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BANKING LAWS OF THE PHILIPPINES

1ST EXAM 2. Establishment and Organization of the Bangko Sentral ng Pilipinas


Based on the Lectures of Atty. Raymund Ong Abrantes, CPA
3-MANRESA CHAPTER 1
ESTABLISHMENT AND ORGANIZATION
OF THE BANGKO SENTRAL NG PILIPINAS

ARTICLE I
Creation, Responsibilities and Corporate
Powers of the Bangko Sentral

SECTION 1. Declaration of Policy. – The State shall maintain a central


monetary authority that shall function and operate as an independent and
November 21, 2018 accountable body corporate in the discharge of its mandated
responsibilities concerning money, banking and credit. In line with this
RA 7653 policy, and considering its unique functions and responsibilities, the central
THE NEW CENTRAL BANK ACT monetary authority established under this Act, while being a government-
owned corporation, shall enjoy fiscal and administrative autonomy.

Essentially, the banking industry is about risk management. They ask you to The main policy of establishing a central bank is actually to function and
give your money to the bank, then they will lend it out. operate as an independent and accountable body corporate regarding money,
banking, and credit, and it has fiscal and administrative autonomy.
We have two policies – the fiscal policy and the monetary policy. The banking
is mainly engaged into the monetary policy. The fiscal policy – these are your In this case of Reyes v. Rural Bank of San Miguel, Reyes, he was an officer of
taxes. the Central Bank who was examining the Rural Bank of San Miguel. The Rural
Bank of San Miguel is bankrupt. They said, it was a violation of his duty as an
officer because he acted as a broker so he can sell the bank.
1. Legal Evolution of Central Banking
However, the Court said no. You cannot put in a cookie cutter the duties of
Why is it important to have a central bank? The banking industry is you have Central Bank officers, because the Court said—
to manage the risk. Essentially what the bank does is get money and give you
a certain interest, then they will lend it out. Imagine if there’s no regulator.
Imagine if there are no banking laws. What will happen if you deregulate the
Reyes v. Rural Bank of San Miguel
banking industry? Would you think, the banks will be able to repay those who
G.R. No. 154499
lent money? There is an immense risk for them to default in their payments.
Why? Because there is no scrutiny on who you will lend to the money.
Facts
Reyes is a BSP official who allegedly did brokering, in violation of the standards
The central bank laws is the epitome of human experience and the formal
of professionalism.
expression of public policies and societal goals. (Zuniga, The Legal Framework
of Central Banking (2009))
Issue
Whether Reyes conducted himself in an unprofessional manner in doing the
Four periods
acts imputed to him.
1. The Spanish Period (1521-1898)
Ruling: No
It appears to the Court that in keeping with the standards of professionalism
We have the Spanish period, wherein the Philippines was colonized for about
and heeding the mandate of his position, he made the telephone introductions
300 years. The problem was that there were so many currencies. There was
for no other purpose but to pave the way for a possible consolidation or
even barter. It was really hard to regulate. How much was the value of this
merger of RBSMI with interested banks. It is the policy of the BSP to promote
currency compared to that currency? So the Queen Isabela formulated a royal
mergers and consolidations by providing incentives to banks that would
decree, wherein the peso were minted in the Philippines. But this is not really
undergo such corporate combinations. To effectively implement the policy, it
sufficient enough. There was no central banking during that time. So yes, there
was necessary that the banks be advised and assisted by a person
was stability of the currency, but there were no regulations as to the banking.
knowledgeable about the transactions like Reyes.
2. The American Period (1899-1941)
It cannot be overemphasized that the BSP is an independent body corporate
bestowed under its charter with fiscal and administrative autonomy. As such,
But then again, we were sold to the Americans in the Treaty of Paris. The
its officials should be granted a certain degree of flexibility in the performance
Americans were far advanced than us, so they tried to introduce the concept
of their duties and provided insulation from interference and vexatious suits,
of central banking in the Philippines.
especially when moves of the kind are resorted to as counterfoil to the
exercise of their regulatory mandate. Elsewise, the institutional independence
3. The Japanese Occupation (1942-1945)
and autonomy of the BSP as the central mandatory authority would be
rendered illusory.
However, when the Japanese came, there was a military note – the Mickey
Mouse note. The problem is that during the Japanese occupation, they did not
allow other currencies to be a medium of exchange. They only allowed the In this particular case, the Court said that he is not liable because he did not
Mickey Mouse notes. violate his duties as a central bank officer.

4. The Philippine Republic The Central Bank actually has fiscal autonomy.

That’s why when we were liberalized, our money had no value. That’s why Fiscal autonomy is exemplified in the following instances—
they had to put up a central bank. The first central bank law is RA 265 – the
Central Bank of 1948. This was apparently not sufficient enough to control. − non-reliance on Congress for budgetary support, as its funds are
That’s why they promulgated RA 7653 – The New Central Bank Act. generated from its own operations.
− flexibility to fix the remunerations of its personnel

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− recruit competent personnel to as the Government, Ten billion pesos (P10,000,000,000) of which shall be
− prepare its own plantilla without interference from other agencies fully paid for by the Government upon the effectivity of this Act and the
of the government balance to be paid for within a period of two (2) years from the effectivity of
− adoption of an annual budget, with power to authorize this Act in such manner and form as the Government, through the Secretary
expenditure of Finance and the Secretary of Budget and Management, may thereafter
determine.
Please take note— that the policy under Section 1, Article 1 is to create an
independent and accountable body. How can it be independent when it Proposed Amendment
depends on Congress? That’s why it has its own laws on creating its own funds.
SEC. 2. Creation of the Bangko Sentral. – There is hereby established an
It also has administrative autonomy, which is the degree of freedom from independent central monetary authority, which shall be a body corporate
intervention and interference by other agencies necessary to ensure the known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko
independence of the BSP. This is illustrated by the fact that it has the flexibility Sentral.
to establish a human resource management system, while the Governor has
the rank of department head whose appointment is not subject to The capital of the Bangko Sentral shall be two hundred billion pesos
confirmation by the CA. And in general, the decisions of the Monetary Board (P200,000,000,000), to be fully subscribed by the Government of the Republic,
are not subject to administrative review, and can only be judicially reviewed hereafter referred to as the Government.
by way of certiorari.
The unpaid subscription shall be fully paid for by the Government in cash
UCPB v. E. Ganzon and/or government securities upon effectivity of this Act. Thereafter the
G.R. No. 168859 & G.R. No. 168897 adequacy of the capitalization shall be subject to review every five (5) years
and adjusted upon joint recommendation by the Secretary of Finance, the
Issue Secretary of Budget and Management and the Monetary Board. The payment
Whether the Court of Appeals has jurisdiction over appeals of decisions, of any unpaid subscription and/or increase in capitalization shall be
orders and/or resolutions of the BSP Monetary Board on administrative automatically appropriated in the annual General Appropriations Act.
matters
Peculiarity of this law: It is entitled the New Central Bank Act, but the body
Ruling: Yes that was created is not actually Central Bank but Bangko Sentral. Technically,
Truly, there is nothing in RA 7653 which explicitly allows an appeal of the you don’t refer to our central bank as Central Bank. You refer to our central
decisions of the BSP Monetary Board to the Court of Appeals. However, this bank as Bangko Sentral ng Pilipinas.
shall not mean that said decisions are beyond judicial review.
Since it is to be established as a body corporate, it must have a capitalization.
A perusal of Section 9(3) of BP 129 reveals that the BSP Monetary Board is not Its capitalization is 50 billion, of which 10 billion is the initial paid-up capital.
included among the quasi-judicial agencies explicitly named therein, whose
final judgments, orders, resolutions or awards are appealable to the Court of Original Provision
Appeals. Such omission, however, does not mean that the Court of Appeals
has no appellate jurisdiction over the judgments, resolutions, orders or awards Section. 3. Responsibility and Primary Objective. – The Bangko Sentral shall
of the BSP Monetary Board. provide policy directions in the areas of money, banking, and credit. It shall
have supervision over the operations of banks and exercise such regulatory
The use of the word including in said provision, prior to the naming of several powers as provided in this Act and other pertinent laws over the operations of
quasi-judicial agencies, necessarily conveys the very idea of non-exclusivity of finance companies and non-bank financial institutions performing quasi-
the enumeration. A quasi-judicial agency or body is an organ of government banking functions, hereafter referred to as quasi-banks, and institutions
other than a court and other than a legislature, which affects the rights of performing similar functions.
private parties through either adjudication or rule-making.
The primary objective of the Bangko Sentral is to maintain price stability
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising conducive to a balanced and sustainable growth of the economy. It shall also
quasi-judicial powers or functions. As aptly observed by the Court of Appeals, promote and maintain monetary stability and the convertibility of the peso.
the BSP Monetary Board is an independent central monetary authority and a
body corporate with fiscal and administrative autonomy, mandated to provide Proposed Amendment
policy directions in the areas of money, banking, and credit. It has power to
issue subpoena, to sue for contempt those refusing to obey the subpoena Section. 3 Responsibility and Primary Objective. – The Bangko Sentral shall
without justifiable reason, to administer oaths and compel presentation of provide policy directions in the areas of money, banking, and credit. It shall
books, records and others, needed in its examination, to impose fines and have supervision over the operations of banks and exercise such regulatory
other sanctions, and to issue cease and desist order. Section 37 of RA 7653, in and examination powers as provided in this Act and other pertinent laws over
particular, explicitly provides that the BSP Monetary Board shall exercise its the quasi-banking operations of non-bank financial institutions. As may be
discretion in determining whether administrative sanctions should be imposed determined by the Monetary Board, it shall exercise regulatory and
on banks and quasi-banks, which necessarily implies that the BSP Monetary examination powers over money service businesses, credit granting
Board must conduct some form of investigation or hearing regarding the businesses, and payment system operators. The Monetary Board is hereby
same. empowered to authorize entities or persons to engage in money service
businesses.
So it is independent and it enjoys fiscal and administrative autonomy.
The primary objective of the Bangko Sentral is to maintain price stability
Why is it important for it to be an independent body? conducive to a balanced and sustainable growth of the economy. It shall also
promote and maintain monetary stability and the convertibility of the peso.
Original Provision
The Bangko Sentral shall promote financial stability and closely work with
Section 2. Creation of the Bangko Sentral. – There is hereby established an other relevant bodies including, but not limited to, the Securities and Exchange
independent central monetary authority, which shall be a body corporate Commission, the Philippine Deposit Insurance Corporation, and the National
known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko Government.
Sentral.
The Bangko Sentral shall oversee the payment and settlement systems in the
The capital of the Bangko Sentral shall be Fifty billion pesos(P50,000,000,000), Philippines, including critical financial market infrastructures, in order to
to be fully subscribed by the Government of the Republic, hereafter referred

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promote sound and prudent practices consistent with the maintenance of China. What is the source document that you give there? Your service
financial stability. contract. Now, sham documents are proliferating. That’s why before it gets
out, they will review that properly, then they’ll convert that into dollar.
In the attainment of its objectives, the Bangko Sentral shall promote broad
and convenient access to high quality financial services and consider the The central bank there, is very strict because the Renminbi is not heavily
interest of the general public. traded. The scrutiny and the review are too long. So if the transaction, is
cleared in two or three months. It’s not heavily traded, so it has to be
Maintain price stability – that is the main objective of Bangko Sentral. converted into dollar (a heavily traded currency), then to your own currency.
What will happen into the three-month period? You have your forex
It shall also promote and maintain monetary stability and the convertibility of difference. You can receive 1000, but you’ll end up receiving is 800, because
the peso. So you have— of the forex difference.
(1) price stability;
(2) monetary stability; That’s why there are institutions engaged in the service of foreign currency
(3) convertibility of the peso. hedging. Let’s say what you will receive, I will peg at 50 pesos per 1 dollar. So
I would go to the financial institutions, and he will offer hedging. “okay, I will
Price Stability ensure that you will receive 50. Now, if the value of the dollar goes up, let’s
say it will be 51, I will be the one who will gain. If the value of the dollar goes
Price stability in an economy— means that the general price level in an down, so I will be the one to give the difference.” So hedging to secure any
economy does not change much over time. In other words, prices neither goes foreign currency risk.
up or down; there is no significant degree of inflation or deflation.
Now a good question: Is that tantamount to an allied activity of a banking
So the value of your money now should be the value of your money over a institution? We will determine that later on when we go to Allied Activities.
period of time. Why? Is it really bad to have an inflation? It does not mean if
there is inflation, the economy is bad. It may be a means to control prices and Commissioner of Customs v. Eastern Sea Trading
interest rate. G.R. No. L-14279

Monetary Policy Facts


Eastern Sea Trading was the consignee of several shipments, none of which
The term Monetary Policy refers to the decisions that a government makes had the certificate required by Central Bank Circulars Nos. 44 and 45 for the
concerning interest rates and the supply of money in an economy. Monetary release thereof. Thus, the goods were seized and subjected to forfeiture
policy can be used to try to keep prices stable. proceedings.

• The Bangko Sentral maintains price stability through responsive Eastern Sea Trading argued: that the Central Bank has no authority to regulate
and effective monetary policy. transactions not involving foreign exchange; that the shipments in question
• The framework for conducting monetary policy formally adopted are in the nature of “no-dollar” imports; that, as such, the aforementioned
by the Bangko Sentral is inflation targeting. shipments do not involve foreign exchange.

What will happen if the interest is not controlled? It might have an impact on Issue
the supply of money. If the interest rate is too high, what do you think the Whether the Central Bank has the authority to regulate no-dollar imports
people’s reaction would be? Give everything to the banking system. What
would happen to the money in circulation? Ruling: Yes
The authority of the Central Bank to regulate no-dollar imports and the validity
Monetary policy instruments of the aforementioned Circular Nos. 44 and 45 have already been passed upon
and repeatedly upheld by this Court for the reasons that the broad powers of
• Operations in gold and foreign exchange the Central Bank, under its charter, to maintain our monetary stability and to
• Regulations of foreign exchange operations of banks preserve the international value of our currency, under Section 2 of RA 265, in
• Loans to banking and other financial institutions relation to Section 14 of said Act – authorizing the bank to issue such rules and
• Open market operations regulations as it may consider necessary for the effective discharge of the
• Bank reserves responsibilities and the exercise of the powers assigned to the Monetary
• Moral suasion Board and to the Central Bank – connote the authority to regulate no-dollar
• Selective regulation of bank operations imports, owing to the influence and effect that the same may and do have
upon the stability of our peso and its international value.
What is moral suasion? It is the act of persuading the person or group to act
in a certain way through rhetorical appeals, persuasion or implicit threats, as So even if its no-dollar imports, you have to consider the payments. It still has
opposed to the use of outright coercion or force. It is commonly used in to be under the auspices of convertibility of peso.
reference to central banks.
Central bank supervises and regulates banks. The Bangko Sentral promotes
Monetary stability and convertibility of peso financial stability and supervision of banks and regulation of finance
companies, quasi-banks, etc.
Monetary stability pertains to the stability of peso and its international value
for current payments for foreign trade and invisibles. Coverage of the supervision and regulatory powers of BSP
- banks,
Why is it important to have convertibility of peso or currency? To make it - subsidiaries and affiliates of banks and related allied activities of
simple, it is necessary for foreign trade. quasi banks,
- subsidiaries and affiliates of quasi banks engaged in allied activities
You know Renminbi – the currency of China? It’s not really freely traded, that’s - other institution such as non-stock savings and loans association,
why there’s a problem in getting money in and out. Why is it so hard to get the pawnshop, money changers, remittance agents, trust companies
money out? It’s not really hard, it’s just that there are severe regulations in
their central bank because the Renminbi is not heavily traded. If it’s heavily
traded, it’s easier. DBP v COA
G.R. No. 88435
Let’s say you have a service that you rendered in China. You billed the
company. You receive money. Now it’s so hard for the money to get out of Facts

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New COA Chair questioned the Central Bank Circular allowing a private banks. The inevitable conclusion is that the COA and the Central Bank have
external auditor for DBP which is a government bank. The circular allegedly concurrent jurisdiction, under the Constitution, to examine and audit
encroached upon COA’s constitutional and statutory power to audit government banks.
government agencies.

Issue: In other words, the COA has no exclusive authority to audit government banks.
Whether or not the constitutional power of the COA to examine and audit the
DBP is exclusive and precludes a concurrent audit of the DBP by a private Why is that so? Isn’t redundant that the COA will audit then BSP will also audit?
external auditor
They have different objectives/goals—
Ruling: NO
Objective of COA’s audit: to determine if the expense of the government is
The resolution of the primordial issue of whether or not the COA has the sole really within the budget allotted to them
and exclusive power to examine and audit government banks involves an
interpretation of Section 2, Article IX-D of the 1987 Constitution. This Section Objective of BSP’s audit: to determine the soundness of the bank’s operations
provides as follows: and the safety of the deposits of the public

"Sec. 2. (1) The Commission on Audit shall have the power, authority, and duty That’s why they have the right to supervise and regulate banks this is the
to examine, audit, and settle all accounts pertaining to the revenue and objective. Are there operations sound? Are they in compliance with their duty
receipts of, and expenditures or uses of funds and property, owned and held to the public.
in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned or controlled Now, the Central Bank's power of "supervision" includes the power to examine
corporations with original charters, x x x. and audit banks, so BSP has very broad supervisory powers. Now it involves
the audit in relation to its supervisory powers. It just so happens COA also has
"(2) The Commission shall have the exclusive authority, subject to the the power to audit.
limitations in this Article, to define the scope of its audit and examination,
establish the techniques and methods required therefore, and promulgate So if you reconcile, that’s the only part where they have concurrent
accounting and auditing rules and regulations, including those for the jurisdiction—the right to audit with regards to the finances because you
prevention and disallowance of irregular, unnecessary, excessive, extravagant, cannot supervise to determine the sound practice of a bank or if its provides
or unconscionable expenditures, or uses of government funds and safety to the public if you do not audit. In other words, that’s the only time
properties." they overlap.

The COA vigorously asserts that under the first paragraph of Section 2, the COA The right and supervisory powers of BSP are broader than the COA.
enjoys the sole and exclusive power to examine and audit all government
agencies, including the DBP. The BSP not only audits government banks but also private banks while the
COA only audits government banks because the funds taken by the
The bare language of Section 2, however, shows that the COA's power under government banks came from the coffers of the government. That’s why the
the first paragraph is not declared exclusive, while its authority under the COA audits.
second paragraph is expressly declared "exclusive." There is a significant
reason for this marked difference in language.
BANKS
The qualifying word "exclusive" in the second paragraph of Section 2 cannot - entities engaged in the lending of funds obtained in the form of
be applied to the first paragraph which is another sub-section of Section 2. deposits
Thus, the first paragraph of Section 2 must be read the way it appears, without
the word "exclusive", signifying that non-COA auditors can also examine and - Universal Banks
audit government agencies. Besides, the framers of the Constitution - Commercial Banks
intentionally omitted the word "exclusive" in the first paragraph of Section 2 - Thrift Banks composed of:
precisely to allow concurrent audit by private external auditors. o Savings and mortgage banks
o Stock savings and loans associations and
o Private development bank
There is another constitutional barrier to the COA's insistence of exclusive - Rural Banks
power to examine and audit all government agencies. The COA's claim clashes - Cooperative Banks
directly with the Central Bank's constitutional power of "supervision" over - Islamic Banks, and
banks under Section 20, Article XII of the Constitution. This provision states as - Other classifications
follows:

"Sec. 20. The Congress shall establish an independent central monetary We have said earlier there’s a specie called quasi-bank—
authority, the members of whose governing board must be natural-born
Filipino citizens, of known probity, integrity, and patriotism, the majority of
whom shall come from the private sector. They shall also be subject to such QUASI-BANKS
other qualifications and disabilities as may be prescribed by law. The authority - Entities engaged in the borrowing of funds through the issuance,
shall provide policy direction in the areas of money, banking, and credit. It shall endorsement or assignment with recourse or acceptance of
have supervision over the operations of banks and exercise such regulatory deposit substitutes for purposes of re-lending or purchasing
powers as may be provided by law over the operations of finance companies receivables and other obligations
and other institutions performing similar functions." (Emphasis supplied)
So if you are an entity engaged in discounting of receivables, for example if I
Historically, the Central Bank has been conducting periodic and special have receivables to someone, you loaned from, I want cash but he hasn’t paid
examination and audit of banks to determine the soundness of their what will I do? There is this (third person) he will give me cash and I will give
operations and the safety of the deposits of the public. Undeniably, the him my receivables)with recourse, you are a quasi-bank. It’s because in effect
Central Bank's power of "supervision" includes the power to examine and you are engaged in the borrowing of funds through the issuance, endorsement
audit banks, as the banking laws have always recognized this power of the or assignment with recourse.
Central Bank.31 Hence, the COA's power to examine and audit government
banks must be reconciled with the Central Bank's power to supervise the same

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OFFSHORE BANKING UNITS
- OBUs are branches, subsidiaries, or affiliates of a foreign banking Why is it important to delineate the powers of a body corporate? Because
corporation which are duly authorized by the Bangko Sentral to remember a body corporate is an artificial being created by law. It’s not the
transact offshore banking business in the Philippines same as humans. it has no heart and body, it has no soul. So the body
corporate also has powers limited by the law or that which created the
So who are the clients of these OBUs? Foreign branch, so let’s say May Bank. corporation. It has to be limited, it cannot have unlimited powers, it has no
Or let’s say there’s a Bank of the Netherlands, they have branch here and are carnal body or soul.
engaged in offshore banking. Who are their depositors? Filipinos? NO.
Foreigners as well. To summarize, the BSP has the same powers as any body, corporate or private
corporation.
Why does the government allow OBUs to do business in the PH? In fact there’s
a tax incentive because if there are OBUs here in the PH, it means the exchange
of foreign currencies are liquid because they transact here. So that has an Let’s go to the monetary board which can be liken to a board of directors of a
impact on our monetary policy. corporation

Please take note— the reason why OBUs are here because it has a positive ARTICLE II. THE MONETARY BOARD
impact in the economy.

If you are employed in the OBUs or Petroleum Corporation, how much is your SECTION 6. Composition of the Monetary Board. — The powers and functions
income tax rate? Supposedly 15% of your income, that’s why a lot of Filipinos of the Bangko Sentral shall be exercised by the Bangko Sentral Monetary
apply there. Because of the TRAIN law, they’ve abolished that. What Board, hereafter referred to as the Monetary Board, composed of seven (7)
happened, it was vetoed by the President, take it out, the compensation is members appointed by the President of the Philippines for a term of six (6)
already high, what’s the 15% incentive for? But this is only effective to years.
employees employed to OBUs registered after the effectivity of the TRAIN law
(January 1, 2018). If there are existing registered OBUs, they can use the same The seven (7) members are:
tax rate (15%). (a) the Governor of the Bangko Sentral, who shall be the Chairman of the
Monetary Board. The Governor of the Bangko Sentral shall be head of a
department and his appointment shall be subject to confirmation by the
Commission on Appointments. Whenever the Governor is unable to attend a
OTHER INSTITUTIONS meeting of the Board, he shall designate a Deputy Governor to act as his
- Non-stock savings and loan associations alternate: Provided, That in such event, the Monetary Board shall designate
- Pawnshops one of its members as acting Chairman;

(b) a member of the Cabinet to be designated by the President of the


Let’s go to the place of business. Philippines. Whenever the designated Cabinet Member is unable to attend a
meeting of the Board, he shall designate
SECTION 4. Place of Business. — The Bangko Sentral shall have its principal an Undersecretary in his Department to attend as his alternate; and
place of business in Metro Manila, but may maintain branches, agencies and
correspondents in such other places as the proper conduct of its business (c) five (5) members who shall come from the private sector, all of whom shall
may require. serve full-time: Provided, however, That of the members first appointed under
the provisions of this subsection, three (3) shall have a term of six (6) years,
Why is it important to have a place of business? Because this will be the basis and the other two 2), three (3) years.
for your venue of actions
No member of the Monetary Board may be reappointed more than once.

On Sec 6(c): So this is what we call rotational system in your Administrative


SECTION 5. Corporate Powers. — The Bangko Sentral is hereby authorized to Law
adopt, alter, and use a corporate seal which shall be judicially noticed; to enter
into contracts; to lease or own real Take note— no member of the monetary board may be appointed more than
and personal property, and to sell or otherwise dispose of the same; to sue twice.
and be sued; and otherwise to do and perform any and all things that may be
necessary or proper to carry out the purposes of this Act.
Calderon vs. Carale
The Bangko Sentral may acquire and hold such assets and incur such liabilities G.R. No. 91636
in connection with its operations authorized by the provisions of this Act, or
as are essential to the proper conduct of such operations. FACTS:
RA 6715 was passed on 1989 amending PD 442 of the Labor Code. It states
The Bangko Sentral may compromise, condone or release, in whole or in part, that the NLRC Chairman and Commissioners shall be appointed by the
any claim of or settled liability to the Bangko Sentral, regardless of the amount President subject to the confirmation of the Commission on Appointments.
involved, under such terms and conditions as may be prescribed by the Calderon questioned the appointment of Carale as NLRC Chair saying that it is
Monetary Board to protect the interests of the Bangko Sentral. subject to the confirmation of the CA.

POWERS OF THE BANGKO SENTRAL ISSUE:


- adopt, alter, and use a corporate seal Whether or not Congress may, by law, require confirmation by the
- enter into contracts; Commission on Appointments of appointments extended by the president to
- lease or own real and personal property, government officers additional to those expressly mentioned in the first
- sue and be sued sentence of Sec. 16, Art. VII of the Constitution whose appointments require
- acquire and hold such assets and incur such liabilities in confirmation by the Commission on Appointments.
connection or as are essential to the conduct of its operations
- compromise, condone or release, in whole or in part, any claim of Ruling: NO
or settled liability to the Bangko Sentral, Sec. 16. The President shall nominate and, with the consent of the
- do and perform any and all things that may be necessary or Commission on Appointments, appoint the heads of the executive
proper to carry out the purposes of RA 7653 departments, ambassadors, other public ministers and consuls, or officers of

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the armed forces from the rank of colonel or naval captain, and other officers
whose appointments are vested in him in this Constitution. He shall also In effect, the governor is likened to a department head of the government.
appoint all other officers of the Government whose appointments are not
otherwise provided for by law, and those whom he may be authorized by law So this next case, this could’ve been the answer to the question whether or
to appoint. The Congress may, by law, vest the appointment of other officers not it is constitutional for the governor to be confirmed by the Commission on
lower in rank in the President alone, in the courts, or in the heads of Appointment. This should have been the key to answer to that question.
departments, agencies, commissions, or boards.
Did it answer the question? NO
The President shall have the power to make appointments during the recess
of the Congress, whether voluntary or compulsory, but such appointments
shall be effective only until disapproval by the Commission on Appointments Tarrosa v Singson
or until the next adjournment of the Congress. G.R. No. 111243 (1994)

Confirmation by the Commission on Appointments is required only for Facts


presidential appointees mentioned in the first sentence of Section 16, Article A petition for prohibition was filed questioning the appointment of Singson as
VII, including, those officers whose appointments are expressly vested by the Governor of BSP for not having been confirmed by the Commission on
Constitution itself in the president (like sectoral representatives to Congress Appointments.
and members of the constitutional commissions of Audit, Civil Service and
Election). Issue
Whether the the petition should be given due course

The position of the SC is that those positions subject to the confirmation of the Ruling: NO
Commission of Appointments are limited to the first sentence of Sec 16, Art It is obvious that the instant action was improvidently brought by petitioner.
VII of the 1987 Constitution. To uphold the action would encourage every disgruntled citizen to resort to
the courts, thereby causing incalculable mischief and hindrance to the efficient
So question, is this valid that the New Central Bank Act provided that the operation of the governmental machinery (See Roosevelt v. Draper, 7 Abb. Pr.
Governor is subject to the confirmation of the Commission of Appointments? 108, 23 N.Y. 218).

Student: It is not valid. Its capstone having been removed, the whole case of petitioner collapses.
Hence, there is no need to resolve the question of whether the disbursement
Sir: (Referring to the case) It was invalidated, the labor code, because it was of public funds to pay the salaries and emoluments of respondent Singson can
expressly specified in the Constitution. How about his one, is the Governor of be enjoined. Likewise, the Court refrains from passing upon the
BSP one of those mentioned positions in the Constitution? We have no constitutionality of Section 6, R.A. No. 7653 in deference to the principle that
jurisprudence for that. But please take note of the Calderon case which is bars a judicial inquiry into a constitutional question unless the resolution
instructive as to the NLRC Chair position. There is yet no challenge as to the thereof is indispensable for the determination of the case (Fernandez v.
BSP. Torres, 215 SCRA 489 [1992]).

If you’re going to be asked, is it constitutional or unconstitutional? However, for the information of all concerned, we call attention to our
decision in Calderon v. Carale, 208 SCRA 254 (1992), with Justice Isagani A.
Cruz dissenting, where we ruled that Congress cannot by law expand the
confirmation powers of the Commission on Appointments and require
Esperanza v Castilla confirmation of appointment of other government officials not expressly
G.R. No. L021810 mentioned in the first sentence of Section 16 of Article VII of the Constitution.

Facts
Esperanza, a Central Bank employee, was charged of dishonesty and violations
of regulations, as set forth in the letters sent to the CB. He was suspended and According to the SC, the petition is actually in the nature of a quo warranto
was investigated by a committee as directed by the Governor of the Central proceeding. Who should file a quo warranto proceeding? It should have been
Bank. Esperanza questioned this power and authority of the Governor commenced by the Solicitor General.

Issue What the Court did, they dismissed the petition due to technicalities. they did
Whether the Governor as the officer-in-charge has the power to discipline as not rule on the merits. It should have been an opportunity for them to clarify
a department head the matter (on the requirement of confirmation) but they did not clarify.

Ruling: YES

Indeed, the charter of the Central Bank (Republic Act No. 265) explicitly MONETARY BOARD MEMBERSHIP
provides 4 that the "Governor of the Central Bank shall be the principal - Chairman, the Governor is the Chairman of the Monetary Board
representative of the Monetary Board and of the Bank", and that 5 he "shall - Cabinet Member, Can it be the Secretary of Finance? Yes
be the chief executive of the Central Bank, with authority, inter alia "to direct - Members of the Private Sector: Fulltime
and supervise the operations and internal administration" of the Bank. It is - Reappointment
obvious that, whereas the functions of the Monetary Board may be compared - Collegial Body: Members of the Monetary Board has no individual
to those of the Board of Directors of a corporation, the role of the Governor powers as each of them only act as such member of the Monetary
of the Central Bank may, in turn, be likened to that of president and general Board
manager of such corporation, with the duties and responsibilities of a - Rotational System
department head of the government.

In fact, the Governor’s duty to direct and supervise the operations and internal
administration of the bank logically entails the power to prefer charges against
erring officials of the Bank and to see to it that said charges are properly SECTION 7. Vacancies. — Any vacancy in the Monetary Board created by the
investigated, this being an intrinsic element of the internal administration of death, resignation, or removal of any member shall be filled by the
the said institution. appointment of a new member to complete the unexpired period of the term
of the member concerned.

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(3) corporation, association or firm of which the stockholder
SECTION 8. Qualifications. — The members of the Monetary Board must be and/or his spouse and/or the aforementioned relatives own
natural-born citizens of the Philippines, at least thirty-five (35) years of age, more than fifty percent (50%) of the total subscribed capital
with the exception of the Governor who should at least be forty (40) years of stock of such corporation, association or firm,
age, of good moral character, of unquestionable integrity, of known probity
and patriotism, and with recognized competence in social and economic amount to one percent (1%) or more of the total subscribed capital
disciplines. stock of the Bank

What’s the difference between character and reputation? What is proxy or voting trust? the stocks are not named in a
member of the Monetary Board but there is a voting rights
In the old law, this is actually specialized, “the member must have recognized agreement. Meaning the shares are held in trust in that particular
competence in economics, banking, finance, commerce, agriculture or member of the monetary Board. Since he is the beneficiary of that
industry” particular stock, he is disqualified. We will discuss extensively proxy
voting rights in Corporation Law.
Now, what is stated is, “social and economic disciplines”. Apparently, there
are people who have no degrees on those areas but can provide important “amount to one percent (1%) or more of the total subscribed capital
inputs, information on policy. stock of the Bank”, in other words you can own ng 1 share if it does
not amount to 1%. Is that allowed? YES.
Original Provision
If you have a lot of shares, let’s say 200 subscribed capital and you
SECTION 9. Disqualifications. — In addition to the disqualifications imposed have 1 share, does it amount to 1%? How much is that? So that’s
by Republic Act No. 6713, a member of the Monetary Board is disqualified .5%. so it does not amount to 1%.
from being a director, officer, employee, consultant, lawyer, agent or
stockholder of any bank, quasi-bank or any other institution which is subject So what will happen if there’s a share like that? What will you do?
to supervision or examination by the Bangko Sentral, in which case such You either
member shall resign from, and divest himself of any and all interests in such
institution before assumption of office as member of the Monetary Board. o resign if you’re an officer, or
o divest, meaning sell it to somebody else
The members of the Monetary Board coming from the private sector shall not
hold any other public office or public employment during their tenure. Divestment is the transfer of title or disposal of interest in property
voluntarily, completely and actually depriving or dispossessing
No person shall be a member of the Monetary Board if he has been connected oneself of his right or title to it in favor of a person other than the
directly with any multilateral banking or financial institution or has a spouse and affinity within the fourth civil degree of consanguinity
substantial interest in any private bank in the Philippines, within one (1) year or affinity (RA 6713)
prior to his appointment; likewise, no member of the Monetary Board shall be
employed in any such institution within two (2) years after the expiration of please take note, the law which governs divestment is not the
his term except when he serves as an official representative of the Philippine Central Bank but RA 6713 or the Code of Professional Ethics.
Government to such institution.
So if I will divest then I will sell it to my first cousin, it is still not
considered divesting.
So you see, how the law tries to maintain the integrity of the Monetary. It is
very restricted, because, of course of its an important function.

DISQUALIFICATIONS
- Director, officer, employee, consultant, lawyer, agent or
stockholder of any bank, quasi-bank or any other institution which
is subject to supervision or examination by the Bangko Sentral

Meaning, you have conflict of interest, you are disqualified. In


which case such member shall resign from, and divest himself of
any and all interests in such institution.

Please take note— if you’re a stockholder, even if 1 share, you are disqualified.
It is not specified that he must be a majority stockholder.

- BSP Circular 969 Series of 2017

Stockholder shall refer to any stockholder of record in the books of


the Bank acting personally, or through an attorney-in-fact; or any
other person duly authorized by him or through a trustee
designated pursuant to a proxy or voting trust of other similar
contracts, whose stockholdings in the Bank, individual and/or
collectively with the stockholdings of:

(1) his spouse and/or relative within the first degree by


consanguinity or affinity or legal adoption;

(2) a partnership in which the stockholder and/or the spouse


and/or any of the aforementioned relatives is a general
partner; and

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November 28, 2018 social and economic disciplines, you can be a member of the MB. Kasi, at the
end of the day, you act as a collegiate body.

ARTICLE II Section 9. Disqualifications. - In addition to the disqualifications imposed by


THE MONETARY BOARD Republic Act No. 6713, a member of the Monetary Board is disqualified from
being a director, officer, employee, consultant, lawyer, agent or stockholder
of any bank, quasi-bank or any other institution which is subject to supervision
Section 6. Composition of the Monetary Board. - The powers and functions of or examination by the Bangko Sentral, in which case such member shall resign
the Bangko Sentral shall be exercised by the Bangko Sentral Monetary Board, from, and divest himself of any and all interests in such institution before
hereafter referred to as the Monetary Board, composed of seven (7) members
assumption of office as member of the Monetary Board.
appointed by the President of the Philippines for a term of six (6) years.

The members of the Monetary Board coming from the private sector
The seven (7) members are: shall not hold any other public office or public employment during their
tenure.
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the
Monetary Board. The Governor of the Bangko Sentral shall be head of a No person shall be a member of the Monetary Board if he has been
department and his appointment shall be subject to confirmation by the connected directly with any multilateral banking or financial institution or has
Commission on Appointments. Whenever the Governor is unable to attend a a substantial interest in any private bank in the Philippines, within one (1) year
meeting of the Board, he shall designate a Deputy Governor to act as his prior to his appointment; likewise, no member of the Monetary Board shall be
alternate: Provided, That in such event, the Monetary Board shall designate employed in any such institution within two (2) years after the expiration of
one of its members as acting Chairman; his term except when he serves as an official representative of the Philippine
Government to such institution.
(b) a member of the Cabinet to be designated by the President of the
Philippines. Whenever the designated Cabinet Member is unable to attend a
DISQUALIFICATIONS—
meeting of the Board, he shall designate an Undersecretary in his Department
to attend as his alternate; and
1. Director, officer, employee, consultant, lawyer, agent or
stockholder of any bank, quasi-bank or any other institution which
(c) five (5) members who shall come from the private sector, all of whom shall
is subject to supervision or examination by the Bangko Sentral;
serve full-time: Provided, however, That of the members first appointed under
2. Stockholders – any stockholder of record in the books of the Bank,
the provisions of this subsection, three (3) shall have a term of six (6) years,
acting personally or through an attorney-in-fact; or any other
and the other two (2), three (3) years.
person duly authorized by him or through a trustee designated
pursuant to a proxy or voting trust or other similar contracts,
No member of the Monetary Board may be reappointed more than whose stockholdings in the Bank, individual and/or collectively
once. with the stockholdings of:
a. His spouse and/or relative within the first degree by
consanguinity or affinity or legal adoption;
The composition of the Monetary Board—
b. A partnership in which the stockholder and/or the
spouse and/or any of the aforementioned relatives is a
1. The chairman as the governor; general partner; and
2. A Cabinet member – he can be the Secretary of Finance because c. A corporation, association or firm of which the
the law did not prohibit that; stockholder and/or his spouse and/or the
3. Members of the private sector – who must be full-time members. aforementioned relatives own more than 50% of the
total subscribed capital stock of such corporation,
Members of the MB are appointed but cannot be reappointed – only once association or firm.
lang. Each of them can only act as members of the MB and they also apply the
rotational system under your Administrative Law. Which amount to 1% or more of the total subscribed capital stock
of the Bank. (BSP Circular 969 Series of 2017)
Section 7. Vacancies. - Any vacancy in the Monetary Board created by the
death, resignation, or removal of any member shall be filled by the So it need not matter if X is a member of the MB but stocks are in the name of
appointment of a new member to complete the unexpired period of the term Y – for as long as the beneficial interest is in favor of X. in this particular case,
of the member concerned. X is still disqualified from being a member of the MB.

So, there’s no fresh period. Now, if you are a stockholder – 1 share – would you still be considered as
being disqualified from being a member of the MB?

Section 8. Qualifications. - The members of the Monetary Board must be


natural-born citizens of the Philippines, at least thirty-five (35) years of age, Take note that the New Central Bank Act did not provide for any percentage.
with the exception of the Governor who should at least be forty (40) years of It only says, “Any stockholder of record” – so it’s possible 1 share. However,
age, of good moral character, of unquestionable integrity, of known probity under the BSP Circular No. 969, Series of 2017 – it specifically provides that
and patriotism, and with recognized competence in social and economic the stockholder should amount to 1% of the total subscribed capital stock of
disciplines. the bank, individually or collectively with the stockholdings of the spouse plus
the relative within the first degree by consanguinity or affinity or legal
adoption, etc. – if it amounts to 1% of the subscribed capital stock, you’re
With recognized competence in social and economic disciplines already disqualified

Before, under the old Central Bank Act this phrase used to be “with recognized SUBSCRIBED CAPITAL STOCK – A portion of your authorized capital stock that
competence in economics, banking and finance, commerce and agriculture”, is subscribed – meaning covered by subscription agreements. So someone
however they found out that there’s something people who are not within this already owns a portion of that.
field that can contribute in the development of policies in central banking – so
they considered that. For as long as you have a recognized competence in

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What happens if you would like to be a part of the MB yet you have a lot of The presence of four (4) members shall constitute a quorum: Provided, That
shareholdings? in all cases the Governor or his duly designated alternate shall be among the
four (4).
• You resign from, and divest yourself of any and all interests in such
institution. Unless otherwise provided in this Act, all decisions of the Monetary Board shall
require the concurrence of at least four (4) members.
DIVESTMENT – the transfer of title or disposal of interest in property by
voluntarily, completely and actually depriving or dispossessing oneself of his The Bangko Sentral shall maintain and preserve a complete record of the
right or title to it in favor of a person or persons other than his spouse and proceedings and deliberations of the Monetary Board, including the tapes and
relatives without the 4th civil degree of consanguinity or affinity (RA 6713) transcripts of the stenographic notes, either in their original form or in
microfilm.
Section 10. Removal. - The President may remove any member of the
Monetary Board for any of the following reasons: The meetings of the Monetary Board may be conducted through modern
technologies such as, but not limited to, teleconferencing and
videoconferencing.
(a) If the member is subsequently disqualified under the provisions of Section
8 of this Act; or
Why is it stated here, “unless otherwise provided in this Act, all decisions of
the Monetary Board shall require the concurrence of at least four (4)
(b) If he is physically or mentally incapacitated that he cannot properly
members.”?
discharge his duties and responsibilities and such incapacity has lasted for
more than six (6) months; or
Because you will know later on that in cases of emergency meetings, they have
to decide promptly and they can no longer wait for the other members.
(c) If the member is guilty of acts or operations which are of fraudulent or
illegal character or which are manifestly opposed to the aims and interests of
the Bangko Sentral; or Remember the BSP is established for the protection of the public.

(d) If the member no longer possesses the qualifications specified in Section 8 Section 12. Attendance of the Deputy Governors. - The Deputy Governors
of this Act. may attend the meetings of the Monetary Board with the right to be heard.

Letters (a) and (d) – they’re the same. Section 13. Salary. - The salary of the Governor and the members of the
Monetary Board from the private sector shall be fixed by the President of the
Letter (c) – take note, the member should be guilty. There has to be conviction Philippines at a sum commensurate to the importance and responsibility
of acts or operations which are of fraudulent or illegal character or which are attached to the position.
manifestly opposed to the aims and interests of the Bangko Sentral.
Section 14. Withdrawal of Persons Having a Personal Interest. - In addition to
If you’re going to be disqualified, there has to be due process. There still the requirements of Republic Act No. 6713, any member of the Monetary
administrative proceedings requiring the party to be afforded the opportunity Board with personal or pecuniary interest in any matter in the agenda of the
to be heard – the quantum of proof in administrative proceedings is Monetary Board shall disclose his interest to the Board and shall retire from
substantial evidence – it is under the authority of the President based on its the meeting when the matter is taken up. The decision taken on the matter
power to appoint, which includes the power to discipline and the Office of the shall be made public. The minutes shall reflect the disclosure made and the
Ombudsman has concurrent jurisdiction to discipline members of the MB. retirement of the member concerned from the meeting.

Old Provision If there’s an agenda – even if it does not amount to a disqualification, the
member of the MB shall disclose his interest to the Board and shall retire from
Section 11. Meetings. - The Monetary Board shall meet at least once a week. the meeting when the matter is taken up.
The Board may be called to a meeting by the Governor of the Bangko Sentral
or by two (2) other members of the Board. Old Provision

The presence of four (4) members shall constitute a quorum: Provided, That Section 15. Exercise of Authority. - In the exercise of its authority, the
in all cases the Governor or his duly designated alternate shall be among the Monetary Board shall:
four (4).

(a) issue rules and regulations it considers necessary for the effective discharge
Unless otherwise provided in this Act, all decisions of the Monetary Board shall of the responsibilities and exercise of the powers vested upon the Monetary
require the concurrence of at least four (4) members. Board and the Bangko Sentral. The rules and regulations issued shall be
reported to the President and the Congress within fifteen (15) days from the
The Bangko Sentral shall maintain and preserve a complete record of the date of their issuance;
proceedings and deliberations of the Monetary Board, including the tapes and
transcripts of the stenographic notes, either in their original form or in (b) direct the management, operations, and administration of the Bangko
microfilm. Sentral, reorganize its personnel, and issue such rules and regulations as it may
deem necessary or convenient for this purpose. The legal units of the Bangko
Proposed Amendment Sentral shall be under the exclusive supervision and control of the Monetary
Board;
Section 11. Meetings. - The Monetary Board shall meet at least once a week.
The Board may be called to a meeting by the Governor of the Bangko Sentral (c) establish a human resource management system which shall govern the
or by two (2) other members of the Board. selection, hiring, appointment, transfer, promotion, or dismissal of all
personnel. Such system shall aim to establish professionalism and excellence

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at all levels of the Bangko Sentral in accordance with sound principles of undertaking by or on behalf of the member, officer, or employee to repay
management. the amount advanced should it ultimately be determined by the Monetary
Board that he is not entitled to be indemnified as provided in this subsection.
A compensation structure, based on job evaluation studies and wage
surveys and subject to the Board's approval, shall be instituted as an integral If you try to look at it, this MB, they back-up on currency stability. That’s why
component of the Bangko Sentral's human resource development program: may issue on cryptocurrency. All of the currencies in different countries are
Provided, That the Monetary Board shall make its own system conform as backed up by a central bank for a reason – which is to monitor. So who back-
closely as possible with the principles provided for under Republic Act No. ups this cryptocurrency? In my opinion, there will come a time that will
6758: Provided, however, That compensation and wage structure of saturate. Okay those who came first they would buy these intangibles and
employees whose positions fall under salary grade 19 and below shall be in then sell it.
accordance with the rates prescribed under Republic Act No. 6758.
What if it will reach to a point that the market gets saturated?
On the recommendation of the Governor, appoint, fix the
remunerations and other emoluments, and remove personnel of the Bangko
Take note under letter (e) – this particular authority of the MB is actually for
Sentral, subject to pertinent civil service laws: Provided, That the Monetary
the protection of its members because these banks subject to the supervision
Board shall have exclusive and final authority to promote, transfer, assign, or
of the MB is under regular examination by the people under the Supervision
reassign personnel of the Bangko Sentral and these personnel actions are
and Examination Sector.
deemed made in the interest of the service and not disciplinary: Provided,
further, That the Monetary Board may delegate such authority to the
Governor under such guidelines as it may determine. In practice, when BSP audit banks, banks take care of them so the findings look
good. But, they should be strict in performing their examinations. In the event
that their reports will be detrimental to the bank, of course the bank has its
(d) adopt an annual budget for and authorize such expenditures by the Bangko
ammunition of lawyers, now what will happen to people if this provision does
Sentral as are in the interest of the effective administration and operations of
not exist? What will happen? They will get scared. This particular provision is
the Bangko Sentral in accordance with applicable laws and regulations; and
aimed at protecting those people and indemnifying them for any serious
actions.
(e) indemnify its members and other officials of the Bangko Sentral, including
personnel of the departments performing supervision and examination
Take note of the exception—unless he is finally adjudged in such action or
functions against all costs and expenses reasonably incurred by such persons
proceeding to be liable for negligence or misconduct.
in connection with any civil or criminal action, suit or proceedings to which he
may be, or is, made a party by reason of the performance of his functions or
duties, unless he is finally adjudged in such action or proceeding to be liable So, there has to be a final decision or judgment that there is negligence or
for negligence or misconduct. misconduct on the part of the person.

