BANKING REVIEWER  SC: The financial market that facilitate the transfer of debt securities

are commonly classified as the

CHAPTER 1: INTRODUCTION: BANKS AND OTHER FINANCIAL 1. Money market
INTERMEDIARIES
 Facilitates the flow of the short-term funds (w/ maturities of 1
FINANCIAL INTERMEDIARIES yr or less); and
2. Capital market
 Components of a financial market that move funds from people who
save to people who have productive investment opportunities.  Facilitates the flow of long-term funds (maturities of more than
1 yr).
 Play an important role in the effort to channel funds to productive use
for greater economic efficiency.
 Whether referring to market securities or capital market securities,
 Persons or entities whose principal functions include the:
transaction occurs either in primary market or in the secondary market.
 Lending
 Investing or
Primary Markets
 Placement of funds or
 evidences of indebtedness or  Facilitates the issuance of new securities
 equity deposited with them, or  Exists between issuers and investors
 otherwise coursed through them either for their own account or for
the account of others. Secondary Markets
 May be banks and non-banks.  Facilitate the trading of existing securities, which allows for a change
in the ownership of the securities.
Functions  Exist among investors.
 actions, activities or operation of a person or entity by which his/its
business or purpose is fulfilled or carried out. System of financial markets perform one basic function
 To quick mobilization of money from the lenders/investors to the
Non-bank financial intermediaries borrowers.
 Includes:
 Insurance companies Fund transfers are accomplished in 3 ways:
 Financing companies 1. Direct finance
 Credit and loan association 2. Semi-direct finance
 Mutual companies 3. Indirect finance
 Investment houses
 Lending corporations Direct Financing
 Pawnshops, and  The borrower and lender meet each other and exchange funds in
 Quasi-banking institutions. return for financial assets.
 They all participate in what is known as the financial markets.  Limitations:
1. Both borrower and lender must desire to exchange the same
Financial Markets amount of funds at the same time; and
 An agglomeration of financial transactions in securities performed by 2. Both borrower and lender must frequently incur substantial
market participants that works to transfer the funds from the surplus information costs simply to find each other.
unit (investors/lenders) to those who need them (borrowers).
 Semi-direct Financing securities of deficit units.
 A securities broker or dealer brings surplus and deficit units together,
thereby reducing information costs. KINDS OF FINANCIAL INTERMEDIARIES
 Broker  Banks are not the only financial institutions that perform the
- An individual or financial institution who provides information important function in the development of the economy.
concerning possible purchases and sales of securities.  Other institution likewise encourage
- Whose job is simply to bring buyers and sellers together.  Savings
 Dealer  Finance productive activities
- Serves as middleman between buyers and sellers, but the dealer  Promote trade, and
actually acquires the seller’s securities in the hope of selling them at a  Provide direct investments that help the economy.
later time at a more favorable price.  Since the function of banks are multifarious, it is necessary to
- Will split up a large issue of primary securities into a smaller units determine if a financial institution is performing banking functions or
affordable by buyers and thereby expand the flow of savings into is just performing another form of financial intermediation.
investment.
 The ultimate lender still winds up holding the borrower’s securities, 1. LENDING COMPANIES/ LENDING INVESTORS (RA 9474-
and therefore the lender must be willing to accept the risks, liquidity, LENDING COMPANY REGULATION ACT OF 2007)
and maturity characteristics of the borrower’s.  Lending companies do not include banking institutions.
 There must be a fundamental coincidence of wants and needs  Section 3(a) of RA 9474
between lenders and borrowers for semi-direct financial transactions - A corporation engaged in granting loans from its own capital funds or
to take place. from funds sourced from not more than 19 persons.
- It shall not be deemed to include
 The limitation of both direct and semi-direct finance simulated the  banking institutions,
development of indirect financial transactions, carried out with the help  investment houses,
of financial intermediaries, or financial institutions, like  savings and loan associations,
 banks,  financing companies,
 investment banks,  pawnshops,
 finance companies,  insurance companies,
 insurance companies, and  cooperatives, and
 mutual funds.  other credit institutions already regulated by law.

