Partyduh Notes Banking 1-6

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009
BANKING LAWS & JURISPRUDENCE

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borrower, is a bank. Any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised. III. NATURE OF BANKING BUSINESS A. Debtor- Creditor Relationship Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning loan. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. (Consolidated Bank and Trust Corporation vs. Court of Appeals) Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. (Serrano vs. Central Bank of the Philippines) B. Fiduciary Duty fiduciary nature of banking which requires high standards of integrity and performance.
Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal
CHAPTER 1
I. DECLARED POLICY OF THE STATE
The State recognizes the vital role of banks in providing for an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking system that is globally competitive, dynamic and responsive to the demands of a developing economy. (Section 2 of RA 8791, General Banking Law of 2000) II. DEFINITION OF BANKS Banks are entities engaged in the lending of funds obtained in the form of deposits. - A moneyed institute founded to facilitate the borrowing, lending and self-keeping of money and to deal, in notes, bills of exchange, and credits. An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and
Treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. Requires banks to assume a degree of diligence higher than that of a good father of a family Higher level of accountability than that expected of a depositor. C. Not a Trust Agreement The fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. Banks do not accept deposits to enrich depositors but to earn money for themselves. D. Indispensable Institution Plays a vital role in the economic life of every civilized nation. Banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude, and most of all, confidence.
E. Impressed with Public Interest The stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consist only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of the money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. F. Degree of Diligence The law imposes on banks high standards in view of the fiduciary nature of banking. The bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. (Simex Internationsl vs. Court of Appeals) Degree of diligence higher than that of a good father of a family, as prescribed by Section 2 of the GBL. Same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors.
Diligence extends to financial institutions: o A government financial institution, like banks, is expected to exercise greater care and prudence in the dealings, including those involving registered lands. Due diligence required of banks extend even to persons, or institutions, regularly engaged in the business of lending money secured by real estate mortgages.
depositors. Banks shall have a true and accurate account, record or statement of their daily transactions, particularly those referring to their deposit liabilities. Making of any false entry or the willful omissionof entries is a ground for the imposition of administrative sanctions and the disqualification from office of any director or officer responsible therefor, without prejudice to their criminal liability. I. Banks are not Gratuitous Bailees Banks are run for gain, and they solicit deposits in order that they can use the money for that very purpose. J. Banks not Expected to be Infallible However, it must bear the blame for not discovering mistakes if there are established procedures and the same have not been followed. K. Dealing with Registered Lands Banks should exercise more care and prudence in dealing with registered lands, than private individuals, for their business is one affected with public interest. The rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks. Judicial notice is taken of the standard practice for
G. Treatment of Accounts with Meticulous Care In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consist only of a few hundred pesos or of millions. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss perhaps even civil and criminal litigation. No law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts. H. Duty to Keep Records A bank has a fiduciary duty to keep efficiently a record of its transactions with its
banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who the real owners thereof are. A mortgagee-bank must exercise due diligence before entering into said contracts. Any investigation previously conducted on the property offered as collateral does not preclude a bank from considering information on the same property as security for a subsequent loan. (Sps. Omengan vs. Philippine National Bank) L. Banks may Exclude Persons in their Premises Banks are mandated to exercise a higher degree of diligence in the handling of its affairs than that expected of an ordinary business enterprise. Banks may impose reasonable conditions or limitations to access by non-employees to its premises and records, such as the exclusion of nonemployees from the working areas for employees, even absent any imminent or actual unlawful aggression on or an invasion of its properties or usurpation thereof, provided that such limitations are not contrary to the law. M. Charging of Interest for Loans Very essential and fundamental element of the banking business; it may be considered to be
the very core of the banking existence or being. IV. LIABILITY FOR ACTS OF OFFICERS AND EMPLOYEES By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials are far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. A bank is liable for the wrongful acts of its officers done in the interest of the bank or in their dealings as bank representatives but not for acts outside the scope of their authority. A. Negligence of Manager The bank, as an employer, is liable. Confidence in the banking system, which necessarily includes reliance on bank managers, is vital in the economic life of our society. B. Negligence of Officers A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. If a corporation knowingly permits its officer, or any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be
stopped from denying such authority. C. Negligence of Tellers Banks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. Appropriation of money by a teller is not estafa. If the teller appropriates the money for his personal gain, and since he occupies a position of confidence, the felony of qualified theft would be committed. D. Right to Recover from Employees Banks may recover from its employees for any payment made in view of the latters negligent or criminal acts. Whoever pays for the damages caused by his dependents or employees may recover from the latter what he has paid or delivered in satisfaction of the claim. E. Liability for Damages There must be a breach before damages may be awarded and the breach of such duty should be the proximate cause of the injury. 1. Actual and Compensatory Damages
(1) when the obligation is breached, and it consists in the payment of a sum of money, the interest due should be that which may have been stipulated in writing. It shall itself earn interest from the time it is judicially demanded. In the absence of stipulation, interest must be 12% per annum. (2) may be imposed at the discretion of the court at the rate of 6% per annum. (3) When the judgement of the court awarding a sum of money becomes final and executor, the rate of legal interest whether the case falls under (1) or (2), shall be 12% per annum from such finality until satisfaction. 2. Exemplary Damages Law allows the grant of exemplary damages by way of example for the public good. The public relies on the banks fiduciary duty to observe the highest degree of diligence. 3. Moral Damages As a general rule, a corporation is not
entitled to moral damages, because it cannot experience physical suffering and mental anguish. However, for the breach of fiduciary duty required of a bank, a coporate client may claim such damages when its good reputation is besmirched by such breach, and social humiliation results therefrom. In culpa contractual or breach of contract, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or is found guilty of gross negligence amounting to bad faith, or in wanton (reckless) disregard of his contractual obligations. Banks may not be held responsible in the absence of bad faith, malice, or wanton attitude. The law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. (DAMNUM ABSQUE INJURIA) INJURY- illegal invasion of a legal right DAMAGE- the loss, hurt, or harm which results from the injury
F. Respondeat Superior, Diligence in the Selection and Supervision of Employees o Banks is bound by the negligence of its employees under the principle of repondeat superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana.
Classification of Banks (CUT-RICO) a. Commercial Bank/s (C) - Exercise the general powers incident to a corporations - Shall have all powers as may be necessary to carry on business of commercial banking: a. Accepting drafts and issuing letters of credit b. Discounting and negotiating promissory notes, drafts, bills of exchange and other evidence of debt c. Accepting or creating demand deposits d. Receiving other types of deposits and deposits substitute e. Buying and selling foreign exchange and gold or silver bullion, acquiring marketable bonds and other debt securities f. Extending credit, subject to such rules as the Monetary Board may promulgate See section 29 of GBL and
Depositor may recover moral damages even if the banks negligence may not have been attended with bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation. Moral damages are not meant to enrich a complainant at the expense of the defendant. It is only intended to alleviate the moral suffering she has undergone.
chapter 4 operations.
for
discussion
of
b. Universal Banks (U) - They are large banks licensed by Bangko Sentral ng Pilipinas to do both commercial and investment banking. - In addition to the powers of commercial bank, a universal bank can exercise the powers of an investment house as well as invest in nonallied enterprises. - A universal bank may perform the functions of an investment either directly (through a sepatate and distinct department or within the unit if the bank) or indirectly (through a separate subsidiary investment house). In either case, the underwriting of equity securities or securities dealing will be subject to pertinent laws, as well as applicable regulations of the SEC. c. Thrift Banks (T) - Aside from the powers conferred on it by other laws, a thrift bank namely a savings and mortgage bank, a stock savings and loan association or a private development bank. - Recognize the indispensable role of the private sector, to encourage private enterprise and to provide incentives to needed investment. - The following are powers of a thrift bank: a. Grant loans, whether secured or not b. Invest marketable bonds and other debt securities c. Issue domestic letters of credit d. Extend credit facilities to private and government employees
e. Extend credit against the security of jewelry or other precious stones. f. Accept savings and time deposits g. Rediscount paper with the Land Bank of the Philippines, Development Bank of the Philippines and other GOCC h. Accept foreign currency deposits as provided under Foreign Currency Deposit Act i. Act as correspondent for other financial institutions j. Purchase, hold and convey real estate as specified in sections 51 and 52 of GBL k. Offer other banking services as provided in section 53 of GBL. Thrift banks may perform such services only upon prior approval of Monetary Board.
d. Rural Banks (R) - Recognizes the need to promote comprehensive rural development with the end view of attaining acquitable distribution of opportunities, income and wealth. - Encourages and assists in the establishment of rural banking system designed to make needed credit available and readily accessible in the rural areas on the reasonable terms. - Loans or advances extended by rural banks shall be primarily for the purpose of meeting the normal credit needs of farmers, fishermen or farm families as well as the normal credit needs of cooperatives and merchants. e. Islamic (I) - RA 6848 created the Al-Amanah Islamic Investment Bank of the Philippines. The
domicile and place of business is in Zamboanga City. - Primary purpose of the Islamic Bank is to promote and accelerate the socio-economic development of the Autonomous Region by performing banking, financing and investment operations. f. Cooperative (C) - Organized by the majority shares of which is owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. - May perform all the functions of rural bank. - Membership of cooperative bank shall include only cooperative and federations of cooperative. g. Other Banks (O) - The Monetary Board is authorized to make other classification of banks, as it may deem proper. - Philippine Veterans Bank, Land Bank of the Philippines Development Bank of the Philippines is considered to be GovernmentOwned Banks. OTHER CLASSIFICATION OF BANKS OTHER THAN MENTIONED IN SECTION 3 1. Non-Stock Savings and Loan Associations - Is a non-stock, non-profit corporation engaged in the business of accumulating engaged in the business of accumulating the savings of its members and using such accumulations for loans to members to service the needs of households by providing long-term financing for home building and development and for personal finance.
2. Quasi-Banks - Refers to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of receivables and other obligations. 3. Offshore Banks - Refers to the conduct of banking transactions in foreign currencies involving the receipt of funds from external sources and the utilization of such funds. Authority to Engage in Banking and Quasi-Banking Functions A. Authority from Bangko Sentral ng Pilipinas - No person or entity shall engage in banking operations or quasi-banking functions without authority from BSP. - An entity authorized by the BSP to perform universal or commercial banking the functions shall likewise have the authority to engage in quasi-banking functions. - According to the provisions of the Corporation Code that: (a.) no article of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institution xxx governed by special laws shall be accepted by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law; (b.) the SEC shall not accept for filing the by-laws or any amendment thereto of any bank, banking institution xxx unless accompanied by a
certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law. B. Determination by the Monetary Board - The Monetary Board shall decide the determination of whether a person or entity is performing banking or quasi-banking functions. a. To resolve such issue through inspection, investigation and examination. b. Upon issuance of this authority banking operations shall continue to do so unless such authority is revoked, suspended or annulled by BSP. c. Existence of a victim is not necessary to determine whether an entity is in illegal banking. C. Authority of Supervising and Examining Department - Department head and examiners are authorized to: a. To administer oaths to any person such as officer or director. b. To compel the presentation or production of books, documents, papers or records that are reasonably necessary to ascertain the facts relative to the true functions and operation of entity. c. Failure or refusal to comply with the required presentation within reasonable time shall subject the person responsible for penal sanctions provided in the NCBA (New Central Bank Act).
D. Extension of Examining Powers - BSP shall have the authority to examine an enterprise, which is wholly, or majority owned or controlled bank. This is available only when BSP is examining a bank. E. Certificate of Authority to Register - The SEC shall not register the articles of incorporation of any bank or any amendment unless accompanied by a certificate of authority issued by Monetary Board under its seal. - Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it: (RPC) a. All Requirements of existing laws and regulations to engage in business for which the applicant is proposed to be incorporated have been complied with. b. Public Interest and economic conditions both general and local, justify the authorization. c. Amount of Capital, financing, organization, direction and administration as well as the integrity and responsibility of the organizers and administrators reasonably assure the safety of deposits and public interest. - The SEC shall not register the by-laws of any bank unless accompanied by a certificate of authority from BSP. Service of Summons Upon Banks A. Service under the Rules of Court - Sec 11, Rule 14 of Rules of Court: Service upon domestic private juridical entity. When the defendant is a corporation, service may
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be made on the president, managing partner, general manager, corporate secretary, treasurer or in-house counsel. - Sec 12, Rule 14 of Rules of Court: Service upon a private juridical entity. When the defendant is a foreign private juridical entity, service may be on its resident agent designated in accordance with law. B. Strict Compliance is Necessary - Basic is the rule that a strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. - The officer upon who services is made must be one who is named in the statute otherwise service is insufficient. - The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in action against it. - Serving of summons on a branch manager is invalid, as stated in the case of BPI vs. Spouses Santiago, the service of summons on BPIs Branch Manager did not bind the corporation for the branch manager is not included in the enumeration of the statute of the persons whom service of summons can be validly be made in behalf of corporation. Such service is void.
CHAPTER 2 Organization, Management and Administration of Banks, Quasi-Banks and Trust Entities
I. Organization of Banks
A. Conditions The Monetary Board may authorize the organization of a bank or quasi-bank subject to the following conditions: (SPC) 1. That the entity is a stock corporation. 2. That its funds are obtained from the public, which shall mean twenty (20) or more persons. 3. That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied. B. Capabilities The Monetary Board shall take into consideration their capability in terms of their financial resources and technical expertise and integrity. (FTI) The bank licensing process shall incorporate an assessment of:
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a. b. c. d. e.
The banks ownership structure Directors and senior management Its operating plan Internal control Its projected financial condition and capital base
subscription shall be paid-up, provided that in no case shall be the paid-up capital be less than the minimum required capital stated above. (25% subscribed and 25% of the subscribed shall be paid and shall not be less than the minimum)
C. Capital Requirements 1. Minimum capital prescribed by the Monetary Board

