BANKING

THE NEW CENTRAL BANK ACT

The 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.

The central monetary authority shall enjoy fiscal and administrative autonomy
(R.A. No. 7653, otherwise known as "The New Central Bank Act", as amended by
R.A. No. 11211, Sec. 1).

CREATION OF THE BANGKO SENTRAL NG PILIPINAS

The capital of the Bangko Sentral shall be Two hundred billion pesos
(P200,000,000,000), to be fully subscribed by the Government of the Republic of the
Philippines.

The increase in capitalization shall be funded solely from the declared dividends of
the Bangko Sentral in favor of the National Government (R.A. No. 7653 as
amended, Sec. 2, par. 2).

RESPONSIBILITY AND PRIMARY OBJECTIVE

The Bangko Sentral shall:

1. Provide policy directions in the areas of money, banking, and credit;

2. Have supervision over the operations of banks; and

3. Exercise regulatory and examination powers over:

a. The quasi-banking operations of non-bank financial institutions;

b. Over money service businesses, credit granting businesses, and payment
system operators, as may be determined by the Monetary Board (R.A. No.
7653 as amended, Sec. 3, par. 1).

The primary objective of the Bangko Sentral is to maintain price stability conducive
to a balanced and sustainable growth of the economy and employment.

It shall also promote and maintain monetary stability and the convertibility of the
peso (R.A. No. 7653 as amended, Sec. 3, par. 2).

OPERATIONS OF THE BANGKO SENTRAL NG PILIPINAS

The Bangko Sentral is authorized:

1. To require from any person or entity, any data, for statistical and policy
development purposes in relation to the proper discharge of its functions
and responsibilities.
 2. To issue a subpoena for the production of the books and records for the
aforesaid purpose.

Note: The disaggregated data gathered are subject to prevailing confidentiality laws
(R.A. 7653 as amended, Sec. 23).

Q: What is the scope of the supervisory powers of the Bangko Sentral?

The Bangko Sentral shall have supervision over, and conduct regular or
special examinations of banking institutions and quasi-banks, including
their subsidiaries and affiliates engaged in allied activities (R.A. No. 7653
as amended, Sec. 25).

Q: What does the term "examination" refer to?

The term "examination" shall refer to an investigation of an institution

under the supervisory authority of the Bangko Sentral to determine
whether the institution is operating on a safe and sound basis, inquire into
its solvency and liquidity, and assess the effectiveness of its compliance
function to ascertain that it is conducting business in accordance with
laws and regulations (2018 Manual of Regulations for Banks, Sec. 001).

Q: When can the Bangko Sentral examine an institution?

There shall be an interval of at least 12 months between regular

examinations. The Monetary Board, by an affirmative vote of at least five
(5) members, may authorize a special examination if the circumstances
warrant (R.A. 7653, as amended, Sec. 28).

PROHIBITED ACTS OF BANGKO SENTRAL PERSONNEL IN RELATION TO

INSTITUTIONS SUBJECT TO THE SUPERVISION OR EXAMINATION.

1. Being an officer, director, lawyer or agent, employee, consultant or

stockholder, directly or indirectly, except non-stock savings and loan
associations and provident funds organized exclusively for employees of the
Bangko Sentral, and except as otherwise provided in this Act;

2. Directly or indirectly requesting or receiving any gift, present or pecuniary or

material benefit for himself or another; and

3. Borrowing from such institutions.

Note: The Bangko Sentral personnel are prohibited from revealing in any manner,
information relating to the condition or business of any institution (R.A. 7653 as
amended. Sec. 27).

Q: When may the personnel of the Bangko Sentral be allowed to borrow from
institutions subject to the supervision or examination by the Bangko Sentral?

ANS: Borrowing may be allowed if such:

 1. Is transacted on an arm's length basis,
2. is fully disclosed to the Monetary Board; and
3. Shall be subject to such rules and regulations as the Monetary Board may
prescribe (R.A. 7653 as amended, Sec. 27).

Q: When may the personnel of the Bangko Sentral reveal information relating to
the condition or business of any institution?

Personnel of the Bangko Sentral may reveal information relating to the

condition or business of any institution:

1. Under orders of the court, the Congress or any government office or

agency authorized by law; or

2. Under such conditions as may be prescribed by the Monetary Board; or

3. 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 (R.A. 7653 as amended, Sec. 27).

MONETARY BOARD: POWERS AND FUNCTIONS

The powers and functions of the Bangko Sentral shall be exercised by the Bangko
Sentral Monetary Board (R.A. 7653 as amended, Sec. 6).

Note: The Monetary Board shall be composed of seven (7) members appointed by
the President of the Philippines for a term of six (6) years (R.A. 7653 as amended,
Sec. 6).

Powers of the Monetary Board?

The Monetary Board shall:

1. Issue rules and regulations on the exercise of the powers vested upon the
Monetary Board and the Bangko Sentral;

2. Direct the management, operations, and administration of the Bangko

Sentral, reorganize its personnel, and issue such rules and regulations for
such purpose;

3. Establish a human resource management system;

4. Adopt an annual budget for and authorize such expenditures by the

Bangko Sentral;

5. Indemnify its members and other officials of the Bangko Sentral,

including personnel of the departments performing supervision and
examination functions against all costs and expenses reasonably incurred
by such persons in connection with any civil or criminal action, suit 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 willful violation of this Act (R.A.
7653 as amended, Sec. 15); and
 6. Authorize entities or persons to engage in money service businesses (R.A.
7653 as amended, Sec. 3).

HOW THE BANGKO SENTRAL NG PILIPINAS HANDLES BANKS IN

DISTRESS

1. Conservatorship
2. Receivership
3. Closure, and
4. liquidation.

Conservatorship

It is a tool for 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.

Note: The Monetary Board may appoint a conservator, who should be competent
and knowledgeable in bank operations and management (R.A. 7653 as amended,
Sec. 29).

POWERS OF A CONSERVATOR

1. Take charge of the assets, liabilities. and the management of the

institution; Reorganize the management;
2. Collect all monies and debts due said institution;
3. Exercise all powers necessary to restore its viability;
4. Report and be responsible to the Monetary Board;
5. Overrule or revoke the actions of the previous management and board of
directors of the bank or quasi-bank (R.A. 7653 as amended, Sec. 29).

Q: When may the Monetary Board terminate the conservatorship?

The Monetary Board may terminate the conservatorship when:

1. It finds that the institution can continue to operate on its own

and the conservatorship is no longer necessary; and

2. The continuance in business of the institution would involve

probable loss to its depositors or creditors, in which case
receivership and liquidation shall be pursued (R.A. 7653 as
amended, Sec. 29).

Note: The conservatorship shall NOT exceed one (1) year (R.A. 7653 as
amended. Sec. 29).
RECEIVERSHIP

It is a proceeding wherein the Monetary Board may summarily and without need
for prior hearing forbid a bank or quasi-bank from doing business in the Philippines
and designate a receiver.

Such authority may also be exercised over non-stock savings and loan associations.

Note: This is referred to as the "Close now, Hear later" scheme (Vivas v. The
Monetary Board of the Bangko Sentral ng Pilipinas and the Philippine Deposit
Insurance Corporation, G.R. No. 191424, August 7, 2013).

Q: When may an institution be placed under receivership and liquidation?

1. Has notified the Bangko Sentral or publicly announced a Unilateral closure;

2. Has been dormant for at least 60 days or in any manner has suspended the
payment of its deposit/deposit substitute liabilities;

Deposit substitute liabilities - borrowing from 20 or more

lenders that are individuals or corporate entities which are
not financial intermediaries.

Borrowings from banks, quasi-banks, and other financial

intermediaries are no longer considered as deposit
substitutes.

