RA 8791, GENERAL BANKING LAW 2000 (e) Cooperative banks, as defined in Republic Act No.
nks, as defined in Republic Act No. 6938 (hereafter the "Cooperative
"Banks" shall refer to entities engaged in the lending of funds obtained in the form of
deposits.(SEC.3.1,RA 8791, GBL 2000)
REQUISITES:
1. Must be authorized by law;
2. Accepts fund, in the form of a deposit, from the public; and
3. Lends money to the public.
BANK BOARD OF DIRECTORS:
SECTION 15. Board of Directors. — The provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen
(15) members of the board of directors of bank, two (2) of whom shall be independent
directors. An "independent director" shall mean a person other than an officer
or employee of the bank, its subsidiaries or affiliates or related interests. (n)
Non-Filipino citizens may become members of the board of directors of a bank to the
extent of the foreign participation in the equity of said bank.
NATURE OF RELATIONSHP BETWEEEN BANK AND DEPOSITOR IS DEBTOR
AND CREDITOR. All kinds of bank deposits are loan. The bank can make use as its
own the money deposited. Said amount is not being held in trust for the depositor nor
is it being kept for safekeeping. (Tang Tiong Tick v. American Apothecaries, G.R. No.
43682, Mar. 31, 1938)
Classification of Banks (3.2)
(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");
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).
Foreign Ownership
SECTION 11. Foreign Stockholdings. — Foreign individuals and non-bank corporations
may own or control up to forty percent (40%) of the voting stock of a domestic bank.
This rule shall apply to Filipinos and domestic non-bank corporations. (12a; 12-Aa)
The percentage of foreign-owned voting stocks in a bank shall be determined by
the citizenship of the individual stockholders in that bank. The citizenship of the corporation
which is a stockholder in a bank shall follow the citizenship of the controlling stockholders of the
corporation, irrespective of the place of incorporation.
SECTION 16. Fit and Proper Rule. — To maintain the quality of bank management and
afford better protection to depositors and the public in general, the Monetary Board shall
prescribe, pass upon and review the qualifications and disqualifications of individuals
elected or appointed bank directors or officers and disqualify those found unfit.
After due notice to the board of directors of the bank, the Monetary Board may disqualify,
suspend or remove any bank director or officer who commits or omits an act which render him
unfit for the position.
In determining whether an individual is fit and proper to hold the position of a director or
officer of a bank, regard shall be given to his integrity, experience, education, training,
and competence.
QUASI BANKS:
These are entities engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of deposit substitutes
(Section 95 of Republic Act No. 7653) for purposes of re‐lending or purchasing of
receivables and other obligations (Sec 4). Unlike banks, quasi‐banks do not accept
deposits.
Section 95 of Republic Act No. 7653
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 nonfinancial companies issued 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.
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;

 not less favorable to the bank than those offered to others.

TRUST ENTITIES
Approval-Loan must be approved by the majority of all the directors not including the
These are entities engaged in trust business that act as a trustee or administer
director concerned.
any trust or hold property in trust or on deposit for the use, benefit, or behoof of
 CB approval is not necessary; however, there is a need to inform them
others (Sec. 79). A bank does not act as a trustee.
prior to the transaction. (Sec. 36);
SECTION 83. Powers of a Trust Entity. — A trust entity, in addition to the general
Reportortial- The required approval shall be entered upon the records of the bank
powers
and a copy of such entry shall be transmitted forthwith to the appropriate supervising
incident to corporations, shall have the power to:
and examining department of the Bangko Sentral.
83.1. Act as trustee on any mortgage or bond issued by any municipality, corporation,
Ceiling- Loan must not exceed the paid in contribution and unencumbered deposits.
or any body politic and to accept and execute any trust consistent with law;
(Not to exceed 15% of the portfolio or 100% of the net worth, whichever is lower.)
