Chapter-1-Introduction

BANKING AND
FINANCIAL
INSTITUTION
EXPECTED LEARNING OUTCOMES
AFTER STUDYING THIS SUBJECT, YOU SHOULD BE ABLE

TO…….
1. UNDERSTAND THE FINANCIAL INSTITUTION, BANK AS WELL
AS NON-BANK INSTITUTION .
2. UNDERSTAND THE PHILIPPINE BANKING SYSTEM.
3. THE ROLE OF CENTRAL BANKS OF THE PHILIPPINES.
WHY STUDYING FINANCIAL
MARKETS AND INSTITUTIONS?
BECAUSE OF…..
RISK ( BANK AND NON-BANK)

SUCCESS AND FAILURE AFFECTS THE
FINANCIAL SYSTEM OF THE ECONOMY.
INVOLVES HUGE FLOWS OF FUNDS
IT DOES NOT INFLUENCE ONLY YOUR

EVERYDAY LIFE , BUT ALSO THE WHOLE
FLOWS OF FUNDS.
BECAUSE OF…..
REWARD OF UNDERSTANDING
• MANY ISSUES.
• ECONOMIC GROWTH.
• POOR PERFORMANCE OF FINANCIAL MARKET.
• DIRECT EFFECT ON
• PERSONAL WEALTH
• BEHAVIOR OF BUSINESS AND CONSUMERS
• PERFORMANCE OF THE ECONOMY.
FINANCIAL INSTITUTION
Intermediaries or
bridges between
the fund sources
and the fund
users.
BANK INSTITUTION
Primary function They also offer
short term loans,
of this bank is to letter of credits,
accept savings give discounts on
deposits, check promissory notes,
deposit, and bills of exchange
or any documents
time deposit. on credit
Examples of Commercial Bank
Thrift banks, also known as savings
and loans associations (S&Ls) or
thrifts, are primarily funded by
consumer deposits. They offer many of
the same services as retail or
commercial banks, including debit and
credit cards and federally insured
savings and checking accounts.
Composed of savings and
mortgage bank,
Private development bank, stock
savings and loan associations and
microfinance thrift banks.
Engaged in accumulating savings

of depositors and investing them.
Provide short-term working
capital and medium and
long term financing to
businesses engaged in
agriculture, services,
industry, housing and
diversified and allied
services.
EXAMPLE OF THRIFT BANK
RURAL BANK
Rural areas mobilize
financial resources and
control and extend
credits to farmers,
cottage industrialist and
other rural-based
economic operators.
Not banks, but can collect
“contribution” that may be
invested in business or stocks or
loan with interest to individuals
and organizations including
government.
Like SSS, GSIS, PAG-IBIG

HISTORY OF PHILIPPINE
BANKING SYSTEM
CENTRAL BANK OF THE
PHILIPPINES/ BANKO
SENTRAL NG PILIPINAS
It was created under section 2 of RA 7653, better known as
“ THE NEW CENTRAL BANK ACT”
Central bank started it’s formal operation on July 3, 1993.
It was established on Jan 3, 1949.

Country central monetary authority.
The purpose is to regulate the monetary system in our
country.
Was given sole authority to issue the country’s paper money;

regulate and supervise the country’s banking system.
Control inflation and paper bills and coins of the country, and
strengthen the currency of Philippine peso.
3 PILLARS OF CENTRAL BANK
• Price Stability
• Financial stability
• Efficient payments and
settlements system
1. PRICE STABILITY
BSP manage inflation and price
fluctuation for conducive balanced and
sustainable growth of the economy.
Consumer price index- represent the average price of a standard
basket of goods and services consumed by a typical Filipino family
for a given period.
Inflation rate- annual percentage change in consumer price index.
Inflation- sustained increase in the average price of goods and

services typically purchase by consumer.
How does the BSP promote price stability
Price are determined by
the interaction of
supply and demand
Availability and Demand for goods

BSP cost of money and services INFLATION
MONETARY POLICY INSTRUMENTS
ACTION TAKEN TO MANAGE THE • Policy rate

AVAILABILITY AND COST OF MONEY • Open market operation
AND CREDIT TO ATTAIN STABLE • Reserve requirements
PRICE. • Rediscounting
• Special deposit account
FINANCIAL INSTRUMENT ISSUED BY BSP TO ATTAIN PRICE
STABILITY
POLICY RATE- Interest rate
OPEN MARKET OPERATION- Central bank purchase or

sales of government securities in order to expand or
contract money in the banking system and influence interest
rates.
RESERVE REQUIREMENTS- are amount of cash that bank

must have.
FINANCIAL INSTRUMENT ISSUED BY BSP
TO ATTAIN PRICE STABILITY
REDISCOUNTING- a privilege of qualified BSP- supervised
bank that have approved and active discounting line with the
BSP to obtain loans or advances from BSP using eligible
papers of its- end user borrowers collaterals.
SPECIAL DEPOSIT ACCOUNT- a fixed-term deposit open

to banks and trust-entities of BSP supervised financial
institutions.
2. FINANCIAL STABILITY
BSP plays a great role in the flow of
money in the system from the people
who have extra money who is which
they do not need to spend them
immediately (saver)and tend to put
them in the system for interest.
Simple
In the scenario that there is too excessive demand
Scenario that brings the inflationary pressures, the BSP duty is
to control or slow down the inflation by
implementing contractionary monetary policy.
The BSP now increase policy on interest rate this
action will result increase in interest rate of banks.
On the side of borrower this is a disadvantage due
to high cost of borrowing which has two effect first is
investment growth will be slower and second
consumption growth will be slower if these two
happens the aggregate demand growth will be
slower and finally result to lower inflation.
3. EFFICIENT PAYMENTS AND
SETTLEMENTS SYSTEM
National payments and settlement system- This
includes the country’s entire matrix of
institutional and infrastructure arrangements
and process through which money is
transferred from one party to another which
aims to make fund transfer easier to both
parties.
PHILIPPINE PAYMENT AND SETTLEMENT
SYSTEM (PHILPASS)
A real time gross settlement system
wherein both processing and final
settlement of fund transfer instruction
can take place continuously in real
time.
FUNCTIONS OF BSP
• The money manager

• The supplier of money
• The banker’s bank
• The supervisor of all banks
• The main bank of the government

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BANKING AND

AFTER STUDYING THIS SUBJECT, YOU SHOULD BE ABLE

RISK ( BANK AND NON-BANK)

INVOLVES HUGE FLOWS OF FUNDS

IT DOES NOT INFLUENCE ONLY YOUR

Engaged in accumulating savings

Like SSS, GSIS, PAG-IBIG

Central bank started it’s formal operation on July 3, 1993.

It was established on Jan 3, 1949.

Was given sole authority to issue the country’s paper money;

Inflation rate- annual percentage change in consumer price index.

Inflation- sustained increase in the average price of goods and

Availability and Demand for goods

MONETARY POLICY INSTRUMENTS

ACTION TAKEN TO MANAGE THE • Policy rate

POLICY RATE- Interest rate

OPEN MARKET OPERATION- Central bank purchase or

RESERVE REQUIREMENTS- are amount of cash that bank

SPECIAL DEPOSIT ACCOUNT- a fixed-term deposit open

• The money manager

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