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NEW CENTRAL BANK ACT Q.

What is the policy of the State expressed in the BSP [Banko Sentral ng Pilipinas] Law? A. The policy is to maintain a central monetary authority that shall: 1. function and operate as an independent and accountable body in the discharge of its responsibilities concerning money, banking, and credit 2. enjoy fiscal and administrative autonomy Q. What are the responsibilities of the BSP? A. 1. To provide policy directions in the areas of money, banking and credit. 2. To supervise the operations of banks. 3. To regulate the operations of finance companies and non-bank financial institutions performing quasi-judicial functions and institutions performing similar functions. Q. What are the primary objectives of the BSP? A. 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. Q. Could a restraining order or injunction be issued by a court so as to enjoin the BSP from examining such institutions? A. No, unless: 1. There is convincing proof that the action of the BSP is plainly and arbitrarily made in bad faith 2. Petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond executed in favor of the BSP, in an amount to be fixed by the court. Q. On what grounds may the Monetary Board close a bank or quasi-bank or otherwise prohibit it from dong business in the Philippines? A. 1. If the bank or quasi-bank [QB] is unable to pay its liabilities as they become due in the ordinary course of business (cashflow test) 2. If the bank or QB has insufficient realizable assets to meet its liabilities (balance sheet test) 3. If the bank or QB cannot continue in business without involving probable losses t its depositors and creditors 4. If the bank or QB has willfully violated a cease and desist order under Sec. 37 that has become final and involves acts or transactions which amount to fraud or dissipation of assets. 5. If the bank or QB notifies the BSP or publicly announcement a bank holiday

6. If the bank or QB in any manner suspends the payment of its deposit liabilities continuously for more than 30 days 7. If the bank or QB persists in conducting its business in an unsafe or unsound manner Q. What is the Bangko Sentral ng Pilipinas? A. The Bangko Sentral is independent 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 banks and non-banks functions, including savings and loan associations. (Buseguego v. CA) Q. What is the Monetary Board and its composition? A. The Monetary Board is the body by which the powers and functions of the BSP. It is composed of seven (7) members appointed by the President of the Philippines for a term of six (6) days years: Governor of the Bangko Sentral, as Chairman; A member of the Cabinet to be designated by the President; and Five (5) members from the private sector, all of whom shall serve full-time Q. What are the powers and functions of the BSP? A. The BSP is the 1. issuer of currency (Sec. 49-60) 2. custodian of reserves (Sec. (64-66, 94, 103) 3. clearing channel or house; especially where the PCHC doe not operate (Sec. 102) 4. Banker of the government- the BSP shall be the official depositary of the government and shall represent it in all monetary fund dealings (Sec 110116) 5. financial advisor of the government (Sec 123-124)- Article VII, Sec 20 of the Constitution, the President may contract or guarantee foreign loans but with the prior concurrence of the Monetary Board 6. source of credit (Sec 61-63, 81-89, 109) 7. Supervisor of the banking system (Sec 25) shall include the power to: - Examine; extending to enterprises wholly or majority-owned or controlled by the bank (Sec 7, RA 8791); this power may not be restrained by a writ of injunction unless there is proof that the action of the BSP is plainly arbitrary (Sec 25) - Place a bank under receivership or liquidation (Sec 30) - Initiate criminal prosecution of erring officers of bank 8. Government agent (Sec 177-122) Q. What is Conservatorship? A. Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-bank

