FUNCTIONS OF COMMERCIAL BANKS

Commercial banks extend functions of collection,

paying, loaning, receiving and trust.
Collection function. Commercial banks administer
collection items of clients. Collection items are those
credited to the account of the depositor after presentation
to the party whom they are drawn and funds has been
collected. A special fee known as collection charge is
credited to the depositors account.
Collection items may classified as follows:

1.As to point of destination

a. Clearing items are checks, bills, notes drawn within
Metro Manila.
b. Transit items are checks, bills, notes drawn outside
Metro Manila but within the country.
c. Remittance items are checks, bills, notes drawn
outside the Philippines. These are foreign collections,
export or foreign collections, import.
2. As to type of item
a. Bank draft
b. Notes or acceptances
c. Real estate contracts or mortgages
d. Bonds and coupons
e. Stock certificates
3. As to date of payment
a. Demand or sight draft
b. Draft payable upon arrival of goods
c. Draft payable after specified number of days
 Transit letter is a document on which all transit items are
listed, drawn against another bank outside the metropolis.
Remittance letter is a document on which all remittance
items are listed , drawn against another bank outside the
Philippines.
Clearing house in a association of banks in a city established
to facilitate the clearing of checks, drafts, notes and another
items among the members.
Paying function the basic reason why a bank needs cash on
hand or within its vault is in order to honor withdrawals of its
clients.
Loaning function loan is an advance of money or a credit in
exchange for a written promise to pay in accordance with the terms
of
agreement.
Kinds of Loans

1. As to maturity
a. Demand loan is also known as capable loan. It does
not fixed up maturity date.
b. Time loan has a specified maturity date which is a
minimum of thirty (30) days to ninety (90) days or more.
Borrower must pay in earlier than the specified date.
2. As to Security
a. Secured loan is a type in which a collateral is
required for availment of loan.
b. Unsecured loan does not have specified property as
pledge to a bank.
3. As to Borrowers
a. Loans to consumers are those approve for regular
bank depositors.
b. Loans to others are those extended to businessmen
or non-costumers.
4. As to Purpose
a. Real estate loans are for house and lot acquisition,
house improvement or lot purchase.
b. Agriculture loans are for tenant farmers for farm
implements acquisition and development.
c. Consumer loans are for household needs which may
be installment account, charge account, revolving or lay-
away plan.
d. Industrial loans are for business acquisition of fixed
assets, raw materials or building development.
 Receiving Function. Deposits are banks liabilities to
depositors. Since they must be paid upon clients withdrawal
from their accounts. It is the totality of money entrusted by a
Depositor to a bank to be utilized according to banking practice.
Deposits may enter a bank, in any of the following forms:
a. Cash money
b. Checks from other banks or cashing checks.
c. Collection items-clearing, transit, remittance items
d. Discounted loan proceeds
e. Travelers checks
f. Bill exchange or bank draft
g. Promissory notes
h. Money orders
 These deposits received by commercial banks can
be primary or derivative deposits. Primary deposits are
those currency, cash or check deposits. Derivative
deposits are those added to bank assets and are not
liabilities such as payments for loans, discounts and
investments.
Deposits receive by the banks are coursed through
receiving tellers where clients/depositors or his
representative may go a bank for deposits. Deposits are
also received through mail or postal system,
telegraphic transfer or any bank departments aside
from operation department.
Kinds of Deposits
1. As to source of deposit
a. Private sector includes individuals, business entities who
save idle funds.
b. Government sector
2. As to terms of withdrawal
a. Demand deposits is also known as current or checking
accounts, where withdrawal can be made any time by
indorsing a check. This account, generally, does earn
interest.
b. Savings deposits are accounts without maturity dates.
Clients can withdraw their deposits any time during
banking hours with their passbooks, or any time with their
automated teller machines cards.
c. Time deposits represent accounts with stated period of
maturity. These accounts earn higher interest rates making
it impossible for the funds to be placed by banks in long-
term investments.
Kinds of Accounts

