SUMMARY - Dizon Banking Law

8/3/2019 SUMMARY - Dizon Banking Law

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Banking Laws - Dizon

CHAPTER 1

I. DECLARED Policy of the State (Sec. 2, GBL) - The State recognizes the vital role of banksproviding an environment conducive to the sustained development of the national economy andthe fiduciary nature of banking that requires high standards of integrity and performance. Infurtherance thereof, the State shall promote and maintain a stable and efficient banking andfinancial system that is globally competitive, dynamic and responsive to the demands of adeveloping economy.

II. Definition of Banks (Sec. 3.1, GBL) - "Banks" shall refer to entities engaged in the lending offunds obtained in the form of deposits. Note: Banks may engage in other activities allowed bylaw.

III. Nature of Banking Business

A. Debtor-Creditor Relationship The relationship existing between a depositor andbankis that of a creditor and debtor.

B. Fiduciary Duty

1. Simex Intl., Inc. vs. CA: The State recognizes the fiduciary nature ofbanking that requires high standards of integrity and performance. Banksare required to treat the accounts of its depositors with meticulous care,always having in mind the fiduciary nature of their relationship.

2. This banks obligation is deemed written into every deposit agreementbetween a bank and its depositor.

C. Not A Trust Agreement1. The fiduciary nature of bank-depositor relationship does NOT convert the

contract between the bank and its depositors FROM a SIMPLE LOAN TO aTRUST AGREEMENT. This is because Banks do not accept deposits toenrich depositors but to earn money for themselves.

2. Failure by the bank to pay to pay the depositor is failure to pay a simpleloan, and NOT a breach of trust.

D. Indispensable Institution1. Banks is an indispensable institution in the modern world and plays vital role

in the economic life of every citizen. People have come to regard them withrespect, gratitude, and confidence.

2. Even a humble wage-earnerdoes not hesitate to entrust his life savings

3. An ordinary person usually maintains an account for security andconvenience in settling his bills

4. As forbusiness entities, the bank is trusted to help them in running theiraffairs, not only in the form of loans, but in their day-to-day transactions likeencashing a check.

E. Impressed with Public Interest (Simex vs. CA) a depositor expects a bank to treathis account with utmost fidelity, whether such account consists only of a few hundredpesos or millions.

F. Degree of Diligence (Simex vs. CA)

Art. 1172 of NCC states that the degree of diligence required of an obligor is thatprescribed by law or contract, and in the absence of such, that of a good father to afamilyNOTE: Due diligence is required of banks extend even to persons or institutions,regularly engaged in the business of lending money secured by real estatemortgage.

G. Treatment of Accounts with Meticulous Care There is NO LAW mandating banks tocall up their clients whenever their representatives withdraw significant amountsfrom their accounts.

H. Duty to Keep Records

1. Banks shall have a true and accurate account, record, statement of theirdaily transactions especially those of deposit liabilities.

2. The making of a false entry or willful omission of entries is a ground for theimposition of administrative sanctions and disqualification from office.

I. Banks are NOT Gratuitous Bailees Banks solicit deposits in order that they can usethe money to gain.

J. Banks are NOT Expected to be Infallible, but must bear the blame for NOTdiscovering mistakes despite established procedures.

Q: Sps. A and V opened a joint current account in C Bank with an initial deposit of P2,250.Prior thereto, A had a personal account with the same bank. When the spouse opened their

joint current account, the New Accounts teller pulled out the old signature card of A andplaced the old personal account number of A in the deposit slip. V issued two checks andone of these was dishonored for IF. They were deducted P20 from their account. The banktried to call the spouses, but they were in Pampanga. Is the bank liable for damages?

A: Yes.- a depositor expects a bank to treat his account with utmost fidelity, whether such

account consists only of a few hundred pesos or millions.- Bank must record every transaction accurately- A blunder on the part of the bank such as dishonor of check without good reason can

cause the depositor embarrassment, financial loss, and perhaps civil and criminallitigation

Note: Exemplary damages are awarded if there is malice and bad faith.

K. Dealing with Registered Lands The rule that persons dealing with registered landscan rely solely on the certificate of title does NOT APPLY to banks. Banks shouldexercise more care and prudence in dealing with registered lands that privateindividuals, for their business is one affected by public interest.

Q: A sold is unregistered parcel of land to B. Subsequently, an Orig. Cert.Title (OCT) wasissued. A surrendered it to X bank as a consequence of a mortgage. B died w/o knowing

that an OCT has been issued. Upon learning of his right, C (Bs heir) confronted A andwent to X bank. C asked to photocopy the owners duplicate certificate outside the bankspremises. C then brought it to the Register of Deeds with the Deed of Sale and he wasissued a Transfer Cert of Title. Is the bank liable for damages to A?A: Yes.- Bank failed to foresee the risk of its act of entrusting C with the OCT without notifying

A and verifying the veracity of Cs claim and character.- This acts runs afoul of the banks mandate to observe the highest diligence- A has also the right to due process. Notice and hearing are indispensable elements of

this right which the bank ignoredQ: A bank accepted a property as mortgage despite existence of structures and occupantsother than the mortgagor. Is the bank negligent?A: Yes. Banks, being in the business of extending loans, are familiar with the rules on landregistration. They are expected to exercise more care and prudence in dealing withregistered lands that private individuals, for their business is one affected by public interest.

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The bank should have conducted investigation since there occupants other than the ownerof the land mortgaged. This constitutes gross negligence amounting to bad faith.

L. Banks may Exclude Persons in their Premises No employees must be spared bybanks and their officers and employees to ensure and preserve the trust andconfidence of the general public.

IV. Liability For Acts and Employees Bank is LIABLE for the wrongful acts of its officersdone WITHIN the scope of their authority.A. Negligence of ManagerBank is liable for the negligence or misdeed of the branch manager since confidence in thebanking system necessarily includes reliance on bank managers. (BPI vs. First MetroInvestment Corp.)B. Negligence of Officers if within the scope of authority, bank is liableC. Negligence of Tellers returning the passbook ONLY to the depositor or his

authorized representative. If given to the wrong person, bank is liable since they wouldbe clothing that person presumptive ownership of the passbook.

Note: Appropriation of money by a bank teller is NOT ESTAFA. Such is only MATERIALPOSSESSION. The bank still has JURIDICAL POSSESSION. If forpersonal gain, THEFT.If the teller has possession of the money since he occupies a position of confidence,QUALIFIED THEFT.

D. Right to Recover from Employees Banks may recover from their employees. (Art.2181 of NCC)

E. Liabilities other than Actual1. Exemplary by way of example. Malice and bad faith must be attendant

2. Moral when the good reputation of the client was besmirched or hisfinancial credit

Note: Banks are NOT responsible for such damages in the ABSENCE of fraud, bad faith,malice, or wanton attitude.F. Respondeat superior, Diligence in the Selection, and Supervision of Employees- A bank is bound by negligence of its employees under the principle of Respondeatsuperiororcommand responsibility.

V. Classification of Banks (CUT RICO)

Sec. 3.2. Banks shall be classified into:(a) Universal banks;(b) Commercial banks;(c) Thrift banks, composed of:

(i) Savings and mortgage banks;

(ii) Stock savings and loan associations; and(iii) Private development banks, as defined in the Republic Act No. 7906 (hereafter theThrift Banks Act);

(d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks Act");(e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the "CooperativeCode");(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the Charter of AlAmanah Islamic Investment Bank of the Philippines; and(g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentralng Pilipinas.

A. Business Name

- Only a bank that is granted universal/ commercial banking authority may representitself to the public as such in connection with its business name

- Thrift Banks: allowed to use and adopt any name, provide the ff words are affixed: Athrift bank, Saving bank, A Private Development Bank, or A stick Savings and Loan

Association

- Rural or Commercial Banks: allowed to use and adopt any name, provide the ff wordsare affixed: RuralorCoop, A Cooperative Bank, or A Rural Bank.

o The size of the letters of such phrase shall be at least of the size of the

business name when shown on letterheads, billboards, and otheradvertising materials.

B. Universal Banks1. powers authorized for a commercial bank2. powers of an investment house3. power to invest in non-allied enterprises

C. Commercial Banks1. general powers incident to corporations

2. powers of commercial banks: (A BREAD)

D. Rural Banks

- designed to make needed credit available and readily accessible in the rural areas onreasonable terms

- primary purpose is to meet the normal credit needs of farmers, fishermen, or farmfamilies

E. Thri ft Banks- include savings and mortgage banks, private devt. banks, and stock savings and

loans associations.

