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Banking Regulations and FS Analysis
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Banking Regulations and FS Analysis

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Questions and Answers

Which regulatory regime governs universal and commercial banking in the Philippines?

  • Philippine Cooperative Code of 2008
  • General Banking Law (GBL) (correct)
  • Charter of the Philippine Deposit Insurance Corporation (PDIC)
  • New Central Bank Act
  • In the Philippines, who fulfills the role of an effective prudential regulator in the banking system?

  • PDIC
  • BSP (correct)
  • SEC
  • GSIS
  • What can the BSP do if they assess that the digital bank market needs to expand?

  • Change the regulatory regime applicable to banks
  • Reopen the window for digital bank license applications anytime (correct)
  • Transfer oversight of banks to PDIC
  • Incorporate new laws into the GBL
  • What is the Manual of Regulations for Banks issued by the BSP primarily focused on?

    <p>Implementing various banking laws</p> Signup and view all the answers

    What is recognized as having primacy in regulating cooperative banks in the Philippines?

    <p>GBL</p> Signup and view all the answers

    Which entity is mentioned as the insurer of bank deposits in the Philippines?

    <p>PDIC</p> Signup and view all the answers

    What is the minimum paid-in capital required for a universal bank in the Philippines according to BSP regulations?

    <p>20 billion pesos</p> Signup and view all the answers

    Which Act authorizes the Anti-Money Laundering Council to investigate the financing of terrorism without a court order?

    <p>Terrorism Financing Prevention and Suppression Act 2012</p> Signup and view all the answers

    What is the minimum paid-in capital required for a commercial bank in the Philippines with more than 100 branches?

    <p>15 billion pesos</p> Signup and view all the answers

    Which ratio must universal and commercial banks in the Philippines maintain to comply with BSP regulations and the Basel Accord standards?

    <p>8%</p> Signup and view all the answers

    What type of facilities does the BSP provide to banks, including loans for liquidity purposes and emergency situations?

    <p>Rediscounting and credit facilities</p> Signup and view all the answers

    What source of funding is not mentioned as a source of funds for banks in the Philippines in the provided text?

    <p>Funding from government grants</p> Signup and view all the answers

    Which regulatory body in the Philippines approved the licenses for the six digital banks mentioned in the text?

    <p>Bangko Sentral ng Pilipinas (BSP)</p> Signup and view all the answers

    What is the main reason given for limiting the number of digital banks to only six in the Philippines?

    <p>To closely monitor the market development and maintain healthy competition</p> Signup and view all the answers

    Which of the following Philippine banks owns Maya Bank, one of the approved digital banks in the country?

    <p>Union Bank of the Philippines</p> Signup and view all the answers

    How many of the six approved digital banks are already operating as digital banks at the time of the text?

    <p>Two</p> Signup and view all the answers

    What is the timeframe mentioned for the expected full setup of operations for the digital banks that are not yet operating?

    <p>Six months or less</p> Signup and view all the answers

    Which bank did Diokno mention as having a huge network and could potentially be operational online in less than six months?

    <p>GOtyme</p> Signup and view all the answers

    In which scenario is it permissible to examine deposit accounts according to the text?

    <p>Upon written permission of the account holder</p> Signup and view all the answers

    When can the Commissioner of Internal Revenue enquire into a decedent's deposits?

    <p>For determining the gross estate of the decedent</p> Signup and view all the answers

    What type of activities are explicitly excluded from scrutiny under the Anti-Money Laundering Act of 2001?

    <p>Kidnapping for ransom</p> Signup and view all the answers

    Under what circumstances can the BSP and PDIC enquire into deposit accounts?

    <p>In cases of unsafe or unsound banking practices</p> Signup and view all the answers

    Which types of activities fall under the Comprehensive Dangerous Drugs Act of 2002 and are not subject to scrutiny under the Anti-Money Laundering Act?

    <p>Unlawful drug trafficking activities</p> Signup and view all the answers

    When can the BSP conduct examinations on deposits with any bank?

    <p>During the course of periodic or special examination of the bank</p> Signup and view all the answers

    What is one of the conditions under which the appointment of a receiver for a bank is warranted without a prior hearing?

    <p>Involving probable losses to its depositors or creditors</p> Signup and view all the answers

    What is the time frame within which the receiver must determine if the bank may be rehabilitated or allowed to resume business?

    <p>90 days after the takeover</p> Signup and view all the answers

    What action does the Monetary Board take if the receiver determines that the bank cannot be rehabilitated?

