St Paul University Philippines

Tuguegarao City, Cagayan

School of Business, Accountancy and Hotel Management

REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS

2ND SEMESTER, S.Y. 2022-2023

Name : KATHLYN MAE I. URSULUM Date: April 26, 2023

Course: BSACCOUNTANCY Year: SECOND YEAR / 2

BANKING LAWS

Instructions: Answer the following questions briefly and legibly. Answers should be submitted
on or before April 20,2022, through email address josefalsc@yahoo.com. Late papers will not be
accepted.

A. THE NEW CENTRAL BANK ACT

1. What are the state policies on which the New Central Bank Act was based?

The administration that followed the transition govemment of President Corazon C.

Aquino saw the turning of another chapter in Philippine central banking In
accordance with a provision in the 1967 Constitution, President Fidel V. Ramos
signed into law Republic Act No. 7853, the New Central Bank Act, on 14 June 1993.
The law provides for the establishment of an independent monetary authority to be
known as the Bangko Sentral ng Pilipinas, with the maintenance of price stability
explicitly stated as its primary objective. This objective was only implied in the old
Central Bank charter. The law also gives the Bangko Sentral fiacal and administrative
autonomy which the old Central Bank did not have. On 3 July 1983, the New Central
Bank Act took effect.

2. Why was the Bangko Sentral ng Pilipinas created? What are its responsibilities
and primary objective?
- Maintaining price stability that supports a balanced and sustainable
expansion of the economy and employment is the Bangko Sentral's principal
goal. The BSP's major job is to design and implement policy in the fields of
money, banking, and credit with the primary purpose of preserving price
stability. It shall also promote and preserve monetary stability and the
convertibility of the peso.

1
3. Corporate powers of the BSP as specified in Sec. 5 of the NCBA
 The Bangko Sentral is hereby authorized to adopt, alter, and use a corporate seal which
shall be judicially noticed; to enter into contracts; to lease or own real and personal
property, and to sell or otherwise dispose of the same; to sue and be sued; and otherwise to
do and perform any and all things that may be necessary or proper to carry out the purposes
of this Act.
 The Bangko Sentral may acquire and hold such assets and incur such liabilities in
connection with its operations authorized by the provisions of this Act, or as are essential to
the proper conduct of such operations.
 The Bangko Sentral may compromise, condone or release, in whole or in part, any claim of
or settled liability to the Bangko Sentral, regardless of the amount involved, under such
terms and conditions as may be prescribed by the Monetary Board to protect the interests of
the Bangko Sentral.

4. Discuss briefly the operations of the Bangko Sentral ng Pilipinas:

a. As to its authority to obtain data and information from banks
- The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Philippines,
and one of its primary functions is to regulate and supervise the country's banking
system. As part of its supervisory role, the BSP has the authority to obtain data and
information from banks.

Under the BSP's charter, Republic Act No. 7653 or the New Central Bank Act,
the central bank has the power to examine and investigate the operations of banks and
quasi-banks. This includes the authority to require the submission of reports, data, and
other information related to their operations, financial condition, and compliance with
banking laws and regulations.

The BSP has established rules and guidelines on the submission of data and
information by banks, which include regular and ad-hoc reports. These reports cover
various areas, such as balance sheets, income statements, loan portfolios, capital
adequacy, and risk management, among others.

The BSP also conducts on-site examinations of banks to verify the accuracy and
completeness of the data and information they submit. These examinations may be
conducted regularly or in response to specific issues or concerns. In addition, the BSP
may also request for additional data and information from banks as part of its ongoing
monitoring and assessment of their operations.

2
 Overall, the BSP's authority to obtain data and information from banks is a crucial
tool in ensuring the stability and integrity of the Philippine banking system. By having
access to timely and accurate information, the central bank can effectively supervise and
regulate banks, identify potential risks, and take appropriate measures to address them.

b. As to its supervision and examination over banks

- The Bangko Sentral ng Pilipinas (BSP) is responsible for the regulation and
supervision of banks and other financial institutions operating in the Philippines. The
BSP's supervisory and examination functions are aimed at ensuring the safety and
soundness of the financial system, promoting transparency and accountability, and
protecting the interests of depositors and other stakeholders.

The BSP's supervisory and examination authority is provided under various laws
and regulations, including the BSP Charter, the New Central Bank Act, and the Manual
of Regulations for Banks. These laws and regulations give the BSP broad powers to
monitor, supervise, and examine the operations of banks and other financial institutions.

As part of its supervisory function, the BSP establishes prudential regulations and
standards that banks must comply with, such as capital adequacy requirements, liquidity
standards, and risk management guidelines. The BSP also conducts regular on-site
examinations of banks to assess their compliance with these regulations and to identify
potential risks or weaknesses in their operations.

During an examination, BSP examiners review a bank's books and records,

including its financial statements, balance sheets, and other documents. They also
evaluate the bank's risk management practices, internal controls, and corporate
governance structure. If any deficiencies or violations are identified, the BSP may issue
directives or sanctions to require the bank to take corrective action.

In addition to its regular examination activities, the BSP also conducts special
examinations of banks in cases where there are indications of financial distress or other
irregularities. These examinations may include a review of the bank's loan portfolio, asset
quality, and liquidity position, as well as an assessment of the bank's overall financial
health.

Overall, the BSP's supervisory and examination functions play a critical role in
ensuring the stability and resilience of the Philippine financial system. By monitoring and
regulating banks, the BSP helps to promote a safe and sound financial environment that
supports sustainable economic growth and development.

3
 c. As to bank deposits and investments

- The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Philippines,
responsible for formulating and implementing monetary policy in the country.
It also supervises banks and other financial institutions, and regulates the
issuance and circulation of currency.

- When it comes to bank deposits, the BSP regulates and supervises the
operations of banks and ensures that they comply with the minimum capital
adequacy ratio and reserve requirements. This helps to maintain the stability
of the banking system and ensure that depositors' funds are safe.

- The BSP also operates a deposit insurance system, the Philippine Deposit
Insurance Corporation (PDIC), which protects depositors in case of bank
failure. The PDIC provides insurance coverage of up to PHP 500,000 per
depositor per bank.

- In terms of investments, the BSP invests its reserves in various financial

instruments, including foreign currency-denominated securities, gold, and
other financial assets. These investments are aimed at maintaining the stability
of the country's foreign exchange reserves and ensuring that the BSP has
adequate resources to meet its obligations.

- Overall, the BSP plays a critical role in maintaining the stability of the
Philippine financial system, and its operations with regards to bank deposits
and investments are aimed at ensuring the safety and soundness of the banking
system and the economy as a whole.

d. As to prohibitions
- In addition to its role in regulating banks and promoting monetary stability, the
Bangko Sentral ng Pilipinas (BSP) also has the authority to impose various prohibitions
and restrictions in order to maintain the integrity of the financial system and protect
consumers.

One important area of prohibition is the prevention of money laundering and

terrorist financing. The BSP is responsible for enforcing the Anti-Money Laundering Act
(AMLA), which requires financial institutions to implement strict measures to detect and
prevent money laundering and terrorist financing activities. The BSP conducts regular
inspections and audits of financial institutions to ensure compliance with these
requirements.

4
 Another area of prohibition is the regulation of foreign exchange transactions. The
BSP has the authority to impose restrictions on foreign exchange transactions in order to
manage the country's balance of payments and maintain the stability of the Philippine
peso. For example, the BSP may require approval for certain types of foreign exchange
transactions or limit the amount of foreign currency that individuals or businesses can
hold.

- The BSP also has the power to prohibit or restrict certain types of financial
activities or products that it deems to be harmful to consumers or the financial
system. For example, the BSP may prohibit the sale of certain types of
investment products that are deemed to be fraudulent or high-risk, or it may
limit the fees that financial institutions can charge for certain types of
services.
-
- Overall, the BSP's prohibitions and restrictions are designed to maintain the
stability and Integrity of the financial system and protect consumers from
harmful activities and products.

e. As to examination and fees

The Bangko Sentral ng Pilipinas (BSP) is responsible for ensuring the safety and
soundness of the country's banking system. To achieve this, the BSP conducts regular
examinations of banks and other financial institutions to assess their financial condition
and compliance with regulations.

The BSP's examination process involves a comprehensive review of a bank's

financial statements, risk management practices, internal controls, and other key areas.
The examination team may also conduct on-site visits and interviews with bank
management and staff to gather additional information.

Based on the examination findings, the BSP may issue recommendations or

directives to the bank to address any deficiencies or areas of concern. In some cases, the
BSP may also impose penalties or sanctions for non-compliance with regulations or for
other violations.

-In terms of fees, the BSP charges banks and other financial institutions various
fees for regulatory and supervisory services. These fees are intended to cover the costs of
maintaining a strong and effective regulatory framework and supporting the BSP's
operations.

5
 Examples of BSP fees include annual licensing fees, examination fees, and fees
for processing applications for various types of transactions or services. The amount of
fees charged by the BSP may vary depending on the size and complexity of the
institution and the nature of the services provided.

5. What is the Monetary Board? What are its powers and functions?

- The Monetary Board is the policy-making body of a central bank, responsible

for formulating and implementing monetary policy. In the case of the
Philippines, the Monetary Board is the highest policy-making body of the
Bangko Sentral ng Pilipinas (BSP).
-
- The primary function of the Monetary Board is to maintain price stability and
promote a sound financial system in the country. To achieve this, the Board is
empowered to set the monetary policy stance of the BSP, which includes
setting interest rates, reserve requirements, and other monetary policy tools. It
also has the authority to issue regulations and guidelines to ensure the stability
of the financial system, and to supervise banks and other financial institutions.

- The Monetary Board also has the power to issue currency and regulate its
circulation, as well as to manage the country's international reserves. It may
also engage in foreign exchange operations and participate in international
monetary and financial arrangements.

- Overall, the Monetary Board plays a crucial role in promoting economic

stability and sustainable growth in the Philippines, and its decisions have a
significant impact on the country's financial markets and the broader
economy.

6. Discuss briefly how the Bangko Sentral ng Pilipinas handles banks in distress in:

a. Conservatorship;
- When a bank in the Philippines is in distress and its viability is threatened, the
Bangko Sentral ng Pilipinas (BSP) may place it under conservatorship. Conservatorship
is a form of regulatory intervention where the BSP appoints a conservator to assume
control and management of the bank's affairs, with the goal of rehabilitating the bank and
restoring its financial viability.

6
 Under conservatorship, the conservator has the power to review and restructure
the bank's operations, management, and assets. The conservator works closely with the
bank's management and stakeholders to develop and implement a rehabilitation plan that
addresses the bank's financial and operational weaknesses.