a. Individual account. This is a single-named account where the

person whose name appears on the passbook has the sole right to
withdraw funds.
b. Survivorship account. This is an account where two or more
persons are named therein and both authorized to withdraw
funds. Signature of anyone of them can be valid for withdraw.
This is and/or account.
c. Joint account. This has two or three names of depositors and
their signatures are all required during withdrawal of funds. This is
the and account.
d. Partnership or corporation account. An account by business
partners or board members of a corporation or partnership. A
board resolution is needed for opening this type of account,
specifying authorized board members as signatories for their
funds.
Trust function. Trust institutions administer wealth and
accounts of Clients. They serve in fiduciary capacity for the
administration or deposition of assets and for the
performance of acts for beneficiaries of trust
arrangements. A fiduciary acts in a capacity of trust,
integrity, contemplates good-faith rather than legal
obligations. This service is rendered by a bank in its
various capacities as trustee, agent, custodian, receiver,
administrator, executor, guardian, or depository of money,
securities, or other properties deposited for the use,
benefits or behalf of others. The bank acts as the trustee;
client is the trustor, a beneficiary is designed by the
trustor.
Personal Trust Services

1. Employees benefits trust. The administration of

workers job-related benefits.
2. Living trust. This is ensures a convenient means of
providing a reasonable income for a persons family without
immediate transfer of property. The beneficiary, a widow or
minor child receives income from the trust principal
during the term of the trust. This agreement is often used
by people of older age who are in doubt of their continuing
capacity to manage their financial affairs.
This agreement can be revocable or irrevocable.
Revocable trust is one which the trustor has the right to
revoke the agreement after its creation. Irrevocable trust
provides for complete and final transfer of assets to the
beneficiary.
 Trusteeship under will is an agreement for people who
prefer their estate maintained and administered for the
benefit of heirs rather than turning over to the heirs
directly. A testamentary trust may be established. The trust
company acts as executor in a will. It liquidates perishable
assets, account assets, pay debts and taxes and distribute
assets of the estate according to the provisions of the will. It
may also acts as administrator, guardians, or conservator
under court appointment.
3. Escrow arrangement. When two or more persons or
entities agree to appoint the bank as escrow agent for
money, securities, instruments, or properties deposited to
it. The escrow agent shall grant money or property to the
beneficiaries appointed by the trustor. Often used in the
purchase or sale of real properties where the vendor,
vendee and escrow agent are bound to comply with the
terms and conditions of the Escrow Agreement before the
escrow deposited or other securities/instruments may be
released.
 4. Custodianship. Involves the safekeeping and
preservation of securities and other important
documents and occasionally performing ministerial
acts for the clients as provided under the
Custodianship Agreement. Includes collection of
interest from maturing investments,, of dividends, and
depositing the same of the clients account.
5. Insurance trust. The bank is responsible in
conserving, managing, disposing of the insurance
proceeds in accordance with provisions of the Trust
Agreement for the best interest of the designated
beneficiaries. This agreement can be: unfunded
insurance trust or funded insurance trust.
6. Property administration. An agency arrangement
whereby the banks undertakes management and
administration or real properties of a client in
accordance with the terms of Trust Agreement. The
coverage of services may include payment of realty
taxes, fire insurance, other permits and fees; collection
of rentals, repairs and maintenance; acceptance and
ejectment of tenant, and others.
7. Guardianship. Bank is appointed guardian by a court
of competent jurisdiction to care for the person or
property or both of a minor or incompetent person.
8. Educational trust. A trust is build-up program
designed for future education of assigned
beneficiaries. The bank may be appointed as trustee in
the management of trust funds set aside for Pre-need
educational Plans to ensure payment of future
obligations of the company.
9. Trust loans. Credit facilities extended by the Trust
institutions to the borrowers, whose credit worthiness
have been properly established. These loans are
funded by various trust account, and are generally
secured by a hold-out on, assignment of pledge of
deposits, deposit of substitutes, mortgage, or chattel
mortgage bonds is issued by the trustee, real estates
and chattels.
LAW ON SECRECY OF BANK DEPOSITS (Republic
Act. No. 1405, As amended)

An act prohibiting disclosure of or inquiry into,

deposits with any banking institution and providing
penalty there for.

