I.

Banking Institutions
1. Banks
1.1 Definition (Sec. 3.1, RA No. 8791 [General Banking Law of 2000 (GBL))
- entities engaged in the lending of funds obtained in the form of deposits

case:

Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the public. They
plough back the bulk of said deposits into the economy in the form of loans. Since banks deal with the public’s money,
their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably
imbued with public interest. Consequently, much importance is given to sound lending practices and good corporate
governance.

*Shadow banking

- includes lending by unregulated individuals

1.2 The essence of banking

a. Republic of the Philippines vs. Security Credit and Acceptance Corporation G.R. No. L-20583, January
23, 1967
MARCH 16, 2014LEAVE A COMMENT

An investment company which loans out the money of its customers, collects the interest and charges a commission to
both lender and borrower, is a bank. It is conceded that a total of 59,463 savings account deposits have been made by
the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out
to such persons as the corporation deemed suitable therefore. It is clear that these transactions partake of the nature of
banking, as the term is used in Section 2 of the General Banking Act.

Facts: The Solicitor General filed a petition for quo warranto to dissolve the Security and Acceptance Corporation,
alleging that the latter was engaging in banking operations without the authority required therefor by the General
Banking Act (Republic Act No. 337). Pursuant to a search warrant issued by MTC Manila, members of Central Bank
intelligence division and Manila police seized documents and records relative to the business operations of the
corporation. After examination of the same, the intelligence division of the Central Bank submitted a memorandum to
the then Acting Deputy Governor of Central Bank finding that the corporation is engaged in banking operations. It was
found that Security and Acceptance Corporation established 74 branches in principal cities and towns throughout the
Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same had managed
to induce the public to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74; Accordingly,
the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation, with a prayer
that, meanwhile, a writ of preliminary injunction be issued ex parte, enjoining the corporation and its branches, as well as
its officers and agents, from performing the banking operations complained of, and that a receiver be appointed
pendente lite. Superintendent of Banks of the Central Bank was then appointed by the Supreme Court as receiver
pendente lite of defendant corporation.

In their defense, Security and Acceptance Corporation averred that the the corporation had filed with the
Superintendent of Banks an application for conversion into a Security Savings and Mortgage Bank, with defendants
Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors.

Issue: Whether or not defendant corporation was engaged in banking operations.

Held. An investment company which loans out the money of its customers, collects the interest and charges a
commission to both lender and borrower, is a bank. It is conceded that a total of 59,463 savings account deposits have
been made by the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which
has been lent out to such persons as the corporation deemed suitable therefore. It is clear that these transactions
partake of the nature of banking, as the term is used in Section 2 of the General Banking Act. Hence, defendant
corporation has violated the law by engaging in banking without securing the administrative authority required in
Republic Act No. 337.

That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact
that the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it is willful and has
been repeated 59,463 times, and that its continuance inflicts injury upon the public, owing to the number of persons
affected thereby.

Banas vs. Asia Pacific Finance Corporation G.R. No. 128703, October 18, 2000
MARCH 16, 2014LEAVE A COMMENT
An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage
primarily in the business of investing, reinvesting or trading in securities. As defined in Revised Securities Act, securities
“shall include commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective
of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another with or without recourse, such as
promissory notes. Clearly, the transaction between petitioners and respondent was one involving not a loan but
purchase of receivables at a discount, well within the purview of “investing, reinvesting or trading in securities” which an
investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a violation of the General
Banking Act.
Facts: Teodoro Bañas executed a Promissory Note in favor of C. G. Dizon Construction whereby for value received he
promised to pay to the order of C. G. Dizon Construction the sum of P390,000.00 in installments of “P32,500.00 every 25th
day of the month starting from September 25, 1980 up to August 25, 1981.”Later, C. G. Dizon Construction endorsed with
recourse the Promissory Note to ASIA PACIFIC, and to secure payment thereof, C. G. Dizon Construction, through its
corporate officers, Cenen Dizon, President, and Juliette B. Dizon, Vice President and Treasurer, executed a Deed of
Chattel Mortgage covering three heavy equipment units of Caterpillar Bulldozer Crawler Tractors Moreover, Cenen
Dizon executed a Continuing Undertaking wherein he bound himself to pay the obligation jointly and severally with C. G.
Dizon Construction.

In compliance thereof, C. G. Dizon Construction made three installment payments to ASIA PACIFIC for a total
of P130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of the remaining installments,
prompting ASIA PACIFIC to send a Statement of Account to Cenen Dizon for the unpaid balance of P267,737.50 inclusive
of interests and charges, and P66,909.38 representing attorney’s fees. As the demand was unheeded, ASIA PACIFIC filed
a complaint for a sum of money with prayer for a writ of replevin against Teodoro Bañas, C. G. Dizon Construction and
Cenen Dizon. The trial court issued a writ of replevin against defendant C. G. Dizon Construction for the surrender of the
bulldozer crawler tractors. Of the three bulldozer crawler tractors, only two were actually turned over by defendants
which units were subsequently foreclosed by ASIA PACIFIC to satisfy the obligation. The two bulldozers were sold both to
ASIA PACIFIC as the highest bidder.
Petitioners insist that ASIA PACIFIC was organized as an investment house which could not engage in the lending of
funds obtained from the public through receipt of deposits. The disputed Promissory Note, Deed of Chattel Mortgage
and Continuing Undertaking were not intended to be valid and binding on the parties as they were merely devices to
conceal their real intention which was to enter into a contract of loan in violation of banking laws. The Regional Trial
Court ruled in favor of ASIA PACIFIC holding the defendants jointly and severally liable for the unpaid balance of the
obligation under the Promissory Note. The Court of Appeals affirmed the decision of the trial court

Issues: Whether the disputed transaction between ASIA PACIFIC was engaged in banking activities.