- Providing short-term working capital, medium and long term financing to businessengaged in agriculture, services, industry, and housing

- Powers of a Thrift Bank:

F. Cooperative Banks- one organized by, the majority shares of which is owned and controlled by,

cooperatives primarily to provide financial and credit services to cooperatives- cooperative bank shall include cooperative rural banks- Membership shall include ONLY cooperatives and federations of cooperatives- Functions of a Cooperative Bank

G. Islamic Banks (Al-Amanh Islamic Investment Bank of the Philippines)- in Zamboanga City- primary purpose shall be to promote and accelerate the socio-economic devt of the

Autonomous Region by performing banking and financing operations and to establishand participate in the agricultural, commercial, and industrial ventures based on theIslamic concept of banking.

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H. Other Banks- Philippine Veterans Bank private commercial bank owned by veterans- Land Bank of the Philippines finance the acquisition and distribution of agricultural

estates fro division and resale to small landholders as well as the purchase of thelandholding by the agricultural lessee

- Development Bank of the Philippines was created as Rehabilitation Finance Corp.(RFC); took over the functions of Agricultural Industrial Bank

I. Non-Stock Saving And Loan Associations mean a non-stock, non-profit corpengaged in the business of accumulating the savings of its members and using suchaccumulations for loans to members for home building or personal finance

J. Quasi-banks refer to entities engaged in the borrowing of funds through theissuance, endorsement or assignment with recourse or acceptance of depositsubstitutes for purposes of relending or purchasing of receivables and otherobligations

"deposit substitutes" is defined as an alternative form of obtaining funds from thepublic, other than deposits, through the issuance, endorsement, or acceptance of debtinstruments for the borrower's own account, for the purpose of relending or purchasingof receivables and other obligations.

VI. Authority to Engage in Banking and Quasi-Banking (QB) FunctionsA. Authority from Bangko Sentral

- No person shall engage in banking operations or QB functions WITHOUT authorityfrom the Bangko Sentral

- No articles of incorporation or amendment to articles of incorporation of banks,banking and quasi-banking institutions, building and loan associations, trustcompanies and other financial intermediaries, insurance companies, public utilities,educational institutions, and other corporations governed by special laws shall beaccepted or approved by the Commission unless accompanied by a favorablerecommendation of the appropriate government agency to the effect that sucharticles or amendment is in accordance with law. (Sec. 17 of BP 68)

- The Securities and Exchange Commission shall not accept for filing the by-laws orany amendment thereto of any bank, banking institution, building and loanassociation, trust company, insurance company, public utility, educational institution orother special corporations governed by special laws, unless accompanied by acertificate of the appropriate government agency to the effect that such by-laws

or amendments are in accordance with law. (Sec. 46 of BP 68)B. Whether a person or entity is performing banking or quasi-banking functions W/O theBS authority shall be decided by the Monetary Board by examining and investigatingthe books and records of such person or entity. Upon issuance of authority, maycommence to engage in functions until authority is suspended, revoked or annulled byBS.

C. The dept head and the examiners of the supervising and examining dept shall:1. administer oath to any such person or entity2. compel presentation of books, records, and documents

a. failure to do so would subject such to appropriate sanctions

D. BS shall, when examining a bank, have the authority to examine an enterprise whichis wholly or majority-owned by the bank.

E. Certificate of Authority to Register

- The SEC shall not register the articles of corp or any amendment unlessaccompanied by a certificate of authority issued by the MB, under its seal. TheMB shall be satisfied from the evidence submitted to it: (RPC)

o All requirements of law have been complied with

o Public interest and economic conditions justify the authorization

o The amount of capital as well as the integrity of the organizers reasonable

assure the safety of deposits and the public interest

- The SEC shall not register the by-laws of any bank or any amendment unless

accompanied by a certificate of authority issued by the MB, under its seal.

CHAPTER 2: ORGANIZATION, MANAGEMENT & ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST ENTITIES

I. Organization of Banks

A. Condi tionsThe MB may authorize the organization of a bank and quasi-bank:1. Entity is a stock corporation2. Funds are obtained from the public, 20 o more persons3. Minimum capital requirements by MB are satisfied

B. Capabil it ies- The MB shall take into consideration their apability in terms of their financial

resources and technical expertise and integrity.1. Banks ownership structure2. Directors and senior management3. I ts operating plan4. Internal control5. Its projected financial condition and capital base

C. Capital Requirements1. Banks shall comply with the required minimum capital by MB:

Universal Bank- 4,950M

Commercial Bank- 2,400M

Thrift Banks

w/n MM- 325.0MOutside MM- 52.0M

Rural Banksw/n MM- 26.0MCities of Cebu and Davao- 13.0MIn 1st, 2nd & 3rd class cities and 1st class minicipalities- 6.5MIn 4th, 5th & 6th classcities and in the 2nd, 3rd & 4th class municipalities-3.9MIn 5th & 6th class municipalities- 2.6M

2. At least 25% of the total authorized capital stock shall be subscribed by thesubscribers of the propsed bank, and at least 25% of such subscription shall bepaid-up that it must not be less than the minimum required capital.

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D. Incorporators/ Subscribers1. Must be persons of integrity and of good credit standing in the business

community. Subscribers must have adequate fonancial strength to pay for theirpropsed subscriptions in the bank.

2. Must not have been convicted of any crime involving moral turpitude unlessotherwise allowed.

3. A bank may be organized with not less than 5 or more than 15 persons inorganizing or investing in the proposed bank.*if there is excess, may be listed among the original subscribers in the Articles ofCorp.

QUERY: MAY COOPERATIVES ORGANIZE A BANK?Yes, established cooperatives and corporations may organize a bank and/or

subscribe to the shares of stock oa any rural bank. Provided, that it shall be subject to specialexamination and to such rules and regulations prescribed by the MB.

E. Bank Branches1. UB & CB may open branches or other offices within or outside the Philppines

upon prior approval of the BS.2. A bank authorized to branch out shall be responsible for all business conducted

in such branches because a bank and its offices shall be treated as one unit.

I I. StockholdingsA. Treasury Stocks

1 . No bank shal l Purchase/ acquire shares of its own capital stock or

Accept its own shares as a security for a loan

EXCEPT: when authorized by the MB.-stocks purchased shall be sold or disposed of at a public orprivate sale.

2. At common law, a coprpration has no lien upon the shares of stockholders forany indebtedness of the corporation.

3. Sec.35 of the US National Banking At of 1864, if banking corporations were givena lien on their own stock for the indebtedness of the stockholders, the prohibitionagainst granting loans or discounts upon the security of the stock would becomelaregly ineffective.

B. Foreign Stockholdings1. Foreign inividuals an non-bank corporations may own or control up to 40% of the

voting stock of a domestic bank. It shall apply t Filipinos and domestic non-bankcprporations.

QUERY: PROVISION IS AMBIGUOUS. IF IT APPEARS THAT FPREIGN INDIVIDUALS ANDNON-BANK COPORATINS MAY ONLY CONTROL UP TO 40% OF THE VOTING STOCK.ON THE OTHER HAND, FILIPINOS AND DOMESTIC NON-BANK CORPORATIONS MAY

ALSO CONTROL ONLY UP TO 40% OF THE VOTING STOCK. WHAT HAPPENS THEN TOTHE 20%?

- Foreign inividuals an non-bank corporations may own or control up to 40% of the voting stockof a domestic bank Provided, that the aggregate foreign-voting stoks owned by them shall not

exceed 40% of the outstanding voting stock of the bank. The percentage of foreign-ownedvoting stock shall be determined by the citizenship of the individual stockholders in the bank.

-Filipino individual and domestic non-bank corporation may each own up to 40% o the votingstock of a domestic bank. There shall be no aggregate ceiling on the ownership by suchindividuals and corporations in a domestic bank.

2. The percentage of foreign-owned voting stock shall be determined by thecitizenship of the individual stockholders in the bank shall follow the citizenshipof the controlling stockholders of the corporation, irrespective of the place ofincorporation.

*CONTROLLING STOCKHOLDER- refer to individuals holding more than 50% ofthe voting stock of the corporate stockholders of the bank.

3. At least 60% of voting stock of any commercial bank shall be owned by Filipinocitizens. For thrift banks, at least 40% of its voting stock shall be owned byFilipinos. In rural banks,all of the capital stock.

NOTE: In determining the nationality of banks, the CONTROL TEST is applied. The followingtests do not:

1. War-time test2. Investment test3. Place of incorporation test4. Grandfather rule

5. Principal place of usiness test

C. Acquisition of Voting Stock in a Domestic Bank1. Within 7years from the effectivity of the GBL and subject to guidelines issued

pursuant to the Foreign Banks Libearlization Act, the MB may authorize a foreignbank to acquire up to 100% of the voting stock of only one bank organized underthe laws of the Republic of the Philippines.

2. Within the same period, MB may authorize any foreign bank, which prior to theeffectivity of the GBL availed itself of the privilege to acquire upto 60% of thevoting stock of a bank under the Foreign Banks Libearlization Act and the ThriftBanks Act, to further acquire voting shares of such bank to the extent necessaryfor it to own 100% of the voting stock thereof.

