Financial System
1
A financial system is an
Financial system provides economic arrangement
investors, through market wherein financial institutions
prices, with a reliable facilitate the transfer of
criterion of value. funds and assets between
borrowers, lenders, and
investors.
Financial System
The financial system A financial system can be
protects, through the use perceived on a company,
of futures markets, regional, or global scale,
producers and consumers which facilitates the
of physical commodities practice of exchanging
and traders and users of funds between one entity
financial assets from to another.
adverse price movements.
2
most critical role in the
The financial system
workings of modern
plays a economies
Financial System
through the performance of
and their development five functions:
3
Five Function
of Financial
System
2. Monitoring of
1. Production of 3. Management
investments
ex ante of risk, including
and
information about risk
implementation
possible diversification
of corporate
investments. through trading.
governance.
4
Five Function
of Financial
System
4. Mobilization
5. Facilitation of
and pooling of
economic
savings, which
exchange
widen access to
(transactions).
finance.
5
Should finance
be regulated?
Should finance be regulated?
1. Preserve the 2. Protect the 3. Ensuring the
confidence of the financial system safety and soundness
providers of finance from unforeseen of the financial
(whether this means but likely shocks system and
depositors and other such as bank runs protecting
creditors or (e.g., deposit consumers.
investors) and of
insurance and
consumers of
capital adequacy
financial services in
the function, regulations).
processes and
efficient outcomes of
financial markets.
4. Remedy market failures (e.g., disclosure and 5. Protecting consumers, promoting market
market integrity regulations). integrity and stability, and mitigating systemic risk.
Any given body
of rules that is
trying to create
and preserve a
sound and safe
banking system
must address four
concerns:
1. Ensure the efficient and
effective operation of banks, 3. Devise a public system of regulations and
since due to the principal/agent supervisory techniques which ensure that, in
problem savers do not know the the event of a bank failure, any depositor’s
true quality of the management run is effectively averted/contained and does
that operates the bank with which not lead to a systemic crisis and the collapse
they have trusted their savings. of the banking system due to contagion.
1 3
2 4
2. Ensure that banks have adequate 4. Ensure that the financial system
financial resources either to avoid a is not used to facilitate criminal
failure or to compensate their activities and, especially, to legalize
depositors and other creditors the proceeds of crime (money
properly. laundering).
Financial Institution
Financial institutions are what make financial markets work play an
important role in the restructuring of state-owned enterprises awaiting
privatization.
Mobilize domestic and foreign funds and make them available for
financing ownership transfers to the private sector as well as to provide
working capital and investment finance to enterprises after they have
been privatized.
Financial
Provide financial advice and other specific services, for example,
Institution payment services.
Play an important role in the monitoring and control of managerial
activities.
• Maintain a corporate governance mechanism and to provide and allocate
capital.
Financial institutions are one of the most important components of any
country's financial system.
They play a vital role in determining the effectiveness and efficiency of
the financial system.
They represent the vital infrastructure through which money flows from
savings to investors in various economic fields.
Financial
Institution
Financial
Institution
Offer a wide
range of
financial
services to
individuals and
Financial businesses
Institution
Deposit
Investing
Managing
Money
Different
Types of
Financial Central Bank Credit Union
Investment
Bank
Insurance
Companies
Institution
1 2 3 4 5 6 7
Retail and Saving and Brokerage
Commercial Loan Firms
bank Association
Different
Types of
Financial Central Bank
Institution
1
Responsible for overseeing and managing all other banks.
Responsible for monetary policy.
Regulates banks and financial institutions .
BSP – Bangko Sentral ng Pilipinas
Fed – The Federal Reserve in U.S.
ECB – European Central Bank
PBC – The People’s Bank of China
Central Bank
Different
Types of Retail and
Financial Commercial
Bank
Institution
2
Financial institutions that offer banking services to individuals.
Offer a wide range of services, such as current accounts, savings
accounts, setting up direct debits, making transactions, and
basically managing all simple aspects of your money.
Widely available to serve the financial needs of individuals and
businesses.
Retail And
Commercial
Bank
Different
Types of
Financial Credit Union
Institution
3
A credit union is a type of financial institution that is owned and
operated by its members.
Credit unions are not-for-profit organizations. This means that they
do not have shareholders who expect to earn a return on their
investment. Instead, credit unions use their profits to benefit their
members in the form of better rates and lower fees.
Credit Union
Different
Types of Saving and
Financial Loan
Association
Institution
4
Is a type of financial institution that offers savings accounts and
loans.
Savings and loan associations typically offer higher interest
rates on savings accounts and have lower fees for loans.
Provide individual consumers with checking accounts, personal
loans, and home mortgages.
Different
Types of
Financial Investment
Bank
Institution
5
An investment bank is a financial institution that helps
companies raise capital by issuing and selling securities.
Investment banks also help companies with mergers,
acquisitions, and other corporate finance activities.
Saving and Loan Association
Investment
Bank
Different
Types of
Financial Insurance
Companies
Institution
7
Allow individuals and businesses have policies against monthly
premiums, which they are subject to pay at regular intervals.
Companies are businesses that offer protection against
potential future losses.
Most insurance companies offer a wide range of products,
including life insurance, health insurance, auto insurance, and
homeowners’ insurance. Some also offer annuities and long-
term care insurance.
Insurance
Companies
Different
Types of
Financial Brokerage
Firms
Institution
6
A brokerage firm is a financial institution that helps clients buy
and sell securities.
Brokerage firms typically offer a wide range of services,
including investment banking, asset management, and
research.
Brokerage firms assist individuals and institutions in buying and
selling securities among available investors.
Brokerage
Firms
Who uses financial institutions?
Individuals and businesses use these entities to serve their personal and
professional financial requirements and commitments.
Use to deposit money, withdraw when needed, transfer them online
instantly, save them for future use, and manage them smartly for gains.
Use for those who want to buy and sell stocks, bonds, and derivatives to
Financial earn profits.
Institution
Who regulates financial institutions?
Aims to ensure these entities keep the financial market and the economy active and
efficient.
1. Federal Deposit Insurance Corporation (FDIC) – Depository Institutions
Financial 2. National Credit Union Administration (NCUA) – Credit Union
3. Office of Thrift Supervision – Thrift Institution or Savings and Loan Associations
Institution 4. Office of the Comptroller of the Currency – National Banks
5. Federal Reserve Board (FRB)
6. Securities and Exchange Commission (SEC)
