Unit 2 - Banking Management, Operations and Regulations.pdf

UNIT 2 Banking Management, Operations and Regulations Victor Ian C. Zoleta, CFIMS, CTP, MBA  OUTLINE of DISCUSSION 2.1 Bank Management and Operations a) Bank Accounting b) Financial Statements: Balance Sheet, Income Statement, Statement of Cash Flows c) Aver...

UNIT 2 Banking Management, Operations and Regulations Victor Ian C. Zoleta, CFIMS, CTP, MBA  OUTLINE of DISCUSSION 2.1 Bank Management and Operations a) Bank Accounting b) Financial Statements: Balance Sheet, Income Statement, Statement of Cash Flows c) Average Cost of Fund, Pool Rate, Fund Transfer Pricing (FTP), Bank Reserves, Bank Performance Rate, and other ratios d) Bank Products and Services e) Bank Deposits and Other Liabilities f) Bank Loans and Other Assets g) Off Balance Sheet Activities  OUTLINE of DISCUSSION 2.2 Banking Regulations a) Bank Activities and Requirements: Philippines (BSP) and United States (Fed) b) Current Trends and Issues: Financial Inclusion, Data Privacy, Online Banking, Digitization, Environmental, Social, and Governance (ESG), Artificial Intelligence (AI), Anti-Money Laundering, Fraud and Cybercrime, Bank Closures, Merged and Consolidated Banks  Asset Transformation Banks have two basic functions: Accept deposits of money. Make loans. Asset Transformation: banks transform the assets of savers into assets for borrowers. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Management: The Big Picture There is a huge diversity in the size and scale of banks. Community banks or Retail banks focused on providing bank services to local communities in which they are located Big commercial banks (“money centers”) are spread across the country, offering more bank products and services to bank clients. Regardless of what size and form a bank is, they all operate under the same accounting rules and regulations. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Management: The Big Picture A bank balance sheet summarizes the financial position of the bank at a certain time. Every balance sheet must balance – the value of assets must equal the amount of claims against those assets. Liabilities are things owed by the bank to depositors or others. ASSETS = LIABILITIES + EQUITY Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Accounting Bank Assets  Use of funds.  What the bank owns. Bank Liabilities  Source of funds.  What the bank owes to others. Bank Capital  Shareholders’ equity or net worth; the difference between the value of a bank’s assets and liabilities.  What the bank owes to its stockholders..  Bank Accounting Basis of Transaction Analysis: Debit/Credit Rules Double-entry Accounting. Debit / Credit are not synonymous with Increase / Decrease. Debit indicates the left (ASSET) side of the balance sheet (equation). Credit indicates the right (Liabilities and Equity) side of the balance sheet (equation). T-Account – an accounting tool which shows changes in balance sheet items that result from particular transaction..  Bank Accounting: T-Account Debit Credit Debit Credit Increase in Decrease in assets assets Decrease in Increase in liabilities liabilities Uses of Sources of Decrease in Increase in Cash Cash equity equity Expenses Revenues Cash receipts Cash payments  Financial Reporting Package (FRP) Set of financial statements for prudential reporting purposes composed of the Balance Sheet, Income Statement and Supporting Schedules. Primarily designed to align the BSP reportorial requirements with the provisions of the Philippine Financial Reporting Standards (PFRS) / Philippine Accounting Standards (PAS) and Basel 2 Capital Adequacy Framework. Also designed to meet BSP statistical requirements. All banks are required to prepare the FRP – shall be prepared on a solo and consolidated basis. Solo basis – refers to combined financial statements of Head Office and branches/other offices. Consolidated basis – refers to combined financial statements of parent bank and subsidiaries consolidated on a line by line basis. The solo and consolidated FRP shall be prepared on a quarterly basis, except for the solo balance sheet and selected schedules which shall be prepared on a monthly basis. Source: Bangko Sentral ng Pilipinas - Financial Reporting Package for Banks  Balance Sheet Statement of Financial Position or Statement of Financial Condition. Disclosing the resources the company controls and its obligations to lenders and other creditors at a specific point in time. Assets = Liabilities + Equity Resources = Funding Sources Elements of Bank’s Balance Sheet: Resources – Assets Funding Sources  Liabilities – Obligations/debts to outside parties.  Equity – Claim of owners on the business.  Bank’s Balance Sheet ASSETS STOCKHOLDER’S EQUITY Provide future economic benefits Capital Stock Resources owned and controlled by the bank. Investment from the owners. Convertible to cash in the future. Proceeds from sales of shares LIABILITIES of stock. Debt/Contractual obligations Retained Earnings Government obligations Earnings of prior periods Payable to regulatory agencies plowed back into the business. Unpaid expenses Source of dividends. Come from external parties. Supplier Credit Affiliates Loans Customers  Bank’s Balance Sheet Cash on Hand Checks and Other Cash Items Due from BSP Due from Other Banks Financial Assets Held for Trading (HFT) Available-for-Sale (AFS) Financial Assets Held-to-Maturity (HTM) Financial Assets Loans and Receivables Accrued Interest Income from Financial Assets Equity Investment in Subsidiaries, Associates & Joint Ventures Bank Premises, Furniture, Fixture and Equipment Real and other Properties Acquired (ROPA) Non-Current Assets Held for Sale Deferred Tax Asset Other Assets Due from Head Office/Branches/Agencies Abroad (PH branch of a foreign brank) Due from Foreign Currency Deposit Unit (FCDU) / Regular Banking Unit (RBU) Source: Bangko Sentral ng Pilipinas - Financial Reporting Package for Banks  