Banking Laws and Cases

BANKING LAWS
TABLE
OF
CONTENTS
A.
The New Central Bank Act

Republic Act No. 7653
B.
The General Banking Act

In General
Establishment of Domestic Banks
Licensing of Foreign Banks
Commercial Banking Corporations and Universal Banks
Thrift Banks Act of 1996
Building and Loans Associations
Rural Banks Act of 1992
C.
An Act Liberalizing the Entry of Foreign Banks

D.
Offshore Banking System Law

Pres. Decree No. 1034
E.
Foreign Currency Deposits Act

Republic Act No. 6426, as amended
F.
An Act Creating the PDIC

G.
The Truth in Lending Act

H.
Law on Secrecy of Bank Deposits

Note: We have included several banking laws which are not in the bar coverage.
Likewise, we have incorporated several laws on non-bank financial
BANKING LAWS
intermediaries. Since they are not covered by the bar exam, the reviewee has
the option of not reading them.
BANKING
AND
FINANCE
IN
GENERAL
Two types of financing

1.
equity
2.
debt-financing
A cross-breed of the two may also occur.
Intermediaries
1.
Banks
2.
Non-bank financial intermediaries
3.
Exchanges
4.
Others i.e. secondary markets
Function of intermediaries
1.
Brokering or matching investors with those in need of financing
2.
Help in diminishing risks to investors
3.
Provide liquidity
BANKING LAWS
NEW CENTRAL BANK ACT

Approved 14 June 1993
IN GENERAL
Mandate
The Bangko Sentral ng Pilipinas is the States central monetary

authority, mandated in the 1987 Constitution, which shall function and
operate as an independent and accountable body corporate in the discharge
of its mandated responsibilities concerning money, banking and credit.
[Section 1, RA 7653]
The Bangko Sentral shall enjoy fiscal and administrative autonomy.

Objectives
1.
The primary objective of the Bangko Sentral is to maintain price stability

conducive to a balanced and sustainable growth of the economy.
2.
It shall also promote and maintain monetary stability and the convertibility of
the peso.
3.
It shall also provide policy directions in the areas of money, banking and
credit.
4.
It has supervision over banks and has regulatory powers over the operations
of finance companies and non-bank financial intermediaries performing
quasi-banking functions. [Section 3, RA 7653]
Typical functions of the Bangko Sentral

1.
Supervision over banks and regulation of non-bank financial intermediaries

engaged in quasi-banking functions
2.
Bank of issue: as such, it has the sole power and authority to issue currency
3.
Custodian of the nations reserves of foreign currency
BANKING LAWS
As such, it ensures convertibility of the peso and backs up Philippine
currency.
4.
It has control of credit

a.
5.
regulating money supply i.e. reserve requirements for banks
b.
open market operations i.e. Tbills
c.
controlling interest rate
Lender of last resort

It has a "rediscounting window, allowing banks to sell their promissory notes
to it.
6.
Custodian of cash reserves of banks
7.
Government banker, agent and advisor
8.
Central clearance and settlement agency
Fiscal policy v. monetary policy
Fiscal policy is concerned with revenue generation and expenditure while

monetary policy involves regulating money supply and price stability.
The Bangko Sentral will now concentrate on monetary policy and shed off
fiscal responsibilities which in the past had distracted it from its primary
function. [Section 129, RA 7653]
MONETARY BOARD
AND
GOVERNOR
Monetary Board
The powers and functions of the Bangko Sentral are exercised by the
Monetary Board.
The Board is composed of seven (7) members appointed by the President for
a term of six (6) years. No member may be reappointed more than once.
The seven members are:
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1.
The Governor as Chairman;
2.
A member of the Cabinet designated by the President; and
3.
Five (5) members who shall come from the private sector, all of whom
shall serve full-time.
Qualifications of the members of the Monetary Board

1.
Must be natural born citizens of the Philippines
2.
At least thirty five (35) years of age, with the exception of the Governor who
should at least be forty (40) years old
3.
Good moral character
4.
Of unquestionable integrity
5.
Of known probity and patriotism
6.
With recognized competence in social and economic disciplines
Disqualifications
In addition to the disqualifications imposed by Republic Act No. 6713, a

member of the Monetary Board is disqualified from being a director, officer,
employee, consultant, lawyer, agent or stockholder of any bank, quasi-bank
or any other institution which is subject to supervision or examination by the
Bangko Sentral, in which case such member shall resign from, and divest
himself of any and all interests in such institution before assumption of office
as member of the Monetary Board.
The member of the Monetary Board coming from the private sector shall not
hold any other public office or public employment during their tenure.
No person shall be a member of the Monetary Board if he has been

connected with any multilateral banking or financial institution or has a
substantial interest in any private bank in the Philippines, within one (1) year
prior to his appointment; likewise, no member of the Monetary Board shall be
employed in any such institution within two (2) years after the expiration of
his term except when he serves as an official representative of the Philippine
Government to such institution.
BANKING LAWS
Quorum in the Monetary Board
The presence of four (4) members shall constitute a quorum. However, in all
cases, the Governor or his duly designated alternate shall be among the four.
BANKING LAWS
Withdrawal of persons having a personal interest
In addition to the requirements of Republic Act No. 6713, any member of the
Monetary Board with personal or pecuniary interest in any matter in the
agenda of the Monetary Board shall disclose his interest to the Board and
shall retire from the meeting when the matter is taken up. The decision taken
on the matter shall be made public. The minutes shall reflect the disclosure
made and the retirement of the member concerned from the meeting.
Responsibility and liability of the members of the Monetary Board
Members of the Monetary Board, officials, examiners, and employees of the

Bangko Sentral who willfully violate RA 7653 or who are guilty of negligence,
abuses or acts of malfeasance or misfeasance or fail to exercise
extraordinary diligence in the performance of his duties shall be held liable
for any loss or injury suffered by the Bangko Sentral or other banking
institutions as a result of such violation, negligence, abuse, malfeasance,
misfeasance or failure to exercise extraordinary diligence.
Similar responsibility shall apply to members, officers and employees of the

Bangko Sentral for;
1.
The disclosure of any information of a confidential nature, or any

information on the discussions or resolutions of the Monetary Board, or
about the confidential operations of the Bangko Sentral, unless the
disclosure is in connection with the performance of official functions
with the Bangko Sentral, or is with prior authorizaytion of the Monetary
Board or the Governor; or
2.
The use of such information for personal gain or to the detriment of

the Government, the Bangko Sentral or third parties.
However, any data or information required to be submitted to the President

and/or Congress, or to be published under the provisions of RA 7653 shall not
be considered confidential.
Authority of Governor to render opinions, decisions or rulings
The Governor of the Bangko Sentral shall have the power to render opinions,
decisions, or rulings which shall be final and executory, until reversed or
modified by the Monetary Board, on matters regarding application or
enforcement of laws pertaining to institutions supervised by the Bangko
Sentral and laws pertaining to quasi-banks, as well as regulations, policies or
BANKING LAWS
instructions issued by the Monetary Board, and the implementation thereof.
[Section 17(e), RA 7653]
Authority of the Governor in emergencies
In case of emergencies where time is insufficient to call a meeting of the

Monetary Board, the governor with the concurrence of two other members of
the Board may decide any matter or take an action within the authority of the
Board.
He shall thereafter submit a report to the President and Congress within 72

hours after the action has been taken.
At the soonest possible time, the Governor shall call a meeting of the Monetary
board to submit his action for ratification. [Section 19, RA 7653]
Outside interests of the Governor and the full-time members of the Board
The Governor of the Bangko Sentral and the full-time members of the Board
shall limit their professional activities to those pertaining directly to their
positions with the Bangko Sentral.
They may not accept any other employment, whether public or private,
remunerated or ad honorem.
Exceptions:
1.
Positions in eleemosynary, civic, cultural or religious organizations
2.
Whenever, by designation of the President, the Governor or the fulltime member is tasked to represent the interest of the Government or
other government agencies in matters connected with or affecting the
economy or the financial system of the country
CERTAIN OPERATIONS
OF THE
BANGKO SENTRAL
Supervision and examination
The Bangko Sentral shall have supervision over, and conduct periodic or
special examination of, banking institutions and quasi-banks, including their
subsidiaries and affiliates engaged in allied activities.
BANKING LAWS
This power however is subject to the provision of existing laws protecting or

safeguarding the secrecy or confidentiality of bank deposits as well as
investments of persons, natural or juridical, in debt instruments issued by the
Government. [Section 25, RA 7653]
Subsidiary and affiliate
A subsidiary means a corporation more than fifty percent (50%) of the voting
stock of which is owned by a bank or quasi-bank and an affiliate means a
corporation the voting stock of which, to the extent of fifty percent (50%) or
less, is owned by a bank or quasi-bank or which is related or linked to such
institution or intermediary through common stockholders or such other
factors as may be determined by the Monetary Board.
No restraining order on power of examination
No restraining order or injunction shall be issued by the court enjoining the

Bangko Sentral from examining any institution subject to supervision or
examination by the Bangko Sentral, unless there is convincing proof that the
action of the Bangko Sentral is plainly arbitrary and made in bad faith and
the petitioner or plaintiff files with the clerk or judge of the court in which the
action is pending a bond executed in favor of the Bangko Sentral, in an
amount to be fixed by the court. [Section 25, RA 7653]
Prohibitions on personnel of the Bangko Sentral
In addition to the prohibitions found in RA 3019 and 6713, personnel of the

Bangko Sentral are hereby prohibited from:
1.
Being an officer, director, lawyer or agent, employee, consultant or

stockholder, directly or indirectly, of any institution subject to
supervision or examination by the Bangko Sentral, except non-stock
savings and loan associations and provident funds organized
exclusively for employees of the Bangko Sentral, and except as
otherwise provided in RA 7653;
2.
Directly or indirectly requesting or receiving any gift, present or

pecuniary or material benefit for himself or another, from any
institution subject to supervision or examination by the Bangko
Sentral;
3.
Revealing in any manner, except upon orders of the court, the

Congress or any government office or agency authorized by law, or
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BANKING LAWS
under such conditions as may be prescribed by the Monetary Board,
information relating to the condition or business of any such
institution. This prohibition shall not apply to the giving of information
to the Monetary Boar or the Governor of the Bangko Sentral, or to any
person authorized by either of them, in writing, to receive such
information; and
4.
Borrowing from any institution subject to supervision or examination

by the Bangko Sentral unless said borrowings are adequately secured,
fully disclosed to the Monetary Boar, and shall be subject to such
further rules and regulations as the Monetary Board may prescribe.
CONSERVATORSHIP V. RECEIVERSHIP
CONSERVATOR
Grounds for appointment of conservator
The Monetary Board may appoint a conservator whenever it finds that a bank
or a quasi-bank is in a state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to protect the interest of
depositors and creditors. [Section 29, RA 7653]
The conservator should be competent and knowledgeable in bank operations

and management. The conservatorship shall not exceed one (1) year.
Powers of conservator
1.
Take charge of the assets, liabilities and management of the bank or quasibank
2.
Reorganize the management
3.
Collect all monies and debts due said institution
4.
Exercise all powers necessary to restore its viability
Extent of the power of the conservator
The conservator has the power to overrule or revoke the actions of the
previous management and board of directors of the bank or quasi-bank.
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BANKING LAWS
However, the power cannot extend to the post-facto repudiation of perfected

transactions, otherwise they would infringe against the non-impairment
clause of the Constitution.
Section 28-A of RA No. 265 merely gives the conservator the power to revoke
contracts that are deemed to be defective under existing law (i.e., void,
voidable, unenforceable, or rescissible); hence, the conservator merely takes
the place of a banks board of directors. What the board of directors cannot
do, such as repudiating a contract validly entered into under the doctrine of
implied authority, the conservator cannot do either. [First Philippine
International Bank v. CA, 252 SCRA 255 (1986)]
Termination of conservatorship
The Monetary Board shall terminate the conservatorship when it is satisfied that
the institution can continue to operate on its own and the conservatorship is
no longer necessary.
The conservatorship shall likewise be terminated should the Monetary Board

determine that the continuance in business of the institution would involve
probable loss to its depositors or creditors, in which case proceedings for
receivership and liquidation shall be pursued. [Section 29, RA 7653]
PROCEEDINGS
IN
RECEIVERSHIP
AND
LIQUIDATION
Grounds for proceedings in receivership and liquidation
The Monetary Board shall institute proceedings for receivership whenever it

finds that a bank or quasi-bank:
1.
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;
2.
Has insufficient realizable assets to meet its liabilities;
3.
Cannot continue in business without involving probable loss to its

depositors or creditors; or
4.
Has willfully violated a cease and desist order that has become final,
involving acts or transactions which amount to fraud or a dissipation of
the assets of the institution.
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BANKING LAWS
No need of prior notice and hearing
In such cases, the Monetary Board may summarily and without need for prior
hearing, forbid the institution from doing business in the Philippines and
designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution. [Section 30, RA 7653]
Who acts as receiver
For a bank, the Philippine Deposit Insurance Corporation shall serve as

receiver; for a quasi-bank, any person of recognized competence in banking
or finance may be designated as receiver.
Tasks of the receiver
The receiver shall immediately (1) gather and take charge of all assets and
liabilities of the institution, (2) administer the same for the benefit of its
creditors, and (3) exercise the general powers of a receiver. (4) The receiver
shall determine as soon as possible, but not later than ninety (90) days from
takeover, whether the institution may be rehabilitated or otherwise placed in
such a condition so that it may be permitted to resume business with safety
to its depositors and creditors and the general public.
Resumption
Any determination for the resumption of business of the institution shall be

subject to prior approval of the Monetary Board.
Liguidation
If the receiver determines that the institution cannot be rehabilitated or

permitted to resume business, the Monetary Board shall notify in writing the
board of directors of its findings and direct the receiver to proceed with the
liquidation of the institution.
Procedure for liquidation
The receiver shall then:

