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BANKING LAWS AND JURISPRUDENCE
Efren L. Dizon and Efren Vincent M. Dizon Prepared by: MANILA, ANTONIO CEASAR BERNARDO, JANSEN INTIG, JOY ESTELA DE JESUS, TRACY ANN. FROM SECTION 2S AY 2011-2012
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Chapter 1- Banks and Business of Banking Chapter 2 - Organization, Management, Administration Of Banks Chapter 3 - Deposit Functions Of Banks Chapter 4 - Investments, Loans and Other Bank Functions Chapter 5 - Prohibited Transactions and Cessation Of Banking Business Chapter 6 - Foreign Banks and Trust Operations
Possible Questions MIDTERM COVERAGE: Chapter 1 - 6
Chapter 7 - The Banko Sentral ng Pilipinas Chapter 8- Currency, Monetary Stabilization and Functions of BSP Chapter 9 - Unclaimed Balances and Trust Receipts Chapter 10 - Deposit Insurance Chapter 11 - Anti-Money Laundering Chapter 12 – Special Purpose Vehicle
FINALS COVERAGE: Chapter 7 - 12
36 44 56 61 69 75
San Beda College of Law Banking Laws CHAPTER 1 – Banks and Business of Banking • Declaration of the state with regards to banking – recognize vital role of the banks to provide environment conducive to development of national economy o It also states that banks need high standards of integrity and performance Banks – entities engaged in the lending of funds obtained in the form of deposits (borrowing, lending, safe-keeping) Banks may engage in other activities allowed by the law other than lending
Nature of Banking Business
1. Debtor-Creditor Relationship • It is a contract of loan and not deposit • Contract between bank and depositor is 7. governed by the provisions of the NCC on simple loan (Consolidated Bank and Trust Corp vs. CA) 2. Fiduciary duty • Fiduciary relationship – bank’s obligation to observe high standard of integrity and performance (Phil. Banking Corp. vs. CA) 8. 3. Not a trust agreement 9. • It is not a trust agreement and failure to 10. pay a loan is not a breach of trust • It is not a trust agreement because banks do not accept deposits to enrich depositors but to earn for themselves 11. 4. Indispensable Institution • Has a vital role in economic life • Significance of banking institution to commercial transactions (Metropolitan Bank & Trust Co. vs. Cabilzo) 5. Impressed with public interest • Has public interest because people depend on the honesty and efficiency of banks • Stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks. 6. Degree of diligence • Diligence higher than that of a good father. It must be extraordinary diligence • In Simex International vs. CA, the bank is under obligation to treat the accounts of its AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN. FROM SECTION 2S - SAN BEDA COLLEGE OF LAW, MENDIOLA: AY 2011-2012. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.
depositors with meticulous care and always have in mind the fiduciary nature of banks • Not enough that he exerted reasonable diligence to ascertain the safety of his clients • Such diligence is only required in its fiduciary relationship with its depositors and not to other transactions such as sale of foreign exchange demand draft • Sec 2 of GBL prescribes the statutory diligence required from banks – “high standards of integrity and performance” in serving its depositors. • Diligence required of banks is more than that of a good father (PBCom vs. CA) • Diligence extends to financial institutions (e.g. GSIS) Treatment of accounts with meticulous care • Must treat every account with utmost fidelity regardless of amount • There is no law mandating banks to call up their clients whenever a significant amount shall be withdrawn from their account Duty to keep records Banks are not gratuitous bailees Banks not expected to be infallible • However, they must bear the loss for not discovering mistakes if there are established procedures not followed Dealing with registered lands • General Rule: mortgagee can rely on title and does not need to investigate further • Exception: mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and yet claim that he is in good faith • With banking institutions, mere reliance on the title is not enough as they need to investigate also • Doctrine of the “mortgagee in good faith” – all persons dealing with property covered by the Torrens Certificates of Title are not required to go beyond what appears on the face of the title. (Cavite Development Bank vs. Spouses Lim)
San Beda College of Law Banking Laws The business o a bank is one affected with public interest, for which reason the bank should guard against loss due to negligence or bad faith (Sps. Omengan vs. PNB) • Where the mortgagee does not directly deal with the registered owner of real property, the law requires higher degree of prudence be exercised by the mortgagee (Abad vs. Guimba) 12. Banks may exclude persons in their premises 13. Charging interest for loans • It is considered the very core of the banking’s very existence Liability for Acts of Officers and Employees • A bank is liable for the wrongful acts of its officers done in the interest of the bank or dealings as bank representatives but not for acts outside the scope of their authority. • • •
Moral damages Gen. Rule – a corporation is not entitled to moral damages • Exception – when its good reputation is besmirched by breach of fiduciary duty. • In culpa contractual – recoverable if there is fraud or bad faith • Depositor may recover even if bank’s negligence not attended by bad faith if he suffered mental anguish, serious anxiety, etc. 6. Respondeat superior of employees • Command responsibility • A bank is bound by the negligence of its employees Classification of Banks (CUT-RICO-NQU) 1. Universal Banks – large commercial banks that can do both commercial and investment banking • They have the power of both commercial bank and investment house • Have the power to invest in non-allied enterprises 2. Commercial banks – general powers incident of corporation and can perform commercial banking • Does not have the power to invest in nonallied enterprises 3. Rural banks – banks that promote rural development • They can extend loan or advances to primarily meet the normal credit needs of farmers, fishermen and their families • Can also deposit in private banks more than the amount prescribed by Single Borrower’s Limit in case there are no government banks • Rural Banks Act (RA 7353) 4. Thrift banks – encourages the industry, frugality and accumulation of savings of the public • To make it within easy reach to the people the credit facilities at reasonable cost • Includes: (1) savings and mortgage bank, (2) stock savings and loan associations and (3) private development banks • Thrift Banks Act (RA 7906)
1. Negligence of Manager – employer is liable to the acts of the manager 2. Negligence of officer – general rule: tortuous acts of officers within their scope of employment shall make banks liable 3. Negligence of tellers – tellers must exercise high degree of diligence • Teller should not give passbook to wrong person as a person in possession of passbook is presumed the owner • Appropriation of deposited money by the teller is not estafa but considered as theft as the client only had material possession of it. Such deposit money are considered owned by the bank 4. Right to recover from employees 5. Liability for damages • Actual, exemplary, moral • Actual and compensatory – the interest due shall itself earn interest from the time it is judicially demanded • 12% - legal interest when judgment becomes final and executory • 6% - interest for obligations not constituting a loan or forbearance of money
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN. FROM SECTION 2S - SAN BEDA COLLEGE OF LAW, MENDIOLA: AY 2011-2012. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.
San Beda College of Law Banking Laws 5. Cooperative banks – organized by cooperatives to provide financial and credit services to cooperatives • Cooperative Code (RA 6938) • Membership of a cooperative bank shall include ONLY cooperative and federations of cooperatives 6. Islamic Banks – promote socio-economic development in autonomous region by performing banking and investment function based on Islamic concept of banking • Islamic Bank – RA 6848 • Subject to the principles and rulings of Islamic Shari’a 7. Others banks: • Philippine Veterans Bank – created to provide government depository to veterans for appreciation of grateful nation (RA 3518) • Land bank of the Philippines – finance distribution of estate to resale to small landholders (RA 3844) • Development Bank of Philippines – provide credit facilities for development in agriculture, commerce and industry • DBP was previously named as Rehabilitation Finance Corporation (RFC) 8. Non-stock savings and loan associations – nonstock, non-profit corporation engage in accumulation of savings of its members and loans to meet its members’ needs • Confines exclusive membership and cannot transact business with the general public 9. Quasi-banks – engaged in borrowing of funds through issuance of deposit substitute for purpose of relending or purchasing receivables and other obligations 10. Offshore Banks – deals with transaction with foreign currencies in receiving funds from external sources and utilization of such • Governed by PD 1034 Authority to Engage in Banking and Quasi-Banking Functions •
No person or entity shall engage in baking operations without authority from Bangko Sentral • Universal or commercials banks may engage in quasi-banking functions • Under Corporation Code: o No articles of incorporation or amendment of banks shall be given unless accompanied by recommendation of appropriate government agency (MB) • The determination whether the person or entity is performing banking or quasi-banking functions without authority of BSP shall be determined by MB o MB may examine the books and records to achieve this purpose • The department head and examiners can administer oaths and compel presentation of books, documents or records • BSP can examine a bank or an enterprise that is wholly or majority-owned by the bank o This can only be done when BSP is examining bank • SEC shall not register articles of incorporation of bank unless it is accompanied by authority of MB • SEC shall not register by-laws of bank unless accompanied by authority of BSP Service of summons upon banks o May be made on the president, managing partner, general manager, corporate secretary, treasurer, in-house counsel (domestic) o Upon resident agent or BSP (foreign bank) • As long as institute loans out money to its customers and collect the interest and charges a commission to lender and banker, it is a bank • Investment company engages primarily in the investing or trading of securities and is not a bank Bank name • Only universal and commercial banks may represent itself to the public as such in connection with its business name Thrift banks can be allowed to have a business name of its own provided that “A thrift bank, savings bank or private development bank” shall be added Above rule is also available to Rural/Coop
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN. FROM SECTION 2S - SAN BEDA COLLEGE OF LAW, MENDIOLA: AY 2011-2012. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.
Except if it approved by MB and will be returned in 6 months • Reason: if banks were allowed to have a lien in their own stocks for indebtedness of stockholders. accept own shares as security for loan 1.(aggregate foreign voting stocks) • A Filipino individual and domestic nonbank may each own up to 40% of the voting stock (no aggregate ceiling) • Citizenship of the corporation shall follow the citizenship of the controlling stockholders (>50%) • The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of individual stockholders • At least 60% of voting stock in any commercial bank shall be owned by Filipino citizens • In thrift banks. JANSEN. Director management 3. it shall be at least 40% • Rural banks. Internal controls 5.950 Commercial 2. TRACY ANN. MENDIOLA: AY 2011-2012. Otherwise 52 Rural Banks 1. INTIG.5 municipality 4.400 Thrift banks 1.6 • At least 25% of total authorized capital stock shall be subscribed by subscribers of proposed bank • 25% of such subscription shall be paid-up. FROM SECTION 2S . REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. BERNARDO. • • • • 5 • government agency or department charged with granting loans to banks Bank is organized 5-15 people (incorporators) Cooperatives may organized a rural bank upon consultation with the rural banks in the area Bank and its branches shall be treated as one unit Universal and commercial banks may open branches within or outside the Philippines upon prior approval of BSP Other banks shall be governed by their pertinent laws • Stockholdings 1. Banks’ ownership structure 2.San Beda College of Law Banking Laws CHAPTER 2 – Organization. Projected financial condition Capital requirements: Management. prohibition against granting loans or discounts upon security would become ineffective 2. Funds are obtained from the public which shall mean twenty persons or more 3. Within Manila 26 2. Head office in Manila 325 2. ANTONIO CEASAR.9 municipality 5. JOY ESTELA. Operating plan 4. 5th-6th class municipality 2. Cebu/Davao 13 3.SAN BEDA COLLEGE OF LAW. 1st-3rd class city and 1st class 6. Treasury Stocks • GBL provides that NO bank shall: i. technical expertise and integrity Bank licensing process shall incorporate assessment of: 1. Entity is a stock corporation (par value stocks only) 2. Minimum capital requirement prescribed by MB shall be satisfied MB shall take into consideration the capabilities of the entity in terms of their financial resources. DE JESUS. 100% Filipinos • • Type of Bank Amount (M) Universal 4. . 4th-6th class city and 2-4th class 3. It shall not be less than the minimum capital requirement • Incorporators/subscribers and proposed directors and officers must be (2) persons of integrity and (1) good credit standing • Such persons must (1) not be convicted of crime involving moral turpitude and (2) not officers of AUTHORS: MANILA. Purchase or acquire shares of its own capital stock ii. Foreign stockholdings: • Foreign individuals and non-banks can own 40% of voting stock of domestic bank. Administration of Banks Organization of Banks • MB can authorize the organization of a bank based on the following conditions: 1.
Bank is found to be in an unsatisfactory financial condition • • • • • • • • • • • • • a. competence of the director Disqualifications of directors: • • ATMs • • Classes: 1. Administratively liable for violation of banking laws with penalty of removal from office g. President/Treasurer Meetings may be conducted through modern technologies A foreigner may be a member of the Board of directors of a rural bank at the time of their assumption of office To protect funds of depositors and creditors. Sundays and holidays for 3 hours (to report to BSP) For purposes of deposits and withdrawals. experience. training. Persons judicially declared insolvent e. BERNARDO. they can exceed 6 hours minimum but not extend beyond or early of 8AM and 8PM Banks in airports or major fish ports can open 24hours Changes in banking days and hours can be made once every 30 days except during emergencies • Fit and Proper Rule • Powers of MB against directors: a. FROM SECTION 2S . MENDIOLA: AY 2011-2012. DE JESUS. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. TRACY ANN.SAN BEDA COLLEGE OF LAW. Persons convicted of final judgment with a maximum imprisonment term of more than 6 years c. may disqualify. Fit and proper rule shall be determine by integrity. suspend or remove director c. Review qualifications and DQs of directors b. • . Comptrollership 2. Convicts of banking laws d. JOY ESTELA. there shall be at least five and maximum of 15 board of directors of bank Two of such shall be independent directors.) Offsite 2.San Beda College of Law Banking Laws • • In determining nationality of banks. control test is applied Family groups or related interest must be fully disclosed in all transactions of the individual 6 Board of Directors • According to Corporation Code. After due notice. bank can extend beyond or early of 8AM and 8PM If it is for other purposes. JANSEN. Business in unsafe or unsound manner 3. Treasurer (director or not). MB shall regulate payment of directors under certain circumstances: 1. Culpable of bank’s closure f. Independent director – person other than officer or employee of bank All must be of legal age and majority of them are residents of the Philippines Non-Filipino citizens may become members of board of directors of bank up to the extent of allowed foreign participation Directors of merged or consolidated banks shall not exceed 21 Election: President. INTIG. Convicted of final judgment involving dishonesty or breach of trust b. Secretary (resident citizen). ANTONIO CEASAR. Not allowed position: President/Secretary. education. Found unfit for position There can be also temporary disqualifications and shall exist until DQ is gone Under CC (Corporation Code) disqualification is only with (1) imprisonment more than 6 years or (2) violation of code committed within 5 years NCBA also provides DQ for members of MB that is connected with bank under supervision or examination of BSP Public officials cannot also be an officer of any private bank unless position is incidental to office Rural Banks Act – public official may be director (exception) PDIC – conviction of any criminal offenses involving breach of trust Banking Days and Hours • • • • At least 6 hours a day on working days (Mon-Fri except holidays) May open in Saturdays.) Mobile Banks may establish off-site ATMS provided that there is report on BSP and adequate security AUTHORS: MANILA.
MENDIOLA: AY 2011-2012. officers. including its operations Must publish such in an understandable knowledge once every quarter in a newspaper of general circulation Consolidated financial statement – combined statement of balance sheet and income expenses of two or more corporate entity Subsidiary – corporation where more 50% of its voting stock is owned by a bank Affiliate – linked directly/indirectly to the bank by 1. shall inform BSP of the cause of the strike and the operations affected Financial Statements • • • Every bank. . REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. JOY ESTELA. quasi-bank or trust entity shall submit to the BSP its financial statements Such statements must show the actual financial condition of its institution. quasi-bank or trust entity shall not publish the amount of its subscribed capital stock without indicating the amount of its capital actually paidup Settlement of Disputes • BSP shall be consulted by (1) government agencies in actions initiated or brought before them by banks and (2) disputes between any of them which they are directors. ANTONIO CEASAR. BERNARDO. through their president.) interlocking directorship 3.SAN BEDA COLLEGE OF LAW.San Beda College of Law Banking Laws measures. JANSEN. They are installed only in centers of activity Mobile ATMS are allowed to visit places with large crowds of people provided it has adequate security • 7 • • Independent Auditor • MB may require bank to engage services of independent auditor from list of CPA acceptable to MB Any unsettled strike or lockouts involving banks after 7 days shall be reported by BSP to DOLE who will assume jurisdiction Banks. DE JESUS.) 10% ownership or control 2.) management contract 5. FROM SECTION 2S . or stockholders Strike and Lockouts AUTHORS: MANILA.) permanent proxy or voting trust of 10% • • • Publication of Capital Stocks • Bank. INTIG. TRACY ANN.) common stockholders owning 10% of each intermediary 4.
d. CA) 1. Individual and Joint Accounts • • If the joint account is “and”. postal money order and on us check • • • • When bank sees that depositor’s account has sufficient amount. Current accounts of officers • All officers.a. INTIG.SAN BEDA COLLEGE OF LAW. cashier’s. This considered as the current account in the bank • • • • 8 • • • • • 1. Señeris) 1. requesting them to pay on presentment. Otherwise if there is no sufficient amount Banks must ensure that the check is only paid to its designated payee Drawer must remember every time he issues a check and a bank must know the former’s signature A bank is under no obligation to make partial payment on the check only upon the amount in the drawer’s funds The cannot also compensate the lack of money in the deposit account to the savings account Cross-check must be: (1) may not be encashed but only deposited (2) check negotiated only once – to one who has an account with a bank and (3) serves as warning to holder (State Investment House vs.e. Exception: made against uncollected deposits representing manager’s. Inc. Relationship of Payee or Holder and the Bank • Principal and agent – relationship between payee or holder of commercial paper and the bank to which it is sent for collection (PCIB vs. Kinds of Deposits 1.000. then it shall honor such If there is sufficient amount but bank dishonored. Temporary over drawings and DAUD • Temporary overdrawings are not allowed except normal bank charges and other fees incidental to handling such accounts Violations of temporary overdrawings will cause (1/10 of 1%) fine per day computed on the basis of the amount of overdrawn but not to exceed P30. both signatures of codepositors are required before withdrawals If “and/or” either their signature is sufficient 1. to a person named therein or to bearer or to order. Duty of bank to honor checks AUTHORS: MANILA. Cs. IAC) Cashier’s check – bank’s own check and is treated as PN with the bank as maker . by a party having money in their hands. JANSEN. FROM SECTION 2S . TRACY ANN.a. a named sum of money (Moran vs. Demand deposits • All those liabilities of BSP and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by presentation of checks Only universal and commercial banks may accept or create demand deposits without prior authority from BSP Other types of bank require such authority. BERNARDO. DE JESUS.d. Checks 2. then bank is liable.c. ANTONIO CEASAR. CA) • Banks may be authorized by the BSP to solicit and accept deposits outside their bank premises 2. MENDIOLA: AY 2011-2012. JOY ESTELA.San Beda College of Law Banking Laws CHAPTER 3 – Deposit Functions of Banks I. treasury warrants.deemed as cash (New Pacific Timber & Supply Co.00 per day Drawings against uncollected deposits (DAUD) – prohibited.b. . Set off Rule • A bank can set off or compensate by debiting a personal account of depositor for an amount erroneously credits to the person’s proprietorship account 1. employees of bank in cash departments and other employees who have direct responsibility in handling deposit transactions are not allowed to maintain demand deposits or current accounts 1. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Savings Deposits • A written order addressed to a bank or person carrying banking business.
BERNARDO. JOY ESTELA. Withdrawals • There must always be a presentation of passbook and accomplishing necessary withdrawal slips before withdrawal except if authorized by BSP 9 • 3. Administration of Deposits 1. Methods of borrowing are issuance. Deposit Substitute (Quasi-Banking Function) Essential Elements of quasi-banking are: 1. . Anonymous and Numbered accounts • Such accounts are not allowed. Specimen signature.San Beda College of Law Banking Laws 2. Borrowing funds for the borrower’s account 2. FROM SECTION 2S . Such loans can be extended to domestic enterprises to cover the 100% foreign currency cover Depository banks under the expanded foreign currency deposit system shall be exempt from the 15% requirement of deposit with BSP There is no restriction on withdrawals by depositor of his deposit of the same abroad except does arising from contract of depositor and bank 7. except those which are required by BSP to be surrendered Such banks can accept deposits and accept foreign currencies in trust 1.b. Only Universal or commercial banks can issue negotiable CTDs without prior approval of BSP • • • • foreign currencies which are acceptable as part of international reserve. JANSEN. Twenty or more lenders at any one time 3.SAN BEDA COLLEGE OF LAW. Negotiable Order of Withdrawal Accounts • NOW accounts are interest bearing deposit accounts that combine the payable on demand feature of checks and investment feature of savings account Universal and Commercial banks may offer NOW accounts but other banks need prior approval of MB • • 4. MENDIOLA: AY 2011-2012. Numbered accounts for recording and servicing of deposits are allowed The depository bank shall 1. natural or juridical may deposit with such any bank in good standing designated by BSP. DE JESUS. Maintain at all times a 100% foreign currency cover for their liabilities 2. 15% of such must be in the form of foreign currency deposit with BSP 3. endorsement or acceptance of debt instruments 4. Purpose is for relending and purchasing receivables • Borrowing – all forms of obtaining or raising funds • For the borrower’s own account – assumption of liability in one’s own capacity • Relending – refer to the extension of loans by an institution with antecedent borrowing transactions 6. Time Deposits • Time deposits – one the payment of which cannot be legally required within such specified number of days Special time deposits from the Agrarian Reform Fund Commission with lower interest shall be exempt from legal reserve requirements Certificated of Time Deposits can either be negotiable or non-negotiable. Foreign Currency Deposits • Any person. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. ANTONIO CEASAR. TRACY ANN. • II. Minors and Corporations as Depositors AUTHORS: MANILA. banks/non-banks should ensure that the client is identified in an official document 5. Numbered accounts is only allowed in foreign currency deposits However. INTIG. The balance shall be in form of foreign currency loans/securities which are shortterm maturities and readily marketable 4. ID photos • All banking institutions are required to set a minimum of 3 specimen signature from their depositors every 5 years or sooner Banks may also require submission of ID photos First time depositors require the presentation of at least 2 valid photo-bearing Ids Students who are beneficiaries of OFW are also required to present 2 Ids Submission is one-time basis only • • • • 2.
DE JESUS. Survivorship Agreement • There is survivorship agreement when joint owners of a deposit agree that either of them could withdraw any part or whole of account during lifetime of both and the balance upon death of either belongs to the survivor It is an aleatory contract Survivorship agreement is per se not contrary to law but may be violative Agreement can be a mere cloak to hide in inofficious donation to transfer property in fraud • 5.5 hours in branches If there is no BSP clearing arrangement 2 hours before local clearing time • • • • IV. received after close of regular banking hours shall be treated as contingent accounts and booked the following day • 9. be booked on the day of receipt. Booking Deposits after regular banking hours • Deposits. Not otherwise DQed by law Parents can still deposit money to minor For deposits of minors in thrift banks.SAN BEDA COLLEGE OF LAW. Other non-cash deposits are treated as contingent accounts on the day of receipt and shall be booked as deposits the following day • • 8. Bank deposits are in the nature of irregular deposits as they are loans who earn interest (BPI vs. Bank ultimately acquires ownership of deposits but has obligation to pay back equal amount 6. MENDIOLA: AY 2011-2012. CA) 3. not earlier than 2 hours before BSP clearing time in head offices and 3.San Beda College of Law Banking Laws • Minors can have savings and time deposit accounts without assistance of parents 1. TRACY ANN. . manager’s/cashier’s checks. Must be at least 7 yrs old 2. INTIG. Time of payment of interest in time deposits • Interest on time deposit may be paid upon maturity. Nature of Bank Deposits 1. ANTONIO CEASAR. guardian may make notice that payment (deposits. Treatment of matured time deposits • Time deposits not withdrawn or renewed on its due date shall be treated as a savings deposit and shall earn interest until actual withdrawal with rates of savings deposit Deposit substitute not withdrawn shall have a maturity rate applicable to a deposit substitute III. at the option of the bank. Clearing Cut-off Time • General rule: all deposits and withdrawals during regular banking hours shall be credited/debited to accounts on date of receipt or payment If there is BSP clearing arrangement. Sufficient discretion 4. Booking Cash Deposits • Cash deposits received after clearing cut-off time shall be book as deposits on day of receipt 7. Average Daily Balance • Banks may impose and collect service charge or maintenance fee on savings and current accounts that fall below minimum monthly average daily balance (ADB) must be properly disclosed in the terms of deposit For dormant accounts: fall below 2 consecutive months 3. JANSEN. Deposits are considered simple loans and not preferred credits 2. interest. Booking Non-cash Deposits • “on us” checks. withdrawal or advance provided that the interest paid in advance shall not exceed interest for one year • • 4. demand drafts received after clearing cut-off time AUTHORS: MANILA. BERNARDO. whether cash or not. Relationship between depositor and Savings and Loan Association is that of creditor and debtor 4. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. dividends) be made to him and not to the minor Corporations may open bank accounts as follows: (1) Incorporation stage and (2) Post incorporation stage 10 may. Contract between bank and its depositors are governed by NCC 5. Able to read and write 3. Banks can set-off or compensate • 6. JOY ESTELA. FROM SECTION 2S .
(2) written permission by depositor (3) subject matter of litigation • • • • • VII. (2) impeachment.SAN BEDA COLLEGE OF LAW. JOY ESTELA.) the account must be properly identified 2. JANSEN. DE JESUS. (3) order of court in case of bribery or dereliction or (4) subject matter of litigation It shall also apply to foreign currency deposits with the only exception of written permission In Islamic banks that only exceptions are: (1) inspection of bank auditor. Secrecy of Bank Deposits • Purpose is to (1) give encouragement to the people to deposit their money in banking institution and (2) discourage private hoarding of depositors so that could be used in economic development All deposits of whatever nature with bas including investment bonds are considered absolutely confidential and may not be examined. Exceptions to Secrecy of Deposits • • They are already stated above Accounts can be garnished to insure satisfaction of judgment as there is no real inquiry and some disclosure are merely incidental Congress not intended for debtors to escape General exemption against garnishment shall not apply to foreign transients Foreign currency deposits of a foreigner who was convicted of crime of rape may be garnished to satisfy judgment Under RA 1405 and Anti-Money Laundering Act. thus collecting bank has obligation to ascertain that the drawer truly intended that the depositor is the payee In case of death of depositor and the bank knew of it. FROM SECTION 2S . . REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. TRACY ANN. Duties of Banks • • Meticulous care with deposits of clients due to fiduciary relationship Banks must give payment to the proper party. the secrecy of deposits do not apply • • • • AUTHORS: MANILA.San Beda College of Law Banking Laws V. INTIG. ANTONIO CEASAR. there shall be no further withdrawal Administrators or heirs can withdraw up to 20k without certification of CIR • • 11 • • • BSP can also inquire in deposits for periodic and special examinations Ombudsman has the In-Camera Inspection power to look into deposits provided that there is a pending case is court and 1. MENDIOLA: AY 2011-2012.) inspection limited to the subject matter CIR can also look into deposits to determine gross estate of a decedent or he has applied for compromise tax liability VI. inquired or looked into even by government officials RA 8367 prohibits inquire or disclosure of deposits Exception: (1) written permission of depositor. BERNARDO.
