bsp banking-law

Banking LawsNew Central Bank Act R.A. 7653

PRIMARY OBJECTIVES OF BSP:a) To maintain price stability conducive to a balanced and sustainable growth of the economy.b) promote and maintain the monetary stability and the convertibility of the peso c) To provide policy directions in the areas of money, banking, and credit, with supervision

over the operations of banks and with regulatory powers over the operations of finance companies and non-bank financial institutions performing quasi-banking functions. (Sec 3)

ROLES OF BSP• Designation as Banker of Government • Representation with International Monetary Board • Representation with Other Financial Institutions • Fiscal Operations

PRIVILEGES AND PROHIBITIONS• Tax Exemption • Exemption from Customs Duties • Prohibitions • Phase-out of Fiscal Agency Functions • Phase-out of Regulatory Powers Over the Operations of Finance Corporations and Other Institutions

MONETARY BOARDMonetary Board- composed of seven (7) members appointed by

the President of the Philippines for a term of six (6) years:(a) The 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 private

sector, all of whom shall serve full time.

No member of the Board may be reappointed more than once.

The BSP Monetary BoardChairman Amando M. Tetangco, Jr.

Members Cesar V. PurisimaJuanita D. AmatongNelly Favis-VillafuerteAlfredo C. AntonioIgnacio R. BunyePeter B. Favilla

Qualifications of Members of Monetary Board•Must be natural-born citizens of the Philippines•At least 35 years of age, with the exception of the Governor, who should at least be 40 years of age•Of good moral character, of unquestionable integrity, of known probity and patriotism•With recognized competence in social and economic disciplines

Powers & Functions of Governor• He shall be head of a department and his

appointment shall be subject to confirmation by the Commission on Appointments;

• He shall be BSP Chief Executive Officer;• He shall be the principal representative of the

Monetary Board and of the BSP.

Powers and Functions of GovernorThe Governor of Bangko Sentral is vested the responsibility of executing and administering the policies and measures approved by the board and empowered to:

represent the Monetary Board and the BSP in all dealings;sign contracts entered into by the BSP, notes and securities issued by

the BSP all reports and statements, and other reports of the BSP; represents the BSP either personally or through counsel, as may be

authorized by the Monetary Board; anddelegate his power to represent the BSP, to other officers upon his own

responsibility.

Monetary Board- policy-making body of Bangko SentralThe Monetary Board weekly meeting shall:

- endeavor to control any expansion or contraction in monetary aggregates which is prejudicial to the attainment or maintenance of price stability;

- preserve the international value of peso;- maintain international reserves adequate to meet any

unforeseeable net demands on BSP for foreign currencies;-determines the exchange rate policy of the country;-providing liquidity of the banking system in times of

need.

DOSRI Any director, officer or stockholder who, together with his

related interest, contracts a loan or any form of financial accommodation from:(a) His banks or(b) From a bank

(a) which is a subsidiary of a bank holding company of which both his bank and the lending bank are subsidiaries; or

(b) in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank, in excess of five percent (5%) of the capital and surplus of the bank, or in the maximum amount permitted by law, whichever is lower, shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the Philippines.

Prohibitions on Bank Officers, Directors, Lawyers, AgentsBSP Personnel are prohibited from:

(a) being an officer, director, lawyer or agent, employee, consultant or stockholder, directly or indirectly, of any institution subject to supervision or examination;

(b) 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;

(c) 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; and

(d) 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.

Three Levels of RehabilitationRA 7653 Sections 29 - 33

CONSERVATORSHIP RECEIVERSHIP LIQUIDATION

CONSERVATORSHIP

Whenever a bank or quasi-bank is in:• A state of continuing inability• Unwillingness to maintain a condition of liquidity

Appointment of a Conservator

The Monetary Board may:• Appoint a conservator to take charge of assets and

liabilities• Reorganize the management• Collect all monies and debts• Exercise powers necessary to restore viability

CONSERVATORSHIPHow long should the conservatorship last?

• shall NOT exceed one (1) year

When can the Monetary Board terminate the conservatorship?