1.
File ex parte with the proper regional trial court, and without the
requirement of prior notice or any other action, a petition for
assistance in the liquidation of the institution pursuant to a liquidation
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BANKING LAWS
plan adopted by the Philippine Deposit Insurance Corporation in the
case of a bank or by the Monetary Board in the case of a quasi-bank;
2.
Upon acquiring jurisdiction, the court shall, upon motion by the

institution, assist the enforcement of individual liabilities of the
stockholders, directors and officers, and decide on other issues as may
be material to implement the liquidation plan adopted; and
3.
Convert the assets of the institution to money, dispose of the same to

creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference
of credit under the Civil Code of the Philippines and he may, in the
name of the institution, institute such actions as may be necessary to
collect and recover accounts and assets of, or defend any action
against, the institution.
Custodia legis and exemption from levy, attachment or execution
The assets of an institution under receivership or liquidation shall be deemed in

custodia legis in the hands of the receiver and shall, from the moment the
institution was placed under such receivership or liquidation, be exempt from
any order of garnishment, levy, attachment, or execution. [Section 30, RA
7653]
Actions of Monetary Board final and may be questioned only through

certiorari
The actions of the Monetary Board taken regarding the designation of a

conservator and appointment of a receiver shall be final and executory and
may not be restrained or set aside by the court except on petition for
certiorari on the ground that the action taken was in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or excess of
jurisdiction.
The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship.
Designation of conservator not precondition to designation of receiver
The designation of a conservator or the appointment of a receiver shall be

vested exclusively with the Monetary Board.
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BANKING LAWS
The designation of a conservator is not a precondition to the designation of a

receiver.
THE BANGKO SENTRAL
AND THE
MEANS
OF
PAYMENT
Unit of monetary value
The unit of monetary value in the Philippines is the peso.
Currency
The word "currency" is hereby defined as meaning all Philippine notes and
coins issued or circulating in accordance with the provisions of RA 7653.
Bank of issue
The Bangko Sentral has the sole power and authority to issue currency within
the territory of the Philippines [Section 50, RA 7653]
Notes and coins issued by the BSP shall be liabilities of the BSP and may be
issued only against and in amounts not exceeding, the assets of the BSP.
Said notes and coins shall be a first and paramount lien on all assets of the
BSP [Section 51, RA 7653]
All notes and coins issued by the BSP are fully guaranteed by the RP and
shall be legal tender in the Philippines for all debts, both public and private.
Demand deposits
"Demand deposits" means all those liabilities of the Bangko Sentral and of
other banks which are denominated in Philippine currency and are subject to
payment in legal tender upon demand by the presentation of checks.
Issue of demand deposits
Only banks duly authorized to do so may accept funds or create liabilities

payable in pesos upon demand by the presentation of checks, and such
operations shall be subject to the control of the Monetary Board in
accordance with the powers granted it with respect thereto under RA 7653.
Legal character of checks
15
BANKING LAWS
Checks representing demand deposits do not have legal tender power and
their acceptance in the payment of debts, both public and private, is at the
option of the creditor. [Section 60, RA 7653]
However, a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an amount
equal to the amount credited to his account. [Section 60, RA 7653]
DOMESTIC MONETARY STABILIZATION

Guiding principle
The Monetary Board shall endeavor to control any expansion or contraction in

monetary aggregates which is prejudicial to the attainment or maintenance
of price stability.
Action when abnormal movements occur in the monetary aggregates,

credit, or price level
Whenever abnormal movements in the monetary aggregates, in credit, or in

prices endanger the stability of the Philippine economy or important sectors
thereof, the Monetary Board shall:
1.
Take such remedial measures as are appropriate and within the powers
granted to the Monetary Board and the Bangko Sentral;
2.
Submit to the President of the Philippines and the Congress, and make
public, a detailed report which shall includes, as a minimum, a
description and analysis of:
a.
The causes of the rise or fall of the monetary aggregates, of

credit or of prices;
b.
The extent to which the changes in the monetary aggregates, in

credit, or in prices have been reflected in changes in the level of
domestic output, employment, wages, and economic activity in
general and the nature and significance of any such changes;
and
c.
The measures which the Monetary Board has taken and the
other monetary, fiscal or administrative measures which it
recommends to be adopted.
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BANKING LAWS
INTERNATIONAL MONETARY STABILIZATION

International monetary stabilization
The Bangko Sentral shall exercise its powers to preserve the international
value of the pesos and to maintain its convertibility into other freely
convertible currencies primarily for, although not necessarily limited to,
current payments for foreign trade and invisibles. [Section 64, RA 7653]
International reserves
In order to maintain the international stability and convertibility of the

Philippine peso, the Bangko Sentral shall maintain international reserves
adequate to meet any foreseeable net demands on the Bangko Sentral for
foreign currencies. [Section 65, RA 7653]
Composition of the international reserves

1.
Gold
2.
Assets in foreign currencies
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BANKING LAWS
Action when international stability of the pesos is threatened
Whenever the international reserve of the Bangko Sentral falls to a level

which the Monetary Board considers inadequate to meet the prospective net
demands on the Bangko for foreign currencies, or whenever the international
reserve appears to be in imminent danger of falling to such a level, or
whenever the international reserve is falling as a result of payments or
remittances abroad which, in the opinion of the Monetary Board, are contrary
to the national welfare, the Monetary Board shall:
1.
Take such remedial measures as are appropriate and within the powers
granted to the Monetary Board and the Bangko Sentral;
2.
Submit to the President of the Philippines and the Congress, and make
public, a detailed report which shall includes, as a minimum, a
description and analysis of:
a.
The nature and causes of the existing or imminent decline;
b.
The remedial measures already taken or to be taken by the

Monetary Board;
c.
The monetary,
proposed; and
d.
The character and extent of the cooperation required from other

government agencies for the successful execution of the policies
of the Monetary Board.
INSTRUMENTS
OF
fiscal
or
administrative
measures
further
BANGKO SENTRAL ACTION
Means of action
In order to achieve the primary objective of price stability, the Monetary

Board shall rely on its moral influence and the powers granted to it under RA
7653 for the management of monetary aggregates.
Purchases and sales of gold
The Bangko Sentral may buy and sell gold in any form.
Purchases and sales of foreign exchange
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BANKING LAWS
The Bangko sentral may buy and sell foreign notes and coins, and documents
and instruments of types customarily employed for the international transfe
rof funds.
The Bangko Sentral may engage in future exchange operations.
To whom can engage
The Bangko Sentral may engage in foreign transactions with the following
entities or persons only:
1.
Banking institutions operating in the Philippines;
2.
The Government, its political subdivisions and instrumentalities;
3.
Foreign or international financial institutions;
4.
Foreign governments and their instrumentalities; and
5.
Other entities or persons which the Monetary Board is hereby

empowered to authorize as foreign exchange dealers.
Foreign asset position of the Bangko Sentral
The Bangko Sentral shall endeavor to maintain at all times a net positive
foreign asset position so that its gross foreign exchange assets will always
exceed its gross foreign liabilities.
Emergency restrictions on foreign exchange operations
Emergency restrictions on foreign exchange operations include:

1.
Temporarily suspending or restricting sales of foreign exchange by the

Bangko Sentral;
2.
Subjecting all transactions in gold and foreign exchange to license by

the Bangko Sentral; and
3.
Requiring that any foreign exchange thereafter obtained by any person

residing or entity operating in the Philippines be delivered to the
Bangko Sentral or to any bank or agent designated by the Bangko
Sentral for the purpose, at the effective exchange rate or rates.
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BANKING LAWS
Emergency restrictions may be imposed for the following purposes:

1.
In order to achieve the primary objective of the Bangko Sentral;
2.
To protect the international reserves of the Bangko Sentral in the

imminence of, or during an exchange crisis, or in time of national
emergency; and
3.
To give the Monetary Board and the Government time in which to take
constructive measures to forestall, combat, or overcome such a crisis
or emergency. [Section 72, RA 7653]
Such measures may be adopted with the concurrence of at least five (5)
members of the Monetary Board and with the approval of the President of the
Philippines. [Section 72, RA 7653]
Exchange rates
The Bangko Sentral shall determine the exchange rate policy of the country.
Foreign exchange holdings of the banks
In order that the Bangko Sentral may at all times have foreign exchange
resources sufficient to enable it to maintain the international stability and
convertibility of the peso, or in order to promote the domestic investment of
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. [Section 76, RA 7653]
LOANS
TO
BANKING
AND
OTHER FINANCIAL INSTITUTIONS
Guiding principles
The rediscounts, discounts, loans and advances, which the Bangko Sentral is
authorized to extend to banking institutions, shall be used to influence the
volume of credit consistent with the objective of price stability.
Types of credit operations

1.
Normal credit operations
2.
Special credit operations
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BANKING LAWS
3.
Emergency credit operations
Normal credit operations

1.
Commercial credits
2.
Production credits
3.
Other credits
Commercial credits
The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,
promissory notes and other credit instruments with maturities of not more
than one hundred eighty (180) days from the date of their rediscount,
discount or acquisition by the Bangko Sentral and resulting from transactions
related to:
1.
The importation, exportation, purchase or sale of readily saleable

goods and products, or their transportation within the Philippines; or
2.
The storing of non-perishable goods and products which are duly

insured and deposited, under conditions assuring their preservation in
authorized bonded warehouses or in other places approved by the
Monetary Board.
Production credits
The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,
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 the Bangko Sentral and resulting from transactions
related to the production or processing of agricultural, animal, mineral, or
industrial products.
Other credits
Special credit instruments not otherwise rediscountable under commercial

and production credits may be eligible for rediscounting in accordance with
the rules and regulations which the Bangko Sentral shall prescribe.
Special credit operation
21
BANKING LAWS
1.
Loans for liquidity purposes
Loans for liquidity purposes
The Bangko Sentral may extend loans and advances to banking institutions
for a period of not more than seven (7) days without any collateral for the
purpose of providing liquidity to the banking system in times of need.
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 Board
may, by a vote of at least five (5) of its members, authorize the Bangko
Sentral to grant extraordinary loans or advances to banking institutions
secured by assets. [Section 84, RA 7653]
The Monetary Board may, at its discretion, likewise authorize the Bangko
Sentral to grant emergency loans or advances to banking institutions, 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. This requires that the Monetary Board has ascertained that
the bank is not insolvent and has the assets to secure the advances and that
the concurrent vote of at least five (5) members of the Monetary Board is
obtained. [Section 84, RA 7653]
OPEN MARKET OPERATIONS
FOR THE
ACCOUNT
OF THE
BANGKO SENTRAL
Principle of open market operations
The open market purchases and sales of securities by the Bangko Sentral
shall be made exclusively in accordance with its primary objective of
achieving price stability.
In pursuit of this principle, the Bangko Sentral may engage in the purchase
and sale of government securities as well as issue and negotiate obligations
of the Bangko Sentral.
BANK RESERVES
Reserve requirements
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BANKING LAWS
In order to control the volume of money created by the credit operations of

the banking system, all banks operating in the Philippines shall be required to
maintain reserves against their deposit liabilities.
The required reserves of each bank shall be proportional to the volume of its
deposit liabilities and shall ordinarily take the form of a deposit in the Bangko
Sentral. [Section 94, RA 7653]
No interest on bank reserves
Since the requirement to maintain bank reserves is imposed primarily to

control the volume of money, the Bangko Sentral shall not pay interest on the
reserves maintained with it unless the Monetary Board decides otherwise as
warranted by circumstances. [Section 94, RA 7653]
Deposit substitutes
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
account, for the purpose of re-lending or purchasing of receivables and other
obligations.
Required reserves against foreign currency
The Monetary Board is similarly authorized to prescribe and modify the

minimum reserve ratios authorized applicable to deposits denominated in
foreign currencies.
Increase in reserve requirements
Whenever in the opinion of the Monetary Board it becomes necessary to

increase reserve requirements against existing liabilities, the increase shall
be made in a gradual manner and shall not exceed four percentage points in
any thirty-day period.
Banks and other affected financial institutions shall be notified reasonably in

advance of the date on which such increase is to become effective.
Exemption from attachment and other purposes of reserves
23
BANKING LAWS
Deposits maintained by banks with the Bangko Sentral as part of their

reserve requirements shall be exempt from attachment, garnishment, or any
other order or process of any court, government agency or any other
administrative body issued to satisfy the claim of a party other than the
Government, or its political subdivision or instrumentalities.
SELECTIVE REGULATION
OF
BANK OPERATIONS
Guiding principle
The Monetary Board shall use the powers granted to it under RA 7653 to
ensure that the supply, availability and cost of money are in accord with the
needs of the Philippine economy and that bank credit is not granted for
speculative purposes prejudicial to the national interests.
Regulations on bank operations shall be applied to all banks of the same

category uniformly and without discrimination.
Margin requirements against letters of credit
The Monetary Board may at any time prescribe minimum cash margins for
the opening of letters of credit, and may related the size of the required
margin to the nature of the transaction to be financed.
FUNCTIONS
AS
BANKER
AND
FINANCIAL ADVISOR
OF THE
GOVERNMENT
Designation of Bangko Sentral as banker of the government
The Bangko Sentral shall act as a banker of the Government, its political
subdivisions and instrumentalities.
The Bangko Sentral shall represent the government with the International
Monetary Fund and other financial institutions.
Official deposits
The Bangko Sentral shall be the official depository of the Government, its
political subdivisions and instrumentalities as well as of government-owned
or controlled corporations.
THE MARKETING
GOVERNMENT
AND
STABILIZATION
OF
SECURITIES
FOR THE
ACCOUNT
OF THE
24
BANKING LAWS
Issue of government obligations
The issue of securities representing obligations of the Government, its

political subdivisions or instrumentalities may be made through the Bangko
Sentral, which may act as agent of, and for the account of, the Government
or its respective subdivisions or instrumentality, as the case may be.
The Bangko Sentral shall not be a member of any stock exchange or

syndicate, but may intervene therein for the sole purpose of regulating their
operations in the placing of government securities. [Section 118, RA 7653]
Servicing and redemption of public debt
The servicing and redemption of the public debt shall also be effected
through the Bangko Sentral.
25
BANKING LAWS
Financial advice on official credit operations
Before undertaking any credit operation abroad, the Government, through

the Secretary of Finance, shall request the opinion, in writing, of the Monetary
Board on the monetary implications of the contemplated action. Such opinion
must similarly be requested by all political subdivisions and instrumentalities
of the Government before any credit operation abroad is undertaken by
them.
Whenever the Government, or any of its political subdivisions or

instrumentalities, contemplates borrowing within the Philippines, the prior
opinion of the Monetary Board shall likewise be requested in order that the
Board may render an opinion on the probable effects of the proposed
operation on monetary aggregates, the price level, and the balance of
payments.
In order to assure effective coordination between the economic, financial and

fiscal policies of the government and the monetary, credit and exchange
policies of the Bangko Sentral, the Deputy Governor designated by the
Governor of the Bangko Sentral shall be an ex officio member of the National
Economic and Development Authority Board.
PROHIBITIONS
Prohibitions
The Bangko Sentral shall not acquire shares of any kind or accept them as
coolateral, and shall not participate in the ownership or management of any
enterprise, either directly or indirectly.
The Bangko Sentral shall not engage in development banking or financing.
TRANSITORY PROVISIONS
Phaseout of fiscal agency functions
Unless circumstances warrant otherwise and approved by the Congress

Oversight Committee, the Bangko Sentral shall within a period of three (3)
years but in no case longer than five (5) years from the approval of RA 7653,
phase out all fiscal agency functions, and transfer the same to the
Department of Finance. [Section 129, RA 7653]
26
BANKING LAWS
Phaseout of regulatory powers over the operations of
corporations and other institutions performing similar functions
finance
The Bangko Sentral shall within a period of five (5) years from the effectivity
of RA 7653 phase out its regulatory powers over finance companies without
quasi-banking functions and other institutions performing similar functions,
the same to be assumed by the Securities and Exchange Commission.
GENERAL BANKING ACT

