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B ANKING L AWS

T ABLE
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C ONTENTS

The New Central Bank Act Republic Act No. 7653 The General Banking Act Republic Act No. 337 In General Establishment of Domestic Banks Licensing of Foreign Banks Commercial Banking Corporations and Universal Banks Thrift Banks Act of 1996 Republic Act No. 7906 Building and Loans Associations Rural Banks Act of 1992 Republic Act No. 7353

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An Act Liberalizing the Entry of Foreign Banks Republic Act No. 7721 Offshore Banking System Law Pres. Decree No. 1034 Foreign Currency Deposits Act Republic Act No. 6426, as amended An Act Creating the PDIC Republic Act No. 3531 The Truth in Lending Act Republic Act No. 3765 Law on Secrecy of Bank Deposits Republic Act No. 1405

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Note: We have included several banking laws which are not in the bar coverage. Likewise, we

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have incorporated several laws on non-bank financial intermediaries. Since they are not covered by the bar exam, the reviewee has the option of not reading them.

B ANKING

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F INANCE

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G ENERAL

Two types of financing
1. 2. equity debt-financing • A cross-breed of the two may also occur.

Intermediaries
1. 2. 3. 4. Banks Non-bank financial intermediaries Exchanges Others i.e. secondary markets

Function of intermediaries
1. 2. 3.

“Brokering” or matching investors with those in need of financing
Help in diminishing risks to investors Provide liquidity

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N EW C ENTRAL B ANK A CT
Republic Act No. 7653 Approved 14 June 1993

I N G ENERAL
Mandate
• The Bangko Sentral ng Pilipinas is the State’s central monetary authority, mandated in the 1987 Constitution, which shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. [Section 1, RA 7653] • The Bangko Sentral shall enjoy fiscal and administrative autonomy. [Section 1, RA 7653]

Objectives
1. The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and sustainable growth of the economy. It shall also promote and maintain monetary stability and the convertibility of the peso. It shall also provide policy directions in the areas of money, banking and credit. It has supervision over banks and has regulatory powers over the operations of finance companies and non-bank financial intermediaries performing quasi-banking functions. [Section 3, RA 7653]

2. 3. 4.

Typical functions of the Bangko Sentral
1. Supervision over banks and regulation of non-bank financial intermediaries engaged in quasi-banking functions Bank of issue: as such, it has the sole power and authority to issue currency Custodian of the nation’s reserves of foreign currency As such, it ensures convertibility of the peso and backs up Philippine currency.

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4. It has control of credit a. b. c. 5. regulating money supply i.e. reserve requirements for banks open market operations i.e. Tbills controlling interest rate

Lender of last resort It has a "rediscounting window,” allowing banks to sell their promissory notes to it.

6. 7. 8.

Custodian of cash reserves of banks Government banker, agent and advisor Central clearance and settlement agency

Fiscal policy v. monetary policy
• Fiscal policy is concerned with revenue generation and expenditure while monetary policy involves regulating money supply and price stability. The Bangko Sentral will now concentrate on monetary policy and shed off fiscal responsibilities which in the past had distracted it from its primary function. [Section 129, RA 7653]
AND

M ONETARY B OARD
Monetary Board
• •

G OVERNOR

The powers and functions of the Bangko Sentral are exercised by the Monetary Board. The Board is composed of seven (7) members appointed by the President for a term of six (6) years. No member may be reappointed more than once. The seven members are: 1. 2. 3. The Governor as Chairman; A member of the Cabinet designated by the President; and Five (5) members who shall come from the private sector, all of whom shall

6. . and divest himself of any and all interests in such institution before assumption of office as member of the Monetary Board. the Governor or his duly designated alternate shall be among the four. consultant. no member of the Monetary Board shall be employed in any such institution within two (2) years after the expiration of his term except when he serves as an official representative of the Philippine Government to such institution. However. 5. a member of the Monetary Board is disqualified from being a director. Disqualifications • In addition to the disqualifications imposed by Republic Act No. with the exception of the Governor who should at least be forty (40) years old Good moral character Of unquestionable integrity Of known probity and patriotism With recognized competence in social and economic disciplines 3. 6713. • • Quorum in the Monetary Board • The presence of four (4) members shall constitute a quorum.5 B ANKING L AWS serve full-time. 4. 2. The member of the Monetary Board coming from the private sector shall not hold any other public office or public employment during their tenure. in which case such member shall resign from. agent or stockholder of any bank. in all cases. Qualifications of the members of the Monetary Board 1. lawyer. Must be natural born citizens of the Philippines At least thirty five (35) years of age. employee. quasi-bank or any other institution which is subject to supervision or examination by the Bangko Sentral. No person shall be a member of the Monetary Board if he has been connected with any multilateral banking or financial institution or has a substantial interest in any private bank in the Philippines. within one (1) year prior to his appointment. likewise. officer.

policies or instructions issued by the Monetary Board. • However. The disclosure of any information of a confidential nature. officers and employees of the Bangko Sentral for. as well as regulations. abuses or acts of malfeasance or misfeasance or fail to exercise extraordinary diligence in the performance of his duties shall be held liable for any loss or injury suffered by the Bangko Sentral or other banking institutions as a result of such violation. Responsibility and liability of the members of the Monetary Board • Members of the Monetary Board. • 2. 1. abuse. or The use of such information for personal gain or to the detriment of the Government. or rulings which shall be final and executory. unless the disclosure is in connection with the performance of official functions with the Bangko Sentral. any member of the Monetary Board with personal or pecuniary interest in any matter in the agenda of the Monetary Board shall disclose his interest to the Board and shall retire from the meeting when the matter is taken up. the Bangko Sentral or third parties. examiners.6 B ANKING L AWS Withdrawal of persons having a personal interest • In addition to the requirements of Republic Act No. misfeasance or failure to exercise extraordinary diligence. and employees of the Bangko Sentral who willfully violate RA 7653 or who are guilty of negligence. or about the confidential operations of the Bangko Sentral. The minutes shall reflect the disclosure made and the retirement of the member concerned from the meeting. or to be published under the provisions of RA 7653 shall not be considered confidential. until reversed or modified by the Monetary Board. Similar responsibility shall apply to members. officials. 6713. or is with prior authorizaytion of the Monetary Board or the Governor. or any information on the discussions or resolutions of the Monetary Board. [Section 17(e). RA 7653] . malfeasance. Authority of Governor to render opinions. any data or information required to be submitted to the President and/or Congress. negligence. decisions. decisions or rulings • The Governor of the Bangko Sentral shall have the power to render opinions. and the implementation thereof. on matters regarding application or enforcement of laws pertaining to institutions supervised by the Bangko Sentral and laws pertaining to quasi-banks. The decision taken on the matter shall be made public.

RA 7653] • .time members of the Board • The Governor of the Bangko Sentral and the full-time members of the Board shall limit their professional activities to those pertaining directly to their positions with the Bangko Sentral. the Governor or the full-time member is tasked to represent the interest of the Government or other government agencies in matters connected with or affecting the economy or the financial system of the country OF THE • • C ERTAIN O PERATI ONS B ANGKO S ENTRAL Supervision and examination • The Bangko Sentral shall have supervision over. including their subsidiaries and affiliates engaged in allied activities. [Section 19. whether public or private. [Section 25.7 B ANKING L AWS Authority of the Governor in emergencies • In case of emergencies where time is insufficient to call a meeting of the Monetary Board. banking institutions and quasi-banks. Exceptions: 1. natural or juridical. 2. At the soonest possible time. They may not accept any other employment. and conduct periodic or special examination of. the governor with the concurrence of two other members of the Board may decide any matter or take an action within the authority of the Board. by designation of the President. civic. He shall thereafter submit a report to the President and Congress within 72 hours after the action has been taken. in debt instruments issued by the Government. cultural or religious organizations Whenever. This power however is subject to the provision of existing laws protecting or safeguarding the secrecy or confidentiality of bank deposits as well as investments of persons. Positions in eleemosynary. RA 7653] • • Outside interests of the Governor and the full. remunerated or ad honorem. the Governor shall call a meeting of the Monetary board to submit his action for ratification.

. No restraining order on power of examination • No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from examining any institution subject to supervision or examination by the Bangko Sentral. and except as otherwise provided in RA 7653. 4. except upon orders of the court. present or pecuniary or material benefit for himself or another. of any institution subject to supervision or examination by the Bangko Sentral. the Congress or any government office or agency authorized by law. except non-stock savings and loan associations and provident funds organized exclusively for employees of the Bangko Sentral. employee. RA 7653] Prohibitions on personnel of the Bangko Sentral • In addition to the prohibitions found in RA 3019 and 6713. [Section 25. unless there is convincing proof that the action of the Bangko Sentral is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond executed in favor of the Bangko Sentral. and shall be subject to such further rules and regulations as 2. fully disclosed to the Monetary Boar. Directly or indirectly requesting or receiving any gift. and Borrowing from any institution subject to supervision or examination by the Bangko Sentral unless said borrowings are adequately secured. Being an officer. director. This prohibition shall not apply to the giving of information to the Monetary Boar or the Governor of the Bangko Sentral. 3. to the extent of fifty percent (50%) or less. from any institution subject to supervision or examination by the Bangko Sentral. is owned by a bank or quasibank or which is related or linked to such institution or intermediary through common stockholders or such other factors as may be determined by the Monetary Board. personnel of the Bangko Sentral are hereby prohibited from: 1. in an amount to be fixed by the court. consultant or stockholder. information relating to the condition or business of any such institution. in writing. directly or indirectly. Revealing in any manner. or under such conditions as may be prescribed by the Monetary Board.8 B ANKING L AWS Subsidiary and affiliate • A subsidiary means a corporation more than fifty percent (50%) of the voting stock of which is owned by a bank or quasi-bank and an affiliate means a corporation the voting stock of which. or to any person authorized by either of them. lawyer or agent. to receive such information.

or rescissible). What the board of directors cannot do. • Powers of conservator 1. 252 SCRA 255 (1986)] • • Termination of conservatorship . However. the power cannot extend to the post-facto repudiation of perfected transactions.9 B ANKING L AWS the Monetary Board may prescribe. liabilities and management of the bank or quasi-bank Reorganize the management Collect all monies and debts due said institution Exercise all powers necessary to restore its viability Extent of the power of the conservator • The conservator has the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank. 3. hence. void. such as repudiating a contract validly entered into under the doctrine of implied authority.e. 265 merely gives the conservator the power to revoke contracts that are deemed to be defective under existing law (i. The conservatorship shall not exceed one (1) year. CA . RA 7653] The conservator should be competent and knowledgeable in bank operations and management. Section 28-A of RA No. otherwise they would infringe against the non-impairment clause of the Constitution.. 4. voidable. [Section 29. Take charge of the assets. C ONSERVATORSHIP V . the conservator merely takes the place of a bank’s board of directors. R ECEIVERSHIP C ONSERVATOR Grounds for appointment of conservator • The Monetary Board may appoint a conservator whenever it finds that a bank or a quasibank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. unenforceable. [First Philippine International Bank v. 2. the conservator cannot do either.

in which case proceedings for receivership and liquidation shall be pursued. [Section 29. the Monetary Board may summarily and without need for prior hearing. the Philippine Deposit Insurance Corporation shall serve as receiver. forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution. 3. No need of prior notice and hearing • In such cases. Is unable to pay its liabilities as they become due in the ordinary course of business. involving acts or transactions which amount to fraud or a dissipation of the assets of the institution. provided that this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community. 2. [Section 30. RA 7653] IN • P ROCEEDINGS R ECEI VERSHIP AND L IQUIDATION Grounds for proceedings in receivership and liquidation • The Monetary Board shall institute proceedings for receivership whenever it finds that a bank or quasi-bank: 1. The conservatorship shall likewise be terminated should the Monetary Board determine that the continuance in business of the institution would involve probable loss to its depositors or creditors. any person of recognized competence in banking or finance may be designated as receiver. for a quasi-bank. . Cannot continue in business without involving probable loss to its depositors or creditors.10 B ANKING L AWS • The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary. or Has willfully violated a cease and desist order that has become final. 4. Has insufficient realizable assets to meet its liabilities. RA 7653] Who acts as receiver • For a bank.

the court shall. 3. (4) The receiver shall determine as soon as possible. and without the requirement of prior notice or any other action. Custodia legis and exemption from levy. for the purpose of paying the debts of such institution in accordance with the rules on concurrence and preference of credit under the Civil Code of the Philippines and he may. dispose of the same to creditors and other parties. and decide on other issues as may be material to implement the liquidation plan adopted. 2. Liguidation • If the receiver determines that the institution cannot be rehabilitated or permitted to resume business. the institution.11 B ANKING L AWS Tasks of the receiver • The receiver shall immediately (1) gather and take charge of all assets and liabilities of the institution. the Monetary Board shall notify in writing the board of directors of its findings and direct the receiver to proceed with the liquidation of the institution. in the name of the institution. File ex parte with the proper regional trial court. and Convert the assets of the institution to money. directors and officers. assist the enforcement of individual liabilities of the stockholders. or defend any action against. a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the Philippine Deposit Insurance Corporation in the case of a bank or by the Monetary Board in the case of a quasi-bank. Procedure for liquidation • The receiver shall then: 1. Resumption • Any determination for the resumption of business of the institution shall be subject to prior approval of the Monetary Board. (2) administer the same for the benefit of its creditors. institute such actions as may be necessary to collect and recover accounts and assets of. but not later than ninety (90) days from takeover. upon motion by the institution. and (3) exercise the general powers of a receiver. attachment or execution . Upon acquiring jurisdiction. whether the institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public.

