CHAPTER ONE: BANK AND THE BUSINESS OF BANKINGI. Declared Policy of the State. Read Section 2 of Republic Act 8791 (General Banking

Law of 2000)II. Definition of Banks.

a. Banks are defined under the GBL as entities engaged in the lending of funds obtained in the form of deposits. (Note: banks may engage in other activities allowed by law)

b. Other definitions: (I only included two out of the four given by Dizon)i. Moneyed institute founded to facilitate the borrowing, lending and safe-

keeping of money and to deal, in notes, bills of exchange, and credits.ii. An investment company which loans out the money of its customers,

collects the interest and charges a commission to both the lender and borrower, is a bank.

III. Nature of the Banking Business.a. Debtor-Creditor Relationship. Read Article 1980 of the Civil Code of the

Philippines. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. The bank is the debtor and the depositor is the creditor.

b. Fiduciary Duty. Banks are required to “treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Thus, the bank’s fiduciary duty imposes upon it a higher level of accountability.

c. Not a Trust Agreement. The fiduciary nature of banking does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether expressed or implied. The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan. The law allows the banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers

d. Indispensible Institution. Banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude, and most of all, confidence.

e. Impressed with Public Trust. The business of banking is imbued with public interest. The stability of the banks largely depends on the confidence of the people in the honesty and efficiency of banks.

f. Degree of Diligence. The law imposes on banks high standards in view of the fiduciary nature of banking – more than that of a good father of a family. BUT the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors. (Note: Diligence extends to Financial institutions)

g. Treatment of Accounts with Meticulous Care. BUT there is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts.

h. Duty to Keep Records. A bank has a fiduciary duty to keep efficiently a record of its transactions with its depositors.

i. Banks are Not Gratuitous Bailees. Banks are run for gain, and they solicit deposits in order that they can use the money for that very purpose.

j. Banks are Not Expected to be Infallible.k. Dealing with Registered Lands.

i. Banks should exercise more care and prudence in dealing even with registered lands, than private individuals, for their business is one affected

with public interest. Absent good faith, banks would be denied the protective mantle of land registration statute.

ii. Banks have access to more facilities in confirming the identity of their judgment debtors. It should act more cautiously, especially if some uncertainty had been reported by the appraiser tasked to make verifications. The uncertainty should not be treated as flimsy matter.

iii. Case 1: The act of X Bank of entrusting to C the owner’s duplicate certificate entrusted to it by A without even notifying A and absent any prior investigation on the veracity of C’s claim and character is a patent failure to foresee the risk created by the act.

iv. Case 2: A bank which accepted a property as mortgage despite the existence of structures and occupants other than the mortgagor showed the bank’s negligence.

v. Case 3: Thus, while it is true, x x x that a person dealing with registered lands need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor.

l. Banks may Exclude Persons in their Premises. Banks may impose reasonable conditions or limitations to access by non-employees to its premises and records, such as the exclusion of non-employees from the working areas for employees, even absent any imminent or actual unlawful aggression on or an invasion of its properties or usurpation thereof, provided that such limitations are not contrary to the law.

m. Charging of Interest for Loans. The charging of interest for loans forms a very essential and fundamental element of the banking business. In fact, it may be considered to be the very core of the banking’s existence or being.

IV. Liability for Acts of Officers and Employees- degree of responsibility, care and trustworthiness expected on banks’

employees and officials-greater than those ordinary clerks and employees

**Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees:

1. exercise high standard of performance and insure that its employees will do likewise.

2. bank is liable for the wrongful acts of its officers done in the interest of the bank or in their dealins as bank representatives but not for the acts outside the scope of their authority.

A. Negligence of a Manager-bank is liable for the negligence or the misdeed of its branch manager

B. Negligence of OfficersGEN RULE: a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment- if a corporation knowingly permits its officers, or any other agent, to perform acts

within the scope of apparent authority- be estopped from denying such authority.

C. Negligence of Tellers- high degree of diligence in insuring that they return the passbook only to the depositor

or his authorized authority. Failure to do so, they will clothe that unauthorized person

presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person.

- NOTE: appropriation of money by a teller is not estafa since juridical possession remains with the bank; teller only material possession☺(felony: qualified theft- abuse of confidence)

D. Right to Recover from Employees- banks may recover from its employees for any payments made in view of the latter’s negligent or criminal acts

E. Liability for Damages- concurrence of injury to the plaintiff and legal responsibility by the person causing it- to award tort damages- an individual must be injured in the contemplation of law; thus there must be breach before damages may be awarded and the breach of duty should be the proximate cause of the injury.

1. Actual and Compensatory Damagesa. when the obligation is breached- consists in the payment of a sum of money, i.e.

loan or forbearance then the interest due would be that which may have been stipulated in writing. The interest due itself shall earn legal interest from the time it is judicially demanded= 12% per annum to be computed from default.

b. not constituting a loan or forbearance an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.

c. when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest whether the case falls under (a) or (b), shall be 12% per annum from such finality until satisfaction.

2. Exemplary Damages- law allows this by way of example for the public good

3. Moral DamagesGEN RULE- corporation (artificial being) is not entitled to moral damagesBUT- for breach of fiduciary duty required of a bank, a corporate client may claim

such damages when its good reputation is besmirched by such breach, asn social humiliation results therefrom.

F. Respondeat Superior, Diligence in the Selection and Supervision of EmployeesA bank is bound by the negligence of its employees under the principle of respondeat

superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of emnployees is NOT a complete defense in culpa contractual, unlike in culpa aquiliana.1.) Whose authority is needed in order for an entity to engage in banking or quasi-banking functions?Bangko Sentral 2.) What agency of the government determines whether an entity or person is performing banking or quasi-banking functions without authority from the Bangko Sentral? How?Monetary Board. The board through the supervision of the BSP examine, inspect, or investigate the books and records of such person or entity.Note: Existence of a victim actually injured is not necessary in determining whether an entity is engaged in illegal banking.

3.)What is the scope of the authority of the Supervising and Examining Department?

a.) to administer oath to any such person, employee, officer or director of any such entity.b.) to compel the presentation or production of such books, documents, papers or records that are reasonably necessary to ascertain the facts relative to the true functions and operations of such person or entity.

4.) What is the extension of the examining powers?The BSP shall also have the authority to examine an enterprise which is wholly or majority-owned or controlled by the bank that is under examination.(this additional authority is available only when the subject is a bank.)

5.) What is the Certificate of Authority to Register?It is a certificate issued by the Monetary Board, which is an indispensable requirement when registering articles of incorporation with the Securities and Exchange Commission.

6.) What are the requirements for the issuance of such certificate?Evidence showing that: 1.) all requirement of existing laws and regulations to engage in business are complied with.2.) the public interest and economic conditions, both general and local justify the authorization3.) the amount of capital, the financing, organization, direction, and administration, as well as the integrity of the organizers and administrators reasonably assure the safety of deposits and the public interest.

7.)How may summons be served to a bank?a.) Sec. 11. Service upon domestic private juridical entity.   When the defendant is a corporation, partnership or association organized under the laws of the Philippines with a juridical personality, service may be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel. (Rule 14, Section 11 of the Rules of Court.)

b.) Sec. 12. Service upon foreign private juridical entity.   When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. (Sec. 12. Rule 14)

8.) Strict compliance is necessary with the mode of service to confer jurisdiction of the court over a corporation. The officer upon whom service is served must be one who is named in the statutes; otherwise, the service is insufficient. What is the purpose of this rule?To render reasonably certain that the corporation receive will prompt and proper notice in an action against it.

Note: Service of summons on a bank manager is invalid.A case should not be dismissed simply because an original summons was wrongfully done.It is not pertinent whether the summons is designated as an original or an alias summon as long as it has adequately served its purpose.

CHAPTER 2: ORGANIZATION MANAGEMENT AND ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST ENTITIES(provision halos to kc ganun din un book parang codal)

ORGANIZATIONConditions: (SPC) That the entity is a stock corporation That its funds are obtained from the public , which shall mean 20 or more persons That the minimum capital requirements prescribed by the monetary board for each category

of banks are satisfied

Capabilities: In terms of financial resources and technical expertise and integrity Licensing process shall incorporate and accessment of

1. The banks ownership structure2. Directors and senior management3. Its operation plan, and4. Internal controls, as well as5. Its projected financial condition and capital base

Capital Requirements Required minimum capital (prescribed by the monetary board)

TYPE OF BANK AMOUNT (Million)

Universal 4950commercial 2400Thrift Head office in manila 325 Head office outside Mla 52Rural Within Mla 26 Cities of cebu and davao

13

1st, 2nd, 3rd class cities and 1st class municipalities

6.5

4th, 5th, 6th class cities and 2nd, 3rd, 4th class municipalities

2.6

At least 25% of the toal authorized capital stock shall be subscribed by the subscribers of the proposed bank, and at least 25% of such subscription shall be paid up, provided that in no case shall the paid-up capital be less than the minimum required capital stated above. ~Sec 13 Corporation Code

Incorporators/ Subscribers

Incorporators /Subscribers & Proposed Directors

Subscribers

Must be persons of integrity and of good credit standing in the business community

Must have adequate financial strength to pay for their proposed subscription in bank

Must not have been convicted of any crime involving moral turpitude, not officers or employees of government agency charged with supervision of loan

A bank may be organized with not less than 5 nor more than 15 incorporators In excess of 15, to be listed among original subscribers in Articles of incorporation

Branches Universal and commercial – within ot outside Philippines upon prior approval by BSP

All other banks – governed by pertinent laws A bank authorized to establish branches or other offices shall be responsible for all

business conducted in such branches and offices to the same extent and in the same manner as though such business had all been conducted in the head office.

Bank + branches + other offices = 1 unit

STOCKHOLDINGSTreasury Stocks GBL provides no bank shall:

1. Purchase or acquire shares of its own capital stock; or2. Accept its own shares as a security for a loan EXCEPT WHEN AUTHORIZED BY

MONETARY BOARD > stock purchased shall be sold within 6 months from time of purchase

At common law, a corporation has no lien upon the shares of stockholders for any indebtedness to the corporation and there is no statute creating such lien.

Foreign StockholdingsGBL provides Foreign individuals and non-bank corporations may own or control up to 40% of the voting

stock of a domestic bank. > apply to Filipino and domestic non-bank corporations The percentage of foreign-owned voting stocks in a bank shall be determined by the

citizenship of the individual stockholders in that bank. Controlling stockholders – individuals holding more than 50% of the voting stock of the

corporate stockholders of the bank Voting stock: commercial – 60%; thrift – 40%; rural bank – fully owned and held by

Filipino Determining nationality of bank – control test is applied

Acquisition of Voting Stock in a Domestic Bank

GBL provides:

Sec. 73.  Acquisition of Voting Stock in a Domestic Bank. – Within seven (7) years from the effectivity of this act and subject to guidelines issued pursuant to the Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to acquire up to one hundred percent (100%) of the voting stock of only one (1) bank organized under the laws of the Republic of the Philippines.  Within the same period, the Monetary Board may authorize any foreign bank, which prior to the effectivity of this Act availed itself of the privilege to acquire up to sixty percent (60%) of the voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to further acquire voting shares such bank to the extent necessary for it to own one hundred percent (100%) of the voting stock thereof.  In the exercise of the authority, the Monetary Board shall adopt measures as may be necessary to ensure that at all times the control of seventy percent (70%) of the resources or assets of the entire banking system is held by banks which are at least majority-owned by Filipinos.  Any right, privilege or incentive granted to a foreign bank under this Section shall be equally enjoyed by and extended

Family Groups or Related Interest

Sec.12.  Stockholdings of Family Groups of Related Interests. – Stockholdings of individuals related to each other within the fourth degree of consanguinity or affinity, legitimate or common-law, shall be considered family groups or related interests and must be fully disclosed in all transactions by such corporations or related groups of persons with the bank. .   Sec. 13.  Corporate Stockholdings. - Two or more corporations owned or controlled by the same family group or same group of persons shall be considered related interests and must be fully disclosed in all transactions by such corporations or related group of persons with the bank.

BOARD OF DIRECTORS

Number of Directors There shall be at leasr 5 and maximum of 15 members of board of directors of bank, 2 of

whom shall be independent directors Corporation Code: Sec. 10. Number and qualifications of incorporators. - Any number of

natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes. Each of the incorporators of s stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation.

Non- Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the equity of said bank.

Independent director – a person other than an officer or employee of the bank, it subsidiaries or affiliates or related interests

Specific qualifications on independent director (see banking book page 58)

Directors of Merged or Consolidated Banks Number of directors must not exceed 21Meetings May be conducted through modern technologies

Within Philippines – must be stated in by laws

Sec. 25. Corporate officers, quorum. - Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time.

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business, and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Compensation and other Benefits of Directors and Officers

Sec. 18.  Compensation and Other Benefits of Directors and Officers.  To protect the finds of depositors and creditors the Monetary Board may regulate the payment by the bark to its directors and officers of compensation, allowance, fees, bonuses, stock options, profit sharing and fringe benefits only in exceptional cases and when the circumstances warrant, such as but not limited to the following:

18.1. When a bank is under comptrollership or conservatorship; or  

18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; or  

18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition.