Section 1. It is hereby declared to be the policy of

the Government to give encouragement to the people
to deposit their money in banking institutions and to
discourage private hoarding so that the same may be
properly utilized by banks in authorized loans in assist
in the economic development of the country.
 Section 2. All deposits of whatever nature with banks
or banking institutions in the Philippines including
investments in bonds issued by the Government of the
Philippines, its political subdivisions and it
instrumentalities, are hereby considered as an absolutely
confidential in nature and may not be examined, inquired
or looked into by any person, government official, bureau
or office except when the examination is made in the
course of a special or general examination of a bank and is
specifically authorized by the Monetary Board after being
satisfied that there is reasonable ground that a bank fraud
or serious irregularity, has been or is being committed and
that it is necessary to look into the deposit to establish such
fraud or irregularity, for when the examination is made by
an independent auditor hired by the bank to conduct its
regular audit provided that the examination is for audit
purposes only and the results thereof shall be for the
exclusive use of the bank.
 Section 3. It shall be unlawful for any official or
employee of a banking institution to disclose any person
other than those mentioned in section two hereof any
information concerning said deposits.

Section 4. All acts or parts of Acts, Special Charters,

executive Orders, Rules and Regulations which are
inconsistent with the provisions of this Act are hereby
repealed.

Section 5. Any violation of this law will subject

offender upon conviction, to an imprisonment of not more
than five years or a fine of not more than twenty thousand
pesos or both, in the discretion of the court.

Section 6. This Act shall take effect upon its approval.

Approved, September 9, 1995.
 FOREIGN CURRENCY ACT OF THE PHILIPPINES
(Republic Act No. 6426)
Section 1. Qualifications for Authority to Accept Foreign
Currency Deposits:
a. Only bank which have been, upon application, duly designed by the
Central Bank for the purpose, can accept foreign currency deposits
under the provisions of R.A. No. 6426 and these regulations.
b. Banks desiring to obtain the authority to accept foreign currency
deposits shall file an application with the Central bank for the requisite
certificate of authority. The Central Bank may issue a general certificate
of authority for banks to accept foreign currency deposit if, upon
examination and investigation, it funds that, at a minimum:
The Commercial Bank (domestic):
a. Has at least a minimum paid-in capital of Php20 million:
b. Has a ratio of capital accounts (net of valuation reserves as
determined in the last examination by the Superintendent of Banks),
to total risks assets of not less than 15%.
c. He has not been suspended in its lending operations in the last six
months.
 The Philippine Branch of Foreign Bank

a. Has not been suspended in its lending operations in the last six months.
The Savings Bank
b. Has at least a minimum paid-in capital of Php5 million.
Has a ratio of capital accounts (net of valuation reserves as determined in the
last examination by the Superintendent of Banks), to total risks assets of not
less than 15%.
c. Has not been suspended in its lending operations in the last six months.
Banks which do not meet any of the above standards may nevertheless
be given special authorization subject to certain conditions and restrictions
and to periodic review after grant of authority.
Banks already authorized under Central bank Circular No. 304 need not
file an application with the Central Bank for the requisite certificate of
authority and shall be deemed as authorized to accept foreign currency
deposits under these regulations.
The Central bank may revoke or suspend the authority of bank to accept
new foreign currency deposit for violation of republic Act No. 6426 or these
regulations , or if such bank ceases to possess the minimum qualification
above-enumerated.
 Section 2. Types of deposit Accounts Which May be
Opened. Deposit accounts may be opened either as demand,
savings, or time deposit.

