7.

Clearing channel or House; especially where the

New Central Bank Act (RA 7653)
PCHC does not operate (Sec. 102, NCBA)
8. Supervisor of the Banking system (Sec. 25,
Bangko Sentral ng Pilipinas (BSP) – the state’s NCBA) – shall include the power to:
central monetary authority. It is the government agency a. Examine, which power extends to
charged with the responsibility of administering the enterprises wholly or majority-owned or
monetary, banking and credit system of the country and controlled by the bank (Sec. 7, General
is granted the power of supervision and examination over Banking Law [GBL]); this power may
bank and non-bank financial institutions performing not be restrained by a writ of injunction
quasi-banking functions, including savings and loan unless there is convincing proof that
associations. the action of the BSP is plainly arbitrary
 The BSP is a government-owned corporation (Sec. 25, NCBA)
which enjoys fiscal and administrative b. Place a bank under receivership or
autonomy. liquidation (Sec. 30, NCBA)
 Policy: The State shall maintain a central c. Initiate criminal prosecution of erring
monetary authority that shall function and officers of banks
operate as an independent and accountable
body corporate in the discharge of its mandated
responsibilities concerning money, banking and Monetary Board – It is the body through which the
credit (Sec 2, New Central Bank Act [NCBA]) powers and functions of the BSP are exercised (Sec 6,
NCBA).
Powers and functions of the Monetary Board
Responsibilities of Bangko Sentral ng Pilipinas (RASBI)
(PSR)
1. Issue Rules and regulations it considers
1. To provide policy directions in the areas of necessary for the effective discharge of the
money, banking, and credit responsibilities and exercise of its powers.
2. To supervise bank operations
2. Direct the management, operations, and
3. To regulate the operations of finance companies Administration of the BSP, reorganize its
and non-bank financial institutions performing personnel, and issue such rules and regulations
quasi-banking functions, and similar institutions as it may deem necessary or convenient for this
(Sec. 3, NCBA). purpose.
3. Establish a human resource management
System.
Primary objectives of Bangko Sentral ng Pilipinas
4. Adopt an annual Budget for and authorize such
1. To maintain price stability conducive to a expenditures by the BSP as are in the interest of
balanced and sustainable growth of the the effective administration and operations of
economy; and the BSP in accordance with applicable laws and
2. To promote and maintain monetary stability and regulations.
the convertibility of the peso (Sec. 3, NCBA). 5. Indemnify its members and other officials of the
BSP, including personnel of the departments
performing supervision and examination
Functions of Bangko Sentral ng Pilipinas (BRAGS- functions against all costs and expenses
CHB) reasonably incurred by such persons in
1. Banker of the government – the BSP shall be connection with any civil or criminal action (Sec
the official depository of the Government and 15, NCBA).
shall represent it in all monetary fund dealings  In the event of a settlement or compromise,
(Secs. 110- 116, NCBA).
indemnification shall be provided only in
2. Custodian of Reserves (Secs. 64-66, 94, 103, connection with such matters covered by
NCBA) the settlement as to which the BSP is
3. Financial Advisor of the government (Secs. 123- advised by external counsel that the person
124) – Under Article VII, Sec. 20 of the 1987 to be indemnified did not commit any
Constitution, the President may contract or negligence or misconduct.
guarantee foreign loans but with the prior
concurrence of the Monetary Board.  The costs and expenses incurred in defending
the aforementioned action, suit or proceeding
4. Government agent (Secs. 117-122, NCBA)
may be paid by the BSP in advance of the final
5. Source of credit (Secs. 61-63, 81-89, 109, disposition of such action, suit or proceeding
NCBA)
upon receipt of an undertaking by or on behalf
6. Issuer of Currency (Sec. 49-60, NCBA) of the member, officer, or employee to repay

1
 the amount advanced should it ultimately be receiver for a bank if the latter will function as such
determined by the Monetary Board that he is not under BSP law. The power to appoint belongs to BSP.
entitled to be indemnified as provided in this  For banks, the receiver would be the Philippine
subsection (ibid.). Deposit Insurance Corporation;
 In case of a distressed bank, the BSP appoints a  For quasi-banks, it could be any person of
conservator or receiver or closure of the bank. recognized competence in banking or finance.