FROM SECTION 2S . JANSEN.SAN BEDA COLLEGE OF LAW. Storage 3. BERNARDO. Financing companies 5. Farm equipments 4. Companies in stock brokerage and foreign exchange dealership 8. Computer services 6. whether allied or non. Marketing agricultural products 6. Operations of Commercial Banks Powers of Commercial banks 1. PCHC Rural and cooperative banks can invest in nonfinancial allied enterprises such as: 1. public utilities 2. General powers incident to corporations 2. Service bureaus 8. Safe deposit box 4. Commercial bank 2. mining. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Credit card companies 6. Invest in non-allied enterprises Equity Investments of Universal bank • • • Allied enterprises are those which enhance or complement banking If it is a financial allied enterprise. ANTONIO CEASAR. shall not exceed 25% Net worth – total of the unimpaired paid in capital including paid-in surplus. Leasing companies 2. Commercial project with government privatization program Equity investment in Quasi-banks – universal bank can only invest up to 40% in equity of quasi-banks • • • II. Enterprises engaged in agriculture. quarrying. DE JESUS. Fertilize and agricultural chemical 3. . Investment house 3. Financial institutions 7. Home building and development 7. retained earnings and undivided profit 12 Equity investments of universal bank in non-financial allied enterprise • • Universal bank may own up to 100% of equity in non-financial allied Examples are: 1. Insurance companies 9. TRACY ANN. rural bank or financial allied enterprise Publicly-listed universal or commercial bank may own 100% of voting stock of another universal or commercial bank If not publicly-list then only 49% own Following are financial allied enterprises: 1. Banks 3. Companies engaged in management of mutual funds and not funds itself 5. Warehousing 2. Investment houses 4.San Beda College of Law Banking Laws CHAPTER 4 – Investments. then it involves money matters. INTIG. Loans and Other Bank Functions I. Holding company provided that the equities of the entity is confined under universal bank BSP regulation Equity investment of Universal Bank in Non-allied enterprise • Equity investment in a single non-allied enterprise shall not exceed 35% in total equity or voting stock Investments in non-allied enterprises • Universal bank may invest in equity of enterprise of eligibles: 1. Leasing • • • Equity investments of Universal bank in Financial Allied enterprise • • Universal bank can own 100% of the equity in a thrift. Trucking and transportation 5. Otherwise it shall be non-financial Total investments in equities of allied and nonallied enterprises shall not exceed 50% of the net worth of the bank Equity investment in any one enterprise. Warehousing companies 2. JOY ESTELA. All power necessary to carry business of commercial banking such as: AUTHORS: MANILA. Industrial parks 3. manufacturing. Universal Operation of Universal banks Powers of Universal bank 1. MENDIOLA: AY 2011-2012.
REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. the SBL was increased to 25% Exceptions to SBL: • • AUTHORS: MANILA. confirming bank (lend credence to letter of credit). ANTONIO CEASAR.San Beda College of Law Banking Laws a. partnership or corporation shall not exceed 20% of net worth of bank In Circular 425 of 2004 of BSP. DE JESUS. called bill of exchange Seller will present the draft and the necessary documents. it shall be owned by issuing bank When the goods arrived at the port of the buyer. buyer-bank 3. Limit on loans.SAN BEDA COLLEGE OF LAW. FROM SECTION 2S . MB may temporarily relieve such bank with compliance with capital ratio • • • IV. Buy and selling Forex Issuance of Letters of Credit • Letter of credit – financial device developed by merchants as convenient mode of dealing with sales of goods The buyer will apply for a letter of credit in the issuing bank The seller will then send the goods to the carrier and he will make a draft. BERNARDO. Limit distribution of net profits and be used to increase capital accounts until minimum requirement is met 2. Risk-Based Capital Minimum Ratio • • • • MB shall prescribe minimum ratio It will be based on the net worth and risk assets of a banks well as its compositions It may alter compliance with ratio for a max period of 1 year Ratio shall be uniformly applied to banks of same category • • • • Effect of Non-compliance • If a bank does not comply then the MB can: 1. . JANSEN. credits accommodation and guarantees extended to any person. rehabilitation. seller-bank There can be other parties such as notifying bank (inform seller). paying bank and negotiating bank (discounter) 13 Equity investment of commercial bank on financial allied enterprises • • Can own up to 100% in equity of thrift and rural bank However cannot own 100% of equity of financial allied enterprise other than above banks Equity investment in commercial bank on non-financial allied enterprises • Can own 100% of said enterprises • • • III. such as bill of lading to issuing bank to receive the payment While the goods are in transit. buyer-seller 2. Creating demand deposits d. Discounting c. TRACY ANN. INTIG. the buyer will pay the corresponding payment and also gain the documents Since the buyer gain the documents. JOY ESTELA. Accepting draft and issuing letters of credit b. Restrict acquisition of major assets and new investments except with purchase of readily marketable evidence of indebtedness of RP BSP In case of merger. he can now acquire the delivered goods Independence principle – bank determines compliance with letter of credit only by examining shipping documents presented and need not examine the goods There are three contracts: 1. MENDIOLA: AY 2011-2012. credit accommodation and guarantees Equity investments on commercial bank Single Borrowers Limit • • • Commercial bank may invest only in equities of allied enterprises Total investment in equities of allied enterprises shall not exceed 35% Equity investment in one enterprise shall not exceed 25% • Total amount of loans.
JANSEN. shall be securities not exceeding 30 days exempted from SBL • Bank guarantee – irrevocable commitment of a Violations bank binding to pay a sum of money in event of • Monetary penalties – 1/10 of 1% of excess over non-performance of third party the ceiling but not exceed 30k per day • Credit Risk Transfer – arrangement that allows the • If bank resource is less than 50M. shipping documents or readily marketable 1. BERNARDO. credit actually existing values – drawn by a seller on the accommodation. DE JESUS. Loans and credit accommodations as a rural and coop banks. Liabilities of commercial paper issued for • Wholesale lending of government banks shall not commercial paper held by UB as firm exceed 35% of net worth to participating financial underwriter. Can appoint majority of directors • Loans .San Beda College of Law Banking Laws 14 subsidiaries. Loans and credit accommodations covered borrowers by international or regional institutions • The end-user borrower shall be subject to the 25% where Philippines is shareholder such as SBL ADB • In municipalities where there are no government 6. Deposit of rural banks with GOC financial • Even if less than half of said voting power. MENDIOLA: AY 2011-2012. TRACY ANN. Credit accommodation to finance agriculture or industry as constant dealings in importation of rice or corn up to 100% net ready market and price is easily ascertainable and worth of bank disposable Must be approved by NEDA • Parent corporation’s total credit commitment shall 3. Govern financial and operations commitment of bank to borrower 3. 7. guaranteed by Industrial Guarantee and accommodate or subsidiary is merely a department Loan Fund of it 4. deposits of rural and coop banks in private valuation reserves provided that bank has banks shall not be subject to SBL no unbooked valuation reserves • Deposit in private depository bank used by thrift. . deferred letters of credit less purchase for the price of commodity sold margin deposits and guarantees • Commercial paper owned by person negotiating • Total credit commitment can be increased by 10% the same – paper arising from business transaction provided additional liabilities are secured by trust • Exclusion from SBL: receipts. Discount bills of exchange and discount goods commercial paper • Readily marketable goods – articles of commerce.include loans. then only a max bank to transfer the credit risk associated with its loan or other credit accommodation to a third party penalty of P500 shall be imposed • There will also be reprimand to directors/officers • Control of majority interest or controlling interest – parent owns. with authority to accept result of underwriting agreement of debt demand deposits. Loans and credit accommodation also include its subsidiaries’ if it guarantees. Only 180 days and not institutions exceed 5% from normal SBL • PFI – institutions for relending to end-user 5.SAN BEDA COLLEGE OF LAW. ANTONIO CEASAR.to all accounts under loan portfolio 4. after being cleared. Cast majority vote on meetings • Credit accommodations . more than half of voting power of 1. INTIG. Loans and credit accommodations with banks. it shall institutions such as LB. Agreement with investors 2. FROM SECTION 2S . 2. MB may otherwise prescribe for reasons enterprise of national interest 2. directly or indirectly through its AUTHORS: MANILA. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.to credit and market risk • Subsidiary – corporation where more than 50% of exposure of banks arising from accommodation the voting stock is owned by a parent corporation other than the loan • Bill of exchange drawn in good faith against • Total credit commitment . JOY ESTELA. DBP and PNB still have controlling interest if: • Basis for determining SBL is the total credit 1.
Loans and credit accommodations determined by MB as non-risk items Assignment of Credits • It is the agreement where the owner of credit. know as assignor. Loans and credit accommodations guaranteed by government 3. In case of corporation. all liabilities to such bank of all subsidiaries it has majority interest 4. FROM SECTION 2S . JANSEN. INTIG. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. DE JESUS. co-ownership of DOSRIs Corporations where the above mentioned owns 20% of subscribed capital. Loans and credit accommodations under letters of credit covered by margin deposits 5. BERNARDO. Loans and credit accommodations covered by assigned of deposits by lending bank 4. ANTONIO CEASAR. acceptor of paper discounted and general indorser. Partnership. MENDIOLA: AY 2011-2012. Officers. Loans and credit accommodations secured by BSP or RP. • . drawer or guarantor 2. Individual who controls majority interest in corporation 3. State is always solvent 2. indorser or surety for loan Exception is when there is a written approval of the majority of all directors of the bank excluding the DOSRI concerned Such approval is not required if it is under a fringe benefit plan approved by BSP Directors include those named in incorporations. elected or filled Officers shall include any person who performs function of management Stockholder – stockholder of record in the books of the bank Related interest includes souse or relative within 1st degree or by legal adoption.San Beda College of Law Banking Laws • • In subsequent offense. JOY ESTELA. This includes partnership. known as assignee without need of consent of debtor Assignee acquires powers of assignor There is no new obligation in assignment However. transfer his credit to another. a 1k fine shall be imposed on the directors who approved it There can also be suspension of bank’s branching privilege and rediscounting facility of BSP • • 15 It is not allowed. Stockholder and related interests (DOSRI) • No DOSRI can directly or indirectly borrow from such bank or become a guarantor. Encashment of deposit certificates is not pacto commissorio It is intended to protect the obligor against being overreached by creditor Inclusion to Limit • The following shall be included 1. Yap Tico and Avanceña) • • Effect of violation • The director or officer who violates may be declared vacant and subject to penal provisions of NCBA • • • • Limit on loans • MB can limit the valid loan given to DOSRI provided that it shall be based on their unencumbered deposits and book value of their paid in capital contribution Exclusion to the Limit Pacto commisorio • Loans and credit accommodations considered as Appropriating a thing given by pledge or non-risk mortgage AUTHORS: MANILA. TRACY ANN. Maker. then the prohibition shall apply Can also be less than 50% if the DOS sits as representative of the bank in the board of such corporation • • • • • • • Exclusion to limit 1. Restriction on Bank Exposure to Directors.SAN BEDA COLLEGE OF LAW. by legal cause. there must be a notice given to debtor so that he will know whom to pay Consent is not necessary in order that assignment may fully produce legal effects (Sison & Sison vs. liabilities of members Also includes parent corporations with majority interest V.
REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. LGU due to full autonomy in their propriety function 4. TRACY ANN. violate undertaking or attempts to abscond MB shall recognize peculiar characteristic of micro financing such as cash flow-based lending Microfinancing loans – small loans granted to basic sectors usually unsecured and given to small businesses Loans and credit accommodations on security of chattels and intangible properties • Shall also not exceed 75% of the appraised value of the security Join and Solidary agreement • • JSA is surety and not guarantee. It must consists of: 1. Those made by BSP 3. . • Effect of Surety Agreement • • Agreement is onerous and construed against creditor Requires that creditor obtain consent of the surety before there can be material alteration to the loan • • AUTHORS: MANILA. fails to give guarantee. instrumentalities and GOCCs Exceptions would be: 1. Cuenca) Joint and solidary agreement – agreement where the contracting parties consent to be jointly and severally liable in a loan obligation purposes of loans and credit VII. FROM SECTION 2S . subdivisions. ANTONIO CEASAR. Statement of assets and liabilities 2. lost thing through fortuitous event. It is an agreement where parties consent to be solidarily liable As a contract of adhesion. impaired guarantee. Loans and credit accommodations that are non-risk and not subject to ceiling 2.SAN BEDA COLLEGE OF LAW. JANSEN. MENDIOLA: AY 2011-2012. INTIG. Director who acts as government representative If surety director is not anymore party of the board then he cannot be held liable Surety cannot extend to more than what is stipulated Joint and solidary signature of major stockholder or officer constitutes as an additional security for loans granted to corporations (Security Bank & Trust Company vs. Statement of income and expenditure 3. Securities on Loans and credit accommodations Loans and credit accommodations against real estate • Shall not exceed 75% of appraised value of respective real estate security plus 60% of the appraised value of the insure improvements Requirement for grant of loan • Bank must first ascertain if debtor is capable of fulfilling his commitments to the bank. Prescribed by law and MB to evaluate credit application Even in the absence of such provision in GBL. JSA should be taken contra proferentum against the party who may have caused any ambiguity therein. BERNARDO.San Beda College of Law Banking Laws • • Loans and credit accommodations to officers in for of fringe benefits Limit on loans and credit accommodations shall not apply on those extended by coop bank to its coop shareholders rules and regulation to • • • • 16 Applicability of DOSRI government borrowing • • Circular 547 of 2006 provides that DOSRI rules shall also apply to loans and credit accommodations granted to RP. DE JESUS. Grant and accommodations Amount and purpose of loan • Bank must grant loans and credit accommodations only in amounts and for period of time essential for effective completion Must be consistent with safe and sound banking practice Purpose of loan shall be stated in application If bank finds that proceeds have been employed without its approval. JOY ESTELA. the bank shall have the right to terminate the loan and demand immediate repayment • • • VI. Art 1198 of the NCC allows the creditor to demand full payment when debtor is insolvent.
the bank must ensure that the loan shall be repaid • 17 • • Unsecured loans and other credit accommodation • MB shall authorize regulations with respect to such • • Other security requirements for bank credits • MB may prescribe security requirements to which bank credits shall be subject and reduce or increase maximum ratio • Authority to prescribe terms and condition of loans and other credit accommodations • MB may prescribe maturities as well as related conditions of various bank loans and credit accommodations Any change in maximum maturity shall only apply to those made after such action • PROVIDED: such stipulation shall only be valid if there is also a stipulation that the interest rate agreed upon shall be reduced in the even maximum interest rate is also reduced by MB Escalation clause are not void per se It is void when it grants creditor unbridled right to adjust interest independently. FROM SECTION 2S . .SAN BEDA COLLEGE OF LAW. TRACY ANN. the escalation clause is still valid if the creditor unilaterally and actually decreased the interest charges whenever the interest rate is reduced by law or MB (Llorin vs. other party there must be right to assent to an important modification of contract • Escalation Clause • Parties to an agreement pertaining to loan of may agree upon an increase in the event that the applicable maximum interest is increased by MB • • AUTHORS: MANILA. BERNARDO. principal amount of loan is subject to original interest rate Exception • If there is no de-escalation clause. Due to the nature that it is affected public interest. must have periodic amortization payments and must be made annually If borrowed funds are to be used for purposes which do not initially produce revenues for payment of regular amortization. DE JESUS. JOY ESTELA. MENDIOLA: AY 2011-2012. INTIG. bank may defer such time until revenues are sufficient. CA) • • Unilateral increase of rates • • Such violates the principle of mutuality of contracts in Art 1308 of NCC Any contract which appears to be heavily weighed in favour of any one party that will lead to unconscionable result is void Escalation clause are valid to maintain fiscal stability and retain the value of money on longterm contracts However. ANTONIO CEASAR. Increase in interest if increased by law or MB (escalation clause) 2. completely depriving debtor of right to assent Such clause violate the mutuality of contracts In escalation clause there should be: 1.San Beda College of Law Banking Laws Reason for stringent rule in granting loans • Banking corporation holds the money of the depositors. Include provision for reduction of stipulated interest in the event maximum interest is also reduced by law or MB (deescalation clause) Purpose of including de-escalation clause – prevent one-sidedness in favour of lender an repugnant to mutuality of contracts Absence of de-escalation clause will render escalation clause void • Amortization on loans and other credit accommodations • Amortization schedule of bank loans and other credit accommodations shall be adopted based on nature of operation If loans and other credit accommodations has maturity of more than 5 years. schedule shall consider cash flow of borrowers Effect of annulment of escalation clause • In case the escalation clause is annulled. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. In no case shall initial amortization date be later than 5 years In case of loans and other credit accommodations to microfinance sectors. JANSEN.
interest may be agreed upon by lender and borrower However. TRACY ANN. Further reinforce memorandum that peso deposits should be funded inward foreign exchange remittances OFWs are residents and can avail peso loans Iniquitous. without government guarantee. SC found that 66% interest rate per anum is unconscionable In Cuaton vs. . JANSEN. unconscionable and exorbitant interests • • • • Though usury law is not inexistent. unconscionable and exorbitant In Medel vs. FROM SECTION 2S . INTIG.SAN BEDA COLLEGE OF LAW. 1278. Truth in Lending Policy Development assistance incentives • BSP shall provide incentives to banks. DE JESUS. prepay in whole or in part the unpaid balance subject to reasonable terms • Legal compensation • Under Art. Banco Filipino. the following must be proven: 1. interest rate was 120% per annum interest rate is unconscionable and should be lowered to 12% per annum interest rate Dio vs. Parties expressly agreed to considered effects of extraordinary inflation or deflation Extraordinary Inflation exist when there is an unusual decrease in the purchasing power of the currency and such decrease could not be reasonably foreseen or was manifest beyond the contemplation of the parties at the time of the obligation Effect of void interest rate • If interest rate is void. ANTONIO CEASAR. interest rate was 120% per annum also. JOY ESTELA. Salud.all debts due to any bank on which interest is past due and unpaid • • Extraordinary inflation or deflation • Under Art 1250 of NCC. There must first be official declaration from BSP 2. value of currency at time of establishment of contract shall be the basis of payment For extraordinary inflation or deflation to affect obligation.San Beda College of Law Banking Laws • Contract of adhesion – parties do not bargain on equal footing. CA. in case of extraordinary inflation or deflation of currency stipulated. it is as if no express contract thereon and court may reduce • Prepayment of loans and other credit accommodations • A borrower may at any time prior to agreed maturity date. the same must be equitable reduced for being iniquitous. BERNARDO. cooperatives. compensation can take place where the parties are creditors and debtors of each other A person who secures a loan of money acquires ownership and is bond to pay the creditor an equal amount Deposits in bank can be set-off against obligation of depositor Subsidiary has an independent and separate juridical personality from parent company and any claim against the subsidiary is not a claim against the parent • • • Purpose of Attorney’s Fees • Attorney’s fees are not integral part of cost of borrow but arise when collecting upon the Notes becomes necessary VIII. To curb undue speculation in foreign exchange market 2. the weaker party’s participation being reduced to a take or leave it 18 financial educational institutions. Obligation is contractual 3. MENDIOLA: AY 2011-2012. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. which extend loans to AUTHORS: MANILA. Virgilio. reduction of interest must be made Bacolor vs. a 24% interest rate per annum is not unconscionable or excessive • Provisions for losses and write-offs • Bad debts . hospitals Banks cannot extend peso loans to non-resident • Reason for this: 1.
FROM SECTION 2S . CA. deed of trust. Finance charge 7. JOY ESTELA. Civil – any creditor who fails to disclose shall be liable for P100 or amount equal to twice of finance charge required a. JANSEN.San Beda College of Law Banking Laws • Protect citizen from lack of awareness of trust cost of credit to the user by assuring full disclosure of such cost and prevent uninformed use of credit • • 19 Disclosure • The creditor shall furnish the debtor a clear statement in writing setting forth the following: 1. interest rate provisions are illegal due to violation of mutuality of contracts and also violate TILA Exemption of government • TILA shall not apply to Philippine Government Required disclosure on consumer loans not under openend credit plan • Any creditor extending consumer loan or transaction which neither consumer credit sale nor open-end consumer credit plan shall also need to disclose information • Definition • • Credit – any loan. advance. discounts and other charges incident to extension of credit Creditor – any person engaged in business of extending credit who requires finance charge Exempted transactions • Disclosure requirement on consumer credit transactions shall not apply to those extension of credits for business or commercial purpose or to government • IX. Must be brought within 1 year from date of occurrence 2. right to redeem property shall AUTHORS: MANILA. if purchased y banks. Whichever is higher b. they are not required to set up bond before they can enter the property immediately during redemption period Writ of possession may also be issued after consolidation of ownership of property in name of buyer Buyer becomes absolute owner of property if not redeemed during the 1 year after registration of sale If the property extrajudicially foreclosed belong to a juridical persons. Amount to be credited as DP 3. Percentage that finance bears to the total amount to the financed Rationale: protect users of credit from lack of awareness of true cost • Violation shall not affect the validity or enforceability of any contract In Consolidated Bank vs. mortgage. Foreclosure of real estate mortgage Procedure Penalties 1. BERNARDO. Total amount to be financed 6. DE JESUS. the mortgagor has the right to redeem the property within one year after sale of real estate Purchaser at auction sale shall have the right to enter upon and take possession of such after date of confirmation of auction sale In GBL. fees. conditional sale contract. Cash price or delivered price to be acquired 2. TRACY ANN. Difference between 1 and 2 4. service charges. MENDIOLA: AY 2011-2012. ANTONIO CEASAR.SAN BEDA COLLEGE OF LAW. Charges individually itemized 5. rental Finance charge – interest. Liability shall not exceed 2k c. . SC said that lender cannot charge interests not stipulated in promissory note In UCP vs. Beluso. Criminal – fine not less than 1k or not more than 5k or imprisonment for not less than 6 mos nor more than 1 year or both • Both actions can be instituted independently of each other • But there can also be a joinder of cause • • • • • • Effect of violation In the event of foreclosure of any mortgage. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. INTIG.
it shall not be construed as waiver of right to question foreclosure sale Mortgagee has no right to recover the deficiency from the mortgagor of value of loan if foreclosure is invalid • • Demand before foreclosure essential • There must first be demand before there can be foreclosure as where demand was not made. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. INTIG. the registration of the certificate of foreclosure It shall be no more than 3 months after foreclosure whichever is earlier Accessory contract of real mortgage is used as security for fulfilment of principal obligation A loan value is only 70 percent of the appraised value so that a low bid price will be made and will be easier to redeem Real property may be mortgaged to aliens Redemption period is counted from date of registration of the certificate of sale with register of deeds An action for annulment of mortgage does not stop the running of the period of redemption Otherwise there shall be frivolous suits instigated to give mortgagor more time to redeem The amount redeemable is the amount under the mortgage deed or the outstanding obligation plus interest and expense in Sec 47 of GBL No personal notice in required in extrajudicial foreclosure of sale since it is action in rem • • • • • • 20 • • • • • • • • • Right to redeem becomes functus officio on the date of its expiry Redemption is by force of law. the mortgagor is given the right to extinguish the mortgage and retain ownership of property by paying debt within 90 days after judgment Writ of possession • After consolidation of title in buyer’s name due to failure of mortgage to redeem. cannot be made to alien Offer to repurchase not waiver to question sale • If there was an offer to repurchase.San Beda College of Law Banking Laws be counted until. the loan shall not become due and demandable Preferred status of banks not impaired in case borrower under rehabilitation • In case of rehabilitation of corporation debtor. even for a limited period or in foreclosure. DE JESUS. no right of redemption exist in case the mortgagee is not a PNB or bank In such a case. JANSEN. TRACY ANN. MENDIOLA: AY 2011-2012. the writ of possession becomes a matter of right and its issuance in a extra-judicial foreclosure is merely ministerial Injunction to prohibit issuance of writ of possession is utterly out of place Proceeding in petition for writ of possession is exparte and summary in nature However. not after. the right of a creditor bank is merely suspended Equity of redemption vs. JOY ESTELA. there can be right to repurchase depending on the will of buyer The buyer is not bound to accept repurchase unlike in redemption The buyer shall also not be bound by the bid price as it now belongs to him An alien-owned bank cannot acquire ownership of residential lot by virtue of deed of transfer as settlement of debt Transfer of ownership. mortgagor still have right of recourse to petition to set aside foreclosure sale and cancel writ of possession in same proceeding • • • • Right of redemption may be extended by agreement Estoppel • Bank or any purchaser is deemed consented to extension of redemption if it had time to object but it did not Redemption after prescriptive period X. FROM SECTION 2S . BERNARDO. Right of redemption • Where foreclosure is judicially made.SAN BEDA COLLEGE OF LAW. the buyer is bound to accept redemption However. Major investments AUTHORS: MANILA. . ANTONIO CEASAR.
bank may still acquire the following property: 1. Make collection for accounts of other 4. Strategic planning for use of IT • A bank may also perform the following services: 2. Mortgage to it in good faith for security 2. TRACY ANN. BF reached its maximum 50% capacity in real estate and Tala was created by major stockholders to buy back sites of BF and leases it back to them. ANTONIO CEASAR. Conveyed for satisfaction of debt 3.SAN BEDA COLLEGE OF LAW. JANSEN. However. Change management inclusive of quality other valuable objects assurance 2. Other Banking Services 1. a bank was held liable for not immediately informing the customer that his safety deposit box was flooded which caused damage to the items of the customer • • • • • • • • • Acquisition of real estate by way of satisfaction of claims • Notwithstanding the limitations. MENDIOLA: AY 2011-2012. Act as financial agent to buy and sell for 4. BF defaulted and Tala wants the payment of rents The court rules that Tala cannot be allowed to collect rent as it clearly shows that the tried to circumvent the real estate investment limit in GBL • • 3. CA. the following shall apply o Investment shall include real estate and equipment necessary for bank use such as bank premises and real property of bank under its name o The cost of real estate leased by bank from corporation and amount of equity in lessor shall also be included In case of Tala vs. INTIG. BERNARDO. Security policy and administration AUTHORS: MANILA. Electronic transactions • BSP shall have full authority to regulate use of electronic devices in connection with bank operations • • XIII.San Beda College of Law Banking Laws • MB shall establish criteria for reviewing major acquisitions or investments of bank 21 Ceiling on investments in certain assets • • • Bank may acquire real estate as necessary for its conduct of business Total investment on such real estate shall not exceed 50% of capital accounts Equity investment of a bank in another corporation engaged in real estate shall be considered part of investment in real estate In determining compliance with the ceiling. documents and 3. Banco Filipino. Act as managing agent of investment management accounts 5. Determination of system functionalities 1. DE JESUS. . JOY ESTELA. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. FROM SECTION 2S . Rent out safety deposit boxes Bank shall perform 1-4 as a depositary or as an agent It shall be duly separated from bank’s own assets and liabilities Safety deposit box • • It is considered as a special kind of deposit It cannot be an ordinary contract of lease because the absolute control and possession of safety deposit box is not given to renters The guard key remains with bank and renters key remain in customer Where the renter keys are duplicated. Outsourcing of information technology • Bank may outsource information technology systems and processes except inherent banking functions • Functions that are not outsourced: XI. Service level and contract management their customers 5. Receive custody of funds. Purchase under judgement or mortgage Any real property held in such circumstance must be disposed within 5 years After said period. the bank is not liable to either renters in case of loss attributable to them The SC said that it can be considered as a bailor and bailee relationship Duties of the parties may be defined by them The company renting safe-deposit boxed cannot exempt itself from liability due to fault of its own agents In Sia vs. those properties shall now be included in the 50% limitation XII.