3. Is unable to Pay its liabilities as they become due in the ordinary course of
business;

4. Has insufficient realizable assets, as determined by the Bangko Sentral, to

meet its liabilities;

5. Cannot Continue in business without involving probable losses to its

depositors or creditors;

6. Has Willfully violated a cease-and-desist order under Section 37 of this Act

that has become final, involving acts or transactions which amount to fraud
or a dissipation of the assets of the institution

7. Bank notifies the Bangko Sentral or publicly announces a bank Holiday, or

in any manner suspends the payment of its deposit liabilities continuously
for more than 30 days;

8. Has persisted in conducting its business in an unsafe or unsound manner

Q: Who may be designated as a receiver?

The Monetary Board may designate as receiver:

1. The Philippine Deposit Insurance Corporation (PDIC)

 2. Any person of recognized competence in banking or finance for
quasi-banks

Q: What is the effect of the Order of Closure issued by the Monetary Board?

Whenever a bank is ordered closed by the Monetary Board, the PDIC shall
be designated as receiver and it shall proceed with the takeover and
liquidation of the closed bank.

Banks closed by the Monetary Board shall no longer be rehabilitated (R.A.

No. 3591 as amended, Sec. 12).

Quasi-banking institutions closed and placed under receivership may be

rehabilitated or liquidated (BSP Circular No. 719, s. 2011).

Q: What is the effect of the placement of a bank under liquidation on its corporate
franchise or existence?

Upon placement by the Monetary Board of a bank under liquidation, it

shall continue as a body corporate until the termination of the winding-up
period. Such continuation as a body corporate shall only be for the purpose
of liquidating, settling and closing its affairs and for the disposal,
conveyance or distribution of its assets. Note: In no case shall the bank be
reopened and permitted to resume banking business after being placed
under liquidation (PDIC, Sec. 13).

Q: What is the effect of the placement of a bank under liquidation on its assets?
Upon service of notice of closure, all the assets of the closed bank shall be
deemed in custodia legis in the hands of the receiver, and as such, these
assets may not be subject to attachment, garnishment, execution, levy or
any other court processes (PDIC, Sec. 13).

ADMINISTRATIVE SANCTIONS ON SUPERVISED ENTITIES

Q: When may the Monetary Board impose administrative sanctions on supervised

entities and/or their directors, officers or employees? (CD-EFBI)

The Monetary Board may, at its discretion, impose administrative

sanctions upon any supervised entities, and/or their directors, officers or
employees for any:

1. Willful violation of its Charter or bylaws;

2. Willful Delay in the submission of reports or publications thereof;

3. Refusal to permit Examination into the affairs of the institution;

 4. Willful making of a False or misleading statement to the Board or
the appropriate supervising and examining department or its
examiners;

5. 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; or,

6. Commission of Irregularities, and/or conducting business in an

unsafe or unsound manner (R.A. 7653 as amended, Sec. 37).

Q: What are the administrative sanctions that the Monetary Board may impose?

The following administrative sanctions may be imposed:

1. Fines;
2. Suspension of:

a. Rediscounting Privileges or access to Bangko Sentral credit facilities:

b. Lending or foreign exchange operations or authority to accept new
deposits or make new investments;
c. Interbank clearing privileges; and/or Quasi-banking or other special
Licenses or their revocation (R.A. 7653 as amended, Sec. 37).

Note: The Monetary Board may issue a cease-and-desist order for the
indicated practice or violation (R.A. 7653 as amended, Sec. 37).

RULES ON BANK DEPOSITS AND INVESTMENTS BY DIRECTORS,

OFFICERS, STOCKHOLDERS AND THEIR RELATED INTERESTS (DOSRI)

Q: What is the rule on the restriction on bank exposure to DOSRI?

No director or officer of any bank shall a directly or indirectly, for himself

or as the representative or agent of others:

1. Borrow from such bank;

2. Shall he become a guarantor, endorser or surety for loans from
such bank to others, or
3. In any manner be an obligor or incur any contractual liability to
the bank except with the written approval of the majority of all
the directors of the bank, excluding the director concerned (GBL,
Sec. 36).

Exception: The written approval shall not be required for loans, other credit
accommodations, and advances granted to officers under a fringe benefit plan
approved by the Bangko Sentral (GBL, Sec. 36).

Q: Who is required by the lending bank to waive the secrecy of his deposits in all
banks in the Philippines?

Any DOSRI, who contracts a loan or any form of financial accommodation

from his bank:
 1. Which is a subsidiary of a bank holding company of which both his bank
and the lending bank are subsidiaries; or

2. 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 (R.A. 7653, as amended, Sec. 26).

SUPERVISION AND REGULATION OF BANK OPERATIONS

Q: Who supervises and conducts examination on the operations of banks?

The Bangko Sentral shall have supervision over, and conduct regular or
special examinations of banking institutions and quasi-banks, including
their subsidiaries and affiliates engaged in allied activities (R.A. 7653 as
amended, Sec. 25).

Q: What is the period for the extension of loans and advances by the BSP to banking
institutions?

The Bangko Sentral may extend loans and advances to banking institutions
for a period of not more than 7 days without any collateral for the purpose
of providing liquidity to the banking system in times of need (R.A. 7653 as
amended, Sec. 83).

Q: When may the Bangko Sentral extend emergency loans and advances to banking
institutions?

The Bangko Sentral may extend emergency loans and advances:

1. In periods of national and/or local emergency or of imminent

financial panic which directly threaten monetary and financial
stability;

2. During normal period at the discretion of the Monetary Board,

provided that: The purpose of which is to assist a bank in a
precarious financial condition or under serious financial
pressures brought by unforeseen events, or events which, though
foreseeable, could not be prevented by the bank concerned; and
That the bank is not insolvent and has the assets to secure the
advances (R.A. 7653 as amended, Sec. 84).

Note: A concurrent vote of at least 5 members of the Monetary Board

should be obtained (R.A. 7653 as amended, Sec. 84).

Q: What is the nature of all unsecured claims of the Bangko Sentral?

All unsecured claims of the Bangko Sentral shall be considered preferred

credits similar to taxes due to the National Government in the order of
preference under Article 2244 of the New Civil Code (R.A. 7653 as
amended, Sec.88-D).

Title XIX. - CONCURRENCE AND PREFERENCE OF

CREDITS

Art. 2241. With reference to specific movable property of

the debtor, the following claims or liens shall be preferred:

(1) Duties, taxes and fees due thereon to the State or any
subdivision thereof;

(2) Claims arising from misappropriation, breach of trust,

or malfeasance by public officials committed in the
performance of their duties, on the movables, money or
securities obtained by them;

(3) Claims for the unpaid price of movables sold, on said

movables, so long as they are in the possession of the
debtor, up to the value of the same; and if the movable has
been resold by the debtor and the price is still unpaid, the
lien may be enforced on the price; this right is not lost by
the immobilization of the thing by destination, provided it
has not lost its form, substance and identity; neither is the
right lost by the sale of the thing together with other
property for a lump sum, when the price thereof can be
determined proportionally;

(4) Credits guaranteed with a pledge so long as the things

pledged are in the hands of the creditor, or those
guaranteed by a chattel mortgage, upon the things pledged
or mortgaged, up to the value thereof;

(5) Credits for the making, repair, safekeeping or

preservation of personal property, on the movable thus
made, repaired, kept or possessed;

(6) Claims for laborers' wages, on the goods manufactured

or the work done;

(7) For expenses of salvage, upon the goods salvaged;

(8) Credits between the landlord and the tenant, arising

from the contract of tenancy on shares, on the share of
each in the fruits or harvest;

(9) Credits for transportation, upon the goods carried, for

the price of the contract and incidental expenses, until
their delivery and for thirty days thereafter;

(10) Credits for lodging and supplies usually furnished to

travellers by hotel keepers, on the movables belonging to
the guest as long as such movables are in the hotel, but not
for money loaned to the guests;
(11) Credits for seeds and expenses for cultivation and
harvest advanced to the debtor, upon the fruits harvested;

(12) Credits for rent for one year, upon the personal
property of the lessee existing on the immovable leased and
on the fruits of the same, but not on money or instruments
of credit;

(13) Claims in favor of the depositor if the depositary has

wrongfully sold the thing deposited, upon the price of the
sale.