The rehabilitation plan may include measures such as capital infusion, asset sales,
debt restructuring, and changes to the bank's management and governance structure. The
BSP closely monitors the implementation of the rehabilitation plan and may provide
support and guidance as needed.

- During conservatorship, the bank continues to operate and provide services to

its customers, although the conservator may impose restrictions on certain
transactions or operations to preserve the bank's resources and protect the
interests of depositors and other stakeholders.

- If the rehabilitation plan is successful and the bank's financial viability is

restored, the conservatorship may be lifted and the bank returned to its regular
operations. However, if the bank is deemed irreparably insolvent or unable to
meet regulatory requirements, the BSP may opt to close the bank and initiate a
liquidation process to distribute its assets to its creditors and depositors.
b. Closure;
c. Receivership; and
d. Liquidation

When a bank in the Philippines is deemed to be irreparably insolvent or

unable to meet regulatory requirements, the Bangko Sentral ng Pilipinas (BSP) may
opt to close the bank and initiate a receivership and liquidation process.

In this process, the BSP appoints a receiver to take control of the bank's
assets and liabilities, with the goal of maximizing their recovery value for the benefit
of the bank's creditors and depositors. The receiver has the power to liquidate the
bank's assets, settle its obligations, and distribute its proceeds to its creditors and
depositors according to a priority ranking established by law.

Under the receivership and liquidation process, the bark ceases to operate
and provide services to its customers. The BSP may also impose restrictions on the
bank's operations, such as freezing its assets and prohibiting certain transactions, to
protect the interests of depositors and other stakeholders.

7
 During the liquidation process, the BSP closely monitors the receiver's
actions and ensures that they comply with applicable laws and regulations. The BSP
also maintains a Deposit Insurance Fund to provide protection to depositors of
failed banks, up to a certain limit.

The liquidation process may take several years to complete, depending on the
complexity of the bank's affairs and the amount of its assets and liabilities. The BSP
may also initiate legal actions against the bank's directors, officers, or other parties
responsible for the bank's failure, to hold them accountable for any wrongdoing or
misconduct.

Overall, the receivership and liquidation process is a last resort for handling
banks in distress, and the BSP aims to minimize the impact on depositors and other
stakeholders while maximizing the recovery of their assets.

7. What are the administrative sanctions on supervised entities?

- The Bangko Sentral ng Pilipinas (BSP) has the power to impose administrative
sanctions on supervised entities that violate laws, regulations, or BSP policies. These
sanctions are intended to ensure compliance and promote the safety and soundness of the
financial system.

The administrative sanctions that the BSP may impose on supervised entities include:

1. Reprimand - a formal warning to the entity for a minor violation.

2. Fine-a monetary penalty imposed on the entity for a violation. The amount of the fine
may vary depending on the severity of the violation and the size and resources of the
entity.

3. Suspension a temporary prohibition on the entity from engaging in certain activities or

operations.

4. Revocation of license- the cancellation of the entity's license to operate.

5. Disqualification of directors, officers, or employees-the removal of individuals from

their positions in the entity for misconduct or violation of regulations.

6. Prohibition on expansion - a restriction on the entity's ability to expand its operations

or engage in new activities.

8
 7. Order to correct - a directive for the entity to correct or address any violations or
deficiencies.

The BSP may also take other actions as it deems necessary to address any violations or
risks posed by the supervised entity.

It is worth noting that the BSP seeks to promote a culture of compliance among
supervised entities and may work with them to address any violations or deficiencies
before imposing administrative sanctions. The BSP also considers the entity's cooperation
and remedial actions in determining the appropriate sanction.

8. Discuss the Rules on bank deposits and investments by directors, officers, stockholders
and their related interests (DOSRI)

- The Bangko Sentral ng Pilipinas (BSP) has specific rules and regulations governing bank
deposits and investments by directors, officers, stockholders, and their related interests (DOSRI)
in order to prevent conflicts of interest and protect the interests of depositors.

Under BSP regulations, DOSRI are prohibited from obtaining loans, guarantees, or other credit
accommodations from their own banks, except under certain limited circumstances. DOSRI are
also required to disclose their ownership interests in their banks and related entities, as well as
any transactions they have with their banks or related entities.

In terms of deposits, DOSRI are subject to limits on the amount of deposits they may hold in
their banks. BSP regulations limit the total deposits of all DOSRI in any bank to 15% of the
bank's total deposit liabilities. In addition, individual DOSRI are limited to depositing no more
than 5% of the bank's total deposit liabilities.

- DOSRI are also subject to restrictions on their investments in their banks. BSP
regulations prohibit DOSRI from investing in their banks' own equity
securities or other securities, except under certain limited circumstances.
DOSRI are also prohibited from engaging in insider trading or other unethical
practices related to their banks' securities.

- Violations of the rules on bank deposits and investments by DOSRI may

result in administrative sanctions, including fines, suspensions, and
disqualifications from serving as directors, officers, or employees of their
banks.

9
 - Overall, the rules on bank deposits and investments by DOSRI are intended to
prevent conflicts of interest and ensure that banks are managed in the best
interests of their depositors and stakeholders.

9. As to Supervision and regulation of bank operations,

How does the BSP extend loans and other credit accommodations to banks
- The Bangko Sentral ng Pilipinas (BSP) extends loans and other credit accommodations to
banks through its Discount Window Operations (DWO) as part of its supervision and regulation
of bank operations.

The DWO is a facility that allows banks to borrow funds from the BSP for a short-term period,
usually overnight, in order to meet their liquidity needs or manage their reserve requirements.
Banks may use the funds to lend to their clients or invest in other assets,

The BSP sets the interest rate for its lending operations based on market conditions and its
monetary policy objectives. The interest rate is typically higher than the BSP's policy rate, the
overnight reverse repurchase (RRP) rate, to discourage banks from relying too heavily on the
DWO and to promote market-based borrowing and lending.

To access the DWO, banks must meet certain eligibility requirements, such as maintaining
adequate capital and liquidity levels and complying with BSP regulations and supervisory
standards. The BSP also imposes limits on the amount of funds that banks may borrow through
the DWO, based on their financial condition and the prevailing market conditions.

- The DWO is a facility that allows banks to borrow funds from the BSP for a
short-term period, usually overnight, in order to meet their liquidity needs or
manage their reserve requirements. Banks may use the funds to lend to their
clients or invest in other assets.

- The BSP sets the interest rate for its lending operations based on market
conditions and its monetary policy objectives. The interest rate is typically
higher than the BSP's policy rate, the overnight reverse repurchase (RRP) rate,
to discourage banks from relying too heavily on the DWO and to promote
market-based borrowing and lending.

- To access the DWO, banks must meet certain eligibility requirements, such as
maintaining adequate capital and liquidity levels and complying with BSP
regulations and supervisory standards. The BSP also imposes limits on the
amount of funds that banks may borrow through the DWO, based on their
financial condition and the prevailing market conditions.
10
 - The DWO is just one of the tools that the BSP uses to regulate and supervise
bank operations. Through its supervision and regulation of banks, the BSP
aims to promote the safety and soundness of the financial system, protect the
interests of depositors, and ensure the stability of the economy.

b. what is meant by the following selective regulations:

i. Margin requirements against letters of credit

- Margin requirements against letters of credit refer to the amount of collateral

that a bank requires a borrower to pledge in order to secure a letter of credit. A
letter of credit is a document issued by a bank that guarantees payment to a
seller from a buyer in a transaction. Margin requirements are the minimum
amount of collateral that must be pledged to the bank in order to obtain the
letter of credit.

- The margin requirements can vary depending on the bank, the

creditworthiness of the borrower, and the specific transaction being
conducted. Generally, the higher the risk of default, the higher the margin
requirements will be. The collateral can be in the form of cash, securities, or
other assets that the bank deems acceptable.

- Margin requirements against letters of credit serve as a form of risk

management for the bank, as they help to ensure that the bank is adequately
protected in the event of default. They also help to ensure that the borrower
has a vested interest in the success of the transaction, as they have put up their
own assets as collateral.

ii. Required security against bank loans

- Required security against bank loans refers to the collateral or assets that a
borrower must pledge to a bank to secure a loan. When a borrower applies for
a loan from a bank, the bank assesses the creditworthiness of the borrower and
determines the level of risk involved in lending to them. To mitigate this risk,
the bank may require the borrower to provide security in the form of collateral
or assets that the bank can seize and sell in the event that the borrower is
unable to repay the loan.

- The type of collateral or assets required by the bank can vary depending on
the type of loan, the amount of the loan, and the creditworthiness of the

11
 borrower. For example, for a mortgage loan, the required security may be the
property being purchased, while for a business loan, it could be business
assets or accounts receivable.

- The bank will usually require the borrower to provide documentation that
proves ownership of the assets being offered as security, and the bank may
also conduct an independent valuation to determine the value of the assets.
The required security against bank loans serves as a form of protection for the
bank, reducing the risk of default and increasing the likelihood of loan
repayment.

iii. Portfolio ceilings

- Portfolio ceilings refer to the maximum limit of investment that an investor or

fund manager can allocate to a particular asset or sector within their
investment portfolio. A portfolio ceiling is a risk management tool that is used
to prevent an excessive concentration of risk in a particular asset or sector that
could potentially result in significant losses for the investor.

- For example, a fund manager may set a portfolio ceiling of 10% for a
particular stock or industry sector. This means that they will not allocate more
than 10% of the fund's total assets to that particular stock or sector. By setting
this limit, the fund manager can ensure that the fund's investments are
diversified across a range of assets and sectors, reducing the overall risk of the
portfolio.

- Portfolio ceilings are often used in conjunction with other risk management
techniques, such as stop-loss orders and asset allocation strategies, to help
investors manage their risk exposure and achieve their investment goals. The
specific portfolio ceiling for a particular asset or sector will depend on the
investor's risk tolerance, investment strategy, and market conditions.

iv. Minimum capital ratios

Minimum capital ratios refer to the regulatory requirement imposed on

banks and other financial institutions to maintain a minimum level of capital in
relation to their assets. These ratios are set by regulatory bodies such as central
banks and are designed to ensure that financial institutions have adequate capital
to absorb losses and continue to operate in a safe and sound manner.

There are several types of minimum capital ratios, including:

12
 1. Tier 1 capital ratio: This is the ratio of a bank's core Tier 1 capital to its
risk-weighted assets. Core Tier 1 capital includes a bank's common stock, retained
earnings, and other

reserves. 2. Tier 2 capital ratio: This is the ratio of a bank's Tier 2 capital
to its risk-weighted assets.

Tier 2 capital includes items such as subordinated debt and loan-loss

reserves.

