Chapter II:

AUTHORITY OF THE
BANGKO SENTRAL
SEC. 4. SUPERVISORY POWERS
• The issuance of rules of conduct or the establishment of
standards of operation for uniform application to all
institutions of functions covered, taking into consideration
the distinctive character of the operations and institutions
and the substantive similarities of specific functions to
which such rules or modes or standards are to be applied;

• The conduct of examination to determine whether

compliance with rules and regulations if the circumstances
so warrant as determine by the Monetary Board;

• Overseeing to ascertain that laws and regulations are

complied with;
• Regular investigation which shall be oftener than once a year
from the last date of examination to determine whether an
institution is conducting its business on a safe or sound basis:
Provided, That the deficiencies/irregularities found by or
discovered by an audit shall be immediately addressed;

• Inquiring into solvency and liquidity of the institution; or

• Enforcing prompt corrective action.

The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions which
under special laws are subject to the Bangko Sentral supervision.

Quasi-banks shall refer to entities engaged in borrowing of funds through the

issuance, endorsement or assignment with recourse or acceptance of deposit
substitutes as defined in Section 95 of R.A. No. 7653 (hereafter the New Central Bank
Act) for purposes of relending or purchasing receivables and other obligations.
Supervised and Regulated Institutions
i. Banks;
ii. Subsidiaries and affiliates of banks;
iii. Quasi-banks;
iv. Subsidiaries and affiliates of quasi-banks engaged
in allied activities;
v. Trust entities;
vi. Non-stock savings and loan associations;
vii. Pawnshops; and
viii. Offshore Banking Units.
• Trust entities
- separate corporate entities owned by a bank or other
financial institution, law firm, or independent partnership.

• Non-stock savings and loan associations

- a non-stock, non-profit corporation engaged in the business
of accumulating the savings of its members and using such
accumulations for loans to members to service the needs of
households by providing long term financing for home building
and development for personal finance.

• Pawnshop
- a person or entity engaged in the business of lending money
on personal property delivered as security for loans and is
synonymous and may be used interchangeably, with pawnbroker
or pawnbrokerage.
• Offshore Banking Unit
- a branch, subsidiary or affiliate of a foreign banking
corporation which is duly authorized by the Bangko Sentral to
transact offshore banking business in the Philippines.
SEC. 5. POLICY DIRECTION; RATIOS, CEILINGS AND
LIMITATIONS. – The Bangko Sentral shall provide
policy direction in the areas of money, banking and
credit.

Monetary Board
- authorized to prescribe ratios, ceilings and limitations or
other forms of regulations on different types of accounts and
practices of banks and quasi-banks. The following are the
examples:
(i) minimum capital ratios;
(ii) portfolio ceilings;
(iii) reserve requirements;
(iv) security against bank loans; and
(v) maturities of bank loans and investments.
i. Minimum Capital Ratios
- the size of a capital of a bank is a measure of its ability to
lend, and its lending capacity affects the liquidity in the banking
system.

ii. Portfolio Ceilings

- portfolio refers to various securities or other investments
held by an investor at any given time.

iii. Reserve Requirement

- the reserve requirement is a means by which the money
supply can be regulated.
- by raising or lowering the required reserves, available bank
credit is either stimulated or tightened, influencing the ability of
banks to lend.
iv. Security Against Bank Loans
- the different credit operations of banks expose them to
various types of risks such as credit, operational, interests and
market risks.

v. Maturities of Bank Loans and Investments

- in order to control the exposure of banks in long-term
loans and investments, the Monetary Board shall issue
regulations prescribing the maximum permissible maturities
of bank loans and investments.
- these regulations prevent the liquid assets of the bank
from being tied up over a long period of time.
- the maturity period of the loan or financial instruments is
one of the factors that influence the rate of interest.
Quasi-banking
Quasi-banking functions refer to borrowing of funds, for
the borrower’s own account, through the issuance,
endorsement or acceptance of debt instruments of any kind
other than deposits, or through the issuance of participations,
certificates of assignment, or similar instrument with recourse,
trust certificates, or of repurchase agreements, from twenty
or more lenders at any one time, for purposes of relending or
purchasing or receivables and other similar obligations.