Held: An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage
primarily in the business of investing, reinvesting or trading in securities. As defined in Revised Securities Act, securities
“shall include commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective
of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another with or without recourse, such as
promissory notes” Clearly, the transaction between petitioners and respondent was one involving not a loan but
purchase of receivables at a discount, well within the purview of “investing, reinvesting or trading in securities” which an
investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a violation of the General
Banking Act.

What is prohibited by law is for investment companies to lend funds obtained from the public through receipts of
deposit, which is a function of banking institutions. But here, the funds supposedly “lent” to petitioners have not been
shown to have been obtained from the public by way of deposits, hence, the inapplicability of banking laws. Wherefore,
the assailed decision of the Court of Appeals was affirmed.
 1.3 Banks and financial intermediaries

CASE: First Planters Pawnshop, Inc. v Commissioner of Internal Revenue, GR No. 174134, July 30, 2008

Facts: The BIR informed the petitioner on its VAT and Documentary Stamp Tax (DST) deficiency for the year 2000. The
petitioner protested after receiving the formal assessment notice from the BIR directing it to pay its VAT deficiencies with
surcharges and interest. They contend they are not a lending investor within the scope of Section 108 (A) of the National
Internal Revenue Code therefore not subject to Vat and that a pawn ticket is not subject to DST because it is not a proof
of pledge of transaction. Their protest was denied by the BIR Regional Director and their appeal was likewise denied by
the Court of Tax Appeal hence this petition for review.

Issue:

Whether or not pawnshops maybe subjected to VAT and Documentary stamp tax?

Ruling:

At the time of the disputed assessment in 2000, pawnshops were not subject to 10% under the general provision on
"sale or exchange of services" as defined under Section 108(A) of the Tax Code of 1997 which was amended by the RA
9238 classifying pawnshops as “Other Non-Bank Financial Intermediaries.” Since petitioner is a non-bank financial
intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection of
VAT from non-bank financial intermediaries being specifically deferred by law, then petitioner is not liable for VAT during
these tax years. But with the full implementation of the VAT system on non-bank financial intermediaries starting January
1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238,
petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5 %, as the case may
be.

Pawnshops are liable for documentary stamp tax. Subject of DST is not limited to the document alone. Pledge
(which is an exercise of a privilege to transfer obligations, rights or properties incident thereto) is essentially the business of
pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as
persons or entities engaged in lending money on personal property delivered as security for loans. The DST is an excise
tax imposed in the exercise of a pledge. Although the law does not consider a pawn ticket as an evidence of security or
indebtedness, for purposes of taxation it is treated as an exercise of a taxable privilege of concluding a contract of
pledge.

Thus, the court partially granted the petition where the decision on the BIR assessment on VAT deficiency is
reversed and set aside while the decision on payment for DST is affirmed.

R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank as
synonymous and interchangeable and specifically include commercial banks, savings bank, mortgage banks,
development banks, rural banks, stock savings and loan associations, and branches and agencies in the Philippines of
foreign banks. R.A. No. 8791 or the General Banking Law of 2000, meanwhile, provided that banks shall refer to entities
engaged in the lending of funds obtained in the form of deposits.

R.A. No. 8791 also included cooperative banks, Islamic banks and other banks as determined by the Monetary
Board of the Bangko Sentral ng Pilipinas in the classification of banks.

Financial intermediaries are defined as "persons or entities whose principal functions include the lending, investing
or placement of funds or evidences 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."

Section 3 of P.D. No. 114 defines pawnshop as "a person or entity engaged in the business of lending money on
personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with
pawnbroker or pawn brokerage."

1.4 Authority to engage in banking

SECTION 6. Authority to Engage in Banking and Quasi-Banking Functions. —

No person or entity shall engage in banking operations or quasi-banking functions without authority from the Bangko
Sentral: Provided, however, That an entity authorized by the Bangko Sentral to perform universal or commercial banking
functions shall likewise have the authority to engage in quasi-banking functions.

The determination of whether a person or entity is performing banking or quasi-banking functions without Bangko Sentral
authority shall be decided by the Monetary Board.

To resolve such issue, the Monetary Board may, through the appropriate supervising and examining department of the
Bangko Sentral, examine, inspect or investigate the books and records of such person or entity. Upon issuance of this
authority, such person or entity may commence to engage in banking operations or quasi-banking functions and shall
continue to do so unless such authority is sooner surrendered, revoked, suspended or annulled by the Bangko Sentral in
accordance with this Act or other special laws.

