banking dizon reviewer

7/30/2019 Banking Dizon Reviewer

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Banking Laws - Dizon

CHAPTER 1

I. DECLARED Policy of the State (Sec. 2, GBL) - The State recognizes the vitalrole of banks providing an environment conducive to the sustaineddevelopment of the national economy and the fiduciary nature of banking that

requires high standards of integrity and performance. In furtherance thereof,the State shall promote and maintain a stable and efficient banking andfinancial system that is globally competitive, dynamic and responsive to thedemands of a developing economy.

II. Definition of Banks (Sec. 3.1, GBL) - "Banks" shall refer to entities engagedin the lending of funds obtained in the form of deposits. Note: Banks mayengage in other activities allowed by law.

III. Nature of Banking Business

A. Debtor-Creditor Relationship The relationship existing between adepositorand bankis that of a creditor and debtor.

B. Fiduciary Duty1. Simex Intl., Inc. vs. CA: The State recognizes the fiduciary

nature of banking that requires high standards of integrity

and performance. Banks are required to treat the accountsof its depositors with meticulous care, always having in mindthe fiduciary nature of their relationship.

2. This banks obligation is deemed written into every depositagreement between a bank and its depositor.

C. Not A Trust Agreement1. The fiduciary nature of bank-depositor relationship does NOT

convert the contract between the bank and its depositorsFROM a SIMPLE LOAN TO a TRUST AGREEMENT. This isbecause Banks do not accept deposits to enrich depositorsbut to earn money for themselves.

2. Failure by the bank to pay to pay the depositor is failure topay a simple loan, and NOT a breach of trust.

D. Indispensable Institution1. Banks is an indispensable institution in the modern world and

plays vital role in the economic life of every citizen. People

have come to regard them with respect, gratitude, andconfidence.

2. Even a humble wage-earnerdoes not hesitate to entrust hislife savings

3. An ordinary person usually maintains an account for securityand convenience in settling his bills

4. As for business entities, the bank is trusted to help them in running theiraffairs, not only in the form of loans, but in their day-to-day transactions likeencashing a check.

E. Impressed with Public Interest (Simex vs. CA) a depositor expects a bank to treat hisaccount with utmost fidelity, whether such account consists only of a few hundredpesos or millions.

F. Degree of Diligence (Simex vs. CA)Art. 1172 of NCC states that the degree of diligence required of an obligor is that

prescribed by law or contract, and in the absence of such, that of a good father to afamilyNOTE: Due diligence is required of banks extend even to persons or institutions,regularly engaged in the business of lending money secured by real estatemortgage.

G. Treatment of Accounts with Meticulous Care There is NO LAW mandating banks tocall up their clients whenever their representatives withdraw significant amountsfrom their accounts.

H. Duty to Keep Records1. Banks shall have a true and accurate account, record, statement of their

daily transactions especially those of deposit liabilities.2. The making of a false entry or willful omission of entries is a ground for the

imposition of administrative sanctions and disqualification from office.I. Banks are NOT Gratuitous Bailees Banks solicit deposits in order that they can use

the money to gain.J. Banks are NOT Expected to be Infallible, but must bear the blame for NOT discovering

mistakes despite established procedures.

Q: Sps. A and V opened a joint current account in C Bank with an initial deposit of P2,250.Prior thereto, A had a personal account with the same bank. When the spouse openedtheir joint current account, the New Accounts teller pulled out the old signature card ofA and placed the old personal account number of A in the deposit slip. V issued twochecks and one of these was dishonored for IF. They were deducted P20 from theiraccount. The bank tried to call the spouses, but they were in Pampanga. Is the bankliable for damages?A: Yes.- a depositor expects a bank to treat his account with utmost fidelity, whether such

account consists only of a few hundred pesos or millions.- Bank must record every transaction accurately- A blunder on the part of the bank such as dishonor of check without good reason can

cause the depositor embarrassment, financial loss, and perhaps civil and criminallitigation

Note: Exemplary damages are awarded if there is malice and bad faith.

K. Dealing with Registered Lands The rule that persons dealing with registered landscan rely solely on the certificate of title does NOT APPLY to banks. Banks shouldexercise more care and prudence in dealing with registered lands that privateindividuals, for their business is one affected by public interest.

Q: A sold is unregistered parcel of land to B. Subsequently, an Orig. Cert.Title (OCT) wasissued. A surrendered it to X bank as a consequence of a mortgage. B died w/o knowing


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that an OCT has been issued. Upon learning of his right, C (Bs heir)confronted A and went to X bank. C asked to photocopy the ownersduplicate certificate outside the banks premises. C then brought it to theRegister of Deeds with the Deed of Sale and he was issued a Transfer Certof Title. Is the bank liable for damages to A?A: Yes.- Bank failed to foresee the risk of its act of entrusting C with the OCT

without notifying A and verifying the veracity of Cs claim andcharacter.

- This acts runs afoul of the banks mandate to observe the highestdiligence

- A has also the right to due process. Notice and hearing areindispensable elements of this right which the bank ignored

Q: A bank accepted a property as mortgage despite existence ofstructures and occupants other than the mortgagor. Is the banknegligent?A: Yes. Banks, being in the business of extending loans, are familiar withthe rules on land registration. They are expected to exercise more careand prudence in dealing with registered lands that private individuals, fortheir business is one affected by public interest. The bank should haveconducted investigation since there occupants other than the owner of theland mortgaged. This constitutes gross negligence amounting to bad faith.

L. Banks may Exclude Persons in their Premises No employees must bespared by banks and their officers and employees to ensure and

preserve the trust and confidence of the general public.

IV. Liability For Acts and Employees Bank is LIABLE for the wrongful actsof its officers done WITHIN the scope of their authority.A. Negligence of ManagerBank is liable for the negligence or misdeed of the branch manager sinceconfidence in the banking system necessarily includes reliance on bankmanagers. (BPI vs. First Metro Investment Corp.)B. Negligence of Officers if within the scope of authority, bank is liableC. Negligence of Tellers returning the passbook ONLY to the depositor

or his authorized representative. If given to the wrong person, bank isliable since they would be clothing that person presumptive ownershipof the passbook.

Note: Appropriation of money by a bank teller is NOT ESTAFA. Such is onlyMATERIAL POSSESSION. The bank still has JURIDICAL POSSESSION. If for

personal gain, THEFT. If the teller has possession of the money since heoccupies a position of confidence, QUALIFIED THEFT.

D. Right to Recover from Employees Banks may recover from theiremployees. (Art. 2181 of NCC)

E. Liabilities other than Actual1. Exemplary by way of example. Malice and bad faith must

be attendant

2. Moral when the good reputation of the client was besmirched or hisfinancial credit

Note: Banks are NOT responsible for such damages in the ABSENCE of fraud, bad faith,malice, or wanton attitude.F. Respondeat superior, Diligence in the Selection, and Supervision of Employees- A bank is bound by negligence of its employees under the principle of Respondeatsuperior or command responsibility.

V. Classification of Banks (CUT RICO)

Sec. 3.2. Banks shall be classified into:(a) Universal banks;(b) Commercial banks;(c) Thrift banks, composed of:

(i) Savings and mortgage banks;(ii) Stock savings and loan associations; and(iii) Private development banks, as defined in the Republic Act No. 7906 (hereafterthe Thrift Banks Act);

(d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks Act");(e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the "CooperativeCode");(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the Charter of AlAmanah Islamic Investment Bank of the Philippines; and(g) Other classifications of banks as determined by the Monetary Board of the BangkoSentral ng Pilipinas.

A. Business Name

- Only a bank that is granted universal/ commercial banking authority may representitself to the public as such in connection with its business name

- Thrift Banks: allowed to use and adopt any name, provide the ff words are affixed:Athrift bank, Saving bank, A Private Development Bank, or A stick Savings and Loan

Association

- Rural or Commercial Banks: allowed to use and adopt any name, provide the ff wordsare affixed: Rural or Coop, A Cooperative Bank, or A Rural Bank.

o The size of the letters of such phrase shall be at least of the size of the

business name when shown on letterheads, billboards, and otheradvertising materials.

B. Universal Banks

1. powers authorized for a commercial bank2. powers of an investment house3. power to invest in non-allied enterprises

C. Commercial Banks1. general powers incident to corporations

2. powers of commercial banks: (A BREAD)


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D. Rural Banks- designed to make needed credit available and readily accessible in

the rural areas on reasonable terms- primary purpose is to meet the normal credit needs of farmers,

fishermen, or farm families

E. Thrift Banks- include savings and mortgage banks, private devt. banks, and stock

savings and loans associations.