    <p>Notify the board of directors accordingly and instruct liquidation</p> Signup and view all the answers

    What is required for any determination to resume business after a bank's takeover?

    <p>Prior approval from regulatory authorities</p> Signup and view all the answers

    What is the maximum period allowed for determining if a bank can resume business after a takeover?

    <p>90 days</p> Signup and view all the answers

    What role does the receiver play if a bank is determined to be unable to pay its liabilities as they become due?

    <p>Determine if the bank can be rehabilitated or liquidated</p> Signup and view all the answers

    What percentage of the voting stock of a domestic bank can foreign individuals and non-bank corporations collectively own or control?

    <p>40%</p> Signup and view all the answers

    Under what condition will the Monetary Board approve a transaction involving a bank concerning its minimum capital requirement?

    <p>If the bank complies with the minimum capital requirement for new banks</p> Signup and view all the answers

    According to the Philippine Competition Act, when must a bank merger or consolidation be notified to the Philippine Competition Commission?

    <p>When the value exceeds 1 billion pesos</p> Signup and view all the answers

    What is required for a bank merger or consolidation to receive approval from both the Philippine Competition Commission and the Monetary Board?

    <p>Favorable ruling from the Commission and approval from the Monetary Board</p> Signup and view all the answers

    What condition must be met for an insured bank to assume another bank's liability to pay deposits?

    <p>Must have PDIC consent</p> Signup and view all the answers

    What action can the Monetary Board take if a bank is found to be conducting business in an unsafe and unsound manner?

    <p>Reduce the compensation package of the bank's directors and officers</p> Signup and view all the answers

    What is the regulation in the Philippines that governs the compensation of directors in general?

    <p>Section 29 of the Revised Prudential Regulation</p> Signup and view all the answers

    In what circumstances can the Monetary Board deduct unbooked valuation reserves and deferred charges from a bank's net income?

    <p>During profit sharing</p> Signup and view all the answers

    According to the provided text, which matters are excluded from the provisions of the GBL and the Manual of Regulations for Banks regarding Philippine branches of foreign banks?

    <p>Formation and organization of corporations</p> Signup and view all the answers

    What is the primary purpose of appointing a full-time chief compliance officer in each bank?

    <p>To manage a compliance system for identifying and mitigating business risks</p> Signup and view all the answers

    When might the Monetary Board order a reduction of a bank's director and officer compensation package?

    <p>When the bank is under comptrollership or conservatorship</p> Signup and view all the answers

    What is an essential difference in management structure between domestic banks and branches of foreign banks, based on the information provided?

    <p>Presence of a board of directors</p> Signup and view all the answers

    Which international standards related to risk-based capital requirements are mentioned in Section 34 of the General Banking Law?

    <p>Bank of International Settlements standards</p> Signup and view all the answers

    Under what condition can the Monetary Board regulate the payment of compensation to bank directors and officers?

    <p>In exceptional cases like when the bank is under conservatorship</p> Signup and view all the answers

    In case of non-compliance with the prescribed minimum ratio by a bank, what action may be taken by the Monetary Board until compliance is met?

    <p>Temporary suspension of banking operations</p> Signup and view all the answers

    What role does the chief compliance officer appointed by banks play in relation to business risks?

    <p>Identify and mitigate business risks eroding Prudential Regulation</p> Signup and view all the answers

    What is the minimum requirement for a bank director regarding board meeting participation and attendance?

    <p>Participate in 50% of board meetings and attend at least 25% of them</p> Signup and view all the answers

    In what circumstances can shareholders participate in the management of a locally incorporated bank?

    <p>Fundamental matters such as dissolution or merger</p> Signup and view all the answers

    What is the primary purpose of the Handbook on Corporate Governance published by the BSP?

    <p>To foster good corporate governance in the Philippine banking system</p> Signup and view all the answers

    Which international best practices does the BSP aim to align with regarding corporate governance in the banking sector?

    <p>Principles for Enhancing Corporate Governance from the Basel Committee on Banking Supervision</p> Signup and view all the answers

    What powers does a locally incorporated bank's board of directors hold with respect to corporate decisions?

    <p>Exercises all corporate powers</p> Signup and view all the answers

    What role do shareholders play in the management of a bank after the election of directors?

    <p>Limited to fundamental matters like amending articles of incorporation or by-laws</p> Signup and view all the answers

    What consequences could a breach of fiduciary duty by a bank lead to?