The department head and the examiners of the appropriate supervising and examining department are hereby
authorized to administer oaths to any such person, employee, officer, or director of any such entity and to compel the
presentation or production of such books, documents, papers or records that are reasonably necessary to ascertain the
facts relative to the true functions and operations of such person or entity.

Failure or refusal to comply with the required presentation or production of such books, documents, papers or records
within a reasonable time shall subject the persons responsible therefore to the penal sanctions provided under the New
Central Bank Act. Persons or entities found to be performing banking or quasi-banking functions without authority from
the Bangko Sentral shall be subject to appropriate sanctions under the New Central Bank Act and other applicable laws.
(4a)

1.5 Requisites/ conditions to engage in banking

SECTION 8. Organization. — The Monetary Board may authorize the organization of a bank or quasi-bank subject to the
following conditions:

8.1. That the entity is a stock corporation (7);

8.2. That its funds are obtained from the public, which shall mean twenty (20) or more persons (2-Da); and

8.3. That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied.
(n)

No new commercial bank shall be established within three (3) years from the effectivity of this Act. In the exercise of the
authority granted herein, the Monetary Board shall take into consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank licensing process shall incorporate an assessment of the bank's
ownership structure, directors and senior management, its operating plan and internal controls as well as its projected
financial condition and capital base.

1.6 The SEC and banks

SECTION 14. Certificate of Authority to Register. —

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 seal.

Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it:

14.1 That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed
to be incorporated have been complied with;

14.2. That the public interest and economic conditions, both general and local, justify the authorization; and
14.3. 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 deposits and the public interest. (9) The
Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment thereto, unless
accompanied by a certificate of authority from the Bangko Sentral. (10)

1.7 Minimum capital stock requirements (BSP Circular No. 257 dated 15 August 2000)

Bank Category Minimum Capital (In Millions)

Expanded Commercial Banks P 4,950
Non-expanded Commercial Banks 2,400
Thrift Banks
With Head Office within Metro Manila 325
With Head Office outside Metro Manila
52
Rural Banks
Within Metro Manila
P 26
Cities of Cebu and Davao
1st/2nd/3rd class cities and 1st class
municipalities 13
6.5
4th/5th/6th class cities and 2nd/3rd/4th class
3.9
municipalities
2.6
5th and 6th class municipalities

1.8 The activities and services of banks

SECTION 53. Other Banking Services. — In addition to the operations specifically authorized in this Act, a bank may
perform the following services: 53.1. Receive in custody funds, documents and valuable objects; 53.2. Act as financial
agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all
types of securities; 53.3. Make collections and payments for the account of others and perform such other services for
their customers as are not incompatible with banking business; 53.4. Upon prior approval of the Monetary Board, act as
managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts; and
53.5. Rent out safety deposit boxes. The bank shall perform the services permitted under Subsections 53.1, 53.2, 53.3 and
53.4 as depositary or as an agent. Accordingly, it shall keep the funds, securities and other effects which it receives duly
separate from the bank's own assets and liabilities. The Monetary Board may regulate the operations authorized by this
Section in order to ensure that such operations do not endanger the interests of the depositors and other creditors of the
bank. In case a bank or quasi-bank notifies the Bangko Sentral or publicly announces a bank holiday, or in any manner
suspends the payment of its deposit liabilities continuously for more than thirty (30) days, the Monetary Board may
summarily and without need for prior hearing close such banking institution and place it under receivership of the
Philippine Deposit Insurance Corporation. (72a)

SECTION 29. Powers of a Commercial Bank. — A commercial bank shall have, in addition to the general powers incident
to corporations, all such powers as may be necessary to carry on the business of commercial banking, such as
accepting drafts and issuing letters of credit; discounting and negotiating promissory notes, drafts, bills of exchange, and
other evidences of debt; accepting or creating demand deposits; receiving other types of deposits and deposit
substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt
securities; and extending credit, subject to such rules as the Monetary Board may promulgate. These rules may include
the determination of bonds and other debt securities eligible for investment, the maturities and aggregate amount of
such investment. (21a)

1.9 May banks acquire real estate?

SECTION 51. Ceiling on Investments in Certain Assets. —

Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business: Provided:
 1. That the total investment in such real estate and improvements thereof, including bank equipment, shall not
exceed fifty percent (50%) of combined capital accounts:
2. Provided, further, That the equity investment of a bank in another corporation engaged primarily in real estate
shall be considered as part of the bank's total investment in real estate, unless otherwise provided by the
Monetary Board. (25a)

SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. —

Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or convey real property under the
following circumstances:

52.1. Such as shall be mortgaged to it in good faith by way of security for debts;

52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or

52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall
purchase to secure debts due it.

Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of
by the bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That
the bank may, after said period, continue to hold the property for its own use, subject to the limitations of the preceding
Section. (25a)

2. Classification of banks

CLASSIFICATION OF BANKS

Classification of Banks (Sec. 3.2)

1) Universal Banks. (UB) These used to be called expanded commercial banks and their operations are primarily
governed by the GBL. They can exercise the powers of an investment house and invest in non-allied enterprises. They
have the highest capitalization requirement.

2) Commercial Banks. (KB) These are ordinary or regular commercial banks, as distinguished from a universal bank. They
have a lower capitalization requirement than a UB and cannot exercise the powers of an investment house and invest in
non-allied enterprises.

