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San Beda College of Law, Mendiola

BANKNGLAWSAND JURSPRUDENCE

By: EIren L. Dizon and EIren Vincent M. Dizon


This Reviewer is made by:
MANILA, ANTONIO CEASAR
BERNARDO, JANSEN
INTIG, JOYESTELA
DEJESUS, TRACYANN.

FROMSECTION2S
AY2011-2012

Topic Page

Chapter 1- Banks and Business oI Banking
Chapter 2 - Organization, Management, Administration OI Banks
Chapter 3 - Deposit Functions OI Banks
Chapter 4 - Investments, Loans and Other Bank Functions
Chapter 5 - Prohibited Transactions and Cessation OI Banking Business
Chapter 6 - Foreign Banks and Trust Operations
MIDTERM COVERAGE: Chapter 1 - 6


Chapter 7 - The Banko Sentral ng Pilipinas
Chapter 8- Currency, Monetary Stabilization and Functions oI BSP
Chapter 9 - Unclaimed Balances and Trust Receipts
Chapter 10 - Deposit Insurance
Chapter 11 - Anti-Money Laundering
Chapter 12 Special Purpose Vehicle
FINALS COVERAGE: Chapter 7 - 12

2
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - Banks and Business of Banking

Declaration oI the state with regards to banking


recognize vital role oI the banks to provide
environment conducive to development oI national
economy
4 It also states that banks need high
standards oI integrity and perIormance
Banks entities engaged in the lending oI Iunds
obtained in the Iorm oI deposits (borrowing,
lending, saIe-keeping)
Banks may engage in other activities allowed by
the law other than lending

Nature oI Banking Business

1. Debtor-Creditor Relationship
It is a contract oI loan and not deposit
Contract between bank and depositor is
governed by the provisions oI the NCC on
simple loan (Consolidated Bank and Trust
Corp vs. CA)
2. Fiduciary dut y
Fiduciary relationship bank`s obligation
to observe high standard oI integrity and
perIormance (Phil. Banking Corp. vs. CA)
3. Not a trust agreement
It is not a trust agreement and Iailure to
pay a loan is not a breach oI trust
It is not a trust agreement because banks
do not accept deposits to enrich depositors
but to earn Ior themselves
4. Indispensable Institution
Has a vital role in economic liIe
SigniIicance oI banking institution to
commercial transactions (Metropolitan
Bank & Trust Co. vs. Cabil:o)
5. Impressed with public interest
Has public interest because people depend
on the honesty and eIIiciency oI banks
Stability oI banks largel y depends on the
conIidence oI the people in the honest y
and eIIiciency oI banks.
6. Degree oI diligence
Diligence higher than that oI a good Iather.
It must be extraordinary diligence
In Simex International vs. CA, the bank is
under obligation to treat the accounts oI its
depositors with meticulous care and
always have in mind the Iiduciary nature
oI banks
Not enough that he exerted reasonable
diligence to ascertain the saIety oI his
clients
Such diligence is only required in its
Iiduciary relationship with its depositors
and not to other transactions such as sale
oI Ioreign exchange demand draIt
Sec 2 oI GBL prescribes the statutory
diligence required Irom banks 'high
standards oI integrity and perIormance in
serving its depositors.
Diligence required oI banks is more than
that oI a good Iather (PBCom vs. CA)
Diligence extends to Iinancial institutions
(e.g. GSIS)
7. Treatment oI accounts with meticulous care
Must treat every account with utmost
Iidelity regardless oI amount
There is no law mandating banks to call
up their clients whenever a signiIicant
amount shall be withdrawn Irom their
account
8. Duty to keep records
9. Banks are not gratuitous bailees
10. Banks not expected to be inIallible
However, they must bear the loss Ior not
discovering mistakes iI there are
established procedures not Iollowed
11. Dealing with registered lands
General Rule: mortgagee can rely on title
and does not need to investigate Iurther
Exception: mortgagee cannot close his
eyes to Iacts which should put a
reasonable man on his guard, and yet
claim that he is in good Iaith
With banking institutions, mere reliance
on the title is not enough as they need to
investigate also
Doctrine oI the 'mortgagee in good Iaith
all persons dealing with property
covered by the Torrens CertiIicates oI
Title are not required to go beyond what
appears on the Iace oI the title. (Cavite
Development Bank vs. Spouses Lim)
3
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

The business o a bank is one aIIected with


public interest, Ior which reason ghe bank
should guard against loss due to
negligence or bad Iaith (Sps. Omengan vs.
PNB)
Where the mortgagee does not directl y
deal with the registered owner oI real
property, the law requires higher degree oI
prudence be exercised by the mortgagee
(Abad vs. Guimba)
12. Banks may exclude persons in their premises
13. Charging interest Ior loans
It is considered the very core oI the
banking`s very existence

Liability Ior Acts oI OIIicers and Employees

A bank is liable Ior the wrongIul acts oI its


oIIicers done in the interest oI the bank or dealings
as bank representatives but not Ior acts outside the
scope oI their authority.

1. Negligence oI Manager employer is liable to the


acts oI the manager
2. Negligence oI oIIicer general rule: tortious acts
oI oIIicers within their scope oI employment shall
make banks liable
3. Negligence oI tellers tellers must exercise high
degree oI diligence
Teller should not give passbook to wrong
person as a person in possession oI
passbook is presumed the owner
Appropriation oI deposited money by the
teller is not estaIa but considered as theIt
as the client onl y had material possession
oI it. Such deposit money are considered
owned by the bank
4. Right to recover Irom employees
5. Liability Ior damages
Actual, exemplary, moral
Actual and compensatory the interest
due shall itselI earn interest Irom the time
it is judicially demanded
12 - legal interest when judgment
becomes Iinal and executory
6 - interest Ior obligations not
constituting a loan or Iorbearance oI
money

Moral damages
Gen. Rule a corporation is not entitled
to moral damages
Exception when its good reputation is
besmirched by breach oI Iiduciary duty.
In culpa contractual recoverable iI
there is Iraud or bad Iaith
Depositor may recover even iI bank`s
negligence not attended by bad Iaith iI he
suIIered mental anguish, serious anxiet y,
etc.
6. Respondeat superior oI employees
Command responsibilit y
A bank is bound by the negligence oI its
employees

ClassiIication oI Banks (CUT-RICO-NQU)

1. Universal Banks large commercial banks that


can do both commercial and investment banking
They have the power oI both commercial
bank and investment house
Have the power to invest in non-allied
enterprises
2. Commercial banks general powers incident oI
corporation and can perIorm commercial banking
Does not have the power to invest in non-
allied enterprises
3. Rural banks banks that promote rural
development
They can extend loan or advances to
primarily meet the normal credit needs oI
Iarmers, Iishermen and their Iamilies
Can also deposit in private banks more
than the amount prescribed by Single
Borrower`s Limit in case there are no
government banks
Rural Banks Act (RA 7353)
4. ThriIt banks encourages the industry, Irugalit y
and accumulation oI savings oI the public
To make it within easy reach to the people
the credit Iacilities at reasonable cost
Includes: (1) savings and mortgage bank,
(2) stock savings and loan associations
and (3) private development banks
ThriIt Banks Act (RA 7906)
4
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

5. Cooperative banks organized by cooperatives to


provide Iinancial and credit services to
cooperatives
Cooperative Code (RA 6938)
Membership oI a cooperative bank shall
include ONLY cooperative and
Iederations oI cooperatives
6. Islamic Banks promote socio-economic
development in autonomous region by perIorming
banking and investment Iunction based on Islamic
concept oI banking
Islamic Bank RA 6848
Subject to the principles and rulings oI
Islamic Shari`a
7. Others banks:
Philippine Veterans Bank created to
provide government depository to veterans
Ior appreciation oI grateIul nation (RA
3518)
Land bank oI the Philippines Iinance
distribution oI estate to resale to small
landholders (RA 3844)
Development Bank oI Philippines
provide credit Iacilities Ior development in
agriculture, commerce and industry
DBP was previously named as
Rehabilitation Finance
Corporation (RFC)
8. Non-stock savings and loan associations non-
stock, non-proIit corporation engage in
accumulation oI savings oI its members and loans
to meet its members` needs
ConIines exclusive membership and
cannot transact business with the general
public
9. Quasi-banks engaged in borrowing oI Iunds
through issuance oI deposit substitute Ior purpose
oI relending or purchasing receivables and other
obligations
10. OIIshore Banks deals with transaction with
Ioreign currencies in receiving Iunds Irom external
sources and utilization oI such
Governed by PD 1034

Authority to Engage in Banking and Quasi-Banking


Functions

No person or entity shall engage in baking


operations without authority Irom Bangko Sentral
Universal or commercials banks may engage in
quasi-banking Iunctions
Under Corporation Code:
4 No articles oI incorporation or amendment
oI banks shall be given unless
accompanied by recommendation oI
appropriate government agency (MB)
The determination whether the person or entity is
perIorming banking or quasi-banking Iunctions
without authority oI BSP shall be determined by
MB
4 MB may examine the books and records
to achieve this purpose
The department head and examiners can
administer oaths and compel presentation oI books,
documents or records
BSP can examine a bank or an enterprise that is
wholly or majority-owned by the bank
4 This can only be done when BSP is
examining bank
SEC shall not register articles oI incorporation oI
bank unless it is accompanied by authority oI MB
SEC shall not register by-laws oI bank unless
accompanied by authority oI BSP
Service oI summons upon banks
4 May be made on the president, managing partner,
general manager, corporate secretary, treasurer,
in-house counsel (domestic)
4 Upon resident agent or BSP (Ioreign bank)
As long as institute loans out money to its
customers and collect the interest and charges a
commission to lender and banker, it is a bank
Investment company engages primarily in the
investing or trading oI securities and is not a bank

Bank name

Only universal and commercial banks may


represent itselI to the public as such in connection
with its business name
ThirIt banks can be allowed to have a business
name oI its own provided that 'A thriIt bank,
savings bank or private development bank shall
be added
Above rule is also available to Rural/Coop
5
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - Organization, Management,


dministration of Banks

Organization oI Banks

MB can authorize the organization oI a bank based


on the Iollowing conditions:
1. Entity is a stock corporation (par value
stocks only)
2. Funds are obtained Irom the public which
shall mean twenty persons or more
3. Minimum capital requirement prescribed
by MB shall be satisIied
MB shall take into consideration the capabilities oI
the entity in terms oI their Iinancial resources,
technical expertise and integrity
government agency or department charged with
granting loans to banks
Bank is organized 5-15 people (incorporators)
Cooperatives may organized a rural bank upon
consultation with the rural banks in the area
Bank and its branches shall be treated as one unit
Universal and commercial banks may open
branches within or outside the Philippines upon
prior approval oI BSP
Other banks shall be governed by their pertinent
laws

Stockholdings

1. Treasury Stocks
GBL provides that NO bank shall:
Bank licensing process shall incorporate
i. Purchase or acquire shares oI its
assessment oI: own capital stock
1. Banks` ownership structure
2. Director management
3. Operating plan
4. Internal controls
5. Projected Iinancial condition
Capital requirements:

Type oI Bank Amount (M)


Universal 4,950
Commercial 2,400
ThriIt banks
1. Head oIIice in Manila 325
2. Otherwise 52
Rural Banks
1. Within Manila 26
2. Cebu/Davao 13
3. 1
st
-3
rd
class city and 1
st
class
municipality
6.5
4. 4
th
-6
th
class city and 2-4
th
class
municipality
3.9
5. 5
th
-6
th
class municipality 2.6
At least 25 oI total authorized capital stock shall
be subscribed by subscribers oI proposed bank
25 oI such subscription shall be paid-up. It shall
not be less than the minimum capital requirement
Incorporators/subscribers and proposed direct ors
and oIIicers must be (2) persons oI integrity and
(1) good credit standing
Such persons must (1) not be convicted oI cri me
involving moral turpitude and (2) not oIIicers oI
ii. accept own shares as security Ior
loan
1. Except iI it approved by
MB and will be returned
in 6 months
Reason: iI banks were allowed to have a
lien in their own stocks Ior indebtedness
oI stockholders, prohibition against
granting loans or discounts upon securit y
would become ineIIective
2. Foreign stockholdings:
Foreign individuals and non-banks can
own 40 oI voting stock oI domestic
bank.(aggregate Ioreign voting stocks)
A Filipino individual and domestic non-
bank may each own up to 40 oI the
voting stock (no aggregate ceiling)
Citizenship oI the corporation shall Iollow
the citizenship oI the controlling
stockholders (~50)
The percentage oI Ioreign-owned voting
stocks in a bank shall be determined by
the citizenship oI individual stockholders
At least 60 oI voting stock in any
commercial bank shall be owned by
Filipino citizens
In thriIt banks, it shall be at least 40
Rural banks, 100 Filipinos
6
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

In determining nationality oI banks,


control test is applied
Family groups or related interest must be
Iully disclosed in all transactions oI the
individual

Board oI Directors

According to Corporation Code, there shall be at


least Iive and maximum oI 15 board oI directors oI
bank
Two oI such shall be independent directors.
Independent director person other than oIIicer or
employee oI bank
All must be oI legal age and majorit y oI them are
residents oI the Philippines
Non-Filipino citizens may become members oI
board oI directors oI bank up to the extent oI
allowed Ioreign participation
Directors oI merged or consolidated banks shall
not exceed 21
Election: President, Treasurer (director or not),
Secretary (resident citizen). Not allowed position:
President/Secretary, President/Treasurer
Meetings may be conducted through modern
technologies
A Ioreigner may be a member oI the Board oI
directors oI a rural bank at the time oI their
assumption oI oIIice
To protect Iunds oI depositors and creditors, MB
shall regulate payment oI directors under certain
circumstances:
1. Comptrollership
2. Business in unsaIe or unsound manner
3. Bank is Iound to be in an unsatisIactor y
Iinancial condition

Fit and Proper Rule

Powers oI MB against directors:


a. Review qualiIications and DQs oI
directors
b. AIter due notice, may disqualiIy, suspend
or remove director
c. Fit and proper rule shall be determine by -
integrit y, experience, education, training,
competence oI the director
DisqualiIications oI directors:
a. Convicted oI Iinal judgment involving
dishonesty or breach oI trust
b. Persons convicted oI Iinal judgment with a
maximum imprisonment term oI more
than 6 years
c. Convicts oI banking laws
d. Persons judicially declared insol vent
e. Culpable oI bank`s closure
I. Administratively liable Ior violation oI
banking laws with penalty oI removal
Irom oIIice
g. Found unIit Ior position
There can be also temporary disqualiIications and
shall exist until DQ is gone
Under CC (Corporation Code) disqualiIication is
only with (1) imprisonment more than 6 years or
(2) violation oI code committed within 5 years
NCBA also provides DQ Ior members oI MB that
is connected with bank under supervision or
examination oI BSP
Public oIIicials cannot also be an oIIicer oI any
private bank unless position is incidental to oIIice
Rural Banks Act public oIIicial may be director
(exception)
PDIC conviction oI any criminal oIIenses
involving breach oI trust

Banking Days and Hours

At least 6 hours a day on working days (Mon-Fri


except holidays)
May open in Saturdays, Sundays and holidays Ior
3 hours (to report to BSP)
For purposes oI deposits and withdrawals, bank
can extend beyond or early oI 8AM and 8PM
II it is Ior other purposes, they can exceed 6 hours
minimum but not extend beyond or early oI 8AM
and 8PM
Banks in airports or major Iish ports can open
24hours
Changes in banking days and hours can be made
once every 30 days except during emergencies

ATMs

Classes: 1.) OIIsite 2.) Mobile

Banks may establish oII-site ATMS provided that


there is report on BSP and adequate securit y
7
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

measures. They are installed only in centers oI


activity
Mobile ATMS are allowed to visit places with
large crowds oI people provided it has adequate
securit y

Independent Auditor

MB may require bank to engage services oI


independent auditor Irom list oI CPA acceptable to
MB

Financial Statements

Every bank, quasi-bank or trust entity shall submit


to the BSP its Iinancial statements
Such statements must show the actual Iinancial
condition oI its institution, including its operations
Must publish such in an understandable
knowledge once every quarter in a newspaper oI
general circulation
Consolidated Iinancial statement combined
statement oI balance sheet and income expenses oI
two or more corporate entity
Subsidiary corporation where more 50 oI its
voting stock is owned by a bank
AIIiliate linked directly/indirectly to the bank by
1.) 10 ownership or control 2.) interlocking
directorship 3.) common stockholders owning
10 oI each intermediary 4.) management
contract 5.) permanent proxy or voting trust oI
10

Publication oI Capital Stocks

Bank, quasi-bank or trust entity shall not publish


the amount oI its subscribed capital stock without
indicating the amount oI its capital actually paid-
up

Settlement oI Disputes

BSP shall be consulted by (1) government


agencies in actions initiated or brought beIore
them by banks and (2) disputes between any oI
them which they are directors, oIIicers, or
stockholders

Strike and Lockouts

Any unsettled strike or lockouts involving banks


aIter 7 days shall be reported by BSP to DOLE
who will assume jurisdiction
Banks, through their president, shall inIorm BSP
oI the cause oI the strike and the operations
aIIected
8
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - Deposit Functions of Banks

Kinds of Deposits

1. Demand deposits

All those liabilities oI BSP and oI other banks


which are denominated in Philippine currency and
are subject to payment in legal tender upon
demand by presentation oI checks
Only universal and commercial banks may accept
or create demand deposits without prior authorit y
Irom BSP
Other types oI bank require such authority. This
considered as the current account in the bank

1.a. Temporary over drawings and DAUD

Temporary overdrawings are not allowed except


normal bank charges and other Iees incidental to
handling such accounts
Violations oI temporary overdrawings will cause
(1/10 oI 1) Iine per day computed on the basis oI
the amount oI overdrawn but not to exceed
P30,000.00 per day
Drawings against uncollected deposits (DAUD)
prohibited. Exception: made against uncollected
deposits representing manager`s, cashier`s,
treasury warrants, postal money order and on us
check

1.b. Current accounts oI oIIicers

All oIIicers, employees oI bank in cash


departments and other employees who have direct
responsibility in handling deposit transactions are
not allowed to maintain demand deposits or
current accounts

1.c. Checks

A written order addressed to a bank or person


carrying banking business, by a party having
money in their hands, requesting them to pay on
presentment, to a person named therein or to
bearer or to order, a named sum oI money (Moran
vs. CA)

1.d. Duty oI bank to honor checks

When bank sees that depositor`s account has


suIIicient amount, then it shall honor such
II there is suIIicient amount but bank dishonored,
then bank is liable. Otherwise iI there is no
suIIicient amount
Banks must ensure that the check is only paid to
its designated payee
Drawer must remember every time he issues a
check and a bank must know the Iormer`s
signature
A bank is under no obligation to make partial
payment on the check only upon the amount in the
drawer`s Iunds
The cannot also compensate the lack oI money in
the deposit account to the savings account
Cross-check must be: (1) may not be encashed but
only deposited (2) check negotiated only once to
one who has an account with a bank and (3) serves
as warning to holder (State Investment House vs.
IAC)
Cashier`s check bank`s own check and is treated
as PN with the bank as maker
- deemed as cash (New Pacific Timber & Supply
Co. Inc. Cs. Seeris)

1.d. Set oII Rule

A bank can set oII or compensate by debiting a


personal account oI depositor Ior an amount
erroneously credits to the person`s proprietorship
account

1.e. Relationship oI Payee or Holder and the Bank


Principal and agent relationship between payee
or holder oI commercial paper and the bank to
which it is sent Ior collection (PCIB vs. CA)

2. Savings Deposits

Banks may be authorized by the BSP to solicit and


accept deposits outside their bank premises

2.a. Individual and Joint Accounts

II the joint account is 'and, both signatures oI co-


depositors are required beIore withdrawals
II 'and/or either their signature is suIIicient
9
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

2.b. Withdrawals

There must always be a presentation oI passbook


and accomplishing necessary withdrawal slips
beIore withdrawal except iI authorized by BSP

3. Negotiable Order oI Withdrawal Accounts

NOW accounts are interest bearing deposit


accounts that combine the payable on demand
Ieature oI checks and investment Ieature oI
savings account
Universal and Commercial banks may oIIer NOW
accounts but other banks need prior approval oI
MB

4. Time Deposits

Time deposits one the payment oI which cannot


be legally required within such speciIied number
oI days
Special time deposits Irom the Agrarian ReIorm
Fund Commission with lower interest shall be
exempt Irom legal reserve requirements
CertiIicated oI Time Deposits can either be
negotiable or non-negotiable. Only Universal or
commercial banks can issue negotiable CTDs
without prior approval oI BSP

5. Deposit Substitute (Quasi-Banking Function)


Essential Elements oI quasi-banking are:
1. Borrowing Iunds Ior the borrower`s account
2. Twenty or more lenders at any one time
3. Methods oI borrowing are issuance, endorsement
or acceptance oI debt instruments
4. Purpose is Ior relending and purchasing
receivables
Borrowing all Iorms oI obtaining or raising
Iunds
For the borrower`s own account assumption oI
liability in one`s own capacit y
Relending reIer to the extension oI loans by an
institution with antecedent borrowing transactions

6. Foreign Currency Deposits

Any person, natural or juridical may deposit with


such any bank in good standing designated by BSP,
Ioreign currencies which are acceptable as part oI
international reserve, except those which are
required by BSP to be surrendered
Such banks can accept deposits and accept Ioreign
currencies in trust
1. Numbered accounts Ior recording and
servicing oI deposits are allowed
The depository bank shall
1. Maintain at all times a 100 Ioreign
currency cover Ior their liabilities
2. 15 oI such must be in the Iorm oI
Ioreign currency deposit with BSP
3. The balance shall be in Iorm oI Ioreign
currency loans/securities which are short-
term maturities and readily marketable
4. Such loans can be extended to domestic
enterprises to cover the 100 Ioreign
currency cover
Depository banks under the expanded Ioreign
currency deposit system shall be exempt Irom the
15 requirement oI deposit with BSP
There is no restriction on withdrawals by depositor
oI his deposit oI the same abroad except does
arising Irom contract oI depositor and bank

7. Anonymous and Numbered accounts

Such accounts are not allowed. Numbered


accounts is only allowed in Ioreign currency
deposits
However, banks/non-banks should ensure that the
client is identiIied in an oIIicial document

dministration of Deposits

1. Specimen signature, ID photos

All banking institutions are required to set a


minimum oI 3 specimen signature Irom their
depositors every 5 years or sooner
Banks may also require submission oI ID photos
First time depositors require the presentation oI at
least 2 valid phot-bearing Ids
Students who are beneIiciaries oI OFW are also
required to present 2 Ids
Submission is one-time basis only

2. Minors and Corporations as Depositors


10
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Minors can have savings and time deposit


accounts without assistance oI parents
1. Must be at least 7 yrs old
2. Able to read and write
3. SuIIicient discretion
4. Not otherwise DQed by law
Parents can still deposit money to minor
For deposits oI minors in thriIt banks, guardian
may make notice that payment (deposits, interest,
dividends) be made to him and not to the minor
Corporations may open bank accounts as Iollows:
(1) Incorporation stage and (2) Post incorporation
stage

3. Time oI payment oI interest in time deposits

Interest on time deposit may be paid upon


maturity, withdrawal or advance provided that the
interest paid in advance shall not exceed interest
Ior one year

4. Treatment oI matured time deposits

Time deposits not withdrawn or renewed on its


due date shall be treated as a savings deposit and
shall earn interest until actual withdrawal with
rates oI savings deposit
Deposit substitute not withdrawn shall have a
maturity rate applicable to a deposit substitute

5. Clearing Cut-oII Time

General rule: all deposits and withdrawals during


regular banking hours shall be credited/debited to
accounts on date oI receipt or payment
II there is BSP clearing arrangement, not earlier
than 2 hours beIore BSP clearing time in head
oIIices and 3.5 hours in branches
II there is no BSP clearing arrangement 2 hours
beIore local clearing time

6. Booking Cash Deposits

Cash deposits received aIter clearing cut-oII time


shall be book as deposits on day oI receipt

7. Booking Non-cash Deposits

'on us checks, manager`s/cashier`s checks,


demand draIts received aIter clearing cut-oII time
may, at the option oI the bank, be booked on the
day oI receipt. Other non-cash deposits are treated
as contingent accounts on the day oI receipt and
shall be booked as deposits the Iollowing day

8. Booking Deposits aIter regular banking hours

Deposits, whether cash or not, received aIter close


oI regular banking hours shall be treated as
contingent accounts and booked the Iollowing day

9. Average Daily Balance

Banks may impose and collect service charge or


maintenance Iee on savings and current accounts
that Iall below minimum monthly average dail y
balance (ADB)
must be properly disclosed in the terms oI deposit
For dormant accounts: Iall below 2 consecutive
months

Survivorship greement

There is survivorship agreement when joint


owners oI a deposit agree that either oI them could
withdraw any part or whole oI account during
liIetime oI both and the balance upon death oI
either belongs to the survivor
It is an aleatory contract
Survivorship agreement is per se not contrary to
law but may be violative
Agreement can be a mere cloak to hide in
inoIIicious donation to transIer property in Iraud

' Nature of Bank Deposits

1. Deposits are considered simple loans and not


preIerred credits
2. Bank deposits are in the nature oI irregular
deposits as they are loans who earn interest (BPI
vs. CA)
3. Relationship between depositor and Savings and
Loan Association is that oI creditor and debtor
4. Contract between bank and its depositors are
governed by NCC
5. Bank ultimately acquires ownership oI deposits
but has obligation to pay back equal amount
6. Banks can set-oII or compensate
11
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

' Duties of Banks

Meticulous care with deposits oI clients due to


Iiduciary relationship
Banks must give payment to the proper party, thus
collecting bank has obligation to ascertain that the
drawer truly intended that the depositor is the
payee
In case oI death oI depositor and the bank knew oI
it, there shall be no Iurther withdrawal
Administrators or heirs can withdraw up to 20k
without certiIication oI CIR

' Secrecy of Bank Deposits

Purpose is to (1) give encouragement to the people


to deposit their money in banking institution and
(2) discourage private hoarding oI depositors so
that could be used in economic development
All deposits oI whatever nature with bas including
investment bonds are considered absolutel y
conIidential and may not be examined, inquired or
looked into even by government oIIicials
RA 8367 prohibits inquire or disclosure oI
deposits
Exception: (1) written permission oI depositor, (2)
impeachment, (3) order oI court in case oI briber y
or dereliction or (4) subject matter oI litigation
It shall also apply to Ioreign currency deposits
with the only exception oI written permission
In Islamic banks that only exceptions are: (1)
inspection oI bank auditor, (2) written permission
by depositor (3) subject matter oI litigation