•Institution can operate on its own•Institution would involve probable loss to its depositors and creditors

RECEIVERSHIPWhenever a bank or quasi-bank is:

• Unable to pay its liabilities• Has insufficient realizable assets• Cannot continue business without involving probable losses to its depositors or creditors• Has willfully violated a cease and desist order

RECEIVERSHIPPhilippine Deposit Insurance Corporation (PDIC)Functions and Obligations:

•Gather and take charge of all assets and liabilities of the institution•Exercise the general powers •Determine in not later than ninety (90) days from take over whether the institution should be rehabilitated or may resume business with safety

LIQUIDATION• Institution CANNOT be rehabilitated or

permitted to resume businessReceiver/Liquidator shall:

• File ex-parte with Regional Trial Court and a petition for assistance in the liquidation of the institution•Assist the enforcement of individual liabilities of stockholders, directors & officers

LIQUIDATIONReceiver/Liquidator shall:

• Convert the assets of the institutions to money and dispose to creditors and other parties•Institute actions to collect and recover accounts and assets of the institution which shall be deemed in custodia legis in the hands of the receiver

Disposition of Banking Franchise-may award the banking franchise of a bank under liquidation where said bank or its branches were previously operating (Sec. 33)

Rulings on Bank Liquidation-All claims against bank be pursued in the liquidation proceedings-Actions of the Monetary Board are declared by law to be FINAL and EXECUTORY

PESO•Unit of monetary value in the Philippines

The Peso, Currency, Legal Tender, and Bank Deposit Accounts

CURRENCY•All Philippine notes and coins issued or circulating

The Peso, Currency, Legal Tender, and Bank Deposit Accounts

• Exclusive Issue Power• Liability for Notes and Coins• Legal Tender Power

• 25 c and above – not exceeding P 50.00• 10 c and below – not exceeding P 20.00

• Replacement for Currency unfit for Circulation

SECTION 57. Retirement of Old Notes and CoinsSECTION 57. Retirement of Old Notes and Coins• Notes five (5) years old or moreNotes five (5) years old or more

• Coins ten (10) years old or moreCoins ten (10) years old or more

• remain legal tender for a period of one (1) year from the date remain legal tender for a period of one (1) year from the date of callof call

• may be exchanged at par and without charge in the BSP and may be exchanged at par and without charge in the BSP and their duly authorized agents.their duly authorized agents.

B. DEMAND DEPOSITSB. DEMAND DEPOSITSSECTION 58. DefinitionSECTION 58. Definition

all those liabilities of the Bangko Sentral and of other banks all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are subject to which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of payment in legal tender upon demand by the presentation of checks.checks.

SECTION 59. Issue of Demand DepositSECTION 59. Issue of Demand Deposit Only banks duly authorized to issue demand deposit may accept Only banks duly authorized to issue demand deposit may accept funds or create liabilities payable in pesos upon demand by the funds or create liabilities payable in pesos upon demand by the presentation of checks. (universal banks or commercial banks)presentation of checks. (universal banks or commercial banks)

• It shall be subject to the control of the Monetary Board in It shall be subject to the control of the Monetary Board in accordance with the powers granted it with respect thereto accordance with the powers granted it with respect thereto under this Act.under this Act.

• Banks, other than a universal bank or commercial bank, cannot Banks, other than a universal bank or commercial bank, cannot accept demand deposits except upon prior approval of the accept demand deposits except upon prior approval of the Monetary Board.Monetary Board.

SECTION 60. Legal Character of ChecksSECTION 60. Legal Character of Checks

do not have legal tender powerdo not have legal tender power

acceptance of checks as payment of debts, both public and acceptance of checks as payment of debts, both public and private, is at the option of the creditorprivate, is at the option of the creditor

check which has been cleared and credited to the account of the check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his accountin an amount equal to the amount credited to his account

Role of BanksTo provide an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance

Role of the StateTo promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy

The General Banking Law of 2000

Banksentities engaged in the lending of funds obtained in the form of deposits

Classification of Banks

Universal banks;

Commercial banks;

Thrift banks:Savings and mortgage banks;Stock savings and loan associations; andPrivate development banks


The General Banking Law of 2000Classification of Banks

Rural banks;

Cooperative banks;

Islamic banks; and

Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas


AUTHORITY OF THE BANGKO SENTRAL

Supervisory Power

Policy Direction

Authority to Engage in Banking and Quasi-Banking Functions

Examination by the Bangko Sentral

The General Banking Law of 2000ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST ENTITIES Organization

