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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
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
Note: We have included several banking laws which are not in the bar coverage. Likewise, we
BANKING L AWS
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.
Two types of financing
1. 2. equity debt-financing • A cross-breed of the two may also occur.
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
BANKING L AWS
N EW C ENTRAL BANK A CT
Republic Act No. 7653 Approved 14 June 1993
I N G ENERAL
• 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]
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]
M ONETARY B OARD
• • 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
6713. officer. a member of the Monetary Board is disqualified from being a director. employee. consultant. The member of the Monetary Board coming from the private sector shall not hold any other public office or public employment during their tenure.5 BANKING L AWS serve full-time. and divest himself of any and all interests in such institution before assumption of office as member of the Monetary Board. 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. 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. 5. in all cases. 4. quasi-bank or any other institution which is subject to supervision or examination by the Bangko Sentral. Disqualifications • In addition to the disqualifications imposed by Republic Act No. However. • • Quorum in the Monetary Board • The presence of four (4) members shall constitute a quorum. within one (1) year prior to his appointment. lawyer. likewise. 6. Qualifications of the members of the Monetary Board 1. the Governor or his duly designated alternate shall be among the four. 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. . agent or stockholder of any bank. Must be natural born citizens of the Philippines At least thirty five (35) years of age. in which case such member shall resign from. 2.
negligence. abuse. and the implementation thereof. decisions. • However. on matters regarding application or enforcement of laws pertaining to institutions supervised by the Bangko Sentral and laws pertaining to quasi-banks. or any information on the discussions or resolutions of the Monetary Board. [Section 17(e). Responsibility and liability of the members of the Monetary Board • Members of the Monetary Board. or to be published under the provisions of RA 7653 shall not be considered confidential. or about the confidential operations of the Bangko Sentral. examiners. or The use of such information for personal gain or to the detriment of the Government. • 2. until reversed or modified by the Monetary Board. the Bangko Sentral or third parties. as well as regulations. 6713. Authority of Governor to render opinions. policies or instructions issued by the Monetary Board. and employees of the Bangko Sentral who willfully violate RA 7653 or who are guilty of negligence. any data or information required to be submitted to the President and/or Congress. 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.6 BANKING L AWS Withdrawal of persons having a personal interest • In addition to the requirements of Republic Act No. officials. or rulings which shall be final and executory. 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. or is with prior authorizaytion of the Monetary Board or the Governor. The decision taken on the matter shall be made public. 1. officers and employees of the Bangko Sentral for. decisions or rulings • The Governor of the Bangko Sentral shall have the power to render opinions. misfeasance or failure to exercise extraordinary diligence. unless the disclosure is in connection with the performance of official functions with the Bangko Sentral. Similar responsibility shall apply to members. RA 7653] . malfeasance. The minutes shall reflect the disclosure made and the retirement of the member concerned from the meeting. The disclosure of any information of a confidential nature.
by designation of the President. natural or juridical. the Governor shall call a meeting of the Monetary board to submit his action for ratification. He shall thereafter submit a report to the President and Congress within 72 hours after the action has been taken. Exceptions: 1. At the soonest possible time. civic. 2. including their subsidiaries and affiliates engaged in allied activities. in debt instruments issued by the Government.7 BANKING L AWS Authority of the Governor in emergencies • In case of emergencies where time is insufficient to call a meeting of the Monetary Board. and conduct periodic or special examination of. RA 7653] • • Outside interests of the Governor and the full-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. Positions in eleemosynary. banking institutions and quasi-banks. 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 PERATIONS B ANGKO S ENTRAL Supervision and examination • The Bangko Sentral shall have supervision over. remunerated or ad honorem. [Section 19. 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. [Section 25. RA 7653] • . cultural or religious organizations Whenever. whether public or private. 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. They may not accept any other employment.
directly or indirectly. or under such conditions as may be prescribed by the Monetary Board. This prohibition shall not apply to the giving of information to the Monetary Boar or the Governor of the Bangko Sentral. except non-stock savings and loan associations and provident funds organized exclusively for employees of the Bangko Sentral. employee. and except as otherwise provided in RA 7653. present or pecuniary or material benefit for himself or another. 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. [Section 25. from any institution subject to supervision or examination by the Bangko Sentral. 4. Revealing in any manner. 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. information relating to the condition or business of any such institution. to receive such information. consultant or stockholder. lawyer or agent. Being an officer. fully disclosed to the Monetary Boar.8 BANKING 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. RA 7653] Prohibitions on personnel of the Bangko Sentral • In addition to the prohibitions found in RA 3019 and 6713. of any institution subject to supervision or examination by the Bangko Sentral. and shall be subject to such further rules and regulations as 2. or to any person authorized by either of them. except upon orders of the court. in writing. to the extent of fifty percent (50%) or less. 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. . director. in an amount to be fixed by the court. 3. the Congress or any government office or agency authorized by law. 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. personnel of the Bangko Sentral are hereby prohibited from: 1.
void. Take charge of the assets. hence. [First Philippine International Bank v. 4. The conservatorship shall not exceed one (1) year. Section 28-A of RA No. 265 merely gives the conservator the power to revoke contracts that are deemed to be defective under existing law (i. unenforceable. • Powers of conservator 1. 3. otherwise they would infringe against the non-impairment clause of the Constitution. 2. the conservator cannot do either. [Section 29. R ECEIVERSHIP C ONSERVATOR Grounds for appointment of conservator • The Monetary Board may appoint a conservator whenever it finds that a bank or a quasi-bank 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. RA 7653] The conservator should be competent and knowledgeable in bank operations and management. CA . such as repudiating a contract validly entered into under the doctrine of implied authority. What the board of directors cannot do. 252 SCRA 255 (1986)] • • Termination of conservatorship . or rescissible). voidable.. 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. However.9 BANKING L AWS the Monetary Board may prescribe. the power cannot extend to the post-facto repudiation of perfected transactions. C ONSERVATORSHIP V . the conservator merely takes the place of a bank’s board of directors.e.
the Philippine Deposit Insurance Corporation shall serve as receiver. in which case proceedings for receivership and liquidation shall be pursued. or Has willfully violated a cease and desist order that has become final. 3. the Monetary Board may summarily and without need for prior hearing. No need of prior notice and hearing • In such cases. Has insufficient realizable assets to meet its liabilities. . [Section 29. provided that this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community. any person of recognized competence in banking or finance may be designated as receiver. RA 7653] IN • P ROCEEDINGS R ECEIVERSHIP 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. for a quasi-bank. 2. involving acts or transactions which amount to fraud or a dissipation of the assets of the institution. Is unable to pay its liabilities as they become due in the ordinary course of business. forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution. 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. [Section 30.10 BANKING 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. Cannot continue in business without involving probable loss to its depositors or creditors. 4. RA 7653] Who acts as receiver • For a bank.
Upon acquiring jurisdiction. the institution. File ex parte with the proper regional trial court. and without the requirement of prior notice or any other action. 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. Resumption • Any determination for the resumption of business of the institution shall be subject to prior approval of the Monetary Board. 3. in the name of the institution. (2) administer the same for the benefit of its creditors. and Convert the assets of the institution to money. directors and officers. assist the enforcement of individual liabilities of the stockholders.11 BANKING L AWS Tasks of the receiver • The receiver shall immediately (1) gather and take charge of all assets and liabilities of the institution. (4) The receiver shall determine as soon as possible. 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. institute such actions as may be necessary to collect and recover accounts and assets of. or defend any action against. 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. 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. the court shall. Custodia legis and exemption from levy. but not later than ninety (90) days from takeover. Liguidation • If the receiver determines that the institution cannot be rehabilitated or permitted to resume business. and decide on other issues as may be material to implement the liquidation plan adopted. dispose of the same to creditors and other parties. attachment or execution . Procedure for liquidation • The receiver shall then: 1. upon motion by the institution. and (3) exercise the general powers of a receiver. 2.
liquidation or conservatorship. AND THE • T HE BANGKO S ENTRAL M EANS OF P AYMENT Unit of monetary value • The unit of monetary value in the Philippines is the peso. levy. The designation of a conservator is not a precondition to the designation of a receiver. or execution. [Section 30. RA 7653] Notes and coins issued by the BSP shall be liabilities of the BSP and may be issued only • .12 BANKING 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. 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. from the moment the institution was placed under such receivership or liquidation. 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. Bank of issue • The Bangko Sentral has the sole power and authority to issue currency within the territory of the Philippines [Section 50. • 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. attachment. 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.
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. both public and private. Said notes and coins shall be a first and paramount lien on all assets of the BSP [Section 51. or in prices endanger the stability of the Philippine economy or important sectors thereof. both public and private. Action when abnormal movements occur in the monetary aggregates.13 BANKING L AWS against and in amounts not exceeding. or price level • Whenever abnormal movements in the monetary aggregates. RA 7653] • D OMESTIC 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. [Section 60. 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. the Monetary Board shall: . 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. Legal character of checks • Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts. RA 7653] However. 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. is at the option of the creditor. [Section 60. credit. in credit. 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. the assets of the BSP. [Section 52.
c. and economic activity in general and the nature and significance of any such changes. as a minimum. 2. [Section 64. in credit. Submit to the President of the Philippines and the Congress. although not necessarily limited to. and The measures which the Monetary Board has taken and the other monetary. or in prices have been reflected in changes in the level of domestic output.14 BANKING L AWS 1. b. The extent to which the changes in the monetary aggregates. the Bangko Sentral shall maintain international reserves adequate to meet any foreseeable net demands on the Bangko Sentral for foreign currencies. a description and analysis of: a. and make public. a detailed report which shall includes. RA 7653] International reserves • In order to maintain the international stability and convertibility of the Philippine peso. fiscal or administrative measures which it recommends to be adopted. current payments for foreign trade and invisibles. Gold Assets in foreign currencies . The causes of the rise or fall of the monetary aggregates. 2. I NTERNATIONAL 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] Composition of the international reserves 1. of credit or of prices. [Section 65. employment. wages. Take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral.
