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SECRECY OF BANK DEPOSITS FAQ RE: SECRECY OF BANK DEPOSITS A. SECRECY OF BANK DEPOSITS 1.Q.

What guarantees on confidentiality do depositors enjoy under the law? A. For peso deposits, Republic Act No.1405 (Bank Deposits Secrecy Law) declares all deposits of whatever nature with banks in the Philippines, including investments in government bonds, as of an absolutely confidential nature and prohibits the examination or inquiry into such deposits or investments by any person, government official, bureau or office, as well as the disclosure by any official or employee of a bank of any information concerning said deposits. There are only four (4) instances under the law where bank deposits or investment in government bonds may be disclosed or looked into, namely: (1) upon written permission of the depositor; or (2) in cases of impeachment; or (3) upon order of a competent court in cases of bribery or dereliction of duty; or (4) in cases where the money deposited or invested is the subject matter of the litigation. It may be noted that R.A. 1405 covers not only bank deposits but also investments in government bonds. For foreign currency deposits, Republic Act No. 6426 (The Foreign Currency Deposit Act) similarly declares that these deposits are of an absolutely confidential nature and cannot be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative or any other entity whether public or private. There is only one instance for disclosure under said law and, that is, upon the written permission of the depositor. RA 6426 also exempts foreign currency deposits from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. For investments in trust accounts or in deposit substitutes, if these are in the form of investments in government bonds or deposits, the protection under RA 1405 and RA 6426 extends thereto accordingly. If these are in other forms of investments, the disclosure of information related thereto is covered by Section 55 of the General Banking Law of 2000 (Republic Act No. 8791) which prohibits, unless there is an order of a court of competent jurisdiction, the disclosure by any director, official, employee or agent of any bank any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations or any other entity. 2.Q. How do banks respond to an order of a competent court? A. For peso deposits, banks comply with orders for disclosure in court cases subject to these requirements: (a) there must be a court order; (b) the order must be issued by a competent court specifically directing the bank concerned to disclose the required information; and (c) the bank should check and satisfy itself that the deposits or investment in government bonds being inquired into are either the subject of a case of bribery or dereliction of duty of public officials, or of a case where the deposit or investment itself is the subject matter of the litigation. If these requirements are not met, there would be basis for the bank to request the court to excuse compliance with the court order.

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In impeachment cases, it is necessary that there be an order issued by the impeachment court or by its authorized officer. For foreign currency deposits, the law does not provide an instance for disclosure upon a court order. As mentioned above, there is only a single instance for disclosure under RA 6426 and, that is, upon written permission of the depositor. Thus, for foreign currency deposit accounts subject of a court order, the bank can invoke RA 6426 to excuse compliance. 3.Q. What is the liability of the banks and/or its officers and employees for violating the laws against disclosure? Violations of the prohibitions against disclosures under RA 1405, RA 6426 and under the General Banking Law of 2000 are subject to stiff criminal penalties. Under RA 1405, the offender is subject to imprisonment of not more than 5 years or a fine of not more than P20,000, or both, in the discretion of the court. Under RA 6426, the penalty is imprisonment of not less than 1year not more than 5 years or a fine of not less than P5,000 nor more than P25,000, or both, in the discretion of the court. The violation of Sec.55 of the General Banking Law of 2000, the penalty is imprisonment of not less than 2 years nor more than 10 years or a fine of not less than P50,000 nor more than P200,000, or both, in the discretion of the court; and in addition, if the offender is a director or officer of a bank, he is subject to suspension or removal by the Monetary Board. B. USE OF ALIAS OR NUMBER IN OPENING DEPOSIT ACCOUNTS Are banks allowed to open accounts using an alias or a number?

A.

1.Q.