 Financial intermediaries 2. SAVINGS AND LOAN ASSOCIATIONS

- Accept funds from surplus units and channel the funds to deficit units.  Section 3(a) of RA 8367 – REVISED NON-STOCK SAVINGS AND
LOAN ASSOCIATION ACT OF 1997.
 Depositoty institutions, such as banks, - Non-stock, non-profit corporation engaged in the business of
- Accept deposits from surplus units and provide credit to deficit units accumulating the savings of its members and using such
through loans and purchase of debt securities. accumulations for loans to members to service the need of
households by providing long term financing for home building and
 Non-depository institutions, like mutual funds development and for personal finance.
- Issue securities on their own, usually in smaller and affordable - Organized under the Corp Code.
denominations) to surplus units and at the same time purchase debt - Not allowed to transact business with the general public.
 - The association accepts deposits from and grants loans only to its  equipment,
members and no deposits shall be sourced or deducted from the  motor vehicles,
loans granted to a member without his or her written consent.  appliances,
 business and office machines, and
 Well-defined Group consists of but not limited to:  other movable or immovable property
a) Employees, officers, and directors of one company, including - in consideration of the periodic payment by the lessee of a fixed
member-retirees; amount of money sufficient to amortize at least 70% of the purchase
b) Government employees, belonging to the same price or acquisition cost, including any incidental expenses and a
department/branch/office, including member-retirees; and margin of profit over an obligatory period of not less than 2 years
c) Immediate members of the families (up to the 2nd degree of during which the lessee has the right to hold and use the leased
consanguinity or affinity) of those falling under pars. 1 and 2 property with the right to expense the lease rentals paid to the lessor
above. and bears the cost of repairs, maintenance, insurance and
preservation thereof, but with no obligation or option on his part to
3. FINANCING COMPANIES purchase the leased property from the owner-lessor at the end of the
 Section 3(a) of RA 8556, FINANCING COMPANY ACT lease contract.
- Corporations which are primarily organized for the purpose of
extending credit facilities to consumers and to industrial, commercial,  ASSIGNMENT OF CREDIT
or agricultural enterprises, by - An act of transferring, either onerously or gratuitously, the right of an
 direct lending or assignor to an assignee who would then be capable of proceeding
 by discounting or against the debtor for enforcement or satisfaction of the credit.
 factoring commercial papers or - The transfer of rights takes place upon perfection of the contract, and
 accounts receivable, or ownership of the right, including all appurtenant accessory rights, is
 by buying and selling contracts, thereupon acquired by the assignee.
 leases, - The assignment binds the debtor only upon acquiring knowledge of
 chattel mortgages, or the assignment but he is entitled, even then, to raise against the
 other evidences of indebtedness, or assignee the same defenses he could set up against the assignor.
 by financial leasing of movable as well as immovable - Where the assignment is on account of pure liberality on the part of
property. the assignor, the rules on donation would likewise be pertinent;
- except banks, investment houses, saving and loan associations, - Where valuable consideration is involves, the assignment partakes of
insurance companies, cooperatives, and other financial institutions the nature of a contract of sale.
organized and operating under other special laws.