    <p>Systemic risk and potential insolvency</p> Signup and view all the answers

    Apart from capital adequacy, what are some prudential measures mentioned in the text to minimize systemic risk?

    <p>Implementing reserve requirements and loan-loss provisioning</p> Signup and view all the answers

    What is an example of a prudential measure adopted by the BSP to minimize systemic risk?

    <p>Implementing stress tests for real estate exposures</p> Signup and view all the answers

    Under Part Ten of the Manual of Regulations for Banks, what are the minimum standards related to consumer protection?

    <p>Ensuring confidentiality, transparency, fair treatment, and more</p> Signup and view all the answers

    What must BSP-supervised financial institutions have to control consumer protection risks?

    <p>A consumer protection risk management system</p> Signup and view all the answers

    Digital banks in the Philippines are required to have at least P1 million capitalization.

    <p>False</p> Signup and view all the answers

    Existing banks converting to digital banks must complete the transition within one year of acquiring Monetary Board approval.

    <p>False</p> Signup and view all the answers

    The BSP has the authority to examine enterprises that are owned by the bank they are examining.

    <p>True</p> Signup and view all the answers

    The BSP issued Circular No. 1105 in January 2021 on the establishment of digital banks.

    <p>False</p> Signup and view all the answers

    Regular investigations of banks by the BSP happen more than once a year.

    <p>False</p> Signup and view all the answers

    Digital banks in the Philippines are allowed to have multiple physical branches for customer convenience.

    <p>False</p> Signup and view all the answers

    The BSP has categorized digital banks as the sixth bank category in the Philippines.

    <p>False</p> Signup and view all the answers

    The Monetary Board can order a special examination of a bank with an affirmative vote of four members.

    <p>False</p> Signup and view all the answers

    Digital banks in the Philippines are exempt from setting up a physical office to handle customer complaints.

    <p>False</p> Signup and view all the answers

    The PDIC can examine banks without prior approval from the BSP.

    <p>False</p> Signup and view all the answers

    The BSP makes relevant reports and findings available to the PDIC to avoid overlapping of efforts.

    <p>True</p> Signup and view all the answers

    The aim of supervision by the BSP is to ensure immediate closure of non-compliant banks.

    <p>False</p> Signup and view all the answers

    A breach of fiduciary duty by a bank could lead to damages to its customers and result in insolvency.

    <p>True</p> Signup and view all the answers

    The BSP has not implemented any prudential measures to minimize systemic risk.

    <p>False</p> Signup and view all the answers

    The Manual of Regulations for Banks does not cover consumer protection standards.

    <p>False</p> Signup and view all the answers

    BSP-supervised financial institutions are not required to adhere to high service standards with customers.

    <p>False</p> Signup and view all the answers

    A consumer protection risk management system is not necessary for managing consumer protection risks in banking operations.

    <p>False</p> Signup and view all the answers

    The GBL and the Manual of Regulations for Banks do not include prudential measures apart from capital adequacy.

    <p>False</p> Signup and view all the answers

    The Monetary Board may appoint a conservator for a bank if it is unable or unwilling to maintain proper liquidity.

    <p>True</p> Signup and view all the answers

    There is no limit to the duration of conservatorship for a bank.

    <p>False</p> Signup and view all the answers

    The Monetary Board will only terminate conservatorship if the bank can continue to operate without incurring any losses.

    <p>False</p> Signup and view all the answers

    If a bank has insufficient assets to meet its liabilities, the Monetary Board can designate the PDIC as a receiver.

    <p>True</p> Signup and view all the answers

    A conservator appointed for a bank does not need to be knowledgeable in bank operations and management.

    <p>False</p> Signup and view all the answers

    The Monetary Board has no authority to restore a bank's viability through the conservator.

    <p>False</p> Signup and view all the answers

    The BSP considers consumer protection as a core function independent of its prudential regulation and supervision.

    <p>False</p> Signup and view all the answers

    Reserve requirements for banks in the Philippines remain fixed and do not change over time.

    <p>False</p> Signup and view all the answers

    Universal and commercial banks in the Philippines are not required to maintain any reserves.

    <p>False</p> Signup and view all the answers

    The Single Borrowers Limit (SBL) in the Philippines aims to encourage banks to concentrate all their lending to a single borrower or corporate group.

    <p>False</p> Signup and view all the answers

    The Single Borrowers Limit (SBL) in the Philippines is currently set at 10% of the net worth of a bank.

    <p>False</p> Signup and view all the answers

    The reserves maintained by banks in the Philippines serve only as an instrument of monetary policy and have no prudential purpose.

