Banking Law Memory Aid Atty.

Joey Hofileña
Sources: The General Banking Law Annotated by the BSP, other BSP real estate and insured improvements
materials, Atty. Hofileña’s lectures and cases under his syllabus thereon, chattel mortgage, bonds and
• Central Bank – independent central monetary authority in the other forms of security or in loans for
Philippines personal or household finance, whether
o Principal Responsibilities: secured or unsecured, or in financing for
a. Provide independent policy direction in the homebuilding and home development; in
areas of money, banking, and credit readily marketable and debt securities;
• Monetary board may prescribe in commercial papers and accounts
ratios, ceilings, limitations, or other receivables, drafts, bills of exchange,
forms of regulation on the diff types acceptances or notes arising out of
of accounts and practices of banks commercial transactions; and in such
and quasi-banks. other investments and loans which the
• MB may exempt particular Monetary Board may determine as
transactions from such ratios, necessary in the furtherance of national
ceilings, or limitations. economic objectives;
b. Supervision over the operations of banks ii. Providing short-term working capital,
finance companies and other institutions medium- and long-term financing, to
performing similar functions businesses engaged in agriculture,
• Rule-making services, industry and housing; and
• Examination and oversight Powers iii. Providing diversified financial and allied
o Including an enterprise services for its chosen market and
wholly or majority-owned constituencies specially for small and
or controlled by the bank medium enterprises and individuals.
• Visitorial powers c. Has a lower capitalization requirement
• Enforcement of prompt action 4. Rural banks
a. Designed to make needed credit available and
• Licensing
readily accessible in rural areas on reasonable
o Principal objectives
terms
a. Maintain price stability
b. Provide adequate credit facilities to farmers and
b. Control of domestic inflation by keeping it low and
merchants, or to coops of such merchants and
stable; utilization of monetary policy/money supply
farmers and, in general, to the people of the rural
tools
communities, and to supervise the operation of
c. Promote and maintain monetary stability and the
such banks.
convertibility of the peso
5. Cooperative banks – bank organized by the majority shares
o Members must be natural-born citizens, of known
of which is owned and controlled by, coops primarily to
probity, integrity and patriotism, and Majority of
provide financial and credit services to coops.
members of Monetary Board must come from private
a. Formed by at least 15 persons whose primary
sector
objective is to provide goods and services to
o Enjoys Fiscal Autonomy - full flexibility to allocate and
members and enable them to attain increased
utilize their resources with the wisdom and dispatch that
income and savings, investment.
their needs require (SC)
b. Purpose is primarily to provide financial and credit
o Administrative Autonomy - freedom from interference
services to cooperative organizations and their
and intervention by other agencies.
members
o Organization:
6. Islamic banks – Al Amanah Islamic Bank (Government bank)
§ Body corporate
to promote and accelerate the socio-economic development
§ Government-owned (but not controlled)
of the ARMM by performing banking, financing and
§ Outstanding and paid-in capital of P50 billion
investment operations and to establish and participate in
§ Initial paid-in capital came from the assets of
agricultural, commercial and industrial ventures based on the
the predecessor Central Bank of the
Islamic concept of banking.
Philippines
a. Shari’a Advisory Council – 5 member board that
• Banks – entities engaged in the lending of funds obtained in the
offer advice pertaining to application of Islamic
form of deposits where funds are obtained from the public;
Shari’a principles to the bank’s transactions
Conditions (which also apply to Quasi-banks):
b. Can’t charge interest.
1. Entity is a stock corporation
7. Other classifications of banks as determined by the
2. Funds obtained from public, which shall mean 20 or more
Monetary Board or the BSP
persons; and
• Government Banks:
3. Minimum capital requirements prescribed by the Monetary
o Development Bank of the Philippines – provide banking
Board for each category of banks are satisfied
services principally to serve medium and long term
• Classification of Banks
needs of agricultural and industrial enterprises,
1. Universal Bank – has power of commercial banks and, in
particularly in the country-side and preferably for small
addition, the powers of an investment house and the power
and medium scale enterprises
to invest in non-allied enterprises.
o Land Bank of the Philippines – to finance the
2. Commercial – in addition to the general powers of a
acquisition by the Government of landed estates for
corporation, all such powers as may be necessary to carry
division and resale to small landowners, as well as the
on the business of commercial banking, and extending
purchase of the landholding by the agricultural lessee.
credit, subject to such rules of MB
• Quasi-banks – entities engaged in the borrowing of funds
3. Thrift Banks
through the issuance, endorsement or assignment with recourse
a. Include:
or acceptance of deposit substitutes for purposes of relending or
i. Savings and Mortgage banks
purchasing receivables and other obligations
ii. Stock savings and loan associations
o Deposit Substitutes – an alternative form of obtaining
iii. Private development banks
funds from the public, other than deposits, through the
b. And any corporation organized for the following
issuance, endorsement, or acceptance of debt
purposes:
instruments for the borrower's own account, for the
i. Accumulating savings of depositors and
purpose of relending or purchasing of receivables and
investing them, together with capital
other obligations. Includes:
loans secured by bonds, mortgages in
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Banking Law Memory Aid
§ Bankers acceptances, promissory notes,
participations, certificates of assignments,
and repurchase agreements
§ Bank acts as a guarantor for the DS
o Requires prior written authority by BSP
o Universal or commercial banks shall likewise have
authority to engage in quasi-banking functions
o Failure to comply with required production of books
necessary to ascertain facts relative to the true function
of such entity shall subject person responsible to penal
sanctions
• Non-Bank Financial Institutions
1. Investment Houses – any enterprise which engages in the
underwriting of securities of other corporations
i. Underwriting – act or process of guaranteeing
distribution and sale of securities of any king
issued by another corporation
ii. Securities – written evidence of ownership or
participation In an enterprise
iii. No director/officer shall concurrently be a director
or officer of a bank except as authorized by MB
iv. Shall not engage in banking operations
b. Financing Companies – primarily organized for the purpose
of extending credit facilities to consumers and to industrial,
commercial, or agricultural enterprises, either by discounting
or factoring commercial papers on accounts receivable, or by
buying and selling contracts, leases, chattel mortgages, or
other evidences of indebtedness, or by leasing of motor
vehicles, heavy equipment and industrial machinery,
business and office machine and equipment, appliances and
other movable property
c. Investment Companies – issues or holds itself out as being
engaged primarily, or proposes to engage primarily, in the
business of investing, reinvesting or trading in securities
• Supervisory Powers of the BSP:
1. Issue rules of conduct or establishment of standards of
operations for uniform application to all institutions
2. Conduct examination to determine compliance with laws and
regulations if circumstances warrant, as determined by MB
3. Overseeing to ascertain laws & regulations are complied with
4. Regular investigation, which shall not be oftener than 1 a
year from the last date of examination, to determine whether
institution is conducting business on a safe or sound basis
a. Irregularities found, be immediately addressed
b. Inquiring into solvency and liquidity of institution
c. Enforcing prompt corrective action
5. Supervision over operations of and exercise regulatory
powers over quasi-banks, trust entities and other financial
institutions which under special laws are subject to BSP’s
supervision
6. Examine an enterprise wholly or majority-owned or
controlled by the bank
• Need for regulation
o State recognizes the vital role of banks thus State shall
promote and maintain a stable and efficient banking
and financial system
o Banking industry considered as indispensible to
national interest
o In case of strikes and lockouts
§ If unsettled after 7 days, the BSP shall report
to the Secretary of Labor who may assume
jurisdiction over the dispute
§ Or Secretary may decide to certify the same
to the NLRC for compulsory arbitration
§ President of the Philippines may at any time
intervene and assume jurisdiction to settle
the same.