An act regulating banks and banking institutions and for other purposes
Approved 23 February 1995
IN GENERAL
Rule on bank operations
Only entities duly authorized by the Monetary Board of the Bangko Sentral may
engage in the lending of funds obtained from the public through the receipt
of deposits of any kind and all entities regularly conducting such operations
shall be considered as banking institutions.
Banks or banking institutions
Entities engaged in the lending of funds obtained from the public through the
receipt of deposits of any kind, and all entities regularly conducting such
operation.
Banks or banking institutions must be duly authorized by the Monetary Board

of the Central Bank.
Public shall mean twenty or more lenders.
Quasi-banking functions
Quasi-banking functions shall mean borrowing funds, for the borrowers

own account, through the issuance, endorsement or acceptance of debt
instruments of any kind other than deposits, or through the issuance of
27
BANKING LAWS
participations, certificates of assignment, or similar instruments with
recourse, trust certificates, or of repurchase agreements, from twenty or
more lenders at any one time, for purposes of re-lending or purchasing of
receivables and other obligations.
However, commercial, industrial, and other non-financial companies, which

borrow funds through any of these means for the limited purposes of
financing their own needs or the needs of their agents or dealers, shall not be
considered as performing quasi-banking functions.
Financial intermediaries
Financial intermediaries shall mean persons or entities whose principal

functions include the lending, investing or placement of funds or evidence of
indebtedness or equity deposited with them, acquired by them or otherwise
coursed through them, either for their own account or for the account of
others.
Non-banking financial institutions performing quasi-banking functions
The following entities shall not be considered as banking institutions but shall
be subject to regulation by the Monetary Board:
1.
Entities regularly engaged in the lending of funds or purchasing of

receivables or other obligations with funds obtained from the public
through the issuance, endorsement or acceptance of debt instruments
of any kind for their own account, or through the issuance of
certificates of assignment or similar instruments with recourse, trust
certificates, or of repurchase agreements, whether any of these means
of obtaining funds from the public is done on a regular basis or
occasionally.
2.
Entities regularly engaged in the lending of funds which receive

deposits occasionally.
3.
Trust companies, building and loan associations, and non-stock savings

and loan associations.
These entities will be subject to regulation by the Monetary Board which may
include, but need not be limited to:
1.
the imposition of net worth to risk assets ratios;
28
BANKING LAWS
2.
reserve requirements;
3.
interest rate ceilings;
4.
methods of computation thereof;
5.
prescribing charges which may be collected;
6.
minimum capitalization; and
7.
submission of statistical reports.
Non-bank financial intermediaries
The operations and activities of non-bank financial intermediaries, except

insurance companies, shall be subject to regulation by the Monetary Board
which may include, but need not be limited to, the imposition of constraints
covering the:
1.
minimum size of funds received;
2.
methods of marketing and distribution;
3.
terms and maturities of funds received; and
4.
uses of funds.
If such entities are authorized by the Central Bank to perform quasi-banking

functions, they may be further subject to regulation as discussed below. Note:
Sec. 130 of the CB Act phasing out the regulation of MB over NBFCs not
engaged in quasi-banking functions.
Determination of functions
The determination of whether a person or an entity is a) performing banking

or quasi-banking functions; or b) engaged in other types of financial
intermediation shall be decided by the Monetary Board, subject to judicial
review.
Regulation
Regulation shall mean the issuance of rules of conduct or the

establishment of modes or standards of operation for uniform application to
29
BANKING LAWS
all institutions or functions covered, taking into consideration in determining
such coverage the distinctive character of the operations of institutions and
the substantive similarities of specific functions to which such rules, modes
or standards are to be applied. In some instances, these entities may be
subject to special examination.
30
BANKING LAWS
Supervision
Supervision shall include not only the issuance of rules but also the
overseeing to ascertain that regulations are complied with, investigating or
examining to determine whether an institution is conducting its business on a
sound financial basis, and inquiring into the solvency and liquidity of the
institution.
Relationship between bank and depositor
Fixed savings and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan. In other words,
the relationship between the bank and the depositor is that of a debtor and
creditor.
In the case of rent of safety deposit box. The contract is a special kind of
deposit and cannot be characterized as an ordinary contract of lease because
the full and absolute possession and control of the deposit box is not given to
the renters. The prevailing rule is that the relation between the bank renting
out and the renter is that of bailer and bailee the bailment being for hire and
mutual benefiit. [CA Agro-industrial Dev. Corp. v. CA, 219 SCRA 426
(1983)]
Types of deposits
1.
Time Deposit-Interest rate stipulated depending on the number of days.

During this period, the money deposited cannot be withdrawn. The bank
uses this money to lend to others. That is why in these accounts, the
depositor is paid higher rates of interest for the use of the money.
2.
Savings deposit-Interest fixed under the fine prints, if one deposits today, he
cannot withdraw the amount not until 60 days later. The bank can lend out
such funds; that is why it pays interests on such deposits.
3.
Demand deposit or current accounts- No interest is fixed by the bank because

the depositor can take out his funds any time. It is called demand deposit
because the depositor can withdraw the money deposited on the very same
day when he deposited it. Note: As a general rule, only commercial banks
can accept demand deposits on checking accounts. By way of exception,
savings banks and even rural banks, are allowed by the CB to accept
checking accounts because their capitalizaition may be large.
31
BANKING LAWS
Money market transactions
Money market is a market dealing in standardized short-term credit instruments

(involving large amounts) where lenders and borrowers do not deal directly
with each other but through a mediator or dealer in the open market.
It involves commercial papers which are instruments evidencing

indebtedness of any person or entity which are issued, endorsed, sold or
transferred or in any manner conveyed to another person or entity, with or
without recourse.
The fundamental function of the money market devise in its operation is to

match and bring together in a most impersonal manner both the fund
users and the fund suppliers.
The money market is an impersonal market free from personal considerations.

The market mechanism is intended to provide quick mobility of money and
securities.
The General Banking Act discriminates against banks in two aspects

1.
Period- Under the Civil Code, a period is presumed to be for the benefit of
both parties. Insofar as banks are concerned, the period is always for the
benefit of the debtor if the bank is the creditor. The debtor can compel the
creditor bank to accept payment of a debt before it is due, and recover
interest deducted in advance.
2.
Foreclosure of mortgage
The general rule is that there is no right of redemption in judicial

foreclosure of mortgage. There is only 90 day equity redemption
period.
The exception is with the banks aside from the 90-day equity
redemption period, banks are required to give a one-year redemption
period.
Alien bank mortgage
An alien bank can bid in a public auction of mortgaged property if such property
was mortgage to it in the course of an ordinary banking transaction. If the
mortgage was not within the normal banking transaction, it must be
prohibited from bidding.
32
BANKING LAWS
Mortgage loans
Loans against real estate security shall not exceed 70% of the appraised
value of the real estate security, plus 70 %of the appraised value of the
improvements with title to the property being with the mortgagor.
Loans on the security of chattels shall not exceed 50% of the appraised value
of the security.
Classification of banks
1.
Commercial banks
2.
Thrift banks
3.
a.
Savings and mortgage banks
b.
Stock savings and loan associations
c.
Private development banks
Rural banks
Indispensable to the national interest
The banking industry is hereby declared as indispensable to the national

interest and, notwithstanding the provisions of any law to the contrary, any
strike or lockout involving banks, if unsettled after seven (7) calendar days,
shall be reported by the Central Bank to the Preside who shall immediately
certify the same to the appropriate court, government agency or commission
for resolution.
ESTABLISHMENT
OF
DOMESTIC BANKS
Form of organization
Domestic banking institutions, except building and loan associations, shall be

organized in the form of stock corporations.
No banking institution shall issue no-par value stock.
33
BANKING LAWS
The Securities and Exchange Commission shall not register the articles of
incorporation of any bank, or any amendment thereto, unless accompanied
by a certificate of authority issued by the Monetary Board, under its official
seal.
At least two thirds of the members of the board of directors of any bank or
banking institution which may be established after the approval of this Act
shall be Filipino citizens.
Requisites for issuance of certificate of authority
Such certificate shall not issue unless the Monetary Board is satisfied from
the evidence submitted to it:
1.
that all the requirements of existing laws and regulations to engage in

the business for which the applicant is proposed to be incorporated
have been complied with;
2.
that the public interest and economic conditions, both general and
local, justify the authorization; and
3.
that the 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 the
interests which the public may entrust to them.
Receipt and disposition of deposits
No bank which may be established and licensed to do business in the

Philippines shall receive deposits, unless incorporated under the laws of the
Republic of the Philippines.
This prohibition, however, shall not apply to branches and agencies of foreign
banks which, at the time of approval of the General Banking Act, are actually
receiving deposits.
After approval of the Act, all deposits so received by such branches and
agencies of foreign bank shall not be invested in any manner outside the
territorial limits of the Republic of the Philippines.
Voting stock requirements
34
BANKING LAWS
At least seventy percent (70%) of the voting stock of any banking institution
which may be established after the approval of the Act shall be owned by
citizens of the Philippines, except where a new bank is established as a result
of: a) the local incorporation of any of the existing branches or agencies of
foreign banks in the Philippines; or b) the consolidation of existing banks in
any of which there are foreign owned voting stocks at the time of
consolidation.
The Monetary Board may, with the approval of the President, increase the
percentage of foreign-owned voting stocks in any domestic bank from thirty
percent (30%) to forty percent (40%).
The percentage of foreign-owned voting stocks in a bank shall be determined

by the citizenship of the individual stockholders in that bank. In the case of
corporations owning bank shares, the citizenship of each stockholder in that
corporation shall be the basis of computing the percentage.
Ownership of stocks in banks by corporations
The total voting stocks which any corporation, including its wholly or majority
owned subsidiaries, may own in any bank shall not exceed thirty percent
(30%) of the voting stock of that bank.
In the case of a corporation which is wholly owned, or the majority of the

voting stock of which is owned, by any one person or by persons related to
each other within the third degree of consanguinity or affinity, that
corporation may own not more than twenty percent (20%) of the voting stock
of any bank.
LICENSING
OF
FOREIGN BANKS
License to conduct business
No foreign bank or banking corporation formed, organized or existing under

any law other than those of the Philippines shall be permitted to transact
business in the Philippines, or maintain by itself or assignee any suit for the
recovery of any debt, claims, or demand whatsoever, until after it shall have
obtained, upon order of the Monetary Board, a license for that purpose from
the Securities and Exchange Commission.
No foreign building and loan association or building and loan association not
formed, organized, or existing under the laws of the Philippines shall be
permitted to transact business in the Philippines.
35
BANKING LAWS
Requisites for issuance of license

1.
Public and economic conditions, both general and local, justify the issuance
of such order.
2.
The foreign bank or banking corporation is solvent and in sound financial

condition.
3.
A duly appointed agent in the Philippines has been authorized to accept

summons and legal processes.
36
BANKING LAWS
Investment rights
1.
Foreign banking institutions without branches in the Philippines, including

their wholly or majority owned subsidiaries and their holding companies
having majority holding in such foreign banking institutions, may invest, with
prior approval of the Monetary Board, in equities of local companies engaged
in financial allied undertakings. However, they shall maintain minority
participation in such enterprise.
2.
With prior approval of the Central Bank, these foreign entities may also
purchase equities in domestic banks, subject to restrictions.
Revocation of license
1.
The foreign bank is in imminent danger of insolvency.
2.
Its continuance in business will involve probable loss to those transacting

business with it.
CLASSIFICATION
OF
PRIVATE BANKS
COMMERCIAL BANKING CORPORATIONS
AND
UNIVERSAL BANKS
Commercial bank
A commercial banking corporation, in addition to the general powers incident

to corporations, shall have all such powers as shall be necessary to carry on
the business of commercial banking:
1.
by accepting drafts and issuing letters of credit, by discounting and

negotiating promissory notes, drafts, bills of exchange, and other
evidences of debts;
2.
by receiving deposits;
3.
by buying and selling foreign exchange and gold or silver bullion; and
4.
by lending money against personal security or against securities

consisting of personal property of mortgages on improved real estate
and the insured improvements thereon.
A commercial bank may also accept or create demand deposits subject to

withdrawal by check.
37
BANKING LAWS
A commercial bank may offer NOW accounts (special types of savings deposit
which can be withdrawn by means of a Negotiable Order of Withdrawal and is
offered only to natural persons).
A commercial bank may likewise acquire readily marketable bonds and other
debt securities subject to such rules as the Monetary Board may promulgate.
A commercial bank, finally, may invest to the extent allowed under applicable
law and regulations in equities of allied undertaking, whether financial or
non-financial.
Investment in allied undertakings
Commercial banks, including Government banks and foreign banks with

existing local branches, may invest in equities of allied undertakings.
Equity investments shall not be permitted in non-related activities.
Limitations on investments in allied undertakings:
1.
The total investment in equities shall not exceed twenty five percent
(25%) of the net worth of the bank.
2.
The equity investment in any one enterprise shall not exceed fifteen
percent (15%) of the net worth of the bank;
3.
The total equity investment of the bank in any single enterprise shall
remain a minority holding in that enterprise; and
4.
The equity investment in other banks shall be deducted from the

investing banks net worth for purposes of computing the prescribed
ratio of net worth to risk assets.
Financial allied undertakings

1.
Leasing companies
2.
Banks
3.
Investment houses
4.
Financing companies
38
BANKING LAWS
5.
Credit card operations
6.
Financial institutions catering to small and medium scale enterprises
Non-financial allied undertakings

1.
Warehousing companies
2.
Storage companies
3.
Safe deposit box companies
4.
Companies engaged in the management of mutual funds but not in the

mutual funds themselves
5.
Management corporations engaged or to be engaged in activity similar

to the engagement of mutual funds
6.
Companies engaged in the provision of computer services
7.
Insurance agencies
8.
Companies engaged in home building and home development
9.
Companies providing drying and/or milling facilities for agricultural

crops
Universal bank or expanded commercial banking authority
The Monetary Board may authorize -- to further national development

objectives or support national priority projects -- a commercial bank, a bank
authorized to provide commercial banking services, as well as a government
owned and controlled bank, to operate under an expanded commercial
banking authority.
By virtue of such expanded power, the universal bank may, in addition to

powers authorized for commercial banks:
1.
exercise the power of an Investment House as provided in PD 129;
2.
invest in the equity of a non-allied undertaking; or
39
BANKING LAWS
3.
own a majority or all of the equity in a financial intermediary other

than a commercial bank or a bank authorized to provide commercial
banking services.
40
BANKING LAWS
Limitations on exercise of power as investment house
Universal bank may perform the functions of an investment house either

directly OR indirectly through a subsidiary investment house (it cannot
perform such functions both directly and indirectly).
If performed directly, such functions shall be undertaken by a separate and

distinct department in the bank.
If performed indirectly through an investment house, universal bank may not

directly exercise such powers as are exclusively reserved to investment
houses.
Limitations on equity investment of a universal bank

