Professional Documents
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Banking Laws: Governing Law
Banking Laws: Governing Law
BANKING LAWS
BAR QUESTION:
BAR QUESTION:
Theory of Cognition vs. Theory of Manifestation
T HREE KINDS OF ENTITIES THAT INTRODUCE FUNDS
(1997)
INTO THE ECONOMY :
1. banks : entities that obtains funds from the public
The Civil Code adopts the theory of cognition, while
in the form of deposits and re-lend it to the public;
2. quasi-banks : those that obtain funds in the form of the Code of Commerce generally recognizes the
deposit substitutes and re-lend the same and not theory of manifestation, in the perfection of
from the public or depositors. contracts. How do these two theories differ?
3. Finance companies and other financial SUGGESTED ANSWER:
intermediaries: those that lend funds from their
own assets. Under the theory of cognition, the acceptance is
considered to effectively bind the offeror only from
the time it came to his knowledge. Under the theory
FIVE PERSONS PRIMARILY INTERESTED IN THE of manifestation, the contract is perfected at the
moment when the acceptance is declared or made by
BUSINESS OF BANKING
the offeree.
1. Government
2. Depositors
3. Investors
4. Creditors
5. Borrowers
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Purpose: To promote and maintain a stable and 1. That all requirements of existing laws and
efficient banking and financial system that is globally regulations to engage in the business for which
competitive, dynamic and responsive to the demands of the applicant is proposed to be incorporated
a developing economy (Sec. 2). have been complied with;
Scope of Application: The GBL primarily governs 2. That the public interest and economic
universal banks and commercial banks. It suppletorily conditions, both general and local, justify the
governs thrift banks, rural banks and other banking authorization; and
institutions.
3. That the amount of the capital, the financing,
organization, direction and administration, as
GENERAL CONCEPTS well as the integrity and responsibility of the
organizers and administrators, reasonably
BANKS assure the safety of deposits and the public
interest (Sec. 14).
Entities engaged in the lending of funds obtained in
the form of deposits (Sec. 2) Organization of a Bank or Quasi-Bank
Requirements:
Entities duly authorized by the Monetary Board to 1. The entity is a stock corporation;
engage in the business of regularly lending funds 2. Its funds are obtained from the public,
obtained regularly from the public through the i.e. 20 or more persons; and
receipt of deposits of any kind. 3. The minimum capital requirements prescribed
by the Monetary Board are satisfied (Sec. 8).
An investment company that performs function as
such is NOT a bank. Thus an investment company Note:
that is engage solely in investing, reinvesting or In Quasi banks, Deposit substitute are
trading in securities is not engage in banking. alternative forms of obtaining funds for the
( Banas vs. Asia Pacific Finance Corp., Oct. 18, public, other than deposit, through the
2000). issuance, endorsement, or acceptance of debt
instrument for the borrowers own account, for
However, an investment company which loans out the purpose of relending or purchasing of
money of its customers, collects interest, and receivables and other obligations.in banking or
charges a commission to both lender or borrower is quasi-banking functions
engage in banking (Republic vs. Security Credit
and Acceptance Corp.)
A person or entity cannot engage in banking or
QUASI-BANKS quasi-banking functions without a certificate of
authority from the BSP (Sec. 6).
Entities engaged in the borrowing of funds through The determination of whether a person or entity is
the issuance, endorsement or assignment with performing banking or quasi-banking functions
recourse or acceptance of deposit substitutes (Sec. without BSP authority shall be decided by the
95) Monetary Board.
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While an innocent mortgagee is not expected to 4. Rural banks – Mandated to make needed credit
conduct an exhaustive investigation on the history available and readily accessible in the rural areas
of the mortgagor’s title, in case of a banking on reasonable terms and which are primarily
institution, it must exercise due diligence before governed by the Rural Banks Act of 1992 (RA
entering into said contract, and cannot rely upon on 7353).
what is or is not annotated on the title. Reason:
Before a loan is approved, representatives are sent 5. Cooperative banks – Those banks organized
to the premises offered as collaterals so as to whose majority shares are owned and controlled by
investigate who the real owners are (DBP vs. CA, cooperatives primarily to provide financial and
331 SCRA 267). credit services to cooperatives. It shall include
cooperative rural banks. They are governed
The business of a bank is one affected by public primarily by the Cooperative Code (RA 6938).
interest for which reason the bank should guard
against loss due to negligence and bad faith. It is 6. Islamic banks – Banks whose business dealings
expected to ascertain and verify the identities of the and activities are subject to the basic principles and
persons it transacts business with (UCPB vs. rulings of Islamic Shari’ a, such as the Al Amanah
Ramos, G.R. No. 147800, November 11, 2003, Islamic Investment Bank of the Philippines which
Callejo, J.). was created by RA 6848.