• Operating without Authority
o If the offender is a director or officer, may be
suspended/removed by MB
o If committed by a corporation, may be dissolved by quo
warranto proceedings instituted by SolGen
o Proceedings Upon Violation
§ Any willful violation of Banking Laws/orders,
unless otherwise provided, be punished by:
Atty. Joey Hofileña
• Fine of P50,000 – P200,000 and/or
• Imprisonment 2 – 10 years
§ When bank or quasi bank persists in carrying
business in an unlawful/unsafe manner,
board may also take action under Sec. 30
o Administrative Sanctions
§ Without prejudice to criminal sanctions, MB
may also impose upon a bank or quasi bank,
their directors for any willful violation of its
charter/by-laws or any other irregularities, the
following admin sanctions:
i. Fine, in no case to exceed P30,000 a
day for each violation, taking into
consideration the circumstances
ii. Suspension of rediscounting privileges
or access to BSP credit facilities
iii. Suspension of lending or foreign
exchange operations or authority to
accept new deposits or make new
investments
iv. Suspension of interbank clearing
privileges, and/or
v. Revocation of quasi-banking license
§ Resignation shall not exempt director
§ MB may suspend any director pending
investigation, but only for a max period of
120 days after the date of suspension
o When delay is his fault, such period
shall not be counted
§ May order to cease and desist from said act,
and order immediate action to be taken to
correct the conditions.
§ Opportunity to defend in a hearing before the
MB, upon request by respondents within 5
days from receipt of order, otherwise, order is
final
§ Governor is authorized to impose, upon
failure to comply with the law, MB regulations
or instructions, fines not exceeding P10,000
a day for each violation, which is final until
reversed by MB on appeal
• BSP as Supervisor or Regulator
o Policy Directions
§ BPS shall provide policy direction in the
areas of money, banking and credit
§ MB may prescribe ratios, ceilings, or other
forms of regulations on different accounts
§ MB may exempt particular categories or
transactions from requirement, not limited to
exceptional cases to enable the bank/quasi
under rehabilitation or during merger or
consolidation to continue business with safety
to creditors and general public
§ BSP has authority to examine an enterprise
which is wholly or majority-owned or
controlled by the bank
o Supervision and Examination
§ BSP has supervision over and may conduct
periodic or special examinations of banks and
quasi banks, including subsidiaries and
affiliates engaged in allied activities
§ Subsidiary – corporation more than 50% of
voting stock of which is owned by a bank or
quasi-bank
§ Affiliate – corporation the voting stock of
which, the extent of 50% or less is owned by
a bank or QB or which is related or linked to
such institution or intermediary through
common stockholders or such other factors
determined by MB
§ Department heads and examiners of
supervising and/or examining departments
are authorized to administer oaths for
examination of documents
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Banking Law Memory Aid
§ No restraining order shall be issued by the
court enjoining the BSP from examining any
institution subject to supervision
• Unless there is convincing proof
that BSP’s action is plainly arbitrary
and in bad faith, and
• Plaintiff files w/ clerk or judge of
court in which action is pending a
bond in favor of BSP in an amount
fixed by the court.
o Examination and Fees
§ Supervising and examining department head,
personally or by deputy, shall examine books
of every banking institution once in every 12
months
§ And at such other times MB, by a vote of 5
members may deem expedient
§ Interval of at least 12 months between
annual examinations
§ Banks must forward books for inspection at
any time during banking hours when
requested by BSP
§ None of the reports shall be open to
inspection by the public except insofar such
publicity is incidental to proceedings, or is
necessary for prosecution of violations
§ Those subject to examination shall pay BSP
within first 30 days of each year an annual
feel, in an amount equal to a % as may be
prescribed by MB of its average total
assets during the preceding year, as shown
by its end-of-month balance sheets, after
deducting case on hand and amounts due
from banks
• Organization
o As to Stocks
§ On issuance of stocks, MB may prescribe
rules and regulations on types of stock a
bank may issue
§ No bank shall purchase or acquire shares of
its own capital stock, or accept its own shares
as a security for a loan (Treasury stocks)
except when authorized by MB
• In every case the stock so
purchased or acquired, must sell
them within 6 months from
acquisition
o Certificate of Authority to Register – required from MB
before articles of incorporation or amendment thereto
may be registered with the SEC. Must show:
a. All requirements of existing laws and regulations to
engage in business applied for have been
complied with
b. Public interest and economic conditions, both
general and local, justify the authorization; and
c. Amount of capital, the financing, organization,
direction and administration, as well as the
integrity and responsibility of the organizers and
administrators reasonably assure the safety of
deposits and public interest.
d. For by-laws, must be accompanied by a certificate
of authority from the Banko Sentral
o Prohibition against declaration of dividends – if at the
time of declaration:
a. Its clearing account with Banko Sentral is
overdraw; or
b. It is deficient in the required liquidity floor for
government deposits for 5 or more consecutive
days; or
c. Doesn’t’ comply with the liquidity standards/ratio
prescribed by the BSP for purposes of determining
funds available for dividend declaration; or
d. Committed a major violation as may be
determined by the BSP
• Foreign Ownership/Stockholding
Atty. Joey Hofileña
o Foreign and Philippine banks – may own or control up
to 100% of the voting stock of a domestic bank (R.A.