    <p>False</p> Signup and view all the answers

    Under the General Banking Law of 2000, an ordinary commercial bank has the authority to invest in nonallied enterprises.

    <p>False</p> Signup and view all the answers

    Universal and commercial banks combined represent approximately 90 per cent of the resources of the banking system in the Philippines.

    <p>False</p> Signup and view all the answers

    Foreign banks in the Philippines are not licensed as universal or commercial banks, they can only establish offshore banking units with limited functions.

    <p>False</p> Signup and view all the answers

    Under the General Banking Law, universal banks are defined as commercial banks that cannot exercise the powers of an investment house.

    <p>False</p> Signup and view all the answers

    Islamic banks are not recognized as a distinct classification of banks in the Philippines.

    <p>False</p> Signup and view all the answers

    The Philippine central bank, Bangko Sentral ng Pilipinas (BSP), is not responsible for ensuring that the control of 60 percent of the resources of the banking system is held by domestic banks.

    <p>False</p> Signup and view all the answers

    The receiver must determine whether the bank may be rehabilitated within 60 days after the takeover.

    <p>False</p> Signup and view all the answers

    The Monetary Board can order a reduction of a bank's director and officer compensation package only with a unanimous vote.

    <p>False</p> Signup and view all the answers

    The Monetary Board will terminate conservatorship if the bank can continue to operate with minimal losses.

    <p>False</p> Signup and view all the answers

    Digital banks in the Philippines are required to have a minimum capitalization of P500,000.

    <p>False</p> Signup and view all the answers

    The BSP considers consumer protection as a secondary function compared to its prudential regulation and supervision.

    <p>False</p> Signup and view all the answers

    There is a specified limit to the duration of conservatorship for a bank according to the text.

    <p>False</p> Signup and view all the answers

    A conservator appointed for a bank must have powers as deemed necessary by the Monetary Board to take charge of the bank's assets and liabilities.

    <p>True</p> Signup and view all the answers

    Termination of conservatorship for a bank can only occur after one year of appointing the conservator.

    <p>False</p> Signup and view all the answers

    The Monetary Board may designate the PDIC as a receiver for a bank if it has insufficient realizable assets to meet its liabilities, according to Section 30 of the New Central Bank Act.

    <p>True</p> Signup and view all the answers

    The receiver appointed by the Monetary Board for a bank can reorganize the bank's management.

    <p>False</p> Signup and view all the answers

    The BSP can forbid a bank from doing business and appoint the PDIC as a receiver only if the bank has insufficient realizable assets.

    <p>False</p> Signup and view all the answers

    The conservator appointed for a bank must have expertise in bank operations and management, according to the New Central Bank Act.

    <p>True</p> Signup and view all the answers

    The Secrecy of Bank Deposits Law applies to all types of investments in the Philippines.

    <p>False</p> Signup and view all the answers

    Under the Secrecy of Bank Deposits Law, investments related to kidnapping for ransom are exempt from scrutiny.

    <p>False</p> Signup and view all the answers

    BSP officials involved in bank examination are considered 'unauthorized persons' under the GBL.

    <p>False</p> Signup and view all the answers

    Protection under Subsection 55.1(b) of the GBL extends to all individuals and entities, including public officials.

    <p>False</p> Signup and view all the answers

    The Secrecy of Bank Deposits Law does not apply to deposits in foreign currencies held by Philippine banks.

    <p>True</p> Signup and view all the answers

    Unlawful activities related to destructive arson are exempt from scrutiny under the GBL.

    <p>False</p> Signup and view all the answers

    The Anti-Money Laundering Council can examine deposits and investments with any bank without a court order in connection with investigating financing of terrorism.

    <p>True</p> Signup and view all the answers

    A universal bank in the Philippines must have a minimum paid-in capital of 15 billion pesos at the time of its establishment.

    <p>False</p> Signup and view all the answers

    The risk-based capital adequacy ratio of universal and commercial banks must be above 10% according to the BSP's minimum requirements.

    <p>True</p> Signup and view all the answers

    The BSP provides rediscounting and other credit facilities to banks, excluding loans for liquidity purposes and emergency loans during periods of financial panic.

    <p>False</p> Signup and view all the answers

    Digital banks in the Philippines are required to have a minimum paid-in capital of 1 million pesos.

    <p>False</p> Signup and view all the answers

    The reserves maintained by banks in the Philippines serve only as an instrument of monetary policy and do not have any prudential purpose.