Bank’s Balance Sheet Financial Liabilities Held for Trading Deposit Liabilities Due to Other Banks Bills Payable Unearned Income Bonds Payable Unsecured Subordinated Debt Deferred Tax Liabilities Redeemable Preferred Shares Other Liabilities Accrued Interest Expense on Financial Liabilities Due to Head Financial Lease Payment Payable Office/Branches/Agencies Abroad Special Time Deposit (PH branch of a foreign bank) Due to the Treasurer of the Philippines Due to FCDU/RBU Treasurer/Cashier/Manager’s Check Payment Orders Payable Cash Letters of Credit Due to BSP Due to PDIC Income Tax Payable Source: Bangko Sentral ng Pilipinas - Financial Reporting Package for Banks  Bank’s Balance Sheet Paid-In Capital Stock Undivided Profits Additional Paid-In Capital Other Comprehensive Income Other Equity Instruments Appraisal Increment Reserve Deposit for Stock Subscription Treasury Stock Retained Earnings Minority Interest in Subsidiaries Stock Dividends Distributable Assigned Capital Source: Bangko Sentral ng Pilipinas - Financial Reporting Package for Banks  Contingent Accounts Guarantees Issued Standby Letters of Credit (LCs) Outstanding Commercial Letters of Credit (LCs) Outstanding Trade Related Guarantees Commitments Spot Foreign Exchange Contracts Derivatives Others (e.g., Items Held for Safekeeping/Custody, Items Held as Collateral, Trust Department Accounts) Source: Bangko Sentral ng Pilipinas - Financial Reporting Package for Banks  Income Statement Also referred to as Statement of Operations Presents information on the financial performance of a company’s business activities over a period of time. It communicates how much revenue and other income the company generated during a period and the expenses it incurred to generate that revenue and other income. Net Income = Revenues + Other Income – Expenses Accrual Method of Accounting Income is recognized when earned and expenses are recorded when incurred. Cash flows are not used to evaluate profitability. Source: Bangko Sentral ng Pilipinas, CFA Institute  Bank’s Income Statement Accounts Interest Income Other Administrative Expenses Interest Expense Depreciation/Amortization Provision for Losses on Accrued Interest Impairment Loss Income from Financial Assets. Provisions Dividend Income Bad Debts Written Off Fees and Commissions Income Recovery on Charged-Off Assets Gains/(Losses) on Financial Assets and Share in the Profit/(Loss) of Liabilities Unconsolidated Subsidiaries, Foreign Exchange Profit/(Loss) Associates, and Joint Ventures Compensation/Fringe Benefits Income Tax Expense Taxes and Licenses Minority Interest in the Profit/(Loss) Fees and Commission Expenses of Subsidiaries Source: Financial Reporting Package for Banks (Bangko Sentral ng Pilipinas)  Statement of Cash Flows Disclosing the sources and uses of cash. Provides information about the cash receipts and cash payments of a business entity during the period. Evaluates the capacity to pay interest and repay loans and other borrowings. Monitor the effectiveness of cash management. Cash Receipts less Cash Disbursements. Preparation of Cash Flow – change in cash can be explained by tracing the changes in other balance sheet accounts. Source: Bangko Sentral ng Pilipinas and CFA Institute  Statement of Cash Flows Categories of Cash Flows: Operating Activities – shows the cash effects of transaction involved in the determination of net income; comprises the day-to- day operations of the company. Investing Activities – associated with acquisition and disposal of long-term assets, such as property and equipment. Financing Activities – relate to obtained or repaying capital to be used in the business. Source: Bangko Sentral ng Pilipinas and CFA Institute  Cost of Funds The interest a financial institution pays to obtain the capital it uses to operate. How much banks spend to acquire money to lend their clients. Financial institution makes profit by having large spread between the cost of funds and the interest rate charged to borrowers. Lower cost of funds mean a bank will earn better returns when the funds are used for loans to borrowers. Consumers have to pay more in interest when the cost of funds is higher. Source: Rosenthal, J. (2020, November 12). Linkedin. How to calculate the true cost of funding. https://www.linkedin.com/pulse/how-calculate-true-cost-funding-joel-rosenthal  Example: Cost of Funds Consider the case of the hypothetical GMM Bank. The bank gets its funds from demand and time deposits, certificate of deposits, subordinated capital notes and common stock. The full cost of each source of funds (interest and servicing cost of all funds obtained from that (source) is indicated in parentheses. ASSETS LIABILITIES & EQUITY Cash and due $100 Demand deposits (4%) $300 Investments $300 Time deposits (6%) $400 Certificate of Time Deposits (6%) $100 Loans $600 Capital notes (8%) $100 Common stock (20%) $100 Total $1,000 Total $1,000  Example: Cost of Funds LIABILITIES & EQUITY Demand deposits (4%) $300 x 0.04 = $12 Time deposits (6%) $400 x 0.06 = $24 Certificate of Time Deposits (6%) $100 x 0.06 = $6 Capital notes (8%) $100 x 0.08 = $8 Common stock (20%) $100 x 0.20 = $20 Total $1,000 $70 $70 Cost of funds = = 𝟎𝟎. 𝟎𝟎𝟎𝟎 𝒐𝒐𝒐𝒐 𝟕𝟕𝟕 $1,000  Fund Transfer Pricing (FTP) A critical tool used in banking to measure how funding is added to the overall profitability of the bank. Determines the profitability of various product lines the bank offers, branch performance, and effectiveness of the processes. Net Interest Margin (NIM) is a measure of the difference between the interest income generated on assets and the amount of interest paid for liabilities, relative to the amount of (interest-earning) assets. FTP Rate - Determines the funds transfer pricing rate as the difference between continuous effective interest rate and margin spread; rate at which a bank extends (or accepts) loans to (or from) its internal departments. Source: Syntellis. (n.d.). Funds transfer pricing in banking. https://www.syntellis.com/what-is-funds-transfer-pricing  Fund Transfer Pricing (FTP) Components of Fund Transfer Pricing (FTP) 1. Asset Spread (Credit spread) - net interest margin earned by funds users, generated by assets such as loans, investments, and fixed assets that receive an FTP charge. 