Banking Laws

New Central Bank Act (RA 7653)

Effectivity: July 3, 1993

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 while being a government-owned corporation (GOCC) , shall enjoy fiscal and administrative
autonomy.

Creation of Banko Sentral: independent central monetary authority known as the Bangko Sentral ng Pilipinas
(BSP), hereafter referred to as the Bangko Sentral with a capital of P50 billion.

Responsibility: BSP shall provide policy directions in the areas of money, banking, and credit. It shall have
supervision over the operations of banks and exercise such regulatory powers as provided in this NCBA and other
pertinent laws over the operations of finance companies and non-bank financial institutions performing
quasibanking functions, hereafter referred to as quasi-banks, and institutions performing similar functions.

Primary objective: to maintain price stability conducive to a balanced and sustainable growth of the economy. It
shall also promote and maintain monetary stability and the convertibility of the peso.

Monetary Board: empowered to exercise the powers and functions of the BSP
Composition:
1. Governor of BSP (Monetary Board (MB) Chairman, subject to confirmation of the Commission on
Appointments);
2. Cabinet member (designated by the President, if unable, the designated Undersecretary of his Department)
3. 5 members form the private sector

Term: 6 years; reappointment not allowed

Qualifications:
1. Natural-born citizen
2. At least thirty-five (35) years of age, except for the BSP Governor who should at least be forty (40) years of
age
3. Of good moral character
4. Of unquestionable integrity
5. Of unknown probity and patriotism
6. With recognized competence in social and economic discipline

Disqualifications:
1. A member of disqualified from being a director, officer, employee, consultant, lawyer, agent or stockholder
of any bank, quasi-bank or any other institution which is subject to supervision or examination by the BSP
2. Members from the private sector shall not hold any other public office or public employment during their
tenure.
3. No person shall be a member if he has been connected directly with any multilateral banking or financial
institution or has a substantial interest in any private bank in the Philippines, within one (1) year prior to his
appointment.
4. No member shall be employed in any such institution within two (2) years after the expiration of his term
except when he serves as an official representative of the Philippine Government to such institution.

Removal: The President may remove any member of the MB for

any of the following reasons:
1. If the member is subsequently disqualified
2. If he is physically or mentally incapacitated that he cannot properly discharge his duties and responsibilities
and such incapacity has lasted for more than six (6) months; or
3. If the member is guilty of acts or operations which are of fraudulent or illegal character or which are
manifestly opposed to the aims and interests of the BSP; or
4. If the member no longer possesses the qualifications required

Quorum: presence of four (4) members; all decisions of the MB shall require the concurrence of at least four (4)
members.

Functions:
1. It provides policy directions in the areas of money credit and banking.
2. It shall have supervision over operations of banks
3. It shall exercise regulatory powers over the operations of finance companies and non-bank financial
institutions performing quasi-banking functions.
4. It shall have the sole power and authority to issue currency within the territory of the Republic of the
Philippines
5. The power to issue regulations to prevent the circulation of foreign currencies or currency substitutes as well
as the reproduction of facsimiles of BSP notes.
6. It has the power to investigate, make arrests, conduct searches and seizure for the purpose of maintaining the
integrity of currency.
7. To engage in foreign currency transactions in order to maintain price stability.
8. To make rediscounts, discounts, loans and advances to banking and other financial institutions to influence
the volume of credit consistent with the objective of price stability.
9. To engage in open market operations - purchase and sale of securities exclusively in accordance with the
objective of achieving price stability.
10. To act as the banker of the government.
11. To engage in marketing and stabilization of securities for the account of the government.
12. To act as the financial advisor of the government.

Powers:
1. To adopt, alter and use a corporate seal which shall be judicially noticed
2. To enter into contracts
3. To lease or own real and personal property
4. To sell or otherwise dispose of its real and personal property
5. To sue and be sued
6. To perform any and all things that may be necessary or proper to carry out the purposes of the NCBA
7. To compromise, condone or release, in whole or in part, any claim of or settled liability

Handling of banks in distress:

1. Conservatorship: appointment of conservator
a. Ground: in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors
b. Requirement: The conservator should be competent and knowledgeable in bank operations and
management.
c. Period: not exceeding one year
d. Powers of conservator
i. To take charge of the assets, liabilities, and the management thereof
ii. To reorganize the management of the subject bank
iii. To collect all monies and debts due said institution
iv. To exercise all powers necessary to restore its viability
e. Compensation:
i. To be fixed by the MB in an amount not to exceed two-thirds (2/3) of the salary of the president
of the institution in one (1) year, payable in twelve (12) equal monthly payments
ii. If at any time within one-year period, the conservatorship is terminated on the ground that the
institution can operate on its own, the conservator shall receive the balance of the remuneration
which he would have received up to the end of the year; but if the conservatorship is terminated
on other grounds, the conservator shall not be entitled to such remaining balance.
iii. The MB may appoint a conservator connected with the BSP, in which case he shall not be
entitled to receive any remuneration or emolument from the BSP during the conservatorship.
iv. The expenses attendant to the conservatorship shall be borne by the bank or quasi-bank
concerned.
f. Termination (Closure):
i. When the MB is satisfied that the institution can continue to operate on its own and the
conservatorship is no longer necessary.
ii. On the basis of the report of the conservator or of its own findings, determine that the
continuance in business of the institution would involve probable loss to its depositors or
creditors

