Banking Effect of Closure

The New Central Bank Act the bank’s closure did not diminish the authority and
Handling of Banks in Distress powers of the designated liquidator to effectuate and
Conservatorship carry on the administration of the bank, thus: We did
a bank or a quasi-bank is in a state of continuing not prohibit however acts such as receiving
inability or unwillingness to maintain a condition collectibles and receivables or paying off creditors’
of liquidity deemed adequate to protect the interest claims and other transactions pertaining to the
of depositors and creditors normal operations of a bank. There is no doubt that
that the prosecution of suits for collection and the
Powers: foreclosure of mortgages against debtors of the bank
-take charge of the assets, liabilities, and the by the liquidator are among the usual and ordinary
management thereof transactions pertaining to the administration of a
-reorganize the management bank. The bank is still allowed to collect interests on
-collect all monies and debts due said institution loans.
-exercise all powers necessary to restore its viability
during the closure of the bank, it could still function
Conservatorship shall not exceed 1 year as a bonding institution

Termination Receivership
-the institution can operate on its own and The bank:
conservatorship is no longer necessary (a) is unable to pay its liabilities as they become due
-continuance in business of the institution would in the ordinary course of business
involve probable loss to its depositors or creditors, in (b) has insufficient realizable assets, as determined
which case the provisions of Section 30 shall apply by the Bangko Sentral, to meet its liabilities
(Receivership and Liquidation). (c) cannot continue in business without involving
probable losses to its depositors or creditors
Closure (d) has willfully violated a cease and desist order
-bank is unable to pay its liabilities as they become
due in the ordinary course of business The receiver shall
-bank has insufficient realizable assets to meet its -gather and take charge of all the assets and liabilities
liabilities of the institution
-bank cannot continue without involving probable -administer the same for the benefit of its creditors
losses to its depositors or creditors -exercise the general powers of a receiver under the
-bank has willfully violated a cease and desist order Revised Rules of Court but shall not, with the
from the Monetary Board that has become final, exception of administrative expenditures, pay or
involving acts or transactions which amount to fraud commit any act that will involve the transfer or
or dissipation the of assets of the institution disposition of any asset of the institution
-bank notifies the BSP or publicly announces a bank
holiday, or in any manner suspends the payment of the receiver may deposit or place the funds of the
its deposit liabilities continuously for more than 30 institution in nonspeculative investments.
days
The receiver shall determine as soon as possible,
Close Now, Hear Later Rule but not later than ninety (90) days from take-
-prevent unwarranted dissipation of the bank’s asset over, whether the institution may be
-valid exercise of police power to protect creditors, rehabilitated or otherwise placed in such a
depositors, stockholders and the general public condition so that it may be permitted to resume
-the absence of an examination before the closure of business with safety to its depositors and
a bank did not mean that there was no basis for the creditors and the general public: Provided, That
closure order – must be based on substantial any determination for the resumption of business of
evidence the institution shall be subject to prior approval of
-closure must be in a summary and expeditious the Monetary Board.
manner
-it is enough that ssequent judicial review is provided If the receiver determines that the institution cannot
for be rehabilitated or permitted to resume business, the
Monetary Board shall notify in writing the board of
directors of its findings and direct the receiver to accordance with the rules on concurrence and
proceed with the liquidation of the institution. preference of credit under the Civil Code of the
Philippines and he may, in the name of the
Effects of Receivership: institution, and with the assistance of counsel as he
-business operations are suspended may retain, institute such actions as may be
>foreclosure proceedings is not among those which necessary to collect and recover accounts and assets
banks are prevented from doing for it is consistent of, or defend any action against, the institution. The
with receivership proceedings. Period of foreclosure assets of an institution under receivership or
is not tolled liquidation shall be deemed in custodia legis in the
-assets shall be deemed in custodial legis and shall be hands of the receiver and shall, from the moment the
exempt from garnishment, execution, levy or institution was placed under such receivership or
attachment liquidation, be exempt from any order of
-the bank is not liable to pay interest on deposits garnishment, levy, attachment, or execution.
during the period of suspension of operation.