The monetary. a description and analysis of: a. The nature and causes of the existing or imminent decline. d. Take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral. 2. a detailed report which shall includes.15 BANKING 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. b. . the Monetary Board shall rely on its moral influence and the powers granted to it under RA 7653 for the management of monetary aggregates. or whenever the international reserve is falling as a result of payments or remittances abroad which. or whenever the international reserve appears to be in imminent danger of falling to such a level. Submit to the President of the Philippines and the Congress. as a minimum. Purchases and sales of gold • The Bangko Sentral may buy and sell gold in any form. and make public. in the opinion of the Monetary Board. I NSTRUMENTS OF B ANGKO S ENTRAL A CTION Means of action • In order to achieve the primary objective of price stability. and documents and instruments of types customarily employed for the international transfe rof funds. are contrary to the national welfare. the Monetary Board shall: 1. c. The remedial measures already taken or to be taken by the Monetary Board. fiscal or administrative measures further proposed. and The character and extent of the cooperation required from other government agencies for the successful execution of the policies of the Monetary Board. Purchases and sales of foreign exchange • The Bangko sentral may buy and sell foreign notes and coins.
at the effective exchange rate or rates. Foreign or international financial institutions. and Other entities or persons which the Monetary Board is hereby empowered to authorize as foreign exchange dealers. 4. Emergency restrictions on foreign exchange operations • Emergency restrictions on foreign exchange operations include: 1. Banking institutions operating in the Philippines. 3. To whom can engage • The Bangko Sentral may engage in foreign transactions with the following entities or persons only: 1. The Government. RA 7653] 2. 5. .16 BANKING L AWS • The Bangko Sentral may engage in future exchange operations. 2. 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. Temporarily suspending or restricting sales of foreign exchange by the Bangko Sentral. its political subdivisions and instrumentalities. [Section 72. • Emergency restrictions may be imposed for the following purposes: 1. 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. Subjecting all transactions in gold and foreign exchange to license by the Bangko Sentral. Foreign governments and their instrumentalities. In order to achieve the primary objective of the Bangko Sentral. 3.
or overcome such a crisis or emergency. shall be used to influence the volume of credit consistent with the objective of price stability. To protect the international reserves of the Bangko Sentral in the imminence of. [Section 76. 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. 3.17 BANKING L AWS 2. Types of credit operations 1. [Section 72. discounts. and To give the Monetary Board and the Government time in which to take constructive measures to forestall. Normal credit operations Special credit operations Emergency credit operations Normal credit operations 1. 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. [Section 72. or in order to promote the domestic investment of bank resources. RA 7653] Exchange rates • The Bangko Sentral shall determine the exchange rate policy of the country. combat. which the Bangko Sentral is authorized to extend to banking institutions. or in time of national emergency. • 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. or during an exchange crisis. loans and advances. 2. RA 7653] TO L OANS BANKING AND O THER F INANCIAL I NSTITUTIONS Guiding principles • The rediscounts. RA 7653] 3. Commercial credits .
Production credits • The Bangko Sentral may rediscount. or industrial products. The importation. Production credits Other credits Commercial credits • The Bangko Sentral may rediscount. 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.18 BANKING L AWS 2. [Section 83. buy and sell bills. discount or acquisition by the Bangko Sentral and resulting from transactions related to the production or processing of agricultural. Special credit operation 1. exportation. under conditions assuring their preservation in authorized bonded warehouses or in other places approved by the Monetary Board. buy and sell bills. 2. discount or acquisition by the Bangko Sentral and resulting from transactions related to: 1. RA 7653] . or their transportation within the Philippines. acceptances. purchase or sale of readily saleable goods and products. mineral. promissory notes and other credit instruments having maturities of not more than three hundred sixty (360) days from the date of their rediscount. promissory notes and other credit instruments with maturities of not more than one hundred eighty (180) days from the date of their rediscount. animal. 3. 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. or The storing of non-perishable goods and products which are duly insured and deposited. discount. acceptances.
19 BANKING L AWS Emergency loans and advances • In periods of national and/or local emergency or of imminent financial panic which directly threaten monetary and banking stability. [Section 84. the Bangko Sentral shall not pay interest on the reserves maintained with it unless the Monetary Board decides otherwise as warranted by circumstances. RA 7653] • No interest on bank reserves • Since the requirement to maintain bank reserves is imposed primarily to control the volume of money. by a vote of at least five (5) of its members. the Bangko Sentral may engage in the purchase and sale of government securities as well as issue and negotiate obligations of the Bangko Sentral. RA 7653] FOR THE • O PEN M ARKET O PERATIONS A CCOUNT OF THE BANGKO 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. all banks operating in the Philippines shall be required to maintain reserves against their deposit liabilities. • B ANK R ESERVES Reserve requirements • In order to control the volume of money created by the credit operations of the banking system. at its discretion. In pursuit of this principle. could not be prevented by the bank concerned. . RA 7653] The Monetary Board may. even during normal periods. for the purpose of assisting a bank in a precarious financial condition or under serious financial pressures brought by unforeseen events. or events which. likewise authorize the Bangko Sentral to grant emergency loans or advances to banking institutions. [Section 84. [Section 94. 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. authorize the Bangko Sentral to grant extraordinary loans or advances to banking institutions secured by assets. 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. the Monetary Board may. though foreseeable.
other than deposits. or its political subdivision or instrumentalities. the increase shall be made in a gradual manner and shall not exceed four percentage points in any thirty-day period. or any other order or process of any court. garnishment. endorsement. • 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. • .20 BANKING L AWS [Section 94. government agency or any other administrative body issued to satisfy the claim of a party other than the Government. Regulations on bank operations shall be applied to all banks of the same category uniformly and without discrimination. Banks and other affected financial institutions shall be notified reasonably in advance of the date on which such increase is to become effective. OF S ELECTIVE R EGULATION Guiding principle • B ANK O PERATIONS The Monetary Board shall use the powers granted to it under RA 7653 to ensure that the supply. Increase in reserve requirements • Whenever in the opinion of the Monetary Board it becomes necessary to increase reserve requirements against existing liabilities. through the issuance. for the purpose of re-lending or purchasing of receivables and other obligations. 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. 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. RA 7653] Deposit substitutes • The term "deposit substitutes" is defined as an alternative form of obtaining funds from the public. or acceptance of debt instruments for the borrower's own account.
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. The Bangko Sentral shall represent the government with the International Monetary Fund and other financial institutions. [Section 118. which may act as agent of. the Government or its respective subdivisions or instrumentality. its political subdivisions and instrumentalities. its political subdivisions or instrumentalities may be made through the Bangko Sentral. RA 7653] • Servicing and redemption of public debt • The servicing and redemption of the public debt shall also be effected through the Bangko Sentral. but may intervene therein for the sole purpose of regulating their operations in the placing of government securities. and may related the size of the required margin to the nature of the transaction to be financed. . and for the account of. • Official deposits • The Bangko Sentral shall be the official depository of the Government. The Bangko Sentral shall not be a member of any stock exchange or syndicate.21 BANKING L AWS Margin requirements against letters of credit • The Monetary Board may at any time prescribe minimum cash margins for the opening of letters of credit. as the case may be. AS F UNCTIONS BANKER AND F INANCIAL 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 and instrumentalities as well as of government-owned or controlled corporations.
contemplates borrowing within the Philippines. Such opinion must similarly be requested by all political subdivisions and instrumentalities of the Government before any credit operation abroad is undertaken by them. credit and exchange policies of the Bangko Sentral. the price level. and shall not participate in the ownership or management of any enterprise. either directly or indirectly. and the balance of payments. financial and fiscal policies of the government and the monetary. Whenever the Government. the Government. In order to assure effective coordination between the economic. 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. The Bangko Sentral shall not engage in development banking or financing. [Section 129. in writing.22 BANKING L AWS Financial advice on official credit operations • Before undertaking any credit operation abroad. phase out all fiscal agency functions. or any of its political subdivisions or instrumentalities. 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. shall request the opinion. 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. RA 7653] . and transfer the same to the Department of Finance. through the Secretary of Finance. of the Monetary Board on the monetary implications of the contemplated action. • • P ROHIBITIONS Prohibitions • The Bangko Sentral shall not acquire shares of any kind or accept them as coolateral. • T RANSITORY P ROVISIONS Phaseout of fiscal agency functions • Unless circumstances warrant otherwise and approved by the Congress Oversight Committee.
337. from twenty or more lenders at any one time. Banks or banking institutions • Entities engaged in the lending of funds obtained from the public through the receipt of deposits of any kind. trust certificates.23 BANKING 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. through the issuance. certificates of assignment. or of repurchase agreements. endorsement or acceptance of debt instruments of any kind other than deposits. Banks or banking institutions must be duly authorized by the Monetary Board of the Central Bank. RA 7653] G ENERAL BANKING A CT Republic Act No. [Section 130. for purposes of re-lending or purchasing of . • • Quasi-banking functions • “Quasi-banking functions” shall mean borrowing funds. the same to be assumed by the Securities and Exchange Commission. 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. or through the issuance of participations. Public shall mean twenty or more lenders. and all entities regularly conducting such operation.
acquired by them or otherwise coursed through them. either for their own account or for the account of others. Financial intermediaries • “Financial intermediaries” shall mean persons or entities whose principal functions include the lending. 3. . whether any of these means of obtaining funds from the public is done on a regular basis or occasionally. building and loan associations. and non-stock savings and loan associations. 4. interest rate ceilings.24 BANKING L AWS receivables and other obligations. reserve requirements. methods of computation thereof. 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. Entities regularly engaged in the lending of funds or purchasing of receivables or other obligations with funds obtained from the public through the issuance. • However. and other non-financial companies. 2. 3. trust certificates. endorsement or acceptance of debt instruments of any kind for their own account. 2. or of repurchase agreements. • These entities will be subject to regulation by the Monetary Board which may include. but need not be limited to: 1. the imposition of net worth to risk assets ratios. or through the issuance of certificates of assignment or similar instruments with recourse. shall not be considered as performing quasibanking functions. 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. Entities regularly engaged in the lending of funds which receive deposits occasionally. commercial. Trust companies. industrial. investing or placement of funds or evidence of indebtedness or equity deposited with them.
