BANKING LAWS

Governing Laws
1. General Banking Law (R.A. 8791)
2. New Central Bank Act (R.A. No. 7653)
Special Banking Laws
1. New Rural Banks Act (R.A. 7353)
2. Private Development Banks Act (R.A. No. 4093)
3. Savings and Loans Association Act (R.A. No. 3779)
4. Thrift Banks (R.A. No. 7906)
Other laws affecting banks
1. Secrecy of Bank Deposits (R.A. 1405)
2. Unclaimed Balances Act (Act No. 3936)
3. PDIC Act (R.A. No. 3591)

3 Kinds of Entities that Introduce Funds into the Economy

1. Banks – entities that obtain funds from the public in the form of deposits and re-
lend it to the public.
2. Quasi-Bank – those that obtain funds in the form of deposit substitutes and re-
lend it.
3. Finance companies and other financial intermediaries – those that lend funds
from their own assets
Persons Primarily Interested in the Business of Banking
1. Government
2. Depositors
3. Investors
4. Creditors
5. Borrowers

THE NEW CENTRAL BANTRAL BANK ACT (R.A. 7653)

Objective : To maintain a central monetary authority that shall function and operate as
an independent and accountable body in the discharge of its responsibilities concerning
money banking and credit.
Bangko Sentral ng Pilipinas (BSP)
The state’s central monetary authority 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-banks financial institutions performing
quasi-banking functions, including savings and loan associations.

Primary objectives of NCBA

1. To maintain price stability conducive to a balanced and sustainable growth of the
economy.
2. To promote and maintain monetary stability and the convertibility of the peso
(Sec. 3 of NCBA)

Responsibility and functions of BSP

1. To provide policy directions in the area of money, banking and credit
2. To regulate the operations of finance companies and non-bank financial
institutions performing quasi-banking functions and similar institutions.
3. Custodian of reserves.
4. Clearing channel or house where the Philippine Clearing House Corporation
does not operate.
5. Money function - the sole authority and power to issue currency within the
Philippines.
6. To engage in open market operations - purchase and sale of securities
exclusively in accordance with price stability objective.
7. To act as the banker and financial adviser of the government.
8. To act as the agent of the government, its instrumentalities and subdivisions in
the issuance of securities representing the obligations of the Government, its
instrumentalities and subdivisions.
9. Source of credits
10. Supervisor of the banking system.

MONETARY BOARD
The body through which the powers and functions of the Bangko Sentral are exercised.
Composition
Seven (7) members appointed by the President for a term of 6 years consisted of:
1. A chairman – Governor of the BSP
2. A member of the cabinet to be designated by the President
 3. Five (5) members who shall come from the private sector, all of whom shall serve
full time

The current members of the Monetary Board are:

 Benjamin Diokno, BSP Governor and Chairman of the Monetary Board.
 Carlos Dominguez III, Secretary of the Department of Finance.
 Antonio S. Abacan, Jr.
 V. Bruce J. Tolentino.
 Felipe M. Medalla.
 Peter B. Favila.
 Anita Linda Aquino.

Degree of diligence
The degree of diligence required of the members of the MB, officials and employees of
the BSP in the performance of their function is EXTRAORDINARY DILIGENCE. The
legal obligations of diligence and good faith that BSP officials owe to the public start
with the official acts of the MB which, rightly or wrong, are the cause of loss or injury to
third parties not any preparatory report or recommendation.

Corporate Powers of BSP

1. To adopt, alter and use a corporate Seal which shall be judicially noticed
2. To enter into contracts
3. To lease, own and sell or otherwise dispose of its real and personal property
4. To sue and be sued.
5. To do and perform such other necessary or proper powers to carry out the
purposes of the NCBA
6. To acquire and hold assets and incur such liabilities in connection with its
operations or as are essential to the proper conduct of operation.
7. To compromise, condone, or release, in whole or in part, any claim of, or settled
liability to the BSP, regardless of the amount involved, under such terms and
conditions as may be prescribed by the MB.
THREE LEVELS OF BANK REHABILITATION
1. Conservatorship
2. Receivership
3. Liquidation

CONSERVATORSHIP OF A BANK OR QUASI-BANK

Conservatorship is a tool in restoring the viability of banks and quasi-banks. It
consists of carrying out a package of administrative, organizational,
financial and/or other measures to address the state of continuing inability or
unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors.

Grounds

Whenever, on the basis of a report, submitted by the appropriate supervising or

examining department, the Monetary Board finds that a bank or quasi-bank is:
1. In a state of continuing inability; or
2. Unwillingness to maintain a condition of liquidity deemed adequate to protect the
interest of depositors and creditors
a conservatorship may be appointed by the BSP to take over without need of first
declaring the bank insolvent.

Liquidity – the ability of an asset to be converted into cash quickly and without any price
discount.

Insolvency – when the actual market value of assets is insufficient to pay its liabilities
not considering capital stock and surplus which are not liabilities for such purpose.

Duration of Conservatorship – one (1) year

Qualifications of Conservator
Should be competent and knowledgeable in bank operations and management. The MB
has the exclusive power to designate the conservator.
Effects:
1. Bank/quasi-bank retains juridical personality
2. Not a precondition to the designation of a receiver.
3. Perfected transactions cannot be repudiated

POWERS OF CONSERVATOR
1. To take charge of all the assets, liabilities and management of the bank or quasi
bank
2. Reorganize the management
3. Collect all monies and debts due to said bank or quasi bank
4. Exercise all powers necessary to restore its viability with the power to overrule or
revoke the actions of the previous management and board of directors of the
bank or quasi-bank.
Termination of conservatorship
1. If the MB is satisfied that the institution can continue to operate on its own and
the conservatorship is no longer necessary.
2. But if the continuance in business of the bank would involve probable loss to its
depositors or creditors, proceedings for receivership and liquidation shall be
pursued.

