Ma'Am Rowena Abat Module in Monetary Policy

MODULE IN
Prepared By:
ROWENA B. ABAT, MBA

MONETARY POLICY AND CENTRAL BANKING
DANILO PASTORFIDE, MPA

Chapter 1 – Bank and Banking Perspective
Overview
This course is designed to provide an understanding about the bank and banking
perspective in the Philippines and to understand the banking history today and financial
regulation of money; nature of banking business; types of bank operation and develop clear
understanding of bank and banking perspective.
Learning Objectives:
At the end of the unit, the students is able to:
1. Understand the bank and banking perspective.

2. Develop an understanding on Philippine banking history; Philippine banking today.
3. Explain the importance of a nature of banking business and types of bank.
4. Understand economic significance of bank
Setting up
Name: _____________________________________________ Date: __________________

Course/Year/Section: ___________________________
Write your answer on the space provided after the question.
Question:
1. Give your understanding or insight about banking and how it may affect the landscape of
Philippines history.
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2. Differentiate domestic bank and international bank and from each other.
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Lesson Proper
Introduction
Bank and Banking Perspectives

Historical Perspective of the World
∙ 2000 BC- early banking practices started in the Babylon, credit transactions
engaged evidenced by tablets of clay.
∙ 4th Century BC - temples, public bodies and private firms deal in deposits and loaning of
funds.
∙ 2nd century A.D- transactions were registered by public notaries.
∙ 8th century- bank drafts and checks were in wide use in Assyria.
∙ Medici family ushered in the 2nd period of Florentine financial power.
∙ 16th Century- ruled by Fugger Family. John’s Laws financial system almost spelled ruin to
France.
Philippine Banking History
Spanish Era
∙ 16th century that Obras Pias, the first financial institution was organized flourishing
galleon trade between the Philippines and Mexico. Its capital came from pious catholic and
funds were loaned out interest.
∙ Banco Español – Filipino (1828) first established commercial bank performing general banking
functions and partly financed foreign trade. October 17, 1854 it was given a privilege note
of issue. Today its bearing name is Bank of The Philippine Islands (Banco delas Islas
Filipinas)
∙ Opening of Suez Canal (1869) led to accessibility of European markets.
∙ Chartered Bank of India, Australia, and China establishes branches in the country.
∙ Monte de Piedad (1882) a savings bank.
∙ Banco Peninsular Ultramarino in Madrid – put up a branch in the Philippines in 1853.
American Era
Banks continue to do business and soon joined by the branches of International Banking
Corporation and the Guaranty Trust Company. Postal Savings bank was also created as parcel to
the bureau of post. Banks established after World War I Yokohama Specie bank (1919), China
Banking Corporation (1920), Peoples Bank and Trust Company and the Mercantile Bank of
China (1926).
Upon establishment of Commonwealth, Netherlands Indische Handels bank opened

(1973) The Philippine bank of Commerce was the first private bank with genuine Filipino capital
(1938). In 1939 Bank of the Commonwealth, Philippine Bank of Communications and
the government-owned Agricultural- Industrial bank commenced commercial banking
operations
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Japanese Era
During the Japanese occupation only Filipino and Japanese-owned banks were given
permission to operate. The Southern Development Bank opened a branch in Manila in (1942)
which acted as fiscal agent of the Japanese government in the Philippines.
Postwar Era
Presidential Directive, Executive Order 96, invalidated all Japanese occupation deposits.
Executive Order 48 paved the way for the reopening of the pre-war banks.
Rehabilitation Finance Corporation was created by virtue of Republic Act 85 0n January 2, 1947
which took over the functions of the Agricultural Industrial Bank. In 1948 General Banking Act
passed into law.
It provided the definitive rules of conduct of all banking institutions. In 1949 republic act
No. 265 known as Central bank Act was passed. In 1972, Presidential Decree no. 72 was
issued amending Republic act no. 265 in attuned in changing economics. In 1973 Constitution,
Presidential decree no. 1801 designated central Bank of the Philippines as the central monetary
authority which was adopted aimed by the 1987 Constitution.
Philippine Banking History

Spanish Era
∙16th century that OBras
Pias, the first financial
institution was organized
flourishing galleon trade
between the Philippines and
Mexico. Its capital came
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from pious catholics and funds

were loaned out interest.
∙Banco Español – Filipino
(1828) first established
commercial bank performing
general banking functions and
partly financed foreign trade.
October 17, 1854 it
was given a privilege note
of issue. Today its bearing
name is Bank of The
Philippine Islands ( Banco delas
Islas Filipinas)
∙Opening of Suez Canal (1869)
led to accessibility of European
markets.
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∙Chartered Bank of India,

Australia, and China
establishes branches in the
country.
∙Monte de Piedad (1882) a
savings bank.
∙Banco Peninsular Ultramarino
in Madrid – put up a branch in
the Philippines in
1853.
Philippine Banking Today
Republic Act No. 7653 or the New Central Bank Act of 1993, governs Philippine banking
today. It provides for the establishment of an independent monetary authority to be known as
Bangko Sentral ng Pilipinas (BSP). The business of banking has changed irreversibly.
Developments in technology have more contributions in these irreversible changes in the

banking system. Technology has brought us E-Banking, the provision of banking services. The
devise used to provide e-banking services are called E-money which can be divided into three
groups.
a. Access devices- these allow people to withdraw or deposit cash, transfer funds
and pay bills from their bank accounts without physically going to the banks or
writing a check.
b. Card-based products – these are prepaid cards in which funds are stored in
electronic form on a computer chip embedded in cards.
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c. Prepaid software products or network money – involve funds that are stored in
electronic form and are transferred over communication networks
among participants in network
Republic Act No. 8791 known as General Banking Law of 2000, institutionalized a certain
mass of banking reforms in the Philippines. It provides regulation of the
organization and operation of banks, quasi-banks, and trust entities.
Republic Act No. 9160 known as the Anti-Money Laundering Act of 2001, was passed into law
on 29 September 2001. On April 19, 2000 the Monetary Board approved the issuance
of Circular No. 237, consolidating and clarifying all existing rules and regulations on mergers
and acquisitions.
Bank mergers and consolidations are distinguished as follows:
● Merger- is the absorption of one or more corporations by another existing

corporation which retains its identity and takes over the rights, privileges,
franchises, and properties and assumes all liabilities and obligations of the
absorbed corporations.
● Consolidation-the union of two or more corporations into a single new
corporation, called the consolidated corporation.
Banks – shall refer to entities engaged in lending of funds obtained in the form of deposits.
Nature of Banking Business
“Banks makes money out of other people’s money”
Principle of Banking Business
● A certain amount deposited will support several times as much in credit, known as the
partial reserve system.
● A greater portion of deposits in commercial banks arises out of the proceeds of loans.
Types of Banks
As to ownership
a. Privately owned- organized and capitalized by private citizens for their profit.
b. Publicly owned- organized by the state and sometimes has a minimum private
ownership.
As to place of Incorporation
a. Domestic – incorporated under Philippine Laws. Majority of the stocks are owned by
Filipinos.
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b. Foreign- incorporated under laws of other country although the bank might be doing
business in the Philippine
As to Structure
a. Stock corporation- when they sell shares of stocks to the general public to raise capital.
b. Non-stock Corporations- the organization is on a membership basis. Such as savings
and loans associations
As to Function
a. Commercial bank – is one that receives demand deposits and gives out short-term loans.
b. Trust company – an institution which deals in fiduciary activities such as
administrator of estates , guardians of minor’s interest, executor of last wills and
testaments, registrar and transfer agent of stocks and bonds and similar activities.
c. Savings Bank- one which primarily receives for safekeeping funds from persons who
have no immediate need for cash and invests these finds in long-term
investment.
d. Rural Bank- organized primarily to cater the needs of small farmers, small
business, small cottage industries, and cooperative associations. They also receive
deposits and loan out funds.
e. Development Bank- takes care of giving loans to be used for developing the
economy and may therefore engage in medium and long-term lending. The
organization of private development banks shall be, under the control and
supervision of the Development Bank of the Philippines (formerly Rehabilitation Finance
Corporation).
f. Cooperative bank- organized to furnish the credit needs of duly registered and operating
cooperative associations of different kind.
g. Investment Bank - one which assist government bodies and newly organized
corporations to raise funds for capital through the sale of stocks and bonds.
h. Central Bank - is a bank of banks, as it does not deal directly with the public
As to Management
a. Unit Bank- one where ownership is concentrated on one corporation which does banking
business independent of others.
b. Group Banking - When a majority portion of stocks of two more banks are held by a
holding company, this is considered as group banking.
c. Branch Banking – is one where there is a head office and two or more branches.
d. Chain Banking – When one or more persons control the activities of banks, it’s known
as chain banking
Economic Significance of Bank
● A bank facilitates dealings between debtors and creditors because it acts as

an intermediary in the flow of credit funds. It allows others the use of idle funds of the
community in productive activities.
● Creates money out of proceeds of loans.
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● Maintains foreign trade.
Why the State Supervises Banks