A. There is no specific banking law up to the present prohibiting banks from opening deposit accounts using an alias or a number. Prior to July 7, 2000, there is also no banking regulation providing for such prohibition. On July 7, 2000 and in seeking the adoption of anti-money laundering measures, the Bangko Sentral ng Pilipinas (BSP) issued a regulation, Circular No. 251, providing that, unless otherwise prescribed under existing laws, anonymous accounts or accounts under fictitious names are prohibited. The exception referred to under Circular No. 251 was RA 6426 (The Foreign Currency Deposit Act) which explicitly allows the keeping of numbered accounts for the recording and servicing of deposits. For peso accounts, when banks allow the opening of deposit accounts under pseudonyms, it is assumed that: (1) they have exercised due diligence to ascertain the identity of their clients; and (2) they are aware of the legal provisions and requirements on the use of pseudonyms. The above notwithstanding, it may be pointed out that in the Manual of Regulations issued by BSP, or even before the issuance of Circular 251, there were already regulations requiring the banks to: (a) adopt systems to establish the identity of their depositors; and (b) require to set a minimum of three (3) specimen signatures from each of their depositors subject to regular updating. Even for numbered accounts as authorized under RA 6426, BSP has required banks, under Circular 258, to take necessary measures to establish and record the true identity of their clients, which identification may be based on official or other reliable documents and records. 2.Q. Are there other laws governing the use of pseudonyms or aliases?
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A. Art. 178 of the Revised Penal Code penalizes the: (a) publicly using of a fictitious name for the purpose of concealing a crime, evading the execution of a judgment, or causing damage; and (b) concealment by any person of his true name and other personal circumstances. On the other hand, there is also Commonwealth Act No. 142, as amended by Republic Act No. 6085 (Regulating the Use of Aliases) which provides that, except only as a pseudonym for literary purposes and athletic events, it is unlawful for any person to use an alias, unless the same is duly recorded in the proper local civil registry. Related thereto, Articles 379 and 380 of the Civil Code provide that no person shall use different names and surnames except the employment of pen and stage names provided it is done in good faith and there is no injury to third persons. What can be noted is that the above provisions allow the use of aliases under certain circumstances. Conversely stated, the use of aliases is not absolutely disallowed. Moreover, the sanctions for any violation of the above provisions on aliases are mainly directed to the one using the unauthorized alias. 3.Q. How does Circular No. 251 apply to existing numbered accounts? A. For peso accounts, the banks should have their respective programs of compliance with the Circular. For foreign currency deposit accounts, they are allowed to continue maintaining numbered accounts opened in accordance with RA 6426 subject to the requirement that the banks shall take necessary measures to establish and record the true identity of their clients. 4.Q. What penalties/sanctions are applicable for violating the laws/regulations? A. Article 178 of the Revised Penal Code is directed to the person concealing his identity publicly or using a fictitious name and the penalty would range from 1 day up to 6 months imprisonment and/or a fine up to P500,000. For violation of Commonwealth Act 142, which is likewise directed to the person using an unauthorized alias, the penalty is imprisonment from 1 year to 5 years and a fine of P5,000.00 to P10,000.00. For the violation of Circular 251, it is subject to the administrative sanction on the bank and/or responsible directors/officers of fine up to P30,000 per transaction. CONTINUED CONFIDENTIALITY/SECRECY OF DEPOSIT TRANSACTIONS

C.

1.Q. Is confidentiality/secrecy of deposit accounts compromised with the issuance of Circular 251? A. No. Circular 251 merely disallowed the opening of fictitious and anonymous accounts and has not in any way modified nor lessened the safeguards and protection to depositors under RA 1405. This means that, notwithstanding Circular 251, deposit accounts cannot be examined or looked into except under the limited circumstances provided for in RA 1405.

The Law on Secrecy of bank Deposits covers deposits and investments in government bonds, as well as Treasury Bills. If we bought bonds from the government, the Central Bank will only tell you the amount of the bonds but any other information cannot be given. However there are exceptions to the secrecy of bank deposits: If the depositor consents in writing:
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The General Bank Act provides that in case of loan, the borrower should be required to waive the bank secrecy deposit. If the borrower with borrows more than 5% of the banks capital, the bank is allowed to waive the secrecy bank deposit. The Manual of Regulations of the Central Bank requires that for before a loan is secured by an assignment of certificate of time deposit, the borrower should be required to waive Secrecy of Bank Deposit. Impeachment case

Jack Said that Investment Management Accounts are not covered, that is why Clarissa Ocampo was able to disclose ERAPs IMA at Equitable Bank. (this case falls under provision of Sec. 55.1 of the General Banking Act of 2000) *In the General Banking Act, there is a catch-all provision that: Sec. 55.1 No director, officer, employee or agent of any bank shall--(b) Without order of a court of competent jurisdiction disclose to any unauthorized person any information relative to the funds or property in the custody of the bank belonging to private individuals, corporations or any other entity: Provided that with respect to bank deposits, the provisions of existing laws shall prevail. According to Jack, this provision may relate to transactions like Investment Management Accounts (Eraps in the Impeachment case. The one Clarissa O. disclosed). IMA are not covered by the Bank Secrecy Law. Order from the court in cases of bribery and neglect of duty of public officials. Money deposited or invested which are the subject matter of litigation Violation of the ANTI-GRAFT LAW

