GENERAL BANKING LAWS OF 2000
(RA. 8791) Grand Father Rule. - The percentage of foreign-owned voting stocks in a bank
The General Banking Law of 2000 (GBL) is the law that generally governs
the regulation, organization, and operation of banks, quasi- banks, and other
quasi-entities. It primarily governs Universal Banks(UB) and Commercial
Banks(CB) and has suppletory application to Thrift Banks (which is primarily
governed by RA 7906, the Thrift Banks Act), Rural Banks (primarily governed
by RA 7353, the Rural Banks Act), and Cooperative Banks (primarily governed
by RA 6938, the Cooperative Code).
Bank - refers to entities engaged in the lending of funds obtained in the form
of deposits. (Sec. 3.1, RA. No. 8791)
Conditions for Organization
● The entity is a stock corporation.
● Its funds are obtained from the public (20 or more persons)
● Minimum capital requirements prescribed by the Monetary Board are
satisfied. (Sec. 8, RA. No. 8791)
The Bangko Sentral shall provide policy direction in the areas of money,
banking, and credit. (Sec. 5, RA. No. 8791)
No person or entity shall engage in banking operations or quasi-banking
functions without authority from the Bangko Sentral. Provided, however, That
an entity authorized by the Bangko Sentral to perform universal or commercial
banking functions shall likewise have the authority to engage in quasi-banking
functions.(Sec. 6, RA. No. 8791)
Board of Directors
The provisions of the Corporation Code to the contrary notwithstanding, there
shall be at least five (5), and a maximum of fifteen (15) members of the board
or directors of a bank, two (2) of whom shall be independent directors. An
"independent director" shall mean a person other than an officer or employee
of the bank, its subsidiaries or affiliates, or related interests. (n) Non-Filipino
citizens may become members of the board of directors of a bank to the extent
of the foreign participation in the equity of said bank. (Sec. 7, RA 7721) The
meetings of the board of directors may be conducted through modern
technologies such as, but not limited to, teleconferencing and video-
conferencing. (Sec. 15, RA. No. 8791)
shall be determined by the citizenship of the individual stockholders in that
bank. The citizenship of the corporation which is a stockholder in a bank shall
follow the citizenship of the controlling stockholders of the corporation,
irrespective of the place of incorporation. (Sec. 11, RA. No. 8791)
Fit and Proper Rule. - To maintain the quality of bank management and afford
better protection to depositors and the public in general the Monetary Board
shall prescribe, pass upon and review the qualifications and disqualifications
of individuals elected or appointed bank directors or officers and disqualify
those found unfit. After due notice to the board of directors of the bank, the
Monetary Board may disqualify, suspend or remove any bank director or officer
who commits or omits an act which render him unfit for the position. In
determining whether an individual is fit and proper to hold the position of a
director or officer of a bank, regard shall be given to his integrity, experience,
education, training, and competence. (Sec. 16, RA. No. 8791)
Prohibition on Public Officials. - Except as otherwise provided in the Rural
Banks Act, no appointive or elective public official whether full-time or part-
time shall at the same time serve as officer of any private bank, save in cases
where such service is incident to financial assistance provided by the
government or a government owned or controlled corporation to the bank or
unless otherwise provided under existing laws. (Sec. 19, RA. No. 8791)
Classification of Banks
● Commercial bank
● Universal bank
● Thrift bank
● Rural bank
● Cooperative bank
● Islamic bank
● Other classifications of banks as determined by the Monetary Board
of the BSP.
Commercial bank - Banks given all such power to accept drafts, issue letters
of credit, discount, and negotiation of negotiable instruments, and evidence of
debt, accept and create demand deposits, and the like.
Universal bank - Commercial banks that can exercise the powers of an
investment house and invest in non-allied enterprises.

Universal Bank vs. Comercial Bank
As to Power
Universal Bank
● The powers authorized for a
Commercial Bank in Sec. 29, RA.
No. 8791;
● The powers of an investment house
as provided in existing laws; and
● The power to invest in non-allied
enterprises as provided in the GBL.
(Sec. 23)
As to Equity
Universal Bank
● A UB may invest in equities of
either Allied (Financial or Non-
Financial) and Non-Allied
Enterprises.
