NEW CENTRAL BANK ACT
(Republic Act No. 7653)
As Amended by R.A. 11211
SECTION 29. Appointment of Conservator. — Whenever, on the basis of a report submitted by
the appropriate supervising or examining department, the Monetary Board finds that a bank or
a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary
Board may appoint a conservator with such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities, and the management thereof, reorganize the
management, collect all monies and debts due said institution, and exercise all powers
necessary to restore its viability. The conservator shall report and be responsible to the
Monetary Board and shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi-bank.
The conservator should be competent and knowledgeable in bank operations and
management. The conservatorship shall not exceed one (1) year.
The conservator shall receive remuneration to be fixed by the Monetary Board in an amount
not to exceed two-thirds (2/3) of the salary of the president of the institution in one (1) year,
payable in twelve (12) equal monthly payments: Provided, That, if at any time within one-year
period, the conservatorship is terminated on the ground that the institution can operate on its
own, the conservator shall receive the balance of the remuneration which he would have
received up to the end of the year; but if the conservatorship is terminated on other grounds,
the conservator shall not be entitled to such remaining balance. The Monetary Board may
appoint a conservator connected with the Bangko Sentral, in which case he shall not be entitled
to receive any remuneration or emolument from the Bangko Sentral during the
conservatorship. The expenses attendant to the conservatorship shall be borne by the bank or
quasi-bank concerned.
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution
can continue to operate on its own and the conservatorship is no longer necessary. The
conservatorship shall likewise be terminated should the Monetary Board, on the basis of the
report of the conservator or of its own findings, determine that the continuance in business of
the institution would involve probable loss to its depositors or creditors, in which case the
provisions of Section 30 shall apply.
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the
head of the supervising or examining department, the Monetary Board finds that a bank or
quasi-bank:
(a) has notified the Bangko Sentral or publicly announced a unilateral closure, or has been
dormant for at least sixty (60) days or in any manner has suspended the payment of its
deposit/deposit substitute liabilities, or is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities;
or
(c) cannot continue in business without involving probable losses to its depositors or creditors;
or
(d) has willfully violated a cease and desist order under Section 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation (PDIC) as receiver in the case of banks and direct the
PDIC to proceed with the liquidation of the closed bank pursuant to this section and the
relevant provisions of Republic Act No. 3591, as amended. The Monetary Board shall notify in
writing, through the receiver, the board of directors of the closed bank of its decision.
For a quasi-bank, any person of recognized competence in banking or finance may be designed
as receiver.
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall
be final and executory, 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. The petition for
certiorari may only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the institution of the
order directing receivership, liquidation or conservatorship. The designation of a conservator
under Section 29 of this Act or the appointment of a receiver under this section shall be vested
exclusively with the Monetary Board. Furthermore, the designation of a conservator is not a
precondition to the designation of a receiver.
The authority of the Monetary Board to summarily and without need for prior hearing forbid
the bank or quasi-bank from doing business in the Philippines as provided above may also be
exercised over non-stock savings and loan associations, based on the same applicable grounds.
For quasi-banks and non-stock savings and loan associations, any person of recognized
competence in banking, credit or finance may be designated by the Bangko Sentral as a
receiver.
HOW BSP HANDLES BANKS IN DISTRESS
In case of a distressed bank, the BSP appoints a conservator or receiver or closure of the bank.
CONSERVATORSHIP
Conservator
One appointed if the bank is in the state of illiquidity or the bank fails or refuses to maintain a
state of liquidity adequate to protect its depositors and creditors. The bank still has more assets
than its liabilities but its assets are not liquid or not in cash thus it cannot pay its obligation
when it falls due. The bank, not the BSP, pays for fees.
Powers of a conservator
1. Collect all monies and debts due to the said bank
2. To take charge of the Assets, liabilities, and the management thereof
3. REorganize, the management thereof
4. And such other powers as the monetary Board deems necessary
5. 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
6. To bring court actions to Assail or Repudiate contracts entered into by the bank. (First
Philippine International Bank v. CA, G.R. No. 115849, Jan. 24, 1996).
Powers of a conservator do not extend to the revocation of valid and perfected contracts
The powers of a conservator cannot extend to post facto repudiation of valid and perfected
transactions. Thus, the law merely gives the conservator power to revoke contracts that are
deemed to be defective- void, voidable, unenforceable or rescissible. Hence, the conservator
merely takes the place of the bank’s board. (First Philippine International Bank v. CA, supra.)