- Providing short-term working capital, medium and long term financingto business engaged in agriculture, services, industry, and housing

- Powers of a Thrift Bank:

F. Cooperative Banks- one organized by, the majority shares of which is owned and

controlled by, cooperatives primarily to provide financial and creditservices to cooperatives

- cooperative bank shall include cooperative rural banks- Membership shall include ONLY cooperatives and federations of

cooperatives- Functions of a Cooperative Bank

G. Islamic Banks (Al-Amanh Islamic Investment Bank of the Philippines)- in Zamboanga City- primary purpose shall be to promote and accelerate the socio-

economic devt of the Autonomous Region by performing banking andfinancing operations and to establish and participate in theagricultural, commercial, and industrial ventures based on the Islamicconcept of banking.

H. Other Banks- Philippine Veterans Bank private commercial bank owned by

veterans- Land Bank of the Philippines finance the acquisition and distribution

of agricultural estates fro division and resale to small landholders aswell as the purchase of the landholding by the agricultural lessee

- Development Bank of the Philippines was created as RehabilitationFinance Corp. (RFC); took over the functions of Agricultural IndustrialBank

I. Non-Stock Saving And Loan Associations mean a non-stock, non-profit corp engagedin the business of accumulating the savings of its members and using suchaccumulations for loans to members for home building or personal finance

J. Quasi-banks refer to entities engaged in the borrowing of funds through theissuance, endorsement or assignment with recourse or acceptance of depositsubstitutes for purposes of relending or purchasing of receivables and otherobligations

"deposit substitutes" is defined as an alternative form of obtaining funds from thepublic, other than deposits, through the issuance, endorsement, or acceptance ofdebt instruments for the borrower's own account, for the purpose of relending orpurchasing of receivables and other obligations.

VI. Authority to Engage in Banking and Quasi-Banking (QB) FunctionsA. Authority from Bangko Sentral

- No person shall engage in banking operations or QB functions WITHOUT authorityfrom the Bangko Sentral

- No articles of incorporation or amendment to articles of incorporation ofbanks, banking and quasi-banking institutions, building and loan associations, trustcompanies and other financial intermediaries, insurance companies, public utilities,educational institutions, and other corporations governed by special laws shall beaccepted or approved by the Commission unless accompanied by a favorable

recommendation of the appropriate government agency to the effect thatsuch articles or amendment is in accordance with law. (Sec. 17 of BP 68)

- The Securities and Exchange Commission shall not accept for filing the by-laws orany amendment thereto of any bank, banking institution, building and loanassociation, trust company, insurance company, public utility, educational institutionor other special corporations governed by special laws, unless accompanied by acertificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law. (Sec. 46 of BP 68)

B. Whether a person or entity is performing banking or quasi-banking functions W/O theBS authority shall be decided by the Monetary Board by examining and investigatingthe books and records of such person or entity. Upon issuance of authority, maycommence to engage in functions until authority is suspended, revoked or annulledby BS.

C. The dept head and the examiners of the supervising and examining dept shall:1. administer oath to any such person or entity

2. compel presentation of books, records, and documentsa. failure to do so would subject such to appropriate sanctions

D. BS shall, when examining a bank, have the authority to examine an enterprisewhich is wholly or majority-owned by the bank.

E. Certificate of Authority to Register


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- The SEC shall not register the articles of corp or any amendmentunless accompanied by a certificate of authority issued by theMB, under its seal. The MB shall be satisfied from the evidencesubmitted to it: (RPC)

o All requirements of law have been complied witho Public interest and economic conditions justify the

authorizationo The amount of capital as well as the integrity of the

organizers reasonable assure the safety of deposits and thepublic interest

- The SEC shall not register the by-laws of any bank or any amendmentunless accompanied by a certificate of authority issued by theMB, under its seal.

CHAPTER 2: ORGANIZATION, MANAGEMENT & ADMINISTRATION OFBANKS, QUASI-BANKS AND TRUST ENTITIES

I. Organization of Banks

A. ConditionsThe MB may authorize the organization of a bank and quasi-bank:1. Entity is a stock corporation2. Funds are obtained from the public, 20 o more persons3. Minimum capital requirements by MB are satisfied

B. Capabilities- The MB shall take into consideration their apability in terms of

their financial resources and technical expertise and integrity.1. Banks ownership structure2. Directors and senior management3. Its operating plan4. Internal control5. Its projected financial condition and capital base

C. Capital Requirements1. Banks shall comply with the required minimum capital by MB:

Universal Bank- 4,950M

Commercial Bank- 2,400M Thrift Banks

w/n MM- 325.0MOutside MM- 52.0M

Rural Banksw/n MM- 26.0MCities of Cebu and Davao- 13.0MIn 1st, 2nd & 3rd class cities and 1st class minicipalities-

6.5M

In 4th, 5th & 6th classcities and in the 2nd, 3rd & 4th class municipalities-3.9MIn 5th & 6th class municipalities- 2.6M

2. At least 25% of the total authorized capital stock shall be subscribed by thesubscribers of the propsed bank, and at least 25% of such subscription shall bepaid-up that it must not be less than the minimum required capital.

D. Incorporators/ Subscribers1. Must be persons of integrity and of good credit standing in the business

community. Subscribers must have adequate fonancial strength to pay for theirpropsed subscriptions in the bank.

2. Must not have been convicted of any crime involving moral turpitude unlessotherwise allowed.

3. A bank may be organized with not less than 5 or more than 15 persons inorganizing or investing in the proposed bank.*if there is excess, may be listed among the original subscribers in the Articles ofCorp.

QUERY: MAY COOPERATIVES ORGANIZE A BANK?Yes, established cooperatives and corporations may organize a bank and/or subscribe

to the shares of stock oa any rural bank. Provided, that it shall be subject to specialexamination and to such rules and regulations prescribed by the MB.

E. Bank Branches1. UB & CB may open branches or other offices within or outside the Philppines

upon prior approval of the BS.2. A bank authorized to branch out shall be responsible for all business conducted

in such branches because a bank and its offices shall be treated as one unit.

II. StockholdingsA. Treasury Stocks

1. No bank shall

Purchase/ acquire shares of its own capital stock or

Accept its own shares as a security for a loan

EXCEPT: when authorized by the MB.-stocks purchased shall be sold or disposed of at a public or privatesale.

2. At common law, a coprpration has no lien upon the shares of stockholders forany indebtedness of the corporation.

3. Sec.35 of the US National Banking At of 1864, if banking corporations were givena lien on their own stock for the indebtedness of the stockholders, the prohibitionagainst granting loans or discounts upon the security of the stock would becomelaregly ineffective.


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B. Foreign Stockholdings1. Foreign inividuals an non-bank corporations may own or control

up to 40% of the voting stock of a domestic bank. It shall apply tFilipinos and domestic non-bank cprporations.

QUERY: PROVISION IS AMBIGUOUS. IF IT APPEARS THAT FPREIGNINDIVIDUALS AND NON-BANK COPORATINS MAY ONLY CONTROL UP TO

40% OF THE VOTING STOCK. ON THE OTHER HAND, FILIPINOS ANDDOMESTIC NON-BANK CORPORATIONS MAY ALSO CONTROL ONLY UP

TO 40% OF THE VOTING STOCK. WHAT HAPPENS THEN TO THE 20%?

- Foreign inividuals an non-bank corporations may own or control up to 40% ofthe voting stock of a domestic bank Provided, that the aggregate foreign-voting stoks owned by them shall not exceed 40% of the outstanding votingstock of the bank. The percentage of foreign-owned voting stock shall bedetermined by the citizenship of the individual stockholders in the bank.

-Filipino individual and domestic non-bank corporation may each own up to40% o the voting stock of a domestic bank. There shall be no aggregate ceilingon the ownership by such individuals and corporations in a domestic bank.

2. The percentage of foreign-owned voting stock shall bedetermined by the citizenship of the individual stockholders in thebank shall follow the citizenship of the controlling stockholdersof the corporation, irrespective of the place of incorporation.

*CONTROLLING STOCKHOLDER- refer to individuals holding morethan 50% of the voting stock of the corporate stockholders of thebank.

3. At least 60% of voting stock of any commercial bank shall beowned by Filipino citizens. For thrift banks, at least 40% of itsvoting stock shall be owned by Filipinos. In rural banks,all of thecapital stock.

NOTE: In determining the nationality of banks, the CONTROL TEST is applied.The following tests do not:

1. War-time test2. Investment test3. Place of incorporation test

4. Grandfather rule5. Principal place of usiness test

C. Acquisition of Voting Stock in a Domestic Bank1. Within 7years from the effectivity of the GBL and subject to

guidelines issued pursuant to the Foreign Banks LibearlizationAct, the MB may authorize a foreign bank to acquire up to 100%of the voting stock of only one bank organized under the laws ofthe Republic of the Philippines.

2. Within the same period, MB may authorize any foreign bank, which prior to theeffectivity of the GBL availed itself of the privilege to acquire upto 60% of thevoting stock of a bank under the Foreign Banks Libearlization Act and the ThriftBanks Act, to further acquire voting shares of such bank to the extent necessaryfor it to own 100% of the voting stock thereof.

3. MB shall adopt measures necessary to ensure that at all times the control of 70%of the resources or assets of teh entire banking system is held by banks whichare at keast majority-owned by Filipinos.