Section 3. Foreign Currencies Acceptable as Part of the

International Reserves:

The following is a list of foreign currencies acceptable as

part of the international reserve of the Philippines and are
therefore eligible as foreign currency deposits:
a. U.S. Dollar
b. Pound Sterling
c. Swiss Franc
d. French Franc
e. Deutsche Mark
f. Canadian Dollar
g. Netherlands Guilder
h. Italian Lira
i. Japanese Yen
 Section 4. Sources of Foreign Currency Eligible for Deposit.
1. Nothing is these regulations shall be construed as modifying
existing regulations on the surrender of foreign exchange to the
banking system of:

a. Foreign exchange receipts from the Philippine exports:

b. Foreign exchange receipts from invisible (transactions other
than those involving or exports of merchandise)
representing current earning or income of residents, example of
which are:

Foreign exchange earnings, of resident, or operators of

oceangoing vessels;
Foreign exchange earnings or acquisitions of residents
agents of foreign shipping firms:
U.S. dollar or allotment check received by Philippine
residents;
Foreign exchange earnings or acquisition of the Philippine
resident indenters;
 Foreign exchange earnings or acquisition of resident contractors
undertaking jobs at U.S. military and naval bases in the Philippines;
Foreign exchange acquisitions of authorized Foreign Exchange
Dealers (commercial banks, rural banks, savings and loan associations,
hotels, tourist shops, restaurants, travel agencies. etc.);
Foreign exchange earnings or acquisitions of residents oil
companies, derived from sales of aviation gasoline and oil production
in the Philippines to foreign airline and shipping companies.
Foreign exchange acquisitions of resident insurance companies
from inward insurance and re-insurance business, and from proceeds
of settlement of loss claims of resident insurance companies;
Foreign exchange proceeds of foreign borrowings of Philippine
residents;
Foreign exchange derived from U.S. Government expenditures in
Philippines;
Other foreign exchange receipts of residents from non-residents
pursuant to contractual obligations.
 2. Foreign currency funds not required to be surrendered
under existing Central Bank regulations may be deposited under
the provisions of these regulations.

Section 5. Trust Accounts, Bank authorized to accept

foreign currency deposits under the law and these regulations
are also allowed to accept foreign currency in trust without need
of a separate authority for the purpose.

Section 6. Negotiable Certificates of Deposits and Use of

Deposits as Collateral for Loans.

a. The certificate of deposits which banks may issue to

evidence a time deposits may include negotiable certificates of
deposits.
b. The authorized banks are allowed to accept the foreign
currency deposits as collateral for peso loans or for foreign
currency loans, including foreign currency loans to domestic
enterprises as allowed under Section 10 of these regulations.
 Section 7. Rates of Interest. Authorized banks are free to
pay lawful rate of interest on foreign currency deposits, provided
such rate does not exceed the maximum provided by law.

Section 8. Foreign Currency Cover Requirements. The

foreign currency cover shall consists of the following:

a. Foreign currency deposits with the Central Bank

equivalent to at least 15% of foreign deposit liabilities.
b. Foreign currency deposits with foreign banks;
c. Foreign currency loans or securities shall be of short-
term maturities and readily marketable;
d. Foreign currency notes/ coins, on hand; and
e. Foreign currency swapped with the Central Bank as
represented by the peso accounts arising there from.
For the purpose of complying with the provisions of this
section, the principal offices in the Philippines of the authorized
bank and all its branches and agencies located therein shall be
considered as a single unit.
 Section 9. Central Bank Interest Rate. The Central Bank may pay interest
on the foreign currency deposited with it at rates which it will announce to
authorized bank from time to time. Until a new announcement is made, the
current schedule of interest rates payable on such deposits with the Central
bank shall continue to be in effect.

Section 10. Foreign Loans to Domestic Export-Oriented Enterprises

a. The foreign currency loans which may be granted by authorized banks

as constituting part of the eligible cover, may include loans to domestic
enterprises which are export-oriented in accordance with central Bank
regulations and/or those registered with the Board of Investments under the
provisions of the Export Incentives Act.
b. In the consideration of application for such currency loans, the
Central Bank will take into the account, among other things, projects of export
earnings of the applicant domestic enterprises and the maturity pattern of the
foreign currency deposit portfolio of the bank. Until the Monetary Board shall
otherwise prescribe, all foreign currency loans from the above mentioned
export-oriented domestic enterprises shall be subject to the prior approval of
the Central Bank, except loans to said domestic enterprises which are fully
secured by holdouts of foreign currency deposits with the authorized bank
concerned
 Section 11. Withdraw ability and Liquidity of Deposits

a. In any case of any change in Central Bank regulations,

the deposits already existing at the time of change shall be
adversely affected.
b. Subject only to the term of the contract between the
bank and the depositors, the latter will have a general license to
withdraw his deposit notwithstanding any change in policy or
regulations.
c. Authorized banks may discount negotiable certificate of
deposits.
d. As provided for in Section 6 of these regulations
authorized banks may extend peso or currency loans against the
deposits as collateral.