levy. or execution. AND THE • T HE B ANGKO S ENTRAL M EANS OF P AYMENT Unit of monetary value • The unit of monetary value in the Philippines is the peso. attachment.12 B ANKING L AWS • The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall. The designation of a conservator is not a precondition to the designation of a receiver. RA 7653] Notes and coins issued by the BSP shall be liabilities of the BSP and may be issued only • . The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing receivership. liquidation or conservatorship. [Section 30. • Designation of conservator not precondition to designation of receiver • The designation of a conservator or the appointment of a receiver shall be vested exclusively with the Monetary Board. be exempt from any order of garnishment. RA 7653] Actions of Monetary Board final and may be questioned only through certiorari • The actions of the Monetary Board taken regarding the designation of a conservator and appointment of a receiver shall be final and executory and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. Currency • The word "currency" is hereby defined as meaning all Philippine notes and coins issued or circulating in accordance with the provisions of RA 7653. from the moment the institution was placed under such receivership or liquidation. Bank of issue • The Bangko Sentral has the sole power and authority to issue currency within the territory of the Philippines [Section 50.

or price level • Whenever abnormal movements in the monetary aggregates.13 B ANKING L AWS against and in amounts not exceeding. RA 7653] • All notes and coins issued by the BSP are fully guaranteed by the RP and shall be legal tender in the Philippines for all debts. Said notes and coins shall be a first and paramount lien on all assets of the BSP [Section 51. both public and private. RA 7653] However. RA 7653] Demand deposits • "Demand deposits" means all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of checks. RA 7653] • D OMESTI C M ONETARY S TABILIZATION Guiding principle • The Monetary Board shall endeavor to control any expansion or contraction in monetary aggregates which is prejudicial to the attainment or maintenance of price stability. Legal character of checks • Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts. both public and private. the Monetary Board shall: . [Section 52. [Section 60. is at the option of the creditor. Action when abnormal movements occur in the monetary aggregates. the assets of the BSP. or in prices endanger the stability of the Philippine economy or important sectors thereof. and such operations shall be subject to the control of the Monetary Board in accordance with the powers granted it with respect thereto under RA 7653. [Section 60. Issue of demand deposits • Only banks duly authorized to do so may accept funds or create liabilities payable in pesos upon demand by the presentation of checks. a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. in credit. credit.

fiscal or administrative measures which it recommends to be adopted. the Bangko Sentral shall maintain international reserves adequate to meet any foreseeable net demands on the Bangko Sentral for foreign currencies.14 B ANKING L AWS 1. 2. RA 7653] Composition of the international reserves 1. of credit or of prices. and The measures which the Monetary Board has taken and the other monetary. I NTERNATI ONAL M ONETARY S TABILIZATION International monetary stabilization • The Bangko Sentral shall exercise its powers to preserve the international value of the pesos and to maintain its convertibility into other freely convertible currencies primarily for. RA 7653] International reserves • In order to maintain the international stability and convertibility of the Philippine peso. Gold Assets in foreign currencies . Submit to the President of the Philippines and the Congress. a description and analysis of: a. The extent to which the changes in the monetary aggregates. in credit. employment. or in prices have been reflected in changes in the level of domestic output. and make public. b. c. 2. Take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral. [Section 64. [Section 65. a detailed report which shall includes. wages. The causes of the rise or fall of the monetary aggregates. current payments for foreign trade and invisibles. although not necessarily limited to. and economic activity in general and the nature and significance of any such changes. as a minimum.

I NSTRUMENTS OF B ANGKO S ENTRAL A CTI ON Means of action • In order to achieve the primary objective of price stability. Purchases and sales of foreign exchange • The Bangko sentral may buy and sell foreign notes and coins. the Monetary Board shall: 1. The monetary. as a minimum. Take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral. and make public. Submit to the President of the Philippines and the Congress. are contrary to the national welfare. 2. or whenever the international reserve is falling as a result of payments or remittances abroad which.15 B ANKING L AWS Action when international stability of the pesos is threatened • Whenever the international reserve of the Bangko Sentral falls to a level which the Monetary Board considers inadequate to meet the prospective net demands on the Bangko for foreign currencies. or whenever the international reserve appears to be in imminent danger of falling to such a level. The nature and causes of the existing or imminent decline. b. in the opinion of the Monetary Board. c. and documents and instruments of types customarily employed for the international transfe rof funds. the Monetary Board shall rely on its moral influence and the powers granted to it under RA 7653 for the management of monetary aggregates. . Purchases and sales of gold • The Bangko Sentral may buy and sell gold in any form. The remedial measures already taken or to be taken by the Monetary Board. d. fiscal or administrative measures further proposed. a detailed report which shall includes. a description and analysis of: a. and The character and extent of the cooperation required from other government agencies for the successful execution of the policies of the Monetary Board.

Banking institutions operating in the Philippines. Temporarily suspending or restricting sales of foreign exchange by the Bangko Sentral. 5. 2. Emergency restrictions on foreign exchange operations • Emergency restrictions on foreign exchange operations include: 1. and Other entities or persons which the Monetary Board is hereby empowered to authorize as foreign exchange dealers. its political subdivisions and instrumentalities. Foreign or international financial institutions. To whom can engage • The Bangko Sentral may engage in foreign transactions with the following entities or persons only: 1. and Requiring that any foreign exchange thereafter obtained by any person residing or entity operating in the Philippines be delivered to the Bangko Sentral or to any bank or agent designated by the Bangko Sentral for the purpose. 4. The Government. at the effective exchange rate or rates. Foreign asset position of the Bangko Sentral • The Bangko Sentral shall endeavor to maintain at all times a net positive foreign asset position so that its gross foreign exchange assets will always exceed its gross foreign liabilities. 3. 3. Foreign governments and their instrumentalities.16 B ANKING L AWS • The Bangko Sentral may engage in future exchange operations. RA 7653] 2. Subjecting all transactions in gold and foreign exchange to license by the Bangko Sentral. [Section 72. In order to achieve the primary objective of the Bangko Sentral. . • Emergency restrictions may be imposed for the following purposes: 1.

[Section 72. 2. which the Bangko Sentral is authorized to extend to banking institutions. 3. RA 7653] TO L OANS B ANKI NG AND O THER F INANCI AL I NSTI TUTIONS Guiding principles • The rediscounts. or during an exchange crisis. RA 7653] Exchange rates • The Bangko Sentral shall determine the exchange rate policy of the country. RA 7653] 3. or in order to promote the domestic investment of bank resources. or in time of national emergency. Types of credit operations 1. shall be used to influence the volume of credit consistent with the objective of price stability. Commercial credits .17 B ANKING L AWS 2. and To give the Monetary Board and the Government time in which to take constructive measures to forestall. [Section 76. [Section 72. loans and advances. Normal credit operations Special credit operations Emergency credit operations Normal credit operations 1. or overcome such a crisis or emergency. discounts. Foreign exchange holdings of the banks • In order that the Bangko Sentral may at all times have foreign exchange resources sufficient to enable it to maintain the international stability and convertibility of the peso. the Monetary Board may require the banks to sell to the Bangko Sentral or to other banks all or part of their surplus holdings of foreign exchange. combat. • Such measures may be adopted with the concurrence of at least five (5) members of the Monetary Board and with the approval of the President of the Philippines. To protect the international reserves of the Bangko Sentral in the imminence of.

Production credits • The Bangko Sentral may rediscount. promissory notes and other credit instruments having maturities of not more than three hundred sixty (360) days from the date of their rediscount. or industrial products. animal. under conditions assuring their preservation in authorized bonded warehouses or in other places approved by the Monetary Board. Special credit operation 1. RA 7653] Emergency loans and advances . discount or acquisition by the Bangko Sentral and resulting from transactions related to: 1. or The storing of non-perishable goods and products which are duly insured and deposited. promissory notes and other credit instruments with maturities of not more than one hundred eighty (180) days from the date of their rediscount. 2. discount or acquisition by the Bangko Sentral and resulting from transactions related to the production or processing of agricultural. or their transportation within the Philippines. buy and sell bills. buy and sell bills. Other credits • Special credit instruments not otherwise rediscountable under commercial and production credits may be eligible for rediscounting in accordance with the rules and regulations which the Bangko Sentral shall prescribe. The importation. Loans for liquidity purposes Loans for liquidity purposes • The Bangko Sentral may extend loans and advances to banking institutions for a period of not more than seven (7) days without any collateral for the purpose of providing liquidity to the banking system in times of need. discount. [Section 83. Production credits Other credits Commercial credits • The Bangko Sentral may rediscount. discount. acceptances.18 B ANKING L AWS 2. acceptances. 3. purchase or sale of readily saleable goods and products. mineral. exportation.

though foreseeable.19 B ANKING L AWS • In periods of national and/or local emergency or of imminent financial panic which directly threaten monetary and banking stability. for the purpose of assisting a bank in a precarious financial condition or under serious financial pressures brought by unforeseen events. In pursuit of this principle. the Bangko Sentral may engage in the purchase and sale of government securities as well as issue and negotiate obligations of the Bangko Sentral. [Section 94. The required reserves of each bank shall be proportional to the volume of its deposit liabilities and shall ordinarily take the form of a deposit in the Bangko Sentral. RA 7653] • No interest on bank reserves • Since the requirement to maintain bank reserves is imposed primarily to control the volume of money. [Section 84. [Section 94. could not be prevented by the bank concerned. or events which. likewise authorize the Bangko Sentral to grant emergency loans or advances to banking institutions. • B ANK R ESERVES Reserve requirements • In order to control the volume of money created by the credit operations of the banking system. RA 7653] FOR THE • O PEN M ARKET O PERATIONS A CCOUNT OF THE B ANGKO S ENTRAL Principle of open market operations • The open market purchases and sales of securities by the Bangko Sentral shall be made exclusively in accordance with its primary objective of achieving price stability. RA 7653] The Monetary Board may. the Bangko Sentral shall not pay interest on the reserves maintained with it unless the Monetary Board decides otherwise as warranted by circumstances. authorize the Bangko Sentral to grant extraordinary loans or advances to banking institutions secured by assets. at its discretion. by a vote of at least five (5) of its members. even during normal periods. This requires that the Monetary Board has ascertained that the bank is not insolvent and has the assets to secure the advances and that the concurrent vote of at least five (5) members of the Monetary Board is obtained. the Monetary Board may. RA 7653] . [Section 84. all banks operating in the Philippines shall be required to maintain reserves against their deposit liabilities.

for the purpose of re-lending or purchasing of receivables and other obligations. OF S ELECTI VE R EGULATI ON Guiding principle • B ANK O PERATI ONS The Monetary Board shall use the powers granted to it under RA 7653 to ensure that the supply. availability and cost of money are in accord with the needs of the Philippine economy and that bank credit is not granted for speculative purposes prejudicial to the national interests. through the issuance. Regulations on bank operations shall be applied to all banks of the same category uniformly and without discrimination. • Exemption from attachment and other purposes of reserves • Deposits maintained by banks with the Bangko Sentral as part of their reserve requirements shall be exempt from attachment. or acceptance of debt instruments for the borrower's own account. endorsement. other than deposits. or any other order or process of any court.20 B ANKING L AWS Deposit substitutes • The term "deposit substitutes" is defined as an alternative form of obtaining funds from the public. government agency or any other administrative body issued to satisfy the claim of a party other than the Government. • Margin requirements against letters of credit . Banks and other affected financial institutions shall be notified reasonably in advance of the date on which such increase is to become effective. the increase shall be made in a gradual manner and shall not exceed four percentage points in any thirty-day period. garnishment. Required reserves against foreign currency • The Monetary Board is similarly authorized to prescribe and modify the minimum reserve ratios authorized applicable to deposits denominated in foreign currencies. Increase in reserve requirements • Whenever in the opinion of the Monetary Board it becomes necessary to increase reserve requirements against existing liabilities. or its political subdivision or instrumentalities.

which may act as agent of. its political subdivisions and instrumentalities. The Bangko Sentral shall represent the government with the International Monetary Fund and other financial institutions.21 B ANKING L AWS • The Monetary Board may at any time prescribe minimum cash margins for the opening of letters of credit. . and may related the size of the required margin to the nature of the transaction to be financed. The Bangko Sentral shall not be a member of any stock exchange or syndicate. AS F UNCTI ONS B ANKER AND F INANCI AL A DVISOR OF THE G OVERNMENT Designation of Bangko Sentral as banker of the government • The Bangko Sentral shall act as a banker of the Government. its political subdivisions or instrumentalities may be made through the Bangko Sentral. its political subdivisions and instrumentalities as well as of government-owned or controlled corporations. RA 7653] • Servicing and redemption of public debt • The servicing and redemption of the public debt shall also be effected through the Bangko Sentral. • Official deposits • The Bangko Sentral shall be the official depository of the Government. and for the account of. [Section 118. as the case may be. but may intervene therein for the sole purpose of regulating their operations in the placing of government securities. the Government or its respective subdivisions or instrumentality. AND T HE M ARKETING S TABILIZATION OF S ECURITIES FOR THE A CCOUNT OF THE G OVERNMENT Issue of government obligations • The issue of securities representing obligations of the Government.

financial and fiscal policies of the government and the monetary. shall request the opinion. through the Secretary of Finance. contemplates borrowing within the Philippines. and shall not participate in the ownership or management of any enterprise. phase out all fiscal agency functions. and the balance of payments. • T RANSITORY P ROVI SIONS Phaseout of fiscal agency functions • Unless circumstances warrant otherwise and approved by the Congress Oversight Committee.22 B ANKING L AWS Financial advice on official credit operations • Before undertaking any credit operation abroad. either directly or indirectly. the Government. and transfer the same to the Department of Finance. In order to assure effective coordination between the economic. Such opinion must similarly be requested by all political subdivisions and instrumentalities of the Government before any credit operation abroad is undertaken by them. the Deputy Governor designated by the Governor of the Bangko Sentral shall be an ex officio member of the National Economic and Development Authority Board. or any of its political subdivisions or instrumentalities. credit and exchange policies of the Bangko Sentral. The Bangko Sentral shall not engage in development banking or financing. in writing. RA 7653] . the Bangko Sentral shall within a period of three (3) years but in no case longer than five (5) years from the approval of RA 7653. [Section 129. of the Monetary Board on the monetary implications of the contemplated action. the prior opinion of the Monetary Board shall likewise be requested in order that the Board may render an opinion on the probable effects of the proposed operation on monetary aggregates. the price level. Whenever the Government. • • P ROHIBITIONS Prohibitions • The Bangko Sentral shall not acquire shares of any kind or accept them as coolateral.

