practices, and in the development of policies providing penalties therefor and for other
and guidelines in preparing departmental work purposes
plans

4. BSP Staff in the Anti-Money Laundering Be it enacted by the Senate and the House of
Council Secretariat Representatives of the Philippines in Congress
● Assists the Anti-Money Laundering Council in assembled:
implementing the provisions of the Anti-Money
Laundering Law
● Receives transaction reports from covered SECTION 1. Short Title.
institutions, investigates suspicious transactions, ● This Act shall be known as the “Anti-Money
and causes the filing of complaints with the Laundering Act of 2001.”
Department of Justice or the Ombudsman for the
prosecution of money-laundering offenses SEC. 2. Declaration of Policy.
● It is hereby declared the policy of the State to
5. Risk Management Office protect and preserve the integrity and
● Aggregates various risk exposures of the Bank, confidentiality of bank accounts and to ensure
and identifies appropriate risk control measures that the Philippines shall not be used as a money
● Ensures that appropriate risk management laundering site for the proceeds of any unlawful
practices are being implemented in the bank at activity. Consistent with its foreign policy, the State
all times shall extend cooperation in transnational
investigations and prosecutions of persons
6. Corporate Affairs Office involved in money laundering activities wherever
● Implements programs and policies on public committed.
relations and advertising through various media to
promote and enhance BSP’s corporate image FINANCIAL MARKETS AND INSTITUTIONS
THE FINANCIAL MARKETS
7. Office of Systemic Risk Management (OSRM)
Ø A financial market is a market in which people
● Develops and implements the financial stability
frameworks for: trade financial securities and derivatives at low
(i) continuing surveillance and tracking of transaction costs. Some of the securities include
systemic risks and their channels of stocks and bonds.
contagion; Ø Financial markets are a system that includes
(ii) (identifying and addressing issues arising individuals and institutions, instruments, and
from local and cross-border policy procedures that bring together borrowers and
initiatives and signed agreements savers no matter the location.
(iii) designing, delivering, and evaluating the
Ø The primary role of financial markets is to
impact of capacity building programs,
advocacy programs and learning facilitate the flow of funds from individuals and
roadmaps and businesses that have surplus funds to individuals,
(iv) assessing issues arising from the impact of businesses, and governments that need funds in
market news and developments, excess of their incomes.
preparing communication responses to
said issues and assessing the effectiveness
of said responses; and CAPITAL MARKETS
● Manages the technical and secretarial ● A financial market in which long-term debts (over
requirements of the Financial Stability Committee, a year) or equity-backed securities are bought
and the Financial Stability and sold.
● Coordination Council, among others
Capital Markets which consist of:

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THE PHILIPPINE FINANCIAL SYSTEM
BUSFIN (FINALS) | FIRST YEAR | 1ST SEMESTER
Stock Markets
● provide financing through the issuance of shares
or common stock, and enable the subsequent Three financial phases:
trading thereof. Ø Young adults borrow
Ø Older working adults
save
Bond Markets
Ø Retired adults use
● provide financing through the issuance of bonds,
and enable the subsequent trading thereof. savings

FUNDS TRANSFERRED FROM SAVERS TO BORROWERS

Commodity Markets
● facilitate the trading of commodities.
Direct transfer
● transfer of assets from one type of tax-deferred
Money Markets retirement plan or account to another.
● provide short-term debt financing and ● Direct transfers are not considered official
investment. distributions and are therefore not taxable as
income or subject to any penalties for early
distribution.
Derivatives Markets
● provide instruments for the management of
financial risk. Indirect transfers through Investment Banks
● in this process money flows from savers to
borrowers through an investment bank that
Foreign Exchange Markets underwrites the issue.
● facilitate the trading of foreign exchange. Ø Underwriter – acts as a facilitator for the issuance
of securities.
Cryptocurrency Market Ø Corporation – sells its stocks, bonds, etc.
● facilitate the trading of digital assets and financial
technologies.
Indirect Finance
● is where borrowers borrow funds from the financial
Spot Market or Cash Market market through indirect means, such as through a
● a public financial market in which financial financial intermediary.
instruments or commodities are traded for ● this is different from direct financing where there is
immediate delivery. a direct connection to the financial markets as
indicated by the borrower issuing securities
directly on the market.
Interbank Lending Market
● a market in which banks lend funds to one
another for a specified term. Investment banking house
● helps individuals/ organizations raise capital &
provides financial consultancy services to them.
FLOW OF FUNDS ● helps corporations issue securities.
● is the sum of all cash inflows/ outflows from and
into different financial assets. It is only the share
redemptions or outflows & share of purchases or Financial intermediary
inflows ● Uses funds to buy/create loans and other financial
instruments.

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THE PHILIPPINE FINANCIAL SYSTEM
BUSFIN (FINALS) | FIRST YEAR | 1ST SEMESTER
Ø Secondary Markets – investors buy and sell
securities they already own. It is what most
people typically think of as the "stock market,"
though stocks are also sold on the primary
market when they are first issued.
Ø Derivatives Markets – the financial market for
derivatives, financial instruments like futures
contracts or options, which are derived from
other forms of assets. The market can be
divided into two, that for exchange-traded
derivatives and that for overthe-counter
derivatives.

