2019 BANKING TSN First Exam

Monetary policy is primarily concerned with the management of interest rates and the total supply of money in circulation
and is generally carried out by central banks.

Monetary Policy – measures or actions taken by the central bank to influence the general price level and the level of liquidity in the economy. Monetary policy actions of the BSP are aimed at
influencing the timing, cost and availability of money and credit, as well as other financial factors, for the main objective of stabilizing the price level.
Fiscal policy is a collective term for the taxing and spending actions of governments.
BANKING AND OTHER COMMERCIAL LAWS

A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Essentially, the banking industry is about risk management.
They ask you to give your money to the bank, then they will NEW CENTRAL BANK ACT | RA 7653 AS AMENDED BY RA
lend it out. 11211
We have two policies – the fiscal policy and the monetary
policy. The banking is mainly engaged into the monetary ARTICLE I. CREATION, RESPONSIBILITIES AND CORPORATE
policy. The fiscal policy – these are your taxes. POWERS OF THE BANGKO SENTRAL
LEGAL EVOLUTION OF CENTRAL BANKING SECTION 1. Declaration of Policy. The State shall maintain a
central monetary authority that shall function and operate as
Why is it important to have a central bank? Diba ang banking an independent and accountable body corporate in the
industry kasi is you have to manage the risk. Diba essentially discharge of its mandated responsibilities concerning money,
ang ginagawa ng bank is kumukuha ng money and give you a banking and credit. In line with this policy, and considering its
certain interest, then they will lend it out. Imagine kung walang unique functions and responsibilities, the central monetary
regulator. Imagine kung walang banking laws. What will authority established under this Act, while being a
happen if you deregulate the banking industry? Would you government-owned corporation, shall enjoy fiscal and
think, pag ganun, the banks will be able to repay dun sa mga administrative autonomy.
naglend ng money? There is an immense risk for them to
default in their payments. Why? Kasi wala nang scrutiny kung DISCUSSION:
kanino nila ilelend ang money. BSP is considered as an independent and accountable body
The Central Bank laws is the epitome of human experience corporate. In fact, it has the nature of a corporation. It enjoys
and the formal expression of public policies and societal fiscal and administrative economy.
goals. (Zuniga, The Legal Framework of Central Banking REYES v. RBSMI
(2009)) ALBERTO V. REYES, WILFREDO B. DOMO-ONG AND
HERMINIO C. PRINCIPIO V. RURAL BANK OF SAN MIGUEL
Four Periods (BULACAN), INC., REPRESENTED BY HILARIO P.
1. The Spanish Period (1521-1898) SORIANO, PRESIDENT AND PRINCIPAL STOCKHOLDER
We have the Spanish period, wherein the Philippines was G.R. NO. 154499. FEBRUARY 27, 2004
colonized for about 300 years. The problem was that there
were so many currencies. May mga barter pa nga. It was really FACTS:
hard to regulate. How much was the value of this currency The Supreme Court found Deputy Governor Reyes
compared to that currency? So the Queen Isabela formulated
and Director Domo-ong liable for violation of the standards of
a royal decree, wherein the peso were minted in the
professionalism prescribed by the Code of Conduct and
Philippines. But this is not really sufficient enough. There was
Ethical Standards for Public Officials and Employees (Republic
no central banking during that time. So yes, there was stability
Act No. 6713) in that they used the distressed financial
of the currency, but there were no regulations as to the
condition of respondent Rural Bank of San Miguel (Bulacan),
banking.
Inc. (RBSMI) as the subject of a case study in one of the BSP
seminars and did the brokering of the sale of RBSMI.
2. The American Period (1899-1941)
In a letter dated May 19, 1999, addressed to then BSP
But then again, we were sold to the Americans in the Treaty of
Governor Singson, RBSMI charged the petitioners with
Paris. The Americans were far advanced than us, so they tried
violation of Republic Act No. 6713 (Code of Conduct and
to introduce the concept of central banking in the Philippines.
Ethical Standards for Public Officials and Employees). The
Monetary Board (MB) of the BSP created an Ad
3. The Japanese Occupation (1942-1945)
Hoc Committee to investigate the matter.
However, when the Japanese came, there was a military note
The investigation disclosed that sometime in
– the Mickey Mouse note. The problem is that during the
September 1996, RBSMI, which had a history of major
Japanese occupation, they did not allow other currencies to violations/exceptions dating back to 1995, underwent
be a medium of exchange. They only allowed the Mickey periodic examination by the BSP. The examination team
Mouse notes. headed by Principio noted 20 serious exceptions/violations
and deficiencies of RBSMI. The MB required RBSMI to submit
4. The Philippine Republic within 15 days a written explanation with respect to the
That’s why when we were liberalized, walang value yung pera findings of the examiner. It also directed the Department of
natin. That’s why they had to put up a central bank. The first Rural Banks (DRB), to verify, monitor and report to the Deputy
central bank law is RA 265 – the Central Bank of 1948. This was Governor, Supervision and Examination Sector (SES) on the
apparently not sufficient enough to control. That’s why they findings/exceptions noted, until the same shall have been
promulgated RA 7653 – The New Central Bank Act. corrected.
TRANSCRIBED BY 3-MANRESA [2019-2020]

Mana-ay, Tan, B., Paulma, Estremos, Talon, Dela Cerna, Sanchez, Manligoy, Alaban, Pizarro, Villavicencio,
Banosan, Aberilla, Reyes
1
As directed by the MB, another examination team ISSUE: WON the acts of Reyes can be considered as brokering
conducted a special examination on RBSMI. RBSMI President making him liable for violation of the standards of
Hilario Soriano claimed that he was pressured into issuing a professionalism.
memorandum to the bank employees authorizing the team to RULING: NO.
review the banks accounting and internal control system. The acts of Reyes do not constitute brokering. Case
Soriano also alleged that sometime in March 1997, law18 defines a broker as one who is engaged, for others, on a
Reyes started urging him to consider selling the bank. He commission, negotiating contracts relative to property with
specified that on May 28, 1997, Reyes introduced him the custody of which he has no concern; the negotiator
through telephone to Mr. Exequiel Villacorta, President and between other parties, never acting in his own name but in the
Chief Executive Officer of the TA Bank. They agreed to meet name of those who employed him.. .. a broker is one whose
on the following day. Villacorta confirmed that he and occupation is to bring the parties together, in matters of trade,
Soriano indeed met but the meeting never got past the commerce or navigation. According to Bouviers Law
exploratory stage since he (Villacorta) immediately expressed Dictionary, brokerage refers to the trade or occupation of a
disinterest because Soriano wanted to sell all his equity broker; the commissions paid to a broker for his services, while
shares while he was merely contemplating a possible buy-in. brokers are those who are engaged for others on the
Soriano further alleged that when the talks with negotiation of contracts relative to property, with the custody
Villacorta failed, Reyes asked him whether he wanted to meet of which they have no concern.19
another buyer, to which he answered in the affirmative. Thus, the word brokering clearly indicates the
Thereafter, Reyes introduced him by telephone to Benjamin P. performance of certain acts for monetary consideration or
Castillo of the Export and Industry Bank (EIB), whom he met on compensation. To give it another definition such as that
June 26, 1997. No negotiation took place because Soriano imputed by RBSMI to the acts of Reyes is to distort the
desired a total sale while EIB merely desired a joint venture accepted jurisprudential meaning of the term.
arrangement or a buy-in to allow EIB to gain control of RBSMI. From the evidence, all that Reyes did was to introduce
Meanwhile, on June 13, 1997, the MB RBSMIs President to the President of TA Bank and EIB. Nothing
approved Resolution No. 7247 ordering RBSMI to correct the more. There was not even a hint that he was motivated by
major exceptions noted within 30 days from receipt of the monetary consideration or swayed by any personal interest in
advice, and to remit to the BSP the amount of P2,538,483.00 doing what he did.
as fines and penalties for incurring deficiencies in reserves On his part, Soriano who is RBSMIs President himself
against deposit liabilities. admitted that the talks with Villacorta and Castillo never got
On July 21, 1997, Soriano submitted RBSMIs answers past the exploratory stage because the two wanted a buy-in
to the BSP exceptions/findings mentioned. He stated that the while he was for a total sell-out. This is an indelible indication
actions taken or to be taken by the bank (RBSMI) were that Reyes was not personally involved in the transaction.If he
deliberated and ratified by the Board of Directors in its regular were, he would at least have an inkling of the plans of Villacorta
meeting held on July 9, 1997. Among the board approved and Castillo; otherwise, he would not have wasted his time
actions was the banks request addressed to Domo-ong for introducing them to Soriano.
BSP to debit the demand deposit of the bank in the amount Indeed, RBSMI miserably failed to establish that Reyes
of P2,538,483.00 representing the payment of fines and had breached the standard of professional conduct required
penalties. of a public servant. It appears to the Court that in keeping with
More than a year after, however, the RBSMI asked for the standards of professionalism and heeding the mandate of
a reconsideration of MB Resolution No. 724 insofar as the his position, he made the telephone introductions for no other
imposition of fine amounting to P2,538,483.00.On January 21, purpose but to pave the way for a possible consolidation or
1999, the MB adopted Resolution No. 71,8 authorizing the merger of RBSMI with interested banks. As this Court found in
conditional reversal of sixty percent (60%) of the penalty its Decision, it is indeed the policy of the BSP to promote
pending resolution of the dispute on the findings on reserve mergers and consolidations by providing incentives to banks
deficiency. Subsequently, on April 7, 1999, the MB approved that would undergo such corporate combinations. To
the interim reversal of the entire amount of the penalty effectively implement the policy, it was necessary that the
pending the outcome of the study on the legal and factual banks be advised and assisted by a person knowledgeable
basis for the imposition of the penalty. about the transactions like Reyes. The benefits which may
The above incidents, particularly the alleged ultimately arise out of any preliminary facilitation step such as
brokering by Reyes and the petitioners unsupported what Reyes undertook will not accrue to the facilitator but to
recommendation to impose a penalty of P2,538,483.00 for the parties to the transaction themselves and, of course, the
legal reserve deficiency, prompted the respondent to file the institution whose policy initiative is being carried out.
letter-complaint charging the petitioners with All told, there is neither legal nor factual support for
unprofessionalism. holding Reyes and Domo-ong liable.
In closing, it cannot be overemphasized that the BSP is
an independent body corporate bestowed under its

2
charter with fiscal and administrative autonomy. As such, its From the full text: It cannot be overemphasized that the BSP is
officials should be granted a certain degree of flexibility in the an independent body corporate bestowed under its
performance of their duties and provided insulation from charter with fiscal and administrative autonomy. As
interference and vexatious suits, especially when moves of the such, its officials should be granted a certain degree of
kind are resorted to as counterfoil to the exercise of their flexibility in the performance of their duties and
regulatory mandate. Elsewise, the institutional independence provided insulation from interference and vexatious
and autonomy of the BSP as the central mandatory authority suits, especially when moves of the kind are resorted to
would be rendered illusory. as counterfoil to the exercise of their regulatory
mandate. Elsewise, the institutional independence and
DISCUSSION: autonomy of the BSP as the central mandatory authority
Sir: Sino si Reyes? would be rendered illusory.
Student: An official of BSP.
Sir: Anong sabi ni Reyes? MANDATE OF THE BANGKO SENTRAL NG PILIPINAS
Student: He was alleged to be conducting brokering.
Sir: What did Reyes do? How did Reyes, paano niya in- What is their mandate?
introduce? Ano ba role ni Reyes vis-à-vis BSP? SES of BSP. Sa The State shall maintain a central monetary authority that shall
BSP may mga departments, Supervision and Examination function and operate as an independent and accountable
Sector, who audit banks, one of which is RBSMI so kaya he had body corporate in the discharge of its mandated
na chance yung sabi na brokering. And so, sino nagfile ng responsibilities concerning1money,2banking and3credit. (Sec.
case? 1, New Central Bank Act)
Student: RBSMI, Sir. Money, banking and credit. That is the mandate of the BSP.
Sir: Kasi nga brokering, so sabi ng Court it is not brokering. In That is why it should be independent. It controls, it regulates
fact Reyes is just doing his job. Ano pa yung sinabi ng SC? He the money supply of the country so it has to be independent.
cannot just file a case against an employee of the BSP. Because Otherwise it would be subject to influence of others.
BSP has what? It enjoys institutional independence and UCPB v. GANZON
autonomy. It has fiscal and administrative autonomy. UNITED COCONUT PLANTERS BANK, JERONIMO U.
KILAYKO, LORENZO V. TAN, ENRIQUE L. GANA, JAIME
FISCAL AND ADMINISTRATIVE AUTONOMY W. JACINTO and EMILY R. LAZARO v. E. GANZON, INC.,
G.R. NO. 168859 : June 30, 2009
What is fiscal autonomy? It can generate its own funds. Where FACTS:
did it get its own funds? Sa mga bangko may fees yan na Beginning 1995 to 1998, E. Ganzon, Inc. (EGI for
binabayaran. Doon kinukuha yung funds. brevity) availed itself of credit facilities from UCPB to finance
its business expansion. To secure said credit facilities, EGI
From 2018-2019 TSN: mortgaged to UCPB its condominium unit inventories in EGI
The Central Bank actually has fiscal autonomy. Fiscal Rufino Plaza, located at the intersection of Buendia and Taft
autonomy is exemplified in the following instances: Avenues, Manila.
− Non-reliance on Congress for budgetary support, as Initially, EGI was able to make periodic amortization
its funds are generated from its own operations. payments of its loans to UCPB. When the negative effects of
− Flexibility to fix the remunerations of its personnel the Asian economic crisis on the property development sector
− Recruit competent personnel finally caught up with the corporation in the middle of 1998,
− Prepare its own plantilla without interference from EGI started defaulting in its payment of amortizations, thus,
other agencies of the government making all of its obligations due and demandable.
− Adoption of an annual budget, with power to Subsequently, EGI was declared in default by
authorize expenditure UCPB. Thereafter, UCPB stopped sending EGI monthly
statements of its accounts.
And what is administrative autonomy? In 1999, EGI and UCPB explored the possibility of
Student: It is the degree of freedom from intervention and using the mortgaged condominium unit inventories of EGI in
interference from other agencies necessary to ensure EGI Rufino Plaza as payment for the loans of EGI to UCPB.
independence of the BSP. Upon agreeing on the valuation of said mortgaged properties,
So, meaning it can actually organize itself. The salary grade in EGI and UCPB entered into a Memorandum of Agreement
BSP is very different from the usual salary grade. Mas mataas (MOA) in settlement of the loans of EGI from UCPB. Based on
ang sweldo nila doon. In fact, a lot of people aiming to be this MOA, the outstanding loan obligations of EGI with UCPB
employed sa BSP kasi mataas ang sweldo. They have the amounted to P915,838,822.50, inclusive of all interest,
authority to augment, to standardize to increase its charges and fees. UCPB, through its corporate officers,
renumeration and fix their human resource rules. And for a assured EGI that the said amount already represented the total
reason bakit kailangan may administrative autonomy ang BSP? loan obligations of EGI to UCPB.

3
On 18 January 2000, EGI and UCPB executed an Accounts for Banks, Manual of Regulations for Banks and BSP
Amendment of Agreement8 to reflect the true and correct Circular No. 202, Series of 1999. In contrast, the "DISCLOSED
valuation of the properties of EGI listed in the MOA that would TO EGI" column showed the total amount still due from EGI,
be transferred to UCPB in settlement of the total loan including the total principal, interests, transaction and other
obligations of the former with the latter. The properties of EGI costs after the foreclosure, whether reflected in the financial
to be used in paying for its debt with UCPB were valued books of UCPB or not. Further, UCPB maintained that the
at P904,491,052.00. difference in the figures in the two columns was because BSP
UCPB proceeded to foreclose some of the Circular No. 202 and Section X305.4 of the Manual of
properties of EGI listed in the MOA. Per the Certificate of Regulations for Bank disallowed banks from accruing in its
Sale9 dated 13 April 2000, the foreclosure proceeds of said books interest on loans which had become non-performing.
properties amounted only to P723,592,000.00, less than the Despite the explanation of UCPB, EGI insisted that
value of the properties of EGI stipulated in its amended MOA the figures appearing in the "ACTUAL" column of the former's
with UCPB. Internal Memorandum dated 22 February 2001 revealed the
UCPB applied the entire foreclosure proceeds true and actual amount of its loan obligations to
of P723,592,000.00 to the principal amount of the loan UCPB, P146,849,412.58.
obligations of EGI, pursuant to BSP Circular No. 239, which EGI Senior Vice-President Layug met with UCPB
provided that partial property payments shall first be applied Vice-President, Jaime W. Jacinto (Jacinto) to discuss the
to the principal. After deducting the said amount from the total demand of EGI for the return of its overpayment. UCPB Vice-
loan obligations of EGI, there was still an unpaid balance President Jacinto, however, refused to concede that UCPB
of P192,246,822.50. had any obligation to make a refund to EGI and, instead,
On 8 May 2001, some of the other properties of EGI insisted that EGI Senior Vice-President Layug disclose who
at EGI Rufino Plaza, valued at P166,127,369.50, were gave her a copy of the UCPB Internal Memorandum dated 22
transferred by way of dacion en pago to UCPB. However, February 2001.
during the signing of the transaction papers for the dacion en Based on the possession by EGI of the UCPB
pago, EGI Senior Vice-President, Architect Grace S. Layug Internal Memorandum dated 22 February 2001, UCPB filed a
(Layug), noticed that said papers stated that the remaining criminal case for theft and/or discovery of secrets against EGI
loan balance of EGI in the amount of P192,246,822.50 had President Ganzon and Senior Vice-President Layug, but the
increased to P226,963,905.50. The increase was allegedly due said case was dismissed.
to the addition of the transaction costs amounting On 5 November 2002, EGI, also on the basis of the
to P34,717,083.00. EGI complained to UCPB about the UCPB Internal Memorandum dated 22 February 2001, EGI
increase, yet UCPB did not take any action on the matter. filed with the BSP an administrative complaint against UCPB,
This prompted EGI President Engineer Eulalio et al., for violation of Sections 3619 and 37,20 Article IV of
Ganzon (Ganzon) and Senior Vice-President Layug to review Republic Act No. 7653,21 in relation to Section 55.1(a)22 of
their files to verify the figures on the loan obligations of EGI as Republic Act No. 8791;23 and for the commission of
computed by UCPB. In the process, they discovered the UCPB irregularities and conducting business in an unsafe or
Internal Memorandum dated 22 February 2001,11 signed by unsound manner.
UCPB corporate officers. The said Internal Memorandum In a letter-decision dated 16 September 2003, the
presented two columns, one with the heading "ACTUAL" and BSP Monetary Board dismissed the administrative complaint
the other "DISCLOSED TO EGI." The figures in the two of EGI.
columns were conflicting. The figures in the "DISCLOSED TO EGI filed a Motion for Reconsideration and a
EGI" column computed the unpaid balance of the loan Supplemental Motion for Reconsideration of the decision of
obligations of EGI to be P226,967,194.80, the amount which the BSP Monetary Board. The BSP Monetary Board denied
UCPB actually made known to and demanded from EGI. The both motions as there was no sufficient basis to grant the
figures in the "ACTUAL" column calculated the remaining loan same.
obligations of EGI to be only P146,849,412.58. EGI then filed a Petition for Review under Rule 43 of
Consequently, EGI wrote UCPB a letter dated 21 the 1997 Revised Rules of Civil Procedure with the Court of
May 2001,12 which included, among other demands, the Appeals raising the sole issue of "whether the Bangko Sentral
refund by UCPB to EGI of the over-payment ng Pilipinas erred in dismissing the administrative complaint
of P83,000,000.00;13 return to EGI of all the remaining Transfer filed by EGI against UCPB, et al." The case was docketed as
Certificates of Title (TCTs)/Condominium Certificates of Title CA-G.R. SP No. 81385.
(CCTs) in the possession of UCPB; and cost of damage to EGI On 14 October 2004, the Court of Appeals
for the delay in the release of its certificates of title. rendered its assailed Decision granting the Petition for Review
In response, UCPB explained that the "ACTUAL" of EGI, thus, setting aside the BSP letter-decision and
column in its Internal Memorandum dated 22 February 2001 remanding the case to the BSP Monetary Board for further
contained the same amounts reflected or recorded in its proceedings.
financial statements, in accordance with the Manual of

4
UCPB, et al., moved for the reconsideration of the contempt those refusing to obey the subpoena without
14 October 2004 Decision of the appellate court, praying for justifiable reason, to administer oaths and compel
a new judgment dismissing the appeal of EGI for lack of presentation of books, records and others, needed in its
jurisdiction and/or lack of merit. EGI also filed a Partial Motion examination, to impose fines and other sanctions and to issue
for Reconsideration of the same Court of Appeals Decision, cease and desist order. Section 37 of Republic Act No.
with the prayer that the appellate court, instead of still 7653,9 in particular, explicitly provides that the BSP Monetary
remanding the case to the BSP Monetary Board for further Board shall exercise its discretion in determining whether
proceedings, already direct the latter to impose the applicable administrative sanctions should be imposed on banks and
administrative sanctions upon UCPB, et al.,. quasi-banks, which necessarily implies that the BSP Monetary
In a Resolution dated 7 July 2005, the Court of Board must conduct some form of investigation or hearing
Appeals denied for lack of merit both the Motion for regarding the same.
Reconsideration of UCPB, et al. and the Motion for Partial Having established that the BSP Monetary Board is
Reconsideration of EGI. indeed a quasi-judicial body exercising quasi-judicial
UCPB’s contention: UCPB, et al., aver that the Court of functions; then as such, it is one of those quasi-judicial
Appeals has no appellate jurisdiction over decisions, orders agencies, though not specifically mentioned in Section 9(3) of
and/or resolutions of the BSP Monetary Board on Batas Pambansa Blg. 129, as amended, and Section 1, Rule 43
administrative matters. The BSP Monetary Board is not among of the 1997 Revised Rules of Civil Procedure, are deemed
the quasi-judicial agencies enumerated under Rule 43 of the included therein. Therefore, the Court of Appeals has
1997 Revised Rules of Civil Procedure, over which the Court of appellate jurisdiction over final judgments, orders, resolutions
Appeals has appellate jurisdiction. Further, there is nothing in or awards of the BSP Monetary Board on administrative
Republic Act No. 7653 or in Republic Act No. 8791 which complaints against banks and quasi-banks, which the former
explicitly allows an appeal of the decisions or orders of the BSP acquires through the filing by the aggrieved party of a Petition
Monetary Board to the Court of Appeals. Resultantly, the Court for Review under Rule 43 of the 1997 Revised Rules of Civil
of Appeals has no power to review, much less set aside, the Procedure.
findings of fact of the BSP Monetary Board as contained in its ISSUE 2:
letter-decision dated 16 September 2003. As a futile effort of UCPB, et al. to convince this Court
ISSUES: that the Court of Appeals has no appellate jurisdiction over
1. WON the BSP is a quasi-judicial body. YES. the final judgments, orders, resolutions or awards of the BSP
2. WON the CA exercises appellate jurisdiction over Monetary Board, it cited Salud v. Central Bank of the
appeals of decisions, orders and/or resolutions of the BSP Philippines. The invocation of UCPB, et al. of Salud is
Monetary Board on administrative matters. YES. evidently misplaced.
RULING: The present case involves a decision of the BSP
ISSUE 1: Monetary Board as regards an administrative complaint
A quasi-judicial agency or body is an organ of against a bank and its corporate officers for the alleged
government other than a court and other than a legislature, violation of Sections 36 and 37, Article IV of Republic Act No.
which affects the rights of private parties through either 7653, in relation to Section 55.1(a) of Republic Act No. 8791,
adjudication or rule-making.32 The very definition of an and for the commission of irregularity and unsafe or
administrative agency includes its being vested with quasi- unsound banking practice. There is nothing in the aforesaid
judicial powers. The ever increasing variety of powers and laws which state that the final judgments, orders, resolutions
functions given to administrative agencies recognizes the or awards of the BSP Monetary Board on administrative
need for the active intervention of administrative agencies in complaints against banks or quasi-banks shall be final and
matters calling for technical knowledge and speed in executory and beyond the subject of judicial review. Without
countless controversies which cannot possibly be handled by being explicitly excepted or exempted, the final judgments,
regular courts.33 A "quasi-judicial function" is a term which orders, resolutions or awards of the BSP Monetary Board are
applies to the action, discretion, etc., of public administrative among those appealable to the Court of Appeals by way of
officers or bodies, who are required to investigate facts, or Petition for Review, as provided in Section 9(3) of Batas
ascertain the existence of facts, hold hearings, and draw Pambansa Blg. 129, as amended, and Section 1, Rule 43 of the
conclusions from them, as a basis for their official action and 1997 Revised Rules of Civil Procedure.
to exercise discretion of a judicial nature.34 Although in Salud, this Court declared that the
Undoubtedly, the BSP Monetary Board is a quasi- Intermediate Appellate Court (now Court of Appeals) has no
judicial agency exercising quasi-judicial powers or functions. appellate jurisdiction over resolutions or orders of the
As aptly observed by the Court of Appeals, the BSP Monetary Monetary Board of the Central Bank of the Philippines (CBP,
Board is an independent central monetary authority and a now BSP), because no law prescribes any mode of appeal
body corporate with fiscal and administrative autonomy, therefrom, the factual settings of the said case are totally
mandated to provide policy directions in the areas of money, different from the one presently before us. Salud involved a
banking and credit. It has power to issue subpoena, to sue for resolution issued by the Monetary Board, pursuant to Section

5
29 of Republic Act No. 265, otherwise known as the old shall be a body corporate known as the Bangko Sentral ng
Central Bank Act, forbidding banking institutions to do Pilipinas, hereafter referred to as the Bangko Sentral.
business on account of a "condition of insolvency" or because The capital of the Bangko Sentral shall be Two hundred billion
"its continuance in business would involve probable loss to pesos (₱200,000,000,000), to be fully subscribed by the
depositors or creditors;" or appointing a receiver to take Government of the Republic of the Philippines, hereafter
charge of the assets and liabilities of the bank; or determining referred to as the Government: Provided, That the increase in
whether the banking institutions should be rehabilitated or capitalization shall be funded solely from the declared
liquidated, and if in the latter case, appointing a liquidator dividends of the Bangko Sentral in favor of the National
towards this end. The said Section 29 of the old Central Bank Government. For this purpose, any and all declared dividends
Act was explicit that the determination by the Monetary of the Bangko Sentral in favor of the National Government
Board of whether a banking institution is insolvent, or should shall be deposited in a special account in the General Fund,
be rehabilitated or liquidated, is final and executory. and earmarked for the payment of Bangko Sentral’s increase
However, said determination could be set aside by the trial in capitalization. Such payment shall be released and
court if there was convincing proof that the Monetary Board disbursed immediately and shall continue until the increase in
acted arbitrarily or in bad faith. Under the circumstances capitalization has been fully paid.
obtaining in Salud, it is apparent that our ruling therein is
limited to cases of insolvency, and not to all cases DISCUSSION:
cognizable by the Monetary Board. This is an amended provision. The 200 Billion is just an
At any rate, under the new law, i.e., Section 30 of amendment, before it is just 50 Billion.
Republic Act No. 7653, otherwise known as The New Central The owner of it is the Government of the Republic of the
Bank Act, which took effect on 3 July 1993, the order of the Philippines. The Government of the Republic of the Philippines
BSP Monetary Board, even regarding the liquidation of a bank, is the subscriber of the 200 Billion. In other words, it is the
can be questioned via a Petition for Certiorari before a court stockholder of that particular corporation.
when the same was issued in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of Sec. 3. Responsibility and Primary Objective. - The Bangko
jurisdiction. The court referred to therein can be construed to Sentral shall provide policy directions in the areas of money,
mean the Court of Appeals because it is in the said court where banking, and credit. It shall have supervision over the
a Petition for Certiorari can be filed following the hierarchy of operations of banks and exercise such regulatory and
courts. examination powers as provided in this Act and other
Moreover, the appellate jurisdiction of the Court of pertinent laws over the quasi-banking operations of non-bank
Appeals over the final judgments, orders, resolutions or financial institutions. As may be determined by the Monetary
awards of the BSP Monetary Board in administrative cases Board, it shall likewise exercise regulatory and examination
involving directors and officers of banks, quasi-banks, and powers over money service businesses, credit granting
trust entities, is affirmed in BSP Circular No. 477, Series of businesses, and payment system operators. The Monetary
2005. The said BSP Circular expressly provides that the Board is hereby empowered to authorize entities or persons
resolution rendered by the BSP Monetary Board in to engage in money service businesses.
administrative cases may be appealed to the Court of Appeals The primary objective of the Bangko Sentral is to maintain
within the period and the manner provided under Rule 43 of price stability conducive to a balanced and sustainable growth
the 1997 Revised Rules of Civil Procedure. of the economy and employment. It shall also promote and
With all the foregoing, it cannot now be questioned maintain monetary stability and the convertibility of the peso.
that the Court of Appeals has appellate jurisdiction over the The Bangko Sentral shall promote financial stability and
final judgments, orders, resolutions or awards rendered by the closely work with the National Government, including, but not
BSP Monetary Board in administrative cases against banks and limited to, the Department of Finance, Securities and
their directors and officers, such as UCPB, et al. Exchange Commission, the Insurance Commission, and the
Philippine Deposit Insurance Corporation.
DISCUSSION: The Bangko Sentral shall oversee the payment and settlement
BSP is a quasi-judicial body. How do you appeal to the CA? systems in the Philippines, including critical financial market
Based on Rule 43, by way of Petition for Review. The CA has infrastructures, in order to promote sound and prudent
authority. practices consistent with the maintenance of financial stability.
The important point here is that the BSP is a quasi-judicial body. In the attainment of its objectives, the Bangko Sentral shall
It can issue subpoenas; it can impose sanctions to those under promote broad and convenient access to high quality
its regulation and jurisdiction. financial services and consider the interest of the general
public.
Sec. 2. Creation of the Bangko Sentral.— There is hereby DISCUSSION:

established an independent central monetary authority, which Also an amended provision.

6
the influence which the central bank exercises to induce or convince banks to
conduct operations in a manner that would contribute to the attainment of
monetary goals but not necessarily support the profit-maximizing objectives of
the banks.

Responsibility and Primary Objective. It is pertaining to • Moral suasion
money, banking, and credit. One of the amendment is that • Selective regulation of bank operations
the amendment granted jurisdiction of BSP over: What is moral suasion? It is the act of persuading the person
• money service businesses or group to act in a certain way through rhetorical appeals,
• credit granting businesses persuasion or implicit threats, as opposed to the use of
• payment system operators outright coercion or force. It is commonly used in reference to
central banks.
Before kasi, it is silent. They are not expressly under the
regulation of the BSP. Now, because of the amendment, it Monetary stability and convertibility of peso
confirmed that it is under the jurisdiction of the BSP.
Monetary stability pertains to the stability of peso and its
PRICE STABILITY AND MONETARY POLICY international value for current payments for foreign trade and
invisibles.
Note: Discussions were from 2018-2019 Class TSN. No
available recording for this topic this year. Why is it important to have convertibility of peso or currency?
Maintain price stability – that is the main objective of Bangko To make it simple, it is necessary for foreign trade.
Sentral. It shall also promote and maintain monetary stability You know Renminbi – the currency of China? It’s not really
and the convertibility of the peso. So you have: (1) price freely traded, that’s why there’s a problem in getting money in
stability, (2) monetary stability, (3) convertibility of the peso. and out. Why is it so hard to get the money out? It’s not really
hard, its just that there are severe regulations sa kanilang
Price stability central bank because the Renminbi is not heavily traded. Pag
heavily traded, mas madali.
Price stability in an economy means that the general price level
in an economy does not change much over time. In other Let’s say meron kang service na nirender sa China. Nag-bill ka
words, prices neither goes up or down; there is no significant sa company dun. Siyempre makakareceive ka ng money. Now
degree of inflation or deflation. it’s so hard for the money to get out of China. Kasi ano bang
So the value of your money now should be the value of your source document na ibibigay mo dun? Your service contract.
money over a period of time. Why? Is it really bad to have an Now, napoproliferate kasi ang mga sham documents. That’s
inflation? It does not mean ay un may inflation, the economy is why bago nila ilalabas yan, they will review that properly, tapos
bad. It may be a means to control prices and interest rates, kasi iconvert into dollar.
anong mangyayari pag hindi kinocontrol yun?
Ang central bank dun, sobrang higpit kas inga hindi heavily
Monetary policy traded ang Renminbi. The scrutiny and the review ay
masyadong matagal. So kung ngayong ang transaction, ma-
• The term monetary policy refers to the decisions that clear yan in two or three months. It’s not heavily traded, so it
a government makes concerning interest rates and has to be converted into dollar (a heavily traded currency),
the supply of money in an economy. Monetary policy then to your own currency. Anong mangyayari dun sa three-
can be used to try to keep prices stable. month period 7ay un? You have your forex difference. So
• The Bangko Sentral maintains price stability through pwede na ang marereceive mo dapat is 1000, pero ang
responsive and effective monetary policy. nareceive 7ay u lang is 800, because of the forex difference.
• The framework for conducting monetary policy That’s why there are institutions engaged in the service of
formally adopted by the Bangko Sentral is inflation foreign currency hedging. Let’s say ang marereceive ko, i-peg
targeting. ko siya as 50 pesos per 1 dollar. So I would go to the financial
Anong mangyayari pag hindi mo kinocontrol ang interest? It institutions, mag-ooffer siya ng hedging. “Sige, I will ensure na
might have an impact on the supply of money. Kasi kung 50 ang matatanggap mo. Now pag tataas ang value ng dollar,
masyadong mataas ang interest rate, what do you think the let’s say magiging 51, ako ang mag-gain. Kung bababa ang
people’s reaction would be? Bigay lahat sa banking system. value ng dollar, ako ang magbibigay sayo ng difference.” So
What would happen to the money in circulation? hedging to secure any foreign currency risk.
A forex hedge is a transaction implemented to protect an existing or anticipated position from an unwanted move in exchange
rates.
Monetary policy instruments THE COMMISSIONER OF CUSTOMS and THE COLLECTOR
OF CUSTOMS vs. EASTERN SEA TRADING
• Operations in gold and foreign exchange G.R. No. L-14279, October 31, 1961
• Regulations of foreign exchange operations of banks
• Loans to banking and other financial institutions FACTS:
• Open market operations Respondent Eastern Sea Trading was the consignee of several
• Bank reserves shipments of onion and garlic which arrived at the Port of

7
Manila from August 25 to September 7, 1954. Some the task of implementing certain objectives of the Monetary
shipments came from Japan and others from Hong Kong. In Board and the Central Bank, which otherwise had to be
as much as none of the shipments had the certificate required undertaken by these two (2) agencies. Upon the abolition of
by Central Bank Circulars Nos. 44 and 45 for the release said Commission, the duty to provide means and ways for the
thereof, the goods thus imported were seized and subjected accomplishment of said objectives had merely to be
to forfeiture proceedings for alleged violations of section discharged directly by the Monetary Board and the Central
1363(f) of the Revised Administrative Code, in relation to the Bank, even if the aforementioned Executive Order had been
aforementioned circulars of the Central Bank. silent thereon.
The Collector of Customs of Manila rendered a decision on Self-Funded/(No-Dollar) Imports. These are imports funded from importer's foreign
September 4, 1956, declaring said goods forfeited to the currency deposit accounts or those sent by suppliers abroad for which no payment
DISCUSSION: in foreign exchange will be made whether immediate or potential.
Government and — the goods having been, in the meantime, NO-DOLLAR IMPORTS
released to the consignees on surety bonds, filed by the same, These are self-funded import which does not involve foreign
as principal, and the Alto Surety & Insurance Co., Inc., as exchange and that they use their own foreign currency in
surety, in compliance with orders of the Court of First Instance funding their imports.
of Manila. So, there is no exchange. No-dollar import. There is no
On appeal taken by the consignee, said decision was affirmed conversion. Usually ang mga importers meron silang bank
by the Commissioner of Customs. Subsequently, the account na naka-peg na doon sa purchase price, so there is no
consignee sought a review of the decision of said two (2) exchange vis-à-vis jurisdiction also. Minsan may deposit sila
officers by the Court of Tax Appeals, which reversed the off-shore yun na yung pambayad. In effect sinasabi nila na wala
decision of the Commissioner of Customs and ordered that naming effect sa economy natin kasi the transaction is between
the aforementioned bonds be cancelled and withdrawn. an off-shore bank and the seller. So, why does the BSP still has
have
Hence, the present petition of the Commissioner of Customs the jurisdiction?

for review of the decision of the Court of Tax Appeals. From the Full Text:
Eastern Sea Trading contends that the Central Bank has no Authorizing the bank to issue such rules and regulations
authority to regulate transactions not involving foreign as it may consider necessary for the effective discharge
exchange; that the shipments in question are in the nature of of the responsibilities and the exercise of the powers
"no-dollar" imports; that, as such, the aforementioned assigned to the Monetary Board and to the Central Bank
shipments do not involve foreign exchange. — connote the authority to regulate no-dollar imports,
Issue: WON the Central Bank has the authority to regulate no owing to the influence and effect that the same may and
dollar imports. do have upon the stability of our peso and its
Ruling: YES. international value.
The authority of the Central Bank to regulate no-dollar imports What the Supreme Court is saying is that although it does not
and the validity of the aforementioned Circulars Nos. 44, and directly affect, it HAS or it MAY have an influence because the
45 have already been passed upon and repeatedly upheld by more you patronage no-dollar effect, the more there will be no
this Court for the reason that the broad powers of the Central remittances. It may influence price stability. In other words,
Bank, under its charter, to maintain our monetary stability and everything that can directly or indirectly change, amend, or
to preserve the international value of our currency, under affect price stability is still within the jurisdiction of the BSP.
section 2 of Republic Act No. 265, in relation to section 14 of
said Act — authorizing the bank to issue such rules and SUPERVISION AND REGULATION
regulations as it may consider necessary for the effective
discharge of the responsibilities and the exercise of the The Bangko Sentral promotes financial stability and
powers assigned to the Monetary Board and to the Central supervision of banks and regulation of finance companies,
Bank — connote the authority to regulate no-dollar imports, quasi-banks, and others performing similar functions.
owing to the influence and effect that the same may and do Anything that belongs to this particular classification is under
have upon the stability of our peso and its international value. supervision and regulation of BSP.
The lower court also held that it would be unreasonable to
require from respondent-appellee an import license when the Coverage of the supervision and regulatory powers of BSP
Import Control Commission was no longer in existence and,
hence, there was, said court believed, no agency authorized o Banks,
to issue the aforementioned license. This conclusion is o Subsidiaries and affiliates of banks and related allied
untenable, for the authority to issue the aforementioned activities of quasi banks,
licenses was not vested exclusively upon the Import Control • “Subsidiary”: the bank has an interest in the foreign
Commission or Administration. Executive Order No. 328 corporation
provided for export or import licenses "from the Central Bank • You can see that BDO sometimes has a subsidiary
of the Philippines or the Import Control Administration" or shareholding in a corporation that doesn’t directly
Commission. Indeed, the latter was created only to perform engage in banking. It could be involved in storage or

Banosan, Aberilla, Reyes a subsidiary is a business whose parent holds a majority stake or is a majority
8 shareholder of 50% or more of all shares.
an affiliate is "a person or entity directly or indirectly controlling, being controlled by, or under common control with" another
person or entity. For example, executive officers, directors, large stockholders, subsidiaries, parent entities and sister
companies are affiliates of other companies. Two entities may be affiliates if one owns less than a majority of voting stock in the
other.
shipping lines. Is this considered an allied activity? or uses of funds and property, owned and held in trust by,
We will discuss this when we later talk about types of or pertaining to, the Government, or any of its subdivisions,
activities. agencies, or instrumentalities, including government-
o Subsidiaries and affiliates of quasi banks engaged in owned or controlled corporations with original charters, x x
allied activities x.
o Other institutions such as non-stock savings and loans
association, pawnshop, money changers, remittance “(2) The Commission shall have the exclusive authority,
agents, trust companies subject to the limitations in this Article, to define the scope
of its audit and examination, establish the techniques and
If you want to be a foreign investor that infuses capital in the methods required therefore, and promulgate accounting
Philippines, for purposes of convenience and to avoid further and auditing rules and regulations, including those for the
problems, you have to register with the BSP. If you repatriate prevention and disallowance of irregular, unnecessary,
and you weren’t registered in the bank, then the money cannot excessive, extravagant, or unconscionable expenditures, or
go through the banking system of the Philippines, because uses of government funds and properties.”
there is no registration (repatriation of profits).
The COA vigorously asserts that under the first paragraph
Example: If your investment is $100 million, and you didn’t of Section 2, the COA enjoys the sole and exclusive power
register it in the BSP, let’s say it increased to $200 million. to examine and audit all government agencies, including
Ipalabas mo siya at ibalik sa country of origin. If you didn’t the DBP.
register it to the Bangko Sentral, you cannot use the money or
wire it through any bank that comes through the banking The bare language of Section 2, however, shows that
system. You can’t even use your foreign currency, and you’re the COA’s power under the first paragraph is not
forced to resort to remitted money changers. It’s extremely declared exclusive, while its authority under the second
inconvenient. Thus, it needs a registration, so there can be a paragraph is expressly declared “exclusive.” There is a
certificate of inward remittances for purposes of investment. significant reason for this marked difference in language.
Of course, if you enter banking, if your money came from an The qualifying word “exclusive” in the second paragraph of
unlawful activity, it will be traced. That’s why the money of Section 2 cannot be applied to the first paragraph which is
KAPPA, since it doesn’t go through the banking system, is another sub-section of Section 2. Thus, the first paragraph
stored in hotel rooms, vehicles or warehouses, because some of Section 2 must be read the way it appears, without the
of them came from outside. word “exclusive”, signifying that non-COA auditors can also
examine and audit government agencies. Besides, the
DBP v COA framers of the Constitution intentionally omitted the word
New COA Chair questioned the Central Bank Circular “exclusive” in the first paragraph of Section 2 precisely to
allowing a private external auditor for DBP which is a allow concurrent audit by private external auditors.
government bank. The circular allegedly encroached upon
COA’s constitutional and statutory power to audit
government agencies. There is another constitutional barrier to the COA’s
insistence of exclusive power to examine and audit all
Issue government agencies. The COA’s claim clashes directly
with the Central Bank’s constitutional power of
Whether or not the constitutional power of the COA to “supervision” over banks under Section 20, Article XII of the
examine and audit the DBP is exclusive and precludes a Constitution. This provision states as follows:
concurrent audit of the DBP by a private external auditor
“Sec. 20. The Congress shall establish an independent
Ruling: NO central monetary authority, the members of whose
governing board must be natural-born Filipino citizens, of
The resolution of the primordial issue of whether or not the known probity, integrity, and patriotism, the majority of
COA has the sole and exclusive power to examine and audit whom shall come from the private sector. They shall also be
government banks involves an interpretation of Section 2, subject to such other qualifications and disabilities as may
Article IX-D of the 1987 Constitution. This Section provides be prescribed by law. The authority shall provide policy
as follows: direction in the areas of money, banking, and credit. It shall
have supervision over the operations of banks and exercise
“Sec. 2. (1) The Commission on Audit shall have the power, such regulatory powers as may be provided by law over the
authority, and duty to examine, audit, and settle all accounts operations of finance companies and other institutions
pertaining to the revenue and receipts of, and expenditures performing similar functions.” (Emphasis supplied)

9
A thrift bank is a type of small financial institution that
primarily accepts deposits and originates home mortgages.
Known also as "savings and loan associations," or S&Ls.

