Philippine General Banking Law (Republic Act No.

8791) Hierarchical Structure and Regulatory Coverage

The General Banking Law of 2000 (Republic Act No. 8791) serves as the The classification system creates a hierarchical structure that reflects the
primary legislative framework governing the Philippine banking system. This law scope of activities, capitalization requirements, and regulatory oversight applicable to
regulates the organization, operations, and administration of banks, quasi-banks, and each category. Universal Banks sit at the top of this hierarchy with the broadest
trust entities in the Philippines. This report analyzes the key provisions of this law, powers and highest capital requirements, while specialized banks like Rural Banks
focusing on bank classifications, regulatory frameworks, and operational guidelines. and Cooperative Banks operate under more targeted regulatory frameworks
designed to address their specific market segments and functions.

A. Classification of Banks
B. Quasi-Banks and Trust Entities
The General Banking Law of 2000 establishes a clear classification
system for banking institutions in the Philippines. Section 3.2 of RA 8791 explicitly The General Banking Law extends regulatory oversight beyond traditional banking
categorizes banks into several distinct types to facilitate appropriate regulation and institutions to include quasi-banks and trust entities, recognizing their significant role
supervision based on their specific functions and capitalization requirements. in the financial system.

Banks in the Philippines are officially classified into the following categories:
Definition and Scope of Quasi-Banks

1. Universal Banks (UB) - These institutions have the broadest range of banking
According to the law, "quasi-banks" refers to entities engaged in the borrowing of
powers, including commercial banking functions and investment house
funds through the issuance, endorsement or assignment with recourse or acceptance
operations.
of deposit substitutes as defined in Section 95 of Republic Act No. 7653 (the New
2. Commercial Banks (CB) - These focus primarily on traditional banking
Central Bank Act). These institutions perform bank-like functions but do not meet the
functions.
full definition of a traditional bank.
3. Thrift Banks - This category includes:
○ Savings and mortgage banks The Bangko Sentral ng Pilipinas (BSP) maintains supervision over the operations
○ Stock savings and loan associations of and exercises regulatory powers over these quasi-banks, trust entities, and other
○ Private development banks (as defined in Republic Act No. 7906, the financial institutions which under special laws are subject to BSP supervision. This
Thrift Banks Act) extension of regulatory authority ensures that even non-traditional banking entities
4. Rural Banks (as defined in Republic Act No. 7353, the Rural Banks Act) maintain appropriate standards of operation and financial stability.
5. Cooperative Banks (as defined in Republic Act No. 6938, the Cooperative Code)
6. Islamic Banks (as defined in Republic Act No. 6848, the Charter of Al Amanah
Islamic Investment Bank of the Philippines) Regulatory Authority
7. Other classifications as determined by the Monetary Board of the Bangko
Sentral ng Pilipinas The law firmly establishes that no person or entity shall engage in banking
operations or quasi-banking functions without authority from the Bangko Sentral.
It is important to note that while the General Banking Law primarily governs However, an entity authorized by the Bangko Sentral to perform universal or
Universal Banks and Commercial Banks, it has suppletory application to Thrift Banks, commercial banking functions automatically has the authority to engage in quasi-
Rural Banks, and Cooperative Banks, which are primarily regulated by their banking functions as well.
respective specialized laws.
The Monetary Board has the ultimate authority to determine whether a person or
entity is performing banking or quasi-banking functions without proper authorization.
To resolve such issues, the Monetary Board may, through appropriate supervising
departments, examine, inspect, or investigate the books and records of such entities.
C. Bank's Powers and Liabilities D. Nature of Bank Funds and Deposits

The General Banking Law defines the fundamental powers of banks while The General Banking Law establishes fundamental principles regarding the legal
establishing clear boundaries through prohibited transactions and activities to nature of bank funds and deposits, which form the foundation of the banking
prevent abuses and maintain system integrity. relationship.

Core Banking Functions Legal Relationship Between Banks and Depositors

Banks are defined as "entities engaged in the lending of funds obtained in the form Bank deposits create a debtor-creditor relationship between the bank and the
of deposits". This definition establishes the core functions of banks as the depositor. When a customer deposits funds with a bank, the bank becomes the
mobilization of savings through deposit-taking and the allocation of resources debtor and the depositor becomes the creditor. This understanding has significant
through lending activities. legal implications for how deposits are treated, protected, and regulated.

