LAW 430 – BANKING LAWS

BANKING LAWS 4. Insurance Companies – premiums paid by policyholder/s are invested in

Notes according to Atty. YLT’s syllabus and lecture in class. different activities.
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I. INTRODUCTION 5. Investment Houses (PD 126) – selling securities of other corporations.
CONSTITUTIONAL PROVISIONS
6. Investment Companies – primarily engaged in the business of investing,
Article II, Section 20. The State recognizes the indispensable role of the private reinvesting and trading securities.
sector, encourages private enterprise, and provides incentives to needed
investments. 7. Pawnshops – lending money on a personal property, delivered as security
for a loan.
FINANCIAL INTERMEDIARIES (FI)
8. Quasi-banks – entities that do not accept deposits, but only promissory
Definition: components that move funds form people who save to people who have
notes and accounts receivables.
productive investment opportunities.

KINDS OF FINANCIAL INTERMEDIARIES 9. Trust Corporations – perform trust and other fiduciary businesses or
performs investment management services.
1. Lending Companies (RA 9474) - shall refer to a corporation engaged in
granting loans from its own capital funds or from funds sourced from not 10. Banks - shall refer to entities engaged in the lending of funds obtained in the
more than nineteen (19) persons. It shall not be deemed to include banking form of deposits. (GBL, Sec 3.1)
institutions, investment houses, savings and loan associations, financing ➢ Arteries of the commercial world;
companies, pawnshops, insurance companies, cooperatives and other ➢ Most important source of external funds.
credit institutions already regulated by law. The term shall be synonymous
with lending investors. Republic v. SEC (G.R. No. L-20583. January 23, 1967)

“BANK" DEFINED. — A bank has been defined as "a moneyed institute founded to
2. Savings and Loan Associations (SLA) (RA 8367) - engaged in the business of
facilitate the borrowing, lending, and safe-keeping of money and to deal in notes,
accumulating the savings of its members and using such accumulations for
bills of exchange, and credits.
loans to members
➢ May be stock or non-stock "An investment company which loans out the money of its customers, collects the
interests and charges a commission to both borrower and lender is a bank."
3. Finance Companies (RA 8556) - are corporations, except banks, investments
houses, savings and loan associations, insurance companies, cooperatives, REMEMBER
and other financial institutions organized or operating under other special Deposit – Liability – Mobilization of Savings (De-Li-Mos)
laws, which are primarily organized for the purpose of extending credit Loan – Asset – Allocation of Resources (L-Ass-Ar)
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, Q: HOW DO BANKS GENERATE PROFIT?
chattel mortgages, or other evidences of indebtedness, or by financial Ans: From loan interests
leasing of movable as well as immovable property.

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UNIVERSAL BANK = COMMERCIAL BANK + INVESTMENT HOUSES

(UB) (KB) (IH) II. ESTABLISHMENT AND POWER OF BANKS (GENERAL
VALUE OF BANKS
BANKING LAW – R.A. No. 8791)
SIMEX v. CA (G.R. No. 88013 March 19, 1990)
BANKS AND QUASI-BANKS
The banking system is an indispensable institution in the modern world and plays a BANK
vital role in the economic life of every civilized nation. Whether as mere passive Definition: shall refer to entities engaged in the lending of funds obtained in the
entities for the safekeeping and saving of money or as active instruments of business form of deposits. (GBL, Sec 3.1)
and commerce, banks have become a ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and, most of all, Is it a bank? To determine, both questions must be answered in the affirmative:
confidence. 1. Is it borrowing funds form the public?
2. Is it entering a loan with another entity?

PURPOSE OF BANKS QUASI-BANKS (QBs)

GBL, Sec. 2. Declaration of Policy. - The State recognizes the vital role of banks Definition: shall refer to entities engaged in the borrowing of funds through the
providing an environment conducive to the sustained development of the national issuance, endorsement or assignment with recourse or acceptance of deposit
economy and the fiduciary nature of banking that requires high standards of integrity substitutes for purposes of re-lending or purchasing of receivables and other
and performance. obligations. (Section 4, GBL)

BANK – part of the financial institution that facilitates spending and economic Deposit Substitutes
growth. Definition: defined as an alternative form of obtaining funds from the public, other
than deposits, through the issuance, endorsement, or acceptance of debt
DILIGENCE REQUIRED OF BANKS instruments for the borrower's own account, for the purpose of relending or
➢ utmost diligence or extraordinary diligence purchasing of receivables and other obligations. These instruments may include, but
need not be limited to, banker’s acceptances, promissory notes, participations,
SIMEX v. CA (G.R. No. 88013 March 19, 1990) certificates of assignment and similar instruments with recourse, and repurchase
agreements. (Section 95, RA 7653, New Central Bank Act)
As a business affected with public interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of its depositors with meticulous NOTE:
care. If the purpose of accepting debt instruments (banker’s acceptances, promissory
Bank fails to qualify as mortgagee in good faith. notes, participations, certificates of assignment and similar instruments with
recourse) is to re-lend it, then it is a quasi-bank.
➢ What is being transferred is the right to collect.
➢ Unlike banks, QBs do not accept deposits
➢ Neither are the funds insured with the PIDC

