Phil Consti, Art.

12, sec 20:

Section 20. The Congress shall establish an independent central monetary authority, the members
of whose governing board must be natural-born Filipino citizens, of known probity, integrity, and
patriotism, the majority of whom shall come from the private sector. They shall also be subject to
such other qualifications and disabilities as may be prescribed by law. The authority shall provide
policy direction in the areas of money, banking, and credit. It shall have supervision over the
operations of banks and exercise such regulatory powers as may be provided by law over the
operations of finance companies and other institutions performing similar functions.

Own notes:

Congress is mandated to establish an independent monetary authority. Members of the governing

board of this authority must be natural born FCs, of known probity, integrity and patriotism.

Majority of these governing board members from come from the private sector, and shall be subject
to the qualifications and DQs provided by law.

JMH:

a. the PH must have an independent monetary authority, since the Consti itself mandates it.
the governing body of BSP is the Monetary Board (majority of which must come from the
private sector). Objective of having private sector be members it to prevent maybe partisan
political activity in the BSP, but govt still participates ; however majority must come from
the private sector.
b. the central bank of the PH was the old monetary auth ; the BSP is now the current one, but
these 2 are different! Do not refer to BSP as central bank
c. BSP has “day to day tasks”, that is to supervise over bank operations and exercise
regulatory powers over finance companies and other institutions performing similar
functions.
d. Banking is so important to the whole financial system, that the Consti provides for a
monetary auth not completely dominated by the Govt