FIT AND PROPER RULEPowers of the Monetary BoardSec. 16. Fit and Proper Rule.  - To maintain the quality of bank management and afford better protection to depositors and the public in general the Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit.

After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank director or officer who commits or omits an act which render him unfit for the position. In determining whether an individual is fit and proper to hold the position of a director or officer of a bank, regard shall be given to his integrity, experience, education, training, and competence.

Disqualifications Circular 513 series of 2006 (see book p 61) Corporation Code

o Sec. 27. Disqualification of directors, trustees or officers. - No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code committed within five (5) years prior to the date of his election or appointment, shall qualify as a director, trustee or officer of any corporation.

NCBA Provision- Sec 9 and 27 (see book p 65) PIDC law sec 17 (p67) RA 7353 sec 5 (p67) Appendix 38, Manual of Regulations of Banks Sec. 10 (p67)

Prohibition on Public Officials (RA 7353)Sec. 5. All members of the Board of Directors of the rural bank shall be citizens of the Philippines at the time of their assumption to office: Provided, however, That nothing in this Act shall be construed as prohibiting any appointive or elective public official from serving as director, officer, consultant or in any capacity in the bank.

BANKING DAYS AND HOURSSec. 21.  Banking Days and Hours. – Unless otherwise authorized by the Bangko Sentral in the interest of the banking public, all banks including their branches and offices shall transact business on all working days for at least six (6) hours a day.  In addition, banks or any of their branches or offices may open for business on Saturdays, Sundays or holidays for at least three (3) hours a day: Provided, That banks which opt to open on days other than working days shall report to the Bangko Sentral the additional days during which they or their branches or offices shall transact business.   For purposes of this Section, working days shall mean Mondays to Fridays, except if such days are holidays.

Rules and RegulationsCircular 500 (See book page 69)

AUTOMATED TELLER MACHINESOff-site ATMs Conditions:

1. Submit report to appropriate department of BSP2. Installed only in center of activity > adequate internal control and security measures shall

be adopeted and submitted to BSP3. Only banks which have shown general compliance

Mobile ATMs Conditions:

1. Visit only centers of activity confined within Manila2. Secure insurance coverage or self-insurance scheme3. Inform BSP of actual date a Mobile ATM becomes operational

Independent AuditorSec. 58.  Independent Auditor. - The Monetary Board may require a bank, quasi-bank or trust entity to engage the services of an independent auditor to be chosen by the bank, quasi-bank or trust entity concerned from a list of certified public accountants acceptable to the Monetary Board.  The term of the engagement shall be as prescribed by the Monetary Board which may either be on a continuing basis where the auditor shall act as resident examiner, or on the basis of special engagements; but in any case, the independent auditor shall be responsible to the bank’s, quasi-bank’s or trust entity’s board of directors.  A copy of the report shall be furnished to the Monetary Board.  The Monetary Board may also direct the board of directors of a bank,

quasi-bank, trusty entity and/or the individual members thereof; to conduct, either personally or by a committee created by the board, an annual balance sheet audit of the bank, quasi-bank or trust entity to review the internal audit and control system of the bank, quasi-bank or trust entity and to submit a report of such audit

Financial StatementsSec. 60.  Financial Statements. – Every bank, quasi-bank or trust entity shall submit to the appropriate supervising and examining department of the Bangko Sentral financial statements in such form and frequency as may be prescribed by the Bangko Sentral.  Such statements, which shall be as of a specific date designated by the Bangko Sentral, shall show thee actual financial condition of the institution submitting the statement, and of its branches, offices, subsidiaries and affiliates, including the results of its operations, and shall contain such information as may be required in Bangko Sentral regulations.

SEC 61.  Publication of Financial Statements. - Every bank, quasi-bank or trust entity, shall publish a statement of its financial condition, including those of its subsidiaries and affiliates, in such terms understandable to the layman and in such frequency as may be prescribed Bangko Sentral, in English or Filipino, at least once every quarter in a newspaper of general circulation in the city or province where the principal office, in the case of a domestic institution or the principal branch or office in the case of a foreign bank, is located, but if no newspaper is published in the same province, then in a newspaper published in Metro Manila or in the nearest city or province. The Bangko Sentral may by regulation prescribe the newspaper where the statements prescribed herein shall be published. . The Monetary Board may allow the posting of the financial statements of a bank, quasi-bank or trust entity in public places it may determine, lieu of the publication required in the preceding paragraph, when warranted by the circumstances.

Additionally, banks shall make available to the public in such form and manner as the Bangko Sentral may prescribe the complete set of its audited financial statements as well as such other relevant information including those on enterprises majority-owned or controlled by the bank, that will inform the public of the true financial condition of a bank as of any given time.  .

In periods of national and/or local emergency or of imminent panic which directly threaten monetary and banking stability, the Monetary Board, by a vote of at least five (5) of its members, in special cases and upon application of the bank, quasi-bank or trust entity, may allow such bank, quasi-bank or trust entity to defer for a stated period of time the publication of the statement of financial condition required herein.

Sec. 62.  Publication of Capital Stock. – A bank, quasi-bank or trust entity incorporated under the laws of the Philippines shall not publish the amount of its authorized or subscribed capital stock without indicating at the same time and with equal prominence, the amount of its capital actually paid up.

No branch of any foreign bank doing business in the Philippines shall in any way announce the amount of the capital and surplus of its head office, or of the bank in its entirety without indicating at the same time and with equal prominence the amount of the capital, if any, definitely assigned to such branch, such fact shall be stated in, and shall form part of the publication.

Sec. 63. Settlement of Disputes. – The provisions of any law to the contrary notwithstanding, the Bangko Sentral shall be consulted by other government agencies or instrumentalities in actions or proceedings initiated by or brought before them involving controversies in banks, quasi-banks or trust entities arising out of and involving relations between and among their

directors, officers or stockholders, as well as disputes between any or all of them and the bank, quasi-bank or trust entity of which they are directors, officers or stockholders. 

Sec. 22. Strikes and Lockouts. - The banking industry is hereby declared as indispensable to the national interest and, notwithstanding the provisions of any law to the contrary, any strike or lockout involving banks, if unsettled after seven (7) calendar days shall be reported by the Bangko Sentral to the Secretary of Labor who may assume jurisdiction over the dispute or decide it or certify the same to the National Labor Relations Commission for compulsory arbitration. However, the President of the Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle or terminate the same.

Reports of Strikes and Lockouts Apprise deputy governor of the supervision and examination sector of BSP Disclose: cause and bank management’s position on its legality; and bank operations

affected

Laws governing other types of banksSec. 71.  Other Banking Laws. – The organization, the ownership and capital requirements, powers, supervision and general conduct of business of thrift banks, rural banks and cooperative banks shall be governed by the provisions of the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code, respectively.  

The organization, ownership and capital requirements, powers, supervision and general conduct of business of Islamic banks shall be governed by special laws.

The provisions of this Act, however, insofar as they are not in conflict with the provisions of the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code shall likewise apply to thrift banks, rural banks, and cooperative banks, respectively.  However, for purposes of prescribing the minimum ratio which the net worth of a thrift bank must bear to its total risk assets, the provisions of Section 33 of this Act shall govern.

Chapter 3: Deposit Functions of Banks

I. Kinds of Deposits.

A. Demand Deposits.

- demand deposits – all those liabilities of the BSP and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of depositor’s checks.

- A Universal and Commercial Bank may accept or create demand deposits subject to withdrawal by check without prior authority from the BSP.

- A Thrift/Rural/Cooperative Bank may accept or create demand deposits upon prior authority from the BSP.

1. Temporary Overdrawings; Drawings against Uncollected Deposits.

- temporary overdrawings against current account shall not be allowed, unless caused by normal bank charges and other fees incidental to handling such accounts.

- technical overdrawings arising from “force posting” in clearing checks shall be debited by banks under “Returned Checks and other Cash Items Not In Process of Collection” which is part of “other assets”. Checks lodged under “Returned Checks etc” shall either be returned or

honored the following day before clearing. The items to be used as cover for the honored checks should be limited to the following:

a. Cash;

b. Cashier’s/Manager’s/Certified Checks;

c. bank drafts;

d. postal money orders;

e. treasury warranties;

f. duly funded “on us” checks; and

g. fund transfers/credit memos within the same bank representing proceeds of loans granted under existing regulations.

- drawings against uncollected deposits shall be prohibited except when made against uncollected deposits representing manager’s, cashier’s or treasurer’s checks, treasury warrants, postal money orders and duly funded “on us” checks which may be permitted at the discretion of each bank.

2. Current Accounts of Bank Officers and Employees

- The following bank officers and employees are prohibited from maintaining demand deposits or current accounts with the banking office in which they are assigned.

a. All officers;

b. employees of the bank’s cash departments/cash units.

c. other employees who have direct and immediate responsibility in the handling of transactions and/or records pertaining to demand deposits or current accounts.

d. the spouses and relatives within the second degree of consanguinity and affinity of the officers and employees covered by the prohibition.

e. business interests of all the above mentioned wherein they own a majority of the stock.

3. Checks.

- A check is a bill of exchange drawn on a bank, payable on demand. It is a written order addressed to the bank by a person having money in their hands requesting them to pay on presentment, to a person named therein or to bearer or order a named sum of money.

- by virtue of the contract of deposit between banker and depositor, banker agrees to pay checks drawn by the depositor provided that the depositor had money in the hands of the bank.

4. Duty of the Bank to Honor Checks.

- where that bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits.

- failure to do so entitles the drawer to substantial damages without any proof of actual damages.

- a bank is not liable for its refusal to pay a check on account of insufficient funds even if deposit may be made later in the day.

5. Responsibilities of Drawer.

- keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain checks he previously issued.

6. Duty of Banks to Know Signature

- a bank is bound to know the signatures of its customers and if it pays a forged check, it must be considered as making the payment out of its own funds and cannot ordinarily charge the amount to the account of the depositor whose name was forged.

7. No obligation to make partial payment

- a bank is under no obligation to make a partial payment on a check up to only the amount of the drawer’s funds, where the check is drawn for an amount larger than what the drawer has on deposit.

8. No duty to make up the deficiency from other accounts.

- where a depositor has two accounts, an open and a savings account, and draws a check upon the open account for more than the account contains, the bank may refuse to pay the check as it has no duty to make up the deficiency from the savings account.

9. Legal Character of Checks representing Demand Deposits.

- they do not have legal tender power and their acceptance is at the option of the creditor, unless such check has been cleared and credited to the account of the creditor, then it shall be equivalent to a delivery to the creditor of cash equal to that credited to his account.

B. Savings Deposits

1. Servicing deposits outside bank premises.

- banks may be authorized to solicit and accept deposits outside their bank premises subject to conditions.

a. financial condition of the bank is sound and the operations and the quality of management could reasonably assure the safety of the funds which may be entrusted to its deposit collectors or solicitors.

b. proposed area is clearly defined

c. confined within a locality where there are no other banks in operation or the deposit potential of the said locality is still untapped.

d. applicant bank shall institute then following minimum safeguards.

1. all deposit solicitors shall be bonded for at least Php 1000 subject to increase approximate to their daily collections.

2. proper identification cards, worn at all times by the deposit solicitors

3. adequate insurance coverage for the funds in transit.

4. deposit slips in booklet form, prenumbered in triplicate copies and in three colors – original copy to the depositor, second copy for posting reference and third copy to be retained in the booklet.

5. all collections shall be turned over to the cashier at the end of each day with a a Collection Summary Report.

6. depositors shall always be required to accomplish a signature card when opening an account, which shall be used in checking the authenticity of signatures.

7. transactions shall be recorded by the bookkeeper or any ledger clerk on the same day such are accepted and the passbooks of the depositors shall be returned not later than the following business day.

8. at end of each month, advise depositors in writing of their account balance.

9. places of assignment of bank solicitors shall be rotated at least quarterly.

2. Withdrawals

- banks are prohibited from issuing/accepting withdrawal slips or any other similar instruments designed to effect withdrawals of savings deposits without requiring the presentation of passbooks and accomplishment of the necessary withdrawal slips, except for banks authorized by the BSP to adopt the no passbook withdrawal system.

- no law mandating banks to call their clients when their representatives withdraw from their accounts.

C. Negotiable order of Withdrawal (NOW) Accounts

1. Authority to accept NOW accounts

- NOW Accounts are interest bearing deposit accounts that combine the payable on demand feature of checks and investment feature of savings accounts.

- Universal and Commercial bansk may offer NOW accounts without prior approval of BSP

- Thrift, Rural and Commercial banks may offer the same with need of prior BSP approval

2. Rules on Servicing NOW Accounts.

a. prior or simultaneous with opening of a NOW account, bank shall inform depositor of the terms and conditions.

b. bank shall be responsible for the proper identification of its depositors and require 2 specimen signatures and other pertinent information.

c. deposits shall be covered by deposit slips in duplicate duly validated and initialed by the receiving teller, copy furnished to the depositor

d. NOW accounts shall be kept and maintained separately from the regular savings deposits.

e. Blank NOW forms shall be prenumbered and controlled as in the case of unissued blank checks.

f. bank statement shall be sent to each depositor at end of month for confirmation of balances.

g. banks must use the form prescribed by present rules on NOW accounts.

D. Time Deposits

- one the payment of which cannot be legally required within a specified number of days.

