Banking Laws

San Beda College of Law 130

MEMORY AID IN COMMERCIAL LAW

BANKING LAWS

I. GOVERNING LAW (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)

A. General banking laws1. General Banking Law (R.A. No. 8791)2. New Central Bank Act (R.A. No. 7653)

B. Special banking laws1. New Rural Banks Act (R.A. No. 7353)2. Private Development Banks Act (R.A. No. 4093)3. Savings and Loan Association Act (R.A. No. 3779)4. Thrift Banks Act (R.A. No. 7906)

C. Other laws affecting banks1. Secrecy of Bank Deposits Law (R.A. No. 1405)2. Unclaimed Balances Law (Act No. 3936)3. Philippine Deposit Insurance Corporation Act (R.A. No. 3591)

3 kinds of entities that introduce funds into the economy:

1. Entities that obtains funds from the public in the form of deposits and re-lend it to the public; (banks)2. Those that obtain funds in the form of deposit substitutes and re-lend the same; (quasi-banks)3. Those that lend funds from their own assets. (Finance companies and other financial intermediaries)

5 PERSONS PRIMARILY INTERESTED IN THE BUSINESS OF BANKING

1. Government2. Depositors3. Investors4. Creditors5. Borrowers

GENERAL BANKING LAW OF 2000 (GBL)

(RA No. 8791)

PURPOSE: To promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy.

SCOPE OF APPLICATION: The GBL primarily governs universal banks and commercial banks. It suppletorily governs thrift banks, rural banks and other banking institutions.

II. BANKS Entities engaged in the lending of funds obtained in the form of deposits. (Sec. 2) Entities duly authorized by the Monetary Board to engage in the business of regularly lending funds obtained regularly from the public through the receipt of deposits of any kind.

QUASI-BANKS Entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes. (Sec. 95) Entities authorized to perform universal or commercial banking functions may also engage in quasi-banking functions.

FINANCIAL INTERMEDIARIES Persons or entities whose principal functions include the lending, investing or placement of funds on evidences of indebtedness or equity deposited with them, acquired by them or otherwise coursed through them, either for their own account or for the account of others.

Bank of International Settlements (BIS)

COMMERCIAL LAW COMMITTEE CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON: Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)

131 2005 CENTRALIZED BAR OPERATIONS

A bank for, and whose stockholders are, central banks. It assists central banks in managing and investing a part of their foreign exchange reserves by lending such reserves out to central banks. It is also provides initiatives and ideas, and professional, organizational and material logistics for central bank cooperation in all areas of common interest. (Notes on Selected Commercial Laws A Guide for Bar Reviewees, Tristan Catindig, 2003 ed.)

ORGANIZATION AND OPERATIONA. Authority to Register/incorporate The SEC shall not register the articles of incorporation of any bank or any amendment thereto unless accompanied by a certificate of authority issued by the Monetary Board under its seal. (Sec. 14) The certificate of authority shall not be issued unless the Monetary Board is satisfied:

1. That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied with;

2. That the public interest and economic conditions, both general and local, justify the authorization;

3. That the amount of the capital, the financing, organization, direction and administration, as well as the integrity and responsibility of the organizers and administrators, reasonably assure the safety of deposits and the public interest.

B. Organization of a Bank or Quasi-Bank Requirements:1. The entity is a stock corporation;2. Its funds are obtained from the

public, i.e. 20 or more persons; and

3. The minimum capital requirements prescribed by the Monetary Board are satisfied. (Sec. 8)

C. Authority to engage in banking or quasi-banking functions A person or entity cannot engage in banking or quasi-banking functions without a certificate of authority from the BSP. (Sec. 6)

The determination of whether a person or entity is performing banking or quasi-banking functions without BSP authority shall be decided by the Monetary Board.

NATURE OF BANKING BUSINESS Impressed with public interest where the trust and confidence of the public in general is of paramount importance such that:

1. The appropriate standard of diligence must be very high, if not the highest, degree of diligence; highest degree of care. (PCI Bank v. CA, 350 SCRA 446, PBCom v. CA)

This applies only to cases where banks are acting in their fiduciary capacity, that is, as depository of the deposits of their depositors. (Reyes v. CA)

2. Subject to reasonable regulation under the police power of the state.

While an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title, in case of a banking institution, it must exercise due diligence before entering into said contract, and cannot rely upon what is or is not annotated on the title. Reason: Before a loan is approved,

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan

Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)



representatives are sent to the premises offered as collaterals and investigate who the real owners are. (DBP vs. CA, 331 SCRA 267)

The business of a bank is one affected by public interest for which reason the bank should guard against loss due to negligence and bad faith. It is expected to ascertain and verify the identities of the persons it transacts business with. (UCPB vs. Ramos, G.R. No. 147800, November 11, 2003, Callejo, J.)

Due diligence required of banks extend even to persons, or institutions like the GSIS, regularly engaged in the business of lending money secured by real estate mortgages. (GSIS vs. Eduardo Santiago, G.R. No. 155206. October 28, 2003)

III. CLASSIFICATION OF BANKS1. Univer

sal banks- Primarily governed by the General Banking Law (GBL), can exercise the powers of an investment house and invest in non-allied enterprises and have the highest capitalization requirement.

2. Commercial banks- Ordinary banks governed by the GBL which have a lower capitalization requirement than universal banks and cannot exercise the powers of an investment house and invest in non-allied enterprises.

3. Thrift banks – These are a) Savings and mortgage banks; b) Stock savings and loan associations; c) Private development banks, which are primarily governed by the Thrift Banks Act (R.A. 7906).

4. Rural banks – Mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and which are primarily

governed by the Rural Banks Act of 1992 (RA 7353).

5. Cooperative banks – Those banks organized whose majority shares are owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. It shall include cooperative rural banks. They are governed primarily by the Cooperative Code (RA 6938).

6. Islamic banks – Banks whose business dealings and activities are subject to the basic principles and rulings of Islamic Shari’a, such as the Al Amanah Islamic Investment Bank of the Philippines which was created by RA 6848.

7. Other classification of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas. (Sec. 3)

ORDINARY CORPORATION

BANKING CORPORATI

ONMay be a stock or non-stock corporation

Must generally be a stock corporation

May issue par value or no par value stocks.

Shall issue par value stocks only. (Sec. 9)

May be registered with the SEC without any certificate of authority issued by a government agency.

Must secure a certificate of authority from the Monetary Board before it can register with SEC.

May purchase/acquire its own shares for a legitimate corporate purpose; provided that, it has unrestricted retained earnings in

May not purchase/acquire its shares or accept them as security for a loan. Except: when authorized by the Monetary



its books to cover the shares to be purchased/acquired.

