Banking Laws: Materials in Commercial Law, Jorge Miravite, 2002 Ed.)

130 2005 CENTRALIZED BAR OPERATIONS
BANKING LAWS
I. GOVERNING LAW (Bar Review SCOPE OF APPLICATION: The GBL

Materials in Commercial Law, Jorge primarily governs universal banks and
Miravite, 2002 ed.) commercial banks. It suppletorily
governs thrift banks, rural banks and
A. General banking laws other banking institutions.
1. General Banking Law (R.A. No. 8791)
2. New Central Bank Act (R.A. No. 7653) II. BANKS
Entities engaged in the lending of
B. Special banking laws funds obtained in the form of deposits.
1. New Rural Banks Act (R.A. No. 7353) (Sec. 2)
2. Private Development Banks Act (R.A. Entities duly authorized by the
No. 4093) Monetary Board to engage in the
3. Savings and Loan Association Act (R.A. business of regularly lending funds
No. 3779) obtained regularly from the public
4. Thrift Banks Act (R.A. No. 7906) through the receipt of deposits of any
kind.
C. Other laws affecting banks
1. Secrecy of Bank Deposits Law (R.A. QUASI-BANKS
No. 1405) Entities engaged in the borrowing of
2. Unclaimed Balances Law (Act No. funds through the issuance, endorsement
3936) or assignment with recourse or
3. Philippine Deposit Insurance acceptance of deposit substitutes. (Sec.
Corporation Act (R.A. No. 3591) 95)
Entities authorized to perform
3 kinds of entities that introduce funds universal or commercial banking
into the economy: functions may also engage in quasi-
1. Entities that obtains funds from banking functions.
the public in the form of deposits
and re-lend it to the public; (banks) FINANCIAL INTERMEDIARIES
2. Those that obtain funds in the Persons or entities whose principal
form of deposit substitutes and re- functions include the lending, investing
lend the same; (quasi-banks) or placement of funds on evidences of
3. Those that lend funds from their indebtedness or equity deposited with
own assets. (Finance companies and them, acquired by them or otherwise
other financial intermediaries) coursed through them, either for their
own account or for the account of
5 PERSONS PRIMARILY INTERESTED IN others.
THE BUSINESS OF BANKING
1. Government Bank of International Settlements (BIS)
2. Depositors A bank for, and whose stockholders
3. Investors are, central banks. It assists central
4. Creditors banks in managing and investing a part
5. Borrowers of their foreign exchange reserves by
lending such reserves out to central
GENERAL BANKING LAW OF 2000 (GBL) banks.
(RA No. 8791) It is also provides initiatives and
ideas, and professional, organizational
PURPOSE: To promote and maintain a and material logistics for central bank
stable and efficient banking and cooperation in all areas of common
financial system that is globally interest. (Notes on Selected Commercial
competitive, dynamic and responsive to Laws A Guide for Bar Reviewees, Tristan
the demands of a developing economy. Catindig, 2003 ed.)
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND
SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda
Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-
EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
ORGANIZATION AND OPERATION NATURE OF BANKING BUSINESS

A. Authority to Register/incorporate Impressed with public interest where
The SEC shall not register the articles the trust and confidence of the public in
of incorporation of any bank or any general is of paramount importance such
amendment thereto unless accompanied that:
by a certificate of authority issued by 1. The appropriate standard of
the Monetary Board under its seal. (Sec. diligence must be very high, if
14) not the highest, degree of
The certificate of authority shall not diligence; highest degree of
be issued unless the Monetary Board is care. (PCI Bank v. CA, 350 SCRA
satisfied: 446, PBCom v. CA)
1. That all requirements of existing This applies only to cases
laws and regulations to engage where banks are acting in
in the business for which the their fiduciary capacity, that
applicant is proposed to be is, as depository of the
incorporated have been deposits of their depositors.
complied with; (Reyes v. CA)
2. That the public interest and 2. Subject to reasonable regulation
economic conditions, both under the police power of the
general and local, justify the state.
authorization;
3. That the amount of the capital, While an innocent mortgagee is not
the financing, organization, expected to conduct an exhaustive
direction and administration, as investigation on the history of the
well as the integrity and mortgagors title, in case of a banking
responsibility of the organizers institution, it must exercise due
and administrators, reasonably diligence before entering into said
assure the safety of deposits and contract, and cannot rely upon what is
the public interest. or is not annotated on the title. Reason:
Before a loan is approved,
B. Organization of a Bank or Quasi- representatives are sent to the premises
Bank offered as collaterals and investigate
Requirements: who the real owners are. (DBP vs. CA,
1. The entity is a stock corporation; 331 SCRA 267)
2. Its funds are obtained from the
public, i.e. 20 or more persons; and The business of a bank is one
3. The minimum capital requirements affected by public interest for
prescribed by the Monetary Board are which reason the bank should
satisfied. (Sec. 8) guard against loss due to
negligence and bad faith. It is
C. Authority to engage in banking or expected to ascertain and verify
quasi-banking functions the identities of the persons it
A person or entity cannot engage in transacts business with. (UCPB vs.
banking or quasi-banking functions Ramos, G.R. No. 147800, November
without a certificate of authority from 11, 2003, Callejo, J.)
the BSP. (Sec. 6)
Due diligence required of banks
The determination of whether a extend even to persons, or
person or entity is performing banking or institutions like the GSIS, regularly
quasi-banking functions without BSP engaged in the business of lending
authority shall be decided by the money secured by real estate
Monetary Board. mortgages. (GSIS vs. Eduardo
Santiago, G.R. No. 155206.
October 28, 2003)

San Beda College of Law
132
MEMORY AID IN COMMERCIAL LAW
III. CLASSIFICATION OF BANKS

1. Universa ORDINARY BANKING
l banks- Primarily governed by the CORPORATION CORPORATION
General Banking Law (GBL), can May be a stock or non- Must generally be
exercise the powers of an stock corporation a stock corporation
investment house and invest in non- May issue par value or Shall issue par
allied enterprises and have the no par value stocks. value stocks only.
highest capitalization requirement. (Sec. 9)
2. Commercial banks- Ordinary banks May be registered Must secure a
with the SEC without certificate of
governed by the GBL which have a
any certificate of authority from the
lower capitalization requirement authority issued by a Monetary Board
than universal banks and cannot government agency. before it can
exercise the powers of an register with SEC.
investment house and invest in non- May purchase/acquire May not
allied enterprises. its own shares for a purchase/acquire
3. Thrift banks These are a) Savings legitimate corporate its shares or
and mortgage banks; b) Stock savings purpose; provided accept them as
and loan associations; c) Private that, it has security for a loan.
development banks, which are unrestricted retained Except: when
earnings in its books authorized by the
primarily governed by the Thrift
to cover the shares to Monetary Board. In
Banks Act (R.A. 7906). be such case, the
4. Rural banks Mandated to make purchased/acquired. bank must sell or
needed credit available and readily dispose of said
accessible in the rural areas on shares within 6
reasonable terms and which are months from the
primarily governed by the Rural time of their
Banks Act of 1992 (RA 7353). acquisition. (Sec.
5. Cooperative banks Those banks 10)
organized whose majority shares are Must be composed of Also composed of 5
5 to 15 directors, to 15 directors. In
owned and controlled by each of whom shall case of merger or
cooperatives primarily to provide own at least one (1) consolidation, the
financial and credit services to share of the capital number of
cooperatives. It shall include stock of the directors shall not
cooperative rural banks. They are corporation. exceed 21. (Sec.
governed primarily by the 17)
Cooperative Code (RA 6938). May declare dividends May not declare
6. Islamic banks Banks whose business out of its unrestricted dividends, if any of
dealings and activities are subject to retained earnings. the conditions set
forth under Sec.
the basic principles and rulings of
57 are present.
Islamic Sharia, such as the Al
Amanah Islamic Investment Bank of
the Philippines which was created by
RA 6848. UNIVERSAL BANK COMMERCIAL
7. Other classification of banks as BANK
Authority to exercise No such additional
determined by the Monetary Board
additional powers powers
of the Bangko Sentral ng Pilipinas. other than those
(Sec. 3) authorized for
commercial banks
May invest in the May only invest in
equities of allied, equities of allied
whether financial or enterprises,
non-financial, and whether financial
non-allied enterprises or non-financial
(Sec. 24)
Powers:
COMMERCIAL LAW COMMITTEE

CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
1. The powers General powers payment in legal

authorized for a incident to tender upon demand
commercial bank; corporations by the presentation
2. The powers of an 2. Such powers as of checks. (Sec. 58,
investment house; may be NCBA)
and necessary to
3. The power to carry on the
invest in non-allied business of EQUITY INVESTMENTS
enterprises. (Sec. commercial
23) banking:
Universa Comml
l Bank
Ba (Sec. 30-
4. The power to a. Accepting nk 32)
invest in non-allied drafts and (Sec. 24-
enterprises. (Sec. issuing letter of 28)
23) credits; Total 50% 35%
b. Discounting investment in Of net Of net
and negotiating allied worth worth
promissory enterprises
notes, drafts, Total 50% N/A
bills of exchange investment in Of net
and other non-allied worth
evidence of enterprises
debt; Equity 25% 25%
c. Accepting or investment in Of net Of net
creating demand any one worth worth
deposits; enterprise (Allied
receiving other only)
types of deposits Equity
and deposit investment in 100% 100%
substitutes; financial allied Of equity Of equity
d. Buying and enterprise:
selling foreign thrift bank, In other
exchange and rural bank or financial
other debt any financial allied
securities; allied enterprises
e. Extending enterprise (Sec. ,
credit. (Sec. 29) 25) investment
A publicly- shall
UNIVERSAL & OTHER BANKS listed bank may remain a
COMMERCIAL own up to 100% minority
BANK of the voting holding.
stock of only (Sec. 31)
Authorized to Not so authorized one other UB /
engage in quasi- CB. (Sec. 25)
banking functions
without need for Equity
approval investment in 100% 100%
non-financial Of equity Of equity
May accept or Must seek approval allied
create demand of Monetary Board enterprises
deposits without before accepting or Equity Shall not
need for approval creating demand investment in a exceed
Demand deposits deposits. (Sec. 33) single non- 35% of the N/A
- Liabilities of the allied total
BSP and of other enterprise equity in
banks which are that
denominated in enterprise
Philippine currency nor shall
and are subject to it exceed
134
35% of the
voting Non-Allied Enterprises
stock in Are all other enterprises not specified
that as allied ones.
enterprise
NET WORTH
Equity 40% 40%
investment in The total of the unimpaired paid-in
Quasi-Banks capital including paid-in surplus,
retained earnings and undivided profit,
net valuation reserves and other
adjustments as may be required by the
Allied Financial Allied Non- Bangko Sentral. (Sec. 24)
Enterprises financial
Enterprises RISK-BASED CAPITAL
The minimum ratio prescribed by the
1. Leasing 1. Warehousing Monetary Board which the net worth of a
companies companies bank must bear to its total risk assets
2. Banks 2. Storage which may include contingent accounts.
3. Investment companies However, the Monetary Board may
houses 3. Safety require or suspend compliance with such
4. Financing deposit box
ratio whenever necessary for a maximum
companies companies
5. Credit card 4. Companies period of one year; that such ratio shall
companies primarily engaged in be applied uniformly to banks of the
6. Financial the management of same category (Sec. 34).
institutions mutual funds but Effect of non-compliance with the
catering to small not in mutual funds prescribed minimum ratio:
and medium scale themselves 1. Distribution of net profits may
industries, 5. Managemen be limited or prohibited and MB may
including venture t corporations require that part or all of the net
capital engaged in an
profits be used to increase the
corporations activity similar to
7. Companies the management of capital accounts of the bank until
engaged in stock mutual funds the minimum requirement has been
brokerage or 6. Companies met; or
securities engaged in providing 2. Acquisition of major assets and
brokerage computer services making of new investments may be
8. Companies 7. Insurance restricted. EXCEPT: purchases of
engaged in foreign companies or evidence of indebtedness guaranteed
exchange brokerages by the Government (Sec. 34).
dealership or 8. Companies
3. In case of a bank merger or
brokerage engaged in house
9. Insurance building and home consolidation, or when a bank is
companies (not development under rehabilitation under a program
allowed for 9. Companies approved by BSP, the MB may
commercial banks) providing drying or temporarily relieve the surviving
10. Holding milling facilities for bank, consolidated bank, or
companies agricultural crops constituent bank or corporations
investing in allied 10. Bank under rehabilitation from full
and non-allied service corporations compliance with the required capital
enterprises (not 11. Philippine
ratio.
allowed for Clearing House
commercial banks) Corporation
12. Philippine
Central Depository,
Inc.

HEADS:
additional liabilities of any borrower are

IV. FUNCTIONS OF BANKS adequately secured by trust receipts,
POWERS OF BANKS SPECIFIC shipping documents, warehouse receipts
FUNCTIONS OF or other similar documents transferring
BANKS or securing title covering readily
marketable, non-perishable goods which
1.General/corporate/i a. Loan must be fully covered by insurance;
ncidental function The prescribed ceiling shall include:
2. Necessary (Sec. 29) b. Deposit a. The direct liability of the maker
3. Other powers (Sec. function or acceptor of paper discounted
55) c. Other
with or sold to such bank and the
functions
liability of a general endorser,
drawer or guarantor who obtains
A. LOAN FUNCTION
a loan or other credit
Requirement for Grant of Loans
accommodation from or discount
Before granting a loan, a bank must
paper with or sells paper to such
ascertain that the debtor is capable of
banks;
fulfilling his commitments to the bank.
b. In the case of an
Rules:
individual who owns or controls a
1. A bank may demand from its
majority interest in a
applicants a statement of their assets
corporation,
and liabilities and of their income and
c. partnership, association
expenditures and other information.
or any other entity, the
2. Should such statements prove to be
liabilities of the said entities to
false or incorrect, the bank may
the bank;
terminate any loan granted on the basis
d. In a case of a
of said statements and shall have the
corporation, all liabilities to such
right to demand immediate repayment
bank of all subsidiaries in which
or liquidation of obligation. (Sec. 40)
such corporation owns or
controls a majority interest; and
Classification of Loans
d. In the case of a partnership,
Unclassified Classified Loans association, or other entity, the
Loans liabilities of the member thereof
Those that do not Those that have
to such bank.
have a greater extraordinary risks of
thannormal risk, loss in collection due Exclusions from the limits:
and the borrower to some defects such a. Loans secured by obligations of
has apparent as bad debts or those the Bangko Sentral or the
ability to satisfy it under litigation. Philippine Government;
in full and no loss b. Loans fully guaranteed by the
in ultimate government;
collection is c. Loans covered by assignment of
anticipated. deposits maintained in the
lending bank and held in the
Philippines;
Limit on loans, credit accommodations d. Loans, credit accommodations
and guarantees (Sec. 35) and acceptances under letters of
credit to the extent covered by
A. Single Borrowers Limit (SBL) Rules margin deposits; and
1. The total amount of loans extended e. Other loans or credit
by a bank to any person, partnership, accommodations which the MB
association, corporation or other entity may specify as non-risk items.
shall at no time exceed 20% of the net
worth of such bank. Joint and Solidary Signature (JSS)
2. The total amount of loans may be Practice
increased by additional 10% of the net
worth of such bank provided the
136
A common banking practice requiring of his relatives mentioned above