In the event of a settlement or compromise, indemnification shall be In the event of a settlement or compromise, indemnification shall be provided
provided only in connection with such matters covered by the settlement as only in connection with such matters covered by the settlement as to which
to which the Bangko Sentral is advised by external counsel that the person to the Bangko Sentral is advised by external counsel that the person to be
be indemnified did not commit any negligence or misconduct. indemnified did not commit any negligence or misconduct.

The costs and expenses incurred in defending the aforementioned Take note – negligence and misconduct. Other than that, he can be
action, suit or proceeding may be paid by the Bangko Sentral in advance of the indemnified.
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the member, officer, or employee to repay the
amount advanced should it ultimately be determined by the Monetary Board CENTRAL BANK EMPLOYEES v. BSP
that he is not entitled to be indemnified as provided in this subsection.
FACTS: On July 3, 1993, RA 7652 (New Central Bank Act) took effect. Eight
Proposed Amendment years after its effectivity, petitioner filed a petition for prohibition against BSP
and the Executive Secretary to restrain the further implementation of the last
provision in Section 15(c), Article II of RA 7653 on the ground that it is
Section 15. Exercise of Authority. - In the exercise of its authority, the unconstitutional.
Monetary Board shall:
Said provision reads: A compensation structure, based on job evaluation
(e) indemnify its members and other officials of the Bangko Sentral, including studies and wage surveys and subject to the Board's approval, shall be
personnel of the departments performing supervision and examination instituted as an integral component of the Bangko Sentral's human resource
functions against all costs and expenses reasonably incurred by such persons development program: Provided, That the Monetary Board shall make its own
in connection with any civil or criminal action, suit or proceedings to which he system conform as closely as possible with the principles provided for under
may be, or is, made a party by reason of the performance of his functions or Republic Act No. 6758: Provided, however, That compensation and wage
duties, unless he is finally adjudged in such action or proceeding to be liable structure of employees whose positions fall under salary grade 19 and below
for willful violation of this act, performed in evident bad faith or with gross shall be in accordance with the rates prescribed under Republic Act No. 6758.
negligence.
According to petitioners, the proviso makes an unconstitutional cut between
In the event of a settlement or compromise, indemnification shall be 2 classes of employees in the BSP: one is for the BSP officers or those who are
provided only in connection with such matters covered by the settlement as exempted from the coverage of the Salary Standardization Law (SSL) and the
to which the Bangko Sentral is advised by external counsel that the person to other, the rank-and-file, or those who are not exempted from the SSL.
be indemnified did not commit willful violation of this act, performed in
evident bad faith or with gross negligence.
Further according to petitioner, the proviso is also violative of the equal
protection clause because after it was enacted, the charters of the GSIS, LBP,
The costs and expenses incurred in defending the aforementioned DBP and SSS were also amended, but the personnel of the said government
action, suit or proceeding may be paid by the Bangko Sentral in advance of the financial institutions (GFI) were all exempted from the coverage of the SSL.
final disposition of such action, suit or proceeding upon receipt of an

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ISSUE: Is the assailed proviso unconstitutional? 1987 shall apply to the members of the Monetary Board, and other personnel
of the Bangko Sentral.
RULING: YES.
Similar responsibility shall apply to members of the Monetary Board and other
personnel of the Bangko Sentral for; (1) the disclosure of any information of a
Note: The SC held that when the law was first enacted in 1993, such was still
confidential nature, or any information on the discussions or resolutions of the
constitutional – there was a valid classification as to the different types of
Monetary Board or about the confidential operations of the Bangko Sentral,
officers since they belong to different positions. However, when the charters
unless the disclosure as in connection with the performance of official
of the different GFI’s (not BSP) were amended which excluded its employees
functions with the Bangko Sentral or is with prior authorization of the
from the coverage of the SSL, the proviso was then declared as
Monetary Board or the Governor; or (2) the use of such information for
unconstitutional.
personal gain or to the detriment of the Government of the Government, the
Bangko Sentral or third parties: Provided, however, That any data or
The subsequent charters of the seven other GFIs share this
information required to be submitted to the President and/or the Congress,
common proviso: a blanket exemption of all their employees from the
or to be published under the provisions of this Act shall not be considered
coverage of the SSL, expressly or impliedly.
confidential.
Thus, eleven years after the amendment of the BSP charter, the rank-
and-file of seven other GFIs were granted the exemption that was specifically
denied to the rank-and-file of the BSP. And as if to add insult to petitioners The above notwithstanding, members of the Monetary Board and other
injury, even the Securities and Exchange Commission (SEC) was granted the personnel of the Bangko Sentral shall not be subject to any action, claim or
same blanket exemption from the SSL in 2000! [ demand in connection with any act done or omitted by them in the
performance of their duties and exercise of their powers except for those
The prior view on the constitutionality of R.A. No. 7653 was confined to actions and omissions done in evident bad faith or with gross negligence.
an evaluation of its classification between the rank-and-file and the officers Unless the actions or omissions of the Bangko Sentral, members of the
of the BSP, found reasonable because there were substantial distinctions that Monetary Board and its other personnel are finally adjudged to be in willful
made real differences between the two classes. violation of this act, performed in evident bad faith or with gross negligence,
they are held free and harmless to the fullest extent permitted by law from
The above-mentioned subsequent enactments, however, constitute any liability and they shall be indemnified for any and all liabilities, losses,
significant changes in circumstance that considerably alter the reasonability claims, demands, damages deficiencies, costs and expenses whatsoever kind
of the continued operation of the last proviso of Section 15(c), Article II of and nature that may arise in connection with the exercise of their powers and
Republic Act No. 7653, thereby exposing the proviso to more serious performance of their duties and functions.
scrutiny. This time, the scrutiny relates to the constitutionality of the
classification - albeit made indirectly as a consequence of the passage of eight
other laws - between the rank-and-file of the BSP and the seven other
We have the concept of extraordinary diligence, which I’m sure you already
GFIs. The classification must not only be reasonable, but must also apply
have encountered in your previous cases.
equally to all members of the class. The proviso may be fair on its face and
impartial in appearance but it cannot be grossly discriminatory in its
Please take note on the confidential agreement because –
operation, so as practically to make unjust distinctions between persons who
are without differences.
Similar responsibility shall apply to members, officers and employees of the
Bangko Sentral for: (1) the disclosure of any information of a confidential
November 28, 2018 – 2nd hour nature, or any information on the discussions or resolutions of the Monetary
Board or about the confidential operations of the Bangko Sentral, unless the
disclosure as in connection with the performance of official functions with the
Bangko Sentral or is with prior authorization of the Monetary Board or the
Original Provision
Governor; or (2) the use of such information for personal gain or to the
detriment of the Government of the Government, the Bangko Sentral or third
Section 16. Responsibility. – Members of the Monetary Board, officials,
parties:
examiners and employees of the Bangko Sentral who willfully violate this Act
or who are guilty of negligence, abuse or acts of malfeasance or misfeasance
Provided, however, That any data or information required to be submitted to
or fail to exercise extraordinary diligence in the performance of his duties shall
the President and/or the Congress, or to be published under the provisions of
be held liable for any loss or injury suffered by the Bangko Sentral or other
this Act shall not be considered confidential.
banking institutions as a result of such violation, negligence, abuse,
malfeasance, misfeasance, or failure to exercise extraordinary diligence.

Similar responsibility shall apply to members, officers and employees of the What happens when – the banks are examined, they get information, they are
Bangko Sentral for: (1) the disclosure of any information of a confidential required by law actually to give the information to the public. What they do is
nature, or any information on the discussions or resolutions of the Monetary they publish collective data. There’s no particular data to what particular bank,
Board or about the confidential operations of the Bangko Sentral, unless the as to its assets, liabilities, collecting data in line with the monetary policy. In
disclosure as in connection with the performance of official functions with the their case, if they disclose information that is confidential then they can be
Bangko Sentral or is with prior authorization of the Monetary Board or the liable.
Governor; or (2) the use of such information for personal gain or to the
detriment of the Government of the Government, the Bangko Sentral or third
parties: Central Bank vs. City Trust Banking Corporation
GR No. 76118
Provided, however, That any data or information required to be submitted to
the President and/or the Congress, or to be published under the provisions of FACTS:
this Act shall not be considered confidential.
Pursuant to RA. 625, the old Central Bank Law, respondent Citytrust Banking
Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit
Proposed Amendment account with Central Bank of the Philippines, now BSP.

Section 16. Responsibility. — The General rule and the exception therefrom As required, Citytrust furnished petitioner with the names and
on the liability of public officers on the liability of public officers as provided in corresponding signatures of five of its officers authorized to sign checks and
Sections 38 and 39 of Chapter 9, Book 1 of the Revised Administrative Code of serve as drawers and indorsers for its account. And it provided petitioner with
the list and corresponding signatures of its roving tellers authorized to

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 11


withdraw, sign receipts and perform other transactions on its must observe high standards of integrity and performance in servicing their
behalf. Petitioner later issued security identification cards to the roving tellers depositors. Although RA 8791 took effect almost nine years after the
one of whom was Rounceval Flores (Flores). unauthorized withdrawal of the P300,000 from L.C. Diazs savings account,
jurisprudence at the time of the withdrawal already imposed on banks the
On July 15, 1977, Flores presented for payment to petitioner’s same high standard of diligence required under RA No. 8791.
Senior Teller Iluminada dela Cruz (Iluminada) 2 Citytrust checks of even date,
payable to Citytrust, one in the amount of P850,000 and the other in the
amount of P900,000, both of which were signed and indorsed by Citytrusts Citytrust’s failure to timely examine its account, cancel the checks and notify
authorized signatory-drawers. petitioner of their alleged loss/theft should mitigate petitioners liability, in
accordance with Article 2179 of the Civil Code which provides that if the
After the checks were certified by petitioners Accounting plaintiffs negligence was only contributory, the immediate and proximate
Department, Iluminada verified them, prepared the cash transfer slip on which cause of the injury being the defendants lack of due care, the plaintiff may
she affixed her signature, stamped the checks with the notation Received recover damages, but the courts shall mitigate the damages to be awarded.
Payment and asked Flores to, as he did, sign on the space above such For had Citytrust timely discovered the loss/theft and/or subsequent
notation. Instead of signing his name, however, Flores signed as Rosauro C. encashment, their proceeds or part thereof could have been recovered. In line
Cayabyab a fact Iluminada failed to notice. with the ruling in Consolidated Bank, the Court deems it proper to allocate the
loss between petitioner and Citytrust on a 60-40 ratio.
Iluminada thereupon sent the cash transfer slip and checks to
petitioners Cash Department where an officer verified and compared the
drawers signatures on the checks against their specimen signatures provided ARTICLE III, CHAPTER I
by Citytrust, and finding the same in order, approved the cash transfer slip and
paid the corresponding amounts to Flores. Petitioner then debited the amount The Governor and Deputy Governors of the Bangko Sentral
of the checks totaling P1,750,000 from Citytrusts demand deposit account.

More than a year and nine months later, Citytrust, by letter dated
April 23, 1979, alleging that the checks were already cancelled because they
Section 17. Powers and Duties of the Governor. –
were stolen, demanded petitioner to restore the amounts covered thereby to
its demand deposit account. Petitioner did not heed the demand, however.
The Governor shall be the chief executive of the Bangko Sentral.
Citytrust later filed a complaint for estafa, with reservation on the
His powers and duties shall be to:
filing of a separate civil action, against Flores. Flores was convicted. Citytrust
(a) prepare the agenda for the meetings of the Monetary Board and to
thereafter filed before the (RTC) of Manila a complaint for recovery of sum of
submit for the consideration of the Board the policies and measures
money with damages against petitioner which it alleged erred in encashing the
which he believes to be necessary to carry out the purposes and
checks and in charging the proceeds thereof to its account, despite the lack of
provisions of this Act;
authority of Rosauro C. Cayabyab.
(b) execute and administer the policies and measures approved by the
ISSUE: Whether the Central Bank is negligent? Monetary Board;

RULING: YES. (c) direct and supervise the operations and internal administration of the
Bangko Sentral. The Governor may delegate certain of his administrative
Given that petitioner is the government body mandated to supervise and responsibilities to other officers or may assign specific tasks or
regulate banking and other financial institutions, this Courts ruling in responsibilities to any full-time member of the Monetary Board without
Consolidated Bank and Trust Corporation v. Court of Appeals is appropriate— additional remuneration or allowance whenever he may deemed fit or
subject to such rules and regulations as the Monetary Board may
The contract between the bank and its depositor is governed by the provisions prescribe;
of the Civil Code on simple loan. Article 1980 of the Civil Code expressly
provides that savings, deposits of money in banks and similar institutions shall (d) appoint and fix the remunerations and other emoluments of personnel
be governed by the provisions concerning simple loan. There is a debtor- below the rank and of a department head in accordance with the
creditor relationship between the bank and its depositor. The bank is the position and compensation plans approved by the Monetary Board, as
debtor and the depositor is the creditor. The depositor lends the bank money well as to impose disciplinary measures upon personnel of the Bangko
and the bank agrees to pay the depositor on demand. The savings deposit Sentral, subject to the provisions of Section 15(c) of this Act: Provided,
agreement between the bank and the depositor is the contract that That removal of personnel shall be with approval of the Monetary Board;
determines the rights and obligations of the parties.
(e) render opinions, decisions or rulings which shall be final and executory
The law imposes on banks high standards in view of the fiduciary nature of until reversed or modified by the Monetary Board, on matters regarding
banking. Section 2 of RA 8791 (RA 8791), which took effect on 13 June 2000, application or enforcement of laws pertaining to institutions supervised
declares that the State recognizes the fiduciary nature of banking that requires by the Bangko Sentral and laws pertaining to quasi-banks, as well as
high standards of integrity and performance. This new provision in the general regulations, policies or instructions issued by the Monetary Board and
banking law, introduced in 2000, is a statutory affirmation of Supreme Court the implementation thereof; and
decisions, starting with the 1990 case of Simex International v. Court of
Appeals, holding that the bank is under obligation to treat the accounts of its Please take note— the Governor although they act as a collegial body, the
depositors with meticulous care, always having in mind the fiduciary nature of Governor has the power to issue decisions or rulings which are deemed to be
their relationship. valid until reversed or modified by the Monetary Board on matters regarding
or enforcement of laws pertaining to institutions supervised by Bangko Sentral
This fiduciary relationship means that the banks obligation to observe high and laws pertaining to quasi-banks, as well as regulations, policies or
standards of integrity and performance is deemed written into every deposit instructions.
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 If you have the SEC which render an opinion for corporations, the BIR which
father of a family. Article 1172 of the Civil Code states that the degree of renders an opinion for tax issues, you have the BSP or the Governor or the
diligence required of an obligor is that prescribed by law or contract, and Monetary Board which gives out issues or rulings regarding banking, money
absent such stipulation then the diligence of a good father of a family. Section credit.
2 of RA 8791 prescribes the statutory diligence required from banks that banks Please take note of that.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 12


(f) exercise such other powers as may be vested in him by the Monetary Why is it necessary to specify to sign the contracts, securities and notes and
Board. he represents the Bangko Sentral? Why is important to be specified? Is it not
implied?

Remember, the board is a collegial body. There must be an agency. If it is not


specified, what will happen? Every time there is a need to sign a contract,
Section 18. Representation of the Monetary Board and the Bangko Sentral.
there has to be a resolution, there has to be a document to serve as a power
– The Governor of the Bangko Sentral shall be the principal representative of
of attorney for that particular government to sign contracts, now this is why it
the Monetary Board and of the Bangko Sentral and in, such capacity and in
is expressly specified. Why? Because that could be taxing. What will happen
accordance with the instructions of the Monetary Board, he shall be
every time there is an emergency situation? They need a board resolution.
empowered to:
In lieu of that, his authority is specified, expressly. He has this authority,
The Governor is the principal representative of the Monetary Board (MB) and expressly provided by law so it is not necessary for them to convene just to
as the representative, he has the power to – grant a special power of attorney.

Section 19. Authority of the Governor in Emergencies. – In case of


(a) represent the Monetary Board and the Bangko Sentral in all dealings with emergencies where time is sufficient to call a meeting of the Monetary Board,
other offices, agencies, and instrumentalities of the Government and all the Governor of the Bangko Sentral, with the concurrence of (2) other
other persons or entities, public or private, whether domestic, foreign or members of the Monetary Board, may decide any matter or take any action
international; within the authority of the Board.
(b) sign contracts entered into by the Bangko Sentral, notes and securities
Generally, how many votes are needed for concurrence? (4)
issued by the Bangko Sentral, all reports, balance sheets, profit and loss
statements, correspondence and other documents of the Bangko
In emergency situations, they only need (2) other members to concur for the
Sentral. The signature of the Governor may be in facsimile whenever
authority to be valid but—
appropriate;

The Governor shall submit a report to the President and Congress within 72
Please take note— that is why in your money his signature is there. Look
hours after the action has been taken.
at your money, the Governor is there.
At the soonest possible time, the Governor shall call a meeting of the
(c) represent the Bangko Sentral, either personally or through counsel, Monetary Board to submit his action for ratification.
including private counsel, as may be authorized by the Monetary Board,
in any legal proceedings, action or specialized legal studies; and
Therefore, the authority in this particular case is subject to ratification.
(d) delegate his power to represent the Bangko Sentral, as provided in
What happens if it is not ratified? What happens if there is no ratification?
subsections (a), (b) and (c) of this section, to other officers upon his own
What is the effect of that decision with no ratification?
responsibility: Provided, however, That in order preserve the integrity
and prestige of his office, the Governor of the Bangko Sentral may
Please take note— there is no specific time frame for the Governor to have
choose not to participate in the preliminary decisions with any
the decision ratified. The law gives sufficient leeway for the Governor at the
multilateral banking or financial institution on any negotiations for the
soonest possible time. What is important is the report— the report must be
Government within or outside the Philippines. During the negotiations,
submitted within 72 hours after the action has been taken.
he may instead be represented by a permanent negotiator.
What happens if there is no ratification?
He can delegate his power to represent the Bangko Sentral through his Deputy
Governor, so represent the Monetary Board and the Bangko Sentral. He is If there is no ratification, the decision shall be void and shall have no effect.
appointed as the official representative of the government in all dealings,
negotiations, transactions with the IMF (International Monetary Fund).
Section 20. Outside Interests of the Governor and the Full-time Members of
the Board. – The Governor of the Bangko Sentral and the full-time members
What is the IMF?
of the Board shall limit their professional activities pertaining to those
pertaining directly to their positions with the Bangko Sentral.
The International Monetary Fund (IMF) is an organization working to foster
global monetary cooperation, secure financial stability, facilitate international
Accordingly, they may not accept any other employment, whether public or
trade, promote high employment and sustainable economic growth, and
private, remunerated or ad honorem, with the exception of positions in
reduce poverty around the world.
eleemosynary, civic, cultural or religious organizations or whenever, by
designation of the President, the Governor, or the full-time member is tasked
The IMF functions as an international body with its member-states because
to represent the interest of the Government or other government agencies in
some countries have no capacity to trade, like, let’s say Somalia, South Africa,
matters connected with or affecting the economy or the financial system of
with their currency, they import more, than what they export so with
the country.
developing countries, they import because the balance of payments between
these countries are not enough for their currency to be stabilized so the IMF,
it only gives out assistance— they don’t really force them, because we still They are not allowed to have any other professional activity. This is for the
have the concept of sovereignty. They cannot impose the country to accept purpose of them having their full time given to their employment.
because there is still sovereignty, it still must be equal. They only provide
assistance, they can provide credit. This is the IMF which seeks to stabilize, to Original Provision
achieve macro-economic stability and reduce poverty. Actually, it has a good
objective. Section 21. Deputy Governors. – The Governor of the Bangko Sentral, with
the approval of the Monetary Board, shall appoint not more than 3 Deputy
The Governor is the representative of the Monetary Board in all dealings, Governors who shall perform duties as may be assigned to them by the
transactions with the IMF (International Monetary Fund). Governor and the Board.

He signs contracts with the Bangko Sentral. In the absence of the Governor, a Deputy Governor designated by the
Governor shall act as chief executive of the Bangko Sentral and shall exercise
the powers and perform the duties of the Governor.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 13


which it may require for the proper discharge of its functions and
Whenever the Government is unable to attend meetings of government responsibilities.
boards, or councils in which he is an ex officio member pursuant to provisions
of special laws, a Deputy Governor as may be designated by the Governor shall The Bangko Sentral through the Governor or in his absence, a duly authorized
be vested with authority to participate and exercise the right to vote in such representative shall have the power to issue a subpoena for the production
meetings. of the books and records for the aforesaid purpose.

Proposed Amendment Those who refuse to supply the bank with data requested or required, shall be
subject to punishment for contempt in accordance with the provisions of the
Section 21. Deputy Governors. – The Governor of the Bangko Sentral, with Rules of Court.
the approval of the Monetary Board, shall appoint not more than FIVE (5)
Deputy Governors who shall perform duties as may be assigned to them by Data on individual firms, other than banks, gathered by the Department of
the Governor and the Board. Economic Research and other departments or units of the Bangko Sentral shall
not be made available to any person or entity outside of the Bangko Sentral
In the absence of the Governor, a Deputy Governor designated by the whether public or private except under order of the court or under such
Governor shall act as chief executive of the Bangko Sentral and shall exercise conditions as may be prescribed by the Monetary Board: Provided, however,
the powers and perform the duties of the Governor. That the collective data on firms may be released to interested persons or
entities: Provided, finally, That in case of data on banks, the provisions of
Whenever the Governor is unable to attend meetings of government boards, Section 27 of this Act shall apply.
or councils in which he is an ex officio member pursuant to provisions of
special laws, a Deputy Governor as may be designated by the Governor shall Proposed Amendment
be vested with authority to participate and exercise the right to vote in such
meetings. Section 23. Authority to Obtain Data and Information. – The Bangko Sentral
shall have the authority to require from any person, or entity including
government offices and instrumentalities, or government-owned or
Is the Deputy Governor counted in determining the majority or quorum when controlled corporations, any data, for statistical and policy development
there is a meeting? Is the Deputy Governor considered in determining a purposes in relation to the proper discharge of its functions and
quorum when there is a meeting to commence? responsibilities, provided that disaggregated data gathered are subject to
prevailing confidentiality laws.
What if there are 3 members but the Governor is not there because he’s
abroad so he sent the Deputy Governor instead, is he included? The Bangko Sentral through the Governor or in his absence, a duly authorized
representative shall have the power to issue a subpoena for the production of
Yes, because the Deputy Governor acts as the representative of the Governor. the books and records for the aforesaid purpose.
If the Governor is there, he (Deputy Governor) cannot act as the
representative, because the principal is there. You have your Law on Agency, Those who refuse the subpoena without justifiable cause, or who refuse to
what is the purpose of the agent if the principal is there? supply the Bangko Sentral with data required, shall be subject to punishment
for contempt in accordance with the provisions of the Rules of Court.

How many members for it there to be a quorum? Data on individuals and firms, other than banks gathered by the Bangko
FOUR (4). Sentral shall not be made available to any person or entity outside of the
Bangko Sentral whether public or private except under order of the court or
Is the Deputy Governor part of the 7 members of the Monetary Board? No. under such conditions as may be prescribed by the Monetary Board: Provided,
however, That the collective data on firms may be released to interested
ARTICLE IV, CHAPTER I persons or entities: Provided, finally, That in case of data on banks, the
OPERATIONS OF THE BANGKO SENTRAL provisions of Section 27 of this Act shall apply.

This is very important. If there is a question in the bar, it would be the functions
and operations of the Bangko Sentral vis-à-vis the different banks or quasi- Please take note— the Bangko Sentral shall have the power to issue a
banks. subpoena.

Section 22. Research and Statistics. – The Bangko Sentral shall prepare data What do you call that subpoena that requires the production of documents?
and conduct economic research for the guidance of the Monetary Board in the
formulation and implementation of its policies. Subpoena duces tecum. It has the power to issue a
subpoena duces tecum.
Such data shall include, among others, forecasts of the balance of payments
of the Philippines, statistics on the monthly movement of the monetary Those who refuse to supply the bank with data requested or required, shall be
aggregates and of prices and other statistical series and economic studies subject to punishment for contempt in accordance with the provisions of the
useful for the formulation and analysis of monetary, banking, credit and Rules of Court.
exchange policies.
Remember— that is one power of the Bangko Sentral to ensure they have the
For the major factors to consider in formulating monetary policy is, of course, real data in determining their monetary policy.
you must have the latest economic (***) in time. You must have empirical
research also. If you do not have research, you cannot formulate a proper Can you refuse as a bank to give out information to the Central Bank? Are
monetary policy. What they do is they engage in forecasting – these involve there any exceptions on the power of the Bangko Sentral to get information
people in econometrics. or data? Or is the data or information comprehensive enough?

Original Provision It is absolute and comprehensive.

Section 23. Authority to Obtain Data and Information. – The Bangko Sentral How about non-banks? No.
shall have the authority to request from government offices and
instrumentalities, or government-owned or controlled corporations, any data Is the coverage in examination, the power to examine, supervise of the
Central Bank limited to banks?

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 14


Please take note— it’s already an affiliate if it’s 50% or less. If you try to take
You will learn that later. a look at the definition of an affiliate in accounting or even in corporations, it
doesn’t really mean 50% or less because it can be just my 1 share then I can
Let’s say manufacturing? Is that still covered by Central Bank? You will figure be an affiliate. No, there’s a threshold. There is an exception, if your share is
that out later. But in this particular case, where there are non-banks, or other not that high but you have the management control meaning your share is not
than banks— where the power to require information is not absolute. that high, but you have control then you can be considered an affiliate.
Please take note— there is an exception.
But for purposes of the Central Bank, 50% or less it’s considered an affiliate,
more than 50% it is considered a subsidiary.
Data on individual firms, other than banks, gathered by the Department of
Economic Research and other departments or units of the Bangko Sentral shall
not be made available to any person or entity outside of the Bangko Sentral The department heads and the examiners of the supervising and/or examining
whether public or private except under order of the court or under such departments are hereby authorized to administer oaths to any director,
conditions as may be prescribed by the Monetary Board: Provided, however, officer, or employee of any institution under their respective supervision or
That the collective data on firms may be released to interested persons or subject to their examination and to compel the presentation of all books,
entities: Provided, finally, That in case of data on banks, the provisions of documents, papers or records necessary in their judgment to ascertain the
Section 27 of this Act shall apply. facts relative to the true condition of any institution as well as the books and
records of persons and entities relative to or in connection with the
operations, activities or transactions of the institution under examination,
It’s not correct to say that the coverage of Bangko Sentral is limited only to subject to the provision of existing laws protecting or safeguarding the secrecy
banks, quasi-banks or any financial institution. You will determine later what or confidentiality of bank deposits as well as investments of private persons,
are those counter to supervision and examination of banks. natural or juridical, in debt instruments issued by the Government.

Why is this important for the supervision and examination requirement to


Section 24. Training of Technical Personnel. — The Bangko Sentral shall have this power?
promote and sponsor the training of technical personnel in the field of money
and banking. Because you will learn later on, banks in distress, the Central Bank is the care-
taker of this bank. It should have a power to compel, because it looks into the
Toward this end, the Bangko Sentral is hereby authorized to defray the costs bank— “is this bank capable of being a creditor?” “can this exist in 1 year or 2
of study, at home or abroad, of qualified employees of the Bangko Sentral, years?” – because if no, the Monetary Board has the right to put that bank in
qualified persons who shall be determined by proper competitive receivership, conservatorship to have liquidity, or if it cannot handle it
examinations. anymore, liquidation, insolvency.

The Monetary Board shall prescribe rules and regulations to govern the This is the function of the Central Bank because the banking industry itself is
training program of the Bangko Sentral. imbued with public interest. What will happen if no one is going to take care
of the banks? Remember, a corporation is an artificial being, meaning they
This is what I was talking to you about regarding scholarship or study, at home don’t have a right or source. What is their goal? Their goal is to meet the
or abroad. If you really wish to work with Central Bank you need to qualify for objective of the stockholders which is profits. Profit, profit.
a certain exam. There is an exam. Not everyone gets to pass.
Remember the concept of banking? How do they earn? They relend the
money. If what they think about is profit, profit profit, they carelessly market
Section 25. Supervision and Examination. – The Bangko Sentral shall have
just to get the profit, if there’s no check and balance to tell them “you’re not
supervision over, and conduct periodic or special examinations of, banking
capable to do that!”, “your condition is not like that anymore”, what will
institutions and quasi-banks, including their subsidiaries and affiliates engaged
happen? They manage businesses— what will happen? there will be
in allied activities.
insolvency, bank-run. What will happen to the public? There will be no money
and so on and so forth.
If a bank or quasi-bank has a subsidiary even if it is not engaged in banking or
quasi-banking, it may be covered. That is the overview of the function of the Central Bank and because of that
function, the supervising and examining department should have these
It says here including their subsidiary— if subsidiary, there is no limitation powers.
whether allied or non-allied.

If it is affiliates, it is only for those engaged in allied activities. Prohibition on the Issuance of Injunction
If you want to break it down, banks or quasi-banks, they have subsidiaries and
• cannot enjoin the Bangko Sentral from examining an institution
they also have affiliates.
unless there is convincing proof that the action is plainly arbitrary
and made in bad faith.
If it’s their subsidiary, regardless of whether or not these allied or non-allied
activities, it is covered by the supervision. If it’s an affiliate, only allied activities Why?
which are covered by the examination and supervision of the Bangko Sentral.
What will happen? You’re going to require me to give my documents, I’m going
How do we know if it’s a subsidiary or an affiliate?
to validate my condition is good in 1 year or 2 years then a lawyer of the bank
will file a restraining order to prohibit you to get my information(s). The
For purposes of this section, a subsidiary means a corporation more than 50% purpose of the Central Bank becomes illusory. That’s why it’s specifically
of the voting stock of which is owned by a bank or quasi-bank and an affiliate provided –
means a corporation the voting stock of which, to the extent of 50% or less, is
owned by a bank or quasi-bank or which is related or linked to such institution
No restraining order or injunction shall be issued by the court enjoining the
or intermediary through common stockholders or such other factors as may
Bangko Sentral from examining any institution subject to supervision or
be determined by the Monetary Board.
examination by the Bangko Sentral, unless there is convincing proof that the
action of the Bangko Sentral is plainly arbitrary and made in bad faith and the
Please take note— if it’s more than 50% it is considered a subsidiary. Below petitioner or plaintiff files with the clerk or judge of the court in which the
that, it is considered as an affiliate. action is pending a bond executed in favor of the Bangko Sentral, in an amount
to be fixed by the court.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 15


What does this mean?
There is always an exception— Please take note – unless there is
convincing proof that the action is plainly arbitrary and made in bad You have ownership, control or the power to vote of 10% of the outstanding
faith. stock of the borrowing entity or vice versa.

When you file a TRO, you have to file a bond, so, is this bond in compliance
with that bond? Or is this another bond? Is this the same bond? Illustration:

The provisions of Rule 58 of the New Rules of Court insofar as they are BANK A –
applicable and not inconsistent with the provisions of this section shall govern
the issuance and dissolution of the restraining order or injunction XY— (owner of BANK A)
contemplated in this section.
B
You research on that. I will ask that. 
Bank A does not own directly B but they are linked or related. Let’s say XY owns
Examination vs. Supervision 10% or more. B can be considered an affiliate or subsidiary depends on the
percentage. If it’s at least 10% it is considered an affiliate through the provision
Examination— shall refer to an investigation of an institution under the – “or which is related or linked to such institution or intermediary.” He doesn’t
supervisory authority of the Bangko Sentral ng Pilipinas (BSP) to determine directly own B but they are linked with a common stockholder of more than
compliance with laws and regulations. It shall include determination that the 10% of the voting stock. As you can see the power of the Central Bank is very
institution is conducting its business on a safe and sound basis. broad. He can inquire. Why? You don’t know some of the assets in contracts
like B. The financial condition of A through B can be determined if you can look
Regular or periodic examination shall be done once a year, with an interval of at all the contracts involving.
twelve (12) months from the last date thereof. (CIRCULAR NO. 442, Series of
2004) What are Interlocking Directorship and/or Officership?

There has to be examination. Actually, examination is related to audit. When A B


you examine, you audit. You check if it is in compliance. When you say
examination, the functions are more specific. When you say supervise, this The director here is the same director here. That is what you call interlocking.
pertains to the broad powers of the Central Bank because it issues rules of They have the same directors. You have an officer in (A), CEO and here (B) Vice
conduct, it issues prompt corrective actions and examinations if they are in President of Operations— interlocking officership. In that case, these are
compliance with the rules and regulations. considered related parties. If one is not a bank, they might be considered as
covered so the Central Bank can look into it.
When you examine, more or less you have a specific purpose.
10% of the common outstanding voting stock – please take note, it has to be
Special examination may be conducted earlier, or at a shorter interval, when voting stock only. When you reach Corporations on shares and equity, there
authorized by the Monetary Board by an affirmative vote of five (5) members. are stocks which are deprived of voting rights. But there are stocks, there is
(CIRCULAR NO. 442, Series of 2004) that one classification of shares that has to have voting rights. But there are
shares that are deprived of voting rights.
Please take note— although the quorum or majority is FOUR (4) but when you
do a special examination, it must be a concurrence of FIVE (5) members. Management contract or any arrangement granting power to the bank or
other financial institution to direct or cause the direction of management and
4 if it is a simple majority but if you’re going to have a special examination, policies of the entity, or vice-versa.
there has be to 5 members.
What happens is this—

Covered Entities— banks, quasi banks, subsidiaries whether engaged in allied BANK— (loss position)
or non-allied activities and affiliates engaged in allied activities.
B— school (profit position)
If the affiliate is not engaged in allied activities, it is not covered.
Let’s say B is a school and they’re under a conglomerate. BANK is at a loss. B
has revenue. Since we have the same ultimate parent, let’s execute a
“Affiliate” refers to an entity linked directly or indirectly to a bank or other management contract. B will manage BANK and they will just pay B,
financial institution through any one or a combination of any of the following: management fees. What will happen? Bank will have an additional expense
because its paying an expense to avoid tax. B doesn’t pay tax. These are your
1) Ownership, control or power to vote, whether by permanent or temporary mechanisms for you to do tax restructuring. A B are considered conglomerates
proxy or voting trust, or other similar contracts, by a bank or other financial even if there is no direct relation.
institution of at least 10% or more of the outstanding voting stock of the
entity, or vice-versa; Ownership, control or power to vote, whether by permanent or temporary
proxy or voting trust, or other similar contracts, by a bank or other financial
2) Interlocking directorship or officership, except in cases involving institution of at least 10% or more of the outstanding voting stock of the entity,
independent directors as defined under existing regulations; or vice-versa.

3) Common stockholders owning at least ten percent (10%) of the


outstanding voting stock of each financial institution and the entity; or

4) Management contract or any arrangement granting power to the bank or


other financial institution to direct or cause the direction of management and
policies of the entity, or vice-versa. –CIRCULAR NO. 454, Series of 2004

Please take note— “or which is related or linked to such institution or


intermediary...”

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 16


Proposed Amendment

Section 25. Supervision and Examination. – The Bangko Sentral shall have
supervision over and conduct regular or special examinations of, banking
institutions and quasi-banks, including their subsidiaries and affiliates engaged
in allied activities.

For purposes of this section, a subsidiary means a corporation more than 50%
of the voting stock of which is directly or indirectly owned, controlled or held
with power to vote, by a bank or quasi-bank and an affiliate means a
corporation the voting stock of which to the extent of 50% or less is owned by
a bank or quasi-bank or which is related or linked directly or indirectly to such
institution or intermediary through common stockholders or such other
factors as may be determined by the Monetary Board.

The Bangko Sentral shall have regulatory authority over, and conduct regular
or special examinations of entities which under this act or by special laws are
subject to its jurisdiction.

The Bangko Sentral shall also have the power to obtain information from the
parent or other affiliate companies of supervised institutions and examine
transactions between a supervised institution and said entities for supervisory
powers.

A parent company means a corporation which owns or holds with power to


vote directly or indirectly the voting stock of a supervised institution of the
Bangko Sentral sufficient to control its management and operations, subject
to the guidelines issued by the Monetary Board.

As used in this section and section 25-A, and subject to the guidelines issued
by the Monetary Board, control exists when the parent company owns directly
or indirectly more than one half of the of the voting stock of a supervised
institution, control also exists even when the parent company owns one half
or less of the voting stock of the supervised institution when (1) there is power
over more than one half of the voting rights by proxy or by virtue of an
agreement with other investors which thereby enables the parent company to
cast the majority of the votes at meetings of the stockholders of the supervised
institution or to elect the majority of members of the board of directors of the
supervised institution or (2) there is power to determine the financial and
operating policies of the supervised institution or other similar arrangements.

The department heads and the examiners of the supervising and/or examining
departments are hereby authorized to administer oaths to any director,
officer, or employee of any institution under their respective supervision or
subject to their examination, to compel the presentation of all books,
documents, papers or records necessary in their judgment to ascertain the
facts relative to the true condition of any institution as well as the books and
records of persons and entities relative to or in connection with the
operations, activities or transactions of the institution under examination, and
to inquire into bank deposits and investment accounts in the course of an
examination in order to ascertain the compliance with the laws and banking
regulations or in cases where there is reasonable ground to believe that a
fraud, irregularity or unlawful activity has been or is being committed and that
it is necessary to look into the deposit or investment to establish such fraud,
irregularity or unlawful activity.

No restraining order or injunction shall be issued by the court enjoining the


Bangko Sentral from examining any institution subject to supervision or
examination by the Bangko Sentral, unless there is convincing proof that the
action of the Bangko Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court in which the
action is pending a bond executed in favor of the Bangko Sentral, in an amount
to be fixed by the court.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 17


November 30, 2018 2. Storage companies
3. Safe deposit box companies
4. Companies primarily engaged in the management of
Let's go to the coverage of the examination. We discussed this, we will just mutual funds not in the mutual funds themselves.
continue. Again, if you are a subsidiary of bank or quasi-bank, regardless of the 5. Management corporations engaged or to be engaged in
(indistinct), you are still under the supervision and regulation of the bank. an activity similar to the management of mutual funds;
6. Companies engaged in providing computer services;
Allied Activities are further classified into – 7. Insurance agencies/brokerages
1. Financial Allied Undertakings 8. Companies engaged in home building and home
2. Non-Financial Allied Undertakings development

Financial Allied Undertakings – with prior BSP approval banks may invest in
equities of the following financial allied undertakings, subject to the limits Sec. 380 for the Manual of Regulation of Bank—
prescribed under Sec. X378.
It is still an allied activity even if non-financial. Allied activities, sub-classify it
a. Leasing companies including leasing of stalls and spaces in a to financial and non-financial. These commercial banks and thrift banks and
commercial establishment, provided, that bank investment in rural banks that's the symbol of these banks. They are only allowed equity
acquisition of shares of such leasing company shall be shares for allied undertakings. Even if it's non-financial but still allied. Only the
limited/applicable only in cases of conversion of outstanding loan universal banks which can have equity investment for non-allied undertakings.
obligations into equity.
b. Banks Example –
c. Investment houses
d. Financing companies • Management corporations engaged or to be engaged in an activity
e. Credit card companies similar to the management of mutual funds;
f. Financial institutions to small and medium scale industries
including venture capital corporation (VCC), subject to the • Companies engaged in providing computer services;
provisions under Sec. X379 –
• Insurance agencies/brokerages;
Financial Allied Undertakings, BSP Circular No. 316-02 (January 9,
2007) • Companies engaged in home building and home development

• Companies providing drying and/ or milling facilities for agricultural


g. Companies engaged in stock brokerage/securities dealership, and crops such as rice and corn;
h. Companies engaged in foreign exchange dealership/brokerage
• Bank and service corporation. The Philippine Game House Commission
• In addition, EKBs may invest in the following as financial allied as central depositor; such other activities under the Bangko Sentral
undertakings— which the Monetary board declared as non-financial allied
undertakings.
a. Insurance companies
b. Holding company, provided that the investments of such • Service bureaus, organized to perform for and in behalf of banks and
holding company are confined to the equities of allied NBFIs the services allowed to be outsourced enumerated in Sec. X162:
undertakings and/or non-allied undertakings of UBs allowed Provided, That data processing companies may be allowed to invest up
under BSP regulations. to forty percent (40%) in the equity of service bureaus;

• The Monetary Board may declare such other activities as financial • Philippine Clearing House Corporation (PCHC), Philippine Central
allied undertakings of banks Depository, Inc. and Fixed Income Exchange; and

If you go to the General Banking Law, it's only the universal bank that is • Such other similar activities as the Monetary Board may declare as
allowed to have equity holdings for non-allied. Other banks none, only non-financial allied undertakings of banks. UBs may further invest in
universal bank. health maintenance organizations (HMOs). In addition, TBs may also
invest in the equities of companies enumerated in Item “b” of this
How do you determine if it is allied or non-allied activities? Section.

• The determination of whether the corporation is engaged in a financial


allied undertaking shall be based on its primary purpose as stated in Service bureaus, organized to perform for and in behalf of banks and NBFIs the
its articles of incorporation and the volume of its principal business. services allowed to be outsourced enumerated in Sec. X162: Provided, That
data processing companies may be allowed to invest up to forty percent (40%)
The Monetary Board declares financial undertakings as allied or non-allied. in the equity of service bureaus;
How do you determine if it is allied or non-allied? You look at the primary
purpose of the articles of incorporation. So that is the determining factor if it In addition, TBs may also invest in the equities of companies enumerated in
is engaged in allied or non-allied activities. You have to determine base on the Item “b” of this Section.
purpose of the corporation.
RBs/Coop Banks RBs/Coop Banks may invest, as a nonfinancial undertaking, in
the equities of companies engaged in the following—
Why is it important to know if its allied or non-allied? (1) Warehousing and other postharvest facilities;
(2) Fertilizer and agricultural chemical and pesticides distribution;
It will matter in the coverage of the Bangko Sentral in its examination. (3) Farm equipment distribution;
(4) Trucking and transportation of agricultural products;
Section X380. Non-Financial Allied Undertakings (5) Marketing of agricultural products;
(6) Leasing;
• EKBs/KBs and TBs may invest in equities of the following non- (7) Automated Teller Machine (ATM) networks; and
financial allied undertakings: (8) Other undertakings as may be determined by the Monetary Board.
1. Warehousing companies

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 18


Do you need to memorize these? Of course. Bank Deposits and Investments

It is still an allied undertaking, meaning ng allied it is related to the banking


industry, but it is non-financial.
Section 26. Bank Deposits and Investments. – Any director, officer or
Can the Bangko Sentral examine non-banks and non-quasi banks? stockholder who, together with his related interest, contracts a loan or any
As a rule, NO. form of financial accommodation from: (1) his bank; or (2) from a bank (a)
which is a subsidiary of a bank holding company of which both his bank and
But they are allowed but only for the purpose of determining whether such the lending bank are subsidiaries or (b) in which a controlling proportion of the
persons or entities are performing bank or quasi-bank functions without the shares is owned by the same interest that owns a controlling proportion of the
authority. shares of his bank, in excess of five percent (5%) of the capital and surplus of
the bank, or in the maximum amount permitted by law, whichever is lower,
Their right to examine is limited. Technically no. For the purposes of shall be required by the lending bank to waive the secrecy of his deposits of
determining whether they are engaged into banking activities without whatever nature in all banks in the Philippines.
authority from the BSP, it’s just up to that. They will determine the purpose or
the business model of the corporation, and they say this is a function of a bank
This provision is actually an exception for banks and deposits—
or a quasi-bank then there is no certificate of authority from the BSP, then it
is only up to that it can examine.
Any information obtained from an examination of his deposits shall be held
—because we have what you call as two-franchise as in strictly confidential and may be used by the examiners only in connection with
corporation. their supervisory and examination responsibility or by the Bangko Sentral in
an appropriate legal action it has initiated involving the deposit account.
First, is the primary franchise, that is the state giving these group of people
who wish to establish a corporation a franchise to put up a corporation Basically, this is what you call a DOSRI loan or financial accommodation. Why
Second, there are secondary franchise given to close industries that is involved DOSRI? We know who is the Director? How would you know that he is the
in business imbued with public interest one of which is the banking industry. director? How can you know that he is an officer?

There has to be a certificate of authority from the BSP before you can operate In a corporation, the information will be shown because you are required to
as a banking institution. Usually you need the endorsement of the BSP, before have an election on that. His name is placed there, as a director. The officer,
the SEC, will receive your documents to operate a bank. The BSP's role in the the director, or the second managers of the corporation. The officers are
examination of non-bank and quasi-bank is only for that purpose. actually the one operating the company.

