LAW 3: FINALS
objectives of price stability;
I. BANKING LAWS
A. New Central Bank Act (RA no. 7653, as amended by RA
no. 11211)
1. State Policies and Creation of the Bangko Sentral ng Pilipinas
(BSP)
The Bangko Sentral ng Pilipinas (BSP) is the State’s Central Monetary
Authority mandated in the 1987 Philippine Constitution, which shall function
and operate as an independent and accountable body corporate in the
discharge of its mandated responsibilities concerning money, banking and
credit
o The BSP is not only the chief regulator agency over banks and
banking institutions, as well as those non-bank financial
institutions that performs quasi-banking functions , but it is also
charged in setting up the central Monetary and fiscal policy of the
government. The BSP is charged with the responsibility of
establishing the credit system of the country as well as the
administration of monetary system (such as printing of money -
which is used as legal tender in the Philippines).
o The BSP is a government-owned and controlled corporation
which enjoys fiscal and administrative autonomy.
2. Responsibility and Primary Objective
Primary Objectives:
a. To maintain price stability conducive to a balanced and sustainable growth
of the economy;
b. To promote and maintain the monetary stability and convertibility of the
peso;
c. To provide policy directions in areas of money, banking and credit, with
supervision over operations of banks and with regulatory powers over
operations of finance companies, and non-bank financial institutions
performing quasibanking functions.
Roles of BSP:
a. Banker of Government - The Act as a banker of the Government, its
political subdivisions and instrumentalities, and their cash balances should
be deposited to the BSP, with only minimum working balances to be held by
government-owned banks, and such other banks incorporated in the
Philippines as the Monetary Board may prescribe.
b. Representation with the International Monetary Board - To represent
Government in all dealings, negotiations and transactions with the IMF, and
shall carry such accounts as may result from the Philippine membership in or
operations with the said Fund.
c. Representation with Other Financial Institutions - May represent the
Government in dealings, negotiations or transactions with the World Bank
and with other foreign or international financial institutions or agencies.
d. Fiscal Operations - Shall open a general cash account for the Treasurer of
the Philippines, in which the liquid funds of the Government shall be
deposited, and with transfer of funds to be made only upon the order of the
Philippine Treasurer (Villanueva, 2009).
Other Basic Functions of BSP:
1. It shall have the sole power and authority to issue currency within the
territory of the Republic of the Philippines;
2. The power to issue regulations to prevent the circulation of foreign
currencies, or currency substitutes as well as the reproduction of facsimiles
of BSP notes;
3. It has the power to investigate, make arrests, conduct searches and
seizure for the purpose of maintaining the integrity of the currency;
4. To engage in foreign engage transactions in order to maintain price
stability;
5. To make rediscounts, discounts, loans and advances to banking and other
financial institutions to influence the volume of credit consistent with the
6. To engage in open market operations---purchase and sale of securities ---
exclusively in accordance with its objectives of achieving price stability;
7. To engage in marketing and stabilization of securities for the account of
the government;
8. To act as the financial advisor of the government; (Sundiang, 2006)
3. Monetary Board---Powers and Functions
Corporate Powers
The BSP is a government owned and controlled corporation that is invested
by law with corporate powers. The corporate powers specified in Section 5
of the New Central Bank Act are as follows:
a. The power to adopt, alter and use a corporate seal which shall be judicially
noticed;
b. To enter into contracts;
c. To lease or own real and personal property;
d. To sell or otherwise dispose of its real and personal property;
e. To sue and be sued;
f. To perform any and all things that may be necessary or proper to carry out
the purposes of the New Central Bank Act;
g. To compromise, condone or release, in whole or in part, any claim of or
settled liability (Sundiang, 2006).
The BSP powers and functions are exercised by the Monetary Board.