2. Liability Spread (Deposit Spread) - is the net interest margin earned by funds providers on products that provide funding for the institution such as savings, checking, CDs, and institution borrowings that receive an FTP credit. 3. Residual Spread - the margin that Treasury or Funds Management group earns by ensuring adequate liquidity and managing interest rate risk exposure and other risks. Source: Syntellis. (n.d.). Funds transfer pricing in banking. https://www.syntellis.com/what-is-funds-transfer-pricing Fund Transfer Pricing (FTP) Image Source: https://www.syntellis.com/what-is-funds-transfer-pricing Fund Transfer Pricing (FTP) Allocating Net Interest Margin (NIM) Image Source: https://www.syntellis.com/what-is-funds-transfer-pricing  Reserve Requirement The percentage of bank deposits and deposit substitute liabilities that banks must set aside with the central bank, which the company cannot lend out. This reserve requirement will be in the form of non-earning deposits with the BSP (via the Demand Deposit Account) Total reserves = Required reserves + Excess reserves Excess reserves - the amount of money above the required reserves. If the reported legal reserve is below the required minimum, the bank shall pay BSP one-tenth of one percent (1/10 of 1%) per day. Source: Bangko Sentral ng Pilipinas. (n.d.) BSP reduces reserve requirements. https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=6743  Bank Performance and Ratios 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟−𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 Net Interest Margin = 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑁𝑁𝑁𝑁𝑁𝑁 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 Return on Assets (ROA) = 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑁𝑁𝑁𝑁𝑁𝑁 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 Return on Equity (ROE) = 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 Debts-to-Assets Ratio = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 −𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 −𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 Risk-Adjusted Return on Capital = 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐  Bank Performance and Ratios 𝑁𝑁𝑁𝑁𝑁𝑁−𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 Efficiency Ratio = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 Loans-to-Deposits Ratio = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 Deposit Composition Ratio = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 Tier 1 capital refers to primary funding source of the bank and consists of shareholders' equity and retained earnings. 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 Tier 2 capital refers to bank’s supplementary Reserve Ratio = capital; one of the components of a bank's 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 required reserves. Risk-weighted assets refer to bank’s assets or exposures, weighted according to risk 𝑁𝑁𝑁𝑁𝑁𝑁 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 1 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑁𝑁𝑁𝑁𝑁𝑁 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 2 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (Sum of credit risk-weighted assets, market Capital Adequacy Ratio = risk-weighted assets and operational risk- 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅−𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 weighted assets)  Bank Products and Services Deposits – Savings Account, Checking Account, Time Deposit Loans – Housing Loan, Auto Loan, Commercial Loan, Business Loan, Credit Card Remittance International Banking Trust Products – UITF, IMA, Personal Management Trust, Escrow, Pension Funds, PERA Treasury Products – Government Securities, Corporate Bonds, LTNCD, FX and Derivatives. Payment and Settlement – ATM, Cash Accept Machine, TellerPhone, Online Banking, Mobile Banking Application, Point of Sale (POS) Cash Management – Auto-debit arrangement, Auto-credit arrangement, Payroll services, Government payments and collections. Investment Banking – underwriting process, advisory to companies, government and entities. Stock Brokerage – broker-dealer activities. Bancassurance – Life and Non-life insurance.  Bank Deposits Refer to funds placed in an account and entrusted to a bank for safekeeping. TYPES OF BANK DEPOSITS 1. Savings Account 2. Demand Account 3. Negotiable Order of Withdrawal (NOW) Account 4. Time Deposit 5. Long-Term Negotiable Certificate of Deposit (LTNCD) 6. Money Market Deposit Accounts (MMDA)  Bank Deposits TYPE OF DEPOSIT DESCRIPTION Refers to interest- or non-interest bearing deposits that are withdrawable upon demand through available bank channels. No stated maturity. 1. Savings Account Funds can be deposited or withdrawn at will, and most pay interest from day of deposit to day of withdrawal. Passbook- proof of the account that the depositor could keep and record the balance and all transactions occurred on the account. Refers to all liabilities of banks that are subject to payment in legal tender upon demand by the presentation of checks. 2. Demand Deposit Account Refers to deposits, subject to withdrawal by check through available bank channels &/or ATMs, which are also known as current or checking accounts. The bank may or may not pay interest on these accounts. Refers to the interest-bearing savings deposits that are withdrawable by means 3. Negotiable Order of of negotiable order of withdrawal that combine the payable on demand feature Withdrawal (NOW) Account of checks and investment feature of savings accounts. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage. Bangko Sentral ng Pilipinas. (2023). The banking laws of the Philippines. Manila: Rex Bookstore, Inc.  Bank Deposits TYPE OF DEPOSIT DESCRIPTION Also known as Certificate of Deposit. Refers to interest-bearing deposits with specific maturity dates and evidenced by certificates issued by the bank. 4. Time Deposit Early withdrawal are subject to penalties. 𝑵𝑵𝑵𝑵. 𝒐𝒐𝒐𝒐 𝑫𝑫𝑫𝑫𝑫𝑫𝑫𝑫 𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰 = 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝒙𝒙 𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 𝒙𝒙 𝒙𝒙 𝟎𝟎. 𝟖𝟖𝟖𝟖 𝟑𝟑𝟑𝟑𝟑𝟑 *Philippine setting. *0.80 = net of withholding tax. Refers to interest-bearing negotiable certificates of deposit with a minimum 5. Long-Term Negotiable maturity of five years. Certificates of Deposit Generally offer higher interest rates compared to regular time deposits due to (LTNCD) their longer maturity. An interest-bearing account containing a variety of interest-bearing short-term 6. Money Market Deposit securities Accounts (MMDA) Has a minimum balance requirement. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage. Bangko Sentral ng Pilipinas. (2023). The banking laws of the Philippines. Manila: Rex Bookstore, Inc.  Deposit Substitute An alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower’s own account, for the purpose of re-lending or purchasing receivables and other obligations. Instruments: Banker’s acceptance – negotiable time drafts guaranteed by the accepting bank, payable at maturity and drawn by creditor against a debtor. Promissory note – a debt instrument that contains a written promise by one party to pay another party a definite sum of money, either on-demand or a specified future date. Participations – represents the portion of the share of securities allotted to each member of a distributing syndicate, known as a participant. Repurchase agreement – an agreement to repurchase the securities at a higher price on a later date. Source: Bangko Sentral ng Pilipinas. (2023). The banking laws of the Philippines. Manila: Rex Bookstore, Inc.  Bank Deposits CONCEPT DESCRIPTION Inactive deposit accounts or no financial activity in the bank. Current or checking accounts showing no deposit or withdrawals for a period of one (1) year. Dormant Savings accounts showing no deposit or withdrawal for a period of two (2) years. Accounts Subject to dormancy fee, under BSP regulations. Charges will be collected by banks if an account has no activity for 5 years, and falls below the minimum average daily balance. Include credits or deposits of money, bullion, security or other evidence of indebtedness of Unclaimed any kind, and interest thereon with banks who remains inactive during the preceding ten Balances years or more. Must be reported to the Treasurer of the Philippines in accordance of Unclaimed Balance Act. Escheat Involves the right of the State to acquire abandoned property or those left without an owner. Deposit Amount due to any bona fide depositor for legitimate deposits in an insured bank as of the Insurance date of closure, but not to exceed the maximum deposit insurance coverage of ₱500,000. Source: Bangko Sentral ng Pilipinas. (2023). The banking laws of the Philippines. Manila: Rex Bookstore, Inc. Deposit Insurance: Illustrative Cases CASE 1: INDIVIDUAL ACCOUNT Source: Philippine Deposit Insurance Corporation (PDIC) Deposit Insurance: Illustrative Cases CASE 2: JOINT ACCOUNTS Juan Dela Cruz has three accounts jointly maintained with Maria and/or Pedro Dela Cruz. All his shares in each of these accounts are added together. Hence, of the ₱650,000.00 total shares of Juan, ₱500,000.00 is covered by deposit insurance. Source: Philippine Deposit Insurance Corporation (PDIC) Deposit Insurance: Illustrative Cases CASE 3: Owned by Natural AND Juridical Persons The Demand Deposit (Account No. 3) maintained in the name of Juan Dela Cruz and ABC Corporation, is presumed to belong entirely to ABC Corporation. Hence, ABC Corporation is entitled to the ₱500,000.00 deposit insurance. Source: Philippine Deposit Insurance Corporation (PDIC)  Banks Loans and Other Assets Cash The most liquid asset. Vault Cash – counted as reserves; banks keep a significant portion of their own reserves in their vaults. Banks hold a small portion of their assets in the form cash, around 2%-3% of assets. It does not pay high returns to banks. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Banks Loans and Other Assets Securities Banks want to hold a variety of financial assets to increase their return on assets. Banks need to maintain liquidity to meet the demands of their depositors. Bank management has to weigh the risks versus the rewards. Government securities (e.g. Treasury securities) have the lowest default risk, relatively provide lower yields. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Loans Short-term Business Loans Image Source from the Internet Self-liquidating inventory loans – bank lends money to a firm that uses the funds to buy inventory (which are sold to the firm’s customers). The firm uses that sales revenue to pay off the loan with interest. Seasonal borrowing –firms that need to borrow large amounts of money during certain seasons and then quickly pay off the loans. Interim construction loans – loans made for construction purposes. Securities dealer financing – buy and sell stocks and bonds for their clients. Repayments are made once the securities are sold. Retail and equipment financing – loans made against a specific piece of collateral that a firm is going to resell (i.e. automobiles). Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Loans Long-term Business Loans Image Source from the Internet Term asset-based - fixed asset or blind-spot loans. Project loans - created for financing large, long-term projects (e.g. power plants); often more than one bank participates/lends. Leveraged Buyouts (LBOs) – to buy outstanding shares of a corporation; the company becomes privately held and once improved, shares are sold at a higher price; repayment of the loan occurs when the shares are sold. Agricultural loans - subsidized by the government; include loans for equipment, feed, seed, water and soil preservation. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Image Source from the Internet Bank Loans Short-term Consumer Loans Credit Cards - unsecured revolving credit agreements; borrowers do not have to pledge assets as collateral and can borrow any amount up to the maximum credit limit. Unsecured personal loans or Signature Loans - the borrower offers no collateral, only their signature, to get the loan; often a “bridge” loan until a larger loan is provided. Unsecured personal lines of credit - there is a maximum amount the borrower may borrow, but they typically do not borrow the entire amount at once. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Image Source from the Internet Bank Loans Long-term Consumer Loans Home Mortgages 1. First Mortgages – used by the borrower to obtain funds to purchase the real estate; can be amortized over 15 or 30 years and may have a fixed or adjustable interest rate. 2. Second Mortgages and Equity lines of credit – the difference between the market value of the asset (house) and the amount owed on the asset is called equity; homeowners can borrow against the equity which can be used to make home improvements. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Image Source from the Internet Bank Loans Long-term Consumer Loans Automobile Loans - consumers get a loan and pledge the auto as collateral; payback periods varies – new autos can have longer payback periods. Other vehicle loans – motorcycle loans, boat loans, among others; interest rates on these vehicle loans tend to be higher than those on auto loans (since these depreciate faster and have less well-developed secondary market). Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Off Balance Sheet Activities Does not affect the bank’s balance sheet because there is no increase in either the bank’s assets or its liabilities. Bank fees replaced the shrinking interest rate spread. Fee-generating activities involve transactions that take place off the bank’s balance sheet. Off-balance sheet activities have become a way for banks to get around legal capital requirements. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Commercial Letters of Credit Loan commitments – a bank agrees to provide a borrower with stated amount of funds during a specified period of time; a promise to lend money if necessary. A letter explaining if a “buyer” does not pay a “seller” for a good or service, the bank will pay. If the buyer and seller agree upon payment and a loan was not made, there is nothing to put on the bank’s balance sheet. A bank does not extend this service to the “buyer” for free. The bank will charge a fee: Upfront fee – when the commitment is written. Non-usage fee – unused portion of the loan. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Standby Letters of Credit Bank promises to pay a third party if the bank’s customer does not repay as promised. A much more general commitment than a commercial letter of credit. It is not tied to a specific transaction. Banks viewed standby letters as a risk free way to generate fee income. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Letters of Credit Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Financial Derivatives An agreement between a bank to exchange currencies or interest payments at an agreed-upon price at some date in the future, or the right to do so. (Futures, Forwards, Options, Swaps) Credit Default Swap (CDS) Contracts are privately negotiated, unregulated, contracts whereby investors are repaid if the issuer of a financial contract defaults. The bank that issues the CDS is insuring repayment to the issuer of the financial contract. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage. CFA Program Curriculum Level I Vol. 5 Reading 45 Derivative Markets and Instruments  Bank Regulation Banks are special because they face a unique set of problems and challenges, which is why banks are heavily regulated. Banks face the adverse selection problem: low quality borrowers want to borrow money. Image Source from the Internet Banks exists primarily to solve the asymmetric information problem: adverse selection and moral hazard.  More and better information collection;  Government-required disclosure; and/or  Bank screening of potential borrowers. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Why are banks closely regulated? Banks are closely regulated due to the following factors: Leading repositories of the public’s savings, especially the savings of the individuals and firms; hold large amounts of long-term savings in accounts. (ex: retirement). Closely watched because of the power to create money in the form of readily spendable deposits by making loans and investments. Banks and closest competitors are regulated because they provide loans that support consumption and investment spending to individuals and firms. With long history of involvement with government. (bank credit, government payments and taxation). Function of Regulatory Agencies Charged with the responsibility of gathering and evaluating the information needed to assess the true condition of banks and other financial firms to protect the public against loss. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Regulation in US Banks have a lot of private and proprietary information. Application must be sent to the government for permission to obtain a Bank Charter. Bank charter: A legal document that stipulates how a bank will be organized and regulated. Issued by either state banking agency or by the Office of the Comptroller of Currency, a branch of the Treasury. Entity that issues the charter is responsible for making sure that the bank operates in a safe, sound manner, and protects the information it collects. Images Source from the Internet Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Regulation in US Dual banking system- a banking system where bank charters are granted by the national government as well as state or provincial governments. The asymmetric information problem exists for bank depositors. Depositors and other outsiders do not know how well a bank is run. In the modern era, banks have government-sponsored deposit insurance. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Regulation in US 1933: The Federal Deposit Insurance Corporation (FDIC) began offering deposit insurance to banks. FDIC regularly examines banks for safety and soundness. 1934 – Securities Exchange Act which requires greater disclosure of information about securities sold to the public. Created the Securities and Exchange Commission (SEC) to prevent the use of deceptive information in the marketing of securities. Emergency Economic Stabilization Act of 2008: FDIC deposit insurance level was increased from $100K to $250K per account per institution. FDIC insurance applies only to deposits in U.S. banks in the US. Deposits in foreign branches of U.S. banks are not covered by FDIC insurance. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Regulation in US US Bank Products Commercial bank involvement in the underwriting of stocks and bonds caused many bank failures. Glass-Stegall Act of 1933: separated commercial banking, investment banking, and the insurance industry. Banks were forbidden from underwriting all stocks and bonds and banned from selling insurance. 1997: Feds allow commercial banks takeover of existing investment banks. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Regulation in US US Bank Products 1999: Passage of the Financial Services Modernization Act, sometimes called the Gramm-Leach-Bliley Act Allowed banks to create securities and insurance subsidiaries and financial holding companies can set up banking, insurance, security and merchant banking affiliates. Can be engaged in other complementary activities. Financial service providers must protect the privacy of their customers and limit sharing private information with other businesses. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Regulation in US Geography The McFadden Act of 1927: Forced federally chartered banks to obey state laws when it came to branching; Making it impossible for banks to cross state lines. Geographical diversification – allows banks to make loans in other states. Riegle–Neal Interstate Banking Act of 1994: allowed banks to merge across state lines, thus enabling them to have branches in other states. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Operation in US Federal Reserve System – central bank of United States. Fed has three main entities: Board of Governors, 12 Reserve Banks and Federal Open Market Committee (FOMC). Chair – head of the Board of Governors and chairs the FOMC. Five general functions to promote effective operations in the economy and public interest of United States: 1. Conducts the monetary policy of nation 2. Promotes the stability of the financial system 3. Promotes the safety and soundness of individual financial institutions. 4. Fosters payment and settlement system safety and efficiency. 5. Promotes consumer protection and community development. Source: US Federal Reserve System  Banking Operation in US 12 Federal Reserve Banks Source: US Federal Reserve System  Regulation Q Prohibited banks from paying interest on demand deposits and imposed interest rate ceilings on other various bank deposits. Designed to limit the amount of competition between banks. Banks “got around” Regulation Q by creating new financial products, not technically demand deposits. (e.g. money market mutual fund) Images Source from the Internet Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Capital Banks must have enough bank capital to write down nonperforming assets. Insolvent - banks that do not have enough bank capital. Bank Management Incentives and Bank Capital  Executives’ compensation is most often tied to stock prices - the higher the stock price, the more executives get paid.  Dividends are tied to stock prices. As dividends increase, stock prices also increase. Basel Accords - refers to a series of three sequential banking regulation agreements set by Basel Committee on Bank Supervision (BCBS). Basel Committee on Bank Supervision (BCBS) :  Founded in 1974 which aims to monitor and ensure capital adequacy of banks and banking system.  Provides recommendations on banking and financial regulations concerning capital risk, market risk and operational risk.  Located in Basel, Switzerland. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Basel Accords BASEL I (1988) BASEL II (2004) BASEL III (2010) Attempted to set bank capital Attempted to create a better risk- Created in 2010 in the wake of levels based on the riskiness of sensitive measure of bank global financial crisis. a bank’s assets. capital. Required banks to have Hence, created standard Allowed banks to use their own minimum amount of common definitions of bank capital and interest ratings-based (IRB) equity and minimum liquidity established risk-weighted bank approach to determine capital ratio. capital level. levels. Recommended the level of A weighted average approach An update of the original required bank capital be raised was used: 0% for very safe account, which focused on three during economic good times and assets, and 100% for very risky areas: minimum capital lowered during financial crises. assets. requirements, regulatory Basel Committee on Banking Difficult to put into practice. supervision and market Supervision (BCBS) – reforms Example: Small-scale borrowers discipline. have been integrated into that do not have bond rating will consolidated Basel framework. be classified as very risky (100% weight) even though they are safe and reliable.  