Board. In such case, the bank must sell or dispose of said shares within 6 months from the time of their acquisition. (Sec. 10)

Must be composed of 5 to 15 directors, each of whom shall own at least one (1) share of the capital stock of the corporation.

Also composed of 5 to 15 directors. In case of merger or consolidation, the number of directors shall not exceed 21. (Sec. 17)

May declare dividends out of its unrestricted retained earnings.

May not declare dividends, if any of the conditions set forth under Sec. 57 are present.

UNIVERSAL BANK

COMMERCIAL BANK

Authority to exercise additional powers other than those authorized for commercial banks

No such additional powers

May invest in the equities of allied, whether financial or non-financial, and non-allied enterprises (Sec. 24)

May only invest in equities of allied enterprises, whether financial or non-financial

Powers:1. The powers

authorized for a commercial bank;

2. The powers of an investment house; and

3. The power to invest in non-allied enterprises. (Sec. 23)

General powers incident to corporations

2. Such powers as may be necessary to carry on the business of commercial banking:

4. The power to invest in non-allied enterprises. (Sec. 23)

a. Accepting drafts and issuing letter of credits;b. Discounting

and negotiating promissory notes, drafts, bills of exchange and other evidence of debt; c. Accepting or creating demand deposits; receiving other types of deposits and deposit substitutes; d. Buying and selling foreign exchange and other debt securities; e. Extending credit. (Sec. 29)

UNIVERSAL & COMMERCIAL

BANK

OTHER BANKS

Authorized to engage in quasi-banking functions without need for approval

Not so authorized

May accept or create demand deposits without need for approval Demand deposits - Liabilities of the BSP and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of checks. (Sec. 58, NCBA)

Must seek approval of Monetary Board before accepting or creating demand deposits. (Sec. 33)

EQUITY INVESTMENTS






Universal

Bank(Sec.

24-28)

Comm’l Bank(Sec.

30-32)

Total investment in allied enterprises

50%Of net worth

35%Of net worth

Total investment in non-allied enterprises

50%Of net worth

N/A

Equity investment in any one enterprise

25%Of net worth

25%Of net worth(Allied only)

Equity investment in financial allied enterprise: thrift bank, rural bank or any financial allied enterprise (Sec. 25) A publicly-listed bank may own up to 100% of the voting stock of only one other UB / CB. (Sec. 25)

100%Of equity

100%Of equity

In other financial allied enterprises, investment shall remain a minority holding. (Sec. 31)

Equity investment in non-financial allied enterprises

100%Of equity

100%Of equity

Equity investment in a single non-allied enterprise

Shall not exceed 35% of the total equity in that enterprise nor shall it exceed 35% of the voting stock in that enterprise

N/A

Equity investment in Quasi-Banks

40% 40%

Allied Financial

Enterprises

Allied Non-financial

Enterprises

1. Leasing companies2. Banks3. Investment houses4. Financing companies5. Credit card companies6. Financial institutions catering to small and medium scale industries, including venture capital corporations7. Companies engaged in stock brokerage or securities brokerage8. Companies engaged in foreign exchange dealership or brokerage9. Insurance companies (not allowed for commercial banks)10. Holding companies investing in allied and non-allied enterprises (not allowed for commercial banks)

1. Warehousing companies2. Storage companies3. Safety deposit box companies4. Companies primarily engaged in the management of mutual funds but not in mutual funds themselves5. Management corporations engaged in an activity similar to the management of mutual funds6. Companies engaged in providing computer services7. Insurance companies or brokerages8. Companies engaged in house building and home development9. Companies providing drying or milling facilities for agricultural crops10. Bank service corporations11. Philippine Clearing House Corporation12. Philippine Central Depository, Inc.



Non-Allied Enterprises Are all other enterprises not specified as allied ones.

NET WORTH The total of the unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net valuation reserves and other adjustments as may be required by the Bangko Sentral. (Sec. 24)

RISK-BASED CAPITAL The minimum ratio prescribed by the Monetary Board which the net worth of a bank must bear to its total risk assets which may include contingent accounts. However, the Monetary Board may require or suspend compliance with such ratio whenever necessary for a maximum period of one year; that such ratio shall be applied uniformly to banks of the same category (Sec. 34). Effect of non-compliance with the prescribed minimum ratio:

1. Distribution of net profits may be limited or prohibited and MB may require that part or all of the net profits be used to increase the capital accounts of the bank until the minimum requirement has been met; or2. Acquisition of major assets and making of new investments may be restricted. EXCEPT: purchases of evidence of indebtedness guaranteed by the Government (Sec. 34).3. In case of a bank merger or consolidation, or when a bank is under rehabilitation under a program approved by BSP, the MB may temporarily relieve the surviving bank, consolidated bank, or constituent bank or corporations under rehabilitation from full compliance with the required capital ratio.

IV. FUNCTIONS OF BANKSPOWERS OF

BANKSSPECIFIC

FUNCTIONS OF BANKS

1.General/corporate/incidental2. Necessary (Sec. 29)3. Other powers (Sec. 55)

a. Loan functionb. Deposit functionc. Other functions

A. LOAN FUNCTIONRequirement for Grant of Loans Before granting a loan, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Rules:1. A bank may demand from its applicants a statement of their assets and liabilities and of their income and expenditures and other information. 2. Should such statements prove to be false or incorrect, the bank may terminate any loan granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of obligation. (Sec. 40)

Classification of LoansUnclassified

LoansClassified

LoansThose that do not have a greater–than–normal risk, and the borrower has apparent ability to satisfy it in full and no loss in ultimate collection is anticipated.

Those that have extraordinary risks of loss in collection due to some defects such as bad debts or those under litigation.






Limit on loans, credit accommodations and guarantees (Sec. 35)

A. Single Borrower’s Limit (SBL) Rules1. The total amount of loans extended by a bank to any person, partnership, association, corporation or other entity shall at no time exceed 20% of the net worth of such bank. 2. The total amount of loans may be increased by additional 10% of the net worth of such bank provided the additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-perishable goods which must be fully covered by insurance; The prescribed ceiling shall

include:a. The direct liability of the

maker or acceptor of paper discounted with or sold to such bank and the liability of a general endorser, drawer or guarantor who obtains a loan or other credit accommodation from or discount paper with or sells paper to such banks;

b. In the case of an individual who owns or controls a majority interest in a corporation,

c. partnership, association or any other entity, the liabilities of the said entities to the bank;

d. In a case of a corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest; and

d. In the case of a partnership, association, or other entity, the liabilities of the member thereof to such bank.

