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BANKING LAWS TSN

From the lectures of Father Agustin Nazareno,


SY 2016 - 2017

November 23, 2016 - Batacan

This is Banking Laws. The main 2 laws that we will be taking up are the New Central Bank Act and the General Banking Law.
But then there are many small laws. I tried to go through the official line of the BSP and this is their official public issue:

Volume 1: Central Bank Act,


Volume 2: General Banking Laws and
Volume 3: Special laws. There are so many small laws.

Specialized subject but it is the xx of an educated man to have the basic solid grasp of the laws.

The first systematic of the financial world collapsed in 2012. It is not just the financial institutions that collapsed, it is the
financial system and credit system of the world, almost ended. And now they say we are in danger of another financial
collapse because our solution is so effective nobody wants to get out of it. Pareha nag drugs ba. Sakit man kaayo so tagaan
kag pain killer. Karon we are addicted to pain killers! We are addicted to easy money because the central banks all over the
world, led by the Federal Reserve injected so much liquidity to the system.

There is so much money that now, there are countries that are applying the regime of negative interest rates. You deposit
money in the bank in Japan, you have to pay! You are not paid interest anymore, you pay to deposit! What is the effect in
Japan? Maayo gani sa Japan because they are peculiar people. The effect is, the amount of deposits in the bank increased.
nganong mag deposit man tag kwarta nga makuwaan man hinuon atong kwarta? Edi gastuson nalang diba? Nisamot ug
saka ang ilang deposits.

So if you go through so many of the leading economists, no one says that there is a clear by-path ahead. Nobody says that.

Theres this book you should read this: The Only Game In Town author Muhamed El-erian xxx *talks about the author,
watch daw natin sa youtube kay sya lang daw so far ang may clear explanations blahblah.. *talks about the life of the author.
xxx

What happened in 2012? I am trying to summarize it to you as best as I can.

The focus of what happened in 2012 was the housing market in the US. Unchallenged, every family should own this house
one of the American dreams. And the government helped, they had 2 big financial institutions. Sigeg pahuwam ug kwarta!
xxx well and good if makabayad, but all of a sudden there were pressures.

You know, most of the big money goes to the US. Why? Because the US is known for respecting private capital. Di man ka
mudala sa Russia xxx so everybody brings their money to the US. Japan has over 1 trillion dollars in the banks of US. xxx

Now if you have all this money in the big banks, gabayad silag interest, how will they pay this interest? They have to make
money somewhere. That is what happened. They began to push it down to the lower smaller banks. And they were pushing
for mortgages, housings. They said katong mga dehado, pahuwam nila ang kwarta aron makapalit ug balay, naay mortgage
bayaran. First the downpayment was reduced and then finally they removed the downpayment. Push na na, push! Kwarta
na. Maayo lang unta tug mao ra na, mga dehado. Karon niabot naman ang so-called ninja loans.. unsa man na? Mortgages
approved of people who have no income and no job! That is why they are called ninjas! Way trabaho makakuha kag
mortgage??

Number 1, kung ikaw way trabaho nganong mangutang man ka ana? You know the reason? Same reason why people go
into low-cost housing because 70% in arrears cannot pay.

Ngano man? Kay ilang huna huna di ta tuod kabayad, embarguhon ni. If dili pa ma-embargo, ipa assume tani. Kay para
daghan kaayog for sale, for assume. Kay ngano man? The housing price is always rising! So ikaw mangutang ka ron let us
say a 100,000 dollar house, after a few years 130,000 dollars. Bisan wa pa ka kabayad, ibaligyo nimo, naa gihapon kay
makuha na kwarta unya lain na mu-assume sa imong balay.. Thats familiar! Tanawa pa ra gud nang low-cost housing diri.
Unya muingon sila, di na ta mubayad ini kay nang-liki na gud. Naglamano ra man nang bongbong. Wa man nay poste.

So that is the thinking of the mortgagee. Or as far as my classmate said, the mort- GI-GI. Hihi.

Now, why do these banks go out of the way and push even if they know it is really a highly questionable market already, they
have finished all the prime mortgages. These are already sub-sub-prime why? Why would they still lend out?
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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

Sige gihapon silag pahuwam kay naa may mu-back up nila, This so called aggregators. Muingon kanang tanan mortgage,
ipuna na unya ibaligya samo kay kami mudawat ana. Tagaan kag dungan nga kwarta so magpahuwam nasad ka. So di sila
mahadlok kung dehado. Karon nganong kaning mga aggregators isog man kaayo na sila mukuha ani? kay duna may mu-
issue sa ila ug credit default swaps. Unsa man na? Normally it is an insurance company that will come out with that.
Muingon sila mao ni imong papel na ibaligya nimo, this is an aggregation of mortgages. If they fail, file-an ka dayon namo,
di na ta mag foreclose2 ug mortgage. Way banko gusto mag foreclose ug mortgage! Number 1, dako kaayo gasto
pampahawa. Sugaton man kag.. tigbasunon ka. Di man sila mugive-up. xxx

So everybody was cooperating.. Until finally the whole system crashed xxx

So most of the financial institutions went bankrupt! So when that happened, si Obama man to nag take over release sya
og kwarta. Several billions - gamay ra kaayo na. ang nitabang ana ang Federal Reserve or ang Central Banks for that matter,
are true banks. In other words, they can create money.

So how did they supply money in the system? Just by participating in the open market transactions. Naay mubaligya ug
bonds, sila may mupalit. xxx

The Federal Reserve at one time was putting out something like 3 to 4 million dollars a week, in open market transactions.
Muingon kag who owns the most bonds now; its the Federal Reserve. They were financing. Now muingon kag mao na silay
manunubos. xxx As El-erian points out, the bad thing about easy money is that both the efficient users of capital and the
reckless users of capital survive. And it is a dicey economy.

Libre man pagkaon tanan, tambok, niwang, masakiton, survive mong tanan kay naa may pagkaon para sa tanan.

Karon they are trying to wean out, thats why theres so much talk about the Federal Reserve increasing their prime rate of
interest. Because that will begin to cut down money supply.

*talks about economics n1, n2.

N1 is the core money supply, which is all the coins and notes in circulation and all so-called demand deposits in bank.
Expanded money supply, i-apil nimo dinha kanang mga savings accounts, special accounts with banks, mao na na ang
expanded money supply.

Muingon ang CB (Central Bank) Federal Reserve I will increase the prime rate, bisan gamay lang mga 25 basis points,
which means of 1%. Gamay ra kaayo.

of 1%, muhinay na ang bangko ug panghuwam nila kay taas man interest bayran. Ug negative interest rate ka, sa ato pa
gabayad ka sa utang nimo unya bayran ka sa mga deposito nimo, gamay ra kaayo ang imong margin. So mugamay ang
money supply.

So credit begins to tighten and people are already used to very very lose credit and easy money. Nahadlok na ron. So ang
tanan, makig pusta sila, December, naay increase sa prime interest rate sa US. Human naman election, di man sila gusto
ma-politically misinterpreted ang Federal Reserve.. pero human naman ang election so magpasaka na sila (sa interest). And
mubalik nata sa normal nga kadtong mga inefficient users of capital, putlon na to sila. Katdong mulihok, efficient, mao toy
mabuhi.

Now, this is actually what we are studying. We are studying monetary policy, which is engraved in law.

Your closest thing is Fiscal Policy.

Congress passes an appropriation bill, mao niy sourcing sa gastuhon, tax laws.. that is fiscal policy. Hinumdumi, fiscal
comes from the latin word fiscus, meaning a box where a king kept his gold. So its treasury. Gasto.

But monetary policy is about the peso. Its purchasing power. There was a time when 1 peso can buy 10 bottles of coke. It
could get you from here to Bankerohan and back, 5 times. Its still the same peso but now, you could not even go to
Bankerohan with that 1 peso. The purchasing power of that peso, the availability of credit that is monetary policy. The price of
goods, stability of prices of good, that is monetary policy. Because prices, to a certain extent is determined by supply and
demand. Assuming there are the same amount of goods and services available and you have more money that what is
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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

usual, then what is the effect? The price of goods and services will go up, all things remaining equal. Which is actually never
true, because all things are never the same. That is the big difference of economics. xxx *talks about economics.

So if you are a central banker, will I increase the prime rate or decrease the prime rate? You are an economist you have to
read! Tetangco, that is the job of Tetangco (BSP incumbent governor). xxx

Why? The constitution says, Art. 12 Section 20.


Art. 12 Section 20. The Congress shall establish an independent central monetary authority, the members of whose
governing board must be natural-born Filipino citizens, of known probity, integrity, and patriotism, the majority of
whom shall come from the private sector. They shall also be subject to such other qualifications and disabilities as
may be prescribed by law. The authority shall provide policy direction in the areas of money, banking, and credit. It
shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by
law over the operations of finance companies and other institutions performing similar functions.

Until the Congress otherwise provides, the Central Bank of the Philippines operating under existing laws, shall
function as the central monetary authority.

The New Central Bank Act says, the CB governor must be approved by this body composing of the Congress and Senate
confirmation, must be confirmed by the confirmation committee. That was shut down by the SC. Why? Only those that the
Constitution says require the confirmation of the congress maybe subjected to the confirmation process because it is in
derogation of the powers of the executive to appoint. So that is in the new central bank act but that is no longer allowed.

Is it the Congress that determines monetary policy?


No, it is the Monetary Board (MB). Who is the head of the monetary board? The Bangko Central governor.

How many government officials are in the monetary board?


There are only 2. A cabinet representative, normally the finance secretary and ex officio, the bangko central governor.

The rest are from the private sector. By private sector does not mean only business sector. It includes NGO, cooperatives,
academe, so they pick people from there. And you must have some experience in money, banking and credit. Because the
Constitution says The authority shall provide policy direction in the areas of money, banking, and credit. It shall have
supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the
operations of finance companies and other institutions performing similar functions.

If you want an idea of a monetary authority that is less than independent, picture this of what happened in February 1986.
The EDSA Revolution. How many crates of freshly peso bills were confiscated from the Marcoses when they landed in
Hawaii?? Atleast 5 crates confiscated!! And now why did those crates show up to them?? They were given freshly minted
printed pesos, and that was gotten from the BSP.

The eldest brother of Imelda was caught with 10 crates of freshly printed peso bills in his pick-up! That is what happens when
the monetary authority is not independent. What was the exchange rate at that time?? 1981 pagpusil kay Aquino. It was 14
pesos to 1 dollar. In 1 week, it went to 50 pesos to 1 dollar. Meralco defaulted in its payment with its foreign loans. I
remember that I was reviewing for my bar examination! 1983!!