Receivership of a Bank or Quasi-bank/Closure

Receivership is equivalent to an injunction to restrain the

bank in any way. Thus, the appointment of a receiver operates to
suspend the authority of the bank and of its directors and officers
over its property and effects.

Receivership

1. Bank – PDIC
2. Quasi-banks – any person of recognized competence in
banking or finance

Duties of Receiver

1. Immediate gathering and taking charge of all the assets and

 liabilities of the institution and administering them for the
benefit of creditors;
2. Exercise the general powers of a receiver under the Revised
Rules of Court;
3. Receiver may deposit or place funds of the institution in non-
speculative investments.
4. Determination ASAP but not later than 90 days from
takeover, whether the institution should undergo
rehabilitation 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 OR
liquidation.

Any determination for the resumption of business of the

institution shall be subject to prior approval of the Monetary
Board.
5. The receiver shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution.

“CLOSE NOW, HEAR LATER” SCHEME

The purpose of this scheme is to PREVENT unwarranted

dissipation of the bank's assets and as a valid exercise of police
power to protect the depositors, creditors, stockholders and
general public. Due process does not necessarily require prior
hearing; a hearing or an opportunity to be heard may be
subsequent to a closure order.

To require prior hearing would not only be impractical but

would tend to defeat the very purpose of the law when it invested
the Monetary Board with such authority. The mere filing of a case
for receivership can trigger a bank run and drain its assets even
hours leading to insolvency even if the bank be actually solvent.

The purpose of the law is to make the closure of a bank

summary and expeditious in order to protect public interest. This
is also why prior notice and hearing are no longer required before
a bank can be closed.

Remedy

Actions/decision taken by the Monetary Board under Section

29 and 30 of R.A. 7653 shall be final and executory and may
not be restrained or set aside 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. (Rule 65 of the Rules of Court)

Mandatory Requirements for Bank Closure

1. Examination by the appropriate BSP department as to the

condition of the bank;
2. Examination shows that the condition of the bank is one of
insolvency;
3. Director shall inform the Monetary Board in writing of such
fact;
4. If the Monetary Board shall find the statement of the
department to be true, it shall appoint a receiver of the
assets and liabilities of the bank.
5. Within 60 days, the Monetary Board shall determine and
confirm if the bank is insolvent and if public interest
requires, shall order the liquidation of the bank.

Liquidation

Grounds

1. The condition of the bank is one of insolvency or that its

continuance would involve probable loss to its depositors
and creditors.

2. A determination by the Monetary Board that the bank cannot

be rehabilitated.

Procedure
 1. The receiver shall file ex parte with the proper RTC a petition
for assistance in the liqudation of the institution pursuant to
the liquidation plan adopted by the PDIC for general
application to all closed banks. In case of quasi-banks, the
liquidation plan shall be adopted by the Monetary Board;
2. The receiver shall convert the assets of the institution to
money for the purpose of paying the debts of the institution.
3. Payment shall be in accordance with the rules on
concurrence and preference of credits.

Effects of appointment of Receiver/Liquidator

1. Retention of Juridical personality

2. Suspension of Operations/Stoppage of Business
3. Assets are deemed in custodia legis (under the control of the
judicial authority or court)
4. Stay of execution of judgment
5. The bank is not liable to pay interest on deposits which
accrued during the period of suspension of operation.
6. Restriction on bank's capacity to act
7. Deposits do not become preferred credits
8. Exclusive jurisdiction of liquidation court

Legal Tender - is anything recognized by law as a means to settle a public or private debt or
meet a financial obligation, including tax payments, contracts, and legal fines or damages.
Legal tender power means that the currency is offered in payment of a debt, public or private,
the same must be accepted.
Legal tender is officially defined as the coins or banknotes that must be accepted if offered in
payment of a debt.

1 Peso, 5 Peso 10 Peso coins – in amounts not exceeding P1,000.00

25 centavo coin or less – in amounts not exceeding P100.00
Replacement of Currency for Replacement of Currency for Circulation
The BSP shall withdraw from circulation and demonetize all notes and coins which for any
reason are unfit for circulation and shall replace them by adequate notes and coins provided
that the BSP shall not replace:
1. Notes and coins the identification of which is impossible
2. Coins which show signs of filling, clipping or perforation
3. Notes which have lost more than 2/5 of their surface or all of the signatures inscribed
thereon.
Retirement of Old Notes and Coins
BSP may call in for replacement:
1. Notes of any series or denomination which are more than 5 years old; and
2. Coins which are more than 10 years old

Rules:
1. Notes and coins called in for replacement shall remain legal tender for a
period of one year from the date of call.
2. After that period, they shall cease to be legal tender, but during the following
year or for such longer period as the MB may determine, they may be
exchanged at par and without charge in the BSP and by agents duly
authorized by the Bangko Sentral for this purpose;
3. After the expiration of the period, the notes and coins which have not been
exchange shall cease to be a liability of the BSP and shall be demonetized.
The BSP shall also demonetize all notes and coins which have been called
and replaced.