CONSERVATORSHIP Duties of a receiver

Conservator – One appointed if the bank is in the state 1. The receiver shall immediately gather and take
of illiquidity or the bank fails or refuses to maintain a charge of all the assets and liabilities of the
state of liquidity adequate to protect its depositors and institution.
creditors. The bank still has more assets than its 2. Administer the same for the benefit of the
liabilities but its assets are not liquid or not in cash thus creditors, and exercise the general powers of a
it cannot pay its obligation when it falls due. The bank, receiver under the Revised Rules of Court
not the BSP, pays for fees.
3. Shall not, with the exception of administrative
expenditures, pay or commit any act that will
Powers of a conservator (CARe BEAr) involve the transfer or disposition of any asset of
the institution: Provided that the receiver may
1. Collect all monies and debts due to the said deposit or place the funds of the institution in
bank non-speculative investments.
2. To take charge of the Assets, liabilities, and the 4. Within 90 days from the take-over, the receiver
management thereof shall determine whether the institution may be
3. REorganize, the management thereof rehabilitated or otherwise placed in such a
condition that it may be permitted to resume
4. And such other powers as the monetary Board business with safety to its depositors and
deems necessary creditors and the general public
5. Exercise all powers necessary to restore its 5. If the receiver determines that the institution
viability, with the power to overrule or revoke cannot be rehabilitated or permitted to resume
the actions of the previous management and business, then the Monetary Board shall notify in
board of directors of the bank or quasi-bank writing the board of directors of the institution of
its findings and direct the receiver to proceed
6. To bring court actions to Assail or Repudiate
with liquidation of the institution (Sec 30,
contracts entered into by the bank. (First
NCBA).
Philippine International Bank vs. CA, G.R. No.
115849, Jan. 24, 1996).
 The receiver is not authorized to transact
business in connection with the bank’s assets
 The powers of a conservator cannot extend to
and property. He can only perform acts of
post facto repudiation of valid and perfected
administration and not acts of dominion.
transactions. Thus, the law merely gives the
conservator power to revoke contracts that are o The receiver cannot approve an option
deemed to be defective- void, voidable, to purchase real property. He has only
unenforceable or rescissible. Hence, the the authority to administer the same
conservator merely takes the place of the bank’s for the benefit of its creditors.
board.
 While resolutions of the Monetary Board
 Conservatorship is terminated when the forbidding a bank to do business on account of a
Monetary Board is satisfied that the bank can condition of insolvency and appointing a receiver
operate on its own. to take charge of the bank’s assets or
determining whether the bank may be
 When the Monetary Board, on the basis of the
rehabilitated or should be liquidated are by law
report of the conservator or of its own findings,
“final and executory.”
determine that the continuance in business of
the institution would involve probable losses to o However, they can be set aside by the
its depositors or creditors, the bank will go court on one specific ground - if the
under liquidation. action is plainly arbitrary and made in
bad faith. Such contention can be
asserted as an affirmative defense or a
RECEIVERSHIP counterclaim in the proceeding for
assistance in liquidation.
Receiver – One appointed if the bank is already
insolvent which means that its liabilities are greater than
its assets. The Court has no authority to appoint a
CLOSURE

2
Grounds for closure of a bank or a quasi bank o The validity of such exercise of police
power is subject to judicial inquiry and
1. Cash Flow test - Inability to pay liabilities as
could be set aside if it is capricious,
they become due in the ordinary course of
discriminatory, whimsical, arbitrary,
business (Sec. 30 [a] NCBA).
unjust or a denial or due process and
2. Balance sheet test – Insufficiency of realizable equal protection clauses of the
assets to meet its liabilities (Sec 30 [b] NCBA). Constitution.
3. Inability to continue business without involving o The order of closure (receivership or
probable losses to its depositors and creditors conservatorship) may be assailed:
(Sec 30 [c] NCBA).
 By the stockholders
4. Willful violation of a cease and desist order representing at least majority
under Section 37 that has become final, of the outstanding capital
involving acts or transactions which amount to stock;
fraud or a dissipation of the assets (Sec 30 [d]
 Within ten days from receipt
NCBA).
by the board of directors of
5. Notification to the BSP or public announcement the order;
of a bank holiday (Sec 53, GBL).
 Thru a petition for certiorari on
6. Suspension of payment of its deposit liabilities the ground that the action
continuously for more than 30 days (Sec 53, taken by the BSP was in
GBL). excess of jurisdiction or with
grave abuse of discretion as to
7. Persisting in conducting its business in an unsafe
amount to lack of jurisdiction.
or unsound manner (Sec 56, GBL).
 The suspension of operations of a bank cannot
excuse non-compliance with the obligation to
 Close now-hear later doctrine – It is to remit the time deposits of depositors which
prevent unwarranted dissipation of the bank’s matured before the bank’s closure.
assets and as a valid exercise of police power
 As a general rule, the bank is not liable to pay
to protect the depositors, creditors, stockholders
interest on DEPOSIT once it is closed and
and the general public. The law does not
ceased operations.
contemplate prior notice and hearing before the
bank may be directed to stop operations and
placed under.
LIQUIDATION
 No prior hearing is necessary in appointing a
Liquidation of a bank – Acts of liquidation are those
receiver and in closing the bank. It is enough
which constitute the conversion of the assets of the
that subsequent judicial review is provided for.
banking institution to money or the sale, assignment or
Indeed, to require such previous hearings would
disposition of the s to creditors and other parties for the
not only be impractical but would tend to defeat
purpose of paying debts of such institution.
the very purpose of the law.
 Liquidator of a distressed bank can prosecute
 BSP may order the closure of the bank even
and defend suits against the bank.
without prior hearing.
 Prosecution of suits, collection and the
o BSP may rely on the report of either
foreclosure of mortgages against debtors of the
the conservator, receiver or the head of
bank by the liquidator are among the usual and
the supervising and examining
ordinary transactions pertaining to the
department. It is not required to
administration of a bank.
conduct a thorough audit of the bank
before ordering its closure. The "close  A liquidator may foreclose mortgages due to a
now, hear” later doctrine justifies BSP bank while the issue of receivership is pending.
in ordering bank closures even without
 A liquidator can foreclose mortgages for and in
prior hearing. Thus, injunction does
behalf of the bank even if the issue on
not lie against BSP in the exercise
receivership and liquidation is still pending.
of the power and function. A
contrary rule may lead to dissipation of  If An intra-corporate case was filed before RTC.
assets and trigger bank run. Judicial On the other hand, another complaint was filed
review comes only after action of the before BSP to compel a bank to disclose its
Monetary Board if the same was stockholdings invoking the supervisory power of
attended with bad faith and grave the latter, there is no forum shopping.
abuse of discretion.
o The two proceedings are of different
 The closure and liquidation of a bank, which is nature praying for different relief. The
considered an exercise of police power may be complaint filed with the BSP was an
the subject of judicial inquiry. invocation of its supervisory powers