In the foregoing cases, if the movables to which the lien or

preference attaches have been wrongfully taken, the
creditor may demand them from any possessor, within
thirty days from the unlawful seizure. (1922a)

Art. 2242. With reference to specific immovable property

and real rights of the debtor, the following claims,
mortgages and liens shall be preferred, and shall
constitute an encumbrance on the immovable or real right:

(1) Taxes due upon the land or building;

(2) For the unpaid price of real property sold, upon the
immovable sold;

(3) Claims of laborers, masons, mechanics and other

workmen, as well as of architects, engineers and
contractors, engaged in the construction, reconstruction or
repair of buildings, canals or other works, upon said
buildings, canals or other works;

(4) Claims of furnishers of materials used in the

construction, reconstruction, or repair of buildings, canals
or other works, upon said buildings, canals or other works;

(5) Mortgage credits recorded in the Registry of Property,

upon the real estate mortgaged;

(6) Expenses for the preservation or improvement of real

property when the law authorizes reimbursement, upon the
immovable preserved or improved;

(7) Credits annotated in the Registry of Property, in virtue

of a judicial order, by attachments or executions, upon the
property affected, and only as to later credits;

(8) Claims of co-heirs for warranty in the partition of an

immovable among them, upon the real property thus
divided;
(9) Claims of donors or real property for pecuniary charges
or other conditions imposed upon the donee, upon the
immovable donated;

(10) Credits of insurers, upon the property insured, for the

insurance premium for two years. (1923a)

Art. 2243. The claims or credits enumerated in the two

preceding articles shall be considered as mortgages or
pledges of real or personal property, or liens within the
purview of legal provisions governing insolvency. Taxes
mentioned in No. 1, Article 2241, and No. 1, Article 2242,
shall first be satisfied. (n)

Art. 2244. With reference to other property, real and

personal, of the debtor, the following claims or credits
shall be preferred in the order named:

(1) Proper funeral expenses for the debtor, or children

under his or her parental authority who have no property
of their own, when approved by the court;

(2) Credits for services rendered the insolvent by

employees, laborers, or household helpers for one year
preceding the commencement of the proceedings in
insolvency;

(3) Expenses during the last illness of the debtor or of his

or her spouse and children under his or her parental
authority, if they have no property of their own;

(4) Compensation due the laborers or their dependents

under laws providing for indemnity for damages in cases
of labor accident, or illness resulting from the nature of the
employment;

(5) Credits and advancements made to the debtor for

support of himself or herself, and family, during the last
year preceding the insolvency;

(6) Support during the insolvency proceedings, and for

three months thereafter;

(7) Fines and civil indemnification arising from a criminal

offense;

(8) Legal expenses, and expenses incurred in the

administration of the insolvent's estate for the common
interest of the creditors, when properly authorized and
approved by the court;

(9) Taxes and assessments due the national government,

other than those mentioned in Articles 2241, No. 1, and
2242, No. 1;
 (10) Taxes and assessments due any province, other than
those referred to in Articles 2241, No. 1, and 2242, No. 1;

(11) Taxes and assessments due any city or municipality,

other than those indicated in Articles 2241, No. 1, and
2242, No. 1;

(12) Damages for death or personal injuries caused by a

quasi-delict;

(13) Gifts due to public and private institutions of charity

or beneficence;

(14) Credits which, without special privilege, appear in (a)

a public instrument; or (b) in a final judgment, if they
have been the subject of litigation. These credits shall have
preference among themselves in the order of priority of the
dates of the instruments and of the judgments,
respectively. (1924a)

Art. 2245. Credits of any other kind or class, or by any

other right or title not comprised in the four preceding
articles, shall enjoy no preference. (1925)

SELECTIVE REGULATION

Q: What may the Monetary Board prescribe for the opening of letters of credit?

The Monetary Board may at any time prescribe minimum cash margins for
the opening of letters of credit, and may relate the size of the required
margin to the nature of the transaction to be financed (R.A. 7653 as
amended, Sec. 105).

A Letter of Credit (LOC) is correspondence issued by a

bank guaranteeing payment for goods and services
purchased by the one requesting the letter. An Irrevocable
Letter of Credit, or LOC, cannot be canceled or modified in
any way without explicit consent by the affected parties
involved.

Q: How does the Monetary board promote the liquidity and solvency of the banking
system?

In order to promote liquidity and solvency of the banking system, the

Monetary Board may issue such regulations as it may deem necessary with
respect to the maximum permissible maturities of the loans and
investments which the banks may make, and the kind and amount of
security to be required against the various types of credit operations of
the banks (R.A. 7653 as amended, Sec. 106).
Q: When may the Monetary Board prescribe portfolio ceilings?

Whenever the Monetary Board considers it advisable to prevent or check

an expansion of bank credit, the Board may place an upper limit on the
amount of loans and investments which the banks may hold, or may place
a limit on the rate of increase of such assets within specified periods of
time (R.A. 7653 as amended, Sec. 107).

Q: What is the limitation to such portfolio ceilings?

In no case shall the Monetary Board establish limits which are below the
value of the loans or investments of the banks on the date on which they
are notified of such restrictions (R.A. 7653 as amended, Sec. 107).

Q: What is the authority of the Monetary Board with regard to minimum capital
ratios?

The Monetary Board may prescribe minimum risk-based capital adequacy

ratios based on internationally accepted standards and may alter said
ratios whenever it deems necessary. In the exercise of its authority, the
Monetary Board may require banks to hold capital beyond the minimum
requirements commensurate to their risk profile (R.A. 7653 as amended,
Sec. 108).

RATE OF EXCHANGE

Q: Who shall determine the exchange rate policy of the country?

The Monetary Board shall determine the exchange rate policy of the
country (R.A. 7653 as amended, Sec. 74).

Q: What are the functions of the Monetary Board with respect to determining the
exchange rate?

The Monetary Board shall:

1. Determine the rates at which the Bangko Sentral shall buy and sell spot
exchange;

2. Establish deviation limits from the effective exchange rate or rates as it

may deem proper; and

3. Determine the rates for other types of foreign exchange transactions by

the Bangko Sentral, including purchases and sales of foreign notes and
coins (R.A. 7653 as amended. Sec. 74).

Q: What are the limitations on the authority of the Bangko Sentral to determine the
exchange rates?

The margins between the effective exchange rates and the rates thus
established may not exceed the corresponding margins for spot exchange
transactions by more than the additional costs or expenses involved in
each type of transactions (R.A. 7653 as amended, Sec. 74).
LAW ON SECRECY OF BANK DEPOSITS

1. Give encouragement to the people to deposit their money in banking

institutions; and

2. Discourage private hoarding so that the same may be properly utilized by

banks in authorized loans to assist in the economic development of the
country (R.A. No. 1405, otherwise known as "An Act Prohibiting
Disclosure of or Inquiry into, Deposits with any Banking Institution and
Providing Penalty therefor", as amended by P.D. No. 1792, Sec. 1).

Q: What are the deposits covered by R.A. No. 1405?