Section 12. Secrecy of Deposits. The pertinent provisions of

R.A. 1405, an act Prohibiting Disclosure of or Inquiry Into
Deposits With Any Banking Institution and Providing Penalty
Thereof or quoted below:
Section 2. All deposits of whatever nature with banks or
banking institutions of the Philippines including
investments in bonds issued by the government of
Philippines, its political subdivisions and
instrumentalities, are hereby considered as of an
absolutely confidential n nature and may not be
examined, inquired or looked into by any person,
government official, bureau or office, except upon
written permission of the depositor, or in case of
impeachment, or upon order of a competent court in
cases of bribery or dereliction of duty of public
officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
 Section 13. Deposit Insurance Coverage under the
Philippine Deposit Insurance Corporation. The
implementing rules and regulations of R.A. No. 3591, as
amended, provide in effect:
a. The foreign currency and foreign currency trust
funds are covered by the deposit insurance.
b. That the insurance coverage for each depositor is
equivalent in foreign currency of Php100,000 converted at
the interbank rate obtaining on the date of closure of the
bank; however, the insurance trust fund is separate and
additional to that covering other deposits of the trustor or
beneficiaries.

Section 14. Effectivity of these Regulations. These

Rules and Regulations shall take effect after the publication
in official gazette and in a newspaper of national
circulation for at least once a week for three consecutive
weeks.
 Section 15. Accounting. The foreign currency deposits and
their responding cover shall be discovered as fund separate and
distinct from the regular assets and liabilities of the authorized
banks. For this purpose all authorized banks are required to
maintain a separate accounting for transactions covered by this
Act that will enable preparation of Balance Sheet Profit and Loss
Statement covering said function.

Section 16. Periodic Report.

a. Every authorized bank shall render such report as the
Foreign Exchange Department of the Central Bank may require.
b. For the purpose of the required reports, the principal
office in the Philippines of the authorized bank and all its
branches and agencies located therein shall be considered as
a single unit.
c. The report forms to be used by the authorized banks, the
effectivity, frequency and other exporting requirements shall be
prescribed by the Foreign Exchange departments of the Central
Bank of the Philippines.
 Section 17. Verification of Compliance with the Law
and Regulations.
The Director, Foreign Exchange Department, the
Central Bank of the Philippines, personally, or by deputy,
shall from time to time, look into the book of accounts and
transactions of each authorized bank to verify the eligible
cover required under these regulations and the banks
compliance with the provisions of the law and these
regulations.
Section 18. Implementation of the Law and
Regulations. The Foreign Exchange Department of the
Central Bank of the Philippines is primarily charged with
the proper implementation of the law, these regulations
and such other rules and regulations that may be issued
from time to time by the Monetary Board.

The foregoing Circular was approved by the Monetary

Board in its regulation No. 722 dated April 31, 1972 by
unanimous vote of all incumbent members.
PHILIPPINE DEPOSIT INSURANCE CORPORATION
ACT
(Republic Act No. 3591 as Amended)

An Act Establishing the Philippine Deposit Insurance

Corporation defining its Power and Duties and for Other
Purposes.