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. • minimum size of funds received. but need not be limited to. Note: Sec. or b) engaged in other types of financial intermediation shall be decided by the Monetary Board. 4. In some instances. 3. 2.25 BANKING L AWS 5. shall be subject to regulation by the Monetary Board which may include. the imposition of constraints covering the: 1. 7. 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. 6. these entities may be subject to special examination. except insurance companies. If such entities are authorized by the Central Bank to perform quasi-banking functions. subject to judicial review. Determination of functions • The determination of whether a person or an entity is a) performing banking or quasibanking functions. minimum capitalization. they may be further subject to regulation as discussed below. 130 of the CB Act phasing out the regulation of MB over NBFCs not engaged in quasi-banking functions. methods of marketing and distribution. modes or standards are to be applied. prescribing charges which may be collected. Non-bank financial intermediaries • The operations and activities of non-bank financial intermediaries. . and submission of statistical reports. terms and maturities of funds received.
the money deposited cannot be withdrawn. savings banks and even rural banks. Note: As a general rule. and inquiring into the solvency and liquidity of the institution. . are allowed by the CB to accept checking accounts because their capitalizaition may be large. 3. the relationship between the bank and the depositor is that of a debtor and creditor. Time Deposit-Interest rate stipulated depending on the number of days. The bank uses this money to lend to others. The bank can lend out such funds. 219 SCRA 426 (1983)] • Types of deposits 1. the depositor is paid higher rates of interest for the use of the money. 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. investigating or examining to determine whether an institution is conducting its business on a sound financial basis. CA . only commercial banks can accept demand deposits on checking accounts. 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. In other words. 2.26 BANKING L AWS Supervision • “Supervision” shall include not only the issuance of rules but also the overseeing to ascertain that regulations are complied with. that is why it pays interests on such deposits. It is called demand deposit because the depositor can withdraw the money deposited on the very same day when he deposited it. Savings deposit-Interest fixed under the fine prints. In the case of rent of safety deposit box. By way of exception.No interest is fixed by the bank because the depositor can take out his funds any time. if one deposits today. That is why in these accounts. he cannot withdraw the amount not until 60 days later. v. 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. During this period. Corp. [CA Agro-industrial Dev. Demand deposit or current accounts.
The exception is with the banks aside from the 90-day equity redemption period.” 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. and recover interest deducted in advance. There is only 90 day equity redemption period. The market mechanism is intended to provide quick mobility of money and securities. banks are required to give a one-year redemption period. it must be prohibited from bidding. It involves “commercial papers” which are instruments “evidencing indebtedness of any person or entity… which are issued. with or without recourse. Foreclosure of mortgage• The general rule is that there is no right of redemption in judicial foreclosure of mortgage. • 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. plus 70 %of the appraised value of the improvements with title to the property being with the mortgagor. endorsed. • • • The General Banking Act discriminates against banks in two aspects 1. Insofar as banks are concerned. Mortgage loans • Loans against real estate security shall not exceed 70% of the appraised value of the real estate security. 2. The debtor can compel the creditor bank to accept payment of a debt before it is due. .” The money market is an “impersonal market” free from personal considerations. sold or transferred or in any manner conveyed to another person or entity. If the mortgage was not within the normal banking transaction.27 BANKING 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.Under the Civil Code. Period. a period is presumed to be for the benefit of both parties. the period is always for the benefit of the debtor if the bank is the creditor.
Commercial banks Thrift banks a. if unsettled after seven (7) calendar days. shall be reported by the Central Bank to the Preside who shall immediately certify the same to the appropriate court. under its official seal. 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. except building and loan associations. b. any strike or lockout involving banks. government agency or commission for resolution. 2. or any amendment thereto. No banking institution shall issue no-par value stock. • • • . notwithstanding the provisions of any law to the contrary. OF E STABLISHMENT D OMESTIC B ANKS Form of organization • Domestic banking institutions.28 BANKING L AWS • Loans on the security of chattels shall not exceed 50% of the appraised value of the security. The Securities and Exchange Commission shall not register the articles of incorporation of any bank. 3. 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. c. 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.
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. at the time of approval of the General Banking Act. with the approval of the President. The Monetary Board may. that the public interest and economic conditions. increase the percentage of foreign-owned voting stocks in any domestic bank from thirty percent (30%) to forty percent (40%). 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. shall not apply to branches and agencies of foreign banks which. however. and that the amount of capital.29 BANKING 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. both general and local. 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. • • 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. direction and administration. After approval of the Act. unless incorporated under the laws of the Republic 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. are actually receiving deposits. Receipt and disposition of deposits • No bank which may be established and licensed to do business in the Philippines shall receive deposits. This prohibition. or b) the consolidation of existing banks in any of which there are foreign owned voting stocks at the time of consolidation. the financing organization. justify the authorization. • . 3. 2.
Public and economic conditions. Ownership of stocks in banks by corporations • The total voting stocks which any corporation. both general and local. justify the issuance of such order. A duly appointed agent in the Philippines has been authorized to accept summons and legal processes. 3. organized or existing under any law other than those of the Philippines shall be permitted to transact business in the Philippines. OF • L ICENSING F OREIGN B ANKS License to conduct business • No foreign bank or banking corporation formed. upon order of the Monetary Board. No foreign building and loan association or building and loan association not formed. by any one person or by persons related to each other within the third degree of consanguinity or affinity. until after it shall have obtained. a license for that purpose from the Securities and Exchange Commission. or maintain by itself or assignee any suit for the recovery of any debt. including its wholly or majority owned subsidiaries. or existing under the laws of the Philippines shall be permitted to transact business in the Philippines. In the case of a corporation which is wholly owned. or demand whatsoever. that corporation may own not more than twenty percent (20%) of the voting stock of any bank. In the case of corporations owning bank shares. The foreign bank or banking corporation is solvent and in sound financial condition. the citizenship of each stockholder in that corporation shall be the basis of computing the percentage. claims. may own in any bank shall not exceed thirty percent (30%) of the voting stock of that bank. • Requisites for issuance of license 1. organized. . 2.30 BANKING 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. or the majority of the voting stock of which is owned.
and other evidences of debts. 2. 2. OF C LASSIFICATION P RIVATE BANKS AND C OMMERCIAL BANKING C ORPORATIONS Commercial bank • U NIVERSAL BANKS A commercial banking corporation. drafts. With prior approval of the Central Bank. by receiving deposits. by discounting and negotiating promissory notes. in addition to the general powers incident to corporations. • A commercial bank may also accept or create demand deposits subject to withdrawal by check. A commercial bank may offer NOW accounts (special types of savings deposit which can • . The foreign bank is in imminent danger of insolvency. Revocation of license 1. may invest. 4. including their wholly or majority owned subsidiaries and their holding companies having majority holding in such foreign banking institutions. by buying and selling foreign exchange and gold or silver bullion. these foreign entities may also purchase equities in domestic banks. subject to restrictions. However. in equities of local companies engaged in financial allied undertakings. Its continuance in business will involve probable loss to those transacting business with it. with prior approval of the Monetary Board. 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. they shall maintain minority participation in such enterprise. bills of exchange. shall have all such powers as shall be necessary to carry on the business of commercial banking: 1. 2.31 BANKING L AWS Investment rights 1. by accepting drafts and issuing letters of credit. Foreign banking institutions without branches in the Philippines. 3.
• Investment in allied undertakings • Commercial banks. Equity investments shall not be permitted in non-related activities. 4. Limitations on investments in allied undertakings: 1. may invest to the extent allowed under applicable law and regulations in equities of allied undertaking. Leasing companies Banks Investment houses Financing companies Credit card operations . A commercial bank. • • 2. whether financial or non-financial.32 BANKING L AWS be withdrawn by means of a Negotiable Order of Withdrawal and is offered only to natural persons). The equity investment in any one enterprise shall not exceed fifteen percent (15%) of the net worth of the bank. 3. • A commercial bank may likewise acquire readily marketable bonds and other debt securities subject to such rules as the Monetary Board may promulgate. 3. The total investment in equities shall not exceed twenty five percent (25%) of the net worth of the bank. including Government banks and foreign banks with existing local branches. The total equity investment of the bank in any single enterprise shall remain a minority holding in that enterprise. 4. 5. 2. • Financial allied undertakings 1. may invest in equities of allied undertakings. finally. 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.
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. 3.a commercial bank. 6.33 BANKING L AWS 6. invest in the equity of a non-allied undertaking. 4. to operate under an expanded commercial banking authority. By virtue of such expanded power. the universal bank may. 7. 8.to further national development objectives or support national priority projects -. 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. 2. a bank authorized to provide commercial banking services. 2. • Financial institutions catering to small and medium scale enterprises Non-financial allied undertakings 1. exercise the power of an Investment House as provided in PD 129. in addition to powers authorized for commercial banks: 1. • . 3. 9. Universal bank or expanded commercial banking authority • The Monetary Board may authorize -. as well as a government owned and controlled bank.