2. Receivership and Liquidation

a. Grounds: (The MB may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the PDIC as receiver of the banking institutions.)
i. is unable to pay its liabilities as they become due in the ordinary course of business: provided,
that this shall not include inability to pay caused by extraordinary demands induced by financial
panic in the banking community.
ii. The bank has insufficient realizable assets as determined by BSP to meet its liabilities.
iii. The bank cannot continue in business without involving probable losses to its depositors or
creditors.
iv. The bank has willfully violated a cease and desist order that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution.
 b. Duties of receiver:
i. The receiver shall immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors
ii. The receiver shall exercise the general powers of a receiver under the Revised Rules of Court
(ROC)
iii. The receiver may deposit or place the funds of the institution in nonspeculative investments.
iv. The receiver shall determine as soon as possible, but not later than ninety (90) days from take
over, whether the institution may be rehabilitated or otherwise placed in such a condition so that
it may be permitted to resume business with safety to its depositors and creditors and the general
public: provided, That any determination for the resumption of business of the institution shall be
subject to prior approval of the MB.
v. The receiver shall not, with the exception of administrative expenditures, pay or commit any act
that will involve the transfer or disposition of any asset of the institution.
c. Effects:
i. The assets of an institution under receivership or liquidation shall be deemed in custodia legis in
the hands of the receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy, attachment, or
execution.
ii. There will be no preference even if the claimant-depositor obtained a writ of preliminary
attachment.
iii. The appointment of a receiver does not dissolve the corporation nor does it interfere with the
exercise with the exercise of corporate rights. Banks under liquidation retain their legal
personality. The bank can sue and be sued but any case should be initiated and prosecuted though
the liquidator.
iv. The BSO may forbid the bank from doing business.
v. An insolvent bank that was closed by the BSO is not liable to pay interests on deposit.

Under the law, the sanction of closure could be imposed upon a bank by the BSP even without notice and hearing.
The apparent lack of procedural due process would not result in the invalidity of action by the MB. This “close
now, hear later” scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the
bank’s assets and as valid exercise of police power to protect depositors, creditors, stockholders, and the general
public. (BSP v. Antonio-Valenzuela, GR 184778, October 2, 2009)

Legal Tender Power: All notes and coins issued by the BSP shall be fully guaranteed by the Government of the
Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private.

Peso: the unit of monetary value in the Philippines is the "peso," represented by the sign "P"; divided into one
hundred (100) equal parts called "centavos," represented by the sign "c."

Currency: all Philippine notes and coins issued or circulating in accordance with law.
 Characteristics of Notes: The MB, with the approval of the President of the Philippines, shall prescribe the
denominations, dimensions, designs, inscriptions and other characteristics of notes issued by the BSP. That
said notes shall state that they are liabilities of the BSP and are fully guaranteed by the Government of the
Republic of the Philippines. Said notes shall bear the signatures, in facsimile, of the President of the
Philippines and of the BSP Governor.
 Characteristics of Coins: The MB, with the approval of the President of the Philippines, shall prescribe the
weight, fineness, designs, denominations and other characteristics of the coins issued by the BSP. In the
minting of coins, the MB shall give full consideration to the availability of suitable metals and to their
relative prices and cost of minting.
 Printing of Notes and Mining of Coins: The MB shall prescribe the amounts of notes and coins to be printed
and minted, respectively, and the conditions to which the printing of notes and the minting of coins shall be
subject. The MB shall have the authority to contract institutions, mints or firms for such operations. All
expenses incurred in the printing of notes and the minting of coins shall be for the account of the BSP.
 Interconvertibility: The BSP shall exchange, on demand and without charge, Philippine currency of any
denomination for Philippine notes and coins of any other denomination requested. If for any reason the BSP
is temporarily unable to provide notes or coins of the denominations requested, it shall meet its obligations
by delivering notes and coins of the denominations which most nearly approximate those requested.
 Replacement: The BSP shall withdraw from circulation and shall demonetize all notes and coins which for
any reason whatsoever are unfit for circulation and shall replace them by adequate notes and coins. he BSP
shall not replace notes and coins the identification of which is impossible, coins which show signs of filing,
clipping or perforation, and notes which have lost more than two-fifths (2/5) of their surface or all of the
signatures inscribed thereon. Notes and coins in such mutilated conditions shall be withdrawn from
circulation and demonetized without compensation to the bearer.
 Retirement: The BSP may call in for replacement notes of any series or denomination which are more than 5
years old and coins which are more than 10 years old. Notes and coins called in for replacement shall remain
legal tender for a period of 1 year from the date of call. After this period, they shall cease to be legal tender
but during the following year, or for such longer period as the MB may determine, they may be exchanged at
 par and without charge in the BSP and duly authorized agents. After the expiration of this later period, the
notes and coins which have not been exchanged shall cease to be a liability of the BSP and shall not be
demonitized.

Exclusive Issue Power: Only the BSP shall have the sole power and authority to issue currency within the territory
of the Philippines. The MB may issue such regulations as it may deem advisable in order to prevent the circulation
of foreign currency or of currency substitutes as well as to prevent the reproduction of facsimiles of BSP notes.
The BSP shall have the authority to investigate, make arrests, and conduct searches and seizures in accordance
with law, for the purpose of maintaining the integrity of the currency.

Liabilities for Notes and Coins: Notes and coins issued by BSP shall be liabilities of the BSP and may be issued
only against, and in amounts not exceeding, the assets of the BSP. Said notes and coins shall be a first and
paramount lien on all assets of the BSP. The BSP’s holding of its own notes and coins shall not form part of the
assets or liabilities of the BSP.