83.2. Act under the order or appointment of any court as guardian, receiver, trustee,
(Sec. 36 [4]);
or depositary of the estate of any minor or other incompetent person, and as receiver
 Provided, however, That loans, credit accommodations and guarantees
and depositary of any moneys paid into court by parties to any legal proceedings and
secured by assets considered as non-risk by the Monetary Board shall
of property of any kind which may be brought under the jurisdiction of the court;
be excluded from such limit
83.3. Act as the executor of any will when it is named the executor thereof;
 That loans, credit accommodations and advances to officers in the form
83.4. Act as administrator of the estate of any deceased person, with the will annexed,
of fringe benefits granted in accordance with rules as may be
or as administrator of the estate of any deceased person when there is no will;
prescribed by the Monetary Board shall not be subject to the individual
83.5. Accept and execute any trust for the holding, management, and administration of
limit;
any estate, real or personal, and the rents, issues and profits thereof; and
 shall not apply to loans, credit accommodations and guarantees
83.6. Establish and manage common trust funds, subject to such rules and regulations
extended by a cooperative bank to its cooperative shareholders;
as may be prescribed by the Monetary Board. (58)
REAL ESTATE VENTURES
DOSRI
SECTION 37. Loans and Other Credit Accommodations Against Real Estate.
a. Director
— Except as the Monetary Board may otherwise prescribe, loans and other
b. Officer
credit accommodations against real estate shall not exceed seventy-five percent
c. Stockholder, which should at least 1% (if below 1% ‐ not anymore covered)
(75%) of the appraised value of the respective real estate security, plus sixty
d. Related Interests, such as DOS’s spouses, their relatives within the first degree
percent (60%) of the appraised value of the insured improvements, and such
whether by consanguinity or affinity, partnership whereby DOS is a partner or a
loans may be made to the owner of the real estate or to his assignees.
corporation where DOS owns at least 20%.

LIMITS IMPOSED TO DOSRI(sec.36)

SECTION 51. Ceiling on Investments in Certain Assets. — Any bank may
acquire real estate as shall be necessary for its own use in the conduct of its business:
Provided, however, That the total investment in such real estate and improvements
thereof, including bank equipment, shall not exceed fifty percent (50%) of combined
capital accounts: Provided, further, That the equity investment of a bank in another
corporation engaged primarily in real estate shall be considered as part of the bank's
total investment in real estate, unless otherwise provided by the Monetary Board.
SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. —
Notwithstanding the limitations of the preceding Section, a bank may acquire, hold
or convey real property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security
for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously
contracted in the course of its dealings; or
52.3. Such as it shall purchase at sales under judgments, decrees,
mortgages, or trust deeds held by it and such as it shall purchase to secure
debts due it.
Any real property acquired or held under the circumstances enumerated in the above
paragraph shall be disposed of by the bank within a period of five (5) years
or as may be prescribed by the Monetary Board: Provided, however, That the
bank may, after said period, continue to hold the property for its own use,
subject to the limitations of the preceding Section. (25a)
PROHIBITION FOR INSURANCE
SECTION 54. Prohibition to Act as Insurer. — A bank shall not directly engage in
insurance business as the insurer. (73)
INTANGIBLE PROPERTIES
SECTION 38. Loans and Other Credit Accommodations on Security of
Chattels and Intangible Properties. — Except as the Monetary Board may
otherwise prescribe, loans and other credit accommodations on security of chattels and
intangible properties, such as, but not limited to, patents, trademarks, trade names,
and copyrights shall not exceed seventy-five percent (75%) of the appraised
value of the security, and such loans and other credit accommodations may be
made to the title-holder of the chattels and intangible properties or his assignees.
FORECLOSURE
SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of
foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which
is security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real
estate, to redeem the property by paying the amount due under the mortgage deed,
with interest thereon at the rate specified in the mortgage, and all the costs and
expenses incurred by the bank or institution from the sale and custody of said property
less the income derived therefrom. However, the purchaser at the auction sale
concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter
upon and take possession of such property immediately after the date of the
confirmation of the auction sale and administer the same in accordance with law. Any
petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted
pursuant to this provision shall be given due course only upon the filing by the
petitioner of a bond in an amount fixed by the court conditioned that he will
pay all the damages which the bank may suffer by the enjoining or the
restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant
to an extrajudicial foreclosure, shall have the right to redeem the property in
accordance with this provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of Deeds which in
no case shall be more than three (3) months after foreclosure, whichever is
earlier. Owners of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their expiration.