Composition of the Monetary Board:
There are 7 members who are appointed by the President of the Republic of
the Philippines. They are only appointed once.
a. Governor, as Chairman;
b. A member of the Cabinet designated by the President of the Philippines;
c. Five (5) members who shall come from the sector, all of whom shall serve
full-time. Term: 6 years
Qualifications of the Members of the Board:
a. Must be a natural-born citizens of the Philippines;
b. At least 35 years of age with the exception of the Governor, who should at
least be 40 years of age;
c. Of good moral character, of unquestionable integrity, of known probity
and patriotism.
d. With recognized competence in social and economic disciplines.
Grounds for Removal of a Member of the Board:
The President may remove any member of the Board for any of the following
reasons:
a. Subsequent disqualification
b. Physical or mental incapacity that he cannot properly discharge his duties
and responsibilities and such incapacity has lasted for more than 6 months.
c. Guilty of acts or operations which are of fraudulent or illegal character or
which are manifestly opposed to the aims and interests of the BSP;
d. No longer possessing qualifications specified in the Act.
The major functions of the Monetary Board include the power to:
1. Issue rules and regulations it considers necessary for the effective
discharge of the responsibilities and exercise of the powers vested in it;
2. Direct the management, operations, and administration of Bangko Sentral,
organize its personnel and issue such rules and regulations as it may deem
necessary or desirable for this purpose;
3. Establish a human resource management system which governs the
selection, hiring, appointment, transfer, promotion, or dismissal of all
personnel;
4. Adopt an annual budget for and authorize such expenditures by Bangko
Sentral as are in the interest of the effective administration and operations
of Bangko Sentral in accordance with applicable laws and regulations; and
5. Indemnify its members and other officials of 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, suit or proceeding, to
which any of them may be made a party by reason of the performance of his
functions or duties, unless such members or other officials is found to be
liable for negligence or misconduct..
The Governor’s Powers and Duties as a Chief Executive Officer:
The Governor is the chief executive officer of BSP and is required to direct
and supervise the operations and internal administration of BSP. Specifically,
the Governor:
1. prepares the agenda for the meetings of the Monetary Board and submits
policy recommendations for consideration of the Board;
2. executes and administers policies and measures approved by the
Monetary Board;
3. Appoints and fixes the remunerations and other emoluments of
personnel, as well as imposes disciplinary measures upon personnel of the
Bangko Sentral;
4. Renders opinions, decisions, or rulings, which shall be final and executory
until reversed or modified by the Monetary Board, on matters regarding
application or enforcement of laws pertaining to institutions supervised by
the BSP and laws pertaining to quasibanks, as well as regulations, policies or
instructions issued by the Monetary Board, and the implementation thereof;
and
5. Exercises such other powers as may be vested in him by the Monetary
Board.
6. Serves as the principal representative of the Monetary Board and of the
BSP. As such, the Governor is empowered to:
a. Represent the Monetary Board and the BSP in all dealings with other
offices, agencies and instrumentalities of the Government and all other
persons or entities, public or private, whether domestic, foreign or
international; and
b. Sign contracts entered into by the BSP, notes and securities issued by
the BSP, all reports, balance sheets, profit and loss statements,
correspondence and other documents of the BSP.
Disqualifications:
1. In addition to the disqualifications imposed by Republic Act No. 6713, a
member of the Monetary Board is disqualified from being a director, officer,
employee, consultant, lawyer, agent or stockholder of any bank, quasi-bank
or any other institution which is subject to supervision or examination by the
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 member 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 with any multilateral banking or financial institution or has a
substantial interest in any private bank in the Philippines, within one (1) year
prior to his appointment; likewise, no member of the Monetary Board shall
be employed in any such institution within two (2) years after the expiration
of his term except when he serves as an official representative of the
Philippine Government to such institution.