Rate of Exchange: (during exchange crisis): The MB, with the approval of the President, may temporarily suspend
or restrict sales of exchange by the BSP and may subject all transactions in gold and foreign exchange to license
with the BSP, and may require that any foreign exchange thereafter obtained by any person residing or entity
operating in the Philippines be delivered to BSP or to any bank or agent designated by the BSP for the purpose, at
the effective exchange rate: provided, however, that foreign currency deposits made under RA6426 or FCDU Law
shall be exempt from these requirements.

Bank Secrecy Law (RA 1405, as amended)

Purpose: to give encouragement to the people to deposit their money in banking institutions and to
discourage private hoarding so that the same may be properly utilized by banks in
authorized loans to assist in the economic development of the country.

Prohibited Act: It shall be unlawful for any official or employee of a bank to disclose to
any person or for an independent auditor hired by a bank to conduct its regular audit to disclose to any person other
than a bank director, official or employee authorized by the bank, any information concerning said deposits.

Deposits covered:
1. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in
bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are
hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into
by any person, government official, bureau or office, unless:
a. When there is a written permission of the depositor or investor
b. Impeachment cases
c. Upon the order of a competent court in cases of bribery or dereliction of duty of public officials
d. Upon the order of a competent court in cases where the money deposited or invested is the subject of
litigation
e. Upon order of the competent court or tribunal in cases involving unexplained wealth under RA 3019
f. Upon inquiry by the Commissioner of BIR for the purpose of determining the net estate of a deceased
depositor
g. Upon the order of a competent court or in proper cases by the AMLC where there is probable cause of
money laundering and some instances even without court order
h. Disclosure to the Treasurer of the Philippines for dormant deposits for at least 10 years under the
Unclaimed Balances Act (RA 3936)
i. Report of banks to AMLC of covered and/or suspicious transactions
j. Upon order of the CA, examination by law enforcement officers in terrorism cases, under the Human
Security Act of 2007 (RA 9372)
k. Examination is made in the course of a special or general examination of a bank and is specifically
authorized by the MB after being satisfied that there is reasonable ground to believe that a bank fraud
or serious irregularity has been or is being committed and that it is necessary to look into the deposit to
establish such fraud or irregularity
l. Examination is made by an independent auditor hired by the bank to conduct its regular audit provided
that the examination is for audit purposes only and the results thereof shall be for the exclusive use of
the bank.

2. Foreign currency deposits, except:

a. When there is written consent of depositor under Section 8 of the Foreign Currency Deposits Act (RA
6426)
b. Under Section 11 of the Anti-Money Laundering Act (probable cause established that it is related to an
unlawful activity as defined or money laundering)
c. Under Section 27 and 28 of the Human Security Act (existence of probable cause in anti-terrorism
cases and those involving persons charged with or suspected of the crime of terrorism or conspiracy to
 commit terrorism, judicially declared and outlawed terrorist organization, association, or group of
persons, or member of such organization, association, or group of persons)

Garnishment: Bank accounts may be garnished by the creditors of the depositor. The amount of deposit is not
actually disclosed, hence, no violation.
Exceptions:
1. Foreign currency deposits, Section 8 of RA 6426 (Note: In Salvacion v. Central Bank, GR 94723, August 21,
1997, foreign currency deposits made by a transient or tourist is not the kind of deposit protected by law.
Hence, a dollar deposit made by a transient or a tourist may be subject to garnishment.)
2. Exempt under Rules of Court

Penalties for violation: Imprisonment of not more than 5 years or a fine not more than P20,0000.00 or both

Unclaimed Balances Law (Act 3936, as amended by PD 679)

Unclaimed Balances: include credits or deposits of money, bullion, security or other evidence of indebtedness of
any kind, and interest thereon with banks, buildings and loan associations, and trust corporations, as hereinafter
defined, in favor of any person known to be dead or who has not made further deposits or withdrawals during the
preceding ten years (10) or more.

It is obligatory of every bank to report, in sworn statement, to the Treasurer of the Philippines (who will, in turn,
inform the Solicitor General) of deposits that have not been touched (no deposit or withdrawal made) for a period
of 10 years or held in favor of persons known to be dead.

Under Section 1 of PD 679, all banks, building and loan associations, and trust corporations shall forward the
report to within the month of January of every odd year.

Information required:
1. The names and last known place of residence or post office addresses of the persons in whose favor such
unclaimed balances stand;
2. The amount and the date of the outstanding unclaimed balance and whether the same is in money or in
security, and if the latter, the nature of the same;
3. The date when the person in whose favor the unclaimed balance stands died, if known, or the date when he
made his last deposit or withdrawal; and
4. The interest due on such unclaimed balance, if any, and the amount thereof.

Proper publication will then be made and if the depositors make no claim, escheat proceedings will result in the
unclaimed balances being deposited with the Treasurer of the Philippines to the credit of the Republic to be used
and appropriated by Congress.

Publication list of unclaimed balances is intended to safeguard the right of depositors, their heirs and successor to
due process.

Any bank, building and loan association or trust corporation which shall make any deposit with the Treasurer of
the Philippines in conformity with the Unclaimed Balances Law shall not thereafter be liable to any person for the
same and any action which may be brought by any person against in any bank, building and loan association, or
trust corporation for unclaimed balances so deposited with the Treasurer of the Philippines shall be defended by
the Solicitor General without cost to such bank, building and loan association or trust corporation.