R.A. No. 1405 covers all deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by
the Government of the Philippines, its political subdivisions and its
instrumentalities (R.A. 1405 as amended, Sec. 2).

Note: Foreign currency deposits are not covered, because they are
governed by the Foreign Currency Deposit Act (R.A. No. 6426, otherwise
known as the Foreign Currency Deposit Act of the Philippines, as
amended, Sec. 8).

Q: What are the prohibited acts under R.A. No. 1405?

The following acts are prohibited by the R.A. No. 1405:

1. Examination of and inquiry on or looking into all deposits

covered R.A. 1405 (R.A. No. 1405 as amended, Sec. 2); and

2. Any disclosure by any official or employee of a banking

institution to any unauthorized person of any information
concerning the said deposits (R.A. No. 1405 as amended, Sec. 3).

Q: What are the exceptions to the law on secrecy of bank deposits under R.A. No.
1405?

Under R.A. No. 1405, deposits may be examined, inquired or looked into:

1. When it is made in the course of a special or general examination of a

bank and is specifically authorized by the Monetary Board;

2. When it is made by an independent Auditor hired by the bank to conduct

its regular audit for audit purposes only for the exclusive use of the bank;

3. Upon written permission of the depositor;

4. In cases of Impeachment; or

5. Upon order of a competent court in cases:

 a. Of Bribery or dereliction of duty of public officials; and

b. Where the money deposited or invested is the subject matter of the

Litigation (R.A. No. 1405 as amended, Sec. 2).

Q: When may the Monetary Board authorize the examination of deposits?

The Monetary Board may authorize the examination after being satisfied
that there is reasonable ground to believe that a bank fraud or serious
irregularity has been or is being committed and that it is necessary to look
into the deposit to establish such fraud or irregularity (R.A. No. 1405 as
amended, Sec. 2).

Q: What are the exceptions to the law on secrecy of bank deposits under other
laws?

Deposits may be examined, inquired or looked into:

1. Upon order of the competent court or tribunal in cases involving

unexplained wealth (R.A. No. 3019, otherwise known as the Anti-Graft
and Corrupt Practices Act, Sec. 8);

2. Upon inquiry by the Commissioner of Internal Revenue for the purpose of

determining the gross estate of the decedent, or considering an application
for compromise of tax liability by reason of financial incapacity (R.A. No.
8424, otherwise known as the "National Internal Revenue Code", as
amended by R.A. No. 10963, Sec. 6(F));

3. Upon the order of a competent court where there is probable cause of

money laundering or in proper cases by the Anti-Money Laundering
Council (AMLC) wherein court order is not required (R.A. No. 9160 as
amended by R.A. 9194, otherwise known as the Anti-Money Laundering
Act, Sec. 11): Upon waiver of the secrecy of deposits by any director, officer
or stockholder as required by the New Central Bank Act (R.A. No. 7653 as
amended, Sec. 26);

4. By the PDIC and/or the Bangko Sentral in case there is a finding of

unsafe or unsound banking practice (R.A. No. 3591, as amended, Sec. 9):

5. By the PDIC when there is a failure of prompt corrective action by a bank

as declared by the Monetary Board due to capital deficiency (R.A. No.
3591 as amended, Sec. 11);

6. Upon the disclosure to the Treasurer of the Philippines of dormant

deposits for at least 10 years (Act. No. 3936, as amended by P.D. No. 679,
Sec. 2);

7. By the AMLC without court order in relation to violations of R.A. No.

11479 (R.A. No. 11479, otherwise known as "The Anti-Terrorism Act of
2020, Sec 35).
Q: What are the exceptions to the absolute confidential nature of foreign currency
deposits

Foreign currency deposits may be examined, inquired or looked into:

1. Upon the written permission of the depositor (R.A. No. 6426 as amended.
Sec. 8);

2. Upon the order of a competent court or in proper cases by the AMLC

where there is probable cause of money laundering (R.A. No. 9160 as
amended, Sec.11);

3. By the AMLC without court order in relation to violations of R.A. No.

11479 (R.A. No. 11479, otherwise known as "The Anti-Terrorism Act of
2020, Sec. 35).

GARNISHMENT OF DEPOSITS, INCLUDING FOREIGN DEPOSITS

Q: Why can deposit accounts be garnished without violating R.A. No. 1405?

The prohibition against examination of or inquiry into a bank deposit does

not preclude its being garnished to ensure satisfaction of a judgment.

There is no real inquiry in such a case, and if the existence of the deposit
is disclosed, the disclosure is purely incidental to the execution process
(China Banking Corporation vs. Ortega, G.R. No. L-34964, January 31,
1973).

Q: What is the rule on the garnishment of foreign currency deposits?

Foreign currency deposits shall be exempt from attachment, garnishment,

or any other order or process of any court, legislative body, government
agency or any administrative body whatsoever (R.A 6426 as amended, Sec.
8).

Q: When may the garnishment of foreign currency deposits be allowed?

Foreign currency deposit of a foreign transient may be garnished

whenever injustice would result, especially to a citizen aggrieved by a
foreign guest. Otherwise, this would negate Article 10 of the New Civil
Code which provides that "in case of doubt in the interpretation or
application of laws, it is presumed that the lawmaking body intended right
and justice to prevail (Salvacion v. Central Bank of the Philippines, G.R.
No. 94723. August 21, 1997).

Bartelli, an American tourist, detained and raped

Salvacion. Salvacion was rescued and Bartelli was
arrested. The policemen recovered from Bartelli
several dollar checks and a dollar account in China
Bank. Bartelli however escaped from prison. In the
civil case filed against Bartelli, the trial court
awarded Salvacion moral, exemplary and attorney’s
fees.
 Petitioners tried to execute on Bartelli's dollar
deposit with China Bank. But China Bank refused
arguing that Section 113 of Central Bank Circular
No. 960 exempts foreign currency deposits from
attachment, garnishment, or any other order or
process of any court, legislative body, government
agency or any administrative body whatsoever.
Salvacion therefore filed this action for declaratory
relief in the Supreme Court.

Q: What are the penalties for violation under R.A. No. 1405?

Any violation of this law will subject offender upon conviction, to an

imprisonment of not more than 5 years or a fine of not more than P20,000
or both, in the discretion of the court (R.A. No. 1405 as amended, Sec. 5).

GENERAL BANKING LAW OF 2000 (RA 8791)

Q: What are banks?

Banks shall refer to entities engaged in the lending of funds obtained in

the form of deposits (RA. No. 8791, otherwise known as the "General
Banking Law of 2000", Sec. 3.1)

Q: What are the classifications of banks?

Banks shall be classified into:

1. Universal banks;
2. Commercial banks;
3. Thrift banks;
4. Rural banks, as defined in Republic Act No. 7353;
5. Islamic banks as defined in Republic Act No. 6848; and
6. Cooperative banks, as defined in Republic Act No. 9520;

Other classifications of banks as determined by the Monetary Board of the

Bangko Sentral ng Pilipinas

DISTINCTION OF BANKS FROM QUASI-BANKS AND TRUST ENTITIES

Q: What are quasi-banks?

Quasi-Bank shall refer to a non-bank financial institution authorized by

the BSP to engage in quasi-banking functions and to borrow funds from
more than 19 lenders through the issuance, endorsement or assignment
with recourse or acceptance of deposit substitutes (as defined in Section
95 of the NCBA as amended) for purposes of relending or purchasing of
receivables and other obligations (R.A. 9474, otherwise known as "Lending
Company Regulation Act of 2007", Sec. 3(c)).
Q: What is a trust entity?

A trust entity shall refer to a:

1. Bank or non-bank financial institution (NBFI), through its specifically

designated business unit to perform trust functions; and

2. Trust corporation, authorized by the BSP to engage in trust or other

fiduciary business under Section 79 of the GBL or to perform investment
management services under Section 53 of GBL (2018 MORB, Sec. 403(a)).

