Download BOFI- Chapter 3 Review Notes and more Lecture notes Banking and Finance in PDF only on Docsity!
MODULE 3/ CHAPTER 3
1. Historical
Perspective
Worldwide
1.2000 B.C
The development of the banking system and early banking practices started in the temples of Babylon as far back as 2,000 B.C. They gave loans, didstributed to those people who needs sucj as widows. Credit Transaction , such as clay tablet
2. 8th century B.C
Earlier versions of bank drafts andchecks were in wide use in Assyria sometime during the 8th century B.C.
3. 4th century B.C
temples, public bodies, and private firms were dealing in the receipt of deposits and the loaning of funds. THE Greek System both influence Egypt and Rome Runner of clearing house made by the Charperfere purchases or credited were recorded no money change hand. Settlements made by a certain designated period.
Seditary Bankeers of
Mediteranian City - especially Venice, Geroa and Emphatus gave
4. 2nd century A.D
By the 2nd century A.D., transactionswere registered by public notaries. Runner of clearing house made by the Charperfere purchases or credited were recorded no money change hand. Settlements made by a certain designated period. Seditary Bankeers of Mediteranian City- especially Venice, Geroa and Emphatus gave emphatus to the COMMERCIAL BANKING SYSTEM TODAY
2. Goldsmiths
A goldsmith is a metal
worker who specializes
inworking with gold and other precious metals. Nwadays they mainly specialize in jewelry- making but historically, goldsmiths have also made silverware, platters, goblets, decorative and serviceable utensils, and ceremonial or religious items. Goldsmiths often acted as bankers , since they dealt in gold and had sufficient security for the safe storage of valuable items, though they were usually restrained from lending
at interest, which was
regarded as usury.
1. GOLDSMITH - Direct
Ancestor of the
Banking as a Whole
2. Gold Is the use of
production input used also as money = They develop
many MODERN
BANKING FUNCTIONS
INCLUDING:
Mainting deposits Making loans Keeping reserves Creating Money EMEBELLISH HOW GOLDSMITG OPERATED AS A BANK
Goldsmith Banker
business Role
Emerge in 17
th
Century London
graudally expanded Services:
1. Storage of wealth
2. Providing Loans
3. Transfer of Money
4. Providing bills of
Exhange that would
Lead the
Development of
checks.
GOLDSMITH BANKER
=BECAME THE KEY
DEVELOPMEN T IN THE
HISTORY OF THE BANKING
THAT LEAD TO MODERN
BANKING
3. ROLES OF GOLDSMITH
m a i n t a i n i n g s
a f e Goldsmiths STORAGE OF GOLD
, s i l v e r , AND DEPOSITS OF MONEY
l o a n i n g o u t d
e p o s i t s o f m o n e y ( a s w e l l a s t h e i r o w n m o n e y )
transfering money
holdings from town to one person to person
Trading foreign
exchange and bullion
Bullion- refers to
physical gold and silver of high purity that is often kept in the form of bars ingots or coins. Discounting Bills of exchange
4. Significant personage
that dominated those
times
1. The Lombard jews
2. The medici family- 2 ND
period of Florentine Financial Power
3. Fuggerfamily=
Greatest Money
l ender in 16th^ Century
4. John Law's financial
System= almost in
drewer to France
COMMON REFRAME
Favor of royalty and the govnerment and wider power during their day
5. PHILIPINE BANKING
HISTORY
Our own past was
intertwined to the colonization of oiur country by conlomeration of races
FROM SPANISH TO
PRSENT= BANKING
HISTORY WITHSTAND THE RACES
1. 16th century – the first
financial institutio n was organized in the Philippines to take care of the flourishing galleon trade existing between the country and Mexico. That institution was called
Obras Pias.