General Banking Law (RA8791)

Bank entity engaged in the lending of funds obtained in the form of deposits from the public

Classification of banks:
1. Commercial banks: 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 (Chapter IV, Article II, Section 29 of RA 8791).
2. Universal banks: have the authority to exercise, in addition to the powers authorized for a commercial bank,
the powers of an investment house and the power to invest in non-allied enterprises (Chapter IV, Article I,
Section 23 of RA 8791).
3. Thrift banks
a. Savings and mortgage banks
b. Stock savings and loan associations
c. Private development banks
4. Rural banks: established and operated for the purpose of providing adequate credit facilities to farmers and
merchants, or to cooperatives of such farmers and merchants and in general, the people of the rural
communities (Section 3 or RA 7353).
5. Cooperative banks: organized for the primary purpose of providing a wide range of services to cooperatives
and their members (Article 23(i) of RA 9520).
6. Islamic banks: organize to promote and accelerate the socio-economic development of the Autonomous
Region by performing banking, financing, investment operations and to establish and participate in
agricultural, commercial and industrial ventures based on the Islamic concept of banking (Section 3 of RA
6848).
7. Other classifications as determined by MB.

Quasi-bank: refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment
with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of receivables and other
obligations.

Trust Entities: authorized by the MB to engage in trust business and act as a trustee or administer any trust or hold
property in trust or on deposit for the use or benefit of others.

Bank powers:
1. Universal bank:
a. Authority to exercise the powers of an investment house
b. Power to invest in non-allied enterprises
c. Powers authorized for a commercial bank

2. Commercial bank:
a. All such powers as may be necessary to carry on the business of commercial banking, such as:
i. Accepting drafts
ii. Issuing letters of credit
iii. Discounting and negotiation promissory notes, drafts, bills of exchange and other evidences of
debt
iv. Accepting or creating demand deposits
v. Receiving other types of deposits and deposit substitutes
vi. Buying and selling foreign exchange and gold or silver bullion
vii. Acquiring marketable bonds and other debt securities
viii. Extending credit
b. In addition to the general powers incident to corporations

Diligence required: banks must observe “high standards of integrity and performance” in serving their depositors
(CB vs. Citytrust, 02/04/2009)

Nature of bank deposits: Bank deposits are in the nature of irregular deposits. They are really loans because they
earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be
covered by the laws on loans. Current and savings deposit are loans to a bank because it can use the same.

Stipulation on interest: Stipulation of interest must be mutually agreed upon by the parties and may nit be
unilaterally increased by only one of the parties.
Requisites:
1. The payment of interest must be expressly stipulated.
2. The agreement must be in writing.
3. The interest must be lawful.

Ratio of net worth to total risk assets: The MB shall prescribe the minimum ratio which the net worth of a bank
must bear to its total risk assets which may include contingent accounts.

Single Borrower’s Limit: the total amount of loans, credit accommodations and guarantees (total credit
commitment) that may be extended by a bank to any person, partnership, association, corporation or other entity
shall at no time exceed twenty percent (20%) (increased to 25% through BSP Circular 425, Series of 2004) of the
net worth of such bank. The ceiling may be increased by an additional 10% provided such increase is adequately
secured.
Exclusions:
1. Loans and other credit accommodations secured by obligations of the BSP or of the Philippine Government.
2. Loans and other credit accommodations fully guaranteed by the government as to the payment of principal
and interest;
3. Loans and other credit accommodations covered by assignment of deposits maintained in the lending bank
and held in the Philippines
4. Loans, credit accommodations and acceptances under letters of credit to the extent covered by margin
deposits
5. Other loans or credit accommodations which the Monetary Board may from time to time, specify as non-risk
items

Loans and other Credit Accommodations:

1. Real Estate:
a. Real Estate up to 75% of the appraised value
b. Insured improvements up to 60% of the appraised value
2. Chattels and Intangibles: up to 75% of the appraised value

Rules on Loans and other Credit Accommodations:

1. A bank shall grant loans and other credit accommodations only in amounts and for the periods of time
essential for the effective completion of the operations to be financed.
2. The purpose shall be stated in the application and in the contract of loan. If the loan proceeds are used
differently, without the bank’s approval, the bank may terminate the loan and demand immediate payment.
3. Before the grant, the bank must ascertain that the debtor is capable of fulfilling his commitment to the bank,
like requiring the statement of assets and liabilities and of income and expenditures.
4. The amortization schedule of bank loans and other credit accommodations shall be adapted to the nature of
the operations to be financed.
5. A borrower may at any time prior to the agreed maturity date prepay, in whole or in part, the unpaid balance
of any bank loan and other credit accommodation, subject to such reasonable terms and conditions as may be
agreed upon between the bank and its borrower.

DOSRI: Restrictions are imposed on borrowings and security arrangement by directors, officers and stockholders
of the bank and their related interests (DOSRI).
Requisites:
1. The borrower is a director, officer or stockholder of a bank ( related interests).
2. He contracts a loan or any form of financial accommodation.
3. The loan or financial accommodation is from:
a. His bank
b. A bank that is a subsidiary of bank holding company of which both his bank and lending bank are
subsidiaries.
c. A bank in which a controlling portion of the shares is owned by the same interest that owns a
controlling portion of the shares of his bank
d. The loan or financial accommodation of the director, officer or stockholder, singly or with that of his
related interest, is in excess of 5% of the capital and surplus of the lending bank or in the maximum
amount permitted by law, whichever is lower.

Note: 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.

Restrictions:
1. Procedural requirement: upon written approval of the majority of all the directors of the bank, excluding the
director concerned.
2. Arm’s length rule: upon terms not less favorable to the bank than those offered to others.
3. Reportorial requirement: entered into the records of the bank and a copy of such entry shall be transmitted
forthwith to the appropriate Supervision and Examination Sector of the BSP.
4. Aggregate ceilings: aggregate is 15% of the total loan portfolio of the bank or 100% of the combined capital
accounts, whichever is lower.
5. Individual ceilings: limited to an amount equivalent to their respective unencumbered deposits and book
value of their paid-in capital contribution in the bank.
Exceptions:
a. Secured by non-risk items
b. Fringe benefit plan approved by BSP
c. Extended by cooperative banks to cooperative stockholders
6. Borrower is required to waive the secrecy of his deposits.
7. Subject to examination.

