Monetary Policy and Central Banking PDF

# MONETARY POLICY AND CENTRAL BANKING ## Chapter 5 – TYPES OF BANK REPORTS ### Overview: This chapter discusses the report that shows how well your accounts are organized and whether there are any remaining transactions to be matched in your bank reconciliation. This report is also useful for vie...

# MONETARY POLICY AND CENTRAL BANKING ## Chapter 5 – TYPES OF BANK REPORTS ### Overview: This chapter discusses the report that shows how well your accounts are organized and whether there are any remaining transactions to be matched in your bank reconciliation. This report is also useful for viewing all unmatched transactions across all bank accounts, as well as any unmatched expenses and payments in your Fresh Books account. A business bank statement is a summary of all transactions that have occurred in your business bank account. It categorizes each transaction so you can see a breakdown of your income and spending for that account. ### What is a Bank Report? When individuals or businesses deposit funds into bank accounts, the bank is referred to as the depository, and the individuals or businesses making the deposits are referred to as depositors. Banks typically send depositors monthly reports detailing the detailed activity on their bank accounts. These documents are commonly known as bank statements. ### What does the bank statement mean? The depositor's name, address, account number, date, and bank name are typically included on bank statements. The following information is typically included in the bank statement report: - The depositor's starting balance - Checks, withdrawals, and debits are all examples of financial transactions. - Lowering the balance throughout the month - During the month, deposits, and credits increase the account balance. - Photocopies of cancelled checks that have been cleared during the month - The bank account's final balance ### Example: A bank statement's purpose is to summarize the transaction activity for the period. Because the bank does not own the money in the account, it must act as a fiduciary and report the depositor's balances and transactions. Many beginning accounting students wonder why depositing money into a bank account is shown as a credit on the bank statement. When a company receives cash from sales, the cash is recorded as a debit; therefore, why is cash received recorded as a credit on bank statements? This is an excellent question. A bank statement is written from the bank's point of view. When you make a deposit into a bank account, the bank owes you money. They owe you the money you deposited in your account. The bank records a liability to you and lists it as a credit on your monthly bank statement, just like you would if you were recording a liability for your company. ## Types of Bank Reports Financial reports display information about individual transactions and invoices, such as prices, taxes, information about the item being paid for, and some information about the person for whom the transaction or invoice was processed. This information can be used for a variety of purposes, including: - Bringing your bank accounts back into balance - Measuring revenue from various types of membership plans. - Income from event or conference tickets must be reported. - Creating a list of outstanding invoices. Financial statements are a formal record of an entity's financial activities. These are written reports that quantify a company's financial strength, performance, and liquidity. The financial effects of business transactions and events on the entity are reflected in financial statements. ### The four main types of financial statements are: 1. **Financial Position Statement** The Statement of Financial Position, also known as the Balance Sheet, depicts an entity's financial position as of a specific date. It is made up of the three components listed below: - **Assets** are things that a company owns or controls (e.g., cash, inventory, plant and machinery, etc.). - **Liabilities:** Something a company owes someone (e.g., creditors, bank loans, etc.). - **Equity:** What the company owes its owners. This is the amount of capital left in the business after its assets have been used to pay off its outstanding liabilities. As a result, equity represents the difference between assets and liabilities. The Statement of Financial Position, also known as the Balance Sheet, depicts an entity's financial position as of a specific date. It is made up of three major parts: assets, liabilities, and equity. The Statement of Financial Position assists users of financial statements in assessing an entity's financial soundness in terms of liquidity risk, financial risk, credit risk, and business risk. 2. **Earnings Statement** The Income Statement, also known as the Profit and Loss Statement, summarizes a company's financial performance in terms of net profit or loss over a given time period. The income statement is made up of the following two components: - **Income:** The amount of money earned by the company over a given time period (e.g., sales revenue, dividend income, etc.). - **Expense:** The cost incurred by the company over a period of time (e.g., salaries and wages, depreciation, rental charges, etc.). Deducting expenses from income yields net profit or loss. 3. **Statement of Cash Flow** The Cash Flow Statement depicts the movement of cash and bank balances over time. The movement of cash flows is divided into the following categories: - **Operating Activities:** This term refers to the cash flow generated by a company's primary operations. - **Investing Activities:** Cash flow generated by the purchase and sale of assets other than inventories (e.g., purchase of a factory plant). - **Financing Activities:** Cash flow generated or spent on raising and repaying share capital and debt, as well as interest and dividend payments. 