This document defines banks and banking. It explains that banks make money by lending deposits they receive from customers. It outlines the key principles of banking, including maintaining partial reserves and generating most deposits from loans. It also categorizes banks based on ownership, location, structure, functions, management, and role of central banks in supervision. The types of banks described include commercial banks, trust companies, savings banks, rural banks, development banks, cooperative banks, investment banks, and central banks. The document notes that the state supervises banks to ensure they protect customers' money and serve the public interest.

1. Bank and Banking
Perspective

2. Perspective on Bank or Banking
• Sec. 3 off New General Banking Law:
“Bank shall refer to entities engaged in the lending of funds obtanined
in the form of deposits.”

3. Nature of Banking Business
• “A bank makes money out of other people’s money.”
• Example: Mr. A borrows money and the bank approve his application
for the loan. Mr. A could either get the proceed I cash or simply
request the bank to open a current account under his name.
• If Mr. A asked the bank to open a current account under his name.
the entry would be:
Loans and Discount P100,000
Demand Deposits P100,000

4. Principles of Banking Business
1. Partial Reserve System - certain amount deposited will support
several times as much as in credit.
2. A greater portion of deposits in commercial banks arises out of the
proceeds of loans.

5. Types of Banks
• As to ownership
1. Privately owned
2. Publicly owned
• As to the place of incorporation
1. Domestic
2. Foreign
• As to structure
1. Stock Corporation
2. Non-stock Corporation

6. Types of Banks
• As to function and line of development
1. Commercial Bank – one that receives demand deposits and
give short-term loans.

7. Types of Banks - As to function and line of
development
2. Trust Company – deals in fiduciary activities such as administrator of
estates, guardian of minor’s interests, executor of last wills and
testaments etc. This function was originally a legal function and was
handled by legal officers and lawyers.

8. Types of Banks - As to function and line of
development
Savings or Thrift Banks - primarily receives money for safekeeping from
person who have no immediate need for cash and invest these funds in
long-term investments.

9. Types of Banks - As to function and line of
development
Rural Bank – primarily organized to cater to the needs of small farmers,
small businesses, small cottage industries and cooperative associations.
They also receive deposits and loan our of funds.

10. Types of Banks - As to function and line of
development
Development Bank – takes care of giving loans to be used for
developing the economy and may therefore engage in medium and
long-term lending.

11. Types of Banks - As to function and line of
development
Cooperative Bank – is organized to furnish the credit needs of duly
registered and operating cooperative associations of different kinds.

12. Types of Banks - As to function and line of
development
Investment Bank – assist government bodies and newly organized
corporations to raise funds for capital through sale of stocks and
bonds.

13. Types of Banks - As to function and line of
development
Central Bank – banks of all banks; it does not directly deal with the
public. It is the supervisory and regulatory agency which makes all
banks “tow the line”.

14. Types of Banks - As to management
1. Unit Bank - refers to a bank that is a single, usually small bank that
provides financial services to its local community. A unit bank is
independent and does not have any connecting banks — branches — in
other areas.
2. Group Bank – owned by two or more banks.
3. Branch Bank – refers to a bank that is connected to one or more other
banks in an area or outside of it; to its customers, this bank provides all
the usual financial services but is backed and ultimately controlled by a
larger financial institution.
4. Chain Banking - is a group of banks (minimum is 3) held together by a
group of individuals for effective banking activities while the banks
function independently without any hindrance of a holding company.
These activities don't overlap so that the revenue is maximized to the
best possible extent.

15. Why the State supervises Banks?
1. The banks are entrusted with other people’s money.
2. The state wants to assure that the banks will perform their
functions in the best interest of their clients through honest and
efficient conduct of their functions.
3. The banks may either abuse their power or use them prudently.
4. The banks 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.