10641)
o Foreign individuals and non-bank corporation – may
own up to 40% of the voting stock (aggregate
ownership)
o Filipino Individual and a domestic non-bank corporation
– may each own up to 40% of the voting stock
o Control Test – the citizenship of the corporation which
is a stockholder in a bank shall follow the citizenship of
the controlling stockholders of the corporation,
irrespective of place of incorporation
• Stockholdings of Family Groups and Related Interests
o Family Stockholdings
§ Stockholdings of individuals related to each
th
other within the 4 degree of consanguinity
or affinity, legitimate or common law
considered family groups or related interests
§ Must be fully disclosed in all transaction by
such corporations or related groups of
persons with the bank
o Corporate stockholdings
§ 2 or more corporations owned or controlled
by the same family group or same group of
persons
§ Considered related interests
§ Must be fully disclosed in all transactions by
such corporations or related group of persons
with the bank
• Other Capitalization Requirements – Risk Based Capital
o MB to prescribe minimum ration which the net worth of
a bank must bear to its total risk assets, whi may
include contingent accounts
o MB may require ration to be determined based on net
worth and risk assets of a bank and its subsidiaries,
financial or otherwise, as well as prescribe the
composition and the manner of determining the net
worth and total risk assets of banks and their
subsidiaries
o Provided that MB to an extent feasible, conform to
internationally accepted standards, including those of
the Bank for International Settlements (BIS), relating to
risk-based capital requirements
o MB may alter or suspend compliance with ration
whenever necessary
§ For a max period of 1 year
o Apply ratio uniformly to banks of same category
o If a bank fails to comply, MB may limit or prohibit
distribution of net profits
§ May require that part or all of net profits be
used to increase capital accounts of bank
§ May prohibit/restrict acquisition of major
assets and the making of new investments by
the bank, except purchases of readily
marketable evidences of indebtedness of the
Republic and of the BSP and any other
evidences of indebtedness or obligations the
servicing and repayment of which are fully
guaranteed by the Republic, until the
minimum required capital ratio has been
restored. .
o In case of merger or consolidation, or when it is under
an approved rehabilitation program MB may temporarily
relieve surviving, consolidated or constituent bank, and
bank under rehab from full compliance under
prescribed conditions
• Directors and Officers
o Board of Directors
§ 5-15 members except in case of a bank
merger or consolidation, in which case, shall
NOT exceed 21
§ 2 of whom are independent directors
§ Independent Director – a person other than
an officer or employee of the bank, its
subsidiaries or affiliates or related interests
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Banking Law Memory Aid Atty. Joey Hofileña
§ Foreigners may be part to the extent of the o Net Worth – total of the unimpaired paid-in capital
foreign participation in the equity of the bank including paid-in surplus, retained earnings and
o Fit and Proper Rule – MB shall prescribe and review undivided profit, net of valuation reserve and other
qualifications and disqualifications of individuals elected adjustments as the BSP may require
as officers and directors and disqualify those unfit o Acquisition of equities subject to prior approval of BSP
§ MB may disqualify, suspend or remove any o Powers of a Commercial Bank
such person who commits or omits an act a. General powers incident to corporations
which render him unfit for the position b. All powers necessary for business as a
§ Regard given to integrity, experience, commercial bank
education, training and competence o Other Banking Services:
o Compensation and other Benefits – MB may regulate a. Receive in custody funds, documents and valuable
payment but only in cases when circumstances object
warrant, such as but not limited to the following: b. Act as financial agent and buy and sell, by order of
a. Bank is under comptrollership or conservatorship and for the account of their customers, shares,
b. Bank found by MB to be conducting business in an evidences of indebtedness and all types of
unsound manner; or securities;
c. Bank found by the MB to be in an unsatisfactorily c. Make collections and payments for the account of
financial condition others and perform such other services for their
o Prohibition on Public Officials customers as are not incompatible with banking
§ No appointive or elective public official shall business;
serve at the same time as an officer of any d. Upon prior approval of the Monetary Board, act as
private bank managing agent, adviser, consultant or
§ Except when service is incident to financial administrator of investment
assistance provided by the government or a management/advisory/consultancy accounts; and
GOCC to the bank unless otherwise provided e. Rent out safety deposit boxes.
under existing law f. The bank shall perform the services permitted
• Branches and Operation Hours under a, b, c, and d as depositary or as an
o Branches agent. It shall keep the funds, securities and other
§ Universal or commercial banks, within or effects which it receives duly separate from the
outside Philippines upon prior approval of bank's own assets and liabilities
BSP o In case a bank or QB notifies the BSP or publicly
§ Other banks, governed by pertinent laws announces a bank holiday, or in any manner suspends
§ Subject to prior MB approval, may use its the payment of its deposit liabilities continuously for
branches as outlets for presentation and/or more than thirty (30) days, the MB may summarily
sale of financial products of its allied and without need for prior hearing close such banking
undertaking or of its investment house units institution and place it under receivership of the
§ A bank authorized to establish branches are Philippine Deposit Insurance Corporation.