What did the BSP governor do at that time? Who was the governor at that time? Jobo Fernandez. Former president of
FEBTC. What did he do? Because people were bringing their money out of the Philippines. He put out Jobo bills. Bonds
issued by the government, what was the interest rate he was offering? 60%! Naa kay 100k at the end of the year, you would
theoretically have 160k. unya butangan ug feature nga tax free.. what was the result? Wala lang gihapon sibat gihapon ang
kwarta.. There was this group known as the binondo central bank where you could get dollars. Black market na. BSP issued
a rule - Illegal for you to hold dollars. It was already illegal. Banks have to turn in their dollars to the BSP. Question of
confidence

Section 21 of article 12 of the Constitution says:


Section 21. Foreign loans may only be incurred in accordance with law and the regulation of the monetary authority.
Information on foreign loans obtained or guaranteed by the Government shall be made available to the public.

If the public borrows in foreign currency, it has to borrow through the BSP and according to its rules plus whatever
requirements there are by law.
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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

So the BSP is also, at the same time the adviser of the government with respect to its sourcing of cash. Ang gobyerno gud
makakuha nag kwarta sa panahon sa pagbayad sa tax. And its expenses is all throughout the year. So asa man ang cash
flow sa gobyerno? xxx mao na ang gobyerno, every Monday, accepts bids for treasury bills. You have to be a registered
bank. Mga bangko maoy mu-bid ana. Kuwaon nila ang ang IOU sa mga gobyerno. ang interest rate ana gamay ra. Mao nay
prime-prime interest rate. Ngano man? Kay dili man makadagan ang gobyerno! Mao gamay siya ug interest rate.

Kung gamay kaayo ang interest rate nganong magpahuwam man sila sa gobyerno? Because of what the law says in its
deposit liabilities.

The law says, for every peso that is deposited in the banks, a part of that must be kept in cash in the vaults of the banks.
What percentage? Depending on what kind of bank you are.

If you are a rural bank, 4%.


Commercial bank, 15%.

Now you no the reason why every tycoon in the Philippines has a savings or rural bank. Because it is an easy source of
cash. Tanawa na si Gokongwei. Robinsons savings bank. xxx

Now the law says, 4%, 6%, 14% alone you can keep in cash, the rest what will you do? You can lend it out at a higher
interest rate to borrowers.

Counted as part of cash involved are government IOUs (I owe you) like treasury bills. Magpahuwam gani ka sa gobyerno
kay mupalit kag treasury bills you put that in your vault and you count that as part of cash. It is equivalently that you are
complying with cash in bank by putting treasury bills instead of cash. That is why the banks bid for it even if the interest is
low. That in a nutshell is monetary credit policy.

There is one title in credit policy, which is defined in law. What is that? It says that the CB must make sure of the convertibility
of the peso.

SEC. 3. Responsibility and Primary Objective. _ The Bangko Sentral shall provide policy directions in the areas of
money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory
powers as provided in this Act and other pertinent laws over the operations of finance companies and non-bank
financial institutions performing quasi-banking functions, hereafter referred to as quasi- banks, and institutions
performing similar functions.

The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and sustainable
growth of the economy. It shall also promote and maintain monetary stability and the convertibility of the peso.

Convertibility of the peso can be [readily] converted to other currencies.

This particular monetary policy is by no means universal. There is one currency that has chosen specifically not to be
convertible. What currency is that? Until recently, the Yuan was pronounced as not convertible. That is the secret of the
miracle of the Chinese economy. xxx
What country has the biggest sovereign debt? In absolute amount ha.. The US.

Is the US losing sleep because it has the biggest debt? No. Trump knows the secret why they will never go bankrupt.
Because the debt is denominated in US dollars. Print lang silag kwarta aron makabayad sila sa ilang debt. That is monetary
policy. xxx

No country can survive without credit. Thats part of monetary policy.

So we have seen the core policies that constitute monetary policy. It is not only one ha. Monetary policy is a bundle of
policies. So it embraces money supply, credit, financial institutions specially banks, and stability of prices.

Inflation is part of monetary policy. That is part of the responsibility of the BSP. Actually there is no Central Bank in the
Philippines because the law says

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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

SEC.2. Creation of the Bangko Sentral._There is hereby established an independent central monetary authority,
which shall be a body corporate known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko
Sentral. xxx

So there is BSP. Not CB. xxx but Tetangco, when he meets with the others, he will not put BSP there , di man na masabtan
sa foreigners! This is the stupidity of language. You think you are being nationalistic just by using Filipino. Language is never
a sure index of patriotism or nationalism. xxx

Now let us examine the monetary board. It is as to the BSP, the board of directors as to any corporation. So it is the
governing body of the BSP. But there is a difference. The monetary board issues circulars which has the force and
effect of law. It is also a rule making body for purposes of the banks. xxx

*talks about pawnshops. The difference between a pawnshop and a bank is, the bank lends OPM - other peoples money -
the depositors money; that is why it is regulated. The pawnshop lends out Lhuilliers money!

But when you go to the gray area of unsecured loans, which is anathema to the General Banking Law in no case shall a
bank lend out money without collateral that is red letter in the General Banking Law. But plastic money, sige lang kag
charge charge dinha, until you max out, pilay interest rate ana? 3.5% unya naa pa surcharge, penalty; that is an allied
financial service. Allied na. Only commercial and expanded commercial banks like universal banks can engage in the
business of credit cards. Kana tugutan silag taas taas ug interest kay wa naman nay collateral. xxx

The banks capital is not lent out. It is the deposits of the public that is lent out. What is the use of the capital? It is used to
buy its assets, buildings, vehicles, etc., most of all, it is used for, let us just put it in a general term provisioning. When
there are loans that can no longer perform, capital is used to provision for the failure of of the loans.

Every quarter the banks come out with financial statement. How can you say that you can trust them? Tanawa ilang deposits.
Sobra gani na, sa ato pa naa silay gigamit sa ilang capital, delikado na na. mao nay tanawa. There are bank resources,
assets, kanang gipahuwam assets na. Receivables ba. Inig kapaltos ana, wala na na i-write off na na nimo. Capital imong
gamiton to provision that. And yet, CB inspects and determines whether you are following because you are endangering the
public if you that.

How many are there in the monetary board?


There is supposed to be 7.

How many are government officials?


The BSP governor ex officio, appointed by the President which under section 6 letter A, is supposed to be subject to the
confirmation by the COA. And the SC said this is null and void because only those that the Constitution says require to be
confirmed by the COA are obliged to be confirmed by the COA. Congress cannot add because it is in derogation of the
powers of the executive to whom the law reposes the power to appoint. Limitations as to appointment is frowned upon by
law.

There are 5 members and they should come from the private sector and they should serve full time. They cannot have any
other occupation or appointment while they are with the monetary board. Their term is 6 years and can be reappointed once.
So longest is 12 years. xxx

Qualifications:

SEC. 8. Qualifications. The members of the Monetary Board must be natural-born citizens of the Philippines, at least
thirty-five (35) years of age, with the exception of the Governor who should at least be forty (40) years of age, of
good moral character, of unquestionable integrity, of known probity and patriotism, and with recognized
competence in social and economic disciplines.

SEC. 9. Disqualifications. _ In addition to the disqualifications imposed by Republic Act No. 6713, a member of the
Monetary Board is disqualified from being a director, officer, employee, consultant, lawyer, agent or stockholder of
any bank, quasi-bank or any other institution which is subject to supervision or examination by the Bangko Sentral,
in which case such member shall resign from, and divest himself of any and all interests in such institution before
assumption of office as member of the Monetary Board.

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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

The members of the Monetary Board coming from the private sector shall not hold any other public office or public
employment during their tenure.

No person shall be a member of the Monetary Board if he has been connected directly with any multilateral banking
or financial institution or has a substantial interest in any private bank in the Philippines, within one (1) year prior to
his appointment; likewise, no member of the Monetary Board shall be employed in any such institution within two
(2) years after the expiration of his term except when he serves as an official representative of the Philippine
Government to such institution.

Disqualification cannot be directly or indirectly connected ha.

In fact before he can be appointed, he must disinvest himself. And then after his term, he cannot be hired by any financial
institution under supervision of BSP for 2 years.

Grounds for removal of a member of the BSP.


SEC. 10. Removal. _ The President may remove any member of the Monetary Board for any of the following reasons:
(a) If the member is subsequently disqualified under the provisions of Section 8 of this Act; or
(b) If he is physically or mentally incapacitated that he cannot properly discharge his duties and responsibilities and
such incapacity has lasted for more than six (6) months; or
(c) If the member is guilty of acts or operations which are of fraudulent or illegal character or which are manifestly
opposed to the aims and interests of the Bangko Sentral; or
(d) If the member no longer possesses the qualifications specified in Section 8 of this Act.

Give me an example suddenly he takes oath as a Canadian citizen, di na sya mahimo ha.

SEC. 11. Meetings. _ The Monetary Board shall meet at least once a week. The Board may be called to a meeting by
the Governor of the Bangko Sentral or by two (2) other members of the Board.
The presence of four (4) members shall constitute a quorum: Provided, That in all cases the Governor or his duly
designated alternate shall be among the four (4).
Unless otherwise provided in this Act, all decisions of the Monetary Board shall require the concurrence of at least
four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the proceedings and deliberations of the
Monetary Board, including the tapes and transcripts of the stenographic notes, either in their original form or in
microfilm.

Meetings, the regular meeting is once a week. Serious business monetary policy is serious business.

SEC. 12. Attendance of the Deputy Governors. _ The Deputy Governors may attend the meetings of the Monetary
Board with the right to be heard.
Deputy governors may attend the meetings with the right to be heard. He can attend and has to be heard in the
meeting.

Now in an ordinary corporation law, a director or trustee cannot appoint his own substitute to the meeting because the reason
is that he is elected for himself. But in the monetary board, if the BSP governor cannot attend the meeting, he can designate
a deputy. If the Secretary of Finance cannot attend, he can designate any of his undersecretary.

What are the powers of the MB?


SEC. 15. Exercise of Authority. _ In the exercise of its authority, the Monetary Board shall:
(a) issue rules and regulations it considers necessary for the effective discharge of the responsibilities and exercise
of the powers vested upon the Monetary Board and the Bangko Sentral. The rules and regulations issued shall be
reported to the President and the Congress within fifteen (15) days from the date of their issuance;
(b) direct the management, operations, and administration of the Bangko Sentral, reorganize its personnel, and
issue such rules and regulations as it may deem necessary or convenient for this purpose. The legal units of the
Bangko Sentral shall be under the exclusive supervision and control of the Monetary Board;

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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

(c) establish a human resource management system which shall govern the selection, hiring, appointment, transfer,
promotion, or dismissal of all personnel. Such system shall aim to establish professionalism and excellence at all
levels of the Bangko Sentral in accordance with sound principles of management.

