RA 7653: THE NEW CENTRAL BANK ACT, AS AMENDED BY RA 11211

BRIEF HISTORY AND TIMELINE

• The U.S. granted our independence on July 4, 1946. It is the same day as the independence
of U.S. from England. June 12 is our independence from Spain.
• As early as July 4, 1946, we already have banks, such as Banco de las Islas Filipinas, Banco
de Filipinas, and PNB. Rural banks. But no government regulator yet at that time.
• In 1948, the legislature created the Central Bank of the Philippines (CB)
• However, the CB became bankrupt and it was very embarrassing for a bankrupt regulator.
What is the moral ascendancy of the banking regulator in the banking system kung ang
regulator mismo ang bankrupt?
• Since the CB was bankrupt, and every country needs a central monetary authority, the
legislature abolished the old CB and right away, pinalitan ng bago at ang tawag na ay
Bangko Sentral ng Pilipinas (BSP). It is an entirely different entity. Akala ng iba ay
pinalitan lang ng pangalan. They are two entirely different entities since the old one was
abolished, and not just a mere change of name.

What are the salient points of RA 11211?

• Made effective on March 1, 2019

• It increased the capital of the BSP from P50B to P200B.
• Maximum of five Deputy Governors. Previously, only one Deputy may be appointed.
• Fine for administrative sanctions had been increased from maximum of P30,000 to not more
than P1M for each transactional violation.
• Additional clause has been added as well- “P100,000 per calendar day for violations of a
continuing nature”
• A further qualification for fines was also added- “That in case profit is gained or loss is
avoided as a result of the violation, a fine no more than three times the profit gained or loss
avoided may also be imposed”

BSP AS A REGULATOR

Ano ang structure ng BSP? What kind of existence? It has a corporate existence.

What kind of corporation? It is a stock corporation kasi bangko yan, kumikita yan, and not
organized for mutual benefit of members. May stockholders ba yan? Isa lang, the Philippine
government. The law provides that the authorized capital stock shall only be subscribed by the
Philippine government, and no private stockholders.
How do you call the managing board of the BSP? Monetary Board (MB). Pareho rin sa
managing body ng CB of the Philippines pero magkaiba ng composition

What is the composition of the monetary board of BSP? It has 7 members, including the BSP
Governor, a Cabinet member, and 5 full-time directors from the private sector. Sino yung
cabinet member? Bahala na ang presidente kung sino ang ipapadala nya. Nung time ni PGMA,
ang pinadala nya ay DTI Secretary. Si PNoy and PDu30, ang pinadala ay SOF. So, choice ng
presidente yan.

The law says 5 full-time directors from the private sector. Ano ang pagkakaunawa mo ng sa
private sector? Not necessarily from privately-owned private corporations. Pwedeng
manggaling sa GOCCs at sa government financial institutions. Halimbawa, sabi ng presidente,
“May bakante, kailangan natin ng director. Humugot tayo sa SSS, or sa GSIS, or sa LandBank.”

Ano yung regular term ng governor at ng full-time directors? 6 YEARS

Sa private corporation, if you were a director, if you died or was removed or became
incapacitated, magkakaroon ng vacancy, so how do you fill in the vacancy in the BOD? Call
for a special meeting to fill in the vacancy.

What is the term of the one who filled in the vacancy? The RCCP says he shall only serve the
unexpired term of his predecessor. In privately-owned private corporations, usually the term is
one year because may annual meeting sila where they elect.

Current BSP Governor Benjamin Diokno (former SOF). Gaano pa katagal magseserbisyo si
Diokno sa BSP? Less than 4 years or just a little over 3 years kasi Diokno was appointed after
the former governor died. The former governor is Nestor Espenilla, president of Union Bank,
but died after 6 years kaya nagkaroon ng vacancy.

Regular term is 6 years. Pwede bang magkaroon ng reappointment ng governor and full-time
director? Yes, pero minsan lamang. Can be reappointed just once. So, maximum number of
years that anybody may serve as a governor or full-time director of the BSP Monetary Board is
12 years.

-Sino yung pwedeng maging governor at director? Natural-born Filipino.

What are the qualifications of the members of the Monetary Board?