liable to the same manner as if head office – • Trust Corporations
treated as one unit o Trust Entity – any activity resulting from a trustor-
o Banking Days and Hours – unless otherwise authorized trustee relationship involving appointment of a trustee
by the BSP in the interest of the banking public by a trustor for the admin, holding, management of
§ Working days (Monday-Fridays unless funds and/or properties of the trustor by the trustee fro
holidays) for at least 6 hours a day the use, benefit or advantage of trustor or beneficiary
§ May open for business on Saturdays, a. Stock Corporation or a person duly authorized by
Sundays or holidays for at least 3 hrs a day MB to engage in said business
• Banks which opt for this shall report b. Shall act as a trustee or administer any trust, or
to BSP the additional days c. Hold property in trust or on deposit for the use,
• Universal Banks and Commercial Banks benefit or behoof of others
o Administer property under is under its custody with the
Universal Bank Commercial diligence that a prudent man would exercise
Bank o For the account of trustor or beneficiary, prohibited from
purchasing property from or sell or lend money or
Powers of A Commercial Bank Yes Yes
property to:
§ Any of the departments, directors, employees
Investment house powers Yes No or stockholders of the trust entity,
Invest in Allied Enterprises Yes Yes §
st
Relatives within the 1 degree of
Invest in Non-Allied Enterprises Yes No consanguinity/affinity, or related interests of
Maximum Allied & Non-Allied 50% of net worth 35% of net such people
Investments worth (no NA) § Unless transaction is specifically authorized
Max Single Allied 25% of net w. 25% of net w. by trustor and relationship is fully disclosed
Max Single N.A. 25% of net w. 0 prior to the transaction
Max Non Financial Allied 100% equity 100% equity o Must be registered and comply with the minimum paid-
Max Non-allied 35% total equity 0 in capital requirement
& voting o Powers:
Max Financial Allied 100% equity 49% voting a. Act as trustee on any mortgage or bond issued by
stock stock any municipality, corporation, or any body politic
Thrift 100% or e.s. 100% or e.s. and to accept and execute any trust consistent
Rural 100% or e.s. 100% or e.s. with law
UB/KB (but only 1) If publicly listed: If publicly b. Act under the order or appointment of any court as
100% listed: 100% guardian, receiver, trustee, or depositary of the
If not: 49% If not: 49% estate of any minor or other incompetent person,
Quasi-Banks MB may further MB may further and as receiver and depositary of any moneys
limit to 40% limit to 40% paid into court by parties to any legal proceedings
equity equity % and of property of any kind which may be brought
under the jurisdiction of the court;

Sales, D. BlockA2016 4
 
Banking Law Memory Aid Atty. Joey Hofileña
c. Act as the executor of any will when it is named o The investment of funds other than trust funds of a trust
the executor thereof; entity which is a bank, financing company or an
d. Act as administrator of the estate of any deceased investment house shall be governed by the relevant
person, with the will annexed, or as administrator provisions of this Act and other applicable laws.
of the estate of any deceased person when there o No assets held by a trust entity in its capacity as trustee
is no will; shall be subject to any claims other than those of the
e. Accept and execute any trust for the holding, parties interested in the specific trusts.
management, and administration of any estate, o The ordinary business of a trust entity shall be
real or personal, and the rents, issues and profits transacted at the place of business specified in its
thereof; and articles of incorporation.
f. Establish and manage common trust funds, § Such trust entity may, with prior approval,
subject to such rules and regulations as may be establish branches in the Philippines and
prescribed by the Monetary Board. § The said entity shall be responsible for all
o Every trust entity shall deposit with the BSP as security business conducted in such branches to as
for the faithful performance of its trust duties, cash or though it was done by the main office
securities approved by the MB in an amount not less • Fixed, savings and currend deposits of money in banks and
than P500,000.00, or such higher amount as may fixed similar institutions are governed by provisions on a simple loan.
o A trust entity so long as it shall continue to be solvent • Right to Set-off – A bank generally has a right of set-off over the
and comply with laws shall have the right to collect the deposits therein for the payment of any withdrawals on the part of
interest earned on such securities deposited with the a depositor.
BSP o Requisites under Art. 1279 of the Civil Code
§ And, from time to time, with the approval of a. That each one of the obligors be bound principally,
the Bangko Sentral, to exchange the and that he be at the same time a principal creditor
securities for others. of the other;
If the trust entity fails to comply BSP shall b. That both debts consist in a sum of money, or if
retain such interest for the benefit of rightful the things due are consumable, they be of the
claimants. same kind, and also of the same quality if the latter
§ All claims rising out of the trust business of a has been stated;
trust entity shall have priority over all other c. That the two debts be due;
claims as regards the cash or securities d. That they be liquidated and demandable;
deposited as above provided. e. That over neither of them there be any retention
§ Prohibited that the cash or securities or controversy, commenced by third persons and
deposited to be reduced below the prescribed communicated in due time to the debtor.
minimum amount until the depositing entity • Demand Deposits – all those liabilities of the BSP and of other
shall discontinue its trust business and shall banks which are denominated in Philippine currency and are
satisfy the Monetary Board that it has subject to payment in legal tender upon demand by the
complied with all its obligations in connection presentation of checks; accounts which pay funds on demand
with such business. without notice of intended withdrawal
o Bond for Faithful Performance of Duties – before an an o Only a universal or commercial bank can accept or
executor, administrator, guardian, trustee, receiver or create demand deposits
depositary appointed by the court enters upon the § Unless other banks acquire prior approval,
execution of his duties and subject to condition prescribed by the MB
o Upon the application, the court may, after notice and o Only banks duly authorized to do so may accept funds
hearing, order that the subject matter of the trust or any or create liabilities payable in pesos upon demand by
part, thereof be deposited with a trust entity. Upon the presentation of checks, and such operations shall
presentation of proof to the court that the subject matter be subject to the control of the MB
of the trust has been deposited with a trust entity, the o Checks representing demand deposits do not have
court may order that the bond given by such persons legal tender power and their acceptance in the payment
for the faithful performance of their duties be reduced to of debts, both public and private, is at the option of the
such sums as it may deem proper: creditor:
§ Provided, however, That the reduced bond § Provided, however, That a check which has
shall be sufficient to secure adequately the been cleared and credited to the account of
proper administration and care of any the creditor shall be equivalent to a delivery
property remaining under the control of such to the creditor of cash in an amount equal to
persons and the proper accounting for such the amount credited to his account.
property. o Savings Deposits and Time Deposits are different
§ Property deposited with any trust entity in Savings Account Time Deposit Special/Super
conformity with this Section shall be held by Savings Deposit
such entity under the orders and direction of Interest Regular savings Higher interest Higher interest
the court. Rate Interest rate rate
o Exemption of Trust Entity from Bond Requirement Period None Fixed Term Fixed Term
However, the court may, upon proper application with it Evidenced Passbook Certificate of Passbook
showing special cause therefore, require the trust entity by: Time Deposit
to post a bond or other security for the protection of
Pre- None With Penalty With Penalty
funds or property confided to such entity.
termination
o The trust business and all funds, properties or
Holding None Yes Yes
securities received by any trust entity as executor,
Period
administrator, guardian, trustee, receiver, or depositary
Withdrawal Allowed Withdrawal Allowed provided
shall be kept separate and distinct from the general
amounts to min amount to
business including all other funds, properties, and
pre- earn the higher
assets of such trust entity. Same with accounts
termination interest rate is
o Unless otherwise directed by the instrument creating
maintained,
the trust, the lending and investment of funds and other
otherwise, the
assets acquired by a trust entity shall be limited to loans
regular savings
or investments as may be prescribed by law, the MB or
rate will apply
any court of competent jurisdiction.