Responsibility and liability of the members of the Monetary Board
a. Members of the Monetary Board, officials, examiners, and employees of
the Bangko Sentral who willfully violate RA 7653 or who are guilty of
negligence, abuses or acts of malfeasance or misfeasance or fail to exercise
extraordinary diligence in the performance of his duties shall be held liable
for any loss or injury suffered by the Bangko Sentral or other banking
institutions as a result of such violation, negligence,abuse, malfeasance,
misfeasance or failure to exercise extraordinary diligence.
b. Similar responsibility shall apply to members, officers and employees of
the Bangko Sentral for;
1. The disclosure of any information of a confidential nature, or any
information on the discussions or resolutions of the Monetary
Board, or about the confidential operations of the Bangko Sentral,
unless the disclosure is in connection with the performance of
official functions with the Bangko Sentral, or is with prior
authorization of the Monetary Board or the Governor; or
2. The use of such information for personal gain or to the detriment
of the Government, the Bangko Sentral or third parties.
c.. However, any data or information required to be submitted to the
President and/or Congress, or to be published under the provisions of RA
7653 shall not be considered confidential.
Outside interests of the Governor and the full-time members of the
Board
a. 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.
b. They may not accept any other employment, whether public or private,
remunerated or ad honorem.
c. Exceptions:
1. Positions in eleemosynary, civic, cultural or religious organizations
2. 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
Prohibitions on personnel of the Bangko Sentral
In addition to the prohibitions found in RA 3019 and 6713, personnel of the
Bangko Sentral are hereby 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 RA 7653;
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 upon 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 such institution. This prohibition shall not apply
to the giving of information to the Monetary Boar or the Governor 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 unless said borrowings are adequately secured, fully
disclosed to the Monetary Boar, and shall be subject to such further rules
and regulations as the Monetary Board may prescribe.
HOW BSP HANDLE BANKS IN DISTRESS
A. CONSERVATORSHIP
- a bank or quasi-bank is
1. in a state of continuing inability, or
2. unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors.
Action of the Monetary Board
The Monetary Board may appoint a conservator (who shall be competent
and knowledgeable in bank operations and management) for a period not
exceeding 1 year
i. take charge of the assets, liabilities and management of the bank or quasi-
bank in question
ii. reorganize the management thereof
iii. collect all monies and debts due and
iv. exercise all powers necessary to restore its viability, including the power
to overrule or revoke the actions of the previous management and board of
directors
While admittedly, the Central Bank gives vast and farreaching powers to the
conservator, such powers must be related to “preservation of the assets of
the bank, the reorganization of the management thereof, and the
restoration of its viability. Such powers, enormous and extensive as they are,
cannot extend to post-facto repudiation of perfected transactions, otherwise
they would infringe against the non-impairment clause of the Constitution.
It merely gives the conservator the power to revoke contracts that are under
existing law, deemed to be defective – i.e. void, voidable, unenforceable or
rescissible. Hence, the conservator merely takes the place of a Bank’s BOD.
What the said Board cannot do –such as repudiating a contract validly
entered into under the doctrine of implied authority, the conservator cannot
do either. Ineluctably, his power is not unilateral, and he cannot simply
repudiate valid obligations of the Bank. His authority would be only to bring
court actions to assail such contract – as he has already done so in the
instant case. (First Phil. Int’l Bank v. CA, 252 SCRA 259)
Termination of Conservatorship
(a) When MB is satisfied that the institution can continue to operate on its
own and the conservatorship is no longer necessary; or
(b) When MB determines that the continuance in business of the institution
would involve probable loss to its depositors or creditors, in which case
proceedings for receivership and liquidation shall be pursued.
B. CLOSURE
- prohibit a bank or quasi-bank from doing business in the Philippines
Grounds for Closure
(a) Unable to pay its liabilities as they become due in the ordinary course of
business (cash flow test)
BUT: shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community.
(b) Insufficient realizable assets to meet its liabilities (balance sheet test)
(c) Cannot continue in business without involving probable losses to its
depositors and creditors
(d) Willfully violated a cease and desist order under Sec. 37 (administrative
sanctions) that has become final and involves acts or transactions which
amount to fraud or dissipation of assets
(e) Notifies the BSP or publicly announces a bank holiday
(f) Suspends the payment of its deposit liabilities continuously for more than
30 days
(g) Persists in conducting its business in an unsafe or unsound manner
- This may be done summarily and without need of prior hearing.
- Note that during conservatorship, no claims can be paid.