San Beda College of Law Banking Laws XIV. banks must exercise proper diligence by ascertaining applicant possess good credit standing and are financially capable to fulfil payments All applications must go under strict credit risk assessment process Handling of complaints • bank shall give cardholder 20 days to examine charges and after 2 billing cycles. banks and subsidiary credit card companies Offset • Banks can offset their obligations with cardholder with the latter’s debts provided there is notice Minimum requirements • Before issuing credit cards. plate. interest rate per annum. JANSEN. instalment details. bank can correct error • Information to be disclosed • Banks shall disclose to each prospective cardholder non-financial charges. MENDIOLA: AY 2011-2012. . exchange of information with other credit card companies. property. banks may outsource data imaging. retrieval and other related systems Banks may outsource credit card services • 22 Interest accrued shall be reserved and no accrual shall be allowed 90 days after credit card receivable has become past due Finance charges – interest charged to cardholder Deferral charges • Parties can agree to a deferral of all or partly of unpaid instalments and will subsequently collect deferral charge • XV.minimum amount that cardholder needs to pay on due date Default – non-payment of minimum amount due within two cycle dates Acceleration clause – gives bank the right to demand obligation in full in case of default Confidentiality if information • Banks shall keep strictly confidential data on cardholder except when there is consent. storage. etc. BERNARDO. percentage of interests.SAN BEDA COLLEGE OF LAW. DE JESUS. FROM SECTION 2S . REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. default fees. TRACY ANN. INTIG. JOY ESTELA. ANTONIO CEASAR. Credit Card Transactions General policy • BSP shall develop consumer credit through innovative products Late payment and penalty fees • No late payment or penalty fee shall be collected unless it is fully disclosed in the contract Definition of terms • Credit card – any card. Unfair collection practices • • banks shall resort to legally permissible means to collect amount due under credit card agreement There shall be no use of threat or violence to coerce payment and no false representation Accrual of interest earned Additional deposit does not increase credit limit AUTHORS: MANILA. labor or credit Credit card receivables – total outstanding balance of cardholders Minimum amount due . disclosure to collecting agent • • • • Suspension. termination of effectivity and reactivation • banks shall formulate parameters for such Inspection of records covering credit card truncations • banks shall make available for inspection credit card information to BSP Risk management system • System that shall safeguard interests. coupon book or other credit device for the purpose of obtaining money. Outsourcing of other functions • Subject to prior approval of MB.
INTIG. DE JESUS. FROM SECTION 2S . he shall only pay the price indicated When consumer pays through credit/ATM/debit card. JOY ESTELA. MENDIOLA: AY 2011-2012. TRACY ANN. . ANTONIO CEASAR. Rules of Price tags One price tag requirement • • Every retailer is required to display price tag to indicate price of good or service Price tag must be written clearly indicating the price including VAT. the same is allowed provided that options are disclosed by separate information but not on the price tag Price that indicates separate cash price and regular cash price is not allowed Price tag that indicates separate price tag and card price is also not allowed • • Prohibition against surcharging • Retailers who honor credit/ATM/debit cards for payment shall not require payment of surcharge over and above the price tag AUTHORS: MANILA. JANSEN. Service charge shall not be included in price tag Mode of payment • • • • It is necessary to consider business practices relative to mode of payment under Price Tag Law When consumer pays in cash. he shall only pay price indicated in tag When retailer offers consumer option to pay in cash or card. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.San Beda College of Law Banking Laws Contract of adhesion • Contract between cardholders and credit card companies are contract of adhesion becomes they are prepared only by one party and the other party only signifies 23 Blanket freedom from liability is invalid • The credit card company cannot excuse itself from liability completely as with blanket of freedom XVI. BERNARDO.SAN BEDA COLLEGE OF LAW.
DE JESUS. Furnish false material facts to obtain or increase loan 3. BERNARDO. MENDIOLA: AY 2011-2012. TRACY ANN. JANSEN. FROM SECTION 2S . the following shall be considered: 1. Attempt to defraud bank in event of court action to recover loan 4.San Beda College of Law Banking Laws CHAPTER 5 – Prohibited Transactions and Cessation of Banking Business I. investor or public 3. Conducting business in an unsafe or unsound manner • To determine whether act or omission is considered unsafe or unsound for banking. creditors. quasi-bank or trust entity • Prohibition against Outsourcing Certain Banking Functions V. Overvalue a security for purpose of influencing actions of bank 5. Prohibited Transactions Prohibited to act as insurer • • Bank shall not directly engage in insurance business as insurer Insurance act shall include making insurance contract. . Placement under conservatorship Grounds for appointment of conservator AUTHORS: MANILA. Cause undue injury or unwarranted benefits to any party 4. Outsource inherent banking functions This is to ensure secrecy of bank deposits No borrow shall 1. Without order of court. INTIG. the manpower to service the deposit transaction of the former. disclose to an unauthorized persons an information relative to funds or properties in custody of customers 3. examiner rendering technical assistance to bank shall commit the foregoing acts No bank shall employ causal or non-regular personnel or too lengthy probationary personnel in business involving bank deposits • III. Make false entries in any bank report 2. doing business of reinsurance Fact that no profit is derived shall not be deemed conclusive to show that there is no insurance business • 24 Outsourcing inherent banking function shall refer to any contract between the bank and service provider for the latter to supply. Offer any DOE any gift. fees or commission in connection for approval of loan 4. fee. officer or employee of BSP assigned to supervise. Fraudulently overvalue security for loan 2. Resulted in material damage or abnormal risk to stability. Resulted damage in depositors.SAN BEDA COLLEGE OF LAW. surety contract. commission to influence person to approve loan No examiner. Involves entering contract manifestly disadvantageous to bank regardless if DO will profit MB can take action and exclude erring bank from clearing • Prohibited acts • No director shall: 1. Prohibition on dividend declaration • No bank shall declare dividends greater than its accumulated net profits on hand. ANTONIO CEASAR. Accept gifts. solvency of bank 2. or any act whereby the latter supplies. II. JOY ESTELA. deducting its losses and bad debts The bank shall also not declare dividends if at time there is: o Clearing account in BSP is overdrawn o Deficient in require liquidity floor for 5 or more consecutive days o Does not comply with liquidity standards o Committed major violation Banks are entities exempted from improperly accumulated earnings tax (10% of said income) by NIRC • • • • IV. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Unauthorized advertisement or business representation • No persons or corporation shall engage in banking business shall advertise that it has a business of a bank.
Unwillingness to maintain a condition of liquidity deemed adequate to protect depositors and creditors MB may appoint conservator with following powers: 1. Collect monies and debs due 4. INTIG. FROM SECTION 2S . there shall be receivership or liquidation • • • • • • Final and executory • • Action of MB shall be final except on petition for certiorari in case of grave abuse of discretion It shall be filed within 10 days from receipt of notice of board of directors of conservatorship. Continuing inability or 2. payable in 12 equal instalments • • AUTHORS: MANILA. conservator shall not be entitled to remaining balance MB can appoint conservator connected to BSP in which case he shall not receive remuneration from BSP Expenses of conservatorship • It shall be borne by bank concerned • Terminations of conservatorship • • MB shall terminate the conservatorship is it is satisfied that bank can continue operations Conservatorship can also be terminated on basis of report of conservator or its own findings would involve loss In such as case. receivership proceedings • 25 • • • If within one year the conservatorship is terminated on ground that institution can operate on its own. . DE JESUS. BERNARDO. ANTONIO CEASAR. If insolvent. TRACY ANN. unenforceable. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. voidable. Take charge of assets. Reorganize management 3. rescissible) Conservator merely takes place of board of directors Qualification of conservator • Conservator must be competent and knowledgeable in bank operations and management Period of conservatorship shall not exceed 1 year • Remuneration • Conservator shall receive remuneration to be fixed by MB in an amount not to exceed 2/3 the salary of president of bank in 1 year. conservator shall receive balance But if it is terminated on some other ground.San Beda College of Law Banking Laws • Whenever the MB finds the bank in a state of: 1. JANSEN. JOY ESTELA.SAN BEDA COLLEGE OF LAW. evaluate and determine condition of a bank whether it is insolvent or not. Exercise all powers necessary to restore viability Conservator shall report to MB and shall have the power to overrule or revoke actions of previous management Rehabilitation proceedings provide for equitable distribution of insolvent debtor’s remaining assets to its creditors and give debtor a fresh start by relieving them of the weight of their debts Liquidity – ability of an asset to be converted in cash quickly and without discount Solvency – liabilities amount to less than total assets providing ability to pay debts Test of insolvency – determining realizable assets of bank is less than its liabilities Insolvency of bank occurs when actual cash market value of its asset is insufficient to pay its liabilities BSP is vested with exclusive authority to assess. MENDIOLA: AY 2011-2012. receivership or liquidation • Exclusive power to appoint conservator shall lie in MB Designation of conservator is not precondition to designation of receiver Power of conservator cannot impair obligations of contracts • Conservator power to revoke contracts cannot post-facto affect perfected transaction as it would infringe non-impairment clause Conservator is given power to revoke contracts only those that are defect (void. liabilities and management thereof 2.
Paying funds of bank 6. Wilfully violated cease and desist order involving transactions of fraud 5. CFI. bank sends to MB notice of liquidation No voluntary dissolution shall be undertaken by a bank without prior approval of MB. CA the court ruled that the conservator cannot revoke a previously valid contract entered by the bank even though the object of the contract has a higher price In conservatorship. BERNARDO. ANTONIO CEASAR. Exercise general power of receiver under ROC 4. This shall not include inability to pay cause by extraordinarily demands by financial panic 2. INTIG. Transferring security of bank • 4. the banking functions continue unlike in receivership and liquidation • • 26 • A report is something that gives information while examination is a search. Insufficient realizable assets 3. Receive bank deposits or collect loans 5. JOY ESTELA. Shall not pay or any act that involves transfer of asset of bank Receiver may deposit or place funds of bank in non-speculative investments Receiver shall determine within 90 days from takeover. When institution cannot be rehabilitated • If receiver determines that bank cannot be rehabilitated. Cannot continue business without involving probable loss to depositors or creditors 4. . Cessation of banking business Voluntary liquidation • • In voluntary liquidation. In case a bank notifies BSP or public announces bank holiday where it suspends payment of its deposit liabilities continuously for more than 30 days For quasi-banks any persons recognize in competence in banking may be designated as receiver • • • • 3. investigation or scrutiny Absence of examination before closure of bank does not mean that there is no basis for closure 2. the SC ruled that there is no need for complete examination because it only needs a report • AUTHORS: MANILA. MB. Administer the same for benefit of creditors 3. Unable to pay liabilities that are due. Current and complete examination not necessary • In Rural Bank of San Miguel vs. DE JESUS. receiver was defined as a indifferent person appoint by the court to preserve the funds of the in litigation pendent lite He is not an agent or representative of any party • VI.SAN BEDA COLLEGE OF LAW. Request of voluntary dissolution shall be accompanied by liquidation plan • • Receivership and liquidation • The MB can summarily and without need of prior hearing forbid the institution from doing business and designate PDIC as receiver Grounds for receivership and liquidation: 1. FROM SECTION 2S . whether institution may be rehabilitated or otherwise Determination of resumption of business is subject to approval of MB In Teal Motor vs. Tamper with bank records 3. TRACY ANN.San Beda College of Law Banking Laws • Conservator cannot simply repudiate valid obligations of the bank and must bring them to court actions In FPIB vs. MB shall notify the board of directors that it shall proceed with liquidation The receiver shall file ex parte with RTC a petition for assistance in the liquidation of the bank pursuant to liquidation plan of PDIC 1. JANSEN. Prohibited acts • Any director or officer declared insolvent or under receivership shall not commit: 1. Procedure • Receiver shall immediately: 1. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Appropriate for himself or other party assets of bank 4. Refuse to turn over bank records and assets to receiver 2. MENDIOLA: AY 2011-2012. Take charge of all assets and liabilities 2.
attachment Liquidator – task is to dispose all assets of the bank and effect partial payments of banks obligations Effect of filing petition for review • Pendency of case questioning receivership does not diminish of receiver to administer bank’s transactions pertaining to normal operations of the bank • • Reasons behind receivership and involuntary liquidation 1. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Stay of execution • Stay of execution is warrant if bank is placed under receivership AUTHORS: MANILA. bank can question the receivership within 10 days after receivership Close now hear later – practical consideration to prevent unwarranted dissipation of bank’s assets and valid exercise of police power to protect depositors. FROM SECTION 2S . creditors and public If otherwise. This one must be paid. Public faith in banking system may deteriorate if depositors.SAN BEDA COLLEGE OF LAW. The first one. INTIG. Receiver operates to suspend the authority of the bank to its properties Assets of bank shall be custodia legis in hands of receiver and exempted from garnishment. assist the enforcement of liabilities Receiver shall pay cost of proceedings from assets of institution Receiver shall convert assets of institution to money and dispose the same to creditors and other parties to pay bank debts 27 2. there mere filing of receivership by BSP can trigger bank run and drain its assets in days or hour leading to insolvency • • • • • • 3. engage in transactions or any banking activities where it can derive income from Thus there is no way the bank can pay the interest the accrues in favour of its depositors However. JANSEN. BERNARDO. MB. It is the government responsibility to see that financial interest of depositors and others are protected. levy. Assets deemed under Custodia Legis • Assets if the bank becomes beyond its control. DE JESUS. JOY ESTELA. The interest here must not be paid Close Now Hear Later Scheme • The law does not contemplate prior notice and hearing before bank may be directed to stop operations and placed under receivership Previous hearing before closure is not required in the law and does not infringe due process However. Retention of juridical personality • • There shall be retention of judicial personality even though it is ordered closed by MB The suing must be done through the liquidator • • 2. . Absence of notice and hearing is not a ground to annul MB resolution Effects of receivership 5. Not liable to pay interest • • Banks declared insolvent and ordered closed by BSP cannot be held liable to pay interest When bank is closed. ANTONIO CEASAR. closure of a bank is an exercise of police power In only stockholders of bank can file action for annulment of MB resolution of placing bank in receivership 1. there are two types of deposits that earn interest. the action of MB shall be final and executor unless there has been certiorari In Rural Bank of San Miguel vs. Done through BSP 3.San Beda College of Law Banking Laws • • • Court shall adjudicate disputed claims. deposit that earn from the existence until the bank cease to operate. Final and executory • Just like in the case of conservatorship. creditors are not protected. MENDIOLA: AY 2011-2012. Banking business is subject to regulation under police power and are affected with public interest 4. it cannot lend money. BSP shall step in and salvage remaining resources of bank 4. The second interest earned from the time the bank closed until payment of deposits. TRACY ANN.
BERNARDO. Exercise of jurisdiction of liquidation court • • • All claims of bank must be filed in BSP It is to prevent multiplicity of against bank Exclusive jurisdiction of liquidation court pertains only to adjudication claims against bank and does not cover reverse situation Not necessary that claim is initially disputed before it is filed In Ong vs. JOY ESTELA. INTIG. MENDIOLA: AY 2011-2012.San Beda College of Law Banking Laws • To execute a judgment against a bank under receivership would unduly deplete its assets to the prejudice of depositors and creditors • 28 5. if buyer bought a property from the bank who is already declared insolvent. Disposition and distribution of assets • In case of liquidation. But receiver must collect debts in favour of the bank that will form part on bank asset Foreclosure falls within board definition of “doing business” Doing business . if public interest requires. CA. sale is void • • VII. ANTONIO CEASAR. award to another institution the banking franchise under liquidation Whatever proceeds may be realized from award shall be subject to exclusive disposition of MB • • Liabilities • • Bank is bound by the acts or failure to act of receiver Receiver is liable to bank for culpable and negligent failure to collect and safeguard assets of such banks • • • 6.SAN BEDA COLLEGE OF LAW. . the period of prescription to foreclose continues to run In BF vs. receiver shall pay debts of institution in accordance with preference of credit in NCC Current accounts and savings accounts are not preferred credits in cases involving insolvency where there are various creditors • Disposition of revenues and earnings AUTHORS: MANILA. the court ruled that receiver ca still collect interest on loans during period of closure • All revenues and earning realized by receiver during receivership shall be used to pay costs of proceedings The balance of revenues shall form part of assets available to payment of creditors Disposition of banking franchise • • BSP. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. JANSEN. Restriction of bank’s capacity to Act • • Insolvency of bank restricts its capacity to act Bank cannot make new business such as accept new deposits or grant loans. DE JESUS. TRACY ANN. after payment of cost of proceedings. FROM SECTION 2S . it shall not be included in those act prohibited from doing business Thus even if there is receivership or liquidation. Ybanez.continuity of commercial dealings and arrangements incident to object of organization However.
it shall be effect as if made upon bank or agent BSP deputy governor in-charge shall mail it to the bank and sending copy is a necessary part to complete service.SAN BEDA COLLEGE OF LAW. FROM SECTION 2S . Establishing branches with full baking authority A foreign bank may only avail only 1 mode of entry GBL only stated that branches of foreign banks will be treated as one and shall have the head office guarantee to creditor Filipino citizens However. MB shall authorize foreign banks to acquire 100% voting stock of 1 domestic bank 2. BERNARDO. Investing 60% of voting stock of new banking subsidiary incorporated in Philippines 3. all such branches shall be treated as 1 unit • Laws applicable • Foreign banks shall be governed by GBL and other applicable laws such as Corporation Code Head office guarantee • • Head office shall fully guarantee prompt payment of all liabilities of its Philippines branch Residents and citizens of the Philippines that are creditors of foreign banks shall have preferential right to assets of such banks Revocation of license of foreign banks • MB may revoke license if it find foreign bank insolvent or imminent danger of insolvency and will involve probable loss AUTHORS: MANILA. they can still be sued or be sued License is only necessary if it is for transacting or doing business in the country • 29 • • • • • • • Acquisition of voting stock in domestic bank • Foreign banks are allowed entry in the Philippines subject to the following rules 1. compensation with Philippine branches with foreign branches cannot be effected as they cannot be considered creditors and debtors of each other Summons and legal process • • • • Summons must be given to the Philippine agent or head of foreign bank to have jurisdiction If there is no agent. the service. MENDIOLA: AY 2011-2012. MB must ensure that 70% of resources of banking system are held by majorityowned Filipinos • Under RA 7721. . ANTONIO CEASAR. MB may allow foreign bank which prior to GBL has already acquired 60% voting stock can now acquire 100% 3. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. INTIG. foreign banks have three modes of entry in the country: 1. Foreign Banks Transacting business in the Philippines • • • • RA 7721 – Foreign Banks Liberalization Act PD 1034 – Conduct of offshore banking business Offshore banking – conduct of banking transaction in foreign currencies Offshore banking unit – branch of a foreign baking corporation authorized by BSP to transact offshore banking Foreign corporation doing business in the Philippines are required to obtain a license However. in case of absence of agent. Within 7 years from effectivity of GBL. JOY ESTELA.San Beda College of Law Banking Laws CHAPTER 6 – Foreign Banks and Trust Operations I. shall be given to SEC Local branches of foreign banks • Foreign banks which has more than 1 branch in the Philippines. In the corporation code. JANSEN. even if foreign corporations do not have a license. DE JESUS. Acquiring 60 of voting stock of existing bank 2. TRACY ANN. Within same period. summons may be made upon BSP deputy governor in-charge Once given. there is nothing in the law that states that citizens that are debtors to foreign bank local branches shall also be debtors to the head office There is also nothing in the law that the head office and its local foreign branches shall be treated as one Thus.
purchase. acquire. property 2. 1.San Beda College of Law Banking Laws • After revocation. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. 1994 • • • Conduct of trust business • Trust entity shall administer the funds or property under its custody with diligence that a prudent man would exercise Trust entity – stock corporation or person authorized by MB to engage in trust business shall act as trustee or administer any trust or hold property in trust No trust entity shall for the account of the trustor or beneficiary. transfer or purchase money or debt instruments from/to DORSI of trust entity and relatives of first civil degree 3. . Entry of Foreign Banks • • State shall devote self-reliant and independent national economy Guidelines for approval: 1. benefit or advantage of the trustor or other beneficiaries Cardinal principle of trust and other fiduciary relationship is fidelity II. FROM SECTION 2S . Consider willingness to fully share technology Only those belonging to top 150 in the world or top 5 banks in their country of origin shall be allowed entry To establish a branch or subsidiary. For locally incorporated subsidiaries – same minimum capital with domestic banks 2. sell. JANSEN.SAN BEDA COLLEGE OF LAW. foreign bank must be widely-owned and publicly listed in its country origin unless government owned Capital requirement: 1. Trust Operations Authority to engage in trust business • Trust business – any activity resulting in trustortrustee relationship involving appointment of a trustee by a trustor for the administration. Consider strategic trade relationships 3. Foreign bank branches – US dollar equivalent of P219M at exchange rate during effectivity of Act. management of funds or properties of trustor by the trustee It is for the use. shall comply with minimum paid-in capital requirement by MB • • Powers of trust entity AUTHORS: MANILA. ANTONIO CEASAR. it shall be unlawful for foreign bank to transact business in the Philippines 30 III. before engage in trust business. INTIG. holding. Study demonstrated capacity 4.5 years to comply with minimum capital requirement RA 7721 was approved on May 18. Foreign banks may open 3 additional branches designated by MB – P35M per additional branches Foreign banks within 5 year from effectivity of this act is only allowed 6 foreign bank to enter the country An additional 4 foreign banks may be allowed entry by recommendation of MB Non-Filipino citizens can be members of board of directors up to the extent of the allowed foreign participation Philippine corporations who have listed share of stock in PSE or long standing for 10 year shall have right to own 60% voting stock of a domestic bank Existing local branches of foreign banks shall be given 1. BERNARDO. See reciprocity of right 5. DE JESUS. TRACY ANN. MENDIOLA: AY 2011-2012. unless authorized by the trustor after prior full disclosure of transaction • • • • • • • Registration of articles of incorporation and by-laws of trust entity • • SEC shall not register such unless accompanied by certificate of authority from BSP A trust business shall start from the moment their articles of incorporations are registered • Minimum capitalization • A trust entity. The foreign bank shall be entitle to 3 3. Ensure geographic representation 2. JOY ESTELA.
after notice and hearing. Sell. court shall order that subject matter of trust be deposited with trust entity 3. trustee. BERNARDO. Reduce bond shall be sufficient to secure adequately the proper administration of any property Exemption of trust entity from bond requirement • • No bond shall be required by court from trust entity for faithful performance However court may order bond for the protection of funds or property confided Deposit for the faithful performance of trust duties • Before transacting trust business.SAN BEDA COLLEGE OF LAW. relatives of trustee or related interest of such DOSRI where trustee owns at least 50% of voting stock 2. Act as trustee on any mortgage or bond and accept and execute any trust consistent with law 2. Invest in equities or in securities underwritten by trustee in which trustee has interest 4. Act under order of any court as guardian. administration of estate and rents.San Beda College of Law Banking Laws 1. Establish and manage common trust funds Transactions requiring prior authority • Trustee or trust entity shall not undertake any of the following transactions for the account of the client unless there is prior full disclosure and authorization by client 1. issues. Lend. JOY ESTELA. the MB shall limit or prohibit distribution Investment limitation of a trust entity of profits by trust entity until minimum requirement is met AUTHORS: MANILA. MENDIOLA: AY 2011-2012. transfer or assign money or property to DOSRI of trustee. INTIG. they must V. court may order that bond be given by such persons for faithful performance 4. shall have the right to collect interest earned on security deposited to BSP If trust entity fails to comply with law. guardian. transfer. management. FROM SECTION 2S . Upon application of such persons. Before executor. JANSEN. profits thereof 6. assign or lend money or property from one trust account to another account • 31 • • Trust entity. DE JESUS. receiver or depositary appointed by the court enter upon execution of dues. court may order bond 2. Upon presentation of proof that subject matter have been deposited to trust entity. receiver. Bond of Certain Persons for the Faithful Performance of Duties Bond requirement 1. Act as executor of any will 4. Purchase and acquire property or debt instrument in the same manner 3. TRACY ANN. Operations of Trust Entity deposit to BSP for faithful performance of trust duties an amount not less than 500k or higher as Separation of trust business from general business may be fixed by BSP • The trust business shall be kept separate and • MB shall require trust entity to increase the distinct from the general business amount whenever the increase is necessary by • They shall be physically separated from assets of reason of trust business its other business • Paid-in capital and surplus of each entity must be • They shall be under the joint custody of at least equal to the amount required to be deposited in two persons who are officers of the trust BSP department • In case it shall not meet the required paid-in capital. sell. ANTONIO CEASAR. Act as executor of estate of any deceased person with a will or administrator without a will 5. Accept and execute trust for holding. . BSP shall retain interest of securities for benefit of rightful claimants All claims arising from trust business shall have priority over all claims as regard to the security deposited IV. administrator. trustee or depositary of estate of minor or incompetent person 3. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. as long as solvent and comply with laws.
mortgages or trust deeds Any property acquire under circumstances shall be disposed within 5 years After said period. JOY ESTELA. Borrower’s name 3. Equity investment of bank in another corporation engage in real estate shall be considered a part of 50% • • Exemption of trust assets from claims • No assets held by trust entity shall be subject to claims other than those parties interested in specific trusts AUTHORS: MANILA. DE JESUS. INTIG. loans and investments shall be limited to: 1. MENDIOLA: AY 2011-2012. Purchase at sales under judgment. Total investment in real estate shall not exceed 50% of combined capital accounts 2.San Beda College of Law Banking Laws • Unless otherwise directed by instrument creating the trust. . bank can still continue to hold property subject to limitations: 1. MB or court Assets received in trust shall be administered with terms of the instrument creating the trust If trust entity is given discretionary powers to invest. the lending or investment of funds by trust entity shall be limited to loans and investment as prescribed by law. Mortgage to it in good faith by way of security to debts 2. Loans guarantee by government 3. decrees. Amount involved 4. Evidence of indebtedness of RP and BSP 2. Transaction to be entered 2. Loans fully secured by hold-out on. FROM SECTION 2S .SAN BEDA COLLEGE OF LAW. Collateral security • 32 • • Property held in trust by insolvent debtor shall be excluded from insolvency proceedings • Trust entity and its branches shall be treated as one unit • Trust entities shall advertise services in a dignified manner Money of government • Banks may not receive as trustee the funds of the government except GOCC banks • Real estate acquire by trust entity • Trust entity may acquire real property under following circumstances: 1. ANTONIO CEASAR. Loans fully secured by real estate or chattels The following shall be required to be given as information 1. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. TRACY ANN. assignment or pledge of deposits that are maintained 4. Conveyed to it for satisfaction of debts previously contracted 3. JANSEN. BERNARDO.