Due diligence required of banks extend even to 7. Other classification of banks as determined by
persons, or institutions like the GSIS, regularly the Monetary Board of the Bangko Sentral ng
engaged in the business of lending money secured Pilipinas.
by real estate mortgages (GSIS vs. Eduardo
Santiago, G.R. No. 155206. October 28, 2003).
CONSEQUENCES OF NATURE OF BUSINESS : ORDINARY BANKING
CORPORATION CORPORATION
1. It is subject to heavy and close supervision and/or
regulation by the BSP (Central Bank of the Phils. v. May be a stock or Must generally be a
CA, 208 SCRA 652). non-stock stock corporation
corporation
1. It is required to exercise utmost diligence in the
handling of deposits (Simex International Manila May issue par value Shall issue par value
Inc., 183 SCRA 361). or no par value stocks only (Sec. 9).
2. Special rules on strikes and lockouts: any strike or stocks.
lockout involving banks, if unsettled after 7 May be registered Must secure a
calendar days shall be reported by the BSP to the
with the SEC without certificate of authority
Sec. of Labor who has 2 options:
a. He may assume jurisdiction over and decide any certificate of from the Monetary
the dispute; or authority issued by a Board before it can
b. certify it to the NLRC for compulsory government agency. register with SEC.
arbitration May May not purchase/
purchase/acquire its acquire its shares or
own shares for a accept them as
The President may also intervene at any time and
legitimate corporate security for a loan.
assume jurisdiction over such labor dispute in order to
purpose; provided Except: when
settle or terminate the same. that, it has authorized by the
unrestricted retained Monetary Board. In
CLASSIFICATION OF BANKS (SEC. 3) earnings in its books such case, the bank
to cover the shares must sell or dispose of
to be purchased/ said shares within 6
1. Universal banks - Primarily governed by the acquired. months from the time
General Banking Law (GBL), can exercise the of their acquisition
powers of an investment house and invest in non-
(Sec. 10).
allied enterprises and have the highest
capitalization requirement. Must be composed Also composed of 5 to
of 5 to 15 directors, 15 directors. In case of
2. Commercial banks - Ordinary banks governed by each of whom shall merger or
the GBL which have a lower capitalization own at least one (1) consolidation, the
requirement than universal banks and can neither share of the capital number of directors
exercise the powers of an investment house nor
stock of the shall not exceed 21
invest in non-allied enterprises.
corporation. (Sec. 17).
3. Thrift banks – These are a) Savings and mortgage May declare May not declare
banks; b) Stock savings and loan associations; c) dividends out of its dividends, if any of the
Private development banks, which are primarily unrestricted retained conditions set forth
governed by the Thrift Banks Act (R.A. 7906). earnings. under Sec. 57 are
present.
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of equity of equity
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right to demand immediate repayment or liquidation a. In case of default, creditor’s recourse is not limited
of obligation (Sec. 40). to corporate properties but extends to personal
assets of the surety;
b. Surety would be compelled to ensure that the loan
would be used for the purpose intended.
Note: While R.A. 8791 provides for the rates of 20%
and 10% respectively, the Bangko Sentral has not yet
implemented such rates. The prevailing rates are 25%
and 15% respectively.
Classification of Loans
UNCLASSIFIED CLASSIFIED LOANS Requisites (BSP Circular No. 170):
LOANS
a. The borrower is director, officer, or any
Those that do not have Those that have
stockholder of a bank and related interest.
a greater–than–normal extraordinary risks of
b. He contracts a loan or any form of financial
risk and the borrower loss in collection due to
accommodation
have apparent ability some defects such as
c. The loan or financial accommodation is from
to satisfy it in full and bad debts or those
(1) his bank or (2) a bank that is a subsidiary of a
no loss in ultimate under litigation.
bank holding company of which both his bank and
collection is
lending bank are subsidiaries, (3) a bank in
anticipated.
which a controlling proportion of the shares is
owned by the same interest that owns a
controlling proportion of the shares of his bank;
Limit on loans, credit accommodati ons and and
guarantees (Sec. 35) d. The loan or financial accommodation of
the DOS, singly or with that of his related
1. Single Borrower’s Limit (SBL) Rules interest, is in excess of 5% of the capital and
surplus of the lending bank or in the maximum
b. The total amount of loans extended by a bank to amount permitted by law, whichever is lower.
