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Name: Rosel Joy A.

Provido Date: October 13, 2018


Subject: LAW 318 Banking Laws
I.
The Role of the Bangko Sentral ng Pilipinas in the Lifespan of a Bank
from Incorporation to Operations, and to Closure and Liquidation

Stage 1: Incorporation

During the incorporation of a bank, the Bangko Sentral ng Pilipinas has the
role to whether give authority or not to a person or entity who intends to
engage in banking operations or quasi-banking functions. Upon issuance of
this authority, such person or entity may commence to engage in banking
operations or quasi-banking functions and shall continue to do so unless such
authority is sooner surrendered, revoked, suspended or annulled by the
Bangko Sentral in accordance with the law.1

To sum it up, a person or entity intending to engage in banking operations


must secure from the Bangko Sentral the following: (a) Authority to Establish
a Bank; (b) Authority to Register a Bank; and (c) Authority to Operate a Bank.
However, it should be noted that banks with original charters, such as the
Development Bank of the Philippines, Land Bank of the Philippines, and Al-
Amanah Islamic Investment Bank of the Philippines, shall be governed by the
laws creating them. Also, cooperative banks shall be governed by the
Cooperative Code of the Philippines and guidelines of the Monetary Board.2

1 Section 6 of R.A. No. 8791 (General Banking Law of 2000)


2
Banking Laws of the Philippines, The General Banking Law, Annotated, BSP, Page 72

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In the exercise of its authority to organize a bank, the Monetary Board shall
take into consideration the applicant’s capability in terms of financial
resources and technical expertise and integrity. The bank licensing process
shall likewise incorporate an assessment of the bank’s ownership structure,
directors and senior management, its operating plan and internal controls as
well as its projected financial condition and capital base.3

The Bangko Sentral, through the Monetary Board, has the power to determine
whether a person or entity is performing banking or quasi-banking functions
without Bangko Sentral authority. To resolve such issue, the Monetary Board
may, through the appropriate supervising and examining department of the
Bangko Sentral, examine, inspect or investigate the books and records of such
person or entity.4

In connection to this, the department heads and the examiners of the


appropriate supervising and examining department of the Bangko Sentral are
authorized to administer oaths to any such person, employee, officer, or
director of any such entity and to compel the presentation or production of
such books, documents, papers or records that are reasonably necessary to
ascertain the facts relative to the true functions and operations of such person
or entity. 5

3
Banking Laws of the Philippines, The General Banking Law, Annotated, BSP, Page 72
4
Section 6 of R.A. No. 8791 (General Banking Law of 2000)
5
Ibid.

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In essence, the Bangko Sentral only grants the license to engage in the
fiduciary nature of banking to persons and entities which have the financial
and technical capability.

Stage 2: Operation

During the operation of a bank, the Bangko Sentral has the supervisory
authority to determine compliance with laws and regulations. It shall examine
an enterprise which is wholly or majority-owned or controlled by the bank. It
also includes the determination that the institution is conducting its business
on a safe and sound basis. The scope of Bangko Sentral’s supervisory powers,
may be grouped into three categories: (a) issuance of rules; (b) examination
and investigation; and (c) enforcement of Prompt Corrective Action (PCA).6

The Bangko Sentral prescribe rules and regulations governing the following
operations and other activities of banks: (a) Issuance of stocks; (b) Purchase
or acquisition of its own capital stocks as a security for a loan; (c) Ownership
and control of foreign stockholdings; (d) Stockholdings of family groups or
related interests; (e) Qualifications and disqualifications of individuals elected
or appointed bank directors or officers (Fit and PropeRule); (f) Merger and
consolidation; (g) Payment of compensation and other benefits of directors
and officers; (h) Opening of bank branches; (i) Banking days and hours; (j)
Microinsurance products; (k) Bank strikes or lockouts; (l) Risk-based capital;
(m) limit, amortization, renewal or extension of loans, credit accommodations
and guarantees (monetary, real property, unsecured or microfinance); (n)

6
Section 4 of R.A. No. 8791 (General Banking Law of 2000)

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DOSRI Transactions; (o) Foreclosure of real estate mortgage; (p) fixing of
bad debts and write-offs; (q) Major acquisitions or investment; (r) other
banking services as enumerated under Section 53 of the General Banking
Law; and (s) electronic transactions, processing and recording.

