SEC. 55.

OF GBL -
PROHIBITED TRANSACTIONS
A. Prohibited Transactions by a Bank
Director, Officer, Employee, or Agent
1. False Entries in Bank Report or Statement – which
a. affected the financial interest of the bank or any person, or
b. caused damage to the bank or any person,

OR, Participating in Fraudulent Transaction -

Fraud in its general sense, is deemed to comprise anything calculated to
deceive . . . resulting in damage to another. (or breach of legal duty trust or
confidence justly reposed, causing damage to another)
2. Disclosure of Information - disclosing to any unauthorised person
any information relative to the funds or properties in the custody of
the bank belonging to private individuals, corporations or any other
entity.

(NOTE: The prohibition covers all funds and properties in the

possession of the bank. With regard to bank deposits & investment in
gov’t. bonds - The Secrecy of Bank Deposits Law shall govern.)
3. Accepting Gifts, Fees or Commissions - the Acceptance of any gifts,
. . . in connection with the approval of a loan is strictly prohibited
and is a kin to commercial bribery in other jurisdictions. A conflict
of interest-personal gain at the expense of the institution.

4. Overvaluation or Aiding in Overvaluation of Security- this section

intends to protect the funds of the bank. (There is the opinion that
actual damage or reliance is not an essential element of the offense.)
5. Outsourcing of Inherent Banking Functions - this section was added
to prevent the possible violation of R.A. No. 1405, the Law on
Secrecy of Bank Deposits. It means that a bank allows a service
provider to supply the manpower to service certain banking
functions such as placements of deposits and withdrawals or actual
opening of deposit accounts or deposit-taking services.

BUT outsourcing of non-inherently banking duties may be allowed.

These are Management Functions; Information Technology; Credit
Investigation & Collection; Credit Card Services and Call Center
Operations for Credit.
B. Prohibited Acts of Borrowers
1. Fraudulent Overvaluation of Property- aside from the automatic
cancellation of the loan application, a borrower who fraudulently
overvalued the property offered as security may also be prosecuted
under this section. There must be “intent to deceive” and not by
mere inadvertence or an honest mistake.
2. False Statement or Information, Misrepresentation, Suppression of
Material Facts
- false statement means untrue statement knowingly made with
intent to mislead.
- misrepresentation refers to the act of making a false or
misleading assertion about something, usually with intent
to deceive.
- the purpose is to obtain, renew or increase a loan or other
credit accommodation
3. Attempt to Defraud the Bank in a Court Action - the court action
filed by the Bank against a borrower to recover a loan or other credit
accommodation. Illegal disposition of properties in fraud or to the
prejudice of creditors is one example.

The transfer of property by a borrower after a suit has begun and while
it is pending, is denominated a “badge of fraud” and satisfies this
section
4. Offer to Influence Approval of Loan - the borrower will be liable
under Sec. 55.2 (d) while the bank officer will be liable under Sec.
55.1 (c) This provision is similar to Section 3 of R.A. No. 3019
which enumerates the corrupt practices of public officers and
employees. The person giving the gift is punished together with the
offending public officer.
 C. Prohibited Acts of Examiners, Officers or Employees of
the Bangko Sentral or of Any Department or Bureau,
Office, Branch or Agency of The Government

1. False Entries in Bank Report or Statement OR Participating in any

Fraudulent Transaction causing damage to the bank or any person.

2. Disclosure of Information - without order of a court of competent

jurisdiction, disclosing to any unauthorized person
3. Accepting Gifts, Fees or Commissions or any other form of
remuneration

4. Overvaluation or Aiding in the Overvaluation of Security

5. Outsourcing Inherent Banking Functions

6. False Statement or Information, Misrepresentation, Suppression
of Material Facts
- the BSP personnel shall be subject to administrative
and criminal sanctions under Secs. 34 - 37 of the. Ew Central
Bank Act.

7. Attempt to Defraud the Bank in Court Action

8. Offer to Influence Approval of a Loan

NOTE: The prohibition under this section also applies to other public
officers or employees of any department, bureau, office, etc. like the
PDIC which under its charter is authorized to supervise, examine a bank
under danger of closing.