any person, partnership, association, corporation or
other entity shall at no time exceed 20% of the net Who are covered (BSP Circular No. 170):
worth of such bank. 1. Directors – Directors of the lending bank
c. The total amount of loans may be increased by an 2. Officers – Either identified in the by-laws or are
additional 10% of the net worth of such bank generally known as such
provided the additional liabilities of any borrower
are adequately secured by trust receipts, shipping 3. Stockholders – those whose stockholdings,
documents, warehouse receipts or other similar individually and/or together with any of the following
documents transferring or securing title covering persons, amount to 2% or more of the total
readily marketable, non-perishable goods which subscribed capital stock of the bank:
must be fully covered by insurance; a. His spouse or relative within the first degree of
affinity/consanguinity or relative by legal
Exclusions (NON-RISK LOANS): adoption, partnership wherein any of the
1. Loans secured by obligations of the Bangko Sentral foregoing is a general partner; and
or the Philippine Government;
2. Loans fully guaranteed by the government; b. A co-owner, with the stockholder or the
3. Loans covered by assignment of deposits stockholder’s spouse, or relative mentioned
maintained in the lending bank and held in the above, of property/right/interest (mortgaged,
Philippines; pledged or assigned to secure the loan or
4. Loans, credit accommodations and acceptances credit accommodations, except when the
under letters of credit to the extent covered by mortgage, pledge or assignment covers only
margin deposits; and said co-owner’s undivided interest.
5. Other loans or credit accommodations which the
MB may specify as non-risk items. 4. Related Interest –
a. Spouse, relatives within first degree of
consanguinity or affinity, or relative by legal
Joint and Solidary Signature (JSS) Practi ce adoption of a DOS, partnerships of which a
DOS or any of the foregoing is a general
A common banking practice requiring as an additional partner.
b. Co-owner, with the DOS or his spouse or
security for a loan granted to a corporation the joint and
relative within the first degree of consanguinity
Solidary signature of a major stockholder or corporate or affinity, or relative by legal adoption, of the
officer of the borrowing corporation (Security Bank vs. property/interest/ right mortgaged, pledged,
Cuenca, 341 SCRA 781). assigned to secure the loans or credit
accommodations, except when the mortgage,
Reasons:
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pledge or assignment covers only said co- copyrights) shall not exceed 75% of the appraised
owner’s undivided interest. value of the security (Sec. 38).
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5. As agent-principal:
a. Deposit of check for collection
b. Deposit for specific purpose
c. Deposit for safekeeping
Depositors: NOW ACCOUNTS
TIME DEPOSITS
1. Minors : (Negotiable Order of
a. at least seven years of age Withdrawal)
b. able to read and write
c. not disqualified by any incapacity Interest bearing deposit An account with fixed
d. it should only be savings or time deposits accounts that combine term
the payable on demand
feature of checks and
Note: Parents may deposit for their minor children
investment feature of
or wards (Sec.1 PD No.734)
savings account.
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 to the guardian. (Sec.
22, Thrift Banks Act of 1995)
Kinds of Deposits
Note:
DEMAND DEPOSITS SAVINGS ACCOUNT Demand, savings, NOW accounts, time deposits
and deposit substitutes shall not be subject to
Only a universal or Evidenced by a interest ceilings.
commercial bank can passbook.
accept or create demand A bank other than a universal or commercial bank
deposits. must seek approval of Monetary Board before
accepting or creating demand deposits. (Sec. 33)
A bank other than a Banks are prohibited
Anonymous accounts are prohibited. ( R.A. No
universal bank or from issuing / accepting
9160 as amended by RA 9194; BSP Circular No. 251,
commercial bank withdrawal slips or other July 21, 2000) exception: Foreign currency deposits
CANNOT accept demand similar instruments to may be a “numbered account”. However, the law
deposit effect withdrawals requires that the necessary measures are undertaken
without the passbooks by the bank to record and establish the true identity of
except for bank the depositor.
authorized by the BSP
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Joint account may be the subject of a survivorship trust agreement, whether express or implied.
agreement whereby the co-depositor agree to permit Failure by the bank to pay the depositor is failure to
either of them to withdraw the whole deposit during their pay a simple loan and not a breach of trust. The law
lifetime and transferring the balance to the survivor upon simply imposes on the bank a higher standard of
the death of one of them ( Vitug vs, CA., March 29, integrity and performance in complying with its
1990) obligations under the contract of simple loan,
beyond those required of non-bank debtors, under
a similar contract of simple loan (CBTC vs. CA,
G.R. No. 138569, September 11, 2003).