− The state does not only supervise banks, but with the advent of central banking, italso
controls the bank’s operation.
Reasons
1. The banks are entrusted with other people’s money. Mismanagement or

malfeasance in the duties of the board of directors will result to banking failure.
2. The state wants to assure that the banks will perform their functions in the best interest of their
clients through the honest and efficient conduct of their functions.
3. The banks may either abuse their power or use them prudently.
4. The Banks, furthermore, are quasi-public corporations and as in all other

corporations of this calling, the state must exert its restraining influence to
safeguard the welfare of its constituents
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Assessing Learning
ACTIVITY 1-1
Name: _______________________________________________________
Course/Year/Section:_____________________________________ Date: __________________
Essay: (10 pts. Each)
1. Explain Republic Act No. 8791
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Chapter 2– Philippine Financial System

Overview
The lesson deals with the Financial System which composed of different banking
institutions and nonbank financial intermediaries, including commercial banks, specialized
government banks, thrift banks and rural banks. It is also composed of offshore banking
units, building and loan associations, investment and brokerage houses and finance
companies.
At the end of the unit, the student is able to:
1. Explain and analyze Philippine Financial System

2. Discuss the different component of a financial system; financial instrument and
financial services
3. Describe the instrument of the ultimate borrower and the instruments of the
financial intermediaries
4. Understand the role and importance of BSP
Setting up
Name: _____________________________________________ Date: __________________

Simple Recall: Answer and Explain
4. Give some example of financial instrument that you still remember in your
previous subject in basic finance and discuss each important in banking system
today.
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Lesson Proper
History Financial System

− Financial System is like the heart of the human beings, if it stops working then the
person is dead in the same way that if the financial system stops working, then the
economy would collapse. It is inherent in every society the law of supply and demand.
There will always be those who have surplus resources and others will have deficit.
Financial System is crucial to the allocation of these resources.
− In the Philippines settings, Financial System is composed of banking institutions
and nonbank financial intermediaries, including commercial banks, specialized
government banks, thrift banks and rural banks. It is also composed of offshore banking
units, building and loan associations, investment and brokerage houses and finance
companies. The Bangko Sentral ng Pilipinas and the Securities and Exchange
Commission maintained the regulatory and supervisory control.
− The first credit institution in the Philippines, "The ObrasPias" was started by
Father Juan Fernandez de Leon in 1754 and ended in 1820. It was in 1851 that the first
Philippine Bank was established, the "Banco Espanol-Filipino de Isabela II". Banco
Español-Filipino de Isabela II is now known as Bank of the Philippine Islands. It is the
oldest standing bank in the Philippines and in the whole of Southeast Asia. It was
established on August 1, 1851 and named after the mother of then Spanish King Alfonso
XII. Her mother's name was Isabella. The bank only came into being after 23 years after
Spanish Monarch Ferdinand VII decreed that a public bank was to be established in the
Spanish colonized country of the Philippines. The bank began its operations in 1852 and
was given the honor of being the first to issue paper money. In 1906 "First Agricultural
Bank of the Philippines" was established and in 1916 all of its assets and liabilities were
transferred to the newly organized Philippine National Bank.
Financial System
− The 'financial system' is a term used in finance to describe the system that allows money
to go between savers and borrower
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There are five mainly components of the financial system:
1.
Financial markets - the system that allows people to buy and sell goods and services to each
other. A financial market is the place where financial assets are created or transferred. It
can be broadly categorized into money markets and capital markets. Money market
handles short-term financial assets (less than a year) whereas capital markets take care of
those financial assets that have maturity period of more than a year.
The key functions are:
1. Assist in creation and allocation of credit and liquidity.
2. Serve as intermediaries for mobilization of savings.
3. Help achieve balanced economic growth.
4. Offer financial convenience.
2. Financial instruments - these are assets belonging to a person or company. This can
include cash, bonds, or other assets; such as property or items of value. This is an
important component of financial system. The products which are traded in a financial
market are financial assets, securities or other type of financial instruments. There is a
wide range of securities in the markets since the needs of investors and credit seekers are
different. They indicate a claim on the settlement of principal down the road or payment
of a regular amount by means of interest or dividend. Equity shares, debentures, bonds,
etc are some examples.
3. Financial institutions - these are organizations that offer financial services. Financial
institutions facilitate smooth working of the financial system by making investors and
borrowers meet. They mobilize the savings of investors either directly or indirectly via
financial markets, by making use of different financial instruments as well as in the
process using the services of numerous financial services providers. They could be
categorized into Regulatory, Intermediaries, Non-intermediaries and Others. They offer
services to organizations looking for advises on different problems including
restructuring to diversification strategies. They offer complete array of services to the
organizations who wants to raise funds from the markets and take care of financial assets
for example deposits, securities, loans, etc.
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4. Financial services - these are offered by financial institutions. These include such things
as banking, insurance policies, loans and mortgages, as well as pensions. Financial
services consist of services provided by Asset Management and Liability Management
Companies. They help to get the necessary funds and also make sure that they are
efficiently deployed. They assist to determine the financing combination and extend their
professional services up to the stage of servicing of lenders. They help with borrowing,
selling and purchasing securities, lending and investing, making and allowing payments
and settlements and taking care of risk exposures in financial markets. These range from
the leasing companies, mutual fund houses, merchant bankers, portfolio managers, bills
discounting and acceptance houses Therefore, Financial services are considered as the
4th major component of the financial system..
5. Markets - Money is understood to be anything that is accepted for payment of products

and services or for the repayment of debt. It is a medium of exchange and acts as a store
of value.
These five elements work together to create a healthy financial system, which in turn builds a
strong economy. No one element is more important than the others - they simply represent
different mechanisms within the system that allow it to function.
Financial Instrument
What Is a Financial Instrument?
− Financial instruments are assets that can be traded, or they can also be seen as packages
of capital that may be traded. Most types of financial instruments provide efficient flow
and transfer of capital all throughout the world's investors. These assets can be cash, a
contractual right to deliver or receive cash or another type of financial instrument, or
evidence of one's ownership of an entity.
− Financial instruments can be real or virtual documents representing a legal agreement
involving any kind of monetary value. Equity-based financial instruments represent
ownership of an asset. Debt-based financial instruments represent a loan made by an
investor to the owner of the asset.
− Foreign exchange instruments comprise a third, unique type of financial instrument.
Different subcategories of each instrument type exist, such as preferred share equity and
common share equity.
Types of Financial Instruments
Financial instruments may be divided into two types:
● Cash instruments - the values of cash instruments are directly influenced and determined
by the markets. These can be securities that are easily transferable. Cash instruments may
also be deposits and loans agreed upon by borrowers and lenders
● Derivative instruments - the value and characteristics of derivative instruments are based
on the vehicle’s underlying components, such as assets, interest rates, or indices. An
equity options contract, for example, is a derivative because it derives its value from the
underlying stock. The option gives the right, but not the obligation, to buy or sell the
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stock at a specified price and by a certain date. As the price of the stock rises and falls, so
too does the value of the option although not necessarily by the same percentage. There
can be over-the-counter (OTC) derivatives or exchange-traded derivatives. OTC is a
market or process whereby securities–that are not listed on formal exchanges–are priced
and traded.
Financial Services
− Financial service is part of financial system that provides different types of finance
through various credit instruments, financial products and services. In financial
instruments, we come across cheques, bills, promissory notes, debt instruments, letter of
credit, etc.
− In financial products, we come across different types of mutual funds extending various
types of investment opportunities. In addition, there are also products such as credit
cards, debit cards, etc.
Importance of Financial services