Penalties for violations: 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.

PDIC Act (RA 3591, as amended)

Basic Policy: promote and safeguard the interests of the depositing public by way of providing permanent and
continuing insurance coverage on all insured deposits.
Insured Deposit: amount due to any bona fide depositor for legitimate deposits in an insured bank net of any
obligation or the depositor to the insured bank as of the date of closure, but not to exceed P500,000.00

Note: In case of a condition that threatens the monetary and financial stability of the banking system that may have
systemic consequences as determined by the MB, the maximum deposit insurance cover may be adjusted in such
amount for such a period, and/or fir such deposit products, as may be determined by the unanimous vote of the
Board of Directors in a meeting called for the purpose and chaired by the DOF Secretary, subject to the approval
of the President of the Philippines.

Under Section 22 of the PDIC Charter, a systemic risk refers to the possibility of failure of one bank to settle net
transactions with other banks will trigger a chain reaction, depriving other banks of funds leading to a general
shutdown of normal clearing and settlement activity. It also means the likelihood of a sudden, unexpected collapse
of confidence in a significant portion of the banking or financial system with potentially large real economic
effects.

Coverage: The deposit liabilities of any bank or banking institution, which is engaged in the business of receiving
deposits as herein defined on the effective date of the PDIC Act, or which thereafter may engage in the business of
receiving deposits, shall be insured by the PDIC.

Commencement of liability: PDIC shall commence the determination of insured deposits due the depositors of a
closed bank upon actual takeover of the closed bank.

Deposit accounts not entitled to payment:

1. Investment products such as bonds and securities trust accounts and other similar instruments.
2. Deposit accounts or transactions which are unfunded and that are fictitious or fraudulent.
3. Deposit accounts or transactions constituting and/or emanating from, unsafe and unsound banking practice/s,
as determined by PDIC, in consultation with BSP, after due notice and hearing, and publication of a cease
and desist order issued by PDIC against such deposit account or transactions.
4. Deposits that are determined to be the proceeds of an unlawful activity as defined under RA 9160, as
amended.

Per Depositor, Per Capacity Rule: all deposits in the bank maintained in the same right and capacity for his benefit
either in his own name or in the name of others.

Joint accounts: A joint account regardless of whether the conjunction “and”, “or”, “and/or” is used shall be insured
separately from any individually-owned deposit account provided that:
1. If the account is held jointly by two or more natural persons, or by two or more juridical persons or entities,
the maximum insured deposit shall be divided into as many equal shares as there are individuals, juridical
persons or entities, unless a different sharing is stipulated in the document of deposit, and
2. If the account is held by a juridical person or entity jointly with one or more natural persons, the maximum
insured deposit shall be presumed to belong to such juridical person or entity; provided, further, that the
aggregate of the interest of each co-owner over several joint accounts, whether owned by the same or
different combination of individuals, juridical persons or entities, shall likewise be subject to the maximum
insured deposit of P500,000.00.

No owner/ holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the rights in
PDIC Act unless his name is registered as owner/holder thereof in the books of the issuing bank.

PDIC shall commence the determination of insured deposits due the depositors of a closed bank upon its actual
takeover of the closed bank. PDIC shall give notice to the depositors of the closed bank of the insured deposits due
them by whatever means deemed appropriate by the Board of Directors. PDIC shall publish the notice once a week
for at least 3 consecutive weeks in a newspaper of general circulation or, when appropriate, in a newspaper
circulated in the continuity or communities where the closed bank or its branches are located.

Mode of payment: made as soon as possible either:

1. By cash
2. By making available to each depositor a transferred deposit in another insured bank in an amount equal to
insured deposit of such depositor.

Note: The PDIC, in its direction, may require proof of claims to be filed before paying the insured deposits, and
that in any case where the PDIC is not satisfied as to the validity of a claim, it may require final determination of a
court of competent jurisdiction before paying such claim. The PDIC may likewise withhold payment of such
portion of the insured deposit for the payment of any liability of such depositor as a stockholder of the closed bank,
of any liability of such depositor to the closed bank or its receiver, which is not offset against a claim due from
such bank, pending determination and payment of such liability by such depositor or any other liable therefor.
Effect of payment: PDIC shall be subrogated to all rights of the depositor against the closed bank to the extent of
such payment. Such subrogation shall include the right on the part of PDIC to receive the same dividends and
payments from the proceeds of the assets of such closed bank and recoveries on account of stockholders’ liability
as would have been payable to the depositor on a claim for the insured deposits, but such depositor shall retain his
claim fo any uninsured portion of his deposit.

Also, under Section 21 of the PDIC Charter, payment of an insured deposit to any person by PDIC shall discharge
the PDIC, and payment of transferred deposit to any person by the new bank or by an insured bank in which a
transferred deposit has been made available shall discharge PDIC and such new bank or other insured bank, to the
same extent that payment to such person by the closed bank would have discharged it from liability for the insured
deposit.

Uninsured Portion: The depositor shall retain his or her claim for any uninsured portion of his or her deposit,
which legal preference shall be the same as that of the subrogated claim of PDIC for its payment of insured
deposits.