3. MB shall adopt measures necessary to ensure that at all times the control of 70%of the resources or assets of teh entire banking system is held by banks whichare at keast majority-owned by Filipinos.

D. Family Grous or Related Interests

1. Stockholdingsn of individuals related to each other within the fourth degree ofconsanguinity or affinity, legitimater or common-law shall be considered familygroups or related interests and must be fullt disclosed in all transactions bysuch an individual with the bank.

2. Two or more corporations owned or controlled by the same family group or samegroup of persons shall be considered related interests and must be fulllydisclosed in all transactions by such corporations or related groups of personswith the bank.

III. Board of Directors

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A. Number of Directors1. Shall be at least 5, an a maximum of 15 members of the board of directors of

bank, 2 shall be independent directors. (except)-all be of legal age-majority are residents of the Phil.-form a private corporation for any lawful purpose

2. INDEPENDENT DIRECTOR- mean a person other tha an officer or employee ofthe bank, its subsidiaries or ffiliates or related interests.*Non-Filipino citizens may become members of the bord of directors of a bank tothe extent of the foreign participation in the equity of said bank.

a. not or has not been an officer or employee of the bank/quasibank/trust entity, itssubsidiaries and affiliates or related interests during the past 3 years conted from thedate of his electionb. not a director of officer of related companies of the institutions majority stokholderc. not a majority shareholder of the institutions, any of its related ompanies or of itsmajority shareholderd. not a relative w/n 4th degree of consanguinity or affinity, legitimate or common lawof any director,oficer or majority shareholder of the bank/quasibank/trust entity, itssubsidiaries and affiliates or related companiese. not acting as a nominee or representatve of any director or substantial holderf. free from any business or other relationship which could materially interfere with theexerise of his judgment

B. Directors of Merged or Consolidated Banks

- The number of directors shall not excedd 21.

C. Meetings1. May be conducted throuh modern technologies such as teleconferencing and

video-conferencing

*Banks shall include in theor bylaws a provision taht meetings of their board ofdirectors shall be held only within the Philippines.

2. Corporate officers, quorum:- Immediately after election, directors must formally organize the election of the

a. president who shall be thedirectorb. treasurer, who may or may not be a directorc. secretary who shall be a resident nd citizen of the Philippinesd. other officers provided for in the by-laws

*Any 2 or more positions may be held concurrently by the same person EXCEPT thatno one shall act as a president and secretary or as president and treasurer at thesame time.

*Directors or trustees cannot attend ot vote by proy at board meetings.

D. Compensation and other Benefits of Directors and Officers1. MB may regulate the payment by the bank to its deirectors and officers of

compensation, allowance, fees, bonuses, stock options, proit sharing and fringebenefits only in the exceptional cases and when the circumstances warrant, suchas but not limited to the following:a. When a bank is under comptrollership or conservatorship

b. When found by the MB to be conucting business in an unsafe or unsoundmanner

c. When found to be an unsatisfactory financial condition.

2. REMEDY: Sec.30 of the Corporation CodeDirectors shall not receive any compensation except for reasonable perdiems. Provided, taht any such compensation other than per diems maybegranted to directors by the vote of the stockholers representing at least amajority of the outstanding capitl stock at a regular or special stockholdersmeeting. It shall not exceed 10& of the net income before income tax of thecorporation durng the preceeding year.

IV. Fit and Proper Rule

A. Powers of the MB1. To maintain the quality of bank management and afford better protection to

depositors and the public in general.-MB shall prescribe,pass upon and review the qualifications and disqualificationsof individuals elected or appointed bank directors or officers and disqualify thosefound unfit.

2. After due notice to the board of directors of the bank, the MB may disqualify,suspend or remove any bank director or officer who commits or omits an actwhich render himunfit for the position.

3. If found fit and proper, shall be given to his integrity, experience, education,

training and competence.

B. Disqualification

a. Permanently Disqualified Directors1. Have been convicted by final judgment of a court for offenses involving

dishonesty or breach of trust (ex. Estafa, extortion, forgery, malversation,swindling, BP22)

2. Have been convicted by final judgment of a court sentecing them to serve amaximum term of imprisonment of more than 6 years.

3. Have been convicted by final judgment of a court for violation of bankinglaws, rules and regulations

4. Those who have been judicially declared insolvent, spendthrit orincapacitated to contract

5. Those directors, officers or emplyees of banks, quasi anks or trust entitieswho were found to be culpable for such institutions closure

6. Those directors, officers or emplyees of banks, quasi anks or trust entitieswho were found by the MB as administratively liable for violation of bankinglaw, rules an regulaitons

7. Those directors, officers or emplyees of banks, quasi anks or trust entitieswho were found to be unfit for the position of directors nad officers

b. Temporarily Disqualified Directors:1. Person who refuses to fully disclose the extent of their business interests to

the appropriate suoervising and examining department.2. Directors who have been absent or who have not participated in more than

50% of all meetings, both regular and special, and those who failed to

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physically attend at east 25% of all meetings in an year except those withnotarized certification executed by the corporate secretary.

3. Persons who are deinquent in the payment of their obligations:a. DELINQUENT IN THE PAYMENT OF OBLIGATIONS- an

obligation of a person with a bank/quasibank/trust entity where heis a director or officer, or at least 2 obligations with otherbanks/financial institutions, underdifferent credit lines or loancontracts, ar past due.

b. Obligations shall include all borrowings from a bank/quasibankobtained by:1. Director or officer for his own account or acts as guarantor,

indorser or surety of loans2. The spouse or child under the parental authority of the

director or officer3. Any person whose loan proceeds were credited to an acount

for the benefit of a director or officer.4. His spouse is the managing partner or a general partner

owning a controlling interest in the partnership5. A corporation, association or firm whollyowned by any group

of persons4. Have been convicted by final judgment of a court for offenses involving

dishonesty or breach of trust (ex. Estafa, extortion, forgery, malversation,swindling, BP22)

5. Directors of officers of closed banks/quasibanks/trust entities pending theirclearance by the MB

6. Directors disqualified for failure to observe/discharge their duties &

responsibilities7. Directors who failed to attend the special seminar for board of directors8. Persons dismissed/terminated from employment for cause.9. Those under preventive suspension10. Persons with derogatory records as certified by, or on the official files of, the

judiciary, National Bureau of Investigation, Philippine National Police, quasijudicial bodies.

11. Those are administratively liable for violation of banking laws, rules andregulations.

12. Any person found by MB to be unfit for th position of directors or officers.13. When penalty is suspension from office or fine is imposed, such is found to

be administratively liable.

C. Disqualification/ Prohibitions under the Corporation CodeSec.27. No person convited by fianl judgment of an offense puishable by imprionment

for a perios exceeding 6years or a violation of this Code within 5years prior to date ofis electiom or appointment shall qualify as a director, trustee or officer of anycorporation.

D. Disqualification? Prohibitions under NCBA

V. Banking Days and HoursA. Number of Days and Hour

1. Shall transact business on all working days for at least 6 hours a day, evenbefore 8am or after 8pm. May open for business on Sat, Sun or holidays forat least 3 hours a day.

2. If so, must repot to the Bangko Sentrl the additional days

3. Working days mean Mon-Fri excpet holidays.4. Branches at international airport or major fish port are allowed to operate on

flexible banking hours provided hat wil inform BSP of the schedule of thebanking hours that is not less than 6 hrs a day.

VI. Automated Teller Machines

A. Off-ite Automated Teller Machines (ATMs)

1. Must submit a report to the appropriate department of the BSP onATMs which they establish

2. Shall be installed only in the centers of activity like shopping,supermarkets, hospitals, university campuses. Provided, that adequateinternal control and security measures shall be adopted nd submittedto BSP.

3. Must comply with these, to all to open off site ATMS.

B. Mobile ATMs1. Should allowed to visit only centers of activity and should confine their

itinerary to Metro Manila until futher notice.2. Shall secure insurance coverage or adopt a self-insurance scheme to

protect itself against losses of whatever nature in ita mobile ATMoprations

3. Banks hall notify the supervising and examining department of the BSP

of the tual date a mobile ATM become oprational and when terminated.

VII. Independent Auditor1. MB shall require a bank etc. To engage the services of an independent

auditor to be chosen by a bank etc. From a list of certified publicaccountants acceptable to the MB

2. Term of engagement hall be prescribed by MB, whenther as continuingbasis or special engagements.

3. Board of Directors shall also conduct an annual balance sheet audit of thebank etc. To review the internal audit and control system of teh bank etc,and to submit a report of such audit.

VIII. Financial Statements- Every bank etc. Shall submit to the appropriate supervising and examining dept.

Of the BSP fianncial statements.

- It shall be of a specific date designated by BSP and shall show actual financialconditions of the institution submitting the statements, and of its branhes, offices,subsidiaries and affiliates,

- and shall contain such informations as required in the BSP regualtions.