Section 1. There is hereby created a Philippine Deposit

Insurance Corporation hereinafter referred to as
Corporation which shall insure, as provided, the deposits
of all banks which are entitled to the benefits of insurance
under this Act, and which shall have the powers hereinafter
granted.
Section 2. The powers and functions of the
Corporation shall be vested in and exercised by a Board of
Directors which shall be composed of five (5) members as
follows:
 (a) The Secretary of Finance who shall be the ex
officio Chairman of the board without compensation.
(b)The Governor of the Bangko Sentral ng
Pilipinas, who shall be the ex officio member of the
Board without compensation.
(c)President of the President from either the
Government or private sector to serve on a full-
time basis for a term of six (6) years. The President
shall also serve as vice chairman of the Board.
(d)Two (2) members from the private sector, to be
appointed for a term of six (6) years without
reappointment by the President of the Philippines:
Provided, That of those first appointed, the first
appointee shall serve for a period of two (2) years.
 The Board of Directors shall have the authority:
1.To prepare and issue rules and regulations as it considers
necessary for the effective discharge of its responsibilities;
2.To direct the management, operations and administration of
the Corporation;
3.To appoint, establish the rank, fix the enumeration and remove
any officer or employee of the Corporation for cause, subject to
the Civil Service and pertinent compensation laws; and
4. To authorize such expenditures by the Corporation in the
interest of the effective administration and operation of the
Corporation.

Section 2-A. The President of the Corporation shall be the

Chief Executive thereof and his salary shall be fixed by the
President of the Philippines at a sum commensurate to the
importance and responsibility attached to the position. The sum
total of the salary of the President and the allowances and other
emoluments which the Board of Director may grant him shall be
the ceiling for fixing the salary, allowances and other
emoluments of all other personnel in the Corporation.
 The powers and duties of the President of the Corporations are:
(a) To prepare the agenda of the meeting for the Board and to submit for the
consideration of the Board the policies and measures which he believes to be
necessary to carry out the purposes and provisions of this Act;
(b) To execute and administer the policies and measures approved by the Board;
(c) To direct and supervise the operation and internal administration of the Corporation
in accordance with the policies established by the Board. The President may
delegate certain of his administrative responsibilities to other officers of the Corporation,
subject to the rules and regulations of the Board;
(d) To represent the Corporation, upon prior authority of the Board, in all dealings with
the officers, agencies and instrumentalities of the Government and with all other
persons or entities, public or private, whether domestic, foreign or international.
(e) To authorize, with his signature, upon prior authority of the Board, contracts entered
into by Corporation, notes and securities issued by the Corporation, and the
annual reports, balance sheets, profit and loss statements, correspondence and other
documents of the Corporation. The signature of the President may be in facsimile
wherever appropriate;
(f) To represent the Corporation, either personally or through counsel, in all legal
proceedings or actions;
(g) To delegate, with the prior approval of the Board of Directors his power to represent
the Corporation, as provided in subsections (d) and (f) of this Section, to other
officers of the Corporations; and
(h) To exercise such other powers as may be vested in him by the Board.
Section 3. As use in this Act

a. The term Board of Directors means the Board of Directors of

the Corporation.
b. The term Bank and Banking Institution shall be
synonymous and interchangeable and shall include banks,
commercial banks, savings bank, mortgage banks, rural banks,
development banks, cooperative banks, stock savings and
loan association and branches and agencies in the Philippines of
foreign banks and all other corporations authorize to
perform banking functions in the Philippines. (As amended
by R.A. 7400).
(c) The term receiver includes receiver, commission,
person or other agency charged by law with the duty to take
charge of the assets and liabilities of a bank which has been
forbidden from doing business in the Philippines, as well as
the duty to gather, preserve and administer such assets and
liabilities for the benefit of the depositors and creditors of said
bank , and to continue into liquidation whenever authorized
under this Act or under laws, and to dispose of the assets and
wind up the affairs of such banks. (As Amended by R.A. 7400).
 (d) The term insured bank means any bank the deposits of
which are insured in accordance with the provisions of this Act.
The term non-insured bank means any bank the deposits of
which are not insured.
(e) The term deposit means the unpaid balance of money or
its equivalent received by a bank in the usual course of business and
for which it has give or is obliged to give credit to a commercial,
checking, savings, times or thrift account or which is evidenced by
passbook, check and/or certificate of deposit, printed or issued in
accordance with Bangko Sentral rules and regulations and other
acceptable laws, together with such other obligations of a bank,
which consistent with banking usage and practices, the Board of
Directors shall determine and prescribe by regulations to be deposit
liabilities of the of the bank; Provided, That any obligation of a bank
which is payable at the office of the bank located outside of the
Philippines shall not be a deposit for any of the purposes of this Act
or included as part of the total deposits or insured deposit;
Provided, further, That, subject to the approval of the Board of
Directors, any insured bank which is incorporated under the laws of
the Philippines which maintains a branchoutside of the Philippines
may elect to include for insurance its deposit obligations
payable only at such branch. (As Amended by R.A. 7400).
 (g) The term insured deposit means the net amount
due to deposit for deposits in an insured bank (after
deducting offsets) less any part thereof which is in excess of
One hundred thousand pesos (Php 100, 000.00). Such net
amount shall be determined according to such regulations
as the Board of Directors may prescribe in determining
such amount due to any depositor, there shall be added
together all deposits in the bank maintained in the same
capacity and the same right for his benefit either in his own
name or in the name of others: Provided, That the
provisions of any law to the contrary no withstanding, no
owner/holder of any negotiable certificate of deposit shall
be recognized as a depositor entitled to the rights provided
in this Act unless his name is registered as owner/holder
thereof in the books of the issuing bank. (As Amended by
R.A. 7400).
(h) The term transfer deposit means a deposit in an insured
bank made available to a depositor by the Corporation as
payment of the insured deposit of such depositor in a close
bank and assumed by another insured bank.