Under this framework, bank deposits are legally considered loans from the depositor
Prohibited Transactions
to the bank. The bank acquires ownership of the deposited funds but incurs a
corresponding obligation to return an equivalent amount to the depositor according
Section 55 of the law outlines specific prohibited transactions for directors, officers,
to the terms of their agreement.
employees, and agents of banks. These include:

1. Making false entries in bank reports or participating in fraudulent Classification of Bank Funds and Deposits
transactions
2. Disclosing information about bank deposits without court order Bank funds are categorized into several classifications:
3. Accepting gifts, fees, or commissions in connection with loan approvals
4. Overvaluing securities to influence bank actions 1. Deposit Liabilities - All types of deposits accepted by the bank,
5. Outsourcing inherent banking functions representing obligations to depositors
2. Capital Accounts - Representing the equity of the bank's shareholders
Similarly, borrowers are prohibited from: 3. Other Liabilities - Additional financial obligations not classified as deposit
liabilities or capital
1. Fraudulently overvaluing property offered as loan security
2. Furnishing false information to obtain, renew, or increase loans Bank deposits themselves are generally classified as:
3. Attempting to defraud the bank in court actions to recover loans
4. Offering any form of compensation to bank personnel to influence loan 1. Demand deposits - Withdrawable on demand (typically checking accounts)
approval 2. Savings deposits - Basic savings accounts with withdrawal privileges
3. Time deposits - Funds deposited for a specified term, often with penalties
These prohibitions establish a framework of accountability and ethical conduct that for early withdrawal
protects the integrity of banking transactions and relationships.
This classification system helps regulate the different types of deposits based on
their liquidity characteristics and the corresponding reserve requirements and
interest rate policies.
E. Organization, Administration, and Management F. Grant of Loans and Security Requirements

The General Banking Law provides comprehensive guidelines for the establishment, The General Banking Law establishes parameters for lending activities, which
organization, and management of banking institutions in the Philippines. represent one of the core functions of banking institutions.

Bank Organization Requirements. The Monetary Board may authorize the Security Requirements for Loans
organization of a bank or quasi-bank subject to specific conditions:
The law contains provisions regarding security requirements for loans, with ongoing
1. The entity must be a stock corporation legislative efforts to strengthen these requirements. Senate Bill No. 1859 (13th
2. Its funds must be obtained from the public, defined as twenty (20) or more Congress) sought to amend Section 40 of RA 8791 to require audited financial
persons statements submitted to tax authorities as minimum security requirements for bank
3. The minimum capital requirements prescribed by the Monetary Board for loans.
each category of banks must be satisfied
Prohibited Loan Practices
The law specifically noted that no new commercial bank shall be established within
three years from the effectivity of the Act, demonstrating a controlled approach to
The law explicitly prohibits several practices related to lending:
market entry.
1. Bank personnel are prohibited from accepting gifts, fees, commissions, or
Bank Licensing Process. The bank licensing process incorporates a thorough any other form of remuneration in connection with loan approvals
assessment of several critical elements: 2. Overvaluation of securities for the purpose of influencing bank actions is
forbidden
1. The bank's ownership structure 3. Borrowers are prohibited from fraudulently overvaluing property offered as
2. Directors and senior management qualifications security for loans
3. Operating plan and internal controls 4. Borrowers must not furnish false information or misrepresent material facts
4. Projected financial condition and capital base when obtaining, renewing, or increasing loans
5. Borrowers are prohibited from attempting to defraud the bank in court
These requirements ensure that only qualified entities with adequate resources, actions related to loan recovery
competent leadership, and sound business plans can enter the banking sector.
These prohibitions aim to maintain the integrity of the lending process and prevent
fraudulent practices that could undermine the stability of the banking system.
Stock Issuance and Management

The law empowers the Monetary Board to prescribe rules and regulations regarding
the types of stocks a bank may issue, including their terms and appurtenant rights.
These regulations ensure compliance with laws governing capital and equity
structure, with the specific requirement that banks shall issue par value stocks only.

