Banking Laws and Jurisprudence 2009 Party Duh Notes

1
PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

BANKING LAWS & JURISPRUDENCE
CHAPTER 1
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.
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.
C.
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 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.
Fiduciary Duty
fiduciary nature of banking which requires high standards
of integrity and performance.
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.
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.
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
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
Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal
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.
office of any director or officer responsible therefor, without prejudice to

their criminal liability.
F.
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.
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.
o Due diligence required of banks extend even to persons, or
institutions, regularly engaged in the business of lending
money secured by real estate mortgages.
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 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
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 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
non-employees 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.
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.
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
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
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.
F.
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 non-allied 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.
Rural Banks (R)
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.
o 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 chapter 4 for

discussion of operations.
d.

-
e.
Islamic (I)
-
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.
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
Government-Owned 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
D.
E.
person responsible for penal sanctions provided in the

NCBA (New Central Bank Act).
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.
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.
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.
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 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 Monetary Board shall take into consideration their capability in

terms of their financial resources and technical expertise and
integrity. (FTI)
a.
b.
c.
d.
e.
C.
The bank licensing process shall incorporate an assessment of:

The banks ownership structure
Directors and senior management
Its operating plan
Internal control
Its projected financial condition and capital base
Capital Requirements
1. Minimum capital prescribed by the Monetary Board
AMOUNTS
TYPE OF BANK
(In Million Pesos)
Universal Banks
4950.0
Commercial Banks
2400.0
Thrift banks
CHAPTER 2
Organization, Management and Administration of Banks,
Quasi-Banks and Trust Entities
- With head office within

Metro Manila
325.0
- With head office outside

Metro Manila
52.0
Rural Banks
I.
A.
B.
- within Metro Manila
Organization of Banks
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.
26.0
- cities of Cebu and Davao

- In 1st, 2nd & 3rd class cities
and
13.0
first class municipalities

- in 4th, 5th & 6th class cities
and in
6.5
2nd, 3rd & 4th class

municipalities
in
5th
&
municipalities
Capabilities
2.
3.9
6th
class
2.6
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

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)
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.)
B.
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
1.
Universal or Commercial banks may open branches or other offices within

or outside the Philippines prior approval of the Bangko Sentral.
Branching by all other banks shall be governed by pertinent laws.
2.
*** 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.
II.
A.
*** 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:
th
Stockholdings of individuals related to each other within 4 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.
Stockholdings
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:
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.
controlling stockholders individuals holding more that
50% of the voting stock of the corporate stockholders of
the bank.
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.
*** such situations must be fully disclosed in all transactions by

such corporations or related groups of persons with bank.
III.
Board of Directors

3.
A.
Number of Directors
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/quasibank/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.
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 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;
IV.
When a bank is found by the Monetary Board to be in an

unsatisfactory financial condition.
Fit and Proper Rule
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 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.
10

b.
1.
Temporarily disqualified from being directors:

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/quasi-banks/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 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 under the Corporation Code

Sec. 27, Corporation Code
D.
Disqualifications/Prohibitions under the NCBA

Disqualification Sec. 9, NCBA
Prohibitions Sec. 27, NCBA
E. Disqualification/Prohibition under the PDIC Law

Sec. 17 PDIC Law
F.
Disqualification/Prohibition under RA 7353

Sec. 5, RA 7353
G. Disqualification/Prohibition under Appendix 38, Manual of Regulations

for Banks
H.
V.
A.
Prohibitions on Public Officials

Sec 19, GBL
Banking Days and Hours

Number of Days and Hours
The GBL provides for the following guidelines:
1. Banks shall transact business on all working days 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.
11

3.
Working days mean Mondays to Fridays, except if such days are

holidays.
5.
B.
Rules and Regulations

1.
2.
3.
4.
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.
b. 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.
c. 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.
d. 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.
e. 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.
f. 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.
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.
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.
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
VI.
A.
B.
association approving said closure, at least two days after the date of
said resolution.
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.
Automated Teller Machines

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.
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.
VII.
Independent Auditor
The following are the rules with respect to financial audit of banks:
1.
2.
The Monetary Board may require a bank, quasi-bank or trust entity to

engage the 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.
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
12
3.
trust entitys board of directors. A copy of the report shall be furnished to the
Monetary Board.
The Monetary Board may also direct the board of directors of a bank, quasibank, 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.
A.
assume jurisdiction over such labor dispute in order to settle or terminate the
same.
B.
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.
FINANCIAL STATEMENTS
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
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
Reports of Strike and Lockouts
XI.
Laws Governing Other Types of Banks
Thrift banks Thrift Banks Act

Rural Bank Rural Banks Act
Cooperative Cooperative Code
Islamic Banks special laws
** 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.
** 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.
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.
X.
A.
Settlement of Disputes
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 and
13
CHAPTER 3
Deposit Function of Banks
Kinds of Deposits
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.
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
14

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 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 in-clearing 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 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
15
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:
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. 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
16
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.
Individual and Joint accounts

Joint account may be an and account or an and/or account
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 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.
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 tax-exempt certificates to
time deposit without prior approval of the BSP
5) Deposit Substitute Operations (Quasi-Banking Functions)
Elements:
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
17

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.
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 short-term 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.
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
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.
7) Anonymous and Numbered Accounts should not be allowed

18

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.
Information by regular mail, electronic mail, statement of account messages

or alternative modes of communication on the depositors last known address at
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.
III. Survivorship Agreement
-
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
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
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)
2.
3.
19
4.
5.
B.
- 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)
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.
Set-Off
General Rule: When a depositor is indebted to a bank, 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.
B.
C.
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.
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.
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,
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.
20

- 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 which he earns his livelihood as
fisherman.
9.
10.
11.
12.
13.
Salaries, wages or earnings within the four months preceding the levy
as are necessary for the support of his family.
Lettered gravestones.
Monies benefits, privileges or annuities accruing or in any manner
growing out of any life insurance.
The right to receive legal support or money or property obtained as such
support or any pension or gratuity from the Government.
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 Anti-Money 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
21

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 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:
J.
(1) a decedent to determine his gross estate; and

(2) any taxpayer who has filed an application for
compromise of his tax liability under Sec. 204(A)(2)
of this Code by reason of financial incapacity to pay
his tax liability.
K.
Waiver by DOSRI
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
Investments, Loans and Other Functions of Banks
I.
Operations of Universal Banks

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 non-financial

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
22
D.
E.
Financial Allied Undertakings

a. Leasing companies- bank investment of
shares shall be limited only in cases of
conversion
of
outstanding
loan
obligations into equity
b. Banks
c. Investing houses
d. Financing companies
e. Credit Card companies
f. 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
Equity Investments of a universal Bank in Non-allied 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 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

Equity Investments of a Universal Bank in Non-Allied 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
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
23

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 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
st
1 contract relationship links the party applying

for LOC and the party for whose benefit LOC is
issued
nd
2
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.
rd
3 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
III.
IV.
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 Non- Financial Allied

Enterprises - may own up to 100% of the equity in a non-financial
allied enterprise
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
Limit on Loans, Credit Accomodation And Guarantees

A. Single Borrowers Limit
24

i. Shall not exceed 20% if Net Worth of the Bank
Exceptions:
a. Reasons of national interest
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
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
B.
C.
D.
As amended by Circular no. 425, SBL must not

exceed 23%, still subject to such exceptions
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, Monetary Board may prescribe
combination of liabilities in certain situations
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
Bank Guarantee irrevocable commitment of a bank binding itself
to pay a sum of money in the event of non-performance of a
i. Pacto commisorio automatic appropriation of the

pledged or mortgaged property by the creditor in payment
of the loan upon its maturity
V.
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 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
25
D.
Stockholder
i. Any stockholder of record in the books acting personally or
through an attorney-in-fact
ii. Any other person duly authorized by him or through a
trustee
st
His spouse/ relative within 1

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
st
i. Spouse/Relative within 1 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
st
bank or
Spouse/Relative within 1
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
st
related to each other within 1 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 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 government-owned or controlled corporations
Such loans, other credit accommodations, and/or

guarantee (LOG) to RP must be considered as
26

i. Non-risk
ii. Not subject to any ceiling
B.
VI.
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 the Secretary of Socio-Economic
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
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.
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
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
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
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
27

iv.
C.
Also see 1198 of Civil Code
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 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
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
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.
28

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 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 Open-End 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 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 bid price bec after all, the property already belongs
to him as owner.
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.
29
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 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.
30

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.
Provided, that they do not include servicing/handling bank deposits or other

inherent banking functions.
XII. Electronic Transactions

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

31
Chapter 5
Prohibited
Business
A.
Transactions
Cessation
of
Banking
c.
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
d.
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
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.
and
influence such persons to approve a loan or other credit

accommodation
Profit is immaterial to constitute the doing or transacting

of an insurance business.
Prohibited Acts
a. No Director, officer, employee, or agent of any bank shall- FOORD
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 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
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
C.
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

32

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,
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.
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
C. Qualifications of Conservator
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)
The conservator should be competent and knowledgeable in bank

operations and management.
D. Period of Conservatorship
B. Grounds for appointment of conservator
The conservatorship shall not exceed one (1) year.
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)
E. Remuneration
unwillingness to maintain a condition of liquidity deemed adequate to protect

the interest of depositors and creditors. [Section 29, RA 7653]
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
*POWERS OF THE CONSERVATOR

1.
Take charge of the assets, liabilities and management of the bank or quasibank
2.
Reorganize the management
3.
Collect all monies and debts due said institution
4.
Exercise all powers necessary to restore its viability
the institution in 1 year, payable in 12 equal monthly payments.
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
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.,
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.
void, voidable, unenforceable, or rescissible); hence, the conservator merely

takes the place of a banks board of directors. What the board of directors
F. Expenses of Conservatorship
cannot do, such as repudiating a contract validly entered into under the
Shall be borne by the bank or quasi-bank concerned.
33
G. Termination of conservatorship
Powers must be related to the (preservation of) the assets of the bank, (the
The Monetary Board shall terminate the conservatorship when it is satisfied
reorganization of) the management thereof and (the restoration of) its
that the institution can continue to operate on its own and the
viability. Such power cannot extend to the post-facto repudiation of perfected
conservatorship is no longer necessary.
transactions, otherwise they would infringe against the non-impairment
The conservatorship shall likewise be terminated should the Monetary Board
clause of the Constitution.
determine that the continuance in business of the institution would involve

probable loss to its depositors or creditors, in which case proceedings for
Law merely gives the conservator power to revoke contracts that are, under
existing law, deemed to be defective.
receivership and liquidation shall be pursued. [Section 29, RA 7653]

VI. Cessation of Banking Business
A. Voluntary Liquidation
H. Final and Executory
B. Receivership and Involutary Liquidation

C. Close Now Hear Later Scheme
Actions of Monetary Board shall be final and executory, and may not be
D. Effect of Filing a Petition for Review
restrained or set aside by the court except on petition for certiorari on the
E. Reasons Behind Receivership and Involuntary Liquidation
ground that the action taken was in excess of jurisdiction or with such grave
F. Effects of Receivership and Liquidation
abuse of discretion as to amount to lack or excess of jurisdiction.
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
A. Voluntary Liquidation
board of directors of the institution of the order directing receivership,
1. request for approval of voluntary dissolution, attaching a
liquidation or conservatorship.
liquidation plan therein.