It is the presence of financial services that enables a country to improve its economic
condition whereby there is more production in all the sectors leading to economic growth.
The benefit of economic growth is reflected on the people in the form of economic
prosperity wherein the individual enjoys higher standard of living. It is here the financial services
enable an individual to acquire or obtain various consumer products through hire purchase. In the
process, there are a number of financial institutions which also earn profits. The presence of
these financial institutions promote investment, production, saving etc.
Hence, we can bring out the importance of financial services in the following points:
1. Promoting investment
The presence of financial services creates more demand for products and the producer, in
order to meet the demand from the consumer goes for more investment. At this stage, the
financial services comes to the rescue of the investor such as merchant banker through the new
issue market, enabling the producer to raise capital.
The stock market helps in mobilizing more funds by the investor. Investments from
abroad is attracted. Factoring and leasing companies, both domestic and foreign enable the
producer not only to sell the products but also to acquire modern machinery/technology for
further production.
2. Promoting savings
Financial services such as mutual funds provide ample opportunity for different types of
saving. In fact, different types of investment options are made available for the convenience of
pensioners as well as aged people so that they can be assured of a reasonable return on
investment without much risks.
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For people interested in the growth of their savings, various reinvestment opportunities
are provided. The laws enacted by the government regulate the working of various financial
services in such a way that the interests of the public who save through these financial
institutions are highly protected.
Financial Services offered by various financial institutions
▪ Factoring.
▪ Leasing.
▪ Forfaiting.
▪ Hire Purchase Finance.
▪ Credit card.
▪ Merchant Banking.
▪ Book Building.
▪ Asset Liability Management.
▪ Housing Finance.
▪ Portfolio Finance.
▪ Underwriting.
▪ Credit Rating.
▪ Interest & Credit Swap.
▪ Mutual Fund.
3. Minimizing the risks
The risks of both financial services as well as producers are minimized by the presence of
insurance companies. Various types of risks are covered which not only offer protection from the
fluctuating business conditions but also from risks caused by natural calamities.
Insurance is not only a source of finance but also a source of savings, besides minimizing
the risks. Taking this aspect into account, the government has not only privatized the life
insurance but also set up a regulatory authority for the insurance companies known as IRDA,
1999 (Insurance Regulatory and Development Authority).
4. Maximizing the Returns
The presence of financial services enables businessmen to maximize their returns. This is
possible due to the availability of credit at a reasonable rate. Producers can avail various types of
credit facilities for acquiring assets. In certain cases, they can even go for leasing of certain
assets of very high value.
Factoring companies enable the seller as well as producer to increase their turnover
which also increases the profit. Even under stiff competition, the producers will be in a position
to sell their products at a low margin. With a higher turnover of stocks, they are able to maximize
their return.
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5. Ensures greater Yield

As seen already, there is a subtle difference between return and yield. It is the yield which
attracts more producers to enter the market and increase their production to meet the demands of
the consumer. The financial services enable the producer to not only earn more profits but also
maximize their wealth.
Financial services enhance their goodwill and induce them to go in for diversification.
The stock market and the different types of derivative market provide ample opportunities to get
a higher yield for the investor.
6. Economic growth
The development of all the sectors is essential for the development of the economy. The
financial services ensure equal distribution of funds to all the three sectors namely, primary,
secondary and tertiary so that activities are spread over in a balanced manner in all the three
sectors. This brings in a balanced growth of the economy as a result of which employment
opportunities are improved.
The tertiary or service sector not only grows and this growth is an important sign of
development of any economy. In a well-developed country, service sector plays a major role and
it contributes more to the economy than the other two sectors.
7. Economic development
Financial services enable the consumers to obtain different types of products and services
by which they can improve their standard of living. Purchase of car, house and other essential as
well as luxurious items is made possible through hire purchase, leasing and housing finance
companies. Thus, the consumer is compelled to save while he enjoys the benefits of the assets
which he has acquired with the help of financial services.
8. Benefit to Government
The presence of financial services enables the government to raise both short-term and
long-term funds to meet both revenue and capital expenditure. Through the money market,
government raises short term funds by the issue of Treasury Bills. These are purchased
by commercial banks from out of their depositors’ money.
In addition to this, the government is able to raise long-term funds by the sale of
government securities in the securities market which forms apart of financial market. Even
foreign exchange requirements of the government can be met in the foreign exchange market.
The most important benefit for any government is the raising of finance without offering any
security. In this way, the financial services are a big boon to the government.
9. Expands activities of Financial Institutions
The presence of financial services enables financial institutions to not only raise finance
but also get an opportunity to disburse their funds in the most profitable manner. Mutual
funds, factoring, credit cards, hire purchase finance are some of the services which get financed
by financial institutions.
The financial institutions are in a position to expand their activities and thus diversify the
use of their funds for various activities. This ensures economic dynamism.
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10. Capital Market

One of the barometers of any economy is the presence of a vibrant capital market. If there
is hectic activity in the capital market, then it is an indication of the presence of a positive
economic condition. The financial services ensure that all the companies are able to acquire
adequate funds to boost production and to reap more profits eventually.
In the absence of financial services, there will be paucity of funds which will adversely
affect the working of companies and will only result in a negative growth of the capital market.
When the capital market is more active, funds from foreign countries also flow in. Hence,
the changes in capital market is mainly due to the availability of financial services.
11. Promotion of Domestic and Foreign Trade
Financial services ensure promotion of domestic as well as foreign trade. The presence
of factoring and forfaiting companies ensures increasing sale of goods in the domestic market
and export of goods in the foreign market. Banking and insurance services further contribute to
step up such promotional activities.
12. Balanced Regional development
The government monitors the growth of economy and regions that remain backward
economically are given fiscal and monetary benefits through tax and cheaper credit by which
more investment is promoted. This generates more production, employment, income, demand
and ultimately increase in prices.
The producers will earn more profits and can expand their activities further. So, the
presence of financial services helps backward regions to develop and catch up with the rest of the
country that has developed already.
Financial intermediary
− A financial intermediary is an institution or individual that serves as a middleman among
diverse parties in order to facilitate financial transactions. Common types include
commercial banks, investment banks, stockbrokers, pooled investment funds, and stock
exchanges. Financial intermediaries reallocate otherwise un-invested capital to
productive enterprises through a variety of debt, equity, or hybrid stake holding
structures.
− A financial intermediary is an entity that acts as the middleman between two parties in a
financial transaction, such as a commercial bank, investment bank, mutual fund, or
pension fund. Financial intermediaries offer a number of benefits to the average
consumer, including safety, liquidity, and economies of scale involved in banking and
asset management. Although in certain areas, such as investing, advances in technology
threaten to eliminate the financial intermediary, disintermediation is much less of a threat
in other areas of finance, including banking and insurance.
How a Financial Intermediary Works
− A non-bank financial intermediary does not accept deposits from the general public. The
intermediary may provide factoring, leasing, insurance plans, or other financial services.
Many intermediaries take part in securities exchanges and utilize long-term plans for
managing and growing their funds. The overall economic stability of a country may be
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shown through the activities of financial intermediaries and the growth of the financial
services industry.
− Financial intermediaries move funds from parties with excess capital to parties needing
funds. The process creates efficient markets and lowers the cost of conducting business.
For example, a financial advisor connects with clients through purchasing insurance,
stocks, bonds, real estate, and other assets.
− Banks connect borrowers and lenders by providing capital from other financial
institutions and from the Federal Reserve. Insurance companies collect premiums for
policies and provide policy benefits. A pension fund collects funds on behalf of members
and distributes payments to pensioners.
Types of financial intermediaries
According to the dominant economic view of monetary operations,[9] the following institutions
are or can act as financial intermediaries:
● Banks
● Mutual savings banks
● Savings banks
● Building societies
● Credit unions
● Financial advisers or brokers
● Insurance companies
● Collective investment schemes
● Pension funds
● cooperative societies
● Stock exchanges
According to the alternative view of monetary and banking operations, banks are not
intermediaries but "fundamentally money creation" institutions,[9] while the other institutions in
the category of supposed "intermediaries" are simply investment funds.[9]
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Assessing Learning
ACTIVITY 2-1
Name: _____________________________________________ Date: __________________