Now the SC has repeated ruled that the anti-graft law has created another exception to this. Because under the Anti-graft law in determining if the public official has amassed ill-gotten wealth, the bank accounts and those of his family, his spouse, children and friends may be taken into consideration. Because of this provision, the Court said that Congress intended to create another exception to the Secrecy of Bank Deposit, because how can you determine if the official amassed illgotten wealth unless you can get access to their bank deposit. (violation of the Anti-graft law) With the passage of R.A. 3019, the Anti-Graft and Corrupt Practices Act, an additional exception was created under 8 of R.A. 1405 which provides that a public official, who has been found to have acquired during his incumbency an amount of property and/or money manifestly out of proportion to his salary and to his other lawful income may be dismissed or removed. Bank deposits shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary. While RA 1405 does not include anti-graft cases, as among one of the instances where deposits in a bank may be disclosed, yet the Anti-graft law directs that bank deposits shall be taken into consideration in the enforcement of the law, notwithstanding any provision of the law to the contrary. Hence, the Anti-Graft law provides an additional exception. In a prosecution for unexplained wealth, the Sandiganbayan may order the production of bank deposit records, not only of the wife and children of the accused, but also those of his friends and cronies. (Banco Filipino v. Purisima 161 SCRA 576)
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The Ombudsman law gives the Ombudsman the power to examine bank records in connection with any investigation he is conducting. He can subpoena bank records for violation of Anti-graft Law. The court can only subpoena records of bank if there is a pending case, and that is the subject matter of the case, and examine the accounts---According to Jack this is inconsistent with the cases of PNB & Banco Filipino. Under Revenue Code, The Commissioner of Internal Revenue may inquire a bank account of decedent to determine his correct amount of the estate. Also, when a taxpayer compromises his tax liability, there is a waiver of the secrecy of bank deposits. LAW OF UNCLAIMED BALANCES If an account has been dormant for 10 years, that dormant account is supposed to be escheated in favor of the government. The bank is supposed to report that share is an inactive account. The Secretary of Justice gave an opinion because of the power given to PCGG, they may use any means to accomplish its purpose, and can require the production of bank records in connection with its investigation. FOREIGN CURRENCY DEPOSIT LAW (RA 6426) 8 of R.A. 6426, as amended by P.D. 1246, provides that foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. The secrecy of foreign currency deposits is given even more protection by R.A. 6426, the Foreign Currency Deposit Act of the Philippines. In order to attract greater foreign investments and currency deposits in the country, all such deposits are considered of an absolutely confidential nature and, except upon written permission of the depositor, in no instance shall such deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial, administrative or legislative or any other entity whether public or private. All foreign currency deposits are absolutely confidential. In the case of RA 1405, the Supreme Court held that bank accounts could be garnished, not covering bank deposit. Foreign Currency, therefore, are exempt from attachment, garnishment, or any other order or process of any count, legislative body, government agency. Exception if the depositor has given a written authorization (same exception applicable to the RA 1405). NOTE: UNDER RA 1405 as distinguished with RA 6426--A writ of garnishment on bank deposit of a defendant is not an inquiry into his deposit as contemplated by RA 1405. It merely requires the bank cashier to inform the court whether said debtor has a deposit in said bank only for the purpose of garnishment to be issued by it. So that the bank will hold the same intact and not allow any withdrawal until further orders. CASES SALVACION V. CA This involved a tourist who enticed a girl with a toy and then he raped the girl. He was charged but escaped from jail and disappeared. The parents filed a separate civil action for damages and obtained a favorable decision. Since the tourist was gone and the only assets available were his
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account in China Bank, the bank account was garnished. China Bank argued that the foreign currency deposit law exempts currency deposits from execution. Court said that the garnishment should be allowed. The underlying idea behind the law is to encourage investments. It could not have contemplated a situation like this where it would result in patent injustice, where the victim of a crime could not get recompense because the offender managed to escape and this is the only asset left. In the name of justice, exemption was not allowed! MELLON BANK, NA V. MAGSINO, 190 SCRA 633 In action filed the bank to recover money it transmitted by mistake, the records of the bank accounts in which the proceeds of the money were deposited may be ordered to be produced since the money deposited is the subject matter of litigation. Even if the money was deposited in the names of the persons other than the recipient of the payment by mistake. ONATE V. ABROGAR When sued, A did not deny he received the money. Money was not the subject matter of litigation. SC said must maintain secrecy of bank deposits. PCIB v. CA The prohibition against inquiry into a bank deposit does not preclude its garnishment to satisfy a judgment. Note: Under the FOREIGN CURRENCY DEPOSIT ACT, by express provision, Foreign Currency Account cannot be garnished and they are exempt from any court process. VAN TRUEST V. CA 230 SCRA 42 V opened a joint foreign currency account with X (an and/or account; X was Vs employee.) The money was Deutshmark. X closed the account and withdrew all the money and opened another account in her own name. V sued to get the money back. V also sought injunction to stop X form withdrawing the money. X said that foreign currency account is exempt from court processes. SC: the money involved here does not belong to X, she cannot invoke the exception. PDIC LAW (RA 3591 AS AMENDED BY P.D. 1937 AND R.A. 7400) Banks are required to be insured with and to pay premiums, to the PDIC. The law defines deposit, as a balance money received by the bank in usual course of business and for with given credit(checking, time, savings deposit). It does not cover trust fund. Trust funds are not insured, likewise investment management accounts are not insured nor valuable in the safety deposit bank, they are not insured. They are insured up to P100,000.00. If a bank has a branch abroad, requirement is not mandatory. It is only optional for that bank to insure. If they want, they can also insure their deposits with the PDIC. Now, the PDIC has two options for paying the amount due the depositor. It may either pay directly or open an account in another branch. Once the PDIC has paid, it will be subrogated to his rights to the extent of the amount paid by it. In proceedings to liquidate a bank, it will file a claim and this claim will include the amount that was paid to the depositor. If a bank is having trouble and is rehabilitated, it can borrow from the PDIC. It has the power to lend to the banks. The maximum amount of P100,000.00 for all accounts after deducting any amount of the bank. E.g. Balance of Account is P100,000.00 and a debtor owes P50,000.00, he can only get P50,000.00. Providing he holds it in the same capacity, except if he is an administrator of the estate in the other account, it should be treated separately. Again to clarify: Let us say that the depositor has different kinds of account, i.e., savings, time, checking, foreignall being maintained by different branches of the same bank and the bank
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closessuch depositor can only recover Php100,000 even if the savings account has 60T and the time deposit has 300T etc. (Kawawa naman!) But if he has another account in his capacity as a guardian, trustee, executorsuch account will be computed separately. Now, the 100,000 is the NET of any liability because if the depositor owes the bank lets say 60T, then he can only recover 40,000. That is often asked in the bar exams. Note that the law applies to deposits. IT does not cover trust funds. Normally when you enter into a contract with the Trust Department of the bank, it is not covered by the PDIC. If the bank becomes insolvent, the PDIC will pay the depositor; Directly Open an account in another bank in his name. The PDIC will be subrogated in the rights if the depositor to the extent of the amount paid. If the bank is liquidated, the PDIC will only pay including in the computation of his claim for which it would paid the remaining assets of the insolvent bank. e.g. Somebody place a time deposit in the bank was closed but check was dishonored by lack of funds. The court said it cannot claim.