is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditor's, the Monetary Board may appoint a conservator with such powers as the Monetary Board shall deem necessary. The conservatorship shall not exceed one (1) year. Q. What are the powers of the Conservator? A. The powers that may be conferred to the conservator are such powers as may be necessary or the following purposes: 1. To take charge of the assets, liabilities, and the management thereof; 2. To recognize the management of the subject bank; 3. To collect all monies and debts due said institution; 4. To exercise all powers necessary to restore its viability The powers must be related to preservation of assets reorganization of management and the restoration of viability. Such power to revoke cannot extend to post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution. The power to revoke contracts only covers those that are deemed defective i.e. Void, voidable, unenforceable or rescissible. (First Phil. Int'l Bank v. CA) Q. When is Conservatorship terminated? A. 1. When the monetary Board is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary; 2. But if the continuance in business of the bank would involve probable loss to it depositors, proceedings for receivership and liquidation shall be pursued (Sec 29). Q. What is Receivership? A. Receivership is equivalent to an injunction to restrain the bank in any way. Thus, the appointment of a receiver operates to suspend the authority of the bank and its directors and officers over its property and effects. (Villanueva v. CA) Q. What are the grounds for appointing a receiver? A. A receiver of bank may be appointed whenever, upon report of the head of the supervising and examining department, the Monetary Board finds that: 1. The bank 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; 2. The bank has insufficient realizable assets, as determined by the Banko Sentral, to meet its liabilities; or 3. The bank cannot continue in business without involving probable losses to its depositors or creditors; or

4. The bank has willfully violated a cease and desist order under Sec 37 that has become final, involving acts or transactions which amount fraud or a dissipation of the assets of the institution. Q. What are the duties of the Receiver? A. 1. The receiver shall immediately gather and take charge of all assets and liabilities of the institution, administer the same for the benefit of its creditors; 2. The receiver shall exercise the general powers of a receiver under the Rules of Court; 3. The receiver may deposit or place the funds of the institution in nonspeculative investments; 4. The receiver shall determine as soon as possible, but not later than 90 days from take over, whether the institution may be rehabilitated or otherwise placed in such a custody so that it may be permitted to resume business with safety to its depositors and creditors and the general public: Provided, The any determination for the resumption of business of the institution shall be subject to prior approval of the Monetary Board. 5. 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. Q. What is a close now, hear later scheme? A. No prior hearing is necessary in appointing a receiver and in closing the bank. It is enough that subsequent judicial review is provided for. Indeed, to require such previous hearing would not only be impractical but would tend to defeat the very purpose of the law when it invested the Monetary Board with such authority. (Rural Bank of Lucena v. Arca) Q. What are the mandatory requirements for bank closure? A. 1. Examination by the appropriate BSP department as to the condition of the bank 2. examinations shows that the condition of the bank is one of insolvency 3. Director shall inform the Monetary Board in writing of such fact 4. Monetary Board shall find the statement of the department to be true (Banco Filipino v. Monetary Board) Q. What are the grounds for liquidation? A. 1. The condition of the bank is one of insolvency or that its continuance would involve probable loss to its depositors and creditors. 2. A determination by the Monetary Board that the bank cannot be rehabilitated.

Q. What is the procedure for liquidation? A. 1. Receiver shall file ex parte, with the proper RTC, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the PDIC for general application to all close banks. In case of quasi-banks, the liquidation plan shall be adopted by the Monetary Board. 2. He shall convert the assets of the institution to money for the purpose of paying the debts of the institution (Sec 30) 3. Payment shall be in accordance with the rules on concurrence and preference of credits. Q. What are the effects of the appointment of receiver and liquidation? A. 1. Suspension of operation 2. The assets under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall be exempt from garnishment, levy, attachment or execution (Sec 30) 3. Bank is not liable to pay interest on deposits during the period of suspension of operation (Overseas Bank v. CA) 4. The corporation retains its legal personality (Teal Motors Co. v. CFI) 5. Deposits do not become preferred credits (CB v. Morfe) Q. What are subsidiaries? A. Subsidiaries means a corporation more than fifty percent (50%) of the voting stock of which is owned by a bank or quasi-bank and an affiliate means a corporation the voting stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasi-bank or which is related or linked to such institution or intermediary through common stockholders or such other factors as may be determined by the Monetary Board. Q. What are the prohibitions on Bangko Sentral Personnel? A. In addition to the prohibitions found in Republic Act Nos. 3019 and 6713, personnel of the Bangko Sentral are prohibited from: 1. Being an officer, director, lawyer or agent, employee, consultant or stockholder, directly or indirectly, of any institution subject to supervision or examination by the Bangko Sentral, except non-stock savings and loan associations and provident funds organized exclusively for employees of the Bangko Sentral, and except as otherwise provided in this Act; 2. Directly or indirectly requesting or receiving any gift, present or pecuniary or material benefit for himself or another, from any institution subject to supervision or examination by the Bangko Sentral; 3. Revealing in any manner, except under orders of the court, the Congress or any government office or agency authorized by law, or under such conditions as may be prescribed by the Monetary Board, information relating to the condition or business of any institution. This prohibition shall not be held to apply to the gibing of information to the Monetary Board or

