BANKING
LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
November 23, 2016 - Batacan
This is Banking Laws. The main 2 laws that we will be taking up
are the New Central Bank Act and the General Banking Law. But
then there are many small laws. I tried to go through the official
line of the BSP and this is their official public issue:
Volume 1: Central Bank Act,
Volume 2: General Banking Laws and
Volume 3: Special laws. There are so many small laws.
Specialized subject but it is the xx of an educated man to have
the basic solid grasp of the laws.
The first systematic of the financial world collapsed in 2012. It is
not just the financial institutions that collapsed, it is the financial
system and credit system of the world, almost ended. And now
they say we are in danger of another financial collapse because
our solution is so effective nobody wants to get out of it. Pareha
na’g drugs ba. Sakit man kaayo so tagaan kag pain killer. Karon
we are addicted to pain killers! We are addicted to easy money
because the central banks all over the world, led by the Federal
Reserve injected so much liquidity to the system.
There is so much money that now, there are countries that are
applying the regime of negative interest rates. You deposit
money in the bank in Japan, you have to pay! You are not paid
interest anymore, you pay to deposit! What is the effect in
Japan? Maayo gani sa Japan because they are peculiar people.
The effect is, the amount of deposits in the bank increased.
“nganong mag deposit man ta’g kwarta nga makuwaan man
hinuon atong kwarta? Edi gastuson nalang diba?” Nisamot ug
saka ang ilang deposits.
So if you go through so many of the leading economists, no one
says that there is a clear by-path ahead. Nobody says that.
There’s this book you should read this: The Only Game In Town
– author Muhamed El-erian xxx *talks about the author, watch
daw natin sa youtube kay sya lang daw so far ang may clear
explanations blahblah.. *talks about the life of the author. xxx
What happened in 2012? I am trying to summarize it to you as
best as I can.
The focus of what happened in 2012 was the housing market in
the US. Unchallenged, every family should own this house – one
of the American dreams. And the government helped, they had 2
big financial institutions. Sige’g pahuwam ug kwarta! xxx well
and good if makabayad, but all of a sudden there were
pressures.
You know, most of the big money goes to the US. Why?
Because the US is known for respecting private capital. Di man
ka mudala sa Russia… xxx so everybody brings their money to
the US. Japan has over 1 trillion dollars in the banks of US. xxx
Now if you have all this money in the big banks, gabayad silag
interest, how will they pay this interest? They have to make
money somewhere. That is what happened. They began to push
it down to the lower smaller banks. And they were pushing for
mortgages, housings. They said katong mga dehado, pahuwam
nila ang kwarta aron makapalit ug balay, naay mortgage
bayaran. First the downpayment was reduced and then finally
they removed the downpayment. Push na na, push! Kwarta na.
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Maayo lang unta tug mao ra na, mga dehado. Karon niabot
naman ang so-called ninja loans.. unsa man na? Mortgages
approved of people who have no income and no job! That is why
they are called ninjas! Wa’y trabaho makakuha kag mortgage??
Number 1, kung ikaw way trabaho nganong mangutang man ka
ana? You know the reason? Same reason why people go into
low-cost housing – because 70% in arrears cannot pay.
Ngano man? Kay ilang huna huna “di ta tuod kabayad,
embarguhon ni. If dili pa ma-embargo, ipa assume tani. Kay para
daghan kaayo’g for sale, for assume. Kay ngano man? The
housing price is always rising! So ikaw mangutang ka ron let us
say a 100,000 dollar house, after a few years 130,000 dollars.
Bisan wa pa ka kabayad, ibaligyo nimo, naa gihapon kay
makuha na kwarta unya lain na mu-assume sa imong balay..
That’s familiar! Tanawa pa ra gud nang low-cost housing diri.
Unya muingon sila, “di na ta mubayad ini kay nang-liki na gud.
Naglamano ra man nang bongbong. Wa man nay poste.”
So that is the thinking of the mortgagee. Or as far as my
classmate said, the “mort- GI-GI.” Hihi.
Now, why do these banks go out of the way and push even if
they know it is really a highly questionable market already, they
have finished all the prime mortgages. These are already sub-
sub-prime… why? Why would they still lend out?
Sige gihapon silag pahuwam kay naa may mu-back up nila, This
so called aggregators. Muingon “kanang tanan mortgage,
ipuna na unya ibaligya samo kay kami mudawat ana. Tagaan
kag dungan nga kwarta so magpahuwam nasad ka.” So di sila
mahadlok kung dehado. Karon nganong kaning mga
aggregators isog man kaayo na sila mukuha ani? kay duna may
mu-issue sa ila ug credit default swaps. Unsa man na?
Normally it is an insurance company that will come out with that.
Muingon sila “ mao ni imong papel na ibaligya nimo, this is an
aggregation of mortgages. If they fail, file-an ka dayon namo, di
na ta mag foreclose2 ug mortgage”. Way banko gusto mag
foreclose ug mortgage! Number 1, dako kaayo gasto
pampahawa. Sugaton man ka’g.. tigbasunon ka. Di man sila
mugive-up. xxx
So everybody was cooperating.. Until finally the whole system
crashed… xxx
So most of the financial institutions went bankrupt! So when that
happened, si Obama man to nag take over… release sya og
kwarta. Several billions - gamay ra kaayo na. ang nitabang ana
ang Federal Reserve or ang Central Banks for that matter, are
true banks. In other words, they can create money.
So how did they supply money in the system? Just by
participating in the open market transactions. Naay mubaligya ug
bonds, sila may mupalit. xxx
The Federal Reserve at one time was putting out something like
3 to 4 million dollars a week, in open market transactions.
Muingon kag who owns the most bonds now; it’s the Federal
Reserve. They were financing. Now muingon kag mao na silay
manunubos. xxx As El-erian points out, the bad thing about easy
money is that both the efficient users of capital and the reckless
users of capital survive. And it is a dicey economy.
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
Libre man pagkaon tanan, tambok, niwang, masakiton, survive
mong tanan kay naa may pagkaon para sa tanan.
Karon they are trying to wean out, that’s why there’s so much
talk about the Federal Reserve increasing their prime rate of
interest. Because that will begin to cut down money supply.
*talks about economics – n1, n2.
N1 is the core money supply, which is all the coins and notes in
circulation and all so-called demand deposits in bank. Expanded
money supply, i-apil nimo dinha kanang mga savings accounts,
special accounts with banks, mao na na ang expanded money
supply.
Muingon ang CB (Central Bank) Federal Reserve “I will increase
the prime rate”, bisan gamay lang mga 25 basis points, which
means ¼ of 1%. Gamay ra kaayo.
¼ of 1%, muhinay na ang bangko ug panghuwam nila kay taas
man interest bayran. Ug negative interest rate ka, sa ato pa
gabayad ka sa utang nimo unya bayran ka sa mga deposito
nimo, gamay ra kaayo ang imong margin. So mugamay ang
money supply.
So credit begins to tighten and people are already used to very
very lose credit and easy money. Nahadlok na ron. So ang
tanan, makig pusta sila, December, naa’y increase sa prime
interest rate sa US. Human naman election, di man sila gusto
ma-politically misinterpreted ang Federal Reserve.. pero human
naman ang election so magpasaka na sila (sa interest). And
mubalik nata sa normal nga kadtong mga inefficient users of
capital, putlon na to sila. Katdong mulihok, efficient, mao toy
mabuhi.
Now, this is actually what we are studying. We are studying
monetary policy, which is engraved in law.
Your closest thing is Fiscal Policy.
Congress passes an appropriation bill, mao ni’y sourcing sa
gastuhon, tax laws.. that is fiscal policy. Hinumdumi, fiscal comes
from the latin word ‘fiscus’, meaning a box where a king kept his
gold. So it’s treasury. Gasto.
But monetary policy is about the peso. It’s purchasing power.
There was a time when 1 peso can buy 10 bottles of coke. It
could get you from here to Bankerohan and back, 5 times. It’s
still the same peso but now, you could not even go to
Bankerohan with that 1 peso. The purchasing power of that
peso, the availability of credit that is monetary policy. The price
of goods, stability of prices of good, that is monetary policy.
Because prices, to a certain extent is determined by supply and
demand. Assuming there are the same amount of goods and
services available and you have more money that what is usual,
then what is the effect? The price of goods and services will go
up, all things remaining equal. Which is actually never true,
because all things are never the same. That is the big difference
of economics. xxx *talks about economics.
So if you are a central banker, will I increase the prime rate or
decrease the prime rate? You are an economist you have to
read! Tetangco, that is the job of Tetangco (BSP incumbent
governor). xxx
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Why? The constitution says, Art. 12 Section 20.
Art. 12 Section 20. The Congress shall establish an
independent central monetary authority, the members of
whose governing board must be natural-born Filipino
citizens, of known probity, integrity, and patriotism, the
majority of whom shall come from the private sector. They
shall also be subject to such other qualifications and
disabilities as may be prescribed by law. The authority shall
provide policy direction in the areas of money, banking, and
credit. It shall have supervision over the operations of banks
and exercise such regulatory powers as may be provided by
law over the operations of finance companies and other
institutions performing similar functions.
Until the Congress otherwise provides, the Central Bank of
the Philippines operating under existing laws, shall function
as the central monetary authority.
The New Central Bank Act says, the CB governor must be
approved by this body composing of the Congress and Senate
confirmation, must be confirmed by the confirmation committee.
That was shut down by the SC. Why? Only those that the
Constitution says require the confirmation of the congress maybe
subjected to the confirmation process because it is in
derogation of the powers of the executive to appoint. So that
is in the new central bank act but that is no longer allowed.
• Is it the Congress that determines monetary policy?
No, it is the Monetary Board (MB). Who is the head of the
monetary board? The Bangko Central governor.
• How many government officials are in the monetary board?
There are only 2. A cabinet representative, normally the finance
secretary and ex officio, the bangko central governor.
The rest are from the private sector. By private sector does not
mean only business sector. It includes NGO, cooperatives,
academe, so they pick people from there. And you must have
some experience in money, banking and credit. Because the
Constitution says “The authority shall provide policy direction in
the areas of money, banking, and credit. It shall have supervision
over the operations of banks and exercise such regulatory
powers as may be provided by law over the operations of finance
companies and other institutions performing similar functions.”
If you want an idea of a monetary authority that is less than
independent, picture this of what happened in February 1986.
The EDSA Revolution. How many crates of freshly peso bills
were confiscated from the Marcoses when they landed in
Hawaii?? Atleast 5 crates confiscated!! And now why did those
crates show up to them?? They were given freshly minted
printed pesos, and that was gotten from the BSP.
The eldest brother of Imelda was caught with 10 crates of freshly
printed peso bills in his pick-up! That is what happens when the
monetary authority is not independent. What was the exchange
rate at that time?? 1981 pagpusil kay Aquino. It was 14 pesos to
1 dollar. In 1 week, it went to 50 pesos to 1 dollar. Meralco
defaulted in its payment with its foreign loans. I remember that I
was reviewing for my bar examination! 1983!!
What did the BSP governor do at that time? Who was the
governor at that time? Jobo Fernandez. Former president of
FEBTC. What did he do? Because people were bringing their
money out of the Philippines. He put out Jobo bills. Bonds issued
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
by the government, what was the interest rate he was offering?