The new central bank act: Article 1

REPUBLIC ACT No. 7653
Section 1. Declaration of Policy. - The State shall maintain a central monetary authority that shall
function and operate as an independent and accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking and credit. In line with this policy, and
considering its unique functions and responsibilities, the central monetary authority established
under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative
autonomy.
Own notes:
The state is mandated by this law to maintain a central monetary authority (now it did, with the
establishment of the Central Bank), whose function is to operate as an independent and accountable
body in the discharge of its functions and responsibilities concerning money, banking and credit.
This central monetary auth shall enjoy fiscal and monetary autonomy.
JHM
a. Some of art 1 reiterates what the Consti provides.
b. This law states that the central monetary auth is independent and is an ACCOUNTABLE
body corporate (its sins cannot just be forgiven, must be held accountable to them: RRSC)
a. Body corporate – is a juridical person having unique features. Is a corporation
owned by the Govt, but it doesn’t control it.
c. Independence importance – this provision tries to minimize govt intervention. Aside from
being an independent body corporate, BSP ENJOYS FISCAL AND ADMINISTRATIVE
AUTONOMY (the latter also adds to its independence)
a. Free from undue control and influence
b. Fiscal autonomy – full flexibility to allcoate and utilize resources within the
wisdom and dispatch that their needs require, as said by the supreme court (ergo,
non reliance of budgetary support from congress, since BSP can rely on its own
funds)
c. BSP undergoes its own economic undertaking. And any profit from these
undertakings it can keep for itself (unlike GOCCs that are required to remit their
dividends to the govt)
d. BSP has exemption from salary standardization
e. BSP has power to adopt or set its own budget
f. BSP has administrative autonomy, meaning it has freedom from interference and
intervention from other agencies
i. Governor of BSP is not subject to COA approval
ii. Flexibility to establish a human resource system
iii. Monetary board decisions are not subject to administrative review, and can
only be reviewed judicially by way of a petition for certiorari
iv. Appointments to monetary board, is NOT CO-TERMINOUS with that of
the president!
g. The grant of independence is the best way in order for it to carry out its mandate
i. Independence in setting policies for money, banking and credit
h. BUT! BSP is accountable, and is not above the law. Its Independence is therefore
limited by its accountability
d. Organization
a. It’s a body corporate
b. Govt owned, but not controlled
c. Has outstanding capital (and paid in capital requirement of 50 billion pesos)
i. The initial paid in capital came from the old central bank
General Banking Law, secs 3, 4-7
REPUBLIC ACT NO. 8791
SECTION 3. Definition and Classification of Banks. —
3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits.
(2a)
3.2. Banks shall be classified into: (a) Universal banks; (b) Commercial banks; (c) Thrift banks,
composed of: (i) Savings and mortgage banks, (ii) Stock savings and loan associations, and (iii)
Private development banks, as defined in Republic Act No. 7906 (hereafter the "Thrift Banks
Act"); (d) Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks Act"); (e)
Cooperative banks, as defined in Republic Act No. 6938 (hereafter the "Cooperative Code"); (f)
Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al Amanah
Islamic Investment Bank of the Philippines"; and (g) Other classifications of banks as determined
by the Monetary Board of the Bangko Sentral ng Pilipinas. (6-Aa)
JMH:
a. Entities engaged in lending of funds obtained in the form of deposits:
a. Universal banks  have the power of an investment house
b. Commercial banks  engaged in lending or borrowing money
c. Thrift banks  they do the same thing with regular banks, but do the smaller scale
things;
i. Savings and mortgage
ii. Private development bank
iii. X x x
d. Rural banks  located in rural areas; making credit or money available in the rural
areas, like giving credit to farmers or fishermen in the country side, etc
e. Cooperative banks  formed by members, from their own money, and for their
own benefit. Members chip in a pool their money
f. Islamic banks
g. Other classification of banks that the MB might decide  DBP, land bank
(established in order to provide funding for agrarian reform, acquisition of land for
beneficiaries ; is a govt bank ; hence LAND bank, lol)
CHAPTER II AUTHORITY OF THE BANGKO SENTRAL
SECTION 4. Supervisory Powers. — The operations and activities of banks shall be subject to
supervision of the Bangko Sentral. "Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered, taking into consideration the distinctive
character of the operations of institutions and the substantive similarities of specific functions to
which such rules, modes or standards are to be applied;
4.2. The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;
4.3. Overseeing to ascertain that laws and regulations are complied with;
4.4. Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or sound basis:
Provided, That the deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution (2-D); or
4.6. Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise regulatory
powers over quasi-banks, trust entities and other financial institutions which under special laws
are subject to Bangko Sentral supervision. (2-Ca).
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of funds
through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes
as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank Act") for
purposes of relending or purchasing of receivables and other obligations. (2-Da)
SECTION 5. Policy Direction; Ratios, Ceilings and Limitations. — The Bangko Sentral shall
provide policy direction in the areas of money, banking and credit. (n)
For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of
regulation on the different types of accounts and practices of banks and quasi-banks which shall,
to the extent feasible, conform to internationally accepted standards, including those of the Bank
for International Settlements (BIS). The Monetary Board may exempt particular categories of
transactions from such ratios, ceilings and limitations, but not limited to exceptional cases or to
enable a bank or quasi-bank under rehabilitation or during a merger or consolidation to continue
in business with safety to its creditors, depositors and the general public. (2-Ca)
JMH:
a. what does it mean that BSP sets policy directions in areas of money, banking and credit?
1. Example: BSP mandates that BPI can only lend to ayala corp up to a certain amount
2. The monetary board may prescribe ratios, ceilings, limitations or other forms of
regulation on the different types of accounts and practices of banks and quasi-banks
i. An example of ratios prescribe by MB is:
I. For every peso a depositor deposits in the bank, the bank may only
lend up to .75 centavos (basic example by sir)
II. Or how much banks may lend? This is part of policy direction by
BSP, or money supply
3. The MB may also exempt particular categories of transactions from such rations,
ceilings or limitations.
b. For supervision (secs 4, 6, and 7): BSP’s power of supervision consists of: (supervision not
only for banking institutions, but also quasi-banking institutions)
 1. Rulemaking  but must be within its power to make (admin law doctrines are
applicable here, i.e., must be germane and reasonable to the law, etc.)
2. Visitorial powers  BSP can “knock on the door” of banks and inspect, check or
do audit. Reason? BSP wants to secure banking system. This power is also limited,
JMH says that visitorial powers are done annually.
3. Enforcement action powers  BSP
4. Licensing  BSP has the power to permit banks to operate as banks, or to license
these to be able to operate as banks (lol)
c. Principal objectives of BSP
1. Maintain price stability
i. Control of domestic inflation by keeping it low and stable
ii. JMH: to keep inflation low, monetary supply tools are utilized?
2. Promote and maintain stability and convertibility of the peso
i. Promote and maintain international value of the peso and convertibility of
the peso
When BSP issues rules and regs, there is a greater objective to this. and this is to keep
the inflation low, or to ensure stability
SECTION 6. Authority to Engage in Banking and Quasi-Banking Functions. — No person or
entity shall engage in banking operations or quasi-banking functions without authority from the
Bangko Sentral: Provided, however, That an entity authorized by the Bangko Sentral to perform
universal or commercial banking functions shall likewise have the authority to engage in
quasi-banking functions.
The determination of whether a person or entity is performing banking or quasi-banking functions
without Bangko Sentral authority shall be decided by the Monetary Board. 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.
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 this Act or
other special laws.
The department head and the examiners of the appropriate supervising and examining department
are hereby 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. Failure or refusal to comply with the required presentation or
production of such books, documents, papers or records within a reasonable time shall subject the
persons responsible therefore to the penal sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or quasi-banking functions without authority
from the Bangko Sentral shall be subject to appropriate sanctions under the New Central Bank Act
and other applicable laws. (4a)
SECTION 7. Examination by the Bangko Sentral. — The Bangko Sentral shall, when examining
a bank, have the authority to examine an enterprise which is wholly or majority-owned or
controlled by the bank. (21-Ba)
Types of banks:
Thrift banks (thrift banks act; sec 3 and 10)
REPUBLIC ACT NO. 7906 "Thrift Banks Act of 1995."
Sec. 3. Definition of Terms. — For purposes of implementing this Act, the following definitions
shall apply:
(a) "Thrift banks" shall include savings and mortgage banks, private development banks, and stock
savings and loans 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, mortgages in real estate and insured improvements thereon, chattel mortgage, bonds and
other forms of security or in loans for personal or household finance, whether secured or
unsecured, or in financing for homebuilding and home development; in readily marketable and
debt securities; in commercial papers and accounts receivables, drafts, bills of exchange,
acceptances or notes arising out of commercial transactions; and in such other investments and
loans which the Monetary Board may determine as necessary in the furtherance of national
economic objectives;
(2) Providing short-term working capital, medium- and long-term financing, to businesses engaged
in agriculture, services, industry and housing; and
(3) Providing diversified financial and allied services for its chosen market and constituencies
specially for small and medium enterprises and individuals.
(b) "Monetary Board" shall mean the Monetary Board of the Bangko Sentral ng Pilipinas.
(c) "Bangko Sentral" shall refer to the Bangko Sentral ng Pilipinas created under Republic Act No.
7653.
CHAPTER IV POWERS
Sec. 10. Powers of Thrift Banks. — In addition to powers granted it by this Act and existing
laws, any thrift bank may:
(a) Accept savings and time deposits;
(b) Open current or checking accounts: Provided, That the thrift bank has net assets of at least
Twenty million pesos (P20,000,000) subject to such guidelines as may be established by the
Monetary Board; and shall be allowed to directly clear its demand deposit operations with the
Bangko Sentral and the Philippine Clearing House Corporation;
(c) Act as correspondent for other financial institutions;
(d) Act as collection agent for government entities, including but not limited to, the Bureau of
Internal Revenue, Social Security System, and the Bureau of Customs;
(e) Act as official depository of national agencies and of municipal, city or provincial funds in the
municipality, city or province where the thrift bank is located, subject to such guidelines as may
be established by the Monetary Board;
(f) Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the
Development Bank of the Philippines, and other government-owned or -controlled corporations.
Said institutions shall specify the nature of paper deemed acceptable for rediscount, as well as
rediscounting rate to be charged by any of these institutions; and
(g) Issue mortgage and chattel mortgage certificates, buy and sell them for its own account or for
the account of others, or accept and receive them in payment or as amortization of its loan.
Such mortgage and chattel mortgage certificates shall be issued exclusively in national currency
and exclusively for the financing of equipment loans, mortgage loans for the acquisition of
machinery and other fixed installations, conservation, enlargement or improvement of productive
properties and real estate mortgage loans for: (1) the construction, acquisition, expansion or
improvement of rural and urban properties; (2) the refinancing of similar loans and mortgages; and
(3) such other purposes as may be authorized by the Monetary Board.
A thrift bank shall coordinate the amounts and maturities of its certificates with those of its loans,
so as to ensure adequate cash receipts for the payment of principal and interest at the time they
become due. The bank shall accept its own certificates at least at the actual price of issue, in any
prepayment of loans which mortgage or chattel mortgage debtors may wish to make: Provided,
That the date of maturity of the certificates is not later than the date on which the payment would
otherwise become due, in the absence of the aforesaid prepayment;
(h) Purchase, hold and convey real estate under the same conditions as those governing commercial
banks as specified under Section 25 of Republic Act No. 337;
(i) Engage in quasi-banking and money market operations;
(j) Open domestic letters of credit;
(k) Extend credit facilities to private and government employees: Provided, That in the case of a
borrower who is a permanent employee or wage earner, the treasurer, cashier or paymaster of the
office employing him is authorized, notwithstanding the provisions of any existing law, rules and
regulations to the contrary, to make deductions from his salary, wage or income pursuant to the
terms of his loan, to remit deductions to the thrift bank concerned, and collect such reasonable fee
for his services;
(l) Extend credit against the security of jewelry, precious stones and articles of similar nature,
subject to such rules and regulations as the Monetary Board may prescribe; and
(m) Offer other banking services as provided in Section 72 of Republic Act No. 337 and Republic
Act No. 6426, as amended.
Thrift banks may perform the services under subsections (b), (d), (e), (g) and (i) only upon prior
approval of the Monetary Board.
Nothing in this Section shall be construed as precluding a thrift bank from performing, with prior
approval of the Monetary Board, commercial banking services, or from operating under an
expanded banking authority, nor from exercising, whenever applicable and not inconsistent with
the provisions of this Act and Bangko Sentral regulations, and such other powers incident to a
corporation.
Rural banks (rural bank act; secs 2 and 3)
RA 720 "Rural Banks' Act"
Sec. 2. It shall be the declared policy of Congress. — To promote and expand the rural economy
in an orderly and effective manner by providing the people of the rural communities with the
means of facilitating and improving their productive activities, and to encourage cooperatives.
Toward this end, the Government shall encourage and assist in the establishment of a system of
rural banks which will place within easy reach and access of the people credit facilities on
reasonable terms. The Department of Agriculture and Natural Resources, the Department of
Commerce and Industry, and other appropriate agencies or instrumentalities of the Government
shall, in cooperation with the Rural Bank, provide advice on business or farm management and
proper use of credit for production and marketing.
Sec. 3. In furtherance of this policy, the Monetary Board of the Central Bank of the Philippines,
shall formulate the necessary rules and regulations governing the establishment and operation of
Rural Banks for the purpose of providing adequate credit facilities to small farmers and merchants,
and to supervise the operation of such banks.
Cooperative banks (cooperative code, art 6-7 and 100)
RA 9520 "Cooperative Code of the Philippines,"
CHAPTER II
ORGANIZATION AND REGISTRATION
"ART. 6. Purposes of Cooperatives. – A cooperative may be organized and registered for any or
all of the following purposes:

CHAPTER II
ORGANIZATION AND REGISTRATION

"ART. 6. Purposes of Cooperatives. – A cooperative may be organized and registered for any or
all of the following purposes:

"(1) To encourage thrift and savings mobilization among the members;

"(2) To generate funds and extend credit to the members for productive and provident
purposes;
 "(3) To encourage among members systematic production and marketing;

"(4) To provide goods and services and other requirements to the members;

"(5) To develop expertise and skills among its members;

"(6) To acquire lands and provide housing benefits for the members;

"(7) To insure against losses of the members;

"(8) To promote and advance the economic, social and educational status of the members;

"(9) To establish, own, lease or operate cooperative banks, cooperative wholesale and retail
complexes, insurance and agricultural/industrial processing enterprises, and public
markets;

"(10) To coordinate and facilitate the activities of cooperatives;

"(11) To advocate for the cause of the cooperative movements;

"(12) To ensure the viability of cooperatives through the utilization of new technologies;

"(13) To encourage and promote self-help or self-employment as an engine for economic

growth and poverty alleviation; and

"(14) To undertake any and all other activities for the effective and efficient
implementation of the provisions of this Code.

"ART. 7. Objectives and Goals of a Cooperative. – The primary objective of every cooperative
is to help improve the quality of life of its members. Towards this end, the cooperative shall aim
to:

"(a) Provide goods and services to its members to enable them to attain increased income,
savings, investments, productivity, and purchasing power, and promote among themselves
equitable distribution of net surplus through maximum utilization of economies of scale,
cost-sharing and risk-sharing;

"(b) Provide optimum social and economic benefits to its members;

"(c) Teach them efficient ways of doing things in a cooperative manner;

"(d) Propagate cooperative practices and new ideas in business and management;

"(e) Allow the lower income and less privileged groups to increase their ownership in the
wealth of the nation; and
 "(f) Cooperate with the government, other cooperatives and people-oriented organizations
to further the attainment of any of the foregoing objectives.

"ART. 100. Powers, Functions and Allied Undertakings of Cooperative Banks. – A cooperative
bank shall primarily provide financial, banking and credit services to cooperative organizations
and their members. However, the BSP may prescribe appropriate guidelines, ceilings and
conditions on borrowing of a cooperative organization from a cooperative bank.

"The powers and functions of a cooperative bank shall be subject to such rules and regulations as
may be promulgated by the BSP.

"In addition to the powers granted by this Code and other existing laws, any cooperative bank may
perform any or all of the banking services offered by other types of banks subject to the prior
approval of the BSP.

Development bank of the Ph (revised charter of the devt bank of the PH; secs 2 and 3)

EO 81 series of 1986

Sec. 2. Name, Purpose and Domicile. The Development Bank of the Philippines, hereinafter called
the Bank, operating under the provisions of Republic Act No. 85, as amended, shall henceforth
operate under the provisions of this 1986 Revised Charter. The Bank shall be a body corporate and
shall exist for a period of fifty years.

The primary purpose of the Bank shall be to provide banking services principally to service the
medium and long term needs of agricultural and industrial enterprises, particularly in the country-
side and preferably for small and medium scale enterprises; Provided, however, that the pursuit of
these objectives shall be undertaken within the context of a financially viable and stable banking
institutions; Provided, further that the Bank shall continue to be classified as a development Bank,
Provided, finally, that unless otherwise provided herein, the Bank may perform all other functions
of a thrift bank.

The Bank's principal office and place of business shall be in the National Capital Region, also
known as Metro Manila. It may open and maintain branches, agencies or other offices at such
places in the Philippines as its Board of Directors may deem advisable, with the prior approval of
the Monetary Board of the Central Bank of the Philippines.

Sec. 3. Corporate Powers. The Development Bank of the Philippines shall have the power.

(a) To accept such deposits as are allowed thrift banks under existing law and Central Bank
regulations, including but not limited to demand, savings, and time deposits.

(b) To grant loans for the establishment, development or expression of any agricultural or
industrial enterprise;
 (c) To accept and manage trust funds and properties and carry on the business of a trust
corporation;

(d) To act as official government depository with authority to maintain deposits of the
government, its subdivisions, branches, and instrumentalities, and of government-owned
or controlled corporations, subject to such rules and regulations as the Monetary Board
may prescribe;

(e) To acquire, assign, or otherwise dispose of marketable securities and other debt
instruments which are essential to the effective conduct of its general banking activities;

(f) To enter into such contracts of guaranty on suretyship as are generally allowed domestic
banking institutions under the General Banking Act; and

(g) To adopt, amend, or charge its By-laws; to adopt, alter and use a seal; to make contracts;
to sue and be sued; and to exercise the general powers of a corporation mentioned in the
Corporation Code of the Philippines, and of a thrift bank under the General Banking Act,
insofar as such powers are not inconsistent or incompatible with the provisions of this
Charter.

Unless otherwise provided in this Charter, the exercise of the above-mentioned powers on banking
shall be subject to applicable law, as well as regulations promulgated by the Central Bank of the
Philippines.

Land bank of the Ph (RA 3844, secs 74-75)

CHAPTER IV
LAND BANK

Section 74. Creation - To finance the acquisition by the Government of landed estates for division
and resale to small landholders, as well as the purchase of the landholding by the agricultural lessee
from the landowner, there is hereby established a body corporate to be known as the "Land Bank
of the Philippines", hereinafter called the "Bank", which shall have its principal place of business
in Manila. The legal existence of the Bank shall be for a period of fifty years counting from the
date of the approval hereof. The Bank shall be subject to such rules and regulations as the Central
Bank may from time to time promulgate.

Section 75. Powers in General - To carry out this main purpose, the Bank shall have the power:

(1) To prescribe, repeal, and alter its own by laws, to determine its operating policies, and
to issue such rules and regulations as may be necessary to achieve the main purpose for the
creation of the Bank;

(2) To adopt, alter and use a corporate seal;

 (3) To acquire and own real and personal property and to sell, mortgage or otherwise
dispose of the same;

(4) To sue and be sued, make contracts, and borrow money from both local and foreign
sources. Such loans shall be subject to approval by the President of the Philippines and
shall be fully guaranteed by the Government of the Philippines;

(5) Upon recommendation of the Committee on Investments, to hold, own, purchase,

acquire, sell or otherwise invest, or reinvest in stocks, bonds or other securities capable of
giving the Bank a reasonably assured income sufficient to support its financing activities
and give its private stockholders a fair return on their holdings: Provided, however, That
pending the organization of the Committee on Investments, the Bank may exercise the
powers herein provided without the recommendation of said Committee on Investments:
Provided, further, That in case of the dissolution of the Land Bank all unsold public lands
transferred to it which may be allocated to the Government of the Philippines in the course
of liquidation of the business of the Bank shall revert to the Department of Agriculture and
Natural Resources; and

(6) To provide, free of charge, investment counselling and technical services to landowners
whose lands have been acquired by the Land Bank. For this purpose, the Land Bank may
contract the services of private consultants.