4. **Statement of Equity Changes** The Statement of Changes in Equity, also known as the Statement of Retained Earnings, summarizes the movement of owners' equity over time. The following components contribute to the movement in owners' equity: - Net profit or loss for the period, as reported on the income statement - During the period, share capital was issued or repaid. - Dividend payments are made. - Directly recognized gains or losses in equity (e.g., revaluation surpluses). - The consequences of a change in accounting policy or the correction of an accounting error. ## Chapter 6 - Bank Deposit Function ### Overview: Bank deposits are sums of money that are placed in banking institutions for safekeeping. These deposits are made into deposit accounts such as savings, checking, and money market accounts. The account holder has the right to withdraw deposited funds, as specified in the account agreement's terms and conditions. The deposit is a liability that the bank owes to the depositor. The term "bank deposits" refers to this liability rather than the funds that have been deposited. When a person opens a bank account and deposits cash, he relinquishes legal title to the cash, which becomes an asset of the bank. As a result, the account is a liability for the bank. ### Introduction: All bank officials, from the CEO to the entry-level employee, perform the deposit function in the sense that they indirectly contribute to the customer-satisfaction. Depositor's However, the teller system used by banks directly performs the operations associated with the receipt of deposits and other related activities. If the bank is small, it may use a single teller system, in which one teller receives deposits and pays out checks and other instruments exchanged for cash. As a result, each of the tellers assigned to specific jobs will have their own set of responsibilities and duties. Modern banks have acquired many new methods to improve service as well as mechanized devices to expand the bank's diverse activities. Banks employ multiple tellers in order to provide the best possible service to their customers. Furthermore, teller functions are performed using electronic devices such as ATMs, phones, mobile phones, and the internet. To a bank, the paying teller bears a great deal of responsibility because his negligence may result in losses on the bank's part. The receiving teller, on the other hand, is the teller who performs the first step in the deposit function; he is the one who accepts deposits for and on behalf of the bank. ### Receiving Teller - The receiving teller accepts and verifies deposit items and deposit slips, issues proper receipts for deposits made, distributes the items deposited, and finally checks and proves the day's work. - When a customer-depositor approaches the receiving teller, he hands over the duly completed deposit slip indicating the amount of cash and other instruments presenting cash in some detail. - The teller examines the deposit slip upon receipt to determine, among other things. He also believes that a detailed description of the credit instruments is required. Then he separates the currency into different denominations in the drawer's compartments for this purpose. He thoroughly inspects the credit instruments for flaws and, if none are found, marks them as non-negotiable. Following verification, he inserts the duplicate deposit ticket into the machine to acknowledge receipt of the deposit-indicated passbook. - The receiving teller examines the cash and credit instruments with due care and diligence upon receipt of the item deposited so that he may be relieved of the responsibilities associated with his duties. The teller is accountable for the currency in the following ways: - Errors in calculating the amount of money deposited. - The presence of tampered with or counterfeit money When it comes to the credit instrument that the teller receives for deposits, he must exercise caution in order to avoid liability for: 1. **Postdated checks** - Postdated checks are checks that are dated after the date of deposit. The teller should not accept such checks for deposit because he cannot guarantee that they will be honored. 2. **Stale checks** are those that are dated much earlier, say, a month or so before the date of deposit. 3. **Material changes** – these can be on the date, the amount (that is, the amount in words does not match the amount in figures), or the payee. The teller must ensure that any changes made to the instrument's face are properly initialed by the drawer. 4. **Incorrectly endorsed instruments** If the instrument is not endorsed according to the name on its face, the teller should require the depositor to correct the mistake. The teller should require the depositor to correct the endorsement by having him sign his regular signature with the middle initial. This will ensure the endorser's identity beyond reasonable doubt, as well as his corresponding liability. **The teller is in charge of the following for both currency and credit instruments:** 1. **Carelessness in adding deposit slips** – this refers to proof sheets rather than individual deposit slips. It is possible that the teller is not very careful when adding, causing the amount of deposits to differ from the actual currency and credit instruments. 