3) Thrift Banks. These are

a. savings and mortgage banks;
b. stock savings and loan associations; and
c. private development banks

4) Cooperative Banks.
These are banks organized primarily to make
financial and credit services available to cooperative banks.

5) Islamic Banks
These are banks the business dealings and activities of which are subject to the basic principles and rulings of Islamic
Shari‘a. The Al Amanah Islamic Investment Bank of the Philippines, which was created by RA 6848, is the only Islamic
bank in the country at this time.

6) Rural Banks
Mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and which
are primarily governed by the Rural Banks Act of 1992 (RA 7353)

7) Other classifications of banks

As determined by the Monetary Board, i.e., Philippine Veterans Bank (RA 3518),
Landbank of the Philippines (RA 3844),
Development Bank of the Philippines (RA 85)

“Quasi-banks" (QB) refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment
with recourse or acceptance of deposit substitutes (as defined inSec. 95 RA 7653, the New Central Bank Act) for
purposes of relending or purchasing of receivables and other obligations. (last par of Sec. 4)

This is an inherent power of UBs and KBs. Thusthey do not require separate licensing or
authorization for this purpose. Thus, they can take “deposit substitutes” for relending.(Morales)

DISTINCTION BETWEEN UNIVERSAL BANKS AND COMMERCIAL BANKS

UNIVERSAL BANKS COMMERCIAL BANKS

exercise the powers of an These are REGULAR
investment house and COMMERCIAL BANKS;
invest in non-allied CANNOT EXECISE POWERS
enterprises of an investment house in
non-allied enterprises
Have the largest LOWER CAPITALIZATION
CAPITALIZATION
requirement by the BSP
Can engage in QUASI- Can also engage in quasi-
BANKING FUNCTIONS banking functions

DISTINCTION BETWEEN UNIBANK or COMMERCIAL BANK AND OTHER BANKS

SECTION 33. Acceptance of Demand Deposits. — A bank other than a universal or commercial bank cannot accept or
create demand deposits except upon prior approval of, and subject to such conditions and rules as may be prescribed
by the Monetary Board

DISTINCTION BETWEEN ALLIED AND NON-ALLIED ENTERPRISES/ UNIBANK AS INVESTMENT HOUSE

SECTION 23. Powers of a Universal Bank. — A universal bank shall have the authority to exercise, in addition to the
powers authorized for a commercial bank in Section 29, the powers of an investment house as provided in existing laws
and the power to invest in non-allied enterprises as provided in this Act.

ALLIED UNDERTAKINGS: these banks may invest in equities of allied undertakings as may be approved by the MB,
provided that the total investment shall not exceed 25% of the net worth of the bank,, and the equity investment in any
single enterprise shall not exceed 15% of the net worth of the bank, which shall remain a minority holding in that
enterprise.(Sec.31)

SECTION 31. Equity Investments of a Commercial Bank in Financial Allied Enterprises. — A commercial bank may own up
to one hundred percent (100%) of the equity of a thrift bank or a rural bank.

Where the equity investment of a commercial bank is in other financial allied enterprises,
including another commercial bank, such investment shall remain a minority holding in that enterprise.

UNIBANK AND INVESTMENT IN ALLIED AND NON-ALLIED ENTERPRISES

SECTION 24. Equity Investments of a Universal Bank. —

A universal bank may, subject to the conditions stated in the succeeding paragraph, invest in the equities of allied and
non-allied enterprises as may be determined by the Monetary Board.

Allied enterprises may either be financial or non-financial. Except as the Monetary Board may otherwise prescribe:

24.1. The total investment in equities of allied and non-allied enterprises shall not exceed fifty percent (50%) of the net
worth of the bank; and
24.2. The equity investment in any one enterprise, whether allied or non-allied, shall not exceed twenty-five percent (25%)
of the net worth of the bank. As used in this Act, "net worth" shall mean the total of the unimpaired paid-in capital
including paid-in surplus, retained earnings and undivided profit, net of valuation reserves and other adjustments as may
be required by the Bangko Sentral. The acquisition of such equity or equities is subject to the prior approval of the
Monetary Board which shall promulgate appropriate guidelines to govern such investments. (21-Ba)

COMMERCIAL BANK AND INVESTMENT IN NON-ALLIED ENTERPRISES

SECTION 30. Equity Investments of a Commercial Bank. —

A commercial bank may, subject to the conditions stated in the succeeding paragraphs, invest only in the equities of
allied enterprises as may be determined by the Monetary Board.

Allied enterprises may either be financial or non-financial. Except as the Monetary Board may otherwise prescribe:

30.1. The total investment in equities of allied enterprises shall not exceed thirty-five percent (35%) of the net worth of the
bank; and

30.2. The equity investment in any one enterprise shall not exceed twenty-five percent (25%) of the net worth of the
bank.