the Government of the Bangko Sentral, or to any person authorized by either of them, in writing, to receive such information; and 4. Borrowing from any institution subject to supervision or examination by the Bangko Sentral shall be prohibited unless said borrowings are adequately secured, fully disclosed to the Monetary Board, and shall be subject to such further rules and regulations as the Monetary Board may prescribe: Provided, however, That personnel of the supervising and examining department are prohibited from borrowing from a bank under their supervision or examination. (Sec 27) Q. What are the Administrative Sanctions on Banks and Quasi-banks for violations? 2. Without prejudice to the criminal sanctions against the culpable persons provided in Sections 34, 35 and 36 of this Act, the Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their directors and/or officers, for: 1. any willful violation of its charter or by-laws, willful delay in the submission of reports or publications thereof as required by law, rules and regulations; 2. any refusal to permit examination into the affairs of the institution; 3. any willful making of a false or misleading statement to the Board or the appropriate supervising and examining department or its examiners; 4. any willful failure or refusal to comply with, or violation of, any banking law or any order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by the Governor; or 5. any commission of irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by the Monetary Board, the following administrative sanctions, whenever applicable: 1. Fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed Thirty thousand pesos (P30,000) a day for each violation, taking into consideration the attendant circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank or quasi-bank; 2. Suspension of rediscounting privileges or access to Bangko Sentral credit facilities; 3. Suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments; 4. Suspension of interbank clearing privileges; and/or 5. Revocation of quasi-banking license.

Q. What is Legal Tender? A. Such currency which in a given jurisdiction can be used for the payment of debts, public or private, and which cannot be refused by the creditor. All notes and coins issued by the Bangko Sentral 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: Provided. However, That unless otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for denominations of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less. (Sec 52) Q. What are demand deposits? A. Demand Deposits are the liabilities of the BSP and of other banks that are denominated in Philippine currency and are subject to payment upon demand by the presentation of checks. (Sec 58) Q. What is the deposit substitute? A. A deposit substitute is 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 purchasing or receivables and other obligations. These instruments may include, but need not be limited to banker's acceptances, promissory notes, participations, certificates of assignment and similar instruments with recourse, and repurchase agreements. Q. How will the Bangko Sentral maintain the international stability of the Philippine peso? A. In order to maintain the international stability and convertibility of the Philippine peso, the Bangko Sentral shall maintain international reserves adequate to meed any foreseeable net demand on the Bangko Sentral for foreign currencies. In judging the adequacy of the international reserves, the Monetary Board shall be guided by the prospective receipts and payments of foreign exchange by the Philippines. The Board shall give special attention to the volume and maturity of the Bangko Sentral's own liabilities in foreign currencies, to the volume and maturity of the foreign exchange assets and liabilities of other banks operating in the Philippines and, insofar as they are known or can be estimated, the volume and maturity of the foreign exchange assets and liabilities of all other persons and entities in the Philippines. (Sec 65) Q. What is the composition of the International Reserves? A. The international reserves of the Bangko Sentral may include but shall not be limited to the following assets: 1. Gold; and 2. Assets in foreign currencies in the form of documents and instruments customarily employed for the international transfer of funds; demand and time deposits in central banks, treasuries and commercial banks abroad; foreign government securities; and foreign notes and coins.