D. Family Grous or Related Interests1. Stockholdingsn of individuals related to each other within the fourth degree of

consanguinity or affinity, legitimater or common-law shall be considered familygroups or related interests and must be fullt disclosed in all transactions bysuch an individual with the bank.

2. Two or more corporations owned or controlled by the same family group or samegroup of persons shall be considered related interests and must be fulllydisclosed in all transactions by such corporations or related groups of personswith the bank.

III. Board of Directors

A. Number of Directors1. Shall be at least 5, an a maximum of 15 members of the board of directors of

bank, 2 shall be independent directors. (except)-all be of legal age-majority are residents of the Phil.-form a private corporation for any lawful purpose

2. INDEPENDENT DIRECTOR- mean a person other tha an officer or employee of thebank, its subsidiaries or ffiliates or related interests.*Non-Filipino citizens may become members of the bord of directors of a bank tothe extent of the foreign participation in the equity of said bank.

a. not or has not been an officer or employee of the bank/quasibank/trust entity, itssubsidiaries and affiliates or related interests during the past 3 years conted from thedate of his electionb. not a director of officer of related companies of the institutions majoritystokholderc. not a majority shareholder of the institutions, any of its related ompanies or of its

majority shareholderd. not a relative w/n 4th degree of consanguinity or affinity, legitimate or commonlaw of any director,oficer or majority shareholder of the bank/quasibank/trust entity,its subsidiaries and affiliates or related companiese. not acting as a nominee or representatve of any director or substantial holderf. free from any business or other relationship which could materially interfere withthe exerise of his judgment

B. Directors of Merged or Consolidated Banks


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- The number of directors shall not excedd 21.

C. Meetings1. May be conducted throuh modern technologies such as

teleconferencing and video-conferencing

*Banks shall include in theor bylaws a provision taht meetings oftheir board of directors shall be held only within the Philippines.

2. Corporate officers, quorum:- Immediately after election, directors must formally organize the

election of thea. president who shall be thedirectorb. treasurer, who may or may not be a directorc. secretary who shall be a resident nd citizen of the Philippinesd. other officers provided for in the by-laws

*Any 2 or more positions may be held concurrently by the sameperson EXCEPT that no one shall act as a president and secretary oras president and treasurer at the same time.

*Directors or trustees cannot attend ot vote by proy at boardmeetings.

D. Compensation and other Benefits of Directors and Officers

1. MB may regulate the payment by the bank to its deirectors andofficers of compensation, allowance, fees, bonuses, stock options,proit sharing and fringe benefits only in the exceptional cases andwhen the circumstances warrant, such as but not limited to thefollowing:a. When a bank is under comptrollership or conservatorshipb. When found by the MB to be conucting business in an unsafe

or unsound mannerc. When found to be an unsatisfactory financial condition.

2. REMEDY: Sec.30 of the Corporation CodeDirectors shall not receive any compensation except forreasonable per diems. Provided, taht any such compensationother than per diems maybe granted to directors by the voteof the stockholers representing at least a majority of theoutstanding capitl stock at a regular or special stockholders

meeting. It shall not exceed 10& of the net income beforeincome tax of the corporation durng the preceeding year.

IV. Fit and Proper Rule

A. Powers of the MB1. To maintain the quality of bank management and afford better

protection to depositors and the public in general.

-MB shall prescribe,pass upon and review the qualifications and disqualificationsof individuals elected or appointed bank directors or officers and disqualify thosefound unfit.

2. After due notice to the board of directors of the bank, the MB may disqualify,suspend or remove any bank director or officer who commits or omits an actwhich render himunfit for the position.

3. If found fit and proper, shall be given to his integrity, experience, education,

training and competence.

B. Disqualification

a. Permanently Disqualified Directors1. Have been convicted by final judgment of a court for offenses involving

dishonesty or breach of trust (ex. Estafa, extortion, forgery, malversation,swindling, BP22)

2. Have been convicted by final judgment of a court sentecing them to serve amaximum term of imprisonment of more than 6 years.

3. Have been convicted by final judgment of a court for violation of bankinglaws, rules and regulations

4. Those who have been judicially declared insolvent, spendthrit orincapacitated to contract

5. Those directors, officers or emplyees of banks, quasi anks or trust entitieswho were found to be culpable for such institutions closure

6. Those directors, officers or emplyees of banks, quasi anks or trust entitieswho were found by the MB as administratively liable for violation of bankinglaw, rules an regulaitons

7. Those directors, officers or emplyees of banks, quasi anks or trust entitieswho were found to be unfit for the position of directors nad officers

b. Temporarily Disqualified Directors:1. Person who refuses to fully disclose the extent of their business interests to

the appropriate suoervising and examining department.2. Directors who have been absent or who have not participated in more than

50% of all meetings, both regular and special, and those who failed tophysically attend at east 25% of all meetings in an year except those withnotarized certification executed by the corporate secretary.

3. Persons who are deinquent in the payment of their obligations:a. DELINQUENT IN THE PAYMENT OF OBLIGATIONS- an obligation of a

person with a bank/quasibank/trust entity where he is a director orofficer, or at least 2 obligations with other banks/financialinstitutions, underdifferent credit lines or loan contracts, ar pastdue.

b. Obligations shall include all borrowings from a bank/quasibankobtained by:1. Director or officer for his own account or acts as guarantor,

indorser or surety of loans


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2. The spouse or child under the parentalauthority of the director or officer

3. Any person whose loan proceeds were creditedto an acount for the benefit of a director orofficer.

4. His spouse is the managing partner or a generalpartner owning a controlling interest in thepartnership

5. A corporation, association or firm whollyowned

by any group of persons4. Have been convicted by final judgment of a court for

offenses involving dishonesty or breach of trust (ex. Estafa,extortion, forgery, malversation, swindling, BP22)

5. Directors of officers of closed banks/quasibanks/trust entitiespending their clearance by the MB

6. Directors disqualified for failure to observe/discharge theirduties & responsibilities

7. Directors who failed to attend the special seminar for boardof directors

8. Persons dismissed/terminated from employment for cause.9. Those under preventive suspension10. Persons with derogatory records as certified by, or on the

official files of, the judiciary, National Bureau of Investigation,Philippine National Police, quasi judicial bodies.

11. Those are administratively liable for violation of banking

laws, rules and regulations.12. Any person found by MB to be unfit for th position of

directors or officers.13. When penalty is suspension from office or fine is imposed,

such is found to be administratively liable.

C. Disqualification/ Prohibitions under the Corporation CodeSec.27. No person convited by fianl judgment of an offense puishableby imprionment for a perios exceeding 6years or a violation of thisCode within 5years prior to date of is electiom or appointment shallqualify as a director, trustee or officer of any corporation.

D. Disqualification? Prohibitions under NCBA

V. Banking Days and HoursA. Number of Days and Hour

1. Shall transact business on all working days for at least 6hours a day, even before 8am or after 8pm. May open forbusiness on Sat, Sun or holidays for at least 3 hours a day.

2. If so, must repot to the Bangko Sentrl the additional days3. Working days mean Mon-Fri excpet holidays.

4. Branches at international airport or major fish port are allowed to operate onflexible banking hours provided hat wil inform BSP of the schedule of thebanking hours that is not less than 6 hrs a day.

VI. Automated Teller Machines

A. Off-ite Automated Teller Machines (ATMs)1. Must submit a report to the appropriate department of the BSP on ATMs

which they establish2. Shall be installed only in the centers of activity like shopping,

supermarkets, hospitals, university campuses. Provided, that adequateinternal control and security measures shall be adopted nd submitted toBSP.

3. Must comply with these, to all to open off site ATMS.

B. Mobile ATMs1. Should allowed to visit only centers of activity and should confine their

itinerary to Metro Manila until futher notice.2. Shall secure insurance coverage or adopt a self-insurance scheme to

protect itself against losses of whatever nature in ita mobile ATMoprations

3. Banks hall notify the supervising and examining department of the BSP

of the tual date a mobile ATM become oprational and when terminated.

VII. Independent Auditor1. MB shall require a bank etc. To engage the services of an independent

auditor to be chosen by a bank etc. From a list of certified publicaccountants acceptable to the MB

2. Term of engagement hall be prescribed by MB, whenther as continuing basisor special engagements.

3. Board of Directors shall also conduct an annual balance sheet audit of thebank etc. To review the internal audit and control system of teh bank etc,and to submit a report of such audit.

VIII. Financial Statements- Every bank etc. Shall submit to the appropriate supervising and examining dept.

Of the BSP fianncial statements.- It shall be of a specific date designated by BSP and shall show actual financial

conditions of the institution submitting the statements, and of its branhes,offices, subsidiaries and affiliates,

- and shall contain such informations as required in the BSP regualtions.