Exclusions from the limits:

a. Loans secured by obligations of the Bangko Sentral or the Philippine Government;

b. Loans fully guaranteed by the government;

c. Loans covered by assignment of deposits maintained in the lending bank and held in the Philippines;

d. Loans, credit accommodations and acceptances under letters of credit to the extent covered by margin deposits; and

e. Other loans or credit accommodations which the MB may specify as non-risk items.

Joint and Solidary Signature (JSS) Practice A common banking practice requiring as an additional security for a loan granted to a corporation the joint and solidary signature of a major stockholder or corporate officer of the borrowing corporation. (Security Bank v. Cuenca, 341 SCRA 781) Note: While R.A. 8791 provides for the rates of 20% and 10% respectively, the Bangko Sentral has not yet implemented such rates. The prevailing rates are 25% and 15% respectively.

B. DOSRI Accounts (Directors, Officers, Stockholders, and Related Interests) Requisites: (BSP Circular No. 170)a. The borrower is director, officer, or any stockholder of a bank and related interest.b. He contracts a loan or any form of financial accommodationc. The loan or financial accommodation is from (1) his bank or (2) a bank that is

a subsidiary of a bank holding company of which both his bank and lending bank are subsidiaries, (3) a bank in which a controlling proportion of the shares is owned by the same



interest that owns a controlling proportion of the shares of his bank; andd. The loan or financial accommodation of the DOS, singly or with that of his related interest, is in excess of 5% of the capital and surplus of the lending bank or in the maximum amount permitted by law, whichever is lower. Who are covered (BSP Circular No. 170):1. Directors – Directors of the lending bank2. Officers – Either identified in the by-laws or are generally known as such 3. Stockholders – those whose stockholdings, individually and/or together with any of the following persons, amount to 2% or more of the total subscribed capital stock of the bank:

a. His spouse or relative within the first degree of affinity/consanguinity or relative by legal adoption.

b. A partnership in which the stockholder or his spouse or any of his relatives mentioned above is a general partner.

c. A co-owner with the stockholder or the stockholder’s spouse or relative mentioned above of property/right/interest (mortgaged, pledged or assigned to secure the loan or credit accommodations, except when the mortgage, pledge or assignment covers only said co-owner’s undivided interest.

4. Related Interest – a. Spouse, relatives within first

degree of consanguinity or affinity, or relative by legal adoption of a DOS.

b. Partnerships of which a DOS or his spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, is a general partner.

c. Co-owner with the DOS or his spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of the property/interest/ right mortgaged, pledged, assigned to secure the loans or credit accommodations, except when the mortgage, pledge or assignment covers only said co-owner’s undivided interest.

d. Corporation with inter-locking directors.

e. Corporation wherein 20% of the capital stock is owned by the DOS and/or their spouses or relatives mentioned above.

f. Corporation wholly or majority owned or controlled by any related entity or a group of related entities in items (b), (d), and (e).

Restrictions under the GBL and NCBA:a. No director or officer of any bank

shall, directly or indirectly, borrow from such bank nor shall be guarantor, endorser or surety for loans from such bank to others, or in any manner be obligor or incur any contractual liability to the bank, except with the written approval of the majority of all the directors of the bank, excluding the director concerned. The written approval shall not be required for loans granted to officers under a fringe benefit plan approved by the Bangko Sentral.

b. Dealings of a bank with any of its DOSRI shall be upon terms not less favorable to the bank than those offered to others. (ARMS LENGTH RULE)

c. Loans extended to DOSRI shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank.






Except – i. Loans, credit

accommodations, and guarantees secured by assets considered as non-risk by the Monetary Board.

ii. Loans, credit accommodations, and advances to officers in the form of fringe benefits.

iii. Cooperative bank with regard to its cooperative shareholders.

d. The resolution approving the loan shall be entered in the records of the bank and transmitted to the BSP

e. Waiver of secrecy of deposits of whatever nature in all banks in the Philippines by the borrower. No waiver is required if the related interests are the borrower

f. Information obtained form examination are strictly confidential

C. Rules on amount of secured loans1. Those secured by real estate shall not exceed 75% of the appraised value of the real estate security, plus 60% of the appraised value of the insured improvements. (Sec. 37) 2. Those secured by chattels and intangible properties (such as patents, trademarks, trade names and copyrights) shall not exceed 75% of the appraised value of the security. (Sec. 38)

D. The Monetary Board is authorized to issue regulations which:1. Prescribe requirements for unsecured loans and credit accommodations (Sec. 41)2. Prescribe further security requirements (Sec. 42)3. Reduce or increase maximum ratios established (Sec. 42)4. Prescribe maturities and other related terms and conditions (Sec. 43)

B. DEPOSIT FUNCTIONKINDS OF DEPOSITS BETWEEN BANK AND DEPOSITOR1. As debtor-creditor

a. Savingsb. Timec. Demand

Characteristics:a. In the nature of irregular deposits. (Serrano vs. Central Bank, 96 SCRA 96)b. Contract of loan/mutuum

with the depositor as creditorc. Bank acquires ownership of

the thing deposited and the right to use and dispose

d. Money deposited is commingled with the other money, constituting a common fund.

e. Not preferred credits (Central Bank v. Morfe)

2. As lessor-lesseea. Safety deposit boxes

3. As trustee-trustora. Trust account

4. As bailee-bailora. Deposit strictly for safekeeping and for specific purposes

5. As agent-principal:a. Deposit of check for collectionb. Deposit for specific purposec. Deposit for safekeeping

Types of deposit accounts (Handbook on Bank Deposits, A. Viray, 1998 ed.)1. Individual2. Joint

a. “And” account Co-ownership The signature of both co-depositors are required for withdrawals.

b. “And/or” account Either one of the co-depositors may deposit and withdraw from the account without the knowledge, consent and signature of the other. And upon the death of one, the survivor may withdraw the entire balance on deposit.



It may be deemed a survivorship agreement depending on the intention of the parties; aleatory contract supported by a lawful consideration which is valid unless when made as a mere cloak to hide an inofficious donation, to transfer property in fraud of creditors, or to defeat the legitime of a forced heir. (Rivera v. People’s Bank)

Deposit substitutes An alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower’s own account, for the purpose of re-lending or purchasing of receivables and other obligations. (Sec. 95, RA 7653)

DEPOSIT DEPOSIT SUBSTITUTE

No security given to guarantee repayment; the depositor relies on the stability and reputation of the bank.

Guaranteed by certificates and other instruments. (Handbook on Bank Deposits, A. Viray, 1998 ed.)