as an additional security for a loan is a general partner.
granted to a corporation the joint and c. A co-owner with the stockholder
solidary signature of a major stockholder or the stockholders spouse or
or corporate officer of the borrowing relative mentioned above of
corporation. (Security Bank v. Cuenca, property/right/interest
341 SCRA 781) (mortgaged, pledged or assigned
Note: While R.A. 8791 provides for the to secure the loan or credit
rates of 20% and 10% respectively, the accommodations, except when
Bangko Sentral has not yet implemented the mortgage, pledge or
such rates. The prevailing rates are 25% assignment covers only said co-
and 15% respectively. owners undivided interest.
4. Related Interest
B. DOSRI Accounts (Directors, Officers, a. Spouse, relatives within first
Stockholders, and Related Interests) degree of consanguinity or
Requisites: (BSP Circular No. 170) affinity, or relative by legal
a. The borrower is director, officer, or adoption of a DOS.
any stockholder of a bank and related b. Partnerships of which a DOS or
interest. his spouse or relative within the
b. He contracts a loan or any form of first degree of consanguinity or
financial accommodation affinity, or relative by legal
c. The loan or financial accommodation adoption, is a general partner.
is from (1) his bank or (2) a bank that is c. Co-owner with the DOS or his
spouse or relative within the
a subsidiary of a bank holding company first degree of consanguinity or
of which both his bank and lending bank affinity, or relative by legal
are subsidiaries, (3) a bank in which a adoption, of the
controlling proportion of the shares is property/interest/ right
owned by the same interest that owns a mortgaged, pledged, assigned to
controlling proportion of the shares of secure the loans or credit
his bank; and accommodations, except when
d. The loan or financial accommodation the mortgage, pledge or
of the DOS, singly or with that of his assignment covers only said co-
related interest, is in excess of 5% of the owners undivided interest.
capital and surplus of the lending bank d. Corporation with inter-locking
or in the maximum amount permitted by directors.
law, whichever is lower. e. Corporation wherein 20% of the
Who are covered (BSP Circular No. capital stock is owned by the
170): DOS and/or their spouses or
1. Directors Directors of the lending relatives mentioned above.
bank f. Corporation wholly or majority
2. Officers Either identified in the by- owned or controlled by any
laws or are generally known as such related entity or a group of
3. Stockholders those whose related entities in items (b), (d),
stockholdings, individually and/or and (e).
together with any of the following
persons, amount to 2% or more of the Restrictions under the GBL and
total subscribed capital stock of the NCBA:
bank: a. No director or officer of any bank
a. His spouse or relative within the shall, directly or indirectly, borrow
first degree of from such bank nor shall be
affinity/consanguinity or relative guarantor, endorser or surety for
by legal adoption. loans from such bank to others, or in
b. A partnership in which the any manner be obligor or incur any
stockholder or his spouse or any contractual liability to the bank,
except with the written approval of

HEADS:
the majority of all the directors of D. The Monetary Board is authorized to

the bank, excluding the director issue regulations which:
concerned. The written approval 1. Prescribe requirements for unsecured
shall not be required for loans loans and credit accommodations (Sec.
granted to officers under a fringe 41)
benefit plan approved by the Bangko 2. Prescribe further security
Sentral. requirements (Sec. 42)
b. Dealings of a bank with any of its 3. Reduce or increase maximum ratios
DOSRI shall be upon terms not less established (Sec. 42)
favorable to the bank than those 4. Prescribe maturities and other related
offered to others. (ARMS LENGTH terms and conditions (Sec. 43)
RULE)
c. Loans extended to DOSRI shall be B. DEPOSIT FUNCTION
limited to an amount equivalent to KINDS OF DEPOSITS BETWEEN BANK
their respective unencumbered AND DEPOSITOR
deposits and book value of their 1. As debtor-creditor
paid-in capital contribution in the a. Savings
bank. b. Time
Except c. Demand
i. Loans, credit Characteristics:
accommodations, and a. In the nature of irregular
guarantees secured by assets deposits. (Serrano vs. Central Bank,
considered as non-risk by the 96 SCRA 96)
Monetary Board. b. Contract of loan/mutuum with
the depositor as creditor
ii. Loans, credit c. Bank acquires ownership of the
accommodations, and thing deposited and the right to
advances to officers in the use and dispose
form of fringe benefits. d. Money deposited is commingled
iii. Cooperative bank with with the other money,
regard to its cooperative constituting a common fund.
shareholders. e. Not preferred credits (Central
d. The resolution approving the loan Bank v. Morfe)
shall be entered in the records of the 2. As lessor-lessee
bank and transmitted to the BSP a. Safety deposit boxes
e. Waiver of secrecy of deposits of 3. As trustee-trustor
whatever nature in all banks in the a. Trust account
Philippines by the borrower. No 4. As bailee-bailor
waiver is required if the related a. Deposit strictly for safekeeping
interests are the borrower and for specific purposes
f. Information obtained form 5. As agent-principal:
examination are strictly confidential a. Deposit of check for collection
b. Deposit for specific purpose
C. Rules on amount of secured loans c. Deposit for safekeeping
1. Those secured by real estate shall not
exceed 75% of the appraised value of the Types of deposit accounts (Handbook
real estate security, plus 60% of the on Bank Deposits, A. Viray, 1998 ed.)
appraised value of the insured 1. Individual
improvements. (Sec. 37) 2. Joint
2. Those secured by chattels and a. And account
intangible properties (such as patents, Co-ownership
trademarks, trade names and copyrights) The signature of both co-
shall not exceed 75% of the appraised depositors are required for
value of the security. (Sec. 38) withdrawals.
b. And/or account