- OBRAS PIAS – was a charitable foundation during the Spanish period. The word itself means works of piety in Spanish. The Church directed a share of personal fortunes to its charities such as the Obras Pias. Such credit institutions had been under the control of the friars, and eventually became commercial banks or marine insurance companies. Capital from Pias Catholics and its funds where loan out in interest Operate in 1820 non existent
Charitable Institution
during Spanish Period =
WORKS OF PIETY IN
SPANISH
Funds used in
Religious
Charitable
Educational
purposes
Some funds where manage by Confraternities invested capital for underwritibg cargoes for his Galleon Trade PIAS as source of Financing in Galleon Trade which lasted for 250 yrs witth nmo vessels crosiing the PH and Mexico. Orato Delta Costa played the Role by the Obras Pias in the Trade Alkadez Mayores – seekingly to aument their earnings in trading local produce also r elied in the OBRAS PIAS IN FINANCING
1828 – The Spanish
government, cognizant of the improving progress, granted a charter to establish the first commercial bank.
1851 – However, it was not until
1851 that the bank named Banco Espanol-Filipinos tarted operations. It performed general banking functions and partly financed foreign trade.
Today, the bank still exists
bearing the name Bank of the
Philippine Islands ( Banco
delas Islas Filipinas)
Privelage on note
issue on OCT 17,
1853 - the Banco Peninsular
Ultramarino of Madrid put up a branch in the Philippines, but stopped operations four years later.
1869 – The opening of the Suez
Canal l ed to the accessibility of the European markets. British capital found attraction in the Philippines.
JAPANESE ERA
1942 The Southern
Development Bank (Nampo Kaihatsu Ginko ) opened a branch in Manila in 1942 and acted as the fiscal agent of the Japanese government in the Philippines Upon the liberation of Manila, the banks operating in the Japanese occupation were unable to reopen for business.. Banks, therefore, turned toward government aid.
Presidential directive,
Executive Order 96 -
invalidated all Japanese occupation deposits. Wartime payments on bank loans with scrip money Nwere, however, declared valid by the courts.
Executive Order 48 - on the
other hand, paved the way for the reopening of the prewar banks. The first license was given to the National City of New York and several others followed suiT.
1945 - Commonwealth Act
725 was approved which enabled
domestic banks to reopen in March 1946. Act provided asa sum of 10 million ti rehabilitaoin the domestic banks though gov subs of the prefereed
1946 - the Postal Savings
Bank boasted of added facilities
in cities, provinces, and municipalities.
1947- The Rehabilitation
Finance Corporation was
created by virtue of Republic Act 85 on 2 January 1947. Its main objective was the rehabilitation of the war-ravaged country, as well as to step up economic development. Bank of America granted permission to do missery in Manila. Launched indibvidual program of expansion through establishmebt in Manila nad established Linkage in imroving services ro the general public.
1948 - the General Banking
Act was passed into law. It
provided the definitive rules of conduct for all banking institutions as to organization, management, and operation.
1949 - Republic Act No. 265,
otherwise known as
theCentral Bank Act , was
passed. Justification of the Bangko Sentral's existence today may be traced to the two attendant problems of the
Philippine postwar period.
- the adjustment of the transition from a colonial raw-material-producing economy to that of an agroindustrial economy
- how to gear the resources of the banking system to the major economic objective
1972 - Presidential Decree
No. 72 wasissued, amending
Republic Act No. 265 tokeep it attuned with changing economic conditions. It emphasized the maintenance of domestic and international monetary stability as the Central Bank's primary objective and expanded its authority to include the supervision of the bankingsystem and the regulation of the entire financial system.
1973 - With the 1973
Constitution, Presidential
Decree No. 1801 designated the Central Bank of the Philippines as thecentral monetary authority
1987 - 1987 Co nstitution
adopted aimed at essentially at establishing an independent monetary authority through increased capitalization and greater private sector representation in the Monetary Board.
PH BANKING TODAY
Republic Act 11211 the
New Central Bank Act of
SiGNED BY Duterte Feb 14, 2019
1. Enhances corporate
viability and
independence
Increasing capital from 50 billion to 200 billion pesos Funding came from declared dividends of BSP in the National Gov
2. Include employment
in its primary
objective
Maintain price stability to conducive balanc e and sustainable growth of economy
3. restoresBSP's
authority to issue
debt papers
4. widens thecoverage o
finstitutions under
BSP supervision
include money
services and create grabnting business and payment system operation
5. BSP incomederived
from it
sgovernmental
functions will be
exempt from taxes.