A bank has the right to set-off to the deposits in its hands for the payment of any outstanding indebtedness to it on the part of the depositor (Gullas v. PNB, PNB v. CA)

The fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan and not a breach of trust. The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required

of non-bank debtors, under a similar contract of simple loan. (CBTC vs. CA, G.R. No. 138569, September 11, 2003) This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and performance” is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. (CBTC vs. CA, G.R. No. 138569, September 11, 2003)

SUSPENSION OF PAYMENT ON ITS DEPOSIT LIABILITIES In case a bank or quasi-bank notifies the Bangko Sentral or publicly announces a bank holiday, or in any manner suspends the payment of its deposit liabilities continuously for more than 30 days, the Monetary Board may summarily and without need for prior hearing close such banking institution and place it under receivership of the Philippine Deposit Insurance Corporation. (Sec. 53)

C. OTHER FUNCTIONS1. Receive in custody funds,

documents and valuable objects (as bailee or trustee);

2. Act as financial agent and buy and sell, by order of and for the account of their customer, shares, evidences of indebtedness and types of securities;

3. Make collection and payments for the account of others and perform such other services for their customer as are not incompatible with banking business (as agent);

4. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/ advisory/consultancy accounts; and

5. Rent out safety deposit boxes (as lessor).






Note: The bank shall act as depositary or as an agent shall keep the funds, securities and other effects which it receives duly separated from its own assets and liabilities. (Sec. 53)

V. PROHIBITIONSA. On banks: 1. To directly act as insurer (Sec. 54)2. For banks or quasi-banks to declare dividends, if at the time of declaration:

a. Its clearing account with the Bangko Sentral is overdrawn;

b. It is deficient in the required liquidity floor for government deposits for 5 or more consecutive days;

c. It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for purposes of determining funds available for dividend declaration;

d. It has committed a major violation as may be determined by the Bangko Sentral. (Sec. 57)

3. To conduct business in an unsafe or unsound manner (Sec. 56)4. Publication of capital stock (Sec. 62)5. Unauthorized advertisement or business representation (Sec. 64)6. To employ casual or non-regular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits. (Sec. 55)

Rationale: To prevent violation of Bank Secrecy Law.

B. On directors, officers, employees, or agents of banks:1. Make false entries in any bank

report or statement or participate in any fraudulent transaction;

2. Without order of a court of component jurisdiction, disclose to any unauthorized person any

information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity;

3. Accept gifts or any other form of remuneration in connection with the approval of a loan or other credit accommodation from said bank;

4. Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank; or

5. Outsource inherent banking functions (i.e. new accounts, tellers).

Rationale: So as not to violate the Secrecy of Bank Deposits Law. (Handbook on Bank Deposits, A. Viray, 1998 ed.) However, a bank may outsource, upon prior approval of the monetary board the following functions:

a. All information technology systems and processes, except for certain functions affecting the ability of the bank to ensure the fit of technology services deployed to meet its strategic and business objectives and comply with pertinent laws and regulations;

b. Data imaging, storage, and other related systems;

c. Clearing and processing of checks not included in the Philippine Clearing House System;

d. Printing of bank statements;e. Credit card services;f. Printing of bank loan

statements and other non-deposit records, bank forms and promotional materials;

g. Credit investigation and collection;

h. Processing of export, import and other trading transactions;.

i. Transfer agent services for debt and equity services;

j. Property appraisal;k. Property management

services;



l. messenger, courier and postal services;

m. Security guard services;n. Vehicle service contractso. Janitorial services;p. Other services determined by

the monetary board.

C. On borrowers:1. Fraudulently overvalue property

offered as security for a loan from the bank;

2. Make misrepresentations for the purpose of obtaining, renewing, or increasing a loan or extending the period thereof;

3. Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation; or

4. Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form of compensation in order to influence such persons into approving a loan or other credit accommodation application.

D. On examiners, BSP or government officers and employees assigned to supervise, examine, assist or render technical assistance to any bank: Make false reports or suppress material facts.

Conducting Business in an Unsafe or Unsound Manner In determining whether a particular act or omission, which is not otherwise prohibited by law, rule or regulation affecting banks, quasi-banks, or trust entities, may be deemed as conducting business in an unsafe or unsound manner, the MB shall consider any of the following circumstances:(sec 56, GBL)

1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution;

2. The act or omission has resulted or may result in material loss or damage, or abnormal risk to the institution’s depositors, creditors, investors, and stockholders or to the BSP or to the public in general.

3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence;

4. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby.

VI. OWNERSHIP OF STOCKS OF A DOMESTIC BANK1. Filipino In case of a Filipino individual or a domestic non-bank corporation, each may own up to 40% of the outstanding voting stock of a local bank. 2. Foreign Foreign individuals and non-bank corporations may own or control up to an aggregate of 40% of the voting stock of a domestic bank. The percentage of foreign-owned voting stocks in a bank shall be determined: (GRANDFATHER RULE)

a. If individuals: by the citizenship of the individuals

b. If corporations: by the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation. (Sec. 11)

ACT LIBERALIZING ENTRY OF FOREIGN BANKS (R.A. NO. 7721)






The Monetary Board authorizes foreign banks to operate through any of the following modes of entry: 1. By acquiring, purchasing or

owning up to 60% of the voting stock of an existing bank;

2. By investing in up to 60% of the voting stock of a new banking subsidiary incorporated under laws of Philippines;

3. By establishing branches with full banking authority, provided: a) foreign bank may avail itself of only one mode of entry and b) foreign bank or Philippine corporation may own up to 60% of the voting stock only one domestic bank or new banking subsidiary (Sec. 2).

Entries under the second and third modes are restricted to banks among the top 150 foreign banks in the world or top 5 banks in their country of origin. Minimum capitalization:1. For locally incorporated subsidiaries – equal to that of domestic banks of the same category2. For foreign bank branches – not less than the US$ equivalent of P210M Amendments introduced by GBL 20001. Within seven years from effectivity of the GBL, foreign banks may be allowed to own up to 100% equity of only one domestic bank as a mode of entry. (Sec. 73, GBL)2. Other foreign individuals and non-bank corporation may own up to 40% of the voting stock of a domestic bank; the nationality of the controlling shareholders of the non-bank corporations will be traced to determine the foreign ownership of the domestic bank (Sec. 11, GBL)

FOREIGN BANKS (Secs. 72–78) 1. Entry: Governed by the provisions of the Foreign Bank Liberalization Act and the Offshore Banking System Decree. (Sec. 72)2. Revocation of license to do business in the Philippines: The Monetary Board may revoke such

license on the grounds that the foreign bank is insolvent or in imminent danger thereof or that its continuance in business will involve probable loss to those transacting business with it. (Sec. 78)