PUBLICATION:- In English or Filipino- At least once every quarter in a newspaper of general circulation in the city or

province


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- BSP msy prescibe where it shall be published- Shall make available to the public an shall prescribe the complete

set of its audited financial statements- If there is local emergency or imminent panic, the MB by vote of

at least 5 of its members may allow to defer for a stated period oftime the publication of the statement of financial condition.

NOTES: page 54-55 (IMPORTANT)

IX. Publication of Capital Stock

- It shll not publish the amount of its authorized or subscribedcapital stock without indicating at the same tme and with equalprominence, the amount o its capital actually paid-up.

- No branch of any foreign bank doing business in the Phil shall inany way announce the amount of the capital and surplus of itshad office.

X. Settlement of Disputes

- BSP shall be consulted by other gov. Agencies in actions andproceedings brought before them involving controversies inbanks etc. , as well as disputes between any all or all of themwhich theya re the directors, officers or stockholders.

XI. Strikes and Lockouts

A. Unsettles Labor Disputes- The banking industry is indispensable to the national interest.- If unsettled afer 7 days shall be reported by the BSP to the Sec.

Of Labor who may assume jurisdiction over the dispute anddecide it or certify the same.

- The President, may intervene and assume juridiction over suhlabor dispute in order to settle and terminate the same.

B. Reports of Strikes and lockoutsThe bank shal disclose pertinent info:1. Cause of the strike/lockout and bank managements position

on its legality2. Bank oprations affected

XII. Laws Governing other Types of Banks

- Thrift Banks Act, Rural Banks Act, Cooperative Code- For Islamic banks- special laws- For purposes of prescribing the minimum ration which the net

worth of a thrift bank must bear to its total risk assets, theprovisions of the Gbl shall govern.

CHAPTER 3. DEPOSIT FUNCTIONS OF BANKS

Demand deposits are all those liabilities of the BSP and other banks which aredenominated in Phil. Currency and are subject to payment in legal tender upon demand bypresentation of checks.

The followings are prohibited from maintaining demand deposits or current accounts withthe bank office in which they are assigned;

a. All officers;b. Employees of the banks cash department/cash unitsc. Others employees who have direct and immediate responsibility in the handling of

transactions/records pertaining to demand deposits or current accounts.Includes also;

The spouse, relatives within 2nd degree of consanguinity and affinity of the officersand employee covered by the prohibition.

DUTY OF BANK TO HONOR CHECKSWhere the bank possesses funds of a depositor it is bound to honor his checks to the

extent of the amount of his deposits. Failure of the bank to pay the check, entitles the drawerto substantial damage without any proof of actual damages.

RESPONSIBILITY OF THE DRAWERHe must personally keep track of his available balance in the bank and not rely on the

bank to notify him of the necessity to fund certain checks he previously issued.

DUTY OF BANKS TO KNOW SIGNATURESA bank is bound to know the signatures of its customers.

NO OBLI. TO PAY PARTIAL PAYMENTA bank is under no obligation to make part payment on the check up to only the

amount of the drawers fund where the check is drawn for an amount larger than what thedrawer has on deposit.

WITHDRAWALSBAKS ARE PROHIBITED FROM ISSUING/ACCEPTING Withdrawals slips without requiring

the depositors to present their passbooks and accomplishing necessary withdrawal slipsexcept for banks authorized by BSP to adopt the no passbook withdrawal system.

Negotiable order of withdrawal (NOW) are interest bearing deposits of accountsthat combine the payable on demand feature of the checks and investment feature of asavings acct.

Time deposits one the payment of which cannot legally be required within such a specifiednumber of days.


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NEGOTIABLE CERTIFICATES OF TIME DEPOSITS (NCTDs)a. Universal banks / commercial banks may issue NCTDs without

approval of BSPb. Thrift banks/Rural banks/Cooperative banks need approval of BSP

NON NEGOTIABLE CTD - Banks may issue long-term negotiable tax exemptcertificates of time deposit without approval of the BSP.

QUASI BANKING FUNCTIONS:Essential elements of quasi-banking are:

A. borrowing of funds for the borrowers own account;B. 20 or more lenders at any one time;C. Methods of borrowing are issuance, endorsement, or acceptance of

debt instruments of any kind, other than depositsD. The purpose of which is (1) relending, or (2) purchasing receivables or

other obligations

Any person, natural or juridical may deposit with such Phil. Bank in goodstanding foreign currencies which are acceptable as part of theinternational reserve except those which are required by the central bankto be surrendered.

Anonymous accounts or accounts under fictitious name should not be keptallowed.

II. Administration of deposits

All banking institutions are required to set a minimum of 3 specimens oftheir depositors and to update the specimen of signatures every 5 years orsooner, at the discretion of the bank.

Minors are vested with special capacity and power to make savings, andwithdraw the same without the assistance of their parents or guardians,provided the f requirements are met;

1. at least 7 years of age;2. able to read and write;3. have sufficient discretion;4. not otherwise disqualified by any other incapacity;

Parents may nevertheless deposit for their minor children and guardians fortheir wards.

Corporationsa. Incorporation Stage payment of subscription is in cash, the SEC

requires a bank certificate of deposit of paid-up capital notarized inplace where signed.

b. Post Incorporation in opening a bank account, the board of directorsissues a resolution authorizing the signatories and specifying thedepository bank.

Clearing cut off timeGeneral rule: all deposits and withdrawals during regular banking hours shall be creditedor debited to deposit liability accounts on the date of receipt or payment thereof;provided, however, that a bank may set a clearing cut off time for its head office notearlier than 2 hours before the start of clearing at the BSP and not earlier than 3-1/2 hoursbefore the start of clearing for all its branches, agencies, and extension office doingbusiness in the Philippines. Provided, further that banks are located in areas where thereare no BSP regional/clearing arrangement may set a clearing cut-off time not earlier than

2 hours before the start of their local clearing after which time, deposits received shall bebooked likewise.

III. Survivorship AgreementDefinition:

Joint owners of a deposit agree that either of them could withdraw any part or the wholeof said account during the lifetime of both, and the balance, if any, upon the death ofeither, belonged to the survivor.

Although survivorship agreement is per se not contrary to law, its operation or effect maybe violative of the law.

IV. Duties of Banks

A. METICULOUS CAREA bank is required to take meticulous care of the deposits of its clients, who have the

right to expect high standards of integrity and performance from it.In every case the depositor expects the bank to treat his account with the utmost

fidelity, whether such account consists only of a few hundred pesos or of millions.

B. PAYMENT TO PROPER PARTY

C. IN CASE OF DEATH OF DEPOSITORNational revenue code provides:If a bank has knowledge of the death of the depositor, it shall not allow any

withdrawal from said deposit account unless the commissioner has certified that the taxesimposed thereon by this title have been paid. Provided, however, that the administrator ofthe estate or any 1 of the heirs of the decent may upon authorization of the commissionerwithdraw an amount not exceeding 20,000 without the said certification.

V. Secrecy of bank Deposits

Purposesa. to give encouragement to the people to deposit their money in banking

institutions;b. to discourage private hoarding so that the same may be properly utilized by

banks in authorized loans to assist in the economic development of thecountry.

R.A. 8367 Absolute Confidentiality


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All deposits of whatever nature with an Association in the Philippinesare herby considered as of an absolutely confidential nature and maynot be examined, inquired or looked into by any person, governmentofficial, bureau or office except upon;1. written permission of the depositor;2. in case of impeachment;3. upon order of a competent court in cases of bribery or dereliction

of duty of public officials;4. in cases, where the money deposited or invested is the subject

matter of the litigation.

Authority to inquire into bank deposits under the ANTI MONEYLAUNDERING ACT

The AMLC may inquire into or examine any particular depositor investment with any banking institution or non- bank financialinstitution upon order of any competent court in cases of violation,when it has been established that;a. there is probable cause that the deposits or investments are

related to an unlawful activity;b. a money laundering offense.

Authority of the Commissioner of Internal Revenue to inquire intodepositsIn cases;a. a decedent to determine his gross estate;

b. any taxpayer who has filed an application for compromise of histax liability by reason of financial incapacity to pay his taxliability.

CHAPTER 4

Operations of a Universal Banka. Powers of a commercial bankb. Powers of an inverstment housec. Power to invest in non-allied enterprises

II. Equity Investments of a Universal Banka. Allied or non-allied

i. Allied enterprises: financial or non-financialii. Total investment shall not exceed 50% of the net

worth of the bank

iii. Total investment in one enterprise shall not exceed25% of the net worth of the bank

iv. Net worth- total of the unimpaired paid-in capitalincluding paid-in surplus, retained earnings andundivided profit, net of valuation, reserves andother adjustments

b. Acquisition is subject to prior approval of the Monetary Board

III. Equity investments of a Universal Bank in Financial Allied Enterprisesa. Can own up to 100% of the equity in a thrift bank, a rural bank or others

within this categoryb. A publicly-listed universal or commercial bank can own only one other

universal or commercial bankc. Financial Allied: leasing companies, banks, investment houses, financing

companies, credit card companies, insurance companies, holding company,etc.