(written notice of liquidation shall be sent to the Monetary Board
I. Exclusive Power to Appoint
prior to such liquidation.)

2. dissolution in accordance with the Corporation Code
Designation of conservator is vested exclusively with the Monetary Board.
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.
J. Not a Precondition
Grounds for Receivership and Liquidation
Designation of conservator is not a precondition to the designation of a
receiver.
The MB may, summarily & w/o prior hearing, FORBID institution from
doing business if the institution:
a. is unable to pay liabilities
K. Powers of Conservator Cannot Impair the Obligations of Contracts.
b. has insufficient assets, as determined by BSP

34
c. will involve probable loss to depositors or creditors
dissolved * insolvent * in imminent danger of insolvency * has
d. has willfully violated a cease & desist order involving acts or
forfeited corporate rights
transactions which amount to fraud or a dissipation of assets

(50T-200T fine or 2-10Y imprisonment)
Sec. 175: General Powers of a Receiver.
For quasi-banks, any person of recognized competence in banking or
1. bring and defend actions in own name
finance may be designated as receiver.
2. take possession of property in controversy

3. receive rent, collect debts, and compound for such
The receiver shall immediately
4. make transfers
1. gather all assets and liabilities

2. administer assets and liabilities for the creditors
A receiver is
3. exercise general powers under the Rules of Court
- an indifferent person between the parties to a cause
4. determine W/N bank may be rehabilitated or resume business w/in 90 days
- not the agent or representative of either
* But he shall NOT (except for administrative expenses) pay or
- but an officer of the court
transfer any asset of the institution.

Prohibited Acts
If the receiver determines that the bank cannot be rehabilitated, the
MB shall notify the board of directors of its findings in writing and
Any director or officer of a bank declared insolvent or placed under

receivership by the MB shall not
direct the receiver to proceed with the liquidation.
1. refuse to turn over the bank records
The receiver shall file with the RTC a petition for assistance in the
2. tamper with bank records
liquidation.
3. destroy or cause misappropriation of the bank's assets

4. receive any deposti, collection of loans, or receivables
Current and Complete Examination Not Necessary before the closure of a bank
5. pay out any funds of the bank
R.A. 7653 (1993) provides that only a REPORT of the head of
6. transfer securities or property
supervising or examining department is necessary.

The word "report" is clearly different from "examination." A report is
In the case of conservatorship,
"something that gives information" or "a detailed account". An
1. the actions of the MB shall be final and executory
examination is "a search, investigation or scrutiny."
2. may be set aside by a petition for certiorari filed by the

stockholders of record within 10 days
Rural Bank of San Miguel Inc. v. Monetary Board

The closure of a bank may be considered as an exercise of police power.
Close Now Hear Later Scheme (p. 213, MemAid)
Sec. 174 of the Code of CivPro: A receiver may be appointed if the
1. Sec 29 of the Central Bank Act does NOT contemplate prior notice and
corporation is
hearing.
35
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.
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.
* 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)
1. Retention of Juridical Personality
2. Suspension of Operations /Stoppage of Business
3. Assets deemed in custodia legis and shall be exempt from
C.
Disposition of Banking Franchise
The Bangko Sentral may, if public interest so requires, award to an

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
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
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.
6. But BSP shall collect interest on all loans and advances

7. Bank cannot do new business
8. Deposits do not become preferred credits
VII. Disposition and Distribution of Assets

A. Distribution of Assets
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
36
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)
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.
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.
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.
4.
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.
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.
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.
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)
CHAPTER 6
Foreign Banks & Trust Operations
37

The head office of the foreign bank shall fully guarantee the prompt payment of
all the liabilities of its Phil. Banks. (Sec 75 GBL)
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.
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
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 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.
III. Trust Operations

A.
B.
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.
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.
38
G.
fiduciary owns at least 50% of the 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.
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.
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.
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.
Required Specific Derivatives:

Transaction to be entered in to
Borrowers name
Amount Involved
Collateral security/ies
C.
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.
V. Operations of Trust Entity
Real Estate Acquired by a Trust Entity

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:
39

o
o
Mortgaged to in good faith by way of security for debts

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.
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 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.
Chapter 7
BSP
I.
Creation, Responsibilities and Corporate Powers of the BSP

a. Declared Policy of the State
The central bank while being a government owned corporation,
shall enjoy fiscal and administrative autonomy.
b. Responsibility and primary objective of the BSP
The responsibility of BSP is to provide policy directions in the

area of banking, money and credit.
It shall have supervision over the operation of banks.
It has regulatory powers over the operations of banks, finance

companies, quasi-banks.
To maintain price stability conducive to a balanced and

sustainable growth of the economy.
To promote and maintain monetary stability and convertibility

of peso.
c. Corporate powers of the BSP (SCP-SPAL)
40

1.
II.
III.
Adopt, alter and use a corporate seal which shall be judicially

noticed;
2. Enter into contracts;
3. Lease or own personal and real property;
4. Sue and be sued;
5. Do and perform all things that may be necessary or proper to
carry out the purposes of the NCBA;
6. Acquire and hold assets and liabilities;
7. Compromise, condone, or release, in whole or in part, any
claim of or settled liability to the BSP.
Authority of the BSP; Supervisory Powers
1. The operation so banks shall be subject to the
supervision of the BSP, which includes:
a. The issuance of rules and conduct or the establishment of
standards of operation for uniform application to all institutions
or functions covered;
b. The conduct of examination to determine compliance with laws
and regulations if the circumstances so warrant;
c. Overseeing to ascertain that laws and regulations are complied
with;
d. Regular investigation which shall not be oftener than once a
year from the date of last examination;
e. Inquiring into the solvency and liquidity of the institution;
f. Enforcing prompt corrective action.
2. It shall also exercise regulatory powers and
supervision over: quasi banks, trust entities and
financial institutions.
Monetary Board
A. Composition
The monetary board is composed of 7 members appointed by the
President for a term of 6 years.
B. Qualifications of the members of the Monetary Board:
a. Natural born citizens of the Philippines;
b. At least 35 years of age, with the exception of governor
who shall be 40;
c. Good moral character;
d. Unquestionable integrity;
e. Known probity and patriotism;
f. Recognized competence in social and economic
discipline.
C. Disqualifications of the members:
a. Disqualifications imposed by A code of conduct and
ethical standards for public officials or employees
b. Being a director, officer, employee, consultant, lawyer,
agent or stockholder of any bank, quasi bank, or any other
D.
E.
institution which is subject to supervision or examination

by the BSP;
c. Members coming from the private sector shall not hold any
other public office or employment;
d. Person is connected directly with any multilateral banking
or financial institution;
e. Has a substantial interest in any private bank, within 1
year prior to his appointment;
f. No member of the MB shall be employed in any such
institution within 2 years after the expiration of his term
except when he serves as an official representative of the
government.
Grounds for removal of monetary board:
a. If he is physically or mentally incapacitated that he cannot
properly discharge his duties and responsibilities and such
incapacity has lasted for more than 6 months;
b. Member is guilty of acts of fraudulent or illegal character;
c. If member no longer possess the qualifications
enumerated in B.
Meetings, quorums, decisions and proceedings of the MB:
a. MB shall meet at least once a week.
b. Presence of 4 members shall constitute a quorum. In all
cases governor or his designated alternate shall constitute
the 4.
c. Unless otherwise provided, all decisions of the MB shall
require the concurrence of at least 4 members.
Note: Exception to E, par. C.
1. Sec. 61 GBL, Publication of financial statements.
In periods of national and/or local emergency or
of imminent panic which directly threaten
monetary and banking stability, MB may by a
vote of 5 of its members, may allow such bank
xxx, to defer for a stated period of time the
publication xxx.
2. Sec. 28, NCBA, Examinations and fees.
Examination shall be conducted every year, and
at such other times as the MB by an affirmative
vote of 5 of its members, may deem expedient
and to make a report on the same to the MB.
3. Sec. 72 NCBA, Emergency Restrictions on
Exchange operations. Xxx The MB with the
concurrence of at least 5 of its members and with
the approval of the president, may temporarily
suspend or restrict sales of exchange by the
41
IV.
BSP, and may subject all transactions in gold and

foreign exchange to be delivered to the BSP.
4. Sec. 84 NCBA, Emergency loans and advances.
In periods of national and/or local imminent
financial panic, MB may by a vote of 5 of its
members authorize the BSP to grant
extraordinary loans or advances to banks secure
by assets xxx.
d. BSP shall maintain and preserve a complete record of the
proceedings and deliberations of the MB.
F. Scope of authority of the Monetary Board: (IDEA-I)
a. Issue rules and regulations it considers necessary for the
effective discharge of the responsibilities and exercise of
the powers vested upon the MB;
b. Direct the management, operations, and administration of
the BS, reorganize its personnel, and issue such rules and
regulations as it may deem necessary and convenient for
such purpose;
c. Establish a human resource management system which
shall govern the selection, hiring, appointment, transfer,
promotion or dismissal of all personnel.
d. Adopt an annual budget for and authorize such
expenditures by the BS;
e. Indemnify its members and other official of the BS against
all costs and expenses reasonably incurred by them in
connection with any criminal or civil action, made by the
reason if his official duties.
G. Responsibility of the members of the MB and BSP:
a. If anyone of them wilfully violates NCBA or is guilty of
negligence, abuse or acts malfeasance and misfeasance
or fails to exercise extraordinary diligence in the
performance of his duties shall be held liable for any loss
or injury suffered by the BSP
b. Similar responsibility shall also apply to members, officers,
and employees of the BSP for:
i. Disclosure of any information of a confidential
nature, unless such disclosure is in connection
with the performance of the official functions of
the BSP
ii. The use of such information for personal gain or
to the detriment of the government.
The governor and deputy governor
A. The governor shall be the Chief executive officer of the BS with the
following powers and duties:
1.
Prepare the agenda for the meetings
and to submit for the consideration of the board
policies and measures which is necessary to
carry out the purpose of NCBA;
2.
Execute
and
administer
policies
approved by the board;
3.
Direct and supervise the operations and
internal administration of the BS.
4.
Appoint and fix the remunerations and
other emoluments of personnel below the rank of
dept. Head.
5.
Render opinions, decisions, or rulings,
which shall be final and executory until reversed
or modified by the MB.
6.
Exercise such other powers as may be
vested in him
B.
V.
Emergencies
a. In case of emergencies, the governor, with the
concurrence of 2 members of MB, may decide any matter
or take any action within the authority of the MB.
b. The governor shall submit a report to the president and
the congress within 72 hours after the action has been
taken.
c. Governor shall submit his action to the Mb for ratification.
C. Limitations on outside interests of the governor and the full time
members of the board
a. Limit their professional activities to those pertaining
directly to their position with the bangko sentral.
b. Not accept any other employment, whether public or
private, remunerated or ad honorem, with the exceptions
of the positions in eleemosynary, civic, cultural and
religious organizations or whenever by designation of the
president, the governor or the full time member is tasked
to represent the interest of the government.
Director, Officer or stockholder and Related Interest
A. Contracting loans
a. Any director, officer, or stockholder who together with his
related interest, contracts a loan or any other form of
financial accommodation from his bank or a bank, shall be
required by the lending bank to waive the secrecy of his
deposits
b. Any information obtained from an examination of his
deposits shall be held strictly confidential and may be
used by the examiners in connection with their supervisory
and examination responsibility.
42

a.
III.
Chapter 8
Currency, Monetary stabilization and Functions of the BSP
I.
II.
The unit of monetary value