MARKET EFFICIENCY GENERAL STOCK MARKET ACTIVITIES

• Economic Efficiency – funds are allocated to The Secondary Market
their optimal use at the lowest costs. ● trading in the outstanding, previously issued
• Informational Efficiency – investment prices are shares of established, publicly owned companies.
adjusted quickly to reflect current information.
Ø Weak form – all information contained in past The Primary Market
price movements is reflected in current ● additional shares sold by established, publicly
owned companies.
market prices.
Ø Semi-strong form – current prices reflect all
IPO Market
publicly available information.
● new public offerings by privately held firms
Ø Strong form – current prices reflect all
pertinent information, both public and
private. STOCK MARKETS
Ø refers to the collection of markets and
exchanges where regular activities of buying,
TYPES OF FINANCIAL MARKETS selling, and issuance of shares of publicly-
Ø Money Market – used for short-term lending held companies take place.
or borrowing usually the assets are held for Ø there can be multiple stock trading venues in
one year or less. a country or a region which allow
Ø Capital Markets – are used for long-term transactions in stocks and other forms of
securities.
securities they have a direct or indirect
impact on the capital. Physical stock exchanges
Ø Debt Markets – is the market where debt ● NYSE, AMEX, and regional exchanges
instruments are traded. Debt instruments are ● OTC trading is done in over-the-counter markets
assets that require a fixed payment to the (a decentralized place with no physical location),
holder, usually with interest. through dealer networks, but some corporate
Ø Equity Markets – often referred to as the stock bonds can be traded in stock exchanges.
market is the market for trading equity
Exchange members o Floor brokers
instruments.
● a middleman who acts as an agent for clients,
Ø Primary Markets – where securities are
indirectly giving them the best access possible to
created. It's in this market that firms sell (float) the exchange floor.
new stocks and bonds to the public for the ● a floor broker's clients typically include institutions
first time. An initial public offering, or IPO, is an and wealthy people such as financial-service
example of a primary market. firms, pension funds, mutual funds, high net worth
individuals and traders.

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THE PHILIPPINE FINANCIAL SYSTEM
BUSFIN (FINALS) | FIRST YEAR | 1ST SEMESTER
electronically without having physical contact in
Specialists the market.
● is a person who is a member of a stock exchange,
such as the New York Stock Exchange, whose role
is to facilitate trading in certain stocks.
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FundKo The Investment Banking Process
● Underwriting Services in Investment Banking
Regulation of Securities Markets
● Underwriting is the process of raising capital
○ Specialists must make a market in the
through selling stocks or bonds to investors (e.g.,
stock they trade by displaying their
an initial public offering IPO).
best bid and ask prices to the market
● Businesses need money to operate and grow their
during trading hours.
businesses, and the bankers help them get that
○ To have a stock listed
money by marketing the company to investors.
○ Apply to the exchange
○ Pay a relatively small fee
Investment Banker
● Meet the exchange’s minimum requirements
● An investment banker is an individual who often
works as part of a financial institution and is
Over-the-Counter Markets and the Nasdaq
primarily concerned with raising capital for
● a collection of brokers and dealers, connected
corporations, governments, or other entities.
electronically by telephones and computers, that
● Helps corporations design securities attractive to
provide for trading in securities not listed on the
investors
physical stock exchanges.
● Buys these securities from the corporation
● Resells the securities to investors
Network of brokers and dealers
● In a broker market, there must be a defined buyer RAISING CAPITAL: STAGE I DECISIONS
and seller for a trade to happen.
1. Dollars to be raised – how much new
capital is needed?
Brokers
2. Type of securities used – should stock,
● execute a trade on behalf of others, while dealers
execute trades on their own behalf. bonds, or a combination of these
● Brokers buy and sell securities for their clients, but instruments to be used
dealers buy and sell on their own accounts. 3. Competitive bid versus negotiated
deal – should the company simply
Auction market offer a block of its securities for sale to
● a market in which buyers indicate the highest the investment banker that submits
price they are willing to pay and sellers indicate the highest bid of all interested
the lowest price they are willing to accept. investment bankers, or should it sit
● a trade occurs when the buyer and seller agree down and negotiate a deal with a
on a price. single investment banker?
4. Selection of an investment banker – if
Organized Investment Network
the issue is to be negotiated, which
Electronic Communications Networks (ECN)
investment banker should the firm
● a computer-based system of trading that takes
use? Older corporations that have
trading outside of the physical market. It is a
computerized system that allows investors trade “been to market” before will already
securities and other financial products

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THE PHILIPPINE FINANCIAL SYSTEM
BUSFIN (FINALS) | FIRST YEAR | 1ST SEMESTER
have established relationships with Lead or Managing Underwriter
investment bankers. ● The member of an underwriting syndicate who
actually manages the distribution and sale of a
new security offering