Whether or not you are functioning as a bank, or not? So as to the details and Can the director be an officer?
financial condition, it doesn’t care anymore. If in the first place, if you're YES.
operating a bank without the authority, there's misrepresentation. There's
fraud to the public so, no need to examine the institution. When you say director these are members of the board of trustees. These are
the ones who are running the corporation. Stockholder of course, the ones
You can't enjoin the bank from examining an institution unless the action is holding shares.
plainly arbitrary.
Who are the related interests?
Consistent with the principle that banking is imbued with public
interest, you cannot render the function of the BSP illusory by In the MORB, X326.1 these are considered related interests—
just applying for injunction. So there is an exception, like all rules
there are exceptions, but please take note of the ground. Related interest shall refer to any of the following—

It must be plainly arbitrary and in bad faith. It must be plainly arbitrary. It is (1) Spouse or relative within the first degree of consanguinity or affinity, or
not enough that it is arbitrary, it must be plainly arbitrary. relative by legal adoption, of a director, officer or stockholder of the bank;

BSP vs. Chowking Food Corporation (2) Partnership of which a director, officer, or stockholder of a bank or his
spouse or relative within the first degree of consanguinity or affinity, or
What's due diligence? We need due diligence when we enter into transactions. relative by legal adoption, is a general partner;
We conduct due diligence in mergers, in consolidations, in buying property.
What's due diligence? Let's say Manny Pangilinan will acquire a hospital? In (3) Co-owner with the director, officer, stockholder or his spouse or relative
Tagum. Due diligence, it will check the financial conditions because they can within the first degree of consanguinity or affinity, or relative by legal
say, we're earning this much? How sure is Pangilinan that what they’re saying adoption, of the property or interest or right mortgaged, pledged or assigned
is right. Let's say you want to purchase property in Calinan, in Samal. They said to secure the loans or other credit accommodations, except when the
P 20, 000/per sq. meter. mortgage, pledge or assignment covers only said co-owner’s undivided
interest;
Why is it expensive? Because there are a lot of prospective buyer. So how
would you know that the representations are correct? You do your due No. (3) presupposes a situation wherein someone asked for a loan, and the
diligence— meaning you examine the representation of the other party. property is land then there is a co-owner of the land, aside from DOSRI,
somebody else.
Diligence only is different, because that is the one required. Due diligence is
also different because those are procedures in ensuring that the Except when the included property in the collateral is only the share of the
representation made by the other party are correct. Basically this case says DOS. In that case, the other co-owner will not be considered as an agent but
that banking is imbued with public trust. the entire property is the collateral, then any co-owner is considered having
accumulated interest.
Borlongan vs. Reyes

Article IV

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 19


(4) Corporation, association, or firm of which a director or officer of the bank, The loan or financial accommodation is from his bank, please take note of
or his spouse is also a director or officer of such corporation, association or this— his bank; or from a bank which is a subsidiary of a bank holding
firm, except (a) where the securities of such corporation, association or firm company of which both his bank and the lending bank are subsidiaries or in
are listed and traded in the big board or commercial and industrial board of which a controlling proportion of the shares is owned by the same interest
domestic stock exchanges and less than fifty percent (50%) of the voting stock that owns a controlling proportion of the shares of his bank,
thereof is owned by any one (1) person or by persons related to each other
within the first degree of consanguinity or affinity; or (b) where the director,
officer or stockholder of the bank sits as a representative of the bank in the He is a DOSRI here. It’s okay he loans from there, that's his bank. He can also
board of directors of such corporation: borrow from BANK 2. I am a DOS here, then I borrow here. But this a subsidiary
of a bank holding company. That’s the 2nd one. But these are owned by the
Provided, That the bank representative shall not have any equity interest in same interest that holds the bank of which he is DOS.
the borrower corporation except for the minimum shares required by law,
rules and regulations, or by the by-laws of the corporation, or (c) where the
corporation is at least ninety-nine percent (99%) owned by a non-stock in excess of five percent (5%) of the capital and surplus of the bank, or in the
corporation as defined in Section 87 of the Corporation Code of the maximum amount permitted by law, whichever is lower, shall be required by
Philippines: Provided, That the purpose of the loan is to finance hospitals and the lending bank to waive the secrecy.
other medical services:
We talked about earlier related interest.
Provided, further, That the loan is fully secured: Provided, furthermore, That
in the case of Items “(a)”, “(b)” and “(c)” above, the borrowing corporation is Related interest between the spouse, he is not the DOS, because this is only
not among those mentioned in Items “e(5)”, “e(6)”, “e(7)” and “e(8)” of this the DOS.
Section;
Related interest is only material if you want to determine the 5% threshold.
This is a lot. In practice, you can consider everything as a DOSRI loan because That is the only time it is material. The related interest, is only material to
you have no escape. determine whether the financial accommodation will exceed 5% because it is
allowed when the DOS is the one who asks for a loan "I’m not the stockholder
there" but the spouse, loaned at 10%.
(5) Corporation, association or firm of which any or a group of directors,
officers, stockholders of the lending bank and/or their spouses or relatives
You determine the total financial accommodation you have to consider the
within the first degree of consanguinity or affinity, or relative by legal
related interest. It has 14. That is the purpose of related interest.
adoption, hold or own at least twenty percent (20%) of the subscribed capital
of such corporation, or of the equity of such association or firm;
Let's go to the same interest— meaning, these two banks are owned by the
same natural person. or same corporation.
(6) Corporation, association or firm wholly or majority-owned or controlled by
any related entity or a group of related entities mentioned in Items “e(2)”,
Related interest shall refer to any of the following—
“e(4)” and “e(5)” of this Section;
(iv) Corporation, association, or firm of which a director or officer of the bank,
This is already broad. or his spouse is also a director or officer of such corporation, association or
(7) Corporation, association or firm which owns or controls directly or firm, except—
indirectly whether singly or as part of a group of Manual of Regulations for
Banks Part III - 1 related interest at least twenty percent (20%) of the (a) Where the securities of such corporation, association or firm are listed and
subscribed capital of a substantial stockholder of the lending bank or which traded in the big board or commercial and industrial board of domestic stock
controls majority interest of the bank pursuant to Sub Section X303.1; exchanges and less than 50% of the voting stock thereof is owned by any one
person or by persons related to each other within the first degree of
(8) Corporation, association or firm which has an existing management consanguinity or affinity o; or
contract or any similar arrangement with the parent of the lending bank; and
(b) Where the director, officer or stockholder of the bank sits as a
(9) Non-governmental organizations (NGOs)/foundations that are engaged in representative of the bank in the board of directors of such corporation,
retail microfinance operations which are incorporated by any of the provided that the bank representative shall not have any equity interest in the
stockholders and/or directors and/or officers of related banks. borrower corporation except for the minimum shares required by law, rules
and regulations, or by the by-laws of the corporation, and provided further,
So that part, the requisites, for you to be considered DOSRI loan financial that the borrowing corporation is not among those mentioned in items e(5),
obligation. In simple terms, if you’re a director or officer of one bank, then you e(6), e(7) and e(8) of Section X326.1 of the Manual of Regulations for Banks;
ask for a loan from that bank, that is a DOSRI loan.
(v) Corporation, association or firm of which any or a group of directors,
Why is that regulated? officers, stockholders of the lending bank and/or their spouses or relatives
within the first degree of consanguinity or affinity, or relative by legal
You could be in better terms than the terms that it could have if it is offered adoption, hold or own at least 20 % of the subscribed capital of such
to a third party. That is why you have to be regulated because you’re the corporation, or of the equity of such association or firm;
director you’re the owner, you're an officer, you can that instead of 15%, it
could be10%, I’m the owner of this bank. Then what will happen if they won’t (vi) Corporation, association or firm wholly or majority-owned or controlled by
be regulated? The banks cannot exist if that’s the case. any related entity or a group of related entities mentioned in items e(2), e(4)
and e(5)of Section X326.1 of the Manual of Regulations for Banks;
What are the requisites?
(vii) Corporation, association or firm which owns or controls directly or
The borrower is a director, officer or stockholder of the bank. He contracts a indirectly whether singly or as part of a group of related interest at least 20%
loan, or even if it’s not just a loan, any form of financial accommodation. What of the subscribed capital of a substantial stockholder of the lending bank or
other financial accommodations we will name later, apart from loan. which controls majority interest of the bank pursuant to Subsection X303.1 of
the Manual of Regulations for Banks; and
Loan, what else? Credit lines, what else? Financial accommodations. You think
about that, because I might make a question in the exam. (viii) Corporation, association or firm which has an existing management
contract or any similar arrangement with the parent of the lending bank. NGO

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 20


foundations that are engaged in microfinance, operations which are
incorporated. Because here, the supervisor examinee official of BSP will know whether or
not there were concessions made by the bank like lower interest because
without the paper, they cannot look into the deposits.
What are the Requisites in order to be considered DOSRI Loan or Financial
Accommodation? Penalties

In simple terms, you’re a director officer of one bank and you asked for a loan Any lending bank which violates this Section shall be imposed a fine equivalent
from that bank, that is DOSRI Loan or Financial Accommodation. to 1/10 of 1% of the amount of loan or financial accommodation per day, from
the time the loan or financial accommodation is granted to the time the waiver
Why is it regulated? You could have better terms than the terms that is offered of secrecy of his deposits of whatever nature in all banks in the Philippines is
by a third party. That is why you have to be regulated because you’re the submitted by the concerned director, officer or stockholder, that is, even if the
director you’re the owner, director officer. loan or financial accommodation has been fully paid, but not to exceed
P30,000 a day, without prejudice to other sanctions prescribed under Section
You can say instead of 20% subscription, 10% because you’re the owner of the 37 of Republic Act No. 7653.
bank. What will happen? The bank cannot exist because they will be at a oss.
That is the nature of DOSRI Loan or final accommodation.
SECTION 27. Prohibitions. — In addition to the prohibitions found in Republic
Act Nos. 3019 and 6713, personnel of the Bangko Sentral are hereby
a. The borrower is a director, officer or any stockholder of a bank;
prohibited from:
b. He contracts a loan or any form of financial accommodation;(loan, credit
(a) being an officer, director, lawyer or agent, employee, consultant or
lines in the nature of loans)
stockholder, directly or indirectly, of any institution subject to supervision or
examination by the Bangko Sentral, except non-stock savings and loan
c. The loan or financial accommodation is from (a) his bank, or (b) a bank that
associations and provident funds organized exclusively for employees of the
is a subsidiary of a bank holding company of which both his bank and the
Bangko Sentral, and except as otherwise provided in this Act;
lending bank are subsidiaries, or (c) a bank in which a controlling proportion
of the shares is owned by the same interest that owns a controlling proportion
(b) directly or indirectly requesting or receiving any gift, present or pecuniary
of the shares of his bank; and
or material benefit for himself or another, from any institution subject to
supervision or examination by the Bangko Sentral;
d. The loan or financial accommodation of the director, officer or stockholder,
singly or with that of his related interest, is in excess of 5% of the capital and
(c) revealing in any manner, except under orders of the court, the Congress or
surplus of the lending bank or in the maximum amount permitted by law,
any government office or agency authorized by law, or under such conditions
whichever is lower.
as may be prescribed by the Monetary Board, information relating to the
condition or business of any institution. This prohibition shall not be held to
- related interest is material if you want to determine whether the
apply to the giving of information to the Monetary Board or the Governor of
accommodation exceed the 5% threshold of the capital stock.
the Bangko Sentral, or to any person authorized by either of them, in writing,
to receive such information; and
“maximum amount permitted by law” mentioned in this Section— refers to
the limit on the loans that may be extended to a director, officer or
(d) borrowing from any institution subject to supervision or examination by
stockholder under Section 36 of RA NO. 8791.
the Bangko Sentral shall be prohibited unless said borrowings are adequately
secured, fully disclosed to the Monetary Board, and shall be subject to such
Same interest so this means that these 2 banks are owned by same natural
further rules and regulations as the Monetary Board may prescribe: Provided,
person or same corporation, partnership or entity. What’s the difference
however, That personnel of the supervising and examining departments are
between the bank and the company?
prohibited from borrowing from a bank under their supervision or
examination.
The term “same interest” in the third element refers to—

i. The same natural person;


ii. The same corporation, partnership or entity;
iii. The same family group, that is, persons related to each other within SECTION 27. Prohibitions. — In addition to the prohibitions found in Republic
the third degree of consanguinity or affinity, including any Act Nos. 3019 and 6713, personnel of the Bangko Sentral are hereby
corporation majority or all of the equity of which is owned by such prohibited from:
family group; or
iv. The same business group, that is, a group of persons whose (d) borrowing from any institution subject to supervision or examination by
stockholdings altogether constitute a majority or control in one or the Bangko Sentral unless said borrowing IS TRANSACTED ON AN ARM’S
more enterprises. LENGTH BASIS, fully disclosed to the Monetary Board, and shall be subject to
such further rules and regulations as the Monetary Board may prescribe.
Bank holding company-purpose is to hold banks or investments/shares of
other companies only and not to operate for tax purposes. A. What is non-stock saving and loan association?
These are employees in an organization and you will contribute optional
Take note— the related interest is only material to consider the 5%. What if monthly then if an employee needs to loan from the loan association, it will
the spouse takes out the loan, can that be considered DOSRI? The maximum loan to an employee with an interest because the interest will be the profit or
threshold provided by law under the New Central Bank is 5% of the capital and it can invest in other any earning investments then at the time the employee
surplus. resigns you will receive your share.

Waiver of Secrecy of Deposit This is the non-stock saving and loan association for an employee to save a
portion of his salary.

The lending bank shall require the director, officer, or stockholder to waive the B. If you have a friend that examines a bank, before there was no prohibition
secrecy or confidentiality of his deposits of whatever nature in all banks in the because it’s not so strict, they go to rural banks, when they get there, there
Philippines. are foods or gifts, because the rule of the supervising official is really very
crucial to the existence to the bank.
Why is it important the waiver of the secrecy of deposit?

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 21


If the report does not look good, they will decide (monetary bank), conservator every bank AND QUASI-BANK, INCLUDING THEIR SUBSIDIARIES AND
or under receiver. But now, you will offer them gifts, they will report that. AFFILIATES ENGAGED IN ALLIED ACTIVITIES, AND OTHER ENTITIES WHICH
UNDER THIS ACT OR SPECIAL LAWS ARE SUBJECT TO BANGKO SENTRAL
C. There is confidentiality. Let us say BSP is examining BANK 1, it finds out that SUPERVISION, IN ACCORDANCE WITH THE GUIDELINES SET BY THE MONETARY
its becoming insolvent, he’ll say, “depositor of Bank 1, that’s going to be BOARD TAKING INTO CONSIDERATION SOUND AND PRUDENT PRACTICE.
insolvent” except under orders of the court, the Congress or any government
office or agency authorized by law, or under such conditions as may be Provided, That there shall be an interval of at least twelve (12) months
prescribed by the Monetary Board, information relating to the condition or between REGULAR examinations; PROVIDED, FURTHER, THAT THE MONETARY
business of any institution. Kasi they tried to prevent insider thing. BOARD, BY AN AFFIRMATIVE VOTE OF AT LEAST FIVE (5) MEMBERS, MAY
AUTHORIZE A SPECIAL EXAMINATION IF THE CIRCUMSTANCES WARRANT.
You have information inside then it would affect it if you expose it in the
outside of course. The INSTITUTION concerned shall afford to the head of the appropriate
supervising and examining departments and to his authorized deputies full
D. If you are an examiner personnel you are not allowed to borrow from any opportunity to examine its books AND RECORDS, cash and assets and general
borrowing from any institution subject to supervision or examination by the condition AND REVIEW ITS SYSTEMS AND PROCEDURES at any time during
Bangko Sentral unless said borrowings are adequately secured, fully disclosed BUSINESS hours when requested to do so by the Bangko Sentral: Provided,
to the Monetary Board, and shall be subject to such further rules and however, That none of the reports and other papers relative to such
regulations as the Monetary Board may prescribe. If I’m from the BSP, I am not examinations shall be open to inspection by the public except insofar as such
allowed to ask for a loan from BPI under supervision of BSP if it is not fully and publicity is incidental to the proceedings hereinafter authorized or is necessary
adequately secured and disclosed to Monetary Board. for the prosecution of violations in connection with the business of such
institutions.
You can ask for a loan as long as adequately secured (has
collateral/security/surety) and fully disclosed to the Monetary Board. SUPERVISED INSTITUTIONS shall pay to the Bangko Sentral, NO LATER THAN
MAY 31 OF EACH YEAR, an annual SUPERVISION fee as may be prescribed by
Provided, however, That personnel of the supervising and examining the Monetary Board. IN DETERMINING THE AMOUNT OF THE ANNUAL
departments are prohibited from borrowing from a bank under their SUPERVISION FEE, THE MONETARY BOARD SHALL CONSIDER THE COSTS OF
supervision or examination. SUPERVISION.

If you are examining and supervising Bank 1, you cannot borrow from Bank 1,
even if adequately secured and fully disclosed to Monetary Board.

But any institution subject to supervision or examination by the Bangko SECTION 28-A. BANGKO SENTRAL COORDINATION.- THE SUSPENSION OR
Sentral that you don’t directly examine as of this moment, well, it must be REVOCATION OF ANY GOVERNMENT LICENSE NECESSARY FOR THE
adequately secured and fully disclosed to the Monetary Board. OPERATION OF A BANGKO SENTRAL -SUPERVISED ENTITY MUST BE DONE
ONLY WITH PRIOR CONSULTATION WITH THE BANGKO SENTRAL.
We have an relative prohibition and absolute prohibition—
1. Relative Prohibition for those not directly under your supervision
The bank will be examined by BSP will pay a fee. If the supervising department
and examination; and
will report— his report, that none of the reports and other papers relative to
2. Absolute Prohibition for those directly under your supervision and
such examinations shall be open to inspection by the public except insofar as
examination in order to avoid conflict of interest – because you’re
such publicity is incidental to the proceedings hereinafter authorized or is
examining that bank then you ask for a loan then what if it’s already
necessary for the prosecution of violations in connection with the business of
insolvent, you won’t report it of course and it will be under
such institutions”.
receivership because you asked for a loan from that bank.
Thus, the report is confidential with 2 exceptions.
SECTION 28. Examination and Fees. — The supervising and examining
department head, personally or by deputy, shall examine the books of every Whenever on a basis of the report submitted by the appropriate supervising
banking institution once in every twelve (12) months, and at such other times or examining department, the Monetary Board finds that a bank or a quasi-
as the Monetary Board by an affirmative vote of five (5) members, may deem bank is in a state of continuing inability or unwillingness to maintain a
expedient and to make a report on the same to the Monetary Board: Provided, condition of liquidity deemed adequate to protect the interest of depositors
That there shall be an interval of at least twelve (12) months between annual and creditors, the Monetary Board may appoint a conservator with such
examinations. powers as the Monetary Board shall deem necessary to take charge of the
assets, liabilities, and the management thereof, reorganize the management,
The bank concerned shall afford to the head of the appropriate supervising collect all monies and debts due said institution, and exercise all powers
and examining departments and to his authorized deputies full opportunity to necessary to restore its viability.
examine its books, cash and available assets and general condition at any time
during banking hours when requested to do so by the Bangko Sentral: PLEASE MEMORIZE!!!
Provided, however, That none of the reports and other papers relative to such
examinations shall be open to inspection by the public except insofar as such
SECTION 29. Appointment of Conservator. — Whenever, on the basis of a
publicity is incidental to the proceedings hereinafter authorized or is necessary
report submitted by the appropriate supervising or examining department,
for the prosecution of violations in connection with the business of such
the Monetary Board finds that a bank or a quasi-bank is in a state of continuing
institutions.
inability or unwillingness to maintain a condition of liquidity deemed adequate
to protect the interest of depositors and creditors, the Monetary Board may
Banking and quasi-banking institutions which are subject to examination by
appoint a conservator with such powers as the Monetary Board shall deem
the Bangko Sentral shall pay to the Bangko Sentral, within the first thirty (30)
necessary to take charge of the assets, liabilities, and the management
days of each year, an annual fee in an amount equal to a percentage as may
thereof, reorganize the management, collect all monies and debts due said
be prescribed by the Monetary Board of its average total assets during the
institution, and exercise all powers necessary to restore its viability. The
preceding year as shown on its end-of-month balance sheets, after deducting
conservator shall report and be responsible to the Monetary Board and shall
cash on hand and amounts due from banks, including the Bangko Sentral and
have the power to overrule or revoke the actions of the previous management
banks abroad.
and board of directors of the bank or quasi-bank.

The conservator should be competent and knowledgeable in bank operations


SECTION 28. Examination and Fees. — The supervising and examining and management. The conservatorship shall not exceed one (1) year.
department head, personally or by deputy, shall examine the OPERATIONS of

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The conservator shall receive remuneration to be fixed by the Monetary Board
in an amount not to exceed two-thirds (2/3) of the salary of the president of But if the ground is getting at a loss and its already in liquidation, in receiver
the institution in one (1) year, payable in twelve (12) equal monthly payments: already, what he will receive is already prorated.
Provided, That, if at any time within one-year period, the conservatorship is
terminated on the ground that the institution can operate on its own, the The Monetary Board may appoint a conservator connected with the Bangko
conservator shall receive the balance of the remuneration which he would Sentral, in which case he shall not entitled to receive any remuneration or
have received up to the end of the year; but if the conservatorship is emolument from the Bangko Sentral during the conservatorship. The
terminated on other grounds, the conservator shall not be entitled to such expenses attendant to the conservatorship shall be borne by the bank or
remaining balance. The Monetary Board may appoint a conservator connected quasi-bank concerned.
with the Bangko Sentral, in which case he shall not be entitled to receive any
remuneration or emolument from the Bangko Sentral during the The Monetary Board shall terminate the conservatorship when it is satisfied
conservatorship. The expenses attendant to the conservatorship shall be that the institution can continue to operate on its own and the
borne by the bank or quasi-bank concerned. conservatorship is no longer necessary. Shall likewise be determine that—yon.

The Monetary Board shall terminate the conservatorship when it is satisfied It’s okay if it can operate on its own. But if it is terminated on the basis of—
that the institution can continue to operate on its own and the the conservator will report to the Monetary Board in the of the year or earlier
conservatorship is no longer necessary. The conservatorship shall likewise be upon basis on his report it can be determine that the continuance in
terminated should the Monetary Board, on the basis of the report of the business—please take note of the reason—the continuance in business of the
conservator or of its own findings, determine that the continuance in business institution would involve probable loss to its depositors or creditors.
of the institution would involve probable loss to its depositors or creditors, in
which case the provisions of Section 30 shall apply. There seems to be a distinction between creditors and depositors. As all we
know depositors or bank deposits is in the nature of creditor and debtor, while
Section 28— a state of continuing inability or unwillingness to maintain a on deposits you are the creditor.
condition of liquidity deemed adequate to protect the interest of depositors
and creditors. Why is the creditor or and depositor emphasized? Why can’t it just say,
probable loss to its creditors? Why does it have to be separated?
Please memorize that. That is the basis for your conservator.
A: this is in emphasis because there might be a credit that are not in the form
A state of continuing inability or unwillingness to maintain a condition of of deposits. So it should be separated. In which case, the provisions of section
liquidity deemed adequate to protect the interest of depositors and creditors. 30 shall be apply—which is the receivership.
These are your keywords. This is the basis to appoint a conservator. There is
inability or continuing unwillingness to maintain a condition of liquidity 2 reasons for conservator to determine—
deemed adequate to protect the interest of depositors and creditors.
1. can continue its operation; or
Question: Inability or continuing unwillingness to maintain a condition of 2. receiver
liquidity deemed adequate to protect the interest of depositors and creditors,
does that mean the bank is at a loss? Does that mean the bank is insolvent? —and the basis for this, is the report of the conservator.

The Monetary Board may appoint a conservator with such powers as the Please take note.
Monetary Board shall deem necessary to take charge of the assets.
CONSERVATORSHIP—This is a tool in restoring the viability of banks and quasi-
banks. It consists of carrying out a package of administrative organizational,
The main role of the conservator is first to take charge of the assets and financial (because the conservator can reorganize the management.
liabilities, and the management thereof, reorganize the management, collect
all monies and debts due said institution, and exercise all powers necessary to He can say that you appointed the wrong person in the operations. He doesn’t
restore its viability. The conservator shall report and be responsible to the know anything. So, I will put people and terminate them so it will be organized.
Monetary Board and shall have the power to overrule or revoke the actions of He can reorganize. That is the role. He acts as if he is the BOT at that point of
the previous management and board of directors of the bank or quasi-bank. time), and/or other measures to address the state of continuing inability or
unwillingness to maintain a condition of liquidity deemed adequate to protect
In effect there is a take-over. Someone is in. You (bank) are not doing your job the interest of depositors and creditors.
someone will take-over. Now, to resume the viability of the bank. This is one
of the remedies of the banks in distress. There is a report. The supervising department will report to the Central Bank.
The appointed conservator will also report to the Central Bank, either to
There is what we call ‘bank in distress’. In bank in distress, one of the remedies terminate it because it can stand on its own or to appoint a receiver. The
is conservator. How will he be appointed? There is continuing inability. finding of the monetary board is based on the state of inability. It’s always the
same— state of unwillingness to maintain.
The conservator appointed should be competent and knowledgeable in bank
operations and management. The conservator shall not exceed (1) year. The BOD must be informed in writing. MBA says let’s put this under
conservatorship. The MBA will inform in writing the BOD –you are under
Please take note—does not exceed 1 year. The Conservator has only 1 year conservatorship.
to do his job.
Q: Is it a good thing that you are under conservatorship?
The Conservator shall receive remuneration—take note of the NO. not a good thing. What it means is that— you are not doing your job.
remuneration—not to exceed 2/3 of the salary of the president of the
institution in one (1) year. Payable in twelve (12) equal monthly payments. But it is one of the ways if you are in business where the State intervene
Provided that, please take note—if any time within the one (1) year period the because the nature of your job is imbued with public interest that is so the
conservatorship is terminated on the ground that the institution can operate State has the right to intervene to protect the public.
on its own, the conservator shall receive up to the end of the year.
LIQUIDITY—continuing inability or unwillingness to maintain a condition of
This serves as a reward or an incentive for the conservator. Speed up your liquidity. Therefore, what is liquidity? you’re liquid. It’s not bankrupt but it’s
work because 1 month and he’s fixed it—he will receive rest of the salary for also not liquid. That is why he needs to sell his properties.
the year. This is an incentive if the ground for the termination it can be shown
of its viability.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 23


Liquidity is generally understood as the ability to pay off obligations when
they fall due. It refers to that condition wherein a high percentage of the However, the said letter drew no response for more than four months. Then,
assets can be quickly converted into cash without involving any considerable on May 3, 1988, plaintiff, through counsel, made a final demand for
loss by accepting sacrifice prices. compliance by the bank with its obligations under the considered perfected
contract of sale.
Liquidity in effect— are you liquid. You have enough cash to pay your
obligation. Na you don’t need to sell your other properties. So, that is liquidity. In a reply letter dated May 12, 1988, the defendants through Acting
You have a lot cash and cash interest. Liquid . you don’t need to ask for a loan Conservator Encarnacion repudiated the authority of defendant Rivera and
or sell non-cash assets. That is the meaning of liquidity. It is different from claimed that his dealings with the plaintiffs, particularly his counter-offer of
SOLVENCY. P5.5 Million are unauthorized or illegal. On that basis, the defendants justified
Please take note of that. the refusal of the tenders of payment and the non-compliance with the
obligations under what the plaintiffs considered to be a perfected contract of
When we talk of solvency—your liabilities exceed your assets. Whether in the sale.
form of cash or non-cash. That is solvency. So, between liquidity and
solvency—in solvency you really don’t have assets. On May 16, 1988, plaintiffs filed a suit for specific performance with damages
against the bank, its Manager Rivers and Acting Conservator Encarnacion. The
In liquidity, you can’t because you don’t have enough cash assets to pay off basis of the suit was that the transaction had with the bank resulted in a
your obligation. Financial obligations—liquidity perfected contract of sale.

LIQUIDITY vs. SOLVENCY On the other hand, the defendants took the position that there was no such
perfected sale because the defendant Rivera is not authorized to sell the
• Solvency and liquidity are both terms that refer to an enterprise’s state property, and that there was no meeting of the minds as to the price.
of financial health, but with some notable differences.
• Solvency refers to an enterprise’s capacity to meet its long-term ISSUE
financial commitments.
• Liquidity refers to an enterprise’s ability to pay short-term obligations, May the Conservator revoke the perfected and enforceable contract?
the term also refers to a company’s capability to sell assets quickly to
raise cash. HELD
• A solvent company is one that owns more than it owes; in other words,
it has a positive net worth and a manageable debt load. On the other NO. The Supreme Court said, it is not disputed that the petitioner Bank was
hand, a company with adequate liquidity may have enough cash under a conservator placed by the Central Bank of the Philippines during the
available to pay its bills, but it may be heading for financial disaster time that the negotiation and perfection of the contract of sale took place.
down the road. Petitioners energetically contended that the conservator has the power to
revoke or overrule actions of the management or the board of directors of a
The powers and duties of a conservator bank, under Section 28-A of Republic Act No. 265 (otherwise known as the
Central Bank Act) as follows:
1. Take charge of the assets, liabilities, and the management of the
bank or quasi-bank as may be deemed necessary by the Monetary Whenever, on the basis of a report submitted by the appropriate supervising
Board; or examining department, the Monetary Board finds that a bank or a non-bank
financial intermediary performing quasi-banking functions is in a state of
First Philippines International Bank vs. CA continuing inability or unwillingness to maintain a state of liquidity deemed
adequate to protect the interest of depositors and creditors, the Monetary
FACTS Board may appoint a conservator to take charge of the assets, liabilities, and
the management of that institution, collect all monies and debts due said
Here, in the course of its banking operations, the defendant Producer Bank of institution and exercise all powers necessary to preserve the assets of the
the Philippines acquired six parcels of land with a total area of 101 hectares. institution, reorganize the management thereof, and restore its viability. He
The property used to be owned by BYME Investment and Development shall have the power to overrule or revoke the actions of the previous
Corporation which had them mortgaged with the bank as collateral for a loan. management and board of directors of the bank or non-bank financial
The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to intermediary performing quasi-banking functions, any provision of law to the
purchase the property and thus initiated negotiations for that purpose. contrary notwithstanding, and such other powers as the Monetary Board shall
deem necessary.
In the early part of August 1987 said First Philippines International Bank (FPIB),
upon the suggestion of BYME investment's legal counsel, Jose Fajardo, met In the first place, this issue of the Conservator's alleged authority to revoke
with defendant Mercurio Rivera, Manager of the Property Management or repudiate the perfected contract of sale was raised for the first time in
Department of the defendant bank. The meeting was held pursuant to this Petition — as this was not litigated in the trial court or Court of Appeals
plaintiffs' plan to buy the property. After the meeting, Janolo, following the
advice of defendant Rivera, made a formal purchase offer to the bank through In the second place, there is absolutely no evidence that the Conservator, at
a letter dated August 30, 1987. the time the contract was perfected, actually repudiated or overruled said
contract of sale. The Bank's acting conservator at the time, Rodolfo Romey,
There was no reply to Janolo's foregoing letter of September 17, 1987. What never objected to the sale of the property to Demetria and Janolo. What
took place was a meeting on September 28, 1987 between the plaintiffs and petitioners are really referring to is the letter of Conservator Encarnacion, who
Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, took over from Romey after the sale was perfected on September 30, 1987
the BYME lawyer, attended the meeting. Two days later, or on September 30, which unilaterally repudiated — not the contract — but the authority of Rivera
1987, plaintiff Janolo sent to the bank, through Rivera. to make a binding offer — and which unarguably came months after the
perfection of the contract.
Defendant bank, through Rivera, acknowledged receipt of the foregoing letter
in its communication of December 2, 1987 that said letter has been "referred In the third place, while admittedly, the Central Bank law gives vast and far-
. . . to the office of our Conservator for proper disposition" However, no reaching powers to the conservator of a bank, it must be pointed out that such
response came from the Acting Conservator. powers must be related to the "(preservation of) the assets of the bank, (the
reorganization of) the management thereof and (the restoration of) its
On December 14, 1987, the plaintiffs made a second tender of payment this viability." Such powers, enormous and extensive as they are, cannot extend to
time through the Acting Conservator, defendant Encarnacion. Plaintiffs send the post-facto repudiation of perfected transactions, otherwise they would
letter to the bank for the alleged perfected contract of sale. infringe against the non-impairment clause of the Constitution. If the

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 24


legislature itself cannot revoke an existing valid contract, how can it delegate the institution may be rehabilitated or otherwise placed in such a condition so
such non-existent powers to the conservator under Section 28-A of said law? that it may be permitted to resume business with safety to its depositors and
creditors and the general public: Provided, That any determination for the
Obviously, therefore, Section 28-A merely gives the conservator power to resumption of business of the institution shall be subject to prior approval of
revoke contracts that are, under existing law, deemed to be defective — i.e., the Monetary Board.
void, voidable, unenforceable or rescissible.
If the receiver determines that the institution cannot be rehabilitated or
Hence, the conservator merely takes the place of a bank's board of directors. permitted to resume business in accordance with the next preceding
What the said board cannot do — such as repudiating a contract validly paragraph, the Monetary Board shall notify in writing the board of directors of
entered into under the doctrine of implied authority — the conservator cannot its findings and direct the receiver to proceed with the liquidation of the
do either. Ineluctably, his power is not unilateral and he cannot simply institution. The receiver shall:
repudiate valid obligations of the Bank. His authority would be only to bring
court actions to assail such contracts — as he has already done so in the instant (1) file ex parte with the proper regional trial court, and without requirement
case. A contrary understanding of the law would simply not be permitted by of prior notice or any other action, a petition for assistance in the liquidation
the Constitution. Neither by common sense. To rule otherwise would be to of the institution pursuant to a liquidation plan adopted by the Philippine
enable a failing bank to become solvent, at the expense of third parties, by Deposit Insurance Corporation for general application to all closed banks. In
simply getting the conservator to unilaterally revoke all previous dealings case of quasi-banks, the liquidation plan shall be adopted by the Monetary
which had one way or another or come to be considered unfavorable to the Board. Upon acquiring jurisdiction, the court shall, upon motion by the
Bank, yielding nothing to perfected contractual rights nor vested interests of receiver after due notice, adjudicate disputed claims against the institution,
the third parties who had dealt with the Bank. assist the enforcement of individual liabilities of the stockholders, directors
and officers, and decide on other issues as may be material to implement the
In this particular case, since the conservator may exercise other powers based liquidation plan adopted. The receiver shall pay the cost of the proceedings
on the powers of the BOD, can revoke perfected and enforceable contract? from the assets of the institution.
The Supreme Court said NO. The power to revoke a contract refers only to
those defective contracts. You have the rule on void, voidable, unenforceable, (2) convert the assets of the institutions to money, dispose of the same to
and rescissible contracts. creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
Their power is only up to that. Because otherwise, it will violate the non- credit under the Civil Code of the Philippines and he may, in the name of the
impairment of contracts. the court said, the legislators cannot impair institution, and with the assistance of counsel as he may retain, institute such
perfected contract and more so, BOD. actions as may be necessary to collect and recover accounts and assets of, or
defend any action against, the institution. The assets of an institution under
Legislators—Monetary Board—BOD/Conservator. If the source of the power receivership or liquidation shall be deemed in custodia legis in the hands of
cannot do then, the delegated power cannot do the same. the receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy,
The termination, again, cannot exceed 1 year. attachment, or execution.

Let’s go to the RECEIVER. The actions of the Monetary Board taken under this section or under Section
29 of this Act shall be final and executory, and may not be restrained or set
Q: if it is fixed, it is okay. if it cannot be prevented that there might be probable aside by the court except on petition for certiorari on the ground that the
loss to its creditors or depositors we will go to section 30, the receivership. action taken was in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The petition for certiorari may
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon only be filed by the stockholders of record representing the majority of the
report of the head of the supervising or examining department, the Monetary capital stock within ten (10) days from receipt by the board of directors of the
Board finds that a bank or quasi-bank: institution of the order directing receivership, liquidation or conservatorship.

(a) is unable to pay its liabilities as they become due in the ordinary course of The designation of a conservator under Section 29 of this Act or the
business: Provided, That this shall not include inability to pay caused by appointment of a receiver under this section shall be vested exclusively with
extraordinary demands induced by financial panic in the banking community; the Monetary Board. Furthermore, the designation of a conservator is not a
precondition to the designation of a receiver.
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to
meet its liabilities; or
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon
(c) cannot continue in business without involving probable losses to its report of the head of the supervising or examining department, the Monetary
depositors or creditors; or Board finds that a bank or quasi-bank:

(d) has willfully violated a cease and desist order under Section 37 that has (a) HAS NOTIFIED THE BANGKO SENTRAL OR PUBLICLY ANNOUNCED A
become final, involving acts or transactions which amount to fraud or a UNILATERAL CLOSURE, OR HAS BEEN DORMANT FOR AT LEAST SIXTY (60) DAYS
dissipation of the assets of the institution; in which cases, the Monetary Board OR IN ANY MANNER HAS SUSPENDED THE PAYMENT OF ITS DEPOSIT
may summarily and without need for prior hearing forbid the institution from SUBSTITUTE LIABILITIES OR is unable to pay its liabilities as they become due
doing business in the Philippines and designate the Philippine Deposit in the ordinary course of business: Provided, That this shall not include inability
Insurance Corporation as receiver of the banking institution. to pay caused by extraordinary demands induced by financial panic in the
banking community;
For a quasi-bank, any person of recognized competence in banking or finance
may be designed as receiver. (b) has insufficient realizable assets, as determined by the Bangko Sentral, to
meet its liabilities; or
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors, (c) cannot continue in business without involving probable losses to its
and exercise the general powers of a receiver under the Revised Rules of Court depositors or creditors; or
but shall not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of the (d) has willfully violated a cease and desist order under Section 37 that has
institution: Provided, That the receiver may deposit or place the funds of the become final, involving acts or transactions which amount to fraud or a
institution in non-speculative investments. The receiver shall determine as dissipation of the assets of the institution; in which cases, the Monetary Board
soon as possible, but not later than ninety (90) days from take over, whether may summarily and without need for prior hearing forbid the institution from

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 25


doing business in the Philippines and designate the Philippine Deposit
Insurance Corporation as receiver of the banking institution. IN THE CASE OF The designation of a conservator under Section 29 of this Act or the
BANKS AND DIRECT THE DPIC TO PROCEED WIT THE LIQUIDATION OF THE appointment of a receiver under this section shall be vested exclusively with
CLOSED BANK PURSUANT TO THIS SECTION AND THE RELEVANT PROVISION the Monetary Board. Furthermore, the designation of a conservator is not a
OF RA 3591, AS AMENDED, THE MONETARY BOAD SHALL NOTIFY IN WRITING precondition to the designation of a receiver.
THROUGH THE RECEIVER THE BOARD OF DIRECTORS OF THE CLOSED BANK OF
ITS DECISION. Section 30— whenever, upon report of the head of the supervising or
examining department.
For a quasi-bank, any person of recognized competence in banking or finance
may be designed as receiver. Please take note— can you go directly to receivership and not go through
conservatorship or is it necessary to go through conservatorship?
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors, Is conservatorship a requisite for a receivership?
and exercise the general powers of a receiver under the Revised Rules of Court
but shall not, with the exception of administrative expenditures, pay or The Monetary Board finds that a bank or quasi-bank—
commit any act that will involve the transfer or disposition of any asset of the
institution: Provided, That the receiver may deposit or place the funds of the (a) is unable xxx what is the ground for conservatorship to become into
institution in non-speculative investments. The receiver shall determine as receivership? This is it right? It cannot continue in business without preventing
soon as possible, but not later than ninety (90) days from take over, whether probable loss to its depositors or creditors. That is for the conservator.
the institution may be rehabilitated or otherwise placed in such a condition so
that it may be permitted to resume business with safety to its depositors and Now, there are other grounds as well. We have unable to pay its liabilities as
creditors and the general public: Provided, That any determination for the they become due in the ordinary course of business: Provided, That this shall
resumption of business of the institution shall be subject to prior approval of not include inability to pay caused by extraordinary demands induced by
the Monetary Board. financial panic in the banking community.

If the receiver determines that the institution cannot be rehabilitated or Therefore, examining or before the BSP personnel examine the bank it can go
permitted to resume business in accordance with the next preceding directly to receivership. If it is determined that its continue inability to pay its
paragraph, the Monetary Board shall notify in writing the board of directors of liabilities as they become due in the ordinary course of business.
its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall: (b) has insufficient realizable assets, as determined by the Bangko Sentral, to
meet its liabilities; or
(1) file ex parte with the proper regional trial court, and without requirement
of prior notice or any other action, a petition for assistance in the liquidation (c) cannot continue in business without involving probable losses to its
of the institution pursuant to a liquidation plan adopted by the Philippine depositors or creditors; or
Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by the Monetary (d) has willfully violated a cease and desist order under Section 37 that has
Board. Upon acquiring jurisdiction, the court shall, upon motion by the become final, involving acts or transactions which amount to fraud or a
receiver after due notice, adjudicate disputed claims against the institution, dissipation of the assets of the institution; in which cases, the Monetary Board
assist the enforcement of individual liabilities of the stockholders, directors may summarily and without need for prior hearing forbid the institution from
and officers, and decide on other issues as may be material to implement the doing business in the Philippines and designate the Philippine Deposit
liquidation plan adopted. The receiver shall pay the cost of the proceedings Insurance Corporation as receiver of the banking institution.
from the assets of the institution.
Please take note of the definition— it is inability to pay its liabilities.
(2) convert the assets of the institutions to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such Let’s go to conservatorship. The inability is commenting.
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of the Please take note—conservatorship—the inability of the bank is to maintain
institution, and with the assistance of counsel as he may retain, institute such the condition of liquidity. When you reach receivership—the inability is to pay
actions as may be necessary to collect and recover accounts and assets of, or its liabilities.
defend any action against, the institution. The assets of an institution under
receivership or liquidation shall be deemed in custodia legis in the hands of So, if conservator, it is only to maintain this cash but in receivership I am
the receiver and shall, from the moment the institution was placed under such unable to pay my liabilities. So, that is why receivership.
receivership or liquidation, be exempt from any order of garnishment, levy,
attachment, or execution. Even letter D— has willfully violated a cease and desist order under Section
37.
The actions of the Monetary Board taken under this section or under Section
29 of this Act shall be final and executory, and may not be restrained or set Section 37 essentially pertains to those actions including unsound and unsafe
aside by the court except on petition for certiorari on the ground that the banking practices. If there is unsound and unsafe banking practices and the
action taken was in excess of jurisdiction or with such grave abuse of discretion MB issued a —cease and desist order. Stop using that because that is unsound
as to amount to lack or excess of jurisdiction. The petition for certiorari may and unsafe. If they still do that, evidently violated the cease and desist order,
only be filed by the stockholders of record representing the majority of the so the MB can actually order a receivership.
capital stock within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or conservatorship. Please take note— in which cases, in all A B C D cases the MB can summarily
or without prior hearing forbid the institution from doing business in the
THE AUTHORITY OF THE MONETARY OAD TO SUMMARILY AND WITHOUT Philippines and designate the Philippine Deposit Insurance Corporation as
NEED FOR PRIOR HEARING FORBID THE BANK OF QUASI-BANK FROM DOING receiver of the banking institution. So, the default receiver of a banking
BUSINESS IN THE PHILIPPINES AS PROVIDED ABOVE MAY ALSO BE EXERCISED institution is the PDIC or the Philippine Deposit Insurance Corporation.
OVER NON-STOCK SAVINGS AND LOANS ASSOCIATION, BASED ON THE SAME
APPLICABLE GROUNDS. Therefore, if you are under receivership you are considered closed bank.
Closed. You will be in receivership. The MB may forbid the institution from
FOR QUASI-BANKS AND NON-STOCK SAVINGS AND LOANS ASSOCIATION, ANY doing business in the Philippines.
PERSON OR RECOGNIZED COMPETENCE IN BANKING, CREDIT OR FINANCE
MAY BE DESIGNATED BY THE BANGKO SENTRAL AS RECIEVER.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 26


If in conservatorship you are still doing business. The one who manages is the Finish. Liquidation.
conservator. Now, if you’re under receivership —you are a CLOSED BANK. For
the reason that you can’t your debts. What will the receiver do?

For quasi-bank, any person of recognized competence in banking or finance The receiver shall—
may be designed as receiver.
(1) file ex parte with the proper regional trial court, and without requirement
For banks—the PDIC. For quasi bank— is any person. of prior notice or any other action, a petition for assistance in the liquidation
of the institution.
What will the receiver do?
This is what you call—Court Assisted Liquidation.
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors, The court will assist the liquidation. A liquidation plan shall be adopted by the
and exercise the general powers of a receiver under the Revised Rules of Philippine Deposit Insurance Corporation (it is the receiver when it is a bank
Court. institution).

What kind of proceeding is this, the receivership? If it is a quasi-bank, the liquidation plan shall be adopted by the Monetary
Is this a provisional remedy or a special proceeding? Board but this is upon the recommendation of the one appointed as a receiver.

with the exception of administrative expenditures, pay or commit any act that —because if it is a quasi-bank it is any person who can be a receiver.
will involve the transfer or disposition of any asset of the institution.
They will have a liquidation plan→ submit to the MB→ MB will adopt a
Please take note— under the Revised Rules of Court, it shall not pay, or liquidation plan.
commit any act that will involve the transfer or disposition of any asset of the
institution. Upon acquiring jurisdiction, the court shall, upon motion by the receiver after
due notice, adjudicate disputed claims against the institution, assist the
Under receivership—the receiver cannot transfer or dispose any assets of the enforcement of individual liabilities of the stockholders, directors and officers,
institution. He cannot sell it. Why? Because if he sells, you are under, what? and decide on other issues as may be material to implement the liquidation
LIQUIDATION. Remember your partnership. If you’re selling to pay to plan adopted. The receiver shall pay the cost of the proceedings from the
liabilities—you’re already liquidating. assets of the institution.

In the spectrum of remedies for banks you have— What happened in CAP? It asked to be declared in insolvency. If you have a
account there, you will be given notice that you have this particular period to
Conservatorship→ Receivership → Liquidation. file a claim. That is the notice that there is an existing plan when it shall be
paid. Just like that—that’s what will happen. That’s why it needs court
If receiver sells assets to pay the liability—that is not under receivership. That assistance.
is now in liquidation.
2) convert the assets of the institutions to money, dispose of the same to
Please take note of the difference. creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
The receiver shall not pay or commit any act that will involve the transfer or credit under the Civil Code of the Philippines.
disposition of any asset of the institution.
Now, because of this, your Credit Transactions may be asked in your Civil Law
Therefore, what is the work of the receiver? or in your Commercial Law. That is the nature of Credit Transaction.