A. The peso. All monetary obligations shall be settled in the Philippine
currency which is the legal tender in the Philippines. However, the
parties may agree otherwise.
B. Currency as all Philippine notes and coins issued or circulating in
accordance with the provisions of the NCBA.
C. A currency has value because people are willing to accept it in
exchange for goods and services and in payment for debts.
Issue of means of payment
A. Exclusive Issue Power
a. BS shall have the sole power and authority to issue currency
within the territory of the Philippines.
b. MB may issue regulations as it may deem advisable in order to
prevent the circulation of foreign currency or of currency
substitutes.
c. The BS shall have the authority to investigate, make arrests,
conduct searches and seizures for the purpose of maintaining
the integrity of the currency.
B. Liabilities for notes and coins
a. Notes and coins issued by the BS shall be liabilities of the BS
and may be issued only against, and in amounts not exceeding
the assets of the bankgo sentral.
b. The bangko sentrals holding of its own notes and coins shall
not be considered as part of its currency issue and shall not
form part of the assets and liabilities of the BS.
C. Legal tender power. All notes and coins issued by the BS shall be fully
guaranteed by the government and shall be legal tender in the
Philippines for all debts, both public and private.
D. Replacement of currency unfit for circulation. The BS shall withdraw
from circulation and shall demonetize all notes and coins which for any
reason are unfit for circulation and shall replace them by adequate
notes and coins.
E. Retirement of old notes and coins.
IV.
BS shall replace notes which are more than 5 years old and
coins which are more than 10 years old.
b. Notes and coins which are called for replacement shall remain
legal tender within one year from the date of call.
Domestic Monetary Stabilization
A. Action when abnormal movements occur in the monetary aggregates,
credit or price level
a. MB shall take such remedial measures and submit to the
president and the congress and make public a detailed report
of the xxx.
b. Whenever:
i. The monetary aggregates, or the level of the credit,
increases or decreases by more than 15 percent.
ii. The cost of living index increases by more than 10
percent, in relation to the level existing at the end of
the corresponding month of the preceding year.
iii. Even though the circumstances have not been
reached when in its judgment the circumstances so
warrant.
International Monetary Stabilization
A. To preserve the international value of the peso and to maintain its
convertibility into other freely convertible currencies. BS shall maintain
international reserves adequate to meet any foreseeable demands on
the BS for foreign currencies.
B. The board shall give special attention to the volume and maturity of the
BS owns liabilities in foreign currencies, to the volume and maturity of
the foreign exchange assets and liabilities of other banks operating in
the country.
C. Action when the international stability of the peso is threatened:
a. Whenever:
i. The international reserves of the BS falls to a level
which the MB considers inadequate to meet
prospective net demands on the BS for foreign
currencies.
ii. The international reserve appears to be in danger of
falling to such a level
iii. The international reserve is falling as a result of
payment or remittances abroad, which in the opinion
of the MB is contrary to national welfare.
The monetary board shall:
Take such remedial measures as are

appropriate
Submit to the president and congress reports

regarding the nature and cause of the decline,
remedial measure already taken, remedies
43
V.
VI.
VII.
proposed and the character and cooperation

required from other government agencies
Operations in gold and foreign exchange
A. Purchases and sales of gold
a. BS may buy and sell gold in any form
b. Purchases and sale of gold shall be made in the national
currency
B. Purchases and sales of foreign exchange
a. BS may buy and sell foreign notes and coins, customarily
employed for the international transfer of funds.
b. BS may buy and sell foreign exchange transactions with the
following entities only:
i. Banks operating in the Philippines
ii. Government
iii. Foreign or international financial institutions
iv. Foreign government
v. Other entities or persons which the MB authorized as
foreign exchange dealers
C. BS shall at all times maintain a net positive foreign asset position so that
its gross foreign exchange assets always exceed its gross foreign
liabilities.
Regulation of foreign exchange operations of the banks
A. Information on exchange operations
a. Banks shall report to the BS the volume and composition of
their purchases of gold and foreign exchange each day.
Loans to bank and other financial institutions
A. Authorized type of credit operations
a. Commercial credits BS may buy, sell, rediscount, discount
xxx with maturities of not more than 180 days from the date of
their purchase, discount, rediscount by the BS.
b. Production credits same; having maturities of not more than
360 days from the date of the same.
c. Other credits
d. Advances - BS may grant advances against the following
kinds of collateral:
i. Gold coins or bullion;
ii. Securities representing obligations of the BS or of
other domestic institutions;
iii. Credit instruments
iv. Utilized portions of advances in current amount
covered by regular over draft agreements related to
operations xxx.
v. Negotiable treasury bills, certificates of indebtedness,
notes and other negotiable obligations of the
government
VIII.
IX.
vi. Negotiable bonds

Emergency loans and advances
A. When granted
a. In periods of national and/or local emergency or of imminent
financial panic which directly threaten monetary and banking
stability.
b. Even during normal periods, for the purpose of assisting a
bank in a precarious financial condition or under serious
financial pressures brought by unforeseen events, provided the
bank is not insolvent.
B. Limits
a. It shall not exceed the sum of 50 % of total deposits and
deposit substitutes of the banking institution and shall be
disbursed in 2 or more tranches.
st
C. First Tranche. The amount of the 1 tranche shall be limited to twentyfive percent of the total deposit and deposit substitutes of the institution
and shall be secured by government securities to the extent of their
applicable loan values and other unencumbered first class collaterals.
This may be increased if the circumstances warrant such increase as to
be determined by the MB.
D. Second Tranche. The MB may release a subsequent tranche by a vote
of 5 of its members, with the condition that the principal stockholders of
the institution:
a. Furnish an acceptable undertaking to indemnify and hold
harmless from suit a conservator whose appointment may be
necessary at any time;
b. To provide additional security, which the MB would warrant as
adequate to supplement the assets tendered by the banking
institution.
E. Shares as collateral. The prohibition with respect to the BS with respect
to them not allowed to acquire shares of any kind and accept them as
collateral, and shall not participate in the management of any enterprise,
either directly or indirectly, does not apply when they receive such
shares as a result of a foreclosure proceeding. Provided they disposed
of the same within one year from its acquisition.
Credit Terms
A. Interest and rediscount. BSP has the power to charge interests and
rediscounts on all loans and advances it extends.
B. MB may prescribe, within the general powers granted to it under the
NCBA, additional conditions which the institution must satisfy.
C. Provisional advances to the National Government. The BS may make
provisional interests to the government with or without interest, provided
that:
a. It must be repaid before the end of 3 months and extendible by
another 3 months as the MB may allow.
44

b.
X.
XI.
XII.
Shall not in their aggregate, exceed the 20 % of the average

annual income of the borrower for the last three preceding
fiscal years.
Open Market Operations for the Account of the BS
A. Purchases and sales of government securities. The BS may buy and
sell in the open market for its own account:
a. Evidence of indebtedness issued by the government
b. Same; issued by government instrumentalities fully guaranteed
by the government
c. The evidence of indebtedness must be freely negotiable and
regularly serviced and must be available to the general public.
Composition of BSs portfolio
A. At least once every month the MB shall review the portfolio of the BS in
relation to its future credit policy. In reviewing the portfolio, MB shall
take into consideration whether a sufficiently large part of the portfolio
consists of assets with early maturities, in order that a contraction in BS
credit may be effected promptly whenever the national monetary policy
so requires.
Bank reserves
A. Reserve requirements
a. In order to control the volume of money created by the credit
operations of the banking system, banks are required to
maintain reserves against their deposit liabilities. The required
reserves of each bank shall be proportional to the volume of its
deposit liabilities and shall ordinarily take the form of a deposit
in the BS. Reserve requirements shall be applied to all banks
of the same category uniformly and w/o discrimination.
b. The MB may exempt from reserve requirements deposit and
deposit substitutes with remaining maturities of two years or
more, as well as interbank borrowings.
c. BS shall not pay interest on the reserves maintained with it,
unless the MB decides otherwise as warranted by the
circumstances.
B. Deposit substitutes are alternative form of obtaining funds from the
public, other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrowers own account, for the
purpose of relending or purchasing of receivables and other obligations.
Provided that, commercial, industrial and non-financial companies for
the limited purpose of financing their own needs shall not be covered by
this provision.
C. Required reserves against peso deposits. The MB may fix and alter the
minimum reserve ratios to peso deposits, as well as to deposit
substitutes, which each bank and quasi bank may maintain.
D. Increase in Reserve requirements. Whenever in the opinion of the MB it
becomes necessary to increase the reserve requirements, the increase
XIII.
shall be made in a gradual manner and shall not exceed 4 % points in

any thirty day period. Banks shall be notified of such increase.
E. Computation of reserves. The reserve position of each bank shall be
calculated daily on the basis of the amount of its liability accounts
against which reserves are required to be maintained.
F. Reserve Deficiencies. Whenever the reserve position of any bank is
below the required minimum, the bank shall pay to the BS 1/10 of one
percent per day on the amount of deficiency or the prevailing 91 day
Treasury bill whichever is higher. The banks may, however, offset any
reserve deficiency with any excess reserves which they may hold on
other days.
a. If the reserve deficiency is chronic, the MB may limit or prohibit
the making of new loans or investments by the institution and
may require that part or all of the net profits be assigned to
surplus.
b. The MB may set aside the reserve deficiency in case of a
strike or lockout affecting a bank, or of a national emergency
affecting operations of banks or quasi banks.
G. Interbank Settlements
a. The BS shall establish facilities for interbank clearing.
b. The deposit reserves maintained by the banks shall be the
basis for the clearing of checks and the settlement of interbank
balances.
c. Any bank which incurs on overdrawing in its deposit account
with the BS shall fully cover said overdraft, including the
interest thereon, at a rate of letter F.
H. Exemption from attachment and other purposes
a. Deposits maintained by the banks with the BS as part of their
reserve requirements shall be exempt from attachment,
garnishment, or any other order or process of any court issued
to satisfy the claim of a party other than the government.
Functions as banker of the government
A. The BS shall act as a banker of the government.
B. The BS shall represent the government in all dealings, negotiations and
transactions with the IMF.
C. Bs shall also represent the government in other financial institutions.
D. The BS shall be the official depository of the government, and as a
general policy, their cash balances should be deposited with the BS,
with only minimum working balances to be held by the government
owned banks, and other banks, subject to such rules and regulations as
the MB may prescribe.
E. The BS shall open a general cash account for the Treasurer of the
Philippines, in which the liquid funds of the government shall be
deposited.
45