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. If performed directly. Subject to the prior approval of the Monetary Board. such functions shall be undertaken by a separate and distinct department in the bank. 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. If performed indirectly through an investment house. 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. universal bank may not directly exercise such powers as are exclusively reserved to investment houses. The total investment in equities shall not exceed fifty percent (50%) of the net worth of the bank. 3. • • Limitations on equity investment of a universal bank 1. or of its wholly. The equity investment of the bank.34 BANKING 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). 4.or majority-owned subsidiary. 2. • .5 billion Ownership in a thrift bank or rural bank • A commercial bank or any bank authorized to provide commercial banking services. Capitalization Commercial bank Universal bankP 2 billion P 4. 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.
35 BANKING 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. holding or conveyance of real estate • Any commercial bank may purchase. or assignment of. hold. decrees. Such as shall be necessary for its immediate accommodation in the transaction of its business. Purchase. from time to time. or the title and possession of any real estate purchased to secure any debt due to it. deposits maintained in the lending bank and held in the Philippines. and Other non-risk items which the Monetary Board may. Cash on hand. • However. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. mortgages. 3. 2. and Such as its shall purchase at sales under judgments. for a longer period than five years. authorize to be deducted from total assets. 4. Evidence of indebtedness of the Philippine Government or Central Bank or any other evidence of indebtedness fully guaranteed by the Philippine Government. 5. 6. 2. Loans to the extend covered by hold-out on. or trust deeds held by it and such as it shall purchase to secure debts due to it. no such bank shall hold the possession of any real estate under mortgage or trust deed. 3. . • 4. Such as shall be mortgaged to it in good faith by way of security for debts. Loans or acceptances under letters of credit to the extend covered by marginal deposits. Amounts due from the Central Bank. and convey real estate for the following purposes: 1.
2. 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. or medium. A bank and its branches shall be treated as a unit. . and other forms of security or in loans for personal and household finance. Purchase. bonds. Act as correspondent for other financial institutions. and accounts receivables. bills of exchange. with the prior approval of the Monetary Board. in commercial papers. and in such other investments and loans which the Monetary Board will determine as necessary in the furtherance of national economic objectives. chattel mortgage. services. or in financing for home building and home development. and Providing diversified financial and allied services for its chosen market and constituencies especially for small and medium enterprises and individuals. acceptances or notes arising out of commercial transactions. Scope of authority • Thrift banks may: 1. Providing short term working capital. hold and convey real estate. whether secured or unsecured. private development banks. drafts. Accept savings and time deposits. industry and housing. 3. in readily marketable and debt securities. mortgages in real estate and insured improvements thereon. and stock savings and loan associations organized under existing laws and any banking corporation that may be organized for the following purposes: 1. Accumulating the savings of depositors and investing them together with capital loans secured by bonds. establish branches in the Philippines or branches and agencies outside the Philippines.36 BANKING L AWS Establishment of branches • Any commercial bank organized under Philippine laws may. 3. 2.and long-term financing to businesses engaged in agriculture. • T HRIFT BANKS Thrift banks • “Thrift banks” shall include savings and mortgage banks.
6. Rediscount papers with the PNB. and other GOCCs. 8. c. Extend credit against the security of jewelry. b. 13. Issue mortgage and chattel certificates. Invest in marketable bonds and other debt securities. Grant loans. Accept foreign currency deposits. 10. secured or not secured. Engage in quasi-banking and money market operations. and Offer NOW accounts. e. 7. and With prior approval of the Monetary Board: a. DBP. Act as official depository of national agencies and municipal. Capitalization • Capitalization may vary according to the location of the head office: Within Metro Manila Outside Metro Manila P250 million P 40 million . Issue domestic letters of credit. 12.37 BANKING L AWS 4. extend credit facilities to private and government employees. 5. 11. precious stones and similar articles. 9. LBP. Open letters of credit. city or provincial funds where the bank is located. • Thrift banks may perform services similar to those offered by commercial banks under an expanded authority when permitted by the Bangko Sentral ng Pilipinas. d. Open current or checking accounts. Invest in equity of allied undertakings. Act as collection agent for government entities. f.
once reduced. the resulting holding shall not be increased but may be reduced and. AND • B UILDING L OAN A SSOCIATIONS 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. then such payment shall be made only to the guardian. 3. Exception: In case of merger or consolidation of existing Thrift Banks with foreign holdings. If the guardian shall give notice in writing to any thrift bank not to make payments of deposits. 7. 6. dividends or interest to the minor of whom he is the guardian.38 BANKING 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. 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. equal periodical payments and whose purpose is: . 4. shall not be increased thereafter beyond 60% of the voting stock of the Thrift Bank. 5. and may receive dividends and interests.
cancelled. 3. convent. to encourage industry.39 BANKING L AWS 1. periodical payments known as dues. Capital stock • The capital stock of such associations shall be paid in by the stockholders in regular. Monetary Board may grant exemptions in cases of public hall. and to loan its funds. 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. 4. frugality. club. hotel. . Matured value is when the due paid on each share and the net earnings thereof. or other public building. school. at such times and in such amounts as shall be provided in their by laws. equal. 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. shall amount to the matured of the share. school. to repay to said stockholders their accumulated savings and profits upon surrender of their shares. Investment in bonds • With the approval of the Monetary Board. and funds borrowed for the purpose. and home building among its stockholders. 2. 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. to accumulate the savings of its stockholders. public hall. or forfeited or until the share has reached its matured value. hotel and other public buildings to facilitate the investment of idle funds. 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. • • 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. or GOCCs. in accordance with the by laws. church.
• Free shares and pledged shares • Shares which have not been pledged as security for the payment of a loan shall be called “free” shares.” 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. merchants. After they are fully paid. private and public employees. after giving sixty (60) days’ notice to the board. Ac as correspondent bank of other financial institutions.” and shares which have been so pledged shall be called “pledged shares. relationship between the association and stockholder is changed into that of debtor and creditor. Extend loans and advances primarily for the purpose of meeting the normal and credit needs of farmers. or farm families as well as cooperatives. 2. Accept savings and time deposits. fishermen. . the shares are called installment shares. paid-up shares • While still being paid. Once paid-up. 3. they are called paid-up shares. 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. Stockholders who have not paid twelve (12) monthly installments of dues may.40 BANKING L AWS Installment shares v. surrender their shares and withdraw from the association. • R URAL B ANKS Scope of authority • A rural bank may perform any or all of the following services: 1.
and With prior approval of the Monetary Board: a. 8. Accept NOW accounts.41 BANKING L AWS 4. 2. Act as a collection agent. Capital stock • With the exception of shareholdings of corporations organized primarily to hold equities in rural banks. Sell domestic drafts. A more equitable distribution of opportunities. and An expanding productivity as a key to raising the quality of life for all. A sustained increase of goods and services produced by the nation for the benefit of the people. 5. e. Rediscount paper with the LBP. 3. the capital stock of any rural bank shall be fully-owned and held by Philippine citizens or entities qualified under Phil. c. Accept current or checking accounts. d. Extend financial assistance to private and public employees in accordance with RA 3779. Offer other banking services as provided in Section 772 of RA 337. Act as official government depository. and Invest in allied undertakings. b. or any other bank. Rationale • The rationale behind rural banking system is the need to promote comprehensive rural development with the end in view of the following: 1. . Act as trustee over estates or properties of farmers and merchants. including its branches and agencies. income and wealth. and of Filipino-controlled domestic banks. DBP. 6. as amended. 7. as amended. • This can be achieved by making credit available and readily accessible in the rural areas. f.
consultant or in any capacity in the bank. Incentives • Foreclosure of mortgages exempt from newspaper publication requirements if the loan. except corporate income taxes and local taxes. competitive. excluding interest due and unpaid. Board • • All members of the BOD shall be Filipino citizens. Develop a self-reliant and independent national economy effectively controlled by Filipinos. does not exceed P100. efficient and dynamic banking and financial system. Free from notarization fees Free from registration fees and DST in RD. 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. fees and charges for aperiod of five years from the date of commencement of operations. officer. 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. • Pursuant to this policy. and Encourage. there is no prohibition against any appointive or elective public official from serving as director. promote and maintain a stable. • • • A CT L IBERALIZING E NTRY OF FOREIGN BANKS Republic Act No. 2. . fees and charges of whatever nautre and description.000. However.42 BANKING L AWS law to own and hold such capital stock. Exempt from payment of all taxes.
Monetary Board shall adopt such measures as may be necessary: • . study the demonstrated capacity. and consider willingness to fully share their technology. however. by acquiring. 3. 2. or by establishing branches with full banking authority. 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. • A foreign bank or a Philippine corporation. 4. consider strategic trade and investment relationships between the Philippines and the country of incorporation of the foreign bank.43 BANKING L AWS • In allowing increased foreign participation in the financial system. 5. • 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. ensure geographic representation and complementation. Guidelines for entry • In approving entry applications of foreign banks. In approving entry. purchasing or owning up to sixty percent (60%) of the voting stock of an existing bank. see to it that reciprocity rights are enjoyed by Philippine banks in the applicant’s country. it shall be the policy of the State that the financial system shall remain effectively controlled by Filipinos. 2. 3. may own up to sixty percent (60%) of the voting stock of only one domestic bank or new banking subsidiary. by investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under Philippine laws. the Monetary Board shall: 1. global reputation for financial innovations and stability in a competitive environment of the applicant.