1. Term of time deposits

- shall be issued for a specific period or term

2. Special time deposits.

- authority shall automatically be granted to any accredited bank which may participate in the supervised credit program to accept speciakl time deposits from the Agrarian Reform Fund Comission with interest at a lower rate than those allowed on time deposits.

- exempt from the legal reserve requirements

3. Certficates of Time Deposit

a. Negotiable Certificates of Time Deposit

1. Universal and Commercial bank may issue without prior authority from BSP

2. Thrift, Rural and Cooperative Bank may issue with prior approval of BSP.

b. Non-negotiable Certificates of Time Deposit

- all may issue without need of BSP approval.

E. Deposit Substitute Operations (Quasi-banking functions)

- essential elements of quasi banking

1. Borrowing funds for the borrower’s own account.2. Twenty or more lenders at any one time;3. methods of borrowing are issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as acceptances, promissory notes, participations, certificates of assignments or similar instruments with recourse, trust certificates, repurchase agreements, and such other instruments as the Monetary Board may determine; and

4. the purpose of which is relending or purchasing receivables or other obligations.

F. Foreign Currency Deposits

1. Authority to deposit foreign currencies

- any person may deposit foreign currency in Philippine banks designated by the BSP for the purpose of such deposits.

- may deposit foreign currencies which are acceptable as part of the international reserve, except those which are required by the BSP to be surrendered.

2. Authority of Banks to accept foreign currency deposits.

1. accept deposits and foreign currencies in trust; numbered accounts for recording and servicing said deposits are allowed.

2. issue certificates to evidence such deposits3. to discount said certificates. 4. accept said deposits as collateral for loans subject to such rules and regulations5. to pay interest in foreign currency on such deposits

3. Foreign currency cover requirements

- depositary banks shall

a. maintain at all times a 100% foreign currency cover for their liabilities

b. of which cover at least 15% shall be in the form of foreign currency deposit with the BSP.

c. and the balance in the form of foreign currency loans or securities, which shall be of short term maturities and readily marketable,

d. such foreign currency loans may include loans to domestic enterprises which are export oriented or registered with the Board of Investments, subject to limitations imposed by the Monetary Board.

e. Except as the Monetary Board may otherwise prescribe or allow, the foreign currency cover shall be in the same currency as that of the corresponding foreign currency liability.

f. BSP may pay interest on the foreign currency deposit and if requested shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depositary banks.

Depositary banks qualified by the Monetary Board for expanded foreign currency deposit are exempt from the 15% cover requirement stated in (b) and may extend foreign currency loans to any domestic enterprise without the limits prescribed regarding maturity and marketability and such loans shall be eligible for purposes of the 100% foreign currency cover prescribed.

4. withdrawability and transferability of Foreign Currency Deposits.

- no restriction on such except those arising from the contract between the depositor and bank.

G. Anonymous and Numbered Accounts.

- anonymous accounts and those under fictitious names should not be allowed or kept. In case where such is allowed, banks/non-bank financial institutions should ensure that the client is identified in an official or other identifying documents.

Revised Penal Code:

Art. 178. Using fictitious name and concealing true name. — The penalty of arresto mayor and a fine not to exceed 500 pesos shall be imposed upon any person who shall publicly use a fictitious name for the purpose of concealing a crime, evading the execution of a judgment or causing damage.

Any person who conceals his true name and other personal circumstances shall be punished by arresto menor or a fine not to exceed 200 pesos.

Civil Code:

Art. 379. The employment of pen names or stage names is permitted, provided it is done in good faith and there is no injury to third persons. Pen names and stage names cannot be usurped.

Art. 380. Except as provided in the preceding article, no person shall use different names and surnames.

- Please see also CA 142 as amended by RA 6085.

II. Administration of DepositsA. Specimen Signatures, ID Photos

All banking institution are required to set a minimum of three (3) specimen signatures to be simultaneously required from each of their depositors and to update the specimen signatures of their depositors every (5) years or sooner, at the discretion of the bank.

BSP Circular No. 564, Series of 2007 provides for the list of valid identification cards as follows:

i. Clients who engage in a financial transaction with the covered institutions for the first time shall be required to present the original and submit a copy of at least two valid photo-bearing identification documents issued and signed by an official authority. Valid IDs include the following

Passport Driver’s license Professional Regulations Commission (PRC) ID National Bureau of Investigation(NBI) clearance Police clearance Postal ID Voter’s ID Barangay certification Government Service and Insurance System(GSIS) e-Card Social Security System(SSS) card Philhealth card Senior Citizen Card Overseas Workers Welfare Administration (OWWA) ID OFW ID Seaman’s Book Alien Certification of Registration/Immigrant Certificate of Registration Government office ID [e.g. Armed Forces of the Philippines (AFP), Home Development

Mutual Fund (HDMF) IDs] Certification from the National Council for the Welfare of Disable Persons (NCWDP) Department of Social Welfare and Development (DSWD) Certification. Other valid IDs issued by the Government and its instrumentalities

ii. Students who are beneficiaries of an OFW and who are not yet of voting age shall also be required to present two IDs. Other IDs may include birth certificate, library ID, and membership IDs duly issued by any association or organization within the college or university and signed by the pertinent authority issuing the ID.

iii. Banks and non-bank financial institution shall require their clients to submit clear copies of the two valid IDs on a one-time basis only, or at the commencement of a business relationship. They shall require their clients to submit an updated photo and other relevant information whenever the need for it arises.

iv. Financial transactions may include remittances, among others, as falling under the definition of transaction.

B. Minors and Corporations as Depositors1. MinorsMinors are vested with special capacity and power, in their own right and in their own

names, to make savings or time deposits with and withdraw the same as well as receive interest thereon from banking institutions, without the assistance of their parents or guardians, provided the following requirements requisites are met:

1. at least seven years of age,2. able to read and write,3. have sufficient discretion, and4. not otherwise disqualified by any other incapacity.

Parents may nevertheless deposit for their minor children and guardian for their wards.

Deposits in the Thrift Banks Minors in their own rights and in their own names may make deposits and withdraw the

same, and may receive dividends and interest: Provided however, That, if any guardian shall give notice in writing to any thrift bank not to make payments of deposits, dividends, or interest to the minor of whom he is the guardian, then such payment shall be made only to the guardian.

2. CorporationsCorporations may open bank accounts as follows:(i) Incorporation Stage – In case the payment of subscription is in cash, the

Securities and Exchange Commission requires a Bank Certificate of deposit Of paid-up capital notarized in place where signed.

(ii) Post Incorporation – In opening a bank account, the Board of DirectorsIssues a resolution authorizing the signatories and specifying the depositary bank.

C. Time of Payment of Interest on Time Deposits/Deposit Substitutes

Interest or yield on time deposit/deposit substitute may be paid at maturity or upon withdrawal or in advance: Provide, However, The interest or yield paid in advance shall not exceed the interest for one (1) year.

D. Treatment of Matured Time Deposits/Deposit Substitutes. (i) A time deposit not withdraw or renewed on its due date shall be treated as a saving deposit and shall earn interest from maturity to the date of actual withdrawal or renewal at a rate applicable to saving deposits.(ii) A deposit substitute instrument no withdrawn or renewed on its maturity date shall from said date become payable on demand and shall earn an interest or yield from maturity to actual withdrawal or renewal at a rate applicable to a deposit substitute with a maturity of fifteen (15) days.

E. Clearing Cut-off Time

As a general rule, all deposits and withdrawals during regular banking hours shall be credited or debited to deposit liability accounts on the date receipt or payment thereof: Provided, however, That a bank may set a clearing cut-off time for its head office not earlier than two (2)hours before the start of clearing at the BSP, and not earlier than three and one half (3-1/2) hours before the start of clearing branches, agencies and extension office doing business in the Philippines, after which time, deposits received shall be booked as hereinafter provided:

Provided, further, that banks which are located in areas where there are no BSP regional/clearing arrangements may set a clearing cut-off time not earlier that two (2) hours before the start of their local clearing after which time deposits received shall be booked likewise as hereinafter provided.

F. Booking of Cash Deposits.Cash deposits received after the selected clearing cut-off time until the close of the

regular banking hours shall be booked as deposits on the day of receipt.

G. Booking of Non-cash DepositsDeposits checks including “on us” checks , manager’s/cashier’s/treasurer’s check and

demand drafts , which are drawn against the depository bank and all its offices, as well as treasury warrants and postal money orders, received after the selected clearing cut-off time until the close of the regular banking hours, may, at the option of the bank, be booked as deposits on the day of the receipt.

H. Booking of Deposits After Regular Banking Hours.

Deposits, whether cash or non-cash, received after the close of the regular banking hours shall be treated as contingent accounts of the day of receipt and shall be booked as deposits the following banking day.I. Average Daily Balance i. Banks may impose and collect service charges and/or maintenance fees on savings and demands deposits accounts, whether active or dormant, the fall below the required minimum monthly average daily balance (ADB), subject to the following conditions.

a) the imposition of such charges or fees is clearly stated among the terms and conditions of the deposit;b) the rate or amount of such charges of fees is properly disclosed among the terms and conditions of the deposits;c) the deposit account balances have fallen below the required minimum monthly ADB for dormant accounts and for at least two (2) consecutive months for active amounts;d) the required minimum monthly ADB of deposits are properly disclosed among the terms and conditions of the deposits; ande) in the case of charges and fees for dormant accounts or dormancy fee, the period of dormancy shall be properly disclosed among the terms and conditions of the deposit, and that the depositors shall be informed by registered mail with return card on his last known address at least (60) days prior to the imposition of dormancy fee.

ii. Any change in the terms and conditions for the imposition of service charges and/or maintenance fee, e.g., increase in the amount of such charges and fees or increase in the required minimum monthly ADB of deposits, shall take effect only after due notice in the depositor; Provided, That information by regular mail, statement of account messages, electronic mail, courier delivery and/or other alternative modes of communication on the depositor’s last known address at least sixty (60) days prior to implementation shall be considered sufficient notice: Provided, further, That failure of the depositor to manifest or register his objection to the new service charges and maintenance fees or any change in their terms and conditions in writing within thirty (30) days from receipt of written notice of amendment shall be deemed to constitute acceptance of such changes.

iii. Banks shall likewise post said information on their respective websites, automated teller machines (ATM) on screen messages, and in conspicuous places within the bank premises and other places near the bank’s own ATM at least sixty (60) days prior to implementation.

CHAPTER 4: Investments, Loans, and other Functions of Banks

Powers of a Universal Bank

1. The powers authorized to a commercial bank2. The powers of an investment house3. The power to invest in non-allied enterprises

A universal bank may:

- Invest in the equities of allied and non-allied enterprises; allied enterprises may be financial or non-financial

- Own up to 100% of the equity in a thrift bank, rural bank or any allied financial enterprise

- Own up to 100% of the equity in a non-financial allied enterprise

- Invest in equities of non-allied enterprise

- Invest in equities of quasi-banks

Powers of a Commercial Bank

1. The general powers incident to corporations2. All such powers as may be necessary to carry on the business of commercial banking

such as: accepting drafts and issuing letters of credit; discounting and negotiating promissory notes, drafts, bills of exchange, and other evidence of debt; and accepting and creating demand deposits, among others.

* Letters of credit: an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit; it is the engagement of the bank to pay the seller once the draft and the required shipping documents are presented to it.

Generally, there are 3 parties: 1) the buyer, who procures LOC and obliges himself to reimburse the issuing bank; 2) the bank issuing the LOC; and 3) the seller who ships the goods to the buyer.

A commercial bank may:

- Invest only in equities of allied enterprises, which may be financial or non-financial

- Own up to 100% of allied financial enterprises

- Own up to 100% of allied nonfinancial enterprises

Limit on Loans, Credit Accommodations and Guarantees

Single Borrowers Limit: shall not exceed 20% of the net worth of such bank

Except: - as the Monetary Board may otherwise prescribe - deposits of rural banks with government owned and controlled financial institutions

Restriction on Bank Exposure to Directors, Officers, Stockholders, and their Related Interests (DOSRI)

Limits of Loans:

1) The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may be extended by a bank to its DOSRI as well as investments of such bank in the enterprises owned and controlled by its DOSRI

2) The outstanding loans, credit accommodations, and guarantees which a bank may extend to its DOSRI shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank.

Except with the written approval of the majority of all the directors of the bank, excluding the director concerned, no director or officer of any bank shall:

1. directly or indirectly, borrow from such bank 2. become a guarantor, indorser, surety for loans from such bank to others3. in any manner be an obligor or incur any contractual liability to the bank

Directors include those: 1) named as such in the articles of incorporation, 2) duly elected in the meetings of stockholders, 3) elected to fill the vacancies in the board of directors.

