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I. Secrecy of bank deposits (chapter 3)

1. To give encouragement to the people to deposit their money in banking

institutions.

2. To discourage private hoarding so that the same may be utilized by banks

in authorized loans to assist in the economic development of the country.

All deposits of whatever nature with banks or banking institutions in

the Philippines are considered as of an absolutely confidential

nature and may not be examined, inquired or looked into by any

person, government official, bureau or office.

Prohibition against inquiry into or disclosure of deposits under republic Act

No. 8367 (An Act Providing for the Regulation of the Organization and

Operation of Non-Stock Savings and Loan Associations) – all deposits of

whatever nature are considered absolutely confidential in nature

EXCEPT:WrILO

Wr(1) upon written permission of the depositor;

I(2) in cases of impeachment;

O(3) upon order of a competent court in cases of bribery or dereliction of

duty of public officials; and

L(4) in cases where the money deposited or invested is the subject matter of

litigation.

Foreign Currency Deposits

- All foreign currency deposits are of an absolutely confidential in nature

EXCEPT: Wr

1. upon the written permission of the depositors.

- It shall be exempt from attachment, garnishment or any other order or

process of any court, legislative body, government agency or any

administrative body whatsoever.

Confidentiality of Deposits in Islamic Banks

- All deposits of whatever nature are confidential

EXCEPT: WrInCO

1. inspection by the bank’s auditor

2. upon written permission by the depositor

3. in cases where the money deposited or the transaction concerned is the

subject matter of a court order

II. General Banking Law declared State Policy (Chapter 1) MEMORIZE

“The State recognizes the vital role of banks

in providing for an environment conducive to the sustained

development 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 system

that is globally competitive, dynamic and responsive to the

demands of a developing economy. “ (Section 2 of RA 8791,

General Banking Law of 2000)

III. Classification of banks: (CUTRICO – NQO) Chapter 1

Universal Bank:

Large commercial banks license by the BSP to do both commercial

and investment banking

A universal bank may perform the functions of an investment either

directly (through a sepatate and distinct department or within the

unit if the bank) or indirectly (through a separate subsidiary

investment house). In either case, the underwriting of equity

securities or securities dealing will be subject to pertinent laws, as

well as applicable regulations of the SEC.

Shall have the authority to exercise:

i. Powers authorized for a commercial bank

ii. The powers of an investment house as provided in existing laws

iii. The power to invest in non-allied enterprises (sec. 23 GBL

Operations of a Universal Bank (Chapter 4)

o Percentages:

Equity investments in financial or non-financial

50% total investment – combined of all

enterprises

25% of any ONE enterprise investment

Financial AND ALLIED

100% - thrift, rural or other (one other universal or

commercial bank

Non-Financial AND ALLIED

100% given exclusive list

NON-allied

35%

Quasi-banks

40%

o

o

o Equity Investments –

May invest in the equities of allied and non-allied

enterprise as may be determined by the monetary

board

May either by financial or non-financial

a. Total investment in equities of allied and non-

allied enterprise – should not exceed 50% of the

net worth of the bank

b. Equity investment in any ONE enterprise – should

not exceed 25% of net worth

c. Net worth- total of unimpaired paid-in capital as

may be required by BSP

o Equity of Investments of a universal Bank n Financial Allied

Enterprises

Can own up to 100% of equity in a thrift bank, rural

bank or a financial allied enterprise

o Publicly-listed universal or commercial bank- 100% of voting

stock of only one other universal or commercial bank

Financial Allied Undertakings

Leasing companies- bank investment of shares

shall be limited only in cases of conversion of

outstanding loan obligations into equity

Banks

Investing houses

Financing companies

Credit Card companies

Financial institutions catering to small and

medium scale industries

Companies engaged in stock brokerage/securities

dealership

Companies engaged in foreign exchange

dealership/brokerage

In addition:

Insurance companies

Holding companies - investment of shares shall be

limited only in cases of conversion of outstanding

loan obligations into equity

o Equity Investments of a universal Bank in Non-Financial allied

Enterprises – up to 100%

Examples of Non Finacial Allied undertakings

Warehousing companies

Storage companies

Safe deposit box companies

Companies engaged in management of mutual

funds but not in the mutual funds themselves

Corporations engaged in any activity similar to

management of mutual funds

Companies engaged in providing computer

services

Insurance Agencies/brokerages

Companies engaged in home building and

development

Companies providing drying and/or milling

facilities for agricultural crops

Service bureaus for outsourcing services

Those declared by the Monetary Board

o Equity Investments of a Universal Bank in Non-Allied

enterprise – shall not exceed 35% of total equity and voting

stock

o Investments in Non-Allied or Non-Related Undertakings – only

Universal banks may invest

Examples of non-Allied undertakings

Enterprise engaged in physically productive

activities in

i. Agriculture

ii. Mining and quarrying

iii. Manufacturing

iv. Public utilities

v. Construction

vi. Wholesale trade

vii. Community and Social services

Industrial park/real estate projects

Financial and commercial complex projects in

connection with the Government’s privatization

program

Others declared by Monetary Board

o Equity Investments in Quasi-Banks – to promote competitive

conditions in financial markets, may own up to 40% equity

investments, also applicable in the case of commercial banks

Commercial Bank/s (C)

