Professional Documents
Culture Documents
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TOPICS UNDER THE SYLLABUS
VIII. Banking Laws
A. The New Central Banking Act (R.A. 7653)
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A. The New Central Banking Act (R.A. 7653)
1. State Policies and Creation of the
Bangko Sentral ng Pilipinas (BSP)
The Bangko Sentral ng Pilipinas
(BSP) is the States Central Monetary
Authority
mandated
in
the
1987
Philippine
Constitution,
which
shall
function and operate as an independent
and accountable body corporate in the
discharge of its mandated responsibilities
concerning money, banking and credit
2. Responsibility and Primary Objective
Primary Objectives:
a. To maintain price stability
conducive to a balanced and
sustainable
growth
of
the
economy;
b. To promote and maintain the
monetary
stability
and
convertibility of the peso;
c. To provide policy directions in
areas of money, banking and
credit, with supervision over
operations of banks and with
regulatory
powers
over
operations of finance companies,
and
non-bank
financial
institutions
performing
quasibanking functions.
Roles of BSP:
a. Banker of Government
The Act as a banker of the
Government, its political subdivisions
and instrumentalities, and their cash
balances should be deposited to the
BSP, with only minimum working
balances to be held by governmentowned banks, and such other banks
incorporated in the Philippines as the
Monetary Board may prescribe.
b. Representation
with
the
International Monetary Board
To represent Government in all
dealings,
negotiations
and
transactions with the IMF, and shall
carry such accounts as may result
from the Philippine membership in or
operations with the said Fund.
c. Representation
with
Other
Financial Institutions
May represent the Government in
dealings, negotiations or transactions
with the World Bank and with other
foreign or international financial
institutions or agencies.
d. Fiscal Operations
Shall open a general cash account
for the Treasurer of the Philippines, in
which the liquid funds of the
Government shall be deposited, and
with transfer of funds to be made
only upon the order of the Philippine
Treasurer (Villanueva, 2009).
Other Basic Functions of BSP:
1. It shall have the sole power and
authority to issue currency within the
territory of the Republic of the
Philippines;
2. The power to issue regulations to
prevent the circulation of foreign
currencies, or currency substitutes as
well as the reproduction of facsimiles
of BSP notes;
3. It has the power to investigate, make
arrests, conduct searches and seizure
for the purpose of maintaining the
integrity of the currency;
4. To
engage
in
foreign
engage
transactions in order to maintain
price stability;
5. To make rediscounts, discounts, loans
and advances to banking and other
financial institutions to influence the
volume of credit consistent with the
objectives of price stability;
6. To
engage
in
open
market
operations---purchase and sale of
securities ---exclusively in accordance
with its objectives of achieving price
stability;
7. To
engage
in
marketing
and
stabilization of securities for the
account of the government;
8. To act as the financial advisor of the
government; (Sundiang, 2006)
3. Monetary
Functions
Board---Powers
and
Corporate Powers
The BSP is a government owned and
controlled corporation that is invested by
law with corporate powers. The corporate
powers specified in Section 5 of the New
Central Bank Act are as follows:
a. The power to adopt, alter and use a
corporate seal which shall be
judicially noticed;
b. To enter into contracts;
c. To lease or own real and personal
property;
d. To sell or otherwise dispose of its real
and personal property;
e. To sue and be sued;
f.
To perform any and all things that
may be necessary or proper to carry
out the purposes of the New Central
Bank Act;
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g.
are
5.
accordance
with
applicable
laws
and
regulations; and
Indemnify its members and other officials of
Bangko Sentral, including personnel of the
departments performing supervision and
examination functions, against all costs and
expenses reasonably incurred by such
persons in connection with any civil or
criminal action, suit or proceeding, to which
any of them may be made a party by reason
of the performance of his functions or duties,
unless such members or other officials is
found to be liable for negligence or
misconduct..
2.
3.
Outside interests of the Governor and the fulltime members of the Board
a. The Governor of the Bangko Sentral and the fulltime members of the Board shall limit their
professional activities to those pertaining directly
to their positions with the Bangko Sentral.
b. They may not accept any other employment,
whether public or private, remunerated or ad
honorem.
c. Exceptions:
1.
Positions in eleemosynary, civic,
cultural or religious organizations
2.
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iii. collect all monies and debts due and
iv. exercise all powers necessary to restore its
viability, including the power to overrule
or revoke the actions of the previous
management and board of directors
While admittedly, the Central Bank gives vast
and far-reaching powers to the conservator,
such powers must be related to preservation
of the assets of the bank, the reorganization
of the management thereof, and the
restoration of its viability. Such powers,
enormous and extensive as they are, cannot
extend to post-facto repudiation of perfected
transactions, otherwise they would infringe
against the non-impairment clause of the
Constitution.
It merely gives the conservator the power to
revoke contracts that are under existing law,
deemed to be defective i.e. void, voidable,
unenforceable or rescissible. Hence, the
conservator merely takes the place of a
Banks BOD. What the said Board cannot do
such as repudiating a contract validly entered
into under the doctrine of implied authority,
the conservator cannot do either. Ineluctably,
his power is not unilateral, and he cannot
simply repudiate valid obligations of the
Bank. His authority would be only to bring
court actions to assail such contract as he
has already done so in the instant case.