2. **Carelessness in designating the account to be credited** – it is possible that there are multiple depositors with the same name. The teller must ensure that the deposit is credited to the correct person. Careless crediting of appropriate accounts may eventually result in bank embarrassment or loss. The teller should double-check the account number. ### Deposit Slips (Tickets) as well as Deposit Items The deposit function is responsible for the distribution of deposit slips and deposit items. The receiving teller is in charge of this function. The physical distribution is handled as follows: 1. **Deposit Slips** – these are the forms that the depositor fills out when he makes a deposit. 2. **Deposit Items** – These are cash and credit instruments, as well as other items, and are distributed as follows: ### The Paying Teller The Paying Teller is also the person who gives out cash in exchange for checks and other instruments. As part of his responsibilities, he examines the items exchanged for cash in relation to: a. **The check's date**—he ensures that the check is neither post-dated nor stale. If the check is post-dated, he must not pay it; if it is stale, he must also not pay it but request that the person presenting it refer the matter to the drawer of the check. He also double-checks the accuracy of the check's date. b. **Incorrect endorsement**- the receiving teller must ensure that the endorsement is correctly effected at the back of the instrument. c. **Material Alteration**- Erasures or changes in the date, payee, or amount in figures are examples of material alteration. d. **Forgery**- the paying teller is concerned about this because he has access to the depositor's specimen signature before payment. e. **Crossed check** – There are two types of crossed checks: specially crossed and generally crossed. The paying teller should examine the check carefully to determine the extent of the bank's commitment on such checks. f. **Stop-payment order** – when a check is lost or the owner wishes to withhold payment for any other reason, the drawer requests the bank to stop payment, and the bank issues a signal indicating “Stop Payment Order." g. **Insufficient funds** – the paying teller must also determine whether or not the check's drawer has sufficient funds to cover the check. h. **Payment error**– A paying teller should count the money to be paid at least twice. Because he could overpay or underpay. i. **Cash supply** a paying teller should be able to know how much money arrives from the cashier in order to meet requirements by constantly doing the same work. ### Current Account vs. Savings Account There are some significant differences that tellers must be aware of and that depositors must be aware of in order to keep their account with the bank. Such distinctions will exist in the initial deposit, service fees, the penalty for issuing bouncing checks, the age of the depositor, the minimum balances required for interest payments or the imposition of service charges, and others. ### Types of Bank Deposit Deposits are money or representative money entrusted to banks for safekeeping. -Storage of valuables such as jewelry and important documents. -Deposits are borrowed funds that make a bank a debtor. -Deposits are the bank's liabilities; if the bank fails to meet the depositor's demand, the depositor has a right of recourse against the bank. -Section 58 of the New Central Bank Law of 2000 (7653) defines "demand deposits" as "all liabilities of the BSP and other banks denominated in Philippine currency and subject to payment in legal tender upon demand by presentation of checks." ### Deposit Varieties 1. **Demand Deposits** These are deposits that are withdrawn when checks are presented during banking hours. In modern times, this type of deposit does not pay interest. 2. **Time deposits** – These are deposits that can be withdrawn after a set period of time or at a specified maturity. Depositors use their excess funds to make rime deposits for a variety of purposes. As a result, this type of deposit is further classified as follows: a. **Time deposit certificate** – this is evidenced by a certificate stating that the deposit can only be withdrawn at maturity or after due notice of withdrawal, usually thirty days, and upon presentation and surrender of the instrument. b. **Special time deposits**- This type is evidenced by a written contract stating that neither all nor a portion of the deposit may be withdrawn before the maturity date or, at the very least, upon at least thirty days' notice. c. **Savings deposits** are evidenced by a passbook and can be withdrawn only after thirty days' notice or depending on the individual bank's policy. These deposits may be withdrawn on demand if the bank is able to meet the depositor's demand. 