(i) The term trust funds means a fund held by an

insured bank in a fiduciary capacity and includes without
being limited to funds held as trustee, executor,
administrator, guardian, or agent.

Section 4. The deposit liabilities of any bank or

banking institution which is engaged in the business of
receiving deposits as herein defined on the effective date of
this Act, or which thereafter may engage in the business of
receiving deposits shall be insured with corporation.
 Section5. Repealed in 1969.

Section 6. (a) The assessment rate shall be determined by the

Board of Directors: Provided, That the assessment rate shall not
exceed one fifth (1/5) of one per centum (1%) per annum. The semi-
annual assessment for each insured bank shall be in the amount of
the product of one half (1/2) the assessment rate multiplied by the
assessment base but in no case shall it be less than the amount of
Two Hundred Fifty Pesos (Php250.00). The assessment base shall be
the amount of the liability of the bank for deposits, according the
definition of the term deposit in and pursuant to subsection (f) of
Section 3 without any deduction for indebtedness of depositors.

Section 7. (a) Whenever upon examination by the

Corporation into the condition of any insured bank, it shall be
disclosed that an insured bank or its directions or agents have
committed , are committing or about to commit unsafe or unsound
practices in conducting the business of the bank or have violated,
are violating or about to violate any provisions of any law or
regulations to which the insured bank is subject , the Board of
Directors shall submit the report of the examination to the
monetary board to secure corrective action thereon.
 Section 8. The Corporation as a corporate body shall
have the power

(a) To adopt and use a corporate seal.

(b) To have succession until dissolved by an Act of congress.
(c) To make contracts.
(d) To sue and be used, complain and defend, in any court
law in the Philippines. All suits of a civil nature to which the
corporation shall be a party be deemed to arise under the
laws of the Philippines. No attachment or execution shall be
issued against the Corporation or its property before final
judgment in any suit, action, or proceeding in any court. The
Board of Directors shall designate an agent upon whom
service of process may be made in any province or city or
jurisdiction in which any insured bank is located.
(e) To appoint by its Board of Directors such officers and
employees as are not otherwise provided for in this Act, to
define their duties, fix their compensation, require bonds of
them and fix penalty thereof and to dismiss such officers and
employees for cause.
(f) To prescribe, by its Board of Directors, by laws not
inconsistent with law, regulating the manner in which its
general business may be conducted, and the privileges
granted to it by law may be exercised and enjoyed.
(g) To exercise by its Board of Directors, or duly authorized
officers or agents, all powers specifically granted by the
provisions of this Act, and such incidental powers as shall
be necessary to carry on the powers so granted.
(h) To conduct independent examinations of and to
require information and reports from banks, as provided in
this Act , whenever ever deemed necessary by the Board of
Directors: Provided, That to the extent practicable,
said examinations shall maximize the efficient use of
available relevant reports, information and findings,
specifically from the Bangko Sentral. The Board of
Directors shall prescribe such regulations as may be
necessary to ensure the special nature and reasonable
exercise of this power. (As Amended by R.A. 7400)
(i) To Act as receiver.
(j) To prescribe by its Board of Directors such as rules and
regulations as it may deem necessary to catty out the
provision of this Act. (As Amended)
(k) The Corporation may establish its own provident fund
which shall consist of contributions made both by the
Corporation and by its officers and employees to a common
fund for the payment of enefits to such officers or
employees of their heirs. The Board of Directors shall
prepare and issue rules and regulations as it may deem
necessary to make effective the establishment and
operations of the fund. (As Added by P.D. No. 1935)
(l) To compromise, condone or release, in whole or in part,
by the Board of Directors to protect the interest of
Corporation. (As Added by R.A. 7400)
Section 9. (a) The Board of Directors shall administer the
affairs of the corporation fairly and impartially and without
discrimination. The Corporation shall be entitled to the free
use of the Philippine mails in the same manner as the other
officers of the national government.