Stage 3: Closure and Liquidation

During the closure or dissolution of a bank, for voluntary dissolution, a


liquidation plan shall first be approved by the Monetary Board. Thereafter,
written notice shall be sent to the Monetary Board before actual liquidation is
undertaken in accordance with the liquidation plan previously approved by
the Monetary Board. For involuntary liquidation, the bank is first placed under
receivership by the Monetary Board and subsequently, under liquidation. For
a bank to be placed under receivership, there should be a report of the head of
the supervising department involving the bank; a finding by the Monetary
Bank of the existence of the any of the grounds for receivership; a decision of
the Monetary Board to forbid the institution from doing business, which
deision may be done summarily and without need for prior hearing; and notice
in writing to the Board of Directors informing the institution of the order of
the Monetary Board directing receivership. 7

7
Section 68 of R.A. No. 8791 (General Banking Law of 2000)

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II.
The Prohibitions and Limitations of a Bank Examiner of the Bangko
Sentral ng Pilipinas

The examiner of the Bangko Sentral or of any department, bureau, office,


branch or agency of the Government that is assigned to supervise, examine,
assist or render technical assistance to any bank shall commit any of the
following acts: (a) Make false entries in any bank report or statement or
participate in any fraudulent transaction, thereby affecting the financial
interest of, or causing damage to, the bank or any person; (b) Without order
of a court of competent jurisdiction, disclose to any unauthorized person any
information relative to the funds or properties in the custody of the bank
belonging to private individuals, corporations, or any other entity: Provided,
That with respect to bank deposits, the provisions of existing laws shall
prevail; (c) Accept gifts, fees or commissions or any other form of
remuneration in connection with the approval of a loan or other credit
accommodation from said bank; (d) Overvalue or aid in overvaluing any
security for the purpose of influencing in any way the actions of the bank or
any bank; or (e) Outsource inherent banking functions.8

Additionally, the making of false reports or misrepresentation or suppression


of material facts by personnel of the Bangko Sentral ng Pilipinas shall
constitute fraud and shall be subject to the administrative and criminal
sanctions provided under the New Central Bank Act.9

8
Section 55 of R.A. 8791 (The General Banking Law of 2000)
9
Ibid.

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III.
The Civil, Criminal, or Administrative Liabilities for Refusal of a Bank
to Permit the Examination of the Bangko Sentral ng Pilipinas

A bank that wilfully refuses to permit examination shall pay a fine of P30,000
per day from the day of the refusal and for as long as such refusal lasts, without
prejudice to the sanctions under Section 34 of R.A. No. 7653. The fine shall
be imposed starting on the day following the receipt by the concerned Head
of Department in the SES of the report from the Bangko Sentral examiner that
the bank continues to refuse to permit examination notwithstanding the
written demand made by the Department Head. Aside from the fine mentioned
above, the bank and/or its concerned directors and/ or officers may be subject
to non-monetary sanctions provided under Section 37 of R. A. No. 7653 (The
New Central Bank Act) and Sec. X009.10

Section 34 of R.A. No. 7653 provides that:


Refusal to Make Reports or Permit Examination. — Any officer,
owner, agent, manager, director or officer-in-charge of any
institution subject to the supervision or examination by the Bangko
Sentral within the purview of this Act who, being required in
writing by the Monetary Board or by the head of the supervising
and examining department willfully refuses to file the required
report or permit any lawful examination into the affairs of such
institution shall be punished by a fine of not less than Fifty

10
Circular No. 957 dated 17 April 2017

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thousand pesos (P50,000) nor more than One hundred thousand
pesos (P100,000) or by imprisonment of not less than one (1) year
nor more than five (5) years, or both, in the discretion of the court.
[Emphasis supplied]

Also, Section 37 of R.A. No. 7653 provides that:


Administrative Sanctions on Banks and Quasi-banks. — Without
prejudice to the criminal sanctions against the culpable persons
provided in Sections 34, 35, and 36 of this Act, the Monetary
Board may, at its discretion, impose upon any bank or quasi-bank,
their directors and/or officers, for any willful violation of its
charter or by-laws, willful delay in the submission of reports or
publications thereof as required by law, rules and regulations; any
refusal to permit examination into the affairs of the institution;
xxx, the following administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board
to be appropriate, but in no case to exceed Thirty thousand pesos
(P30,000) a day for each violation, taking into consideration the
attendant circumstances, such as the nature and gravity of the
violation or irregularity and the size of the bank or quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko
Sentral credit facilities;
(c) suspension of lending or foreign exchange operations or
authority to accept new deposits or make new investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.