PUBLICATION:- In English or Filipino

- At least once every quarter in a newspaper of general circulation in the city or

province- BSP msy prescibe where it shall be published

- Shall make available to the public an shall prescribe the complete set of its

audited financial statements

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- If there is local emergency or imminent panic, the MB by vote of at least 5 of its

members may allow to defer for a stated period of time the publication of thestatement of financial condition.

NOTES: page 54-55 (IMPORTANT)

IX. Publication of Capital Stock

- It shll not publish the amount of its authorized or subscribed capital stock withoutindicating at the same tme and with equal prominence, the amount o its capitalactually paid-up.

- No branch of any foreign bank doing business in the Phil shall in any wayannounce the amount of the capital and surplus of its had office.

X. Settlement of Disputes

- BSP shall be consulted by other gov. Agencies in actions and proceedingsbrought before them involving controversies in banks etc. , as well as disputesbetween any all or all of them which theya re the directors, officers orstockholders.

XI. Strikes and Lockouts

A. Unsettles Labor Disputes- The banking industry is indispensable to the national interest.

- If unsettled afer 7 days shall be reported by the BSP to the Sec. Of Labor who

may assume jurisdiction over the dispute and decide it or certify the same.- The President, may intervene and assume juridiction over suh labor dispute in

order to settle and terminate the same.

B. Reports of Strikes and lockoutsThe bank shal disclose pertinent info:1. Cause of the strike/lockout and bank managements position on its legality2. Bank oprations affected

XII. Laws Governing other Types of Banks

- Thrift Banks Act, Rural Banks Act, Cooperative Code- For Islamic banks- special laws

- For purposes of prescribing the minimum ration which the net worth of a thriftbank must bear to its total risk assets, the provisions of the Gbl shall govern.

CHAPTER 3. DEPOSIT FUNCTIONS OF BANKS

Demand deposits are all those liabilities of the BSP and other banks which are denominatedin Phil. Currency and are subject to payment in legal tender upon demand by presentation ofchecks.

The followings are prohibited from maintaining demand deposits or current accounts withthe bank office in which they are assigned;

a. Al l off icers;

b. Employees of the banks cash department/cash unitsc. Others employees who have direct and immediate responsibility in the handling of

transactions/records pertaining to demand deposits or current accounts.Includes also;

The spouse, relatives within 2nd degree of consanguinity and affinity of the officers andemployee covered by the prohibition.

DUTY OF BANK TO HONOR CHECKSWhere the bank possesses funds of a depositor it is bound to honor his checks to the

extent of the amount of his deposits. Failure of the bank to pay the check, entitles the drawer tosubstantial damage without any proof of actual damages.

RESPONSIBILITY OF THE DRAWERHe must personally keep track of his available balance in the bank and not rely on the

bank to notify him of the necessity to fund certain checks he previously issued.

DUTY OF BANKS TO KNOW SIGNATURESA bank is bound to know the signatures of its customers.

NO OBLI. TO PAY PARTIAL PAYMENTA bank is under no obligation to make part payment on the check up to only the

amount of the drawers fund where the check is drawn for an amount larger than what thedrawer has on deposit.

WITHDRAWALSBAKS ARE PROHIBITED FROM ISSUING/ACCEPTING Withdrawals slips without

requiring the depositors to present their passbooks and accomplishing necessary withdrawalslips except for banks authorized by BSP to adopt the no passbook withdrawal system.

Negotiable order of withdrawal (NOW) are interest bearing deposits of accountsthat combine the payable on demand feature of the checks and investment feature of a savingsacct.

Time deposits one the payment of which cannot legally be required within such a specifiednumber of days.

NEGOTIABLE CERTIFICATES OF TIME DEPOSITS (NCTDs)a. Universal banks / commercial banks may issue NCTDs without approval of BSPb. Thrift banks/Rural banks/Cooperative banks need approval of BSP

NON NEGOTIABLE CTD - Banks may issue long-term negotiable tax exempt certificates oftime deposit without approval of the BSP.

QUASI BANKING FUNCTIONS:Essential elements of quasi-banking are:

A. borrowing of funds for the borrowers own account;B. 20 or more lenders at any one time;C. Methods of borrowing are issuance, endorsement, or acceptance of debt instruments

of any kind, other than depositsD. The purpose of which is (1) relending, or (2) purchasing receivables or other

obligations

Any person, natural or juridical may deposit with such Phil. Bank in good standing foreigncurrencies which are acceptable as part of the international reserve except those which arerequired by the central bank to be surrendered.

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Anonymous accounts or accounts under fictitious name should not be kept allowed.

II. Administration of deposits

All banking institutions are required to set a minimum of 3 specimens of their depositorsand to update the specimen of signatures every 5 years or sooner, at the discretion of thebank.

Minors are vested with special capacity and power to make savings, and withdraw thesame without the assistance of their parents or guardians, provided the f requirements aremet;

1. at least 7 years of age;2. able to read and write;3. have sufficient discretion;4. not otherwise disqualified by any other incapacity;

Parents may nevertheless deposit for their minor children and guardians for their wards.

Corporationsa. Incorporation Stage payment of subscription is in cash, the SEC requires a bank

certificate of deposit of paid-up capital notarized in place where signed.b. Post Incorporation in opening a bank account, the board of directors issues a

resolution authorizing the signatories and specifying the depository bank.

Clearing cut off time

General rule: all deposits and withdrawals during regular banking hours shall be credited ordebited to deposit liability accounts on the date of receipt or payment thereof; provided,however, that a bank may set a clearing cut off time for its head office not earlier than 2hours before the start of clearing at the BSP and not earlier than 3-1/2 hours before thestart of clearing for all its branches, agencies, and extension office doing business in thePhilippines. Provided, further that banks are located in areas where there are no BSPregional/clearing arrangement may set a clearing cut-off time not earlier than 2 hoursbefore the start of their local clearing after which time, deposits received shall be bookedlikewise.

III. Survivorship AgreementDefinition:Joint owners of a deposit agree that either of them could withdraw any part or the whole ofsaid account during the lifetime of both, and the balance, if any, upon the death of either,belonged to the survivor.

Although survivorship agreement is per se not contrary to law, its operation or effect maybe violative of the law.

IV. Duties of Banks

A. METICULOUS CAREA bank is required to take meticulous care of the deposits of its clients, who have the

right to expect high standards of integrity and performance from it.In every case the depositor expects the bank to treat his account with the utmost

fidelity, whether such account consists only of a few hundred pesos or of millions.

B. PAYMENT TO PROPER PARTY

C. IN CASE OF DEATH OF DEPOSITORNational revenue code provides:If a bank has knowledge of the death of the depositor, it shall not allow any withdrawal

from said deposit account unless the commissioner has certified that the taxes imposedthereon by this title have been paid. Provided, however, that the administrator of the estateor any 1 of the heirs of the decent may upon authorization of the commissioner withdraw anamount not exceeding 20,000 without the said certification.

V. Secrecy of bank Deposits

Purposes

a. to give encouragement to the people to deposit their money in bankinginstitutions;

b. to discourage private hoarding so that the same may be properly utilized bybanks in authorized loans to assist in the economic development of thecountry.

R.A. 8367 Absolute ConfidentialityAll deposits of whatever nature with an Association in the Philippines are herbyconsidered as of an absolutely confidential nature and may not be examined, inquiredor looked into by any person, government official, bureau or office except upon;1. written permission of the depositor;2. in case of impeachment;3. upon order of a competent court in cases of bribery or dereliction of duty of public

officials;4. in cases, where the money deposited or invested is the subject matter of the

litigation.

Authority to inquire into bank deposits under the ANTI MONEY LAUNDERING ACTThe AMLC may inquire into or examine any particular deposit or investment

with any banking institution or non- bank financial institution upon order of anycompetent court in cases of violation, when it has been established that;a. there is probable cause that the deposits or investments are related to an

unlawful activity;b. a money laundering offense.

Authority of the Commissioner of Internal Revenue to inquire into depositsIn cases;a. a decedent to determine his gross estate;b. any taxpayer who has filed an application for compromise of his tax liability by

reason of financial incapacity to pay his tax liability.

CHAPTER 4

Operations of a Universal Banka. Powers of a commercial bankb. Powers of an inverstment housec. Power to invest in non-allied enterprises

I I. Equi ty Investments of a Universal Banka. All ied or non-all ied

i. Allied enterprises: financial or non-financialii. Total investment shall not exceed 50% of the net worth of the

bank

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iii. Total investment in one enterprise shall not exceed 25% of thenet worth of the bank

iv. Net worth- total of the unimpaired paid-in capital including paid-insurplus, retained earnings and undivided profit, net of valuation,reserves and other adjustments

b. Acquisition is subject to prior approval of the Monetary BoardIII. Equity investments of a Universal Bank in Financial Allied Enterprises

a. Can own up to 100% of the equity in a thrift bank, a rural bank or otherswithin this category

b. A publicly-listed universal or commercial bank can own only one other

universal or commercial bankc. Financial Allied: leasing companies, banks, investment houses, financingcompanies, credit card companies, insurance companies, holding company,etc.