    <p>False</p> Signup and view all the answers

    Adverse selection occurs when both parties in a transaction have asymmetric information.

    <p>False</p> Signup and view all the answers

    Moral Hazard can lead to excessive risk-taking by one party because the other party will bear the consequences.

    <p>True</p> Signup and view all the answers

    The main solution to adverse selection is to provide free collection rider programs.

    <p>False</p> Signup and view all the answers

    Compensating balance covenants are a common solution to moral hazard in business dealings.

    <p>False</p> Signup and view all the answers

    Managers of a business often prefer to disclose less information to shareholders to avoid adverse selection.

    <p>False</p> Signup and view all the answers

    Borrowers in lending scenarios usually understate their ability to repay loans, leading to adverse selection issues.

    <p>False</p> Signup and view all the answers

    The Efficiency Ratio is calculated by dividing Non-interest Expense by Interest Revenue.

    <p>False</p> Signup and view all the answers

    The NPL Ratio stands for Non-Performing Loans Ratio and is calculated by dividing Total Loans by Nonperforming Loans.

    <p>False</p> Signup and view all the answers

    The Loan to Deposit Ratio is calculated by dividing Total Loans by Total Deposits.

    <p>True</p> Signup and view all the answers

    The Capital Adequacy Ratio reflects a bank's risk-weighted capital expressed as a percentage of its total loans.

    <p>False</p> Signup and view all the answers

    The Reserve Requirement for banks in the Philippines remains constant over time and does not change.

    <p>False</p> Signup and view all the answers

    Banks create money by taking deposits from parties with excess funds and giving loans to parties who need funds.

    <p>True</p> Signup and view all the answers

    A Universal Bank in the Philippines must have a minimum paid-in capital of 10 billion pesos at the time of its establishment.

    <p>False</p> Signup and view all the answers

    The multiplier in the fractional reserve banking system is calculated by dividing the reserve requirement ratio by 100.

    <p>False</p> Signup and view all the answers

    The example provided with Bank A, Bank B, and Bank C shows an endless loop of money creation through the fractional reserve banking system.

    <p>False</p> Signup and view all the answers

    Banks in the Philippines are not required to maintain any reserves according to the text.

    <p>False</p> Signup and view all the answers

    The primary function of supervision by the BSP is to ensure immediate closure of non-compliant banks.

    <p>False</p> Signup and view all the answers

    Digital banks in the Philippines are exempt from setting up physical offices according to the text.

    <p>False</p> Signup and view all the answers

    The Reserve Requirement Ratio for banks in the Philippines is 12%.

    <p>True</p> Signup and view all the answers

    The Monetary Board can impose a fine of up to P50,000 - P100,000 for willful violation of banking laws.

    <p>False</p> Signup and view all the answers

    A breach of fiduciary duty by a bank could lead to imprisonment of up to 10 years.

    <p>False</p> Signup and view all the answers

    The Data Privacy Act is not one of the challenges mentioned in the context.

    <p>False</p> Signup and view all the answers

    Digital banks in the Philippines are allowed to operate with minimal losses for up to one year before termination of conservatorship.

    <p>False</p> Signup and view all the answers

    The Basel III Capital conservation buffer requires banks to maintain a minimum ratio of 6% of Tier 1 Common Equity to Risk Weighted Assets.

    <p>False</p> Signup and view all the answers

    According to the information provided, under the Basel II framework, Internal risk based approach is not a component of risk-based capital regulations.

    <p>False</p> Signup and view all the answers

    BSP Circular no. 781 s.2013 stipulates that the Capital Min.Ratio to RWA for Debt is 7.5%.

    <p>True</p> Signup and view all the answers

    Bank Regulation statutes and regulations include the Phil.Coop Code but do not encompass the Charter of Al Amanah.

    <p>False</p> Signup and view all the answers

    Under the Basel I framework, Risk-based capital is not a key focus in capital adequacy computations.

    <p>False</p> Signup and view all the answers

    BSP examination for deposits with any bank must be conducted every 6 months.

    <p>False</p> Signup and view all the answers

    Banks create money by lending out all the deposits they receive.

    <p>False</p> Signup and view all the answers

    The Reserve Requirement Ratio in the provided example is 5%.

    <p>False</p> Signup and view all the answers

    In the fractional reserve banking system, banks can create more money than the initial deposit amount.

    <p>True</p> Signup and view all the answers

    Universal banks in the Philippines must have a minimum paid-in capital of 10 billion pesos.