Commercial, industrial, and other non-financial companies which borrow

funds through ay of these means for the limited purpose of financing their
own needs or the needs of their agents or dealers, shall not be considered as
performing quasi-banking functions.
Elements of Quasi-banking:
(i) Borrowing funds for the borrower’s own account;
(ii) Twenty or more lenders at any one time;
(iii) Methods of borrowing are issuance, endorsement or
acceptance of debt instruments of any kind, other than
deposits, such as acceptances, promissory notes,
participations, certificates of assignments or similar
instruments with recourse, trust certificates, repurchase
agreements, and such other instruments as the Monetary
Board may determine; and
(iv) The purpose of which is relending or purchasing
receivables or other obligations.
(i) Borrower’s Own Account
- the phrase “for the borrower’s own account” shall refer to
the assumption of liability in one’s own capacity and not in
representation or as an agent or trustee, of another.

(ii) Twenty or More Lenders

- the number of lenders– twenty or more– must be based on
the total number of lenders of the entire institution and should
not be counted on a per product basis.
- the phrase “twenty or more lenders at any one time” is
used in its generic sense– as the number of lenders relate to
one borrower.
- the word “lender” is used in its ordinary and
comprehensive sense, and thus includes government financial
institutions/agencies/units.
(iii) Purpose of Borrowing
- relending is the extension of loans by an institution with
antecedent borrowing transactions.
- purchasing or receivables or other obligations is the
acquisition of claims collectible in money, including interbank
borrowings or borrowings between financial institutions; or
the acquisition of securities of any amount and maturity from
domestic of foreign sources.
 Chapter III:
ORGANIZATION, MANAGEMENT
AND ADMINISTRATION OF
BANKS, QUASI BANKS AND
TRUST ENTITIES
Sec. 8. ORGANIZATION. The Monetary Board
may authorize the organization of a bank of
quasi-bank subject to the following conditions:

• That the entity is a stock corporation;

• That its funds are obtained from the public, which shall
mean twenty or more persons; and
• That the minimum capital requirements prescribed by the
Monetary Board for each category of banks are satisfied.
Juridical Entity
• Stock Corporation
- a corporation is an artificial being created and operated by
law, having the right of succession and the powers, attributes
and properties expressly authorized by law or incident to its
existence.
- the two main types of corporations are stock and non-stock
corporation.

A stock corporation is a corporation which has the capital

stock divide into shares and is authorized to distribute to the
holders of such shares dividends or allotment of the surplus
profits on the basis if the shares held. It is primarily engaged in
business for a pecuniary purpose.
• Cooperative
- an autonomous and duly registered association of
persons, with a common bond of interest, who have
voluntarily joined together to achieve their social, economic,
and cultural needs and aspirations by making equitable
contributions to the capital required, patronizing their
products and services and accepting a fair share of the risks
and benefits of the undertaking in accordance with the
universally accepted cooperative principles.
- the Cooperative Development Authority (CDA) is the
government agency in charge of the registration and
regulation of cooperatives.
- a certificate of registration shall be conclusive evidence
that the cooperative is duly registered unless it is proved that
the registration thereof has been cancelled.
SEC. 9. ISSUANCE OF STOCKS. The Monetary Board may prescribe
rules and regulations on the types of stock a bank may issue,
including the terms thereof and rights appurtenant thereto to
determine the compliance with laws and regulations governing
capital and equity structure of banks: Provided, That banks shall
issue par value stocks only.

Types of stock a bank may issue include the following:

(i) Common
(ii) Preferred
a. Redeemable
b. Convertible
c. Stock with Options/Warrants
(i) Common Shares
- shares of stock that are issued without extraordinary rights
or privileges.
- the owners are entitled not only to a pro rata share in the
profits of the corporation but also in its assets upon dissolution,
and in the management of its affairs without preference or
advantage.

(ii) Preferred Shares

- shares of stock that are issued with preference in the
distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such other
preferences as may be stated in the articles of the incorporation
which are not violative of the provisions of the Corporation
Code.
(a) Redeemable