IV. Equity Investments of a Universal Bank in Non-financial allied enterprisesa. May own up to 100%b. Warehousing, storage, safe deposit box, management of mutual funds,

providing computer services, insurance agencies, home building and homedevelopment

c. Rural/Cooperative Banks may invest, as a non-financial allied undertakingin the ff:

i. Warehousing and postharvest facilitiesii. Farm equipment distributioniii. Transportation of agricultural productsiv. Marketing of agri products

v. Leasing V. Investments in Non-Al lied Enterprisesa. Shall not exceed 35% of the total equity in that enterprise nor shall it exceed

35% of the voting stockb. Only universal banks can investment in non-allied enterprises:

i. Industrial park projects, financial and commercial complexprojects, activities in agri, mining, manufacturing,etc.

VI. Investments in Quasi-Banksa. Shall not exceed 40% equity

Operations of Commercial BanksI. Powers

a. Powers incident to corporationsb. Such powers necessary to carry on the business of commercial banking:

i. Accepting drafts and issuance of letters of creditii. Accepting or creating demand depositsiii. Receiving deposit substitutesiv. Extending creditv. Buying and selling foreign exchange and gold or silvervi. Discounting negotiating promissory notes, etc.

II. Letters of Credita. 3 relationships created: bank and buyer, bank and seller, buyer and sellerb. Independence Principle- assures the seller of prompt payment even if buyer

has not yet reimbursed as long as the seller presents the necessarydocuments

II I. Investments of a Commerc ial Banka. Only equities in allied enterprises: either financial or non-financialb. Total investments in allied enterprises shall not exceed 35% of the net worth

of the bankc. Total investment in any one enterprise shall not exceed 25% of the net

worth of the bank.

IV. Investments in Financial Al lieda. 100% of the equity of a thrift bank or a rural bankb. In other financial allied enterprises, investment shall only be a minority

holdingV. Investments in non-financ ial a ll ied

a. May own up to 100%

Risk-Based CapitalI. Minimum Ratio- monetary board shall prescribe; ration of the net worth of the

bank to its total risk assets which may include contingent accountsa. May be altered or suspended for a maximum of one year when necessary

b. Uniformly applied for banks in the same categoryII. Effect of Non- Compliance

a. Limit or prohibit the distribution of net profitsb. Restrict or prohibit acquisition of major assets

Limits on Loans, Credit Accommodations and GuaranteesI. Single Borrowers Limit- shall not exceed 20% of the net worth of the bank

a. Except:i. As provided by the monetary board for reasons of national

interestii. Deposits of rural banks with GOC financial institutions

b. The limit maybe increased by 10% provided the additional loans aresecured

II. SBL should include:a. Direct liability of the maker of paper sold or discounted with the bankb. If the borrower owns ac majority interest in a corporation, the liabilities of

said corporation is includedc. Liabilities of subsidiaries of a corporation who is borrowing from the bankd. In case of partnership or association, the liabilities of the members thereof

III. SBL should exclude:a. Loans secured by the BSP or governmentb. Loans covered by assignment of deposits maintained in the bankc. Loans under letters of credit covered by margin depositsd. Loans specified as non-risk items

IV. Bank Guarantee- irrevocable commitment of bank binding itself to pay in thevent of non-performance by a third party; it shall also be subject to the limitsherein prescribed

V. Contingent Accounts of borrowers may be included among those subject to thelimits

VI. Assignment of Credit- agreement by virtue of which the owner of a credit, by alegal cause, such as sales, dation in payment, donation, and without the need of

the consent of the debtor, transfers his credit to another who acquires the powerto enforce it to the same extent as the creditor could have.

VII. Pacto Commissorio- automatic appropriation of the pledged or mortgagedproperty by the creditor in payment of the loan upon its maturity. It is not allowedin assignment of deposits.

DOSRII. Prohibits the ff:

a. Direct or indirectly borrow from the bankb. Become a guarantor or indorses or surety for loans from such bank to

othersc. Be an obligor to the bank except with the written approval of the majority of

all the directors of the bankII. The approval shall entered on the records of the bank

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III. Arms Length Rule-Dealings with DOSRI shall be upon terms not less favorable tothe bank

IV. Directors:a. Names in the articles of incorporationb. Elected in meetings of the stockholdersc. Elected to fill vacancies

V. Officers:a. Pres, VP, EVP, Sr. VP, GM, Secretary, Treasurer, Trust Officerb. Chairman, vice-chairman or any other position who performs functions of

management

VI. Stockholder- stockholder or record in the books of the banka. Includes:

i. Spouse and/or relative within the 1st degree or consanguinity oraffinity

ii. Corporation owned by the stockholder or his wifeVII. Related Interests

a. Spouse and/or relative within the 1st degree or consanguinity or affinityb. partnership where DOSRI of those in a) above are general partnersc. co-owner with a DOSRI or those in a) of a property used as a securityd. Corporation or association where the DOSRI or those in a) are is also a

directore. Corporation wholly or majority owned or owned by at least 20% by the

DOSRI or those in a)VIII. Effect of Violation- after due notice, the office of the person violating shall be

declared vacant and shal be subject to the penal provisions of NCBASecurities on LoansI. Secured by Real Estate

a. Shall not exceed 75% of the appraised value plus 60% of the insuredimprovements

II. Secured by Chattels and Intangible Propert iesa. Shall not exceed to 75%

Grant and Purpose of LoansI. Amount and Purpose

a. Only in the amount and for the period of time essential for the completion ofthe operations to be financed. This shall be done consistent with safe andsound banking practice

b. The purpose shall be stated in the applicationc. If the purpose stated was not followed, the bank may terminate the loan and

demand immediate repaymentII. Requirements:

a. Statement of assets and liabilitiesb. Statement of their income and expenditurec. Other information prescribed by law or by the Monetary Boardd. Even in the absence of this provision, the bank may still demand immediate

repayment because the borrower has lost the benefit of the period underArt. 1198 of the Civil Code

III. Reason for Stringent Rules in Granting Loans- The bank invests the money itholds in trust for the depositors. For this reason, a bank is expected to ascertainthe identities of the persons transacting with them to protect both the interest ofthe bank and the depositors.

IV. Unsecured Loans or Other Credit Accommodations- The MB is authorized toissue regulations with respect to unsecured loans

V. Other Security Requirements- The MB may prescribe further securityrequirements shall be subject to.

VI. Authority to Prescribe Terms and Conditions of LoansVII. Amorti za tion on Loans

a. Shall be adapted to the nature o the operations to be financedb. With those whose maturities are more than 5 years- periodic amortization

but must be made annuallyc. Loans are used for purposes not initially producing revenue- amortization

may be deferred until such time as said revenues are sufficient but in nocase shall it be later than 5 years

d. Microfinance- take into consideration the projected cash flow of theborrower

e. Escalation clause- raising of interest

i. Only allowed when the monetary board has increased the rate ofinterest provided that there is also a stipulation that interest will belowered if MB has lowered the rate of interest

ii. Both instances should be present before escalation clause isallowed

iii. Exception: if the creditor unilaterally decreased the interest even ifit was not stipulated, esacalation will be allowed

f. Unconscionable and exorbitant interests- SC: 5.5% per month or 66% perannum. Will be considered as void. Hence, the court may reduce theinterest rate

VIII. Prepayment of Loans- prior to the maturity date, borrower may pay subject tosuch reasonable terms agreed upon with the bank

IX. Development Assistance Incentive- BSP shall give incentives to banks whoextend loans to education, cooperatives, hospitals, low-cost housing, and LGUs

X. Renewal of Exntension of Loans- maybe regulated by the MB and prescribe

conditions and limitationsXI. Banks cannot extend peso loans to non-residentsXII. Provisions for losses and write-off

a. Bad debts- debts due to on which interest is past due and unpaidb. MB shall fix the amount of reserves for bad debts

Truth In Lending (RA 3765- Disclosure of Finance Charges)I. Policy- protect the citizens from a lack of awareness of the true cost of credit by

assuring a full disclosure of such costII. Disclosure shall include:

a. The cash price of the property or service to be acquiredb. Amounts for downpaymentc. Charges which are paid in connection with the transactiond. Amount to be financede. Finance charge

III. Definitions:a. Credit-

i. any loan, mortgage, deed of trust, advance or discountii. Any conditional sales contractiii. Rental-purchase contract

b. Finance Charge- interest and fees incident to the extension of creditc. Creditor: any person engaged in the business of extending credit who

requires as an incident to the extension of credit, the payment of a financecharge

