Banking Industry

- Banks are part of the system of Financial Institutions that help people store and
save their money. They offer clients the opportunity to open different types of
accounts for various purposes. For example you can open an account to save
money or to invest it (deposit).
- Banks provide a secure place for people to keep their money and they also offer
various financial services. By opening different kinds of accounts, clients can
manage their finances better, whether they want to save money for future needs
or to invest to earn more.

Example: Ako nag open ako ng isang savings account sa bangko to save on my college, para
may funds ako for tuition and other expenses. So, with that naipon ko yung pera ko, secured
and nagbibigay pa ng interest yung bangko.

Next slide please….

Deposits (Liabilities)

- Deposits are considered liabilities for banks this is because the bank owes this
money to its depositors. Customers deposit money into their accounts, and the
bank must be able to return this money upon request.

Example.

Savings Account- Money deposited to earn interest over time

Checking Account- Money deposited for everyday transactions

Fixed Deposits- Money Deposited for a fixed term with a higher interest rate.

Loans ( Assets)

- Loans are considered asset for banks. This is because the money lent out to
borrowers is expected to be paid back with interest, generating income for the
bank. Loans represent a future inflow of funds.

Example: Mortgages- Loans provided to individuals for purcharsing real-estate

Personal Loans- Unsercured loans provided to individuals for personal use

Business Loans- Loans given to businesses for operational or expansions purposes

Next slide: Will be presented by Darleth

After commercial bank: Me

Is the American Banking System more competitive and therefore more economically
efficient than of other countries?

The U.S. has about

• 8,000 commercial banks

• 1,500 Savings and Loan associations

• 400 Mutual Savings banks

• And 10,000 credit unions

To get to know more, let us compare the U.S Banking to Germany since Germany is one of
the major economies in Europe and has a well developed banking system.

Germany

Commercial Banks- Approximately 1800

Savings Banks; about 380

Cooperative Banks: Around 800

Credit unions: Germany has a smaller number of credit unions, typically serving specific
professional or social groups.
Analysis

Competitiveness:

U.S

- With a large number of commercial banks, savings and loan associations, mutual
savings banks, and credit unions, the US banking market is highly competitive.

Germany

- Germany banking system is also competitive but it is structure differently. Yung

savings banks and cooperatives.

Economic Efficiency

The US Banking system is highly competitive and innovative but can face
inefficiencies due to its vast number of institutions. Germany system emphasizes stability
and efficient local service but may have less competition.

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1782- Itinatag ang bank of the North: Isa sa mga naunang banko na itinatag sa US

1791- Itinatag ang Bank of the United States: Itinatag upang magsilbing sentral na bansa at
pamahalaan ang mga pondo ng bansa

- Establishes to serve as a central bank and manage the nations finances.

1811- Hindi na narenew ang charter ng Bank of the U.S Isa itong bagong banko na sumunod
sa banko of the US, itinatag upang patatagin ang financial system ng bansa.

1816- Itinatag ang 2nd Bank of the US. Isa itong bagong banko na sumunod sa Bank of the
United States, itinatag upnag patatagin ang financial system ng bansa.

1832- nag expire ang charter nito noong 1836. Tinutulan ni Andre Jackson ang 2nd Bank of
the US at binawi ang pag recharte, with the result of closure/ pagsasara.

Andre- President of the US from 1829-1837

1863- This legislation creates a system of National banks and establishes the office of the
controller of the currency to oversee and regulate them.
1913- To serve as the central bank of the U.S, with the goal of providing financial stability
ang regulating the nations monetary policy.

Monetary polic- refers to the actions taken by a country’s central bank on monetary
authority to control the value of supply of money in the economy.

1933- In response to the Great Depression, the Glass Steagall Act is enacted to separate
commercial banking from investment banking and create the Federal Deposit Insurance
Corporation (FDIC) to insure bank deposits and promote confidence in banking systems.

Commercial VS. Investment Banking

commercial banking and investment banking differ in their primary objectives and services.
Commercial banks primarily provide everyday financial services such as deposit-taking,
fund transfer, and lending to individuals and businesses. On the other hand, investment
banking focuses on providing services related to trading and investment for corporations
and large institutions. This includes assisting companies in issuing new securities, trading
securities in the market, and planning and executing mergers and acquisitions. Overall,
commercial banks serve the day-to-day financial needs, while investment banking offers
more advanced services for trading and investment purposes to corporations and large
institutions

Summary:

So, the evolution of the Banking System in the US from establishment to early banks to the
creation of regulatory institutions and the Central Banking system.

Nex slide; DARLETH

Financial Innovation and the Evolution of the Banking Industry

The evolution of the banking industry is closely tied to financial innovation, which has
fundamentally reshaped the financial system. Just as any industry seeks profits by meeting
market needs, financial institutions innovate to maximize their gains and cater to customer
demands. This drive for innovation is spurred by economic changes, technological
advancements, and regulatory pressures. In response to shifts in demand and supply
conditions, financial institutions develop new products and services to remain competitive
and profitable. This process, known as financial engineering, has led to three basic types of
financial innovation: responses to changes in demand, responses to changes in supply,
and strategies to navigate regulatory challenges. By understanding this dynamic process of
financial innovation, we gain insight into how the banking industry adapts and evolves to
meet the needs of a changing economic landscape.