Banks or banking institutions • Entities engaged in the lending of funds obtained from the public through the receipt of deposits of any kind. from twenty or more lenders at any one time. trust certificates. for purposes of re-lending or purchasing of . through the issuance. or through the issuance of participations. Public shall mean twenty or more lenders.23 B ANKING L AWS Phaseout of regulatory powers over the operations of finance corporations and other institutions performing similar functions • The Bangko Sentral shall within a period of five (5) years from the effectivity of RA 7653 phase out its regulatory powers over finance companies without quasi-banking functions and other institutions performing similar functions. and all entities regularly conducting such operation. RA 7653] G ENERAL B ANKING A CT Republic Act No. • • Quasi-banking functions • “Quasi-banking functions” shall mean borrowing funds. Banks or banking institutions must be duly authorized by the Monetary Board of the Central Bank. 337. endorsement or acceptance of debt instruments of any kind other than deposits. or of repurchase agreements. certificates of assignment. or similar instruments with recourse. for the borrower’s own account. as amended An act regulating banks and banking institutions and for other purposes Approved 23 February 1995 I N G ENERAL Rule on bank operations • Only entities duly authorized by the Monetary Board of the Bangko Sentral may engage in the lending of funds obtained from the public through the receipt of deposits of any kind and all entities regularly conducting such operations shall be considered as banking institutions. [Section 130. the same to be assumed by the Securities and Exchange Commission.

Trust companies. and non-stock savings and loan associations. methods of computation thereof. or of repurchase agreements. trust certificates. which borrow funds through any of these means for the limited purposes of financing their own needs or the needs of their agents or dealers. interest rate ceilings. Entities regularly engaged in the lending of funds which receive deposits occasionally. Non. .banking financial institutions performing quasi-banking functions • The following entities shall not be considered as banking institutions but shall be subject to regulation by the Monetary Board: 1. 4. • However. industrial. endorsement or acceptance of debt instruments of any kind for their own account. but need not be limited to: 1. and other non-financial companies. 2. investing or placement of funds or evidence of indebtedness or equity deposited with them. either for their own account or for the account of others. whether any of these means of obtaining funds from the public is done on a regular basis or occasionally. 3. shall not be considered as performing quasibanking functions. • These entities will be subject to regulation by the Monetary Board which may include. acquired by them or otherwise coursed through them. building and loan associations. or through the issuance of certificates of assignment or similar instruments with recourse. reserve requirements. the imposition of net worth to risk assets ratios. 2. commercial. 3.24 B ANKING L AWS receivables and other obligations. Financial intermediaries • “Financial intermediaries” shall mean persons or entities whose principal functions include the lending. Entities regularly engaged in the lending of funds or purchasing of receivables or other obligations with funds obtained from the public through the issuance.

If such entities are authorized by the Central Bank to perform quasi-banking functions. Note: Sec. modes or standards are to be applied. Regulation • “Regulation” shall mean the issuance of rules of conduct or the establishment of modes or standards of operation for uniform application to all institutions or functions covered. these entities may be subject to special examination. or b) engaged in other types of financial intermediation shall be decided by the Monetary Board. 4. In some instances. terms and maturities of funds received. except insurance companies. 7. the imposition of constraints covering the: 1. Determination of functions • The determination of whether a person or an entity is a) performing banking or quasibanking functions. .25 B ANKING L AWS 5. 2.bank financial intermediaries • The operations and activities of non-bank financial intermediaries. • minimum size of funds received. 130 of the CB Act phasing out the regulation of MB over NBFCs not engaged in quasi-banking functions. taking into consideration in determining such coverage the distinctive character of the operations of institutions and the substantive similarities of specific functions to which such rules. and uses of funds. subject to judicial review. and submission of statistical reports. methods of marketing and distribution. Non. they may be further subject to regulation as discussed below. 3. 6. minimum capitalization. but need not be limited to. prescribing charges which may be collected. shall be subject to regulation by the Monetary Board which may include.

In the case of rent of safety deposit box. The prevailing rule is that the relation between the bank renting out and the renter is that of bailer and bailee the bailment being for hire and mutual benefiit.26 B ANKING L AWS Supervision • “Supervision” shall include not only the issuance of rules but also the overseeing to ascertain that regulations are complied with. It is called demand deposit because the depositor can withdraw the money deposited on the very same day when he deposited it.industrial Dev. 2. . 219 SCRA 426 (1983)] • Types of deposits 1. That is why in these accounts. The bank uses this money to lend to others. and inquiring into the solvency and liquidity of the institution. Savings deposit-Interest fixed under the fine prints. CA . investigating or examining to determine whether an institution is conducting its business on a sound financial basis. only commercial banks can accept demand deposits on checking accounts. The contract is a special kind of deposit and cannot be characterized as an ordinary contract of lease because the full and absolute possession and control of the deposit box is not given to the renters. the money deposited cannot be withdrawn. In other words. Note: As a general rule. 3. savings banks and even rural banks. are allowed by the CB to accept checking accounts because their capitalizaition may be large. v. [CA Agro. The bank can lend out such funds. that is why it pays interests on such deposits. By way of exception. Time Deposit-Interest rate stipulated depending on the number of days. Corp. the relationship between the bank and the depositor is that of a debtor and creditor. the depositor is paid higher rates of interest for the use of the money. Demand deposit or current accounts. Relationship between bank and depositor • Fixed savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. During this period. he cannot withdraw the amount not until 60 days later.No interest is fixed by the bank because the depositor can take out his funds any time. if one deposits today.

” The fundamental function of the money market devise in its operation is to match and bring together in a most impersonal manner both the “fund users” and the “fund suppliers. with or without recourse. a period is presumed to be for the benefit of both parties. it must be prohibited from bidding. endorsed.Under the Civil Code. 2. Period. and recover interest deducted in advance. The exception is with the banks aside from the 90-day equity redemption period. plus 70 %of the appraised value of the improvements with title to the property being with the mortgagor. Foreclosure of mortgage• The general rule is that there is no right of redemption in judicial foreclosure of mortgage. Insofar as banks are concerned. The market mechanism is intended to provide quick mobility of money and securities. the period is always for the benefit of the debtor if the bank is the creditor. banks are required to give a one-year redemption period. . • • • The General Banking Act discriminates against banks in two aspects 1. If the mortgage was not within the normal banking transaction. • Alien bank mortgage • An alien bank can bid in a public auction of mortgaged property if such property was mortgage to it in the course of an ordinary banking transaction. The debtor can compel the creditor bank to accept payment of a debt before it is due.27 B ANKING L AWS Money market transactions • Money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a mediator or dealer in the open market. Mortgage loans • Loans against real estate security shall not exceed 70% of the appraised value of the real estate security.” The money market is an “impersonal market” free from personal considerations. It involves “commercial papers” which are instruments “evidencing indebtedness of any person or entity… which are issued. There is only 90 day equity redemption period. sold or transferred or in any manner conveyed to another person or entity.

• • • . shall be reported by the Central Bank to the Preside who shall immediately certify the same to the appropriate court. OF E STABLISHMENT D OMESTIC B ANKS Form of organization • Domestic banking institutions. No banking institution shall issue no-par value stock.28 B ANKING L AWS • Loans on the security of chattels shall not exceed 50% of the appraised value of the security. 2. if unsettled after seven (7) calendar days. under its official seal. any strike or lockout involving banks. 3. except building and loan associations. government agency or commission for resolution. c. Commercial banks Thrift banks a. Savings and mortgage banks Stock savings and loan associations Private development banks Rural banks Indispensable to the national interest • The banking industry is hereby declared as indispensable to the national interest and. or any amendment thereto. Classification of banks 1. shall be organized in the form of stock corporations. unless accompanied by a certificate of authority issued by the Monetary Board. b. The Securities and Exchange Commission shall not register the articles of incorporation of any bank. notwithstanding the provisions of any law to the contrary. At least two thirds of the members of the board of directors of any bank or banking institution which may be established after the approval of this Act shall be Filipino citizens.

29 B ANKING L AWS Requisites for issuance of certificate of authority • Such certificate shall not issue unless the Monetary Board is satisfied from the evidence submitted to it: 1. are actually receiving deposits. 3. both general and local. however. and that the amount of capital. • . After approval of the Act. direction and administration. shall not apply to branches and agencies of foreign banks which. This prohibition. at the time of approval of the General Banking Act. that all the requirements of existing laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied with. 2. Receipt and disposition of deposits • No bank which may be established and licensed to do business in the Philippines shall receive deposits. increase the percentage of foreign-owned voting stocks in any domestic bank from thirty percent (30%) to forty percent (40%). with the approval of the President. all deposits so received by such branches and agencies of foreign bank shall not be invested in any manner outside the territorial limits of the Republic of the Philippines. or b) the consolidation of existing banks in any of which there are foreign owned voting stocks at the time of consolidation. that the public interest and economic conditions. unless incorporated under the laws of the Republic of the Philippines. justify the authorization. • • Voting stock requirements • At least seventy percent (70%) of the voting stock of any banking institution which may be established after the approval of the Act shall be owned by citizens of the Philippines. as well as the integrity and responsibility of the organizers and administrators reasonably assure the safety of the interests which the public may entrust to them. except where a new bank is established as a result of: a) the local incorporation of any of the existing branches or agencies of foreign banks in the Philippines. The Monetary Board may. the financing organization.

No foreign building and loan association or building and loan association not formed. including its wholly or majority owned subsidiaries. The foreign bank or banking corporation is solvent and in sound financial condition. 2. organized or existing under any law other than those of the Philippines shall be permitted to transact business in the Philippines. In the case of a corporation which is wholly owned. In the case of corporations owning bank shares. upon order of the Monetary Board. Ownership of stocks in banks by corporations • The total voting stocks which any corporation. until after it shall have obtained. or the majority of the voting stock of which is owned. . the citizenship of each stockholder in that corporation shall be the basis of computing the percentage. both general and local. A duly appointed agent in the Philippines has been authorized to accept summons and legal processes. • Requisites for issuance of license 1. organized.30 B ANKING L AWS • The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual stockholders in that bank. a license for that purpose from the Securities and Exchange Commission. that corporation may own not more than twenty percent (20%) of the voting stock of any bank. justify the issuance of such order. claims. by any one person or by persons related to each other within the third degree of consanguinity or affinity. or demand whatsoever. Public and economic conditions. may own in any bank shall not exceed thirty percent (30%) of the voting stock of that bank. OF • L ICENSI NG F OREI GN B ANKS License to conduct business • No foreign bank or banking corporation formed. 3. or existing under the laws of the Philippines shall be permitted to transact business in the Philippines. or maintain by itself or assignee any suit for the recovery of any debt.

subject to restrictions. drafts. bills of exchange. With prior approval of the Central Bank. However. by buying and selling foreign exchange and gold or silver bullion. • A commercial bank may also accept or create demand deposits subject to withdrawal by check. The foreign bank is in imminent danger of insolvency. they shall maintain minority participation in such enterprise. by accepting drafts and issuing letters of credit. including their wholly or majority owned subsidiaries and their holding companies having majority holding in such foreign banking institutions. may invest. these foreign entities may also purchase equities in domestic banks. A commercial bank may offer NOW accounts (special types of savings deposit which can • . Revocation of license 1. 4. 2.31 B ANKING L AWS Investment rights 1. 2. 2. by discounting and negotiating promissory notes. in equities of local companies engaged in financial allied undertakings. and by lending money against personal security or against securities consisting of personal property of mortgages on improved real estate and the insured improvements thereon. Its continuance in business will involve probable loss to those transacting business with it. 3. by receiving deposits. Foreign banking institutions without branches in the Philippines. shall have all such powers as shall be necessary to carry on the business of commercial banking: 1. and other evidences of debts. in addition to the general powers incident to corporations. with prior approval of the Monetary Board. OF C LASSIFICATION P RIVATE B ANKS AND C OMMERCI AL B ANKI NG C ORPORATI ONS Commercial bank • U NI VERSAL B ANKS A commercial banking corporation.

4. finally. whether financial or non-financial. • • 2. 5. including Government banks and foreign banks with existing local branches. • A commercial bank may likewise acquire readily marketable bonds and other debt securities subject to such rules as the Monetary Board may promulgate. 3. may invest in equities of allied undertakings. The total equity investment of the bank in any single enterprise shall remain a minority holding in that enterprise. Limitations on investments in allied undertakings: 1. 3. Equity investments shall not be permitted in non-related activities. 4. A commercial bank. • Financial allied undertakings 1. and The equity investment in other banks shall be deducted from the investing bank’s net worth for purposes of computing the prescribed ratio of net worth to risk assets. • Investment in allied undertakings • Commercial banks. 2. may invest to the extent allowed under applicable law and regulations in equities of allied undertaking. The equity investment in any one enterprise shall not exceed fifteen percent (15%) of the net worth of the bank.32 B ANKING L AWS be withdrawn by means of a Negotiable Order of Withdrawal and is offered only to natural persons). Leasing companies Banks Investment houses Financing companies Credit card operations . The total investment in equities shall not exceed twenty five percent (25%) of the net worth of the bank.