The receiver can only do an ACT OF ADMINISTRATION. It cannot do an act of In the name of the institution, and with the assistance of counsel as he may
strict dominion. retain, institute such actions as may be necessary to collect and recover
accounts and assets of, or defend any action against, the institution.
Provided, That the receiver may deposit or place the funds of the institution in
non-speculative investments. The receiver shall determine as soon as possible, The assets of an institution under receivership or liquidation shall be deemed
but not later than ninety (90) days from take over. in custodia legis xxx be exempt from any order of garnishment, levy,
attachment, or execution.
If the conservator has 1 year to determine— the receiver has 90 days to take
over whether the institution may be rehabilitated or otherwise placed in such VERY IMPORTANT—the actions of the MB shall be FINAL & EXECUTORY, or
a condition so that it may be permitted to resume business with safety to its set aside by the court except on petition for certiorari on the ground that the
depositors and creditors and the general public: Provided, That any action taken was in excess of jurisdiction.
determination for the resumption of business of the institution shall be subject
to prior approval of the Monetary Board. Please take note— who is the party in interest.

There is a chance. When it comes to the receiver, if it is determined that there The petition for certiorari may only be filed by the stockholders of record
is a chance to resume business with safety to its depositors and creditors and representing the majority of the capital stock within ten (10) days from receipt
the general public—it will report to MB and the MB will approve the by the board of directors of the institution of the order directing receivership,
resumption of business. liquidation or conservatorship.

It must be remembered, if you are under receivership you are a closed bank. Why is it the stockholder who should file? Why note the Corporation itself?
So, you can open again. There are a lot of chances. There is a separate juridical personality. Why couldn’t the Corporation itself
file the petition for certiorari?
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding Remember if you are under the receivership—the power of the BOD is
paragraph, the Monetary Board shall notify in writing the board of directors of suspended.
its findings and direct the receiver to proceed with the liquidation of the The receiver takes over. It is not allowed that the receiver file the
institution. petition in court. I cannot (receiver) file then I contest myself.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 27


That is why this right is given to the stockholders of records
representing the majority – who have majority (50+1). Two days later, the Lucena bank filed suit in the Court of First Instance of
Quezon (Tayabas) to enjoin the enforcement of Resolution 122. The court
The designation of a conservator under Section 29 of this Act or the issued ex parte a writ of preliminary injunction to such effect.
appointment of a receiver under this section shall be vested exclusively with
the Monetary Board. Furthermore, the designation of a conservator is not a On the same day, the Court of First Instance of Manila per Judge
precondition to the designation of a receiver. Because there are other grounds Gatmaitan, enjoining enforcement of Resolution No. 928 of the Monetary
the receiver may be designated. Board, for having been issued without the prior hearing prescribed by
section 10 of the Rural Bank Act,.
FRIA (Financial Rehabilitation and Insolvency Act).
Upon the other hand, the Court of First Instance of Quezon Province,
Because if you are a corporation then you’re already bankrupt kana, you have dissolved its preliminary injunction against the enforcement of Resolution
these FRIA rights. But the law that is governing if you are not a bank or quasi 122 of the Monetary Board.
bank is the FRIA.
On the 31st of March 1962, invoking section 29 of Republic Act 265, the
Please take note— under section 5, what is excluded under this law term is— Central Bank, as liquidator, petitioned the Court of First Instance of Manila
debtor does not include banks, insurance companies, pre-need companies, for assistance in the liquidation of the Lucena bank. (Civil Case No. 50019).
and national and local government agencies or units. Upon motion, and after hearing the parties, Judge Arca issued on
interlocutory order the Lucena thru its duly authorized officers or
RA 10142 representatives to turn over to the Central Bank the physical possession of
all of said Rural Bank of Lucena's assets, properties and papers.
Section 5. Exclusions. - The term debtor does not include banks, insurance
companies, pre-need companies, and national and local government The Rural Bank of Lucena resorted to this Court on certiorari, claiming that
agencies or units. Judge Arca gravely abused his discretion in issuing the above order. It
contends that Section 29 of the Central Bank Act (R.A. 265) does not apply
For purposes of this section: in this case;

(a) Bank shall refer to any duly licensed bank or quasi-bank that is ISSUE: W/N Section 29 of Central Bank Act (R.A. 265) is applicable to Rural
potentially or actually subject to conservatorship, receivership or banks?
liquidation proceedings under the New Central Bank Act (Republic Act No.
7653) or successor legislation; HELD:

(b) Insurance company shall refer to those companies that are potentially Yes. If the Central Bank Act is the applicable law, the hearing requirement
or actually subject to insolvency proceedings under the Insurance Code is no longer necessary because it was the findings of the Monetary Board
(Presidential Decree No. 1460) or successor legislation; and (ex parte). Whereas, if it is the Rural Bank Act, the hearing is required.
Hence, in this case, there was no hearing the resolution of the MB for the
(c) Pre-need company shall refer to any corporation authorized/licensed to liquidation of the Rural Bank of Lucena, hence, there was an invalid
sell or offer to sell pre-need plans. resolution.

Therefore, the insolvency proceedings of banks is under this Central Bank Act So, according to the Supreme Court, the Rural Bank of Lucena is also
and not under the FRIA. It is specifically excepted or excluded under the covered by the Rural Bank Act. However, the Rural Bank Act and the
provisions of FRIA because the process in insolvency or receivership under the Central Bank Act they are not exclusive law. The other on is applicable it
FRIA and the Central Bank. does not exclude the application of the other. Because, the provision of the
Rural Bank act provides: The provisions of Republic Acts numbered 265
(Central Bank Act) and 337, in so far as applicable and not in conflict with
Rural Bank of Lucena v. Arca any provision of this Act, are hereby made a part of this Act.

Since the 2 laws are different, the SC held that, tt follows that on the
FACTS: assumption that under section 10 of the Rural Banks Act the Monetary
Board may not take over the management of a rural bank without giving
The Monetary Board issue a Resolution No. 928 finding the Rural Bank of the latter a hearing, i.e., an opportunity to rebut the charge that it has
Lucena (Lucena for short), through its officers, directors, and employees, contravened applicable laws, rules and regulations to the substantial
had committed acts substantially prejudicial to the Government, prejudice of the government, its depositors and creditors, such a previous
depositors, and creditors, and directing Lucena to reorganize its board of hearing is nowhere required by section 29 of the Central Bank Law.
directors; to refrain from granting or renewing loans, or accept new Manifestly, whether a rural bank's "continuance in business would involve
deposits, and not to issue drafts or make disbursements without the probable loss" to its clients or creditors and that it "cannot resume
approval of the supervising Central Bank examiners , and threatening business with safety," is a matter of appreciation and judgment that the
Lucena that its management would be taken over if the latter should fail to law entrusts primarily to the Monetary Board
comply with the resolution.
Sir: So, what is the Applicable law in this case?
The Rural Bank of Lucena, Inc. instituted, on June 22, 1961, in the Court of
First Instance of Manila (Civil Case No. 47345) an action to collect damages A: the Central Bank Act.
and to enjoin the Central Bank from enforcing Resolution No. 928.
Sir: what is the reason why there is no prior hearing?
While the litigation was still undecided the Monetary Board, having been
informed that the Director of its Department of Rural Banks recommended A: if the hearing is required, the danger that the law seeks to prevent that
the liquidation of Lucena. A Resolution No. 122 by Monetary Board issued is the dissipation of assets of the banking institution will be defeated
requesting the Solicitor General, to file a petition in the proper courts for because, it has to comply first. While if it is ex parte, without any delay
the liquidation of the affairs of Lucena. the MB may issue resolution for the liquidation.

Notice was given by Central Bank officials, on February 10, 1962 that the From the Full text:
Lucena bank was temporarily closed pending final decision of the Court,
and that business be transacted with Central Bank representatives only.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 28


We see no irreconcilable conflict between section 10 of Republic Act No. rural bank affected is insolvent, or that its continuance in business would
720 (Rural Banks Act) and section 29 of Republic Act No. 265 (Central involve probable loss to its depositors or creditors, and that it
Bank Act). The former provides in substance as follows: resume business with safety.
The director of the Department of the Central Bank designated
by the Monetary Board to supervise Rural Banks ... upon proof It follows that on the assumption that under section 10 of the Rural Banks
that the Rural Bank or its board of directors or officers are Act the Monetary Board may not take over the management of a rural bank
conducting and managing the affairs of the bank in a manner without giving the latter a hearing, i.e., an opportunity to rebut the charge
contrary to laws, orders, instructions, rules and regulations that it has contravened applicable laws, rules and regulations to the
promulgated by the Monetary Board or in any manner substantial prejudice of the government, its depositors and creditors, such
substantially prejudicial to the interests of the government, a previous hearing is nowhere required by section 29 of the Central Bank
depositors or creditors, to take over the management of such Law. Manifestly, whether a rural bank's "continuance in business would
bank when specifically authorized to do so by the Monetary involve probable loss" to its clients or creditors and that it "cannot resume
Board after due hearing until a new board of directors and business with safety," is a matter of appreciation and judgment that the
officers are elected and qualified. ... law entrusts primarily to the Monetary Board. Equally apparent is that if
the rural bank affected is in the condition previously adverted to, every
It is easily seen that what this section authorized is the take over of the minute of delay in securing its assets from dissipation inevitably increases
management by the Central Bank, until the governing body of the the danger to the creditors. For this reason, the statute has provided for a
offending Rural Bank is recognized with a view to assuring compliance by subsequent judicial review of the Monetary Board, in lieu of a previous
it with the laws and regulations. hearing.

Upon the other hand, section 29 of the Central Bank Act (R. A. 265) has in The Court said, if you de-delay the assets may be dissipated. The Court said,
view a much more drastic step, the liquidation of a rural bank by taking manifestly, whether a rural bank's continuance in business would involve
over its assets and converting them into money to pay off its creditors. probable loss to its clients or creditors, and that "it cannot resume business
Said section prescribes: with safety", is a matter of appreciation and judgment that the law entrusts
primarily to the Monetary Board. Equally apparent is that if the rural bank
SEC. 29. Proceedings upon insolvency. — Whenever, upon affected is in the condition previously adverted to, every minute of delay in
examination by the Superintendent or his examiners or agents securing its assets from dissipation inevitably increases the danger to the
into the condition of any banking institution, it shall be creditors. For this reason, the statute has provided for a subsequent judicial
disclosed that the condition of the same is one of insolvency, or review of the Monetary Board, in lieu of a previous hearing.
that its continuance in business would involve probable loss to
its depositors or creditors, it shall be the duty of the Central Bank v. CA
Superintendent forthwith, in writing, to inform the Monetary
Board of the facts, and the Board, upon finding the statement FACTS
of the Superintendent to be true, shall forthwith forbid the
institution to do business in the Philippines and shall take Here, based on examination reports submitted by the Supervision and
charge of its assets and proceeds according to law. Examination Sector (SES) of the Central Bank (CB) "that the financial
condition of Triumph Savings Bank (TSB) is one of insolvency and its
The Monetary Board shall thereupon determine within thirty continuance in business would involve probable loss to its depositors and
days whether the institution may be reorganized or otherwise creditors,".
placed in such a condition so that it may be permitted to resume
business with safety to its creditors and shall prescribe the Thus, the Monetary Board (MB) issued Resolution No. 596 ordering the
conditions under which such resumption of business shall take closure of TSB, forbidding it from doing business in the Philippines, placing
place. In such case the expenses and fee in the administration it under receivership, and appointing Ramon V. Tiaoqui as receiver. Tiaoqui
of the institution shall be determined by the Board and shall be assumed office on 3 June 1985.
paid to the Central Bank out of the assets of such banking
institution. On June 11, 1985, TSB filed a complaint with the RTC against Central Bank
At any time within ten days after the Monetary Board has taken and Ramon V. Tiaoqui to annul MB Resolution No. 596, with prayer for
charge of the assets of any banking institution, such institution injunction, challenging in the process the constitutionality of Sec. 29 of R.A.
may apply to the Court of First Instance for an order requiring 269, otherwise known as "The Central Bank Act," as amended, insofar as it
the Monetary Board to show cause why it should not be authorizes the Central Bank to take over a banking institution even if it is
enjoined from continuing such charge of its assets, and the not charged with violation of any law or regulation, much less found guilty
court may direct the Board to refrain from further proceedings thereof.
and to surrender charge of its assets.
On July 1, 1985, the trial court temporarily restrained petitioners from
If the Monetary Board shall determine that the banking implementing MB Resolution No. 596 "until further orders", thus
institution cannot resume business with safety to its creditors, prompting them to move for the quashal of the restraining order (TRO) on
it shall, by the Solicitor General, file a petition in the Court of the ground that it did not comply with said Sec. 29, i.e., that TSB failed to
First Instance reciting the proceedings which have been taken show convincing proof of arbitrariness and bad faith on the part of
and praying the assistance and supervision of the court in the petitioners;' and, that TSB failed to post the requisite bond in favor of
liquidation of the affairs of the same. The Superintendent shall Central Bank.
thereafter, upon order of the Monetary Board and under the
supervision of the court and with all convenient speed, convert Central Bank moved to dismiss on two grounds; 1. The complaint failed to
the assets of the banking institution to money. state a cause of action; 2. The Triumph Savings Bank was without capacity
to sue except through its appointed receiver.
Considering that section 27 of the Rural Banks law (R.A. No. 720)
expressly declares that — Now, concerning the first ground, Central Bank themselves admit that the
The provisions of Republic Acts numbered 265 (Central Bank Monetary Board resolution placing the Triumph Savings Bank under the
Act) and 337, in so far as applicable and not in conflict with receivership of the officials of the Central Bank was done without prior
any provision of this Act, are hereby made a part of this Act. hearing, that is, without first hearing the side of the bank. They further
admit that said resolution can be the subject of judicial review and may be
we find no room for questioning the applicability of section 29 of set aside should it be found that the same was issued with arbitrariness
Republic Act No. 265 (Central Bank Act) to rural banks organized under and in bad faith.
Republic Act 720, whenever the Monetary Board should find that the

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 29


CONTENTION This "close now and hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank's assets and
TSB: It allege that in the Banco Filipino case, wherein it was held that CB as a valid exercise of police power to protect the depositors, creditors,
violated the rule on administrative due process laid down in Ang Tibay vs. stockholders and the general public.
CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628)
which requires that prior notice and hearing be afforded to all parties in Admittedly, the mere filing of a case for receivership by the Central Bank
administrative proceedings. Since MB Resolution No. 596 was adopted can trigger a bank run and drain its assets in days or even hours leading to
without TSB being previously notified and heard, according to TSB, the insolvency even if the bank be actually solvent. The procedure prescribed
same is void for want of due process; consequently, the bank's in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the
management should be restored to its board of directors and officers. depositors, creditors and stockholders, the bank itself, and the general
public, and the summary closure pales in comparison to the protection
Central Bank: It asserted that it is the essence of Sec. 29 of R.A. 265 that afforded public interest. At any rate, the bank is given full opportunity to
prior notice and hearing in cases involving bank closures should not be prove arbitrariness and bad faith in placing the bank under receivership, in
required since in all probability a hearing would not only cause which event, the resolution may be properly nullified and the receivership
unnecessary delay but also provide bank "insiders" and stockholders the lifted as the trial court may determine.
opportunity to further dissipate the bank's resources, create liabilities for
the bank up to the insured amount of P40,000.00, and even destroy The heavy reliance of respondents on the Banco Filipino case is misplaced
evidence of fraud or irregularity in the bank's operations to the prejudice in view of factual circumstances therein which are not attendant in the
of its depositors and creditors. CB further argue that the legislative intent present case. We ruled in Banco Filipino that the closure of the bank was
of Sec. 29 is to repose in the Monetary Board exclusive power to determine arbitrary and attendant with grave abuse of discretion, not because of the
the existence of statutory grounds for the closure and liquidation of banks, absence of prior notice and hearing, but that the Monetary Board had no
having the required expertise and specialized competence to do so. sufficient basis to arrive at a sound conclusion of insolvency to justify the
closure. In other words, the arbitrariness, bad faith and abuse of discretion
ISSUE were determined only after the bank was placed under conservatorship
and evidence thereon was received by the trial court. As this Court found
Whether or not a Monetary Board can place a rural bank under in that case, the Valenzuela, Aurellano and Tiaoqui Reports contained
receivership even without prior notice. unfounded assumptions and deductions which did not reflect the true
financial condition of the bank. For instance, the subtraction of an
HELD uncertain amount as valuation reserve from the assets of the bank would
merely result in its net worth or the unimpaired capital and surplus; it did
Yes. Under Sec. 29 of R.A. 265, the Central Bank, through the Monetary not reflect the total financial condition of Banco Filipino.
Board, is vested with exclusive authority to assess, evaluate and determine
the condition of any bank, and finding such condition to be one of In sum, appeal to procedural due process cannot just outweigh the evil
insolvency, or that its continuance in business would involve probable loss sought to be prevented; hence, the Court rule that Sec. 29 of R.A. 265 is a
to its depositors or creditors, forbid the bank or non-bank financial sound legislation promulgated in accordance with the Constitution in the
institution to do business in the Philippines; and shall designate an official exercise of police power of the state. Consequently, the absence of notice
of the CB or other competent person as receiver to immediately take and hearing is not a valid ground to annul a Monetary Board resolution
charge of its assets and liabilities. The fourth paragraph, which was then in placing a bank under receivership. The absence of prior notice and hearing
effect at the time the action was commenced, allows the filing of a case to cannot be deemed acts of arbitrariness and bad faith. Thus, an MB
set aside the actions of the Monetary Board which are tainted with resolution placing a bank under receivership, or conservatorship for that
arbitrariness and bad faith. matter, may only be annulled after a determination has been made by the
trial court that its issuance was tainted with arbitrariness and bad faith.
Contrary to the notion of TSB, Sec. 29 does not contemplate prior notice Until such determination is made, the status quo shall be maintained, i.e.,
and hearing before a bank may be directed to stop operations and placed the bank shall continue to be under receivership.
under receivership. When par. 4 (now par. 5, as amended by E.O. 289)
provides for the filing of a case within ten (10) days after the receiver takes You have this concept of “close now and hear later” schemes is grounded on
charge of the assets of the bank, it is unmistakable that the assailed actions practical and legal considerations to prevent unwarranted dissipation of the
should precede the filing of the case. Plainly, the legislature could not have bank’s assets and as a valid exercise of police power to protect the depositors,
intended to authorize "no prior notice and hearing" in the closure of the creditors stockholders and the general public.
bank and at the same time allow a suit to annul it on the basis of absence
thereof. Mind you that this concept is being asked in bar exams. Same scenario,
without prior hearing—is it proper for the MB to close without prior hearing?
In the early case of Rural Bank of Lucena, Inc. v. Arca, We held that a So, that was the question of 2007 bar under your commercial law. This is a
previous hearing is nowhere required in Sec. 29 nor does the constitutional very important concept.
requirement of due process demand that the correctness of the Monetary
Board's resolution to stop operation and proceed to liquidation be first Requisites for Receivership
adjudged before making the resolution effective. It is enough that a
subsequent judicial review be provided. 1. Report to the head of the supervising department involving the
bank;
Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not
require a previous hearing before the Monetary Board can implement its 2. Finding of the Monetary Board of the existence of any of the
resolution closing a bank, since its action is subject to judicial scrutiny as grounds for receivership;
provided by law.
3. Decision of the Monetary Board to forbid the institution from doing
It may be emphasized that Sec. 29 does not altogether divest a bank or a business; and
non-bank financial institution placed under receivership of the opportunity
to be heard and present evidence on arbitrariness and bad faith because 4. Notice in writing to the Board of Directors.
within ten (10) days from the date the receiver takes charge of the assets
of the bank, resort to judicial review may be had by filing an appropriate
pleading with the court. Respondent TSB did in fact avail of this remedy by
filing a complaint with the RTC of Quezon City on the 8th day following the
takeover by the receiver of the bank's assets on 3 June 1985.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 30


The primary objective of the Bangko Sentral is to maintain price stability
December 5, 2018 conducive to a balanced and sustainable growth of the economy. It shall also
promote and maintain monetary stability and the convertibility of the peso.

THE BANGKO SENTRAL SHALL PROMOTE FINANCIAL STABILITY AND CLOSEY


ORIGINAL PROVISION WORK WITH OTHER RELEVANT BODIES INCLUDING, BUT NOT LIMITED TO,
THE SECURITIES AND EXCHANGE COMMISSION, THE INSURANCE
SEC. 2. Creation of the Bangko Sentral. _ There is hereby established an COMMISSION, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AND
independent central monetary authority, which shall be a body corporate THE NATIONAL GOVERNMENT.
known as the Bangko Sentral ng Pilipinas, hereafter referred to as the
Bangko Sentral. THE BANGKO SENTRAL SHALL OVERSE THE PAYMENT AND SETTLEMENT
SYSTEMS IN THE PHILIPPINES, INCLUDING CRITICAL FINANCIAL MARKET
The capital of the Bangko Sentral shall be Fifty billion pesos INFRASTRUCTURES, IN ORDER TO PROMOTE SOUND AND PRUDENT
(P50,000,000,000), to be fully subscribed by the Government of the PRACTICES CONSISTENT WITH THE MAINTENANCE OF FINANCIAL STABILITY.
Republic, hereafter referred to as the Government, Ten billion pesos
(P10,000,000,000) of which shall be fully paid for by the Government upon IN THE ATTAINMENT OF ITS OBJECTIVES, THE BANGKO SENTRAL SHALL
the effectivity of this Act and the balance to be paid for within a period of PROMOTE BROAD AND COVENIENT ACCESS TO HIGH QUALITY FINANCIAL
two (2) years from the effectivity of this Act in such manner and form as SERVICES AND CONSIDERTHE INTEREST OF THE GENERAL PUBLIC.
the Government, through the Secretary of Finance and the Secretary of
Budget and Management, may thereafter determine. The coverage before was only for banks and quasi-banks. But now, it includes
money service businesses, credit granting businesses, and payment system
PROPOSED AMENDMENT operations (ex. pay later). The regulatory and examination powers of Bangko
Sentral has been broadened.
SEC. 2. Creation of the Bangko Sentral. _ There is hereby established an
independent central monetary authority, which shall be a body corporate The reason of which is from 1993 until now, there has been numerous changes
known as the Bangko Sentral ng Pilipinas, hereafter referred to as the for the business model of banking. This amendment is geared to address the
Bangko Sentral. issues of the disruptions.

The capital of the Bangko Sentral shall be TWO HUNDRED billion pesos Section 4. Place of Business. – The Bangko Sentral shall have its principal place
(P200,000,000,000), to be fully subscribed by the Government of the of business in Metro Manila, but may maintain branches, agencies and
Republic, hereafter referred to as the Government, THE UNPAID correspondents in such other places as the proper conduct of its business may
SUBSCRIPTION shall be fully paid for by the Government IN CASH AND/OR require.
GOVERNMENT SECURITIES UPPON EFFECTIVITY OF THIS ACT.
THEREAFTER THE ADEQUACY OF THE CAPITALIZATION SHALL BE SUBJECT Section 5. Corporate Powers. – The Bangko Sentral is hereby authorized to
TO REVIEW EVERY FIVE (5) YEARS AND ADJUSTED UPON JOINT adopt, alter, and use a corporate seal which shall be judicially noticed; to enter
RECOMMENDATION BY THE SECRETARY OF FINANCE, THE SECRETARY OF into contracts; to lease or own real and personal property, and to sell or
BUDGET AND MANAGEMENT AND THE MONETARY BOARD. THE otherwise dispose of the same; to sue and be sued; and otherwise to do and
PAYMENT OF ANY UNPAID SUBSCRIPTION AND/OR INCREASE IN perform any and all things that may be necessary or proper to carry out the
CAPITALIZATION SHALL BE AUTOMATICALLY APPROPRIATED IN THE purposes of this Act. The Bangko Sentral may acquire and hold such assets and
ANNUAL GENERAL APPROPRIATIONS ACT. incur such liabilities in connection with its operations authorized by the
provisions of this Act, or as are essential to the proper conduct of such
The capital is now 200 billion pesos at the ratification. The sources for the operations. The Bangko Sentral may compromise, condone or release, in
subscription of the 200 billion will be the detention of the dividends. In the whole or in part, any claim of or settled liability to the Bangko Sentral,
Senate Bill, it has to be taken from the taxes. The bicameral says, let’s not take regardless of the amount involved, under such terms and conditions as may
the budget from the Government. So let’s go with the undeclared or detained be prescribed by the Monetary Board to protect the interests of the Bangko
dividends. That’s what we will use to increase the capital. Sentral.

OLD PROVISION
Section. 3. Responsibility and Primary Objective. – The Bangko Sentral shall ARTICLE II
provide policy directions in the areas of money, banking, and credit. It shall THE MONETARY BOARD
have supervision over the operations of banks and exercise such regulatory
powers as provided in this Act and other pertinent laws over the operations of
finance companies and non-bank financial institutions performing quasi- Section. 6. Composition of the Monetary Board. – The powers and functions
banking functions, hereafter referred to as quasibanks, and institutions of the Bangko Sentral shall be exercised by the Bangko Sentral Monetary
performing similar functions. The primary objective of the Bangko Sentral is to Board, hereafter referred to as the Monetary Board, composed of seven (7)
maintain price stability conducive to a balanced and sustainable growth of the members appointed by the President of the Philippines for a term of six (6)
economy. It shall also promote and maintain monetary stability and the years.
convertibility of the peso.
The seven (7) members are:
PROPOSED AMENDMENT
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the
Section 3. Responsibility and Primary Objective. – The Bangko Sentral shall Monetary Board. The Governor of the Bangko Sentral shall be head of a
provide policy directions in the areas of money, banking, and credit. It shall department and his appointment shall be subject to confirmation by the
have supervision over the operations of banks and exercise such regulatory Commission on Appointments. Whenever the Governor is unable to attend a
AND EXAMINATION powers as provided in this Act and other pertinent laws meeting of the Board, he shall designate a Deputy Governor to act as his
over the QUASI-BANKING operations of non-bank financial institutions. AS alternate: Provided, That in such event, the Monetary Board shall designate
MAY BE DETERMINED BY THE MONETARY BOARD, IT SHALL LIKEWISE one of its members as acting Chairman;
EXERCISE REGULATORY AND EXAMINATION POWERS OVER MONEY SERVICE
BUSINESSES, CREDIT GRANTING BUSINESSES, AND PAYMENT SYSTEM (b) a member of the Cabinet to be designated by the President of the
OPERATORS. THE MONETARY BOARD IS HEREBY EMPOWERED TO Philippines. Whenever the designated Cabinet Member is unable to attend a
AUTHORIZE ENTITIES OR PERSONS TO ENGAGE IN MONETARY SERVICE meeting of the Board, he shall designate an Undersecretary in his Department
BUSINESSES. to attend as his alternate; and (c) five (5) members who shall come from the

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 31


private sector, all of whom shall serve full-time: Provided, however, That of SEC. 11. Meetings. _ The Monetary Board shall meet at least once a week. The
the members first appointed under the provisions of this subsection, three (3) Board may be called to a meeting by the Governor of the Bangko Sentral or by
shall have a term of six (6) years, and the other two (2), three (3) years. two (2) other members of the Board.

No member of the Monetary Board may be reappointed more than once. The presence of four (4) members shall constitute a quorum: Provided, That
in all cases the Governor or his duly designated alternate shall be among the
Section. 7. Vacancies. – Any vacancy in the Monetary Board created by the four (4).
death, resignation, or removal of any member shall be filled by the
appointment of a new member to complete the unexpired period of the term Unless otherwise provided in this Act, all decisions of the Monetary Board shall
of the member concerned. require the concurrence of at least four (4) members.

Section 8. Qualifications. – The members of the Monetary Board must be The Bangko Sentral shall maintain and preserve a complete record of the
natural-born citizens of the Philippines, at least thirty-five (35) years of age, proceedings and deliberations of the Monetary Board, including the tapes and
with the exception of the Governor who should at least be forty (40) years of transcripts of the stenographic notes, either in their original form or in
age, of good moral character, of unquestionable integrity, of known probity microfilm.
and patriotism, and with recognized competence in social and economic
disciplines. THE MEETINGS OF THE MONETARY BOARD MAY BE CONDUCTED THROUGH
MODERN TECHNOLOGIES SUCH AS, BUT NOT LIMITED TO,
Section 9. Disqualifications. – In addition to the disqualifications imposed by TELECONFERENCING AND VIDEOCONFERENCING.
Republic Act No. 6713, a member of the Monetary Board is disqualified from
being a director, officer, employee, consultant, lawyer, agent or stockholder This is an adaptation of the amendment in the Revised Corporation Code
of any bank, quasi-bank or any other institution which is subject to supervision (RCC). In the revised corporation code, there is also voting in absentia as one
or examination by the Bangko Sentral, in which case such member shall resign of the changes. Before, teleconferencing is actually allowed but there is a
from, and divest himself of any and all interests in such institution before separate rule sanctioned by the SEC. But now, it is inserted as a provision in
assumption of office as member of the Monetary Board. the RCC and is adopted by the Monetary Board.

The members of the Monetary Board coming from the private sector shall not Section. 12. Attendance of the Deputy Governors. – The Deputy Governors
hold any other public office or public employment during their tenure. may attend the meetings of the Monetary Board with the right to be heard.

No person shall be a member of the Monetary Board if he has been connected Section. 13. Salary. – The salary of the Governor and the members of the
directly with any multilateral banking or financial institution or has a Monetary Board from the private sector shall be fixed by the President of the
substantial interest in any private bank in the Philippines, within one (1) year Philippines at a sum commensurate to the importance and responsibility
prior to his appointment; likewise, no member of the Monetary Board shall be attached to the position.
employed in any such institution within two (2) years after the expiration of
his term except when he serves as an official representative of the Philippine Section 14. Withdrawal of Persons Having a Personal Interest. – In addition
Government to such institution. to the requirements of Republic Act No. 6713, any member of the Monetary
Board with personal or pecuniary interest in any matter in the agenda of the
Section 10. Removal. – The President may remove any member of the Monetary Board shall disclose his interest to the Board and shall retire from
Monetary Board for any of the following reasons: the meeting when the matter is taken up. The decision taken on the matter
shall be made public. The minutes shall reflect the disclosure made and the
(a) If the member is subsequently disqualified under the provisions of Section retirement of the member concerned from the meeting.
8 of this Act; or
(b) If he is physically or mentally incapacitated that he cannot properly
Section 15. Exercise of Authority. – In the exercise of its authority, the
discharge his duties and responsibilities and such incapacity has lasted for
Monetary Board shall:
more than six (6) months; or
(c) If the member is guilty of acts or operations which are of fraudulent or
(a) issue rules and regulations it considers necessary for the effective
illegal character or which are manifestly opposed to the aims and interests of
discharge of the responsibilities and exercise of the powers vested upon
the Bangko Sentral; or (d) If the member no longer possesses the qualifications
the Monetary Board and the Bangko Sentral. The rules and regulations
specified in Section 8 of this Act.
issued shall be reported to the President and the Congress within fifteen
(15) days from the date of their issuance;
ORIGINAL PROVISION
(b) direct the management, operations, and administration of the Bangko
Section. 11. Meetings. – The Monetary Board shall meet at least once a week. Sentral, reorganize its personnel, and issue such rules and regulations as it
The Board may be called to a meeting by the Governor of the Bangko Sentral may deem necessary or convenient for this purpose. The legal units of the
or by two (2) other members of the Board. Bangko Sentral shall be under the exclusive supervision and control of the
Monetary Board;
The presence of four (4) members shall constitute a quorum: Provided, That
in all cases the Governor or his duly designated alternate shall be among the (c) establish a human resource management system which shall govern the
four (4). selection, hiring, appointment, transfer, promotion, or dismissal of all
personnel. Such system shall aim to establish professionalism and
Unless otherwise provided in this Act, all decisions of the Monetary Board shall excellence at all levels of the Bangko Sentral in accordance with sound
require the concurrence of at least four (4) members. principles of management.

The Bangko Sentral shall maintain and preserve a complete record of the A compensation structure, based on job evaluation studies and wage
proceedings and deliberations of the Monetary Board, including the tapes and surveys and subject to the Board's approval, shall be instituted as an
transcripts of the stenographic notes, either in their original form or in integral component of the Bangko Sentral's human resource development
microfilm. program: Provided, That the Monetary Board shall make its own system
conform as closely as possible with the principles provided for under
Republic Act No. 6758: Provided, however, That compensation and wage
PROPOSED AMENDMENT structure of employees whose positions fall under salary grade 19 and
below shall be in accordance with the rates prescribed under Republic Act
No. 6758.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 32


On the recommendation of the Governor, appoint, fix the remunerations DUTIES AND EXERCISE OF THEIR POWERS EXCEPT FOR THOSE ACTIONS
and other emoluments, and remove personnel of the Bangko Sentral, AND OMISSIONS DONE IN EVIDENT BAD FAITH OR WITH GROSS
subject to pertinent civil service laws: Provided, That the Monetary Board NEGLIGENCE. UNLESS THE ACTIONS OR OMISSIONS OF THE BANGKO
shall have exclusive and final authority to promote, transfer, assign, or SENTRAL, MEMBERS OF THE MONETARY BOARD AND ITS OTHER
reassign personnel of the Bangko Sentral and these personnel actions are PERSONNEL ARE FINALLY ADJUDGED TO BE IN WILLFUL VIOLATION OF
deemed made in the interest of the service and not disciplinary: Provided, THIS ACT, PERFORMED IN EVIDENT BAD FAITH OR WITH GROSS
further, That the Monetary Board may delegate such authority to the NEGLIGENCE, THEY ARE HELD FREE AND HARMLESS TO THE FULEST
Governor under such guidelines as it may determine. EXTENT PERMITTED BY LAW FROM ANY LIABILITY, AND THEY SHALL BE
INDEMNIFIED FOR ANY AND ALL LIABLITIES, LOSSES, CLAIMS, DEMANDS,
(d) adopt an annual budget for and authorize such expenditures by the DAMAGES, DEFICIENCIES, COSTS AND EXPENSES OF WHATSOEVER KIND
Bangko Sentral as are in the interest of the effective administration and AND NATURE THAT MAY ARISE IN CONNECTION WITH THE EXERCISE OF
operations of the Bangko Sentral in accordance with applicable laws and THEIR POWERS AND PERFORMANCE OF THEIR DUTIES AND FUNCTIONS.
regulations; and
So, in your Admin. Law, the strike-out ones, that’s gone.
(e) indemnify its members and other officials of the Bangko Sentral,
including personnel of the departments performing supervision and ARTICLE III
examination functions against all costs and expenses reasonably incurred The Governor and Deputy Governors
by such persons in connection with any civil or criminal action, suit or of the Bangko Sentral
proceedings to which he may be, or is, made a party by reason of the
performance of his functions or duties, unless he is finally adjudged in such Section. 17. Powers and Duties of the Governor. _ The Governor shall be the
action or proceeding to be liable for negligence or misconduct. WILLFULL chief executive officer of the Bangko Sentral. His powers and duties shall be
VIOLATION OF THIS ACT, PERFORMED IN EVIDENT BAD FAITH OR WITH to:
GROSS NEGLIGENCE.
(a) prepare the agenda for the meetings of the Monetary Board and to submit
In the event of a settlement or compromise, indemnification shall be for the consideration of the Board the policies and measures which he believes
provided only in connection with such matters covered by the settlement to be necessary to carry out the purposes and provisions of this Act;
as to which the Bangko Sentral is advised by external counsel that the
person to be indemnified did not commit any negligence or misconduct. (b) execute and administer the policies and measures approved by the
WILLFULL VIOLATION OF THIS ACT, PERFORMED IN EVIDENT BAD FAITH Monetary Board;
OR WITH GROSS NEGLIGENCE.
(c) direct and supervise the operations and internal administration of the
The cost and expenses incurred in defending the aforementioned action, Bangko Sentral. The Governor may delegate certain of his administrative
suit or proceeding may be paid by the Bangko Sentral in advance of the responsibilities to other officers or may assign specific tasks or responsibilities
final disposition of such action, suit or proceeding upon receipt of an to any fulltime member of the Monetary Board without additional
undertaking by or on behalf of the member, officer, or employee to repay remuneration or allowance whenever he may deem fit or subject to such rules
the amount advanced should it ultimately be determined by the Monetary and regulations as the Monetary Board may prescribe;
Board that he is not entitled to be indemnified as provided in this
subsection. (d) appoint and fix the remunerations and other emoluments of personnel
below the rank of a department head in accordance with the position and
Before, even simple negligence could make them liable, but now it requires compensation plans approved by the Monetary Board, as well as to impose
one to be with gross negligence and evident bad faith, and willful violation. disciplinary measures upon personnel of the Bangko Sentral, subject to the
This amendment would actually help the officers in performing their job provisions of Section 15(c) of this Act: Provided, That removal of personnel
because this will afford more protection for them. shall be with the approval of the Monetary Board;

SEC. 16. Responsibility. _ THE GENERAL RULE AND THE EXCEPTION (e) render opinions, decisions, or rulings, which shall be final and executory
THEREFROM ON THE LIABILITY OF PUBLIC OFFICERS AS PROVIDED IN until reversed or modified by the Monetary Board, on matters regarding
SECTIONS 38 AND 39 OF CHAPTER 9, BOOK 1 OF THE REVISED application or enforcement of laws pertaining to institutions supervised by the
ADMINISTRATIVE CODE OF 1987 SHALL APPLYTO THE members of the Bangko Sentral and laws pertaining to quasi-banks, as well as regulations,
Monetary Board, officials, examiners, and employees AND OTHER policies or instructions issued by the Monetary Board, and the implementation
PERSONNEL of the Bangko Sentral who willfully violate this Act or who are thereof; and
guilty of negligence, abuses or acts of malfeasance or misfeasance or fail
to exercise extraordinary diligence in the performance of his duties shall (f) exercise such other powers as may be vested in him by the Monetary Board.
be held liable for any loss or injury suffered by the Bangko Sentral or other
banking institutions as a result of such violation, negligence, abuse,
malfeasance, misfeasance or failure to exercise extraordinary diligence.
Section. 18. Representation of the Monetary Board and the Bangko Sentral.
– The Governor of the Bangko Sentral shall be the principal representative of
Similar responsibility shall apply to members OF THE MONETARY BOARD the Monetary Board and of the Bangko Sentral and, in such capacity and in
officers, and employees AND OTHER PERSONNEL of the Bangko Sentral accordance with the instructions of the Monetary Board, he shall be
for: (1) the disclosure of any information of a confidential nature, or any empowered to:
information on the discussions or resolutions of the Monetary Board, or
about the confidential operations of the Bangko Sentral, unless the (a) represent the Monetary Board and the Bangko Sentral in all dealings with
disclosure is in connection with the performance of official functions with other offices, agencies and instrumentalities of the Government and all other
the Bangko Sentral, or is with prior authorization of the Monetary Board or persons or entities, public or private, whether domestic, foreign or
the Governor; or (2) the use of such information for personal gain or to the international;
detriment of the Government, the Bangko Sentral or third parties:
Provided, however, That any data or information required to be submitted (b) sign contracts entered into by the Bangko Sentral, notes and securities
to the President and/or the Congress, or to be published under the
issued by the Bangko Sentral, all reports, balance sheets, profit and loss
provisions of this Act shall not be considered confidential. statements, correspondence and other documents of the Bangko Sentral. The
signature of the Governor may be in facsimile whenever appropriate;
THE ABOVE NOTWITHSTANDING, MEMBERS OF THE MONETARY BOARD
AND OTHER PERSONNEL OF THE BANGKO SENTRAL SHALL NOT BE (c) represent the Bangko Sentral, either personally or through counsel,
SUBJECTED TO ANY ACTION, CLAIM OR DEMAND IN CONNECTION WITH including private counsel, as may be authorized by the Monetary Board, in any
ANY ACT DONE OR OMITTED BY THEM IN THE PERFORMANCE OF THEIR legal proceedings, action or specialized legal studies; and

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 33


INCLUDING government offices and instrumentalities, or government-owned
(d) delegate his power to represent the Bangko Sentral, as provided in or controlled corporations, any data which it may, FOR STATISTICAL AND
subsections (a), (b) and (c) of this section, to other officers upon his own POLICY DEVELOPMENT PURPORSES require for IN RELATION TO the proper
responsibility: Provided, however, That in order to preserve the integrity and discharge of its functions and responsibilities, PROVIDED, THAT
the prestige of his office, the Governor of the Bangko Sentral may choose not DISAGGREGATED DATA GATHERED ARE SUBJECT TO PREVAILING
to participate in preliminary discussions with any multilateral banking or CONFIDENTIALITY LAWS. The Bangko Sentral through the Governor or in his
financial institution on any negotiations for the Government within or outside absence, a duly authorized representative shall have the power to issue a
the Philippines. During the negotiations, he may instead be represented by a subpoena for the production of the books and records for the aforesaid
permanent negotiator. purpose. Those who refuse the subpoena without justifiable cause, or who
refuse to supply the bank BANGKO SENTRAL with data requested or required,
shall be subject to punishment for contempt in accordance with the provisions
of the Rules of Court.
Section 19. Authority of the Governor in Emergencies. - In case of emergencies
where time is sufficient to call a meeting of the Monetary Board, the Governor
of the Bangko Sentral, with the concurrence of two (2) other members of the Data on individualS AND firms, other than banks, gathered by the
Monetary Board, may decide any matter or take any action within the Department of Economic Research and other departments or units of the
authority of the Board. Bangko Sentral shall not be made available to any person or entity outside of
the Bangko Sentral whether public or private except under order of the court
or under such conditions as may be prescribed by the Monetary Board:
The Governor shall submit a report to the President and Congress within Provided, however, That the collective data on firms may be released to
seventy-two (72) hours after the action has been taken. interested persons or entities: Provided, finally, That in the case of data on
banks, the provisions of Section 27 of this Act shall apply.
At the soonest possible time, the Governor shall call a meeting of the
Monetary Board to submit his action for ratification.
The Bangko Sentral now has the power to REQUIRE (not just request) so
mandatory. The difference is that if you request, it can be denied. If require,
you have to comply.

Section 20. Outside Interests of the Governor and the Full-time Members of Before, it is just the government offices and instrumentalities. NOW, it is from
the Board. - The Governor of the Bangko Sentral and the full-time members of any person or entity including government offices, instrumentalities, GOCC’s.
the Board shall limit their professional activities to those pertaining directly to Provided, the data gathered is subject to the existing confidentiality laws.
their positions with the Bangko Sentral. Accordingly, they may not accept any
other employment, whether public or private, remunerated or ad honorem, The banks are required to publish information regarding the banking industry.
with the exception of positions in eleemosynary, civic, cultural or religious But they cannot publish data which are disaggregated. (Ex. BDO is like this, BPI
organizations or whenever, by designation of the President, the Governor or is like that) what information can they publish is only those of the banking
the full-time member is tasked to represent the interest of the Government or industry as a whole.
other government agencies in matters connected with or affecting the
economy or the financial system of the country. Section 24. Training of Technical Personnel. - The Bangko Sentral shall
promote and sponsor the training of technical personnel in the field of
money and banking. Toward this end, the Bangko Sentral is hereby
Section 21. Deputy Governors. - The Governor of the Bangko Sentral, with authorized to defray the costs of study, at home or abroad, of qualified
the approval of the Monetary Board, shall appoint not more than three (3) employees of the Bangko Sentral, of promising university graduates or of
FIVE (5) Deputy Governors who shall perform duties as may be assigned to any other qualified persons who shall be determined by proper
them by the Governor and the Board. competitive examinations. The Monetary Board shall prescribe rules and
regulations to govern the training program of the Bangko Sentral.

In the absence of the Governor, a Deputy Governor designated by


the Governor shall act as chief executive of the Bangko Sentral and shall Section 25. Supervision and Examination. - The Bangko Sentral shall have
exercise the powers and perform the duties of the Governor. Whenever supervision over, and conduct periodic REGULAR or special examinations
the Government GOVERNOR is unable to attend meetings of government of, banking institutions and quasi-banks, including their subsidiaries and
boards or councils in which he is an ex officio member pursuant to affiliates engaged in allied activities.
provisions of special laws, a Deputy Governor as may be designated by the
Governor shall be vested with authority to participate and exercise the For purposes of this section, a subsidiary means a corporation more
right to vote in such meetings. than fifty percent (50%) of the voting stock of which is DIRECTLY OR
INDIRECTLY owned, CONTROLLED OR HELD WITH POWER TO VOTE by a
Take note— If before, the Deputy Governors are not more than 3, now not bank or quasi-bank and an affiliate means a corporation the voting stock
more than 5. of which, to the extent of fifty percent (50%) or less, is owned by a bank or
quasi-bank or which is related or linked DIRECTLY OR INDIRECTLY to such
ARTICLE IV institution or intermediary through common stockholders or such other
Operations of the Bangko Sentral factors as may be determined by the Monetary Board.