IV. Equity Investments of a Universal Bank in Non-financial allied enterprises

a. May own up to 100%b. Warehousing, storage, safe deposit box, management of mutual funds,

providing computer services, insurance agencies, home building and homedevelopment

c. Rural/Cooperative Banks may invest, as a non-financial allied undertaking inthe ff:

i. Warehousing and postharvest facilitiesii. Farm equipment distributioniii. Transportation of agricultural productsiv. Marketing of agri productsv. Leasing

V. Investments in Non-Allied Enterprisesa. Shall not exceed 35% of the total equity in that enterprise nor shall it exceed

35% of the voting stockb. Only universal banks can investment in non-allied enterprises:

i. Industrial park projects, financial and commercial complex projects,

activities in agri, mining, manufacturing,etc.VI . Investments in Quasi-Banks

a. Shall not exceed 40% equityOperations of Commercial Banks

I. Powersa. Powers incident to corporationsb. Such powers necessary to carry on the business of commercial banking:

i. Accepting drafts and issuance of letters of creditii. Accepting or creating demand depositsiii. Receiving deposit substitutesiv. Extending creditv. Buying and selling foreign exchange and gold or silvervi. Discounting negotiating promissory notes, etc.

II. Letters of Credita. 3 relationships created: bank and buyer, bank and seller, buyer and sellerb. Independence Principle- assures the seller of prompt payment even if buyer

has not yet reimbursed as long as the seller presents the necessarydocuments

III . Investments of a Commercial Banka. Only equities in allied enterprises: either financial or non-financialb. Total investments in allied enterprises shall not exceed 35% of the net worth

of the bankc. Total investment in any one enterprise shall not exceed 25% of the net

worth of the bank.


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IV. Investments in Financial Allieda. 100% of the equity of a thrift bank or a rural bankb. In other financial allied enterprises, investment shall only be

a minority holdingV. Investments in non-financial all ied

a. May own up to 100%

Risk-Based CapitalI. Minimum Ratio- monetary board shall prescribe; ration of the net

worth of the bank to its total risk assets which may includecontingent accountsa. May be altered or suspended for a maximum of one year

when necessaryb. Uniformly applied for banks in the same category

II. Effect of Non- Compliancea. Limit or prohibit the distribution of net profitsb. Restrict or prohibit acquisition of major assets

Limits on Loans, Credit Accommodations and GuaranteesI. Single Borrowers Limit- shall not exceed 20% of the net worth of

the banka. Except:

i. As provided by the monetary board for reasons ofnational interest

ii. Deposits of rural banks with GOC financialinstitutions

b. The limit maybe increased by 10% provided the additionalloans are secured

II. SBL should include:a. Direct liability of the maker of paper sold or discounted with

the bankb. If the borrower owns ac majority interest in a corporation, the

liabilities of said corporation is includedc. Liabilities of subsidiaries of a corporation who is borrowing

from the bankd. In case of partnership or association, the liabilities of the

members thereofIII. SBL should exclude:

a. Loans secured by the BSP or governmentb. Loans covered by assignment of deposits maintained in the

bankc. Loans under letters of credit covered by margin deposits

d. Loans specified as non-risk itemsIV. Bank Guarantee- irrevocable commitment of bank binding itself

to pay in the vent of non-performance by a third party; it shallalso be subject to the limits herein prescribed

V. Contingent Accounts of borrowers may be included among thosesubject to the limits

VI. Assignment of Credit- agreement by virtue of which the owner ofa credit, by a legal cause, such as sales, dation in payment,

donation, and without the need of the consent of the debtor, transfers his creditto another who acquires the power to enforce it to the same extent as thecreditor could have.

VII. Pacto Commissorio- automatic appropriation of the pledged or mortgagedproperty by the creditor in payment of the loan upon its maturity. It is notallowed in assignment of deposits.

DOSRII. Prohibits the ff:

a. Direct or indirectly borrow from the bank

b. Become a guarantor or indorses or surety for loans from such bank to othersc. Be an obligor to the bank except with the written approval of the majority of

all the directors of the bankII. The approval shall entered on the records of the bank

III. Arms Length Rule-Dealings with DOSRI shall be upon terms not less favorable tothe bank

IV. Directors:a. Names in the articles of incorporationb. Elected in meetings of the stockholdersc. Elected to fill vacancies

V. Officers:a. Pres, VP, EVP, Sr. VP, GM, Secretary, Treasurer, Trust Officerb. Chairman, vice-chairman or any other position who performs functions of

managementVI. Stockholder- stockholder or record in the books of the bank

a. Includes:i. Spouse and/or relative within the 1st degree or consanguinity oraffinity

ii. Corporation owned by the stockholder or his wifeVII. Related Interests

a. Spouse and/or relative within the 1st degree or consanguinity or affinityb. partnership where DOSRI of those in a) above are general partnersc. co-owner with a DOSRI or those in a) of a property used as a securityd. Corporation or association where the DOSRI or those in a) are is also a

directore. Corporation wholly or majority owned or owned by at least 20% by the

DOSRI or those in a)VIII. Effect of Violation- after due notice, the office of the person violating shall be

declared vacant and shal be subject to the penal provisions of NCBASecurities on Loans

I. Secured by Real Estatea. Shall not exceed 75% of the appraised value plus 60% of the insuredimprovements

II. Secured by Chattels and Intangible Propertiesa. Shall not exceed to 75%

Grant and Purpose of LoansI. Amount and Purpose


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a. Only in the amount and for the period of time essential forthe completion of the operations to be financed. This shall bedone consistent with safe and sound banking practice

b. The purpose shall be stated in the applicationc. If the purpose stated was not followed, the bank may

terminate the loan and demand immediate repaymentII. Requirements:

a. Statement of assets and liabilitiesb. Statement of their income and expenditure

c. Other information prescribed by law or by the MonetaryBoard

d. Even in the absence of this provision, the bank may stilldemand immediate repayment because the borrower haslost the benefit of the period under Art. 1198 of the CivilCode

III. Reason for Stringent Rules in Granting Loans- The bank investsthe money it holds in trust for the depositors. For this reason, abank is expected to ascertain the identities of the personstransacting with them to protect both the interest of the bank andthe depositors.

IV. Unsecured Loans or Other Credit Accommodations- The MB isauthorized to issue regulations with respect to unsecured loans

V. Other Security Requirements- The MB may prescribe furthersecurity requirements shall be subject to.

VI. Authority to Prescribe Terms and Conditions of Loans

VI I. Amortizat ion on Loansa. Shall be adapted to the nature o the operations to be

financedb. With those whose maturities are more than 5 years- periodic

amortization but must be made annuallyc. Loans are used for purposes not initially producing revenue-

amortization may be deferred until such time as saidrevenues are sufficient but in no case shall it be later than 5years

d. Microfinance- take into consideration the projected cash flowof the borrower

e. Escalation clause- raising of interesti. Only allowed when the monetary board has

increased the rate of interest provided that there isalso a stipulation that interest will be lowered if MBhas lowered the rate of interest

ii. Both instances should be present before escalationclause is allowed

iii. Exception: if the creditor unilaterally decreased theinterest even if it was not stipulated, esacalation willbe allowed

f. Unconscionable and exorbitant interests- SC: 5.5% per monthor 66% per annum. Will be considered as void. Hence, thecourt may reduce the interest rate

VIII. Prepayment of Loans- prior to the maturity date, borrower may pay subject tosuch reasonable terms agreed upon with the bank

IX. Development Assistance Incentive- BSP shall give incentives to banks whoextend loans to education, cooperatives, hospitals, low-cost housing, and LGUs

X. Renewal of Exntension of Loans- maybe regulated by the MB and prescribeconditions and limitations

XI. Banks cannot extend peso loans to non-residentsXII. Provisions for losses and write-off

a. Bad debts- debts due to on which interest is past due and unpaid

b. MB shall fix the amount of reserves for bad debts

Truth In Lending (RA 3765- Disclosure of Finance Charges)I. Policy- protect the citizens from a lack of awareness of the true cost of credit by

assuring a full disclosure of such costII. Disclosure shall include:

a. The cash price of the property or service to be acquiredb. Amounts for downpaymentc. Charges which are paid in connection with the transactiond. Amount to be financede. Finance charge

III. Definitions:a. Credit-

i. any loan, mortgage, deed of trust, advance or discountii. Any conditional sales contractiii. Rental-purchase contract

b. Finance Charge- interest and fees incident to the extension of creditc. Creditor: any person engaged in the business of extending credit who

requires as an incident to the extension of credit, the payment of a financecharge

IV. Penalty- either civil or criminal (1k-5k fine or imprisonment for 6-12 months, orboth)

V. Government is exempted from the punishment or penaltyForeclosure of Real Estate

I. The mortgagor or debtor has the right within one year after the sale of the realestate, to redeem the property by paying the amount due in the mortgage w/interest and all the cost and expenses

