SUPERVISION AND EXAMINATION OF BANKS

BSP - the only government agency and constitutional body

1) responsible for administering the monetary, banking and credit system of

the country, and
2) granted the power of supervision & examination of banks, quasi-banks, trust
entities & other financial institutions which by special laws are subject to BSP
supervision.

Primary Responsibility of the BSP –

• provide policy directions in the areas of money, banking & credit

• supervise over the operations of banks, and
• exercise regulatory powers over finance companies & non-financial institutions
performing quasi-banking functions.
The Basic Functions of the BSP
1. It provides policy directions in the areas of money, credit and banking;
2. It shall have supervision over the operations of banks;
3. It shall exercise regulatory powers over the operations of finance
companies, and non-bank financial institutions performing quasi-banking
functions;
4. It shall have the sole power and authority to issue currency within the
territory of the Republic of the Philippines:

i. In connection thereto, the BSP shall have 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;
ii. It has the power to investigate, make arrests, conduct searches and
seizure for the purpose of maintaining the integrity of the currency;
5. To engage in foreign exchange transactions in order to maintain
price stability.
6. To make rediscounts, discounts, loans and advances to banking
and other financial institutions to influence the volume of credit
consistent with the objectives of price stability;
7. To engage in open market operations – purchase and sale of
securities exclusively in accordance with its objective of achieving
price stability;
8. To act as the banker of the government;
9. To engage in marketing and stabilization of securities for the
account of the government.
10. To act as the financial advisor of the government.
Monetary Board (MB) - the authority that
exercises the powers & functions of the BSP
• composed of 7 members appointed by the President for a 6-year
term;
• membership: Governor who is the Chairman of the MB;
Member of the Cabinet designated by the President, &
5 members from the private sector serving full time

Exercise of Authority of the Monetary Board (pg. 42 of textbook)

In general, the Supervisory & Regulatory
Powers of the BSP cover the ff:
1. Banks
2. Subsidiaries and affiliates of banks engaged in allied
activities;
3. Quasi-banks;
4. Subsidiaries and affiliates of quasi-banks engaged in allied
activities;
5. Other institutions performing similar functions such as non-
stock savings & loan associations, pawnshops, foreign
exchange dealers, money changers, remittance agents and
trust entities.
“Supervision” of Banks & Supervisory Powers of the BSP -pg. 45 of textbook
(Note: The power of supervision of the BSP embraces the power to audit. In DBP vs.
COA, 373, SCRA 366, the Supreme Court ruled that the powers and jurisdiction of the.
BSP and the COA to examine and audit government banks are concurrent.)

Effect on SEC Jurisdiction

The authority given to the BSP to supervise banks does not mean that all matters regarding
banks are exclusively under the BSP’s power. Banking corporations are still subject to reasonable
regulations imposed by the Securities and Exchange Commission (SEC for short) as corporations.

These rules that must be complied with include disclosure requirements prescribed by the
SEC to implement the provisions of the Securities Regulations Code. The fact that banks are under
the supervision of the BSP does not result in the exemption of banks from complying with the
continuing disclosure requirements prescribed by the SEC. A bank is primarily subject to the control
of the BSP; as a corporation trading in securities in the stock market, it is under the supervision of
the SEC. There is no over-supervision because each regulating authority operates within the sphere
of its powers. That stringent requirements are imposed is understandable, considering the
paramount importance given to interests of the investing public. (Union Bank of the Philippines v.
Securities and Exchange Commission, G.R. No. 138949, June 6, 2001, 149 SCAD 170.)
3 Main Categories of Enforcement Actions - pg. 46 of textbook

Other Supervisory Actions - pg. 48 of textbook

BSP not required to give banks copies of the Report of

Examination (ROE) pg. 48

“Examination” vs. “Investigation” - pg. 49

Jurisprudence
• Courts have no authority to issue TRO/injunction in the investigation or
examination of banks by the BSP except only in cases where there is bad
faith or arbitrary actions.