THE BANGKO SENTRAL SHALL HAVE REGULATORY AUTHORITY OVER,


Section 22. Research and Statistics. - The Bangko Sentral shall prepare data AND CONDUCT REGULAR OR SPECIAL EXAMINATIONS OF, ENTITIES
and conduct economic research for the guidance of the Monetary Board in the WHICH UNDER THIS ACT OR BY SPECIAL LAWS ARE SUBJECT TO ITS
formulation and implementation of its policies. Such data shall include, among JURISDICTION.
others, forecasts of the balance of payments of the Philippines, statistics on
the monthly movement of the monetary aggregates and of prices and other THE BANGKO SENTRAL SHALL ALSO HAVE THE POWER TO OBTAIN
statistical series and economic studies useful for the formulation and analysis INFORMATION FROM THE PARENT OR OTHER AFFILIATE COMPANIES OF
of monetary, banking, credit and exchange policies. SUPERVISED INSTITUTIONS AND EXAMINE TRANSACTIONS BETWEEN A
SUPERVISED INSTITUTION AND SAID ENTITIES, FOR SUPERVISORY
Section 23. Authority to Obtain Data and Information. - The Bangko Sentral PURPOSES.
shall have the authority to request REQUIRE from ANY PERSON OR ENTITY,

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 34


A PARENT COMPANY MEANS A CORPORATION WHICH OWNS OR HOLDS stockholders as may be indicated in their integrity, reputation and financial
WITH POWER TO VOTE DIRECTLY OR INDIRECTLY THE VOITNG STOCK OF capacity. Without Bangko Sentral approval, no such transfer or acquisition
A SUPERVISED INSTITUTION OF THE BANGKO SENTRAL SUFFICIENT TO shall have legal effect nor shall the same be recognized in the books of the
CONROL ITS MANAGEMENT AND OPERATIONS, SUBJECT TO THE institution or by any government agency, and the transferor-stockholders shall
GUIDELINES ISSUED BY THE MONETARY BOARD. remain accountable and responsible therefor. Transfer of actual control or
management of the institution to the new stockholders or their
representatives prior to the Bangko Sentral approval shall make the transferor,
AS USED IN THGIS SECTION AND SECTION 25-A, AND SUBJET TO THE
the transferee and any person responsible therefor liable under Sections 36
GUIDELINES ISSUED BY THE MONETARY BOARD, CONTROL EXISTS WHEN
and 37 of this Act. Notwithstanding any provision of the law to the contrary,
THE PARENT COMPANY OWNS DIRECTLY OR INDIRECTLY MORE THAN
the Bangko Sentral may share with the Philippine Deposit Insurance
ONE HALF OF THE VOTING STOCK OF A SUPERVISED INSTITUTION.
Corporation any information that the Bangko Sentral may obtain pertaining to
CONTROL ALSO EXISTS EVEN WHEN THE PARENT COMPANY OWNS ONE
transfer or acquisition of shares or series of transfers or acquisition of shares
HALF OR LESS OF THE VOTING STOCK OF THE SUPERVISED INSTITUTION
in banks and quasi-banks.
WHEN: (1) THERE IS POWER OVER MORE THAN ONE HALF OF THE VOTING
RIGHTS BY PROXY OR BY VIRTUE OF AN AGREEMENT WITH OTHER
INVESTORS WHICH THEREBY ENABLES THE PARENT COMPANY TO CAST Transfers or acquisitions, or a series thereof, of at least ten percent (10%) of
THE MAJORITY OF VOTES AT MEETINGS OF THE STOCKHOLDERS OF THE the voting shares in banks or quasi-banks shall require the prior approval of
SUPERVISED INSTITUTION OR TO ELECT THE MAJORITY OF MEMBERS OF the Bangko Sentral.
THE BOARD OF DIRECTORS OF THE SUPERVISED INSTITUTION, OR (2)
THERE IS POWER TO DTERMINE THE FINANCIAL AND OPERATING Example— If Metrobank, BPI, and Allied Bank transfer at least 10% of the
POLICIES OF THE SUPERVISED INSTITUTION, OR OTHER SIMILAR voting share it now requires the approval of the Central Bank. Again, this is a
ARRANGEMENTS. specific addition to the New Central Bank Act.

If there’s an existing stockholder, let’s say “A” is an owner of a bank. He owns


The department heads and the examiners of the supervising and/or 20% of voting shares. He will sell it to “B”. Now, BSP will be the one to approve.
examining departments are hereby authorized to administer oaths to any BSP would look into the fitness of “B” who is an incoming stockholder. Based
director, officer, or employee of any institution under their respective on:
supervision or subject to their examination, and to compel the • Integrity
presentation of all books, documents, papers or records necessary in their • Reputation
judgment to ascertain the facts relative to the true condition of any
• Financial Capacity
institution as well as the books and records of persons and entities relative
to or in connection with the operations, activities or transactions of the Therefore, it can’t be poor.
institution under examination, AND TO INQUIRE INTO BANK DEPOSITSS
AND INVESTMENT ACCOUNTS IN THE COURS OF AN EXAMINATION IN
If there is no approval by the BSP, no transfer shall have legal effect nor shall
ORDER TO ASCERTAIN COMPLIANCE WITH THE LAWS AND BANKING the same be recognized in the books of the institutions or by any government
REGULATIONS, OR IN CASES WHERE THERE IS REASONABLE GROUND TO agency, and the transferor-stockholders shall remain accountable and
BELIEVE THAT A FRAUD, IRREGULARITY OR UNLAWFUL ACTIVITY HAS
responsible therefore.
BEEN OR IS BEING COMMITTED AND THAT IT IS NECESSARY TO LOOK
INTO THE DEPOSIT OR INVESTMENT TO ESTABLISH SUCH FRAUD,
Why is it, that it “shall not be recognized in the books of the institution”?
IREEGULARITY OR UNLAWFUL ACTIVITY. subject to the provision of
because if you transfer share, you need to register that with the corporate
existing laws protecting or safeguarding the secrecy or confidentiality of
secretary. Who has the custody of the corporate books. If there’s no approval
bank deposits as well as investments of private persons, natural or
from the BSP, the corporate secretary will not change the names of the holder
juridical, in debt instruments issued by the Government.
of that stock.

No restraining order or injunction shall be issued by the court Why is it placed there, “any government agency”?
enjoining the Bangko Sentral from examining any institution subject to There are government owned banks. That’s still included.
supervision or examination by the Bangko Sentral, unless there is
convincing proof that the action of the Bangko Sentral is plainly arbitrary Why is it, “and the transferor-stockholders shall remain accountable and
and made in bad faith and the petitioner or plaintiff files with the clerk or responsible therefore.”?
judge of the court in which the action is pending a bond executed in favor It means that if there is no approval, it is as if there is no transfer. The
of the Bangko Sentral, in an amount to be fixed by the court. The provisions transferor is of the moment, still the owner of the stocks.
of Rule 58 of the New Rules of Court insofar as they are applicable and not
inconsistent with the provisions of this section shall govern the issuance TRANSFER OF ACTUAL CONTROL OR MANAGEMENT OF THE INSTITUTION TO
and dissolution of the restraining order or injunction contemplated in this THE NEW STOCKHOLDERS OR THEIR REPRESENTATIVES PRIOR TO BANGKO
section. SENTRAL APPROVAL SHALL MAKE THE TRANSFEROR, THE TRANSFEREE

They now changed the periodic examination to REGULAR examination. This presupposes a scenario wherein there is no BSP approval. By the books,
transferor is still the owner but the in control is already the transferee.
They also added a subsidiary— means a corporation with 50% of the voting
stock of which is directly or indirectly owned or controlled or held with power. Transfer of actual control without BSP approval would make the transferor,
It doesn’t automatically mean that you have the power to vote if you are a transferee, and their representatives liable under Sections 36 and 37 of this
stockholder because stocks may be classified into different types. Act.

It could be that you are a holder of stocks that don’t have the power to vote.
It also added a new provision which is SEC. 25-A. Authority to Approve
Transfer of Shares. Section 26. Bank Deposits and Investments. - Any director, officer or
stockholder who, together with his related interest, contracts a loan or any
Section 25-A. Authority to approve transfer of shares. – Transfers or form of financial accommodation from: (1) his bank; or (2) from a bank (a)
acquisitions, or a series thereof, or at least ten percent (10%) of the voting which is a subsidiary of a bank holding company of which both his bank and
shares in banks or quasi-banks shall require the prior approval of the Bangko the lending bank are subsidiaries or (b) in which a controlling proportion of the
Sentral. The selling or conveying stockholder shall submit such transfer or shares is owned by the same interest that owns a controlling proportion of the
acquisition for approval by the Bangko Sentral within such period as may be shares of his bank, in excess of five percent (5%) of the capital and surplus of
prescribed by the Monetary Board. In approving such transfers or acquisitions, the bank, or in the maximum amount permitted by law, whichever is lower,
regard shall be given by the Bangko Sentral to the fitness of the incoming shall be required by the lending bank to waive the secrecy of his deposits of

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 35


whatever nature in all banks in the Philippines. Any information obtained from
an examination of his deposits shall be held strictly confidential and may be
used by the examiners only in connection with their supervisory and
examination responsibility or by the Bangko Sentral in an appropriate legal
action it has initiated involving the deposit account.

Section 27. Prohibitions. - In addition to the prohibitions found in Republic Act


Nos. 3019 and 6713, personnel of the Bangko Sentral are hereby prohibited
from:

(a) being an officer, director, lawyer or agent, employee, consultant or


stockholder, directly or indirectly, of any institution subject to supervision or
examination by the Bangko Sentral, except non-stock savings and loan
associations and provident funds organized exclusively for employees of the
Bangko Sentral, and except as otherwise provided in this Act;
Example— Z owns Y and X companies. In order to avoid tax, X enters into a
management contract or any transfer with Y to try and dilute the profits and
(b) directly or indirectly requesting or receiving any gift, present or pecuniary avoid tax.
or material benefit for himself or another, from any institution subject to
supervision or examination by the Bangko Sentral; Transfer pricing states that when you have any contract between related
parties, it has to be at arms-length pricing.
(c) revealing in any manner, except under orders of the court, the Congress or
any government office or agency authorized by law, or under such conditions This is because most of the time what companies do, they sell between related
as may be prescribed by the Monetary Board, information relating to the parties not in arms-length to avoid tax.
condition or business of any institution. This prohibition shall not be held to
apply to the giving of information to the Monetary Board or the Governor of Basically, ARMS LENGTH theory suggests that if we are not related parties,
the Bangko Sentral, or to any person authorized by either of them, in writing, would I be priced the same way? If we are not sister companies, would you
to receive such information; and still sell me this marker at 10 pesos each? Or is because we are sister
companies that I can buy this from you at 10 pesos?
(d) borrowing from any institution subject to supervision or examination by You take out the related interests between parties and see if the pricing is
the Bangko Sentral shall be prohibited unless said borrowing IS TRANSACTED still the same. Because if it is, then you pass the transfer pricing regulation.
ON AN ARM’S LENGTH BASIS are adequately secured, fully disclosed to the
Monetary Board, and shall be subject to such further rules and regulations as Now, our current regulation does not require that if you have this private
the Monetary Board may prescribe: Provided, however, That personnel of the contract you submit it with the BIR for approval. It’s just that in the event that
supervising and examining departments are prohibited from borrowing from the BIR audits you, you have to have a basis for your pricing. You have to show
a bank under their supervision or examination. documents proving that the prices are at ARMS LENGTH.

Generally, it’s okay if the transaction involves goods that has a market. You are
Before there is an absolute prohibition to borrow from the bank that you are selling goods. If you’re the manufacturer then you’ll also distribute. Because
examining or supervising. But there is relative prohibition with regard a bank that has a market value so you have already have a basis. That is what you call
under the BSP. It has to be fully secured. BENCHMARKING.

Now, in the amendment, what is prohibited is borrowing from any institution But what if customized?
under the BSP’s supervision or examination. UNLESS— the borrowing is
transacted in an ARMS LENGTH basis, fully disclosed to the Monetary Board, You’re the one building for your products. That’s the hard part. It’s hard to
and shall be subject to such further rules and regulations as the Monetary convince the authorities.
Board may prescribe.
There are sophisticated models that refer to the pricing, but anyway that is far
Here, there is no relative prohibition. It is okay to borrow from the banks that from our topic.
the BSP is examining as long as it is ARMS LENGTH and FULLY DISCLOSED.
So if the bargain is arms-length, meaning if I won’t examine this bank , would
TRANSFER PRICING VIS A VIS ARMS LENGTH I get the same terms and conditions that I am getting now. That’s arms-length.

Are you giving me this low interest because I am examining you?

Original Provision

SECTION 28. Examination and Fees. — The supervising and examining


department head, personally or by deputy, shall examine the books of every
banking institution once in every twelve (12) months, and at such other times
as the Monetary Board by an affirmative vote of five (5) members, may deem
expedient and to make a report on the same to the Monetary Board: Provided,
That there shall be an interval of at least twelve (12) months between annual
examinations.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 36


The bank concerned shall afford to the head of the appropriate supervising This amendment makes it more difficult for the banking industry…..well not
and examining departments and to his authorized deputies full opportunity to really difficult. It just makes their operations more regulated… and for a
examine its books, cash and available assets and general condition at any time reason.
during banking hours when requested to do so by the Bangko Sentral:
Provided, however, That none of the reports and other papers relative to such Did you know that when you deposit in dollars you have to pay a certain fee?
examinations shall be open to inspection by the public except insofar as such Now, if you deposit to a dollar account you will be the one to pay. Well, this is
publicity is incidental to the proceedings hereinafter authorized or is necessary actually a monetary policy. You are trying to combat inflation…the forex, we
for the prosecution of violations in connection with the business of such will go to that later.
institutions.
What you call those under the coverage of BSP ay supervised institutions.
Banking and quasi-banking institutions which are subject to examination by These includes banks, quasi-banks, subsidiaries, and affiliates engaged in allied
the Bangko Sentral shall pay to the Bangko Sentral, within the first thirty (30) activities…shall pay to the Banko Sentral a supervision fee. In determining the
days of each year, an annual fee in an amount equal to a percentage as may amount of the annual supervision fee, the Monetary Board shall consider the
be prescribed by the Monetary Board of its average total assets during the cost of supervision.
preceding year as shown on its end-of-month balance sheets, after deducting
cash on hand and amounts due from banks, including the Bangko Sentral and Before, what’s the basis? – it’s the percentage of its average total assets during
banks abroad. the preceding year.

Proposed Amendment Now what if the salary of the person examining is bigger than the total assets
of the bank, they’re at the shorter end. Now, they consider the costs of
SEC. 28. Examination and Fees. — The supervising and examining department supervision.
head, personally or by deputy, shall examine the [books] OPERATIONS of every
bank[ing] AND QUASIBANK, INCLUDING THEIR SUBSIDIARIES AND AFFILIATES Now, additional provisions—
ENGAGED IN ALLIED ACTIVITIES, AND OTHER ENTITIES WHICH UNDER THIS
ACT OR SPECIAL LAWS ARE SUBJECT TO BANGKO SENTRAL SUPERVISION, IN Section. 28-A. BANGKO SENTRAL COORDINATION. - THE SUSPENSION OR
ACCORDANCE WITH THE GUIDELINES SET BY THE MONETARY BOARD TAKING REVOCATION OF ANY GOVERNMENT LICENSE NECESSARY FOR THE
INTO CONSIDERATION SOUND AND PRUDENT PRACTICES, [once in every- OPERATION OF A BANGKO SENTRAL SUPERVISED ENTITY MUST BE DONE ONLY
twelve (12) months, and at such other times as the Monetary Board by an WITH PRIOR ENTITY MUST BE DONE ONLY WITH PRIOR CONSULTATION WITH
affirmative vote of five (5) members, may deem expedient and to make a THE BANKGKO SENTRAL.”
report on the same to the Monetary Board;] Provided, That there shall be an
interval of at least twelve (12) months between [annual] REGULAR Therefore in the event that there is violation under the corporation code, (so
examinations; PROVIDED, FURTHER, THAT THE MONETARY BOARD, BY AN who has the authority? – the SEC) to revoke, the SEC should consult first the
AFFIRMATIVE VOTE OF AT LEAST FIVE (5) MEMBERS, MAY AUTHORIZE A BSP.
SPECIAL EXAMINATION IF THE CIRCUMSTANCES WARRANT.
Not only that, what other licenses? Business permit (the bank is in Davao, so
The INSTITUTION [bank] concerned shall afford to the head of the appropriate there is a business permit in Davao). Before it is revoked by the Mayor it
supervising and examining departments and to his authorized deputies full requires prior consultation. NOT approval, just consultation.
opportunity to examine its books AND RECORDS, cash and [available] assets
and general condition AND REVIEW ITS SYSTEMS AND PROCEDURES at any There’s no changes in conservatorship—
time during BUSINESS [banking] hours when requested to do so by the Bangko
Sentral. Provided, however, That none of the reports and other papers relative
SECTION 29. Appointment of Conservator. — Whenever, on the basis of a
to such examinations shall be open to inspection by the public except insofar
report submitted by the appropriate supervising or examining department,
as such publicity is incidental to the proceedings hereinafter authorized or is
the Monetary Board finds that a bank or a quasi-bank is in a state of continuing
necessary for the prosecution of violations in connection with the business of
inability or unwillingness to maintain a condition of liquidity deemed adequate
such institutions.
to protect the interest of depositors and creditors, the Monetary Board may
appoint a conservator with such powers as the Monetary Board shall deem
[Banking and qusi-banking institutions which are subject to examination by
necessary to take charge of the assets, liabilities, and the management
the Banko Sentral] SUPERVISED INSTITUTIONS shall pay to the Bangko Sentral,
thereof, reorganize the management, collect all monies and debts due said
NO LATER THAN MAY 31 OF EACH YEAR [within the first thirty (30) days of each
institution, and exercise all powers necessary to restore its viability. The
year], an annual SUPERVISION fee [in an amount equal to a percentage,]as
conservator shall report and be responsible to the Monetary Board and shall
may be prescribed by the Monetary Board. [ ,of its average total assets during
have the power to overrule or revoke the actions of the previous management
the preceding year as shown on its end of month balance sheets, after
and board of directors of the bank or quasi-bank
deducting cash on hand and amounts due from banks, including the Bangko
Sentral and banks abroad.] IN DETERMINING THE AMOUNT OF THE ANNUAL
The conservator should be competent and knowledgeable in bank operations
SUPERVISION FEE, THE MONETARY BOARD SHALL CONSIDER THE COSTS OF
and management.
SUPERVISION.”
The conservatorship shall not exceed one (1) year.
So, still the same you have at least an affirmative vote of 5 members for you
to conduct special examination. The conservator shall receive remuneration to be fixed by the Monetary Board
in an amount not to exceed two-thirds (2/3) of the salary of the president of
What it did there it just rephrased it. the institution in one (1) year, payable in twelve (12) equal monthly payments:
Provided, That, if at any time within one-year period, the conservatorship is
“The INSTITUTION [bank] concerned shall afford to the head of the terminated on the ground that the institution can operate on its own, the
appropriate supervising and examining departments and to his authorized conservator shall receive the balance of the remuneration which he would
deputies full opportunity to examine its books AND RECORDS, cash and have received up to the end of the year; but if the conservatorship is
[available] assets and general condition AND REVIEW ITS SYSTEMS AND terminated on other grounds, the conservator shall not be entitled to such
PROCEDURES” – now this gives broader powers to the BSP because that’s not remaining balance. The Monetary Board may appoint a conservator connected
only the general condition, financial statements, or assets it will monitor, also with the Bangko Sentral, in which case he shall not be entitled to receive any
its system and procedures. remuneration or emolument from the Bangko Sentral during the
conservatorship. The expenses attendant to the conservatorship shall be
In other words, the BSP now has the right to look into the system…how it borne by the bank or quasi-bank concerned.
approve approves the loan, what is your basis, etc.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 37


The Monetary Board shall terminate the conservatorship when it is satisfied institution in accordance with the rules on concurrence and preference of
that the institution can continue to operate on its own and the credit under the Civil Code of the Philippines and he may, in the name of the
conservatorship is no longer necessary. The conservatorship shall likewise be institution, and with the assistance of counsel as he may retain, institute such
terminated should the Monetary Board, on the basis of the report of the actions as may be necessary to collect and recover accounts and assets of, or
conservator or of its own findings, determine that the continuance in business defend any action against, the institution. The assets of an institution under
of the institution would involve probable loss to its depositors or creditors, in receivership or liquidation shall be deemed in custodia legis in the hands of
which case the provisions of Section 30 shall apply. the receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy,
This one has a change. Proceedings in Receivership and Liquidation— attachment, or execution.

It added actually another ground for it to be subject to receivership. The actions of the Monetary Board taken under this section or under Section
29 of this Act shall be final and executory, and may not be restrained or set
Original Provision aside by the court except on petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave abuse of discretion
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, as to amount to lack or excess of jurisdiction. The petition for certiorari may
upon report of the head of the supervising or examining department, the only be filed by the stockholders of record representing the majority of the
Monetary Board finds that a bank or quasi bank: capital stock within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or conservatorship.
(a) is unable to pay its liabilities as they become due in the ordinary course of The designation of a conservator under Section 29 of this Act or the
business: Provided, That this shall not include inability to pay caused by appointment of a receiver under this section shall be vested exclusively with
extraordinary demands induced by financial panic in the banking community; the Monetary Board. Furthermore, the designation of a conservator is not a
precondition to the designation of a receiver.
(b) by the Bangko Sentral, to meet its liabilities; or
Proposed Amendment
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or Section 30. Proceedings in Receivership and Liquidation -Whenever, upon
report of the head of the supervising or examining department, the Monetary
(d) has willfully violated a cease and desist order under Section 37 that has Board finds that a bank or quasi-bank:
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; (a) HAS NOTIFIED THE BANGKO SENTRAL OR PUBLICLY ANNOUNCED A
UNILATERAL CLOSURE, OR HAS BEEN DORMANT FOR AT LEAST SIXTY (60) DAYS
In which cases, the Monetary Board may summarily and without need for prior OR IN ANY MANNER HAS SUSPENDED THE PAYMENT OF ITS DEPOSIT/DEPOSIT
hearing forbid the institution from doing business in the Philippines and SUBSTITUTE LIABILITIES, OR is unable to pay its liabilities as they become due
designate the Philippine Deposit Insurance Corporation as receiver of the in the ordinary course of business: Provided, That this shall not include inability
banking institution. to pay caused by extraordinary demands induced by financial panic in the
banking community;
For a quasi-bank, any person of recognized competence in banking or finance
may be designed as receiver. (b) has insufficient realizable assets, as determined by the Bangko Sentral to
meet its liabilities; or
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors, (c) cannot continue in business without involving probable losses to its
and exercise the general powers of a receiver under the Revised Rules of Court depositors or creditors; or
but shall not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of the (d) has willfully violated a cease and desist order under Section 37 that has
institution: Provided, That the receiver may deposit or place the funds of the become final, involving acts or transactions which amount to fraud or a
institution in nonspeculative investments. The receiver shall determine as dissipation of the assets of the institution;
soon as possible, but not later than ninety (90) days from take over, whether
the institution may be rehabilitated or otherwise placed in such a condition so In which cases, the Monetary Board may summarily and without need for prior
that it may be permitted to resume business with safety to its depositors and hearing forbid the institution from doing business in the Philippines and IN THE
creditors and the general public: Provided, That any determination for the CASE OF BANKS, designate the Philippine Deposit Insurance Corporation
resumption of business of the institution shall be subject to prior approval of (PDIC) as receiver [of the banking institution] AND DIRECT THE PDIC TO
the Monetary Board. PROCEED WITH THE LIQUIDATION OF THE CLOSED BANK PURSUANT TO THIS
SECTION AND THE RELEVANT PROVISIONS OF REPUBLIC ACT NO. 3591, AS
If the receiver determines that the institution cannot be rehabilitated or AMENDED. THE MONETARY BOARD SHALL NOTIFY IN WRITING THE BOARD OF
permitted to resume business in accordance with the next preceding DIRECTORS OF THE CLOSED BANK OF ITS DECISION.
paragraph, the Monetary Board shall notify in writing the board of directors of
its findings and direct the receiver to proceed with the liquidation of the [For a quasi-bank, any person of recognized competence in banking or finance
institution. The receiver shall: may be designed as receiver.]

1. file ex parte with the proper regional trial court, and without requirement [The receiver shall immediately gather and take charge of all the assets and
of prior notice or any other action, a petition for assistance in the liquidation liabilities of the institution, administer the same for the benefit of its creditors,
of the institution pursuant to a liquidation plan adopted by the Philippine and exercise the general powers of a receiver under the Revised Rules of Court
Deposit Insurance Corporation for general application to all closed banks. In but shall not, with the exception of administrative expenditures, pay or
case of quasi-banks, the liquidation plan shall be adopted by the Monetary commit any act that will involve the transfer or disposition of any asset of the
Board. Upon acquiring jurisdiction, the court shall, upon motion by the institution: Provided, That the receiver may deposit or place the funds of the
receiver after due notice, adjudicate disputed claims against the institution, institution in non-speculative investments. The receiver shall determine as
assist the enforcement of individual liabilities of the stockholders, directors soon as possible, but not later than ninety (90) days from take over, whether
and officers, and decide on other issues as may be material to implement the the institution may be rehabilitated or otherwise placed in such a condition so
liquidation plan adopted. The receiver shall pay the cost of the proceedings that it may be permitted to resume business with safety to its depositors and
from the assets of the institution. creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of
2. convert the assets of the institutions to money, dispose of the same to the Monetary Board.]
creditors and other parties, for the purpose of paying the debts of such

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Please take note— the Monetary Board may summarily and without need for
[If the receiver determines that the institution cannot be rehabilitated or prior hearing forbid the institution from doing business in the Philippines and
permitted to resume business in accordance with the next preceding IN THE CASE OF BANKS, designate the Philippine Deposit Insurance
paragraph, the Monetary Board shall notify in writing the board of directors of Corporation (PDIC) as receiver [of the banking institution] AND DIRECT THE
its findings and direct the receiver to proceed with the liquidation of the PDIC TO PROCEED WITH THE LIQUIDATION OF THE CLOSED BANK PURSUANT
institution. The receiver shall:] TO THIS SECTION AND THE RELEVANT PROVISIONS OF REPUBLIC ACT NO.
3591, AS AMENDED. THE MONETARY BOARD SHALL NOTIFY IN WRITING THE
[1. file ex parte with the proper regional trial court, and without requirement BOARD OF DIRECTORS OF THE CLOSED BANK OF ITS DECISION.
of prior notice or any other action, a petition for assistance in the liquidation
of the institution pursuant to a liquidation plan adopted by the Philippine Now this process was deleted.
Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted [For a quasi-bank, any person of recognized competence in banking or finance
by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon may be designed as receiver.]
motion by the receiver after due notice, adjudicate disputed claims against the
institution, assist the enforcement of individual liabilities of the stockholders, [The receiver shall immediately gather and take charge of all the assets and
directors and officers, and decide on other issues as may be material to liabilities of the institution, administer the same for the benefit of its creditors,
implement the liquidation plan adopted. The receiver shall and exercise the general powers of a receiver under the Revised Rules of Court
pay the cost of the proceedings from the assets of the institution.] but shall not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of the
[2. convert the assets of the institutions to money, dispose of the same to institution: Provided, That the receiver may deposit or place the funds of the
creditors and other parties, for the purpose of paying the debts of such institution in non-speculative investments. The receiver shall determine as
institution in accordance with the rules on concurrence and preference of soon as possible, but not later than ninety (90) days from take over, whether
credit under the Civil Code of the Philippines and he may, in the institution may be rehabilitated or otherwise placed in such a condition so
the name of the institution, and with the assistance of counsel as he may that it may be permitted to resume business with safety to its depositors and
retain, institute such actions as may be necessary to collect and recover creditors and the general public: Provided, That any determination for the
accounts and assets of, or defend any action against, the institution. The assets resumption of business of the institution shall be subject to prior approval of
of an institution under receivership or liquidation shall be deemed in custodia the Monetary Board.]
legis in the hands of the receiver and shall, from the moment the
institution was placed under such receivership or liquidation, be exempt from [If the receiver determines that the institution cannot be rehabilitated or
any order of garnishment, levy, attachment, or execution.] permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors of
The actions of the Monetary Board taken under this section or under Section its findings and direct the receiver to proceed with the liquidation of the
29 of this Act shall be final and executory, and may not be restrained or set institution. The receiver shall:]
aside by the court except on petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave abuse of discretion [1. file ex parte with the proper regional trial court, and without requirement
as to amount to lack or excess of jurisdiction. The petition for certiorari may of prior notice or any other action, a petition for assistance in the liquidation
only be filed by the stockholders of record representing the majority of the of the institution pursuant to a liquidation plan adopted by the Philippine
capital stock within ten (10) days from receipt by the board of directors of the Deposit Insurance Corporation for general application to all closed banks. In
institution of the order directing receivership, liquidation or case of quasi-banks, the liquidation plan shall be adopted by the Monetary
conservatorship. The designation of a conservator under Section 29 of this Act Board. Upon acquiring jurisdiction, the court shall, upon motion by the
or the appointment of a receiver under this section shall be vested exclusively receiver after due notice, adjudicate disputed claims against the institution,
with the Monetary Board. Furthermore, the designation of a conservator is assist the enforcement of individual liabilities of the stockholders, directors
not a precondition to the designation of a receiver. and officers, and decide on other issues as may be material to implement the
liquidation plan adopted. The receiver shall pay the cost of the proceedings
THE AUTHORITY OF THF MONETARY BOARD TO SUMMARILY AND WITHOUT from the assets of the institution.]
NEED FOR PRIOR HEARING FORBID THE BANK OR QUASI-BANK FROM DOING
BUSINESS IN THE PHILIPPINES AS PROVIDED ABOVE MAY ALSO BE EXERCISED [2. convert the assets of the institutions to money, dispose of the same to
OVER NON-STOCK SAVINGS AND LOAN ASSOCIATIONS, BASED ON THE SAME creditors and other parties, for the purpose of paying the debts of such
APPLICABLE GROUNDS. FOR QUASI-BANKS AND NON-STOCK SAVINGS AND institution in accordance with the rules on concurrence and preference of
LOAN ASSOCIATIONS, ANY PERSON OF RECOGNIZED COMPETENCE IN credit under the Civil Code of the Philippines and he may, in the name of the
BANKING, CREDIT OR FINANCE MAY BE DESIGNATED BY THE BANGKO institution, and with the assistance of counsel as he may retain, institute such
SENTRAL AS A RECEIVER. actions as may be necessary to collect and recover accounts and assets of, or
defend any action against, the institution. The assets of an institution under
(a) HAS NOTIFIED THE BANGKO SENTRAL OR PUBLICLY ANNOUNCED A receivership or liquidation shall be deemed in custodia legis in the hands of
UNILATERAL CLOSURE, OR HAS BEEN DORMANT FOR AT LEAST SIXTY (60) DAYS the receiver and shall, from the moment the institution was placed under such
OR IN ANY MANNER HAS SUSPENDED THE PAYMENT OF ITS DEPOSIT/DEPOSIT receivership or liquidation, be exempt from any order of garnishment, levy,
SUBSTITUTE LIABILITIES, OR attachment, or execution.]

BEFORE, it’s just this – “is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not include inability to This one is the additional—
pay caused by extraordinary demands induced by financial panic in the
banking community;” THE AUTHORITY OF THF MONETARY BOARD TO SUMMARILY AND WITHOUT
NEED FOR PRIOR HEARING FORBID THE BANK OR QUASI-BANK FROM DOING
NOW, they placed “voluntary. BUSINESS IN THE PHILIPPINES AS PROVIDED ABOVE MAY ALSO BE EXERCISED
OVER NON-STOCK SAVINGS AND LOAN ASSOCIATIONS, BASED ON THE SAME
This is letter A; the changes is as if the bank admitted that they close; notified APPLICABLE GROUNDS. FOR QUASI-BANKS AND NON-STOCK SAVINGS AND
the BSP that they will close, or the bank has BEEN DORMANT FOR AT LEAST LOAN ASSOCIATIONS, ANY PERSON OF RECOGNIZED COMPETENCE IN
SIXTY (60) DAYS OR IN ANY MANNER HAS SUSPENDED THE PAYMENT OF ITS BANKING, CREDIT OR FINANCE MAY BE DESIGNATED BY THE BANGKO
DEPOSIT/DEPOSIT SUBSTITUTE LIABILITIES; thus they can be subject to SENTRAL AS A RECEIVER.
receivership.
The right for them to close banks and quasi-banks is applicable to non-stock,
That is the additional ground. So you gave up, just go under receiver. savings and loan associations. So it actually added the coverage for the
summarily closing of an institution.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 39


…and for a reason, there are a lot of non-stock, savings and loan associations The court said, for you to apply this exclusionary clause you have to be in the
that mismanages, sometimes it becomes part of the salary ng employees. first place a solvent bank; It’s just that you cannot claim because there is a
Nami-mismanage. bank run – there is an extraordinary demand in the banking community.

For banks the receiver is PDIC— Therefore if there’s no extraordinary demand in the banking community you
are an otherwise non-insolvent bank, so you are a solvent bank

For quasi-banks and the new ones (non-stock, savings and loan associations) - In this case, the bank cannot apply the clause because it is literally insolvent.
ANY PERSON OF RECOGNIZED COMPETENCE IN BANKING, CREDIT OR FINANCE For you to apply the exception you have to be a solvent bank.
MAY BE DESIGNATED BY THE BANGKO SENTRAL AS A RECEIVER.
The court said, because of your unsafe and unsound banking practices you are
Central Bank v. CA insolvent whether or not there is an extraordinary demand.

In this particular case they tried to question the resolution. They say, it’s plainly Now why did the court say that you are an insolvent?
arbitrary and in bad faith because there’s no prior notice and hearing. The
court said, the prior notice and hearing is not a requirement and is not stated It’s because you have unsound banking practices (DOSRI loans)
in the law. It is for a reason, because this close now, hear later scheme is
grounded on practical considerations to prevent further dissipation of the That is why the DOSRI financial accommodations and loans, these are very
bank assets; which is a valid exercise of police power to protect the depositors, important because sometimes because of these loans that’s why there is
creditors, stockholders and the general public. insolvency because sometimes the financial accommodations, it’s too
beneficial for directors, stockholders, officers
You have the differences between a receivership and a conservatorship.

Can you go directly to receivership without going through? conservatorship?


- A receiver is appointed based on the grounds under Section 30.
- A conservator is appointed when a bank or a quasi-bank is in a state of
continuing inability or unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors and creditors.

Please take note— a conservator has 1 year to restore the bank or quasi-bank
to its viability or the receiver must determine as soon as possible but not later
than 90 days from takeover to proceed with the rehabilitation of the
bank/institution.

CASE: Rural Bank of San Miguel v. Monetary Board

The conservator submits a report evaluating the bank and placing it for
receivership. The bank is contending, the report is not the basis. Its saying,
Section 25 says the BSP has the power to examine; that therefore the report
that is found in Section 25-A, should be made as a result of the examination.
Its saying there’s that difference between just reporting and examining.
Because examining requires investigation.

In Section 30; … Whenever, upon report…it doesn’t say upon examination or


upon investigation. The court said, the report not the examination.

The petitioner’s contention— should this be under the power of the BSP in its
examination, regulatory powers over banks. Shouldn’t the report that will be
submitted should be related to the right to examine, so therefore the report
must be the product of examination which requires in-depth investigation; you
closed us but you just submitted a report, it didn’t investigate thoroughly.

The Supreme Court here ruled that you would be guilty of judicial usurpation
if you would construe the report as an examination.

Why did it say, report, and not whenever on the basis of an examination
submitted by the….what do you think is the reason?

To expedite the process. Based again on the ground that if you delay this, the
owners of the bank will have the opportunity to dissipate the assets subject to
receivership.

General Bank and Trust Co. v. Central Bank

Overdrafts – you exceeded your account, that is what you call overdrafts,
occurs when money is withdrawn from a bank account and the
available balance goes below zero.

In this case the court said, this exclusionary provision/clause will only apply if
you are an otherwise non-insolvent bank. What is the meaning of an otherwise
non insolvent bank?

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 40


(P200,000), 2 MILLION (P 2,000,000) or by imprisonment of not more than (5)
December 12, 2018 years, or both, at the discretion of the court.

So the franchise to operate as a bank may be awarded, may be sold to a


different institution. Section 36. Proceedings Upon Violation of This Act and Other Banking Laws,
Rules, Regulations, Orders or Instructions. — Whenever a bank or quasi-bank,
This pertains to the secondary franchise. or whenever any person or entity willfully violates this Act or other pertinent
banking laws being enforced or implemented by the Bangko Sentral or any
We all know that the primary franchise is given to? order, instruction, rule or regulation issued by the Monetary Board, the person
A: The persons composing the corporation. or persons responsible for such violation shall unless otherwise provided in
this Act be punished by a fine of not less than Fifty thousand pesos (P50,000)
The secondary franchise belongs to the Corporation and can be taken away. nor more than Two hundred thousand pesos (P200,000) or by imprisonment
of not less than two (2) years nor more than ten (10) years, or both, at the
Section 34. Refusal to Make Reports or Permit Examination. — Any officer, discretion of the court.
owner, agent, manager, director or officer-in-charge of any institution subject
to the supervision or examination by the Bangko Sentral within the purview of Whenever a bank or quasi-bank persists in carrying on its business in an
this Act who, being required in writing by the Monetary Board or by the head unlawful or unsafe manner, the Board may, without prejudice to the penalties
of the supervising and examining department willfully refuses to file the provided in the preceding paragraph of this section and the administrative
required report or permit any lawful examination into the affairs of such sanctions provided in Section 37 of this Act, take action under Section 30 of
institution shall be punished by a fine of not less than Fifty thousand pesos this Act.
(P50,000) nor more than One hundred thousand pesos (P100,000) or by
imprisonment of not less than one (1) year nor more than five (5) years, or Please take note of this Section 36 last paragraph—
both, in the discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its business in an
Before the penalty is just P 100, 000 but the amendment proposed is now 2 unlawful or unsafe manner, the Board may, without prejudice to the penalties
million. provided in the preceding paragraph of this section and the administrative
sanctions provided in Section 37 of this Act, take action under Section 30 of
Proposed Amendment this Act.

The board may take action under Section 30—


Section 34. Refusal to Make Reports or Permit Examination. — Any officer,
owner, agent, manager, director or officer-in-charge of any institution subject Section 30. Proceedings in Receivership and Liquidation. — Whenever, upon
to the supervision or examination by the Bangko Sentral within the purview of report of the head of the supervising or examining department, the Monetary
this Act who, being required in writing by the Monetary Board or by the head Board finds that a bank or quasi-bank:
of the supervising and examining department WITHIN THE PURIEW OF THIS (a) is unable to pay its liabilities as they become due in the ordinary course of
ACT AND RELEVANT LAWS willfully refuses to file the required report or business: Provided, That this shall not include inability to pay caused by
permit any lawful examination into the affairs of such institution shall be extraordinary demands induced by financial panic in the banking community;
punished by a fine of not less than Fifty thousand pesos (P50,000) nor more (b) has insufficient realizable assets, as determined by the Bangko Sentral, to
than One hundred thousand pesos (P100,000) 2 MILLION or by imprisonment meet its liabilities; or
of not less than one (1) year nor more than five (5) years, or both, in at the
discretion of the court. (c) cannot continue in business without involving probable losses to its
depositors or creditors; or
So the amendments actually gave more teeth to the provisions of the New
Central Bank Act. (d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
Please take note of the additions— dissipation of the assets of the institution; in which cases, the Monetary Board
may summarily and without need for prior hearing forbid the institution from
“THIS SHALL ALSO APPLY TO THE OFFICER, OWNER, AGENT, doing business in the Philippines and designate the Philippine Deposit
MANAGER,DIRECTOR OR OFFICER-IN CHARGE OF THE AFFILLIATE Insurance Corporation as receiver of the banking institution.
COMPANY/IES AND PARENT COMPANY OF A BANK OR QUASI-BANK, AS
WELL AS THE AFFILIATES OF SUCH PARENT COMPANY, WHOSE xxx
TRANSACTIONS ARE SUBJECT TOO THE EXAMINATION UNDER THIS LAW.”
So if the bank or quasi-bank is engaged or persistently engaged in or carries
So this contemplates a situation wherein there’s a bank under examination the business in unlawful or unsafe manner, they can put it in receivership.
then there are transactions between that bank and the affiliate of that bank.
So the officer, agent, manager xxx of that bank even though it is not engaged Section 36. Proceedings Upon Violation of This Act and Other Banking Laws,
in any banking activities may be penalized if there is refusal to file or permit Rules, Regulations, Orders or Instructions. — Whenever a bank or quasi-bank,
any lawful examination. INCLUDING THEIR SUBSIDIARIES OR AFFILIATES OR OTHER ENTITY WHICH
UNDER THIS ACT OR SPECIAL LAWS IS SUBJECT TO BANKO CENTRAL
Please take note of the addition— SUPERVISION or whenever any person or entity willfully violates this Act or
other pertinent banking laws being enforced or implemented by the Bangko
Section 35. False Statement. — The willful making of a false or misleading Sentral or any order, instruction, rule or regulation issued by the Monetary
statement on a material fact to the Monetary Board or to the examiners of the Board, the person or persons responsible for such violation shall unless
Bangko Sentral shall be punished by a fine of not less than One hundred otherwise provided in this Act be punished by a fine of not less than Fifty
thousand pesos (P100,000) nor more than Two hundred thousand pesos thousand pesos (P50,000) nor more than Two hundred thousand pesos
(P200,000), or by imprisonment of not more than (5) years, or both, at the (P200,000) TWO MILLION PESOS (P 2,000,000) or by imprisonment of not less
discretion of the court. than two (2) years nor more than ten (10) years, or both, at the discretion of
the court.
Section 35. False Statement. — The willful making of a false or misleading
statement on a material fact to the Monetary Board or to the examiners of the Whenever AN ENTITY UNDER BANK SENTRAL SUPERVISION a bank or quasi-
Bangko Sentral shall be punished by a fine of not less than One hundred bank persists in carrying on its business in an unlawful or unsafe manner, the
thousand pesos (P100,000) nor more than Two hundred thousand pesos Board may, without prejudice to the penalties provided in the preceding

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 41


paragraph of this section and the administrative sanctions provided in Section Sec. 56. Conducting Business in an Unsafe or Unsound Manner - In
37 of this Act, take action under Section 30 of this Act. determining whether a particular act or omission, which is not otherwise
prohibited by any law, rule or regulation affecting banks, quasi-banks or trust
So this a new addition: informer’s reward. This is similar to the informer’s entities, may be deemed as conducting business in an unsafe or unsound
reward under the Tax Code. manner for purposes of this Section, the Monetary Board shall consider any of
the following circumstances:
So if you gave information except of course if, your information must be
definite information not yet in the possession of the BSP leading to: 56.1. The act or omission has resulted or may result in material loss or
(A & B below) damage, or abnormal risk or danger to the safety, stability, liquidity or
solvency of the institution; .
“THE BANKO SENTRAL MAY GRANT INFORMER’S REWARD TO ANY PERSON,
EXCEPT AN OFFFICER OR EMPLOYEE OF THE BANKO SENTRAL OR ANY
INTELLIGENCE OR LAW ENFORCEMENT AGENCY, INCLUDING THE RELATIVES 56.2. The act or omission has resulted or may result in material loss or damage
OF SUCH OFFICER OR EMPLOYEE WITHIN THE THIRD DEGREE OF or abnormal risk to the institution's depositors, creditors, investors,
CONSANGUINITY OR AFFINITY, WHO VOLUNTARILY GIVE DEFINITE stockholders or to the Bangko Sentral or to the public in general;
INFORMATION NOT YET IN THE POSSESSION OF THE BANKO SENTRAL
LEADING TO THE:
56.3. The act or omission has caused any undue injury, or has given any
ARREST OF A BANK DIRECTORS OR OFFICERS AND/OR BSP PERSONNEL FOR unwarranted benefits, advantage or preference to the bank or any party in the
VIOLATION OF THIS ACT OR ANY BANKING OR LAWS IMPLEMENTED OR discharge by the director or officer of his duties and responsibilities through
ENFORCED BY THE BANKO SENTRAL, OR FOR VIOLATION OF OTHER PENAL manifest partiality, evident bad faith or gross inexcusable negligence; or
LAWS COMMITTED IN CONNECTION WITH THEIR EMPLOYMENT OR
FUNCTIONS; OR
56.4. The act or omission involves entering into any contract or transaction
FILING OF CRIMINAL CHARGES AGAINST ANY PERSON FOR VIOLATION OF manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity,
SEC 50 OF THIS ACT whether or not the director or officer profited or will profit thereby.

Section 50. Exclusive Issue Power. — The Bangko Sentral shall have the sole Whenever a bank, quasi-bank or trust entity persists in conducting its business
power and authority to issue currency, within the territory of the Philippines. in an unsafe or unsound manner, the Monetary Board may, without prejudice
No other person or entity, public or private, may put into circulation notes, to the administrative sanctions provided in Section 37 of the New Central Bank
coins or any other object or document which, in the opinion of the Monetary Act, take action under Section 30 of the same Act and/or immediately exclude
Board, might circulate as currency, nor reproduce or imitate the facsimiles of the erring bank from clearing, the provisions of law to the contrary
Bangko Sentral notes without prior authority from the Bangko Sentral. notwithstanding.

XXX
So the unsafe banking practice is very broad. That is the reason why the New
Central Bank Act did not give a definite definition. So that it won’t be able to
box that particular practice.
CONTINUATION OF THE AMENDMENT
“THE MONETARY BOARD IS HEREBY AUTHORIZED TO PROMULGATE THE Any act or omission which will result to this particular enumeration, that may
IMPLEMENTING GUIDELINES FOR THE GRANT OF THE INFORMER’S REWARD, be considered as unsafe banking practice. So this is evidentiary.
WHICH IN NO CASE SHALL EXCEED ONE MILLION PESOS (P 1,000,000.)
The PDIC has concurrent power to determine whether a bank is engaged in
SAID GUIDELINES MAY PROVIDE FOR THE ADDITIONAL QUALIFICATIONS unsafe banking practice.
AND DISQUALIFICATION OF INFORMANTS AS WELL AS THE FORM AND
MINIMUM CONTENT OF THE INFORMATION GIVEN.” Please take note— that it’s not only the Monetary Board who can determine
practices that are unsafe and unsound.
“THE CASH REWARD OF INFORMERS SHALL BE SUBJECT TO APPLICABLE
WITHHOLDING TAXES.” The PDIC and its charter has the power to determine whether the bank is
engaged in an unsafe or unsound practice.
Please take note of the reward— it’s 1MILLION pesos. But of course it is
The next provisions are actually very boring but we have to tackle them.
subject to the applicable withholding tax.