3. Total capital ratio: This is the ratio of a bank's total capital (Tier 1 and
Tier 2 capital) to its risk-weighted assets.

Minimum capital ratios help to ensure that financial institutions have

sufficient capital to cover unexpected losses and continue to meet their
obligations to depositors and creditors. They also serve as a signal to investors
and the public about the financial strength and stability of a financial institution.
Banks and other financial institutions that fail to maintain the required minimum
capital ratios may be subject to regulatory sanctions or restrictions on their
operations.

10. How is the rate of exchange determined?

The exchange rate is the value of one currency in relation to another currency, and it is
determined by the market forces of supply and demand in the foreign exchange market.

There are two main types of exchange rate systems: fixed exchange rate system and
floating exchange rate system.

In a fixed exchange rate system, the value of a currency is fixed to another currency or to
a basket of currencies, and the central bank of the country intervenes in the foreign exchange
market to maintain the fixed rate. In this system, the central bank buys and sells currencies to
maintain the fixed rate.

In a floating exchange rate system, the exchange rate is determined by the market forces
of supply and demand, without any intervention from the central bank. In this system, the
exchange rate is influenced by a variety of factors, including interest rates, inflation rates,
political stability, economic growth, and trade balances.

- In a fixed exchange rate system, the value of a currency is fixed to another

currency or to a basket of currencies, and the central bank of the country
13
 intervenes in the foreign exchange market to maintain the fixed rate. In this
system, the central bank buys and sells currencies to maintain the fixed rate.

- In a floating exchange rate system, the exchange rate is determined by the

market forces of supply and demand, without any intervention from the
central bank. In this system, the exchange rate is influenced by a variety of
factors, including interest rates, inflation rates, political stability, economic
growth, and trade balances.

- Market participants, such as banks, corporations, and individuals, buy and sell
currencies based on their own analysis of these factors, as well as their
expectations of future developments in the economy and financial markets. As
a result, the exchange rate fluctuates constantly in response to changing
market conditions.

- In summary, the exchange rate is determined by the supply and demand for
currencies in the foreign exchange market, which in turn is influenced by a
variety of economic and political factors.

11. Provide a case digest for “The Consolidated Bank and Trust Co. v. C.A., G.R. No.
169457, October 19, 2015”.

B. LAW ON SECRECY OF BANK DEPOSITS

1. Discuss the purpose of R.A. No. 1405?
- Republic Act No. 1405, also known as the "Law on Secrecy of Bank
Deposits," is the law that governs the confidentiality of bank deposits in the
Philippines. This law was enacted on September 9, 1955, and its main purpose
is to protect the privacy of bank depositors and prevent the unauthorized
disclosure of their financial information.

- The Law on Secrecy of Bank Deposits states that all deposits in banks or
banking institutions in the Philippines are considered absolutely confidential
and may not be disclosed except in specific cases and under certain
conditions. These cases include:

1. Written permission of the depositor

2. Order from a court of competent jurisdiction 3. In cases of impeachment

14
 4. Upon written permission of the Monetary Board, in the case of a bank
under receivership or liquidation
5. In cases where the money deposited or invested is the subject matter of the
litigation.

2. What acts are prohibited by the law?

1. Disclosure of account information: Banks and financial institutions are generally

prohibited from disclosing any information related to a customer's account without
their consent or a court order.
2. Unauthorized access: It is illegal for anyone to access or attempt to access someone
else's bank account without their permission.
3. Breach of confidentiality: Bank employees and other individuals with access to
confidential banking information are typically bound by strict confidentiality
agreements, and any breach of these agreements is prohibited by law.
4. Money laundering: It is illegal to use a bank account to transfer or conceal the
proceeds of criminal activity, such as drug trafficking or fraud.
5. Terrorist financing: The law on secrecy of bank deposits may also include provisions
aimed at preventing the use of bank accounts to finance terrorism.
6. Tax evasion: In some jurisdictions, the law on secrecy of bank deposits also includes
provisions aimed at preventing tax evasion.

3. What deposits are covered by the law?

The Philippine law provides deposit insurance coverage for all types of peso and foreign
currency deposits in banks. This includes savings accounts, checking accounts, time deposits,
money market accounts, and other deposit instruments that are issued by banks operating in the
Philippines.

The coverage of the deposit insurance program is administered by the Philippine Deposit
Insurance Corporation (PDIC), which is a government-owned and controlled corporation created
for the purpose of providing protection to depositors in case their banks fail.

However, it's important to note that there are limits to the amount of deposit insurance coverage
that depositors can receive. As of 2021, the maximum deposit insurance coverage per depositor
is Php 500,000 for both peso and foreign currency deposits. Depositors with multiple accounts in
the same bank are only entitled to a total insurance coverage of Php 500,000, regardless of the
number of accounts they hold. This means that if a depositor has two savings accounts with a
total balance of Php 800,000, only Php 500,000 of the total balance is insured by PDIC.

15
In summary, the Philippine law covers all types of peso and foreign currency deposits in banks,
subject to certain limits, and the deposit insurance coverage is administered by the PDIC.

4. What are the exceptions?

While the Philippine law covers most types of deposits, there are certain exceptions to
the deposit insurance coverage. Some examples of these exceptions include:

1. Deposits of banks and financial institutions-Deposits held by other banks and

financial institutions are not covered by the deposit insurance program. This
includes deposits held by the Bangko Sentral ng Pilipinas (BSP), the Philippine
Clearing House Corporation (PCHC), and other banks or financial institutions.

2. Deposits of the government-Deposits made by the Philippine government,

including its agencies and instrumentalities, are not covered by the deposit
insurance program.
3. Deposits of foreign governments and international organizations- Deposits made
by foreign governments and international organizations are also excluded from
the deposit insurance coverage.

4. Interbank call loans - Interbank call loans are loans made by one bank to another.
typically for a short period of time. These loans are not covered by the deposit
insurance program.

5. Investments in securities-Deposits that are invested in securities, such as stocks,

bonds, and other financial instruments, are not covered by the deposit insurance
program.

6. Deposits held by DOSRI-Deposits held by directors, officers, stockholders, and

their related interests (DOSRI) are only insured up to a maximum of Php 5
million per depositor, regardless of the number of accounts they hold.

5. Discuss the rule on the Garnishment of deposits, including foreign deposits.

Garnishment is a legal procedure wherein a creditor seeks to collect a debt owed to

them by attaching or seizing the debtor's property or assets, including bank deposits.
In the

Philippines, garnishment of deposits, including foreign deposits, is allowed under

certain

conditions.

16
 Under the Rules of Court, a creditor may file a petition for a writ of garnishment with
the court where the case is pending. Once the writ is issued, it is served on the bank
where the debtor has a deposit account. The bank is then required to freeze the
amount of the deposit that is subject to garnishment and to hold it pending the
resolution of the case.

For local deposits, the amount that can be garnished is generally limited to the
amount of the debt owed to the creditor. However, for foreign deposits, there are
additional restrictions that apply.

Under the Foreign Currency Deposit Act (FCDA), foreign deposits in the Philippines
are generally considered confidential and may not be examined, Inquired into, or
looked into by any person or entity, including the courts. However, there are certain
exceptions to this rule, one of which is garnishment.

The FCDA allows garnishment of foreign deposits only in cases involving:

1. The offense of bribery or dereliction of duty of public officials;

2. Cases where the money deposited is the subject matter of the litigation; and

3. Cases where the deposit was established through fraud or other unlawful means.

Even in these cases, the garnishment can only be made after the court has issued an
order allowing it, and the order must be served on the head office of the bank where
the deposit is held. The bank is then required to freeze the amount of the deposit that
is subject to garnishment, but only up to the amount of the judgment or claim against
the account holder.

It's important to note that garnishment of deposits, including foreign deposits, is a

legal process that should be handled carefully by both the creditor and the bank.
Failure to comply with the legal requirements can result in sanctions or penalties.

6. What are the penalties for the violation of the law?

Under Section 5 of Republic Act No. 1406, any person who violates the law on
secrecy of bank deposits may be punished by imprisonment for a term ranging from
six months to ten years, and a fine of not less than PHP 10,000 but not more than PHP

17
 20,000. In addition, the violator may be liable for damages to the depositor whose
account has been unlawfully disclosed.

In case of a violation committed by a bank officer or employee, the penalties under

the law may also include the dismissal or termination of employment, as well as the
prohibition from ever again holding any position in a bank

Moreover, Republic Act No. 7653, also known as the New Central Bank Act,
provides for additional penalties for violations of bank secrecy laws by banking
institutions. Banks found to have violated the bank secrecy law may be subject to
fines of up to PHP 30,000 for each offense, and may also face revocation of their
banking license or closure of their operations.

Overall, the penalties for the violation of the law on secrecy of bank deposits are
severe and intended to ensure that the confidentiality of bank deposits is protected.
It's important for banks and their employees to observe the law on bank secrecy and
avoid any acts that may result in the unauthorized disclosure of confidential
information about bank deposits.

7. Provide a case digest for the following:

a. Doña Adela Export International, Inc. v. Trade and Investment Development
Corp., G.R. No. 201931, February 11, 2015.

Doña Adela Export International, Inc. v. Trade and Investment Development

Corp. is a case decided by the Supreme Court of the Philippines on February 11,
2015. The case involved the issue of whether a foreign currency deposit account
(FCDA) with a Philippine bank could be garnished by a foreign entity.

In the case, Trade and Investment Development Corp. (TIDCORP), a foreign

entity, filed a case in Singapore against Doña Adela Export International, Inc., a
Philippine company, for breach of contract. TIDCORP obtained a judgment
against Dofia Adela in Singapore, and sought to enforce the judgment by
garnishing Doña Adela's FCDA with a Philippine bank. Doña Adela filed a
petition in the Philippines to enjoin the garnishment, arguing that the FCDA was
covered by the Bank Secrecy Law and thus could not be garnished. The
Philippine court

granted the petition and issued a writ of preliminary injunction to stop the
garnishment.

18
 TIDCORP appealed the decision, arguing that the Bank Secrecy Law did not
apply to foreign entities and that the FCDA was not covered by the law's
provisions. However, the Supreme Court upheld the lower court decision, holding
that the Bank Secrecy Law applied to all bank deposits in the Philippines,
regardless of whether they were owned by Filipinos or foreigners. The Court
noted that while the law provided an exception for foreign currency deposits, it
only applied to deposits made by non-residents of the Philippines. In the case of
Doña Adela, the Court found that the company was a resident of the Philippines
and therefore not covered by the exception.