• The action of the MB in placing a bank under conservatorship,

receivership or liquidation and/or in closing a bank is final and executory in
nature. It is an exercise of police power and there is no need for prior
notice or hearing.

• The “close now, hear later” rule on Judicial action on conservatorship,

receivership, liquidation and bank closure.

• Prosecution of violation of banking laws by private individuals

 CONSERVATORSHIP, RECEIVERSHIP
& LIQUIDATION OF BANKS
Whenever a bank is in distress, whether seriously or otherwise,
as in the case where it is having liquidity problems – the BSP
may perform any of the following:
1. Grant emergency loans to the bank.
2. Appoint a conservator.
3. Appoint a Receiver and order the liquidation of the bank.
It should be noted however that the grounds for receivership do
not only cover cases when a bank is in financial distress. For
instance, a bank may be subject to receivership in other cases
such as where the bank is being operated in a fraudulent manner.
1. LOANS TO BANKS
Loans without Collateral
The BSP 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.

Emergency Loans
The BSP, upon the approval of at least five (5) members of the
Monetary Board, may also grant emergency loans or advances in the
amount of not exceeding fifty percent (50%) of its total deposits and deposit
substitutes. The loans shall be released in two tranches.
2. CONSERVATORSHIP
In First Philippine International Bank (Formerly Producers
Bank of the Philippines), et al., vs. Court of Appeals, G. R.
No. 115849, January 24, 1996, the Supreme Court explained
“that a conservator may not revoke a contract that was already
perfected and enforceable at the time he was appointed as
such conservator.
Section 28 – A merely gives the conservator power to
revoke contracts that are, under existing law, deemed to be
defective – i.e., void, voidable, unenforceable or rescissible.”
Report of the Conservator
The conservator shall report and be responsible to the Monetary
Board and shall have the power to overrule or revoke the actions of
the previous management.

The Monetary Board may appoint a conservator connected with the

Bangko Sentral, in which case he shall not be entitled to receive
remuneration or emolument from the Bangko Sentral during the
conservatorship. The expenses attendant to the conservatorship shall
be borne by the bank or quasi-bank concerned.
Termination of Conservatorship
The Monetary Board shall terminate the conservatorship
1. when it is satisfied that the institution can continue to
operate on its own and the conservatorship is no longer
necessary or
2. if on the basis of the report of the conservator or of its
own findings, determine that the continuance in business of the
institution would involve probable loss to its depositors or
creditors, in which case the provisions of Section 30 of the NCBA
shall apply. (Proceedings for Receivership and Liquidation)
Jurisdiction of the Monetary Board
“Regular courts do not have jurisdiction to hear and
decide cases to place a bank under receivership. It is the
Monetary Board that exercises exclusive jurisdiction over
proceedings for receivership of banks. Section 30 of the
New Central Bank Act is the provision that says the
“appointment of a receiver under this section shall be
vested exclusively with the Monetary Board.”
This is further affirmed by the fact that the Law allows the
Monetary Board to take action “’summarily and without need
for prior hearing.“ (Koruga vs. Arcenas Jr,. et.al. G. R. No.
168332, June 19, 2009)
The law explicitly provides that “actions of the
Monetary Board taken under this section or under Section
29 (Appointment of a Conservator) of this Act shall be final
and executory, and may not be restrained or set aside by
the court except on a petition for certiorari on the ground
that the action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or
excess of jurisdiction.” (Sec 30, NCBA)
WHO MAY BE RECEIVER
The only person who may be designated as a receiver of
a bank under the GBL is the Philippine Deposit Insurance
Corporation.

However, for a quasi-bank, any person of recognized

competence in banking or finance may be designated as
receiver.
THE PDIC
In addition to the insurance function of the PDIC, it is also
the designated statutory receiver of banks.

“CLOSE NOW-HEAR LATER” SCHEME.