Note: Only a stock corporation or a person duly authorized by the

Monetary Board to engage in trust business shall act as a trustee or
administer any trust or hold property in trust or on deposit for the use,
benefit, or behoof of others (GBL, Sec. 79).

Q: What are the powers of a commercial bank?

A commercial bank shall have, in addition to the general powers incident

to corporations, all such powers as may be necessary to carry on the
business of commercial banking such as:

1. Accepting drafts and issuing letters of credit;

2. Discounting and negotiating promissory notes, drafts, bills of exchange,
and other evidences of debt;
3. Accepting or creating demand deposits;
4. Receiving other types of deposits and deposit substitutes;
5. Buying and selling foreign exchange and gold or silver bullion;
6. Acquiring marketable bonds and other debt securities; and
7. Extending credit, subject to such rules as the monetary board may
promulgate.

These rules may include the determination of bonds and other debt securities
eligible for investment, the maturities and aggregate amount of such investment
(GBL. Sec. 29).

Q: What are the powers of a universal bank?

A universal bank shall have the authority to exercise, in addition to the

powers authorized for a commercial bank in Section 29, the powers of an
investment house as provided in existing laws and the power to invest in
non-allied enterprises as provided in the GBL (GBL, Sec. 23).
DILIGENCE REQUIRED OF BANKS IN VIEW OF FIDUCIARY NATURE OF
BANKING

Q: What is required by the fiduciary nature of banking?

The fiduciary nature of banking requires high standards of integrity and

performance (GBL, Sec. 2).

Q: What is the standard of diligence required of a bank with respect to deposit

accounts?
The diligence required of banks is more than that of a good father of a
family. Banks are required to exercise the highest degree of diligence in
its banking transactions (Bank of the Philippines vs. Sps. Quiaoit, G.R. No.
199562, January 16, 2019).

The same higher degree of diligence is not expected by banks in

commercial transactions that do not involve their fiduciary relationship
with their depositors (Spouses Reyes vs. Court of Appeals, G.R. No. 118492,
August 15, 2001).

Q: Why are banks required to observe a high degree of diligence with respect to its
services?

Banking is a business that is impressed with public interest. The public

reposes its faith and confidence upon banks which is why a special
standard of diligence is attached for the exercise of the banks' functions
(Philippine National Bank v. Santos, G.R. No. 208293 & G.R. No. 208295,
December 10, 2014).

NATURE OF BANK FUNDS AND BANK DEPOSITS

Bank deposits are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the
law on loans (Serrano v. Central Bank of the Philippines, G.R. No. L-30511,
February 14, 1980).

There is a debtor-creditor relationship between the bank and its depositor.

The bank is the debtor and the depositor is the creditor. The depositor lends
the bank money and the bank agrees to pay the depositor on demand
(Consolidated Bank and Trust Corp. v. Court of Appeals. G.R. No. 138569,
September 11, 2003).

GRANT OF LOANS AND SECURITY REQUIREMENTS

Q: Who has the power to prescribe the minimum ratio which the net worth of a
bank must bear to its total risk assets?
The Monetary Board has the power to prescribe the minimum ratio which
the net worth of a bank must bear to its total risk assets which may include
contingent accounts (GBL. Sec. 34).
Rules to be followed by the Monetary Board with respect to the
determination of the minimum

1. The Monetary Board may require such ratio be determined on the basis of
the net worth and risk assets of a bank and its subsidiaries, financial or
otherwise, as well as prescribe the composition and the manner of
determining the net worth and total risk assets of banks and their
subsidiaries;

2. In the exercise of this authority, the Monetary Board shall, to the extent
feasible, conform to internationally accepted standards, including those of
the Bank for International Settlements (BIS), relating to risk-based capital
requirements;

3. It may alter or suspend compliance with such ratio whenever necessary for
a maximum period of 1 year;

4. Such ratio shall be applied uniformly to banks of the same category (GBL,
Sec. 34).

In case a bank does not comply with the prescribed minimum ratio, the Monetary
Board may limit or prohibit the distribution of net profits by such bank and may
require that part or all of the net profits be used to increase the capital accounts of
the bank until the minimum requirement has been met. The Monetary Board may,
furthermore, restrict or prohibit the acquisition of major assets and the making of
new investments by the bank until the minimum required capital ratio has been
restored (GBL, Sec. 34).

The Monetary Board may not restrict or prohibit purchases of readily marketable
evidences of indebtedness of the Republic of the Philippines and of the Bangko Sentral
and any other evidences of indebtedness or obligations the servicing and repayment of
which are fully guaranteed by the Republic of the Philippines (GBL, Sec. 34).

Q: What is the single borrower's limit (SBL)?

The total amount of loans, credit accommodations and guarantees that may be
extended by a bank to any person, partnership, association, corporation or other
entity shall at no time exceed 25% of the net worth of such bank.

Note: Loans and other credit accommodations as well as deposits and usual
guarantees by a bank to any other bank, shall be subject to the 25% limit or P100
million, whichever is higher (2018 MORB, Sec. 362 (g)).

Q: What is the basis for determining compliance with the SBL?

The basis for determining compliance with the SBL is the total credit
commitment of the bank lo or on behalf of the borrower (GBL, Sec. 35.1).

Q: When may the SBL be increased?

Unless the Monetary Board prescribes otherwise, the limit may be increased
by an additional 10% of the net worth of such provided the additional
liabilities of any borrower are adequately secured by documents
transferring or securing title covering readily marketable, non-perishable
goods which must be fully covered by insurance (GBL, Sec. 35.2).

Q: What are the exceptions to the applicability of the single borrower's limit?

The single borrower's limit does not apply to the following cases:

In cases when the Monetary Board may otherwise prescribe for reasons of
national interest (GBL, Sec. 35.1);

1. Deposits of rural banks (RBs) with government-owned or

controlled financial institutions like the LBP, DBP and PND; and

2. In municipalities and cities where there are no government banks,

the deposits of RBs/Coop Banks in private banks in said areas shall
not be subject to the Single Borrower's Limit (2018 MORB, Sec. 362
(g)).

MATTERS INCLUDED IN THE PRESCRIBED CEILINGS FOR THE TOTAL

AMOUNT OF LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES
EXTENDED BY A BANK TO A BORROWER.

1. The liability of: The maker or acceptor of a paper discounted with or sold
to such bank; and A general indorser, drawer, or guarantor who obtains a
loan or other credit accommodation from or discounts papers with or sells
papers to such bank;

2. In the case of an individual who owns or controls a majority interest in a

corporation, partnership, association, or any other entity, the liabilities of
said entities to such bank;

3. In the case of a corporation, all liabilities to such bank of all subsidiaries

in which such corporation owns or controls a majority interest; and

4. In the case of a partnership, association or other entity, the liabilities of

the members thereof to such bank

EXCLUDED FROM THE SINGLE BORROWER'S LIMIT.

The SBL shall exclude loans, other credit accommodations:

1. Secured by obligations of the BSP or the Philippine Government;

2. Fully guaranteed by the Government as to the payment of
principal and interest;
3. Covered by Assignment of deposits maintained in the lending
bank and held in the Philippines;
4. Which the Monetary Board may specify as non-risk items.
5. Under letters of credit to the extent covered by Margin deposits;
and
6. Restrictions on Bank Exposure to Directors, Officers,
Stockholders, and their Related Interests
Q: What are the restrictions on transactions of a bank with its directors, officers,
stockholders and their related interests (DOSRI)?