6.to further national development objectives or support national priority projects -. 9. or own a majority or all of the equity in a financial intermediary other than a commercial bank or a bank authorized to provide commercial banking services. as well as a government owned and controlled bank. to operate under an expanded commercial banking authority. 4. Warehousing companies Storage companies Safe deposit box companies Companies engaged in the management of mutual funds but not in the mutual funds themselves Management corporations engaged or to be engaged in activity similar to the engagement of mutual funds Companies engaged in the provision of computer services Insurance agencies Companies engaged in home building and home development Companies providing drying and/or milling facilities for agricultural crops 5. Universal bank or expanded commercial banking authority • The Monetary Board may authorize -. • . 2. 3. • Financial institutions catering to small and medium scale enterprises Non-financial allied undertakings 1. in addition to powers authorized for commercial banks: 1. a bank authorized to provide commercial banking services. By virtue of such expanded power. invest in the equity of a non-allied undertaking.a commercial bank. exercise the power of an Investment House as provided in PD 129. the universal bank may. 8. 3.33 B ANKING L AWS 6. 7. 2.

3. Subject to the prior approval of the Monetary Board. The total investment in equities shall not exceed fifty percent (50%) of the net worth of the bank. or of its wholly. The equity investment in any one enterprise whether allied or non-allied shall not exceed fifteen percent (15%) of the net worth of the bank. • • Limitations on equity investment of a universal bank 1. 4. The equity investment in other banks shall be deducted from the investing bank’s net worth for purposes of computing the prescribed ratio of net worth to risk assets.or majority-owned subsidiary. or to operate under an expanded commercial banking authority may own more than thirty percent (30%) of the voting stock of a thrift bank or a rural bank up to a majority or all of the equity thereof. in a single non-allied undertaking shall not exceed thirty five percent (35%) of the total equity in the enterprise nor shall it exceed thirty five percent (35%) of the voting stock in that enterprise. universal bank may not directly exercise such powers as are exclusively reserved to investment houses. If performed directly. If performed indirectly through an investment house. such functions shall be undertaken by a separate and distinct department in the bank.5 billion Ownership in a thrift bank or rural bank • A commercial bank or any bank authorized to provide commercial banking services. The equity investment of the bank. • .34 B ANKING L AWS Limitations on exercise of power as investment house • Universal bank may perform the functions of an investment house either directly OR indirectly through a subsidiary investment house (it cannot perform such functions both directly and indirectly). 2. Capitalization Commercial bank Universal bankP 2 billion P 4.

Amounts due from the Central Bank. mortgages. Cash on hand. Evidence of indebtedness of the Philippine Government or Central Bank or any other evidence of indebtedness fully guaranteed by the Philippine Government. no such bank shall hold the possession of any real estate under mortgage or trust deed. Purchase. for a longer period than five years. and Other non-risk items which the Monetary Board may. or the title and possession of any real estate purchased to secure any debt due to it. 4. and convey real estate for the following purposes: 1. from time to time. authorize to be deducted from total assets. holding or conveyance of real estate • Any commercial bank may purchase. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. decrees. Loans or acceptances under letters of credit to the extend covered by marginal deposits. Such as shall be mortgaged to it in good faith by way of security for debts. deposits maintained in the lending bank and held in the Philippines. Such as shall be necessary for its immediate accommodation in the transaction of its business. hold. or trust deeds held by it and such as it shall purchase to secure debts due to it. 2. and Such as its shall purchase at sales under judgments. 3. • 4. 6. 5. 3.35 B ANKING L AWS Combined capital accounts • The combined capital accounts of each commercial bank shall not be less than an amount equal to ten percent (10%) of its risk assets Risk assets is defined as its total assets minus the following assets: 1. 2. . or assignment of. • However. Loans to the extend covered by hold-out on.

in commercial papers. whether secured or unsecured. Providing short term working capital. establish branches in the Philippines or branches and agencies outside the Philippines. . with the prior approval of the Monetary Board. industry and housing. A bank and its branches shall be treated as a unit. acceptances or notes arising out of commercial transactions. bills of exchange. Accumulating the savings of depositors and investing them together with capital loans secured by bonds. and Providing diversified financial and allied services for its chosen market and constituencies especially for small and medium enterprises and individuals. and stock savings and loan associations organized under existing laws and any banking corporation that may be organized for the following purposes: 1. Accept savings and time deposits. 3. • T HRIFT B ANKS Thrift banks • “Thrift banks” shall include savings and mortgage banks. or in financing for home building and home development. services. Act as correspondent for other financial institutions.36 B ANKING L AWS Establishment of branches • Any commercial bank organized under Philippine laws may. drafts. and other forms of security or in loans for personal and household finance. Purchase. or medium. 2. in readily marketable and debt securities. bonds. Scope of authority • Thrift banks may: 1. private development banks. 3. mortgages in real estate and insured improvements thereon. and in such other investments and loans which the Monetary Board will determine as necessary in the furtherance of national economic objectives. 2.and long-term financing to businesses engaged in agriculture. hold and convey real estate. chattel mortgage. and accounts receivables. and the bank shall be responsible for all business conducted in such branches to the same extent and in the same manner as though such business had all been conducted in the head office.

c. 7. 12. b. Extend credit against the security of jewelry. city or provincial funds where the bank is located. f. and other GOCCs. Issue mortgage and chattel certificates. Engage in quasi-banking and money market operations. 11. Open current or checking accounts. Act as collection agent for government entities. precious stones and similar articles. secured or not secured. 9. and Offer NOW accounts. • Thrift banks may perform services similar to those offered by commercial banks under an expanded authority when permitted by the Bangko Sentral ng Pilipinas. DBP. Open letters of credit.37 B ANKING L AWS 4. 5. and With prior approval of the Monetary Board: a. e. 13. 8. Invest in equity of allied undertakings. Rediscount papers with the PNB. Capitalization • Capitalization may vary according to the location of the head office: Within Metro Manila Outside Metro Manila P250 million P 40 million . Grant loans. LBP. Invest in marketable bonds and other debt securities. Issue domestic letters of credit. Accept foreign currency deposits. 6. Act as official depository of national agencies and municipal. 10. extend credit facilities to private and government employees. d.

dividends or interest to the minor of whom he is the guardian. 6. shall not be increased thereafter beyond 60% of the voting stock of the Thrift Bank. Reserve requirement differential Liberalized branching rules Notices of statement of condition Tax exemptions Exemption from publication requirement Exemption from notarial charges Exemption from registration fees Equity ownership • • At least 40% of the voting stock of a thrift bank shall be owned by Filipino citizens. once reduced.38 B ANKING L AWS Incentives and exemptions 1. Minors as depositors • Minors in their own rights and in their own names may make deposits and withdraw the same. 2. If the guardian shall give notice in writing to any thrift bank not to make payments of deposits. 4. and may receive dividends and interests. 7. 5. equal periodical payments and whose purpose is: . then such payment shall be made only to the guardian. AND • B UILDING L OAN A SSOCI ATI ONS Building and loan associations • Building and loan associations are corporations whose capital stock is required or is permitted to be paid in by the stockholders in regular. the resulting holding shall not be increased but may be reduced and. Exception: In case of merger or consolidation of existing Thrift Banks with foreign holdings. 3.

periodical payments known as dues. cancelled. Monetary Board may grant exemptions in cases of public hall. to encourage industry. school. or GOCCs. shall amount to the matured of the share. to stockholders on the security of unencumbered real estate and with the pledge of shares of the capital stock owned by such stockholders as collateral security. 3. The dues on each share of stock subscribed for by a stockholder shall continue to be paid by the stockholder to the association until the share has been duly withdrawn. to repay to said stockholders their accumulated savings and profits upon surrender of their shares. 4. and funds borrowed for the purpose. school. Prohibition • It shall be unlawful for any building and loan association to make any loan upon property that is suitable for us only as theatre. equal. Investment in bonds • With the approval of the Monetary Board. at such times and in such amounts as shall be provided in their by laws. a building and loan association may also invest such of its funds as may otherwise remain idle in bonds and obligations of the Republic of the Philippines or any of its subdivisions. garage. Capital stock • The capital stock of such associations shall be paid in by the stockholders in regular. 2. in accordance with the by laws. hotel and other public buildings to facilitate the investment of idle funds. to accumulate the savings of its stockholders. and to loan its funds. and home building among its stockholders. hotel. church. club. • • Certificates of stock • Certificates of stock shall be issued to each stockholder upon the payment of the membership fees and first installment of the dues. convent. Matured value is when the due paid on each share and the net earnings thereof. frugality. or other public building. public hall.39 B ANKING L AWS 1. or forfeited or until the share has reached its matured value. .

they are called paid-up shares. or farm families as well as cooperatives. after giving sixty (60) days’ notice to the board. the shares are called installment shares. private and public employees. Extend loans and advances primarily for the purpose of meeting the normal and credit needs of farmers.” and shares which have been so pledged shall be called “pledged shares. Accept savings and time deposits. Once paid-up. After they are fully paid. merchants. and the withdrawal value shall be the total sum of the due paid thereon plus such dividend or interest as may be allowed by the board of directors. surrender their shares and withdraw from the association.40 B ANKING L AWS Installment shares v. • Free shares and pledged shares • Shares which have not been pledged as security for the payment of a loan shall be called “free” shares. • R URAL B ANKS Scope of authority • A rural bank may perform any or all of the following services: 1. 3. Stockholders who have not paid twelve (12) monthly installments of dues may. fishermen. 2. . Ac as correspondent bank of other financial institutions. paid-up shares • While still being paid. relationship between the association and stockholder is changed into that of debtor and creditor.” Surrender of shares • Stockholders may surrender their shares and withdraw from the association after paying twelve (12) monthly installment of dues upon giving sixty (60) days’ notice in writing to the board of directors and the withdrawal value shall be the total sum of the dues paid thereon plus not less than ninety percent (90%) of all dividends earned by such shares up to the end of the last preceding fiscal period plus such interest for the time elapsed since the end of the period as shall be allowed by the board of directors.

Act as a collection agent. Accept current or checking accounts. and Invest in allied undertakings. Rationale • The rationale behind rural banking system is the need to promote comprehensive rural development with the end in view of the following: 1. Extend financial assistance to private and public employees in accordance with RA 3779. Sell domestic drafts. Rediscount paper with the LBP. b. c. 5. the capital stock of any rural bank shall be fully-owned and held by Philippine citizens or entities qualified under Phil. 2. Act as official government depository. Offer other banking services as provided in Section 772 of RA 337. 3. 8. A sustained increase of goods and services produced by the nation for the benefit of the people. or any other bank. • This can be achieved by making credit available and readily accessible in the rural areas. f.41 B ANKING L AWS 4. . DBP. income and wealth. as amended. e. and of Filipino-controlled domestic banks. 6. and With prior approval of the Monetary Board: a. 7. Act as trustee over estates or properties of farmers and merchants. including its branches and agencies. Accept NOW accounts. as amended. d. Capital stock • With the exception of shareholdings of corporations organized primarily to hold equities in rural banks. A more equitable distribution of opportunities. and An expanding productivity as a key to raising the quality of life for all.

2. • Pursuant to this policy. fees and charges for aperiod of five years from the date of commencement of operations.42 B ANKING L AWS law to own and hold such capital stock. Board • • All members of the BOD shall be Filipino citizens. the Philippine banking and financial system is hereby liberalized to create a more competitive environment and encourage greater foreign participation through increase in ownership in domestic banks by foreign banks and the entry of new foreign bank branches. promote and maintain a stable. efficient and dynamic banking and financial system. and Encourage. officer. • • • A CT L IBERALIZING E NTRY OF F OREIGN B ANKS Republic Act No. does not exceed P100. 7721 An act liberalizing the entry and scope of operations of foreign banks in the Philippines and for other purposes Declaration of policy • The State shall: 1. consultant or in any capacity in the bank. . there is no prohibition against any appointive or elective public official from serving as director.000. Free from notarization fees Free from registration fees and DST in RD. However. competitive. fees and charges of whatever nautre and description. excluding interest due and unpaid. Develop a self-reliant and independent national economy effectively controlled by Filipinos. except corporate income taxes and local taxes. Exempt from payment of all taxes. Incentives • Foreclosure of mortgages exempt from newspaper publication requirements if the loan.

• A foreign bank or a Philippine corporation. 5. it shall be the policy of the State that the financial system shall remain effectively controlled by Filipinos. the Monetary Board shall: 1. In approving entry. purchasing or owning up to sixty percent (60%) of the voting stock of an existing bank. 2. by investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under Philippine laws. by acquiring. however. may own up to sixty percent (60%) of the voting stock of only one domestic bank or new banking subsidiary.43 B ANKING L AWS • In allowing increased foreign participation in the financial system. 2. Guidelines for entry • In approving entry applications of foreign banks. 3. or by establishing branches with full banking authority. Monetary Board shall adopt such measures as may be necessary: • . Three (3) modes of entry for foreign banks • The Monetary Board may authorize foreign banks to operate in the Philippine banking system through any of the following modes of entry: 1. and consider willingness to fully share their technology. 3. see to it that reciprocity rights are enjoyed by Philippine banks in the applicant’s country. • Only those among the top one hundred fifty (150) foreign banks in the world or the top five (5) banks in their country of origin as of the date of application shall be allowed entry in (b) and (c) of modes of entry. global reputation for financial innovations and stability in a competitive environment of the applicant. consider strategic trade and investment relationships between the Philippines and the country of incorporation of the foreign bank. 4. ensure geographic representation and complementation. study the demonstrated capacity.

prevent a dominant market position by one bank or the concentration of economic power in one or more financial institutions. 2. to ensure that. • To qualify to establish a branch or subsidiary. the control of seventy (70%) of the resources or assets of the entire banking system is held by domestic banks which are at least majority-owned by Filipinos.000. For foreign bank branches. groups or individuals with related interests. A foreign bank may open three (3) additional branches in locations designated by the Monetary Board by inwardly remitting and converting into Philippine currency as permanently assigned capital the U. The permanently assigned capital shall be inwardly remitted and converted into Philippine currency. • • .00 per additional branch at the exchange rate on the date of effectivity of this law.S.000. 3. dollar equivalent of P210. dollar equivalent of P35.00 at the exchange rate on the date of effectivity of this law.44 B ANKING L AWS 1. the foreign bank applicant must be widelyowned and publicly-listed in its country of origin.S. they shall permanently assign capital of not less than the U.000. • • Branches • A foreign bank shall be entitled to three (3) branches upon remittance of minimum capital requirement.000. partnerships. at all times. Capital requirements • Locally incorporated subsidiaries shall have the same minimum capital requirements as domestic banks of the same category. Total number of branches for each new foreign bank entrant shall not exceed six (6). unless the foreign bank applicant is owned by the government of its country of origin. or in corporations. and secure the listing in the Philippine Stock Exchange of the shares of stocks of banking corporations established under (a) and (b) modes of entry.