EXPLANATION:

Financial innovation drives banking evolution, responding to market demands and

economic changes. It's spurred by technology and regulations, leading to new products
and strategies. By adapting, banks stay competitive and meet evolving needs.

NEXT SLIDE PLEASEE..

Responses to Changes in Demand Conditions: Interest Rate Volatility

1. **Adjustable-Rate Mortgages (ARMs)**:

- Ang ARMs ay mga loan sa bahay na may mababagong interes base sa mga pagbabago sa
isang reference interest rate, tulad ng Treasury bill rate

The Treasury bill rate refers to the interest rate on short-term debt obligations issued by the
government, specifically the U.S. Treasury Department.

- They were introduced in 1975 to reduce interest rate risk for financial institutions and
allow them to adjust mortgage rates in response to market changes.

- ARMs initially offer lower interest rates than fixed-rate mortgages, making them popular
with borrowers, but they can also lead to increased payments if interest rates rise.
2. **Financial Derivatives**:

- Financial derivatives, such as futures contracts, were developed to help investors and
financial institutions against interest rate risk.

- Futures contracts in financial instruments allow parties to protect themselves from

fluctuations in interest rates and other financial variables.

- They were first introduced in 1975, offering a way to manage risk and speculate on future
price movements in financial markets.

3. **Bank Credit and Debit Cards**:

- Bank credit cards, like BankAmericard (now Visa) and MasterCharge (now MasterCard),
were established in the late 1960s and early 1970s, allowing consumers to make
purchases on credit.

- Debit cards, which deduct funds directly from a bank account, became popular in the
1990s, offering convenience and ease of use for consumers.

- Improved computer technology and lower transaction costs made it feasible for banks
to offer credit and debit card services to a wider market.

4. **Electronic Banking**:

- Electronic banking, including ATMs and online banking, revolutionized banking by

providing customers with convenient ways to access and manage their accounts.

- ATMs allow customers to perform various banking transactions, such as withdrawals

and transfers, 24/7 without the need for human tellers.

- Online banking enables customers to conduct banking transactions remotely using

computers or mobile devices, offering greater flexibility and convenience.

5. **Junk Bonds**:

- Junk bonds, also known as high-yield bonds, are bonds that are
rated below investment grade by the big three rating agencies. Junk
bonds carry a higher risk of default than other bonds, but they pay
higher returns to make them attractive to investors.
-Since high risk sila they make a high returns para magkaroon ng investors.

6. **Commercial Paper Market**:

- Commercial paper is short-term debt issued by large corporations and banks to raise
funds for short-term financing needs.

- Ang komersyal na papel na merkado ay kung saan malalaking kumpanya at mga bangko
ay nangungutang ng pera para sa maikling panahon, karaniwan sa loob ng isang taon
lamang.

-Ginagamit ng mga kumpanya ang komersyal na papel upang pondohan ang araw-araw
na gastos, tulad ng pagbabayad sa mga empleyado o pagbili ng inventory, sa halip na
umaasa sa mga utang sa bangko.

7. **Securitization**:

Securitization turns illiquid assets, like mortgages, into liquid assets.

Example

Isipin mo na may isang bangko na may maraming mortgages mula sa iba't ibang tao. Ang
mga mortgages na ito ay parang mga piraso ng kahoy na nakaipon sa isang bucket.

Sa halip na hayaang matambak lang ang mga piraso ng kahoy, ang bangko ay gagawa ng
isang malaking kahon at ilalagay ang mga piraso ng kahoy doon. Ang kahon na ito ay
tinatawag na "Mortgage-Backed Security" o MBS.

Kapag tapos na ang kahon, ipinapakita ng bangko ito sa mga tao na gustong bumili. Kapag
may bumili, binabayaran nila ang bangko para sa kahon ng mga piraso ng kahoy.

Ang perang binabayad ng mga tao ay ibinabalik ng bangko at ginagamit para sa iba pang
mga bagay, tulad ng pagpapautang sa ibang mga tao.
Sa ganitong paraan, ang mga mortgages na dati ay hindi gaanong mabilis mabenta ay
ginawang mas madaling mabenta at maaaring pagkakitaan ng bangko. Ang "Mortgage-
Backed Security" o MBS ang nagiging paraan para gawing liquid o madaling mabenta ang
mga ito.

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• Money Market Mutual Funds:

• Money market mutual funds are like piggy banks where lots of people put their money
together. This money is used to buy safe things that give a little bit of interest, like special
government bonds or certificates of deposit (CDs).
• For example, imagine you have $100 to save. Instead of keeping it in a regular bank
account where it might not earn much interest, you put it into a money market mutual
fund. This fund buys those safe things and earns a bit more interest for you.

• Sweep Accounts:

• Sweep accounts are like helpers for your money. Let's say you have $1,000 in your
checking account, but you only need $500 for your daily expenses. The rest, which is just
sitting there, can be automatically moved or "swept" into another account that earns more
interest.
• For instance, if your bank has a sweep threshold of $500, any extra money beyond that
amount in your checking account at the end of the day might be moved into a savings
account or a money market mutual fund. This way, your money can work harder for you
and earn more interest, even while it's not being used for everyday spending.