AMOUNTS
TYPE OF BANK
Universal Banks Commercial Banks Thrift banks - With head office within Metro Manila - With head office outside Metro Manila Rural Banks - within Metro Manila - cities of Cebu and Davao - In 1st, 2nd & 3rd class cities and first class municipalities - in 4th, 5th & 6th class cities and in 2nd, 3rd & 4th class municipalities - in 5th & 6th class municipalities
(In Million Pesos) 4950.0 2400.0
325.0
52.0
26.0 13.0
D. Incorporators/Subscribers/Proposed Directors (I/S/PD) I, S & PD - Must be Persons of integrity and of good credit standing in the business community. S - Must have adequate financial strength to pay for their proposed subscriptions in the bank. I, S & PD must not have been convicted of any crime involving moral turpitude I, S & PD unless otherwise allowed by law, are not offices and employees of a government agency, instrumentality, department or office charged with the supervision of, or granting of loans to banks. *** A bank may be organized with not less than five (5) nor more thank (15) incorporators. In excess of 15 may be listed among the original subscribers in the Articled of Incorporation. E. Bank Branches
6.5
3.9 2.6
2. At least 25% of the total authorized capital stock shall be subscribed by the subscribers of the proposed bank, and at least 25% of such
1. Universal or Commercial banks may open branches or other offices within or outside the Philippines prior approval of the Bangko Sentral. 2. Branching by all other banks shall be governed by pertinent laws.
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*** A bank may use any or all of its branches as outlets for the presentation and/or sale of the financial products of its allied undertaking or of its investment house units. *** A bank shall be responsible for all business conducted in such branches and offices to the same extent and in the same manner as though business had all been conducted in the head office. *** A bank and its branches shall be treated as one unit.
controlling stockholders individuals holding more that 50% of the voting stock of the corporate stockholders of the bank.
II. Stockholdings
A. Treasury Stocks The GBL provides that no bank shall: Purchase or acquire shares of its own capital stock Accept its own shares as security for a loan Exception: When authorized by the Monetary Board.
(The stock so purchases or acquired shall, within six months from the time of its purchase or acquisition, be sold or disposed of at a public or private sale.)
Commercial bank at least 60% of voting stock shall be owned by Filipino citizens. Any thrift bank at least 40% of voting stock shall be owned by Filipino citizens. Rural bank 100% shall be owned and held, directly or indirectly, by Filipino citizens or corporations, associations or cooperatives qualified under the Philippine laws to own and hold such capital stock.
*** Control test is applied in determining the nationality of banks. C. Acquisition of Voting Stock in a Domestic Bank Section 73, GBL D. Family Groups or Related Interests Is formed when: Stockholdings of individuals related to each other within 4th degree or consanguinity or affinity, legitimate or common-law; or Two or more corporations owned and controlled by the same family or same group of persons. *** such situations must be fully disclosed in all transactions by such corporations or related groups of persons with bank.
B. Foreign Stockholdings Section 11, GBL Foreign individuals and non-bank corporations may own or control up to 40% of the voting stocks of a domestic bank. This rule shall apply to Filipinos and domestic non-bank corporations. The percentage of foreign-owned voting stocks shall be determined by the citizenship of the individual stockholders. The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation.
III.
Board of Directors
A. Number of Directors
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At least five (5), and a maximum of fifteen (15) members of the board of directors of bank, two (2) or whom shall be independent directors.
Independent Director a person other than an officer or employee of the bank, its subsidiaries or affiliates or related interests. 1. Is not or has not been an officer or employee of the bank/quasi-bank/trust entity, its subsidiaries or affiliates or related interests during the past three years counted from the date of his election; 2. Is not a director or officer of the related companies of the institutions majority stockholder; 3. Is not a majority shareholder of the institution, any of its related companies, or of its majority shareholder; 4. Is not a relative within the fourth degree of consanguinity or affinity, legitimate or common-law of any director, officer or majority shareholder or the bank/quasi-bank/trust entity, or any of its related companies; 5. Is not acting as a nominee or representative of any director or substantial shareholder or the bank/quasi-bank/ trust entity, any of its related companies or any of its substantial shareholders; and 6. Is free from any business or other relations with the institution or any of its major stockholders which could materially interfere with the exercise of his judgment.
and Officers The Monetary Board may regulate the payment by the bank to its directors and officers or compensation, allowance, etc. only in exceptional cases such as: (CUU) 1. When a bank is under comptrollership or conservatorship; 2. When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; 3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition.
IV.
Fit and Proper Rule
B. Directors of Merged or Consolidated Banks In the case of a bank merger or consolidation, the number of directors shall not exceed twenty-one. C. Meetings May be conducted through: Teleconferencing Video-conferencing *** Banks shall include in their bylaws a provision that meetings of board of directors shall be held only within the Philippines. D. Compensation and other Benefits of Directors
A. Powers of the Monetary Board The GBL provides for the following rules: 1. The Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed bank directors and disqualify those unfit. 2. After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank director or officer who commits or omits an act which render him unfit for the position 3. CITEE integrity, experience, education, training and competence of an individual shall be considered. B. Disqualifications a. Permanently disqualified from being directors: 1. Persons who have been convicted by final judgment of a court for offenses involving
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dishonesty or breach of trust; 2. Persons who have been convicted by final judgment of a court sentencing them to serve a maximum term of imprisonment of more than six years; 3. Persons who have been convicted by final judgment of the court for violation of banking laws, rules and regulations; 4. Persons who have been judicially declared insolvent, spendthrift, or incapacitated to contract; 5. Directors, officers or employees of closed banks, quasi-banks/trust entities who were found to be culpable for such institutions closure as determined by the monetary board. 6. Directors and officers of banks, quasi-bank and trust entities found by the monetary board as administratively liable for violation of banking laws, rules and regulations where a penalty of removal from office is imposed, and which finding of the monetary board has become final and executory; 7. Directors and officers of banks, quasi-banks and trust entities or any person found by the monetary board to be unfit for the position of directors or officers because they were found administratively liable by another government agency for violation of banking laws, rules and regulations or any offense/violation involving dishonesty or breach or trust and which finding of said government agency has become final and executory. b. Temporarily disqualified from being directors: 1. Persons who full refuse to fully disclose the
extent of their business interest or any material information to the appropriate supervising and examining department when required pursuant to a provision of law; 2. Directors who have been absent or who have not participated for whatever reasons on more than 50% of all meetings, both regular and special, of the board of directors during their incumbency, and directors who failed to physically attend for whatever reasons in at least 25% of all boar meeting in any year, except that when a notarized certification executed by the corporate secretary has been submitted attesting the said directors were given the agenda materials prior to the meeting and that their decisions thereon were submitted for deliberations and were taken up in actual board meeting, said directors shall be present in the board meeting. This disqualification applies only for purposes of the immediately succeeding election; 3. Persons who are delinquent in the payment of their obligations.
** one past due obligation to the bank where he/she is a director or office; at least two obligation with other banks or financial institution) *** obligations shall include all borrowings obtained by: a director, spouse or child of the director, any person person whose loan proceeds were used for the benefit of a director or office, a partnership where a director or his spouse is the managing or general partner, a corporation, association or firms wholly owned or majority of the capital stocks are owned by the director or his spouse.
4. Persons who have been convicted by a court for offenses involving dishonesty or breach of trust. 5. Directors and officers of closed banks/quasibanks/trust entities pending their clearance by the Monetary Board 6. Directors disqualified for failure to observe their duties and responsibilities prescribed under existing regulations. 7. Directors who failed to attend the special seminar for board of directors. This disqualification
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applies until the director concerned has attended such seminar; 8. Persons dismissed from employment for cause, until they have cleared themselves of involvement in the alleged irregularity. 9. Those under preventive suspension 10.Persons with derogatory records as certified by the judiciary, NBI, PNP, etc. for irregularities that would adversely affect the integrity of director/officer, until they have cleared themselves or after the lapse of five years from the time of the complaint. 11.Directors and officers of banks, quasi-bank and trust entities found by the monetary board as administratively liable for violation of banking laws, rules and regulations where a penalty of removal from office is imposed, and which finding of the monetary board is pending appeal before the appellate court, unless execution is restrained by court. 12.Directors and officers of banks, quasi-banks and trust entities or any person found by the monetary board to be unfit for the position of directors or officers because they were found administratively liable by another government agency for violation of banking laws, rules and regulations or any offense/violation involving dishonesty or breach or trust and which finding of said government agency is pending appeal before the appellate court, unless execution is restrained by court. 13.Directors and officers of banks, quasi-bank and trust entities found by the monetary board as administratively liable for violation of banking laws, rules and regulations where a penalty of suspension from office or fine is imposed, regardless whether the finding of the monetary board final and
executory or pending appeal before the appellate court, unless execution is restrained by court. The disqualification is in effect during the period of suspension or so long as the fine is not fully paid. C. Disqualifications/Prohibitions Corporation Code
Sec. 27, Corporation Code
under
the
D. Disqualifications/Prohibitions NCBA Disqualification Sec. 9, NCBA Prohibitions Sec. 27, NCBA E. F.
under
the
Disqualification/Prohibition under the PDIC Law Sec. 17 PDIC Law Disqualification/Prohibition under RA 7353 Sec. 5, RA 7353 G. Disqualification/Pr ohibition under Appendix 38, Manual of Regulations for Banks H. Prohibitions Public Officials Sec 19, GBL on
V.
Banking Days and Hours
A. Number of Days and Hours The GBL provides for the following guidelines: 1. Banks shall transact business on all working days
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for at least six hours a day. Banks may open for business on Saturdays, Sundays, or holidays for at least three hours a day. 2. Banks which opt to open on days other than working days shall report to the Bangko Sentral the additional days during which they or their branches or offices shall transact business. 3. Working days mean Mondays to Fridays, except if such days are holidays. B. Rules and Regulations 1. All banks shall observe for the conduct of their business a regular banking week five days (Mondays Fridays), except when such days are holidays.
a. For servicing deposits and withdrawals, banks may remain open beyond the minimum six hours, even before 8:00am or after 8:00pm. For purposes other than servicing deposits and withdrawals, banks may open beyond the minimum six hours but in no case shall such banking hours start earlier than 8:00am nor extend beyond 8:00 pm. Branches of banks at any international airport or major fish port are allowed on flexible baking hours within a twenty-four hour period which shall in no case be less than six hours per day. The banking days and hours selected for each of the offices of banks shall be reported in writing to the appropriate supervising and examining department of the BSP. Provided, that the change in banking days and hours shall not be made oftener than once every thirty days, except during emergencies. Notice on changes in banking days and hours shall be given through the fastest means of communication, at least seven days before the intended effectivity in banking hours or days. In case the bank has to pen outside or close during the banking hours or days reported to the BSP due to an emergency, a written report submitted within 24
hours from opening or closing will suffice.
b.
c.
d.
e.
2. Subject to compliance with other relevant laws, banks may opt to observe a banking week in excess of five days after reporting to the BSP the additional days during which such banks or their branches or offices shall transact business for at least three hours each day. 3. Without the need of approval from BSP, banks are allowed to close on certain days in celebration of important historical and/or religious event in the locality where the banks operate: Provided, that said closure has the prior approval of the bankers association in the locality: Provided further, that said closure will only be allowed in the municipality or city where the festivities are centered. 4. Banks shall submit either individually or through their head offices, to the appropriate supervising and examining department of the BSP a prior notice of their intended closure on account of a special local festivity, together with a copy of the resolution of the local bankers association approving said closure, at least two days after the date of said resolution. 5. The required notice shall be supported by certification that: a. On the date of temporary closure, the bank and/or branch will maintain a skeletal force to handle out-of-town clearing items b. The notice of the banks closure and the reason thereof shall be posted conspicuously in the banks premises c. For branches of banks, the closure has the prior approval of their respective head offices.
f.
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VI.
Automated Teller Machines
A. Off-Site Automated Teller Machines (ATMs) Banks may establish off-site ATMs, subject to the following conditions: 1. Banks shall submit a report to the appropriated department of the BSP on ATMs which they establish; 2. ATMs shall be installed in centers of activity like supermarkets, etc. Provided, that security measures shall be adopted. 3. Only banks which have shown general compliance with laws, rules and regulations shall be allowed to open off-site ATMs. B. Mobile ATMs Banks may also establish mobile ATM, subject to the following conditions: 1. The mobile ATMs should be allowed to visit only centers of activity as mentioned in Item A(2) above and should confine their itinerary to Metro Manila until further notice; 2. The bank shall secure insurance coverage or adopt a self-insurance scheme to protect itself against losses of whatever nature in its immobile ATM operations; 3. The bank shall notify the supervising and examining department of the BSP of the actual date a mobile ATM becomes operational and when no longer in operation.
services of an independent auditor to be chosen by the bank, quasi-bank or trust entity concerned from a list of certified public accountants acceptable to the Monetary Board. 2. The term of the engagement shall be prescribed by the Monetary Board which may either be on a continuing basis where the auditor shall act as resident examiner, or on the basis of special engagements, but in any case, the independent auditor shall be responsible to the banks, quasi-banks or trust entitys board of directors. A copy of the report shall be furnished to the Monetary Board. 3. The Monetary Board may also direct the board of directors of a bank, quasi-bank, trust entity and/or the individual members thereof, to conduct, either personally or by a committee created by the board, an annual balance sheet audit of the bank, quasi-bank or trust entity to review the internal audit and control system of the bank, quasi-bank or trust entity and to submit a report of such audit.
VIII. FINANCIAL STATEMENTS