Except when:
Commercial Bank
● All such powers as may be necessary
to carry on the business of commercial
banking such as accepting drafts and
issuing letters of credit; discounting
and negotiating promissory notes,
drafts, bills of exchange, and other
evidence of debt; accepting or creating
demand deposits;
● receiving other types of deposits and
deposit substitutes;
● buying and selling foreign exchange
and gold or silver bullion;
● acquiring marketable bonds and other
debt securities;
● and extending credit, subject to such
rules as the Monetary Board may
promulgate.Sec. 29, RA. No. 8791
Commercial Bank
● A CB may invest only in equities of
Allied Enterprises (Financial or Non-
Financial).
Except when:
Except when:
● The total investment in equities of
allied and non-allied enterprises
shall not exceed fifty percent
(50%)
● The equity investment in any one
enterprise, whether allied or non-
allied, shall not exceed twenty-five
percent (25%) of the net worth of
the bank. (Sec. 24, RA. No. 8791)
Equity Investment in Financial Allied
Enterprise
● A universal bank can own
up to one hundred percent
(100%) of the equity in a
thrift bank, a rural bank or a
financial allied enterprise.
(Sec. 25, RA. No. 8791)
Equity Investment in Non-Financial
Allied Enterprise
● A universal bank may own
up to one hundred percent
(100%) of the equity in a
non-financial allied
enterprise. (Sec. 26, RA.
No. 8791)
Equity Investment in Non-Allied
Enterprise
● The equity investment of a
universal bank, or of its
wholly or majority-owned
subsidiaries, in a single non-
allied enterprise shall not
exceed thirty-five percent
Except when:
● The total investment in equities of
allied enterprises shall not exceed
thirty-five percent (35%) of the net
worth of the bark; and
● The equity investment in any one
enterprise shall not exceed twenty-
five percent (25%) of tile net worth of
the bank. The acquisition of such
equity or equities is subject to the
prior approval of the Monetary Board
which shall promulgate appropriate
guidelines to govern such investment.
(Sec. 30, RA. No. 8791)
Equity Investment in Financial Allied
Enterprise
● A commercial bank may own
up to one hundred percent
(100%) of the equity of a thrift
bank or a rural bank. Where
the equity investment of a
commercial bank is in other
financial allied enterprises,
including another commercial
bank, such investment shall
remain a minority holding in
that enterprise.(Sec. 31, RA.
No. 8791)
Equity Investment in Non-Financial
Allied Enterprise
● A commercial bank may own
up to one hundred percent
(100%) of the equity in a non-
financial allied enterprise. (21-
Aa) Article III. Provisions
Applicable To All Banks,
Quasi-Banks, And Trust
Entities. (Sec. 32, RA. No.
 The Bangko Sentral shall also have supervision over the operations of and
(35%) of the total equity in 8791)
exercise regulatory powers over quasi-banks, trust entities, and other financial
that enterprise nor shall it
institutions which under special laws are subject to Bangko Sentral
exceed thirty-five percent
supervision. (2-Ca)
(35%) of the voting stock in
that enterprise. (Sec. 27,
Functions of a Bank (DeLO)
RA. No. 8791)
● Deposit Function
● Loan Function
Thrift bank - Are regulated financial institutions that specialize in accepting ● Other Function
savings deposits from individuals and small businesses while also offering
mortgage loans to facilitate homeownership. Deposit Function - A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely keeping it
Rural bank - Government-assisted banks that are privately managed and and of returning the same. If the safekeeping of the thing delivered is not the
largely privately owned that provide credit facilities to farmers and merchants, principal purpose of the contract, there is not deposit but some other contract.
or cooperatives of such farmers or merchants at reasonable terms and in (Art. 1962, Civil Code of the Philippines.)
general, to the people of the rural community.
Types of Deposit Accounts
Cooperative bank - Primarily provides financial, banking, and credit services ● Time Deposit - A time deposit is an interest-bearing bank account
to cooperative organizations and their members. that has a date of maturity. The money in a time deposit must be held
for the fixed term to receive the interest in full.