II. However, the purchaser at the auction shall have the right to take possessionimmediately after the date of the confirmation of the auction sale

III. Any petition in court to restrain the auction shall only be given due course uponthe filing of a bond in an amount fixed by the court

IV. Juridical Persons shall have the right to redeem the property until, but not after,

the registration of the certificate of foreclosure with the Register of Deeds within3 months

V. Equity of Redemption v. Right of Redemptiona. Right of Redemption exists only in extrajudicial foreclosure sale

i. In a judicial foreclosure sale where the mortgagee is the PNB or abanking institution, right of redemption exits

ii. Equity of Redemption- right of the mortgagor to extinguish themortgage and retain ownership by paying the secured debt within a


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period not less than 90 days nor more than 120days after the judgment becomes final. (Rule 68,Rules of Court)

iii. Right of Redemption may be extendedMajor Investments

I. The MB shall establish a criteria for reviewing major acquisitionsby a bank

II. Ceiling on Investmentsa. Acquire real estate necessary for its own use in the conduct

of its businessi. Bank premises- land, buildings, construction,

leasehold rights, improvement, fixtures, furnitureii. Real property, quipmet, chattel purchased by the

bank in its nameb. Total investment in real estate including improvements shall

not exceed 50% of combined capital accountsc. Investments by a bank in a real estate corporation shall be

considered as part of the total investment in real estate bythe bank

III. Acquisition of Real Estate by way of satisfaction of claimsa. Notwithstanding the limitations given above, a bank may

acquire real estate under the ff circumstances:i. Shall be mortgaged to it in good faith by way of

security of debtsii. Conveyed to it in satisfaction of debts previously

contractediii. Purchased at sales under judgments, decrees,

mortgages, or trust deeds held by itb. Real Property acquired under this provision shall be disposed

by the bank within a period of 5 yearsc. However, it may continue to hold such property beyond the

period given if the limitations given in the previous provisionare not yet reached.

Other Banking ServicesI. Receive in custody funds, documents and other objectsII. Act as financial agent and buy and sell for their customersIII. Make collection and payments for the account of othersIV. Act as managing agent, adviser, consultant or administrator of an

investment management with the approval of the MBV. Rent out safety deposit boxesVI. Safety Deposit Box- Special Kind of Deposit because it cannot be

characterized as a contract of lease since the guard key of thebox remains with the bank.

VII. If a box is rented by two persons, the agreement between themshall govern

VIII. The SC said that the rent of a safety deposit box is that of a bailoran bailee

Electronic Transactions

I. BSP shall have full authority to regulate the use of electronic devices used inconnection with the operations of a bank including the delivery of services andproducts to customers

II. Outsourcing of IT systems- can be done with prior approval of the MB except:a. Strategic planning for the use of ITb. Determination of system functionalitiesc. Change management inclusive of quality assurance and testingd. Service level and contract managemente. Security policy and administration

Outsourcing of other functionsI. With approval of the MB, banks may outsource the ff:

a. Data imagingb. Clearing and processing of checks not in the Philippine Clearing House

systemc. Printing of bank deposit statement, bank loan statements, bank forms and

promotional materialsd. Credit card servicese. Credit investigationf. Janitorial servicesg. Procurement servicesh. Legal services

Questions:

Whether or not an alien-owned bank can acquire ownership of a residential lot by virtue of a

deed of transfer as settlement of a debt No. for the purpose of the constitution is to place and keep in the hands of the people

the ownership of private lands in order not to endanger the integrity of the nation

Chapter 5

Sec. 54. Prohibition to Act as Insurer. - A bank shall not directly engage in insurance businessas the insurer.

*Includes:

a) making or proposing to make, as insurer, any insurance contractb) making or proposing to make, as surety, any contract of suretyship as a vocation and

not as merely incidental to any other legitimate business or activity of the suretyc) doing any kind of business, including a reinsurance business, specifically recognized

as constituting the doing of an insurance business within the meaning of theInsurance Code

d) doing or proposing to do any business in substance equivalent to any of the foregoingin a manner designed to evade the provisions of the Insurance Code

Sec. 55. Prohibited Transactions. -

55.1. No director, officer, employee, or agent of any bank shall


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(a) Make false entries in any bank report or statement or participate in anyfraudulent transaction, thereby affecting the financial interest of, orcausing damage to, the bank or any person;

(b) Without order of a court of competent jurisdiction, disclose to anyunauthorized person any information relative to the funds or propertiesin the custody of the bank belonging to private individuals,corporations, or any other entity: Provided, That with respect to bankdeposits, the provisions of existing laws shall prevail;

(c) Accept gifts, fees, or commissions or any other form of remuneration inconnection with the approval of a loan or other credit accommodationfrom said bank;

(d) Overvalue or aid in overvaluing any security for the purpose of influencing inany way the actions of the bank or any bank; or

(e) Outsource inherent banking functions.

refers to any contract between the bank and a service provider forthe latter to supply, or any act whereby the latter supplies, themanpower to service the deposit transactions of the former

intended to ensure secrecy of bank deposits

55.2. No borrower of a bank shall -(a) Fraudulently overvalue property offered as security for a loan or other credit

accommodation from the bank;

(b) Furnish false or make misrepresentation or suppression of material facts forthe purpose of obtaining, renewing, or increasing a loan or other creditaccommodation or extending the period thereof;

(c) Attempt to defraud the said bank in the event of a court action to recover aloan or other credit accommodation; or

(d) Offer any director, officer, employee or agent of a bank any gift, fee,commission, or any other form of compensation in order to influencesuch persons into approving a loan or other credit accommodationapplication.

55.3. No examiner, officer or employee of the Bangko Sentral or of any department,bureau, office, branch or agency of the Government that is assigned to

supervise, examine, assist or render technical assistance to any bank shallcommit any of the acts enumerated in this Section or aid in the commission ofthe same.

The making of false reports or misrepresentation or suppression of materialfacts by personnel of the Bangko Sental ng Pilipinas shall be subject to theadministrative and criminal sanctions provided under the New Central BankAct.

55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy

Law, no bank shall employ casual or non regular personnel or too lengthy probationarypersonnel in the conduct of its business involving bank deposits.

Sec. 56. Conducting Business in an Unsafe or Unsound Manner - In determining whether aparticular act or omission, which is not otherwise prohibited by any law, rule or regulationaffecting banks, quasi-banks or trust entities, may be deemed as conducting business in anunsafe or unsound manner for purposes of this Section, the Monetary Board shall consider any

of the following circumstances:

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

56.2. The act or omission has resulted or may result in material loss or damage or

abnormal risk to the institution's depositors, creditors, investors, stockholders or tothe Bangko Sentral or to the public in general;

56.3. The act or omission has caused any undue injury, or has given any unwarranted

benefits, advantage or preference to the bank or any party in the discharge by thedirector or officer of his duties and responsibilities through manifest partiality, evidentbad faith or gross inexcusable negligence; or

56.4. The act or omission involves entering into any contract or transaction manifestly and

grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not thedirector or officer profited or will profit thereby.

Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe orunsound manner, the Monetary Board may, without prejudice to the administrative sanctionsprovided in Section 37 of the New Central Bank Act, take action under Section 30 of the sameAct and/or immediately exclude the erring bank from clearing, the provisions of law to thecontrary notwithstanding.

Sec. 57. Prohibition on Dividend Declaration. No bank or quasi-bank shall declare dividends,if at the time of declaration:

57.1. Its clearing account with the Bangko Sentral is overdrawn; or

57.2. It is deficient in the required liquidity floor for government deposits for five (5) ormore consecutive days, or .

57.3. It does not comply with the liquidity standards/ratios prescribed by the Bangko

Sentral for purposes of determining funds available for dividend declaration; or57.4. It has committed a major violation as may be determined by the Bangko Sentral.

Sec. 64. Unauthorized Advertisement or Business Representation. No person, association, orcorporation unless duly authorized to engage in the business of a bank, quasi-bank, trust


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entity, or savings and loan association as defined in this Act, or other bankinglaws, shall advertise or hold itself out as being engaged in the business of suchbank, quasi-bank, trust entity, or association, or use in connection with itsbusiness title, the word or words bank, banking, banker, quasi-bank,quasi-banking, quasi-banker, savings and loan association, trustcorporation, trust company or words of similar import or transact in anymanner the business of any such bank, corporation or association.

Sec. 67. Conservatorship. The grounds and procedures for placing a bank

under conservatorship, as well as, the powers and duties of the conservatorappointed for the bank shall be governed by the provisions of Section 29 andthe last two paragraphs of Section 30 of the New Central Bank Act: Provided,

That this Section shall also apply to conservatorship proceedings of quasi-banks.