Overall, the case established the principle that foreign currency deposits with
Philippine banks are subject to the Bank Secrecy Law, and may not be garnished
or attached except in cases allowed by law or court order.

b. BSB Group, Inc. v. Sally Go, G.R. No. 168644, February 16, 2010
- BSB Group, Inc. v. Sally Go is a case decided by the Supreme Court of the
Philippines on February 16, 2010. The case involved the issue of whether a foreign
currency deposit account (FCDA) with a Philippine bank could be garnished by a local
court in a civil case.

In the case, Sally Go filed a civil case against BSB Group, Inc. for the collection
of a sum of money. The Regional Trial Court (RTC) of Quezon City issued a writ of
garnishment against BSB Group's FCDA with a Philippine bank. BSB Group filed a
motion to quash the writ, arguing that the FCDA was covered by the Bank Secrecy Law
and thus could not be gamished.

The RTC denied the motion, and BSB Group appealed to the Supreme Court. The
Court upheld the RTC's decision, holding that FCDA are not covered by the Bank
Secrecy Law and may be garnished in accordance with the Rules of Court.

The Court noted that while the Bank Secrecy Law applies to all deposits in banks,
it provides an exception for PCDA that are owned by non-residents of the Philippines.
However, the Court found that BSB Group was a resident of the Philippines and thus not
covered by the exception. The Court also held that the garnishment of the FCDA did not
violate the right to privacy of hank deposits, as it was allowed by the Rules of Court and
was made pursuant to a court order.

Overall, the case established the principle that FCDA owned by Philippine
residents are not covered by the Bank Secrecy Law and may be garnished in accordance
with the Rules of Court. However, it should be noted that this decision is limited to the

19
 specific circumstances of the case and may not apply to all situations involving FCDA
and the Bank Secrecy Law.

C. GENERAL BANKING ACT

1. Enumerate the different kinds of bank and briefly define each.

Commercial Banks- a type of financial organization that offers its clients services including
loans, CDs, savings accounts, overdraft protection, etc. These organizations generate revenue by
making loans to people and collecting interest on those debts.

Universal Banks- Under the General Banking Law of 2000 (GBL), a universal bank is defined
as a commercial bank with the additional authority to exercise the powers of an investment
house.

Thrift banks- Thrift banks, also just referred to as thrifts, are a particular class of financial
institution that focus on providing people with savings accounts and house mortgage origination
services. Savings and Loan Associations (S&Ls) are another name for thrift banks.

Rural Banks- as a rural community, cooperative, or financial institution. Customized financial

services are offered by a bank or other deposit-taking financial institution. Rural banks' main
goal is to provide loans to rural cooperatives, businesses, and merchants as well as farmers,
fisherman, and I other rural residents.

Islamic-RA 6848 created the Al-Amanah Islamic Investment Bank of the Philippines. The
domicile and place of business is in Zamboanga City. Primary purpose of the Islamic Bank is to
promote and accelerate the socio-economic development of the Autonomous Region by
performing banking, financing and investment operations.

Cooperative-organized by which the majority of the shares are owned and primarily managed
by cooperatives to provide financial and cooperatives with finance services. may carry out all of
the duties of a rural bank. Only cooperatives and cooperative federations may join cooperative
banks.

Other banks- The Monetary Board has the authority to classify banks in any other way it sees
fit. Government-owned banks include Philippine Veterans Bank, Land Bank of the Philippines,
and Development Bank of the Philippines.

20
2. Distinguish banks from quasi-banks and trust entities.

1. Banks-Banks are financial institutions that primarily engage in the business of

receiving deposits and making loans. They are authorized to accept various types of
deposits, including savings deposits, time deposits, and demand deposits. They also
provide various types of loans, such as consumer loans, business loans, and housing
loans. Banks are regulated by the Bangko Sentral ng Pilipinas (BSP), which is
responsible for ensuring their stability and soundness.

2. Quasi-banks-Quasi-banks are financial institutions that engage in banking

activities, such as borrowing and lending, but are not authorized to accept deposits
from the public. Instead, they rely on other sources of funds, such as interbank
borrowing, issuance of debt securities, and equity investments. Examples of quasi-
banks include finance companies, investment houses, and pawnshops. Quasi-banks
are also regulated by the BSP

3 Trust entities-Trust entities are financial institutions that provide fiduciary services
to their clients, such as trust and investment management services. They act as
trustees or administrators of funds, assets, and investments held in trust for the benefit
of their clients. Trust entities may also offer other financial services, such as
securities brokerage, investment banking, and custodianship services Trust entities
are regulated by the Securities and Exchange Commission (SEC) and the BSP.

In summary, while banks, quasi-banks, and trust entities are all financial institutions,
they differ in terms of the types of financial services they offer and the sources of
funds they rely on. Banks accept deposits from the public and make loans, while
quasi-banks engage in banking activities but do not accept deposits. Trust entities
provide fiduciary services and act as trustees or administrators of funds and
investments held in trust for the benefit of their clients Each of these institutions is
regulated by different regulatory bodies and subject to different rules and regulations.

3. What are the powers and liabilities of banks?

Banks play a critical role in the financial system by providing a variety of services to
their clients, such as accepting deposits, making loans, and facilitating payment
transactions. As such, banks are granted certain powers and responsibilities, but also
carry certain liabilities. Here are some of the powers and liabilities of banks:

21
Powers of banks:

1. Acceptance of deposits: Banks are authorized to accept deposits from the public in
the form of savings, demand, or time deposits.

2. Lending: Banks have the power to make loans to individuals and businesses.

3. Issuing credit cards: Banks can issue credit cards to their customers, allowing
them to make purchases and pay for goods and services on credit.

4. Facilitating payments: Banks provide payment services, such as wire transfers,

electronic fund transfers, and check clearing, to facilitate the movement of funds
between accounts.

5. Investing: Banks are authorized to invest in various financial instruments, such as

government securities, stocks, and bonds.

Liabilities of banks:

1. Safekeeping of deposits: Banks have a legal duty to safeguard the deposits of their
customers and to ensure that their funds are not misused or stolen.

2. Lending practices: Banks are responsible for ensuring that the loans they make are
sound and do not put the bank or its depositors at undue risk.

3. Compliance with regulations: Banks are subject to various laws and regulations
governing their operations, and failure to comply with these rules can result in
penalties and fines.

4. Protection of customer information: Banks are required to maintain the

confidentialityb and security of their customers' personal and financial information.

5. Risk management: Banks are responsible for managing various risks, such as credit
risk, market risk, and operational risk, to ensure the safety and soundness of their
operations.

4. In view of the fiduciary nature of banking, discuss the diligence required of

banks as prescribed by the law.

22
As fiduciaries, banks are expected to act in the best interests of their clients and
exercise a high degree of care and diligence in carrying out their duties. The law
prescribes various standards of diligence that banks are required to follow. Here
are some examples:

1. Prudent banking practices: Banks are required to adopt prudent banking

practices in the conduct of their business. This means that banks must exercise
caution and sound judgment in the management of their affairs and avoid
engaging in activities that may jeopardize the safety and soundness of the
bank or its clients' deposits.
2. Compliance with laws and regulations: Banks are required to comply
with all applicable laws and regulations governing their operations. This
includes, among others, the requirements of the Bangko Sentral ng
Pilipinas (BSP), the Anti-Money Laundering Act (AMLA), and the Data
Privacy Act.
3. Know-your-customer (KYC) requirements: Banks are required to know their
customers and maintain accurate records of their identities, addresses, and
sources of funds. This is
to prevent money laundering and other illicit activities.

4. Due diligence in lending: Banks are required to exercise due diligence in

making loans to ensure that the borrower has the capacity to repay the loan
and that the loan is secured by adequate collateral.
5. Duty of confidentiality: Banks are required to maintain the confidentiality of
their clients information and protect it from unauthorized disclosure.

6. Risk management: Banks are required to implement effective risk

management systems to identify, measure, monitor, are Regenerate responses
they face, such as credit risk.

Banks are considered as fiduciaries in the sense that they hold deposits and
manage assets of their customers in trust. As such, banks are required by law to
act with utmost good faith, diligence, and prudence in the exercise of their
fiduciary duties towards their customers. Here are some of the specific diligence
requirements that are prescribed by the law.

1. Due diligence in customer identification: Banks are required to conduct due

diligence in identifying and verifying the identities of their customers to prevent

23
 money laundering and other illicit activities. This includes collecting and
verifying customer identification documents, as well as conducting ongoing
monitoring of customer transactions.

2. Care in the selection of officers and employees: Banks are required to exercise
care in the selection and supervision of their officers and employees to ensure that
they are qualified, competent, and trustworthy.

3.Prudence in lending: Banks are required to exercise prudence in their lending

practices to ensure that loans are sound and not overly risky. This includes evaluating
the creditworthiness of borrowers, assessing the viability of proposed projects, and
monitoring the performance of loans.

4. Safekeeping of deposits and assets: Banks are required to exercise the highest degree
of care in the safekeeping of deposits and assets entrusted to them by their customers.
This Includes maintaining adequate security measures, such as fireproof vaults and safety
deposit boxes, to protect against theft or loss.

5. Confidentiality and protection of customer information Ranks are required to

maintain the confidentiality and protection of customer information including
account balances, transactions history, and other personal data.

6. Compliance with laws and regulations: Banks are required to comply with all
relevant laws and regulations governing their operations, including banking laws,
anti-money laundering laws, and consumer protection laws.

6. Explain the nature of bank funds and bank deposits.

Banks play a crucial role in the economy by intermediating between borrowers

and savers. They accept deposits from savers and use these funds to make loans to
borrowers. This process is known as financial intermediation.

Banks obtain funds through various sources, including deposits, interbank

borrowing, debt and equity issuance, and central bank lending. Deposits are the
primary source of funding for most banks, and they come in different forms, such
as demand deposits, savings deposits, and time deposits. Demand deposits allow
customers to withdraw funds on demand, while savings and time deposits offer
higher interest rates but typically impose restrictions on withdrawals.

24
 Deposits are liabilities for banks, which means that banks owe the deposited funds
to their customers. However, banks also use these funds to make loans and
investments, earning a spread between the interest rate they charge on loans and
the interest rate they pay on deposits. The difference between these rates is known
as the net interest margin, which is a key measure of bank profitability.

Overall, the nature of bank funds and deposits is that they are the lifeblood of the
banking system, enabling banks to intermediate between savers and borrowers
and generate profits through financial intermediation.

6. In relation to how banks grant loans and comply with security requirements,
a. what is meant by the ratio of net worth to total risk assets?
- The ratio of net worth to total risk assets, also known as the leverage ratio, is a
measure of a bank's financial strength and ability to absorb losses. It is calculated by
dividing a bank's Tier 1 capital (which includes common equity and retained earnings) by
its total risk-weighted assets (which are adjusted to reflect the level of risk associated
with each asset).