The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate
appropriate guidelines to govern such investments. (21A-a; 21-Ca)

3. Other banking services

SECTION 53. Other Banking Services. — In addition to the operations specifically authorized in this Act, a bank may
perform the following services:

53.1. Receive in custody funds, documents and valuable objects;

53.2. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of
indebtedness and all types of securities;

53.3. Make collections and payments for the account of others and perform such other services for their customers as
are not incompatible with banking business;

53.4. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of
investment management/advisory/consultancy accounts; and

53.5. Rent out safety deposit boxes.

The bank shall perform the services permitted under Subsections 53.1, 53.2, 53.3 and 53.4 as depositary or as an agent.

Accordingly, it shall keep the funds, securities and other effects which it receives duly separate from the bank's own
assets and liabilities.

The Monetary Board may regulate the operations authorized by this Section in order to ensure that such operations do
not endanger the interests of the depositors and other creditors of the bank. In case a bank or quasi-bank notifies the
Bangko Sentral or publicly announces a bank holiday, or in any manner suspends the payment of its deposit liabilities
continuously for more than thirty (30) days, the Monetary Board may summarily and without need for prior hearing close
such banking institution and place it under receivership of the Philippine Deposit Insurance Corporation. (72a)

3.1 Security Broker

xx….53.2. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences
of indebtedness and all types of securities; …xx

3.2 Insurance
SECTION 54. Prohibition to Act as Insurer. — A bank shall not directly engage in insurance business as the insurer. (73)

4. Prohibited transaction / acts

SECTION 55. Prohibited Transactions. —

55.1. No director, officer, employee, or agent of any bank shall —

(a) Make false entries in any bank report or statement or participate in any fraudulent transaction, thereby affecting the
financial interest of, or causing damage to, the bank or any person;

(b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the
funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity:
Provided, That with respect to bank deposits, the provisions of existing laws shall prevail;

(c) Accept gifts, fees or commissions or any other form of remuneration in connection with the approval of a loan or
other credit accommodation from said bank;

(d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any
bank; or

(e) Outsource inherent banking functions.

55.2. No borrower of a bank shall —

(a) Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank;

(b) Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing, or
increasing a loan or other credit accommodation or extending the period thereof;

(c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation; or

(d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form of
compensation in order to influence such persons into approving a loan or other credit accommodation application.

55.3. No examiner, officer or employee of the Bangko Sentral or of any department, bureau, office, branch or agency of
the Government that is assigned to supervise, examine, assist or render technical assistance to any bank shall commit
any of the acts enumerated in this Section or aid in the commission of the same. (87-Aa)

The making of false reports or misrepresentation or suppression of material facts by personnel of the Bangko Sentral ng
Pilipinas shall constitute fraud and shall be subject to the administrative and criminal sanctions provided under the New
Central Bank Act. 55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy
Law, no bank shall employ casual or nonregular personnel or too lengthy probationary personnel in the conduct of its
business involving bank deposits.

4.1 Disclosure of funds and properties in the custody of banks

xx…(b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative
to the funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity:
Provided, That with respect to bank deposits, the provisions of existing laws shall prevail; ….x

4.2 Outsourcing of inherent banking functions

xx….(e) Outsource inherent banking functions….xx

 4.3 Employment of casual or non-regular personnel

xx…55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy Law, no bank
shall employ casual or nonregular personnel or too lengthy probationary personnel in the conduct of its business
involving bank deposits…xx

4.4 Prohibited transactions and Republic Act No. 9510 (An Act Establishing the Credit Information System and
other purposes: Approved 31 October 2008)

5. The significance of banks in the economic life of the country

6. The business of banking is imbed with public interest
6.1 Banking and common carriers and last clear chance

CASE:

a. S
b. GONZALES V. PCIB (G.R. NO. 180257)

Facts: Petitioner was a client of PCIB for a good 15 years and was granted a credit line with the aggregate amount of his
accounts as collateral for the availment of the said line. Petitioner served as an accommodation party to spouses Panlilio
who obtained loans covered by promissory notes, notably stating that petitioner is solidary liable with the spouses for the
payment of the loans. The loan was granted and the spouses received the proceeds but subsequently defaulted in the
payment of said dues. As a result, the credit line was terminated and the FCD account of petitioner was frozen. In the
meantime, Gonzales issued a check but was dishonored which resulted to a falling out and a heated argument causing
him great embarrassment and humiliation. Petitioner filed a case with the RTC on account of the alleged unjust dishonor
of the check.
RTC ruled in favor of PCIB.

CA affirmed in toto.

Issue:
Whether or not PCIB acted in bad faith by dishonoring the check of petitioner.
Ruling: YES.

In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From the testimonies of Gonzales’
witnesses, particularly those of Dominador Santos and Freddy Gomez, the embarrassment and humiliation Gonzales has
to endure not only before his former close friend Unson but more from the members and families of his friends and
associates in the PCA, which he continues to experience considering the confrontation he had with Unson and the
consequent loss of standing and credibility among them from the fact of the apparent bouncing check he issued.

Credit is very important to businessmen and its loss or impairment needs to be recognized and compensated.

PCIB officers clearly show that not only did PCIB fail to give prior notice to Gonzales about the Offering Ticket
for the process of termination, suspension, or revocation of the credit line under the COHLA, but PCIB likewise failed to
inform Gonzales of the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the
termination, revocation, or suspension of the credit line under the COHLA. While PCIB invokes its right on the so-called
cross default provisions, it may not with impunity ignore the rights of Gonzales under the COHLA.

