Banking Law

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Banking Law MBA  Other req of MB to banks:

o Secure a cert authority from MB before it can


1. Functions of BSP – register w/ SEC4
a. Policy directions in the areas of money, credit o May not purchase/acquire its shares or accept
and banking them as security EX when authorized by the
b. Central monetary authority; MB
c. Regulatory powers over the operations if  The bank must sell/dispose of said
finance companies, and non-bank financial shares w/in 6,os from the time of their
institution performing quasi-banking functions; acquisition at a public/private sale.5
d. Management of foreign currency reserves; o Composed of 5 – 15 dirs. In case of
e. Liquidity Management; merger/consolidation, the # of dirs. shall not <
f. Acts as gov’t bank; 21, 2 of who shall be an independent dir.6
g. Lender of last resort (make loans, rediscount o May declare dividends in the absence of the
etc to banking institution); conditions set forth under sec.57 of the GBL.
h. Supervise banks (Financial Supervisor); o Doesn’t require a certificate of tax clearance for
i. Act as agent of the Government; BSP to approve dissolution.7
j. Issue currency;
k. Custodian of reserves; 3. Classification of banks:
l. Regulates money supply; and a. Universal- large commercial banks that can do
m. Determination of exchange rate policy. both commercial and investment banking:
i. They have the power of both
 NB: BSP’s primary objective is to maintain price commercial bank and investment house
stability conducive to a balance and sustainable growth 

of the economy. It shall promote monetary stability and ii. Have the power to invest in non-allied
the convertibility of the peso.1 enterprises
b. Commercial – general powers incidents of a
2. Banks are entities authorized by MB to engage in corp and perform commercial banking
the business of lending funds obtained regularly
from the public, in forms of deposits:
a. Must be a stock corp2; 3 Sec.9, GBL.
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b. Must issue stocks w/ par value only3 Sec.14, GBL.
5 Sec.10, GBL.
6 Sec.17, GBL.
1 7 In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod,
Sec.3, NCBA.
2 Sec.8.1, GBL. December 18, 2006.

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i. Doesn’t have the power to invest in non- 4. Under RA 772112, foreign banks may acquire up to
allied Ent. 60% voting stocks of domestic banks discuss?
c. Thrift 8 - encourages the industry, frugality and a. Foreign banks are allowed entry in the
accumulation of saving of the public: Philippines subject to the following rules13:
i. To make it easy reach to the pp the i. Within 7 years from effectivity of GBL,
credit facilities at reasonable cost MB shall authorize foreign banks to
ii. Includes: acquire 100% voting stock of 1 domestic
 Savings and mortgage bank bank 

 Stock savings & loan asso
 Private dev’t banks ii. Within same period, MB may allow
d. Rural9- that promotes rural dev’t foreign bank which prior to GBL has
i. They can extend loan or advances to already acquired 60% voting stock can
primarily meet the normal credit needs now acquire 100% 

of farmers, fishermen and their families
ii. Can also deposit in private banks more iii. MB must ensure that 70% of resources
than the prescribed Single borrower’s of banking system are held by majority-
limit in case there’s no gov’t banks. owned Filipinos 

e. Cooperative 10 - organized by coop to provide
financial and credit service to coops b. Foreign banks have three modes of entry in the
i. Membership shall include only coop and country14:
federation of coop i. Acquiring 60 of voting stock of existing
f. Islamic 11 - promote socio-eco dev’t in bank 

autonomous region by performing baking and ii. Investing 60% of voting stock of new
investment based on Islamic concept of banking subsidiary incorporated in
banking Philippines
i. Subject to the principles and rulings of iii. Establishing branches with full banking
Islamic Shari’a. authority
c. A foreign bank may only avail only 1 mode of

12 AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS


8 Thrift Bank Act RA 7906. OF FOREIGN BANKS IN THE PHILIPPINES AND FOR OTHER
9 Rural Bank Act RA 7353. PURPOSES.
10 RA 6938. 13 Sec.3, RA 7721.
11 RA 6848. 14 Sec.2, RA 7721.