The leverage ratio is an important tool for regulators to monitor the risk-taking
behavior of banks and ensure that they have sufficient capital to absorb potential losses.
In general, a higher leverage ratio indicates that a bank has a larger cushion of capital
relative to its risk- taking activities.

When a bank grants loans, it must comply with security requirements to mitigate
the risk of default. This typically involves requiring collateral or other forms of security
from borrowers to secure the loan. The leverage ratio is relevant in this context because it
can influence the amount of capital a bank needs to hold in order to comply with
regulatory requirements.

For example, if a bank has a low leverage ratio, it may be required to hold more
capital relative to its risk-weighted assets in order to comply with regulatory
requirements. This can make it more difficult for the bank to grant loans, as it will have
less capital available to absorb potential losses. On the other hand, a bank with a higher
leverage ratio may have more flexibility to grant loans while still complying with
regulatory requirements, as it has a larger capital cushion relative to its risk-taking
activities.
b. what is the so-called single borrower's limit?
- The single borrower's limit is a regulatory restriction on the amount of credit
that a bank can extend to a single borrower or a group of connected borrowers. It is
25
designed to limit the concentration of credit risk and prevent a bank from becoming
overexposed to a particular borrower or group of borrowers.

The single borrower's limit is typically expressed as a percentage of a bank's

capital or total assets, and it varies by jurisdiction and by the type of borrower. For
example, in the United States, the single borrower's limit for a bank is generally 25% of
the bank's Tier 1 capital for loans to a single borrower or group of connected borrowers.

The single borrower's limit is important because it helps to mitigate the risk of
loan defaults by limiting a bank's exposure to a single borrower or group of borrowers.
By diversifying its credit portfolio across multiple borrowers, a bank can reduce its
overall credit risk and protect itself from the negative impact of a default by any one
borrower.

In addition to the single borrower's limit, banks are also subject to other
regulatory restrictions on their lending activities, such as limits on the amount of loans
they can make to related parties or affiliates, and limits on the types of collateral they can
accept for loans. These restrictions are designed to ensure that banks operate in a safe and
sound manner and do not take on excessive risk in their lending activities.

c. what are the restrictions on bank exposure to directors, officers,

stockholders, and their related interests (DOSRI)?

- Banking regulations often impose restrictions on bank exposure to directors,

officers, and stakeholders, and their related interests (DOSRI) to prevent
conflicts of interest and potential abuse of insider information. The specific
restrictions can vary by jurisdiction, but some common examples include:

1. Limits on lending: Regulations may limit the amount of credit that a bank
can extend to DOSRI and their related interests. This is typically expressed as
a percentage of the bank's capital or total assets.

2. Collateral requirements: Regulations may require DOSRI and their related interests to
provide additional collateral to secure their loans, beyond what would be required for
a non-related borrower.

3. Disclosure requirements: Regulations may require banks to disclose their

lending relationships with DOSRI and their related interests in their financial
statements or other public filings.

26
 4. Prohibitions on insider transactions: Regulations may prohibit DOSRI from using
their position to obtain preferential treatment from the bank, such as insider loans or
other transactions that could give them an unfair advantage.

5. Restrictions on investments: Regulations may restrict the types of investments that

DOSRI can make in the bank's securities or other financial products to prevent them
from exerting undue influence over the bank's decision-making.

These restrictions are designed to protect the bank from the risks associated with
insider lending and to ensure that all borrowers are treated fairly and on a level
playing field. By limiting the exposure of banks to DOSRI and their related interests,
regulators aim to maintain the integrity and stability of the banking system.

d. what are the prohibited acts of borrowers?

The prohibited acts of borrowers vary depending on the terms and conditions of
the loan agreement and the applicable laws and regulations. However, some common
examples of prohibited acts of borrowers include:

1. Defaulting on the loan: Borrowers are typically prohibited from failing to

make payments on the loan as agreed in the loan agreement.
2. Violating loan covenants: Loan agreements often include covenants that
restrict the borrower's actions or require the borrower to meet certain financial
or operational targets. Violating these covenants can be considered a
prohibited act.
3. Providing false information: Borrowers are generally prohibited from
providing false or misleading information to the lender, such as
misrepresenting their financial position or the intended use of the loan
proceeds.
4. Using loan proceeds for unauthorized purposes: Borrowers may be prohibited
from using loan proceeds for purposes other than those specified in the loan
agreement.
5. Transferring ownership of collateral: If the loan is secured by collateral,
borrowers may be prohibited from transferring ownership of the collateral or
using it to secure other loans without the lender's consent.
6. Failing to maintain insurance coverage: If the loan agreement requires the
borrower to maintain insurance coverage on the collateral, failing to do so
may be considered a prohibited act.

27
 7. Failing to comply with laws and regulations: Borrowers may be required to
comply with applicable laws and regulations, and failure to do so may be
considered a prohibited act.

These prohibited acts are designed to protect the interests of the lender and
ensure that the borrower is using the loan funds responsibly and in accordance
with the terms of the loan agreement. If a borrowed engages in a prohibited
act, the lender may have the right to demand immediate repayment of the
loan, foreclose on the collateral, or take other legal action to protect its
interests.
e. what is meant by “floating interest rates and escalation clauses”?

Floating interest rates and escalation clauses are both terms related to the
interest rate charged on a loan or other financial instrument.

A floating interest rate, also known as a variable interest rate, is an interest

rate that fluctuates over time based on changes in a specified benchmark
interest rate, such as the prime rate or LIBOR. The interest rate on a loan with
a floating rate will typically be expressed as a benchmark rate plus a fixed
spread. For example, a floating rate loan might have an interest rate of "prime
rate plus 1%," meaning that the interest rate will adjust up or down in
response to changes in the prime rate.

An escalation clause, on the other hand, is a provision in a loan agreement that

allows the interest rate to increase over time based on certain conditions, such
as the borrower's failure to make timely payments or a change in the
borrower's credit rating. Escalation clauses are often included in loans that
have a fixed interest rate, and they can help protect the lender against the risk
of inflation or other changes in market conditions that could erode the value of
the loan over time.

The main difference between floating interest rates and escalation clauses is
that floating interest rates are tied to a specific benchmark rate, while
escalation clauses are triggered by certain events or conditions specified in the
loan agreement. Both of these features can affect the cost of borrowing and
the overall risk of a loan, and borrowers should carefully consider the
potential impact of these factors before agreeing to a loan with a floating rate
or escalation clause.

7. Discuss briefly the penalties for violations of the GBL?

a. as to fine, imprisonment
28
 - The penalties for violations of the General Banking Law (GBL) can vary
depending on the specific provisions of the law that have been violated, as well as the
jurisdiction and circumstances of the violation. However, some common penalties for
GBL violations may include fines and imprisonment.

In the Philippines, for example, the GBL is enforced by the Bangko Sentral ng Pilipinas (BSP),
and violations of the law can result in fines and imprisonment under the BSP's enforcement
powers. Specifically, the BSP has the power to impose fines on banks and other financial
institutions that violate the GBL or other banking regulations, and the fines can range from PHP
10,000 to PHP 200,000 per violation, depending on the severity of the violation.

In addition to fines, violations of the GBL can also result in imprisonment for individuals who
are found guilty of committing certain offenses, such as fraud or embezzlement. The length of
imprisonment can vary depending on the specific offense, but it can range from a few months to
several years.

It's worth noting that penalties for GBL violations may also include non-monetary sanctions,
such as suspension or revocation of banking licenses, restrictions on business activities, or other
penalties that are designed to prevent further violations and protect the integrity of the banking
system.

Overall, the penalties for GBL violations are intended to deter wrongdoing, punish offenders,
and protect the interests of depositors and other stakeholders in the banking system. Banks and
other financial institutions should take care to comply with all applicable banking regulations to
avoid potential fines, imprisonment, and other legal consequences.

b. as to suspension or removal of director or officer

Under the General Banking Law (GBL) in the Philippines, the Bangko Sentral ng
Pilipinas (BSP) has the power to suspend or remove directors or officers of banks or
other financial institutions for various reasons, including violations of the GBL or other
banking regulations.

The BSP may initiate an investigation into alleged violations by a director or

officer, and if the investigation finds evidence of wrongdoing, the BSP may issue an
order suspending or removing the individual from their position. The order may also
include other sanctions, such as fines or restrictions on the individual's future activities in
the banking industry.

The GBL sets out a range of grounds for suspension or removal of directors or
officers, including the following:
29
 - Failure to comply with applicable laws, rules, or regulations
-Engaging in unsafe or unsound banking practices
-Misappropriation of bank funds or assets
-Making false or misleading statements to regulators or stakeholders
-Violating ethical standards or engaging in conduct that undermines the integrity
of the banking system

The specific grounds for suspension or removal may vary depending on the
circumstances of the case, and the BSP has the discretion to determine the appropriate
penalties based on the severity of the violation.

Overall, the power of the BSP to suspend or remove directors or officers is an

important tool for ensuring the accountability and integrity of the banking system, and it
underscores the importance of strong regulatory oversight in maintaining the stability and
trustworthiness of financial institutions.

c. as to dissolution of bank
- The dissolution of a bank is a serious matter that typically occurs when a bank is
no longer able to meet its obligations to depositors, creditors, or other stakeholders. In
many countries, including the Philippines, the process of dissolving a bank is governed
by laws and regulations that are designed to protect the interests of depositors and ensure
the orderly liquidation of the bank's assets

In the Philippines, the Bangko Sentral ng Pilipinas (BSP) has the authority to take
various measures to address banks that are in financial distress, including the power to
order the dissolution or closure of a bank The BSP may initiate an investigation into a
bank that is experiencing financial difficulties, and if the investigation finds that the bank
is no longer able to meet its obligations, the BSP may issue an order for the bank to be
dissolved.

The process of dissolving a bank typically involves the appointment of a receiver

or liquidator who is responsible for overseeing the sale of the bank's assets and the
distribution of the proceeds to creditors and other stakeholders. The receiver or liquidator
may also be responsible for winding down the bank's operations, closing accounts, and
handling other administrative tasks related to the bank's closure.

The dissolution of a bank can have significant consequences for depositors,

employees, and other stakeholders, and it is generally considered to be a last resort when
other measures, such as recapitalization or restructuring, have failed. However, in cases
where a bank is unable to meet its obligations and there are no viable alternatives, the
30
 process of dissolution may be necessary to ensure the stability and integrity of the
banking system.