1.
The total investment in equities shall not exceed fifty percent (50%) of the
net worth of the bank.
2.
The equity investment in any one enterprise whether allied or non-allied shall
not exceed fifteen percent (15%) of the net worth of the bank.
3.
The equity investment of the bank, or of its wholly- or majority-owned

subsidiary, in a single non-allied undertaking shall not exceed thirty five
percent (35%) of the total equity in the enterprise nor shall it exceed thirty
five percent (35%) of the voting stock in that enterprise.
4.
The equity investment in other banks shall be deducted from the investing
banks net worth for purposes of computing the prescribed ratio of net worth
to risk assets.
Capitalization
Commercial bank
P 2 billion
Universal bank
P 4.5 billion
Ownership in a thrift bank or rural bank
A commercial bank or any bank authorized to provide commercial banking

services, or to operate under an expanded commercial banking authority
may own more than thirty percent (30%) of the voting stock of a thrift bank
or a rural bank up to a majority or all of the equity thereof.
41
BANKING LAWS
Subject to the prior approval of the Monetary Board.
Combined capital accounts
The combined capital accounts of each commercial bank shall not be less
than an amount equal to ten percent (10%) of its risk assets
Risk assets is defined as its total assets minus the following assets:
1.
Cash on hand;
2.
Amounts due from the Central Bank;
3.
Evidence of indebtedness of the Philippine Government or Central

Bank or any other evidence of indebtedness fully guaranteed by the
Philippine Government;
4.
Loans to the extend covered by hold-out on, or assignment of, deposits

maintained in the lending bank and held in the Philippines;
5.
Loans or acceptances under letters of credit to the extend covered by

marginal deposits; and
6.
Other non-risk items which the Monetary Board may, from time to
time, authorize to be deducted from total assets.
Purchase, holding or conveyance of real estate
Any commercial bank may purchase, hold, and convey real estate for the
following purposes:
1.
Such as shall be necessary for its immediate accommodation in the

transaction of its business;
2.
Such as shall be mortgaged to it in good faith by way of security for

debts;
3.
Such as shall be conveyed to it in satisfaction of debts previously

contracted in the course of its dealings; and
4.
Such as its shall purchase at sales under judgments, decrees,

mortgages, or trust deeds held by it and such as it shall purchase to
secure debts due to it.
42
BANKING LAWS
However, no such bank shall hold the possession of any real estate under
mortgage or trust deed, or the title and possession of any real estate
purchased to secure any debt due to it, for a longer period than five years.
Establishment of branches
Any commercial bank organized under Philippine laws may, with the prior
approval of the Monetary Board, establish branches in the Philippines or
branches and agencies outside the Philippines, and the bank shall be
responsible for all business conducted in such branches to the same extent
and in the same manner as though such business had all been conducted in
the head office.
A bank and its branches shall be treated as a unit.
THRIFT BANKS
Thrift banks
Thrift banks shall include savings and mortgage banks, private

development banks, and stock savings and loan associations organized under
existing laws and any banking corporation that may be organized for the
following purposes:
1.
Accumulating the savings of depositors and investing them together

with capital loans secured by bonds, mortgages in real estate and
insured improvements thereon, chattel mortgage, bonds, and other
forms of security or in loans for personal and household finance,
whether secured or unsecured, or in financing for home building and
home development, in readily marketable and debt securities; in
commercial papers, and accounts receivables, drafts, bills of exchange,
acceptances or notes arising out of commercial transactions; and in
such other investments and loans which the Monetary Board will
determine as necessary in the furtherance of national economic
objectives;
2.
Providing short term working capital, or medium- and long-term

financing to businesses engaged in agriculture, services, industry and
housing; and
43
BANKING LAWS
3.
Providing diversified financial and allied services for its chosen market
and constituencies especially for small and medium enterprises and
individuals.
Scope of authority
Thrift banks may:

1.
Accept savings and time deposits;
2.
Act as correspondent for other financial institutions;
3.
Purchase, hold and convey real estate;
4.
Open letters of credit;
5.
extend credit facilities to private and government employees;
6.
Extend credit against the security of jewelry, precious stones and

similar articles;
7.
Accept foreign currency deposits;
8.
Invest in equity of allied undertakings;
9.
Rediscount papers with the PNB, LBP, DBP, and other GOCCs;
10.
Issue domestic letters of credit;
11.
Invest in marketable bonds and other debt securities;
12.
Grant loans, secured or not secured; and
13.
With prior approval of the Monetary Board:

a.
Open current or checking accounts;
b.
Act as collection agent for government entities;
c.
Act as official depository of national agencies and municipal, city

or provincial funds where the bank is located;
d.
Issue mortgage and chattel certificates;
44
BANKING LAWS
e.
Engage in quasi-banking and money market operations; and
f.
Offer NOW accounts.
Thrift banks may perform services similar to those offered by commercial

banks under an expanded authority when permitted by the Bangko Sentral
ng Pilipinas.
Capitalization
Capitalization may vary according to the location of the head office:

Within Metro Manila
Outside Metro Manila
P250 million
P 40 million
Incentives and exemptions

1.
Reserve requirement differential
2.
Liberalized branching rules
3.
Notices of statement of condition
4.
Tax exemptions
5.
Exemption from publication requirement
6.
Exemption from notarial charges
7.
Exemption from registration fees
Equity ownership
At least 40% of the voting stock of a thrift bank shall be owned by Filipino
citizens.
Exception: In case of merger or consolidation of existing Thrift Banks with

foreign holdings, the resulting holding shall not be increased but may be
reduced and, once reduced, shall not be increased thereafter beyond 60% of
the voting stock of the Thrift Bank.
Minors as depositors
45
BANKING LAWS
Minors in their own rights and in their own names may make deposits and
withdraw the same, and may receive dividends and interests.
If the guardian shall give notice in writing to any thrift bank not to make
payments of deposits, dividends or interest to the minor of whom he is the
guardian, then such payment shall be made only to the guardian.
BUILDING
AND
LOAN ASSOCIATIONS
Building and loan associations
Building and loan associations are corporations whose capital stock is

required or is permitted to be paid in by the stockholders in regular, equal
periodical payments and whose purpose is:
1.
to accumulate the savings of its stockholders;
2.
to repay to said stockholders their accumulated savings and profits

upon surrender of their shares;
3.
to encourage industry, frugality, and home building among its

stockholders; and
4.
to loan its funds, and funds borrowed for the purpose, to stockholders
on the security of unencumbered real estate and with the pledge of
shares of the capital stock owned by such stockholders as collateral
security.
Prohibition
It shall be unlawful for any building and loan association to make any loan
upon property that is suitable for us only as theatre, public hall, church,
convent, school, club, hotel, garage, or other public building. Monetary Board
may grant exemptions in cases of public hall, school, hotel and other public
buildings to facilitate the investment of idle funds.
Investment in bonds
With the approval of the Monetary Board, a building and loan association may
also invest such of its funds as may otherwise remain idle in bonds and
46
BANKING LAWS
obligations of the Republic of the Philippines or any of its subdivisions, or
GOCCs.
Capital stock
The capital stock of such associations shall be paid in by the stockholders in

regular, equal, periodical payments known as dues, at such times and in such
amounts as shall be provided in their by laws.
The dues on each share of stock subscribed for by a stockholder shall

continue to be paid by the stockholder to the association until the share has
been duly withdrawn, cancelled, or forfeited or until the share has reached its
matured value.
Matured value is when the due paid on each share and the net earnings
thereof, in accordance with the by laws, shall amount to the matured of the
share.
Certificates of stock
Certificates of stock shall be issued to each stockholder upon the payment of

the membership fees and first installment of the dues.
Installment shares v. paid-up shares
While still being paid, the shares are called installment shares. After they are
fully paid, they are called paid-up shares.
Once paid-up, relationship between the association and stockholder is

changed into that of debtor and creditor.
Free shares and pledged shares
Shares which have not been pledged as security for the payment of a loan
shall be called free shares, and shares which have been so pledged shall
be called pledged shares.
Surrender of shares
Stockholders may surrender their shares and withdraw from the association
after paying twelve (12) monthly installment of dues upon giving sixty (60)
days notice in writing to the board of directors and the withdrawal value
shall be the total sum of the dues paid thereon plus not less than ninety
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percent (90%) of all dividends earned by such shares up to the end of the last
preceding fiscal period plus such interest for the time elapsed since the end
of the period as shall be allowed by the board of directors.
Stockholders who have not paid twelve (12) monthly installments of dues
may, after giving sixty (60) days notice to the board, surrender their shares
and withdraw from the association, and the withdrawal value shall be the
total sum of the due paid thereon plus such dividend or interest as may be
allowed by the board of directors.
RURAL BANKS
Scope of authority
A rural bank may perform any or all of the following services:

1.
Extend loans and advances primarily for the purpose of meeting the
normal and credit needs of farmers, fishermen, or farm families as well
as cooperatives, merchants, private and public employees;
2.
Accept savings and time deposits;
3.
Ac as correspondent bank of other financial institutions;
4.
Rediscount paper with the LBP, DBP, or any other bank, including its
branches and agencies.
5.
Act as a collection agent;
6.
Offer other banking services as provided in Section 772 of RA 337, as

amended;
7.
Extend financial assistance to private and public employees in

accordance with RA 3779, as amended; and
8.
With prior approval of the Monetary Board:

a.
Accept current or checking accounts;
b.
Accept NOW accounts;
c.
Act as trustee over estates or properties of farmers and
merchants;
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d.
Act as official government depository;
e.
Sell domestic drafts; and
f.
Invest in allied undertakings.
Rationale
The rationale behind rural banking system is the need to promote

comprehensive rural development with the end in view of the following:
1.
A more equitable distribution of opportunities, income and wealth;
2.
A sustained increase of goods and services produced by the nation for

the benefit of the people; and
3.
An expanding productivity as a key to raising the quality of life for all.
This can be achieved by making credit available and readily accessible in the
rural areas.
Capital stock
With the exception of shareholdings of corporations organized primarily to

hold equities in rural banks, and of Filipino-controlled domestic banks, the
capital stock of any rural bank shall be fully-owned and held by Philippine
citizens or entities qualified under Phil. law to own and hold such capital
stock.
Board
All members of the BOD shall be Filipino citizens.
However, there is no prohibition against any appointive or elective public

official from serving as director, officer, consultant or in any capacity in the
bank.
Incentives
Foreclosure of mortgages exempt from newspaper publication requirements if

the loan, excluding interest due and unpaid, does not exceed P100,000.
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Exempt from payment of all taxes, fees and charges of whatever nautre and
description, except corporate income taxes and local taxes, fees and charges
for aperiod of five years from the date of commencement of operations.
Free from notarization fees
Free from registration fees and DST in RD.
ACT LIBERALIZING ENTRY
OF
FOREIGN BANKS

An act liberalizing the entry and scope of operations of foreign banks in the
Philippines and for other purposes
Declaration of policy
The State shall:

1.
Develop a self-reliant and independent national economy effectively

controlled by Filipinos; and
2.
Encourage, promote and maintain a stable, competitive, efficient and

dynamic banking and financial system.
Pursuant to this policy, the Philippine banking and financial system is hereby
liberalized to create a more competitive environment and encourage greater
foreign participation through increase in ownership in domestic banks by
foreign banks and the entry of new foreign bank branches.
In allowing increased foreign participation in the financial system, it shall be

the policy of the State that the financial system shall remain effectively
controlled by Filipinos.
Three (3) modes of entry for foreign banks
The Monetary Board may authorize foreign banks to operate in the Philippine
banking system through any of the following modes of entry:
1.
by acquiring, purchasing or owning up to sixty percent (60%) of the

voting stock of an existing bank;
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2.
by investing in up to sixty percent (60%) of the voting stock of a new

banking subsidiary incorporated under Philippine laws; or
3.
by establishing branches with full banking authority.
A foreign bank or a Philippine corporation, however, may own up to sixty

percent (60%) of the voting stock of only one domestic bank or new banking
subsidiary.
Guidelines for entry
In approving entry applications of foreign banks, the Monetary Board shall:

1.
ensure geographic representation and complementation;
2.
consider strategic trade and investment relationships between the

Philippines and the country of incorporation of the foreign bank;
3.
study the demonstrated capacity, global reputation for financial

innovations and stability in a competitive environment of the
applicant;
4.
see to it that reciprocity rights are enjoyed by Philippine banks in the

applicants country; and
5.
consider willingness to fully share their technology.
Only those among the top one hundred fifty (150) foreign banks in the world
or the top five (5) banks in their country of origin as of the date of application
shall be allowed entry in (b) and (c) of modes of entry.
In approving entry, Monetary Board shall adopt such measures as may be

necessary:
1.
to ensure that, at all times, the control of seventy (70%) of the

resources or assets of the entire banking system is held by domestic
banks which are at least majority-owned by Filipinos;
2.
prevent a dominant market position by one bank or the concentration

of economic power in one or more financial institutions, or in
corporations, partnerships, groups or individuals with related interests;
and
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3.
secure the listing in the Philippine Stock Exchange of the shares of

stocks of banking corporations established under (a) and (b) modes of
entry.
To qualify to establish a branch or subsidiary, the foreign bank applicant must

be widely-owned and publicly-listed in its country of origin, unless the foreign
bank applicant is owned by the government of its country of origin.
Capital requirements
Locally incorporated subsidiaries shall have the same minimum capital

requirements as domestic banks of the same category.
For foreign bank branches, they shall permanently assign capital of not less
than the U.S. dollar equivalent of P210,000,000.00 at the exchange rate on
the date of effectivity of this law.
The permanently assigned capital shall be inwardly remitted and converted

into Philippine currency.
Branches
A foreign bank shall be entitled to three (3) branches upon remittance of

minimum capital requirement.
A foreign bank may open three (3) additional branches in locations

designated by the Monetary Board by inwardly remitting and converting into
Philippine currency as permanently assigned capital the U.S. dollar equivalent
of P35,000,000.00 per additional branch at the exchange rate on the date of
effectivity of this law.
Total number of branches for each new foreign bank entrant shall not exceed
six (6).
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Head office guarantee
The head office of foreign bank branches shall guarantee prompt payment of
all liabilities of its Philippine branches.
Equal treatment
Foreign banks authorized to operate under the law shall perform the same
functions, enjoy the same privileges, and be subject to the same limitations
imposed upon a Philippine bank of the same category.
These limits include, among others, the single borrowers limit and capital to
risk asset ratio as well as the capitalization required for expanded
commercial banking activities under the General Banking Act and other
related laws of the Philippines.
OFFSHORE BANKING SYSTEM LAW