*Grounds for appointment of conservator

Whenever, on the basis of a report submitted by the appropriate supervising orexamining department, the Monetary Board finds that a bank or quasi-bank isin a state of:

1. continuing inability, or2. unwillingness to maintain a condition of liquidity deemed adequate to

protect the interests of depositors and creditors,

the Monetary Board may appoint a conservator with such powers as theMonetary Board shall deem necessary to:

1. take charge of the assets, liabilities, and the management thereof,2. reorganize the management,3. collect all monies and debts due said institutions, and4. exercise all powers necessary to restore its viability.

The conservator shall report and be responsible to the Monetary Board andshall have the power to overrule or revoke the actions of the previousmanagement and board of directors of the bank or quasi-bank.

*Liquidity the ability of an asset to be converted into cash quickly and withoutany price discount

*Solvency the condition that exists when liabilities amount to less than total

assets, thus providing the ability to pay debts

*Qualifications of conservator:1. competent2. knowledgeable in bank operations and management

*Period of conservatorship shall not exceed 1 year

*Termination of conservatorship:

1. The Monetary Board shall terminate the conservatorship when it is satisfied that theinstitution can continue to operate on its own and the conservatorship is no longernecessary.

2. It should likewise be terminated should the Monetary Board, on the basis of the reportof the conservator or of its own findings, determine that the continuance in businessof the institution would involve probable loss to its depositors or creditors, in which

case the provisions on receivership and liquidation shall apply.

*Powers of conservator cannot impair the obligations of contracts the law merely gives himthe power to revoke contracts that are, under existing law, deemed to be defective.

Sec. 68. Voluntary Liquidation. In case of voluntary liquidation of any bank organized underthe laws of the Philippines, or of any branch or office in the Philippines of a foreign bank,written notice of such liquidation shall be sent to the Monetary Board before such liquidationshall be sent to the Monetary Board before such liquidation is undertaken, and the MonetaryBoard shall have the right to intervene and take such steps as may be necessary to protectthe interests of creditors.

may be undertaken by the bank itself through its board of directors, by a trustee appointedby the bank, or by a receiver appointed by the bank

no voluntary dissolution shall be undertaken by a bank without prior approval of the

Monetary Board, provided further, that it shall be accompanied by a liquidation plan andwritten notice

*Grounds for receivership and liquidation:

The bank or quasi-bank:1. is unable to pay its liabilities as they become due in the ordinary course of business2. has insufficient realizable assets, as determined by the Bangko Sentral, to meet its

liabilities3. cannot continue in business without involving probable losses to its depositors or

creditors4. has willfully violated a cease-and-desist order that has become final, involving acts or

transactions which amount to fraud or a dissipation of the assets of the institution

*Powers of a receiver:

a. to bring and defend, in such capacity, actions in his own nameb. to take and keep possession of the property in controversyc. to receive rentsd. to collect debts due to himself as receiver or to the fund, property, estate, person, or

corporation of which he is the receivere. to compound for and compromise the samef. to make transfersg. to pay outstanding debts


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h. to divide the money and other property that shall remain among thepersons legally entitled to receive the same

i. generally to do such acts respecting the property as the court mayauthorize

*Prohibited acts:

Any director or officer of a bank declared insolvent or placed underreceivership by the Monetary Board shall not commit any of the ff:

a. refusing to turn over the banks records and assets to the designatedreceiver

b. tampering with bank recordsc. appropriating for himself or another party, or destroying or causing

misappropriation and destruction of the banks assetsd. receiving or permitting or causing to be received in said bank any

deposit, collection of loans, and/or receivablese. paying out or permitting or causing to be paid out any funds of said

bankf. transferring or permitting or causing to be transferred any securities

or property of said bank

*Close now hear later scheme the law does not contemplate prior noticeand hearing before a bank may be directed to stop operations and placedunder receivership. This is to prevent unwarranted dissipation of the banks

assets and is a valid exercise of police power to protect the creditors,depositors, stockholders, and the general public. A hearing may be subsequentto the closure.

*Effects of receivership and liquidation:

1. retention of juridical personality2. not liable to pay interest3. assets are deemed under custodia legis4. stay of execution of judgment5. restriction of banks capacity to act6. exclusive jurisdiction of liquidation court

Sec. 70. Penalty for Transactions After a Bank Becomes Insolvent. Anydirector or officer of any bank declared insolvent or placed under receivershipby the Monetary Board who refuses to turn over the banks records and assets

to the designated receivers, or who tampers with banks records, or whoappropriates for himself for another party or destroys or causes themisappropriation and destruction of the banks assets, or who receives orpermits or causes to be received in said bank any deposit, collection of loansand/or receivables, or who pays out or permits or causes to be transferred anysecurities or property of said bank shall be subject to the penal provisions ofthe New Central Bank Act.

**Problems**

The conservator of B bank revoked a contract previously entered into by the bank onthe ground that the lands subject of said contract presently commanded a much higher pricethan when it was sold. Is the revocation valid?

No. Power of conservator cannot impair the obligations of contracts. A contract of saleentered into by a bank cannot be revoked if at the time of the transaction, the price agreedupon was reasonable.

A buyer offered to buy the property of a bank which the latter accepted. However, thebank became insolvent before the buyer learned of the acceptance. Was there a perfectedcontract?

None. The accepted offer became ineffective when the bank became insolvent before thebanks acceptance of said offer came to the offerors knowledge.

C deposited money with O bank. Before said deposits could be withdrawn, the BSPpassed a resolution suspending the banks operations. The SC, howver, annulled saidresolution, for which reason O bank is ready to accept its liability for the payment to C of thebalance of the principal amount deposited with it. Is O bank liable for interest thereon duringthe period it was closed?

No. What enables a bank to pay stipulated interest on money deposited with it is that thruthe other aspects of its operation, it is able to generate funds to cover the payment of such

interest. If it is closed, it cannot generate such funds, hence it cannot pay the interest.Chapter 6: Foreign Banks and Trust Operations

I. Foreign Banks entry to Phils. thru establishments of branches governed by Foreign BankLiberazation Act.

Offshore Banking governed by Offshore Banking System Decree- conduct of banking transactions in foreign currency involving receipt of funds

from external sources and its utilization.

Offshore banking unit branch, subsidiary, affiliate of a foreign banking corporationauthorized to transact offshore banking business in Phil.

Notes: Corporation Code

Sec. 133. Doing business without a license foreign corporation transacting business inPhil. may maintain or intervene in any action, suit or proceeding in any court or adm. Agency nPhil but cannot sue before Phil. courts though on any valid cause.

- If without license,no access to our courts and cannot transact business in Phil.- By securing a license, a foreign entity would be giving assurance that it wll abide

by the decisions of our courts, even if adverse to it.- Primary purpose of Statute: to compel foreign corp. if it desires to do business

here, to submit itself to the jurisdiction of courts of the Phils.


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Consistent with Corporation Code..Sec. 128. Resident agent; service of process:

- SEC shall require foreign bank to file with SEC a written power ofatty. designating a resident of the Phil. whom summons must beserved, before it issues a license for it to transact business in Phil.

- Foreign bank shall execute and file with SEC an agreement.- If summons be made with SEC, latter shall transmit it by mail to

the head office of such bank, within 10 days.

- In case of change of address of resident agent, shall notify SEC inwriting.

Acquisition of Voting Stock in a Domestic Bank:1. Wthin 7 yrs from effectivitiy of GBL, MB may authorize foreign bank to

acquire up to 100% of voting stock of ONLY one bank organized underlaws of RP.

2. Within same period, MB may authorize those foreign bank which priorto effectivity of GBL availed itself of 60% of voting stock of a bankunder FBLA and Thrift Banks Act, to further acquire voting shares toextent necessary for it to own up to 100%.

3. MB shall adopt measures to the control of 70% of resources andassets of entire banking system is held by banks which are majorityowned by Filipinos.

4. Any right or incentive granted to foreign bank shall be equally enjoyedby banks organized under laws of RP.

NOTES:- all branches of foreign bank shall be treated as one unit for

purpose of GBL; and all reference to Phil. branches of foreignbanks shall be held to refer to such unit.

- To protect interests of depositors and creditors of Phil. branchesof FB, their head office shall fully guarantee prompt payment ofall liabilities of its Phil. branch.

- Residents and citizens of the Phil. who are creditors shall havepreferential rights to assets of such branch.

Summons and Legal Process:If served on agent or head of foreign bank,

- our courts acquires jurisdiction over such bank.- binds the bank which it represents.

If authority of agent or head revoked; or he became mentally incompetent,- bank shall designate a new one.- File with SEC a duly authenticated nomination of such agent.

In absence of agent or head; or no person authorized ,- summons and legal process and notices be made upon Bangko

Sentral Deputy Governor In-Charge of the supervising andexamining departments. The latter upon receipt, shall transmit by

mail to president or secretary of bank at its head or principal office a dulycertified copy.

- Sending of copy is necessary part of services and shall complete service.- Registry receipt is prima facie evidence of transmission.- All costs incurred in transmission shall be paid in advance by the party whose

instance the service is made.

Revocation of license of Foreign Bank:- By Monetay Board.