60%! Naa kay 100k at the end of the year, you would
theoretically have 160k. unya butangan ug feature nga tax free..
what was the result? Wala lang gihapon sibat gihapon ang
kwarta.. There was this group known as the binondo central
bank where you could get dollars. Black market na. BSP issued
a rule - Illegal for you to hold dollars. It was already illegal. Banks
have to turn in their dollars to the BSP. Question of confidence…
Section 21 of article 12 of the Constitution says:
Section 21. Foreign loans may only be incurred in
accordance with law and the regulation of the monetary
authority. Information on foreign loans obtained or
guaranteed by the Government shall be made available to
the public.
If the public borrows in foreign currency, it has to borrow through
the BSP and according to its rules plus whatever requirements
there are by law.
So the BSP is also, at the same time the adviser of the
government with respect to its sourcing of cash. Ang gobyerno
gud makakuha nag kwarta sa panahon sa pagbayad sa tax. And
its expenses is all throughout the year. So asa man ang cash
flow sa gobyerno? xxx mao na ang gobyerno, every Monday,
accepts bids for treasury bills. You have to be a registered bank.
Mga bangko maoy mu-bid ana. Kuwaon nila ang ang IOU sa
mga gobyerno. ang interest rate ana gamay ra. Mao nay prime-
prime interest rate. Ngano man? Kay dili man makadagan ang
gobyerno! Mao gamay siya ug interest rate.
Kung gamay kaayo ang interest rate nganong magpahuwam
man sila sa gobyerno? Because of what the law says in its
deposit liabilities.
The law says, for every peso that is deposited in the banks, a
part of that must be kept in cash in the vaults of the banks. What
percentage? Depending on what kind of bank you are.
If you are a rural bank, 4%.
Commercial bank, 15%.
Now you no the reason why every tycoon in the Philippines has
a savings or rural bank. Because it is an easy source of cash.
Tanawa na si Gokongwei. Robinsons savings bank. xxx
Now the law says, 4%, 6%, 14% alone you can keep in cash, the
rest what will you do? You can lend it out at a higher interest rate
to borrowers.
Counted as part of cash involved are government IOU’s (I owe
you) like treasury bills. Magpahuwam gani ka sa gobyerno kay
mupalit kag treasury bills you put that in your vault and you count
that as part of cash. It is equivalently that you are complying with
cash in bank by putting treasury bills instead of cash. That is why
the banks bid for it even if the interest is low. That in a nutshell is
monetary credit policy.
There is one title in credit policy, which is defined in law. What is
that? It says that the CB must make sure of the convertibility of
the peso.
SEC. 3. Responsibility and Primary Objective. _ The Bangko
Sentral shall provide policy directions in the areas of
money, banking, and credit. It shall have supervision over
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the operations of banks and exercise such regulatory
powers as provided in this Act and other pertinent laws over
the operations of finance companies and non-bank financial
institutions performing quasi-banking functions, hereafter
referred to as quasi- banks, and institutions performing
similar functions.
The primary objective of the Bangko Sentral is to maintain
price stability conducive to a balanced and sustainable
growth of the economy. It shall also promote and maintain
monetary stability and the convertibility of the peso.
Convertibility of the peso – can be [readily] converted to other
currencies.
This particular monetary policy is by no means universal. There
is one currency that has chosen specifically not to be convertible.
What currency is that? Until recently, the Yuan was pronounced
as not convertible. That is the secret of the miracle of the
Chinese economy. xxx
What country has the biggest sovereign debt? In absolute
amount ha.. – The US.
Is the US losing sleep because it has the biggest debt? No.
Trump knows the secret why they will never go bankrupt.
Because the debt is denominated in US dollars. Print lang sila’g
kwarta aron makabayad sila sa ilang debt. That is monetary
policy. xxx
No country can survive without credit. That’s part of monetary
policy.
So we have seen the core policies that constitute monetary
policy. It is not only one ha. Monetary policy is a bundle of
policies. So it embraces money supply, credit, financial
institutions specially banks, and stability of prices.
Inflation is part of monetary policy. That is part of the
responsibility of the BSP. Actually there is no Central Bank in the
Philippines because the law says
SEC.2. Creation of the Bangko Sentral._There is hereby
established an independent central monetary authority,
which shall be a body corporate known as the Bangko
Sentral ng Pilipinas, hereafter referred to as the Bangko
Sentral. xxx
So there is BSP. Not CB. xxx but Tetangco, when he meets with
the others, he will not put BSP there, di man na masabtan sa
foreigners! This is the stupidity of language. You think you are
being nationalistic just by using Filipino. Language is never a
sure index of patriotism or nationalism. xxx
Now let us examine the monetary board. It is as to the BSP, the
board of directors as to any corporation. So it is the governing
body of the BSP. But there is a difference. The monetary
board issues circulars which has the force and effect of law.
It is also a rule making body for purposes of the banks. xxx
*talks about pawnshops. The difference between a pawnshop
and a bank is, the bank lends OPM - other people’s money -
the depositor’s money; that is why it is regulated. The pawnshop
lends out Lhuillier’s money!
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
But when you go to the gray area of unsecured loans, which is
anathema to the General Banking Law – in no case shall a bank
lend out money without collateral – that is red letter in the
General Banking Law. But plastic money, sige lang ka’g charge
charge dinha, until you max out, pila’y interest rate ana? 3.5%
unya naa pa surcharge, penalty; that is an allied financial
service. Allied na. Only commercial and expanded commercial
banks like universal banks can engage in the business of credit
cards. Kana tugutan silag taas taas ug interest kay wa naman
na’y collateral. xxx
The bank’s capital is not lent out. It is the deposits of the public
that is lent out. What is the use of the capital? It is used to buy its
assets, buildings, vehicles, etc., most of all, it is used for, let us
just put it in a general term – provisioning. When there are
loans that can no longer perform, capital is used to provision for
the failure of of the loans.
Every quarter the banks come out with financial statement. How
can you say that you can trust them? Tanawa ilang deposits.
Sobra gani na, sa ato pa naa sila’y gigamit sa ilang capital,
delikado na na. mao na’y tanawa. There are bank resources,
assets, kanang gipahuwam assets na. Receivables ba. Inig
kapaltos ana, wala na na i-write off na na nimo. Capital imong
gamiton to provision that. And yet, CB inspects and determines
whether you are following because you are endangering the
public if you that.
• How many are there in the monetary board?
There is supposed to be 7.
• How many are government officials?
The BSP governor ex officio, appointed by the President which
under section 6 letter A, is supposed to be subject to the
confirmation by the COA. And the SC said this is null and void
because only those that the Constitution says require to be
confirmed by the COA are obliged to be confirmed by the COA.
Congress cannot add because it is in derogation of the powers of
the executive to whom the law reposes the power to appoint.
Limitations as to appointment is frowned upon by law.
There are 5 members and they should come from the private
sector and they should serve full time. They cannot have any
other occupation or appointment while they are with the
monetary board. Their term is 6 years and can be reappointed
once. So longest is 12 years. xxx
Qualifications:
SEC. 8. Qualifications. The members of the Monetary Board
must be natural-born citizens of the Philippines, at least
thirty-five (35) years of age, with the exception of the
Governor who should at least be forty (40) years of age, of
good moral character, of unquestionable integrity, of known
probity and patriotism, and with recognized competence in
social and economic disciplines.
SEC. 9. Disqualifications. _ In addition to the
disqualifications imposed by Republic Act No. 6713, a
member of the Monetary Board is disqualified from being a
director, officer, employee, consultant, lawyer, agent or
stockholder of any bank, quasi-bank or any other institution
which is subject to supervision or examination by the
Bangko Sentral, in which case such member shall resign
from, and divest himself of any and all interests in such
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institution before assumption of office as member of the
Monetary Board.
The members of the Monetary Board coming from the
private sector shall not hold any other public office or public
employment during their tenure.
No person shall be a member of the Monetary Board if he
has been connected directly with any multilateral banking or
financial institution or has a substantial interest in any
private bank in the Philippines, within one (1) year prior to
his appointment; likewise, no member of the Monetary
Board shall be employed in any such institution within two
(2) years after the expiration of his term except when he
serves as an official representative of the Philippine
Government to such institution.
Disqualification – cannot be directly or indirectly connected ha.
In fact before he can be appointed, he must disinvest himself.
And then after his term, he cannot be hired by any financial
institution under supervision of BSP for 2 years.
Grounds for removal of a member of the BSP.
SEC. 10. Removal. _ The President may remove any member
of the Monetary Board for any of the following reasons:
(a) If the member is subsequently disqualified under the
provisions of Section 8 of this Act; or
(b) If he is physically or mentally incapacitated that he
cannot properly discharge his duties and responsibilities
and such incapacity has lasted for more than six (6) months;
or
(c) If the member is guilty of acts or operations which are of
fraudulent or illegal character or which are manifestly
opposed to the aims and interests of the Bangko Sentral; or
(d) If the member no longer possesses the qualifications
specified in Section 8 of this Act.
Give me an example – suddenly he takes oath as a Canadian
citizen, di na sya mahimo ha.
SEC. 11. Meetings. _ The Monetary Board shall meet at least
once a week. The Board may be called to a meeting by the
Governor of the Bangko Sentral or by two (2) other members
of the Board.
The presence of four (4) members shall constitute a
quorum: Provided, That in all cases the Governor or his duly
designated alternate shall be among the four (4).
Unless otherwise provided in this Act, all decisions of the
Monetary Board shall require the concurrence of at least
four (4) members.
The Bangko Sentral shall maintain and preserve a complete
record of the proceedings and deliberations of the Monetary
Board, including the tapes and transcripts of the
stenographic notes, either in their original form or in
microfilm.
Meetings, the regular meeting is once a week. Serious
business… monetary policy is serious business.
SEC. 12. Attendance of the Deputy Governors. _ The Deputy
Governors may attend the meetings of the Monetary Board
with the right to be heard.
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
Deputy governors may attend the meetings with the right to
be heard. He can attend and has to be heard in the meeting.
Now in an ordinary corporation law, a director or trustee cannot
appoint his own substitute to the meeting because the reason is
that he is elected for himself. But in the monetary board, if the
BSP governor cannot attend the meeting, he can designate a
deputy. If the Secretary of Finance cannot attend, he can
designate any of his undersecretary.
What are the powers of the MB?
SEC. 15. Exercise of Authority. _ In the exercise of its
authority, the Monetary Board shall:
(a) issue rules and regulations it considers necessary for
the effective discharge of the responsibilities and exercise
of the powers vested upon the Monetary Board and the
Bangko Sentral. The rules and regulations issued shall be
reported to the President and the Congress within fifteen
(15) days from the date of their issuance;
(b) direct the management, operations, and administration
of the Bangko Sentral, reorganize its personnel, and issue
such rules and regulations as it may deem necessary or
convenient for this purpose. The legal units of the Bangko
Sentral shall be under the exclusive supervision and control
of the Monetary Board;
(c) establish a human resource management system which
shall govern the selection, hiring, appointment, transfer,
promotion, or dismissal of all personnel. Such system shall
aim to establish professionalism and excellence at all levels
of the Bangko Sentral in accordance with sound principles
of management.