The designation of a receiver, as well as a conservator, is
vested exclusively with the Monetary Board. The
designation of a conservator is not a precondition to the
designation of a receiver.
No prior hearing is necessary in appointing a receiver. It is enough that subsequent judicial
review is provided for. (Rural Bank of Lucena, Inc. vs. Arca, G.R. No. L-21146,September 20, 1965)

In Central Bank of the Philippines vs. Court of Appeals, 220 SCRA 536, 545, the
Supreme Court said;
“Even in Banco Filipino, we reiterated that Sec. 29 of R.A. 265 does nor require a
previous hearing before the Monetary Board can implement its resolution closing a bank,
since its actions is subject to judicial scrutiny as provided by law.
It may be emphasized that Se.29 does not altogether divest a bank or a non-bank financial
institution placed under receivership of the opportunity to be heard and present evidence on
arbitrariness and bad faith because within ten (10) days from the date the receiver takes
charge of the assets of the bank, resort to judicial review may be held by filing an appropriate
pleading with the court.
This “close now and hear later” scheme is grounded on practical and legal considerations to
prevent unwarranted dissipation of the bank’s assets and as a valid exercise of police power
to protect the depositors, creditors, stockholders and the general public.”
In Rural Bank of Buhi, Inc. v. Court of Appeals, We stated that –
“. . . due process does not necessarily require a prior
hearing, a hearing or an opportunity to be heard may be
subsequent to the closure. One can just imagine the dire
consequences of a prior hearing; bank runs would be the order
of the day, resulting in panic and hysteria. In the process,
fortunes may be wiped out and disillusionment will run the gamut
of the entire banking community.”
In Philippine Veterans Bank Employees Union-NUBE v.
Philippine Veterans Banks (189 SCRA 14 [1990]), this Court
held that:
“The government cannot simply cross its arms while the
assets of a bank are being depleted through mismanagement
or irregularities. It is the duty of the Central Bank in such an
event to step in and salvage the remaining resources of the
bank so that they may continue to be dissipated or plundered
by those entrusted with their management.”
Admittedly, the mere filing of a case for receivership by the Central
Bank cab trigger a bank run and drain its assets in days or even
hours leading to insolvency even if the bank be actually solvent.
The procedure prescribed in Sec. 29 is truly designed to protect the
interest of all concerned, i.e., the depositors, creditors and
stockholders, the bank itself, and the general public, and the
summary closure pales in comparison to the protection afforded
public interest. At any rate, the bank is given full opportunity to
prove arbitrariness and bad faith in placing the bank under
receivership, in which event, the resolution may properly be
nullified and the receivership lifted as the trial court may
determine.”
LIQUIDATION

If the receiver determines that the institution

cannot be rehabilitated or permitted to resume
business, the Monetary Board shall notify in writing
the board of directors of its findings and direct the
receiver to proceed with the liquidation of the
institution.
ACTIONS TO TAKE (In Liquidation)
The following actions should be taken after determining that there
is a need to liquidate:

1) The receiver shall file ex parte with the proper regional trial
court, and without requirement of prior notice or any other
action, a petition for assistance in the liquidation of the
institution pursuant to liquidation plan adopted by the
Philippine Deposit Insurance Corporation for general
application to all closed banks. In case of quasi-banks, the
liquidation plan shall be adopted by the Monetary Board.
2) After acquiring jurisdiction, the court shall, upon
motion by the receiver after due notice,
a) adjudicate disputed claims against the institution,
b) assist the enforcement of individual liabilities of the
stockholders, directors and officers, and
c) decide on other issues as may be material to
implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from
the assets of the institution.
3) The receiver shall:

a) Convert the assets of the institutions to money;

b) Dispose the same to creditors and other parties, for the

purpose of paying the debts of such institution in accordance with
the rules on concurrence and preference of credit under the Civil
ode of the Philippines;

c) He may, in the name of the institution, and with

assistance of counsel as he may retain, institute such actions as
may be necessary to collect and recover accounts and assets of,
or defend any action against, the institution.
DISPUTED CLAIMS
Disputed claims are subject to the jurisdiction of the liquidation
court. Regular courts do not have jurisdiction over actions filed by
claimants against an insolvent bank.