1. Must be a natural-born citizen of the Philippines;

2. At least 35 years of age for Directors, while at least 40 years of age for the Governor;
3. Of good moral character, of unquestionable integrity, of known probity and patriotism; and

4. With recognized competence in social and economic disciplines (Sec. 8, RA 7653)

If you had served the MB and na-expire na yung term mo, merong restriction.

GR: Within a period of 2 years from separation from service, the governor and the full-time
directors are prohibited from serving in any capacity in any corporation under the supervision
of the BSP.

XPN: When representing the interest of the Philippine government

Yung dating governor prior to Tetangco, Gabriel Singson, nag-expire na yung term nya. San sya
ngayon konektado? Manila Bulletin and related companies.

Dati, naging governor si Jose Cuisha. San sya napunta after? PhilAm Life, an insurance
company, which is not under the supervision of BSP, but by the Insurance Commission.

Magkano yung original authorized capitalization ng BSP? P50B. P10B was paid up by the
government. But this was amended already. Capitalization is now P200B. The law expressly
provides that the government shall not pay up that amount, but it says that the BSP, from its
own earnings, shall boost up the capital. Kaya ang kita ng BSP, ‘di na kailangan i-remit sa
national treasury.

FUNDAMENTALS

1. What is money? Money is universally defined as any medium of exchange or kahit anong
ginagamit sa palitan.

I have to sign a number of documents now, but I left my signing pen at the office. Nakita
kita. Sa pocket mo meron kang identically looking pens. Sabi ko, “Pwede ko bang bilhin
yung ballpen mo? Kaya lang naiwan ko rin yung wallet sa opisina, so pwede ba kitang
bayaran ng 1 liter ng unopened bottled distilled water?” Sabi ni X, “Walang problema.” I
got his sign pen and in exchange, I gave my bottled water. Ano ang medium of exchange?
Bottled of water, kaya pwede mo syang tawaging money. Kahit ano may be considered as
money.
 How do we call Philippine money? Peso. Ano yung official symbol ng peso? Simply a
capital letter “P.” Dati may dalawang parallel lines, hindi na yan. Ngayon PHP— Philippine
peso. Kinakailangan ay tama ang sign ng peso.

DAMAGED NOTES: Our notes can be damaged. Pwede yan masunog, pwede mapunit.
Ngayon ito, pag nasunog o kaya napunit, the question is, whatever may its state (be), may
be it accepted for deposit or replaced for a good one? Tatanggapin pa kaya ng bangko for
deposit? Sabi ng Central Bank, certain conditions must be met.
1) At least three-fifths (3/5) of the note must still be there;
2) One complete set of serial numbers;
3) One signature; and
4) No sign of intentional defacement.

- For coins: No sign of filing, clipping, or perforation-

DEMONITIZED COINS AND NOTES- When the coins and notes are already damaged,
they are turned over to the BSP, then we say that these notes and coins have been
demonitized. So ‘pag sinabing demonitized, it loses the character of money. Best example,
yung old series, when it was finally put to an end. Actually, dati Dec. 31, 2016. Kaya lang na
extend ng 6 months and another 6 months. Kaya lang ang final is last Dec. 31, 2017. So while
they may still be money, they are no longer currency. Remember, money is any medium of
exchange. Kahit yung mga series ng bagong lipunan pa, o panahon pa ni Diosdado
Macapagal, they are still money, but they are no longer currency because they are already
withdrawn from circulation.

2. How do you call the units of peso? Centavos. Yung cents ay American. Ano ang official
symbol ng centavo? Walang slash, simply small letter “c” even under the old law. Yung
may slash, American yun. How many centavos are there in a peso? 100 centavos.

3. What is your understanding of the word, “currency”? This is defined in the law. Yung
salitang currency comes from “current.” Current means gumagalaw. Kaya ang salitang
currency, as defined in the law, has two parts: it refers to: (1) notes and coins issued by the
BSP, and (2) in circulation.