Islamic bank - Provides banking services in accordance with Islam. More like ● Current Deposit - Also called a demand deposit account, these
an investment bank than a standard bank. accounts often allow the account holder to withdraw funds using bank
cards, checks, or over-the-counter withdrawal slips.
BANKS QUASI-BANKS ● Savings Deposit - A savings account is an interest-bearing deposit
Function Lend funds Borrow funds account held at a bank or other financial institution.
Sources of ● Negotiable Order of Withdrawal - An interest-bearing deposit
BANK DEPOSITS DEPOSIT SUBSTITUTES
funds account that combines the payable on demand feature of checks and
the investment feature of savings accounts.
Quasi Banks - Entities engaged in the borrowing of funds through the
issuance, endorsement, or assignment, with recourse or acceptance of Loan Function - Loans made by the bank shall not apply to a cooperative
deposits. bank to its cooperative shareholders
● Basic Rules and Restrictions
To promote competitive conditions in financial markets, the Monetary Board - A bank shall grant loans and other credit accommodations only in
may further limit to forty percent (40%) equity investments of universal banks amounts and for the periods essential for the effective completion of
in quasi-banks. This rule shall also apply in the case of commercial banks. the operations to be financed, consistent with safe and sound
(Sec. 28, RA. No. 8791) banking practices.
● Risk-based capital
Trust EntitiesActs - as a custodian for trusts, estates, custodial - Minimum ratio: net worth of a bank must bear to its total risk assets
arrangements, asset management, stock transfer, beneficial ownership - 10% but 8% recommended internationally
registration, and other related arrangements. ● Single Borrower’s Limit (SBL)
● Maximum limit to a single borrower
 ○ Per law: ≤ 20% of net worth
○ Per circular: ≤ 25% of net worth
● Additional limit (if adequately secured)
○ 10% of the bank’s net worth
● Loans Limit to DOSRI - limited to unencumbered deposits and BV
of Paid-In bank contribution
● Loans Limit Against Real Estate
○ < 75% of appraised value of RE
○ + 60% of appraised value of insured improvements
● Loan Limits Against Security of Chattels and Intangible
Properties
○ < 75% of appraised value of the security
● Investment in Real Estate/Asset by Banks
○ Allowed if total investment < 50% of combined capital
accounts
Other Functions - UB and CB may also exercise any of the following
functions:
● Receive in custody funds, documents, and valuable objects;
● Act as a financial agent and buy and sell, by order of and for the
account of their customers, shares, evidence of indebtedness, and
all types of securities;
● Make collections and payments for the account of others and
perform such other services for their customers as are not
incompatible with the baking business;
● Upon prior approval of the MB, act as managing agent, adviser,
consultant, or administrator of investment
management/advisory/consultancy accounts; and
● Rent out safety deposit boxes.
>>A bank shall not directly engage in the insurance business as the insurer
(Sec. 54, RA. No. 8791)
Restrictions on Bank Exposure to DOSRI
G.R: No bank D/O shall borrow from such bank nor shall become a
guarantor/indorser/surety for loans
Exception: Written approval of the majority of BOD excluding D concerned
(Sec. 36, RA. No. 8791)
Prohibited Transactions.
No director, officer, employee, or agent of any bank shall:
● Make false entries in any bank report or statement or participate in any
fraudulent transaction, thereby affecting the financial interest of, or
causing damage to, the bank or any person;
● Without order of a court of competent jurisdiction, disclose to any
unauthorized person any information relative to the funds or properties in
the custody of the bank belonging to private individuals, corporations, or
any other entity: Provided, That with respect to bank deposits, the
provisions of existing laws shall prevail;
● Accept gifts, fees, or commissions or any other form of remuneration in
connection with the approval of a loan or other credit accommodation
from said bank;
● Overvalue or aid in overvaluing any security for the purpose of influencing
in any way the actions of the bank or any bank; or
● Outsource inherent banking functions. (Sec. 55.1., RA. No. 8791)
No borrower of a bank shall:
● Fraudulently overvalue property offered as security for a loan or other
credit accommodation from the bank;
● Furnish false or make misrepresentation or suppression of material facts
for the purpose of obtaining, renewing, or increasing a loan or other credit
accommodation or extending the period thereof;
● Attempt to defraud the said bank in the event of a court action to recover
a loan or other credit accommodation; or
● Offer any director, officer, employee or agent of a bank any gift, fee,
commission, or any other form of compensation in order to influence such
persons into approving a loan or other credit accommodation application.