- The transaction entered into include:  Credit
 financial lease, - any loan, mortgage, deed of trust, advance, or discount; any
 assignment of credit and conditional sales contract, any contract to sell, or sale or contract of
 receivables financing. sale of property or service, either for present or future delivery, under
which, part or all the price is payable subsequent to the making of
 FINANCIAL LEASE such sale or contract; any rental-purchase contract; any option,
- Mode of extending credit through a non-cancelable lease contract demand, lien, pledge, or other claim against, or for the delivery of,
under which the lessor purchases or acquires at the instance of the property or money, any purchase, or other acquisition of or any credit
lessee, upon the security of, any obligation or claim arising out of the
 machinery, foregoing; and any transaction or series of transactions having a
 similar purpose or effect. - Their powers, as provided under Section 7 of PD 126, as
amended, include the power to:
 RECEIVABLES FINANCING 1. Arrange to distribute on a guaranteed basis securities of other
- A mode of extending credit through the purchase by or assignment to, corporations and of the Government or its instrumentalities;
a financing company of evidence of indebtedness or open accounts 2. Participate in a syndicate undertaking to purchase and sell,
by discounting or factoring. distribute or arrange to distribute on a guaranteed basis
securities of other corporations and of the Government or its
 Discounting instrumentalities;
- A type of receivables financing whereby evidences of indebtedness of 3. Arrange to distribute on a guaranteed basis or participate in a
a 3rd party, such as installment contracts, promissory notes and syndicate undertaking to purchase and sell on a best-efforts
similar instruments, are purchased by, or assigned to, a financing basis securities of other corporations and of the Government or
company in an amt or for a consideration less than their face value. its instrumentalities; and
4. Subject to prior approval by the Monetary Board, engage in
 Factoring foreign exchange operations which the Monetary Board identified
- Type of receivables financing whereby open accounts, not evidenced as directly related under Subsection 8 of this section.
by a written promise to pay supported by documents such as but not
limited to invoices of manufacturers and suppliers, delivery receipts  INVESTMENT COMPANY
and similar documents, are purchased by, or assigned to, a financing - A corporation primarily engaged or holds itself out as being engaged
company in an amount or for a consideration less than the primarily, or proposes to engage, in the business of investing,
outstanding balance of the open accounts. reinvesting and trading in securities.

 INSURANCE COMPANIES  PAWNSHOPS

- Also financial intermediaries. - A person or entity engaged in the business of lending money on
- Part of the total premiums paid by the policy holders is invested in personal property delivered as security for loans and shall be
different activities subject to pertinent regulations. synonymous, and may be used interchangeably, with pawnbroker or
 Variable contract Section 238(b) of the Insurance Code pawnbrokerage.
- Any policy or contract on either a group or on an individual basis
issued by an insurance company providing for benefits or other  QUASI-BANKS
contractual payments or values thereunder to vary so as to reflect - Entities engaged in the borrowing of funds through the issuance,
investments or of a designated separate account in which amounts endorsement or assignment with recourse or acceptance of deposit
received in connection with such contracts shall have been placed substitutes for purposes of relending or purchasing of receivables and
and accounted for separately and apart from other investments and other obligations.
accounts.  Section 3(c) of RA 9474- LENDING COMPANY REGULATION
- This contract may also provide benefits or values incidental thereto ACT OF 2007
payable in fixed or variable amounts, or both. - Refer to a non-bank financial institution authorized by the BSP to
- It shall not be deemed to be a security or securities as defines in the engage in quasi-banking functions and to borrow funds from more
Securities Act, as amended, or in the Investment Company Act, as than 19 lenders through the issuance, endorsement, or assignment
amended, nor subject to regulations under said Acts. with recourse or acceptance of deposit substitutes as defined in
Section 95 of RA 7653 (NEW CENTRAL BANK ACT) for purposes
 INVESTMENT HOUSES of relending or purchasing of receivables and other obligations.
- Engaged in financial intermediation.
 TRUST CORPORATIONS  BANKS
- Corporation that is authorized by the BSP to engage in trust and other - Constitute the largest group of entities that are engaged in financial
fiduciary business under Section 79 of the GBL or to perform intermediation in the Philippines.
investment management services under Section 53 of GBL. - Play an important role in the economy.
a. Trust Business - The banks’ strength bolsters the economy and their weakness
 Any activity resulting from a trustor-trustee relationship involving the endangers the economy.
appointment of a trustee by a trustor for the
 administration,  HISTORY
 holding, - Already existed as early as 2000 B.C in ancient Babylon.
 management of funds and/or properties of the trustor by the - The enterprise was pursued by wealthy religious cults that operated
trustee lending activities in temples because of their extensive landholding
 for the use, benefit or advantage of the trustor or of others called income.
beneficiary. - The trust that was reposed by the people of Babylon on what they
b. Other fiduciary business considered sacred institutions led them to leave their gold, silver, and
 Any activity of a trust-licensed bank resulting from a contract or money in temples.
