Chapter 7.

- The Banko Sentral ng Pilipinas Qualifications of members of MB​​: C35-GIP-C

1. Natural-born ​citizen ​of the Philippines
2. At least ​35 years of age​​; governor at least 40
Declared Policy of the State
3. Good moral character
4. Unquestionable ​integrity
Sec. 1 (RA 7653 - New Central Bank Act):
5. Known ​probity ​and ​patriotism
“The State shall maintain a ​central monetary authority
6. Recognized ​competence ​in social and economic
that shall function and operate as an i​ ndependent and
discipline
accountable body corporate in the discharge of its
mandated responsibilities concerning ​money​, ​banking​, and
Grounds for removal of member of MB​​:​ IG-Q
credit​. In line with this policy, and considering its unique
1. Physically or mentally ​incapacitated ​for more
functions and responsibilities, the central monetary
than 6 months
authority established under this Act, while being a
2. Guilty ​of acts of fraudulent or illegal character
government-owned corporation, shall enjoy f​ iscal and
3. No longer possess the ​qualifications
administrative autonomy​.”
Meetings, quorums, decisions and proceedings of MB
Responsibilities of the BSP​​:​ PSR
- Meeting ​at least once a week
1. Provide policy directions ​in the area of
- Quorum is presence of ​4 members
banking, money and credit
- All decision shall require ​concurrence of at
2. Have ​supervision ​over the operation of banks
least 4 members​​, except for the following
3. Has ​regulatory powers over the operations of
which requires vote of 5 members: PEEL
banks, finance companies and quasi-banks ​(Sec.
a. Publication ​of financial statements
3, NCBA)
b. Examinations ​and fees of banks
c. Emergency restrictions on ​exchange
Primary objectives of BSP​​:​ PM
operations
1. To maintain ​price stability ​conducive to a
d. Grand emergency ​loans ​and advances
balanced and sustainable growth of the
economy
Limitations on outside interests of the members of
2. To promote and maintain ​monetary stability
MB
and ​convertibility of peso​​ ​(Sec. 3, NCBA)
1. Limit their professional activities to those
pertaining directly to their position with the
Corporate powers of BSP​​:​ SCP-SPAL
bangko sentral
1. Use a ​corporate ​s​eal
2. Not accept any other employment​​, except:
2. Enter into ​c​ontracts
ECCRD
3. Lease or own ​personal and real ​pr​ operty
a. Eleemosynary
4. S​​ue ​and ​be sued
b. Civic
5. Do and ​p​erform ​all things ​necessary ​to carry
c. Cultural
out the purposes of NCBA
d. Religious
6. Acquire and hold ​a​ssets and liabilities
e. Designation of President
7. Compromise, condone, or release​​, in whole or
in part, any claim of or settled ​li​ ability to the
BSP ​(Sec. 5, NCBA)
Chapter 8. - Currency, Monetary Stabilization and
Authority of the BSP​​:​ REO-ISC Functions of BSP
1. Issuance of ​r​ules of conduct ​or establishment
of standards of operation Domestic Monetary Stabilization
2. Conduct of ​e​xamination to determine - The MB shall endeavor to control any expansion
compliance with laws and regulations or contraction in monetary aggregates which is
3. Overseeing ​to ascertain that laws and prejudicial to the attainment or maintenance of
regulations are complied with price stability
4. Regular ​i​nvestigation which shall not be
oftener than once a year Action when abnormal movements occur in the
5. Inquiring ​into the ​s​olvency and liquidity ​of monetary aggregates, credit or price level
the institution a. MB shall take such remedial measures and
6. Enforcing prompt ​c​orrective action ​(Sec. 15, submit to the president and the congress and
NCBA) make public a detailed report whenever:
i. The monetary aggregates, or the level of
Monetary Board the credit, increases or decreases by
- Composed of ​7 members more than 15 percent
- Governor of BSP ii. The cost of living index increases by
- Member of the Cabinet more than 10 percent
- 5 members from the private sector iii. When in its judgment the circumstances
- 6 years term​​ with no reappointment so warrant
International Monetary Stabilization Chapter 9. - Unclaimed Balances and Trust Receipts
- The Bangko Sentral shall exercise its powers to
preserve the international value of the peso and
Unclaimed Balance
to maintain its convertibility into other freely
- Credits or deposits or other evidence of
convertible currencies primarily for, although
indebtedness of any kind with banks, loan
not necessarily limited to, current payments for
associations and trust corporations (BLT) in
foreign trade and invisibles
favor of any person known to be dead or who
- In order to maintain the international stability
has ​not made further deposits or
and convertibility of the Philippine peso​: the BS
withdrawals during the preceding ten years
shall maintain international reserves adequate
of more.
to meet any foreseeable net demands on the BS
- Shall be deposited with the Treasurer of the
for foreign currencies.