XIV.
XV.
XVI.
The marketing and Stabilization of securities for the account of the

govt.
A. The securities stabilization fund shall be administered by the BS for the
account of the government. The operations shall consist of purchases
and sales, in the open market, of bonds and other evidence of
indebtedness issued or fully guaranteed by the government. The
purpose of these operations shall be to increase the liquidity and
stabilize the value of the said securities in order thereby to promote
investment in government obligations.
Functions as financial advisor of the government
A. Before undertaking any credit operation abroad, the government must
secure the advice of the MB on the monetary implications of the
contemplated action.
B. The opinion of the MB shall be based on the gold and foreign exchange
resources and obligations of the nation and on the effects of the
proposed operation on the balance of payments and on monetary
aggregates.
Privileges
A. The BS shall be exempt for a period of 5 years from the approval of the
NCBA from all taxes.
B. The exemption shall apply to all property of the BS, to the resources,
receipts, expenditures, profits and income of the BS, as well as to all
contracts, deed, documents and transactions related to the conduct of
the business of the BS.
C. The BS shall also be exempted from custom duties, a) the importation
and exportation by the BS of notes and coins, and of gold and other
metals to be used for purposes authorized under the NCBA, b)
importation of equipment needed for bank note production, minting of
coins, metal refining and other security printing operations.
D. The civil service law shall also apply to the appointments in the BS
except those which are policy-determining, primarily confidential, and
highly technical. Provided that no qualification requirements for
positions in the BS shall be imposed other than those set by the MB.
Officers and employees shall not engage directly or indirectly in partisan
activities or take part in any election except to vote.
Unclaimed Balance
Credits or deposits or other evidence of indebtedness of an kind
with banks, loan associations and trust corporations (BLT) in favor of any
person known to be dead or who has not made further deposits or
withdrawals during the preceding ten years or more.
Unclaimed balance and increase in proceeds shall be deposited
with the Treasurer of the Philippines to be used as National Assembly may
direct.
Escheat
Reversion of land held under feudal tenure to the manor in the
absence of legal heirs or claimants
Procedure
1.
2.
3.
4.
5.
6.
7.
8.
9.
CHAPTER 9
UNCLAIMED BALANCES AND TRUST RECEIPTS
Every January of every odd year, all BLT shall forward to

Treasurer a statement under oath of managing officers af 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. It shall include:
a. Names and addresses of persons with unclaimed
balance
b. Amount and date
c. Date of Death
d. Interest due
Copy of sworn statement shall be posted in a conspicuous
place in said establishments
BLT shall immediately before filing statement, communicate
with person with unclaimed balance.
Sol-Gen shall commence action in behalf of People of the
Philippines in the RTC where BLT is located.
Summons shall be made to president, cashier or managing
officer of defendant BLT
Clerk of Court shall also issue a notice
Notice shall be published
Any interested person may become a party
Hearing
a. Unclaimed court shall render judgment in favor of
government declaring unclaimed balances escheated
to Government, to be deposited to Treasure to the
credit of the Government
46

Penalties
Refusal to make and file a sworn statement, 500 pesos a month for
each month or fraction upon continuance of default.
Immunity from suit
1. BLT which shall make any deposit of unclaimed balances with the
Treasurer of the Philippines.
2. Defended by the Sol-Gen without cost
In order that the state may take possession of the property

mentioned, the pertinent provisions of the Rules of Court must be
observed.
Art. 1013.
Service and Maintenance Fees on Dormant Accounts

After the payment of debts and charges, the personal property shall
be assigned to the municipality or city where the deceased last
resided in the Philippines, and the real estate to the municipalities
or cities, respectively, in which the same is situated.
Banks may impose service or maintenance fees on dormant or

inactive accounts provided that period of dormancy must first be properly
disclosed among the terms and conditions of the deposit.
Reclassification
If the deceased never resided in the Philippines, the whole estate

shall be assigned to the respective municipalities or cities where
the same is located.
All unclaimed balances reported to the Treasurer of the Philippines

must first be reclassified or transferred from the deposit/liability to the liability
account due to the Treasurer of the Philippines before being turned over.
Unclaimed deposit liabilities shall no longer be covered by reserves required
of deposit liabilities.
Such estate shall be for the benefit of public schools, and public
charitable institutions and centers, in such municipalities or cities.
The court shall distribute the estate as the respective needs of each
beneficiary may warrant.
Escheats Under the Rules of Court

1.
2.
3.
4.
When a person dies intestate with no heir, Sol-Gen in behalf of

Philippines may file with RTC of province of residence praying
that estate of deceased by declared escheated.
Order for hearing shall not be more than 6 months after entry
of order, copy of order be published in news paper of General
circulation for 6 successive weeks.
Hearing the person died intestate, seized real or personal
property in the Philippines leaving no heir and no cause to
show contrary, court shall adjudge the estate of deceased after
paying debts and charges shall escheat.
Claim to estate People entitled to such estate claims within 5
years from the date of the judgment
The court, at the instance of an interested party, or on its own

motion, may order the establishment of a permanent trust, so that
only the income from the property shall be used. (956a)
Art. 1014.
If a person legally entitled to the estate of the deceased appears
and files a claim thereto with the court within five years from the
date the property was delivered to the State, such person shall be
entitled to the possession of the same, or if sold the municipality or
city shall be accountable to him for such part of the proceeds as
may not have been lawfully spent.
The State as an Heir of a Decedent

The State shall inherit the decedents estate in default of persons
entitled to succeed:
Article 1011
In default of persons entitled to succeed the State shall inherit the
whole estate
Article 1012
Trust Receipts
Policy
1.
To encourage and promote the use of trust receipts as an

additional and convenient aid to commerce and trade
47

2.
3.
Provide for regulation of trust receipts transactions in order to

assure the protection of the rights and enforcement of
obligations of the parties involved therein
Declare the misuse of goods or proceeds realized from the
sale as a criminal offence ESTAFA
Definition
Entrustee any person having or taking possession of goods,
documents or instruments under a trust receipt transaction. Or any of his
successors in interest.
Entruster any person holding title over the goods, documents or
instruments subject of a trust receipt transaction. Or any of his successors in
interest.
Security Instrument property interest in goods, documents or
instruments to secure performance of some obligations or entrustee
Trust Receipt written or printed document signed by the entrustee
in favor of entruster containing terms and conditions substantially complying
with provisions of Trust Receipts Law
Trust Receipt Transaction
Any transaction by and between an entruster and an entrustee
whereby the entruster who owns or holds absolute title or security interests
over certain specified goods, documents or instruments releases the same
to the possession of the entrustee upon the latters execution and delivery to
the entruster of a signed document called a trust receipt.
A trust receipt binds the entrustee to hold the designated goods,
documents or instruments in trust for the entruster and to sell or otherwise
dispose of them with the obligation to turn over the proceeds to the entruster
to the extent of the amount owing to the entruster.
c.
d.
Effect consummation
Effect presentation and collection
There are two situations in a trust receipt transaction:

1. Money received under obligation to deliver
it (entregarla)
2. Merchandise received under the obligation
to return it (devolvera)
Trust receipt is a separate and independent security transaction
intended to aid in financing importers whereby the imported goods are held
as security by the lending institution for the loan obligation.
Spouses Vintola vs. Insular Bank of Asia and America explained
the nature and usage.
Transaction involves a loan feature represented by the
Letter of Credit and security feature which is in the covering trust
receipt.
* Trust Receipt document in which is expressed a security
transaction where the lender having no prior title to the goods and not having
possession lends his money to the borrower who has possession on security
of the goods which the borrower is privileged to sell with an agreement to
pay all or part of the proceeds to the lender.
Form of Trust Receipts

Need not be in a particular form. But must contain:
1. Description of the goods, document or instrument
subject to trust receipt
2. Total invoice value of the goods and amount of the
draft
3. Undertaking of the entrustee to:
a. Hold in trust for the entruster
b. Dispose of them in manner provided by trust
receipt
c. Turn over proceeds of sale of goods
Other purposes:
1.) Goods or documents
a. Sell the goods or procure their sale
b. Manufacture or process goods for sale
c. Load, unload, ship, transship
Currency
2.) Instruments
a. Sell or procure their sale or exchange
b. Deliver them to a principal
Trust receipt may be denominated in any foreign currency

acceptable provided that in the case denominated in foreign currency,
payment shall be made in Philippine currency equivalent to it.
48
The risk of Loss shall be borne by the entrustee, irrespective of

whether or not it was due to the fault of the entrustee.
Rights of Entruster
1.
2.
3.
4.
Entitled to proceeds from the sale released under a trust

receipt to the entrustee to the extent of the amount owing to
the entruster or as appears in the trust receipt or return of the
goods incase of a non-sale
May cancel the trust and take possession of the goods subject
of the trust receipt upon default or failure of entrustee to
comply with any of the terms and conditions of the trust receipt.
Proceeds shall be applied
a. To the payment of the expenses
b. To the payment of expenses of re-taking, keeping and
storing of goods
c. Satisfaction of entrustees indebtedness
Entrustee shall receive any surplus but shall be liable to
entruster for any deficiency
Trust receipts partake of the nature of a

conditional sale since the importer
becomes absolute owner of the imported
merchandise as soon as he has paid its
price. Ownership shall be vested only
upon payment of the full amount.
Entruster shall not be responsible as
principal or as vendor under any sale or
contract to sell made by the entrustee.
Rights of Purchaser for Value and Good Faith

Innocent purchaser for value acquires goods free from entrusters
security interest.
Violation of Trust Receipts Law
Although is it malum prohibitum, the intent to misuse or
misappropriate the goods should be proved. Because the Law punishes the
dishonesty and abuse of confidence.
Application
Applies to items:
1. Destined for sale
2. Processed as a component of a product ultimately
sold
3. Used to repair and maintain equipment in business
Penalty
Failure of Entrustee to turn over proceeds of the sale of goods
covered by the trust receipt shall constitute the crime of ESTAFA.
Obligations of the Entrustee