agreement whereby the bind binds itself to render services or to act - The proliferation of temple banks continued in
in a representative capacity such as in an  Greece,
 agency,  Egypt, and
 guardianship,  Rome.
 administratorship of wills, properties and estates, - The precursor of the modern banking institutions developed in Venice
 executorships, through what is known as Chamber of Loans (Bank of Venice), an
 receivership, organization that was established to finance the war effort of the
 and other similar services which do not create or result in a republic.
trusteeship. - Venetian merchants fell into the habit of placing their money with the
c. Investment management activity chamber for safekeeping, which then introduced the deposit function.
 Any activity resulting from a contract or agreement primarily for - It was only later that similar establishments were formed in Genoa
financial return whereby the bank binds itself to handle or manage and Barcelona.
investible funds or any investment portfolio in a representative - In the Philippines, banks started even during the Spanish colonial
capacity as period.
 financial or managing agent,  The first bank that was said to have been established on Aug 1,
 adviser, 1851 was the El Banco Espanol Filipino de Isabel II.
 consultant or  During the American period, laws governing banks were passed.
 administrator or  The PH Commission passed Act # 52 placing banks under the
 financial or investment management, supervision of the Insular Treasurer.
 advisory,  The first banking law was incorporated in Act 1459, the old
 consultancy or corporation law, which was passed in March 1906 and revised by
 any similar arrangement which does not create or result in a Act 3610 in 1929.
trusteeship.  The PH Commission enacted Act 3154, Banking Laws of 1924.
 Foreign banks were regulated under Act 3520, enacted Feb 1929.
 STATE POLICIES -
- State policies on banks, bank deposits, and the supervision of banks SECTION 2. Creation of the Bangko Sentral. — There is hereby
and other financial institutions are provided in 1987 Constitution. established an independent central monetary authority, which
- It gives general direction for the enactment of laws by the Congress shall be a body corporate known as the Bangko Sentral ng
and serve as guide for supervisory and regulatory authorities in the Pilipinas, hereafter referred to as the Bangko Sentral.
formulation of rules and regulations governing banks and other
financial institutions. - It is the responsibility of the BSP to provide policy directions in the
areas of money, banking, and credit.
a. ARTICLE XII (NATIONAL ECONOMY AND PATRIMONY), 1987 - The BSP shall have supervision over the operations of banks and
CONSTI, Section 20 exercise regulatory the operations of banks and exercise regulatory
powers as provided in RA 7653 and other pertinent laws over the
Section 20. The Congress shall establish an independent central operations of finance companies and non-bank financial institutions
monetary authority, the members of whose governing board must performing quasi-banking functions.
be natural-born Filipino citizens, of known probity, integrity, and - BSP issued pursuant to its supervisory and regulatory functions
patriotism, the majority of whom shall come from the private over banks and other financial institution:
sector. They shall also be subject to such other qualifications and 1. Manual of Regulations for Banks (MORB)
disabilities as may be prescribed by law. The authority shall  Primary source of regulations governing banks
provide policy direction in the areas of money, banking, and credit. 2. Manual of Regulations for Non-bank Financial Intermediaries
It shall have supervision over the operations of banks and exercise (MORNBFI)
such regulatory powers as may be provided by law over the  Primary source of regulations for non-bank entities supervised by the
operations of finance companies and other institutions performing BSP and other issuances.
similar functions.
c. RA 8791, GENERAL BANKING LAW OF 2000
Until the Congress otherwise provides, the Central Bank of the SECTION 2. Declaration of Policy. — The State recognizes the vital
Philippines operating under existing laws, shall function as the central role of banks in providing an environment conducive to the
monetary authority. sustained development of the national economy and the fiduciary
nature of banking that requires high standards of integrity and
- The fact that membership in the board of the central monetary performance. In furtherance thereof, the State shall promote and
authority is limited to natural-born Filipino citizens underscores the maintain a stable and efficient banking and financial system that is
important role that banks play in our society. globally competitive, dynamic and responsive to the demands of a
developing economy.