Exercise the general powers incident to a corporation

Shall have all powers as may be necessary to carry on business of

commercial banking:

o Accepting drafts and issuing letters of credit

o Discounting and negotiating promissory notes, drafts, bills of

exchange and other evidence of debt

o Accepting or creating demand deposits

o Receiving other types of deposits and deposits substitute

o Buying and selling foreign exchange and gold or silver bullion,

acquiring marketable bonds and other debt securities

o Extending credit, subject to such rules as the Monetary Board

may promulgate

Thrift Banks (T)

Aside from the powers conferred on it by other laws, a thrift bank

namely a savings and mortgage bank, a stock savings and loan

association or a private development bank.

Recognize the indispensable role of the private sector, to encourage

private enterprise and to provide incentives to needed investment.

The following are powers of a thrift bank:

o Grant loans, whether secured or not

o Invest marketable bonds and other debt securities

o Issue domestic letters of credit

o Extend credit facilities to private and government employees

o Extend credit against the security of jewelry or other precious

stones.

o Accept savings and time deposits

o Rediscount paper with the Land Bank of the Philippines,

Development Bank of the Philippines and other GOCC

o Accept foreign currency deposits as provided under Foreign

Currency Deposit Act

o Act as correspondent for other financial institutions

o Purchase, hold and convey real estate as specified in sections

51 and 52 of GBL

o Offer other banking services as provided in section 53 of GBL.

Thrift banks may perform such services only upon prior approval of

Monetary Board.

Rural Banks (R)

Recognizes the need to promote comprehensive rural development

with the end view of attaining acquitable distribution of

opportunities, income and wealth.

Encourages and assists in the establishment of rural banking

system designed to make needed credit available and readily

accessible in the rural areas on the reasonable terms.

Loans or advances extended by rural banks shall be primarily for

the purpose of meeting the normal credit needs of farmers,

fishermen or farm families as well as the normal credit needs of

cooperatives and merchants.

Islamic (I)

RA 6848 created the Al-Amanah Islamic Investment Bank of the

Philippines. The domicile and place of business is in Zamboanga

City.

Primary purpose of the Islamic Bank is to promote and accelerate

the socio-economic development of the Autonomous Region by

performing banking, financing and investment operations.

Cooperative (C)

Organized by the majority shares of which is owned and controlled

by cooperatives primarily to provide financial and credit services to

cooperatives.

May perform all the functions of rural bank.

Membership of cooperative bank shall include only cooperative and

federations of cooperative.

Other Banks (O)

The Monetary Board is authorized to make other classification of

banks, as it may deem proper.

Philippine Veterans Bank, Land Bank of the Philippines Development

Bank of the Philippines is considered to be Government-Owned

Banks.

OTHER CLASSIFICATION OF BANKS OTHER THAN MENTIONED IN

SECTION 3 (NQO)

Non-Stock Savings and Loan Associations

o Is a non-stock, non-profit corporation engaged in the business

of accumulating engaged in the business of accumulating the

savings of its members and using such accumulations for

loans to members to service the needs of households by

providing long-term financing for home building and

development and for personal finance.

Quasi-Banks

o Refers to entities engaged in the borrowing of funds through

the issuance, endorsement or assignment with recourse or

acceptance of deposit substitutes for purposes of relending or

purchasing of receivables and other obligations.

o Deposit Substitute Operations (Quasi-Banking

Functions)

o Elements:

1. Borrowing funds for the borrower’s own account

2. 20 or more lenders at any one time

3. Methods of borrowing are issuance, endorsement or

acceptance of debt instruments of any kind

4. Purpose of which is relending or purchasing receivables

or other obligations

o NOTE:

Borrowing shall refer to all forms of obtaining or raising

funds through any of the methods and for any purposes

provided in no.4 above

Purchasing receivables or other obligations shall refer to

the acquisition of claims collectible in money

Relending shall refer to the extension of loans by an

institution with antecedent borrowing transactions.

Relending is presumed when the institution is regularly

engaged in lending

Regularly engaged in lending shall refer to the practice

of extending loans, advances, discounts or rediscounts

as a matter of business

Offshore Banks

o Refers to the conduct of banking transactions in foreign

currencies involving the receipt of funds from external

sources and the utilization of such funds.

IV. Responsibilities of Officers and liabilities of tellers and Employees

(Chapter 1)

By the very nature of their work the degree of responsibility, care

and trustworthiness expected of their employees and officials are

far greater than those of ordinary clerks and employees. Banks are

expected to exercise the highest degree of diligence in the selection

and supervision of their employees.

A bank is liable for the wrongful acts of its officers done in the

interest of the bank or in their dealings as bank representatives but

not for acts outside the scope of their authority.

Negligence of Manager

o The bank, as an employer, is liable. Confidence in the banking

system, which necessarily includes reliance on bank

managers, is vital in the economic life of our society.