Sec. 29 of the Central Bank Act does not contemplate prior notice and
hearing before a bank is placed under receivership. It is enough that such
action is made the subject of a subsequent judicial review. The “Close now
and hear later” scheme under the Act is for the purpose of protecting the
depositors, creditors, stockholders and the general public. (Central Bank vs.
CA, 220 SCRA 536)
C. RECEIVERSHIP
Who are Receivers?
(a) For Banks –PDIC
(b) For Quasi-Banks – Any person of recognized competence in banking or
finance
Functions of Receiver
(a) Immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors e.g.
- Collect pre-existing debts
- Foreclose mortgages security
(b) Exercise the general powers of a receiver
(c) Determine as soon as possible, but not late than 90 days from takeover,
whether the institution can be rehabilitated or otherwise placed in such a
condition so that it may be permitted to resume business with safety to its
depositors and creditors, and the general public.
BUT: any determination for resumption of business shall be subject to the
prior approval of the Monetary Board. If the receiver determines that the
institution cannot be rehabilitated or permitted to resume business, then the
MB shall notify in writing the board of directors of the institution of its
findings and direct the receiver to proceed with the liquidation of the
institution.
- Appointment of a receiver operates to suspend the authority of a bank and
its directors and officers over its properties and effects, such authority being
reposed in the receiver, and in this respect, the receivership is equivalent to
an injunction to restrain the bank officers from intermeddling with the
property of the bank in any way.
The receiver only has the authority to administer the properties of the bank
for the benefit of the creditors. Consequently, the receiver has no authority
to approve the acts of ownership, such as the grant of “exclusive option to
purchase” a particular property of the bank. (Abacus Real Estate Dev. Center
vs. Manila Banking Corp., 452 SCRA 97)
D. LIQUIDATION
- Is a winding up of settling with creditors and debtors. It is the winding up of
a corporation so that assets are distributed to those entitled to receive them.
It is the process of reducing assets to cash, discharging liabilities and dividing
surplus or loss.
- from the determination of receiver if institution cannot be rehabilitated or
permitted to resume business
Duties of the Receiver/Liquidator
(1) File ex parted with the RTC a petition for assistance in the liquidation of
the institution pursuant to a liquidation plan adopted by the PDIC for banks,
and by MB for quasi-banks
(2) Upon motion by receiver, upon RTC’s acquisition of jurisdiction, RTC shall
assist enforcement of the individual liabilities of the stockholders, directors,
and officers and decide on other issues as may be material to the liquidation
plan adopted
(3) Receiver shall convert the assets to money and proceeds shall be applied
in paying the debts of the institution in accordance with rules on
concurrence and preference of credit
(4) Receiver shall institute such actions as may be necessary
- The assets under receivership or liquidation deemed in custodia legis, in the
hands of the receiver and shall be exempt from any order of garnishment,
levy, attachment or execution
Phases of Liquidation Proceeding (Pacific Banking vs. CA, GR
109373, March 20, 1995)
First: Approval and disapproval of claims
(a) all money claims against the bank are required to be filed with the
liquidation court
(b) phase may end with the declaration by the court whether claim is with
basis or not; if with basis, classified whether ordinary or preferred

(c) order by court is final and may be appealed by the party aggrieved
Second: Approval by the court of the distribution plan prepared by the duly
appointed liquidator

(a) order disposes of the issue of how much property is available for disposal

(b) payment of all allowed claims.

Effects of Liquidation of a Bank or a Quasi-Bank

(a) After payment of the cost of the proceedings, including reasonable

expenses and fees of the receiver to be allowed by the court, the receiver
shall pay the debts of such institution, under order of the court, in
accordance with the rules on concurrence and preference of credit as
provided in the Civil Code. (Sec. 31)
(b) All revenues and earnings realized by the receiver in winding up the
affairs and administering the assets of any bank or quasi-bank within the
purview of this Act shall be used to pay the costs, fees and expenses
mentioned in the preceding section, salaries of such personnel whose
employment is rendered necessary in the discharge of the liquidation
together with the other additional expenses caused thereby. (Sec.32) The
balance of revenues and earnings, after the payment of all said expenses,
shall form part of the assets available for payment of creditors.