Officers include those: 1) whose duties are defined by the by-laws or are generally known to be officers of the bank (i.e. president, evp, senior vp, general manager, secretary, treasurer) and 2) who performs functions of management (i.e. chairman, vice-chairman)

Stockholders are any stockholder in the books of the bank, quasi-bank, or trust entity, whose stockholdings in the same, individually or collectively, amount to ONE PERCENT or more of the total subscribed capital stock of the bank, quasi-bank, or trust entity.

their Related Interests

1) spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of a director, officer or stockholder of a bank

2) Partnership of which DOSRI is a partner3) Co-owner with DOSRI of the property, interest, or right mortgaged, pledged or assigned

to secure the loans or credit accommodations4) Corporations or associations of which DOSRI is also a director or officer5) Corporations, associations or firms of which DOSRI owns at least 20% of the subscribed

capital6) Corporations, associations or firms wholly or majority-owned and controlled by DOSRI

Grant and Purpose of Loans and Other Credit Accommodations (LOCA)

A. Amount and Purpose of Loans Banks shall grant only in amounts and for periods of time essential for the

effective completion of the operation. The purpose shall be stated in the contract between the bank and borrower. If the proceeds were used other than the purpose stated, banks may terminate the

LOCA and demand immediate payment of the obligation.B. Requirements for Grant of Loan

Statement of assets and liabilities Statement of income and expenditures Other requirements prescribed by law to ascertain borrower’s ability to pay

Microfinancing Loans- small loans granted to basic sectors like the poor and low-income households for their microenterprises and small businesses

C. Reason for Stringent Rules in Granting Loans The business of a bank is one affected with public interest, for which reason the

bank should guard against loss due to negligence or bad faith. From the nature of its business, it is expected to ascertain and verify the identities of the persons it transacts business.

D. Unsecured Loans and Other Credit Accommodations The Monetary Board (MB) is authorized to issue such regulations as it may deem

necessary with respect to unsecured LOCA that may be granted by banks.E. Other Security Requirements for Bank Cradits

The MB shall, by regulation, prescribe further security requirements and reduce or, in special cases, increase the established maximum ratio.

F. Authority to Prescribe Terms and Conditions of Loans and Other Credit Accommodations

The MB shall prescribe related terms and conditions for various types of bank LOCA, and regulate the interest imposed on microfinance borrowers.

G. Amortization on Loans and Other Credit Accommodations

> Amortization schedule of bank LOCA shall be adapted to the nature of the operation

> In case of LOCA with maturities of more than 5years, provisions shall be made for periodic amortization payments, but the same must be made annually.

> When the borrowed funds are to be used for purposes which do not initially produce revenues adequate for regular amortization payments therefrom, the bank may permit the initial amortization payment to be deferred until revenues are sufficient for such purpose, but in no case shall the initial amortization date be later than 5years from the date on which the LOCA is granted.

> In case of LOCA to microfinance sectors, the schedule of loan amortization shall take into consideration the project cash flow of the borrower and adopt this into the terms and conditions formulated by banks.

H. Escalation Clause; when allowable

> Parties may agree that the rate of the interest agreed upon be increased in the event that the maximum rate of interest is increased by the MB: provided that there is also a stipulation that the interest would be reduced in the event that the maximum rate of interest is reduced. The same shall take effect on or after the date the maximum interest rate is increased or decreased. The de-escalation clause is an indispensable requisite to the validity and enforceability of an escalation clause in the contract. This rule is to prevent the one-sidedness in favor of the lender.

*Exception to the Rule:

> If the creditor unilaterally and actually decreased the interest charges whenever the maximum rate of interest is reduced by law or the MB.

I. Unilateral Increase of Rates

> The unilateral determination and imposition of increased rates is violative of the principle of mutuality of contracts under Article 1308of the Civil Code. One-sided impositions are void.

J. Iniquitous, Unconscionable and Exorbitant Interest

> Notwithstanding the inexistence of the Usury Law, Iniquitous, Unconscionable and Exorbitant Interests are against public policy; hence, void.

> 5.5% per month, 26-35% per annum, are held to be Iniquitous, Unconscionable and Exorbitant.

K. Effect of Void Interest Rate

> Since it is void, it is as if there was no express contract thereon. In such case, the court will fix a more reasonable and equitable rate. In most cases, the court reduced it to 12% per annum.

L. Prepayment of LOCA

> The borrower may at anytime prior to the maturity date prepay, in whole or in part, the unpaid balance, subject to the terms and conditions of the contract.

M. Development Assistance Incentives

> The Bangko Sentral shall provide for incentives to banks extending loans to finance educational institutions, cooperatives, hospitals and other medical services, socialized or low-cost housing, local government units and other activities with social content.

N. Renewal or Extension of LOCA

> The MB may, by regulation, prescribe the conditions and limitations extension or renewals of LOCA.

O. Banks cannot extend Peso Loans to Non-Residents

> This is to curb speculation in the foreign exchange market and to further reinforce the memorandum that peso deposits should be funded from inward foreign exchange remittance.

P. Provisions for Losses and Write-Offs

> Debts on which interest is past due and unpaid, unless the same are well-secured and in the process of collection shall be considered bad debts. The MB shall fix the amount of reserves for bad debts or doubtful accounts or other contingencies. Writing off LOCA shall be subject to regulations issued by the MB.

TRUTH IN LENDING

DISCLOSURE: Any creditor shall furnish to each other to whom credit is extended, prior to the consummation of the transaction, a statement in writing setting forth the ff.:

1. The cash price or delivered price of the property or service to be acquired;2. The amounts, if any, to be credited as down payment and/or trade-in;3. The difference between the amounts set forth under clauses 1 and 2;4. The charges, individually itemized , which are paid to or be paid by such person in

connection with the transaction but which are not incident to the extension of credit;5. The total amount to be financed;6. The finance charge1 expressed in terms of pesos and centavos;7. The percentage that the finance bears to the total amount to be financed expressed as a

simple annual rate on the outstanding unpaid balance of the obligation.

RATIONALE: Protect users from lack of awareness of the true cost thereof, proceeding from the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates, deduction of interest rates from the loaned amount, and the like.

PENALTY: CIVIL= P100 or in the amount equal to twice the finance charged required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2000 on any credit transaction.

CRIMINAL= FINE by not less P1K or more than P5K or imprisonment for more than 6 months, nor more than one year or both.

NOTE:

*pursuant to TRUTH LENDING ACT, violation shall not affect the validity or enforceability of any contract or transactions.

*SC held that the lender cannot charge those that are not stipulated in the promissory notes (Consolidated Bank and Trust Co. vs. CA)

*no punishment or penalty shall apply to the Philippine Government or agency or any political subdivision thereof.

* Courts have the authority to strike down or modify provisions in the promissory notes that grant lenders unrestrained power to increase interest rates, penalties and other charges at the latter’s sole discretion and without giving prior notice to or securing the borrower’s consent.

FORECLOSURE OF REAL ESTATE MORTGAGE

Sec, 47 of the GBL provides:

(i) In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the cost and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom.

1 Interest, fees, service charges, discounts and such other charges incident to the extension of credit as the board may, by regulation, prescribe.

(ii) However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure, shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law.

NOTE:

* the one year period is to be reckoned from the date of the registration of the sale; action for annulment of the mortgage does not toll the running of the period to redeem the foreclosed property

*Real property may be mortgaged to aliens, both individuals and corporations (R.A. No. 133 as amended by R.A. 4882)

*demand before foreclosure is essential; if not, the loans had not yet become due and demandable

* right of redemption may be extended by agreement

* estoppel- the bank consented to the extension of redemption period if it had time to object but did not.

*exercise of the right of redemption, if exercised after the prescriptive period is not really redemption but a repurchase. DISTINCTION: Redemption is by force of law; the purchaser is bound to accept the redemption. No such obligation imposed in repurchase.

QUESTION: Whether an alien-owned bank can acquire ownership of residential lot by virtue of a deed of transfer as settlement of a debt.

Ans: NO. The purpose of the Constitution is to place and keep in the hands of the people the ownership of private lands in order not to endanger the security of the nation. If leased for 50 years, permissible.

*Offer to repurchase is not a waiver to question the sale

* no right to repurchase if the sale is invalid

* preferred status of bank, not impaired in case the borrower is under rehabilitation

* after consolidation title in the buyer’s name, writ of possession becomes a matter of right and its issuance is merely a ministerial function

Major investments

Banks are reviewed by the Monetary Board (MB) as to their major acquisitions and investments.

A. Ceiling on Investment- The total investment in a real estate and improvements, including bank equipment shall not exceed 50% of combined capital accounts.

What constitutes total investment? 1. All real estate and equipment necessary for the bank’s immediate use in the transaction of its business (i.e. bank premises, land, buildings, real

properties, equipment and other chattels) and 2. Equity investment of the bank in another corporation engaged primarily in real estate

B. Banks can acquire, hold or convey Real estate by way of satisfaction of claims under the following circumstances:

1. Those which shall be mortgaged to it in good faith by way of security of debts.

2. Those which shall be conveyed to it in satisfaction of debts

3. Those which the bank shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it, and those which the bank shall purchase to secure debts due it.

Any real property acquired or held under these circumstances must be disposed of within 5 years or as may be prescribed by the MB. Nevertheless, the bank may continue to hold the property subject to the 50% limitation on total investment.

Other Banking Services.

The bank may also act as: (CFCML)

1. Custodian of valuable objects (i.e. documents, funds)

2. Financial agent (buy and sell shares, evidences of indebtedness, securities)

3. Collector of payments

4. Managing agent, adviser, consultant of investment management upon prior

approval of MB

5. Lessor of safety deposit boxes

The funds, securities, and other effects received by a bank as a depository or as an agent shall be separate from the bank’s assets and liabilities.

The contract for a Safety Deposit Box is a special kind of deposit since the full possession and control over the box is not given to the renter. (Guard key is with the bank; renter’s key is with the renter). Bank is not liable in case loss attributable to joint renters who each has one renter key. Either one could open it without the other. Since it is a contract, duties may be defined by the parties.

The relation created here is that of a bailor and a bailee, the bailment being for hire and mutual benefit. A customer deposited his collection of stamps and the bank placed them at the lowest level of the safety deposit boxes. The bank knew of a flood and the possibility of it seeping through the deposit boxes. Bank failed to give notice of such event. The stamps deposited were damaged. Is the Bank liable? Yes. The bank failed to exercise reasonable care and prudence expected of a good father of a family.

The Bangko Sentral shall have full authority in the regulation of electronic transactions.

Subject to approval of the MB, banks may outsource all information technology systems and processes except for inherent banking functions. XIV. Banks may also outsource other functions as may be approved by the MB. Refer to our latest assignment on the nature of functions which a bank may outsource.

Credit Card Transactions

A. Definition of terms

Credit card- any card, plate or credit device existing for the purpose of obtaining money, property, labor, or services on credit.

Credit card receivables- total outstanding balance of credit card holders.

Minimum amount due- Minimum amount that the credit card holder needs to pay on or before the payment due date for a particular cycle

Default or delinquency- non-payment of any amount less than the minimum amount due within two cycle dates

Acceleration clause-provision giving the right to the bank to demand the obligation in full in case of default or non-payment

B. There must be a risk management system which shall cover the organizational set-up, records and reports, accounting, policies and procedures and internal control.

C. Minimum Requirements, Basks must ascertain the applicant’s credit standing, financial capability (i.e. net take home pay, net monthly receipts of a business of the applicant, net worth or cash flow)

D. Some examples on types of information to be disclosed: Non-finance charges, percentage of interest, payment scheme, methods of determining the balance and the interest, and other fees.

E. Finance charges shall refer to interest charged to the cardholder.

F. Banks shall keep strictly confidential the data on the cardholder or consumer except:

1. With consent

2. release, submission or exchange of customer info with other financial institutions

3. upon order of the court

4. disclosure to collection agencies of the bank

5. disclosure to third party service solely for the assistance and service to the bank

6. disclosure to insurance companies solely for the purpose of preventing loss and fraud

G. Offsets- pursuant to Arts. 1278 to 1290 of the NCC, the use of a person’s credit card will subject his deposits with the bank to offset any amount due and payable on his credit card which have not yet been paid.

H. Unfair Collection Practices

Banks may resort to all reasonable and legally permissible means to collect amounts due them. The following constitute a violation:

1. use of threat of violence or other criminal means

2. use of obscenities, insults, profane language

3. disclosure of the names

4. threat to take any action which cannot be legally taken

5. communicating a credit info which is false

6. any false representation or deceptive means

7. making contact at inconvenient times (10pm-6am)

I. Additional deposits does not increase credit limit.

J. Contracts between banks and cardholders are contracts of adhesion because their terms are prepared by only one party.

One price tag Requirement

Every retailer is required to display a price tag to indicate the price. It must be written clearly. Must include VAT if vatable.

Practices which must be considered relative to the mode of payment.

1. When the consumer pays in cash, he shall pay only the price indicated in the price tag.

2. when through a credit card, only the price in the tag price.

3. when retailer offers the consumer an option to pay in cash, card, or on instalment, the same is allowed provided the payment options shall be disclosed by way of a separate info but not in the price tag

4. Cash price tag and regular price tag on each product or service is not allowed

5. Cash price tag and card price tag is also not allowed

Surcharging by retailers is not allowed.