A compensation structure, based on job evaluation studies and wage surveys and subject to the Board's approval,
shall be instituted as an integral component of the Bangko Sentral's human resource development program:
Provided, That the Monetary Board shall make its own system conform as closely as possible with the principles
provided for under Republic Act No. 6758: Provided, however, That compensation and wage structure of employees
whose positions fall under salary grade 19 and below shall be in accordance with the rates prescribed under
Republic Act No. 6758.

On the recommendation of the Governor, appoint, fix the remunerations and other emoluments, and remove
personnel of the Bangko Sentral, subject to pertinent civil service laws: Provided, That the Monetary Board shall
have exclusive and final authority to promote, transfer, assign, or reassign personnel of the Bangko Sentral and
these personnel actions are deemed made in the interest of the service and not disciplinary: Provided, further, That
the Monetary Board may delegate such authority to the Governor under such guidelines as it may determine.

(d) adopt an annual budget for and authorize such expenditures by the Bangko Sentral as are in the interest of the
effective administration and operations of the Bangko Sentral in accordance with applicable laws and regulations;
and
(e) indemnify its members and other officials of the Bangko Sentral, including personnel of the departments
performing supervision and examination functions against all costs and expenses reasonably incurred by such
persons in connection with any civil or criminal action, suit or proceedings to which he may be, or is, made a party
by reason of the performance of his functions or duties, unless he is finally adjudged in such action or proceeding
to be liable for negligence or misconduct.

In the event of a settlement or compromise, indemnification shall be provided only in connection with such matters
covered by the settlement as to which the Bangko Sentral is advised by external counsel that the person to be
indemnified did not commit any negligence or misconduct.

The cost and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the
Bangko Sentral in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of the member, officer, or employee to repay the amount advanced should it ultimately be
determined by the Monetary Board that he is not entitled to be indemnified as provided in this subsection.

Letter B because BSP is a true bank. Who are its depositors? The banks and quasi-banks.
Letter E, new provision.
What is the exception? If he loses the case then he cannot be reimbursed. That is the rule now.

*talks about legacy banks*

Now there is this provision (last paragraph of section 15) that the BSP can actually advance the cost and expenses incurred.
Because you are actually supervising entities that have the xx to carry out a litigation, so ordinaryo ka lang empleyado sa
BSP, unya sungugon kag kaso, the BSP should defend you. The presumption would be you, are performing your functions
with regularity.

The question, does the MB has immunity from suit since it is performing a governmental functions? It issues regulations; it
sanctions violations of their circulars and the banking laws. So is it immune from suit just like the executive who is immune
from suit? No! The MB and the BSP do not enjoy immunity from suit. Case: Ramos vs Central Bank.

EMERITO M. RAMOS vs. THE HONORABLE COURT OF APPEALS (Special First Division)
G.R. No. L-25463 April 4, 1975

Who is Ramos? Mr. Emerito Ramos, owner of overseas bank of Manila. He was found upon examination, that his bank was
impaired because of several non-performing loans. And he tried to negotiate with the BSP. And the BSP said that if you put
in, this additional amounts to your capital then you will be okay because the level of your non-performing loans will be
reduced. So Ramos started selling property to raise money and then put it in the bank. After, the BSP put the bank in
receivership. Once you are in receivership, what happens? You cease operations as a bank. And then the receiver tries to
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From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

liquidate, bring back properties.. So Ramos sued the BSP. And this is where the SC laid down the Doctrine of Promissory
Estoppel.

The BSP was estopped from closing it because it laid down the condition put in this amount of money and you will be
aright. So it was bad faith on the part of the BSP. It went ahead and closed the bank even after its major stockholder had put
in the money they said would be sufficient to rectify the condition. Then the SC said the BSP is open to suit. Why? Because it
enters into transactions, therefore it descends to the level of an ordinary citizen. It enters into open market transactions.

Digest:
Central Bank, by promising to rehabilitate the bank, is estopped from closing it down. The conduct of the Central
Bank reveals a calculated attempt to evade rehabilitating OBM despite its promises. Hence, respondent Central
Bank of the Philippines is directed to comply with it obligations under the voting trust agreement, and to desist from
taking action in violation thereof.

FACTS: The Overseas Bank of Manila (OBM) is a commercial banking corporation duly organized and existing under the
laws of the Philippines with principal office at Rosario Street, Manila. Ramos et. al are the majority and controlling
stockholders of Overseas Bank of Manila (OBM). Pursuant to a resolution from the Central Bank and the Monetary Board,
the operation of for various violations of the banking laws and implementing regulations. Because the financial situation of the
OBM had caused mounting concern in the Central Bank, petitioner Ramos and the OBM management met with respondent
Central Bank on the necessity and urgency of rehabilitating the OBM through the extension of necessary financial
assistance.

In lieu thereof, the Monetary Board issued another resolution dated April, 1967 demanding the stockholders to mortgage their
properties or assign the same to the Central Bank and to execute a voting trust agreement whereby they will pass the
management to Philippine National Bank in order to stave of liquidation. Hence, Ramos et. al executed the voting trust
agreement prepared by Central Bank with petitioners as cestuis que trust and Central Banks Superintendent of Banks as the
Trustee. Petitioners likewise conveyed by way of mortgage to the Central Bank all their private properties and holdings to
secure the obligations of the OBM to the Central Bank. Accordingly, new directors and officers were elected and installed and
they took over the management and control of the Overseas bank.

However, after 8 months, the Central Bank did not make any positive action to reorganize and resume OBMs normal
operations. Instead, Central Bank issued a resolution excluding OBM from clearing with it and authorizing the nominee board
of directors to suspend operations. Worse, Central Bank Monetary Board issued a resolution ordering the liquidation the
bank. Hence this petition for certiorari, prohibition and mandamus with prayer for the issuance of a writ of preliminary
injunction to restrain respondent Central Bank of the Philippines from enforcing and implementing the Monetary Board
Resolutions. Petitioners charged that the OBM became financially distressed because of this suspension and the deprivation
by the Central Bank of all the usual credit facilities and accommodations accorded to the other banks. Central Bank
contended that to assail Resolution of the Monetary Board ordering the liquidation of the Overseas Bank, an action must be
filed in the Court of First Instance of Manila by the Bank itself, and not by petitioning stockholders.

ISSUE: Whether or not the CB had agreed to rehabilitate, normalize and stabilize OBM and whether or not the Central
Bank resolutions were adopted in abuse of discretion.

HELD: If jurisdiction was already acquired ito delve into the validity of Resolutions 1263 and 1290 (and this the Central
Bank admits), there is no cogent reason why, after such jurisdiction had been acquired, the Court should be deprived thereof
by the subsequent adoption of Resolution 1333, particularly because the latter, in relation to the antecedent facts, appears to
be no more than a deliberate effort to evade the jurisdiction of this Court, and have the case thrown back to the Court of First
Instance. The Central Bank, by promising to rehabilitate the bank, is estopped from closing it down. The conduct of the
Central Bank reveals a calculated attempt to evade rehabilitating OBM despite its promises. Hence, respondent Central Bank
of the Philippines is directed to comply with it obligations under the voting trust agreement, and to desist from taking action in
violation thereof.

The Central Bank made express representations to petitioners herein that it would support the OBM, and avoid its liquidation
if the petitioners would execute (a) the voting trust agreement turning over the management of OBM to the Central Bank or
its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The
petitioners having complied with these conditions and parted with value to the profit of the CB (which thus acquired additional
security for its own advances), the Central Bank may not now renege on its representations and liquidate the OBM, to the
detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel.
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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

Alright, special provisions with respect to the governor, deputy governors of the BSP. I would just like to bring out to you this
specific provision. Section 19.

SEC. 19. Authority of the Governor in Emergencies. _ In case of emergencies where time is insufficient to call a
meeting of the Monetary Board, the Governor of the Bangko Sentral, with the concurrence of two (2) other members
of the Monetary Board, may decide any matter or take any action within the authority of the Board.

The Governor shall submit a report to the President and Congress within seventy-two (72) hours after the action has
been taken.

At the soonest possible time, the Governor shall call a meeting of the Monetary Board to submit his action for
ratification.

Emergencies, only the governor and 2 other members of the MB. How many are there in the MB? 7. Sa ato pa 3 sila kabuok,
is that majority? Dili na majority, emergency na! Why is this allowed? Because there are certain emergencies in the banking
industry that might require immediate actions. Let us say the governor of the BSP, Mr. Tetangco is playing golf in the Manila
Golf Club, he is already in the 3rd hole. As he was about to make his drive to the 4 th hole, his aid comes running to him with
his cellphone. Boss you should hear this. It is the BSP, manager in Zamboanga. Linya ang mga tao didto sa Security Bank
kay nahadlok sila nga ang RCBC mawad-an ug kwarta kay ang Bangladesh. (*talks about the controversy surrounding it).
So the people are withdrawing their money. It is called bank-run. Actually it is not the bank that is running, it is the depositors
that are going to the bank withdrawing their money. So his was informed, immediately he calls the president of the RCBC, at
that time, it was Lorenzo Tan, brother of the president of the BPO, Nestor Tan tan tarantan!
What is this, what is going on, are you alright? Then that is the time that Lorezo Tan has to admit what is true. Because no
bank, no matter how healthy you are, can survive it. Mag bank run gani na, kuwaon nila ilang deposito dinha, magdungan
sila, unya kanang deposito mao man nang gipautang sa gawas, edi kuwang dyud ka ana, di dyud ka maka-meet . So
Lorenzo Tan has to say I am short, give me a lifeline. A couple of billions. Approved! Because he (BSP Governor) does not
want the systemic failure to evolve. Magsunod2 man nang bankrun. So he gives his order to his deputy, fly in 2 Billion to
Zamboanga, karga na nag cash. Lupad after he gets the okay of the 2 members of the MB who are also there playing golf.