1.
2.
3.
4.
5.
6.
Hold the goods in trust for the entruster and dispose of them
strictly in accordance with the terms of the rust receipt
Receive the proceeds in trust for the entruster and turn over
the same to the entruster
Insure the goods for their total value against loss and other
casualties
Keep goods separate and capable of identification as property
of entruster
Return the goods in the event of a non-sale or demand of the
entruster
Observe all other terms and conditions of the trust receipt
Liability for Loss
CHAPTER 10
DEPOSIT INSURANCE
Roles of PDIC
1) It shall ensure the deposits of all banks which are entitled to the benefits
of insurance and which shall have to powers granted by law
2) It shall promote and safeguard the interests of the depositing public by
way of providing permanent and continuing insurance coverage on all
insured deposits
49

3) PDIC shall be entitled to the free use of Philippine mail in the same
manner as the other offices of the national government
ii) secretary of finance and governor of the banking sentral may each
designate a representative
iii) Chairman of the board unable to attend president shall act as
chairman
Powers of PDIC as a corporate Body

1) to adopt and use a corporate seal
2) to have succession until dissolved by an Act of Congress
3) to make contracts
4) to sue and be sued, complain and defend, in any court of law in the Phil.
a) all suits of civil nature to which the corporation shall be part shall
deemed to arise under the laws of the Philippines.
b)no attachment or execution shall be issued against PDIC or its
property before final judgment in any suit, action or proceeding in any court
c) The Board of Directors shall designate an agent upon whom
service of process may be made in any province or city jurisdiction in which
any insured bank is located
5) to appoint its board of directors such officers and employees as are not
otherwise provided by the law to define their duties, fix their compensation,
require bonds of them and fix penalty thereof and to dismiss such officers
and employees for cause
6) to prescribe by laws not inconsistent with law
7) to exercise all powers specifically granted by law
8) to conduct examination of banks
9) act as a receiver
10) to prescribe such rules and regulations as it may deem necessary to
carry out the provisions of the PDIC law.
11) PDIC may establish its own provident fund which shall consist of
contributions made both by it and by its officers and employees to a common
fund for the payment of benefits to such officers
12) to compromise, condone or release in whole or in part, any claim or
settled liability to PDIC regardless of the amount involved.
Composition
1) Secretary of finance ex officio chairman w/o compensation
2) governor of BSP ex officio member of the Board w/o compensation
3) President of PDIC appointed by the president of the Philippines for a
term of 6years shall also serve as Vice Chairman of the Board
4) 2 members from the private sector for 6 years w/o reappointment by the
President
Disqualification of Appointive members disqualified from holding any office,
position, or employment in any insured bank
Quorum
i) presence of three (3) members shall constitute a quorum
Per Diem Secretary of Finance shall fix the rate of per diem for every board meeting
Authority of the Board
1) to issue rules and regulations as it considers necessary for the effective
discharge of its responsibilities
2) to direct the management, operation and administration of PDIC
3) to establish human resources management
4) to appoint, establish the rank, fix the remuneration, approve local and
foreign training of, and remove any officer or employee for a cause, subject
to pertinent civil service laws.
5) to adopt an annual budget
6) to approval the methodology for determining the level and amount of
provisioning for insurance and financial assistance losses which shall
establish reasonable levels of deposit insurance reserves
Officers
1) President
2) VP
3) Bank Examiners
4) Claim agents
5) Investigators
Deposit insurance coverage
A) Deposit Liabilities
i) deposit liabilities of any bank or banking institution which is
engaged in the business of receiving shall be insured with the PDIC
.
ii) factors considered
Financial history and condition of the bank
Adequacy of its capital structure
Future earning prospects
General character of its management
Convenience and needs of the community to be
served by the bank and whether or not its corporate
powers are within the purposes of the PDIC
The term deposit, unpaid balance of money or its
equivalent received by a bank in its usual course of

business and for which it has given or its obliged to
give credit
B) Statutory Liability of PDIC
PDIC governed primarily by the provisions of the special law creating it. The liability of
the PDIC for insured deposits therefore is statutory and such liability rests upon the
existence of deposits with the insured bank.
Borrowing from Banks

Borrowing from any bank or banking institution by examiners and other
personnel of the examination departments of PDIC shall be prohibited only
with respect to the particular institution in which they are assigned.
XIII. Receivership
A. Appointment
a. Appoint PDIC as receiver
b. receiver includes a receiver, commission, person or other
agency charged by law with the duty to take charge of the
assets and liabilities of a bank which has been forbidden
from doing business
B. Powers
a. Control, manage and administer the affairs of the closed
bank
i. Powers, functions and duties, as well as all
allowances, remunerations and perquisites of the
directors, officers, and stockholders of such bank
are suspended
ii. Provisions of the Articles of Incorporation are
deemed suspended
iii. Assets deemed in custodial egis in the hands of the
receiver
iv. From the time the closed bank is placed under such
receivership, assets shall not be subject to
attachment, garnishment, execution, levy or any
court processes.
b. In addition to the powers of a receiver, PDIC is empowered
to:
50
i. Bring suit to enforce liabilities to or recoveries of

the closed bank
ii. Appoint or hire persons to perform such powers
and functions of PDIC as receiver or liquidator of
the closed bank
iii. Suspend or terminate the employment of officers
and employees of the closed bank
C. Suits Filed by the PDIC
a. In cases or actions filed by the PDIC, payment of all docket
and other court fees shall be deferred until the action is
terminated with finality.
D. Distribution of Assets
XIV. Payment of Insure Deposits
A. Manner of Payment
a. Payment of the insured deposits made by PDIC
i. By cash
ii. By making available to each depositor a transferred
deposit in another insured bank in an amount equal
to insured deposit of such depositor
b. transfer deposit means a deposit in an insured bank made
available to a depositor by PDIC as payment of insured
deposit of such depositor in a closed bank and assumed by
another insured bank
c. Joint account insured separately from any individuallyowned deposit account
d. Account held jointly by 2 or more natural persons, or by 2 or
more juridical persons or entities, the maximum insured
deposit shall be divided into as many equal shares as there
are individuals, unless a diff. sharing is stipulated in the
document of deposit
e. Account held by a juridical person or entity jointly the
maximum insured deposit shall be presumed to belong
entirely to such juridical person or entity

f.
B.
C.
D.
E.
F.
G.
Aggregate of the interests maximum insured deposit of

PhP 250,000
Proof of Claims
a. PDIC, in its discretion, may require proof of claims to be
filed before paying the insured deposits.
b. It may require the final determination of a court of
competent jurisdiction before paying such claim
Settlement Period and Penalties in Case of Failure to Settle
a. Failure to settle the claim due to grave abuse of discretion,
gross negligence, bad faith or malice imprisonment from 6
months to 1 year
b. Upon payment of any depositor, PDIC shall be subrogated
to the rights of the depositor against the closed bank to the
extent of such payment
c. Subrogation shall include the right to receive the same
dividends from the proceeds of the assets of such closed
bank and recoveries on account of stockholders liability as
would have been payable to the depositor on a claim for
the insured deposits
Notice
a. PDIC shall commence the determination of insured deposits
due the depositors of a closed bank upon its actual takeover
of the closed bank and give notice
b. Publish the notice once a week for at least 3 consecutive
weeks
Discharge
a. Payment of an insured deposit to any person shall discharge
PDIC
Recognition of Owner
Withholding of Payment
a. PDIC may withhold payment of such portion of the insured
deposit of any depositor in a closed bank as may be
required to provide for the payment of any liability of such
depositor as a stockholder of the closed bank, or of any
liability of such depositor to the closed bank or its receiver
51
H. Prescription
a. If the depositor in the closed bank shall fail to claim his
insured deposits within 2 years from actual takeover of the
closed bank by the receiver, or does not enforce his claim
within 2 years after the 2-year period to file a claim, all
rights of the depositor with respect to the insured deposit
shall be barred
XV. Investment By PDIC
A. Money of PDIC not otherwise employed shall be invested in
obligations of the Philippines
a. It shall not sell or purchase any such obligations for its own
account and in its own right and interest, at any one time
aggregating in excess of P100,000 without the approval of
the Insurance Commissioner
B. The banking or checking accounts of PDIC shall be kept with the
Central Bank of the Philippines, with the Philippine National Bank,
or with any other bank designated as depository or fiscal agent of
the Philippine Government
XVI. Extension Of Loans
A. If an insured bank is in danger of closing, PDIC is authorized to make
loans to, or purchase the assets of, or assume liabilities of, or make
deposits in, such insured bank, upon such terms and condition as
the Board of Directors may prescribe when it is essential to provide
the adequate banking service in the community or maintain
financial stability in the economy
a. Extend financial assistance to, assume liabilities of,
purchase the assets of an insured bank if PDIC finds that the
resumption of operations of such bank is vital to the
interests of the community OR severe financial climate
exists which threatens the stability of a number of banks
possessing significant resources
b. Reopening and resumption of operations of the closed bank
shall be subject to the prior approval of the Monetary Board

B. PDIC may provide acquiring control of, merging or consolidating
with or acquiring the assets of an insured bank in danger of closing
in order to prevent such closing or of a closed insured bank in order
to restore to normal operations
C. Prior to the exercise of these powers, PDIC shall determine that
actual payoff and liquidation thereof will be more expensive than
the exercise of its power
D. When the MB has determined that there are systematic
consequences of a probable failure or closure of an insured bank,
PDIC may grant financial assistance to such insured bank in such
amount as may be necessary to prevent its failure or closure and/or
restore the insured bank to viable operations
a. Systemic risk possibility that failure of one bank to settle
net transactions with other banks will trigger a chain
reaction, depriving other banks of funds leading to a general
shutdown of normal clearing and settlement activity
E. PDIC may not use these authorities to purchase the voting or
common stock of an insured bank
F. Financial assistance may take the form of equity or quasi-equity of
the insured bank as may be deemed necessary by the Board of
Directors
XVII. Borrowings
A. PDIC is authorized to borrow from the BSP
B. When the funds of the PDIC are not sufficient to provide for an
emergency or urgent need to attain the purposes of the PDIC law, it
is likewise authorized to borrow money, obtain loans or arrange
credit lines or other credit accommodations from any bank
designated as depository or fiscal agent of the Phil. Govt.
XVIII. Issuance of Banks
With the approval of the President, PDIC is authorized to issue bonds,
debentures, and other obligations for the settlement of insured
deposits in closed banks as well as for financial assistance
a. Board of Directors to determine the interests rates and
maturity
52
b. PDIC to provide appropriate reserves for the redemption or

retirement of obligation
XIX. Reports and Audit
XX. Miscellaneous
A. Signs
a. Every insured bank shall display at each place of business
maintained by it a sign that its deposits are insured by PDIC
b. Board may exempt from this requirement advertisements
which do not relate to deposits
B. Merger or Consolidation of Insured Banks
a. No insured bank shall
i. merge or consolidate with any noninsured bank or
institution, or convert into a noninsured bank
ii. assume liability to pay any deposits made in, or
similar liabilities of, any noninsured bank or
institution
iii. transfer assets to any noninsured bank in
consideration of the assumption of liabilities for any
portion of the deposits made in such insured bank
TRO and Injunction
A. No court, except the CA, shall issue any TRO, preliminary injunction
or preliminary mandatory injunction against PDIC
B. SC may issue a restraining order or injunction when the matter is of
extreme urgency involving a constitutional issue
C. Any restraining order or injunction issued in violation of the
foregoing is void and of no force and effect and any judge who has
issued the same shall suffer the penalty of suspension of at least 60
days without pay
53
1.
2.
3.
Placement inserts money into a legitimate financial institutions