however, interests on loans extended by the bank are **the properties of an insolvent bank are not
still demandable transferred by operation of law to the statutory
-banks retain their legal personality receiver/liquidator but rather these assets are held
>PDIC/conservator is just a representative of the in trust to be distributed to its creditors after the
bank liquidation proceedings in accordance with the rules
>the bank can sue and be sued but any case should be on preference of credits.
initiated and prosecuted through the liquidator
-there will be no preference even if the claimant- The actions of the Monetary Board taken under this
depositor obtained a writ of preliminary attachment section or under Section 29 of this Act shall be final
and executory, and may not be restrained or set aside
Liquidation by the court except on petition for certiorari on the
-condition of the bank is one of insolvency of that its ground that the action taken was in excess of
continuance would involve probable loss to its jurisdiction or with such grave abuse of discretion as
depositors and creditors to amount to lack or excess of jurisdiction.
-a determination by the MB that the bank cannot be -to be filed by the SH representing majority of the
rehabilitated capital stock, within 10 days from receipt by the BOD
of the order
-prior tax clearance from the BIR is not required –
not covered by the Corporation Code. Monetary Secrecy of Bank Deposits
Board governs SECTION 2. All deposits of whatever nature with
banks or banking institutions in the Philippines
(1) file ex parte with the proper regional trial court, including investments in bonds issued by the
and without requirement of prior notice or any other Government of the Philippines, its political
action, a petition for assistance in the liquidation of subdivisions and its instrumentalities, are hereby
the institution pursuant to a liquidation plan adopted considered as of an absolutely confidential nature
by the Philippine Deposit Insurance Corporation for and may not be examined, inquired or looked into by
general application to all closed banks. In case of any person, government official, bureau or office,
quasi-banks, the liquidation plan shall be adopted by except upon written permission of the depositor,
the Monetary Board. Upon acquiring jurisdiction, the or in cases of impeachment, or upon order of a
court shall, upon motion by the receiver after due competent court in cases of bribery or dereliction
notice, adjudicate disputed claims against the of duty of public officials, or in cases where the
institution, assist the enforcement of individual money deposited or invested is the subject
liabilities of the stockholders, directors and officers, matter of the litigation.
and decide on other issues as may be material to >trust accounts are protected as well
implement the liquidation plan adopted. The receiver
shall pay the cost of the proceedings from the assets SECTION 3. It shall be unlawful for any official or
of the institution. employee of a banking institution to disclose to any
person other than those mentioned in Section two
(2) convert the assets of the institution to money, hereof any information concerning said deposits.
dispose of the same to creditors and other parties, for
the purpose of paying the debts of such institution in
Prohibited Acts *there must be prior clearance before payment of
-bank deposits may not be examined, inquired or checks. Otherwise, the collecting bank can only
looked into by any person, government official, assume at its own risk
bureau or office
-any official or employee of a banking institution may Prohibited transactions by bank directors and
not disclose to any person other than those officers
mentioned in Sec. 2 any information concerning said DOSRI accounts
deposits -borrower is an officer, director or stockholder of a
bank
Exceptions from coverage -he contracts a loan or any form of financial
-cases involving unexplained wealth under RA 3019 accommodation
-upon inquiry of the BIR for purposes of determining -the loan or financial accommodation is from his
the net estate of the decedent bank or bank that is a subsidiary of a bank holding
-AMLC, probable cause of money laundering company of which both his bank and lending bank
-disclosure of dormant deposits are subsidiaries, a bank in which controlling
-report of banks to AMLC of covered/suspicious proportion of shares is owned by the same interest
transactions that owns a controlling proportion of the shares of
-inquiry of PDIC if there are unsafe/unsound banking his bank
practices -the loan or financial accommodation of the DOS
-waiver in case of DOSRI loans singly or with that of his RI, is in excess of 5% of the
-disclosure to the BSP in compliance with the AMLA capital and surplus of the lending bank or in the
-plunder case maximum amount permitted by law, whichever is
lower
Garnishment of Deposit, including foreign deposit
-may be garnished by the creditors of the depositor, -covers various modes of borrowing – loans by DO
the Bank Secrecy Law is not violated. The amount of directly or indirectly, for himself or as the
deposit is not actually disclosed representative or agent of others