IV. Penalty- either civil or criminal (1k-5k fine or imprisonment for 6-12 months, orboth)

V. Government is exempted from the punishment or penaltyForeclosure of Real Estate

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I. The mortgagor or debtor has the right within one year after the sale of the realestate, to redeem the property by paying the amount due in the mortgage w/interest and all the cost and expenses

II. However, the purchaser at the auction shall have the right to take possessionimmediately after the date of the confirmation of the auction sale

III. Any petition in court to restrain the auction shall only be given due course uponthe filing of a bond in an amount fixed by the court

IV. Juridical Persons shall have the right to redeem the property until, but not after,the registration of the certificate of foreclosure with the Register of Deeds within 3months

V. Equity of Redemption v. Right of Redemption

a. Right of Redemption exists only in extrajudicial foreclosure salei. In a judicial foreclosure sale where the mortgagee is the PNB or a

banking institution, right of redemption exitsii. Equity of Redemption- right of the mortgagor to extinguish the

mortgage and retain ownership by paying the secured debt withina period not less than 90 days nor more than 120 days after the

judgment becomes final. (Rule 68, Rules of Court)iii. Right of Redemption may be extended

Major InvestmentsI. The MB shall establish a criteria for reviewing major acquisitions by a bankII. Ceiling on Investments

a. Acquire real estate necessary for its own use in the conduct of its businessi. Bank premises- land, buildings, construction, leasehold rights,

improvement, fixtures, furnitureii. Real property, quipmet, chattel purchased by the bank in its name

b. Total investment in real estate including improvements shall not exceed50% of combined capital accounts

c. Investments by a bank in a real estate corporation shall be considered aspart of the total investment in real estate by the bank

III. Acquisition of Real Estate by way of satisfaction of claimsa. Notwithstanding the limitations given above, a bank may acquire real estate

under the ff circumstances:i. Shall be mortgaged to it in good faith by way of security of debtsii. Conveyed to it in satisfaction of debts previously contractediii. Purchased at sales under judgments, decrees, mortgages, or

trust deeds held by itb. Real Property acquired under this provision shall be disposed by the bank

within a period of 5 yearsc. However, it may continue to hold such property beyond the period given if

the limitations given in the previous provision are not yet reached.

Other Banking ServicesI. Receive in custody funds, documents and other objectsII. Act as financial agent and buy and sell for their customersIII. Make collection and payments for the account of othersIV. Act as managing agent, adviser, consultant or administrator of an investment

management with the approval of the MBV. Rent ou t sa fe ty deposi t boxesVI. Safety Deposit Box- Special Kind of Deposit because it cannot be characterized

as a contract of lease since the guard key of the box remains with the bank.VII. If a box is rented by two persons, the agreement between them shall governVIII. The SC said that the rent of a safety deposit box is that of a bailor an bailee

Electronic Transactions

I. BSP shall have full authority to regulate the use of electronic devices used inconnection with the operations of a bank including the delivery of services andproducts to customers

II. Outsourcing of IT systems- can be done with prior approval of the MB except:a. Strategic planning for the use of ITb. Determination of system functionalitiesc. Change management inclusive of quality assurance and testingd. Service level and contract managemente. Security policy and administration

Outsourcing of other functionsI. With approval of the MB, banks may outsource the f f:

a . Data imag ingb. Clearing and processing of checks not in the Philippine Clearing House

systemc. Printing of bank deposit statement, bank loan statements, bank forms and

promotional materialsd. Credit card servicese. Credit investigationf. Janitorial servicesg. Procurement servicesh. Legal serv ices

Questions:

Whether or not an alien-owned bank can acquire ownership of a residential lot by virtue of adeed of transfer as settlement of a debt

No. for the purpose of the constitution is to place and keep in the hands of the peoplethe ownership of private lands in order not to endanger the integrity of the nation

Chapter 5

Sec. 54. Prohibition to Act as Insurer. - A bank shall not directly engage in insurance businessas the insurer.

*Includes:

a) making or proposing to make, as insurer, any insurance contract

b) making or proposing to make, as surety, any contract of suretyship as a vocation andnot as merely incidental to any other legitimate business or activity of the surety

c) doing any kind of business, including a reinsurance business, specifically recognizedas constituting the doing of an insurance business within the meaning of the InsuranceCode

d) doing or proposing to do any business in substance equivalent to any of the foregoingin a manner designed to evade the provisions of the Insurance Code

Sec. 55. Prohibited Transactions. -

55.1. No director, officer, employee, or agent of any bank shall

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(a) Make false entries in any bank report or statement or participate in any fraudulent transaction,thereby affecting the financial interest of, or causing damage to, the bank or any person;

(b) Without order of a court of competent jurisdiction, disclose to any unauthorized person anyinformation relative to the funds or properties in the custody of the bank belonging toprivate individuals, corporations, or any other entity: Provided, That with respect to bankdeposits, the provisions of existing laws shall prevail;

(c) Accept gifts, fees, or commissions or any other form of remuneration in connection with theapproval of a loan or other credit accommodation from said bank;

(d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way theactions of the bank or any bank; or

(e) Outsource inherent banking functions.

refers to any contract between the bank and a service provider for the latter tosupply, or any act whereby the latter supplies, the manpower to service the deposittransactions of the former

intended to ensure secrecy of bank deposits

55.2. No borrower of a bank shall -(a) Fraudulently overvalue property offered as security for a loan or other credit accommodation

from the bank;

(b) Furnish false or make misrepresentation or suppression of material facts for the purpose of

obtaining, renewing, or increasing a loan or other credit accommodation or extendingthe period thereof;

(c) Attempt to defraud the said bank in the event of a court action to recover a loan or other creditaccommodation; or

(d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any otherform of compensation in order to influence such persons into approving a loan or othercredit accommodation application.

55.3. No examiner, officer or employee of the Bangko Sentral or of any department, bureau, office,branch or agency of the Government that is assigned to supervise, examine, assist or rendertechnical assistance to any bank shall commit any of the acts enumerated in this Section or aidin the commission of the same.

The making of false reports or misrepresentation or suppression of material facts by personnelof the Bangko Sental ng Pilipinas shall be subject to the administrative and criminal sanctionsprovided under the New Central Bank Act.

55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks SecrecyLaw, no bank shall employ casual or non regular personnel or too lengthy probationarypersonnel in the conduct of its business involving bank deposits.

Sec. 56. Conducting Business in an Unsafe or Unsound Manner - In determining whether aparticular act or omission, which is not otherwise prohibited by any law, rule or regulationaffecting banks, quasi-banks or trust entities, may be deemed as conducting business in anunsafe or unsound manner for purposes of this Section, the Monetary Board shall consider anyof the following circumstances:

56.1. The act or omission has resulted or may result in material loss or damage, or abnormalrisk or danger to the safety, stability, liquidity or solvency of the institution; .

56.2. The act or omission has resulted or may result in material loss or damage or abnormal

risk to the institution's depositors, creditors, investors, stockholders or to the BangkoSentral or to the public in general;

56.3. The act or omission has caused any undue injury, or has given any unwarranted

benefits, advantage or preference to the bank or any party in the discharge by thedirector or officer of his duties and responsibilities through manifest partiality, evidentbad faith or gross inexcusable negligence; or

56.4.The act or omission involves entering into any contract or transaction manifestly and

grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not thedirector or officer profited or will profit thereby.

Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe orunsound manner, the Monetary Board may, without prejudice to the administrative sanctionsprovided in Section 37 of the New Central Bank Act, take action under Section 30 of the sameAct and/or immediately exclude the erring bank from clearing, the provisions of law to thecontrary notwithstanding.

Sec. 57. Prohibition on Dividend Declaration. No bank or quasi-bank shall declare dividends,if at the time of declaration:

57.1. I ts clearing account with the Bangko Sentral is overdrawn; or

57.2. It is deficient in the required liquidity floor for government deposits for five (5) or moreconsecutive days, or .

57.3. It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral

for purposes of determining funds available for dividend declaration; or57.4. It has committed a major violation as may be determined by the Bangko Sentral.

Sec. 64. Unauthorized Advertisement or Business Representation. No person, association, orcorporation unless duly authorized to engage in the business of a bank, quasi-bank, trust entity,or savings and loan association as defined in this Act, or other banking laws, shall advertise orhold itself out as being engaged in the business of such bank, quasi-bank, trust entity, orassociation, or use in connection with its business title, the word or words bank, banking,banker, quasi-bank, quasi-banking, quasi-banker, savings and loan association, trust

corporation, trust companyor words of similar import or transact in any manner the businessof any such bank, corporation or association.

Sec. 67. Conservatorship. The grounds and procedures for placing a bank underconservatorship, as well as, the powers and duties of the conservator appointed for the bankshall be governed by the provisions of Section 29 and the last two paragraphs of Section 30 ofthe New Central Bank Act: Provided, That this Section shall also apply to conservatorshipproceedings of quasi-banks.