(Sec. 55.2., RA. No. 8791)
Dilegence Required: The State recognizes the vital role of banks providing
an environment conducive to the sustained development of the national
economy and the fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing
economy. (Sec. 2, RA. No. 8791)
Stockholdings of Family Groups of Related Interests. - Stockholdings of
individuals related to each other within the fourth degree of consanguinity or
affinity, legitimate or common-law, shall be considered family groups or related
interests and must be fully disclosed in all transactions by such corporations
or related groups of persons with the bank. (Sec. 12, RA. No. 8791)

Corporate Stockholdings. - Two or more corporations owned or controlled
by the same family group or same group of persons shall be considered related
interests and must be fully disclosed in all transactions by such corporations
or related group of persons with the bank. (Sec. 13, RA. No. 8791)
Foreign Banks Modes of Entry:
● Sec. 11, RA. No. 8791 Up to 40% of the voting stock of Domestic Bank
● Sec. 11, GBL. R.A. 7721 - 60% maximum foreign bank equity
● Sec. 73, RA. No. 8791 - allows the acquisition beyond the 60% limit
within seven years from the effectivity of the GBL.
Revocation of a License of Foreign Bank
The Monetary Board may revoke the license to transact business in the
Philippines of any foreign bank under the following instances:
● when the foreign bank is insol&ent or in imminent danger thereof, or;
● that its continuance in business will involve probable loss to those
transacting business with it. (Sec. 78, GBL)
Authority to Engage in Trust Business. - Only a stock corporation or a
person duly authorized by the Monetary Board to engage in trust business
shall act as a trustee or administer any trust or hold property in trust or on
deposit for the use, benefit, or behavior of others. For purposes of this Act,
such a corporation shall be referred to as a trust entity.(Sec. 79, RA. No. 8791)
Conduct of Trust Business. - A trust entity shall administer the funds or
property under its custody with the diligence that a prudent man would exercise
in the conduct of an enterprise of a like character and with similar aims. No
trust entity shall, for the account of the trustor or the beneficiary of the trust,
purchase or acquire property from, or sell, transfer, assign, or lend money or
property to, or purchase debt instruments of, any of the departments, directors,
officers, stockholders, or employees of the trust entity, relatives within the first
degree of consanguinity or affinity, or the related interests, of such directors,
officers and stockholders, unless the transaction is specifically authorized by
the trustor and the relationship of the trustee and the other party involved in
the transaction is fully disclosed to the trustor of beneficiary of the trust prior to
the transaction. The Monetary Board shall promulgate such rules and
regulations as may be necessary to prevent circumvention of this prohibition
or the evasion of the responsibility herein imposed on a trust entity. (Sec. 80,
RA. No. 8791)
Powers of a Trust Entity. - A trust entity, in addition to the general powers
incident to corporations, shall have the power to:
● Act as trustee on any mortgage or bond issued by any municipality,
corporation, or any body politic and to accept and execute any trust
consistent with law;
● Act under the order or appointment of any court as guardian, receiver,
trustee, or depositary of the estate of any minor or other incompetent
person, and as receiver and depositary of any moneys paid into court by
parties to any legal proceedings and of property of any kind which may
be brought under the jurisdiction of the court;
● Act as the executor of any will when it is named the executor thereof;
● Act as administrator of the estate of any deceased person, with the will
annexed, or as administrator of the estate of any deceased person when
there is no will;
● Accept and execute any trust for the holding, management, and
administration of any estate, real or personal, and the rents, issues and
profits thereof; and
● Establish and manage common trust funds, subject to such rules and
regulations as may be prescribed by the Monetary Board.(Sec. 83, RA.
No. 8791)
The New Central Bank Act
(R.A. 7653 as amended by R.A. 11211)
Bangko Sentral ng Pilipinas (BSP)
It is the State’s central monetary authority. It is the government agency
charged with the responsibility of administering the monetary, banking and
credit system of the country and is granted the power of supervision and
examination over bank and non-bank financial institutions performing quasi-
banking functions, including savings and loan associations (Busuego v. CA,
G.R. No. L-48955, June 30, 1987).
