BANKING LAW
traveler’s checks or demand draft.s
1/2/2023
What is bank?
- entites engaged in lending of funds
sourced from deposits of depositors.
- Lending, borrowing and safe-
keeping
Can they engage in other activities?
Yes so long as there is prior approval of the
Monetary Board. Simply stated, when it is
allowed by law.
FIRST PLANTERS v. BIR
First planters are classified as non-bank
financial intermediary. Since they are non-
bank financial intermediary under the
MORFNBFI, they are liable to pay the VAT
under the non-bank financial intermediary
not for the VAT tax under the general
phrase of “sale and purchase of services”
under the Tax Code.
What is the deposit function of banks?
Banks are allowed to accept deposit from its
depositors
If A deposited this sum of amount in Bank
B? What is formed? Debtor-creditor
relationship. What is the contract formed?
Mutuum or Simple Loan.
Deposit function is not really deposit kasi
the bank may invest it in another activity.
Another function of banks is payment
function.
One of the primary means employed in
bank’s payment function is the drawing of
checks. Banks may be drawee banks of
checks issued by its customers used in
paying obligations. Banks may issue
manager’s checks, cashier’s checks,
What is the higher diligence than good
father of a family? Utmost diligence.
If a bank failed to pay its loan to its client,
will the bank be liable by virtue of trust?
No. because it does not convert into trust
agreement.
Own answer:
Yes. Because the depositor expects the bank
to exercise utmost fidelity in handling its
accounts whether such account contains few
hundreds of pesos or millions.
GR: Rural bank cannot deposit in private
bank more than single borrower’s limit
EXC: They can deposit exceeding the single
borrower’s limit if there are no government
banks around the area.
Sobrang liblib na lugar, nagiisa siya don. If
there is no government bank w/in area,
rural banks can deposit exceeding single
borrower’s limit.
Ano yung essence niya?
Because if you deposit your money to bank,
bank’s intention is for it to grow. If mas
matagal yung pera sa bangko, mas matagal
nila magagamit, papaikutin nila at
papaikutin yung pera niyo kaya bibigyan
kayo ng reward or incentive as interest
income.
Rural Banks Act’s goal is pahiramin yung
fisherfolks around the area. If there is a
universal bank or government bank, the
qualifications of a borrower of rural and
universal bank ay magkaiba.
Rural Banks appetite in accepting fisherfolk Walang pera pero maraming lupa.
farmer borrower are higher compared to
Yung bangko, they have capacity to get
universal bank.
deposits from the public and loan this up.
GR: If you’re not an active member of co-op
Quasi-bank is more on a license. Ano yung
and want to participate in co-op, you have
quasi-bank? Can loan out but cannot take
to buy shares;
deposits. (e.g. Home Credit)
EXC: Unless prescribed by the Monetary
GR:
Board
FINALS
There are banks that are sui generis.
4/8/2024
2/5/2024
RA 7653 as amended by RA 11211
Financial intermediary may be bank or non-
bank. NCBA is the law that basically created and
established the structure and governance of
Taking or not taking deposits and trading
BSP.
these assets.
BSP is the State’s central monetary authority
Nasa labas ng financial market ang financial
– government agency charged with the
intermediaries.
responsibility of administering the
Sino ang players sa financial market? Firms monetary, banking and credit system of the
na ang business naman nila ay to trade country and is granted the power of
securities, credit. supervision and examination over bank and
non-bank financial institutions performing
Yung bangko, wala sila sa loob ng FM, pano
quasi-banking functions, including savings
nakakapasok sa loob? Nag trtrade sila ng
and loan associations.
financial products.
Equivalent to Federal Reserve of US. It is
Sila yung mga nag iinvest, nagtrtrade ng
not only the chief regulator agency over
financial assets. For example land, credit
banking institutions as well as non-bank
What is the importance? financial institutions that performs quasi-
bunking functions but also charged with
Kaya highly regulated ang banks cause it
setting up the central monetary anf fiscal
can make or break economies.
policy of the government.
All of the actions in the financial market are
It charged with responsibility of
being regulated. Why?
establishing credit system of the country
Kasi si bank, meron siyang right to loan up as well as the administration of the
funds. monetary system (printing of money).

Bubble is a term na super nag increase yung How do we classify BSP?

price ng isang asset because maraming pera
A government-owned and controlled
yung nag fufund after it.
corporation. Not governed by a specific
department – not answerable to particular
cabinet secretary. It is a GOCC that enjoys
fiscal and administrative autonomy.
Fiscal autonomy – BSP would decide on
how they will spend their budget not being
subjected to approval or regulation by
DBM.
While budget of BSP will be included in
GAA – but how this money is spent, is up to
the officers of BSP as they are not subject to
Responsibilities of BSP (P-S-R)
issuances of SARO or DBM. Similar to fiscal
autonomy enjoyed by the SC, COHR.