Equal treatment • Foreign banks authorized to operate under the law shall perform the same functions. • O FFSHORE B ANKING S YSTEM L AW Presidential Decree No. Deposits • Deposits shall mean funds in foreign currencies which are accepted and held by an offshore banking unit in the regular course of business. enjoy the same privileges.45 B ANKING L AWS Head office guarantee • The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches. with or without interest. among others. These limits include. and be subject to the same limitations imposed upon a Philippine bank of the same category. Offshore banking unit • Offshore banking unit shall mean a branch. subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Central Bank to transact offshore banking business in the Philippines. . with the obligation to return an equivalent amount to the owner thereof. the single borrower’s limit and capital to risk asset ratio as well as the capitalization required for expanded commercial banking activities under the General Banking Act and other related laws of the Philippines. 1034 Authorizing the establishment of an offshore banking system in the Philippines Approved 30 September 1976 Offshore banking • Offshore banking shall refer to the conduct of banking transactions in foreign currencies involving the receipt of funds from external sources and the utilization of such funds in transactions with non-residents or other offshore banking units.

the Monetary Board shall take into consideration the applicant’s: 1. subsidiaries or affiliates. Corporate undertaking • No application to operate as an offshore banking unit shall be considered unless the applicant shall have first submitted to the Central Bank a sworn undertaking of its head office or parent or holding company. upon their receipt of a corresponding certificate of authority to operate as an offshore banking unit. However. 3. 4. 2. and other relevant factors such as participation in equity of local commercial banks and appropriate geographic representation. In issuing such certificate. net worth and resources.000 upon issuing any certificate of authority to operate and annually thereafter on the anniversary date of such certificate. Local branches of foreign banks already authorized to accept foreign currency deposits under RA 6426 may opt to apply for authority to operate an offshore banking unit under PD 1034. 5. shall be qualified to operate offshore banking units in the Philippines. duly supported by an appropriate resolution of its board of directors. • • The Central Bank is authorized to collect a fee of not less than US $20. their branches. management. that. 6. • Certificate of authority to operate • The Monetary Board is authorized to issue certificates of authority to operate offshore banking units. contribution to the Philippine economy. among other things: .46 B ANKING L AWS Who are qualified to operate an offshore banking unit? • Only banks which are organized under any law other than those of the Republic of the Philippines. liquidity and solvency position. the license to transact business under RA 6426 shall be deemed automatically withdrawn. international banking expertise.

it will. Transactions of offshore banking units with residents of the Philippines. upon recommendation of the Monetary Board. 4. 5. provide the necessary specified currencies to cover liquidity needs that may arise or other shortfall that its offshore banking unit may incur. 2. including branches of foreign banks that may be authorized by the Central Bank to transact business with offshore banking units.47 B ANKING L AWS 1. but safeguards will be established to prevent circumvention of foreign exchange regulations. The transactions of offshore banking units with local commercial banks. shall likewise be subject to the same tax. the transactions of offshore banking units with non-residents and other offshore banking units shall be subject to a five percent (5%) tax on the net income from such transactions which shall be in lieu of all taxes on the said transactions. 3. to be subject to the usual income tax payable by banks.000.000. shall be subject to applicable law and regulations. • Tax and other incentives • The provisions of any law to the contrary notwithstanding. including those with local commercial banks and local branches of foreign banks authorized to receive foreign currency deposits under RA 6426. Any income of non-residents from transactions with said offshore banking units shall be • • . and it will start operations of its offshore banking unit within 180 days from receipt of its certificate of authority to operate such unit. the operations of its offshore banking unit shall be managed soundly and with prudence. it will provide and maintain in its offshore banking unit net office funds in the minimum amount of US $ 1. on demand. it will train and continually educate a specific number of Filipinos in international banking and foreign exchange trading with a view to reducing the number of expatriates. Transactions of offshore banking units • Transactions of offshore banking units with non-residents or with other offshore banking units shall be freely allowed. except net income from such transactions as may be specified by the Secretary of Finance.

The provisions of RA 1405 or the Law on Secrecy of Bank Deposits shall apply to deposits in offshore banking units. Exception • Foreign currencies which are required by the Central Bank to be surrendered in accordance with the provisions of RA 7653 may not be deposited. . To issue certificates to evidence such deposits. 3. natural or juridical. To discount said certificates. and PDIC law shall not apply to transactions and/or deposits in offshore banking units in the Philippines. as may upon application be designated by the Central Bank for the purpose. Effect of certain laws • The Usury Law. • In the case of transaction with residents (other than other offshore banking units or local commercial banks including local branches of foreign banks that may be authorized by the Central Bank to transact business with offshore banking units). as amended An act instituting a foreign currency deposit system in the Philippines and for other purposes Approved 04 April 1974 Authority to deposit foreign currencies • Any person. Uniform Currency Law. Authority of the banks to accept foreign currency deposits • The banks designated by the Central Bank shall have the authority: 1. foreign currencies which are acceptable as part of the international reserve. may deposit with such Philippine banks in good standing. • F OREIGN C URRENCY D EPOSIT A CT Republic Act No. interest income from loans granted to such residents shall be subject only to a ten percent (10%) withholding tax as final tax.48 B ANKING L AWS exempt from any tax. 6426. 2. To accept deposits and to accept foreign currencies in trust.

and if requested.49 B ANKING L AWS 4. Said banks may also be exempt from the limitations on the maturity periods for loans and securities subject to prior approval by the Central Bank. unless the Monetary Board may otherwise prescribe or allow. Foreign currency cover shall be in the same currency as that of the corresponding foreign currency deposit liability. have been qualified by the Monetary Board to function under an expanded foreign currency deposit system. At least fifteen percent (15%) of such cover shall be in the form of foreign currency deposit with the Central Bank and the balance in the form of foreign currency loans or securities. 5. and To pay interest in foreign currency on such deposits. shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depositary banks. To accept said deposits as collaterals for loans subject to such rules and regulations as may be promulgated by the Central Bank. except as the Monetary Board may otherwise prescribe or allow. Foreign currency cover requirements • Depositary banks shall maintain at all times a one hundred percent (100%) foreign currency cover for their liabilities. The Central Bank may pay interest on the foreign currency deposit. or other pertinent criteria. • • • • • Withdrawability and transferability of deposits • There shall be no restriction on the withdrawal by the depositor of his deposit or on the transferability of the same abroad except those arising from the contract between the depositor and the bank. resources. which loans or securities shall be of short term maturities and readily marketable. Central Bank may exempt from the 15% foreign currency cover in the form of foreign currency deposit with the Central Bank in cases of depository banks which. on account of their net worth. . past performance.

or any other order or process of any court. legislative body. garnishment. are hereby exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents or non-residents so long as the deposits are eligible or allowed under the said laws and. able to escape from prison. except upon the written permission of the depositor. exemplary and attorney’s fees amounting to almost P1. or any administrative body whatsoever. as amended by PD 1305. Unlike the Law on Secrecy of Banks Deposits Act. . as well as foreign currency deposits authorized under PD 1034. however. Central Bank of the Philippines 278 SCRA 27 FACTS : Greg Bartelli. garnishment. in the case of nonresidents. are hereby declared as and considered of an absolutely confidential nature and. in no instance shall foreign currency deposits be examined. garnishment and other process • Foreign currency deposits shall be exempt from attachment. government official. Secrecy of foreign currency deposits • All foreign currency deposits authorized under RA 6426.50 B ANKING L AWS Tax exemption • All foreign currency deposits made under RA 6426. an American tourist. 960 exempts foreign currency deposits from attachment. but the latter refused arguing that Section 11 of Central Bank Circular No. including interest and all other income or earnings of such deposits.000.00. legislative body. Salvacion v. there is only one exception for foreign currency deposits and that is when there is a written permission from the depositor. was arrested for committing four counts of rape and serious illegal detention against Karen Salvacion.000. Police recovered from him several dollar checks and a dollar account in the China Banking Corp. bureau or entity whether public or private. • Exemption from attachment. He was. Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the China Banking Corp. or any other order or process of any court. In a civil case filed against him. as amended. inquired or looked into by any person. irrespective of whether or not they are engaged in trade or business in the Philippines. government agency. as well as foreign currency deposits authorized under PD 1304. government agency or any administrative body whatsoever. the trial court awarded Salvacion moral.

or any other order or process of any court. therefore. as amended by PD 1246. is applicable to a foreign transient. Considering that Bartelli is just a tourist or a transient. 1246. 6426 is not anymore present. Eventually. injustice would result especially to a citizen aggrieved by a foreign guest like accused Greg Bartelli. The intention of the law may be good when enacted. government agency or any administrative body whatsoever. are hereby held to be INAPPLICABLE to this case because of its peculiar circumstances. as amended. insofar as it amends Section 8 of Republic Act No. legislative body. garnishment or other court processes. IS S UE : Should Section 113 of Central Bank Circular No. 1034 and 1035 and given incentives and protection by said laws because such depositor stays only for a few days in the country and. Respondents are hereby required to comply with the writ of execution issued in the civil case and to release to petitioners the dollar deposit of Bartelli in such amount as would satisfy the judgment. subsequently. garnishment.51 B ANKING L AWS Salvacion therefore filed this action for declaratory relief in the Supreme Court. 1246 against attachment. This would negate Article 10 of the New Civil Code which provides that “in case of doubt in the interpretation or application of laws. the questioned law still denies those entitled to due process of law for being unreasonable and oppressive. and even if it still exists. 6426. will maintain his deposit in the bank only for a short time. to give the latter protection.”” Deposit insurance coverage • The deposits under RA 6426 shall be insured under the provisions of RA 3591. the application of the law depends on the extent of its justice. However. if we rule that the questioned Section 113 of Central Bank Circular No. Further. it is presumed that the lawmaking body intended right and justice to prevail. 960 and PD No. It then proceeded to show that the economic basis for the enactment of RA No. otherwise known as the Foreign Currency Deposit Act be made applicable to a foreign transient? HELD :The provisions of Section 113 of Central Bank Circular No. . the SC said: “In fine. or the Charter of the Philippine Deposit Insurance Corporation. The law failed to anticipate the iniquitous effects producing outright injustice and inequality such as the case before us. 6426. 960 which exempts from attachment. the foreign currency deposit made by a transient or a tourist is not the kind of deposit encouraged by PD Nos. The SC adopted the comment of the Solicitor General who argued that the Offshore Banking System and the Foreign Currency Deposit System were designed to draw deposits from foreign lenders and investors and. 960 and Section 8 of Republic Act No. RATIO : Supreme Court ruled that the questioned law makes futile the favorable judgment and award of damages that Salvacion and her parents fully deserve. 960 and PD No. he is not entitled to the protection of Section 113 of Central Bank Circular No.

the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the bank. Provided further. consistent with banking usages and practices.52 B ANKING L AWS • Insurance payment shall be in the same currency in which the insured deposits are denominated. that. time or thrift account or which is evidenced by a passbook. savings. defining its powers and duties and for other purposes 22 June 1963 Creation of PDIC • There is hereby created a Philippine Deposit Insurance System which shall insure the deposits of all banks which are entitled to the benefits of insurance under RA 3591. • Deposit • The term “deposit” means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial. • • . 3591 An act establishing the Philippine Deposit Insurance Corporation. A CT C REATING THE P HILIPPINE D EPOSIT I NSURANCE C ORPORATION Republic Act No. check and/or certificate of deposit. printed or issue in accordance with Central Bank rules and regulations and other applicable laws. Provided that any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of insured deposits. PDIC may also be appointed as receiver of a banking institution. checking. any insured bank which is incorporated under the laws of the Philippines which maintains a branch outside the Philippines may elect to include for insurance its deposit obligations payable only at such branch. together with such other obligations of the bank which. subject to the approval of the Board of Directors.

but in no case to exceed P40.000 for each depositor. without being limited to. Banks and its branches considered as one unit. Trust funds • The term means funds held by an insured bank in a fiduciary capacity and include.000). In determining such amount due to any depositor. he can only recover up to P100. an owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the rights provided in this Act unless his name is registered as owner/holder thereof in the books of the issuing bank. He is considered as one depositor. there shall be added together all deposits in the bank maintained in the same capacity and the same right for his benefit either in his own name or in the name of others. 2. and The liability of PDIC to each depositor shall be payable in Philippine pesos in the amount of insurance coverage as computed above. The provisions of any law to the contrary notwithstanding. administrator. Trust funds are not considered as insured deposits. if a depositor has all three types of accounts. Therefore. guardian or agent. • . Deposit insurance coverage and payment for insured deposits maintained in foreign currencies in a closed insured bank shall be determined in accordance with the following rules: 1. • • • Insurance of deposits in foreign currency • • Deposit obligations in foreign currency of any insured bank are likewise insured. executor.000. the maximum amount of insured deposit for every depositor is only P100.000. The deposit in foreign currency shall be converted into its equivalent amount in Philippine pesos at the interbank rate obtaining on the date the bank was closed or on insolvency. All these types of deposits are covered: demand. savings and time deposits. funds as trustee. and the insurance coverage shall extend to such computed amount.53 B ANKING L AWS Insured deposit • The term “insured deposit” means the net amount due to any depositor for deposits in an insured bank (after deducting offsets) less any part thereof which is in excess of one hundred thousand pesos (P100.

if continued. Cease and desist order (CDO) • A cease and desist order shall refer to the Order issued by PDIC. to a member insured bank. or its directors or agents to correct (a) unsafe or unsound practices in conducting the business of the bank. • . Should any bank fail or refuse to pay any assessment required to be paid by such bank. as amended or any order. (b) violations of any law or regulation to which the insured bank is subject.54 B ANKING L AWS Deposit insurance coverage • The deposit liabilities of any bank or banking institution. Coverage is compulsory. After the termination of the insured status of the bank. shall be insured with the PDIC. would result in abnormal risk of loss or damage to a bank. • Termination of insured status • Two instances: when it fails or refuses to pay assessment and when it becomes insolvent. less all subsequent withdrawals from any deposits of such depositor. deposits of each depositor in the bank. the insured status of such bank shall be terminated by the Board of Directors. The object of the CDO is to protect depositors and the PDIC against existing or potential risk exposures from said practices or violations. shall continue to be insured for a period of 90 days. The bank shall give written notice of such termination to each of the depositors and the PDIC shall publish the notice of the termination of the insured status of the bank. or (c) violations of the provisions of RA 3591. through its Board of Directors. and should the bank not correct such failure or refusal within 30 days after written notice has been given by the PDIC. rule or instruction issued by the PDIC or any written condition imposed by PDIC in connection with any transaction with or grant by the PDIC. the possible consequences of which. which is engaged in the business of receiving deposits. • • • Unsafe or unsound practices • These refer to any action or lack of action which is contrary to generally accepted standards of prudent operation. depositors and its shareholders or even the depletion of the Insurance Fund administered by the PDIC.