Abot didto sa RCBC, advice-an nila ayaw isulod sa vault! Ibutang dinha sa counter! Ipakita ang kwarta sa counter! Ang mga
tao dinha galinya, paimna ug kape aron panington. Makakita na sila uy naa diay daghan kwarta, naa ra man diay kwarta, di
man diay mag kulang. Ugma nalang ta ani. Salbar! The bank run is adverted because it has emergency power. Ug wa pa ni,
what do you do? Wa nay kwarta didto, ang bangko muhuwam sa BDO. Unya wa nasad kwarta diri. ang mga tao linya nasad
sa laing bangko. Sira nasad. Mao na, systemic failure develops from the failure of one bank. So it is important to stop it, dead
in the tracks. And he has power to do that because of section 19. They say the most powerful man in the world is not the
president, but the Federal Reserve governor. Sya ang gakupot sa kahon dira. He can save or choose not to save a financial
institution. xxx

In the Philippines the reference rate for interest rate is the 90-day Treasury bill. xxx Diri sa Pilipinas, kuwangan na gani kag
kwarta kay di ka makameet sa imong deposit liabilities - the percentage of your deposit that must keep in cash in your vault -
you either borrow from BSP or borrow from other banks. And that is called the inter-bank rate. Its called PHIBOR. Philippine
Inter-bank Offered Rate. But nobody believes it. It is still the treasury bill rate of 90 days.

December 7, 2016 - Robelen Callanta

The survey shows 100% of all the bankers, foreign investors, local investors, say that interest rates will be cut. How much?
When we say interest rates, we talk about BASIS POINTS. (1-2%= 100 basis points). 60% of those surveyed say that the US
will cut interest rate by 25 basis points.

Effect of raise in interest rates: It has the tendency to decrease money supply

The Federal Reserve is our equivalent of Bangko Sentral. It is a TRUE Bank because:
1. It has depositors;
2. It lends money from the deposits.

The depositors of Bangko Sentral are also banks. If they increase interest rates, then the banks will not be encouraged to
borrow as eagerly if the rates were not increased. If they were lending at 3.25%, and then, the following daw, they raise it to

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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

3.5 %, if you were the bank, will you be encouraged to borrow if the rates are low or if the rates are high? You will not want to
borrow some more, is it not? In other words, they are now trying to lessen money supply, to bring down liquidity. That is a
monetary policy.

Last meeting, we discussed the degrees of authority of the Central Bank Governor relation to the powers of the powers of the
Monetary Board. The Central Bank Governor can act in emergency with just the concurrence 2 other members of the
Monetary Board. (Monetary Board has 7 members, only 2 are public officials) Provided that he makes a report to the
President and the Congress in 72 hours and at the soonest time, the Governor shall conduct a meeting with the Monetary
Board to submit the ratification.

Example: I give is a bankrupt. All of a sudden, depositors withdraw their money. When it happens, there is no bank strong
enough to stop the bankrupt because banks lend out their deposits. There is only a statutory percentage (4%) of the deposits
that are kept in default that is in cash or near cash. For every peso that you deposit, banks are only required to maintain 4
centavos. The rest can be lent out. So if all the depositors will all of a sudden withdraw, then no bank can withstand the
bankrupt. So the bank needs all of a sudden money to satisfy the depositors. The bank needs a decision ASAP. The Central
Bank Governor can decide. That is an Emergency Loan to send cash to a bank that is in distress. He is making an act of
disposition. Lending out money is an act of disposition that is why you need a Special Power of Attorney to lend money that is
not yours. It is not a power of administration.

The Bangko Sentral Governor decides with the concurrence of just 2 members. That is not even the majority. The absolute
majority of the Monetary Board is 4.

SECTION 20. Outside Interests of the Governor and the Full-time Members of the Board. The Governor of the
Bangko Sentral and the full-time members of the Board shall limit their professional activities to those pertaining
directly to their positions with the Bangko Sentral. Accordingly, they may not accept any other employment, whether
public or private, remunerated or ad honorem, with the exception of positions in eleemosynary, civic, cultural or
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 or other government agencies in matters connected with or affecting the
economy or the financial system of the country.

Can the Central Bank Governor be a minister in his parish church?


Yes. Section 20 says, except in positions in eleemosynary, civic, cultural or religious organizations. But, if ministers are
given stipends by the church, that becomes a prohibited activity becomes whether public or private, remunerated or ad
honorem.

What is ad honorem?
Have you heard of the word honorarium? Honorarium is a token or stipend given to you for a particular chore that you
make. That is a form of remuneration. HONORARIUM.

How many Deputy Governors are there?

SECTION 21. Deputy Governors. The Governor of the Bangko Sentral, with the approval of the Monetary Board,
shall appoint not more than three (3) Deputy Governors who shall perform duties as may be assigned to them by the
Governor and the Board.

In the absence of the Governor, a Deputy Governor designated by the Governor shall act as chief executive of the
Bangko Sentral and shall exercise the powers and perform the duties of the Governor. Whenever the Government is
unable to attend meetings of government boards or councils in which he is an ex officio member pursuant to
provisions of special laws, a Deputy Governor as may be designated by the Governor shall be vested with authority
to participate and exercise the right to vote in such meetings.

In the absence of the Governor, a Deputy Governor designated by the Governor shall act as chief executive of the
Bangko Sentral and shall exercise the powers and perform the duties of the Governor.

10
BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

This is still before the electronics came(?). Can you really be away from office now? With all the texting, WiFi, Skype? It does
not even cost anything to be in touch or in contact. Constant connectivity is now possible. (Chika about AdDU WiFi being
lousy)

Example: The Governor goes to Brussels because he was invited by the European Central Bank Governor in a meeting. Can
you tell the Deputy Governor, Diri sa ka ha kay muadto sa kog Europe. You are always in touch. You know the convertibility
of peso to dollar, you know the rate. You can always call any bank President in the Philippines. It does not take any special
gadget to command your office.

This provision was written for yesterdays generation. This was not written for Generation Z or those born not earlier than
1996.

Whenever the Government is unable to attend meetings of government boards or councils in which he is an ex
officio member pursuant to provisions of special laws, a Deputy Governor as may be designated by the Governor
shall be vested with authority to participate and exercise the right to vote in such meetings.
This is one of the exceptions to the rule that a member of the Board of Directors cannot be substituted by his chosen
representatives. The Monetary Board acts as Board of Directors of the Bangko Sentral. If the Bangko Sentral is absent, he
can point a Deputy Governor to attend. He has the right to vote in substitution.

SECTION 22. Research and Statistics. The Bangko Sentral shall prepare data and conduct economic research for
the guidance of the Monetary Board in the formulation and implementation of its policies. Such data shall include,
among others, forecasts of the balance of payments of the Philippines, statistics on the monthly movement of the
monetary aggregates and of prices and other statistical series and economic studies useful for the formulation and
analysis of monetary, banking, credit and exchange policies.

What is that data? It shall include:


1. forecasts of the balance of payments of the Philippines;
2. statistics on the monthly movement of the monetary aggregates and of prices and other statistical series; and
3. Economic studies useful for the formulation and analysis of monetary, banking, credit and exchange policies.
4.
Balance of Payments vs. Balance of Trade
Is the Bangko Sentral allowed to make research and analysis of data of the balance of trade or as it says here, forecasts of
the balance of payments in the Philippines? There is no balance of trade. Balance of payments is bigger than Balance of
Trade. Balance of payments is essentially money that comes in and money that goes out of the country. If there is positive
balance of payment, there more money coming in than money flowing out. Ex: Nangutang ang Pilipinas ug kwarta.

Balance of Trade is basically export and import. The number 1 import nato is electronic devices. If we have more export than
imports, that is positive balance of trade. Because you get money in exports and spend money in import, that is part of
balance of trade.

Can you think of any money that comes in that is not part of export anymore? OFW Remittance.

The Bangko Sentral should keep track of those because that is connected with the strength of peso. Kung sige lang kag
import and our exports are minimal, it will not strengthen the peso because to import, we have to buy foreign currency. So
atong foreign currency diri, mugawas, muhina. So, the Bangko Sentral has to study. In order to do that, to gather data in
monetary policy, the Bangko Sentral has the authority to request from government offices and instrumentalities, or
government-owned or controlled corporations, any data which it may require for the proper discharge of its functions and
responsibilities.

SECTION 23. Authority to Obtain Data and Information. The Bangko Sentral shall have the authority to request
from government offices and instrumentalities, or government-owned or controlled corporations, any data which it
may require for the proper discharge of its functions and responsibilities. The Bangko Sentral through the Governor
or in his absence, a duly authorized representative shall have the power to issue a subpoena for the production of
the books and records for the aforesaid purpose. Those supply the bank with data requested or required, shall be
subject to punishment for contempt in accordance with the provisions of the Rules of Court.
Data on individual firms, other than banks, gathered by the Department of Economic Research and other
departments or units of the Bangko Sentral shall not be made available to any person or entity outside of the
Bangko Sentral whether public or private except under order of the court or under such conditions as may be
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From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

prescribed by the Monetary Board: Provided, however, That the collective data on firms may be released to
interested persons or entities: Provided, finally, That in the case of data on banks, the provisions of Section 27 of
this Act shall apply.

SECTION 25. Supervision and Examination. The Bangko Sentral shall have supervision over, and conduct
periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates
engaged in allied activities.

What is the legal definition of to supervise?


Supervision is to verify whether his subordinates is acting within the bounds of the law. Oversight.

Examination
Examination is the determination in detail as to whether or not, a bank, quasi-bank or the financial institution under the
supervision of the Bangko Sentral is in fact in compliance with law.
Periodic examination is once a year and at least 12 months should separate one examination from another examination.

Special examination is an examination that is conducted because it is warranted under certain questionable reports of facts.

Section 25.
xxx
No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from examining any
institution subject to supervision or examination by the Bangko Sentral, unless there is convincing proof that the
action of the Bangko Sentral is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the
clerk or judge of the court in which the action is pending a bond executed in favor of the Bangko Sentral, in an
amount to be fixed by the court. The provisions of Rule 58 of the New Rules of Court insofar as they are applicable
and not inconsistent with the provisions of this section shall govern the issuance and dissolution of the restraining
order or injunction contemplated in this section.

Read PDIC vs Philippines Countryside Development Bank 640 SCRA 322 (2011)
PDIC vs Philippines Countryside Development Bank 640 SCRA 322 (2011)
SECOND DIVISION, Mendoza, J.

This is the story of The Legacy scandal. At first, they were offering placements, with interest of 2% a month, or 24% annual
interest. Then were reports that this was a scam. So the 11 banks of this fellow, who is an Atenean, was reported. He was
about to be subjected to a special examination. He filed an injunction with the CA. The CA, despite this red letter provision,
issued a restraining order. Legacy raised the interest to 3% a month. The scam got bigger. Bank managers were given
commissions if they could recommend more people.