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ELEMENTS OF QBs: (See 241, Manual of Regulation for Banks) ➢ Banks cannot be closed corporations
1. Borrowing funds for the borrower’s own account;
2. Twenty (20) or more lenders at any one time; Incorporators – one forming the corporations and whose names and signatures appear in the
Articles of Incorporation (AoI)
3. Methods of borrowing are issuance, endorsement, or acceptance of debt
instruments of any kind, other than deposits, such as acceptances,
Qualifications of Incorporators:
promissory notes, participations, certificates of assignments or similar 1. Not convicted of any crime involving moral turpitude;
instruments with recourse, trust certificates, repurchase agreements, and 2. Not an officer or employee of the government agency charged with the supervision
such other instruments as the Monetary Board may determine; and of or the grating of loans to banks.
4. Purpose: a. Relending; or b. Purchasing receivables or other obligations
Treasury Shares (Section 9, Corporation Code)
ORGANIZATION OF BANKS AND QUASI-BANKS Definition: Treasury shares are shares of stock which have been issued and fully paid for, but
Section 6, GBL. Authority to Engage in Banking and Quasi-Banking Functions. - No subsequently reacquired by the issuing corporation by purchase, redemption, donation or
through some other lawful means. Such shares may again be disposed of for a reasonable price
person or entity shall engage in banking operations or quasi-banking functions
fixed by the board of directors.
without authority from the Bangko Sentral: Provided, however, that an entity
authorized by the Bangko Sentral to perform universal or commercial banking Rules on Treasury Shares:
functions shall likewise have the authority to engage in quasi-banking functions. General Rule (GR):
1. No bank shall purchase or acquire shares of its own capital stock;
The determination of whether a person or entity is performing banking or quasi- 2. No bank shall accept its own shares as security for a loan.
banking functions without Bangko Sentral authority shall be decided by the Monetary
Board. Exception: If such repurchase is authorized by the MB. In every case the
stock so purchased or acquired shall, within six (6) months from the time of
NOTE:
Primary License – BSP its purchase or acquisition, be sold or disposed of at a public or private sale.
Secondary License – SEC
OWNERSHIP OF BANKS
REQUIREMENTS: (Section 8, GBL) RULES IN FOREIGN EQUITY (OWNERSHIP) IN A DOMESTIC CORPORATION
1. That the entity is a stock corporation; If owner is a:
2. That the funds are obtained from the public, which shall mean 20 or more persons; Foreign Individual – 40%
and Foreign Non-bank – 40%
3. That the minimum capital requirements prescribed by the MB for each category of
Foreign Bank – 100% Reason: They already have the expertise, so they can
banks is satisfied.
own up to 100% of a domestic bank.
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REQUIREMENT 1: STOCK CORPORATION
➢ Par value shares only MODES OF ENTRY (Section 2, RA 10641)
➢ Kinds of stocks to be issued is dependent on the MB The Monetary Board may authorize foreign banks to operate in the Philippine
➢ There must be a class of voting stocks banking system through any one of the following modes of entry:
➢ At least 25% of the authorized capital stock (ACS) shall be subscribed, and at least 1. by acquiring, purchasing or owning up to one hundred percent (100%) of
25% of the subscribed stocks shall be paid. (25-25 Rule) the voting stock of an existing bank;
➢ Board of Directors: Min – 5; Max – 15 2. by investing in up to one hundred percent (100%) of the voting stock of a
➢ Banks and QBs may not be One-Person Corporations (OPC) new banking subsidiary incorporated under the laws of the Philippines; or

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3. by establishing branches with full banking authority.

