Module 1 Banking-Financial-Institution

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1.

1 The History of Banking and The Philippine Banking


System
The History of Banking
The term "Bank" did not just came out of nowhere. In the history, the term
"Bank" came from the word "Banco" an Italian word which means a bench,
since Italian merchants in the Renaissance made deals to borrow and lend
money beside a bench.
But to trace back its early beginnings, its concept all started in the 18th
Century BC where the concept of banking was just about safekeeping of
Gold as only asset that have value during that time. In Egypt and
Mesopotamia gold is deposited in temples for safe-keeping. 
Greek and Roman financiers: from the 4th century BC
Banking activities in Greece are more varied and sophisticated than in any
previous society. Private entrepreneurs, as well as temples and public
bodies, now undertake financial transactions. 
Bankers to Europe's kings: 13th - 14th century
During the 13th century bankers from north Italy, collectively known as
Lombards, gradually replace the Jews in their traditional role as money-
lenders to the rich and powerful. The business skills of the Italians are
enhanced by their invention of double-entry book-keeping. Creative
accountancy enables them to avoid the Christian sin of usury; interest on a
loan is presented in the accounts either as a voluntary gift from the
borrower or as a reward for the risk taken.

Banks and cheques: from the 16th century

In 1587 the Banco della Piazza di Rialto is opened in Venice as a state


initiative. Its purpose it to carry out the important function of holding
merchants' funds on safe deposit, and enabling financial transactions in
Venice and elsewhere to be made without the physical transfer of coins.
Bank notes: 1661-1821
Paper currency makes its first appearance in Europe in the 17th
century. Sweden can claim the priority (as also, a few years later,
in the first national bank).

The History of our Bank and Philippine Banking System

The first bank in the Philippines was established in on August 1, 1851 when


the Junta de Autoridades under Governor General Antonio de Urbiztondo
passed a resolution creating the Banco Espanol-Filipino de Isabel II, which
evolved into what is now the Bank of the Philippine Islands. Banco
Espanol-Filipino commenced operation in May 1852 at the Royal
Customhouse on Aduana Street, Intramuros, with a capital of P400,000, a
sizeable portion of which was drawn from the Obras Pias.
Trivia: Did you know that Jose P. Rizal was one of the clients of BPI. The National
Hero have a Time Deposit with the Bank.

The bank was the first to be established in the Philippines, and was
responsible for starting the country's banking and finance industry. Playing
a unique role in the early economic history of the Philippines, the bank
performed many functions that in effect made it the country's Central Bank,
including providing credit to the National Treasury and printing and issuing
currency in its own name.
Following the Spanish-American War of 1898, the Bank was reorganized
and essentially privatized under the U.S. federal government's National
Bank Acts of 1863 and 1864. The bank adopted its current name on
January 1, 1912.
Under American rule, banks were subjected to closer supervision and
monitoring, a task assigned by the First Philippine Commission to the
Bureau of Treasury. The gold coins of the United States became legal
tender in the Philippines.
Then fast forward, Our country developed its Central Banking System
during the time of His Excellency President Manuel Roxas  when he
assumed office in 1946, he instructed then Finance Secretary Miguel
Cuaderno, Sr. to draw up a charter for a central bank. .
In the 1973 Constitution, the National Assembly was mandated to establish
an independent central monetary authority. Later, PD 1801 designated the
Central Bank of the Philippines as the central monetary authority (CMA).
Years later, the 1987 Constitution adopted the provisions on the CMA from
the 1973 Constitution that were aimed essentially at establishing an
independent monetary authority through increased capitalization and
greater private sector representation in the Monetary Board.
The administration that followed the transition government of President
Corazon C. Aquino saw the turning of another chapter in Philippine central
banking. In accordance with a provision in the 1987 Constitution, President
Fidel V. Ramos signed into law Republic Act No. 7653, the New Central
Bank Act, on 14 June 1993. The law provides for the establishment of an
independent monetary authority to be known as the Bangko Sentral ng
Pilipinas, with the maintenance of price stability explicitly stated as its
primary objective.
1.2 The Financial System and Philippine Financial System
The Financial System
A financial system is a set of institutions, such as banks, insurance
companies, and stock exchanges that permit the exchange of funds.
Financial systems exist on firm, regional, and global levels. Borrowers,
lenders, and investors exchange current funds to finance projects, either for
consumption or productive investments, and to pursue a return on their
financial assets. The financial system also includes sets of rules and
practices that borrowers and lenders use to decide which projects get
financed, who finances projects, and terms of financial deals. Financial
markets involve borrowers, lenders, and investors negotiating loans and
other transactions. In these markets, the economic good traded on both
sides is usually some form of money: current money (cash), claims on
future money (credit), or claims on the future income potential or value of
real assets (equity).

The Philippine Financial System


Our Financial System is composed of banking institutions and non-bank
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 Philippine financial system is primarily bank-based rather than capital
market-based. The banking sector, whose total assets accounted for
morethan 80 percent of the total resources of the financial system.
Across banking groups, universal and commercial banks continued to hold
the biggest share of key balance sheet accounts of the banking system on
account of their market maturity, branch network and capitalization. 

1.3 The Function of Financial Institution (FI's)


What is a Financial Institution?
A financial institution (FI) is an institution engaged into dealings with
financial and monetary transactions such as deposits, loans, investments,
and currency exchange. Financial institutions are also been considered as
one of the building blocks of the economy due to its ability to circulate
monies and do tradings. Financial Institutions have broader scope in
operations within the financial services sector including banks, trust
companies, insurance companies, brokerage firms, and investment
dealers. 
The Roles of Financial Institutions in the Society
 The financial institution provides different kinds of financial services to
both personal and business customers.
 The financial institution provides an attractive rate of return to the
customers for every investments.
 Financial Institutions serves as an agent to solicit direct investments
from customers and making them understand the risk associated with
that as well.
 As a settlement agent, It helps in forming the liquidity of the stock in
case of an emergency in the financial markets.
 It helps people in decision making in different financial needs
because it follows a systematic approach to calculate all the risks and
rewards associated with an investment or dealings.

In the latter part of the course the types of FI's will be presented in detail for
you to have a clearer picture of what bank is all about and how it function
based on its classification.

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