' Exceptions to Secrecy of Deposits

They are already stated above


Accounts can be garnished to insure satisIaction oI
judgment as there is no real inquiry and some
disclosure are merely incidental
Congress not intended Ior debtors to escape
General exemption against garnishment shall not
apply to Ioreign transients
Foreign currency deposits oI a Ioreigner who was
convicted oI crime oI rape may be garnished to
satisIy judgment
Under RA 1405 and Anti-Money Laundering Act,
the secrecy oI deposits do not appl y

BSP can also inquire in deposits Ior periodic and


special examinations
Ombudsman has the In-Camera Inspection power
to look into deposits provided that there is a
pending case is court and 1.) the account must be
properly identiIied 2.) inspection limited to the
subject matter
CIR can also look into deposits to determine gross
estate oI a decedent or he has applied Ior
compromise tax liability
12
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - nvestments, Loans and Other Bank


Functions

I. Universal Operation oI Universal banks

Powers oI Universal bank

1. Commercial bank
2. Investment house
3. Invest in non-allied enterprises

Equity Investments oI Universal bank

Allied enterprises are those which enhance or


complement banking
II it is a Iinancial allied enterprise, then it involves
money matters. Otherwise it shall be non-Iinancial
Total investments in equities oI allied and non-
allied enterprises shall not exceed 50 oI the net
worth oI the bank
Equity investment in any one enterprise, whether
allied or non, shall not exceed 25
Net worth total oI the unimpaired paid in capital
including paid-in surplus, retained earnings and
undivided proIit

Equity investments oI Universal bank in Financial Allied


enterprise

Universal bank can own 100 oI the equity in a


thriIt, rural bank or Iinancial allied enterprise
Publicly-listed universal or commercial bank may
own 100 oI voting stock oI another universal or
commercial bank
II not publicly-list then only 49 own
Following are Iinancial allied enterprises:
1. Leasing companies
2. Banks
3. Investment houses
4. Financing companies
5. Credit card companies
6. Financial institutions
7. Companies in stock brokerage and Ioreign
exchange dealership
8. Insurance companies
9. Holding company provided that the
equities oI the entity is conIined under
universal bank BSP regulation
Equity investments oI universal bank in non-Iinancial
allied enterprise

Universal bank may own up to 100 oI equity in


non-Iinancial allied
Examples are:
1. Warehousing companies
2. Storage
3. SaIe deposit box
4. Companies engaged in management oI
mutual Iunds and not Iunds itselI
5. Computer services
6. Home building and development
7. Service bureaus
8. PCHC
Rural and cooperative banks can invest in non-
Iinancial allied enterprises such as:
1. Warehousing
2. Fertilize and agricultural chemical
3. Farm equipments
4. Trucking and transportation
5. Marketing agricultural products
6. Leasing

Equity investment oI Universal Bank in Non-allied


enterprise

Equity investment in a single non-allied enterprise


shall not exceed 35 in total equity or voting
stock

Investments in non-allied enterprises

Universal bank may invest in equity oI enterprise


oI eligibles:
1. Enterprises engaged in agriculture, mining,
quarrying, manuIacturing, public utilities
2. Industrial parks
3. Commercial project with government
privatization program
Equity investment in Quasi-banks universal bank
can only invest up to 40 in equity oI quasi-banks

II. Operations oI Commercial Banks

Powers oI Commercial banks

1. General powers incident to corporations


2. All power necessary to carry business oI
commercial banking such as:
13
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

a. Accepting draIt and issuing letters oI


credit
b. Discounting
c. Creating demand deposits
d. Buy and selling Forex

Issuance oI Letters oI Credit

Letter oI credit Iinancial device developed by


merchants as convenient mode oI dealing with
sales oI goods
The buyer will apply Ior a letter oI credit in the
issuing bank
The seller will then send the goods to the carrier
and he will make a draIt, called bill oI exchange
Seller will present the draIt and the necessar y
documents, such as bill oI lading to issuing bank
to receive the payment
While the goods are in transit, it shall be owned by
issuing bank
When the goods arrived at the port oI the buyer,
the buyer will pay the corresponding payment and
also gain the documents
Since the buyer gain the documents, he can now
acquire the delivered goods
Independence principle bank determines
compliance with letter oI credit only by examining
shipping documents presented and need not
examine the goods
There are three contracts:
1. buyer-seller
2. buyer-bank
3. seller-bank
There can be other parties such as notiIying bank
(inIorm seller), conIirming bank (lend credence to
letter oI credit), paying bank and negotiating bank
(discounter)

Equity investments on commercial bank

Commercial bank may invest only in equities oI


allied enterprises
Total investment in equities oI allied enterprises
shall not exceed 35
Equity investment in one enterprise shall not
exceed 25
Equity investment oI commercial bank on Iinancial allied
enterprises

Can own up to 100 in equity oI thriIt and rural


bank
However cannot own 100 oI equity oI Iinancial
allied enterprise other than above banks

Equity investment in commercial bank on non-Iinancial


allied enterprises

Can own 100 oI said enterprises

III. Risk-Based Capital

Minimum Ratio

MB shall prescribe minimum ratio


It will be based on the net worth and risk assets oI
a banks well as its compositions
It may alter compliance with ratio Ior a max
period oI 1 year
Ratio shall be uniIormly applied to banks oI same
categor y

EIIect oI Non-compliance

II a bank does not comply then the MB can:


1. Limit distribution oI net proIits and be
used to increase capital accounts until
minimum requirement is met
2. Restrict acquisition oI major assets and
new investments except with purchase oI
readily marketable evidence oI
indebtedness oI RP BSP
In case oI merger, rehabilitation, MB may
temporarily relieve such bank with compliance
with capital ratio

IV. Limit on loans, credit accommodation and guarantees

Single Borrowers Limit

Total amount oI loans, credits accommodation and


guarantees extended to any person, partnership or
corporation shall not exceed 20 oI net worth oI
bank
In Circular 425 oI 2004 oI BSP, the SBL was
increased to 25
Exceptions to SBL:
14
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

1. MB may otherwise prescribe Ior reasons


oI national interest
2. Deposit oI rural banks with GOC Iinancial
institutions such as LB, DBP and PNB
Basis Ior determining SBL is the total credit
commitment oI bank to borrower
Loans - to all accounts under loan portIolio
Credit accommodations - to credit and market risk
exposure oI banks arising Irom accommodation
other than the loan
Total credit commitment - include loans, credit
accommodation, deIerred letters oI credit less
margin deposits and guarantees
Total credit commitment can be increased by 10
provided additional liabilities are secured by trust
receipts, shipping documents or readily marketable
goods
Readily marketable goods articles oI commerce,
agriculture or industry as constant dealings in
ready market and price is easily ascertainable and
disposable
Parent corporation`s total credit commitment shall
also include its subsidiaries` iI it guarantees,
accommodate or subsidiary is merely a department
oI it
Wholesale lending oI government banks shall not
exceed 35 oI net worth to participating Iinancial
institutions
PFI institutions Ior relending to end-user
borrowers
The end-user borrower shall be subject to the 25
SBL
In municipalities where there are no government
banks, deposits oI rural and coop banks in private
banks shall not be subject to SBL
Deposit in private depository bank used by thriIt,
rural and coop banks, with authority to accept
demand deposits, aIter being cleared, shall be
exempted Irom SBL
Bank guarantee irrevocable commitment oI a
bank binding to pay a sum oI money in event oI
non-perIormance oI third party
Credit Risk Transfer arrangement that allows the
bank to transIer the credit risk associated with its
loan or other credit accommodation to a third part y
Control oI majority interest or controlling interest
parent owns, directly or indirectly through its
subsidiaries, more than halI oI voting power oI
enterprise
Even iI less than halI oI said voting power, it shall
still have controlling interest iI:
1. Agreement with investors
2. Govern Iinancial and operations
3. Can appoint majority oI directors
4. Cast majority vote on meetings
Subsidiary corporation where more than 50 oI
the voting stock is owned by a parent corporation
Bill of exchange drawn in good faith against
actually existing values drawn by a seller on the
purchase Ior the price oI commodity sold
Commercial paper owned by person negotiating
the same paper arising Irom business transaction
Exclusion Irom SBL:
1. Discount bills oI exchange and discount
commercial paper
2. Credit accommodation to Iinance
importation oI rice or corn up to 100 net
worth oI bank
W Must be approved by NEDA
3. Loans and credit accommodation
guaranteed by Industrial Guarantee and
Loan Fund
4. Liabilities oI commercial paper issuer Ior
commercial paper held by UB as Iirm
underwriter. Only 180 days and not
exceed 5 Irom normal SBL
5. Loans and credit accommodations covered
by international or regional institutions
where Philippines is shareholder such as
ADB
6. Loans and credit accommodations with
valuation reserves provided that bank has
no unbooked valuation reserves
7. Loans and credit accommodations as a
result oI underwriting agreement oI debt
securities not exceeding 30 days

Violations

Monetary penalties 1/10 oI 1 oI excess over


the ceiling but not exceed 30k per day
II bank resource is less than 50M, then only a max
penalty oI P500 shall be imposed
There will also be reprimand to directors/oIIicers
15
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

In subsequent oIIense, a 1k Iine shall be imposed


on the directors who approved it
There can also be suspension oI bank`s branching
privilege and rediscounting Iacility oI BSP

Inclusion to Limit

The Iollowing shall be included


1. Maker, acceptor oI paper discounted and
general indorser, drawer or guarantor
2. Individual who controls majority interest
in corporation
3. In case oI corporation, all liabilities to
such bank oI all subsidiaries it has
majority interest
4. Partnership, liabilities oI members
Also includes parent coporations with majorit y
interest

Exclusion to limit

1. Loans and credit accommodations secured by


BSP or RP. State is always solvent
2. Loans and credit accommodations guaranteed by
government
3. Loans and credit accommodations covered by
assigned oI deposits by lending bank
4. Loans and credit accommodations under letters oI
credit covered by margin deposits
5. Loans and credit accommodations determined by
MB as non-risk items

Assignment oI Credits

It is the agreement where the owner oI credit,


know as assignor, by legal cause, transIer his
credit to another, known as assignee without need
oI consent oI debtor
Assignee acquires powers oI assignor
There is no new obligation in assignment
However, there must be a notice given to debtor so
that he will know whom to pay
Consent is not necessary in order that assignment
may Iully produce legal eIIects (Sison & Sison vs.
Yap Tico and Avancea)
Pacto commisorio

Appropriating a thing given by pledge or


mortgage
It is not allowed. Encashment oI deposit
certiIicates is not pacto commissorio
It is intended to protect the obligor against being
overreached by creditor

V. Restriction on Bank Exposure to Directors, OIIicers,


Stockholder and related interests (DOSRI)

No DOSRI can directly or indirectly borrow Irom


such bank or become a guarantor, indorser or
surety Ior loan
Exception is when there is a written approval oI
the majority oI all directors oI the bank excluding
the DOSRI concerned
Such approval is not required iI it is under a Iringe
beneIit plan approved by BSP
Directors include those named in incorporations,
elected or Iilled
OIIicers shall include any person who perIorms
Iunction oI management
Stockholder stockholder oI record in the books
oI the bank
Related interest includes souse or relative within
1
st
degree or by legal adoption. This includes
partnership, co-ownership oI DOSRIs
Corporations where the above mentioned owns
20 oI subscribed capital, then the prohibition
shall apply
Can also be less than 50 iI the DOS sits as
representative oI the bank in the board oI such
corporation

EIIect oI violation

The director or oIIicer who violates may be


declared vacant and subject to penal provisions oI
NCBA

Limit on loans

MB can limit the valid loan given to DOSRI


provided that it shall be based on their
unencumbered deposits and book value oI their
paid in capital contribution
16
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Exclusion to the Limit

Loans and credit accommodations considered as


non-risk
Loans and credit accommodations to oIIicers in
Ior oI Iringe beneIits
Limit on loans and credit accommodations shall
not apply on those extended by coop bank to its
coop shareholders

Applicability oI DOSRI rules and regulation to


government borrowing

Circular 547 oI 2006 provides that DOSRI rules


shall also apply to loans and credit
accommodations granted to RP, subdivisions,
instrumentalities and GOCCs
Exceptions would be:
1. Loans and credit accommodations that are
non-risk and not subject to ceiling
2. Those made by BSP
3. LGU due to Iull autonomy in their
propriety Iunction
4. Director who acts as government
representative

VI. Securities on Loans and credit accommodations

Loans and credit accommodations against real estate

Shall not exceed 75 oI appraised value oI


respective real estate security plus 60 oI the
appraised value oI the insure improvements

Loans and credit accommodations on security oI chattels


and intangible properties

Shall also not exceed 75 oI the appraised value


oI the security

Join and Solidary agreement

JSA is surety and not guarantee. It is an agreement


where parties consent to be solidarily liable
As a contract oI adhesion, JSA should be taken
contra proferentum against the party who may
have caused any ambiguity therein.

EIIect oI Surety Agreement

Agreement is onerous and construed against


credtor
Requires that creditor obtain consent oI the suret y
beIore there can be material alteration to the loan
II surety director is not anymore party oI the board
then he cannot be held liable
Surety cannot extend to more than what is
stipulated
Joint and solidary signature oI major stockholder
or oIIicer constitutes as an additional security Ior
loans granted to corporations (Security Bank &
Trust Company vs. Cuenca)
Joint and solidary agreement agreement where
the contracting parties consent to be jointly and
severally liable in a loan obligation

VII. Grant and purposes oI loans and credit


accommodations

Amount and purpose oI loan

Bank must grant loans and credit accommodations


only in amounts and Ior period oI time essential
Ior eIIective completion
Must be consistent with saIe and sound banking
practice
Purpose oI loan shall be stated in application
II bank Iinds that proceeds have been employed
without its approval, the bank shall have the right
to terminate the loan and demand immediate
repayment

Requirement Ior grant oI loan

Bank must Iirst ascertain iI debtor is capable oI


IulIilling his commitments to the bank. It must
consists oI:
1. Statement oI assets and liabilities
2. Statement oI income and expenditure
3. Prescribed by law and MB to evaluate
credit application
Even in the absence oI such provision in GBL, Art
1198 oI the NCC allows the creditor to demand
Iull payment when debtor is insolvent, Iails to give
guarantee, impaired guarantee, lost thing through
Iortuitous event, violate undertaking or attempts to
abscond
17
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

MB shall recognize peculiar characteristic oI


micro Iinancing such as cash Ilow-based lending
Microfinancing loans small loans granted to
basic sectors usually unsecured and given to small
businesses

Reason Ior stringent rule in granting loans

Banking corporation holds the money oI the


depositors. Due to the nature that it is aIIected
public interest, the bank must ensure that the loan
shall be repaid

Unsecured loans and other credit accommodation

MB shall authorize regulations with respect to


such

Other security requirements Ior bank credits

MB may prescribe security requirements to which


bank credits shall be subject and reduce or
increase maximum ratio

Authority to prescribe terms and condition oI loans and


other credit accommodations

MB may prescribe maturities as well as related


conditions oI varios bank loans and credit
accommodations
Any change in maximum maturity shall only appl y
to those made aIter such action

Amortization on loans and other credit accommodations

Amortization schedule oI bank loans and other


credit accommodations shall be adopted based on
nature oI operation
II loans and other credit accommodations has
maturity oI more than 5 years, must have periodic
amortization payments and must be made annuall y
II borrowed Iunds are to be used Ior purposes
which do not initially produce revenues Ior
payment oI regular amortization, bank may deIer
such time until revenues are suIIicient. In no case
shall initial amortization date be later than 5 years
In case oI loans and other credit accommodations
to microIinance sectors, schedule shall consider
cash Ilow oI borrowers
Escalation Clause

Parties to an agreement pertaining to loan oI may


agree upon an increase in the event that the
applicable maximum interest is increased by MB
PROVIDED: such stipulation shall only be valid iI
there is also a stipulation that the interest rate
agreed upon shall be reduced in the even
maximum interest rate is also reduced by MB
Escalation clause are not void per se
It is void when it grants creditor unbridled right to
adjust interest independently, completely
depriving debtor oI right to assent
Such clause violate the mutuality oI contracts
In escalation clause there should be:
1. Increase in interest iI increased by law or
MB (escalation clause)
2. Include provision Ior reduction oI
stipulated interest in the event maximum
interest is also reduced by law or MB (de-
escalation clause)
Purpose oI including de-escalation clause
prevent one-sidedness in Iavour oI lender an
repugnant to mutuality oI contracts
Absence oI de-escalation clause will render
escalation clause void

EIIect oI annulment oI escalation clause


In case the escalation clause is annulled, principal
amount oI loan is subject to original interest rate

Exception

II there is no de-escalation clause, the escalation


clause is still valid iI the creditor unilaterally and
actually decreased the interest charges whenever
the interest rate is reduced by law or MB (Llorin
vs. CA)

Unilateral increase oI rates

Such violates the principle oI mutuality oI


contracts in Art 1308 oI NCC
Any contract which appears to be heavily weighed
in Iavour oI any one party that will lead to
unconscionable result is void
18
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Escalation clause are valid to maintain Iiscal


stability and retain the value oI money on long-
term contracts
However, other party there must be right to assent
to an important modiIication oI contract
Contract oI adhesion parties do not bargain on
equal Iooting, the weaker party`s participation
being reduced to a take or leave it

Iniquitous, unconscionable and exorbitant interests

Though usury law is not inexistent, interest may


be agreed upon by lender and borrower
However, the same must be equitable reduced Ior
being iniquitious, unconscionable and exorbitant
In Medel vs. CA, SC Iound that 66 interest rate
per anum is unconscionable
In Cuaton vs. Salud, interest rate was 120 per
annum interest rate is unconscionable and should
be lowered to 12 per annum interest rate
Dio vs. Jirgilio, interest rate was 120 per annum
also, reduction oI interest must be made
Bacolor vs. Banco Filipino, a 24 interest rate per
annum is not unconscionable or excessive

EIIect oI void interest rate

II interest rate is void, it is as iI no express contract


thereon and court may reduce

Prepayment oI loans and other credit accommodations

A borrower may at any time prior to agreed


maturity date, prepay in whole or in part the
unpaid balance subject to reasonable terms

Legal compensation

Under Art. 1278, compensation can take place


where the parties are creditors and debtors oI each
other
A person who secures a loan oI money acquires
ownership and is bond to pay the creditor an equal
amount
Deposits in bank can be set-oII against obligation
oI depositor
Subsidiary has an independent and separate
juridical personality Irom parent company and any
claim against the subsidiary is not a claim against
the parent

Development assistance incentives

BSP shall provide incentives to banks, without


government guarantee, which extend loans to
Iinancial educational institutions, cooperatives,
hospitals

Banks cannot extend peso loans to non-resident

Reason Ior this:


1. To curb undue speculation in Ioreign
exchange market
2. Further reinIorce memorandum that peso
deposits should be Iunded inward Ioreign
exchange remittances
OFWs are residents and can avail peso loans

Provisions Ior losses and write-oIIs

Bad debts - all debts due to any bank on which


interest is past due and unpaid

Extraordinary inIlation or deIlation

Under Art 1250 oI NCC, in case oI extraordinar y


inIlation or deIlation oI currency stipulated, value
oI currency at time oI establishment oI contract
shall be the basis oI payment
For extraordinary inIlation or deIlation to aIIect
obligation, the Iollowing must be proven:
1. There must Iirst be oIIicial declaration
Irom BSP
2. Obligation is contractual
3. Parties expressly agreed to considered
eIIects oI extraordinary inIlation or
deIlation
xtraordinary Inflation exist when there is an
unusual decrease in the purchasing power oI the
currency and such decrease could not be
reasonably Ioreseen or was maniIest beyond the
contemplation oI the parties at the time oI the
obligation

Purpose oI Attorney`s Fees


19
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Attorney`s Iees are not integral part oI cost oI


borrow but arise when collecting upon the Notes
becomes necessar y

VIII. Truth in Lending

Policy

Protect citizen Irom lack oI awareness oI trust cost


oI credit to the user by assuring Iull disclosure oI
such cost and prevent uninIormed use oI credit

Disclosure

The creditor shall Iurnish the debtor a clear


statement in writing setting Iorth the Iollowing:
1. Cash price or delivered price to be
acquired
2. Amount to be credited as DP
3. DiIIerence between 1 and 2
4. Charges individually itemized
5. Total amount to be Iinanced
6. Finance charge
7. Percentage that Iinance bears to the total
amount to the Iinanced
Rationale: protect users oI credit Irom lack oI
awareness oI true cost

DeIinition

Credit any loan, mortgage, deed oI trsust,


advance, conditional sale contract, rental
Finance charge interest, Iees, service charges,
discounts and other charges incident to extension
oI credit
Creditor any person engaged in business oI
extending credit who requires Iinance charge

Penalties

1. Civil any creditor who Iails to disclose shall be


liable Ior P100 or amount equal to twice oI Iinance
charge required
a. Whichever is higher
b. Liability shall not exceed 2k
c. Must be brought within 1 year Irom date
oI occurrence
2. Criminal Iine not less than 1k or not more than
5k or imprisonment Ior not less than 6 mos nor
more than 1 year or both

Both actions can be instituted independently oI


each other
But there can also be a joinder oI cause

EIIect oI violation

Violation shall not aIIect the validity or


enIorceability oI any contract
In Consolidated Bank vs. CA, SC said that lender
cannot charge interests not stipulated in
promissory note
In UCP vs. Beluso, interest rate provisions are
illegal due to violation oI mutuality oI contracts
and also violate TILA

Exemption oI government

TILA shall not apply to Philippine Government

Required disclosure on consumer loans not under open-


end credit plan

Any creditor extending consumer loan or


transaction which neither consumer credit sale nor
open-end consumer credit plan shall also need to
disclose inIormation

Exempted transactions

Disclosure requirement on consumer credit


transactions shall not apply to those extension oI
credits Ior business or commercial purpose or to
government

IX. Foreclosure oI real estate mortgage

Procedure

In the event oI Ioreclosure oI any mortgage, the


mortgagor has the right to redeem the propert y
within one year aIter sale oI real estate
Purchaser at auction sale shall have the right to
enter upon and take possession oI such aIter date
oI conIirmation oI auction sale
In GBL, iI purchased y banks, they are not
required to set up bond beIore they can enter the
property immediately during redemption period
20
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Writ oI possession may also be issued aIter


consolidation oI ownership oI property in name oI
buyer
Buyer becomes absolute owner oI property iI not
redeemed during the 1 year aIter registration oI
sale
II the property extrajudicially Ioreclosed belong to
a juridical persons, right to redeem property shall
be counted until, not aIter, the registration oI the
certiIicate oI Ioreclosure
It shall be no more than 3 months aIter Ioreclosure
whichever is earlier
Accessory contract oI real mortgage is used as
security Ior IulIilment oI principal obligation
A loan value is only 70 percent oI the appraised
value so that a low bid price will be made and will
be easier to redeem
Real property may be mortgaged to aliens
Redemption period is counted Irom date oI
registration oI the certiIicate oI sale with register
oI deeds
An action Ior annulment oI mortgage does not stop
the running oI the period oI redemption
Otherwise there shall be Irivolous suits instigated
to give mortgagor more time to redeem
The amount redeemable is the amount under the
mortgage deed or the outstanding obligation plus
interest and expense in Sec 47 oI GBL
No personal notice in required in extrajudicial
Ioreclosure oI sale since it is action in rem

Demand beIore Ioreclosure essential

There must Iirst be demand beIore there can be


Ioreclosure as where demand was not made, the
loan shall not become due and demandable

Equity oI redemption vs. Right oI redemption

Where Ioreclosure is judicially made, no right oI


redemption exist in case the mortgagee is not a
PNB or bank
In such a case, the mortgagor is given the right to
extinguish the mortgage and retain ownership oI
property by paying debt within 90 days aIter
judgment

Right oI redemption may be extended by agreement


Estoppel

Bank or any purchaser is deemed consented to


extension oI redemption iI it had time to object but
it did not

Redemption aIter prescriptive period

Right to redeem becomes Iunctus oIIicio on the


date oI its expiry
Redemption is by Iorce oI law, the buyer is bound
to accept redemption
However, there can be right to repurchase
depending on the will oI buyer
The buyer is not bound to accept repurchase unlike
in redemption
The buyer shall also not be bound by the bid price
as it now belongs to him
An alien-owned bank cannot acquire ownership oI
residential lot by virtue oI deed oI transIer as
settlement oI debt
TransIer oI ownership, even Ior a limited period or
in Ioreclosure, cannot be made to alien

OIIer to repurchase not waiver to question sale

II there was an oIIer to repurchase, it shall not be


construed as waiver oI right to question
Ioreclosure sale
Mortgagee has no right to recover the deIiciency
Irom the mortgagor oI value oI loan iI Ioreclosure
is invalid

PreIerred status oI banks not impaired in case borrower


under rehabilitation

In case oI rehabilitation oI corporation debtor, the


right oI a creditor bank is merely suspended

Writ oI possessi on

AIter consolidation oI title in buyer`s name due to


Iailure oI mortgage to redeem, the writ oI
possession becomes a matter oI right and its
issuance in a extra-judicial Ioreclosure is merely
ministerial
Injunction to prohibit issuance oI writ oI
possession is utterly out oI place
Proceeding in petition Ior writ oI possession is ex-
parte and summary in nature
21
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

However, mortgagor still have right oI recourse to


petition to set aside Ioreclosure sale and cancel
writ oI possession in same proceeding

X. Major investments

MB shall establish criteria Ior reviewing major


acquisitions or investments oI bank

Ceiling on investments in certain assets

Bank may acquire real estate as necessary Ior its


conduct oI business
Total investment on such real estate shall not
exceed 50 oI capital accounts
Equity investment oI a bank in another corporation
engaged in real estate shall be considered part oI
investment in real estate
In determining compliance with the ceiling, the
Iollowing shall apply
4 Investment shall include real estate and
equipment necessary Ior bank use such as
bank premises and real property oI bank
under its name
4 The cost oI real estate leased by bank Irom
corporation and amount oI equity in lessor
shall also be included
In case oI Tala vs. Banco Filipino, BF reached its
maximum 50 capacity in real estate and Tala
was created by major stockholders to buyer bak
sites oI BF and leases it back to them. However,
BF deIaulted and Tala wants the payment oI rents
The court rules that Tala cannot be allowed to
collect rent as it clearly shows that the tried to
circumvent the real estate investment limit in GBL

Acquisition oI real estate by way oI satisIaction oI claims

Notwithstanding the limitations, bank may still


acquire the Iollowing property:
1. Mortgage to it in good Iaith Ior security
2. Conveyed Ior satisIaction oI debt
3. Purchase under judgement or mortgage
Any real property held in such circumstance must
be disposed within 5 years
AIter said period, those properties shall now be
included in the 50 limitation

XI. Other Banking Services

A bank may also perIorm the Iollowing services:


1. Receive custody oI Iunds, documents and
other valuable objects
2. Act as Iinancial agent to buy and sell Ior
their customers
3. Make collection Ior accounts oI other
4. Act as managing agent oI investment
management accounts
5. Rent out saIety deposit boxes
Bank shall perIorm 1-4 as a depositary or as an
agent
It shall be duly separated Irom bank`s own assets
and liabilities

SaIety deposit box

It is considered as a special kind oI deposit


It cannot be an ordinary contract oI lease because
the absolute control and possession oI saIet y
deposit box is not given to renters
The guard key remains with bank and renters key
remain in customer
Where the renter keys are duplicated, the bank is
not liable to either renters in case oI loss
attributable to them
The SC said that it can be considered as a bailor
and bailee relationship
Duties oI the parties may be deIined by them
The company renting saIe-deposit boxed cannot
exempt itselI Irom liability due to Iault oI its own
agents
In Sia vs. CA, a bank was held liable Ior not
immediately inIorming the customer that his saIet y
deposit box was Ilooded which caused damage to
the items oI the customer

XII. Electronic transactions

BSP shall have Iull authority to regulate use oI


electronic devices in connection with bank
operations

XIII. Outsourcing oI inIormation technology

Bank may outsource inIormation technology


systems and processes except inherent banking
Iunctions
Functions that are not outsourced:
1. Strategic planning Ior use oI IT
22
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

2. Determination oI system Iunctionalities


3. Change management inclusive oI qualit y
assurance
4. Service level and contract management
5. Security policy and administration

XIV. Outsourcing oI other Iunctions

Subject to prior approval oI MB, banks may


outsource data imaging, storage, retrieval and
other related systems
Banks may outsource credit card services

XV. Credit Card Transactions

General policy

BSP shall develop consumer credit through


innovative products

DeIinition oI terms

Credit card any card, plate, coupon book or


other credit device Ior the purpose oI obtaining
money, property, labor or credit
Credit card receivables total outstanding balance
oI cardholders
Minimum amount due - minimum amount that
cardholder needs to pay on due date
Default non-payment oI minimum amount due
within two cycle dates
Acceleration clause gives bank the right to
demand obligation in Iull in case oI deIault

Risk management system

System that shall saIeguard interests, banks and


subsidiary credit card companies

Minimum requirements

BeIore issuing credit cards, banks must exercise


proper diligence by ascertaining applicant possess
good credit standing and are Iinancially capable to
IulIil payments
All applications must go under strict credit risk
assessment process

InIormation to be disclosed

Banks shall disclose to each prospective


cardholder non-Iinancial charges, percentage oI
interests, interest rate per annum, instalment
details, deIault Iees, etc.