    <p>False</p> Signup and view all the answers

    Banks in the Philippines are not required to maintain any reserves according to the text.

    <p>False</p> Signup and view all the answers

    The Monetary Board can restore a bank's viability through the conservator.

    <p>False</p> Signup and view all the answers

    Adverse selection occurs when two parties in a transaction have the same information beforehand.

    <p>False</p> Signup and view all the answers

    Moral Hazard refers to a situation where one party takes excessive risks because it knows another party will bear the burden of those risks.

    <p>True</p> Signup and view all the answers

    Borrowers knowing their ability to repay a loan, while lenders do not, is an example of Moral Hazard.

    <p>False</p> Signup and view all the answers

    The primary solution to adverse selection is free collection rider problem.

    <p>False</p> Signup and view all the answers

    Compensating balance covenants are commonly used as a solution to moral hazard in business dealings.

    <p>True</p> Signup and view all the answers

    In an ideal world, banks exist primarily for the purpose of the capital allocation process.

    <p>True</p> Signup and view all the answers

    The Efficiency Ratio is calculated by dividing Non-interest Expense by Interest Revenue.

    <p>False</p> Signup and view all the answers

    The NPL Ratio is calculated by dividing Nonperforming Loans by Total Deposits.

    <p>False</p> Signup and view all the answers

    The Capital Adequacy Ratio measures a bank's available capital expressed as a percentage of its total assets.

    <p>False</p> Signup and view all the answers

    The Loan to Deposit Ratio is calculated by dividing Total Loans by Total Deposits.

    <p>True</p> Signup and view all the answers

    A higher Return on Equity indicates better financial performance compared to a lower Return on Equity.

    <p>True</p> Signup and view all the answers

    The NPL Ratio of 8.13% suggests a lower proportion of Nonperforming Loans compared to a ratio of 10%.

    <p>True</p> Signup and view all the answers

    Under the Basel III framework, the Capital conservation buffer requirement is 2.5% of Risk-weighted assets.

    <p>True</p> Signup and view all the answers

    The Capital Adequacy Ratio of 27.34% mentioned in the text is calculated by dividing Capital by Risk-weighted assets.

    <p>False</p> Signup and view all the answers

    BSP Circular no. 781 s.2013 requires a Capital Min.Ratio of 6% to Risk-weighted assets for Tier 1 Common Equity.

    <p>False</p> Signup and view all the answers

    Philippine Deposit Insurance Corporation (PDIC) examines banks every 6 months according to the text.

    <p>False</p> Signup and view all the answers

    The Bank Regulation statutes and regulations include the Rural Bank Act but exclude the Thrift Bank Act.

    <p>False</p> Signup and view all the answers

    A bank under conservatorship can continue to operate without minimal losses, the Monetary Board will not terminate conservatorship.

    <p>False</p> Signup and view all the answers

    Digital banks in the Philippines must have a minimum capitalization of at least P1 million.

    <p>False</p> Signup and view all the answers

    Managers of a business often prefer to disclose more information to shareholders to avoid adverse selection.

    <p>False</p> Signup and view all the answers

    The Single Borrowers Limit (SBL) in the Philippines is currently set at 10% of the net worth of a bank.

    <p>True</p> Signup and view all the answers

    Digital banks in the Philippines are allowed to have multiple physical branches for customer convenience.

    <p>False</p> Signup and view all the answers

    Compensating balance covenants are a common solution to moral hazard in business dealings.

    <p>False</p> Signup and view all the answers

    What term describes a situation where undesirable results occur due to asymmetric information before a transaction takes place?

    <p>Adverse Selection</p> Signup and view all the answers

    In the context of lending, what is one of the main challenges related to adverse selection?

    <p>Borrowers knowing their ability to repay loans</p> Signup and view all the answers

    What is a common outcome of moral hazard in business scenarios involving investors and lenders?

    <p>Borrowers take excessive risks</p> Signup and view all the answers

    What is a solution to moral hazard in lending situations?

    <p>Compensating balance covenants</p> Signup and view all the answers

    In business contexts, which party often prefers to disclose more information to shareholders to avoid adverse selection?

    <p>Managers</p> Signup and view all the answers

    What potential issue arises in lending when borrowers understate their ability to repay loans?

    <p>Adverse Selection</p> Signup and view all the answers

    What is the formula to calculate Return on Equity?

    <p>Net Income / Average Equity</p> Signup and view all the answers

    How is the Efficiency Ratio calculated?