Extra charge, or additional charge over and above the price tag

Chapter 5: PROHIBITED TRANSACTIONS AND CESSATION OF BANKING BUSINESS

I. Prohibited TransactionsA. Prohibition to Act as Insurer-A bank shall not directly engage in insurance business as the insurer. The term “doing insurance business” or “transacting an insurance business”,shall include:

a. making or promising to make, as insurer, any insurance contract;

b. making or proposing any contract of suretyship as a vocation

c. doing any kind of business, including a reinsurance business

d. doing or proposing to do any business in substance

B. Prohibited Acts1. No director, officer, employee or agent of any bank shall—

a. Make false entries in any bank report or statement or participate in any fraudulent transaction

b. Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank

c. Accept gifts, fees or commissions or any other form of remuneration in connection with the approval of a loan, or other credit accommodation from said bank

d. Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the ban or any bank; or

e. Outsource inherent banking functions. (Sec.55, GBL)

2. No borrower of a bank shall—

a. Fraudulently overvalue property offered as security for a loan, etc

b. Furnish fake or make misrepresentation of material facts

c. Attempt to defraud the said bank

d. Offer any director, officer, employee or agent of a bank, any gift, fee, commission etc in order to influence such persons in approving loan and the like.

3. No examiner, officer or employee of the BSP shall commit any of the foregoing act or aid in the commission of the same.

4. Consistent with the Banks Secrecy Law, no bank shall employ casual or nonregular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits.

C. Prohibition Against Outsourcing Certain Banking Function(Section 55, GBL)

II. Conducting Business In an Unsafe or Unsound MannerIII. Prohibition on Dividend Declaration

-No bank or quasi-bank shall declare dividends greater than its accumulated net profits then on hand, deducting therefrom its losses and bad debts.

Note: (Section 43 of the Corporation Code)

IV. Unauthorized Advertisement or Business RepresentationV. Placement Under Conservatorship

A. (Section 67 of the GBL)B. Grounds for Appointment of Conservator

-Whenever on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board (MB) finds that a bank or a quasi-bank is in a state of:

1. continuing inability, or

2. unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors,

MB shall appoint a conservator as the MB shall deem necessary to:

1. take charge of the assets, liabilities and management thereof;

2. reorganize management;

3. collect all monies and debts due said institution, and

Exercise all powers necessary to restore its viability.

LIQUIDITY- the ability of an asset to be converted into cash quickly and without any price discount. A corporation is liquid if it has ready access to cash.

SOLVENCY- the condition that exists when liabilities amount to less tan total assets, thus providing the ability to pay debts. The test of insolvency is measured by determining whether the realizable assets of a bank are less than its liabilities.

C. Qualifications of Conservator-competent

-konowledgeable in bank operations and management

D. Period of Conservatorship-does not exceed one (1) year

E. RemunerationF.G. Expenses of Conservatorship-shall be borne by the bank or the quasi-bank concerned

H. Terminations of Conservatorship-MB is satisfied that the institution can continue to operate on its own

-MB shall, on the basis of the report of the C or its own findings, determine that the continuance thereof would involve probable loss to its depositors or creditors

I. Final and Executory-actions of MB; except on petition for certiorari

J. Exclusive Power to Appoint-vested exclusively with the MB

K. Not a PreconditionL. Powers of Conservatorship cannot Impair the Obligations of Contracts

VI. Cessation of Banking BusinessA. Voluntary Liquidation-written notice of L shall be sent to MBB before such liquidation is undertaken, and the MB has the right to intervene and take such steps as may be necessary to protect the interests of creditors

-voluntary L may be undertaken by the bank itself through its board of directors, by a trustee appointed by the bank, or by a receiver appointed to the bank upon voluntary dissolution of a bank pursuant to the Corporation Code

-no voluntary dissolution of a bank shall be undertake without prior approval of the MB (accompanied by a L plan, written notice shall be sent to MB before actual L)

B. Receivership and Involuntary Liquidation(Section 69 of the GBL)

1. Grounds for Receivership and Liquidation- if the MB finds that the institution:a. is unable to pay its liablities as they become due in the ordinary course of

businessb. has insufficient realizable assets, as determined by the BSP, to meet its

liabilitiesc. cannot continue in business without involving probable losses to its depositors

or creditrs, ord. has willfully violated a cease and desist order that has become final, involving

acts or transactions which amount to fraud or a dissipation of the assets of the institution.

-For a quasi-bank, any person of recognized competence in banking or finance may be desinated as receiver.

2. Current and Complete Examination Not Necessary-The absence of an examination before the closure of a bank did not mean that there was no basis for the closure order. Needless to say, the decision of the MB and BSP, like any other administrative body, must have something to support itself and its findings of fact must be supported by substantial evidence. But it is clear under R.A. No 7653 that the basis need not arise from an examination as required by the old law. (Rural Bank of San Miguel, Inc. vs. Monetary Board)

3. Procedures-The receiver shall immediately:

a. Gather and take charge of all the assets and liabilities of the institution,b. Administer the same for the benefit of its creditors, andc. Exercise the general powers of a receiver under the Revise Rules of Court,

butd. Shall not, with the exception of the administrative expenditures, pay or

commit any act that will involve the transfer or disposition of any asset of the institution.-The receiver may deposit or place the funds of the institution in non-speculative investments.

-The receiver shall determine ASAP but not later than ninety (90) days from take over, whether the institution may 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.

-Any determination for the resumption of business of the institution shall be subject to the approval of the MB.

4. PROHIBITED ACTS:

Any director or officer of bank declared insolvent or plaed under receivership by the Monetary Board shall not commit any of the ff. acts:

a. Refusing to turn over the bank’s record and assets to the designated receivers;b. Tampering with bank records;c. Appropriating for himself or another party, or destroying or causing misappropriation and

destruction of the bank’s assets;d. Paying out or permitting or causing to be paid out any fund of said bank; ande. Transferring or permitting or causing to be transferred any securities or property of said

bank.5. WHEN INSTITUTION CANNOT BE REHABILITATED

If the receiver determines that the institution cannot be rehabilitated or permitted to resume business, the Monetory Board shall notify in writing the board of directors of its findings and direct the receiver to proceed with the liquidation of the institution.

The receiver shall:1. File ex parte with the proper RTC, and without requirement of prior notice or any

other action, a petition for assistance in the liquidation plan adopted by the Philippine Deposit Insurance Corp. for general application to all closed banks.

a. In case of quasi banks, the liquidation plan shall be adopted by the Monetory Board.

2. Convert the assets of the institutions to money, dispose of 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 Code of the Philippines.

3.6. FINAL AND EXECUTORY

As in the case of conservatorship:

The actions of the Monetary Board shall be final and executor, and may not be restrained or set aside by the court except on 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.

WHO WILL FILE: Stockholders of record representing the majority of the capital stock within 10 days from the receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship.

7. EXCLUSIVE POWER TO APPOINT – vested exclusively with the Monetory Board.

C. CLOSE NOW HEAR LATER SCHEME

The law does not contemplate prior notice and hearing before a bank may be directed to stop operations and placed under receivership.

A previous hearing nor due process demand that the correctness of Monetary Board’s Resolution to stop operation and proceed to liquidation of first adjudged before making the resolution effective.

CLOSE NOW 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.

D. EFFECT OF FILING FOR PETITION FOR REVIEW

The bank’s liquidator is allowed to continue receiving collectibles and receivables or paying off’s creditor’s claims and other transactions pertaining to normal operations of a bank. i.e. prosecution of suits against debtors for collection and for foreclosure of mortgages.

E. REASON BEHIND RECEIVERSHIP AND INVOLUNTARY LIQUIDATION

It is a valid exercise of police power to protect the depositors, creditors, stockholders and the general public. Due to the nature of bank’s transactions and functions, a fiduciary relationship is created between the banking institutions and their depositors.

F. EFFECTS OF RECEIVERSHIP AND LIQUIDATION1. Retention of Juridical Personality- which can sue and be sued through its liquidator.LIMITATION: The prosecution and action must be done through the liquidator.

2. Not liable to Pay interest- a banking institution has been declared insolvent and subsequently closed by the BSP cannot be held liable to pay interest on bank deposits which accrued during the period when bank is actually closed and non-operational.

3. Assets are deemed under Custodia Legis- and shall, from the moment of such receivership or liquidation, be exempt from any order or garnishment, levy, attachment or execution.

4. Stay of execution- is warranted if a bank was placed under receivership. The assets of the insolvent banking institution are held in trust for equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise.

5. Restriction of Bank’s Capacity to act- Restriction in relation to its property.- The bank would not be able to do NEW BUSINESS, i.e. to grant new loans or to accept new deposits.However, the receiver of the bank is obliged to collect debts owing to the bank which debts form part of the assets of the bank.

6. Exclusive Jurisdiction of Liquidation Court- pertains only to the adjudication of claims against the bank. It does not cover the reverse situation where it is the bank which files a claim against another person or legal entity.

VII. DISPOSITION AND DISTRIBUTION OF ASSETSA. Distribution of Assets

In case of liquidation of a bank or quasi-bank, after payment of the cost of proceedings, including a reasonable expenses and fees of the receiver to be allowed by the court, the receiver shall pay 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.

B. DISPOSITION OF REVENUES AND EARNINGSAll revenues and earnings realized by the receiver in winding up the affairs and administering the assets of any bank or quasi-bank shall be used to pay the costs, expenses mentioned in ITEM A above salaries of such personnel whose employment is rendered necessary in the discharge of the liquidation together with the other additional expenses caused by.

C. DISPOSITION OF BANKING FRANCHISEThe Bangko Sentral may, if public interest so requires, award to an institution, upon such terms and conditions as the Monetary Board may approve, the banking franchise of a bank under liquidation to operate in the area where said bank or its branches were previously operating. Provided, that whatever proceeds may be realized from such award shall be subject to the appropriate exclusive disposition of the Monetary Board.

D. LIABILITIESThe bank is bound by the acts, or failure to act of the receiver. At the same time, the receiver is liable to the bank for the culpable or negligent failure to collect the assets of such bank and to safeguard said assets.

Chapter 6 Foreign Banks and Trust Operations

I. Foreign BanksA. Transacting Business in the Philippines

The entry of foreign banks in the Philippines though the establishment of branches shall be governed by the provisions of the Foreign Banks Liberalization Act.

The conduct of offshore banking business in the Philippines shall be governed by the provisions of the Offshore Banking System Decree.

Offshore Banking refers to the conduct of banking transactions in foreign currencies involving the receipt of funds from external sources and the utilization of such funds.

Offshore Banking Unit means a branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Bangko Sentral ng Pilipinas to transact offshore banking business in the Philippines.

*Foreign corporations doing business in the Philippines are required to obtain a license as provided in sec. 133 of the Corporation Code.

B. Acquisition of Voting Stock in a Domestic BankForeign Banks are allowed entry in the Philippines subject to the following rules:

a) within 7 years from the effectivity of the GBL and subject to the guidelines issued pursuant to the Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to acquire up to 100% of the voting stock of only 1 bank organized under the laws of the Philippines.

b) Within the same period, the Monetary Board may authorized any foreign bank, which prior to the efffectivity of GBL availed itself to the privilege to acquire up to 60% if the voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to further acquire voting shares of such bank to the extent necessary for it to own 100% of the voting stock thereof.

c) In the exercise of this authority, the Monetary Board shall adopt measures as may be necessary to ensure that at all times the control of 70% of the resources or assets of the entire banking system is held by banks which are at least majority-owned by Filipinos.

d) Any of the foregoing right, privilege, or incentive granted to a foreign bank shall be equally enjoyed by and extended under the same conditions to banks organized under the laws of the Philippines.

C. Local Branches of Foreign Banks

In the case of a foreign bank which has more than 1 branch in the Philippines, all such branches shall be treated as 1 unit for the purpose of the GBL.

D. Head Office GuaranteeHead office shall fully guarantee the prompt payment of all liabilities of its Philippine Branch

Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall have preferential rights to the assets of such branch in accordance with existing laws.

E. Summons and Legal Process

Courts obtain jurisdiction over foreign banks as follows:

a) Summons and legal process served upon the Philippine agent or head of any foreign bank designated to accept service thereof shall give jurisdiction to the courts over such bank, and service of notices on such agent or head shall be as binding upon the bank which he represents.

b) Should the authority of such agent or head to accept service of summons and legal processes for the bank or notice to it be revoked, or should such agent or head become mentally incompetent or otherwise unable to accept the service while exercising such authority, it shall be the duty of the bank to name and designate promptly another agent or head upon whom service of summons and processes in legal proceedings against the bank and of notices affecting the bank may be made, and to file with the Securities and Exchange Commission a duly authenticated nomination of such agent.

c) In the absence of the agent or head or should there be no person authorized by the bank upon whom service of summons, processes and all legal notices may be made, service of summons, processes and legal notices may be made upon the Bangko Sentral Deputy Governor In-Charge of the Supervising and examining departments and such service shall be as effective as if made upon the bank or its duly authorized agent or head.

d) In case of service for the bank upon the Bangko Sentral Deputy Governor In-charge of the supervising and examining departments, the said Deputy Governor shall register and transmit by mail to the president or the secretary of the bank at its head or principal office a copy, duly certified by him, of the summons, process, or notice.

e) The sending of such copy of the summons, processes, or notice shall be a necessary part of the services and shall complete the service. The registry receipt of mailing shall be prima facie evidence of the transmission of the summons, process, or notice.

F. Laws Applicable

In all matters not specifically covered by special provisions applicable only to a foreign bank or its branches and other offices in the Philippines, any foreign bank licensed to do business in the Philippines shall be bound by the provisions of GBL, all other laws, rules and regulations applicable to banks organized under the laws of the Philippines of the same class, except those that provide for the creation, formation, organization, or dissolution of corporations or for the fixing of the relations, liabilities, responsibilities, or duties of stockholders, members, directors, or officers of corporations to each other or to the corporation.