A compensation structure, based on job evaluation studies
and wage surveys and subject to the Board's approval, shall
be instituted as an integral component of the Bangko
Sentral's human resource development program: Provided,
That the Monetary Board shall make its own system
conform as closely as possible with the principles provided
for under Republic Act No. 6758: Provided, however, That
compensation and wage structure of employees whose
positions fall under salary grade 19 and below shall be in
accordance with the rates prescribed under Republic Act
No. 6758.
On the recommendation of the Governor, appoint, fix the
remunerations and other emoluments, and remove
personnel of the Bangko Sentral, subject to pertinent civil
service laws: Provided, That the Monetary Board shall have
exclusive and final authority to promote, transfer, assign, or
reassign personnel of the Bangko Sentral and these
personnel actions are deemed made in the interest of the
service and not disciplinary: Provided, further, That the
Monetary Board may delegate such authority to the
Governor under such guidelines as it may determine.
(d) adopt an annual budget for and authorize such
expenditures by the Bangko Sentral as are in the interest of
the effective administration and operations of the Bangko
Sentral in accordance with applicable laws and regulations;
and
(e) indemnify its members and other officials of the Bangko
Sentral, including personnel of the departments performing
supervision and examination functions against all costs and
expenses reasonably incurred by such persons in
connection with any civil or criminal action, suit or
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proceedings to which he may be, or is, made a party by
reason of the performance of his functions or duties, unless
he is finally adjudged in such action or proceeding to be
liable for negligence or misconduct.
In the event of a settlement or compromise, indemnification
shall be provided only in connection with such matters
covered by the settlement as to which the Bangko Sentral is
advised by external counsel that the person to be
indemnified did not commit any negligence or misconduct.
The cost and expenses incurred in defending the
aforementioned action, suit or proceeding may be paid by
the Bangko Sentral in advance of the final disposition of
such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the member, officer, or
employee to repay the amount advanced should it ultimately
be determined by the Monetary Board that he is not entitled
to be indemnified as provided in this subsection.
Letter B – because BSP is a true bank. Who are its depositors?
The banks and quasi-banks.
Letter E, new provision.
What is the exception? If he loses the case then he cannot be
reimbursed. That is the rule now.
*talks about legacy banks*
Now there is this provision (last paragraph of section 15) that the
BSP can actually advance the cost and expenses incurred.
Because you are actually supervising entities that have the xx to
carry out a litigation, so ordinaryo ka lang empleyado sa BSP,
unya sungugon kag kaso, the BSP should defend you. The
presumption would be you, are performing your functions with
regularity.
The question, does the MB has immunity from suit since it is
performing a governmental functions? It issues regulations; it
sanctions violations of their circulars and the banking laws. So is
it immune from suit just like the executive who is immune from
suit? No! The MB and the BSP do not enjoy immunity from suit.
Case: Ramos vs Central Bank.
EMERITO M. RAMOS vs. THE HONORABLE COURT OF
APPEALS (Special First Division)
G.R. No. L-25463 April 4, 1975
Who is Ramos? Mr. Emerito Ramos, owner of overseas bank of
Manila. He was found upon examination, that his bank was
impaired because of several non-performing loans. And he tried
to negotiate with the BSP. And the BSP said that if you put in,
this additional amounts to your capital then you will be okay
because the level of your non-performing loans will be reduced.
So Ramos started selling property to raise money and then put it
in the bank. After, the BSP put the bank in receivership. Once
you are in receivership, what happens? You cease operations as
a bank. And then the receiver tries to liquidate, bring back
properties.. So Ramos sued the BSP. And this is where the SC
laid down the Doctrine of Promissory Estoppel.
The BSP was estopped from closing it because it laid down the
condition –‘put in this amount of money and you will be aright’.
So it was bad faith on the part of the BSP. It went ahead and
closed the bank even after its major stockholder had put in the
money they said would be sufficient to rectify the condition. Then
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
the SC said the BSP is open to suit. Why? Because it enters into
transactions, therefore it descends to the level of an ordinary
citizen. It enters into open market transactions.
Digest:
Central Bank, by promising to rehabilitate the bank, is
estopped from closing it down. The conduct of the Central
Bank reveals a calculated attempt to evade rehabilitating
OBM despite its promises. Hence, respondent Central Bank
of the Philippines is directed to comply with it obligations
under the voting trust agreement, and to desist from taking
action in violation thereof.
FACTS: The Overseas Bank of Manila (OBM) is a commercial
banking corporation duly organized and existing under the laws
of the Philippines with principal office at Rosario Street,
Manila. Ramos et. al are the majority and controlling
stockholders of Overseas Bank of Manila (OBM). Pursuant to a
resolution from the Central Bank and the Monetary Board, the
operation of for various violations of the banking laws and
implementing regulations. Because the financial situation of the
OBM had caused mounting concern in the Central Bank,
petitioner Ramos and the OBM management met with
respondent Central Bank on the necessity and urgency of
rehabilitating the OBM through the extension of necessary
financial assistance.
In lieu thereof, the Monetary Board issued another resolution
dated April, 1967 demanding the stockholders to mortgage their
properties or assign the same to the Central Bank and to
execute a voting trust agreement whereby they will pass the
management to Philippine National Bank in order “to stave of
liquidation”. Hence, Ramos et. al executed the voting trust
agreement prepared by Central Bank with petitioners as cestuis
que trust and Central Bank’s Superintendent of Banks as the
Trustee. Petitioners likewise conveyed by way of mortgage to the
Central Bank all their private properties and holdings to secure
the obligations of the OBM to the Central Bank. Accordingly, new
directors and officers were elected and installed and they took
over the management and control of the Overseas bank.
However, after 8 months, the Central Bank did not make any
positive action to reorganize and resume OBM’s normal
operations. Instead, Central Bank issued a resolution excluding
OBM from clearing with it and authorizing the nominee board of
directors to suspend operations. Worse, Central Bank Monetary
Board issued a resolution ordering the liquidation the bank.
Hence this petition for certiorari, prohibition and mandamus with
prayer for the issuance of a writ of preliminary injunction to
restrain respondent Central Bank of the Philippines from
enforcing and implementing the Monetary Board Resolutions.
Petitioners charged that the OBM became financially distressed
because of this suspension and the deprivation by the Central
Bank of all the usual credit facilities and accommodations
accorded to the other banks. Central Bank contended that to
assail Resolution of the Monetary Board ordering the liquidation
of the Overseas Bank, an action must be filed in the Court of
First Instance of Manila by the Bank itself, and not by petitioning
stockholders.
ISSUE: Whether or not the CB had agreed to rehabilitate,
normalize and stabilize OBM and whether or not the Central
Bank resolutions were adopted in abuse of discretion.
HELD: If jurisdiction was already acquired ito delve into the
6
validity of Resolutions 1263 and 1290 (and this the Central Bank
admits), there is no cogent reason why, after such jurisdiction
had been acquired, the Court should be deprived thereof by the
subsequent adoption of Resolution 1333, particularly because
the latter, in relation to the antecedent facts, appears to be no
more than a deliberate effort to evade the jurisdiction of this
Court, and have the case thrown back to the Court of First
Instance. The Central Bank, by promising to rehabilitate the
bank, is estopped from closing it down. The conduct of the
Central Bank reveals a calculated attempt to evade rehabilitating
OBM despite its promises. Hence, respondent Central Bank of
the Philippines is directed to comply with it obligations under the
voting trust agreement, and to desist from taking action in
violation thereof.
The Central Bank made express representations to petitioners
herein that it would support the OBM, and avoid its liquidation if
the petitioners would execute (a) the voting trust agreement
turning over the management of OBM to the Central Bank or its
nominees, and (b) mortgage or assign their properties to the
Central Bank to cover the overdraft balance of OBM. The
petitioners having complied with these conditions and parted with
value to the profit of the CB (which thus acquired additional
security for its own advances), the Central Bank may not now
renege on its representations and liquidate the OBM, to the
detriment of its stockholders, depositors and other creditors,
under the rule of promissory estoppel.
Alright, special provisions with respect to the governor, deputy
governors of the BSP. I would just like to bring out to you this
specific provision. Section 19.
SEC. 19. Authority of the Governor in Emergencies. _ In
case of emergencies where time is insufficient to call a
meeting of the Monetary Board, the Governor of the Bangko
Sentral, with the concurrence of two (2) other members of
the Monetary Board, may decide any matter or take any
action within the authority of the Board.
The Governor shall submit a report to the President and
Congress within seventy-two (72) hours after the action has
been taken.
At the soonest possible time, the Governor shall call a
meeting of the Monetary Board to submit his action for
ratification.
Emergencies, only the governor and 2 other members of the MB.
How many are there in the MB? 7. Sa ato pa 3 sila kabuok, is
that majority? Dili na majority, emergency na! Why is this
allowed? Because there are certain emergencies in the banking
industry that might require immediate actions. Let us say the
governor of the BSP, Mr. Tetangco is playing golf in the Manila
rd
Golf Club, he is already in the 3 hole. As he was about to make
th
his drive to the 4 hole, his aid comes running to him with his
cellphone. “Boss you should hear this. It is the BSP, manager in
Zamboanga.” Linya ang mga tao didto sa Security Bank kay
nahadlok sila nga ang RCBC mawad-an ug kwarta kay ang
Bangladesh…. (*talks about the controversy surrounding it). So
the people are withdrawing their money. It is called bank-run.
Actually it is not the bank that is running, it is the depositors that
are going to the bank withdrawing their money. So his was
informed, immediately he calls the president of the RCBC, at that
time, it was Lorenzo Tan, brother of the president of the BPO,
Nestor Tan… tan tarantan!
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
“What is this, what is going on, are you alright?” Then that is the
time that Lorezo Tan has to admit what is true. Because no
bank, no matter how healthy you are, can survive it. Mag bank
run gani na, kuwaon nila ilang deposito dinha, magdungan sila,
unya kanang deposito mao man nang gipautang sa gawas, edi
kuwang dyud ka ana, di dyud ka maka-meet. So Lorenzo Tan
has to say “I am short, give me a lifeline. A couple of billions.”
Approved! Because he (BSP Governor) does not want the
systemic failure to evolve. Magsunod2 man nang bankrun. So he
gives his order to his deputy, “fly in 2 Billion to Zamboanga”,
karga na nag cash. Lupad after he gets the okay of the 2
members of the MB who are also there playing golf.
Abot didto sa RCBC, advice-an nila “ayaw isulod sa vault!
Ibutang dinha sa counter! Ipakita ang kwarta sa counter!” Ang
mga tao dinha galinya, paimna ug kape aron panington.
Makakita na sila “uy naa diay daghan kwarta, naa ra man diay
kwarta, di man diay mag kulang. Ugma nalang ta ani.” Salbar!
The bank run is adverted because it has emergency power. Ug
wa pa ni, what do you do? Wa nay kwarta didto, ang bangko
muhuwam sa BDO. Unya wa nasad kwarta diri. ang mga tao
linya nasad sa laing bangko. Sira nasad. Mao na, systemic
failure develops from the failure of one bank. So it is important to
stop it, dead in the tracks. And he has power to do that because
of section 19. They say the most powerful man in the world is not
the president, but the Federal Reserve governor. Sya ang
gakupot sa kahon dira. He can save or choose not to save a
financial institution. xxx
In the Philippines the reference rate for interest rate is the 90-day
Treasury bill. xxx Diri sa Pilipinas, kuwangan na gani kag kwarta
kay di ka makameet sa imong deposit liabilities - the percentage
of your deposit that must keep in cash in your vault - you either
borrow from BSP or borrow from other banks. And that is called
the inter-bank rate. It’s called PHIBOR. Philippine Inter-bank
Offered Rate. But nobody believes it. It is still the treasury bill
rate of 90 days.