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entry. incorporated under the laws of the Philippines. RA
d. GBL only stated that branches of foreign banks 10641 also allows foreign banks to establish branches
will be treated as one and shall have the head in the Philippines with full banking authority. However,
office guarantee to creditor Filipino citizens15. RA 10641 mandates the Monetary Board to ensure
e. However, there is nothing in the law that states that that the control of at least 60% of the resources or
that citizens that are debtors to foreign bank assets of the entire Philippine banking system is held
local branches shall also be debtors to the head by domestic banks that are majority-owned by
office16. Filipinos.
f. There is also nothing in the law that the head
office and its local foreign branches shall be  RA 10641 also introduces a new provision that allows
treated as one17. foreign banks, which are authorized to do banking
g. Thus, off-setting or compensation of loans with business in the Philippines through any of the modes of
Philippine branches with foreign branches entry stated in RA 10641, to bid and take part in
(using dollar accounts) cannot be effected as foreclosure sales of real property mortgaged to them.
they cannot be considered creditors and Foreign banks are now allowed to take possession of
debtors of each other18. the property mortgaged to them, for a period not
h. To sum up, if a client obtains a loan from the exceeding five years from actual possession. However,
foreign bank’s Phil branch, doesn’t absolutely in order to ensure that the mandates of the Constitution
and automatically make the client a debtor, not are still complied with, the law sets the following
just in the Phil branch, but also of the head parameters:
office and all other branches of the foreign bank
around the world.19  In no event shall title to the property be transferred to
the foreign bank. In case the bank is the winning bidder
 NB: RA 10641 amended RA 7721, the ff are the in a foreclosure sale, it shall, during the five-year
pertinent provisions: period, transfer its rights to a qualified Philippine
 The Monetary Board may now authorize foreign banks national.
to acquire, purchase or own up to 100% of the voting
stock of an existing bank and to invest in up to 100% of  Should the bank fail to do this within the five-year
the voting stock of a new banking subsidiary period, it shall be penalized at the rate of one-half of
1% per annum of the price at which the property was
15 Citibank N.A. v. Sabeniano, February 6, 2007. foreclosed, until it is able to transfer the property to a
16 Id. qualified Philippine national.
17 Id.
18 Id.
19 Id.

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 In order to ensure the equal treatment between foreign i. At least 7yrs old;
and domestic banks, RA 10641 clearly states that
foreign banks authorized to operate under this law shall ii. Able to read and write and have
perform the same functions, enjoy the same privileges, sufficient discretion;
and be subject to the same limitations imposed upon a
Philippine bank of the same category. It further states iii. Not otherwise DQ by any other
that any right, privilege or incentive granted to foreign incapacity.
banks or their subsidiaries or affiliates under RA 10641
shall be equally enjoyed by and extended to Philippine iv. Only savings or time dep.20
banks under the same conditions.
 NB: parents may nevertheless deposit for their
5. Percentage of voting in foreign-owned voting-stock minor children and guardians for their wards.21
shall be determined by the Control test doc?
b. Yes, married women are also allowed to open
a. Yes, the Control test doctrine is applied. Under bank accounts w/o the assistance of their
the GBL, foreign individuals and non-banks can husband.22
own 40% of voting stock of a domestic bank
7. Banks can’t directly engage in insurance business
(aggregate foreign voting stock).
as Insurer, except?
b. Citizenship of the corp. shall follow the
citizenship of the controlling SHs (>50%) a. Bancassurance- the presentation and sale to
bank customers by an insurance company of its
regardless of the place of incorpo.
insurance products w/in the premises of the
c. The percentage of F-O voting stock in a bank head office of such bank duly licensed by the
shall be determined by the citizenship of the BSP or any of its branches.23
individual SHs. 8. As a GR (CCP) only natural person can be
incorporators, EX?
6. Minors, 7yrs old, can open savings/time dep.
account; also married women w/o husband’s
consent?

a. Yes, minors can open savings or time deposits 20 Sec.1, PD 734.


account with the following requirements: 21 Sec. 1, PD 734.
22 Sec.5, RA No. 7192.
23 Sec. 375, ICP.

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a. Ratio to the GR: a corp is an artificial person i. Unable to pay liabilities that are due.
w/o brain or body and existing only on paper This doesn’t include inability to pay
thru legislative command.24 cause by extraordinarily demands by
b. EX: Coop can become an incorpo of a rural financial panic.
banking corp. Duly established coops and corps ii. Insufficient realizable assets.
primarily organized to hold equities in rural iii. Can’t continue business w/o involving
banks may organize rural banks and/or probable loss to depositors or creditors.
subscribe to shares of stock of any rural bank.25 iv. Willfully violated the cease and desist
order involving transactions of fraud.
9. Relationship of bank & depositor? Duty of banks to v. In case bank notifies BSP or public
comply w/ fiduciary duty? announces bank holiday where it
a. Debtor-creditor relationship in relation to bank’s suspends payment of its deposit
deposit functions.26 liabilities continuously for more than 1
b. Requires high standards of integrity and month.
performance.27
i. The bank is under obli to treat the
accounts of its depositors w/ meticulous  NB: BSP is vested with exclusive authority to
care, always having in mind the fiduciary assess, evaluate and determine condition of a
nature of their relationship.28 bank whether it is insolvent or not. If insolvent,
receivership proceedings 