Bangko Sentral ng Pilipinas as an institution
The BSP is a government-owned corporation which enjoys fiscal and
administrative autonomy.
State Policy
Policy of the state with respect to the creation of the Bangko Sentral ng
Pilipinas The State shall maintain a central monetary authority that shall
function and operate as an independent and accountable body corporate in
the discharge of its mandated responsibilities concerning money, banking
and credit (NCBA, Sec 2).
While it is a government owned corporation it enjoys fiscal and administrative
autonomy.
Fiscal – relating to the treasury as in the monetary board.
Administrative – being the regulatory agency in accordance with its policy
directions.
Salient considerations on the creation of Bangko Sentral ng Pilipinas
1. It is established as an independent central monetary authority.
2. Its capital shall be P50,000,000,000, to P200,000,000,000 to be fully
subscribed by the Philippine Government through the Secretary of Finance
and the Secretary of Budget and Management.
3. The increase in capitalization shall be funded solely from the declared
dividends of the Bangko Sentral in favor of the National Government.
4. Any declared dividends of the Bangko Sentral in favor of the National
Government shall be deposited in a special account in the General Fund, and
earmarked for the payment of Bangko Sentral’s increase in capitalization.
Such payment shall be released and disbursed immediately and shall continue
until the increase in capitalization is fully paid.Responsibility and primary
objective of the BSP.
Responsibilities of BSP (P-S-R)
1. To provide policy directions in the areas of money, banking, and credit.
2. To supervise bank operations.
3. To exercise regulatory and examination powers over quasi-banking
operations of non-bank financial institutions, money service businesses, credit
granting businesses and payment system operators.
Primary objectives of BSP
1. To maintain price stability conducive to a balanced and sustainable growth
of the economy; and
2. To promote and maintain monetary stability and the convertibility of the peso
(NCBA, Sec. 3)
Functions of the BSP
1. Banker of the government – the BSP shall be the official depository of the
Government and shall represent it in all monetary fund dealings (NCBA, Secs.
110-116).
2. Custodian of Reserves (NCBA, Secs. 64-66, 94, 103)
3. Financial Advisor of the government (NCBA, Secs. 123-124) – Under Article
VII, Sec. 20 of the 1987 Constitution, the President may contract or guarantee
foreign loans but with the prior concurrence of the Monetary Board.
4. Government agent (NCBA, Secs. 117-122)
5. Source of credit (NCBA, Secs. 61-63, 81-
89, 109)
6. Issuer of Currency (NCBA, Sec. 49-60)
7. Clearing channel or House; especially where the PCHC does not operate
(NCBA, Sec. 102)
8. Supervisor of the Banking system (NCBA, Sec. 25) – shall include the power
to:
a. Examine, which power extends to enterprises wholly or majority-
owned or controlled by the bank (GBL, Sec. 7); this power may not be
restrained by a writ of injunction unless there is convincing proof that
the action of the BSP is plainly arbitrary (NCBA, Sec. 25)
b. Place a bank under receivership or liquidation (NCBA, Sec. 30)
c. Initiate criminal prosecution of erring officers of banks.
9. Extends discounts, loans and advances to banking institutions in order to
influence the volume of credit consistent with the objective of price stability.
Note: When availing of the loan facilities of the BSP, private banks assign to
BSP their receivables including the collaterals.
Monetary Board (MB)
It is the body through which the powers and functions of the BSP are exercised
(NCBA, Sec 6).
Powers and functions of the Monetary Board (RASBI)
1. Issue Rules and regulations it considers necessary for the effective
discharge of the responsibilities and exercise of its powers.
2. Direct the management, operations, and Administration of the BSP,
reorganize its personnel, and issue such rules and regulations as it may deem
necessary or convenient for this purpose.
3. Establish a human resource management System.
4. Adopt an annual Budget for and authorize such expenditures by the BSP as
are in the interest of the effective administration and operations of the BSP in
accordance with applicable laws and regulations.
5. Indemnify its members and other officials of the BSP, including personnel
of the departments performing supervision and examination functions against
all costs and expenses reasonably incurred by such persons in connection
with any civil or criminal action (NCBA, Sec 15).