Negligence of Officers

o A bank will be held liable for the negligence of its officers or

agents when acting within the course and scope of their

employment.

o If a corporation knowingly permits its officer, or any other

agent, to perform acts within the scope of an apparent

authority, holding him out to the public as possessing power

to do those acts, the corporation will, as against any person

who has dealt in good faith with the corporation through such

agent, be stopped from denying such authority.

Negligence of Tellers

o Bank’s tellers must exercise a high degree of diligence in

insuring that they return the passbook only to the depositor or

his authorized representative. (Exactissima Diligentia) The

tellers know, or should know, that the rules on savings

account provide that any person in possession of the

passbook is presumptively its owner.

o Appropriation of money by a teller is not estafa. If the teller

appropriates the money for his personal gain, and since he

occupies a position of confidence, the felony of qualified theft

would be committed.

Right to Recover from Employees

o Banks may recover from its employees for any payment made

in view of the latter’s negligent or criminal acts.

o “Whoever pays for the damages caused by his dependents or

employees may recover from the latter what he has paid or

delivered in satisfaction of the claim.”

Liability for Damages

o There must be a breach before damages may be awarded and

the breach of such duty should be the proximate cause of the

injury.

Actual and Compensatory Damages

a. when the obligation is breached, and it consists in

the payment of a sum of money, the interest due

should be that which may have been stipulated in

writing. It shall itself earn interest from the time it

is judicially demanded. In the absence of

stipulation, interest must be 12% per annum.

b. When an obligation not constituting a loan or

forbearance of money is reached, an interest on

the amount of damages may be imposed at the

discretion of the court at the rate of 6% per

annum.

When the judgment of the court awarding a

sum of money becomes final and executory,

the rate of legal interest whether the case

falls under (1) or (2), shall be 12% per

annum from such finality until satisfaction.

Exemplary Damages

Law allows the grant of exemplary damages by

way of example for the public good. The public

relies on the banks’ fiduciary duty to observe the

highest degree of diligence.

Moral Damages

As a general rule, a corporation is not entitled to

moral damages, because it cannot experience

physical suffering and mental anguish. However,

for the breach of fiduciary duty required of a bank,

a corporate client may claim such damages when

its good reputation is besmirched by such breach,

and social humiliation results therefrom.

In culpa contractual or breach of contract, moral

damages are recoverable only if the defendant

has acted fraudulently or in bad faith, or is

found guilty of gross negligence amounting to

bad faith, or in wanton (reckless) disregard of his

contractual obligations.

Banks may not be held responsible in the absence

of bad faith, malice, or wanton attitude. The law

affords no remedy for damages resulting from an

act which does not amount to a legal injury or

wrong. (DAMNUM ABSQUE INJURIA – loss without

injury)

INJURY- illegal invasion of a legal right

DAMAGE- the loss, hurt, or harm which results

from the injury

Depositor may recover moral damages even if the

bank’s negligence may not have been attended

with bad faith, if the former suffered mental

anguish, serious anxiety, embarrassment and

humiliation. Moral damages are not meant to

enrich a complainant at the expense of the

defendant. It is only intended to alleviate the

moral suffering she has undergone.

Respondeat Superior, Diligence in the Selection and

Supervision of Employees

o Banks are bound by the negligence of its employees under

the principle of repondeat superior or command responsibility.

o The defense of exercising the required diligence in the

selection and supervision of employees is not a complete

defense in culpa contractual, unlike in culpa aquiliana.

V. Supervisory powers of the BSP (Chapter 7)

Supervisory powers of the BSP includes: (REO-ISC)

o Issuance of Rules of conduct or the establishment of

standards of operation for uniform application to all

institutions or functions covered, taking into consideration the

distinctive character of the operations of institutions and the

substantive similarities of specific functions to which such

rules, modes , or standards are to be applied. (R)

o Conduct Examination to determine compliance with laws and

regulations determined by the MB. (E)

o Overseeing to ascertain that laws and regulations are

complied with (O)

o Regular Investigation to determine whether and institution is

conducting its business on a safe or sound basis (not more

often than once a year) (I)

o Inquiring into the Solvency and liquidity of the institution (S)

o Enforcing prompt Corrective action. (C)

Scope:

o Quasi-banks

o Trust entities, and

o Other financial institutions which under special laws are

subject to BSP supervision.

VI. Fit and Proper Rule (Chapter 2)

Powers of the Monetary Board

The GBL provides for the following rules:

1. The Monetary Board shall prescribe, pass upon and review the

qualifications and disqualifications of individuals elected or

appointed bank directors and disqualify those unfit.

2. After due notice to the board of directors of the bank, the

Monetary Board may disqualify, suspend or remove any bank

director or officer who commits or omits an act which render

him unfit for the position

o CITEE – integrity, experience, education, training and

competence – of an individual shall be considered.