Which is how many %? Section 37. Administrative Sanctions on Banks and Quasi-banks. —
A: 20%
Without prejudice to the criminal sanctions against the culpable persons
UNSAFE BANKING PRACTICE provided in Sections 34, 35, and 36 of this Act, the Monetary Board may, at its
• The provision says, Whenever a bank or quasi-bank persists in carrying discretion, impose upon any bank or quasi-bank, their directors and/or
officers, for any willful violation of its charter or by-laws, willful delay in the
on its business in an unlawful or unsafe manner, the Board may, without
submission of reports or publications thereof as required by law, rules and
prejudice to the penalties provided in the preceding paragraph of this regulations; any refusal to permit examination into the affairs of the
section and the administrative sanctions provided in Section 37 of this institution;
Act, take action under Section 30 of this Act.
any willful making of a false or misleading statement to the Board or the
How do we know if it is unsafe/unlawful banking practice? appropriate supervising and examining department or its examiners; any
There is no exact definition under the New Central Bank Act but under RA willful failure or refusal to comply with, or violation of, any banking law or any
8791. order, instruction or regulation issued by the Monetary Board, or any order,
instruction or ruling by the Governor;
GENERAL BANKING LAW provides for what may be deemed conducting
business in an unsafe banking manner: or any commission of irregularities, and/or conducting business in an unsafe
or unsound manner as may be determined by the Monetary Board, the
following administrative sanctions, whenever applicable:

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 42


(a) fines in amounts as may be determined by the Monetary Board to be
appropriate, but in no case to exceed Thirty thousand pesos (P30,000) a day any willful making of a false or misleading statement to the Board or the
for each violation, taking into consideration the attendant circumstances, such appropriate supervising and examining department or its examiners; any
as the nature and gravity of the violation or irregularity and the size of the willful failure or refusal to comply with, or violation of, any banking law or any
bank or quasi-bank; order, instruction or regulation issued by the Monetary Board, or any order,
instruction or ruling by the Governor;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit
facilities; or any commission of irregularities, and/or conducting business in an unsafe
or unsound manner as may be determined by the Monetary Board, the
(c) suspension of lending or foreign exchange operations or authority to accept following administrative sanctions, whenever applicable:
new deposits or make new investments;
(a) fines in amounts as may be determined by the Monetary Board to be
(d) suspension of interbank clearing privileges; and/or appropriate, but in no case to exceed Thirty thousand pesos (P30,000)
ONE MILLION PESOS (P 1,000,000) FOR EACH TRANSACTION VIOLATION
(e) revocation of quasi-banking license. OR ONE HUNDRED THOUSAND(P 100,000) PER CALENDAR a day for each
violationS OF A CONTINUING NATURE, taking into consideration the
Resignation or termination from office shall not exempt such director or attendant circumstances, such as the nature and gravity of the violation
officer from administrative or criminal sanctions. or irregularity and the size of the INSTITUTION bank or quasi-bank

The Monetary Board may, whenever warranted by circumstances, PROVIDED THAT:IN CASE PROFIT IS GAINED OR LOSS IS AVOIDED AS A
preventively suspend any director or officer of a bank or quasi-bank pending RESULT OF THE VIOLATION, A FINE NO MORE THAN THREE TIMES(3) OF THE
an investigation: Provided, That should the case be not finally decided by the PROFIT OF THE GAINED OR LOSS AVOIDED MAY ALSO BE IMPOSED.
Bangko Sentral within a period of one hundred twenty (120) days after the
date of suspension, said director or officer shall be reinstated in his position: (b) suspension of rediscounting privileges or access to Bangko Sentral credit
facilities;
Provided, further, That when the delay in the disposition of the case is due to
the fault, negligence or petition of the director or officer, the period of delay (c) suspension of lending or foreign exchange operations or authority to accept
shall not be counted in computing the period of suspension herein provided. new deposits or make new investments;

The above administrative sanctions need not be applied in the order of their (d) suspension of interbank clearing privileges; and/or
severity.
(e) SUSPENSION OR revocation of quasi-banking OR OTHER SPECIAL licenses
Whether or not there is an administrative proceeding, if the institution and/or
the directors and/or officers concerned continue with or otherwise persist in Resignation or termination from office shall not exempt such director or
the commission of the indicated practice or violation, the Monetary Board may officer OR EMPLOYEE from administrative or criminal sanctions.
issue an order requiring the institution and/or the directors and/or officers
concerned to cease and desist from the indicated practice or violation, and The Monetary Board may, whenever warranted by circumstances,
may further order that immediate action be taken to correct the conditions preventively suspend any director or officer OR EMPLOYEE of a bank or quasi-
resulting from such practice or violation. The cease and desist order shall be bank INSTITUTION pending an investigation: Provided, That should the case
immediately effective upon service on the respondents. be not finally decided by the Bangko Sentral within a period of one hundred
twenty (120) days after the date of suspension, said director or officer shall be
The respondents shall be afforded an opportunity to defend their action in a reinstated in his position: Provided, further, That when the delay in the
hearing before the Monetary Board or any committee chaired by any disposition of the case is due to the fault, negligence or petition of the director
Monetary Board member created for the purpose, upon request made by the or officer OR EMPLOYEE, the period of delay shall not be counted in computing
respondents within five (5) days from their receipt of the order. If no such the period of suspension herein provided.
hearing is requested within said period, the order shall be final. If a hearing is
conducted, all issues shall be determined on the basis of records, after which The above administrative sanctions need not be applied in the order of their
the Monetary Board may either reconsider or make final its order. severity.

The Governor is hereby authorized, at his discretion, to impose upon banking Whether or not there is an administrative proceeding, if the institution and/or
institutions, for any failure to comply with the requirements of law, Monetary the directors and/or officers OR EMPLOYEES concerned continue with or
Board regulations and policies, and/or instructions issued by the Monetary otherwise persist in the commission of the indicated practice or violation, the
Board or by the Governor, fines not in excess of Ten thousand pesos (P10,000) Monetary Board may issue an order requiring the institution and/or the
a day for each violation, the imposition of which shall be final and executory directors and/or officers concerned to cease and desist from the indicated
until reversed, modified or lifted by the Monetary Board on appeal. practice or violation, and may further order that immediate action be taken to
correct the conditions resulting from such practice or violation. The cease and
desist order shall be immediately effective upon service on the respondents.

Section 37. Administrative Sanctions on Banks and Quasi-banks. SUPERVISED The respondents shall be afforded an opportunity to defend their action in a
ENITIES — Without prejudice to the criminal sanctions against the culpable hearing before the Monetary Board or any committee chaired by any
persons provided in Sections 34, 35, and 36 of this Act, the Monetary Board Monetary Board member created for the purpose, upon request made by the
may, at its discretion, impose upon any bank or quasi-bank, INCLUDING THEIR respondents within five (5) days from their receipt of the order. If no such
SUBSIDIARIES AND AFFILIATES ENGAGED IN ALLIED ACTIVITIES OR OTHER hearing is requested within said period, the order shall be final. If a hearing is
ENTITY WHICH UNDER THIS ACT OR SPECIAL LAWS ARE SUBJECT THE BANKO conducted, all issues shall be determined on the basis of records, after which
SENTRAL SUPERVISION AND/OR their directors and/or officers OR the Monetary Board may either reconsider or make final its order.
EMPLOYEES, for
The Governor is hereby authorized, at his discretion, to impose upon banking
institutions, BANK AND QUASI-BANKS, INCLUDING THEIR SUSBIDIARIES AND
any willful violation of its charter or by-laws, willful delay in the submission of AFFILIATES ENGAGED IN ALLIED ACTIVITIES, AND OTHER ENTITIES WHICH
reports or publications thereof as required by law, rules and regulations; UNDER THIS ACT OR SPECIAL LAWS ARE SUBJECT TO THE BANKO SENTRAL
SUPERVISION for any failure to comply with the requirements of law,
Monetary Board regulations and policies, and/or instructions issued by the
any refusal to permit examination into the affairs of the institution; Monetary Board or by the Governor, fines not in excess of Ten thousand pesos

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 43


(P10,000) ONE HUNDRED THOUSAND (P100,000) FOR EACH TRANSACTIONAL Please take note—that it is specifically provided for in the amendment, no
VIOLATION OR THIRTY THOUSAND PESOS (P 30,000) PER CALENDAR a day court other than the SUPREME COURT or the COURT OF APPEALS can issue a
for each violations OF A CONTINUING NATURE, the imposition of which shall TRO or PI.
be final and executory until reversed, modified or lifted by the Monetary Board
on appeal.
But for purposes of exam, I will not ask you of those amendments. But the
principle, I will ask that.

Under Section 37, it increased the sanction to—


SEC 38-A.ISSUANCE OF INJUNCTIVE RELIEF AGAINST BANKO SENTRAL
ONE HUNDRED THOUSAND (P100,000) FOR EACH TRANSACTIONAL ACTIONS-
VIOLATION OR THIRTY THOUSAND PESOS (P 30,000) PER CALENDAR a day
for each violations OF A CONTINUING NATURE NO COURT, OTHER THAN THE COURT OF APPEALS AND THE SUPREME COURT,
SHALL ISSUE ANY TEMPORARY RESTRAINING ORDER, PRELIMINARY
Now before the intended amendment, it was a per day violation or a per day INJUNCTION, PRELIMINARY MANDATORY INJUNCTION AGAINST THE BANKO
penalty. Now they qualify the “per day” if it is a violation of a continuing nature SENTRAL FOR ANY ACTION UNDER THIS ACT.
meaning if the violation persists in such a way that you cannot really determine
the loss to the Bangko Sentral or to the Institution it is considered as a ANY RESTRAINING ORDER OR INJUNCTION ISSUED IN VIOLATION OF THIS
continuing nature. So the violation is per day. SECTION IS VOID AND OF NO FORCE AND EFFECT.

Please take note of the last sentence in this particular slide— THE PROVISIONS OF THE RULES OF COURT ON INJUNCTIONS INSOFAR AS
THESE ARE APPLICABLE AND NOT INCONSISTENT WITH THE PROVISIONS OF
Resignation or termination from office shall not exempt such director or THIS ACT SHALL GOVERN THE ISSUANCE AND DISSOLUTION OF RESTRAINING
officer or employee from administrative or criminal sanctions. ORDERSAND INJUNCTINS AGAINST THE BANKO SENTRAL.

So this is similar to your Administrative Law. There is also a preventive


suspension pending investigation. Now is this Constitutional? What do you think? Can they limit the jurisdiction
of the courts? So check your Constitution.
EXAMPLE— the MB can issue a cease and desist order effective immediately.
Sec 2 of Art VIII
COVERED INSTITUTION
• you have your bank, quasi-bank, expressly provided in the amendment Section 2. The Congress shall have the power to define, prescribe, and
non-stock savings and loan associations, pawnshops, foreign exchange apportion the jurisdiction of the various courts but may not deprive the
dealer, trust entities. Supreme Court of its jurisdiction over cases enumerated in Section 5 hereof.

To summarize, these are the grounds for the imposition of administrative xxx
penalties—
ARTICLE V
Section 38. Operating Departments of the Bangko Sentral. — The Monetary REPORTS AND PUBLICATIONS
Board shall, in accordance with its authority under this Act, determine and
provide for such operating departments and other offices, including a public Section 39. Reports and Publications. — The Bangko Sentral shall publish a
information office, of the Bangko Sentral as it deems convenient for the proper general balance sheet showing the volume and composition of its assets and
and efficient conduct of the operations and the accomplishment of the liabilities as of the last working day of the month within sixty (60) NINETY(90)
objectives of the Bangko Sentral. The functions and duties of such operating DAYS after the end of each month, WHICH MAY BE REASONABLY EXTENDED
departments and other offices shall be determined by the Monetary Board. BY THE BANKO SENTRAL AS WARRANTED except for the month of December,
which shall be submitted within ninety (90) days after the end hereof.

The Monetary Board shall publish and submit the following reports to the
So to summarize, the operating departments of the Bangko Sentral shall be President and to the Congress:
composed of these sectors—
(a) not later than ninety (90) days after the end of each quarter, an analysis of
1. Supervision and Examination Sector economic and financial developments, including the condition of net
international reserves and monetary aggregates;
Now this sector, this will examine banking institutions.
(b) within ninety (90) days after the end of the year, WHICH MAY BE
2. Resource Management Sector REASONABLY EXTENDED BY THE BANKO SENTRAL AS WARRANTED the
preceding year's budget and profit and loss statement of the Bangko Sentral
showing in reasonable detail the result of its operations;
This is in-charge of the human resource management of the Bangko Sentral.
They provide scholarships, continuing education for the people of the BSP or
(c) one hundred twenty (120) days after the end of each semester, a review of
employees of the BSP.
the state of the financial system; and
3. Executive Management Sector
(d) as soon as practicable, abnormal movements in monetary aggregates and
the general price level, and, not later than seventy-two (72) hours after they
4. Security Plan Office are taken, remedial measures in response to such abnormal movements.

By the term itself, they are in charge of the facility itself, the plant. If you can Section 40. Annual Report.— Before the end of March (JUNE) of each year,
notice, the ones in the Bangko Sentral are so secured for a reason because the Bangko Sentral shall publish and submit to the President and the Congress
they are the ones printing currencies. an annual report on the condition of the Bangko Sentral including a review of
the policies and measures adopted by the Monetary Board during the past
Now an addition for the intended amended is the issuance of injunctive relief.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 44


year and an analysis of the economic and financial circumstances which gave
rise to said policies and measures. Please take note—

The annual report shall also include a statement of the financial condition of THE NET PROFIT OF THE BANKO SENTRAL AFTER ALLOWING FOR EXPENSES
the Bangko Sentral and a statistical appendix which shall present, as a OF OPERATION, ADEQUATE ALLOWANCES AND PROVISIONS FOR BAD AND
minimum, the following data: DOUBTFUL DEBTS, DEPRECIATION IN ASSETS, AND SUCH ALLOWANCES AND
PROVISIONS FOR CONTINGENCIES OR OTHER PURPOSES AS THE MONETARY
(a) the monthly movement of monetary aggregates and their components; BOARD MAY DETERMINE IN ACCORDANCE WITH PRUDENT FINANCIAL AND
(b) the monthly movement of purchases and sales of foreign exchange and of EFFECTIVE CENTRAL BANKING OPERATIONS.”
the international reserves of the Bangko Sentral;
THE NET PROFIT OF THE BANKO SENTRAL AFTER ALLOWING FOR EXPENSES
(c) the balance of payments of the Philippines; OF OPERATION, ADEQUATE ALLOWANCES AND PROVISIONS FOR BAD AND
DOUBTFUL DEBTS, DEPRECIATION IN ASSETS, AND SUCH ALLOWANCES AND
(d) monthly indices of consumer prices and of import and export prices; PROVISIONS FOR CONTINGENCIES OR OTHER PURPOSES AS THE MONETARY
BOARD MAY DETERMINE IN ACCORDANCE WITH PRUDENT FINANCIAL AND
(e) the monthly movement, in summary form, of exports and imports, by EFFECTIVE CENTRAL BANKING OPERATIONS.”
volume and value;
Please take note— of the framework in which it prepares its financial
(f) the monthly movement of the accounts of the Bangko Sentral and of other statement: based on prudent financial management and effective Sentral
banks; Bank Operations.

(g) the principal data on government receipts and expenditures and on the ARTICLE VI
status of the public debt, both domestic and foreign; and PROFITS, LOSSES, AND SPECIAL ACCOUNTS

(h) the texts of the major legal and administrative measures adopted by the
Government and the Monetary Board during the year which relate to the
functions or operations of the Bangko Sentral or of the financial system. Section 44. Distribution of Net Profits. — Within the first sixty (60) days
The Bangko Sentral shall publish another version of the annual report in terms following the end of each fiscal year, the Monetary Board shall determine and
understandable to the layman. carry out the distribution of the net profits, in accordance with the following
rule:
Failure to comply with the reportorial requirements pursuant to this article
without justifiable reason as may be determined by the Monetary Board shall Fifty percent (50%) of the net profits shall be carried to surplus and the
cause the withholding of the salary of the personnel concerned until the remaining fifty percent (50%) shall revert back to the National Treasury, except
requirements are complied with. as otherwise provided in the transitory provisions of this Act.

Section 45. Revaluation Profits and Losses. — Profits or losses arising from
They extended it. BEFORE, 60 days. NOW— it’s 90 days. any revaluation of the Bangko Sentral's net assets or liabilities in gold or
foreign currencies with respect to the Philippine peso shall not be included in
Please take note— the computation of the annual profits and losses of the Bangko Sentral. Any
profits or losses arising in this manner shall be offset by any amounts which,
as a consequence of such revaluations, are owed by the Philippines to any
Section 41. Signatures on Statements. — The balance sheets and other international or regional intergovernmental financial institution of which the
financial statements of the Bangko Sentral shall be signed by the officers Philippines is a member or are owed by these institutions to the Philippines.
responsible for their preparation, by the Governor, and by the auditor of the
Bangko Sentral. Any remaining profit or loss shall be carried in a special frozen account which
shall be named "Revaluation of International Reserve" and the net balance of
which shall appear either among the liabilities or among the assets of the
Who is the auditor of the Bangko Sentral? Bangko Sentral, depending on whether the revaluations have produced net
A: COA profits or net losses.
ARTICLE VI
PROFITS, LOSSES, AND SPECIAL ACCOUNTS The Revaluation of International Reserve account shall be neither credited nor
debited for any purposes other than those specifically authorized in this
section.
Fiscal year, of course January-December.
Section 46. Suspense Accounts. — Sections 43 and 43-A of Republic Act No.
Section 42. Fiscal Year. — The fiscal year of the Bangko Sentral shall begin on 265, as amended, creating the Monetary Adjustment Account (MAA) and the
January first and end on December thirty-first of each year.
Exchange Stabilization Adjustment Account (ESAA), respectively, are hereby
repealed. Amounts outstanding as of the effective date of this Act based on
these accounts shall continue to be for the account of the Central Bank and
Please take note— of the computation of the profits and losses. This is actually shall be governed by the transitory provisions of this Act.
modified how do you consider a profit for the profit or loss.
The Revaluation of International Reserve (RIR) account as of the effective date
Section 43. Computation of Profits and Losses. — Within the first thirty (30) of this Act of the Central Bank shall continue to be for the account of the same
days following the end of each year, the Bangko Sentral shall determine its net entity and shall be governed by the provisions of Section 44 of Republic Act
profits or losses. No. 265, as amended, until otherwise provided for in accordance with the
transitory provisions of this Act.
In the calculation of net profits, the Bangko Sentral shall make adequate
allowance or establish adequate reserves for bad and doubtful accounts.

So just like any other corporation, the Bangko Sentral is reporting for its profits
or losses, the balance sheets, the assets that it owns or the liabilities that it Section 43. Computation of Profits and Losses. — Within the first thirty (30)
has. SIXTY(60) DAYS following the end of each year, the Bangko Sentral shall

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 45


determine its net profits or losses. In the calculation of net profits, the Bangko DERIVATIVE INSTRUMENTS DENOMINATED in gold or foreign currencies with
Sentral shall make adequate allowance or establish adequate reserves for bad respect to the MOVEMENTS AND PRICES AND EXCHANGE RATES FROM
and doubtful accounts. THIRD CURRENCIES TO Philippine peso shall not be included in the
computation of the annual profits and losses of the Bangko Sentral. Any profits
“NOTWITHSTANDING ANY PROVISION OF THE LAW TO THE CONTRARY, THE or losses arising in this manner shall be offset by any amounts which, as a
NET PROFIT OF THE BANKO SENTRAL AFTER ALLOWING FOR EXPENSES OF consequence of such revaluations, are owed by the Philippines to any
OPERATION, ADEQUATE ALLOWANCES AND PROVISIONS FOR BAD AND international or regional intergovernmental financial institution of which the
DOUBTFUL DEBTS, DEPRECIATION IN ASSETS, AND SUCH ALLOWANCES AND Philippines is a member or are owed by these institutions to the Philippines.
PROVISIONS FOR CONTINGENCIES OR OTHER PURPOSES AS THE MONETARY
BOARD MAY DETERMINE IN ACCORDANCE WITH PRUDENT FINANCIAL AND Any remaining UNREALIZED profit or loss shall be carried in aN special frozen
EFFECTIVE CENTRAL BANKING OPERATIONS.” account which shall be named "Revaluation of International Reserve" and the
net balance of which shall appear either among the liabilities or among the
assets of the Bangko Sentral, depending on whether the revaluations have
So if a bank would speculate the BSP should be prudent on handling its produced net profits or net losses.
finances and it shall establish a research fund.
The Revaluation of International Reserve RIR account shall be neither credited
So this is an addition for the intended amendment. But there has to be a nor debited for THE PERIODIC REVALUATION AS AUTHORIZED IN THIS
research fund. SECTION AND TO REFLECT THE CORRESPONDING ADJUSTMENT RESULTING
TO THE REDUCTION OF BANKO SENTRAL’S NET FOREIGN ASSETS, LIABIITIES
To mitigate future risks such as but not limited to the impact of FOREX and AND FOREIGN CURRENCY-DENOMINATED DERIVATIVE INSTRUMENTS. THE
price fluctuations and to address other contingencies as the MB deems RIR SHAL BE ADJUSTED AND RECOGNIZED IN THE INCOME STATEMENT
prudent or necessary. UPON SALE OF GOLD AND FOREIGN SECURITIES, OR THE FOREIGN CURRENCY
IS REPATRIATED TO LOCAL CURRENCY OR IS USED TO PAY FOREIGN
How does it distributes its profits? OBLIGATIONS, OR UPON MATURITY OF A FOREIGN-CURRENYCY
DENOMINATED FORWARD OR OPTION CONTRACT INVOLVING THE
Section 44. Distribution of Net Profits. — Within the first sixty (60) days PHILIPPINE PESO any purposes other than those specifically authorized in this
following the end of each fiscal year, the Monetary Board shall determine and section.
carry out the distribution of the net profits, in accordance with the following
rule:
What derivative instrument did we discuss in Corporation Law?
Fifty percent (50%) of the net profits shall be carried to surplus and the
remaining fifty percent (50%) shall revert back to the National Treasury, • Rappler’s PDR- it is a derivative instrument because the underlying
except as otherwise provided in the transitory provisions of this Act. instrument is your equity
• Any derivative instrument, there is unrealized profit there, it is
So in other words it shall revert to the Government, the 50%, because when considered
we discussed about the capitalization of the BSP, it is funded by the money of
the Government. It is owned and subscribed by the Government. Therefore, it With respect to movement of prices and exchange rate from third currency
(government) should also get the profit. shall not be included in the computation of the annual profit.

So if there’s annual profit, the unrealized is not included in your profits. So it


SEC 43-A. CENTRAL BANK RESERVE FUND- is just carried in the account and evaluation of international research.

“THE BANKO SENTRAL SHALL ESTABLISH A RESERVE FUND TO MITIGATE We will go to that.
FUTURE RISKS AND CONTINGENCIES INHERENT IN CARRYING OUT THE
BANKO SENTRAL- MANDATED FUNCTIONS AS CENTRAL MONETARY RIR— Revaluation of International Reserve
AUTHORITY.”
Section 46. Suspense Accounts. — Sections 43 and 43-A of Republic Act No.
“THE RESERVE FUND SHALL CONSIST OF FLUCTUATION RESERVE, 265, as amended, creating the Monetary Adjustment Account (MAA) and the
CONTINGENCY RESERVE AND SUCH OTHER RESERVES AS THE MONETARY
Exchange Stabilization Adjustment Account (ESAA), respectively, are hereby
BOARD DEEMS PRUDENT OR NECESSARY.” repealed. Amounts outstanding as of the effective date of this Act based on
these accounts shall continue to be for the account of the Central Bank and
“THE FLUCTUATION RESERVE SHALL COVER LOSSES FROM EXCHANGE RATE shall be governed by the transitory provisions of this Act.
AND PRICE VOLATILITY AND SHALL BE DERIVED FROM THE NET PROFITS
BEFORE DISTRIBUTION AS PROVIDED UNDER SEC 44 OF THIS ACT.” The Revaluation of International Reserve (RIR) account as of the effective date
of this Act of the Central Bank shall continue to be for the account of the same
entity and shall be governed by the provisions of Section 44 of Republic Act
Section 44. Distribution of Net Profits. — Within the first sixty (60) days No. 265, as amended, until otherwise provided for in accordance with the
following the end of each fiscal year, the Monetary Board shall determine and transitory provisions of this Act.
carry out the distribution of the net profits, in accordance with the following
rule:
I will not ask that.
Fifty percent (50%) of the net profits shall be carried to surplus and the
remaining fifty percent (50%) shall revert back to the National Treasury, except ARTICLE VII
as otherwise provided in the transitory provisions of this Act. THE AUDITOR

Section 47. Appointment and Personnel. —

Please take note of the unrealized profits— The Chairman of the Commission on Audit shall act as the ex officio auditor of
the Bangko Sentral and, as such, he is empowered and authorized to appoint
a representative who shall be the auditor of the Bangko Sentral and, in
Section 45. Revaluation Profits and Losses. — UNREALIZED profits or losses accordance with law, fix his salary, and to appoint and fix salaries and number
arising from any revaluation of the Bangko Sentral's net assets or liabilities OR of personnel to assist said representative in his work.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 46


The salaries and other emoluments shall be paid by the Commission. The Violation of this provision or any regulation issued by the Bangko Sentral
auditor of the Bangko Sentral and personnel under him may be removed only pursuant thereto shall constitute an offense punishable by imprisonment of
by the Chairman of the Commission. not less than five (5) years but not more than ten (10) years. In case the
Revised Penal Code provides for a greater penalty, then that penalty shall be
The representative of the Chairman of the Commission must be a certified imposed.
public accountant with at least ten (10) years experience as such. No relative
of any member of the Monetary Board or the Chairman of the Commission
within the sixth degree of consanguinity or affinity shall be appointed such Section 51. Liability for Notes and Coins. — Notes and coins issued by the
representative. Bangko Sentral shall be liabilities of the Bangko Sentral and may be issued only
against, and in amounts not exceeding, the assets of the Bangko Sentral. Said
Please take note of the qualifications— notes and coins shall be a first and paramount lien on all assets of the Bangko
Sentral.
The representative of the Chairman of the Commission must be a certified
public accountant with at least ten (10) years experience as such. No relative The Bangko Sentral's holdings of its own notes and coins shall not be
of any member of the Monetary Board or the Chairman of the Commission considered as part of its currency issue and, accordingly, shall not form part of
within the sixth degree of consanguinity or affinity shall be appointed such the assets or liabilities of the Bangko Sentral.
representative.

So you see, these coins and notes, these are actually backed up by the assets
of the Bangko Sentral.
ISSUE OF MEANS OF PAYMENT
This is my problem with cryptocurrency, what Central Bank backs it up?
The unit of monetary value is of course the peso, represented by the sign P
with the 2 strikethroughs. If all assets in the world are backed up by their respective Central Banks, what
happens to these cryptocurrencies? Whose bank is this? Whose currency?
The peso is divided into 100 equal parts called the centavo represented by the
sign C. That’s my problem with cryptocurrency.

So what other countries do have a monetary value of peso din? Section 52. Legal Tender Power. — All notes and coins issued by the Bangko
A: Mexico Sentral shall be fully guaranteed by the Government of the Republic of the
Philippines and shall be legal tender in the Philippines for all debts, both public
ARTICLE II and private:
ISSUE OF MEANS OF PAYMENT
Provided, however, That, unless otherwise fixed by the Monetary Board, coins
A. CURRENCY shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above, and in amounts not
What is currency? exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less.

Section 49. Definition of Currency. — The word "currency" is hereby defined, You have a guarantor.
for purposes of this Act, as meaning all Philippine notes and coins issued or
circulating in accordance with the provisions of this Act. Again what happens to cryptocurrency? Who guarantees that? In the event
that you can exchange, there are assets at stake there. Something is
guaranteed there.
The exclusive power to issue coins and notes is given to the Bangko Sentral.
Provided, however, That, unless otherwise fixed by the Monetary Board,
Therefore— coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above, and in amounts not
No other person or entity, public or private, may put into circulation notes, exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less.
coins or any other object or document xxx
This is actually amended by Circular No., 537 Series of 2006—
If you violate— shall constitute an offense punishable by imprisonment of not
less than five (5) years but not more than ten (10) years. In case the Revised Is there a limit to the legal tender power of Philippine currency notes and
Penal Code provides for a greater penalty, then that penalty shall be imposed. coins?

Correlate this with your provisions of the RPC. Philippine currency notes have no limit to their legal tender power. In
particular, all notes and coins issued by the BSP shall be fully guaranteed by
Section 50. Exclusive Issue Power. — The Bangko Sentral shall have the sole the Government of the Republic of the Philippines and shall be legal tender in
power and authority to issue currency, within the territory of the Philippines. the Philippines for all debts, both public and private, as stipulated under
No other person or entity, public or private, may put into circulation notes, Section 52 of the New Central Bank Act.
coins or any other object or document which, in the opinion of the Monetary
Board, might circulate as currency, nor reproduce or imitate the facsimiles of However, in the case of coins in denomination of 1-, 5- and 10-Piso they shall
Bangko Sentral notes without prior authority from the Bangko Sentral. be legal tender in amounts not exceeding P1,000.00 while coins in
denomination of 1-, 5- and 10- and 25-Sentimo shall be legal tender in
The Monetary Board may issue such regulations as it may deem advisable in amounts not exceeding P100.00, pursuant to BSP Circular No. 537, Series of
order to prevent the circulation of foreign currency or of currency substitutes 2006.
as well as to prevent the reproduction of facsimiles of Bangko Sentral notes.

The Bangko Sentral shall have the authority to investigate, make arrests, So example, 1 peso 5 pesos 10 centavos, only until 1 thousand. So the payment
conduct searches and seizures in accordance with law, for the purpose of of your obligation is 2 thousand composed of 1 peso, so it can be refused by
maintaining the integrity of the currency.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 47


the creditor because it should only be until 1 thousand which is the legal Provided, however, That the Bangko Sentral shall not replace notes and coins
tender. I have the right to refuse because it is only up to 1 thousand. the identification of which is impossible, coins which show signs of filing,
clipping or perforation, and notes which have lost more than two-fifths (2/5)
How about for? of their surface or all of the signatures inscribed thereon. Notes and coins in
• 1 centavo such mutilated conditions shall be withdrawn from circulation and
• 10 centavos demonetized without compensation to the bearer.
• 25 centavos?

There was a time in the recent history that they actually require the old money
It is only legal tender up to the amount of P100. So when you pay, you’re so
to be surrendered because it will be demonetized.
annoyed with your creditor, now you pay in bits. So you get a piggy bank then
you get 25 centavos, then your debt is worth P200, which you used in paying,
so that can be refused because it is only up to P 100
So what they do is it is in a serial number, so if it is already unfit for circulation,
you have to surrender it. So they will demonetize t and they will print coins
Again if –
and notes.
• 1 peso
• 5 pesos Please take note that— the Bangko Sentral shall not replace notes and coins
• 10 pesos the identification of which is impossible, coins which show signs of filing,
until P1,000 only. clipping or perforation (holes), and notes which have lost more than two-fifths
(2/5) of their surface or all of the signatures inscribed thereon.
Legal tender can be used for the payment of debts which cannot
be refused by the creditor. The BSP is not obliged to replace those notes.

Please take note of that— If it’s not legal tender, the creditor can Notes and coins in such mutilated conditions shall be withdrawn from
actually refuse. circulation and demonetized without compensation to the bearer.

Section 53. Characteristics of the Currency. — The Monetary Board, with the Example— You have P1,000, then it got ripped, and it was taped. Then you
approval of the President of the Philippines, shall prescribe the used it to pay.
denominations, dimensions, designs, inscriptions and other characteristics of
notes issued by the Bangko Sentral: The seller said, the bank won’t accept that.

Provided, however, That said notes shall state that they are liabilities of the What do you think?
Bangko Sentral and are fully guaranteed by the Government of the Republic of
the Philippines. Said notes shall bear the signatures, in facsimile, of the We actually have (2) kinds—
President of the Philippines and of the Governor of the Bangko Sentral.
This is the Doctrine of Clean Note or the Clean-Note Policy—
Similarly, the Monetary Board, with the approval of the President of the
Philippines, shall prescribe the weight, fineness, designs, denominations and 1. Unfit for circulation
other characteristics of the coins issued by the Bangko Sentral. In the minting 2. Mutilated coins or notes
of coins, the Monetary Board shall give full consideration to the availability of
suitable metals and to their relative prices and cost of minting. If it is unfit, it’s okay. BSP will just replace it. They will demonetize then
exchange it. If it is mutilated will they exchange it?

Section 54. Printing of Notes and Mining of Coins. — The Monetary Board A: You have to determine, because the last sentence states—
shall prescribe the amounts of notes and coins to be printed and minted,
respectively, and the conditions to which the printing of notes and the minting Notes and coins in “such mutilated conditions” shall be withdrawn from
of coins shall be subject. The Monetary Board shall have the authority to circulation and demonetized without compensation to the bearer
contract institutions, mints or firms for such operations.
So the “such” there refers to the previous sentence which provides that—
All expenses incurred in the printing of notes and the minting of coins shall be
for the account of the Bangko Sentral. The identification of which is impossible, coins which show signs of filing,
clipping or perforation (holes), and notes which have lost more than two-
fifths (2/5) of their surface or all of the signatures
It is the MB that can prescribe.
If it is mutilated, it won’t be exchanged, you must determine first if—
Section 55. Interconvertibility of Currency. — The Bangko Sentral shall
1. the identification of which is impossible,
exchange, on demand and without charge, Philippine currency of any
denomination for Philippine notes and coins of any other denomination
requested. 2. the mutilation causes the loss more than two-fifths (2/5) of their surface
or all of the signatures
If for any reason the Bangko Sentral is temporarily unable to provide notes or
coins of the denominations requested, it shall meet its obligations by So it’s not allowed, just because it is mutilated, you can’t exchange it
delivering notes and coins of the denominations which most nearly anymore. The mutilation should be to the effect that the loss is more
approximate those requested. than (2/5) of their surface or all of the signatures.

Q: When the P1,000, is ripped, you placed scotch tape, replaceable or not?
A: YES. That is still legal tender because everything is still there.
Section 56. Replacement of Currency Unfit for Circulation. — The Bangko
Sentral shall withdraw from circulation and shall demonetize all notes and
coins which for any reason whatsoever are unfit for circulation and shall Example of those unfit—
replace them by adequate notes and coins: 1. if the currency contains heavy creasing which breaks the fiber of the
paper and indicate that the disintegration has begun.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 48


That one in the end, when you can already see the violet2x.
Section 59. Issue of Demand Deposits. — Only banks duly authorized to do
Provided however that mere creasing or wrinkling--- the one that’s crumpled, so may accept funds or create liabilities payable in pesos upon demand by the
which does not weaken the note does not render the note unfit for circulation. presentation of checks, and such operations shall be subject to the control of
the Monetary Board in accordance with the powers granted it with respect
So if it just crumpled, you can’t go to the BSP then ask for it to be replaced. thereto under this Act.
But if it has heavy creases, it starts to disintegrate, yes you can do that. It is
now considered as unfit for circulation.
Section 60. Legal Character. — Checks representing demand deposits do not
have legal tender power and their acceptance in the payment of debts, both
Other example of unfit for circulation—
public and private, is at the option of the creditor:
• badly soiled or contaminated or with writings, the one with writings Provided, however, That a check which has been cleared and credited to the
• it presents a limp or rag-like appearance 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.
When can it be considered a currency note mutilated?
A: When torn parts of the notes are joined together with adhesive tape in
manner which tries to preserve as nearly as possible the original and the size G.R. No. L-49188
of the note.
The ones with the scotch tape. January 30, 1990

It is mutilated but can you replace it without compensation? PHILIPPINE AIRLINES, INC., petitioner, vs. HON. COURT OF APPEALS, HON.
A: it really depends. JUDGE RICARDO D. GALANO, Court of First Instance of Manila, Branch XIII,
JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and
If the 2/5 of the surface is missing or there is no signature anymore. AMELIA TAN, respondents.

Second: the original size of the note has been lost or reduced to wear and tear Facts:
or has been otherwise xxx or has been perforated through action by insects,
chemicals or other causes. On October 11, 1977, a judgement was rendered by the RTC wherein it issued
its order of execution with the corresponding writ in favor of the Amelia Tan.
There are some money the more time passes by it becomes
smaller. It is considered mutilated. The writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of
the Court of First Instance of Manila for enforcement.
Third: it is scorched or burned to such an extent that although recognizable as
such, has become frail and brittle as to render the handling thereof impossible Four months later, on February 11, 1978, respondent Amelia Tan moved for
without disintegration. the issuance of an alias writ of execution stating that the judgment rendered
by the lower court, and affirmed with modification by the Court of Appeals,
It has split lengthwise or has lost all the signatures inscribed therein. remained unsatisfied.

Please take note of that— so these are the examples of mutilation which On March 3,1978, the Court of Appeals denied the issuance of the alias writ
cannot be replaced. for being premature, ordering the executing sheriff Emilio Z. Reyes to appear
with his return and explain the reason for his failure to surrender the amounts
Section 57. Retirement of Old Notes and Coins. — The Bangko Sentral may paid to him by petitioner PAL.
call in for replacement notes of any series or denomination which are more
than five (5) years old and coins which are more than (10) years old. However, the order could not be served upon Deputy Sheriff Reyes who had
absconded or disappeared. The payment was made to the absconding sheriff
Notes and coins called in for replacement in accordance with this provision with a check in his own name.
shall remain legal tender for a period of one (1) year from the date of call. After
this period, they shall cease to be legal tender but during the following year, Issue: Whether the payment of the check in the name of Reyes(Sheriff) would
or for such longer period as the Monetary Board may determine, they may be be considered legal tender?
exchanged at par and without charge in the Bangko Sentral and by agents duly
authorized by the Bangko Sentral for this purpose. Ruling: NO.

After the expiration of this latter period, the notes and coins which have not There are circumstances in this case, however, which compel a different
been exchanged shall cease to be a liability of the Bangko Sentral and shall be conclusion.
demonetized. The Bangko Sentral shall also demonetize all notes and coins
which have been called in and replaced. The payment made by the petitioner to the absconding sheriff was not in
cash or legal tender but in checks. The checks were not payable to Amelia Tan
or Able Printing Press but to the absconding sheriff.
B. DEMAND DEPOSITS
Did such payments extinguish the judgment debt?
Section 58. Definition. — For purposes of this Act, the term "demand
deposits" means all those liabilities of the Bangko Sentral and of other banks Article 1249 of the Civil Code provides:
which are denominated in Philippine currency and are subject to payment in
legal tender upon demand by the presentation of checks. The payment of debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the currency which is legal
These are deposits, *** demand deposits, legal character. tender in the Philippines.

Checks representing demand deposits who do not have legal tender power The delivery of promissory notes payable to order, or bills of exchange or other
and their acceptance as payment of debts both public and private is at the mercantile documents shall produce the effect of payment only when they
option of the creditor. have been cashed, or when through the fault of the creditor they have been
impaired.
You already know this in your Obligations & Contracts.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 49


In the meantime, the action derived from the original obligation shall be held of the checks in the name of the sheriff clearly made possible the
in abeyance. misappropriation of the funds that were withdrawn.

In the absence of an agreement, either express or implied, payment means As explained and held by the respondent court—
the discharge of a debt or obligation in money (US v. Robertson, 5 Pet. [US]
641, 8 L. ed. 257) and unless the parties so agree, a debtor has no rights, except Knowing as it does that the intended payment was for the private party
at his own peril, to substitute something in lieu of cash as medium of payment respondent Amelia Tan, the petitioner corporation, utilizing the services of its
of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. personnel who are or should be knowledgeable about the accepted
402). procedures and resulting consequences of the checks drawn, nevertheless, in
this instance, without prudence, departed from what is generally observed
Consequently, unless authorized to do so by law or by consent of the obligee and done, and placed as payee in the checks the name of the errant Sheriff
a public officer has no authority to accept anything other than money in and not the name of the rightful payee.
payment of an obligation under a judgment being executed. Strictly speaking,
the acceptance by the sheriff of the petitioner's checks, in the case at bar, does Petitioner thereby created a situation which permitted the said Sheriff to
not, per se, operate as a discharge of the judgment debt. personally encash said checks and misappropriate the proceeds thereof to his
exclusive personal benefit. For the prejudice that resulted, the petitioner
Since a negotiable instrument is only a substitute for money and not money, himself must bear the fault. The judicial guideline which we take note of states
the delivery of such an instrument does not, by itself, operate as payment. as follows:

A check, whether a manager's check or ordinary cheek, is not legal tender, and As between two innocent persons, one of whom must suffer the consequence
an offer of a check in payment of a debt is not a valid tender of payment and of a breach of trust, the one who made it possible by his act of confidence
may be refused receipt by the obligee or creditor. Mere delivery of checks must bear the loss.
does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial Having failed to employ the proper safeguards to protect itself, the judgment
document is actually realized (Art. 1249, Civil Code, par. 3). debtor whose act made possible the loss had but itself to blame.

If bouncing checks had been issued in the name of Amelia Tan and not the
Sheriff's, there would have been no payment. After dishonor of the checks, Although payment by checks is encouraged, there must be proper safeguards
Ms. Tan could have run after other properties of PAL. The theory is that she on the part of the payor so that the encashment by another person be
has received no value for what had been awarded her. Because the checks prevented.
were drawn in the name of Emilio Z. Reyes, neither has she received anything.
The same rule should apply. FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ REALTY INC.,
respondents.
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been
payment in full legal contemplation. The reasoning is logical but is it valid and Facts:
proper? Logic has its limits in decision making. We should not follow rulings to
their logical extremes if in doing so we arrive at unjust or absurd results. Sometime in August 1973, Diaz and Company got a loan from the former PaBC
[Pacific Banking Corporation] in the amount of P720,000.00, with interest at
12% per annum, later increased to 14%, 16%, 18% and 20%.
In the first place, PAL did not pay in cash. It paid in checks.

And second, payment in cash always carries with it certain cautions. Nobody In 1981, Allied Banking Corporation rented an office space in the building
hands over big amounts of cash in a careless and inane manner. Mature constructed on the properties covered by the mortgage contract, with the
thought is given to the possibility of the cash being lost, of the bearer being conformity of mortgagee PaBC, whereby the parties agreed that the monthly
waylaid or running off with what he is carrying for another. rentals shall be paid directly to the mortgagee for the lessors account, either
to partly or fully pay off the aforesaid mortgage indebtedness.
Payment in checks is precisely intended to avoid the possibility of the money
going to the wrong party. The situation is entirely different where a Sheriff Pursuant to such contract, Allied Bank paid the monthly rentals to PaBC
seizes a car, a tractor, or a piece of land. Logic often has to give way to instead of to the plaintiffs.
experience and to reality. Having paid with checks, PAL should have done so
properly. On July 5, 1985, the Central Bank closed PaBC, placed it under receivership,
and appointed Renan Santos as its liquidator.
Payment in money or cash to the implementing officer may be deemed
absolute payment of the judgment debt but the Court has never, in the least Sometime in December 1986, appellant FEBTC purchased the credit of Diaz &
bit, suggested that judgment debtors should settle their obligations by turning Company in favor of PaBC, but it was not until March 23, 1988 that Diaz was
over huge amounts of cash or legal tender to sheriffs and other executing informed about it.
officers. Payment in cash would result in damage or interminable litigations
each time a sheriff with huge amounts of cash in his hands decides to abscond. According to the plaintiff as alleged in the complaint and testified to by
Antonio Diaz (President of Diaz & Company and Vice-President of Diaz Realty),
As a protective measure, therefore, the courts encourage the practice of
payments by check provided adequate controls are instituted to prevent 2. on March 23, 1988 he went to office of PaBC which by then housed
wrongful payment and illegal withdrawal or disbursement of funds. If FEBTC and was told that the latter had acquired PaBC;
particularly big amounts are involved, escrow arrangements with a bank and
carefully supervised by the court would be the safer procedure. Actual transfer 3. that Cashier Ramon Lim told him that as of such date, his loan was
of funds takes place within the safety of bank premises. These practices are P1,447,142.03;
perfectly legal. The object is always the safe and incorrupt execution of the
judgment. 4. that on December 14, 1988,[6] Diaz tendered to FEBTC the amount of
P1,450,000.00 through an Interbank check, in order to prevent the
It is, indeed, out of the ordinary that checks intended for a particular payee imposition of additional interests, penalties and surcharges on its loan;
are made out in the name of another. Making the checks payable to the
judgment creditor would have prevented the encashment or the taking of 5. that FEBTC did not accept it as payment(check)
undue advantage by the sheriff, or any person into whose hands the checks
may have fallen, whether wrongfully or in behalf of the creditor. The issuance

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6. that instead, Diaz was asked to deposit the amount with the drawee bank. Moreover, petitioner was in possession of the money for several
defendants Davao City Branch Office, allegedly pending the approval of months.
Central Bank Liquidator Renan Santos;
In further contending that there was no valid tender of payment, petitioner
emphasizes our pronouncement in Roman Catholic Bishop of Malolos, Inc. v.
7. that when there was still no news from the defendant whether or not Intermediate Appellate Court, as follows:
it [would] accept his tender of payment, he filed this case at the
Regional Trial Court of Davao City. "Tender of payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the former's
In its responsive pleading, the defendant set up the following obligation and demanding that the latter accept the same.
special/affirmative defenses:
xxx xxx xxx
1. that sometime in December 1986, FEBTC purchased from the PaBC the
account of the plaintiffs for a total consideration of P1,828,875.00; "Thus, tender of payment cannot be presumed by a mere inference from
surrounding circumstances. At most, sufficiency of available funds is only
2. that despite such purchase, PaBC Davao Branch continued to collect affirmative of the capacity or ability of the obligor to fulfill his part of the
interests and penalty charges on the loan from January 6, 1987 to July bargain. But whether or not the obligor avails himself of such funds to settle
8, 1988; his outstanding account remains to be proven by independent and credible
evidence.
3. that it was therefore not FEBTC which collected the interest rates
mentioned in the complaint, but PaBC; Tender of payment presupposes not only that the obligor is able, ready, and
willing, but more so, in the act of performing his obligation. Ab posse ad actu
4. that as a matter of fact, after the transfer of plaintiffs account, it sought non vale illatio. 'A proof that an act could have been done is no proof that it
to negotiate with the plaintiffs, and in fact, negotiations were made for was actually done."'
a settlement and possible reduction of charges;
In other words, tender of payment is the definitive act of offering the creditor
5. that FEBTC has no knowledge of the rates of interest imposed and what is due him or her, together with the demand that the creditor accept the
collected by PaBC prior to the purchase of the account from the latter, same. More important, there must be a fusion of intent, ability and capability
hence it could not be held responsible for those transactions which to make good such offer, which must be absolute and must cover the amount
transpired prior to the purchase; and that the defendant acted at the due.
opportune time for the settlement of the account, albeit exercising
prudence in the handling of such account. That respondent intended to settle its obligation with petitioner is evident
from the records of the case. After learning that its loan balance was
Issue: Whether there was valid tender of payment? P1,447,142.03, it presented to petitioner a check in the amount of P1,450,000,
with the specific notation that it was for full payment of its Pacific Bank
Ruling: account that had been purchased by petitioner.