Composition of the Monetary Board
● The MB shall be composed of 7 members appointed by the President
with a 6-year term.
● No member of the MB may be reappointed more than once (NCBA,
Sec. 6).
Members
1. The BSP Governor or his designated alternate (a deputy governor);
2. A Cabinet member to be designated by the President or his designated
alternate (an undersecretary in his department);
3. 5 members from the private sector
● Qualifications
1. Citizenship- natural-born citizens of the Philippines
2. Age
GR: at least 35 years old
XPN: Governor must be at least 40 years old;
3. Of good moral character
4. Of unquestionable integrity
5. Of known probity and patriotism;
6. With recognized competence in social and economic discipline
(NCBA, Sec. 8).
Powers of the Governor
The Governor shall be the chief executive officer of the Bangko Sentral. His
powers and duties shall be to: (PEDARE)
a. Prepare the agenda for the meetings of the Monetary Board and to submit
for the consideration of the Board the policies and measures which he believes
to be necessary to carry out the purposes and provisions of this Act;
b. Execute and administer the policies and measures approved by the
Monetary Board;
c. Direct and supervise the operations and internal administration of the
Bangko Sentral. The Governor may delegate certain of his administrative
responsibilities to other officers subject to such rules and regulations as the
Monetary Board may prescribe;
d. Appoint and fix the remunerations and other emoluments of personnel
below the rank of a department head, as well as to impose disciplinary
measures upon personnel of the Bangko Sentral.
e. Render opinions, decisions, or rulings, which shall be final and executory
until reversed or modified by the Monetary Board, on matters regarding
application or enforcement of pertinent banking laws.
f. Exercise such other powers as may be vested in him by the Monetary Board.
Liabilities of the members of the Monetary Board
Members of the Monetary Board, officials,
examiners, and employees of the BSP who:
1. Willfully violate RA 7653;
2. Are guilty of negligence, abuses or acts of malfeasance or misfeasance; or
3. Fail to exercise extraordinary diligence in the performance of his duties
● Shall be held liable for any loss or injury suffered by the BSP or other
banking institutions as a result of such violation, negligence, abuse,
malfeasance, misfeasance or failure to exercise extraordinary
diligence (NCBA, Sec 16).The BSP and bank in distress In case of a
distressed bank, the BSP appoints a conservator or receiver for
closure of the bank.
The BSP and Bank in Distress
● Illiquidity
This occurs when the bank is not liquid. It means that the bank cannot
meet its current liabilities. It is handled by conservatorship.
● Liquidity
It is the ability of an asset to be converted into cash. An entity is liquid
when it is able to pay its liabilities when they fall due.
● Insolvency
This occurs when the actual market value of assets is insufficient to
pay its liabilities, not considering capital stock and surplus which are
not liabilities for such purpose. An entity is insolvent when it is unable
 to meet current and long-term obligations. It is handled by receivership
or closure.
1. CONSERVATORSHIP
Conservator
One appointed if the bank is in a state of illiquidity or the bank fails or refuses
to maintain a state of liquidity adequate to protect its depositors and creditors.
The bank still has more assets than its liabilities but its assets are not liquid or
not in cash thus it cannot pay its obligation when it falls due. The bank, not the
BSP, pays for fees.
The duration of conservatorship shall not exceed 1 year (NCBA, Sec. 29)
Powers of a conservator (CARe BEAr)
1. Collect all monies and debts due to the said bank
2. To take charge of the Assets, liabilities, and the management thereof
3. REorganize, the management thereof
4. And such other powers as the monetary Board deems necessary
5. Exercise all powers necessary to restore its viability, with the power to
overrule or revoke the actions of the previous management and board of
directors of the bank or quasi-bank
6. To bring court actions to Assail or Repudiate contracts entered into by the
bank (First Philippine International Bank v. CA, G.R. No. 115849, Jan. 24,
1996).
Powers of a conservator do not extend to the revocation of valid and
perfected contracts
The powers of a conservator cannot extend to post facto repudiation of valid
and perfected transactions. Thus, the law merely gives the conservator power
to revoke contracts that are deemed to be defective- void, voidable,
unenforceable or rescissible. Hence, the conservator merely takes the place
of the bank’s board (First Philippine International Bank v. CA, supra.).