    <p>Non-interest Expense / Interest Revenue</p> Signup and view all the answers

    What does the NPL Ratio represent?

    <p>Nonperforming Loans / Total Deposits</p> Signup and view all the answers

    Which ratio is determined by dividing Total Loans by Total Deposits?

    <p>Loan to Deposit Ratio</p> Signup and view all the answers

    If a bank's Net Income is P500,000 and its Average Equity is P20 million, what is its Return on Equity?

    <p>2.50%</p> Signup and view all the answers

    In the context of banking ratios, what would be an appropriate use of Total Deposits?

    <p>Calculating Loan to Deposit Ratio</p> Signup and view all the answers

    What is one of the challenges faced by banks in relation to Know-Your-Customer (KYC) requirements and data privacy?

    <p>Non-compliance with international standards</p> Signup and view all the answers

    In the context of bank regulation, what is the consequence of willful misleading misstatements according to the text?

    <p>Imprisonment for 2 – 10 years</p> Signup and view all the answers

    What aspect of consumer protection standards is mentioned in the text as crucial for banks?

    <p>Fair treatment and effective recourse</p> Signup and view all the answers

    What is the role of reserve requirements (12%) for banks as per the provided information?

    <p>Maintaining liquidity levels</p> Signup and view all the answers

    Under bank regulation, what penalty can be imposed for refusing to file or undergo examination?

    <p>Imprisonment for up to 5 years</p> Signup and view all the answers

    How do banks create money according to the fractional reserve banking system?

    <p>By giving loans out using only a fraction of deposits</p> Signup and view all the answers

    In the example provided with a Reserve Requirement of 10% and an initial deposit of P100, how much does Bank C loan out after multiple rounds of lending?

    <p>P72.9</p> Signup and view all the answers

    When will the money creation process through fractional reserve banking end?

    <p>It will never end</p> Signup and view all the answers

    What is the purpose of a bank's Balance Sheet?

    <p>To present the bank's financial position at a specific point in time</p> Signup and view all the answers

    What role does the Reserve Requirement play in the money creation process?

    <p>It limits the total amount of loans a bank can give out</p> Signup and view all the answers

    What is a common ratio used for analyzing banks?

    <p>'Total Loans-Nonperforming Loans' Ratio</p> Signup and view all the answers

    What is the primary purpose of the Basel III Capital conservation buffer?

    <p>Encourage banks to maintain extra capital to protect against future potential losses</p> Signup and view all the answers

    What is the main difference between the Basel I and Basel II frameworks?

    <p>Basel I is about capital adequacy requirements, but Basel II introduces an internal risk-based approach.</p> Signup and view all the answers

    What do the Basel Accords aim to achieve in the banking industry?

    <p>Establish international standards for banking regulation and supervision</p> Signup and view all the answers

    How does the Capital Adequacy Ratio relate to a bank's Risk-weighted assets?

    <p>It measures a bank's capital as a percentage of its Risk-weighted assets</p> Signup and view all the answers

    What is the significance of the Internal risk-based approach in the Basel II framework?

    <p>It enables banks to assess their own risk profiles and allocate capital accordingly</p> Signup and view all the answers

    How does the Capital Min.Ratio to RWA differ for Debt, Tier 2 Preferred Shares, and Common Equity under BSP Circular no. 781 s.2013?

    <p>Common Equity requires the lowest minimum ratio compared to Debt and Tier 2 Preferred Shares</p> Signup and view all the answers

    What is the main issue that arises in lending due to asymmetric information before a transaction, as described in the text?

    <p>Adverse Selection</p> Signup and view all the answers

    In the context of borrowing funds from lenders, what is the situation where borrowers know their ability to repay a loan and lenders do not, leading to potential problems?

    <p>Adverse Selection</p> Signup and view all the answers

    What is the term used for a situation where one party takes excessive risks because it knows the burden will be borne by another party, occurring after the transaction?

    <p>Moral Hazard</p> Signup and view all the answers

    What is a solution mentioned in the text to address the issue of adverse selection in business transactions?

    <p>Required disclosures</p> Signup and view all the answers

    Which party prefers to take on risky projects upon borrowing funds, leading to moral hazard concerns in business transactions?

    <p>Investors (shareholders)</p> Signup and view all the answers

    What does asymmetric information lead to in business transactions where one party has more knowledge than the other?

    <p>Adverse selection</p> Signup and view all the answers

    What does the Efficiency Ratio measure in banking?