Bank Regulation: How It’s Done Bank examiners – call reports and conduct on-site examinations. Call reports – detailed reports of the operations and financial condition of a bank that must be filed quarterly with their main regulator. On-site examination – a periodic physical inspection of bank’s operations. Cease and Desist Order – legal notice given to a financial institution by one of its regulator or the courts; requires the financial institution to take actions or follow prescriptions in the order to stop unlawful, unsafe or unsound financial practices. Images Source from the Internet  CAMELS Ratings A framework used by central banks to measure and evaluate the banks’ performance. Capital, Assets, Management, Earnings, Liquidity, and Sensitivity Scale 1-5, 1 being best/highest; 5 being worst. Looking for: Capital adequacy Asset quality Management Earnings Liquidity Sensitivity to market conditions CAMELS Rating: CAPITAL ADEQUACY Role of Capital – bank’s capital ratio (capital level divided by assets) Absorb losses Support risk taking and growth Provide depositor and creditor safety Key contributor to an institutions’ safety and soundness. How much capital should a bank hold? More risk assets, over-leveraging = more capital. Smaller capital = less risk-taking. Tighter regulation on Quality Control.  CAMELS Rating: ASSET QUALITY Asset Quality – reflects the level of existing and potential credit and market risk associated with the loan and investment portfolios and how management strives to identify, measure, monitor and mitigate them. Revenue generation vs. Investment; no impairment in value. Some questions to ask: What is the composition of asset portfolio? What are the bank’s lending policies? How do they determine who gets a loan and who gets rejected? Any problem loans? How are these resolved? Has the bank set aside enough in loan loss reserves for these problem loans?  CAMELS Rating: MANAGEMENT Management– reflects the capability and competence of the Board of Directors (BOD) and Management Team in managing banking risks, complying with internal controls, sustaining market interest and confidence in the bank as reflected in its shares’ performance over time. Measures of Management Quality: Quality of earnings Consistency of business growth Increased market capitalization. Image Source from the Internet  CAMELS Rating: EARNINGS Earnings– refers to the bank’s profitability, inclusive of the pace of net profit growth, earnings trend and quality of earnings. Measures of Earnings: Profitability Return on Equity = Net Income / Average Equity Image Source from the Internet Return on Asset = Net Income / Average Asset Net Interest Margin = Net Interest Income / Average Earning Assets Cost Efficiency Cost-To-Income Ratio = Operating Costs/Operating Income Cost-To-Assets Ratio = Operating Costs/Average Assets  CAMELS Rating: LIQUIDITY Liquidity– measures the ability and ease with which assets can be converted to cash. Liquidity risk over a certain period, an asset cannot be traded quickly enough in the market without impacting its market price. Market Liquidity Risk Funding Liquidity Risk Some questions to ask: Does the bank have enough, or too many, liquid assets? How stable are the bank’s deposits? How often does the bank need to go outside (e.g. resort to Federal funds market, discount window) to obtain liquidity?  CAMELS Rating: SENSITIVITY Designed to get the bank examiners to think about not just how the bank is doing today but how might things change in the future. How will the bank fare if interest rates, exchange rates, or overall economy change significantly in the future? Sensitivity analysis – covers how particular risk exposures can affect banking institutions.  Dealing with a Failed Institution Pay off and liquidate: FDIC will pay depositors their deposit balances from the liquidation of the institution’s assets. Purchase and Assume: FDIC finds a healthy bank to purchase the failed institution and to assume all of the failed bank’s liabilities. Image Source from the Internet Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Too Big To Fail Systemic risk is the threat that the failure of one entity can lead to a failure of the entire banking, financial, or economic system. Too big to fail (TBTF): A policy followed by bank regulators whereby some financial institutions are important to the entire financial and economic system that these institutions will not be allowed to fail. Regulators will take action to ensure that these systemically important institutions continue in operation. Banking as a game of “heads, we win; tails, the taxpayers lose.” Images Source from the Internet Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Consumer Protection and Failures CONSUMER PROTECTION ACT DESCRIPTION Designed to ensure that every borrower understands what they are getting Truth in Lending Act of 1968 themselves into when they agree to borrow money. Required to full disclosure of the terms and costs involved in the loan. The Community Reinvestment Redlining : The act of denying financial services to people living in a Act of 1977 particular area. CRA Certification Designed to regulate the collections and use of consumer credit information. Fair Credit Reporting Act of 1970 Designed to require creditors to provide complete and accurate information to credit bureaus or face penalties. Increases amount of consumer protection in financial markets Dodd-Frank Wall Street Reform Limits unfair or abusive lending practices, enforces federal consumer and Consumer Protection Act of protection laws, outlaws discrimination and other unfair treatment in 2010 consumer finance. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage. Failure of US Bank Regulatory System Regulator shopping: refers to banks and other financial institutions allowed to choose their regulator – they may pit the regulators against each other and then choose the regulator that offers the most favorable regulations. Intellectual Capture: a widely held belief that whatever benefits the financial industry must also be beneficial to all of society. Source: Brandl, M. W. (2021). Money, Banking, Financial Markets & Institutions (2nd Ed.). Boston: Cengage.  Bank Management and Operations in the Philippines Bangko Sentral ng Pilipinas (BSP) – central bank of the Philippines. Key Important Events:  January 3, 1949: Inauguration of Central Bank of the Philippines (CBP) with Miguel Cuaderno Sr. as the first governor.  July 3, 1993: Republic Act No. 7653 was passed establishing the Bangko Sentral ng Pilipinas (BSP), replacing CBP as the country's central monetary authority.  February 14, 2019: Republic Act No. 11211 was passed amending RA No. 7653. The charter amendments bolster the capability of the BSP to Images Source from the Internet safeguard price stability and financial system stability. Bank Management and Operations in the Philippines Bank Management and Operations in the Philippines Primary Objectives of Bangko Sentral ng Pilipinas (BSP) To maintain price stability conducive to a balanced and sustainable growth of the economy and employment. To maintain monetary stability and the convertibility of the peso. To promote financial stability and closely work with the National Government To oversee the payment and settlement systems in the Philippines. To promote broad and convenient access to high quality financial services and consider the interest of the general public. Source: Bangko Sentral ng Pilipinas  Bank Regulation in Philippines Regulatory Framework - government’s policy to promote and maintain a stable and efficient banking system that is globally competitive, dynamic and responsive to the demands of a developing economy.  General Banking Law of 2000 (Republic Act 8791)  New Central Bank Act (Republic Act 7653; BSP Charter)  Prudential Regulation: Relationship with prudential regulator, Management of Banks, Regulatory capital and liquidity  Conduct of Business: Bank Reserves, SBL, DOSRI limit, Loan-loss provisioning, Equity investment limit  Funding  Control of Banks and Transfers of Banking Business Source: The Banking Regulation Review: Philippines by Rafael A. Morales May 11, 2022 (https://thelawreviews.co.uk/title/the-banking-regulation- review/philippines#:~:text=These%20special%20laws%20or%20charters,the%20Philippines%20(Republic%20Act%20No.)  Philippine Regulatory Agencies Regulatory Agency Subject of Regulation Nature of Basic Regulations 1. Bangko Sentral ng All depository institutions Examines the books of banks that are members Pilipinas (BSP) of the system, sets reserve requirements for all banks. 2. Philippine Deposit Banks Provides insurance of up to ₱500,000 for each Insurance Corporation depositor at a bank; examines the book of (PDIC) insured banks and imposes restriction on assets they can hold. 3. Securities and Exchange Organized exchanges Require disclosure of information; restricts Commission (SEC) and financial markets insider trading. 4. Insurance Commission Insurance companies, Charter and examine the books insurance (IC) brokers companies impose restriction on assets they can hold and impose restrictions on branching.  Objectives of Financial Regulation Ensure the soundness of the financial system.  Restrictions on Entry  Stringent Reporting Requirements  Restriction on Assets and Activities  Deposit Insurance  Limits on Competition  Restriction on Interest Rates. Increase the information available to investors.  Asymmetric information  Adverse Selection  Moral Hazard Improve the control of the financial system. Images Source from the Internet  Reserve Requirements. Source: Cabrera, E., Cabrera G., Cabrera B. (2022). Financial Markets & Institutions (2022 Ed.). Manila: GIC Enterprises & Co. Inc.  Bank Regulation in Philippines REGULATORY CHALLENGES:  Use of Financial Technology which includes compliance with KYC requirements, incorporating FinTech into systems and structures, and ensuring Cybersecurity. Implementation of Data Privacy Act, expected to observe registration and compliance requirements. FUTURE CHANGES AND GOALS:  Aligning the country’s financial regulations and policies with international standards to improve risk management and ensure competitiveness in view of Association of Southeast Asian Nations’ integration. Strengthening anti-money laundering capability and risk management systems to address weaknesses exposed by financial controversies. Promoting financial inclusion and access to financial services by the poor. Addressing risks arising out of new technology while at the same time encouraging innovation. Source: Banking Regulations in the Philippines by Jose Florante M. Pamfilo (SyCip Salazar Hernandez & Gatmaitan) April 4, 2019 (https://www.lexology.com/library/detail.aspx?g=5a0911c3-b823-4224-b4a7-f2a2867c23f4 )  Bank Management and Operations in the Philippines Bank Failures: What is the role of the bank’s management and directors in the case of a bank failure? The directors and officers of a failing bank must cooperate with the regulators, including the conservator and receiver. The following acts of a director or an officer of such bank are subject to criminal penalties: refusal to turn over bank records and assets to the designated receiver; tampering with bank records; appropriating bank assets for himself or herself or another party; causing the misappropriation and destruction of bank assets; receiving or permitting or causing to be received in the bank any deposit, collection of loans, or receivables; paying out or permitting or causing to be paid out any fund of the bank; transferring or causing to be transferred securities or property of the bank. Source: Banking Regulations in the Philippines by Jose Florante M. Pamfilo (SyCip Salazar Hernandez & Gatmaitan) April 4, 2019 (https://www.lexology.com/library/detail.aspx?g=5a0911c3-b823-4224-b4a7-f2a2867c23f4 )