Financial Institutions and Intermediaries

Financial intermediaries act as a bridge between surplus units (SUs) and deficit units (DUs). They primarily help sell their own financial instruments, known as primary securities.

In a direct finance transaction, a financial intermediary plays a central role by pooling funds from multiple lenders and channeling them to a single borrower.

Non-financial institutions primarily generate revenue from interest rate spreads between deposits and loans.

In the context of a bank, the relationship between a depositor and a borrower from that same bank exemplifies direct finance.

Effective regulation of financial institutions helps ensure a stable and reliable financial system.

Ordinary commercial banks are authorized to perform both deposit-taking and investment functions.

The primary goal of bank supervision is to maximize bank profitability by encouraging higher risk-taking activities.

A key aspect of bank regulation involves the creation and enforcement of rules governing banking conduct and industry structure.

The Philippine Deposit Insurance Corporation (PDIC) insures deposits in depository institutions, including investment houses.

Commercial banks traditionally focused solely on consumer business and avoided serving businesses.

Expanded commercial banks, but not ordinary commercial banks, are permitted to engage in international banking functions.

The main purpose of PDIC is to regulate interest rates charged by banks to ensure fair lending practices.

Depository institutions primarily gather funds by issuing stock in the stock market.

Universal banking systems restrict banks from offering a wide array of financial services to their clientele.

A bank's credit standing is solely determined by its capital adequacy, without considering factors like asset quality or management.

Private development banks primarily focus on providing short-term loans to large corporations, typically overlooking the needs of agriculture and small industries.

Microfinance thrift banks focus on serving large-scale industries with substantial loans and complex financial products.

Credit unions are exclusively established for individuals in dissimilar or unrelated work environments, aiming to merge diverse financial resources.

Thrift banks primarily cater to the savings and loan needs of households, agriculture, and industry but do not engage in offering savings accounts.

Investments in governmental infrastructure projects and public services are categorized within a bank's risk management portfolio.

Rural banks and cooperative banks are financial institutions that provide credit and financial services primarily to urban residents and large corporations.

Mortgage banks fulfill the primary function of accepting deposits, similar to commercial banks.

Savings and Loan Associations (S&Ls) primarily use accumulated savings from depositors and stockholders to fund the grant-making of educational scholarships.

Homeowners insurance primarily protects against financial losses resulting from professional liabilities.

Life insurance companies are considered financial intermediaries because they sell insurance policies, which represent a contract to provide a future financial benefit.

Property and casualty insurance offers protection against speculative risks like investing in a new business venture.

Finance companies generate revenue primarily through charitable donations and government grants.

Pension fund companies generate revenue by selling insurance policies to policy holders.

Consumer finance companies specialize in providing loans to commercial businesses for expansion and operational needs.

Securities dealers and brokers directly lend money to borrowers, assuming the credit risk themselves.

Mutual fund companies enable companies to purchase debt instruments that buy different types of securities in the securities market.

Finance companies, much different than traditional depository institutions, do not perform financial intermediation.

Pawnshops typically provide loans equivalent to or greater than the market value of the assets pledged as collateral.

Investment banks collect large sums of money from only a few, large investors to finance portfolios of investments.

Trust companies and departments are formed with the intention of managing trusts and acting under wills, assuming roles such as trustee or executor.

Financial intermediaries contribute to socio-economic development primarily by hindering the flow of savings into investments.

Transaction costs have no material impact on financial intermediation.