Q. What is the course of action when the International Stability of the Peso is threatened? A. Whenever the international reserve of the Bangko Sentral falls to a level which the Monetary Board considers inadequate to meet prospective net demands on the Bangko Sentral for foreign currencies, or whenever the international reserve appears to be in imminent danger of falling to such a level, or whenever the international reserve is falling as a result of payments or remittances abroad which, in the opinion of the Monetary Board, are contrary to the national welfare, the Monetary Board shall: 1. Take such remedial; measures as are appropriate and within the powers granted to the Monetary Board and Bangko Sentral under the provisions of this Act; and 2. Submit to the President of the Philippines and to Congress a detailed report which shall include, as a minimum, a description and analysis of: a. the nature and causes of the existing or imminent decline; b. the remedial measures already taken or to be taken by the Monetary Board; c. the monetary, fiscal or administrative measures further proposed; and d. the character and extent of the cooperation required from other government agencies for the successful execution of the policies of the Monetary Board. If the resultant actions fail to check the deterioration of the reserve position of the Bangko Sentral, or if the deterioration cannot be checked except by chronic restrictions on exchange and trade transactions or by sacrifice of the domestic objectives of a balanced and sustainable growth of the economy, the Monetary Board shall propose to the President, with appropriate notice of the Congress, such additional action as it deems necessary to restore equilibrium in the international balance of payments of the Philippines. (Sec 67) Q. With whom is the Bangko Sentral authorized to enter into foreign exchange transactions? A. The Bangko Sentral may engage in foreign exchange transactions with the following entities or persons only: 1. 2. 3. 4. 5. Banking institutions operating in the Philippines; The Government, its political subdivisions and instrumentalities; Foreign or international financial institutions; Foreign governments and their instrumentalities; and Other entitles or persons which the Monetary Board is hereby empowered to authorize as foreign exchange dealers, subject to such rules and regulations as the Monetary Board shall prescribe.

Q. Can the BSP provide loans for liquidity purpose?

A. The Bangko Sentral may extend loans and advances to banking institutions for a period of not more than seven (7) days without any collateral for the purpose of providing liquidity to the banking system in times of need. (Sec 83) Q. What is the policy of the BSP with regard to Purchases and Sales of Government Securities? A. In order to achieve the objectives of the national monetary policy, the Bangko Sentral may buy and sell in the open market for its own account: 1. Evidences of indebtedness issued directly by the Government of the Philippines or by its political subdivisions; and 2. Evidences of indebtedness issued by government instrumentalities and fully guaranteed by the Government. The evidences of indebtedness acquired under the provisions of this section must be freely negotiable and regularly serviced and must be available to the general public through banking institutions and local government treasuries in denominations of a thousand pesos or more. (Sec 91) Q. What is the Purpose of Reserve Requirements of banks? A. In order to control the volume of money created by the credit operations of the banking system. All banks operating in the Philippines shall be required to maintain reserves against their deposit liabilities: Provided, That the Monetary Board may, at its discretion, also require all banks and/or quasi-banks to maintain reserves against funds held in trust and liabilities for deposit substitutes as defined in this Act. The required reserves of each bank shall be proportional to the volume of its deposit liabilities and shall ordinarily take the form of a deposit in the Bangko Sentral. Reserve requirements shall be applied to all banks of the same category uniformly and without discrimination. The Monetary Board May exempt from reserve requirements deposits and deposit substitutes with remaining maturities of two (2) years or more, as well as interbank borrowings. Since the requirement to maintain bank reserves is imposed primarily to control the volume of money, the Bangko Sentral shall not pay interest on the reserves maintained with it unless the Monetary Board decides otherwise as warranted by circumstances. (Sec 94) Q. may the Monetary Board increase the Reserve Requirements of banks? A. Whenever in the opinion of the Monetary Board it becomes necessary to increase requirements against existing liabilities, the increase shall be made in a gradual manner and shall not exceed four percentage points in any thirty-day period. Banks and other affected financial institution shall be notified reasonably in advance of the date on which such increase is to become effective. (Sec 99) Q. What is the purpose of the Securities Stabilization Fund/

A. The operations of the Securities Stabilization Fund shall consist of purchases and sales, in the open market, of bonds and other evidences of indebtedness issued or fully guaranteed by the Government. The purpose of these operations shall be to increase the liquidity and stabilize the value of said securities in order thereby to promote investment in government obligations. The Monetary Board shall use the resources of the Fund to prevent, or moderate, sharp fluctuations in the quotations of said governments obligations, but shall not endeavor to alter movements of the market resulting from basic changes in the pattern or level of interest rates. (Sec 120) Q. What are the Prohibitions of the BSP? A. 1. The Bangko Sentral shall not acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either directly or indirectly. 2. The Bangko Sentral shall not engage in development banking or financing: Provided, however, That outstanding loans obtained or extended for development financing shall not be affected by the prohibition of this section. (Sec 127)