December 7, 2016 - Robelen Callanta
The survey shows 100% of all the bankers, foreign investors,
local investors, say that interest rates will be cut. How much?
When we say interest rates, we talk about BASIS POINTS. (1-
2%= 100 basis points). 60% of those surveyed say that the US
will cut interest rate by 25 basis points.
Effect of raise in interest rates: It has the tendency to decrease
money supply
The Federal Reserve is our equivalent of Bangko Sentral. It is a
TRUE Bank because:
1. It has depositors;
2. It lends money from the deposits.
The depositors of Bangko Sentral are also banks. If they
increase interest rates, then the banks will not be encouraged to
borrow as eagerly if the rates were not increased. If they were
lending at 3.25%, and then, the following daw, they raise it to 3.5
%, if you were the bank, will you be encouraged to borrow if the
rates are low or if the rates are high? You will not want to borrow
some more, is it not? In other words, they are now trying to
lessen money supply, to bring down liquidity. That is a monetary
policy.
7
Last meeting, we discussed the degrees of authority of the
Central Bank Governor relation to the powers of the powers of
the Monetary Board. The Central Bank Governor can act in
emergency with just the concurrence 2 other members of the
Monetary Board. (Monetary Board has 7 members, only 2 are
public officials) Provided that he makes a report to the President
and the Congress in 72 hours and at the soonest time, the
Governor shall conduct a meeting with the Monetary Board to
submit the ratification.
Example: I give is a bankrupt. All of a sudden, depositors
withdraw their money. When it happens, there is no bank strong
enough to stop the bankrupt because banks lend out their
deposits. There is only a statutory percentage (4%) of the
deposits that are kept in default that is in cash or near cash. For
every peso that you deposit, banks are only required to maintain
4 centavos. The rest can be lent out. So if all the depositors will
all of a sudden withdraw, then no bank can withstand the
bankrupt. So the bank needs all of a sudden money to satisfy the
depositors. The bank needs a decision ASAP. The Central Bank
Governor can decide. That is an Emergency Loan to send cash
to a bank that is in distress. He is making an act of disposition.
Lending out money is an act of disposition that is why you need
a Special Power of Attorney to lend money that is not yours. It is
not a power of administration.
The Bangko Sentral Governor decides with the concurrence of
just 2 members. That is not even the majority. The absolute
majority of the Monetary Board is 4.
SECTION 20. Outside Interests of the Governor and the Full-
time Members of the Board. — The Governor of the Bangko
Sentral and the full-time members of the Board shall limit
their professional activities to those pertaining directly to
their positions with the Bangko Sentral. Accordingly, they
may not accept any other employment, whether public or
private, remunerated or ad honorem, with the exception of
positions in eleemosynary, civic, cultural or religious
organizations or whenever, by designation of the President,
the Governor or the full-time member is tasked to represent
the interest of the Government or other government
agencies in matters connected with or affecting the
economy or the financial system of the country.
Can the Central Bank Governor be a minister in his parish
church?
Yes. Section 20 says, except in “positions in eleemosynary, civic,
cultural or religious organizations.” But, if ministers are given
stipends by the church, that becomes a prohibited activity
becomes “whether public or private, remunerated or ad
honorem.”
What is ad honorem?
Have you heard of the word “honorarium?” Honorarium is a
token or stipend given to you for a particular chore that you
make. That is a form of remuneration. HONORARIUM.
How many Deputy Governors are there?
SECTION 21. Deputy Governors. — The Governor of the
Bangko Sentral, with the approval of the Monetary Board,
shall appoint not more than three (3) Deputy Governors who
shall perform duties as may be assigned to them by the
Governor and the Board.
In the absence of the Governor, a Deputy Governor
designated by the Governor shall act as chief executive of
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
the Bangko Sentral and shall exercise the powers and
perform the duties of the Governor. Whenever the
Government is unable to attend meetings of government
boards or councils in which he is an ex officio member
pursuant to provisions of special laws, a Deputy Governor
as may be designated by the Governor shall be vested with
authority to participate and exercise the right to vote in such
meetings.
“In the absence of the Governor, a Deputy Governor
designated by the Governor shall act as chief executive of
the Bangko Sentral and shall exercise the powers and
perform the duties of the Governor.”
This is still before the electronics came(?). Can you really be
away from office now? With all the texting, WiFi, Skype? It does
not even cost anything to be in touch or in contact. Constant
connectivity is now possible. (Chika about AdDU WiFi being
lousy)
Example: The Governor goes to Brussels because he was
invited by the European Central Bank Governor in a meeting.
Can you tell the Deputy Governor, “Diri sa ka ha kay muadto sa
kog Europe.” You are always in touch. You know the
convertibility of peso to dollar, you know the rate. You can
always call any bank President in the Philippines. It does not
take any special gadget to command your office.
This provision was written for yesterday’s generation. This was
not written for Generation Z or those born not earlier than 1996.
“Whenever the Government is unable to attend meetings of
government boards or councils in which he is an ex officio
member pursuant to provisions of special laws, a Deputy
Governor as may be designated by the Governor shall be
vested with authority to participate and exercise the right to
vote in such meetings.”
This is one of the exceptions to the rule that a member of the
Board of Directors cannot be substituted by his chosen
representatives. The Monetary Board acts as Board of Directors
of the Bangko Sentral. If the Bangko Sentral is absent, he can
point a Deputy Governor to attend. He has the right to vote in
substitution.
SECTION 22. Research and Statistics. — The Bangko
Sentral shall prepare data and conduct economic research
for the guidance of the Monetary Board in the formulation
and implementation of its policies. Such data shall include,
among others, forecasts of the balance of payments of the
Philippines, statistics on the monthly movement of the
monetary aggregates and of prices and other statistical
series and economic studies useful for the formulation and
analysis of monetary, banking, credit and exchange policies.
What is that data? It shall include:
1. forecasts of the balance of payments of the Philippines;
2. statistics on the monthly movement of the monetary
aggregates and of prices and other statistical series;
and
3. Economic studies useful for the formulation and
analysis of monetary, banking, credit and exchange
policies.
4.
Balance of Payments vs. Balance of Trade
Is the Bangko Sentral allowed to make research and analysis of
data of the balance of trade or as it says here, forecasts of the
8
balance of payments in the Philippines? There is no balance of
trade. Balance of payments is bigger than Balance of Trade.
Balance of payments is essentially money that comes in and
money that goes out of the country. If there is positive balance
of payment, there more money coming in than money flowing
out. Ex: Nangutang ang Pilipinas ug kwarta.
Balance of Trade is basically export and import. The number 1
import nato is electronic devices. If we have more export than
imports, that is positive balance of trade. Because you get
money in exports and spend money in import, that is part of
balance of trade.
Can you think of any money that comes in that is not part of
export anymore? OFW Remittance.
The Bangko Sentral should keep track of those because that is
connected with the strength of peso. Kung sige lang kag import
and our exports are minimal, it will not strengthen the peso
because to import, we have to buy foreign currency. So atong
foreign currency diri, mugawas, muhina. So, the Bangko Sentral
has to study. In order to do that, to gather data in monetary
policy, the Bangko Sentral has the authority to request from
government offices and instrumentalities, or government-owned
or controlled corporations, any data which it may require for the
proper discharge of its functions and responsibilities.
SECTION 23. Authority to Obtain Data and Information. —
The Bangko Sentral shall have the authority to request from
government offices and instrumentalities, or government-
owned or controlled corporations, any data which it may
require for the proper discharge of its functions and
responsibilities. The Bangko Sentral through the Governor
or in his absence, a duly authorized representative shall
have the power to issue a subpoena for the production of
the books and records for the aforesaid purpose. Those
supply the bank with data requested or required, shall be
subject to punishment for contempt in accordance with the
provisions of the Rules of Court.
Data on individual firms, other than banks, gathered by the
Department of Economic Research and other departments
or units of the Bangko Sentral shall not be made available to
any person or entity outside of the Bangko Sentral whether
public or private except under order of the court or under
such conditions as may be prescribed by the Monetary
Board: Provided, however, That the collective data on firms
may be released to interested persons or entities: Provided,
finally, That in the case of data on banks, the provisions of
Section 27 of this Act shall apply.
SECTION 25. Supervision and Examination. — The Bangko
Sentral shall have supervision over, and conduct periodic or
special examinations of, banking institutions and quasi-
banks, including their subsidiaries and affiliates engaged in
allied activities.
What is the legal definition of “to supervise?”
Supervision is to verify whether his subordinates is acting within
the bounds of the law. Oversight.
Examination
Examination is the determination in detail as to whether or not, a
bank, quasi-bank or the financial institution under the supervision
of the Bangko Sentral is in fact in compliance with law.
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
Periodic examination is once a year and at least 12 months
should separate one examination from another examination.
Special examination is an examination that is conducted
because it is warranted under certain questionable reports of
facts.
Section 25.
xxx
No restraining order or injunction shall be issued by the
court enjoining the Bangko Sentral from examining any
institution subject to supervision or examination by the
Bangko Sentral, unless there is convincing proof that the
action of the Bangko Sentral is plainly arbitrary and made in
bad faith and the petitioner or plaintiff files with the clerk or
judge of the court in which the action is pending a bond
executed in favor of the Bangko Sentral, in an amount to be
fixed by the court. The provisions of Rule 58 of the New
Rules of Court insofar as they are applicable and not
inconsistent with the provisions of this section shall govern
the issuance and dissolution of the restraining order or
injunction contemplated in this section.
Read PDIC vs Philippines Countryside Development Bank
640 SCRA 322 (2011)
PDIC vs Philippines Countryside Development Bank 640
SCRA 322 (2011)
SECOND DIVISION, Mendoza, J.
This is the story of The Legacy scandal. At first, they were
offering placements, with interest of 2% a month, or 24% annual
interest. Then were reports that this was a scam. So the 11
banks of this fellow, who is an Atenean, was reported. He was
about to be subjected to a special examination. He filed an
injunction with the CA. The CA, despite this red letter provision,
issued a restraining order. Legacy raised the interest to 3% a
month. The scam got bigger. Bank managers were given
commissions if they could recommend more people.
Issue: WHETHER PRIOR APPROVAL OF THE MONETARY
BOARD OF THE BANGKO SENTRAL NG PILIPINAS IS
NECESSARY BEFORE THE PDIC MAY CONDUCT AN
INVESTIGATION OF RESPONDENT BANKS
SC: There is no more need for a Monetary Board prior approval if
it is a special examination. If it is a regular examination and it is
not separated by a period of at least 12 months, then, you will
need the prior approval of the Monetary Board.