CLOSE NOW HEAR LATER;
The law does not contemplate prior notice and hearing before the bank may be
directed to stop operations and placed under receivership. The purpose is to prevent
unwarranted dissipation of the bank’s assets and as a valid exercise of police power to
protect the depositors, creditors, stockholders and the general public. (Central Bank of
the Philippines v. CA, G.R. No. 76118 Mar. 30, 1993)
ARM’S LENGTH RULE
It provides that any dealings of a bank with any of its DOSRI shall be upon terms not
less favorable to the bank than those offered to others. [Sec. 36 (2)]
SINGLE BORROWER’S LIMIT
Single borrower’s limit – The total amount of loans, credit accommodations and
guarantees that the bank could grant should at no time exceed 25% of the bank’s net
worth. (Sec 35.1, GBL)
XPN:
a. As the Monetary Board may otherwise prescribe for reasons of national interest;
b. Deposits of rural banks with government‐owned or controlled financial institutions
like LBP, DBP, and PNB;
c. The total amount of loans, credit accommodations and guarantees prescribed in (a)
may be increased by an additional 10% of the net worth of such bank provided that
additional liabilities are adequately secured by trust receipt, shipping documents,
warehouse receipts and other similar documents which must be fully covered by
an insurance. (Sec. 35.2, GBL)
DILIGENCE REQUIRED OF BAKS
Extraordinary diligence. The appropriate standard of diligence must be very high, if not
the highest, degree of diligence; highest degree of care (PCI Bank vs. CA, 350 SCRA
446, PBCom vs. CA, G.R. No. 121413, 29 Jan. 2001) This applies only to cases where
banks are acting in their fiduciary capacity, that is, as depository of the deposits of
their depositors. (Reyes v. CA, G.R. No. 118492, Aug. 15, 2001).
The same higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve their fiduciary relationship with their
depositors, such as sale and issuance of foreign exchange demand draft. (Reyes v. CA,
G.R. No. 118492, Aug. 15, 2001)
BANKO SENTRAL NG PILIPINAS
The state’s central monetary authority; it is the government agency charged with the
responsibility of administering the monetary, banking and credit system of the country
and is granted the power of supervision and examination over bank and non‐bank
financial institutions performing quasi‐banking functions, including savings and loan
associations;
RESPONSILITY:
1. To provide policy directions in the areas of money, banking, and credit;
2. To supervise bank operations;
3. To regulate the operations of finance companies and non‐bank financial
institutions performing quasi‐banking functions, and similar institutions. (Sec. 3)
OBJECTIVES:
1. To maintain price stability conducive to a balanced and sustainable growth of
the economy.
2. To promote and maintain monetary stability and the convertibility of the
peso. (Sec. 3);
FUNCTION:
1. Issuer of currency. (Sec. 49‐60)
2. Custodian of reserves. (Secs. 64‐66, 94, 103)
3. Clearing channel or house; especially where the PCHC does not operate .
(Sec. 102)
4. Banker of the government – the BSP shall be the official depository of the
Government and shall represent it in all monetary fund dealings (Secs. 110‐
116)
5. Financial advisor of the government (Secs. 123‐124) – Under Article VII, Sec.
20 of the 1987 Constitution, the President may contract or guarantee foreign
loans but with the prior concurrence of the Monetary Board.
6. Source of credit (Secs. 61‐63, 81‐89, 109)
7.Supervisor of the banking system (Sec. 25)
MONETARY BOARD
The body through which the powers and functions of the Bangko Sentral are exercised.