10. When may MB/BSP appoint a Conservator? Or
Receiver? 11. Where a bank is under receivership, may it
a. Whenever the MB finds the bank in a state of: sell/lease its properties? Why? Explain.
i. Continuing inability; or a. No they may not. Receivership is equivalent to
ii. Unwillingness to maintain a condition of an injunction to restrain the bank in any way.
liquidity deemed adequate to protect Thus, the appointment of a receiver operates to
depositors and creditors. suspend the authority of the bank and of its
b. Grounds for receivership and liquidation: directors and officers over its property and
effects.29
12. May a bank under receivership foreclose
24 Government v. El Hogar, July 13, 1927. mortgages; continue its business, sue or be sued?
25 Sec.4, Rural Banks Act of 1992.
26 Gullas v. PNB, November 13, 1935. a. GR: No, the insolvency of the bank and the
27 Sec. 2, GBL; Philippine Banking Corp, v. CA, January 15, 2004.
28 Simex Int’l Manila Inc., v. CA, March 19, 1990. 29 Villanueva v. CA, May 26, 1995.

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consequent appointment of a R restrict the iii. In another case w/ a relatively similar
bank’s capacity to act, especially in re to its issue, the SC said that the bank
property.30 EX: liquidator is allowed to continue
i. But in one case the, SC said that while receiving collectibles and receivables or
its true that foreclosure falls w/in the paying off C’s claims and other
broad definition of “doing business”, that transactions pertaining to normal
is: continuity of comm dealings and operations of a bank. Among these
arrangements and contemplates to that transactions were the prosecution of
extent, the performance of acts or words suits against Ds for collection and for
or the exercise of some of the functions foreclosure of mortgages. The bank was
normally incident to and in progressive allowed to collect interests on its loans
prosecution of the purpose and object of while under liquidation, provided that the
its org, it shouldn’t be considered interests were legal.
included, however, in the acts prohibited
whenever banks are “prohibited from b. A bank wc had been ordered closed by the MB
doing business” during receivership and retains its juridical personality wc can sue and
liquidation proceedings. 31 Thus, the be sued thru its liquidator. The only limitation
period of prescription to foreclose being that the prosecution or def of the action
continues to run even if the bank is must be done thru the liquidator.33 Otherwise,,
under R/L. no suit for or against an insolvent entity would
ii. In another case, the SC ruled that the prosper. In such situation, banks in liquidation
bank’s closure didn’t diminish the would lose what justly belongs to them thru a
authority and powers of the designated mere technicality.34
liquidator to effectuate and carry on the
admin of the bank such as acts of 13. May PDIC, act as Receiver, when a bank is closed?
receiving collectibles and receivables or How much is max liability? Discuss.
paying off C’s claim and other a. The PDIC is the statutory receiver and
transactions pertaining to the normal liquidator of closed banks. PDIC takes over
operations of a bank.32 banks ordered closed by the Monetary Board;
administers closed banks’ assets, records and
affairs; and preserves and disposes these
30 Villanueva v. CA, supra.
31 Larrobis v. Phil. Veterans Bank, October 1, 2004.
32 Banco Filipino Savings & Mortgage Bank v. Monetary Board, Central Bank 33 Hernandez v. Rural Bank of Lucena, January 10, 1978.
34
of the Phil., December 11, 1991. Gelano v. CA, 1981.

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assets for the benefit of the creditors and As to the 1st class, it should be paid cause such
uninsured depositors. interest has been earned in the ordinary course
b. The max liability or insurance deposit coverage of the bank’s business before declaration of
is P500,000.00 per depositors. insolvency. Only interest wc may be charged
 NB on Atty. Balmes’ lecture: GR claimants after the declaration of insolvency is exempt.37
and/or Cs can only recover the ceiling of 500k
from the PDIC as an “INSURER”. But you can 15. Law on secrecy= discuss exceptions
claim the remaining outstanding a. GR: PH account is confidential.
balance/deficiency from the PDIC as a b. EX:
“LIQUIDATOR” but subject to concurring i. Consented
preference as provided by the applicable law. In ii. Impeachment cases
short, you can claim all amounts of debts, iii. Order of courts in cases of
interest etc. against a foreclosed bank. Bribery/dereliction of duty of public
officers
14. Is an insolvent bank closed by BSP, liable to pay iv. Order of court in cases where the
interests on deposits from the date of closure? money deposited/invested is the subject
a. No they aren’t liable to pay interest on deposits of litigation.
wc accrued during the period when the bank is v. Report of banks to AMLC of covered
actually closed and non-operational.35 and/or suspicious transaction
i. Ratio: xxx it should be deemed read into vi. AMLC may inquire deposits, with a court
every contract of dep w/ a bank that the order or even without a court order in
obli to pay stipulated % on deposit certain cases such as kidnapping for
ceases the moment the operation of the ransom or violations of the
bank is completely suspended by the Comprehensive Dangerous Drugs Act.
duly constituted authority, the BSP.36 vii. Commissioner of BIR may inquire to
b. EX: In one case the SC said that distinction determine the net estate of the
must be made between the % wc the dep deceased depositor
should earn from their existence until the bank viii. Upon court order in examination of the
ceased to operate and that wc they may earn deposit which is related in financing acts
from the time the bank’s operations were of terrorism under the Human Security
stopped until the date of payment of the deps. Act

35 Fidelity Savings and Mortgage Bank v. Cenzon, April 5, 1990.


36 37
Ibid. Tan Tiong Tick v. American Apothecaries, March 31, 1938.