(First Phil. Intl Bank v. CA, 252 SCRA
259)
Termination of Conservatorship
(a) When MB is satisfied that the institution
can continue to operate on its own and
the
conservatorship
is
no
longer
necessary; or
(b) When
MB
determines
that
the
continuance in business of the institution
would involve probable loss to its
depositors or creditors, in which case
proceedings
for
receivership
and
liquidation shall be pursued.
B. CLOSURE
-prohibit a bank or quasi-bank from doing
business in the Philippines
Grounds for Closure
(a) Unable to pay its liabilities as they become
due in the ordinary course of business (cash
flow test)
BUT: shall not include inability to pay caused by
extraordinary demands induced by financial panic in
the banking community.
(b) Insufficient realizable assets to meet its
liabilities (balance sheet test)
(c) Cannot continue in business without involving
probable losses to its depositors and creditors
(d) Willfully violated a cease and desist order
under Sec. 37 (administrative sanctions) that
has become final and involves acts or
transactions which amount to fraud or
dissipation of assets
(e) Notifies the BSP or publicly announces a bank
holiday
C. RECEIVERSHIP
Who are Receivers?
(a) For Banks PDIC
(b) For Quasi-Banks Any person of recognized
competence in banking or finance
Functions of Receiver
(a) Immediately gather and take charge of all the
assets and liabilities of the institution,
administer the same for the benefit of its
creditors e.g.
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of ownership, such as the grant of exclusive
option to purchase a particular property of
the bank. (Abacus Real Estate Dev.
Center vs. Manila Banking Corp., 452
SCRA 97)
(1)
(2)
(3)
(4)
D. LIQUIDATION
-from the determination of receiver if
institution
cannot
be
rehabilitated
or
permitted to resume business
Duties of the Receiver/Liquidator
File ex parted with the RTC a petition for
assistance in the liquidation of the institution
pursuant to a liquidation plan adopted by the
PDIC for banks, and by MB for quasi-banks
Upon motion by receiver, upon RTCs
acquisition of jurisdiction, RTC shall assist
enforcement of the individual liabilities of the
stockholders, directors, and officers and
decide on other issues as may be material to
the liquidation plan adopted
Receiver shall convert the assets to money
and proceeds shall be applied in paying the
debts of the institution in accordance with
rules on concurrence and preference of credit
Receiver shall institute such actions as may
be necessary
those entitled to
receive them. It
is the process of
reducing assets
to
cash,
discharging
liabilities
and
dividing surplus
or loss.
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Note that the twin requirement of majority of
stockholders and filing within 10 days should
be observed or else action will be dismissed.
A bank ordered closed by the MB retains its
juridical personality which can sue or be sued
through its liquidator
HOW THE BSP HANDLES EXCHANGE
CRISIS
A.LEGAL TENDER POWER when the
currency is offered in payment of a debt,
public or private, the same must be accepted.
All notes and coins issued by the Bangko
Sentral shall be fully guaranteed by the
Government of the Republic of the Philippines
and shall be legal tender in the Philippines for
all debts, both public and private.
However: unless otherwise fixed by the
Monetary Board, coins shall be legal tender in
amounts
not
exceeding
Fifty
pesos
P50
for
denominations of 25 centavos and above,
and
in
amounts
not
exceeding
P20
for
denominations of 10 centavos or less. (Sec.
52)
Philippine currency notes have no limit to
their legal tender power. Pursuant to BSP
Circular No. 537, Series of 2006, coins in
denomination of
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C. GENERAL BANKING LAW OF 2000 (R.A. NO.
8791)
b. TRUST ENTITIES
i.
iii.
iv.
v.
vi.
vii.
viii.
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ix.
x.
xi.
Accepting drafts
Issuing letters of credit
Discounting and negotiating promissory
notes, drafts, bills of exchange and other
evidence of debt
Accepting or creating demand deposits
Receiving other types of deposits and deposit
substitutes
Buying and selling foreign exchange and gold
or silver bullion
Acquiring marketable bonds and other debt
securities
Extending credit
iv.
v.
vi.
vii.
viii.
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meticulous care, always having in mind the
fiduciary nature of their relationship.
Dealings with Registered Land
Ursal v. CA 473 SCRA 52, 2005
Banks cannot merely rely on certificates of
title in ascertaining the status of mortgaged
properties. As their business is impressed
with public interest, they are expected to
exercise more care and prudence in their
dealings than private individuals. Indeed, the
rule that persons dealing with registered land
can rely solely on the certificate of tile does
not apply to banks.
Relevant Jurisprudence
Simex International v. CA, 1990
As a business affected with public interest
and because of the nature of its functions,
the bank is under obligation to treat the
accounts of its depositors with meticulous
care, always having in mind the fiduciary
nature of their relationship.
PCI Bank v. CA, 2001
Banks are expected to exercise the highest
degree of diligence in the selection and
supervision of their employees.