Termination of Conservatorship
MB may terminate the conservatorship on the following grounds, at any time
before the 1-year period:
1. Institution can continue to operate on its own
2. When the Monetary Board determines that the continuance in
business of the institution would involve probable losses to its
depositors or creditors, in which case proceedings for receivership
and liquidation shall be pursued
2. CLOSURE
Grounds for closure of a bank or a quasi-bank:
1. Cash Flow test - Inability to pay liabilities as they become due in the ordinary
course of business (NCBA, Sec. 30 [a]).
2. Balance sheet test – Insufficiency of realizable assets to meet its liabilities
(NCBA, Sec 30 [b]).
3. Inability to continue business without involving probable losses to its
depositors and creditors (NCBA, Sec 30 [c]).
4. Willful violation of a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets (NCBA, Sec 30 [d]).
5. Notification to the BSP or public announcement of a bank holiday (GBL, Sec
53).
6. Suspension of payment of its deposit liabilities continuously for more than
30 days (GBL, Sec 53).
7. Persisting in conducting its business in an unsafe or unsound manner (GBL,
Sec 56).
Close now-hear later doctrine
The doctrine is founded on practical and legal considerations to obviate
unwarranted dissipation of the bank’s assets and as a valid exercise of police
power to protect the depositors, creditors, stockholders, and the general
public. The law does not contemplate prior notice and hearing before the bank
may be directed to stop operations and placed under receivership (Central
Bank of the Philippines v. CA, G.R. No. 76118 Mar. 30, 1993).
Swift, adequate and determined actions must be taken against financially
distressed and mismanaged banks by government agencies lest the public
faith in the banking system deteriorate to the prejudice of the national economy
(Vivas v. The Monetary Board of the Bangko Sentral ng Pilipinas, G.R. No.
191424, August 07, 2013).
BSP may order the closure of the bank even without prior hearing. BSP may
rely on the report of either the conservator, receiver or the head of the
supervising and examining department. It is not required to conduct a thorough
audit of the bank before ordering its closure. The "close now, hear later’’
doctrine justifies BSP in ordering bank closures even without prior hearing.
Thus, injunction does not lie against BSP in the exercise of the power and
function. A contrary rule may lead to dissipation of assets and trigger bank run.
Judicial review comes only after action of the Monetary Board if the same was
attended with bad faith and grave abuse of discretion (BSP v. Valenzuela, G.R.
No. 184778, October 2, 2009).
3. RECEIVERSHIP
Receiver
One appointed if the bank is already insolvent which means that its liabilities
are greater than its assets. The Court has no authority to appoint a receiver
for a bank if the latter will function as such under BSP law. The power to
appoint belongs to BSP.
NOTE: For banks, the receiver would be the Philippine Deposit Insurance
Corporation; for quasi-banks, it could be any person of recognized
competence in banking or finance (NCBA, Sec. 30).
Remedies of stockholder of a bank subject to receivership
Stockholders owning majority shares may file a Petition for Certiorari within 10
days from receipt of order of receivership, liquidation or conservatorship.This
remedies applies to conservatorship, receivership and liquidation
1. Only stockholders of record representing majority capital stock may
file a petition for certiorari. It cannot be filed by the receiver or
conservator appointed.
2. Period to foreclose a real estate mortgage is not interruption by
receivership. 10-year prescriptive period will not be interrupted as
foreclosure is not among those activities which banks are prevented
from doing
Duties of a receiver
The receiver shall: (IAN-WiDE)
1. Immediately gather and take charge of all the assets and liabilities of the
institution;
2. Administer the same for the benefit of the creditors, and exercise the
general powers of a receiver under the Revised Rules of Court;
3. Not, with the exception of administrative expenditures, pay or commit
any act that will involve the transfer or disposition of any asset of the institution:
Provided that the receiver may deposit or place the funds of the institution in
non-speculative investments;
4. Within 90 days from the take-over, the receiver shall determine whether
the institution may be rehabilitated or otherwise placed in such a condition that
it may be permitted to resume business with safety to its depositors and
creditors and the general public; and
5. If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business, then the Monetary Board shall notify in writing
the board of directors of the institution of its findings and direct the receiver to
proceed with liquidation of the institution (NCBA, Sec 30).