RAISING CAPITAL: STAGE II DECISIONS Selling Group

● A network of brokerage firms formed for the
1. Re-evaluating the initial decisions – purpose of distributing a new issuance of securities
the firm and its investment banker will
re-evaluate the initial decisions about Shelf Registrations
● Registration of securities with the SEC for sale at a
the size of the issue and the type
later date.
securities to use to determine whether
● The securities are held “on the shelf” until the sale.
revisions are needed, given current
market conditions.
2. Best efforts or underwritten issues MAINTENANCE OF THE SECONDARY MARKET
● When a company is going public for the first time,
● Underwritten Arrangement - investment the investment banker is obligated to maintain a
bank guarantees the sale by market for the shares after the issue has been
purchasing the securities from the completed.
issuer. ● The lead underwriter agrees to “make a market”
● Best Effort Arrangement – investment in the stock and keep it reasonably liquid.
bank gives no guarantee that the
securities will be sold
3. Issuance (flotation) costs – the TYPES OF FINANCIAL INTERMEDIARIES
investment banker’s fee must be o Commercial banks – commonly referred to
negotiated and the firm must simply banks, are traditional “department stores
estimate the other expenses that it will of finance” – that is, they offer a wide range of
incur in connection with the issue, products and services to a variety of customers.
including lawyer’s fee accountants’ o Credit unions – is a depository institution that is
costs, printing and engraving costs, owned by its depositors, who often are members
and so forth of a common organization or association, such
4. Setting the offering price – if the as an occupation, a religious group, or a
company is already publicly owned, community.
the offering price will be based on the o Savings and loan associations – specializes in
existing market price of the stock or accepting savings deposits and making
the yield on the firm’s existing bonds. mortgage and other loans.
o Thrift institution – also known SLA, cater to savers,
especially individuals who have relatively small
savings or need long-term loans to purchase
SELLING PROCEDURES houses.
Underwriting Syndicate o Mutual Funds – are investment companies that
● A syndicate of investment firms formed to spread use funds provided by savers to buy various
the risk associated with the purchase and types of financial assets, including stocks and
distribution of a new issuance of securities bonds.
● A group of investment banking firms formed to o Whole life insurance companies – the purpose of
spread the risk associated with the purchase and
life insurance is to provide a beneficiary, such as
distribution of a new issue of securities.
spouse or other family members, with protection
against financial distress or insecurity that might

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THE PHILIPPINE FINANCIAL SYSTEM
BUSFIN (FINALS) | FIRST YEAR | 1ST SEMESTER
result from the premature death of a INTERNATIONAL FINANCIAL MARKETS
breadwinner or other principal wage earner. ● Financial Markets have become more global
o Pension funds – pensions are retirement plans during the past few decades. As the economics
funded by corporations or government of development countries have grown, greater
agencies for their worker. Pension plans are numbers of investors have provided funds to these
financial markets.
administered primarily by the trust departments
● U.S. stock markets represent less than 50% of the
of commercial banks or by life insurance.
total value worldwide
● U.S. markets still dominate the stock markets in
THE ROLE OF FINANCIAL INTERMEDIARIES other countries
● U.S. investors can participate in international
● Facilitate the transfer of funds from those who
markets by using American Depository Receipts -
have funds (savers) to those who need funds
mutual funds that hold stocks or foreign securities
(borrowers)
certificates issued in dollar denominations
● Manufacturing a variety of financial products that
take the form of either loans or savings instruments
BENEFITS OF FINANCIAL INTERMEDIARIES FINANCIAL ORGANIZATIONS IN OTHER PARTS OF THE WORLD
Reduced Costs ● U.S. financial institutions are more heavily
● without intermediaries, the net cost of borrowing regulated
would be greater, and the net return earned by ● U.S. financial institutions face greater limitations on
savers would be less, because individuals with branching, services and relationships with
funds to lend would have to seek out appropriate nonfinancial businesses
borrowers themselves, and vice versa.

Risk/ Diversification Two notable factors distinguish financial institutions in

● the loan portfolios of intermediaries generally are the US from those in other countries.
well diversified, because they provide funds to a Ø First, prior to the deregulation that began in
large number and variety of borrowers by offering the 1980s, laws existed that restricted the
many different types of loans. ability of financial intermediaries to operate
● In finance, diversification is the process of nationwide through branches.
allocating capital in a way that reduces the
exposure to any one particular asset or risk. Ø Second, most foreign financial institutions are
allowed to engage in nonbanking
Funds Divisibility/ Pooling (nonfinancial) business activities, whereas the
● intermediaries pool funds provided by individuals nonbanking activities of US intermediaries
to offer loans or other financial products with have been severely restricted until recently
different denominations and different maturities.

Financial Flexibility
● intermediaries offer a variety of financial products
that is, different types of loans and savings
instruments – savers and borrowers have greater
choices, or financial flexibility, that can be
achieved with direct placements with respect to
denominations, maturities, and other
characteristics.

Related Services
● a system specialized intermediary offers more
than just a network of mechanism to transfer funds
from savers to borrowers.

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