Depositor shall retain his claim against the bank for any uninsured portion of his deposit. If it is not satisfied. and all rights of the depositor against the closed bank and its shareholders or the receivership estate to which the PDIC may have become subrogated. shall thereupon revert to the depositor. Whenever an insured bank shall have been closed on account of insolvency. PDIC may require the final determination of a court of competent jurisdiction before paying such claim. shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment. payment of insured deposits in such bank shall be made by PDIC as soon as possible either (1) by cash or (2) making available to each depositor a transferred deposit in another insured bank in an amount equal to the insured deposit of such depositor. Provided. upon payment. after the PDIC shall have given at least three months’ notice to the depositor by mailing a copy thereof to his last known address appearing on the records of the closed bank.55 B ANKING L AWS Payment of insured deposit • An insured bank shall be deemed closed on account of insolvency when ordered closed by the Monetary Board. • . that the claimant shall enforce his duly filed claim against the PDIC within one year after the eighteen-month period heretofore mentioned. Payments made by PDIC shall be considered as a preferred credit similar to taxes. all rights of the depositor against the PDIC with respect to the insured deposit shall be barred. • • • Bar of claim by depositor • If. Proof of claims may be required by PDIC before payment. the depositor in the closed bank shall fail to file a claim for his insured deposit from the PDIC within eighteen (18) months after the Monetary Board shall have ordered the closure of said bank. • Subrogation • The PDIC.

person. Other powers of PDIC 1. and to dispose of the assets and to wind up the affairs of such bank. and to continue into liquidation whenever authorized under RA 3591. 4. T HE T RUTH IN L ENDING A CT Republic Act No. Provide financial assistance to an insured bank in danger of closing. Issue bonds. debentures and other obligations with the approval of the President of the Philippines. Act as receiver of any banking corporation. and administer such assets and liabilities for the benefit of the depositors and creditors of said bank. as amended. preserve. Receiver • Receiver includes a receiver. Finance charge . as well as the duty to gather. commission. 3. 3765 An act to require the disclosure of finance charges in connection with extensions of credit Approved 22 June 1963 Declaration of policy • It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy.56 B ANKING L AWS Discharge of the PDIC • The PDIC shall be discharged from its obligation to a depositor upon payment of an insured deposit by itself or upon payment of a transferred deposit to any person by the new bank or by an insured bank in which a transferred deposit has been made available. or other agency charged by law with the duty to take charge of the assets and liabilities of a bank which has been forbidden from doing business in the Philippines. or other laws. 2. Borrow from the Central Bank and from any bank designated as depository or fiscal agent of the Philippine Government.

or installment basis. either as principal or as agent) who requires as an incident to the extension of credit the payment of a finance charge. or for the delivery of. or other acquisition of. makes loans or sells or rents property or services on a time. any option. the difference between the amounts set forth under clauses (1) and (2). Creditor • “Creditor” means any person engaged in the business of extending credit (including any person who. either for present or future delivery. or any credit upon the security of. or discount. under which part or all of the price is payable subsequent to the making of such sale or contract. demand. and such other charges incident to the extension of credit. the charges. the finance charge expressed in terms of pesos and centavos. bailment. property or money. if any. 4. the cash price or delivered price of the property or service to be acquired. Disclosure of finance charges • Any creditor shall furnish to each person to whom credit is extended.57 B ANKING L AWS • “Finance charge” includes interest. Credit • “Credit” means any loan. 6. service charges discounts. pledge of other claim against. the amounts. which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit. any conditional sales contract. lien. and 5. advance. any contract to sell. 2. or sale or contract of sale of property or services. individually itemized. deed of trust. the total amount to be financed. credit. any purchase. . mortgage. 3. any rental purchase contract. prior to the consummation of transaction. or leasing of property. to be credited as downpayment and/or trade in. as a regular business practice. fees. a clear statement in writing setting forth the following information: 1. any contract or arrangement for the hire. any obligation or claim arising out of any of the foregoing. and any transaction or series of transactions having a similar purpose or effect.

Court of Appeals G. or imprisonment for not less than six (6) months nor more than one year. cannot charge private respondent such . whichever is greater. Action to recover such penalty • Action to recover such penalty may be brought by such person within one year from the date of occurrence of the violation in any court of competent jurisdiction. the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. in connection with any credit transaction.R. Consolidated Bank was not allowed to collect from the private respondents handling charges because it failed to conform to the Truth in Lending Act. 3765 or any regulation issued pursuant thereto shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction. and shall make the true and effective cost of borrowing an integral part of every loan contract.000 with a maturity of 730 days or less. except that such liability shall not exceed P2000 on any credit transaction. • Effect of non. otherwise known as the Truth in Lending Act. The promissory notes signed by private respondents do not contain any stipulation on the payment of handling charges. All banks and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of Republic Act No. the creditor shall be liable for reasonable attorney’s fees and court costs as determined by the court. fails to disclose to any person any information in violation of Republic Act No. Willful violation of the law • Any person who willfully violates any provision of this Act or any regulation extended thereto shall be fined by not less than P1000 nor more than P5000. Consolidated Bank and Trust Corporation v. 3765.disclosure on contract or transaction • It shall not affect the validity or enforceability of any contract or transaction.58 B ANKING L AWS 7. 91494. 14 July 1995 Banks are allowed to collect handling charges on loans over P500. therefore. In any such action in which any person is entitled to a recovery. Petitioner bank. in the case at bar. or both. No. However. Penalty for failure to disclose prescribed information • Any creditor who.

” or “finance operation” in the documents prepared and letters sent by IHMI to Medina was in compliance with the Truth in Lending Act which requires a creditor (or seller) to fully disclose to the debtor (or buyer) the true cost of credit “with a view of preventing the uninformed use of credit to the detriment of the national economy. IHMI did not purchase from itself the Retail Notes Analysis executed by Medina.” that charge was simply another name for the interest to be paid by the installment buyer on the deferred payment of the purchase price of the vehicles sold and delivered to him by IHMI. and signed by Medina. v. 5980 involves the buying. IHMI only extended credit to Medina by allowing him to pay for the 24 truck engines in installment.596 purely as financing charges and this is conclusive of the fact that it engaged in the business of a financing company without authority from the Securities and Exchange Commission in gross violation of Republic Act No.” “Finance Rate. International Harvester Macleod.” IHMI used the word “finance charge” instead of “interest” in the Retail Notes Analysis which it delivered to Medina because that is the term used in the Truth in Lending Act.” and “Date Finance Begun. (2) the seller. IHMI correctly pointed out that its transaction with Medina differs from a financing transaction under Republic Act No. IHMI used the works “Finance Income Unearned. 5980. 5980 in that there were only two parties in its transaction with Medina. (IHMI). The seller assigns the notes or discounts them with a financing company which is subrogated in the place of the seller as creditor of the installment buyer. namely: (1) the installment buyer.” to denote certain entries therein.59 B ANKING L AWS handling charges. Inc. there are three parties involved. In the Retail Notes Analysis. Jr. which were prepared by IHMI. namely: IHMI and Medina.R. discounting or factoring of promissory notes and sales on credit or installment. The Supreme Court reversed.” “financing. No. while in a financing transaction under Republic Act No. The use of the words “finance charge. The buyer executes a note or notes for the unpaid balance of the price of the thing purchased by him on installment. . Inc.” “Total Amount Finance. the financing transactions that is regulated by Republic Act No. While the increased price of the sale included a “financing charge. purchase on installment 24 truck engines from International Harvester Macleod. ruling that IHMI is not engaged in the business of a financing company. Evidently. delivered to.” “Rate per year. 5980 or the Finance Company Act. 33623. and (3) the financing company. Medina G. 22 March 1990 Mariano Medina. The latter imposed and collected the total sum of P325.596 as finance charges on the installment sales as evidenced by a Retail Notes Analysis and covering transmittal letters. The trial court ruled that IHMI imposed and collected the amount of P325.

RA 1405] General rule • All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines. it did not need SEC authorization to engage in it. . other than those mentioned in Section 2 hereof. 1405. [Section 1. [Section 3. inquired or looked into by any person. L AW ON S ECRECY OF B ANK D EPOSITS Republic Act No. are hereby considered as of an absolutely confidential nature and may not be examined. The transaction was bilateral. including: a. and tax compromise cases. RA 1405] Exceptions 1. Since IHMI’s business of selling trucks in installment is not the business of a financing company under Republic Act No. paid IHMI for the truck engines. not a financing company. as amended An act prohibiting disclosure of or inquiry into. deposits with any banking institution and providing penalty therefor Policy of the law • It is hereby declared to be the policy of the Government to give encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the economic development of the country. bureau or office.60 B ANKING L AWS The transaction between IHMI and Medina did not involve any discounting. No financing company stepped into the shoes of IHMI as assignee or purchaser of IHMI’s credit against Medina. [Section 2. any information concerning said deposits. its political subdivisions and its instrumentalities. 5980. in determining estate of a decedent. government official. b. not trilateral. Medina made his installment payments or amortization to IHMI and not to a financing company. Upon written permission of the depositor. Medina himself. factoring or assignment of IHMI’s credit against Medina to a finance company. RA 1405] It shall be unlawful for any official or employee of a bank to disclose to any person.

al. In cases of impeachment. and their disclosure can only be justified under any of the cases enumerated in Section 2 of the Act. PNB refused to disclose his bank deposits. the Supreme Court ruled that savings and current accounts are privileged documents which fall within the protection of Republic Act No. 30 September 1965 FACTS : Emilio Gancayco and Florentino Flor. who was then under investigation for unexplained wealth. et. [Section 5. the prosecutors cited the Anti-Graft and Corrupt Practices Act. 18360. Dismissal due to unexplained wealth. Gancayco. as special prosecutors of the Department of Justice. invoking Section 2 of Republic Act No. 1405. RA 1405] Tatalon Barrio Council v. former administrator of the Agricultural Credit and Cooperative Administration. required the Philippine National Bank to produce at a hearing the records of the bank deposits of Ernesto Jimenez. In cases where the money deposited or invested is the subject matter of the litigation. to wit: “Section 8. Upon order of a competent court in cases of bribery or dereliction of duty of public officials. Penalty for violation of law • Any violation of this law will subject offender upon conviction to an imprisonment of not more than five (5) years or a fine of not more than twenty thousand pesos (P20. GR No. . which do not include the prosecution of criminal actions for violation of the provisions of the Anti-Graft and Corrupt Practices Act and of Article 216 of the Revised Penal Code. Chief Accountant. Philippine National Bank v. Gancayco GR No. 1405. . 5. 18343. 4.000) or both. 3019 or the Anti-Graft and Corrupt Practices Act. a public official has been found to have acquired during his incumbency. 3.If in accordance with the provisions of RA 1379. and Cases of unexplained wealth under Republic Act No. in the discretion of the court. This has since been overturned by the case of PNB v.61 B ANKING L AWS 2. 31 January 1963 In this case. particularly Section 8 therewith. On the other hand.