3. **Direct or primary deposits** – These are those made "over the counter" when the depositor brings his money, checks, and other near cash items to the bank and hands them to the teller. The depositor may occasionally send a representative to deposit on his behalf. Depositors can deposit through ATMs for e-bankers after they have registered personally at the bank. 4. **Derivative deposits** - are created from loan proceeds. The borrower agrees to have the bank deposit the loan proceeds into a current account from which he will eventually be able to draw checks. Derivative deposits raise the volume of money because they represent new money created by the bank from loan proceeds. ## Chapter 7 - Philippine Deposit Insurance Corporation ### Overview: The term 'insured deposit' refers to the amount due to any bona fide depositor for legitimate deposits in an insured bank, less any obligation owed to the insured bank as of the date of closure, but not exceeding P500,000.00. A joint account must be insured separately from any deposit account owned by an individual. According to R.A. No. 9576, the PDIC will not pay deposit insurance for the following accounts or transactions: Investment products such as bonds, securities, and trust accounts; unfunded, fictitious, or fraudulent deposit accounts; Deposit products that are the result of or stem from unsafe and unsound banking practices; Deposits determined to be the proceeds of an illegal activity as defined by the Anti-Money Laundering Law. ### Lesson Proper ### Introduction The Philippine Deposit Insurance Corporation (PDIC) is a government agency that was established on June 22, 1963 by Republic Act 3591, An Act Establishing the Philippine Deposit Insurance Corporation (PDIC), Defining Its Powers and Duties, and for Other Purposes. The PDIC was established to “promote and safeguard the interests of the depositing public by providing permanent and continuing insurance coverage on all insured deposits.” The PDIC also aims to strengthen the mandatory deposit insurance coverage system in order to generate, preserve, and maintain faith and confidence in the country's banking system, as well as to protect it from illegal schemes and machinations. ### Mandate The PDIC has the following mandates in accordance with its public policy objectives: I. **Deposit Protection.** The maximum deposit insurance coverage provided by the Corporation is Php500, 000. Annually, member banks are assessed at a flat rate of one-fifth of one percent of their total deposit liabilities. The assessments are collected semi-annually from member banks and contribute to the Deposit Insurance Fund of the PDIC (DIF). II. **Examining and Resolving** the PDIC collaborates closely with the Banko Sentral ng Pilipinas (BSP) to strengthen and maintain the banking system's stability. PDIC is authorized to issue regulations to carry out its Charter, conduct bank examinations and investigations to determine banks' financial health and compliance with banking and deposit insurance rules and regulations, and extend financial assistance to eligible distressed banks. III. **Receivership and liquidation** are the third and final steps in the process. The PDIC serves as the statutory receiver and liquidator of bank failures. PDIC takes over closed banks on the order of the BSP's Monetary Board, administers their assets, records, and affairs, and preserves and disposes of these assets for the benefit of the closed banks' creditors. When the Monetary Board orders the liquidation of a bank that has been placed under receivership, the assets are managed and distributed to creditors in accordance with the Civil Code of the Philippines' preference and concurrence of credits. ### Membership Membership with PDIC is mandatory for all banks licensed by the BSP to operate in the Philippines: - Banks incorporated under Philippine laws, such as commercial banks, savings bank, mortgage banks, rural banks, development banks, cooperative banks, and stock savings and loan associations. - Domestic branches of foreign banks. ### Scope of Deposit Insurance Protection ### Deposit Insurance Protection's Scope The PDIC insures deposits up to Php500, 000 per depositor per bank. It applies to all types of bank deposits in member banks, whether in local or foreign currency. Total deposits in the banking system totaled Php7.6 trillion as of December 31, 2013, with 45.4 million deposit accounts. Deposit insurance covers 96.7 percent of these deposit accounts. **PDIC insures valid deposits in domestic offices of member-banks:** **By Deposit Type:** - Savings - Special Savings - Demand/Checking - Time Deposits **By Deposit Account:** - Single Account - Joint Account - Account "By”, “In Trust For” (ITF) or “For the Account of” (FAO) another person **By Currency:** - Philippine peso - Foreign currencies considered as part of international reserves at the BSP The following accounts or transactions are **not** covered by deposit insurance whether denominated, documented, recorded or booked as deposits by the bank: 1. Investment products such as bonds and securities, trust accounts, and other similar instruments; 2. Deposit accounts or transactions which are unfunded, or that are citations or fraudulent; 3. Deposit accounts or transactions constituting, and/or emanating from, unsafe and unsound banking practice/s1 as determined by the Corporation, in consultation with the BSP, after due notice and hearing, and publication of a cease and desist order issued by the Corporation against such deposit accounts or transactions; and 4. Deposits that are determined to be the proceeds of an unlawful activity as denied under Republic Act 9160, as amended.