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Banking Law Memory Aid
o Time Deposit – one the payment of which cannot be
legally required within such a specified number of days
o Money Market – market dealing in standardized short
term credit instruments (involving large amounts) where
lenders and borrowers don’t deal directly with each
other but through a middle man or dealer in open
market (considered as demand deposits)
o Certificate of Deposit – written acknowledgment by a
bank or banker of the receipt of a sum of money on
deposit which the bank or banker promises to pay to
the depositor, to the order of the depositor, or to some
other person or his order, whereby the relation of debtor
and creditor between the bank and the depositor is
created; a receipt issued by a bank for an interest-
bearing time deposit coming due at a specified future
date.
• Secrecy of Bank Deposits (R.A. No. 1405) – all deposits of
whatever nature with banks or banking institutions in the
Philippines and investments in government bonds are considered
as of an absolutely confidential nature (includes trust accounts)
o Prohibited Acts and Person liable
a. Any person or government official or office who
examines, inquires or looks into these in any of
instances not allowed
b. Any official or employee of a banking institution
who makes a disclosure concerning bank deposits
to another in any instance not allowed by law
c. Any person who commits a violation of any of the
provisions of the said act
d. Violations may be subject to fine and/or
imprisonment
o Exceptions under Sec. 2 :
a. Upon written permission or consent in writing by
the depositor
b. In cases of impeachment
c. Upon order of a competent court in cases of
bribery or dereliction of duty of public officials
d. In cases where the money deposited or invested in
the subject matter of the litigation
o Exceptions under Other Laws
a. Ombudsman has the power to subpoena deposit
information of a government official may be
exercised when the following conditions concur:
i. Pending case before a court of
competent jurisdiction
ii. Account clearly identified
iii. Inspection limited to subject matter of
pending case
iv. Bank personnel and the account holder
notified to be present during the
inspection
b. Bank deposits of a public official, his spouse and
unmarried children may be taken in consideration
in the enforcement of the The Anti-Graft and
Corrupt Practices Act (In Banco Filipino v.
Purisima: may be extended to “other persons”
under whose name ownership over property
unlawfully acquired)
c. Directors, officers, stockholders and related
interests who contract a loan or any form of
financial accommodation with their bank or related
waiver of secrecy of deposits pursuant to the New
Central Bank Act
d. Commission of Internal Revenue is authorized to
inquire in to bank deposit accounts:
i. Application for compromise tax liability
(NIRC), or
ii. Determination of a decedent’s gross
estate (NIRC), or
iii. A request for tax info of specific
taxpayers made by a foreign tax
authority pursuant to a tax treaty
(Exchange of Information on Tax
Matters Act of 2009)
e. Anti-Money Laundering Council:
Atty. Joey Hofileña
i. With court order, when probable cause
exists that deposits or investments are
related to an unlawful activity of a
money laundering offense
ii. Without need of court order, when
probable cause exists that a particular
deposit or investment with any banking
institution is related to certain predicate
crimes
f. Banko Sentral is authorized to:
i. Inquire into or examine bank deposits or
investments in the course of a periodic
or special examination to ensure
compliance with the Anti-Money
Laundering Law
ii. Conduct annual testing limited to the
determination of existence and true
identity of the owners of numbered
accounts
g. The Philippine Deposit Insurance Commission and
the Banko Sentral may inquire when there is findin
of unsafe or unsound banking practices
h. Court of Appeal, designated as a special court,
may issue an order authorizing officers to examine
and gather information on deposits, placements,
trust accounts, assets and records in a bank or
financial institution in connection w/ an anti-
terrorism case (Human Security Act)
i. Person charged with or suspected of
terrorism or conspiracy for it
ii. Any judicially declared and outlawed
terrorist group
iii. Any member of such group
iv. If person charged is acquitted or
dismissed of charges, entitled to P50k a
day during period that assets were
seized as liquidated damages.
i. Commission on Audit can examine and audit
government deposits pertaining to revenue and
receipts of, and expenditures or uses of funds and
properties, owned or held in trust by, or pertaining
to, the government or any of its subdivisions,
agencies, and instrumentalities, including GOCCs
with original charters
j. The PCGG, in the conduct of its investigations to
recover ill-gotten wealth accumulated by Marcos
and his cohorts, may issue subpoenas requiring
attendance and testimony of witnesses, and/or
production of other documents
k. Banks shall forward all credits and deposits they
hold in favor of persons known to be dead, or who
have not made further deposits or withdrawals for
10 years or more, after trying to communicate
with owner of account at his last known address
(Unclaimed Balances Law)
• Absolute Confidentiality of Foreign Currency Deposits (Foreign
Currency Deposit Act) – all FCDs are absolutely confidential and
cannot be examined.
o Exempt from garnishment or any other order or legal
processes in the Philippines
o Foreign Currency Deposit – funds in foreign
currencies which are accepted and held by authorized
banks in the regular course of business with the
obligation to return an equivalent amount to the owner
thereof, with or without interest
o Exceptions:
a. When there is written permission of the Depositor
b. Directors related who had to waive right
c. Instances when Commission of Internal Revenue
is authorized
d. Instances when the AMLC is authorized
e. Banko Sentral for compliance with the AMLA and
for annual testing
f. PDIC in case of unsound business practices
g. COA and government funds
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Banking Law Memory Aid
h. PCGG and accounts of Marcos & cronies
i. Account of a Non-resident Alien (tourist) on the
ground of equity
Lending Operations
• Grant, Purpose and Requirement of Loans
o Purpose of all loans shall be stated in the application
§ Can terminate if uses for other purpose
o Before granting a loan, bank must ascertain the
capability of debtor to fulfill his commitment to the bank
(may demand statement of assets and liabilities etc.)