The permanently assigned capital shall be inwardly remitted and converted into Philippine currency. at all times. prevent a dominant market position by one bank or the concentration of economic power in one or more financial institutions. • • Branches • A foreign bank shall be entitled to three (3) branches upon remittance of minimum capital requirement. dollar equivalent of P35. partnerships. or in corporations.44 BANKING L AWS 1.S. • • . 3.000. they shall permanently assign capital of not less than the U. 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. dollar equivalent of P210. to ensure that. 2. 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. Capital requirements • Locally incorporated subsidiaries shall have the same minimum capital requirements as domestic banks of the same category.00 at the exchange rate on the date of effectivity of this law. 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.00 per additional branch at the exchange rate on the date of effectivity of this law. the foreign bank applicant must be widely-owned and publicly-listed in its country of origin. For foreign bank branches.000.000.000. unless the foreign bank applicant is owned by the government of its country of origin. Total number of branches for each new foreign bank entrant shall not exceed six (6). • To qualify to establish a branch or subsidiary. groups or individuals with related interests.S.
enjoy the same privileges. and be subject to the same limitations imposed upon a Philippine bank of the same category. . Deposits • Deposits shall mean funds in foreign currencies which are accepted and held by an offshore banking unit in the regular course of business. 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.45 BANKING L AWS Head office guarantee • The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches. subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Central Bank to transact offshore banking business in 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. Equal treatment • Foreign banks authorized to operate under the law shall perform the same functions. • OFFSHORE B ANKING SYSTEM L AW Presidential Decree No. These limits include. among others. with or without interest. Offshore banking unit • Offshore banking unit shall mean a branch. with the obligation to return an equivalent amount to the owner thereof.
5. duly supported by an appropriate resolution of its board of directors. • Certificate of authority to operate • The Monetary Board is authorized to issue certificates of authority to operate offshore banking units. management. the license to transact business under RA 6426 shall be deemed automatically withdrawn.46 BANKING 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. • • The Central Bank is authorized to collect a fee of not less than US $20. contribution to the Philippine economy. that. 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. among other things: . their branches. 3. liquidity and solvency position. and other relevant factors such as participation in equity of local commercial banks and appropriate geographic representation. 4.000 upon issuing any certificate of authority to operate and annually thereafter on the anniversary date of such certificate. 2. subsidiaries or affiliates. In issuing such certificate. 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. However. international banking expertise. net worth and resources. shall be qualified to operate offshore banking units in the Philippines. 6. the Monetary Board shall take into consideration the applicant’s: 1. upon their receipt of a corresponding certificate of authority to operate as an offshore banking unit.
5. but safeguards will be established to prevent circumvention of foreign exchange regulations. 3. Transactions of offshore banking units with residents of the Philippines. • Tax and other incentives • The provisions of any law to the contrary notwithstanding. shall be subject to applicable law and regulations. except net income from such transactions as may be specified by the Secretary of Finance. 4. upon recommendation of the Monetary Board. including those with local commercial banks and local branches of foreign banks authorized to receive foreign currency deposits under RA 6426. it will. provide the necessary specified currencies to cover liquidity needs that may arise or other shortfall that its offshore banking unit may incur.000. Any income of non-residents from transactions with said offshore banking units shall be • • . it will provide and maintain in its offshore banking unit net office funds in the minimum amount of US $ 1. the operations of its offshore banking unit shall be managed soundly and with prudence. 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. shall likewise be subject to the same tax. Transactions of offshore banking units • Transactions of offshore banking units with non-residents or with other offshore banking units shall be freely allowed. to be subject to the usual income tax payable by banks.47 BANKING L AWS 1. on demand. including branches of foreign banks that may be authorized by the Central Bank to transact business with offshore banking units. 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. 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 transactions of offshore banking units with local commercial banks.000. 2.
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. foreign currencies which are acceptable as part of the international reserve. The provisions of RA 1405 or the Law on Secrecy of Bank Deposits shall apply to deposits in offshore banking units. 3. interest income from loans granted to such residents shall be subject only to a ten percent (10%) withholding tax as final tax.48 BANKING L AWS exempt from any tax. To accept deposits and to accept foreign currencies in trust. • 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). Authority of the banks to accept foreign currency deposits • The banks designated by the Central Bank shall have the authority: 1. • FOREIGN C URRENCY DEPOSIT A CT Republic Act No. as may upon application be designated by the Central Bank for the purpose. To issue certificates to evidence such deposits. Effect of certain laws • The Usury Law. and PDIC law shall not apply to transactions and/or deposits in offshore banking units in the Philippines. 2. 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. To discount said certificates. 6426. Uniform Currency Law. natural or juridical. may deposit with such Philippine banks in good standing. .
and To pay interest in foreign currency on such deposits. Foreign currency cover shall be in the same currency as that of the corresponding foreign currency deposit liability. unless the Monetary Board may otherwise prescribe or allow. 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. on account of their net worth. 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. 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. or other pertinent criteria.49 BANKING L AWS 4. . • • • • • 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. and if requested. which loans or securities shall be of short term maturities and readily marketable. To accept said deposits as collaterals for loans subject to such rules and regulations as may be promulgated by the Central Bank. The Central Bank may pay interest on the foreign currency deposit. 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. past performance. shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depositary banks. have been qualified by the Monetary Board to function under an expanded foreign currency deposit system. resources. 5.
government agency or any administrative body whatsoever. 960 exempts foreign currency deposits from attachment. as amended by PD 1305. as well as foreign currency deposits authorized under PD 1034. . but the latter refused arguing that Section 11 of Central Bank Circular No.50 BANKING L AWS Tax exemption • All foreign currency deposits made under RA 6426. including interest and all other income or earnings of such deposits. Police recovered from him several dollar checks and a dollar account in the China Banking Corp.00. however. inquired or looked into by any person. irrespective of whether or not they are engaged in trade or business in the Philippines. are hereby declared as and considered of an absolutely confidential nature and. able to escape from prison. garnishment. Central Bank of the Philippines 278 SCRA 27 FACTS: Greg Bartelli. in no instance shall foreign currency deposits be examined. Salvacion v.000. exemplary and attorney’s fees amounting to almost P1. or any administrative body whatsoever. Secrecy of foreign currency deposits • All foreign currency deposits authorized under RA 6426. In a civil case filed against him. or any other order or process of any court. government official. 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. the trial court awarded Salvacion moral. garnishment. bureau or entity whether public or private. or any other order or process of any court. Unlike the Law on Secrecy of Banks Deposits Act. there is only one exception for foreign currency deposits and that is when there is a written permission from the depositor. legislative body. as amended. as well as foreign currency deposits authorized under PD 1304. an American tourist. garnishment and other process • Foreign currency deposits shall be exempt from attachment. government agency. except upon the written permission of the depositor. • Exemption from attachment. Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the China Banking Corp. was arrested for committing four counts of rape and serious illegal detention against Karen Salvacion. He was. in the case of nonresidents.000. legislative body.
garnishment or other court processes. injustice would result especially to a citizen aggrieved by a foreign guest like accused Greg Bartelli. 6426. government agency or any administrative body whatsoever.51 BANKING L AWS Salvacion therefore filed this action for declaratory relief in the Supreme Court. 6426 is not anymore present. ISSUE: Should Section 113 of Central Bank Circular No. 960 which exempts from attachment. the questioned law still denies those entitled to due process of law for being unreasonable and oppressive. or any other order or process of any court. or the Charter of the Philippine Deposit Insurance Corporation. 6426. subsequently. therefore. garnishment. as amended by PD 1246. 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. the foreign currency deposit made by a transient or a tourist is not the kind of deposit encouraged by PD Nos. it is presumed that the lawmaking body intended right and justice to prevail. 1246 against attachment. RATIO: Supreme Court ruled that the questioned law makes futile the favorable judgment and award of damages that Salvacion and her parents fully deserve.”” Deposit insurance coverage • The deposits under RA 6426 shall be insured under the provisions of RA 3591. Further. the application of the law depends on the extent of its justice. 960 and PD 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. Considering that Bartelli is just a tourist or a transient. 960 and Section 8 of Republic Act No. The intention of the law may be good when enacted. insofar as it amends Section 8 of Republic Act No. 960 and PD No. and even if it still exists. However. 1246. will maintain his deposit in the bank only for a short time. he is not entitled to the protection of Section 113 of Central Bank Circular No. are hereby held to be INAPPLICABLE to this case because of its peculiar circumstances. Eventually. to give the latter protection. as amended. The law failed to anticipate the iniquitous effects producing outright injustice and inequality such as the case before us. the SC said: “In fine. legislative body. 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. It then proceeded to show that the economic basis for the enactment of RA 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. This would negate Article 10 of the New Civil Code which provides that “in case of doubt in the interpretation or application of laws. if we rule that the questioned Section 113 of Central Bank Circular No. is applicable to a foreign transient. .
Provided further. check and/or certificate of deposit. • 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. the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the bank. that. subject to the approval of the Board of Directors. • • .52 BANKING L AWS • Insurance payment shall be in the same currency in which the insured deposits are denominated. 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. printed or issue in accordance with Central Bank rules and regulations and other applicable laws. checking. savings. 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. time or thrift account or which is evidenced by a passbook. consistent with banking usages and practices. PDIC may also be appointed as receiver of a banking institution. together with such other obligations of the bank which. 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. A CT C REATING THE PHILIPPINE DEPOSIT I NSURANCE C ORPORATION Republic Act No.
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. savings and time deposits. he can only recover up to P100.000). Therefore. and the insurance coverage shall extend to such computed amount.000 for each depositor. and The liability of PDIC to each depositor shall be payable in Philippine pesos in the amount of insurance coverage as computed above. 2. executor. 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. guardian or agent. • . All these types of deposits are covered: demand. but in no case to exceed P40.000. Trust funds • The term means funds held by an insured bank in a fiduciary capacity and include. 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. administrator. In determining such amount due to any depositor. without being limited to. if a depositor has all three types of accounts.000. Banks and its branches considered as one unit. Trust funds are not considered as insured deposits.53 BANKING 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. the maximum amount of insured deposit for every depositor is only P100. funds as trustee. 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. He is considered as one depositor. • • • Insurance of deposits in foreign currency • • Deposit obligations in foreign currency of any insured bank are likewise insured. The provisions of any law to the contrary notwithstanding.