A. Publication of Financial Statements: The following are rules regarding publication of financial statements: Sec. 61, GBL ** Every bank, quasi-bank or trust entity, shall publish a statement of its financial condition
VII. Independent Auditor

The following are the rules with respect to financial audit of banks: 1. The Monetary Board may require a bank, quasi-bank or trust entity to engage the
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such terms understandable to the layman in such frequency as may be prescribed by the Bangko Sentral in English or Filipino at least once every quarter in a newspaper or general circulation in the place where the bank is located ** In periods of national and/or local emergency or of imminent panic which directly threaten monetary and banking stability, the Monetary Board, by a vote of at least five of its members, in special cases and upon application of the bank, quasi-bank or trust entity, may allow such bank, quasi-bank or trust entity to defer for a stated period of time the publication of the statement of financial condition required herein.
and assume jurisdiction over such labor dispute in order to settle or terminate the same. B. Reports of Strike and Lockouts The bank shall disclose the following pertinent information on the strike/lockout: a. Cause of the strike/lockout and bank managements position on its legality; b. Bank operations affected.
XI.

Laws Governing Other Types of Banks

Thrift banks Thrift Banks Act Rural Bank Rural Banks Act Cooperative Cooperative Code Islamic Banks special laws
IX.
Publication of Capital Stock
A bank, quasi-bank or trust entity shall shot publish the amount of its authorized or subscribed capital stock without indicating at the same time and with equal prominence, the amount of its capital actually paid-up.
** GBL shall likewise apply to thrift banks, rural banks and cooperative banks insofar as they are not in conflict. ** GBL shall govern for purposes of prescribing the minimum ratio which the net worth of a thrift bank must bear to its total risk assets.
X. Settlement of Disputes
A. Unsettled Labor Disputes Any strike or lockout involving banks, if unsettled after seven calendar days shall be reported by the Bangko Sentral to the Secretary of Labor who may assume jurisdiction over the dispute and decide it or certify the same to the NLRC for compulsory arbitration. However, the President may intervene
CHAPTER 3 Deposit Function of Banks

Kinds of Deposits
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1) Demand Deposits all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of (depositors) checks. Universal and Commercial banks may create or accept demand deposits subject to withdrawal by check WITHOUT prior authority from BSP. Thrift Bank, Rural Bank, Cooperative Bank may create or accept demand deposits subject to withdrawal by check WITH prior authority from BSP.
SHALL NOT BE ALLOWED, UNLESS caused by normal bank charges and other fees incidental to handling such accounts. Violation: Fine of one-tenth of one percent (1/10 of 1%) per day of violation, computed on the basis of the amount of overdrawing or fines in amounts as may be determined by the Monetary Board, but not to exceed P30,000 a day for each violation whichever is lower. Technical overdrawings arising from force posting in clearing checks shall be debited banks under Returned Checks and Other Cash Items Not in Process of Collection which is part of Other Assets in the Statement Condition. Items to be lodged under this account shall consist only of inclearing checks which may result in technical overdrawn accounts and shall immediately reversed in the following day. The checks lodged under Returned Checks etc. shall either be returned or honored the following day before clearing. The items to be used as cover for honored checks should only consist of any of the following: Cash Cashiers, Managers or Certified Checks Bank Drafts Postal Money Orders Treasury Warrants Duly funded On us checks Fund transfers or credit memos within the same bank representing proceeds of loans granted under existing regulations NOTE: Peso demand deposit accounts maintained by foreign correspondent banks with commercial banks shall NOT be subject to the above-mentioned regulations PROVIDED: The maintenance of non-resident correspondent banks
Manner of making the deposit In Philippine Bank of Commerce vs CA the Supreme Court observed: In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor, or the latters agent or representative, who indicates therein the current account number to which the deposit is to be credited, the name of the depositor or current account holder, the name of the deposit and the amount of the deposit either in cash or checks. The deposit slip has an upper portion or stub, which is detached and given to the depositor or his agent; the lower portion is retained by the bank. In some instances however, the deposit slips are prepared in duplicate by the depositor. The original of the deposit slip is retained by the bank, while the duplicate copy is returned or given to the depositor. Regulations on Temporary Overdrawings and Drawings against Uncollected Deposits (DAUD) TEMPORARY OVERDRAWINGS against current account
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peso checking accounts and overdrawings therefrom are covered by reciprocal arrangement Temporary overdrawings are covered within 15 days from the date overdrawings are incurred Such accounts are credited only through foreign exchange inward remittance
DRAWINGS AGAINST UNCOLLECTED DEPOSITS (DAUDs) shall be PROHIBITED except when the drawings are made against uncollected deposits representing managers/cashiers/treasurers checks, treasurer warrants, postal money orders and duly funded on us checks which may be permitted at the discretion of each bank. Current Accounts of Banks Officers and Employees The following officers and employees of banks are PROHIBITED from maintaining demand deposits or current accounts with the banking office in which they are assigned: All officers Employees of the banks cash department/ cash units Other employees who have direct and immediate responsibility in the handling of transactions and/or records pertaining to demand deposits or current accounts. Includes spouses and relatives within second degree of consanguinity and affinity Check is a bill of exchange drawn on a bank payable on demand. Fixed savings and current deposits of money shall be governed by the provision so simple loan Duty of Banks to honor checks Banks are bound to honor checks to the extent of the
amount of his (the depositor) deposits. Failure of the bank to honor entitles the drawer to substantial damages without any proof of actual damages Banks must ensure that the amount of the check should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably constitutes negligence.
Responsibility of Drawer The drawer must personally keep track of his available balance in the bank. Duty of Banks to Know Signatures A bank is bound to know the signatures of its customers If it pays a forged check, it must be considered as making the payment out of its own funds and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. Banks are under no obligation to make part payment on a check, up to only the amount of the drawers funds. Banks are under no duty to make up deficiency from the savings account. If a depositor has 2 accounts with a bank, an open account and a savings account, and draws a check upon the open account for more money than the account contains. Checks do not have legal tender power and their acceptance in the payment of debts is at the option of the creditor. Effects if a cross check In State Investment House vs IAC, the SC enumerated the different effects of crossing a check:
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1. That the check may not be encashed but only deposited in the bank 2. That the check may be negotiated only once to one who has an account with a bank 3. That the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose. Cashiers Check is really the banks own check and may be treated as a promissory note with the bank as the maker. In New Pacific Timber and supply Co. Inc. vs Seeris cashier check is deemed as cash Set-off A bank may debit the personal account of a depositor for an amount erroneously credited to the depositors sole proprietorship account because the latter being a sole proprietorship has no separate and distinct personality from the depositor. Art. 1980 and Art. 1278 of the Civil Code The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. Crossing of the check with the phrase Payees Account Only is a warning that the check should be deposited only in the account of the payee. It is the duty of the bank to ascertain it. Relationship of payee or holder and the bank Principal and agent. The bank which receives such paper for collection is the agent of the payee or holder.
Encashment of checks Banking business requires that the one who first cashes and negotiates the check must take some precautions to learn whether or not it is genuine. 2) Savings Deposits Servicing deposits Banks may be authorized by the BSP to solicit and accept deposits outside their bank premises, subject to ff: conditions: 1. The financial condition of the banks is sound and the operations and the quality of the management thereof could reasonably assure the safety of the funds which may be entrusted to its deposit collectors and/or agents 2. Proposed area is clearly defined 3. Solicitation shall be only confined within a locality where there are NO BANKS IN OPERATION or where it can be established that the deposit potentials in the said locality are still untapped 4. Institute and maintain following minimum safeguards: Deposit solicitors shall be initially bonded for at least P1,000 subject to the increase thereof to approximate their daily collections Deposit solicitors shall be provided with proper identification cards with photograph and signature, certified by appropriate officer of the bank Secure adequate insurance coverage for funds Deposit slips shall be in booklet form, prenumbered and in triplicate (3) copies.
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The original issued to the depositor, second used for posting reference and third retained in the booklet. All collections shall be turned over to the cashier at the end of each day accompanied by a COLLECTION SUMMARY REPORT which shall contain the following information. Date Name and address of the depositors Deposit slip no.s Amount of deposit Savings account and passbook numbers Name and signature of solicitor rendering the report Depositors shall be required to accomplish a SIGNATURE CARD when opening an account used as a reference in checking the genuineness and authenticity of signatures in withdrawals Deposits/withdrawals shall be recorded by the bookkeeper or any ledger clerk At the end of each month, depositors shall be advised IN WRITING if the balances of their deposits. Advise slips shall NEVER be handcarried by the solicitor themselves Place of assignments of banks solicitors shall be rotated at least quarterly.
And account signature of BOTH co-depositor are required for withdrawal And/or account either one of the co-depositors may deposit and withdraw from the account without the knowledge, consent and signature of the other.
Withdrawals Banks are prohibited from issuing or accepting withdrawal slips without requiring depositors concerned to present their passbooks except for banks authorized by BSP. NOTE: There is now law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts. 3) Negotiable Order of Withdrawal (NOW) Accounts NOW accounts interest bearing accounts that combine the payable on demand feature of checks and investment feature of savings account. Universal/Commercial Bank may offer NOW accounts WITHOUT prior authority of the monetary board Thrift/Rural/Cooperative Bank may offer UPON prior approval of the monetary board. Rules on servicing NOW accounts Prior to or simultaneous with the opening of a NOW account, the bank shall inform the depositor of its terms and conditions Banks shall be responsible for the proper identification of its depositors and require 2 specimen signatures and such other pertinent information Deposit shall be covered by deposit slips in duplicate duly validated and initialed by the teller received the
Individual and Joint accounts Joint account may be an and account or an and/or account
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deposit NOW accounts shall be kept and maintained separately from the regular savings deposits Blank NOW forms shall be prenumbered and shall be controlled as in the case of unissued blank checks A bank statement shall be sent to each depositor at the end of each month for confirmation of balances Banks must use the form prescribed by the present rules for NOW accounts.
1. Borrowing funds for the borrowers own account 2. 20 or more lenders at any one time 3. Methods of borrowing are issuance, endorsement or acceptance of debt instruments of any kind 4. Purpose of which is relending or purchasing receivables or other obligations NOTE: 1. Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any purposes provided in no.4 above 2. Purchasing receivables or other obligations shall refer to the acquisition of claims collectible in money 3. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Relending is presumed when the institution is regularly engaged in lending 4. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts or rediscounts as a matter of business 6) Foreign Currency Deposits Authority to deposit foreign currencies - Any person may deposit with such Phil. Banks in good standing. Authority of Banks to accept foreign currency deposits: Banks designated by Central Bank shall have the authority to: 1. Accept Deposits and to accept foreign currencies in trust. Numbered accounts for recording and servicing of said deposits are allowed. 2. Issue certificates to evidence such deposits.
4) Time Deposits one the payment of which cannot legally be required within such a specified number of days. Time deposits shall be issued for a specific period of term Authority shall be automatically granted to any accredited banking institution to accept SPECIAL TIME DEPOSITS from the Agrarian Reform Fund Commission with interest lower than the rate allowed on time deposits accepted from the general public. Rules regarding issuance of Certificates of Time Deposit (CTD) Negotiable Certificates on Time Deposit (NCTD) o Universal/Commercial Banks may issue WITHOUT prior approval of BSP o Thrift/Rural/Cooperative Banks may issue UPON THE PRIOR approval of BSP Non-Negotiable Certificates of Time Deposit o Bank may issue long-term non-negotiable taxexempt certificates to time deposit without prior approval of the BSP 5) Deposit Functions) Elements: Substitute Operations (Quasi-Banking
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3. Discount said certificates 4. Accept said deposits as collateral for loans subject to such rules and regulations 5. Pay interest in foreign currency on such deposits Foreign Currency Cover Requirements: Depository banks shall: 1. Maintain at all times a 100% foreign currency cover for their liabilities 2. Of which cover at least 15% shall be in the form of foreign currency deposit with the Central Bank 3. The balance in the form of the foreign currency loans or securities, which loan or securities shall be of shortterm maturities and readily marketable 4. Such foreign currency loans may include loans to domestic enterprises which are export-oriented or registered with the Board of Investments 5. Foreign Currency cover shall be in the same currency as that of the corresponding foreign currency deposit liability 6. Central Bank may pay interest on the foreign currency deposit and if requested shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depository banks. Depository banks on account of networth, resources, past performance or other pertinent criteria, have been qualified by the Monetary board to function under an expanded foreign currency deposit system shall be exempt in no.2 above. There is no restriction on the withdrawal by the depositor of his deposit or on the transferability of the same abroad EXCEPT those arising from the contract bet. the depositor and the bank. 7) Anonymous and Numbered Accounts should not be
allowed In case where numbered accounts are allowed, banks or financial institutions should ensure that the client is identified in an official or other identifying documents. Related Laws: Art 178 RPC Art 379, Art 380 of Civil Code Commonwealth Act 142 as amended by Republic Act No. 6085
Administration of Deposits
All banking institutions are required to set a minimum of 3 specimen signatures to be simultaneously required from each of their depositors and to update the specimen signatures of their depositors every 5 years or sooner. BSP Circular No. 564 Series of 2007 provides for a valid list of identification cards Students who are beneficiaries of an OFW and not on voting age shall be required of 2 valid ID The requirement on presenting 2 valid IDs shall on 1 time basis only or at the commencement of business relationship. Financial transactions may include remittances
Minors are vested with special capacity and power to make savings or time deposits with and withdraw the same as well as receive interest thereon. Requirements: At least 7 years of age Able to read and write Sufficient discretion
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Not otherwise disqualified by any other incapacity
If a guardian shall give notice in writing to any thrift bank not to make payments of deposits dividends or interest to the minor of whom he is the guardian, then such payment shall be made only to the guardian. Corporations may open bank accounts as follows: 1) Incorporation Stage 2) Post Incorporation Interest or yield on time deposit/deposit substitute may be paid at the maturity or upon withdrawal or in advance PROVIDED, it shall not exceed the interest in 1 year. A time deposit not withdrawn or renewed on its due date shall be treated as a savings deposit and shall earn interest from maturity to the date of actual withdrawal or renewal at a rate applicable to savings deposits. Deposit substitute instrument not withdrawn or renewed on its maturity date shall from said date become payable on demand and shall earn an interest or yield from maturity to actual withdrawal or renewal at a rate applicable to a deposit substitute with a maturity of 15 days. All deposits and withdrawals during regular banking hours shall be credited or debited to deposit liability accounts on the day receipt or payment thereof. Provided: That a bank may set clearing cut-off time for its head office not earlier than 2 hours before the start of clearing at BSP and not earlier than 3 hours before the start of clearing of all its branches, agencies and extension offices Provided further: That banks which are located in areas where there are no BSP regional/clearing arrangements may set a clearing cut-off
time not earlier than 2 hours before the start of their local clearing after which time deposits received shall be booked likewise as hereinafter provided. Cash deposits received after the selected clearing cut-off time shall be booked s deposits on the day of receipt. Deposits on checks including on us checks etc. may be booked as deposits on the day of receipt. Deposits received after the close of the regular banking hours shall be booked as deposits the following banking day. Banks impose and collect service charges on savings and demands deposits that fall below the required minimum monthly average daily balance (ADB) subject to ff: conditions: The imposition of such charges is clearly stated among the terms and conditions of the depositor The rate or amount of such charges or fees is properly disclosed among the terms and conditions of the deposit The deposit account balances have fallen below the required minimum monthly ADB for dormant account and for at least 2 consecutive months for active accounts The required minimum monthly ADB of deposits are properly disclosed among the terms and conditions of the deposit. Any change in the terms and conditions for the imposition of service charges and/or maintenance fees shall take effect only after due notice to the depositor. PROVIDED Information by regular mail, electronic mail, statement of account messages or alternative modes of communication on the depositors last known address at
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least 60 days prior to implementation shall be considered sufficient notice. PROVIDED FURTHER Failure of the depositor to manifest or register his objection to the new service within 30 days from receipt shall be deemed acceptance of such changes Banks shall likewise post said information on their respective websites, ATM on-screen messages and in conspicuous places within the bank premises at least 60 days prior to implementation.
2.
3. III. Survivorship Agreement when joint (and several) owners of a deposit agree that either of them could withdraw any part or the whole of said account during the lifetime of both and the balance, if any, upon the death of either, belonged to the survivor. an ALEATORY CONTRACT (Art. 1790), by which the mutual agreement of the joint depositors permitting either of them to withdraw the whole deposit during their lifetime and transferring the balance to the survivor upon the death of one of them. Survivorship agreement not invalid per se but may be violative of law, such instances: - a mere cloak to hide an inofficious donation - to transfer property in fraud of creditors - to defeat the legitime of a forced heir
4. 5.
IV. Nature of Bank Deposits A. Nature 1. Fixed, savings and current deposits of money in banks
and similar institutions are the true deposits and are considered simple loans. Irregular deposits in nature for they are really loans because they earn interest. - In reality: depositor is the creditor while bank is the debtor. - Failure of the bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depositorys failure to return the subject matter of the deposit. The relationship between the depositor and the Savings and Loan Association is that of creditor and debtor. - Bank has the obligation to return the amount deposited, however, it has no obligation to return or deliver the same money that was deposited. (Principle of Non-Fungible) - Failure of the bank the amount deposited will not constitute estafa through misappropriation but it will only give rise to civil liability. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. A bank ultimately acquires ownership of the deposits but such ownership is coupled with a corresponding obligation to pay the depositor an equal amount on demand. - A bank does not have unilateral right to freeze the accounts of depositor based on its mere suspicion, granting such rights would open the floodgates of public distrust in banking industry. (BPI Family Bank vs. Franco)
B. Set-Off General Rule: When a depositor is indebted to a bank,