A commercial bank is a type of financial institution that
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW accepts deposits, offers checking account services,
makes various loans, and offers basic financial
products like certificates of deposit (CDs) and savings
- Commercial Banks accounts to individuals and small businesses. A
Historically, the Central Bank has been conducting - Thrift Banks composed of:commercial bank is where most people do their
banking, as opposed to an investment bank.
periodic and special examination and audit of banks to o Savings and mortgage banks
determine the soundness of their operations and the o Stock savings and loans associations and o Private
safety of the deposits of the public. Undeniably, the development bank
Central Bank’s power of “supervision” includes the power - Rural Banks
to examine and audit banks, as the banking laws have - Cooperative Banks
always recognized this power of the Central Bank.31 Hence, - Islamic Banks, and
the COA’s power to examine and audit government banks - Other classifications
must be reconciled with the Central Bank’s power to
supervise the same banks. The inevitable conclusion is that
the COA and the Central Bank have concurrent jurisdiction, From the 2019 TSN (since Sir did not discuss the definitions of
under the Constitution, to examine and audit government the following):
banks
QUASI-BANKS
From the 2019 TSN:
In other words, the COA has no exclusive authority to audit Entities engaged in the borrowing of funds through the
government banks. issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes for purposes of re-lending
Why is that so? Hindi kaya redundant na mag audit ang COA or purchasing receivables and other obligations
tapos mag audit din ang BSP? (They have different
objectives/goals) So if you are an entity engaged in discounting of receivables,
for example may receivables ako sa kanya, nangutang ka sa
Objective of COA’s audit: to determine if the expense of the akin, gusto ko ng cash pero di pa sya makabayad, ang
government is really within the budget allotted to them gagawin ko, may isang tao (third person) bigyan nya ako ng
cash at ibibigay ko sa kanya (ang receivables) with recourse,
Objective of BSP’s audit: to determine the soundness of the you are a quasi-bank. It’s because in effect you are engaged in
bank’s operations and the safety of the deposits of the public the borrowing of funds through the issuance, endorsement or
assignment with recourse. "quasi-banking functions" means borrowing funds, for the
borrower's own account, through the issuance, endorsement or
Kaya sila merong right to supervise and regulate banks kasi ito acceptance of debt instruments of any kind other than deposits, or
their through the issuance of participations, certificates of assignments,
yung objective. Are there operations sound? Are they in or similar instrument with recourse
compliance with their duty to the public. OFFSHORE BANKING UNITS
OBUs are branches, subsidiaries, or affiliates of a foreign
Now, the Central Bank’s power of “supervision” includes the banking corporation which are duly authorized by the Bangko
power to examine and audit banks, so si BSP masyadong Sentral to transact offshore banking business in the Philippines
broad ang kanyang supervisory powers. Now it involves the An offshore banking unit (OBU) is a bank shell branch, located in another international financial center
audit in relation to its supervisory powers. Nagkataon lang na So sinong mga clients nitong OBUs? Foreign branch sya diba,
si COA meron ding power to audit. so lets say MayBank. Or let’s say merong Bank of the
Netherlands, tapos may branch sila 6ay u and are engaged in
So kung i rereconcile mo sila, don lang sila nagkakaron ng offshore banking. Sino ang mga depositors nila? Mga Pilipino?
concurrent jurisdiction—the right to audit with regards to Hindi. Mga foreigner din.
the finances because you cannot supervise to determine
the sound practice of a bank or if its provides safety to the Why does the governmet allow OBUs to do business in the
public if you do not audit. In other words, don lang sila nag PH? In fact may tax incentive pa. Kasi pag may OBUs here in
ooverlap. the PH, it means the exchange of foreign currencies are liquid
kasi 6ay u nag ta-transact eh. So that has an impact on our
monetary policy.
Banks
BANKS Please take note, kaya nandito an gang OBUs because it has a
positive impact in the economy.
Definition: Entities engaged in the lending of funds obtained
in the form of deposits. If you are employed in the OBUs or Petroleum Corporation,
how much is your income tax rate? Supposedly 15% sa sweldo
Some of these banks are covered by special laws. This will be mo, kaya maraming nag aaply dyan na mga Pinoy. Because of
discussed in the third case. the TRAIN law, they’ve abolished that. Ang nangyari, it was
- Universal Banks Aservices
universal bank is a bank that combines the three main vetoed by the President, sabi nya tanggalin ito, mataas na nga
of banking under one roof. The three services are
wholesale banking, retail banking, and investment banking.
10
yung compensation, para saan pa itong 15% na incentive. But
this is only effective to employees employed to OBUs
registered after the effectivity of the TRAIN law (January 1, 3. The Monetary Board
2018). If there are existing registered OBUs, they can use the
same tax rate (15%). SECTION 6. Composition of the Monetary Board. — The
powers and functions of the Bangko Sentral shall be
exercised by the Bangko Sentral Monetary Board, hereafter
OTHER INSTITUTIONS referred to as the Monetary Board, composed of seven (7)
- Non-stock savings and loan associations members appointed by the President of the Philippines for
- Pawnshops a term of six (6) years.
The seven (7) members are:

Powers of the Bangko Sentral
(a) the Governor of the Bangko Sentral, who shall be
SECTION 4. Place of Business. — The Bangko Sentral shall the Chairman of the Monetary Board. The Governor of the
have its principal place of business in Metro Manila, but may Bangko Sentral shall be head of a department and his
maintain branches, agencies and correspondents in such appointment shall be subject to confirmation by the
other places as the proper conduct of its business may Commission on Appointments. Whenever the Governor is
require. unable to attend a meeting of the Board, he shall designate
a Deputy Governor to act as his alternate: Provided, That in
such event, the Monetary Board shall designate one of its
SECTION 5. Corporate Powers. — The Bangko Sentral is members as acting Chairman;
hereby authorized to adopt, alter, and use a corporate seal
which shall be judicially noticed; to enter into contracts; to (b) a member of the Cabinet to be designated by the
lease or own real and personal property, and to sell or President of the Philippines. Whenever the designated
otherwise dispose of the same; to sue and be sued; and Cabinet Member is unable to attend a meeting of the
otherwise to do and perform any and all things that may be Board, he shall designate an Undersecretary in his
necessary or proper to carry out the purposes of this Act. Department to attend as his alternate; and
The Bangko Sentral may acquire and hold such assets and
incur such liabilities in connection with its operations (c) five (5) members who shall come from the private
authorized by the provisions of this Act, or as are essential sector, all of whom shall serve full-time: Provided, however,
to the proper conduct of such operations. That of the members first appointed under
the provisions of this subsection, three (3) shall have a term
The Bangko Sentral may compromise, condone or release, of six (6) years, and the other two 2), three (3) years.
in whole or in part, any claim of or settled liability to the
Bangko Sentral, regardless of the amount involved, under No member of the Monetary Board may be reappointed
such terms and conditions as may be prescribed by the more than once.
Monetary Board to protect the interests of the Bangko
Sentral. Please memorize the composition.
MONETARY BOARD MEMBERSHIP

POWERS OF THE BANGKO SENTRAL
- Chairman, the Governor is the Chairman of the
Monetary Board
o adopt, alter, and use a corporate seal
- Cabinet Member, Can it be the Secretary of Finance?
o enter into contracts;
Yes
o lease or own real and personal property,
- Members of the Private Sector: Fulltime
o sue and be sued
- Reappointment
o acquire and hold such assets and incur such liabilities in
- Collegial Body: Members of the Monetary Board has
connection or as are essential to the conduct of its
no individual powers as each of them only act as such member
operations
of the Monetary Board
o compromise, condone or release, in whole or in part, any
claim of or settled liability to the Bangko Sentral,
o do and perform any and all things that may be necessary
Calderon v Carale
or proper to carry out the purposes of RA 7653
G.R. No. 91636

11
G.R. No. L021810
Facts
Facts
RA 6715 was passed on 1989 amending PD 442 of the
Labor Code. It states that the NLRC Chairman and Esperanza, a Central Bank employee, was charged of
Commissioners shall be appointed by the President subject dishonesty and violations of regulations, as set forth in the
to the confirmation of the Commission on Appointments. letters sent to the CB. He was suspended and was
Calderon questioned the appointment of Carale as NLRC investigated by a committee as directed by the Governor of
Chair saying that it is subject to the confirmation of the CA. the Central Bank. Esperanza questioned this power and
authority of the Governor
Issue
Issue
Whether or not Congress may, by law, require confirmation
by the Commission on Appointments of appointments WON the Governor as the officer-in-charge has the power
extended by the president to government officers to discipline as a department head
additional to those expressly mentioned in the first
sentence of Sec. 16, Art. VII of the Constitution whose Ruling: YES
appointments require confirmation by the Commission on
Appointments. Indeed, the charter of the Central Bank (Republic Act No.
265) explicitly provides 4 that the “Governor of the Central
Ruling: NO Bank shall be the principal representative of the Monetary
Board and of the Bank”, and that 5 he “shall be the chief
Sec. 16. The President shall nominate and, with the consent executive of the Central Bank, with authority, inter alia “to
of the Commission on Appointments, appoint the heads of direct and supervise the operations and internal
the executive departments, ambassadors, other public administration” of the Bank. It is obvious that, whereas the
ministers and consuls, or officers of the armed forces from functions of the Monetary Board may be compared to those
the rank of colonel or naval captain, and other officers of the Board of Directors of a corporation, the role of the
whose appointments are vested in him in this Constitution. Governor of the Central Bank may, in turn, be likened to that
He shall also appoint all other officers of the Government of president and general manager of such corporation, with
whose appointments are not otherwise provided for by law, the duties and responsibilities of a department head of the
and those whom he may be authorized by law to appoint. government.
The Congress may, by law, vest the appointment of other
officers lower in rank in the President alone, in the courts, or In fact, the Governor’s duty to direct and supervise the
in the heads of departments, agencies, commissions, or operations and internal administration of the bank
boards. logically entails the power to prefer charges against
erring officials of the Bank and to see to it that said
The President shall have the power to make appointments charges are properly investigated, this being an
during the recess of the Congress, whether voluntary or intrinsic
compulsory, but such appointments shall be effective only element of the internal administration of the said
until disapproval by the Commission on Appointments or institution.
until the next adjournment of the Congress.
Confirmation by the Commission on Appointments is

required only for presidential appointees mentioned in Tarrosa v Singson
the first sentence of Section 16, Article VII, including, G.R. No. 111243 (1994)
those officers whose appointments are expressly Facts
vested by the Constitution itself in the president (like A petition for prohibition was filed questioning the
sectoral representatives to Congress and members of appointment of Singson as Governor of BSP for not having
the constitutional commissions of Audit, Civil Service been confirmed by the Commission on Appointments.
and Election.
Issue
So the list was exclusive. Also, this is based on the concept that WON the petition should be given due course
the BSP enjoys…what? (student doesn’t answer).
Ruling: NO
Esperanza v Castilla

12
It is obvious that the instant action was improvidently director, officer, employee, consultant, lawyer, agent or
brought by petitioner. To uphold the action would stockholder of any bank, quasi-bank or any other institution
encourage every disgruntled citizen to resort to the courts, which is subject to supervision or examination by the Bangko
thereby causing incalculable mischief and hindrance to the Sentral, in which case such member shall resign from, and
efficient operation of the governmental machinery (See divest himself of any and all interests in such institution before
Roosevelt v. Draper, 7 Abb. Pr. 108, 23 N.Y. 218). assumption of office as member of the Monetary Board.
Its capstone having been removed, the whole case of The members of the Monetary Board coming from the private
petitioner collapses. Hence, there is no need to resolve sector shall not hold any other public office or public
the question of whether the disbursement of public funds employment during their tenure.
to pay the salaries and emoluments of respondent Singson
can be enjoined. Likewise, the Court refrains from passing No person shall be a member of the Monetary Board if he has
upon the constitutionality of Section 6, R.A. No. 7653 in been connected directly with any multilateral banking or
deference to the principle that bars a judicial inquiry into a financial institution or has a substantial interest in any private
constitutional question unless the resolution thereof is bank in the Philippines, within one (1) year prior to his
indispensable for the determination of the case (Fernandez appointment; likewise, no member of the Monetary Board
v. Torres, 215 SCRA 489 [1992]). shall be employed in any such institution within two (2) years
after the expiration of his term except when he serves as an
However for the information of all concerned, we call official representative of the Philippine Government to such
attention to our decision in Calderon v. Carale, 208 SCRA institution.
254 (1992), with Justice Isagani A. Cruz dissenting, where
we ruled that Congress cannot by law expand the Reason: conflict of interest.
confirmation powers of the Commission on Appointments
and require confirmation of appointment of other So kung owner or stockholder or interested party ka of a bank
government officials not expressly mentioned in the first which is under the supervision of the Monetary Board, there is
sentence of Section 16 of Article VII of the Constitution. conflict of interest. That cannot be made.
“STOCKHOLDER”
BSP Circular 969 Series of 2017
SECTION 7. Vacancies. — Any vacancy in the Monetary
Board created by the death, resignation, or removal of any Stockholder shall refer to any stockholder of record in
member shall be filled by the appointment of a new the books of the BSFI, acting personally, or through an
member to complete the unexpired period of the term of attorney-in-fact, or any other person duly authorized
the member concerned. by him or through a trustee designated pursuant to a
proxy or voting trust or other similar contracts, whose
SECTION 8. Qualifications. — The members of the stockholdings in the BSFI, individual and/or
Monetary Board must be natural-born citizens of the collectively with the stockholdings of:
Philippines, at least thirty-five (35) years of age, with the 1 degree - parent/child/spouse
exception of the Governor who should at least be forty (40) 1) his spouse and/or relative within the first degree by
years of age, of good moral character, of unquestionable consanguinity or affinity or legal adoption;
integrity, of known probity and patriotism, and with 2) a partnership in which the stockholder and/or the
recognized competence in social and economic spouse and/or any of the aforementioned relatives is
disciplines. a general partner; and
3) corporation, association or firm of which the
stockholder and/or his spouse and/or the
In the old law, it originally was “the member must have aforementioned relatives (first degree by
recognized competence in economics, banking, finance, consanguinity or affinity) own more than fifty percent
commerce, agriculture or industry”. But now, it only requires (50%) of the total subscribed capital stock of such
“social and economic disciplines”, so it’s broader. So bawal na corporation, association or firm, amount to one
medicine ang background mo tapos bigla nagging Governo percent (1%) or more of the total subscribed capital
stock of the BSFI.
DISQUALIFICATION
Sabi natin diba, disqualified ang stockholder of a bank. So how
SECTION 9. Disqualifications. — In addition to the do we define a stockholder? So eto yun.
disqualifications imposed by Republic Act No. 6713, a
member of the Monetary Board is disqualified from being a What is subscribed capital stock?

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divestment itself is not the divestment which is allowed under
Kapag corporation ka kasi, you have your capitalization. RA 6713. It must be outside the fourth degree.
Initially, you apply for your authorized capital stock. This is your
capital - ito yung maximum na capital na pwede mong i-issue. SECTION 10. Removal. — The President may remove any
Diba sa Central Bank, it is 200 Billion - it is the maximum. member of the Monetary Board for any of the following
reasons:
Out of that authorized capital stock, you only need a portion. (a) If the member is subsequently disqualified under the
That is what we call "subscribed". That's just a portion. Ito yung provisions of Section 8 of this Act; or
portion na subscribed ng stockholders. So when you say (b) If he is physically or mentally incapacitated that he cannot
"stockholders", it does not necessarily mean that you have the properly discharge his duties and responsibilities and such
whole authorized stock; dun ka lang sa subscribed capital incapacity has lasted for more than six (6) months; or
stock. Tapos sa subscribed capital stock, it isn't also necessary (c) If the member is guilty of acts or operations which are of
to pay this in full. Let's say the authorized capital stock is 200B fraudulent or illegal character or which are manifestly
and your subcribed capital stock is 100B. Hindi pwedeng opposed to the aims and interests of the Bangko Sentral; or
maging more than the authorized capital stock ang subscribed (d) If the member no longer possesses the qualifications
capital stock because the authorized capital stock is the specified in Section 8 of this Act.
maximum na.
How can you be subsequently disqualified? Let's say wala
Kapag subscribed capital stock, may nagmamay-ari na, may kang stockholdings pero two (2) years later, nag acquire ka ng
stockholder na nun. The subscribed capital stock, di mo siya property - so you become disqualified.
kailangan bayaran in full. You only have to pay the paid-up
capital at the subscription. Later on, when the Board of Pwede bang may mawala sa qualifications under Section 8?
Directors demands the remaining, dun mo na babayaran. Yes. Moral character, your integrity becomes questionable.
So yung sinasabi natin na 1%, refers only to the subscribed DUE PROCESS
capital stock. .
Administrative proceedings require the party to be afforded a
What happens if someone is nominated or someone who reasonable opportunity to be heard and to submit any
wants to be in the Monetary Board but may mga evidence he may have in support of his case.
stockholdings siya sa mga banks?
That person should resign from and divest himself of any and JURISDICTION
all interest in such institution before assuming the office as
member of the Monetary Board. It is under the direct disciplinary authority of the President. So
the Monetary Board is under the disciplining authority of the
Divestment, defined President. The Office of the Ombudsman has concurrent
of jurisdiction to discipline members of the Monetary Board. So
Divestment is the transfer of title or disposal if interest in it still subject to the Code of Professional Ethics and the
property by voluntarily, completely, and actually depriving or Corrupt & Graft Practices Act. ANTI GRAFT AND CORRUPT PRACTICES ACT
dispossessing oneself of his right or title to it in favor of a
person or person other than the spouse and affinity within the SECTION 11. Meetings. — The Monetary Board shall meet at
fourth civil degree of consanguinity or affinity. (RA 6713)
least once a week. The Board may be called to a meeting by
4th degree -Great Great Grandparent, Great Aunt/Uncle, First Cousin, Grand Nephew/Niece
the Governor of the Bangko Sentral or by two (2) other
Take note that Section 9 is under the Central Bank Act while
members of the Board.
the definition of divestment is under RA 6713 which is the
The presence of four (4) members shall constitute a quorum:
Code of Professional Ethics. So in the Code of Professional
Provided, That in all cases the Governor or his duly designated
Ethics, the divestment or transfer must be to persons other alternate shall be among the four (4).
than the spouse or relative within the fourth
degree consangunity or affinity. Itong sinasabi nating Unless otherwise provided in this Act, all decisions of the
determination of stockholding, ang cinoconsider lang is first Monetary Board shall require the concurrence of at least four
degree, pero the divestment, icoconsider mo siya until fourth (4) members.
degree.
The Bangko Sentral shall maintain and preserve a complete
Let's say meron kang stockholdings at kailangan mong mag record of the proceedings and deliberations of the Monetary
divest. Binigay mo sa 2nd degree. Sabi mo, hindi naman part Board, including the tapes and transcripts of the stenographic
ng stockholdings kasi first degree lang naman. Pero the notes, either in their original form or in microfilm.

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The meetings of the Monetary Board may be conducted or convenient for this purpose. The legal units of the Bangko
through modern technologies such as, but not limited to, Sentral shall be under the exclusive supervision and control of
teleconferencing and videoconferencing. the Monetary Board;
Without the Governor, there is no quorum even if present (c) establish a human resource management system
yung other four. which shall govern the selection, hiring, appointment, transfer,
promotion, or dismissal of all personnel. Such system shall aim
Before the Corporation Code was revised, this is the only to establish professionalism and excellence at all levels of the
provision which allowed teleconferencing or Bangko Sentral in accordance with sound principles of
videoconferencing. There are circulars for teleconferencing management.
and videoconferencing by the SEC but there is no law A compensation structure, based on job evaluation
provision - except now, because of the revision of the studies and wage surveys and subject to the Board's approval,
Corporation Code. But prior to that, it is only the Central Bank shall be instituted as an integral component of the Bangko
Act which allowed meeting through teleconferencing or Sentral's human resource development program: Provided,
videoconferencing. Kasi before talaga, you cannot meet by That the Monetary Board shall make its own system conform
proxy pag Board of Directors. But you will learn later in your as closely as possible with the principles provided for under
Corporation Law that there are security measures before you Republic Act No. 6758: Provided, however, That
compensation and wage structure of employees whose
Compensation and Position Classification Act of 1989
can conduct teleconferencing or videoconferencing.
positions fall under salary grade 19 and below shall be in
SECTION 12. Attendance of the Deputy Governors. — The accordance with the rates prescribed under Republic Act No.
Deputy Governors may attend the meetings of the Monetary 6758.
Board with the right to be heard. 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
SECTION 13. Salary. — The salary of the Governor and the
exclusive and final authority to promote, transfer, assign, or
members of the Monetary Board from the private sector shall
reassign personnel of the Bangko Sentral and these personnel
be fixed by the President of the Philippines at a sum
actions are deemed made in the interest of the service and not
commensurate to the importance and responsibility attached
disciplinary: Provided, further, That the Monetary Board may
to the position.
delegate such authority to the Governor under such
guidelines as it may determine.
SECTION 14. Withdrawal of Persons Having a Personal (d) adopt an annual budget for and authorize such
Interest. expenditures by the Bangko Sentral as are in the interest of the
In addition to the requirements of Republic Act No. 6713, any effective administration and operations of the Bangko Sentral
member of the Monetary Board with personal or pecuniary in accordance with applicable laws and regulations; and
interest in any matter in the agenda of the Monetary Board
shall disclose his interest to the Board and shall retire from the (e) indemnify its members and other officials of the
meeting when the matter is taken up. The decision taken on Bangko Sentral, including personnel of the departments
the matter shall be made public. The minutes shall reflect the performing supervision and examination functions against all
disclosure made and the retirement of the member concerned costs and expenses reasonably incurred by such persons in
from the meeting. connection with any civil or criminal action, suit or proceedings
to which he may be, or is, made a party by reason of the
SEC. 15. Exercise of Authority. performance of his functions or duties, unless he is finally
In the exercise of its authority, the Monetary Board shall: adjudged in such action or proceeding to be liable for willful
violation of this Act, performed in evident bad faith or with
(a) issue rules and regulations it considers necessary gross negligence.
for the effective discharge of the responsibilities and exercise In the event of a settlement or compromise,
of the powers vested upon the Monetary Board and the indemnification shall be provided only in connection with such
Bangko Sentral. The rules and regulations issued shall be matters covered by the settlement as to which the Bangko
reported to the President and the Congress within fifteen (15) Sentral is advised by external counsel that the person to be
days from the date of their issuance; indemnified did not commit willful violation of this Act,
performed in evident bad faith or with gross negligence.
(b) direct the management, operations, and
administration of the Bangko Sentral, reorganize its personnel, Discussion by Sir per item:
and issue such rules and regulations as it may deem necessary

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a) You try to go to the BSP website, andami dun. however, That compensation and wage structure of
employees whose positions fall under salary grade 19 and
b) It has a different department for human resources. In fact, if below shall be in accordance with the rates prescribed
you are employed in BSP, they sponsor scholarship - Masters under Republic Act No. 6758.
abroad. Andaming mga benefits for BSP - pinapaaral nila
abroad usually mga business and finance major or meron ding Petitioner mainly contends that the proviso makes an
mga IT especially now. Tapos quarterly ang bonus ng BSP. unconstitutional cut between two classes of employees in the
BSP, viz:
c) It has its own HRM system. Again, the salary grading of the (1) the BSP officers or those exempted from the coverage of
BSP is very different from the salary grading of other the Salary Standardization Law (SSL) (exempt class); and
government agencies. (2) the rank-and-file (Salary Grade [SG] 19 and below), or
those not exempted from the coverage of the SSL (non-
e) This is an example of a safe harbor provision. What is a safe exempt class).
harbor provision? Safe harbor provisions are those provisions
in a particular law which grants immunity to those personnel Petitioner also contends that the proviso is also violative of the
doing supervision and examination roles. In this particular equal protection clause because after it was enacted, the
case, yung mga tao ng BSP, they can be indemnified or they charters of the GSIS, LBP, DBP and SSS, and three (3) other
can be protected. Kaya nga safe harbor - para safe sila mag GFIs were also amended, but their personnel were all
perform ng kanilang job, may mga ganitong provisions. exempted from the coverage of the SSL. Thus, within the class
Similar to AMLA, yung mga bank personnel na nagrereport ng of rank-and-file personnel of GFIs, the BSP rank-and-file are
suspicious transactions, may mga safe harbor provisions rin - also discriminated upon.
that they cannot be subjected to civil and administrative
penalties, that they are indemnified of any liabilities in the Petitioner posits that the classification is not reasonable but
event that they are adjudged liable. arbitrary and capricious, and violates the equal protection
A safe harbor is a provision in a law or regulation that affords protection from liability or penalty under
specific situations, or if certain conditions are met.
clause of the Constitution.
Sometimes a safe harbor reduces liability if "good faith" is demonstrated.
CENTRAL BANK EMPLOYEES ASSOCIATION v. BANGKO Issue: WON the last paragraph of Section 15(c) is
SENTRAL NG PILIPINAS unconstitutional for being violative of the Equal Protection
GR 148208, December 15, 2004 Clause. - YES.
Digest by Eduardo M. Lape, Jr. Held: Under the present standards of equal protection,
Section 15(c) is VALID.
Facts: On July 3, 1993, RA 7653 (the New Central Bank Act)
took effect. It abolished the old Central Bank of the It is clear in the legislative deliberations that the exemption of
Philippines, and created a new BSP. officers (SG 20 and above) from the SSL was intended to
address the BSP's lack of competitiveness in terms of
Almost eight years after the effectivity of RA 7653, petitioner attracting competent officers and executives. It was not
Central Bank Employees Association, Inc., filed a petition for intended to discriminate against the rank-and-file.
prohibition against BSP to restrain respondents from further
implementing the last proviso in Section 15(c), Article II of Enactment of Subsequent Laws Renders Section 15(c)
RA 7653, on the ground that it is unconstitutional. Unconstitutional. - However, while RA 7653 started as a valid
measure well within the legislature's power, the SC held that
Section 15(c) provides: the enactment of subsequent laws exempting all rank-and-file
employees of other GFIs leeched all validity out of the
Section 15. Exercise of Authority - In the exercise of its challenged proviso.
authority, the Monetary Board shall:
The SC took judicial notice that after the new BSP charter was
xxx xxx xxx enacted in 1993, Congress also undertook the amendment of
the charters of the GSIS, LBP, DBP and SSS, and three other
A compensation structure, based on job evaluation studies GFIs, from 1995 to 2004, viz:
and wage surveys and subject to the Board's approval, shall
be instituted as an integral component of the Bangko Sentral's 1. R.A. No. 7907 (1995) for Land Bank of the Philippines
human resource development program: Provided, That the (LBP);
Monetary Board shall make its own system conform as closely 2. R.A. No. 8282 (1997) for Social Security System (SSS);
as possible with the principles provided for under Republic 3. R.A. No. 8289 (1997) for Small Business Guarantee and
Act No. 6758 [Salary Standardization Act]. Provided, Finance Corporation, (SBGFC);

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4. R.A. No. 8291 (1997) for Government Service Insurance information on the discussions or resolutions of the Monetary
System (GSIS); Board, or about the confidential operations of the Bangko
5. R.A. No. 8523 (1998) for Development Bank of the Sentral, unless the disclosure is in connection with the
Philippines (DBP); performance of official functions with the Bangko Sentral, or is
6. R.A. No. 8763 (2000) for Home Guaranty Corporation with prior authorization of the Monetary Board or the
(HGC);38 and Governor; or (2) the use of such information for personal gain
7. R.A. No. 9302 (2004) for Philippine Deposit Insurance or to the detriment of the Government, the Bangko Sentral or
Corporation (PDIC). third parties: Provided, however, That any data or information
required to be submitted to the President and/or the
The subsequent charters of the seven other GFIs share this Congress, or to be published under the provisions of this Act
common proviso: a blanket exemption of all their shall not be considered confidential.
employees from the coverage of the SSL, expressly or Unless the actions or omissions of the Bangko Sentral,
impliedly. members of the Monetary Board and its other personnel are
finally adjudged to be in willful violation of this Act, performed
Thus, the rank-and-file of seven other GFIs were granted the in evident bad faith or with gross negligence, they are held
exemption that was specifically denied to the rank-and-file free and harmless to the fullest extent permitted by law from
of the BSP. any liability, and they shall be indemnified for any and all
liabilities, losses, claims, demands, damages, deficiencies,
The prior view on the constitutionality of RA 7653 was confined costs and expenses of whatsoever kind and nature that may
to an evaluation of its classification between the rank-and- arise in connection with the exercise of their powers and
file and the officers of the BSP, found reasonable because performance of their duties and functions.
there were substantial distinctions that made real differences SECTION 39. Liability of Subordinate Officers. —No subordinate officer or employee shall be civilly liable for acts
between the two classes. done by him in good faith in the performance of his duties. However, he shall be liable for willful or negligent acts
done by him which are contrary to law, morals, public policy and good customs even if he acted under orders or
instructions of his superiors.
The subsequent enactments, however, constitute significant CENTRAL BANK VS CITYTRUST BANKING CORP.
changes in circumstance that considerably alter the G.R. No. 141835 February 4, 2009
reasonability of the continued operation of the last proviso of
Section 15(c), thereby exposing the proviso to more serious Digest by Marion Lara
scrutiny. This time, the scrutiny relates to the constitutionality
of the classification between the rank-and-file of the BSP and The Monetary Board
the seven other GFIs.
Facts: Pursuant to Republic Act No. 625, the old Central Bank
The proviso may be fair on its face and impartial in appearance Law, respondent Citytrust Banking Corporation (Citytrust),
but it cannot be grossly discriminatory in its operation, so as formerly Feati Bank, maintained a demand deposit account
practically to make unjust distinctions between persons who with petitioner Central Bank of the Philippines, now Bangko
are without differences. Sentral ng Pilipinas.
In light of the lack of real and substantial distinctions that As required, Citytrust furnished petitioner with the names and
would justify the unequal treatment between the rank-and-file corresponding signatures of five of its officers authorized to
of BSP from the seven other GFIs, it is clear that the enactment sign checks and serve as drawers and indorsers for its account.
of the seven subsequent charters has rendered the And it provided petitioner with the list and corresponding
continued application of the challenged proviso anathema signatures of its roving tellers authorized to withdraw, sign
to the equal protection of the law, and the same should be receipts and perform other transactions on its behalf.
declared as an OUTLAW. Petitioner later issued security identification cards to the
roving tellers one of whom was "Rounceval Flores" (Flores).
SEC. 16. Responsibility. On July 15, 1977, Flores presented for payment to petitioner’s
The general rule and the exception therefrom on the liability Senior Teller Iluminada dela Cruz (Iluminada) two Citytrust
of public officers as provided in Sections 38 and 39 of Chapter checks of even date, payable to Citytrust, one in the amount of
9, Book 1 of the Revised Administrative Code of 1987 shall ₱850,000 and the other in the amount of ₱900,000, both of
apply to the members of the Monetary Board and other which were signed and indorsed by Citytrust’s authorized
personnel of the Bangko Sentral. signatory-drawers.
Similar responsibility shall apply to members of the Monetary After the checks were certified by petitioner’s Accounting
Board, and other personnel of the Bangko Sentral for: (1) the Department, Iluminada verified them, prepared the cash
disclosure of any information of a confidential nature, or any transfer slip on which she affixed her signature, stamped the

