Depository
Institutions
What is depository
institutions?
As the name implies, it refers to
financial institution that accepts deposits
from surplus units. It issues checking or
current account, savings, and time
deposit and help depositors with money
market placement.
Depository institutions, which are
usually just called banks, are categorized
as such because their primary source of
funding is the deposits of savers. Banks
are further subcategorized depending on
the markets they serve, their primary
sources of funding, type of ownership,
how they are regulated, and the
geographic extent of their market.
Functions of Depository
Institutions
They
accept your money and typically pay interest over
time, though some accounts will provide other services
to attract depositors in lieu of interest payments.
While holding your money, they lend it out to other
people or organizations in the form of mortgages or
other loans and generate more interest than they pay
you.
When you want your money back, they have to give it
back. Fortunately, they usually have enough deposits
that they can give you back what you want.
Plus, safeguards are now in place to protect against
another Great Depression in the future (at least one
that occurs because banks lend out more money than
they keep on hand paying back to their lenders).
Depository Institutions includes:
Commercial Banks
A. Ordinary Commercial Banks
B. Expanded Commercial or Universal
Banks
.Thrift Banks
A. Savings and Mortgage Banks
B. Private Development Banks
C. Savings and loan associations
D. Microfinance Thrift Banks
E. Credit Unions
.Rural Banks
Commercial Banks
Commercial banks are easily the largest type of
depository institution. Theyre for-profit corporations
that are usually owned by private investors. They often
offer a wide range of services to consumers and
corporations around the world.
The primary business of commercial banks is to serve
businesses, although with banking deregulation they
have entered into the consumer business as well.
Commercial banks provide the widest variety of
banking services. In addition to savings accounts,
checking services, consumer loans, commercial and
industrial (C&I) loans, and credit cards, commercial
banks may also offer trust services, trade financing,
investment banking and management for corporations,
governments and their agencies, and treasury services.
Ordinary commercial banks perform the
more simple functions of accepting deposits
and granting loans. Expanded commercial
banks or universal banks( also called
unibanks) perform investment services. They
are expanded because they function as an
investment house and investing in stocks
and bonds of non-allied businesses.
Universal and commercial banks represent
the largest single group, resource-wise, of
financial institutions in the country.
Thrift Banks
The thrift banking system is composed of
savings and mortgage banks, private
development banks, stock savings and loan
associations, and micro-finance thrift banks.
They banks that serve a local community.
They take the deposits of local residents and
lend the money back in the form of consumer
loans, mortgages, and small business loans.
Savings institutions include savings and loan
institutions, savings banks, and credit unions.
Savings
and mortgage banks are banks
specializing in granting mortgage loans other
than the basic function of accepting deposits.
Private development banks cater to the needs of
agriculture and industry providing them with
reasonable rate loans for medium- and long-term
purposes.
Savings and loan associations(SLAs, S&Ls)
accumulate savings of their depositors/
stockholders and use these accumulated
savings, together with their capital, for the loans
that they grant and for investments in
government and private securities. These
associations provide personal finance and longterm financing for home building and
improvement.
Microfinance thrift banks are small thrift
banks that cater to small, micro, and cottage
industries, hence, the term micro. They
grant small loans to small businesses, like
sari-sari stores, small bakeries, cottage
industries, among others. They help uplift the
standard of living in most rural areas.
Credit unions are cooperatives organized by
people from the same organization(whether
formally or informally organized) like farmers,
fishermen, teachers, sailors, employees of
one company, among others. It grant loans to
these people who become members of the
credit union and get deposits from them.
Rural Banks and Cooperative
Banks
Rural banks and cooperative banks are the more
popular type of bank in the rural communities. Their
role is to promote and expand the rural economy in
an orderly and effective manner by providing the
people in the rural communities with basic financial
services. Rural and cooperative banks help farmers
through the stages of production from buying
seedlings to marketing of their produce. Rural banks
and cooperative banks are differentiated from each
other by ownership. While rural banks are privately
owned and managed, cooperative banks are
organized/owned by cooperatives or federation of
cooperatives.