Letter of Credit refers to a financial device availed of by businessmen as a convenient mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller who refuses to part with his goods before he is paid. The term Legal Compensation refers to that situation when two persons. True 10. False 2. A bank cannot use any of its branches as outlets for the sale of the financial products of its allied undertaking or its investment house units. . The contracts between cardholders and credit card companies are called contracts of adhesion because their terms are prepared by only one party while the other merely affixes his signature signifying his conformity thereto. AUTHORS: MANILA. False 9. JANSEN. BERNARDO. are creditors and debtors of each other.San Beda College of Law Banking Laws QUIZZES: True or False: 1. FROM SECTION 2S . retained earnings and undivided profit. 2. 6. False 7. False 4. INTIG. Thrift banks may not act as correspondent for other financial institutions. The total investment in equities of allied enterprise shall not exceed 35 % of the net worth of the bank. A non-stock corporation may act as a trustee or administer any trust or hold property in trust or on deposit for the benefit of others. MENDIOLA: AY 2011-2012. The public relies on the banks’ fiduciary duty to observe the highest degree of diligence but any violation of this duty by the bank is not a valid ground for the grant of exemplary damages to the depositor. The rule that the total amount of loans that may be extended by a bank to any person or entity shall at no time exceed 20% of the net worth of such bank is called Single Borrower’s Limit. False 6. The appointment of a receiver is vested exclusively with the Monetary Board. Banks are gratuitous bailees of the funds deposited with them by their clients. The fiduciary nature of the relationship of a depositor with the depositary bank imposes on the latter the obligation to discharge the highest standard of trust and integrity and a violation thereof is considered a breach of trust. The MB cannot appoint a conservator connected with BSP. there is an equivalent right of redemption. Subsidiary shall refer to a corporation or firm more than 50% of the outstanding voting stock of which is directly or indirectly owned. True 3. deducting there from its losses and bad debts. JOY ESTELA. ANTONIO CEASAR. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. False 5. 3. False Fill in the blanks 33 1. In a judicial foreclosure of mortgage. Net worth means the total unimpaired paid-in capital including paid-in surplus. A bank may declare dividends greater than its accumulated net profits then on hand. The law governing the creation. Credit Risk Transfer shall refer to any agreement that allows the bank to transfer the credit risk associated with its loan or other credit accommodation to a third party. 9. TRACY ANN. 5.SAN BEDA COLLEGE OF LAW. DE JESUS. The humble wage-earner has not hesitated to entrust his life’s savings to the bank knowing that they will be safe in the custody of the banks. A bank which had been ordered closed by the monetary board does not retain its juridical personality which can sue and be sued through its liquidator. 10. organization and operation of rural banks is Rural Banks Act. in their own right. No late payment of penalty fee shall be collected from cardholders unless the collection thereof is fully disclosed in the contract between the issuer and the cardholder. True 8. Survivorship agreement is the agreement that allows joint depositors to withdraw the whole deposit during their lifetime and transferring the balance to the survivor upon the death of one of them. 8. 7. True 13. 4. False 12. net of valuation reserves and other adjustments as maybe required by BSP. False 11.
25. 20. 6426 otherwise known as Foreign Currency Deposit Act of the Philippines. 23. Off shore banking units refer to a branch. 26. BERNARDO. In the case of Serrano vs.San Beda College of Law Banking Laws 11. The agreement between the parties in a loan transaction which stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by the MB is called escalation clause. subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Banko AUTHORS: MANILA. its subsidiaries or affiliates or related companies. 18. 34 21.. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. 12. A bank guarantee is an irrevocable commitment of a bank binding itself to pay sum of money in the event of non-performance of a contract by a third party. The law that protects its citizens from a lack of awareness of the true cost of credit to the user by assuring full disclosure of such cost is Truth in Lending Act. In Simex International Case. MENDIOLA: AY 2011-2012. Demand deposit are all those liabilities of the Banko Sentral and of the other banks which are denominated in the Philippine currency and are subject to payment in legal tender upon demand by presentation of depositor’s check. Joint and Solidary Agreement is an agreement where the contracting parties consent to be jointly and severally liable in a loan obligation. JOY ESTELA. known as the assignor. 17. 27. the SC ruled that the contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan/mutuum. the SC held that bank deposits are in the nature of irregular deposits. 16. Assignment of credit is an agreement by virtue of which the owner of credit. Independent Auditor means a person other than an officer or employee of the bank. ANTONIO CEASAR. Negotiable Order of Withdrawal Accounts are interest bearing deposit accounts that combine the payable on demand feature of checks and investment feature of savings account. 15. such as sale or dation in payment transfers his credit to another known as the assignee who acquires the power to enforce it. 29. 28. TRACY ANN. 22. . by a legal cause. 24. INTIG. FROM SECTION 2S . the SC said that the banking system is an indispensable institution that plays a vital role in the economic life of the nation. Interest Rate Differential refers to the difference or margin between interest rates such as the difference between domestic and foreign interest rates. Secrecy of Bank Deposit Act is the law that was passed to give encouragement to people to deposit their money in banking institutions. The rule intended to maintain the quality of bank management and afford better protection to depositors and the public in general is called fit and proper rule 30. In the case of Consolidated Bank and Trust Co. DE JESUS. Central Bank of the Phil. 19. The Securities and Exchange Commission shall not register the articles of incorporation of any bank unless accompanied by certificate of authority issued by the monetary board.SAN BEDA COLLEGE OF LAW. or its majority shareholders. the writ of possession becomes a matter of right and its issuance to a purchaser is merely a ministerial function. 13. It is basic that after consolidation of title in the buyer’s name for failure of the mortgagor to redeem.. The equity investment of a universal bank or its wholly or majority owned subsidiaries. in a single non-allied enterprise shall not exceed 20% of the total equity. 14. Acceleration Clause means any provision in the contract between the bank and the cardholder that gives the bank the right to demand the obligation in full in case of default or non-payment for whatever reason. All foreign currency deposit are of absolute confidential nature as a general rule and said deposit shall be exempt from attachment pursuant to RA No. JANSEN.
.SAN BEDA COLLEGE OF LAW. JOY ESTELA. INTIG. endorsement or assignment with recourse or acceptance of deposit substitutes for the purpose of relending or purchasing receivables and other obligation 33. The business of banking is imbued with public interest in order to assure the stability of banks which largely depends on the confidence of the people in the honesty and efficiency of banks. MENDIOLA: AY 2011-2012. RA 1405 Secrecy of bank Deposit Act 35 RA 8367 an act providing for the organization and operation of non stock savings and loan association RA 9160 an act defining the crime money laundering RA 6770 the ombudsman act of 1989 Chapter 4 RA 7394 Consumer Act Act No 3135 an act to regulate the sale of property under special powers inserted in or annexed to real estate mortgages Chapter 6 Summary of Laws Chapter 1 RA 8791 General Banking Law of 2000 RA 7353 an act providing for the creation. DE JESUS. BERNARDO. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.San Beda College of Law Banking Laws Sentral to transact offshore banking business in the Philippines 31. FROM SECTION 2S . TRACY ANN. organization and operation of rural banks RA 7906 an act providing for the regulation of the organization and operations of the thrift banks RA 6938 an act to ordain a cooperative code of the Philippines RA 6848 an act providing for the 1989 charter of the AlAmanah Islamic bank of the Phil RA 6426 an act instituting a foreign currency deposit system in the Philippines BP 68 Corporation code ------------GOD BLESS IN THE MIDTERMS!!!---------PD 1034 Offshore Banking System Decree RA 7721 Foreign Bank liberalization Act Chapter 2 RA 7653 The New Central Bank Act Chapter 3 AUTHORS: MANILA. ANTONIO CEASAR. Quasi banks refer to entities engaged in the barrowing of funds through the issuance. A bank is bound by the negligence of its employees under the principle of Respondeat Superior 32. JANSEN.
BSP is limited to its statutory powers It nearest power to prosecute is its power to sue and be sued which refers to civil case only BSP can only cause prosecution which is a public offense and anyone can denounce such Mandamus for the purpose of causing the BSP to charge violation of bank laws is improper BSP and members of MB should not be impleaded as parties to a case under Sec 6. MENDIOLA: AY 2011-2012. Rule 43 of RoC Creation of the BSP • • • • • • • BSP – independent central monetary authority Capital of BSP – P50B which shall be fully subscribed by the government P10B shall be paid by the government upon effectivity of act The balance shall be paid within 2 years Place of business – principal place of business in Metro Manila or maintain other branches Creation of central monetary authority is cited in Sec 20 Art XII of Constitution The authority shall prove policy direction in areas of money. ANTONIO CEASAR. the court ruled that the BSP has responsibility of administering the monetary. TRACY ANN. banking and credit 2. Use corporate seal 2.San Beda College of Law Banking Laws CHAPTER 7 – The Banko Sentral ng Pilipinas I. FROM SECTION 2S . Responsibility of BSP – provide policy direction in areas of money. It shall promote and maintain monetary stability and convertibility of the peso • In Busuego vs. BSP is not a prosecution agency unlike the fiscal office In Perez vs. Comprise or release claim or settled liability to BSP regardless of amount involved Power to prosecute • • • • BSP can cause prosecution of those who violate banking law However. banking and credit system of the country and is granted power supervision and examination over banks Estoppel • • • BSP is committed to maintain the stability of the country foreign exchange reserve position Must adhere to principles of fairness and decency under Bill of Rights BSP circulars must be implemented to promote country’s production and at the same time avoid irreparable prejudice to participants In CB vs. Primary objective of BSP – maintain price stability conducive to a balance and sustainable growth of the economy 5. CA. nothing in the law gives the BSPN the specific duty to do the actual prosecution Thus. BERNARDO. JANSEN. DE JESUS. Acquire and hold assets and incur liabilities in connection with NCBA 7. Exercise regulatory powers over operations of finance companies and non-bank finance institutions performing quasi-banking 4. it was ruled that being an artificial person. banking and credit BSP is a GOCC but enjoys fiscal and administrative autonomy 36 • 1. Lease or own personal and real property and may dispose the same 4. Monetary Board. banking and credit and regulatory powers of such operations • • • • Responsibility and primary objective of BSP 1.SAN BEDA COLLEGE OF LAW. the court ruled that in case banks already faithfully complied with BSP directives. BSP is estopped from enforcing circulars which deny banks of their rights • II. . Shall have supervision over operation of banks 3. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. IAC. JOY ESTELA. Perform any thing that may be necessary to carry out purpose of NCBA 6. INTIG. Sue and be sued 5. Authority of BSP Supervisory powers of BSP Corporate powers of BSP (SCP-SPAL) AUTHORS: MANILA. Creation. Enter contracts 3. Responsibility and Corporate powers of BSP Declared policy of the state • 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 responsibility Concerning money.
Monetary Board • Powers and functions of BSP shall be exercised by Banko Sentral Monetary Board AUTHORS: MANILA. The governor who shall be the chairman of MB. DE JESUS. Deficiencies immediately addressed 5. MENDIOLA: AY 2011-2012. BSP shall phase out and transfer supervising and regulatory power over building and loan associations to Home Insurance and Guaranty Corporation MB shall be composed of 7 members appointed by President with term of 6 years The seven members are: 1. Not oftener than once a year to determine whether there is business is conducted on a safe or sound basis. Regular investigation. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. deputy governor shall act as alternate MB shall designate one of its members as acting chair 2. resignation or removal shall be filled by new appointment to complete unexpired term Policy direction.SAN BEDA COLLEGE OF LAW. Other financial institutions Composition • • 37 • Phase out of BSP powers over building and loan associations • Within period of 3 years. JOY ESTELA. ceiling and limitations • • BSP shall provide policy direction in areas of money. BERNARDO. rations. . Inquiring into solvency and liquidity 6. Issuance of rules of conduct or SOP for uniform application to al institutions covered 2. At least 35 years of age. Probity and patriotism 6. 5 members who shall come from private sector serving full-time In the first appointments from effectivity of act. Recognized competence in social and economic disciplines Disqualification of MB members 1. Member of cabinet designated by President Whenever cabinet member unable to attend meeting. Good moral character 4. FROM SECTION 2S . Enforcing prompt corrective action BSP shall have supervisions over operations of: 1. INTIG. Natural born citizens 2.San Beda College of Law Banking Laws • Operations and activities of banks shall be subject to supervision of BSP. Supervision shall include the following: (REO-ISC) 1. Conduct examination to determine compliance with laws and regulation 3. ceilings to: o Exceptional cases o Enable a bank under rehabilitation or during merger or consolidation to continue business with safety Qualification of members of MB 1. banking and credit MB shall prescribe ratios.3 years Vacancies • Any vacancy created by death. JANSEN. 3 serve 6 yrs while the other 2 . Quasi-banks 2. Integrity 5. limitations in different accounts of banks to confirm to internationally accept standards including Bank for International Settlement MB may exempt particular categories of transactions from such rations. TRACY ANN. Overseeing to ascertain law and regulation are complied with 4. Disqualification under RA 6713 (Code of Conduct and ethical standards of public officer and employees) 2. Trust entities 3. ANTONIO CEASAR. Disqualified from being a DOSRI of any bank subject to the supervision or examination of BSP • III. Governor shall be head of a department and his appointment confirmation of COApp Whenever unable to attend board meeting. Usec shall be alternate 3. ceilings. Governor must be 40 years old 3.
MENDIOLA: AY 2011-2012. No person shall be member if he has been connected directly with any multilateral banking institution or has substantial interest on any private bank 1 year prior appointment 5. MB by issue rules and regulations vote of 5. authorize BSP to grant extraordinary loans or advances to banks secured by assets Deputy Governors may attend meetings of MB • They may attend meetings and have the right to be heard Salaries of governor and members of MB • Salary shall be fixed y President at a sum commensurate to the importance and responsibility attached to their position Personal or Pecuniary interests • Members of MB with personal or pecuniary interest in any matter in the agenda of MB shall disclose his interest and shall retire from the meeting when matter is taken The decision made on matter shall be made public and the minutes shall reflect disclosure made and retirement of member • Scope of authority of MB 1. Legal units of BSP shall be under such bank to defer publication of financial exclusive control and supervision of MB statement 3. may allow a. In which case. Member no longer possess qualification under sec 8 Meetings. No member shall be employed in any such institution within 2 year after expiration of term except when serving as representative of government (sec 9) Grounds for removal MB members 1. DE JESUS. In national administration of BPS. Rules and regulation issued shall be Exception to general rule where at least 5 votes is required: reported to President and Congress within 15 days from date of issuance 1. Physically or mentally incapacitated and cannot discharge duties and incapacity lasted more than 6 months 3. . TRACY ANN.SAN BEDA COLLEGE OF LAW. Member of MB coming from private sector shall not hold public office in tenure 4. Establish human resource management system 2. hiring. operation and is required once at least every quarter. Sec 28 NCBA – supervision and examining which shall govern selection. Presence of 4 members constitute quorum provided that governor or his alternate is among the 4 3. MB may. Guilty of acts or operation of fraudulent or illegal character opposed to aim of BSP 4. such member shall resign before assumption of office 3. JANSEN. decisions and proceedings MB 1. MB shall meet at least once a week.San Beda College of Law Banking Laws a. with 5 vote of members. FROM SECTION 2S . appointment department head shall examine books of every or dismissal of personnel. AUTHORS: MANILA. BSP shall maintain and preserve complete records of proceedings in their original form or in microfilm 4. MB may temporarily suspend sales of exchange by BSP and may subject all transactions in gold and foreign exchange to license by BSP 4. reorganize its personal and or local emergency or of imminent panic. Sec 61 GBL – publication of financial statements 2. BERNARDO. Issue rules and regulations it considers necessary for the discharge of its responsibilities and exercise of its powers a. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. with concurrence of 5 members of MB and approval of president. ANTONIO CEASAR. MB may be called to meeting by governor or 2 other members of board 2. INTIG. Sec 84 NCBA – in nation or local emergency or imminent financial panic. Sec 72 NCBA – During exchange crisis or national emergency. Subsequently disqualified under Sec 9 during tenure 2. quorum. General Rule: All decisions of MB shall require concurrence of at least 4 members 38 banking institution once every 12 months and at such other time at the vote of 5 members of MB 3. JOY ESTELA. upon application of bank. Direct the management.
Shall be the CEO of BSP 2. Similar responsibility shall apply to officer or employees of BSP 39 a. Legal obligation and good faith that BSP officer owe to public start with official acts of MB which are the cause of loss and injury and not any preparatory report or recommendation IV The Governor and Deputy Governors Powers and Duties of the Governor (CEO:PEDARE) 1. Removal of personal is with approval of MB 6.San Beda College of Law Banking Laws a. notes and securities issued by BSP Signature may be facsimile 3. Governor may delegate certain administrative responsibilities to other officers 5. MB shall make its own system which conform closely to RA 6758 (Compensation and Position Classification Act of 1989) c. for consideration. MENDIOLA: AY 2011-2012. Appoint and fix remuneration of personal below of a department head. Sign contracts entered into by BSP. any data required to be submitted to President or Congress is not confidential 3. Exercise other powers vested by MB Powers of Governor as representative of MB and BSP • Governor shall be the principal representative of MB and BSP with following powers: 1. policies and measures necessary 3. It shown that higher grades receive greater benefits withheld from lower grades. Upon recommendation of governor. DE JESUS. BERNARDO. fix remunerations and removal personnel subject to civil service law • In CB Employees Association vs.SAN BEDA COLLEGE OF LAW. It is the rank and file employees that are of need for greater benefits 4. appoint. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. the court ruled that the establishment of unfair human resource management is unconstitutional. BSP. INTIG. Delegate his power to represent to other officers In order to preserve integrity of office. ANTONIO CEASAR. Represent MB and BSP in all dealings with other offices 2. Disclosure of information of a confidential nature unless disclosure is in connection with performance of official function b. . governor may choose not to participate in preliminary • AUTHORS: MANILA. FROM SECTION 2S . If anyone wilfully violate NCBA or guilty of negligence. JOY ESTELA. Prepare the agenda for meetings and submit. Those under salary grade 19 shall have rates under RA 6758 d. indemnification are covered provided that there is no negligence b. decisions or rulings which is final and executor until reversed or modified by MB 7. abuses or malfeasance or misfeasance or fails to exercise extraordinary diligence in performance of duty. Costs and expenses incurred in defending may be paid in advance and repay the amount advanced should it be determined that personnel is not entitled to indemnity Responsibility of Members of MB 1. JANSEN. he shall be held liable for loss or injury suffered by BSP or banking institution (VNAMMFe) 2. Indemnify its members against all costs and expenses incurred in connection with civil or criminal suit by reason of performance of duty unless liable for negligence or misconduct a. In event of settlement or compromise. Adopt annual budget for and authorize expenditure by BSP 5. TRACY ANN. BSP or third parties. Represent BSP in any legal proceeding 4. Execute and administer policy and measures approved by MB 4. • Rank and file employees are limited to SSL while employees in higher rank are given higher compensation to entice them to stay. Render opinions. Use of such information for personal gain or detriment of the government. Direct and supervise operation and internal administration of BSP. Compensation structure based on job evaluation studies and wage surveys shall be the integral component of the HR program b.
ANTONIO CEASAR. governor shall call meeting of MB for ratification Limitation on outside interest of governor and members of board • • They shall limit their professional activities directly to their position in BSP Shall not accept any other employment except when position in eleemosynary. TRACY ANN. Congress or government office Training of Technical personnel • BSP shall sponsor training of technical personnel in field of money and banking Scope of supervision and examination by BSP 1. Governor shall appoint not more than 3 deputy Governors who shall perform duties as may be assigned to them 2. Collective data can be released to interested 4. Compel presentation of books. Affiliate –50% or less is owned by bank or related or linked to institution through common stock holders 2. Data on individual firms other than banks gathered by BSP Department of Economic Research shall not be available outside BSP. . MENDIOLA: AY 2011-2012. cultural or religious organization or by designation of President to represent government 2. Personnel of BSP shall be prohibited from revealing in any manner. Director. In case of emergency. quasi banks including subsidiaries and affiliated engaged in allied activities a. civic. BSP. DE JESUS. BSP shall have supervision over. JOY ESTELA. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. may decide matter or take action within authority of the board 2. Department heads and examiners are authorized to a. Operations of BSP Research and Statistics of BSP • BSP shall prepare data and conduct economic research for guidance of MB • • Scope of Authority of BSP to obtain data 1. At soonest possible time. deputy governors designated to act as CEO of BSP shall exercise duties 3. BERNARDO. document and records relative to true condition of institution Restraining order or injunction • No restraining order or injunction shall be issued enjoining (preventing) BSP from examining institution under its supervision Exception: there is convincing proof that action of BSP is plainly arbitrary and in bad faith and petitioner files bond in favor of BSP Provisions of Rule 58 – Preliminary Injunction shall apply not inconsistent Number and functions of deputy governors 1.SAN BEDA COLLEGE OF LAW. Governor shall submit report to President and Congress within 72 hours 3. JANSEN. Subsidiary – more than 50% voting stock is owned by bank or quasi-bank b. FROM SECTION 2S . In absence of governor. Whenever governor is unable to attend government board or councils where he is ex officio member. BSP shall have authority to require government office any data it may require VI. office or employee of any institution b. Contempt if refused 3. governor with concurrence of 2 other members. except under orders of court. Officer or Stockholder and Related Interests Contracting Loans AUTHORS: MANILA. deputy governor may be designated vested with power to participate and vote V. he may be represented by permanent negotiator 40 • Emergencies (CRM) 1. through governor or representative shall have the power to issue subpoena for production of books. Administer oaths to any directors.San Beda College of Law Banking Laws discussions of multilateral banking institutions on negotiations for the government During such. INTIG. and conduct periodic or special examinations of bank.
Annual report on the condition of BSP – before end of March each year. DE JESUS. Analysis of economic and financial development – not later than 90 days after end of each quarter b. Preceding year’s budget and profit and loss statement – within 90 days after end of year c. commissions and fees fir supervision or examinations • • • VIII.San Beda College of Law Banking Laws • Any DOSRI contract loans or any financial accommodation from his bank or a from a bank (lending bank) that is: 1. JOY ESTELA. INTIG. Shall not apply to giving of information to MB or governor of BSP 4. Require or receive any gift from any institution subject to supervision 3. (2) movements of VII. Review of the state of financial system – 120 days after each semester d. cash and assets during banking hours AUTHORS: MANILA. the BSP personnel prohibited from: 1. TRACY ANN. Submit to President and Congress and include review of policies and economic analysis circumstances: 2. Reveal in any manner. Controlling proportion of share is owned by the same interest that owns a controlling proportion of share of his bank in excess of 5% if capital and surplus of bank Such shall be required by lending bank to waive the secrecy of his deposits in all banks Any information obtained from examination shall be strictly confidential. JANSEN. MENDIOLA: AY 2011-2012. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. FROM SECTION 2S . Subsidiary of bank holding company of which both his bank and lending bank is subsidiaries 2. Will also include statement of financial condition of BSP and statistical appendix include: (1) movement monetary aggregates. Examination of Banking Institutions Frequency of examination • Department head shall examine books of every banking institution once every 12 months and at such other time at the vote of 5 members of MB. Abnormal movements in monetary aggregate and general price movements – 72 hours after remedial measures was taken Annual Report of BSP 1. Interval shall be at least 12 months Afford opportunity to examine • Bank concerned shall afford the head full opportunity to examine its books. 90 days if such 2. except under court order. General balance sheet showing volume and composition of its assets and liabilities – 60 days after end of each month except December. Used only by examiner only in connection with supervisory responsibility or by BSP in legal action • 41 None of the reports shall be open to inspections of the public except when such is incidental in proceedings for violations Service Fees • Banking which are subject to examination of BSP shall pay BSP within first 30 days of each year an annual fee as may be prescribed by MB Sec 65 of GBL states that BSP may charge equitable rates. BERNARDO. Congress or government officer. Borrowing from any institution subject to supervision and examination unless borrowings are adequately secured Required reports and publication of BSP 1.SAN BEDA COLLEGE OF LAW. MB shall publish and submit to Congress and President the following reports: a. ANTONIO CEASAR. . Being DOSRI of institution under supervision of BSP except non-stock savings and loan associations 2. Administration Operating departments of BSP • MB shall determine operating departments including public information office Prohibition against Personnel of BSP • In additional to prohibition from RA 3019 and RA 7613.