Preference: All payments by PDIC of insured deposits in closed banks partake of the nature of public funds, and as
such, must be considered a preferred credit similar to taxes due to the National Government in the order of
preference under Article 2244(9) of NCC, provided further, that this preference shall be likewise effective upon
liquidation proceedings already commenced and pending as of the approval of PDIC Act, where no distribution of
assets has been made.

Failure to settle the claim of insured depositor: Failure to settle the claim within 6 months from the date of filing of
claim for insured deposit, where such failure was due to grave abuse of discretion, gross negligence, bad faith or
malice, shall upon conviction, subject the directors, officers or employees of PDIC responsible for the delay, to
imprisonment from 6 months to one year, provided, that the period shall not apply if the validity of the claim
requires the resolution of issues of facts and/or law by another office, body or agency.

Failure of deposit to claim insured deposits. Unless otherwise waived by the PDIC, if the depositor in the closed
bank shall fail to claim his insured deposits with PDIC within 2 years from actual takeover of the closed bank by
the receiver, or does not enforce his claim filed with PDIC within 2 years after the 2-year period to file a claim, all
rights of the depositor against the PDIC with respect to the insured deposit shall be barred, however, all rights of
the depositor against the closed bank and its shareholders or the receivership estate to which PDIC may have
become subrogated, shall thereupon revert to the depositor. Thereafter, PDIC shall be discharged from any liability
on the insured deposit.

PDIC’s regulatory oversight:

1. Conduct of special bank examinations.
2. Determination of products eligible for deposit insurance
3. Examination of deposit accounts of ailing banks: in the event that there is a finding of unsafe and unsound
banking practice, PDIC is authorized to examine deposits, as an exemption from Bank Secrecy Law.

Splitting of deposits: occurs whenever a deposit account with an outstanding balance of more than statutory
maximum amount of insured deposit maintained under the name of natural or juridical persons is broken down and
transferred into 2 or more accounts in the name/s of natural or juridical persons or entities who have no beneficial
ownership on transferred deposits in their names within 120 days immediately preceding or during a bank declared
bank holiday or immediately preceding a closure order issued by the MB of BSP for the purpose of availing of the
maximum deposit insurance coverage: prohibited, punishable by imprisonment of not less than 6 years but not
more than 12 years or a fine not less than 6 years but not more than 12 years or a fine not less than P50,000 but not
more than P10,000,000, or both, at the discretion of this court.

Anti-Money Laundering Act (RA 9160, as amended)

Policy: To protect and preserve the integrity and confidentiality of bank accounts and to ensure that the Philippines
shall not be used as a money-laundering site for the proceeds of any unlawful activity. Consistent with its foreign
policy, the State shall extend cooperation in transnational investigation and prosecutions of persons involved in
money laundering activities whenever committed.

Money Laundering: a crime whereby the proceeds of an unlawful activities are transacted, thereby making them
appear to have originated from legitimate sources.
How committed?
1. Any person knowing that any monetary instrument or property represents, involves or relates to the
proceeds of any unlawful activity:
a) Transfers said money instrument or property;
b) Converts, transfers, dispose of, moves, acquires, possesses or uses said monetary instrument or
property;
 c) Conceals or disguises the true nature, source, location, disposition movement or ownership of or
rights with respect to said monetary instrument or property;
d) Attempts or conspires to commit money laundering offenses referred to in (a), (b), or (c);
e) Aids, abets, assists in or counsels the commission of the money laundering offenses referred to in
(a), (b), or (c): and
f) Performs of fails to perform any act as a result of which he facilitates the offenses of money
laundering referred to in (a), (b), or (c).
2. Any person knowing that a covered or suspicious is required to be reported to the AMLC, fails to do so.

Prosecution: any person may be charged with and convicted of both the offense of money laundering and the
unlawful activity. The prosecution of any offenses under AMLA shall proceed independently of any relating to the
unlawful activity.

Covered transaction: a transaction in cash or other equivalent monetary instrument involving a total amount in
excess of P5,000,000 within one banking day: for covered persons like casinos, a single casino transaction
(involving the receipt of cash by a casino paid by or behalf of a customer or payout of cash in casino to a customer
or to any person in his/her behalf) involving the amount in excess of P5,000,000 or its equivalent in any other
currency.

Covered persons: (natural or juridical)

1. Banks, non-banks, quasi-banks, trust entities,foreign exchange dealers, pawnshops,money changers,
remittance and transfer companies and other similar entities and all other persons and their subsidiaries and
affiliates supervised or regulated by the BSP;
2. Insurance companies, pre-need companies, and other persons supervised or regulated by the Insurance
Commission;
3. (i) securities dealers, brokers, salesmen, investment houses and other similar persons managing securities
or rendering services as investment agent, advisor, or consultant, (ii) mutual funds, close-end investment
companies, common trust funds,and other similar persons, and (iii) other entities administering or otherwise
dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes
and other similar monetary instruments or property supervised by SEC;
4. Jewelry dealers in precious stones, who, as a business, trade in precious stones, for transactions in excess
of P1,000,000;
5. Jewelry dealers in precious metals, who, as a business, trade in precious metals, for transactions in excess
of P1,000,000;
6. Company service provides which, as a business, provides any of the following services to third parties: (i)
acting as a formation agent of juridical persons; (ii) acting as (or arranging for another person to act as) a
director or corporate secretary of a company, a partner of a partnership, or similar position in relation to
other juridical persons; (iii) providing a registered office, business address or accommodation,
correspondence or administrative address for a company, a partnership or any other legal person or
arrangement; and (iv) acting as (or arranging for another person to act as) a nominee shareholder person:

7. Persons who provide any of the following services:

a) Managing of client money, securities or other assets;
b) Management of banks, savings or security accounts;
c) Organization of contributions for the creation, operation or management of companies; and
d) Creation,operation or management of juridical persons or arrangements, and buying and selling
business entities.