This policy expresses the notion that a public office is a public trust and any person who enters upon its discharge does so with the full knowledge that his life.” except in those cases enumerated therein.” The only conclusion possible is that Section 8 of the Anti-Graft Law is intended to amend Section 2 of Republic Act No. this appeal. 1405 and Republic Act No. may be taken into consideration. therefore. With regard to the claim that disclosure would be contrary to the policy making bank deposits confidential. 56429. Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen why these two classes of cases cannot be excepted from the rule making bank deposits confidential. 1405. Thus. Hence. while Section 2 of Republic Act No. 3019 as the two laws are so repugnant to each other. so far as relevant to his duty. it is enough to point out that while Section 2 of Republic Act No. (2) In cases of impeachment. The policy as to one cannot be different from the policy as to the other. 1405 by providing an additional exception to the rule against the disclosure of bank deposits. IS S UE : Whether or not a bank can be compelled to disclose the records of accounts of a depositor who is under investigation for unexplained wealth? HELD : Yes. is open to public scrutiny. 1405 declares bank deposits to be “absolutely confidential. may not be examined. Purisima GR No. Republic Act No. Banco Filipino Savings and Mortgage Bank v. Properties in the name of the spouse and unmarried children of such public official. notwithstanding any provision of law to the contrary. inquired or looked into. that fact shall be a ground for dismissal or removal.62 B ANKING L AWS whether in his name or in the name of other persons. Bank deposits shall be taken into consideration in the enforcement of this section. (4) In cases where the money deposited is the subject of the litigation. RATIO : No reconciliation is possible between Republic Act No. notwithstanding any provision of law to the contrary. 28 May 1988 .” PNB then filed an action for declaratory judgment in the CFI of Manila which ruled that Section 8 of the Anti-Graft and Corrupt Practices Act clearly intended to provide an additional ground for the examination of bank deposits. an amount of property and/or money manifestly out of proportion to his salary and to his other lawful income. Section 8 of Republic Act No. when their acquisition through legitimate means cannot be satisfactorily shown.” it nevertheless allows such disclosure in the following instances: (1) Upon written permission of the depositor. 3019 provided another exception to Section 2 of Republic Act No. (3) Upon order of a competent court in cases of bribery or dereliction of duty of public officials. 3019 (Anti-graft law) directs in mandatory terms that bank deposits “shall be taken into consideration in the enforcement of this section. 1405 provides that bank deposits are “absolutely confidential … and.

their children.” The inquiry into illegally acquired property . therefore. In PNB v. the Tanodbayan issued another subpoena which expanded its scope including the production of bank records not only of the persons enumerated above but of additional persons and entities as well. Caturla moved to quash the subpoena for violating Sections 2 and 3 of RA 1405 which was denied by the Tanodbayan. children and friends of a special agent of the Bureau of Customs accused before the Tanodbayan of having allegedly acquired property manifestly out of proportion to his salary and other lawful income in violation of RA 3019? The Supreme Court ruled in the negative. but its ownership is concealed by its being recorded in the name of. of held by.” except in those cases enumerated therein.extends to cases where such property is concealed by being held by or recorded in the name of other persons. 1405 provides that bank deposits are “absolutely confidential … and. the Tanodbayan issued a subpoena duces tecum to the Banco Filipino Savings and Mortgage Bank. respondent’s spouse.63 B ANKING L AWS The Bureau of Internal Revenue accused Customs special agent Manuel Caturla before the Tanodbayan of having illegal acquired property manifestly out of proportion to his salary and other lawful income. his wife. Section 8 of Republic Act No. savings and time deposits and other banking transactions. ascendants. Purita. relatives or any other persons.” The only conclusion possible is that Section 8 of the Anti-Graft Law is intended to amend Section 2 of Republic Act No. inquired or looked into. notwithstanding any provision of law to the contrary. commanding its representative to appear at a specified time at the Office of the Tanodbayan and furnish the latter with duly certified copies of the records in all its branches and extension offices of the loans.or property not legitimately acquired . In fact. descendants. The Banco Filipino filed an action for declaratory relief with the CFI of Manila which was denied by the lower court. Thus this special civil action of certiorari in the SC. 1405 by providing an additional exception to the rule against the disclosure of bank deposits. Gancayco. During the preliminary investigation. The issue here is whether or not the Law on Secrecy of Bank Deposits precludes production by subpoena duces tecum of bank records of transactions by or in the names of the wife. may not be examined. and/or Pedro Escuyos. 3019 (Anti-graft law) directs in mandatory terms that bank deposits “shall be taken into consideration in the enforcement of this section. and restrict the inquiry only to property held by or in the name of the government official or employee. To sustain the petitioner’s theory. or his spouse and unmarried children is unwarranted in the light of the provisions of the statutes in question. we ruled that: “while Section 2 of Republic Act No. in the names of Caturla. and would make available to persons in . This proposition is made clear by RA 3019 which quite categorically states that the term “legitimately acquired property of a public officer or employee shall not include … property unlawfully acquired by the respondent.

had the occasion to dispose of this issue when it stated. the latter have failed and refused to restore the amount of P37.466 which was the exact balance of the private respondent’s account as of that day. Trial court rendered judgment in favor of Marinduque Mining Corporation. Thus. absent any patent defect. Philippine Commercial & Industrial Bank. enjoys the presumption of regularity. but it was unsatisfied. when they allowed the sheriff to garnish the deposit of Marinduque Mining Corporation? SC held no. the bank issued a manager’s check in the amount of P37. Ortega . The SC first ruled that the release of the deposit by the bank was not done in undue and indecent haste. otherwise known as the Secrecy of Bank Deposits Act. et.853 before the National Labor Relations Commission. all they have to do would be to simply place the property in the possession or name of persons other than their spouse and unmarried children. in China Banking Corporation v. On appeal. While the in house lawyer of the Corporation warned the PCIB to withhold any release of its deposit with the bank. directing the bank concerned to issue a check in satisfaction of the judgment. al. and with undue haste unlawfully allowed to be withdrawn. GR no. the Court of Appeals initially reversed the trial court’s order but later affirmed it. al. 84526. The SC likewise did not find any violation whatsoever by the petitioners of RA 1405. v. The said check was also encashed by the sheriff the next day. whose issuance. 28 January 1991 A group of laborers obtained a favorable judgment against the Marinduque Mining and Industrial Corporation for the payment of backwages amounting to P205. Court of Appeals. The Court. This is an absurdity that we will not ascribe to the lawmakers.64 B ANKING L AWS government who illegally acquire property an easy and fool-proof means of evading investigation and prosecution. alleging that its current deposit with the petitioner bank was levied upon. We find the immediate release of the funds by the petitioner bank on the strength of the notice of garnishment and writ of execution. to wit: “It is clear from the discussion of the conference committee report on Senate Bill No. including petitioner PCIB.466 to the former’s account despite repeated demands. . this petition to the SC. The sheriff prepared on his own a Notice of Garnishment addressed to six banks in Bacolod City. et. otherwise known as the Secrecy of Bank Deposits Act. A writ of execution was issued and the Deputy Sheriff served the writ. and notwithstanding the alleged unauthorized disclosure of the said current deposit and unlawful release thereof. The issue is whether or not the petitioners violated RA 1405. garnished. Marinduque Mining thus filed a complaint before the RTC of Manila against PCIB and the deputy sheriff.

USA. USA which was the subject of an action for recovery by Mellon Bank. Mellon Bank v. One of the things they bought was real property in California. al. including the purchase price of the real property located in the US.000 to Victoria Javier instead of US $1. that the prohibition against examination of or inquiry into a bank deposit under Republic Act No.000. there is no real inquiry in such a case. the wire sent by Mellon Bank to Manufacturers Hanover Bank.943. the disclosure is purely incidental to the execution process. Later. it filed a case in the Philippines for the recovery of the whole amount. 71479. Magsino et.00. Dolores Ventosa requested the transfer of $1000 from the First National Bank of West Virginia.000. GR No. a duly authorized officer of the court.65 B ANKING L AWS 351 and House Bill No. thereafter. 1405. by virtue of the principle of election of remedies. Immediately. Among other things. Erlinda Baylosis of the Philippine Veteran’s Bank and Pilologo Red. to recover real property located therein and to constitute a constructive trust on said property precludes the filing in our jurisdiction of an action to recover the purchase price of said real property. These testimonies were . even if ordered by the Court. 3977. of Hongkong and Shanghai Banking Corporation were required to give testimonies with regard to the deposits and checks issued by the private respondents Javier. Hence. 1405 does not preclude its being garnished to insure satisfaction of a judgment.” Since there is no evidence that the petitioners themselves divulged the information that the private respondent had an account with the petitioner bank and it is undisputed that the said account was properly the object of the notice of garnishment and writ of execution carried out by the deputy sheriff. private respondents raised the issue of whether or not. Javier and her husband made withdrawals from the account. which later became Republic Act No. Indeed. deposited them in several banks only to withdraw them later in an apparent plan to conceal. It is hard to conceive that it was ever within the intention of Congress to enable debtors to evade payment of their just debts. Unfortunately. launder and dissipate the erroneously sent amount. the First National Bank requested the petitioner.. al. et.000 only. SC ruled that the filing of a recovery suit in the US does not preclude the filing of an action in the Philippines for the recovery of the purchase price. we cannot therefore hold the petitioners liable under RA 1405.30 to the Prudential Bank for the account of Victoria Javier. and if existence of the deposit is disclosed.00” instead of US $1.000. Javier opened a new dollar account in Prudential Bank and deposited $999. an action filed in California. Accordingly. indicated the amount transferred as “US $1. through the expedient of converting their assets into cash and depositing the same in a bank.000. Manufacturers Hanover Bank transferred one million dollars less bank charges of $6. USA to Victoria Javier in Manila through the Prudential Bank. Jr. to effect the transfer. a correspondent of Prudential Bank. With regard to our subject matter. Mellon Bank. 18 October 1990 This case involves the erroneous transfer of US $1.

Section 2 of said law allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation.66 B ANKING L AWS questioned for being immaterial and irrelevant as well as covered by RA 1405 on confidentiality. . necessarily. SC said: Private respondents’ protestations that to allow the questioned testimonies to remain on record would be in violation of the provisions of RA 1405 on the secrecy of bank deposits is unfounded. an inquiry into the whereabouts of the illegally acquired amount extends to whatever is concealed by being held or recorded in the name of persons other than the one responsible for the illegal acquisition. Inasmuch as the civil case is aimed at recovering the amount converted by the Javiers for their own benefit.

5580. Under its Rules and Regulations. T HE I NVESTMENT H OUSES L AW Presidential Decree No. operation and regulation of Investment Houses 15 February 1973 Investment houses • An investment house is any enterprise which engages in the underwriting of securities of other corporations. 129 Governing the establishment. 3. Decree 129 Investment Company Act Republic Act No. an investment house is defined an “any enterprise which engages or purports to engage. • Underwriting • Underwriting is the act or process of guaranteeing the distribution and sale within the Philippines of securities of any kind issued by another corporation. as amended Pawnshops Pres. including securities of the Government and its instrumentalities. 2629 Financing Company Act Republic Act No. 5. General Banking Act 2.67 B ANKING L AWS N ON . 114 Trust Corporations Chapter VII. Decree No. in the underwriting of securities of another person or enterprise. The Investment House Law Pres.B ANK F INANCIAL I NTERMEDIARIES N ON -B ANK F INANCI AL I NTERMEDIARIES 1. The distribution and . 4. whether regularly or on an isolated basis.

the minimum paid-in capital shall be three hundred million pesos (P300. Public placement • Refers to the underwritten sale of securities to at least 20 persons or enterprises. unless it is satisfied from the evidence submitted to it: . or any amendment thereto. if the stockholder is a corporation. and. the SEC shall approve such applications only if the same or similar rights are enjoyed by Philippine nationals in the applicant’s country.000.000). At least forty percent (40%) of the voting stock of any Investment House shall be owned by citizens of the Philippines. the citizenship of the individual stockholders holding voting rights in that corporation.68 B ANKING L AWS sale may be on public or private placement basis. The Monetary Board may prescribe a higher minimum capitalization in order to promote and ensure the stability of the Philippine capital market and the competitiveness of the investment house industry in line with the national economic goals. In determining the percentage of foreign-owned voting stocks in Investment Houses. • Requirements for registration • The Securities and Exchange Commission shall not register the articles of incorporation of any Investment House. Private placement • Refers to the underwritten sale of securities to less than 20 persons or enterprises. Organization and citizenship requirements • • Investment Houses shall be organized in the form of stock corporations. In approving foreign equity applications in Investment Houses. the basis for the computation shall be the citizenship of each stockholder. • • • Capital requirements • In the case of newly-organized Investment Houses. Foreign nationals may become members of the board of directors to the extent of the foreign participation in the equity of said enterprise.

4. Act as financial consultant. Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best-efforts basis securities of other corporations and of the Government or its instrumentalities. That all the requirements of the PD 129 and of existing laws or regulations to engage in the business have been complied with. block sales. projects and programs that contribute to the economy’s development. direction and administration. 5. an Investment House is authorized to do the following: 1. Powers of investment houses • In addition to the powers granted to corporations in general. That the proposed enterprise will not be in conflict with public interest and economic growth. . investment adviser. and That the amount of capital.69 B ANKING L AWS a. sponsor. provide reasonable assurance that the enterprise will be conducted with financial prudence. or exchange offering of securities. Arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities. 337. 2. b. as amended. Promote. as well as the integrity. right or warrants relating to securities and such other powers which a dealer may exercise under the Securities Act. Prohibition • No Investment House shall engage in banking operations as defined in Section 2 of Republic Act No. the proposed organization. c. 6. or broker. Participate in a syndicate undertaking to purchase and sell. distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities. deal in options. Participate as soliciting dealer or selling group member in tender offers. 3. experience and expertise of the organizers and the proposed managerial staff. or otherwise assist and implement ventures.

and d) uses of funds may be modified by the Monetary Board insofar as they apply to Investment Houses. at its discretion. the Board may require as a condition precedent the obtaining of a certificate of authority for the purpose from the Monetary Board. c) terms of placement and maturities. • • Dealer or broker • An Investment House may engage in the business of a dealer or a broker under the . but need not be limited to a) minimum size of fund acceptance or receipt. subject to the provisions of the General Banking Act. Act as portfolio manager and/or financial agent. c) interest rate ceilings. which may include but need not necessarily be limited to a) liquidity reserve requirements. Act as trustee of a trust fund or trust property. The regulations which may include. 8.70 B ANKING L AWS 7. Whenever the Monetary Board authorizes an Investment House to engage in quasibanking functions. Subject to prior approval by the Monetary Board. and such rules and regulations as may be issued by the Monetary Board. engage in foreign exchange operations. Central Bank regulatory powers • Investment Houses shall be subject to such regulations of the Central Bank on non-bank financial intermediaries as may be promulgated. • Quasi-banking powers • The Monetary Board may. subject to applicable laws and regulations and with prior approval of the Monetary Board. the provisions of Chapter IV of the Central Bank Charter. If the Monetary Board decides to permit Investment Houses to engage in quasi-banking functions. and d) such other constraints as the Board may deem necessary. Conversion into a commercial bank • An Investment House may be converted into a commercial bank authorized to operate under an expanded commercial banking authority. b) capital-to-risk assets ratios. b) methods of marketing and distribution. determine whether Investment Houses may be permitted to perform quasi-banking functions. 9. it may subject said Investment House to further regulations.

whether the issuer of such 2. or trading in securities. or deliver after sale. 2629 Approved 18 June 1960 Investment company • Any issuer which is or holds itself out as being engaged primarily in the business of investing. association. any security. . The funds obtained will be used to invest in securities of other enterprises. retire. within the Philippines. partnership or corporation other than those duly licensed as an Investment House shall advertise or hold itself out as being engaged in the business of an Investment House. Use of the term “Investment House” • No person. Nature and purpose • Investment companies are financial institutions that raise funds by selling their own issues of securities to individual investors. sell. reinvesting. or any interest in any security. 2. Purchase. The objective of an investment company is to provide individual investors with safe and profitable use of their savings and to relieve them of the burden of direct responsibility of managing their own savings. redeem. Open-end company . any security or any interest in any security. I NVESTMENT C OMPANY A CT Republic Act No. or otherwise acquire or attempt to acquire. • Types of investment companies 1. whether the issuer of such security is the investment company or another person.also called mutual funds Closed-end company Powers and functions 1. within the Philippines. Offer for sale.71 B ANKING L AWS Securities Act without obtaining a separate license for the purpose.