*Grounds for appointment of conservator

Whenever, on the basis of a report submitted by the appropriate supervising or examiningdepartment, the Monetary Board finds that a bank or quasi-bank is in a state of:

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1. continuing inability, or2. unwillingness to maintain a condition of liquidity deemed adequate to protect the

interests of depositors and creditors,

the Monetary Board may appoint a conservator with such powers as the Monetary Board shalldeem necessary to:

1. take charge of the assets, liabilities, and the management thereof,2. reorganize the management,3. collect all monies and debts due said institutions, and4. exercise all powers necessary to restore its viability.

The conservator shall report and be responsible to the Monetary Board and shall have thepower to overrule or revoke the actions of the previous management and board of directors ofthe bank or quasi-bank.

*Liquidity the ability of an asset to be converted into cash quickly and without any pricediscount

*Solvency the condition that exists when liabilities amount to less than total assets, thusproviding the ability to pay debts

*Qualifications of conservator:1. competent2. knowledgeable in bank operations and management

*Period of conservatorship shall not exceed 1 year

*Termination of conservatorship:

1. The Monetary Board shall terminate the conservatorship when it is satisfied that theinstitution can continue to operate on its own and the conservatorship is no longernecessary.

2. It should likewise be terminated should the Monetary Board, on the basis of the reportof the conservator or of its own findings, determine that the continuance in business ofthe institution would involve probable loss to its depositors or creditors, in which casethe provisions on receivership and liquidation shall apply.

*Powers of conservator cannot impair the obligations of contracts the law merely gives him the

power to revoke contracts that are, under existing law, deemed to be defective.

Sec. 68. Voluntary Liquidation. In case of voluntary liquidation of any bank organized underthe laws of the Philippines, or of any branch or office in the Philippines of a foreign bank, writtennotice of such liquidation shall be sent to the Monetary Board before such liquidation shall besent to the Monetary Board before such liquidation is undertaken, and the Monetary Board shallhave the right to intervene and take such steps as may be necessary to protect the interests ofcreditors.

may be undertaken by the bank itself through its board of directors, by a trustee appointed bythe bank, or by a receiver appointed by the bank

no voluntary dissolution shall be undertaken by a bank without prior approval of the MonetaryBoard,providedfurther, that it shall be accompanied by a liquidation plan and written notice

*Grounds for receivership and liquidation:

The bank or quasi-bank:1. is unable to pay its liabilities as they become due in the ordinary course of business2. has insufficient realizable assets, as determined by the Bangko Sentral, to meet its

liabilities3. cannot continue in business without involving probable losses to its depositors or

creditors4. has willfully violated a cease-and-desist order that has become final, involving acts or

transactions which amount to fraud or a dissipation of the assets of the institution

*Powers of a receiver:

a. to bring and defend, in such capacity, actions in his own nameb. to take and keep possession of the property in controversyc. to receive rentsd. to collect debts due to himself as receiver or to the fund, property, estate, person, or

corporation of which he is the receivere. to compound for and compromise the samef . to make transfersg. to pay outstanding debtsh. to divide the money and other property that shall remain among the persons legally

entitled to receive the samei. generally to do such acts respecting the property as the court may authorize

*Prohibited acts:

Any director or officer of a bank declared insolvent or placed under receivership by theMonetary Board shall not commit any of the ff:

a. refusing to turn over the banks records and assets to the designated receiverb. tampering with bank recordsc. appropriating for himself or another party, or destroying or causing misappropriation

and destruction of the banks assetsd. receiving or permitting or causing to be received in said bank any deposit, collection of

loans, and/or receivablese. paying out or permitting or causing to be paid out any funds of said bankf. transferring or permitting or causing to be transferred any securities or property of said

bank

*Close now hear later scheme the law does not contemplate prior notice and hearing before

a bank may be directed to stop operations and placed under receivership. This is to preventunwarranted dissipation of the banks assets and is a valid exercise of police power to protectthe creditors, depositors, stockholders, and the general public. A hearing may be subsequent tothe closure.

*Effects of receivership and liquidation:

1. retention of juridical personality2. not liable to pay interest3. assets are deemed under custodia legis4. stay of execution of judgment5. restriction of banks capacity to act6. exclusive jurisdiction of liquidation court

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Sec. 70. Penalty for Transactions After a Bank Becomes Insolvent. Any director or officer ofany bank declared insolvent or placed under receivership by the Monetary Board who refuses toturn over the banks records and assets to the designated receivers, or who tampers with banksrecords, or who appropriates for himself for another party or destroys or causes themisappropriation and destruction of the banks assets, or who receives or permits or causes tobe received in said bank any deposit, collection of loans and/or receivables, or who pays out orpermits or causes to be transferred any securities or property of said bank shall be subject to thepenal provisions of the New Central Bank Act.

**Problems**

The conservator of B bank revoked a contract previously entered into by the bank onthe ground that the lands subject of said contract presently commanded a much higher pricethan when it was sold. Is the revocation valid?

No. Power of conservator cannot impair the obligations of contracts. A contract of saleentered into by a bank cannot be revoked if at the time of the transaction, the price agreed uponwas reasonable.

A buyer offered to buy the property of a bank which the latter accepted. However, thebank became insolvent before the buyer learned of the acceptance. Was there a perfectedcontract?

None. The accepted offer became ineffective when the bank became insolvent before thebanks acceptance of said offer came to the offerors knowledge.

C deposited money with O bank. Before said deposits could be withdrawn, the BSPpassed a resolution suspending the banks operations. The SC, howver, annulled saidresolution, for which reason O bank is ready to accept its liability for the payment to C of thebalance of the principal amount deposited with it. Is O bank liable for interest thereon during theperiod it was closed?

No. What enables a bank to pay stipulated interest on money deposited with it is that thru theother aspects of its operation, it is able to generate funds to cover the payment of such interest.If it is closed, it cannot generate such funds, hence it cannot pay the interest.

Chapter 6: Foreign Banks and Trust Operations

I. Foreign Banks entry to Phils. thru establishments of branches governed by Foreign BankLiberazation Act.

Offshore Banking governed by Offshore Banking System Decree- conduct of banking transactions in foreign currency involving receipt of funds

from external sources and its utilization.

Offshore banking unit branch, subsidiary, affiliate of a foreign banking corporation authorizedto transact offshore banking business in Phil.

Notes: Corporation Code

Sec. 133. Doing business without a license foreign corporation transacting business in Phil.may maintain or intervene in any action, suit or proceeding in any court or adm. Agency n Philbut cannot sue before Phil. courts though on any valid cause.

- If without license,no access to our courts and cannot transact business in Phil.- By securing a license, a foreign entity would be giving assurance that it wll abide

by the decisions of our courts, even if adverse to it.- Primary purpose of Statute: to compel foreign corp. if it desires to do business

here, to submit itself to the jurisdiction of courts of the Phils.

Consistent with Corporation Code..

Sec. 128. Resident agent; service of process:- SEC shall require foreign bank to file with SEC a written power of atty.

designating a resident of the Phil. whom summons must be served, before itissues a license for it to transact business in Phil.

- Foreign bank shall execute and file with SEC an agreement.- If summons be made with SEC, latter shall transmit it by mail to the head office of

such bank, within 10 days.- In case of change of address of resident agent, shall notify SEC in writing.

Acquisition of Voting Stock in a Domestic Bank:1. Wthin 7 yrs from effectivitiy of GBL, MB may authorize foreign bank to acquire up to

100% of voting stock of ONLY one bank organized under laws of RP.2. Within same period, MB may authorize those foreign bank which prior to effectivity of

GBL availed itself of 60% of voting stock of a bank under FBLA and Thrift Banks Act,to further acquire voting shares to extent necessary for it to own up to 100%.

3. MB shall adopt measures to the control of 70% of resources and assets of entirebanking system is held by banks which are majority owned by Filipinos.

4. Any right or incentive granted to foreign bank shall be equally enjoyed by banksorganized under laws of RP.

NOTES:- all branches of foreign bank shall be treated as one unit for purpose of GBL; and

all reference to Phil. branches of foreign banks shall be held to refer to such unit.- To protect interests of depositors and creditors of Phil. branches of FB, their

head office shall fully guarantee prompt payment of all liabilities of its Phil.branch.

- Residents and citizens of the Phil. who are creditors shall have preferential rightsto assets of such branch.

Summons and Legal Process:If served on agent or head of foreign bank,

- our courts acquires jurisdiction over such bank.- binds the bank which it represents.

If authority of agent or head revoked; or he became mentally incompetent,- bank shall designate a new one.- File with SEC a duly authenticated nomination of such agent.

In absence of agent or head; or no person authorized ,- summons and legal process and notices be made upon Bangko Sentral Deputy

Governor In-Charge of the supervising and examining departments. The latterupon receipt, shall transmit by mail to president or secretary of bank at its heador principal office a duly certified copy.