VII. OWNERSHIP OF REAL PROPERTYGENERAL RULE: A bank cannot acquire and own real property. Rationale: Banks are not engaged in the business of acquiring and possessing real property. Also, banks must maintain liquidity at all times to enable it to perform its functions. Thus, Banks must as much as possible retain only assets that are easily marketable.EXCEPTIONS: 1. As shall be necessary for its own use in the conduct of its business, provided:

a. The total investment in such real estate and improvements shall not exceed 50% of combined capital amounts; and

b. the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank's total investment in real estate, unless otherwise provided by the Monetary Board. (Sec. 51)

2. As mortgaged to it, conveyed to it in satisfaction of a debt, or as it shall purchase at forced sales or to secure debts, provided, however, that property acquired under such circumstance shall be disposed of by the bank within a period of 5 years, provided that the bank may after said period continue to hold the property for its own use, subject to (1). (Sec. 52)

RULES ON FORECLOSURE BY A MORTGAGEE-BANK OF A REAL ESTATE MORTGAGE Application: Judicial or extrajudicial foreclosure

JUDICIAL EXTRAJUDICIA



LRight of redemption

Within 1 year from registration of the foreclosure sale (exception to Rule 68)

1. Mortgagor is a natural person – Within one year after the registration of sale with Register of Deeds (Sec. 1(3) SC Cir. AM No. 99-10-05)2. Mortgagor is a juridical person – At any time before the registration of the certificate of foreclosure sale which in no case shall be more than 3 months after foreclosure, whichever is earlier.

Redemption price:Amount due under the mortgage deed + interest + all the cost and expenses incurred by the bank or institution from the sale and custody of the property less the derived income.

Right of purchaser to possess property:

Immediately after the date of the confirmation of the auction sale.

To enjoin or restrain the conduct of foreclosure proceedings, the petitioner must file a bond conditioned that he will pay all the damages which the bank may suffer by the injunction. (Sec. 47)

VIII. DIRECTORS & OFFICERSFit and Proper Rule To maintain the quality of bank management and afford better protection to depositors and the public in general the Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed as bank directors or officers and disqualify those found unfit. (Sec. 16)

INDEPENDENT DIRECTOR A person other than an officer or employee of the bank, its subsidiaries or affiliates or related interests.

Prohibition on Public Officials GENERAL RULE: No appointive or elective official whether full-time or part-time shall at the same time serve as officer of any private bank. (Sec. 19)EXCEPTIONS:1. As otherwise provided under Sec. 5 of the Rural Bank Act 2. Where such service is incident to financial assistance provided by the government-owned or -controlled corporation to the bank 3. As otherwise provided under existing laws. A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank there from (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit. (Philippine Banking Corp. vs. CA and Marcos, G.R. No. 127469. January 15, 2004)

IX. TRUST OPERATIONS (Secs. 79-93) Only a stock corporation or a person duly authorized by the Monetary Board shall act as a trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or behalf of others. (Sec. 79)






Powers of trust entities:1. Act as trustee on any mortgage or bond issued by any municipality, corporation or body politic and to accept and execute any trust consistent with law2. Act under the order or appointment of any court as guardian, receiver, trustee, or depositary of the estate of any minor or incompetent person, and as receiver and depositary of any money paid into court by parties to any legal proceedings 3. Act as the executor of any will when it is named the executor thereof;4. Act as administrator or the estate of any deceased person, with the will annexed, or when there is no will.5. Accept and execute any trust for the holding, management and administration of any estate, real or personal, and the rents, issues, and profits thereof.6. Establish and manage common trust funds. (Sec. 83) Prohibitions:1. No trust entity shall, for account of the trustor or the beneficiary of the trust, purchase or acquire property from, or sell, transfer, assign or lend money or property to, purchase debt from instruments of, any of the departments, directors, officers, stockholders or employees of the trust entity, relatives within the 1st the first degree of consanguinity or affinity, or the related interests, of such directors, officers and stockholders, unless the transaction is specifically authorized by the trustor and the relationship of the trustee and the other party involved in the transaction is fully disclosed to the trustor or beneficiary of the trust prior to the transaction. (Sec. 80, GBL)2. The trust business and all funds, properties or securities received by any trust entity as executor, administrator, guardian, trustee, receiver or depositary shall be kept separate and distinct from the

general business including all other funds, properties, and assets of such trust entity. (Sec. 87, GBL)

X. PENALTIES FOR VIOLATION OF THE GBL (SEC. 66)1. As provided by specific provisions2. Sections 34-37 of RA 76533. Suspension or removal of the director or officer4. Dissolution of the corporation by quo warranto proceedings

THE NEW CENTRAL BANK ACT (NCBA)

(R.A. No. 7653)

PURPOSE: To maintain a central monetary authority that shall function and operate as an independent and accountable body in the discharge of its responsibilities concerning money, banking and credit.

THE BANGKO SENTRAL NG PILIPINAS (BSP) The state’s central monetary authority; it is the government agency charged with the responsibility of administering the monetary, banking and credit system of the country and is granted the power of supervision and examination over bank and non-bank financial institutions performing quasi-banking functions, including savings and loan associations. (Busuego v. CA) Primary objectives:

1. To maintain price stability conducive to a balanced and sustainable growth of the economy.

2. To promote and maintain monetary stability and the convertibility of the peso.

Responsibilities:1. To provide policy directions in

the areas of money, banking, and credit;

2. To supervise bank operations



3. To regulate the operations of finance companies and non-bank financial institutions performing quasi-banking functions, and similar institutions. (Sec. 3)

Powers/functions:1. Issuer of currency (Sec. 49-

60)2. Custodi

an of reserves (Secs. 64-66, 94, 103)

3. Clearing channel or house; especially where the PCHC does not operate (Sec. 102)

4. Banker of the government – the BSP shall be the official depository of the Government and shall represent it in all monetary fund dealings. (Secs. 110- 116)

5. Financial advisor of the government (Secs. 123-124) – Under Article VII, Sec. 20 of the 1987 Constitution, the President may contract or guarantee foreign loans but with the prior concurrence of the Monetary Board.

6. Source of credit (Secs. 61-63, 81-89, 109)

7. Supervisor of the banking system (Sec. 25) – shall include the power to:a. Examine; extending to

enterprises wholly or majority-owned or controlled by the bank (Sec. 7, RA 8791); this power may not be restrained by a writ of injunction unless there is convincing proof that the action of the BSP is plainly arbitrary (Sec. 25)

b. Place a bank under receivership or liquidation (Sec. 30)

c. Initiate criminal prosecution of erring officers of banks.