138
Either one of the co- with its obligations under the contract of
depositors may deposit and simple loan, beyond those required of
withdraw from the account non-bank debtors, under a similar
without the knowledge, consent contract of simple loan. (CBTC vs. CA,
and signature of the other. And G.R. No. 138569, September 11, 2003)
upon the death of one, the This fiduciary relationship means
survivor may withdraw the entire that the banks obligation to observe
balance on deposit. high standards of integrity and
It may be deemed a performance is deemed written into
survivorship agreement every deposit agreement between a
depending on the intention of bank and its depositor. The fiduciary
the parties; aleatory contract nature of banking requires banks to
supported by a lawful assume a degree of diligence higher than
consideration which is valid that of a good father of a family. (CBTC
unless when made as a mere vs. CA, G.R. No. 138569, September 11,
cloak to hide an inofficious 2003)
donation, to transfer property in
fraud of creditors, or to defeat SUSPENSION OF PAYMENT ON ITS
the legitime of a forced heir. DEPOSIT LIABILITIES
(Rivera v. Peoples Bank) In case a bank or quasi-bank notifies
the Bangko Sentral or publicly announces
Deposit substitutes a bank holiday, or in any manner
An alternative form of obtaining funds suspends the payment of its deposit
from the public, other than deposits, liabilities continuously for more than 30
through the issuance, endorsement, or days, the Monetary Board may summarily
acceptance of debt instruments for the and without need for prior hearing close
borrowers own account, for the purpose such banking institution and place it
of re-lending or purchasing of under receivership of the Philippine
receivables and other obligations. (Sec. Deposit Insurance Corporation. (Sec. 53)
95, RA 7653)
C. OTHER FUNCTIONS
DEPOSIT DEPOSIT 1. Receive in custody funds, documents
SUBSTITUTE and valuable objects (as bailee or
No security given to Guaranteed by trustee);
guarantee certificates and 2. Act as financial agent and buy and
repayment; the other instruments. sell, by order of and for the account
depositor relies on (Handbook on Bank
of their customer, shares, evidences
the stability and Deposits, A. Viray,
reputation of the 1998 ed.) of indebtedness and types of
bank. securities;
3. Make collection and payments for the
A bank has the right to set-off to the account of others and perform such
deposits in its hands for the payment of other services for their customer as
any outstanding indebtedness to it on are not incompatible with banking
the part of the depositor (Gullas v. PNB, business (as agent);
PNB v. CA) 4. Upon prior approval of the Monetary
Board, act as managing agent,
The fiduciary nature of a bank- adviser, consultant or administrator
depositor relationship does not convert of investment management/
the contract between the bank and its advisory/consultancy accounts; and
depositors from a simple loan to a trust 5. Rent out safety deposit boxes (as
agreement, whether express or implied. lessor).
Failure by the bank to pay the depositor
is failure to pay a simple loan and not a Note: The bank shall act as depositary or
breach of trust. The law simply imposes as an agent shall keep the funds,
on the bank a higher standard of securities and other effects which it
integrity and performance in complying
HEADS:
receives duly separated from its own in any way the actions of the bank or
assets and liabilities. (Sec. 53) any bank; or
5. Outsource inherent banking functions
(i.e. new accounts, tellers).
Rationale: So as not to violate the
Secrecy of Bank Deposits Law.
V. PROHIBITIONS (Handbook on Bank Deposits, A. Viray,
A. On banks: 1998 ed.)
1. To directly act as insurer (Sec. 54) However, a bank may outsource, upon
2. For banks or quasi-banks to declare prior approval of the monetary board the
dividends, if at the time of declaration: following functions:
a. Its clearing account with the a. All information technology
Bangko Sentral is overdrawn; systems and processes, except
b. It is deficient in the required for certain functions affecting
liquidity floor for government the ability of the bank to ensure
deposits for 5 or more the fit of technology services
consecutive days; deployed to meet its strategic
c. It does not comply with the and business objectives and
liquidity standards/ratios comply with pertinent laws and
prescribed by the Bangko regulations;
Sentral for purposes of b. Data imaging, storage, and other
determining funds available for related systems;
dividend declaration; c. Clearing and processing of
d. It has committed a major checks not included in the
violation as may be determined Philippine Clearing House
by the Bangko Sentral. (Sec. 57) System;
3. To conduct business in an unsafe or d. Printing of bank statements;
unsound manner (Sec. 56) e. Credit card services;
4. Publication of capital stock (Sec. 62) f. Printing of bank loan statements
5. Unauthorized advertisement or and other non-deposit records,
business representation (Sec. 64) bank forms and promotional
6. To employ casual or non-regular materials;
personnel or too lengthy probationary g. Credit investigation and
personnel in the conduct of its business collection;
involving bank deposits. (Sec. 55) h. Processing of export, import and
Rationale: To prevent violation of other trading transactions;.
Bank Secrecy Law. i. Transfer agent services for debt
and equity services;
B. On directors, officers, employees, j. Property appraisal;
or agents of banks: k. Property management services;
1. Make false entries in any bank report l. messenger, courier and postal
or statement or participate in any services;
fraudulent transaction; m. Security guard services;
2. Without order of a court of n. Vehicle service contracts
component jurisdiction, disclose to o. Janitorial services;
any unauthorized person any p. Other services determined by
information relative to the funds or the monetary board.
properties in the custody of the bank
belonging to private individuals, C. On borrowers:
corporations, or any other entity; 1. Fraudulently overvalue property
3. Accept gifts or any other form of offered as security for a loan from the
remuneration in connection with the bank;
approval of a loan or other credit 2. Make misrepresentations for the
accommodation from said bank; purpose of obtaining, renewing, or
4. Overvalue or aid in overvaluing any increasing a loan or extending the
security for the purpose of influencing period thereof;
140
3. Attempt to defraud the said bank in VI. OWNERSHIP OF STOCKS OF A

the event of a court action to recover DOMESTIC BANK
a loan or other credit 1. Filipino
accommodation; or In case of a Filipino individual or a
4. Offer any director, officer, employee domestic non-bank corporation, each
or agent of a bank any gift, fee, may own up to 40% of the outstanding
commission, or any other form of voting stock of a local bank.
compensation in order to influence 2. Foreign
such persons into approving a loan or Foreign individuals and non-bank
other credit accommodation corporations may own or control up to
application. an aggregate of 40% of the voting stock
of a domestic bank.
D. On examiners, BSP or government The percentage of foreign-owned
officers and employees assigned to voting stocks in a bank shall be
supervise, examine, assist or render determined: (GRANDFATHER RULE)
technical assistance to any bank: Make a. If individuals: by the citizenship
false reports or suppress material facts. of the individuals
b. If corporations: by the
Conducting Business in an Unsafe or citizenship of the controlling
Unsound Manner stockholders of the corporation,
In determining whether a particular irrespective of the place of
act or omission, which is not otherwise incorporation. (Sec. 11)
prohibited by law, rule or regulation
affecting banks, quasi-banks, or trust ACT LIBERALIZING ENTRY OF FOREIGN
entities, may be deemed as conducting BANKS (R.A. NO. 7721)
business in an unsafe or unsound
manner, the MB shall consider any of the The Monetary Board authorizes
following circumstances:(sec 56, GBL) foreign banks to operate through any of
1. The act or omission has resulted the following modes of entry:
or may result in material loss or damage, 1. By acquiring, purchasing or owning up
or abnormal risk or danger to the safety, to 60% of the voting stock of an
stability, liquidity or solvency of the existing bank;
institution; 2. By investing in up to 60% of the voting
2. The act or omission has resulted stock of a new banking subsidiary
or may result in material loss or damage, incorporated under laws of
or abnormal risk to the institutions Philippines;
depositors, creditors, investors, and 3. By establishing branches with full
stockholders or to the BSP or to the banking authority, provided: a)
public in general. foreign bank may avail itself of only
one mode of entry and b) foreign
3. The act or omission has caused
bank or Philippine corporation may
any undue injury, or has given any
own up to 60% of the voting stock
unwarranted benefits, advantage or
only one domestic bank or new
preference to the bank or any party in
banking subsidiary (Sec. 2).
the discharge by the director or officer
Entries under the second and third
of his duties and responsibilities through
modes are restricted to banks among the
manifest partiality, evident bad faith or
top 150 foreign banks in the world or top
gross inexcusable negligence;
5 banks in their country of origin.
4. The act or omission involves Minimum capitalization:
entering into any contract or transaction 1. For locally incorporated subsidiaries
manifestly and grossly disadvantageous equal to that of domestic banks of the
to the bank, quasi-bank or trust entity, same category
whether or not the director or officer 2. For foreign bank branches not less
profited or will profit thereby. than the US$ equivalent of P210M
Amendments introduced by GBL 2000