3
 over banking operations which does not
amount to a judicial proceeding.
Legal Tender – All notes and coins issued by the BSP
 Commencement of liquidation proceedings bar are fully guaranteed by the Republic and shall be legal
the filing of a separate action or petition to tender in the Philippines for all debts, both public and
assail the order of closure. private (Sec. 52).
o Once liquidation proceedings have been
initiated, the majority stockholders of
Rules on the authority of the Bangko Sentral ng
the bank can no longer file a separate
Pilipinas to replace legal tender
action or petition to assail the order of
closure. Instead, issues on validity of 1. Notes and coins called in for replacement shall
closure should be raised as affirmative remain legal tender for a period of one year
defenses in the liquidation proceeding. from the date of call.
o This is necessary to prevent multiplicity 2. After that period, they shall cease to be legal
of suits or conflicting resolutions. tender during the following year or for such
longer period as MB may determine.
 Liquidation proceedings may be carried out with
or without tax clearance. 3. After the expiration of this latter period, the
notes and coins which have not been exchanged
o Unlike in a voluntary dissolution of a
shall cease to be a liability of BSP and shall be
corporation under the Corporation
demonetized (Sec. 57, NCBA).
Code, BSP can liquidate the bank with
or without tax clearance. This is based Checks representing demand deposits do not have
on the General Banking Law. legal tender power and their acceptance in the
payment of debts, both public and private, is at the
 GR: All claims against the insolvent bank should
option of the creditor. However, a check which has been
be filed in the liquidation proceeding. It is not
cleared and credited to the account of the creditor shall
necessary that a claim be initially disputed in a
be equivalent to a delivery to the creditor of cash in an
court or agency before it is filed with the
amount equal to the amount credited to his account.
liquidation court.
o XPN: Where it is the bank that files
a claim against another person or Period of replacement
legal entity, the claim should be filed in
 Notes for any series or denomination – More
the regular courts.
than 5 years old
o The judicial liquidation is intended to
 Coins – More than 10 years old
provide an orderly mode for payment of
all claims. In addition such petition is o Coins which show signs of filing,
not in the nature of a disputed claim clipping or perforation and notes which
against the bank. have lost more than 2/5s of their
surface or all of the signatures inscribed
 Bank deposits as a rule not preferred credits.
therein shall be withdrawn from the
o The exception is when the deposits are circulation and demonitized without
covered by a cashier's check purchased compensation to the bearer.
from the bank when the bank officers
knew or ought to have known that the
bank is insolvent. Exercise of the power to determine rates of
exchange
 Ramos v. Central Bank of the Philippines (1971).
1. The Monetary Board shall determine the rates at
 A final and executory judgment against an
which the BSP shall buy and sell spot exchange,
insolvent bank may be stayed.
and shall establish deviation limits from the
o After the Monetary Board has declared effective exchange rate or rates as it may deem
that a bank is insolvent and has proper.
ordered it to cease operations, the
2. The Monetary Board shall similarly determine
assets of the insolvent bank are
the rates for other types of foreign exchange
held in trust for the equal benefit of
transactions by the BSP, including purchases
all creditors.
and sales of foreign notes and coins, but the
o One cannot obtain an advantage or margins between the effective exchange rates
preference over another by attachment, and the rates thus established may not exceed
execution or otherwise. The final the corresponding margins for spot exchange
judgment against the bank should be transactions by more than the additional costs
stayed as to execute the judgment or expenses involved in each type of
would unduly deplete the assets of the transactions (Sec. 74, NCBA).
banks to the obvious prejudice of other
depositors and creditors.

4
Instances where the Banko Sentral may exercise 1. Encourage deposit in banking institutions; and
its exchange regulating powers
2. Discourage private hoarding so that banks may
1. The international reserve of the BSP falls to a lend such funds and assist in the economic
level which the Monetary Board considers development of the country.
inadequate to meet the prospective demands
2. Whenever the international reserve appears to
PROHIBITED ACTS
be in imminent danger of falling to such a level
1. Examination/inquiry/looking into all deposits of
3. Whenever the international reserve is falling as
whatever nature with banks or banking
a result of payments or remittances abroad
institutions in the Philippines (including
which, in the opinion of the Monetary Board are
investment in bonds issued by the government)
contrary to the national welfare (Sec 67, NCBA).
by any person, government official or office
(Sec. 2, RA 1405).
Actions taken by the Bangko Sentral when 2. Disclosure by any official or employee of any
international stability of Peso is threatened banking institution to any unauthorized person
of any information concerning said deposit (Sec.
1. Take such remedial measures as are
3, RA 1405).
appropriate and within the powers granted to
the Monetary Board, and the BSP. XPN: ACTS NOT COVERED BY THE PROHIBITION
2. Submit to the President of the Philippines and Non-bank official or employee is not covered by the
the Congress, and make public a detailed prohibition. Neither is disclosure by a bank official or
report which shall include, as a minimum, a employee of information about bank deposit in favor of a
description and analysis of: co-employee in the course of the performance of his
duties is not covered by the prohibition.
a. The nature and causes of the existing
or imminent decline;
b. The remedial measures already taken DEPOSITS COVERED
or to be taken by the Monetary Board
1. All deposits of whatever nature with banks or
c. The monetary, fiscal or administrative banking institutions found in the Philippines; or
measures further proposed
2. Investments in bonds issued by the Philippine
d. The character and extent of the government, its branches, and institutions.(Sec.
cooperation required from other 2, R.A. 1405)
government agencies for the successful
3. Trust accounts are included in the scope of the
execution of the policies of the
law.
Monetary Board (Sec. 67, NCBA).