SECTIONBanosan, Aberilla,
38. Liability of Superior Reyes
Officers.—(1) A public officer shall not be civilly liable for acts done in the performance of his official duties, unless there is a clear showing of bad faith, malice or gross negligence.
17
(2) Any public officer who, without just cause, neglects to perform a duty within a period fixed by law or regulation, or within a reasonable period if none is fixed, shall be liable for damages to the private party concerned
without prejudice to such other liability as may be prescribed by law.
(3) A head of a department or a superior officer shall not be civilly liable for the wrongful acts, omissions of duty, negligence, or misfeasance of his subordinates, unless he has actually authorized by written order the specific
act or misconduct complained of.
checks with the notation "Received Payment" and asked Flores is a statutory affirmation of Supreme Court decisions, starting
to, as he did, sign on the space above such notation. Instead with the 1990 case of Simex International v. Court of Appeals,
of signing his name, however, Flores signed as "Rosauro C. holding that "the bank is under obligation to treat the accounts
Cayabyab" – a fact Iluminada failed to notice. of its depositors with meticulous care, always having in mind
the fiduciary nature of their relationship."
Iluminada thereupon sent the cash transfer slip and checks to
petitioner’s Cash Department where an officer verified and This fiduciary relationship means that the bank’s obligation to
compared the drawers’ signatures on the checks against their observe "high standards of integrity and performance" is
specimen signatures provided by Citytrust, and finding the deemed written into every deposit agreement between a bank
same in order, approved the cash transfer slip and paid the and its depositor. The fiduciary nature of banking requires
corresponding amounts to Flores. Petitioner then debited the banks to assume a degree of diligence higher than that of a
amount of the checks totaling ₱1,750,000 from Citytrust’s good father of a family. Article 1172 of the Civil Code states
demand deposit account. that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then
More than a year and nine months later, Citytrust, by letter the diligence of a good father of a family. Section 2 of RA 8791
dated April 23, 1979, alleging that the checks were already prescribes the statutory diligence required from banks – that
cancelled because they were stolen, demanded petitioner to banks must observe "high standards of integrity and
restore the amounts covered thereby to its demand deposit performance" in servicing their depositors. Although RA 8791
account. Petitioner did not heed the demand, however. took effect almost nine years after the unauthorized
withdrawal of the ₱300,000 from L.C. Diaz’s savings account,
Citytrust later filed a complaint for estafa, with reservation on jurisprudence at the time of the withdrawal already imposed
the filing of a separate civil action, against Flores. Flores was on banks the same high standard of diligence required under
convicted. RA No. 8791.
Citytrust thereafter filed before the Regional Trial Court (RTC) Citytrust’s failure to timely examine its account, cancel the
of Manila a complaint for recovery of sum of money with checks and notify petitioner of their alleged loss/theft should
damages against petitioner which it alleged erred in mitigate petitioner’s liability, in accordance with Article 2179
encashing the checks and in charging the proceeds thereof to of the Civil Code which provides that if the plaintiff’s
its account, despite the lack of authority of "Rosauro C. negligence was only contributory, the immediate and
Cayabyab." proximate cause of the injury being the defendant’s lack of
due care, the plaintiff may recover damages, but the courts
Issue: WON Central Bank is negligent. YES shall mitigate the damages to be awarded. For had Citytrust
timely discovered the loss/theft and/or subsequent
Held: Given that petitioner is the government body mandated encashment, their proceeds or part thereof could have been
to supervise and regulate banking and other financial recovered.
institutions, this Court’s ruling in Consolidated Bank and Trust In line with the ruling in Consolidated Bank, the Court deems
Corporation v. Court of Appeals illumines: it proper to allocate the loss between petitioner and Citytrust
on a 60-40 ratio.
The contract between the bank and its depositor is governed
by the provisions of the Civil Code on simple loan. Article 1980 NOTE: (just in case Sir asks)
of the Civil Code expressly provides that "x x x savings x x x
deposits of money in banks and similar institutions shall be CENTRAL BANK CONTENDS: It cannot be sued.
governed by the provisions concerning simple loan." There is
a debtor-creditor relationship between the bank and its SC RULED: SC affirmed the ruling of the appellate court that
depositor. The bank is the debtor and the depositor is the Central Bank’s Charter specifically clothes it with the power to
creditor. The depositor lends the bank money and the bank sue and be sued
agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract CENTRAL BANK CONTENDS: Flores having been an
that determines the rights and obligations of the parties. authorized roving teller, Citytrust is bound by his acts. Also
maintaining that it was not negligent in releasing the proceeds
The law imposes on banks high standards in view of the of the checks to Flores, the failure of its teller to properly verify
fiduciary nature of banking. Section 2 of Republic Act No. 8791 his signature notwithstanding, petitioner contends that
("RA 8791"), which took effect on 13 June 2000, declares that verification could be dispensed with, Flores having been
the State recognizes the "fiduciary nature of banking that known to be an authorized roving teller of Citytrust who had
requires high standards of integrity and performance." This had numerous transactions with it (petitioner) on its
new provision in the general banking law, introduced in 2000,

18
(Citytrust’s) behalf for five years prior to the questioned accordance with the instructions of the Monetary Board, he
transaction. shall be empowered to:
(a) represent the Monetary Board and the Bangko Sentral in all
SC RULED: Petitioner’s teller Iluminada did not verify Flores’ dealings with other offices, agencies and instrumentalities of
signature on the flimsy excuse that Flores had had previous the Government and all other persons or entities, public or
transactions with it for a number of years. That circumstance private, whether domestic, foreign or international;
did not excuse the teller from focusing attention to or at least (b) sign contracts entered into by the Bangko Sentral, notes
glancing at Flores as he was signing, and to satisfy herself that and securities issued by the Bangko Sentral, all reports,
the signature he had just affixed matched that of his specimen balance sheets, profit and loss statements, correspondence
signature. Had she done that, she would have readily been put and other documents of the Bangko Sentral.
on notice that Flores was affixing, not his but a fictitious The signature of the Governor may be in facsimile whenever
signature. appropriate; Aelectronically
facsimile signature is a reproduction of your manual signature that can be saved
or by engraving, imprinting or stamping.
(c) represent the Bangko Sentral, either personally or through
ARTICLE III – THE GOVERNOR AND DEPUTY GOVERNORS counsel, including private counsel, as may be authorized by
OF THE BANGKO SENTRAL the Monetary Board, in any legal proceedings, action or
specialized legal studies; and
SECTION 17. Powers and Duties of the Governor. — The (d) delegate his power to represent the Bangko Sentral, as
Governor shall be the chief executive officer of the Bangko provided in subsections (a), (b) and (c) of this section, to other
Sentral. His powers and duties shall be to: officers upon his own responsibility: Provided, however, That
(a) prepare the agenda for the meetings of the Monetary in order to preserve the integrity and the prestige of his office,
Board and to submit for the consideration of the Board the the Governor of the Bangko Sentral may choose not to
policies and measures which he believes to be necessary to participate in preliminary discussions with any multilateral
carry out the purposes and provisions of this Act; banking or financial institution on any negotiations for the
(b) execute and administer the policies and measures Government within or outside the Philippines. During the
approved by the Monetary Board; negotiations, he may instead be represented by a permanent
(c) direct and supervise the operations and internal negotiator.
administration of the Bangko Sentral. The Governor may
delegate certain of his administrative responsibilities to other The Bangko Sentral is appointed as the official representative
officers or may assign specific tasks or responsibilities to any of the government in all its negotiation and transaction with
full-time member of the Monetary Board without additional the International Monetary Fund (IMF).
remuneration or allowance whenever he may deem fit or What is the IMF? How do you distinguish it from World Bank?
subject to such rules and regulations as the Monetary Board
may prescribe; WHAT IS THE IMF?
(d) appoint and fix the remunerations and other emoluments The International Monetary Fund (IMF) is an organization
of personnel below the rank of a department head in working to foster global monetary cooperation, secure
accordance with the position and compensation plans financial stability, facilitate international trade, promote high
approved by the Monetary Board, as well as to impose employment and sustainable economic growth, and reduce
disciplinary measures upon personnel of the Bangko Sentral, poverty around the world.
subject to the provisions of Section 15(c) of this Act: Provided,
That removal of personnel shall be with the approval of the The IMF functions as an international body with its member-
Monetary Board; states because some countries have no capacity to trade, like,
(e) render opinions, decisions, or rulings, which shall be final let’s say Somalia, South Africa, with their currency, they import
and executory until reversed or modified by the Monetary more, than what they export so with developing countries,
Board, on matters regarding application or enforcement of they import because the balance of payments between these
laws pertaining to institutions supervised by the Bangko countries are not enough for their currency to be stabilized so
Sentral and laws pertaining to quasi-banks, as well as the IMF, it only gives out assistance— they don’t really force
regulations, policies or instructions issued by the Monetary them, because we still have the concept of sovereignty. They
Board, and the implementation thereof; and cannot impose the country to accept because there is still
(f) exercise such other powers as may be vested in him by the sovereignty, it still must be equal. They only provide
Monetary Board. assistance, they can provide credit. This is the IMF which seeks
to stabilize, to achieve macro-economic stability and reduce
SECTION 18. Representation of the Monetary Board and poverty. Actually, it has a good objective.
the Bangko Sentral. — The Governor of the Bangko Sentral
shall be the principal representative of the Monetary Board The Governor is the representative of the Monetary Board in
and of the Bangko Sentral and, in such capacity and in all dealings, transactions with the IMF (International Monetary
Fund). He signs contracts with the Bangko Sentral.

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members by providing
DIFFERENCE BETWEEN INTERNATIONAL MONETARY policymakers by
FUND (IMF) AND THE WORLD BANK helping them plan
(The assigned reporter was absent. Sir did not discuss the fiscal policies, coming
difference and skipped to the next topic. The following up with tax and fiscal
discusses the distinctions [summarized]. Full article at legislation, and
Investopedia.com.) overseeing the
economy through
www.investopedia.com/ask/answers/043015/what-difference- analysis.
between-international-monetary-fund-and-world-bank.asp 3. Finally, it lends to
countries with balance
IMF WORLD BANK of payments
As to PURPOSE/FUNCTION difficulties. It provides
The IMF oversees the The World Bank’s goal is this financial
world's monetary to reduce poverty by assistance as long as
system's stability. offering assistance to the borrowing country
middle-income and low- implements initiatives
The IMF's main mission is income countries. suggested by the IMF.
to ensure monetary
stability around the world. The World Bank's purpose As to ASSISTANCE PROVIDED
Member countries work is to aid long-term But the group [IMF]'s loan World Bank assistance is
together to foster global economic development program doesn't come typically long-term, funded
monetary cooperation, and reduce poverty in without criticism. The IMF by countries—mainly the
secure financial stability, developing countries. helps countries develop world's richest—that are
facilitate international policy programs that solve members of the bank
trade, and promote balance of payment through the issuing of
employment and problems if a country bonds. The bank’s loans
economic growth. It also cannot obtain financing are not used as a type of
aims to reduce poverty sufficient to meet its bailout, as is the case with
around the world. international obligations the IMF, but as a fund for
by advancing loans. But projects that help develop
As to MANNER OF ACCOMPLISHING ITS PURPOSE they are loaded with an underdeveloped or
To maintain its mission, The World Bank conditions. A loan emerging market nation
the IMF monitors accomplishes its goals provided by the IMF as a and make it more
economic activity, offers through technical and form of "rescue" for productive economically.
members policymaking financial support countries in serious debt
tools and analysis, and available to countries. ultimately only stabilizes
also provides loans to international trade and
member countries. The bank initially focused eventually results in the
on rebuilding country repaying the loan
The IMF maintains its infrastructure in Western at rather hefty interest
mission in three ways. Europe following World rates.
1. First, it keeps track of War II and then turned its
the global economy operational focus to As to COMPOSITION
and those of its developing countries. Comprised of 189 The World Bank president
member countries. member countries comes from the United
The group employs a World Bank support helps including the United States—the group's largest
number of economists countries reform inefficient States. shareholder. Members are
who monitor member economic sectors and represented by a board of
countries' economic implement specific governors. Powers are
health. Each year, the projects, such as building delegated throughout the
IMF provides each health centers and year to a board of 24
country with an schools, or making clean executive directors.
economic assessment. water and electricity more
2. Secondly, it gives widely available. The World Bank consists of
practical help to five different organizations

20
which all aim to meet the correspondence and other documents of the Bangko
group's mission. Sentral.”
IBRD 1. The International Bank From 2018 TSN: That is why in your money his signature is
of Reconstruction and there. Look at your money, the Governor is there.
Development (IBRD)
lends to middle- Why is it necessary to specify “to sign the contracts,
income and securities and notes” and “he represents the Bangko
creditworthy low- Sentral”? Why is important to be specified? Is it not
income governments. implied?
There are 189
members of this Remember, the board is a collegial body. There must be an
branch of the World agency. If it is not specified, what will happen? Every time there
Bank. is a need to sign a contract, there has to be a resolution, there
IDA 2. The International has to be a document to serve as a power of attorney for that
Development particular government to sign contracts. Now this is why it is
Association offers expressly specified. Why? Because that could be taxing. What
interest-free loans and will happen every time there is an emergency situation? They
grants to the world's need a board resolution.
poorest countries.
IFC 3. The International In lieu of that, his authority is specified, expressly. He has this
Finance Corporation authority, expressly provided by law so it is not necessary for
finances investment, them to convene just to grant a special power of attorney.
capital mobilization,
and gives advisory “(c) represent the Bangko Sentral, either personally or
services to businesses through counsel, including private counsel, as may be
and governments in authorized by the Monetary Board, in any legal
developing nations. proceedings, action or specialized legal studies; and”
MIGA 4. The Multilateral
Investment Guarantee GENERAL RULE: The Office of the Solicitor General (OSG)
Agency promotes represents the Government of the Philippines, the agencies,
foreign direct the instrumentalities, and its ex-officio agents. The Office of
investment in the Government Corporate Counsel (OGCC) represents the
developing nations. GOCCs.
ICSID 5. The International
Center for Settlement EXCEPTION: The Bangko Sentral can engage private counsel
of Investment without the need of prior concurrence of the OSG or OGCC.
Disputes provides
investment dispute Because normal government agencies should have the
conciliation and consent of the SolGen before they can engage in private
arbitration. counsel.
Both organizations are based in Washington, D.C., and
were established as part of the Bretton Woods “(d) delegate his power to represent the Bangko Sentral,
Agreement in 1945. as provided in subsections (a), (b) and (c) of this section,
to other officers upon his own responsibility: x x x”
The Bretton Woods Agreement was a monetary and
exchange rate management system that attempted to From 2018 TSN: He can delegate his power to represent the
encourage international financial cooperation through Bangko Sentral through his Deputy Governor, to represent the
the introduction of a system of convertible currencies at Monetary Board and the Bangko Sentral. He is appointed as
fixed exchange rates, with the dollar trading for gold at the official representative of the government in all dealings,
$35 per ounce. negotiations, transactions with the IMF.
“(b) sign contracts entered into by the Bangko Sentral, SECTION 19. Authority of the Governor in Emergencies. —
notes and securities issued by the Bangko Sentral, all In case of emergencies where time is insufficient to call a
reports, balance sheets, profit and loss statements, meeting of the Monetary Board, the Governor of the

21
Bangko Sentral, with the concurrence of two (2) other connected with or affecting the economy or the financial
members of the Monetary Board, may decide any matter system of the country.
or take any action within the authority of the Board.
! FROM 2018 TSN
The Governor shall submit a report to the President and [edited]
Congress within seventytwo (72) hours after the action has They are not allowed to have any other professional activity.
been taken. This is for the purpose of them having their full time given to
their employment.
At the soonest possible time, the Governor shall call a
meeting of the Monetary Board to submit his action for SECTION 21. Deputy Governors. — The Governor of the
ratification. Bangko Sentral, with the approval of the Monetary Board,
shall appoint not more than five (5) Deputy Governors
! FROM 2018 TSN who shall perform duties as may be assigned to them by
[edited] the Governor and the Board.
GENERALLY: The votes are needed for concurrence is four (4). In the absence of the Governor, a Deputy Governor
designated by the Governor shall act as chief executive of
IN EMERGENCY SITUATIONS: They only need two (2) other the Bangko Sentral and shall exercise the powers and
members to concur for the authority to be valid but— perform the duties of the Governor. Whenever the
Governor is unable to attend meetings of government
“The Governor shall submit a report to the President and boards or councils in which he is an ex officio member
Congress within 72 hours after the action has been pursuant to provisions of special laws, a Deputy Governor
taken. as may be designated by the Governor shall be vested with
authority to participate and exercise the right to vote in
At the soonest possible time, the Governor shall call a such meetings.
meeting of the Monetary Board to submit his action for
ratification.” ! FROM 2018 TSN
[edited]
Therefore, the authority in this particular case is subject to Is the Deputy Governor counted in determining the
ratification. majority or quorum when there is a meeting? Is the Deputy
Governor considered in determining a quorum when there
What happens if it is not ratified? What is the effect of that is a meeting to commence? What if there are 3 members
decision with no ratification? but the Governor is not there because he’s at abroad so he
sent the Deputy Governor instead, is he included?
Please take note— there is no specific time frame for the
Governor to have the decision ratified. The law gives sufficient Yes, because the Deputy Governor acts as the representative
leeway for the Governor at the soonest possible time. What is of the Governor. If the Governor is there, he (Deputy
important is the report— the report must be submitted within Governor) cannot act as the representative, because the
72 hours after the action has been taken. principal is there. You have your Law on Agency, what is the
purpose of the agent if the principal is there?
What happens if there is no ratification?
If there is no ratification, the decision shall be void and shall How many members for it there to be a quorum? Four (4).
have no effect.
Ad honorem is a Latin phrase that literally can be translated as "to the honor". When used today, it generally means "for the
honor of"; that is, not seeking any material reward. It is commonly used in universities for some unpaid teaching positions.Is
the Deputy Governor part of the 7 members of the
SECTION 20. Outside Interests of the Governor and the Monetary Board? No.
Full-time Members of the Board. — The Governor of the
Bangko Sentral and the full-time members of the Board ARTICLE IV
shall limit their professional activities to those pertaining OPERATIONS OF THE BANGKO SENTRAL
directly to their positions with the Bangko Sentral.
Accordingly, they may not accept any other employment, SECTION 22. Research and Statistics. — The Bangko
whether public or private, remunerated or ad honorem, Sentral shall prepare data and conduct economic research
with the exception of positions in eleemosynary, civic, for the guidance of the Monetary Board in the formulation
cultural or religious organizations or whenever, by and implementation of its policies. Such data shall include,
designation of the President, the Governor or the full-time among others, forecasts of the balance of payments of the
member is tasked to represent the interest of the Philippines, statistics on the monthly movement of the
Government or other government agencies in matters monetary aggregates and of prices and other statistical
eleemosynary - relating to or dependent on charity; charitable Money aggregates are broad categories that measure the money supply in an economy.
Banosan, Aberilla, Reyes *M1 or Narrow Money – consists of currency in circulation (or currency outside depository corporations)
22
Demand deposits are most suitable for depositors who will need short term access to their funds. By contrast, time and peso demand deposits.
deposits (such as CDs) normally do not incur fees and always pay higher interest rates than demand deposits, but they *M2 or Broad Money – consists of M1 plus peso savings and time deposits.
do not allow immediate access to funds without payment of a penalty. *M3 or Broad Money Liabilities – consists of M2 plus peso deposit substitutes, such as promissory notes
and commercial papers (i.e., securities other than shares included in broad money).
*M4 - consists of M3 plus transferable and other deposits in foreign currency.
series and economic studies useful for the formulation and If you go to the website of the BSP, you could see there
analysis of monetary, banking, credit and exchange ‘Statistics’ – what are the interest rates, how are the banks
policies. performing. So there are classifications. If you want to know
how does BPI perform, you can actually go there, they publish
! FROM 2018 TSN something there.
For the major factors to be considered in formulating
monetary policy, of course, you must have the latest economic Can they have the power to require on non-banks?
(***) in time. You must have empirical research also. If you do Meron din naman, but only for the purpose of determining
not have research, you cannot formulate a proper monetary whether it functions as a quasi-banking institution.
policy. What they do is they engage in forecasting – these
involve people in econometrics. “Provided, That disaggregated data gathered are subject
to prevailing confidentiality laws.”
SECTION 23. Authority to Obtain Data and Information. —
The Bangko Sentral shall have the authority to require from CONFIDENTIALITY OF NON-BANK INFORMATION
any person or entity, including government offices and EXCEPTION
instrumentalities, or government-owned or –controlled Please take note—even if the it can publish information, it is
corporations, any data, for statistical and policy protected. Hindi niya pwede i-disaggregate ang information.
development purposes in relation to the proper discharge Because that would be a violation of the right of the bank’s
of its functions and responsibilities: Provided, That confidentiality of information.
disaggregated data gathered are subject to prevailing
confidentiality laws. The Bangko Sentral through the *Sir shares about his mother’s transactions with BPI that got
Governor or in his absence, a duly authorized leaked*
representative shall have the power to issue a subpoena
for the production of the books and records for the From 2018 TSN: The banks kasi are required to publish
aforesaid purpose. Those who refuse the subpoena information regarding the banking industry. But they cannot
without justifiable cause, or who refuse to supply the publish data which are disaggregated (e.g. Si BDO ganito, si
Bangko Sentral with data required, shall be subject to BPI ganyan). What information can they publish is only those
punishment for contempt in accordance with the of the banking industry as a whole.
provisions of the Rules of Court.
“The Bangko Sentral through the Governor or in his
The authority of the Bangko Sentral to require data from absence, a duly authorized representative shall have the
banks shall continue to be exercised pursuant to its power to issue a subpoena for the production of the
supervisory powers set forth in this Act and other books and records for the aforesaid purpose.”
applicable laws.
! FROM 2018 TSN
Data on individuals and firms, other than banks, gathered [edited]
by the Bangko Sentral shall not be made available to any Please take note—the Bangko Sentral shall have the power to
person or entity outside of the Bangko Sentral whether issue a subpoena.
public or private except under order of the court or under
such conditions as may be prescribed by the Monetary What do you call that subpoena that requires the
Board: Provided, however, That the collective data on firms production of documents? Subpoena duces tecum. It has the
may be released to interested persons or entities: power to issue a subpoena duces tecum.
Provided, finally, That in the case of data on banks, the
provisions of Section 27 of this Act shall apply. “Those who refuse the subpoena without justifiable cause,
or who refuse to supply the Bangko Sentral with data
Please take of the Power of the Bangko Sentral when it comes required, shall be subject to punishment for contempt in
to the entities under its supervision. accordance with the provisions of the Rules of Court.”
“The Bangko Sentral shall have the authority to require Remember, that is one power of the Bangko Sentral to ensure
from any person or entity, including government offices they have the real data in determining their monetary policy.
and instrumentalities, or government-owned or –
controlled corporations, any data, for statistical and policy Can you refuse as a bank to give out information to the
development purposes in relation to the proper discharge Central Bank? Are there any exceptions on the power of
of its functions and responsibilities x x x” the Bangko Sentral to get information or data? Or is the
data or information comprehensive enough?
It is absolute and comprehensive.

23
SECTION 25. Supervision and Examination. — The Bangko
How about non-banks? Is the coverage in examination, the Sentral shall have supervision over, and conduct regular or
power to examine, supervise of the Central Bank limited special examinations of banking institutions and quasi-
to banks? banks, including their subsidiaries and affiliates engaged
No. But where there are non-banks, or other than banks, the in allied activities.
power to require information is not absolute.
For purposes of this section, a subsidiary means a
Please take note— there is an exception. corporation more than fifty percent (50%) of the voting
stock of which is directly or indirectly owned, controlled or
“Data on individuals and firms, other than banks, gathered held with power to vote by a bank or quasi-bank and an
by the Bangko Sentral shall not be made available to any affiliate means a corporation the voting stock of which, to
person or entity outside of the Bangko Sentral whether the extent of fifty percent (50%) or less, is owned by a bank
public or private except under order of the court or under or quasi-bank or which is related or linked directly or
such conditions as may be prescribed by the Monetary indirectly to such institution or intermediary through
Board: x x x” common stockholders or such other factors as may be
determined by the Monetary Board.
Please take note—This applies to those other than banks. Pero
kung bank, pwede nila i-publish so that it’s a collected The Bangko Sentral shall have regulatory authority over,
information. and conduct regular or special examinations of, entities
which under this Act or by special laws are subject to its
From 2018 TSN: It’s not correct to say that the coverage of jurisdiction.
Bangko Sentral is limited only to banks, quasi-banks or any
financial institution. The Bangko Sentral shall establish a mechanism for issues
arising from bank examinations. It shall be independent
and reports directly to the Monetary Board, without
SECTION 24. Training of Technical Personnel. — The prejudice to the authority of the Bangko Sentral and its
Bangko Sentral shall promote and sponsor the training of Monetary Board to take enforcement and supervisory
technical personnel in the field of money and banking. actions against supervised entities.
Toward this end, the Bangko Sentral is hereby authorized The department heads and the examiners of the
to defray the costs of study, at home or abroad, of qualified supervising and/or examining departments are hereby
employees of the Bangko Sentral, of promising university authorized to administer oaths to any director, officer, or
graduates or of any other qualified persons who shall be employee of any institution under their respective
determined by proper competitive examinations. supervision or subject to their examination, and to compel
the presentation of all books, documents, papers or
The Monetary Board shall prescribe rules and regulations records necessary in their judgment to ascertain the facts
to govern the training program of the Bangko Sentral. relative to the true condition of any institution as well as the
books and records of persons and entities relative to or in
“The Bangko Sentral shall promote and sponsor the connection with the operations, activities or transactions of
training of technical personnel in the field of money and the institution under examination, subject to the provision
banking.” of existing laws protecting or safeguarding the secrecy or
confidentiality of bank deposits as well as investments of
With the proliferation of the virtual currency system, they send private persons, natural or juridical, in debt instruments
people outside to train on virtual currency exchange, how to issued by the Government.
regulate this type of industry, this type of organization. They
do sponsored training. They have a scholarship program. No restraining order or injunction shall be issued by the
court enjoining the Bangko Sentral from examining any
Again, the BSP is really a good employer. institution subject to supervision or examination by the
Bangko Sentral, unless there is convincing proof that the
From 2018 TSN: This is what I was talking to you about action of the Bangko Sentral is plainly arbitrary and made
regarding scholarship or study, at home or abroad. If you in bad faith and the petitioner or plaintiff files with the clerk
really wish to work with Central Bank you need to qualify for a or judge of the court in which the action is pending a bond
certain exam. There is an exam. Not everyone gets to pass. 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

24
the issuance and dissolution of the restraining order or of being a creditor?” “can this exist in 1 year or 2 years?” –
injunction contemplated in this section. because if no, the Monetary Board has the right to put that
bank in receivership, conservatorship to have liquidity, or if it
“The Bangko Sentral shall have supervision over, and cannot handle it anymore, liquidation, insolvency.
conduct regular or special examinations of banking
institutions and quasi-banks, including their subsidiaries This is the function of the Central Bank because the banking
and affiliates engaged in allied activities.” industry itself is imbued with public interest. What will happen
if no one is going to take care of the banks? Remember, a
Please take note of the scope: corporation is an artificial entity, meaning they don’t have a
1. Banking institutions right or source. What is their goal? Their goal is to meet the
2. Quasi-banks, including their: objective of the stockholders which is profits. Profit, profit.
a. subsidiaries and
b. affiliates engaged in allied activities. Remember the concept of banking? How do they earn? They
relend the money. If what they think about is profit, profit
Because of the amendment of the coverage of the BSP’s profit, they carelessly market just to get the profit, if there’s no
A currency exchange is a business that has the legal right
power, it now includes: to exchange one currency for another to its customers. check and balance to tell them “you’re not capable to do
3. the money exchange system; that!”, “your condition is not like that anymore”, what will
4. the credit-granting system; happen? They manage businesses— what will happen? there
5. the online payment system. will be insolvency, bank-run. What will happen to the public?
There will be no money and so on and so forth.
So pwede i-examine.
That is the overview of the function of the Central Bank and
DEFINITION OF SUBSIDIARY because of that function, the supervising and examining
“For purposes of this section, a subsidiary means a department should have these powers.
corporation more than fifty percent (50%) of the voting
stock of which is directly or indirectly owned, controlled SUPERVISION
or held with power to vote by a bank or quasi-bank x x x”
What Does the Power of Supervision Include?
Please take note that the basis for this is only the VOTING
STOCK. So if the voting stock is more than 50%, it is 1. Issuance of rules of conduct or the establishment of
considered a subsidiary. standards of operation for uniform application to all
institutions;
Because this is very different from a corporation when it comes
to the nationality of the corporation. If the BSP supervises a certain bank, that means that the BSP
has the power to issue rules of conduct.
! FROM 2018 TSN
“The department heads and the examiners of the 2. Conduct of examination to determine compliance
supervising and/or examining departments are hereby with laws and regulations if the circumstances so
authorized to administer oaths to any director, officer, or warrant as determined by the Monetary Board;
employee of any institution under their respective
supervision or subject to their examination, and to compel Mind you, if you are a bank, BSP audit is very, very stressful.
the presentation of all books, documents, papers or Because as you can see, if there is an indication that you are
records necessary in their judgment to ascertain the facts not able to comply with your pay for the obligation as they
relative to the true condition of any institution as well as mature, then that will be reported by the examining personnel.
the books and records of persons and entities relative to
or in connection with the operations, activities or Then the examining personnel (cf: Section 29), if there is
transactions of the institution under examination, subject sufficient ground for the BSP to put you on a receivership or
to the provision of existing laws protecting or conservatorship, then you are in trouble. So ganun ka grabe
safeguarding the secrecy or confidentiality of bank ang kanyang power.
deposits as well as investments of private persons, natural
or juridical, in debt instruments issued by the You will realize later on that there is even no requirement for
Government.” prior notice and hearing. They can just do that through the
supervision and regulation of the banks. That is very, very
Because you will learn later on, banks in distress, the Central important.
Bank is the care-taker of this bank. It should have a power to
compel, because it looks into the bank— “is this bank capable

25
3. Overseeing to ascertain that laws and regulations are From 2018 TSN: Please take note—although the quorum or
complied with; simple majority is FOUR (4), but when you do a special
4. Regular investigation which shall not be oftener than examination, it must be a concurrence of FIVE (5) members.
once a year from the last date of examination;
5. Inquiring into the solvency and liquidity of the ! FROM 2018 TSN
institution; or [edited]
6. Enforcing prompt corrective action.
Examination vs. Supervision
Aside from that, the BSP can also give emergency loans. That When you say When you say supervise,
is one of the powers of the BSP as a regulating body of the examination, the functions this pertains to the broad
bank. are more specific. powers of the Central Bank
because it issues rules of
EXAMINATION Examination is related to conduct, it issues prompt
audit. When you examine, corrective actions and
Circular No. 442 DEFINITION OF you audit. You check if it is examinations if they are in
Series of 2004 EXAMINATION
in compliance. compliance with the rules
and regulations.
The term "examination" shall, henceforth, refer to an
investigation of an institution under the supervisory
authority of the Bangko Sentral ng Pilipinas (BSP) to
determine compliance with laws and regulations. It shall COVERED INSTITUTIONS
include determination that the institution is conducting 1. Banks
its business on a safe and sound basis. Examination 2. Quasi-banks, including their:
requires full and comprehensive looking into the a. Subsidiaries; and
operations and books of institutions, and shall include, b. Affiliates engaged in allied activities
but need not be limited to, the following:
• Determination of the bank's solvency and Subsidiaries Affiliates
liquidity position; As to COVERAGE OF SUPERVISION BY
• Evaluation of asset quality as well as BSP
determination of sufficiency of valuation Whether engaged Only engaged in
reserves on loans and other risk assets; in allied and non- allied.
• Review of all aspects of bank operations; allied.
• Assessment of risk management system,
including the evaluation of the effectiveness of As to VOTING STOCK
the bank management's oversight functions, More than 50% of 50% or less of the
policies, procedures, internal control and audit; the voting stock. voting stock.
• Appraisal of overall management of the bank;
• Review of compliance with applicable laws,
rules and regulations; and 3. Money service businesses
4. Credit granting businesses
• Any other activities relevant to the above.
5. Payment system operators
Kinds of Examinations
DEFINITION OF AFFILIATE
“x x x and an affiliate means a corporation the voting
Regular or periodic examination shall be done once a stock of which, to the extent of fifty percent (50%) or less,
year, with an interval of twelve months from the last date is owned by a bank or quasi-bank or which is related or
thereof. linked directly or indirectly to such institution or
intermediary through common stockholders or such other
Special examination may be conducted earlier, or at a factors as may be determined by the Monetary Board.”
shorter interval, when authorized by the Monetary Board
by an affirmative vote of five (5) members. From 2018 TSN:
What does this “or which is related or linked to such
They do usually special examinations when there is probable institution or intermediary...” mean?
cause, when there is some unsound banking practice. You have ownership, control or the power to vote of 10% of
the outstanding stock of the borrowing entity or vice versa.

26
Illustration: Bank A does not own directly Bank B but they are A director of one corporation is also a director of another. In
linked or related. Let’s XY, owner of Bank A, owns 10% or that case, that corporation is considered as related or linked.
more. B can be considered an affiliate or subsidiary depends
on the percentage. If it’s at least 10% it is considered an From 2018 TSN: You have an officer in (A), CEO and here (B)
affiliate through the provision “or which is related or linked to Vice President of Operations— interlocking officership. In that
such institution or intermediary.” He doesn’t directly own B but case, these are considered related parties. If one is not a bank,
they are linked with a common stockholder of more than 10% they might be considered as covered so the Central Bank can
of the voting stock. As you can see the power of the Central look into it.
Bank is very broad. He can inquire. Why? You don’t know some
of the assets in contracts like B. The financial condition of A [3]. From 2018 TSN: Please take note, it has to be voting stock
through B can be determined if you can look at all the only. When you reach Corporations on shares and equity,
contracts involving. there are stocks which are deprived of voting rights. But there
are stocks, there is that one classification of shares that has to
Circular No. 454 DEFINITION OF
have voting rights. But there are shares that are deprived of
Series of 2004 AFFILIATE voting rights.
“Affiliate” refers to an entity linked directly or indirectly [4]. Let’s say this is Bank A. So Bank A is under the supervision
to a bank or other financial institution through any one or of the BSP. Bank A has another entity here, wherein the power
a combination of any of the following: to manage such entity is given to Bank A.
1. Ownership, control or power to vote, whether
by permanent or temporary proxy or voting So in that case, this entity is considered linked or related to this
trust, or other similar contracts, by a bank or entity. So pwede tignan ng BSP.
other financial institution of at least 10% or more
of the outstanding voting stock of the entity, or ALLIED ACTIVITIES
vice-versa;
2. Interlocking directorship or officership, except Financial Allied Undertakings
in cases involving independent directors as
defined under existing regulations; Circular No. 316
3. Common stockholders owning at least ten Series of 2002
percent (10%) of the outstanding voting stock of
each financial institution and the entity; or Financial Allied Undertakings. With prior BSP approval,
4. Management contract or any arrangement banks may invest in equities of the following financial
granting power to the bank or other financial allied undertakings, x x x:
institution to direct or cause the direction of a. Leasing companies including leasing of stalls
management and policies of the entity, or vice- and spaces in a commercial establishment;
versa. provided, That bank investment in acquisition of
shares of such leasing company shall be
[1]. What is Permanent Proxy or Voting Trust? limited/applicable only in cases of conversion of
Student: Proxy and voting trust are two different species. Proxy outstanding loan obligations into equity;
is allowing someone to vote for a specific purpose, for one b. Banks;
time only. Voting trust is more permanent than proxy. c. Investment houses;
Sir: Okay, tama yon. d. Financing companies;
e. Credit card companies;
Let’s say bawal mag own ang foreigner mag own ng property, f. Financial institutions catering to small and
so in paper, pinapalabas na the legal title is owned by medium scale industries including venture
Filipinos. Pero naka voting trust yung shares nun dun sa capital corporation (VCC) x x x;
foreigner, to avoid being held in violation of the particular g. Companies engaged in stock broke-
proscription. Again, this is being done in violation of the Anti- rage/securities dealership; and
Dummy Law provisions. h. Companies engaged in foreign exchange
dealership/brokerage.
If there is a permanent proxy or voting trust given to a bank to Expanded Commercial Banks
vote 10% of the outstanding voting stock, this entity is In addition, EKBs may invest in the following as financial
considered as linked or related organization to such bank. allied undertakings:
a. Insurance companies; and
[2]. What is Interlocking Directorship or Officership? b. Holding company, provided that the
investments of such holding company are

The voting proxy and voting trust are two different ways for a shareholder to give another party the right to vote
for them. However, while the proxy may be a temporary or one-time arrangement, often created for a specific 27
vote, the voting trust is usually more permanent, intended to give a bloc of voters increased power as a group.
confined to the equities of allied undertakings (4) Companies primarily engaged in the ma-
and/or non-allied undertakings of UBs allowed nagement of mutual funds but not in the mutual
under BSP regulations. funds themselves;
• Sir: Therefore, those fund managers.
The Monetary Board may declare such other activities as They manage the funds, not the
financial allied undertakings of banks. investment of funds.
(5) Management corporations engaged or to be
The determination of whether the corporation is engaged in an activity similar to the
engaged in a financial allied undertaking shall be based management of mutual funds;
on its primary purpose as stated in its articles of (6) Companies engaged in providing computer
incorporation and the volume of its principal business. services;
• From 2018 TSN: (7) Insurance agencies/brokerages;
• The Monetary Board declares financial (8) Companies engaged in home building and
undertakings as allied or non-allied. How do you home development;
determine if it is allied or non-allied? You look at (9) Companies providing drying and/or milling
the primary purpose of the corporation. So that facilities for agricultural crops such as rice and
is the determining factor if it is engaged in allied corn;
or non-allied activities. Pero di naman ilalagay • Even this is considered allied, because
dun "Allied". You have to determine base on the these are heavily regulated.
purpose of the corporation. (10) Service Bureaus organized to perform for and in
• Why is it important to know if it is allied? Because behalf of banks and non-bank financial
it will matter if it'll be on the coverage of the BSP institutions the services allowed to be
and its examination. outsourced under Circular No. 268; provided,
that data processing companies may be allowed
If there is a bank which holds a leasing company, that company to invest up to 40% in the equity of Service
is considered allied. When is this material? When you consider Bureaus;
it as an affiliate and subsidiary. (11) Philippine Clearing House Corporation (PCHC)
and Philippine Central Depository, Inc. (PDIC);
So magiging material ang non-allied if it is an affiliate. Kasi if it and
is an affiliate and non-allied, then wala nang jurisdiction ang (12) Such other similar activities as the Monetary
BSP. Board may declare as non-financial allied
undertakings of banks.
Leasing is considered as allied. Banks, of course, is considered
as allied. [refer to the provision above for the full list of allied Please take note that these are still allied, although they are
activities.] non-financial. So it is still covered by the supervision of the
BSP.
Non-Financial Allied Undertakings
EXAMINATIONS OF NON-BANKS OR NON-QUASI-
Circular No. 317 BANKS
Series of 2002 This is allowed only for the purpose of determining whether
such are doing banking or quasi-banking functions without
Non-Financial Allied Undertakings. A bank may BSP’s authority.
acquire up to one hundred percent (100%) of the equity
of a non-financial allied undertaking: x x x. Let’s say may isang company. It’s a non-bank, non-quasi-bank,
wala talaga siya, but it is related or linked to a bank.
The determination of whether the corporation is
engaged in a non-financial allied undertaking shall be So the extent of the audit supervision of the Bangko Sentral is
based on the primary purpose as stated in its articles of only for the purpose of determining whether or not it is doing
incorporation and the volume of its principal business. banking functions. Hindi co-extensive yung right ng BSP to
examine them in the same manner as they examine banks or
UBs/KBs/TBs quasi-banks.
UBs/KBs and TBs may invest in equities of the following
non-financial allied undertakings: PROHIBITIONS AND INJUNCTIONS
(1) Warehousing companies; Please take note—this is an exception. You cannot enjoin the
(2) Storage companies; BSP from examining an institution, unless there is convincing
(3) Safe deposit box companies; proof that the action is plainly arbitrary and made in bad faith.