(3) balance of payments. (7) data 3. BERNARDO.SAN BEDA COLLEGE OF LAW. director or officer for: 1. Suspension of rediscounting privileges 3. shall be suspended or removed from office. INTIG. (5) exports/imports. Remaining 50% shall revert back to National Treasury Proceedings upon and penalty for violations of NCBA and banking laws 1. Willful failure to comply with bank laws 6. MB shall determine distribution of net profits according to the following: 1. Penalty for Violation • Sec 66 of GBL provides that if offender is director or officer. Any remaining profit or loss shall be placed in the Revaluation of International Reserve and net balance shall appear as either liability or asset depending whether profit or loss The Auditor • AUTHORS: MANILA. (2) 10 years experience. Bank or quasi bank persists in carrying business in unlawful or unsafe manner same penalty Administrative violations on banks • MB shall impose administrative penalty to bank. quasi bank or any person violates NCBA. Willful making of false or misleading 5. BSP shall publish another version of the annual report understandable in layman 4. losses and special accounts Fiscal Year • Starts on January first and ends on December 31st of each year Penalty for refusal to make reports or permit examination • Person was required in writing by MB or supervising department but refused to file or permit examination. BSP shall determine net profits and losses Penalty for wilful making of a false or misleading statement of material fact • Penalty 100k-200k Distribution of net profits • Within 60 days following end of each fiscal year. (6) accounts of BSP. MENDIOLA: AY 2011-2012. Willful delay in submitting report 3. Suspension of lending or FOREX operations Revaluation profits and losses 1.San Beda College of Law Banking Laws foreign exchange. TRACY ANN. (3) not relative to member of MB or COA to 6th civil degree X. Conduct business in unsafe manner Following are the sanctions: 1. JOY ESTELA. Profits. (3) BSP auditor • 42 • Chairman of COA act as ex official auditor of BSP and authorized to appoint representative auditor to BSP. Profits or losses from revaluation of gold or foreign currency shall not be included in computation of annual profits or losses 2. JANSEN. Can only be removed by COA Representative shall be (1) CPA. (4) consumer prices. Bank. Fines not exceed 30k per day per violation 2. Penalty 50k-100k Computation of Profits and Losses • Within 30 days following end of each year. DE JESUS. Refusal to permit examination 4. . Any commission of irregularity 7. penalty is 50-200k 2. FROM SECTION 2S . REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Any profit or losses from revaluation shall be offset by amounts owed by Philippines to international financial institutions 3. ANTONIO CEASAR. Failure to comply without justifiable reason shall cause withholding of salary of personnel Signature of statements • Balance sheet and other financial statements shall be signed by (1) officer responsible for preparation. 50% of net profits carried to surplus 2. shall be dissolved by quo warranto instituted by SG IX. (2) governor. quasi-bank. Willful violation of charter 2. If offender is corporation.
Governor is authorized to impose to banks fines not exceeding 10k per day per violation which can be appealed to MB AUTHORS: MANILA. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Respondents have opportunity to defend their action in a hearing upon a request made within 5 days from receipt of order. ANTONIO CEASAR. JANSEN. BERNARDO. MB shall release cease and desist order effective upon service to respondents 2. if officer continue to persist in practice or violation. MENDIOLA: AY 2011-2012. WON there is administrative proceedings. TRACY ANN. FROM SECTION 2S .SAN BEDA COLLEGE OF LAW. Revocation of quasi-banking license Resignation shall not exempt criminal or administrative sanctions MB may preventively suspend office under investigation not exceed 120 days except when delay is caused by him Administrative sanctions need not be applied in order of severity 43 • • • Administrative Proceedings on banks 1.San Beda College of Law Banking Laws 4. . order is final 3. Suspension of interbank clearing privileges 5. INTIG. DE JESUS. If no hearing is requested. JOY ESTELA.
INTIG. 2 of RPC provides that the territoriality rule does not apply : 1. Art.San Beda College of Law Banking Laws CHAPTER 8 – Currency. BSP shall have authority to investigate. Art. DE JESUS. arrest and conduct searches to maintain integrity of currency 4. Monetary Stabilization and Functions of BSP I. currency substitute or facsimiles of BSP notes 3. Art. Art. Liable for acts connected with introduction of such into islands 44 Definition of Currency • Currency – all Philippine notes and coins issued in accordance with NCBA Value of Currency • Currency has value because people are willing to accept it in exchange for goods or services or payment of debt Money has no value as a commodity but has value as means of medium of exchange Value of goods and services are measured by terms of medium Not applicable if no confidence in currency and people would use foreign currency Liability for notes and coins • • • • Notes and coins issued by the BSP shall be liability of BSP It shall be issued in amounts not exceeding assets of BSP Notes and coins shall be a first and paramount lien on all assets of BSP BSP’s holding of its own notes and coins shall not be considered a part of its currency issue and not part of assets and liabilities • • • II. 168 . BERNARDO. 165 – Selling of false or mutilated coins without connivance 4.10.5. ANTONIO CEASAR.SAN BEDA COLLEGE OF LAW. TRACY ANN.10 peso coins – 1k o 1. 169 – How forgery is committed Exception to territoriality of penal laws • Art. public or private Checks representing demand deposits do not have legal tender and acceptance is at the option of the creditor Check cleared and credited to account of creditor shall be equivalent to delivery BSP Circ. 163 – Making and importing and uttering false coins AUTHORS: MANILA. Art. FROM SECTION 2S . MB may issue regulations to prevent circulation of foreign currency . Art. Art. importing or uttering instruments not payable to bearer 6. .5. JANSEN. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. JOY ESTELA. 167 counterfeiting. Violation shall have imprisonment of 5-10 years unless RPC gives greater penalty Related Crimes under RPC Legal tender power • All notes and coins issued by BSP shall be fully guaranteed by the Government and shall be legal tender in Philippines for all debts. The Unit of Monetary Value The Peso • • • • Peso .Illegal possession and use of false treasury notes 7. 537 of 2006 – maximum amount of coins to be considered as legal tender o 1.25 centavos – 100 • • • 1. 166 – Forging treasure notes or other documents payable to bearer 5. Should forge or counterfeit any coin or currency note the Philippines or obligations or securities of the Government 2. Issue of means of payment Exclusive issue power 1. MENDIOLA: AY 2011-2012. BSP shall have the sole power to issue currency within the Philippines 2. 164 – Mutilation of coins 3.unit of monetary value in the Philippines (P sign) Peso divided into 100 equal parts called centavo (c sign) All monetary obligation shall be settled in Philippine currency in legal tender Parties may agree that obligation shall be settled in other currency 2.
(3) notes lost more than 2/5 of surface or all signatures • Retirement of old notes and coins • • • BSP may call for replacement of notes (more than 5 yrs old) and coins (more than 10 yrs old) Notes and coins replaced shall remain legal tender for 1 year from date of call After period. it shall produce only effect when encashed or impaired through fault of creditor. ANTONIO CEASAR. (2) extend of change and (3) measures taken by MB Whenever the following happen: 1. TRACY ANN. Submit to President and Congress of report containing the (1) cause. value of currency at time of establishment of obligation shall be basis of payment • 45 Mutilated condition: (1) identification is impossible. MB shall define monetary aggregates. in facsimile. Take remedial measures 2. MB has authority to contract institutions for such All expenses incurred shall be for the accounts of BSP • Interconvertibility of currency • BSP shall exchange on demand and without charge Philippine currency in any other denomination requested If BSP is temporarily unable to provide such. such shall cease to be to be legal tender but can be exchanged at par and without charge in BSP during following year After said period. Action derived from obligation is held in abeyance Art. Notes shall state that they are liabilities of BSP and fully guaranteed by government Notes shall bear signature. 1250 of NCC. MB shall endeavour to control any expansion or contract of monetary aggregates prejudicial to price stability Power to define terms 2. it shall deliver denomination nearest • • Replacement of currency unfit for circulation • BSP shall withdraw from circulation and demonetize all notes and coins unfit for circulation and shall replace them BSP shall not replace notes under mutilated condition and without compensation to bearer • AUTHORS: MANILA. credit and prices and made public such definitions Action when abnormal movements occur in monetary aggregates. JOY ESTELA. FROM SECTION 2S . availability of metals and its price shall be considered • III. MB shall: 1. Domestic monetary stabilization Guiding principle on monetary stabilization 1. credit and prices • When such occurs that endanger stability of economy. clipping. Monetary aggregates or level of credit increases or decreases by more than 15% 2. (2) signs of filing. Cost of living index increases by more than 10% in relation to level of month existing of preceding year 3. notes and coins not exchanged shall cease to be a liability of BSP and shall be demonetize • Characteristics of the currency • • • • • MB with approval of President shall prescribe denominations. fitness.San Beda College of Law Banking Laws • Art 1249 of NCC states that all payments of debts shall be in currency stipulated and if not possible currency in legal tender It also states that when there is payment by PN. INTIG. MENDIOLA: AY 2011-2012.SAN BEDA COLLEGE OF LAW. design and denomination of coins In minting of coins. JANSEN. . Other circumstances so warrant • The monetary board shall submit reports and shall state whether these changes is a threat to stability Printing of notes and mining of coins • MB shall prescribe amounts of notes and coins to be printed and minted. dimensions. DE JESUS. designs of notes. of President and BSP Governor MB with approval of President shall prescribe weight. BERNARDO. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. where there is extraordinary inflation or deflation.
. MB shall rely on moral influence and powers granted by NCBA Composition of International Reserves • International reserve shall include but not limited to: • Gold • Assets in foreign currencies Assets in foreign currencies include (1) documents of international transfer of funds. the MB shall propose to the President with notice to Congress of additional action to restore equilibrium 4.SAN BEDA COLLEGE OF LAW. TRACY ANN. ANTONIO CEASAR. International reserve is falling as a result of remittance abroad The MB shall: 1. Government 4. If resultant actions fails. fiscal and administrative measures Character and extend of cooperation required 3. Other entities authorized by MB • • • • Action when International Stability of Peso is Threatened • Whenever: 1. DE JESUS. MENDIOLA: AY 2011-2012. MB shall submit periodic reports to President and Congress until threat has disappeared Means of Action • In order to achieve the primary objective of price stability. JANSEN. International financial institutions 3. International reserve appears to be imminent to fall on such level 3. Foreign governments 5. Submit to the President and Congress a report including: Nature and cause Remedial measures taken Monetary. (2) demand and time deposits of banks abroad and (3) foreign government securities and notes MB shall hold the FOREX resource of BSP in freely convertible currencies MB shall issue regulations that FOREX assets must meet BSP shall be free to convert any asset in international reserves into other assets V. JOY ESTELA.San Beda College of Law Banking Laws • MB shall continue to submit periodic report to President and Congress until monetary aggregates. BERNARDO. They can also engage in future exchange operations BSP shall engaged with FOREX transactions with the following: (BIG-FO) 1. International reserve falls to a level inadequate to meet prospective net demands for foreign currencies AUTHORS: MANILA. credit and prices disturbances disappeared or controlled • 46 IV. Take remedial actions 2. coins and documents. INTIG. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. FROM SECTION 2S . Baking institutions operating in the Philippines 2. International Monetary Stabilization International Monetary Stabilization • BSP shall exercise its powers under the NCBA to preserve the international value of peso and maintain its convertibility International Reserves • International reserves – must be maintained adequately to meet foreseeable net demands for foreign currencies Adequacy of international reserves – MB shall be guided by prospective receipts and payments of foreign exchange MB shall give special attention to volume and maturity of the following: o Liability of BSP in foreign currency o Foreign exchange assets and liabilities of other banks and all other persons • • 2. Operations in Gold and FOREX Purchases and sales of gold • • BSP may buy and sell gold It shall be made in national currency at prevailing international market price • Purchase and sales of FOREX • BSP may buy and sell foreign notes.
JOY ESTELA. BERNARDO. Achieve primary objective (price stability) 2.SAN BEDA COLLEGE OF LAW. Foreign currency deposits RA 6426 (Foreign Currency Deposit System) shall be exempted • • VI. Subject all transactions in gold and FOREX to license 3. 73) AUTHORS: MANILA. Require FOREX obtained by anyone be delivered to BSP at effective exchange rate.San Beda College of Law Banking Laws • In order to maintain convertibility of peso. the following shall be taken into consideration: (1) bank’s networth. give MB time to takes constructive measures to forestall or combat crisis The MB with concurrency of 5 members and with approval of President may: 1. BSP shall within 60 days. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Regulations of FOREX Operations FOREX Holdings of Banks • BSP may at all times have FOREX resources sufficient to enable it to maintain international stability and covert ability MB may require banks to sell to BSP part of their surplus holdings of FOREX to achieve this. submit report to Congress stating origin of liabilities and manner which it will be paid • • MB shall determine exchange rate policy of the country MB shall determine rates at which BSP shall buy and sell spot exchange and establish deviation limits for effective exchange rates BSP shall not collect any additional commissions other than actual telegraphic costs MB shall similarly determine rates for other types of FOREX transactions including sales of foreign notes and coins The margins between effective exchange rates and rates established may not exceed the corresponding margins for spot exchange transactions more than additional costs involved in each type of transactions Operations with Foreign Entities • MB may authorize BSP to grant and receive loans from foreign banks and may engage in operations with such entities for national interest BSP may also act as agent of such entities BSP may pledge gold or other assets as security against loans it received Emergency Restriction on Exchange Operations • In order to: 1. Protect international reserves 3. . And in time of national emergency. Temporary suspend or restrict sale of exchange 2. JANSEN. DE JESUS. outstanding liabilities or other financial or performance ratios Such determination shall be applied to all banks uniformly and without discrimination • • • • Acquisition of Inconvertible Currencies • • BSP shall avoid acquisition of such currencies It may require such currencies in an amount exceeding the minimum balance to cover current demands for said currency only when acquisition of such is considered of national interest • Requirement of Balanced Currency Position • MB may require the banks to maintain balance position of assets and liabilities in peso or other Exchange Rates (Sec. 74 • • 47 • • • • Foreign Asset Position of BSP • BSP shall maintain a net positive foreign asset position so that gross FOREX assets will always exceed gross foreign liabilities If FOREX liabilities exceed twice the FOREX assets. ANTONIO CEASAR. FROM SECTION 2S . MENDIOLA: AY 2011-2012. Such transfers may be required to all foreign currencies MB may determine the net assets and liabilities of banks To determine such. BSP may buy those offered and sell any quantity demanded provided that FOREX is freely convertible into gold or US dollars This requirement shall not apply to demand for foreign notes and coins BSP shall effect its exchange transactions at the rates determined by Sec. INTIG. TRACY ANN.
Purchase and sale of readily saleable goods. Emergency Loans and Advances Nature of Emergency Loans and Advances • Emergency loan or advance – credit facility intended to assist a bank experiencing serious liquidity problems from causes beyond its control AUTHORS: MANILA. 2 for period not exceed 360 days 5. MB shall issue regulations for sales in non-spot exchange Other exchange profits and losses • • Banks shall bear risks of non-compliance with terms of FOREX documents they buy and sell They shall also bear other risks including exchange risk not assumed by BSP Information on Exchange Operations • Banks shall report to BSP the volume and composition of the purchases and sales of gold and FOREX each day MB may also require other persons to report such purchases and sales of gold and FOREX. Credit instrument in no. Negotiable treasury bills maturity within 3 years 7. exportation. Banks shall be granted reasonable time for such Power above shall be exercised only under special circumstance and applied to all banks uniformly and without discrimination 48 • Regulation of Non-Spot Exchange Transactions • To restrain banks from taking speculative positions with respect to future fluctuation in FOREX rates. Commercial credits – credits where maturities are not more than 180 days and resulting from: 1. Credit instruments in no. loans and advances shall be used to influence volume credit consistent with object price stability • 2. Storing non-perishable goods with are duly insured Loans for Liquidity Purposes • BSP may extend loans and advances for a period not more than 7 days without collateral for purpose of providing liquidity in the bank in times of need VIII. 1 4.San Beda College of Law Banking Laws currency. Advances – grant advances against the following kinds of collateral for fixed periods which shall not exceed 180 days. importation and their transportation (PESTI) 2.SAN BEDA COLLEGE OF LAW. discount. Accuracy of declaration may be verified by BSP • • VII. FROM SECTION 2S . Utilized portions of advances in current amount covered by regular overdraft 6. discounts. except #4: (GSC-CUNN) 1. DE JESUS. mineral or industrial products 1. TRACY ANN. JANSEN. Other credits – credits not under 1 and 2. Production credits – credit where maturities are not more than 360 days and resulting from production of agricultural. animal. . Negotiable bonds by government maturity not more than 10 years Rediscounting. JOY ESTELA. loans and advances in above provision may not be renewed or extended unless extraordinary circumstance justify it Advances in No. Gold 2. 6 and 7 may not exceed 80% of current market value of collateral Authorized Types of Credit Operations • BSP may perform the following credit operations in the Philippines: (CPOA) 1. BERNARDO. INTIG. ANTONIO CEASAR. BSP can provide funds from non0inflationary sources 4. Loans to Banking and Other Financial Institutions Guiding Principles • The rediscount. Such must be secured by a pledge of respective product except if loan is secured by lien on 70% value of real estate property 3. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. MENDIOLA: AY 2011-2012. Securities representing obligations of BSP 3.
bought or accepted as collateral by BSP must bear endorsement of bank • Repayment of Credits • Documents rediscounted. • Second Tranche . JOY ESTELA. authorize grant of extraordinary loans to banks secured by assets o Such loans shall not expand the bank’s total volume of loans or investments 2. Furnish an undertaking to indemnify and hold harmless from suit a conservator appointed by MB 2. TRACY ANN. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. It must also be fullysecured 49 When Granted 1. INTIG. MB.1 contemplates emergency affects whole banking community in financial crisis giving rise to widespread confusion in public • No. MENDIOLA: AY 2011-2012.SAN BEDA COLLEGE OF LAW. Credit Terms Interest and Rediscount • BSP shall collect interest on all loans and advances it extends notwithstanding closure. MB may at 5 members vote. BSP shall not engage in development banking or financing except for outstanding loans obtained or extended for development financing • • • Overdraft • Overdraft shall be eliminated within a period of 5 consecutive banking days IX. grant emergency loans to banks even during normal period to assist bank in precarious financial condition brought by unforeseen events or foreseeable events though inevitable o Bank should not be insolvent and has assets to secure advances • No. Provide acceptable security adequate to supplement the collateral assets Shares Collateral • Prohibition in 128 shall not apply if it refers to acceptance as collateral of share and their acquisition due to foreclosure proceeding BSP shall dispose of such share by public bidding within 1 year Sec 128 – BSP shall not acquire or accept shares as collateral and shall not participate in ownership of enterprise. 2 provides situation where BSP grants loan to a bank with uncertain financial condition but not insolvent Limits • Amount of emergency loan or advance shall not exceed 50% total deposits and deposit substitutes of bank and is given in 2 tranches 1. JANSEN. discounted. bank shall submit resolution of its board of directors authorizing BSP to evaluate their assets to determine that it is good for collateral • • • Endorsement • Documents rediscounted. BERNARDO. bought or MB by vote of 5 members may release 2nd tranche accepted as collateral by BSP must be withdrawn on the following conditions that the principal stockholders shall: AUTHORS: MANILA. composition of BSP portfolio and national monetary policy Interest rates shall be applied to all banks uniformly and without discrimination First Tranche • Amount of 1st tranche shall be limited to 25% of total deposit and deposit substitute of bank and secured by government securities Amount of first tranche may exceed 25% if it is adequately secured by government securities and unencumbered first class collaterals Prior to release of first tranche. DE JESUS. FROM SECTION 2S . In period of national or local emergency or financial panic. discounted.San Beda College of Law Banking Laws • Grant of such is discretionary on MB and is a temporary remedial measure. ANTONIO CEASAR. receivership or liquidations MB shall fix interest and rediscount rates after due consideration has been given to credit needs of the market. at 5 members vote.
MENDIOLA: AY 2011-2012. Composition and Review of BSP Portfolio • • At least once every month. INTIG. Evidence of indebtedness issued by • Reserve requirement shall be applied to all banks government instrumentality fully uniformly and without discrimination guaranteed by Government • Reserves against deposit substitutes shall be • The above must be freely negotiable and available determined like reserve requirement against to the general public in denomination of thousands regular bank deposits of pesos or more AUTHORS: MANILA. ANTONIO CEASAR. FROM SECTION 2S . .SAN BEDA COLLEGE OF LAW.San Beda College of Law Banking Laws on dates of maturity or upon liquidation of obligation Banks shall have the right at any time to withdraw documents presented as collateral upon payment of full debt including interests Issue and Negotiation of BSP Obligations • • • 50 • Other Requirements • MB shall provide additional conditions which borrowing institutions must satisfy • Provisional Advances to the National Government • BSP may make direct provisional advances with or without interest to national government to finance expenditures in annual appropriations provided that: o It is repaid before end of 3 months. maturities and may denominate the obligation in gold and foreign currencies BSP may acquire the said evidence of indebtedness before their maturity by: o Purchase in open market o Or redemption if the BSP has reserved its right to make such redemption Such shall not be included among BSP assets and shall be immediately retired and cancelled (because there was discharge. banks shall be require to maintain reserves against their deposit liabilities Purchases and Sales of Government Securities • MB may at its discretion require banks to maintain reserves against funds held in trust and liabilities • BSP may buy and sell in open market for its for deposit substitutes account the following: • Required reserves shall be proportional to volume 1. buy and sell freely negotiable evidence of indebtedness of BSP The issuance of such shall only be made in cases of extraordinary movements in price levels It may be issued directly against the international reserves of BSP or issued without any relation to asset of BSP MB shall determine interest rates. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. TRACY ANN. BSP shall not engage in development banking or financing except for outstanding loans obtained or extended for development financing XI. MB shall review portfolio of BSP for future credit policy MB shall consider if portfolio has a sufficiently large part consists of assets with early maturities in order to promptly contract BSP credit whenever national monetary policy so requires X. JOY ESTELA. BERNARDO. Open market Operations for the Account of BSP Principles of Open Market Operations • Open market purchases and sales of security shall be made in accordance to primary objective of price stability XII. maker acquired the note he issued) Prohibitions • • BSP shall not acquire or accept shares as collateral and shall not participate in ownership of enterprise. Bank Reserves Reserve Requirement • In order to control volume of money created by credit operations. place. DE JESUS. extendible for another 3 months o Shall not exceed 20% of average annual income of borrower for the last 3 preceding fiscal year • • BSP may issue. Evidence of indebtedness issued directly of deposit liabilities and shall ordinarily take a by Government form of a deposit in BSP 2. JANSEN.
industrial and non-financial companies for the limited purpose of financing their own needs shall not be considered deposit substitutes • Reserve position shall be calculated daily on the basis of the amount at the close of business for the day In holiday or non-banking days. MB may deny any bank the privilege of offsetting reserve deficiencies If bank chronically has reserve deficiency. BSP may charge fees for such Deposit reserves maintained by banks in the BSP shall serve as basis for the clearing of checks and settlement of interbank balances Any bank that incurs an overdrawing in its deposit account in BSP shall fully cover such overdraft and pay interest (1) at 1/10 of 1% per pay or (2) prevailing 91-day treasury bill rate plus 3% point whichever is higher Settlement of clearing balances shall not be effect for accounts which continues to be overdrawn for Reserves against Unused Balances of Overdraft Lines • MB may establish minimum reserve requirements for unused balance of overdraft Increase in Reserve Requirement • MB may increase reserve requirements against existing liabilities in a gradual manner and shall not exceed 4% in any 30 day period. Promissory notes 3.San Beda College of Law Banking Laws • MB may exempt from reserve requirement such deposits with remaining maturities of 2 years or more and interbank borrowings Requirement to maintain bank reserves is imposed primarily to control volume of money and shall not pay interest on reserves maintained • 51 • • Definition of Deposit Substitutes • Deposit substitutes – alternative form of obtaining funds from the public through the issuance. endorsement or acceptance of debt instruments for borrower’s own accounts for the purpose of relending receivables The following are some deposit substitutes: 1. Certification of assignment 5. the bank shall pay: o 1/10 of 1% amount of deficiency or o The prevailing 91-day treasury bill rate plus 3% points whichever is higher Banks shall permitted to offset bank deficiency with any excess reserves which may have held during other days of the week Banks shall be required to pay penalty only on the average daily deficiency in the week In case of abuse. BERNARDO. ANTONIO CEASAR. JANSEN.SAN BEDA COLLEGE OF LAW. Participations 4. the reserve position is calculated at the close of the business day immediately preceding such holiday For purpose of computing reserve position. DE JESUS. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Repurchase agreements MB shall determine what instruments are considered as deposit substitutes Deposit substitutes of commercial. FROM SECTION 2S . MB may limit or prohibit the bank from making new loans or investments It may also require that part or all net profits be assigned as surplus MB may modify or set aside the reserve deficiency penalty in a period of a strike or lockout of the bank or national emergency • • • • • • • Required Reserves against Peso Deposits and foreign currency deposits • MB may fix minimum reserve ratios to peso and foreign currency deposits that each bank shall maintain and shall be applied to all banks uniformly and without discrimination • • Interbank Settlement • • BSP shall establish interbank clearing facilities. JOY ESTELA. Banker’s acceptance 2. TRACY ANN. principal office of the bank in the Philippines and all branches are considered as single unit Reserve Deficiencies • When reserve position is below the required minimum. INTIG. . Banks shall be notified reasonably in advance • Computation of Reserves • AUTHORS: MANILA. MENDIOLA: AY 2011-2012.
its political subdivisions and instrumentalities XIII. availability and cost of money are in accord with needs of Philippine economy and that bank credit is not granted for speculative purposes. JOY ESTELA. FROM SECTION 2S . JANSEN. . Selective Regulation of Banking Operations Guiding Principle • MB shall ensure supply. BERNARDO. Functions as Banker of the Government Designation of BSP as Banker of Government • BSP shall act as baker of government. garnishment of court or government agency to satisfy claim of a party other than the government XIV. INTIG. MENDIOLA: AY 2011-2012. DE JESUS. government cash balance should be deposited with BSP and only minimum working balances is to be held by government banks Government bank may hold deposits of political subdivisions beyond minimum working balances when such subdivision have outstanding loans with former BSP may pay interest n deposits of the government as well on deposits of banks Portfolio Ceilings • Whenever MB considers it advisable to prevent or check an expansion of bank credit. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.San Beda College of Law Banking Laws 5 consecutive days until overdrawn is paid or has emergency loan Banks with existing overdrafts with BSP at effectivity of NCBA may either convert such to emergency loan or settle such immediately • 52 • MB may prescribe minimum ratios which capital and surplus of banks must bear to the volume of their assets Coordination of Credit Policies • GOCCs which perform banking functions shall coordinate their banking policy with MB Exemption from Attachment • Deposits in BSP as reserve requirement shall e exempt from attachment. Restrictions shall be applied to all banks uniformly and without discrimination • • • Minimum Capital Ratios Fiscal operations AUTHORS: MANILA. ANTONIO CEASAR. MB may place upper limit on amount on loans and investment of bank and its rate of increase In no case shall MB establish limits below the value of loans or investments of banks on the date on which they are notified by the restriction. Regulation on bank operations shall be applied to all banks uniformly and without discrimination Representation with IMF • BSO shall represent government in IMF and shall carry accounts as may result from Philippine membership with such Fund Representation to other Financial Institutions • BSP may be authorized by the Government to represent it in dealings with International Bank for Reconstruction and Development and other international financial agencies The president may designate any of his financial advisers to jointly represent the government with BSP Margin Requirement against Letters of Credit • MB may prescribe minimum cash margins for opening of letters of credit • Required Security against Bank Loans • MB shall issue regulation with respect to maximum permissible maturities of loans and investments and amount of security Official Deposits • • BSP shall be the official depository of the government As a general policy.SAN BEDA COLLEGE OF LAW. TRACY ANN.