*Notes: The PDIC was created by law and as such, is governed primarily by the provisions of the special law creating it. The liability of the PDIC for insured deposits therefore is statutory and under RA 3591, such liability rests upon the existence of deposits with the insured bank, not on e the negotiability or non-negotiability evidencing these deposits. Liability of PDIC is Php100,000 per depositor Trust funds deposited with an insured bank and bearer time deposit certificates with no registered payee are excluded from the insurance coverage. Payment by the PDIC or by a bank designated by the PDIC starts from the date the CB declares the insured bank as insolvent; payment by the PDIC subrogates it to claims of the insured bank against other persons; claims by depositors of the insured bank should be made within 18 months from closure by the CB. PDIC is the preferred creditor in the distribution of assets of the insolvent bank. PALABOK: Q: An employee of a large manufacturing firm earns a salary which is just a bit more than what he needs for a comfortable living. He is thus able to maintain a Php 10,000 savings account, a Php20,000 checking account, a Php30,000 money market placement and a Php40,000 trust fund in a medium size commercial bank. Which of the four accounts are deemed insured by the PDIC? A: Among those enumerated, only the Php10,000 savings account and the Php20,000 checking account are deemed insured by the PDIC as they are embraced by the word deposit. Deposit as defined in Section 3(f) of R.A. No. 3591 may be constituted only if money or equivalent of money is received by a bank. The Php40,000 trust fund is not insured as it is expressly exempted from the coverage by the PDIC. As for the Php30,000 money market placement, it shall not also be insured because of its very nature which involves a market dealing in standardized short-term credit instrument (involving large amounts) where lenders and borrowers no not deal directly with each other but through a middle

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man or dealer in open market. (Sesbreno v. CA 240 SCRA 607). If money is not received by the bank, it cannot be insured.

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TRUTH IN LENDING ACT REPUBLIC ACT NO. 3765 AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH EXTENSIONS OF CREDIT. Sec. 1.This Act shall be known as the "Truth in Lending Act." Sec. 2.Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. Sec. 3.As used in this Act, the term (1) "Board" means the Monetary Board of the Central Bank of the Philippines. (2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract; any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract; any contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of, any obligation of claim arising out of any of the foregoing; and any transaction or series of transactions having a similar purpose or effect. "Finance charge" includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit as the Board may be regulation prescribe. "Creditor" means any person engaged in the business of extending credit (including any person who as a regular business practice make loans or sells or rents property or services on a time, credit, or installment basis, either as principal or as agent) who requires as an incident to the extension of credit, the payment of a finance charge. "Person" means any individual, corporation, partnership, association, or other organized group of persons, or the legal successor or representative of the foregoing, and includes the Philippine Government or any agency thereof, or any other government, or of any of its political subdivisions, or any agency of the foregoing.

(3) (4)

(5)

Sec. 4.Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information: (1) (2) (3) (4) (5) (6) (7) the cash price or delivered price of the property or service to be acquired; the amounts, if any, to be credited as down payment and/or trade-in; the difference between the amounts set forth under clauses (1) and (2); the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; the total amount to be financed; the finance charge expressed in terms of pesos and centavos; and the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.