Types of deposit accounts
(Handbook on Bank Deposits, A. Viray, 1998 ed.) This fiduciary relationship means that the bank’s
obligation to observe “high standards of integrity
1. Individual and performance” is deemed written into every
deposit agreement between a bank and its
2. Joint depositor. The fiduciary nature of banking requires
a. “And” account banks to assume a degree of diligence higher than
Co-ownership that of a good father of a family (CBTC vs. CA,
The signatures of both co-depositors are Ibid.).
required for withdrawals.
b. “And/or” account
Suspension of Payment on its Deposit
Either one of the co-depositors may Liabilities
deposit and withdraw from the account In case a bank or quasi-bank notifies the Bangko
without the knowledge, consent and Sentral or publicly announces a bank holiday, or in any
signature of the other. And upon the death manner suspends the payment of its deposit liabilities
of one, the survivor may withdraw the continuously for more than 30 days, the Monetary Board
entire balance on deposit. may summarily and without need for prior hearing close
such banking institution and place it under receivership
of the Philippine Deposit Insurance Corporation (Sec.
The account may be deemed a 53).
survivorship agreement depending on the
intention of the parties; aleatory contract The depositary would be liable if in performing
supported by a lawful consideration which its obligation it is found guilty of fraud,
is valid unless when made as a mere negligence; in the absence of any stipulation
cloak to hide an inofficious donation, to prescribing the degree of diligence required,
transfer property in fraud of creditors, or to that of a good father of the family is to be
defeat the legitime of a forced heir (Rivera observed. Any stipulation exempting the
vs. People’s Bank and Trust Co., 73 Phil. depositary from any liability arising from loss
546 [1942]). on account of fraud, negligence would be void
for being contrary to public policy (CA-Agro
Dev’t vs. CA, 219 SCRA 426, March 5, 1993).
Deposit substitutes
Note: The bank shall act as depositary or as an agent
An alternative form of obtaining funds from the public, shall keep the funds, securities and other effects which
other than deposits, through the issuance, it receives duly separated from its own assets and
endorsement, or acceptance of debt instruments for the liabilities (Sec. 53)
borrower’s own account, for the purpose of re-lending or
purchasing of receivables and other obligations (Sec.
95, RA 7653).
DEPOSIT
PROHIBITIONS
DEPOSIT
SUBSTITUTE
No security given to Guaranteed by
guarantee repayment; certificates and other
A. ON BANKS :
the depositor relies on instruments.
the stability and (Handbook on Bank 1. To directly act as insurer (Sec. 54)
reputation of the bank. Deposits, A. Viray,
1998 ed.) 2. For banks or quasi-banks to declare dividends, if at
the time of declaration:
a. its clearing account with the Bangko Sentral is
A bank has the right to set-off the deposits in its overdrawn;
hands for the payment of any outstanding
indebtedness to it on the part of the depositor b. it is deficient in the required liquidity floor for
(Gullas vs. PNB, 62 Phil. 519; PNB vs. CA, 272 government deposits for 5 or more consecutive
SCRA 291). days;
The fiduciary nature of a bank-depositor c. it does not comply with the liquidity
relationship does not convert the contract between standards/ratios prescribed by the Bangko
the bank and its depositors from a simple loan to a
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Sentral for purposes of determining funds f. Printing of bank loan statements and other
available for dividend declaration; or non-deposit records, bank forms and
promotional materials;
d. It has committed a major violation as may be g. Credit investigation and collection;
determined by the Bangko Sentral (Sec. 57). h. Processing of export, import and other trading
transactions;.
3. To conduct business in an unsafe or unsound i. Transfer agent services for debt and equity
manner (Sec. 56); services;
j. Property appraisal;
4. Publication of capital stock (Sec. 62); k. Property management services;
l. Messenger, courier and postal services;
5. Unauthorized advertisement or business m. Security guard services;
representation (Sec. 64); or n. Vehicle service contracts
o. Janitorial services;
6. To employ casual or non-regular personnel or too p. Other services as determined by the Monetary
lengthy probationary personnel in the conduct of its Board.
business involving bank deposits (Sec. 55).
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to the safety, stability, liquidity or solvency of the of only one domestic bank or new
institution; banking subsidiary (Sec. 2).