 RA 1405 is no longer limited to deposits

Emergency restrictions on the foreign exchange
governed by the law on loans giving rise to
operations
creditor-debtor relationship but it covers fund of
1. Temporarily suspending and restricting sales of whatever nature so long as the bank may use
foreign exchange by the BSP; and utilize it in authorized loans.
2. Subjecting all transactions in gold and foreign  The money deposited under the trust agreement
exchange to license by the BSP; (“Trust account”) is intended not merely to
remain with the bank but to be invested by it
3. Requiring that any foreign exchange thereafter
elsewhere. To hold that this type of account is
obtained by any person residing or entity
not protected by R.A. 1405 would encourage
operating in the Philippines be delivered to the
private hoarding of funds that could otherwise
BSP or to any bank or agent designated by the
be invested by banks in other ventures, contrary
BSP for said purpose, at the effective exchange
to the policy behind the law.
rate or rates (Sec. 72, NCBA).
o Despite such pronouncement that trust
To ensure sufficiency of foreign exchange resources,
funds are considered deposits, trust
convertibility of the peso, and promotion of domestic funds remain not covered by PDIC.
investment of bank resource, the Monetary Board may
 Confidentiality granted by RA 1405 does NOT
require the banks to sell to the BSP or to other
extend to Letters of Credit and Trust Receipts
banks all or part of their surplus holdings of foreign
exchange.  The confidentiality granted by the law does NOT
extend to other documents and records like
L/C’s, TR’s, bank drafts and promissory notes.
Law on Secrecy of Bank Deposits

PURPOSE EXCEPTIONS

5
Instances where examination or disclosure of banking institution is related to the following
information about deposits can be allowed (HK-MADS):
1. Upon written consent of the depositor (Sec. 2, a. Hijacking,
RA 1405)
b. Kidnapping,
2. In cases of impeachment (ibid)
c. Murder,
3. Upon order of competent court in cases of
d. Destructive Arson, and
bribery or dereliction of duty of public officials
(ibid) e. Violation of the Dangerous Drugs Act.
4. In cases where the money deposited or invested f. Acts of Terrorism or in violation of
is the subject matter of the litigation (ibid) Human Security Act.
5. Upon order of the Commissioner of Internal 15. In case the law is repealed, superseded or
Revenue in respect of the bank deposits of a modified by any law to the contrary.
decedent for the purpose of determining such
decedent’s gross estate (Sec. 6[F][1], NIRC)
6. Upon the order of the Commissioner of Internal  Generally, foreign currency deposits cannot be
Revenue in respect of bank deposits of a inquired or look into. All foreign currency
taxpayer who has filed an application for deposits are absolutely confidential (Sec. 8, RA
compromise of his tax liability by reason of
6426).
financial incapacity to pay his tax liability (ibid)
o XPNs:
7. The Commissioner of Internal Revenue is
authorized to inquire into bank deposits of a o The depositor has given his written
specific taxpayer upon request for tax permission
information from a foreign tax authority
pursuant to an international convention or o Where the funds deposited in a joint
agreement on tax matters to which the foreign currency savings account
Philippines is a party (ibid) belonged exclusively to one of the
8. In case of dormant accounts/deposits for at depositors and were held in trust for
least 10 years under the Unclaimed Balances Act him by the other depositor and the
(Sec. 2, Act No. 3936) other depositor unilaterally closed the
9. The prohibition against examination of bank joint account and transferred the funds
deposit does not preclude its garnishment to to her personal account, the latter
satisfy a judgment against the depositor (Oñate cannot invoke the exemption from
vs. Abrogar, 230 SCRA 181) court processes under RA 6426 because
10. Presidential Commission on Good Government she is not the owner of the deposit in
may require the production of bank records the account. Consequently, the
material to its investigation (Opinion of the depositor who owned the funds can
Secretary of Justice, Feb. 27, 1987)
have her enjoined from making
11. The Anti-Money Laundering Council (AMLC) may withdrawals from her personal account.
inquire into any deposit with any bank in case of
violation of the RA 9160 or the AMLA if there is  A father who sued his
probable cause that it is related to an unlawful daughter for illegally
activity (Sec. 11, RA 9160, as amended by RA withdrawing funds from his
9194, 10167, and 10365) foreign currency deposit and
12. The PDIC and the BSP may examine deposit transferring to another bank in
accounts and all information related to them in the name of her sister, can
case of a finding of unsafe or unsound banking inquire into the deposit of the
practices (Sec. 8, RA 3591, as amended) sister, because the money
13. With court order: deposited belongs to him.
a. In cases of unexplained wealth under  The exemption from court
Sec. 8 of the Anti-Graft and Corrupt process of foreign currency
Practices Act;
deposits under RA 6426
b. In cases filed by the Ombudsman and cannot be invoked by a foreign
upon the latter’s authority to examine transient who raped a minor,
and have access to bank accounts and escaped and was held liable
records;
for damages to the victim. The
14. Without court order: If the AMLC determines garnishment of his foreign
that a particular deposit or investment with any currency deposit should be