Disqualifications:

Permanently disqualified from being directors:

1. Persons who have been convicted by final judgment of a court for

o ffenses involving dishonesty or breach of trust ;

2. Persons who have been convicted by final judgment of a court

sentencing them to serve a m aximum term of imprisonment of

more than six years;

3. Persons who have been convicted by final judgment of the court for

v iolation of banking laws, rules and regulations ;

4. Persons who have been judicially declared i nsolvent, s pendthrift, or

i ncapacitated to contract ;

5. Directors, officers or employees of closed banks, quasi-banks/trust

entities who were found to be culpable for such institutions closure

as determined by the monetary board.

6. Directors and officers of banks, quasi-bank and trust entities found

by the monetary board as administratively liable for violation of

banking laws, rules and regulations where a penalty of removal

from office is imposed, and which finding of the monetary board has

become final and executory;

7. Directors and officers of banks, quasi-banks and trust entities or any

person found by the monetary board to be unfit for the position of

directors or officers because they were found administratively liable

by another government agency for violation of banking laws, rules

and regulations or any offense/violation involving dishonesty or

breach or trust and which finding of said government agency has

become final and executory.

Temporarily disqualified from being directors:

1. Persons who refuse to fully disclose the extent of their

business interest or any material information to the appropriate

supervising and examining department when required pursuant

to a provision of law;

2. Directors who have been absent or who have not participated

for whatever reasons on more than 50% of all meetings, both

regular and special, of the board of directors during their

incumbency, and directors who failed to physically attend for

whatever reasons in at least 25% of all boar meeting in any

year, except that when a notarized certification executed by

the corporate secretary has been submitted attesting the said

directors were given the agenda materials prior to the meeting

and that their decisions thereon were submitted for

deliberations and were taken up in actual board meeting, said

directors shall be present in the board meeting. This

disqualification applies only for purposes of the immediately

succeeding election;

3. Persons who are delinquent in the payment of their obligations.

1. ** one past due obligation to the bank where he/she is a

director or office; at least two obligation with other

banks or financial institution)

2. *** obligations shall include all borrowings obtained by:

a director, spouse or child of the director, any person

person whose loan proceeds were used for the benefit

of a director or office, a partnership where a director or

his spouse is the managing or general partner, a

corporation, association or firms wholly owned or

majority of the capital stocks are owned by the director

or his spouse.

4. Persons who have been convicted by a court for offenses

involving dishonesty or breach of trust.

5. Directors and officers of closed banks/quasi-banks/trust entities

pending their clearance by the Monetary Board

6. Directors disqualified for failure to observe their duties and

responsibilities prescribed under existing regulations.

7. Directors who failed to attend the special seminar for board of

directors. This disqualification applies until the director

concerned has attended such seminar;

8. Persons dismissed from employment for cause, until they have

cleared themselves of involvement in the alleged irregularity.

9. Those under preventive suspension

10. Persons with derogatory records as certified by the judiciary,

NBI, PNP, etc. for irregularities that would adversely affect the

integrity of director/officer, until they have cleared themselves

or after the lapse of five years from the time of the complaint.

11. Directors and officers of banks, quasi-bank and trust entities

found by the monetary board as administratively liable for

violation of banking laws, rules and regulations where a penalty

of removal from office is imposed, and which finding of the

monetary board is pending appeal before the appellate court,

unless execution is restrained by court.

12. Directors and officers of banks, quasi-banks and trust entities or

any person found by the monetary board to be unfit for the

position of directors or officers because they were found

administratively liable by another government agency for

violation of banking laws, rules and regulations or any

offense/violation involving dishonesty or breach or trust and

which finding of said government agency is pending appeal

before the appellate court, unless execution is restrained by

court.

13. Directors and officers of banks, quasi-bank and trust entities

found by the monetary board as administratively liable for

violation of banking laws, rules and regulations where a penalty

of suspension from office or fine is imposed, regardless whether

the finding of the monetary board final and executory or

pending appeal before the appellate court, unless execution is

restrained by court. The disqualification is in effect during the

period of suspension or so long as the fine is not fully paid.

VII. Family Groups or related interests (Chapter 2)

Is formed when:

Stockholdings of individuals related to each other within 4th degree

or consanguinity or affinity, legitimate or common-law; or

Two or more corporations owned and controlled by the same family

or same group of persons.

IMPORTANT: such situations must be fully disclosed in all

transactions by such corporations or related groups of persons with

bank.

VIII. Single borrowers limit (SBL) Chapter 4

The total amount of loans, credit accomodations, and guarantees as

may be defined by the MB that may be extended by a bank to any

person, corporation, association, partnership shall not exceed 20%

of Net Worth of the Bank.

o Exceptions:

Reasons of national interest

Deposits of Rural Banks with government-owned or

controlled financial institutions are exempted

May be increased by 10% provided the additional

liabilities of any borrower are adequately secured by

securing titles

o Exclusion to the Limit:

Loans and other credit accommodations and secured by

obligations of the BSP or of the Philippine Government

BECAUSE THE STATE IS ALWAYS SOLVENT

Fully guaranteed by the government as to payment of

principal and Interest

Covered by assignment of deposits maintained in the

lending bank and held in the Philippines

Under letters of credit to the extend covered by margin

deposits

Specified by Monetary Board as non-risk items

As amended by Circular no. 425, SBL must not exceed 23%, still

subject to such exceptions

IX. Restriction on Bank Exposure to Directors, Officers, Stockholders

and their Related Interests (DOSRI) Chapter 4

Approval and Other Requirements

o No director or officer of any bank shall:

Directly or indirectly for himself or as an agent of others

borrow from such bank

Become a guarantor, indorser or surety for loans from

such bank

An obligor who would incur contractual liability to the

bank

Exception: written approval of the majority of all the

directors of the bank

o Approval shall be entered upon the records of the bank

o Dealing shall be upon terms not less favorable to the bank

than those offered to others

Directors

o Named as such in the articles of incorporation

o Duly elected in subsequent meetings of stockholders

o Elected to fill the vacancies

Officers

o President, EVP, SVP, General Manager, Secretary, treasurer,

trust officer and others whose duties as such are defined in

the by-laws or are generally known to be officers of the bank

o Chairman, Vice-chairman or any other position of the

boardwho also performs functions of management such as

those ordinarily performed by regular officers

Stockholder –

o Any stockholder of record in the books acting personally or

through an attorney-in-fact

o Any other person duly authorized by him or through a trustee

o His spouse/ relative within 1st degree of consanguinity or

affinity or legal adoption

o Partnership in which stockholder/spouse/relative is a general

partner

o Corporation, association or firm of which those mentioned

persons own more than 50% of total subscribed capital stock

Related Interests

o Spouse/Relative within 1st degree of consanguinity or affinity,

relative by legal adoption of a director, officer or stockholder

of the bank

o Partnership of which a director, officer, or stockholder of a

bank or Spouse/Relative within 1st degree of consanguinity or

affinity, relative by legal adoption

o Co-owner of the property or interest or right mortgaged

o Corporation, association, or firm of which a director or officer

of the bank, or his spouse is also a director or officer of such

corporation, association or firm, except:

Securities are listed and traded in the big board of

domestic stock exchange and less than 50% of voting

stock is owned by 1 person or by persons related to

each other within 1st degree of consanguinity or affinity

Director, officer or stockholder sits as a representative

of the bank in the board of directors of such corporation

Provided that the bank representative shall not

have any equity interest in the borrower

corporation except for the minimum shares

required by law

Provided that the borrowing corporation is not

among those mentioned in items 5,6,7 and 8

below

o Corporation, association or firm of which any or a group of

directors, officers, stockholders of the lending bank and/or

their spouses or relatives within the first degree of

consanguinity or affinity, or relative by legal adoption, hold or

own at least 20% of the subscribed capital of such

corporation, or of the equity of such association or firm

o Corporation, association or firm wholly or majority-owned or

controlled by any related entity or a group of related entities

mentioned in Items 2, 4, and 5

o Corporation, association or firm which owns or controls

directly or indirectly whether singly or as part of a group of

related interest at least 20% of the subscribed capital of a

substantial stockholder of the lending bank or which controls

majority interest of the bank

o Corporation, association or firm in which the lending bank

and/or its parent/subsidiary holds or owns at least 20% of the

subscribed capital of such corporation, or in the equity of such

association or firm, or has an existing management contract

or any similar arrangement with the lending bank or its

parent/subsidiary

Effect of Violation – After due notice of the board of directors the

office of the violator may be declared vacant and subject to penal

provisions in the New Central Bank Act

Limits of Loans

o Regulated by Monetary Board

o Outstanding loans shall be limited to an amount equivalent to

their respective unencumbered deposits and book value of

their paid-in capital contribution in the bank

Exclusions to the Limit

o Those secured by assets considered as non-risk by the

Monetary Board.

o Those in the form of fringe benefits granted in accordance

with rules prescribed by the Monetary Board

o Those extended by a cooperative bank to its cooperative

shareholders

Applicabilty of DOSRI Rules and Regulations to Government

Borrowings

o Circular 547 – DOSRI Rules and Regulations shall also apply to

loans, other credit accommodations, and/or guarantees

granted to the National Government of the Philippines, its

political subdivisions and instrumentalities as well as

government-owned or controlled corporations

Such loans, other credit accommodations, and/or

guarantee (LOG) to RP must be considered as

Non-risk

Not subject to any ceiling

LOG to a GOCC or Corporations where RP owns 20% of

subscribed capital stock shall be considered indirect

borrowings of RP and shall form part of the individual

ceiling as well as the aggregate ceiling

The Following LOGs to GOCCs where RP owns 20% of

capital stock shall be excluded from the 30% ceiling on

unsecured loans

LOGs for infrastructure projects consistent with

the Medium-term Development Plan duly certified

as such by the Secretary of Socio-Economic

Planning

LOGs granted to financial institutions in the

lending programs

LOGs to provide rediscounting facilities for loans

granted to agricultural sector, and micro, small

and medium enterprises

o Pursuant to RA 7653 and independence under the

Constritution, BSP shall be considered and independent entity

of the RP and any LOG of the BSP shall be considered

Non-risk

Not subject to any ceiling

o LGUs shall be considered separate from the RP and other

governement entities, hence not a related interest of the RP

o A director who acts as a government representative in the

lending institution shall not be excluded in the deliberation

and determination of directors in cases of LOGs to borrowing

government entity other than RP.