28
What is the quantum of proof needed to enjoin? It cannot be over emphasized that the banking business
It is convincing proof that it is arbitrary and made in bad faith. is impressed with public interest. Of paramount
importance is the trust and confidence of the public in
Why does the BSP have comprehensive powers on quasi- general in the banking industry. Consequently, the
banking related entities? What is the purpose of that diligence required of banks is more than that of a Roman
particular rule? pater familias or a good father of a family. The highest
degree of diligence is expected.
Philippine Savings Bank v. Chowking Food
Corporation In its declaration of policy, the General Banking Law of
G.R. No. 177526, July 3, 2008 2000 requires of banks the highest standards of integrity
and performance. Needless to say, a bank is "under
FACTS: obligation to treat the accounts of its depositors with
JOE KUAN FOOD CORPORATION issued in favor of meticulous care. The fiduciary nature of the relationship
CHOWKING 5 PSBank checks amounting P556,981.86. between the bank and the depositors must always be of
paramount concern.
Chowking's acting accounting manager, RINO T.
MANZANO, endorsed and encashed said checks with IN THE CASE AT BAR: PSBANK through Santos, was
PSBANK. clearly negligent when it honored CHOWKING’s checks
with the lone endorsement of Manzano.
All the five checks were honored by defendant SANTOS
(PSBANK Branch Head), even with only the So in this particular case, it reiterated the concept that banks
endorsement of Manzano approving them. The should observe the highest diligence securing the deposits of
signatures of the other authorized officers of Chowking the depositors.
were absent in the 5 checks, contrary to usual banking
practice. Unexpectedly, Manzano absconded with and Imagine if the bank is not required to observe that diligence?
misappropriated the check proceeds. What will happen? People will hoard their money. They will not
deposit it in the banks.
When Chowking found out Manzano's scheme, it
demanded reimbursement from PSBank. When PSBank What makes the banking industry attractive, aside from the
refused to pay, Chowking filed a complaint for a sum of fact that there is interest earned, is that you know that your
money with damages before the RTC. Both PSBank and money is secured. So what happens if they failed to observe
Santos filed cross claims and third party complaints this kind of diligence? People will not have the confidence on
against Manzano. the banks. That has a detrimental effect on the economy. Why?
Because there is a lot of money circulating outside the banking
RTC: rendered judgement against Chowking. It ruled system which will create inflation. You know the repercussions
that the proximate cause of the loss was Chowking’s of an economy with a higher inflation.
negligence.
Borlongan v. Reyes
CA: held that both petitioner PSBank and Santos should G.R. No. 161276, January 31, 2005
bear the loss. It ruled that Santos was negligent in
honoring Chowking’s checks, over the counter, despite FACTS:
only one indorsement. Contrary to PSB's contention that In a complaint-affidavit filed with Office of the
it should not be held liable because it neither consented Ombudsman, petitioner Teodoro C. BORLONGAN,
to nor had knowledge of Santos' violations, such liability former president and chief executive officer of Union
of Santos is solidary with PSB pursuant to Article 2176. Bank, Inc. (UBI), administratively charged herein
RESPONDENT OFFICIALS of the Bangko Sentral ng
ISSUE: Pilipinas (BSP).
WON PSBANK is liable for reimbursement to Chowking
for its negligence in encashing the checks without This is for allegedly falsifying statement of facts in the BSP
proper indorsement. – YES. PSBANK IS LIABLE. Supervision and Examination Sector (SES) reports and
tendering incorrect and inaccurate reports and opinions
HELD: to conjure false grounds for the closure of UBI and
PSBANK failed to prove that it has observed the due Urbancorp Development Bank and placing them under
diligence required of banks under the law. PSBANK’s receivership, to the detriment of their shareholders,
negligence is the proximate cause of Chowking’s loss. officers and employees.

29
BORLONGAN v. REYES
duties and affects the interest and fortunes of third
OMB Order parties. Courts do not interfere with any administrative
Respondents are guilty of simple neglect of duty. measure prior to its completion or finality, and when they
do, what is actionable is not the recommendation but the
Respondents’ Arguments decision of the official with the competence under the
SES reports prepared by respondents and submitted to law to issue it.
the Monetary Board were negligently made.
The subject reports are only between the Monetary
ISSUE 1: WON the respondents are administratively Board and the BSP officials who prepared and endorsed
liable. – NO. them and may be rejected, modified or accepted by the
Monetary Board. As far as this case is concerned, the
HELD: Here, we find that neither gross nor simple legal obligations of diligence and good faith that BSP
neglect of duty characterized the acts of the officials owe to the public under Section 16 of the New
respondents. The subject SES reports prepared by Central Act start with the official acts of the Monetary
respondents and submitted to the Monetary Board were Board which, rightly or wrong, are the cause of loss or
anything but haphazardly or negligently made. As it injury to third parties, not any preparatory report or
were, the reports were a compendium of long years of recommendation.
monitoring by the BSP of a problem bank, and
assembled over a period of 15 hours after the Sir’s Discussion of the Facts: Ano ginawa ng BSP? The bank
respondents were instructed to do so. The data was placed under receivership, because of the report of the
contained therein had been patiently collected and SES.
analyzed.
This is how the examination with SES (Supervision Examination
ISSUE 2 [by Sir]: What is the remedy if you are the lawyer Sector) functions.
of the bank? – FILE A PETITION FOR CERTIORARI. 1. They audit.
2. Upon audit, they submit a report to the head of the
HELD: Pertinent, too, is Section 53 of Republic Act No. department, “May problem ang bangkong to.”
8791, since it underscores the summary character of the 3. Upon their report, ang sabi ng Monetary Board, “Oo
MB's initiative of placing a bank under receivership. It nga, may problem.”
provides that in case a bank or quasi-bank notifies the 4. So they placed the bank under receivership.
BSP or publicly announces a bank holiday, or in any
manner suspends the payment of its deposit liabilities Of course, nagreklamo si bank. Sabi niya, there is negligence
continuously for more than 30 days, the MB may in the preparation of the report. Mali daw yung report ni
summarily and without need of prior hearing close such prinipare.
banking institution and place it under receivership of the
PDIC. Sir’s Discussion of the Ruling: The report of the personnel is
not subject to judicial review. It will still go to the review of the
This authority is beyond review by the courts except on a Monetary Board.
petition for certiorari. Here, it is worth to note that even
the Ombudsman found significant evidence to SEC. 25-A. Authority to Approve Transfer of Shares.
rationalize the decision of the Monetary Board to place Transfers or acquisitions, or a series thereof, of at least ten
UBI under receivership. percent (10%) of the voting shares in banks or quasi-banks
shall require the prior approval of the Bangko Sentral. The
ISSUE 3 [by Sir]: WON the report of the personnel is selling or conveying stockholder shall submit such transfer or
subject of judicial review. – NO. acquisition for approval by the Bangko Sentral within such
period as may be prescribed by the Monetary Board. In
HELD: What is Actionable Is the Decision of the approving such transfers or acquisitions, regard shall be given
Monetary Board, Not the Report Done by by the Bangko Sentral to the fitness of the incoming
Respondents stockholders as may be indicated in their integrity, reputation
and financial capacity. Without Bangko Sentral approval, no
Likewise, we agree with the appellate court's 17th such transfer or acquisition shall have legal effect nor shall the
Division in its ratiocination that it is illogical to hold the same be recognized in the books of the institution or by any
respondents administratively liable for the preparation of government agency, and the transfer or-stockholders shall
reports that are, in their nature, merely recommendatory remain accountable and responsible therefor. Transfer of
and have to be acted upon by superior officials. The actual control or management of the institution to the new
reports were not the final action that creates right and stockholders or their representatives prior to Bangko Sentral

30
approval shall make the -transfer or, the transferee and any (1) Spouse or relative within the first degree of consanguinity
person responsible therefor liable under Sections 36 and 37 or affinity, or relative by legal adoption, of a director, officer or
of this Act. Notwithstanding any provision of law to the stockholder of the bank;
contrary, the Bangko Sentral may share with the Philippine
Deposit Insurance Corporation any information that the The supervising examiner will account all DOSRI Loans, pag-
Bangko Sentral may obtain pertaining to transfer or sobrang taas, this will be reported to the monetary board and
acquisition of shares or series of transfers or acquisition of will be part of the evaluation of WON may capacity pa ba si
shares in banks and quasi-banks. bank to continue and oay the obligation.
Please take note. “A series thereof”. Walang sinabing time (2) Partnership of which a director, officer, or stockholder of a
frame. bank or his spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, is a
Q: Let’s say I have a bank and I owned 5% of the bank and I general partner;
want to transfer that to someone, does it require court
approval? Kasi pwede naman na hindi ako (DOS) ang mangutang, pwede
A: No. Kasi diba at least 10% (please take note of this ko naman idaan sa isang institution na ako parin ang may-ari.
threshold)
(3) Co-owner with the director, officer, stockholder or his
SEC. 26. Bank Deposits and Investments. spouse or relative within the first degree of consanguinity or
Any director, officer or stockholder who, together with his affinity, or relative by legal adoption, of the property or interest
related interest, contracts a loan or any form of financial or right mortgaged, pledged or assigned to secure the loans
accommodation from: (1) his bank; or (2) from a bank (a) which or other credit accommodations, except when the mortgage,
is a subsidiary of a bank holding company of which both his pledge or assignment covers only said co-owner’s undivided
bank and the lending bank are subsidiaries or (b) in which a interest;
controlling proportion of the shares is owned by the same no mention of stockholder here
interest that owns a controlling proportion of the shares of his (4) Corporation, association, or firm of which a director or
bank, in excess of five percent (5%) of the capital and surplus officer of the bank, or his spouse is also a director or officer of
of the bank, or in the maximum amount permitted by law, such corporation, association or firm, exceptions:
whichever is lower, shall be required by the lending bank to a) where the securities of such corporation, association
waive the secrecy of his deposits of whatever nature in all or firm are listed and traded in the big board or
banks in the Philippines. Any information obtained from an commercial and industrial board of domestic stock
examination of his deposits shall be held strictly confidential exchanges and less than fifty percent (50%) of the
and may be used by the examiners only in connection with voting stock thereof is owned by any one (1) person or
their supervisory and examination responsibility or by the by persons related to each other within the first
Bangko Sentral in an appropriate legal action it has initiated degree of consanguinity or affinity; OR
involving the deposit account. Comments: Why is this an exception? because there are
different bodies controlling the corporation. So si BSP, "ah
DOSRI regulated naman pala siya so okey lang"
DORSI (Directors, Officers, Stockholders and Related
b) where the director, officer or stockholder of the bank
Interests) Loan or Financial Accomodation
sits as a representative of the bank in the board of
directors of such corporation: Provided, That the bank
Q: Why is this needed to be regulated?
representative shall not have any equity interest in the
A: It would be detrimental to the depositor.
borrower corporation except for the minimum shares
required by law, rules and regulations, or by the by-
“from a bank (a) which is a subsidiary of a bank holding
laws of the corporation, OR
company of which both his bank and the lending bank are
subsidiaries” Comments:
c) where the corporation is at least ninety-nine percent
Ako, for example, stockholder ng bank A, mang-hiram ako sa (99%) owned by a non-stock corporation as defined in
Bank B. Take note, hindi ako director ng Bank B, but both of Section 87 of the Corporation Code of the Philippines:
these banks are under the same holding company. So Provided, That the purpose of the loan is to finance
indirectly, I have an influence. hospitals and other medical services: Provided,
further, That the loan is fully secured: Provided,
Related Interest furthermore, That in the case of Items “(a)”, “(b)” and
“(c)” above, the borrowing corporation is not among
Related interest shall refer to any of the following: those mentioned in Items “e(5)”, “e(6)”, “e(7)” and
“e(8)” of this Section;

31
Comments: owns a controlling proportion of the shares
Q: Now, is it prohibited to have a DOSRI loan? of his bank, in excess of five percent (5%) of
A: NO, it is not prohibited because as you can see later on the capital and surplus of the bank, or in the
there are some instances when it is allowed, usually when it is maximum amount permitted by law,
fully secured. Okey lang naman mag-loan ako sa sarili kung whichever is lower, shall be required by the
bank kung it is fully secured, may collateral naman. We will lending bank to waive the secrecy of his
discuss on this later on deposits of whatever nature in all banks in
the Philippines
(5) Corporation, association or firm of which any or a group Any information obtained from an examination of his deposits
of directors, officers, stockholders of the lending bank shall be held strictly confidential and may be used by the
and/or their spouses or relatives within the first degree of examiners only in connection with their supervisory and
consanguinity or affinity, or relative by legal adoption, hold examination responsibility or by the Bangko Sentral in an
or own at least twenty percent (20%) of the subscribed appropriate legal action it has initiated involving the deposit
capital of such corporation, or of the equity of such account.
association or firm; Comments:
(6) Corporation, association or firm wholly or majority- • Please take note na ang borrower is dapat director,
owned or controlled by any related entity or a group of officer or stockholder lang. The Related Interest is
related entities mentioned in Items “e(2)”, “e(4)” and “e(5)” only material in determining the 5%. So ang
of this Section; borrower, hindi kailangan related interest. Kailangan
(7) Corporation, association or firm which owns or controls ang borrower is DOS(Director, Officer or
directly or indirectly whether singly or as part of a group of Stockholder)
Manual of Regulations for Banks Part III - 1 related interest at • But for purposes of determining WON that person
least twenty percent (20%) of the subscribed capital of a maximum permitted allowed by law, you consider the
substantial stockholder of the lending bank or which related interest. But for purposes of determining the
controls majority interest of the bank pursuant to Subsec. person borrowing, dun kalang dapat sa DOS
X303.1; • Please take note that it applies on all banks in the
(8) Corporation, association or firm which has an existing Philippines
management contract or any similar arrangement with the If you violate it, these will be the penalties (naga-ambak2 si sir
parent of the lending bank from one Section to another, abi nakog comments niya,
bwesit, codal ra diay, gibutang nalang nako ang duha ka codal
na gibasa niya): (RA 7653 as amended by RA 11211)
Comments: So let say we have a lending bank tapos may
corporation tapos yung pera nya, there is a management SECTION 27. Prohibitions. — In addition to the
contract between them. Example of management contract is prohibitions found in Republic Act Nos. 3019 and 6713,
Corporation A entered into management contract with personnel of the Bangko Sentral are hereby prohibited
Corporation B, now ang magma-manage nag operation ng from:
Corporation B is ang Corporation A, now this is management a) being an officer, director, lawyer or agent,
contract. There is a lot of that going on because essentially the employee, consultant or stockholder, directly or
purpose of that is for tax saving. indirectly, of any institution subject to supervision
(9)Non-governmental organizations (NGOs)/foundations that or examination by the Bangko Sentral, except non-
are engaged in retail microfinance operations which are stock savings and loan associations and provident
incorporated by any of the stockholders and/or directors funds organized exclusively for employees of the
and/or officers of related banks Bangko Sentral, and except as otherwise provided
in this Act;
REQUISITES of a DOSRI Loan (SECTION 26. Bank Deposits b) directly or indirectly requesting or receiving any
and Investments) gift, present or pecuniary or material benefit for
Any director, officer or stockholder who, together with his himself or another, from any institution subject to
related interest, contracts a loan or any form of financial supervision or examination by the Bangko Sentral;
accommodation from: c) revealing in any manner, except under orders of
(1) his bank; or the court, the Congress or any government office
(2) from a bank: or agency authorized by law, or under such
a. which is a subsidiary of a bank holding conditions as may be prescribed by the Monetary
company of which both his bank and the Board, information relating to the condition or
lending bank are subsidiaries or business of any institution. This prohibition shall
b. (b) in which a controlling proportion of the not be held to apply to the giving of information to
shares is owned by the same interest that the Monetary Board or the Governor of the

32
Bangko Sentral, or to any person authorized by guidelines may provide for additional
either of them, in writing, to receive such qualifications and disqualifications of informants as
information; and well as the form and minimum content of the
d) borrowing from any institution subject to information given.
supervision or examination by the Bangko The cash reward of informers shall be subject to
Sentral unless said borrowing is transacted on an applicable withholding taxes.
arm's length basis, fully disclosed to the Monetary
Board, and shall be subject to such rules and
regulations as the Monetary Board may prescribe." Section 37. Administrative Sanctions on Supervised
Entities. — The imposition of administrative sanctions
Section 36. Proceedings Upon Violation of This shall be fair, consistent and reasonable. Without
Act and Other Banking Laws, Rules, prejudice to the criminal sanctions against the culpable
Regulations, Orders or Instructions. persons provided in Sections 34, 35, and 36 of this Act,
Whenever a bank, quasi-bank, including their the Monetary Board may, at its discretion, impose upon
subsidiaries and affiliates engaged in allied any bank, quasi-bank, including their subsidiaries and
activities or other entity which under this Act or affiliates engaged in allied activities, or other entity
special laws is subject to Bangko which under this Act or special laws are subject to
Sentral supervision or whenever any person or the Bangko Sentral supervision, and/or their directors,
entity willfully violates this Act or other pertinent officers or employees, for any willful violation of its
banking laws being enforced or implemented by charter or bylaws, willful delay in the submission of
the Bangko Sentral or any order, instruction, rule reports or publications thereof as required by law, rules
or regulation issued by the Monetary Board, the and regulations; any refusal to permit examination into
person or persons responsible for such violation the affairs of the institution; any willful making of a false
shall unless otherwise provided in this Act be or misleading statement to the Board or the appropriate
punished by a fine of not less than Fifty thousand supervising and examining department or its
pesos (P50.000) nor more than Two million pesos examiners; any willful failure or refusal to comply with,
(P2,000,000) or by imprisonment of not less than or violation of, any banking law or any order, instruction
two (2) years nor more than ten (10) years, or both, or regulation issued by the Monetary Board, or any
at the discretion of the court. order, instruction or ruling by the Governor; or any
Whenever an entity under Bangko commission of irregularities, and/or conducting
Sentral supervision persists in carrying on its business in an unsafe or unsound manner as may be
business in an unlawful or unsafe manner, the determined by the Monetary Board, the following
Board may, without prejudice to the penalties administrative sanctions, whenever applicable:
provided in the preceding paragraph of this a) fines in amounts as may be determined by the
section and the administrative sanctions provided Monetary Board to be appropriate, but in no
in Section 37 of this Act, take action under Section case to exceed One million pesos (P1,000,000)
30 of this Act. for each transactional violation or One
The Bangko Sentral may grant informer's reward to hundred thousand pesos (P100,000) per
any person, except an officer or employee of calendar day for violations of a continuing
the Bangko Sentral or of any intelligence or law nature, taking into consideration the attendant
enforcement agency, including the relatives of circumstances, such as the nature and gravity
such officer or employee within the fourth degree of the violation or irregularity and the size of
of consanguinity or affinity, who voluntarily give the institution: Provided, That in case profit is
definite information not yet in the possession of gained or loss is avoided as a result of the
the Bangko Sentral leading to the; (a) arrest of violation, a fine no more than three (3) times
bank directors or officers and/or BSP personnel for the profit gained or loss avoided may also be
violation of this Act or any banking and other laws imposed;
implemented or enforced by the Bangko b) suspension of rediscounting privileges or
Sentral, or for violation of other penal laws access to Bangko Sentral credit facilities;
committed in connection with their employment or c) suspension of lending or foreign exchange
functions; or (b) filing of criminal charges against operations or authority to accept new deposits
any person for violation of Section 50 of this Act. or make new investments;
The Monetary Board is hereby authorized to d) suspension of interbank clearing privileges;
promulgate the implementing guidelines for the and/or
grant of informer's reward, which in no case shall e) suspension or revocation of quasi-banking or
exceed One million pesos (Pl,000,000). Said other special licenses.

33
violations of a continuing nature, the imposition of
Resignation or termination from office shall not exempt which shall be final and executory until reversed,
such director, officer or employee from administrative modified or lifted by the Monetary Board on appeal.
or criminal sanctions.
The Monetary Board may, whenever warranted by SEC. 28. Examination and Fees.
circumstances, preventively suspend any director, The supervising and examining department head, personally
officer or employee of the institution pending an or by deputy, shall examine the operations of every bank and
investigation: Provided, That should the case be not quasi-bank, including their subsidiaries and affiliates engaged
finally decided by the Bangko Sentral within a period of in allied activities, and other entities which under this Act or
one hundred twenty (120) days after the date of special laws are subject to Bangko Sentral supervision, in
suspension, said director, officer or employee shall be accordance with the guidelines set by the Monetary Board
reinstated in his position: Provided, further, That when taking into consideration sound and prudent practices:
the delay in the disposition of the case is due to the fault, Provided, That there shall be an interval of at least twelve (12)
negligence or petition of the director or officer, the months between regular examinations: Provided, further, That
period of delay shall not be counted in computing the the Monetary Board, by an affirmative vote of at least five (5)
period of suspension herein provided. members, may authorize a special examination if the
circumstances warrant.
The above administrative sanctions need not be
applied in the order of their severity. The institution concerned shall afford to the head of the
appropriate supervising and examining departments and to
Whether or not there is an administrative proceeding, if his authorized deputies full opportunity to examine its books
the institution and/or the directors, officers or and records, cash and assets and general condition and
employees concerned continue with or otherwise review its systems and procedures (basically broadening the
persist in the commission of the indicated practice or power of the BSP) at any time during business hours when
violation, the Monetary Board may issue an order requested to do so by the Bangko Sentral: Provided, however,
requiring the institution and/or the directors, officers or That none of the reports and other papers relative to such
employees concerned to cease and desist from the examinations shall be open to inspection by the public except
indicated practice or violation, and may further order insofar as such publicity is incidental to the proceedings
that immediate action be taken to correct the conditions hereinafter authorized or is necessary for the prosecution of
resulting from such practice or violation. The cease and violations in connection with the business of such institutions.
desist order shall be immediately effective upon service
on the respondents. Supervised institutions (those under the supervision of the
BSP) shall pay to the Bangko Sentral, no later than May 31 of
The respondents shall be afforded an opportunity to each year, an annual supervision fee as may be prescribed by
defend their action in a hearing before the Monetary the Monetary Board. In determining the amount of the annual
Board or any committee chaired by any Monetary Board supervision fee, the Monetary Board Shall consider the costs
member created for the purpose, upon request made of supervision.
by the respondents within five (5) days from their receipt
of the order. If no such hearing is requested within said
period, the order shall be final. If a hearing is SEC. 28-A. Bangko Sentral Coordination.
conducted, all issues shall be determined on the basis
The suspension or revocation of any government license
of records, after which the Monetary Board may either
necessary for the operation of Bangko Sentral-supervised
reconsider or make final its order.
entity must be done only with prior consultation with the
Bangko Sentral.
The Governor is hereby authorized, at his discretion, to
impose upon banks and quasi-banks, including their
subsidiaries and affiliates engaged in allied activities,
and other entities which under this Act or special laws SECTION 29. Appointment of Conservator. — Whenever,
are subject to Bangko Sentral supervision for any failure on the basis of a report submitted by the appropriate
to comply with the requirements of law, Monetary Board supervising or examining department, the Monetary Board
regulations and policies, and/or instructions issued by finds that a bank or a quasi-bank is in a state of continuing
the Monetary Board or by the Governor, fines not inability or unwillingness to maintain a condition of liquidity
in '^:9if excess of One hundred thousand pesos deemed adequate to protect the interest of depositors and
(P100,000) for each transactional violation or Thirty creditors, the Monetary Board may appoint a conservator
thousand pesos (P30.000) per calendar day for with such powers as the Monetary Board shall deem

34
necessary to take charge of the assets, liabilities, and the of depositors and creditors, does that mean na lugi na ang
management thereof, reorganize the management, collect bangko? Does that mean na insolvent na si bank?
all monies and debts due said institution, and exercise all Answer: the Monetary Board may appoint a conservator with
powers necessary to restore its viability. The conservator such powers as the Monetary Board shall deem necessary to
shall report and be responsible to the Monetary Board and take charge of the assets. So, the main role of the conservator
shall have the power to overrule or revoke the actions of the is first to take charge of the assets and liabilities, and the
previous management and board of directors of the bank management thereof, reorganize the management, collect all
or quasi-bank. monies and debts due said institution, and exercise all powers
The conservator should be competent and knowledgeable necessary to restore its viability. The conservator shall report
in bank operations and management. The conservatorship and be responsible to the Monetary Board and shall have the
shall not exceed one (1) year. power to overrule or revoke the actions of the previous
The conservator shall receive remuneration to be fixed by management and board of directors of the bank or quasi-
the Monetary Board in an amount not to exceed two-thirds bank.
(2/3) of the salary of the president of the institution in one
(1) year, payable in twelve (12) equal monthly payments: So, in effect there is a take-over. Someone is in. You (bank) are
Provided, That, if at any time within one-year period, the not doing your job someone will take-over. Now, to resume
conservatorship is terminated on the ground that the the viability of the bank. So, this is ONE OF THE REMEDIES of
institution can operate on its own, the conservator shall the banks in distress. So, meron tayong tinatawag na ‘bank in
receive the balance of the remuneration which he would distress’. So, bank in distress, one of the remedies is
have received up to the end of the year; but if the conservator. So, paano sya maaapoint? There is continuing
conservatorship is terminated on other grounds, the inability.
conservator shall not be entitled to such remaining balance.
The Monetary Board may appoint a conservator connected The Conservator shall receive remuneration—take note of the
with the Bangko Sentral, in which case he shall not be remuneration—not to exceed 2/3 of the salary of the president
entitled to receive any remuneration or emolument from of the institution in one (1) year. Payable in twelve (12) equal
the Bangko Sentral during the conservatorship. The monthly payments. Provided that, please take note—if any time
expenses attendant to the conservatorship shall be borne within the one (1) year period the conservatorship is
by the bank or quasi-bank concerned. terminated on the ground that the institution can operate on
The Monetary Board shall terminate the conservatorship its own, the conservator shall receive up to the end of the year.
when it is satisfied that the institution can continue to This serves as a reward or an incentive for the conservator.
operate on its own and the conservatorship is no longer Bilisan mo yang work mo kasi 1 month palang naayos na nya—
necessary. The conservatorship shall likewise be he will receive rest of the salary for the year. So, this is an
terminated should the Monetary Board, on the basis of the incentive if the ground for the termination it can be shown of
report of the conservator or of its own findings, determine its viability. But if the ground is palugi and pa liquidation, pa
that the continuance in business of the institution would receiver na—wala na. prorated na ang kanyang ma receive.
involve probable loss to its depositors or creditors, in which The Monetary Board may appoint a conservator connected
case the provisions of Section 30 shall apply. with the Bangko Sentral, in which case he shall not 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
Comments: concerned.
29
Section 28. xxx a state of continuing inability or unwillingness
to maintain a condition of liquidity deemed adequate to The Monetary Board shall terminate the conservatorship when
protect the interest of depositors and creditors. Please it is satisfied that the institution can continue to operate on its
memorize that. That is the basis for your conservator. own and the conservatorship is no longer necessary. Shall
A state of continuing inability or unwillingness to maintain a likewise be determine that—yon. Okay lang if it can operate on
condition of liquidity deemed adequate to protect the interest its own. But if it is terminated on the basi— si conservator will
of depositors and creditors. These are your keywords. If you report to the Monetary Board in the of the year. Or pwede
want to say it in your own words, baka magkamali pa kayo. This naman earlier upon basis on his report it can be determine that
is the basis to appoint a conservator. There is inability or the continuance in business—please take note of the reason—
continuing unwillingness to maintain a condition of liquidity the continuance in business of the institution would involve
deemed adequate to protect the interest of depositors and probable loss to its depositors or creditors. Now, there seems
creditors. to be a distinction between creditors and depositors. Now, as
all we know depositors or bank deposits is in the nature of
Question: Inability or continuing unwillingness to maintain a creditor and debtor, while on deposits you are the creditor.
condition of liquidity deemed adequate to protect the interest

35
Question: So, bakit kaya gi-emphasize ang creditor or and kailangan mangutang or mag benta nang non-cash assets. So,
depositor? Bakit di nalang sinabi na probable loss to its yan ang ibig sabihin nag liquidity. It is different from
creditors? Bakit kailangan ihiwalay? SOLVENCY. Please take note of that.
INSOLVENCY
Answer: this is in emphasis because there might be a credit When we talk of Solvency—your liabilities exceed your assets.
insolvency
that are not in the form of deposits. So dapat ihiwalay. In which Whether in the form of cash or non-cash. That is solvency. So,
case, the provisions of section 30 shall be apply—which is the between liquidity and solvency—ang solvency wala ka
receivership. talagang assets.
In liquidity, di ka lang makabayad because you don’t have
2 reasons for conservator to determine: enough cash assets to pay off your obligation. Financial
1. Can continue its operation. Naayos na; OR obligations—liquidity yan.
2. Mag re-receiver na tayo
And the basis for this is the REPORT of the conservator. Please LIQUIDITY vs. SOLVENCY
take note. Solvency and liquidity are both terms that refer to an
What is conservatorship? This is a tool in restoring the viability enterprise’s state of financial health, but with some notable
of banks and quasi-banks. It consists of carrying out a package differences. Solvency refers to an enterprise’s capacity to meet
of administrative organizational, financial (because the its long-term financial commitments. Liquidity refers to an
conservator can reorganize the management. Pwede nyang enterprise’s ability to pay shortterm obligations, the term also
sabihin na mali kasi and in-appoint mo sa operations. Wala refers to a company’s capability to sell assets quickly to raise
kasing alam. So, I will put people and terminate them para cash. A solvent company is one that owns more than it owes;
maayos. He can reorganize. That is the role. He acts as if he is in other words, it has a positive net worth and a manageable
the BOT at that point of time), and/or other measures to debt load. On the other hand, a company with adequate
address the state of continuing inability or unwillingness to liquidity may have enough cash available to pay its bills, but it
maintain a condition of liquidity deemed adequate to protect may be heading for financial disaster down the road
the interest of depositors and creditors
First Philippines International Bank vs. CA, comment ni
So, there is a report. The supervising department mag report sir:
sya sa Sentral Bank. Tapos ang gi appoint na conservator mag So, okay. In this particular case, since the conservator may
re-report din sa Sentral Bank. Either to terminate it because it exercise other powers based on the powers of the BOD,
can stand on its own or to appoint a receiver. The finding of can revoke perfected and enforceable contract? The
the monetary board is based on the state of inability. Pa ulit ulit Supreme Court said NO. The power to revoke a contract
talaga yan sya. State of unwillingness to maintain. refers only to those defective contracts. You have the rule
Now, the BOD must be informed in writing. So, sabi nang MBA on void, voidable, unenforceable, and rescissible contracts.
i-conservatorship na natin ‘to. The MBA will inform in writing
the BOD na: Oy! you are under conservatorship So, hanggand g doon lang ang power nila. Because
otherwise, it will violate the non-impairment of contracts.
Question: Is it a good thing na under ka nang Sabi pa nga nang court, di nga pwede ang legislators mag
conservatorship? impair nang perfected contract and BOD pa kaya.
Answer: NO. not a good thing. Ang ibig sabihin lang yan na— Legislators—Monetary Board— BOD/Conservator. If the
you are not doing your job. source of the power cannot do then, the delegated power
But it is one of the ways na if you are in business where the cannot do the same.
State intervene because the nature of your job is imbued with
public interest that is so the State has the right to intervene to The termination, again, cannot exceed 1 year. Punta na tayo
protect the public. sa RECEIVER.
Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its
intrinsic value. In other words: the ease of converting it to cash.
LIQUIDITY. Di ba, continuing inability or unwillingness to Question: if na ayos, okay lang. if it cannot be prevented that
maintain a condition of liquidity. Therefore, what is liquidity? there might be probable loss to its creditors or depositors we
Liquid ka. Di sya bankrupt pero din rin sya liquid. That is why will go to section 30, the receivership.
he needs to sell his properties.
Liquidity is generally understood as the ability to pay off Section. 30. Proceedings in Receivership and
obligations when they fall due. It refers to that condition Liquidation. — Whenever, upon report of the head of the
wherein a high percentage of the assets can be quickly supervising or examining department, the Monetary Board
converted into cash without involving any considerable loss by finds that a bank or quasi-bank:
accepting sacrifice prices. Meaning, liquidity in effect— liquid a) has notified the Bangko Sentral or publicly
ka ba. You have enough cash to pay your obligation. Na you announced a unilateral closure, or has been
don’t need to sell your other properties. So, that is liquidity. dormant for at least sixty (60) days or in any
Marami kang cash and cash interest. Liquid ka. Di mo manner has suspended the payment of its

while admittedly, the Central Bank law gives vast and far-reaching powers to the
Banosan, Aberilla, Reyes conservator of a bank, it must be pointed out that such powers must be related to the
36
"(preservation of) the assets of the bank, (the reorganization of) the management
Cash is universally considered the most liquid asset, while tangible assets, such as real estate, fine art, and collectibles, are all
thereof and (the restoration of) its viability." Such powers, enormous and extensive as
relatively illiquid. Other financial assets, ranging from equities to partnership units, fall at various places on the liquidity
spectrum.
they are, cannot extend to the post-facto repudiation of perfected transactions,
otherwise they would infringe against the non-impairment clause of the Constitution. If
Accounting liquidity measures the ease with which an individual or company can meet their financial obligations with the liquid the legislature itself cannot revoke an existing valid contract, how can it delegate such
assets available to them—the ability to pay off debts as they come due
non-existent powers to the conservator under Section 28-A of said law?
deposit/deposit substitute liabilities, or is unable ii. Finding of the Monetary Board of the existence of any
to pay its liabilities as they become due in the of the grounds for receivership;
ordinary course of business: Provided, That this iii. Decision of the Monetary Board to forbid the
shall not include inability to pay caused by institution from doing business; AND
extraordinary demands induced by financial panic iv. Notice in writing to the Board of Directors
in the banking community;
b) has insufficient realizable assets, as determined by Rural Bank of Lucena v. Arca (comments ra ni ni sir ha!)
the Bangko Sentral, to meet its liabilities; or Okay. So, ang sabi nang Court, kung ma de-delay the assets
c) cannot continue in business without involving may be dissipated. The Court said, manifestly, whether a
probable losses to its depositors or creditors; or rural bank's continuance in business would involve
d) has willfully violated a cease and desist order probable loss to its clients or creditors, and that "it can not
under Section 37 of this Act that has become final, resume business with safety", is a matter of appreciation
involving acts or transactions which amount to and judgment that the law entrusts primarily to the
fraud or a dissipation of the assets of the Monetary Board. Equally apparent is that if the rural bank
institution; in which cases, the Monetary Board affected is in the condition previously adverted to, every
may summarily and without need for prior hearing minute of delay in securing its assets from dissipation
forbid the institution from doing business in the inevitably increases the danger to the creditors. For this
Philippines and designate the Philippine Deposit reason, the statute has provided for a subsequent judicial
Insurance Corporation (PDIC) as receiver in the review of the Monetary Board, in lieu of a previous hearing.
case of banks and direct the PDIC to proceed with
the liquidation of the closed bank pursuant to this
section and the relevant provisions of Republic Act Central Bank v. CA(comments ra ni ni sir ha!)
No. 3591, as amended. The Monetary Board shall Okay. You have this concept of “close now and hear later”
notify in writing, through the receiver, the board of schemes is grounded on practical and legal considerations
directors of the closed bank of its decision. to prevent unwarranted dissipation of the bank’s assets and
as a valid exercise of police power to protect the
The actions of the Monetary Board taken under this section depositors, creditors stockholders and the general public.
or under Section 29 of this Act shall be final and executory^
and may not be restrained or set aside by the court except Mind you that this concept is being asked in bar exams.
on petition for certiorari on the ground that the action taken Same scenario, without prior hearing—is it proper for the MB
was in excess of jurisdiction or with such grave abuse of to close without prior hearing? So, that was the question of
discretion as to amount to lack or excess of jurisdiction. The 2007 bar under your commercial law. This is a very
petition for certiorari may only be filed by the stockholders important concept.
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, You have to look at the grounds. Receivership is based on the
liquidation or conservatorship. The designation of a grounds under Section 30 but in conservatorship, the ground
conservator under Section 29 of this Act or the appointment is the state of continuing inability or unwillingness to maintain
of a receiver under this section shall be vested exclusively a condition of liquidity. Once you are declared under
with the Monetary Board. Furthermore, the designation of conservatorship, it does not mean you are insolvent, but that
a conservator is not a precondition to the designation of a you are not liquid.
receiver.
The receiver administers the assets of the closed bank while a
The authority of the Monetary Board to summarily and conservator takes charge of the liability of an operating bank.
without need for prior hearing forbid the bank or quasi- Otherwise, it will put the bank into liquidation.
bank from doing business in the Philippines as provided
above may also be exercised over non-stock savings and What are the requisites for receivership? Diba sabi natin, ini-
loan associations, based on the same applicable grounds. examine yung mga quasi-banks, now the person handling will
For quasi-banks and non-stock savings and loan report to the Monetary Board and based on that report, the
associations, any person of recognized competence in Monetary Board really finds that there are liquidity problems,
banking, credit or finance may be designated by there is ground for receivership. The Monetary Board will
the Bangko Sentral as a receiver. notify the BOT that it is under receivership.
Requisites for Receivership: You have the case of Rural Bank of San Miguel vs MB. This case
i. Report o the head of the supervising department pertains to what is the meaning of the term “report”.
involving the bank; This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted
dissipation of the bank's assets and as a valid exercise of police power to protect the depositors, creditors,
stockholders and the general public.
Banosan, Aberilla, Reyes The term "deposit substitutes" is defined as an alternative form of obtaining funds from the public, other than
deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own
REPUBLIC ACT No. 9474 - Quasi-Bank shall refer to a non-bank financial institution authorized by
the BSP to engage in quasi-banking functions and to borrow funds from more than nineteen (19) 37 account, for the purpose of relending or purchasing of receivables and other obligations.
lenders through the issuance, endorsement or assignment with recourse or acceptance of deposit Bank deposits consist of money placed into banking institutions for safekeeping. These deposits are made to
substitutes as defined in Section 95 of Republic Act No. 7653 (the ":New Central Bank Act":) for deposit accounts such as savings accounts, checking accounts and money market accounts.
purposes of relending or purchasing of receivables and other obligations.
RURAL BANK OF SAN MIGUEL vs MONETARY BOARD due and the reason for that is not because of extraordinary
GR No. 150886 | 2007 demands, then the Monetary Board will put the bank under
receivership.
Facts:
We have the case of General Bank and Trust Company vs
Petitioner bank was a domestic corporation engaged in Central Bank.
banking. Respondent Monetary Board issued a resolution
prohibiting petitioner from doing business in the General Bank and Trust Company vs Central Bank
Philippines and placed it under receivership with PDIC as GR No. 152551
its receiver. On the basis of reports prepared by the PDIC
stating that petitioner bank could not resume business, the Facts:
Monetary Board directed PDIC to proceed with the
liquidation. Petitioner filed a special civil action for The monetary board granted the Genbank an emergency
certiorari and prohibition with the CA, contending that loan initially from 150Million to 305 million and designated
there was no complete examination conducted before the Arnulfo Aurellano to act as comptroller. The emergency
bank was closed. loan was used to fixed the financial diffulculties of genbank
resulted from of unsound banking practices employed by
Issue: management. The all-out financial support given to
Filcapital Development Corporation (a related interest of
Whether Section 30 of RA 7653 require a current and the Yujuico Family Group and directors and officers of
complete examination of the bank before it can be closed Genbank) and the standing practice of extending DOSRI
and placed under receivership. loans which reached a peak of P172.3 million of the total
loan portfolio of P666.78 million. And 91.7% of such DOSRI
Ruling: NO. accounts were unsecured leaving only 8% thereof secured.
All these unsound practices occurred way before their
Banco Filipino and other cases petitioners cite were resulting crippling effects became manifest sometime in
decided using Section 29 of the old law. Thus, in Banco December 1976, further leading the bank to resort to other
Filipino, we ruled that an “examination [conducted] by the unsound banking practices, like incurring daily overdrafts.
head of the appropriate supervising or examining
department or his examiners or agents into the condition of On March 29, 1977, the Monetary Board adopted a
the bank” is necessary before the MB can order its closure. Resolution determining and confirming that Genbank was
However, RA 265, including Section 29 thereof, was insolvent and could not resume business with safety to its
expressly repealed by RA 7653 which took effect in 1993. depositors, creditors and general public, and ordering the
Resolution No. 105 was issued on January 21, 2000. Hence, liquidation of Genbank, the designation of Arnulfo B.
petitioners’ reliance on Banco Filipino which was decided Aurellano as Liquidator and the approval of a liquidation
under RA 265 was misplaced. plan whereby all the assets of Genbank should be
purchased by the Lucio Tan Group which should also
In RA 7653, only a “report of the head of the supervising or assume all the liabilities under certain terms and conditions.
examining department” is necessary. This Court cannot
look for or impose another meaning on the term “report” or the Liquidator; Allied Banking Corporation ; and the
to construe it as synonymous with “examination.” From the individual members of the Lucio Tan Willy Co group
words used in Section 30, it is clear that RA 7653 no longer executed a Memorandum of Agreement in implementation
requires that an examination be made before the MB can of Monetary Board Resolution, whereby the Liquidator sold
issue a closure order. We cannot make it a requirement in and transferred to Allied Bank all the assets of Genbank and
the absence of legal basis. Allied Bank assumed all the liabilities of Genbank, subject
to certain terms and conditions.
What is the issue? Is there a difference between examination
and report? Was there a violation of due process? Because the On May 5, 1982, Worldwide Insurance & Surety
banking industry is imbued with public interest. The fact that it Company;Midland Insurance Corporation; and Standard
is summary in nature, that is exercise of police power. Due Insurance Co., Inc. filed a motion for intervention in the
process is inferior to police power. liquidation proceeding. Said motion alleged that the
closure and liquidation of [Genbank] ' were done arbitrarily
Ground of inability to pay liabilities as they become due in the and in bad faith. On May 7, 1982, the court a quo issued an
ordinary course of business unless the inability to pay is order approving the intervention. About a couple of years
caused by extraordinary demands. You have here an later, appellee Genbank joined the intervention
exception. If the bank cannot pay its liabilities as they become