Al-amanah Islamic bank (the charter of the al-amanah Islamic investment bank of the Ph;
secs 2-6)
Republic Act No. 6848 // January 26, 1990

Section 2. Name, Domicile and Place of Business. - There is hereby created the Al-Amanah
Islamic Investment Bank of the Philippines, which shall be hereinafter called the Islamic Bank. Its
principal domicile and place of business shall be in Zamboanga City. It may establish branches,
agencies or other offices at such places in the Philippines or abroad subject to the laws, rules and
regulations of the Central Bank.

Section 3. Purpose and Basis. - The primary purpose of the Islamic Bank shall be to promote
and accelerate the socio-economic development of the Autonomous Region by performing
banking, financing and investment operations and to establish and participate in agricultural,
commercial and industrial ventures based on the Islamic concept of banking.

All business dealings and activities of the Islamic Bank shall be subject to the basic principles and
rulings of Islamic Shari'a within the purview of the aforementioned declared policy. Any zakat or
"ithe" paid by the Islamic Bank on behalf of its shareholders and depositors shall be its obligation
to appropriate said zakat fund and to disburse it in legitimate channels to be ascertained first by
the Shari'a Advisory Council.

Section 4. Shari'a Advisory Council. - There is hereby created a Shari'a Advisory Council of
the Islamic Bank which shall be composed of not more than five (5) members, selected from
among Islamic scholars and jurists of comparative law.
The members shall be elected at a general shareholders meeting of the Islamic Bank every three
(3) years from a list of nominees prepared by the Board of Directors of the Islamic Bank. The
Board is hereby authorized to select the members of the first Shari'a Advisory Council and to
determine their remunerations.

Section 5. Functions of the Shari'a Advisory Council. - The functions of the Shari'a Advisory
Council shall be to offer advice and undertake reviews pertaining to the application of the
principles and rulings of the Islamic Shari'a to the Islamic Bank's transactions, but it shall not
directly involve itself in the operations of the Bank.

Any member of the Shari'a Advisory Council may be invited to sit in the regular or special
meetings of the Board of Directors of the Islamic Bank to expound his views on matters of the
Islamic Shari'a affecting a particular transaction but he shall not be entitled to vote on the question
presented before the board meetings.

CORPORATE POWERS

Section 6. Islamic Bank's Powers. - The Al-Amanah Islamic Investment Bank of the Philippines,
upon its organization, shall be a body corporate and shall have the power:

(1) To prescribe its bylaws and its operating policies;

(2) To adopt, alter and use a corporate seal;

(3) To make contracts, to sue and be sued;

(4) To borrow money; to own real or personal property and introduce improvements
thereon, and to sell, mortgage or otherwise dispose of the same;

(5) To employ such officers and personnel, preferably from the qualified Muslim sector,
as may be necessary to carry Islamic banking business;

(6) To establish such branches and agencies in provinces and cities in the Philippines,
particularly where Muslims are predominantly located, and such correspondent offices in
other areas in the country or abroad as may be necessary to carry on its Islamic banking
business, subject to the provisions of Section 2 hereof;

(7) To perform the following banking services:

(a) Open current or checking accounts;

(b) Open savings accounts for safekeeping or custody with no participation in profit
and losses except unless otherwise authorized by the account holders to be invested;

(c) Accept investment account placements and invest the same for a term with the
Islamic Bank's funds in Islamically permissible transactions on participation basis;
 (d) Accept foreign currency deposits from banks, companies, organizations and
individuals, including foreign governments;

(e) Buy and sell foreign exchange;

(f) Act as correspondent of banks and institutions to handle remittances or any fund
transfers;

(g) Accept drafts and issue letters of credit or letters of guarantee, negotiate notes
and bills of exchange and other evidence of indebtedness under the universally
accepted Islamic financial instruments;

(h) Act as collection agent insofar as the payment orders, bills of exchange or other
commercial documents are exclusive of riba or interest prohibitions;

(i) Provide financing with or without collateral by way of leasing, sale and
leaseback, or cost plus profit sales arrangement;

(j) Handle storage operations for goods or commodity financing secured by

warehouse receipts presented to the Bank;

(k) Issue shares for the account of institutions and companies assisted by the Bank
in meeting subscription calls or augmenting their capital and/or fund requirements
as may be allowed by law;

(l) Undertake various investments in all transactions allowed by Islamic Shari'a in

such a way that shall not permit the haram (forbidden), nor forbid the halal
(permissible);

(8) To act as an official government depository, or its branches, subdivisions and

instrumentalities and of government-owned or controlled corporations, particularly those
doing business in the autonomous region;

(9) To issue investment participation certificates, muquaradah (non-interest-bearing

bonds), debentures, collaterals and/or the renewal or refinancing of the same, with the
approval of the Monetary Board of the Central Bank of the Philippines, to be used by the
Bank in its financing operations for projects that will promote the economic development
primarily of the Autonomous Region;

(10) To carry out financing and joint investment operations by way of mudarabah
partnership, musharaka joint venture or by decreasing participation, murabaha purchasing
for others on a cost-plus financing arrangement, and to invest funds directly in various
projects or through the use of funds whose owners desire to invest jointly with other
resources available to the Islamic Bank on a joint mudarabah basis;

(11) To invest in equities of the following allied undertakings:

 (a) Warehousing companies;

(b) Leasing companies;

(c) Storage companies;

(d) Safe deposit box companies;

(e) Companies engaged in the management of mutual funds but not in the mutual
funds themselves; and

(f) Such other similar activities as the Monetary Board of the Central Bank of the
Philippines has declared or may declare as appropriate from time to time, subject
to existing limitations imposed by law;

(12) To exercise the powers granted under this Charter and such incidental powers as may
be necessary to carry on its business, and to exercise further the general powers mentioned
in the Corporation Law and the General Banking Act, insofar as they are not inconsistent
or incompatible with the provisions of this Charter.