§ Can terminate if false or no approval
• Prohibited Transactions by directors, officers, employee or agent
of a bank:
1. Make false entries in any bank report or statement or
participate in any fraudulent transaction, thereby affecting
the financial interest of, or causing damage to, the bank or
any person;
2. Without order of a court of competent jurisdiction, disclose to
any unauthorized person any information relative to the
funds or properties in the custody of the bank belonging to
private individuals, corporations, or any other entity:
Provided, That with respect to bank deposits, the provisions
of existing laws shall prevail;
3. Accept gifts, fees, or commissions or any other form of
remuneration in connection with the approval of a loan or
other credit accommodation from said bank;
4. Overvalue or aid in overvaluing any security for the purpose
of influencing in any way the actions of the bank or any bank;
or
5. Outsource inherent banking functions.
6. Banks may not employ casual or non regular personnel or
too lengthy probationary personnel in the conduct of its
business involving bank deposits
• Prohibited acts of borrowers
1. Fraudulently overvalue property offered as security for a loan
or other credit accommodation from the bank;
2. Furnish false or make misrepresentation or suppression of
material facts for the purpose of obtaining, renewing, or
increasing a loan or other credit accommodation or
extending the period thereof;
3. Attempt to defraud the said bank in the event of a court
action to recover a loan or other credit accommodation; or
4. Offer any director, officer, employee or agent of a bank any
gift, fee, commission, or any other form of compensation in
order to influence such persons into approving a loan or
other credit accommodation application.
• Bad Debts – debts due to any bank on which interest is due and
unpaid for such period as may be determined by the Monetary
Board unless the same are well-secured and in the process of
collection
• Development Assistance Incentives – BSP shall provide
incentives to banks, which, without government guarantee, extend
loans to finance:
1. Educational institutions
2. Cooperatives
3. Hospitals and other medical services
4. Socialized or low-cost housing
5. LGUS
6. Other activities with social content
• Disclosure Requirements (Truth in Lending Act) – any creditor
shall furnish to each person to whom credit is extended, prior to
its consummation, a statement in writing containing:
1. Cash price or delivered price of the property or service to be
acquired
2. Amounts, if any, to be credited as down payment and/or
trade in
3. Difference between amount in (a) and (b)
4. Charges, individually itemized, which are paid or to be paid
by such person in connection with the transaction but which
are not incident to the extension of credit;
5. Total amount to be financed;
6. Finance charge expressed in terms of pesos and centavos;
and
Atty. Joey Hofileña
7. Percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.
• Terms and Conditions
o Amortization
§ The amortization schedule of bank loans and
other credit accommodations shall be
adapted to the nature of the operations to be
financed.
§ In case of loans and other credit
accommodations with maturities of more
than five (5) years, provisions must be made
for periodic amortization payments, but such
payments must be made at least annually:
§ However, when the borrowed funds are to be
used for purposes which do not initially
produce revenues adequate for regular
amortization payments, the bank may permit
the initial amortization payment to be
deferred until revenues are sufficient,
§ But in no case shall the initial amortization
date be later than five (5) years from the
date on which the loan or other credit
accommodation is granted
o Pre-payment
§ Borrower may at any time prior to the agreed
maturity date prepay, in whole or in part, the
unpaid balance of any bank loan and other
credit accommodation, subject to such
reasonable terms and conditions as may be
agreed upon between the bank and its
borrower.
§ Usually, pre-payment is burdensome for the
bank since shortens period it can use the
deposit
o Interest
§ No interest shall be due unless it has been
expressly stipulated in writing
§ The contract must bind both contracting
parties; its validity or compliance cannot be
left to the will of one of them.
§ Requisites of a valid Escalation Clause:
i. That there can be an increase in
interest if increased by law or by
the Monetary Board, and
ii. Must include a provision for
reduction of the stipulated interest if
the applicable maximum rate of
interest is reduced by law or by the
MB (De-escalation Clause)
o In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the
currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is
an agreement to the contrary.
§ Extraordinary inflation - unusual decrease
in the purchasing power of currency (that is,
beyond the common fluctuation in the value
of currency) and such decrease could not be
reasonably foreseen or was manifestly
beyond the contemplation of the parties at
the time of the obligation. Extraordinary
deflation, on the other hand, involves an
inverse situation.
§ Requisites:
i. Official declaration of extraordinary
inflation or deflation from the
Bangko Sentral ng Pilipinas (BSP)
ii. Obligation was contractual in
nature; and
iii. Parties expressly agreed to
consider the effects of the
extraordinary inflation or deflation.
o Single Borrower’s Limit (Except otherwise prescribed by
MB for reasons of national interest)
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Banking Law Memory Aid
§ Total amount of loans, credit
accommodations and guarantees that may
be extended by a bank to anyone shall at no
time exceed 20% of the net worth of such
bank.
o Basis is the total credit commitment
of the bank to the borrower
o Maybe increased by an additional
10% of the net worth provided the
additional liabilities of any borrower
are adequately secured by
documents transferring or securing
title covering readily marketable,
non-perishable goods fully covered
by insurance
§ MB may prescribe combination of the
liabilities of subsidiary corporations or
members of the partnership, entity, or
individual under certain circumstances, such
as:
o Parent entity or individual
guarantees the repayment of the
liabilities;
o Liabilities were incurred for the
accommodation of the parent
corporation or another subsidiary or
of the partnership or association or
entity or such individual; or
o Subsidiaries though separate
entities operate merely as
departments or divisions of a single
entity.
§ Loans, other credit accommodations and
guarantees shall exclude:
i. Loans and other credit
accommodations secured by
obligations of the Bangko Sentral
or of the Philippine Government:
ii. Loans and other credit
accommodations fully guaranteed
by the government as to the
payment of principal and interest;
iii. Loans and other credit
accommodations covered by
assignment of deposits maintained
in the lending bank and held in the
Philippines;
iv. Loans, credit accommodations and
acceptances under letters of credit
to the extent covered by margin
deposits; and
v. Others that the MB may from
specify as non-risk items.