Philippines to be used as National Assembly
may direct
Composition of International reserves:
1. Gold
“Escheat” - process of reporting unclaimed balances and
2. Assets in foreign currencies (documents and
turning over to the Treasurer of the Philippines of the
instruments used for international transfer of
amounts
funds)
Trust Receipts
Action when the international stability of the peso is
threatened​​:
“Trust receipt transaction” - any transaction by and
a. MB shall take such remedial measures and
between an entruster and an entrustee whereby the
submit to the president and the congress and
entruster who owns or holds absolute title or security
make public a detailed report whenever:
interests over certain specified goods, documents or
i. The international reserves of the BS
instruments releases the same to the possession of the
falls to a level which the MB considers
entrustee upon the latter’s execution and delivery to the
inadequate to meet prospective net
entruster of a signed document called a ​trust receipt
demands ​on the BS for foreign
currencies
“Trust receipt” - a written or printed document signed
ii. The international reserve appears to be
by the entrustee in favor of entruster containing terms
in danger of falling to such a level
and conditions substantially complying with provisions
iii. The international reserve is falling ​as a
of Trust Receipts Law
result of payment or remittances
- A separate and independent security transaction
abroad
intended to aid in financing importers whereby
the imported goods are held as security by the
“Inflation” ​- continuing rise in the general price level
lending institution for the loan obligation
usually attributed to an increase in the volume of money
and credit relative to available goods and services
Rights of Entruster: ​PC
1. Entitled to proceeds from the sale
How BSP addresses inflation
2. May cancel the trust and take possession of the
1. Monetary measures
goods
- BSP has raised its key interest rate by
*Entrustee shall receive any surplus but shall be liable to
50 basis points or half a percentage
entruster for any deficiency
point
2. Non-monetary measures
Obligations of Entrustee:​​ HP-IS-RO
- implemented by other government
1. Hold the goods in trust ​for the entruster and
agencies to help mitigate the price
dispose of them
increases:
2. Receive the proceeds in trust and ​turnover
a. stronger implementation of
the same to the entruster
cash transfers
3. Insure the goods​​ for their total value
b. transport cost subsidies
4. Keep goods separate and capable of
c. rice tariffication
identification
d. stricter monitoring of
5. Return the goods ​in case of non-sale or demand
warehouses
of the entruster
e. setting transportation fares and
6. Observe all other terms and conditions
minimum wages
Penalty of Entrustee
- Failure of entrustee to turn over proceeds of the
sale of goods covered by the trust receipt shall
constitute the ​crime of estafa without need of
proving intent to defraud
Sample Problem: Chapter 10. - ​Deposit Insurance
A received merchandise from B on October 30, 2005. A
would use the materials for their construction project. A
Role of PDIC
day later, A went to a bank to apply for a loan to pay for
- Ensure the deposits of all banks which are
the merchandise. ​Is this a trust receipt transaction?
entitled to the benefits of insurance and which
shall have powers granted by law
NO. This situation belies what normally obtains ina pure
- Promote and safeguard the interests of the
trust receipt transaction where goods are owned by the
depositing public by way of providing
bank and only released to the importer in trust
permanent and continuing insurance coverage
subsequent to the grant of loan.
The bank acquires a “security interest” in the
Deposit liabilities​​:
goods as holder of a security title for the advances it had
1. Deposit liabilities of any bank or banking
made to the entrustee. The ownership of the
institution which is engaged in the business of
merchandise continues to be vested in the person who
receiving shall be insured by the PDIC
had advanced payment until he has been paid in full, or if
2. Factors considered: FAF-GC
the merchandise has already been sold, the proceeds of
a. Financial history and condition of the
the sale should be turned over to him by the importer or
bank
by his representative or successor in interest.
b. Adequacy of its capital structure
A is not an importer acquiring the goods for
c. Future earning prospects
re-sale, contrary to the express provision embodied in
d. General character of its management
the trust receipt. He is a contractor who obtained the
e. Convenience and needs of the
fungible goods for their construction project. At no time
community to be served by the bank
did title over the construction materials pass to the bank,
and whether or not its corporate
but directly to A from B.
powers are within the purposes of the
DPIC