Issue: WHETHER PRIOR APPROVAL OF THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS IS
NECESSARY BEFORE THE PDIC MAY CONDUCT AN INVESTIGATION OF RESPONDENT BANKS

SC: There is no more need for a Monetary Board prior approval if it is a special examination. If it is a regular examination and
it is not separated by a period of at least 12 months, then, you will need the prior approval of the Monetary Board.

From FT: In 2009, to clarify procedural matters, PDIC released RI No. 2009-05 or the Rules and Regulations on Examination
of Banks. Section 2 thereof differentiated between the two types of examination as follows:
Section 2. Types of Examination
a. Regular Examination - An examination conducted independently or jointly with the BSP. It requires the prior approval of the
PDIC Board of Directors and the Monetary Board (MB). It may be conducted only after an interval of at least twelve (12)
months from the closing date of the last Regular Examination.
b. Special Examination An examination conducted at any time in coordination with the BSP, by an affirmative vote of a
majority of all the members of the PDIC Board of Directors, without need of prior MB approval, if there is a threatened or
impending bank closure as determined by the PDIC Board of Directors.
A PDIC investigation is conducted to "determine[e] whether the allegations in a complaint or findings in a final report of
examination may properly be the subject of an administrative, criminal or civil action." In other words, an investigation is
based on reports of examination and an examination is conducted with prior Monetary Board approval. Therefore, it would be

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From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

unnecessary to secure a separate approval for the conduct of an investigation. Such would merely prolong the process and
provide unscrupulous individuals the opportunity to cover their tracks.

Indeed, while in a literary sense, the two terms may be used interchangeably, under the PDIC Charter, examination and
investigation refer to two different processes. To reiterate, an examination of banks requires the prior consent of the Monetary
Board, whereas an investigation based on an examination report, does not.

Another Acronym: DOSRI (Directors, officers, stockholders, and related interests.) Whenever these people borrow from
the bank, there are conditions and procedural requisites.

Kung president ka sa Bangko, unya muhulam ka sa Bangko! Usually, in the Bar Examination, they play on your laymans
understanding. Unya, dili ka kabalo nga DOSRI na diay to.

Ex: Nay tiguwang nga nisulod sa bangko kay gusto siya maghuwam siya ug kwarta kay magdevelop siya sa iyang resort.
Unya, questionable iyang collateral, wala aprubahi sabangko. Unya makigkita daw siya sa Presidente sa Bangko, ingnon
daw preasidente nga siya si Nanay Suling. Ana and Presidente sa Bangko, Ay, nagbantay sa ako sa gamay pa ko. Ingon
dayon ang president,Oh, co-signatory na ko ana. So, accommodation party na siya. Gi-release dayon ang loan kay
president gyud siya. DOSRI na man na kay ang Presidente naman ang nihuwam. He is solidarily liable. So, DOSRI.

What are the conditions of DOSRI?


Before a loan can be released, Director, officer, stockholder, who, together with his related interest, contracts a loan or any
form of contractual accommodation from:
a. The Bank
b. A bank which is a subsidiary of a bank holding company which is both the bank and the lending bank is a subsidiary,
or
c. A bank in which a controlling portion of the shares is owned by the same interest that owns a controlling portion of
the shares of this bank in excess of 5% of the capital of surplus of fund or in the maximum amount pertinent
permitted by law , whichever is lower,

Conditions:
1. The Director, Officer, etc shall be required by the lending bank to waive the secrecy of his deposits in whatever
region in all banks in the Philippines.
2. his loan, no matter how small or large the amount, must be approved by the Board of Directors of the
corporation.

Banks categorize their loans. For example, this amount ang mu-approve kay executive committee. Pag gamay, bisan pa ang
regional manager can approve. Pareho anang sure hit nga loan. Ang sure hit nga loan, kanang nay time deposit nga 2 million
tapos muhulam sa Bangko ug 500k. Ang iyang security kay ang iyang time deposit. Naay mga ing-ana. Kanang mga gigukod
sa BIR. That is borrowing against your own deposit. You only need the Regional Manager to approve it. But, if it is a DOSRI,
the Regional Manager cannot approve that. It must by the BOARD of DIRECTORS.

Mao nang, the minutes of the board meeting of the bank, daghay pahabol ana. Naa may DOSRI nga account nga pahabol
unya wala na may meeting ang Board, so isuroy na nila sa tanang members sa Board para magpapirma nga gi-aprobahan
ang loan.

I would like you to direct your attention to BSP Circ. No. 170, adopted on 1998 by Gabriel Singson, Governor of the Central
Bank at that time. There, they explain and enumerate what are related interests. This is what is complicated - not Directors,
officers and stockholders. You must outline this.

For purposes of Section 26 of Republic Act No. 7653, the term "related interest" shall include the following:
1. Spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of a director, officer or
stockholder of the bank;
2. Partnership of which a director, officer, or stockholder or his spouse or relative within the first degree of consanguinity or
affinity, or relative by legal adoption, is a general partner;
3. Co-owner with the director, officer, stockholder or his spouse or relative within the first degree of consanguinity or affinity,
or relative by legal adoption, of the property or interest or right mortgaged, pledged or assigned to secure the loans or
credit accommodations, except when the mortgage, pledge or assignment covers only said co-owner's undivided interest;

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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

4. Corporation, association, or firm of which a director or officer of the bank, or his spouse is also director or officer of such
corporation, association or firm, except (a) where the securities of such corporation, association of firm are listed and
traded in the big board or commercial and industrial board of domestic stock exchanges and less than fifty percent (50%)
of the voting stock thereof is owned by any one person or by persons related to each other within the third degree of
consanguinity or affinity; or (b) where the director, officer or stockholder of the lending bank sits as a representative of the
bank in the board of directors of such corporation: Provided, That the bank representative shall not have any equity
interest in the borrower corporation except for the minimum shares required by law, rules and regulations, or by the by-
laws of the corporation: Provided, further, That the borrowing corporation under (a) or (b) is not among those mentioned
in items (5) and (6) hereof.*
5. 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/own more than
twenty percent (20%) of the subscribed capital of such corporation, or of the equity of such association or firm;
6. 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) hereof.

*Look at Aboitiz Equity Ventures, Inc.. They own Union Bank. They borrow from their own bank. If it is within the single
borrowers(?) limit, they can borrow but they are DOSRI. They began to be followed by the Bangko Sentral because once you
are DOSRI, you are listed and the Bangko Sentral Monetary Board monitors you. That is why there is a need for you to waive
the Secrecy of Bank Deposit. Tan.awon man nila kung pila imong deposit ug kung makasagang ban a kung dili kabayad.
Muduol sila ron kang Henry Sy. Unsa may bank ni Henry Sy? BDO. So, mag-ingon mo nga, Kamo, kay dili man pud mo
kahuwam sa BDO tungod sa DOSRI, diri na lang pud mo huwam sa amo. Diri mo huwam sa Union Bank. Kami muhuwam sa
BDO.
Madakpan ba na? That is why you have to read BSP Circular No. 170. BASAHA NINYO.
Section 27. Prohibitions. - In addition to the prohibitions found in Republic Act Nos. 3019 and 6713, personnel of the Bangko
Sentral are hereby prohibited from:
(a) being an officer, director, lawyer or agent, employee, consultant or stockholder, directly or indirectly, of any institution
subject to supervision or examination by the Bangko Sentral, except non-stock savings and loan associations and provident
funds organized exclusively for employees of the Bangko Sentral, and except as otherwise provided in this Act;
(b) directly or indirectly requesting or receiving any gift, present or pecuniary or material benefit for himself or another, from
any institution subject to supervision or examination by the Bangko Sentral;*
(c) revealing in any manner, except under orders of the court, the Congress or any government office or agency authorized
by law, or under such conditions as may be prescribed by the Monetary Board, information relating to the condition or
business of any institution. This prohibition shall not be held to apply to the giving of information to the Monetary Board or the
Governor of the Bangko Sentral, or to any person authorized by either of them, in writing, to receive such information; **and
(d) borrowing from any institution subject to supervision or examination by the Bangko Sentral shall be prohibited unless said
borrowings are adequately secured, fully disclosed to the Monetary Board, and shall be subject to such further rules and
regulations as the Monetary Board may prescribe: Provided, however, That personnel of the supervising and examining
departments are prohibited from borrowing from a bank under their supervision or examination.***

*This is in addition to RA 3019 and RA 6713 (Code of Ethics for Public Officials).

**If you inform the Monetary Board of any transaction that is suspicious because of the Anti-Money Laundering Law, you are
not covered by this explicitly because it is required by law to inform the Bangko Sentral. This is over and above the Secrecy
of bank deposits because the latter covered only bank deposits. On the other hand, this one covers everything about the
bank. You are not supposed to reveal information relating to the condition or business of any such institution. Very general.

*** If you are an employee of the Bangko Sentral, if you will borrow from the bank, your borrowing will be disclosed with the
Monetary Board. The Monetary Board will have another list that they will monitor. In any case, that personnel of the
supervising and examining departments are prohibited from borrowing from a bank under their supervision or examination.
So, if you are in the supervising and examining department for rural banks, you can never borrow from any rural bank. If you
belong in the Supervising and Examining Department for Loans and Saving Association and thrift banks, you can borrow
from rural bank and commercial bank, but not from thrift banks.

Section 28. Examination and Fees. - The supervising and examining department head, personally or by deputy,
shall examine the books of every banking institution once in every twelve (12) months, and at such other times as
the Monetary Board by an affirmative vote of five (5) members, may deem expedient and to make a report on the
same to the Monetary Board: Provided, That there shall be an interval of at least twelve (12) months between annual
examinations.
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From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

The bank concerned shall afford to the head of the appropriate supervising and examining departments and to his
authorized deputies full opportunity to examine its books, cash and available assets and general condition at any
time during banking hours when requested to do so by the Bangko Sentral: Provided, however, That none of the
reports and other papers relative to such examinations shall be open to inspection by the public except insofar as
such publicity is incidental to the proceedings hereinafter authorized or is necessary for the prosecution of
violations in connection with the business of such institutions.

Banking and quasi-banking institutions which are subject to examination by the Bangko Sentral shall pay to the
Bangko Sentral, within the first thirty (30) days of each year, an annual fee in an amount equal to a percentage as
may be prescribed by the Monetary Board of its average total assets during the preceding year as shown on its end-
of-month balance sheets, after deducting cash on hand and amounts due from banks, including the Bangko Sentral
and banks abroad.

Ikaw pay mubayad aron examinon ka. Mao ng giingon sa balaod.

THREE STAGES OF A BANK IN DISTRESS


1. Conservatorship
2. Receivership
3. Liquidation

What is the basis for putting the bank under Conservatorship?


Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the appropriate
supervising or examining department, the Monetary Board finds that a bank or a quasi-bank is in a state of
continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of
depositors and creditors, the Monetary Board may appoint a conservator with such powers as the Monetary Board
shall deem necessary to take charge of the assets, liabilities, and the management thereof, reorganize the
management, collect all monies and debts due said institution, and exercise all powers necessary to restore its
viability. The conservator shall report and be responsible to the Monetary Board and shall have the power to
overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank.

The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to
operate on its own and the conservatorship is no longer necessary. The conservatorship shall likewise be
terminated should the Monetary Board, on the basis of the report of the conservator or of its own findings,
determine that the continuance in business of the institution would involve probable loss to its depositors or
creditors, in which case the provisions of Section 30 shall apply.

When a conservator is appointed, the bank continues to function as a bank but the conservator takes over. The Board of
Directors cannot move without the approval of the conservator.

Who appoints or decides that a bank be placed in conservatorship? THE MONETARY BOARD.

What is the basis of the Monetary Board? A report submitted by the appropriate supervising or examining department.
Then, the Moneraty Board will appoint a conservator.

What is the term for conservatorship?


Section 29. Appointment of Conservator. - x x x
The conservator should be competent and knowledgeable in bank operations and management. The
conservatorship shall not exceed one (1) year.
xxx

Who pays the conservator? It is the bank who pays.


Section 29. Appointment of Conservator. - x x x
The conservator shall receive remuneration to be fixed by the Monetary Board in an amount not to exceed
two-thirds (2/3) of the salary of the president of the institution in one (1) year, payable in twelve (12) equal monthly
payments: Provided, That, if at 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

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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

would have received up to the end of the year; but if the conservatorship is terminated on other grounds, the
conservator shall not be entitled to such remaining balance. x x x

Ug ikaw conservator, muingon kag, Paabton na lang nakog 1 year kay dili nako makakobra ug sweldo for 1 year? No!
Because if you report that the bank or quasi-bank is no longer within reasonable prospects of being returned to corporations,
you still receive the balance of the unpaid portion of the remuneration. In other words, the remuneration for 1 year is not an
incentive or disincentive for you for doing your job.

Who can be appointed as a conservator?


Section 29. Appointment of Conservator. - x x x 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. The expenses attendant to the conservatorship shall be borne by the
bank or quasi-bank concerned.
xxx

He can be an employee of the Bangko Sentral. If that is the case, he shall not be entitled to receive any remuneration or
emolument from the Bangko Sentral during the conservatorship. The expenses attendant to the conservatorship shall be
borne by the bank or quasi-bank concerned.

How does a conservatorship end?


Section 29. Appointment of Conservator. x x x
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue
to operate on its own and the conservatorship is no longer necessary. The conservatorship shall likewise be
terminated should the Monetary Board, on the basis of the report of the conservator or of its own findings,
determine that the continuance in business of the institution would involve probable loss to its depositors or
creditors, in which case the provisions of Section 30 shall apply.

2 ways:
1. When it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer
necessary Sa ato pa, the conservator is successful in restoring the financial health of the bank.
2. The conservator shall likewise be terminated should the Monetary Board, on the basis of the report of the
conservator or of its own findings, determine that the continuance in business of the institution would involve
probable loss to its depositors or creditors, in which case the provisions of Section 30 shall apply.

So what is Section 30? The appointment of a receiver. Then, subsequently, liquidation.

Within 1 year, the bank says, Atras na ko kay wala koy mahimo. Guba na ang bangko. So, ok, receivership.

Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall
not include inability to pay caused by extraordinary demands induced by financial panic in the banking community;

The financial panic in the banking community is called a Bank Run.

Kung gusto gyud ka muwithdraw kay magbayad kag utang unya dili gyud sila pawithdraw, daghan kaayoy storya pero dili ka
kawithdraw kay wala na diay silay ibayad sa imo. Once the bank fails to do that, it is not just inability or unwillingness to
maintain a liquidity that is adequate to safeguard the interest of the depositors and creditors. That is not just a liquidity. Wala
na kay ikabayad.

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or x x x

insufficient realizable assets


All the loans have collateral. In case the loan fails, you execute on the collateral. Upon examination, a collateral turns out to
be grossly inadequate. Ngano grossly inadequate? Kining is aka client nanghuwam ug 100 million, ang iyang gimortgage to
support that loan is supposed to be 5 hectares of prime commercial property covered by 5 titles. Pag examine sa property,

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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

mga fish pond man diay. Between fish ponds and commercial property, dako kayo ang deperensya. So, bisan mabaligya pa
na nimo ang fishpond, it is not sufficient to cover the loan.

(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing forbid the institution from doing business in the
Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution.
For a quasi-bank, any person of recognized competence in banking or finance may be designed as receiver.

Here, you know that once a bank or quasi-bank is places under a receivership, there can only be one receiver. That is the
PDIC (Philippine Deposit Insurance Corporation). By the time the PDIC takes over, the bank ceases operation.

What does the receiver do?


He will try to retrieve the assets of the bank and make further investigation as to how impaired is the bank.

Review-hon na niya kanang mga loans. Tagsa-tagsahon na.


Section 30. Proceedings in Receivership and Liquidation. x x x
The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer
the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of
Court but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution: Provided, That the receiver may deposit or place the funds of
the institution in non-speculative investments. x x x

What is the term of the receivership?


Section 30. Proceedings in Receivership and Liquidation. - x x x
The receiver shall determine as soon as possible, but not later than ninety (90) days from take over, whether the
institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to resume
business with safety to its depositors and creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of the Monetary Board.
xxx

Kanang bangko nga mukalit lang ug declare ug banking holiday, by itself, that is a ground for receivership. Ingon sila, Come
back next week. Pagreport ana, wala na, receivership dayon.

You heard of Urban Bank. Urban bank declared a bank holiday. It was really in bad shape. Urban Bank was founded by the
three musketeers. They all came from City Bank. The CEO was a young guy by the name of Bartolome. He committed
suicide pagkapildi sa iyang kaso. I think he was the one Secretary Reyes copied. (chika about Sec. Reyes)

San Miguel Corp. was also one of the stockholders of the Urban Bank. When the bank was already crumbling, the officers
tried to save their relatives. People were withdrawing. Bartolome got an order from the Bangko Sentral. Pag declare nila ug
bank holiday, nagkuha siya ug withdrawal slip. Gi-withdraw niya ang 3-4 million pesos personal deposit. The slip antedate the
bank holiday. Ezmende(?) refused to sign the deposit slip. Hadlok man siya. The Urban Bank wanted the Pangilinan Group
to buy them out. Pangilinan Group said they do not have the money to buy. The bank said, Dont worry. We will grant you a
loan so you can have money to buy us out. They were really playing around with the funds at that time.

A receiver might be resourceful. He might be able to identify another business interest who is willing to take over the bank in
lieu. The newcomer would have to assume the risk and would have to put in really good money. If he does not get anything in
return of that, which is normally controlled, he will not come in. Kinsa may tao nga buang-buang nga magbutang ug kwarta
nga nagkagidlay nga bangko, kung dili siya tagaan ug full control ana. The thought is always, When I come in, mao na ba ni
ang all the skeletons that are present in the closets of the bank? There might be other skeletons there. Pinaspasay na ug
audit.

Muingon kag Dali ra man na. wala may imbentaryo ang bangko. Wala man nay in-process, finished goods. Financial ra na.
Ang kadaot ana kay kung nay subsidiaries ang bangko. Dili lang ni Audit nga audit-audit lang. Next to audit for fraud, this is
one of the most thorough audits. Kay tan-awon gyud na nimo. Kuyaw ang mga subsidiaries. Daghan ra ba na. banks get to
all sorts of business in order to salvage themselves. Bati ang mga loans siguro so mag-invest sila. So kadto, subsidiary na
sad to.
17
BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

December 14, 2016 Ray Gingco

Favorite source of Bar Exam questions is with respect to banks in distress. Three distress situations specifically dealt with by
the NEW Central bank Act. Conservatorship, Receivership and then Liquidation.

How long is receivership? One year. The determination is whether or not the bank can be returned to its normal existence
and practices or it must undergo rehabilitation or conservatorship.

Receivership it is already the PDIC that comes in. 90 days.

What is the determination there of the receiver?

Whether or not the bank close into rehabilitation or liquidation. So its normal operations without the intervention of the other
parties to revive the financial status of the bank. Now there are certain terminologies that have been referred by the official
literature of the BSP. For instance Section 30 states that proceeding in receivership and liquidation. You will be put under
receivership if the bank or the quasi-bank is unable to pay its liquidation in the ordinary course of business. This is called by
the BSP as the equity test. What is the equity test? Pangutan-on ka sa Bar Examination.

Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank or quasi-bank:

A. is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not
include inability to pay caused by extraordinary demands induced by financial panic in the banking community;
B. has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
C. cannot continue in business without involving probable losses to its depositors or creditors; or
D. has willfully violated a cease and desist order under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing forbid the institution from doing business in the
Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution.

For a quasi-bank, any person of recognized competence in banking or finance may be designed as receiver.

The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer
the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of
Court but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution: Provided, That the receiver may deposit or place the funds of
the institution in non-speculative investments. The receiver shall determine as soon as possible, but not later than
ninety (90) days from take over, whether the institution may be rehabilitated or otherwise placed in such a condition
so that it may be permitted to resume business with safety to its depositors and creditors and the general public:
Provided, That any determination for the resumption of business of the institution shall be subject to prior approval
of the Monetary Board.

If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance
with the next preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings
and direct the receiver to proceed with the liquidation of the institution. The receiver shall:

1.file ex parte with the proper regional trial court, and without requirement of prior notice or any other action, a
petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general application to all closed banks. In case of quasi-banks, the liquidation
plan shall be adopted by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon motion by the
receiver after due notice, adjudicate disputed claims against the institution, assist the enforcement of individual
liabilities of the stockholders, directors and officers, and decide on other issues as may be material to implement
the liquidation plan adopted. The receiver shall pay the cost of the proceedings from the assets of the institution.

2. convert the assets of the institutions to money, dispose of the same to creditors and other parties, for the
purpose of paying the debts of such institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of the institution, and with the assistance of

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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

counsel as he may retain, institute such actions as may be necessary to collect and recover accounts and assets of,
or defend any action against, the institution. The assets of an institution under receivership or liquidation shall be
deemed in custodia legis in the hands of the receiver and shall, from the moment the institution was placed under
such receivership or liquidation, be exempt from any order of garnishment, levy, attachment, or execution.