G. Revocation of License of a Foreign Bank

The Monetary Board may revoke the license to transact business in the Philippines of any foreign bank, if it finds that the foreign bank is insolvent or in imminent danger thereof or that its continuance in business will involve palpable loss to those transacting business with it.

After the revocation of such license, it shall be unlawful for any such foreign bank to transact business in the Philippines unless its license is renewed or reissued.

II. Entry of Foreign BanksRA No. 77 21- An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and For Other Purposes

Sec.1 Declaration of the Policy- …… The Philippine banking and financial system is hereby liberalized to create a more competitive environment and encourage greater foreign participation through increase in ownership in domestic banks and the entry of new foreign bank branches.

Sec. 2 Modes of Entry- a) by acquiring, purchasing or owning up to 60% of the voting stock of an existing bank; b) by investing in up to 60% of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or c) by establishing branches with full banking authority: provided, that a foreign bank may avail itself of only one (1) mode of entry. Further, that a foreign bank or a Philippine corporation may own up to a 60% of the voting stock of only one (1) domestic bank or new banking subsidiary.

Sec.3 guidelines for approval.- a) shall ensure geographic representation and complementation; b) consider strategic trade and investment relationships between the Philippines and the country of incorporation of the foreign bank; c) study the demonstrated

capacity, global reputation for financial innovations and stability in a competitive environment of the applicant; d) see to it that reciprocity rights are enjoyed by Philippine banks in the applicant’s country; e) consider willingess to fully share their technology.

Only those among the top 150 foreign banks in the world or the top five (5) banks in their country of origin as of the date of application shall be allowed entry in accordance with sec.2 b and c hereof.

Sec. 4 Capital requirements- a) for locally incorporated subsidiaries- minimum capital required shall be equal to that prescribed by the Monetary Board for domestic banks of the same category.

b)For foreign bank branches- capital of NOT LESS than the U.S. Dollar equivalent of 210 Million pesos at the exchange rate on the date of the effectivity of this act. The foreign bank shall be entitled to three more branches with permanently assigned capital of the U.S. Dollar equivalent of 35 Million Pesos per additional branch.

Sec. 5- Head office guarantee- *mentioned earlier

Sec. 6- Entrants under section 2- Foreign banks shall be allowed entry under sec.2 c, within 5 years from the effectivity of the act. During this period, 6 new foreign banks shall be allowed entry under sec.2 c upon the approval of the Monetary Board. An additional 4 foreign banks may be allowed entry on recommendation of the Monetary Board, subject to compliance with the previous sections of this act, upon approval by the President as the national interest may require.

Sec.7- Non-Filipino citizens may become members of the Board of Directors of a bank to the extent of the foreign participation in the equity of said bank.

Note: for the full text of the Act, see book pages 271-276

III. Trust OperationA. Authority to engage in Trust Business

Trust Business refers to any activity resulting from a trustee-trustee relationship (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 others called beneficiaries.

The cardinal principle common to all trust and other fiduciary relationships is fidelity.

Under the Civil Code on trusts:

Trustor- a person who establishes a trust

Trustee- one in whom confidence is reposed as regards property for the benefit of another person

Beneficiary- the person for whose benefit the trust has been created

Trusts may be express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts are created by operation of law.

B. Conduct of trust business.The following shall be observed in the conduct of trust business:

a) a trust entity shall administer the funds or property under its custody with the diligence that a prudent man would exercise in the conduct of an enterprise of a like character and with similar aims.

b) No trust entity shall, for the account of the trustor or the beneficiary of the trust, purchase or acquire property from, or sell, transfer, assign, or lend money or property to, or purchase debt instruments of, any of the departments, directors, officers, stockholders, or employees of the trust entity, relatives within the first degree of consanguinity or affinity, unless the transaction is specifically authorized by the trustor and the relationship of the trustee and the other party involved is fully disclosed to the trustor or beneficiary.

C. Registration of Articles of Incorporation and By-Laws of a Trust Entity

The SEC shall not register the articles of incorporation and by-laws or any amendment thereto, of any trust entity, unless accompanied by a certificate of authority issued by the Bangko Sentral.

A) no articles…. Shall be approved by the SEC unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law.

B) The SEC shall not accept for filing the by-laws or any amendment thereto... unless accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law.

D. Minimum Capitalization

A trust entity before engaging in such business must comply with the minimum paid-in capital requirement determined by the Monetary Board.

E. Powers of a Trust Entity (in addition the general powers incident to corporations)

1) act as trustee on any mortgage or bond issued by any instrumentality and to accept and execute any trust consistent with law

2) act under the order or appointment of any court as guardian, receiver, trustee or depositary of the estate of any minor or other incompetent person, and as receiver and depositary of any moneys and of properties brought into court by parties

3) acts as the executor of any will when it is named the executor thereof4) acts as administrator of the estate of any deceased person5) accept and execute any trust for the holding, management, and administration of any

estate, real or personal, and the rents, issues and profits thereof; and6) establish and manage common trust funds

F. Transactions Requiring Prior Authority

A trustee or fiduciary shall not undertake such transactions, unless prior to its execution, such transaction has been fully disclosed and authorized by the client, beneficiary, party-in-interest, court of competent jurisdiction or other competent authority:

1) lend, sell transfer or assign money or property to any of the departments, directors, officers, stockholders or employees of the trustee or fiduciary or relatives within the 1 st

degree of consanguinity or affinity, or the related interest of such directors, officers and

stockholders; or to any corporation where the trustee owns at least 50% of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity;

2) purchase or acquire property or debt instruments from any of the departments, directors, officers. . . xxx (same in #1)

3) invest in equities of, or in securities underwritten by the trustee or fiduciary or a corporation in which the trustee owns at least 50% of the subscribed capital or voting stock

4) Sell, transfer, assign or lend money or property from one trust or fiduciary account except where the investment is allowed by the Monetary Board.

G. Deposit for the Faithful Performance of Trust Duties

1) Before transacting trust business, every trust entity shall deposit with BSP as security for the faithful performance of its trust duties, cash or securities approved by the Monetary Board in an amount of P500,000.00 or such higher amount as may be fixed by the Monetary Board

2) The Monetary Board shall require every trust entity to increase the amount of its cash/securities on deposit with BSP whenever necessary

3) The paid-in capital and surplus of such entity must be at least equal to the amount required to be deposited with the BSP in accordance with the above provisions. Should the capital and surplus fall below said amount, the Board may limit or prohibit the distribution of net profits by such bank and may require that part or all of the profits be used to increase the capital accounts until the minimum requirement has been met.

4) A trust entity so long as it shall continue to be solvent and comply with laws or regulations shall have the right to collect the interest earned on such securities deposited with the BSP and to exchange the securities for others.

5) All claims arising out of the trust business of a trust entity shall have priority over all other claims as regards the cash or securities deposited as above provided.IV. Bond of Certain Persons for the Faithful Performance of Duties

A. Bond Requirements 1) Before an executor, administrator, guardian, trustee, receiver, depositary (. . .)

appointed by the court enters upon the execution of his duties, he shall, upon order of the court, file a bond in such sum, as the court may direct.

2) Upon the application of any executor, administrator, . . . the court may, after notice and hearing, order that the subject matter of the trust or any part thereof be deposited with a trust entity

3) Upon presentation of proof to the court that the subject matter of the trust has been deposited, the court may order that the bond given be reduced to such sums as it may deem proper.

4) The reduced bond shall be sufficient to secure adequately the proper administration and care of any property remaining under the control of such persons and the proper accounting for such property.

B. Exemption of Trust Entity from the Bond RequirementNo bond or other security shall be required by the court from a trust entity as court

appointed trustee, executor, administrator . . . however, the court may require the trust entity to post a bond or other security for the protection of funds or property confided to such entity

V. Operations of Trust Entity

A. Separation of Trust Business from General BusinessThe trust business and all funds, properties or securities received by any trust entity as executor, administrator . . . shall be kept SEPARATE and DISTINCT from the

general business including all other funds, properties and assets of such trust entity. The accounts shall likewise be separate.

All moneys, properties or securities received by such bank as wells as investment of each trust shall be kept physically separate and distinct from the assets of its other business and shall be under the joint custody of at least 2 persons designated by the board of directors.

B. Investment Limitations of a Trust EntityUnless otherwise directed by the instrument creating the trust, the funds and other assets acquired by a trust entity shall be limited to loans or investments as may be prescribed by law, the Monetary Board or any court of competent jurisdiction.

Assets received in trust or in other fiduciary capacity shall be administered in accordance with the terms of the instrument creating the trust. Loans and investments of the fund shall be limited to:

1) Evidences of indebtedness of the Phils. And of the BSP and other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic

2) Loans fully guaranteed by the Republic as to the payment of the principal and interest

3) Loans fully secured by a hold-out on, assignment or pledge of deposits maintained either with the bank proper or other banks, or of deposit substitutes of the bank, or of mortgage, chattel mort. Issued by the trustee

4) Loans fully secured by real estate or chattels in accordance with pertinent lawsRequired specific directives:

1) The transaction to be entered into2) The borrower’s name3) Amount involved4) Collateral securities, if any.

C. Real Estate Acquired by a Trust EntitySuch real estate shall be governed by the provisions of GBL, under the following circumstances:

1) Such as shall be mortgaged to it in good faith by way of security for debts;2) Such as shall be conveyed to it in satisfaction of debts previously contracted in

the course of its dealings; or3) Such as its shall purchase at sales under judgments, decrees, mortgages or trust

deeds held by it and such as it shall purchase to secure debts due it. Any realty shall be disposed of by the bank within a period of 5 years or as may be

prescribed by the Monetary Board, PROVIDED that the bank continue to hold the property for its own use subject to the ff limitations:1) The total investment in such real estate and improvements shall not exceed 50% of

combined capital accts2) The equity investment of a bank in another corporation shall be considered as part of

the total investment in real estateD. Investment of Non-trust Funds

…shall be governed by GBL and other applicable laws

E. Sanctions and Penalties

Trust entity or any of its officers found to have willfully violated the provisions of GBL shall be subject to sanctions and penalties

F. Exemption of Trust Assets from ClaimsNo assets held by a trust entity in its capacity as trustee shall be subject to any claims other than those of the parties interested in the specific trusts. Property held by the insolvent debtor as trustee shall be excluded from the insolvency proceedings.

G. Establishment of Branches of a Trust EntityOrdinary business -> shall be transacted at the place of business specified in the articles of incorporation

Trust entity shall be responsible for all business conducted in such branches as though such business had all been conducted in the head office.

H. Advertisement of ServicesTrust entities shall advertise their services in a dignified manner and enter such business only when demand for such service is evident, when specially equipped to render such service and upon full appreciation of the responsibilities involved.

I. Money of GovernmentBanks may not receive or hold as trustee, agent, administrator, . . . any fund or money from the Government and its entities, PROVIDED that government-owned banks may receive or hold as trustee the following:

1) Funds of LGUS which are expected to be available for investment purposes for a relatively long period of time

2) Funds of government and government and government entities which are authorized by special laws to be placed in trust.

CHAPTER 7 – The Bangko Sentral ng Pilipinas

I. Creation, responsibilities and corporate powers of the BSP

A. Declared Policy of the StateThe State shall maintain a central monetary authority that shall function and operate as an

independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit.

In line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy.

B. Creation of the BSP: mandated by Sec. 20 Art. 12, !987 Consitution

BSP - an independent central monetary authority, which shall be a body corporate (Sec. 2, NCBA).

Capital Requirements: Fifty Billion Pesos, fully subscribed by the Government of the Philippines.

Ten Billion of which shall be fully paid for by the Government upon the effectivity of this Act and the balance to be paid for within a period of two (2) years from the effectivity of this Act in such manner and form as the Government, through the Secretary of Finance and Secretary of Budget and Management, may thereafter determine

Principal Place of Business: Metro Manila, but may maintain branches, agencies and correspondents in such other places as the proper conduct of its business may require.(Sec. 4, NCBA).

C. Responsibility and Primary Objective of the BSP

1. to provide policy directions in the areas of money, banking, and credit2. to supervise over the operations of banks3. exercise such regulatory powers as provided in this Act and other pertinent laws over the

a. operations of finance companies and non-bank financial institutions performing quasi-banking functions; and

b. institutions performing similar function4. to maintain price ability conducive to a balanced and sustainable growth of the economy,

which is the primary objective of the Bangko Sentral.5. to promote and maintain monetary stability and the convertibility of the peso.

Jurisprudence: Busuego v. CA

The Supreme Court ruled that “It must be remembered that the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the government agency charged with the responsibility of administering the monetary, banking and credit system of the country and is granted the power of supervision and examination over banks and non-bank financial institutions performing quasi-banking functions of which savings and loan associations…”

D. Corporate Powers of the BSP

Bangko Sentral is hereby authorized to: SCP-SPAL

1. adopt, alter, and use a corporate seal which shall be judicially noticed;2. enter into contracts; 3. lease or own real and personal property, and to sell or otherwise dispose of the

same; 4. sue and be sued; 5. do and perform any and all things that may be necessary or proper to carry out the

purposes of this Act. 6. acquire and hold such assets and incur such liabilities in connection with its

operations authorized by the provisions of this Act, or as are essential to the proper conduct of such operations.