“Deposit” - means the unpaid balance of money or its

equivalent received by a bank in the usual course of
business and for which it has given or is obliged to give
credit to a:
a. Commercial,
b. Checking,
c. Savings,
d. Time, or
e. Thrift account, or
f. Which is evidenced by passbook check and/or
certificate of deposit, printed or issued in
accordance with Central Bank rules and
regulations and other applicable laws,
g. Together with such other obligations of a bank,
which, consistent with banking usage and
practices, the Board of Directors shall determine
and prescribe by regulations to deposit
liabilities of the Bank.

Receivership
- PDIC appointed as receiver
- Has the duty to ​take charge of the assets and
liabilities of a bank which has been forbidden
from doing business
- Its powers include the ​control​​, ​management
and ​administration ​of affairs of the closed bank

Payment of Insure Deposits

Manner of Payment:
1. By ​cash
2. By making available to each depositor a
transferred deposit ​in another insured bank in
an amount equal to insured deposit of such
depositor
“Transfer deposit” - a deposit in an insured bank made
available to a depositor by PDIC as payment of insured
deposit of such depositor in a closed bank and assumed
by another insured bank
In case of joint accounts
- Insured separately from any individually-owned
deposit account
Account held jointly by 2 or more natural persons, or
by 2 or more juridical persons or entities
- The maximum insured deposit shall be divided
into as many equal shares as there are
individuals
Aggregate of interests
- Maximum insured deposit of P250,000.00
Withholding of Payment
- As may be required to provide for the payment
of any liability of such depositor as a
stockholder of the closed bank, or of any liability
of such depositor to the closed bank or its
receiver
Prescription
- Within 2 years from actual takeover of the
closed bank by the receiver
- Or does not enforce his claim within 2 years
after the 2-year period to file a claim
Extension of Loans
- If an insured bank is in danger of closing, PDIC is
authorized to ​make loans to​​, or ​purchase the
assets of​​, or ​assume liabilities of​​, or ​make
deposits in​​, such insured bank.
Sample Problem:
On May 22, 1987, a Friday, the MB issued a resolution
prohibiting MBC Bank to do business in the Philippines,
and placing its assets and affairs under receivership. The
Resolution, however, was not served on MBC until
Tuesday the following week, or on May 26, 1987, when
the designated Receiver took over.
On May 25, 1987, the next banking day following
the issuance of the MB resolution, JA was at the MBC at
9AM for the purpose of pre-terminating his 71 TDs and
re-depositing the fund represented thereby into 28 new
TDs in denominations of P40,000.00 or less under
different names individually or jointly with each other.
Of the 28 new TDs, JA pre-terminated 8 and withdrew
the value thereof in the total amount of P320,000.00
Claims were thereafter filed with the PDIC for
the payment of the remaining 20 insured TDs. ​Should
the PDIC deny the claims on the ground that the
transaction were not done in the ordinary course of
business?
NO. While the MB issued the Resolution on May 22,
1987, a copy thereof, was served only on MBC on May
26, 1987. MBC and its clients could be given the benefit
of the doubt that they were not aware that the MB
resolution had been passed, given the necessity of
confidentiality of placing a banking institution under
receivership.
Mere conjectures that MBC had actual
knowledge of its impending closure do not suffice. Teh
MB resolution could not thus have nullified transactions
which occurred prior to May 26, 1987.