6
 allowed to prevent an injustice  XPN: The application of
and for equitable grounds. The Section 8 of R.A. 6426
law was enacted to encourage depends on the extent of its
justice. The garnishment of a
foreign currency deposit and
foreign currency deposit
not to benefit a wrongdoer should be allowed to prevent
(Salvacion vs. Central Bank of injustice and for equitable
the Philippines, 278 SCRA 27 grounds, otherwise, it would
[1997]). negate Article 10 of the New
Civil Code which provides that
The CIR is authorized to inquire into bank deposits of “in case of doubt in the
the following: interpretation or application of
1. A decedent to determine his estate; and laws, it is presumed that the
lawmaking body intended right
2. Any taxpayer who has filed for an application for and justice to prevail.
compromise of his tax liability
 The foreign currency deposit of a transient
3. A specific taxpayer upon request for tax foreigner who illegally detained and raped a
information from a foreign tax authority minor Filipina can be garnished to satisfy the
pursuant to an international convention or award for damages to the victim.
agreement on tax matters to which the
Philippines is a party. (Sec. 6 [f], NIRC.)  The exemption from garnishment of foreign
currency deposits under R.A. 6426 cannot be
invoked to escape liability for the damages to
 AMLC may inquire into any deposit with a bank the victim. The garnishment of the transient
or financial institution in case of violation of RA foreigner’s foreign currency deposit should be
9160 if there is probable cause that it is related allowed to prevent injustice and for equitable
to an unlawful activity. grounds. The law was enacted to encourage
foreign currency deposit and not to benefit a
 Upon ex parte application by a law enforcer wrongdoer
authorized by the Anti-Terrorism Council, the
justices of the CA designated as special court to
handle anti-terrorism cases may authorize the Penalties for violation of R.A. 1405
examination of deposits in a financial institution
upon finding probable cause of the commission 1. Imprisonment of not more than five (5) years
of terrorism or conspiracy to commit terrorism. 2. Fine of not more than P20,000.00
 PDIC and BSP may examine deposit accounts 3. Both, in the discretion of the court (Sec. 5, RA
and all information related to them in case of a 1405).
finding of unsafe or unsound banking practices.
 AMLC can investigate (a) any property of funds
related to financing terrorism; (b) property or General Banking Act
funds of any person if there is probable cause to
believe he is committing or attempting or
conspiring to commit terrorism or financing  Policy of the state behind the General
terrorism. Banking Act (RA 8791)
o The State recognizes the vital role of
banks in providing an environment
GARNISHMENT OF DEPOSITS, INCLUDING FOREIGN conducive to the sustained
DEPOSITS development of the national economy
 Garnishment of a bank deposit does not violate and the fiduciary nature of banking that
the law. requires high standards of integrity and
performance. In furtherance thereof,
 The prohibition against examination or inquiry the State shall promote and maintain a
does not preclude its being garnished for stable and efficient banking and
satisfaction of judgment. The disclosure is purely financial system that is globally
incidental to the execution process and it was competitive, dynamic and responsive to
not the intention of the legislature to place bank the demands of a developing economy.
deposits beyond the reach of judgment creditor.
 Garnishment of foreign currency deposits
Bank – A bank is an entity engaged in the lending of
o GR: Foreign currency deposits shall be funds obtained from the public in the form of deposits.
exempt from attachment, garnishment,
or any other order or process of any
court, legislative body, government Elements for an entity to be considered doing
agency or any administrative body business as a bank
whatsoever.