• stock corporation• funds are obtained from the public• minimum capital requirements of the Monetary Board is

satisfied

banks shall issue par value stocks only

bank shall not purchase or acquire shares of its own capital stock or accept its own shares as a security for a loan

forty percent (40%) of the voting stock of a domestic bank may be owned by foreign individuals and non-bank corporations

The General Banking Law of 2000ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST ENTITIES

Stockholdings of Family Groups of Related

Corporate Stockholdings

Certificate of Authority to Register

Board of Directors• at least five (5), and a maximum of fifteen (15) members• two (2) of whom shall be independent directors

Directors of Merged or Consolidated Banks

The General Banking Law of 2000ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST ENTITIES

Banking Days and Hours• all working days for at least six (6) hours a day• may open for business on Saturdays, Sundays or holidays for at least

three (3) hours a day• working days shall mean Mondays to Fridays

Strikes and Lockouts• unsettled after seven (7) calendar days shall be reported by the Bangko

Sentral to the Secretary of Labor• President of the Philippines may at any time intervene and assume

jurisdiction over such labor dispute


CESSATION OF BANKING BUSINESS

Voluntary Liquidation

Receivership and Involuntary Liquidation

Time and again, we have stressed that banking business is so impressed with public interest where the trust and confidence of the

public in general is of paramount importance such that the appropriate standard of diligence must be very high, if not he

highest, degree of diligence. A bank’s liability as obligor is not merely vicarious but primary; the defense of exercise of due diligence in the

selection and supervision of its employees is of no moment.

PCI Bank vs. Court of Appeals

Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.

When a bank dishonors the check of its client when it turned out that there was sufficient funds, even if malice or bad faith was not sufficiently proved, the fact remains that the bank has committed a serious mistake, and the bank’s negligence was a result of lack of due care and caution required of managers and employees of a firm engaged in so sensitive and demanding business as banking, and entities recovery of moral damages against the bank.

Prudential Bank vs. Court of Appeals328 SCRA 264 (2000)

In dealing with its depositors, a bank should exercise its functions not

only with the diligence of a good father of a family but it

should do so with the highest degree of care.

Bank of the Philippine Islands vs. Court of AppealsGR No. 112392February 29, 2000

Therefore, the requirement of presentation of the passbook when withdrawing cannot be given mere lip service even though the person making the withdrawal was authorized by the depositor, and the unlawful withdrawal that resulted shall be borne by the bank.

Philippine Bank of Commerce v. CA80 SCAD 616, 269 SCRA 695 (1997)

In case of banks, the degree of diligence required is more than that of a good father of a family. Considering the fiduciary nature of their relationship with their depositors, banks are bound to treat the accounts of their clients with the highest degree of care.

Degree of Diligence required to Banks to Degree of Diligence required to Banks to be Mortgagees in Good Faithbe Mortgagees in Good Faith

The Supreme Court had consistently taken judicial notice of standard practice for banks to send representative to the premises of the land offered as collateral and to investigate who are the real owners thereof.

If the bank fails to follow this procedure, they can’t be considered as mortgagee in good faith.

If the bank accepted a mortgage that was executed by impostors, they are considered mortgagee in bad faith.

Development Bank Vs. The Court of Appeals 125 SCAD 727, 331 SCRA 267 (2000)

While an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title, in the case of a banking institution, it must exercise due diligence before entering into said contract, and cannot rely upon what is or is not annotated on the title. Judicial notice is taken of the standards, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof.

Canlas v. The Court of Appeals 121 SCAD 752, 326 SCRA 415 (2000)

The degree of diligence required of banks is more than that of a good father of a family; in keeping with their responsibility to exercise the necessary care and prudence in dealing even on a registered or titled property. Failure by a bank to exercise such diligence, as in checking previous claims on the subject property, does not qualify them to be mortgagee in good faith .

Ibaan v. The Court of Appeals 321 SCRA 88 (2000)

Banks, being generally affected with publict interest, are expected to exercise a degree of diligence in the handling of its affairs higher than expected of an ordinary business firm.

Consequently, when the certificate of sale issued provides a redemption period of two (2) years, instead of only one year, the bank is estopped from objecting to the enforceability of the two-year redemption period.

BANKING LAWZaldy Quizon, Jennifer Masicat, Dianne Elaine Ozaeta, Sherwin Lyn Dela Pena, Michelle Azagra