Banking Basics and Functions

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Questions and Answers

What is the primary function of commercial banks?

Accept deposits and provide loans (correct)

Invest in government securities

Offer insurance products

Act as pawnshops for personal property

What is the main focus of the Development Bank of the Philippines (DBP)?

Funding educational institutions

Providing loans to international corporations

Offering savings accounts for urban areas

Financing agricultural and industrial sectors (correct)

Which of the following accurately describes non-stock savings and loan associations?

Open to the general public without membership requirements

Organized primarily for mutual self-help among a defined group (correct)

Operate internationally without restrictions on member residency

Function as investment companies focusing on securities

What is the role of securities dealers?

Buy and sell securities for their own account Signup and view all the answers

What sets pawnbrokers apart from traditional banks?

They engage in lending money for personal property as security. Signup and view all the answers

Who primarily benefits from the services of agricultural and industrial development banks?

Small and medium enterprises in rural areas Signup and view all the answers

What differentiates investment companies from commercial banks?

Investment companies focus on investing or trading in securities Signup and view all the answers

Which type of financial institution focuses on accumulating members' funds and relending them?

Non-stock savings and loan associations Signup and view all the answers

What is the primary responsibility of a central bank?

Overseeing the monetary system to foster economic growth Signup and view all the answers

Which of the following is NOT a function of banks?

Conducting foreign policy Signup and view all the answers

What does risk transformation in banking primarily involve?

Minimizing the risk for small savers and ensuring full repayment of deposits Signup and view all the answers

Which function refers to banks ensuring the safekeeping of funds on behalf of individuals?

Trust function Signup and view all the answers

Which central bank is responsible for monetary policy in the United States?

The Federal Reserve System Signup and view all the answers

What is a key mandate of the Bangko Sentral ng Pilipinas (BSP)?

To maintain price and monetary stability Signup and view all the answers

Which of the following is an example of a depository function?

CASA and term deposits Signup and view all the answers

How do banks primarily act as financial intermediaries?

By channeling funds from savers to borrowers Signup and view all the answers

What defines 'administrative autonomy'?

Freedom from governmental interference Signup and view all the answers

Which of the following accurately summarizes the supervisory powers of the BSP?

It supervises both banking and non-bank financial institutions. Signup and view all the answers

How are rural and cooperative banks differentiated in terms of ownership?

Rural banks are privately owned, while cooperative banks are organized/owned by cooperatives. Signup and view all the answers

Which statement accurately describes non-bank financial institutions (NBFI)?

They are overseen by regulatory bodies such as the Insurance Commission. Signup and view all the answers

What is a defining characteristic of a universal bank under the General Banking Law of 2000?

It has the authority of an investment house and can invest in various enterprises. Signup and view all the answers

What is the primary function of financing companies?

To extend credit primarily to agricultural enterprises and consumers. Signup and view all the answers

What distinguishes investment houses from other financial institutions?

They engage in guaranteed underwriting of securities issued by others. Signup and view all the answers

What is the primary purpose of the oversight by the BSP regarding banking institutions?

To maintain the stability and integrity of the financial system. Signup and view all the answers

What is the primary role of securities brokers?

To effect transactions in the sale of securities for others Signup and view all the answers

Which institution was organized by Napoleon Bonaparte during the 1800s?

Bank of France Signup and view all the answers

What significant banking practice did the goldsmiths develop?

Lending a portion of received deposits Signup and view all the answers

Where can the traces of banking practices be traced back to?

Temples of Babylon Signup and view all the answers

What term signifies a legal authorization to debtors to postpone payment?

Moratorium Signup and view all the answers

In ancient Greece, what role did temples serve regarding community wealth?

They became depositories of community wealth Signup and view all the answers

What event caused the creation of the Banque de France?

To restore confidence after revolutionary upheavals Signup and view all the answers

The priests of Babylon were known for what banking activity?

Issuing loans Signup and view all the answers

What was a key reason the federal government issued greenbacks during the Civil War?

To finance its expenses without backing by physical commodities Signup and view all the answers

The National Banking Act of 1863 led to what significant change in the banking structure?

The establishment of a unified national paper currency Signup and view all the answers

Which institution was the first commercial bank organized in the Far East?

Bank of the Philippine Islands Signup and view all the answers

What did the Federal Reserve Act of 1913 aim to improve in the national economy?

Providing stable credit conditions Signup and view all the answers

What was the primary role of BPI in agriculture during its establishment?

Financing the production of agricultural products for export Signup and view all the answers

What event in 1907 significantly impacted banking in the United States?

A banking panic Signup and view all the answers

Which of the following actions was taken by General Electric in relation to banking?

Acquired GE Money Bank Signup and view all the answers

What was a defining characteristic of paper money as described?

It is government-issued and not backed by a physical commodity. Signup and view all the answers

Study Notes

What is a Bank?

Philippine Republic Act 8791 defines a bank as an entity that lends funds obtained through deposits.
Banks can be described by their economic function, products & services offered, and legal basis.