8. Government agent (Secs. 117-122)

MONETARY BOARD (MB) The body by which the powers and functions of the Bangko Sentral are exercised. (Sec.6) Composition: 7 members consist of the following:1. Chairman: Governor of the BSP2. A member of the cabinet to be designated by the President of the Philippines3. Five (5) members who shall come from the private sector, all of whom shall serve full-time.Note: The degree of diligence required of the members of the MB, officials and employees of the BSP in the performance of their functions is extraordinary diligence. (Sec.16, NCBA)

CORPORATE POWERS OF THE BSP1. To adopt, alter and use a corporate seal which shall be judicially noticed2. To enter into contracts3. To lease, own, sell property4. To sue and be sued5. To acquire and hold such assets and incur such liabilities in connection with its operations or as are essential to the proper conduct of operation 6. To compromise condone or release any claim of or settled liability to the BSP7. To do and perform such other necessary powers

CONSERVATORSHIP OF A BANK OR QUASI-BANK Ground: State of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. A conservator appointed by the BSP may take over without the need of first declaring the bank insolvent. Duration: Not to exceed 1 year Effects:1. Bank/quasi-bank retains juridical personality2. Not a precondition to the designation of a receiver






Powers of conservator:1. To take charge of the assets,

liabilities, and the management thereof;

2. Reorganize the management;3. Collect all monies and debts due

said bank; and4. Exercise all powers necessary to

restore its viability, with the power to overrule or rebuke the actions of the previous management and board of directors of the bank or quasi-bank.

The powers must be related to preservation of assets, reorganization of management and the restoration of viability. Such power to revoke cannot extend to post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution. The power to revoke contracts only covers those that are deemed defective – i.e., void, voidable, unenforceable or rescissible. (First Phil. Int’l Bank v. CA, 252 SCRA 259) Termination:1. When the MB is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary;2. But if the continuance in business of the bank would involve probable loss to its depositors or creditors, proceedings for receivership and liquidation shall be pursued (Sec. 29).

RECEIVERSHIP OF A BANK OR QUASI-BANK/CLOSURE Receivership is equivalent to an injunction to restrain the bank in any way. Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects. (Villanueva v. CA)

Grounds:A. Under NCBA

1. Inability to pay liabilities as they become due in the ordinary

course of business, but not including inability to pay caused by extraordinary demands induced by financial panic in the banking community;2. Insufficiency of realizable assets to meet its liabilities;3. Inability to continue business without involving probable losses to its depositors or creditors; or4. Willful violation of a cease and desist order that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution. (Sec. 30)

B. Under GBL1. Notification to the BSP or public announcement of a bank holiday (Sec. 53, GBL)2. Suspension of payment of deposit liabilities continuously for more than 30 days (Sec. 53, GBL)3. Persistence in conducting business in an unsafe or unsound manner. (Sec. 56, GBL)

Receiver:1. Banks – PDIC2. Quasi-banks – Any person of recognized competence in banking or finance

Functions:1. Immediate gathering and taking charge of all the assets and liabilities of the institution and administering them for the benefit of creditors2. General powers of a receiver3. Determination ASAP but not later than 90 days whether the institution should undergo rehabilitation or liquidation.

Note the distinctions between rehabilitation and liquidation.

“CLOSE NOW, HEAR LATER” SCHEME



Sec. 29 of the Central Bank Act does not contemplate prior notice and hearing before a bank is placed under receivership. It is enough that such action is made the subject of a subsequent judicial review. The purpose of the scheme is to protect the depositors, creditors, stockholders and general public. (Central Bank v. CA, 220 SCRA 536). Only stockholders representing the majority of the capital stock of a bank have the personality to file a petition for certiorari to be filed within 10 days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship. Reason: Stockholders owning a majority of the shares are expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith. (Sec. 30, NCBA; Central Bank vs. CA)

MANDATORY REQUIREMENTS FOR BANK CLOSURE1. Examination by the appropriate BSP department as to the condition of the bank2. Examination shows that the condition of the bank is one of insolvency3. Director shall inform the MB in writing of such fact4. MB shall find the statement of the department to be true. (Banco Filipino v. MB)

LIQUIDATION Grounds:1. The condition of the bank is one of insolvency or that its continuance would involve probable loss to its depositors and creditors.2. A determination by the MB that the bank cannot be rehabilitated. Procedure: 1. Receiver shall file ex parte, with the proper RTC, a petition for assistance in the liquidation of the institution pursuant to a liquidation

plan adopted by the PDIC for general application to all closed banks. In case of quasi-banks, the liquidation plan shall be adopted by the Monetary Board.2. He shall convert the assets of the institution to money for the purpose of paying the debts of the institution. (Sec. 30)3. Payment shall be in accordance with the rules on concurrence and preference of credits

EFFECTS OF APPOINTMENT OF RECEIVER/ LIQUIDATION 1. Suspension of operation2. The assets under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall be exempt from garnishment, levy, attachment or execution (Sec. 30).3. Bank is not liable to pay interest on deposits during the period of suspension of operation (Overseas Bank v. CA)4. The corporation retains its legal personality (Teal Motor Co. v CFI) 5. Deposits do not become preferred credits. (CB v. Morfe)

LEGAL TENDER All notes and coins issued by the Bangko Sentral are fully guaranteed by the Republic and shall be legal tender in the Philippines for all debts, both public and private. (Sec. 52)

Legal tender power of coins1. 25 centavos and above: In amounts not exceeding P50.002. 10 centavos or less: In amounts not exceeding P20.00

BSP Authority to Replace1. Notes for any series or denomination – More than 5 years old 2. Coins – More than 10 years oldRules:1. Notes and coins called in for replacement shall remain legal






tender for a period of one year from the date of call. 2. After that period, they shall cease to be legal tender during the following year or for such longer period as MB may determine. 3. After the expiration of this latter period, the notes and coins which have not been exchanged shall cease to be a liability of BSP and shall be demonetized (Sec. 57).

Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor.

However, a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account (Sec. 60).