Accrual oI interest earned

Interest accrued shall be reserved and no accrual


shall be allowed 90 days aIter credit card
receivable has become past due

Finance charges interest charged to cardholder

DeIerral charges

Parties can agree to a deIerral oI all or partly oI


unpaid instalments and will subsequentl y collect
deIerral charge

Late payment and penalty Iees

No late payment or penalty Iee shall be collected


unless it is Iully disclosed in the contract

ConIidentiality iI inIormation

Banks shall keep strictly conIidential data on


cardholder except when there is consent, exchange
oI inIormation with other credit card companies,
disclosure to collecting agent

Suspension, termination oI eIIectivity and reactivation


banks shall Iormulate parameters Ior such
Inspection oI records covering credit card truncations

banks shall make available Ior inspection credit


card inIormation to BSP

OIIset

Banks can oIIset their obligations with cardholder


with the latter`s debts provided there is notice

Handling oI complaints

bank shall give cardholder 20 days to examine


charges and aIter 2 billing cycles, bank can correct
error

UnIair collection practices


23
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

banks shall resort to legally permissible means to


collect amount due under credit card agreement
There shall be no use oI threat or violence to
coerce payment and no Ialse representation

Additional deposit does not increase credit limit

Contract oI adhesion

Contract between cardholders and credit card


companies are contract oI adhesion becomes they
are prepared only by one party and the other part y
only signiIies

Blanket Ireedom Irom liability is invalid

The credit card company cannot excuse itselI Irom


liability completely as with blanket oI Ireedom

XVI. Rules oI Price tags

One price tag requirement

Every retailer is required to display price tag to


indicate price oI good or service
Price tag must be written clearly indicating the
price including VAT. Service charge shall not be
included in price tag

Mode oI payment

It is necessary to consider business practices


relative to mode oI payment under Price Tag Law
When consumer pays in cash, he shall only pay the
price indicated
When consumer pays through credit/ATM/debit
card, he shall only pay price indicated in tag
When retailer oIIers consumer option to pay in
cash or card, the same is allowed provided that
options are disclosed by separate inIormation but
not on the price tag
Price that indicates separate cash price and regular
cash price is not allowed
Price tag that indicates separate price tag and card
price is also not allowed

Prohibition against surcharging

Retailers who honor credit/ATM/debit cards Ior


payment shall not require payment oI surcharge
over and above the price tag
24
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - Prohibited Transactions and essation


of Banking Business

I. Prohibited Transactions

Prohibited to act as insurer

Bank shall not directly engage in insurance


business as insurer
Insurance act shall include making insurance
contract, surety contract, doing business oI
reinsurance
Fact that no proIit is derived shall not be deemed
conclusive to show that there is no insurance
business

Prohibited acts

No director shall:
1. Make Ialse entries in any bank report
2. Without order oI court, disclose to an
unauthorized persons an inIormation
relative to Iunds or properties in custody
oI customers
3. Accept giIts, Iees or commission in
connection Ior approval oI loan
4. Overvalue a security Ior purpose oI
inIluencing actions oI bank
5. Outsource inherent banking Iunctions
W This is to ensure secrecy oI bank
deposits
No borrow shall
1. Fraudulently overvalue security Ior loan
2. Furnish Ialse material Iacts to obtain or
increase loan
3. Attempt to deIraud bank in event oI court
action to recover loan
4. OIIer any DOE any giIt, Iee, commission
to inIluence person to approve loan
No examiner, oIIicer or employee oI BSP assigned
to supervise, examiner rendering technical
assistance to bank shall commit the Ioregoing acts
No bank shall employ causal or non-regular
personnel or too lengthy probationary personnel in
business involving bank deposits

Prohibition against Outsourcing Certain Banking


Functions

Outsourcing inherent banking Iunction shall


reIer to any contract between the bank and
service provider Ior the latter to supply, or any
act whereby the latter supplies, the manpower
to service the deposit transaction oI the Iormer.

II. Conducting business in an unsaIe or unsound manner

To determine whether act or omission is


considered unsaIe or unsound Ior banking, the
Iollowing shall be considered:
1. Resulted in material damage or abnormal
risk to stability, solvency oI bank
2. Resulted damage in depositors, creditors,
investor or public
3. Cause undue injury or unwarranted
beneIits to any party
4. Involves entering contract maniIestl y
disadvantageous to bank regardless iI DO
will proIit
MB can take action and exclude erring bank Irom
clearing

III. Prohibition on dividend declaration

No bank shall declare dividends greater than its


accumulated net proIits on hand, deducting its
losses and bad debts
The bank shall also not declare dividends iI at time
there is:
4 Clearing account in BSP is overdrawn
4 DeIicient in require liquidity Iloor Ior 5 or
more consecutive days
4 Does not comply with liquidity standards
4 Committed major violation
Banks are entities exempted Irom improperl y
accumulated earnings tax (10 oI said income) by
NIRC

IV. Unauthorized advertisement or business representation


25
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

No persons or corporation shall engage in banking


business shall advertise that it has a business oI a
bank, quasi-bank or trust entity

V. Placement under conservatorship

Grounds Ior appointment oI conservator

Whenever the MB Iinds the bank in a state oI:


1. Continuing inability or
2. Unwillingness to maintain a condition of
liquidity deemed adequate to protect
depositors and creditors
MB may appoint conservator with Iollowing
powers:
1. Take charge oI assets, liabilities and
management thereoI
2. Reorganize management
3. Collect monies and debs due
4. Exercise all powers necessary to restore
viabilit y
Conservator shall report to MB and shall have the
power to overrule or revoke actions oI previous
management
Rehabilitation proceedings provide Ior equitable
distribution oI insolvent debtor`s remaining assets
to its creditors and give debtor a Iresh start by
relieving them oI the weight oI their debts
Liquidity ability oI an asset to be converted in
cash quickly and without discount
Solvency liabilities amount to less than total
assets providing ability to pay debts
Test oI insolvency determining realizable assets
oI bank is less than its liabilities
Insolvency oI bank occurs when actual cash
market value oI its asset is insuIIicient to pay its
liabilities
BSP is vested with exclusive authority to assess,
evaluate and determine condition oI a bank
whether it is insolvent or not. II insolvent,
receivership proceedings

QualiIication oI conservator
Remuneration

Conservator shall receive remuneration to be Iixed


by MB in an amount not to exceed 2/3 the salar y
oI president oI bank in 1 year, payable in 12 equal
instalments
II within one year the conservatorship is
terminated on ground that institution can operate
on its own, conservator shall receive balance
But iI it is terminated on some other ground,
conservator shall not be entitled to remaining
balance
MB can appoint conservator connected to BSP in
which case he shall not receive remuneration Irom
BSP

Expenses oI conservatorship

It shall be borne by bank concerned

Terminations oI conservatorship

MB shall terminate the conservatorship is it is


satisIied that bank can continue operations
Conservatorship can also be terminated on basis oI
report oI conservator or its own Iindings would
involve loss
In such as case, there shall be receivership or
liquidation

Final and executory

Action oI MB shall be Iinal except on petition Ior


certiorari in case oI grave abuse oI discretion
It shall be Iiled within 10 days Irom receipt oI
notice oI board oI directors oI conservatorship,
receivership or liquidation
Exclusive power to appoint conservator shall lie in MB
Designation oI conservator is not precondition to
designation oI receiver

Power oI conservator cannot impair obligations oI


contracts

Conservator must be competent and

Conservator power to revoke contracts cannot


knowledgeable in bank operations and
post-Iacto aIIect perIected transaction as it would
management inIringe non-impairment clause
Period oI conservatorship shall not exceed 1 year
26
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Conservator is given power to revoke contracts


only those that are deIect (void, voidable,
unenIorceable, rescissible)
Conservator merely takes place oI board oI
directors
Conservator cannot simpl y repudiate valid
obligations oI the bank and must bring them to
court actions
In FPIB vs. CA the court ruled that the conservator
cannot revoke a previously valid contract entered
by the bank even though the object oI the contract
has a higher price
In conservatorship, the banking Iunctions continue
unlike in receivership and liquidation

VI. Cessation oI banking business

Voluntary liquidation

In voluntary liquidation, bank sends to MB notice


oI liquidation
No voluntary dissolution shall be undertaken by a
bank without prior approval oI MB. Request oI
voluntary dissolution shall be accompanied by
liquidation plan

Receivership and liquidation

The MB can summarily and without need oI prior


hearing Iorbid the institution Irom doing business
and designate PDIC as receiver
Grounds Ior receivership and liquidation:
1. Unable to pay liabilities that are due. This
shall not include inability to pay cause by
extraordinarily demands by Iinancial panic
2. InsuIIicient realizable assets
3. Cannot continue business without
involving probable loss to depositors or
creditors
4. WilIully violated cease and desist order
involving transactions oI Iraud
5. In case a bank notiIies BSP or public
announces bank holiday where it suspends
payment oI its deposit liabilities
continuously Ior more than 30 days
For quasi-banks any persons recognize in
competence in banking may be designated as
receiver
1. Current and complete examination not necessar y

In Rural Bank oI San Miguel vs. MB, the SC ruled


that there is no need Ior complete examination
because it only needs a report
A report is something that gives inIormation while
examination is a search, investigation or scrutiny
Absence oI examination beIore closure oI bank
does not mean that there is no basis Ior closure

2. Procedure

Receiver shall immediately:


1. Take charge oI all assets and liabilities
2. Administer the same Ior beneIit oI
creditors
3. Exercise general power oI receiver under
ROC
4. Shall not pay or any act that involves
transIer oI asset oI bank
Receiver may deposit or place Iunds oI bank in
non-speculative investments
Receiver shall determine within 90 days Irom
takeover, whether institution may be rehabilitated
or otherwise
Determination oI resumption oI business is subject
to approval oI MB
In Teal Motor vs. CFI, receiver was deIined as a
indiIIerent person appoint by the court to preserve
the Iunds oI the in litigation pendent lite
He is not an agent or representative oI any part y

3. Prohibited acts

Any director or oIIicer declared insolvent or under


receivership shall not commit:
1. ReIuse to turn over bank records and
assets to receiver
2. Tamper with bank records
3. Appropriate Ior himselI or other party
assets oI bank
4. Receive bank deposits or collect loans
5. Paying Iunds oI bank
6. TransIerring security oI bank

4. When institution cannot be rehabilitated


27
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

II receiver determines that bank cannot be


rehabilitated, MB shall notiIy the board oI
directors that it shall proceed with liquidation
The receiver shall Iile ex parte with RTC a petition
Ior assistance in the liquidation oI the bank
pursuant to liquidation plan oI PDIC
Court shall adjudicate disputed claims, assist the
enIorcement oI liabilities
Receiver shall pay cost oI proceedings Irom assets
oI institution
Receiver shall convert assets oI institution to
money and dispose the same to creditors and other
parties to pay bank debts

5. Final and executory

Just like in the case oI conservatorship, the action


oI MB shall be Iinal and executor unless there has
been certiorari
In Rural Bank oI San Miguel vs. MB, closure oI a
bank is an exercise oI police power
In only stockholders oI bank can Iile action Ior
annulment oI MB resolution oI placing bank in
receivership

Close Now Hear Later Scheme

The law does not contemplate prior notice and


hearing beIore bank may be directed to stop
operations and placed under receivership
Previous hearing beIore closure is not required in
the law and does not inIringe due process
However, bank can question the receivership
within 10 days aIter receivership
Close now hear later practical consideration to
prevent unwarranted dissipation oI bank`s assets
and valid exercise oI police power to protect
depositors, creditors and public
II otherwise, there mere Iiling oI receivership by
BSP can trigger bank run and drain its assets in
days or hour leading to insolvency

EIIect oI Iiling petition Ior review

Pendency oI case questioning receivership does


not diminish oI receiver to administer bank`s
transactions pertaining to normal operations oI the
bank
Reasons behind receivership and involuntary liquidation

1. Banking business is subject to regulation under


police power and are aIIected with public interest
2. It is the government responsibility to see that
Iinancial interest oI depositors and others are
protected. Done through BSP
3. Public Iaith in banking system may deteriorate iI
depositors, creditors are not protected. BSP shall
step in and salvage remaining resources oI bank
4. Absence oI notice and hearing is not a groun to
annul MB resolution

EIIects oI receivership

1. Retention oI juridical personality

There shall be retention oI judicial personality


even though it is ordered closed by MB
The suing must be done through the liquidator

2. Not liable to pay interest

Banks declared insolvent and ordered closed by


BSP cannot be held liable to pay interest
When bank is closed, it cannot lend money,
engage in transactions or any banking activities
where it can derive income Irom
Thus there is no way the bank can pay the interest
the accrues in Iavour oI its depositors
However, there are two types oI deposits that earn
interest. The Iirst one, deposit that earn Irom the
existence until the bank cease to operate. This one
must be paid. The second interest earned Irom the
time the bank closed until payment oI deposits.
The interest here must not be paid

3. Assets deemed under Custodia Legis

Assets iI the bank becomes beyond its control.


Receiver operates to suspend the authority oI the
bank to its properties
Assets oI bank shall be custodia legis in hands oI
receiver and exempted Irom garnishment, levy,
attachment
Liquidator task is to dispose all assets oI the
bank and eIIect partial payments oI banks
obligations

4. Stay oI execution
28
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Stay oI execution is warrant iI bank is placed


under receivership
To execute a judgment against a bank under
receivership would unduly deplete its assets to the
prejudice oI depositors and creditors

5. Restriction oI bank`s capacity to Act

Insolvency oI bank restricts its capacity to act


Bank cannot make new business such as accept
new deposits or grant loans. But receiver must
collect debts in Iavour oI the bank that will Iorm
part on bank asset
Foreclosure Ialls within board deIinition oI 'doing
business
Doing business - continuity oI commercial
dealings and arrangements incident to object oI
organization
However, it shall not be included in those act
prohibited Irom doing business
Thus even iI there is receivership or liquidation,
the period oI prescription to Ioreclose continues to
run
In BF vs. Ybane:, the court ruled that receiver ca
still collect interest on loans during period oI
closure

6. Exercise oI jurisdiction oI liquidation court

All claims oI bank must be Iiled in BSP


It is to prevent multiplicity oI against bank
Exclusive jurisdiction oI liquidation court pertains
only to adjudication claims against bank and does
not cover reverse situation
Not necessary that claim is initially disputed
beIore it is Iiled
In Ong vs. CA, iI buyer bought a property Irom
the bank who is already declared insolvent, sale is
void

VII. Disposition and distribution oI assets

In case oI liquidation, aIter payment oI cost oI


proceedings, receiver shall pay debts oI institution
in accordance with preIerence oI credit in NCC
Current accounts and savings accounts are not
preIerred credits in cases involving insolvency
where there are various creditors
Disposition oI revenues and earnings

All revenues and earning realized by receiver


during receivership shall be used to pay costs oI
proceedings
The balance oI revenues shall Iorm part oI assets
available to payment oI creditors

Disposition oI banking Iranchise

BSP, iI public interest requires, award to another


institution the banking Iranchise under liquidation
Whatever proceeds may be realized Irom award
shall be subject to exclusive disposition oI MB

Liabilities

Bank is bound by the acts or Iailure to act oI


receiver
Receiver is liable to bank Ior culpable and
negligent Iailure to collect and saIeguard assets oI
such banks
29
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - Foreign Banks and Trust Operations

I. Foreign Banks

Transacting business in the Philippi nes

RA 7721 Foreign Banks Liberalization Act


PD 1034 Conduct oI oIIshore banking business
OIIshore banking conduct oI banking transaction
in Ioreign currencies
OIIshore banking unit branch oI a Ioreign baking
corporation authorized by BSP to transact oIIshore
banking
Foreign corporation doing business in the
Philippines are required to obtain a license
However, even iI Ioreign corporations do not have
a license, they can still be sued or be sued
License is only necessary iI it is Ior transacting or
doing business in the country

Acquisition oI voting stock in domestic bank

Foreign banks are allowed entry in the Philippines


subject to the Iollowing rules
1. Within 7 years Irom eIIectivity oI GBL,
MB shall authorize Ioreign banks to
acquire 100 voting stock oI 1 domestic
bank
2. Within same period, MB may allow
Ioreign bank which prior to GBL has
already acquired 60 voting stock can
now acquire 100
3. MB must ensure that 70 oI resources oI
banking system are held by majorit y-
owned Filipinos

Local branches oI Ioreign banks

Foreign banks which has more than 1 branch in


the Philippines, all such branches shall be treated
as 1 unit

Head oIIice guarantee

Head oIIice shall Iully guarantee prompt payment


oI all liabilities oI its Philippines branch

Residents and citizens oI the Philippines that are


creditors oI Ioreign banks shall have preIerential
right to assets oI such banks
Under RA 7721, Ioreign banks have three modes
oI entry in the country:
1. Acquiring 60 oI voting stock oI existing
bank
2. Investing 60 oI voting stock oI new
banking subsidiary incorporated in
Philippines
3. Establishing branches with Iull baking
authority
A Ioreign bank may only avail only 1 mode oI
entry
GBL only stated that branches oI Ioreign banks
will be treated as one and shall have the head
oIIice guarantee to creditor Filipino citizens
However, there is nothing in the law that states
that citizens that are debtors to Ioreign bank local
branches shall also be debtors to the head oIIice
There is also nothing in the law that the head
oIIice and its local Ioreign branches shall be
treated as one
Thus, compensation with Philippine branches with
Ioreign branches cannot be eIIected as they cannot
be considered creditors and debtors oI each other

Summons and legal process

Summons must be given to the Philippine agent or


head oI Ioreign bank to have jurisdiction
II there is no agent, summons may be made upon
BSP deputy governor in-charge
Once given, it shall be eIIect as iI made upon bank
or agent
BSP deputy governor in-charge shall mail it to the
bank and sending copy is a necessary part to
complete service.
In the corporation code, the service, in case oI
absence oI agent, shall be given to SEC

Laws applicable

Foreign banks shall be governed by GBL and


other applicable laws such as Corporation Code

Revocation oI license oI Ioreign banks


30
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

MB may revoke license iI it Iind Ioreign bank


insolvent or imminent danger oI insolvency and
will involve probable loss
AIter revocation, it shall be unlawIul Ior Ioreign
bank to transact business in the Philippines

II. Entry oI Foreign Banks

State shall devote selI-reliant and independent


national economy
Guidelines Ior approval:
1. Ensure geographic representation
2. Consider strategic trade relationships
3. Study demonstrated capacity
4. See reciprocity oI right
5. Consider willingness to Iully share
technology
Only those belonging to top 150 in the world or
top 5 banks in their country oI origin shall be
allowed entry
To establish a branch or subsidiary, Ioreign bank
must be widel y-owned and publicly listed in its
country origin unless government owned
Capital requirement:
1. For locally incorporated subsidiaries
same minimum capital with domestic
banks
2. Foreign bank branches US dollar
equivalent oI P219M at exchange rate
during eIIectivity oI Act. The Ioreign bank
shall be entitle to 3
3. Foreign banks may open 3 additional
branches designated by MB P35M per
additional branches
Foreign banks within 5 year Irom eIIectivity oI
this act is only allowed 6 Ioreign bank to enter the
country
An additional 4 Ioreign banks may be allowed
entry by recommendation oI MB
Non-Filipino citizens can be members oI board oI
directors up to the extent oI the allowed Ioreign
participation
Philippine corporations who have listed share oI
stock in PSE or long standing Ior 10 year shall
have right to own 60 voting stock oI a domestic
bank

Existing local branches oI Ioreign banks shall be


given 1.5 years to comply with minimum capital
requirement
RA 7721 was approved on May 18, 1994

III. Trust Operations

Authority to engage in trust business

Trust business any activity resulting in trustor-


trustee relationship involving appointment oI a
trustee by a trustor Ior the administration, holding,
management oI Iunds or properties oI trustor by
the trustee
It is Ior the use, beneIit or advantage oI the trustor
or other beneIiciaries
Cardinal principle oI trust and other Iiduciar y
relationship is Ii delit y

Conduct oI trust business

Trust entity shall administer the Iunds or propert y


under its custody with diligence that a prudent
man would exercise
Trust entity stock corporation or person
authorized by MB to engage in trust business shall
act as trustee or administer any trust or hold
property in trust
No trust entity shall Ior the account oI the trustor
or beneIiciary,
1. purchase, acquire, sell, property
2. transIer or purchase money or debt
instruments Irom/to DORSI oI trust entit y
and relatives oI Iirst civil degree
3. unless authorized by the trustor aIter prior
Iull disclosure oI transaction

Registration oI articles oI incorporation and by-laws oI


trust entit y

SEC shall not register such unless accompanied by


certiIicate oI authorit y Irom BSP
A trust business shall start Irom the moment their
articles oI incorporations are registered

Minimum capitalization
31
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

A trust entity, beIore engage in trust business,


shall comply with minimum paid-in capital
requirement by MB

Powers oI trust entity

1. Act as trustee on any mortgage or bond and accept


and execute any trust consistent with law
2. Act under order oI any court as guardian, receiver,
trustee or depositary oI estate oI minor or
incompetent person
3. Act as executor oI any will
4. Act as executor oI estate oI any deceased person
with a will or administrator without a will
5. Accept and execute trust Ior holding, management,
administration oI estate and rents, issues, proIits
thereoI
6. Establish and manage common trust Iunds

Transactions requiring prior authority

Trustee or trust entity shall not undertake any oI


the Iollowing transactions Ior the account oI the
client unless there is prior Iull disclosure and
authorization by client
1. Lend, sell, transIer or assign money or
property to DOSRI oI trustee, relatives oI
trustee or related interest oI such DOSRI
where trustee owns at least 50 oI voting
stock
2. Purchase and acquire property or debt
instrument in the same manner
3. Invest in equities or in securities
underwritten by trustee in which trustee
has interest
4. Sell, transIer, assign or lend money or
property Irom one trust account to another
account

Deposit Ior the IaithIul perIormance oI trust duties

BeIore transacting trust business, they must


deposit to BSP Ior IaithIul perIormance oI trust
duties an amount not less than 500k or higher as
may be Iixed by BSP
MB shall require trust entity to increase the
amount whenever the increase is necessary by
reason oI trust business

Paid-in capital and surplus oI each entity must be


equal to the amount required to be deposited in
BSP
In case it shall not meet the required paid-in
capital, the MB shall limit or prohibit distribution
oI proIits by trust entity until minimum
requirement is met
Trust entity, as long as solvent and comply with
laws, shall have the right to collect interest earned
on security deposited to BSP
II trust entity Iails to comply with law, BSP shall
retain interest oI securities Ior beneIit oI rightIul
claimants
All claims arising Irom trust business shall have
priority over all claims as regard to the securit y
deposited

IV. Bond oI Certain Persons Ior the FaithIul PerIormance


oI Duties

Bond requirement

1. BeIore executor, administrator, guardian, trustee,


receiver or depositary appointed by the court enter
upon execution oI dues, court may order bond
2. Upon application oI such persons, aIter notice and
hearing, court shall order that subject matter oI
trust be deposited with trust entity
3. Upon presentation oI prooI that subject matter
have been deposited to trust entity, court may
order that bond be given by such persons Ior
IaithIul perIormance
4. Reduce bond shall be suIIicient to secure
adequately the proper administration oI any
property

Exemption oI trust entity Irom bond requirement

No bond shall be required by court Irom trust


entity Ior IaithIul perIormance
However court may order bond Ior the protection
oI Iunds or property conIided

V. Operations oI Trust Entit y

Separation oI trust business Irom general business


32
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

The trust business shall be kept separate and


distinct Irom the general business
They shall be physically separated Irom assets oI
its other business
They shall be under the joint custody oI at least
two persons who are oIIicers oI the trust
department

Investment limitation oI a trust entity

Unless otherwise directed by instrument creating


the trust, the lending or investment oI Iunds by
trust entity shall be limited to loans and investment
as prescribed by law, MB or court
Assets received in trust shall be administered with
terms oI the instrument creating the trust
II trust entity is given discretionary powers to
invest, loans and investments shall be limited to:
1. Evidence oI indebtedness oI RP and BSP
2. Loans guarantee by government
3. Loans Iully secured by hold-out on,
assignment or pledge oI deposits that are
maintained
4. Loans Iully secured by real estate or
chattels
The Iollowing shall be required to be given as
inIormation
1. Transaction to be entered
2. Borrower`s name
3. Amount involved
4. Collateral securit y

Real estate acquire by trust entity

Trust entit y may acquire real property under


Iollowing circumstances:
1. Mortgage to it in good Iaith by way oI
security to debts
2. Conveyed to it Ior satisIaction oI debts
previously contracted
3. Purchase at sales under judgment, decrees,
mortgages or trust deeds
Any property acquire under circumstances shall be
disposed within 5 years
AIter said period, bank can still continue to hold
property subject to limitations:
1. Total investment in real estate shall not
exceed 50 oI combined capital accounts
2. Equity investment oI bank in another
corporation engage in real estate shall be
considered a part oI 50

Exemption oI trust assets Irom claims

No assets held by trust entity shall be subject to


claims other than those parties interested in
speciIic trusts
Property held in trust by insolvent debtor shall be
excluded Irom insolvency proceedings
Trust entity and its branches shall be treated as
one unit
Trust entities shall advertise services in a
digniIied manner

Money oI government

Banks may not receive as trustee the Iunds oI the


government except GOCC banks

QUIZZES:
True or False:
1. The Iiduciary nature oI the relationship oI a
depositor with the depositary bank imposes on the
latter the obligation to discharge the highest
standard oI trust and integrity and a violation
thereoI is considered a breach oI trust. False

2. The humble wage-earner has not hesitated to


entrust his liIe`s savings to the bank knowing that
they will be saIe in the custody oI the banks. True

3. Banks are gratuitous bailees oI the Iunds deposited


with them by their clients. False

4. The public relies on the banks` Iiduciary duty to


observe the highest degree oI diligence but any
violation oI this duty by the bank is not a valid
ground Ior the grant oI exemplary damages to the
depositor. False

5. ThriIt banks may not act as correspondent Ior


other Iinancial institutions. False

6. A non-stock corporation may act as a trustee or


administer any trust or hold property in trust or on
deposit Ior the beneIit oI others. False
33
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

7. A bank cannot use any oI its branches as outlets


Ior the sale oI the Iinancial products oI its allied
undertaking or its investment house units. True

8. A bank may declare dividends greater than its


accumulated net proIits then on hand, deducting
there Irom its losses and bad debts. False

9. The appointment oI a receiver is vested


exclusively with the Monetary Board. True

10. The MB cannot appoint a conservator connected


with BSP. False

11. In a judicial Ioreclosure oI mortgage, there is an


equivalent right oI redemption. False

12. No late payment oI penalty Iee shall be collected


Irom cardholders unless the collection thereoI is
Iully disclosed in the contract between the issuer
and the cardholder. True

13. A bank which had been ordered closed by the


monetary board does not retain its juridical
personality which can sue and be sued through its
liquidator. False

Fill in the blanks

1. The law governing the creation, organization and


operation oI rural banks is Rural Banks Act.