Republic Act No 7653
Republic Act No. 7653, or the New Central Bank Act of 1993 , governs Philippine banking today. It provides for the establishment of a independent monetary authority to be know as the Bangko Sentral ng Pilipinas (BSP
AS OF NOVEMBER 2018
43 universal and commercial banks, 57 thrift banks 492 rural banks 40 credit unions 6,267 non-banks with quasi-banking functions in the Philippines.
Provided under Section 4
of Republic Act No. 8791
otherwise known as “ The
General Banking Law of
2000 ” , the operations and
activities of these banks are subject to supervision of the Bangko Sentral ng Pilipinas (the central bank of the Republic of the Philippines). Technology has brought us ebanking, the provision of banking services (deposit taking, payments, mortgages, and other financial services sold by banks ) over the Internet or other electronic networks.
THE INSTRUMENTS OR
DEVICES USED TO
PROVIDE E-BANKING
SERVICES ARE CALLED E-
MONEY.
E-money can be
divided into three
groups:
1. Access devices
= allow people to
withdraw deposit , cash transfer funds and pay bills from other banks accounts withouth pysically going to the bank or pay ac heck.
2. Cardbased products
= stored value and
prodcts.
= PREPAID CARDS
which funds are stored in a nelectirnic form in a compu or intergrated in the cards.
3. Prepaid software
products or network
money
= Involve funds that are
stored in electronic form or device that hardisk of the comp and transfer over commu network. Such as internety and participantsina network.
As of February 2009
6,455 banks that
operated with automated teller machines, broken down as follows:
- 6,455 universal and commercial banks **2. 748 thrift banks
- 83 rural and** cooperative banks
- However, only 92 banks offered electronic banking services
E-banking is regulated by
four main BSP prescribed
prudential guideline
Circular No. 240 (2000) Memorandum to All Banks (19 June 2000)
able to compete in a borderless world
On 19th of April 2000, the
Monetary Board approved
the issuance of Circular No. 237 (Section XI 12 of the Manual of Regulations for Banks and Section 4112 of the Manual of Regulations for Non-Bank Financial Institutions)
Bank mergers and
Consolidation
1. Merger
absorption of one or more corporations by another existing corporation retains its identity and takes over the rights, privileges, franchises, and properties, and assumes all the liabilities and obligations of the absorbed corporation(s
2. Consolidation
union of two or more
corporations int o a single
new corporation, i.e., consolidated corporation consolidatedcorporatio n shall thereupon and therefter possess al the liabilities and obligations of each constituents corporations
BANKING
DEREGULATION
SEC. 11. FOREIGN STOCK
HOLDING
Foreign individuals and non- bankcorporations may own or control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply to Filipinos and domestic non-bank corporations.
SEC. 72. TRANSACTING
BUSINESS IN THE
PHILIPPINES
The entry of foreign banks in the Philippines through the establishment of Branches shall be governed by the provisions of the Foreign Banks Liberalization Act
SEC. 73. ACQUISITION OF
VOTING STOCK IN A
DOMESTIC BAN
Within seven (7) years from the effectivity ofthis Act and subject to guidelines issued pursuant to the Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to acquire up to one hundred percent (100%) of the voting stock of only one (1) bank organized under the laws of the Republic of the Ph
SEC. 74. LOCAL BRANCHES
OF FOREIGN BANK
Philippines
In the case of a foreign bank which has more than one (1) branch in' the Philippines, all such branches shall be treated as one (1) unit for the purpose of this Act, and all references to the Philippine branches of foreign banks shall be held to refer to such units
Perspective on Bank or
Banking
= an institution which deals primarily in the receipt of deposits and the loaning out of funds. = provides financial services such as wealth management, currency exchange, and safe deposit boxes has different kinds including retail banks, commercial or corporate banks, and investment banks. = regulated by the national government or central bank.