From FT: In 2009, to clarify procedural matters, PDIC released
RI No. 2009-05 or the Rules and Regulations on Examination of
Banks. Section 2 thereof differentiated between the two types of
examination as follows:
Section 2. Types of Examination
a. Regular Examination - An examination conducted
independently or jointly with the BSP. It requires the prior
approval of the PDIC Board of Directors and the Monetary
Board (MB). It may be conducted only after an interval of at least
twelve (12) months from the closing date of the last Regular
Examination.
b. Special Examination – An examination conducted at any time
in coordination with the BSP, by an affirmative vote of a majority
of all the members of the PDIC Board of Directors, without need
of prior MB approval, if there is a threatened or impending bank
closure as determined by the PDIC Board of Directors.
9
A PDIC investigation is conducted to "determine[e] whether the
allegations in a complaint or findings in a final report of
examination may properly be the subject of an administrative,
criminal or civil action." In other words, an investigation is based
on reports of examination and an examination is conducted with
prior Monetary Board approval. Therefore, it would be
unnecessary to secure a separate approval for the conduct of an
investigation. Such would merely prolong the process and
provide unscrupulous individuals the opportunity to cover their
tracks.
Indeed, while in a literary sense, the two terms may be used
interchangeably, under the PDIC Charter, examination and
investigation refer to two different processes. To reiterate, an
examination of banks requires the prior consent of the Monetary
Board, whereas an investigation based on an examination
report, does not.
Another Acronym: DOSRI (Directors, officers, stockholders,
and related interests.) Whenever these people borrow from the
bank, there are conditions and procedural requisites.
Kung president ka sa Bangko, unya muhulam ka sa Bangko!
Usually, in the Bar Examination, they play on your layman’s
understanding. Unya, dili ka kabalo nga DOSRI na diay to.
Ex: Nay tiguwang nga nisulod sa bangko kay gusto siya
maghuwam siya ug kwarta kay magdevelop siya sa iyang resort.
Unya, questionable iyang collateral, wala aprubahi sabangko.
Unya makigkita daw siya sa Presidente sa Bangko, ingnon daw
preasidente nga siya si Nanay Suling. Ana and Presidente sa
Bangko, “Ay, nagbantay sa ako sa gamay pa ko.” Ingon dayon
ang president,”Oh, co-signatory na ko ana.” So, accommodation
party na siya. Gi-release dayon ang loan kay president gyud
siya. DOSRI na man na kay ang Presidente naman ang
nihuwam. He is solidarily liable. So, DOSRI.
What are the conditions of DOSRI?
Before a loan can be released, Director, officer, stockholder,
who, together with his related interest, contracts a loan or any
form of contractual accommodation from:
a. The Bank
b. A bank which is a subsidiary of a bank holding company
which is both the bank and the lending bank is a
subsidiary, or
c. A bank in which a controlling portion of the shares is
owned by the same interest that owns a controlling
portion of the shares of this bank in excess of 5% of the
capital of surplus of fund or in the maximum amount
pertinent permitted by law , whichever is lower,
Conditions:
1. The Director, Officer, etc shall be required by the
lending bank to waive the secrecy of his deposits in
whatever region in all banks in the Philippines.
2. his loan, no matter how small or large the amount,
must be approved by the Board of Directors of the
corporation.
Banks categorize their loans. For example, this amount ang mu-
approve kay executive committee. Pag gamay, bisan pa ang
regional manager can approve. Pareho anang sure hit nga loan.
Ang sure hit nga loan, kanang nay time deposit nga 2 million
tapos muhulam sa Bangko ug 500k. Ang iyang security kay ang
iyang time deposit. Naay mga ing-ana. Kanang mga gigukod sa
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
BIR. That is borrowing against your own deposit. You only need
the Regional Manager to approve it. But, if it is a DOSRI, the
Regional Manager cannot approve that. It must by the BOARD of
DIRECTORS.
Mao nang, the minutes of the board meeting of the bank, daghay
pahabol ana. Naa may DOSRI nga account nga pahabol unya
wala na may meeting ang Board, so isuroy na nila sa tanang
members sa Board para magpapirma nga gi-aprobahan ang
loan.
I would like you to direct your attention to BSP Circ. No. 170,
adopted on 1998 by Gabriel Singson, Governor of the Central
Bank at that time. There, they explain and enumerate what are
“related interests.” This is what is complicated - not Directors,
officers and stockholders. You must outline this.
For purposes of Section 26 of Republic Act No. 7653, the term
"related interest" shall include the following:
1. Spouse or relative within the first degree of consanguinity or
affinity, or relative by legal adoption, of a director, officer or
stockholder of the bank;
2. Partnership of which a director, officer, or stockholder or his
spouse or relative within the first degree of consanguinity or
affinity, or relative by legal adoption, is a general partner;
3. Co-owner with the director, officer, stockholder or his spouse
or relative within the first degree of consanguinity or affinity,
or relative by legal adoption, of the property or interest or
right mortgaged, pledged or assigned to secure the loans or
credit accommodations, except when the mortgage, pledge
or assignment covers only said co-owner's undivided interest;
4. Corporation, association, or firm of which a director or officer
of the bank, or his spouse is also director or officer of such
corporation, association or firm, except (a) where the
securities of such corporation, association of firm are listed
and traded in the big board or commercial and industrial
board of domestic stock exchanges and less than fifty
percent (50%) of the voting stock thereof is owned by any
one person or by persons related to each other within the
third degree of consanguinity or affinity; or (b) where the
director, officer or stockholder of the lending bank sits as a
representative of the bank in the board of directors of such
corporation: Provided, That the bank representative shall not
have any equity interest in the borrower corporation except
for the minimum shares required by law, rules and
regulations, or by the by-laws of the corporation: Provided,
further, That the borrowing corporation under (a) or (b) is not
among those mentioned in items (5) and (6) hereof.*
5. Corporation, association or firm of which any or a group of
directors, officers, stockholders of the lending bank and/or
their spouses or relatives within the first degree of
consanguinity or affinity, or relative by legal adoption,
hold/own more than twenty percent (20%) of the subscribed
capital of such corporation, or of the equity of such
association or firm;
6. Corporation, association or firm wholly or majority-owned or
controlled by any related entity or a group of related entities
mentioned in items (2), (4) and (5) hereof.
*Look at Aboitiz Equity Ventures, Inc.. They own Union Bank.
They borrow from their own bank. If it is within the single
borrowers(?) limit, they can borrow but they are DOSRI. They
began to be followed by the Bangko Sentral because once you
are DOSRI, you are listed and the Bangko Sentral Monetary
Board monitors you. That is why there is a need for you to waive
10
the Secrecy of Bank Deposit. Tan.awon man nila kung pila
imong deposit ug kung makasagang ban a kung dili kabayad.
Muduol sila ron kang Henry Sy. Unsa may bank ni Henry Sy?
BDO. So, mag-ingon mo nga, “Kamo, kay dili man pud mo
kahuwam sa BDO tungod sa DOSRI, diri na lang pud mo huwam
sa amo. Diri mo huwam sa Union Bank. Kami muhuwam sa
BDO.”
Madakpan ba na? That is why you have to read BSP Circular
No. 170. BASAHA NINYO.
Section 27. Prohibitions. - In addition to the prohibitions found in
Republic Act Nos. 3019 and 6713, personnel of the Bangko
Sentral are hereby prohibited from:
(a) being an officer, director, lawyer or agent, employee,
consultant or stockholder, directly or indirectly, of any institution
subject to supervision or examination by the Bangko Sentral,
except non-stock savings and loan associations and provident
funds organized exclusively for employees of the Bangko
Sentral, and except as otherwise provided in this Act;
(b) directly or indirectly requesting or receiving any gift, present
or pecuniary or material benefit for himself or another, from any
institution subject to supervision or examination by the Bangko
Sentral;*
(c) revealing in any manner, except under orders of the court, the
Congress or any government office or agency authorized by law,
or under such conditions as may be prescribed by the Monetary
Board, information relating to the condition or business of any
institution. This prohibition shall not be held to apply to the giving
of information to the Monetary Board or the Governor of the
Bangko Sentral, or to any person authorized by either of them, in
writing, to receive such information; **and
(d) borrowing from any institution subject to supervision or
examination by the Bangko Sentral shall be prohibited unless
said borrowings are adequately secured, fully disclosed to the
Monetary Board, and shall be subject to such further rules and
regulations as the Monetary Board may prescribe: Provided,
however, That personnel of the supervising and examining
departments are prohibited from borrowing from a bank under
their supervision or examination.***
*This is in addition to RA 3019 and RA 6713 (Code of Ethics for
Public Officials).
**If you inform the Monetary Board of any transaction that is
suspicious because of the Anti-Money Laundering Law, you are
not covered by this explicitly because it is required by law to
inform the Bangko Sentral. This is over and above the Secrecy
of bank deposits because the latter covered only bank deposits.
On the other hand, this one covers everything about the bank.
You are not supposed to reveal information relating to the
condition or business of any such institution. Very general.
*** If you are an employee of the Bangko Sentral, if you will
borrow from the bank, your borrowing will be disclosed with the
Monetary Board. The Monetary Board will have another list that
they will monitor. In any case, that personnel of the supervising
and examining departments are prohibited from borrowing from a
bank under their supervision or examination. So, if you are in the
supervising and examining department for rural banks, you can
never borrow from any rural bank. If you belong in the
Supervising and Examining Department for Loans and Saving
Association and thrift banks, you can borrow from rural bank and
commercial bank, but not from thrift banks.
Section 28. Examination and Fees. - The supervising and
examining department head, personally or by deputy, shall
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
examine the books of every banking institution once in
every twelve (12) months, and at such other times as the
Monetary Board by an affirmative vote of five (5) members,
may deem expedient and to make a report on the same to
the Monetary Board: Provided, That there shall be an
interval of at least twelve (12) months between annual
examinations.
The bank concerned shall afford to the head of the
appropriate supervising and examining departments and to
his authorized deputies full opportunity to examine its
books, cash and available assets and general condition at
any time during banking hours when requested to do so by
the Bangko Sentral: Provided, however, That none of the
reports and other papers relative to such examinations shall
be open to inspection by the public except insofar as such
publicity is incidental to the proceedings hereinafter
authorized or is necessary for the prosecution of violations
in connection with the business of such institutions.
Banking and quasi-banking institutions which are subject to
examination by the Bangko Sentral shall pay to the Bangko
Sentral, within the first thirty (30) days of each year, an
annual fee in an amount equal to a percentage as may be
prescribed by the Monetary Board of its average total assets
during the preceding year as shown on its end-of-month
balance sheets, after deducting cash on hand and amounts
due from banks, including the Bangko Sentral and banks
abroad.
Ikaw pay mubayad aron examinon ka. Mao ng giingon sa
balaod.
THREE STAGES OF A BANK IN DISTRESS
1. Conservatorship
2. Receivership
3. Liquidation
What is the basis for putting the bank under
Conservatorship?
Section 29. Appointment of Conservator. - Whenever, on the
basis of a report submitted by the appropriate supervising
or examining department, the Monetary Board finds that a
bank or a quasi-bank is in a state of continuing inability or
unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors,
the Monetary Board may appoint a conservator with such
powers as the Monetary Board shall deem necessary to take
charge of the assets, liabilities, and the management
thereof, reorganize the management, collect all monies and
debts due said institution, and exercise all powers
necessary to restore its viability. The conservator shall
report and be responsible to the Monetary Board and shall
have the power to overrule or revoke the actions of the
previous management and board of directors of the bank or
quasi-bank.