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and the debts are mutual, the bank may apply the deposit or such portion thereof as may be necessary to the payment of the debt due it by the depositor. Exception: - There is no express agreement. - The deposit is not specifically applicable to some other particular purpose. V. Duties of Banks A. Meticulous Care - Knowing the signatures of its clients. - Depositors are not estopped from questioning wrongful withdrawals, even if they failed to question those errors in the statements sent by the bank to them for verification. B. Payment to Proper Party - The bank has no right to pay to persons other than those in whose favor the obligation was constituted or whose right or authority to receive payment is indisputable. - Payment made by the debtor (bank) to the wrong party does not extinguish the obligation as to the creditor (depositor) who is without fault or negligence, even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or through error induced by fraud of a third person. C. In Case of Death of Depositor National Internal Revenue Code provides: If a bank has knowledge of death of a person, who maintained a bank deposit account alone, it shall not allow any withdrawal from the said deposit account, UNLESS the Commissioner has
certified the taxes imposed thereon by this title have been paid: Provided, however, that the administrator of the estate or any one of the heirs of decedent may upon authorization by the Commissioner, withdraw an amount not exceeding P20,000 without the said certification. VI. Secrecy of Bank Deposits A. Purposes 1. To give encouragement to the people to deposit their money in banking institutions. 2. To discourage private hoarding so that the same may be utilized by banks in authorized loans to assist in the economic development of the country. B. Privacy - Civil Code provides that every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and the other persons and punishes as actionable torts several acts for meddling and prying into the privacy of another. - It also holds public officer or employee or any private individual liable for damages for any violation of the rights and liberties of another person, and recognizes the privacy of letters and other private communications. C. Absolute Confidentiality - All deposits of whatever nature with banks or banking institutions in the Philippines are considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office.
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1. Prohibition against inquiry into or disclosure of deposits under republic Act No. 8367 (An Act Providing for the Regulation of the Organization and Operation of Non-Stock Savings and Loan Associations) all deposits of whatever nature are considered absolutely confidential in nature EXCEPT, (1) upon written permission of the depositor; (2) in cases of impeachment; (3) upon order of a competent court in cases of bribery or dereliction of duty of public officials; and (4) in cases where the money deposited or invested is the subject matter of litigation. 2. Foreign Currency Deposits - All foreign currency deposits are of an absolutely confidential in nature EXCEPT, upon the written permission of the depositors. - It shall be exempt from attachment, garnishment or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. 3. Confidentiality of Deposits in Islamic Banks - All deposits of whatever nature are confidential EXCEPT: 1. inspection by the banks auditor 2. upon written permission by the depositor 3. in cases where the money deposited or the transaction concerned is the subject matter of a court order VII. Exceptions to Secrecy of Deposits A. Exceptions to the Bank Secrecy Law: 1. Upon written permission of the depositor 2. In cases of impeachment
3. Upon order of a competent court in cases of bribery or dereliction of duty of public officials 4. In cases where the money deposited or invested is the subject matter of litigation B. Garnishment - A legal proceeding by which the officer may levy on debts due the judgment obligor and other credits, including bank deposits, financial interests, royalties, commissions and other personal property not capable of manual delivery in the possession or control of third parties. - Levy shall be made by serving NOTICE upon the person owing such debts or having in his possession or control such credits to which the judgment obligor is entitled. - The garnishment shall cover only such amount as will satisfy the judgment and all lawful fees. Property exempt from execution/garnishment: 1. Family home or the homestead in which he resides. 2. Ordinary tools and implements personally used in his trade, employment or livelihood. 3. Three horses, or (3) cows, or (3) carabaos, or there beasts of burden necessarily used by him in his ordinary occupation. 4. Necessary clothing and articles for ordinary personal use, excluding jewelry. 5. Household furnitures and utensils used for housekeeping not exceeding P100,000. 6. Provisions for individual or family use sufficient for four months. 7. Professional libraries and equipment not exceeding P300,000 in value. 8. One fishing boat and accessories not exceeding the total value of P100,000 and by the lawful use of
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which he earns his livelihood as fisherman. 9. Salaries, wages or earnings within the four months preceding the levy as are necessary for the support of his family. 10.Lettered gravestones. 11.Monies benefits, privileges or annuities accruing or in any manner growing out of any life insurance. 12.The right to receive legal support or money or property obtained as such support or any pension or gratuity from the Government. 13.Properties especially exempt by law. C. Secrecy and Exemption from Attachment and Garnishment of Foreign Currency Deposits cannot be used as Device for Wrongdoing D. Graft and Corruption - The Anti-Graft Law directs in mandatory terms that bank deposits shall be taken into consideration in its enforcement, notwithstanding any provision of law to the contrary. E. Authority to Inquire into Bank Deposits under the AntiMoney laundering Act - AMLC may inquire into or examine any particular deposit r investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation, when it has established that: a. there is probable cause that the deposits or investments are related to an unlawful activity; or b. a money laundering offense F. Periodic or Special Examination - BSP may inquire into or examine any deposit or
investment with any banking institutions or non-bank financial institution when the examination is made in the course of a periodic or special examination, in accordance with the rules of examination of BSP. - If authorized by the Monetary Board to satisfy a reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity. - Examination made by an independent auditor hired by the bank to conduct its regular audit provide that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank. G. In Camera Inspection by the Ombudsman - Section 15(8) of republic Act No. 6770 (The Ombudsman Act of 1989) provides as one of the powers of the Ombudsman: (8) Administer oaths, issue subpoena and subpoena duces tecum, and take testimony in any investigation or inquiry, including the power to examine and have access to bank accounts and records. - Before in camera inspection may be allowed, there must be a pending case before a court of competent jurisdiction. The account must clearly be identified. The bank personnel and the account holder must be notified to be present during the inspection and such inspection may cover only the account identified in the pending case. H. Preliminary Attachment - Section 10, Rule 57 of the Rules of Court is compatible with the law on secrecy of bank deposits because it provides an exception in cases where the money
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deposited or invested is the subject matter of the litigation. I. Disclosure of Dormant Accounts - Section 2 of Act No. 3996 (An Act Requiring Banks and Banking Institutions of Every Kind to Transfer Unclaimed Balances held by them to the Insular Treasury and for Other Purposes) o All banks shall forward to the Insular Treasurer a statement under oath of their respective managing officers, of all credits and deposits held by them in favor of persons known to be dead, or who have not made further deposits or withdrawals during the preceding ten years or more, arranged in alphabetical order according to the names of depositors. o Upon receipt by the Insular Treasurer, it shall publish the same once a week for three consecutive weeks in at least two newspapers of general circulation in the locality where the bank or banks are situated. Authority of the Commissioner of Internal Revenue to Inquire into Deposits - Section 6 of the 1997 National Internal Revenue Code provides: (F) Authority of the Commissioner to inquire into Bank Deposit Accounts. Notwithstanding any contrary provision of Republic Act No. 1405 and other general or special laws, the Commissioner is hereby authorized to inquire into the bank deposits of: (1) a decedent to determine his gross estate; and (2) any taxpayer who has filed an application for compromise of his tax K. Waiver by DOSRI
liability under Sec. 204(A)(2) of this Code by reason of financial incapacity to pay his tax liability.
J.
Section 26 (NCBA). Bank Deposits and Investments. Any director, officer or stockholder who, together with his related interest, contracts a loan or any form of financial accommodation from: (1) his bank; or (2) from a bank: (a) which is a subsidiary of a bank holding company of which both his bank and the lending bank are subsidiaries; or (b) in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank, in excess of 5% of the capital and surplus 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.
CHAPTER 4
Chapter 4 Investments, Loans and Other Functions of Banks I. Operations of Universal Banks
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A. Powers of a Universal Banks i. Powers authorized for a commercial bank ii. Powers of an investment house iii. Power to invest in a non-allied enterprise B. Equity Investments of a Universal Bank i. May invest in the equities of allied and non-allied enterprise as may be determined by the monetary board May either by financial or nonfinancial a. Total investment in equities of allied and non-allied enterprise should not exceed 50% of the net worth of the bank b. Equity investment should not exceed 25% of net worth c. Net worth- totatl of unimpaired paid-in capital as may be required by BSP C. Equity of Investments of a universal Bank n Financial Allied Enterprises i. Can own up to 100% of equity in a thrift bank, rural bank or a financial allied enterprise ii. Publicly-listed universal or commercial bank- 100% of voting stock of only one other universal or commercial bank Financial Allied Undertakings a. Leasing companies- bank investment of shares shall be limited only in cases of conversion of outstanding
loan obligations into equity Banks Investing houses Financing companies Credit Card companies Financial institutions catering to small and medium scale industries g. Companies engaged in stock brokerage/securities dealership h. Companies engaged in foreign exchange dealership/brokerage i. In addition: i. Insurance companies j. Holding companies investment of shares shall be limited only in cases of conversion of outstanding loan obligations into equity b. c. d. e. f. D. Equity Investments of a universal Bank in Nonallied Enterprises up to 100% i. Examples of Non Finacial Allied undertakings Warehousing companies Storage companies Safe deposit box companies Companies engaged in management of mutual funds but not in the mutual funds themselves Corporations engaged in any activity similar to management of mutual funds Companies engaged in providing
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computer services Insurance Agencies/brokerages Companies engaged in home building and development Companies providing drying and/or milling facilities for agricultural crops Service bureaus for outsourcing services Those declared by the Monetary Board
G. Equity Investments in Quasi-Banks to promote competitive conditions in financial markets, may own up to 40 % equity investments, also applicable in the case of commercial banks II. Operations of Commercial Banks A. Powers of Commercial Banks i. General powers incident to corporaton ii. Powers necessary to carry out commercial banking Accepting drafts and issuing LOC Negotiating promissory notes, bills of exchange and other evidences of debt Accepting or creating demand deposits Receiving other types of deposits and deposit substitutes Buying and selling foreign exchange, gold and silver bullion; acquiring marketable bonds and other debt securities Extending credit B. Issuance of Letters of Credit i. Nature - developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid and a buyer who wants to have control of the goods before paying The buyer may be required to contract a bank to issue a letter of
E. Equity Investments of a Universal Bank in NonAllied enterprise shall not exceed 35% of total equity and voting stock F. Investments in Non-Allied or Non-Related Undertakings only Universal banks may invest i. Examples of non-Allied undertakings Enterprise engaged in physically productive activities in a. Agriculture b. Mining and quarrying c. Manufacturing d. Public utilities e. Construction f. Wholesale trade g. Community and Social services ii. Industrial park/real estate projects iii. Financial and commercial complex projects in connection with the Governments privtization program iv. Others declared by Monetary Board
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credit in favor of the seller so that, by virtue of the letter of credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon presentment simultaneously with the tender of documents required by the letter of credit. ii. Characteristics what sets it apart from other accessory contracts is the engagement of the issuing bank to pay the seller once the draft and the required shipping documents are presented to it. Independence Principle assures the seller of prompt payment, independent of any breach of the main sales contract. iii. Intertwined Relationships 3 distinct but intertwined relationships 1st contract relationship links the party applying for LOC and the party for whose benefit LOC is issued 2nd contract relationship between the accounting party and the issuing bank. Accounting party applies for LOC and agrees to reimburse the bank for amounts paid by that bank. 3rd contract relationship between the issuing bank and beneficiary. Pay certain monies to the beneficiary to support the contract. iv. Parties 3 parties, may be increased in most cases of international trade.