Layering sending money through various financial transactions to
change its form
Integration money re-enters the mainstream economy in legitimatelooking form
Policies of AMLA
1.
2.
3.
Protect and preserve integrity and confidentiality of bank accounts

Ensure that Philippines shall no be used as money laundering site
Extend cooperation in transnational investigations and prosecutions
Institutions Covered
1.
2.
3.
4.
5.
6.
Banks and other institutions supervised and regulated by BSP

Insurance Committees
Securities, dealers, etc.
Mutual funds, common-trust funds and other similar entities
Foreign Exchange corporations and other similar entities
Entities administering or dealing with currencies regulated by SEC
Covered Suspicious Transactions

1.
2.
Chapter 11
Anti-Money Laundering
Money Laundering - a crime whereby the proceeds of an unlawful activity are
transacted thereby making them appear to have originated from legitimate sources.
3 Steps of accomplishing:
Cash or equivalent monetary instrument exceeding P500,000 within 1

banking day
Regardless of amount:
a. No underlying legal or trade obligation
b. Client is not properly identified
c. Amount is not commensurate with business or financial
capacity of client
d. Clients transaction is structured in order to avoid being subject
of reporting requirements
e. Deviation from the profile of the client and/or clients past
transactions with institution
f. Transaction is related to an unlawful activity
g. Any analogous transactions
Unlawful Activities
1.
2.
3.
4.
5.
Kidnapping for Ransom

DDA
Anti-Graft and Corrupt Practices Act
Plunder
Robbery and extortion
54

6.
7.
8.
9.
10.
11.
12.
13.
14.
Jueteng
Piracy
Qualified Theft
Swindling
Smuggling
Violations of Electronic Commerce Act
Hi-jacking
Violations of Securities Regulation Code
Other felonies of similar nature
11. Impose administrative sanctions for violation of rules

12. Establish by a secretariat headed by Executive director appointed by
Council
Prevention of Money Laundering; Customer Identification Requirements and
Record keeping
Customer Identification
1.
Money Laundering Offense

1.
2.
3.
Person transacting or attempts to transact any monetary instrument

purporting to the proceeds of any unlawful activity
Performs or failure to perform any act as a result of which he facilitates
the offense mentioned in (1)
Failure to disclose as required by AMLC
2.
3.
4.
Institutions shall establish and record true identity of its clients based on
official documents
Maintain a system of verifying true identity of their clients
Anonymous accounts, accounts under fictitious names are prohibited
Peso and foreign currency non-checking numbered accounts shall be
allowed
Freezing of Monetary Instrument or Property
Jurisdiction
The CA upon application ex parte by AMLC after determination of probable

cause
RTC private persons

Sandiganbayan
Public Officers
Public Officers and private persons in conspiracy
Freeze period shall be for 20 days unless extended by the court

Authority to Inquire Bank Deposits
AMLC Composition
1.
2.
3.
Governor of BSP Chairman

Commissioner of Insurance Commission member
Chairman of SEC - member
Functions of AMLC
1.
Require and receive covered or suspicious transaction from covered

institutions
2. Issue orders addressed to appropriate Supervising Authority or covered
institution to determine true identity of the owner of questioned property
3. Institute civil forfeiture through Sol-Gen
4. File complaints with DOJ or Ombudsman
5. Investigation
6. Apply before CA for freezing any property alleged to be proceeds of
unlawful activity
7. Implement measures necessary to counteract money laundering
8. receive and take action in respect of any request for foreign assistance
9. develop educational programs
10. Enlist assistance of any branch of governemtn
To complete legal measures to prevent money laundering, the AMLC may

inquire into or examine any particular deposit or investment with any banking
institution or non-bank financial institution upon order of any competent court incases
of violation, it must be established that:
1. There is probable cause that deposits are related to unlawful activity or
Money laundering offense
No court order:
1. Kidnapping for Ransom
2. DDA
3. Hi-Jacking
4. Destructive Arson and murder
BSP may inquire into or examine any deposit when examination is made in
the course of a periodic or special examination.
55

Republic vs. Eugenio
Sec. 11 of RA 9194 allows AMLC to inquire into bank accounts without
having to obtain a judicial order in cases where there is probable cause
that deposits or investments are related to:
1.
2.
3.
4.
Kidnapping for Ransom

DDA
Hi-Jacking
Destructive Arson and murder
5.
Commingled with other monetary instruments or property belonging to

offender or third persons rendering the same difficult to identifyor
segregated for purposes of forfeiture
Mutual Assistance Among States

Request for Assistance from Foreign State
Principle of mutuality and reciprocity shall be at all times recognized.
Powers of AMLC to act on request for assistance from a foreign State
When court order is required, there is no provision which provides that

specifically authorizes such court may be issues ex parte, this silence does
not preclude the ex parte issuance of the bank inquiry order as it is not
prohibited.
1.
A Bank inquiry is not a search warrant or warrant of arrest as it contemplates

a direct object but not the seizure of persons or property.
AMLC may execute a request for assistance from a foreign State by:
a. Tracking down, freezing, restraining and seizing assets to be
proceeds of any unlawful activity
b. Giving information needed by the foreign state
c. Applying for an order of forfeiture of such property
Obtaining assistance from Foreign States

Because of Bank Secrecy Act, the confidentiality of bank deposits remains a
basic state policy in the Philippines. Subsequent laws such as AMLA may
have added exceptions to the Bank Secrecy Act yet the secrecy of Bank
deposits still lies as the general rule.
1.
Forfeiture
Civil Forfeiture
AMLC may make a request to any foreign State for assistance in:
a. Tracking down, freezing, restraining and seizing assets alleged
to be proceeds of any unlawful activity
b. Obtaining information that it needs relating to covered
transactions
c. Enter any premises belonging to persons named in said
request
d. Applying for order of forfeiture
Limitations
When there is a covered transaction report made, and the court has ordered
the seizure of any property related to said report, the Revised Rules of Court on civil
forfeiture applies.
Payment in Lieu of Forfeiture
Court may, instead of enforcing the order of forfeiture, order the convicted
offender to pay an amount equal to the value when order cannot be enforced
because:
1. Property cannot, with due diligence be located
2. Substantially altered, destroyed, diminished in value or otherwise
rendered worthless through an act attributable to the offender
3. Concealed, removed, converted or transferred to prevent from being
found
4. Located outside the Philippines or has been placed or brought outside
the jurisdiction of the court
May refuse to comply with any request for assistance where the action
sought by the request contravenes any provision of the Constitution or the execution
of a request is likely to prejudice the national interest of Philippines unless a treaty so
provides.
Requirements for Requests for Mutual Assistance from foreign States
1.
2.
3.
4.
Confirm that investigation or prosecution is being conducted in respect

of a money launderer named therein or that he has been convicted of
any money laundering offense
State the grounds on which any person is being investigated or
prosecuted for money laundering or details of his conviction
Give sufficient particulars as to identity of said person
Give particulars sufficient to identify any covered institution believed to
have information
56

5.
6.
7.
8.
Ask from covered institution any information of assistance

Specify manner in which material is to be produced
Give particulars n issuance of writs, or orders needed by the requesting
State
Contain information as may assist in execution of request
5.
6.
7.
8.
9.
Authentication of Documents
Authenticated if:
1. Signed or certified by a judge, magistrate or equivalent officer
in or of the requesting State
2. Authenticated by the oath or affirmation of a witness or sealed
with official or public seal
CHAPTER 12
SPECIAL PURPOSE VEHICLE
Extradition
Philippines shall negotiate for the inclusion of money laundering offenses
among extraditable offenses in all future treaties.
Prohibitions Against Political Harassment
1.
2.
AMLA shall not be used for political persecution or harassment or as an

instrument to hamper competition in trade and commerce
May not be filed to the prejudice of a candidate for an electoral office
during an election period.
Powers of Congressional Oversight Committee

The Power to promulgate its own rules, to oversee the implementation of
Anti-money Laundering act and to review or revise the implementing rules issued by
AMLC within 30 days from promulgation of said rules.
Rules and Regulations to Combat Money Laundering
1.
2.
3.
4.
All records to be maintained for at least 5 years

Special attention to all complex, unusual large transactions and all
unusual patterns of transactions which have no apparent or visible
lawful purpose
Other suspicious transactions
Should avoid transactions with criminals
Programs against money laundering should be developed
a. Internal policies and procedures and controls
b. Ongoing employee training program
c. Audit function to test the system
Should take reasonable measures to establish and record the true

identity of their clients.
In case of doubt as to whether their purported clients or customers are
acting for themselves or for another, reasonable measures should be
taken to obtain the true identity of the persons on whose behalf an
account is opened
Anonymous accounts or accounts under fictitious names should not be
kept or allowed, unless provided by law
Identity of clients should be reviewed at least every other year
A.
The declared policies of the State are:

i. To develop and maintain a sound financial sector for the country;
ii. To address the non-performing asset problems of the financial sector;
iii. To encourage private sector investments in non-performing assets;
iv. To eliminate existing barriers in the acquisition of non-performing
assets;
v. To help in the rehabilitation of distressed business with the end in view
of contributing to the economic value added; and
vi. To improve the liquidity of the financial system which can be harnessed
to propel economic growth.
B. Definitions
1. ACT- Special Purpose Vehicle Act 2002
2. APPRORIATE REGULATORY AUTHORITY- agency/ authority having jurisdiction
over the FIs operations which shall be the following:
i. the DOF- in the case of the PDIC and GOCCs, in consultation with other
agencies that have primary jurisdiction over the said FIs whenever deemed
appropriate by the DOF;
ii. the BSP- in the case of banks which include LBP and DBP, and trust and
quasi-banking functions of financing companies and investment houses licensed by
the BSP; and
iii. the Commission- in the case of financing companies and investment
houses, except their trust and quasi-banking functions
3. AUDITED FINANCIAL STATEMENTS- a set of financial reports consisting of
balance sheet, income statement, statement of changes in equity and cash flow
statement, audited by a Commission-accredited independent CPA.
57