The rule, that all disputed claims are within the jurisdiction of the
court, is consistent with the view that judicial liquidation is
intended to prevent municipality of action against the insolvent
bank.
HOW ASSETS ARE DISTRIBUTED
Section 31 of the New Central Bank Act provides that in
case of “liquidation of a bank or a quasi-bank, after
payment of the cost of the proceedings, including
reasonable expenses and fees of the receiver shall pay
the debts of such institution, under order of the court, in
accordance with rules on concurrence and preference of
credit as provided in the Civil Code.”
 EFFECT OF RECEIVERSHIP & LIQUIDATION

a. Garnishment, Levy Attachment or Execution.

Section 30 of the New Central Bank Act provides that the assets of an
institution under receivership or liquidation shall be deemed in “cutodia
legis” in the hands of the receiver and shall, from the moment the
institution was placed under such receivership or liquidation, be exempt
from any order of garnishment, levy, attachment, or execution.
There will be no preference even if the claimant-depositor obtained
a writ of preliminary attachment. After the declaration of insolvency, the
remedy of depositors is to intervene in the liquidation proceedings.
(Lipana vs. Development Bank of Rizal, 154 SCRA 257, 261)
 Distinction Between Receiver and Liquidator
Broadly speaking, the term “liquidator” is embraced in definition of “receiver.” The following are the
specific distinctions:

i. A receiver is appointed by the Monetary Board based on the recommendation of the

supervising department of the Bangko Sentral, while a liquidator is appointed by the Monetary
Board based on the determination by the receiver;
ii. There are six (6) grounds for the appointment of a receiver, while there is only one (1) ground
for the appointment of a liquidator, that is, when the institution cannot be permitted to resume
business with safety to the depositors and creditors and the general public;
iii. A receiver has ninety (90) days from takeover to determine whether the institution may be
rehabilitated or placed under liquidation, while there is no statutory period for a liquidator to
prepare the liquid plan for the approval of the liquidation court;
iv. Generally, the receiver has the duty to take charge of the assets and liabilities for the benefit of
the creditors, while a liquidator is bound to convert the assets to money for the purpose of
paying the debts of the institution; and
v. A receiver is normally appointed ahead of the liquidator.
b. Stoppage of Business

The appointment of a receiver does not dissolve the corporation

nor does it interfere with the exercise of corporate rights. Banks under
liquidation retain their legal personality. The bank can sue and be sued
but any case should be initiated and prosecuted through the liquidator.
However, the BSP may also forbid the bank from doing business. When
the BSP forbids the bank from doing business, it can foreclose
mortgage properties.

“When a bank is prohibited from continuing business by the

Central Bank and a receiver is appointed for such bank, that bank would
not be able to do new business, i.e., to grant new loans or to accept
new deposits.”
CASES TO READ:

1. BPI vs. C.A. & Napiza, 326 SCRA 641 (2000)

2. Prudential Bank vs. C.A. & Valenzuela, 328 SCRA 264 (2000)

3. Metropolitan Bank & Trust Co. (MBTC) vs. C.A. & Rural Bank of Padre Garcia, 237 SCRA 761 (1994)

4. PNB vs. C.A. & Flores, 256 SCRA 309 (1996)

5. Phil Bank of Commerce vs. C.A. & Rommel’s Marketing (RMC) 269 SCRA 695 (1997)

6. Moran vs. C.A. & Citytrust, 230 SCRA 799 (1994)

7. Salvacion vs. Central Bank, 278 SCRA 27 (1997)

8.Land Bank of the Phil. vs. Republic of the Phil., 543 SCRA 453 (2008)

9. Bangko Sentral vs. Hon. Valenzuela, 168 SCRA 623 (2009)

10. Central Bank of the Phil. vs. C.A., G.R. No. L-45710, Oct. 3, 1985

11. Go vs. Bangko Sentral, 604 SCRA 322 (2009)

12. Tan vs. C.A., 239 SCRA 310 (1994)

13. United Coconut Planters Bank vs. E. Ganzon 591 SCRA 349 (2009)