38
Petitioner Genbank claims that it was not insolvent when the Petitioner Genbank cannot plausibly be allowed to adopt a
Resolution was issued on March 25, 1977, its assets at that statutory definition of 'insolvency which was not set forth in
time standing at P599,743,639.00, while its total liabilities the law when Resolution No. 675 was issued.The Monetary
only amounted to P586,640,450.00, thus having surplus Board's action could not have run counter to a legal
assets over liabilities in the amount provision inexistent at the time when it issued the resolution
ofP13,103,189.00.Plodding on, it insists that the definition in question.
of insolvency in Section 29 of RA 265, as amended by PD
1937, should have been made the tipping factor for The aforementioned proviso thus relied upon by petitioner
determining on whether or not the declaration made by Genbank excludes from the definition of insolvency, 'the
respondent CB, acting through the Monetary Board, that inability to pay of an otherwise non-insolvent bank caused
petitioner Genbank is insolvent constitutes grave abuse of by extraordinary demands induced by financial panic
discretion. commonly evidenced by a run on the bank in the banking
community. As it were, the applicability of that proviso
Genbank was ordered closed by the CB on March 25, 1977, presupposes that the struggling bank, Genbank in this
when 'insolvency was defined under Section 29 of RA 265, case, should, in the first place be 'an otherwise non-
as amended on September 22, 1976 by PD 1007, where insolvent bank and the existence of a bank run is the sole
and when the insolvency concept carried a slightly and exclusive cause of its inability to pay its obligations. In
differentbut contextually significant connotation. As thus other words, the existence of a bank run is not, without
then defined, insolvency was understood to mean as 'the more, a saving grace for any bank, absolutely preventing
inability of a banking institution to pay its liabilities as they the CB or the Monetary Board from ordering its closure due
fall due in the ordinary course of business. Respondent CB to insolvency. If the bank is not 'non-insolvent in
found Genbank undoubtedly incapable to generate liquid contemplation of the definition under Section 29 of RA 265,
funds by itself in order to meet drawdowns on its deposits as amended by PD No. 1007, because it cannot pay its
and deposit substitutes and to pay for other maturing liabilities as they fall due in the ordinary course of business,
obligations, as well as advances from the Central Bank. the presence or absence of a bank run is of no
determinative moment on the issue of the justifiability of an
Genbank also asserts the proviso that 'the inability to pay of order of closure. The CB had, as it were, ample basis other
an otherwise non-insolvent bank caused by extraordinary than the bank run to consider petitioner Genbank insolvent.
demands induced by financial panic commonly evidenced Upon the issuance of an order of closure, which by express
by a run on the bank in the banking community. While provision of law is final and executory, the burden of
conceding that it was then not in a position to generate proving non-insolvency is upon the bank which challenges
funds by itself in order to meet drawdowns on its deposits the validity of such closure.
and deposit substitutes and to pay for other maturing
obligations, as well as its advances from the Central Bank, As regards the supposed denial of its right to due process:
petitioner Genbank nonetheless argues that it did not fall
within the concept of insolvency contemplated in the The root of its problem and eventual downfall is traceable
amendatory PD No. 1007 since what it was then to unsound banking practices employed by management.
experiencing was a liquidity problem attributed to a bank Mentioned in this regard may be made of the all-out
run. financial support given to Filcapital Development
Corporation (a related interest of the Yujuico Family Group
and directors and officers of Genbank) and the standing
Issue: practice of extending DOSRI loans which, at one point,
reached a peak of P172.3 million or 26% of the total loan
Whether or not respondent CB violated any existing portfolio of P666.78 million. Of the final figure, 59.4%
procedural or substantive law when its Monetary Board thereof was classified as doubtful and P0.505 million as
(MB) issued Resolution No. 675 dated March 25, 1977 uncollectible. And 91.7% of such DOSRI accounts were
ordering the closure of Genbank, and eventually MB unsecured leaving only 8% thereof secured. All these
Resolution No. 677 dated March 29, 1977, adopting the unsound practices occurred way before their resulting
Lucio Tan Group's bid as liquidation plan of petitioner crippling effects became manifest sometime in December
Genbank, or otherwise committed grave abuse of 1976, further leading the bank to resort to other unsound
discretion which will justify reversal of the assailed MB banking practices, like incurring daily overdrafts. These
resolutions. problems, as earlier narrated in the assailed CA decision,
were taken up by the then CB Governor with the Board of
Held: Directors of Genbank in a meeting held on December 27,
1976.Thus, when the crucial March 23, 1977 meeting was
held, there can be no doubt that petitioner Genbank was

39
totally aware of the predicament it has gotten itself into and The Monetary Board ordered the closure of Banco Filipino
the conditions which the CB had imposed to address the and designated Mrs. Carlota P. Valenzuela as Receiver.
situation for the protection of the depositors and the
banking public. Banco Filipino filed a complaint with the RTC to set aside
What is the definition of insolvency in this case? How about the the action of the Monetary Board placing the bank under
contention of the GenBank that the reason of the insolvency receivership and filed with the SC the petition for certiorari
was a bank run? and mandamus.
Carlota Valenzuela, as Receiver and Arnulfo Aurellano and
What is bank run? Ramon Tiaoqui as Deputy Receivers of Banco Filipino
submitted their report on the receivership of the bank to the
Bank run is when the depositors pull out their money at the Monetary Board, finding that the condition of the banking
same time because of financial panic. institution continues to be one of insolvency, i.e., its
realizable assets are insufficient to meet all its liabilities and
Sabi ng SC, that saving clause or saving grace can only save that the bank cannot resume business with safety to its
you if in the first place, hindi ka insolvent. If the only thing that depositors, other creditors and the general public, and
prevents you from paying the liabilities is the financial crisis but recommends the liquidation of the bank.
if you are insolvent in fact, kahit walang financial crisis, you are
still not allowed to go with that exceptional clause. Banco Filipino filed a motion before the SC praying that a
restraining order or a writ of preliminary injunction be
This point, ano ba ang status ni GenBank? Was it insolvent? issued to enjoin respondents from causing the dismantling
Yes sir. of Banco Filipino signs in its main office and 89 branches.
The SC ordered the issuance of the temporary restraining
What is insolvency? order.
Insolvency is the inability of a banking institution to pay their The SC directed the Monetary Board and Central Bank hold
liabilities as they fall due based in the usual and ordinary hearings at which the Banco Filipino should be heard.
course of business.
Issue
Banco Filipino Savings and Mortgage Bank vs Monetary
Board Whether or not the Central Bank and the Monetary Board
G.R. No. 70054, 68878, 77255-58, 78766, 78767, 78894, acted arbitrarily and in bad faith in finding and thereafter
81303, 81304 and 90473 concluding that Banco Filipino Savings and Mortgage Bank
is insolvent, and in ordering its closure
Facts
Ruling
Banco Filipino Savings and Mortgage Bank commenced
operations on July 9, 1964. It has 89 operating branches The SC granted the petitions, annulled and set aside the
with more than 3 million depositors. It has an approved order of the Central Bank and the Monetary Board. The
emergency advance of P119.7 million. Central Bank and the Monetary Board are ordered to
reorganize Banco Filipino Savings and Mortgage Bank and
The Monetary Board placed Banco Filipino Savings and allow the latter to resume business in the Philippines under
Mortgage Bank under conservatorship of Basilio Estanislao. the comptrollership of both the Central Bank and the
He was later replaced by Gilberto Teodoro as conservator Monetary Board.
on August 10, 1984. Gilberto Teodoro submitted a report
dated January 8, 1985 to respondent The Monetary Board The closure and receivership of Banco Filipino Savings and
on the conservatorship of the bank. Mortgage Bank, which was ordered by the Monetary Board
on is null and void.
Subsequently, another report dated January 23, 1985 was
submitted to the Monetary Board by Ramon Tiaoqui The Monetary Board may order the cessation of operations
regarding the major findings of examination on the of a bank in the Philippine and place it under receivership
financial condition of Banco Filipino Savings and Mortgage upon a finding of insolvency or when its continuance in
Bank as of July 31, 1984, finding the bank one of insolvency business would involve probable loss its depositors or
and illiquidity and provides sufficient justification for creditors. If the Monetary Board shall determine and
forbidding the bank from engaging in banking. confirm within 60 days that the bank is insolvent or can no
longer resume business with safety to its depositors,

40
creditors and the general public, it shall, if public interest million does not exceed the total assets of ₱4,981.53
will be served, order its liquidation. million. Likewise, the consolidated statement of condition
of the bank prepared by the Central Bank Authorized
Under Section 29 of the Central Bank Act, the following are Deputy Receiver Artemio Cruz shows that total assets
the mandatory requirements to be complied with before a amounting to ₱4,981,522,996.22 even exceeds total
bank found to be insolvent is ordered closed and forbidden liabilities amounting to ₱4,540,836,834.15. Based on the
to do business in the Philippines: (1)an examination shall be foregoing, there was no valid reason for the Valenzuela,
conducted by the head of the appropriate supervising or Aurellano and Tiaoqui report to finally recommend the
examining department or his examiners or agents into the liquidation of Banco Filipino instead of its rehabilitation.
condition of the bank; (2) it shall be disclosed in the
examination that the condition of the bank is one of This is the only case where the SC said that the Monetary
insolvency, or that its continuance in business would involve Board acted arbitrarily. Laging ginagawa ito ng banks where
probable loss to its depositors or creditors; (3) the where they question the order of the Monetary Board and cite
department head concerned shall inform the Monetary the case of Banco Filipino. The Court said that the examining
Board in writing, of the facts; and (4) the Monetary Board department did not conduct a complete examination.
shall find the statements of the department head to be true.
If this happens today, would it still be considered arbitrary?
Clearly, Tiaoqui based his report on an incomplete NO. This case was decided during the old banking law kasi
examination of the bank and outrightly concluded that the nakalagay dun na kailangan ng examination. In fact, the
latter's financial status was one of insolvency or illiquidity. insolvency na ginawa niya sa kanyang report is insufficient.
He arrived at the conclusion: that as of July 31, 1984, total
capital accounts consisting of paid-in capital and other Please study this case the is the only case where the Supreme
capital accounts such as surplus, surplus reserves and Court said that there is an arbitrary exercise of power by the
undivided profits aggregated ₱351.8 million; that capital Central Bank.
adjustments, however, wiped out the capital accounts and
placed the bank with a capital deficiency amounting to Q: What are the grounds for receivership?
₱334.956 million; that the biggest adjustment which A:
contributed to the deficit is the provision for estimated
losses on accounts classified as doubtful and loss which was 1. Inability to continue in business without involving probable
computed at ₱600.4 million pursuant to the examination. losses to its depositors or creditors.
The valuation which was set up or deducted against the 2. Wilful violation of cease and desist order issued under
capital accounts of the bank in arriving at the latter's Section 37.
financial condition. Tiaoqui admits the insufficiency and 3. Notification of the Bangko Sentral or public announcement
unreliability of the findings of the examiner as to the setting of a bank holiday or suspension of payment of its
up of recommended valuation reserves from the assets of deposit/deposit substitute liabilities.
the bank.
Kapag nag announce ang bank ng bank holiday, that is a
The examination contemplated in Sec. 29 of the CB Act as sufficient reason for the Bangko Sentral to place the bank
a mandatory requirement was not completely and fully under receivership. The bank can’t just announce the bank
complied with. Despite the existence of the partial list of holiday. When we say bank holiday, yung hindi sila magpapa-
findings in the examination of the bank, there were still withdraw for no valid reason.
highly significant items to be weighed and determined such
as the matter of valuation reserves, before these can be 4. Persistence in carrying on its business in an unlawful or
considered in the financial condition of the bank. It would unsafe manner.
be a drastic move to conclude prematurely that a bank is 5. Bank Holiday 6. Inability to pay liabilities
insolvent if the basis for such conclusion is lacking and Section 30 as amended:
insufficient, especially if doubt exists as to whether such
bases or findings faithfully represent the real financial status SECTION 30. Proceedings in Receivership and Liquidation. —
of the bank. Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank
In arriving at the computation of realizable assets of Banco or quasi-bank:
Filipino, respondents used its books which undoubtedly
are not reflective of the actual cash or fair market value of (a) has notified the Bangko Sentral or publicly announced
its assets which is not the proper procedure contemplated a unilateral closure, or has been dormant for at least
in Sec. 29 of the Central Bank Act. The receivership of sixty (60) days or in any manner has suspended the
Banco Filipino, indicates that total liabilities of ₱4,540.84 payment of its deposit/deposit substitute liabilities, or

41
is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not Manila Bank, owns a parcel of land. Prior to 1984, the bank
include inability to pay caused by extraordinary demands began constructing on said land a 14-storey building. Not long
induced by financial panic in the banking community; after, however, the bank encountered financial difficulties that
(b) has insufficient realizable assets, as determined by the rendered it unable to finish construction of the building.
Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable On May 22, 1987, the Central Bank of the Philippines, now
losses to its depositors or creditors; or Bangko Sentral ng Pilipinas, ordered the closure of Manila
(d) has willfully violated a cease and desist order under Bank and placed it under receivership. The legality of the
Section 37 of this Act that has become final, involving acts closure was contested by the bank before the proper court.
or transactions which amount to fraud or a dissipation of
the assets of the institution x x x On November 11, 1988, the Central Bank, by virtue of MB
Resolution No. 505, ordered the liquidation of Manila Bank
Section 36 as amended: and designated Atty. Renan V. Santos as Liquidator. The
liquidation, however, was held in abeyance pending the
x x x Whenever an entity under Bangko Sentral supervision outcome of the earlier suit filed by Manila Bank regarding the
persists in carrying on its business in an unlawful or unsafe legality of its closure. Consequently, the designation of Atty.
manner, the Board may, without prejudice to the penalties Renan V. Santos as Liquidator was amended by the Central
provided in the preceding paragraph of this section and the Bank to that of Statutory Receiver.
administrative sanctions provided in Section 37 of this Act,
take action under Section 30 of this Act. x x x In the interim, Manila Bank’s then acting president, the late
Vicente G. Puyat, in a bid to save the bank’s investment,
Designation of a Receiver started scouting for possible investors who could finance the
completion of the building earlier mentioned. The Laureano
If it is a closed bank, by law, it is the PDIC. The PDIC is always group, offered to lease the building for ten (10) years and to
the designated statutory receiver for closed banks. advance the cost to complete the same. In consideration of
advancing the construction cost, the group wanted to be given
For quasi banks, any person of recognized competence in the "exclusive option to purchase" the building and the lot on
banking, credit or finance may be designated by the Bangko which it was constructed.
Sentral as a receiver.
In a letter dated August 30, 1989, Puyat accepted the
Section 30 of The New Central Bank Act as amended by Laureano group’s offer and granted it an "exclusive option to
R.A. 11211: purchase" the lot and building for ₱150,000,000.00. Later, the
building was leased to MEQCO. MEQCO subleased the
“ x x x in which cases, the Monetary Board may summarily and property to Abacus Real Estate Development Center, Inc.
without need for prior hearing forbid the institution from
doing business in the Philippines and designate the Philippine The Laureano group was, however, unable to finish the
Deposit Insurance Corporation (PDIC) as receiver in the case building. The Laureano group transferred and assigned to
of banks and direct the PDIC to proceed with the liquidation Bitanga all of its rights in Abacus and the "exclusive option to
of the closed bank pursuant to this section and the relevant purchase" the subject land and building.
provisions of Republic Act No. 3591, as amended. x x x”
On September 16, 1994, Abacus sent a letter to Manila Bank
“x x x The authority of the Monetary Board to summarily and informing the latter of its desire to exercise its "exclusive
without need for prior hearing forbid the bank or quasi-bank option to purchase". However, Manila Bank refused to honor
from doing business in the Philippines as provided above may the same.
also be exercised over non-stock savings and loan
associations, based on the same applicable grounds. For On November 10, 1995, Abacus Real Estate Development
quasi-banks and non-stock savings and loan associations, Center, Inc. filed a complaint for specific performance and
any person of recognized competence in banking, credit damages against Manila Bank and/or the Estate of Vicente G.
or finance may be designated by the Bangko Sentral as a Puyat. In its complaint, Abacus prayed for a judgment ordering
receiver.” Manila Bank to sell, transfer and convey unto it for
₱150,000,000.00 the land and building in dispute.
Abacus Real Estate Development Centre vs The Manila ISSUE: Whether or not Manila Bank is competent to grant the
Banking Corporation exclusive option to purchase to Abacus.
G.R. 162270
2005 RULING: NO

42
husband Celestino. Miguela Villanueva, however, never got
Abacus’ contention: the option to purchase the lot and the loan she was expecting. Miguela Villanueva sought to
building in question granted to it by the late Vicente G. Puyat, repurchase the lots from the PVB after being informed that the
then acting president of Manila Bank, was binding upon the lots were about to be sold at auction. The PVB told her that she
latter. can redeem the lots for the price of P110,416.00.
Manila Bank’s contention: Puyat had no authority to act for On the other hand, Ong allegedly also has claim over the
and represent Manila Bank, the latter having been placed disputed lots in this manner. According to him, in October
under receivership by the Central Bank at the time of the 1984, he offered to purchase two pieces of Land. On
granting of the "exclusive option to purchase." November 23, 1984, while Ong was still abroad, PVB
approved his subject offer.
SC: Owing to the fact that Manila Bank was under receivership,
Vicente G. Puyat was without authority to grant the exclusive The PVB was placed under receivership pursuant to MB
option to purchase the lot and building in question. Resolution No. 334 dated April 3, 1985 and later, under
liquidation pursuant to MB Resolution No. 612 dated 7 June
Manila Bank having been already placed under receivership, 1985. Afterwards, a petition for liquidation was filed with the
its officers, inclusive of its acting president, Vicente G. Puyat, RTC of Manila.
were no longer authorized to transact business in connection
with the bank’s assets and property. Clearly then, the On 26 May 1987, Ong tendered the sum of P100,000.00
"exclusive option to purchase" granted by Vicente G. Puyat representing the balance of the purchase price of the litigated
was and still is unenforceable against Manila Bank. lots. An employee of the PVB received the amount
conditioned upon approval by the Central Bank liquidator.
Abacus’ contention: the "exclusive option to purchase" was Ong’s demand for a deed of conveyance having gone
ratified by Manila Bank’s receiver, Atty. Renan Santos, during unheeded, he filed on 23 October 1987 with the RTC of Manila
a lunch meeting held with Benjamin Bitanga in March 1990. an action for specific performance against the Central Bank.
SC: A contract unenforceable for lack of authority by one of ISSUE: Do petitioners have a better right than private
the parties may be ratified by the person in whose name the respondent Ong to purchase from PVB the two parcels of
contract was executed. However, even assuming that Atty. land?
Renan Santos, Manila Bank’s receiver, approved the "exclusive
option to purchase" granted by Vicente G. Puyat, the same RULING: YES
would still be of no force and effect.
There is no doubt that the approval of Ong's offer constitutes
Pursuant to Section 29 of the Central Bank Act, as amended an acceptance, the effect of which is to perfect the contract of
the receiver appointed by the Central Bank to take charge of sale upon notice thereof to Ong. The peculiar circumstances
the properties of Manila Bank only had authority to administer in this case, however, pose a legal obstacle to his claim of a
the same for the benefit of its creditors. Granting or better right and deny support to the conclusion of the Court
approving an "exclusive option to purchase" is not an act of of Appeals.
administration, but an act of strict ownership, involving, as it
does, the disposition of property of the bank. Not being an act Ong did not receive any notice of the approval of his offer. It
of administration, the so-called "approval" by Atty. Renan was only sometime in mid-April 1985 when he returned from
Santos amounts to no approval at all, a bank receiver not being the United States and inquired about the status of his bid that
authorized to do so on his own. he came to know of the approval.
Q: The purpose of receivership is to?
A: To administer the properties and assets of the bank PVB was placed under receivership pursuant to the MB
Q: For the benefit of the? Resolution of April 3, 1985 after a finding that it was insolvent,
A: The Creditors of the bank illiquid, and could not operate profitably, and that its
continuance in business would involve probable loss to its
Villanueva vs CA depositors and creditors. The PVB was then prohibited from
G.R. 114870 doing business in the Philippines, and the receiver appointed
was directed to "immediately take charge of its assets and
The disputed lots were originally owned by the spouses liabilities, as expeditiously as possible collect and gather all
Celestino Villanueva and Miguela Villanueva. Sometime in the assets and administer the same for the benefit of its
1975, to secure a loan from PVB, Miguela Villanueva creditors, exercising all the powers necessary for these
surrendered the titles of said lots as collaterals and executed purposes."
a deed of sale in favor of the bank without the signature of her

43
Under Article 1323 of the Civil Code, an offer becomes It is the continuance of the corporate life and activities in an
ineffective upon the death, civil interdiction, insanity, or effort to restore and reinstate the corporation to its former
insolvency of either party before acceptance is conveyed. position of successful operation and solvency.
It has been said that where upon the insolvency of a bank a It is the responsibility of the receiver as soon as possible, once
receiver therefor is appointed, the assets of the bank pass under receivership, but not later than 90 days from takeover
beyond its control into the possession and control of the to determine whether the institution may be rehabilitated or
receiver whose duty it is to administer the assets for the benefit otherwise placed in such condition that it may be permitted to
of the creditors of the bank. Thus, the appointment of a resume business. Diba receiver? So take charge. If it’s a bank,
receiver operates to suspend the authority of the bank and of it’s the PDIC which will determine, and in case of quasi bank,
its directors and officers over its property and effects, such any person of recognized competence in banking, credit or
authority being reposed in the receiver, and in this respect, the finance may be designated by the Bangko Sentral as a
receivership is equivalent to an injunction to restrain the bank receiver.
officers from intermeddling with the property of the bank in
any way. He determines if meron pa bang possibility that this
constitution could recover, or could be rehabilitated or
In a nutshell, the insolvency of a bank and the consequent permitted to resume business for safety of its depositors and
appointment of a receiver restrict the bank's capacity to creditors and the general public. Of Course, with the approval
act, especially in relation to its property. of the MB.
Applying Article 1323 of the Civil Code, Ong's offer to Section 30 of The New Central Bank Act:
purchase the subject lots became ineffective because the PVB
became insolvent before the bank's acceptance of the offer x x x The receiver shall determine as soon as possible, but
came to his knowledge. Hence, the purported contract of sale not later than ninety (90) days from take-over, whether the
between them did not reach the stage of perfection. Thus, he institution may be rehabilitated or otherwise placed in
cannot invoke the resolution of the bank approving his bid as such a condition so that it may be permitted to resume
basis for his alleged right to buy the disputed properties. Nor business with safety to its depositors and creditors and the
may the acceptance by an employee of the PVB of Ong's general public: Provided, That any determination for the
payment of P100,000.00 benefit him since the receipt of the resumption of business of the institution shall be subject to
payment was made subject to the approval by the Central prior approval of the Monetary Board. x x x
Bank liquidator of the PVB.
Q: What is the issue? Section 30 of The New Central Bank Act:
A: Whether or not the appointment of a receiver operates to
suspend the authority of the bank and of its officers and x x x If the receiver determines that the institution cannot be
directors over its properties. rehabilitated or permitted to resume business in accordance
with the next preceding paragraph, the Monetary Board
The SC said YES. shall notify in writing the board of directors of its findings
and direct the receiver to proceed with the liquidation of
Q: What happened to the contract here? Was there a contract? the institution. x x x
A: The contract was not perfected. Ong’s offer to purchase the Q: What are the processed we had known so far?
subject lots became ineffective because the PVB became A: Three levels of Rehabilitation:
insolvent before the bank's acceptance of the offer came to his
knowledge 1. Conservatorship
2. Receivership
It wasn’t perfected. Kapag under receivership ka and the 3. Liquidation
contract was not perfected before that, any contract should
become ineffective because that’s the time the receivership Q: What the grounds of conservatorship?
takes charge of your assets. Receivership is directed towards A: State of continuing inability or unwillingness to maintain a
the preservation of the assets of the bank for the benefit of its condition of liquidity.
creditors.
Section 29 as amended:
Rehabilitation
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

44
of continuing inability or unwillingness to maintain a condition Q: So pwede ba direcho receivership and hindi dadaan ng
of liquidity deemed adequate to protect the interest of convservatorship?
depositors and creditors, the Monetary Board may appoint a A: Yes.
conservator with such powers as the Monetary Board shall
deem necessary to take charge of the assets, liabilities, and the Q: Pwede bang conservatorship tapos liquidation?
management thereof, reorganize the management, collect all A: Not answered by Sir
monies and debts due said institution, and exercise all powers
necessary to restore its viability. The conservator shall report BUT, under
and be responsible to the Monetary Board and shall have the Section 29 as amended:
power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi- x x x The Monetary Board shall terminate the conservatorship
bank. when it is satisfied that the institution can continue to operate
on its own and the conservatorship is no longer necessary. The
Pwede kang maging solvent pero hindi ka lang liquid. In other conservatorship shall likewise be terminated should the
words, wala ka masyadong cash assets. It could be because Monetary Board, on the basis of the report of the conservator
you are incapable or hindi ka lang willing. or of its own findings, determine that the continuance in
business of the institution would involve probable loss to
Example: A bank buys a land but lahat ng cash nila pinambili its depositors or creditors, in which case the provisions of
ng land. They may be solvent because marami silang assets Section 30 shall apply.
but they are not liquid. At the time magsabay-sabay withdraw
ang depositors, ano impabayad nila? Lupa? In that case, they Manalo vs CA &
may be placed under conservatorship. PAIC Savings and Mortgage Bank
G.R. 141297
Q: Where are the grounds for receivership?
A: S. Villanueva Enterprises, represented by its president,
Insolvency, disobeys cease and desist order, etc. Once it’s put Therese Villanueva Vargas, obtained a loan from the
under receivership, merong 90 days to determine whether or respondent PAIC Savings and Mortgage Bank and PAIC,
not it could be rehabilitated or proceed to liquidation. respectively. To secure payment of both debts, Vargas
executed in favor of the respondent and PAIC a Joint First
Receiver vs. Liquidator Mortgage over two parcels of land registered under her name.
Receiver Liquidator S. Villanueva Enterprises defaulted in paying the amortizations

due. Accordingly, respondent instituted extrajudicial
Appoint is appointed by is appointed by the foreclosure proceedings over the mortgaged lots. One of the
ment Monetary Board Monetary Board properties was sold at a public auction to the respondent itself,
based on the based on the after tendering the highest bid. After the lapse of one year, title
recommendation recommendation of was consolidated in respondent's name for failure of Vargas to
of the supervising the receiver redeem.
department.
The Central Bank of the Philippines filed a Petition for
assistance in the liquidation of the respondent with the
Grounds 6 grounds 1 ground Regional Trial Court. It appears that from the years 1986 to
1991, Vargas negotiated with the respondent (through its then
Time 90 days liquidator, the Central Bank) for the repurchase of the
Frame foreclosed property. The negotiations, however, fizzled out as
Vargas cannot afford the repurchase price fixed by the
Duty to take charge of to convert non cash
respondent.
the assets and assets to cash for the
liabilities purpose of
Respondent bank petitioned the RTC for the issuance of a writ
payment.
of possession for the subject property. During the pendency
of the civil case, Vargas, executed a Deed of Absolute Sale
selling, transferring, and conveying ownership of the disputed
lot in favor of a Armando Angsico. Later, Angsico assigned his
NB: Liquidation for banks is not under FRIA. rights therein to Domingo Manalo.

45
The court a quo granted the petition for the issuance of the
Writ of Possession. Manalo’s contention: casts doubt on the capacity of the
respondent to continue litigating the petition for the issuance
S. Villanueva Enterprises and Vargas moved for its quashal. of the writ. He asserts that, being under liquidation,
The court a quo denied the Motion to Quash. respondent bank is already a "dead" corporation that cannot
maintain the suit in the RTC. Hence, no writ may be issued in
Manalo’s contention: the lower court should have dismissed its favor.
respondent's "Ex-Parte Petition for Issuance of Writ of
Possession" for want of jurisdiction over the subject matter of SC: The argument is devoid of merit. A bank which had been
the claim. The power to hear the same, he insists, exclusively ordered closed by the monetary board retains its juridical
vests with the Liquidation Court. He then cites Valenzuela v. personality which can sue and be sued through its liquidator.
Court of Appeals, where the Court held that "if there is a The only limitation being that the prosecution or defense of
judicial liquidation of an insolvent bank, all claims against the the action must be done through the liquidator. Otherwise, no
bank should be filed in the liquidation proceeding." suit for or against an insolvent entity would prosper. In such
situation, banks in liquidation would lose what justly belongs
ISSUE: Does the liquidation court have jurisdiction over the to them through a mere technicality.
suit?
Q: Sino nagfile ng petition for issuance of writ?
RULING: NO. A: Respondent bank. It had a claim on a certain land.
Section 29 states that “x x x The liquidator designated as So, Manalo said wala daw jurisdiction ang RTC Pasay because
hereunder provided shall, by the Solicitor General, file a dun na daw dapat sa court where the liquidation is pending.
petition in the Regional Trial Court reciting the proceedings
which have been taken and praying the assistance of the court Q: What is the definition of all claims in relation to the
in the liquidation of such institution. The court shall have liquidation of the bank? What did the court say?
jurisdiction in the same proceedings to assist in the A: the exclusive jurisdiction of the liquidation court pertains
adjudication of disputed claims against the bank or non-bank only to the adjudication of claims against the bank. It does not
financial intermediary performing quasi-banking. x x x” cover the reverse situation where it is the bank which files a
claim against another person or legal entity.
The legal provision only finds operation in cases where
there are claims against an insolvent bank. In fine, the
exclusive jurisdiction of the liquidation court pertains only Q: Does RTC have jurisdiction?
to the adjudication of claims against the bank. It does not A: Yes. The SC the jurisdiction of the SC pertains only the
cover the reverse situation where it is the bank which files claims against para ma-resolve sa isang court. Otherwise,
a claim against another person or legal entity. multiplicity of suits. It does not pertain to those claims by the
respondent bank.
The requirement that all claims against the bank be pursued
in the liquidation proceedings filed by the Central Bank is Moreover, the fact that you are under liquidation does not
intended to prevent multiplicity of actions against the mean that you are technically dead. Precisely, under
insolvent bank and designed to establish due process and liquidation, you are under winding up, you can still pursue
orderliness in the liquidation of the bank, to obviate the claims by the bank.
proliferation of litigations and to avoid injustice and
arbitrariness. The lawmaking body contemplated that for In Re Petition for Assistance in the Liquidation of the Rural
convenience, only one court, if possible, should pass upon the Bank of Bokod
claims against the insolvent bank. G.R. 141297
The Petition for the Issuance of a Writ of Possession in the civil In 1986, a special examination of RBBI was conducted by the
case is not in the nature of a disputed claim against the bank. Supervision and Examination Sector (SES) Department III of of
On the contrary, it is an action instituted by the respondent the BSP, wherein various loan irregularities were uncovered. In
bank itself for the preservation of its asset and protection of its a letter, dated 20 May 1986, the SES Department III required
property. It was filed upon the instance of the respondent's the RBBI management to infuse fresh capital into the bank and
liquidator in order to take possession of a tract of land over to correct all the exceptions noted. However, no concrete
which it has ownership claims. action was taken by the RBBI management.
The liquidator took the proper course of action when it The Monetary Board ordered the liquidation of the bank. The
applied for a writ in the Pasay City RTC. designated BSP liquidator caused the filing with the RTC of a

46
Petition for Assistance in the Liquidation of RBBI. a corporation by the SEC is a totally different proceeding from
Subsequently, the Monetary Board transferred to PDIC the the receivership and liquidation of a bank by the BSP.
receivership/liquidation of RBBI.
It should be noted that there are substantial differences in the
PDIC then filed a Motion for Approval of Project of Distribution procedure for involuntary dissolution and liquidation of a
of the assets of RBBI. During the hearing the respondent corporation under the Corporation Code, and that of a
Bureau of Internal Revenue (BIR) manifested that PDIC should banking corporation under the New Central Bank Act, so that
secure a tax clearance certificate from the appropriate BIR the requirements in one cannot simply be imposed in the
Regional Office, pursuant to Section 52(C) the Tax Code of other.
1997, before it could proceed with the dissolution of RBBI.
BIR’s contention: the alleged purpose of the BIR in requiring
The RTC issued one of the assailed Orders, directing PDIC to the liquidator PDIC to secure a tax clearance is to enable it to
comply.Pending compliance therewith, the RTC held in determine the tax liabilities of the closed bank. Since the PDIC,
abeyance the Motion for Approval of Project of Distribution. as receiver and liquidator, failed to file the final return of RBBI
for the year its operations were stopped, the BIR had no way
ISSUE: whether a bank ordered closed and placed under of determining whether the bank still had outstanding tax
receivership by the Monetary Board of the BSP still needs to liabilities.
secure a tax clearance certificate from the BIR before the
liquidation court approves the project of distribution of the SC: What the BIR should have requested from the RTC, and
assets of the bank. what was within the discretion of the RTC to grant, is not an
order for PDIC, as liquidator of RBBI, to secure a tax clearance;
RULING: NO. but, rather, for it to submit the final return of RBBI. The first
paragraph of Section 30(C) of the Tax Code of 1997, read in
BIR’s contention: A tax clearance is necessary under Section conjunction with Section 54 of the same Code, clearly imposes
52(C) of the Tax Code of 1997, which provides that the “ x x x upon PDIC, as the receiver and liquidator of RBBI, the duty to
The dissolving or reorganizing corporation shall, prior to the file such a return.
issuance by the Securities and Exchange Commission of the
Certificate of Dissolution or Reorganization, as may be defined The filing by PDIC of a final tax return, on behalf of RBBI,
by rules and regulations prescribed by the Secretary of should already address the supposed concern of the BIR and
Finance, upon recommendation of the Commissioner, secure would already enable the latter to determine if RBBI still had
a certificate of tax clearance from the Bureau of Internal outstanding tax liabilities.
Revenue which certificate shall be submitted to the Securities
and Exchange Commission.” The Rural Bank of Bokod is under liquidation. In fact, there’s a
proceeding. The BIR intervened saying that before you uphold
SC: The afore-quoted Tax Code provision refer to a voluntary the distribution of assets, you must secure a tax clearance
dissolution and/or liquidation of a corporation through its certificate, because under the tax code, pag close ang
adoption of a resolution or plan to that effect, or an involuntary company, kailangan i-audit; there’s a tax liability, so
dissolution of a corporation by order of the SEC. They make kailangang magbayad. But sabi ng PDIC, the requirement
no reference at all to a situation similar to the one at bar in under the Tax Code of a tax clearance certificate is only for
which a banking corporation is ordered closed and placed corporation whose liquidation is under the SEC and not those
under receivership by the BSP and its assets judicially under the BSP.
liquidated.
Q: What happens if the BIR requires the tax clearance
In the case pending before the RTC, RBBI was placed under certificate before the distribution of assets?
receivership and ordered liquidated by the BSP, not the SEC. A:
This Court cannot find any basis to extend the SEC
requirements for dissolution of a corporation to the liquidation The unreasonableness and impossibility of requiring a tax
proceedings of RBBI before the RTC when the SEC is not even clearance before the approval by the RTC of the Project of
involved therein. Distribution of the assets of the RBBI becomes apparent when
the timeline of the proceedings is considered. The BIR can
The liquidation of RBBI is undertaken according to Sections 30 only issue a certificate of tax clearance when the taxpayer had
of the New Central Bank Act and it is silent as regards the completely paid off his tax liabilities. The certificate of tax
securing of a tax clearance from the BIR. The omission, clearance attests that the taxpayer no longer has any
nonetheless, cannot compel this Court to apply by analogy the outstanding tax obligations to the Government. Should the
tax clearance requirement of the SEC, as stated in Section BIR find that RBBI still had outstanding tax liabilities, PDIC will
52(C) of the Tax Code of 1997 since, again, the dissolution of not be able to pay the same because the Project of Distribution