Universal banks and commercial banks (general banking law; secs 23 and 29)
CHAPTER IV DEPOSITS, LOANS AND OTHER OPERATIONS ARTICLE I - OPERATIONS
OF UNIVERSAL BANKS
SECTION 23. Powers of a Universal Bank. — A universal bank shall have the authority to
exercise, in addition to the powers authorized for a commercial bank in Section 29, the powers of
an investment house as provided in existing laws and the power to invest in non-allied enterprises
as provided in this Act. (21-B)
ARTICLE II - OPERATIONS OF COMMERCIAL BANKS
SECTION 29. Powers of a Commercial Bank. — A commercial bank shall have, in addition to the
general powers incident to corporations, all such powers as may be necessary to carry on the
business of commercial banking, such as accepting drafts and issuing letters of credit; discounting
and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting
or creating demand deposits; receiving other types of deposits and deposit substitutes; buying and
selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt
securities; and extending credit, subject to such rules as the Monetary Board may promulgate.
These rules may include the determination of bonds and other debt securities eligible for
investment, the maturities and aggregate amount of such investment. (21a)
----------------------------------------------------------------------------------
Non-bank financial institutions:
Investment houses (investment houses law; secs 2,3,6,7)
PRESIDENTIAL DECREE No. 129 February 15, 1973 GOVERNING THE
ESTABLISHMENT, OPERATION AND REGULATION OF INVESTMENT HOUSES
Section 2. Scope. Any enterprise which engages in the underwriting of securities of other
corporations shall be considered an "Investment House" and shall be subject to the provisions of
this Decree and of other pertinent laws.
Nothing in this Decree shall be understood to preclude other enterprises from engaging in the mere
buying and selling of short-term securities of other persons or enterprises.
Section 3. Definitions. For the purpose of this Decree, unless the context otherwise indicates, the
following definition of terms are hereby adopted:
(a) "Underwriting" is the act or process of guaranteeing the distribution and sale of securities of
any kind issued by another corporation.
(b) "Securities" are written evidences of ownership, interest, or participation, in an enterprise, or
written evidences of indebtedness of a person or enterprise. It includes, but is not limited to the
instruments enumerated in Section 2 of the Securities Act (Commonwealth Act No. 83, as
amended).
Section 6. Prohibitions. Except as may be authorized by the Monetary Board, no director or officer
of an Investment House shall concurrently be a director or officer of a bank, as defined in Section
2 of the Republic Act No. 337, as amended: Provided, however, That in no event can a person be
authorized to be concurrently an officer of an Investment House and of a bank.
No Investment House shall engage in banking operations as defined in Section 2 of Republic Act
No. 337, as amended.
Section 7. Powers. In addition to the powers granted to corporations in general, an Investment
House is authorized to do the following:
1. Arrange to distribute on a guaranteed basis securities of other corporations and of the
Government or its instrumentalities;
2. Participate in a syndicate undertaking to purchase and sell, distribute or arrange to distribute on
a guaranteed basis securities of other corporations and of the Government or its instrumentalities;
3. 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;
4. Participate as soliciting dealer or selling group member in tender offers, block sales, or exchange
offering or securities; deal in options, rights or warrants relating to securities and such other powers
which a dealer may exercise under the Securities Act (Act No. 83, as amended);
5. Promote, sponsor, or otherwise assist and implement ventures, projects and programs that
contribute to the economy's development;
6. Act as financial consultant, investment adviser, or broker;
7. Act as porfolio manager, and/or financial agent, but not as trustee of a trust fund or trust property
as provided for in Chapter VII of Republic Act No. 337, as amended;
8. Encourage companies to go public, and initiate and/or promote, whenever warranted, the
formation, merger, consolidation, reorganization, or recapitalization of productive enterprises, by
providing assistance or participation in the form of debt or equity financing or through the
extension of financial or technical advice or service;
9. Undertake or contract for researches, studies and surveys on such matters as business and
economic conditions of various countries, the structure of financial markets, the institutional
arrangements for mobilizing investments;
10. Acquire, own, hold, lease or obtain an interest in real and/or personal property as may be
necessary or appropriate to carry on its objectives and purposes;
11. Design pension, profit-sharing and other employee benefits plans; and
12. Such other activities or business ventures as are directly or indirectly related to the dealing in
securities and other commercial papers, unless otherwise governed or prohibited by special laws,
in which case the special law shall apply.
Nothing in this section shall preclude other enterprises not covered by this Decree from engaging
in the activities listed under subsections (3) to (11) of this section, except as may otherwise be
governed by special laws.
Financing companies (financing company act; secs 3 and 9)
REPUBLIC ACT NO. 8556
"Sec. 3. Definition of Terms. — As used in this Act, the term:
"(a) 'Financing companies' hereinafter called companies, are corporations, except banks,
investments houses, savings and loan associations, insurance companies, cooperatives, and other
financial institutions organized or operating under other special laws, which are primarily
organized for the purpose of extending credit facilities to consumers and to industrial, commercial,
or agricultural enterprises, 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;
"(b) 'Securities and Exchange Commission' shall mean the office of the Securities and Exchange
Commission of the Philippines;
"(c) 'Credit' shall mean any loan, mortgage, financial lease, deed of trust, advance or discount, any
conditional sales contract, contract to sell, or sale or contract of sale of property or service, either
for present or future delivery, under which, part of all or the price is payable subsequent to the
making of such sale or contract; any contract, any option, demand, lien or pledge, or to the other
claims against, or for the delivery of, property or money, any purchase, or other acquisition of or
any credit upon the security of, any obligation or claim arising out of the foregoing, and any
transaction or series of transactions having similar purpose or effect;
"(d) '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 (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
which the lessee has the right to hold and use the leased property with the right to expense the
lease rentals paid to the lessor and bears the cost of repairs, maintenance, insurance and
preservation thereof, but with no obligation or option on his part to purchase the leased property
from the owner-lessor at the end of the lease contract.
"(e) 'Purchase discount' is the difference between the value of the receivable purchased or credit
assigned, and the net amount paid by the finance company for such purchases or assignment,
exclusive of fees, services, charges, interest and other charges incident to the extension of credit.
"(f) 'Lease rentals' shall refer to the periodic payments made by the lessee to the lessor under Sec.
3(d), above."
Sec. 8. Sec. 8 of the same Act is hereby repealed.
Sec. 9. Sec. 9 of the same Act is hereby renumbered as Sec. 8.
Investment companies (investment company act; sec 4)
REPUBLIC ACT NO. 2629
Sec. 4. Definition of investment company. — (a) when used in this Act "investment company"
means any issuer which is or holds itself out as being engaged primarily, or proposes to engage
primarily, in the business of investing, reinvesting, or trading in securities;
(b) Notwithstanding subsection (a), none of the following persons is an investment company
within the meaning of this Act;

(1) Any issuer primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries,
in a business or businesses other than that of investing, reinvesting, or trading in securities.
(2) Any issuer which the Commission, upon application by such issuer, finds and by order
declares to be primarily engaged in a business or businesses other than that of investing,
reinvesting, or trading in securities either directly or (A) through majority-owned subsidiaries or
(B) through controlled companies conducting similar types of business. The filing of an application
under this paragraph by an issuer other than a registered investment company shall exempt the
applicant for a period of sixty days from all provisions of this Act applicable to investment
companies as such. For cause shown, the Commission by order may extend such period of
exemption for an additional period or periods. Whenever the Commission, upon its own motion
or upon application, finds that the circumstances which gave rise to the issuance of an order
granting an application under this paragraph no longer exist, the Commission shall by order revoke
such order.
(3) Any issuer all the outstanding securities of which (other than short-term paper and directors'
qualifying shares) are directly or indirectly owned by a company excepted from the definition of
investment company.

(c) Notwithstanding subsection (a), and (b), none of the following persons is an investment
company within the meaning of this Act:
(1) Any issuer whose outstanding securities (other than short-term paper) are beneficially owned
by not more than twenty-five persons and which is not making and does not presently propose to
make a public offering of its securities. For the purpose of this paragraph, beneficial ownership by
a company shall be deemed to be beneficial ownership by one person; except that, if such company
owns ten per centum or more of the outstanding voting securities of the issuer, the beneficial
ownership shall be deemed to be that of the holders of such company's outstanding securities (other
than short-term paper).
(2) Any person primarily engaged in the business of underwriting and distributing securities
issued by other persons, selling securities to customers, and acting as broker, or any one or more
of such activities, whose gross income normally is derived principally from such business and
related activities.
(3) Any bank or insurance company; any savings and loan association, building and loan
association, cooperative bank, homestead association, or similar institution, or any receiver,
conservator, liquidator, liquidating agent, or similar official or person thereof or therefor; any
common trust fund or similar fund maintained by a bank exclusively for the collective investment
and reinvestment of moneys contributed thereto by the bank in its capacity as a trustee, executor,
administrator, or guardian.
(4) Any person substantially all of whose business is confined to industrial banking or similar
business.