Buyer procures LOC and obliges himself to reimburse the issuing back upon receiptof documents of title Bank issuing LOC and undertakes to pay the seller upon receipt of the draft and proper documents of titles and to surrender the documents to the buyer upon reimbursement Seller in compliance with the contract of sale ships the goods to the buyers and delivers the documents of title and draft to the issuing bank to recover payment
C. Equity Investments of a Commercial Bank may invest only in the equities of allied enterprise (financial or non-financial) as may be determined by the Monetary Board i. Total investment in equities shall not exceed 35% of the net worth ii. Equity investment in any one enterprise shall not 25% net worth D. Equity Investments of a Commercial Bank in Financial Allied Enterprises i. May own up to 100% equity ONLY of thrift bank or rural bank ii. Other financial allied enterprises minority holding E. Equity Investments of a Commercial Bank in NonFinancial Allied Enterprises - may own up to 100% of the equity in a non-financial allied enterprise
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III.
Risk- Based Capital A. Minimum Ratio minimum ratio which the net worth of a bank must bear to its total risk assets shall be determined by the Monetary Board i. On the basis of the net worth and risk assets of a bank and its subsidiaries ii. Monetary Board shall conform to internationally accepted standards in the exercise of such authority iii. Alter or suspend compliance with such ratio for a maximum period of 1 year iv. Ratio shall be applied uniformly to banks of the same category B. Effect of Non-Compliance i. Monetary Board may limit r prohibit the distribution of net profits by such bank and may require that all of the net profits be used to increase the capital accounts of the bank until minimum requirement is reached ii. Restrict or prohibit the acquisition of major assets and the making of new investments by the bank until the minimum required ratio has been restored
b. Deposits of Rural Banks with government-owned or controlled financial institutions are exempted c. May be increased by 10% provided the additional liabilities of any borrower are adequately secured by securing titles As amended by Circular no. 425, SBL must not exceed 23%, still subject to such exceptions
IV.
Limit on Loans, Credit Accomodation And Guarantees A. Single Borrowers Limit i. Shall not exceed 20% if Net Worth of the Bank Exceptions: a. Reasons of national interest
B. Inclusion to the Limit i. Prescribed Ceilings shall include: Direct liability of the maker or acceptor of paper discounted with or sold to such bank and liability of a general indorser, drawer or guarantor who obtains a loan or other credit accommodation Liabilities of individuals who own or control a majority interest in a corporation Corporation- all liabilities to such bank of all subsidiaries Partnership liabilities of the members ii. Control of majority interest or Controlling interest when parent owns directly of indirectly through subsidiaries more than one half of the voting power of an enterprise iii. Even if a parent corporation who owns a majority interest has no liabilities,
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Monetary Board may prescribe combination of liabilities in certain situations C. Exclusion to the Limit Loans and other accommodations i. Secured by obligations of BSP or of the Philippine Government Reason: The state undoubtedly is always solvent ii. Fully guaranteed by the government as to payment of pricipal and Interest iii. Covered by assignment of deposits maintained in the lending bank and held in the Philippines iv. Under letters of credit to the extend covered by margin deposits v. Specified by Monetary Board as non-risk items D. Bank Guarantee irrevocable commitment of a bank binding itself to pay a sum of money in the event of non-performance of a contract by a third party. Distinct from principal debt or contract. Subject to such limits. E. Contingent Accounts are also subject to such limits F. Assignment of Credits agreement by virtue of which the owner of a credit by a legal cause, transfers his credit and its accessory rights to an assignee. G. No Pacto Commissorio in Assignment of Deposits V.
i. Pacto commisorio automatic appropriation of the pledged or mortgaged property by the creditor in payment of the loan upon its maturity Restriction on Bank Exposure to Directors, Officers, Stockholders and their Related Interests A. Approval and Other Requirements i. No director or officer of any bank shall: Directly or indirectly for himself or as an agent of others borrow from such bank Become a guarantor, indorser or surety for loans from such bank An obligor who would incur contractual liability to the bank Exception: written approval of the majority of all the directors of the bank ii. Approval shall be entered upon the records of the bank iii. Dealing shall be upon terms not less favorable to the bank than those offered to others B. Directors i. Named as such in the articles of incorporation ii. Duly elected in subsequent meetings of stockholders iii. Elected to fill the vacancies C. Officers i. President, EVP, SVP, General Manager, Secretary, treasurer, trust officer and
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others whose duties as such are defined in the by-laws or are generally known to be officers of the bank ii. Chairman, Vice-chairman or any other position of the boardwho also performs functions of management such as those ordinarily performed by regular officers D. Stockholder i. Any stockholder of record in the books acting personally or through an attorneyin-fact ii. Any other person duly authorized by him or through a trustee His spouse/ relative within 1st degree of consanguinity or affinity or legal adoption Partnership in which stockholder/spouse/relative is a general partner Corporation, association or firm of which those mentioned persons own more than 50% of total subscribed capital stock E. Related Interests i. Spouse/Relative within 1st degree of consanguinity or affinity, relative by legal adoption of a director, officer or stockholder of the bank ii. Partnership of which a director, officer, or stockholder of a bank or Spouse/Relative within 1st degree of consanguinity or affinity, relative by legal adoption iii. Co-owner of the property or interest or right mortgaged
iv. Corporation, association, or firm of which a director or officer of the bank, or his spouse is also a director or officer of such corporation, association or firm, except: Securities are listed and traded in the big board of domestic stock exchange and less than 50% of voting stock is owned by 1 person or by persons related to each other within 1st degree of consanguinity or affinity Director, officer or stockholder sits as a representative of the bank in the board of directors of such corporation a. Provided that the bank representative shall not have any equity interest in the borrower corporation except for the minimum shares required by law b. Provided that the borrowing corporation is not among those mentioned in items 5,6,7 and 8 below v. Corporation, association or firm of which any or a group of directors, officers, stockholders of the lending bank and/or their spouses or relatives within the first degree of consanguinity or affinity, or relative by legal adoption, hold or own at least 20% of the subscribed capital of such corporation, or of the equity of such association or firm vi. Corporation, association or firm wholly or majority-owned or controlled by any
37
related entity or a group of related entities mentioned in Items 2, 4, and 5 vii. Corporation, association or firm which owns or controls directly or indirectly whether singly or as part of a group of related interest at least 20% of the subscribed capital of a substantial stockholder of the lending bank or which controls majority interest of the bank viii. Corporation, association or firm in which the lending bank and/or its parent/subsidiary holds or owns at least 20% of the subscribed capital of such corporation, or in the equity of such association or firm, or has an existing management contract or any similar arrangement with the lending bank or its parent/subsidiary F. Effect of Violation After due notice of the board of directors the office of the violator may be declared vacant and subject to penal provisions in the New Central Bank Act G. Limits of Loans i. Regulated by Monetary Board ii. Outstanding loans shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank H. Exclusions to the Limit i. Those secured by assets considered as non-risk by the Monetary Board.
ii. Those in the form of fringe benefits granted in accordance with rules prescribed by the Monetary Board iii. Those extended by a cooperative bank to its cooperative shareholders I. Applicabilty of DOSRI Rules and Regulations to Government Borrowings i. Circular 547 DOSRI Rules and Regulations shall also apply to loans, other credit accommodations, and/or guarantees granted to the National Government of the Philippines, its political subdivisions and instrumentalities as well as governmentowned or controlled corporations Such loans, other credit accommodations, and/or guarantee (LOG) to RP must be considered as i. Non-risk ii. Not subject to any ceiling LOG to a GOCC or Corporations where RP owns 20% of subscribed capital stock shall be considered indirect borrowings of RP and shall form part of the individual ceiling as well as the aggregate ceiling The Following LOGs to GOCCs where RP owns 20% of capital stock shall be excluded from the 30% ceiling on unsecured loans a. LOGs for infrastructure projects consistent with the Medium-term Development Plan duly certified as such by
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the Secretary of SocioEconomic Planning b. LOGs granted to financial institutions in the lending programs c. LOGs to provide rediscounting facilities for loans granted to agricultural sector, and micro, small and medium enterprises Pursuant to RA 7653 and independence under the Constritution, BSP shall be considered and independent entity of the RP and any LOG of the BSP shall be considered a. Non-risk b. Not subject to any ceiling LGUs shall be considered separate from the RP and other governement entities, hence not a related interest of the RP A director who acts as a government representative in the lending institution shall not be excluded in the deliberation and determination of directors in cases of LOGs to borrowing government entity other than RP
security, plus 60% of the appraised value of the insured improvements, such loans be made to the owner of the real estate or to his assignees i. Exception: As otherwise prescribed by the Monetary Board B. Loans and Other Credit Accommodations on Security of Chattels and Intangible Properties shall not exceed 75% of the appraised value of the security and the same may be made to the title holder or his assignment i. Exception: As otherwise pescribed by the Monetary Board C. Joint and Solidary Agreement JSA is indubitably a surety not a guaranty. An agreement where parties consent to be jointly and severally liable. Should be taken contra proferentum against the party who may have cause any ambiguity therein. D. Effect of Surety Agreement strictly construed against the creditor, every doubt is resolved in favor of the solidary debtor. i. A Bank cannot hold a surety liable for loans obtained in excess of the amount or beyond the period stipulated in the original agreement, absent any clear stipulation that he has waived his right to be notified or to give consent. Reason: Fundamental Rules of fair play require the creditor to obtain consent of surety to any material alteration in the principal agreement.
VI.
Loans and Other Credit Accomodations A. Loans and Other Credit Accomodations against Real Estate shall not exceed 75% of the appraised value of the respective real estate
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VII.
Grant and Purpose of Loans and Other Credit Accomodations A. Amount and purpose of Loan i. A bank shall grant loans and other credit accommodations only in amounts and periods of time essential for the effective completion of the operations to be financed. It should be consistent with safe and sound banking practice ii. Purpose must be stated in the application iii. Bank shall have the right to terminate the loan and demand immediate repayment of the obligation if it finds that the proceeds of the loan have been employed for purposes other than those agreed upon without the banks approval B. Requirement for Grant of Loans or Other Accomodations before granting a loan, the bank must ascertain that the debtor is capable of fulfilling his commitments through: i. Statement of assets and liabilities ii. Statemement of income and expenditure iii. Other information prescribed by Monetary Board Also see 1198 of Civil Code
money that it holds in trust of its depositors iii. Provided by GBL D. Unsecured Loans or Other Credit Accomodations Monetary Board is authorized to issue regulations necessary with respect to unsecured Loans or Other credit accommodations E. Other Security Requirements for Bank Credits Monetary Board may prescribe security requirements to which the various types of bank credits shall be subject, the same may reduce and increase maximum ratios F. Authority to Prescribe Terms and conditions of Loans and Other Credit Accommodations i. Sec. 43 of GBL Monetary Board has the authority granted in Sec 106 of the new Central Bank Act to prescribe the maturities and conditions for various types of bank loans and other credit accommodations ii. Sec. 106 of NCBA Monetary Board may issue such regulation necessary with respect to maximum permissible maturities maturities of loans and investments and the kind and amount of security required against various types of credit operations of the banks G. Amortization on Loans and Other Credit Accommodations i. Amortization schedule shall be adapted to the nature of the operations to be financed
C. Reason for Stringent Rules in Granting Loans i. A bank is one affected with public interest for which reason the bank should guard against loss due to negligence or bad faith ii. In funding businesses imposed upon a banking corporation, the bank invests the