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Sec. 5.The Board shall prescribe such rules and regulations as may be necessary or proper in carrying out the provisions of this Act. Any rule or regulation prescribed hereunder may contain such classifications and differentiations as in the judgment of the Board are necessary or proper to effectuate the purposes of this Act or to prevent circumvention or evasion, or to facilitate the enforcement of this Act, or any rule or regulation issued thereunder. Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charged required by such creditor in connection with such transaction, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person within one year from the date of the occurrence of the violation, in any court of competent jurisdiction. In any action under this subsection in which any person is entitled to a recovery, the creditor shall be liable for reasonable attorney's fees and court costs as determined by the court. (b) Except as specified in subsection (a) of this section, nothing contained in this Act or any regulation contained in this Act or any regulation thereunder shall affect the validity or enforceability of any contract or transactions. (c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1,00 or more than P5,000 or imprisonment for not less than 6 months, nor more than one year or both. (d) No punishment or penalty provided by this Act shall apply to the Philippine Government or any agency or any political subdivision thereof. (e) A final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto. Sec. 7.This Act shall become effective upon approval. Approved: June 22, 1963 Purpose of the Law 1. To protect the debtor from the effects of misrepresentation and concealment; 2. Permitting him to fully appreciate and evaluate the real cost of his borrowing; and 3. Avoid circumvention of usury laws The debtor must be told how much it will hurt him to borrow money. The law defines credit as any loan, mortgage, discount, conditional sales contract, installment, lease purchase agreement. The law requires to charge a handling fee, if the loan is more than P500,000.00, if that was not stated in the information given, to the borrower, the bank cannot charge.

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Effect, if the borrower, was not given an information is that obligation subsists, transaction still valid, and the loan will still be paid but the creditor bank required to pay finance charges, equal double the finance charges, plus attorneys fees. What is the duty of the creditor under this ACT? Any person extending credit must give the debtor, in writing, a recital of: cash price amount credited if on installment price the difference between the cash and installment price recital of the finance charges and what these charges bear to the amount to be financed in percentage Consequence for non-compliance would authorize the debtor to recover any interest payment made. Examples of Transactions covered under this ACT: 1. Contract to sell land in installment 2. Appliance store that sells in installment 3. buying lot where monthly installment is treated as lease. CENTRAL BANK ACT Central Bank and the Monetary Board You have the law creating the Bangko Sentral ng Pilipinas. The governing body is the Monetary Board you need 4 votes to approve any decision. But in case of emergency, when there is no time to call a meeting, the governor with the consent of 2 other members of the Board, can act on any matter which normally would require an action by the Monetary Board. But he must report that to the president and to congress within 72 hours and get the Monetary Board to ratify his action as soon as possible.

Conservatorship If a Bank is facing a liquidity problem (liquidity here means that it cannot service withdrawals of its depositors) then it can be placed under conservatorship. The monetary board may appoint a conservator. And the conservator may overrule the decision of the board. You took this up in political law, that court said you cannot cancel valid contracts under that provision. And the conservatorship should not exceed 1 year. Now the conservatorship will be terminated if: the conservatorship is no longer necessary that the bank can now resume normal operations or the conservator reports that the bank can no longer continue its business without loss to the public.

If the bank can resume normal business operations or it can no longer continue because conservator is supposed to submit a report on whether the bank can continue or whether it will have to be liquidated. During that time, nobody can be paid. Thats what happened with Urban Bank. It was placed under conservatorship; all those who have claims could not be paid.

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Receivership A bank may also be placed under receivership. But it is not required that the bank should have been previously placed under conservatorship before it can be placed under receivership. A bank may be placed under receivership if:

1.