(Sec 6);
FUNCTION:
1. Issue rules and regulations it considers necessary for the effective discharge of the
responsibilities and exercise of its powers
2. Direct the management, operations, and administration of the Bangko Sentral,
reorganize its personnel, and issue such rules and regulations as it may deem
necessary or convenient for this purpose
3. Establish a human resource management system
4. Adopt an annual budget for and authorize such expenditures by the Bangko Sentral
as are in the interest of the effective administration and operations of the Bangko
Sentral in accordance with applicable laws and regulations
5. Indemnify its members and other officials of the Bangko Sentral, including personnel
of the departments performing supervision and examination functions against all costs
and expenses reasonably incurred by such persons in connection with any civil or
criminal action. (Sec 15)
SEC. 6. Composition of the Monetary Board. _ The powers and functions of the
Bangko Sentral shall be exercised by the Bangko Sentral Monetary Board, hereafter
referred to as the Monetary Board, composed of seven (7) members appointed by the
President of the Philippines for a term of six (6) years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the Monetary
Board. The Governor of the Bangko Sentral shall be head of a department and his
appointment shall be subject to confirmation by the Commission on Appointments.
Whenever the Governor is unable to attend a meeting of the Board, he shall designate
a Deputy Governor to act as his alternate: Provided, That in such event, the Monetary
Board shall designate one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the
Philippines. Whenever the designated Cabinet Member is unable to attend a meeting
of the Board, he shall designate an Undersecretary in his Department to attend
as his alternate; and
(c) five (5) members who shall come from the private sector, all of whom shall
serve full-time: Provided, however, That of the members first appointed under the
provisions of this subsection, three (3) shall have a term of six (6) years, and the other
two (2), three (3) years.
No member of the Monetary Board may be reappointed more than once.
SEC. 7. Vacancies. _ Any vacancy in the Monetary Board created by the death,
resignation, or removal of any member shall be filled by the appointment of a new
member to complete the unexpired period of the term of the member concerned.
SEC. 8. Qualifications. _ The members of the Monetary Board must be:
1. natural-born citizens of the Philippines,
2. at least thirty-five (35) years of age, with the exception of the Governor who
should at least be forty (40) years of age,
3. of good moral character, of unquestionable integrity, of known probity and
patriotism, and
4. with recognized competence in social and economic disciplines.
SEC. 9. Disqualifications. _ In addition to the disqualifications imposed by Republic
Act No. 6713, a member of the Monetary Board is disqualified:
1. 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 Bangko Sentral;
 in which case such member shall resign from, and divest himself of
any and all interests in such institution before assumption of office
as member of the Monetary Board.
2. The members of the Monetary Board coming from the private sector shall not
hold any other public office or public employment during their tenure.
3. No person shall be a member of the Monetary Board 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
hisappointment;
 likewise, no member of the Monetary Board shall be employed in
any such institution within two (2) years after the expiration of his
term
o except when he serves as an official representative of the
Philippine Government to such institution;
SEC. 10. Removal. _ The President may remove any member of the Monetary Board
for any of the following reasons:
(a) If the member is subsequently disqualified under the provisions of Section 8 of this
Act; or
(b) 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
(c) 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 Bangko
Sentral; or
(d) If the member no longer possesses the qualifications specified in Section 8 of this
Act.
SEC. 20. Outside Interests of the Governor and the Fulltime Members of the
Board. _ The Governor of the Bangko Sentral and the full-time members of the Board
shall limit their professional activities to those pertaining directly to their
positions with the Bangko Sentral. Accordingly, they may not accept any other
employment, whether public or private, remunerated or ad honorem, with
the exception of positions in eleemosynary, civic, cultural or religious
organizations or whenever, by designation of the President, the Governor or the
full-time member is tasked to represent the interest of the Government or other
government agencies in matters connected with or affecting the economy or the
financial system of the country.
LEGAL TENDER
1. 1‐Peso, 5‐Peso and 10‐Peso coins: In amounts not exceeding P1,000.00
2. 25 centavo coin or less: In amounts not exceeding P100.00 (Circular No. 537,
2006);
FISCAL POLICY VS. MONETARY POLICY
SEC. 114. Fiscal Operations. _ The Bangko Sentral shall open a general cash account
for the Treasurer of the Philippines, in which the liquid funds of the Government shall
be deposited. Transfers of funds from this account to other accounts shall be made
only upon order of the Treasurer of the Philippines.