2. The total investment in equities oI allied enterprise


shall not exceed 35 oI the net worth oI the bank.

3. Subsidiary shall reIer to a corporation or Iirm


more than 50 oI the outstanding voting stock oI
which is directl y or indirectly owned.

4. The rule that the total amount oI loans that may be


extended by a bank to any person or entity shall at
no time exceed 20 oI the net worth oI such bank
is called Single Borrower`s Limit.

5. Credit Risk TransIer shall reIer to any agreement


that allows the bank to transIer the credit risk
associated with its loan or other credit
accommodation to a third party.
6. The term Legal Compensation reIers to that
situation when two persons, in their own right, are
creditors and debtors oI each other.

7. The contracts between cardholders and credit card


companies are called contracts oI adhesion
because their terms are prepared by only one part y
while the other merely aIIixes his signature
signiIying his conIormity thereto.

8. Net worth means the total unimpaired paid-in


capital including paid-in surplus, retained earnings
and undivided proIit, net oI valuation reserves and
other adjustments as maybe required by BSP.

9. Letter oI Credit reIers to a Iinancial device availed


oI by businessmen as a convenient mode oI
dealing with sales oI goods to satisIy the
seemingly irreconcilable interests oI a seller who
reIuses to part with his goods beIore he is paid.

10. Survivorship agreement is the agreement that


allows joint depositors to withdraw the whole
deposit during their liIetime and transIerring the
balance to the survivor upon the death oI one oI
them.

11. In the case oI Consolidated Bank and Trust Co.,


the SC ruled that the contract between the bank
and its depositor is governed by the provisions oI
the Civil Code on simple loan/mutuum.

12. In the case oI Serrano vs. Central Bank oI the Phil.,


the SC held that bank deposits are in the nature oI
irregular deposits.

13. In Simex International Case, the SC said that the


banking system is an indispensable institution that
plays a vital role in the economic liIe oI the nation.

14. It is basic that aIter consolidation oI title in the


buyer`s name Ior Iailure oI the mortgagor to
redeem, the writ oI possession becomes a matter
oI right and its issuance to a purchaser is merely a
ministerial Iunction.

15. Acceleration Clause means any provision in the


contract between the bank and the cardholder that
gives the bank the right to demand the obligation
34
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

in Iull in case oI deIault or non-payment Ior


whatever reason.

16. The law that protects its citizens Irom a lack oI


awareness oI the true cost oI credit to the user by
assuring Iull disclosure oI such cost is Truth in
Lending Act.

17. The agreement between the parties in a loan


transaction which stipulate that the rate oI interest
agreed upon may be increased in the event that the
applicable maximum rate oI interest is increased
by the MB is called escalation clause.

18. Joint and Solidary Agreement is an agreement


where the contracting parties consent to be jointl y
and severally liable in a loan obligation.

19. A bank guarantee is an irrevocable commitment oI


a bank binding itselI to pay sum oI money in the
event oI non-perIormance oI a contract by a third
party.

20. Assignment oI credit is an agreement by virtue oI


which the owner oI credit, known as the assignor,
by a legal cause, such as sale or dation in payment
transIers his credit to another known as the
assignee who acquires the power to enIorce it.

21. All Ioreign currency deposit are oI absolute


conIidential nature as a general rule and said
deposit shall be exempt Irom attachment pursuant
to RA No. 6426 otherwise known as Foreign
Currency Deposit Act oI the Philippines.

22. Negotiable Order oI Withdrawal Accounts are


interest bearing deposit accounts that combine the
payable on demand Ieature oI checks and
investment Ieature oI savings account.

23. Independent Auditor means a person other than an


oIIicer or employee oI the bank, its subsidiaries or
aIIiliates or related companies, or its majorit y
shareholders.

24. Interest Rate DiIIerential reIers to the diIIerence or


margin between interest rates such as the
diIIerence between domestic and Ioreign interest
rates.
25. Secrecy oI Bank Deposit Act is the law that was
passed to give encouragement to people to deposit
their money in banking institutions.

26. The Securities and Exchange Commission shall


not register the articles oI incorporation oI any
bank unless accompanied by certiIicate oI
authority issued by the monetary board.

27. The equity investment oI a universal bank or its


wholly or majority owned subsidiaries, in a single
non-allied enterprise shall not exceed 20 oI the
total equit y.

28. Demand deposit are all those liabilities oI the


Banko Sentral and oI the other banks which are
denominated in the Philippine currency and are
subject to payment in legal tender upon demand
by presentation oI depositor`s check.

29. The rule intended to maintain the quality oI bank


management and aIIord better protection to
depositors and the public in general is called Iit
and proper rule

30. OII shore banking units reIer to a branch,


subsidiary or aIIiliate oI a Ioreign banking
corporation which is duly authorized by the Banko
Sentral to transact oIIshore banking business in the
Philippines

31. A bank is bound by the negligence oI its


employees under the principle oI Respondeat
Superior

32. Quasi banks reIer to entities engaged in the


barrowing oI Iunds through the issuance,
endorsement or assignment with recourse or
acceptance oI deposit substitutes Ior the purpose
oI relending or purchasing receivables and other
obligation

33. The business oI banking is imbued with public


interest in order to assure the stability oI banks
which largely depends on the conIidence oI the
people in the honesty and eIIiciency oI banks.

Summary oI Laws
35
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Chapter 1

RA 8791 General Banking Law oI 2000

RA 7353 an act providing Ior the creation, organization


and operation oI rural banks

RA 7906 an act providing Ior the regulation oI the


organization and operations oI the thriIt banks

RA 6938 an act to ordain a cooperative code oI the


Philippines

RA 6848 an act providing Ior the 1989 charter oI the Al-


Amanah Islamic bank oI the Phil

RA 6426 an act instituting a Ioreign currency deposit


system in the Philippines

BP 68 Corporation code

Chapter 2

RA 7653 The New Central Bank Act

Chapter 3

RA 1405 Secrecy oI bank Deposit Act

RA 8367 an act providing Ior the organization and


operation oI non stock savings and loan association

RA 9160 an act deIining the crime money laundering

RA 6770 the ombudsman act oI 1989

Chapter 4

RA 7394 Consumer Act

Act No 3135 an act to regulate the sale oI property under


special powers inserted in or annexed to real estate
mortgages

Chapter 6

PD 1034 OIIshore Banking System Decree


RA 7721 Foreign Bank liberalization Act

OD BLESS N TE MDTERMS!!!
36
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - The Banko Sentral ng Pilipinas

I. Creation, Responsibility and Corporate powers oI BSP


Declared policy oI the state
State shall maintain a central monetary authority
that shall Iunction and operate as an independent
and accountable body corporate in the discharge oI
its mandated responsibility Concerning money,
banking and credit
BSP is a GOCC but enjoys Iiscal and
administrative autonomy

Creation oI the BSP

BSP independent central monetary authority


Capital oI BSP P50B which shall be Iully
subscribed by the government
P10B shall be paid by the government upon
eIIectivity oI act
The balance shall be paid within 2 years
Place oI business principal place oI business in
Metro Manila or maintain other branches
Creation oI central monetary authority is cited in
Sec 20 Art XII oI Constitution
The authority shall prove policy direction in areas
oI money, banking and credit and regulatory
powers oI such operations

Responsibility and primary objective oI BSP

1. Responsibility oI BSP provide policy direction


in areas oI money, banking and credit
2. Shall have supervision over operation oI banks
3. Exercise regulatory powers over operations oI
Iinance companies and non-bank Iinance
institutions perIorming quasi-banking
4. Primary objective oI BSP maintain price
stability conducive to a balance and sustainable
growth oI the economy
5. It shall promote and maintain monetary stability
and convertibility oI the peso
In Busuego vs. CA, the court ruled that the BSP
has responsibility oI administering the monetary,
banking and credit system oI the country and is
granted power supervision and examination over
banks

Corporate powers oI BSP (SCP-SPAL)


1. Use corporate seal
2. Enter contracts
3. Lease or own personal and real property and may
dispose the same
4. Sue and be sued
5. PerIorm any thing that may be necessary to carry
out purpose oI NCBA
6. Acquire and hold assets and incur liabilities in
connection with NCBA
7. Comprise or release claim or settled liability to
BSP regardless oI amount involved

Power to prosecute

BSP can cause prosecution oI those who violate


banking law
However, nothing in the law gives the BSPN the
speciIic duty to do the actual prosecution
Thus, BSP is not a prosecution agency unlike the
Iiscal oIIice
In Perez vs. Monetary Board, it was ruled that
being an artiIicial person, BSP is limited to its
statutory powers
It nearest power to prosecute is its power to sue
and be sued which reIers to civil case only
BSP can only cause prosecution which is a public
oIIense and anyone can denounce such
Mandamus Ior the purpose oI causing the BSP to
charge violation oI bank laws is improper
BSP and members oI MB should not be impleaded
as parties to a case under Sec 6, Rule 43 oI RoC

Estoppel

BSP is committed to maintain the stability oI the


country Ioreign exchange reserve position
Must adhere to principles oI Iairness and decency
under Bill oI Rights
BSP circulars must be implemented to promote
country`s production and at the same time avoid
irreparable prejudice to participants
In CB vs. IAC, the court ruled that in case banks
already IaithIully complied with BSP directives,
BSP is estopped Irom enIorcing circulars which
deny banks oI their rights

II. Authority oI BSP


Supervisory powers oI BSP
37
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Operations and activities oI banks shall be subject


to supervision oI BSP. Supervision shall include
the Iollowing: (REO-ISC)
1. Issuance oI rules oI conduct or SOP Ior
uniIorm application to al institutions
covered
2. Conduct examination to determine
compliance with laws and regulation
3. Overseeing to ascertain law and
regulation are complied with
4. Regular investigation. Not oItener than
once a year to determine whether there is
business is conducted on a saIe or sound
basis. DeIiciencies immediately addressed
5. Inquiring into solvency and liquidit y
6. EnIorcing prompt corrective action
BSP shall have supervisions over operations oI:
1. Quasi-banks
2. Trust entities
3. Other Iinancial institutions

Phase out oI BSP powers over building and loan


associations

Within period oI 3 years, BSP shall phase out and


transIer supervising and regulatiry power over
building and loan associations to Home Insurance
and Guaranty Corporation

Policy direction; rations, ceiling and limitations

BSP shall provide policy direction in areas oI


money, banking and credit
MB shall prescribe ratios, ceilings, limitations in
diIIerent accounts oI banks to conIirm to
internationally accept standards including Bank
Ior International Settlement
MB may exempt particular categories oI
transactions Irom such rations, ceilings to:
4 Exceptional cases
4 Enable a bank under rehabilitation or
during merger or consolidation to continue
business with saIety

III. Monetary Board

Powers and Iunctions oI BSP shall be exercised


by Banko Sentral Monetary Board
Composition

MB shall be composed oI 7 members appointed


by President with term oI 6 years
The seven members are:
1. The governor who shall be the chairman
oI MB. Governor shall be head oI a
department and his appointment
conIirmation oI COApp
W Whenever unable to attend board
meeting, deputy governor shall
act as alternate
W MB shall designate one oI its
members as acting chair
2. Member oI cabinet designated by
President
W Whenever cabinet member unable
to attend meeting, Usec shall be
alternate
3. 5 members who shall come Irom private
sector serving Iull-time
W In the Iirst appointments Irom
eIIectivity oI act, 3 serve 6 yrs
while the other 2 - 3 years

Vacancies

Any vacancy created by death, resignation or


removal shall be Iilled by new appointment to
complete unexpired term

QualiIication oI members oI MB

1. Natural born citizens


2. At least 35 years oI age, Governor must be 40
years old
3. Good moral character
4. Integrity
5. Probity and patriotism
6. Recognized competence in social and economic
disciplines

DisqualiIication oI MB members

1. DisqualiIication under RA 6713 (Code oI Conduct


and ethical standards oI public oIIicer and
employees)
2. DisqualiIied Irom being a DOSRI oI any bank
subject to the supervision or examination oI BSP
38
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

a. In which case, such member shall resign


beIore assumption oI oIIice
3. Member oI MB coming Irom private sector shall
not hold public oIIice in tenure
4. No person shall be member iI he has been
connected directly with any multilateral banking
institution or has substantial interest on any private
bank 1 year prior appointment
5. No member shall be employed in any such
institution within 2 year aIter expiration oI term
except when serving as representative oI
government (sec 9)

Grounds Ior removal MB members

1. Subsequently disqualiIied under Sec 9 during


tenure
2. Physically or mentally incapacitated and cannot
discharge duties and incapacity lasted more than 6
months
3. Guilty oI acts or operation oI Iraudulent or illegal
character opposed to aim oI BSP
4. Member no longer possess qualiIication under sec
8

Meetings, quorum, decisions and proceedings MB

1. MB shall meet at least once a week. MB may be


called to meeting by governor or 2 other members
oI board
2. Presence oI 4 members constitute quorum
provided that governor or his alternate is among
the 4
3. BSP shall maintain and preserve complete records
oI proceedings in their original Iorm or in
microIilm
4. General Rule: All decisions oI MB shall require
concurrence oI at least 4 members

Exception to general rule where at least 5 votes is required:

1. Sec 61 GBL publication oI Iinancial statements


is required once at least every quarter. In national
or local emergency or oI imminent panic, MB by
vote oI 5, upon application oI bank, may allow
such bank to deIer publication oI Iinancial
statement
2. Sec 28 NCBA supervision and examining
department head shall examine books oI every
banking institution once every 12 months and at
such other time at the vote oI 5 members oI MB
3. Sec 72 NCBA During exchange crisis or
national emergency, with concurrence oI 5
members oI MB and approval oI president, MB
may temporarily suspend sales oI exchange by
BSP and may subject all transactions in gold and
Ioreign exchange to license by BSP
4. Sec 84 NCBA in nation or local emergency or
imminent Iinancial panic, MB may, with 5 vote oI
members, authorize BSP to grant extraordinary
loans or advances to banks secured by assets

Deputy Governors may attend meetings oI MB

They may attend meetings and have the right to be


heard

Salaries oI governor and members oI MB

Salary shall be Iixed y President at a sum


commensurate to the importance and
responsibility attached to their position

Personal or Pecuniary interests

Members oI MB with personal or pecuniary


interest in any matter in the agenda oI MB shall
disclose his interest and shall retire Irom the
meeting when matter is taken
The decision made on matter shall be made public
and the minutes shall reIlect disclosure made and
retirement oI member

Scope oI authority oI MB

1. Issue rules and regulations it considers necessar y


Ior the discharge oI its responsibilities and
exercise oI its powers
a. Rules and regulation issued shall be
reported to President and Congress within
15 days Irom date oI issuance
2. Direct the management, operation and
administration oI BPS, reorganize its personal and
issue rules and regulations
a. Legal units oI BSP shall be under
exclusive control and supervision oI MB
3. Establish human resource management system
which shall govern selection, hiring, appoi ntment
or dismissal oI personnel.
39
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

a. Compensation structure based on job


evaluation studies and wage surveys shall
be the integral component oI the HR
program
b. MB shall make its own system which
conIorm closely to RA 6758
(Compensation and Position ClassiIication
Act oI 1989)
c. Those under salary grade 19 shall have
rates under RA 6758
d. Upon recommendation oI governor,
appoint, Iix remunerations and removal
personnel subject to civil service law
In CB Employees Association vs. BSP, the
court ruled that the establishment oI unIair
human resource management is
unconstitutional. It shown that higher grades
receive greater beneIits withheld Irom lower
grades.
Rank and Iile employees are limited to SSL
while employees in higher rank are given
higher compensation to entice them to stay. It
is the rank and Iile employees that are oI need
Ior greater beneIits
4. Adopt annual budget Ior and authorize expenditure
by BSP
5. IndemniIy its members against all costs and
expenses incurred in connection with civil or
criminal suit by reason oI perIormance oI duty
unless liable Ior negligence or misconduct
a. In event oI settlement or compromise,
indemniIication are covered provided that
there is no negligence
b. Costs and expenses incurred in deIending
may be paid in advance and repay the
amount advanced should it be determined
that personnel is not entitled to indemnity

Responsibility oI Members oI MB

1. II anyone wilIully violate NCBA or guilty oI


negligence, abuses or malfeasance or
misfeasance or fails to exercise extraordinary
diligence in perIormance oI duty, he shall be held
liable Ior loss or injury suIIered by BSP or
banking institution (VNAMMFe)
2. Similar responsibility shall apply to oIIicer or
employees oI BSP
a. Disclosure oI inIormation oI a conIidential
nature unless disclosure is in connection
with perIormance oI oIIicial Iunction
b. Use oI such inIormation Ior personal gain
or detriment oI the government, BSP or
third parties. any data required to be
submitted to President or Congress is not
conIidential
3. Legal obligation and good Iaith that BSP oIIicer
owe to public start with official acts of MB which
are the cause of loss and injury and not any
preparatory report or recommendation

IV The Governor and Deput y Governors

Powers and Duties oI the Governor (CEO:PEDARE)

1. Shall be the CEO oI BSP


2. Prepare the agenda Ior meetings and submit, Ior
consideration, policies and measures necessary
3. Execute and administer policy and measures
approved by MB
4. Direct and supervise operation and internal
administration oI BSP. Governor may delegate
certain administrative responsibilities to other
oIIicers
5. Appoint and Iix remuneration oI personal below oI
a department head. Removal oI personal is with
approval oI MB
6. Render opinions, decisions or rulings which is
Iinal and executor until reversed or modiIied by
MB
7. Exercise other powers vested by MB
Powers oI Governor as representative oI MB and BSP
Governor shall be the principal representative oI
MB and BSP with Iollowing powers:
1. Represent MB and BSP in all dealings
with other oIIices
2. Sign contracts entered into by BSP, notes
and securities issued by BSP Signature
may be Iacsimile
3. Represent BSP in any legal proceeding
4. Delegate his power to represent to other
oIIicers
In order to preserve integrity oI oIIice, governor
may choose not to participate in preliminar y
40
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

discussions oI multilateral banking institutions on


negotiations Ior the government
During such, he may be represented by permanent
negotiator

Emergencies (CRM)

1. In case oI emergency, governor with concurrence


oI 2 other members, may decide matter or take
action within authority oI the board
2. Governor shall submit report to President and
Congress within 72 hours
3. At soonest possible time, governor shall call
meeting oI MB Ior ratiIication

Limitation on outside interest oI governor and members oI


board

They shall limit their proIessional activities


directly to their position in BSP
Shall not accept any other employment except
when position in eleemosynary, civic, cultural or
religious organization or by designation oI
President to represent government

Number and Iunctions oI deputy governors

1. Governor shall appoint not more than 3 deput y


Governors who shall perIorm duties as may be
assigned to them
2. In absence oI governor, deputy governors
designated to act as CEO oI BSP shall exercise
duties
3. Whenever governor is unable to attend
government board or councils where he is ex
oIIicio member, deputy governor may be
designated vested with power to participate and
vote

V. Operations oI BSP

Research and Statistics oI BSP

BSP shall prepare data and conduct economic


research Ior guidance oI MB

Scope oI Authority oI BSP to obtain data

1. BSP shall have authority to require government


oIIice any data it may require
2. BSP, through governor or representative shall
have the power to issue subpoena Ior production
oI books. Contempt iI reIused
3. Data on individual Iirms other than banks gathered
by BSP Department oI Economic Research shall
not be available outside BSP. Collective data can
be released to interested
4. Personnel oI BSP shall be prohibited Irom
revealing in any manner, except under orders oI
court, Congress or government oIIice

Training oI Technical personnel

BSP shall sponsor training oI technical personnel


in Iield oI money and banking

Scope oI supervision and examination by BSP

1. BSP shall have supervision over, and conduct


periodic or special examinations oI bank, quasi
banks including subsidiaries and aIIiliated
engaged in allied activities
a. Subsidiary more than 50 voting stock
is owned by bank or quasi-bank
b. AIIiliate 50 or less is owned by bank or
related or linked to institution through
common stock holders
2. Department heads and examiners are authorized to
a. Administer oaths to any directors, oIIice
or employee oI any institution
b. Compel presentation oI books, document
and records relative to true condition oI
institution

Restraining order or injunction

No restraining order or injunction shall be issued


enjoining (preventing) BSP Irom examining
institution under its supervision
Exception: there is convincing prooI that action oI
BSP is plainly arbitrary and in bad Iaith and
petitioner Iiles bond in Iavor oI BSP
Provisions oI Rule 58 Preliminary Injunction
shall apply not inconsistent

VI. Director, OIIicer or Stockholder and Related Interests

Contracting Loans
41
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Any DOSRI contract loans or any Iinancial


accommodation Irom his bank or a Irom a bank
(lending bank) that is:
1. Subsidiary oI bank holding company oI
which both his bank and lending bank is
subsidiaries
2. Controlling proportion oI share is owned
by the same interest that owns a
controlling proportion oI share oI his bank
in excess oI 5 iI capital and surplus oI
bank
Such shall be required by lending bank to waive
the secrecy oI his deposits in all banks
Any inIormation obtained Irom examination shall
be strictly conIidential. Used only by examiner
only in connection with supervisory responsibilit y
or by BSP in legal action

Prohibition against Personnel oI BSP

In additional to prohibition Irom RA 3019 and RA


7613, the BSP personnel prohibited Irom:
1. Being DOSRI oI institution under
supervision oI BSP except non-stock
savings and loan associations
2. Require or receive any giIt Irom any
institution subject to supervision
3. Reveal in any manner, except under court
order, Congress or government oIIicer.
Shall not apply to giving oI inIormation to
MB or governor oI BSP
4. Borrowing Irom any institution subject to
supervision and examination unless
borrowings are adequately secured

VII. Examination oI Banking Institutions

Frequency oI examination

Department head shall examine books oI every


banking institution once every 12 months and at
such other time at the vote oI 5 members oI MB.
Interval shall be at least 12 months

AIIord opportunity to examine

Bank concerned shall aIIord the head Iull


opportunity to examine its books, cash and assets
during banking hours

None oI the reports shall be open to inspections oI


the public except when such is incidental in
proceedings Ior vi olations

Service Fees

Banking which are subject to examination oI BSP


shall pay BSP within Iirst 30 days oI each year an
annual Iee as may be prescribed by MB
Sec 65 oI GBL states that BSP may charge
equitable rates, commissions and Iees Iir
supervision or examinations

VIII. Administration

Operating departments oI BSP

MB shall determine operating departments


including public inIormation oIIice

Required reports and publication oI BSP

1. General balance sheet showing volume and


composition oI its assets and liabilities 60 days
aIter end oI each month except December, 90 days
iI such
2. MB shall publish and submit to Congress and
President the Iollowing reports:
a. Analysis oI economic and Iinancial
development not later than 90 days aIter
end oI each quarter
b. Preceding year`s budget and proIit and
loss statement within 90 days aIter end
oI year
c. Review oI the state oI Iinancial system
120 days aIter each semester
d. Abnormal movements in monetar y
aggregate and general price movements
72 hours aIter remedial measures was
taken

Annual Report oI BSP

1. Annual report on the condition oI BSP beIore


end oI March each year. Submit to President and
Congress and include review oI policies and
economic analysis circumstances:
2. Will also include statement oI Iinancial condition
oI BSP and statistical appendix include: (1)
movement monetary aggregates, (2) movements oI
42
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Ioreign exchange, (3) balance oI payments, (4)


consumer prices, (5) exports/imports, (6) accounts
oI BSP, (7) data
3. BSP shall publish another version oI the annual
report understandable in layman
4. Failure to comply without justiIiable reason shall
cause withholding oI salary oI personnel

Signature oI statements

Balance sheet and other Iinancial statements shall


be signed by (1) oIIicer responsible Ior preparation,
(2) governor, (3) BSP auditor