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Resignation or termination from office shall not exempt such
director or officer from administrative or criminal sanctions.

The Monetary Board may, whenever warranted by circumstances,


preventively suspend any director or officer of a bank or quasi-
bank pending an investigation: Provided, That should the case be
not finally decided by the Bangko Sentral within a period of one
hundred twenty (120) days after the date of suspension, said
director or officer shall be reinstated in his position: Provided,
further, That when the delay in the disposition of the case is due to
the fault, negligence or petition of the director or officer, the
period of delay shall not be counted in computing the period of
suspension herein provided.

The above administrative sanctions need not be applied in the


order of their severity.

Whether or not there is an administrative proceeding, if the


institution and/or the directors and/or officers concerned continue
with or otherwise persist in the commission of the indicated
practice or violation, the Monetary Board may issue an order
requiring the institution and/or the directors and/or officers
concerned to cease and desist from the indicated practice or
violation, and may further order that immediate action be taken to
correct the conditions resulting from such practice or violation.

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The cease and desist order shall be immediately effective upon
service on the respondents.
xxx
The Governor is hereby authorized, at his discretion, to impose
upon banking institutions, for any failure to comply with the
requirements of law, Monetary Board regulations and policies,
and/or instructions issued by the Monetary Board or by the
Governor, fines not in excess of Ten thousand pesos (P10,000) a
day for each violation, the imposition of which shall be final and
executory until reversed, modified or lifted by the Monetary Board
on appeal. [Emphasis supplied]

IV.
A.
Difference of Bank, Quasi-bank, and Trust Entities

Banks shall refer to entities engaged in the lending of funds obtained in the
form of deposits.11 Banks are classified into: Universal Banks, Commercial
Banks, Thrift Banks, Rural Banks, Cooperative Banks, Islamic Banks, and
Government Banks. For an institution to be a bank, it must regularly engage
in the business of receiving funds from the public in the form of deposits of
any kind, and in the business of lending said funds.

Quasi-banks shall refer to entities engaged in the borrowing of funds through


the issuance, endorsement or assignment with recourse or acceptance of

11
Section 3.1 of R.A. 8791 (The General Banking Law of 2000)

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deposit substitute under R.A. 7653 (New Central Bank Act) for purposes of
relending or purchasing of receivables and other obligations. It functions refer
to borrowing of funds, for the borrower’s own account, through the issuance,
endorsement or acceptance of debt instruments of any kind other than
deposits, or through the issuance of participations, certificates of assignments,
or similar instrument with recourse, trust certificates, or of repurchase
agreements, from 20 or more lenders at any one time, for purposes of
relending or purchasing of receivables and other similar obligations.
Commercial, industrial and other non-financial companies, which borrow
funds through any of these means for the limited purpose of financing their
own needs or the needs of their agents or dealers, shall not be considered as
performing quasi-banking functions.12

A trust entity shall administer the funds and property under its custody with
the diligence that a prudent man would exercise in the conduct of an enterprise
of a like character and with similar aims. 13 It can act as trustee on any
mortgage or bond and accept and execute any trust consistent with law; act as
guardian, receiver, trustee, or depositary of the estate of any minor or other
incompetent person, and as receiver and depositary 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; act as executor of any will;
act as administrator of the estate of any deceased person; accept ad execute
any trust for the holding, management and administration of any estate; and
establish and manage common trust funds.14

12
Banking Laws of the Philippines, The General Banking Law, Annotated, BSP, Page 74
13
Section 80 of R.A. 8791 (The General Banking Law of 2000)
14
Section 83 of R.A. 8791 (The General Banking Law of 2000)

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B.

Difference of Conservatorship, Receivership, and Liquidation


As to its definition:

Conservatorship is a tool in restoring the viability of banks and quasi-banks.


