Do You Know Your Bank?

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source: http://theoneinpink.com

Quick question, do you know what kind of bank is your bank?

For the past months many banks have gone to bankruptcy and off course we have wasted lots of time following up with PDIC for whatever money we can recover.

The joint account I had with sister’s bank in the Philippines nearly took 3 years until we are able to fully withdraw it and the sad part of it is that it only needed one month to mature and get a 100% interest from it. Yes it was one of those “double your money in five years” scheme of newly opened banks needing capital to operate. 
I am not saying we are scammed, only that the bank never made it to actually operate well due to either lack of capital to cover its operation or they were affected by the financial crisis back then and they were not able to sustain the necessary earnings to return interest or even to have the capital reserve requirement the Bangko Sentral requires and thus ended up foiling and we ended up losing earnings via interest for 8 years(the 5 year term of the Time Deposit and the 3 years it stayed in the hands of PDIC).

But that was the past. It did opened my eyes and have me thinking where should and temporarily put my cash up until I have definite investment or plan for it. 

Yes we still need the services of banks. Banks now do not just serve depository and loan services. 

Some people are now scared putting their money in banks thus ending up withdrawing their money and putting it in their vaults at their homes. Again always remember the principle that money is not meant to be tuck under our beds but rather it should be circulated to generate income not only for you but also by those who might need it and return to you with a premium/interest.  

Now lets learn about our bank.

A bank as already mentioned is an institution that functions as a depositary and lender. Banks receive your money with a promise of returning it to you with interest. For them to earn from such money that you handed over they in turn lend it to those who need capital to operate their businesses or other personal needs also for interest and thus the difference of the interest they are charging their  borrowers and the interest they are willing to pay a depositor is their earnings.

Such function expanded to other financial services and thus it is important that you know your bank in order to know where they are putting the money you deposited to them.

Knowing where your bank gets and put the money will give you a big picture how dependable the bank is.  A bank might be lending to risky borrowers and you know what will happen just like the sub-prime financial trouble the world went into.

Types of banks

(source: wikipedia.com)

Banks can be generally classified into the following(some could be a subtype of the other type):

  • Retail bank – deals directly with individuals and small businesses; 
  • Business bank – provides services to mid-market business;
  • Corporate bank – directed at large business entities;
  • Private banks – provides wealth management services to high net worth individuals and families;
  • Investment banks –  relating to activities on the financial markets. 

Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations.


Types of retail banks

Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term “commercial bank” to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
An example of this bank in the Philippines is ChinaBank.

Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.
An example of this is a rural bank like Rural Bank of Anda (Pangasinan), Inc.

Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.

An example of this bank is a cooperative bank like Countryside Cooperative Rural Bank of Batangas, Inc.

Credit unions: not-for-profit cooperatives owned by the depositors and often offering rates more favorable than for-profit banks. Typically, membership is restricted to employees of a particular company, residents of a defined neighborhood, members of a certain labor union or religious organizations, and their immediate families.
Most credit union in the Philippines are in the form of cooperative under the Philippine Federation of Credit Cooperatives like Barangka Credit Cooperative in Marikina City.

Postal savings banks: savings banks associated with national postal systems. An example of this is the government owned Philippine Postal Savings Bank

Private banks: banks that manage the assets of high net worth individuals. Historically a minimum of USD 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to USD 250,000 for private investors.
An example of this is BDO Private Bank, Inc.

Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
An example of this is Deutsche Bank Philippines.

Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralized distribution network, providing local and regional outreach—and by their socially responsible approach to business and society.
Example of a savings bank is  CityState Savings Bank.

Building societies and Landesbanks: institutions that conduct retail banking.

Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.

Direct or Internet-Only bank is a banking operation without any physical bank branches, conceived and implemented wholly with networked computers. An example of this type of bank is HSBC Direct.

Types of investment banks

Investment banks “underwrite” (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions. Most company under this type are institution with quasi-banking functions like First Metro Investment Corporation.

Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.

Both combined(Retail and Investment)

Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance— hence the term bancassurance, a portmanteau word combining “banque or bank” and “assurance”, signifying that both banking and insurance are provided by the same corporate entity. China Banking Corporation is a universal bank.

Other types of banks

Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis. The best example for this type is Bangko Sentral ng Pilipinas.

Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers. Al-Amanah Islamic Investment Bank of the Philippines is of this kind of bank.

Financial Freedom Advocate About the blogger

Louis Delos Angeles is a Certified Public Accountant, blogger behind Investing in Philippines, and author of Investing in Stocks: Preparing for the future small amount at a time. Check him out in Google+ Learn more about Louis and his financial freedom advocacy here.

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4 comments for “Do You Know Your Bank?

  1. June 13, 2012 at 4:31 am

    HSBC, CitiBank, BDO… should be safe…

  2. June 13, 2012 at 10:29 am

    The top Philippine banks BPI, Metrobank, and BDO are one of the best place. BPI is known for having the most ATMS thus good for accessabilty.

  3. June 13, 2012 at 12:01 pm

    Thanks for the information!

  4. June 25, 2012 at 2:39 am

    Oh yeah! I love reading your post, very informative and detailed. Each point is well explained and a great help for banking newbie like me. I must admit that when it comes to bank, my mind is going nuts! I feel a bit tipsy and my world seems spinning to endless not until I get out of it. Exaggerated? No, that’s try. I’m not really knowledgeable in bank, banking and it’s system.

    I’m good in receiving money though. lol

    Thank you very much again! I keep your blog in my bookmarks. 😉

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