So, two characteristics of currency— (1) notes and coins issued by the BSP, and (2) in
circulation. Yung notes ay printed and our coins are minted. They are done in the
Philippines. ‘Di katulad dati, printed and minted in England kaya pagpasok sa Philippines,
finished product na. Ang tawag ng ordinaryong tao sa notes ay perang papel. Yung coins ay
coins na rin dahil wala tayong salitang katumbas ng coins. Yung notes natin, they really are
not made of paper, but more of cloth.
 Yun bang naiprint and naimint na notes and coins, lumalabas ba agad yun? No. Pasok
muna sa vaults ng BSP at tuloy-tuloy ang printing and minting process kasi ang pera na
ginagamit natin ay tuloy-tuloy rin ang ikot. Pag nilabas na dun sa armored van, currency na
iyon. Para masabing in circulation, dapat ay lumabas na sa vaults ng BSP kasi pag lumabas
na, idedeliver na sa iba’t ibang bangko, edi in circulation na.

Kung lumabas na sa vaults, pwede pa bang bumalik sa vaults? Yes, reserve requirements
will be discussed later on.

4. Legal tender. There could be a valid tender of payment or offer of payment if the debtor
would offer to pay using legal tender.

Ano yung legal tender? You refer to currency in such quantity prescribed by law or
regulation to be acceptable in payment of obligations. So, USD na nasa wallet mo is not legal
tender because it is issued by the Federal Bank, not by the BSP.
Yung notes, ano ang mga denominations? P20, P50, P100, P200, P500, and P1000. Sabi sa
circular ng BSP, all notes are legal tender for all obligations.

Papano naman yung coins, are they also legal tender? Yes, up to a certain amount.
Denominations ng coins— c1, c5, c10, c25, P1, P5, P10 P20. According to the BSP Circular,
lahat ng centavo coins, they are legal tender only up to P200.
Pag peso coins, they are legal tender only up to P2000 for each coin.
If you were to pay a monetary obligation using coins, what is the maximum amount? Php
8,800.

MONEY SUPPLY

May BSP keep on issuing notes and coins? Kunwari lang merong isang presidentiable.
Ang sabi nya, “Ah, dapat lahat ng Pilipino mayayaman. Kaya pag ako’y naging presidente,
uutusan ko ang BSP na bigyan ang bawat Pilipino ng P1M para wala ng mahirap na
Pilipino. Lahat milyonaryo.” Is that a sane move? Ano ang magiging epekto? Pag lahat ng
tao mayaman, lahat maraming pera, chances are, magkaroon ng hyperinflation. Sobra-sobra
ang pera. Kaya ang tanong ay, ano kaya ang pwedeng mangyari if there is too much money
in the circulation? There will be hyperinflation.

Ano ba yung inflation? Ang epekto ng inflation is you pay more with the same thing. Mas
napapamahal ka. To give you an idea, I’m sure you’ve heard of Zimbabwe, it is one of the
countries in Africa. Sa Zimbabwe, magkano yung isang loaf ng bread? For your
information, a loaf of bread in Zimbabwe is 30 trillion Zimbabwe dollars. Isipin mo,
bibilangin mo trillions para lang sa isang loaf ng bread, samantalang dito satin, wala pang
P100. In fact, during my younger days, a loaf of bread dati ay c30. Kaya lang over the years,
nagmahal na ang tinapay. Kaya ngayon, ang good quality, it is almost P100. Pero mas grabe
yung sa Zimbabwe.

Ano ba ang dapat gawin if the MB notices that the inflation rate had already exceeded
what the government wants? Yung executive, they want to contain inflation rate kaya
hanggat maaari, nasa 2% lamang per annum. Kaya lamang there are factors that you cannot
control. Tulad ngayon, pataas ng pataas ang cost ng fuel. Hindi natin ma-control yan. Kaya
yung inflation rate, tumataas.

So, the other function of the BSP is to manage money supply. Kinakailangan i-manage ang
money supply kasi pag pababayaan na tumaas lang ng tumaas ang presyo, we can have
runaway inflation, and nobody wants it. Anong ginagawa ng BSP? Manage money supply.

Ano ang pagkakaunawa nyo sa salitang “money supply”? Pag sinabing money supply,
you refer to all monies in the Philippines. ‘Di sinabing currency supply. Ang sinabi, money
supply, kaya lahat ng perang nasa Pilipinas, kasama yung USD, JPY, and other foreign
currencies, they are part of money supply. Tulad ng sabi ko, if there is too much money in
the circulation, the tendency of people will be to spend more than what is necessary.