HEADS:
1. Within seven years from effectivity of acquired under such circumstance shall
the GBL, foreign banks may be allowed be disposed of by the bank within a
to own up to 100% equity of only one period of 5 years, provided that the bank
domestic bank as a mode of entry. (Sec. may after said period continue to hold
73, GBL) the property for its own use, subject to
2. Other foreign individuals and non- (1). (Sec. 52)
bank corporation may own up to 40% of
the voting stock of a domestic bank; the RULES ON FORECLOSURE BY A
nationality of the controlling MORTGAGEE-BANK OF A REAL ESTATE
shareholders of the non-bank MORTGAGE
corporations will be traced to determine Application: Judicial or extrajudicial
the foreign ownership of the domestic foreclosure
bank (Sec. 11, GBL)
JUDICIAL EXTRAJUDICIAL
FOREIGN BANKS (Secs. 7278) Right of redemption
1. Entry: Governed by the provisions of Within 1 year from 1. Mortgagor is a
the Foreign Bank Liberalization Act and registration of the natural person
the Offshore Banking System Decree. foreclosure sale Within one year
(Sec. 72) (exception to Rule 68) after the
2. Revocation of license to do business registration of sale
with Register of
in the Philippines: The Monetary Board
Deeds (Sec. 1(3) SC
may revoke such license on the grounds Cir. AM No. 99-10-
that the foreign bank is insolvent or in 05)
imminent danger thereof or that its 2. Mortgagor is a
continuance in business will involve juridical person At
probable loss to those transacting any time before the
business with it. (Sec. 78) registration of the
certificate of
VII. OWNERSHIP OF REAL PROPERTY foreclosure sale
which in no case
GENERAL RULE: A bank cannot acquire
shall be more than
and own real property. Rationale: Banks 3 months after
are not engaged in the business of foreclosure,
acquiring and possessing real property. whichever is
Also, banks must maintain liquidity at all earlier.
times to enable it to perform its Redemption price:
functions. Thus, Banks must as much as Amount due under the mortgage deed +
possible retain only assets that are easily interest + all the cost and expenses
marketable. incurred by the bank or institution from
EXCEPTIONS: the sale and custody of the property less
1. As shall be necessary for its own use the derived income.
in the conduct of its business, provided: Right of purchaser to possess property:
a. The total investment in such real Immediately after the date of the
estate and improvements shall confirmation of the auction sale.
not exceed 50% of combined
capital amounts; and To enjoin or restrain the conduct of
b. the equity investment of a bank foreclosure proceedings, the petitioner
in another corporation engaged must file a bond conditioned that he will
primarily in real estate shall be pay all the damages which the bank may
considered as part of the bank's suffer by the injunction. (Sec. 47)
total investment in real estate,
unless otherwise provided by the VIII. DIRECTORS & OFFICERS
Monetary Board. (Sec. 51) Fit and Proper Rule
2. As mortgaged to it, conveyed to it in To maintain the quality of bank
satisfaction of a debt, or as it shall management and afford better
purchase at forced sales or to secure protection to depositors and the public
debts, provided, however, that property
142
in general the Monetary Board shall Powers of trust entities:

prescribe, pass upon and review the 1. Act as trustee on any mortgage or
qualifications and disqualifications of bond issued by any municipality,
individuals elected or appointed as bank corporation or body politic and to accept
directors or officers and disqualify those and execute any trust consistent with
found unfit. (Sec. 16) law
2. Act under the order or appointment of
any court as guardian, receiver, trustee,
INDEPENDENT DIRECTOR or depositary of the estate of any minor
A person other than an officer or or incompetent person, and as receiver
employee of the bank, its subsidiaries or and depositary of any money paid into
affiliates or related interests. court by parties to any legal proceedings
3. Act as the executor of any will when
Prohibition on Public Officials it is named the executor thereof;
GENERAL RULE: No appointive or 4. Act as administrator or the estate of
elective official whether full-time or any deceased person, with the will
part-time shall at the same time serve as annexed, or when there is no will.
officer of any private bank. (Sec. 19) 5. Accept and execute any trust for the
EXCEPTIONS: holding, management and administration
1. As otherwise provided under Sec. 5 of of any estate, real or personal, and the
the Rural Bank Act rents, issues, and profits thereof.
2. Where such service is incident to 6. Establish and manage common trust
financial assistance provided by the funds. (Sec. 83)
government-owned or -controlled Prohibitions:
corporation to the bank 1. No trust entity shall, for account of
3. As otherwise provided under existing the trustor or the beneficiary of the
laws. trust, purchase or acquire property
A bank holding out its officers and from, or sell, transfer, assign or lend
agents as worthy of confidence will not money or property to, purchase debt
be permitted to profit by the frauds they from instruments of, any of the
may thus be enabled to perpetrate in departments, directors, officers,
the apparent scope of their employment; stockholders or employees of the trust
nor will it be permitted to shirk its entity, relatives within the 1st the first
responsibility for such frauds, even degree of consanguinity or affinity, or
though no benefit may accrue to the the related interests, of such directors,
bank there from (10 Am Jur 2d, p. 114). officers and stockholders, unless the
Accordingly, a banking corporation is transaction is specifically authorized by
liable to innocent third persons where the trustor and the relationship of the
the representation is made in the course trustee and the other party involved in
of its business by an agent acting within the transaction is fully disclosed to the
the general scope of his authority even trustor or beneficiary of the trust prior
though, in the particular case, the agent to the transaction. (Sec. 80, GBL)
is secretly abusing his authority and 2. The trust business and all funds,
attempting to perpetrate a fraud upon properties or securities received by any
his principal or some other person, for trust entity as executor, administrator,
his own ultimate benefit. (Philippine guardian, trustee, receiver or
Banking Corp. vs. CA and Marcos, G.R. depositary shall be kept separate and
No. 127469. January 15, 2004) distinct from the general business
including all other funds, properties,
IX. TRUST OPERATIONS (Secs. 79-93) and assets of such trust entity. (Sec. 87,
Only a stock corporation or a person GBL)
duly authorized by the Monetary Board
shall act as a trustee or administer any X. PENALTIES FOR VIOLATION OF THE
trust or hold property in trust or on GBL (SEC. 66)
deposit for the use, benefit, or behalf of 1. As provided by specific provisions
others. (Sec. 79) 2. Sections 34-37 of RA 7653