IX. ProIits, losses and special accounts

Fiscal Year

Starts on January Iirst and ends on December 31


s t

oI each year

Computation oI ProIits and Losses

Within 30 days Iollowing end oI each year, BSP


shall determine net proIits and losses

Distribution oI net proIits

Within 60 days Iollowing end oI each Iiscal year,


MB shall determine distribution oI net proIits
according to the Iollowing:
1. 50 oI net proIits carried to surplus
2. Remaining 50 shall revert back to
National Treasury

Revaluation proIits and losses

1. ProIits or losses Irom revaluation oI gold or


Ioreign currency shall not be included in
computation oI annual proIits or losses
2. Any proIit or losses Irom revaluation shall be
oIIset by amounts owed by Philippines to
international Iinancial institutions
3. Any remaining proIit or loss shall be placed in the
Revaluation oI International Reserve and net
balance shall appear as either liability or asset
depending whether proIit or loss

The Auditor

Chairman oI COA act as ex oIIicion auditor oI


BSP and authorized to appoint representative
auditor to BSP. Can onl y be removed by COA
Representative shall be (1) CPA, (2) 10 years
experience, (3) not relative to member oI MB or
COA to 6
th
civil degree

X. Penalty Ior Violation

Sec 66 oI GBL provides that iI oIIender is director


or oIIicer, shall be suspended or removed Irom
oIIice. II oIIender is corporation, shall be
dissolved by quo warranto instituted by SG

Penalty Ior reIusal to make reports or permit examination

Person was required in writing by MB or


supervising department but reIused to Iile or
permit examination. Penalty 50k-100k

Penalty Ior wilIul making oI a Ialse or misleading


statement oI material Iact

Penalty 100k-200k

Proceedings upon and penalty Ior violations oI NCBA and


banking laws

1. Bank, quasi bank or any person violates NCBA,


penalty is 50-200k
2. Bank or quasi bank persists in carrying business in
unlawIul or unsaIe manner same penalt y

Administrative violations on banks

MB shall impose administrative penalty to bank,


quasi-bank, director or oIIicer Ior:
1. WillIul violation oI charter
2. WillIul delay in submitting report
3. ReIusal to permit examination
4. WillIul making oI Ialse or misleading
5. WillIul Iailure to comply with bank laws
6. Any commission oI irregularit y
7. Conduct business in unsaIe manner
Following are the sanctions:
1. Fines not exceed 30k per day per violation
2. Suspension oI rediscounting privileges
3. Suspension oI lending or FOREX
operations
43
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

4. Suspension oI interbank clearing


privileges
5. Revocation oI quasi-baking license
Resignation shall not exempt criminal or
administrative sanctions
MB may preventively suspend oIIice under
investigation not exceed 120 days except when
delay is caused by him
Administrative sanctions need not be applied in
order oI severit y

Administrative Proceedings on banks

1. WON there is administrative proceedings, iI


oIIicer continue to persist in practice or violation,
MB shall release cease and desist order eIIective
upon service to respondents
2. Respondents have opportunity to deIend their
action in a hearing upon a request made within 5
days Irom receipt oI order. II no hearing is
requested, order is Iinal
3. Governor is authorized to impose to banks Iines
not exceeding 10k per day per violation which can
be appealed to MB
44
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - urrency, Monetary Stabilization and 2. Art. 164 Mutilation oI coins


Functions of BSP 3. Art. 165 Selling oI Ialse or mutilated coins

I. The Unit oI Monetary Value

The Peso

Peso - unit oI monetary value in the Philippines (P


sign)
Peso divided into 100 equal parts called centavo (c
sign)
All monetary obligation shall be settled in
Philippine currency in legal tender
Parties may agree that obligation shall be settled in
other currency

DeIinition oI Currency

Currency all Philippine notes and coins issued


in accordance with NCBA

Value oI Currency

Currency has value because people are willing to


accept it in exchange Ior goods or services or
payment oI debt
Money has no value as a commodity but has value
as means oI medium oI exchange
Value oI goods and services are measured by
terms oI medium
Not applicable iI no conIidence in currency and
people would use Ioreign currency

II. Issue oI means oI payment

Exclusive issue power

1. BSP shall have the sole power to issue currency


within the Philippines
2. MB may issue regulations to prevent circulation oI
Ioreign currency , currency substitute or Iacsimiles
oI BSP notes
3. BSP shall have authority to investigate, arrest and
conduct searches to maintain integrity oI currency
4. Violation shall have imprisonment oI 5-10 years
unless RPC gives greater penalty

Related Crimes under RPC

1. Art. 163 Making and importing and uttering


Ialse coins
without connivance
4. Art. 166 Forging treasure notes or other
documents payable to bearer
5. Art. 167 counterIeiting, importing or uttering
instruments not payable to bearer
6. Art. 168 - Illegal possession and use oI Ialse
treasury notes
7. Art. 169 How Iorgery is committed

Exception to territoriality oI penal laws

Art. 2 oI RPC provides that the territoriality rule


does not apply :
1. Should Iorge or counterIeit any coin or
currency note the Philippines or
obligations or securities oI the
Government
2. Liable Ior acts connected with
introduction oI such into islands

Liability Ior notes and coins

Notes and coins issued by the BSP shall be


liability oI BSP
It shall be issued in amounts not exceeding assets
oI BSP
Notes and coins shall be a Iirst and paramount lien
on all assets oI BSP
BSP`s holding oI its own notes and coins shall not
be considered a part oI its currency issue and not
part oI assets and liabilities

Legal tender power

All notes and coins issued by BSP shall be Iully


guaranteed by the Government and shall be legal
tender in Philippines Ior all debts, public or private
Checks representing demand deposits do not have
legal tender and acceptance is at the option oI the
creditor
Check cleared and credited to account oI creditor
shall be equivalent to delivery
BSP Circ. 537 oI 2006 maximum amount oI
coins to be considered as legal tender
4 1,5,10 peso coins 1k
4 1,5,10,25 centavos 100
45
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Art 1249 oI NCC states that all payments oI debts


shall be in currency stipulated and iI not possible
currency in legal tender
It also states that when there is payment by PN, it
shall produce only eIIect when encashed or
impaired through Iault oI creditor. Action derived
Irom obligation is held in abeyance
Art. 1250 oI NCC, where there is extraordinar y
inIlation or deIlation, value oI currency at time oI
establishment oI obligation shall be basis oI
payment

Characteristics oI the currency

MB with approval oI President shall prescribe


denominations, dimensions, designs oI notes.
Notes shall state that they are liabilities oI BSP
and Iully guaranteed by government
Notes shall bear signature, in Iacsimile, oI
President and BSP Governor
MB with approval oI President shall prescribe
weight, Iitness, design and denomination oI coins
In minting oI coins, availability oI metals and its
price shall be considered

Printing oI notes and mining oI coins

MB shall prescribe amounts oI notes and coins to


be printed and minted. MB has authority to
contract institutions Ior such
All expenses incurred shall be Ior the accounts oI
BSP
Interconvertibility oI currency
BSP shall exchange on demand and without
charge Philippine currency in any other
denomination requested
II BSP is temporarily unable to provide such, it
shall deliver denomination nearest

Replacement oI currency unIit Ior circulation

BSP shall withdraw Irom circulation and


demonetize all notes and coins unIit Ior circulation
and shall replace them
BSP shall not replace notes under mutilated
condition and without compensation to bearer

Mutilated condition: (1) identiIication is


impossible, (2) signs oI Iiling, clipping, (3) notes
lost more than 2/5 oI surIace or all signatures

Retirement oI old notes and coins

BSP may call Ior replacement oI notes (more than


5 yrs old) and coins (more than 10 yrs old)
Notes and coins replaced shall remain legal tender
Ior 1 year Irom date oI call
AIter period, such shall cease to be to be legal
tender but can be exchanged at par and without
charge in BSP during Iollowing year
AIter said period, notes and coins not exchanged
shall cease to be a liability oI BSP and shall be
demonetize

III. Domestic monetary stabilization

Guiding principle on monetary stabilization

1. MB shall endeavour to control any expansion or


contract oI monetary aggregates prejudicial to
price stability

Power to deIine terms

2. MB shall deIine monetary aggregates, credit and


prices and made public such deIinitions

Action when abnormal movements occur in monetary


aggregates, credit and prices

When such occurs that endanger stability oI


economy, MB shall:
1. Take remedial measures
2. Submit to Prresident and Congress oI
report containing the (1) cause, (2) extend
oI change and (3) measures taken by MB
Whenever the Iollowing happen:
1. Monetary aggregates or level oI credit
increases or decreases by more than 15
2. Cost oI living index increases by more
than 10 in relation to level oI month
existing oI preceding year
3. Other circumstances so warrant
The monetary board shall submit reports
and shall state whether these changes is a
threat to stabilit y
46
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

MB shall continue to submit periodic report to


President and Congress until monetary aggregates,
credit and prices disturbances disappeared or
controlled

IV. International Monetary Stabilization

International Monetary Stabilization

BSP shall exercise its powers under the NCBA to


preserve the international value oI peso and
maintain its convertibilit y

International Reserves

International reserves must be maintained


adequately to meet Ioreseeable net demands Ior
Ioreign currencies
Adequacy oI international reserves MB shall be
guided by prospective receipts and payments oI
Ioreign exchange
MB shall give special attention to volume and
maturity oI the Iollowing:
4 Liability oI BSP in Ioreign currency
4 Foreign exchange assets and liabilities oI
other banks and all other persons

Composition oI International Reserves

International reserve shall include but not limited


to:
2. International reserve appears to be
imminent to Iall on such level
3. International reserve is Ialling as a result
oI remittance abroad
The MB shall:
1. Take remedial actions
2. Submit to the President and Congress a
report including:
W Nature and cause
W Remedial measures taken
W Monetary, Iiscal and
administrative measures
W Character and extend oI
cooperation required
3. II resultant actions Iails, the MB shall
propose to the President with notice to
Congress oI additional action to restore
equilibrium
4. MB shall submit periodic reports to
President and Congress until threat has
disappeared

Means oI Action

In order to achieve the primary objective oI price


stability, MB shall rely on moral inIluence and
powers granted by NCBA

V. Operations in Gold and FOREX


Gold
Assets in Ioreign currencies
Assets in Ioreign currencies include (1) documents
oI international transIer oI Iunds, (2) demand and
time deposits oI banks abroad and (3) Ioreign
government securities and notes
MB shall hold the FOREX resource oI BSP in
Ireely convertible currencies
MB shall issue regulations that FOREX assets
must meet
BSP shall be Iree to convert any asset in
international reserves into other assets

Action when International Stability oI Peso is Threatened

Whenever:
1. International reserve Ialls to a level
inadequate to meet prospective net
demands Ior Ioreign currencies
Purchases and sales oI gold

BSP may buy and sell gold


It shall be made in national currency at prevailing
international market price

Purchase and sales oI FOREX

BSP may buy and sell Ioreign notes, coins and


documents. They can also engage in Iuture
exchange operations
BSP shall engaged with FOREX transactions with
the Iollowing: (BIG-FO)
1. Baking institutions operating in the
Philippines
2. International Iinancial institutions
3. Government
4. Foreign governments
5. Other entities authorized by MB
47
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

In order to maintain convertibility oI peso, BSP


may buy those oIIered and sell any quantit y
demanded provided that FOREX is Ireel y
convertible into gold or US dollars
This requirement shall not appl y to demand Ior
Ioreign notes and coins
BSP shall eIIect its exchange transactions at the
rates determined by Sec. 74

Foreign Asset Position oI BSP

BSP shall maintain a net positive Ioreign asset


position so that gross FOREX assets will always
exceed gross Ioreign liabilities
II FOREX liabilities exceed twice the FOREX
assets, BSP shall within 60 days, submit report to
Congress stating origin oI liabilities and manner
which it will be paid

Emergency Restriction on Exchange Operations

In order to:
1. Achieve primary objective (price stability)
2. Protect international reserves
3. And in time oI national emergency, give
MB time to takes constructive measures to
Iorestall or combat crisis
The MB with concurrency oI 5 members and with
approval oI President may:
1. Temporary suspend or restrict sale oI
exchange
2. Subject all transactions in gold and
FOREX to license
3. Require FOREX obtained by anyone be
delivered to BSP at eIIective exchange
rate. Foreign currency deposits RA 6426
(Foreign Currency Deposit System) shall
be exempted

Acquisition oI Inconvertible Currencies

BSP shall avoid acquisition oI such currencies It


may require such currencies in an amount
exceeding the minimum balance to cover current
demands Ior said currency onl y when acquisition
oI such is considered oI national interest

Exchange Rates (Sec. 73)

MB shall determine exchange rate policy oI the


countr y
MB shall determine rates at which BSP shall buy
and sell spot exchange and establish deviation
limits Ior eIIective exchange rates
BSP shall not collect any additional commissions
other than actual telegraphic costs
MB shall similarly determine rates Ior other types
oI FOREX transactions including sales oI Ioreign
notes and coins
The margins between eIIective exchange rates and
rates established may not exceed the
corresponding margins Ior spot exchange
transactions more than additional costs involved in
each type oI transactions

Operations with Foreign Entities

MB may authorize BSP to grant and receive loans


Irom Ioreign banks and may engage in operations
with such entities Ior national interest
BSP may also act as agent oI such entities
BSP may pledge gold or other assets as securit y
against loans it received

VI. Regulations oI FOREX Operations

FOREX Holdings oI Banks

BSP may at all times have FOREX resources


suIIicient to enable it to maintain international
stability and covert ability
MB may require banks to sell to BSP part oI their
surplus holdings oI FOREX to achieve this. Such
transIers may be required to all Ioreign currencies
MB may determine the net assets and liabilities oI
banks
To determine such, the Iollowing shall be taken
into consideration: (1) bank`s networth,
outstanding liabilities or other Iinancial or
perIormance ratios
Such determination shall be applied to all banks
uniIormly and without discrimination

Requirement oI Balanced Currency Position

MB may require the banks to maintain balance


position oI assets and liabilities in peso or other
48
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

currency. Banks shall be granted reasonable time


Ior such
Power above shall be exercised only under special
circumstance and applied to all banks uniIorml y
and without discrimination

Regulation oI Non-Spot Exchange Transactions

To restrain banks Irom taking speculative


positions with respect to Iuture Iluctuation in
FOREX rates, MB shall issue regulations Ior sales
in non-spot exchange

Other exchange proIits and losses

Banks shall bear risks oI non-compliance with


terms oI FOREX documents they buy and sell
They shall also bear other risks includi ng
exchange risk not assumed by BSP

InIormation on Exchange Operations

Banks shall report to BSP the volume and


composition oI the purchases and sales oI gold and
FOREX each day
MB may also require other persons to report such
purchases and sales oI gold and FOREX.
Accuracy oI declaration may be veriIied by BSP

VII. Loans to Banking and Other Financial Institutions

Guiding Principles

The rediscount, discount, loans and advances shall


be used to inIluence volume credit consistent with
object price stability

Authorized Types oI Credit Operations

BSP may perIorm the Iollowing credit operations


in the Philippines: (CPOA)
1. Commercial credits credits where
maturities are not more than 180 days and
resulting Irom:
1. Purchase and sale oI readily
saleable goods, exportation,
importation and their
transportation (PESTI)
2. Storing non-perishable goods with
are duly insured
2. Production credits credit where
maturities are not more than 360 days and
resulting Irom production oI agricultural,
animal, mineral or industrial products
1. Such must be secured by a pledge
oI respective product except iI
loan is secured by lien on 70
value oI real estate propert y
3. Other credits credits not under 1 and 2.
BSP can provide Iunds Irom
non0inIlationary sources
4. Advances grant advances against the
Iollowing kinds oI collateral Ior Iixed
periods which shall not exceed 180 days,
except #4: (GSC-CUNN)
1. Gold
2. Securities representing obligations
oI BSP
3. Credit instruments in no. 1
4. Credit instrument in no. 2 Ior
period not exceed 360 days
5. Utilized portions oI advances in
current amount covered by regular
overdraIt
6. Negotiable treasury bills maturity
within 3 years
7. Negotiable bonds by government
maturity not more than 10 years
Rediscounting, discounts, loans and advances in
above provision may not be renewed or extended
unless extraordinary circumstance justiIy it
Advances in No. 6 and 7 may not exceed 80 oI
current market value oI collateral

Loans Ior Liquidity Purposes

BSP may extend loans and advances Ior a period


not more than 7 days without collateral Ior
purpose oI providing liquidity in the bank in times
oI need

VIII. Emergency Loans and Advances

Nature oI Emergency Loans and Advances

Emergency loan or advance credit Iacilit y


intended to assist a bank experiencing serious
liquidity problems Irom causes beyond its control
49
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Grant oI such is discretionary on MB and is a


temporary remedial measure. It must also be Iully-
secured

When Granted

1. In period oI national or local emergency or


Iinancial panic, MB may at 5 members vote,
authorize grant oI extraordinary loans to banks
secured by assets
4 Such loans shall not expand the bank`s
total volume oI loans or invest ments
2. MB, at 5 members vote, grant emergency loans to
banks even during normal period to assist bank in
precarious Iinancial condition brought by
unIoreseen events or Ioreseeable events though
inevitable
4 Bank should not be insolvent and has
assets to secure advances
No.1 contemplates emergency aIIects whole
banking community in Iinancial crisis giving rise
to widespread conIusion in public
No. 2 provides situation where BSP grants loan to
a bank with uncertain Iinancial condition but not
insolvent

Limits

Amount oI emergency loan or advance shall not


exceed 50 total deposits and deposit substitutes
oI bank and is given in 2 tranches

First Tranche

Amount oI 1
st
tranche shall be limited to 25 oI
total deposit and deposit substitute oI bank and
secured by government securities
Amount oI Iirst tranche may exceed 25 iI it is
adequately secured by government securities and
unencumbered Iirst class collaterals
Prior to release oI Iirst tranche, bank shall submit
resolution oI its board oI directors authorizing
BSP to evaluate their assets to determine that it is
good Ior collateral

Second Tranche

MB by vote oI 5 members may release 2


nd
tranche
on the Iollowing conditions that the principal
stockholders shall:
1. Furnish an undertaking to indemniIy and
hold harmless Irom suit a conservator
appointed by MB
2. Provide acceptable security adequate to
supplement the collateral assets

Shares Collateral

Prohibition in 128 shall not apply iI it reIers to


acceptance as collateral oI share and their
acquisition due to Ioreclosure proceeding
BSP shall dispose oI such share by public bidding
within 1 year
Sec 128 BSP shall not acquire or accept shares
as collateral and shall not participate in ownership
oI enterprise.
BSP shall not engage in development banking or
Iinancing except Ior outstanding loans obtained or
extended Ior development Iinancing

OverdraIt

OverdraIt shall be eliminated within a period oI 5


consecutive banking days

IX. Credit Terms

Interest and Rediscount

BSP shall collect interest on all loans and


advances it extends notwithstanding closure,
receivership or liquidations
MB shall Iix interest and rediscount rates aIter due
consideration has been given to credit needs oI the
market, composition oI BSP portIolio and national
monetary policy
Interest rates shall be applied to all banks
uniIormly and without discrimination

Endorsement

Documents rediscounted, discounted, bought or


accepted as collateral by BSP must bear
endorsement oI bank

Repayment oI Credits

Documents rediscounted, discounted, bought or


accepted as collateral by BSP must be withdrawn
50
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

on dates oI maturity or upon liquidation oI


obligation
Banks shall have the right at any time to withdraw
documents presented as collateral upon payment
oI Iull debt including interests

Other Requirements

MB shall provide additional conditions which


borrowing institutions must satisIy

Provisional Advances to the National Government

BSP may make direct provisional advances with


or without interest to national government to
Iinance expenditures in annual appropriations
provided that:
4 It is repaid beIore end oI 3 months,
extendible Ior another 3 months
4 Shall not exceed 20 oI average annual
income oI borrower Ior the last 3
preceding Iiscal year

Prohibitions

BSP shall not acquire or accept shares as collateral


and shall not participate in ownership oI enterprise.
BSP shall not engage in development banking or
Iinancing except Ior outstanding loans obtained or
extended Ior development Iinancing

X. Open market Operations Ior the Account oI BSP


Principles oI Open Market Operations
Open market purchases and sales oI security shall
be made in accordance to primary objective oI
price stabilit y

Purchases and Sales oI Government Securities

BSP may buy and sell in open market Ior its


account the Iollowing:
1. Evidence oI indebtedness issued directly
by Government
2. Evidence oI indebtedness issued by
government instrumentality Iully
guaranteed by Government
The above must be Ireely negotiable and available
to the general public in denomination oI thousands
oI pesos or more
Issue and Negotiation oI BSP Obligations

BSP may issue, place, buy and sell Ireely


negotiable evidence oI indebtedness oI BSP
The issuance oI such shall only be made in cases
oI extraordinary movements in price levels
It may be issued directly against the international
reserves oI BSP or issued without any relation to
asset oI BSP
MB shall determine interest rates, maturities and
may denominate the obligation in gold and Ioreign
currencies
BSP may acquire the said evidence oI
indebtedness beIore their maturity by:
4 Purchase in open market
4 Or redemption iI the BSP has reserved its
right to make such redemption
Such shall not be included among BSP assets and
shall be immediately retired and cancelled
(because there was discharge, maker acquired the
note he issued)

XI. Composition and Review oI BSP PortIolio

At least once every month, MB shall review


portIolio oI BSP Ior Iuture credit policy
MB shall consider iI portIolio has a suIIiciently
large part consists oI assets with early maturities in
order to promptly contract BSP credit whenever
national monetary policy so requires

XII. Bank Reserves

Reserve Requirement

In order to control volume oI money created by


credit operations, banks shall be require to
maintain reserves against their deposit liabilities
MB may at its discretion require banks to maintain
reserves against Iunds held in trust and liabilities
Ior deposit substitutes
Required reserves shall be proportional to volume
oI deposit liabilities and shall ordinarily take a
Iorm oI a deposit in BSP
Reserve requirement shall be applied to all banks
uniIormly and without discrimination
Reserves against deposit substitutes shall be
determined like reserve requirement against
regular bank deposits
51
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

MB may exempt Irom reserve requirement such


deposits with remaining maturities oI 2 years or
more and interbank borrowings
Requirement to maintain bank reserves is imposed
primarily to control volume oI money and shall
not pay interest on reserves maintained

DeIinition oI Deposit Substitutes

Deposit substitutes alternative Iorm oI obtaining


Iunds Irom the public through the issuance,
endorsement or acceptance oI debt instruments Ior
borrower`s own accounts Ior the purpose oI
relending receivables
The Iollowing are some deposit substitutes:
1. Banker`s acceptance
2. Promissory notes
3. Participations
4. CertiIication oI assignment
5. Repurchase agreements
MB shall determine what instruments are
considered as deposit substitutes
Deposit substitutes oI commercial, industrial and
non-Iinancial companies Ior the limited purpose oI
Iinancing their own needs shall not be considered
deposit substitutes

Required Reserves against Peso Deposits and Ioreign


currency deposits

MB may Iix minimum reserve ratios to peso and


Ioreign currency deposits that each bank shall
maintain and shall be applied to all banks
uniIormly and without discrimination

Reserves against Unused Balances oI OverdraIt Lines

MB may establish minimum reserve requirements


Ior unused balance oI overdraIt

Increase in Reserve Requirement

MB may increase reserve requirements against


existing liabilities in a gradual manner and shall
not exceed 4 in any 30 day period. Banks shall
be notiIied reasonably in advance

Computation oI Reserves

Reserve position shall be calculated daily on the


basis oI the amount at the close oI business Ior the
day
In holiday or non-banking days, the reserve
position is calculated at the close oI the business
day immediately preceding such holiday
For purpose oI computing reserve position,
principal oIIice oI the bank in the Philippines and
all branches are considered as single unit

Reserve DeIiciencies

When reserve position is below the required


minimum, the bank shall pay:
4 1/10 oI 1 amount oI deIiciency or
4 The prevailing 91-day treasury bill rate
plus 3 points whichever is higher
Banks shall permitted to oIIset bank deIiciency
with any excess reserves which may have held
during other days oI the week
Banks shall be required to pay penalty only on the
average daily deIiciency in the week
In case oI abuse, MB may deny any bank the
privilege oI oIIsetting reserve deIiciencies
II bank chronically has reserve deIiciency, MB
may limit or prohibit the bank Irom making new
loans or investments
It may also require that part or all net proIits be
assigned as surplus
MB may modiIy or set aside the reserve deIiciency
penalty in a period oI a strike or lockout oI the
bank or national emergency

Interbank Settlement

BSP shall establish interbank clearing Iacilities.