MB shall. the prior opinion of MB should also be requested The constitution provides that foreign loans may only be incurred in accordance with the law and regulation of monetary authority Information on foreign loans by the government shall be made public The President may contract foreign loans with prior concurrence of MB and subject to limitation of the law. submit to Congress a report of loans made by government that would increase foreign debt • • Method of Placing Government Securities • • BSP may place securities in the such through direct sale to financial institutions and public BSP shall not be a member of any stock exchange or syndicate but may interfere for the purpose of placing government securities • • Servicing and Redemption of Public Debt shall be effected through BSP Securities Stabilization Fund • Securities Stabilization Fund –made for the account of the government and its operation shall consists of purchases and sales. DE JESUS.SAN BEDA COLLEGE OF LAW. it shall not endeavour to alter movements of the market resulting from basic changes in interest rates Resources of Securities Stabilization Fund • It shall come from balance of the fund held by the Central Bank (RA 265) • Remuneration for Services • BSP may charge equitable rates for services it renders to the government Profits and Losses of the Funds • Securities Stabilization Fund shall retain net profits it may make on operations regardless if said profits arisen from capital gains or interest earning. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. TRACY ANN. JANSEN. XV. MENDIOLA: AY 2011-2012. of bonds fully guaranteed by the Government • • Representation on the National Economic and Development Authority (NEDA) AUTHORS: MANILA. JOY ESTELA. BSP may engage in services of foreign banks • Purpose of operations – increase liquidity and stabilize value of said security in order to promote investment in government obligation MB shall use the resources of the Fund to prevent or moderate sharp fluctuations in the quotations of government obligation However. Functions as Financial Adviser Financial Adviser on Official Credit Operations Issue of securities representing obligations of government may be made through BSP which may act as agent of government BSP shall not guarantee the place of said securities and shall not subscribe to their issue except to replace its maturity holdings • Before undertaking credit operation abroad. INTIG. shall request the opinion of MB Opinion of MB shall be based on (1) gold and foreign exchange resources of the nation and (2) effects of such operation in balance of payments and on monetary aggregates Whenever government contemplates borrowing within the Philippines. BERNARDO. within 30 days at end of quarter. Marketing and Stabilization of Securities for the Account of the Government Issue of Government Obligations • XVI. It shall also bear net loss. in the open market.San Beda College of Law Banking Laws • BSP shall open a general cash account for the Treasurer of the Philippines in which liquid funds shall be deposited Transfers of funds from such account shall be made only upon order of Treasurer • 53 • • Other Banks as Agent of BSP • In performance as fiscal agent. ANTONIO CEASAR. FROM SECTION 2S . through Secretary of Finance. government. . BSP may engage services of other government and domestic banks for operations in localities or abroad where BSP does not have office Fiscal operations in foreign countries.
appoint personnel in BSP Officers of BSP shall not engage directly or indirectly in partisan political activities • • • • XVIII. financial and fiscal policies of government Phase out of Regulatory Powers over Finance Corporations • 54 XVII. INTIG. by COA. of DBM and (4) Chairmen of Committee on Banks of Congress shall determine assets and liabilities of CB to be transferred to BSP: o MB and Sec. DE JESUS. phase out all fiscal agency functions and shall transfer it to DOF Mandate to Organize • • BSP shall be organized irrespective of RA 7430 (Optimum Utilization of Personnel Act) There shall be no preferential or priority right to be given to any personnel for appointment in new staffing pattern AUTHORS: MANILA. (2) Sec. Importation and exportation of BSP of notes. provincial. by P10B o Liabilities by BSP shall include liabilities circulating notes and coins o Asset or liability of CB not transferred shall be retained and liquidated by CB Board of Liquidators for a period not exceeding 25 years All actions shall be reported to Congress and the President within 30 days Exemption from Customs Duties • The following are exempted from custom duties notwithstanding special laws: 1. FROM SECTION 2S . ANTONIO CEASAR. Privileges Tax Exemptions • BSP shall be exempt for a 5 year from approval of NCBA from all national. JANSEN. JOY ESTELA. municipal and city taxes Exemption shall apply to all property of the BSP as well as to contracts and deed related to conduct of business It shall not apply to those payable by persons merely doing business to BSP Foreign loans shall be exempt from any taxes and payment is assumed by BSP BSP shall within 5 years phase out its regulatory powers over finance companies without quasibanking and transfer it to SEC Implementing Details • BSP shall be made operational by these acts: (1) President appoint members of MB within 60 days and (2) transfer of assets and liabilities of CB to BSP within 90 days All incumbent personnel of CB shall continue to exercise duties in BSP if they are necessary • • • • Transfer of Asset and Liabilities • Upon effectivity of Act. TRACY ANN. shall be in accordance with CSL No qualification requirement for position shall be imposed other than those set by MB MB or Governor may. of Finance shall work out creative monetary solution to retire CB of its liabilities at least cost o BSP shall remit 75% of net profits to a special deposit account (sinking fund) until net liabilities of CB is liquidated o Assets and liabilities shall be limited to an amount that will enable BSP to perform on viable basis. . Transitory Provisions of NCBA Phase-out of Fiscal Agency Functions • BSP shall within 3 years but no longer than 5 years.San Beda College of Law Banking Laws • The deputy governor shall be an ex officio member of NEDA in order to – assure effective coordination between economic. coins and other metals 2. (1) 3 members of MB including Governor. without need of further obtaining approval of government agency. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. (3) Sec. Importation of all equipment needed for bank notes and coin production Applicability of Civil Service Law • Appointment BSP. except policy determining.SAN BEDA COLLEGE OF LAW. Assets shall exceed liability. primarily confidential or highly technical in nature. BERNARDO. of Finance. MENDIOLA: AY 2011-2012.
SAN BEDA COLLEGE OF LAW. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Revaluation of International Reserve Account shall continue for the account of the same entity AUTHORS: MANILA. FROM SECTION 2S . MENDIOLA: AY 2011-2012. TRACY ANN.Monetary Adjustment Account and Exchange Stabilization Adjustment Account are repealed. . INTIG. BERNARDO. JOY ESTELA.San Beda College of Law Banking Laws Separation Benefits • MB shall authorize separation benefits in addition to all gratuities under the law to those separated in service due to reorganization 55 Repealing Clause: RA 265 and PD 1792 are repealed Transfer of Powers • All powers vested in CB not inconsistent with NCBA is deemed transferred to BSP Suspense Accounts • Sec 46 . JANSEN. ANTONIO CEASAR. DE JESUS.
JOY ESTELA. . they shall be escheated to government and court will order their deposit to the Treasurer Penalties • If president. the period for dormancy and minimum balance is properly disclosed AUTHORS: MANILA. All creditors or depositors or bank may be included in one action Service of process in such action or actions shall be made by delivery of copy to defendant bank and by public in a newspaper of general circulation At time of issuance of summons. It shall be joined as parties the bank and all such creditors and depositors 9. 56 6. security and any evidence of indebtedness with banks. 3936 – Requiring Banks to Transfer Unclaimed Balances to Insular Treasury Such unclaimed balances. If the such are unclaimed. The bank shall be defended by SG without costs Disclosure of Service and Maintenance Fees on Dormant Accounts • • Banks may impose service or maintenance fees on dormant or inactive accounts Provided that before such fees are imposed. loan associations and trust corporations in favor of any person (1) known to be dead or (2) who has not made further deposits or withdrawal during the preceding 10 years or more Governed by Act No. b. • • • 7. MENDIOLA: AY 2011-2012.San Beda College of Law Banking Laws CHAPTER 9 – Unclaimed Balances and Trust Receipts I. DE JESUS. Procedure 1. Show cause why unclaimed balance should not be deposited to Treasurer e. JANSEN. all banks shall forward to Treasurer a statement under oath of all credits and deposits held by them of persons (1) known to be dead or (2) who has not made further deposits or withdrawal showing: a. 8. Name and last known residence b. clerk of cert shall also issue notice: a. When SG is informed of such. court shall have complete jurisdiction Court must hear all parties. Signed by him b. Date when person died or made his last deposit or withdrawal d. together with crease and proceeds shall be deposited to the Treasurer to the credit of the government Demand drafts cannot be escheated but telegraphic notes can (Republic vs. Interest due on unclaimed balance 2. Amount and date of outstanding unclaimed balance c. FROM SECTION 2S . Immediately before filing. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.SAN BEDA COLLEGE OF LAW. TRACY ANN. Within month of January of every odd year. FNCB) 5. the court will grant relief to RP Copy of notice shall be attached to summons required Any person interested may appear to become a party. Notify them that if they do not appear. Unclaimed Balances Definitions • Unclaimed balances – includes credits or deposits of money. It is the duty of the Treasurer to inform the SG the existence of unclaimed balances 4. Copy of sword statement shall be posted n conspicuous place in premises of the bank at least 60 days from date of filing 3. INTIG. Requiring them to appear within 60 days after first publication d. cashier or managing office of the bank neglects or refuses to file sworn statement. bank shall pay to the government 500Php per month for each infraction Immunity from suit • Any bank which has made a deposit to the Treasurer shall not thereafter be liable to persons who brought an action against the bank for such unclaimed balances. Directed to all persons other than defendants named therein c. he shall commence an action in the name of the People of the Republic in the CFI (RTC) of the province or city where the bank is located a. BERNARDO. Upon completion of publication. bullions. ANTONIO CEASAR. bank shall communicate with person whose favor the unclaimed balance stand of such a.
FROM SECTION 2S . documents or instruments and any successor in interest (title here is security interest and not absolute ownership) 4. Document – written or printed evidence of title to goods 2. JANSEN. ANTONIO CEASAR. TRACY ANN. heir. 1101-1014 of NCC where state shall inherit decedent estate Bank can be a defendant in an Unclaimed Balance petitioner in Act. left properties and has no heir. widower or other person entitled to estate claim such within 5 years from date of judgment. BERNARDO. Instrument – negotiable instruments under NIL. Trust Receipts Law (PD 115) Policy of the State 1. he shall have title of such o If already sold. JOY ESTELA. documents or instruments under trust receipt and any successor in interest 3. DE JESUS. certificate of stock. certificate of deposit. escheated o Personal estate assigned to city or municipality deceased last resided o Real estate assigned to city or municipality property is situated o If deceased never resided here. CFI) All defendant banks are not to be included in one action alone if they are in different jurisdictions because the law state “actions” There will only be one action filed for all banks if they are under one jurisdiction (Republic vs. Declare the misuse and/or misappropriation of goods or proceeds as a criminal offense punished under Estafa Definition of Terms 1. after payment of just debts and charges. credit or investment instrument where entrustee appears to be the owner in its face. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. he shall forever be barred Sec 5 – actions for reversion or escheat of properties in violation of constitution. Instrument does not include document • • • The State as the Heir of a Decedent AUTHORS: MANILA. shall be governed by this Rule • • • • State has right over property of decedent under Art. legatee. 3986 because it is a real party as the judgment of the case would injure the bank since it shall be deprived of its use of deposits (Republic vs. Goods – includes chattels and personal property other than money. . widow. Encourage and promote use of trust receipts as aid to commerce 2.San Beda College of Law Banking Laws Reclassification • All unclaimed balances already reported to Treasurer shall be transferred/reclassified from deposit liability/other credit accounts to liability account. CFI) Sec 2b of Rule 4 of ROC cannot govern escheat proceedings because Act. municipality or city shall be accountable to proceeds o If claim not made within said time. SG may file petition in CFI of province where deceased last resided or where he had estate Sec 2 – court shall release order of hearing that shall fix date and place of hearing not more than 6 months after entry of order and shall direct publication in newspaper once a week for 6 consecutive weeks Sec 3 – upon arrival of date fixed and no sufficient cause shown to the contrary. court shall adjudge estate. “Due to the Treasurer of the Philippines” until deposited to Treasurer • 57 • Escheats under Rules of Court • • Rule 91 of ROC applied in case a person died intestate and left properties in the Philippines Sec 1 – when person died intestate. Entrustee – person taking possession of goods. Provide regulation of trust receipts to assure protection of rights of parties 3. MENDIOLA: AY 2011-2012. INTIG. whole estate shall be assigned to city or municipality where it is situated o Such estate shall be for benefit of public schools and charity Sec 4 – if devisee. Entruster – person holding title over the goods. things in action or things affixed in lands 5.SAN BEDA COLLEGE OF LAW. 3986 is an action in rem while former is in persona II.
collection or renewal Sale of goods. INTIG. To sell or procure exchange 2. as collateral of their merchandise It is a document where the lender (entruster). Trust receipt is a security agreement which a bank acquires a security interest in the goods. Purchaser – person taking by purchase 8. documents or instruments 2. Effect consummation involving delivery to depository 4. documents or instruments by person in business of selling such for profit who (1) has general property rights in such goods over the buyer or (2) who sells the same to the buyer on credit. conditional sale. Refers to merchandize received under obligation to return in (devolvera) to owner – this happens when entrustee failed to sell the goods and must return goods to entruster Trust receipt is a separate and independent security transaction intended to aid in financing importers whereby goods are held as security by lending institution for loan In Sps. documents or instruments. Insular Bank of Asia and America. ship or tranship them in manner necessary for their sale In case of instruments: 1. To load. TRACY ANN. DE JESUS. retaining title or interest as security for payment does not constitute trust receipt transaction • 58 • • • • • • There are two possible situation in trust receipt transaction: 1. Trust receipt is a security transaction to aid financing importers who do not have sufficient funds to finance importation and who may not be able to acquire credit except utilization. To manufacture the goods with the purpose of ultimate sale or 3. Total invoice value AUTHORS: MANILA. FROM SECTION 2S . Vintola vs. Trust receipt – written of printed document signed by entrustee in favor of entruster comply with condition of TRL. To sell the goods 2. 3. Deliver them to principal 3. trustee. 9. Transaction involved a loan feature in the letter of credit and security feature for the trust receipt 2. releases the same to the entrustee The entrustee signs a trust receipt and binds himself to hols the goods for the entruster and to sell such with obligation to return the proceeds or return such in case of non-sale In case of goods or documents: 1. it stated the following: 1. documents or instruments to secure performance of some obligation by entrustee. .San Beda College of Law Banking Laws 6. JANSEN. Person – an individual. Letter of credit-trust receipt is where a bank extends a loan with a trust receipt for the loan. Description of goods. lease. Effect their presentation. Refers to money received under the obligation involving the duty to deliver it (entregarla) to owner of merchandise – this happens when entrustee sold the goods and must return the proceeds to entruster 2. No formality for execution is necessary for validity 11. JOY ESTELA. ANTONIO CEASAR. It secures indebtedness and there can be no such thing as security interest that secures no obligation 4. mortgage or pledge 7. BERNARDO. Value – any consideration sufficient to support a simple contract Trust Receipt Transaction • Trust receipt transaction – any transaction by and between entruster and entrustee where entruster hold absolute title or security interest over goods. unload. having no prior title or possession to the goods lends money to the borrower (entrustee) on security of the goods • Form of Trust Receipts • Trust receipt need not be in any particular form but every trust receipt must contain: 1. MENDIOLA: AY 2011-2012. Security interest – property interest in goods.SAN BEDA COLLEGE OF LAW. Purchase – taking by sale. It includes title whenever such title is in substance taken or retained for security only. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. receiver or two more persons having joint interest 10.
FROM SECTION 2S . be responsible as principal/vendor of sale made by entrustee Rights of Entruster 1. CA) • The law uses the word “may” in granting entruster • Entruster’s security interest in goods. . keeping irrespective of WON it was due to the fault or and storing goods. Payment of expenses of retaking. CA. documents or negligence of entrustee shall not extinguish his instruments obligation c. Hold the goods and shall dispose them in 2. JOY ESTELA. sell or return for the entruster the goods. the entrustee is still liable for the whole amount The entrustee shall only be released from his liability if he pays the entruster his obligation or the entruster sells the goods at a private or public sale and appropriate the proceeds Even if the thing is taken as a right of the entruster but is not sold to a public/private sale yet. documents the right to cancel the trust and take possession of or instruments shall be valid against all creditors the goods of entrustee for the duration of the trust receipt • Entruster has discretion to avail of such right or agreement seek alternative action such as third party claim of Violation of TRL ICA upon default of entrustee AUTHORS: MANILA. INTIG. Vda de Hijos de Angel Jose and Validity of Entruster’s Security Interest against Creditors Colinares vs. MENDIOLA: AY 2011-2012. Receive proceeds in trust and turn over to entruster default or failure of entrustee to comply with 3. it was stated that if the entruster took possession of the goods. sell such in public or private sale 6. Observe all other terms provided c. May. Keep said goods or proceeds separate and capable a.SAN BEDA COLLEGE OF LAW. The entrustee shall receive any surplus but shall be Rights of Purchaser for Value and in Good faith liable t the entruster for deficiency • Any purchaser in good faith and for value of the • Trust receipts partake nature of conditional sale goods from entrustee acquires the goods free from where importer becomes absolute owner of entruster’s security interest merchandise as soon as he paid purchase price or loan (PNB vs. Entruster now in possession may give of identification notice to entrustee of intention to sell 5. JANSEN. a. Undertaking of entrustee 4. documents or instruments at any time upon 2. To hold in trust. documents or instruments May contain other terms not contrary to TRL or laws • 59 • • Currencies in which Trust Receipt may be denominated • • Trust receipt may be denominated in Philippine or foreign currency If it is denominate in foreign currency. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Insure the goods against loss obligation 4. documents or instruments b. BERNARDO. Satisfaction entrustee’s indebtedness 4. Entitled to proceeds to the extent of the amount Obligations of Entrustee owing to the entruster or in case of non-sale return of goods 1. TRACY ANN. Proceeds of sale shall be applied to: • Risk of loss shall be borne by entrustee. Return goods in event of non-sale or demand of b. Entruster in public sale can become a Liability of Entrustee for Loss purchaser 3. not less than 5 days after serving entruster notice. Entruster may cancel trust and take possession of accordance with conditions of trust receipts goods. merely by giving entrustee liberty of sale. DE JESUS. the debt of the entrustee still exists Entruster not Responsible on sale by Entrustee • Entruster shall not. Payment of expenses thereof • Loss of goods. payment shall be made in its equivalent Philippine currency at FOREX in turn over • In Philippine Blooming Mills vs. ANTONIO CEASAR.San Beda College of Law Banking Laws 3.
TRL applies to items: o Destined for sale o Processed as component of product ultimately sold o Used to repair equipment of business Penalty • Failure of entrustee to turn over the proceeds or non-return constitute crime of estafa AUTHORS: MANILA. Vintola vs. complaint based on failure to comply with obligation in Trust Receipt is separate from criminal liability under PD 115. DE JESUS. it shall defeat the loan feature of a trust receipt and shall become a contract of sale where bank gained ownership of goods upon giving a loan The title of the entruster is a mere artificial expedient. Return goods in non-sale Mere failure to account or return gives rise to the crime which is malum prohibitum There is no requirement to prove intent to defraud (Ong vs.San Beda College of Law Banking Laws • TRL is violated whenever entrustee fails to: 1. they shall be accountable Corporations cannot be put in jail. ANTONIO CEASAR. Ordonez. INTIG. Turn over proceeds 2. Insular Bank of Asia and America. CA. JANSEN. more of a legal fiction than fact It was also stated that there was no double recovery because when shells were deposited in the court. JOY ESTELA. its directors. FROM SECTION 2S . . it is stated that the return of merchandize does not amount to recover by the lending bank This is because the lending bank (entruster) only acquires a security interest over the goods and not the absolute ownership If the lending bank acquires absolute ownership. TRACY ANN. TRL with its penal sanction is in reality. these entities are made liable for civil liabilities arising from criminal offense Violation of trust receipt constitutes fraud under Art. MENDIOLA: AY 2011-2012. Go) Failure to account upon demand of funds or property is evidence of conversion or misappropriation Mere failure to account for goods constitute Par 1(b) of Estafa (Ong vs. CA) Failure to deliver proceeds cause prejudice not only to the creditor but also to the public interest In Sps. It is an obligation ex contractu and may proceed independently regardless of result of criminal action In People vs. if the person who executed the trust receipt did not pass title to the bank. and person is not an importer. Thus. CA.SAN BEDA COLLEGE OF LAW. vs. officers or employees responsible for the offense shall have criminal liability Rationale for making such officers responsible: they are vested with authority and responsibility to devise means to ensure compliance with the law and if they fail to do so. However. Cuervo. CA and Colinares vs. merely confirmatory of situation covered under Art. 315(1)(b) RPC In Colinares vs. BERNARDO. where there is security interest of the property. they have not appropriate the shells and can recover the obligation from the petitioners • 60 • • • • • • • • • • • • • • • • • • • • In Colinares vs. IBAA did not yet accept it. there is no trust receipt created It is unjust and inequitable for banks of making borrowers sign trust receipt to facilitate collection of loans under threat of criminal prosecution in case of non-payment Application • In Allied vs. failure of entrustee to turn over the proceeds or non-return constitute crime of estafa under Art. CA. 33 of NCC an ICA to enforce civil liability arising from criminal liability In Sarmiento Jr. 315(1) of RPC without need of proving intent to defraud If violation is committed by a corporation. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. CA) What the law punishes is the dishonest and abuse of confidence in handling money Intent to misuse or misappropriate goods should be proved (Metrobank vs.
REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Establish human resource management system a. 3. appointive members of the board are disqualified from holding office in any insured bank Quorum • • 3 members shall constitute a quorum Secretary of Finance and BSP Governor can designate a representative with no lower rank than U. Recognized competence iv. Direct management of PDIC 10. JOY ESTELA. Two members from the private sector a. TRACY ANN.Sec and Deputy Governor If Secretary of Finance fails to attend. 3. President of PDIC – vice chairman a. INTIG. DE JESUS. ANTONIO CEASAR. Roles of PDIC 1. 7. appointed by the President with term of 6years 4. 35 years old Disqualification of appointive members • 61 For duration of tenure and 1 year after. President of PDIC shall be chairman 5. Adopt annual budget 1. All positions shall be governed by 12. Insure the deposits of all banks which are entitled to benefits of insurance 2. . Board of Directors c. Compensation plan comparable with prevailing compensation • BOD shall administer the affairs of PDIC fairly d. JANSEN. Term of 6 years without reappointment b. compensation position classification system III. condone or release any claim to PDIC 3. establish rank and fix remuneration Composition 5. MENDIOLA: AY 2011-2012. Powers of PDIC as Corporate Body 1. job evaluation studies b. FROM SECTION 2S . Secretary of Finance – ex-officio chairman 6. Exempted from existing laws on and impartially without discrimination compensation 4. • Per Diem • Secretary of Finance shall fix per diem Authority of the Board 1. All suits of civil nature is deemed to arise from Philippine law b.San Beda College of Law Banking Laws CHAPTER 10 – Deposit Insurance I. Compensation structure shall be based on 11. 6. Unquestionable integrity and responsibility iii. No examination conducted within 12 days from last examination b. BERNARDO. Qualifications: i. Governor of BSP – ex-officio member assistance AUTHORS: MANILA. promote and safeguard interest of depositing public by way of providing insurance coverage • RA 3591 – Act establishing PDIC • PDIC is entitled to free use of Philippine mail II. No attachment or execution against PDIC before final judgment c. To avoid overlap examinations. Appoint. 2. 4. Prepare rules and regulations for effective discharge of responsibilities 9. Good moral character ii.SAN BEDA COLLEGE OF LAW. BOD designate agent of insured bank Appoint its Board of Directors (BOD) Prescribe by-laws not inconsistent with law Exercise all powers granted by law and incidental thereto Conduct examination of bank with prior approval of MB a. 8. Use corporate seal Have succession until dissolved Make contracts Sue and be sued a. Approve methodology in insurance and finance 2. 2. maximize use of reports Act as receiver Prescribe rules deemed necessary to implement PDIC law Establish provident fund for payment of benefits of employees Compromise. As a basic policy.
notes and securities issued 6. Future earnings prospects 4. BERNARDO. Convenience and needs of community Deposit – unpaid balance of money received by a bank and for which it has given credit to a: 1. MENDIOLA: AY 2011-2012. ANTONIO CEASAR. JANSEN. Delegate power to represent 8. Thrift accounts 6. it does not mean that he already has a claim against the insurance fund Deposit Liabilities • The fund protects deposits only AUTHORS: MANILA. Represent PDIC 5. Wilson: negotiability of instrument has no dependence of existence of guaranty or insurance Bank Examiners • • • BOD shall appoint examiners to examine insured bank Each examiner has the power to make thorough examinations They have the power to: o Administer oaths o Examine and take testimony of officers o Compel presentation of books • Deposit must be in fact made • Fact that certificates stated that they are insured by PDIC does not ipso facto make the certificate insured Deposit liability is determined by RA 3519 To claim deposit insurance. contracts. Time 5. Financial history and condition of bank 2. FROM SECTION 2S . Direct and supervise operations 4. Checking 3. VP shall act as president pending the appointment of new President Deposit liabilities of any bank engaged in business of receiving deposit shall be insured with PDIC Factors considered by BOD 1. Authorize. JOY ESTELA. Represent PDIC in legal action 7. Adequacy of capital structure 3. Commercial 2. General character of management 5. Savings 4. with his signature and prior approval of board.SAN BEDA COLLEGE OF LAW. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Those evidenced by passbooks Any obligation of a bank payable outside of Philippines shall not be a deposit under PDIC Law Insured bank that has branch outside the Philippines may avail insurance for its deposit payable only in such branch Statutory Liability of PDIC • • PDIC primarily governed by special law Liability of PDIC is statutory and rests upon existence of a deposit with an insured bank and not the negotiability of the certificate evidencing the deposit Fourth National Bank of Wichita vs. TRACY ANN. Exercise other powers vested in him • • 62 • • • Vice President • • Shall assist President During absence or temporary incapacity of President. INTIG. Execute and administer policies 3. Prepare agenda for meeting 2. Officers President • • • • Shall be Chief Executive of PDIC Salary fixed by President of Philippines Total salary shall be ceiling of all other personnel Powers and duties: 1. DE JESUS.San Beda College of Law Banking Laws IV. Deposit Insurance Coverage . irregularities and anomalies committed in banks Holder in due course not applicable • Even if depositor is HDC. V. law requires that a deposit is placed in the insured bank Deposit may be constituted only if money or its equivalent have been received by a bank Claim Agents • Claim agents – power to investigate and examine all claims for insured deposits • • • Investigators • Investigators – power to conduct investigations on fraud.