Systemic Risk

When the MB has determined that there are systemic

consequences of a probable failure or closure of an
insured bank​: PDIC may grant financial assistance to
prevent its failure or closure and/or restore the insured
bank

“Systemic risk” - ​possibility that failure of one bank to

settle net transactions with other banks will trigger a
chain reaction, depriving other banks of funds leading to
a general shutdown of normal clearing and settlement
activity

Merger or Consolidation of Insured Banks

No insured bank shall:
1. Merge or consolidate with any non-insured
bank or institution, or ​convert ​into a
non-insured bank
2. Assume liability to pay any deposits made in,
or similar liabilities of, any non-insured bank or
institution
3. Transfer assets to any non-insured bank in
consideration of the assumption of liabilities for
any portion of the deposits made in such insured
bank
 Chapter 11. - ​Anti-Money Laundering 5. Foreign exchange corporations and other
similar entities
6. Entities administering or dealing with
“Money laundering” ​- a crime whereby the proceeds of
currencies regulated by SEC
an unlawful activity are transacted thereby making them
appear to have originated from legitimate sources.
“Covered Transactions” - ​every transaction in cash or
other equivalent monetary instrument involving a total
3 Steps in Accomplishing Money Laundering​​:
amount in excess of five hundred thousand pesos
(P500,000.00) within one (1) banking day
1. Placement - Stage in Money Laundering where
the launderer inserts the dirty money into a
“Suspicious Transactions” - those transactions with
legitimate financial institution. This is often in
covered institutions, regardless of the amounts involved,
the form of cash bank deposits. This is the
where any of the following circumstances exist:
riskiest stage of the laundering process because
1. There is no underlying legal or trade obligation,
large amounts of cash are pretty conspicuous,
purpose or economic justification;
and banks are required to report high-value
2. The client is not properly identified;
transactions.
3. The amount involved is not commensurate with
the business or financial capacity of the client;
2. Layering - ​involves sending the money through
4. Taking into account all known circumstances, it
various financial transactions to change its form
may be perceived that the client’s transaction is
and make it difficult to follow. Layering may
structured in order to avoid being the subject of
consist of several bank-to-bank transfer, wire
reporting requirements under the Act (AMLA);
transfers between different accounts in different
5. Any circumstance relating to the transaction
names in different countries, making deposits
which is observed to deviate from the profile of
and withdrawals to continually vary the amount
the client and/or the client’s past transactions
of money in the accounts, changing the money’s
with the covered institution;
currency, and purchasing high-value items
6. The transaction is in any way related to an
(boats, houses, cars, diamonds) to change the
unlawful activity or offense that is about to be, is
form of the money. This is the most complex
being or has been committed; or
step in any laundering scheme, and it’s all about
7. Any transaction that is similar or analogous to
making the original dirty money as hard to trace
any of the foregoing.
as possible.
Unlawful Activities
3. Integration - ​the money re-enters the
1. Kidnapping for ransom
mainstream economy in legitimate-looking form
2. Dangerous Drugs Act
-- it appears to come from a legal transaction.
3. Anti-graft and Corrupt Practices Act
This may involve a final bank transfer into the
4. Plunder
account of a local business in which the
5. Robbery and extortion
launderer is “investing” in exchange for a cut of
6. Jueteng
the profits, the sale of a yacht bought during the
7. Piracy
layering stage or the purchase of a $10 million
8. Qualified theft
screwdriver from a company owned by the
9. Swindling
launderer. At this point, the criminal can use the
10. Smuggling
money without getting caught. It’s very difficult
11. Violations of Electronic Commerce Act
to catch a launderer during the integration stage
12. Hijacking
if there is no documentation during the previous
13. Violations of Securities Regulation Code
stages.
14. Other felonies of similar nature
Policies of AMLA
Money laundering offense
1. To protect and preserve integrity and
1. Person ​transacting or attempts to transact
confidentiality of bank accounts
any monetary instrument purporting to the
2. Ensure that Philippines shall not be used as
proceeds of any unlawful activity
money laundering site
2. Performs or failure to perform any act ​as a
3. Extend cooperation in transnational
result of which ​he facilitates the offense
investigations and prosecutions
mentioned in (1)
3. Failure to disclose​​ as required by AMLC
Institutions covered​​:
1. Banks and other institutions supervised and
Jurisdiction
regulated by BSP
1. RTC - private defendants
2. Insurance committees
2. Sandiganbayan - public officers and public
3. Securities, dealers, etc.
officers and private persons in conspiracy
4. Mutual funds, common-trust funds and other
similar entities
Prevention of Money Laundering
1. Customer identification
2. Record keeping
3. Reporting of covered and suspicious
transactions
4. Freezing of monetary instrument or property
5. Authority to inquire bank deposits