7
 1. The entity is engaged in the lending of funds are primarily governed by the Rural Banks Act of
1992 (RA 7353).
2. Funds obtained from the public with at least 20
depositors 5. Cooperative banks –banks whose majority
shares are owned and controlled by cooperatives
3. Funds are in the form of deposits
primarily to provide financial and credit services
 A transaction involving not a loan but purchase to cooperatives. It shall include cooperative rural
of receivables at a discount within the purview banks. They are governed primarily by the
of investing, reinvesting, or trading in securities Cooperative Code (RA 6938).
which an investment company may perform is
6. Islamic banks – Banks whose business dealings
not banking.
and activities are subject to the basic principles
 Foreign individuals may own or control up to and rulings of Islamic Shari’ a, such as the Al
forty percent (40%) of the voting stock of a Amanah Islamic Investment Bank of the
domestic bank (Sec 2, GBL). Philippines which was created by RA 6848.
 GR: A corporation may only own 40% of the 7. Other classification of banks as determined by
bank the Monetary Board of the Bangko Sentral ng
Pilipinas.
o XPNs:
o A universal bank can own up to 100%
of a thrift bank; DISTINCTION OF BANKS FROM QUASI-BANKS AND
TRUST ENTITIES
o A corporation whose shares are listed in
the stock exchange can own up to 60% 1. Quasi-bank – These are entities engaged in the
of the bank. This privilege can be borrowing of funds through the issuance,
exercised only once. endorsement or assignment with recourse or
acceptance of deposit substitutes for purposes of
o If the corporation is in existence for 10
re-lending or purchasing of receivables and
years it can own up to 60% of the
other obligations (Sec 4). Unlike banks, quasi-
bank. This privilege can only exercised
banks do not accept deposits. Neither are funds
once.
obtained insured with the PDIC.
o Under Foreign Bank Liberalization Law
2. Trust entities – These are entities engaged in
(RA 7721), the Monetary Board may
trust business that act as a trustee or administer
authorize foreign banks to operate in
any trust or hold property in trust or on deposit
the Philippines.
for the use, benefit, or behalf of others (Sec.
 The percentage of foreign-owned voting 79). A bank does not act as a trustee.
stocks in a bank shall be determined by the
3. Financial intermediaries – Persons or entities
citizenship of the individual stockholders in
whose principal functions include the lending,
that bank. The citizenship of the corporation
investing, or placement of funds on pieces of
which is a stockholder in a bank shall follow the
evidence of indebtedness or equity deposited
citizenship of the controlling stockholders of the
with them, acquired by them or otherwise
corporation, irrespective of the place of
coursed through them, either for their own
incorporation (Sec 2).
account or for the account of others.
4. Deposit substitutes – It is an alternative form
Different classifications of banks of obtaining funds from the public, other than
deposits, through the issuance, endorsement, or
1. Universal banks - Primarily governed by the
acceptance of debt instruments, for the
General Banking Law (GBL). They can exercise
borrower's own account, for the purpose of
the powers of an investment house and invest in
relending or purchasing of receivables and other
non-allied enterprises and have the highest
obligations. These instruments may include, but
capitalization requirement.
need not be limited to, banker’s acceptances,
2. Commercial banks - Ordinary banks governed by promissory notes, participations, certificates of
the GBL which have a lower capitalization assignment and similar instruments with
requirement than universal banks and can recourse, and repurchase agreements.
neither exercise the powers of an investment
house nor invest in non-allied enterprises.
BANK POWERS AND LIABILITIES
3. Thrift banks – These are a) Savings and
mortgage banks; b) Stock savings and loan CORPORATE POWERS
associations; and c) Private development banks,
which are primarily governed by the Thrift Banks 1. All powers provided by the corporation code, like
Act (R.A. 7906). issuance of stocks and entering into merger or
consolidation with other corporation or banks.
4. Rural banks – these are mandated to make
needed credit available and readily accessible in 2. It can only acquire real property when it is
the rural areas on reasonable terms and which needed for business, in settlement of debt
incurred in the course of the business, property

8
 as may be mortgaged to it to secure a debt in 1. The Monetary Board may prescribe rules and
good faith and property it may acquire during regulations on the types of stock a bank may
execution sale to satisfy judgment. Banks issue.
cannot acquire real property in settlement of a
2. Banks shall issue par value stocks only.
civil liability arising from crime.
3. GR: No bank shall purchase or acquire shares of
3. A universal and commercial bank can both
its own capital stock or accept its own shares as
invest in equity but only universal bank is
a security for a loan.
allowed to invest in equity of non-allied
enterprises. XPN: When authorized by the Monetary
Board.
That in every case the stock so purchased or
BANKING AND INCIDENTAL POWERS
acquired shall, within six months from the time
Certificate of Authority to Register – This is a of its purchase or acquisition, be sold or
requirement before a bank may register or amend their disposed of at a public or private sale. (Sec 10,
articles of incorporation with SEC. It is issued by the GBL)
Monetary Board. (sec. 14, GBL) The following must be
4. Foreign individuals and non-bank corporations
proven by the bank to satisfy the Monetary Board and in
may own or control up to 40% of the voting
order for the latter to grant such certificate:
stock of a domestic bank. This rule shall apply to
1. All requirements of existing laws and regulations Filipinos and domestic non-bank corporations.
to engage in the business for which the
NOTE: The percentage of foreign-owned voting
applicant is proposed to be incorporated have
stocks in a bank shall be determined by the
been complied with
citizenship of the individual stockholders in that
2. That the public interest and economic bank. The citizenship of the corporation which is
conditions, both general and local, justify the a stockholder in a bank shall follow the
authorization citizenship of the controlling stockholders of the
corporation, irrespective of the place of
3. The amount of capital, the financing,
incorporation. (Sec 11, GBL)
organization, direction and administration, as
well as the integrity 5. Stockholdings of individuals related to each
other within the fourth degree of consanguinity
1. and responsibility of the organizers and
or affinity, legitimate or common-law, shall be
administrators reasonably assure the safety of
considered family groups or related interests
deposits and the public interest. (ibid).
and must be fully disclosed in all transactions by
such corporations or related groups of persons
with the bank.
General powers and functions of a bank
6. Two or more corporations owned or controlled
1. Accepting drafts and issuing letters of credit
by the same family group or same group of
2. Discounting and negotiating promissory notes, persons (Corporate Stockholdings) shall be
drafts, bills of exchange and other instrument considered related interests and must be fully
evidencing debt disclosed in all transactions by such corporations
or related group of persons with the bank.
3. Accepting or creating demand deposits,
receiving other types of deposit and deposit
substitutes
Instances when a bank is prohibited from declaring
4. Buying and selling FOREX and gold or silver dividends
bullion
1. Its clearing account with the Bangko Sentral is
5. Acquiring marketable bonds and other debt overdrawn; or
securities
2. It is deficient in the required liquidity floor for
6. Extending credit government deposits for five or more
consecutive days, or
7. Determination of bonds and other debt
securities eligible for investment including 3. It does not comply with the liquidity
maturities and aggregate amount of such standards/ratios prescribed by the Bangko
investment, subject to such rules as the Sentral for purposes of determining funds
Monetary Board may promulgate. available for dividend declaration; or
8. And all other powers as may be necessary to 4. It has committed a major violation as may be
carry on the business of a bank (Sec. 29, GBL). determined by the Bangko Sentral (Sec. 57,
GBL).