4. The act or omission involves entering into any 2. For foreign bank branches – not less than the US$
contract or transaction manifestly and grossly equivalent of P210M
disadvantageous to the bank, quasi-bank or trust
entity, whether or not the director or officer profited
or will profit thereby. Amendments introduced by GBL 2000
1. Within seven years from effectivity of the GBL
OWNERSHIP OF STOCKS OF A DOMESTIC (June 13, 2000), foreign banks may be allowed
to own up to 100% equity of only one domestic
BANK bank as a mode of entry if authorized by the
Monetary Board (Sec. 73, GBL).
1. Filipino
In case of a Filipino individual or a domestic non- 2. Other foreign individuals and non-bank
bank corporation, each may own up to 40% of the corporations may own up to 40% of the voting
outstanding voting stock of a local bank. stock of a domestic bank; the nationality of the
controlling shareholders of the non-bank
2. Foreign corporations will be traced to determine the
Foreign individuals and non-bank corporations may foreign ownership of the domestic bank (Sec.
own or control up to an aggregate of 40% of the 11, GBL).
voting stock of a domestic bank.
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accountable body in the discharge of its responsibilities convincing proof that the action of the BSP is
concerning money, banking and credit. plainly arbitrary (Sec. 25)
b. Place a bank under receivership or liquidation
(Sec. 30)
c. Initiate criminal prosecution of erring officers of
banks
BANGKO SENTRAL NG PILIPINAS (BSP) 8. Government agent (Secs. 117-122)
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interest in any private bank in the Philippines, within R EFUSAL TO M AKE R EPORTS OR P ERMIT
one (1) year prior to his appointment (Sec. 9);
E XAMINATION .
4. cannot be employed in any such institution within
two (2) years after the expiration of his term except - Any officer, owner, agent, manager, director or officer-
when he serves as an official representative of the in-charge of any institution subject to the supervision or
Philippine Government to such institution (Sec. 9); examination by the Bangko Sentral who, being required
in writing by the Monetary Board or by the head of the
5. the Governor of the Bangko Sentral and the full- supervising and examining department willfully refuses
time members of the Board shall limit their to file the required report or permit any lawful
professional activities to those pertaining directly to examination into the affairs of such institution shall be
their positions with the Bangko Sentral. punished under the Act. (Sec. 34)
Accordingly, they may not accept any other
employment, whether public or private, False Statement. - The willful making of a false or
remunerated or ad honorem, with the exception of misleading statement on a material fact to the Monetary
positions in eleemosynary, civic, cultural or religious Board or to the examiners of the Bangko Sentral shall
organizations or whenever, by designation of the be punished. (Sec. 35)
President, the Governor or the full-time member is
tasked to represent the interest of the Government
PROHIBITIONS ON BANK OFFICERS, DIRECTORS,
or other government agencies in matters connected
with or affecting the economy or the financial LAWYERS, AGENTS
system of the country (Sec. 20);
Personnel of the Bangko Sentral are hereby
prohibited from:
6. in case any member of the Monetary Board with
personal or pecuniary interest in any matter in the
1. being an officer, director, lawyer or agent,
agenda of the Monetary Board shall disclose his employee, consultant or stockholder, directly or
interest to the Board and shall retire from the indirectly, of any institution subject to supervision or
meeting when the matter is taken up (Sec. 14). examination by the Bangko Sentral;
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LIQUIDATION
CASE DIGEST
Central Bank of the Philippines vs. Court of Grounds:
Appeals, 220 SCRA 536 1. The condition of the bank is one of insolvency or
that its continuance would involve probable loss to
its depositors and creditors.
Facts:
2. A determination by the MB that the bank cannot be
Based on the financial reports submitted to the rehabilitated.
Central Bank, which states that the Financial condition
of The Triumph Savings Bank (TSB) is one of Procedure:
insolvency and its continuance in the business world 1. Receiver shall file ex parte, with the proper RTC, a
involve probable loss to its depositors and creditors, the petition for assistance in the liquidation of the
Monetary Board issued a Resolution ordering the institution pursuant to a liquidation plan adopted by
closure of TSB, forbidding it from doing business in the the PDIC for general application to all closed banks.
Philippines, placing it under receivership and appointing In case of quasi-banks, the liquidation plan shall be
Ramon V. Taiaoqi as receiver. The TSB filed a adopted by the Monetary Board.
complaint assailing the resolution on the ground of lack
of prior notice and hearing 2. He shall convert the assets of the institution to
money for the purpose of paying the debts of the
institution (Sec. 30).
Issue:
3. Payment shall be in accordance with the rules on
Whether or not a Monetary Board Resolution concurrence and preference of credits.
be annulled on the ground of lack of prior notice and Regular courts have no jurisdiction over actions
hearing. filed by claimants against an insolvent bank (Ong
vs CA, 253 SCRA 105).