7. compromise, condone or release, in whole or in part, any claim of or settled liability to the Bangko Sentral, regardless of the amount involved, under such terms and conditions as may be prescribed by the Monetary Board to protect the interests of the Bangko Sentral.

Jurisprudence: Power to prosecute:

CENTRAL BANK; NO POWER TO PROSECUTE VIOLATORS OF BANKING LAWS. — Although the Central Bank and its respondent officials may have the duty under the Central Bank Act and the General Banking Act to cause the prosecution of those alleged violators, yet We find nothing in said laws that imposes a clear, specific duty on the former to do the actual prosecution of the latter. The Central Bank is a government corporation created principally to administer the monetary and banking system of the Republic, not a prosecution agency like the fiscal's office. Being an artificial person, the Central Bank is limited to its statutory powers and the nearest power to which prosecution of violators of banking laws may be attributed is its power to sue and be sued. But this corporate power of litigation evidently refers to civil cases only.

Moreover, it does not appear from the law that only the Central Bank or its respondent officials can cause the prosecution of alleged violations of banking laws. Said violations constitute a public offense, the prosecution of which is a matter of public interest and hence, anyone — even private individuals — can denounce such violations before the prosecuting authorities. Since Perez himself could cause the filing of criminal complaints against those allegedly involved in the anomalous loans, if any, then he has a plain, adequate and speedy remedy in the ordinary course of law, which makes mandamus against respondents improper . (Perez v. Monetary Board).

BSP v. Rural Bank of San Miguel

- BSP and members of the Monetary Board should not be impleaded as parties to a case in compliance with section 6, rule 43 of the 1997 rules of procedure.

Estoppel

Jurisprudence: The Central Bank of the Philippines is duly committed to maintain the stability of the country's foreign exchange reserve position. Underlying this commitment, however, is the government's strict and faithful adherence to basic principles of fairness and decency under

the Bill of Rights. Hence, CB circulars/memoranda must be implemented in a manner that would not only safeguard or harmonize them with government programs designed to uplift or promote the country's level of production and employment, but at the same time avoid irreparable or grave prejudice to participants of said program.

Thus, banks/banking institutions already faithfully complied with the BSP’s directives, BSP is estopped from enforcing circulars that would deny banks or banking institution of their rights . (Central Bank of the Philippines v. IAC)

II. Authority of the BSP

A. Supervisory powers of the BSP* Includes: (REO-ISC)

Issuance of Rules of conduct Conduct Examination to determine compliance with laws and regulations Overseeing to ascertain that laws and regulations are complied with Regular Investigation (not oftener than once a year) Inquiring into the Solvency and liquidity of the institution Enforcing prompt Corrective action.

* Scope:

Quasi-banks Trust entities, and Other financial institutions which under special laws are subject to BSP

supervision.

B. The BSP shall phase out and transfer its supervising and regulatory powers over building and loan associations to the Home Insurance and Guaranty Corporation which shall assume the same.

C. Policy Directions; Ratios, Ceilings and Limitations* Shall be provided by the BSP in the areas of:

Money Banking Credit

* Monetary board may:

Prescribe ratios, ceilings, limitations or other forms of regulation on the diff. types of accounts and practices of banks and quasi-banks which shall, to the extent feasible, conform to the internationally accepted standards, including those of the Bank for International Settlements.

Exempt particular categories of transactions from such rations, ceilings and limitations, but not limited to exceptional cases or to enable a bank or quasi-bank under rehabilitation or during a merger or consolidation to

continue in business with safety to its creditors, depositors and the general public.

III. The Monetary Board

- The body through which the powers and functions of the BSP are exercised.

A. Composition

Seven (7) members appointed by the President of the Philippines for a term of 6 yrs consisted of:

1. A Chairman: Governor of the BSP;2. A member of the cabinet to be designated by the President of the Philippines;

and3. Five (5) members who shall come from the private sector, all of whom shall

serve fulltime.

B. Vacancies- any vacancy in the monetary board created by death, resignation, or removal of any member shall be filled by the appointment of a new member to complete the unexpired period of the term of the member concerned.

C. Qualifications of members of the monetary board: (CA-CIPE)1. Natural born Citizens of the Philippines;2. at least 35 years of age, with the exception of the Governor who

should at least be 40 yrs of age;3. of good moral character;4. of unquestionable integrity;5. of known probity and patriotism;6. with recognized competence in social and economic disciplines.

D. Disqualifications of Monetary Board Members: (DDE-CSE)1. Disqualifications imposed by RA No. 6713;2. 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 BSP(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).

3. The members of the Monetary Board coming from the private sector shall not hold any other public office or public employment during their tenure;

4. No person shall be a member of the Monetary Board, if he has been connected directly with the multilateral banking or financial institution;

5. has a substantial interest in any private bank in the Phils, within one year prior to his appointment;

6. employed in any such institution within 2 yrs after the expiration of his term except when he serves as an official representative of the Philippine Government to such institution.

E. Grounds for the removal of Monetary Board Members (SIGN)- The President may remove any member of the Monetary Board for any of the

following reasons:

1. If the member is subsequently disqualified under the provisions of Section 8 of this Act; (this is a typo error. It should refer to Section 9 of the NCBA)

2. If he is physically or mentally incapacitated that he cannot properly discharge his duties and responsibilities and such incapacity has lasted for more than six (6) months; or

3. If the member is guilty of acts or operations which are of fraudulent or illegal character or which are manifestly opposed to the aims and interests of the Bangko Sentral; or

4. If the member no longer possesses the qualifications specified in Section 8 of this Act.

F. Meetings, Quorum, Decisions and Proceedings of the Monetary Board1. The Monetary Board shall meet at least once a week. The Board may

be called to a meeting by the Governor of the Bangko Sentral or by two (2) other members of the Board.

2. The presence of four (4) members shall constitute a quorum: Provided, That in all cases the Governor or his duly designated alternate shall be among the four (4).

3. Unless otherwise provided in this Act, all decisions of the Monetary Board shall require the concurrence of at least four (4) members.

F. Meetings, Quorum, Decisions and Proceedings in Monetary Board

a.) meet at least once a week, may be called by its governor or 2 other members

b.) 4 members shall constitute quorum provided that in all cases the governor or designated alternative shall be among the 4

c.) unless otherwise provided in NCBA, ALL DECISIONS OF THE Monetary Board shall require concurrence of at least 4 members

Note: in the following cases, vote of at least 5 members is required:

1. Sec. 61, GBL- PUBLICATION OF FINANCIAL STATEMENT (every bank, quasi-bank or trust entity shall publish a statement of its financial conditions, including subsidiaries and affiliates xxx; the Bangko Sentral may prescribe the newspaper shall be published; the monetary board may also allow posting of the financial statement in public places in lieu of publication; banks shall make available also in setting the audited financial statement and relevant information that will inform the public of the true financial condition of the bank; and in periods of national or local emergency, which directly threaten the monetary board, by a vote of at least 5 members may allow the bank to defer financial condition required therein)

2. Sec. 28, NCBA- EXAMINATION AND FEES (the supervising and examining department head, personally or by deputy, shall examine the books of every banking institution once in every 12 months, and at such other times as mat be prescribed by the monetary board by an affirmative vote of 5 members provided that there shall be an interval of 12 months between annual examination)

3. Sec. 17, NCBA- EMERGENCY RESTRICTIONS ON EXCHANGE OPERATIONS (in order to achieve primary objectives of the Bangko Sentral or protect international reserves of the BS in the imminence of or during an exchange crisis take constructive measures to combat the crisis with the concurrence of 5 members, may temporarily restrict or suspend sales of exchange; provided that foreign currency deposits made under RA 6426 shall be exempted from this requirement)

4. Sec. 84, NCBA- EMERGENCY LOANS AND ADVANCES (IN PERIODS OF LOCAL AND NATIONAL EMERGENCY OR IMMINENT FINANCIAL PANIC WHICH DIRECTLY THREATEN BANKING STABILITY, THE MONETARY BOARD may authorize Banko Sentral to grant extraordinary loans or advances to banking institutions secured by assets provided that debtor institution shall not except upon prior authorization of the Board, expand the total volume of its loans. The MB may also authorize the banko sentral to grant emergency loans for purposes os assiting the bank with its financial condition brought by unforeseen events and ascertain that such bank is not insolventand has assets to secure advances. The loan advanced shall not exceed 50% of total deposits and shall be disbursed in 2 or more trances)

G. Deputy Governors may attend Meetings of the Monetary Board with right to be heard

H. Salaries of the Governor and members of the Monetary Board SHALL BE FIXED BY THE President of the Philippines at a sum commensurate to the importance and responsibility attached to the position

I. Personal or Pecuniary Interest (DR-PR)- . Personal or pecuniary interest by any member of the Monetary Board shall disclose his interest to the Board and shall retire from the meeting when the matter is taken up. This is in order to uphold the time-honored principle of public office as a public trust.

In addition to the requirements of RA No. 6713, any member of the Monetary Board with personal or pecuniary interest in any matter in the agenda of the Monetary Board:

a) shall disclose his in interest to the Board; andb) shall retire from the meeting when the matter is taken upc) the decision taken on the matter shall be made public

d) the minutes shall reflect the disclosure made and the retirement of the member concerned from the meetings

J. Scope of Authority of the Monetary Board (IDEA-I)

a) issue rules and regulations (the rules and regulations issued shall be reported to the President and the Congress within fifteen (15) days from the date of their issuance)

b) direct management, operations, and administration of the Bangko Sentral, reorganize its personnel, and issue such rules and regulations as it may deem necessary or convenient for this purpose

c) establish human resource system (such system shall aim to establish professionalism and excellence at all levels of the Bangko Sentral in accordance with sound principles of management)

(i) a compensation structure based on job evaluation studies and wage surveys and subject to the Board’s approval shall be instituted as an integral component of the Bangko Sentral’s human resources development program.

compensation and wage structure of employees whose positions fall under salary grade 19 and below shall be in accordance with the rates prescribed under RA No. 6758 (Compensation and Position Classification Act of 1989).

(ii) Governor– on its recommendation, can appoint, fix the remunerations and other emoluments, and remover personnel of the Bangko Sentral, subject to pertinent civil service laws

Monetray Board

– shall have exclusive and final authority to promote, transfer, assign, or reassign personnel of the Bangko Sentral and these personnel actions are deemed made in the interest of the service not disciplinary

– may delegate such authority to the Governor under such guidelines as it may determine

d) adopt an annual budget for and authorize such expenditures by the BangkoSentral

e) indemnify its members and other officials of the Bangko Sentral against allcosts and expenses reasonably incurred by such person in connection with any civil or criminal action, suits, or proceedings to which he may be, or is, made a party by reason of the performance of his functions or duties, unless he is finally adjudged in such action or proceeding to be liable for negligence or misconduct

(i) in the event of a settlement or compromise, indemnification shall be provided only in connection with such matters covered by the settlement as to which the Bangko Sentral is advised by external counsel that the person to be indemnified did not commit any negligence or misconduct.

(ii) The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the Bangko Sentral in advance of the final

disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the member, officer, or employee to repay the amount advanced should it ultimately be determined by the Monetary Board that he

Note: The Supreme Court in the case Central Bank Employees Association, Inc. v. Bangko Sentral ng Pilipinas and the Executive Secretary declared the foregoing provision [particularly item (c) unconstitutional] unconstitutional for being violative of the equal protection clause. (see page 304)

K. Responsibility of Members of the Monetary Board, Official, Examiners, and

Employees of the Bangko Sentral

(i) if anyone of them willfully violate NCBA or who is guilty of negligence, abuse, or acts of malfeasance or misfeasance of fails 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:a) violationb) negligencec) abused) malfeasance e) misfeasance; orf) failure to exercise extraordinary diligence (VNAMMFe)

(ii) similar responsibility shall apply to members, officers, and employees of the Bangko Sentral for:

(a) the disclosure of any information of a confidential nature, or any information on the discussion or resolution 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

(b) the use of such information for personal gain ir the detriment of the Government, the bangko Sentral of third parties

*any data or information required to be submitted to the President and/or the congress, or to be published under the provisions of the NCBA shall not be considered confidential

IV. The Governor and Deputy Governors of the Bangko Sentral

A. Powers and Duties of the Governor (CEO PEDARE)

Governor

- chief exec officer of the BSP- principal representative of the MB and the BSP

Powers and Duties:

1. prepare the agenda for the meetings of the MB and submit policies and measures which he believes are necessary to carry out the purposes and provisions of the NBCA;

2. execute and administer the policies and measures approved by the MB;3. direct and supervise the operations and internal administration of the Bangko Sentral;4. appoint and fix the remunerations and other emoluments of personnel below the rank of a

department head in accordance with the position and compensation plans approved by the MB

5. render opinions, decisions, or rulings, which shall be final and executory until reversed or modified by the MB, on matters regarding application/enforcement of laws pertaining to institutions supervised by the BSP and laws pertaining to quasi banks

6. exercise such powers as may be vested in him by the MB.