The Monetary Board shall terminate the conservatorship
when it is satisfied that the institution can continue to
operate on its own and the conservatorship is no longer
necessary. The conservatorship shall likewise be terminated
should the Monetary Board, on the basis of the report of the
conservator or of its own findings, determine that the
continuance in business of the institution would involve
11
probable loss to its depositors or creditors, in which case
the provisions of Section 30 shall apply.
When a conservator is appointed, the bank continues to function
as a bank but the conservator takes over. The Board of Directors
cannot move without the approval of the conservator.
Who appoints or decides that a bank be placed in
conservatorship? THE MONETARY BOARD.
What is the basis of the Monetary Board? A report submitted
by the appropriate supervising or examining department.
Then, the Moneraty Board will appoint a conservator.
What is the term for conservatorship?
Section 29. Appointment of Conservator. - x x x
The conservator should be competent and
knowledgeable in bank operations and management. The
conservatorship shall not exceed one (1) year.
xxx
Who pays the conservator? It is the bank who pays.
Section 29. Appointment of Conservator. - x x x
The conservator shall receive remuneration to be
fixed by the Monetary Board in an amount not to exceed
two-thirds (2/3) of the salary of the president of the
institution in one (1) year, payable in twelve (12) equal
monthly payments: Provided, That, if at any time within one-
year period, the conservatorship is terminated on the
ground that the institution can operate on its own, the
conservator shall receive the balance of the remuneration
which he would have received up to the end of the year; but
if the conservatorship is terminated on other grounds, the
conservator shall not be entitled to such remaining balance.
xxx
Ug ikaw conservator, muingon kag, “ Paabton na lang nakog 1
year kay dili nako makakobra ug sweldo for 1 year?” No!
Because if you report that the bank or quasi-bank is no longer
within reasonable prospects of being returned to corporations,
you still receive the balance of the unpaid portion of the
remuneration. In other words, the remuneration for 1 year is not
an incentive or disincentive for you for doing your job.
Who can be appointed as a conservator?
Section 29. Appointment of Conservator. - x x x The
Monetary Board may appoint a conservator connected with
the Bangko Sentral, in which case he shall not be entitled to
receive any remuneration or emolument from the Bangko
Sentral during the conservatorship. The expenses attendant
to the conservatorship shall be borne by the bank or quasi-
bank concerned.
xxx
He can be an employee of the Bangko Sentral. If that is the
case, he shall not be entitled to receive any remuneration or
emolument from the Bangko Sentral during the conservatorship.
The expenses attendant to the conservatorship shall be borne by
the bank or quasi-bank concerned.
How does a conservatorship end?
Section 29. Appointment of Conservator. – x x x
The Monetary Board shall terminate the
conservatorship when it is satisfied that the institution can
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
continue to operate on its own and the conservatorship is
no longer necessary. The conservatorship shall likewise be
terminated should the Monetary Board, on the basis of the
report of the conservator or of its own findings, determine
that the continuance in business of the institution would
involve probable loss to its depositors or creditors, in which
case the provisions of Section 30 shall apply.
2 ways:
1. When it is satisfied that the institution can continue to
operate on its own and the conservatorship is no longer
necessary Sa ato pa, the conservator is successful in
restoring the financial health of the bank.
2. The conservator shall likewise be terminated should the
Monetary Board, on the basis of the report of the
conservator or of its own findings, determine that the
continuance in business of the institution would involve
probable loss to its depositors or creditors, in which
case the provisions of Section 30 shall apply.
So what is Section 30? The appointment of a receiver. Then,
subsequently, liquidation.
Within 1 year, the bank says, “Atras na ko kay wala koy mahimo.
Guba na ang bangko.” So, ok, receivership.
Section 30. Proceedings in Receivership and Liquidation. -
Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank
or quasi-bank:
(a) is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not
include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
The financial panic in the banking community is called a Bank
Run.
Kung gusto gyud ka muwithdraw kay magbayad kag utang unya
dili gyud sila pawithdraw, daghan kaayoy storya pero dili ka
kawithdraw kay wala na diay silay ibayad sa imo. Once the bank
fails to do that, it is not just inability or unwillingness to maintain a
liquidity that is adequate to safeguard the interest of the
depositors and creditors. That is not just a liquidity. Wala na kay
ikabayad.
(b) has insufficient realizable assets, as determined by the
Bangko Sentral, to meet its liabilities; or x x x
“insufficient realizable assets”
All the loans have collateral. In case the loan fails, you execute
on the collateral. Upon examination, a collateral turns out to be
grossly inadequate. Ngano grossly inadequate? Kining is aka
client nanghuwam ug 100 million, ang iyang gimortgage to
support that loan is supposed to be 5 hectares of prime
commercial property covered by 5 titles. Pag examine sa
property, mga fish pond man diay. Between fish ponds and
commercial property, dako kayo ang deperensya. So, bisan
mabaligya pa na nimo ang fishpond, it is not sufficient to cover
the loan.
(c) cannot continue in business without involving probable
losses to its depositors or creditors; or
12
(d) has willfully violated a cease and desist order under
Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the
assets of the institution; in which cases, the Monetary Board
may summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and
designate the Philippine Deposit Insurance Corporation as
receiver of the banking institution.
For a quasi-bank, any person of recognized
competence in banking or finance may be designed as
receiver.
Here, you know that once a bank or quasi-bank is places under a
receivership, there can only be one receiver. That is the PDIC
(Philippine Deposit Insurance Corporation). By the time the PDIC
takes over, the bank ceases operation.
What does the receiver do?
He will try to retrieve the assets of the bank and make further
investigation as to how impaired is the bank.
Review-hon na niya kanang mga loans. Tagsa-tagsahon na.
Section 30. Proceedings in Receivership and Liquidation. –
xxx
The receiver shall immediately gather and take charge of all
the assets and liabilities of the institution, administer the
same for the benefit of its creditors, and exercise the
general powers of a receiver under the Revised Rules of
Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution:
Provided, That the receiver may deposit or place the funds
of the institution in non-speculative investments. x x x
What is the term of the receivership?
Section 30. Proceedings in Receivership and Liquidation. -–
xxx
The receiver shall determine as soon as possible, but not
later than ninety (90) days from take over, whether the
institution may be rehabilitated or otherwise placed in such
a condition so that it may be permitted to resume business
with safety to its depositors and creditors and the general
public: Provided, That any determination for the resumption
of business of the institution shall be subject to prior
approval of the Monetary Board.
xxx
Kanang bangko nga mukalit lang ug declare ug banking holiday,
by itself, that is a ground for receivership. Ingon sila, “Come back
next week.” Pagreport ana, wala na, receivership dayon.
You heard of Urban Bank. Urban bank declared a bank holiday.
It was really in bad shape. Urban Bank was founded by the three
musketeers. They all came from City Bank. The CEO was a
young guy by the name of Bartolome. He committed suicide
pagkapildi sa iyang kaso. I think he was the one Secretary
Reyes copied. (chika about Sec. Reyes)
San Miguel Corp. was also one of the stockholders of the Urban
Bank. When the bank was already crumbling, the officers tried to
save their relatives. People were withdrawing. Bartolome got an
order from the Bangko Sentral. Pag declare nila ug bank holiday,
nagkuha siya ug withdrawal slip. Gi-withdraw niya ang 3-4 million
pesos personal deposit. The slip antedate the bank holiday.
Ezmende(?) refused to sign the deposit slip. Hadlok man siya.
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
The Urban Bank wanted the Pangilinan Group to buy them out.
Pangilinan Group said they do not have the money to buy. The
bank said, “Don’t worry. We will grant you a loan so you can
have money to buy us out.” They were really playing around with
the funds at that time.
A receiver might be resourceful. He might be able to identify
another business interest who is willing to take over the bank in
lieu. The newcomer would have to assume the risk and would
have to put in really good money. If he does not get anything in
return of that, which is normally controlled, he will not come in.
Kinsa may tao nga buang-buang nga magbutang ug kwarta nga
nagkagidlay nga bangko, kung dili siya tagaan ug full control
ana. The thought is always, “When I come in, mao na ba ni ang
all the skeletons that are present in the closets of the bank?
There might be other skeletons there. Pinaspasay na ug audit.
Muingon kag “Dali ra man na. wala may imbentaryo ang bangko.
Wala man nay in-process, finished goods. Financial ra na.” Ang
kadaot ana kay kung nay subsidiaries ang bangko. Dili lang ni
Audit nga audit-audit lang. Next to audit for fraud, this is one of
the most thorough audits. Kay tan-awon gyud na nimo. Kuyaw
ang mga subsidiaries. Daghan ra ba na. banks get to all sorts of
business in order to salvage themselves. Bati ang mga loans
siguro so mag-invest sila. So kadto, subsidiary na sad to.
December 14, 2016 – Ray Gingco
Favorite source of Bar Exam questions is with respect to banks
in distress. Three distress situations specifically dealt with by the
NEW Central bank Act. Conservatorship, Receivership and then
Liquidation.
How long is receivership? One year. The determination is
whether or not the bank can be returned to its normal existence
and practices or it must undergo rehabilitation or
conservatorship.
Receivership it is already the PDIC that comes in. 90 days.
What is the determination there of the receiver?
Whether or not the bank close into rehabilitation or liquidation.
So its normal operations without the intervention of the other
parties to revive the financial status of the bank. Now there are
certain terminologies that have been referred by the official
literature of the BSP. For instance Section 30 states that
proceeding in receivership and liquidation. You will be put under
receivership if the bank or the quasi-bank is unable to pay its
liquidation in the ordinary course of business. This is called by
the BSP as the equity test. What is the equity test? Pangutan-on
ka sa Bar Examination.
Section 30. Proceedings in Receivership and Liquidation. -
Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank
or quasi-bank:
A. is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not
include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
B. has insufficient realizable assets, as determined by the
Bangko Sentral, to meet its liabilities; or
13
C. cannot continue in business without involving probable
losses to its depositors or creditors; or
D. has willfully violated a cease and desist order under
Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the
assets of the institution; in which cases, the Monetary Board
may summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and
designate the Philippine Deposit Insurance Corporation as
receiver of the banking institution.
For a quasi-bank, any person of recognized competence in
banking or finance may be designed as receiver.
The receiver shall immediately gather and take charge of all
the assets and liabilities of the institution, administer the
same for the benefit of its creditors, and exercise the
general powers of a receiver under the Revised Rules of
Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution:
Provided, That the receiver may deposit or place the funds
of the institution in non-speculative investments. The
receiver shall determine as soon as possible, but not later
than ninety (90) days from take over, whether the institution
may be rehabilitated or otherwise placed in such a condition
so that it may be permitted to resume business with safety
to its depositors and creditors and the general public:
Provided, That any determination for the resumption of
business of the institution shall be subject to prior approval
of the Monetary Board.