HEADS:
3. Suspension or removal of the director 4. Banker of the government the

or officer BSP shall be the official
4. Dissolution of the corporation by quo depository of the Government
warranto proceedings and shall represent it in all
monetary fund dealings. (Secs.
110- 116)
5. Financial advisor of the
government (Secs. 123-124)
THE NEW CENTRAL BANK ACT (NCBA) Under Article VII, Sec. 20 of the
(R.A. No. 7653) 1987 Constitution, the President
may contract or guarantee
PURPOSE: To maintain a central foreign loans but with the prior
monetary authority that shall function concurrence of the Monetary
and operate as an independent and Board.
accountable body in the discharge of its 6. Source of credit (Secs. 61-63, 81-
responsibilities concerning money, 89, 109)
banking and credit. 7. Supervisor of the banking system
(Sec. 25) shall include the
THE BANGKO SENTRAL NG PILIPINAS power to:
(BSP) a. Examine; extending to
The states central monetary enterprises wholly or
authority; it is the government agency majority-owned or
charged with the responsibility of controlled by the bank (Sec.
administering the monetary, banking and 7, RA 8791); this power may
credit system of the country and is not be restrained by a writ
granted the power of supervision and of injunction unless there is
examination over bank and non-bank convincing proof that the
financial institutions performing quasi- action of the BSP is plainly
banking functions, including savings and arbitrary (Sec. 25)
loan associations. (Busuego v. CA) b. Place a bank under
Primary objectives: receivership or liquidation
1. To maintain price stability (Sec. 30)
conducive to a balanced and c. Initiate criminal prosecution
sustainable growth of the of erring officers of banks.
economy. 8. Government agent (Secs. 117-
2. To promote and maintain 122)
monetary stability and the
convertibility of the peso. MONETARY BOARD (MB)
Responsibilities: The body by which the powers and
1. To provide policy directions in the functions of the Bangko Sentral are
areas of money, banking, and credit; exercised. (Sec.6)
2. To supervise bank operations Composition: 7 members consist of
3. To regulate the operations of finance the following:
companies and non-bank financial 1. Chairman: Governor of the BSP
institutions performing quasi-banking 2. A member of the cabinet to be
functions, and similar institutions. designated by the President of the
(Sec. 3) Philippines
3. Five (5) members who shall come
Powers/functions: from the private sector, all of whom
1. Issuer of currency (Sec. 49-60) shall serve full-time.
2. Custodia Note: The degree of diligence required
n of reserves (Secs. 64-66, 94, of the members of the MB, officials and
103) employees of the BSP in the
3. Clearing channel or house; performance of their functions is
especially where the PCHC does extraordinary diligence. (Sec.16, NCBA)
not operate (Sec. 102)
144
CORPORATE POWERS OF THE BSP rescissible. (First Phil. Intl Bank v. CA,
1. To adopt, alter and use a corporate 252 SCRA 259)
seal which shall be judicially noticed Termination:
2. To enter into contracts 1. When the MB is satisfied that the
3. To lease, own, sell property institution can continue to operate on its
4. To sue and be sued own and the conservatorship is no longer
5. To acquire and hold such assets and necessary;
incur such liabilities in connection with 2. But if the continuance in business of
its operations or as are essential to the the bank would involve probable loss to
proper conduct of operation its depositors or creditors, proceedings
6. To compromise condone or release for receivership and liquidation shall be
any claim of or settled liability to the pursued (Sec. 29).
BSP
7. To do and perform such other RECEIVERSHIP OF A BANK OR QUASI-
necessary powers BANK/CLOSURE
Receivership is equivalent to an
CONSERVATORSHIP OF A BANK OR injunction to restrain the bank in any
QUASI-BANK way. Thus, the appointment of a
Ground: State of continuing inability receiver operates to suspend the
or unwillingness to maintain a condition authority of the bank and of its directors
of liquidity deemed adequate to protect and officers over its property and
the interest of depositors and creditors. effects. (Villanueva v. CA)
A conservator appointed by the BSP
may take over without the need of first Grounds:
declaring the bank insolvent. A. Under NCBA
Duration: Not to exceed 1 year 1. Inability to pay liabilities as they
Effects: become due in the ordinary course
1. Bank/quasi-bank retains juridical of business, but not including
personality inability to pay caused by
2. Not a precondition to the extraordinary demands induced by
designation of a receiver financial panic in the banking
community;
Powers of conservator: 2. Insufficiency of realizable assets
1. To take charge of the assets, to meet its liabilities;
liabilities, and the management 3. Inability to continue business
thereof; without involving probable losses to
2. Reorganize the management; its depositors or creditors; or
3. Collect all monies and debts due said 4. Willful violation of a cease and
bank; and desist order that has become final,
4. Exercise all powers necessary to involving acts or transactions which
restore its viability, with the power amount to fraud or a dissipation of
to overrule or rebuke the actions of the assets of the institution. (Sec.
the previous management and board 30)
of directors of the bank or quasi- B. Under GBL
bank. 1. Notification to the BSP or public
The powers must be related to announcement of a bank holiday
preservation of assets, reorganization of (Sec. 53, GBL)
management and the restoration of 2. Suspension of payment of
viability. Such power to revoke cannot deposit liabilities continuously for
extend to post-facto repudiation of more than 30 days (Sec. 53, GBL)
perfected transactions, otherwise they 3. Persistence in conducting
would infringe against the non- business in an unsafe or unsound
impairment clause of the Constitution. manner. (Sec. 56, GBL)
The power to revoke contracts only
covers those that are deemed defective
i.e., void, voidable, unenforceable or Receiver:

HEADS:
1. Banks PDIC 4. MB shall find the statement of the

2. Quasi-banks Any person of department to be true. (Banco Filipino v.
recognized competence in banking or MB)
finance
Functions: LIQUIDATION
1. Immediate gathering and taking Grounds:
charge of all the assets and liabilities of 1. The condition of the bank is one of
the institution and administering them insolvency or that its continuance would
for the benefit of creditors involve probable loss to its depositors
2. General powers of a receiver and creditors.
3. Determination ASAP but not later 2. A determination by the MB that the
than 90 days whether the institution bank cannot be rehabilitated.
should undergo rehabilitation or Procedure:
liquidation. 1. Receiver shall file ex parte, with the
proper RTC, a petition for assistance in
Note the distinctions between the liquidation of the institution
rehabilitation and liquidation. pursuant to a liquidation plan adopted
by the PDIC for general application to all
CLOSE NOW, HEAR LATER SCHEME closed banks. In case of quasi-banks, the
Sec. 29 of the Central Bank Act does liquidation plan shall be adopted by the
not contemplate prior notice and hearing Monetary Board.
before a bank is placed under 2. He shall convert the assets of the
receivership. It is enough that such institution to money for the purpose of
action is made the subject of a paying the debts of the institution. (Sec.
subsequent judicial review. The purpose 30)
of the scheme is to protect the 3. Payment shall be in accordance with
depositors, creditors, stockholders and the rules on concurrence and preference
general public. (Central Bank v. CA, 220 of credits
SCRA 536).
Only stockholders representing the EFFECTS OF APPOINTMENT OF
majority of the capital stock of a bank RECEIVER/ LIQUIDATION
have the personality to file a petition for 1. Suspension of operation
certiorari to be filed within 10 days from 2. The assets under receivership or
receipt by the board of directors of the liquidation shall be deemed in custodia
institution of the order directing legis in the hands of the receiver and
receivership, liquidation or shall be exempt from garnishment, levy,
conservatorship. Reason: Stockholders attachment or execution (Sec. 30).
owning a majority of the shares are 3. Bank is not liable to pay interest on
expected to be more objective in deposits during the period of suspension
determining whether the resolution is of operation (Overseas Bank v. CA)
plainly arbitrary and issued in bad faith. 4. The corporation retains its legal
(Sec. 30, NCBA; Central Bank vs. CA) personality (Teal Motor Co. v CFI)
5. Deposits do not become preferred
MANDATORY REQUIREMENTS FOR BANK credits. (CB v. Morfe)
CLOSURE
1. Examination by the appropriate BSP LEGAL TENDER
department as to the condition of the All notes and coins issued by the
bank Bangko Sentral are fully guaranteed by
2. Examination shows that the the Republic and shall be legal tender in
condition of the bank is one of the Philippines for all debts, both public
insolvency and private. (Sec. 52)
3. Director shall inform the MB in
writing of such fact Legal tender power of coins
146
1. 25 centavos and above: In amounts b. If BSP wants to decrease money

not exceeding P50.00 supply, it sells government
2. 10 centavos or less: In amounts not securities
exceeding P20.00 3. Reserve Requirements (Sec. 94)
Rules:
a. The required reserves of each
bank shall be proportional to the
BSP Authority to Replace volume of its deposit liabilities.
1. Notes for any series or denomination b. Since the required reserves are
More than 5 years old imposed primarily to control the
2. Coins More than 10 years old volume of money, the Bangko
Rules: Sentral shall not pay interests
1. Notes and coins called in for thereon. (Sec. 94)
replacement shall remain legal tender c. Deposits maintained with the
for a period of one year from the date of Bangko Sentral as part of the
call. reserve requirements shall be
2. After that period, they shall cease to exempt from attachment,
be legal tender during the following year garnishment, or any other order
or for such longer period as MB may or process of any court or
determine. agency. (Sec. 103)
3. After the expiration of this latter
period, the notes and coins which have PROHIBITIONS ON THE BSP
not been exchanged shall cease to be a 1. It shall not acquire shares of any
liability of BSP and shall be demonetized kind or accept them as collateral, and
(Sec. 57). shall not participate in the ownership or
management of any enterprise, either
Checks representing demand deposits directly or indirectly; and
do not have legal tender power and their 2. It shall not engage in development
acceptance in the payment of debts, banking and financing. (Sec. 128)
both public and private, is at the option
of the creditor. SECRECY OF BANK DEPOSITS LAW (R.A.
No. 1405)
However, a check which has been PURPOSES:
cleared and credited to the account of 1. To encourage people to deposit in
the creditor shall be equivalent to a banks
delivery to the creditor of cash in an 2. To discourage private hoarding so
amount equal to the amount credited to that banks may lend such funds and
his account (Sec. 60). assist in the economic development.
MONETARY STABILIZATION COVERAGE