PDIC may file collection case and administrative charges against bank officials Duty to indicate insurance on Deposit • All banks must indicate that it is under the PDIC and maximum insurance Trust Fund • • • • Trust fund – funds held by insured bank in fiduciary capacity Trust fund shall be insured in an amount not to exceed 10k for each trust estate Such insurance shall be separate from other deposits of owners of trust funds When fiduciary bank deposits any trust fund with other insured bank. Any insured bank that fails to file certified statement shall be compelled to file by mandatory injunction Payment of Dividends and/or Interests • No insured bank shall pay dividends on capital stock or interest or distribute capital assets while it remains in default in payment of assessment dues If default in payment is due to dispute between bank and PDIC over amount of assessment. Semi-assessment base for semi-annual period – average of assessment base in close of business Certified Statement of Assessment Base and Assessment Due 1. If insured bank assumed liabilities for deposits of another bank. On such date. Certified statements required shall be in such form as BOD shall prescribe 5.San Beda College of Law Banking Laws Liability under negotiable instrument vs. DE JESUS. the bank shall pay the semi-annual assessment due 2. Assessment rate – not exceed 1/5 of 1% per annum 2. . On or before July 31. this rule shall not apply • Civil Penalties • Any assessment payable by insured bank shall be subject to payment of interest computed at legal rate for loan There shall be an added penalty equivalent to twice the amount of interest payable for each day Penalty shall not be applicable if there is dispute over amount of assessment • • VII. Not less than P250 3. each bank shall file similar statement as above 3. Deposit Insurance Fund • Permanent insurance fund – P3B Refund and Credit AUTHORS: MANILA. BERNARDO. ANTONIO CEASAR. MENDIOLA: AY 2011-2012. Assessment base – amount of liability of bank for deposits 4.SAN BEDA COLLEGE OF LAW. FROM SECTION 2S . JOY ESTELA. Assessment Assessment Rule 1. JANSEN. Guarantee fund • Liability of the make is different from liability of the guarantee fund. it shall be included in assessment base 4. INTIG. TRACY ANN. such amount shall not be considered as a deposit liability VI. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Semi-annual assessment rate – ½ of assessment rate. On or before January 31. each bank shall file in PDIC certified statement showing amount of assessment based and semi-annual assessment due. The latter is purely statutory • 63 Deposit insurance of Foreign Currency Deposits • • • Foreign currency deposits – insured with PDIC Insurance payment shall be in same currency in which deposit is denominated PDIC Law is not applicable to Offshore Banking Units PDIC may: o Refund to an insured bank any payment of assessment that is excess of amount due o Credit such expense toward payment of assessment of next following period Termination • • PDIC shall not terminate insured status of any bank which continues to receive deposits Should insured bank fails to pay assessment dues required.
information relating to business of any bank except when required by Congress or the President XI. Reserves for insurance 4. Revealing in any manner. Additions to reserve 3. director or employee of any bank 3. . Permanent insurance fund 2. employee or stockholder directly or indirectly of any bank 2. Operating costs 2. Such expenses and charges consists of: 1. JANSEN. If violation cause insolvency or • Members of Board and personnel of PDIC may dissipation of assets the period to take become directors or officers of any bank if the corrective action shall be done within 15 position is in connection with the financial days and impose fines assistance extended by the PDIC • Actions and proceedings may be undertaken by PDIC if insured bank have violated: Borrowing from Banks 1. Any written condition imposed by PDIC AUTHORS: MANILA. INTIG. within 2 years from passage. conduct study to adjust amount of Permanent Insurance Fund Assessment collections and incomes shall be added to Deposit Insurance Fund after deduction from expenses and charges. director. it shall be disclosed whether insured bank is committing unsound • practices • The BOD in such a case shall: 1. MENDIOLA: AY 2011-2012. JOY ESTELA. consultant.San Beda College of Law Banking Laws • Deposit insurance fund shall be capital account of PDIC and shall consist of: 1. Retained earnings Reserves for insurance shall be maintained at a reasonable level to ensure capital adequacy PDIC may. BOD may provide 100php penalty for each day of violation PDIC shall have access to reports made to the BSP to the insured bank and BSP shall also have access to reports of BSP Each insured bank shall keep true and accurate record of its daily deposit transactions. DE JESUS. they shall still receive legal assistance in connection with the act done during tenure The amount advance shall be repaid by the officer if it is determined by the board that such officer need not be indemnified • • • VIII. Legal Assistance • PDIC shall advance litigation costs to its directors. FROM SECTION 2S . Being an officer. Any provision of PDIC Law 2. Compliance with such shall be duly certified by bank president Refusal to issue such shall be a violation X. Prohibitions on PDIC Personnel 1. Reports by Insured Bank • • 64 • • • • • • Each insured bank shall make reports to PDIC of conditions required If bank fails to make such report within given time. Unsound Practice • Upon examination by PDIC. such claim is not deemed to accrue until PDIC discovers IX. Dealings by PDIC Personnel with Banks order to the bank 3. officers or employees in connection with any criminal. Assessment collections 3. Submit report of examination to MB • 2. BOD shall motu proprio institute such BOD can issue cease and desist XII.SAN BEDA COLLEGE OF LAW. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Any order or rule of PDIC 3. ANTONIO CEASAR. BERNARDO. Receiving gifts from any officer. If no corrective action by MB. civil or administrative case where such person acted within the performance of his duty Even if they resign. TRACY ANN. Net insurance and financial assistance losses PDIC may recover from any insured bank any unpaid assessment No action shall be brought to recover assessment unless such action shall have been brought within 5 years after right accrued If insured bank filed a false certified statement with intent to evade.
Assets of closed bank is in custodia legis 4. Hire private counsels if necessary 7. JOY ESTELA. Assets of closed bank shall not be subject to attachment. Payment of Insured Deposits Manner of Payment • Payment of insured deposits shall be made in: 1. FROM SECTION 2S . 250k. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Pay accrued utilities. reduce interest rate 9. Appoint persons to perform functions of PDIC as receiver or liquidator 3. manage and administer affairs of closed bank 2. JANSEN. Payment of separation pay shall be made after closed bank is in liquidation 4. Collect loans and other claims 6. functions and duties of directors.SAN BEDA COLLEGE OF LAW. maximum insured deposit shall be presumed to belong entirely to such entity Aggregate interests of each co-owner over several joint accounts shall be subject also to maximum insured deposit No owner of an negotiable certificate of deposit shall be recognized as depositor unless his name is registered as owner in issuing bank • Effect of receivership 1. execution or levy Powers of PDIC in receivership 1. BERNARDO. Receivership Appointment • • MB shall appoint the PDIC as receiver Receiver – includes receiver. TRACY ANN. PDIC shall charge against the bank the receivership expenses After payment of all liabilities. Suspend or terminate employees of closed bank a. Borrow loan when necessary to preserve assets of closed bank to minimize loss 8. In PDIC Law. MENDIOLA: AY 2011-2012. rentals and salaries of closed bank 5. officers and stockholders are suspended 3. Powers. Cash 2. DE JESUS. INTIG. PDIC shall pay surplus dividends to creditors and claimants of bank XIII. maximum insured deposit shall be divided into as many equal shares as to individuals If account is held by juridical person. Exercise other powers inherent in receiver Suits Filed by PDIC • • • • • • • Proof of Claims • • PDIC may required proof of claims before paying insured deposit Final determination if person is entitled to insurance is the court AUTHORS: MANILA. ANTONIO CEASAR. payment of all docket and court fees shall be suspended until action is terminated Such fees shall constitute first lien on judgment Distribution of Assets • • Before distribution of assets. commission or other agency charged by law with the duty to take charge of assets and liabilities of a bank prohibited from doing business It has the duty to gather preserve and administer assets and liabilities of such banks for the benefit of its depositors XIV. .San Beda College of Law Banking Laws • Borrowing from banks by examiners or other personnel shall be prohibited with respect to particular bank to which they are assigned Borrowing by personnel from any bank not included in the prohibition shall be secured and disclosed to the BOD • 65 • • Actions filed by PDIC as receiver. Now it’s 500k Joint account shall be insured separately from any individually-owned deposit account If account s held jointly. PDIC shall control. By making available a transferred deposit in another insured bank Transfer deposit – deposit in an insured bank made available to a depositor as payment of insured deposit from closed bank assumed by another insured bank Insured deposit – amount due to any deposit for deposits in an insured bank 1. If stipulated interest on deposits is unusually high. Bring suit to enforce liabilities of bank 2.
TRACY ANN. Investment by PDIC • Money of PDIC not employed shall be invested in obligation of the Republic of the Philippines or guaranteed obligations o Not sell or purchase such obligations for its owner account in excess of 100k o Insurance commissioner may waive requirement of approval in above Banking and checking accounts of PDIC shall be kept in BSP. Purchase assets of such bank 3. FROM SECTION 2S . ANTONIO CEASAR. PDIC may grant financial assistance in amount necessary to prevent its failure Systematic risk – possibility that failure of one bank to settle the transactions with other banks will trigger chain reaction and general shutdown of clearing activity Discharge • Payment of insured deposit shall discharge • • Recognition of Owner • Neither PDIC or insured bank shall be required to recognize owner of a deposit appearing on the records under a name other than claimant • • Withholding of Payment • PDIC may withhold payment of insured deposit if payment of liability by such depositor as stockholder of closed bank not yet offset is pending determination • Prescription • All rights of depositor shall be bared if: o Depositor in closed bank fail to claim insured deposit within 2 years from actual take over o Depositor does not enforce his claim within 2 years after th2 year period to file a claim • • AUTHORS: MANILA. DE JESUS. PDIC shall be subrogated to all the rights of the depositor against the closed bank Subrogation shall include right to receive same dividends from proceeds of assets Depositor shall retain claim for any uninsured portion of his deposit • All right of depositor against closed bank which PDIC may have been subrogated shall revert to depositor again 66 XV. Extension of Loans • When insured bank is determined as in danger of closing.SAN BEDA COLLEGE OF LAW. BERNARDO.San Beda College of Law Banking Laws Settlement Period and Penalties in case of failure to settle • Failure to settle claim within 6 months from date of filing claim. PNB or fiscal agent • • • • • Notice • • PDIC shall commence determination of insured deposit upon actual takeover of closed bank PDIC shall public a notice once a week for 3 consecutive weeks in newspaper of general circulation such closing of the bank XVI. INTIG. Make loans to such bank 2. . in order to prevent such. PDIC shall determine whether actual payoff will be more expensive than exercise of such When MB has determined systematic consequence of closure of bank. where such failure by the officer was due to GAOD. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. PDIC is authorize to: 1. Make deposits in insured bank The grant shall be made if bank is essential in community and for financial stability Such authority to extend financial assistance may also be exercised if PDIC finds that the resumption of operations of the closed bank is vital to community Reopening of such close bank is subject to prior approval of MB PDIC may provide any corporation acquiring assets of insured bank in danger of closing with financial assistance Prior to exercise of these above powers. Assume liabilities of such bank 4. officer shall be imprisoned from 6 months – 1 year Period shall not apply if validity of claim is under resolution Upon payment to any depositor. JOY ESTELA. MENDIOLA: AY 2011-2012. JANSEN.
Merge and consolidate with non-insured bank or convert into non. PDIC is authorized to issue bonds. . FROM SECTION 2S . Assume liabilities of deposits by any noninsured bank 3. Borrowings • • PDIC is authorized to borrow from BSP Any loan granted by BSP shall be consistent with monetary policy and interest rate shall not exceed treasury bill rate If funds of PDIC are not sufficient.insured bank 2. debentured and other obligations to settle insured deposits in closed banks The BOD shall determine interest rate PDIC shall provide reserves for redemption • • Reports and Audit • • • PDIC shall annual make report of its operations in Congress Its financial transactions shall be audited by COA COA shall have access to all books. Preliminary Injunction against PDIC. it can borrow money from any bank designated as fiscal agent of RP Such loans shall be short-term durations • • • • XXI.SAN BEDA COLLEGE OF LAW. defalcation and losses from discharge of duties BOD shall determine bonding requirement as to its directors. Miscellaneous Signs • • Every insured bank shall display at each place of business signs that deposits are insured by PDIC Those which do not relate to deposits or are impractical shall be exempted from this requirement XXII. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Issuance of Bonds • With approval of President of Philippines. Criminal Penalties • Prison mayor or fine 50k-2M o Willful refusal to submit report o Refusal to permit examination o Making false statement o Submission of false materials o Refusal to allow PDIC to takeover o Refusal to turn-over records o Fraudulent disposal of assets o Violation of exemption from garnishment o Willful failure to comply with PDIC and conducting unsound business o Splitting deposits Splitting deposits . ANTONIO CEASAR. JOY ESTELA. accounts. TRO and Injunction • • Only CA can issue TRO. PDIC may contract such protection for them payable to such bank XVII.deposit account with outstanding balance of more than maximum insured amount is broken down to two or more accounts within 30 days preceding closure of bank for purposes of availing maximum deposit XVIII. DE JESUS. Fines • BOD is authorized to impose administrative fines but no more than 3 times amount of damages caused XXIII. Transfer assets to non-insured bank Protection against losses • PDIC may require insured bank to provide protection against burglary.San Beda College of Law Banking Laws • Systematic risk also means the likelihood of a sudden unexpected collapse in confidence with the banking system PDIC may not use such powers to purchase stocks of insured bank Financial assistance may take form of equity or quasi-entity 67 • • 1. officer and employers If insured bank refused to comply with such requirement. TRACY ANN. no insured bank shall: AUTHORS: MANILA. records and reports • XX. BERNARDO. JANSEN. Prohibition shall apply to all cases SC can issue restraining order if of extreme urgency Merger or Consolidations of Insured Bank • Without prior written consent from PDIC. INTIG. MENDIOLA: AY 2011-2012.
SAN BEDA COLLEGE OF LAW. it does not ipso facto mean that the depositors also has knowledge of such Thus.San Beda College of Law Banking Laws • Restraining order in violation of this shall be void and judge who issued is suspended 68 Reorganization • • • PDIC may be reorganized in new staffing pattern. JOY ESTELA. No preferential right shall be enjoyed Reorganization must be completed within 6 months from effectivity of PDIC law BOD shall provide separation incentives PDIC vs. DE JESUS. INTIG. . TRACY ANN. FROM SECTION 2S . REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. CA • Even if the bank has knowledge that it shall be under receivership. BERNARDO. such deposits made in the period shall be covered by deposit insurance • • AUTHORS: MANILA. ANTONIO CEASAR. MENDIOLA: AY 2011-2012. JANSEN. they can still engage in business transactions in course of business as long as they acted in GF and did not know such closure Thus.
trust entities and subsidiaries and those regulated by BSP 2.SAN BEDA COLLEGE OF LAW. Concepts • Money laundering – any act to conceal or disguise the indemnity of illegally obtained proceeds so that they appear to have originated from legitimate sources Even before AMLA. Integration – money re-enters in mainstream economy in legitimate looking form a. JOY ESTELA. JANSEN. FROM SECTION 2S . salesmen and investment houses 4. No underlying legal or trade obligation or economic justification b. Other entities dealing in currency. Placement – launderer inserts dirty money into a legitimate financial institution a. Banks. Covered transactions: Any transaction in cash or other monetary instrument involving amount of 500k within 1 banking day 2. Kidnapping for ransom CDDA RA 3019 Plunder Robbery and extortion Jueteng and masio Piracy in the high seas Qualified theft • • Three steps in Money Laundering (ML) 1. It appears to come from legal transaction b. Foreign exchange corporations. Involve final bank transfer into the account of the launderer Policies 1. Mutual funds. closed-end-investment companies 5. Consistent with foreign policy. 2. non-banks. Drafts. Protect and preserve integrity and confidentiality of bank accounts 2.San Beda College of Law Banking Laws CHAPTER 11 – Anti-Money Laundering • RA 9160 – Act defining Crime of Money Laundering and Providing Penalties and AMLL 69 I. Layering – sending money through various financial transactions to change its form and make it difficult to follow a. Amount involved not commensurate to financial capacity of client d. INTIG. Circumstances relating to transaction deviate from profile of client f. 4. 8. bonds. brokers. 7. commodities or financial derivatives Covered and Suspicious transaction 1. MENDIOLA: AY 2011-2012. Securities dealers. checks. Securities or NI. Insurance companies 3. commercial papers or substitute instruments 4. Ensure that Philippines is not used as ML site 3. Most complex step as it makes dirty money hard to trace 3. 5. . 3. Client’s transaction is structured to avoid reporting requirements in AMLA e. quasi-banks. Transaction is analogous to above Monetary Instrument 1. Other similar instrument where title passes through indorsement. Transaction is relate to any unlawful activity g. Coins or currency of legal tender whether in Philippines or other country 2. Consists of bank-to-bank transfers b. Client not properly indentified c. TRACY ANN. extend cooperation in transnational investigations involving ML Covered Institutions AUTHORS: MANILA. Often in bank deposits b. ANTONIO CEASAR. assignment or delivery Unlawful Activity 1. BERNARDO. Riskiest stage as there is large amounts and banks are required to report highvalue transactions 2. notes 3. money laundering is a crime whereby the proceeds of an unlawful activity are transacted and making them appear to have originated from legitimate sources 1. money chargers 6. DE JESUS. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. BSP issued various circulars to avoid money laundering Under AMLA. Suspicious transactions: a. 6. Change form of money c.
Any person knowing that monetary instrument involves proceeds of unlawful activity and performs or fails to perform any act as a result of which he facilitates ML 3. BERNARDO. those under fictitious names and similar accounts are prohibited Peso and foreign currency non-checking numbered accounts are allowed o BSP may conduct annual testing of such accounts to determine identity Record Keeping • Another way of preventing ML is this: 1. 8. There can be extension but not exceed 10 Functions working days 2. 70 How is ML committed 1. Must act unanimously in discharge of function suspicious. Transaction be determined to be both covered and 1. 6. Institute civil forfeiture proceedings Deposits. records on customer identification and correspondence shall be preserved for 5 years from date of closing Prosecution of ML • • Any person can be convicted with both offense of ML and the unlawful activity Any proceeding relating to unlawful activity is given precedence without prejudice to freeze order III. AUTHORS: MANILA. In closed accounts. Commissioner of Insurance Commission 3. RA 1405 – Act Prohibiting Disclosure of 4. MENDIOLA: AY 2011-2012. Fraudulent practise of Securities Regulation Code 14. Require and received covered and suspicious 3. 10. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. JANSEN. Jurisdiction and Prosecution Jurisdiction of ML Cases • • RTC shall have jurisdiction of all ML Those committed by public officers are under jurisdiction of SB • Cause filing of complaint in DOJ or OMB Investigate suspicious and covered transactions Apply freeze order in CA ex parte Implement measures necessary to counteract ML Receive and request from foreign states assistance in AML operations Develop education programs against ML Enlist assistance of any branch of government to promote AML operations Impose administrative sanctions Establish secretariat head for term of 5 years IV. All records of all transactions of covered institution must be safely stored for 5 years from date 2. 7. INTIG. 10. FROM SECTION 2S . . When reporting. Prevention of Money Laundering Customer Identification • • • Covered institutions shall establish true indemnity of clients based on official documents Maintain a system of verifying true identity of clients Anonymous accounts. Issue orders to determine true indemnity of owner a. TRACY ANN. 12. DE JESUS. ANTONIO CEASAR. Governor of BSP 2.SAN BEDA COLLEGE OF LAW. Swindling/estafa Smuggling Violation of Electronic Commerce High-jacking and destructive arson perpetrated by terrorists 13. Any person knowing monetary instrument is required to be disclosed and filed with AMLC but fails to do so II. Chairman of Securities and Exchange Commission Reporting Covered and Suspicious Transactions 1. 9.San Beda College of Law Banking Laws 9. Felonies of similar nature in other countries 5. covered institution is deemed not transactions to have violated: 3. JOY ESTELA. Covered institutions shall report to AMLC all covered and suspicious transactions within 5 days from occurrence therefore a. Any person knowing any monetary instrument involves proceeds of unlawful activity and attempts or actually transacts such instrument 2. 13. 11. Anti-Money laundering Council (AMLC) Composition 1. 12. report such as suspicious 2. 11.
DE JESUS. JOY ESTELA. the accused cannot hide his fraudulent records as it is maintained in the bank and cannot be erased Thus. . even if the accused is notified that there will be inquiry due to the fullblown trial. there can be an ex parte freeze order There is no need for full-blown trial • • Republic vs. c. Unlawful activity or 2. When reporting covered or suspicious transactions. BERNARDO.San Beda College of Law Banking Laws b. it will not anymore as a discovery tool Second Issue • • • • • • No. bank inquiry order does not necessitate any physical seizure The reason of court is that. there is no ex parte bank inquiry order However. FROM SECTION 2S . Eugenio 71 1. in such interpretation. Kidnapping with ransom 2. ANTONIO CEASAR. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Upon application ex parte by AMLC 3. There can be no publication or airing of such report by mass media. Money laundering offense No court order shall be required in unlawful activities of: 1. Whether or not the phrase “in cases of” requires that there must be a pending trial in another court for an unlawful activity 2. bank inquiry order have no ex parte orders. covered institution and media shall be criminally liable Freezing Monetary Instrument • • • One way to prevent ML CA can issue freeze order which shall be effective immediately Requisites of freeze order: 1. AMLC may examine deposits in any banking institution upon order of court It must be established that there is probable cause that deposits relate to: 1. MENDIOLA: AY 2011-2012.Foreign Currency Deposits. After determination that probable cause exists where money instrument is related to unlawful activity Freeze order shall be effective for a period of 20 days unless extended by court In all instances of unlawful activity. But if the exceptional unlawful activity is present. TRACY ANN. it does not weaken the law Also Bank Inquiry Order (BIO) not analogous to search warrant Moreover. As a general rule. it would render it a limited too in aid of litigation and wholly inutile In such situation. JANSEN. covered institution is prohibited from communicating to any person or media such fact 6. Filed in CA 2. there shall be no ex parte orders. Ex Post Facto Clause AUTHORS: MANILA.SAN BEDA COLLEGE OF LAW. Violation of CDDA 3. there can be BIO without need of court order • • • Authority to Inquire into Bank Deposits • To complete legal measure to prevent ML. e-mail or other device a. officer shall be criminally liable except if in GF 5. RA 8791 – GBL 4. ex parte bank inquiry order is not allowed The proviso does not have the same word “ex parte” unlike in the freeze order Silence of the law does not automatically construe it to have such ex parte Also. Whether or not the power to inquire in the bank deposit can be done ex parte First Issue • No. In case of violation. Destructive arson in connection with terrorism BSP may make emanation of deposits when examination is made n course of period or special examinations • • • • • • • V. The court ruled that there is no need that there must be a pending trial for an unlawful activity in another court before there can be a petition to inquire to bank deposits Otherwise. In violation. the right to privacy must be upheld under Bank Deposit Secrecy Act Thus. in IRR of AMLA. RA 6426 . High-jacking (RA 6235) 4. INTIG.
San Beda College of Law Banking Laws • Under AMLA no person can be prosecuted under AMLA for acts committed prior to October 17, 2001 Also, BIO prior to October 17, 2001 is prohibited as it is an ex post facto o It deprives a persons of some lawful protection to which he has become entitled However, those accounts created prior to October 17, 2001 are still under the coverage of AMLA Otherwise, the offenders can mere circumvent by laundering into an account created prior to October 17, 2001 •
When foreign state makes a request for investigation or prosecution of ML, the AMLC may accept or refuse the same for valid reasons Principles of mutuality and reciprocity shall at all times recognized
Powers of AMLC to act on request of foreign state 1. AMLC may execute request for assistance by: a. Tracking down, freezing proceeds of unlawful activity b. Giving information c. Apply order of forfeiture 2. Court will issue such order only if application is accompanied by: a. Authenticated copy of order of court of requesting state b. Certification by competent court of requesting state that conviction or order is final Obtaining assistance from foreign states • AMLC may request assistance in: a. Tracking down, freezing, proceeds of unlawful activity b. Obtain information c. Apply with proper foreign court an order to enter premises or seize documents and objects in request d. Applying for order of forfeiture of any monetary instrument Must be accompanied by authenticated copy of forfeiture by RTC and affidavit of clerk of court
VI. Forfeiture Civil Forfeiture • Where there is a covered transaction report made and court ordered seizure or monetary instrument, rules of civil forfeiture applies
Claim on Forfeiture Assets 1. When court issued order of forfeiture, offender may apply for a declaration that the same legitimately belongs to him 2. Verified petition filed in court which rendered judgment of conviction within 15 days from order Payment in Lieu of Forfeiture • Instead of order of forfeiture, court may order offender to pay amount equal to value of monetary instrument when said order cannot be imposed because: 1. Monetary instrument cannot be located with due diligence 2. It was substantially altered or destroyed 3. It has been concealed, removed or converted from being found 4. Located outside the Philippines or outside jurisdiction of court 5. It has been commingled with other monetary instruments
Limitation on Request for Mutual Assistance • AMLC may refuse to comply with request for assistance if it contravenes the Constitution or execution of require prejudicial to national interest unless there is a treaty specifically provided
VII. Mutual Assistance among States Request from Foreign State
Requirement for Request for Mutual Assistance from Foreign state
1. Confirm investigation or prosecution being conducted 2. State grounds which person is investigated AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN. FROM SECTION 2S - SAN BEDA COLLEGE OF LAW, MENDIOLA: AY 2011-2012. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.