It consists of carrying out a package of administrative, organizational,
financial and/or other measures to address the state of continuing inability or
unwillingness to maintain a condition of liquidity deemed adequate to protect
the interest of depositors and creditors.15

Receivership is a summary closure of the Bank by the Bangko Sentral without


prior notice and hearing after a finding that continuance in business will
involve probable loss to its depositors and creditors. Receivership is a harsh
remedy to be granted with utmost circumspection and only in extreme
situations.16

In liquidation, there is no hope in rehabilitating the bank. At this point, it


determines and pays the claims of the bank’s creditors. A liquidation
proceeding is a single proceeding which consists of a number of cases
properly classified as ‘claims”. It is basically a two phased proceeding. The
first phase is concerned with the approval or disapproval of claims. The
second phase involves the approval of by the court of the distribution plan
prepared by the duly appointed liquidator.17

15
Banking Laws of the Philippines, The General Banking Law, Annotated, BSP, Page 122
16
Abacus v. Manila, 455 SCRA 97
17
Vda. De Ballesteros v. Rural, 636 SCRA 119

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As to instances when placed under such:

In conservatorship, based on report of the Monetary Board, that bank is in a


state of inability or unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of its depositors and creditors.

In receivership, upon finding of the MB that the bank is: (a) Unable to pay
liabilities; (b) Insufficient realizable assets to meet its liabilities; (c) Cannot
continue business without involving probable loss to depositors and creditors;
(d) Willfully violated cease and desist order under Sec. 37 of R.A. No. 7653
that has become final involving acts or transactions which amount to fraud or
dissipation of assets of institution; and (e) Notifies BSP or publicly announces
Bank Holiday.

In liquidation, voluntary liquidation under Sec 68 of of R.A. No. 8791 or upon


finding that bank can no longer be rehabilitated and cannot continue business
after the 90 day receivership period.

As to its duration:

In conservatorship, one (1) year, no extensions. After 1 year period of upon


finding of MB that: (a) bank can continue to operate on its own; and (b) when
continuance of the business of the bank, based on report of conservator, would
involve probable loss to depositors and creditors, in such event bank placed
under receivership or liquidation.

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In receivership, ninety (90) days, no extensions. After 90 day period and upon
determination that bank cannot be rehabilitated: (a) file ex-parte with RTC,
without need for prior notice or any other action, petition for assistance in the
liquidation of bank; (b) convert assets of bank to money, dispose to creditors
and other parties for the purpose of paying the debts of the bank; and (c)
Institute actions to collect and recover accounts and assets and defend any
action against the bank.

In liquidation, no period stated in the law. May take some time depending on
the determination and payment of claims to creditors.

As to its person-in-charge and its powers:

In conservatorship, a “conservator” is person appointed to take over the


management of the bank and shall assume exclusive powers to oversee every
aspect of the bank’s operations and affairs. The conservator has the following
powers: (a) take charge of assets, liabilities and management of the bank; (b)
reorganize the management of the bank; (c) collect all monies and debts due
to the bank/quasi-bank; and (d) exercise all powers necessary to restore the
viability of the bank/quasi-bank with the power to overrule or revoke the
actions of the previous management and board of directors and rescind
contracts that are to be enforced and not yet perfected. However, a conservator
may not revoke perfected and enforceable contracts because it will result to
an infringement of the non-impairment clause guaranteed by the Constitution.

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In receivership, a “receiver” has the power of: (a) immediately gather and take
charge of all assets and liabilities of the bank; (b) administer the assets and
liabilities of the bank for the benefit of creditors; (c) exercise general powers
of the receiver under Revised Rules of Court – preserve, administer and
dispose properties in litigation; (d) deposit or place the funds of the institution
in non-speculative investments; (e) determine as soon as possible, but not later
than 90 days, if the bank may be rehabilitated or permitted to resume its
business subject to the approval of the Monetary Board. However, a receiver
may not dispose or sell any assets of the bank and is not allowed to pay or
commit any act that will involve the transfer or disposition of any asset of the
bank except the payment of administrative expenditures and the deposit or
placement of funds in non-speculative investments.

In liquidation, a liquidator assist the Bangko Sentral in determining the claims


of creditors against the bank.

As to its effects:

In conservatorship, a bank still continues to operate as a banking institution.


The conservator merely takes the place of the bank’s management and board
of directors. If found that the continuance in operation of the bank or quasi
bank would involve probable loss to depositors and creditors, conservatorship
will be terminated and bank will be placed under receivership.