47
of the assets of RBBI remains unapproved by the RTC; and, if Libmanan, prevented them from performing their
RBBI still had outstanding tax liabilities, the BIR will not issue a functions, and ordered them to return the
tax clearance; but, without the tax clearance, the Project of management and control of the rural bank to its
Distribution of assets, which allocates the payment for the tax board of directors without receiving convincing
liabilities, will not be approved by the RTC. It will be a chicken- proof that the action of the CB was plainly
and-egg dilemma. arbitrary and made in bad faith.
Thus, the recourse of the BIR, after assessing the final return As stated therein, the basis of the questioned order dated
and examining all other pertinent documents of RBBI, and January 15, 1982, were:
making a determination of the latter’s outstanding tax
liabilities, is to present its claim before the RTC during the 1. that he did not receive any of petitioners’ formal motions for
liquidation proceedings. The BIR is expected to prove and extension of time to file their responsive pleading;
substantiate its claim, in the same manner as the other
creditors. It is only after the RTC allows the claim of the BIR, 2. that he had read the petition filed in Civil Case No. 1309; and
together with the claims of the other creditors, can a Project
for Distribution of the assets of RBBI be finalized and 3. that there were good reasons shown in said petition (p. 52,
approved. PDIC, then, as liquidator, may proceed with the Rollo).
disposition of the assets of RBBI and pay the latter’s financial
obligations, including its outstanding tax liabilities. And, By using his own standards, instead of the standards set forth
finally, only after such payment, can the BIR issue a certificate in Section 29 of the law, as basis for issuing a restraining order
of tax clearance in the name of RBBI. against the CB, respondent Judge committed a grave abuse of
discretion tantamount to excess, or lack of jurisdiction.
CENTRAL BANK OF THE PHILIPPINES v. DELA CRUZ

GR No. 59957 II. Respondent Judge erred in denying the Central
November 12, 1990 Bank’s motion to dismiss the complaint for
FIRST DIVISION (Griño-Aquino, J.) prohibition and mandamus (Civil Case No. 1309)
filed by Libmanan Bank.
Ruling:
The authority for the receivership of Libmanan Bank is found in
This Court, in the case of Rural Bank of Buhi, Inc. v. Court of
Section 29 of the Central Bank Act (P.D. 1827)
Appeals, and Salud v. Central Bank of the Phils., ruled that a
bank’s claim that the resolution of the Monetary Board
SECTION 29. — Proceedings upon insolvency —
under Section 29 is plainly arbitrary and done in bad faith
should be asserted as an affirmative defense or counter-
xxx
claim in the proceedings for assistance in liquidation. It
may be filed as a separate action if no petition for
The provisions of any law to the contrary notwithstanding the
assistance in liquidation has been instituted yet.
actions of the Monetary Board under this Section and the
Since the Central Bank’s petition for assistance in liquidation
second paragraph of Section 34 of this Act shall be final and
had been filed on August 3, 1981 (Civil Case No. SP-111, Court
executory, and can be set aside by the court only if there is
of First Instance of Camarines Sur, Branch III), the Libmanan
convincing proof that the action is plainly arbitrary and
Bank’s filing on September 23, 1981 of a complaint for
made in bad faith.
prohibition and mandamus attacking the Central Bank’s
resolution appointing a receiver and liquidator for the bank
xxx
should have been asserted as a counterclaim in SP-111,
instead of as a separate special civil action for prohibition
It is noteworthy that the actions of the Monetary Board in
against the Central Bank. The separate action should have
proceedings on insolvency are explicitly declared by law to be
been either dismissed or consolidated with SP-111 for the law
"final and executory." They may not be set aside, or restrained,
abhors multiplicity of suits. Failure of Libmanan Bank to assert
or enjoined by the courts, except upon "convincing proof that
in SP-111 the defense that the Monetary Board’s receivership
the action is plainly arbitrary and made in bad faith" (Salud v.
and liquidation resolution was "arbitrary and made in bad
Central Bank of the Philippines, 143 SCRA 590).
faith," constitutes a waiver of that defense conformably with the
rule of "Waiver of Defense," i.e., that "defenses and objections
I. Respondent Judge acted in plain disregard of the not pleaded either in a motion to dismiss or in the answer are
fourth paragraph of Section 29 of the Central (generally) deemed waived," or the "Omnibus Motion Rule,"
Bank Act, when he restrained the petitioners from providing that "a motion attacking a pleading or a proceeding
closing and liquidating the Rural Bank of
48
shall include all objections then available, and all objections punished by a fine of not less than Fifty thousand pesos
not so included shall be deemed waived" (Salud v. Central (₱50,000) nor more than Two million pesos (₱2,000,000) or by
Bank of the Phils.). imprisonment of not less than one (1) year nor more than five
(5) years, or both, at the discretion of the court.
This shall also apply to the officer, owner, agent, manager,
Commentary: director or officer-in-charge of the affiliate company/ies whose
Question: If a bank is already under liquidation proceedings, transactions are subject to examination under this Act.
and it wants to assail the order putting it under liquidation
(based on an allegation of an arbitrary exercise of power in Commentary:
putting it under liquidation), how can you raise such an issue? So, those are the penalties under Section 34 (as amended by
Answer: You can raise it as an affirmative defense in RA 11211) for noncompliance with the Bangko Sentral’s order
your answer/responsive pleading (provided, that a petition for under Section 33.
liquidation has already been filed). But if there is no such
petition for liquidation filed yet, you can institute a separate What about False Statements? There are also
action (via a Petition for Certiorari). penalties:
Sec. 35. False Statement. - The willful making of a false or

[Note: Sections 31 and 32 of the New Central Bank Act have misleading statement on a material fact to the Monetary Board
already been deleted by RA 11211] or to the examiners of the Bangko Sentral shall be punished
by a fine of not less than One hundred thousand pesos
Section 33. Disposition of Banking Franchise. — The Bangko (₱100,000) nor more than Two million pesos (₱2,000,000), or
Sentral may, if public interest so requires, award to an by imprisonment of not more than five (5) years, or both, at the
institution, upon such terms and conditions as the Monetary discretion of the court."
Board may approve, the banking franchise of a bank under
liquidation to operate in the area where said bank or its But please take note as well of the Catch-all penalty clause
branches were previously operating: under Section 36:
Provided, That whatever proceeds may be realized from such
award shall be subject to the appropriate exclusive disposition Sec. 36. Proceedings Upon Violation of This Act and Other
of the Monetary Board. Banking Laws, Rules, Regulations, Orders or Instructions. -
Whenever a bank, quasi-bank, including their subsidiaries and
Commentary: affiliates engaged in allied activities or other entity which
Now, Disposition of Banking Franchise. The right to exist as a under this Act or special laws is subject to Bangko Sentral
corporation is a separate franchise; the right to operate a bank supervision or whenever any person or entity willfully violates
– that is also a separate franchise. The right to operate as a this Act or other pertinent banking laws being enforced or
bank – that could be disposed of. Now, who could dispose implemented by the Bangko Sentral or any order, instruction,
that? It’s the Bangko Sentral – not the closed bank. Please take rule or regulation issued by the Monetary Board, the person
note. or persons responsible for such violation shall unless
otherwise provided in this Act be punished by a fine of not less
What will happen if magsarado ang bangko? The Bangko than Fifty thousand pesos (₱50,000) nor more than Two million
Sentral may, if public interest so requires, award to an pesos (₱2,000,000) or by imprisonment of not less than two (2)
institution...the banking franchise of a bank under liquidation years nor more than ten (10) years, or both, at the discretion of
to operate in the area where said bank or its branches were the court.
previously operating. So, the banking franchise itself is
separate from the goodwill of the assets of the bank. Whenever an entity under feangko Sentral supervision persists
in carrying on its business in an unlawful or unsafe manner, the
So, what if the officers if the bank refuse to comply Board may, without prejudice to the penalties provided in the
with the foregoing order of the Bangko Sentral? What will preceding paragraph of this section and the administrative
happen is under Section 34: sanctions provided in Section 37 of this Act, take action under
Section 30 of this Act.
Sec. 34. Refusal to Make Reports or Permit Examination. - Any
officer, owner, agent, manager, director or officer-in-charge of The Bangko Sentral may grant informer’s reward to any
any institution who, being required in writing by the Monetary person, except an officer or employee of the Bangko Sentral
Board or by the head of the supervising and examining or of any intelligence or law enforcement agency, including
department within the purview of this Act and relevant laws the relatives of such officer or employee within the fourth
willfully refuses to file the required report or permit any lawful degree of consanguinity or affinity, who voluntarily give
examination into the affairs of such institution shall be definite information not yet in the possession of the Bangko
49
Sentral leading to the: (a) arrest of bank directors or officers
and/or BSP personnel for violation of this Act or any banking Whenever a bank, quasi-bank or trust entity persists in
and other laws implemented or enforced by the Bangko conducting its business in an unsafe or unsound manner, the
Sentral, or for violation of other penal laws committed in Monetary Board may, without prejudice to the administrative
connection with their employment or functions; or (b) filing of sanctions provided in Section 37 of the New Central Bank Act,
criminal charges against any person for violation of Section 50 take action under Section 30 of the same Act and/or
of this Act. immediately exclude the erring bank from clearing, the
provisions of law to the contrary notwithstanding. (n)
The Monetary Board is hereby authorized to promulgate the
implementing guidelines for the grant of informer’s reward, Commentary on Section 56, RA 8791:
which in no case shall exceed One million pesos (₱1,000,000). Now, if you see 56.1, why is it worded in such a way na medyo
Said guidelines may provide for additional qualifications and general siya? For obvious reasons, of course – you cannot
disqualifications of informants as well as the form and specify enough what is considered as an unsafe or unsound
minimum content of the information given. banking practice. So long as it could cause probable loss to
The cash reward of informers shall be subject to applicable the depositors or the creditors, it may be considered as an
withholding taxes. unsafe or an unsound banking practice.
Now, what are the grounds to put a bank under Now, as for 56.3, this particular portion of the provision
receivership? One is if it is involved in an “unsafe or an pertains to DOSRI – all transactions pertaining to the directors,
unsound banking practice.” So, what is an “unsafe or an officers, and stockholders for their benefit or interest. This may
unsound banking practice”? There’s actually no definition be considered as unsound banking practice. For example, if
under the New Central Bank Act. BUT there are examples of the director of the bank obtains a loan doon sa bangko niya in
such practices under the General Banking Law, which is the a very one-sided agreement, in such a way na ma-prejudice
next law that we will discuss after we’re done with the Central yung interest ng bank, it may be considered as an unsound or
Bank Act. unsafe banking practice. And that may make the MB of the BSP
hold the bank under receivership.
Now under Section 56 of RA 8791 (General Banking Law):
As for 56.4, please take note that even if walang interest
Section 56. Conducting Business in an Unsafe or Unsound involved doon sa transaction, it may still be considered as
Manner - In determining whether a particular act or omission, unsound or unsafe. Again, because of the nature of the
which is not otherwise prohibited by any law, rule or regulation banking industry, this is VERY REGULATED.
affecting banks, quasi-banks or trust entities, may be deemed Please take note also that the PDIC also has been given the
as conducting business in an unsafe or unsound manner for concurrent power to determine whether a bank is engaged in
purposes of this Section, the Monetary Board shall consider any unsafe or unsound banking practices. So, not just the BSP.
of the following circumstances:
So, what will happen if the PDIC makes a finding that a bank is
56.1 The act or omission has resulted or may result in engaged in unsafe or unsound banking practices? Can the
material loss or damage, or abnormal risk or danger to the PDIC also issue an order putting the bank under receivership?
safety, stability, liquidity or solvency of the institution; NO, the PDIC doesn.t have that power. The PDIC can just make
a recommendation to the MB that an order to put the bank
56.2 The act or omission has resulted or may result in under receivership be issued.
material loss or damage or abnormal risk to the institution's
depositors, creditors, investors, stockholders or to the So, those are some of the more important provisions.
Bangko Sentral or to the public in general;
56.3 The act or omission has caused any undue injury, or APEX BANCRIGHTS HOLDINGS, INC. v.
has given any unwarranted benefits, advantage or BANGKO SENTRAL NG PILIPINAS and PHILIPPINE
preference to the bank or any party in the discharge by the DEPOSIT INSURANCE CORPORATION
director or officer of his duties and responsibilities through GR No. 214866
manifest partiality, evident bad faith or gross inexcusable October 02, 2017
negligence; or SECOND DIVISION (Perlas-Bernabe, J.)
56.4 The act or omission involves entering into any contract Petitioners’ Contention:
or transaction manifestly and grossly disadvantageous to In an attempt to forestall EIB's liquidation, petitioners insist
the bank, quasi-bank or trust entity, whether or not the that the Monetary Board must first make its own independent
director or officer profited or will profit thereby. finding that the bank could no longer be rehabilitated -

50
instead of merely relying on the findings of the PDIC before Section 37. Administrative Sanctions on Banks and
ordering the liquidation of a bank. Quasi-banks. SUPERVISED ENITIES — Without prejudice
Ruling: to the criminal sanctions against the culpable persons
provided in Sections 34, 35, and 36 of this Act, the Monetary
Such position is untenable. Board may, at its discretion, impose upon any bank or
quasi-bank, INCLUDING THEIR SUBSIDIARIES AND
As correctly held by the CA, nothing in Section 30 of RA 7653 AFFILIATES ENGAGED IN ALLIED ACTIVITIES OR OTHER
requires the BSP, through the Monetary Board, to make an ENTITY WHICH UNDER THIS ACT OR SPECIAL LAWS
independent determination of whether a bank may still be ARE SUBJECT THE BANKO SENTRAL SUPERVISION
rehabilitated or not. AND/OR their directors and/or officers OR EMPLOYEES,
for
As expressly stated in the afore-cited provision, once the
receiver determines that rehabilitation is no longer
feasible, the Monetary Board is simply obligated to: any willful violation of its charter or by-laws, willful delay in
(a) notify in writing the bank's board of directors of the the submission of reports or publications thereof as
same; and required by law, rules and regulations;
(b) direct the PDIC to proceed with liquidation, viz.:
If the receiver determines that the institution cannot be any refusal to permit examination into the affairs of the
rehabilitated or permitted to resume business in accordance institution;
with the next preceding paragraph, the Monetary Board shall
notify in writing the board of directors of its findings and any willful making of a false or misleading statement to the
direct the receiver to proceed with the liquidation of the Board or the appropriate supervising and examining
institution. department or its examiners; any willful failure or refusal to
comply with, or violation of, any banking law or any order,
xxx instruction or regulation issued by the Monetary Board, or
any order, instruction or ruling by the Governor;
Suffice it to say that if the law had indeed intended that the
Monetary Board make a separate and distinct factual or any commission of irregularities, and/or conducting
determination before it can order the liquidation of a bank or business in an unsafe or unsound manner as may be
quasi-bank, then there should have been a provision to that determined by the Monetary Board, the following
effect. There being none, it can safely be concluded that the administrative sanctions, whenever applicable:
Monetary Board is not so required when the PDIC has already
made such determination. It must be stressed that the BSP (the (a) fines in amounts as may be determined by the
umbrella agency of the Monetary Board), in its capacity as Monetary Board to be appropriate, but in no case
government regulator of banks, and the PDIC, as statutory to exceed Thirty thousand pesos (P30,000) ONE
receiver of banks under RA 7653, are the principal agencies MILLION PESOS (P 1,000,000) FOR EACH
mandated by law to determine the financial viability of banks TRANSACTION VIOLATION OR ONE HUNDRED
and quasi-banks, and facilitate the receivership and liquidation THOUSAND(P 100,000) PER CALENDAR a day
of closed financial institutions, upon a factual determination of for each violationS OF A CONTINUING
the latter's insolvency. Thus, following the maxim verba legis NATURE, taking into consideration the attendant
non est recedendum - which means "from the words of a circumstances, such as the nature and gravity of
statute there should be no departure" - a statute that is clear, the violation or irregularity and the size of the
plain, and free from ambiguity must be given its literal meaning INSTITUTION bank or quasi-bank
and applied without any attempted interpretation, as in this
case. PROVIDED THAT:IN CASE PROFIT IS GAINED OR LOSS
IS AVOIDED AS A RESULT OF THE VIOLATION, A FINE
Commentary: NO MORE THAN THREE TIMES(3) OF THE PROFIT OF
So, once the PDIC has already made a factual determination THE GAINED OR LOSS AVOIDED MAY ALSO BE
as to the existence of factual grounds for placing a bank under IMPOSED.
a liquidation, there’s no need for the Monetary Board to make
an independent factual determination. (b) suspension of rediscounting privileges or access to
Bangko Sentral credit facilities;

51
(c) suspension of lending or foreign exchange operations OTHER ENTITIES WHICH UNDER THIS ACT OR SPECIAL
or authority to accept new deposits or make new LAWS ARE SUBJECT TO THE BANKO SENTRAL
investments; chan robles virtual law library SUPERVISION for any failure to comply with the
requirements of law, Monetary Board regulations and
(d) suspension of interbank clearing privileges; and/or policies, and/or instructions issued by the Monetary Board
or by the Governor, fines not in excess of Ten thousand
(e) SUSPENSION OR revocation of quasi-banking OR pesos (P10,000) ONE HUNDRED THOUSAND (P100,000)
OTHER SPECIAL licenseS FOR EACH TRANSACTIONAL VIOLATION OR THIRTY
THOUSAND PESOS (P 30,000) PER CALENDAR a day for
Resignation or termination from office shall not exempt each violationS OF A CONTINUING NATURE, the
such director or officer OR EMPLOYEE from administrative imposition of which shall be final and executory until
or criminal sanctions. reversed, modified or lifted by the Monetary Board on
appeal.
The Monetary Board may, whenever warranted by
circumstances, preventively suspend any director or officer
OR EMPLOYEE of a bank or quasi-bank INSTITUTION
pending an investigation: Provided, That should the case
be not finally decided by the Bangko Sentral within a period Defiance of a seize and desist order is a ground for?
of one hundred twenty (120) days after the date of
Pag may seize and desist ka tapos the bank disobeyed the
suspension, said director or officer shall be reinstated in his
seize and desist, what is the next step?
position: Provided, further, That when the delay in the
disposition of the case is due to the fault, negligence or (inaudible) willful violation of seize and desist order under
petition of the director or officer OR EMPLOYEE, the
Section 37, so these are grounds for receivership. So if there
period of delay shall not be counted in computing the
is seize and desist order there are violations of other
period of suspension herein provided.
provisions of the Central Bank Act, and the concerned bank
The above administrative sanctions need not be applied in disobeys the seize and desist order that would be a ground
the order of their severity. for the Monetary Board to issue a resolution putting said
bank under receivership.
Whether or not there is an administrative proceeding, if the
institution and/or the directors and/or officers OR
EMPLOYEES concerned continue with or otherwise persist
So let’s go to the boring provisions. You have the Operating
in the commission of the indicated practice or violation, the
Departments of the Bangko Sentral
Monetary Board may issue an order requiring the institution
and/or the directors and/or officers concerned to cease and Section 38. Operating Departments of the Bangko
desist from the indicated practice or violation, and may
Sentral. — The Monetary Board shall, in accordance with its
further order that immediate action be taken to correct the
authority under this Act, determine and provide for such
conditions resulting from such practice or violation. The
operating departments and other offices, including a public
cease and desist order shall be immediately effective upon
information office, of the Bangko Sentral as it deems
service on the respondents.
convenient for the proper and efficient conduct of the
operations and the accomplishment of the objectives of the
The respondents shall be afforded an opportunity to
Bangko Sentral. The functions and duties of such operating
defend their action in a hearing before the Monetary Board departments and other offices shall be determined by the
or any committee chaired by any Monetary Board member Monetary Board.
created for the purpose, upon request made by the
respondents within five (5) days from their receipt of the *no amendment proposed
order. If no such hearing is requested within said period,
the order shall be final. If a hearing is conducted, all issues
shall be determined on the basis of records, after which the So, the Bangko Sentral basically has 5 different Sectors:
Monetary Board may either reconsider or make final its
order. 1. Monetary Stability Sector
The Governor is hereby authorized, at his discretion, to 2. Supervision and Examination Sector
impose upon banking institutions, BANK AND QUASI-
Now this sector, ito yung mga nag eexamine ng mga
BANKS, INCLUDING THEIR SUSBIDIARIES AND
AFFILIATES ENGAGED IN ALLIED ACTIVITIES, AND banking institution.

52
3. Resource Management Sector Section 39. Reports and Publications- The Bangko Sentral
This is in-charge of the human resource management of the shall publish a general balance sheet showing the volume and
Banko Sentral. They provide scholarships, continuing composition of its assets and liabilities as of the last working
education for the people of the BSP. day of the month within ninety (90) days after the end of each
month, which may be reasonably extended by the Bangko
4. Executive Management Sector Sentral as warranted.
The Monetary Board shall publish and submit the
5. Security Plan Office following reports to the President and to the Congress:
This is an addition to the previous Central Bank Act:

(a) Not later than ninety (90) days after the end of each quarter,
Sec 20. A new section entitled Sec 38-A is hereby an analysis of economic and financial developments, including
included in the same Act to read as follows: the condition of net international reserves and monetary
aggregates;
SEC 38-A.ISSUANCE OF INJUNCTIVE RELIEF AGAINST
BANKO SENTRAL ACTIONS- (b) Within ninety (90) days after the end of the year, which may
be reasonably extended by the Bangko Sentral as warranted,
NO COURT, OTHER THAN THE COURT OF APPEALS AND the preceding year’s budget and profit and loss statement of
THE SUPREME COURT, SHALL ISSUE ANY TEMPORARY
the Bangko Sentral showing in reasonable detail the result of
RESTRAINING ORDER, PRELIMINARY INJUNCTION,
PRELIMINARY MANDATORY INJUNCTION AGAINST THE its operations;
BANKO SENTRAL FOR ANY ACTION UNDER THIS ACT.
(c) One hundred twenty (120) days after the end of each
“ANY RESTRAINING ORDER OR INJUNCTION ISSUED IN semester, a review of the state of the financial system; and
VIOLATION OF THIS SECTION IS VOID AND OF NO FORCE
AND EFFECT.” (d) As soon as practicable, abnormal movements in monetary
aggregates and the general price level, and, not later than
“THE PROVISIONS OF THE RULES OF COURT ON seventy-two (72) hours after they have taken, remedial
INJUNCTIONS INSOFAR AS THESE ARE APPLICABLE AND measures in response to such abnormal movements.”
NOT INCONSISTENT WITH THE PROVISIONS OF THIS ACT
SHALL GOVERN THE ISSUANCE AND DISSOLUTION OF
RESTRAINING ORDERSAND INJUNCTINS AGAINST THE
BANKO SENTRAL.”
If you try to go to the website of the Bangko sentral there is a
publication there magkano ang assets ng mga bangko but it
the amendment specifically provides for the relief when it is in the aggregate data.
comes to remedy for certain acts. Note that “no court, other
So, sino may ari ng Bangko Sentral? It’s the National
than the Court of Appeals and the Supreme Court, shall issue
government. 50% goes to the government and 50 % will go to
any temporary restraining order, preliminary injunction,
the surplus. Meaning 50% will be retained.
preliminary mandatory injunction against the Bangko Sentral
for any action under this act.”
Ok, so who is the auditor of the Bangko Sentral? Who
determines if there is really a proper report of the financial
So you are a bank or lawyer ka ng bangko and feeling mo
status of the Bangko Sentral?
naagrabyado ka, you only go to the CA or the SC. You cannot
go to the RTC. “The Chairman of the Commission on Audit shall act as an ex
Take note! Even if the RTC issues a TRO it is of no effect! So oficio Auditor of the Bangko Sentral. And as such shall be
the act complained of would still exists and subsists. authorize to appoint representative which shall be the auditor
of the Bangko Sentral. Please take note that the representative
Section 21. Section 39 of the same Act is hereby amended as of the Commission must be a certified accountant. So it does
follows: not follow na nag COA talaga ang mag audit pwedeng mag
appoint ng representative.

53
Section 22. Section 40 of the same Act is hereby amended as
follows:
Section 42. Fiscal Year. — The fiscal year of the Bangko
Section 40. Annual Report- Before the end of June of each Sentral shall begin on January first and end on December
year, the Bangko Sentral shall publish and submit to the thirty-first of each year.
President and the Congress an annual report on the condition
of the Bangko Sentral including a review of the policies and
Section23. Section 43 of the same Act is hereby amended as
measures adopted by the Monetary Board during the past
follows:
year and an analysis of the economic and financial
circumstances which gave rise to said polices and measures. Section 43. Computation of Profit and Losses.- Within the
first sixty (60) days following the end of each year, the Bangko
The annual report shall also include a statement of the financial
Sentral shall determine its net profits or losses.
condition of the Bangko Snetral and a statistical appendix
Notwithstanding any provision of law to the contrary, the net
which shall present, as a minimum, the following data:
profit of the Bangko Sentral shall be determined after allowing
(a) The monthly movement of monetary aggregates and their for expenses of operation, adequate allowances and
components; provisions for bad and doubtful debts, depreciation in assets,
and such allowances and provisions for contingencies or other
(b) The monthly movement of purchases and sales of foreign purposes as the Monetary Board may determine in
exchange and of the international reserves of the Bangko accordance with prudent financial management and effective
Sentral; central banking operations.
(c) The balance of payments of the Philippines;
(d) Monthly indices of consumer prices and of import and Section 24,. A new Section entitled Section 43-A is hereby
export prices; included in the same Act to read as follows:
(e) The monthly movement, in summary form, of exports and Section 43-A. Bangko Sentral Reserve Fund- The Bangko
import, by volume and value; Sentral shall establish a reserve fund, whenever it has income
or positive surplus, to mitigate future risks such as, but not
(f) The monthly movement of the accounts of the Bangko limited to, the impacts of foreign exchange and price
Sentral and of other banks; fluctuations, and to address other contingencies inherent in
carrying out the Bangko Sentral mandate functions as central
(g) The principal data on government receipts and
monetary authority. The reserve fund shall consist of
expenditures and on the status of the public, debt, both
fluctuation reserve, contingency reserve and such other
domestic and foreign; and
reserves as the Monetary Board deems prudent or necessary.
(h) The texts of the major legal and administrative measures
adopted by the Government and the Monetary Board during
the year which relate to the functions or operations of the
Section 44. Distribution of Net Profits. — Within the first
Bangko Sentral or of the financial system.
sixty (60) days following the end of each fiscal year, the
Monetary Board shall determine and carry out the
The Bangko Sentral shall publish another version of the annual distribution of the net profits, in accordance with the
report in terms understandable to the layman. following rule:
Fifty percent (50%) of the net profits shall be carried to

surplus and the remaining fifty percent (50%) shall revert
Section 41. Signatures on Statements. — The balance back to the National Treasury, except as otherwise
sheets and other financial statements of the Bangko Sentral provided in the transitory provisions of this Act.
shall be signed by the officers responsible for their
preparation, by the Governor, and by the auditor of the
Bangko Sentral.

54
Section 25. Section 45 of the same Act is hereby amended to ARTICLE VII
read as follows:
The Auditor
Section 45. Revaluation Profits and Losses- Unrealized Section 47. Appointment and Personnel. —
profits or losses arising from any revaluation of the Bangko
Sentral’s assets, liabilities or derivative instruments The Chairman of the Commission on Audit shall act as the
denominated in foreign currencies with respect to the ex officio auditor of the Bangko Sentral and, as such, he is
movements of prices and exchange rates from third currencies empowered and authorized to appoint a representative
who shall be the auditor of the Bangko Sentral and, in
to Philippine peso shall not be included in the computation of
accordance with law, fix his salary, and to appoint and fix
the annual profits and losses of the Bangko Sentral. Any profits
salaries and number of personnel to assist said
and losses in this manner shall be offset by any amounts which, representative in his work.
as a consequence of such revaluations, are owed by the
Philippines to any international or regional intergovernmental The salaries and other emoluments shall be paid by the
financial institution of which the Philippines is a member or are Commission. The auditor of the Bangko Sentral and
owed by these institutions to the Philippines. Any remaining personnel under him may be removed only by the
Chairman of the Commission.
unrealized profit or loss shall be carried in an account which
be named “Revaluation of International Reserve (RIR), and the The representative of the Chairman of the Commission
net balance of which shall appear either among the liabilities must be a certified public accountant with at least ten (10)
or among the assets of the Bangko Sentral, depending on years experience as such. No relative of any member of the
whether the revaluations have produced net profits or net Monetary Board or the Chairman of the Commission within
losses. the sixth degree of consanguinity or affinity shall be
appointed such representative.
The RIR account shall be credited or debited for the
periodic revaluation as authorized in this section and to reflect
CHAPTER ii
the corresponding adjustment resulting to reduction in the
THE BANGKO SENTRAL
Bangko Sentral’s net foreign assets, liabilities and foreign AND THE MEANS OF PAYMENT
currency denominated and recognized in the income
statement upon sale of gold and foreign securities, or when ARTICLE i
the foreign currency is repudiated to local currency or is used The Unit of Monetary Value
to pay foreign obligations, or upon maturity of a foreign
currency-denominated forward or option contract involving Section 48. The Peso. – The unit of monetary value in the
Philippines is the “peso,” which is represented by the sign
the Philippine peso.
“P.”
Section 46. Suspense Accounts. — The peso is divided into one hundred (100) equal parts
called “centavos,” which are represented by the sign “c.”
Sections 43 and 43-A of Republic Act No. 265, as amended,
creating the Monetary Adjustment Account (MAA) and the
Exchange Stabilization Adjustment Account (ESAA), What is a currency?
respectively, are hereby repealed. Amounts outstanding as
of the effective date of this Act based on these accounts
Section 49. Definition of Currency. — The word "currency"
shall continue to be for the account of the Central Bank and
is hereby defined, for purposes of this Act, as meaning all
shall be governed by the transitory provisions of this Act.
Philippine notes and coins issued or circulating in
accordance with the provisions of this Act.
The Revaluation of International Reserve (RIR) account as of
the effective date of this Act of the Central Bank shall
continue to be for the account of the same entity and shall
be governed by the provisions of Section 44 of Republic Act So if there is currency not issued in accordance with the
No. 265, as amended, until otherwise provided for in Central Bank Act that is not considered as a currency.
accordance with the transitory provisions of this Act.
Please take note it is only the Bangko Sentral who has the sole
power to issue the currency within the territorial jurisdiction of

55
the Philippines. In other words, only the Bangko Sentral can Sentral it has value. Ito ang problema ng crypto currency. Who
put into circulation currency. guarantees the crypto currency? Wala! It exists because of
innovation of business world (?)
Section 50. Exclusive Issue Power. — The Bangko Sentral
shall have the sole power and authority to issue currency, So legal tender. What is Legal tender?
within the territory of the Philippines. No other person or
entity, public or private, may put into circulation notes, Section 52. Legal Tender Power. — All notes and coins
coins or any other object or document which, in the opinion issued by the Bangko Sentral shall be fully guaranteed by
of the Monetary Board, might circulate as currency, nor the Government of the Republic of the Philippines and shall
reproduce or imitate the facsimiles of Bangko Sentral notes be legal tender in the Philippines for all debts, both public
without prior authority from the Bangko Sentral. and private:
The Monetary Board may issue such regulations as it may Provided, however, That, unless otherwise fixed by the
deem advisable in order to prevent the circulation of Monetary Board, coins shall be legal tender in amounts not
foreign currency or of currency substitutes as well as to exceeding Fifty pesos (P50.00) for denominations of
prevent the reproduction of facsimiles of Bangko Sentral Twenty-five centavos and above, and in amounts not
notes. exceeding Twenty pesos (P20.00) for denominations of Ten
centavos or less.
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 Take note of Circular No. 537 issued in 2006 pursuant to this
currency.
particular section:
Violation of this provision or any regulation issued by the
Bangko Sentral pursuant thereto shall constitute an offense CIRCULAR NO. 537
punishable by imprisonment of not less than five (5) years SERIES OF 2006
but not more than ten (10) years. In case the Revised Penal
Code provides for a greater penalty, then that penalty shall Pursuant to Section 52 of RA No. 7653 and Monetary Board
be imposed. Resolution No. 862 dated 6 July 2006, the maximum amount
of coins to be considered as legal tender is adjusted as
follows:
Section 51. Liability for Notes and Coins. — Notes and
coins issued by the Bangko Sentral shall be liabilities of the 1. One thousand pesos (1,000) for denominations of 1-piso, 5-
Bangko Sentral and may be issued only against, and in piso, and 10-piso coins; and
amounts not exceeding, the assets of the Bangko Sentral.
Said notes and coins shall be a first and paramount lien on 2. One hundred pesos (100) for denominations of 1-sentimo,
all assets of the Bangko Sentral. 5-sentimo, 10-sentimo, and 25-sentimo coins.
The Bangko Sentral's holdings of its own notes and coins
shall not be considered as part of its currency issue and,
accordingly, shall not form part of the assets or liabilities of
the Bangko Sentral. Section 53. Characteristics of the Currency. —
The Monetary Board, with the approval of the President of
the Philippines, shall prescribe the denominations,
So this explains why the Bangko Sentral can just claim the dimensions, designs, inscriptions and other characteristics
of notes issued by the Bangko Sentral:
money. Every time the Bangko Sentral claims the money
because it is its liability. Provided, however, That said notes shall state that they are
liabilities of the Bangko Sentral and are fully guaranteed by
This is the problem with virtual currency, because here there is the Government of the Republic of the Philippines. Said
no government that guarantees its liens. notes shall bear the signatures, in facsimile, of the President
of the Philippines and of the Governor of the Bangko
Unlike in peso, every time nag iisue ka ng 50 pesos that is Sentral.
guaranteed by the bank. So the Bangko Sentral assumes the
obligation that that 1000 pesos has value, otherwise it is just a Similarly, the Monetary Board, with the approval of the
President of the Philippines, shall prescribe the weight,
piece of paper. It is because of the guarantee of the Bangko
56
fineness, designs, denominations and other characteristics Provided, however, That the Bangko Sentral shall not
of the coins issued by the Bangko Sentral. In the minting of replace notes and coins the identification of which is
coins, the Monetary Board shall give full consideration to impossible, coins which show signs of filing, clipping or
the availability of suitable metals and to their relative prices perforation, and notes which have lost more than two-fifths
and cost of minting. (2/5) of their surface or all of the signatures inscribed
thereon. Notes and coins in such mutilated conditions shall
be withdrawn from circulation and demonetized without
compensation to the bearer.
Take note, the President must approve with regard to the
designs, inscriptions and other characteristics of notes issued
by the Bangko Sentral. Ano yong hindi nila papalitan? ” the Bangko Sentral shall not
replace notes and coins the identification of which is
Section 54. Printing of Notes and Mining of Coins. — impossible, coins which show signs of filing, clipping or
perforation, and notes which have lost more than two-fifths
The Monetary Board shall prescribe the amounts of notes (2/5) of their surface or all of the signatures inscribed
and coins to be printed and minted, respectively, and the thereon.”
conditions to which the printing of notes and the minting of
coins shall be subject. The Monetary Board shall have the So ang importante ang signature.
authority to contract institutions, mints or firms for such
operations.
Now there is a circular. This is the Clean Note Policy of the BSP.
All expenses incurred in the printing of notes and the
You have to consider two things. There are those which are
minting of coins shall be for the account of the Bangko
Sentral. damaged and can be replaced and those damaged which can
no longer be circulated. Walang compensation
Notes vs Coins
Section 55. Interconvertibility of Currency. — Currency notes shall be considered unfit for circulation
when:
The Bangko Sentral shall exchange, on demand and
without charge, Philippine currency of any denomination a. It contains heavy creases which break the fiber of the
for Philippine notes and coins of any other denomination paper and indicate that disintegration has begun.
requested. Provided, however, that mere creasing or wrinkling
which has not broken nor weakened the note
If for any reason the Bangko Sentral is temporarily unable to
provide notes or coins of the denominations requested, it does not render the note unfit for circulation; or
shall meet its obligations by delivering notes and coins of b. It is badly soiled/contaminated and/or with writings
the denominations which most nearly approximate those even if it has proper life or sizing; or
requested. c. It presents a limp or rag-like appearance
A currency note shall be considered mutilated when:
Very Important. What if may 1000 peso bill ka tapos napunit
unya gibutangan ug scotch tape. Can a creditor or any
a. Torn parts of banknotes are joined together with
person refuse to accept that? Or what if nasunog or it got
wet unya gipa uga adhesive tape in a manner which tries to preserve as
nearly as possible the original design and size of the
note; or
Section 56. Replacement of Currency Unfit for b. The orginal size of the note has been reduced/lost
Circulation. — through wear and tear or has been otherwise torn,
The Bangko Sentral shall withdraw from circulation and damaged, defaced or perforated through action of
shall demonetize all notes and coins which for any reason
insects, chemicals or other causes; or
whatsoever are unfit for circulation and shall replace them
by adequate notes and coins: c. It is scorched or burned to such an extent that
although recognizable as such, it has become frail