3 Important Tools to Achieve Price All deposits of whatever nature with
Stability banks or banking institutions in the
1. Loans to Banks (Sec. 83) Philippines, including investments in
a. If BSP wants to increase money bonds issued by the Government of the
supply, it opens the rediscount Philippines, its political subdivisions and
window its instrumentalities.
b. If BSP wants to decrease money
supply, it closes the rediscount GENERAL RULE: The deposits covered
window or charges very high by law are considered as of an
interest rates for rediscounted absolutely confidential nature and may
notes not be examined, inquired or looked into
2. Open Market Operations (Sec. 90) by any person, governmental, bureau, or
a. If BSP wants to increase money office.
supply, it buys government
securities Prohibited Acts

HEADS:
1. Examination and inquiry or looking and murder under RPC. Including

into all deposits of whatever nature with those perpetrated by terrorists
the banks in the Philippines including against non-combatant persons
investments in bonds issued by the and similar targets. (Sec. 11,
Government. R.A. No. 9160 as amended by Sec.
2. Any disclosure by any official or 8 of RA 9194)
employee of any bank to any 4. Disclosure to the Treasurer of the
unauthorized person of any information Philippines of dormant deposits for at
concerning the said deposits. least 10 years under the Unclaimed
EXCEPTIONS: Balances Act (Act No. 3936)
A. From R.A. No. 1405
1. Upon written permission of the OTHER LAWS RELATING TO SECRECY OF
depositor; BANK DEPOSITS
2. In cases of impeachment; A. Foreign Currency Deposit Act (R.A.
3. Upon order of a competent court in No. 6426): Extends confidentiality to
cases of bribery or dereliction of duty of foreign currency deposits, but the law
public officials; contains only one ground authorizing
4. In cases where the money deposited examination: upon written permission of
or invested is the subject matter of the the depositor.
litigation; (Sec. 2)
B. From other laws B. General Banking Law of 2000 (R.A.
1. Anti-Graft and Corrupt Practices Act No. 8791):
cases (R.A. No. 3019; added by analogy 1. No bank shall employ casual or non-
in PNB vs. Gancayco); regular personnel or too lengthy
2. Inquiry by the Commissioner of probationary personnel in the conduct of
Internal Revenue into bank deposits of: its business involving bank deposits.
a. A decedent to determine his gross (Sec. 55.4)
estate; 2. No director, officer, employee, or
b. A taxpayer who has filed an agent of any bank shall, without court
application for compromise of his order, disclose to any unauthorized
tax liability by reason of financial person any information relative to the
incapacity to pay his tax liability. funds or properties in the custody of the
He must file a written waiver of bank belonging to private individuals,
his privilege under RA 1405 or corporations, or any other entity,
other general or special laws provided that with respect to bank
(Sec. 6[f], NIRC). deposits, the provisions of existing laws
3. Inquiry or examination by the Anti- shall prevail. (Sec. 55(b))
Money Laundering Council (AMLC) of any 3. Outsourcing of inherent bank
particular deposit or investment with functions
any banking institution or non-bank
financial institution upon order of any C. New Central Bank Act (R.A. No.
competent court in cases of violation of 7653):
the Anti-Money Laundering Law, when it 1. Any director, officer, stockholder
has been established that there is who, together with his related interests,
probable cause that the deposits or contracts a loan or any form of financial
investments are related to an unlawful accommodation from:
activity or a money laundering offense, a. His bank; or
except that no court order shall be b. From a bank -
required in the following unlawful i. which is a subsidiary of a bank
activities: holding company of which both
a. Kidnapping for ransom under Art. his bank and the lending bank
267 RPC; are subsidiaries; or
b. Comprehensive Dangerous Drugs ii. in which a controlling
Act of 2002 (RA No. 9165); proportion of the shares is
c. Hijacking and other violations owned by the same interest that
under RA 6235; destructive arson
148
owns a controlling proportion of Imprisonment of not more than 5

the shares of his bank, years or a fine not more than P20,000 or
in excess of 5% of the capital and surplus both, in the discretion of the court.
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 (Sec. 26).
2. Periodic and special examinations by ANTI-MONEY LAUNDERING ACT OF 2001
the BSP (Sec. 25) (R.A. No. 9160, as amended by R.A.
9194)
D. Anti-Money Laundering Act (R.A. No.
9160): Provides for another exception to PURPOSES:
confidentiality, which is applicable to 1. To protect and preserve the integrity
both peso and foreign currency deposits. and confidentiality of bank accounts, to
ensure that the Philippines shall not be
Garnishment of bank deposit of used as a site for unlawful money
judgment debtor does not violate RA laundering activities; and
1405. Its purpose is merely to secure 2. To pursue States foreign policy to
information as to the name of the extend cooperation in transnational
depositor and whether or not the investigations and prosecution on money
defendant had a deposit in said bank, laundering activities.
only for purposes of garnishment. (China
Banking Corporation v. Ortega) COVERED TRANSACTION
Transaction, in cash or other
Illegally acquired property extends to equivalent monetary instrument in excess
cases where property is concealed by of P500,000, within one banking day
being held by or recorded in the name of
respondents spouse, ascendants, COVERED ENTITIES
descendants, relatives, or any other a. Banks
persons. (Banco Filipino Savings and b. Non-banks
Mortgage Bank v. Purisima) c. Quasi-banks
d. Trust entities; and
REQUISTES FOR IN-CAMERA INSPECTION e. All other institutions, their
OF BANK DEPOSITS (Marquez vs. subsidiaries and affiliates supervised
Desierto) or regulated by the BSP
1. Pending case before a court of
competent jurisdiction PERSONS LIABLE
2. Account must be clearly identified
a. Any person knowing that any
3. The inspection is limited to the
monetary instrument or property
subject of the pending litigation
represents, involves, or relates to, the
4. The bank personnel and account
proceeds of any unlawful activity
holder must be present during the
transacts or attempts to transact said
inspection
monetary instrument or property.
5. The inspection must cover only the
b. Any person knowing that any
account identified in the pending case
monetary instrument or property
involves the proceeds of any unlawful
R.A. NO. 1405 viz. POWER OF THE BSP
activity, performs or fails to perform any
TO CONDUCT PERIODIC AND/OR
act as a result of which he facilitates the
SPECIAL EXAMINATIONS (Sec. 4, GBL &
offense referred to in number 1 above.
Sec. 25, NCBA)
c. Any person knowing that any
Prof. Aquino and Prof. Viray believe
monetary instrument or property is
that the general rule still applies.
required under this Act to be disclosed
Hence, the deposit remains confidential
and filed with the AMLC fails to do so.
PENALTIES