Powers of the Governor as Representative of Monetary Board and BSP

1. represent the MB and BSP in all dealings with other offices, agencies and instrumentalities of the Gov’t and all other persons or entities, public or private, domestic, foreign or international;

2. 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

3. represent the BS, personally or through counsel, as authorized by the MB, in any legal proceedings, action or specialized legal studies

4. delegate his power to represent the BS as provided in 1-3 to other officers upon his own responsibility

SEC 18, NCBA – A permanent negotiator may take the place of the Governor in preliminary discussions with any multilateral banking or financial institutions on any negotiations for the Gov’t within or outside the Philippines in order to preserve the integrity and prestige of his office.

Emergencies

In case of emergencies

- and it is sufficient to call for a meeting of the MB, the Gov of the BS + concurrence of 2 other Monetary Board members = decide on any matter or take any action within the authority of the Board.

- The Gov shall submit a report to the Pres and Congress within 72 hours after the action has been taken.

- At the soonest possible time, the Gov shall call a meeting of the MB to submit his action for ratification.

Limitations on Outside Interests of the Gov and the Full-time Members of the Board

- limit their professional activities to those pertaining directly to their positions with the BS.

- GR: accept no other employment, public or private, remunerated or ad horem - EXP: positions in

o Eleemosynaryo Civic orgo Religious orgo Cultural org o Designation of the Pres, Gov, o Representation of a fulltime member of the interest of the Govt or other govt

agencies in matters connected with the economy/financial system of the country

Deputy Governors

- not more than three- DUTY: assigned by the Gov and board- DEPUTY GOV – designated by the Gov shall take the place of the latter in his duties and

responsibilities when the same is absent

V. Operations of the Bangko Sentral

Research and Statistics of the BS

BS

- prepare data o balance of Philippine paymentso statistics on the monthly movement of the monetary aggregateso prices and other statistical series and economic studies useful for the formulation

and analysis of monetary, banking, credit and exchange policies.- conduct economic research to guide the MB in its formulation and implementation of

policies

SCOPE and AUTHORITY OF BS TO OBTAIN DATA AND INFO

- request from GOI/GOCC data needed for the proper discharge of their office- subpoena production of said books in case of non-compliance- data on firms and other banks are exclusively for the purview of the BSP exp as per court

order or conditions prescribed by the MB

Scope and Supervision and Examination by the Bangko Sentral

- BS has supervision over and conduct periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied activities.

o SUBSIDIARY – more than 50% of the voting stock is owned by the bank or quasi-bank

o AFFILIATE – 50 % or less is owned by bank or quasi-bank

- department heads/examiners have the following supervisory authorityo administration of oaths to any director, officer, or employee of any institution

under their respective supervision or subject to their examinationo compel the presentation of all books, documents, papers or records necessary in

their judgment

Restraining Order or Injunction

- restraining orders can only be issued when there is convincing proof that the action of the BS is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond executed in favor of the BS, in an amt fixed by the Court.

VI. Director, Officer or Stockholder, And Related Interest

A. Contracting Loans(i) Any director, officer or stockholder who together with his related interest,

contracts a loan or any form of financial accommodation from:(1)his bank; or (2) from a bank— which is a subsidiary of a bank holding company of which

both his bank and the lending bank are subsidiaries, or 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.

(ii) Any information obtained from an examination of his deposits shall be held strictly confidential and may be used by the examiners only in connection with their supervisory and examination responsibility or by the BSP in an appropriate legal action it has initiated involving the deposit account.

B. Prohibition Against Personnel of the Bangko SentralIn addition to the prohibitions found in RA 3019 and 6713, personnel of the Bangko Sentral are prohibited from (P-ORRB)

(1)being an officer xxx, 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 the NCBA;

(2)directly or indirectly requesting or receiving any gift xxx for himself or for another, from any institution subject to supervision or examination by the Bangko Sentral;

(3)revealing in any manner, except under orders of the court, the Congress or any government office or agency authorized by law, or under such conditions as may be prescribed by the Monetary Board, information relating to the condition or business of any institution. This prohibition shall not be held to apply in the giving of information to the Monetary Board 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 shall be prohibited unless said borrowing are adequately secured, fully disclosed to the Monetary Board, and shall be subject to such further rules and regulations as the Monetary Board may prescribe: Provided, however, That personnel of the supervising and examining departments are prohibited from borrowing from a bank under their supervision or examination (sec.27, NCBA)

VII Examination of Baking Institutions

Frequency of Examination

- once every 12months - and as approved by the Monetary Board with the affirmative vote of 5 persons- done by the supervising/examining board

Affording Opportunity to Examine

- Sec 28 of NBCA

Service Fees

- Bank or quasi-banks shall pay the BS within the first 30 days of each year, an annual fee in an amount equal to a percentage as may be prescribed by the MB of its average total assets during the preceding year as shown on its end-month balance sheets after deducting COH and amounts due from banks.

VIII -- ADMINISTRATION

A. Operating departments of the BSP

The monetary board shall, in accordance with its authority under the NCBA, determine and provide for such operating departments and other offices, including a public information office, of the BSP as it deems convenient for the proper and efficient conduct of the operations and the accomplishment of the objectives of the BSP.

(sec 38 NCBA) The functions and duties of such operating departments and other offices shall be determined by the monetary board.

B. Required reports and publications of the BSP

Publish a general balance sheet showing the volume and composition of its assets and liabilities as of the last working day of the month w/in 60 days after the end of each month (except for December = to be submitted w/in 90 days after the end thereof).

The Monetary board shall publish and submit the ff reports to the President and Congress:- An analysis of economic and financial developments + condition of net

international reserves and monetary aggregates (not later than 90 days after the end of each quarter)

- The preceding year’s budget and profit and loss statement of the BSP showing in reasonable detail the result of its operations (w/in 90 days after the end of year)

- Review of the state of financial system (120 days after end of each sem)

- As soon as practicable, abnormal movements in monetary aggregates and the general price level, and, not later than 72 hrs after they are taken, remedial measures in response to such abnormal movements

C. Annual report of the BSPWhen: before the end of March of each yearWhat: Annual Report on the Condition of the BSP + a review on the policies and measures adopted by the Monetary Board during the past year + analysis of economic and financial circumstances w/c gave rise to said policiesFor whom: President and Congress

Shall also include statement of the financial condition of the BSP and statistical appendix w/c shall present AS A MINIMUM the ff data:

1. Monthly movement of monetary aggregates and their components 2. Monthly movement of purchases and sales of foreign exchange and of the

international reserves of BSP 3. The balance of payments of the Phils4. Monthly indices of consumer prices and of import and export prices5. Monthly movement in summary form, of exports and imports by volume and value6. Monthly movement of the accounts of the BSP and other banks 7. Principal data on government receipts and expenditures and on the status of the public

debt both domestic and foreign8. Texts of major legal and admin measures adopted by the government and the

monetary board during the year w/c relate to the functions or operations of BSP or of the financial system

The BSP SHALL PUBLISH ANOTHER VERSION OF THE ANNUAL REPORT IN TERMS UNDERSTANDABLE TO THE LAYMAN.

FAILURE TO COMPLY with the reportorial requirements pursuant to this article w/o justifiable reason as may be determined by the monetary board shall cause the withholding of the salary of the personnel concerned until the requirements are complied with (sec 40)

D. Signatures on statements Balance sheets and other financial statements of the BSP shall be signed by officers responsible for their preparation, by the governor, and by the auditor of the Bangko Sentral (sec 41 NCBA)

IX – PROFITS, LOSSES, AND SPECIAL ACCOUNTS

A. Fiscal year = shall begin on Jan 1 and end on Dec 31 of each year (SEC 42 NCBA) B. Computation of profits and losses

Within the first 30 days ff the end of each year, the BSP shall determine its net profits or losses. In the calculation of net profits, it shall make adequate allowance or establish adequate reserves for bad and doubtful accounts (sec 43)

C. Distribution of net profits w/in the first 60 days ff the end of each fiscal year, the monetary board shall determine and carry out the distribution of the net profits, in accordance with the ff rule:

o 50% of the net profits shall be carried to surplus

o The remaining 50% shall revert back to the National Treasury, escept as

otherwise provided in the transitory provisions of the NCBA (sec 44) D. Revaluation profits and losses

Section 45. Revaluation Profits and Losses. - Profits or losses arising from any revaluation of the Bangko Sentral's net assets or liabilities in gold or foreign currencies with respect to the Philippine peso shall not be included in the computation of the annual profits and losses of the Bangko Sentral. Any profits or losses arising in this manner shall be offset by any amounts which, as a consequence of such revaluations, are owed by the

Philippines to any international or regional intergovernmental financial institution of which the Philippines is a member or are owed by these institutions to the Philippines. Any remaining profit or loss shall be carried in a special frozen account which shall be named "Revaluation of International Reserve" and the net balance of which shall appear either among the liabilities or among the assets of the Bangko Sentral, depending on whether the revaluations have produced net profits or net losses.

*The Revaluation of International Reserve account shall be neither credited nor debited for any purposes other than those specifically authorized in this section

E. Suspense accounts Section 46. Suspense Accounts. - Sections 43 and 43-A of Republic Act No. 265, as amended, creating the Monetary Adjustment Account (MAA) and the Exchange Stabilization Adjustment Account (ESAA), respectively, are hereby repealed. Amounts outstanding as of the effective date of this Act based on these accounts shall continue to be for the account of the Central Bank and shall be governed by the transitory provisions of this Act.

The Revaluation of International Reserve (RIR) account as of the effective date of this Act of the Central Bank shall continue to be for the account of the same entity and shall be governed by the provisions of Section 44 of Republic Act No. 265, as amended, until otherwise provided for in accordance with the transitory provisions of this Act.

F. The auditor

Section 47. Appointment and Personnel. - The Chairman of the Commission on Audit shall act as the ex officio auditor of the Bangko Sentral and, as such, he is empowered and authorized to appoint a representative who shall be the auditor of the Bangko Sentral and, in accordance with law, fix his salary, and to appoint and fix salaries and number of personnel to assist said representative in his work. The salaries and other emoluments shall be paid by the Commission. The auditor of the Bangko Sentral and personnel under him may be removed only by the Chairman of the Commission.

The representative of the Chairman of the Commission must be a certified public accountant with at least ten (10) years experience as such. No relative of any member of the Monetary Board or the Chairman of the Commission within the sixth degree of consanguinity or affinity shall be appointed such representative.

X. Penalty for Violation

Sec 66 of the GBL provides

Unless otherwise provided, the violation of any of the provisions of the GBL shall be subject to Sections 34, 35, 36 and 37 of the New Central Bank Act. If the offender is a director or officer of a bank, quasi-bank or trust entity, the Monetary Board may also suspend or remove such director or officer. If the violation is committed by a corporation, such corporation may be dissolved by quo warranto proceedings instituted by the Solicitor General.

A. Penalty for refusal to make reports or permit examination- a fine of P50,000 – P100,000, or by imprisonment of 1 – 5 years, or both, at the

discretion of the court

B. Penalty for the willful making of a false or misleading statement on a material fact- a fine of P100,00 – P200,000, or by imprisonment of not more than 5 years, or both, at

the discretion of the court

C. Proceedings upon and penalty for violation of NCBA and other banking laws, rules, regulations, orders or instructions- shall unless otherwise provided in NCBA be punished by a fine of P50,000 - P200,000 or

by imprisonment of 2 – 10 years, or both, at the discretion of the court- Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or

unsafe manner, the Board may, without prejudice to the penalties provided above and the administrative sanctions provided in Sec 37 of NCBA, take action under Sec 30 (Receivership and Liquidation) of the NCBA.

D. Administrative sanctions on banks and quasi-banks (Administrative Violations: CDR-FLIB)

1. Administrative Violations and Penalties-without prejudice to the criminal sanctions a. any willful violation of its charter or by-laws;b. willful delay in the submission of reports or publications thereof as required by law, rules and regulations;c. any refusal to permit examination into the affairs of the institution;d. any willful making of a false or misleading statement to the Board or the appropriate supervising and examining department or its examiners;e. any willful failure or refusal to comply with, or violation of, any banking law or any order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by the Governor; orf. any commission of irregularities; and/or g. conducting business in an unsafe or unsound manner as may be determined by the Monetary Board

*Notes:

1. Resignation or termination from office shall not exempt such director or officer from administrative or criminal sanctions.

2. The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or officer of a bank or quasi-bank pending an investigation: Provided, That should the case be not finally decided by the Bangko Sentral within a period of 120 days after the date of suspension, said director or officer shall be reinstated in his position: Provided, further, That when the delay in the disposition of the case is due to the fault, negligence or petition of the director or officer, the period of delay shall not be counted in computing the period of suspension herein provided.

3. The above administrative sanctions need not be applied in the order of their severity.

2. Administrative Proceedings (1)Whether or not there is an administrative proceeding, the Monetary Board may issue a

cease and desist order from the indicated practice or violation, and may further order that immediate action be taken to correct the conditions resulting from such practice or violation, which is immediately effective upon service to the institution and/or the directors and/or officers, which is immediately effective upon service to the institution and/or the directors and/or officers.

(2)The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary Board or its committee chaired by any MB member upon request made by the respondents within 5 days from their receipt of the order. If no such hearing is requested within said period, the order shall be final.

(3)The Governor is authorized, at his discretion, to impose upon banking institutions, for any failure to comply with the requirements of law, Monetary Board regulations, etc. fines not in excess of P10,000 a day for each violation, the imposition of which is final and executory until reversed, modified or lifted by the Monetary Board on appeal.