Introduction to Banking Systems

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is one primary function of commercial banks?

Only provide loans to large corporations

Accept deposits and offer checking account services (correct)

Facilitate only online transactions

Invest heavily in corporate bonds

What distinguishes non-stock savings and loan associations from commercial banks?

They are publicly traded companies

They serve a well-defined group of members (correct)

They primarily focus on stock trading

They do not make loans to members

What is the primary purpose of the Development Bank of the Philippines (DBP)?

To manage private investment funds

To serve only large corporations in urban areas

To provide personal loans to individuals

To finance agricultural and industrial sectors (correct)

Which of the following best describes investment companies?

Entities engaged in investing or trading in securities Signup and view all the answers

What role do pawnshops play in the financial ecosystem?

They lend money using personal property as security Signup and view all the answers

What is a key characteristic of securities dealers?

They buy and sell securities for their own accounts Signup and view all the answers

AAIIBP focuses on which aspect of development?

Socio-economic development Signup and view all the answers

What is the main purpose of loans provided by non-stock savings and loan associations?

To lend to their members or invest in productive enterprises Signup and view all the answers

What is administrative autonomy primarily defined as?

Freedom from intervention and interference Signup and view all the answers

Which financial institutions does the BSP have regulatory power over?

Banking institutions and non-bank financial institutions Signup and view all the answers

How are rural banks different from cooperative banks in terms of ownership?

Rural banks are privately owned and managed Signup and view all the answers

What is a primary role of rural and cooperative banks in the agricultural sector?

Offering basic financial services to farmers Signup and view all the answers

What distinguishes investment houses from financing companies?

Investment houses mainly underwrite securities Signup and view all the answers

Under the General Banking Law of 2000, what additional authority do universal banks possess?

The capacity to function as investment houses Signup and view all the answers

What is a key function of non-bank financial institutions (NBFIs)?

Underwriting guaranteed securities Signup and view all the answers

In what capacity do financing companies primarily operate?

Extending credit to consumers and agricultural enterprises Signup and view all the answers

What was one way the federal government financed its expenses during the Civil War?

By printing irredeemable paper money called greenbacks Signup and view all the answers

Which banking institution marked the beginning of formal banking in the Philippines?

El Banco Español-Filipino de Isabel II Signup and view all the answers

What major legislation was passed in 1863 that greatly impacted commercial banking in the United States?

The National Banking Act Signup and view all the answers

What was the primary purpose of the Federal Reserve Act of 1913?

To establish a central banking system Signup and view all the answers

Which product was not financed by the Bank of the Philippine Islands during its early years?

Cotton Signup and view all the answers

What calamity occurred in 1907 that highlighted the need for banking reform?

A bank panic leading to financial instability Signup and view all the answers

What does the term 'greenbacks' refer to in the context of American currency?

Government-issued paper money not backed by physical commodities Signup and view all the answers

Which banking entity was founded by Father Felix Huertas in Manila?

Monte de Piedad y Caja de Ahorros de Manila Signup and view all the answers

What is the primary economic function of a central bank?

Facilitating transfers between various entities Signup and view all the answers

Which of the following is NOT a product or service offered by banks?

Tax collection services Signup and view all the answers

What role does the central bank play in risk transformation?

It minimizes the risk for small savers. Signup and view all the answers

Which function involves pooling assets to create large loans?

Pooling of assets Signup and view all the answers

Which of the following is a major mandate of the Bangko Sentral ng Pilipinas (BSP)?

To maintain price stability Signup and view all the answers

How does a bank typically transform maturity?

By taking in short-term deposits and turning them into long-term loans Signup and view all the answers

Which of the following central banks is responsible for monetary policy in the European Union?

European Central Bank Signup and view all the answers

What is the primary objective of financial stability functions of a central bank?

To oversee the payment and settlement systems Signup and view all the answers

Which law provides a legal foundation regarding the secrecy of bank deposits in the Philippines?