The law also contains provisions regarding treasury stocks, though the search results
don't provide complete details on these provisions.
 The New Central Bank Act (Republic Act No. 7653) B. Monetary Board

The New Central Bank Act (Republic Act No. 7653), as amended by The Monetary Board (MB) serves as the principal policy-making body of
Republic Act No. 11211, establishes the Bangko Sentral ng Pilipinas (BSP) as the the BSP, wielding substantial authority over monetary policy and financial system
central monetary authority of the Philippines. This report examines the key regulation. The MB issues rules and regulations necessary for the effective discharge
provisions of this legislation, focusing on the BSP's objectives, governance structure, of its responsibilities, which are reported to the President and Congress within fifteen
and regulatory powers in managing distressed financial institutions. The information days of issuance. This reporting requirement ensures accountability in the exercise of
presented is drawn from official BSP documentation and legislative sources, providing the Board's regulatory powers.
an authoritative overview of the legal framework governing the Philippine central
banking system. The MB directs the management, operations, and administration of the BSP,
with authority to reorganize personnel and issue rules for this purpose. Notably, the
legal units of the BSP fall under the exclusive supervision and control of the MB,
A. Primary Objective and Other Responsibilities of the BSP
reinforcing its oversight capacity.

The Bangko Sentral ng Pilipinas operates with a clear primary objective: to

A key function of the MB is establishing a human resource management
maintain price stability conducive to a balanced and sustainable growth of the
system governing the selection, hiring, appointment, transfer, promotion, and
economy and employment. This core mandate establishes the BSP's fundamental
dismissal of all personnel. This system aims to establish professionalism and
role in supporting macroeconomic stability.
excellence within the BSP in accordance with sound management principles. The MB
implements a compensation structure based on job evaluation studies and wage
Beyond this primary objective, the BSP is entrusted with several critical
surveys as an integral component of the BSP's human resource development
responsibilities that shape the financial landscape of the Philippines. It provides
program.
policy direction in the areas of money, banking, and credit, establishing the
regulatory framework within which financial institutions operate. The BSP also
The MB possesses exclusive and final authority to promote, transfer, assign,
supervises bank operations and exercises regulatory and examination powers over
or reassign BSP personnel, with these actions deemed made in the interest of service
quasi-banking operations of non-bank financial institutions as provided under the law.
rather than for disciplinary purposes. While the MB may delegate authority to the
Governor under established guidelines, it retains ultimate responsibility for personnel
Additionally, the BSP is responsible for promoting and maintaining monetary
management.
stability and the convertibility of the peso, a crucial function in supporting
international trade and investment. It works closely with government entities
Financial oversight is another critical MB function, as it adopts an annual
including the Department of Finance, Securities and Exchange Commission,
budget and authorizes expenditures necessary for effective administration and
Insurance Commission, and Philippine Deposit Insurance Corporation to promote
operations in accordance with applicable laws and regulations.
financial stability through coordinated regulatory approaches.

The BSP also oversees the payments and settlement systems in the C. When Banks are in Distressed Condition
Philippines, including critical financial market infrastructures, to promote sound
practices consistent with financial stability. A significant aspect of its mandate is The New Central Bank Act establishes clear criteria for identifying distressed
promoting broad and convenient access to high-quality financial services while financial institutions. According to Section 30 of the Act, the Monetary Board may
considering the general public's interest, supporting financial inclusion initiatives. determine a bank or quasi-bank to be in distress upon findings from the supervising
or examining department that include several specific conditions.

A financial institution may be deemed distressed if it is unable to pay its

liabilities as they become due in the ordinary course of business. However, the law
makes an important distinction that inability to pay caused by extraordinary demands creditors and exercises the general powers of a receiver under the Revised Rules of
induced by financial panic in the banking community is excluded from this criterion, Court.
preventing hasty regulatory actions during system-wide distress.
Importantly, with the exception of administrative expenditures, the receiver
Another indicator of distress is when a financial institution has insufficient may not pay or commit any act involving the transfer or disposition of any asset of
realizable assets, as determined by the Bangko Sentral, to meet its liabilities. This the institution. This restriction helps preserve the asset base while the receiver
insolvency measure focuses on the institution's balance sheet rather than immediate conducts its assessment. However, the receiver may deposit or place the institution's
liquidity concerns. funds in nonspeculative investments to protect their value.