Yes, there was a valid tender of payment. The latter accepted the check, even if it now insists that it considered the same
as a mere deposit. The check was sufficiently funded, as in fact it was honored
First Issue: Tender of Payment by the drawee bank. When petitioner refused to release the mortgage,
respondent instituted the present case to compel the bank to acknowledge
Petitioner resolutely argues that the CA erred in upholding the validity of the the tender of payment, accept payment and cancel the mortgage.
tender of payment made by respondent. What the latter had tendered to
settle its outstanding obligation, it points out, was a check which could not be These acts demonstrate respondent's intent, ability and capability to fully
considered legal tender. settle and extinguish its obligation to petitioner.

We disagree. That respondent subsequently withdrew the money from petitioner-bank is of


no moment, because such withdrawal would not affect the efficacy or the legal
The records show that petitioner bank purchased respondent's account from ramifications of the tender of payment made on November 14, 1988. As
PaBC in December 1986, and that the latter was notified of the transaction already discussed, the tender of payment to settle respondent's obligation as
only on March 23, 1988. Thereafter, Antonio Diaz, president of respondent computed by petitioner was accepted, the check given in payment thereof
corporation, inquired from petitioner on the status and the amount of its converted into money, and the money kept in petitioner's possession for
obligation. several months.

He was informed that the obligation summed up to P1,447,142.03. Finally, petitioner points out that, in any case, tender of payment extinguishes
the obligation only after proper consignation, which respondent did not do.
On November 14, 1988, petitioner; received from respondent Interbank Check
No. 81399841 dated November 13, 1988, bearing the amount of P1,450,000, The argument does not persuade. For a consignation to be necessary, the
with the notation "Re: Full Payment of Pacific Bank Account now turned over creditor must have refused, without just cause, to accept the debtor's
to Far East Bank." payment. However, as pointed out earlier, petitioner accepted respondent's
check.
The check was subsequently cleared and honored by Interbank, as shown by
the Certification it issued on January 20, 1992.11 To iterate, the tender was made by respondent for the purpose of settling its
obligation. It was incumbent upon petitioner to refuse, or accept it as
In general, a check does not constitute legal tender, and that a creditor may payment. The latter did not have the right or the option to accept and treat it
validly refuse it. It must be emphasized, however, that this dictum does not as a deposit. Thus, by accepting the tendered check and converting it into
prevent a creditor from accepting a check as payment. In other words, the money, petitioner is presumed to have accepted it as payment. To hold
creditor has the option and the discretion of refusing or accepting it. otherwise would be inequitable and unfair to the obligor.

"In the present case, petitioner bank did not refuse respondent's check. On
the contrary, it accepted the check which, it insisted, was a deposit. As earlier Intent of payment must be coupled with?
stated, the check proved to be fully funded and was in fact honored by the A: intent, ability and capability to make good such offer, which must be
absolute and must cover the amount due.

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CHAPTER III 1. Operations in gold and foreign exchange
GUIDING PRINCIPLES OF MONETARY ADMINISTRATION 2. Regulations of foreign exchange operations of banks
BY THE BANGKO SENTRAL
3. Loans to banking and other financial institutions
4. Open market operations
ARTICLE I - DOMESTIC MONETARY STABILIZATION
5. Bank reserves
Section 61. Guiding Principle. — The Monetary Board shall endeavor to 6. Moral suasion
control any expansion or contraction in monetary aggregates which is 7. Selective regulation of bank operations
prejudicial to the attainment or maintenance of price stability.
So the basic and most commonly used is the policy interest rates is the reserve
requirement.

Section 61. Guiding Principle. — THE MONETARY BOARD SHALL REGULARLY Policy Interest Rate
ASSESS PRICE DEVELOPMENTS AND OUTLOOK AND, BASED ON ITS ANALYSIS
AND EVALUATION OF INFLATIONARY PRESSURES, USE ITS POLICY What would happen if BSP increases the interest rate?
INSTRUMENTS TO ATTAIN AND MAINTAIN PRICE STABILITY. The Monetary
Board shall endeavor to control any expansion or contraction in monetary Effect: A person wants to deposit because the interest rate is high. If he
aggregates which is prejudicial to the attainment or maintenance of price deposits, what will happen?
stability.
Effect: the currency or money will be lower in circulation.

Reserve Requirement
We are talking about money aggregates which are equivalent to your supplies.
When it’s reserve requirement the bank increases the reserve. Just like this
I’m sure in your basic economics you were taught what money supply is.
ink, the reserve requirement is up to this. Your reserve requirement is that
amount that you can’t circulate as credit.
So there are different classification of money supply—

1. M1: currency in the circulation So imagine if that goes up, this is how much you will only circulate. Increasing
the reserve requirement of banks actually reduces the circulation in the
2. M2: currency in the circulation+ pesos savings + time deposits
economy.
3. M3: M2 + peso deposit substitutes
4. M4:M3+ transferable deposits and foreign supply So when it requires balancing, you have to balance it out.

These are the money supplies which is going to be the basis for the monetary Section 62. Power to Define Terms. — For purposes of this article and of this
policy of the BSP. Act, the Monetary Board shall formulate definitions of monetary aggregates,
credit and prices and shall make public such definitions and any changes
The monetary policy could either be— thereof.
1. Contractionary
2. Expansionary
Domestic Monetary Stabilization
Now if the Bangko Sentral believes that the inflationary rate is in excess of the
desired rate—
Section 63. Action When Abnormal Movements Occur in the Monetary
How do we measure inflationary weight? What do we do? What does the Aggregates, Credit, or Price Level. — Whenever abnormal movements in the
BSP do? monetary aggregates, in credit, or in prices endanger the stability of the
Philippine economy or important sectors thereof, the Monetary Board shall:
Inflation targeting, right? They said the target is 5 % of our inflation. There are
countries that do not do inflation targeting. But in the Philippines, we do that. (a) take such remedial measures as are appropriate and within the powers
granted to the Monetary Board and the Bangko Sentral under the provisions
Let’s say the inflation within the year should be only 5-7%. If the BSP believes of this Act; and
that the actual inflation rate is in excess of the targeted so it can contract or
reduce liquidity. So it will reduce the circulation of money in the economy. So (b) submit to the President of the Philippines and the Congress, and make
that is the contraction which could actually result in a lower inflation value. public, a detailed report which shall include, as a minimum, a description and
analysis of:
That is why if you build-build infrastructures, natural effect is inflation because
a lot of money are circulating in the economy. But this natural effect should (1) the causes of the rise or fall of the monetary aggregates, of credit or of
be countered by a monetary policy which seeks to reduce the liquidity to an prices;
adjusted level. Otherwise, the poor get poorer.
(2) the extent to which the changes in the monetary aggregates, in credit, or
Now if it believes that the inflationary rate is at a comfortable with the desired in prices have been reflected in changes in the level of domestic output,
level, it can again raise the amount of liquidity in the economy. employment, wages and economic activity in general, and the nature and
significance of any such changes; and
How does the BSP do that?
(3 the measures which the Monetary Board has taken and the other
There are monetary policy instruments— It could either do – monetary, fiscal or administrative measures which it recommends to be
adopted.
1. Policy interest rates and open market liquidation
2. Reserve requirements Whenever the monetary aggregates, or the level of credit, increases or
3. Special deposit credit, discounts, savings decreases by more than fifteen percent (15%), or the cost of living index
increases by more than ten percent (10%), in relation to the level existing at
Monetary Policy Instruments the end of the corresponding month of the preceding year, or even though any

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of these quantitative guidelines have not been reached when in its judgment In judging the adequacy of the international reserves, the Monetary Board
the circumstances so warrant, the Monetary Board shall submit the reports shall be guided by the prospective receipts and payments of foreign exchange
mentioned in this section, and shall state therein whether, in the opinion of by the Philippines.
the Board, said changes in the monetary aggregates, credit or cost of living
represent a threat to the stability of the Philippine economy or of important The Board shall give special attention to the volume and maturity of the
sectors thereof. Bangko Sentral's own liabilities in foreign currencies, to the volume and
maturity of the foreign exchange assets and liabilities of other banks operating
The Monetary Board shall continue to submit periodic reports to the President in the Philippines and, insofar as they are known or can be estimated, the
of the Philippines and to Congress until it considers that the monetary, credit volume and maturity of the foreign exchange assets and liabilities of all other
or price disturbances have disappeared or have been adequately controlled. persons and entities in the Philippines.

Proposed Amendment So we have international reserves. So in judging the adequacy of these


reserves, the monetary board shall be guided by prospective receipts and
Section 63. Action When Abnormal Movements Occur in the Monetary payments of foreign exchange by the fields or the balance of payments.
Aggregates, Credit, or Price Level. — Whenever abnormal movements in the
monetary aggregates, in credit, or in prices endanger the stability of the That’s why OFW are new heroes because they allow our currency to be
Philippine economy or important sectors thereof, the Monetary Board shall: stabilized because a lot of money are entering the country.

(a) take such remedial measures as are appropriate and within the powers Gross International Reserves are foreign assets of the BSP serves as a standby
granted to the Monetary Board and the Bangko Sentral under the provisions fund to finance the deficit that may arise from the combined current capital of
of this Act; and international transactions.

(b) submit to the President of the Philippines and the Congress, and make We have the national monetary stabilization composed of the reserves,
public, a detailed report which shall include, as a minimum, a description and international reserves – these are composed of gold and assets in foreign
analysis of: currencies.
So there are deposits and foreign currencies.
(1) the causes of the rise or fall of the monetary aggregates, of credit or of
prices; Section 66. Composition of the International Reserves. —

(2) the extent to which the changes in the monetary aggregates, in credit, or The international reserves of the Bangko Sentral may include but shall not be
in prices have been reflected in changes in the level of domestic output, limited to the following assets:
employment, wages and economic activity in general, and the nature and (a) gold; and
significance of any such changes; and (b) assets in foreign currencies in the form of: documents and instruments
customarily employed for the international transfer of funds; demand and
(3 the measures which the Monetary Board has taken and the other time deposits in central banks, treasuries and commercial banks abroad;
monetary, fiscal or administrative measures which it recommends to be foreign government securities; and foreign notes and coins.
adopted.
The Monetary Board shall endeavor to hold the foreign exchange resources of
Whenever the monetary aggregates, or the level of credit, increases or the Bangko Sentral in freely convertible currencies; moreover, the Board shall
decreases by more than fifteen percent (15%), or the cost of living index give particular consideration to the prospects of continued strength and
increases by more than ten percent (10%), in relation to the level existing at convertibility of the currencies in which the reserve is maintained, as well as
the end of the corresponding month of the preceding year, or even though any to the anticipated demands for such currencies. The Monetary Board shall
of these THIS quantitative guidelines have HAS not been reached when in its issue regulations determining the other qualifications which foreign exchange
judgment the circumstances so warrant, the Monetary Board shall submit the assets must meet in order to be included in the international reserves of the
reports mentioned in this section, and shall state therein whether, in the Bangko Sentral.
opinion of the Board, said changes in the monetary aggregates, credit or cost
of living represent a threat to the stability of the Philippine economy or of The Bangko Sentral shall be free to convert any of the assets in its international
important sectors thereof. reserves into other assets as described in subsections (a) and (b) of this
section.
The Monetary Board shall continue to submit periodic reports to the President
of the Philippines and to Congress until it considers that the monetary, credit
or price disturbances have disappeared or have been adequately controlled.
Section 67. Action When the International Stability of the Peso Is
Threatened. —
ARTICLE II
INTERNATIONAL MONETARY STABILIZATION Whenever the international reserve of the Bangko Sentral falls to a level which
the Monetary Board considers inadequate to meet prospective net demands
Section 64. International Monetary Stabilization. — The Bangko Sentral shall on the Bangko Sentral for foreign currencies, or whenever the international
exercise its powers under this Act to preserve the international value of the reserve appears to be in imminent danger of falling to such a level, or
peso and to maintain its convertibility into other freely convertible currencies whenever the international reserve is falling as a result of payments or
primarily for, although not necessarily limited to, current payments for foreign remittances abroad which, in the opinion of the Monetary Board, are contrary
trade and invisibles. to the national welfare, the Monetary Board shall:

(a) take such remedial measures as are appropriate and within the powers
granted to the Monetary Board and the Bangko Sentral under the provisions
of this Act; and
Section 65. International Reserves. — In order to maintain the international
stability and convertibility of the Philippine peso, the Bangko Sentral shall
(b) submit to the President of the Philippines and to Congress a detailed report
maintain international reserves adequate to meet any foreseeable net
which shall include, as a minimum, a description and analysis of:
demands on the Bangko Sentral for foreign currencies.
(1) the nature and causes of the existing or imminent decline;

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(2) the remedial measures already taken or to be taken by the Monetary
Board; Moral Suasion— it is an influence that the Central Bank tries to induce or to
convince banks to conduct operations in a manner that would contribute to
(3) the monetary, fiscal or administrative measures further proposed; and the attainment of its monetary goals.

(4) the character and extent of the cooperation required from other So that might be not be supportive of profit or that may even contradict profit
government agencies for the successful execution of the policies of the maximization which is the objective of banks. So to tell you, these banks are
Monetary Board. Corporations as well.

If the resultant actions fail to check the deterioration of the reserve position What is their goal?
of the Bangko Sentral, or if the deterioration cannot be checked except by A: profits of course for the stockholders
chronic restrictions on exchange and trade transactions or by sacrifice of the
domestic objectives of a balanced and sustainable growth of the economy, the Between their interest of profit and between their interest of helping the
Monetary Board shall propose to the President, with appropriate notice of economy, which one will they prioritize?
the Congress, such additional action as it deems necessary to restore A: PROFIT.
equilibrium in the international balance of payments of the Philippines.
That’s why, the BSP has the right to influence them morally. So moral suasion.
The Monetary Board shall submit periodic reports to the President and to
Congress until the threat to the international monetary stability of the How does it do it?
Philippines has disappeared. A: there are dialogues. They conduct symposiums and dialogues with the head
of the banks. They will say this is our goal, we need to do this altogether.

That’s why in the news and there is a topic on inflation, issue on poverty level, In the economy this is what will happen, so you’ll be affected. That’s what we
there is always a comment from the Governor of the BSP. He always has call moral suasion. They use their moral influence through inter-bank dialogue
interviews because he is required. through the executives of the banks.

We have this recent debate whether to take out the ban on rice, around last ARTICLE II
month. Imported rice then an argument came between Piñol, Del Rosario OPERATIONS IN GOLD AND FOREIGN EXCHANGE
which is the Governor. There was chaos because it has an impact on the
stability.
Section 69. Purchases and Sales of Gold. — The Bangko Sentral may buy and
The balance of payments, again, this is the summary of the economic sell gold in any form, subject to such regulations as the Monetary Board may
transactions of a country between the rest of the world. So the country with issue.
the rest of the world. We are talking about imports and exports. So that is the
balance. There has to be a balance. The purchases and sales of gold authorized by this section shall be made in the
national currency at the prevailing international market price as determined

“Lahat ng bagay kaylangan balance. Wag puro aral, matulog din. Wag puro by the Monetary Board.

tulog, mag-aral din.”


So this is an example— structured and current report, the balance of payment
development. FOREX Stability

The country’s balance of payments position (BOP) posted a higher deficit of The BSP participates in the Forex market by buying and selling foreign
US$2 billion in Q2 2018 compared to the US$1.2 billion deficit in the previous exchange to ensure order and temporary destabilization swings and exchange
quarter. This development stemmed mainly from the current account, which rate.
reversed to a deficit of US$2.9 billion as the trade-in-goods deficit widened
and the net receipts in the primary income account declined. Imports of goods The BSP can actually enter into foreign exchange transactions.
continued to expand, driven mainly by increasing domestic production and
consumption brought about by the country’s solid growth dynamics. What are the main foreign exchange transactions?
Meanwhile, the financial account posted net inflows— BALANCE OF 1. Foreign Exchange Forward
PAYMENTS DEVELOPMENTS, 2nd Quarter 2018 Developments 2. Foreign Exchange Swap

That is just an example of your BOP. These are actually what you call Derivative Contracts because they derive
value on an underlying instrument.
CHAPTER IV In this particular case, the foreign currencies.
INSTRUMENTS OF BANGKO SENTRAL ACTION
What is Foreign Exchange Contract or Foreign Exchange Forward?
ARTICLE I - GENERAL CRITERION A: It shall refer to contract to purchase and sell a specified amount of currency
against another having specified the foreign exchange rate for deliverance at
Section 68. Means of Action. — In order to achieve the primary objective of a specified future date for 3 or more business days. ***
price stability, the Monetary Board shall rely on its moral influence and the
powers granted to it under this Act for the management of monetary Let’s say I will buy 100 dollar at 55 peso per dollar, determined.
aggregates.
Specified exchange rate for delivery after 3 days. Now if the value increases
after that day, you’re at a loss. If it goes down, you have a gain.
This is what you call MORAL SUASION. So it uses its moral influence on the
banks. Please take note of that.

How can it have moral suasion? What is Foreign Exchange Swap?

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 54


A: This actually refers to a transaction involving an actual exchange. There is
an exchange of 2 currencies and its specified rate at a date.
This is what you call the registration document.
And reverse of the same, you guys exchanged.

Example peso and Thai Baht. You exchange then after a specified date you So you need your BSRD to funnel your repatriation in the Philippine banking
exchange again at a specific rate. system.

Please take note—that the rate on your second exchange must be different Section 70. Purchases and Sales of Foreign Exchange. — The Bangko Sentral
from the rate applied to the first. may buy and sell foreign notes and coins, and documents and instruments of
types customarily employed for the international transfer of funds. The
Bangko Sentral may engage in future exchange operations.
Why is it, if it’s the same?
A: It has to be different. The Bangko Sentral may engage in foreign exchange transactions with the
following entities or persons only:
You guys exchange at 55 today, then tomorrow, you exchange again at 55. So (a) banking institutions operating in the Philippines;
the rate has to be different the second exchange. (b) the Government, its political subdivisions and instrumentalities;

Foreign Exchange Dealers (c) foreign or international financial institutions;


• money changers. They are regulated by the BSP.
• Are those regularly engaged in the business of buying and selling foreign (d) foreign governments and their instrumentalities; and
currencies
(e) other entities or persons which the Monetary Board is hereby empowered
• These are you money changers or MCs
to authorize as foreign exchange dealers, subject to such rules and regulations
as the Monetary Board shall prescribe.
I would like to draw your attention to foreign creditors. If you have
Corporations in the Philippines then the person who will fund us is from In order to maintain the convertibility of the peso, the Bangko Sentral may, at
outside the Philippines, there is direct investment (fund-in). the request of any banking institution operating in the Philippines, buy any
quantity of foreign exchange offered, and sell any quantity of foreign exchange
Let’s say it will invest 1 million USD. The encouragement of the BSP is to demanded, by such institution, provided that the foreign currencies so offered
register the foreign investment with BSP or with the investors designated by or demanded are freely convertible into gold or United States dollars. This
the BSP. requirement shall not apply to demands for foreign notes and coins.
But this is optional. If I will increase my investment in the Philippines, I have The Bangko Sentral shall effect its exchange transactions between foreign
to register. But that is only optional. currencies and the Philippine peso at the rates determined in accordance with
the provisions of Section 74 of this Act.
Why is it only optional when you register?
A: the reason why it needs to register with the BSP is because when you
repatriate the profit, stockholder invests 1 million here. After a year, he wants
to get his dividends.

So that is what you call Repatriation. Section 71. Foreign Asset Position of the Bangko Sentral. — The Bangko
Sentral shall endeavor to maintain at all times a net positive foreign asset
position so that its gross foreign exchange assets will always exceed its gross
That’s not just dividends. He can loan. I will loan to the Philippines because foreign liabilities. In the event that the equivalent amount in pesos of the
they’re poor for 1 million USD and then interest. So I will demand interest. You foreign exchange liabilities of the Bangko Sentral exceed twice the equivalent
will be paid in money from the Philippines for the interest in USD. amount in pesos of the foreign exchange assets of the bank, the Bangko
Sentral shall, within sixty (60) days from the date the limit is exceeded, submit
Now the problem of not registering it with the BSP is that he can’t use the a report to the Congress stating the origin of these liabilities, and the manner
banking system to funnel the currency. in which they will be paid.

What will happen is that he will buy from the small money changer of currency.
That’s why it’s optional because you never know you have bank account in
USD. You don’t need to funnel it in the banking system.

The registration is only for purposes of funneling the repatriation in the


Philippine banking system. It is convenient to register it because you won’t
have a problem when you try to repatriate your investment.

But it is only optional because you have the right to go to the money changer
if you want to or if you have your own foreign currency account.

That is the reason.

Benefit of Registering FDI

BSP registration will authorize the foreign investor or his duly authorized
representative to purchase FX from AABs/AAB-forex corps to repatriate capital
and/or remit dividends/profits/earnings accruing on BSP-registered
investments in FX. The Bangko Sentral Registration Document is one of the
prescribed documents to support an application to buy FX from AABs/AAB-
forex corps in the Philippines for these purposes.

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December 12, 2018 (2nd Hour) Bacolod brought this special civil action for prohibition in order to stop the
defendant Central Bank from taking: further action to enforce Circular No. 20.
Plaintiff says that the forced sale of foreign exchange to the Central Bank
required in Circular No. 20 is 'ultra vires'; and that the practice of the Central
Section 72. Emergency Restrictions on Exchange Operations. — In order to Bank in paying for such exchange only at the legal parity rate with the purpose
achieve the primary objective of the Bangko Sentral as set forth in Section 3 of of reselling the same to other private parties at the same rate is a confiscation
this Act, or protect the international reserves of the Bangko Sentral in the of private property not for public use nor for just compensation.
imminence of, or during the an exchange crisis, or in time of national
emergency and to give the Monetary Board and the Government time in According to the Central Bank, Circular No. 20 is presumed to be valid and the
which to take constructive measures to forestall, combat, or overcome such a Philippines being a signatory member to the IMF Agreement, such is bound to
crisis or emergency, the Monetary Board, with the concurrence of at least 5 respect and maintain the par value of the Philippine currency, and that Circular
of its members and with the approval of the President of the Philippines, No. 20 was approved in an exchange crisis; that the powers of the Central Bank
may temporarily suspend or restrict sales of exchange by the Bangko Sentral, to curtail, regulate and license the use of foreign exchange include the right to
and may subject all transactions in gold and foreign exchange to license by the require that all foreign exchange be surrendered and that the plaintiff has not
Bangko Sentral, and may require that any foreign exchange thereafter exhausted all the administrative remedies available in the ordinary course of
obtained by any person residing or entity operating in the Philippines be law, etc.
delivered to the Bangko Sentral or to any bank or agent designated by the
Bangko Sentral for the purpose, at the effective exchange rate or rates: RTC: found that there is a monetary crisis, that the export of sugar by plaintiff
Provided, however, That foreign currency deposits made under RA No. 6426 was a transaction on foreign exchange; that while plaintiff would stand to lose
shall be exempt from these requirements. by the operation of the exchange control circular, the enactment of a law on
currency and even the issuance of paper money as legal tender are attributes
of the sovereign power.
Please take note of the approval requirement— it has to be approved by the
5 members of the Monetary Board (MB) and with the approval of the
ISSUE: Whether the exchange control provision contained in Section 4 (a) of
President of the Philippines.
Central Bank Circular No. 20, may be considered as sufficiently authorized by
the provisions of the Charter.
What are these contemplated emergencies?
RUING: The disputed Section 4 (a) of Circular No. 20 of the Central Bank is
We are talking about international monetary crisis, coup d’état, civil war or
beyond the power of the Central Bank to adopt under the provisions of its
banking crisis.
Charter, particularly Section 74 thereof.
Case in point is the 1997 Asian Financial Crisis. There are a lot of commentaries
The provisions of Republic Act 265 are so broad and encompassing with
on that. It actually started, when the Thai government sought the aid of the
respect to the Bank's powers that it is difficult to believe that exchange control
IMF to help them, to rescue them out because the problem here is that the
was not authorized within the scope of the Charter.
Asian countries’ currency really went down against the USD. They Japayuki
took out loans until the value of their loans ballooned, 10x, 12x, 20x, and they
In Section 70, the Central Bank shall take remedial measures as are
couldn’t keep up with it because the currency depreciated.
appropriate and within the powers granted whenever the international
reserve falls "to an amount which the Monetary Board considers inadequate
What did our Government do to temper that down— because this is one that
to meet the prospective net demands on the Central Bank for foreign
we can consider an international monetary crisis?
currencies, or whenever the international reserve appears to be in imminent
danger of falling to such a level, or whenever the international reserve is falling
Section 72 says, the Monetary Board, with the concurrence of at least 5 of its
as a result of payments or remittances abroad, which, in the opinion of the
members and with the approval of the President of the Philippines, can
Monetary Board, are contrary to the national welfare." It is recognized that a
temporarily suspend or restrict sales of foreign exchange.
body created by law has the power to promulgate rules and regulations to
implement a given legislation and effectuate its policies.
What they did, it required prior clearance on the sale of the non-available
contracts to non-business including off-shore banking units. So, they limited
Under Section 14 the Monetary Board is given the authority to "prepare and
foreign exchange on shore. It adjusted the allowable overhaul foreign
issue such rules and regulations as it considers necessary for the effective
exchange position of banks for not more than 12, 20-10. Further, it justified
discharge of the responsibilities and exercise the powers assigned to the
impaired capital. So, they couldn’t sell foreign exchange during that time. It
Monetary Board and to the Central Bank."
lowered the ceiling of allowable over the counter dollar exchange in banks
without need of documentation. Before 10, 000 USD without need of
The forcible sale of foreign exchange to the Central Bank, in relation to the
documentation. They really restrict the selling of foreign exchange. It required
powers and responsibilities given to it in Secs. 2, 14, 64, 68, 70, 74 and other
consolidation of bank and its subsidiaries and required banks to submit forms
sections of R. A. No. 265 can be regarded as falling within the category of
for all purposes.
"implied powers" as those necessary for the effective discharge of its
responsibilities.

"Implied powers are such as are necessary to carry into effect those which are
BACOLOD MURCIA MILLING CO., INC. VS. CENTRAL BANK OF THE expressly granted, and which must therefore be presumed to have been within
PHILIPPINES, the intention of the legislative grant."
[ G.R. No. L-12610, October 25, 1963 ]
Under Section 70 of the Central Bank Charter the Bank may adopt such
On or about December 17, 1956, Bacolod Murcia Milling sold and exported to remedial measures as are appropriate to maintain the international reserve to
Olavarria & Co., Inc. of New York 3,000 tons of sugar for the total price of a desired level, as directed in Section 70 of the Charter, which provides:
$416,640.00 and drew against said Olavarria & Co., Inc. two (2) drafts for the
total sum of $336,995.40 to cover an initial payment of 95% which was then "Sec. 70. Action when the international stability of the peso is threatened.
entrusted and delivered for collection to the Philippine Bank of Commerce. Whenever the international reserve of the Central Bank falls to an amount
which the Monetary Board considers inadequate to meet the prospective net
PBC called the attention of Bacolod that under existing rules and regulations demands on the Central Bank for foreign currencies, or whenever the
all exchange proceeds of the drafts must be sold to the Central Bank international reserve appears to be in imminent danger of falling to such a
authorities at the prevailing rate of exchange set up by the Central Bank at the level, or whenever the international reserve is falling as a result of payments
rate also of 2 to 1. Plaintiff wrote to the defendant Central Bank questioning or remittances abroad which, in the opinion of the Monetary Board, are
the legality of the rules. contrary to the national welfare, the Monetary Board shall:

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 56


minimum balance necessary to cover current demands for said currencies only
"(a) Take such remedial measures as are appropriate and within the powers when, and to the extent that, such acquisition is considered by the Monetary
granted to the Monetary Board and the Central Bank under the provisions of Board to be in the national interest.
this Act."
The Monetary Board shall determine the procedures which shall apply to the
However, the Central Bank can not be said to have been given the authority to acquisition and disposition by the Bangko Sentral of foreign exchange which is
pass or enact by law the exchange control provision that it had established. not freely utilizable in the international market.

The Central Bank Act merely authorizes the Monetary Board to license or to Not all currencies around the world are convertible in our country. These are
restrict or regulate foreign exchange; said Act does not authorize it to the only convertible currencies right now—
commandeer foreign exchange earned by exporters and pay for it the price it
fixes, later selling it to importers at the same rate of purchase. The power to
commandeer amounts to a confiscatory power that may not be exercised by 1. UNITED STATES
the Central Bank under its Charter; that such confiscatory measures if justified 2. JAPAN
by a monetary crisis can be adopted by the legislature alone under its police 3. UNITED KINGDOM
power. 4. HONGKONG
5. SWITZERLAND
Therefore, the disputed Section 4 (a) of Circular No. 20 of the Central Bank is 6. CANADA
beyond the power of the Central Bank to adopt under the provisions of its 7. SINGAPORE
Charter, particularly Section 74 thereof. (Now Sec 72.) 8. AUSTRALIA
9. BAHRAIN
Emergency Restrictions on Exchange Operations. — In order to achieve the 10. KUWAIT
primary objective of the Bangko Sentral as set forth in Section 3 of this Act, or 11. SAUDI ARABIA
protect the international reserves of the Bangko Sentral in the imminence of, 12. BRUNEI
or during an exchange crisis, or in time of national emergency and to give the 13. INDONESIA
Monetary Board and the Government time in which to take constructive 14. THAILAND
measures to forestall, combat, or overcome such a crisis or emergency, the 15. UNITED ARAB EMIRATES
Monetary Board, with the concurrence of at least five (5) of its members and 16. EUROPEAN MONETARY UNION
with the approval of the President of the Philippines, may temporarily suspend 17. KOREA
or restrict sales of exchange by the Bangko Sentral, and may subject all 18. CHINA
transactions in gold and foreign exchange to license by the Bangko Sentral,
and may require that any foreign exchange thereafter obtained by any person Surprisingly, we don’t have a Malaysian currency. It is not a convertible
residing or entity operating in the Philippines be delivered to the Bangko currency. We have it in Aldevinco.
Sentral or to any bank or agent designated by the Bangko Sentral for the
purpose, at the effective exchange rate or rates: Provided, however, That What will happen if there’s no currency there? They convert it to a convertible
foreign currency deposits made under Republic Act No. 6426 shall be exempt currency. There is dual conversion.
from these requirements.
Section 74. Exchange Rates. — The Monetary Board shall determine the
That exchange control helped to ward off the exchange crisis is true; but it was exchange rate policy of the country.
by no means the only way to do so. It was not necessary for the bank to
commandeer all foreign exchange to maintain the international monetary The Monetary Board shall determine the rates at which the Bangko Sentral
reserve. This could be done by mere licensing of the sale of foreign exchange, shall buy and sell spot exchange, and shall establish deviation limits from the
directing those that earn the dollars, for example, to sell to those that are effective exchange rate or rates as it may deem proper.
licensed to import the foreign commodities needed by the country's
population and economy. As the exports are to be licensed also, the bank The Bangko Sentral shall not collect any additional commissions or charges of
could merely restrict the freedom of the exporter holding the foreign any sort, other than actual telegraphic or cable costs incurred by it.
exchange, requiring him to sell the foreign exchange to the licensed importer.
The Monetary shall similarly determine the rates for other types of foreign
exchange transactions by the Bangko Sentral, including purchases and sales of
foreign notes and coins, but the margins between the effective exchange rates
and the rates thus established may not exceed the corresponding margins for
The petition was dismissed. The writer said commandeering is not allowed spot exchange transactions by more than additional costs or expenses
because it is tantamount to a confiscatory of power which they cannot involved in each type of transactions.
implement. It is confiscatory in nature. They exported and they wanted to pay
under their own currency, USD. Now, they are made to sell to the Central Bank
at a fixed rate. Now, they have the short end of the bargain because there is 1. Fix Exchange Rate
BSP Circular No. 20. The court said the commandeering of foreign currency is
beyond the authority of the Central Bank. What is the authority of the Central 2. Floating Exchange Rate
Bank? The authority is merely to license and to restrict. So, they cannot force
them to sell to the Central Bank. In fact, the writer said, what will happen if 3. Semi-Fixed or Mixed Exchange Rate
you commandeer the foreign exchange? What will happen to the exporter?
The profit will be consumed by foreign exchange. It will restrict trading. Your Usually we go with the Floating Exchange Rate— what is in the market.
profit will be consumed by foreign exchange. What will happen? There will be
more imports than exports. It will destabilize the monetary currency. The point
of BSP is that they want to control the foreign currency so that they could
properly allocate it to the importers. Importers need foreign currency because
Section 75. Operations with Foreign Entities. – The Monetary Board may
they are paying in USD. The exporters are paying you (BSP) in dollars. It
authorize the Bangko Sentral to grant loans and receive loans from foreign
stabilizes. Commandeering or controlling the foreign currency is not part of
banks and other foreign or international entities, both public and private, may
the power of the Bangko Sentral. The Bangko Sentral can only license.
engage in such other operations with these entities as are in the national
interest and are appropriate to its character as a central bank. The Bangko
Section 73. Acquisition of Incontrovertible Currencies. – The Bangko Sentral Sentral may also act as agent or correspondent for such entities.
shall avoid acquisition and holding of currencies which are not freely
convertible, and may acquire such currencies in an amount exceeding the

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Upon authority of the Monetary Board, the Bangko Sentral may pledge any Section 79. Other Exchange Profits and Losses. – The banks shall bear the risks
gold or other assets which it possesses as security against loans which it of non-compliance with the terms of the foreign exchange documents and
receives from foreign or international entities. instruments which they buy and sell, shall also bear any other typically
commercial or banking risks, including exchange risks not assumed by the
Bangko Sentral under the provisions of the preceding section.
ARTICLE III
REGULATION OF FOREIGN EXCHANGE OPERATIONS OF THE BANKS

Section 76. Foreign Exchange Holdings of the Banks. – In order that the Section 80. Information on Exchange Operations. – The banks shall report to
Bangko Sentral may at all times have foreign exchange resources sufficient to the Bangko Sentral the volume and composition of their purchases and sales
enable it to maintain the international stability and convertibility of the peso, of gold and exchange each day, and must furnish additional information as to
or in order to promote the domestic investment of bank resources, the the Bangko Sentral may request with reference to the movements in their
Monetary Board may require the banks to sell to the Bangko Sentral or to accounts in foreign currencies.
other banks all or part of their surplus holdings of foreign exchange. Such
transfers may be required for all foreign currencies or for only certain of such The Monetary may also require other persons and entities to report to it
currencies, according to the decision of the Monetary Board. The transfers currently all transactions or operations in gold, in any shape or form, and in
shall be made at the rates established under the provisions of Section 74 of foreign exchange whether entered into or undertaken by them directly or
this Act. through agents, or to submit such data as may be required on operations or
activities giving rise to or in connection with or relating to a gold or foreign
The Monetary Board may, whenever warranted, determine the net assets and exchange transaction. The Monetary Board shall prescribe the forms in which
liabilities of banks and shall in making such a determination take into account such declarations must be made.
the bank’s net worth, outstanding liabilities, actual and contingent or such
other financial or performance ratios as may be appropriate under the The accuracy of the declarations may be verified by the Bangko Sentral by
circumstances. Any such determination of net assets and net liabilities shall be whatever inspection it may deem necessary.
applied in all banks uniformly and without discrimination.

ARTICLE IV
LOANS TO BANKING AND OTHER FINANCIAL INSTITUTIONS

ARTICLE III Section 81. Guiding Principles. – The rediscounts, discounts, loans and
REGULATION OF FOREIGN EXCHANGE OPERATIONS OF THE BANKS advances which the Bangko Sentral is authorized to extend to banking
institutions under the provisions of the present article of this Act shall be used
Section 77. Requirement of Balanced Currency Position. – The Monetary to influence the volume of credit consistent with the objective of price
Board may require the banks to maintain a balanced position between their stability.
assets and liabilities in Philippine pesos or in any other currency or currencies
in which they operate. The banks shall be granted a reasonable period of time
in which to adjust their currency positions to any such requirement. Proposed Amendment

The powers granted under this section shall be exercised only when special Section 81. Guiding Principles. – The rediscounts, discounts, loans and
circumstances make such action necessary, in the opinion of the Monetary advances which the Bangko Sentral is authorized to extend to banking
Board, and shall be applied to all banks alike and without discrimination. institutions under the provisions of the present article of this Act shall be used
to influence the volume of credit consistent with the objective of price stability
Open Foreign Exchange Position and maintenance of financial stability.
— Refers to the extent that the banks’ foreign exchange assets do
not match their foreign exchange liabilities.
Credit Policy
Allowable open FX position - Banks' allowable open FX position (either
overbought or oversold) shall be the lower of 20 percent (20%) of their Discount— bank loan with interest deducted from the face amount of the note
unimpaired capital or US$50 million. Any excess beyond the allowable limit when the credit is extended. It is also described as interest paid in advance or
shall be settled on a daily basis (MORFXT Section 98) interest paid at the beginning of a loan based upon the sum to be repaid at its
maturity.

Can the BSP regulate the non-spot exchange transaction? Rediscount— process by which the Bangko Sentral discounts a negotiable
instrument or commercial finance paper that are already discounted at the
Section 78. Regulation of Non-spot Exchange Transactions. – In order to bank.
restrain the banks from taking speculative positions with respect to future
fluctuations in foreign exchange rates, the Monetary Board may issue such Loans and advances are contracts where one of the parties loans another,
regulations governing bank purchases and sales of non-spot exchange as it money or other consumable thing, upon the condition the same amount of
may consider necessary for said purpose. the same kind and quantity shall be paid.

Why is this important? Self-explanatory.

Banks are driven purely for profit. It is possible that it’s investment is purely B. NORMAL CREDIT OPERATIONS
speculative. It will enter into foreign currency swaps or foreign currency
forward-contracts and the bulk of our investments is in that contract so what Section 82. Authorized Type of Operations. – Subject to the principle stated
well deposited in their bank and they will place it there. What if it’s risky and in the preceding section of this Act, the Bangko Sentral may normally and
it all goes down? It’s like an all-or-nothing game. regularly carry on the following credit operations with banking institutions
operating in the Philippines:

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 58


(a) Commercial credits. — The Bangko Sentral may rediscount, discount, buy
and sell bills, acceptances, promissory notes and other credit instruments with C. SPECIAL CREDIT OPERATIONS
maturities of not more than one hundred eighty (180) days from the date of
their rediscount, discount or acquisition by the Bangko Sentral and resulting Section 83. Loans for Liquidity Purposes. – The Bangko Sentral may extend
from transactions related to: loans and advances to banking institutions for a period of not more than (7)
days without any collateral for the purpose of providing liquidity to the
(1) the importation, exportation, purchase or sale of readily saleable goods banking system in times of need.
and products, or their transportation within the Philippines; or

(2) the storing of non-perishable goods and products which are duly insured
and deposited, under conditions assuring their preservation, in authorized D. EMERGENCY CREDIT OPERATION
bonded warehouses or in other places approved by the Monetary Board.
Section 84. Emergency Loans and Advances. – In periods of national and/or
(b) Production credits. — The Bangko Sentral may rediscount, discount, buy
local emergency or of imminent financial panic which directly threaten
and sell bills, acceptances, promissory notes and other credit instruments
monetary and banking stability, the Monetary Board may, by a vote of at least
having maturities of not more than three hundred sixty (360) days from the
five (5) of its members, authorize the Bangko Sentral to grant extraordinary
date of their rediscount, discount or acquisition by the Bangko Sentral and
loans or advances to banking institutions secured by assets as defined
resulting from transactions related to the production or processing of
hereunder: Provided, That while such loans or advances are outstanding, the
agricultural, animal, mineral, or industrial products. Documents or
debtor institution shall not, except upon prior authorization by the Monetary
instruments acquired in accordance with this subsection shall be secured by a
Board, expand the total volume of its loans or investments.
pledge of the respective crops or products: Provided, however, That the crops
or products need not be pledged to secure the documents if the original loan
The Monetary Board may, at its discretion, likewise authorize the Bangko
granted by the Bangko Sentral is secured by a lien or mortgage on real estate
Sentral to grant emergency loans or advances to banking institutions, even
property seventy percent (70%) of the appraised value of which equals or
during normal periods, for the purpose of assisting a bank in a precarious
exceeds the amount of the loan granted.
financial condition or under serious financial pressures brought by unforeseen
events, or events which, though foreseeable, could not be prevented by the
(c) Other credits. — Special credit instruments not otherwise rediscountable
bank concerned: Provided, however, That the Monetary Board has
under the immediately preceding subsections (a) and (b) may be eligible for
ascertained that the bank is not insolvent and has the assets defined
rediscounting in accordance with rules and regulations which the Bangko
hereunder to secure the advances: Provided, further, That a concurrent vote
Sentral shall prescribe. Whenever necessary, the Bangko Sentral shall provide
of at least five (5) members of the Monetary Board is obtained.
funds from non-inflationary sources: Provided, however, That the Monetary
Board shall prescribe additional safeguards for disbursing these funds.
The amount of any emergency loan or advance shall not exceed the sum of
fifty percent (50%) of total deposits and deposit substitutes of the banking
(d) Advances. — The Bangko Sentral may grant advances against the following
institution and shall be disbursed in two (2) or more tranches. The amount of
kinds of collaterals for fixed periods which, with the exception of advances
the first tranche shall be limited to twenty-five percent (25%) of the total
against collateral named in clause (4) of the present subsection, shall not
deposit and deposit substitutes of the institution and shall be secured by
exceed one hundred eighty (180) days:
government securities to the extent of their applicable loan values and other
unencumbered first class collaterals which the Monetary Board may approve:
(1) gold coins or bullion;
Provided, That if as determined by the Monetary Board, the circumstances
surrounding the emergency warrant a loan or advance greater than the
(2) securities representing obligations of the Bangko Sentral or of other
amount provided hereinabove, the amount of the first tranche may exceed
domestic institutions of recognized solvency;
twenty-five percent (25%) of the bank’s total deposit and deposit substitutes
if the same is adequately secured by applicable loan values of government
(3) the credit instruments to which reference is made in subsection (a) of this
securities and unencumbered first class collaterals approved by the Monetary
section;
Board, and the principal stockholders of the institution furnish an acceptable
undertaking to indemnify and hold harmless from suit a conservator whose
(4) the credit instruments to which reference is made in subsection (b) of this
appointment the Monetary Board may find necessary at any time.
section, for periods which shall not exceed three hundred sixty (360) days;
Prior to the release of the first tranche, the banking institution shall submit to
(5) utilized portions of advances in current amount covered by regular
the Bangko Sentral a resolution of its board of directors authorizing the Bangko
overdraft agreements related to operations included under subsections (a)
Sentral to evaluate other assets of the banking institution certified by its
and (b) of this section, and certified as to amount and liquidity by the
external auditor to be good and available for collateral purposes should the
institution soliciting the advance;
release of the subsequent tranche be thereafter applied for.
(6) negotiable treasury bills, certificates of indebtedness, notes and other
The Monetary Board may, by a vote of at least five (5) of its members,
negotiable obligations of the Government maturing within three (3) years
authorize the release of a subsequent tranche on condition that the principal
from the date of the advance; and
stockholders of the institution:
(7) negotiable bonds issued by the Government of the Philippines, by
(a) furnish an acceptable undertaking to indemnify and hold harmless from
Philippine provincial, city or municipal governments, or by any Philippine
suit a conservator whose appointment the Monetary Board may find
Government instrumentality, and having maturities of not more than ten (10)
necessary at any time; and
years from the date of advance.
(b) provide acceptable security which, in the judgment of the Monetary Board,
The rediscounts, discounts, loans and advances made in accordance with the
would be adequate to supplement, where necessary, the assets tendered by
provisions of this section may not be renewed or extended unless
the banking institution to collateralize the subsequent tranche.
extraordinary circumstances fully justify such renewal or extension.
In connection with the exercise of these powers, the prohibitions in Section
Advances made against the collateral named in clauses (6) and (7) of
128 of this Act shall not apply insofar as it refers to acceptance as collateral of
subsection (d) of this section may not exceed eighty percent (80%) of the
shares and their acquisition as a result of foreclosure proceedings, including
current market value of the collateral.
the exercise of voting rights pertaining to said shares: Provided, however, That
should the Bangko Sentral acquire any of the shares it has accepted as
The Bangko Sentral extend loans to banks for the bank to survive. That is its collateral as a result of foreclosure proceedings, the Bangko Sentral shall
work as a Central Bank.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 59


dispose of said shares by public bidding within one (1) year from the date of
consolidation of title by the Bangko Sentral. Whenever a financial institution incurs an overdraft in its account with the
Bangko Sentral, the same shall be eliminated within the period prescribed in
Whenever a financial institution incurs an overdraft in its account with the Section 102 of this Act.
Bangko Sentral, the same shall be eliminated within the period prescribed in
Section 102 of this Act.