Course/Year/Section: ___________________________ Score: _________________
Essay:
1. How does a Financial Intermediary Works?
2. Explain the importance of Financial services
3. Explain the Financial instruments
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4. Discuss the difference between promoting investment to promoting services
5. How does a capital market help the economy grows?
Chapter 3 – Bank Supervision and Examination

Overview
This paper discusses the efforts undertaken by BSP, specifically on the strengthening of
its legal and supervisory framework, enhancements in its organizational structure, improvements
in its compliance with the Basel Core Principles, and its adoption of various tools for banking
supervision.
Several observers have pointed out that the 1997 Asian financial crisis has revealed
weaknesses in banking supervision in Asian jurisdictions, including the Philippines. As a
response, banking supervisors across the region have set out to improve the practice of banking
supervision in their respective jurisdictions, either through their individual efforts or through
regional efforts via the different regional groups of banking supervisors. These efforts are
generally guided by the Basel Core Principles for Effective Banking Supervision issued by the
Basel Committee on Banking Supervision.
Learning Objectives
At the end of the unit, the students is able to:
1. Understand and describe the bank supervision and examination

2. Identify the different bank supervision and examination authority
3. Evaluate the concept of bank supervision and examination
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Setting up
Name: _____________________________________________ Date: __________________

1. Cite your argument/s by describing the advantages or disadvantages of BSP.

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Lesson Proper
Banking Supervision - The act of monitoring the financial performance and operations of banks
in order to ensure that they are operating safely and soundly and following rules and regulations.
Bank supervision is conducted by governmental regulators and occurs in order to prevent bank
failures.
Banking Supervision in the Philippines
Legal and supervisory framework Republic Act No. 7653 as amended, otherwise known
as the New Central Bank Act of 1993 authorized the Bangko Sentral ng Pilipinas to exercise
supervision over the operations of banking institutions and quasi-banks including their
subsidiaries and affiliates engaged in allied activities. This provides the legal basis for the
implementation of consolidated supervision. The adoption of the risk based approach in the
conduct of banking supervision, on the other hand, is supported by the General Banking Law of
2000 (R.A. No. 8791).
The implementation of consolidated supervision was driven by the emergence of
complex banking groups and mixed conglomerates controlled by a few affluent families. It was
observed that certain structures were resorted to in order to benefit from regulatory arbitrage, and
gain ready access to low cost funds for the family business group against the backdrop of an
underdeveloped domestic capital market. On the other hand, a more risk-based approached was
necessary to keep up with the growing complexity of the banking business. At the same time,
increasing and simultaneous demands on available but limited supervisory resources prompted
the search for an alternative approach that would permit a more efficient allocation based on
identified priority needs. Financial institutions that prove themselves to be well managed
22 | Page
certainly do not require as much supervisory attention as those which are determined to be
poorly managed.
The Bangko Sentral initially adopted a gradualist approach in effecting the shift to
consolidated supervision and the risk based approach, cognizant of the importance of managing
change and ensuring sufficient buy-in of major stakeholders involved. Moreover, it was clear
from the start that full adoption of consolidated supervision and the risk based approach called
for improvements in data collection, an almost total overhaul of supervisory processes and
procedures, and a paradigm shift in the mind-set of bank supervisory staff. The last posed the
greatest challenge as the exposure of a larger number of the more senior supervisory staff had
been to compliance based supervision.
The shift to a risk based supervision approach from a compliance based one started in
1997 when the BSP gradually redirected its supervisory thrust to focus more on the measurement
and management of banks’ risk exposures, rather on financial audit of sample transactions
occurring within a specified period generally reckoned from the immediately preceding
examination the identification of breaches of provisions of law or banking regulations. Progress,
however, was very incremental due largely to internal resistance and the full shift only started to
happen in 2005.
The BSP’s new supervisory approach now favors an assessment of the quality of risk
management practices and generally allows banks to take risks so long as the banks demonstrate
the ability to manage, absorb and price for those risks, in contrast to the traditional approach that
cautioned banks against taking on risks that seem too high. In carefully loosening the regulatory
grip on banks’ risk taking activities, the BSP must necessarily underscore the responsibility of
the bank’s board of directors and senior management to ensure the soundness and stability of
their respective banks. BSP’s role is primarily to evaluate the quality of oversight, the adequacy
of policies and procedures, robustness of the risk management system and the effectiveness of
the internal audit function. To carry out its changed approach, the BSP thru its Supervision and
Examination Sector, found it imperative to improve its data collection and storage, review and
revise competency requirements for bank supervision staff, overhaul the examination and offsite
monitoring processes, and intensify efforts to continuously upgrade the skills of bank
supervisory staff.
Data Collection and Storage
As far as data collection and storage is concerned, a new Financial Reporting Package
(FRP) was crafted that is consistent with the Philippine Accounting Standards (PAS) and
Philippine Financial Reporting Standards (PFRS). In 2005, the PAS/PFRS was amended to fully
align with the IAS/IFRS for enhanced financial transparency. The FRP, submitted electronically,
is meant to facilitate gathering more relevant data leading to improved and timely analysis that
will support the supervisory process.
A Data Warehouse System has also provided ready access to all supervisory data by
authorized personnel and brought ease in doing vertical and horizontal analysis of data, peer
group comparisons and trending. Examiners/analysts may perform such analysis using a
comprehensive preprogrammed Bank Performance Report (BPR) or do independent data mining.
23 | Page
In the very near future, reporting banks will be provided web-based access to their own data
relative to aggregated peer data for value added and better quality control.
Overhaul of the Examination/Offsite Monitoring Process
Risk based supervision features a balanced complementation of on-site examination and
off-site monitoring. An effective off site monitoring mechanism that yields an updated
assessment of the changing risk profile of a banking unit or group serves as a valuable input to
the scoping and planning of an on-site examination. On the other hand, a Report of Examination
that is completed and shared shortly after an onsite examination, one that is well written and
clearly presents major supervisory conclusions, contributes significantly to the preparation of an
updated assessment of bank risk profile. The interdependency and close coordination of work
units discharging those separate tasks should serve to foster teamwork and build mutual trust.
The on-site examination assumes a different focus, from a compliance-based exercise to
one that puts emphasis on the soundness of governance and risk management and the
effectiveness of the audit function. Its conduct entails reliance on enhanced analytic skills and
judgment calls of examiners. The method for implementing the rating system for banks, known
as CAMELS, has likewise undergone review to reflect the new approach. Moreover,
examination teams are now expected to discuss more candidly with banks how ratings were
determined.
For off-site monitoring, the challenge is to be able to identify sources of potential threats
to financial and reputational soundness. Critical thinking abilities and sound judgment skills are
very crucial. Bank supervision staff assigned to do this task need to alert higher management of
what he perceives as potential threats, based on all available information. As the central point of
contact, he is also expected to thoroughly understand and be updated on the business of a bank.
These assessments are synthesized in an Institutional Overview (IO) document that is updated on
a quarterly basis.
Skill Sets and Training
The revision in methodology and processes in the conduct of supervision has underscored
the need for new skill sets other than what had been traditionally identified as accounting and
auditing skills. These are being developed through in-house structured training programs and
specialty courses designed with the assistance of outside experts provided through technical
assistance from the IMF (funded by the Japanese Government), First Initiative (administered by
the World Bank) and USAID. All supervisory personnel are required to go through these
continuing training programs. A major objective of the technical assistance is also the
development of in-house trainors from the supervisory staff to facilitate mass training at
affordable cost. The list of courses is shown in Annex A. In addition to classroom-based training,
a Resident Advisor and short-term consultants funded from IMF technical assistance also
delivers practical training.
The BSP has also strongly encouraged and subsidized the acquisition by staff of
international certification for relevant skills such as Chartered Financial Analyst (CFA), Certified