Under the MORB: Limits of Stockholdings in a Single Bank (Section 122)
RULES IN DETERMINING PERCENTAGE OF OWNERSHIP IN A CORPORATION PARTICULARS CEILING
1. Look into the citizenship of the individual holding shares in the corporation; 1. Voting shares of stock of a foreign individual or a foreign
2. If shareholder is a corporation – look into the citizenship of the controlling non-bank corporation in:
shareholder of the corporation. a. UB/KB and TB 40%
b. RB 60%
TESTS: 2. Aggregate ownership of the voting shares of stock of foreign
1. Control Test individuals and/or foreign non-bank corporation in:
2. Grandfather Test a. UB/KB 40%
b. TB/RB 60%
Relevant cases: Gamboa v. Teves; Roy v. Herbosa 3. Voting shares of stock of a qualified foreign bank in UB, KB, 100%
TB and RB
RULE IN DETERMINING OWNERSHIP IN A BANK 4. Combined ownership of the voting shares of stock of 100%
If more than 50% of the voting stock of the corporate shareholder of a bank is foreign qualified foreign banks in UB, KB, TB and RB
owned – BANK IS FOREIGN. 5. Voting shares of stock of a Filipino individual or a Philippine
non-bank corporation in:
Notes: a. UB/KB and TB 40%
1. No need to compute. b. RB 60%
2. Just look at the COMMON SHARES. 6. Voting shares of a qualified Philippine Corp in UB, KB, TB 60%
3. Basta 51% foreign owned, foreign bank na siya. and RB, prior to the effectivity of RA 10641 (Aug 2014)
7. Combined ownership of an individual and corporation/s/
THEREFORE: % of foreign equity = % of foreign directors which is/are wholly owed or a majority of the voting stock
of which is owned by an individual in:
RELATED INTERESTS (Section 12, GBL) 8. A. UB/KB/TB 40%
Under the GBL: 9. RB 60%
1. Stockholdings of individuals related to each other within the fourth degree
of consanguinity or affinity, legitimate or common-law;
2. 2 or more corporations owned by the same family group or same group of RULE: Related interests must be fully disclosed in all transactions by such
persons. corporations or related groups of persons with the bank.
REQUIREMENT 2: PUBLIC FUNDING
Funding from: 20 or more people

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UNIVERSAL BANKS (UB)
Head office only – 3B
Up to 10 branches- 6B
11-100 branches- 15B
More than 100 branches- 20B
REQUIREMENT 3: MINIMUM CAPITALIZATION REQUIREMENT
COMMERCIAL BANKS (KB)
Head office only – 2B
Up to 10 branches- 4B
11-100 branches- 10B
More than 100 branches- 15B
THIRFT BANKS (TB)
Head Office in NCR:
Head office only – 500M
Up to 10 branches- 750M
11-50 branches- 1B
More than 50 branches- 2B
Head Office outside NCR:
Head office only – 200M
Up to 10 branches- 300M
11-50 branches- 400M
More than 50 branches- 800M
RURAL BANKS & COOPERATIVE BANKS
(RB)
Head Office in NCR:
Head Office only – 50M
Up to 10 branches – 75M
11 to 50 branches – 100M
More than 50 branches – 200M
Head Office in All Other Areas Outside
NCR (All Cities up to 3rd Class
Municipalities):
Head Office only – 20M
Up to 10 branches – 30M
11 to 50 branches – 40M
More than 50 branches – 80M
Head Office in All Other Areas Outside
NCR (4th to 6th Class Municipalities):
Head Office only – 10M
Up to 10 branches – 15M
11 to 50 branches – 20M
More than 50 branches- 40M
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NAMES OF BANKS, RULES: Compensation of BOD: (Section 18, GBL)

1. UB – not required to use “Universal Bank” in their transactions General Rule: Banks are left alone to set their compensation
2. TB – should include “Thrift”, “Private Development Bank”, “Stock Savings & Exception:
Loan Association”, “Savings and Loan Association”, “Savings Bank”. 1. When there is comptrollership or conservatorship;
3. RB – no need to use “Rural” or “Coop.” but it should be: 2. When conducting business in an unsafe or unsound
ie. A Son, Rural Bank manner;
3. When in an unsatisfactory financial condition.
MANAGEMENT OF BANKS AND QUASI-BANKS 4.
BOARD OF DIRECTORS Golden Parachute - A golden parachute is an agreement between a company
and an employee (usually upper executive) specifying that the employee will
Powers: receive certain significant benefits if employment is terminated. The benefits
1. Exercise corporate acts; may include severance pay, cash bonuses, stock options, or other benefits. Most
2. Conduct business; definitions specify the employment termination is as a result of a merger or
3. Control bank resources takeover, also known as "Change-in-control benefits".
Note: Golden Parachuting not allowed in banks.
Number: 5- 15 only BUT maximum of 21 IF there is merger or consolidation
INDEPENDENT AUDITOR
Composition: ➢ auditor of the unit investment trust fund
1. Independent directors – at least 1/3 of the BoD but not less than 2;
2. Non-executive directors Section 58, GBL. Independent Auditor. - The Monetary Board may require a
bank, quasi-bank or trust entity to engage the services of an independent auditor
Independent Directors - An "independent director" shall mean a person other than to be chosen by the bank, quasi-bank or trust entity concerned from a list of
an officer or employee of the bank, its subsidiaries or affiliates or related interests. certified public accountants acceptable to the Monetary Board. The term of the
(Section 15, GBL) engagement shall be as prescribed by the Monetary Board which may either be
-maximum term: 9 years only on a continuing basis where the auditor shall act as resident examiner, or on the
basis of special engagements; but in any case, the independent auditor shall be
Qualifications of Directors: (Fit and Proper Rule) responsible to the bank’s, quasi-bank’s or trust entity’s board of directors. A
1. Integrity and probity; copy of the report shall be furnished to the Monetary Board. The Monetary
2. Physical and mental fitness; Board may also direct the board of directors of a bank, quasi-bank, trusty entity
3. Relevant education, financial literacy/training; and/or the individual members thereof; to conduct, either personally or by a
4. Possession of competencies; committee created by the board, an annual balance sheet audit of the bank,
5. Sufficiency of time to fully carry out responsibilities. quasi-bank or trust entity to review the internal audit and control system of the
Note: The MB can disqualify those who are unfit. bank, quasi-bank or trust entity and to submit a report of such audit.