B. GENERAL BANKING LAW OF 2000 (RA no. 8791)
1. DEFINITION AND CLASSIFICATIONS OF BANKS
DEFINITIONS
BANKS - entities engaged in the lending of funds obtained in the
form of deposits from the public
- Must be stock corporations and funds are obtained from the public
(min. of 20 depositors)
- Banking is fiduciary in nature that requires high standards of
integrity and performance
• Requirements after SEC Application: Certificate of Incorporation,
Cert. of Authority fr. BSP.
Investment Company
- If engaged solely in investing, reinvesting or trading in securities –
not engaged in banking.
- If loans out the money of its customers, collects interests and
charges a commission to both lender and borrower – engaged in
banking.
Quasi Banks – engaged in borrowing of funds through the
issuance, endorsement or assignment with recourse or acceptance
of deposit substitutes for purpose of relending or purchasing of
receivables.
Deposit Substitutes – alternative forms 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.
Consequences of nature of business:
1. Subject to heavy and close supervision and / or regulation by the
Bangko Sentral ng Pilipinas.
2. Required to exercise utmost diligence in handling of deposits.
3. Any strike or lockout involving banks, if unsettled after 7 calendar
days, shall be reported by BSP to Sec. of Labor, 2 options.
a. May assume jurisdiction over and decide the dispute
b. Certify to NLRC for compulsory arbitration
4. President may intervene and assume jurisdiction over such labor
dispute Authority to Incorporate and Operate - Articles of
Incorporation filed with the Securities and Exchange Commission
accompanied by the favorable recommendation (certificate of
authority) of the BSP.
CLASSIFICATIONS
a. UNIVERSAL BANKS – these used to be called expanded
commercial banks and their operations are primarily governed by
the General Banking laws. They can exercise the powers of an
investment house and invest in non-allied enterprises. They have
the highest capitalization requirement.
b. COMMERCIAL BANKS – these are ordinary or regular commercial
banks, as distinguished from a universal bank. They have a lower
capitalization requirement than a universal bank and cannot
exercise the powers of an investment house and invest innon-allied
enterprises.
c. THRIFT BANKS – shall include savings and mortgage banks, private
development banks, and stock savings and loans association
organized under existing laws.
d. RURAL BANKS - banks which are designed to make needed credit
available and readily accessible in the rural areas on reasonable
terms.
e. COOPERATIVE BANKS – one organized, the majority share of
which is owned and controlled by cooperatives, primarily to provide
financial and credit services to cooperatives.
f. ISLAMIC BANKS – these are banks the business dealings and
activities of which are subject to the basic principles and rulings of
Islamic Shari’a. The Al Amanah Islamic Investment Bank of the
Philippines, which was created by RA 6848, is the only Islamic bank
in the country at this time.
Created by Congress to promote and accelerate socio-economic
development of the Autonomous Region by performing banking,
financing and investment operations and to establish and
participate in agricultural, commercial and industrial ventures based
on the Islamic concept of banking. (Sec. 3 RA. 6848).
g. Other Classification of banks as determined by the Monetary
Board.
2. DISTINCTION OF BANKS FROM QUASI-BANKS AND TRUST
ENTITIES
a. QUASI-BANKS
“Quasi-Banks” shall refer to entities engaged in the borrowing of
funds through the issuance, endorsement or assignment with
recourse or acceptance of deposit substitutes as defined in Section
95 of R.A. 7653 for purposes of relending or purchasing of
receivables and other obligations (Sec. 4 par. 3 GBL).
b. TRUST ENTITIES
Any bank, investment house or a stock corporation duly authorized
by the Monetary Board to engage in trust, investment management
and fiduciary business methodology.
A trust business is any activity resulting from trusteeship involving
the appointment of a trustee by a trustor for the administration,
holding, management of funds and/or properties of the trustor by
the trustee for the use, benefit or advantage of the trustor or of
beneficiaries.