8. Discuss the case of Bañas v. Asia Pacific Finance Corp., G.R. No. 128703,
October 18, 2000.
-The case of Bañas v. Asia Pacific Finance Corp., G.R. No. 128703, October 18, 2000, involves
a dispute between a borrower and a finance company over the legality of a loan agreement. In
this case, the borrower, Bañas, obtained a loan from Asia Pacific Finance Corporation (APFC) in
the amount of PHP 120,000.

As part of the loan agreement, Bañas executed a promissory note and a chattel mortgage on his
motorcycle as collateral for the loan. Later on, Bañas filed a complaint with the Regional Trial
Court (RTC) seeking to nullify the loan agreement on the ground that it was unconscionable and
oppressive, and that APFC had committed fraud and deceit in the execution of the loan
agreement. The RTC ruled in favor of Bañas and declared the loan agreement null and void.
However, the Court of Appeals reversed the RTC decision and held that the loan agreement was
valid and enforceable. On appeal to the Supreme Court, Bañas argued that the loan agreement
was unconscionable because of the high interest rate, penalty charges, and attorney's fees that
were imposed by APFC. Bañas also alleged that APFC had misled him into signing the loan
agreement by misrepresenting the terms of the loan.

The Supreme Court ruled in favor of APFC and held that the loan agreement was valid and
enforceable. The Court noted that the interest rate, penalty charges, and attorney's fees imposed
by APFC were not excessive or unconscionable, and were within the limits allowed by law. The
Court also found no evidence of fraud or deceit on the part of APFC in the execution of the loan
agreement. The Bañas case is significant because it emphasizes the importance of careful
scrutiny of loan agreements and the need to ensure that all parties fully understand the terms and
conditions of the loan. It also underscores the principle that loan agreements are binding
contracts that must be honored by all parties, subject to certain limitations imposed by law.

D. PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT

1. What are the primary functions of PDIC, and the basic policy stated in R.A. No.
3591 as amended?
- PDIC stands for Philippine Deposit Insurance Corporation, which is a government-
owned corporation in the Philippines that provides insurance protection to depositors
of banks and other financial institutions.

31
 The primary function of PDIC is to protect depositors by providing deposit insurance
coverage for their deposits in banks and other financial institutions. PDIC also serves
as the

receiver of closed banks and other financial institutions and is responsible for the
liquidation

or rehabilitation of these institutions.

The basic policy stated in R.A. No. 3591, also known as the Philippine Deposit
Insurance Corporation (PDIC) Charter, as amended, is to provide insurance coverage
for the deposit liabilities of banks and other financial institutions in order to promote
and safeguard the stability of the banking system in the Philippines. The PDIC aims
to achieve this by:

1. Providing a deposit insurance system that will encourage and promote public
confidence in the banking system:

2. Maintaining a fund to provide deposit insurance coverage and to act as a receiver

liquidator of closed banks and other financial institutions,

3. Promoting the adoption of sound banking practices by banks and other financial
institutions;

4. Implementing policies and regulations that will enhance the safety and soundness of
banks and other financial institutions; and

5. Encouraging the development of a strong and stable banking system that will
contribute to the overall economic growth and development of the Philippines.

2. Discuss briefly the concept of insured deposits.

-Insured deposits refer to the portion of a depositor's account balance in a bank or
financial institution that is protected by deposit insurance. Deposit insurance is a
program that provides protection to depositors in the event that their bank or financial
institution falls or becomes insolvent.

In the Philippines, the Philippine Deposit Insurance Corporation (PDIC) provides

deposit insurance coverage for bank deposits, such as savings accounts, time deposits,

32
 and demand deposits, up to a maximum coverage of Php 500,000 per depositor, per
bank.

This means that if a depositor's bank fails or becomes insolvent, the depositor's
insured deposits up to the maximum coverage amount will be reimbursed by the
PDIC. Insured deposits are typically protected against risks such as bank failures,
bank closures, or bankruptcy.

It is important to note that not all types of deposits may be covered by deposit
insurance, and the coverage limits and rules may vary depending on the country and
the deposit insurance program. Additionally, there may be certain exclusions or
limitations to the coverage, such as deposits held in foreign currencies or deposits
held by certain types of entities.

3. (a) What are the deposit liabilities required to be insured with PDIC?
- The deposit liabilities that are required to be insured with the Philippine
Deposit Insurance Corporation (PDIC) are as follows:

Savings deposits. - This refers to the funds that individuals or entities keep in a bank account for
future use, such as emergency funds or funds for planned expenses.

Time deposits- This refers to funds that are deposited for a fixed period, usually ranging from 30
days to five years, and earn interest.

Negotiable order of withdrawal (NOW) accounts- This refers to accounts that allow
depositors to write checks against the funds in their accounts.

Money market accounts - This refers to accounts that invest in short-term, low-risk securities
and provide higher interest rates than traditional savings accounts.

Demand deposits - This refers to funds that are deposited in an account that can be withdrawn
by the depositor on demand, such as checking accounts.

Certificates of deposit (CDs)- This refers to funds that are deposited for a fixed period and earn
a higher interest rate than traditional savings accounts.

All banks in the Philippines are required by law to be members of the PDIC and insure their
deposit liabilities with the corporation. The PDIC provides deposit insurance coverage of up to
PHP 500,000 per depositor per bank, including both the principal and interest earned. This
means that if a bank fails, depositors will be able to recover their insured deposits up to the
coverage limit from the PDIC
33
 (b) When does the liability commence?

In the context of deposit insurance with the Philippine Deposit Insurance Corporation (PDIC),
the liability of the corporation to depositors commences upon the occurrence of a bank's closure,
whether due to insolvency, suspension of operations, or other reasons. Once a bank is closed, the
PDIC immediately takes over as receiver of the closed bank and is

responsible for the payment of insured deposits to depositors. The PDIC will determine the
amount of insured deposits and promptly pay them to the depositors. It's important to note that
the liability of the PDIC only covers the insured deposits of depositors. Any amount in excess of
the insurance coverage limit will be subject to the rules of legal priority in the payment of claims.

(c) What deposit account are not entitled to payment?

Some examples of deposit accounts that may not be entitled to payment include: frozen
accounts, accounts with outstanding legal claims, accounts with insufficient funds,
accounts with fraudulent activity, and accounts with restrictions or limitations. The
specific terms and conditions of a deposit account can vary depending on the bank or
financial institution, as well as the jurisdiction and applicable laws and regulations.
Account holders should review their account agreements and consult with their bank or
financial institution to understand their rights and obligations regarding payment of their
deposit accounts.

(d) What is the extent of liability of the PDIC?

The extent of liability of the Philippine Deposit Insurance Corporation (PDIC) is to

insure the deposit accounts of cligible banks and financial institutions up to a maximum
of PHP 500,000 per depositor per bank. The PDIC is mandated to provide deposit
insurance to protect depositors against losses in case their bank or financial institution
fails. The deposit insurance covers all types of deposit accounts, such as savings
accounts, checking accounts, time deposits, and other deposit instruments that are insured
by the PDIC However, the Deposit insurance does not cover non-deposit financial
products, such as stocks, bonds, mutual funds, and other investment instruments.
Additionally. the PDIC has the authority to take over and manage the affairs of a closed
bank, liquidate the bank's assets, and distribute the proceeds to the depositors and other
creditors in accordance with the priorities set by law.

(e)How are insured deposits determined?

34
Insured deposits are determined by the Philippine Deposit Insurance Corporation (PDIC)
based on the total balance of each eligible depositor's account in a bank or financial
institution. The PDIC insures deposit accounts up to a maximum of PHP 500,000 per
depositor per bank. This means that if a depositor has multiple accounts in the same bank,
the maximum insurance coverage applies to the total combined balance of all the
accounts. The insurance coverage also applies to all types of deposit accounts, such as
savings accounts, checking accounts, time deposits, and other deposit instruments that are
insured by the PDIC. To ensure that their deposits are fully covered by the PDIC,
depositors should maintain their accounts within the insurance limit and verify the
eligibility of their bank or financial institution for deposit insurance.

4. As to the calculation of liability, briefly discuss the following:

a. Per depositor, per capacity rule
- The "per depositor, per capacity" rule is a method used to calculate the
maximum amount of insurance coverage that a depositor can receive from a
deposit insurance program in the event that their bank or financial institution fails.

Under this rule, the deposit insurance coverage is calculated separately for each
depositor based on the ownership capacity of the account. For example, if a
depositor has two individual accounts and a joint account with another person at
the same bank, each account will be separately insured up to the maximum
amount allowed by the deposit insurance program.

The maximum coverage amount is usually set by law and may vary depending on
the country or jurisdiction. In the United States, for instance, the Federal Deposit
Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per
ownership capacity, in each insured bank. This means that if a depositor has two
individual accounts and a joint account at the same bank, they could be insured up
to $750,000 in total.

Overall, the "per depositor, per capacity" rule helps to ensure that depositors
receive adequate protection for their deposits in case their bank or financial
institution fails, and promotes stability in the financial system.

c. The mode of payment

- The mode of payment refers to the method or process by which a buyer or
consumer pays for goods or services that they have purchased from a seller or
service provider. There are several modes of payment available today, including:

1. Cash: This involves paying for goods or services using physical currency notes
and coins.
35
 2. Credit or Debit Cards: Customers can use credit or debit cards to make
payments electronically by swiping, inserting or tapping their card at a point of
sale terminal.

3. Bank Transfers: This involves transferring funds from one bank account to
another using electronic methods such as online banking or mobile banking.

4. Digital Wallets: Digital wallets or mobile payment apps allow customers to pay
for goods and services using their smartphone or other mobile devices.

5. Payment Gateways: Online businesses and service providers use payment

gateways to process online payments made by customers using credit or debit
cards or other electronic payment methods.

6. Cryptocurrencies: Some businesses and service providers now accept

cryptocurrencies such as Bitcoin as a form of payment.

The choice of mode of payment depends on various factors such as convenience,

security, availability, and cost. Each mode of payment has its own advantages and
disadvantages, and it is important for buyers and sellers to carefully consider their
options before selecting a mode of payment.

d. Effect of payment of insured deposits

The payment of insured deposits by a deposit insurance program can have several
effects on the financial system, depositors, and the economy. Here are some of the key
effects:

1. Maintaining confidence in the banking system: The payment of insured

deposits can help to maintain confidence in the banking system, especially during times
of financial stress or bank failures. This can prevent bank runs and other forms of
systemic risk that can harm the stability of the financial system.

2. Protection of depositors: The payment of insured deposits provides protection

to depositors, ensuring that they can recover at least a portion of their deposits in case
their bank or financial institution fails.

36
 3. Promoting financial inclusion: Deposit insurance programs can promote
financial inclusion by encouraging individuals to participate in the formal financial
system, knowing that their deposits are protected.