it is unable to pay its liabilities as they become due in the ordinary course of business. Except inability to pay because of extraordinary demands. Like what happened with Equitable Bank after it was disclosed that Mr. Estrada was maintaining there an account under the alias Jose Velarde. So these people who were against Mr. Estrada withdrew their money as a sign of protest. And then Mr. Estrada also told his friends to withdraw their money. So, Equitable was being hit by both sides by the pros and by the antis. 2. Or if it has insufficient realizable assets to meet its liabilities. Realizablebecause an asset, the assets may be worth more than the liabilities but theyre not liquid, they cannot be used to pay. You got stuck with a lot of foreclosed real properties, you cannot use that to pay. 3. it cannot continue its business without involving probable loss to its depositors or creditors. 4. Or it has willfully violated a cease and desist order that has become final involving acts or transactions which amount to fraud or dissipation of assets of the bank. Theres this story that what happened to Overseas Bank before now the Bank of Commerce, Emerito Ramos just simply got the money, purchased cash for it then the amount he opened an account in his own bank. And the Monetary Board may, without need of prior hearing, forbid the bank from doing business and appoint the PDIC as receiver. PDIC is the statutory receiver. And within 90 days, the receiver should determine whether or not the bank can be rehabilitated orso that it can be allowed to continue business after that can no longer be rehabilitated. Then the Monetary Board will decide whether or not it will be liquidated coz it can no longer be rehabilitated or it will be allowed to resume business coz it can now continue its business. If it be determined that the bank should be liquidated, then a petition be filed in court asking the court for assistance in liquidating the bank. It is the court that will be asked to assist in liquidating not Mayor Lim. Now, the law provides that the action of the Monetary Board on receivership and liquidation shall be FINAL and EXECUTORY and cannot be set aside EXCEPT on certiorari that it acted in excess of jurisdiction or grave abuse of discretion. And majority of the stockholders by joint resolution that must file that within 10 days from receipt of the order placing it under receivership, conservatorship or requiring its liquidation. If the action is filed beyond that period, it will be barred. Or it was not filed by majority of the stockholders, it will have to be dismissed. In the case of Co vs. Bank, Justice Barredo penned the decision, saying that after it was allowed to resume operations, depositors were not entitled to demand interest on their deposits during the time that the bank suspended operation. They argued, well, where else can the bank earn the income to pay interest except from its operations. So if is not allowed to operate obviously, it is not earning income from operations so it cannot beit cannot pay interest. Unless it operates it cannot earn income. Of course, Justice Cagioa strongly criticized that. Of course, the obligation to pay interest

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is a generic obligation. Obligation to pay money is a generic obligation. Unlike an obligation, lets say to deliver, lets say a particular painting. That painting is burned in a fire, then you are excused. Violations A bank may impose penalties for erring bank officials and directors. They can, even in some cases, remove them and they can suspend them pending investigation. If thethe bank should be inspected and the result, the findings, the report will be given to the bankmakapal yan, yung reportall the violations will be mentioned there. Usually with the number of regulations, its almost impossible that you will come out unscathed. They will always find some circular that you violated. You will be fined. So, if one is engaging in unsound banking practice, is prohibited. So if a bank persists in committing acts or practices which are violations, the Monetary Board may issue a cease and desist order stopping them from doing those practices or violations. And the order is immediately effective. If the bank wants to question it, it must ask for a hearing within 5 days. If it does not ask for a hearing, the order will become final. Legal Tender Now the law provides what is legal tender. Notes and coins issued by the Banko Sentral shall be legal tender BUT coins shall be legal tender up to fifty pesos for coins which are 25 centavos and up. Twenty pesos for 10-centavo coins or less. So 10-centavos, 5-centavos, you can pay up to twenty pesos. 25-centavos up to 5-peso coins, you can pay up to fifty pesos. When Justice Reyes was the Chairman, there was this crazy question: somebody went to the department store and was paying purchases worth P200 with coins. And the cashier said, No that is not legal tender!!! Justice Reyes said, Ano ba naman yan, you have to come up with more realistic questions in the bar exam! Monetary Policies Its the Bank that has control over monetary policies. And if the International Monetary stability is threatened, that the reserves fall inadequate to meet the demands, or the reserves are in danger of falling below such level, the Monetary Board may take remedial measures. And if the remedial measures the Monetary Board adopted are still inadequate to correct the situation, they can propose additional measures to the president with notice to the congress. The Bangko Sentral may buy and sell gold and foreign exchange. Have you ever come across that book The Power of Gold? Essentially, what is the value of gold now? Everybody stopped the gold standardin the old days, you have paper currency backed up by gold. Thats gone. Nobody does that anymore. In fact, the Bangko Sentral in times of an exchange crisis, With the concurrence of 5 members of the Monetary Board and the approval of the president, the Monetary Board may temporarily stop or restrain the sale of foreign exchange. Or subject gold and foreign exchange transactions to licensing. Or require that foreign exchange be delivered to the bank for conversion to pesos, in other words back to foreign exchange controls. There is that reserve power here. In other words, they can suspend or restrict the sale of foreign exchange. That happened in 1983, when all banks were required to surrender their foreign exchange to the Central Bank coz the government ran out of dollars. Or they may subject all gold to license, going back to the old days of foreign exchange restrictions and court control. Unless you have a dollar allocation, you cannot buy dollars. They require that you surrender foreign exchange to the banks. Before if you earn dollars, you are required to sell that to the bank within 3 banking
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days. But they have removed all that. In fact, when Governor Singson retired from the Bangko Sentral he mentioned in his testimonial dinner that he regretted that foreign exchange restrictions were not lifted earlier. Because with the low rate, what did people do, they sold their money abroad. And to control the amount of money by lending, banks are required to maintain reserves. This is one of the tools of the Central Bank for increasing or reducing the amount of money circulation. By increasing the bank reserves, they reduce the amount of money that the bank could lend. And they are also requiring reserves for deposit substitutes like money market placements, and also trust funds. Before, they were not requiring reserves for trusts, so that banks were pushing for trust operations. So the cost of money there is cheap because you dont have to put up reserves. Feb. 21, 2002 Alfeche GENERAL BANKING LAW Definition of Bank. A bank is an entity engaged in the lending of funds obtained in the form of deposits. It receives money from the public and lends it to the public. A quasi-bank is an entity engaged in the borrowing of funds through issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for relending or purchasing of receivables and other obligations. Example. Financing companies sell commercial paper as deposit substitutes. Sec.4 Supervisory Powers The Bangko Sentral maintains supervision over banks to they can issue rules regarding standards of operation, examine the compliance of banks with the laws and regulations, and investigate banks not oftener than once a year. BSP can also inquire into the solvency of banks and require prompt action, as well as regulate the use of electronic devices. BSP also regulates quasi-banks as well as financing companies and trust entities. BSP can also examine enterprises which are majority owned or controlled by banks. The problem with this power to investigate only once a year is that it cannot detect anomalous transactions occurring in between, to note that some stockholders of banks are also congressmen. Sec. 6 Authority to engage in banking and quasi-banking functions. No one can engage in banking or quasi-banking without authorization from the BSP. To form a bank or quasi-bank, it must be a stock corporation, obtain its funds from the public, and the minimum capital requirement must be satisfied. Sec. 9 Issuance of Stocks. Banks can only issue par value shares, so that you can tell right away whether it meeting the required minimum paid-up capital requirements. A bank cannot acquire its own capital stock as treasury shares or accept its own stock as collateral for a loan, unless when authorized by the Monetary Board (MB). In case such stock is acquired, it must be disposed of within 6 months. Sec. 11 Foreign Stockholdings Foreign individuals or non-bank corporations may own or control up to 40% of the voting stock of a domestic bank. This reform was made in order that new investors may come in. Sec. 12 Stockholdings of Family Groups of Related Interests If the stockholders are related within the 4th degree of consanguinity or affinity, legitimate or common-law, it shall be considered as family groups or related interests, and that fact must be fully disclosed in all transactions by such corporation or related groups of persons with the bank.
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David