Indeed, the business of banking is impressed with public interest and great reliance is made on the banks sworn
profession of diligence and meticulousness in giving irreproachable service. Like a common carrier whose business is
imbued with public interest, a bank should exercise extraordinary diligence to negate its liability to the depositors.[35]In
this instance, PCIB is sorely remiss in the diligence required in treating with its client, Gonzales. It may not wantonly
exercise its rights without respecting and honoring the rights of its clients.

c. Bank of America vs. Philippine Racing Club

G.R. 150228 July 30, 2009
Ponente: Leonardo-De Castro, J:
Facts:

1. Plaintiff PRCI is a domestic corporation which maintains a current account with petitioner Bank of America. Its
authorized signatories are the company President and Vice-President. By virtue of a travel abroad for these officers, they
pre-signed checks to accommodate any expenses that may come up while they were abroad for a business trip. The
said pre-signed checks were left for safekeeping by PRCs accounting officer. Unfortunately, the two (2) of said checks
came into the hands of one of its employees who managed to encash it with petitioner bank. The said check was filled
in with the use of a check-writer, wherein in the blank for the 'Payee', the amount in words was written, with the word
'Cash' written above it.

2. Clearly there was an irregularity with the filling up of the blank checks as both showed similar infirmities and
irregularities and yet, the petitioner bank did not try to verify with the corporation and proceeded to encash the checks.

3. PRC filed an action for damages against the bank. The lower court awarded actual and exemplary damages. On
appeal, the CA affirmed the lower court's decision and held that the bank was negligent. Hence this appeal. Petitioner
contends that it was merely doing its obligation under the law and contract in encashing the checks, since the
signatures in the checks are genuine.

Issue: Whether or not the petitioner can be held liable for negligence and thus should pay damages to PRC

Both parties are held to be at fault but the bank has the last clear chance to prevent the fraudulent encashment hence it
is the one foremost liable .

1. There was no dispute that the signatures in the checks are genuine but the presence of irregularities on the face of the
check should have alerted the bank to exercise caution before encashing them. It is well-settled that banks are in the
business impressed with public interest that they are duty bound to protect their clients and their deposits at all
times. They must treat the accounts of these clients with meticulousness and a highest degree of care considering the
fiduciary nature of their relationship. The diligence required of banks are more than that of a good father of a family.

2. The PRC officers' practice of pre-signing checks is a seriously negligent and highly risky behavior which makes them
also contributor to the loss. It's own negligence must therefore mitigate the petitioner's liability. Moreover, the person who
stole the checks is also an employee of the plaintiff, a cleck in its accounting department at that. As the employer, PRC
supposedly should have control and supervision over its own employees.

3. The court held that the petitioner is liable for 60% of the total amount of damages while PRC should shoulder 40% of
the said amount.

7. Quasi-banks

"quasi-banks" shall refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment
with recourse or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the "New
Central Bank Act") for purposes of relending or purchasing of receivables and other obligations. (2-Da)

7.1 Deposit Substitutes

Section 95. Definition of 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 relending or purchasing of receivables and other
obligations. These instruments may include, but need not be limited to, bankers acceptances, promissory notes,
participations, certificates of assignment and similar instruments with recourse, and repurchase agreements. The
Monetary Board shall determine what specific instruments shall be considered as deposit substitutes for the purposes of
Section 94 of this Act: Provided, however, That deposit substitutes of commercial, industrial and other non-financial
companies for the limited purpose of financing their own needs or the needs of their agents or dealers shall not be
covered by the provisions of Section 94 of this Act.

Section 94. Reserve Requirements. - 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:
Provided, That the Monetary Board may, at its discretion, also require all banks and/or quasi-banks to maintain reserves
against funds held in trust and liabilities for deposit substitutes as defined in this Act. 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. Reserve requirements shall be applied to all banks of the same category uniformly and without discrimination.

Reserves against deposit substitutes, if imposed, shall be determined in the same manner as provided for reserve
requirements against regular bank deposits, with respect to the imposition, increase, and computation of reserves.

The Monetary Board may exempt from reserve requirements deposits and deposit substitutes with remaining
maturities of two (2) years or more, as well as interbank borrowings.

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.

8. The organization and ownership of banks

SECTION 8. Organization. —

The Monetary Board may authorize the organization of a bank or quasi-bank subject to the following conditions:

8.1. That the entity is a stock corporation (7);

8.2. That its funds are obtained from the public, which shall mean twenty (20) or more persons (2-Da); and

8.3. That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied.
(n)

No new commercial bank shall be established within three (3) years from the effectivity of this Act. In the exercise of the
authority granted herein, the Monetary Board shall take into consideration their capability in terms of their financial
resources and technical expertise and integrity.

The bank licensing process shall incorporate an assessment of the bank's ownership structure, directors and senior
management, its operating plan and internal controls as well as its projected financial condition and capital base.

SECTION 9. Issuance of Stocks. — The Monetary Board may prescribe rules and regulations on the types of stock a bank
may issue, including the terms thereof and rights appurtenant thereto to determine compliance with laws and
regulations governing capital and equity structure of banks: Provided, That banks shall issue par value stocks only.