Ruling:
Section 29 of the Central Bank Act does not EFFECTS OF APPOINTMENT OF RECEIVER/
contemplate prior notice and hearing before a bank may
LIQUIDATION
be declared to stop operations and placed under 1. Suspension of operation
receivership. When it provides for the filing of the case
2. The assets under receivership or liquidation shall
within 10 days after the receiver takes charge of the be deemed in custodia legis in the hands of the
assets of the bank, it is unmistakable that the assailed
receiver and shall be exempt from garnishment,
actions should precede the filing of the case. Plainly, the levy, attachment or execution (Sec. 30).
legislature could not have intended or authorize “no
prior notice and hearing” in the closure of the bank and 3. Bank is not liable to pay interest on deposits during
at the same time allow the suit to annul it on the basis of
the period of suspension of operation (Overseas
the absence thereof. Bank vs. CA, 113 SCRA 778 [1982])
This “close now and hear later” scheme is
grounded on practical and legal consideration to prevent 4. The corporation retains its legal personality (Teal
the unwarranted dissipation of the bank’s asset and as a Motor Co. vs. CFI, 51 Phil. 549 [1928])
valid exercise of the police power to protect the
depositors, creditors, stockholders and the general 5. Deposits do not become preferred credits (CB vs.
public. Morfe, 20 SCRA 507 [1967])
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1. Notes for any series or denomination – More than 5 1. The required reserves of each bank shall be
years old proportional to the volume of its deposit
2. Coins – More than 10 years old liabilities.
2. Since the required reserves are imposed
primarily to control the volume of money, the
Bangko Sentral shall not pay interests thereon
Rules:
(Sec. 94).
1. Notes and coins called in for replacement shall
remain legal tender for a period of one year from 3. Deposits maintained with the Bangko Sentral
the date of call. as part of the reserve requirements shall be
exempt from attachment, garnishment, or any
other order or process of any court or agency
(Sec. 103).
2. After that period, they shall cease to be legal tender
4. No increase of more than 4% point within 30-
during the following year or for such longer period
day period.
as MB may determine.
However, a check which has been cleared and SECRECY OF BANK DEPOSITS LAW
credited to the account of the creditor shall be (R.A. No. 1405)
equivalent to a delivery to the creditor of cash
in an amount equal to the amount credited to Purposes:
his account (Sec. 60). 1. To encourage people to deposit in banks
2. To discourage private hoarding so that banks may
lend such funds and assist in the economic
MONETARY STABILIZATION development
Coverage:
All deposits of whatever nature with banks or banking
3 IMPORTANT TOOLS TO ACHIEVE PRICE STABILITY institutions in the Philippines, including investments in
bonds issued by the Government of the Philippines, its
1. Loans to Banks (Sec. 83) (Rediscounting) political subdivisions and its instrumentalities.
a. If BSP wants to increase money supply, it
opens the rediscount window by reducing PROHIBITED ACTS:
interest on loans
b. If BSP wants to decrease money supply, it
1. Examination and inquiry or looking into all deposits,
closes the rediscount window or charges very
of whatever nature, with the banks in the
high interest rates for rediscounted notes
Philippines including investments in bonds issued
by the Government.
2. Any disclosure by any official or employee of any
bank to any unauthorized person of any information
2. Open Market Operations (Sec. 90)
concerning the said deposits.
a. If BSP wants to increase money supply, it buys
government securities
GENERAL RULE: The deposits covered by law are
b. If BSP wants to decrease money supply, it
considered as of an absolutely confidential nature and
sells government securities
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may not be examined, inquired or looked into by any 2. NIRC - Inquiry by the Commissioner of Internal
person, governmental bureau, or office. Revenue into bank deposits of:
BAR QUESTION:
Banks: Secrecy of Bank Deposits; Garnishment
(2004)
c. Hijacking and other violations under RA 6235;
CDC maintained a savings account with CBank. On destructive arson and murder under RPC.
orders of the MM Regional Trial Court, the Sheriff Including those perpetrated by terrorists against
garnished P50,000 of his account, to satisfy the non-combatant persons and similar targets”
judgment in favor of his creditor, MO. CDC (Sec. 11, R.A. No. 9160 as amended by Sec. 8
complained that the garnishment violated the Law on of RA 9194)
the Secrecy of Bank Deposits because the existence
4. Disclosure to the Treasurer of the Philippines of
of his savings account was disclosed to the public.
dormant deposits for at least 10 years under the
(5%) Is CDC's complaint meritorious or not? Reason Unclaimed Balances Act (Act No. 3936).
briefly.