Policy of NCBA:
Called NCBA because OCBA calls BSP as
Central Bank of the Philkippines. NCBA
renamed it as BSP.
The State through the creation of BSP will
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.
While it is a government owned
Primary objectives of BSP
corporation, it enjoys fiscal and
administrative autonomy
Fiscal – relating to treasury as in the MB.
Administrative - being the regulatory
agency in accordance with its policy
directions.
Salient considerations on the creation of
Bangko Sentral ng Pilipinas
1. Established as independent central
monetary authority;
2. Capital shall be P50B, P200B to be
fully subscribed by the PH Gov’t;
3. Increase in capitalization be funded
solely from declared dividends of
the BSP in favor of the National
Gov’t;
4. Any declared dividends of the BSP
in favor of the National Gov’t be
deposited in a special account in the
general fund, and earmarked for the
payment of BSP’s increase in
capitalization.
1. Provide policy direction in the
areas of money, banking and credit
(agency that announces the new
interest charged or rates set for
bankings and financial institutions
because credit policy of the gov’t is
set by the MB under BSP);
2. Supervise bank operations;
3. Exercise regulatory and
examination powers over quasi-
banking operations of NBFI, money
service businesses (pera padala),
credit granting businesses (lending)
and payment system operators.
1. Maintain price stability conducive
to a balanced and sustainable
growth of the economy (primary
concern is to work hand-in-hand
with DOF and other related
institutions to curve price controls or
even inflation rates);
2. Promote and maintain monetary
stability and convertibility of the
peso (maintain exchange rate leves
of PH peso against foreign
currencies especially with US –
massive portion of our economy
 relies on remittances of Filipinos
abroad);
Functions of BSP:
1. Banker of the government – BSP
shall be the official depository of the
Gov’t and shall represent it in all
monetary fund dealings;
2. Custodian of Reserves;
3. Financial Advisor of the
government;
4. Government agent;
5. Source of credit/
6. Issuer of Currency;
7. Clearing channel or House;
8. Supervisor of the Banking System
(the examination powers of BSP
cannot be easily stop by a financial
institution by filing an injunction in
court. Allowing this to happen will
curtail the supervisory powers of the
BSP over the banking institutions.
Exception is when there is
convincing proof that the
examination was done arbitrarily,
then that can be subject to an
injunction.)
Note: When availing of loan facilities of the
BSP, private banks assign to BSP their
receivables including the collaterals.
Monetary Board
- Body through which the powers and
functions of the BSP are exercised.
- Since BSP is a corporation, it cannot
act on its own as a normal person. It
has to have a body that would bind
the BSP on its decision that it would
make. Similar to BOD.
Powers of Monetary Board
1. Issue rules and regulations for the
exercise of its powers;
2. Direct the management, operations
and administration of the BSP;
3. Establish human resource
management system;
4. Adopt annual budget for
expenditures by the BSP;
5. Indemnify its members and other
officials of the BSP against all costs
and expenses reasonably incurred
by such persons in connection in
any civil or criminal actions;
Composition of Monetary Board
Composed of 7 members appointed by the
President with a 6 year term. No member
may be reappointed more than once.
(same term with President) Once appointed
and term expires, can no longer be
reappointed.
Members
1. The BSP Governor or his designated
alternate (deputy governor);
2. Cabinet member to be designated by
the President or his designated
alternate (undersecretary);
3. 5 members from the private sector;
Qualifications
1. Citizenship – natural born citizens of
PH;
2. Age – GR: at least 35; EXC: Governor
must be at least 40;
3. Good moral character;
4. Unquestionable integrity;
5. Known probity and patriotism;
6. Recognized competence in social
and economic disciplines (very
varied – vague requirement as it
could be on different degrees);
(Very vague)
Usually, the members of the MB and/or
BSP Governor are usually technocrats who
are prized for their intelligence and
competence with respect to providing
solutions to economic problems.
Powers of the Governor:
The Governor is the CEO of the Bangko
Sentral. (PEDARE)
a. Prepare the agenda for the meetings
of the Monetary Board;
b. Execute and administer policies and
measures approved by the MB;
c. Direct and supervise the operations
and internal administration of the
Bangko Sentral;
d. Appoint and fix remunerations and
other emoluments of personnel
below the rank of a department head
as well as impose disciplinary
measures upon personnel of the
BSP;
e. Render opinions, decisions or
rulings which shall be final and
executory until reversed or modified
by the MB;
f. Exercise other powers as vested in
him by the MB.
Liabilities of members of the MB
Members of the MB, officials, examiners
and employees of the BSP who:
1. Willfully violate RA 7653;
2. Guilty of negligence, abuses or acts
of malfeasance or misfeasance;
3. Fail to exercise extraordinary
diligence;
Be held liable for any loss or injury
suffered by the BSP or other banking
institution as a result of such action /
conduct.
BSP and bank in distress
In case of distressed bank, it is the BSP who
appoints a conservator or receiver for
closure of the bank.