(5) Any person who is primarily engaged in one or more of the following business: (A)
Purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other
obligations representing part or all of the sales price of merchandise, insurance, and services; (B)
making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of,
specified merchandise, insurance, and service; and (C) purchasing or otherwise acquiring
mortgages and other liens on and interests in real estate.
(6) Any company primarily engaged, directly or through majority-owned subsidiaries, in one or
more of the businesses described in paragraphs (3), (4) and (5), or in one or more of such businesses
(from which not less than forty per centum of such company's gross income during its last fiscal
year was derived) together with an additional business or businesses other than investing,
reinvesting, owning, holding or trading in securities.

(7) Any company ninety per centum or more of the value of whose investment securities are
represented by securities of a single issuer included within a class of persons enumerated in
paragraphs (4), (5), or (6).

(8) Any person substantially all of whose business consist of owning or holding oil, gas, or other
mineral royalties or leases, or fractional interests therein, or certificates of interest or participation
in or investment contracts relative to such royalties, leases, or fractional interests.

(9) Any company organized and operated exclusively for religious, educational, benevolent,
fraternal, charitable, or reformatory purposes, no part of the net earnings of which inures to the
benefit of any private shareholders or individual.

(10) Any employees' stock bonus, pension, or profit- sharing trust.

(11) Any voting trust the assets of which consist exclusively of securities of a single issuer which
is not an investment company.

(12) Any security holders' protective committee or similar issuer having outstanding and issuing
no securities other than certificates of deposit and short-term paper.
------------------------------------------------------
Baby hofi: read the statutory provisions with a view to gaining appreciation of specialized
financial institutions, and their overall purpose/function. NO REQUIREMENT TO MEMORIZE
SPECIFIC POWERS

3rd Meeting
Assigned Materials:
A. What is Banking?

General Banking Law

SECTION 3. Definition and Classification of Banks. —

a. 3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the
form of deposits. (2a)
Banks are entities engaged in the lending of funds obtained in the form of deposits
Anyone can lend money. What makes banks as banks, are that these funds they lend
are obtained from deposits from the public.

CHAPTER III ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF

BANKS, QUASI-BANKS AND TRUST ENTITIES
 b. SECTION 8. Organization. — The Monetary Board may authorize the organization
of a bank or quasi-bank subject to the following conditions:

i. 8.2. That its funds are obtained from the public, which shall mean twenty
(20) or more persons (2-Da); and
By public, the law means that the funds herein, are obtained from at least
20 or more people
Public means 20 or more persons. The law doesn’t qualify whether these
persons are natural or not, citizen or not, or resident or not.
II. What is Quasi-Banking?

a. General Banking Law

CHAPTER II AUTHORITY OF THE BANGKO SENTRAL

SECTION 4. Supervisory Powers. — The operations and activities of banks shall

be subject to supervision of the Bangko Sentral. "Supervision" shall include the
following:
The operations and activities of banks are subject to the supervisory powers of
the BSP! Supervision would include those below

4.1. The issuance of rules of conduct or the establishment of standards of

operation for uniform application to all institutions or functions covered, taking into
consideration the distinctive character of the operations of institutions and the
substantive similarities of specific functions to which such rules, modes or
standards are to be applied;

4.2. The conduct of examination to determine compliance with laws and

regulations if the circumstances so warrant as determined by the Monetary Board;

4.3. Overseeing to ascertain that laws and regulations are complied with;

4.4. Regular investigation which shall not be oftener than once a year
from the last date of examination to determine whether an institution is conducting
its business on a safe or sound basis: Provided, That the deficiencies/irregularities
found by or discovered by an audit shall be immediately addressed;

4.5. Inquiring into the solvency and liquidity of the institution (2-D); or

4.6. Enforcing prompt corrective action. (n)

The Bangko Sentral shall also have supervision over the operations of and
exercise regulatory powers over QUASI-BANKS, trust entities and other
financial institutions which under special laws are subject to Bangko Sentral
supervision. (2-Ca) For the purposes of this Act, "quasi-banks" shall refer to
entities engaged in the borrowing of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit substitutes as defined in Section
95 of Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes
of relending or purchasing of receivables and other obligations. (2-Da)

Quasi-banks are entities engaged in the borrowing of funds, thru the IEA
(issuance, endorsement, or assignment) with recourse or acceptance of deposit
substitutes as defined in RA 7653, sec 95, for the purpose of relending or
purchasing of receivables, and other obligations.

Deposit substitutes is an alternative form of obtaining funds from the public, other
than deposits (hence the term deposit substitutes), thru the IEA of debt instruments
for the borrower’s own account, for the purpose of relending and purchasing of
receivables and other obligations

Deposubs are not deposits, since based on the definition of these deposubs, these
are an “alternative form of obtaining fudns from the public”. Examples of deposubs
are Promissory notes. Quasi-banks get funds (deposubs) and use these funds for
lending

In the case of deposits, the bank is liable to pay the depositor the amount which the
latter deposited with the former.

In the case of deposubs as promissory notes, the one liable to pay the PNs is the
entity who made such PN. Quasi-banking means “like a bank”. Quasi-banks gets
its funds, NOT BY THE DEPOSITS from the public, but from DEPOSUBS.

What element then is needed for an entity to be a “quasi-bank” or like a bank? A:

the person who gave the funds must be able to, as a matter of right, DEMAND
PAYMENT FROM SAID QUASI BANK. So its not just the fact that the quasi
banks issues deposubs to source its funds, it must be able to pay the person who
sourced/gave the entity such funds. That in addition to me being assigned the PN,
I must be able to get such funds (“for the borrower’s account” this is what this
statement means in the definition)

Who can the person, which provided the funds to this quasi-bank, go after to
recover the amount he gave? A:

Both banks and quasi banks must be liable to the person who gave them their funds.
There is a technical distinction b/w banks and quasi banks.
 b. The New Central Bank Act, section 95:
i. Section 95. Definition of Deposit Substitutes. - The term "deposit
substitutes" is defined as an alternative form of obtaining funds from the
public, other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrower's own account, for the
purpose of relending or purchasing of receivables and other obligations.
These instruments may include, but need not be limited to, bankers
acceptances, promissory notes, participations, certificates of assignment
and similar instruments with recourse, and repurchase agreements. The
Monetary Board shall determine what specific instruments shall be
considered as deposit substitutes for the purposes of Section 94 of this Act:
Provided, however, That deposit substitutes of commercial, industrial and
other non-financial companies for the limited purpose of financing their
own needs or the needs of their agents or dealers shall not be covered by the
provisions of Section 94 of this Act.
The MB shall determine what kind of instruments are to be considered as
deposit substitutes for the purpose of sec 94 of the central bank act
III. The Licensing Requirement

a. SECTION 6.

Authority to Engage in Banking and Quasi-Banking Functions. — No person or

entity shall engage in banking operations or quasi-banking functions without
authority from the Bangko Sentral: Provided, however, That an entity authorized
by the Bangko Sentral to perform universal or commercial banking functions shall
likewise have the authority to engage in quasi-banking functions. The
determination of whether a person or entity is performing banking or quasi-banking
functions without Bangko Sentral authority shall be decided by the Monetary
Board. 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. 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 this Act or other special laws. The department head and the examiners of the
appropriate supervising and examining department are hereby 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. Failure or refusal to
comply with the required presentation or production of such books, documents,
papers or records within a reasonable time shall subject the persons responsible
therefore to the penal sanctions provided under the New Central Bank Act.
 No person/entity shall engage in BANKOPS or quasi banking functions if they are
without the authority from the BSP. Provided that an entity authorized by the BSP
to perfrom universal/commercial banking functions shall likewise have the
authority to engage in quasi-banking fucntions.