BSP may charge Iees Ior such
Deposit reserves maintained by banks in the BSP
shall serve as bais Ior the clearing oI checks and
settlement oI interbank balances
Any bank that incurs an overdrawing in its deposit
account in BSP shall Iully cover such overdraIt
and pay interest (1) at 1/10 oI 1 per pay or (2)
prevailing 91-day treasury bill rate plus 3 point
whichever is higher
Settlement oI clearing balances shall not be eIIect
Ior accounts which continues to be overdrawn Ior
52
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

5 consecutive days until overdrawn is paid or has


emergency loan
Banks with existing overdraIts with BSP at
eIIectivity oI NCBA may either convert such to
emergency loan or settle such immediately

Exemption Irom Attachment

Deposits in BSP as reserve requirement shall e


exempt Irom attachment, garnishment oI court or
government agency to satisIy claim oI a party
other than the government

XIII. Selective Regulation oI Banking Operations

Guiding Principle

MB shall ensure supply, availability and cost oI


money are in accord with needs oI Philippine
economy and that bank credit is not granted Ior
speculative purposes. Regulation on bank
operations shall be applied to all banks uniIorml y
and without discrimination

Margin Requirement against Letters oI Credit

MB may prescribe minimum cash margins Ior


opening oI letters oI credit

Required Security against Bank Loans

MB shall issue regulation with respect to


maximum permissible maturities oI loans and
investments and amount oI securit y

Portfolio Ceilings

Whenever MB considers it advisable to prevent or


check an expansion oI bank credit, MB may place
upper limit on amount on loans and investment oI
bank and its rate oI increase
In no case shall MB establish limits below the
value oI loans or investments oI banks on the date
on which they are notiIied by the restriction.
Restrictions shall be applied to all banks uniIormly
and without discrimination

Minimum Capital Ratios

MB may prescribe minimum ratios which capital


and surplus oI banks must bear to the volume oI
their assets

Coordination oI Credit Policies

GOCCs which perIorm banking Iunctions shall


coordinate their banking policy with MB

XIV. Functions as Banker oI the Government

Designation oI BSP as Banker oI Government

BSP shall act as baker oI government, its political


subdivisions and instrumentalities

Representation with IMF

BSO shall represent government in IMF and shall


carry accounts as may result Irom Philippine
membership with such Fund

Representation to other Financial Institutions

BSP may be authorized by the Government to


represent it in dealings with International Bank for
Reconstruction and Development and other
international Iinancial agencies
The president may designate any oI his Iinancial
advisers to jointly represent the government with
BSP

OIIicial Deposits

BSP shall be the official depository oI the


government
As a general policy, government cash balance
should be deposited with BSP and only minimum
working balances is to be held by government
banks
Government bank may hold deposits oI political
subdivisions beyond minimum working balances
when such subdivision have outstanding loans
with Iormer
BSP may pay interest n deposits oI the
government as well on deposits oI banks

Fiscal operations
53
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

BSP shall open a general cash account Ior the


Treasurer oI the Philippines in which liquid Iunds
shall be deposited
TransIers oI Iunds Irom such account shall be
made only upon order oI Treasurer

Other Banks as Agent oI BSP

In perIormance as Iiscal agent, BSP may engage


services oI other government and domestic banks
Ior operations in localities or abroad where BSP
does not have oIIice
Fiscal operations in Ioreign countries, BSP may
engage in services oI Ioreign banks

Remuneration Ior Services

BSP may charge equitable rates Ior services it


renders to the government

XV. Marketing and Stabilization oI Securities Ior the


Account oI the Government

Issue oI Government Obligations

Issue oI securities representing obligations oI


government may be made through BSP which may
act as agent oI government
BSP shall not guarantee the place oI said securities
and shall not subscribe to their issue except to
replace its maturity holdings

Method oI Placing Government Securities

BSP may place securities in the such through


direct sale to Iinancial institutions and public
BSP shall not be a member oI any stock exchange
or syndicate but may interIere Ior the purpose oI
placing government securities

Servicing and Redemption oI Public Debt shall be eIIected


through BSP

Securities Stabilization Fund

Securities Stabilization Fund made Ior the account


oI the government and its operation shall consists oI
purchases and sales, in the open market, oI bonds
Iully guaranteed by the Government

Purpose oI operations increase liquidity and


stabilize value oI said security in order to promote
investment in government obligation
MB shall use the resources oI the Fund to prevent
or moderate sharp Iluctuations in the quotations oI
government obligation
However, it shall not endeavour to alter
movements oI the market resulting Irom basic
changes in interest rates

Resources oI Securities Stabilization Fund

It shall come Irom balance oI the Iund held by the


Central Bank (RA 265)

ProIits and Losses oI the Funds

Securities Stabilization Fund shall retain net


proIits it may make on operations regardless iI
said proIits arisen Irom capital gains or interest
earning. It shall also bear net loss.

XVI. Functions as Financial Adviser

Financial Adviser on OIIicial Credit Operations

BeIore undertaking credit operation abroad,


government, through Secretary oI Finance, shall
request the opinion oI MB
Opinion oI MB shall be based on (1) gold and
Ioreign exchange resources oI the nation and (2)
eIIects oI such operation in balance oI payments
and on monetary aggregates
Whenever government contemplates borrowing
within the Philippines, the prior opinion oI MB
should also be requested
The constitution provides that Ioreign loans may
only be incurred in accordance with the law and
regulation oI monetary authorit y
InIormation on Ioreign loans by the government
shall be made public
The President may contract Ioreign loans with
prior concurrence oI MB and subject to limitation
oI the law. MB shall, within 30 days at end oI
quarter, submit to Congress a report oI loans made
by government that would increase Ioreign debt

Representation on the National Economic and


Development Authority (NEDA)
54
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

The deputy governor shall be an ex oIIicio


member oI NEDA in order to assure eIIective
coordination between economic, Iinancial and
Iiscal policies oI government

XVII. Privileges

Tax Exemptions

BSP shall be exempt Ior a 5 year Irom approval oI


NCBA Irom all national, provincial, municipal and
city taxes
Exemption shall apply to all property oI the BSP
as well as to contracts and deed related to conduct
oI business
It shall not apply to those payable by persons
merely doing business to BSP
Foreign loans shall be exempt Irom any taxes and
payment is assumed by BSP

Exemption Irom Customs Duties

The Iollowing are exempted Irom custom duties


notwithstanding special laws:
1. Importation and exportation oI BSP oI
notes, coins and other metals
2. Importation oI all equipment needed Ior
bank notes and coin production

Applicability oI Civil Service Law

Appointment BSP, except policy determining,


primarily confidential or highly technical in
nature, shall be in accordance with CSL
No qualiIication requirement Ior position shall be
imposed other than those set by MB
MB or Governor may, without need oI Iurther
obtaining approval oI government agency, appoint
personnel in BSP
OIIicers oI BSP shall not engage directly or
indirectly in partisan political activities

XVIII. Transitory Provisions oI NCBA


Phase-out oI Fiscal Agency Functions
BSP shall within 3 years but no longer than 5
years, phase out all Iiscal agency Iunctions and
shall transIer it to DOF
Phase out oI Regulatory Powers over Finance
Corporations

BSP shall within 5 years phase out its regulatory


powers over Iinance companies without quasi-
banking and transIer it to SEC

Implementing Details

BSP shall be made operational by these acts: (1)


President appoint members oI MB within 60 days
and (2) transIer oI assets and liabilities oI CB to
BSP within 90 days
All incumbent personnel oI CB shall continue to
exercise duties in BSP iI they are necessar y

TransIer oI Asset and Liabilities

Upon eIIectivity oI Act, (1) 3 members oI MB


including Governor, (2) Sec. oI Finance, (3) Sec.
oI DBM and (4) Chairmen oI Committee on Banks
oI Congress shall determine assets and liabilities
oI CB to be transIerred to BSP:
4 MB and Sec. oI Finance shall work out
creative monetary solution to retire CB oI
its liabilities at least cost
4 BSP shall remit 75 oI net proIits to a
special deposit account (sinking Iund)
until net liabilities oI CB is liquidated
4 Assets and liabilities shall be limited to an
amount that will enable BSP to perIorm
on viable basis. Assets shall exceed
liability, by COA, by P10B
4 Liabilities by BSP shall include liabilities
circulating notes and coins
4 Asset or liability oI CB not transIerred
shall be retained and liquidated by CB
Board oI Liquidators Ior a period not
exceeding 25 years
All actions shall be reported to Congres and the
President within 30 days

Mandate to Organize

BSP shall be organized irrespective oI RA 7430


(Optimum Utilization oI Personnel Act)
There shall be no preIerential or priority right to
be given to any personnel Ior appointment in new
staIIing pattern
55
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Separation BeneIits

MB shall authorize separation beneIits in addition


to all gratuities under the law to those separated in
service due to reorganization

Repealing Clause: RA 265 and PD 1792 are repealed

TransIer oI Powers

All powers vested in CB not inconsistent with


NCBA is deemed transIerred to BSP
Suspense Accounts
Sec 46 - Monetary Adjustment Account and
Exchange Stabilization Adjustment Account are
repealed. Revaluation oI International Reserve
Account shall continue Ior the account oI the same
entity
56
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - Unclaimed Balances and Trust Receipts

I. Unclaimed Balances

DeIinitions

Unclaimed balances includes credits or deposits


oI money, bullions, security and any evidence oI
indebtedness with banks, loan associations and
trust corporations in Iavor oI any person (1)
known to be dead or (2) who has not made Iurther
deposits or withdrawal during the preceding 10
years or more
Governed by Act No. 3936 Requiring Banks to
TransIer Unclaimed Balances to Insular Treasury
Such unclaimed balances, together with crease and
proceeds shall be deposited to the Treasurer to the
credit oI the government
Demand draIts cannot be escheated but telegraphic
notes can (Republic vs. FNCB)

Procedure

1. Within month oI January oI every odd year, all


banks shall Iorward to Treasurer a statement under
oath oI all credits and deposits held by them oI
persons (1) known to be dead or (2) who has not
made Iurther deposits or withdrawal showing:
a. Name and last known residence
b. Amount and date oI outstanding
unclaimed balance
c. Date when person died or made his last
deposit or withdrawal
d. Interest due on unclaimed balance
2. Copy oI sword statement shall be posted n
conspicuous place in premises oI the bank at least
60 days Irom date oI Iiling
3. Immediately beIore Iiling, bank shall
communicate with person whose Iavor the
unclaimed balance stand oI such
a. It is the duty oI the Treasurer to inIorm the
SG the existence oI unclaimed balances
4. When SG is inIormed oI such, he shall commence
an action in the name oI the People oI the
Republic in the CFI (RTC) oI the province or cit y
where the bank is located
a. It shall be joined as parties the bank and
all such creditors and depositors
b. All creditors or depositors or bank may be
included in one action
5. Service oI process in such action or actions shall
be made by delivery oI copy to deIendant bank
and by public in a newspaper oI general
circulation
6. At time oI issuance oI summons, clerk oI cert shall
also issue notice:
a. Signed by him
b. Directed to all persons other than
deIendants named therein
c. Requiring them to appear within 60 days
aIter Iirst publication
d. Show cause why unclaimed balance
should not be deposited to Treasurer
e. NotiIy them that iI they do not appear, the
court will grant relieI to RP
7. Copy oI notice shall be attached to summons
required
8. Any person interested may appear to become a
party. Upon completion oI publication, court shall
have complete jurisdiction
9. Court must hear all parties. II the such are
unclaimed, they shall be escheated to government
and court will order their deposit to the Treasurer

Penalties

II president, cashier or managing oIIice oI the


bank neglects or reIuses to Iile sworn statement,
bank shall pay to the government 500Php per
month Ior each inIraction

Immunit y Irom suit

Any bank which has made a deposit to the


Treasurer shall not thereaIter be liable to persons
who brought an action against the bank Ior such
unclaimed balances. The bank shall be deIended
by SG without costs

Disclosure oI Service and Maintenance Fees on Dormant


Accounts

Banks may impose service or maintenance Iees on


dormant or inactive accounts
Provided that beIore such Iees are imposed, the
period Ior dormancy and minimum balance is
properly disclosed
57
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

ReclassiIication

All unclaimed balances already reported to


Treasurer shall be transIerred/reclassiIied Irom
deposit liability/other credit accounts to liability
account, 'Due to the Treasurer of the Philippines`
until deposited to Treasurer

Escheats under Rules oI Court

Rule 91 oI ROC applied in case a person died


intestate and leIt properties in the Philippines
Sec 1 when person died intestate, leIt properties
and has no heir, SG may Iile petition in CFI oI
province where deceased last resided or where he
had estate
Sec 2 court shall release order oI hearing that
shall Iix date and place oI hearing not more than 6
months aIter entry oI order and shall direct
publication in newspaper once a week Ior 6
consecutive weeks
Sec 3 upon arrival oI date Iixed and no suIIicient
cause shown to the contrary, court shall adjudge
estate, aIter payment oI just debts and charges,
escheated
4 Personal estate assigned to city or
municipality deceased last resided
4 Real estate assigned to city or
municipality property is situated
4 II deceased never resided here, whole
estate shall be assigned to city or
municipality where it is situated
4 Such estate shall be Ior beneIit oI public
schools and charit y
Sec 4 iI devisee, legatee, heir, widow, widower
or other person entitled to estate claim such within
5 years Irom date oI judgment, he shall have title
oI such
4 II already sold, municipality or city shall
be accountable to proceeds
4 II claim not made within said time, he
shall Iorever be barred
Sec 5 actions Ior reversion or escheat oI
properties in violation oI constitution, shall be
governed by this Rule

The State as the Heir oI a Decedent

State has right over property oI decedent under Art.


1101-1014 oI NCC where state shall inherit
decedent estate
Bank can be a deIendant in an Unclaimed Balance
petitioner in Act. 3986 because it is a real party as
the judgment oI the case would injure the bank
since it shall be deprived oI its use oI deposits
(Republic vs. CFI)
All deIendant banks are not to be included in one
action alone iI they are in diIIerent jurisdictions
because the law state 'actions
There will only be one action Iiled Ior all banks iI
they are under one jurisdiction (Republic vs. CFI)
Sec 2b oI Rule 4 oI ROC cannot govern escheat
proceedings because Act. 3986 is an action in rem
while Iormer is in personna

II. Trust Receipts Law (PD 115)


Policy oI the State
1. Encourage and promote use oI trust receipts as aid
to commerce
2. Provide regulation oI trust receipts to assure
protection oI rights oI parties
3. Declare the misuse and/or misappropriation oI
goods or proceeds as a criminal oIIense punished
under EstaIa

DeIinition oI Terms

1. Document written or printed evidence oI title to


goods
2. Entrustee person taking possession oI goods,
documents or instruments under trust receipt and
any successor in interest
3. Entruster person holding title over the goods,
documents or instruments and any successor in
interest (title here is security interest and not
absolute ownership)
4. Goods includes chattels and personal propert y
other than money, things in action or things
aIIixed in lands
5. Instrument negotiable instruments under NIL;
certiIicate oI stock, certiIicate oI deposit, credit or
investment instrument where enstrustee appears to
be the owner in its Iace. Instrument does not
include document
58
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

6. Purchase taking by sale, conditional sale, lease,


mortgage or pledge
7. Purchaser person taking by purchase
8. Security interest property interest in goods,
documents or instruments to secure perIormance
oI some obligation by entrustee. It includes title
whenever such title is in substance taken or
retained for security only.
9. Person an individual, trustee, receiver or two
more persons having joint interest
10. Trust receipt written oI printed document signed
by entrustee in Iavor oI entruster comply with
condition oI TRL. No Iormality Ior execution is
necessary Ior validity
11. Value any consideration suIIicient to support a
simple contract

Trust Receipt Transaction

Trust receipt transaction any transaction by and


between entruster and entrustee where entruster
hold absolute title or security interest over goods,
documents or instruments, releases the same to the
entrustee
The entrustee signs a trust receipt and binds
himselI to hols the goods Ior the entruster and to
sell such with obligation to return the proceeds or
return such in case oI non-sale
In case oI goods or documents:
1. To sell the goods
2. To manuIacture the goods with the
purpose oI ultimate sale or
3. To load, unload, ship or tranship them in
manner necessary Ior their sale
In case oI instruments:
1. To sell or procure exchange
2. Deliver them to principal
3. EIIect consummation involving delivery
to depository
4. EIIect their presentation, collection or
renewal
Sale oI goods, documents or instruments by person
in business oI selling such Ior proIit who (1) has
general property rights in such goods over the
buyer or (2) who sells the same to the buyer on
credit, retaining title or interest as security Ior
payment does not constitute trust receipt
transaction

There are two possible situation in trust receipt


transaction:
1. ReIers to money received under the
obligation involving the duty to deliver it
(entregarla) to owner oI merchandise
this happens when entrustee sold the
goods and must return the proceeds to
enstruster
2. ReIers to merchandize received under
obligation to return in (devolvera) to
owner this happens when entrustee
Iailed to sell the goods and must return
goods to entruster
Trust receipt is a separate and independent
security transaction intended to aid in Iinancing
importers whereby goods are held as security by
lending institution Ior loan
In Sps. Jintola vs. Insular Bank of Asia and
America, it stated the Iollowing:
1. Letter oI credit-trust receipt is where a
bank extends a loan with a trust receipt Ior
the loan. Transaction involved a loan
Ieature in the letter oI credit and security
Ieature Ior the trust receipt
2. Trust receipt is a security agreement
which a bank acquires a security interest
in the goods.
3. It secures indebtedness and there can be
no such thing as security interest that
secures no obligation
4. Trust receipt is a security transaction to
aid Iinancing importers who do not have
suIIicient Iunds to Iinance importation and
who may not be able to acquire credit
except utilization, as collateral oI their
merchandise
It is a document where the lender (entruster),
having no prior title or possession to the goods
lends money to the borrower (entrustee) on
security oI the goods

Form oI Trust Receipts

Trust receipt need not be in any particular Iorm


but every trust receipt must contain:
1. Description oI goods, documents or
instruments
2. Total invoice value
59
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

3. Undertaking oI entrustee
4. To hold in trust, sell or return Ior the
entruster the goods, documents or
instruments
May contain other terms not contrary to TRL or
laws

Currencies in which Trust Receipt may be denominated

Trust receipt may be denominated in Philippine or


Ioreign currency
II it is denominate in Ioreign currency, payment
shall be made in its equivalent Philippine currency
at FOREX in turn over

Rights oI Entruster

1. Entitled to proceeds to the extent oI the amount


owing to the entruster or in case oI non-sale return
oI goods
2. Entruster may cancel trust and take possession oI
goods, documents or instruments at any time upon
deIault or Iailure oI entrustee to comply with
obligation
a. Entruster now in possession may give
notice to entrustee oI intention to sell
b. May, not less than 5 days aIter serving
notice, sell such in public or private sale
c. Entruster in public sale can become a
purchaser
3. Proceeds oI sale shall be applied to:
a. Payment oI expenses thereoI
b. Payment oI expenses oI retaking, keeping
and storing goods, documents or
instruments
c. SatisIaction entrustee`s indebtedness
4. The entrustee shall receive any surplus but shall be
liable t the entruster Ior deIiciency
Trust receipts partake nature oI conditional sale
where importer becomes absolute owner oI
merchandise as soon as he paid purchase price or
loan (PNB vs Vda de Hijos de Angel Jose and
Colinares vs. CA)
The law uses the word 'may in granting entruster
the right to cancel the trust and take possession oI
the goods
Entruster has discretion to avail oI such right or
seek alternative action such as third party claim oI
ICA upon deIault oI entrustee

In Philippine Blooming Mills vs. CA, it was stated


that iI the entruster took possession oI the goods,
the entrustee is still liable Ior the whole amount
The entrustee shall only be released Irom his
liability iI he pays the entruster his obligation or
the entruster sells the goods at a private or public
sale and appropriate the proceeds
Even iI the thing is taken as a right oI the entruster
but is not sold to a public/private sale yet, the debt
oI the entrustee still exists

Entruster not Responsible on sale by Entrustee

Entruster shall not, merely by giving entrustee


liberty oI sale, be responsible as principal/vendor
oI sale made by entrustee

Obligations oI Entrustee

1. Hold the goods and shall dispose them in


accordance with conditions oI trust receipts
2. Receive proceeds in trust and turn over to entruster
3. Insure the goods against loss
4. Keep said goods or proceeds separate and capable
oI identiIication
5. Return goods in event oI non-sale or demand oI
entruster
6. Observe all other terms provided

Liability oI Entrustee Ior Loss

Risk oI loss shall be borne by entrustee. Loss


oI goods, documents or instruments
irrespective oI WON it was due to the Iault or
negligence oI entrustee shall not extinguish his
obligation

Rights oI Purchaser Ior Value and in Good Iaith

Any purchaser in good Iaith and Ior value oI the


goods Irom entrustee acquires the goods Iree Irom
entruster`s security interest

Validity oI Entruster`s Security Interest against Creditors

Entruster`s security interest in goods, documents


or instruments shall be valid against all creditors
oI entrustee Ior the duration oI the trust receipt
agreement

Violation oI TRL
60
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

TRL is violated whenever entrustee Iails to:


1. Turn over proceeds
2. Return goods in non-sale
Mere Iailure to account or return gives rise to the
crime which is malum prohibitum
There is no requirement to prove intent to deIraud
(Ong vs. CA and Colinares vs. CA)
What the law punishes is the dishonest and abuse
oI conIidence in handling money
Intent to misuse or misappropriate goods should
be proved (Metrobank vs. Go)
Failure to account upon demand oI Iunds or
property is evidence oI conversion or
misappropriation
Mere Iailure to account Ior goods constitute Par
1(b) oI EstaIa (Ong vs. CA)
Failure to deliver proceeds cause prejudice not
only to the creditor but also to the public interest
In Sps. Jintola vs. Insular Bank of Asia and
America, it is tated that the return oI merchandize
does not amount to recover by the lending bank
This is because the lending bank (entruster) only
acquires a security interest over the goods and not
the absolute ownership
II the lending bank acquires absolute ownership, it
shall deIeat the loan Ieature oI a trust receipt and
shall become a contract oI sale where bank gained
ownership oI goods upon giving a loan
The title oI the entruster is a mere artiIicial
expedient, more oI a legal Iiction than Iact
It was also stated that there was no double
recovery because when shells were deposited in
the court, IBAA did not yet accept it. Thus, they
have not appropriate the shells and can recover the
obligation Irom the petitioners

Application

In Allied vs. Ordone:, TRL applies to items:


4 Destined Ior sale
4 Processed as component oI product
ultimately sold
4 Used to repair equipment oI business

Penalt y

Failure oI entrustee to turn over the proceeds or


non-return constitute crime oI estaIa

In Colinares vs. CA, failure oI entrustee to turn


over the proceeds or non-return constitute crime oI
estaIa under Art. 315(1) oI RPC without need oI
proving intent to deIraud
II violation is committed by a corporation, its
directors, oIIicers or employees responsible Ior the
oIIense shall have criminal liabilit y
Rationale Ior making such oIIicers responsible:
they are vested with authority and responsibility to
devise means to ensure compliance with the law
and iI they Iail to do so, they shall be accountable
Corporations cannot be put in jail. However, these
entities are made liable Ior civil liabilities arising
Irom criminal oIIense
Violation oI trust receipt constitutes Iraud under
Art. 33 oI NCC an ICA to enIorce civil liabilit y
arising Irom criminal liability
In Sarmiento Jr. vs. CA, complaint based on Iailure
to comply with obligation in Trust Receipt is
separate Irom criminal liability under PD 115. It is
an obligation ex contractu and may proceed
independently regardless oI result oI criminal
action
In People vs. Cuervo, TRL with its penal sanction
is in reality, merely conIirmatory oI situation
covered under Art. 315(1)(b) RPC
In Colinares vs. CA, iI the person who executed
the trust receipt did not pass title to the bank,
where there is security interest oI the property, and
person is not an importer, there is no trust receipt
created
It is unjust and inequitable Ior banks oI making
borrowers sign trust receipt to Iacilitate collection
oI loans under threat oI criminal prosecution in
case oI non-payment
61
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - Deposit nsurance

I. Roles oI PDIC

1. Insure the deposits oI all banks which are entitled


to beneIits oI insurance
2. As a basic policy, promote and saIeguard interest
oI depositing public by way oI providing
insurance coverage
RA 3591 Act establishing PDIC
PDIC is entitled to Iree use oI Philippine mail

II. Powers oI PDIC as Corporate Body

1. Use corporate seal


2. Have succession until dissolved
3. Make contracts
4. Sue and be sued
a. All suits oI civil nature is deemed to arise
Irom Philippine law
b. No attachment or execution against PDIC
beIore Iinal judgment
c. BOD designate agent oI insured bank
5. Appoint its Board oI Directors (BOD)
6. Prescribe by-laws not inconsistent with law
7. Exercise all powers granted by law and incidental
thereto
8. Conduct examination oI bank with prior approval
oI MB
a. No examination conducted within 12 days
Irom last examination
b. To avoid overlap examinations, maximize
use oI reports
9. Act as receiver
10. Prescribe rules deemed necessary to implement
PDIC law
11. Establish provident Iund Ior payment oI beneIits
oI employees
12. Compromise, condone or release any claim to
PDIC

III. Board oI Directors

BOD shall administer the aIIairs oI PDIC Iairly


and impartially without discrimination

Composition

1. Secretary oI Finance ex-oIIicio chairman


2. Governor oI BSP ex-oIIicio member
3. President oI PDIC vice chairman
a. appointed by the President with term oI
6years
4. Two members Irom the private sector
a. Term oI 6 years without reappointment
b. QualiIications:
i. Good moral character
ii. Unquestionable integrity and
responsibility
iii. Recognized competence
iv. 35 years old

DisqualiIication oI appointive members

For duration oI tenure and 1 year aIter, appointive


members oI the board are disqualiIied Irom
holding oIIice in any insured bank

Quorum

3 members shall constitute a quorum Secretary oI


Finance and BSP Governor can designate a
representative with no lower rank than U.Sec and
Deputy Governor
II Secretary oI Finance Iails to attend, President oI
PDIC shall be chairman

Per Diem

Secretary oI Finance shall Iix per diem

Authority oI the Board

1. Prepare rules and regulations Ior eIIective


discharge oI responsibilities
2. Direct management oI PDIC
3. Establish human resource management system
a. Compensation structure shall be based on
job evaluation studies
b. All positions shall be governed by
compensation position classiIication
system
c. Compensation plan comparable with
prevailing compensation
d. Exempted Irom existing laws on
compensation
4. Appoint, establish rank and Iix remuneration
5. Adopt annual budget
6. Approve methodology in insurance and Iinance
assistance
62
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

IV. OIIicers

President

Shall be ChieI Executive oI PDIC


Salary Iixed by President oI Philippines
Total salary shall be ceiling oI all other personnel
Powers and duties:
1. Prepare agenda Ior meeting
2. Execute and administer policies
3. Direct and supervise operations
4. Represent PDIC
5. Authorize, with his signature and prior
approval oI board, contracts, notes and
securities issued
6. Represent PDIC in legal action
7. Delegate power to represent
8. Exercise other powers vested in him

Vice President

Shall assist President


During absence or temporary incapacit y oI
President, VP shall act as president pending the
appointment oI new President

Bank Examiners

BOD shall appoint examiners to examine insured


bank
Each examiner has the power to make thorough
examinations
They have the power to:
4 Administer oaths
4 Examine and take testimony oI oIIicers
4 Compel presentation oI books

Claim Agents

Claim agents power to investigate and examine


all claims Ior insured deposits

Investigators

Investigators power to conduct investigations on


Iraud, irregularities and anomalies committed in
banks

V. Deposit Insurance Coverage

Deposit Liabilities

Deposit liabilities oI any bank engaged in business


oI receiving deposit shall be insured with PDIC
Factors considered by BOD
1. Financial history and condition oI bank
2. Adequacy oI capital structure
3. Future earnings prospects
4. General character oI management
5. Convenience and needs oI communit y
Deposit unpaid balance oI money received by a
bank and Ior which it has given credit to a:
1. Commercial
2. Checking
3. Savings
4. Time
5. ThriIt accounts
6. Those evidenced by passbooks
Any obligation oI a bank payable outside oI
Philippines shall not be a deposit under PDIC Law
Insured bank that has branch outside the
Philippines may avail insurance Ior its deposit
payable only in such branch

Statutory Liability oI PDIC

PDIC primarily governed by special law


Liability oI PDIC is statutory and rests upon
existence oI a deposit with an insured bank and
not the negotiability oI the certiIicate evidencing
the deposit
Fourth National Bank oI Wichita vs. Wilson:
negotiability oI instrument has no dependence oI
existence oI guaranty or insurance