MONETARY STABILIZATION3 Important Tools to Achieve Price Stability1. Loans to Banks (Sec. 83)

a. If BSP wants to increase money supply, it opens the rediscount window

b. If BSP wants to decrease money supply, it closes the rediscount window or charges very high interest rates for rediscounted notes

2. Open Market Operations (Sec. 90)

a. If BSP wants to increase money supply, it buys government securities

b. If BSP wants to decrease money supply, it sells government securities

3. Reserve Requirements (Sec. 94) Rules:

a. The required reserves of each bank shall be proportional to the volume of its deposit liabilities.

b. Since the required reserves are imposed primarily to control the volume of money, the Bangko Sentral shall not

pay interests thereon. (Sec. 94)

c. Deposits maintained with the Bangko Sentral as part of the reserve requirements shall be exempt from attachment, garnishment, or any other order or process of any court or agency. (Sec. 103)

PROHIBITIONS ON THE BSP1. It shall not acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either directly or indirectly; and2. It shall not engage in development banking and financing. (Sec. 128)

SECRECY OF BANK DEPOSITS LAW (R.A. No. 1405)

PURPOSES: 1. To encourage people to deposit in banks2. To discourage private hoarding so that banks may lend such funds and assist in the economic development. COVERAGE All deposits of whatever nature with banks or banking institutions in the Philippines, including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities.

GENERAL RULE: The deposits covered by law are considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, governmental, bureau, or office.

Prohibited Acts1. Examination and inquiry or looking into all deposits of whatever nature with the banks in the Philippines including investments in bonds issued by the Government.2. Any disclosure by any official or employee of any bank to any unauthorized person of any



information concerning the said deposits.EXCEPTIONS:A. From R.A. No. 14051. Upon written permission of the depositor; 2. In cases of impeachment; 3. Upon order of a competent court in cases of bribery or dereliction of duty of public officials; 4. In cases where the money deposited or invested is the subject matter of the litigation; (Sec. 2)B. From other laws1. Anti-Graft and Corrupt Practices Act cases (R.A. No. 3019; added by analogy in PNB vs. Gancayco); 2. Inquiry by the Commissioner of Internal Revenue into bank deposits of:

a. A decedent to determine his gross estate;

b. A taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability. He must file a written waiver of his privilege under RA 1405 or other general or special laws (Sec. 6[f], NIRC).

3. Inquiry or examination by the Anti-Money Laundering Council (AMLC) of any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation of the Anti-Money Laundering Law, when it has been established that there is probable cause that the deposits or investments are related to an unlawful activity or a money laundering offense, except that no court order shall be required in the following unlawful activities:

a. Kidnapping for ransom under Art. 267 RPC;

b. Comprehensive Dangerous Drugs Act of 2002 (RA No. 9165);

c. Hijacking and other violations under RA 6235; destructive arson and murder under RPC. Including those perpetrated

by terrorists against non-combatant persons and similar targets.” (Sec. 11, R.A. No. 9160 as amended by Sec. 8 of RA 9194)

4. Disclosure to the Treasurer of the Philippines of dormant deposits for at least 10 years under the Unclaimed Balances Act (Act No. 3936)

OTHER LAWS RELATING TO SECRECY OF BANK DEPOSITSA. Foreign Currency Deposit Act (R.A. No. 6426): Extends confidentiality to foreign currency deposits, but the law contains only one ground authorizing examination: upon written permission of the depositor.

B. General Banking Law of 2000 (R.A. No. 8791): 1. No bank shall employ casual or non-regular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits. (Sec. 55.4)2. No director, officer, employee, or agent of any bank shall, without court order, disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity, provided that with respect to bank deposits, the provisions of existing laws shall prevail. (Sec. 55(b))3. Outsourcing of inherent bank functions

C. New Central Bank Act (R.A. No. 7653):1. Any director, officer, stockholder who, together with his related interests, contracts a loan or any form of financial accommodation from:

a. His bank; or b. From a bank -

i. which is a subsidiary of a bank holding company of which both his bank and the






lending bank are subsidiaries; or ii. in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank,

in excess of 5% of the capital and surplus of the bank or in the maximum amount permitted by law, whichever is lower, shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the Philippines (Sec. 26).2. Periodic and special examinations by the BSP (Sec. 25)

D. Anti-Money Laundering Act (R.A. No. 9160): Provides for another exception to confidentiality, which is applicable to both peso and foreign currency deposits.

Garnishment of bank deposit of judgment debtor does not violate RA 1405. Its purpose is merely to secure information as to the name of the depositor and whether or not the defendant had a deposit in said bank, only for purposes of garnishment. (China Banking Corporation v. Ortega)

Illegally acquired property extends to cases where property is concealed by being held by or recorded in the name of respondent’s spouse, ascendants, descendants, relatives, or any other persons. (Banco Filipino Savings and Mortgage Bank v. Purisima)

REQUISTES FOR IN-CAMERA INSPECTION OF BANK DEPOSITS (Marquez vs. Desierto)1. Pending case before a court of competent jurisdiction2. Account must be clearly identified3. The inspection is limited to the subject of the pending litigation4. The bank personnel and account holder must be present during the inspection

5. The inspection must cover only the account identified in the pending case

R.A. NO. 1405 viz. POWER OF THE BSP TO CONDUCT PERIODIC AND/OR SPECIAL EXAMINATIONS (Sec. 4, GBL & Sec. 25, NCBA) Prof. Aquino and Prof. Viray believe that the general rule still applies. Hence, the deposit remains confidentialPENALTIES Imprisonment of not more than 5 years or a fine not more than P20,000 or both, in the discretion of the court.

ANTI-MONEY LAUNDERING ACT OF 2001

(R.A. No. 9160, as amended by R.A. 9194)

PURPOSES:1. To protect and preserve the integrity and confidentiality of bank accounts, to ensure that the Philippines shall not be used as a site for unlawful money laundering activities; and2. To pursue State’s foreign policy to extend cooperation in transnational investigations and prosecution on money laundering activities.

COVERED TRANSACTION

Transaction, in cash or other equivalent monetary instrument in excess of P500,000, within one banking day

COVERED ENTITIESa. Banksb. Non-banksc. Quasi-banksd. Trust entities; ande. All other institutions, their subsidiaries and affiliates supervised or regulated by the BSP



PERSONS LIABLE

a. Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity transacts or attempts to transact said monetary instrument or property.b. Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense referred to in number 1 above.c. Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the AMLC fails to do so.

SUSPICIOUS TRANSACTIONS

Transactions with covered institutions regardless of the amounts involved, where any of the following circumstances exists:a. There is no underlying legal or trade obligation.b. Client is not properly identifiedc. Amount involved is not commensurate with the business or financial capacityd. Taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the Act.e. Any circumstances relating to the transaction which is observed to deviate from the profile and/ or the client’s past transactions with the covered institution.f. Transaction is in any way related to an unlawful activity or offense under this Act that is about to be, is being or has been committed.g. Analogous transactions to any of the foregoing.