4. CERTIFICATE OF ELIGIBILITY (COE)- certificate issued by the Appropriate
Regulatory Authority as to the eligibility of the NPL or ROPOA for purposes of availing
of the tax exemptions and privileges.
5. CODE- Batas Pambansa Bilang 68 otherwise known as The Corporation Code of
the Philippines
6. COMMISSION- Securities and Exchange Commission
7. DATION IN PAYMENT (DACION EN PAGO)- payment whereby property, whether
real or personal, tangible or intangible, is alienated in favor of the creditor, which
could either be an FI or an SPV, in satisfaction of an NPL.
8. FIA- Foreign Investment Act, RA 7042, as amended.
9. FINANCIAL INSTITUTIONS (FIs)- credit-granting institutions which shall be limited
to the following:
i. the BSP;
ii. a bank as defined under Republic Act No.8791, also known as "The
General Banking Law";
iii. a financing company as defined under Republic Act No. 8556, also known
as "The Financing Company Act of 1998";
iv. an investment house as defined in Presidential Decree No. 129, also
known as "The Investment Houses Law";
10. INVESTMENT UNITS (IUIs)- participation certificates, debt instruments or similar

instruments issued by the SPV and subscribed by Permitted Investors as provided in
Section 11 hereof, pursuant to an Approved Plan: Provided, That these shall not
include the instruments to be issued by the SPV to the selling FIs as full or partial
settlement of the non-performing assets transferred to the said SPV: Provided,
further, That such issuances of the SPV shall not be considered as deposit
substitutes: Provided, finally, That these shall not form part of the capital stock of the
SPV.
11. NIRC- the National Internal Revenue Code of 1997, as amended.
12. NON-BANKING FINANCIAL INSTITUTIONS PERFORMING QUASI-BANKING
FUNCTIONS (NBQBs)- financing companies, investment houses and other
institutions licensed by the BSP to perform quasi-banking functions.
13. NON-PERFORMING ASSETS (NPAs)- consist of the Non-Performing Loans
(NPLs) and Real and Other Properties Owned or Acquired (ROPOAs) by the FIs
14. NON-PERFORMING LOANS (NPLs)- loans and receivables such as mortgage
loans, unsecured loans, consumption loans, trade receivables, lease receivables,
credit card receivables and all registered and unregistered security and collateral
instruments, including but not limited to, real state mortgages, chattel mortgages,
pledges and antichresis, whose principal and/or interest have remained unpaid for at
least one hundred and eighty (180) days after they have become past due or any of
the events of default under the loan agreement has occurred.
15. ROPOA- real and other properties owned or acquired by an FI in settlement of
loans and receivables, including real properties, shares of stocks, and chattels
formerly constituting collateral's for secured loans which have been acquired by way
of dation in payment (dacion en pago) or judicial or extra-judicial foreclosure or
execution of judgement.
v. government financial institutions (GFIs), which for purposes of this Act,

shall be limited to the Philippine Deposit Insurance Corporation (PDIC), Land Bank of
the Philippines (LBP), and Development Bank of the Philippines (DBP);
16. TRUE SALE- a sale wherein the selling FI transfers or sells its NPAs without
recourse for cash or property to an SPV with the following results:
vi. government-owned-or-controlled-corporations (GOCCs),which for

purposes of this Act, shall be limited to the National Home Mortgage Finance
Corporation (NHMFC), Home Guarantee Corporation (HGC), Home Development
Mutual Fund (HDMF), Social Security System (SSS), Government Service Insurance
System (GSIS), Trade and Investment Development Corporation (TIDCORP), Small
Business Guarantee and Finance Corporation (SBGFC), Technology and Livelihood
Resource Center (TLRC), Livelihood Corporation (LIVECOR), National Development
Corporation (NDC), Quedan and Rural Credit Guarantee Corporation
(QUEDANCOR), National Housing Authority (NHA), and Armed Forces of the
Philippines- Retirement and Separation Benefits System (AFP-(RSBS); and
and
vii. other institutions licensed by the BSP to perform quasi-banking functions.
i. The transferor relinquishes effective control over the transferred NPAs;
ii. The transferred NPAs are legally isolated and put beyond the reach of the
transferor and its creditors.
C. Organization
An SPV shall be organized as stock corporation in accordance with Batas Pambansa
Blg. 68, otherwise known as "The Corporation Code of the Philippines" and the rules
promulgated by the Commission for purposes of registering the SPV: Provided, That
if the SPV will acquire land, at least sixty percent (60%) of its outstanding capital
58

stock shall be owned by Philippines nationals pursuant to Republic Act No7042, as
amended, otherwise known as "The Foreign Investment Act".
viii. To borrow money and issue other instruments of indebtedness for the
purpose of paying operational administrative costs;
D. Powers of an SPV
-incorporated primarily to invest in, or acquire NPAs of FIs.
-secondary powers shall be limited to the following:
i. To engage third parties to manage, operate, collect and dispose of NPAs
acquired from an FI;
ii. To rent, lease, hire, pledge, mortgage, transfer, sell, exchange, usufruct,
secure, securitize, collect rents and profits, and other similar acts concerning its NPAs
acquired from an FI;
iii. In case of NPLs, to restructure debt, condone debt and undertake other
structuring debt, the SPV may reduce the principal, interest, interest rates, and the
period for calculating the interest, extend the time for debt repayment or relax the
conditions for debt repayment, agree to the conversion of the borrowers debt to equity
in the borrower's business, agree to a transfer of assets or claims from the borrower t
repay the debtor dispose of some of the borrower's property or claims to third
persons;
ix. To guarantee credit, accept or intervene for honor the bills of borrowers;
x. To advance funds to borrowers where required by an acquired asset or
any debt restructuring agreement pursuant thereto, or under any court order or
rehabilitation plan; and
xi. To entrust to third parties asset servicing company, the collection and
receipt of the debt payments for debts under debt restructuring business
reorganization, management and disposition of assets of the SPV in accordance with
the rules, procedures and conditions prescribed by the Commission or by the courts.
Except in the case of ROPOAs whose redemption periods have already expired, the
SPV shall notify the borrower and all persons holding prior encumbrances upon the
properties or a part thereof or are actually holding the same adversely to the borrower
within fifteen (15) days from the date of the appointment of the said collection agent.
E. Period for Filing of Applications
iv. To take, transfer shares or buy shares issued by the borrower for the
purpose of business reorganization or rehabilitation of the borrower, subject to the
provisions of the Corporation Code in respect of the rights of the shareholders of the
borrower company, and apply any other measures or restructuring techniques with
the approval of the Commission;
v. To enter into dation in payment (dation en pago) arrangements, foreclose
judicially or extra-judicially and other forms of debt settlement involving NPLs;
vi. To spend funds to renovate, improve, complete or alter its NPAs acquired
from an FI;
vii. To issue equity or participation certificates or other forms of IUIs for the
purpose of acquiring, managing, improving and disposing of its NPAs acquired from
an FI;
The Articles of Incorporation of the SPV, its by-laws and other documentary
requirements shall be filed with the Commission not beyond eighteen (18)
months from the date of approval of the Implementing Rules and
Regulations (IRR) by the Congressional Oversight Committee (COC)
created in Section 23 of the Act.
only SPVs whose applications are filed not later than the 18-month
period and are subsequently approved by the Commission shall qualify
for the tax exemptions and privileges granted under the Act.
Registration Requirements- shall submit to the Commission the ff.

documents for incorporation:
(1) Name Verification Slip, showing its proposed name which shall always
include the acronym SPV-AMC (Asset Management Company) appended
thereto;
(2) Articles of Incorporation and By-Laws;
(3) Treasurers Affidavit/Authority to verify bank account;
59

(4) Bank Certificates of Deposits (notarized in the place where the bank is
located)
(h) Roles and responsibilities of the trustees, advisors, loan servicers and
property managers;
(5) Written undertaking to change corporate name by incorporator or

director;
(i) Draft form of financial reports of the SPV;

(j) Details of distribution policies;
(6) Registration Data Sheet.

(k) Methods for the increase and decrease of future fund contribution;
F. Authorized, Subscribed And Paid-Up Capital Of the SPV
(l) Methods for the alteration or modification of the approved SPV Plan;
An SPV shall have a minimum authorized capital stock of Five hundred

million pesos (P500, 000,000.00), with a minimum subscribed capital
stock of One hundred twenty five million pesos (P125, 000.000.00), and
a minimum paid-up capital of Thirty-one million two hundred fifty
thousand pesos (P31, 250.00). Paid-up capital must be in the form of
cash.
(m) Methods for the liquidation and distribution of assets to the holders of
IUIs;
(n) Details of credit enhancements like guarantees or standby letters of
credit or advances that may be extended to the SPV by an entity which shall
not be the selling FI, its parent, subsidiaries or affiliates; and
G. Submission of SPV Plan

After the establishment of an SPV pursuant to Section 4 hereof, an SPV Plan shall be
submitted to the Commission for approval, which shall include the following:
(o) Such other documents or information as may be required by the

Commission.
H. Approval
(a) Investment policies of the SPV;

(b) Contribution plan including the amounts and draft of subscription
documents;
- Upon approval of the SPV Plan, the Commission shall issue an Approval certificate
stating that the application has been approved and that the IUIs may be issued.
I. Issuance of IUIs
(c) Features of the IUIs including the specific amounts issued and/or to be
issued;
(d) timetable of issuance;
(a) Registration Requirements
(e) Rights of the holders of the IUIs;
(1) Any existing SRC rule or provision to the contrary notwithstanding, all
IUIs proposed to be sold or distributed within the Philippines shall be duly registered
with the Commission.
(f) Draft agreements for the appointment of trustees and agents with respect
to the IUIs and the NPLs acquired from an FI;
(2) Submission of Registration Statement shall include exhibits and full

disclosure of the ff. in the prospectus:
(g) appointment or engagement of an external auditor accredited by the

Commission;
i. Business of the issuer

ii. Use of Proceeds
60

iii. Risk Factors
mortgaged or pledged have been notified by registered mail of the intended transfer
of NPLs to an SPV
iv. Legal Proceedings

v. Market of Securities
- borrower shall be given a period of atleast 90 days from receipt of notice to

renegotiate or restructure the loan with the FI
vi. Managements Discussion of Financial Condition and Results of