Exempt from garnishment: -applies even if the DO is a mere guarantor, indorser
-Foreign currency deposit or surety for someone else’s loan
Except: American found guilty of repeatedly raping a
12 year old girl *should be with the written approval of the majority
-provision for the family for four months under ROC of all directors of the lending bank
*account should be at terms not less favorable to the
General Banking Law of 2000 bank than those offered to others (Arm’s Length)
Nature of Bank Funds and Bank Deposit *resolution approving the loan shall be entered in the
-contract between bank and depositor is governed by records of the bank, cop should be transmitted to the
the Civil Code provision on simple loan BSP
-bank is the debtor and depositor is the creditor *Monetary Board may regulate the amount of loan
-the depositor lends money to the bank and the bank *individual ceilings – loans, etc are limited to the
agrees to pay the depositor on demand amount equivalent to their respective unencumbered
>mandamus does not lie to enforce the performance deposits and book value of their paid-in capital
of contractual obligations contribution
*borrower is required to waive the secrecy of his
Diligence Required of Banks deposit
-highest degree of diligence *accounts are subject to examination but information
-high standards of integrity and performance are obtained shall be held strictly confidential
required
-they cannot merely rely on certificates of title in Philippine Deposit Insurance Corporation Act
ascertaining the status of mortgaged properties; as Maximum Deposit Insurance Coverage
their business is impressed with public interest, they Insured deposit
are expected to exercise more care and prudence in The amount due to any bona fide depositor for
their dealings than private individuals legitimate deposits in an insured bank as of the date
of closure but not to exceed Php500,000. In
determining such amount due to any depositor, there
shall be added together all deposits in the bank
maintained in the same right and capacity for his or Splitting of Deposit
her benefit either in his own name of in the name of -occurs whenever a deposit account with an
others outstanding balance of more than the statutory
maximum amount of insured deposit maintained under
A joint account regardless of whether the conjunction the name of natural or juridical persons is broken down
‘and’, ‘or’, ‘and/or’ is used, shall be insured separately and transferred into two (2) or more accounts in the
from any individually-owned deposit account: Provided, name/s of natural or juridical persons or entities who
That (1) if the account is held jointly by two or more have no beneficial ownership on transferred deposits in
natural persons, or by two or more juridical persons or their names within one hundred twenty (120) days
entities, the maximum insured deposit shall be divided immediately preceding or during a bank-declared bank
into as many equal shares as there are individuals, holiday, or immediately preceding a closure order
juridical persons or entities, unless a different sharing is issued by the Monetary Board of the Bangko Sentral ng
stipulated in the document of deposit, and (2) if the Pilipinas for the purpose of availing of the maximum
account is held by a juridical person or entity jointly deposit insurance coverage;
with one or more natural persons, the maximum
insured deposit shall be presumed to belong entirely to
such juridical person or entity: Provided, further, That
the aggregate of the interest of each co-owner over
several joint accounts, whether owned by the same or
different combinations of individuals, juridical persons
or entities, shall likewise be subject to the maximum
insured deposit of Five hundred thousand pesos
(P500,000.00): Provided, furthermore, That the
provisions of any law to the contrary notwithstanding,
no owner/holder of any passbook, certificate of deposit,
or other evidence of deposit shall be recognized as a
depositor entitled to the rights provided in this Act
unless the passbook, certificate of deposit, or other
evidence of deposit is determined by the Corporation to
be an authentic document or record of the issuing bank.

Maximum deposit insurance can be adjusted

-monetary board has determined that there is a
condition that threatens the monetary and financial
stability of the banking system that may have systemic
consequences
-the adjustment has been approved by the unanimous
vote of the directors of the PDIC
-adjustments are approved by the President

Excluded from PDIC Insurance Coverage

-amount in excess of Php 500,000
-deposit that is payable in a place outside the PH
-money placements by the head office of a foreign bank
in its branch in the PH
-investment products such as bonds and securities,
trust accounts, and other similar instruments
-deposit accounts or transactions which are unfunded,
or that are fictitious or fraudulent
-deposit accounts or transactions constituting or
emanating from unsound banking practices as
determined by the corporation, in consultation with the
BSP
-deposits that are determined to be the proceeds of an
unlawful activity
-cases involving splitting of deposits