JURISDICTION

All cases: RTC

Public officers and private persons in conspiracy with them: Sandiganbayan

PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) ACT

(R.A. No. 3591, as amended)

PURPOSES: 1. To create a government-owned entity, the PDIC;2. To insure the deposit liability of banks in an account up to P250,000 for every single depositor of each bank irrespective of the number of accounts therewith.

PDIC Functions: A. Insurance

The PDIC assesses and collects insurance assessments from member-banks to insure member-banks’ deposit accounts. In case of bank closures, the PDIC processes and services claims for insured deposits. Deposits are insured up to a maximum coverage of P250,000 per depositor.

B. Bank Examination

Under the new law, PDIC's authority to examine its member banks, with prior approval by the Monetary Board, has been restored.

C. Bank Rehabilitation

The PDIC may grant financial assistance to distressed banks if it is proven to be a less costly alternative than closure.

D. Receivership of closed banksOnce a bank is ordered closed by the Monetary Board (MB) of the Bangko Sentral ng Pilipinas, the PDIC is designated as statutory receiver. The PDIC upon receipt of the MB resolution ordering the closure of a bank, immediately physically takes over the closed bank. Receivership is the stage within which the PDIC manages the affairs of the closed bank and






preserves its assets for the benefit of creditors.

E. Liquidation of closed banksAfter it is determined that the closed bank can not be rehabilitated, the PDIC shall recommend the liquidation of the assets of the closed bank. Liquidation refers to the recovery and conversion of assets into cash for distribution to all creditors in accordance with the order of creditor preference pursuant to law.

INSURANCE FUNCTION1. Nature: Compulsory insurance on all bank deposits2. Coverage: “Insured deposits” - the net amount due to any depositor for deposits in an insured bank, after deducting unpaid loans and other obligations of the depositor to the closed bank. In no case shall insured deposit exceed P250,000 per depositor.3. Specific risk insured against: Bank closure only. Thus, losses due to a bank robbery are not covered.4. Amount of insurance: Maximum of P250,000.00 per deposit (RA 9302)5. Condition precedent for entitlement to payment: Filing of claim within twenty-four months from order of closure6. Manner of payment:

a. Cashb. Transferred deposit – A

deposit in an insured bank made available to a depositor by the PDIC as payment of the insured deposit of such depositor in a closed bank and assumed by another insured bank.

7. Effect of payment by the PDIC to the depositor of his insured deposit:

a. Discharges the PDIC from further liability

b. Subrogates the PDIC to all the rights of the depositor against the closed bank to the extent of such payment.

“Insured deposits” The net amount due to any depositor for deposits in an insured bank, after deducting offsets, less any part thereof which is in excess of P250,000. Trust funds and safety deposit boxes are not covered.

“After deducting offsets”: Consistent with the rulings in Gullas vs. PNB and Republic vs. CA recognizing the debtor-creditor relationship of the bank and the depositor, set-off takes place ipso jure with respect to the depositor’s bank deposit and his matured loan with the bank.

Special rules1. PDIC liability is on a per bank basis. Accounts in a bank, even though in several branches, are to be added together, provided that they are maintained in the same capacity and the same right for his benefit either in his own name or in the name of others.

Capacities: individual account, joint “and” account, joint “and/or” account.

2. The insurance premiums are to be paid by the insured bank, not the depositors.3. In case the depositor’s account is more than the insurance coverage, the balance may still be recovered from the PIC after the final liquidation of the remaining assets of the closed bank.4. a. If the account is held jointly by two or more natural persons, or by two or more juridical persons or entities, the maximum insured deposit shall be divided into as many equal shares as there are individuals, juridical persons or entities, unless a different sharing is stipulated in the document of deposit.

b. If the account is held by a juridical person or entity jointly with one or more natural persons, the maximum insured deposit shall be presumed to belong entirely to such juridical person or entity: Provided,



further, That the aggregate of the interests of each co-owner over several joint accounts, whether owned by the same or different combinations of individuals, juridical persons or entities, shall likewise be subject to the maximum insured deposit of Two hundred fifty thousand pesos (P250,000.00).

Authority to terminate insured status1. Non-payment of insurance premiums2. Continued engagement in unsafe and unsound banking practices Sec. 9 of RA 6426 (‘An Act Instituting a Foreign Currency Deposit System in the Philippines, and for Other Purposes") and Sec. 79 of Central Bank (CB) Circular No. 1389, dated August 13, 1993, mandate that foreign currency deposits shall be insured under the provisions of RA 3591, as amended. Under CB Circular No. 1389, depositors are entitled to receive payment in the same currency in which the insured deposit is denominated.

Note: The PDIC law is not applicable to Offshore Banking Units. (P.D. No. 1034)

UNCLAIMED BALANCES LAW(R.A. NO. 3936)

ELEMENTS OF UNCLAIMED BALANCES1. There must be a claim or deposit of:

a. money,b. bullion,c. security, ord. other evidence of indebtedness

2. The credit or deposit must be with a bank, building and loan association, or trust corporation; and

3. The credit or deposit is in favor of a person:

a. who is dead, orb. who has not made further

deposits or withdrawals during

the preceding 10 years or more.

LEGAL CONSEQUENCE The unclaimed balances may be subject of escheat proceedings, after proper publication and the depositors still do not lay claim to them.

FOREIGN CURRENCY DEPOSIT ACT (R.A. No. 6426)

PESO DEPOSIT FOREIGN CURRENCY DEPOSIT

Governed by R.A. No. 1405

Governed by R.A. No. 6426

4 exceptions + exceptions found in special laws

1 exception + 1 provided under AMLA (R.A. No. 9160)

May be garnished or attached (not a violation of R.A. No. 1405)

GENERAL RULE: Exempt from attachment, garnishment, and other court order and processes.EXCEPTION: Salvacion vs. CB

OTHER FEATURES:1. Authorized banks may adopt a numbered account system for recording and servicing deposits in non-checking accounts2. Foreign currency deposits are exempt from taxes except the interests3. In the event a new enactment or regulation is issued decreasing the rights granted under the law, it shall not apply to FCD’s already made or existing at the time of the issuance of such new regulation or enactment.






In a sui generis case, the SC allowed garnishment of such deposits of a transient American tourist arising out of a heinous crime committed against a Filipino minor since to hold otherwise would result to injustice to a citizen perpetrated by a foreigner. (Salvacion, et al. v. Central Bank et al., 278 SCRA 27)

Note: This case does not constitute another exception, the SC only ruled as such due to the special circumstances of the said case.

REPEALING LAW TO UNIFORM CURRENCY ACT (R.A. No. 8183)

All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment. (Sec. 1)


Documents

Banking Laws