Meron tayong tinatawag na law of supply and demand, and if there is too much demand
and the supply is low, the tendency of prices would be to go up. Kaya hindi dapat
napakaraming pera in circulation.

RESERVE REQUIREMENTS

What could be the most expedient way that money supply could be reduced? Meron
tayong tinatawag na reserve requirements. Ano yung reserve requirements (RR)? Plural
ha— reserve requirements. Pag sinabing reserve requirements, you refer to a percentage of
deposit liabilities of banks, which banks have to deposit with BSP or invest in government
securities.

Naiintindihan nyo ba yung deposit liabilities of banks? Ito yung mga idinedeposito natin
sa bangko. Kung meron tayong pera, instead of keeping the money in our wallets, what we
do is we deposit them with the banks.
Pag sinabing reserve requirements, they are a percentage of deposit liabilities of banks.
Kung nagtime deposit ka, yan ang may pinakababang RR. Anong rates? Perhaps 20%.
Halimbawa, nagtime deposit ka ng P1M, so the bank agreed to pay you interest on your
deposit of P1M. Paano kikitain ng bangko yung interest na dapat ibayad sa’yo? Ipapa-utang
ng bangko yung pera mo. Dahil nagdeposito ka ng P1M, yung buong P1M ba pwedeng ipa-
utang ng bangko? No. Kasi nga bahagi nun RR. Ang RR, pag time deposit is about 20%. Ano
yung 20% ng P1M? P200,000.

Yung P200,000 na yun, hindi pwedeng ipa-utang ng bangko. Kaya kung nagdeposito ka na
ng P1M, para kumita ang bangko, ang pwede lang ipa-utang ng bangko ay yung P800,000.
Yung P200,000 dapat ideposito sa BSP at yun ang tinatawag na RR.

Tatlo yung klase ng deposits, kaya tatlo rin ang rates ng RR. Pag time deposit, yan ang
pinakamababa, 20%. Kung magdedeposito ka sa checking account, yan naman ang
pinakamataas, 25%. And midway, savings, 23%.

In sum, the three kinds of deposits and their respective RR rates are:

(1) time— 20%;

(2) savings— 23%; and
(3) checking account— 25%.

You might ask, bakit iba-iba pa ang rates? Kasi pag ang tao nagtime deposit, most likely, ‘di
sya magwiwithdraw agad. And when a person makes a deposit in a checking account, most
likely, in a short while, he will be issuing checks to pay for his obligations kaya
mawiwithdraw yung deposito.

What are the three-fold purposes of the RR?

1. To service withdrawals. Pag nagtime deposit ka, most likely, ‘di ka magwiwithdraw
agad. Kaya lang, you cannot prevent a depositor from making a withdrawal in case there
would be an emergency.

Halimbawa, biglang nangailangan yung time depositor, nagpunta sa bangko, ang sabi,
“Nako, kailangan ko ng pera ngayon para mailabas ko na sa ospital yung asawa ko. Pwede
bang magwithdraw?” Of course, legally speaking, pwedeng sabihin ng bangko, “Ma’am,
sorry po. Kasi ‘di po ba yung time deposit nyo pang-2 years? Pinangakuan namin kayo ng
 interest kaya ang ginawa namin, ipinautang namin yung idineposito mo.” Ang sunod na
tanong, gaano naman katagal yung ipinautang? Eh 2 years rin. Hindi ba ako
makakapagwithdraw ngayon? Kinakailangan ba tapusin ko muna yung 2 years? Legally
speaking, pwedeng panindigan ng bangko na hindi pwede bayaran ng bangko. Why?
Because it is an obligation with a period. Under the NCC, it is deemed an obligation with a
period if the period was established for the mutual benefit of the parties, that neither of
them may demand performance of the obligation before the arrival of the period. But banks
do not do it that way. Kahit na time deposit at nangailangan ang depositor, babayaran ng
bangko yung withdrawal to show that it is solvent and it can pay withdrawals at any time.
Pinapakita ng bangko na, “Hoy, may pera kami dito. Kaya naming bayaran yan.” Kung
sakaling ganoon ang gawin ng depositor, saan kukunin ng bangko ang pambayad ng
withdrawal? Huhugutin dun sa RR.