No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others:

1. Borrow from such bank;

2. Become a guarantor, indorser or surety for loans from such bank to
others; or
3. In any manner be an obligor or incur any contractual liability to the bank
(GBL. Sec. 36).

Q: When are such restricted transactions of a bank with its DOSRI allowed?

The restricted transactions of a bank with its DOSRI is allowed with the
written approval of the majority of all the directors of the bank, excluding
the director concerned (GBL. Sec. 36).

Q: When is such written approval not required?

Such written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a fringe benefit
plan approved by the Bangko Sentral (GBL, Sec. 36)..

Q: What are the limitations on approved DOSRI transactions?

Transactions with DOSRI are limited by the following:

1. Arm's Length Rule:
2. Aggregate Ceiling:
3. Individual Ceiling (GBL, Sec. 36).

Q: What is the "Arm's Length Rule"?

The "Arm's Length Rule" provides that dealings of a bank with any of its
DOSRI shall be upon terms not less favorable to the bank than those
offered to others (GBL, Sec. 36).

Q: What is the aggregate ceiling?

The Monetary Board may regulate the amount of loans, credit

accommodations and guarantees that may be extended, directly or
indirectly, by a bank to its directors, officers, stockholders and their related
interests, as well as investments of such bank in enterprises owned or
controlled by said DOSRI (GBL, Sec. 36).
Such shall not exceed 15% of the total loan portfolio of the bank or 100% of
net worth whichever is lower (2018 MORB, Sec. 345).

Q: What is the individual ceiling?

The individual ceiling provides that the outstanding loans, credit

accommodations and guarantees which a bank may extend to each of 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 (GBL, Sec. 36).

Q: What are excluded from the individual ceiling?

The following are excluded from the individual ceiling:

1. Loans, credit accommodations and guarantees considered as non-risk by the
Monetary Board;
2. secured by assets
3. Loans, credit accommodations and advances to officers in the form of fringe
benefits granted in accordance with rules as may be prescribed by the
Monetary Board;
4. Loans, credit accommodations and guarantees extended by a cooperative
bank to its cooperative shareholders (GBL, Sec. 36).

Prohibited Acts of Borrowers

No borrower of a bank shall:

1. Fraudulently Overvalue property offered as security for a loan or

other credit accommodation from the bank;

2. Furnish False or make misrepresentation or suppression of

material facts for the purpose of obtaining, renewing, or
increasing a loan or other credit accommodation or extending the
period thereof;

3. Attempt to Defraud the said bank in the event of a court action to

recover a loan or other credit accommodation; or

4. Offer any director, officer, employee or agent of a bank any gift,

fee, commission, or any other form of compensation in order to
influence such persons into approving a loan or other credit
accommodation application (GBL, Sec. 55.2).

Floating Interest Rates and Escalation Clauses

Floating rates of interest refer to the variable interest rate stated on a

market- based reference rate agreed upon by the parties (Security Bank
Corp. vs. Spouses Mercado, G.R. Nos. 192934 & 197010, June 27, 2018).

Basis of floating rates of interest

The rate of interest on a floating rate loan during each interest period shall
be stated on the basis of Manila Reference Rates (MRRs), T-Bill Rates or
other market based reference rates plus a margin as may be agreed upon by
the parties (2018 MORB, Sec. 305).

Where the loan agreement provides for a floating interest rate, the interest period,
which shall be such period of time for which the rate of interest is fixed, shall be such
period as may be agreed upon by the parties (2018 MORB, Sec. 305).
Escalation clause

An escalation clause is a stipulation which provides that the rate of interest

agreed upon may be increased in the event that the applicable maximum
rate of interest in increased by the Monetary Board (2018 MORB, Sec. 305).

An escalation clause is valid only if there is also a stipulation in the

agreement that the rate of interest agreed upon shall be reduced in the
event that the applicable maximum rate of interest is reduced by law or by
the Monetary Board (2018 MORB, Sec. 305).

Q: When does the adjustment in the rate on interest take effect?

The adjustment in the rate of interest agreed upon shall take effect on or
after the effectivity of the increase or decrease in the maximum rate of
interest (2018 MORB, Sec. 305).

Q: What is the difference between a floating interest and an escalation clause?

An escalation clause refers to the method by which fixed rates may be
increased, while the floating rates of interest pertains to the interest rate
itself that is not fixed (Security Bank Corp. v. Spouscs Mercado, G.R. Nos.
192934 & 197010, June 27, 2018).

Q: What are the penalties for violation of the General Banking Law?
Unless otherwise herein provided, the violation of any of the provisions of
this Act 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 (GBL, Sec. 66).

PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT

The Philippine Deposit Insurance Corporation (PDIC), shall, as a basic

policy, promote and safeguard the interests of the depositing public by
providing insurance coverage on all insured deposits and helping
maintain a sound and stable banking system (R.A. No. 3591, as amended by
R.A. No. 10846, Sec. 1) [hereinafter, PDIC Law).

POWERS AND FUNCTIONS OF THE PHILIPPINE DEPOSIT

CORPORATION; PROHIBITIONS

The PDIC as a corporate body shall have the power to:

1. To make contracts;
2. To adopt and use a corporate seal;
3. To have succession until dissolved by an Act of Congress;
4. To sue and be sued, complain and defend, in any court of law in the
Philippines;
5. To appoint by its Board of Directors such officers and employees
as are not otherwise provided for in this Act to define their duties,
 fix their compensation, require bonds of them and fix penalty
thereof and to dismiss such officers and employees for cause;

6. To prescribe, by its Board of Directors, bylaws not inconsistent

with law, regulating the manner in which its general business may
be conducted, and the privileges granted to it by law may be
exercised and enjoyed;

7. To exercise by its Board of Directors, or duly authorized officers or

agents, all powers specifically granted by the provisions of this Act,
and such incidental powers as shall be necessary to carry on the
powers so granted;

8. To conduct examination of banks with prior approval of the

Monetary Board; and to inquire into or examine deposit accounts
and all information related thereto in case there is a finding of
unsafe or unsound banking practice;

9. To act as receiver.

10. To prescribe by its Board of Directors such rules and regulations

as it may deem necessary to carry out the provisions of this Act;

11. To establish its own provident fund for the payment of benefits to
such officers and employees or their heirs;

12. To comprise, condone or release, in whole or in part, any claim or

settled liability of the PDIC and to write off the PDIC's receivables
and assets which are no longer recoverable or realizable;

13. To determine qualified interested acquirers or investors for any of

the modes of resolution or liquidation of banks;

14. To determine the appropriate resolution method and to implement

the same for a bank subject of resolution;

15. To determine the appropriate mode of liquidation of a closed bank

and to implement the same (PDIC Law, Sec. 9).

Functions of the PDIC

1. To act as a deposit insurer;

2. To acts as a co-regulator of banks;
3. To act as the receiver or liquidator of closed banks (PDIC vs. Phil.
Countryside Rural Bank, Inc., G.R. No. 176438, Jan. 24, 2011).

Q: What are the responsibilities of the Board of Directors (BOD) of the PDIC?

The Board of Directors (BOD) of the PDIC shall:

1. Administer the affairs of the PDIC fairly and impartially and

without discrimination;
2. Appoint examiners who shall have the power, on behalf of the
PDIC to examine any insured bank;
 3. Appoint claim agents who shall have the power to investigate and
examine all claims for insured deposits and transferred deposits;
4. Appoint investigators who shall have the power on behalf of the
PDIC, to conduct investigations on frauds, irregularities and
anomalies committed in banks (PDIC Law, Sec. 10).

Q: What information from the Bangko Sentral are accessible to the PDIC?