WHAT IS BANK?
Section 3. Definition and
Classification of Banks.
3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits.
Nature of BANKING
Business
"a bank makes money
out of other people's money the bank is said to "trade on the equity ." Trust and confidence, futurity and risk are the basic elements of credit transactions. The bank, by giving loans, receives interest, which becomes its
income from the business of banking. This does not mean, however, that the bank takes advantage of the depositor's money for it is one institution that can be a debtor and a creditor at the same time.
Two Basic PRINCIPLE
1. First Principle
=States that a certain amount deposited will support several times as much in credit =known as the partial reserve system its origin dates back to the time when precious metals like gold were entrusted to goldsmiths for safekeeping =its influence is still felt in the commercial banking system as well as its application =the central bank imposes a legal serve on deposit liabilities of all banks to control the credit operations of the banking system
2. SECOND PRINCIPLE
= states that a greater portion of deposits in commercial banks arises out of th e proceeds of loans a borrower may simply arrange to have the loan proceeds turned into a deposit after his loan application is duly processed and approved = the bank simply creates an asset against a liability =this is the situation where a bank becomes a creditor and debtor at the same time
TYPES OF BANKS
AS TO OWNERSHIP
1. PRIVATELY OWNED
organized and capitalized By private citizens for their profit Ex: BDO PRIVATE BANK
2. PUBLICLY OWNED organized by the state and sometimes has a minimum of private ownership **EX, LANDBANK
- DOMESTIC** incorporated under the laws of the Philippines, it is a domestic bank. Follows thatmajority of the stocks are owned by Filipinos in conformity with the Philippine Corporation Code **Ex. PNB
- FOREIGN BANK** incorporated under the laws of another country follows the pattern of incorporation in the country to which the owners owe allegiance EX. CIMB BANK
( AS TO STRUCTURE )
1. STOCK CORPORATION
sell shares of stock to the general public to raise capital
2. NON STOCK CORPO
the organization is on a membership basis for mutual benefits and service rather than for profit.
AS TO FUNCTION AND
LINE OF DEVELOPMENT
3. COMMERCIAL BANK
one that receives demand deposits and gives out short- term loan
4. TRUST COMPANY an institution which deals in fiduciary activities such as administrator of estates, guardian of minors' interest, executor of last wills andtestaments, registrar and transfer agent of stocks and bonds, and similar 5. SAVINGS BANK primarily receives for safekeeping funds from persons who have no immediate need for cash and invests these funds in long-term investments. 6. RURAL BANK organized primarily to cater to the needs of small farmers, small businesses, small cottage industries, and cooperative associations. 7. DEVELOPMENT BANK takes care of giving loans to be used for developing the economy and may therefore engage in medium and long-
CONDUCT OF THEIR
FUNCTIONS
=The state must be vigilant in order to forestall any misconduct or inefficient banking method
- THE BANKS MAY EITHER ABUSE THEIR POWER OR USE THEM PRUDENTLY =Since in the modern economic affairs, banks tend to direct the course of progress or otherwise, the state stands guard in order that banks will exercise their power with the necessary prudence.
- THE BANKS, FURTHERMORE, ARE QUASI- PUBLICCORPORATIONS AND AS IN ALL OTHER CORPORATIONS OF THIS CALLING, THE STATE MUST EXERT ITS RESTRAINING INFLUENCE TO SAFEGUARD THE WELFARE OF ITS CONSTITUENTS. =In the granting of a charter to a corporate entity, the state is one of the parties whose duty is to protect the interest of the citizens.
The Bank Liberalization
The Philippine commercial
banking s ector has been
opened to competition, both local and overseas, largely through a series of governmentinitiated liberalization measures.
In the post-war era (1940s-
1960s), the sector catered
largely to the domestic market and had limited role in the foreign exchange market
1970s - The government
allowed foreign financial institutions to set up offshore banking units while the commercial banks were authorized to accept foreign currency deposits.