Deposit must be in Iact made

Fact that certiIicates stated that they are insured by


PDIC does not ipso Iacto make the certiIicate
insured
Deposit liability is determined by RA 3519
To claim deposit insurance, law requires that a
deposit is placed in the insured bank
Deposit may be constituted only iI money or its
equivalent have been received by a bank

Holder in due course not applicable

Even iI depositor is HDC, it does not mean that he


already has a claim against the insurance Iund
The Iund protects deposits onl y
63
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Liability under negotiable instrument vs. Guarantee Iund

Liability oI the make is diIIerent Irom liability oI


the guarantee Iund. The latter is purely statutor y

Deposit insurance oI Foreign Currency Deposits

Foreign currency deposits insured with PDIC


Insurance payment shall be in same currency in
which deposit is denominated
PDIC Law is not applicable to OIIshore Banking
Units

Duty to indicate insurance on Deposit

All banks must indicate that it is under the PDIC


and maximum insurance

VI. Assessment

Assessment Rule

1. Assessment rate not exceed 1/5 oI 1 per


annum
2. Semi-annual assessment rate oI assessment
rate. Not less than P250
3. Assessment base amount oI liability oI bank Ior
deposits
4. Semi-assessment base Ior semi-annual period
average oI assessment base in close oI business

CertiIied Statement oI Assessment Base and Assessment


Due

1. On or beIore Jul y 31, each bank shall Iile in PDIC


certiIied statement showing amount oI assessment
based and semi-annual assessment due. On such
date, the bank shall pay the semi-annual
assessment due
2. On or beIore January 31, each bank shall Iile
similar statement as above
3. II insured bank assumed liabilities Ior deposits oI
another bank, it shall be included in assessment
base
4. CertiIied statements required shall be in such Iorm
as BOD shall prescribe
5. Any insured bank that Iails to Iile certiIied
statement shall be compelled to Iile by mandator y
injunction

ReIund and Credit

PDIC may:
4 ReIund to an insured bank any payment oI
assessment that is excess oI amount due
4 Credit such expense toward payment oI
assessment oI next Iollowing period

Termination

PDIC shall not terminate insured status oI any


bank which continues to receive deposits
Should insured bank Iails to pay assessment dues
required, PDIC may Iile collection case and
administrative charges against bank oIIicials

Trust Fund

Trust Iund Iunds held by insured bank in


Iiduciary capacit y
Trust Iund shall be insured in an amount not to
exceed 10k Ior each trust estate
Such insurance shall be separate Irom other
deposits oI owners oI trust Iunds
When Iiduciary bank deposits any trust Iund with
other insured bank, such amount shall not be
considered as a deposit liabilit y

Payment oI Dividends and/or Interests

No insured bank shall pay dividends on capital


stock or interest or distribute capital assets while
it remains in deIault in payment oI assessment
dues
II deIault in payment is due to dispute between
bank and PDIC over amount oI assessment, this
rule shall not apply

Civil Penalities

Any assessment payable by insured bank shall be


subject to payment oI interest computed at legal
rate Ior loan
There shall be an added penalt y equivalent to
twice the amount oI interest payable Ior each day
Penalty shall not be applicable iI there is dispute
over amount oI assessment

VII. Deposit Insurance Fund

Permanent insurance Iund P3B


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B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Deposit insurance Iund shall be capital account oI


PDIC and shall consist oI:
1. Permanent insurance Iund
2. Assessment collections
3. Reserves Ior insurance
4. Retained earnings
Reserves Ior insurance shall be maintained at a
reasonable level to ensure capital adequacy
PDIC may, within 2 years Irom passage, conduct
study to adjust amount oI Permanent Insurance
Fund
Assessment collections and incomes shall be
added to Deposit Insurance Fund aIter deduction
Irom expenses and charges. Such expenses and
charges consists oI:
1. Operating costs
2. Additions to reserve
3. Net insurance and Iinancial assistance
losses
PDIC may recover Irom any insured bank any
unpaid assessment
No action shall be brought to recover assessment
unless such action shall have been brought within
5 years aIter right accrued
II insured bank Iiled a Ialse certiIied statement
with intent to evade, such claim is not deemed to
accrue until PDIC discovers

VIII. Unsound Practice

Upon examination by PDIC, it shall be disclosed


whether insured bank is committing unsound
practices
The BOD in such a case shall:
1. Submit report oI examination to MB
2. II no corrective action by MB, BOD shall
motu proprio institute such
W BOD can issue cease and desist
order to the bank
3. II violation cause insolvency or
dissipation oI assetsm the period to take
corrective action shall be done within 15
days and impose Iines
Actions and proceedings may be undertaken by
PDIC iI insured bank have violated:
1. Any provision oI PDIC Law
2. Any order or rule oI PDIC
3. Any written condition imposed by PDIC
IX. Reports by Insured Bank

Each insured bank shall make reports to PDIC oI


conditions required
II bank Iails to make such report within given time,
BOD may provide 100php penalty Ior each day oI
violation
PDIC shall have access to reports made to the BSP
to the insured bank and BSP shall also have access
to reports oI BSP
Each insured bank shall keep true and accurate
record oI its daily deposit transactions.
Compliance with such shall be duly certiIied by
bank president
ReIusal to issue such shall be a violation

X. Prohibitions on PDIC Personnel

1. Being an oIIicer, director, consultant, employee or


stockholder directly or indirectly oI any bank
2. Receiving giIts Irom any oIIicer, director or
employee oI any bank
3. Revealing in any manner, inIormation relating to
business oI any bank except when required by
Congress or the President

XI. Legal Assistance

PDIC shall advance litigation costs to its directors,


oIIicers or employees in connection with any
criminal, civil or administrative case where such
person acted within the perIormance oI his dut y
Even iI they resign, they shall still receive legal
assistance in connection with the act done during
tenure
The amount advance shall be repaid by the oIIicer
iI it is determined by the board that such oIIicer
need not be indemniIied

XII. Dealings by PDIC Personnel with Banks

Members oI Board and personnel oI PDIC may


become directors or oIIicers oI any bank iI the
position is in connection with the Iinancial
assistance extended by the PDIC

Borrowing Irom Banks


65
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B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Borrowing Irom banks by examiners or other


personnel shall be prohibited with respect to
particular bank to which they are assigned
Borrowing by personnel Irom any bank not
included in the prohibition shall be secured and
disclosed to the BOD

XIII. Receivership

Appointment

MB shall appoint the PDIC as receiver


Receiver includes receiver, commission or other
agency charged by law with the duty to take
charge oI assets and liabilities oI a bank prohibited
Irom doing business
It has the duty to gather preserve and administer
assets and liabilities oI such banks Ior the beneIit
oI its depositors

EIIect oI receivership

1. PDIC shall control, manage and administer aIIairs


oI closed bank
2. Powers, Iunctions and duties oI directors, oIIicers
and stockholders are suspended
3. Assets oI closed bank is in custodia legis
4. Assets oI closed bank shall not be subject to
attachment, execution or levy

Powers oI PDIC in receivership

1. Bring suit to enIorce liabilities oI bank


2. Appoint persons to perIorm Iunctions oI PDIC as
receiver or liquidator
3. Suspend or terminate employees oI closed bank
a. Payment oI separation pay shall be made
aIter closed bank is in liquidation
4. Pay accrued utilities, rentals and salaries oI closed
bank
5. Collect loans and other claims
6. Hire private counsels iI necessary
7. Borrow loan when necessary to preserve assets oI
closed bank to minimize loss
8. II stipulated interest on deposits is unusually high,
reduce interest rate
9. Exercise other powers inherent in receiver

Suits Filed by PDIC

Actions Iiled by PDIC as receiver, payment oI all


docket and court Iees shall be suspended until
action is terminated
Such Iees shall constitute Iirst lien on judgment

Distribution oI Assets

BeIore distribution oI assets, PDIC shall charge


against the bank the receivership expenses
AIter payment oI all liabilities, PDIC shall pay
surplus dividends to creditors and claimants oI
bank

XIV. Payment oI Insured Deposits

Manner oI Payment

Payment oI insured deposits shall be made in:


1. Cash
2. By making available a transIerred deposit
in another insured bank
TransIer deposit deposit in an insured bank made
available to a depositor as payment oI insured
deposit Irom closed bank assumed by another
insured bank
Insured deposit amount due to any deposit Ior
deposits in an insured bank
1. In PDIC Law, 250k. Now it`s 500k
Joint account shall be insured separately Irom any
individuall y-owned deposit account
II account s held jointly, maximum insured deposit
shall be divided into as many equal shares as to
individuals
II account is held by juridical person, maximum
insured deposit shall be presumed to belong
entirely to such entity
Aggregate interests oI each co-owner over several
joint accounts shall be subject also to maximum
insured deposit
No owner oI an negotiable certiIicate oI deposit
shall be recognized as depositor unless his name is
registered as owner in issuing bank

ProoI oI Claims

PDIC may required prooI oI claims beIore paying


insured deposit
Final determination iI person is entitled to
insurance is the court
66
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Settlement Period and Penalties in case oI Iailure to settle

Failure to settle claim within 6 months Irom date


oI Iiling claim, where such Iailure by the oIIicer
was due to GAOD, iIIucer shall be imprisoned
Irom 6 months 1 year
Period shall not apply iI validity oI claim is under
resolution
Upon payment to any depositor, PDIC shall be
subrogated to all the rights oI the depositor against
the closed bank
Subrogation shall include right to receive same
dividends Irom proceeds oI assets
Depositor shall retain claim Ior any uninsured
portion oI his deposit

Notice

PDIC shall commence determination oI insured


deposit upon actual takeover oI closed bank
PDIC shall public a notice once a week Ior 3
consecutive weeks in newspaper oI general
circulation such closing oI the bank

Discharge

Payment oI insured deposit shall discharge

Recognition oI Owner

Neither PDIC or insured bank shall be required to


recognize owner oI a deposit appearing on the
records under a name other than claimant

Withholding oI Payment

PDIC may withhold payment oI insured deposit iI


payment oI liability by such depositor as
stockholder oI closed bank not yet oIIset is
pending determination

Prescription

All rights oI depositor shall be bared iI:


4 Depositor in closed bank Iail to claim
insured deposit within 2 years Irom actual
take over
4 Depositor does not enIorce his claim
within 2 years aIter th2 year period to Iile
a claim

All right oI depositor against closed bank which


PDIC may have been subrogated shall revert to
depositor again

XV. Investment by PDIC

Money oI PDIC not employed shall be invested in


obligation oI the Republic oI the Philippines or
guaranteed obligations
4 Not sell or purchase such obligations Ior
its owner account in excess oI 100k
4 Insurance commissioner may waive
requirement oI approval in above
Banking and checking accounts oI PDIC shall be
kept in BSP, PNB or Iiscal agent

XVI. Extension oI Loans

When insured bank is determined as in danger oI


closing, in order to prevent such, PDIC is
authorize to:
1. Make loans to such bank
2. Purchase assets oI such bank
3. Assume liabilities oI such bank
4. Make deposits in insured bank
The grant shall be made iI bank is essential in
community and Ior Iinancial stabilit y
Such authority to extend Iinancial assistance may
also be exercised iI PDIC Iinds that the resumption
oI operations oI the closed bank is vital to
communit y
Reopening oI such close bank is subject to prior
approval oI MB
PDIC may provide any corporation acquiring
assets oI insured bank in danger oI closing with
Iinancial assistance
Prior to exercise oI these above powers, PDIC
shall determine whether actual payoII will be more
expensive than exercise oI such
When MB has determined systematic consequence
oI closure oI bank, PDIC may grant Iinancial
assistance in amount necessary to prevent its
Iailure
Systematic risk possibility that Iailure oI one
bank to settle the transactions with other banks
will trigger chain reaction and general shutdown
oI clearing activity
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S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Systematic risk also means the likelihood oI a


sudden unexpected collapse in conIidence with the
banking system
PDIC may not use such powers to purchase stocks
oI insured bank
Financial assistance may take Iorm oI equity or
quasi-entit y

XVII. Borrowings

PDIC is authorized to borrow Irom BSP


Any loan granted by BSP shall be consistent with
monetary policy and interest rate shall not exceed
treasury bill rate
II Iunds oI PDIC are not suIIicient, it can borrow
money Irom any bank designated as Iiscal agent oI
RP
Such loans shall be short-term durations

XVIII. Issuance oI Bonds

With approval oI President oI Philippines, PDIC is


authorized to issue bonds, debentured and other
obligations to settle insured deposits in closed
banks
The BOD shall determine interest rate
PDIC shall provide reserves Ior redemption

Reports and Audit

PDIC shall annual make report oI its operations in


Congress
Its Iinancial transactions shall be audited by COA
COA shall have access to all books, accounts,
records and reports

XX. Miscellaneous

Signs

Every insured bank shall display at each place oI


business signs that deposits are insured by PDIC
Those which do not relate to deposits or are
impractical shall be exempted Irom this
requirement

Merger or Consolidations oI Insured Bank

Without prior written consent Irom PDIC, no


insured bank shall:
1. Merge and consolidate with non-insured
bank or convert into non- insured bank
2. Assume liabilities oI deposits by any non-
insured bank
3. TransIer assets to non-insured bank

Protection against losses

PDIC may require insured bank to provide


protection against burglary, deIalcation and losses
Irom discharge oI duties
BOD shall determine bonding requirement as to its
directors, oIIicer and employers
II insured bank reIused to comply with such
requirement, PDIC may contract such protection
Ior them payable to such bank

XXI. Criminal Penalties

Prison mayor or Iine 50k-2M


4 WillIul reIusal to submit report
4 ReIusal to permit examination
4 Making Ialse statement
4 Submission oI Ialse materials
4 ReIusal to allow PDIC to takeover
4 ReIusal to turn-over records
4 Fraudulent disposal oI assets
4 Violation oI exemption Irom garnishment
4 WillIul Iailure to comply with PDIC and
conducting unsound business
4 Splitting deposits
Splitting deposits - deposit account with
outstanding balance oI more than maximum
insured amount is broken down to two or more
accounts within 30 days preceding closure oI bank
Ior purposes oI availing maximum deposit

XXII. Fines

BOD is authorized to impose administrative Iines


but no more than 3 times amount oI damages
caused

XXIII. TRO and Injunction

Only CA can issue TRO, Preliminary Injunction


against PDIC. Prohibition shall apply to all cases
SC can issue restraining order iI oI extreme
urgency
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S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Restraining order in violation oI this shall be void


and judge who issued is suspended

Reorganization

PDIC may be reorganized in new staIIing pattern.


No preIerential right shall be enjoyed
Reorganization must be completed within 6
months Irom eIIectivity oI PDIC law
BOD shall provide separation incentives

PDIC vs. CA

Even iI the bank has knowledge that it shall be


under receivership, it does not ipso Iacto mean that
the depositors also has knowledge oI such
Thus, they can still engage in business transactions
in course oI business as long as they acted in GF
and did not know such closure
Thus, such deposits made in the period shall be
covered by deposit insurance
69
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER - ntiMoney Laundering

RA 9160 Act deIining Crime oI Money


Laundering and Providing Penalties and AMLL
I. Concepts
Money laundering any act to conceal or disguise
the indemnity oI illegally obtained proceeds so
that they appear to have originated Irom legitimate
sources
Even beIore AMLA, BSP issued various circulars
to avoid money laundering
Under AMLA, money laundering is a crime
whereby the proceeds oI an unlawIul activity are
transacted and making them appear to have
originated Irom legitimate sources

Three steps in Money Laundering (ML)

1. Placement launderer inserts dirty money into a


legitimate Iinancial institution
a. OIten in bank deposits
b. Most riskiest stage as there is large
amounts and banks are required to report
high-value transactions
2. Layering sending money through various
Iinancial transactions to change its Iorm and make
it diIIicult to Iollow
a. Consists oI bank-to-bank transIers
b. Change Iorm oI money
c. Most complex step as it makes dirty
money hard to trace
3. Integration money re-enters in mainstream
economy in legitimate looking Iorm
a. It appears to come Irom legal transaction
b. Involve Iinal bank transIer into the
account oI the launderer

Policies

1. Protect and preserve integrity and conIidentialit y


oI bank accounts
2. Ensure that Philippines is not used as ML site
3. Consistent with Ioreign policy, extend
cooperation in transnational investigations
involving ML

Covered Institutions
1. Banks, non-banks, quasi-banks, trust entities and
subsidiaries and those regulated by BSP
2. Insurance companies
3. Securities dealers, brokers, salesmen and
investment houses
4. Mutual Iunds, closed-end-investment companies
5. Foreign exchange corporations, money chargers
6. Other entities dealing in currency, commodities or
Iinancial derivatives

Covered and Suspicious transaction

1. Covered transactions: Any transaction in cash or


other monetary instrument involving amount oI
500k within 1 banking day
2. Suspicious transactions:
a. No underlying legal or trade obligation or
economic justiIication
b. Client not properly indentiIied
c. Amount involved not commensurate to
Iinancial capacity oI client
d. Client`s transaction is structured to avoid
reporting requirements in AMLA
e. Circumstances relating to transaction
deviate Irom proIile oI client
I. Transaction is relate to any unlawIul
activit y
g. Transaction is analogous to above

Monetary Instrument

1. Coins or currency oI legal tender whether in


Philippines or other country
2. DraIts, checks, notes
3. Securities or NI, bonds, commercial papers or
substitute instruments
4. Other similar instrument where title passes
through indorsement, assignment or deliver y

UnlawIul Activit y

1. Kidnapping Ior ransom


2. CDDA
3. RA 3019
4. Plunder
5. Robbery and extortion
6. Jueteng and masio
7. Piracy in the high seas
8. QualiIied theIt
70
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

9. Swindling/estaIa 5. Cause Iiling oI complaint in DOJ or OMB


10. Smuggling 6. Investigate suspicious and covered transactions
11. Violation oI Electronic Commerce 7. Apply Ireeze order in CA ex parte
12. High-jacking and destructive arson perpetrated by 8. Implement measures necessary to counteract ML
terrorists 9. Receive and request Irom Ioreign states assistance
13. Fraudulent practise oI Securities Regulation Code in AML operations
14. Felonies oI similar nature in other countries

How is ML committed

1. Any person knowing any monetary instrument


involves proceeds oI unlawIul activity and
attempts or actually transacts such instrument
2. Any person knowing that monetary instrument
involves proceeds oI unlawIul activity and
perIorms or Iails to perIorm any act as a result oI
which he Iacilitates ML
3. Any person knowing monetary instrument is
required to be disclosed and Iiled with AMLC but
Iails to do so

II. Jurisdiction and Prosecution

Jurisdiction oI ML Cases

RTC shall have jurisdiction oI all ML


Those committed by public oIIicers are under
jurisdiction oI SB

Prosecution oI ML

Any person can be convicted with both oIIense oI


ML and the unlawIul activity
Any proceeding relating to unlawIul activity is
given precedence without prejudice to Ireeze order

III. Anti-Money laundering Council (AMLC)


Composition
1. Governor oI BSP
2. Commissioner oI Insurance Commission
3. Chairman oI Securities and Exchange Commission

Functions

1. Must act unanimously in discharge oI Iunction


2. Require and received covered and suspicious
transactions
3. Issue orders to determine true indemnity oI owner
4. Institute civil IorIeiture proceedings
10. Develop education programs against ML
11. Enlist assistance oI any branch oI government to
promote AML operations
12. Impose administrative sanctions
13. Establish secretariat head Ior term oI 5 years

IV. Prevention oI Money Laundering

Customer IdentiIication

Covered institutions shall establish true indemnit y


oI clients based on oIIicial documents
Maintain a system oI veriIying true identit y oI
clients
Anonymous accounts, those under Iictitious names
and similar accounts are prohibited
Peso and Ioreign currency non-checking numbered
accounts are allowed
4 BSP may conduct annual testing oI such
accounts to determine identity

Record Keeping

Another way oI preventing ML is this:


1. All records oI all transactions oI covered
institution must be saIely stored Ior 5
years Irom date
2. In closed accounts, records on customer
identiIication and correspondence shall be
preserved Ior 5 years Irom date oI closing

Reporting Covered and Suspicious Transactions

1. Covered institutions shall report to AMLC all


covered and suspicious transactions within 5 days
Irom occurrence thereIore
a. There can be extension but not exceed 10
working days
2. Transaction be determined to be both covered and
suspicious, report such as suspicious
3. When reporting, covered institution is deemed not
to have violated:
a. RA 1405 Act Prohibiting Disclosure oI
Deposits,
71
S an B eda Col l ege of L aw
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AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

b. RA 6426 - Foreign Currency Deposits,


c. RA 8791 GBL
4. In case oI violation, oIIicer shall be criminally
liable except iI in GF
5. When reporting covered or suspicious transactions,
covered institution is prohibited Irom
communicating to any person or media such Iact
6. There can be no publication or airing oI such
report by mass media, e-mail or other device
a. In violation, covered institution and media
shall be criminally liable

Freezing Monetary Instrument

One way to prevent ML


CA can issue Ireeze order which shall be eIIective
immediately
Requisites oI Ireeze order:
1. Filed in CA
2. Upon application ex parte by AMLC
3. AIter determination that probable cause
exists where money instrument is related
to unlawIul activit y
Freeze order shall be eIIective Ior a period oI 20
days unless extended by court
In all instances oI unlawIul activity, there can be
an ex parte Ireeze order
There is no need Ior Iull-blown trial

Authority to Inquire into Bank Deposits

To complete legal measure to prevent ML, AMLC


may examine deposits in any banking institution
upon order oI court
It must be established that there is probable cause
that deposits relate to:
1. UnlawIul activity or
2. Money laundering oIIense
No court order shall be required in unlawIul
activities oI:
1. Kidnapping with ransom
2. Violation oI CDDA
3. High-jacking (RA 6235)
4. Destructive arson in connection with
terrorism
BSP may make emanation oI deposits when
examination is made n course oI period or special
examinations
Republic vs. Eugenio

1. Whether or not the phrase 'in cases oI requires


that there must be a pending trial in another court
Ior an unlawIul activit y
2. Whether or not the power to inquire in the bank
deposit can be done ex parte

First Issue

No. The court ruled that there is no need that there


must be a pending trial Ior an unlawIul activity in
another court beIore there can be a petition to
inquire to bank deposits
Otherwise, it would render it a limited too in aid oI
litigation and wholly inutile
In such situation, it will not anymore as a
discovery tool

Second Issue

No. As a general rule, ex parte bank inquiry order


is not allowed
The proviso does not have the same word 'ex
parte unlike in the Ireeze order
Silence oI the law does not automatically construe
it to have such ex parte
Also, in IRR oI AMLA, there is no ex parte bank
inquiry order
However, bank inquiry order does not necessitate
any physical seizure
The reason oI court is that, even iI the accused is
notiIied that there will be inquiry due to the Iull-
blown trial, the accused cannot hide his Iraudulent
records as it is maintained in the bank and cannot
be erased
Thus, in such interpretation, bank inquiry order
have no ex parte orders, it does not weaken the
law
Also Bank Inquiry Order (BIO) not analogous to
search warrant
Moreover, the right to privacy must be upheld
under Bank Deposit Secrecy Act
Thus, there shall be no ex parte orders. But iI the
exceptional unlawIul activity is present, there can
be BIO without need oI court order

V. Ex Post Facto Clause


72
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B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

1. AMLC may execute request Ior assistance by:


a. Tracking down, Ireezing proceeds oI
unlawIul activity
b. Giving inIormation
c. Apply order oI IorIeiture

Under AMLA no person can be prosecuted under


AMLA Ior acts committed prior to October 17,
2001
Also, BIO prior to October 17, 2001 is prohibited
as it is an ex post Iacto
4 It deprives a persons oI some lawIul
protection to which he has become entitled
However, those accounts created prior to October
17, 2001 are still under the coverage oI AMLA
Otherwise, the oIIenders can mere circumvent by
laundering into an account created prior to
October 17, 2001

VI. ForIeiture

Civil ForIeiture

Where there is a covered transaction report made


and court ordered seizure or monetary instrument,
rules oI civil IorIeiture applies

Claim on ForIeiture Assets

1. When court issued order oI IorIeiture, oIIender


may apply Ior a declaration that the same
legitimately belongs to him
2. VeriIied petition Iiled in court which rendered
judgment oI conviction within 15 days Irom order

Payment in Lieu oI ForIeiture

Instead oI order oI IorIeiture, court may order


oIIender to pay amount equal to value oI monetary
instrument when said order cannot be imposed
because:
1. Monetary instrument cannot be located
with due diligence
2. It was substantially altered or destroyed
3. It has been concealed, removed or
converted Irom being Iound
4. Located outside the Philippines or outside
jurisdiction oI court
5. It has been commingled with other
monetary instruments

VII. Mutual Assistance among States

Request Irom Foreign State

When Ioreign state makes a request Ior


investigation or prosecution oI ML, the AMLC
may accept or reIuse the same Ior valid reasons
Principles oI mutuality and reciprocity shall at all
times recognized

Powers oI AMLC to act on request oI Ioreign state

2. Court will issue such order only iI application is


accompanied by:
a. Authenticated copy oI order oI court oI
requesting state
b. CertiIication by competent court oI
requesting state that conviction or order is
Iinal

Obtaining assistance Irom Ioreign states

AMLC may request assistance in:


a. Tracking down, Ireezing, proceeds oI
unlawIul activity
b. Obtain inIormation
c. Apply with proper Ioreign court an order
to enter premises or seize documents and
objects in request
d. Applying Ior order oI IorIeiture oI any
monetary instrument
W Must be accompanied by
authenticated copy oI IorIeiture by
RTC and aIIidavit oI clerk oI
court

Limitation on Request Ior Mutual Assistance

AMLC may reIuse to comply with request Ior


assistance iI it contravenes the Constitution or
execution oI require prejudicial to national interest
unless there is a treaty speciIically provided

Requirement Ior Request Ior Mutual Assistance Irom


Foreign state

1. ConIirm investigation or prosecution being


conducted
2. State grounds which person is investigated
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FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

3. Give suIIicient particulars to identity oI person


and covered institution
4. Ask Irom covered institution any inIormation
necessary
5. SpeciIy manner and to whom inIormation is to be
produced
6. Give all particulars necessary Ior issuance by the
court oI requesting State certain order
7. Contain other inIormation that may assist
execution oI request

Authentication oI Documents

A document is authenticated iI:


a. Signed or certiIied by judge oI requesting
state
b. Authenticated by oath oI witness or sealed
with oIIicial seal oI state
CertiIicate oI authentication may also be made by
secretary oI embassy