The PDIC shall have access to:

1. Reports of examination made by, and reports of condition made to

the Bangko Sentral or its appropriate supervising departments;
and
2. Reports, findings and any other information derived from any
special or general examination of inquiry conducted by the Bangko
Sentral in respect to bank fraud or serious irregularity in an
insured bank (PDIC Law, Sec 10(d)).

Q: What are the prohibitions on the personnel of the PDIC?

Personnel of the PDIC are prohibited from:

1. Being an officer, director, consultant, employee or stockholder,

directly or indirectly, of any bank or banking institution except as
otherwise provided in this Act;
2. Receiving any gift or thing of value from any officer, director or
employee thereof:
3. Revealing in any manner, except under order of the court or
authorized heroin in such condition or business of any such
institution (PDIC Law as amended, Sec. 10(e));
4. Borrowing from any bank or banking institution with respect to
the particular institution in which they are assigned, or are
conducting an examination;
5. Borrowing from any bank or banking institution during the period
of time that a transaction of such institution with the PDIC is being
evaluated, processed or acted upon by such personnel (PDIC Law
as amended, Sec. 10(i)).
Note: The prohibition on revealing the condition or business of any
institution shall not be held to apply to the giving of information to
the Board of Directors, the President of the PDIC, Congress, any
agency authorized by law, or to any person authorized by either of
them in writing to receive such information (PDIC Law as
amended, Sec. 10(e)).

CONCEPT OF INSURED DEPOSITS

The term 'insured deposit' means the amount due to any bona fide depositor
for legitimate deposits in an insured bank net of any obligation of the
depositor to the insured bank as of date of closure, but not to exceed
P500,000.00 (PDIC Law, Sec. 5()).

Note: Any obligation of a bank which is payable at the office of the bank
located outside of the Philippines shall not be a deposit for any of the
purposes of this Act or included as part of the total deposits or of insured
deposit (PDIC Law, Sec. 5(g)).

LIABILITY TO DEPOSITORS

The deposit liabilities of any bank which is engaged in the business of

receiving deposits shall be insured with the PDIC (PDIC Law, Sec. 6).

Note: Foreign currency deposits shall be insured by the PDIC (R.A. 6426,
Sec. 9).

Whenever an insured bank shall have been closed by the Monetary Board
pursuant to Section 30 of Republic Act No. 7653, or upon expiration or
revocation of a bank's corporate term, payment of the insured deposits on
such closed bank shall be made by the PDIC as soon as possible (PDIC Law,
Sec. 19).

Q: What deposit accounts and transactions are not entitled to the payment of
deposit insurance?

The PDIC shall NOT pay deposit insurance for the following accounts or
transactions:

1. Investment products such as bonds, securities, trust accounts, and other

similar instruments;
2. Deposit accounts or Transactions which are unfunded, fictitious or
fraudulent;
3. Deposit accounts or transactions constituting, and/or emanating from,
unsafe and unsound banking practices;
4. Deposits that are determined to be proceeds of an unlawful activity as
defined under the Anti-Money Laundering Law (PDIC LAW. Sec. 5(g)).

Q: When may the maximum deposit insurance coverage be adjusted?

In case of a condition that threatens the monetary and financial stability of

the banking system that may have systemic consequences, as defined in
Section 22 of the PDIC Law, as determined by the Monelary Board, the
maximum deposit insurance cover may be adjusted in such amount, for such
a period, and/or for such deposit products, as may be determined by a
unanimous vote of the Board of Director (POIC LAW, Sec. 5 ()).

Q: How is Insurance coverage determined?

In determining such amount due to any depositor there shall be added
together all deposits in the bank maintained in the same right and capacity
for his or her benefit either in his or her own name or in the name of others
(PDIC Law, Sec. 5(j)).

Note: The PDIC shall commence the determination of insured deposits due
to the depositors of a closed bank upon its actual takeover of the closed bank
(PDIC Law, Sec. 21(a)).

Q: What are the rules on the insured deposit of joint accounts?

A joint account regardless of whether the conjunction 'and', 'or', 'and/or' is
used, shall be insured separately from any individually-owned deposit
account provided that:

1. If the account is held jointly by two or more natural persons, or by

two or more juridical persons or entities, the maximum insured
deposit shall be divided into as many equal shares as there are
individuals, juridical persons or entities, unless a different sharing
is stipulated in the document of deposit;
2. If the account is held by a juridical person or entity jointly with
one or more natural persons, the maximum insured deposit shall
be presumed to belong entirely to such juridical person or entity;
and
3. The aggregate of the interest of each co-owner over several joint
accounts, whether owned by the same or different combinations of
individuals, juridical persons or entities, shall likewise be subject
to the maximum insured deposit of P500,000.00 (PDIC LAW, Sec.
5()).

Q: What are the modes of payment for the insured deposits?

Payment of the insured deposits shall be made by the PDIC either (1) by
cash or (2) by making available to each depositor a transferred deposit in
another insured bank in an amount equal lo insured deposit of such
depositor (PDIC Law, Sec. 19).

Q: What is the effect of payment of the insured deposit by the PDIC?

Payment of an insured deposit to any person by the PDIC through any of

the modes of payment under Section 19, shall discharge the PDIC from its
liability for the insured deposit (PDIC Law, Sec. 21(b)).

Note: The PDIC, upon payment, shall be subrogated to all rights of the
depositor against the closed bank to the extent of such payment (PDIC
Law, Scc. 20).

Q: Why are payments made by the PDIC for insured deposits in closed banks
considered as preferred credit?

All payments by the corporation of insured deposits in closed banks partake

of the nature of public funds, and as such, must be considered a preferred
credit in the order of preference under Article 2244(9) of the New Civil Code
(PDIC Law, Sec. 20).

Q: What is the effect of the failure of the PDIC to settle the claims of the insured
depositor?

Failure to settle the claim, within 6 months from the date of filing of claim
for insured deposit, where such failure was due to grave abuse of discretion,
gross negligence, bad faith, or malice, shall, upon conviction, subject the
directors, officers or employees of the PDIC responsible for the delay, to
imprisonment from 6 months to 1 year (PDIC Law. Sec. 19).
Note: The period shall not apply if the validity of the claim requires the
resolution of issues of facts and or law by another office, body or agency
(PDIC Law, Sec. 19).

Failure of Depositor to Claim Insured Deposits

Unless otherwise waived by the Corporation, if the depositor in the closed

bank shall fail to claim his insured deposits with the Corporation within 2
years from actual takeover of the closed bank by the receiver, or does not
enforce his claim filed with the PDIC within 2 years after the two-year
period to file a claim as mentioned hereinabove, all rights of the depositor
against the PDIC with respect to the insured deposit shall be barred (PDIC
Law, Sec. 21€).
Note: All rights of the depositor against the closed bank and its shareholders or the
receivership estate to which the PDIC may have become subrogated, shall thereupon
revert to the depositor. Thereafter, the PDIC shall be discharged from any liability on
the insured deposit (PDIC Law, Sec. 21€).

Q: When may the PDIC conduct examination of banks?

The PDIC has the power to conduct examination of banks with prior
approval of the Monetary Board, provided that no examination can be
conducted with 12 months from the last examination date (PDIC Law, Sec.
9).

Q: When may the PDIC conduct a special examination of banks?

The PDIC may, in coordination with the Bangko Sentral, conduct a special
examination as the BOD, by an affirmative vote of a majority of all of its
members, if there is a threatened or impending closure of bank (PDIC Law,
Sec. 9).

Q: When may the PDIC examine deposit accounts?

The PDIC may examine deposit accounts and all information related
thereto in case there is a finding of unsafe or unsound banking practice
(PDIC Law, Sec. 9).

Q: When may the PDIC conduct an insurance risk evaluation on a bank?