In receivership, a bank’s assets pass beyond its control into the possession and
control of the receiver, and the appointment of the receiver operates to
suspend the authority of the bank and its directors and officers over its

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property and effects – equivalent to injunction to restrain the bank officers
from intermeddling with the property of the bank in any way. Officers are no
longer authorized to transact business in connection with the bank’s assets and
properties. It does not dissolve the bank as a corporation nor does it interfere
with the exercise of corporate rights. Instead, it retains their corporate
personality – can sue and be sued but any case should be initiated and
prosecuted through the liquidator. The assets of the bank deemed in custodia
legis in the hands of receiver and shall be exempt from any order of
garnishment, levy, attachment or execution. The bank is forbidden by Bangko
Sentral to continue doing business. It may not grant new loans or accept
deposits butis still obliged to collect debts owing to the bank and foreclose
mortgages. It will not pay interest on deposits but may still collect interest and
charge on all loans.

In liquidation, the bank ceases to exist and the assets of the bank deemed in
custodia legis in the hands of liquidator and shall be exempt from any order
of garnishment, levy, attachment or execution.

V.
Rules in the Charging of Interest and Awarding of Interest in the
Concept of Actual and Compensatory Damages

Articles 1956 and 2209 of the New Civil Code and The Usury Law

The general rule is enunciated in Article 1956 of the New Civil Code which
states that no interest shall be due unless it has been expressly stipulated in

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writing and is lawful. As to being lawful, such is not applicable for now
because the Usury Law has been legally suspended. Be that as it may, while
there can be no stipulated interest, there can be legal interest pursuant to
Article 2209 of the New Civil Code which provides that if the debtor incurs
default, in the absence of stipulation, the indemnity shall be the legal interest
which is 6% per annum.

Bangko Sentral ng Pilipinas Issuances

In 1974, the Monetary Board issued Circular No. 416 increasing legal rate of
interest from six (6%) to twelve (12%). In 1982, the same rate of 12% was
reincorporated in Circular No. 905 issued by the Monetary Board. In 2013,
Section 1 of Circular No. 799 provides that the rate of interest for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments,
in the absence of an express contract as to such rate of interest, shall be six
percent (6%) per annum.

Nacar vs. Gallery Frames18

On the issue of award of interest in the form of actual or compensatory


damages, the Supreme Court ruled that the old case of Eastern Shipping Lines
v. CA is already modified by the promulgation of the Bangko Sentral ng
Pilipinas Monetary Board Resolution No. 796 which lowered the legal rate of
interest from 12% to 6%. Specifically, the rules on interest are now as follows:

18
G.R. No. 189871, 13 August 2013

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For monetary Obligations (e.g. Loans):
If stipulated in writing, the interest shall run from date of judicial demand
(filing of the case); and the rate of interest shall be that amount stipulated.

If not stipulated in writing, the interest shall run from date of default (either
failure to pay upon extra-judicial demand or upon judicial demand whichever
is appropriate and subject to the provisions of Article 1169 of the Civil Code)
and the rate of interest shall be 6% per annum.

Non-Monetary Obligations (such as the case at bar):


If already liquidated, rate of interest shall be 6% per annum, demandable from
date of judicial or extra-judicial demand. (Art. 1169, Civil Code)
If unliquidated, no interest except when later on established with certainty.
Interest shall still be 6% per annum demandable from the date of judgment
because such on such date, it is already deemed that the amount of damages
is already ascertained.

Sameer Overseas Placement Agency vs. Cabiles19

On the issue of award of interest in the form of actual or compensatory


damages, the Supreme Court reiterated the ruling in Nacar vs. Gallery Frames.
In addition, it held that judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be implemented

19
G.R. No. 170139, 05 August 2014

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applying the rate of interest fixed therein. Circular No. 799 is applicable only
in loans and forbearance of money, goods, or credits, and in judgments when
there is no stipulation on the applicable interest rate. Further, it is only
applicable if the judgment did not become final and executory before July 1,
2013.

The Supreme Court stressed that Circular No. 799 is not applicable when there
is a law that states otherwise. While the Bangko Sentral ng Pilipinas has the
power to set or limit interest rates, these interest rates do not apply when the
law provides that a different interest rate shall be applied. "[A] Central Bank
Circular cannot repeal a law. Only a law can repeal another law."

In sum, if judgment did not become final and executory before July 1, 2013
and there was no stipulation in the contract providing for a different interest
rate, other money claims under Section 10 of Republic Act No. 8042 shall be
subject to the 6% interest per annum in accordance with Circular No. 799.

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