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Notes of hotjurist
in foro conscientiae
Page 22 of 27
Purposes:
Garnishment of Bank Deposit
1. To protect and preserve the integrity and
In China Banking Corporation v. Court of Appeals, confidentiality of bank accounts, to ensure that the
(193 SCRA 452 (1991) the Supreme Court held that the Philippines shall not be used as a site for unlawful
garnishment of a bank deposit does not violate the Bank money laundering activities; and
Secrecy Law. Said the court: 2. To pursue State’s foreign policy to extend
“It is clear from the discussion of the cooperation in transnational investigations and
conference committee report on x x x Republic Act. prosecution on money laundering activities.
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 Covered Entities:
insure satisfaction of a judgment. Indeed, there is
no real inquiry in such a case, and if the existence 1. Banks
of the deposit is disclosed, the disclosure to evade
2. Non-banks
payment of their just debts, even if ordered by the
Court, through the expedient of converting their 3. Quasi-banks
assets into cash and depositing the same in a
bank.”(Phil. Commercial & International Bank v. 4. Trust entities
Court of Appeals, 93 SCRA 452 (1991). 5. All other institutions, their subsidiaries and affiliates
supervised or regulated by the BSP
BAR QUESTION:
Banks; Secrecy of Bank Deposits (2000)
COVERED TRANSACTION:
GP is a suspected Jueteng lord who is rumored to be
enjoying police and military protection. The envy of Transaction, in cash or other equivalent monetary
many drug lords who had not escaped the dragnet of instrument in excess of P500,000, within one banking
day.
the law, GP was summoned to a hearing of the
Committee on Racketeering and Other Syndicated SUSPICIOUS TRANSACTIONS :
Crimes of the House of Representatives, which was Transactions with covered institutions regardless of the
conducting a congressional investigation “in aid of amounts involved, where any of the following
legislation” on the involvement of police and military circumstances exists:
personnel, and possibly even of local government 1. There is no underlying legal or trade obligation
officials, in the illegal activities of suspected
2. Client is not properly identified
gambling and drug lords. Subpoenaed to attend the
investigation were officers of certain identified 3. Amount involved is not commensurate with the
banks with a directive to them to bring the records business or financial capacity
and documents of bank deposits of individuals 4. Taking into account all known circumstances, it
mentioned in the subpoenas, among them GP. GP and may be perceived that the client’s transaction is
the banks opposed the production of the banks’ structured in order to avoid being the subject of
reporting requirements under the Act
records of deposits on the ground that no such
inquiry is allowed under the Law on Secrecy of Bank
Deposits (RA 1405 as amended). Is the opposition of
GP and the banks valid? Explain.
5. Any circumstance relating to the transaction which
SUGGESTED ANSWER: is observed to deviate from the profile and/or the
Yes. The opposition is valid. GP is not a public official. client’s past transactions with the covered institution
The investigation does not involve one of the
6. Transaction is in any way related to an unlawful
exceptions to the prohibition against disclosure of activity or offense under this Act that is about to be,
any information concerning bank deposits under the is being or has been committed
Law on Secrecy of Bank Deposits. The Committee 7. Analogous transactions to any of the foregoing
conducting the investigation is not a competent court
or the Ombudsman authorized under the law to issue
a subpoena for the production of the bank record
MONEY LAUNDERING:
involving such disclosure.
A crime whereby the proceeds of an unlawful activity
are transacted, thereby making them appear to have
originated from legitimate sources. It is committed by
ANTI-MONEY LAUNDERING ACT OF the following:
2001 1. Any person knowing that any monetary instrument
or property represents, involves, or relates to, the
(R.A. No. 9160, as amended by R.A. 9194) proceeds of any unlawful activity, transacts or
Notes of hotjurist
in foro conscientiae
Page 23 of 27
BAR QUESTION:
2. Any person knowing that any monetary instrument
or property involves the proceeds of any unlawful BANKS; SECRECY OF BANK DEPOSIT; AMLC
activity, performs or fails to perform any act as a (2006)
result of which he facilitates the offense referred to
in number 1 above. Rudy is jobless but is reputed to be a Jueteng
operator. He has never been charged or convicted of
any crime. He maintains several bank accounts and
3. Any person knowing that any monetary instrument has purchased 5 houses and lots for his children
or property is required under this Act to be
disclosed and filed with the AMLC fails to do so. from the Luansing Realty, Inc. Since he does not
have any visible job, the company reported his
purchases to the Anti-Money Laundering Council
P REVENTION OF M ONEY L AUNDERING (AMLC). Thereafter, AMLC charged him with
1. Customer Identification – Covered institutions violation of the Anti-Money Laundering Law. Upon
shall establish and record the true identity of its request of the AMLC, the bank disclosed to it Rudy's
clients based on official documents. They shall bank deposits amounting to P100 Million.