2. To manage money supply. Kapag napakataas ng inflation rate, one way to solve high
inflation rate is to withdraw money from circulation. Papaano ginagawa ng BSP yun?
Dagdagan, halimbawa, ng 1% ang RR. Kung halimbawa, P30T ang deposit sa Bangko,
overall sa buong Pilipinas, ano ang 1% ng P30T? P300B. Isipin mo, aalisin mo from
circulation yung P300B. Ang laking halaga noon. Kaya the fastest way of withdrawing
money from the circulation is by simply increasing the RR. Magdagdag ka lamang ng half
percent or 1%, napakalaking halaga na nun, withdrawn from circulation.

3. It serves as a source of funds for the rediscounting facility of the BSP. Ano ang ibig
sabihin nung rediscounting facility? Yung salitang rediscounting facility, pwede ring
tawaging rediscounting window, kaya lang hindi yun talagang bintana. Ano yang
rediscounting facility na yan? A central bank, or all central banks, is known as bank of
banks. Why? Kasi kapag ang bangko paubos na ang pera dahil marami nang pinautang at
marami pang gustong umutang, gagawin ng bangko, uutang yan sa BSP.

Kaya kapag naubos na yung pwedeng ipa-utang ng bangko and there are other borrowers
waiting for their loans, ano ang ginagawa ng bangko? Umuutang sa BSP. Kapag umutang
ang bangko sa BSP, ano ang collateral? Hindi pareho ng ordinary borrower. Yung ordinary
borrower, gagawa ng mortgage to secure their loans. Kaya lang pag ang bangko, umutang
sa BSP, no such thing anymore. Ang gagawin lang ng bangko, sasabihin lang sa BSP,
“Mayroon kaming mga receivables doon sa mga umutang sa amin. Ito ang gagawin naming
collateral sa inuutang namin sa inyo.” Yun ang tinatawag na rediscounting of receivables.
Kaya pag narinig nyo ang salitang “rediscounting of receivables,” ang ibig sabihin,
bangko umuutang sa BSP at ang collateral ay ang kanyang receivables.

Pag rediscounting of receivables with BSP, the persons involved are BSP and the different
banks because only banks may have their receivables rediscounted with BSP. Halimbawa,
 San Miguel Corporation (SMC), maraming receivables yan. Yung receivables ng SMC,
pwedeng ipa-rediscount sa BSP? No, because BSP can deal only with banks. Yun bang
SMC, pwedeng magpa-rediscount ng receivables? Yes, but with an investment house . In
short, SMC may have their receivables rediscounted, but not with the BSP, but with
investment houses.

So, the fixed rule, without any exception, is that, ang pwede lang umutang sa BSP ay
yung banks. Only banks may have their receivables rediscounted with BSP. All other
merchants may have their receivables rediscounted with an investment house.

Halimbawa, kung ako bangko, magpapa-rediscount ako sa BSP. Ang gagamitin kong
collateral ay yung aking mga receivables. Saan naman kukunin ng BSP yung ipapa-utang
sa akin? Magpi-print ba ng bagong pera ang BSP? No. Ginagamit lang kung ano yung
money that are already printed by BSP. So, anong pera ang gagamitin ng BSP para pa-
utangin ang mga bangko? Ang ginagamit na pera ay yung RR.

Halimbawa, bangko ako, nakatanggap ako ng deposit na P10M, RR is 20%, so P2M. Yung
P2M na yun, idedeposit ko sa BSP as RR. Meron bang interest na babayaran yung BSP sa
P2M na yun? Wala.

Magpapa-rediscount ako, uutang ako sa BSP. Ito ang masaklap, pag ang bangko nagpa-
rediscount ng BSP, sumisingil ang BSP ng interest. Parang ginigisa yung bangko sa sarili
nyang mantika kasi yung ginagamit na pagpapa-utang sa bangko ay yung RR. This is
considered a sound practice because this is done not only by our BSP, but by all central
banks in the world. Ginagamit na pagpapa-utang sa mga bangko ang kanilang RR at pag
umutang ang mga bangko sa BSP, bayad ng interest pero hindi malaki.

If the intention of the government is to encourage business, pag umutang ang bangko sa
BSP, mababa lang ang interest rate. It could be 3% per annum para pag nagpa-utang na
naman ang bangko sa individuals like us, mababa rin ang interest rate, and that is to
encourage business.