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ii. Loans and other credit accommodations with maturities of more than 5 years payments must be made periodically and at least annually iii. Borrowed funds used for purposes which do not initially produce revenues for regular amortization payments - The bank may permit that initial amortization be deferred until funds are sufficient, but said payment should not be later than 5 years from the date on which the loan is granted iv. Loans and credit accommodations to Microfinance sectors schedule shall take into consideration projected cash flow of borrower and adopt terms and conditions formulated by banks H. Escalation clause; stipulation that the rate of interest may increase (escalation) AND decrease (de-escalation) if the applicable maximum interest rate is increased/decreased by the Monetary Board (PD 1684: Amendment to the Usury Law). Adjustment takes effect on or after MB increases/decreases rate. Purpose of mandating de-escalation clause: prevent one-sidedness in favor of the lender. (Art 1308, NCC: contract must bind both parties; validity or compliance cannot be left to the will of one.) Exception: If there is no de-escalation clause, escalation clause is still valid if creditor unilaterally and actually decreased the interest charges whenever the rate is changed by MB. In this case, parties are on equal footing, thus preventing the evil proscribed by PD 1684. Cessante ratione legis cessat ipsa lex. (Llorin v. CA)
*Usury Law has since been lifted by Central Bank Circular 905 I. Unilateral Increase of Rates; even if the Usury Law was lifted, one-sided impositions do not have the force of law bec. it violates the principle of mutuality of contracts. J. Iniquitous, Unconscionable and Exorbitant Interests; if the court finds a rate iniquitous, unconscionable and exorbitant, it should be VOID bec. it is contrary to morals (Art 1409 NCC: those contra bonus mores are inexistent and void from the beginning). Rate shall be reduced by court. Medel v. CA: 5.5% per month or 66% per annum is IUE Cuaton v. Salud: 10% per month is IUE. Reduction to 12% per annum is fair and reasonable. Dio v. Virgilio: 120% per annum is IUE. Reduction legally called for in rates of interest and penalty. K. Effect of Void Interest Rate; as if there was no express contract bet. parties L. Prepayment of Loans and Other Credit Accommodations; sec. 45, GBL: borrower may prepay unpaid balance of bank loans at any time prior to the agreed maturity date, subject to reasonable terms and conditions agreed upon by bank and borrower. M. Development Assistance Incentives; sec. 46, GBL; Bangko Sentral shall give incentives to banks that have activities with social content (extending loans to finance educational institutions, coops, hospitals, LGUs, low-cost housing). N. Renewal or Extension of Loans and Other Credit Accommodations; sec. 48, GBL; MB may prescribe the
41
conditions and limitations where a bank may grant extensions or renewals of its loans and other credit accommodations. O. Banks Cannot Extend Peso Loans to Non-Residents; (1) to curb undue speculation in the foreign exchange market and (2) to reinforce the memorandum that peso deposits should be funded from inward ForEx remittance. P. Provisions for Losses and Write-Offs; sec. 49, GBL; MB may fix the amount of reserves for bad debts or doubtful accounts or other contingencies (interest is past due). Write-offs likewise subject to regulations by MB. VIII. Truth in Lending A. Policy; to protect citizens from lack of awareness of the true cost of credit, full disclosure is assured B. Disclosure; creditor shall furnish in a clear statement in writing: 1. cash price/delivered price of property or service 2. amounts credited as down-payment 3. difference bet. amounts in 1 and 2 4. charges, individually itemized, not incident to the extension of credit 5. total amount to be financed 6. finance charge in terms of pesos and centavos 7. percentage/simple annual rate on the outstanding unpaid balance C. Definitions i. Credit; any loan, mortgage, deed of trust, advance, discount; conditional sales contract; contract to sale/contract of sale; rental-purchase contracts; contract for hire, bailment or leasing of property; any option, demand, lien, pledge or other claim against property or money; purchase/acquisition of credit; any transaction having a similar purpose or effect.
ii. Finance charge; interest, fees, service charges, discounts, charges to the extension of credit as the MB may regularly prescribe iii. Creditor; any person engaged in the business of extending credit who requires the payment of a finance charge as an incident to this extension D. Penalties for Failure to Disclose 1. Civil; P100 or 2x finance charged. Limit is P2000. 2. Criminal; if willfully violated, fine of P1,000-P5,000 and/or 6mos-1yr imprisonment E. Effect of Violation; violation shall NOT affect validity and enforceability of contract F. Exemption of Government; no punishment sa Phil. Govt, agencies and political subdivisions G. Required Disclosures on Consumer Loans not under OpenEnd Credit Plan 1. amount of credit debtor will have actual use of 2. charges, individually itemized, not part of the finance charge 3. total amounts financed in 1 and 2 4. finance charge expressed in pesos and centavos 5. effective interest rate 6. simple annual rate (percentage of finance charge to the total amount to be financed) 7. default or delinquency charges payable for late payments 8. descrip of security interest and a clear identification of property where security interest relates H. Exempted Transaction; extension of credits for business and commercial purposes, and sa Govt, agencies and
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instrumentalities, juridical entities or to GOCCs. IX. Foreclosure of Real Estate Mortgage A. Procedure If property was foreclosed judicially or extrajudicially, the mortgagor may redeem the real property sold for full/partial payment of his obligations within one year after the sale by paying amount due in mortgage deed, with interest at the rate specified. All costs and expenses incurred by the bank from sail is derived therefrom. Purchaser at the auction sale has right to enter and take possession of that property immediately after the date of confirmation of the auction sale. However, sec. 7 of Act No 3135 (An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Rent Estate Mortgages) provides that if property was registered under the Mortgage Law, purchaser must first furnish a bond in an amount equivalent to the use of property for 12mos. Such bond must be approved by court and court must thereafter issue a writ of possession addressed to the sheriff where property is situated. If property was foreclosed by banks, purchaser is not required to set up a bond. If property to be foreclosed is owned by juridical persons, right to redeem 3months after foreclosure. If real property is mortgaged to alien individuals or corporations, in no case shall actual possession exceed 5years. Redemption period counted from the date of registration of certificate of sale with the Register of Deeds. Private lands may only be transferred to individuals, corporations, or associations qualified to acquire or hold land
of public domain. Exception: thru hereditary succession. B. Equity of Redemption v. Right of Redemption Limpin v. IAC: Right of Redemption exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee in the PNB or other bank. Right may be exercised within a period of 1 year, counted from the date of registration. Equity of Redemption is the right of the mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final (Rule 68, CivPro). C. Right of Redemption may be Extended by Agreement; the right to redemption must be exercised within specified time limits but if agreed upon by the parties, it may be extended. D. Estoppel; if a bank had time to object and did not, its silence can be construed as having consented to the extension of the redemption period. Estoppel arises when one, by his own silence when he ought to speak out, intentionally or thru culpable negligence, induces another to believe that certain facts exist. E. Redemption of foreclosed property after the Prescriptive Period; Right to redeem becomes functus officio on the date of its expiry. Exercise after this period in not redemption but repurchase. Redemption is by force of law and the purchaser is bound to accept redemption. Repurchase imposes no such obligation. He may or may not re-sell the property after expiration, and he is not bound by
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bid price bec after all, the property already belongs to him as owner.
articles shall only be withdrawn from SDB ONLY upon the joint signatures of both parties, and there is no evidence to prove that loss was due to the fraud and negligence of the bank, the bank is NOT liable. 2. Bailor and Bailee; The relation between a bank and its SDB customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit. 3. Duties May Be Defined By The Parties The parties may, by special contract, define their respective duties or provide for increasing or limiting the liability of the deposit company, provided that it is not violative of law or public policy. It must clearly appear that there actually was a special contract, in order to differentiate from implied ordinary obligations. Doubtful words will not enlarge or restrict the liability of the company. Company cannot also exempt itself from liability for loss of the contents by its own fraud or negligence, and if a provision of the contract says so, such provision will be held ineffective for the purpose. If a collection of stamps were in an SDB at the lowest row, and floodwater entered the banks premises thus damaging the stamps, THE BANK IS GUILTY OF NEGLIGENCE, and must compensate the renter. Bank was aware of the floods and it also knew that floodwaters inundate the room where said SDB is located. It should have notified the SDB renter, opened and retrieved the stamps so as to save from further deterioration. Art.1170: Those who, in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. XII. Electronic Transactions
W/N alien-owned bank can acquire ownership of residential lot by deed of transfer as settlement of debt. NO. Its acquisition jeopardizes the purpose of the Constitution to keep in the hands of the people the ownership over private lands. HOWEVER, a lease of a parcel of land for 50 years in favor of an alien corp is registerable. A lease, unlike a sale, does not involve the transfer of dominion over the land. XI. Other Banking Services; acting as depositary or agent 1. receive in custody funds, docs, and valuable objects 2. act as financial agent, buy and sell shares, evidence of indebtedness, all types of securities 3. make collections and payments and other services not incompatible with banking business for their customers 4. upon approval by MB, act as managing agent, adviser, consultant or administration of investment mgmt accts. 5. rent out safety deposit boxes A. Safety Deposit Box 1. Special Kind of Deposit; cannot be a contract of lease bec full and absolute possession and control of the safety deposit box (SDB) is not given to the renters. Guard key remains with the bank without which renters could not open the bank. Bank could not likewise open the box without the renters key. If renter duplicated the key for joint access, bank is NOT liable to either of the joint renters in case of loss attributable to either of them. If a bank was not aware of an agreement bet joint renters that
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BSP has full authority to regulate the use of electronic devices (e.g. computers) for recording, storing, and transmitting data in connection with the operation of banks. (sec 59, GBL) Subject to prior approval by MB, banks may outsource all IT systems and processes except for inherent banking functions. Those that may not be outsourced: those affecting the ability of of the bank to ensure the fit of tech services deployed to meet its strategic and business objectives; strategic planning for the use of IT; determination of system formalities; change mgmt inclusive of quality assurance and testing; service level and contract mgmt security policy and administration XIII. Outsourcing Of Other Functions Subject to prior approval of the MB, banks may outsource data imaging, storage, retrieval and other related systems, clearing and processing of checks, printing of bank deposit statements, other activities det by the MB. Banks may outsource credit card services printing of bank loan statements and other non-deposit records, bank forms, and promotional materials credit investigation and collection processing of export, import and other trading transactions transfer agent services for debt and equity securities property appraisal property mgmt services messenger, courier and postal services security guard services vehicle service contracts janitorial services public relations services
procurement services temporary staffing legal services from local legal counsel Provided, that they do not include servicing/handling bank deposits or other inherent banking functions.
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Chapter 5
Prohibited Transactions and Cessation of Banking Business A. Prohibition to Act as Insurer; examples: a. Making, or proposing to make, as insurer any insurance contract; b. Making or proposing to make, as surety any contract of suretyship as a vocation and not as merely incidental; c. Doing any kind of business within the meaning of the Insurance Code; d. Doing any business similar to aforementioned in a manner designed to evade the provisions of Insurance Code B. Profit is immaterial to constitute the doing or transacting of an insurance business.
accommodation Attempt to defraud a bank in the event of a court action to recover a loan or other credit accommodations Offer any gift or any form of compensation to any director, officer, employee or agent of a bank in order to influence such persons to approve a loan or other credit accommodation
c.