maintain a system of verifying their clients and in Subsequently, he was charged in court for violation
case of corporate client, require a system of
of the Anti-Money Laundering Law.
verifying their legal existence and organizational
structure, s well as the authority and identification of 1. Can Rudy move to dismiss the case on the
all person purporting to act on their behalf.
ground that he has no criminal record? (2.5%)
2. Record Keeping- All records of all transaction of
covered institution shall be maintained and safely
stored for 5 years from the dates of transaction.
SUGGESTED ANSWER:
With respect to closed accounts, the records on
customer identification, account files and business No. Under the Anti-Money Laundering Law, Rudy
correspondence, shall be preserved and safely
would be guilty of a "money laundering crime"
stored for at least 5 years from the dates when they
were closed. committed when the proceeds of an "unlawful
activity," like Jueteng operations, are made to
3. Reporting of Covered and Suspicious
Transactions. – Covered institution shall report to appear as having originated from legitimate sources.
the AMLC all covered and suspicious transactions The money laundering crime is separate from the
within 5 working days from the occurrence thereof, unlawful activity of being a Jueteng operator, and
unless the Supervising Authority prescribes a requires no previous conviction for the unlawful
longer period not exceeding 10 working days. activity (See also Sec. 3, Anti-Money Laundering Act
of 2001).
J URISDICTION :
All cases: RTC 2. To raise funds for his defense, Rudy sold the
Public officers and private persons in conspiracy houses and lots to a friend. Can Luansing Realty,
with them: Sandiganbayan Inc. be compelled to transfer to the buyer
ownership of the houses and lots? (2.5%)
The Court of Appeals may issue a freeze order, Luansing Realty, Inc. is a real estate company, hence
which shall be effective immediately and for a it is not a covered institution under Section 3 of the
period of 20 days, unless extended by the court, Anti-Money Laundering Act. Only banking
only:
institutions, insurance companies, securities dealers
a. upon ex parte application of AMLC; and and brokers, pre-need companies and other entities
b. after determination that probable cause exists administering or otherwise dealing in currency,
that any monetary instrument or property is in commodities or financial derivatives are covered
any way related to an unlawful activity. institutions. Hence, Luansing Realty, Inc. may not use
Notes of hotjurist
in foro conscientiae
Page 24 of 27
the Anti-Money Laundering Act to refuse to transfer Bank Deposits Act did not amount to a contract
to the buyer ownership of the houses and lots. between the depositors and depository banks within
the meaning of the non-impairment clause of the
Constitution. Even if it did, the police power of the
3. In disclosing Rudy's bank accounts to the State is superior to the non- impairment clause. RA
AMLC, did the bank violate any law? (2.5%) 6832, creating a commission to conduct an
investigation of the failed 1989 coup d’etat and to
recommend measures to prevent similar attempts to
SUGGESTED ANSWER: seize power is a valid exercise of police power.
No, the bank did not violate any law. The bank being
specified as a "covered institution" under the Anti-
PHILIPPINE DEPOSIT INSURANCE
Money Laundering Law, is obliged to report to the
AMLC covered and suspicious transactions, without
CORPORATION (PDIC) ACT
thereby violating any law. This is one of the (R. A. 9302)
exceptions to the Secrecy of Bank Deposit Act.
Purposes:
1. To create a government-owned entity, the PDIC;
4. Supposing the titles of the houses and lots are 2. To insure the deposit liability of banks in an account
in possession of the Luansing Realty, Inc., is it up to P250,000 for every single depositor of each
under obligation to deliver the titles to Rudy? bank irrespective of the number of accounts
(2.5%) therewith.
Notes of hotjurist
in foro conscientiae
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Notes of hotjurist
in foro conscientiae
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Notes of hotjurist
in foro conscientiae
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Note: This case does not constitute another information required by the Truth in Lending Act (RA
exception, the SC only ruled as such due to the 3765). Nevertheless, the conditional deed of sale
special circumstances of the said case.
which the parties executed mentioned that the total
amount indicated therein included such finance
charges.
BAR QUESTION:
Notes of hotjurist
in foro conscientiae