If the receiver determines that the institution cannot be
rehabilitated or permitted to resume business in accordance
with the next preceding paragraph, the Monetary Board shall
notify in writing the board of directors of its findings and
direct the receiver to proceed with the liquidation of the
institution. The receiver shall:
1.file ex parte with the proper regional trial court, and
without requirement of prior notice or any other action, a
petition for assistance in the liquidation of the institution
pursuant to a liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general application to all
closed banks. In case of quasi-banks, the liquidation plan
shall be adopted by the Monetary Board. Upon acquiring
jurisdiction, the court shall, upon motion by the receiver
after due notice, adjudicate disputed claims against the
institution, assist the enforcement of individual liabilities of
the stockholders, directors and officers, and decide on other
issues as may be material to implement the liquidation plan
adopted. The receiver shall pay the cost of the proceedings
from the assets of the institution.
2. convert the assets of the institutions to money, dispose of
the same to creditors and other parties, for the purpose of
paying the debts of such institution in accordance with the
rules on concurrence and preference of credit under the
Civil Code of the Philippines and he may, in the name of the
institution, and with the assistance of counsel as he may
retain, institute such actions as may be necessary to collect
and recover accounts and assets of, or defend any action
against, the institution. The assets of an institution under
receivership or liquidation shall be deemed in custodia legis
in the hands of the receiver and shall, from the moment the
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017

institution was placed under such receivership or
liquidation, be exempt from any order of garnishment, levy,
attachment, or execution.
The actions of the Monetary Board taken under this section
or under Section 29 of this Act shall be final and executory,
and may not be restrained or set aside by the court except
on petition for certiorari on the ground that the action taken
was in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders
of record representing the majority of the capital stock
within ten (10) days from receipt by the board of directors of
the institution of the order directing receivership, liquidation
or conservatorship.
Or the bank has insufficient realizable assets as determined by
the BSP to meet its liabilities. That is termed by the BSP as the
Balance Sheet Test. Ngano balance sheet test man na? Kay
makit-an nimo ang assets kung sufficient ban a na itanggi nimo
sa liabilities. Unya ang Balance Sheet is mao man na. One of the
axioms in accounting is Assets = Liabilities + Owner’s Equity.
Talks about Luca Pacioli.
Wa na. There is no need of hearing anymore. In the old law naa
pa. Now there is no requirement of hearing. All you need is the
assessment of the Monetary Board and the report of the
supervising department.
Supervising ba or examining department of the BSP. They report
to the Monetary Board: “This Bank has failed the Equity Test or
This bank has failed the Balance Sheet Test” and the BSP di
man na siya muhearing. Ang buhaton niya is to inform the BOD
of the Bank that “kamo, you will be meeting the representatives
of the PDIC.
And the PDIC will take over the bank. Remember, when you are
put under receivership you cease operations. And now the
receiver will try to recoup the assets of the bank.
According to the book of the BSP the phrase “the Monetary
Board may summarily and without need for prior hearing
forbid the institution from doing business in the Philippines
and designate the Philippine Deposit Insurance Corporation
as receiver of the banking institution” – Is an
institutionalization made by Congress as pronounced by the
Supreme Court in the case of Rural Bank of Lucena vs Arca,
September 20, 1965, J. Reyes, J.B.L. and Rural Bank of Buhi vs
CA, 1988, J. Paras.

Balance Sheet Test has sufficient realizable assets as These cases recognize the dire consequences of requiring prior
determined by the BSP to meet its liabilities. Why is this Test hearing before banks are closed. The Close Now and Hear Later
questionable? This test is questionable because assets will Scheme is grounded on practical and legal reasons to prevent
change in market value. It may go up one day it may go down in further dissipation of the Bank’s assets and is a valid exercise of
another day. I don’t know if you have read the biography of police power to protect the depositors, the creditors the
Warren Buffet. Warren Buffet believes in intrinsic valuation. If ctockholde4rs and the general public. So it is a valid exercise of
naay share unya wala pa kaayoy nakapalit ana palita na. So police power because it is a matter of general welfare.
gipalit niya ang Berkshire Hathaway. Unsa may produkto nila?
Lining sa mga suits. The company has no future. According to All right how do you distinguish a receiver and a conservator?
Buffet it is as if I have stumbled upon a cigarette puffs with three Conservator is one year, receiver is 90 days.
more puffs to spare. Why? Because when he examined the
financial statements there are shares of stocks of valuable RECEIVER CONSERVATOR
companies that were bought before at a very low price. Those A receiver is appointed based A conservator may be
shares were not factored in when they valued the corporation. on the grounds under Section appointed when an
Again, he bought the company because of the shares of stocks. 30 of the New CBA. institution is in the state of
Berkshire Hathaway became his holding company. The continuing inability and
Berkshire Hathaway. unwillingness to maintain a
condition of liquidity
So this is controversial, how do you know that the realizable inadequate to protect the
assets are sufficient? Fathers talks about the prices of the shares interest of the depositors
of stocks at Dow Jones vis-à-vis the prices of the shares of stock or creditors.
in the Philippines. Precisely it was Warren Buffet who said that
A receiver administers the A conservator restores the
“Greed is as universal as gravity”. assets of the bank. (Mao nay viability of an operating
receiver closed na ang book (I bank suffering liquidity
Now there is this another feature that the Bar Examinations may think this should be bank) and problems. Revive and
ask you. What is the so called “Close Now and Hear Later” administers the assets. It is no make it viable mao na
Scheme? longer in operation. Masakiton iyahang role.
na ang bank. Wa na. Administer
Close Now and Hear Later Scheme. That is Section 30 letter D: na lang. Then the receiver will
decide the next step:
(d) has willfully violated a cease and desist order under rehabilitation or liquidation? He
Section 37 that has become final, involving acts or must decide whether the
transactions which amount to fraud or a dissipation of the institution may be rehabilitated
assets of the institution; in which cases, the Monetary Board or not or otherwise placed in
may summarily and without need for prior hearing forbid the such a condition so that it may
institution from doing business in the Philippines and be permitted to resume
designate the Philippine Deposit Insurance Corporation as business with safety to its
receiver of the banking institution. depositors and creditors. If it
cannot be rehabilitated he
reports to the Monetary Board.

14
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017

Then the Monetary Board writes the duty to take charge of the duty to convert the assets to
a formal letter to the Board of assets and liabilities for the money to pay the debts of the
Directors of its findings and benefit of the creditors. bank.
direct the receiver to proceed Normally this is the fifth
with liquidation. distinction a receiver is
appointed ahead of the
liquidator.
Now, what does a receiver do?
What is the relationship between the depositor and the bank? It
A receiver commissions another person or agency charged with is under the nominate contract of mutuum under the Civil Code.
the duty to take charge with the assets and liabilities of the bank It is a loan. So the depositor is one of your creditors. So when
which has been forbidden from doing business in the Philippines. the PDIC comes in unahon niya nag mga depositors na nag
As well as the duty to preserve and administer such assets and gibutang kay 5000 pesos and below.
liabilities for the benefit of the depositors and creditors of such
bank and to continue into liquidation whenever authorized under PDIC immediately looks at the list and if your deposit is 5k and
this act or under other laws and to dispose the assets to wind-up below una ka mahatagan.
the affairs of the bank.
Now, cases where the courts issue an injunction prior to the
So recover the assets. Stop the bank personnel from conducting closure. There is a rule that no injunction shall be filed against
further banking business. Stop them from removing or liquidating the MB of the BSP in cases of conservatorship and receivership,
assets ahead of any liquidation. To initiate liquidation if it can no etc. BUT what is the only instance: The only instance is grave
longer financially viable. Remember that it can be a conservator abuse of discretion. Generally the acts under Section 30 may not
or an official of the BSP. These personalities are separate and be restrained or set aside by the Courts any restraining order is
distinct from the BSP. In fact his appointment or engagement an unwarranted interference with the powers of the Monetary
with the BSP is suspended. He ceases to receive remuneration Board.
from the BSP.
The landmark cases are BSP vs. Honorable Valenzuela, October
The BSP CAN NEVER BE A CONSERVATOR. A conservator is 2009; old case of Central bank vs Dela Cruz November 1990.
separate and distinct from the BSP although he may be gotten
from there. From the FT:
The respondent banks have failed to show their entitlement to
Let us say he is one of the examiners tapos kahibalo siya and he the writ of preliminary injunction. It must be emphasized that an
is willing to be a conservator. So, he takes a leave from his application for injunctive relief is construed strictly against the
engagement and then he becames a receiver(?) and he receives pleader. The respondent banks cannot rely on a simple appeal to
his salary from the bank which about two-thirds of the salary of procedural due process to prove entitlement. The requirements
the president of a bank. for the issuance of the writ have not been proved. No invasion of
the rights of respondent banks has been shown, nor is their right
Now, to do his job as fast a s possible if he do his job as a to copies of the ROEs clear and unmistakable. There is also no
conservator before the year ends then the entire salary for the necessity for the writ to prevent serious damage. Indeed the
year is given to him. issuance of the writ of preliminary injunction tramples upon the
powers of the MB and prevents it from fulfilling its
Now, how do you distinguish a receiver and a liquidator. functions. There is no right that the writ of preliminary injunction
would protect in this particular case. In the absence of a clear
RECEIVER LIQUIDATOR legal right, the issuance of the injunctive writ constitutes grave
Appointed by the Monetary The liquidator is appointed by abuse of discretion. In the absence of proof of a legal right and
Board based on the the Monetary Board based on the injury sustained by the plaintiff, an order for the issuance of a
recommendation of the the writ of preliminary injunction will be nullified.
supervising of the BSP. recommendation/determinatio
n of the receiver. Now, in case of liquidation of the bank and quasi-bank the
There are several grounds for There is only one ground for receiver shall pay the debts of that institution under the order if
the appointment of a receiver. the appointment of a liquidator. the court under the concurrence and preference of credits as
Daghan kaayo ni ug grounds. State of being financially provided under the Civil Code.
Declare lang kag bank unable or maintain liquidity.
holiday. Wa na! Once again, concurrence and preference of credits.
A receiver has 90 days. There is no statutory period for
a liquidator. Liquidation should It is a heirarchy of which creditors have superior claim among
not last three years because in creditors. Always #1 is the government such as taxes and fees
the Corporation Code you and it must be fully satified. If there are no sufficient assets,
have three years to liquidate ihatag gihaoun na didto.That is why the liquidation of the banks
and a bank is necessarily a are transferred from the BSP to the courts because BSP no
corporation. A bank is always longer have jurisdiction over the other transactions of said bank.
a corporation dili pwede
partnership under the General By way of summary, liquidation according to the SC is a single
banking Law. proceeding composed of 2 phases:
Generally, the receiver has While the liquidator has the

15
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
The first pahse is composed of approval and disapproval of
claims. These could be the known claims listed down by the
receiver or the claims to be presented in court by virtue of
publication. The notice of liquidation shall be published to alert
creditors who have been forgotten. Also because liquidation is
an in rem proceeding. The court issues an order fairly. An order
allowing or disallowing a particular claim which is final and is
appealable by the party aggrieved.
The second phase involves the approval of the court of the
distribution plan. Kanang tanan nga na-allow na claim, isahun
lang na nimu pag-approve.
If each claim will file an appeal, you can have as many cases as
the claims. Daghan kaayo na. Although the claims are litigated in
the same proceeding, each claim is separate and distinct from
each other. Each claim is heard separately and the order issued
relating to a particular claim applies only to said claim leaving the
other claims unaffected. The same goes with the order allowing
or disallowing a claim.