Law on Secrecy of Bank Deposits (R.A 1405) Signup and view all the answers

What is the primary function of the Bangko Sentral ng Pilipinas (BSP)?

Acting as the central bank for the Philippines Signup and view all the answers

Which of the following concepts in banking indicates a situation where one party engages in risky behavior because they do not have to bear the full consequences?

Moral Hazard Signup and view all the answers

What characteristic distinguishes the BSP from other government agencies in terms of fiscal control?

Independence in budgeting and expenditure Signup and view all the answers

What does the term 'Asymmetric Information' refer to in banking and finance?

One party having more or better information than the other Signup and view all the answers

What is defined by the Supreme Court as 'freedom from outside control' in the context of fiscal policy?

Fiscal Autonomy Signup and view all the answers

What has the BSP implemented to promote Islamic banking in the ARMM?

Financing based on Islamic shari’a principles Signup and view all the answers

Which of the following laws governs Bouncing Checks in the Philippines?

Bouncing Check Law (Batas Pambansa 22) Signup and view all the answers

Study Notes

What is a Bank?

A bank is a financial institution that lends money, primarily through deposits.
Banks perform economic functions like facilitating payments between people or institutions, acting as financial intermediaries for savings and loans, pooling assets, and transforming short-term deposits into long-term loans.
Other services include providing depository functions for various accounts, trust functions, collection and remittance, loan services, and financial advisory.
Banks operate under legal frameworks like the General Banking Law (GBL) of 2000, the Law on Secrecy of Bank Deposits, the Foreign Currency Deposit Act, and the Unclaimed Balances Law.
Banks face challenges due to moral hazard and asymmetric information, which can lead to poor decision-making and financial risks.

Central Bank

The central bank regulates and oversees the monetary system of a nation or group of nations, promoting economic growth.
The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Philippines.
The BSP's key mandates include maintaining price stability, monetary stability, currency convertibility, promoting financial stability, and overseeing payment and settlement systems.
The BSP enjoys fiscal and administrative autonomy from the National Government.
The BSP has regulatory and supervisory power over banking institutions and non-bank financial institutions.

Banking Institutions

Universal Banks are a type of commercial bank with additional authority to exercise investment house powers and invest in non-allied enterprises.
Commercial Banks accept deposits, offer checking account services, and make various loans.
Land Bank of the Philippines (LBP) is a government-owned bank focused on implementing land reform.
Development Bank of the Philippines (DBP) finances agricultural and industrial sectors, particularly in rural areas and for small and medium enterprises (SMEs).
Agricultural Credit Policy Council (ACPC) promotes financial services in the agricultural sector.
The Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) promotes financial services in the region.

Non-Bank Financial Institutions (NBFIs)

Investment Houses engage in guaranteed underwriting of securities issued by corporations, individuals, or enterprises.
Financing Companies provide credit to consumers and agricultural enterprises through discounting, factoring, or leasing.
Investment Companies focus on investing, reinvesting, or trading securities.
Non-Stock Savings and Loan Associations accumulate funds from members and provide loans or invest in government securities or productive enterprises.
Pawnshops lend money secured against personal property pledges.
Securities Dealers buy and sell securities for their own account, generating income from trading.

History of Banking in the Philippines

The El Banco Español-Filipino de Isabel II, later known as El Banco de Islas Filipinas (now Bank of the Philippine Islands - BPI), marked the beginning of formal banking in the Philippines.
BPI was the first commercial bank established in the Far East, financing agricultural exports and facilitating trade with Europe.
The Monte de Piedad y Caja de Ahorros de Manila was founded by Father Felix Huertas.
The National Banking Act of 1863 in the US introduced a unified national paper currency and addressed failures in the pre-Civil War banking system.
The Federal Reserve Act of 1913 created the Federal Reserve System, aiming to establish a stable credit environment.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz explores the fundamental concepts of banking, including the roles and functions of banks as financial institutions. Learn about the services they offer, the legal frameworks they operate under, and the challenges they face in today's economy. It's essential for understanding both commercial and central banking.