• Directors, Officers, Stockholders, and their Related Interests
(DOSRI)
o Restriction on Bank Exposure – no direct No director or
officer of any bank, directly or indirectly, for himself or
as the representative or agent of others:
a. Borrow from such bank
b. Become a guarantor, endorser or surety for loans
from such bank to others, or
c. In any manner be an obligor or incur any
contractual liability to the bank
o Except with the written approval of the majority of all
the directors of the bank, excluding the director
concerned
§ BUT, written approval NOT required for loans
granted to officers under a fringe benefit plan
approved by the BSP
o Dealings of a bank with any of its DOSRI shall be upon
terms not less favorable to the bank than those offered
to others.
o After due notice to the board of directors of the bank,
the office of any bank director or officer who violates the
provisions of this Section may be declared vacant and
Atty. Joey Hofileña
the director or officer shall be subject to the penal
provisions
o MB may regulate the amount of loans, credit
accommodations and guarantees that may be
extended, directly or indirectly, by a bank to its DOSRI
as well as investments of such bank in enterprises
owned or controlled by them
o However, the outstanding loans, credit
accommodations and guarantees which a bank may
extend to each shall be limited to an amount equivalent
to their respective unencumbered deposits and book
value of their paid-in capital contribution in the bank;
provided that loans secured by assets considered as
non-risk are excluded
o Bank Deposits and Investments – must waive secrecy
of his deposits of whatever nature in all banks in the
Philippines.
Lending Operations
• Deposits are in the nature of ordinary loans
• Collateral Security
o Unsecured Loans
o Guaranty – person, called the guarantor, binds himself
to the creditor to fulfill the obligation of the principal
debtor in case the later should fail
§ Guarantees the solvency of debtor (as
against a surety who guarantees the debt
itself)
§ Principle of Excussion – only after the
creditor has proceeded against the properties
of the principal debtor and the debt remains
unsatisfied that a guarantor can he held liable
for any unpaid amount
o There is solidary liability only when:
a. Obligation so states, or
b. The law or nature of obligation requires it
o Loans on Security of Chattels and Intangible Properties
– shall not exceed 75% of the appraised value of the
security
o Loans against Real Estate – shall not exceed 75% of
the appraised value of the security, plus 60% of the
appraised value of the insured improvements
• Real Estate Mortgages
o Acquisition of Real Estate by Way of Satisfaction of
Claims – may acquire, hold or convey real property if
(must be disposed within 5 years or as may be
prescribed by the MB, except those it may hold for its
own use:
a. Mortgaged to it in good faith by way of security for
debts
b. Conveyed to it in satisfaction of debts previously
contracted in the course of its dealings
c. Purchase at sales under judgments, decrees,
mortgages, or trust deeds held by it, and such as it
shall purchase to secure debts due it.
o Blanket Mortgage or Dragnet Clause – specifically
phrased to subsume all debts of past or future originis.
o Foreclosure of Real Estate Mortgage
§ Period of redemption: 1 year after the sale
(whether judicial or extrajudicial)
• Except if mortgagor is a judicial
person whose property is sold
extrajudicially – only has until the
registration of the certificate of the
foreclosure sale with the Register
of Deeds, which in no case shall
be more than 3 months after
foreclosure
§ By paying amount due under the mortgage
deed, with interest at rate specified, and all
costs and expenses incurred, less income
derived therefrom
§ Purchaser has the right to take possession of
property immediately after confirmation of the
auction sale
§ Petitions to enjoy require that a bond must
Sales, D. BlockA2016 8
Banking Law Memory Aid
first be filed for damages
• Total investment in real estate and improvements for its own use
in the conduct of business shall not exceed 50% of combined
capital accounts
o Equity investment in another corporation engaged
primarily in real estate shall be considered as part of
investment in real estate
• A bank shall not directly engage in insurance business as the
insurer
• Conducting business in an Unsafe or Unsound Manner – if
persists, MB may immediately exclude bank from clearing
1. The act or omission has resulted or may result in material
loss or damage, or abnormal risk or danger to the safety,
stability, liquidity or solvency of the institution;
2. The act or omission has resulted or may result in material
loss or damage or abnormal risk to the institution's
depositors, creditors, investors, stockholders or to the
Bangko Sentral or to the public in general;
3. The act or omission has caused any undue injury, or has
given any unwarranted benefits, advantage or preference to
the bank or any party in the discharge by the director or
officer of his duties and responsibilities through manifest
partiality, evident bad faith or gross inexcusable negligence;
or
4. The act or omission involves entering into any contract or
transaction manifestly and grossly disadvantageous to the
bank, quasi-bank or trust entity, whether or not the director
or officer profited or will profit thereby.
• Loans by the BSP
o Loans for liquidity purposes – for a period not longer
than 7 days without any collateral for purpose of
providing liquidity to the system in times of need
o Emergency Loans and advances – in periods of
national and/or local emergency or of imminent financial
panic which directly threaten monetary and banking
stability, the Monetary Boar, by a vote of at least five
(5) of its members.
§ Provided, while such loans or advances are
outstanding, the debtor institution shall not,
except upon prior authorization by the
Monetary Board, expand the total volume of
its loans or investments.
o Even during normal 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
foreseeable, could not be prevented by the bank
concerned:
§ Provided, the MB has ascertained that the
bank is not insolvent and has the assets
defined hereunder to secure the advances:
§ Concurrent vote of at least five (5) members
of the MB is obtained.
o The amount of any emergency loan or advance shall
not exceed 50% of total deposits and deposit
substitutes of the banking institution and shall be
disbursed in two (2) or more tranches.
§ First tranche limited 25% of the total deposit
and deposit substitutes of the institution and
shall be secured by government securities
§ Provided, That if as determined by the
Monetary Board, the circumstances
surrounding the emergency warrant a loan or
advance greater, the amount of the first
tranche may exceed if the same is
adequately secured by applicable loan values
of government securities and unencumbered
first class collaterals approved by the
Monetary Board, and the principal
stockholders of the institution furnish an
acceptable undertaking to indemnify and hold
harmless from suit a conservator whose
appointment the Monetary Board may find
necessary at any time.