The object of the CDO is to protect depositors and the PDIC against existing or potential • . shall continue to be insured for a period of 90 days. depositors and its shareholders or even the depletion of the Insurance Fund administered by the PDIC. the insured status of such bank shall be terminated by the Board of Directors. After the termination of the insured status of the bank. (b) violations of any law or regulation to which the insured bank is subject. Should any bank fail or refuse to pay any assessment required to be paid by such bank. • • • Unsafe or unsound practices • These refer to any action or lack of action which is contrary to generally accepted standards of prudent operation. • Termination of insured status • Two instances: when it fails or refuses to pay assessment and when it becomes insolvent. if continued. or (c) violations of the provisions of RA 3591. would result in abnormal risk of loss or damage to a bank. shall be insured with the PDIC. or its directors or agents to correct (a) unsafe or unsound practices in conducting the business of the bank. deposits of each depositor in the bank.54 BANKING L AWS Deposit insurance coverage • The deposit liabilities of any bank or banking institution. which is engaged in the business of receiving deposits. to a member insured bank. and should the bank not correct such failure or refusal within 30 days after written notice has been given by the PDIC. through its Board of Directors. 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. as amended or any order. Coverage is compulsory. Cease and desist order (CDO) • A cease and desist order shall refer to the Order issued by PDIC. less all subsequent withdrawals from any deposits of such depositor. 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.
PDIC may require the final determination of a court of competent jurisdiction before paying such claim. Provided. If it is not satisfied. • . Payments made by PDIC shall be considered as a preferred credit similar to taxes. Payment of insured deposit • An insured bank shall be deemed closed on account of insolvency when ordered closed by the Monetary Board. upon payment. shall thereupon revert to the depositor. 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. 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. all rights of the depositor against the PDIC with respect to the insured deposit shall be barred. • • • Bar of claim by depositor • If. Whenever an insured bank shall have been closed on account of insolvency. • Subrogation • The PDIC. Depositor shall retain his claim against the bank for any uninsured portion of his deposit. 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. Proof of claims may be required by PDIC before 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.55 BANKING L AWS risk exposures from said practices or violations. that the claimant shall enforce his duly filed claim against the PDIC within one year after the eighteen-month period heretofore mentioned. shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment.
. and administer such assets and liabilities for the benefit of the depositors and creditors of said bank. as well as the duty to gather. 2. 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. Provide financial assistance to an insured bank in danger of closing. as amended. debentures and other obligations with the approval of the President of the Philippines. and to continue into liquidation whenever authorized under RA 3591. or other laws. person. 3. Issue bonds. Act as receiver of any banking corporation. T HE T RUTH IN L ENDING A CT Republic Act No. Receiver • Receiver includes a receiver.56 BANKING 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. 4. preserve. 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. Other powers of PDIC 1. and to dispose of the assets and to wind up the affairs of such bank. commission. Borrow from the Central Bank and from any bank designated as depository or fiscal agent of the Philippine Government.
Credit • “Credit” means any loan. a clear statement in writing setting forth the following information: 1. or leasing of property. either as principal or as agent) who requires as an incident to the extension of credit the payment of a finance charge. either for present or future delivery. any option. Creditor • “Creditor” means any person engaged in the business of extending credit (including any person who. 3. or any credit upon the security of. or sale or contract of sale of property or services. any obligation or claim arising out of any of the foregoing. individually itemized. any contract to sell. fees. demand. prior to the consummation of transaction. under which part or all of the price is payable subsequent to the making of such sale or contract. property or money. any rental purchase contract. 4. or discount. 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. lien. deed of trust. service charges discounts. . any conditional sales contract. and any transaction or series of transactions having a similar purpose or effect. the difference between the amounts set forth under clauses (1) and (2). mortgage. 2. bailment. the amounts. the total amount to be financed. Disclosure of finance charges • Any creditor shall furnish to each person to whom credit is extended. the charges. and such other charges incident to the extension of credit. any purchase. 6. and 5. any contract or arrangement for the hire. makes loans or sells or rents property or services on a time. to be credited as downpayment and/or trade in. or for the delivery of. the cash price or delivered price of the property or service to be acquired. or installment basis. if any. or other acquisition of. as a regular business practice. pledge of other claim against. credit.57 BANKING L AWS Finance charge • “Finance charge” includes interest. advance. the finance charge expressed in terms of pesos and centavos.
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. except that such liability shall not exceed P2000 on any credit transaction. otherwise known as the Truth in Lending Act. fails to disclose to any person any information in violation of Republic Act No. Court of Appeals G. The promissory notes signed by private respondents do not contain any stipulation on the . 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. 91494. in the case at bar. Consolidated Bank was not allowed to collect from the private respondents handling charges because it failed to conform to the Truth in Lending Act. 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. Consolidated Bank and Trust Corporation v. whichever is greater. or both. Penalty for failure to disclose prescribed information • Any creditor who. 14 July 1995 Banks are allowed to collect handling charges on loans over P500. However. No. 3765. In any such action in which any person is entitled to a recovery. the creditor shall be liable for reasonable attorney’s fees and court costs as determined by the court. 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. and shall make the true and effective cost of borrowing an integral part of every loan contract. 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.58 BANKING L AWS 7. or imprisonment for not less than six (6) months nor more than one year.000 with a maturity of 730 days or less. in connection with any credit transaction.R. • Effect of non-disclosure on contract or transaction • It shall not affect the validity or enforceability of any contract or transaction.
the financing transactions that is regulated by Republic Act No. while in a financing transaction under Republic Act No. which were prepared by IHMI. The latter imposed and collected the total sum of P325. Inc. The use of the words “finance charge. namely: (1) the installment buyer. discounting or factoring of promissory notes and sales on credit or installment.” “Finance Rate. No. there are three parties involved. Petitioner bank. Medina G.” 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.” “Total Amount Finance. Jr. ruling that IHMI is not engaged in the business of a financing company. In the Retail Notes Analysis. Evidently.” and “Date Finance Begun.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. The seller assigns the notes or discounts them with a financing company which is . purchase on installment 24 truck engines from International Harvester Macleod.” to denote certain entries therein. While the increased price of the sale included a “financing charge. Inc. 5980. v.59 BANKING L AWS payment of handling charges. (IHMI). The Supreme Court reversed. IHMI did not purchase from itself the Retail Notes Analysis executed by Medina.” “financing. therefore. namely: IHMI and Medina. (2) the seller. The trial court ruled that IHMI imposed and collected the amount of P325. The buyer executes a note or notes for the unpaid balance of the price of the thing purchased by him on installment. IHMI correctly pointed out that its transaction with Medina differs from a financing transaction under Republic Act No.” 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. 5980 involves the buying. delivered to. 5980 or the Finance Company Act. 33623. and (3) the financing company.” 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. IHMI used the works “Finance Income Unearned. International Harvester Macleod.” “Rate per year. IHMI only extended credit to Medina by allowing him to pay for the 24 truck engines in installment. 5980 in that there were only two parties in its transaction with Medina.R.596 as finance charges on the installment sales as evidenced by a Retail Notes Analysis and covering transmittal letters. and signed by Medina. cannot charge private respondent such handling charges. 22 March 1990 Mariano Medina.
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. bureau or office. The transaction was bilateral. factoring or assignment of IHMI’s credit against Medina to a finance company. 1405. RA 1405] Exceptions 1. L AW ON SECRECY OF B ANK DEPOSITS Republic Act No. [Section 2. 5980. not a financing company. government official. including: a. any information concerning said deposits. Medina made his installment payments or amortization to IHMI and not to a financing company. No financing company stepped into the shoes of IHMI as assignee or purchaser of IHMI’s credit against Medina. it did not need SEC authorization to engage in it.60 BANKING L AWS subrogated in the place of the seller as creditor of the installment buyer. not trilateral. Medina himself. other than those mentioned in Section 2 hereof. 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. Since IHMI’s business of selling trucks in installment is not the business of a financing company under Republic Act No. and . [Section 1. in determining estate of a decedent. RA 1405] It shall be unlawful for any official or employee of a bank to disclose to any person. as amended An act prohibiting disclosure of or inquiry into. are hereby considered as of an absolutely confidential nature and may not be examined. [Section 3. its political subdivisions and its instrumentalities. paid IHMI for the truck engines. inquired or looked into by any person. The transaction between IHMI and Medina did not involve any discounting. Upon written permission of the depositor.
et. invoking Section 2 of Republic Act No. 30 September 1965 FACTS: Emilio Gancayco and Florentino Flor. Gancayco. to wit: “Section 8. RA 1405] Tatalon Barrio Council v. tax compromise cases. [Section 5. 1405. 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. as special prosecutors of the Department of Justice. Chief Accountant. the Supreme Court ruled that savings and current accounts are privileged documents which fall within the protection of Republic Act No. particularly Section 8 therewith. In cases where the money deposited or invested is the subject matter of the litigation. and Cases of unexplained wealth under Republic Act No. 18360. In cases of impeachment. . required the Philippine National Bank to produce at a hearing the records of the bank deposits of Ernesto Jimenez. al. in the discretion of the court. former administrator of the Agricultural Credit and Cooperative Administration. 3019 or the Anti-Graft and Corrupt Practices Act. the prosecutors cited the Anti-Graft and Corrupt Practices Act. 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 (P20.000) or both. 5. 1405. 18343. PNB refused to disclose his bank deposits. who was then under investigation for unexplained wealth.61 BANKING L AWS b. Gancayco GR No. Upon order of a competent court in cases of bribery or dereliction of duty of public officials. 3. On the other hand. Dismissal due to unexplained wealth.If in accordance with the provisions of . 31 January 1963 In this case. 4. This has since been overturned by the case of PNB v. and their disclosure can only be justified under any of the cases enumerated in Section 2 of the Act. 2. Philippine National Bank v. GR No.