Prohibited Acts a. No Director, officer, employee, or agent of any bank shallFOORD Make false entries in any bank report or statement or participate in any fraudulent transaction causing damage to the bank or any person Disclose to any unauthorized person any information relative to funds in the custody of the bank without order of a court of competent jurisdiction Accept any for of remuneration or commission in connection with approval of loan or other credit accommodation Overvalue or aid in overvaluing any security for the purpose of influencing the actions of the bank Outsource inherent baking functions to ensure secrecy of bank deposits b. No borrower shall FOFA Fraudulently overvalue property offered as security for a loan or other credit accommodation Furnish false or misrepresent or suppress material facts to botain, renew, increase or extend the period of a loan or other credit
No examiner, officer or employee of the Bangko Sentral or of any department, bureau, office, branch or agency of the government that is assigned to supervise, examine, assist or render technical assistance t any bank shall Commit any of the aforementioned acts or aid in the commission of the same Furnishing false or misrepresent or suppress material facts by personnel of BSP shall constitute fraud and shall be subject to administrative and crimina sanctions provided under the New Central Bank Act Consistent with the Banks Secrecy Law, no bank shall employ casual or nonregular personnel or lengthy probationary personnel in the conduct of it business involving bank deposits
d.
C. Prohibition Against Outsourcing Certain Banking Functions a. Outsourcing inherent banking functions any contract between the bank and a service provider for the latter to supply manpower to service deposit transactions of the bank. b. Banks cannot outsource management functions unless authorized by the Monetary board when circumstances justify c. III. Prohibition on Dividend Declaration *No bank or quasi-bank shall declare dividends greater than its accumulated net profits then on hand, deducting therefrom its losses and bad debts *Neither shall bank nor quasi-bank declare dividends, if at the time of declaration: 1. Its clearing account with the Bangko Sentral is overdrawn; or Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal
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2. It is deficient in the required liquidity floor for government deposits for 5 or more consecutive days; or 3. It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for purposes of determining funds available for dividend declaration; or 4. It has committed a major violation as may be determined by the Bangko Sentral. IV. Unauthorized Advertisement or Business Representation No person, association, or corporation unless duly authorized to engaged in the business of a bank, quasi-bank, trust entity, or association, or use in connection with its business title, the word or words bank, banking, banker, quasi-bank, quasi-banking, quasi-banker, savings and loan association, trust corporation, trust company, or words of similar import or transact any manner the business of any such bank, corporation or association. V. Placement Under Conservatorship A. Governing Law The grounds and procedures for placing a bank under conservatorship, as well as, the powers and duties of the conservator appointed for the bank shall be governed by the provisions Section 29 and the last two paragraphs of Section 30 of the New Central Bank Act: Provided, That this Section shall also apply to conservatorship proceeding of quasi-banks. (Section 67 of the GBL) B. Grounds for appointment of conservator The Monetary Board may appoint a conservator whenever it finds that a bank or a quasi-bank is in a state of (1) continuing inability or (2) unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. [Section 29, RA 7653] *POWERS OF THE CONSERVATOR 1. Take charge of the assets, liabilities and management of the bank
2. 3. 4.
or quasi-bank Reorganize the management Collect all monies and debts due said institution Exercise all powers necessary to restore its viability The conservator has the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank.
Section 28-A of RA No. 265 merely gives the conservator the power to revoke contracts that are deemed to be defective under existing law (i.e., void, voidable, unenforceable, or rescissible); hence, the conservator merely takes the place of a banks board of directors. What the board of directors cannot do, such as repudiating a contract validly entered into under the doctrine of implied authority, the conservator cannot do either. [First Philippine International Bank v. CA, 252 SCRA 255 (1986)]
*LIQUIDITY- the ability of an asset to be converted into cash quickly and without any price discount. A corporation is liquid if it has ready access to cash. *SOLVENCY- the condition that exists when liabilities amount to less than total assets, thus providing the ability to pay debts. The test of insolvency is measured by determining whether the realizable assets of a bank are less than its liabilities. C. Qualifications of Conservator The conservator should be competent and knowledgeable in bank operations and management. D. Period of Conservatorship The conservatorship shall not exceed one (1) year. E. Remuneration
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The conservator shall receive remuneration to be fixed by the Monetary Board in an amount not to exceed two-thirds of the salary of the president of the institution in 1 year, payable in 12 equal monthly payments.
Actions of Monetary Board shall be final and executory, and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction.
If any time within
one-year period, the conservatorship is
terminated on the ground that the institution can operate on its own, the conservator shall receive the balance of the remuneration which he would have received up to the end of the year; but if the conservatorship is terminated on other grounds, the conservator shall not be entitled to such remaining balance. The Monetary Board may appoint a conservator connected with the Bangko Sentral, in which case he shall not be entitled to receive any remuneration or emolument from the Bangko Sentral during the conservatorship. F. Expenses of Conservatorship Shall be borne by the bank or quasi-bank concerned. G. Termination of conservatorship The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary. The conservatorship shall likewise be terminated should the Monetary Board determine that the continuance in business of the institution would involve probable loss to its depositors or creditors, in which case proceedings for receivership and liquidation shall be pursued. [Section 29, RA 7653]
Petition for certiorari may only be filed by the stockholders of record presenting the majority of the capital stock within 10 days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship.
I. Exclusive Power to Appoint Designation of conservator is vested exclusively with the Monetary Board. J. Not a Precondition Designation of conservator is not a precondition to the designation of a receiver. K. Powers of Conservator Cannot Impair the Obligations of Contracts.
Powers must be related to the (preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability. Such power cannot extend to the postfacto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution.
Law merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective.
VI. Cessation of Banking Business H. Final and Executory A. Voluntary Liquidation Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal
48
B. Receivership and Involutary Liquidation C. Close Now Hear Later Scheme D. Effect of Filing a Petition for Review E. Reasons Behind Receivership and Involuntary Liquidation F. Effects of Receivership and Liquidation
days * But he shall NOT (except for administrative expenses) pay or transfer any asset of the institution. If the receiver determines that the bank cannot be rehabilitated, the MB shall notify the board of directors of its findings in writing and direct the receiver to proceed with the liquidation.
A. Voluntary Liquidation 1. request for approval of voluntary dissolution, attaching a liquidation plan therein. (written notice of liquidation shall be sent to the Monetary Board prior to such liquidation.) 2. dissolution in accordance with the Corporation Code 3. liquidation undertaken by the bank itself through its Board of Directors either (a) by a trustee or (b) by a receiver appointed to the bank. Grounds for Receivership and Liquidation The MB may, summarily & w/o prior hearing, FORBID institution from doing business if the institution: a. is unable to pay liabilities b. has insufficient assets, as determined by BSP c. will involve probable loss to depositors or creditors d. has willfully violated a cease & desist order involving acts or transactions which amount to fraud or a dissipation of assets (50T-200T fine or 2-10Y imprisonment) For quasi-banks, any person of recognized competence in banking or finance may be designated as receiver. The receiver shall immediately 1. gather all assets and liabilities 2. administer assets and liabilities for the creditors 3. exercise general powers under the Rules of Court 4. determine W/N bank may be rehabilitated or resume business w/in 90
The receiver shall file with the RTC a petition for assistance in the liquidation. Current and Complete Examination Not Necessary before the closure of a bank R.A. 7653 (1993) provides that only a REPORT of the head of supervising or examining department is necessary. The word "report" is clearly different from "examination." A report is "something that gives information" or "a detailed account". An examination is "a search, investigation or scrutiny." Rural Bank of San Miguel Inc. v. Monetary Board The closure of a bank may be considered as an exercise of police power. Sec. 174 of the Code of CivPro: A receiver may be appointed if the corporation is dissolved * insolvent * in imminent danger of insolvency * has forfeited corporate rights Sec. 175: General Powers of a Receiver. 1. bring and defend actions in own name 2. take possession of property in controversy 3. receive rent, collect debts, and compound for such 4. make transfers A receiver is Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal
49
- an indifferent person between the parties to a cause - not the agent or representative of either - but an officer of the court Prohibited Acts Any director or officer of a bank declared insolvent or placed under receivership by the MB shall not 1. refuse to turn over the bank records 2. tamper with bank records 3. destroy or cause misappropriation of the bank's assets 4. receive any deposti, collection of loans, or receivables 5. pay out any funds of the bank 6. transfer securities or property
1. Retention of Juridical Personality 2. Suspension of Operations /Stoppage of Business 3. Assets deemed in custodia legis and shall be exempt from garnishment, levy, attachment or execution 4. Execution of judgment is warranted 5. Bank is NOT liable to pay interest on deposits that accrue during the period of suspension 6. But BSP shall collect interest on all loans and advances 7. Bank cannot do new business 8. Deposits do not become preferred credits
A. In the case of conservatorship, 1. the actions of the MB shall be final and executory 2. may be set aside by a petition for certiorari filed by the stockholders of record within 10 days
VII. Disposition and Distribution of Assets Distribution of Assets
Close Now Hear Later Scheme (p. 213, MemAid) 1. Sec 29 of the Central Bank Act does NOT contemplate prior notice and hearing. The assailed actions should precede the filing of the case. 2. Purpose is to PREVENT unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the depositors. 3. The bank is given full opportunity to prove arbitrariness and bad faith in placing the bank under receivership. * The absence of an examination does not mean that there is no basis for the closure order. The purpose of RA 7653 is to make the closure of a bank summary and expeditious in order to protect public interest. Effects of Receivership and Liquidation (p. 214, MemAid)
In case of liquidation of a bank or quasi-bank, after payment of the cost of proceedings, including reasonable expenses and fees of the receiver to be allowed by the court, the receiver shall pay the debts of such institution, under order of the court, in accordance with the rules on concurrence and preference of credit as provided in the Civil Code. *Current account and savings account are not preferred credits in cases involving the insolvency and liquidation of a bank, where there are various creditors and it becomes necessary to ascertain the preference of various credits. These deposits are essentially mercantile contracts and should, therefore, be governed by the provisions of the Code of Commerce. B. Disposition of Revenues and Earnings All revenues and earnings realized by the receiver in winding up the affairs and administering the assets of any bank or quasi-bank shall be used to pay the costs, fees and expenses mentioned in Item A above salaries of such personnel whose employment is rendered necessary in the discharge of the liquidation together with other additional expenses caused thereby. The balance of revenues and earnings, after the payment of all said expenses, shall form part of the assets available for payment to creditors. C. Disposition of Banking Franchise The Bangko Sentral may, if public interest so requires, award to an Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal
50
institution, upon such terms and conditions as the Monetary Board may approve, the banking franchise of a bank under liquidation to operate in the area where said bank or its branches were previously operating; Provided, That whatever proceeds may be realized from such award shall be subject to the appropriate exclusive disposition of the Monetary Board. D. Liabilities The bank is bound by the acts, or failure to act, of the receiver. At the same time, the receiver is liable to the bank for culpable or negligent failure to collect the assets of such bank and to safeguard said assets.
Foreign Banks are allowed to entry in the Philippines subject to the ff: rules: 1. Within 7 years from the effectivity of GBL and subject to guidelines issued pursuant to the RA 7721, the Monetary Board may authorize a foreign bank to acquire up to a 100% of the voting stock of only 1 bank organized under Phil. Laws. 2. Within the same period, the Monetary Board may authorize any foreign bank, which prior to the effectivity of GBL availed itself of the privilege to acquire up to 60% of the voting stock of a bank under RA 7721 and the Thrift Banks Act, to further acquire voting shares of such bank to the extent necessary for it to own 100% of voting stock thereof.
CHAPTER 6 Foreign Banks & Trust Operations