Atty. Jimenez Lecture Notes / Transcripts, Re: Central Bank and the Monetary Board You have the law creating the Bangko Sentral ng Pilipinas. 1. The governing body is the Monetary Board 2. You need 4 votes to approve any decision. 3. But in case of emergency, when there is no time to call a meeting, the governor with the consent of 2 other members of the Board, can act on any matter which normally would require an action by the Monetary Board. But he must report that to the president and to congress within 72 hours and get the Monetary Board to ratify his action as soon as possible. Conservatorship If the Bank is facing a liquidity problem (liquidity here means that it cannot service withdrawals of its depositors) then it can be placed under conservatorship. The Monetary board may appoint a conservator. And the conservator may overrule the decision of the board. You took this up in political law, that court said you cannot cancel valid contracts under that provision. And the conservatorship should not exceed 1 year. The conservatorship will be terminated if:

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1. The conservatorship is no longer necessary that the bank can now resume normal operations or 2. The conservator reports that the bank can no longer continue its business without loss to the public. If the bank can resume normal business operations or it can no longer continue because conservator is supposed to submit a report on whether the bank can continue or whether it will have to be liquidated. During that time, nobody can be paid. That's what happened with Urban Bank. It was placed under conservatorship; all those who have claims could not be paid. Receivership A bank may also be placed under receivership. But it is not required that the bank should have been previously placed under conservatorship before it can be placed under receivership. A bank may be placed under receivership if: 1. It is unable to pay its liabilities as they become due in the ordinary course of business. Except inability to pay because of extraordinary demands. 2. If it has insufficient realizable assets to meet its liabilities. 3. It cannot continue its business without involving probable loss to its depositors or creditor's. 4. It has willfully violated a cease and desist order that has become final involving acts or transactions which amount to fraud or dissipation of assets of the bank. And the Monetary Board may, without need of prior hearing, forbid the bank from doing business and appoint the PDIC as receiver. PDIC is the statutory receiver. And within 90 days, the receiver should determine whether or not the bank can be rehabilitated can no longer be rehabilitated. Then the Monetary Board will decide whether or not it will be liquidated because it can no longer be rehabilitated or it will be allowed to resume business because it can now continue its business. If it be determined that the bank should be liquidated, then a petition be filed in court asking the court for assistance in liquidating the bank. Now, the law provides that the action of the Monetary Board on receivership and liquidation shall be FINAL and EXECUTORY and cannot be set aside EXCEPT on certiorari that it acted in excess of jurisdiction or gave abuse of discretion. And majority of the stockholders by joint resolution that must file that within 10 days from receipt of the order placing it under receivership conservatorship or requiring its liquidation. If the action is filed beyond that period, it will be barred. Or it was not filed by majority of the stockholders, it will have dismissed. Violations

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A bank may impose penalties for erring bank officials and directors. They can, even in some cases, remove them and they can suspend them pending investigation. If the bank should be inspected and the result, the findings, the report will be given to the bank all the violations will be mentioned there. Engaging in unsound banking practice is prohibited. So if a bank persist in committing acts or practices which are violations, the Monetary Board may issue a cease and desist order stopping them from doing those practices or violations. And the order is immediately effective. If the bank wants to question it, it must ask for a hearing within 5 days. If it does not ask for a hearing, the order will become final. Legal Tender Notes and coins issued by the Bangko Sentral shall be legal tender BUT coins shall be legal tender up to fifty pesos for coins which are 25 centavos and up. Twenty pesos for 10-centavo coins or less. So 10-centavos, 5-centavos, you can pay up to twenty pesos. 25-centavos up to 5-peso coins, you can pay up to fifty pesos. Monetary Policies It's the Bank that has control over monetary policies. And if the International Monetary stability is threatened, that the reserves fall inadequate to meet the demands, or the reserves are in danger of falling below such level, the Monetary Board may take remedial measures. And if the remedial measures the Monetary Board adopted are still inadequate to correct the situation, they can propose additional measures to the president with notice to the congress. The Bangko Sentral may buy and sell gold and foreign exchange. The Bangko Sentral in times of an exchange crisis, with the concurrence of 5 members of the Monetary Board and the approval of the president, the Monetary Board may temporarily stop or restrain the sale of foreign exchange. Or subject gold and foreign exchange transactions to licensing. Or require that foreign exchange be delivered to the bank for conversion to pesos, in other words back to foreign exchange controls. And to control the amount of money by lending, banks are required to maintain reserves. This is one of the tools of the Central Bank for increasing or reducing the amount of money circulation. By increasing the bank reserves, they reduce the amount of money that the bank could lend. And they are also requiring reserves for deposit substitutes like money market placements, and also trust funds. Before, they were not requiring reserves for trusts, so that banks were pushing for trust operations. So the cost of money there is cheap because you don't have to put up reserves.