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and
executory, and may not be restrained or set aside by the court except on petition for certiorari on the ground that
the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess
of jurisdiction. The petition for certiorari may only be filed by the stockholders of record representing the majority of
the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship.

Or the bank has insufficient realizable assets as determined by the BSP to meet its liabilities. That is termed by the BSP as
the Balance Sheet Test. Ngano balance sheet test man na? Kay makit-an nimo ang assets kung sufficient ban a na itanggi
nimo sa liabilities. Unya ang Balance Sheet is mao man na. One of the axioms in accounting is Assets = Liabilities + Owners
Equity. Talks about Luca Pacioli.

Balance Sheet Test has sufficient realizable assets as determined by the BSP to meet its liabilities. Why is this Test
questionable? This test is questionable because assets will change in market value. It may go up one day it may go down in
another day. I dont know if you have read the biography of Warren Buffet. Warren Buffet believes in intrinsic valuation. If
naay share unya wala pa kaayoy nakapalit ana palita na. So gipalit niya ang Berkshire Hathaway. Unsa may produkto nila?
Lining sa mga suits. The company has no future. According to Buffet it is as if I have stumbled upon a cigarette puffs with
three more puffs to spare. Why? Because when he examined the financial statements there are shares of stocks of valuable
companies that were bought before at a very low price. Those shares were not factored in when they valued the corporation.
Again, he bought the company because of the shares of stocks. Berkshire Hathaway became his holding company. The
Berkshire Hathaway.

So this is controversial, how do you know that the realizable assets are sufficient? Fathers talks about the prices of the
shares of stocks at Dow Jones vis--vis the prices of the shares of stock in the Philippines. Precisely it was Warren Buffet
who said that Greed is as universal as gravity.

Now there is this another feature that the Bar Examinations may ask you. What is the so called Close Now and Hear Later
Scheme?

Close Now and Hear Later Scheme. That is Section 30 letter D:

(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing forbid the institution from doing business in the
Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution.

Wa na. There is no need of hearing anymore. In the old law naa pa. Now there is no requirement of hearing. All you need is
the assessment of the Monetary Board and the report of the supervising department.

Supervising ba or examining department of the BSP. They report to the Monetary Board: This Bank has failed the Equity
Test or This bank has failed the Balance Sheet Test and the BSP di man na siya muhearing. Ang buhaton niya is to inform
the BOD of the Bank that kamo, you will be meeting the representatives of the PDIC.
And the PDIC will take over the bank. Remember, when you are put under receivership you cease operations. And now the
receiver will try to recoup the assets of the bank.

According to the book of the BSP the phrase the Monetary Board may summarily and without need for prior hearing
forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance
Corporation as receiver of the banking institution Is an institutionalization made by Congress as pronounced by the
Supreme Court in the case of Rural Bank of Lucena vs Arca, September 20, 1965, J. Reyes, J.B.L. and Rural Bank of Buhi
vs CA, 1988, J. Paras.

These cases recognize the dire consequences of requiring prior hearing before banks are closed. The Close Now and Hear
Later Scheme is grounded on practical and legal reasons to prevent further dissipation of the Banks assets and is a valid
19
BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

exercise of police power to protect the depositors, the creditors the ctockholde4rs and the general public. So it is a valid
exercise of police power because it is a matter of general welfare.

All right how do you distinguish a receiver and a conservator? Conservator is one year, receiver is 90 days.

RECEIVER CONSERVATOR
A receiver is appointed based A conservator may be
on the grounds under Section appointed when an
30 of the New CBA. institution is in the state of
continuing inability and
unwillingness to maintain a
condition of liquidity
inadequate to protect the
interest of the depositors
or creditors.
A receiver administers the A conservator restores the
assets of the bank. (Mao nay viability of an operating
receiver closed na ang book (I bank suffering liquidity
think this should be bank) and problems. Revive and
administers the assets. It is no make it viable mao na
longer in operation. Masakiton iyahang role.
na ang bank. Wa na. Administer
na lang. Then the receiver will
decide the next step:
rehabilitation or liquidation? He
must decide whether the
institution may be rehabilitated
or not or otherwise placed in
such a condition so that it may
be permitted to resume
business with safety to its
depositors and creditors. If it
cannot be rehabilitated he
reports to the Monetary Board.
Then the Monetary Board writes
a formal letter to the Board of
Directors of its findings and
direct the receiver to proceed
with liquidation.

Now, what does a receiver do?

A receiver commissions another person or agency charged with the duty to take charge with the assets and liabilities of the
bank which has been forbidden from doing business in the Philippines. As well as the duty to preserve and administer such
assets and liabilities for the benefit of the depositors and creditors of such bank and to continue into liquidation whenever
authorized under this act or under other laws and to dispose the assets to wind-up the affairs of the bank.

So recover the assets. Stop the bank personnel from conducting further banking business. Stop them from removing or
liquidating assets ahead of any liquidation. To initiate liquidation if it can no longer financially viable. Remember that it can be
a conservator or an official of the BSP. These personalities are separate and distinct from the BSP. In fact his appointment or
engagement with the BSP is suspended. He ceases to receive remuneration from the BSP.

The BSP CAN NEVER BE A CONSERVATOR. A conservator is separate and distinct from the BSP although he may be
gotten from there.

20
BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

Let us say he is one of the examiners tapos kahibalo siya and he is willing to be a conservator. So, he takes a leave from his
engagement and then he becames a receiver(?) and he receives his salary from the bank which about two-thirds of the
salary of the president of a bank.

Now, to do his job as fast a s possible if he do his job as a conservator before the year ends then the entire salary for the
year is given to him.

Now, how do you distinguish a receiver and a liquidator.

RECEIVER LIQUIDATOR
Appointed by the Monetary The liquidator is appointed by
Board based on the the Monetary Board based on
recommendation of the the
supervising of the BSP. recommendation/determinatio
n of the receiver.
There are several grounds for There is only one ground for
the appointment of a receiver. the appointment of a liquidator.
Daghan kaayo ni ug grounds. State of being financially
Declare lang kag bank unable or maintain liquidity.
holiday. Wa na!
A receiver has 90 days. There is no statutory period for
a liquidator. Liquidation should
not last three years because in
the Corporation Code you
have three years to liquidate
and a bank is necessarily a
corporation. A bank is always a
corporation dili pwede
partnership under the General
banking Law.
Generally, the receiver has While the liquidator has the
the duty to take charge of the duty to convert the assets to
assets and liabilities for the money to pay the debts of the
benefit of the creditors. bank.
Normally this is the fifth
distinction a receiver is
appointed ahead of the
liquidator.

What is the relationship between the depositor and the bank? It is under the nominate contract of mutuum under the Civil
Code. It is a loan. So the depositor is one of your creditors. So when the PDIC comes in unahon niya nag mga depositors na
nag gibutang kay 5000 pesos and below.

PDIC immediately looks at the list and if your deposit is 5k and below una ka mahatagan.

Now, cases where the courts issue an injunction prior to the closure. There is a rule that no injunction shall be filed against
the MB of the BSP in cases of conservatorship and receivership, etc. BUT what is the only instance: The only instance is
grave abuse of discretion. Generally the acts under Section 30 may not be restrained or set aside by the Courts any
restraining order is an unwarranted interference with the powers of the Monetary Board.

The landmark cases are BSP vs. Honorable Valenzuela, October 2009; old case of Central bank vs Dela Cruz November
1990.

From the FT:


The respondent banks have failed to show their entitlement to the writ of preliminary injunction. It must be emphasized that
an application for injunctive relief is construed strictly against the pleader. The respondent banks cannot rely on a simple

21
BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

appeal to procedural due process to prove entitlement. The requirements for the issuance of the writ have not been
proved. No invasion of the rights of respondent banks has been shown, nor is their right to copies of the ROEs clear and
unmistakable. There is also no necessity for the writ to prevent serious damage. Indeed the issuance of the writ of
preliminary injunction tramples upon the powers of the MB and prevents it from fulfilling its functions. There is no right that
the writ of preliminary injunction would protect in this particular case. In the absence of a clear legal right, the issuance of the
injunctive writ constitutes grave abuse of discretion. In the absence of proof of a legal right and the injury sustained by the
plaintiff, an order for the issuance of a writ of preliminary injunction will be nullified.

Now, in case of liquidation of the bank and quasi-bank the receiver shall pay the debts of that institution under the order if the
court under the concurrence and preference of credits as provided under the Civil Code.

Once again, concurrence and preference of credits.

It is a heirarchy of which creditors have superior claim among creditors. Always #1 is the government such as taxes and fees
and it must be fully satified. If there are no sufficient assets, ihatag gihaoun na didto.That is why the liquidation of the banks
are transferred from the BSP to the courts because BSP no longer have jurisdiction over the other transactions of said bank.

By way of summary, liquidation according to the SC is a single proceeding composed of 2 phases:

The first pahse is composed of approval and disapproval of claims. These could be the known claims listed down by the
receiver or the claims to be presented in court by virtue of publication. The notice of liquidation shall be published to alert
creditors who have been forgotten. Also because liquidation is an in rem proceeding. The court issues an order fairly. An
order allowing or disallowing a particular claim which is final and is appealable by the party aggrieved.

The second phase involves the approval of the court of the distribution plan. Kanang tanan nga na-allow na claim, isahun
lang na nimu pag-approve.

If each claim will file an appeal, you can have as many cases as the claims. Daghan kaayo na. Although the claims are
litigated in the same proceeding, each claim is separate and distinct from each other. Each claim is heard separately and the
order issued relating to a particular claim applies only to said claim leaving the other claims unaffected. The same goes with
the order allowing or disallowing a claim.

SEC. 49. Definition of Currency. _ The word "currency" is hereby defined, for purposes of this Act, as meaning all
Philippine notes and coins issued or circulating in accordance with the provisions of this Act.

SEC. 50. Exclusive Issue Power. _ The Bangko Sentral shall have the sole power and authority to issue currency,
within the territory of the Philippines. No other person or entity, public or private, may put into circulation notes,
coins or any other object or document which, in the opinion of the Monetary Board, might circulate as currency, nor
reproduce or imitate the facsimiles of Bangko Sentral notes without prior authority from the Bangko Sentral.

The Monetary Board may issue such regulations as it may deem advisable in order to prevent the circulation of
foreign currency or of currency substitutes as well as to prevent the reproduction of facsimiles of Bangko Sentral
notes.

The Bangko Sentral shall have the authority to investigate, make arrests, conduct searches and seizures in
accordance with law, for the purpose of maintaining the integrity of the currency.