may be taken into consideration. a public official has been found to have acquired during his incumbency. Republic Act No. this appeal. ISSUE: 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. while Section 2 of Republic Act No. 1405 provides that bank deposits are “absolutely confidential … and. Thus. notwithstanding any provision of law to the contrary. 1405 declares bank deposits to be “absolutely confidential. Bank deposits shall be taken into consideration in the enforcement of this section. Hence. 3019 (Anti-graft law) directs in mandatory terms that bank deposits “shall be taken into consideration in the enforcement of this section. may not be examined. (2) In cases of impeachment. 3019 provided another exception to Section 2 of Republic Act No. so far as relevant to his duty. notwithstanding any provision of law to the contrary. when their acquisition through legitimate means cannot be satisfactorily shown. 1405 and Republic Act No. 1405 by providing an additional exception to the rule against the disclosure of bank deposits. is open to public scrutiny. RATIO: No reconciliation is possible between Republic Act No. (4) In cases where the money deposited is the subject of the litigation. an amount of property and/or money manifestly out of proportion to his salary and to his other lawful income. The policy as to one cannot be different from the policy as to the other. Purisima . 1405.” 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. Properties in the name of the spouse and unmarried children of such public official. it is enough to point out that while Section 2 of Republic Act No. Banco Filipino Savings and Mortgage Bank v. inquired or looked into. 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.” it nevertheless allows such disclosure in the following instances: (1) Upon written permission of the depositor.” except in those cases enumerated therein. With regard to the claim that disclosure would be contrary to the policy making bank deposits confidential. (3) Upon order of a competent court in cases of bribery or dereliction of duty of public officials. Section 8 of Republic Act No. 3019 as the two laws are so repugnant to each other.62 BANKING L AWS RA 1379. 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. therefore. that fact shall be a ground for dismissal or removal. whether in his name or in the name of 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.
In PNB v. in the names of Caturla. 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. and restrict the inquiry only to property held by or in the name of the government official or employee. notwithstanding any provision of law to the contrary.” except in those cases enumerated therein. Section 8 of Republic Act No. During the preliminary investigation. but its ownership is concealed by its being recorded in the name of. 56429. 1405 provides that bank deposits are “absolutely confidential … and. may not be examined. of held by. 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. 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. or his spouse and unmarried children is unwarranted in the light .or property not legitimately acquired . 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. respondent’s spouse. savings and time deposits and other banking transactions.” The only conclusion possible is that Section 8 of the Anti-Graft Law is intended to amend Section 2 of Republic Act No. Purita. 3019 (Anti-graft law) directs in mandatory terms that bank deposits “shall be taken into consideration in the enforcement of this section. Thus this special civil action of certiorari in the SC. we ruled that: “while Section 2 of Republic Act No. the Tanodbayan issued a subpoena duces tecum to the Banco Filipino Savings and Mortgage Bank. 1405 by providing an additional exception to the rule against the disclosure of bank deposits. 28 May 1988 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. descendants.extends to cases where such property is concealed by being held by or recorded in the name of other persons. their children. inquired or looked into. and/or Pedro Escuyos. ascendants. 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. his wife. Gancayco.63 BANKING L AWS GR No. relatives or any other persons. In fact. To sustain the petitioner’s theory. therefore. The Banco Filipino filed an action for declaratory relief with the CFI of Manila which was denied by the lower court. Caturla moved to quash the subpoena for violating Sections 2 and 3 of RA 1405 which was denied by the Tanodbayan.” The inquiry into illegally acquired property .
had the occasion to dispose of this issue when it stated. This is an absurdity that we will not ascribe to the lawmakers. and would make available to persons in government who illegally acquire property an easy and fool-proof means of evading investigation and prosecution. The said check was also encashed by the sheriff the next day.64 BANKING L AWS of the provisions of the statutes in question. . Trial court rendered judgment in favor of Marinduque Mining Corporation. absent any patent defect. Ortega. Marinduque Mining thus filed a complaint before the RTC of Manila against PCIB and the deputy sheriff. but it was unsatisfied. in China Banking Corporation v. otherwise known as the Secrecy of Bank Deposits Act.466 which was the exact balance of the private respondent’s account as of that day. to wit: “It is clear from the discussion of the conference committee report on Senate Bill No. We find the immediate release of the funds by the petitioner bank on the strength of the notice of garnishment and writ of execution. and notwithstanding the alleged unauthorized disclosure of the said current deposit and unlawful release thereof. al. The Court. The SC first ruled that the release of the deposit by the bank was not done in undue and indecent haste. et. and with undue haste unlawfully allowed to be withdrawn. garnished. Philippine Commercial & Industrial Bank. v. al. whose issuance. 84526. Thus. otherwise known as the Secrecy of Bank Deposits Act. enjoys the presumption of regularity. The sheriff prepared on his own a Notice of Garnishment addressed to six banks in Bacolod City. GR no.466 to the former’s account despite repeated demands. the bank issued a manager’s check in the amount of P37. the Court of Appeals initially reversed the trial court’s order but later affirmed it. On appeal. including petitioner PCIB. The SC likewise did not find any violation whatsoever by the petitioners of RA 1405. The issue is whether or not the petitioners violated RA 1405. 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. this petition to the SC. 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. While the in house lawyer of the Corporation warned the PCIB to withhold any release of its deposit with the bank. the latter have failed and refused to restore the amount of P37.853 before the National Labor Relations Commission. directing the bank concerned to issue a check in satisfaction of the judgment. Court of Appeals. alleging that its current deposit with the petitioner bank was levied upon. et. A writ of execution was issued and the Deputy Sheriff served the writ. when they allowed the sheriff to garnish the deposit of Marinduque Mining Corporation? SC held no.
the wire sent by Mellon Bank to Manufacturers Hanover Bank.. It is hard to conceive that it was ever within the intention of Congress to enable debtors to evade payment of their just debts. launder and dissipate the erroneously sent amount. indicated the amount transferred as “US $1. Javier and her husband made withdrawals from the account. Unfortunately. the disclosure is purely incidental to the execution process. there is no real inquiry in such a case. we cannot therefore hold the petitioners liable under RA 1405. which later became Republic Act No. Among other things. to effect the transfer. et. USA. GR No.000 to Victoria Javier instead of US $1. USA which was the subject of an action for recovery by Mellon Bank. Later. These testimonies were . Dolores Ventosa requested the transfer of $1000 from the First National Bank of West Virginia. One of the things they bought was real property in California.00” instead of US $1. Mellon Bank. of Hongkong and Shanghai Banking Corporation were required to give testimonies with regard to the deposits and checks issued by the private respondents Javier.943. a duly authorized officer of the court.00. a correspondent of Prudential Bank. Magsino et. Erlinda Baylosis of the Philippine Veteran’s Bank and Pilologo Red. Immediately. USA to Victoria Javier in Manila through the Prudential Bank. Javier opened a new dollar account in Prudential Bank and deposited $999. and if existence of the deposit is disclosed. Mellon Bank v. even if ordered by the Court. 71479.” 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.30 to the Prudential Bank for the account of Victoria Javier. Jr.000 only.000. through the expedient of converting their assets into cash and depositing the same in a bank. With regard to our subject matter.000. including the purchase price of the real property located in the US.000. that the prohibition against examination of or inquiry into a bank deposit under Republic Act No. Manufacturers Hanover Bank transferred one million dollars less bank charges of $6. the First National Bank requested the petitioner. an action filed in California. Indeed. deposited them in several banks only to withdraw them later in an apparent plan to conceal.000. by virtue of the principle of election of remedies. Hence. 1405. 1405 does not preclude its being garnished to insure satisfaction of a judgment.65 BANKING L AWS 351 and House Bill No. private respondents raised the issue of whether or not. 18 October 1990 This case involves the erroneous transfer of US $1. al. 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. Accordingly. it filed a case in the Philippines for the recovery of the whole amount. 3977. 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. al. thereafter.
66 BANKING L AWS questioned for being immaterial and irrelevant as well as covered by RA 1405 on confidentiality. . Section 2 of said law allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation. 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. T HE I NVESTMENT H OUSES L AW Presidential Decree No.67 BANKING L AWS N ON-B ANK FINANCIAL I NTERMEDIARIES N ON-B ANK F INANCIAL I NTERMEDIARIES 1. The distribution and . in the underwriting of securities of another person or enterprise. 4. 5. 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. whether regularly or on an isolated basis. Decree No. • 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. Decree 129 Investment Company Act Republic Act No. General Banking Act 2. an investment house is defined an “any enterprise which engages or purports to engage. 3. Under its Rules and Regulations. 129 Governing the establishment. The Investment House Law Pres. including securities of the Government and its instrumentalities. as amended Pawnshops Pres. 114 Trust Corporations Chapter VII. 2629 Financing Company Act Republic Act No.
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: . if the stockholder is a corporation.000. • • • Capital requirements • In the case of newly-organized Investment Houses.000). the citizenship of the individual stockholders holding voting rights in that corporation. the minimum paid-in capital shall be three hundred million pesos (P300. In determining the percentage of foreign-owned voting stocks in 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. In approving foreign equity applications in Investment Houses. At least forty percent (40%) of the voting stock of any Investment House shall be owned by citizens of the Philippines. and. • Requirements for registration • The Securities and Exchange Commission shall not register the articles of incorporation of any Investment House. the basis for the computation shall be the citizenship of each stockholder. the SEC shall approve such applications only if the same or similar rights are enjoyed by Philippine nationals in the applicant’s country.68 BANKING L AWS sale may be on public or private placement basis. or any amendment thereto. 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. 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.