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GENERAL BANKING LAW Q. What are Banks? A. Banks are entities engaged in the lending of funds obtained in the form of deposits. (Sec 2, GBL) Banks are entities duly authorized by the Monetary Board to engage in the business of regularly lending funds obtained regularly from the public through the receipt of deposit of any kind. (Sec 2, RA 337) Classification of Banks 1. Universal Banks Those that used to be called expanded commercial banks and whose operations are now primarily governed by the GBL. They can exercise the powers of an investment house and invest in nonallied enterprises. They have the highest capitalization requirement. 2. Commercial Banks Ordinary or regular commercial banks, as distinguished from a universal bank. They have a lower capitalization requirement than universal banks and cannot exercise the powers of an investment house and invest in non-allied enterprises. 3. Thrift Banks Savings and mortgages banks, stock savings and loan associations, and private development banks which are governed primarily by the Thrift Bank Act (RA 7906) 4. Rural Banks Mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and which are governed primarily by the Rural Banks Act of 1992 (RA 7353) 5. Cooperative Banks Banks organized whose majority shares are owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. It shall include cooperative rural banks. They are governed primarily by the Cooperative Code (RA 6938) 6. Islamic Banks Banks whose business dealings and activities are subject to the basic principles and rulings of Islamic Shari'a, such as the Al Amanah Islamic Investment Bank of the Philippines which was created by RA 6848. 7. Other classification of Banks as determined by the Monetary Board of the Bangko Sentral (Sec 3). Q. What are the quasi-banks? A. Quasi-banks are 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.

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Q. Does a universal or commercial bank have to be separately licensed to engage in quasi-banking functions? A. No, an entity authorized by the BSP to perform universal or commercial banking functions shall likewise have the authority to engage in quasi-banking functions. Q. What are the requirements before a bank may engage in banking or quasi-banking functions? A. The following are the requirements: 1. Must be a stock corporation with obtained from the public 2. Satisfaction of the minimum capital requirement 3. Obtain authorization from the Bangko Sentral ng Pilipinas Q. What is the total number of voting stocks of a domestic bank that could be owned by (i) a Filipino or a domestic non-bank corporation, and (ii) a foreign individual or foreign non-bank corporation? A. (i) In the case of a Filipino individual or a domestic non-bank corporation, each may own up to 40% of the outstanding voting stock of a domestic bank. (ii) In the case of a foreign individual or foreign non-bank corporation, 40% of the outstanding voting stock of a domestic bank is also the limit but 40% is, at the same time, also the limit on the aggregate foreign-owned stocks that could be owned by foreign individuals and foreign non-bank corporation in a domestic bank. Under Sec 8 of RA 7721 (An Act Liberalizing the Entry of Foreign Banks), Philippine corporations whose shares of stock are listed in the Philippine Stock Exchange or are of long standing for at least 10 years shall have the right to acquire, purchase or own up to 60% of the voting stock of a domestic bank. Under Sec 73 of the GBL, a foreign bank may own up to 100% of the voting stock of only 1 existing domestic bank within 7 years from the effectivity of the GBL on June 13, 2000. Q. What is an independent director? A. An independent director is a person other than an officer or employee of the bank, its subsidiaries or affiliates or related interests. (Sec 15) Q. What is the fit and proper rule? A. The fit and proper rule provides that to maintain the quality of bank management and afford better protection to depositors and the public in general, the Monetary Board shall: 1. prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit; or