The Monetary Board may also find an institution in distress if it cannot The receivership process includes a critical evaluation period. The receiver
continue in business without involving probable losses to its depositors or creditors. must determine as soon as possible, but not later than ninety days from takeover,
This forward-looking criterion allows regulatory intervention before actual losses whether the institution may be rehabilitated or otherwise placed in a condition
materialize. allowing it to resume business with safety to its depositors, creditors, and the
general public. Any determination for business resumption requires prior approval
Additionally, willful violation of a cease and desist order under Section 37 from the Monetary Board.
that has become final, involving acts or transactions which amount to fraud or
dissipation of the institution's assets, constitutes grounds for determining an
G. Rehabilitation Options
institution to be in distress. This provision addresses deliberate misconduct by
financial institution management.
The New Central Bank Act provides the receiver with substantial authority to
implement rehabilitation measures. To rehabilitate a closed institution or restore its
E. Closure of Financial Institutions operations safely, the receiver may immediately transfer or dispose of any or all
assets of the closed institution. The receiver may also cause quasi-reorganization of
When a financial institution meets any of the distress criteria outlined in the the institution and undertake other acts as authorized by law.
Act, the Monetary Board may take decisive action. The Board has the authority to
summarily and without need for prior hearing forbid the institution from doing These powers give the receiver flexibility to implement various restructuring
business in the Philippines. This closure power represents one of the most significant strategies, potentially including mergers, acquisitions, or substantial reorganization of
regulatory interventions available to the BSP in addressing troubled financial the institution's operations and financial structure. Such measures aim to preserve
institutions. the institution's value and potentially allow for its return to normal operations.

Upon closure, the Monetary Board designates the Philippine Deposit

H. Liquidation Process
Insurance Corporation as receiver of the banking institution. This automatic
appointment ensures that a competent authority immediately takes control of the
If rehabilitation proves impossible, the liquidation process begins. When the
institution's affairs, protecting the interests of depositors and other stakeholders.
receiver determines that the institution cannot be rehabilitated or permitted to
resume business, the Monetary Board notifies the board of directors of the receiver's
F. Receivership Process findings and directs the receiver to proceed with liquidation of the institution.

The receivership process begins immediately upon designation by the The liquidation process follows established procedures. The receiver files an
Monetary Board. The receiver, typically the Philippine Deposit Insurance Corporation ex parte petition with the proper regional trial court for assistance in liquidating the
for banks, immediately gathers and takes charge of all assets and liabilities of the institution. This is done without requirement of prior notice or any other action,
institution. The receiver administers these assets for the benefit of the institution's pursuant to a liquidation plan adopted by the Philippine Deposit Insurance
Corporation for general application to all closed banks. For quasi-banks, the Philippine Unclaimed Balances Law (Presidential Decree No. 679)
liquidation plan is adopted by the Monetary Board rather than the PDIC.
The Unclaimed Balances Law, as amended by Presidential Decree No. 679,
Once the court acquires jurisdiction, it may—upon motion by the receiver establishes a comprehensive system for managing dormant financial accounts and
after due notice—adjudicate disputed claims against the institution. This judicial ensuring the proper transfer of unclaimed funds to the Philippine government. This
oversight ensures that the liquidation process respects the rights of all claimants report analyzes the law’s key provisions, focusing on reporting obligations, escheat
while providing an orderly framework for resolving competing claims. procedures, and account reactivation mechanisms, incorporating recent updates from
Treasury Circular No. 5-2024.
Conclusion
A. Requirement to Report
The New Central Bank Act (Republic Act No. 7653) establishes a
comprehensive framework for the operation of the Bangko Sentral ng Pilipinas and Financial institutions in the Philippines are legally obligated to report
its regulation of the Philippine financial system. The BSP's primary objective of unclaimed balances under stringent guidelines defined in PD 679 and further clarified
maintaining price stability supports economic growth and employment, while its in Treasury Circular No. 5-2024. Unclaimed balances are defined as credits,
broader responsibilities encompass financial system supervision, payments system deposits, securities, or evidence of indebtedness held in favor of individuals known to
oversight, and promotion of financial inclusion. be deceased or who have not transacted with their accounts for at least ten years.