Offshore banking refers to the conduct of banking transactions in foreign currencies involving the receipt of funds from external sources and utilization of such funds. Offshore banking unit means a branch, subsidiary or affiliate of a foreign banking corporation which is a duly authorized by the BSP to transact offshore banking business in the Philippines. Entry of foreign banks in the Philippines are governed by Foreign Banks Liberalization Act (RA 7721) The conduct of offshore banking shall be governed by Offshore Banking System Decree (PD 1034)
3.
In the exercise of this authority, the Monetary Board shall adopt measures as may be necessary to ensure that at all times the control of 70% of the resources and assets of the entire banking system is held by banks which are at least majority-owned by Filipinos. Any of the foregoing right, privilege or incentive granted to a foreign bank shall be equally enjoyed by and extended under the same conditions to banks organized under the Phil. laws.
4.
In case of a foreign bank which has more than 1 branch in the Phil, all such branches shall be treated as on unit for the purpose of GBL and all references to the Philippine branches of foreign banks shall be held to refer to such units.(Sec 74 GBL) The head office of the foreign bank shall fully guarantee the prompt payment of all the liabilities of its Phil. Banks. (Sec 75 GBL) Residents and citizens of the Phil. who are creditors of a branch in the Phil. of a foreign bank shall have preferential rights to the assets of such branch in accordance with existing laws. Sec 20 of GBL applies to a universal or commercial bank duly established and organized as a Phil. corporation in accordance with Sec 8 of GBL and authorized to establish branches within or outside the Phil. Home Office Guarantee is clearly for protection of the interests of Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal
NOTE: Foreign Corp. doing business in the Philippines are required to obtain a license. Sec. 133 of Corporation Code Foreign Corp. doing business in the Philippines without license are barred from accessing our courts. It is ipso facto incapacitated to bring an action. A license is necessary if its transacting or doing business in the Philippines By securing a license, the foreign entity would give an assurance that it will abide by the decisions of our courts, even adverse to it. Purpose of the statute is to compel a foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the courts of the state.
51
the depositors and other creditors of local branches of a foreign bank. The foreign bank cannot use the principle for a reserve purpose, to extend the liability of a client to the foreign banks Phil. branch to its head office. Off-setting or compensation of loans with Phil. branch using dollar accounts with a foreign bank cannot be effected unless otherwise stated in the contract.
D. Minimum Capitalization A trust entity, before it can change in trust or other fiduciary business, shall comply with the minimum paid-in capital requirement determined by the Monetary Board. E. Powers of Trust Entity 1. Act as trustee on any mortgage or bond issued by any municipality, corporation or any bodily politic and to accept and execute any trust consistent with law; 2. Act under the order or appointment of any court as guardian, receiver or trustee or depositary of the estate of any minor and as receiver and depositary of any moneys paid into court by parties and legal proceedings and of property. 3. Act as the executor of any will when it is named the executor. 4. Act as administrator of the estate of any deceased person with the will annexed or as administrator of the estate of any deceased person when there is no will. 5. Accept and execute any trust for the holding, management and administration of any estate, real or personal and the rents, issues and profits. 6. Establish and manage common trust funds, subject to such rules and regulations as may be prescribed by the Monetary Board. F. Transactions Requiring Prior Authority A trustee or fiduciary shall not undertake any of the following transactions for the account of a client, unless prior to its execution. o Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders, or employees of the trustee or fiduciary or to any corporation where the trustee owns at least 50% of the subscribed or voting stock. o Purchase or acquire property or debt instruments from any the DOSRI or to any corporation where the trustee or fiduciary owns at least 50% of the subscribed capital or voting stock. o Invest in equities or in securities underwritten by the trustee or fiduciary or a corporation in which the trustee or fiduciary owns at least 50% of the Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal
III. Trust Operations A. Authority to Engage in Trust Business Trust Business refers to any activity resulting from a trustor-trustee relationship involving the appointment of a trustee for the administration, holding, management of funds and/or properties of the trustor for the use or advantage of the beneficiaries. Only stock corporation or a person duly authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any trust or hold property in trust or on deposit for the use or benefit of others. The cardinal principle common to all trust and other fiduciary relationships is fidelity. A bank authorized to engage in trust and fiduciary business is under no obligation, either legal or moral, to accept such business being offered. B. Conduct of Trust Business A trust entity shall administer the funds or property under its custody with the diligence that prudent man would exercise in the conduct of an enterprise of a like character and similar aims. No trust entity shall, for the account of the trustor or the beneficiary of the trust, unless the transaction is specifically authorized by the trustor and the relationship of the trustee and the other party involved in the transaction is fully disclosed to the trustor or beneficiary. C. Registration of Articles of Incorporation and By-Laws of a Trust Entity The SEC shall not register the articles of incorporation and by-laws or any amendment of any trust entity, unless accompanied by a certificate of authority issued by BSP.
52
subscribed capital or voting stock. Sell, transfer, assign or lend money or property from one trust or fiduciary account to another trust or fiduciary account except where the investment is allowed by Monetary Board.
V. Operations of Trust Entity A. Separation of Trust Business from General Business The trust business and all funds received by any trust entity as executor, administrator etc. shall be kept separate and distinct from the general business including all other funds, properties and assets of such trust entity. All moneys, properties or securities received by a bank in its capacity as trustee, fiduciary or investment manager shall be kept physically separate and distinct from the assets of its other business and shall be under the joint custody of at least 2 persons. B. Investment Limitations of a Trust Entity Unless otherwise directed by the instrument creating the trust, the lending and investment of funds and other assets acquired by a trust entity shall be limited to loans or investments as may be prescribed by laws, the Monetary Board or any court of competent jurisdiction. Assets received in trust or in other fiduciary capacity shall be administered in accordance with the terms of the instrument creating the trust or other fiduciary relationship. Limitations: Evidence of indebtedness of the RP and of the BSO and any other evidence of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the RP. Loans fully guaranteed by the RP as to the payment of principal and interest. Loans fully secured by a holdout on, assignment or pledge of deposits maintained either with the bank proper or other banks. Loans fully secured by real estate or chattels in accordance with pertinent laws. Required Specific Derivatives: Transaction to be entered in to Borrowers name Amount Involved Collateral security/ies C. Real Estate Acquired by a Trust Entity Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal
G. Deposit for the Faithful Performance of Trust Duties Before transacting trust business, every trust entity shall deposit with the BSP as security for the faithful performance of its trust duties approved by the Monetary Board in an amount equal to not less than Php500, 000.00. Monetary Board shall require every trust entity to increase the amount of its cash or securities on deposit with BSP. The paid-in capital and surplus of such entity must be at least equal to the amount required to be deposited with the BSP in accordance with the above provisions. A trust entity so long as it shall continue to be solvent and comply with laws or regulations shall have the rights to collect the interest earned on such securities deposited with BSP and to exchange the securities for others. All claims arising out of the trust business of a trust entity shall have priority over all other claims as regards the cash or securities deposited as above provided. IV. Bond of Certain Persons for the Faithful Performance of Duties A. Bond Requirements Before an executor, administrator etc. appointed by the court enters upon the execution of his duties, upon order of the court, file a bond in such sum, as the court may direct. Upon the application of any executor, administrator etc. the court may, after notice and hearing, order that subject matter of the trust. Upon presentation of the proof to the court that the subject matters of the trust has been deposited with a trust entity. The reduced bond shall be sufficient to secure adequately the proper administration and care of any property remaining under the control of such property. B. Exemption of Trust Entity from Bond Requirement No bond or other security shall be required by the court from a trust entity for the faithful performance of its duties as court appointed trustee, executor etc.
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Unless otherwise specifically directed by the trustor or the nature of the trust, real estate acquired by a trust entity in whatever manner and for whatever purpose shall likewise be governed by the relevant provisions of the GBL. The following circumstances may acquire, hold or convey real property: o Mortgaged to in good faith by way of security for debts o Conveyed to it in satisfaction of debts previously contracted on the course of its dealings. o Shall purchase under judgments, decrees, mortgages or trust deeds held by it and such as it shall purchase to secure debts due it. Any real property acquired or held under the circumstances enumerated above shall be disposed of by the bank within a period of 5 years provided, that the bank continue to hold the property for its own use, subject to the following limitations: o The total investment in such real estate and improvements including equipment shall not exceed 50% of combined capital accounts o The equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the total investment in real estate, unless otherwise provided by the Monetary Board.
insolvency proceedings. G. Establishment of Branches of a Trust Entity Ordinary business of a trust entity shall be transacted at the place of business specified in its articles of incorporation. H. Advertisement of Services Trust entities shall advertise their services in a dignified manner and enter such business only when demand for such service is evident, when specially equipped to render such service and upon full appreciation to the responsibilities involved. I. Money Government Banks may receive or hold as trustee, agent, administrator, financial manager or other similar capacity, any fund or money from the government and government entities, provided, that government-owned banks may received or hold as trustee the following: o Funds of local government units which are expected to be available for investment purposes for a relatively long period of time, provided, that the amounts held in trust or otherwise managed/advised for and in behalf of LGU shall be invested only in government. o Funds of government and government entities which are authorized by special laws to be placed in trust.
D. Investments of Non-Trust Funds Investments of funds other than trust funds of a trust entity which is a bank, financing company or an investment house shall be governed by the relevant provisions of the GBL and other applicable laws. E. Sanctions and Penalties A trust entity or any of its officers and directors found to have willfully violated any pertinent provisions of the GBL shall be subject to sanctions and penalties. F. Exemption of Trust Assets from Claims No assets held by a trust entity in its capacity as trustee shall be subject to any claims other than those of the parties interested in the specific trusts Property held by the insolvent debtor as a trustee of an express or implied trust shall be excluded from the

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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

BANKING LAWS & JURISPRUDENCE

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

C. Capital Requirements 1. Minimum capital prescribed by the Monetary Board

(In Million Pesos) 4950.0 2400.0

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

Fit and Proper Rule

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

D. Disqualifications/Prohibitions NCBA Disqualification Sec. 9, NCBA Prohibitions Sec. 27, NCBA E. F.

Banking Days and Hours

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

hours from opening or closing will suffice.

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

Automated Teller Machines

VIII. FINANCIAL STATEMENTS

VII. Independent Auditor

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

Laws Governing Other Types of Banks

Publication of Capital Stock

CHAPTER 3 Deposit Function of Banks

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

Not otherwise disqualified by any other incapacity

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

B. Set-Off General Rule: When a depositor is indebted to a bank,

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009