Monetary policy and fiscal policy refer to the two most widely recognized tools used to
influence a nation's economic activity. Monetary policy is primarily concerned with the
management of interest rates and the total supply of money in circulation and is
generally carried out by central banks such as the U.S. Federal Reserve. Fiscal policy is
the collective term for the taxing and spending actions of governments. In the United
States, the national fiscal policy is determined by the executive and legislative
branches of the government.
Monetary Policy
Central banks have typically used monetary policy to either stimulate an economy or to
check its growth. The theory is that, by incentivizing individuals and businesses to
borrow and spend, monetary policy can spur economic activity. Conversely, by
restricting spending and incentivizing savings, monetary policy can act as a brake on
inflation and other issues associated with an overheated economy.
The Federal Reserve, also known as the "Fed," has frequently used three different
policy tools to influence the economy: opening market operations, changing reserve
requirements for banks and setting the discount rate. Open market operations are
carried out on a daily basis where the Fed buys and sells U.S. government bonds to
either inject money into the economy or pull money out of circulation. By setting the
reserve ratio, or the percentage of deposits that banks are required to keep in reserve,
the Fed directly influences the amount of money created when banks make loans. The
Fed can also target changes in the discount rate (the interest rate it charges on loans it
makes to financial institutions), which is intended to impact short-term interest rates
across the entire economy.
Fiscal Policy
Generally speaking, the aim of most government fiscal policies is to target the total
level of spending, the total composition of spending, or both in an economy. The two
most widely used means of affecting fiscal policy are changes in government spending
policies or in government tax policies.
If a government believes there is not enough business activity in an economy, it can
increase the amount of money it spends, often referred to as "stimulus" spending. If
there are not enough tax receipts to pay for the spending increases, governments
borrow money by issuing debt securities such as government bonds and, in the
process, accumulate debt; this is referred to as deficit spending.
By increasing taxes, governments pull money out of the economy and slow business
activity. But typically, fiscal policy is used when the government seeks to stimulate the
economy. It might lower taxes or offer tax rebates, in an effort to encourage economic
growth. Influencing economic outcomes via fiscal policy is one of the core tenets of
Keynesian economics.
When a government spends money or changes tax policy, it must choose where to
spend or what to tax. In doing so, government fiscal policy can target specific
communities, industries, investments, or commodities to either favor or discourage
production – and sometimes, its actions based on considerations that are not entirely
economic. For this reason, the numerous fiscal policy tools are often hotly debated
among economists and political observers.
Which is More Effective: Monetary or Fiscal Policy?
In terms of improving the real economy, expansionary fiscal policy is more effective. In
terms of the financial economy, expansionary monetary policy is the better choice.
Both types work through different channels and impact individuals and corporations in
different ways.
Fiscal policy affects consumers positively for the most part, as it leads to increased
employment and income. Essentially, it is targeting aggregate demand. Companies
also benefit as they see increased revenues.

However, if the economy is near full capacity, expansionary fiscal policy risks sparking
inflation. This inflation eats away at the margins of certain corporations in competitive
industries that may not be able to easily pass on costs to customers; it also eats away
at the funds of people on a fixed income. Fiscal policy can also have the effect of
creating asset bubbles if the market and incentives become too distorted.

Monetary policy has less impact on the real economy. Case in point: the Great
Depression, during which the Federal Reserve was particularly aggressive on a
historical scale. Its actions prevented deflation and economic collapse but did not
generate significant economic growth to reverse the lost output and jobs.

Expansionary monetary policy can have limited effects on growth by increasing asset
prices and lowering the costs of borrowing, making companies more profitable. In
addition, it has the psychological benefits of taking worse-case economic scenarios off
the table. As with fiscal policy, extended periods of low borrowing costs can create
asset bubbles that are only apparent in hindsight.

Another crucial difference between the two is that fiscal policy can be targeted, while
monetary policy is more of a blunt tool in terms of expanding and contracting the
money supply to influence inflation and growth.