§ If BSP acquires any shares it accepted as
Atty. Joey Hofileña
collateral as a result of foreclosure, it must
dispose of them by public bidding within 1
year from consolidation of title
Dissolution of Banks
• Conservatorship
o Appointment of Conservator
§ Report submitted by the appropriate
supervising or examining department of the
MB
§ Bank is in a state of continuing inability or
unwillingness to maintain condition of liquidity
deemed adequate to protect interest of
depositors and creditors
o Power and duty of Conservator
a. Take charge of assets and liabilities and
management of that institution
b. Collect all monies and debts due said institution
and exercise all powers necessary to preserve the
assets of the institution, reorganize the
management thereof, and restore its viability
c. Has the power to overrule, or revoke the actions of
the previous management and BoD,
§ Power is limited to that of the BoD. It cannot
revoke a valid perfected contract. It can only
revoke those that are void or defective.
d. Any provision of law contrary notwithstanding, and
such other powers as the MB shall deem
necessary
o Shall not exceed 1 year
o Conservator shall receive remuneration fixed by
Monetary Board in amount not exceeding 2/3 of salary
of president of the institution in 1 year
§ If terminates before 1 year on ground that
bank was revived, can claim salary for the
balance
o Terminate when it is satisfied either:
§ It can continue to operate on its own and
conservatorship is no longer necessary, or
§ On the basis of report of conservator or of its
own findings, continuance of business would
involve probable loss to its depositors or
creditors
• Receivership
o Upon report of the head of the supervising or examining
department, MB finds that a bank:
a. Is unable to pay its liabilities as they become due
in the ordinary course of business: Provided, That
this shall not include inability to pay caused by
extraordinary demands induced by financial panic
in the banking community;
b. Has insufficient realizable assets, as determined
by the Bangko Sentral, to meet its liabilities; or
c. Cannot continue in business without involving
probable losses to its depositors or creditors; or
d. Has willfully violated a cease and desist order
under Section 37 that has become final, involving
acts or transactions which amount to fraud or a
dissipation of the assets of the institution;
o Monetary Board may summarily and without need for
prior hearing forbid the institution from doing business
in the Philippines and designate the Philippine Deposit
Insurance Corporation (PDIC) as receiver of the
banking institution (if quasi-bank, any competent person
in banking or finance)
o Power and duty of Receiver
a. Immediately gather and take charge of all the
assets and liabilities of the institution, administer
the same for the benefit of its creditors,
b. Exercise the general powers of a receiver under
the Revised Rules of Court but shall not, with the
exception of administrative expenditures, pay or
commit any act that will involve the transfer or
disposition of any asset of the institution:
Sales, D. BlockA2016 9
Banking Law Memory Aid Atty. Joey Hofileña
i. Receiver may deposit or place the funds c. Convincing proof, after hearing, that the action is
of the institution in non-speculative plainly arbitrary and made in bad faith
investments. • Appointment of a receiver vested exclusively with the Monetary
o The receiver shall determine as soon as possible, but Board. The designation of a conservator is NOT a precondition to
not later than ninety (90) days from take over, the designation of a receiver.
whether: • Voluntary Liquidation
o The institution may be rehabilitated or o Written notice of such liquidation shall be sent to the
otherwise placed in such a condition so that it MB before such liquidation is undertaken,
may be permitted to resume business with o MB shall have the right to intervene and take such
safety to its depositors and creditors and the steps as may be necessary to protect the interests of
general public (with prior approval of the MB), creditors.
OR • Distribution of Assets - In case of liquidation of a bank or quasi-
a. The institution cannot be rehabilitated or permitted bank, after payment of the cost of proceedings, including
to resume business, in which case, liquidation is in reasonable expenses and fees of the receiver to be allowed by
order the court, the receiver shall pay the debts of such institution,
o During this period, the bank would not be able to do under order of the court, in accordance with the rules on
new business. Equivalent to an injunction concurrence and preference of credit as provided in the Civil
• Liquidation Code.
o Upon receiver’s report, the MB shall notify in writing the • Disposition of Revenues and Earnings - All revenues and
board of directors of its findings and direct the receiver earnings realized by the receiver in winding up the affairs and
to proceed with the liquidation of the institution. administering the assets of any bank or quasi-bank within the
o Requirements to be complied with before MB can purview of this Act shall be used to pay the costs, fees and
declare bank insolvent, order it closed and forbid it from expenses mentioned in the preceding section, salaries of such
doing business further personnel whose employment is rendered necessary in the
a. Examination made by examining department of discharge of the liquidation together with other additional
the CB expenses caused thereby.
b. Report by department to the MB o The balance of revenues and earnings, after the
c. Disclosed in report that a there is a prima facie payment of all said expenses, shall form part of the
showing that its continuance in business would assets available for payment to creditors.
involve probable loss to its depositors or creditors • Disposition of Banking Franchise - BSP may, if public interest so
d. MB finds statement to be true requires, award to an institution, upon such terms and conditions
o The receiver shall: as the Monetary Board may approve, the banking franchise of a
a. File ex parte with the proper regional trial court, bank under liquidation to operate in the area where said bank or
and without requirement of prior notice or any its branches were previously operating
other action, a petition for assistance in the o Provided, That whatever proceeds may be realized
liquidation of the institution pursuant to a from such award shall be subject to the appropriate
liquidation plan adopted by the PDIC for general exclusive disposition of the Monetary Board
application to all closed banks. • Doctrine of Promissory Estoppel – an estoppel may arise from
i. If quasi-banks, plan adopted by MB the making of a promise even though without consideration, if it
ii. Court shall decide on the issues was intended that the promise should be relied upon and in fact it
iii. The receiver shall pay the cost of the was relied upon, and if a refusal to enforce it would be virtually to
proceedings from the assets of the sanction the perpetration of fraud or would result in other injustice
institution
b. Convert the assets of the institutions to money,
dispose of the same to creditors and other parties,
for the purpose of paying the debts of such
institution in accordance with the rules on
concurrence and preference of credit
i. And he may, in the name of the
institution, and with the assistance of
counsel as he may retain, institute such
actions as may be necessary to collect
and recover accounts and assets of, or
defend any action against, the
institution.
• Assets of an institution under receivership or liquidation shall be
deemed in custodia legis in the hands of the receiver and shall,
from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of
garnishment, levy, attachment, or execution.
• The actions of the Monetary Board taken Section 29 of this Act
shall be final and executory, and may not be restrained or set
aside by the court (Close Now, Hear Later Scheme)
o Except on Petition for Certiorari (Rule 65) on the
ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction.
o Requisites for court to set aside the order of
conservatorship:
a. Appropriate pleading must be filed by the
stockholders representing majority of the capital
stock of the bank in a proper court
b. Pleading must be filed within 10 days from receipt
of notice by said majority stockholders of the
order; and

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