SECTION 10. Treasury Stocks. — No bank shall purchase or acquire shares of its own capital stock or accept its own shares
as a security for a loan, except when authorized by the Monetary Board: Provided, That in every case the stock so
purchased or acquired shall, within six (6) months from the time of its purchase or acquisition, be sold or disposed of at a
public or private sale. (24a)

SECTION 11. Foreign Stockholdings. — Foreign individuals and non-bank corporations may own or control up to forty
percent (40%) of the voting stock of a domestic bank. This rule shall apply to Filipinos and domestic non-bank
corporations. (12a; 12-Aa) The percentage of foreign-owned voting stocks in a bank shall be determined by the
citizenship of the individual stockholders in that bank. The citizenship of the corporation which is a stockholder in a bank
shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation.
(n)

SECTION 12. Stockholdings of Family Groups or Related Interests. — Stockholdings of individuals related to each other
within the fourth degree of consanguinity or affinity, legitimate or common-law, shall be considered family groups or
related interests and must be fully disclosed in all transactions by such an individual with the bank. (12-Da)

SECTION 13. Corporate Stockholdings. — Two or more corporations owned or controlled by the same family group or
same group of persons shall be considered related interests and must be fully disclosed in all transactions by such
corporations or related groups of persons with the bank. (12-Ba)
SECTION 14. Certificate of Authority to Register. — 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 seal. Such certificate shall not be issued unless the Monetary Board is satisfied from the
evidence submitted to it:

14.1 That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed
to be incorporated have been complied with;

14.2. That the public interest and economic conditions, both general and local, justify the authorization; and

14.3. 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 deposits and the public interest. (9) The
Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment thereto, unless
accompanied by a certificate of authority from the Bangko Sentral. (10)

SECTION 15. Board of Directors. — The provisions of the Corporation Code to the contrary notwithstanding, there shall be
at least five (5), and a maximum of fifteen (15) members of the board of directors of bank, two (2) of whom shall be
independent directors. An "independent director" shall mean a person other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests. (n) Non-Filipino citizens may become members of the board of directors of a
bank to the extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721) The meetings of the board of
directors may be conducted through modern technologies such as, but not limited to, teleconferencing and video-
conferencing. (n)

SECTION 16. Fit and Proper Rule. — To maintain the quality of bank management and afford better protection to
depositors and the public in general, the Monetary Board shall prescribe, pass upon and review the qualifications and
disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit. After due
notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank director
or officer who commits or omits an act which render him unfit for the position. In determining whether an individual is fit
and proper to hold the position of a director or officer of a bank, regard shall be given to his integrity, experience,
education, training, and competence. (9-Aa)

SECTION 17. Directors of Merged or Consolidated Banks. — In the case of a bank merger or consolidation, the number of
directors shall not exceed twenty-one (21). (13a)

SECTION 18. Compensation and Other Benefits of Directors and Officers. — To protect the funds of depositors and
creditors, the Monetary Board may regulate the payment by the bank to its directors and officers of compensation,
allowance, fees, bonuses, stock options, profit sharing and fringe benefits only in exceptional cases and when the
circumstances warrant, such as but not limited to the following:

18.1. When a bank is under comptrollership or conservatorship; or

18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; or

18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition. (n)

SECTION 19. Prohibition on Public Officials. — Except as otherwise provided in the Rural Banks Act, no appointive or
elective public official, whether full-time or part-time shall at the same time serve as officer of any private bank, save in
cases where such service is incident to financial assistance provided by the government or a government-owned or
controlled corporation to the bank or unless otherwise provided under existing laws. (13)

8.1 Stockholdings

SECTION 12. Stockholdings of Family Groups or Related Interests. — Stockholdings of individuals related to each other
within the fourth degree of consanguinity or affinity, legitimate or common-law, shall be considered family groups or
related interests and must be fully disclosed in all transactions by such an individual with the bank. (12-Da)

SECTION 13. Corporate Stockholdings. — Two or more corporations owned or controlled by the same family group or
same group of persons shall be considered related interests and must be fully disclosed in all transactions by such
corporations or related groups of persons with the bank. (12-Ba)
SECTION 14. Certificate of Authority to Register. — 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 seal. Such certificate shall not be issued unless the Monetary Board is satisfied from the
evidence submitted to it:

14.1 That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed
to be incorporated have been complied with;

14.2. That the public interest and economic conditions, both general and local, justify the authorization; and

14.3. 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 deposits and the public interest. (9) The
Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment thereto, unless
accompanied by a certificate of authority from the Bangko Sentral. (10)

8.2 The required number of board of directors

SECTION 15. Board of Directors. — The provisions of the Corporation Code to the contrary notwithstanding, there shall be
at least five (5), and a maximum of fifteen (15) members of the board of directors of bank, two (2) of whom shall be
independent directors. An "independent director" shall mean a person other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests. (n) Non-Filipino citizens may become members of the board of directors of a
bank to the extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721)

The meetings of the board of directors may be conducted through modern technologies such as, but not limited to,
teleconferencing and video-conferencing. (n)