57
and brittle as to render further handling thereof (e) It has lost all the signatures inscribed thereon.
impossible without disintegration or breaking; or
d. It is split edgewise; or Let us go to coins.
e. It has lost all the signatures inscribed thereon
A currency coin shall be considered mutilated when: SECTION 17. A currency coin shall be considered unfit for
circulation when:
a. It shows signs of filing, clipping or perforation; or
b. It shows sign of having been burned or has been (a) It is bent or twisted out of shape or defaced, but its
genuineness and/or denomination can still be readily and
defaced, that its genuineness and/or denomination
clearly determined/identified; or
cannot be readily and clearly identified.
Currency notes and coins considered unfit for circulation
(b) It has been considerably reduced in weight by natural
shall not be re-circulated, but may be presented for
abrasion/wear and tear.
exchange to or deposited with any bank.
Currency notes and coins considered mutilated shall not SECTION 18. A currency coin shall be considered mutilated
when:
be re-circulated nor deposited/exchanged, but may be
presented or forwarded, for determination of their
(a) It shows signs of filing, clipping or perforation; or
redemption/exchange value to:
(b) It shows signs of having been burned or has been so
a. The Cash Department Bangko Sentral ng Pilipinas
defaced, that its genuineness and/or denomination cannot be
Security Plant Complex, East Avenue, Diliman,
readily and clearly identified.
Quezon City
b. The nearest Bangko Sentral Regional Office/Branch
So what are the implications?
January 8, 2020 Part 2 | Banosan SECTION 19. Currency notes and coins considered unfit for
circulation shall not be recirculated, but may be presented for
NOTE: Missing provisions are neither discussed nor mentioned exchange to or deposited with any bank.
by Atty. Ong.
So pag unfit for circulation na, pwede mo pakambyo-an sa
Continuation of Circular No. 61 of 1995 bank. And the bank will give you the same value.
SECTION 16. A currency note shall be considered mutilated SECTION 20. Currency notes and coins considered mutilated
when: shall not be recirculated nor deposited/exchanged, but may
be presented or forwarded, for determination of their
(a) Torn parts of banknote are joined together with adhesive redemption/exchange value to:
tape in a manner which tries to preserve as nearly as possible
the original design and size of the note; or (a) The Cash Department
Bangko Sentral ng Pilipinas
(b) The original size of the note has been reduced/lost through A. Mabini St., Manila; or
wear and tear or has been otherwise torn, damaged, defaced
or perforated through action of insects, chemicals or other (b) The nearest Bangko Sentral Regional Office/Unit.
causes; or
(c) It is scorched or burned to such an extent that although Question: Kapag na-gunting ang papel tapos gi combine
recognizable as such, it has become frail and brittle as to nimo, may value pa ba yon? (walay answer, pero ana si Doms
render further handling thereof impossible without ibayad daw sa carenderia. chour.)
disintegration or breaking; or
(d) It is split edgewise; or Back to the New Central Bank Act. RA 7653 as amended by RA
11211

58
SECTION 57. Retirement of Old Notes and Coins. — The
Bangko Sentral may call in for replacement notes of any series 1.] In November of 1967, Amelia Tan of Able Printing Press
or denomination which are more than five (5) years old and filed a complaint for damages before CFI against PAL.CFI
coins which are more than (10) years old. ruled in favor of Tan ordering PAL to pay damages.
Notes and coins called in for replacement in accordance with 2.] PAL filed its appeal with the CA but CA merely modified the
this provision shall remain legal tender for a period of one (1) amount of damages. MR of Tan was denied. The judgment
year from the date of call. After this period, they shall cease to then became final and executory on May 1977. The case was
be legal tender but during the following year, or for such remanded to the trial court for execution.
longer period as the Monetary Board may determine, they
may be exchanged at par and without charge in the Bangko 3.] In October 1977, Judge Galano issued its order of
Sentral and by agents duly authorized by the Bangko Sentral execution with writ in favor of Tan and was referred to Sheriff
for this purpose. After the expiration of this latter period, the Reyes for enforcement.
notes and coins which have not been exchanged shall cease
to be a liability of the Bangko Sentral and shall be 4.] Four months later in February, Tan moved for issuance of
demonetized. The Bangko Sentral shall also demonetize all an alias writ of execution stating that the judgment was
notes and coins which have been called in and replaced. unsatisfied. This was opposed by PAL stating that it had
already fully paid its obligation through Sheriff Reyes
evidenced by cash vouchers that were properly signed and
CHAPTER II receipted by Reyes. Judge later on issued an alias writ of
THE BANGKO SENTRAL AND THE MEANS OF PAYMENT execution against PAL for the full satisfaction of the judgment
to be enforced by Sheriff Del Rosario.
ARTICLE II - ISSUE OF MEANS OF PAYMENT
We have here deposits for banks (Section 58 and 59), this 5.] PAL sought to quash the alias writ of execution stating that
pertains to the deposit if you have a checking account. The no return of the writ has yet been made by Reyes and that the
legal character of checks (Section 60), you know this already judgment debt has been fully satisfied by the petitioner as
that it is not a legal tender. evidenced by the cash vouchers signed and receipted by
Reyes.
6.] Sheriff Del Rosario served a Notice of Garnishment on the
SECTION 58. Definition. — For purposes of this Act, the term
depository bank of PAL, Far East Bank and Trust Company in
"demand deposits" means all those liabilities of the Bangko
Sentral and of other banks which are denominated in Manila and garnished amount P64,408. This prompted PAL to
Philippine currency and are subject to payment in legal tender filed a petition for certiorari with the Supreme Court.
upon demand by the presentation of checks.
Supreme Court’s Recantation of the Facts
SECTION 59. Issue of Demand Deposits. — Only banks duly It should be emphasized that under the initial judgment,
authorized to do so may accept funds or create liabilities Amelia Tan was found to have been wronged by PAL. She filed
payable in pesos upon demand by the presentation of checks, her complaint in 1967 and after 10 years of protracted
and such operations shall be subject to the control of the litigation Ms. Tan won her case. It is now 1990. Almost 22 years
Monetary Board in accordance with the powers granted it with later, Ms. Tan has not seen a centavo of what the courts have
respect thereto under this Act. solemnly declared as rightfully hers.
SECTION 60. Legal Character. — Checks representing demand Through absolutely no fault of her own, Ms. Tan has been
deposits do not have legal tender power and their acceptance deprived of what, technically, she should have been paid from
in the payment of debts, both public and private, is at the the start, before 1967, without need of her going to court to
option of the creditor: Provided, however, That a check which enforce her rights. And all because PAL did not issue the
has been cleared and credited to the account of the creditor checks intended for her, in her name.
shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account. Issue: Whether or not the payment of the check in the name of
Reyes, the Sheriff, be considered as legal tender. – No.
PAL v. CA

59
(1) Payment to the absconding sheriff by check in his name did not, per se, operate as a discharge of the judgment debt. Since
not operate as satisfaction of the judgment debt. – In general, a negotiable instrument is only a substitute for money and not
a payment, in order to be effective to discharge an obligation money, the delivery of such an instrument does not, by itself,
must be made to the proper person (Article 1240 of the Civil operate as payment.
Code). Thus, payment must be made to the oblige himself or
to an authorized agent to receive the payment. (3) Payment in cash always carries with it certain cautions. -
Nobody hands over big amounts of cash in a careless and
Payment made to one having apparent authority to receive the inane manner. Mature thought is given to the possibility of the
money will, as a rule, be treated as though actual authority had cash being lost, of the bearer being waylaid or running off with
been given for its receipt. Likewise, if payment is made to one what he is carrying for another. Payment in checks is precisely
who by law is authorized to act for the creditor, it will work a intended to avoid the possibility of the money going to the
discharge. The receipt of money due on a judgment by an wrong party. The situation is entirely different where a Sheriff
officer authorized by law to accept it will, therefore, satisfy the seizes a car, a tractor, or a piece of land. Logic often has to give
debt. way to experience and to reality. Having paid with checks, PAL
should have done so properly.
The theory is where payment is made to a person authorized
and recognized by the creditor, the payment to such a person Payment in money or cash to the implementing officer may be
so authorized is deemed payment to the creditor. Under deemed absolute payment of the judgment debt but the
ordinary circumstances, payment by the judgment debtor in Court has never, in the least bit, suggested that judgment
the case at bar, to the sheriff should be valid payment to debtors should settle their obligations by turning over huge
extinguish the judgment debt. amounts of cash or legal tender to sheriffs and other executing
officers. Payment in cash would result in damage or
2) Circumstances of the case compel a different conclusion. – interminable litigations each time a sheriff with huge amounts
The payment made by PAL to the absconding sheriff was not of cash in his hands decides to abscond. As a protective
in cash or legal tender but in checks. The checks were not measure, therefore, the courts encourage the practice of
payable to Amelia Tan or Able Printing Press but to the payments by check provided adequate controls are instituted
absconding sheriff. Did such payments extinguish the to prevent wrongful payment and illegal withdrawal or
judgment debt? Article 1249 of the Civil Code provides: disbursement of funds.
"Article 1249. The payment of debts in money shall be made If particularly big amounts are involved, escrow arrangements
in the currency stipulated, and if it is not possible to deliver with a bank and carefully supervised by the court would be the
such currency, then in the currency which is legal tender in the safer procedure. Actual transfer of funds takes place within the
Philippines. safety of bank premises. These practices are perfectly legal.
The object is always the safe and incorrupt execution of the
"The delivery of promissory notes payable to order, or bills of judgment.
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when It is, indeed, out of the ordinary that checks intended for a
through the fault of the creditor they have been impaired. particular payee are made out in the name of another. Making
the checks payable to the judgment creditor would have
"In the meantime, the action derived from the original prevented the encashment or the taking of undue advantage
obligation shall be held in abeyance." by the sheriff, or any person into whose hands the checks may
have fallen, whether wrongfully or in behalf of the creditor. The
In absence of agreement, payment means the discharge of a issuance of the checks in the name of the sheriff clearly made
debt or obligation in money, and unless parties so agree, a possible the misappropriation of the funds that were
debtor has no rights, except at his own peril, to substitute withdrawn.
something in lieu of cash as medium of payment of his debt. Having failed to employ the proper safeguards to protect
itself, the judgment debtor whose act made possible the loss
Consequently, unless authorized to do so by law or by consent had but itself to blame.
of the obligee, a public officer has no authority to accept
anything other than money in payment of an obligation under
a judgment being executed. Strictly speaking, the acceptance FAR EAST BANK v DIAZ REALTY
by the sheriff of the petitioner's checks, in the case at bar, does

60
In August 1973, Diaz and Company got a loan from the former Account now turn[ed] over to Far East Bank. The check was
PaBC [Pacific Banking Corporation]. The loan was secured by subsequently cleared and honored by Interbank.
a real estate mortgage over two parcels of land owned by the
plaintiff Diaz Realty, both located in Davao City. True, jurisprudence holds that, in general, a check does not
constitute legal tender, and that a creditor may validly refuse
In 1981, Allied Banking Corporation rented an office space in it. It must be emphasized, however, that this dictum does not
the building constructed on the properties covered by the prevent a creditor from accepting a check as payment. In other
mortgage contract, with the conformity of mortgagee PaBC, words, the creditor has the option and the discretion of
whereby the parties agreed that the monthly rentals shall be refusing or accepting it.
paid directly to the mortgagee for the lessors account.
Pursuant to such contract, Allied Bank paid the monthly rentals In the present case, petitioner bank did not refuse
to PaBC instead of to the plaintiffs. respondents check. On the contrary, it accepted the check
which, it insisted, was a deposit. As earlier stated, the check
On July 5, 1985, the Central Bank closed PaBC, placed it under proved to be fully funded and was in fact honored by the
receivership, and appointed Renan Santos as its liquidator. drawee bank. Moreover, petitioner was in possession of the
money for several months.
Sometime in December 1986, appellant FEBTC purchased the
credit of Diaz & Company in favor of PaBC, but it was not until In further contending that there was no valid tender of
March 23, 1988 that Diaz was informed about it. payment, petitioner emphasizes the pronouncement in
Roman Catholic Bishop of Malolos, Inc. v. Intermediate
Allegation of Antonio Diaz (President of Diaz & Company and Appellate Court, as follows:
Vice-President of Diaz Realty): On December 14, 1988, Diaz
tendered to FEBTC the amount of P1,450,000.00 [loan Tender of payment involves a positive and unconditional act
balance was P1,447,142.03] through an Interbank check, in by the obligor of offering legal tender currency as payment to
order to prevent the imposition of additional interests, the obligee for the formers obligation and demanding that the
penalties and surcharges on its loan. It was alleged that FEBTC latter accept the same.
did not accept it as payment and instead, Diaz was asked to
deposit the amount with the defendants Davao City Branch Thus, tender of payment cannot be presumed by a mere
Office, allegedly pending the approval of Central Bank inference from surrounding circumstances. At most,
Liquidator Renan Santos. sufficiency of available funds is only affirmative of the capacity
or ability of the obligor to fulfill his part of the bargain. But
Allegation of FEBTC: Despite such purchase, PaBC Davao whether or not the obligor avails himself of such funds to settle
Branch continued to collect interests and penalty charges on his outstanding account remains to be proven by independent
the loan. and credible evidence. Tender of payment presupposes not
only that the obligor is able, ready, and willing, but more so, in
The CA sustained the trial courts finding that there was a valid the act of performing his obligation. Ab posse ad actu non vale
tender of payment in the sum of P1,450,000, made by Diaz illatio. A proof that an act could have been done is no proof
Realty Inc. in favor of Far East Bank and Trust Company. that it was actually done.
Issue: Whether or not the CA erred in upholding the validity of Thus, tender of payment cannot be presumed by a mere
the tender of payment made by respondent. inference from surrounding circumstances. At most,
sufficiency of available funds is only affirmative of the capacity
Held: NO. The records show that petitioner bank purchased or ability of the obligor to fulfill his part of the bargain. But
respondents account from PaBC in December 1986, and that whether or not the obligor avails himself of such funds to settle
the latter was notified of the transaction only on March 23, his outstanding account remains to be proven by independent
1988. Thereafter, Antonio Diaz, president of respondent and credible evidence. Tender of payment presupposes not
corporation, inquired from petitioner on the status and the only that the obligor is able, ready, and willing, but more so, in
amount of its obligation. He was informed that the obligation the act of performing his obligation. Ab posse ad actu non vale
summed up to P1,447,142.03. On November 14, 1988, illatio. A proof that an act could have been done is no proof
petitioner received from respondent Interbank Check No. that it was actually done.
81399841 dated November 13, 1988, bearing the amount of
P1,450,000, with the notation Re: Full Payment of Pacific Bank

61
In other words, tender of payment is the definitive act of liability. If it is a different bank, it (the check) has to be cleared
offering the creditor what is due him or her, together with the to determine the genuineness of the check.
demand that the creditor accept the same. More important,
there must be a fusion of intent, ability and capability to make So kung MC, anong meaning non?
good such offer, which must be absolute and must cover the - There is already acceptance, the bank already admits
amount due. liability.
That respondent intended to settle its obligation with A Manager's Check (MC) is a cheque issued by the bank,
petitioner is evident from the records of the case. After payable to a payee as indicated by the person who buys the
learning that its loan balance was P1,447,142.03, it presented MC. It is often used in situations when the beneficiary does not
to petitioner a check in the amount of P1,450,000, with the accept cash or personal cheques. It is good as cash, but still
specific notation that it was for full payment of its Pacific Bank not a legal tender. So, the creditor can still refuse to accept
account that had been purchased by petitioner. The latter that.
accepted the check, even if it now insists that it considered the
same as a mere deposit. The check was sufficiently funded, as How about cashier’s check?
in fact it was honored by the drawee bank. When petitioner - A cashier's check is a check guaranteed by a bank,
refused to release the mortgage, respondent instituted the drawn on the bank's own funds and signed by a
present case to compel the bank to acknowledge the tender cashier. Cashier's checks are treated as guaranteed
of payment, accept payment and cancel the mortgage. These funds because the bank, rather than the purchaser, is
acts demonstrate respondents intent, ability and capability to responsible for paying the amount
fully settle and extinguish its obligation to petitioner.
- A cashier's check is a check drawn from a bank's own
That respondent subsequently withdrew the money from funds, instead of yours, and signed by a cashier or
petitioner-bank is of no moment, because such withdrawal teller. It is unlike a regular check because the bank
would not affect the efficacy or the legal ramifications of the guarantees payment, not the check writer.
tender of payment made. As already discussed, the tender of
payment to settle respondents obligation as computed by
petitioner was accepted, the check given in payment thereof
converted into money, and the money kept in petitioners CHAPTER III
possession for several months. GUIDING PRINCIPLES OF MONETARY ADMINISTRATION
BY THE BANGKO SENTRAL
Finally, petitioner points out that, in any case, tender of
payment extinguishes the obligation only after proper SECTION 61. Guiding Principle- The Monetary Board shall
consignation, which respondent did not do. regularly assess price developments and outlook and, based
on its analysis and evaluation of inflationary pressures, use its
The argument does not persuade. For a consignation to be policy instruments to attain and maintain price stability.
necessary, the creditor must have refused, without just cause,
to accept the debtors payment. However, as pointed out So ito yung obligations nang monetary board. Now, mind you
earlier, petitioner accepted respondents check. mga expert yang mga yan. May mga masters yan, even PhD.
Remember when it was an issue on whether or not we open
To iterate, the tender was made by respondent for the the importation of rice? Dalawa lang ang tinanong, the DA and
purpose of settling its obligation. It was incumbent upon the Governor (Central Bank), because that policy will have an
petitioner to refuse, or accept it as payment. The latter did not effect on price stability.
have the right or the option to accept and treat it as a deposit.
Thus, by accepting the tendered check and converting it into Let’s talk about money aggregates.
money, petitioner is presumed to have accepted it as
payment. To hold otherwise would be inequitable and unfair Money aggregates are used to check the inflation of our
to the obligor. monetary policy.
Diba nag-issue nang check, pero pag issue nang check it does 1. M1: currency in the circulation
not mean that the bank will pay for that. It has to be accepted.
Once there is acceptance, the bank will now have a primary

62
o So these are the actual currency in adequate to meet any foreseeable net demands on the
circulation, yung pinagpasapasa ng mga tao Bangko Sentral for foreign currencies.
sa Pilipinas.
2. M2: M1+ pesos savings+ time deposits In judging the adequacy of the international reserves, the
3. M3: M2+ peso deposit substitute* Monetary Board shall be guided by the prospective receipts
4. M4: M3+ transferrable deposits and foreign supply and payments of foreign exchange by the Philippines. The
Board shall give special attention to the volume and maturity
*Deposit substitutes are when there is discounting of checks. of the Bangko Sentral's own liabilities in foreign currencies, to
the volume and maturity of the foreign exchange assets and
So if you go from M1 to M4, you can see that this is based on liabilities of other banks operating in the Philippines and,
liquidity. Sa baba, yan na yung di na masyadong liquid, sa taas insofar as they are known or can be estimated, the volume and
yan ang pinaka liquid. maturity of the foreign exchange assets and liabilities of all
other persons and entities in the Philippines.
If you would ask, magkano ba talaga ang money in circulation?
- Broadly speaking, you consider M4. *talks about Cambodia and how the practice of accepting
- Strictly speaking, you consider M1. dollars in regular transactions is detrimental to their
Ito ang basehan ng Government to check inflation. Government.*
Monetary policy could either be Contractionary or The more OFW, the more remittance and that has an impact
Expansionary. in our international reserves.
What are the instruments used by the monetary board to We do have currency deposited and golds in New York and in
control monetary aggregates? Switzerland. That is part of our policy.
1. Policy interest rate
o So, the higher the interest rate, the people SECTION 66. Composition of International Reserves- The
magdeposit sila sa bangko. Consequently, international reserves of the Bangko Sentral may include , but
yung M1 mo ay liliit kasi na deposit na sa shall not be limited to, the following assets:
bangko.
2. Reserve requirements a. gold; and
o Sets the minimum amount of reserves that b. assets in foreign currencies in the form of: documents and
must be held by a bank. instruments customarily employed for the international
o Let’s say si Bank A may 100k reserve transfer of funds; demand and time deposits in central banks,
requirement. Nakakuha sya ng 200k treasuries and commercial banks abroad; foreign government
deposit, so ang ma happen is 100k lang ang securities; and foreign notes and coins.
pwede niya mapautang because ang other
100k is reserve yun. The Monetary Board shall endeavor to hold the foreign
3. Special Deposit Accounts exchange resources of the Bangko Sentral in freely convertible
4. Credit Discounting Facility 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
ARTICLE II - INTERNATIONAL MONETARY STABILIZATION reserves of the Bangko Sentral.
SECTION 64. International Monetary Stabilization. — The The Bangko Sentral shall be free to convert any of the assets in
Bangko Sentral shall exercise its powers under this Act to its international reserves into other assets as described in
preserve the international value of the peso and to maintain its subsections (a) and (b) of this section.
convertibility into other freely convertible currencies primarily
for, although not necessarily limited to, current payments for
SECTION 67. Action When the International Stability of the
foreign trade and invisibles. Peso Is Threatened. — Whenever the international reserve of
the Bangko Sentral falls to a level which the Monetary Board
SECTION 65. International Reserves. — In order to maintain the considers inadequate to meet prospective net demands on
international stability and convertibility of the Philippine peso, the Bangko Sentral for foreign currencies, or whenever the
the Bangko Sentral shall maintain international reserves international reserve appears to be in imminent danger of
63
falling to such a level, or whenever the international reserve is SECTION 69. Purchases and Sales of Gold. — The Bangko
falling as a result of payments or remittances abroad which, in Sentral may buy and sell gold in any form, subject to such
the opinion of the Monetary Board, are contrary to the national regulations as the Monetary Board may issue.
welfare, the Monetary Board shall:
The purchases and sales of gold authorized by this section
(a) take such remedial measures as are appropriate and within shall be made in the national currency at the prevailing
the powers granted to the Monetary Board and the Bangko international market price as determined by the Monetary
Sentral under the provisions of this Act; and Board.
(b) submit to the President of the Philippines and to Congress

SECTION 70. Purchases and Sales of Foreign Exchange. — The
a detailed report which shall include, as a minimum, a
Bangko Sentral may buy and sell foreign notes and coins, and
description and analysis of:
documents and instruments of types customarily employed for
the international transfer of funds. The Bangko Sentral may
(1) the nature and causes of the existing or imminent decline; engage in future exchange operations.
(2) the remedial measures already taken or to be taken by the

The Bangko Sentral may engage in foreign exchange
Monetary Board;
transactions with the following entities or persons only:
(3) the monetary, fiscal or administrative measures further (a) banking institutions operating in the Philippines;
proposed; and
(b) the Government, its political subdivisions and
(4) the character and extent of the cooperation required from
instrumentalities;
other government agencies for the successful execution of the
policies of the Monetary Board.
(c) foreign or international financial institutions;
If the resultant actions fail to check the deterioration of the (d) foreign governments and their instrumentalities; and
reserve position of the Bangko Sentral, or if the deterioration
cannot be checked except by chronic restrictions on exchange
(e) other entities or persons which the Monetary Board is
and trade transactions or by sacrifice of the domestic
hereby empowered to authorize as foreign exchange dealers,
objectives of a balanced and sustainable growth of the
subject to such rules and regulations as the Monetary Board
economy, the Monetary Board shall propose to the President, shall prescribe.
with appropriate notice of the Congress, such additional
action as it deems necessary to restore equilibrium in the In order to maintain the convertibility of the peso, the Bangko
international balance of payments of the Philippines.
Sentral may, at the request of any banking institution
operating in the Philippines, buy any quantity of foreign
The Monetary Board shall submit periodic reports to the
exchange offered, and sell any quantity of foreign exchange
President and to Congress until the threat to the international demanded, by such institution, provided that the foreign
monetary stability of the Philippines has disappeared. currencies so offered or demanded are freely convertible into
gold or United States dollars. This requirement shall not apply
*talks about 1997 Asian Financial Crisis, nga daghan japayuki to demands for foreign notes and coins.
napurdoy.*
The Bangko Sentral shall effect its exchange transactions
Balance of Payments between foreign currencies and the Philippine peso at the
- The balance of payments (BOP) is a statement of all rates determined in accordance with the provisions of Section
transactions made between entities in one country 74 of this Act.
and the rest of the world over a defined period of
time, such as a quarter or a year. Note: provisions without any notes were skipped by sir (Not
that important daw)
ARTICLE II – OPERATIONS IN GOLD AND FOREIGN

If there is an artificially strong demand for dollars causing the
EXCHANGE
exchange rate to weaken, the Bangko Sentral can quell

64
speculation by selling dollars.. So, this is one of the authorized members and with the approval of the President of
transactions that the Bangko Sentral can enter into. the Philippines, may temporarily suspend or restrict
sales of exchange by the Bangko Sentral, and may
What are the main foreign exchange transactions? subject all transactions in gold and foreign exchange
to license by the Bangko Sentral, and may require that
1. Foreign Exchange Forward: refers to a contract any foreign exchange thereafter obtained by any person
residing or entity operating in the Philippines be
to purchase and sell a specified amount of
delivered to the Bangko Sentral or to any bank or agent
currency against another having specified the
designated by the Bangko Sentral for the purpose, at the
foreign exchange rate for deliverance at a effective exchange rate or rates: Provided, however,
specified future date. That foreign currency deposits made under Republic Act
No. 6426 shall be exempt from these requirements.
Ex: Lets say bili ako ng 100 dollars at 55 pesos
per dollar exchange rate. Then we have a What are contemplated emergencies?
specified exchange rate for delivery after 3 days.
Now kung tataas ang value after that day, lugi ka. 1. International monetary crisis
Kung bababa, kumita ka. (From 2018 TSN) 2. Coup d’etat
3. Civil War or
4. Banking crisis
2. Foreign Exchange Swap: usually money
changers or persons habitually engaging in the Ex: 1997 Asian Financial Crisis.
buying and selling of currencies.
BACOLOD MURCIA MILLING v. CENTRAL BANK
Ex: Aldevinco money changers. They are GR No. L-12610
registered with the Bangko Sentral
Facts: On or about December 17, 1956, plaintiff sold and
These are what you call derivative instruments. They derive exported to Olavarria & Co., Inc. of New York, United States
value on a certain equity or debt instrument. of America 48,192 piculs (equivalent to 3,000 tons) of sugar
for the total price of $416,640.00 U.S. currency, and as a
FOREIGN DIRECT INVESTMENT consequence drew against said Olavarria & Co., Inc. two (2)
drafts for the total sum of $336,995.40 U.S. currency, to
cover an initial payment of 95% of said purchase price
It is highly encouraged that the foreign investment be
(Exhs. "E" and "F"); said drafts were then entrusted and
registered with the BSP. The problem kasi kapag hindi ni
delivered for collection to the Philippine Bank of
register is pag mag repatriate ka na ng money, if hindi siya Commerce.
registered, you cannot use the banking system.
PBC called the attention of plaintiff that under existing rules
So anong gawin mo? Well, okay lang yan if may sarili kang and regulations all exchange proceeds of the drafts must
foreign currency or else punta ka dun sa mga maliliit na money be sold to the Central Bank authorities at the prevailing rate
exchange tapos dun mo ipapa convert ang investment money. of exchange set up by the Central Bank. Plaintiff wrote to
the defendant Central Bank questioning the legality of the
The registration is only for purposes of funnelling the rules.
repatriation in the Philippine Banking System. But it is only
optional. (2018 TSN) Plaintiff brought this special civil action for prohibition in
order to stop the defendant Central Bank from taking
further action to enforce Circular No. 20. Plaintiff says that
SECTION 72. Emergency Restrictions on Exchange
the forced sale of foreign to the Central Bank required in
Operations. — In order to achieve the primary objective
Circular No. 20 is "ultra vires"; and that the practice of the
of the Bangko Sentral as set forth in Section 3 of this Act,
central Bank in paying for such exchange only at a the legal
or protect the international reserves of the Bangko
party rate with the purpose of reselling the same to other
Sentral in the imminence of, or during an exchange
private parties at the same rate is a confiscation of private
crisis, or in time of national emergency and to give the
property not for public use nor for just compensation.
Monetary Board and the Government time in which to
Respondent contends the contrary.
take constructive measures to forestall, combat, or
overcome such a crisis or emergency, the Monetary
Board, with the concurrence of at least five (5) of its
65
objectives of the law could be achieved. That is why under
The defenses presented by the respondent-appellee in its Section 14, the Monetary Board is given the authority to
answer are: (1) that Circular No. 20 is presumed to be valid; "prepare and issue such rules and regulations as it
(2) that the Philippines is a signatory member of the considers necessary for the effective discharge of the
International Monetary Fund Agreement and as such is responsibilities and exercise the powers assigned to the
bound to respect or to maintain the par value of the Monetary Board and to the Central Bank."
Philippine currency; (3) that Circular No. 20 was approved
in an exchange crisis in accordance with Section 74 of the
Central Bank Act and said circular was approved by the The forcible sale of foreign exchange to the Central Bank,
President of the Philippines and by the International in relation to the powers and responsibilities given to it in
Monetary Fund; (4) that the powers of the Central Bank to Sees. 2, 14, 64, 68, 70, 74 and other sections of R.A. No. 265
curtail, regulate and license the use of foreign exchange can be regarded as falling within the category of "implied
include the right to require that all foreign exchange be powers", as those necessary for the effective discharge of
surrendered and that the plaintiff has not exhausted all the its responsibilities.
administrative remedies available in the ordinary course of
law, etc. Implied powers flow from a grant of expressed
powers and are those powers necessary or
RTC: found that there is a monetary crisis and that the incidental to the exercise of the expressed powers.
export of sugar by plaintiff was a transaction on foreign (Shelby Oil Co. vs. Pruitt & McCrory, 221 P. 709,
exchange; it declared that plaintiff would stand to lose by 710, 94 Okl. 232). Implied powers are such as are
the operation of the exchange control circular, but that the necessary to carry into effect those which are
enactment of a law on currency and even the issuance of expressly granted, and which must therefore be
paper money as legal tender are attributes of the sovereign presumed to have been within the intention of the
power legislative grant."
ISSUE: Whether the exchange control provision contained Under Section 70 of the Central Bank Charter the Bank may
in Section 4(a) of the CB Circular No. 20 may be considered adopt such remedial measures as are appropriate to
as sufficiently authorized by the provisions of the charter? maintain, the international reserve to a desired level, as
directed in Section 70 of the Charter which provides:
RULING: NO. The disputed Section 4(a) of Circular No. 20
of the Central Bank is beyond the power of the Central Bank SEC. 70. Action when the international stability of
to adopt under the provisions of its Charter. peso is threatened. — Whenever the international
reserve of Central Bank falls to an amount which
The provisions of Republic Act 265 are so broad and the Monetary Board considers inadequate to meet
encompassing with respect to the Bank's powers that it is the prospective net demands the Central Bank for
difficult to believe that exchange control was not authorized foreign currencies, or whenever the international
within the scope of the Charter. reserve appears to be imminent, danger of falling
to such level or whenever the international reserve
In Section 70, the Central Bank shall take remedial is falling as a result of payments or remittance
measures as are appropriate and within the powers granted abroad which, in the opinion of the Monetary
whenever the international reserve falls "to an amount Board, are contrary to the national welfare, the
which the Monetary Board considers inadequate to meet Monetary Board shall:
the prospective net demands on the Central Bank for
foreign currencies, or whenever the international reserve
(a) Take such remedial measures as are
appears to be in imminent danger of falling to such a level,
appropriate and within the powers granted to the
or whenever the international reserve is falling as a result of
Monetary Board, and Central Bank under the
payments or remittances abroad, which, in the opinion of
provisions of this Act:
the Monetary Board, are contrary to the national welfare." It
is recognized that a body created by, law has the power to
promulgate rules and regulations to implement a given However, the Central Bank can not be said to have been
legislation and effectuate its policies. given the authority to pass or enact by law the exchange
control provision that it had established.
Even the Legislature was perhaps aware that by the nature
of the vast subject matter which R.A. No. 265 covers, it could The Central Bank Act merely authorizes the Monetary Board
not foresee every conceivable means or power by which the to license or restrict or regulate foreign exchange; said Act

66
does not authorize it to commandeer foreign exchange 5. Switzerland
earned by exporters and pay for it the price it fixes, later 6. Canada
selling it to importers at the same rate of purchase. The 7. Singapore
writer further holds the belief that the power to 8. Australia
commandeer amounts to a confiscatory power that may not 9. Bahrain
be exercised by the Central Bank under its Charter; that 10. Kuwait
such confiscatory measures if justified by a monetary crisis
11. Saudi Arabia
can be adopted by the Legislature alone under its police
12. Brunei
power. Therefore, the disputed Section 4(a) of Circular
No. 20 of the Central Bank is beyond the power of the 13. Indonesia
Central Bank to adopt under the provisions of its 14. Thailand
Charter, particularly Section 74 thereof. 15. United Arab Emirates
16. European Monetary Union
That exchange control helped to ward off the exchange 17. Korea
crisis is true; but it was by no means the only way to do so. 18. China
It was not necessary for the Bank to commandeer all foreign
exchange to maintain the international monetary reserve. SECTION 74. Exchange Rates. — The Monetary Board shall
This could be done by mere licensing of the sale of foreign determine the exchange rate policy of the country.
exchange, directing those that earn the dollars, for
example, to sell to those that are licensed to import the
The Monetary Board shall determine the rates at which the
foreign commodities needed by the country's population
and economy. As the exports are to be licensed also, the Bangko Sentral shall buy and sell spot exchange, and shall
Bank could merely restrict the freedom of the exporter establish deviation limits from the effective exchange rate
holding the foreign exchange, requiring him to sell the or rates as it may deem proper. The Bangko Sentral shall
foreign exchange to the licensed importer. not collect any additional commissions or charges of any
sort, other than actual telegraphic or cable costs incurred
Here, the Bangko Sentral commandeered the foreign by it.
exchange. They exported and they wanted to pay under their
own currency (foreign currency: USD) Now they are made to The Monetary Board shall similarly determine the rates for
sell to the Central Bank at a fixed rate. The profit will be other types of foreign exchange transactions by the Bangko
consumed by the foreign exchange. This is not allowed Sentral, including purchases and sales of foreign notes and
because it is tantamount to a confiscatory power which they coins, but the margins between the effective exchange
rates and the rates thus established may not exceed the
cannot implement. It is confiscatory in nature. (2018 TSN)
corresponding margins for spot exchange transactions by
more than the additional costs or expenses involved in each
What is the authority of the Central Bank? It is merely to
type of transactions.
license and to restrict.
Types of Exchange Rate:
SECTION 73. Acquisition of Inconvertible Currencies. —
The Bangko Sentral shall avoid the acquisition and holding
1. Fixed Exchange Rate
of currencies which are not freely convertible, and may
acquire such currencies in an amount exceeding the 2. Floating Exchange Rate
minimum balance necessary to cover current demands for 3. Semi-fixed or Mixed Exchange Rate
said currencies only when, and to the extent that, such
acquisition is considered by the Monetary Board to be in Ano yung atin? Floating Exchange Rate. May appreciation and
the national interest. The Monetary Board shall determine depreciation.
the procedures which shall apply to the acquisition and
disposition by the Bangko Sentral of foreign exchange
which is not freely utilizable in the international market. SECTION 75. Operations with Foreign Entities. — The
Monetary Board may authorize the Bangko Sentral to grant
If you have these currencies, you can convert it into peso. loans to and receive loans from foreign banks and other
foreign or international entities, both public and private,
1. United States and may engage in such other operations with these
2. Japan entities as are in the national interest and are appropriate
3. United Kingdom
4. Hong Kong
67
to its character as a central bank. The Bangko Sentral may spot exchange as it may consider necessary for said
also act as agent or correspondent for such entities. purpose.
Upon authority of the Monetary Board, the Bangko Sentral SECTION 79. Other Exchange Profits and Losses. — The
may pledge any gold or other assets which it possesses as banks shall bear the risks of non-compliance with the terms
security against loans which it receives from foreign or of the foreign exchange documents and instruments which
international entities, they buy and sell, and shall also bear any other typically
commercial or banking risks, including exchange risks not
assumed by the Bangko Sentral under the provisions of the
preceding section.
ARTICLE III
Regulation of Foreign Exchange Operations of Banks
SECTION 80. Information on Exchange Operations. — The
banks shall report to the Bangko Sentral the volume and
SECTION 76. Foreign Exchange Holdings of the Banks. —
composition of their purchases and sales of gold and
In order that the Bangko Sentral may at all times have
foreign exchange each day, and must furnish such
foreign exchange resources sufficient to enable it to
additional information as the Bangko Sentral may request
maintain the international stability and convertibility of the
with reference to the movements in their accounts in
peso, or in order to promote the domestic investment of
foreign currencies.
bank resources, the Monetary Board may require the banks
to sell to the Bangko Sentral or to other banks all or part of
their surplus holdings of foreign exchange. Such transfers The Monetary Board may also require other persons and
may be required for all foreign currencies or for only certain entities to report to it currently all transactions or operations
of such currencies, according to the decision of the in gold, in any shape or form, and in foreign exchange
Monetary Board. The transfers shall be made at the rates whether entered into or undertaken by them directly or
established under the provisions of Section 74 of this Act. through agents, or to submit such data as may be required
on operations or activities giving rise to or in connection
with or relating to a gold or foreign exchange transaction.
The Monetary Board may, whenever warranted, determine
The Monetary Board shall prescribe the forms on which
the net assets and net liabilities of banks and shall, in
such declarations must be made. The accuracy of the
making such a determination, take into account the bank's
declarations may be verified by the Bangko Sentral by
networth, outstanding liabilities, actual and contingent, or
whatever inspection it may deem necessary.
such other financial or performance ratios as may be
appropriate under the circumstances. Any such
ARTICLE IV
determination of net assets and net liabilities shall be
Loans to Banking and Other Financial Institutions
applied in all banks uniformly and without discrimination.
A. Credit Policy
SECTION 77. Requirement of Balanced Currency Position.
— The Monetary Board may require the banks to maintain a
balanced position between their assets and liabilities in "Sec. 81. Guiding Principles. - The rediscounts, discounts,
Philippine pesos or in any other currency or currencies in loans and advances which the Bangko Sentral is authorized
to extend to banking institutions, under the provisions of
which they operate. The banks shall be granted a
the present article of this Act shall be used to influence the
reasonable period of time in which to adjust their currency
volume of credit consistent with the objective of price
positions to any such requirement.
stability and maintenance of financial stability."
The powers granted under this section shall be exercised Discount: bank loan with interest deducted from the face
only when special circumstances make such action amount of the note when the credit is extended. It is also
necessary, in the opinion of the Monetary Board, and shall
described as interest paid in advance or interest paid at the
be applied to all banks alike and without discrimination.
beginning of a loan based upon the sum to be repaid at its
maturity.
SECTION 78. Regulation of Non-spot Exchange
Transactions. — In order to restrain the banks from taking
Rediscount: process by which the CB discounts a negotiable
speculative positions with respect to future fluctuations in
foreign exchange rates, the Monetary Board may issue such instrument or commercial finance paper that are already
regulations governing bank purchases and sales of non- discounted with the Bank (2018 TSN)