Waiver by DOSRI

o “Section 26 (NCBA). Bank Deposits and Investments. – Any

director, officer or stockholder who, together with his

related interest, contracts a loan or any form of financial

accommodation from: (1) his bank; or (2) from a bank: (a)

which is a subsidiary of a bank holding company of which both

his bank and the lending bank are subsidiaries; or (b) in which

a controlling proportion of the shares is owned by the same

interest that owns a controlling proportion of the shares of his

bank, in excess of 5% of the capital and surplus of the bank,

or in the maximum amount permitted by law, whichever is

lower, shall be required by the lending bank to waive

the secrecy of his deposits of whatever nature in all

banks in the Philippines.”

X. Survivorship Agreement (Chapter 3)

When joint (and several) owners of a deposit agree that either of

them could withdraw any part or the whole of said account during

the lifetime of both and the balance, if any, upon the death of

either, belonged to the survivor.

an ALEATORY CONTRACT (Art. 1790), by which the mutual

agreement of the joint depositors permitting either of them to

withdraw the whole deposit during their lifetime and transferring

the balance to the survivor upon the death of one of them.

Survivorship agreement not invalid per se but may be

violative of law, such instances:

o a mere cloak to hide an inofficious donation

o to transfer property in fraud of creditors

o to defeat the legitime of a forced heir

XI. Duties of Banks and Protection of depositors (Chapter 3)

Meticulous Care

o Knowing the signatures of its clients.

o Depositors are not estopped from questioning wrongful

withdrawals, even if they failed to question those errors in the

statements sent by the bank to them for verification.

Payment to Proper Party

o The bank has no right to pay to persons other than those in

whose favor the obligation was constituted or whose right or

authority to receive payment is indisputable.

o Payment made by the debtor (bank) to the wrong party does

not extinguish the obligation as to the creditor (depositor)

who is without fault or negligence, even if the debtor acted in

utmost good faith and by mistake as to the person of the

creditor or through error induced by fraud of a third person.

In Case of Death of Depositor

o National Internal Revenue Code provides:

o “If a bank has knowledge of death of a person, who

maintained a bank deposit account alone, it shall not allow

any withdrawal from the said deposit account, UNLESS the

Commissioner has certified the taxes imposed thereon by this

title have been paid: Provided, however, that the

administrator of the estate or any one of the heirs of decedent

may upon authorization by the Commissioner, withdraw an

amount not exceeding P20,000 without the said certification.”

XII. Nature of Banking Business (Chapter 1)

Debtor- Creditor Relationship

o Art. 1980. Fixed, savings, and current deposits of money in

banks and similar institutions shall be governed by the

provisions concerning loan.

o The contract between the bank and its depositor is governed

by the provisions of the Civil Code on simple loan… The bank

is the debtor and the depositor is the creditor. The depositor

lends the bank money and the bank agrees to pay the

depositor on demand. (Consolidated Bank and Trust

Corporation vs. Court of Appeals)

o Bank deposits are in the nature of irregular deposits. They are

really loans because they earn interest. (Serrano vs. Central

Bank of the Philippines)

Fiduciary Duty

o “fiduciary nature of banking which requires high standards of

integrity and performance.”

o Treat the accounts of its depositors with meticulous care,

always having in mind the fiduciary nature of their

relationship.

o Requires banks to assume a degree of diligence higher than

that of a good father of a family

o Higher level of accountability than that expected of a

depositor.

Not a Trust Agreement

o The fiduciary nature of a bank-depositor relationship does not

convert the contract between the bank and its depositors

from a simple loan to a trust agreement, whether express or

implied.

o Failure by the bank to pay the depositor is failure to pay a

simple loan, and not a breach of trust.

o Banks do not accept deposits to enrich depositors but to earn

money for themselves.

Indispensable Institution

o Plays a vital role in the economic life of every civilized nation.

o Banks have become an ubiquitous presence among the

people, who have come to regard them with respect and even

gratitude, and most of all, confidence.

Impressed with Public Interest

o The stability of banks largely depends on the confidence of

the people in the honesty and efficiency of banks.

o In every case, the depositor expects the bank to treat his

account with the utmost fidelity, whether such account

consist only of a few hundred pesos or of millions. The bank

must record every single transaction accurately, down to the

last centavo, and as promptly as possible. This has to be done

if the account is to reflect at any given time the amount of the

money the depositor can dispose of as he sees fit, confident

that the bank will deliver it as and to whomever he directs.

Degree of Diligence

o The law imposes on banks high standards in view of the

fiduciary nature of banking.

o The bank is under obligation to treat the accounts of its

depositors with meticulous care, always having in mind the

fiduciary nature of their relationship. (Simex Internationsl vs.