Presidential Decree No. 1034
Authorizing the establishment of an offshore banking system in the Philippines
Approved 30 September 1976
Offshore banking
Offshore banking shall refer to the conduct of banking transactions in foreign

currencies involving the receipt of funds from external sources and the
utilization of such funds in transactions with non-residents or other offshore
banking units.
Offshore banking unit
Offshore banking unit shall mean a branch, subsidiary or affiliate of a foreign

banking corporation which is duly authorized by the Central Bank to transact
offshore banking business in the Philippines.
Deposits
Deposits shall mean funds in foreign currencies which are accepted and held
by an offshore banking unit in the regular course of business, with the
obligation to return an equivalent amount to the owner thereof, with or
without interest.
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Who are qualified to operate an offshore banking unit?
Only banks which are organized under any law other than those of the
Republic of the Philippines, their branches, subsidiaries or affiliates, shall be
qualified to operate offshore banking units in the Philippines.
Local branches of foreign banks already authorized to accept foreign currency

deposits under RA 6426 may opt to apply for authority to operate an offshore
banking unit under PD 1034. However, upon their receipt of a corresponding
certificate of authority to operate as an offshore banking unit, the license to
transact business under RA 6426 shall be deemed automatically withdrawn.
Certificate of authority to operate
The Monetary Board is authorized to issue certificates of authority to operate

offshore banking units.
In issuing such certificate, the Monetary Board shall take into consideration
the applicants:
1.
liquidity and solvency position;
2.
net worth and resources;
3.
management;
4.
international banking expertise;
5.
contribution to the Philippine economy; and
6.
other relevant factors such as participation in equity of local

commercial banks and appropriate geographic representation.
The Central Bank is authorized to collect a fee of not less than US $20,000
upon issuing any certificate of authority to operate and annually thereafter
on the anniversary date of such certificate.
Corporate undertaking
No application to operate as an offshore banking unit shall be considered

unless the applicant shall have first submitted to the Central Bank a sworn
undertaking of its head office or parent or holding company, duly supported
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by an appropriate resolution of its board of directors, that, among other
things:
1.
it will, on demand, provide the necessary specified currencies to cover

liquidity needs that may arise or other shortfall that its offshore
banking unit may incur;
2.
the operations of its offshore banking unit shall be managed soundly

and with prudence;
3.
it will train and continually educate a specific number of Filipinos in

international banking and foreign exchange trading with a view to
reducing the number of expatriates;
4.
it will provide and maintain in its offshore banking unit net office funds
in the minimum amount of US $ 1,000,000; and
5.
it will start operations of its offshore banking unit within 180 days from
receipt of its certificate of authority to operate such unit.
Transactions of offshore banking units
Transactions of offshore banking units with non-residents or with other

offshore banking units shall be freely allowed, but safeguards will be
established to prevent circumvention of foreign exchange regulations.
Transactions of offshore banking units with residents of the Philippines,

including those with local commercial banks and local branches of foreign
banks authorized to receive foreign currency deposits under RA 6426, shall
be subject to applicable law and regulations.
Tax and other incentives
The provisions of any law to the contrary notwithstanding, the transactions of

offshore banking units with non-residents and other offshore banking units
shall be subject to a five percent (5%) tax on the net income from such
transactions which shall be in lieu of all taxes on the said transactions.
The transactions of offshore banking units with local commercial banks,

including branches of foreign banks that may be authorized by the Central
Bank to transact business with offshore banking units, shall likewise be
subject to the same tax, except net income from such transactions as may be
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specified by the Secretary of Finance, upon recommendation of the Monetary
Board, to be subject to the usual income tax payable by banks.
Any income of non-residents from transactions with said offshore banking

units shall be exempt from any tax.
In the case of transaction with residents (other than other offshore banking
units or local commercial banks including local branches of foreign banks that
may be authorized by the Central Bank to transact business with offshore
banking units), interest income from loans granted to such residents shall be
subject only to a ten percent (10%) withholding tax as final tax.
Effect of certain laws
The Usury Law, Uniform Currency Law, and PDIC law shall not apply to
transactions and/or deposits in offshore banking units in the Philippines.
The provisions of RA 1405 or the Law on Secrecy of Bank Deposits shall apply
to deposits in offshore banking units.
FOREIGN CURRENCY DEPOSIT ACT

An act instituting a foreign currency deposit system in the Philippines and for other
purposes
Approved 04 April 1974
Authority to deposit foreign currencies
Any person, natural or juridical, may deposit with such Philippine banks in
good standing, as may upon application be designated by the Central Bank
for the purpose, foreign currencies which are acceptable as part of the
international reserve.
Exception
Foreign currencies which are required by the Central Bank to be surrendered

in accordance with the provisions of RA 7653 may not be deposited.
Authority of the banks to accept foreign currency deposits
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The banks designated by the Central Bank shall have the authority:
1.
To accept deposits and to accept foreign currencies in trust;
2.
To issue certificates to evidence such deposits;
3.
To discount said certificates;
4.
To accept said deposits as collaterals for loans subject to such rules

and regulations as may be promulgated by the Central Bank; and
5.
To pay interest in foreign currency on such deposits.
Foreign currency cover requirements
Depositary banks shall maintain at all times a one hundred percent (100%)
foreign currency cover for their liabilities, except as the Monetary Board may
otherwise prescribe or allow.
At least fifteen percent (15%) of such cover shall be in the form of foreign
currency deposit with the Central Bank and the balance in the form of foreign
currency loans or securities, which loans or securities shall be of short term
maturities and readily marketable.
Foreign currency cover shall be in the same currency as that of the

corresponding foreign currency deposit liability, unless the Monetary Board
may otherwise prescribe or allow.
The Central Bank may pay interest on the foreign currency deposit, and if
requested, shall exchange the foreign currency notes and coins into foreign
currency instruments drawn on its depositary banks.
Central Bank may exempt from the 15% foreign currency cover in the form of
foreign currency deposit with the Central Bank in cases of depository banks
which, on account of their net worth, resources, past performance, or other
pertinent criteria, have been qualified by the Monetary Board to function
under an expanded foreign currency deposit system.
Said banks may also be exempt from the limitations on the maturity periods
for loans and securities subject to prior approval by the Central Bank.
Withdrawability and transferability of deposits
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There shall be no restriction on the withdrawal by the depositor of his deposit

or on the transferability of the same abroad except those arising from the
contract between the depositor and the bank.
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Tax exemption
All foreign currency deposits made under RA 6426, as amended, as well as

foreign currency deposits authorized under PD 1304, including interest and
all other income or earnings of such deposits, are hereby exempted from any
and all taxes whatsoever irrespective of whether or not these deposits are
made by residents or non-residents so long as the deposits are eligible or
allowed under the said laws and, in the case of non-residents, irrespective of
whether or not they are engaged in trade or business in the Philippines.
Secrecy of foreign currency deposits
All foreign currency deposits authorized under RA 6426, as amended by PD

1305, as well as foreign currency deposits authorized under PD 1034, are
hereby declared as and considered of an absolutely confidential nature and,
except upon the written permission of the depositor, in no instance shall
foreign currency deposits be examined, inquired or looked into by any
person, government official, bureau or entity whether public or private.
Unlike the Law on Secrecy of Banks Deposits Act, there is only one exception
for foreign currency deposits and that is when there is a written permission
from the depositor.
Exemption from attachment, garnishment and other process
Foreign currency deposits shall be exempt from attachment, garnishment, or

any other order or process of any court, legislative body, government agency,
or any administrative body whatsoever.
Salvacion v. Central Bank of the Philippines

278 SCRA 27
FACTS:
Greg Bartelli, an American tourist, was arrested for committing four counts of rape
and serious illegal detention against Karen Salvacion. Police recovered from him several
dollar checks and a dollar account in the China Banking Corp. He was, however, able to
escape from prison. In a civil case filed against him, the trial court awarded Salvacion
moral, exemplary and attorneys fees amounting to almost P1,000,000.00.
Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the
China Banking Corp. but the latter refused arguing that Section 11 of Central Bank Circular
No. 960 exempts foreign currency deposits from attachment, garnishment, or any other
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order or process of any court, legislative body, government agency or any administrative
body whatsoever.
Salvacion therefore filed this action for declaratory relief in the Supreme Court.
ISSUE: Should Section 113 of Central Bank Circular No. 960 and Section 8 of Republic Act
No. 6426, as amended by PD 1246, otherwise known as the Foreign Currency Deposit Act be
made applicable to a foreign transient?
HELD:The provisions of Section 113 of Central Bank Circular No. 960 and PD No. 1246,
insofar as it amends Section 8 of Republic Act No. 6426, are hereby held to be
INAPPLICABLE to this case because of its peculiar circumstances. Respondents are hereby
required to comply with the writ of execution issued in the civil case and to release to
petitioners the dollar deposit of Bartelli in such amount as would satisfy the judgment.
RATIO:
Supreme Court ruled that the questioned law makes futile the favorable judgment
and award of damages that Salvacion and her parents fully deserve. It then proceeded to
show that the economic basis for the enactment of RA No. 6426 is not anymore present;
and even if it still exists, the questioned law still denies those entitled to due process of law
for being unreasonable and oppressive. The intention of the law may be good when
enacted. The law failed to anticipate the iniquitous effects producing outright injustice and
inequality such as the case before us.
The SC adopted the comment of the Solicitor General who argued that the Offshore
Banking System and the Foreign Currency Deposit System were designed to draw deposits
from foreign lenders and investors and, subsequently, to give the latter protection.
However, the foreign currency deposit made by a transient or a tourist is not the kind of
deposit encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said
laws because such depositor stays only for a few days in the country and, therefore, will
maintain his deposit in the bank only for a short time. Considering that Bartelli is just a
tourist or a transient, he is not entitled to the protection of Section 113 of Central Bank
Circular No. 960 and PD No. 1246 against attachment, garnishment or other court
processes.
Further, the SC said: In fine, the application of the law depends on the extent of its
justice. Eventually, if we rule that the questioned Section 113 of Central Bank Circular No.
960 which exempts from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body whatsoever, is
applicable to a foreign transient, injustice would result especially to a citizen aggrieved by a
foreign guest like accused Greg Bartelli. This would negate Article 10 of the New Civil Code
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which provides that in case of doubt in the interpretation or application of laws, it is
presumed that the lawmaking body intended right and justice to prevail.
Deposit insurance coverage
The deposits under RA 6426 shall be insured under the provisions of RA 3591,
as amended, or the Charter of the Philippine Deposit Insurance Corporation.
Insurance payment shall be in the same currency in which the insured

deposits are denominated.
ACT CREATING
THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION

An act establishing the Philippine Deposit Insurance Corporation, defining its powers
and duties and for other purposes
22 June 1963
Creation of PDIC
There is hereby created a Philippine Deposit Insurance System which shall

insure the deposits of all banks which are entitled to the benefits of insurance
under RA 3591.
PDIC may also be appointed as receiver of a banking institution.
Deposit
The term deposit means the unpaid balance of money or its equivalent
received by a bank in the usual course of business and for which it has given
or is obliged to give credit to a commercial, checking, savings, time or thrift
account or which is evidenced by a passbook, check and/or certificate of
deposit, printed or issue in accordance with Central Bank rules and
regulations and other applicable laws, together with such other obligations of
the bank which, consistent with banking usages and practices, the Board of
Directors shall determine and prescribe by regulations to be deposit liabilities
of the bank.
Provided that any obligation of a bank which is payable at the office of the
bank located outside of the Philippines shall not be a deposit for any of the
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purposes of this Act or included as part of the total deposits or of insured
deposits.
Provided further, that, subject to the approval of the Board of Directors, any
insured bank which is incorporated under the laws of the Philippines which
maintains a branch outside the Philippines may elect to include for insurance
its deposit obligations payable only at such branch.
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Insured deposit
The term insured deposit means the net amount due to any depositor for
deposits in an insured bank (after deducting offsets) less any part thereof
which is in excess of one hundred thousand pesos (P100,000). Therefore, the
maximum amount of insured deposit for every depositor is only P100,000.
All these types of deposits are covered: demand, savings and time deposits;
if a depositor has all three types of accounts, he can only recover up to
P100,000. He is considered as one depositor.
In determining such amount due to any depositor, there shall be added

together all deposits in the bank maintained in the same capacity and the
same right for his benefit either in his own name or in the name of others.
Banks and its branches considered as one unit.
The provisions of any law to the contrary notwithstanding, an owner/holder of

any negotiable certificate of deposit shall be recognized as a depositor
entitled to the rights provided in this Act unless his name is registered as
owner/holder thereof in the books of the issuing bank.
Insurance of deposits in foreign currency
Deposit obligations in foreign currency of any insured bank are likewise

insured.
Deposit insurance coverage and payment for insured deposits maintained in

foreign currencies in a closed insured bank shall be determined in accordance
with the following rules:
1.
The deposit in foreign currency shall be converted into its equivalent

amount in Philippine pesos at the interbank rate obtaining on the date
the bank was closed or on insolvency, and the insurance coverage
shall extend to such computed amount, but in no case to exceed
P40,000 for each depositor; and
2.
The liability of PDIC to each depositor shall be payable in Philippine

pesos in the amount of insurance coverage as computed above.
Trust funds
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The term means funds held by an insured bank in a fiduciary capacity and
include, without being limited to, funds as trustee, executor, administrator,
guardian or agent.
Trust funds are not considered as insured deposits.
Deposit insurance coverage
The deposit liabilities of any bank or banking institution, which is engaged in

the business of receiving deposits, shall be insured with the PDIC.
Coverage is compulsory.
Termination of insured status
Two instances: when it fails or refuses to pay assessment and when it

becomes insolvent.
Should any bank fail or refuse to pay any assessment required to be paid by
such bank, and should the bank not correct such failure or refusal within 30
days after written notice has been given by the PDIC, the insured status of
such bank shall be terminated by the Board of Directors.
The bank shall give written notice of such termination to each of the
depositors and the PDIC shall publish the notice of the termination of the
insured status of the bank.
After the termination of the insured status of the bank, deposits of each
depositor in the bank, less all subsequent withdrawals from any deposits of
such depositor, shall continue to be insured for a period of 90 days.
Unsafe or unsound practices
These refer to any action or lack of action which is contrary to generally

accepted standards of prudent operation, the possible consequences of
which, if continued, would result in abnormal risk of loss or damage to a
bank, depositors and its shareholders or even the depletion of the Insurance
Fund administered by the PDIC.
Cease and desist order (CDO)
A cease and desist order shall refer to the Order issued by PDIC, through its
Board of Directors, to a member insured bank, or its directors or agents to
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correct (a) unsafe or unsound practices in conducting the business of the
bank, (b) violations of any law or regulation to which the insured bank is
subject, or (c) violations of the provisions of RA 3591, as amended or any
order, rule or instruction issued by the PDIC or any written condition imposed
by PDIC in connection with any transaction with or grant by the PDIC.
The object of the CDO is to protect depositors and the PDIC against existing
or potential risk exposures from said practices or violations.
Payment of insured deposit
An insured bank shall be deemed closed on account of insolvency when

ordered closed by the Monetary Board.
Whenever an insured bank shall have been closed on account of insolvency,

payment of insured deposits in such bank shall be made by PDIC as soon as
possible either (1) by cash or (2) making available to each depositor a
transferred deposit in another insured bank in an amount equal to the
insured deposit of such depositor.
Proof of claims may be required by PDIC before payment. If it is not satisfied,