4. Cost to the deposit insurance program: The payment of insured deposits can be
costly to the deposit insurance program, especially if there are a large number of bank
failures or if the amount of insured deposits exceeds the program's available funds. This
can result in the need for the deposit insurance program to seek additional funding from
the government or other sources.

5. Impact on the economy: The payment of insured deposits can have an impact
on the broader economy, especially if there are a large number of bank failures or if the
financial system is destabilized. This can result in a reduction in credit availability, lower
economic growth, and other negative effects on the economy.

Overall, the payment of insured deposits is an important function of deposit

insurance programs, providing protection to depositors and helping to maintain
confidence in the financial system. However, it is important for deposit insurance
programs to be well-managed and adequately funded to ensure that they can meet their
obligations to depositors.

e. Payment of insured deposits as preferred credit

- I'm sorry, but I'm not sure what you mean by "payment of insured deposits as
preferred credit." The payment of insured deposits refers to the process by which a
deposit insurance program pays out the insured deposits of depositors in the event that
their bank or financial institution fails. On the other hand, preferred credit refers to a type
of debt that has a higher priority in the event of a bankruptcy or liquidation.

It is not accurate to describe the payment of insured deposits as preferred credit,

as these are two distinct concepts with different meanings and implications. While both
are related to the repayment of debts or obligations, they operate in different contexts and
have different legal and financial implications. If you could provide more context or
clarify your question, I may be able to provide a more specific answer.

f. Rule in case of failure to settle claim of insured depositor

- In the event that a deposit insurance program fails to settle a claim of an insured
depositor, there are typically legal and regulatory mechanisms in place to address the
situation. The specific rules and procedures can vary depending on the jurisdiction and
the deposit insurance program in question, but here are some general principles that may
apply:
37
 1. Complaints and appeals process: The deposit insurance program may have a
formal complaints and appeals process that depositors can use to challenge the denial or
delay of their claims.

2. Legal remedies: Depositors may have legal remedies available to them, such as
filing a lawsuit or pursuing arbitration, to seek the settlement of their claims.

3. Regulatory oversight: Deposit insurance programs are often subject to

regulatory oversight by government agencies or independent bodies. These oversight
mechanisms may include audits, reviews, or investigations to ensure that the deposit
insurance program is operating in compliance with applicable laws and regulations.

4. Insolvency proceedings: If the deposit insurance program becomes insolvent or

is unable to fulfill its obligations to depositors, insolvency proceedings may be initiated
to wind down the program and distribute its assets to depositors and other creditors.

Overall, the failure to settle a claim of an insured depositor can be a serious

matter, but there are typically mechanisms in place to address the situation and ensure
that depositors are protected. It is important for depositors to be aware of their rights and
the procedures available to them in the event that their claims are denied or delayed.

g. Failure of depositor to claim insured deposits

In the event that a depositor fails to claim their insured deposits, there are
typically rules and procedures in place for the handling of such unclaimed deposits.
These rules can vary depending on the jurisdiction and the deposit insurance program in
question, but here are some general principles that may apply:

1. Time limit for claiming insured deposits: Deposit insurance programs typically
have a time limit for depositors to claim their insured deposits after a bank failure or
closure. If the depositor fails to claim their insured deposits within the specified time
limit, the deposit insurance program may classify the deposits as unclaimed deposits.

2. Handling of unclaimed deposits: The deposit insurance program may have

specific rules and procedures for the handling of unclaimed deposits. These may include
holding the funds in a separate account, attempting to locate the depositor or their heirs,
or transferring the funds to the government or another entity for safekeeping.
38
 3. Return of unclaimed deposits: In some cases, deposit insurance programs may
be required to return unclaimed deposits to the depositor or their heirs after a certain
period of time has elapsed. The time period and the specific procedures for returning
unclaimed deposits can vary depending on the jurisdiction and the deposit insurance
program in question.

Overall, the failure of a depositor to claim their insured deposits can result in the
funds being classified as unclaimed deposits and subject to specific rules and procedures
for handling and return. It is important for depositors to be aware of the time limits and
procedures for claiming their insured deposits to ensure that they receive the full
protection and benefits of deposit insurance programs.

(a) Examination of banks and deposit accounts

The examination of banks and deposit accounts is a process that is conducted by regulatory
authorities to ensure that banks are operating in a safe and sound manner and that depositors'
funds are being protected. Here are some key aspects of this examination process:

1. Regulatory agencies: The examination of banks and deposit accounts is typically conducted by
regulatory agencies such as the Federal Reserve, FDIC (Federal Deposit Insurance Corporation),
or state banking departments. These agencies have the responsibility of overseeing the operations
of banks and ensuring their compliance with applicable laws and regulations.

2. Frequency of examinations: Banks are typically examined on a regular basis, with the
frequency of examinations depending on the size and complexity of the bank. Large banks may
be examined more frequently than smaller banks, and banks that are experiencing financial
difficulties may be subject to more frequent examinations.

3. Scope of examination: The examination of banks typically covers a range of areas, including
the bank's financial condition, risk management practices, compliance with laws and regulations,
and the adequacy of the bank's internal controls. The examination may also include a review of
the bank's deposit accounts to ensure that they are properly insured and that the bank is
maintaining accurate records.

4. Remedial actions: If the examination uncovers any issues or deficiencies in the bank's
operations or deposit accounts, the regulatory agency may require the bank to take remedial
actions to address these issues. These actions may include implementing new risk management
practices, improving internal controls, or taking steps to ensure that deposit accounts are properly
insured and recorded.
39
Overall, the examination of banks and deposit accounts is an important process for ensuring the
safety and soundness of the banking system and protecting depositors' funds. By conducting
regular examinations and taking appropriate remedial actions when necessary, regulatory
agencies can help to ensure that banks are operating in a safe and sound manner and that
depositors' funds are being protected.

(b) Prohibition against splitting of deposits

- Prohibition against splitting of deposits refers to the rule that prohibits

depositors from intentionally dividing their deposits into multiple accounts or
institutions in order to obtain more deposit insurance coverage than they
would be entitled to under the deposit insurance program's coverage limits.
This practice is also known as "smurfing" or "structuring."

- The prohibition against splitting of deposits is intended to prevent depositors

from taking advantage of the deposit insurance program and obtaining more
insurance coverage than they are entitled to. If depositors were allowed to
split their deposits in this way, it could undermine the financial stability of the
deposit insurance program and increase the risk of bank failures.

- In many jurisdictions, the deposit insurance program's rules and regulations

explicitly prohibit the splitting of deposits. For example, in the United States,
the FDIC (Federal Deposit Insurance Corporation) prohibits depositors from
intentionally dividing their deposits in order to obtain more insurance
coverage. Violation of this rule can result in the loss of deposit insurance
coverage, as well as other legal penalties.

- Overall, the prohibition against splitting of deposits is an important safeguard

for the deposit insurance program and helps to ensure that depositors are not
able to obtain more insurance coverage than they are entitled to. Deposit
insurance programs rely on the trust and honesty of depositors to function
effectively, and the prohibition against splitting of deposits is one way to deter
fraudulent or abusive behavior.

40
 (c) Prohibition against issuances of temporary restraining
orders
- The prohibition against the issuance of temporary restraining orders (TROs) is a legal provision
that restricts the ability of courts to issue TROs in certain circumstances. Specifically, the
provision prohibits courts from issuing TROs that would prevent regulatory agencies, such as
banking regulators, from taking certain actions.

The prohibition against the issuance of TROs is intended to ensure that regulatory agencies are
able to take necessary actions to protect the public interest without being unduly delayed or
hindered by legal challenges. In the context of banking regulation, this provision is important
because it allows banking regulators to take prompt action to address issues or risks in the
banking system, such as bank failures or unsafe and unsound practices.

The specific rules and procedures regarding the prohibition against the issuance of TROs can
vary depending on the jurisdiction and the regulatory agency in question. In some cases, the
provision may only apply to certain types of regulatory actions or may have specific exceptions
or limitations.

Overall, the prohibition against the issuance of TROs is an important aspect of regulatory
oversight and helps to ensure that regulatory agencies are able to take prompt and effective
action to address risks and protect the public interest. By limiting the ability of courts to issue
TROs that would prevent regulatory actions, this provision helps to ensure that regulatory
agencies have the necessary tools and authority to maintain the safety and soundness of the
banking system.

5. What is the concept of bank resolution?

- Bank resolution refers to the process by which a distressed or failing bank is
restructured or resolved in a way that minimizes the impact on the wider financial
system and protects depositors and other stakeholders. The goal of bank resolution is
to ensure that the bank's operations can continue in a safe and sound manner, or if
necessary, be wound down in an orderly way.

There are several different types of bank resolution, including:

1. Bailout: In a bailout, the government or another entity injects capital into the bank
to keep it operating. This approach is often used when a bank is considered too big to
fail and its failure would have significant systemic consequences.

2. Bail-in: In a bail-in, the bank's creditors and shareholders are required to absorb
losses in order to keep the bank operating. This approach is designed to reduce the
41
 need for taxpayer-funded bailouts and to ensure that those who benefited from the
bank's profits also bear some of the costs of its losses.

3. Sale or merger: In some cases, a failing bank may be sold or merged with another
bank in order to maintain its operations and protect depositors and other stakeholders.

4. Liquidation: In some cases, a failing bank may need to be liquidated, meaning its
assets are sold off and its operations are wound down. This approach is typically used
when other forms of resolution are not feasible or would not adequately protect
depositors and other stakeholders.

Bank resolution is a complex and challenging process, as it requires balancing the

need to maintain financial stability with the need to protect depositors and other
stakeholders. Effective bank resolution frameworks require clear rules and
procedures, strong regulatory oversight, and coordinated action by multiple parties,
including the government, regulators, and the private sector.

6. Briefly explain the role of the PDIC in relation to banks in distress under
a. Closure and takeover
- The Philippine Deposit Insurance Corporation (PDIC) plays a critical role in the
closure and takeover of distressed banks in the Philippines. When a bank is deemed to be
in distress and at risk of insolvency, the PDIC may be called upon to intervene and take
control of the bank's operations. This process typically involves the following steps:

1. Determination of distress: The PDIC works closely with the Bangko Sentral ng
Pilipinas (BSP) to assess the financial condition of banks and identify those that are in
distress and at risk of insolvency.

2. Closure and takeover: When a bank is deemed to be in distress, the PDIC may
be authorized to close the bank and take over its operations. This involves assuming
control of the bank's assets and liabilities, including customer deposits.

3. Payment of insured deposits: As the deposit insurer in the Philippines, the

PDIC is responsible for paying deposit insurance to eligible depositors of the failed bank.
The PDIC pays out up to P500,000 per depositor, per bank.