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ix. BSP and PDIC authorized to look into 18. AMLA discuss
deposits in cases involving unsafe or 19. Foreign currency deposits? Rules? Exceptions?
unsound banking. a. Dollar Account are also confidential
16. Does garnishment of bank depo violate bank b. EX:
secrecy law? i. Consented
a. No it doesn’t because the amount of deposit is ii. Sec.11 of Anti-Money Laundering Act
actually not disclosed and the intent of the iii. Sec.27 & 28 of Human Security Act
legislature doesn’t cover garnishment from such
prohibition. 38 Furthermore, the prohibition 20. Rule/s on redemption of REM if bank is the
against examination of or inquiry of bank dep mortgagee?
doesn’t preclude its being garnished to insure a. Period
satisfaction. If the existence of dep is disclosed i. Natural persons – The mortgagor or
the disclosure is purely incidental to the debtor, who’s a natural person, whose
execution process.39 real prop has been sold for the full or
17. Are anonymous, number, alias accounts partial payment of his obligation shall
prohibited? have the right w/in 1yr after sale of the
a. Anonymous account (or accounts under RE, to redeem the prop. The 1yr RP
fictitious names) is prohibited.40 should be counted from the date of the
i. Related laws are Art. 178 RPC, using registration of the cert of sale w/ the RD.
fictitious name and concealing true ii. Juridical persons – Whose prop has
name and Art.379-380 of NCC, been sold pursuant to an Extra-For,
employment of pen names or stage shall have the right to redeem the prop
names and prohibition of using different but not after the registration of the cert
names and surnames. of foreclosure sale w/ proper RD wc in
b. Number account is allowed only in foreign no case shall be more than 3months
currency deposits.41 after foreclosure, whichever is earlier.
c. Alias is not allowed after the enactment of RA b. Price
9160.42 i. Such may be exercised by paying the
amnt due under the mortgage deed, w/
38 Philippine Commercial and Industrial Bank v. CA, 193 SCRA 452. interest thereon at the rate specified in
39 China Banking Corp. v. Ortega, January 31, 1973. the M and all costs and expenses
40 RA No. 9160 as amended by RA No. 9194; BSP Circular No. 251, July 21,
incurred by the bank/insti from the sale
2000.
41 Sec. 8, RA No. 6426 as amended by, Foreign Currency Deposits Act.
42 People v. Estrada, April 2, 2009.

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and custody of said property less the accommodation to the borrowers as it makes
income derived therefrom.43 available additional funds without their having to
c. Possession execute additional security documents, thereby
i. The purchaser at the auction sale saving time, travel, loan closing costs, costs of
concerned whether in a judicial/extra-for extra legal services, recording fees, et cetera.
shall have the right to enter upon and Indeed, it has been settled in a long line of
take possession of such property decisions that mortgages given to secure future
immediately after the date of the advancements are valid and legal contracts
confirmation of the auction sale and (Mojica vs. CA, G.R. No. 94247, September 11,
administer the same in accordance w/ 1991, 201 SCRA 517),and the amounts named
law. as consideration in said contracts do not limit
d. Injunction and bond the amount for which the mortgage may stand
i. Any petition in court to enjoin/restrain as security if from the four corners of the
the conduct of F proceedings instituted instrument the intent to secure future and other
pursuant to this provision shall be given indebtedness can be gathered. (China Banking
due course only upon the filing by the Corp. vs. CA, 333 Phil. 158 (1996); Prudential
petitioner of a bond in an amnt fixed by Bank vs. Don A. Alviar, et al., G.R. No. 150197,
the court conditioned that he’ll pay all July 28, 2005; Cuyco vs. Cuyco, 487 SCRA 693
the dmgs wc the bank may suffer by the (2006)).
enjoining/restraint of the F proceedings.
21. Rule/s in case of Dragnet Clause or Blanket
Mortgage clause?
a. A “blanket mortgage clause”, also known as a
“dragnet clause” is one which is specifically
phrased to subsume all debts of past or future
origins. Mortgages of this character enable the
parties to provide continuous dealings, the
nature or extent of which may not be known or
anticipated at the time, and they avoid the
expense and inconvenience of executing a new
security on each new transaction. A “dragnet
clause” operates as a convenience and

43 Sec. 47, GBL.

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