Rules regarding the issuance of stocks by a bank

 Independent directors in banks – Section 16 of
the GBL provides for two (2).

9
  Effect of merger or consolidation of banks to the obligation of safely keeping it and returning the
number of directors allowed: the number of same.
directors may be more than 15 but should not
Kinds of deposits between a bank and its
exceed 21.
depositors
1. As debtor-creditor:
Limitation on the grant of compensation to the
2. Special Kinds of Deposits
directors by the Monetary Board
a. Demand deposits – all those liabilities
The Monetary Board may limit the grant of compensation
of banks which are denominated in the
to the directors of a bank only in exceptional cases and
Philippine currency and are subject to
when the circumstances warrant, such as but not limited
payment in legal tender upon demand
to the following:
by representation of checks.
1. When a bank is under comptrollership or
i. Note: Checks
conservatorship
b. Savings deposits – the most common
2. When a bank is found by the Monetary Board to
type of deposit and is usually evidenced
be conducting business in an unsafe or unsound
by a passbook.
manner
i. The requirement of
3. When a bank is found by the Monetary Board to
presentation of passbooks is
be in an unsatisfactory financial condition (Sec.
required by the Manual of
18, GBL).
Regulations for Banks. A bank
is negligent if it allows the
withdrawal without requiring
DILIGENCE REQUIRED BY BANKS
the presentation of passbook
 Degree of diligence required of banks in (BPI v. CA, GR No. 112392,
handling deposits: extraordinary diligence in Feb. 29, 2000).
its dealings with depositors.
c. Negotiable order of withdrawal account
o Consequently, the diligence required of (NOWA) – Interest-bearing deposit
banks is more than that of a Roman accounts that combine the payable on
pater familias or a good father of a demand feature of checks and
family. investment feature of saving accounts.
o The diligence more than that of a d. Time deposit – an account with fixed
Roman pater familias only applies only term; payment of which cannot be
to cases where banks act under their legally required within such a specified
fiduciary capacity, that is, as number of days.
depositary of the deposits of their
3. As trustee-trustor:
depositors. The same degree of
diligence is not expected to be exerted Trust account – a savings account, established
by banks in commercial transactions. under a trust agreement containing funds
administered by the bank for the benefit of the
 Banks must exercise a high degree of diligence
trustor or another person or persons.
in insuring that they return the passbook only to
the depositor of his authorized representative. 4. As agent-principal:
For failing to return the passbook to authorized
a. Deposit of checks for collection
representative of the depositor, the bank
presumptively failed to observe such high b. Deposit for specific purpose
degree of diligence in safeguarding the passbook
c. Deposit for safekeeping
and insuring its return to the party authorized to
receive the same.
o However, a bank’s liability may be Types of deposit accounts
mitigated by the depositor’s
1. Savings
contributory negligence such as
allowing a withdrawal slip signed by 2. Current
authorized signatories to fall into the
hands of an impostor. a. “Checking” account

 Bank is liable when an employee encashed a 3. Time

check without the required indorsement a. Individual; or
. b. Joint:
NATURE OF BANK FUNDS AND BANK DEPOSITS i. “And” account – the signature
 The function of the bank to receive a thing, of both co-depositors are
required for withdrawals.
primarily money, from depositors with the

10
 ii. “And/or” account – either one transactions mentioned, or on account of a court
of the co-depositors may judgment involving a related money claim, the
deposit and withdraw from the imposable interest is 6 percent every year.
account without the knowledge
 A bank was forbidden by Central Bank to do
consent and signature of the
business is NOT obligated to pay interest
other.
on deposit.
 Joint accounts may be subject of a
o A bank lends money, engages in
survivorship agreement whereby the co-
international transactions, acquires
depositors agree to permit either of them to
foreclosed mortgaged properties or
withdraw the whole deposit during their lifetime
their proceeds and generally engages in
and transferring the balance to the survivor
other banking and financing activities in
upon the death of one of them.
order that it can derive income
therefrom. Therefore, unless a bank
can engage in those activities from
Anonymous account
which it can derive income, it is
 GR: Anonymous accounts or those under inconceivable how it can carry on as a
fictitious names are prohibited (R.A. 9160 as depository obligated to pay interest on
amended by by R.A. 9194; BSP Circular No. money deposited with it
251, July 21, 2000).
o XPN: In case where numbered
GRANT OF LOANS AND SECURITY REQUIREMENTS
accounts is allowed such as in foreign
currency deposits. However, Net worth – The total of the unimpaired paid-in surplus,
banks/non-bank financial institutions retained earnings and undivided profit, net of valuation
should ensure that the client is reserves and other adjustments as may be required by
identified in an official or other the BSP (Sec. 24.2).
identifying documents.
Risked based capital – The minimum ratio prescribed
 All kinds of bank deposits are loan. The bank by the Monetary Board which the net worth of a bank
can make use as its own the money deposited. must bear to its total risk assets which may include
Said amount is not being held in trust for the contingent accounts.
depositor nor is it being kept for safekeeping.
The Monetary Board may require or suspend
 Mandamus will not lie in the enforcement of compliance with such ratio whenever necessary
obligations concerning deposit. for a maximum period of one year and that such
ratio shall be applied uniformly to banks of the
o All kinds of deposit are loans. Thus, the
same category (Sec. 34).
relationship being contractual in nature,
mandamus cannot be availed of
because mandamus will not lie to
Effect of non-compliance with the ratio
enforce the performance of contractual
obligations 1. Distribution of net profits may be limited or
prohibited and MB may require that part or all of
 Contract between banks and depositors is not a
the net profits be used to increase the capital
trust agreement. The fiduciary nature of the
accounts of the bank until the minimum
bank-depositor relationship does not convert the
requirement has been met; or
contract between banks and depositors to a
trust agreement. Thus, failure by the bank to 2. GR: Acquisition of major assets and making of
pay the depositor is failure to pay simple loan, new investments may be restricted.
and not a breach of trust.
XPN: Purchases of evidence of
 The contract for the use of a safety deposit indebtedness guaranteed by the
box should be governed by the law on lease. Government can be exempted from
restrictions (Sec. 34).