HEADS:
SUSPICIOUS TRANSACTIONS to a maximum coverage of P250,000 per

Transactions with covered institutions depositor.
regardless of the amounts involved, B. Bank Examination
where any of the following
circumstances exists: Under the new law, PDIC's authority to
a. There is no underlying legal or trade examine its member banks, with prior
obligation. approval by the Monetary Board, has
b. Client is not properly identified been restored.
c. Amount involved is not commensurate
with the business or financial capacity
C. Bank Rehabilitation
d. Taking into account all known
circumstances, it may be perceived that The PDIC may grant financial
the clients transaction is structured in assistance to distressed banks if it is
order to avoid being the subject of proven to be a less costly alternative
reporting requirements under the Act. than closure.
e. Any circumstances relating to the
transaction which is observed to deviate D. Receivership of closed banks
from the profile and/ or the clients past Once a bank is ordered closed by the
transactions with the covered Monetary Board (MB) of the Bangko
institution. Sentral ng Pilipinas, the PDIC is
f. Transaction is in any way related to an designated as statutory receiver. The
unlawful activity or offense under this PDIC upon receipt of the MB resolution
Act that is about to be, is being or has ordering the closure of a bank,
been committed. immediately physically takes over the
g. Analogous transactions to any of the closed bank. Receivership is the stage
foregoing. within which the PDIC manages the
affairs of the closed bank and preserves
JURISDICTION its assets for the benefit of creditors.
All cases: RTC
Public officers and private persons in E. Liquidation of closed banks
conspiracy with them: Sandiganbayan After it is determined that the closed
bank can not be rehabilitated, the PDIC
PHILIPPINE DEPOSIT INSURANCE shall recommend the liquidation of the
CORPORATION (PDIC) ACT assets of the closed bank. Liquidation
(R.A. No. 3591, as amended) refers to the recovery and conversion of
assets into cash for distribution to all
PURPOSES: creditors in accordance with the order of
1. To create a government-owned creditor preference pursuant to law.
entity, the PDIC;
2. To insure the deposit liability of INSURANCE FUNCTION
banks in an account up to P250,000 for 1. Nature: Compulsory insurance on all
every single depositor of each bank bank deposits
irrespective of the number of accounts 2. Coverage: Insured deposits - the
therewith. net amount due to any depositor for
deposits in an insured bank, after
PDIC deducting unpaid loans and other
Functions: obligations of the depositor to the closed
A. Insurance bank. In no case shall insured deposit
exceed P250,000 per depositor.
The PDIC assesses and collects 3. Specific risk insured against: Bank
insurance assessments from member- closure only. Thus, losses due to a bank
banks to insure member-banks deposit robbery are not covered.
accounts. In case of bank closures, the 4. Amount of insurance: Maximum of
PDIC processes and services claims for P250,000.00 per deposit (RA 9302)
insured deposits. Deposits are insured up

150
5. Condition precedent for PIC after the final liquidation of the

entitlement to payment: Filing of claim remaining assets of the closed bank.
within twenty-four months from order of 4. a. If the account is held jointly by
closure two or more natural persons, or by two
6. Manner of payment: or more juridical persons or entities, the
a. Cash maximum insured deposit shall be
b. Transferred deposit A deposit divided into as many equal shares as
in an insured bank made there are individuals, juridical persons or
available to a depositor by the entities, unless a different sharing is
PDIC as payment of the insured stipulated in the document of deposit.
deposit of such depositor in a b. If the account is held by a
closed bank and assumed by juridical person or entity jointly with
another insured bank. one or more natural persons, the
7. Effect of payment by the PDIC to maximum insured deposit shall be
the depositor of his insured deposit: presumed to belong entirely to such
a. Discharges the PDIC from further juridical person or entity: Provided,
liability further, That the aggregate of the
b. Subrogates the PDIC to all the interests of each co-owner over several
rights of the depositor against joint accounts, whether owned by the
the closed bank to the extent of same or different combinations of
such payment. individuals, juridical persons or entities,
shall likewise be subject to the
Insured deposits maximum insured deposit of Two
The net amount due to any depositor hundred fifty thousand pesos
for deposits in an insured bank, after (P250,000.00).
deducting offsets, less any part thereof
which is in excess of P250,000. Authority to terminate insured status
Trust funds and safety deposit boxes 1. Non-payment of insurance premiums
are not covered. 2. Continued engagement in unsafe and
unsound banking practices
After deducting offsets: Consistent Sec. 9 of RA 6426 (An Act Instituting
with the rulings in Gullas vs. PNB and a Foreign Currency Deposit System in
Republic vs. CA recognizing the debtor- the Philippines, and for Other
creditor relationship of the bank and the Purposes") and Sec. 79 of Central Bank
depositor, set-off takes place ipso jure (CB) Circular No. 1389, dated August 13,
with respect to the depositors bank 1993, mandate that foreign currency
deposit and his matured loan with the deposits shall be insured under the
bank. provisions of RA 3591, as amended.
Under CB Circular No. 1389, depositors
Special rules are entitled to receive payment in the
1. PDIC liability is on a per bank basis. same currency in which the insured
Accounts in a bank, even though in deposit is denominated.
several branches, are to be added
together, provided that they are Note: The PDIC law is not applicable to
maintained in the same capacity and the Offshore Banking Units. (P.D. No. 1034)
same right for his benefit either in his
own name or in the name of others. UNCLAIMED BALANCES LAW
Capacities: individual (R.A. NO. 3936)
account, joint and account,
joint and/or account. ELEMENTS OF UNCLAIMED BALANCES
2. The insurance premiums are to be 1. There must be a claim or deposit of:
paid by the insured bank, not the a. money,
depositors. b. bullion,
3. In case the depositors account is c. security, or
more than the insurance coverage, the d. other evidence of indebtedness
balance may still be recovered from the
HEADS:
2. The credit or deposit must be with a

bank, building and loan association,
or trust corporation; and
3. The credit or deposit is in favor of a
person:
a. who is dead, or
b. who has not made further deposits
or withdrawals during the
preceding 10 years or more.
LEGAL CONSEQUENCE
The unclaimed balances may be In a sui generis case, the SC allowed
subject of escheat proceedings, after garnishment of such deposits of a
proper publication and the depositors transient American tourist arising out of
still do not lay claim to them. a heinous crime committed against a
Filipino minor since to hold otherwise
FOREIGN CURRENCY DEPOSIT ACT (R.A. would result to injustice to a citizen
No. 6426) perpetrated by a foreigner. (Salvacion,
et al. v. Central Bank et al., 278 SCRA
PESO DEPOSIT FOREIGN 27)
CURRENCY
DEPOSIT Note: This case does not constitute
Governed by R.A. Governed by R.A. another exception, the SC only ruled as
No. 1405 No. 6426 such due to the special circumstances of
4 exceptions + 1 exception + 1 the said case.
exceptions found in provided under AMLA
special laws (R.A. No. 9160) REPEALING LAW TO UNIFORM
May be garnished or GENERAL RULE:
Exempt from CURRENCY ACT (R.A. No. 8183)
attached (not a
violation of R.A. No. attachment,
1405) garnishment, and other All monetary obligations shall be
court order and settled in the Philippine currency which
processes.
EXCEPTION: Salvacion is legal tender in the Philippines.
vs. CB However, the parties may agree that the
obligation or transaction shall be settled
in any other currency at the time of
OTHER FEATURES: payment. (Sec. 1)
1. Authorized banks may adopt a
numbered account system for recording
and servicing deposits in non-checking
accounts
2. Foreign currency deposits are exempt
from taxes except the interests
3. In the event a new enactment or
regulation is issued decreasing the rights
granted under the law, it shall not apply
to FCDs already made or existing at the
time of the issuance of such new
regulation or enactment.


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