Whenever a bank is determined by the Bangko Sentral to be capital
deficient, the PDIC may conduct an insurance risk evaluation on the bank
to enable it to assess the risks to the DIF (PDIC Law, Sec. 6).

Q: What is splitting of deposits?

Splitting of deposits occurs whenever a deposit account with an

outstanding balance of more than the statutory maximum amount of
insured deposit maintained under the name of natural or juridical persons
is broken down or transferred into 2 or more accounts in the name/s of
natural or juridical persons or entities who have no beneficial ownership
on transferred deposits in their names within 120 days immediately
preceding or during a bank declared bank holiday, or immediately
preceding a closure order issued by the Monetary Board of the BSP for the
purpose of availing of the maximum deposit insurance coverage (PDIC Law,
Sec. 26()(1)(e)).

Note: Splitting of deposits is not allowed under the PDIC Law. Directors, officers and
agents of a bank are prohibited from splitting of deposits or creation of fictitious or
fraudulent loans or deposit accounts (PDIC Law, Sec. 26(1)(1)(e)).

Q: When may the court restrain actions of the PDIC with respect to non-payment of
deposit insurance under Section 5(g)?

The actions of the PDIC for the non-payment of deposit insurance taken
under Section 5(g) shall be final and executory, and may only be restrained
or set aside by the CA, upon appropriate petition for certiorari on the
ground that the action was taken in excess of jurisdiction or with such grave
abuse of discretion as to amount to a lack or excess of jurisdiction (PDIC
LAW, Sec. 5(g)).

Note: The petition may only be filed within 30 days from notice of denial of claim for
deposit insurance (PDIC LAW, Sec. 5(g)).

CONCEPT OF BANK RESOLUTION

Resolution refers to the actions undertaken by the PDIC under Section 11 of this
Act to:
1. Protect depositors, creditors and the Deposit Insurance Fund;
2. Safeguard the continuity of essential banking services or maintain
financial stability; and
3. Prevent deterioration or dissipation of bank assets (PDIC Law, Sec. 5(s)).

Q: When may the corporation commence the resolution of a bank?

The PDIC, in coordination with the Bangko Sentral, may commence the resolution
of a bank upon:

1. Failure of prompt corrective action as declared by the Monetary Board; or

2. Request by a bank to be placed under resolution (PDIC Law, Sec. 11(a)).

Note: Within a period of 180 days from a bank's entry into resolution, the
PDIC, through the affirmative vote of at least 5 members of the PDIC
Board, shall determine whether the bank may be resolved through the
purchase of all its assets and assumption of all its liabilities, or merger or
consolidation with, or its acquisition, by a qualified investor (PDIC Law,
Sec. 11(e)).

ROLE OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION IN

RELATION TO BANKS IN DISTRESS

The relationship between the Philippine Deposit Insurance Corporation and a closed
bank is fiduciary in nature. Section 30 of R.A. No. 7653 directs the receiver of a closed
bank to "immediately gather and take charge of all the assets and liabilities of the
institution" and "administer the same for the benefit of its creditors" (Banco Filipino
Savings and Mortgage Bank v. Bangko Sentral ng Pilipinas, G.R. No. 200678, June
4, 2018).
Q: What is the role of the PDIC in relation to banks in distress?

The following are the roles of the PDIC with respect to handling banks in distress:

1. Closure and takeover - Upon the designation of the PDIC as receiver of

a closed bank, it shall serve a notice of closure to the highest-ranking
officer of the bank present in the bank premises, or in the absence of such
officer, post the notice of closure in the bank premises or on its main
entrance.

The closure of the bank shall be deemed effective upon the service of the
notice of closure. Thereafter, the receiver shall takeover the bank and
exercise the powers of the receiver as provided in this Act (PDIC Law as
amended, Sec. 14(a))

Note: The receiver shall have authority to use reasonable force, including the
authority to force open the premises of the bank, and exercise such acts necessary to
take actual physical possession and custody of the bank and all its assets, records,
documents, and take charge of its affairs upon the service of the notice of closure
(PDIC Law as amended. Sec. 14(b)). Conservatorship The PDIC may be designated
as a conservator (Rural Bank of Sta. Catalina Inc. v. Land Bank of the Phils., G.R.
No. 148019, July 26, 2004).

The Monetary Board may designate the PDIC as receiver of the banking institution
(R.A. No. 7653 as amended, Sec. 30).

The PDIC, as the receiver, shall be authorized to:

a. Adopt and implement, without need of consent of the stockholders, board

of directors, creditors or depositors of the closed bank, any or a
combination of the following modes of liquidation: (1) Conventional
liquidation; and (2) Purchase of assets and/or assumption of liabilities;
Represent and act for and on behalf of the closed bank;
b. Gather and take charge of all the assets, records and affairs of the closed
bank, and administer the same for the benefit of its creditors;
c. Convert the assets of the closed bank to cash or other forms of liquid
assets;
d. Bring suits to enforce liabilities of those related or connected to the closed
bank or to collect, recover, and preserve all assets, including assets over
which the bank has equitable interest;
e. Appoint or hire persons or entities to perform such powers and functions
of the PDIC as receiver of the closed bank, or assist in the performance
thereof;
f. Appoint or hire persons or entities of recognized competence in forensic
and fraud investigations;
g. Pay accrued utilities, rentals and salaries of personnel of the closed bank
for a period not exceeding three 3 months, from available funds of the
closed bank;
h. Collect loans and other claims of the closed bank and for this purpose,
modify, compromise or restructure the terms and conditions of such; Hire
or retain private counsel;
i. Borrow or obtain a loan, or mortgage, pledge or encumber any asset of the
closed bank, or to redeem foreclosed assets of the closed bank, or to
minimize losses to its depositors and creditors;
 j. If the stipulated interest rate on deposits is unusually high compared with
prevailing applicable interest rates, to include a reduction of the interest
rate to a reasonable rate;
k. Utilize available funds of the bank, including funds generated by the
receiver from the conversion of assets to pay for reasonable costs and
expenses incurred for the preservation of the assets, and liquidation of,
the closed bank, without need for approval of the liquidation court; Charge
reasonable fees for the liquidation of the bank from the assets of the bank,
provided, that payment of these fees, including any unpaid advances
under the immediately preceding paragraph, shall be subject to approval
by the liquidation court;
l. Distribute the available assets of the closed bank to its creditors in
accordance with the Rules on Concurrence and Preference of Credits;
Dispose records of the closed bank that are no longer needed in the
liquidation in accordance with guidelines set by the PDIC Board of
Directors;
m. Exercise such other powers as are inherent and necessary for the effective
discharge of the duties (PDIC Law, Sec. 13).

2. Liquidation - Whenever a bank is ordered closed by the Monetary Board,

the PDIC shall be designated as receiver and it shall proceed with the
takeover and liquidation of the closed bank (PDIC Law, Sec. 12).

When a bank is placed under liquidation, the PDIC:

a. Shall represent the closed bank in all cases by or against the closed bank
and prosecute and defend suits by or against it;
b. Shall exercise all authorities as may be required to facilitate the
liquidation of the closed bank for the benefit of all its creditors;
c. Be the custodian of all the assets of the closed bank (custody legis); May
cancel, terminate, rescind or repudiate any contract of the closed bank
that is not necessary for the orderly liquidation of the bank, or is grossly
disadvantageous to the closed bank
d. Shall have the authority (without need for approval of the liquidation
court) to assign, as payment to secured creditors, the bank assets serving
as collaterals to their respective loans up to the extent of the outstanding
obligations, including interest as of date of closure of the bank;
e. May file a motion to suspend, for a period not exceeding 180 days, actions
pending for or against the closed bank in any court or quasi- judicial body
(except actions pending before the SC) (PDIC Law, Sec. 13).