SEC. 49. Definition of Currency. _ The word "currency" is
hereby defined, for purposes of this Act, as meaning all
Philippine notes and coins issued or circulating in
accordance with the provisions of this Act.
SEC. 50. Exclusive Issue Power. _ The Bangko Sentral shall
have the sole power and authority to issue currency, within
the territory of the Philippines. No other person or entity,
public or private, may put into circulation notes, coins or
any other object or document which, in the opinion of the
Monetary Board, might circulate as currency, nor reproduce
or imitate the facsimiles of Bangko Sentral notes without
prior authority from the Bangko Sentral.
The Monetary Board may issue such regulations as it may
deem advisable in order to prevent the circulation of foreign
currency or of currency substitutes as well as to prevent the
reproduction of facsimiles of Bangko Sentral notes.
The Bangko Sentral shall have the authority to investigate,
make arrests, conduct searches and seizures in accordance
with law, for the purpose of maintaining the integrity of the
currency.
Violation of this provision or of any regulation issued by the
Bangko Sentral pursuant thereto shall constitute an offense
punishable by imprisonment of not less than five (5) years
but not more than ten (10) years. In case the Revised Penal
Code provides for a greater penalty, then that penalty shall
be imposed.
Section 72 deals with emergency cases involving the purchasing
power of the peso.
Section 72. Emergency Restrictions on Exchange
Operations. - In order to achieve the primary objective of the
Bangko Sentral as set forth in Section 3 of this Act, or
protect the international reserves of the Bangko Sentral in
the imminence of, or during an exchange crisis, or in time of
national emergency and to give the Monetary Board and the
Government time in which to take constructive measures to
forestall, combat, or overcome such a crisis or emergency,
the Monetary Board, with the concurrence of at least five (5)
16
of its members and with the approval of the President of the
Philippines, may temporarily suspend or restrict sales of
exchange by the Bangko Sentral, and may subject all
transactions in gold and foreign exchange to license by the
Bangko Sentral, and may require that any foreign exchange
thereafter obtained by any person residing or entity
operating in the Philippines be delivered to the Bangko
Sentral or to any bank or agent designated by the Bangko
Sentral for the purpose, at the effective exchange rate or
rates: Provided, however, That foreign currency deposits
made under Republic Act No. 6426 shall be exempt from
these requirements.
In the event of the foreign exchange cases or in a time of
national emergency, what can BSP do to give itself time within
which to forestall or to combat such crisis or emergency?
In instances where there is a very big gap in the foreign
exchange, what can the Monetary Board do? The Monetary
Board with the concurrence of at least 5 of its members with the
approval of the President of the Philippines may temporarily
suspend or restrict sales of exchange by the BSP. It can order
that no banks may sell dollar anymore or the banks must
turnover their balance to the BSP or subject transactions
involving gold or foreign exchange to license by the BSP. Only
banks and duly authorized foreign exchange dealers may be
allowed to buy and sell dollars.
Sections 49-60 are the functions of the BSP. It is the sole bank
which has the power to issue currency.
Is currency synonymous to legal tender? Is all Phil. Currency
legal tender? Legal tender is that hich you can compel the
creditor to accept in satisfaction of your credit. What is your
remedy if you gave a legal tender to your creditor but he refuses
to accept? Consignation.
Limitations of legal tender. Coins has a specific limit as a legal
tender. Coins such as 25 cents and above are legal tender up to
50 pesos. 10 cents and below are legal tender up to 20 pesos.
Checks representing bank deposits do not have the legal tender
power.
BSP also functions as a government bank. It represents the
Philippines In international monetary conferences, meetings and
etc.. Under Sections 110-116.
Section 110. Designation of Bangko Sentral as Banker of the
Government. - The Bangko Sentral shall act as a banker of
the Government, its political subdivisions and
instrumentalities.
Section 111. Representation with the International Monetary
Fund. - The Bangko Sentral shall represent the Government
in all dealings, negotiations and transactions with the
International Monetary Fund and shall carry such accounts
as may result from Philippine membership in, or operations
with, said Fund.
Section 112. Representation with Other Financial
Institutions. - The Bangko Sentral may be authorized by the
Government to represent it in dealings, negotiations or
transactions with the International Bank for Reconstruction
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017
and Development and with other foreign or international
financial institutions or agencies. The President may,
however, designate any of his other financial advisors to
jointly represent the Government in such dealings,
negotiations or transactions.
Section 113. Official Deposits. - The Bangko Sentral shall
be the official depository of the Government, its political
subdivisions and instrumentalities as well as of
government-owned or controlled corporations and, as a
general policy, their cash balances should be deposited with
the Bangko Sentral, with only minimum working balances to
be held by government-owned banks and such other banks
incorporated in the Philippines as the Monetary Board may
designate, subject to such rules and regulations as the
Board may prescribe: Provided, That such banks may hold
deposits of the political subdivisions and instrumentalities
of the Government beyond their minimum working balances
whenever such subdivisions or instrumentalities have
outstanding loans with said banks.
The Bangko Sentral may pay interest on deposits of
the Government or of its political subdivisions and
instrumentalities, as well as on deposits of banks with the
Bangko Sentral.
Section 114. Fiscal Operations. - The Bangko Sentral shall
open a general cash account for the Treasurer of the
Philippines, in which the liquid funds of the Government
shall be deposited.
Transfers of funds from this account to other
accounts shall be made only upon order of the Treasurer of
the Philippines.
Section 115. Other Banks as Agents of the Bangko
Sentral. - In the performance of its functions as fiscal agent,
the Bangko Sentral may engage the services of other
government-owned and controlled banks and of other
domestic banks for operations in localities at home or
abroad in which the Bangko Sentral does not have offices or
agencies adequately equipped to perform said operations:
Provided, however, That for fiscal operations in foreign
countries, the Bangko Sentral may engage the services of
foreign banking and financial institutions.
Section 116. Remuneration for Services. - The Bangko
Sentral may charge equitable rates, commissions or fees for
services which it renders to the Government, its political
subdivisions and instrumentalities.
Then as a government agent under Sec. 117-122 which includes
acting in the account of or in the behalf of the government in the
issuance of securities representing the obligations of the
government.
Section 117. Issue of Government Obligations. - The issue
of securities representing obligations of the Government, its
political subdivisions or instrumentalities, may be made
through the Bangko Sentral, which may act as agent of, and
for the account of, the Government or its respective
subdivisions or instrumentality, as the case may be:
Provided, however, That the Bangko Sentral shall not
guarantee the placement of said securities, and shall not
subscribe to their issue except to replace its maturing
17
holdings of securities with the same type as the maturing
securities.
Section 118. Methods of Placing Government Securities. -
The Bangko Sentral may place the securities to which the
preceding section refers through direct sale to financial
institutions and the public.
The Bangko Sentral shall not be a member of any
stock exchange or syndicate, but may intervene therein for
the sole purpose of regulating their operations in the
placing of government securities.
The Government, or its political subdivisions or
instrumentalities, shall reimburse the Bangko Sentral for the
expenses incurred in the placing of the aforesaid securities.
Section 119. Servicing and Redemption of the Public
Debt. - The servicing and redemption of the public debt shall
also be effected through the Bangko Sentral.
Section 120. The Securities Stabilization Fund. - There
shall be established a "Securities Stabilization Fund" which
shall be administered by the Bangko Sentral for the account
of the Government.
The operations of the Securities Stabilization Fund
shall consist of purchases and sales, in the open market, of
bonds and other evidences of indebtedness issued or fully
guaranteed by the Government. The purpose of these
operations shall be to increase the liquidity and stabilize the
value of said securities in order thereby to promote
investment in government obligations.
The Monetary Board shall use the resources of the
Fund to prevent, or moderate, sharp fluctuations in the
quotations of said government obligations, but shall not
endeavor to alter movements of the market resulting from
basic changes in the pattern or level of interest rates.
The Monetary Board shall issue such regulations as
may be necessary to implement the provisions of this
section.
Section 121. Resources of the Securities Stabilization
Fund. - Subject to Section 132 of this Act, the resources of
the Securities Stabilization Fund shall come from the
balance of the fund as held by the Central Bank under
Republic Act No. 265 as of the effective date of this Act.
Section 122. Profits and Losses of the Fund. - The
Securities Stabilization Fund shall retain net profits which it
may make on its operations, regardless of whether said
profits arise from capital gains or from interest earnings.
The Fund shall correspondingly bear any net losses which it
may incur.
BSP acts as the government’s financial adviser under Section
123 which includes providing financial advise to the government
before it borrows and joins any credit operation.
Section 123. Financial Advice on Official Credit
Operations. - Before undertaking any credit operation
abroad, the Government, through the Secretary of Finance,
shall request the opinion, in writing, of the Monetary Board
on the monetary implications of the contemplated action.
Such opinions must similarly be requested by all political
subdivisions and instrumentalities of the Government
before any credit operation abroad is undertaken by them.
 BANKING LAWS TSN
From the lectures of Father Agustin Nazareno, SY 2016 - 2017

The opinion of the Monetary Board shall be based on
the gold and foreign exchange resources and obligations of
the nation and on the effects of the proposed operation on
the balance of payments and on monetary aggregates.
Whenever the Government, or any of its political
subdivisions or instrumentalities, contemplates borrowing
within the Philippines, the prior opinion of the Monetary
Board shall likewise be requested in order that the Board
may render an opinion on the probable effects of the
proposed operation on monetary aggregates, the price level,
and the balance of payments.
Section 124. Representation on the National Economic and
Development Authority. - In order to assure effective
coordination between the economic, financial and fiscal
policies of the Government and the monetary, credit and
exchange policies of the Bangko Sentral, the Deputy
Governor designated by the Governor of the Bangko Sentral
shall be an ex officio member of the National Economic and
Development Authority Board.
strength and convertibility of the currencies in which the
reserve is maintained, as well as to the anticipated demands
for such currencies. The Monetary Board shall issue
regulations determining the other qualifications which
foreign exchange assets must meet in order to be included
in the international reserves of the Bangko Sentral.
The Bangko Sentral shall be free to convert any of
the assets in its international reserves into other assets as
described in subsections (a) and (b) of this section.
Also it is a bank of rediscount and lender of last resort. It also
functions as a bank of central clearance and settlement. It is
authorized to establish facilities for inter bank clearing of checks
and settlement of inter bank balances.
___________________________________________________

Life is 10% what happens to you and 90% how you react to it. -
BSP is the custodian of the bank’s cash reserves as against the
bank’s deposit liabilities, liabilities for deposit substitute and/or Charles R. Swindoll
bond held in trust.
BSP also functions as the custodian of the county’s international
reserve. Section 64-66.

Section 64. International Monetary Stabilization. - The

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

Section 65. International Reserves. - In order to maintain the

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

Section 66. Composition of the International Reserves. -

The international reserves of the Bangko Sentral may
include but shall not be limited to the following assets:
(a) gold; and
(b) assets in foreign currencies in the form of: documents
and instruments customarily employed for the international
transfer of funds; demand and time deposits in central
banks, treasuries and commercial banks abroad; foreign
government securities; and foreign notes and coins.
The Monetary Board shall endeavor to hold the
foreign exchange resources of the Bangko Sentral in freely
convertible currencies; moreover, the Board shall give
particular consideration to the prospects of continued

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