STIPULATION ON INTERESTS
SINGLE BORROWER’S LIMIT
 Through Circular No. 799, the Monetary Board
declared that effective July 1, 2013 the rate of 1. GR: Single borrower’s limit – The total amount
interest for the loan or forbearance of any of loans, credit accommodations and guarantees
money, goods or credits and the rate allowed in that the bank could grant should at no time
judgments, in the absence of an express exceed 25% of the bank’s net worth (Sec 35.1,
contract as to such rate of interest, shall be 6 GBL).
percent per annum (Section 1, Circular 799,
XPN:
Seies of 2013 amending Section 2 of Circular
No. 905, Series of 1982). a. As the Monetary Board may otherwise
prescribe for reasons of national
 This means that if the parties fail to state in
interest
writing the interest payable on any of the

11
 b. Deposits of rural banks with
government-owned or controlled
Joint and solidary signature (JSS) practice – It is a
financial institutions like LBP, DBP, and
common banking practice requiring as an additional
PNB.
security for a loan granted to a corporation the joint and
2. The total amount of loans, credit solidary signature of a major stockholder or corporate
accommodations and guarantees prescribed in officer of the borrowing corporation.
(a) may be increased by an additional 10% of
the net worth of such bank provided that
additional liabilities are adequately secured by RESTRICTIONS ON BANK EXPOSURE TO DOSRI
trust receipt, shipping documents, warehouse (DIRECTORS, OFFICERS, STOCKHOLDERS AND
receipts and other similar documents which THEIR RELATED INTERESTS)
must be fully covered by an insurance (Sec.
1. Procedural requirement - Loan must be
35.2, GBL).
approved by the majority of all the directors not
3. Loans and other credit accommodations secured including the director concerned. CB approval is
by REM shall not exceed 75% of the appraised not necessary; however, there is a need to
value of the real estate security plus 60% of the inform them prior to the transaction. Loan must
appraised value of the insured improvements be entered in the books of the corporation (Sec.
(Sec. 37, GBL) CM/intangible property such as 36).
patents, trademarks, etc. shall not exceed 75%
2. Substantive requirement - Loan must not
of the appraised value of the security (Sec. 38,
exceed the paid in contribution and
GBL).
unencumbered deposits. (Not to exceed 15% of
4. Loans being contractual, the period of payment the portfolio or 100% of the net worth,
may be subject to stipulation by the parties. In whichever is lower) (Sec. 36 [4]).
the case of amortization, the amortization
a. In the case of Go v. BSP (October 23,
schedule has no fixed period as it depends on
2009) it was held that the requirements
the project to be financed such that if it was
are: (1) Approval requirement which
capable of raising revenues, it should be at least
means that the DOSRI transaction must
once a year with a grace period of 3 years if the
be approved by at least majority of the
project to be financed is not that profitable
directors excluding the director
which could be deferred up to 5 years if the
concerned. (2) Reportorial requirement
project was not capable of raising revenues
means that the transaction must be
(Sec. 44, GBL).
recorder in the books of the bank and
5. Loans granted to DOSRI: reported to the BSP. (3) Ceiling
requirement which means that the
a. Director
amount of the loan shall not exceed the
b. Officer book valued of the paid-in contribution
and the amount of the unencumbered
c. Stockholder, having at least 1%
deposits. Three different offenses are
ownership over the bank
committed by those who fail to observe
d. Related Interests, such as DOS’s the board approval, reporting and
spouses, their relatives within the first ceiling requirements.
degree whether by consanguinity or
affinity, partnership whereby DOS is a
partner or a corporation where DOS  Violation of DOSRI is a crime and carries with it
owns at least 20%. penal sanction.
 It does not make the transaction void but only
renders the responsible officers and directors
Exclusions from the aforesaid loan limitations
criminally liable.
1. Non-risk loans, such as:
 The (DOSRI) transactions covered are loan and
1. Loans secured by obligations of the Bangko credit accommodation. Not being a loan, the
Sentral ng Pilipinas or the Philippine Government ceiling will not apply to lease and sale. However,
it should still comply with the procedural
2. Loans fully guaranteed by the Government
requirement.
3. Loans covered by assignment of deposits
 Arms-length rule – It provides that any
maintained in the lending bank and held in the
dealings of a bank with any of its DOSRI shall be
Philippines
upon terms not less favorable to the bank than
4. Loans, credit accommodations and acceptances those offered to others.
under letters of credit to the extent covered by
 The bank may terminate the loan and demand
margin deposits
immediate payment if the borrower used the
5. Other loans or credit accommodations which the funds for purposes other than that agreed upon.
MB may specify as non-risk items.

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