8. Casinos, including internet and ship-based casinos, with respect to their casino cash transactions related to
their gaming operations.

Excluded Persons: lawyers ans accountants acting as independent legal professionals in relation to information
concerning their clients or where disclosure of information would compromise client confidences or the
attorney-client relationship.

Obligations of covered institutions:

1. Customer identification: covered persons shall establish and record the true identity of its clients based on
official documents.
2. Record keeping: all records of all transactions shall be maintained and safely stored for 5 years from the
date of transactions.
3. Reporting of covered and suspicious transactions: covered persons shall report to the AMLC all covered
transactions and suspicious transactions within 5 working days from the occurrence thereof, unless the
AMLC concerned prescribes a different period not exceeding 15 working days.
4. Should a transaction be determined to be both a covered and a suspicious transaction, it shall be reported
as a suspicious transaction.
5. When reporting,it shall not be considered a violation of bank secrecy laws and similar laws. It shall be
prohibited from communicating directly or indirectly in any manner or by any means,to any person the fact
 that a covered or suspicious transaction report was made, the content thereof, or any other information in
relation thereto.
6. Safe Harbor: No administrative, criminal, or civil proceedings, shall lie against any person for having
made a transaction report in the regular performance of his duties and in good faith, whether or not such
results in any criminal prosecution under Philippine laws.

Suspicious transaction: transactions with covered institutions regardless of the amount involved, where any of the
following circumstances exist:
1. There is no underlying legal or trade obligation, purpose or economic justification.
2. The client is not properly identified.
3. The amount involved is not commensurate with the business or financial capacity of the client.
4. Taking into account all known circumstances, it may be perceived that the client’s transaction is
structured in order to avoid being the subject of reporting requirements under the Act.
5. Any circumstances relating to the transaction which is observed to deviate from the profile of the client
and/or the client’s past transactions with the covered institution.
6. The transaction is in any way related to an unlawful activity or offense under this Act that is about to be,
is being or has been committed.
7. Any transaction that is similar or analogous to any of the foregoing.

Unlawful activities: any act or omission or series or combination thereof involving or having relation to the
following:
1. Kidnapping for ransom under under Article 267 of Revised Penal Code (RPC).
2. Sections 4, 5, 7, 8, 9, 10, 12, 13, 14, 15 and 16 of Comprehensive Dangerous Drugs Act (RA 9165).
a. Importation of prohibited drugs
b. Sale of prohibited drugs
c. Administration of prohibited drugs
d. Distribution of prohibited drugs
e. Transportation of prohibited drugs
f. Maintenance of a den, drive, or resort for prohibited users
g. Manufacture of prohibited drugs
h. Possession of prohibited drugs
i. Use of prohibited drugs
j. Cultivation of plant, which are sources of prohibited drugs
k. Culture of plants which are sources of prohibited drugs.
3. Section 3, paragraphs B, C, E, G, H and I or RA 3019
a. Directly or indirectly requesting or receiving any gift, present, share, percentage or benefit for himself
or for any other person in connection with contract or transaction between the Government and any
party, wherein the public officer in his official capacity has to intervene under the law
b. Directly or indirectly requesting or receiving any gift, present, or other pecuniary or material benefit,
for himself or for another, from any person for whom the public officer, in any manner or capacity, has
secured or obtained, or will secure or obtain any government permit or license, in consideration for the
help given or to be given
c. Causing any undue injury to any party, including the government, or giving any private party any
unwarranted benefits, advantage or preference in the discharge of his official, administrative, or
judicial functions through manifest partiality, evident bad faith, or gross inexcusable negligence
d. Entering on behalf of the government into any contract or transaction manifestly and grossly
disadvantageous to the same, whether or not the public officer profited or will profit thereby
e. Directly or indirectly having financial or pecuniary interest in any business contract or transaction in
connection with which he intervenes or takes part in his official capacity, or in which he is prohibited
by the Constitution or by any law from having any interest.
f. Directly or indirectly becoming interested fro personal gain or having material interest in any
transaction or act requiring the approval of a board, panel, or group of which he is a member, and
which exercise of discretion in such approval, even if he votes against the same or he does not
participate in the action of the board, committee, panel, group
4. Plunder under RA 7080
5. Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of RPC
a. Robbery with violence or intimidation of persons
b. Robbery with physical injuries, committed in an uninhabited place and by a band, or with use of
firearms on a street, road, or alley
c. Robbery in an uninhabited house or public building or edifice devoted to worship
6. Juteng and masiao under PD 1602
7. Piracy on the high seas under RPC and PD 532
a. Piracy on the high seas
b. Piracy in inland Philippine waters
c. Aiding and abetting pirates and brigands
8. Qualified theft under Article 310 of RPC
9. Swindling under Article 315 of RPC
10. Smuggling under RA 455 and RA 1937
11. Violations of Electronic Commerce Act (RA 8792)
12. Hijacking and other violations under RA 6235
13. Destructive arson and murder as defined under RPC
14. Terrorism and conspiracy to commit terrorism under Sections 3 and 4 of RA 9372
15. Financing terrorism under Section 4 and offenses punishable under Sections 5, 6, 7 and 8 of RA 10168
16. Bribery under Articles 210, 211 and 211-A of RPC and corruption of public officers under Article 212 of
RPC
17. Frauds and illegal exactions and transactions under Articles 213, 214, 215 and 216 of RPC
18. Malversation of public funds and property under Articles 217 and 222 of RPC
19. Forgeries and counterfeiting under Articles 163, 166, 167, 168, 169, and 176 of RPC
20. Violations of Sections 4, 5 and 6 of RA 9208 (Anti-Trafficking in Persons Act)
21. Violations of Sections 86 to 106 of Chapter VI of RA 8550 (Philippine Fisheries Code)
22. Violations of Sections 101 to 107 and 110 of RA 7942 (Philippine Mining Act)
23. Violations of Section 27(c), (e), (f), (g) and (i) of RA 9147 (Wildlife Resources Conversation and Protection
Act)
24. Violation of Section 7(b) of RA 9072 (National Caves and Cave Resources Conservation and Protection Act)
25. Violations of RA 6539 (Anti-Carnapping Act)
26. Violations of Sections 1, 3 and 5 of PD 1866 (Illegal Unlawful Possession of Firearms and Explosives)
27. Violation of PD 1612 (Anti-Fencing Law)
28. Violation of Section 6 of RA 8042 ( Migrant Workers Act)
29. Violation of RA 8293 (Intellectual Property Code)
30. Violation of Section 4 of RA 9995 (Anti-Photo and Video Voyeurism Act)
31. Violation of Section 4 of RA 9775 (Anti-Child Pornography Act)
32. Violations of Sections 5, 6, 7, 8, 9, 10(c), (d) and (e), 11, 12 and 14 of RA 7610 (Special Protection of
Children)
33. Fraudulent practices and other violations under RA 8799 (Securities Regulation Code)
34. Felonies or offenses of a similar nature that are punishable under the penal laws of other countries