“ In short, ang third purpose ay it becomes a source of funds for the rediscounting
window or facility of the BSP. Yung perang naka-RR, hindi nagbabayad ng interest ang
BSP sa mga bangko. Basta nakatago lang doon. Kaya lang, pag ginamit naman ng BSP
yung RR sa pagpapa-utang sa mga bangko, BSP charges interest, although usually,
minimal rates, especially if the intention of the BSP is the development of business.”

OTHER FUNCTIONS OF BSP

What are the other functions of BSP?

1. Supervision over the banking system. The law expressly says supervision. Kaya lang in
reality, it is control. Bakit control? Kasi under the law, BSP has the power to issue rules and
regulations to govern banking business. The law also empowers BSP to prescribe penalties
for non-compliance with its rules and regulations. If you have the power to issue rules and
regulations and to impose penalty for non-compliance, you actually have the power of
control.

2. It represents the Philippine government in its international monetary dealings.

If nangutang ang Secretary of Finance sa World Bank, Asian Development Bank (ADB),
and International Monetary Fund (IMF). Sino ang pumapel sa pag-utang sa international
lenders na yan? Presidente ba? Hindi, BSP kasi isa yan sa mga functions ng BSP— to
represent the Philippine government in its international monetary dealings.

- WHAT ARE TREASURY BILLS: Kapag mababa ang collection ng BOC, or ng BIR,
remember that there are continuing expenses of government. Sineswelduhan ang mga
empleyado. Nagbabayad ng kuryente. Kung merong short ang collection ng BIR at
BOC, how does the government raise money in a fast manner? Nag-iissue ng treasury
bills. Kaya pag nakakita kayo ng news article saying na the government will issue
treasury bills, you can right away conclude na kulang ang pera ng gobyerno.

3. To buy precious metals. Yung mga malalaking mining companies, from their mining
operations, they may extract gold or other precious metals. Saan ibinebenta ng mga mining
companies kung ano man yung na-extract from the earth? Wag nyo akalain na sa alahera.
Ang nagbebenta sa gumagawa ng jewelry ay yung mga small miners. Pero yung big mining
companies, they sell their produce to BSP.

Halimbawa, merong mining company na naka-extract nang maraming ginto. Kanino

ibebenta? Hindi pwede ibenta to anyone except BSP. Sigurado ba bibili ang BSP? Yes, kasi
ang BSP also keeps gold reserves tapos pag kailangan ng pera nang BSP, ibinebenta sa other
countries. Sino ba ang mga bumibili ng gold? China, syempre. Saka U.S., kasi U.S. ang
may pinakamalaking collection ng gold.

To summarize, the BSP has five functions:

1. To issue notes and coins;
2. To manage money supply;
3. To supervise over the banking system [although in reality, it is not mere supervision, but
control];
4. To represent the Philippine government in its international monetary dealings; and
5. To buy precious metals.

INSOLVENCY AND LIQUIDATION

When a bank will have a liquidity problem, with what gov’t. office could it seek help? Banks
can apply for rehabilitation before the BSP, whereas ordinary debtors apply before the courts.

a. Concept of Insolvency under the FRIA- an entity shall be considered insolvent if:
i. Financial condition of a debtor that is generally unable to pay its liabilities as they fall due in
the ordinary course of business
ii. Has liabilities that are greater than assets

b. Concept of Insolvency under NCC – a person is considered insolvent the moment he is

unable to pay his debt when it comes due

Close now investigate later rule - When BSP receives numerous complaints of unsound
banking practices committed by a bank. BSP may right away order the closure of the bank and
thereafter investigate the complaints. i. This is legal, not violative of due process since banks are
imbued with public interest. A Cease and Desist order is an exercise of Police power.

Who are persons involved when a bank becomes insolvent.

a. BSP – if it determines that a bank is insolvent and no chance for rehabilitation:

i. it will order the closure of the bank;
ii. liquidation; appointment of liquidator who is tasked to pay the liabilities of the bank.
All acts of the liquidator is subject to prior approval from Monetary Board
iii. winding up of the bank
iv. Appointment of receiver

CONSERVATOR CONCEPT

Conservator - a person appointed by BSP to conserve the assets of the bank, wherein there is
internal dispute within the bank. There are no insolvency