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security is such investment company or another person.

Security

Any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral trust certificate, pre-organization certificate or subscription, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a “security” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. (Section 3(bb), RA 2629). Note that there is an expanded definition under the Revised Securities Act.

Form
• All shares of its capital stock shall be common and voting shares.

Capitalization
• No public offering may be made unless the investment company has a paid up capital of at least P500,000 (Section 13(1), RA 2629). However, Rule 2.1 provides that the minimum subscribed and paid in capital should be at least 50 million.

F INANCING C OMPANY A CT
Republic Act No. 5980, as amended An Act Regulating the Organization and Operation of Financing Companies

Declaration of policy
• It is hereby declared to be the policy of the State to regulate the activities of financing and leasing companies: 1. to place their operations on a sound, competitive, stable and efficient basis as other financial institutions; to recognize and strengthen their critical role in providing medium and long-term credit for investments in capital goods and equipment especially by small and medium enterprises particularly in the countryside; and

2.

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3. • to curtail and prevent acts or practices prejudicial to the public interest.

As such, they may be in a better position to extend efficient service in a fair manner to the general public and to industry, commerce and agriculture and thereby more fully contribute to the sound development of the national economy.

Financing companies
• Financing companies are corporations, except banks, investment houses, savings and loans associations, insurance companies, cooperatives, and other financial institutions organized or operating under special laws, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises. It may extend such credit: 1. 2. 3. by direct lending; or by discounting or factoring commercial papers or accounts receivable; or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness; or by financial leasing of movable as well as immovable property.

4.

Financial leasing
• Financial leasing is a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy percent (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years. During the two-year period, the lessee has the right to hold and use the leased property with the right to expense the lease rentals paid to the lessor. Lessee also bears the cost of repairs, maintenance, insurance and preservation of the leased property. However, lessee has no obligation or option to purchase the leased property from the owner-lessor at the end of the lease contract.

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Liability of lessors
• Financing companies shall not be liable for loss, damage or injury caused by a motor vehicle, aircraft, vessel, equipment, machinery or other property leased to a third person or entity except where the motor vehicle, aircraft, vessel, equipment, machinery or other property is operated by the financing company, its employees or agents at the time of the loss, damage or injury.

Rights and powers of financing companies
• Financing companies shall have the following powers, in addition to those granted by this Act and by other laws: 1. Engage in quasi-banking and money market operations with the prior approval of the Bangko Sentral. Engage in trust operations subject to the provisions of the General Banking Act upon prior approval of the Bangko Sentral. Issue bonds and other capital instruments subject to pertinent rules and regulations of the Bangko Sentral. Rediscount their paper with governmental financial institutions subject to relevant laws, rules and regulations. Participate in special loan or credit programs sponsored by or made available through governmental financial institutions. Provide foreign currency loans and leases to enterprises who earn foreign currency by exports or other means, subject to existing laws and rules and regulations of the Bangko Sentral.

2.

3.

4.

5.

6.

Form of organization and capital requirements
• Financing companies shall be organized in the form of stock corporations at least forty percent (40%) of the voting stock of which is owned by citizens of the Philippines. They shall have paid-up capital of not less than ten million pesos (P10,000,000) in case the financing company is located in Metro Manila and first class cities, five million pesos (P5,000,000) in other classes of cities, and two million five hundred thousand pesos (P2,500,000) in municipalities. No foreign national may be allowed to own stock in any financing company unless the

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country of which he is a national accords the same reciprocal rights to Filipinos in the ownership of financing companies or their counterpart entities in such country.

Requirements for registration
• Aside from requiring compliance with the provisions of the Corporation Code, the SEC shall not register the articles of incorporation of any financing company unless its office is satisfied on the evidence submitted to it, that: 1. All the requirements of existing laws to engage in the business for which the applicant is proposed to be incorporated or organized have been complied with; The organization, direction and administration, as well as the integrity and responsibility of the organizers and administrators reasonably assure the protection of the interest of the general public; and All the requirements of RA 5980 have been complied with.

2.

3.

Revocation and suspension of registration
1. 2. Financing company is insolvent It violated any provision of the law

Supervision and regulation
• The SEC is empowered to enforce the provisions of RA 5980, as amended, and issue implementing regulations except insofar as the Bangko Sentral may have supervisory authority for financing companies licensed to perform quasi-banking functions, and insofar as the Monetary Board has authority to prescribe financing company rates and charges.

Prohibited acts
• The Act imposes a fine of not less than P10,000 but not more than P100,000, or imprisonment of not more than six(6)months or both, at the discretion of the court, on "persons, associations, partnerships or corporations, including managing officers thereof," upon the following unlawful acts: 1. Engaging in the business of finance companies without authority from the SEC through advertisement in whatever from, or through other representations without authority.

aid or assist in the commission of acts enumerated above. 3. or agent of a financing company who shall knowingly and willingly make any statement in any application. or discounting. connive. 2. Holding themselves out to be financing companies without authority from the SEC. Any officer. Any officer. which is false or misleading with respect to any material fact. 3.76 B ANKING L AWS 2. employee or examiner of the SEC directly charged with the implementation of the Act who shall commit. report or document required to be filed under the Act. To derive maximum benefit as source of credit To prevent and mitigate practices prejudicial to the public. and To prescribe minimum requirements Requirements for establishing a pawnshop . 5. Using trade or firm name containing the words "financing company" or "leasing company" or "finance and leasing company" or "finance and investment company" or any other designation that would give the public the impression that it is engaged in the business of a financing company or leasing company without authority. 374 Pawnshop • A pawnshop is a person (single proprietorship) or entity (corporation/partnership) engaged in the business of lending money on personal property delivered as security for loans. 4. Purpose of the law • To regulate the establishement of pawnshops and to place their operation on any sound and stable basis: 1. employee. or overvalue or aid in overvaluing any securities for the purpose of influencing in any way the action of the company on any loan. P AWNSHOPS Presidential Decree 114 in relation to CB Circular No.

70% of capital owned by Filipinos If corporation. b. Secure a license to operate from the LGU concerned Minimum paid in capital of P100. In addition to interest charges. d. b. must be a Filipino If partnership. 70% of members entitled to vote should be Filipinos General requirements as to operation • Owner who has other businesses not directly related or incidental to his pawnshop business must keep the latter separate from his other businesses. 70% of voting capital should be owned by Filipinos If no voting stock. c. Accounting records Loans cannot be less than 30% of the appraised value of the personal property unless the borrower stipulated in writing that he is borrowing a lesser amount. c. If single proprietor. pawnshops may impose a maximum service charge of • • • • • • .e. Insure place of business and pawns against fire and burglars.77 B ANKING L AWS 1. 4. Maintain adequate security i.000 Citizenship a. fire and burglar proof safe where pawns/records are kept. Accountable officers/employees shall be bonded. 3. Registration a. with the BSP With the Board of Investments if there is foreign equity participation 2. With DTI if single proprietorship With SEC if corporation or partnership In all cases. d.

by posting at City Hall or Municipal Building and two other conspicuous public places where pawnshop operates.78 B ANKING L AWS P5. and place of auction sale. In remote areas where there is no newspaper. Before the 90-day period expires.00. borrower fails to pay. pawnshop will wait for 90 days after maturity before it can sell the thing pledged at a public auction. Pawned property is placed in vault/safe. fees. 4. 5. If upon maturity. Borrower shall not pay insurance premiums. Borrower offers to pledge personal property as security for loan. notice to the borrower that the pawn will be sold if not redeemed within 90 days from maturity specifying time. No other charges. c. 9. 7. to wit: a. 8. Property is appraised. Sale of pawn by auctioneer/notary public to higher bidder.00 but in no case to exceed 1% of the principal loan. pawnshop will sell the pawn after publishing a notice of sale in at least two newspapers in the city/municipality of operation six (6) days before the date of sale. Pawnshop issues receipt (pawn ticket). Loan agreement is entered into. 6. Conduct of business 1. Pawnshop lends money to pawner. and commissions shall be collected by pawnshop in connection with the loan transaction or payment thereof. b. Pawnshop has to comply with notice requirements. If there is no redemption. date. Pawner pays charges not to exceed P5. 3. . 2.

Said official or agent makes recommendations to the Monetary Board. stockholders. • . or employees of the trust company or bank. administering any trust or holding property in trust or on deposit for the use. of such director. or sell. unless the transaction is specifically authorized by the trustor and the relationship of the trustee and the other party involved in the transaction is fully disclosed to the trustor or beneficiary of the trust prior to the transaction. acting under like capacity and familiar with such matters. prudence and diligence necessary under the circumstances then prevailing that a prudent man. officers. and investigate the records of pawnshop to ensure compliance with PD 114. assign or lend money or property to. examine. or the related interests. care. and stockholders. or relatives within the first degree of consanguinity or affinity. transfer. purchase or acquire property from. • • T RUST C ORPORATI ONS Chapter VII General Banking Act Trust corporation • A trust corporation is any corporation formed or organized for the purpose of acting as trustee. No trust company or bank engaged in the business of a trust company shall. Impose penalties for violation of PD 114.79 B ANKING L AWS Supervisory powers of the Bangko Sentral • BSP official in charge of non-bank financial intermediaries or authorized agent may inspect. directors. A corporation or a bank may engage in the business of a trust corporation. would exercise in the conduct of an enterprise of a like character and with similar aims. or purchase debt instruments of any of the departments. for the account of the trustor or the beneficiary of the trust. • Standard of care • A trust company or any bank authorized to engaged in the business of a trust company shall administer the funds or property under its custody with the skill. benefit or behoof of others. officers.

and profits thereof. 6. 4. or as administrator of the estate of any deceased person when there is no will. guardian. To act as the executor of any last will or testament when it is named in the last will and testament as the executor thereof. trustee or depository of the estate of any minor. To act under appointment of a court of competent jurisdiction as administrator of the estate of any deceased person. with the will annexed. receiver. or any body politic and to accept and execute any other municipal or corporate trust not inconsistent with law. do a commercial banking business. issues. insane person. • Bond/security requirements and paid in capital • Except as may otherwise be provided in this Act. and as receiver and depository of any moneys paid into court by parties to any legal proceedings and of property of any kind which may be brought under the jurisdiction of the court by property legal proceedings. receiver or depositary. with the approval of the Monetary Board. be authorized to engage in the business of a trust company. Any banking corporation may. . administrator. and when in either case there is no person qualified. To act under the order or appointment of any court of record as guardian. and administration of any estate. idiot. subject to such rules and regulations as may be prescribed by the Monetary Board. willing.80 B ANKING L AWS Powers (in addition to general powers incident to corporations) 1. 5. To act as trustee on any mortgage or bond issued by any municipality. no bond or other security shall be required from any trust company for the faithful performance of its duties as trustee. but such business must be kept separate and distinct from its trust business. or other incompetent or irresponsible person. habitual drunkard. executor. real or personal. corporation. but it shall be subject to the provisions on trust operations. competent. management. To establish and manage common trust funds. with the approval of the Monetary Board. 2. To accept and execute any legal trust confided to it by any court of record or by any person or corporation for the holding. able and entitled to accept such administration. and the rents. 3. Commercial banking activity • A trust company may.

or securities received by any trust company shall be kept separate and distinct from all other funds. The accounts of all such moneys. shall carry on deposit with the Central Bank. properties or securities shall likewise be kept separate and distinct from the accounts of its general business. the court officer appointing such company as trustee. shall carry to surplus 10% of its net profits accruing since the last preceding dividend until the surplus shall amount to 20% of its authorized capital stock and no part of the surplus shall at any time be paid out in dividends. cash or securities approved by the Monetary Board in an amount equal to not less than two hundred and fifty thousands pesos (P250. upon proper application. provides: “As security for the faithful performance of its trust duties. but losses accruing in the course of its business may be charged against the surplus. administrator. properties. . • • Separation of trust funds and property • All moneys. every trust company. showing special cause therefor. its appointment as trustee. properties and assets of its general business.000). administrator. before transacting trust business. the investment of its funds other than trust funds shall be governed by the relevant provisions of the General Banking Act. executor. • Capital stock may be invested • The capital stock and funds of a trust company may be loaned or otherwise invested as its by laws prescribe. Surplus and dividend • Every trust company. receiver or depositary may. receiver or depositary shall be revoked. however. if it does a commercial banking business in addition to its trust business.81 B ANKING L AWS • However. This may be increased by the Central Bank. executor. upon failure of such corporation to give the security required. guardian. require any corporation which shall seek to be or shall have been so appointed to give adequate security for the protection of the funds or property confided to the corporation and. Section 65. guardian. before the distribution of a dividend. Paid in capital and surplus of the company must be at least equal to the amount required to be deposited with the central Bank.