Non-Employment of Casual, Non regular or Probationary Personnel -

This is consistent with the Law on Secrecy of Bank Deposits on the.
On-disclosure to any person any information concerning bank deposits.
 Insurance Business
Banks are prohibited from engaging in insurance business which under the
Insurance Code include among others the following:

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
c) doing any other kind of insurance business as recognized under the
Insurance Code, including reinsurance.
The prohibition relates to direct engagement in the insurance business. Universal
banks, commercial banks & thrift banks may invest in equities of insurance agencies/
brokerages as this is not considered as directly engaging in insurance business.
Universal banks are also allowed to invest up to 100% equity in insurance companies.
(MORB, s x380 [2009])

Sanctions -

“ . . . the violation of any of the provisions of this Section shall be subject to

Sections 34, 35, 36 and 37 of the New Central Bank Act. If the offender is a director or
officer of the bank, quasi-bank or trust entity, the Monetary Board may also suspend or
remove such director or officer. If the violation is committed by a corporation, such
corporation may be dissolved by quo warranto proceedings instituted by the Solicitor
General” (Section 66, GBL)
“Quo Warranto” - a prerogative writ by which the Government
can call upon any person to show by what warrants he holds a
public office or exercises a public franchise. (Divinagracia vs.
Consolidated Broadcasting System, Inc., [584 SCRA 213]).
This is a special civil action.
(The General Banking Law Annotated, by BSP, 2011
pg. 352-370)
DEGREE OF DILIGENCE REQUIRED OF BANKS

The time-honored AND STILL CURRENT, judicial doctrine on the

degree of bank diligence is that every bank, in dealing with the public
must exercise the

- HIGHEST DEGREE OF DILIGENCE

- HIGHEST DEGREE OF CARE OR
- EXTRAORDINARY DILIGENCE

The diligence of an ordinary prudent man, or ordinary diligence, is not

enough.
The reasons for the strict and highest standard
required all because:

1. the business of banking is so impressed with

PUBLIC INTEREST,
2. where TRUST AND CONFIDENCE of the public in
general is of paramount interest, and
3. arising from the FIDUCIARY ATURE of its
function
With particular reference to deposits, the doctrine is “a
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind
the fiduciary nature of their relationship,” whether such
account consists only of a few hundred pesos or of
millions of pesos.
(Legal Essays on Banking, The Viray Lectures, by Atty. V.
Viray, pg. 43)
OWNERSHIP OF BANKS
Unlawful and Void Transactions
The following transactions, to the extent of the excess over any of
the prescribed ceilings under Republic Act No. 7721 and other relevant
laws are unlawful and void: (MORB, Section X126.2(a), as amended by
BSP Cir. No. 718 (2011)

i. Any transaction involving voting shares of stock of a bank, if such

transaction, in itself, or in relation with other/previous transaction/s
shall result in the ownership and control by an individual or
corporation of voting shares in excess of any of the following
ceilings:
 Under Republic Act No. 8791,
Republic Act No. 7906 and Ceiling
Republic Act No. 7353
a) Voting shares of stock of a Filipino 40%
individual or a Philippine non-bank
corporation in a domestic bank.

b) Voting shares of stocks of foreign

individual or a foreign non-bank
corporation in a domestic:
i. Universal/commercial and thrift 40%
bank
ii. Rural bank No foreign stockholdings
c) Combined ownership of the voting
stock of foreign individuals and/or
foreign non-bank corporations in a
domestic:
i. Universal/commercial bank 40%
ii. Thrift bank 60%
iii. Rural bank No foreign stockholdings

d) Combined ownership of the voting

shares of stock in a domestic bank of an
individual and a corporation/s which 40%
is/are wholly-owned or majority of the
voting shares of which is owned by
such individual.
 Under Republic Act No. 7721
a) Voting shares of stock of a qualified
Philippine corporation in a domestic 60%
bank, i.e., universal/ commercial, thrift
and rural bank

b) Combined ownership of the voting

shares of stock of qualified foreign
banks (including foreign individuals and 60%
non-bank corporations) in a domestic
bank, i.e., universal/commercial, thrift
and rural bank
ii. Any act, contact, agreement or arrangement, such as voting trust
agreement or proxy, which vests in any person, whether natural or
juridical , the right to vote or the control of the voting shares of
stock of a bank, if such agreement in itself, or in relation with
other/previous transaction/s, shall result in the acquisition of the
right to vote or the control of voting shares of stock of the bank, in
excess of the prescribed ceilings.
(The General Banking Law Annotated, by BSP, 2011 pg. 106-108)