4. Sale or resolution of the bank: After taking control of the failed bank, the PDIC
may work to resolve the bank's financial issues and prepare it for sale or merger with
another institution. Alternatively, if the bank cannot be resolved, it may be liquidated and
its assets sold off to pay off its creditors.
42
 Overall, the PDIC plays a critical role in maintaining the stability of the banking
system in the Philippines by intervening and taking control of distressed banks when
necessary. By ensuring that eligible depositors receive their insured deposits and working
to resolve the issues facing the failed bank, the PDIC helps to protect the interests of
depositors and maintain public confidence in the banking system.

b. Conservatorship
- The Philippine Deposit Insurance Corporation (PDIC) plays a critical role in
relation to banks under conservatorship. When a bank is placed under conservatorship by
the Bangko Sentral ng Pilipinas (BSP), the PDIC may be called upon to provide support
and assistance to the conservator in managing the bank's affairs.

The role of the PDIC in relation to banks under conservatorship typically

includes:

1. Providing financial support: The PDIC may provide financial support to the
bank under conservatorship to help it stabilize its operations and implement its recovery
plan. This support may include loans, guarantees, or other forms of financial assistance.

2. Monitoring compliance with deposit insurance requirements: As the deposit

insurer in the Philippines, the PDIC ensures that the bank under conservatorship complies
with the requirements of the deposit insurance system. This includes verifying the
accuracy of the bank's deposit records and ensuring that eligible depositors receive their
insured deposits.

3. Facilitating the resolution of the bank's financial issues: The PDIC may work
closely with the conservator to facilitate the resolution of the bank's financial issues and
prepare it for sale or merger with another institution.

4. Paying out insured deposits: If the bank under conservatorship is unable to

recover and is eventually closed down, the PDIC pays out insured deposits to eligible
depositors, up to a limit of P500,000 per depositor per bank.

Overall, the role of the PDIC in relation to banks under conservatorship is to

provide support and assistance to the conservator in managing the bank's affairs and to
ensure that the interests of depositors are protected. By working closely with the
conservator to facilitate the resolution of the bank's financial issues and providing

43
 financial support and assistance where necessary, the PDIC helps to ensure the stability
of the banking system in the Philippines.

c. Receivership
- When a bank is placed under receivership by the Bangko Sentral ng Pilipinas (BSP), the
Philippine Deposit Insurance Corporation (PDIC) plays a critical role in protecting the interests
of depositors and other stakeholders. The PDIC is responsible for the orderly closure of the bank
and the payout of insured deposits to eligible depositors.

The role of the PDIC in relation to banks in distress under receivership typically includes:

1. Taking over the bank's assets and liabilities: When a bank is placed under receivership, the
PDIC takes over the bank's assets and liabilities and assumes control of its operations. The PDIC
is responsible for managing the bank's assets and liabilities in a way that maximizes the value of
its assets and ensures that depositors receive their insured deposits.

2. Paying out insured deposits: The PDIC pays out insured deposits to eligible depositors, up to a
limit of P500,000 per depositor per bank. The PDIC verifies the accuracy of the bank's deposit
records and ensures that eligible depositors receive their insured deposits in a timely and orderly
manner.

3. Recovering the bank's assets: The PDIC works to recover the bank's assets and maximize their
value. This may involve selling the bank's assets, such as its loans and properties, and using the
proceeds to pay off its creditors.

4. Managing the bank's affairs: The PDIC is responsible for managing the bank's affairs during
the receivership period. This includes making decisions about the bank's operations, such as
whether to continue lending or to sell off its assets.

5. Facilitating the sale or merger of the bank: The PDIC may work with potential buyers or
merger partners to facilitate the sale or merger of the bank. This may involve conducting due
diligence, negotiating terms of the sale or merger, and overseeing the transition to new
ownership.

Overall, the role of the PDIC in relation to banks under receivership is to ensure the orderly
closure of the bank and the payout of insured deposits to eligible depositors. By taking over the
bank's assets and liabilities, paying out insured deposits, recovering the bank's assets, and

44
managing its affairs, the PDIC works to protect the interests of depositors and other stakeholders
and to maintain the stability of the banking system in the Philippines.d. Liquidation

7. Digest the following cases:

a. RCBC v. Hi-Tri Dev. Corp., G.R. No. 192413, June 13, 2012

Case: RCBC v. Hi-Tri Dev. Corp., G.R. No. 192413, June 13, 2012

Facts:

Hi-Tri Dev. Corp. (Hi-Tri) and Citytrust Banking Corp. (Citytrust) entered into a credit
agreement, whereby Hi-Tri was granted a credit facility of P40 million, secured by real estate
mortgage. The mortgage was later transferred to Rizal Commercial Banking Corp. (RCBC) by
way of an agreement between Citytrust and RCBC.

Hi-Tri defaulted on its payment obligations and RCBC subsequently extrajudicially foreclosed
on the mortgaged property. Hi-Tri then filed a complaint with the RTC, alleging that the
foreclosure proceedings were null and void. The RTC ruled in favor of Hi-Tri and ordered
RCBC to pay damages.

RCBC appealed to the Court of Appeals, arguing that it was a mere transferee of the mortgage
from Citytrust and that it was entitled to rely on the validity of the mortgage. The Court of
Appeals affirmed the RTC's decision.

Issue:

Whether RCBC, as a transferee of the mortgage from Citytrust, is entitled to rely on the validity
of the mortgage.

Ruling:

The Supreme Court ruled in favor of RCBC.

The Court held that RCBC was a mere transferee of the mortgage from Citytrust and was entitled
to rely on the validity of the mortgage. As a mortgagee in good faith, RCBC had no obligation to
investigate the veracity of Hi-Tri's allegations of fraud and misrepresentation committed by
Citytrust.

45
The Court also held that the principle of lis pendens did not apply in this case, as the foreclosure
proceedings were conducted prior to the filing of the complaint by Hi-Tri. The lis pendens
doctrine applies only when the litigation is pending at the time the property is sold or transferred.

Thus, the Court reversed the decisions of the RTC and the Court of Appeals and dismissed Hi-
Tri's complaint against RCBC.

Ratio:

A mortgagee in good faith is entitled to rely on the validity of the mortgage and has no obligation
to investigate the veracity of the mortgagor's allegations of fraud and misrepresentation
committed by the previous mortgagee. The principle of lis pendens applies only when the
litigation is pending at the time the property is sold or transferred.

b. PDIC v. Citibank, N.A., G.R. No. 170290, April 11, 2012

Case: PDIC v. Citibank, N.A., G.R. No. 170290, April 11, 2012

Facts:

This case involves the liquidation of the Urban Bank, Inc. (UBI), which was placed under
receivership by the Monetary Board of the Central Bank of the Philippines. The Philippine
Deposit Insurance Corporation (PDIC) was appointed as receiver of UBI.

One of the assets of UBI was a time deposit with Citibank, N.A. (Citibank). The time deposit
was originally in the name of UBI, but was subsequently transferred to the name of the PDIC as
receiver of UBI.

Citibank refused to honor the transfer of the time deposit to the PDIC, claiming that it had a right
of setoff against UBI's deposit. Citibank argued that UBI had an outstanding loan obligation with
Citibank and that Citibank had the right to setoff UBI's deposit against the loan obligation.

The PDIC filed a complaint against Citibank to recover the amount of the time deposit. The RTC
ruled in favor of Citibank, holding that Citibank had a right of setoff against UBI's deposit. The
PDIC appealed to the Court of Appeals, which reversed the RTC's decision and held that
Citibank had no right of setoff against UBI's deposit.

Issue:
46
Whether Citibank has the right to setoff UBI's deposit against its outstanding loan obligation.

Ruling:

The Supreme Court ruled in favor of Citibank.

The Court held that Citibank had the right of setoff against UBI's deposit, as provided under
Section 36 of the General Banking Law of 2000. The Court explained that the right of setoff is a
legal compensation by which two persons who are creditors and debtors of each other extinguish
their mutual obligations to the extent of their respective credits and debts.

The Court also held that the transfer of the time deposit to the PDIC did not extinguish UBI's
loan obligation to Citibank. The Court explained that the transfer was merely an assignment of
the deposit and did not affect UBI's obligation to pay its loan.

Thus, the Court reversed the decision of the Court of Appeals and affirmed the RTC's decision in
favor of Citibank.

Ratio:

Under Section 36 of the General Banking Law of 2000, a bank has the right of setoff against its
debtor's deposit. The transfer of a deposit to the PDIC as receiver of a bank does not extinguish
the debtor's obligation to the bank.

c. GSIS v. C.A., G.R. No. 189206, June 08, 2011

Case: GSIS v. C.A., G.R. No. 189206, June 08, 2011

Facts:

The case involves a loan agreement between the Government Service Insurance System (GSIS)
and the National Development Company (NDC). The loan agreement provided for the payment
of the loan in installments over a period of several years.

The NDC failed to pay one of the installments, prompting the GSIS to demand payment of the
outstanding amount. The NDC failed to comply with the demand, prompting the GSIS to
foreclose on the real estate mortgage securing the loan.

47
The NDC filed a complaint for injunction before the Regional Trial Court (RTC), seeking to
enjoin the GSIS from foreclosing on the real estate mortgage. The RTC granted the injunction
and ordered the GSIS to refrain from foreclosing on the mortgage.

The GSIS appealed the RTC's decision to the Court of Appeals (CA). The CA affirmed the
RTC's decision, holding that the GSIS failed to comply with the requirements of Section 47 of
the General Banking Law of 2000, which provides for the notice and hearing requirements
before foreclosure.

Issue:

Whether the GSIS complied with the notice and hearing requirements before foreclosing on the
real estate mortgage.

Ruling:

The Supreme Court ruled in favor of the GSIS.

The Court held that the GSIS complied with the notice and hearing requirements before
foreclosing on the real estate mortgage. The Court explained that the requirements under Section
47 of the General Banking Law of 2000 apply only to banks and not to government financial
institutions like the GSIS.

The Court also held that the RTC and CA erred in granting the injunction, as there was no
showing of irreparable injury to the NDC. The Court explained that an injunction is an
extraordinary remedy that should be granted only in cases of extreme necessity, and that the
NDC failed to show such necessity in this case.

Thus, the Court reversed the decisions of the RTC and CA and allowed the GSIS to foreclose on
the real estate mortgage.

Ratio:

The notice and hearing requirements under Section 47 of the General Banking Law of 2000
apply only to banks and not to government financial institutions. An injunction is an
extraordinary remedy that should be granted only in cases of extreme necessity.

-END-

48