Extradition

Philippines shall negotiate inclusion oI ML


oIIenses among extradutable oIIenses in Iuture
treaties

VIII. Penalties

1. In ML: 7 - 14 years imprisonment and 3M


2. In Failure to Keep Records: 6 months 1 year
imprisonment and 100k-500k
3. In Malicious reporting: 6 months - 4 years
imprisonment and 100k-500k
a. II juridical person, oIIicers shall be
punished and revoke such license
b. II an alien, deported aIter service
c. In public oIIicial, shall have PAD or TAD
d. II such public oIIicials reIuse to testiIy,
same penalties

Breach oI ConIidentiality

For breach under AMLA, penalty is 3-8 years with


Iine oI 500k-1M
Responsible reporter, writer, president or publisher
shall be liable

IX. Prohibition against Political Harassment


1. AMLA shall not be used Ior political persecution
or to hamper competition in trade
2. No case oI ML may be Iiled against any candidate
during election period

X. Implementing Rules and Regulations (IRR)

BSP, Insurance Commission and SEC shall


promulgate IRR oI AMLA subject to approval oI
Congressional Oversight Committee
Covered institutions shall Iormulate their
respective ML prevention programs

XI. Congressional Oversight Committee (COC)


Composition
7 members Irom Senate and 7 members Irom HR
Members oI Senate shall be appointed by Senate
president in proportional representation
This shall also be done in HR
Powers oI COC
COC shall have power to promulgate own rules, to
oversee implementation oI AMLA and review IRR

XII. Rules and Regulations Ior Banks

1. When establishing business relations in opening


deposits accounts, banks should take reasonable
measure to establish identity oI client. In corporate
entities, Iollowing shall be made:
a. VeriIication oI legal existence oI client
b. VeriIication oI authority oI person
purporting to act on behalI oI client
2. In case oI doubt as whether purported clients are
acting Ior themselves, reasonable measures shall
be taken
3. Anonymous or accounts under Iictitious names are
not allowed. In case such is allowed, banks must
still ensure identity oI client in some other
document
4. Identity oI existing clients should be renewed at
least every other year
5. All necessary records should be maintained Ior at
least 5 years
6. Special attention shall be given to complex,
unusual large and all unusual patterned
transactions with no lawIul purpose
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FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

7. Other suspicious transactions not involving


deposits should still be reported to proper
authorities
8. Banks should not or avoid transact with criminals
9. Programs against ML should be developed:
a. Development oI internal policies and
hiring high standard employees
b. Ongoing employee training
c. Audit Iunction to test system
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FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

PTER Special Purpose 'ehicle

A. Policies oI the State


Develop and maintain a sound Iinancial sector Ior
the country
Address the non-perIorming asset problems oI the
Iinancial sector
Encourage private sector investments in non-
perIorming assets
Eliminate existing barriers in the acquisition oI
non-perIorming assets
Help in the rehabilitation oI distressed business
with the end in view oI contributing to economic
value added
Improve the liquidity oI the Iinancial system
which can be harnessed to propel economic
growth

B. DeIinitions
Act - Special Purpose Vehicle Act oI 2002
Appropriate Regulatory Authority -
agency/authority having jurisdiction over the FI's
operations, which shall be the Iollowing
Department oI Finance (DOF) - in case oI the
PDIC and GOCCs, in consultation with other
agencies that have primary jurisdiction over the
said FIs whenever deemed appropriate by the DOF
Bangko Sentral ng Pilipinas (BSP) - in the case oI
banks which include LBP and DBP, and trust and
QB Iunctions oI Iinancing companies and
investment houses licensed by the BSP
Commission - in case oI Iinancing companies and
investment houses, except their trust and QB
Iunctions or any qualiIied entity not under the
DOF or BSP
Audited Financial Statements - a set oI Iinancial
reports consisting oI balance sheet, income
statement, statement oI changes in equity and cash
Ilow statement, audited by a Commission-
accredited independent CPA
CertiIicate oI Eligibility or COE - certiIicate
issued by the Appropriate Regulatory Authority as
to the eligibility oI the NPL or ROPOA Ior
purposes oI availing oI the tax exemptions and
privileges
Code - BP 68 aka the Corporation Code oI the
Philippines
Commission - Securities and Exchange
Commission
Dation in Payment (dacion en pago) - a payment
whereby property, whether real or personal,
tangible or intangible, is alienated in Iavor oI the
creditor, which could either be an FI or an SPV in
satisIaction oI an NPL
FIA - Foreign Investment Act, RA 7042
FI or Financial Institutions - credit granting
institutions which shall be limited to the Iollowing
1. the BSP
2. a bank as deIined under RA 8791, aka
'The General Banking Law
3. a Iinancing company as deIined under RA
8556 aka 'The Financing Company Act oI
1998
4. an IH as deIined in PD 129 aka 'The
Investment Houses Law
5. Government Financial Institutions or GFIs,
shall be limited to the PDIC, LBP and
DBP
6. GOCCs
7. other institutions licensed by the BSP to
perIorm QB
Investment Unit Instruments or IUIs - participation
certiIicates, debt instruments or similar
instruments issued by the SPV and subscribed by
the Permitted Investors
4 It shall not include the instruments to be
issued by the SPV to the selling FIs
4 SPV shall not be considered as deposit
substitutes and shall not Iorm part oI the
capital stock oI SPV
Non-Bank Financial Institutions perIorming QB
Iunctions or NBQBs - Iinancing companies, IH,
and other institutions licensed by the BSP to
perIorm QB Iunctions
Non-PerIorming Assets or NPA - consists oI NPLs
and ROPOAs by the F.I.s, certiIied to be eligible
as such ARA
Non-PerIorming Loans or NPLs - loans and
receivables such as mortgage loans, unsecured
loans, etc, whose principal and/or interest has
remained unpaid Ior at least 180 days aIter they
have become past due or any oI the events oI
deIault under the loan agreement has occurred as
oI June 30, 2002
ROPOA - Real and other properties owned or
acquitted by an FI in settlement oI loans an
receivables which have been acquired by way oI
Dacion en pago or judicial or extra judicial
Ioreclosure or execution oI judgment as oI June 30
2002 PROVIDED, the property is deemed
acquired
1. on the date oI notarization oI the Deed oI
Dacion
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FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

2. on the date oI the entry oI judgment in


case oI judicial Ioreclosure
3. on the date oI notarization oI the SheriIIs
Cert in case oI extra judicial Ioreclosure
True Sale - a sale wherein the selling FI transIers
or sells its NPAs without recourse Ior cash or
property to an SPV with the II results
4 The transIeror relinquishes eIIective
control over the transIerred NPAs
4 The transIerred NPAs are legally isolated
and put beyond the reach oI the transIeror
and its creditors
C. Organization
An SPV shall be organized as a stock corporation
in accordance with the Corporation Code and with
these Rules
4 Provided that iI the SPV will acquire land,
at least sixty percent (60) oI its
outstanding capital stock shall be owned
by the Philippine Nationals pursuant to the
FIA

D. Powers oI an SPV
An SPV shall be incorporated primarily to invest
in, or acquire NPAs oI F.I.s.
Secondary powers
1. Engage in 3rd parties to manage, operate, collect
and dispose oI NPAs acquired Irom an FI
2. Rent lease, hire, pledge, mortgage, transIer, sell,
exchange, usuIruct, secure, securitize, collect rents
and proIits and other similar acts concerning its
NPAs acquired Irom FIs
3. In case oI NPLs, to restructure debt, condone debt
and undertake other restructuring related activities
4. Take, transIer shares or buy shares issued by the
borrower Ior the purpose oI business
reorganization or rehabilitation oI the borrower
5. Enter into dation in payment, Ioreclose judicially
or extrajudicially and other Iorms oI debt
settlement involving NPLs
6. Spend Iunds to renovate, improve, complete or
alter its NPAs acquired Irom an FI
7. Issue equity or participation certiIicates
8. Borrow money and issue other instruments oIr
paying operational and administrative costs
9. Guarantee credit, accept or intervene Ior honor the
bills oI the borrowers
10. Advance Iunds to borrowers where required by an
acquired asset or any debt
11. Entrust to 3rd parties asset servicing company, the
collection and receipt oI debt payments Ior debts
under restructuring or business reorganization

E. Period Ior Filing Applications


18 months Irom date oI approval oI the IRR by the
Congressional Oversight Committee created in
Sec 23 oI the Act
Registration Requirements
An SPV shall submit to the SEC the II docs Ior
incorporation:
1. Name veriIication slip
2. Articles oI Incorporation and By laws
3. Treasurer's aIIidavit/ authority to veriIy
bank account
4. Bank CertiIicates or Deposits
5. Written undertaking to change corporate
name by any incorporator or director
6. Registration Data Sheet

F. Authorized, Subscribed and Paid-Up Capital oI the SPV


An SPV shall have:
1. Minimum authorized capital stock oI
500Mphp
2. Minimum subscribed capital stock oI
125Mphp
3. Minimum paid-up capital oI 31.25M
This shall be in Iorm oI cash
II an SPV issue IUIs or oIIers other securities to
the public, it shall maintain a net worth based on
its Audited Financial Statements in an amount
equivalent to not less than its minimum paid-up
capital

G. Submission oI SPV Plan Contents


1. Investment policies
2. Contribution plan
3. Features oI the IUIs
4. Timetable oI Issuance
5. Rights oI the holders oI IUIs
6. DraIt agreements Ior the appointment oI trustees
and agents
7. Appointment or engagement oI external auditor
8. Roles and Responsibilities oI the trustee, advisors,
loan servicers and property managers
9. DraIt Iorm oI Iinancial reports oI the SPV
10. Details oI the distribution policies
11. Methods Ior the increase and decrease oI Iuture
Iund contributions
12. Methods Ior the alteration or modiIication oI the
approved SPV plan
13. Methods Ior the liquidation and distribution oI
assets to the holders oI IUIs
14. Details oI credit enhancements
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FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

15. such other documents or inIormation as may be


required by the SEC

H. Approval
Upon approval oI the SPV Plan, the Commission
shall issue an Approval CertiIicate stating that the
application has been approved and the IUIs may
be issued

I. Issuance oI IUIs
Registration Requirements
1. All IUIs proposed to be sold or distributed
within the Philippines shall be duly
registered with the SEC
2. Registration statement including:
1. business oI the issuer
2. use oI proceeds
3. risk Iactors
4. legal proceedings
5. market oI securities
6. management's discussion oI
Iinancial condition and results oI
operations
7. directors and oIIicers
8. securities ownership
9. certain related party transactions
10. audited and interim Iinancial
statements in accordance with
SRC rule 68
3. In addition, the II inIormation shall be
disclosed in the registration statements oI
an SPV
a. details oI the SPV plan
b. details oI credit enhancements
c. detailed description oI the assets
or loan constituting the pools oI
assets
d. rights and obligations oI the
selling FI assumed by the SPV
e. description oI any relationship or
interest oI the selling FI parent
I. Incentives and exemption
privileges
4. The SPV shall also submit a certiIication
Irom the FI that the aIIected borrowers oI
the NPLs and all persons holding prior
encumbrances upon the assets
5. SPV shall pay a registration Iee oI 1/10 oI
1 oI the aggregate oIIering price oI the
IUIs subject to the diminishing Iee set by
the Commission
6. SPV shall cause the publication oI a notice
oI Iiling oI registration statement its
expense
7. The Commission may audit the Iinancial
statements, assets and other inIormation oI
an SPV applying Ior registration
8. Upon the registration statement being
declared eIIective by the Commission, the
sale oI the securities subject thereto shall
be commence within 2 business days and
be counted until the end oI the oIIering
period or until the sale has been
terminated by the action oI the issuer
9. The SPV shall ensure wide dissemination
oI preliminary and Iinal prospectuses
10. Written notiIication shall be given to the
SEC within 3 business days Irom
completion or termination oI the oIIering
by the issuer, including therein the number
oI securities sold

Amendments or Rejection
Within 45 days aIter the date oI Iiling oI the
registration statement, or at such later date to
which the issuer has consented, the SEC shall
declare the registration statement eIIective or
rejected
UNLESS the applicant is allowed to amend the
registration statement
AIter which, the SEC shall determine iI it should
be eIIective or rejected
The SEC may reject an RS and reIuse registration
thereunder or revoke the eIIectivity oI an RS and
the registration oI the security thereunder aIter due
notice and hearing by issuing an order to such
eIIect, setting Iorth its Iindings in respect thereto iI
its Iinds that:
The issuer:
1. has been judicially declared insol vent
2. violated any provision oI the Corporation
Code as well as orders oI the SEC
3. has been or engaged or is about to engage
in Iraudulent transactions
4. he has made any Ialse or misleading
representation oI material Iacts in any
prospectus concerning the issuer or its
securities
5. has Iailed to comply with any requirement
that the SEC ma impose as a condition Ior
registration oI the securit y Ior which the
registration statement has been Iiled
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FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

The RS is on its Iace incomplete or inaccurate in


any material aspect or include any untrue
statement or other misleading statements
The issuer, or any D, O, or controlling person oI
the issuer or a person perIorming a simple Iunction
has been convicted by a competent judicial or
administrative body, upon plea oI guilty, or
otherwise, oI an oIIense involving moral turpitude
and/or Iraud or is enjoined or restrained by the
SEC Ior violation oI such
II the SEC deems it necessary, it may issue an
order suspending the oIIer and sale oI the
securities pending any investigation

Issuance oI Securities oI the Public without prior


registration
Any SPV that oIIers to sell or distribute its IUIs to
the public within the Phils without prior
registration shall be subject to the penalties
provided oI the SRC
The imposition oI the Ioregoing administrative
sanctions shall be without prejudice to the Iiling
criminal charges against the individuals
responsible Ior the violation

Tax Treatment oI IUIs


Since IUIs are not considered as deposit substitutes
under the Act, the interest or other monetary
beneIit derived Irom IUIs is not subject to the 20
Iinal withholding tax under the NIRC However, the
IUI and any income arising Irom the IUIs shall be
subject to the normal tax and/or such other
applicable taxes, including but not limited to,
documentary stamp tax, imposed under the NIRC
and its implementing regulations

J. Permitted Investors
May acquire or hold IUIs oI an SPV in the
minimum amount oI 10Mphp provided:
1. that an SPV shall not be authorized to
acquire the IUIs oI another SPV
2. that the Parent, Subsidiaries, AIIiliates or
DOSRI shall not acquire, hold, directly or
indirectly, the IUIs oI the SPV that
acquired the NPAs oI the FI
AIIiliate - a juridical person, directly or indirectly,
thru one or more intermediaries, is controlled by
or is under common control with selling FI or its
aIIiliates
Control - exists when the Parent owns directly or
indirectly thru subsidiaries more than one halI oI
the voting power oI an enterprise it may also exist
when there is:
1. power over more than oI the voting
rights by virtue oI an agreement with other
investors
2. power to govern the Iinancial and
operating policies oI the enterprise under a
statute or an agreement
3. power to appoint or remove the majority
oI the members oI the BoD or equivalent
governing body
4. power to cast the majority oI votes at
meetings oI the BoD or equivalent
governing body
5. any other arrangement similar to any oI
the above
Parent - a juridical person who has control over
another juridical person directly or indirectly thru
one or more intermediaries
Related Interest:
1. entities in which the amount oI investment
oI the selling FI is more than 20 but less
than 50 oI the outstanding capital stock
thereoI
2. trusts Ior the beneIit oI employees such as
pension and proIit sharing trusts that are
managed by or under the trusteeship oI the
selling FI
3. provident and other employees/oIIicers'
beneIit Iunds oI the selling FI
4. principal owners oI the selling FI
5. management oI the selling FI
6. members oI the immediate Iamilies oI the
principal owners and management oI the
selling FI
7. other parties with which the selling FI may
deal with iI one party controls or can
signiIicantly inIluence the management or
operating policies oI the other to an extent
that one oI the transacting parties might be
prevented Irom Iull y pursuing its own
separate interests
Subsidiary oI a speciIied person is an aIIiliate
controlled by such person D/I thru one or more
intermediaries

K. Notice and Manner oI TransIer oI Assets

Prior Notice
No transIer oI NPLs to an SOV shall take eIect
unless the FI concerned shall give prior notice to
the borrowers oI the NPLs and all persons holding
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FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

prior encumbrances upon the assets mortgaged or


pledged
1. must be in writing by registered mail
2. the borrower and the FI shall be given a
period oI at most 90 days upon receipt oI
notice to restructure or renegotiate the
loan under such terms and conditions as
may be agreed upon by the borrower and
the FI concerned
Procedures on the TransIer oI Assets to the SPV
An FI who wants to apply must Iile an application
shall be Iiled Ior each transIer oI assets with the
Appropriate Regulatory Authority having
jurisdiction. It must be accompanied with a
certiIication oI the FI that:
1. the assets to be sold/transIerred are NPAs
as deIined under the SPV Act oI 2002
2. the proposed sale/transIer oI said NPAs is
under a True Sale
3. the notiIication requirement to the
borrowers has been complied with
4. the maximum 90 days period Ior
renegotiation and restructuring has been
complied with
This must be signed by a senior oIIicer with a rank
oI at least Senior VP or equivalent provided such
oIIicer is duly authorized by the FI BoD or the
Country Head, in case oI Ioreign banks
the 3rd and 4th items shall not apply iI the NPL
has become a ROPOA aIter June 30, 2002

Issuance oI the COE


The ARA shall issue to the borrower a COE
within 45 days Irom the date oI application
said COA shall always be required by the BIR Ior
purposes oI availing the tax exemptions and other
privileges under the Activities
The ARA shall Iurnish the SEC and the BIR a
duplicate copy oI said COE. The ARA and BIR
shall coordinate to ensure the integrity oI the COE

Subsequent Notice
aIter the sale/transIer oI the NPLs, the transIerring
FI shall inIorm the borrower in writing at the last
known address oI the Iact oI the sale/transIer oI
the NPLs

Subsequent TransIers
Each COE shall be valid Ior only one transIer. All
subsequent transIers shall require a separate COA
Irom the ARA
Nature oI TransIer
in the nature oI True Sale
any transIer oI NPAs not in the nature oI True Sale
shall not qualiIy Ior tax exemptions and Iee
privileges granted under the Act
The transIer by an FI oI its NPAs to an SPV shall
be considered NOT A TRUE SALE iI the FI:
1. invests in or acquires, D/I, the IUIs issued
by the SPV that acquired its NPAs
2. has d/i management oI the transIeree SPV
3. has any oI its directors, oIIicers,
employees on the board oI the transIeree
SPV
4. has obligated to repurchase or
substitute/exchange the NPA or any part
oI the pool oI NPAs at any time, except in
cases oI a breach oI representation or
warranty oI the FI
5. Has RI with the transIeree SPV
6. Possesses a claim oI beneIicial ownership
oI more than 5 oI the transIeree SPV
Following shall NOT presumed to be a true sale iI
the FI:
1. Purchases/invests in the IUIs oI the SPV
that acquired its NPAs thru its trust
department including the trust department
oI its Subsidiaries/AIIiliates, Parent bank
and the trust department oI the Parent
bank's subsidiaries/aIIiliates
2. Is made the beneIiciary oI a trust used as a
vehicle Ior purchasing and securitizing the
NPAs
3. Pays Iurther expenses in relation to the
NPAs aIter said NPAs have been
sold/transIerred to the transIeree SPV
4. Extends any credit Iacility, guaranty, or
any similar Iinancial transaction to the
transIeree SPV
5. Extends any credit Iacility, guaranty or
any similar Iinancial transaction to any
party Ior the purpose oI investing in the
equity or IUIs oI the SPV, or Ior acquiring
the NPAs Irom the SPV
6. Extends any CF, F, AST to any party Ior
the purpose oI acquiring the NPAs Irom
the transIerring FI
7. Acts as trustee (FIs trust dept) or iI the
Trust dept oI any oI the FIs
subsidiaries/aIIiliates, parent bank or
parent banks, subsidiaries/aIIiliates acting
as trustee in the securitization oI NPAs
that it has transIerred to the SPV
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AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

8. Accepts as collateral Ior a loan extended


by said FI the equit y shares and IUIs oI
the SPV that acquired its NPAs
9. Enters into buy-back and other similar
arrangements, or Iinancial derivative
transactions with similar eIIect, involving
the NPAs or the securities backed by such
NPAs
10. Enters into any other transaction where the
FI retains eIIective control over the
transIerred NPAs or shares in the losses oI
the SPV
'Any party includes proxies, nominees, and
voting trustees. The extension oI credit to an
individual Ior the purpose oI acquiring a single
Iamily residential unit ROPOA or NPL secured by
real estate mortgage on a residential unit shall be
allowed.

Penalties
prescribed under Sec 25 oI teh Act without
prejudice to other penalties that may be imposed
by the ARA oI the transIerring FI under applicable
laws
The SPV shall assume all Rights and Obligations
oI the FI over the transIerred NPA

N. Tax Exemptions and Fee Privileges


Transactions covered
1. the transIer oI the NPL by the FI to an
SPV
2. transIer oI the ROPOA by the Ii to an SPV
3. Dacion en pago (DEP) oI the NPL by the
borrower to the FI
4. DEP oI the NPL by a 3rd party, on behalI
oI the borrower, to the FI
5. transIer oI NPL by the FI to an individual
6. transIer oI the ROPOA by the FI to an
individual
7. transIer oI the NPL by the SPV to a
3rd party
8. transIer oI the ROPOA by the SPV to a
3rd party
9. DEP oI the NP by the borrower to the
SPV
10. DEP oI the NPL by a 3rd party on behalI
oI the borrower to the SPV
11. transIer oI the NPL by the individual to a
3rd party
12. transIer oI ROPOA by the individual to a
3rd party

Provided that these tax exemptions and reduction


oI Iees shall appl y only upon compliance with the
Iollowing requirements
1. NPA has been certiIied by the ARA as an
NPL or ROPOA as oI 06/30/02 provided
that Ior tax purposes, a property shall be
deemed acquired aIter the lapse oI the
redemption period in cases where such
period still exists

2. all transIer taxes and registration Iees have


been paid or subsequently paid upon
assessment on ROPOAs who redemption
period has lapsed as oI 063002 where
legal title has not been transIerred in the
name oI the FI
3. The properties acquired by an SPV Irom
the GFIs or GOCCs which are devoted to
socialized or low-cost housing shall not be
converted to other uses
Tax exemption privileges
1. Documentary stamp tax
2. Capital gains tax imposed on the transIer
oI lands and other assets treated as capital
assets
3. Credible withholding income taxes
imposed on the transIer oI land and or
buildings treated as ordinary assets
4. the VAT or gross receipts
Reduction oI Fees
1. 50 oI the applicable mortgage
registration and transIer Iees on the
transIer or real estate mortgage and chattel
mortgage registration to and the
SPV/individual, imposed in accordance
with the existing circular oI LRA
2. 50 oI the Iiling Iees Ior any Ioreclosure
initiated by the SPV/individual in relation
to any NPA acquired Irom an FI
3. 50 oI the registration Iees prescribed
Manner oI Claiming Tax Exemptions
4 shall provide the BIR with the appropriate
certiIicate oI eligibility
4 In case oI the transIer oI real property or
shares, the CIR or his duly authorized
representative shall issue a CertiIicate
(Cert Authorizing Registration/ Tax
Clearance Cert) that such transIer has been
reported and is tax-exempt

Q. Abuse oI Tax Exemptions and Privileges


81
S an B eda Col l ege of L aw
B anking L aws
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOYESTELA; DE JESUS, TRACYANN.
FROMSECTION 2S - SANBEDACOLLEGE OF LAW, MENDIOLA: AY2011-2012. REFERENCE: BANKING LAWS &JURISPRUDENCEBYDIZON.

Any person, natural or juridical, who shall beneIit


Irom the said exemptions and privileges without
being entitled thereto, shall be liable.
In addition, he shall reIund the Government
double the amount oI he was exempted Irom
plus12 interest per annum

R. Redemption Periods
provided by the Iollowing: Sec 47 oI RA 897 or
the GBL oI 2000 and Rules oI Court

S. Books oI Accounts and Records


Internal Record Keeping and Accounting Controls
1. An SPV must make and keep books,
records and accounts which reIlect the
transactions and dispositions oI its assets,
it minutes oI meetings and other business
transactions
2. It shall advise and maintain a system oI
internal accounting controls suIIicient to
provide reasonable assurances that
a. The transactions and access are
pursuant to management
authorization
b. Financial statements are prepared
in conIormity with the generall y
accepted accounting principles
c. Recorded assets are compared
with existing assets at reasonable
intervals and diIIerences
reconciled
External Auditor - shall be appointed by SPV
accredited by the Commission
Inspection oI Books and Records those who has
a right to inspect:
1. Stockholder oI SPV or Holder oI an IUI at
a reasonable hour oI business
2. Authorized representatives oI the
Commission, BIR or the BSP any time
3. Failure to compl y with this right will be a
ground Ior the suspension order on the
oIIering oI the IUIs

T. Reports
Reports to be submitted by SPV to the
Commission
1. As Stock Corporati on
W General InIormation Sheet (GIS)
within 30 days Irom stockholder's
meeting date
W Audited Financial Statements
within 120 days Irom the end oI
the Iiscal year
2. As Issuer oI Securities to the Public
a. Annual Report on SEC Form 17A
b. Quarterly Report on SEC Form
17Q
c. A current report on SEC Form
17C
d. Monthly Reports on total
issuances and amounts oI IUIs
3. Audited Financial Statements - The Iiling
oI SEC Form 17A shall suIIice
4. Violations - any violation oI the above
due to the Iailure oI the SPV, it shall be
subject to penalty provided by SRC, this
Code, and their IRR
Reports to be submitted to the BIR by an SPV -
Ior purposes oI implementing the tax provisions oI
the Act
Reports Iiled to the BSP
4 By SPV
1. Report on any sale/transIer to any
party oI NPLs and ROPOAs
acquired Irom banks and NQBQs
quarterly
2. Report on the latest appraised/ Iair
market value oI ROPOAs and real
estate properties/ chattels used as
collateral and NQBQs semi-
annuall y
4 By Selling Financial Institution - monthl y
report regarding the actual sale/ transIer to
an SPV

U. Penalty in case oI violation oI the provisions oI the Act


Fine: Not less than 50k not more than 1M, or
Imprisonment: not less than 6 years 1 day not
more than 12 years
OR BOTH
II the penalty was committed by a corporation,
association, partnership etc., the one responsible
would be those oIIicers who participated in the
commission oI the crime or who shall have
knowingly permitted or Iailed to prevent the
commission
II the oIIender is an alien, he shall, in addition to
the prescribed penalties, be deported without
Iurther proceedings aIter serving the sentence
II the oIIender iI a public oIIicial, or employee, in
addition to the penalties above, the penalty oI
absolute/temporary DQ shall apply