Section 10. (a) A permanent insurance fund in the amount of

Php5, 000,000.00 to be appropriated from the General Fund
is hereby created to be used by the Corporation to carry out
the purposes of this act. (As amended by P.D. No. 1451)

Section 11. (a) Payment of an insured to any person by the

Corporation shall discharge the Corporation, and payment of
a transferred deposit to any person by the new bank or by an
insured bank in which a transferred deposit has been made
available shall discharge the Corporation and such a new
bank or other insured bank, to the same extent that payment
to such person by the closed bank would have discharged it
from liability for the insured deposit.
 Section 12. (a) Money of the Corporation not
otherwise employed shall be invested in obligations of the
Republic of the Philippines or in obligations guaranteed as
to principal and interest by the Republic of the Philippines.
(b) The Banking or checking accounts of the
Corporation shall be kept with the Bangko Sentral of the
Philippines, with the Philippine National Bank, or with any
other bank designated as depository or fiscal agent of the
Philippine Government.
(c) When the Corporation has determined that an
insured bank is danger of closing, in order to prevent such
closing, the Corporation, in the discretion of its Board of
Directors, is authorized to make loans to, or purchase the
assets of, or assume liabilities of, or make deposits in, such
insured bank, upon such terms and conditions as the Board
of Directors may prescribe, when in the opinion of the
Board of Directors, the continued operation of such bank is
essential to provide adequate banking service in the
community or maintain financial stability in the economy.
 Section 13. With the approval of the President of the
Philippines, to issue bonds, debentures, and other
obligations whenever its capital or funds are not sufficient
to meet its obligations to depositors whose deposits are
insured: Provided, That the board of directors shall
determine the interest rates, maturity and other
requirements of said obligations: Provided, further, That
the corporation shall provide for appropriate reserves for
the redemption or retirement of said obligations.
All notes, debentures, bonds or such obligation issued
by the Corporation shall be exempt from taxation. (As
amended)

Section 14. (a) The Corporation shall annually make a

report of its operations to the Congress as soon as
practicable after the first day of January in each year.
 Section 15. Except with the written consent of the Corporation,
no person shall serve as director, officer, or employee or an insured
bank who has been convicted, or who is hereafter convicted, or any
criminal offense involving dishonesty or a breach of trust. For each
wilful violation of this prohibition, the bank involved shall be subject
to penalty of not more than Php100 for each day this prohibition is
violated, which the Corporation may recover for its use.
Section 16. If any provisions or section of this Act or the
application thereof to any person or circumstance is held invalid, the
other provisions or sections of this Act, in the application of such
provision or section to other persons or circumstance, shall not be
affected thereby.
Section 17. All Acts or parts of Acts and executive orders,
administrative orders, or parts thereof which are inconsistent with the
provisions of this Act are hereby repealed.
Section 18. This Act shall take effect upon approval. The
Philippine Deposit Insurance Corporation shall commence business
upon organization of the Board of Directors and certification by the
Treasurer of the Philippines that the Permanent Insurance Fund has
been appropriated.