The Monetary Board serves as the central decision-making body with

Reporting Obligations
extensive powers over BSP operations and financial sector regulation. The Act
provides clear mechanisms for addressing distressed financial institutions through a
1. Submission Deadlines:
progressive intervention framework that may include closure, receivership,
Covered institutions must submit the following documents biennially:
rehabilitation attempts, and ultimately liquidation if necessary.
○ Consolidated Unclaimed Balances Report (due January 31 of odd years)
○ Sworn Statements from branch managing officers (due January 31 of odd years)
While this report has covered significant aspects of the New Central Bank
○ Certificates of Posting (due April 30 of odd years).
Act based on available information, several topics requested in the query—including
conservatorship, legal tender power, foreign exchange rates, currency purchases and
2. Document Specifications:
sales, acquisition of inconvertible currencies, and reserve requirements—could not be
○ The Consolidated Report must be sorted hierarchically by region,
addressed as they were not covered in the provided search results. A comprehensive
province, city/municipality, and branch, with totals aggregated at each
understanding of the Act would require examination of these additional provisions.
level.
○ Sworn Statements require branch-level declarations confirming the
accuracy of reported dormant accounts, accompanied by supporting
records.
○ Certificates of Posting must verify that the list of unclaimed balances
was displayed prominently for 60 days on institutional premises.

3. Digital Compliance:
Submissions must be sent via email to ubrsubmission@treasury.gov.ph using
prescribed templates. Non-compliant formatting triggers penalties equivalent to
non-filing.
4. Penalties for Non-Compliance: institution, authenticated by branch officers to verify identity and account
Institutions face fines of ₱500 per month for delayed submissions or improper ownership.
documentation, enforceable until corrections are made.
2. Institutional Verification:
B. Procedure for Escheat
○ The bank forwards the request to the BTr with a Deed of
Undertaking, indemnifying the government against future
The escheat process under PD 679 streamlines the transfer of unclaimed funds to
liabilities related to the reactivated account.
the Bureau of the Treasury (BTr), replacing prior publication mandates with direct
○ Juridical entities (e.g., corporations) must provide board
notifications.
resolutions authorizing the reactivation.

Key Steps in Escheatment 3. Treasury Authorization:

1. Pre-Escheat Protocols: ○ The BTr’s Law and Litigation Division reviews applications and
○ Financial institutions must attempt to contact account holders at their issues Letters of Authority for reactivation.
last known addresses before classifying balances as unclaimed. ○ Approval thresholds vary:
○ This replaces the repealed requirement under Act No. 3936 for ■ Division Chiefs may authorize reactivations up to ₱25,000.
newspaper publications, which incurred prohibitive costs. ■ Higher-value cases require senior official approval.

2. Judicial Process: 4. Post-Reactivation Compliance:

○ The BTr initiates escheatment by petitioning courts to declare unclaimed Reactivated accounts resume normal operations, with institutions obligated
balances as state property. to update the BTr quarterly on any changes.
○ Courts issue summonses to absent claimants, with escheat decrees
finalized if no valid claims surface during the proceedings.

Regulatory Implications and Modernization

3. Remittance Requirements:
○ Institutions within Metro Manila remit escheated funds directly to the
Recent amendments, including Treasury Circular No. 5-2024, emphasize digital
BTr’s Cash and Custodial Division.
compliance, reducing administrative burdens while enhancing transparency. The shift
○ Regional entities deposit funds into designated Treasurer of the
from newspaper publications to direct depositor communication reflects cost-
Philippines accounts, submitting proof of payment to BTr regional offices.
efficiency priorities. However, institutions must balance automation with rigorous
record-keeping to avoid penalties.
c. Reactivation of Accounts
The law’s enforcement mechanisms—particularly escalating fines for non-
Account holders or their legal heirs may reclaim escheated funds through a compliance—ensure adherence to reporting standards, safeguarding depositor rights
structured reactivation process outlined in Treasury Circular No. 01-2010 (as while consolidating unclaimed assets into state revenue streams.
amended).
This framework underscores the Philippine government’s commitment to financial
Reactivation Protocol accountability, ensuring dormant assets are judiciously managed while preserving
avenues for rightful claimants to reclaim their funds.
1. Initial Request:
Depositors must submit a written reactivation request to their financial