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2. 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. Q. What is the rule with regard to family groups or related interests (within 4th degree of consanguinity or affinity)? A. The fact of such interest must be fully disclosed in all transactions by the persons, groups or persons with related interest. Also, if 2 or more corporations are owned by the same family group or the same group of persons, it is considered related interest and there must be full disclosure of transactions with them. Q. What is the single borrower's limit rule? A. Single Borrower's Limit Rule are those promulgated by the BSP, upon the authority of Sec 35 of the GBL, which regulate the total amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnerships, association, corporation or other entity. The rules seek to protect a bank from making excessive loans to a single borrower by prohibiting it from lending beyond a specified ceiling. The current limit is 20% of net worth of the bank concerned, subject to possible increase be additional 10% under certain conditions. Q. How may the single borrower increase the limit to 30%? A. By securing his obligation with trust receipts, bill of lading, quedan, or goods which are readily marketable, then the single borrower's limit may be increased by 10% more (30%). Q. What items are excluded in the computation of the single borrower's list? A. The following are the exclusions: 1. Loans secured by the obligations of the Bangko Sentral or of the government. 2. Loans fully guaranteed by the government. 3. Loans covered by assignment of deposits in the lending bank and held in the Philippines. 4. Letters of credit covered by margin deposits 5. Non-risk items specified by the Monetary Board. Q. What does DOSRI stand for? What are DOSRI Rules? A. DOSRI stands for Director, Officer, Stockholder, Related Interests. DOSRI Rules are those promulgated by the BSP, upon the authority of Sec 36 of the GBL, which regulate the amount of credit accommodations that a bank

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may extend to its directors, officers stockholders and related interests. Generally, a bank's credit accommodations to its DOSRI must be in the regular course of business and on terms not less favorable to the bank than those offered to nonDOSRI borrowers. Q. What are the formalities required to be observed by a director or officer of a bank who wish to borrow from such bank? A. 1. The borrowing must be with the written approval of a majority of the bank's board of directors, excluding the director concerned; 2. Such approval must be entered upon the records of the bank; 3. A copy of the entry of such approval shall be transmitted forthwith to the appropriate supervising department of the BSP. Q. What is micro-financing? A. Micro-financing is the grant of small loans (micro-finance loans) to basic sectors, as described in the Social Reform and Poverty Alleviation Act of 1997 (RA 8425), and other loans to the poor and low-income households for their micro-enterprises and small businesses so as to enable them to raise their income levels and improve their living standards. These loans are granted on the basis of the borrower's cash flow and are typically unsecured. Q. Could a bank acquire real estate? A. 1. A 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 50% of the bank's combined capital accounts and, 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. 2. Notwithstanding the limitation in Sec 51, a bank may acquire, hold or convey real property under the following circumstances: a. Such as shall be mortgaged to it in good faith by way of security for debts; b. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealing; or c. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such a sit shall purchase to secure debts due it. Any real property acquired or held under the circumstances enumerated above shall be disposed of by the bank within a period of 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 Sec 51.

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Q. What is the redemption period for natural persons whose mortgage on real property has been foreclosed by the bank? A. The mortgagor or debtor, who is a natural person, whose real property has been sold for the full or partial payment of his obligation shall have the right within 1 year after the sale of the real estate, to redeem the property. The one-year redemption period should be counted from the date of the registration of the certificate of sale with the Register of Deeds.