Internal Auditor (CIA), Professional Risk Manager (PRM), Financial Risk Manager (FRM), and
Certified Information System Auditor (CISA) for IT examiners. It has also been sending staff
24 | Page
including lawyers to universities for graduate and post-graduate education in relevant fields
supporting the expanding requirements of banking supervision. The hiring policy for supervisory
personnel has been expanded as well to be able to take on new talent from disciplines other than
finance and accounting such as statistics, economics, mathematics and operations research.
However, even as BSP has invested heavily in developing its human resources in banking
supervision, it has also to deal with the challenge of retaining its staff. With their more advanced
skills, they have become more attractive to foreign banking supervisors, international accounting
firms, and private industry who themselves are after the same skill sets.
Organization of the BSP Supervision and Examination Sector (SES)
The BSP-SES headed by a Deputy Governor is the specific component of the BSP that is
responsible for carrying out its responsibility from bank supervision. The SES is in the process of
completing a deep and sweeping reorganization to effectively implement its risk-based
supervisory approach.
Under the reorganization, the old set-up of self-contained end-to-end supervision and
examination departments assigned to banks by general type is being replaced with a set-up that
features specialist organizational formations build around the major bank supervision processes
and held together by overall supervisory relationship management teams in charge of major
banking groups and/or as diversified portfolio of financial institutions. (The old organizational
set-up is shown in Annex B and the new set-up is shown in Annex C.)
The new SES is divided into four major sub-sectors, to provide:
1. Sufficient controls and accountability over specific activities in the supervision
process;
2. Specialization and focus in highly technical areas;
3. Consistency in the interpretation and application of supervisory policies and rules and
regulations;
4. Timeliness in the submission of reports of examination and accomplishment of
critical supervision tasks.
The new set-up better recognizes the specialized requirements of troubled banks with a
view to their early resolution. At the same time, for the broader population of normally operating
financial institutions, the set-up allows the highly flexible, dynamic and scalable application of
risk-based supervision methods through the coordinated efforts of off-site relationship managers
for continuity and on-site examination terms that bring together various specialist skills
depending on the risk profile of target financial institutions. The arrangement is complemented
by the centralized delivery of critical services such as 8 licensing, policy development, data
management, consumer affairs management, and administrative services.
Other Supervisory Tools
To complement the improvements in its on-site examination practices, the BSP has also
enhanced its other supervisory tools specifically those for offsite surveillance. For example, the
use of Bank Performance Reports (BPR) system has been very useful in monitoring the financial
performance of supervised entities in between on-site examinations. The BPR contains in one
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compact report key performance indicators that support CAMELS soundness analysis. The BSP
is also using a statistical model – the Bank Early Warning System (EWS) – that generates one-
year ahead forecasts of key bank performance variables, especially solvency and asset quality.
The output of EWS is used to help prioritize on-site examinations and validate judgmental
assessments of bank condition.
Compliance with the Basel Core Principles for Effective Banking Supervision
The 2002 IMF assessment on the Philippines’ compliance with the Basel Core Principles
for Effective Banking Supervision revealed that although compliance overall is quite high,
important gaps still existed. These gaps included, among others, strengthening the legal
protection for supervisors, formalization of information sharing and cooperation with other local
and foreign supervisory agencies through MOUs or other mechanisms, improving the conduct of
consolidated supervision and the examination procedures, enhancing the framework for prompt
corrective action and problem bank resolution, and the application of appropriate standards for
banks’ risk management systems.
Certainly, a lot of things have happened since then. Although the revisions to the BSP
Charter have not been enacted yet, the strengthening of legal protection for supervisors is one of
the proposed revisions currently being deliberated in Congress. Meanwhile, case law upholding
the supervisory powers of the BSP has also steadily built up. On the other hand, as mentioned
above, there is already a formal platform for 9 information exchange and cooperation among the
local financial supervisors through the FSF. As to information exchange arrangements with
foreign supervisory agencies, the BSP has formal agreements in place with five (5) foreign
supervisory agencies, and is negotiating with seven (7) others.
The BSP has also formally implemented appropriate standards for banks’ risk
management systems. This started with the guidelines on the minimum standards for risk
management of financial derivatives. This was followed by the guidelines on the minimum
standards that banks must observe in designing and using an internal credit risk rating system for
the underwriting and on-going monitoring of their credit exposures. Then, separate guidelines on
market risk management, liquidity risk management, and IT risk management were issued in
close succession. The BSP has also issued guidelines on supervision by risk, which sets out the
framework for BSP’s supervision of the eight (8) major risks faced by banks (credit risk, market
risk, interest rate risk, liquidity risk, operational risk, compliance risk, strategic risk, and
reputational risk). Issuance of these 10 risk management guidelines aims to complement the risk-
based supervisory framework being implemented by BSP. It also aims to instill in banks the
discipline of critically examining their risk exposures.
Adoption of International Standards
Aside from striving to be aligned with the Basel Core Principles for Effective Banking
Supervision, the BSP has also been keeping pace with developments in international standards
for capital regulation and accounting practices.
The BSP has actively monitored the crafting of the Basel II standards from the time the
Basel Committee first issued the first consultative document in 1999. BSP even participated in
the third quantitative impact study (QIS) of Basel II and was part of the Non G-10 QIS Group.
26 | Page
Simultaneously, the BSP has also prepared internally for the eventual adoption of Basel II in the
Philippines by making necessary revisions and adjustments to the regulatory framework, and
undertaking capacity building and market awareness programs. Consequently, the BSP
successfully adopted the simple approaches under Pillar 1 of Basel II starting July of this year as
well as suitably adopted Pillar 3 guidelines. This was preceded by more than one year of
consultations with all stakeholders before the final implementing guidelines were issued, and
half a year of parallel run with the existing framework. By 2010, the advanced approaches of
Basel II may already be allowed for purposes of computing banks’ capital requirements. The
timing is dictated by the adequacy of available data. Currently, Internal Capital Adequacy
Assessment Process (ICAAP) guidelines are under exposure to the industry and other interested
parties for the purpose of operationalizing Pillar 2 by 2008.
The BSP has likewise adopted the Philippine Financial Reporting Standards
(PFRS)/Philippine Accounting Standards (PAS), which are patterned after the revised
International Financial Reporting Standards (IFRS) and International Accounting Standards
(IAS) issued by the International Accounting Standards Board (IASB). Since 2005, financial
institutions have been mandated to fully comply with the provisions of PFRS/PAS in preparing
both their audited financial statements and the financial statements for prudential reporting. The
adoption of the new set of accounting standards has been aimed at enhancing fairness,
transparency and accuracy in financial reporting.
Developmental Initiatives
With improving skills and supervisory capacity, the BSP has more confidently pursued a
targeted developmental agenda to promote further development of the Philippine financial
system while maintaining prudential standards.
These initiatives include:
1. Capital market development through contributions to foreign exchange liberalization,
domestic bond and derivatives market development and payments systems upgrades;
2. Enhanced access to banking services by the poor through sustainable microfinance
practices of banks and innovative deployment of mobile banking services;
3. Promoting financial literacy.
The BSP has also prioritized in its legislative advocacy the establishment of a
comprehensive credit information system through enactment of the Credit Information System
Act, the modernization of the payments system through the Payment System Act, and the reform
of the bankruptcy framework through the Corporate Recovery Act. It also supports various
capital market development-oriented bills such as the Personnel Equity Retirement Act which
promotes private long-term saving for retirement income augmentation.
These initiatives should go a long way towards developing fully the Philippine financial
system in a stable and robust manner. The current overdependence on the banking system even
for long-term savings creates an inherently unstable system that is prone to systemic risks. The
long-term stability of the banking system as much depends on the availability of complementary
institutions and markets.
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Assessing Learning
ACTIVITY 3-1
Name: _____________________________________________ Date: __________________