The insolvency of a bank and the consequent appointment of a receiver restrict
the bank's capacity to act, especially in relation to its property. Whereupon the
insolvency of a bank, a receiver therefore is appointed, the assets of the bank
pass beyond its control into the possession and control of the receiver whose
duty it is to administer the assets for the benefit of the creditors of the bank.
Thus, the appointment of a receiver operates to suspend the authority of the
bank and of its directors and officers over its property and effects, such
authority being reposed in the receiver (Villanueva v. CA, G.R. No. 114870,
May 26, 1995).
The receiver is not authorized to transact business in connection with the
bank’s assets and property. A receiver can only perform acts of administration
and not acts of dominion. The receiver cannot approve an option to purchase
real property. He has only the authority to administer the same for the benefit
of its creditors (Abacus Real Estate Development Center, Inc. v. Manila
Banking Corp, G.R. No. 162270, Apr. 6, 2005).
Nature of order of receivership
While resolutions of the Monetary Board forbidding a bank to do business on
account of a condition of insolvency and appointing a receiver to take charge
of the bank’s assets or determining whether the bank may be rehabilitated or
should be liquidated are by law “final and executory.” However, they can be
set aside by the court on one specific ground - if the action is plainly arbitrary
and made in bad faith. Such contention can be asserted as an affirmative
defense or a counterclaim in the proceeding for assistance in liquidation (Salud
v. Central Bank, G.R. No. L-17630, August 19, 1986).
4. LIQUIDATION

Liquidation of a bank
Acts of liquidation are those which constitute the conversion of the assets of
the banking institution to money or the sale, assignment or disposition of the
same to creditors and other parties for the purpose of paying debts of such
institution (Banco Filipino v. Central Bank, G.R. No. 70054, December 11,
1991).
Liquidators of a distressed bank can prosecute and defend suits against the
bank. Prosecution of suits, collection and the foreclosure of mortgages against
debtors of the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank (Banco Filipino v.
Central Bank, ibid).
Liquidation proceedings may be carried out with or without tax clearance.
Unlike in a voluntary dissolution of a corporation under the Corporation Code,
BSP can liquidate the bank with or without tax clearance (GBL).
Note: Creditors' claim may be filed with the Liquidator of the closed bank within
sixty (60) days from publication of notice of closure. However, payment of said
claim will depend on the bank’s available assets and approval of the
Liquidation Court. The schedule of payment beyond the P500,000.00
maximum insurance shall be based on priorities set by law.
Creditor refers to any individual or entity with a valid claim against the assets
of the closed bank. Creditors also include depositors with deposits that exceed
the maximum deposit insurance coverage (MDIC) of P500,000.
PDIC pays deposit insurance on all valid deposits up to Maximum Deposit
Insurance Coverage (MIDC) of P500,000 per depositor of a closed bank. That
amount includes accounts “maintained in the same right and capacity for a
depositor's benefit” whether it's under his own name or the name of others.

Banks under liquidation by the PDIC as ordered by the Monetary Board

constitute a special case governed by the special rules and procedures
provided under Section 30 of the New Central Bank Act, which does not
require that a tax clearance be secured from the BIR. Only a final tax return is
required to satisfy the interest of the BIR in the liquidation of a closed bank. It
is unreasonable for the liquidation court to require that a tax clearance be first
secured as a condition for the approval of a project of distribution of a bank
under liquidation (PDIC v. BIR, G.R. No. 172892, June 13, 2013).

Filing of the claims against the insolvent bank

GR: All claims against the insolvent bank should be filed in the liquidation
proceeding. It is not necessary that a claim be initially disputed in a court or
agency before it is filed with the liquidation court (Ong v. CA, G.R. No. 112830,
Feb. 1, 1996).
XPN: Where it is the bank that files a claim against another person or legal
entity, the claim should be filed in the regular courts.
Reason: The judicial liquidation is intended to provide an orderly mode for
payment of all claims. In addition, such a petition is not in the nature of a
disputed claim against the bank.