PDIC may require the final determination of a court of competent jurisdiction
before paying such claim.
Depositor shall retain his claim against the bank for any uninsured portion of
his deposit.
Bar of claim by depositor
If, after the PDIC shall have given at least three months notice to the
depositor by mailing a copy thereof to his last known address appearing on
the records of the closed bank, the depositor in the closed bank shall fail to
file a claim for his insured deposit from the PDIC within eighteen (18) months
after the Monetary Board shall have ordered the closure of said bank, all
rights of the depositor against the PDIC with respect to the insured deposit
shall be barred, and all rights of the depositor against the closed bank and its
shareholders or the receivership estate to which the PDIC may have become
subrogated, shall thereupon revert to the depositor.
Provided, that the claimant shall enforce his duly filed claim against the PDIC
within one year after the eighteen-month period heretofore mentioned.
Subrogation
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The PDIC, upon payment, shall be subrogated to all rights of the depositor
against the closed bank to the extent of such payment.
Payments made by PDIC shall be considered as a preferred credit similar to

taxes.
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Discharge of the PDIC
The PDIC shall be discharged from its obligation to a depositor upon payment
of an insured deposit by itself or upon payment of a transferred deposit to
any person by the new bank or by an insured bank in which a transferred
deposit has been made available.
Other powers of PDIC

1.
Provide financial assistance to an insured bank in danger of closing.
2.
Borrow from the Central Bank and from any bank designated as depository or
fiscal agent of the Philippine Government.
3.
Issue bonds, debentures and other obligations with the approval of the
President of the Philippines.
4.
Act as receiver of any banking corporation.
Receiver
Receiver includes a receiver, commission, person, or other agency charged

by law with the duty to take charge of the assets and liabilities of a bank
which has been forbidden from doing business in the Philippines, as well as
the duty to gather, preserve, and administer such assets and liabilities for the
benefit of the depositors and creditors of said bank, and to continue into
liquidation whenever authorized under RA 3591, as amended, or other laws,
and to dispose of the assets and to wind up the affairs of such bank.
THE TRUTH
IN
LENDING ACT

An act to require the disclosure of finance charges in connection with extensions of
credit
It is hereby declared to be the policy of the State to protect its citizens from a
lack of awareness of the true cost of credit to the user by assuring a full
disclosure of such cost with a view of preventing the uninformed use of credit
to the detriment of the national economy.
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Finance charge
Finance charge includes interest, fees, service charges discounts, and such
other charges incident to the extension of credit.
Credit
Credit means any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract; any contract to sell, or sale or contract of sale of
property or services, either for present or future delivery, under which part or
all of the price is payable subsequent to the making of such sale or contract;
any rental purchase contract; any contract or arrangement for the hire,
bailment, or leasing of property; any option, demand, lien, pledge of other
claim against, or for the delivery of, property or money; any purchase, or
other acquisition of, or any credit upon the security of, any obligation or
claim arising out of any of the foregoing; and any transaction or series of
transactions having a similar purpose or effect.
Creditor
Creditor means any person engaged in the business of extending credit

(including any person who, as a regular business practice, makes loans or
sells or rents property or services on a time, credit, or installment basis,
either as principal or as agent) who requires as an incident to the extension
of credit the payment of a finance charge.
Disclosure of finance charges
Any creditor shall furnish to each person to whom credit is extended, prior to
the consummation of transaction, a clear statement in writing setting forth
the following information:
1.
the cash price or delivered price of the property or service to be

acquired;
2.
the amounts, if any, to be credited as downpayment and/or trade in;
3.
the difference between the amounts set forth under clauses (1) and
(2);
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4.
the 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.
the total amount to be financed;
6.
the finance charge expressed in terms of pesos and centavos; and
7.
the percentage that the finance charge bears to the total amount to be
financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation.
Penalty for failure to disclose prescribed information
Any creditor who, in connection with any credit transaction, fails to disclose
to any person any information in violation of Republic Act No. 3765 or any
regulation issued pursuant thereto shall be liable to such person in the
amount of P100 or in an amount equal to twice the finance charge required
by such creditor in connection with such transaction, whichever is greater,
except that such liability shall not exceed P2000 on any credit transaction.
Action to recover such penalty
Action to recover such penalty may be brought by such person within one
year from the date of occurrence of the violation in any court of competent
jurisdiction.
In any such action in which any person is entitled to a recovery, the creditor
shall be liable for reasonable attorneys fees and court costs as determined
by the court.
Effect of non-disclosure on contract or transaction
It shall not affect the validity or enforceability of any contract or transaction.
Willful violation of the law
Any person who willfully violates any provision of this Act or any regulation
extended thereto shall be fined by not less than P1000 nor more than P5000,
or imprisonment for not less than six (6) months nor more than one year, or
both.
Consolidated Bank and Trust Corporation v. Court of Appeals
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G.R. No. 91494, 14 July 1995
Banks are allowed to collect handling charges on loans over P500,000 with a
maturity of 730 days or less. However, in the case at bar, Consolidated Bank was not
allowed to collect from the private respondents handling charges because it failed to
conform to the Truth in Lending Act.
All banks and non-bank financial intermediaries authorized to engage in quasibanking functions are required to strictly adhere to the provisions of Republic Act No. 3765,
otherwise known as the Truth in Lending Act, and shall make the true and effective cost of
borrowing an integral part of every loan contract. The promissory notes signed by private
respondents do not contain any stipulation on the payment of handling charges. Petitioner
bank, therefore, cannot charge private respondent such handling charges.
International Harvester Macleod, Inc. v. Medina

G.R. No. 33623, 22 March 1990
Mariano Medina, Jr. purchase on installment 24 truck engines from International
Harvester Macleod, Inc. (IHMI). The latter imposed and collected the total sum of P325,596
as finance charges on the installment sales as evidenced by a Retail Notes Analysis and
covering transmittal letters, which were prepared by IHMI, delivered to, and signed by
Medina. In the Retail Notes Analysis, IHMI used the works Finance Income Unearned,
Finance Rate, Rate per year, Total Amount Finance, and Date Finance Begun, to
denote certain entries therein.
The trial court ruled that IHMI imposed and collected the amount of P325,596 purely
as financing charges and this is conclusive of the fact that it engaged in the business of a
financing company without authority from the Securities and Exchange Commission in
gross violation of Republic Act No. 5980 or the Finance Company Act.
The Supreme Court reversed, ruling that IHMI is not engaged in the business of a
financing company.
Evidently, the financing transactions that is regulated by Republic Act No. 5980
involves the buying, discounting or factoring of promissory notes and sales on credit or
installment. IHMI did not purchase from itself the Retail Notes Analysis executed by Medina.
IHMI only extended credit to Medina by allowing him to pay for the 24 truck engines in
installment. While the increased price of the sale included a financing charge, that charge
was simply another name for the interest to be paid by the installment buyer on the
deferred payment of the purchase price of the vehicles sold and delivered to him by IHMI.
The use of the words finance charge, financing, or finance operation in the
documents prepared and letters sent by IHMI to Medina was in compliance with the Truth in
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Lending Act which requires a creditor (or seller) to fully disclose to the debtor (or buyer) the
true cost of credit with a view of preventing the uninformed use of credit to the detriment
of the national economy.
IHMI used the word finance charge instead of interest in the Retail Notes
Analysis which it delivered to Medina because that is the term used in the Truth in Lending
Act.
IHMI correctly pointed out that its transaction with Medina differs from a financing
transaction under Republic Act No. 5980 in that there were only two parties in its
transaction with Medina, namely: IHMI and Medina; while in a financing transaction under
Republic Act No. 5980, there are three parties involved, namely: (1) the installment buyer;
(2) the seller; and (3) the financing company. The buyer executes a note or notes for the
unpaid balance of the price of the thing purchased by him on installment. The seller assigns
the notes or discounts them with a financing company which is subrogated in the place of
the seller as creditor of the installment buyer.
The transaction between IHMI and Medina did not involve any discounting, factoring
or assignment of IHMIs credit against Medina to a finance company. The transaction was
bilateral, not trilateral. No financing company stepped into the shoes of IHMI as assignee or
purchaser of IHMIs credit against Medina. Medina himself, not a financing company, paid
IHMI for the truck engines. Medina made his installment payments or amortization to IHMI
and not to a financing company.
Since IHMIs business of selling trucks in installment is not the business of a
financing company under Republic Act No. 5980, it did not need SEC authorization to
engage in it.
LAW
ON
SECRECY
OF
BANK DEPOSITS

An act prohibiting disclosure of or inquiry into, deposits with any banking institution
and providing penalty therefor
Policy of the law
It is hereby declared to be the policy of the Government to give

encouragement to the people to deposit their money in banking institutions
and to discourage private hoarding so that the same may be properly utilized
by banks in authorized loans to assist in the economic development of the
country. [Section 1, RA 1405]
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BANKING LAWS
General rule
All deposits of whatever nature with banks or banking institutions in the

Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office.
It shall be unlawful for any official or employee of a bank to disclose to any
person, other than those mentioned in Section 2 hereof, any information
concerning said deposits. [Section 3, RA 1405]
Exceptions
1.
Upon written permission of the depositor, including:

a.
in determining estate of a decedent; and
b.
tax compromise cases;
2.
In cases of impeachment;
3.
Upon order of a competent court in cases of bribery or dereliction of duty of

public officials;
4.
In cases where the money deposited or invested is the subject matter of the
litigation; and
5.
Cases of unexplained wealth under Republic Act No. 3019 or the Anti-Graft
and Corrupt Practices Act.
Penalty for violation of law
Any violation of this law will subject offender upon conviction to an

imprisonment of not more than five (5) years or a fine of not more than
twenty thousand pesos (P20,000) or both, in the discretion of the court.
Tatalon Barrio Council v. Chief Accountant, et. al.

GR No. 18360, 31 January 1963
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BANKING LAWS
In this case, the Supreme Court ruled that savings and current accounts are privileged
documents which fall within the protection of Republic Act No. 1405, and their disclosure
can only be justified under any of the cases enumerated in Section 2 of the Act, which do
not include the prosecution of criminal actions for violation of the provisions of the AntiGraft and Corrupt Practices Act and of Article 216 of the Revised Penal Code. This has since
been overturned by the case of PNB v. Gancayco.
Philippine National Bank v. Gancayco

GR No. 18343, 30 September 1965
FACTS:
Emilio Gancayco and Florentino Flor, as special prosecutors of the Department of
Justice, required the Philippine National Bank to produce at a hearing the records of the
bank deposits of Ernesto Jimenez, former administrator of the Agricultural Credit and
Cooperative Administration, who was then under investigation for unexplained wealth.
PNB refused to disclose his bank deposits, invoking Section 2 of Republic Act No.
1405. On the other hand, the prosecutors cited the Anti-Graft and Corrupt Practices Act,
particularly Section 8 therewith, to wit:
Section 8. Dismissal due to unexplained wealth. - If in accordance with the
provisions of RA 1379, a public official has been found to have acquired
during his incumbency, whether in his name or in the name of other persons,
an amount of property and/or money manifestly out of proportion to his
salary and to his other lawful income, that fact shall be a ground for dismissal
or removal. Properties in the name of the spouse and unmarried children of
such public official, may be taken into consideration, when their acquisition
through legitimate means cannot be satisfactorily shown. Bank deposits shall
be taken into consideration in the enforcement of this section,
notwithstanding any provision of law to the contrary.
PNB then filed an action for declaratory judgment in the CFI of Manila which ruled
that Section 8 of the Anti-Graft and Corrupt Practices Act clearly intended to provide an
additional ground for the examination of bank deposits. Hence, this appeal.
ISSUE: Whether or not a bank can be compelled to disclose the records of accounts of a
depositor who is under investigation for unexplained wealth?
HELD: Yes. Republic Act No. 3019 provided another exception to Section 2 of Republic Act
No. 1405.
RATIO:
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BANKING LAWS
No reconciliation is possible between Republic Act No. 1405 and Republic Act No.
3019 as the two laws are so repugnant to each other. Thus, while Section 2 of Republic Act
No. 1405 provides that bank deposits are absolutely confidential and, therefore, may
not be examined, inquired or looked into, except in those cases enumerated therein,
Section 8 of Republic Act No. 3019 (Anti-graft law) directs in mandatory terms that bank
deposits shall be taken into consideration in the enforcement of this section,
notwithstanding any provision of law to the contrary. The only conclusion possible is that
Section 8 of the Anti-Graft Law is intended to amend Section 2 of Republic Act No. 1405 by
providing an additional exception to the rule against the disclosure of bank deposits.
With regard to the claim that disclosure would be contrary to the policy making bank
deposits confidential, it is enough to point out that while Section 2 of Republic Act No. 1405
declares bank deposits to be absolutely confidential, it nevertheless allows such
disclosure in the following instances: (1) Upon written permission of the depositor; (2) In
cases of impeachment; (3) Upon order of a competent court in cases of bribery or
dereliction of duty of public officials; (4) In cases where the money deposited is the subject
of the litigation.
Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and
no reason is seen why these two classes of cases cannot be excepted from the rule making
bank deposits confidential. The policy as to one cannot be different from the policy as to
the other. This policy expresses the notion that a public office is a public trust and any
person who enters upon its discharge does so with the full knowledge that his life, so far as
relevant to his duty, is open to public scrutiny.
Banco Filipino Savings and Mortgage Bank v. Purisima