General Rule: A public official cannot be a director in a bank.

Except:
1. If incident to the financial assistance provided by the government;
2. A GOCC to the bank.

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ADMINISTRATION OF BANKS AND QUASI-BANKS President of the Philippines may at any time intervene and assume jurisdiction over
BANK BRANCHES (Section 20, GBL) such labor dispute in order to settle or terminate the same.
Kinds:
1. Permanent Office - has its own books; THUS:
2. Branch Lite – does not have its own books. 1. Banks are indispensable to the national interest;
2. Strikes or lockouts that are unresolved for 7 days shall be reported by the
SETTING UP OF BANK BRANCHES: BSP to Sec. of Labor;
UB/KB TB/RB COOPERATIVE BANKS 3. Or, the President may intervene and assume jurisdiction.
Must be with BSP Can set up branches Can set-up anywhere 4. Return to Work Order will be issued.
approval with BSP within the province
Report of Banks:
Branches may be If outside the province, 1. Cause of strike or lockout and bank management’s position;
within or outside allowed only if there are 2. Bank operation affected
Philippines no other cooperative
banks PROHIBITION TO ACT AS AN INSURER (Section 54, GBL)
BANKING DAY AND HOURS (Section 21, GBL) Sec. 54. Prohibition to Act as Insurer. - A bank shall not directly engage in insurance
1. At least 6 hours a day; business as the insurer.
2. Working days: Monday to Friday
3. Saturday, Sunday, Holidays – at least 3 hours Bancassurance - Bancassurance is an arrangement between a bank and an insurance
company allowing the insurance company to sell its products to the bank's client
Temporary Closure base.
➢ Must only be for 1 year; CLASSIFICATION OF BANKS
➢ Must notify BSP. No need to wait for Notice of Approval from the BSP
before bank can commence closure. COMMERCIAL BANKS (KB) (Sections 29-33, GBL)

Permanent Closure Powers of KB: (Sec. 29)

➢ Must be with BSP approval
Closure on any other day – in celebration of Holidays
➢ With Head office approval and association of banks
STRIKES AND LOCKOUTS (Section 22, GBL)
Section 22, GBL. 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
1. Accept drafts – drafts are representatives of promises to pay. Bank
then pays the payee from its own account.
2. Issue Letters of Credit – bank is engaged in the business of guarantee.
3. Discounting and negotiating debt instruments – purchase by the bank
of the PN in exchange for cash less discount fee.
4. Accepting or creating demand deposits;
5. Receiving other types of deposits and deposit substitutes (see
discussion of types of deposits/accounts below);
6. Buying and selling of foreign exchange and gold and silver bullions;
7. Acquire marketable bonds and other debt securities;
8. Extend credit (loans)
9. Make investment in equities of Allied enterprises. (see table below)

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Investment KB UB
In allied enterprise Total 35% of net worth 50% of NW of bank
of bank
Total Equity in one 25% of NW of bank 25% of NW of bank
enterprise With approval of MB
Possible investment in 100% 100%
equity in an RB or TB
Possible investment in 100% 100%
Non-financial allied
enterprise
Quasi-Banks N/A Not exceeding 40%
Non-allied 100% Not exceeding 35%

ACCEPTANCE OF DEPOSITS

DIFFERENT KINDS OF ACCOUNTS:

1. Savings – w/ interest
2. Current
3. Time
➢ can be withdrawn earlier than the date of maturity.
➢ Earns a higher interest rate
➢ Can be negotiable or non-negotiable
➢ Term: 731 days minimum
➢ Issued only if there is payment of the face value
4. NOW Account
➢ Earning interest but a heck may be issued for that shit
➢ Negotiable order of withdrawal

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