Court of Appeals)

o Degree of diligence higher than that of a good father of a

family, as prescribed by Section 2 of the GBL.

o Same higher degree of diligence is not expected to be exerted

by banks in commercial transactions that do not involve their

fiduciary relationship with their depositors.

o Diligence extends to financial institutions:

o A government financial institution, like banks, is expected to

exercise greater care and prudence in the dealings, including

those involving registered lands.

o Due diligence required of banks extend even to persons, or

institutions, regularly engaged in the business of lending

money secured by real estate mortgages.

Treatment of Accounts with Meticulous Care

o In every case, the depositor expects the bank to treat his

account with the utmost fidelity, whether such account

consist only of a few hundred pesos or of millions.

o A blunder on the part of the bank, such as the dishonor of a

check without good reason, can cause the depositor not a

little embarrassment if not also financial loss perhaps even

civil and criminal litigation.

o No law mandating banks to call up their clients whenever their

representatives withdraw significant amounts from their

accounts.

Duty to Keep Records

o A bank has a fiduciary duty to keep efficiently a record of its

transactions with its depositors. Banks shall have a true and

accurate account, record or statement of their daily

transactions, particularly those referring to their deposit

liabilities.

o Making of any false entry or the willful omissionof entries is a

ground for the imposition of administrative sanctions and the

disqualification from office of any director or officer

responsible therefor, without prejudice to their criminal

liability.

Banks are not Gratuitous Bailees

o Banks are run for gain, and they solicit deposits in order that

they can use the money for that very purpose.

Banks not Expected to be Infallible

o However, it must bear the blame for not discovering mistakes

if there are established procedures and the same have not

been followed.

Dealing with Registered Lands

o Banks should exercise more care and prudence in dealing

with registered lands, than private individuals, for their

business is one affected with public interest.

o The rule that persons dealing with registered lands can rely

solely on the certificate of title does not apply to banks.

o Judicial notice is taken of the standard practice for banks,

before approving a loan, to send representatives to the

premises of the land offered as collateral and to investigate

who the real owners thereof are. A mortgagee-bank must

exercise due diligence before entering into said contracts.

o Any investigation previously conducted on the property

offered as collateral does not preclude a bank from

considering information on the same property as security for a

subsequent loan. (Sps. Omengan vs. Philippine National Bank)

Banks may Exclude Persons in their Premises

o Banks are mandated to exercise a higher degree of diligence

in the handling of its affairs than that expected of an ordinary

business enterprise.

o Banks may impose reasonable conditions or limitations to

access by non-employees to its premises and records, such as

the exclusion of non-employees from the working areas for

employees, even absent any imminent or actual unlawful

aggression on or an invasion of its properties or usurpation

thereof, provided that such limitations are not contrary to the

law.

Charging of Interest for Loans

o Very essential and fundamental element of the banking

business; it may be considered to be the very core of the

banking existence or being.

XIII. Organization of Banks (Chapter 2)

Conditions

o The Monetary Board may authorize the organization of a bank

or quasi-bank subject to the following conditions: (SPC)

o That the entity is a stock corporation.

o That its funds are obtained from the public, which shall mean

twenty (20) or more persons.

o That the minimum capital requirements prescribed by the

Monetary Board for each category of banks are satisfied.

Capabilities

o The Monetary Board shall take into consideration their

capability in terms of their financial resources and

technical expertise and integrity. (FTI)

o The bank licensing process shall incorporate an assessment

of:

o The bank’s ownership structure

o Directors and senior management

o Its operating plan

o Internal control

o Its projected financial condition and capital base

Capital Requirements

Minimum capital prescribed by the Monetary Board

TYPE OF BANK

AMOUNT

S

(In

Million

Pesos)

Universal Banks 4950.0

Commercial

Banks 2400.0

Thrift banks

- With head

office within

Metro

Manila 325.0

- With head

office outside

Metro

Manila 52.0

Rural Banks

- within Metro

Manila 26.0

- cities of Cebu

and Davao 13.0

- In 1st, 2nd &

3rd class cities

and

first class

municipalities 6.5

- in 4th, 5th &

6th class cities

and in

2nd, 3rd &

4th class

municipalities 3.9

- in 5th & 6th 2.6

class

municipalities

At least 25% of the total authorized capital stock shall be subscribed by the

subscribers of the proposed bank, and at least 25% of such subscription shall

be paid-up, provided that in no case shall be the paid-up capital be less than

the minimum required capital stated above. (25% subscribed and 25% of the

subscribed shall be paid and shall not be less than the minimum)

Incorporators/Subscribers/Proposed Directors (I/S/PD)

o I, S & PD - Must be Persons of integrity and of good credit

standing in the business community.

o S - Must have adequate financial strength to pay for their

proposed subscriptions in the bank.

o I, S & PD – must not have been convicted of any crime

involving moral turpitude

o I, S & PD – unless otherwise allowed by law, are not offices

and employees of a government agency, instrumentality,

department or office charged with the supervision of, or

granting of loans to banks.

o *** A bank may be organized with not less than five (5) nor

more thank (15) incorporators. In excess of 15 may be listed

among the original subscribers in the Articled of Incorporation.