    <p>Non-interest Expense divided by Interest Revenue</p> Signup and view all the answers

    How is the Loan to Deposit Ratio calculated?

    <p>Total Loans divided by Total Deposits</p> Signup and view all the answers

    In terms of banking, what does the NPL Ratio represent?

    <p>Total Loans divided by Nonperforming Loans</p> Signup and view all the answers

    What is the purpose of the Capital Adequacy Ratio in a bank?

    <p>Determining the available capital as a percentage of risk-weighted credit exposures</p> Signup and view all the answers

    What does Return on Equity indicate about a bank's financial performance?

    <p>Comparison of net income to average equity</p> Signup and view all the answers

    Which ratio is calculated based on Non-interest Expense and Interest Revenue?

    <p>Efficiency Ratio</p> Signup and view all the answers

    What is the primary function of banks in the fractional reserve banking system?

    <p>Take deposits and give loans</p> Signup and view all the answers

    In the context of the fractional reserve banking system, what does the Reserve Requirement ratio of 10% mean?

    <p>Banks can only lend out 90% of their deposits</p> Signup and view all the answers

    Under the fractional reserve banking system, what is the significance of the Multiplier equal to 1/Reserve Requirement Ratio?

    <p>Calculates the amount by which banks can create money through lending</p> Signup and view all the answers

    What is a potential consequence if borrowers understate their ability to repay loans in the fractional reserve banking system?

    <p>The bank's risk of financial instability may rise</p> Signup and view all the answers

    What aspect of the Basel I and Basel II frameworks relates to the money creation process in banks?

    <p>Risk-based capital adequacy standards</p> Signup and view all the answers

    How does the fractional reserve banking system impact systemic risk in the banking sector?

    <p>Exacerbates systemic risk by allowing excessive money creation</p> Signup and view all the answers

    What is the penalty for willful violation of banking laws according to the text?

    <p>Fine: P50,000 – P200,000, Imprisonment: 2 – 10 years</p> Signup and view all the answers

    What is the primary focus of the Consumer Protection Standards mentioned in the text?

    <p>Disclosure and Transparency</p> Signup and view all the answers

    In bank regulation, what is the Reserve Requirement Ratio set at?

    <p>12%</p> Signup and view all the answers

    What is one of the challenges faced by banks regarding Know-Your-Customer (KYC) requirements?

    <p>Alignment with international standards</p> Signup and view all the answers

    What does addressing risk and encouraging innovation in technology aim to achieve according to the text?

    <p>Strengthening anti-money laundering capabilities</p> Signup and view all the answers

    What is the required Capital Min.Ratio to Risk-weighted assets for Tier 1 Common Equity according to BSP Circular no. 781 s.2013?

    <p>6%</p> Signup and view all the answers

    Under the Basel III framework, what is the purpose of the Capital conservation buffer?

    <p>Absorb losses during periods of financial stress</p> Signup and view all the answers

    What is the role of the Monetary Board in relation to bank supervision in the Philippines?

    <p>Oversight and examination</p> Signup and view all the answers

    Which entity provides insurance for bank deposits in the Philippines?

    <p>Philippine Deposit Insurance Corporation (PDIC)</p> Signup and view all the answers

    What is the significance of Basel II in the context of bank regulations?

    <p>Internal risk-based approach</p> Signup and view all the answers

    How does Basel I differ from Basel III in terms of capital adequacy computations?

    <p>Risk-based capital focus</p> Signup and view all the answers

    Study Notes

    • The BSP chief announced that the Philippines will only have six neobanks to closely monitor the digital bank market and ensure healthy competition with traditional banks.
    • The six approved digital banks in the Philippines are OF Bank, Tonik Bank, UNObank, UnionDigital, GOtyme, and Maya Bank.
    • Only OF Bank and Tonik Bank are currently operating as digital banks, while the others are expected to start operations within six months.
    • The BSP may reopen the window for digital bank license applications if deemed necessary for market expansion.
    • The BSP serves as the primary regulator of banks in the Philippines, with additional regulations outlined in the Manual of Regulations for Banks and circulars issued as needed.
    • Banks in the Philippines receive funding from equity contributions, loans from the BSP, and other lenders, with minimum capitalization levels set by the BSP.
    • The BSP provides rediscounting and credit facilities to banks, ensuring their risk-based capital adequacy ratio meets regulatory standards.
    • The BSP emphasizes corporate governance in banks through appointing compliance officers, issuing rules for directors and officers, and aligning regulations with international best practices.

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