GR No. 56429, 28 May 1988
The Bureau of Internal Revenue accused Customs special agent Manuel Caturla
before the Tanodbayan of having illegal acquired property manifestly out of proportion to
his salary and other lawful income. During the preliminary investigation, the Tanodbayan
issued a subpoena duces tecum to the Banco Filipino Savings and Mortgage Bank,
commanding its representative to appear at a specified time at the Office of the
Tanodbayan and furnish the latter with duly certified copies of the records in all its branches
and extension offices of the loans, savings and time deposits and other banking
transactions, in the names of Caturla, his wife, Purita, their children, and/or Pedro Escuyos.
Caturla moved to quash the subpoena for violating Sections 2 and 3 of RA 1405
which was denied by the Tanodbayan. In fact, the Tanodbayan issued another subpoena
which expanded its scope including the production of bank records not only of the persons
enumerated above but of additional persons and entities as well.
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BANKING LAWS
The Banco Filipino filed an action for declaratory relief with the CFI of Manila which
was denied by the lower court. Thus this special civil action of certiorari in the SC.
The issue here is whether or not the Law on Secrecy of Bank Deposits precludes
production by subpoena duces tecum of bank records of transactions by or in the names of
the wife, children and friends of a special agent of the Bureau of Customs accused before
the Tanodbayan of having allegedly acquired property manifestly out of proportion to his
salary and other lawful income in violation of RA 3019?
The Supreme Court ruled in the negative.
In PNB v. Gancayco, we ruled that: while Section 2 of Republic Act No. 1405
provides that bank deposits are absolutely confidential and, therefore, may not be
examined, inquired or looked into, except in those cases enumerated therein, Section 8 of
Republic Act No. 3019 (Anti-graft law) directs in mandatory terms that bank deposits shall
be taken into consideration in the enforcement of this section, notwithstanding any
provision of law to the contrary. The only conclusion possible is that Section 8 of the AntiGraft Law is intended to amend Section 2 of Republic Act No. 1405 by providing an
additional exception to the rule against the disclosure of bank deposits.
The inquiry into illegally acquired property - or property not legitimately acquired extends to cases where such property is concealed by being held by or recorded in the
name of other persons. This proposition is made clear by RA 3019 which quite categorically
states that the term legitimately acquired property of a public officer or employee shall not
include property unlawfully acquired by the respondent, but its ownership is concealed
by its being recorded in the name of, of held by, respondents spouse, ascendants,
descendants, relatives or any other persons.
To sustain the petitioners theory, and restrict the inquiry only to property held by or
in the name of the government official or employee, or his spouse and unmarried children
is unwarranted in the light of the provisions of the statutes in question, and would make
available to persons in government who illegally acquire property an easy and fool-proof
means of evading investigation and prosecution; all they have to do would be to simply
place the property in the possession or name of persons other than their spouse and
unmarried children. This is an absurdity that we will not ascribe to the lawmakers.
Philippine Commercial & Industrial Bank, et. al. v. Court of Appeals, et. al.
GR no. 84526, 28 January 1991
A group of laborers obtained a favorable judgment against the Marinduque Mining
and Industrial Corporation for the payment of backwages amounting to P205,853 before the
National Labor Relations Commission. A writ of execution was issued and the Deputy Sheriff
served the writ, but it was unsatisfied. The sheriff prepared on his own a Notice of
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BANKING LAWS
Garnishment addressed to six banks in Bacolod City, including petitioner PCIB, directing the
bank concerned to issue a check in satisfaction of the judgment.
While the in house lawyer of the Corporation warned the PCIB to withhold any
release of its deposit with the bank, the bank issued a managers check in the amount of
P37,466 which was the exact balance of the private respondents account as of that day.
The said check was also encashed by the sheriff the next day.
Marinduque Mining thus filed a complaint before the RTC of Manila against PCIB and
the deputy sheriff, alleging that its current deposit with the petitioner bank was levied
upon, garnished, and with undue haste unlawfully allowed to be withdrawn, and
notwithstanding the alleged unauthorized disclosure of the said current deposit and
unlawful release thereof, the latter have failed and refused to restore the amount of
P37,466 to the formers account despite repeated demands.
Trial court rendered judgment in favor of Marinduque Mining Corporation. On appeal,
the Court of Appeals initially reversed the trial courts order but later affirmed it. Thus, this
petition to the SC.
The issue is whether or not the petitioners violated RA 1405, otherwise known as the
Secrecy of Bank Deposits Act, when they allowed the sheriff to garnish the deposit of
Marinduque Mining Corporation? SC held no.
The SC first ruled that the release of the deposit by the bank was not done in undue
and indecent haste. We find the immediate release of the funds by the petitioner bank on
the strength of the notice of garnishment and writ of execution, whose issuance, absent any
patent defect, enjoys the presumption of regularity.
The SC likewise did not find any violation whatsoever by the petitioners of RA 1405,
otherwise known as the Secrecy of Bank Deposits Act. The Court, in China Banking
Corporation v. Ortega, had the occasion to dispose of this issue when it stated, to wit:
It is clear from the discussion of the conference committee report on Senate
Bill No. 351 and House Bill No. 3977, which later became Republic Act No.
1405, that the prohibition against examination of or inquiry into a bank
deposit under Republic Act No. 1405 does not preclude its being garnished to
insure satisfaction of a judgment. Indeed, there is no real inquiry in such a
case, and if existence of the deposit is disclosed, the disclosure is purely
incidental to the execution process. It is hard to conceive that it was ever
within the intention of Congress to enable debtors to evade payment of their
just debts, even if ordered by the Court, through the expedient of converting
their assets into cash and depositing the same in a bank.
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BANKING LAWS
Since there is no evidence that the petitioners themselves divulged the information
that the private respondent had an account with the petitioner bank and it is undisputed
that the said account was properly the object of the notice of garnishment and writ of
execution carried out by the deputy sheriff, a duly authorized officer of the court, we cannot
therefore hold the petitioners liable under RA 1405.
Mellon Bank v. Magsino et. al.

GR No. 71479, 18 October 1990
This case involves the erroneous transfer of US $1,000,000 to Victoria Javier instead
of US $1,000 only. Dolores Ventosa requested the transfer of $1000 from the First National
Bank of West Virginia, USA to Victoria Javier in Manila through the Prudential Bank.
Accordingly, the First National Bank requested the petitioner, Mellon Bank, to effect the
transfer. Unfortunately, the wire sent by Mellon Bank to Manufacturers Hanover Bank, a
correspondent of Prudential Bank, indicated the amount transferred as US $1,000,000.00
instead of US $1,000.00. Hence, Manufacturers Hanover Bank transferred one million
dollars less bank charges of $6.30 to the Prudential Bank for the account of Victoria Javier.
Javier opened a new dollar account in Prudential Bank and deposited $999,943.
Immediately, thereafter, Javier and her husband made withdrawals from the account,
deposited them in several banks only to withdraw them later in an apparent plan to
conceal, launder and dissipate the erroneously sent amount. One of the things they bought
was real property in California, USA which was the subject of an action for recovery by
Mellon Bank. Later, it filed a case in the Philippines for the recovery of the whole amount,
including the purchase price of the real property located in the US.
Among other things, private respondents raised the issue of whether or not, by
virtue of the principle of election of remedies, an action filed in California, USA, to recover
real property located therein and to constitute a constructive trust on said property
precludes the filing in our jurisdiction of an action to recover the purchase price of said real
property. SC ruled that the filing of a recovery suit in the US does not preclude the filing of
an action in the Philippines for the recovery of the purchase price.
With regard to our subject matter, Erlinda Baylosis of the Philippine Veterans Bank
and Pilologo Red, Jr. of Hongkong and Shanghai Banking Corporation were required to give
testimonies with regard to the deposits and checks issued by the private respondents
Javier, et. al.. These testimonies were questioned for being immaterial and irrelevant as well
as covered by RA 1405 on confidentiality.
SC said: Private respondents protestations that to allow the questioned testimonies
to remain on record would be in violation of the provisions of RA 1405 on the secrecy of
bank deposits is unfounded. Section 2 of said law allows the disclosure of bank deposits in
cases where the money deposited is the subject matter of the litigation. Inasmuch as the
78
BANKING LAWS
civil case is aimed at recovering the amount converted by the Javiers for their own benefit,
necessarily, an inquiry into the whereabouts of the illegally acquired amount extends to
whatever is concealed by being held or recorded in the name of persons other than the one
responsible for the illegal acquisition.
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BANKING LAWS
NON-BANK FINANCIAL INTERMEDIARIES

NON-BANK FINANCIAL INTERMEDIARIES
1.
The Investment House Law

Pres. Decree 129
2.
Investment Company Act

3.
Financing Company Act

4.
Pawnshops
Pres. Decree No. 114
5.
Trust Corporations
Chapter VII, General Banking Act
THE INVESTMENT HOUSES LAW

Presidential Decree No. 129
Governing the establishment, operation and regulation of Investment Houses
15 February 1973
Investment houses
An investment house is any enterprise which engages in the underwriting of

securities of other corporations.
Under its Rules and Regulations, an investment house is defined an any

enterprise which engages or purports to engage, whether regularly or on an
isolated basis, in the underwriting of securities of another person or
enterprise, including securities of the Government and its instrumentalities.
Underwriting
Underwriting is the act or process of guaranteeing the distribution and sale

within the Philippines of securities of any kind issued by another corporation.
The distribution and sale may be on public or private placement basis.
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BANKING LAWS
Private placement
Refers to the underwritten sale of securities to less than 20 persons or

enterprises.
Public placement
Refers to the underwritten sale of securities to at least 20 persons or

enterprises.
Organization and citizenship requirements
Investment Houses shall be organized in the form of stock corporations.
At least forty percent (40%) of the voting stock of any Investment House shall
be owned by citizens of the Philippines.
In determining the percentage of foreign-owned voting stocks in Investment

Houses, the basis for the computation shall be the citizenship of each
stockholder, and, if the stockholder is a corporation, the citizenship of the
individual stockholders holding voting rights in that corporation.
In approving foreign equity applications in Investment Houses, the SEC shall

approve such applications only if the same or similar rights are enjoyed by
Philippine nationals in the applicants country.
Foreign nationals may become members of the board of directors to the

extent of the foreign participation in the equity of said enterprise.
Capital requirements
In the case of newly-organized Investment Houses, the minimum paid-in

capital shall be three hundred million pesos (P300,000,000).
The Monetary Board may prescribe a higher minimum capitalization in order

to promote and ensure the stability of the Philippine capital market and the
competitiveness of the investment house industry in line with the national
economic goals.
Requirements for registration
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BANKING LAWS
The Securities and Exchange Commission shall not register the articles of
incorporation of any Investment House, or any amendment thereto, unless it
is satisfied from the evidence submitted to it:
a.
That all the requirements of the PD 129 and of existing laws or

regulations to engage in the business have been complied with;
b.
That the proposed enterprise will not be in conflict with public interest
and economic growth; and
c.
That the amount of capital, the proposed organization, direction and

administration, as well as the integrity, experience and expertise of the
organizers and the proposed managerial staff, provide reasonable
assurance that the enterprise will be conducted with financial
prudence.
Prohibition
No Investment House shall engage in banking operations as defined in

Section 2 of Republic Act No. 337, as amended.
Powers of investment houses
In addition to the powers granted to corporations in general, an Investment

House is authorized to do the following:
1.
Arrange to distribute on a guaranteed basis securities of other

corporations and of the Government or its instrumentalities.
2.
Participate in a syndicate undertaking to purchase and sell, distribute

or arrange to distribute on a guaranteed basis securities of other
3.
Arrange to distribute or participate in a syndicate undertaking to

purchase and sell on a best-efforts basis securities of other
4.
Participate as soliciting dealer or selling group member in tender

offers, block sales, or exchange offering of securities; deal in options,
right or warrants relating to securities and such other powers which a
dealer may exercise under the Securities Act.
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BANKING LAWS
5.
Promote, sponsor, or otherwise assist and implement ventures,

projects and programs that contribute to the economys development.
6.
Act as financial consultant, investment adviser, or broker.
7.
Act as portfolio manager and/or financial agent.
8.
Subject to prior approval by the Monetary Board, the provisions of

Chapter IV of the Central Bank Charter, and such rules and regulations
as may be issued by the Monetary Board, engage in foreign exchange
operations.
9.
Act as trustee of a trust fund or trust property, subject to the

provisions of the General Banking Act.
Conversion into a commercial bank
An Investment House may be converted into a commercial bank authorized

to operate under an expanded commercial banking authority, subject to
applicable laws and regulations and with prior approval of the Monetary
Board.
Central Bank regulatory powers
Investment Houses shall be subject to such regulations of the Central Bank

on non-bank financial intermediaries as may be promulgated.
The regulations which may include, but need not be limited to a) minimum
size of fund acceptance or receipt, b) methods of marketing and distribution,
c) terms of placement and maturities, and d) uses of funds may be modified
by the Monetary Board insofar as they apply to Investment Houses.
Quasi-banking powers
The Monetary Board may, at its discretion, determine whether Investment

Houses may be permitted to perform quasi-banking functions.
If the Monetary Board decides to permit Investment Houses to engage in

quasi-banking functions, the Board may require as a condition precedent the
obtaining of a certificate of authority for the purpose from the Monetary
Board.
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BANKING LAWS
Whenever the Monetary Board authorizes an Investment House to engage in

quasi-banking functions, it may subject said Investment House to further
regulations, which may include but need not necessarily be limited to a)
liquidity reserve requirements; b) capital-to-risk assets ratios; c) interest rate
ceilings; and d) such other constraints as the Board may deem necessary.
Dealer or broker
An Investment House may engage in the business of a dealer or a broker

under the Securities Act without obtaining a separate license for the purpose.
Use of the term Investment House
No person, association, partnership or corporation other than those duly

licensed as an Investment House shall advertise or hold itself out as being
engaged in the business of an Investment House.
INVESTMENT COMPANY ACT

Investment company
Any issuer which is or holds itself out as being engaged primarily in the
business of investing, reinvesting, or trading in securities.
Nature and purpose
Investment companies are financial institutions that raise funds by selling

their own issues of securities to individual investors. The funds obtained will
be used to invest in securities of other enterprises.
The objective of an investment company is to provide individual investors

with safe and profitable use of their savings and to relieve them of the
burden of direct responsibility of managing their own savings.
Types of investment companies

1.
Open-end company - also called mutual funds
2.
Closed-end company
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BANKING LAWS
Powers and functions

1.
Offer for sale, sell, or deliver after sale, within the Philippines, any security or
any interest in any security, whether the issuer of such security is the
investment company or another person.
2.
Purchase, redeem, retire, or otherwise acquire or attempt to acquire, within

the Philippines, any security, or any interest in any security, whether the
issuer of such security is such investment company or another person.
Security
Any note, stock, treasury stock, bond, debenture, evidence of indebtedness,

certificate of interest or participation in any profit-sharing agreement,
collateral trust certificate, pre-organization certificate or subscription,
investment contract, voting trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or other mineral rights, or, in
general, any interest or instrument commonly known as a security or any
certificate of interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to or purchase, any
of the foregoing. (Section 3(bb), RA 2629).
Note that there is an expanded definition under the Revised Securities Act.
Form
All shares of its capital stock shall be common and voting shares.
Capitalization
No public offering may be made unless the investment company has a paid
up capital of at least P500,000 (Section 13(1), RA 2629). However, Rule 2.1
provides that the minimum subscribed and paid in capital should be at least
50 million.
FINANCING COMPANY ACT

An Act Regulating the Organization and Operation of Financing Companies
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BANKING LAWS
It is hereby declared to be the policy of the State to regulate the activities of

financing and leasing companies:
1.
to place their operations on a sound, competitive, stable and efficient

basis as other financial institutions;
2.
to recognize and strengthen their critical role in providing medium and

long-term credit for investments in capital goods and equipment
especially by small and medium enterprises particularly in the
countryside; and
3.
to curtail and prevent acts or practices prejudicial to the public

interest.
As such, they may be in a better position to extend efficient service in a fair

manner to the general public and to industry, commerce and agriculture and
thereby more fully contribute to the sound development of the national
economy.
Financing companies
Financing companies are corporations, except banks, investment houses,

savings and loans associations, insurance companies, cooperatives, and
other financial institutions organized or operating under special laws, which
are primarily organized for the purpose of extending credit facilities to
consumers and to industrial, commercial, or agricultural enterprises.
It may extend such credit:

1.
by direct lending; or
2.
by discounting or factoring commercial papers or accounts receivable;

or
3.
by buying and selling contracts, leases, chattel mortgages, or other

evidences of indebtedness; or
4.
by financial leasing of movable as well as immovable property.
Financial leasing
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BANKING LAWS
Financial leasing is a mode of extending credit through a non-cancelable

lease contract under which the lessor purchases or acquires, at the instance
of the lessee, machinery, equipment, motor vehicles, appliances, business
and office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of
money sufficient to amortize at least seventy percent (70%) of the purchase
price or acquisition cost, including any incidental expenses and a margin of
profit over an obligatory period of not less than two (2) years.
During the two-year period, the lessee has the right to hold and use the
leased property with the right to expense the lease rentals paid to the lessor.
Lessee also bears the cost of repairs, maintenance, insurance and
preservation of the leased property.
However, lessee has no obligation or option to purchase the leased property

from the owner-lessor at the end of the lease contract.
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BANKING LAWS
Liability of lessors
Financing companies shall not be liable for loss, damage or injury caused by
a motor vehicle, aircraft, vessel, equipment, machinery or other property
leased to a third person or entity except where the motor vehicle, aircraft,
vessel, equipment, machinery or other property is operated by the financing
company, its employees or agents at the time of the loss, damage or injury.
Rights and powers of financing companies
Financing companies shall have the following powers, in addition to those

granted by this Act and by other laws:
1.
Engage in quasi-banking and money market operations with the prior

approval of the Bangko Sentral.
2.
Engage in trust operations subject to the provisions of the General

Banking Act upon prior approval of the Bangko Sentral.
3.
Issue bonds and other capital instruments subject to pertinent rules

and regulations of the Bangko Sentral.
4.
Rediscount their paper with governmental financial institutions subject

to relevant laws, rules and regulations.
5.
Participate in special loan or credit programs sponsored by or made

available through governmental financial institutions.
6.
Provide foreign currency loans and leases to enterprises who earn

foreign currency by exports or other means, subject to existing laws
and rules and regulations of the Bangko Sentral.
Form of organization and capital requirements
Financing companies shall be organized in the form of stock corporations at

least forty percent (40%) of the voting stock of which is owned by citizens of
the Philippines.
They shall have paid-up capital of not less than ten million pesos
(P10,000,000) in case the financing company is located in Metro Manila and
first class cities, five million pesos (P5,000,000) in other classes of cities, and
two million five hundred thousand pesos (P2,500,000) in municipalities.
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BANKING LAWS
No foreign national
unless the country
rights to Filipinos
counterpart entities
may be allowed to own stock in any financing company

of which he is a national accords the same reciprocal
in the ownership of financing companies or their
in such country.
Requirements for registration
Aside from requiring compliance with the provisions of the Corporation Code,
the SEC shall not register the articles of incorporation of any financing
company unless its office is satisfied on the evidence submitted to it, that:
1.
All the requirements of existing laws to engage in the business for

which the applicant is proposed to be incorporated or organized have
been complied with;
2.
The organization, direction and administration, as well as the integrity

and responsibility of the organizers and administrators reasonably
assure the protection of the interest of the general public; and
3.
All the requirements of RA 5980 have been complied with.
Revocation and suspension of registration

1.
Financing company is insolvent
2.
It violated any provision of the law
Supervision and regulation
The SEC is empowered to enforce the provisions of RA 5980, as amended,

and issue implementing regulations except insofar as the Bangko Sentral
may have supervisory authority for financing companies licensed to perform
quasi-banking functions, and insofar as the Monetary Board has authority to
prescribe financing company rates and charges.
Prohibited acts
The Act imposes a fine of not less than P10,000 but not more than P100,000,
or imprisonment of not more than six(6)months or both, at the discretion of
the court, on "persons, associations, partnerships or corporations, including
managing officers thereof," upon the following unlawful acts:
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BANKING LAWS
1.
Engaging in the business of finance companies without authority from

the SEC through advertisement in whatever from, or through other
representations without authority.
2.
Using trade or firm name containing the words "financing company" or

"leasing company" or "finance and leasing company" or "finance and
investment company" or any other designation that would give the
public the impression that it is engaged in the business of a financing
company or leasing company without authority.
3.
Holding themselves out to be financing companies without authority

from the SEC.
4.
Any officer, employee, or agent of a financing company who shall

knowingly and willingly make any statement in any application, report
or document required to be filed under the Act, which is false or
misleading with respect to any material fact, or overvalue or aid in
overvaluing any securities for the purpose of influencing in any way
the action of the company on any loan, or discounting.
5.
Any officer, employee or examiner of the SEC directly charged with the
implementation of the Act who shall commit, connive, aid or assist in
the commission of acts enumerated above.
PAWNSHOPS
Presidential Decree 114
in relation to CB Circular No. 374
Pawnshop
A
pawnshop
is
a
person
(single
proprietorship)
or
entity
(corporation/partnership) engaged in the business of lending money on
personal property delivered as security for loans.
Purpose of the law
To regulate the establishement of pawnshops and to place their operation on

any sound and stable basis:
1.
To derive maximum benefit as source of credit
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BANKING LAWS
2.
To prevent and mitigate practices prejudicial to the public; and
3.
To prescribe minimum requirements
Requirements for establishing a pawnshop

1.
Registration
a.
With DTI if single proprietorship
b.
With SEC if corporation or partnership
c.
In all cases, with the BSP
d.
With the Board of Investments if there is foreign equity participation
2.
Secure a license to operate from the LGU concerned
3.
Minimum paid in capital of P100,000
4.
Citizenship
a.
If single proprietor, must be a Filipino
b.
If partnership, 70% of capital owned by Filipinos
c.
If corporation, 70% of voting capital should be owned by Filipinos
d.
If no voting stock, 70% of members entitled to vote should be Filipinos
General requirements as to operation
Owner who has other businesses not directly related or incidental to his
pawnshop business must keep the latter separate from his other businesses.
Maintain adequate security

pawns/records are kept.
Insure place of business and pawns against fire and burglars.
Accountable officers/employees shall be bonded.
Accounting records
i.e.
fire
and
burglar
proof
safe
where
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BANKING LAWS
Loans cannot be less than 30% of the appraised value of the personal
property unless the borrower stipulated in writing that he is borrowing a
lesser amount.
In addition to interest charges, pawnshops may impose a maximum service

charge of P5.00 but in no case to exceed 1% of the principal loan.
No other charges, fees, and commissions shall be collected by pawnshop in
connection with the loan transaction or payment thereof. Borrower shall not
pay insurance premiums.
Conduct of business
1.
Borrower offers to pledge personal property as security for loan.
2.
Property is appraised.
3.
Loan agreement is entered into.
4.
Pawnshop issues receipt (pawn ticket).
5.
Pawnshop lends money to pawner.
6.
Pawner pays charges not to exceed P5.00.
7.
Pawned property is placed in vault/safe.
8.
If upon maturity, borrower fails to pay, pawnshop will wait for 90 days after
maturity before it can sell the thing pledged at a public auction.
9.
Pawnshop has to comply with notice requirements, to wit:

a.
Before the 90-day period expires, notice to the borrower that the pawn
will be sold if not redeemed within 90 days from maturity specifying
time, date, and place of auction sale.
b.
If there is no redemption, pawnshop will sell the pawn after publishing

a notice of sale in at least two newspapers in the city/municipality of
operation six (6) days before the date of sale. In remote areas where
there is no newspaper, by posting at City Hall or Municipal Building
and two other conspicuous public places where pawnshop operates.
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BANKING LAWS
c.
Sale of pawn by auctioneer/notary public to higher bidder.
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BANKING LAWS
Supervisory powers of the Bangko Sentral
BSP official in charge of non-bank financial intermediaries or authorized agent

may inspect, examine, and investigate the records of pawnshop to ensure
compliance with PD 114.
Said official or agent makes recommendations to the Monetary Board.
Impose penalties for violation of PD 114.
TRUST CORPORATIONS
Chapter VII
General Banking Act
Trust corporation
A trust corporation is any corporation formed or organized for the purpose of

acting as trustee, administering any trust or holding property in trust or on
deposit for the use, benefit or behoof of others.
A corporation or a bank may engage in the business of a trust corporation.
Standard of care
A trust company or any bank authorized to engaged in the business of a trust

company shall administer the funds or property under its custody with the
skill, care, prudence and diligence necessary under the circumstances then
prevailing that a prudent man, acting under like capacity and familiar with
such matters, would exercise in the conduct of an enterprise of a like
character and with similar aims.
No trust company or bank engaged in the business of a trust company shall,

for the account of the trustor or the beneficiary of the trust, purchase or
acquire property from, or sell, transfer, assign or lend money or property to,
or purchase debt instruments of any of the departments, directors, officers,
stockholders, or employees of the trust company or bank, or relatives within
the first degree of consanguinity or affinity, or the related interests, of such
director, officers, and stockholders, unless the transaction is specifically
authorized by the trustor and the relationship of the trustee and the other
party involved in the transaction is fully disclosed to the trustor or beneficiary
of the trust prior to the transaction.
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BANKING LAWS
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BANKING LAWS
Powers (in addition to general powers incident to corporations)
1.
To act as trustee on any mortgage or bond issued by any municipality,

corporation, or any body politic and to accept and execute any other
municipal or corporate trust not inconsistent with law.
2.
To act under the order or appointment of any court of record as guardian,

receiver, trustee or depository of the estate of any minor, insane person,
idiot, habitual drunkard, or other incompetent or irresponsible person, and as
receiver and depository of any moneys paid into court by parties to any legal
proceedings and of property of any kind which may be brought under the
jurisdiction of the court by property legal proceedings.
3.
To act as the executor of any last will or testament when it is named in the
last will and testament as the executor thereof.
4.
To act under appointment of a court of competent jurisdiction as

administrator of the estate of any deceased person, with the will annexed, or
as administrator of the estate of any deceased person when there is no will,
and when in either case there is no person qualified, competent, willing, able
and entitled to accept such administration.
5.
To accept and execute any legal trust confided to it by any court of record or
by any person or corporation for the holding, management, and
administration of any estate, real or personal, and the rents, issues, and
profits thereof.
6.
To establish and manage common trust funds, subject to such rules and
regulations as may be prescribed by the Monetary Board.
Commercial banking activity
A trust company may, with the approval of the Monetary Board, do a

commercial banking business, but such business must be kept separate and
distinct from its trust business.
Any banking corporation may, with the approval of the Monetary Board, be
authorized to engage in the business of a trust company, but it shall be
subject to the provisions on trust operations.
Bond/security requirements and paid in capital
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BANKING LAWS
Except as may otherwise be provided in this Act, no bond or other security

shall be required from any trust company for the faithful performance of its
duties as trustee, executor, administrator, guardian, receiver or depositary.
However, the court officer appointing such company as trustee, executor,

administrator, guardian, receiver or depositary may, upon proper application,
showing special cause therefor, require any corporation which shall seek to
be or shall have been so appointed to give adequate security for the
protection of the funds or property confided to the corporation and, upon
failure of such corporation to give the security required, its appointment as
trustee, executor, administrator, guardian, receiver or depositary shall be
revoked.
Section 65, however, provides: As security for the faithful performance of its
trust duties, every trust company, before transacting trust business, shall
carry on deposit with the Central Bank, cash or securities approved by the
Monetary Board in an amount equal to not less than two hundred and fifty
thousands pesos (P250,000). This may be increased by the Central Bank.
Paid in capital and surplus of the company must be at least equal to the
amount required to be deposited with the central Bank.
Separation of trust funds and property
All moneys, properties, or securities received by any trust company shall be

kept separate and distinct from all other funds, properties and assets of its
general business.
The accounts of all such moneys, properties or securities shall likewise be

kept separate and distinct from the accounts of its general business.
Capital stock may be invested
The capital stock and funds of a trust company may be loaned or otherwise
invested as its by laws prescribe; if it does a commercial banking business in
addition to its trust business, the investment of its funds other than trust
funds shall be governed by the relevant provisions of the General Banking
Act.
Surplus and dividend
Every trust company, before the distribution of a dividend, shall carry to

surplus 10% of its net profits accruing since the last preceding dividend until
97
BANKING LAWS
the surplus shall amount to 20% of its authorized capital stock and no part of
the surplus shall at any time be paid out in dividends, but losses accruing in
the course of its business may be charged against the surplus.

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Banking Laws and Cases

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BANKING LAWS

The New Central Bank Act

The General Banking Act

An Act Liberalizing the Entry of Foreign Banks

Offshore Banking System Law

Foreign Currency Deposits Act

An Act Creating the PDIC

The Truth in Lending Act

Law on Secrecy of Bank Deposits

Two types of financing

A cross-breed of the two may also occur.

Non-bank financial intermediaries

Others i.e. secondary markets

Brokering or matching investors with those in need of financing

Help in diminishing risks to investors

NEW CENTRAL BANK ACT

The Bangko Sentral ng Pilipinas is the States central monetary

The Bangko Sentral shall enjoy fiscal and administrative autonomy.

The primary objective of the Bangko Sentral is to maintain price stability

Typical functions of the Bangko Sentral

Supervision over banks and regulation of non-bank financial intermediaries

Custodian of the nations reserves of foreign currency

It has control of credit

regulating money supply i.e. reserve requirements for banks

open market operations i.e. Tbills

controlling interest rate

Lender of last resort

Custodian of cash reserves of banks

Government banker, agent and advisor

Central clearance and settlement agency

Fiscal policy v. monetary policy

Fiscal policy is concerned with revenue generation and expenditure while

The seven members are:

The Governor as Chairman;

A member of the Cabinet designated by the President; and

Qualifications of the members of the Monetary Board

Must be natural born citizens of the Philippines

Good moral character

Of known probity and patriotism

With recognized competence in social and economic disciplines

In addition to the disqualifications imposed by Republic Act No. 6713, a

No person shall be a member of the Monetary Board if he has been

Responsibility and liability of the members of the Monetary Board

Members of the Monetary Board, officials, examiners, and employees of the

Similar responsibility shall apply to members, officers and employees of the

The disclosure of any information of a confidential nature, or any

The use of such information for personal gain or to the detriment of

However, any data or information required to be submitted to the President

Authority of Governor to render opinions, decisions or rulings

In case of emergencies where time is insufficient to call a meeting of the

He shall thereafter submit a report to the President and Congress within 72

Positions in eleemosynary, civic, cultural or religious organizations

Supervision and examination

This power however is subject to the provision of existing laws protecting or

Subsidiary and affiliate

No restraining order on power of examination

No restraining order or injunction shall be issued by the court enjoining the

Prohibitions on personnel of the Bangko Sentral

In addition to the prohibitions found in RA 3019 and 6713, personnel of the

Being an officer, director, lawyer or agent, employee, consultant or

Directly or indirectly requesting or receiving any gift, present or

Revealing in any manner, except upon orders of the court, the

Borrowing from any institution subject to supervision or examination

The conservator should be competent and knowledgeable in bank operations