SECTION 16. Fit and Proper Rule. — To maintain the quality of bank management and afford better protection to
depositors and the public in general, the Monetary Board shall prescribe, pass upon and review the qualifications and
disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit. After due
notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank director
or officer who commits or omits an act which render him unfit for the position. In determining whether an individual is fit
and proper to hold the position of a director or officer of a bank, regard shall be given to his integrity, experience,
education, training, and competence. (9-Aa)

SECTION 17. Directors of Merged or Consolidated Banks. — In the case of a bank merger or consolidation, the number of
directors shall not exceed twenty-one (21). (13a)

SECTION 18. Compensation and Other Benefits of Directors and Officers. — To protect the funds of depositors and
creditors, the Monetary Board may regulate the payment by the bank to its directors and officers of compensation,
allowance, fees, bonuses, stock options, profit sharing and fringe benefits only in exceptional cases and when the
circumstances warrant, such as but not limited to the following:

18.1. When a bank is under comptrollership or conservatorship; or

18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; or

18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition. (n)

8.2.1 Independent contractors

An "independent director" shall mean a person other than an officer or employee of the bank, its subsidiaries or
affiliates or related interests.

Non-Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation
in the equity of said bank.
 8.3 Ownership of individuals within the 4th degree of consanguinity or affinity

SECTION 12. Stockholdings of Family Groups or Related Interests. — Stockholdings of

individuals related to each other within the fourth degree of consanguinity or affinity,
legitimate or common-law, shall be considered family groups or related interests and must
be fully disclosed in all transactions by such an individual with the bank.

8.3.1 Family groups and related interest

8.4 The SP and bank officials/ employees

8.4.1 Prescription and review of qualifications

SECTION 16. Fit and Proper Rule. — To maintain the quality of bank management and afford better
protection to depositors and the public in general, the Monetary Board shall prescribe, pass upon and
review the qualifications and disqualifications of individuals elected or appointed bank directors or
officers and disqualify those found unfit.

After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or
remove any bank director or officer who commits or omits an act which render him unfit for the
position. In determining whether an individual is fit and proper to hold the position of a director or
officer of a bank, regard shall be given to his integrity, experience, education, training, and competence.

8.4.2 Regulations and compensation and benefits

SECTION 18. Compensation and Other Benefits of Directors and Officers. — To protect the funds of depositors and
creditors, the Monetary Board may regulate the payment by the bank to its directors and officers of compensation,
allowance, fees, bonuses, stock options, profit sharing and fringe benefits only in exceptional cases and when the
circumstances warrant, such as but not limited to the following:

18.1. When a bank is under comptrollership or conservatorship; or

18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; or

18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition. (n)

8.5 Prohibition on public officials

8.6 Foreign ownership of banks and foreign banks
8.6.1 Foreign individuals and non-bank corporations

SECTION 11. Foreign Stockholdings. — Foreign individuals and non-bank corporations may own or
control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply to Filipinos
and domestic non-bank corporations. (12a; 12-Aa) The percentage of foreign-owned voting stocks in a
bank shall be determined by the citizenship of the individual stockholders in that bank. The citizenship of
the corporation which is a stockholder in a bank shall follow the citizenship of the controlling
stockholders of the corporation, irrespective of the place of incorporation. (n) SECTION 12. Sto
 8.6.2 Foreign banks and ownership of local banks

SECTION 73. Acquisition of Voting Stock in a Domestic Bank. —

Within seven (7) years from the effectivity of this Act and subject to guidelines issued pursuant to the
Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to acquire up to one
hundred percent (100%) of the voting stock of only one (1) bank organized under the laws of the
Republic of the Philippines. Within the same period, the Monetary Board may authorize any foreign
bank, which prior to the effectivity of this Act availed itself of the privilege to acquire up to sixty percent
(60%) of the voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act,
to further acquire voting shares of such bank to the extent necessary for it to own one hundred percent
(100%) of the voting stock thereof. In the exercise of this authority, the Monetary Board shall adopt
measures as may be necessary to ensure that at all times the control of seventy percent (70%) of the
resources or assets of the entire banking system is held by banks which are at least majority-owned by
Filipinos. Any right, privilege or incentive granted to a foreign bank under this Section shall be equally
enjoyed by and extended under the same conditions to banks organized under the laws of the Republic
of the Philippines. (Secs. 2 and 3, RA 7721)

8.6.3 Foreign ownership in thrift banks

8.6.4 Foreign ownership in rural banks
8.6.5 Foreign banks
8.6.6 The license of Foreign banks
8.6.7 Laws governing foreign banks
8.6.8 Summons and other legal processes against a foreign bank

8.6.9 The branches of a foreign bank

SECTION 74. Local Branches of Foreign Banks. — In the case of a foreign bank which has more than one
(1) branch in the Philippines, all such branches shall be treated as one (1) unit for the purpose of this
Act, and all references to the Philippine branches of foreign banks shall be held to refer to such units.
(68)

9. Off-shore banking units

(a) "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 as provided in this Decree.

(b) "Offshore Banking Unit" shall mean a branch, subsidiary or affiliate of a foreign banking corporation
which is duly authorized by the Central Bank of the Philippines to transact offshore banking business in
the Philippines.