San Beda College of Law Banking Laws 3. Give sufficient particulars to identity of person and covered institution 4. Ask from covered institution any information necessary 5. Specify manner and to whom information is to be produced 6. Give all particulars necessary for issuance by the court of requesting State certain order 7. Contain other information that may assist execution of request Authentication of Documents • A document is authenticated if: a. Signed or certified by judge of requesting state b. Authenticated by oath of witness or sealed with official seal of state Certificate of authentication may also be made by secretary of embassy
1. AMLA shall not be used for political persecution or to hamper competition in trade 2. No case of ML may be filed against any candidate during election period X. Implementing Rules and Regulations (IRR) • BSP, Insurance Commission and SEC shall promulgate IRR of AMLA subject to approval of Congressional Oversight Committee Covered institutions shall formulate their respective ML prevention programs
XI. Congressional Oversight Committee (COC) Composition • • • 7 members from Senate and 7 members from HR Members of Senate shall be appointed by Senate president in proportional representation This shall also be done in HR
Extradition • Philippines shall negotiate inclusion of ML offenses among extraditable offenses in future treaties
Powers of COC • COC shall have power to promulgate own rules, to oversee implementation of AMLA and review IRR
XII. Rules and Regulations for Banks VIII. Penalties 1. In ML: 7 - 14 years imprisonment and 3M 2. In Failure to Keep Records: 6 months – 1 year imprisonment and 100k-500k 3. In Malicious reporting: 6 months - 4 years imprisonment and 100k-500k a. If juridical person, officers shall be punished and revoke such license b. If an alien, deported after service c. In public official, shall have PAD or TAD d. If such public officials refuse to testify, same penalties Breach of Confidentiality • • For breach under AMLA, penalty is 3-8 years with fine of 500k-1M Responsible reporter, writer, president or publisher shall be liable 1. When establishing business relations in opening deposits accounts, banks should take reasonable measure to establish identity of client. In corporate entities, following shall be made: a. Verification of legal existence of client b. Verification of authority of person purporting to act on behalf of client 2. In case of doubt as whether purported clients are acting for themselves, reasonable measures shall be taken 3. Anonymous or accounts under fictitious names are not allowed. In case such is allowed, banks must still ensure identity of client in some other document 4. Identity of existing clients should be renewed at least every other year 5. All necessary records should be maintained for at least 5 years 6. Special attention shall be given to complex, unusual large and all unusual patterned transactions with no lawful purpose
IX. Prohibition against Political Harassment
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN. FROM SECTION 2S - SAN BEDA COLLEGE OF LAW, MENDIOLA: AY 2011-2012. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.
San Beda College of Law Banking Laws 7. Other suspicious transactions not involving deposits should still be reported to proper authorities 8. Banks should not or avoid transact with criminals 9. Programs against ML should be developed: a. Development of internal policies and hiring high standard employees b. Ongoing employee training c. Audit function to test system
San Beda College of Law Banking Laws CHAPTER 12 - Special Purpose Vehicle A. Policies of the State • Develop and maintain a sound financial sector for the country • Address the non-performing asset problems of the financial sector • Encourage private sector investments in nonperforming assets • Eliminate existing barriers in the acquisition of non-performing assets • Help in the rehabilitation of distressed business with the end in view of contributing to economic value added • Improve the liquidity of the financial system which can be harnessed to propel economic growth B. Definitions • Act - Special Purpose Vehicle Act of 2002 • Appropriate Regulatory Authority agency/authority having jurisdiction over the FI's operations, which shall be the following • Department of Finance (DOF) - in case of the PDIC and GOCCs, in consultation with other agencies that have primary jurisdiction over the said FIs whenever deemed appropriate by the DOF • Bangko Sentral ng Pilipinas (BSP) - in the case of banks which include LBP and DBP, and trust and QB functions of financing companies and investment houses licensed by the BSP • Commission - in case of financing companies and investment houses, except their trust and QB functions or any qualified entity not under the DOF or BSP • Audited Financial Statements - a set of financial reports consisting of balance sheet, income statement, statement of changes in equity and cash flow statement, audited by a Commissionaccredited independent CPA • Certificate of Eligibility or COE - certificate issued by the Appropriate Regulatory Authority as to the eligibility of the NPL or ROPOA for purposes of availing of the tax exemptions and privileges • Code - BP 68 aka the Corporation Code of the Philippines • Commission - Securities and Exchange Commission • Dation in Payment (dacion en pago) - a payment whereby property, whether real or personal, tangible or intangible, is alienated in favor of the • •
creditor, which could either be an FI or an SPV in satisfaction of an NPL FIA - Foreign Investment Act, RA 7042 FI or Financial Institutions - credit granting institutions which shall be limited to the following 1. the BSP 2. a bank as defined under RA 8791, aka “The General Banking Law” 3. a financing company as defined under RA 8556 aka “The Financing Company Act of 1998” 4. an IH as defined in PD 129 aka “The Investment Houses Law” 5. Government Financial Institutions or GFIs, shall be limited to the PDIC, LBP and DBP 6. GOCCs 7. other institutions licensed by the BSP to perform QB Investment Unit Instruments or IUIs - participation certificates, debt instruments or similar instruments issued by the SPV and subscribed by the Permitted Investors o It shall not include the instruments to be issued by the SPV to the selling FIs o SPV shall not be considered as deposit substitutes and shall not form part of the capital stock of SPV Non-Bank Financial Institutions performing QB functions or NBQBs - financing companies, IH, and other institutions licensed by the BSP to perform QB functions Non-Performing Assets or NPA - consists of NPLs and ROPOAs by the F.I.s, certified to be eligible as such ARA Non-Performing Loans or NPLs - loans and receivables such as mortgage loans, unsecured loans, etc, whose principal and/or interest has remained unpaid for at least 180 days after they have become past due or any of the events of default under the loan agreement has occurred as of June 30, 2002 ROPOA - Real and other properties owned or acquitted by an FI in settlement of loans an receivables which have been acquired by way of Dacion en pago or judicial or extra judicial foreclosure or execution of judgment as of June 30 2002 PROVIDED, the property is deemed acquired 1. on the date of notarization of the Deed of Dacion
or acquire NPAs of F. INTIG. Details of the distribution policies 11. Methods for the alteration or modification of the approved SPV plan 13. Issue equity or participation certificates 8. Entrust to 3rd parties asset servicing company. on the date of notarization of the Sheriffs Cert in case of extra judicial foreclosure • True Sale . operate. Take. Submission of SPV Plan – Contents 1. Investment policies 2. usufruct.a sale wherein the selling FI transfers or sells its NPAs without recourse for cash or property to an SPV with the ff results o The transferor relinquishes effective control over the transferred NPAs o The transferred NPAs are legally isolated and put beyond the reach of the transferor and its creditors C. Advance funds to borrowers where required by an acquired asset or any debt 11. Roles and Responsibilities of the trustee. Treasurer's affidavit/ authority to verify bank account 4. Written undertaking to change corporate name by any incorporator or director 6. ANTONIO CEASAR. collect and dispose of NPAs acquired from an FI 2. Spend funds to renovate. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. TRACY ANN. transfer shares or buy shares issued by the borrower for the purpose of business reorganization or rehabilitation of the borrower 5. MENDIOLA: AY 2011-2012. Period for Filing Applications • 18 months from date of approval of the IRR by the Congressional Oversight Committee created in Sec 23 of the Act Registration Requirements • An SPV shall submit to the SEC the ff docs for incorporation: 1. on the date of the entry of judgment in case of judicial foreclosure 3. Enter into dation in payment. complete or alter its NPAs acquired from an FI 7. advisors. Draft form of financial reports of the SPV 10. Minimum subscribed capital stock of 125Mphp 3. Powers of an SPV • An SPV shall be incorporated primarily to invest in. to restructure debt. JOY ESTELA. it shall maintain a net worth based on its Audited Financial Statements in an amount equivalent to not less than its minimum paid-up capital G. Methods for the increase and decrease of future fund contributions 12. Timetable of Issuance 5. Draft agreements for the appointment of trustees and agents 7. Guarantee credit. JANSEN. BERNARDO. loan servicers and property managers 9. Bank Certificates or Deposits 5. mortgage. hire. Features of the IUIs 4. Secondary powers 1.SAN BEDA COLLEGE OF LAW. Registration Data Sheet F.25M • This shall be in form of cash • If an SPV issue IUIs or offers other securities to the public. Organization • An SPV shall be organized as a stock corporation in accordance with the Corporation Code and with these Rules o Provided that if the SPV will acquire land. Contribution plan 3.San Beda College of Law Banking Laws 2. at least sixty percent (60%) of its outstanding capital stock shall be owned by the Philippine Nationals pursuant to the FIA D. condone debt and undertake other restructuring related activities 4. Minimum authorized capital stock of 500Mphp 2. the collection and receipt of debt payments for debts under restructuring or business reorganization 76 E.s. secure. Appointment or engagement of external auditor 8. collect rents and profits and other similar acts concerning its NPAs acquired from FIs 3. improve. securitize. foreclose judicially or extrajudicially and other forms of debt settlement involving NPLs 6. Details of credit enhancements AUTHORS: MANILA. Methods for the liquidation and distribution of assets to the holders of IUIs 14. . Minimum paid-up capital of 31. Rights of the holders of IUIs 6. Borrow money and issue other instruments or paying operational and administrative costs 9. Rent lease. FROM SECTION 2S . Subscribed and Paid-Up Capital of the SPV • An SPV shall have: 1. accept or intervene for honor the bills of the borrowers 10. Articles of Incorporation and By laws 3. pledge. Engage in 3rd parties to manage. DE JESUS. In case of NPLs. sell. Authorized. exchange. transfer.I. Name verification slip 2.
management's discussion of financial condition and results of operations 7. the SEC shall declare the registration statement effective or rejected • UNLESS the applicant is allowed to amend the registration statement • After which. description of any relationship or interest of the selling FI parent f. JANSEN. Approval • Upon approval of the SPV Plan. certain related party transactions 10. The SPV shall ensure wide dissemination of preliminary and final prospectuses 10. . SPV shall pay a registration fee of 1/10 of 1% of the aggregate offering price of the IUIs subject to the diminishing fee set by the Commission 77 6. DE JESUS. SPV shall cause the publication of a notice of filing of registration statement its expense 7. rights and obligations of the selling FI assumed by the SPV e. the sale of the securities subject thereto shall be commence within 2 business days and be counted until the end of the offering period or until the sale has been terminated by the action of the issuer 9. legal proceedings 5. JOY ESTELA. use of proceeds 3. Incentives and exemption privileges 4. directors and officers 8. business of the issuer 2. or at such later date to which the issuer has consented. The SPV shall also submit a certification from the FI that the affected borrowers of the NPLs and all persons holding prior encumbrances upon the assets 5. INTIG. the ff information shall be disclosed in the registration statements of an SPV a. details of the SPV plan b. setting forth its findings in respect thereto if its finds that: • The issuer: 1. All IUIs proposed to be sold or distributed within the Philippines shall be duly registered with the SEC 2. including therein the number of securities sold Amendments or Rejection • Within 45 days after the date of filing of the registration statement. has been judicially declared insolvent 2. The Commission may audit the financial statements. the Commission shall issue an Approval Certificate stating that the application has been approved and the IUIs may be issued I. has failed to comply with any requirement that the SEC ma impose as a condition for registration of the security for which the registration statement has been filed AUTHORS: MANILA. risk factors 4. detailed description of the assets or loan constituting the pools of assets d. he has made any false or misleading representation of material facts in any prospectus concerning the issuer or its securities 5. FROM SECTION 2S . market of securities 6. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. securities ownership 9. ANTONIO CEASAR. TRACY ANN.San Beda College of Law Banking Laws 15. Written notification shall be given to the SEC within 3 business days from completion or termination of the offering by the issuer. the SEC shall determine if it should be effective or rejected • The SEC may reject an RS and refuse registration thereunder or revoke the effectivity of an RS and the registration of the security thereunder after due notice and hearing by issuing an order to such effect. Upon the registration statement being declared effective by the Commission. In addition. Registration statement including: 1. audited and interim financial statements in accordance with SRC rule 68 3. has been or engaged or is about to engage in fraudulent transactions 4. details of credit enhancements c. MENDIOLA: AY 2011-2012.SAN BEDA COLLEGE OF LAW. violated any provision of the Corporation Code as well as orders of the SEC 3. such other documents or information as may be required by the SEC H. Issuance of IUIs • Registration Requirements 1. BERNARDO. assets and other information of an SPV applying for registration 8.
a juridical person.San Beda College of Law Banking Laws • • The RS is on its face incomplete or inaccurate in any material aspect or include any untrue statement or other misleading statements The issuer. it may issue an order suspending the offer and sale of the securities pending any investigation 78 • Issuance of Securities of the Public without prior registration • Any SPV that offers to sell or distribute its IUIs to the public within the Phils without prior registration shall be subject to the penalties provided of the SRC • The imposition of the foregoing administrative sanctions shall be without prejudice to the filing criminal charges against the individuals responsible for the violation Tax Treatment of IUIs • Since IUIs are not considered as deposit substitutes under the Act. that the Parent. O. thru one or more intermediaries. BERNARDO. directly or indirectly. provident and other employees/officers' benefit funds of the selling FI 4. the interest or other monetary benefit derived from IUIs is not subject to the 20% final withholding tax under the NIRC • However. hold. that an SPV shall not be authorized to acquire the IUIs of another SPV 2. Permitted Investors • May acquire or hold IUIs of an SPV in the minimum amount of 10Mphp provided: 1. trusts for the benefit of employees such as pension and profit sharing trusts that are managed by or under the trusteeship of the selling FI 3. ANTONIO CEASAR. INTIG. Subsidiaries. the IUIs of the SPV that acquired the NPAs of the FI • Affiliate . power over more than ½ of the voting rights by virtue of an agreement with other investors 2. Affiliates or DOSRI shall not acquire. or any D.exists when the Parent owns directly or indirectly thru subsidiaries more than one half of • • • the voting power of an enterprise it may also exist when there is: 1. entities in which the amount of investment of the selling FI is more than 20% but less than 50% of the outstanding capital stock thereof 2. Notice and Manner of Transfer of Assets Prior Notice • No transfer of NPLs to an SOV shall take effect unless the FI concerned shall give prior notice to the borrowers of the NPLs and all persons holding AUTHORS: MANILA.a juridical person who has control over another juridical person directly or indirectly thru one or more intermediaries Related Interest: 1. FROM SECTION 2S . documentary stamp tax. power to cast the majority of votes at meetings of the BoD or equivalent governing body 5. JANSEN.SAN BEDA COLLEGE OF LAW. management of the selling FI 6. or otherwise. DE JESUS. is controlled by or is under common control with selling FI or its affiliates • Control . the IUI and any income arising from the IUIs shall be subject to the normal tax and/or such other applicable taxes. TRACY ANN. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. JOY ESTELA. directly or indirectly. power to appoint or remove the majority of the members of the BoD or equivalent governing body 4. MENDIOLA: AY 2011-2012. or controlling person of the issuer or a person performing a simple function has been convicted by a competent judicial or administrative body. principal owners of the selling FI 5. including but not limited to. of an offense involving moral turpitude and/or fraud or is enjoined or restrained by the SEC for violation of such If the SEC deems it necessary. imposed under the NIRC and its implementing regulations J. any other arrangement similar to any of the above Parent . power to govern the financial and operating policies of the enterprise under a statute or an agreement 3. . members of the immediate families of the principal owners and management of the selling FI 7. other parties with which the selling FI may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests Subsidiary of a specified person is an affiliate controlled by such person D/I thru one or more intermediaries K. upon plea of guilty.
BERNARDO. Extends any CF. Is made the beneficiary of a trust used as a vehicle for purchasing and securitizing the NPAs 3. Extends any credit facility. D/I. ANTONIO CEASAR. has d/i management of the transferee SPV 3. DE JESUS. All subsequent transfers shall require a separate COA from the ARA 79 Nature of Transfer • in the nature of True Sale • any transfer of NPAs not in the nature of True Sale shall not qualify for tax exemptions and fee privileges granted under the Act • The transfer by an FI of its NPAs to an SPV shall be considered NOT A TRUE SALE if the FI: 1. invests in or acquires. Pays further expenses in relation to the NPAs after said NPAs have been sold/transferred to the transferee SPV 4.San Beda College of Law Banking Laws prior encumbrances upon the assets mortgaged or pledged 1. Possesses a claim of beneficial ownership of more than 5% of the transferee SPV • Following shall NOT presumed to be a true sale if the FI: 1. or for acquiring the NPAs from the SPV 6. officers. guaranty. except in cases of a breach of representation or warranty of the FI 5. subsidiaries/affiliates acting as trustee in the securitization of NPAs that it has transferred to the SPV AUTHORS: MANILA. guaranty or any similar financial transaction to any party for the purpose of investing in the equity or IUIs of the SPV. has any of its directors. JOY ESTELA. or any similar financial transaction to the transferee SPV 5. JANSEN. has obligated to repurchase or substitute/exchange the NPA or any part of the pool of NPAs at any time. MENDIOLA: AY 2011-2012. The ARA and BIR shall coordinate to ensure the integrity of the COE Subsequent Notice • after the sale/transfer of the NPLs. the proposed sale/transfer of said NPAs is under a True Sale 3. the borrower and the FI shall be given a period of at most 90 days upon receipt of notice to restructure or renegotiate the loan under such terms and conditions as may be agreed upon by the borrower and the FI concerned Procedures on the Transfer of Assets to the SPV • An FI who wants to apply must file an application shall be filed for each transfer of assets with the Appropriate Regulatory Authority having jurisdiction. . in case of foreign banks • the 3rd and 4th items shall not apply if the NPL has become a ROPOA after June 30. INTIG. the notification requirement to the borrowers has been complied with 4. Has RI with the transferee SPV 6. parent bank or parent banks. the transferring FI shall inform the borrower in writing at the last known address of the fact of the sale/transfer of the NPLs Subsequent Transfers • Each COE shall be valid for only one transfer. must be in writing by registered mail 2. TRACY ANN. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. Parent bank and the trust department of the Parent bank's subsidiaries/affiliates 2. Extends any credit facility. F. Acts as trustee (FIs trust dept) or if the Trust dept of any of the FIs subsidiaries/affiliates. Purchases/invests in the IUIs of the SPV that acquired its NPAs thru its trust department including the trust department of its Subsidiaries/Affiliates. FROM SECTION 2S . It must be accompanied with a certification of the FI that: 1.SAN BEDA COLLEGE OF LAW. 2002 Issuance of the COE • The ARA shall issue to the borrower a COE within 45 days from the date of application • said COA shall always be required by the BIR for purposes of availing the tax exemptions and other privileges under the Activities • The ARA shall furnish the SEC and the BIR a duplicate copy of said COE. employees on the board of the transferee SPV 4. AST to any party for the purpose of acquiring the NPAs from the transferring FI 7. the IUIs issued by the SPV that acquired its NPAs 2. the maximum 90 days period for renegotiation and restructuring has been complied with • This must be signed by a senior officer with a rank of at least Senior VP or equivalent provided such officer is duly authorized by the FI BoD or the Country Head. the assets to be sold/transferred are NPAs as defined under the SPV Act of 2002 2.
MENDIOLA: AY 2011-2012. transfer of the NPL by the individual to a 3rd party 12. 50% of the filing fees for any foreclosure initiated by the SPV/individual in relation to any NPA acquired from an FI 3. and voting trustees. TRACY ANN. Credible withholding income taxes imposed on the transfer of land and or buildings treated as ordinary assets 4. NPA has been certified by the ARA as an NPL or ROPOA as of 06/30/02 provided that for tax purposes. the transfer of the NPL by the FI to an SPV 2. INTIG. Dacion en pago (DEP) of the NPL by the borrower to the FI 4.SAN BEDA COLLEGE OF LAW.San Beda College of Law Banking Laws 8. JANSEN. . Capital gains tax imposed on the transfer of lands and other assets treated as capital assets 3. The properties acquired by an SPV from the GFIs or GOCCs which are devoted to socialized or low-cost housing shall not be converted to other uses Tax exemption privileges 1. Enters into any other transaction where the FI retains effective control over the transferred NPAs or shares in the losses of the SPV “Any party” includes proxies. Tax Exemptions and Fee Privileges • Transactions covered 1. transfer of the ROPOA by the FI to an SPV 3. • 80 Provided that these tax exemptions and reduction of fees shall apply only upon compliance with the following requirements 1. a property shall be deemed acquired after the lapse of the redemption period in cases where such period still exists 2. on behalf of the borrower. transfer of the NPL by the SPV to a 3rd party 8. Documentary stamp tax 2. transfer of ROPOA by the individual to a 3rd party • • • Q. BERNARDO. transfer of NPL by the FI to an individual 6. FROM SECTION 2S . to the FI 5. the CIR or his duly authorized representative shall issue a Certificate (Cert Authorizing Registration/ Tax Clearance Cert) that such transfer has been reported and is tax-exempt • Penalties • prescribed under Sec 25 of the Act without prejudice to other penalties that may be imposed by the ARA of the transferring FI under applicable laws • The SPV shall assume all Rights and Obligations of the FI over the transferred NPA N. The extension of credit to an individual for the purpose of acquiring a single family residential unit ROPOA or NPL secured by real estate mortgage on a residential unit shall be allowed. involving the NPAs or the securities backed by such NPAs 10. Enters into buy-back and other similar arrangements. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. 50% of the registration fees prescribed Manner of Claiming Tax Exemptions o shall provide the BIR with the appropriate certificate of eligibility o In case of the transfer of real property or shares. the VAT or gross receipts Reduction of Fees 1. 50% of the applicable mortgage registration and transfer fees on the transfer or real estate mortgage and chattel mortgage registration to and the SPV/individual. ANTONIO CEASAR. JOY ESTELA. all transfer taxes and registration fees have been paid or subsequently paid upon assessment on ROPOAs who redemption period has lapsed as of 063002 where legal title has not been transferred in the name of the FI 3. imposed in accordance with the existing circular of LRA 2. Abuse of Tax Exemptions and Privileges AUTHORS: MANILA. Accepts as collateral for a loan extended by said FI the equity shares and IUIs of the SPV that acquired its NPAs 9. DE JESUS. transfer of the ROPOA by the FI to an individual 7. DEP of the NPL by a 3rd party. DEP of the NPL by a 3rd party on behalf of the borrower to the SPV 11. nominees. transfer of the ROPOA by the SPV to a 3rd party 9. or financial derivative transactions with similar effect. DEP of the NP by the borrower to the SPV 10.
SAN BEDA COLLEGE OF LAW. INTIG. Violations . Books of Accounts and Records • Internal Record Keeping and Accounting Controls 1. the penalty of absolute/temporary DQ shall apply AUTHORS: MANILA. and their IRR Reports to be submitted to the BIR by an SPV for purposes of implementing the tax provisions of the Act Reports filed to the BSP o By SPV 1. who shall benefit from the said exemptions and privileges without being entitled thereto. or • Imprisonment: not less than 6 years 1 day not more than 12 years • OR BOTH • If the penalty was committed by a corporation. Financial statements are prepared in conformity with the generally accepted accounting principles c. Recorded assets are compared with existing assets at reasonable intervals and differences reconciled • External Auditor .San Beda College of Law Banking Laws • • Any person. As Stock Corporation General Information Sheet (GIS) within 30 days from stockholder's meeting date • • Audited Financial Statements within 120 days from the end of the fiscal year 2. Report on the latest appraised/ fair market value of ROPOAs and real estate properties/ chattels used as collateral and NQBQs semiannually o By Selling Financial Institution . in addition to the prescribed penalties.The filing of SEC Form 17A shall suffice 4. It shall advise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that a. Penalty in case of violation of the provisions of the Act • Fine: Not less than 50k not more than 1M. A current report on SEC Form 17C d. it shall be subject to penalty provided by SRC.monthly report regarding the actual sale/ transfer to an SPV U. Redemption Periods • provided by the following: Sec 47 of RA 897 or the GBL of 2000 and Rules of Court S. it minutes of meetings and other business transactions 2. Stockholder of SPV or Holder of an IUI at a reasonable hour of business 2. ANTONIO CEASAR. In addition.shall be appointed by SPV accredited by the Commission • Inspection of Books and Records – those who has a right to inspect: 1. association.any violation of the above due to the failure of the SPV. Report on any sale/transfer to any party of NPLs and ROPOAs acquired from banks and NQBQs quarterly 2. or employee. Authorized representatives of the Commission. natural or juridical.. partnership etc. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON. JOY ESTELA. Audited Financial Statements . in addition to the penalties above. Annual Report on SEC Form 17A b. Quarterly Report on SEC Form 17Q c. MENDIOLA: AY 2011-2012. be deported without further proceedings after serving the sentence • If the offender if a public official. he shall. Monthly Reports on total issuances and amounts of IUIs 3. FROM SECTION 2S . BIR or the BSP any time 3. JANSEN. BERNARDO. An SPV must make and keep books. Reports • Reports to be submitted by SPV to the Commission 1. records and accounts which reflect the transactions and dispositions of its assets. As Issuer of Securities to the Public a. The transactions and access are pursuant to management authorization b. . Failure to comply with this right will be a ground for the suspension order on the offering of the IUIs T. the one responsible would be those officers who participated in the commission of the crime or who shall have knowingly permitted or failed to prevent the commission • If the offender is an alien. DE JESUS. this Code. TRACY ANN. shall be liable. he shall refund the Government double the amount of he was exempted from plus12% interest per annum 81 R.
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