Q. What is the redemption period for juridical persons whose mortgage on real property has been foreclosed? A. A juridical person whose property has been sold pursuant to an extra-judicial foreclosure, shall have the right to redeem the property nut not after the registration of the certificate of foreclosure sale with the proper Register of Deeds which in no case shall be more than 3 months after the foreclosure, whichever is earlier. Q. What would the redemption price consist of? A. Redemption may be exercised by paying the amount due under the mortgage deed, with the interest thereon at the rate specified in the mortgage, and all the cost and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. (Sec 47) Q. What are the rights of the purchaser in an auction sale of the foreclosed property? A. The purchase 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. Q. What is the protection of the bank when the debtor files for n injunction of the foreclosure sale? A. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to Sec 47 of the GBL 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. Q. Could a bank employ casual or non-regular personnel? A. Consistent with the provisions of the Secrecy of Bank Deposits Law, no bank shall employ casual or non-regular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits. Q. Does the GBL impose any limitation on the ability of banks to declare dividends, aside from those imposed by the Corporation Code?

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A. Yes, No bank or quasi-bank shall declare dividends if at the time of declaration: 1. its clearing account with the Bangko Sentral is overdrawn; 2. it is deficient in the required liquidity floor for government deposits for 5 or more consecutive days; 3. it does not comply with the liquidity standard/ratios prescribed by the Bangko Sentral for purposes of determining funds available for dividend declaration; 4. if has committed a major violation as may be determined by the Bangko Sentral. Q. What is a trust entity? A. A trust entity is a stock corporation or a person duly authorized by the Monetary Board to engage in the trust business, that is, to act as a trustee or administer any trust or hold property in trust or on deposit for the use or benefit of others. Q. What is the degree of diligence required of a trust entity? A. A trust entity shall administer the funds or property under its custody with the diligence that a prudent man would exercise in the conduct of an enterprise of a like character and with similar aims. Q. If a trustee entity should become insolvent, could its trust assets be included in the insolvency proceeding? A. No. The assets held by a trust entity in its capacity as trustee shall not be subject to any claims other than those of the parties interested in the specific trusts. Article 2240 of the Civil Code provides that property held by the insolvent debtor as a trustee of an express or implied trust shall be excluded from the insolvency proceedings. Q. What is the nature of the relationship between a bank and its depositors? A. The relationship between a bank and its depositors is that of creditor and debtor. Under Art 1980 of the Civil Code, fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions on simple loans. Thus, the failure of the bank to honor the deposit is a failure to pay its obligation as a debtor and bot a breach of trust arising from a depositary's failure to return the subject matter of the deposit. (Serrano v. Central Bank) Q. What is the Joint and Solidary Signature Practice? A. A common banking practice requiring as an additional security for a loan granted to a corporation the joint and solidary signature of a major stockholder or corporate officer of the borrowing corporation. (Security Bank v. Cuenca) Q. What is the responsibility of a bank to its depositors? A.

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1. As banking is a business affected with public interest, a bank is under obligation to treat the accounts of its depositors with meticulous care, having in mind the fiduciary nature of their relationship. Accordingly, while a bank is not expected to be infallible it must bear the blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to pass through a battery of ban personnel whose duty it is to check and countercheck them for possible errors. The bank in this case is liable to the client for moral damages because its negligence caused serious anxiety, embarrassment and humiliation to the client. (BPI v. IAC) 2. When a bank account is carried in the name of a depositor with the words added to the effect that the money belongs to some other person than the depositor, the money in such account cannot be applied by the bank to the satisfaction of an overdraft in the personal account of the same depositor. However, a bank is not a guardian of trust funds deposited with it in the sense that it must see to its proper application; and so long as it serves its function and pays the money out in good faith to the person who deposited it, without the knowledge that it is assisting in the misappropriation, the bank will be protected. (Fulton Iron Works Co. v. China Banking Corp.) On the other hand, where a depository bank allows its client to withdraw deposits of treasury warrants before they are cleared, it is guilty of negligence. (Metropolitan Bank & Trust Co. v. CA) Q. What are the prohibited transactions on banks? A. The following are prohibited transactions: 1. making false entries in any bank acts: 2. Any fraudulent transaction. 3. Disclosing to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations or any other entity. 4. Accepting gifts or remuneration for the approval of a loan. Q. A bank executive testified before the Senate during an impeachment trial that the President had an investment management account. Is there a violation of the General Banking Law? A. No. Under Section 55.1 of the General Banking Law what is prohibited is the disclosure to any unauthorized person of information relative to the funds of a private person. The Senate is an authorized person and the President is not a private person.

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