Bank Branches

o Universal or Commercial banks may open branches or

other offices within or outside the Philippines prior approval

of the Bangko Sentral.

o Branching by all other banks shall be governed by

pertinent laws.

o *** A bank may use any or all of its branches as outlets for the

presentation and/or sale of the financial products of its allied

undertaking or of its investment house units.

o *** A bank shall be responsible for all business conducted in

such branches and offices to the same extent and in the same

manner as though business had all been conducted in the

head office.

o *** A bank and its branches shall be treated as one unit.

XIV. Outsourcing of Functions (Chapter 4)

Subject to prior approval of the MB, banks may outsource data

imaging, storage, retrieval and other related systems, clearing and

processing of checks, printing of bank deposit statements, other

activities det by the MB.

Banks may outsource:

1. credit card services

2. printing of bank loan statements and other non-deposit records,

bank forms, and promotional materials

3. credit investigation and collection

4. processing of export, import and other trading transactions

5. transfer agent services for debt and equity securities

6. property appraisal

7. property mgmt services

8. messenger, courier and postal services

9. security guard services

10. vehicle service contracts

11. janitorial services

12. public relations services

13. procurement services

14. temporary staffing

15. legal services from local legal counsel

o Provided, that they do not include servicing/handling bank

deposits or other inherent banking functions.

XV. Independent Director / Independent Auditor (Chapter 2)

Number of Directors

At least five (5), and a maximum of fifteen (15) members of the

board of directors of bank, two (2) or whom shall be independent

directors.

“Independent Director” – a person other than an officer or

employee of the bank, its subsidiaries or affiliates or related

interests.

o Is not or has not been an officer or employee of the

bank/quasi-bank/trust entity, its subsidiaries or affiliates or

related interests during the past three years counted from the

date of his election;

o Is not a director or officer of the related companies of the

institution’s majority stockholder;

o Is not a majority shareholder of the institution , any of its

related companies, or of its majority shareholder;

o Is not a relative within the fourth degree of consanguinity or

affinity, legitimate or common-law of any director, officer or

majority shareholder or the bank/quasi-bank/trust entity, or

any of its related companies;

o Is not acting as a nominee or representative of any

director or substantial shareholder or the bank/quasi-bank/

trust entity, any of its related companies or any of its

substantial shareholders; and

o Is free from any business or other relations with the

institution or any of its major stockholders which could

materially interfere with the exercise of his judgment.

Independent Auditor

The following are the rules with respect to financial audit of banks:

1. The Monetary Board may require a bank, quasi-bank or trust

entity to engage the services of an independent auditor to be

chosen by the bank, quasi-bank or trust entity concerned from

a list of certified public accountants acceptable to the Monetary

Board.

2. The term of the engagement shall be prescribed by the

Monetary Board which may either be on a continuing basis

where the auditor shall act as resident examiner, or on the

basis of special engagements, but in any case, the independent

auditor shall be responsible to the bank’s, quasi-bank’s or trust

entity’s board of directors. A copy of the report shall be

furnished to the Monetary Board.

3. The Monetary Board may also direct the board of directors of a

bank, quasi-bank, trust entity and/or the individual members

thereof, to conduct, either personally or by a committee

created by the board, an annual balance sheet audit of the

bank, quasi-bank or trust entity to review the internal audit and

control system of the bank, quasi-bank or trust entity and to

submit a report of such audit.

4.

XVI. Safety Deposit Box

Special Kind of Deposit; cannot be a contract of lease bec full and

absolute possession and control of the safety deposit box (SDB) is

not given to the renters. Guard key remains with the bank without

which renters could not open the bank. Bank could not likewise

open the box without the renter’s key.

o If renter duplicated the key for joint access, bank is NOT liable

to either of the joint renters in case of loss attributable to

either of them.

o If a bank was not aware of an agreement bet joint renters that

articles shall only be withdrawn from SDB ONLY upon the joint

signatures of both parties, and there is no evidence to prove

that loss was due to the fraud and negligence of the bank, the

bank is NOT liable.

Bailor and Bailee;

o The relation between a bank and its SDB customer with

respect to the contents of the box is that of a bailor and

bailee, the bailment being for hire and mutual benefit.

Duties May Be Defined By The Parties

o The parties may, by special contract, define their respective

duties or provide for increasing or limiting the liability of the

deposit company, provided that it is not violative of law or

public policy. It must clearly appear that there actually was a

special contract, in order to differentiate from implied ordinary

obligations.

o Doubtful words will not enlarge or restrict the liability of the

company. Company cannot also exempt itself from liability for

loss of the contents by its own fraud or negligence, and if a

provision of the contract says so, such provision will be held

ineffective for the purpose.

o If a collection of stamps were in an SDB at the lowest row, and

floodwater entered the bank’s premises thus damaging the

stamps, THE BANK IS GUILTY OF NEGLIGENCE, and must

compensate the renter. Bank was aware of the floods and it

also knew that floodwaters inundate the room where said SDB

is located. It should have notified the SDB renter, opened and

retrieved the stamps so as to save from further deterioration.

o Art.1170: Those who, in the performance of their obligations

are guilty of fraud, negligence, or delay, and those who in any

manner contravene the tenor thereof, are liable for damages.

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