What constitutes distressed bank? (ILI)
Illiquidity – occurs when bank is not liquid.
Bank cannot meet its current liabilities –
handled by conservatorship.
Liquidity – ability of an asset to be
converted into cash. When entity able to
pay its liabilities when it falls due.
- Quickness of an asset to be
converted into cash to pay current
liabilities. Unableness to be
converted constitutes illiquidity.
Insolvency – actual market value of assets is
insufficient to pay its liabilities. Entity
insolvent when it is unable to meet current
and long-term obligations. Handled by
receivership or closure.
Diff between the two: In illiquidity, the
entity has sufficient assets but such assets
cannot be converted into cash. In
insolvency, the assets can be converted into
cash but the assets are insufficient to meet
the obligations of the entity. Illquidity is
subject to conservatorship; Insolvency is
subject to receivership or closure.
Duration of conservatorship (illiquidity
cases) shall not exceed 1 year.
What is conservatorship?
Where a conservator is appointed in
instances wherein the bank is in a state of
illiquidity. Bank has more assets that its
liabilities but its assets are not liquid or not
in cash and thus cannot pay its obligation
when it falls due. The bank, not the BSP,
pays for the fees.
Note: Banks are required to maintain a
certain liquidity ratio as a compliance to
BSP.
Inability of bank to maintain liquidity
ratio would render bank subject to
conservatorship.
Note: Powers of a conservator do not
extend to revocation of valid and perfected
contracts.
The powers of a conservator cannot extend
to repudiation of valid and perfected
transactions. The law merely gives the
conservator power to revoke contracts that
are deemed defective - void, voidable,
unenforceable or rescissible. The
conservator merely takes the place of the
bank’s board.
Grounds for closure of a bank or quasi-
bank
1. Cash flow test – inability to pay
liabilities as they become due in
ordinary course of business;
2. Balance sheet test – insufficiency of
realizable assets to meet its
liabilities;
3. Inability to continue business w/o
involving probable losses to its
depositors and creditors;
4. Willful violation of a cease and
desist order involving transactions
which amount to fraud or
dissipation of assets;
5. Notification to BSP or public
announcement of a bank holiday;
6. Suspension of payment of its
deposit liabilities continuously for
more than 30 days ( depositors no
longer withdraw from banks
because the latter continuously
suspend its operation for more than
30 days);
7. Persisting in conducting its
business in an unsafe or unsound
manner.
Close now-hear later doctrine
Obviate unwarranted dissipation of the
bank’s assets and as valid exercise of police
power to protect depositors, creditors,
stockholders and the general public. The
law does not contemplate prior notice and
hearing before bank may be directed to stop
operations and placed under receivership.
Note: 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.
- Basically, under this doctrine,
sinasara na agad ang isang bangko
na financially distressed kahit
walang notice and hearing to
prevent further damage or
unwarranted dissipation of its assets
to the prejudice of all stakeholders of
banks.
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.
The “close now, hear later” doctrine
justified 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 may take place after the
order of closure of the BSP.
What is receivership?
It occurs when a receiver has been
appointed (by BSP) due to the bank being
insolvent as its liabilities are greater than its
assets. The Court has no authority to
appoint a receiver for a bank if latter will
function as such under BSP law. The power
to appoint belongs to BSP.
*Appointment power of the BSP is
exclusive.
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.
Within 90 days from take-over, the receiver
shall determine whether the institution may
be rehabilitated.
- If receiver determines that the
institution cannot be rehabilitated,
the MB shall notify in writing the
BOD of institution of its findings
and direct receiver to proceed with
liquidation of the institution.
What is liquidation?
- Acts that constitute the conversion
of assets of the institution to money
– or the sale, assignment or
disposition of the same to creditors
or other parties for the purpose of
paying debts of such institution.
Liquidator 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
administration of a bank.
Liquidation proceedings may be carried out
with or without the tax clearance.
- Unlike in a voluntary dissolution of
a corporation under Corp. Code,
BSP can liquidate the bank with or
without tax clearance.
- Only a final tax return is required to
satisfy the interest of the BIR in the
liquidation of the closed bank. It is
unreasonable for the liquidation
court to require that tax clearance
first be secured as condition for the
approval of project of distribution of
a bank under liquidation.
Filing of claims against insolvent bank
GR: All claims against insolvent bank
should be filed in liquidation proceeding.
Not necessary that claim be initially
disputed in a court before it is filed with
liqudation court.
EXC: Where it is the bank that files a claim
against another person or entity, the claim
should be filed in regular courts.
Reason: Judicial liquidation is intended to
provide an orderly mode of payment of all
claims.
NOTE: It is the claim against bank that
will have to be filed in LP. But if bank
itself has claim against another person or
entity, it will not be included in LP. What
is required only in LP are only those
claims against the bank. If claim against
somebody else, it must be filed in regular
court.