The determination of w/n a person/entity is perfroming banking or quasi banking

fucntions without the auth of the BSP, shall rest with the MB.

Both banks and quasi banks are entities under the supervision of the BSP

b. Section 8

CHAPTER III ORGANIZATION, MANAGEMENT AND ADMINISTRATION

OF BANKS, QUASI-BANKS AND TRUST ENTITIES
SECTION 8. Organization. — The Monetary Board may authorize the
organization of a bank or quasi-bank subject to the following conditions:

8.1. That the entity is a stock corporation (7);

8.2. That its funds are obtained from the public, which shall mean twenty (20) or
more persons (2-Da); and

8.3. That the minimum capital requirements prescribed by the Monetary Board for
each category of banks are satisfied. (n)

No new commercial bank shall be established within three (3) years from the
effectivity of this Act. In the exercise of the authority granted herein, the Monetary
Board shall take into consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank licensing process shall
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.

the MB may authorize the organization of a bank or quasi bank, but subject to the
ff conditions:
1. That the entity is a stock corp
2. That its funds are obtained from the public, and by public is
understood to be at least from 20 or more persons
3. That the minimum capital requirements prescribed by the MB
for each category of banks are satisfied
 No new commercial bank shall be established within 3 years from the effectivity of
the central bank act.

IV. Need for Special Regulation

a. Section 2

SECTION 2. Declaration of Policy. — The State recognizes the vital role of

banks in providing an environment conducive to the sustained development of
the national economy and the fiduciary nature of banking that requires high
standards of integrity and performance. In furtherance thereof, the State shall
promote and maintain a stable and efficient banking and financial system that is
globally competitive, dynamic and responsive to the demands of a developing
economy. (n)

JMH: what is the standard of care required of banks?

A: extraordinary diligence. Banks have a fiduciary nature with their clients and
the latter’s deposits (RRSC). The nature of the business of banks is fiduciary

b. Section 22

SECTION 22. Strikes and Lockouts. — The banking industry is hereby declared
as indispensable to the national interest and, notwithstanding the provisions of
any law to the contrary, any strike or lockout involving banks, if unsettled after
seven (7) calendar days shall be reported by the Bangko Sentral to the
Secretary of Labor who may assume jurisdiction over the dispute or decide it or
certify the same to the National Labor Relations Commission for compulsory
arbitration. However, the President of the Philippines may at any time intervene
and assume jurisdiction over such labor dispute in order to settle or terminate the
same. (6-E)

Any strike/lockout that is unsettled after 7 calendar days shall be reported by the
BSP to the SOL, where the latter am assume jurisdiction over the dispite, or decide
it, or certify the same to the NLRC for compulsory arbitration. HOWEVER, the
president of the PH may at any time intervene and assume jurisdiction over such
labor dispute in order to settle/terminate it.

Q: who has the authority to determine the question of WHETHER an entity is

engaged in banking business?

A: the BSP

V. BSP as a Regulator
a. BSP as Licensor
i. General Banking Law
1. Sections 6 and 8 are already mentioned above
2. Section 14

SECTION 14. Certificate of Authority to Register. — The Securities

and Exchange Commission shall not register the articles of
incorporation of any bank, or any amendment thereto, unless
accompanied by a certificate of authority issued by the
Monetary Board, under its seal. Such certificate shall not be
issued unless the Monetary Board is satisfied from the evidence
submitted to it:

The SEC shall not register the AOI of any bank, or any amendment
to such, unless accompanied by a certificate of authority by the MB,
under its seal. Also, such certificate shall not be issued unless the
MB is satisfied from the evidence submitted to it that… see below

14.1 That all requirements of existing laws and regulations to

engage in the business for which the applicant is proposed to be
incorporated have been complied with;

14.2. That the public interest and economic conditions, both

general and local, justify the authorization; and

14.3. That the amount of capital, the financing, organization,

direction and administration, as well as the integrity and
responsibility of the organizers and administrators reasonably
assure the safety of deposits and the public interest. (9) The
Securities and Exchange Commission shall not register the by-laws
of any bank, or any amendment thereto, unless accompanied by
a certificate of authority from the Bangko Sentral. (10)

The SEC shall not register the BLs of any bank, or any amendment
thereto, unless accompanied by a certificate of auth from the BSP!
(if AOI = MB, if BLs = BSP)

3. Section 64

SECTION 64. Unauthorized Advertisement or Business

Representation. — NO person, association, or corporation unless
duly authorized to engage in the business of a bank, quasi-bank, trust
entity, or savings and loan association as defined in this Act, or other
 banking laws, shall advertise or hold itself out as being engaged
in the business of such bank, quasi-bank, trust entity, or
association, OR use in connection with its business title, the word
or words "bank", "banking", "banker", "quasi-bank",
"quasibanking", "quasi-banker", "savings and loan association",
"trust corporation", "trust company" or words of similar import or
transact in any manner the business of any such bank, corporation
or association. (6)

JMH: To emphasize that banking is an industry vested with public

interest, and must be subject to strict regulation, the law provides
that NOT ONLY shall an entity not engage in banking activities
without the proper license, it CANNOT also represent or hold itself
out to be engaged in said banking activities without the required
license

b. Operating without Authority

i. General Banking Law, section 66
1. SECTION 66. Penalty for Violation of this Act. — Unless
otherwise herein provided, the violation of any of the provisions
of this Act shall be subject to Sections 34, 35, 36 and 37 of the
New Central Bank Act. If the offender is a director or officer of a
bank, quasi-bank or trust entity, the Monetary Board may also
suspend or remove such director or officer. If the violation is
committed by a corporation, such corporation may be dissolved by
quo warranto proceedings instituted by the Solicitor General. (87)
Penalties: for director/officer  the MB may suspend or remove
him
If corporation  such corp may be dissolved by quo warranto
proceedings instituted by the SolGen
ii. New Central Bank Act, secs 36 and 37
1. SECTION 36. Restriction on Bank Exposure to Directors,
Officers, Stockholders and Their Related Interests. — No
director or officer of any bank shall, directly or indirectly, for
himself or as the representative or agent of others, BORROW from
such bank NOR shall he become a GUARANTOR, INDORSER
OR SURETY for loans from such bank to others, or in any manner
be AN OBLIGOR OR INCUR ANY CONTRACTUAL
LIABILITY TO THE BANK except with the written approval of
the majority of all the directors of the bank, excluding the director
 concerned: Provided, That such written approval shall not be
required for loans, other credit accommodations and advances
granted to officers under a fringe benefit plan approved by the
Bangko Sentral. The required approval shall be entered upon the
records of the bank and a copy of such entry shall be transmitted
forthwith to the appropriate supervising and examining department
of the Bangko Sentral. Dealings of a bank with any of its directors,
officers or stockholders and their related interests shall be upon
terms not less favorable to the bank than those offered to others.
After due notice to the board of directors of the bank, the office of
any bank director or officer who violates the provisions of this
Section may be declared vacant and the director or officer shall be
subject to the penal provisions of the New Central Bank Act. The
Monetary Board may regulate the amount of loans, credit
accommodations and guarantees that may be extended, directly or
indirectly, by a bank to its directors, officers, stockholders and their
related interests, as well as investments of such bank in enterprises
owned or controlled by said directors, officers, stockholders and
their related interests. However, the outstanding loans, credit
accommodations and guarantees which a bank may extend to each
of its stockholders, directors, or officers and their related interests,
shall be limited to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital
contribution in the bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets considered as
non-risk by the Monetary Board shall be excluded from such limit:
Provided, further, That loans, credit accommodations and advances
to officers in the form of fringe benefits granted in accordance with
rules as may be prescribed by the Monetary Board shall not be
subject to the individual limit. The Monetary Board shall define
the term "related interests." The limit on loans, credit
accommodations and guarantees prescribed herein shall not apply
to loans, credit accommodations and guarantees extended by a
cooperative bank to its cooperative shareholders. (83a)
2. SECTION 37. Loans and Other Credit Accommodations Against
Real Estate. — Except as the Monetary Board may otherwise
prescribe, loans and other credit accommodations against real
estate shall not exceed seventy-five percent (75%) of the
appraised value of the respective real estate security, plus sixty
percent (60%) of the appraised value of the insured improvements,
and such loans may be made to the owner of the real estate or to his
assignees. (78a)
c. BSP as Supervisor and Regulator

