Overview of Banks and Their Characteristics

Questions and Answers

A bank is recognized as such by the ______ in the Philippines.

Bangko Sentral ng Pilipinas

Banks commonly engage in activities such as deposit taking, borrowing, lending, and ______.

trading

The liquidity characteristics of monetary items make banks vulnerable to ______ and fraud.

misappropriation

A loss of confidence in a bank’s solvency may quickly result in a ______ crisis.

liquidity Signup and view all the answers

Banks generally have exclusive access to ______ and settlement systems for various transactions.

clearing Signup and view all the answers

Covered Entities are categorized into three main categories: A, B, and ______.

C Signup and view all the answers

Category A includes Universal Banks, Commercial Banks, and ______ banks.

Foreign Signup and view all the answers

Category B includes institutions such as Thrift Banks, Quasi Banks, and National ______ Banks.

Cooperative Signup and view all the answers

Rural Banks and Pawnshops fall under Category ______.

C Signup and view all the answers

An external auditor selected to audit Category A entities is automatically qualified to audit entities in Categories ______ and C.

B Signup and view all the answers

Study Notes

Overview of Banks

Banks are financial institutions primarily engaged in accepting deposits, borrowing, lending, and investing, recognized by the Bangko Sentral ng Pilipinas.
Common banking activities include deposit-taking, borrowing, lending, settlement, trading, and treasury operations.

Distinct Characteristics of Banks

Banks hold large amounts of cash and negotiable instruments, requiring strict physical security during transfer and storage.
They control negotiable instruments and assets that are easily transferable in electronic form, making them susceptible to fraud and misappropriation.
High leverage ratios (low capital to total assets) increase vulnerability to economic events and risk of failure.
The value of bank assets can fluctuate rapidly and may be hard to determine, causing significant capital impact from minor asset value decreases.
Dependence on short-term deposits for funding amplifies liquidity crises if depositor confidence diminishes.
Banks have fiduciary responsibilities for assets of others, introducing potential liabilities for breaches of trust.
Exclusive access to clearing and settlement systems for various transactions marks their operational uniqueness.

Special Audit Considerations for Banks

The inherent risks tied to banking transactions necessitate specialized audit approaches.
The vast scale of banking operations can lead to significant exposures forming quickly.
Extensive reliance on Information Technology for transaction processing increases risks.
Regulatory impacts vary across jurisdictions and complicate audits.

Covered Entities for Audit Amendments

Category A includes:
- Universal Banks and Commercial Banks
- Foreign banks, branches or subsidiaries of foreign banks, regardless of capital status.
- Trust departments and entities with derivatives authority, regardless of category and classification.
Category B includes:
- Thrift Banks
- Quasi Banks
- Trust departments of qualified banks
- National Cooperative Banks
- Non-Banking Financial Institutions with quasi-banking functions.
Category C includes:
- Rural Banks
- Non-Stock Savings and Loan Associations
- Local Cooperative Banks
- Pawnshops.

Auditor Qualification Notes

External auditors selected by the Bangko Sentral for Category A are automatically qualified to audit Categories B and C.
Auditors chosen for Category B are also qualified for Category C audits.

Description

This quiz covers the fundamental aspects of banks as financial institutions, including their primary activities such as accepting deposits and lending. It also addresses the unique characteristics that define banks, including their handling of funds and the risks associated with their operations. Test your understanding of how banks function and the challenges they face in the financial sector.