Termination of conservatorship
Conservatorship is terminated when the Monetary Board is satisfied that the bank can operate
on its own.
NOTE: When the Monetary Board, on the basis of the report of the conservator or of its own
findings, determine that the continuance in business of the institution would involve probable
losses to its depositors or creditors, the bank will go under liquidation.
CLOSURE
Grounds for closure of a bank or a quasi-bank
1. Cash Flow test - Inability to pay liabilities as they become due in the ordinary course of
business (NCBA, Sec. 30 [a], 1997 Bar).
2. Balance sheet test – Insufficiency of realizable assets to meet its liabilities (NCBA, Sec 30 [b],
1997 Bar).
3. Inability to continue business without involving probable losses to its depositors and
creditors (NCBA, Sec 30 [c], 1997 Bar).
4. Willful violation of a cease and desist order under Section 37 that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets (NCBA, Sec 30 [d],
1997 Bar).
5. Notification to the BSP or public announcement of a bank holiday (GBL, Sec 53).
6. Suspension of payment of its deposit liabilities continuously for more than 30 days (GBL, Sec
53).
7. Persisting in conducting its business in an unsafe or unsound manner (GBL, Sec 56).
Close now-hear later doctrine
It 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 the general public. The law does
not contemplate prior notice and hearing before the bank may be directed to stop operations
and placed under receivership (Central Bank of the Philippines v. CA, G.R. No. 76118 Mar. 30,
1993).
No prior hearing is necessary in appointing a receiver and in closing the bank. It is enough that
subsequent judicial review is provided for. Indeed, to require such previous hearings would not
only be impractical but would tend to defeat the very purpose of the law (Rural Bank of Lucena
v. Arca, G.R. No. L-21146, September 20, 1965).
BSP may order the closure of the bank even without prior hearing. BSP may rely on the report
of either the conservator, receiver or the head of the supervising and examining department. It
is not required to conduct a thorough audit of the bank before ordering its closure. The "close
now, hear later’’ doctrine justifies BSP in ordering bank closures even without prior hearing.
Thus, injunction does not lie against BSP in the exercise of the power and function. A contrary
rule may lead to dissipation of assets and trigger bank run. Judicial review comes only after
action of the Monetary Board if the same was attended with bad faith and grave abuse of
discretion (Bangko Sentral ng Pilipinas v. Valenzuela, G.R. No. 184778, October 2, 2009).
The closure and liquidation of a bank, which is considered an exercise of police power may be
the subject of judicial inquiry
The validity of such exercise of police power is subject to judicial inquiry and could be set aside
if it is either capricious, discriminatory, whimsical, arbitrary, unjust or a denial or due process
and equal protection clauses of the Constitution (Central Bank v. CA, G.R. No. L-50031-32, July
27, 1981).
The order of closure (receivership or conservatorship) may be assailed: a) by the stockholders
representing at least majority of the outstanding capital stock; b) within ten days from receipt
by the board of directors of the order; c) thru a petition for certiorari on the ground that the
action taken by the BSP was in excess of jurisdiction or with grave abuse of discretion as to
amount to lack of jurisdiction.
Under R.A .No. 7653, the power of the Monetary Board (MB) over banks, including rural banks,
was increased and expanded. The Court, in several cases, upheld the power of the MB to take
over banks without need for prior hearing. It is not necessary inasmuch as the law entrusts to
the MB the appreciation and determination of whether any or all of the statutory grounds for
the closure and receiver-ship of the erring bank are present. The MB, under R.A. No. 7653, has
been invested with more power of closure and placement of a bank under receivership for
insolvency or illiquidity, or because the bank’s continuance in business would probably result in
the loss to depositors or creditors.
The doctrine is founded on practical and legal considerations to obviate 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. Swift, adequate and determined
actions must be taken against financially distressed and mismanaged banks by government
agencies lest the public faith in the banking system deteriorate to the prejudice of the national
economy. (Vivas, on his behalf and on behalf of the Shareholders of Eurocredit Community Bank
v. The Monetary Board of the Bangko Sentral ng Pilipinas, G.R. No. 191424, August 07, 2013).
Bank not liable to pay interest when closed
As a general rule, the bank is not liable to pay interest on DEPOSIT once it is closed and ceased
operations.