PS Bank v. Chowking Food Corp., 2008
It cannot be overemphasized that the
banking business is impressed with public
10
It is conceded that while the fundamental law
has not bothered with the triviality of
specifically addressing privacy rights relative
to banking accounts, there, nevertheless,
exists in our jurisdiction a legitimate
expectation of privacy governing such
accounts.
The source of this right of
expectation is statutory, and is found in
R.A.No. 1405, otherwise known as the Bank
Secrecy Act of 1955.
Subsequent statutory enactments have
expanded the list of exceptions to this policy
yet the secrecy of bank deposits still lies as
the general rule, falling as it does within the
legally recognized zones of privacy. There is,
in fact, much disfavor to construing these
primary and supplemental exceptions in a
manner that would authorize unbridled
discretion,
whether
governmental
or
otherwise, in utilizing these exceptions as
authority to unwarranted inquiry into bank
accounts. It is then perceivable that the
present legal order is obliged to conserve the
absolutely confidential nature of bank
deposits.
Bank as a Debtor
Deposit is a voluntary agreement, Know Your
Customer standards
Bank acquires ownership of money deposited;
obligation to pay amount, but not obligation
to return the same money (Guingona, Jr. v.
City Fiscal of Manila 128 SCRA 577,
1984)
Payment to proper party-depositor (Fulton
Iron Works Co. V. China Banking Corp.
58 Phil. 206, 1930)
Deposits are not preferred credits (Central
Bank v. Morfe 63 SCRA 114, 1975
Bank has right to compensation (Gullas v.
PNB 62 Phil. 519, 1935)
No breach of trust - mandamus not a remedy
(Lucman v. Malawi 511 SCRA 268, 2006).
6. STIPULATION ON INTEREST
Interests on Deposits
The Monetary Board has declared that the
interest on deposits are not subject to ceilings
(Section 242, MORB).
Interest or yield on time deposit/deposit
substitute may be paid at maturity or upon
withdrawal or in advance. However, interest
or yield paid in advance shall not exceed the
interest for one year (Section 242.1, MORB)
Interest on Loans
While the Usury Law ceiling on interest rates
was lifted by Central Bank Circular 905,
7. GRANT OF
REQUIREMENTS
LOAN
AND
SECURITY
a.
RATIO OF NETWORTH TO TOTAL
RISK ASSETS
The Monetary Board shall prescribe the
minimum ratio which the net worth of a bank
must bear to its total risk assets wh.ich may
include contingent accounts, and may:
Require that such ratio be determined on
the basis of the Net Worth and Risk
Assets of a bank and is subsidiaries,
financial or otherwise;
Prescribe composition and manner of
determining Net Worth and Total Risk
Assets
of
the
banks
and
their
subsidiaries.
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Provided:
(i)
The Monetary Board may require or
suspend compliance with such ratio
whenever necessary for a maximum
period of one year;
(ii)
The ratio applied uniformly to banks
of same category.
a. SINGLE BORROWERS LIMIT (SBL)
Except as the Monetary Board ay otherwise
prescribe for reason of national interest, total
amount of loans, credit, accommodations and
guarantees that may be extended by a bank
to any person, partnership, association or
other entity shall at no time exceed 20% of
the net worth of such bank. However, in
2010, the SBL was increased to 25% for a
period of 3 Years.
Further, in 2013, the
Bankong Sentral ng Pilipinas issued Circular
No. 779 which extended the 25% SBL for
another 3 years.
Also, unless the Monetary Board prescribes
otherwise, the SBL may be increased by an
additional 10% of Net Worth, provided that
the additional is supported adequately by
trust
receipts,
shipping
documents,
warehouse
receipts
or
other
similar
documents transferring or securing title
covering readily marketable, non-perishable
goods which must be fully recovered by
insurance, which shall include:
a. Direct liability of the maker or acceptor of
paper discounted with or sold to such
bank, and liability of general indorser,
drawer or guarantor who obtains a loan
or other credit accommodation from, or
discounts paper with, or sells papers to
such bank;
b. In the case of an individual who owns or
controls a majority interest in a
corporation, partnership, association or
any other entity, the liabilities to such
bank;
c. In case of the corporation, all liabilities to
such bank of all subsidies in which such
corporation owns or controls a majority
interest; and
d. In case of a partnership, association or
other entity, the liabilities of the
members thereof to such bank.
Coverage For purposes of the SBL
coverage,
loans
and
other
credit,
accommodations
and
guarantees
shall
exclude those which are:
Parent
corporation,
partnership,
association,
entity
or
individual
guarantees the repayment of the
liabilities;
Liabilities
were
incurred
for
the
accommodation of the parent corporation
or another subsidiary or the partnership
or association or entity or such individual;
or
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officer who violates the provisions of the
DOSRI restriction may be declared vacant and
the director or officer shall be subject to the
penal provisions of the New Central Bank Act.
DOSRI accounts shall be limited to an amount
equivalent to their respective encumbered
deposits and book value of their paid-in
capital contribution in the bank. Provided:
(i)
Loans, credit accommodations and
guarantees
secured
by
assets
considered as non-risk by the
Monetary Board shall be excluded
from such limits;
(ii)