Early 1980s - The anti-usury
law became obsolete with the deregulation of interest rates.
1980-83 - The Philippine
economy was in recession; in 1983-85, the recession became a full-blown depression, with the economy registering negative GDP growth = The banking sector was badly hit by the recession-depression, with the Philippines’ banks unable to issue letters of credit on behalf of the country’s importersexporters. Unable to service its debt, the government was forced to negotiate For a debt service moratorium. The economy normalized only in thesecond half of the 1980s , after the 1986 People Power Revolt installed Corazon C. Aquino as the new President. = The Corazon Aquino Administration also tried to strengthen the financial system. = The huge liabilities accumulated by the two government banks – Philippine National Bank (PNB ) and Development Bank (DBP) – were transferred to the government and became part of the bigger national debt. =Subsequently, the PNB , then the country’s premier bank, was put on the privatization auction block.
1994 - the Philippines
passedRepublic Act (RA) 7721, which liberalized the entry and scope of operations of foreign banks. As a backgrounder, no foreign bank had been allowed entry
under the 1948 General
Banking Act, except the four
foreign banks licensed during the Spanish and American colonial periods, namely: Hong Kong Shanghai Bank, Citibank, Standard Chartered Bank, and Bank of America.
Republic Act 7721
Allowed the entry of foreign banks through any of the three modes : (1) acquisition, purchase or ownership of up to 60 per cent of the voting stock of an existing domestic bank, ( 2) investment in up to 60 percen t of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines, (3) through the establishment of a Philippine branch with full banking authority. The Philippines happened to be bullish in 1994. The country registered high GDP growth in 1994-97, which also saw the rapid liberalization of the banking and other sectors of the economy. This growth was rudely interrupted by the 1997- 98 Asian financial contagion
that originated from Thailand. However, compared to the 1980-85 financial crisis, the Philippine financial sector survived this new crisis without any major bank closures.
REPUBLIC ACT 10641
Foreign banksare given equal treatment to that accorded domestic banks as they : shall perform the same functions enjoy the same privileges be subject to the same limitations imposed upon a Philippine bank of the Similarly, Domestic banks under the new law also enjoy same category
“Any right, privilege or
incentive granted to foreign
banks or their subsidiaries
or affiliates.
Allows foreign banks to
operate within the
Philippine banking system
by:
(1) acquiring , purchasing, or owning up to 100 percent of the voting stock of an existing bank (2) by investing in up to 100 percent of the voting stock of a new banking subsidiary incorporated under Philippine laws (3) by establishing branches with full banking authority.
But foreign banks can
operate in the Philippines
only through any one of
these three modes of entry.
Aside from the increase in
the allowed foreign
ownership, RA 10641 also
amends:
- Capital requirement for foreign branches.
- The law requires that the minimum capital amount should not be less than the minimum capital required for domestic banks of the same category.
- A foreign bank branch is now allowed to open up to five sub-branches
Foreign banks that are
authorized to do:
Banking business in the Philippines through any of the three modes of entry shall be allowed to bid and take part in foreclosure sales of real property mortgaged to them, as well as to avail of enforcement and other proceedings, and accordingly take possession of the mortgaged property, for a period not exceeding five years from actual possession. Proponents of the law justify the opening of the banking industry to more established foreign banks on various reasons , but collectively the economic benefits it will bring and the strengthening of the financial system in the country.
2019 - more foreign banks
(namely three banks from
South Korea, Indonesia, and Hong Kong) are looking at establishing their presence in the Philippines.
The BSP allowed 12
foreign banks to open
branches in the
Philippines:
1. TAIWAN
Hua Nan Commercial Bank Ltd Cathay United Bank Yuanta Bank First Commercial Bank Chang Hwa Bank Commercial Bank Ltd
2. KOREA
Shinhan Bank The industrial Bank of Korea Woori Bank
3. JAPAN
Sumitomo Mitsui of Japa
4. SINGAPORE
United Overseas Bank Ltd. Of Singapore
5. MALAYSIA