Course/Year/Section: ___________________________ Score: _________________
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Chapter 4 – Bank Credit Instruments

Overview:
The lesson deals with bank credit instruments evidencing the existence of a credit
obligation which defines the responsibility of a debtor towards his creditor and the right of the
creditor to collect from the debtor on the maturity date. It also shown the features and importance
of credit instruments as evidence of the existence of an obligation on the part of the debtor, or a
claim on the part of the creditor. It shows the degree of risk that confronts the creditor with
respect to the collection of the debt. And lastly credit instrument facilitates production and
consumption. Stocks and bonds certificates issued by corporations that are engaged in production
activities. Consumers avail themselves of the use of book accounts, installment and checks to
fulfill their instrument.
1. Describe and understand the importance/features of credit instruments

2. Understand the different concept of credit instruments
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3. Analyze the different types of bank credit instrument

4. Determine how negotiation is important in dealing people settle differences.
Setting up
Name: _______________________________________________ Date: ________________

Course/Year/Section: _____________________________
Discuss the following:
1. General Acceptability
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
2. Limited Acceptability
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Lesson Proper
What is Credit Instruments?
Credit instrument- is a document evidencing the existence of a credit obligation which defines
the responsibility of a debtor towards his creditor and the right of the creditor to collect from the
debtor on the maturity date.
Features of credit instruments:
1. It is a written evidence of the existence of an obligation on the part of the debtor, or a claim on
the part of the creditor.
2. It shows the degree of risk that confronts the creditor with respect to the collection of the debt.
3. It shows the nature of the debtor-creditor relationship.
Functions of credit instruments:
1. Written documents make claims enforceable. The credit instrument enables the creditor to
hold the host instrument to collect from his debtor. The debtor on the other hand is protected of
his rights with respect to the amount of the obligation, interest and maturity date.
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2. Credit instruments facilitate exchange transactions. To increase volume production, producer's

farmers, manufacture and merchants avail themselves credit both use of the proper credit
instrument.
3. Credit instrument minimize disputes among the contracting parties. Such instruments define
the extent of the obligations and claims of debtors and creditors. Once both parties are bound by
the same instruments, future disputes are avoided.
4. Credit instrument facilitates production and consumption. Stocks and bonds certificates issued
by corporations that are engaged in production activities. Consumers avail themselves of the use
of book accounts, installment and checks to fulfill their instrument.
Two broad classifications
1. The credit instrument with General Acceptability - the only instrument that meets the
qualification of general acceptability is credit money. It may be in the form of bank notes
or treasury certificates.
− Credit instruments which all persons within a country are willing to take in payment for
goods or services.
− Credit Instruments widely acceptable without questioning the integrity of the person
offering it.
The only credit instrument that meets the qualification of general acceptability is credit money.
Credit Money
Bank Notes or Paper Money -Issued by the Central Bank Treasury Certificates -a short-
term obligation of the treasury, usually maturing in one year, paying interest periodically on a
coupon basis: no longer issued publicly.
Credit Money Qualities
1.) Must be issued by a promissory in which all the people have confidence.
2). Must be in convenient denominations
3). Easily recognizable
4). Must be difficult to counterfeit.
2. The Credit Instrument with Limited Acceptability - are issued under conditions as to make
them an acceptable means of payment only within a restricted field.
− Credit Instruments for Investment Purposes are subdivided into stock certificates,
bond certificates, and money market bills.
● Stock Certificates- Evidences of ownership in a corporation Preferred stocks- having
special privileges & carry certain limitations. Common stocks- having entitled to residual
claims on the business.
● Bond Certificates-Issued by a government or corporation in order to raise money
● Money Market Bills-Negotiable financial instruments bought and sold in the market.
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− Money market- a meeting place for users and suppliers of short term funds. Parties to
a money market transaction:
a.) Fund User- ate those companies with high credit rating hat in need of funds.
b.) Fund Supplier- are individuals or corporations with excess liquidity who are
looking for possible investment outlets for their excess funds.
c.) Broker- are individuals or institutions engaged in the buying and selling of
money market instruments.
Terminologies of Credit Instruments:
Negotiation – refers to the art of transferring a negotiable credit instrument from one person to
another in such a way as to constitute the transferee the holder of the instrument.
Holder of due course – is the payee or endorsee of a bill of exchange or note who is in
possession of that instrument of bearer thereof.
Negotiability – is the quality possessed by a credit instrument of value that permits legal title to
it, to be transferred to one person to another by mere delivery or endorsement.
The requisites are:

1. It must be in writing.
2. It must be signed by the maker or drawer.
3. It must contain an unconditional promise or order to pay a sum certain in money.
4. It must be payable on demand or at a fixed determinable time.
5. It must be payable to order or bearer.
6. Where the instrument is addressed to a drawee, he must be named therein or indicated
with reasonable certainty.
Endorsement – is the signing usually at the back of a negotiable instrument in order to
guarantee or establish transfer of legal title over property right.
1. Blank endorsement is the signing of the instrument without specifying the evidence.
2. Special endorsement is one where the endorser specifies the person to whom or to whose
order the instrument is to be payable.
3. Restrictive endorsement is one where the transfer of the possession of an instrument is for
a certain purpose such as:
4. To prohibit further negotiation of the instrument
5. To constitute the endorsee to be the agent of the endorser
6. To vest the title in the endorsee in trust for or to the use of some other persons
7. Qualified endorsement is one that limits or qualifies the liability of the endorser, and is
affected by writing the words “without recourse” or “at the risk of the endorser”.
8. Unconditional endorsement is one where the payment of the instrument depends on the
happening of condition specified on the instrument.
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Presentment – is the act of offering at the proper time and place a note, a bill of exchange or the
like for acceptance, payment or discharge of liability on any credit instrument.
Dishonor – refers to the non-payment or non-acceptance of the credit instrument by the party on
whom it is drawn.
Protest – is the file in writing if upon presentment, a credit instrument is dishonored.
Acceptance-supra test – refers to an agreement to pay a protested note, draft or any other credit
instrument by a person other than the debtor.
Accommodation phase – refers to a promissory note that has been endorsed by one or more
persons in order that one who originally made that the note may obtain credit at a financial
institution usually a bank.
Payable to bearer – whom the instrument does not specify a person to whom payment is to be
made or whom it is payable to CASH, any bearer of the instrument is entitled to receive payment
thereof.
Common Types of Credit Instruments
The vast majority of credit instruments involve a mixture of standard types. We can broadly
classify the credit instruments used by the lender as follows:
1. Promissory Note: A promissory note is a written promise from a buyer or a borrower to

pay a certain sum of money to his creditor or his order
2. Bill of exchange: A bill of exchange is order by a seller to a buyer or by a creditor to a

debtor to pay a certain sum of money to himself or to the bearer therein.
3. Cheque: It is a written order on a printed form by a depositor to pay a sum of money to

himself or somebody else.
Kinds of Cheque:
● Bearer Cheque
● Order Cheque
● Crossed Cheque
● Post dated Cheque
● Blank Cheque
4. Bank Draft: A bank draft is a payment on behalf of the payer, which is guaranteed by

the issuing bank. A draft is used when the payee wants a highly secure form of payment.
The bank can safely issue this guarantee because it immediately debits the payer’s
account for the amount of the check, and therefore has no risk.
5. Commercial Paper: Commercial paper (CP) is an important money market instrument

to raise short term funds.
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6. Bond/ Debenture: A corporate bond or a debenture is a credit instrument in which the

issuer obtains cash from the initial investors at origination and, in return, agrees to make
payments of interest and, at maturity, of principal to holders of the securities.
Advantages of Credit Instruments
1. Credit instrument reduces carrying of money to some extent