Operation
(5) SPV shall pay registration fee of 1/10 of 1% of the aggregate offering
price of the IUIs subject to a diminishing fee set by the Commission.
vii. Directors and Officers
(6) SPV shall cause the publication of a notice of filing of registration

statement at its expense
viii. Securities Ownership

ix. Certain Related Party Transactions
x. Audited and Interim Financial Statements in accordance with SRC Rule
68, as amended.
(3) The ff. information shall be disclosed in the registration statements of an
SPV:
- 2 newspapers of gen. circulation in the Philippines, once a week for two

consecutive weeks
(7) Commission may audit the financial statements, assets and other
information of an SPV applying for registration of an IUIs
(8) Upon registration statement being declared effective by the Commission,
the sale of securities subject thereto shall be commenced within two business days
and be continued until the end of the offering period or until the sale has been
terminated by action of the issuer.
i. Details of SPV Plan

ii. Details of credit enhancements like guarantees or standby letters of credit
iii. Detailed description of the assets or loan constituting the pool of assets;
or the assets or loan intended to form part of the pool of assets
iv. Rights and obligations of the selling financial institution/s assumed by the
SPV
v. Description of any relationship or interest of the selling financial
institutions Parent, Subsidiaries, Affiliates or stockholders, directors or
officers, with the SPV.
(9) SPV shall ensure wide dissemination of the preliminary and final
prospectuses
(10) Written notification shall be given to the Commission within 3 business
days from completion or termination of the offering by the issuer, including therein the
number of securities sold.
(b) Amendments or Rejection
(1) Within 45 days after the date of filing of the registration statement, or at
such later date to which the issuer has consented, the Commission shall declare the
registration statement effective or rejected unless the applicant is allowed to amend
the registration statement.
vi. Incentives and exception privileges

(4) SPV shall likewise submit a certification from the FI that the affected
borrowers of the NPLs and all persons holding prior encumbrances upon the assets
(2) Commission may reject a registration statement and refuse registration of

the security therunder, or revoke the effectivity of a registration statement and the
registration of the security after due notice and hearing by issuing an order to such
effect, setting forth its findings in respect thereto, if it finds that:
61

i. The issuer:
a. has been judicially declared insolvent
b.violated any of the provisions of the Corporation Code or any
order of the Commission
c. has been or is engaged or is about to engaged in fraudulent
transactions
(d) Tax treatments of IUIs

- Since IUIs are not considered as deposit substitutes under the Act, interests or other
monetary benefit derived from IUIs is not subject to the 20% final withholding tax
under the NIRC
-The IUI and any income arising from the IUIs shall be subject to normal income tax
and/or such other applicable taxes imposed under the NIRC.
J. Permitted Investors
d. has made any false or misleading representation of material

facts in any prospectus concerning the issuer or its securities
e. failed to comply with any requirement that the Commission may
impose
ii. The registration statement is on its face incomplete or inaccurate in any
material respect or includes any untrue statement of a material fact or omits
to state a material fact required to be stated therein
iii. The issuer, any officer, director or controlling person of the issuer, or
person performing similar functions, or any underwriter has been convicted,
by a competent judicial or administrative body, upon plea of guilty, or
otherwise, of an offense involving moral turpitude and/or fraud or is enjoined
or restrained by the Commission or other competent judicial or
administrative body for violations of securities, commodities, and other
related laws.
(3) If the Commission deems it necessary, it may issue an order suspending
the offer and sale of the securities pending any investigation.
(c ) Issuance of Securities to the Public Without Prior Registration
(1) An SPV that offers to sell or distribute its IUIs to the public within the
Philippines without prior registration shall be subject to the penalties provided under
the SRC.
(2) Imposition of the foregoing administrative sanctions shall be without
prejudice to the filing of criminal charges against the individual responsible for the
violation.
Any person may acquire or hold IUIs in an SPV in the minimum amount of Ten million
pesos (P10, 000.000.00); Provided, That an SPV shall not be authorized to acquire
the IUIs of another SPV: Provided, further, That the parent, subsidiaries, affiliates or
stock-holders, directors, officers or any related interest of the selling FI or the parent's
subsidiaries, affiliates or stock-holders, directors, officers or any related interest shall
not acquire or hold, directly or indirectly, the IUIs of the SPV that acquired the NPAs
of the FI.
K. Notice and Manner Of Transfer of Assets
(a) Prior Notice
- No transfer of NPLs to an SPV shall take effect unless the FI concerned shall give
prior notice, pursuant to the Rules of Court, thereof to the borrowers of the NPLs and
all persons holding prior encumbrances upon the assets mortgaged or pledged. Such
notice shall be in writing to the borrower by registered mail at their last known address
on file with the FI. The borrower and the FI shall be given a period of at most ninety
(90) days upon receipt of notice, pursuant to the Rules of Court, to restructure or
renegotiate the loan under such terms and conditions as may be agreed upon by the
borrower and the FIs concerned.
(b) Procedures on the Transfer of Assets to the SPV
An FI that intends to transfer its NPAs to an SPV shall file an application for eligibility
of said NPAs, in the prescribed format, with the Appropriate Regulatory Authority
having jurisdiction over its operation. Said application shall be filed for each transfer
of asset/s.
(c ) Issuance of the COE
62

- The transfer of NPAs from an FI to an SPV shall be subject to prior certification of
eligibility as NPA by the appropriate regulatory authority having jurisdiction over its
operations, which shall issue its ruling within forty-five (45) days from the date of
application by the FI for eligibility.
(d) Subsequent Notice
- After the sale or transfer of the NPLs, the transferring FI shall inform the borrower in
writing at the last known address of the fact of the sale or transfer of the NPLs.
(e) Subsequent Transfers
The tax exemptions provided above shall be exempt from the payment of the
following taxes:
1. Documentary stamp tax as may be imposed under Title VII of the NIRC;
2. Capital gains tax imposed on the transfer of lands and/or other assets
treated as capital assets as defined under Section 39(A)(1) of the NIRC;
3. Creditable withholding income taxes imposed on the transfer of land
and or buildings treated as ordinary assets pursuant to Revenue
Regulation No. 2-98, as amended;
4. The value-added tax as may be imposed under Title IV of the NIRC, or
gross receipts tax under Title V of the same NIRC.
Penalties
1.
- Each COE shall be valid for only 1 transfer. All subsequent transfers shall require a
separate COE from the Appropriate Regulatory Authority.
L. Nature of Transfer True Sale
* Any transfer of NPAs not in the nature of True Sale as provided for in the
Act shall not qualify for tax exemptions and fee privileges granted under the Act.
Provided, That GFIs and GOCCs shall be subject to existing law on the disposition of
assets: Provided further, That in the transfer of the NPLs, the provisions on
subrogation and assignment of credits under the New Civil Code shall apply.
2.
M. Assumption of Rights and Obligations

The SPV shall assume all rights and obligations of the FI over the
transferred NPA
N. Tax Exemptions and Fee Privileges
The following transactions are exempt from the payment of taxes:
1. The transfer of NPL by the FI to an SPV;
2. The transfer of ROPOA by the FI to an SPV;
3. The dacion en page of the NPL by the borrower to the FI;
4. The dacion en pago of the NPL by a third party, on behalf of the borrower,
to the FI;
5. The transfer of NPL by the FI to an individual;
6. The transfer of the ROPOA by the FI to an individual;
7. The transfer of the NPL by the SPV to a third party;
8. The transfer of the ROPOA by the SPV to a third party;
9. The dacion en pago of the NPL by a third party, on behalf of the borrower,
to the SPV;
10. The dacion en pago of the NPL by the borrower to the SPV;
11. The transfer of the NPL by the individual to a third party; and, finally,
12. The transfer of the ROPOA by the individual to a third party.
3.
4.
5.
Any person who violates any of the provisions of this Act, or any person
who, in a registration statement, notice, certification or plan filed under
this Act, makes any untruthful statement of a material fact or omits to
state any material fact required to be stated therein, shall, upon
conviction, suffer a fine of not less than Fifty thousand pesos
(P50,000.00) nor more than One million pesos (P1,000,000.00) or
imprisonment of not less than six (6) years and one (1) day nor
more than twelve (12) years, or both, in the discretion of the court,
without prejudice to the penalties provided under Sec. 18 hereof and
other applicable laws.
If the offender is a corporation, association, partnership or any juridical
person, the penalty shall be imposed upon the responsible officers,
as the case may be, who participated in the commission of the crime or
who shall have knowingly permitted or failed to prevent its commission.
If the offender is a juridical person, the court may order the suspension
or revocation of license.
If the offender is an alien, he shall, in addition to the penalties herein
prescribed, be deported without further proceedings after serving the
penalties herein prescribed.
If the offender is a public official or employee, he shall, in addition to the
penalties prescribed herein, suffer absolute or temporary
disqualification from government or public office, as the case may be.

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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

and the bank agrees to pay the depositor on demand. (Consolidated

DECLARED POLICY OF THE STATE

Not a Trust Agreement

NATURE OF BANKING BUSINESS

Debtor- Creditor Relationship

Impressed with Public Interest

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

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

office of any director or officer responsible therefor, without prejudice to

Banks are not Gratuitous Bailees

Banks not Expected to be Infallible

Duty to Keep Records

Dealing with Registered Lands

Banks may Exclude Persons in their Premises

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

LIABILITY FOR ACTS OF OFFICERS AND EMPLOYEES

Banks may recover from its employees for any payment

Liability for Damages

Actual and Compensatory Damages

Right to Recover from Employees

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

or is found guilty of gross negligence amounting to bad faith, or in

INJURY- illegal invasion of a legal right

DAMAGE- the loss, hurt, or harm which results from

Universal Banks (U)

Thrift Banks (T)

Respondeat Superior, Diligence in the Selection and

Classification of Banks (CUT-RICO)

Commercial Bank/s (C)

See section 29 of GBL and chapter 4 for

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

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

Recognizes the need to promote comprehensive rural

RA 6848 created the Al-Amanah Islamic Investment Bank of

Authority to Engage in Banking and Quasi-Banking Functions

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

person responsible for penal sanctions provided in the

The purpose is to render it reasonably certain that the

Service of Summons Upon Banks

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

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

The Monetary Board shall take into consideration their capability in

The bank licensing process shall incorporate an assessment of:

(In Million Pesos)

- With head office within

- With head office outside

- within Metro Manila

- cities of Cebu and Davao

first class municipalities

2nd, 3rd & 4th class

At least 25% of the total authorized capital stock shall be subscribed by

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

When authorized by the Monetary Board.

Incorporators/Subscribers/Proposed Directors (I/S/PD)

Universal or Commercial banks may open branches or other offices within

*** Control test is applied in determining the nationality of banks.

Acquisition of Voting Stock in a Domestic Bank

Family Groups or Related Interests

Stockholdings of individuals related to each other within 4 degree

Two or more corporations owned and controlled by the same family

Accept its own shares as security for a loan

Foreign individuals and non-bank corporations may own or control