Jurisdiction:
1. Regional Trial Courts: all cases on money laundering
2. Sandiganbayan: if committed by public officers and private persons who are in conspiracy with such public
officers

AMLC composed of :
1. Chairman: BSP Governor
2. Members:
a. Commissioner of Insurance Commission
b. Chairman of SEC

Note: It shall act unanimously in discharging its functions.

Functions of AMLC:
1. To require and receive covered transaction reports from covered institutions;
2. To issue orders addressed to the appropriate Supervising Authority or the covered institution to determine
the true identity of the owner of any monetary instrument or property subject of a covered transaction report
or request for assistance from a foreign State, or believed by the Council, on the basis of substantial evidence,
to be, in whole or in part, wherever located, representing, involving, or related to, directly or indirectly, in
any manner or by any means, the proceeds of an unlawful activity;s
3. To institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor
General (OSG);
4. To cause the filing of complaints with the Department of Justice (DOJ) or the Ombudsman for the
prosecution of money laundering offenses;
5. To initiate investigations of covered transactions, money laundering activities and other violations of RA
9160
6. To freeze any monetary instrument or property alleged to be proceeds of any unlawful activity;
7. To implement such measures as may be necessary and justified under RA 9160 to counteract money
laundering;
8. To receive and take action in respect of, any request from foreign states for assistance in their own
anti-money laundering operations provided in RA 9160;
9. To develop educational programs on the pernicious effects of money laundering, the methods and techniques
used in money laundering, the viable means of preventing money laundering and the effective ways of
prosecuting and punishing offenders; and
10. To enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the
government, including government-owned and -controlled corporations, in undertaking any and all
anti-money laundering operations, which may include the use of its personnel, facilities and resources for the
 more resolute prevention, detection and investigation of money laundering offenses and prosecution of
offenders.

Freezing: The CA, upon application ex parte by AMLC and after determination that probable cause exists that any
monetary instrument or property is in any way related to an unlawful activity, may issue a freeze order which shall
be effective immediately (for a period of 20 days unless extended by a court order upon application by the AMLC,
total period shall not exceed 6 months).

Note: Considering the intricate and diverse web of related and interlocking accounts pertaining to the monetary
instruments or properties that any person may create in the different covered institutions, their branches and/or
other units. AMLC may apply to freeze monetary instruments or properties inn the names of the reported
owners/holders, and monetary instruments or properties named in the application of the AMLC, including all other
related web of accounts pertaining to other monetary instruments or properties , the funds and the sources of which
originated from or are related to the monetary instruments or properties subject to the freeze orders.

Related Web of Accounts: those accounts, the funds and sources of which originated from and/or are materially
linked to the monetary instruments or properties subject to the freeze orders.

Authority to inquire into bank deposits: The AMLC may inquire into deposits upon order of the court when there
is probable cause that the deposits are related to the crime or unlawful activities. However, a court order is not
even necessary when the offense or unlawful activity involved is any of the following:
1. Kidnapping for ransom under Articles 267 of RPC
2. Sections 4, 5, 7, 8, 9, 10, 12, 13, 14, 15 and 16 of Comprehensive Dangerous Drugs Act (RA 9165)
3. Hijacking and other violations under RA 6235
4. Destructive arson and murder defined under RPC
5. Felonies or offenses of a nature similar to (1), (2), (3) and (4) which are punishable under the penal laws of
other countries
6. Terrorism and conspiracy to commit terrorism under RA 9372
7. Financing terrorism under Section 4 and offenses punishable under Section 5, 6, 7 and 8 of RA 10168

Inquiry into deposits may be availed even in the absence of a pre-existing criminal case under the same law.
However, the order authorizing bank inquiry cannot be issued ex parte.

Authority to institute civil forfeiture proceedings: The AMLC is authorized to institute civil forfeiture proceedings
and all other remedial proceedings through the Office of the Solicitor General, upon determination that probable
cause exists that any monetary instrument or property is in any way related to an unlawful activity or money
laundering offense.