2. Credit instrument makes capital more productive
3. Credit enables bank to lend more than their cash reserve
4. Trade and industry are financed mostly by the aid of credit
5. It facilitates and extend/encourage international trade

Disadvantages of Credit Instruments
1. Reckless borrowing can ruin both the borrower and the lender
2. Credit usually costs more than paying cash. Interest and other charges may be added to
the purchase price.
3. Credit ties up future income.
4. Sometimes high interests are paid.
5. Credit encourages monopolies by placing large funds at disposal on few individuals or
corporations
What is Negotiation?
Negotiation is a method by which people settle differences. It is a process by which

compromise or agreement is reached while avoiding argument and dispute.
In any disagreement, individuals understandably aim to achieve the best possible outcome for
their position (or perhaps an organization they represent). However, the principles of fairness,
seeking mutual benefit and maintaining a relationship are the keys to a successful outcome.
Specific forms of negotiation are used in many situations: international affairs, the legal
system, government, industrial disputes or domestic relationships as examples. However, general
negotiation skills can be learned and applied in a wide range of activities. Negotiation skills can
be of great benefit in resolving any differences that arise between you and others
Stages of Negotiation
In order to achieve a desirable outcome, it may be useful to follow a structured approach to

negotiation. For example, in a work situation a meeting may need to be arranged in which all
parties involved can come together.
The process of negotiation includes the following stages:
1. Preparation
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Before any negotiation takes place, a decision needs to be taken as to when and where a
meeting will take place to discuss the problem and who will attend. Setting a limited time-scale
can also be helpful to prevent the disagreement continuing.
This stage involves ensuring all the pertinent facts of the situation are known in order to
clarify your own position. In the work example above, this would include knowing the ‘rules’ of
your organization, to whom help is given, when help is not felt appropriate and the grounds for
such refusals. Your organization may well have policies to which you can refer in preparation
for the negotiation.
Undertaking preparation before discussing the disagreement will help to avoid further
conflict and unnecessarily wasting time during the meeting.
2. Discussion
During this stage, individuals or members of each side put forward the case as they see it, i.e.
their understanding of the situation.
Key skills during this stage include questioning, listening and clarifying. Sometimes it is

helpful to take notes during the discussion stage to record all points put forward in case there is
need for further clarification. It is extremely important to listen, as when disagreement takes
place it is easy to make the mistake of saying too much and listening too little. Each side should
have an equal opportunity to present their case.
3. Clarifying Goals
From the discussion, the goals, interests and viewpoints of both sides of the disagreement
need to be clarified.
It is helpful to list these factors in order of priority. Through this clarification it is often
possible to identify or establish some common ground. Clarification is an essential part of the
negotiation process, without it misunderstandings are likely to occur which may cause problems
and barriers to reaching a beneficial outcome.
4. Negotiate Towards a Win-Win Outcome
This stage focuses on what is termed a 'win-win' outcome where both sides feel they have
gained something positive through the process of negotiation and both sides feel their point of
view has been taken into consideration.
A win-win outcome is usually the best result. Although this may not always be possible,
through negotiation, it should be the ultimate goal.
Suggestions of alternative strategies and compromises need to be considered at this point.
Compromises are often positive alternatives which can often achieve greater benefit for all
concerned compared to holding to the original positions.
5. Agreement
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Agreement can be achieved once understanding of both sides’ viewpoints and interests have
been considered.
It is essential to for everybody involved to keep an open mind in order to achieve an

acceptable solution. Any agreement needs to be made perfectly clear so that both sides know
what has been decided.
6. Implementing a Course of Action
From the agreement, a course of action has to be implemented to carry through the decision.
Assessing Learning
Activity 4-1
Name: ________________________________________ Date:________________

Course/Year/Section: _____________________ Score: ______________
Identification: Write your answer on the space provided before each number.
_________________1. It facilitates production and consumption.

_________________2. It is issued by a government or corporation in order to raise money.
_________________4. It refers to the individuals or corporations with excess liquidity who are
looking for possible investment outlets for their excess funds.
_________________5. It refers to the individuals or institutions engaged in the buying and
selling of money market instruments.
36 | Page
_________________6. It is a document evidencing the existence of a credit obligation which

defines the responsibility of a debtor towards his creditor and the right of the creditor to collect
from the debtor on the maturity date.
_________________7. It is a written promise from a buyer or a borrower to pay a certain sum of
money to his creditor or his order.
_________________8. It is an order by a seller to a buyer or by a creditor to a debtor to pay a
certain sum of money to himself or to the bearer therein.
_________________9. It is a meeting place for users and suppliers of short term funds. Parties to
a money market transaction.
________________10. It refers to the art of transferring a negotiable credit instrument from one
person to another in such a way as to constitute the transferee the holder of the instrument.
________________11. It is a written order on a printed form by a depositor to pay a sum of
money to himself or somebody else.
________________12. It is the quality possessed by a credit instrument of value that permits
legal title to it, to be transferred to one person to another by mere delivery or endorsement.
________________13. It refers to an agreement to pay a protested note, draft or any other credit
instrument by a person other than the debtor.
________________14. It is the act of offering at the proper time and place a note, a bill of
exchange or the like for acceptance, payment or discharge of liability on any credit instrument.
________________15. It is the signing usually at the back of a negotiable instrument in order to
guarantee or establish transfer of legal title over property right.
________________16. It refers to the non-payment or non-acceptance of the credit instrument
by the party on whom it is drawn.
________________17. It is a payment on behalf of the payer, which is guaranteed by the
issuing bank.
________________18. It is essential to for everybody involved to keep an open mind in order to
achieve an acceptable solution.
________________19. This stage involves ensuring all the pertinent facts of the situation are
known in order to clarify your own position.
________________20. It is a method by which people settle differences.
Chapter 5 – TYPES OF BANK REPORTS
Overview:
This chapter discuss 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.
37 | Page
a. Identify the different types of bank report

b. Explain the importance of bank report
c. Discuss the types of bank report
Setting up
Name: _______________________________________________ Date: ________________

Simple Assessment:
1. How important are control systems to ensure that a company’s global marketing efforts meet
its goals? Cite each of the three control measures currently used by organizations.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
2. What are the pros and cons in using behavior- and output-based control systems as a means
of measuring a company’s performance?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Lesson Proper
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 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
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● 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).
39 | Page
• 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.
Example
The following is an example of a Statement of Financial Position prepared in accordance with

IAS 1 Presentation of Financial Statements.
Statement of Financial Position as of December 31, 2020
Notes 2020 2019
USD USD
Assets
Non- current assets
Property, plant & equipment 9 130,000 120,000
Goodwill 10 30,000 30,000
Intangible assets 11 60,000 50,000
220,000 200,000
Current assets 12 12,000 10,000
Inventories 13 25,000 30,000
Trade receivables 14 8,000 10,000
Cash and cash equivalents
45,000 50,000
40 | Page
Total assets 265,000 250,000
Equity & liabilities
Equity
Share capital 4 100,000 100,000
Retained earnings 50,000 40,000
Revaluation reserve 5 15,000 10,000
Total equity 165,000 150,000
Non-current liabilities
Long term barrowings 6 35,000 50,000
Current liabilities
Trade & other payables 7 35,000 25,000
Short term barrowings 8 10,000 8,000
Current portion of long term 6 15,000 15,000

barrowings
Current tax payables 9 5,000 2,000
65,000 50,000
Total liabilities 100,000 100,000
Total equities & liabilities 265,000 250,000
2. Earnings Statement
41 | Page
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.
42 | Page
Assessing Learning
Activity 5-1
Name: ________________________________________ Date:________________

In a matrix format, such as the one shown above, provide an example of earnings or income
statements, a cash flow statement, and a statement of equity changes.
43 | Page
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.
1. Describe the bank deposit function

2. Explain and Analyze the different types of bank deposits
Setting up
Name: _______________________________________________ Date: ________________

Simple Assessment: Define the ff.
1. Time deposit
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
44 | Page
________________________________________________________________________
________________________________________________________________________
2. Certificate of bank deposit