Act as financial consultant. experience and expertise of the organizers and the proposed managerial staff. 4. That the proposed enterprise will not be in conflict with public interest and economic growth. 337. 3. as well as the integrity. right or warrants relating to securities and such other powers which a dealer may exercise under the Securities Act. the proposed organization. Promote. block sales. Arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities. distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities.69 BANKING L AWS a. projects and programs that contribute to the economy’s development. c. as amended. That all the requirements of the PD 129 and of existing laws or regulations to engage in the business have been complied with. provide reasonable assurance that the enterprise will be conducted with financial prudence. or otherwise assist and implement ventures. or exchange offering of securities. 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. Prohibition • No Investment House shall engage in banking operations as defined in Section 2 of Republic Act No. or broker. and That the amount of capital. investment adviser. direction and administration. deal in options. Participate in a syndicate undertaking to purchase and sell. Powers of investment houses • In addition to the powers granted to corporations in general. an Investment House is authorized to do the following: 1. . 5. sponsor. 2. Participate as soliciting dealer or selling group member in tender offers. 6. b.
subject to applicable laws and regulations and with prior approval of the Monetary Board. the Board may require as a condition precedent the obtaining of a certificate of authority for the purpose from the Monetary Board. it may subject said Investment House to further regulations. c) interest rate ceilings. Whenever the Monetary Board authorizes an Investment House to engage in quasibanking functions. the provisions of Chapter IV of the Central Bank Charter. at its discretion. and d) uses of funds may be modified by the Monetary Board insofar as they apply to Investment Houses. and such rules and regulations as may be issued by the Monetary Board. 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. determine whether Investment Houses may be permitted to perform quasi-banking functions. The regulations which may include. Conversion into a commercial bank • An Investment House may be converted into a commercial bank authorized to operate under an expanded commercial banking authority. 9. and d) such other constraints as the Board may deem necessary. Act as trustee of a trust fund or trust property.70 BANKING L AWS 7. b) methods of marketing and distribution. If the Monetary Board decides to permit Investment Houses to engage in quasi-banking functions. Subject to prior approval by the Monetary Board. • • Dealer or broker • An Investment House may engage in the business of a dealer or a broker under the . c) terms of placement and maturities. but need not be limited to a) minimum size of fund acceptance or receipt. b) capital-to-risk assets ratios. subject to the provisions of the General Banking Act. • Quasi-banking powers • The Monetary Board may. 8. which may include but need not necessarily be limited to a) liquidity reserve requirements. Act as portfolio manager and/or financial agent. engage in foreign exchange operations.
The funds obtained will be used to invest in securities of other enterprises. sell. 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. or deliver after sale. retire. Open-end company . or trading in securities. Offer for sale. 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. redeem. . reinvesting. any security or any interest in any security. or otherwise acquire or attempt to acquire.71 BANKING L AWS Securities Act without obtaining a separate license for the purpose. any security. or any interest in any security.also called mutual funds Closed-end company Powers and functions 1. whether the issuer of such 2. within the Philippines. 2629 Approved 18 June 1960 Investment company • Any issuer which is or holds itself out as being engaged primarily in the business of investing. I NVESTMENT C OMPANY A CT Republic Act No. • Types of investment companies 1. within the Philippines. 2. 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. whether the issuer of such security is the investment company or another person. Purchase. association.
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security is such investment company or another person.
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.
• All shares of its capital stock shall be common and voting shares.
• 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
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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 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.
• 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.
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.
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.
• 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.
76 BANKING L AWS 2. or discounting. Purpose of the law • To regulate the establishement of pawnshops and to place their operation on any sound and stable basis: 1. 5. or agent of a financing company who shall knowingly and willingly make any statement in any application. employee or examiner of the SEC directly charged with the implementation of the Act who shall commit. Any officer. connive. which is false or misleading with respect to any material fact. P AWNSHOPS Presidential Decree 114 in relation to CB Circular No. aid or assist in the commission of acts enumerated above. 2. 4. 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. or overvalue or aid in overvaluing any securities for the purpose of influencing in any way the action of the company on any loan. and To prescribe minimum requirements Requirements for establishing a pawnshop . 3. 3. employee. 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. 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. Holding themselves out to be financing companies without authority from the SEC. Any officer.
fire and burglar proof safe where pawns/records are kept. Registration a. 70% of voting capital should be owned by Filipinos If no voting stock. If single proprietor.77 BANKING L AWS 1. 4. With DTI if single proprietorship With SEC if corporation or partnership In all cases. d. 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. b. 70% of capital owned by Filipinos If corporation. Maintain adequate security i. In addition to interest charges. Secure a license to operate from the LGU concerned Minimum paid in capital of P100. d. 3. Insure place of business and pawns against fire and burglars.e. with the BSP With the Board of Investments if there is foreign equity participation 2. Accountable officers/employees shall be bonded. 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. b. pawnshops may impose a maximum service charge of • • • • • • . must be a Filipino If partnership.000 Citizenship a. c.
fees. to wit: a. Conduct of business 1. c. 9. Borrower shall not pay insurance premiums. by posting at City Hall or Municipal Building and two other conspicuous public places where pawnshop operates. 6. and commissions shall be collected by pawnshop in connection with the loan transaction or payment thereof. date. 5. pawnshop will wait for 90 days after maturity before it can sell the thing pledged at a public auction. Loan agreement is entered into. notice to the borrower that the pawn will be sold if not redeemed within 90 days from maturity specifying time. Pawnshop lends money to pawner. Pawnshop has to comply with notice requirements. b. Pawned property is placed in vault/safe. Pawnshop issues receipt (pawn ticket).00. and place of auction sale. Borrower offers to pledge personal property as security for loan. No other charges.00 but in no case to exceed 1% of the principal loan. In remote areas where there is no newspaper.78 BANKING L AWS P5. 8. Sale of pawn by auctioneer/notary public to higher bidder. 2. 7. If there is no redemption. If upon maturity. borrower fails to pay. Before the 90-day period expires. . 3. Pawner pays charges not to exceed P5. 4. Property is appraised. 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.
for the account of the trustor or the beneficiary of the trust. or purchase debt instruments of any of the departments. would exercise in the conduct of an enterprise of a like character and with similar aims. of such director. purchase or acquire property from. Said official or agent makes recommendations to the Monetary Board. or sell. officers. and investigate the records of pawnshop to ensure compliance with PD 114. examine. administering any trust or holding property in trust or on deposit for the use. care. Impose penalties for violation of PD 114. acting under like capacity and familiar with such matters. officers. or relatives within the first degree of consanguinity or affinity.79 BANKING L AWS Supervisory powers of the Bangko Sentral • BSP official in charge of non-bank financial intermediaries or authorized agent may inspect. No trust company or bank engaged in the business of a trust company shall. • . prudence and diligence necessary under the circumstances then prevailing that a prudent man. A corporation or a bank may engage in the business of a trust corporation. 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. stockholders. and stockholders. or employees of the trust company or bank. • 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. or the related interests. transfer. directors. • • T RUST C ORPORATIONS Chapter VII General Banking Act Trust corporation • A trust corporation is any corporation formed or organized for the purpose of acting as trustee. benefit or behoof of others. assign or lend money or property to.
6. executor. receiver. able and entitled to accept such administration. idiot.80 BANKING L AWS Powers (in addition to general powers incident to corporations) 1. corporation. 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. and when in either case there is no person qualified. with the will annexed. • Bond/security requirements and paid in capital • Except as may otherwise be provided in this Act. or any body politic and to accept and execute any other municipal or corporate trust not inconsistent with law. . 4. 3. administrator. trustee or depository of the estate of any minor. 2. subject to such rules and regulations as may be prescribed by the Monetary Board. no bond or other security shall be required from any trust company for the faithful performance of its duties as trustee. receiver or depositary. or as administrator of the estate of any deceased person when there is no will. Any banking corporation may. competent. To accept and execute any legal trust confided to it by any court of record or by any person or corporation for the holding. and the rents. but it shall be subject to the provisions on trust operations. real or personal. do a commercial banking business. and profits thereof. To act as trustee on any mortgage or bond issued by any municipality. or other incompetent or irresponsible person. Commercial banking activity • A trust company may. but such business must be kept separate and distinct from its trust business. insane person. be authorized to engage in the business of a trust company. habitual drunkard. 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. and administration of any estate. issues. with the approval of the Monetary Board. To act under the order or appointment of any court of record as guardian. willing. To act under appointment of a court of competent jurisdiction as administrator of the estate of any deceased person. with the approval of the Monetary Board. To establish and manage common trust funds. 5. management. guardian.
Surplus and dividend • Every trust company. • 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. before transacting trust business. before the distribution of a dividend. however. cash or securities approved by the Monetary Board in an amount equal to not less than two hundred and fifty thousands pesos (P250. if it does a commercial banking business in addition to its trust business. showing special cause therefor. 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. properties. Section 65. guardian. executor. The accounts of all such moneys. 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. properties and assets of its general business. but losses accruing in the course of its business may be charged against the surplus. administrator. This may be increased by the Central Bank. its appointment as trustee. or securities received by any trust company shall be kept separate and distinct from all other funds. • • Separation of trust funds and property • All moneys. receiver or depositary may. . the court officer appointing such company as trustee. the investment of its funds other than trust funds shall be governed by the relevant provisions of the General Banking Act. properties or securities shall likewise be kept separate and distinct from the accounts of its general business. every trust company.000). shall carry on deposit with the Central Bank. upon proper application. administrator. receiver or depositary shall be revoked. guardian. Paid in capital and surplus of the company must be at least equal to the amount required to be deposited with the central Bank. executor. provides: “As security for the faithful performance of its trust duties. upon failure of such corporation to give the security required.81 BANKING L AWS • However.
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