i. General banking law, secs 4-7

1. Section 4 already mentioned above
2. Section 5 already mentioned above
3. Section 6 already mentioned above
4. Section 7
a. SECTION 7. Examination by the Bangko Sentral. — The
Bangko Sentral shall, when examining a bank, have the
authority to examine an enterprise which is wholly or
majority-owned or controlled by the bank. (21-Ba)

ii. New central bank act, secs 25, 28, 36 and 37

1. Section 25
a. Section 25. Supervision and Examination. - The Bangko
Sentral shall have supervision over, and conduct periodic
or special examinations of, banking institutions and quasi-
banks, including their subsidiaries and affiliates engaged in
allied activities.

For purposes of this section, 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, to the extent
of fifty percent (50%) or less, is owned by a bank or quasi-
bank 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.

Subsidiary  a corp where more than 50% of its voting

stock is owned by a bank or quasi bank.
Affiliate  a corp, the voting stock of which, to the extent
of 50% or less is owned by a bank or quasi bank. OR which
is related to or linked to such institution or intermediary thru
common StHs, or such other factors as determined by the
MB.

If a bank owns a majority of a parking lot company, the latter

is definitely not engaged in any banking activities. BUT
section 7 says that all subsidiaries will be examined. But
when BSP examines the record of the owner bank, then it
would be able also to check the books of this subsidiary
owned parking lot company
 The department heads and the examiners of the
supervising and/or examining departments are hereby
authorized to administer oaths to any director, officer, or
employee of any institution under their respective
supervision or subject to their examination and to compel
the presentation of all books, documents, papers or records
necessary in their judgment to ascertain the facts relative to
the true condition of any institution as well as the books and
records of persons and entities relative to or in connection
with the operations, activities or transactions of the
institution under examination, subject to the provision of
existing laws protecting or safeguarding the secrecy or
confidentiality of bank deposits as well as investments of
private persons, natural or juridical, in debt instruments
issued by the Government.

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, 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, in an amount
to be fixed by the court. The provisions of Rule 58 of the
New Rules of Court insofar as they are applicable and not
inconsistent with the provisions of this section shall govern
the issuance and dissolution of the restraining order or
injunction contemplated in this section.

GR: no injunction or restraining order shall be issued by

the court to prevent the BSP from examining any
institution subject to the supervision and examination of the
BSP, UNLESS it can be shown that said action of the BSP
is arbitrary and in bad faith and the petitioner/plaintiff files
a bond in the court where action is pending, executed IN
FAVOR OF THE BSP

2. Section 28
a. Section 28. Examination and Fees. - The supervising and
examining department head, personally or by deputy, shall
examine the books of every banking institution once in
every twelve (12) months, and at such other times as the
 Monetary Board by an affirmative vote of five (5)
members, may deem expedient and to make a report on the
same to the Monetary Board: Provided, That there shall be
an interval of at least twelve (12) months between annual
examinations.

Examination/investigation must be limited to once every

12 months or ONLY DONE ANNUALLY, AND at such
other times as the MB (by affirmative vote of 5 members)
deem expedient. PROVIDED that there must be an interval
of 12 months before annual examinations.

Q: So what does the law mean on what the BSP can do in 1

year?
A: so what the law restricts to only 1 year are regular audit,
since these can only be done once every year. BUT IF
THERE ARE SPECIAL REASONS which would warrant
examination, then the BSP may do special
audits/examinations.

The bank concerned shall afford to the head of the

appropriate supervising and examining departments and to
his authorized deputies full opportunity to examine its
books, cash and available assets and general condition at
any time during banking hours when requested to do so
by the Bangko Sentral: Provided, however, That none of
the reports and other papers relative to such
examinations shall be open to inspection by the public
except insofar as such publicity is incidental to the
proceedings hereinafter authorized or is necessary for the
prosecution of violations in connection with the business
of such institutions.

Banking and quasi-banking institutions which are subject to

examination by the Bangko Sentral shall pay to the Bangko
Sentral, within the first thirty (30) days of each year, an
annual fee in an amount equal to a percentage as may be
prescribed by the Monetary Board of its average total assets
during the preceding year as shown on its end-of-month
balance sheets, after deducting cash on hand and amounts
due from banks, including the Bangko Sentral and banks
abroad.
3. Section 36
 a. Section 36. Proceedings Upon Violation of This Act and
Other Banking Laws, Rules, Regulations, Orders or
Instructions. - Whenever a bank or quasi-bank, or
whenever any person or entity willfully violates this Act
or other pertinent banking laws being enforced or
implemented by the Bangko Sentral or any order,
instruction, rule or regulation issued by the Monetary Board,
the person or persons responsible for such violation shall
unless otherwise provided in this Act be punished by a fine
of not less than Fifty thousand pesos (P50,000) nor more
than Two hundred thousand pesos (P200,000) or by
imprisonment of not less than two (2) years nor more than
ten (10) years, or both, at the discretion of the court.

Whenever a bank or quasi-bank persists in carrying on its

business in an unlawful or unsafe manner, the Board may,
without prejudice to the penalties provided in the preceding
paragraph of this section and the administrative sanctions
provided in Section 37 of this Act, take action under
Section 30 of this Act.
4. Section 37
a. Section 37. 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; any
willful making of a false or misleading statement to the
Board or the appropriate supervising and examining
department or its examiners; any willful failure or refusal to
comply with, or violation of, any banking law or any order,
instruction or regulation issued by the Monetary Board, or
any order, instruction or ruling by the Governor; or any
commission of irregularities, and/or conducting business in
an unsafe or unsound manner as may be determined by the
Monetary Board, 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.

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. The
cease and desist order shall be immediately effective upon
service on the respondents.

The respondents shall be afforded an opportunity to

defend their action in a hearing before the Monetary Board
or any committee chaired by any Monetary Board member
created for the purpose, upon request made by the
respondents within five (5) days from their receipt of the
order. If no such hearing is requested within said period,
the order shall be final. If a hearing is conducted, all issues
shall be determined on the basis of records, after which the
Monetary Board may either reconsider or make final its
order.

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.

POST-MIDTERMS LESSONS

Administration of Deposit Accounts

A. Issues relating to deposit of funds

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid, in which case the contract is simply called
a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower. (1740a)

Art. 1934. An accepted promise to deliver something by way of commodatum or simple loan is
binding upon parties, but the commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract. (n)

Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan.
B. Issues relating to withdrawal of funds
No codal provisions given by Sir
C. Interest on deposits