Economic Functions of a Bank

Facilitates payments between individuals, businesses, and government entities
Acts as a financial intermediary between individuals, businesses, and governments that save money (surplus units) and need loans (deficit units)
Pools assets, combining smaller savings into larger loans
Performs maturity transformation, turning short-term deposits from customers into long-term loans.
Minimizes risk for small savers and guarantees full repayment of deposits.

Products & Services of a Bank

Depository functions: accepting deposits, such as checking, savings, and term deposits.
Trust function: managing assets under specified conditions, such as escrow arrangements.
Collection & Remittance function: transferring money between accounts and for global remittances.
Loans & Discount function: offering personal and business loans and discounting commercial paper.

Main Functions of a Central Bank

Oversees the monetary system of a country or group of nations to foster economic growth.
In the Philippines, the Bangko Sentral ng Pilipinas (BSP) is the central bank.

BSP Mandate

Maintain price stability, monetary stability, and the convertibility of the Philippine peso.
Promote financial stability and oversee payment and settlement systems.
Promote broad and convenient access to high-quality financial services.

Major Central Banks Worldwide

The Federal Reserve System (The Fed) - United States of America
European Central Bank - European Union
Bank of England - United Kingdom
Bank of Japan - Japan
Swiss National Bank - Switzerland
Bank of Canada - Canada
Reserve Bank of Australia - Australia

Banking Institutions in the Philippines

Universal Banks: Operate under the General Banking Law of 2000, combining the functions of commercial banks and investment houses. These banks can invest in non-allied enterprises.
Commercial Banks: Accept deposits, offer checking account services, and provide various forms of loans.
Land Bank of the Philippines (LBP): A government-owned bank focused on implementing the Comprehensive Agrarian Reform Program (CARP).
Development Bank of the Philippines (DBP): A government-owned bank primarily financing agricultural and industrial sectors in the Philippines, especially rural areas and SMEs.
Agricultural Credit Policy Council (ACPC): A government agency tasked with promoting and expanding the rural economy by providing basic financial services to farmers and rural communities.
Rural Banks: Privately owned banks focused on rural areas, providing financial services to local communities.
Cooperative Banks: Banks organized and owned by cooperatives or federations of cooperatives, primarily serving their members.

Non-Bank Financial Institutions (NBFIs)

Investment Houses: Underwrite securities issued by other companies, including government securities.
Financing Companies: Extend credit to consumers and agricultural enterprises, often through discounting, factoring, or leasing of vehicles and equipment.
Investment Companies: Engage in investing, reinvesting, or trading securities.
Non-Stock Savings and Loan Associations: Corporations organized for mutual self-help and the common interest of their members, who must belong to a specific group. They accumulate funds through member earnings or contributions and relend these funds to members or invest them in government securities or productive enterprises.
Pawnshops: Businesses that lend money against personal property as security or pledge.
Securities Dealers: Institutions that buy and sell securities of other companies for their own account, profiting from the difference between buying and selling prices.
Securities Brokers: Institutions that facilitate transactions in the sale of securities for the account of others, earning commissions on these intermediary services.

Tracing Banking Practices Through History

Banking practices can be traced back to 2000 BC, originating from the temples of Babylon.
The priests of Babylon lent gold, silver, and other valuable items to the community, especially widows, orphans, and the poor.
In ancient Greece, banking reached a high level of development due to the Greeks' careful record keeping and the development of a legal framework for financial transactions.
The Medici family in Florence and the Fugger family in Germany were prominent private bankers in the 14th and 15th centuries.

The Role of the Rothschild Family

The Rothschild family was the most influential banking family in Europe in the 19th century.
They facilitated European trade and finance during this period.

The Importance of the Bank of France

Founded by Napoleon Bonaparte in 1800, the Bank of France became the dominant financial institution in France after 1848, holding the sole right to issue banknotes.

The Role of Goldsmiths in the Development of Banking

Goldsmiths, who stored valuables, are considered the forerunners of modern banking.
They began lending portions of the deposits they received, recognizing that depositors rarely withdrew all their funds at once.
This practice laid the foundation for the modern banking system.

Evolution of Banking during the American Civil War

The U.S. Civil War significantly affected banking, leading to the National Banking Act of 1863.
The act aimed to standardize commercial banking and create a unified national paper currency.
The Federal Reserve Act of 1913 established the Federal Reserve System, which still oversees the U.S. banking system.

Early Banking in the Philippines

Formal banking in the Philippines began with the establishment of the El Banco Español-Filipino de Isabel II (later renamed El Banco de Islas Filipinas), now known as the Bank of the Philippine Islands (BPI).
BPI was the first commercial bank organized in the Far East, financing the export of abaca, sugar, tobacco, and copra.
It facilitated trade and foreign exchange with Spain and Europe.
Monte de Piedad y Caja de Ahorros de Manila was founded by Father Felix Huertas and later became Keppel Bank, subsequently acquired by General Electric Co. in 2005.
In 2007, GE Money Bank was established.
In 2009, BDO acquired GE Money Bank.

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Description

This quiz delves into the fundamental concepts of what constitutes a bank, according to Philippine law. Learn about the various economic functions banks perform, including financial intermediation and payment facilitation, along with their key products and services.