- If insolvent, in imminent danger, or its continuance will involve probable loss tothose it transacts business with.

- After revocation, it cannot transact business unless license is renewed orreissued.

- After revocation. BSP shall take action to protect creditors and public.- New Central Bank Act provides the sanction and penalties.

II. Liberalized Entry of Foreign Banks:Purpose:

1. to create more competitive environment.2. to encourage greater foreign participation

Policies:1. develop self-reliant economy controlled by Filipinos.2. promote a competitive and stable banking system3. provide a wider variety of financial services

4. enhance competitiveness in international market to promote industrialization.

Modes of Entry:a. acquiring up to 60% of voting stocks of an existing bankb. investing up to 60% of voting stocks of new banking subsidiary incorporated under

Phil. laws.c. Establishing branches with full banking authority.

- FB may avail only 1 mode- Only those included in top 150 FB in the world or top 5 banks in their country of

origin allowed to mode (b) and (c).- To establish a branch or subsidiary, it must be widely-owned and publicly listed in

its country of origin, unless owned by govt. of its country.- FB shall be allowed entry under 3rd mode within 5 yrs. From effectivity of RA

7721. 6 FB may be allowed by MB.

- Additional 4 may be allowed on recommendation by MB and approval ofPresident.

- FB may open 3 branches in location of their choice, 3 branches in locationsdesignated by MB to insure balanced economic development in all regions.

Guidance for Approval: MB shall1. ensure geographic representation.2. consider strategic trade and investment relationship between Phil. and country of FB.


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3. study capacity, global reputation and stability in competitiveenvironment of applicant.

4. ensure reciprocity rights are enjoyed by Phil banks in applicantscountry.

5. consider willingness to fully share their technology.

Adoption of measures: MB adopt those which1. ensures that 70% of resources and assets is held by domestic bank

majority owned by Filipinos

2. prevents dominant market position by one bank3. secures the listing in SEC of shares of stocks

Capital Requirements:1. Locally Incorporated Subsidiaries

- minimum capital equal to that prescribed by MB for domestic banksof same category.

2. Foreign Bank Branches (entry under the 3 rd mode)- not less than US dollar equal to P210,000,000 and shall be

entitled to 3 brancheso capital shall include those permanently assigned plus

net due to head office outside the Philippines, 15% ofwhich shall be inwardly remitted and converted intoPhilippine currency, provided that amounts invested inproductive or export activities shall not be subject toconversion.

Establishment of Additional Branches1. FB can open three additional branches by inwardly remitting and

converting into Philippine currency as permanently assigned capital,P35 Million per additional branch.

Head Office Guarantee- shall guarantee prompt payment of all liabilities ofits Philippine branchesBoard of Directors- aliens may become members of the Board of a bank to theextent of the foreign participation in the equity of said bank.

Equal treatment- foreign banks shall also be subject to limitations imposedupon a Philippine bank such as the SBL, capital to risk asset ratio, developmentloans incentives etc.

Trust Operations

I. Authority to engage- only a stock corporation or a person duly authorized by the MB

shall act as a trustee- the cardinal principle is fidelity- Trust business- refers to any activity resulting from a trustor-

trustee relationship involving the appointment of a trustee for the

administration of funds and/or properties of the trustor for the benefit of thelatter.

II. Conduct of Trust business- Administer with diligence that a prudent man would exercise in the conduct of an

enterprise- No transaction within the same trust entity will be allowed except when the

transaction is authorized by the trustor and the relationship of the trustee andthe other party involved is fully disclosed

III. Registration of Articles of incorporation and by-laws

- The SEC shall not register the same or any amendment thereto, unlessaccompanied by a certificate of authority issued by the BSP

IV. Minimum Capital- trust entity shall comply with the minimum paid-in capitalrequirements which will be determined by the MB.V. Powers of a trust entity:

- Powers incident to a corporation- Act as trustee on any mortgage or bond issued by any body politic and to accept

and execute ant trust consistent with law- Act as an administrator of a minor or incompetent upon the order of a court- Act as the executor of any will if named as the executor- Act as the administrator of any deceased person- Accept and execute and trust for the holding and administration of any estate

including the rents and profits thereof- Establish and manage common trust funds

VI. Transactions requiring prior authority- Lend, sell, transfer or assign money or property to those related to the trustee

- Purchase or acquire property or debt instruments to those related to the trustee- Invest in equities I which the trustee owns 50% of the capital- Sell transfer assign or lend from one trust account to another

VII. Deposit for faithful performance of trust duties- Before transacting any business, there shall be a deposit made with the BSP cash

or securities approved by the MB an amount not less that P500,000- This deposit can be increased by the MB whenever it is necessary- The paid-in capital and surplus of the entity should be at least equal to the

amount required to be deposited- A trust entity has the right to collect the interest earned on such deposit- All claims arising out of the trust business shall have priority over all other claims

as regards the deposits.

Bond of certain person required for the faithful performance of duties

I. Requirements

a. Those appointed by the court shall file a bond in such sum as the court mayrequire

b. Upon application in the court, the subject matter of the trust or any partthereof be deposited with a trust entity

c. Upon presentation of a proof that the subject matter has been depositedwith a trust entity, the court may order reduction in the amount of the bondgiven


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d. The reduced bond shall be adequate to secure the properadministration of the property

I I. Exemption from Bond Requirementa. Trust entities required by the court to be an administrator,

etc are not required to give a bond

Operations of Trust Entity

I. Separation of Trust Business from General Business

- Shall be kept physically separated and distinct from the accountsof the general business of the trust entity

II. Investment limitations of a trust entity- Limited to those loans or investments prescribed by law, MB or

any court of competent jurisdiction, unless directed by theinstrument creating the trust

III. Real Estate acquired by a trust entity- Unless otherwise directed by the trustor or the nature of the trust,

real estate acquired by the trust entity shall be acquired, hold, orconveyed under the ff circumstances:o Mortgaged to it in good faith by way of security for debts

o Conveyed to it in satisfaction of debts previously contractedo Purchased at sales under judgments, decrees, mortgages, or

trust deeds- These properties shall be conveyed within 5 years- However, it may continue to hold it beyond the period when:

o It shall not exceed 50% of the combined capital accounts ofthe entity

o The investment of a bank in another corporation engaged in

real estate shall be considered as part of the total investment

IV. Investment in non-trust fundsb. Shall be governed by the GBL an other applicable laws

V. Sanctions and Penalties- those who violate the pertinent provisions ofthe GBL shall be subject to sanctions and penaltiesVI. Exemption of Trust Assets from claims

Those assets held by a trust entity shall not be subject to any claimsother those of the parties interested in the trusts

VI. Establishment of Branches

Shall be in the place of business stated in the articles of incorporation

Additional branches can be established with the approval of the MB

The trust entity and its branches should be considered as one unitVII. Advertisement of Services

In a dignified manner

Ready and willing to give full disclosure of services being offered

Conduct its dealings with transparencyVIII. Money of Government

Banks may not receive or hold as trustee any money from thegovernment

o Except: government-owned banks with respect to the ff:

Funds of LGUs for long term investments in securities and otherevidences guaranteed by the national government.

Funds of the government which are authorized by special laws to beplaced in trust

Chapter 7

The Bangko Sentral ng Pilipinas

I. Creation, Responsibilities and corporate Powers of the Banko Sentral

A. Declared Policy of the state

The State shall maintain a central monetary authority that shall function and

operate as an independent and accountable body corporate in the discharge

of its mandated responsibilities concerning money, banking and credit. In

line with this policy, and considering its unique functions and responsibilities,

the central monetary authority established under the NCBA, while being a

government owned corporation, shall enjoy fiscal and administrative

autonomy. (Section 1, NCBA)

B. Creation of the bangko Sentral ng Pilipinas

Section 2 & 4 of NCBA:

SECTION 2 Creation of the Bangko Sentral. There is hereby established an

independent central monetary authority, which shall be a body corporate

known as the Bangko SEntral ng Pilipinas.

The capital of the Bangko Sentral shall be Fifty Billion Pesos, to be fully

subscribed by the Government of the Republic,

Ten Billion of which shall be fully paid for by the government upon effectivity

of this act

In such manner and form as the Government, through the Secretary of

Finance and the Secretary of Budget and Management, may thereafter

determine.


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SECTION 4 Place of Business. The Bangko SEntral shall

have its principal place of business in Metro Manila, but may

maintain branches, agencies and correspondents in such

other places as the proper conduct of its business may

require.

Mandate by the Constitution:

The Congress shall establish an independent central

monetary authority, the members of whose governing board

must be natural-born Filipino citizens, of known probity,

integrity, and patriotism, the majority of whom shall come

from the private sector. They shall also be subject to such

other qualifications and disabilities as may be prescribed by

law. The authority shall provide policy direction in the areas

of money, banking, and credit. It shall have supervision over

the operations of banks and exercise such regulatory powers

as may be provided by law over the operation

banking dizon reviewer

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