b. RA 7653 THE NEW CENTRAL BANK
d. RA 7721 - AN ACT LIBERALIZING THE ENTRY AND SCOPE OF
SECTION 1. Declaration of Policy. — The State shall maintain a central OPERATIONS OF FOREIGN BANKS IN THE PHILIPPINES AND FOR
monetary authority that shall function and operate as an independent OTHER PURPOSES.
and accountable body corporate in the discharge of its mandated
responsibilities concerning money, banking and credit. In line with this SECTION 1. Declaration of Policy. — The State shall develop a self-
policy, and considering its unique functions and responsibilities, the reliant and independent national economy effectively controlled by
central monetary authority established under this Act, while being a Filipinos and encourage, promote, and maintain a stable,
government-owned corporation, shall enjoy fiscal and administrative competitive, efficient, and dynamic banking and financial system
autonomy.
 that will stimulate economic growth, attract foreign investments
provide a wider variety of financial services to “Towards this end, the government must extend all means and
Philippine enterprises, households and individuals, strengthen mechanisms necessary for the Corporation to effectively fulfill its
linkages with global financial centers, enhance the country's vital task of promoting and safeguarding the interests of the
competitiveness in the international market and serve as a channel depositing public by way of providing insurance coverage on bank
for the flow of funds and investments into the economy to promote deposits and in helping develop a sound and stable banking
industrialization. system.

Pursuant to this policy, the Philippine banking and financial “In view of the crucial role and the nature of its functions and
system is hereby liberalized to create a more competitive responsibilities, the Corporation, while being a government
environment and encourage greater foreign participation through instrumentality with corporate powers, shall enjoy fiscal and
increase in ownership in domestic banks by foreign banks and the administrative autonomy.”
entry of new foreign bank branches.
- PDIC shall promote and safeguard the interest of the depositing
In allowing increased foreign participation in the financial system, public.
it shall be the policy of the State that the financial system shall - It shall help maintain a sound and stable banking system.
remain effectively controlled by Filipinos.
f. RA 1405, AS AMENDED (THE LAW ON SECRECY OF BANK
- Policy direction of protectionism and nationalism as implied in 1987 DEPOSIT)
Constitution previously cited has been retained. Section 1. It is hereby declared to be the policy of the Government
- Under Section 3 of RA 7721, as amended by RA 10641, the to give encouragement to the people to deposit their money in
Monetary Board is required to adopt necessary measures to ensure banking institutions and to discourage private hoarding so that the
that the control of at least 60% of the resources or assets of the entire same may be properly utilized by banks in authorized loans to
banking system is held by domestic banks which are majority-owned assist in the economic development of the country.
by Filipinos.
- Resources g. RA 9160, AS AMENDED (THE ANTI-MONEY LAUNDERING ACT OF
 Assets based on the balances reflected in the Financial Reporting 2001)
Package submitted to the BSP. SEC. 2. Declaration of Policy. — It is hereby declared the policy of
 These measures may include: the State to protect and preserve the integrity and confidentiality of
1. Suspension of entry of additional foreign bank subsidiaries and bank accounts and to ensure that the Philippines shall not be used
branches; and as a money laundering site for the proceeds of any unlawful
2. Suspension of license upgrade or conversion of subsidiary of activity. Consistent with its foreign policy, the State shall extend
existing foreign bank branches. cooperation in transnational investigations and prosecutions of
persons involved in money laundering activities wherever
e. RA 3591, AS AMENDED (PHILIPPINE DEPOSIT INSURANCE committed.
CORPORATION LAW) - Signals a much needed balancing by the State of 2 compering, but
SEC. 2. — It is hereby declared to be the policy of the State to equally vital interests:
strengthen the mandatory deposit insurance coverage system to 1. Maintaining the secrecy of bank deposits to encourage people to
generate, preserve, maintain faith and confidence in the country’s put their funds in banks to propel the economy; and
banking system, and protect it from illegal schemes and 2. Ensuring that the PH banking system is not used as money
machinations. laundering site.