Violation of this provision or of any regulation issued by the Bangko Sentral pursuant thereto shall constitute an
offense punishable by imprisonment of not less than five (5) years but not more than ten (10) years. In case the
Revised Penal Code provides for a greater penalty, then that penalty shall be imposed.

Section 72 deals with emergency cases involving the purchasing power of the peso.

Section 72. Emergency Restrictions on Exchange Operations. - In order to achieve the primary objective of the
Bangko Sentral as set forth in Section 3 of this Act, or protect the international reserves of the Bangko Sentral in the
imminence of, or during an exchange crisis, or in time of national emergency and to give the Monetary Board and
the Government time in which to take constructive measures to forestall, combat, or overcome such a crisis or
emergency, the Monetary Board, with the concurrence of at least five (5) of its members and with the approval of the
22
BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

President of the Philippines, may temporarily suspend or restrict sales of exchange by the Bangko Sentral, and may
subject all transactions in gold and foreign exchange to license by the Bangko Sentral, and may require that any
foreign exchange thereafter obtained by any person residing or entity operating in the Philippines be delivered to
the Bangko Sentral or to any bank or agent designated by the Bangko Sentral for the purpose, at the effective
exchange rate or rates: Provided, however, That foreign currency deposits made under Republic Act No. 6426 shall
be exempt from these requirements.

In the event of the foreign exchange cases or in a time of national emergency, what can BSP do to give itself time within
which to forestall or to combat such crisis or emergency?

In instances where there is a very big gap in the foreign exchange, what can the Monetary Board do? The Monetary Board
with the concurrence of at least 5 of its members with the approval of the President of the Philippines may temporarily
suspend or restrict sales of exchange by the BSP. It can order that no banks may sell dollar anymore or the banks must
turnover their balance to the BSP or subject transactions involving gold or foreign exchange to license by the BSP. Only
banks and duly authorized foreign exchange dealers may be allowed to buy and sell dollars.

Sections 49-60 are the functions of the BSP. It is the sole bank which has the power to issue currency.

Is currency synonymous to legal tender? Is all Phil. Currency legal tender? Legal tender is that hich you can compel the
creditor to accept in satisfaction of your credit. What is your remedy if you gave a legal tender to your creditor but he refuses
to accept? Consignation.

Limitations of legal tender. Coins has a specific limit as a legal tender. Coins such as 25 cents and above are legal tender up
to 50 pesos. 10 cents and below are legal tender up to 20 pesos. Checks representing bank deposits do not have the legal
tender power.

BSP also functions as a government bank. It represents the Philippines In international monetary conferences, meetings and
etc.. Under Sections 110-116.

Section 110. Designation of Bangko Sentral as Banker of the Government. - The Bangko Sentral shall act as a
banker of the Government, its political subdivisions and instrumentalities.

Section 111. Representation with the International Monetary Fund. - The Bangko Sentral shall represent the
Government in all dealings, negotiations and transactions with the International Monetary Fund and shall carry such
accounts as may result from Philippine membership in, or operations with, said Fund.

Section 112. Representation with Other Financial Institutions. - The Bangko Sentral may be authorized by the
Government to represent it in dealings, negotiations or transactions with the International Bank for Reconstruction
and Development and with other foreign or international financial institutions or agencies. The President may,
however, designate any of his other financial advisors to jointly represent the Government in such dealings,
negotiations or transactions.

Section 113. Official Deposits. - The Bangko Sentral shall be the official depository of the Government, its political
subdivisions and instrumentalities as well as of government-owned or controlled corporations and, as a general
policy, their cash balances should be deposited with the Bangko Sentral, with only minimum working balances to be
held by government-owned banks and such other banks incorporated in the Philippines as the Monetary Board may
designate, subject to such rules and regulations as the Board may prescribe: Provided, That such banks may hold
deposits of the political subdivisions and instrumentalities of the Government beyond their minimum working
balances whenever such subdivisions or instrumentalities have outstanding loans with said banks.
The Bangko Sentral may pay interest on deposits of the Government or of its political subdivisions and
instrumentalities, as well as on deposits of banks with the Bangko Sentral.

Section 114. Fiscal Operations. - The Bangko Sentral shall open a general cash account for the Treasurer of the
Philippines, in which the liquid funds of the Government shall be deposited.
Transfers of funds from this account to other accounts shall be made only upon order of the Treasurer of the
Philippines.
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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

Section 115. Other Banks as Agents of the Bangko Sentral. - In the performance of its functions as fiscal agent, the
Bangko Sentral may engage the services of other government-owned and controlled banks and of other domestic
banks for operations in localities at home or abroad in which the Bangko Sentral does not have offices or agencies
adequately equipped to perform said operations: Provided, however, That for fiscal operations in foreign countries,
the Bangko Sentral may engage the services of foreign banking and financial institutions.

Section 116. Remuneration for Services. - The Bangko Sentral may charge equitable rates, commissions or fees for
services which it renders to the Government, its political subdivisions and instrumentalities.

Then as a government agent under Sec. 117-122 which includes acting in the account of or in the behalf of the government
in the issuance of securities representing the obligations of the government.

Section 117. Issue of Government Obligations. - The issue of securities representing obligations of the
Government, its political subdivisions or instrumentalities, may be made through the Bangko Sentral, which may act
as agent of, and for the account of, the Government or its respective subdivisions or instrumentality, as the case
may be: Provided, however, That the Bangko Sentral shall not guarantee the placement of said securities, and shall
not subscribe to their issue except to replace its maturing holdings of securities with the same type as the maturing
securities.

Section 118. Methods of Placing Government Securities. - The Bangko Sentral may place the securities to which the
preceding section refers through direct sale to financial institutions and the public.
The Bangko Sentral shall not be a member of any stock exchange or syndicate, but may intervene therein for
the sole purpose of regulating their operations in the placing of government securities.
The Government, or its political subdivisions or instrumentalities, shall reimburse the Bangko Sentral for the
expenses incurred in the placing of the aforesaid securities.

Section 119. Servicing and Redemption of the Public Debt. - The servicing and redemption of the public debt
shall also be effected through the Bangko Sentral.

Section 120. The Securities Stabilization Fund. - There shall be established a "Securities Stabilization Fund" which
shall be administered by the Bangko Sentral for the account of the Government.
The operations of the Securities Stabilization Fund shall consist of purchases and sales, in the open market,
of bonds and other evidences 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 said securities in order thereby to promote
investment in government obligations.
The Monetary Board shall use the resources of the Fund to prevent, or moderate, sharp fluctuations in the
quotations of said government obligations, but shall not endeavor to alter movements of the market resulting from
basic changes in the pattern or level of interest rates.
The Monetary Board shall issue such regulations as may be necessary to implement the provisions of this
section.

Section 121. Resources of the Securities Stabilization Fund. - Subject to Section 132 of this Act, the
resources of the Securities Stabilization Fund shall come from the balance of the fund as held by the Central Bank
under Republic Act No. 265 as of the effective date of this Act.
Section 122. Profits and Losses of the Fund. - The Securities Stabilization Fund shall retain net profits which
it may make on its operations, regardless of whether said profits arise from capital gains or from interest earnings.
The Fund shall correspondingly bear any net losses which it may incur.

BSP acts as the governments financial adviser under Section 123 which includes providing financial advise to the
government before it borrows and joins any credit operation.

Section 123. Financial Advice on Official Credit Operations. - Before undertaking any credit operation abroad,
the Government, through the Secretary of Finance, shall request the opinion, in writing, of the Monetary Board on

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BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

the monetary implications of the contemplated action. Such opinions must similarly be requested by all political
subdivisions and instrumentalities of the Government before any credit operation abroad is undertaken by them.
The opinion of the Monetary Board 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.
Whenever the Government, or any of its political subdivisions or instrumentalities, contemplates borrowing
within the Philippines, the prior opinion of the Monetary Board shall likewise be requested in order that the Board
may render an opinion on the probable effects of the proposed operation on monetary aggregates, the price level,
and the balance of payments.

Section 124. Representation on the National Economic and Development Authority. - In order to assure effective
coordination between the economic, financial and fiscal policies of the Government and the monetary, credit and
exchange policies of the Bangko Sentral, the Deputy Governor designated by the Governor of the Bangko Sentral
shall be an ex officio member of the National Economic and Development Authority Board.

BSP is the custodian of the banks cash reserves as against the banks deposit liabilities, liabilities for deposit substitute
and/or bond held in trust.
BSP also functions as the custodian of the countys international reserve. Section 64-66.

Section 64. International Monetary Stabilization. - The Bangko Sentral shall exercise its powers under this Act to
preserve the international value of the peso and to maintain its convertibility into other freely convertible currencies
primarily for, although not necessarily limited to, current payments for foreign trade and invisibles.

Section 65. International Reserves. - In order to maintain the international stability and convertibility of the
Philippine peso, the Bangko Sentral shall maintain international reserves adequate to meet any foreseeable net
demands on the Bangko Sentral for foreign currencies.
In judging the adequacy of the international reserves, the Monetary Board shall be guided by the prospective
receipts and payments of foreign exchange by the Philippines. The Board shall give special attention to the volume
and maturity of the Bangko Sentral's own liabilities in foreign currencies, to the volume and maturity of the foreign
exchange assets and liabilities of other banks operating in the Philippines and, insofar as they are known or can be
estimated, the volume and maturity of the foreign exchange assets and liabilities of all other persons and entities in
the Philippines.

Section 66. Composition of the International Reserves. - The international reserves of the Bangko Sentral may
include but shall not be limited to the following assets:
(a) gold; and
(b) assets in foreign currencies in the form of: documents and instruments customarily employed for the
international transfer of funds; demand and time deposits in central banks, treasuries and commercial banks
abroad; foreign government securities; and foreign notes and coins.
The Monetary Board shall endeavor to hold the foreign exchange resources of the Bangko Sentral in freely
convertible currencies; moreover, the Board shall give particular consideration to the prospects of continued
strength and convertibility of the currencies in which the reserve is maintained, as well as to the anticipated
demands for such currencies. The Monetary Board shall issue regulations determining the other qualifications
which foreign exchange assets must meet in order to be included in the international reserves of the Bangko
Sentral.
The Bangko Sentral shall be free to convert any of the assets in its international reserves into other assets as
described in subsections (a) and (b) of this section.

Also it is a bank of rediscount and lender of last resort. It also functions as a bank of central clearance and settlement. It is
authorized to establish facilities for inter bank clearing of checks and settlement of inter bank balances.

___________________________________________________

25
BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,
SY 2016 - 2017

Life is 10% what happens to you and 90% how you react to it. - Charles R. Swindoll

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