Let’s say during receivership, can there be emergency credit? Yes. This is one
Proposed Amendment of the ways in which it can help the bank survive.
Section 84. Emergency Loans and Advances. – In periods of national and/or
local emergency or of imminent financial panic which directly threaten Up to the amount 50%.
monetary and financial stability, the Monetary Board may, by a vote of at least
5 of its members, authorize the Bangko Sentral to grant extraordinary loans or Please take note— these loans must be secured by—
advances to banking institutions, secured by assets as defined hereunder: (a) government securities;
Provided, That while such loans or advances are outstanding, the debtor (b) acceptable guarantees backed up by the national government or its
institution shall not, except upon prior authorization by the Monetary Board, securities;
expand the total volume of its loans or investments. (c) other unencumbered first class collaterals and (d) other kinds of collaterals
as may be authorized by the Monetary Board in accordance with sound risk
The Monetary Board may, at its discretion, likewise authorize the Bangko management principles
Sentral to grant emergency loans or advances to banking institutions, even
during normal periods, for the purpose of assisting a bank in a precarious E. CREDIT TERMS
financial condition or under serious financial pressures brought by unforeseen
events, or events which, though foreseeable, could not be prevented by the Section 85. Interest and Rediscount. — The Bangko Sentral shall collect
bank concerned: Provided, however, That the Monetary Board has interest and other appropriate charges on all loans and advances it extends,
ascertained that the bank is not insolvent and has the assets defined the closure, receivership or liquidations of the debtor-institution
hereunder to secure the advances: Provided, further, That a concurrent vote notwithstanding. This provision shall apply prospectively.
of at least five (5) members of the Monetary Board is obtained.
The Monetary Board shall fix the interest and rediscount rates to be charged
The amount of any emergency loan or advance shall not exceed the sum of by the Bangko Sentral on its credit operations in accordance with the character
fifty percent (50%) of total deposits and deposit substitutes of the banking and term of the operation, but after due consideration has been given to the
institution and shall be disbursed in two (2) or more tranches. The amount of credit needs of the market, the
the first tranche shall be limited to twenty-five percent (25%) of the total
deposit and deposit substitutes of the institution and shall be secured by (a) composition of the Bangko Sentral’s portfolio, and the general requirements
government securities, (b) acceptable guarantees backed up by the national of the national monetary policy. Interest and rediscount rates shall be applied
government or its securities; (c) other unencumbered first class collaterals and to all banks of the same category uniformly and without discrimination.
(d) other kinds of collaterals as may be authorized by the Monetary Board in
accordance with sound risk management principles: Provided, That if as
determined by the Monetary Board, the circumstances surrounding the Section 86. Endorsement. – The documents rediscounted, discounted,
emergency warrant a loan or advance greater than the amount provided bought or accepted as collateral by the Bangko Sentral in the course of the
hereinabove, the amount of the first tranche may exceed twenty-five percent credit operations authorized in this article shall bear the endorsement of the
institution from which they are received.
(25%) of the bank’s total deposit and deposit substitutes if the same is
adequately secured by any of the collaterals set forth above as approved by
the Monetary Board, and the principal stockholders of the institution furnish
an acceptable undertaking to indemnify and hold harmless from suit a Section 87. Repayment of Credits. – Documents rediscounted, discounted or
conservator whose appointment the Monetary Board may find necessary at accepted as collateral by the Bangko Sentral must be withdrawn by the
any time. borrowing institution on the dates of their maturities, or upon liquidation of
the obligations which they represent or to which they relate whenever said
Prior to the release of the first tranche, the banking institution shall submit to obligations have been liquidated prior to their dates of maturity.
the Bangko Sentral a resolution of its board of directors authorizing the Bangko
Sentral to evaluate other assets of the banking institution certified by its Banks shall have the right at any time to withdraw any documents which they
external auditor to be good and available for collateral purposes should the have presented to the Bangko Sentral as collateral, upon payment in full of the
release of the subsequent tranche be thereafter applied for. corresponding debt to the Bangko Sentral, including interest charges.

The Monetary Board may, by a vote of at least five (5) of its members,
authorize the release of a subsequent tranche on condition that the principal Section 88. Other Requirements. – The Monetary Board may prescribe, within
stockholders of the institution: the general powers granted to it under this Act, additional conditions which
borrowing institutions must satisfy in order to have access to the credit of the
(a) furnish an acceptable undertaking to indemnify and hold harmless from Bangko Sentral. These conditions may refer to the rates of interest charged by
suit a conservator whose appointment the Monetary Board may find the banks, to the purposes for which their loans in general are destined, and
necessary at any time; and to any other clearly definable aspect of the credit policy of the bank.

(b) provide acceptable security which, in the judgment of the Monetary Board, Additional Provisions—
would be adequate to supplement, where necessary, the assets tendered by
the banking institution to collateralize the subsequent tranche.
Section 88-A. Exemption of Collaterals from Attachments, Executions and
Other Restrictions. — Collaterals on loans and advances granted by the
In connection with the exercise of these powers, the prohibitions in Section
Bangko Sentral, whether or not the interest of the Bangko Sentral is
128 of this Act shall not apply insofar as it refers to acceptance as collateral of
registered, shall not be subject to attachment, execution, or any other court
shares and their acquisition as a result of foreclosure proceedings, including
processes or administrative restrictions on land use, nor shall they be included
the exercise of voting rights pertaining to said shares: Provided, however, That
in the property of insolvent persons or institutions.
should the Bangko Sentral acquire any of the shares it has accepted as
collateral as a result of foreclosure proceedings, the Bangko Sentral shall
dispose of said shares by public bidding within one (1) year from the date of These are exempt assets from attachment, execution, etc.
consolidation of title by the Bangko Sentral.

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Section 88-B. Deputization of Legal Staff in Case of Foreclosures. – In case of formulate rules and regulations for the extension of financial facilities to
an extrajudicial foreclosure of mortgage in connection with loans and Islamic Banks provided such exposures shall be properly secured.
advances under this article, the Bangko Sentral may deputize any of its lawyers
to conduct the public auction pursuant to Act No. 3135, as amended. They don’t consider profit in money-lending. They loan money but let’s do a
joint venture. I will profit not from the interest but from a trading activity.
Likewise, in case of a judicial foreclosure in connection with loans and Money is considered a medium of exchange not a source of profit. That is the
advances under this Article, the Bangko Sentral may, with the approval of the peculiar characteristic of Islamic banking. It re-defines the banking concept.
court, deputize any of its lawyers to act as Special Sheriff in the sale of a
debtor’s properties and in the enforcement of court writs and processes
related thereto. The Special Sherriff of the Bangko Sentral shall make a report
to the proper court after any action has been taken by him, which court shall
treat such action as if it were an act of its own sheriff in all aspects.

No restraining order or injunction shall be issued by the court enjoining the


Bangko Sentral from proceeding with the foreclosure of the mortgage unless
a bond is posted in favor of the Bangko Sentral in an amount equivalent to the
total claim of the Bangko Sentral. The restraining order or injunction shall be
refused, or if granted, shall be dissolved, upon filing by the Bangko Sentral of
a bond, which shall be in the form of a Bangko Sentral check, in an amount
twice the amount of the original bond posted conditioned that the Bangko
Sentral will pay the damages which the party may suffer by the refusal or
dissolution of the injunction.

The provisions of the Rules of Court on injunctions insofar as they are


applicable and not inconsistent with the provisions of this section shall govern
the issuance and dissolution of the restraining order or injunction
contemplated in this section.

This provision will be questioned.

Section 88-C. Right of Redemption of Foreclosed Real Property; Right of


Possession during Redemption Period. – In the event of foreclosure, whether
judicially or extrajudicially, the mortgagor, who is a natural person, shall have
the right to redeem the property within 1 year from the date of foreclosure
sale.

In case the mortgagor is a juridical person, the mortgagor shall have the right
to redeem the property sold in a judicial foreclosure sale within 1 year from
the date of foreclosure sale, provided that in case of an extrajudicial
foreclosure, notwithstanding Act No. 3135, the mortgagor shall have the right
to redeem the property sold within 90 days from the foreclosure sale but not
later than the registration of the certificate of foreclosure sale.

Redemption shall be effected by paying the principal, interests, charges,


commissions and all claims of whatever nature of the Bangko Sentral
outstanding and due as of the date of foreclosure sale, including all costs and
other expenses incurred by reason of the foreclosure sale and custody of the
property.

The Bangko Sentral as purchaser in the foreclosure sale and without need of
posting a bond, may take possession of the foreclosed property during the
redemption period. The Bangko Sentral shall be entitled to the fruits of the
property, the same to be applied against the redemption price.

Your law on Credit Transactions on Right of Redemption, Equity Redemption.

Please take note. VERY IMPORTANT.

Section 88-D. Unsecured Bangko Sentral Claims. – All unsecured claims of the
Bangko Sentral shall be considered preferred credits similar to taxes due to
the national government in the order of preference under Article 2244 of the
New Civil Code.

Once again, the order is once again disordered.

The Bangko Sentral is the last resort.

RCBC Fiasco case story.

Section 89-A. Financial Facilities For Islamic Banks. – The Bangko Sentral may,
taking into consideration the peculiar characteristics of Islamic banking,

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LAST 25 MINUTES
Original Provision
That’s the peculiar characteristic of banking. It defines the concept of banking
in its traditional sense. Section 92. Issue and Negotiation of Bangko Sentral Obligations. - In order to
provide the Bangko Sentral with effective instruments for open market
Original Provision operations, the Bangko Sentral may, subject to such rules and regulations as
the Monetary Board may prescribe and in accordance with the principles
Section 89. Provisional Advances to the National Government. - The Bangko stated in Section 90 of this Act, issue, place, buy and sell freely negotiable
Sentral may make direct provisional advances with or without interest to the evidences of indebtedness of the Bangko Sentral: Provided, That issuance of
National Government to finance expenditures authorized in its annual such certificates of indebtedness shall be made only in cases of extraordinary
appropriation: Provided, That said advances shall be repaid before the end of movement in price levels. Said evidences of indebtedness may be issued
three (3) months extendible by another three (3) months as the Monetary directly against the international reserve of the Bangko Sentral or against the
Board may allow following the date the National Government received such securities which it has acquired under the provisions of Section 91 of this Act,
provisional advances and shall not, in their aggregate, exceed twenty percent or may be issued without relation to specific types of assets of the Bangko
(20%) of the average annual income of the borrower for the last three (3) Sentral.
preceding fiscal years.
The Monetary Board shall determine the interest rates, maturities and
Proposed Amendment other characteristics of said obligations of the Bangko Sentral, and may, if it
deems it advisable, denominate the obligations in gold or foreign currencies.
Section 89. Provisional Advances to the National Government. - The Bangko
Sentral may make direct provisional advances with or without interest to the Subject to the principles stated in Section 90 of this Act, the evidences
National Government to finance expenditures authorized in its annual of indebtedness of the Bangko Sentral to which this section refers may be
appropriation: Provided, That said advances shall be repaid before the end of acquired by the Bangko Sentral before their maturity, either through
three (3) months extendible by another three (3) months as the Monetary purchases in the open market or through redemptions at par and by lot if the
Board may allow following the date the National Government received such Bangko Sentral has reserved the right to make such redemptions. The
provisional advances and shall not, in their aggregate, exceed twenty percent evidences of indebtedness acquired or redeemed by the Bangko Sentral shall
(20%) of the average annual income of the borrower for the last three (3) not be included among its assets, and shall be immediately retired and
preceding fiscal years. cancelled.

Section 89-A. Financial Facilities For Islamic Banks. – The Bangko Sentral may, Proposed Amendment
taking into consideration the peculiar characteristics of Islamic banking,
formulate rules and regulations for the extension of financial facilities to Section 92. Issue and Negotiation of Bangko Sentral Obligations. - In order to
Islamic Banks provided such exposures shall be properly secured. provide the Bangko Sentral with effective instruments for open market
operations, the Bangko Sentral may, subject to such rules and regulations as
Section 89-B. Loans to the Philippine Deposit Insurance Corporation. – The the Monetary Board may prescribe and in accordance with the principles
Bangko Sentral, pursuant to its mandate of maintaining financial stability, may stated in Section 90 of this Act, issue, place, buy and sell freely negotiable
lend funds to the Philippine Deposit Insurance Corporation for insurance evidences of indebtedness of the Bangko Sentral: Provided, That issuance of
purposes and in cases of financial assistance that the latter is authorized to such certificates of indebtedness shall be made only in cases of extraordinary
extend under Section 22(E) of Republic Act No. 3591, as amended, movement in price levels. Said evidences of indebtedness may be issued
notwithstanding Section 23 of Republic Act No. 3591, as amended, the directly against the international reserve of the Bangko Sentral or against the
Monetary Board shall prescribe interest rates and such other terms and securities which it has acquired under the provisions of Section 91 of this Act,
conditions of the loan. or may be issued without relation to specific types of assets of the Bangko
Sentral.
Please take note of that.
The Monetary Board shall determine the interest rates, maturities and
other characteristics of said obligations of the Bangko Sentral, and may, if it
ARTICLE V deems it advisable, denominate the obligations in gold or foreign currencies.
OPEN MARKET OPERATIONS FOR THE ACCOUNT OF THE BANGKO SENTRAL
Subject to the principles stated in Section 90 of this Act, the evidences
of indebtedness of the Bangko Sentral to which this section refers may be
Section 90. Principles of Open Market Operations. - The open market
acquired by the Bangko Sentral before their maturity, either through
purchases and sales of securities by the Bangko Sentral shall be made
purchases in the open market or through redemptions at par and by lot if the
exclusively in accordance with its primary objective of achieving price stability.
Bangko Sentral has reserved the right to make such redemptions. The
evidences of indebtedness acquired or redeemed by the Bangko Sentral shall
Section 91. Purchases and Sales of Government Securities. - In order to not be included among its assets, and shall be immediately retired and
achieve the objectives of the national monetary policy, the Bangko Sentral cancelled.
may, in accordance with the principle stated in Section 90 of this Act and with
such rules and regulations as may be prescribed by the Monetary Board, buy ARTICLE VI
and sell in the open market for its own account: COMPOSITION OF BANGKO SENTRAL'S PORTFOLIO
(a) evidences of indebtedness issued directly by the Government of the
Section 93. Review of the Bangko Sentral's Portfolio. - At least once every
Philippines or by its political subdivisions; and
month the Monetary Board shall review the portfolio of the Bangko Sentral in
relation to its future credit policy.
(b) evidences of indebtedness issued by government instrumentalities and
fully guaranteed by the Government.
In reviewing the Bangko Sentral's portfolio, the Monetary Board shall
especially consider whether a sufficiently large part of the portfolio consists of
The evidences of indebtedness acquired under the provisions of this
assets with early maturities, in order that a contraction in Bangko Sentral
section must be freely negotiable and regularly serviced and must be available
credit may be effected promptly whenever the national monetary policy so
to the general public through banking institutions and local government
requires.
treasuries in denominations of a thousand pesos or more.

ARTICLE VII
So government treasury bills and government funds – we can actually trade,
BANK RESERVES
purchase and sell government securities.

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Section 94. Reserve Requirements. - In order to control the volume of money companies for the limited purpose of financing their own needs or the needs
created by the credit operations of the banking system, all banks operating in of their agents or dealers shall not be covered by the provisions of Section 94
the Philippines shall be required to maintain reserves against their deposit of this Act.
liabilities: Provided, That the Monetary Board may, at its discretion, also
require all banks and/or quasi-banks to maintain reserves against funds held REQUISITES:
in trust and liabilities for deposit substitutes as defined in this Act. The
required reserves of each bank shall be proportional to the volume of its 1. Funds obtained through forms other than deposits;
deposit liabilities and shall ordinarily take the form of a deposit in the Bangko 2. Obtained funds evidenced by debt instruments issued, indorsed, and/or
Sentral. Reserve requirements shall be applied to all banks of the same accepted and may include bankers acceptances, promissory notes,
category uniformly and without discrimination. participations, certificates of assignment and similar instruments with
recourse, and repurchase agreements;
Reserves against deposit substitutes, if imposed, shall be determined in 3. Involves borrowing of funds for the borrower’s account; and
the same manner as provided for reserve requirements against regular bank 4. Purpose is for relending or purchasing of receivables and other
deposits, with respect to the imposition, increase, and computation of obligations.
reserves.
For it to be considered as a deposit substitute, it must be an alternative form
The Monetary Board may exempt from reserve requirements deposits of obtaining funds from the public – the term public refers to 20 or more
and deposit substitutes with remaining maturities of two (2) years or more, as members. So less than that, you are not engaged in quasi-banking. Therefore,
well as interbank borrowings. you are not covered by the Central Bank.

Since the requirement to maintain bank reserves is imposed primarily Section 96. Required Reserves Against Peso Deposits. - The Monetary Board
to control the volume of money, the Bangko Sentral shall not pay interest on may fix and, when it deems necessary, alter the minimum reserve ratios to
the reserves maintained with it unless the Monetary Board decides otherwise peso deposits, as well as to deposit substitutes, which each bank and/or quasi-
as warranted by circumstances. bank may maintain, and such ratio shall be applied uniformly to all banks of
the same category as well as to quasi-banks.
There’s always a portion of the reserves of the money in the bank that is
restricted. That percentage of bank deposits, deposit substitute, liabilities and Section 97. Required Reserves Against Foreign Currency Deposits. - The
funds held in trust that banks must keep on hand or in deposit with the Bangko Monetary Board is similarly authorized to prescribe and modify the minimum
Sentral – this is not available for lending to the public. reserve ratios applicable to deposits denominated in foreign currencies.

What will happen if reserve goes up? The available ones shall go lower for
circulation or for credit. This is actually one of the instruments for monetary Section 98. Reserves Against Unused Balances of Overdraft Lines. - In order
policies in the Philippines. to facilitate Bangko Sentral control over the volume of bank credit, the
Monetary Board may establish minimum reserve requirements for unused
Does the reserves have interest? Because you prevent us from circulating it. balances of overdraft lines.
Because you won’t -prevent us from circulating it, we could have earned
interest on that particular reserve. Now, the Bangko Sentral is not obliged to The powers of the Monetary Board to prescribe and modify reserve
pay interest on reserves, unless the Monetary Board decides otherwise as requirements against unused balances of overdraft lines shall be the same as
provided by circumstances. its powers with respect to reserve requirements against demand deposits.

Original Provision Section 99. Increase in Reserve Requirements. - Whenever in the opinion of
the Monetary Board it becomes necessary to increase reserve requirements
Section 95. Definition of Deposit Substitutes. - The term "deposit substitutes" against existing liabilities, the increase shall be made in a gradual manner and
is defined as an alternative form of obtaining funds from the public, other than shall not exceed four percentage points in any thirty-day period. Banks and
deposits, through the issuance, endorsement, or acceptance of debt other affected financial institutions shall be notified reasonably in advance of
instruments for the borrower's own account, for the purpose of relending or the date on which such increase is to become effective.
purchasing of receivables and other obligations. These instruments may
include, but need not be limited to, bankers acceptances, promissory notes, Section 100. Computation on Reserves. - The reserve position of each bank or
participations, certificates of assignment and similar instruments with quasi-bank shall be calculated daily on the basis of the amount, at the close of
recourse, and repurchase agreements. The Monetary Board shall determine business for the day, of the institution's reserves and the amount of its liability
what specific instruments shall be considered as deposit substitutes for the accounts against which reserves are required to be maintained: Provided, That
purposes of Section 94 of this Act: Provided, however, That deposit substitutes with reference to holidays or non-banking days, the reserve position as
of commercial, industrial and other non-financial companies for the limited calculated at the close of the business day immediately preceding such
purpose of financing their own needs or the needs of their agents or dealers holidays and non-banking days shall apply on such days.
shall not be covered by the provisions of Section 94 of this Act.
For the purpose of computing the reserve position of each bank or quasi-bank,
Proposed Amendment its principal office in the Philippines and all its branches and agencies located
therein shall be considered as a single unit.
Section 95. Definition of Deposit Substitutes. - The term "deposit substitutes"
is defined as an alternative form of obtaining funds from the public, other than Original Provision
deposits, through the issuance, endorsement, or acceptance of debt
instruments for the borrower's own account, for the purpose of relending or Section 101. Reserve Deficiencies. - Whenever the reserve position of any
purchasing of receivables and other obligations. These instruments may bank or quasi-bank, computed in the manner specified in the preceding
include, but need not be limited to, bankers acceptances, promissory notes, section of this Act, is below the required minimum, the bank or quasi-bank
participations, certificates of assignment and similar instruments with shall pay the Bangko Sentral one-tenth of one percent (1/10 of 1%) per day on
recourse, and repurchase agreements. The phrase ‘obtaining funds from the the amount of the deficiency or the prevailing ninety-one-day treasury bill rate
public’ shall mean borrowing from twenty (20) or more lenders at any time, plus three percentage points, whichever is higher: Provided, however, That
and, for this purpose, “lenders” shall refer to individuals and corporate entities banks and quasi-banks shall ordinarily be permitted to offset any reserve
that are not acting as financial intermediaries, subject to the safeguards and deficiency occurring on one or more days of the week with any excess reserves
regulations issued by the Monetary Board. The Monetary Board shall which they may hold on other days of the same week and shall be required to
determine what specific instruments shall be considered as deposit pay the penalty only on the average daily deficiency during the week. In cases
substitutes for the purposes of Section 94 of this Act: Provided, however, That
deposit substitutes of commercial, industrial and other non-financial

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of abuse, the Monetary Board may deny any bank or quasi-bank the privilege body issued to satisfy the claim of a party other than the Government, or its
of offsetting reserve deficiencies in the aforesaid manner. political subdivisions or instrumentalities.

If a bank or quasi-bank chronically has a reserve deficiency, the ARTICLE VIII


Monetary Board may limit or prohibit the making of new loans or investments SELECTIVE REGULATION OF BANK OPERATIONS
by the institution and may require that part or all of the net profits of the
institution be assigned to surplus. Original Provision

The Monetary Board may modify or set aside the reserve deficiency Section 104. Guiding Principle. - The Monetary Board shall use the powers
penalties provided in this section, for part or the entire period of a strike or granted to it under this Act to ensure that the supply, availability and cost of
lockout affecting a bank or a quasi-bank as defined in the Labor Code, or of a money are in accord with the needs of the Philippine economy and that bank
national emergency affecting operations of banks or quasi-banks. The credit is not granted for speculative purposes prejudicial to the national
Monetary Board may also modify or set aside reserved deficiency penalties for interests. Regulations on bank operations shall be applied to all banks of the
rehabilitation program of a bank. same category uniformly and without discrimination.

Proposed Amendment Proposed Amendment

Section 101. Reserve Deficiencies. - Whenever the reserve position of any Section 104. Guiding Principle. - The Monetary Board shall use the powers
bank or quasi-bank, computed in the manner specified in the preceding granted to it under this Act to ensure that the supply, availability and cost of
section of this Act, is below the required minimum, the bank or quasi-bank money are in accord with the needs of the Philippine economy and that bank
shall pay the Bangko Sentral monetary penalty as may be prescribed by the credit is not granted for speculative purposes prejudicial to the national
Monetary Board: Provided, however, That banks and quasi-banks shall interests. Regulations on bank operations shall be applied to all banks of the
ordinarily be permitted to offset any reserve deficiency occurring on one or same category, as may be defined by the Monetary Board, uniformly and
more days of the week with any excess reserves which they may hold on other without discrimination.
days of the same week and shall be required to pay the penalty in accordance
with the mechanism approved by the Monetary Board. In cases of abuse, the
Monetary Board may deny any bank or quasi-bank the privilege of offsetting Section 105. Margin Requirements Against Letters of Credit. - The Monetary
reserve deficiencies in the aforesaid manner. Board may at any time prescribe minimum cash margins for the opening of
letters of credit, and may relate the size of the required margin to the nature
If a bank or quasi-bank chronically has a reserve deficiency, the of the transaction to be financed.
Monetary Board may limit or prohibit the making of new loans or investments
by the institution and may require that part or all of the net profits of the Section 106. Required Security Against Bank Loans. - In order to promote
institution be assigned to surplus. liquidity and solvency of the banking system, the Monetary Board may issue
such regulations as it may deem necessary with respect to the maximum
The Monetary Board may modify or set aside the reserve deficiency permissible maturities of the loans and investments which the banks may
penalties provided in this section, for part or the entire period of a strike or make, and the kind and amount of security to be required against the various
lockout affecting a bank or a quasi-bank as defined in the Labor Code, or of a types of credit operations of the banks.
national emergency affecting operations of banks or quasi-banks, or in such
other instances where the grant of waiver of penalties is determined by the Section 107. Portfolio Ceilings. - Whenever the Monetary Board considers it
Monetary Board to be justifiable. The Monetary Board may also modify or set advisable to prevent or check an expansion of bank credit, the Board may place
aside reserved deficiency penalties for rehabilitation program of a bank. an upper limit on the amount of loans and investments which the banks may
hold, or may place a limit on the rate of increase of such assets within specified
Section 102. Interbank Settlement. - The Bangko Sentral shall establish periods of time. The Monetary Board may apply such limits to the loans and
facilities for interbank clearing under such rules and regulations as the investments of each bank or to specific categories thereof.
Monetary Board may prescribe: Provided, That the Bangko Sentral may charge
administrative and other fees for the maintenance of such facilities. In no case shall the Monetary Board establish limits which are below
the value of the loans or investments of the banks on the date on which they
The deposit reserves maintained by the banks in the Bangko Sentral in are notified of such restrictions. The restrictions shall be applied to all banks
accordance with the provisions of Section 94 of this Act shall serve as basis for uniformly and without discrimination.
the clearing of checks and the settlement of interbank balances, subject to
such rules and regulations as the Monetary Board may issue with respect to Original Provision
such operations: Provided, That any bank which incurs on overdrawing in its
deposit account with the Bangko Sentral shall fully cover said overdraft, Section 108. Minimum Capital Ratios. - The Monetary Board may prescribe
including interest thereon at a rate equivalent to one-tenth of one percent minimum ratios which the capital and surplus of the banks must bear to the
(1/10 of 1%) per day or the prevailing ninety-one-day treasury bill rate plus volume of their assets, or to specific categories thereof, and may alter said
three percentage points, whichever is higher, not later than the next clearing ratios whenever it deems necessary.
day: Provided, further, That settlement of clearing balances shall not be
effected for any account which continues to be overdrawn for five (5) Proposed Amendment
consecutive banking days until such time as the overdrawing is fully covered
or otherwise converted into an emergency loan or advance pursuant to the Section 108. Minimum Capital Ratios. - The Monetary Board may prescribe
provisions of Section 84 of this Act: Provided, finally, That the appropriate minimum risk-based capital adequacy ratios based on internationally
clearing office shall be officially notified of banks with overdrawn balances. accepted standards, and may alter said ratios whenever it deems necessary.
Banks with existing overdrafts with the Bangko Sentral as of the effectivity In the exercise of its authority under this section, the Monetary Board may
of this Act shall, within such period as may be prescribed by the Monetary require banks to hold capital beyond the minimum requirements
Board, either convert the overdraft into an emergency loan or advance with commensurate to their risk profile.
a plan of payment, or settle such overdrafts, and that, upon failure to so
comply herewith, the Bangko Sentral shall take such action against the bank These are the risk-based capital adequacy. There minimum requirements
as may be warranted under this Act. because there – the ratio between your assets and liabilities. But I’m not going
to ask you that.
Section 103. Exemption from Attachment and Other Purposes. - Deposits
maintained by banks with the Bangko Sentral as part of their reserve
requirements shall be exempt from attachment, garnishments, or any other
order or process of any court, government agency or any other administrative

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ARTICLE IX The Bangko Sentral may accept deposits and pay interest on such deposits
COORDINATION OF CREDIT POLICIES BY GOVERNMENT INSTITUTIONS and other similar placements of the Government or of its political
subdivisions and instrumentalities, banks, and other Bangko Sentral-
supervised institutions.

Section 109. Coordination of Credit Policies. - Government-owned Section 114. Fiscal Operations. - The Bangko Sentral shall open a general
corporations which perform banking or credit functions shall coordinate their cash account for the Treasurer of the Philippines, in which the liquid funds
general credit policies with those of the Monetary Board. of the Government shall be deposited.

Toward this end, the Monetary Board may, whenever it deems it expedient, Transfers of funds from this account to other accounts shall be made only
make suggestions or recommendations to such corporations for the more upon order of the Treasurer of the Philippines.
effective coordination of their policies with those of the Bangko Sentral.
Section 115. Other Banks as Agents of the Bangko Sentral. - In the
CHAPTER V — FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OF THE performance of its functions as fiscal agent, the Bangko Sentral may engage
GOVERNMENT the services of other government-owned and controlled banks and of other
domestic banks for operations in localities at home or abroad in which the
ARTICLE I Bangko Sentral does not have offices or agencies adequately equipped to
FUNCTIONS AS BANKER OF THE GOVERNMENT perform said operations: Provided, however, That for fiscal operations in
foreign countries, the Bangko Sentral may engage the services of foreign
Section 110. Designation of Bangko Sentral as Banker of the Government. - banking and financial institutions.
The Bangko Sentral shall act as a banker of the Government, its political
subdivisions and instrumentalities. Section 116. Remuneration for Services. - The Bangko Sentral may charge
equitable rates, commissions or fees for services which it renders to the
Section 111. Representation with the International Monetary Fund. - The Government, its political subdivisions and instrumentalities.
Bangko Sentral shall represent the Government in all dealings, negotiations
and transactions with the International Monetary Fund and shall carry such ARTICLE II
accounts as may result from Philippine membership in, or operations with, THE MARKETING AND STABILIZATION OF SECURITIES FOR THE ACCOUNT OF
said Fund. THE GOVERNMENT

The International Monetary Fund is a specialized agency of the United Nations, A. THE ISSUE AND PLACING OF GOVERNMENT SECURITIES
but it has its own charter and structure in finances provided by its members.
Section 117. Issue of Government Obligations. - The issue of securities
Section 112. Representation with Other Financial Institutions. - The Bangko representing obligations of the Government, its political subdivisions or
Sentral may be authorized by the Government to represent it in dealings, instrumentalities, may be made through the Bangko Sentral, which may act as
negotiations or transactions with the International Bank for Reconstruction agent of, and for the account of, the Government or its respective subdivisions
and Development and with other foreign or international financial or instrumentality, as the case may be: Provided, however, That the Bangko
institutions or agencies. The President may, however, designate any of his Sentral shall not guarantee the placement of said securities, and shall not
other financial advisors to jointly represent the Government in such subscribe to their issue except to replace its maturing holdings of securities
dealings, negotiations or transactions. with the same type as the maturing securities.

Original Provision Section 118. Methods of Placing Government Securities. - The Bangko Sentral
may place the securities to which the preceding section refers through direct
Section 113. Official Deposits. - The Bangko Sentral shall be the official sale to financial institutions and the public.
depository of the Government, its political subdivisions and instrumentalities
as well as of government-owned or controlled corporations and, as a general The Bangko Sentral shall not be a member of any stock exchange or syndicate,
policy, their cash balances should be deposited with the Bangko Sentral, with but may intervene therein for the sole purpose of regulating their operations
only minimum working balances to be held by government-owned banks and in the placing of government securities.
such other banks incorporated in the Philippines as the Monetary Board may
designate, subject to such rules and regulations as the Board may prescribe: The Government, or its political subdivisions or instrumentalities, shall
Provided, That such banks may hold deposits of the political subdivisions and reimburse the Bangko Sentral for the expenses incurred in the placing of the
instrumentalities of the Government beyond their minimum working balances aforesaid securities.
whenever such subdivisions or instrumentalities have outstanding loans with
said banks. Section 119. Servicing and Redemption of the Public Debt. - The servicing and
redemption of the public debt shall also be effected through the Bangko
The Bangko Sentral may pay interest on deposits of the Government or of its Sentral.
political subdivisions and instrumentalities, as well as on deposits of banks
with the Bangko Sentral.
B. BANGKO SENTRAL SUPPORT OF THE GOVERNMENT SECURITIES MARKET
Proposed Amendment
Section 120. The Securities Stabilization Fund. - There shall be established a
Section 113. Official Deposits. - The Bangko Sentral shall be the official "Securities Stabilization Fund" which shall be administered by the Bangko
depository of the Government, its political subdivisions and instrumentalities Sentral for the account of the Government.
as well as of government-owned or controlled corporations. and, as As a
general policy, their cash balances should be deposited with the Bangko The operations of the Securities Stabilization Fund shall consist of
Sentral, with only minimum working balances to be held by government- purchases and sales, in the open market, of bonds and other evidences of
owned banks and such other banks licensed to operate in the Philippines as indebtedness issued or fully guaranteed by the Government. The purpose of
the Monetary Board may authorize. subject to such rules and regulations as these operations shall be to increase the liquidity and stabilize the value of
the Board may prescribe: Provided, That such banks may hold deposits of the said securities in order thereby to promote investment in government
political subdivisions and instrumentalities of the Government beyond their obligations.
minimum working balances whenever such subdivisions or instrumentalities
have outstanding loans with said banks. The Monetary Board shall use the resources of the Fund to prevent,
or moderate, sharp fluctuations in the quotations of said government

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 65


obligations, but shall not endeavor to alter movements of the market calendar year, submit to the Congress a complete report of its decision on
resulting from basic changes in the pattern or level of interest rates. applications for loans to be contracted or guaranteed by the Government or
government-owned and controlled corporations which would have the effect
The Monetary Board shall issue such regulations as may be necessary of increasing the foreign debt, and containing other matters as may be
to implement the provisions of this section. provided by law.

Section 121. Resources of the Securities Stabilization Fund. - Subject to Section 124. Representation on the National Economic and Development
Section 132 of this Act, the resources of the Securities Stabilization Fund shall Authority. - In order to assure effective coordination between the economic,
come from the balance of the fund as held by the Central Bank under financial and fiscal policies of the Government and the monetary, credit and
Republic Act No. 265 as of the effective date of this Act. exchange policies of the Bangko Sentral, the Deputy Governor designated by
the Governor of the Bangko Sentral shall be an ex officio member of the
Section 122. Profits and Losses of the Fund. - The Securities Stabilization National Economic and Development Authority Board.
Fund shall retain net profits which it may make on its operations, regardless
of whether said profits arise from capital gains or from interest earnings. The So as a financial advisor, the Deputy Governor designated by the Governor of
Fund shall correspondingly bear any net losses which it may incur. the BSP shall be an ex-officio member of the NEDA. Mag cocoordinate sila. The
ARTICLE III NEDA is the authority which recommends for the restrictions on foreign equity
FUNCTIONS AS FINANCIAL ADVISOR OF THE GOVERNMENT investments.

CHAPTER VI — PRIVILEGES AND PROHIBITIONS


Original Provision
ARTICLE I
PRIVILEGES
Section 123. Financial Advice on Official Credit Operations. - Before
undertaking any credit operation abroad, the Government, through the
Secretary of Finance, shall request the opinion, in writing, of the Monetary Original Provision
Board on the monetary implications of the contemplated action. Such opinions
must similarly be requested by all political subdivisions and instrumentalities Section 125. Tax Exemptions. - The Bangko Sentral shall be exempt for a
of the Government before any credit operation abroad is undertaken by them. period of five (5) years from the approval of this Act from all national,
provincial, municipal and city taxes, fees, charges and assessments.
The opinion of the Monetary Board shall be based on the gold and
foreign exchange resources and obligations of the nation and on the effects of The exemption authorized in the preceding paragraph of this section
the proposed operation on the balance of payments and on monetary shall apply to all property of the Bangko Sentral, to the resources, receipts,
aggregates. expenditures, profits and income of the Bangko Sentral, as well as to all
contracts, deeds, documents and transactions related to the conduct of the
Whenever the Government, or any of its political subdivisions or business of the Bangko Sentral: Provided, however, That said exemptions shall
instrumentalities, contemplates borrowing within the Philippines, the prior apply only to such taxes, fees, charges and assessments for which the Bangko
opinion of the Monetary Board shall likewise be requested in order that the Sentral itself would otherwise be liable, and shall not apply to taxes, fees,
Board may render an opinion on the probable effects of the proposed charges, or assessments payable by persons or other entities doing business
operation on monetary aggregates, the price level, and the balance of with the Bangko Sentral: Provided, further, That foreign loans and other
payments. obligations of the Bangko Sentral shall be exempt, both as to principal and
interest, from any and all taxes if the payment of such taxes has been assumed
Proposed Amendment by the Bangko Sentral.

Section 123. Financial Advice on Official Credit Operations. - Before Proposed Amendment
undertaking any credit operation abroad, the Government, through the
Secretary of Finance, shall request the opinion, in writing, of the Monetary Section 125. Tax Exemptions. - The Bangko Sentral shall be exempt for a
Board on the monetary implications of the contemplated action. Such opinions period of five (5) years from the approval of this Act from all national,
must similarly be requested by all political subdivisions and instrumentalities provincial, municipal and city taxes, fees, charges and assessments.
of the Government before any credit operation abroad is undertaken by them.
The exemption authorized in the preceding paragraph of this section
The opinion of the Monetary Board shall be based on the gold and shall apply to all property of the Bangko Sentral, to the resources, receipts,
foreign exchange resources and obligations of the nation and on the effects of expenditures, profits and income of the Bangko Sentral, as well as to all
the proposed operation on the balance of payments and on monetary contracts, deeds, documents and transactions related to the conduct of the
aggregates. business of the Bangko Sentral: Provided, however, That said exemptions shall
apply only to such taxes, fees, charges and assessments for which the Bangko
Whenever the Government, or any of its political subdivisions or Sentral itself would otherwise be liable, and shall not apply to taxes, fees,
instrumentalities, contemplates borrowing within the Philippines, the prior charges, or assessments payable by persons or other entities doing business
opinion of the Monetary Board shall likewise be requested in order that the with the Bangko Sentral: Provided, further, That foreign loans and other
Board may render an opinion on the probable effects of the proposed obligations of the Bangko Sentral shall be exempt, both as to principal and
operation on monetary aggregates, the price level, and the balance of interest, from any and all taxes if the payment of such taxes has been assumed
payments. by the Bangko Sentral.

A credit operation or borrowing as provided herein may take the form of It is only exempt on its income derived from its government functions,
different credit facilities such as but not limited to a single loan, series of loans specifically, income from its activities and transactions exercised in the
under a borrowing program, or credit lines. No prior Monetary Board Opinion supervision and operations of banks, and income in pursuant to its primary
shall be required for individual drawdowns or borrowings within approved objective to maintain price stability. So all other incomes, shall be considered
credit lines or borrowing programs. as proprietary income, and shall be subject to tax.

This is in compliance with Article VII, Section 20 of the 1987 Constitution: If the Central Bank has property, then it rents out to 7-11, the income derived
from the lease shall be subject to the corresponding taxes. Because it is not
derived from its governmental functions, but from its proprietary function.
Section 20. The President may contract or guarantee foreign loans on behalf
of the Republic of the Philippines with the prior concurrence of the Monetary
Board, and subject to such limitations as may be provided by law. The Section 126. Exemption from Customs Duties. - The provision of any general
Monetary Board shall, within thirty days from the end of every quarter of the or special law to the contrary notwithstanding, the importation and

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exportation by the Bangko Sentral of notes and coins, and of gold and other Section 130. Phase-out of Regulatory Powers Over the Operations of Finance
metals to be used for purposes authorized under this Act, and the importation Corporations and Other Institutions Performing Similar Functions. - The
of all equipment needed for bank note production, minting of coins, metal Bangko Sentral shall, within a period of five (5) years from the effectivity of
refining and other security printing operations shall be fully exempt from all this Act, phase out its regulatory powers over finance companies without
customs duties and consular fees and from all other taxes, assessments and quasi-banking functions and other institutions performing similar functions as
charges related to such importation or exportation. provided in existing laws, the same to be assumed by the Securities and
Exchange Commission.
Section 127. Applicability of the Civil Service Law. - Appointments in the
Bangko Sentral, except as to those which are policy-determining, primarily Section 131. Implementing Details. - The Bangko Sentral shall be made
confidential or highly technical in nature, shall be made only according to the operational by the performance of the following acts:
Civil Service Law and regulations: Provided, That no qualification requirements
for positions in the Bangko Sentral shall be imposed other than those set by (a) the President shall constitute the Monetary Board by appointing the
the Monetary Board: Provided, further, That, the Monetary Board or members thereof within sixty (60) days from the effectivity of this Act; and
Governor, in accordance with Sections 15(c) and 17(d) of this Act, respectively,
may without need of obtaining prior approval from any other government (b) the transfer of such assets and liabilities from the Central Bank to the
agency, appoint personnel in the Bangko Sentral whose services are deemed Bangko Sentral as provided in Section 132 shall be completed within ninety
necessary in order not to unduly disrupt the operations of the Bangko Sentral. (90) days from the constitution of the Monetary Board.

Officers and employees of the Bangko Sentral, including all members of All incumbent personnel in the Central Bank as of the date of the
the Monetary Board, shall not engage directly or indirectly in partisan activities approval of this Act shall continue to exercise their duties and functions as
or take part in any election except to vote. personnel of the Bangko Sentral subject to the provisions of Section 133:
Provided, That such personnel in the Central Bank as may be necessary for the
ARTICLE II purpose of implementing Section 132 may be assigned by the Bangko Sentral
PROHIBITIONS Monetary Board to the Central Bank.

Original Provision Section 132. Transfer of Assets and Liabilities. - Upon the effectivity of this
Act, three (3) members of the Monetary Board, which may include the
Section 128. Prohibitions. - The Bangko Sentral shall not acquire shares of Governor, in representation of the Bangko Sentral, the Secretary of Finance
any kind or accept them as collateral, and shall not participate in the and the Secretary of Budget and Management in representation of the
ownership or management of any enterprise, either directly or indirectly. National Government, and the Chairmen of the Committees on Banks of the
Senate and the House of Representatives shall determine the assets and
The Bangko Sentral shall not engage in development banking or liabilities of the Central Bank which may be transferred to or assumed by the
financing: Provided, however, That outstanding loans obtained or extended Bangko Sentral. The Committee shall complete its work within ninety (90) days
for development financing shall not be affected by the prohibition of this from the constitution of the Monetary Board submitting a comprehensive
section. report with all its findings and justification.

Proposed Amendment The following guidelines shall be strictly observed in the determination
of which assets and liabilities shall be transferred to the Bangko Sentral:
Section 128. Prohibitions. - The Bangko Sentral shall not acquire shares of any
kind or accept them as collateral, and shall not participate in the ownership or (a) the Monetary Board and the Secretary of Finance shall have primary
management of any enterprise, either directly or indirectly: Provided, that this responsibility for working out creative monetary and financial solutions to
prohibition shall not apply whenever the Monetary Board, by a vote of at least retire the Central Bank liabilities and losses at the least cost to the
five (5) of its members, (1) deems an acquisition or investment to be necessary Government;
to qualify or as required for membership in international and regional
organizations; or (2) determines that investing in and/or operating an (b) the Bangko Sentral shall remit seventy-five percent (75%) of its net profits
enterprise will be consistent with the effective fulfillment of its mandate and to a special deposit account (sinking fund) until such time as the net liabilities
will not constitute any conflict of interest. of the Central Bank shall have been liquidated through generally accepted
finance mechanisms such as, but not limited to, write-offs, set-offs,
The Bangko Sentral shall not engage in development banking or condonation, collections, reappraisal, revaluation and bond issuance by the
financing: Provided, however, That outstanding loans obtained or extended National Government, or to the National Government as dividends;
for development financing shall not be affected by the prohibition of this
section. (c) the assets and liabilities to be transferred shall be limited to an amount that
will enable the Bangko Sentral to perform its responsibilities adequately and
DEVELOPMENT BANK – it finances long-term government projects and operate on a viable basis: Provided, That the assets shall exceed the liabilities
infrastructures. as certified by the Commission on Audit (COA), by an initial amount of Ten
billion pesos (P10,000,000,000);
Why is the BSP prohibited from engaging in development banking? The policy
of the BSP is to have prudent financial management. That’s why it can’t enter (d) liabilities to be assumed by the Bangko Sentral shall include liability for
into high-risk financial transactions because its charter says to engage in notes and coins in circulation as of the effective date of this Act; and
prudent financial management – and development banking involves long-term
financing. (e) any asset or liability of the Central Bank not transferred to the Bangko
Sentral shall be retained and administered, disposed of and liquidated by the
CHAPTER VII — TRANSITORY PROVISIONS Central Bank itself which shall continue to exist as the CB Board of Liquidators
only for the purposes provided in this paragraph but not later than twenty-five
Section 129. Phase-out of Fiscal Agency Functions. - Unless circumstances (25) years or until such time that liabilities have been liquidated: Provided,
warrant otherwise and approved by the Congress Oversight Committee, the That the Bangko Sentral may financially assist the Central Bank of Liquidators
Bangko Sentral shall, within a period of three (3) years but in no case longer in the liquidation of CB liabilities: Provided, finally, That upon disposition of
than five (5) years from the approval of this Act, phase out all fiscal agency said retained assets and liquidation of said retained liabilities, the Central Bank
functions provided for in Sections 117, 118, 119, and 120 as well as in other shall be deemed abolished.
pertinent provisions of this Act and transfer the same to the Department of
Finance. All actions taken by the Bangko Sentral Monetary Board under this
section shall be reported to Congress and the President within thirty (30) days.

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Section 133. Mandate to Organize. - The Bangko Sentral shall be organized by
the Monetary Board without being subject to the provisions of Republic Act
No. 7430, by adopting if it so desires, an entirely new staffing pattern on
organizational structure to suit the operations of the Bangko Sentral under this
Act. No preferential or priority right shall be given to or enjoyed by any
personnel for appointment to any position in the new staffing pattern, nor
shall any personnel be considered as having prior or vested rights with respect
to retention in the Bangko Sentral or in any position which may be created in
the new staffing pattern, even if he should be the incumbent of a similar
position prior to organization. The formulation of the program of organization
shall be completed within six (6) months after the effectivity of this Act, and
shall be fully implemented within a period of six (6) months thereafter.
Personnel who may not be retained are deemed separated from the service.

Section 134. Separation Benefits. - Pursuant to Section 15 of this Act, the


Monetary Board is authorized to provide separation incentives, and all those
who shall retire or be separated from the service on account of reorganization
under the preceding section shall be entitled to such incentives, which shall be
in addition to all gratuities and benefits to which they may be entitled under
existing laws.

Section 135. Repealing Clause. - Except as may be provided for in Section 46


and 132 of this Act, Republic Act No. 265, as amended, the provisions of any
other law, special charters, rule or regulation issued pursuant to said Republic
Act No. 265, as amended, or parts thereof, which may be inconsistent with the
provisions of this Act are hereby repealed. Presidential Decree No. 1792 is
likewise repealed.

Section 136. Transfer of Powers. - All powers, duties and functions vested by
law in the Central Bank of the Philippines not inconsistent with the provisions
of this Act shall be deemed transferred to the Bangko Sentral ng Pilipinas. All
references to the Central Bank of the Philippines in any law or special charters
shall be deemed to refer to the Bangko Sentral.

Section 137. Separability Clause. - If any provision or section of this Act or the
application thereof to any person or circumstance is held invalid, the other
provisions or sections of this Act, and the application of such provision or
section to other persons or circumstances, shall not be affected thereby.

Section 138. Effectivity Clause. - This Act shall take effect fifteen (15) days
following its publication in the Official Gazette or in two (2) national
newspapers of general circulation.

Approved: June 14, 1993

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