Sec. 13 Corporate Stockholdings If 2 or more corporations are owned or controlled by the same family groups or same group of persons, it shall be considered as related interests and shall also be fully disclosed in all transactions by such corporations or related groups of persons with the bank. Example. DOSRI loans (directors, officers, stockholders or related interests). Sec. 15 Board of Directors. The directors vary from 5 to 15. But in case of merger or consolidation, the surviving corporation must be allowed to have a maximum of 21 directors. At least 2 directors must be independent must not be officers or employees of the bank or subsidiaries, affiliates or related interests. The MB will prescribe the qualifications of the directors and officers, and may disqualify, suspend, or remove any officer or director who commits an act rendering them unfit. Sec. 19 Prohibition on Public Officials. No appointive or elective public official whether full-time or part-time can be an officer of a private bank, unless such service is incident to the financial assistance provided by the government or a government-owned or controlled corporation to the bank or unless otherwise provided under existing laws. Example. DBP is required to invest in rural banks hence it will be required to have some to sit in the board of the rural bank where they invested. The directors may conduct their meetings by teleconference or videoconference. Sec. 20 Bank Branches. Banks may use its branches to sell financial products of its allied undertaking or of investment house units. Banks are now allowed to invest in insurance companies, so they can push those insurance policies of the insurance companies where they have investments. But banks are prohibited to directly engage in insurance business as the insurer. A commercial bank is also authorized to engage in quasi-banking, like deposit substitutes and money market placements. They may invest in allied enterprises. A universal bank is also authorized to engage in quasi-banking. A universal bank has the same powers of a commercial bank, investment house, and can invest in allied enterprises. It is a bank with expanded powers and at the same time engages in equity investments. Sec. 35 Limit on Loans, Credit Accommodations and Guarantees. Single borrowers limit (SBL) it should not exceed 20% of the net worth of the bank, because if the exposure of the bank in a borrower is too much and he becomes bankrupt, then the bank is affected. So, it is better to spread the risk. However, if the debt is secured by trust receipts, bills of lading, quedan, or goods which are readily marketable, then the single borrowers limit may be increased by 10% more (30%). In computing the single borrowers limit, if the loan is secured by obligations of the BSP or the government, that is not included. Example, if the loan is secured by treasury bills, loans guaranteed by the government, loans covered by assignment of deposits maintained in the landing bank, or letters of credit covered by marginal deposits. Sec. 36 Restriction on Bank Exposure to Directors, Officers, Stockholders and their Related Interests. It is not completely prohibited to lend money to directors, officers, stockholders and their related interests (DOSRI). There are just conditions or requirements: a. It must be with the written approval of the majority of all the directors of the bank (not just an account officer) and such director borrowing money will be disqualified in making such approval. It must be reported to the BSP.

b.

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c. d.

The terms and conditions of the loan must not be less favorable to the bank than those offered to others. The loan should be limited to an amount equivalent to the unencumbered deposits and book value of their paid-in capital contribution in the bank. (he can only borrow money up to the value of his deposit which is unencumbered not assigned as collateral for other loans)

There is also a limit to how much money the bank can lend on collateral. If real estate mortgage = 75% of the appraised value of the real estate security. If improvement = 60% of the appraised value of such improvements. Chattels = 75%. When somebody makes a loan, he must state the purpose. If the loan is diverted to some other purpose, the bank may demand immediate payment. Example. If the borrower said he will loan money as working capital but instead used the proceeds to buy land, then the bank can consider the loan immediately due. The bank must ascertain that the debtor is capable of paying. If the real estate mortgage was foreclosed, whether judicial or extra-judicial, the buyer can take immediate possession of the property upon confirmation of the sale. A petition to enjoin or restrain the foreclosure can only be granted if a bond is filed. Sec. 47 Foreclosure of Real Estate Mortgage. Redemption: If the mortgagor is a natural person, he has 1 year to redeem. If it is a juridical person and it is an extra-judicial foreclosure, it has only up to the registration of the sale with the Register of Deeds or 3 months after the foreclosure to redeem, whichever comes first. It does not have 1 year. When the property is to be redeemed, the interest in Rule 39, Rules of Court will not apply (1% or 2%), but rather the interest stipulated in the mortgage loan. Then you deduct income received from the property before the redemption, because the buyer might have obtained a writ of possession and might have been collecting rent. The total investment in real estate for the use of the bank should not exceed 50% of the combined capital accounts. Otherwise, it will be not liquid (because most of its capital is stuck in real estate investment which usually takes time to convert to cash). Real property acquired by the bank must be disposed of by the bank within a period of 5 years. Sec. 53 Other Banking Services. Banks may also render other banking services, like receive in custody funds, documents, and valuable objects (act as custodian); act as financial agents, and buy and sell securities for customers; make collections and payments for customers; act as managing agents, adviser, administrator; or rent out safety deposit boxes. Sec. 55 Prohibited Transactions. Banks are prohibited from directly engaging in insurance business. But they can be stockholders of insurance companies. There are certain prohibited acts or transactions on directors, officers, employees, or agents of banks. They are not allowed to make false entries in any bank report or any fraudulent transaction. They are not allowed, without a court order, to disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations or any other entity. They cannot accept gifts, fees or remuneration (or kickback) for the approval of the loan. They cannot overvalue any security (cannot appraise a property worth P10M to P20M). They cannot outsource inherent banking functions (banks cannot let another

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company to handle receiving of deposits from depositors because it is an inherent banking function.) You cannot sub-contract that. But a bank which allows another entity to prepare the monthly bank statements to be sent to individual depositors is not prohibited because it is not an inherent banking function. The inherent banking functions as defined by the law covers the act of receiving deposits from the public and the act of lending money to the public. Mere preparation of the monthly statements and mailing them to the depositors is not an inherent banking function. It is also prohibited for banks to engage in unsound banking practices, like lending money without collateral it is too risky. An act or omission that caused undue injury or has given unwarranted benefits or preference to the bank or any party through manifest partiality, evidence of bad faith or gross inexcusable negligence. Example. Urban Bank officers were able to get back their money just before they declared a bank run. It is also an unsound banking practice where the act or omission involved entering into any contract or transaction manifestly and grossly disadvantageous to the bank. In case a bank or quasi-bank announces a bank holiday or suspends the payment of deposits for more than 3 days, the MB without a need prior hearing, may close it and place it under receivership under PDIC. Sec. 73 Acquisition of Voting Stocks (by a Foreign Bank) in a Domestic Bank. Foreign banks were allowed to come in. Within 7 years from the effectivity of the General Banking Law, the MB may allow a foreign bank to acquire up to 100% of the voting stock of 1 Philippine bank. But the MB should see to it and ensure that at least 70% of the entire the resources of the entire banking system is held by banks which are owned by Filipinos. And foreign banks are required to guarantee the liabilities of their Philippine branch. Sec. 79 Authority to engage in Trust Business. Banks are also authorized to engage in trust functions. Example, the bank can be appointed as trustee for a pension plan of employees where they can deposit money which the bank can invest. No trust entity can acquire property, sell, or lend money or property, or purchase debts from any of its departments, directors, officers, stockholders, employees, or relative within the 1st degree of consanguinity or affinity or related interests, unless: a. the transaction is specifically authorized b. the other party is fully disclosed to the trustor A trust entity can also act as guardian, receiver, escrow agent, administrator of an estate, etc. Sec. 87 Separation of Trust Business from General Business. The trust business should be separated from the banking business. In their books, the accounts must be kept separate. Thats why trust assets (ex. pension funds held in trust) are exempt from claims of creditors or depositors, because that money does not belong to the bank but rather to the beneficiary of the trust.

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