- Sending of copy is necessary part of services and shall complete service.- Registry receipt is prima facie evidence of transmission.

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- All costs incurred in transmission shall be paid in advance by the party whoseinstance the service is made.

Revocation of license of Foreign Bank:- By Monetay Board.- If insolvent, in imminent danger, or its continuance will involve probable loss to

those it transacts business with.- After revocation, it cannot transact business unless license is renewed or

reissued.- After revocation. BSP shall take action to protect creditors and public.- New Central Bank Act provides the sanction and penalties.

II. Liberalized Entry of Foreign Banks:Purpose:

1. to create more competitive environment.2. to encourage greater foreign participation

Policies:1. develop self-reliant economy controlled by Filipinos.2. promote a competitive and stable banking system3. provide a wider variety of financial services4. enhance competitiveness in international market to promote industrialization.

Modes of Entry:a. acquiring up to 60% of voting stocks of an existing bank

b. investing up to 60% of voting stocks of new banking subsidiary incorporated underPhil. laws.

c. Establishing branches with full banking authority.

- FB may avail only 1 mode- Only those included in top 150 FB in the world or top 5 banks in their country of

origin allowed to mode (b) and (c).- To establish a branch or subsidiary, it must be widely-owned and publicly listed in

its country of origin, unless owned by govt. of its country.- FB shall be allowed entry under 3rd mode within 5 yrs. From effectivity of RA

7721. 6 FB may be allowed by MB.- Additional 4 may be allowed on recommendation by MB and approval of

President.- FB may open 3 branches in location of their choice, 3 branches in locations

designated by MB to insure balanced economic development in all regions.

Guidance for Approval: MB shall1. ensure geographic representation.2. consider strategic trade and investment relationship between Phil. and country of FB.3. study capacity, global reputation and stability in competitive environment of applicant.4. ensure reciprocity rights are enjoyed by Phil banks in applicants country.5. consider willingness to fully share their technology.

Adoption of measures: MB adopt those which1. ensures that 70% of resources and assets is held by domestic bank majority owned

by Filipinos2. prevents dominant market position by one bank3. secures the listing in SEC of shares of stocks

Capital Requirements:1. Locally Incorporated Subsidiaries

- minimum capital equal to that prescribed by MB for domestic banks of samecategory.

2. Foreign Bank Branches (entry under the 3rd mode)- not less than US dollar equal to P210,000,000 and shall be entitled to 3 branches

o capital shall include those permanently assigned plus net due to head

office outside the Philippines, 15% of which shall be inwardly remittedand converted into Philippine currency, provided that amounts investedin productive or export activities shall not be subject to conversion.

Establishment of Additional Branches1. FB can open three additional branches by inwardly remitting and converting into

Philippine currency as permanently assigned capital, P35 Million per additionalbranch.

Head Office Guarantee- shall guarantee prompt payment of all liabilities of its PhilippinebranchesBoard of Directors- aliens may become members of the Board of a bank to the extent of theforeign participation in the equity of said bank.

Equal treatment- foreign banks shall also be subject to limitations imposed upon a Philippinebank such as the SBL, capital to risk asset ratio, development loans incentives etc.

Trust Operations

I. Authority to engage- only a stock corporation or a person duly authorized by the MB shall act as a

trustee- the cardinal principle is fidelity- Trust business- refers to any activity resulting from a trustor-trustee relationship

involving the appointment of a trustee for the administration of funds and/orproperties of the trustor for the benefit of the latter.

II. Conduct of Trust business- Administer with diligence that a prudent man would exercise in the conduct of an

enterprise- No transaction within the same trust entity will be allowed except when the

transaction is authorized by the trustor and the relationship of the trustee and theother party involved is fully disclosed

III. Registration of Articles of incorporation and by-laws- The SEC shall not register the same or any amendment thereto, unless

accompanied by a certificate of authority issued by the BSPIV. Minimum Capital- trust entity shall comply with the minimum paid-in capital requirementswhich will be determined by the MB.V. Powers of a trust entity:

- Powers incident to a corporation- Act as trustee on any mortgage or bond issued by any body politic and to accept

and execute ant trust consistent with law- Act as an administrator of a minor or incompetent upon the order of a court- Act as the executor of any will if named as the executor- Act as the administrator of any deceased person- Accept and execute and trust for the holding and administration of any estate

including the rents and profits thereof- Establish and manage common trust funds

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VI. Transactions requiring prior authority- Lend, sell, transfer or assign money or property to those related to the trustee- Purchase or acquire property or debt instruments to those related to the trustee- Invest in equities I which the trustee owns 50% of the capital- Sell transfer assign or lend from one trust account to another

VII. Deposit for faithful performance of trust duties- Before transacting any business, there shall be a deposit made with the BSP

cash or securities approved by the MB an amount not less that P500,000- This deposit can be increased by the MB whenever it is necessary- The paid-in capital and surplus of the entity should be at least equal to the

amount required to be deposited

- A trust entity has the right to collect the interest earned on such deposit- All claims arising out of the trust business shall have priority over all other claims

as regards the deposits.

Bond of certain person required for the faithful performance of duties

I. Requirementsa. Those appointed by the court shall file a bond in such sum as the court may

requireb. Upon application in the court, the subject matter of the trust or any part

thereof be deposited with a trust entityc. Upon presentation of a proof that the subject matter has been deposited

with a trust entity, the court may order reduction in the amount of the bondgiven

d. The reduced bond shall be adequate to secure the proper administration of

the propertyII. Exemption from Bond Requ irement

a. Trust entities required by the court to be an administrator, etc are notrequired to give a bond

Operations of Trust Entity

I. Separation of Trust Business from General Business- Shall be kept physically separated and distinct from the accounts of the general

business of the trust entityII. Investment limitations of a trust entity

- Limited to those loans or investments prescribed by law, MB or any court ofcompetent jurisdiction, unless directed by the instrument creating the trust

III. Real Estate acquired by a trust entity- Unless otherwise directed by the trustor or the nature of the trust, real estate

acquired by the trust entity shall be acquired, hold, or conveyed under the ffcircumstances:o Mortgaged to it in good faith by way of security for debts

o Conveyed to it in satisfaction of debts previously contracted

o Purchased at sales under judgments, decrees, mortgages, or trust deeds

- These properties shall be conveyed within 5 years- However, it may continue to hold it beyond the period when:

o It shall not exceed 50% of the combined capital accounts of the entity

o The investment of a bank in another corporation engaged in real estate

shall be considered as part of the total investment

IV. Investment in non-trust fundsb. Shall be governed by the GBL an other applicable laws

V. Sanctions and Penalties- those who violate the pertinent provisions of the GBL shall besubject to sanctions and penaltiesVI. Exemption of Trust Assets from claims

Those assets held by a trust entity shall not be subject to any claims other those of theparties interested in the trusts

VI. Establishment of Branches

Shall be in the place of business stated in the articles of incorporation

Additional branches can be established with the approval of the MB

The trust entity and its branches should be considered as one unitVII. Advertisement of Services

In a dignified manner

Ready and willing to give full disclosure of services being offered

Conduct its dealings with transparencyVIII. Money of Government

Banks may not receive or hold as trustee any money from the governmento Except: government-owned banks with respect to the ff:

Funds of LGUs for long term investments in securities and otherevidences guaranteed by the national government.

Funds of the government which are authorized by special laws tobe placed in trust

Chapter 7

The Bangko Sentral ng Pilipinas

I. Creation, Responsibilities and corporate Powers of the Banko Sentral

A. Declared Policy of the state

The State shall maintain a central monetary authority that shall function and

operate as an independent and accountable body corporate in the

discharge of its mandated responsibilities concerning money, banking and

credit. In line with this policy, and considering its unique functions and

responsibilities, the central monetary authority established under the NCBA,

while being a government owned corporation, shall enjoy fiscal and

administrative autonomy. (Section 1, NCBA)

B. Creation of the bangko Sentral ng Pilipinas

Section 2 & 4 of NCBA:

SECTION 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.

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The capital of the Bangko Sentral shall be Fifty Billion Pesos, to be fully

subscribed by the Government of the Republic,

Ten Billion of which shall be fully paid for by the government upon effectivity

of this act

In such manner and form as the Government, through the Secretary of

Finance and the Secretary of Budget and Management, may thereafter

determine.

SECTION 4 Place of Business. The Bangko SEntral shall have its

principal place of business in Metro Manila, but may maintain branches,

agencies and correspondents in such other places as the proper conduct of

its business may require.

Mandate by the Constitution:

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 whomshall 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.

C. Responsibility and Primary Objectives of the bangko Sentral

1. Responsibility of BSP - provide policy directions in the areas of money,

SUMMARY - Dizon Banking Law

Documents

Transcript of SUMMARY - Dizon Banking Law