68
B. Normal Credit Operations which, with the exception of advances against collateral
named in clause (4) of the present subsection, shall not
SECTION 82. Authorized Types of Operations. — Subject to exceed one hundred eighty (180) days:
the principle stated in the preceding section of this Act, the
Bangko Sentral may normally and regularly carry on the (1) gold coins or bullion;
following credit operations with banking institutions
operating in the Philippines: (2) securities representing obligations of the Bangko
Sentral or of other domestic institutions of recognized
(a) Commercial credits. — The Bangko Sentral may solvency;
rediscount, discount, buy and sell bills, acceptances,
promissory notes and other credit instruments with (3) the credit instruments to which reference is made in
maturities of not more than one hundred eighty (180) days
subsection (a) of this section;
from the date of their rediscount, discount or acquisition by
the Bangko Sentral and resulting from transactions related
to: (4) the credit instruments to which reference is made in
subsection (b) of this section, for periods which shall not
exceed three hundred sixty (360) days;
(1) the importation, exportation, purchase or sale of readily
saleable goods and products, or their transportation within
the Philippines; or (5) utilized portions of advances in current amount covered
by regular overdraft agreements related to operations
included under subsections (a) and (b) of this section, and
(2) the storing of non-perishable goods and products which certified as to amount and liquidity by the institution
are duly insured and deposited, under conditions assuring soliciting the advance;
their preservation, in authorized bonded warehouses or in
other places approved by the Monetary Board.
(6) negotiable treasury bills, certificates of indebtedness,
notes and other negotiable obligations of the Government
(b) Production credits. — The Bangko Sentral may maturing within three (3) years from the date of the
rediscount, discount, buy and sell bills, acceptances,
advance; and
promissory notes and other credit instruments having
maturities of not more than three hundred sixty (360) days
from the date of their rediscount, discount or acquisition by (7) negotiable bonds issued by the Government of the
the Bangko Sentral and resulting from transactions related Philippines, by Philippine provincial, city or municipal
to the production or processing of agricultural, animal, governments, or by any Philippine Government
mineral, or industrial products. Documents or instruments instrumentality, and having maturities of not more than ten
acquired in accordance with this subsection shall be (10) years from the date of advance.
secured by a pledge of the respective crops or products:
Provided, however, That the crops or products need not be The rediscounts, discounts, loans and advances made in
pledged to secure the documents if the original loan accordance with the provisions of this section may not be
granted by the Bangko Sentral is secured by a lien or renewed or extended unless extraordinary circumstances
mortgage on real estate property seventy percent (70%) of fully justify such renewal or extension.
the appraised value of which equals or exceeds the amount
of the loan granted. Advances made against the collateral named in clauses (6)
and (7) of subsection (d) of this section may not exceed
(c) Other credits. — Special credit instruments not otherwise eighty percent (80%) of the current market value of the
rediscountable under the immediately preceding collateral.
subsections (a) and (b) may be eligible for rediscounting in
accordance with rules and regulations which the Bangko C. Special Credit Operations
Sentral shall prescribe. Whenever necessary, the Bangko
Sentral shall provide funds from non-inflationary sources: SECTION 83. Loans for Liquidity Purposes. — The Bangko
Provided, however, That the Monetary Board shall Sentral may extend loans and advances to banking
prescribe additional safeguards for disbursing these funds. institutions for a period of not more than seven (7) days
without any collateral for the purpose of providing liquidity
(d) Advances. — The Bangko Sentral may grant advances to the banking system in times of need.
against the following kinds of collaterals for fixed periods

69
D. Emergency Credit Operation good and available for collateral purposes should the
release of the subsequent tranche be thereafter applied for.
"Sec. 84. Emergency Loans and Advances. - In periods of
national and/or local emergency or of imminent financial "The Monetary Board may, by a vote of at least five (5) of its
panic which directly threaten monetary and financial members, authorize the release of a subsequent tranche on
stability, the Monetary Board may, by a vote of at least five condition that the principal stockholders of the institution:
(5) of its members, authorize the Bangko Sentral to grant
extraordinary loans or advances to banking institutions, "(a) furnish an acceptable undertaking to
secured by assets as defined hereunder: Provided, That indemnify and hold harmless from suit a
while such loans or advances are outstanding, the debtor conservator whose appointment the Monetary
institution shall not, except upon prior authorization by the Board may find necessary at any time; and
Monetary Board, expand the total volume of its loans or
investments.
"(b) provide acceptable security which, in the
judgment of the Monetary Board, would be
"The Monetary Board may, at its discretion, likewise adequate to supplement, where necessary, the
authorize the Bangko Sentral to grant emergency loans or assets tendered by the banking institution to
advances to banking institutions, even during normal collateralize the subsequent tranche.
periods, for the purpose of assisting a bank in a precarious
financial condition or under serious financial pressures
brought by unforeseen events, or events which, though "In connection with the exercise of these powers, the
foreseeable, could not be prevented by the bank prohibitions in Section 128 of this Act shall not apply insofar
concerned: Provided, however, That the Monetary Board as it refers to acceptance as collateral of shares and their
has ascertained that the bank is not insolvent and has the acquisition as a result of foreclosure proceedings, including
assets defined hereunder to secure the the exercise of voting rights pertaining to said
advances: Provided, further, That a concurrent vote of at shares: Provided, however, That should the Bangko Sentral
least five (5) members of the Monetary Board is obtained. acquire any of the shares it has accepted as collateral as a
result of foreclosure proceedings, the Bangko Sentral shall
dispose of said shares by public bidding within one (1) year
"The amount of any emergency loan or advance shall not from the date of consolidation of title by the Bangko
exceed the sum of fifty percent (50%) of total deposits and Sentral.
deposit substitutes of the banking institution, and shall be
disbursed in two (2) or more tranches. The amount of the
first tranche shall be limited to twenty-five percent (25%) of "Whenever a financial institution incurs an overdraft in its
the total deposit and deposit substitutes of the institution account with the Bangko Sentral, the same shall be
and shall be secured by (a) government securities; (b) eliminated within the period prescribed in Section 102 of
acceptable guarantees backed up by the national this Act."
government or its securities; (c) other unencumbered first
class collaterals; and (d) other kinds of collaterals as may be E. Credit Terms
authorized by the Monetary Board in accordance with
sound risk management principles: Provided, That if as SECTION 85. Interest and Rediscount. — The Bangko
determined by the Monetary Board, the circumstances Sentral shall collect interest and other appropriate charges
surrounding the emergency warrant a loan or advance on all loans and advances it extends, the closure,
greater than the amount provided hereinabove, the receivership or liquidations of the debtor-institution
amount of the first tranche may exceed twenty-five percent notwithstanding. This provision shall apply prospectively.
(25%) of the bank’s total deposit and deposit substitutes if
the same is adequately secured by any of the collaterals set
The Monetary Board shall fix the interest and rediscount
forth above as approved by the Monetary Board, and the
rates to be charged by the Bangko Sentral on its credit
principal stockholders of the institution furnish an
operations in accordance with the character and term of the
acceptable undertaking to indemnify and hold harmless
operation, but after due consideration has been given to
from suit a conservator whose appointment the Monetary
Board may find necessary at any time."Prior to the release the credit needs of the market, the composition of the
of the first tranche, the banking institution shall submit to Bangko Sentral's portfolio, and the general requirements of
the Bangko Sentral a resolution of its board of directors the national monetary policy. Interest and rediscount rates
authorizing the Bangko Sentral to evaluate other assets of shall be applied to all banks of the same category uniformly
the banking institution certified by its external auditor to be and without discrimination.

70
SECTION 86. Endorsement. — The documents
rediscounted, discounted, bought or accepted as collateral "Sec. 88-B. Deputization of Legal Staff in Case of
by the Bangko Sentral in the course of the credit operations Foreclosures. - In case of an extrajudicial foreclosure of
authorized in this article shall bear the endorsement of the mortgage in connection with loans and advances under this
institution from which they are received. article, the Bangko Sentral may deputize any of its lawyers
to conduct the public auction pursuant to Act No. 3135, as
SECTION 87. Repayment of Credits. — Documents amended.
rediscounted, discounted or accepted as collateral by the
Bangko Sentral must be withdrawn by the borrowing "Likewise, in case of a judicial foreclosure in connection with
institution on the dates of their maturities, or upon loans and advances under this article, the Bangko Sentral
liquidation of the obligations which they represent or to may, with the approval of the court, deputize any of its
which they relate whenever said obligations have been lawyers to act as special sheriff in the sale of a debtor’s
liquidated prior to their dates of maturity. properties and in the enforcement of court writs and
processes related thereto. The special sheriff of the Bangko
Banks shall have the right at any time to withdraw any Sentral shall make a report to the proper court after any
documents which they have presented to the Bangko action has been taken by him, which court shall treat such
Sentral as collateral, upon payment in full of the action as if it were an act of its own sheriff in all respects.
corresponding debt to the Bangko Sentral, including
interest charges. "No restraining order or injunction shall be issued by the
court enjoining the Bangko Sentral from proceeding with
SECTION 88. Other requirements. — The Monetary Board the foreclosure of the mortgage unless a bond is posted in
may prescribe, within the general powers granted to it favor of the Bangko Sentral in an amount equivalent to the
under this Act, additional conditions which borrowing total claim of the Bangko Sentral. The restraining order or
institutions must satisfy in order to have access to the credit injunction shall be refused or, if granted, shall be dissolved
of the Bangko Sentral. These conditions may refer to the upon filing by the Bangko Sentral of a bond, which shall be
rates of interest charged by the banks, to the purposes for in the form of a Bangko Sentral check, in an amount twice
which their loans in general are destined, and to any other the amount of the original bond posted conditioned that
clearly definable aspect of the credit policy of the bank. the Bangko Sentral will pay the damages which the party
may suffer by the refusal or dissolution of the injunction. The
provisions of the Rules of Court on injunctions insofar as
SECTION 89. Provisional Advances to the National
they are applicable and not inconsistent with the provisions
Government. — The Bangko Sentral may make direct
of this section shall govern the issuance and dissolution of
provisional advances with or without interest to the National
the restraining order or injunction contemplated in this
Government to finance expenditures authorized in its
section."
annual appropriation: Provided, That said advances shall
be repaid before the end of three (3) months extendible by
another three (3) months as the Monetary Board may allow Relate this to your discussion on Cred Trans. Iba yung
following the date the National Government received such foreclosure when it comes to Bangko Sentral.
provisional advances and shall not, in their aggregate, "Sec. 88-C. Right of Redemption of Foreclosed Real
exceed twenty percent (20%) of the average annual income Property; Right of Possession During Redemption Period. -
of the borrower for the last three (3) preceding fiscal years. In the event of foreclosure, whether judicially or
extrajudicially, the mortgagor, who is a natural person, shall
VERY IMPORTANT have the right to redeem the property within one (1) year
from the date of foreclosure sale. In case the mortgagor is
a juridical person, the mortgagor shall have the right to
"Sec. 88-A. Exemption of Collaterals from Attachments,
redeem the property sold in a judicial foreclosure sale
Executions and Other Restrictions. - Collaterals on loans
within one (1) year from the date of foreclosure
and advances granted by the Bangko Sentral, whether or
sale: Provided, That in case of an extrajudicial foreclosure,
not the interest of the Bangko Sentral is registered, shall not
notwithstanding Act No. 3135, the mortgagor shall have the
be subject to attachment, execution or any other court
right to redeem the property sold within ninety (90) days
process or administrative restrictions on land use, nor shall
from the foreclosure sale but not later than the registration
they be included in the property of insolvent persons or
of the certificate of foreclosure sale. Redemption shall be
institutions."
effected by paying the principal, interests, charges,
commissions and all claims of whatever nature of the
Let’s say may nangutang kay Central Bank, may collateral Bangko Sentral outstanding and due as of the date of
property. Yung property nay un is exempt from execution. foreclosure sale, including all costs and other expenses

71
incurred by reason of the foreclosure sale and custody of ARTICLE V
the property. Open Market Operations for the Account of the Bangko
Sentral
"The Bangko Sentral, as purchaser in the foreclosure sale
and without need of posting a bond, may take possession SECTION 90. Principles of Open Market Operations. — The
of the foreclosed property during the redemption period. open market purchases and sales of securities by the
The Bangko Sentral shall be entitled to the fruits of the Bangko Sentral shall be made exclusively in accordance
property, the same to be applied against the redemption with its primary objective of achieving price stability.
price."
SECTION 91. Purchases and Sales of Government
"Sec. 88-D. Unsecured Bangko Sentral Claims. - All Securities. — In order to achieve the objectives of the
unsecured claims of the Bangko Sentral shall be considered national monetary policy, the Bangko Sentral may, in
preferred credits similar to taxes due to the National accordance with the principle stated in Section 90 of this
Government in the order of preference under Article 2244 Act and with such rules and regulations as may be
of the new Civil Code." prescribed by the Monetary Board, buy and sell in the open
market for its own account:
This is also important. So, the provisions on your NCC have
been further amended. You have your labor, tax and then this (a) evidences of indebtedness issued directly by the
one. Government of the Philippines or by its political
subdivisions; and
The Bangko Sentral is considered the lender of last resort.
Example of emergency contemplated wherein the bank can (b) evidences of indebtedness issued by government
ask for emergency loans are: instrumentalities and fully guaranteed by the Government.
1. Bank runs
2. Massive movements by depositors of their
The evidences of indebtedness acquired under the
funds from their banks to other banks
provisions of this section must be freely negotiable and
3. Exchange crisis
regularly serviced and must be available to the general
public through banking institutions and local government
Story on Bangladesh bank heist and the RCBC fiasco. treasuries in denominations of a thousand pesos or more.
"Sec. 89-A. Financial Facilities for Islamic Banks. - The Discussion on treasury bonds: Have you heard of treasury
Bangko Sentral may, taking into consideration the peculiar bonds? Biglaan na lang may announcement na mag issue sila
characteristics of islamic banking, formulate rules and (Government) ng treasury bonds. A good thing about treasury
regulations for the extension of financial facilities to islamic
bonds is that it is secured and interest is very low.
banks: Provided, That such exposures shall be properly
secured."
"Sec. 92. Issue and Negotiation of Bangko Sentral
Obligations. - In order to provide the Bangko Sentral with
They don’t consider profit in money-lending. They allow loans
effective instruments for open market operations, the
but let’s do a joint venture. I will profit not from the interest but
Bangko Sentral may, subject to such rules and regulations
from a trading activity. Money is merely a medium of as the Monetary Board may prescribe and in accordance
exchange, not a source of profit. That is the peculiar with the principles stated in Section 90 of this Act, issue,
characteristic of Islamic banking. It re-defines the banking place, buy and sell freely negotiable evidences of
concept. (2018 TSN) indebtedness of the Bangko Sentral. Said evidences of
indebtedness may be issued directly against the
"Sec. 89-B. Loans to the Philippine Deposit Insurance international reserve of the Bangko Sentral or against the
Corporation (PDIC). - The Bangko Sentral, pursuant to its securities which it has acquired under the provisions of
mandate of maintaining financial stability, may lend funds Section 91 of this Act, or may be issued without relation to
to the PDIC for insurance purposes and in cases of financial specific types of assets of the Bangko Sentral.
assistance that the latter is authorized to extend under
Section 22(e) of Republic Act No. 3591, as amended. "The Monetary Board shall determine the interest rates,
Notwithstanding Section 23 of Republic Act No. 3591, as maturities and other characteristics of said obligations of
amended, the Monetary Board shall prescribe interest rates
and such other terms and conditions of the loan."

72
the Bangko Sentral, and may, if it deems it advisable, remaining maturities of two (2) years or more, as well as
denominate the obligations in gold or foreign currencies. interbank borrowings.
"Subject to the principles stated in Section 90 of this Act, Since the requirement to maintain bank reserves is
the evidences of indebtedness of the Bangko Sentral to imposed primarily to control the volume of money, the
which this section refers may be acquired by the Bangko Bangko Sentral shall not pay interest on the reserves
Sentral before their maturity, either through purchases in maintained with it unless the Monetary Board decides
the open market or through redemptions at par and by lot otherwise as warranted by circumstances.
if the Bangko Sentral has reserved the right to make such
redemptions. The evidences of indebtedness acquired or Just know na every bank, may bank reserve. We’ll discuss this
redeemed by the Bangko Sentral shall not be included further when we reach the General Banking Law.
among its assets, and shall be immediately retired and
cancelled." There’s always a portion of the reserves of the money that is
restricted. That percentage of bank deposits and funds held in
ARTICLE VI trust that banks must keep on hand or in deposit with the
Composition of Bangko Sentral’s Portfolio Bangko Sentral. This is not available for lending to the public.
(2018 TSN)
SECTION 93. Review of the Bangko Sentral's Portfolio. — At
least once every month the Monetary Board shall review the Question, can a commercial demand interest on said bank
portfolio of the Bangko Sentral in relation to its future credit
reserves? The answer is NO. the CB is not obliged to pay
policy.
interest on reserves unless the Monetary Board decides
otherwise as provided by the circumstances. Again, reserves
In reviewing the Bangko Sentral's portfolio, the Monetary is an instrument policy by the CB to control the money
Board shall especially consider whether a sufficiently large aggregates. Kasi that will have an impact on your inflation.
part of the portfolio consists of assets with early maturities,
in order that a contraction in Bangko Sentral credit may be
Also, this reserve is exempt from execution and other court
effected promptly whenever the national monetary policy
processes.
so requires.
Please take note of the definition of Bank Substitutes.
ARTICLE VII
Bank Reserves
"Sec. 95. Definition of Deposit Substitutes. - The term
‘deposit substitutes’ is defined as an alternative form of
Section 94. Reserve Requirements. - In order to control the
obtaining funds from the public, other than deposits,
volume of money created by the credit operations of the
through the issuance, endorsement, or acceptance of debt
banking system, all banks operating in the Philippines shall
instruments for the borrower’s own account, for the
be required to maintain reserves against their deposit
purpose of relending or purchasing of receivables and
liabilities: Provided, That the Monetary Board may, at its
other obligations. These instruments may include, but need
discretion, also require all banks and/or quasi-banks to
not be limited to, bankers acceptances, promissory notes,
maintain reserves against funds held in trust and liabilities
participations, certificates of assignment and similar
for deposit substitutes as defined in this Act. The required
instruments with recourse, and repurchase agreements.
reserves of each bank shall be proportional to the volume
The phrase obtaining funds from the public’ shall mean
of its deposit liabilities and shall ordinarily take the form of
borrowing from twenty (20) or more lenders at any one
a deposit in the Bangko Sentral. Reserve requirements shall
time, and, for this purpose, Tenders’ shall refer to
be applied to all banks of the same category uniformly and
individuals and corporate entities that are not acting as
without discrimination.
financial intermediaries, subject to the safeguards and
regulations issued by the Monetary Board. The Monetary
Reserves against deposit substitutes, if imposed, shall Board shall determine what specific instruments shall be
be determined in the same manner as provided for reserve considered as deposit substitutes for the purposes of
requirements against regular bank deposits, with respect to Section 94 of this Act: Provided, however, That deposit
the imposition, increase, and computation of reserves. substitutes of commercial, industrial and other nonfinancial
companies for the limited purpose of financing their own
The Monetary Board may exempt from reserve needs or the needs of their agents or dealers shall not be
requirements deposits and deposit substitutes with covered by the provisions of Section 94 of this Act."

73
Take note of the definition. below the required minimum, the bank or quasi-bank shall
pay the Bangko Sentral monetary penalty as may be
If banks is to deposits, quasi banks is to deposit substitutes. prescribed by the Monetary Board: Provided,
however, That banks and quasi-banks shall ordinarily be
Section 96. Required Reserves Against Peso Deposits. - permitted to offset any reserve deficiency occurring on one
The Monetary Board may fix and, when it deems necessary, or more days of the week with any excess reserves which
alter the minimum reserve ratios to peso deposits, as well they may hold on other days of the same week and shall be
as to deposit substitutes, which each bank and/or quasi- required to pay the penalty in accordance with the
bank may maintain, and such ratio shall be applied mechanism approved by the Monetary Board. In cases of
uniformly to all banks of the same category as well as to abuse, the Monetary Board may deny any bank or quasi-
quasi-banks. bank the privilege of offsetting reserve deficiencies in the
aforesaid manner.
Section 97. Required Reserves Against Foreign Currency
Deposits. - The Monetary Board is similarly authorized to "If a bank or quasi-bank chronically has a reserve deficiency,
prescribe and modify the minimum reserve ratios the Monetary Board may limit or prohibit the making of new
applicable to deposits denominated in foreign currencies. loans or investments by the institution and may require that
part or all of the net profits of the institution be assigned to
Section 98. Reserves Against Unused Balances of Overdraft surplus.
Lines. - In order to facilitate Bangko Sentral control over the
volume of bank credit, the Monetary Board may establish "The Monetary Board may modify or set aside the reserve
minimum reserve requirements for unused balances of deficiency penalties provided in this section, for part or the
overdraft lines. entire period of a strike or lockout affecting a bank or a
quasi-bank as defined in the Labor Code, or of a national
The powers of the Monetary Board to prescribe and modify emergency affecting operations of banks or quasi-banks, or
reserve requirements against unused balances of overdraft in such other instances where the grant of waiver of
lines shall be the same as its powers with respect to reserve penalties is determined by the Monetary Board to be
requirements against demand deposits. justifiable. The Monetary Board may also modify or set
aside reserve deficiency penalties for rehabilitation
Section 99. Increase in Reserve Requirements. - Whenever program of a bank."
in the opinion of the Monetary Board it becomes necessary
to increase reserve requirements against existing liabilities, Section 101. Reserve Deficiencies. - Whenever the reserve
the increase shall be made in a gradual manner and shall position of any bank or quasi-bank, computed in the
not exceed four percentage points in any thirty-day period. manner specified in the preceding section of this Act, is
Banks and other affected financial institutions shall be below the required minimum, the bank or quasi-bank shall
notified reasonably in advance of the date on which such pay the Bangko Sentral one-tenth of one percent (1/10 of
increase is to become effective. 1%) per day on the amount of the deficiency or the
prevailing ninety-one-day treasury bill rate plus three
Section 100. Computation on Reserves. - The reserve percentage points, whichever is higher: Provided, however,
position of each bank or quasi-bank shall be calculated That banks and quasi-banks shall ordinarily be permitted to
daily on the basis of the amount, at the close of business for offset any reserve deficiency occurring on one or more days
the day, of the institution's reserves and the amount of its of the week with any excess reserves which they may hold
liability accounts against which reserves are required to be on other days of the same week and shall be required to
maintained: Provided, That with reference to holidays or pay the penalty only on the average daily deficiency during
non-banking days, the reserve position as calculated at the the week. In cases of abuse, the Monetary Board may deny
close of the business day immediately preceding such any bank or quasi-bank the privilege of offsetting reserve
holidays and non-banking days shall apply on such days. deficiencies in the aforesaid manner.
For the purpose of computing the reserve position of If a bank or quasi-bank chronically has a reserve
each bank or quasi-bank, its principal office in the deficiency, the Monetary Board may limit or prohibit the
Philippines and all its branches and agencies located making of new loans or investments by the institution and
therein shall be considered as a single unit. may require that part or all of the net profits of the institution
be assigned to surplus.
"Sec. 101. Reserve Deficiencies. - Whenever the reserve
position of any bank or quasi-bank, computed in the The Monetary Board may modify or set aside the
manner specified in the preceding section of this Act, is reserve deficiency penalties provided in this section, for

74
part or the entire period of a strike or lockout affecting a Sec. 104. Guiding Principle. - The Monetary Board shall use
bank or a quasi-bank as defined in the Labor Code, or of a the powers granted to it under this Act to ensure that the
national emergency affecting operations of banks or quasi- supply, availability and cost of money are in accord with the
banks. The Monetary Board may also modify or set aside needs of the Philippine economy and that bank credit is not
reserved deficiency penalties for rehabilitation program of granted for speculative purposes prejudicial to the national
a bank. interests. Regulations on bank operations shall be applied
to all banks of the same category, as may be defined by the
Section 102. Interbank Settlement. - The Bangko Sentral Monetary Board, uniformly and without discrimination."
shall establish facilities for interbank clearing under such
rules and regulations as the Monetary Board may prescribe: Section 105. Margin Requirements Against Letters of
Provided, That the Bangko Sentral may charge Credit. - The Monetary Board may at any time prescribe
administrative and other fees for the maintenance of such minimum cash margins for the opening of letters of credit,
facilities. and may relate the size of the required margin to the nature
of the transaction to be financed.
The deposit reserves maintained by the banks in the
Bangko Sentral in accordance with the provisions of Section Section 106. Required Security Against Bank Loans. - In
94 of this Act shall serve as basis for the clearing of checks order to promote liquidity and solvency of the banking
and the settlement of interbank balances, subject to such system, the Monetary Board may issue such regulations as
rules and regulations as the Monetary Board may issue with it may deem necessary with respect to the maximum
respect to such operations: Provided, That any bank which permissible maturities of the loans and investments which
incurs on overdrawing in its deposit account with the the banks may make, and the kind and amount of security
Bangko Sentral shall fully cover said overdraft, including to be required against the various types of credit operations
interest thereon at a rate equivalent to one-tenth of one of the banks.
percent (1/10 of 1%) per day or the prevailing ninety-one-
day treasury bill rate plus three percentage points, Section 107. Portfolio Ceilings. - Whenever the Monetary
whichever is higher, not later than the next clearing day: Board considers it advisable to prevent or check an
Provided, further, That settlement of clearing balances shall expansion of bank credit, the Board may place an upper
not be effected for any account which continues to be limit on the amount of loans and investments which the
overdrawn for five (5) consecutive banking days until such banks may hold, or may place a limit on the rate of increase
time as the overdrawing is fully covered or otherwise of such assets within specified periods of time. The
converted into an emergency loan or advance pursuant to Monetary Board may apply such limits to the loans and
the provisions of Section 84 of this Act: Provided, finally, investments of each bank or to specific categories thereof.
That the appropriate clearing office shall be officially
notified of banks with overdrawn balances. Banks with
existing overdrafts with the Bangko Sentral as of the In no case shall the Monetary Board establish limits
effectivity of this Act shall, within such period as may be which are below the value of the loans or investments of the
prescribed by the Monetary Board, either convert the banks on the date on which they are notified of such
overdraft into an emergency loan or advance with a plan of restrictions. The restrictions shall be applied to all banks
payment, or settle such overdrafts, and that, upon failure to uniformly and without discrimination.
so comply herewith, the Bangko Sentral shall take such
action against the bank as may be warranted under this Act. Sec. 108. Minimum Capital Ratios. - The Monetary Board
may prescribe minimum risk-based capital adequacy ratios
Section 103. Exemption from Attachment and Other based on internationally accepted standards and may alter
Purposes. - Deposits maintained by banks with the Bangko said ratios whenever it deems necessary. In the exercise of
Sentral as part of their reserve requirements shall be its authority under this section, the Monetary Board may
exempt from attachment, garnishments, or any other order require banks to hold capital beyond the minimum
or process of any court, government agency or any other requirements commensurate to then risk profile."
administrative body issued to satisfy the claim of a party
other than the Government, or its political subdivisions or ARTICLE IX
instrumentalities. Coordination of Credit Policies by Government
Institutions
ARTICLE VIII
Selective Regulation of Banking Operations Section 109. Coordination of Credit Policies. -
Government-owned corporations which perform banking

75
or credit functions shall coordinate their general credit with the Bangko Sentral, with only minimum working
policies with those of the Monetary Board. balances to be held by government-owned banks and such
other banks licensed to operate in the Philippines as the
Toward this end, the Monetary Board may, whenever Monetary Board may authorize.
it deems it expedient, make suggestions or
recommendations to such corporations for the more "The Bangko Sentral may accept deposits and pay interest
effective coordination of their policies with those of the on such deposits and other similar placements of the
Bangko Sentral. Government or of its political subdivisions and
instrumentalities, banks and other Bangko Sentral-
supervised institutions."
CHAPTER V – FUNCTIONS AS BANKER AND FINANCIAL
ADVISOR OF THE GOVERNMENT Section 114. Fiscal Operations. - The Bangko Sentral shall
open a general cash account for the Treasurer of the
ARTICLE I Philippines, in which the liquid funds of the Government
Functions as Banker of the Government shall be deposited.
Section 110. Designation of Bangko Sentral as Banker of Transfers of funds from this account to other accounts
the Government. - The Bangko Sentral shall act as a banker shall be made only upon order of the Treasurer of the
of the Government, its political subdivisions and Philippines.
instrumentalities.
Section 115. Other Banks as Agents of the Bangko
Section 111. Representation with the International Sentral. - In the performance of its functions as fiscal agent,
Monetary Fund. - The Bangko Sentral shall represent the the Bangko Sentral may engage the services of other
Government in all dealings, negotiations and transactions government-owned and controlled banks and of other
with the International Monetary Fund and shall carry such domestic banks for operations in localities at home or
accounts as may result from Philippine membership in, or abroad in which the Bangko Sentral does not have offices
operations with, said Fund. or agencies adequately equipped to perform said
operations: Provided, however, That for fiscal operations in
Very important. How do you differentiate IMF from World foreign countries, the Bangko Sentral may engage the
services of foreign banking and financial institutions.
Bank?
Section 116. Remuneration for Services. - The Bangko

The main difference between the International Monetary
Sentral may charge equitable rates, commissions or fees for
Fund (IMF) and the World Bank lies in their respective
services which it renders to the Government, its political
purposes and functions. The IMF oversees the world's subdivisions and instrumentalities.
monetary system's stability, while the World Bank’s goal is to
reduce poverty by offering assistance to middle-income and ARTICLE II
low-income countries. (From investopedia) The Marketing and Stabilization of Securities for the
Account of the Government
Section 112. Representation with Other Financial
Institutions. - The Bangko Sentral may be authorized by the Section 117. Issue of Government Obligations. - The issue
Government to represent it in dealings, negotiations or of securities representing obligations of the Government,
transactions with the International Bank for Reconstruction its political subdivisions or instrumentalities, may be made
and Development and with other foreign or international through the Bangko Sentral, which may act as agent of, and
financial institutions or agencies. The President may, for the account of, the Government or its respective
however, designate any of his other financial advisors to subdivisions or instrumentality, as the case may be:
jointly represent the Government in such dealings, Provided, however, That the Bangko Sentral shall not
negotiations or transactions. guarantee the placement of said securities, and shall not
subscribe to their issue except to replace its maturing
holdings of securities with the same type as the maturing
"Sec. 113. Official Deposits. - The Bangko Sentral shall be
securities.
the official depository of the Government, its political
subdivisions and instrumentalities as well as of
government-owned or -controlled corporations. As a Section 118. Methods of Placing Government Securities. -
general policy, their cash balances should be deposited The Bangko Sentral may place the securities to which the

76
preceding section refers through direct sale to financial
institutions and the public. "Sec. 123. Financial Advice on Official Credit Operations. -
Before undertaking any credit operation abroad, the
The Bangko Sentral shall not be a member of any Government, through the Secretary of Finance, shall
stock exchange or syndicate, but may intervene therein for request the opinion, in writing, of the Monetary Board on
the sole purpose of regulating their operations in the the monetary implications of the contemplated action. Such
placing of government securities. opinions must similarly be requested by all political
subdivisions and instrumentalities of the Government
before any credit operation abroad is undertaken by them.
The Government, or its political subdivisions or
instrumentalities, shall reimburse the Bangko Sentral for the
expenses incurred in the placing of the aforesaid securities. "The opinion of the Monetary Board shall be based on the
gold and foreign exchange resources and obligations of
Section 119. Servicing and Redemption of the Public the nation and on the effects of the proposed operation on
Debt. - The servicing and redemption of the public debt the balance of payments and on monetary
shall also be effected through the Bangko Sentral. aggregates.1âwphi1
Section 120. The Securities Stabilization Fund. - There "Whenever the Government, or any of its political
shall be established a "Securities Stabilization Fund" which subdivisions or instrumentalities, contemplates borrowing
shall be administered by the Bangko Sentral for the account within the Philippines, the prior opinion of the Monetary
of the Government. 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
The operations of the Securities Stabilization Fund
level, and the balance of payments.
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 "A credit operation or borrowing as provided herein may
operations shall be to increase the liquidity and stabilize the take the form of different credit facilities such as, but not
value of said securities in order thereby to promote limited to, a single loan, series of loans under a borrowing
investment in government obligations. program, or credit lines. No prior Monetary Board opinion
shall be required for individual drawdowns or borrowings
within approved credit lines or borrowing programs."
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 Section 124. Representation on the National Economic and
endeavor to alter movements of the market resulting from Development Authority. - In order to assure effective
basic changes in the pattern or level of interest rates. coordination between the economic, financial and fiscal
policies of the Government and the monetary, credit and
exchange policies of the Bangko Sentral, the Deputy
The Monetary Board shall issue such regulations as Governor designated by the Governor of the Bangko
may be necessary to implement the provisions of this Sentral shall be an ex officio member of the National
section. Economic and Development Authority Board.
Section 121. Resources of the Securities Stabilization CHAPTER VI – PRIVILEGES AND PROHIBITIONS
Fund. - Subject to Section 132 of this Act, the resources of ARTICLE I
the Securities Stabilization Fund shall come from the
Privileges
balance of the fund as held by the Central Bank under
Republic Act No. 265 as of the effective date of this Act.
"Sec. 125. Tax Exemptions. - The Bangko Sentral shall be
exempt from all national, provincial, municipal and city
Section 122. Profits and Losses of the Fund. - The
taxes on income derived from its governmental
Securities Stabilization Fund shall retain net profits which it
functions, specifically:
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 "(a) income from its activities or transactions in the exercise
it may incur. of its supervision over the operations of banks and its
regulatory and examination powers over non-bank financial
ARTICLE III institutions performing quasi-banking functions, money
Functions as Financial Advisor of the Government

77
service businesses, credit granting businesses and this prohibition shall not apply whenever the Monetary
payment system operators; and Board, by a vote of at least five (5) of its members, (1) deems
an acquisition or investment to be necessary to qualify or as
"(b) income in pursuit of its primary objective to maintain required for membership in international and regional
price stability conducive to a balanced and sustainable organizations; or (2) determines that investing in and/or
growth of the economy, and the promotion and operating an enterprise will be consistent with the effective
maintenance of monetary and financial stability and the fulfillment of its mandate and will not constitute any conflict
convertibility of the peso. of interest.
"All other incomes not included in the above enumeration "The Bangko Sentral shall not engage in development
shall be considered as proprietary income and shall be banking or financing: Provided, however, That outstanding
subject to all taxes, charges, fees and assessments." loans obtained or extended for development financing
shall not be affected by the prohibition of this section."
Take note of this provision.
Section 126. Exemption from Customs Duties. - The ***END OF FIRST EXAM COVERAGE***
provision of any general or special law to the contrary
notwithstanding, the importation and exportation by the
Bangko Sentral of notes and coins, and of gold and other
metals to be used for purposes authorized under this Act,
and the importation of all equipment needed for bank note
production, minting of coins, metal refining and other
security printing operations shall be fully exempt from all
customs duties and consular fees and from all other taxes,
assessments and charges related to such importation or
exportation.
Section 127. Applicability of the Civil Service Law. -

Appointments in the Bangko Sentral, except as to those
which are policy-determining, primarily confidential or
highly technical in nature, shall be made only according to
the Civil Service Law and regulations: Provided, That no
qualification requirements for positions in the Bangko
Sentral shall be imposed other than those set by the
Monetary Board: Provided, further, That, the Monetary
Board or Governor, in accordance with Sections 15(c) and
17(d) of this Act, respectively, may without need of
obtaining prior approval from any other government
agency, appoint personnel in the Bangko Sentral whose
services are deemed necessary in order not to unduly
disrupt the operations of the Bangko Sentral.
Officers and employees of the Bangko Sentral,

including all members of the Monetary Board, shall not
engage directly or indirectly in partisan activities or take
part in any election except to vote.
ARTICLE II
Prohibitions
"Sec. 128. Prohibitions. - The Bangko Sentral shall not

acquire shares of any kind or accept them as collateral, and
shall not participate in the ownership or management of
any enterprise, either directly or indirectly: Provided, That

78

2019 BANKING TSN First Exam

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2019 BANKING TSN First Exam

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Monetary policy is primarily concerned with the management of interest rates and the total supply of money in circulation

and is generally carried out by central banks.

BANKING AND OTHER COMMERCIAL LAWS

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Sec. 2. Creation of the Bangko Sentral.— There is hereby DISCUSSION:

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BANKING AND OTHER COMMERCIAL LAWS

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Hence, the present petition of the Commissioner of Customs the jurisdiction?

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BANKING AND OTHER COMMERCIAL LAWS

The seven (7) members are:

MONETARY BOARD MEMBERSHIP

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Confirmation by the Commission on Appointments is

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Receiver Liquidator S. Villanueva Enterprises defaulted in paying the amortizations

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CENTRAL BANK OF THE PHILIPPINES v. DELA CRUZ

Sec. 35. False Statement. - The willful making of a false or

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This is an addition to the previous Central Bank Act:

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(c) The balance of payments of the Philippines;