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3. Bank reconciliation
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Lesson Proper
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.
45 | Page
● 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:
a. Errors in calculating the amount of money deposited.

b. 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
46 | Page
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 words and
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
47 | Page
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."
1. Demand Deposits – are those

which are withdrawn upon the
presentation of checks
during banking hours. This type
of deposit does not receive
interest in modern times.
2. Time deposits – are those
which can be withdrawn after a
certain period of time or at
48 | Page
a designated maturity. The

depositors place their excess
funds as rime deposits for
varied purposes. For this reason,
this type of deposits is further
subdivided into the
following:
a. Time certificate of deposits –
this is evidenced by a certificate
to the effect 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
49 | Page
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.
50 | Page
Assessing Learning
Activity 6 -1
Name: ________________________________________ Date:________________

Answer and explain the following questions intelligently, using the rubrics provided to help
you develop your response.
1. Take any piece of paper and explain in your own words what a function deposit is, as
well as the different types of bank deposits and what it means.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
2. In your own words, describe the role and responsibilities of the receiving teller.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
3. Describe the role and responsibilities of the paying teller in your own words.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
51 | Page
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.
1. Describe and understand the Function of PDIC

2. Explain and Analyze the significance of PDIC
Setting up
Name: _______________________________________________ Date: ________________

52 | Page
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
53 | Page
 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 The following accounts or transactions are
offices of member-banks: not covered by deposit insurance whether
denominated, documented, recorded or
booked as deposits by the bank:
By Deposit Type: i. Investment products such as bonds and

securities, trust accounts, and other similar
♣ Savings instruments;
♣ Special Savings
♣ Demand/Checking
♣ Time Deposits
By Deposit Account: ii. Deposit accounts or transactions which are

unfunded, or that are citations or fraudulent;
♣ Single Account
♣ Joint Account
♣ Account “By”, “In Trust For” (ITF) or “For

the Account of” (FAO) another person
By Currency: iii. Deposit accounts or transactions constituting,

and/or emanating from, unsafe and unsound
♣ Philippine peso banking practice/s1 , as determined by the
Corporation, in consultation with the BSP, after
♣ Foreign currencies considered as part of
due notice and hearing, and publication of a
international reserves at the BSP
cease and desist order issued by the Corporation
against such deposit accounts or transactions;
and
iv. Deposits that are determined to be the

proceeds of an unlawful activity as denied under
Republic Act 9160, as amended.
54 | Page
Assessing Learning
Activity 7 -1
Name: ________________________________________ Date:________________

Answer and explain the following questions intelligently, using the rubrics provided to help
you develop your response.
1. What is the objective of establishing PDIC in the banking industry?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
2. What are covered by PDIC deposit insurance?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
3. What is not covered by PDIC deposit insurance?
55 | Page
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Short Essay Rubrics
Level Description
Outstanding Well written and very organized. Excellent grammar
mechanics. Clear and concise statements.
Excellent effort and presentation with detail.
Demonstrates a thorough understanding of the
question.
Value: 5
Level Description
Good Writes fairly clear. Good grammar
mechanics. Good presentation and
organization.
Sufficient effort and detail.
Value: 4
Level Description
Fair Minimal effort. Minimal grammar
mechanics. Fair presentation.
Few supporting details.
Value: 3
Level Description
56 | Page
Poor Somewhat unclear. Shows little effort. Poor grammar

mechanics. Confusing and choppy, incomplete sentences.
No organization of thoughts.
Value: 2
Level Description
Very Poor Lacking effort. Very poor grammar
mechanics. Very unclear.
Does not address question.
Limited attempt.
Value: 1
Reference:
https://www.myaccountingcourse.com/accounting-dictionary/bank-statement
https://silkstartsupport.zendesk.com/hc/en-us/articles/203103974-What-are-the-different-types-
of-Financial-Reports-
https://accounting-simplified.com/financial/statements/types/
https://accounting-simplified.com/financial/statements/types/
https://www.patriotsoftware.com/blog/accounting/bank-statement/
https://hindscc.instructure.com/courses/182533/pages/the-deposit-function
https://www.investopedia.com/terms/b/bank-deposits.asp
http://www.pdic.gov.ph/faqs-5
Bangko Sentral ng Pilipinas. 2007. Updates on BSP Supervised/Regulated Financial Institutions. BSP,
Manila. International Monetary Fund. 2004. “Philippines: Report on the Observance of Standards and
Codes – Banking Supervision.” IMF, Washington,
D.C. Santos, TJN and A. Mullineux. 2007. “The Regulation of Financial Conglomerates in the Philippines.”
Paper presented at the EU Asia-Link Programme research conference on Safety and Efficiency of the
Financial System on 27 August 2007, Manila. Zafra, G. and J. Prenio. 2002.
“Development of the Philippine Capital and Financial Market.” in Pilot Study 2002 of Asia Bond Markets
(Yoshino et. al., eds), Keio University Press, Tokyo.
57 | Page

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MODULE IN

ROWENA B. ABAT, MBA

DANILO PASTORFIDE, MPA

At the end of the unit, the students is able to:

1. Understand the bank and banking perspective.

Name: _____________________________________________ Date: __________________

Write your answer on the space provided after the question.

Bank and Banking Perspectives

Philippine Banking History

Upon establishment of Commonwealth, Netherlands Indische Handels bank opened

Philippine Banking History

from pious catholics and funds

∙Chartered Bank of India,

Developments in technology have more contributions in these irreversible changes in the

Bank mergers and consolidations are distinguished as follows:

● Merger- is the absorption of one or more corporations by another existing

Nature of Banking Business

“Banks makes money out of other people’s money”

Principle of Banking Business

Economic Significance of Bank

● A bank facilitates dealings between debtors and creditors because it acts as

● Maintains foreign trade.

Why the State Supervises Banks

1. The banks are entrusted with other people’s money. Mismanagement or

4. The Banks, furthermore, are quasi-public corporations and as in all other

Essay: (10 pts. Each)

1. Explain Republic Act No. 8791

2. Explain Republic Act No. 9160

3. Explain Republic Act No. 7653

Chapter 2– Philippine Financial System

At the end of the unit, the student is able to:

1. Explain and analyze Philippine Financial System

Name: _____________________________________________ Date: __________________

Simple Recall: Answer and Explain

History Financial System

There are five mainly components of the financial system:

5. Markets - Money is understood to be anything that is accepted for payment of products

Importance of Financial services

5. Ensures greater Yield

10. Capital Market

Name: _____________________________________________ Date: __________________

1. How does a Financial Intermediary Works?

2. Explain the importance of Financial services

3. Explain the Financial instruments

4. Discuss the difference between promoting investment to promoting services

5. How does a capital market help the economy grows?

Chapter 3 – Bank Supervision and Examination

At the end of the unit, the students is able to:

1. Understand and describe the bank supervision and examination

Name: _____________________________________________ Date: __________________

1. Cite your argument/s by describing the advantages or disadvantages of BSP.

Name: _____________________________________________ Date: __________________

Chapter 4 – Bank Credit Instruments

At the end of the unit, the student is able to:

1. Describe and understand the importance/features of credit instruments

3. Analyze the different types of bank credit instrument

Name: _______________________________________________ Date: ________________

Discuss the following:

2. Credit instruments facilitate exchange transactions. To increase volume production, producer's

The requisites are:

Common Types of Credit Instruments

1. Promissory Note: A promissory note is a written promise from a buyer or a borrower to

2. Bill of exchange: A bill of exchange is order by a seller to a buyer or by a creditor to a

Ma'Am Rowena Abat Module in Monetary Policy

Ma'Am Rowena Abat Module in Monetary Policy

Name: ___________________________ Date:

Name: ___________________________ Date:

Name: ___________________________ Date:

Name: ___________________________ Date:

Name: ___________________________ Date:

Name: _______________________________ Date:

Name: ________________________ Date:

Name: _______________________________ Date:

Name: ________________________ Date:

Name: _______________________________ Date: