Banking Laws Reviewer-partyduh Notes (2)

8/22/2019 Banking Laws Reviewer-partyduh Notes (2)

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Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor,

PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

BANKING LAWS & JURISPRUDENCE

CHAPTER 1

I. DECLARED POLICY OF THE STATE

The State recognizes the vital role of banks in providing for an environmentconducive to the sustained development of the national economy and the fiduciarynature of banking that requires high standards of integrity and performance. Infurtherance thereof, the State shall promote and maintain a stable and efficientbanking system that is globally competitive, dynamic and responsive to thedemands of a developing economy. (Section 2 of RA 8791, General Banking Lawof 2000)

II. DEFINITION OF BANKS

Banks are entities engaged in the lending of funds obtained in the form of deposits.- A moneyed institute founded to facilitate the borrowing, lending and self-keeping of

money and to deal, in notes, bills of exchange, and credits.- An investment company which loans out the money of its customers, collects the

interest and charges a commission to both lender and borrower, is a bank.

- Any person engaged in the business carried on by banks of deposit, of discount, or of

circulation is doing a banking business, although but one of these functions is

exercised.

III. NATURE OF BANKING BUSINESS

A. Debtor- Creditor Relationship

Art. 1980. Fixed, savings, and current deposits of money in banks andsimilar institutions shall be governed by the provisions concerning loan.

The contract between the bank and its depositor is governed by the provisions of the Civil

Code on simple loan The bank is the debtor and the depositor is the creditor. The

depositor lends the bank money and the bank agrees to pay the depositor on demand.

(Consolidated Bank and Trust Corporation vs. Court of Appeals)

Bank deposits are in the nature of irregular deposits. They are really loans because they

earn interest. (Serrano vs. Central Bank of the Philippines)

B. Fiduciary Duty

fiduciary nature of banking which requires high standards of integperformance.

Treat the accounts of its depositors with meticulous care, always having in m

fiduciary nature of their relationship.

Requires banks to assume a degree of diligence higher than that of a good fath

family

Higher level of accountability than that expected of a depositor.

C. Not a Trust Agreement

The fiduciary nature of a bank-depositor relationship does not convcontract between the bank and its depositors from a simple loan to a trust agrewhether express or implied.

Failure by the bank to pay the depositor is failure to pay a simple loan, and not a bre

trust.

Banks do not accept deposits to enrich depositors but to earn money for t hemselve

D. Indispensable Institution

Plays a vital role in the economic life of every civilized nation.

Banks have become an ubiquitous presence among the people, who have come to

them with respect and even gratitude, and most of all, confidence.

E. Impressed with Public InterestThe stability of banks largely depends on the confidence of the peopl

honesty and efficiency of banks.

In every case, the depositor expects the bank to treat his account with the utmost

whether such account consist only of a few hundred pesos or of millions. The ban

record every single transaction accurately, down to the last centavo, and as prom

possible. This has to be done if the account is to reflect at any given time the am

the money the depositor can dispose of as he sees fit, confident that the bank will d

as and to whomever he directs.

F. Degree of Diligence

The law imposes on banks high standards in view of the fiduciary nabanking.

The bank is under obligation to treat the accounts of its depositors with meticulou

always having in mind the fiduciary nature of their relationship. (Simex Internati

Court of Appeals)

Degree of diligence higher than that of a good father of a family, as prescribed by

2 of the GBL.

Same higher degree of diligence is not expected to be exerted by banks in com

transactions that do not involve their fiduciary relationship with their depositors.


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Diligence extends to financial institutions:

o A government financial institution, like banks, is expected to exercise greater

care and prudence in the dealings, including those involving registered lands.

o Due diligence required of banks extend even to persons, or institutions, regularly

engaged in the business of lending money secured by real estate mortgages.

G. Treatment of Accounts with Meticulous Care

In every case, the depositor expects the bank to treat his account with theutmost fidelity, whether such account consist only of a few hundred pesos or ofmillions.

A blunder on the part of the bank, such as the dishonor of a check without good reason,

can cause the depositor not a little embarrassment if not also financial loss perhaps even

civil and criminal litigation.

No law mandating banks to call up their clients whenever their representatives withdraw

significant amounts from their accounts.

H. Duty to Keep Records

A bank has a fiduciary duty to keep efficiently a record of its transactionswith its depositors. Banks shall have a true and accurate account, record or statementof their daily transactions, particularly those referring to their deposit liabilities.

Making of any false entry or the willful omissionof entries is a ground for the imposition of

administrative sanctions and the disqualification from office of any director or officerresponsible therefor, without prejudice to their criminal liability.

I. Banks are not Gratuitous Bailees

Banks are run for gain, and they solicit deposits in order that they can usethe money for that very purpose.

J. Banks not Expected to be Infallible

However, it must bear the blame for not discovering mistakes if there areestablished procedures and the same have no t been followed.

K. Dealing with Registered Lands

Banks should exercise more care and prudence in dealing with registeredlands, than private individuals, for their business is one affected with public interest.

The rule that persons dealing with registered lands can rely solely on the certificate of title

does not apply to banks. Judicial notice is taken of the standard practice for banks, before approving a loan, to

send representatives to the premises of the land offered as collateral and to investigate

who the real owners thereof are. A mortgagee-bank must exercise due diligence before

entering into said contracts.

Any investigation previously conducted on the property offered as collateral do

preclude a bank from considering information on the same property as securit

subsequent loan. (Sps. Omengan vs. Philippine National Bank)

L. Banks may Exclude Persons in their Premises

Banks are mandated to exercise a higher degree of diligence in the hof its affairs than that expected of an ordinary business enterprise.

Banks may impose reasonable conditions or limitations to access by non-employeepremises and records, such as the exclusion of non-employees from the working a

employees, even absent any imminent or actual unlawful aggression on or an inva

its properties or usurpation thereof, provided that such limitations are not contrary

law.

M. Charging of Interest for Loans

Very essential and fundamental element of the banking business; it considered to be the very core of the banking existence or being.

IV. LIABILITY FOR ACTS OF OFFICERS AND EMPLOYEES

By the very nature of their work the degree of responsibility, care and trustwoexpected of their employees and officials are far greater than those of ordinary cleremployees. Banks are expected to exercise the highest degree of diligence in the se

and supervision of their employees.

A bank is liable for the wrongful acts of its officers done in the interest of the ban

their dealings as bank representatives but not for acts outside the scope of their aut

A. Negligence of Manager

The bank, as an employer, is liable. Confidence in the banking which necessarily includes reliance on bank managers, is vital in the economour society.

B. Negligence of Officers

A bank will be held liable for the negligence of its officers or agenacting within the course and scope of their employment.

If a corporation knowingly permits its officer, or any other agent, to perform acts wi

scope of an apparent authority, holding him out to the public as possessing powe

those acts, the corporation will, as against any person who has dealt in good faith w

corporation through such agent, be stopped from denying such authority.

C. Negligence of Tellers

Banks tellers must exercise a high degree of diligence in insuring treturn the passbook only to the depositor or his authorized representative. The


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know, or should know, that the rules on savings account provide that any person inpossession of the passbook is presumptively its owner.

Appropriation of money by a teller is not estafa. If the teller appropriates the money for his

personal gain, and since he occupies a position of confidence, the felony of qualified theft

would be committed.

D. Right to Recover from Employees

Banks may recover from its employees for any payment made in view of thelatters negligent or criminal acts.

Whoever pays for the damages caused by his dependents or employees may recover

from the latter what he has paid or delivered in satisfaction of the claim.

E. Liability for Damages

There must be a breach before damages may be awarded and the breach ofsuch duty should be the proximate cause of the injury.

1. Actual and Compensatory Damages

(1) when the obligation is breached, and it consists in the payment of a

sum of money, the interest due should be that which may have

been stipulated in writing. It shall itself earn interest from the time it

is judicially demanded. In the absence of stipulation, interest must

be 12% per annum.

(2) may be imposed at the discretion of the court at the rate of 6% per

annum.

(3) When the judgement of the court awarding a sum of money

becomes final and executor, the rate of legal interest whether the

case falls under (1) or (2), shall be 12% per annum from such

finality until satisfaction.

2. Exemplary Damages

Law allows the grant of exemplary damages by way of example for thepublic good. The public relies on the banks fiduciary duty to observe the highestdegree of diligence.

3. Moral Damages

As a general rule, a corporation is not entitled to moral damages, because it

cannot experience physical suffering and mental anguish. However, for thebreach of fiduciary duty required of a bank, a coporate client may claim suchdamages when its good reputation is besmirched by such breach, and socialhumiliation results therefrom.

In culpa contractual or breach of contract, moral damages are recoverable onl

defendant has acted fraudulently or in bad faith, or is found guilty of gross neg

amounting to bad faith, or in wanton (reckless) disregard of his contractual obligatio

Banks may not be held responsible in the absence of bad faith, malice, or wanton a

The law affords no remedy for damages resulting from an act which does not amo

legal injury or wrong. (DAMNUM ABSQUE INJURIA)

INJURY- illegal invasion of a legal right

DAMAGE- the loss, hurt, or harm which results from the injury

Depositor may recover moral damages even if the banks negligence may not hav

attended with bad faith, if the former suffered mental anguish, serious a

embarrassment and humiliation. Moral damages are not meant to enrich a compla

the expense of the defendant. It is only intended to alleviate the moral suffering s

undergone.

F. Respondeat Superior, Diligence in the Selection and Supervision of Emp

o Banks is bound by the negligence of its employees under the princ

repondeat superior or command responsibility.

o The defense of exercising the required diligence in the selection and supe

of employees is not a complete defense in culpa contractual, unlike i

aquiliana.

Classification of Banks (CUT-RICO)

a. Commercial Bank/s (C)

- Exercise the general powers incident to a corporations- Shall have all powers as may be necessary to carry on business of com

banking:a. Accepting drafts and issuing letters of creditb. Discounting and negotiating promissory notes, drafts, bills of ex

and other evidence of debtc. Accepting or creating demand depositsd. Receiving other types of deposits and deposits substitutee. Buying and selling foreign exchange and gold or silver bullion, a

marketable bonds and other debt securitiesf. Extending credit, subject to such rules as the Monetary Boa

promulgate See section 29 of GBL and chapter 4 for discus

operations.b. Universal Banks (U)

- They are large banks licensed by Bangko Sentral ng Pilipinas to dcommercial and investment banking.


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- In addition to the powers of commercial bank, a universal bank can exercise thepowers of an investment house as well as invest in non-allied enterprises.

- A universal bank may perform the functions of an investment either directly(through a sepatate and distinct department or within the unit if the bank) orindirectly (through a separate subsidiary investment house). In either case, theunderwriting of equity securities or securities dealing will be subject to pertinentlaws, as well as applicable regulations of the SEC.

c. Thrift Banks (T)

- Aside from the powers conferred on it by other laws, a thrift bank namely asavings and mortgage bank, a stock savings and loan association or a privatedevelopment bank.

- Recognize the indispensable role of the private sector, to encourage privateenterprise and to provide incentives to needed investment.

- The following are powers of a thrift bank:a. Grant loans, whether secured or notb. Invest marketable bonds and other debt securitiesc. Issue domestic letters of creditd. Extend credit facilities to private and government employeese. Extend credit against the security of jewelry or other precious stones.f. Accept savings and time depositsg. Rediscount paper with the Land Bank of the Philippines, Development

Bank of the Philippines and other GOCCh. Accept foreign currency deposits as provided under Foreign Currency

Deposit Acti. Act as correspondent for other financial institutionsj. Purchase, hold and convey real estate as specified in sections 51 and

52 of GBLk. Offer other banking services as provided in section 53 of GBL.

- Thrift banks may perform such services only upon prior approval of MonetaryBoard.

-d. Rural Banks (R)

- Recognizes the need to promote comprehensive rural development with the endview of attaining acquitable distribution of opportunities, income and wealth.

- Encourages and assists in the establishment of rural banking system designed tomake needed credit available and readily accessible in the rural areas on thereasonable terms.

- Loans or advances extended by rural banks shall be primarily for the purpose of

meeting the normal credit needs of farmers, fishermen or farm families as well asthe normal credit needs of cooperatives and merchants.e. Islamic (I)

- RA 6848 created the Al-Amanah Islamic Investment Bank of the Philippines. Thedomicile and place of business is in Zamboanga City.

- Primary purpose of the Islamic Bank is to promote and accelerate theeconomic development of the Autonomous Region by performing bfinancing and investment operations.

f. Cooperative (C)

- Organized by the majority shares of which is owned and controcooperatives primarily to provide financial and credit services to cooperativ

- May perform all the functions of rural bank.- Membership of cooperative bank shall include only cooperative and fede

of cooperative.g. Other Banks (O)

- The Monetary Board is authorized to make other classification of bankmay deem proper.

- Philippine Veterans Bank, Land Bank of the Philippines Development BanPhilippines is considered to be Government-Owned Banks.

-OTHER CLASSIFICATION OF BANKS OTHER THAN MENTIONED IN SECTION 3

1. Non-Stock Savings and Loan Associations

- Is a non-stock, non-profit corporation engaged in the business of accumengaged in the business of accumulating the savings of its members ansuch accumulations for loans to members to service the needs of househproviding long-term financing for home building and development apersonal finance.

2. Quasi-Banks-

Refers to entities engaged in the borrowing of funds through the issendorsement or assignment with recourse or acceptance of deposit subfor purposes of relending or purchasing of receivables and o ther obligation

3. Offshore Banks

- Refers to the conduct of banking transactions in foreign currencies involvreceipt of funds from external sources and the utilization of such funds.

Authority to Engage in Banking and Quasi-Banking FunctionsA. Authority from Bangko Sentral ng Pilipinas

- No person or entity shall engage in banking operations or quasi-bfunctions without authority from BSP.

- An entity authorized by the BSP to perform universal or commercial bankfunctions shall likewise have the authority to engage in quasi-banking func

- According to the provisions of the Corporation Code that: (a.) no aincorporation or amendment to articles of incorporation of banks, bankquasi-banking institution xxx governed by special laws shall be acce

the Commission unless accompanied by a favorable recommendationappropriate government agency to the effect that such articles or amendin accordance with law; (b.) the SEC shall not accept for filing the by-lawsamendment thereto of any bank, banking institution xxx unless accomby a certificate of the appropriate government agency to the effect that slaws or amendments are in accordance with law.


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B. Determination by the Monetary Board

- The Monetary Board shall decide the determination of whether a person or entityis performing banking or quasi-banking functions.

a. To resolve such issue through inspection, investigation andexamination.

b. Upon issuance of this authority banking operations shall continue to doso unless such authority is revoked, suspended or annulled by BSP.

c. Existence of a victim is not necessary to determine whether an entity isin illegal banking.

C. Authority of Supervising and Examining Department

- Department head and examiners are authorized to:a. To administer oaths to any person such as officer or director.b. To compel the presentation or production of books, documents, papers

or records that are reasonably necessary to ascertain the facts relativeto the true functions and operation of entity.

c. Failure or refusal to comply with the required presentation withinreasonable time shall subject the person responsible for penal sanctionsprovided in the NCBA (New Central Bank Act).

D. Extension of Examining Powers- BSP shall have the authority to examine an enterprise, which is wholly, or

majority owned or controlled bank. This is available only when BSP is examininga bank.

E. Certificate of Authority to Register- The SEC shall not register the articles of incorporation of any bank or any

amendment unless accompanied by a certificate of authority issued by MonetaryBoard under its seal.

- Such certificate shall not be issued unless the Monetary Board is satisfied fromthe evidence submitted to it: (RPC)

a. All Requirements of existing laws and regulations to engage inbusiness for which the applicant is proposed to be incorporated havebeen complied with.

b. Public Interest and economic conditions both general and local, justifythe authorization.

c. Amount ofCapital, financing, organization, direction and administrationas well as the integrity and responsibility of the organizers andadministrators reasonably assure the safety of deposits and publicinterest.

- The SEC shall not register the by-laws of any bank unless accompanied by acertificate of authority from BSP.

Service of Summons Upon BanksA. Service under the Rules of Court

- Sec 11, Rule 14 of Rules of Court: Service upon domestic private juridical entity.When the defendant is a corporation, service may be made on the president,

managing partner, general manager, corporate secretary, treasurer or incounsel.

- Sec 12, Rule 14 of Rules of Court: Service upon a private juridical entitythe defendant is a foreign private juridical entity, service may be on its ragent designated in accordance with law.

B. Strict Compliance is Necessary- Basic is the rule that a strict compliance with the mode of service is neces

confer jurisdiction of the court over a corporation.

-The officer upon who services is made must be one who is named in the otherwise service is insufficient.

- The purpose is to render it reasonably certain that the corporation will prompt and proper notice in action against it.

- Serving of summons on a branch manager is invalid, as stated in the casevs. Spouses Santiago, the service of summons on BPIs Branch Managerbind the corporation for the branch manager is not included in the enumerthe statute of the persons whom service of summons can be validly be mbehalf of corporation. Such service is void.


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CHAPTER 2Organization, Management and Administration of Banks, Quasi-Banksand Trust Entities

I. Organization of Banks

A. ConditionsThe Monetary Board may authorize the organization of a bank or quasi-bank subject

to the following conditions: (SPC)1. That the entity is a stock corporation.

2. That its funds are obtained from the public, which shall mean twenty more persons.

3. That the minimum capital requirements prescribed by the Monetary Bo

each category of banks are satisfied.

B. CapabilitiesThe Monetary Board shall take into consideration their capability in terms f inancia l resourcesandtechnical expertiseandin tegr i ty. (FTI)

The bank licensing process shall incorporate an assessment of:a. The banks ownership structureb. Directors and senior managementc. Its operating pland. Internal controle. Its projected financial condition and capital base

C. Capital Requirements

1. Minimum capital prescribed by the Monetary Board

TYPE OF BANK

AMOUNTS

(In Million Pesos)

Universal Banks 4950.0Commercial Banks 2400.0

Thrift banks

- With head office within

Metro Manila 325.0

- With head office outside

Metro Manila 52.0

Rural Banks

- within Metro Manila 26.0

- cities of Cebu and Davao 13.0

- In 1st, 2nd & 3rd class citiesand

first class municipalities 6.5

- in 4th, 5th & 6th class citiesand in

2nd, 3rd & 4th class


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municipalities 3.9

- in 5th & 6th classmunicipalities 2.6

2. At least 25% of the total authorized capital stock shall be subscribed by the subscribersof the proposed bank, and at least 25% of such subscription shall be paid-up, providedthat in no case shall be the paid-up capital be less than the minimum required capital

stated above. (25% subscribed and 25% of the subscribed shall be paid and shall not beless than the minimum)

D. Incorporators/Subscribers/Proposed Directors (I/S/PD)

I, S & PD - Must be Persons of integrity and of good credit standing in the businesscommunity.

S - Must have adequate financial strength to pay for their proposed subscriptions in the bank.

I, S & PD must not have been convicted of any crime involving moral turpitude

I, S & PD unless otherwise allowed by law, are not offices and employees of a governmentagency, instrumentality, department or office charged with the supervision of, or granting ofloans to banks.

*** A bank may be organized with not less than five (5) nor more thank (15) incorporators. In excess of15 may be listed among the original subscribers in the Articled of Incorporation.

E. Bank Branches

1. Universal or Commercial banks may open branches or other offices within or outside thePhilippines prior approval of the Bangko Sentral.

2. Branching by all other banks shall be governed by pertinent laws.

*** A bank may use any or all of its branches as outlets for the presentation and/or sale of the financialproducts of its allied undertaking or of its investment house units.*** A bank shall be responsible for all business conducted in such branches and offices to the sameextent and in the same manner as though business had all been conducted in the head office.*** A bank and its branches shall be treated as one unit.

II. Stockholdings

A. Treasury StocksThe GBL provides that no bank shall:

Purchase or acquire shares of its own capital stock

Accept its own shares as security for a loanException:

When authorized by the Monetary Board.(The stock so purchases or acquired shall, within six mont

the time of its purchase or acquisition, be sold or disposed of at a pprivate sale.)

B. Foreign Stockholdings

Section 11, GBL Foreign individuals and non-bank corporations may own or control up to 40%

voting stocks of a domestic bank. This rule shall apply to Filipinos and domesbank corporations.

The percentage of foreign-owned voting stocks shall be determined by the citizof the individual stockholders.

The citizenship of the corporation which is a stockholder in a bank shall folcitizenship of the controlling stockholders of the corporation, irrespective of thof incorporation.

controlling stockholders individuals holding more that50% of the voting stock of the corporate stockholders of the bank.

Commercial bank at least 60% of voting stock shall be owned by Filipino citiz

Any thrift bank at least 40% of voting stock shall be owned by Filipino citizens

Rural bank 100% shall be owned and held, directly or indirectly, by Filipino or corporations, associations or cooperatives qualified under the Philippine

own and hold such capital stock.

*** Control test is applied in determining the nationality of banks.

C. Acquisition of Voting Stock in a Domestic BankSection 73, GBL

D. Family Groups or Related InterestsIs formed when:

Stockholdings of individuals related to each other within 4th

degree or consaor affinity, legitimate or common-law; or

Two or more corporations owned and controlled by the same family or same gpersons.

*** such situations must be fully disclosed in all transactions by such corpora

related groups of persons with bank.

III. Board of Directors


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A. Number of DirectorsAt least five (5), and a maximum of fifteen (15) members of the board of d irectors of

bank, two (2) or whom shall be independent directors.

Independent Director a person other than an officer or employee of the bank, itssubsidiaries or affiliates or related interests.1. Is not orhas not been an officer or employee of the bank/quasi-bank/trust entity, its

subsidiaries or affiliates or related interests during the past three years counted from the

date of his election;2. Is not a director or officer of the related companies of the institutions majority

stockholder;3. Is not a majority shareholderof the institution, any of its related companies, or of its

majority shareholder;4. Is not a relative within the fourth degree of consanguinity or affinity, legitimate or

common-law of any director, officer or majority shareholder or the bank/quasi-bank/trustentity, or any of its related companies;

5. Is not acting as a nominee or representative of any director or substantial shareholderor the bank/quasi-bank/ trust entity, any of its related companies or any of its substantialshareholders; and

6. Is free from any business or other relations with the institution or any of its majorstockholders which could materially interfere with the exercise of his judgment.

B. Directors of Merged or Consolidated BanksIn the case of a bank merger or consolidation, the number of directors shall not exceedtwenty-one.

C. MeetingsMay be conducted through:

Teleconferencing

Video-conferencing*** Banks shall include in their bylaws a provision that meetings of board of directors shall beheld only within the Philippines.

D. Compensation and other Benefits of Directors and OfficersThe Monetary Board may regulate the payment by the bank to its directors and officers orcompensation, allowance, etc. only in exceptional cases such as: (CUU)1. When a bank is undercomptrollership orconservatorship;2. When a bank is found by the Monetary Board to be conducting business in an unsafe or

unsound manner;3. When a bank is found by the Monetary Board to be in an unsatisfactory financial

condition.

IV. Fit and Proper Rule

A. Powers of the Monetary BoardThe GBL provides for the following rules:

1. The Monetary Board shall prescribe, pass upon and review the qualificatiodisqualifications of individuals elected or appointed bank directors and disqualifunfit.

2. After due notice to the board of directors of the bank, the Monetary Board may disuspend or remove any bank director or officer who commits or omits an act whichhim unfit for the position

3. CITEE integrity, experience, education, training and competence of an individube considered.

B. Disqualificationsa. Permanently disqualified from being directors:

1. Persons who have been convicted by final judgment of a court foroffenses indishonesty or breach of trust;

2. Persons who have been convicted by final judgment of a court sentencing serve a maximum term of imprisonment of more than six years;

3. Persons who have been convicted by final judgment of the court for violbanking laws, rules and regulations;

4. Persons who have been judicially declared insolvent, spendthrift, orincapaccontract;5. Directors, officers or employees of closed banks, quasi-banks/trust entities w

found to be culpable for such institutions closure as determined by the mboard.

6. Directors and officers of banks, quasi-bank and trust entities found by the mboard as administratively liable for violation of banking laws, rules and reguwhere a penalty of removal from office is imposed, and which finding of the mboard has become final and executory;

7. Directors and officers of banks, quasi-banks and trust entities or any person fthe monetary board to be unfit for the position of directors or officers becauwere found administratively liable by another government agency for violabanking laws, rules and regulations or any offense/violation involving dishonbreach or trust and which finding of said government agency has become fiexecutory.

b. Temporarily disqualified from being directors:1. Persons who full refuse to fully disclose the extent of their business interestmaterial information to the appropriate supervising and examining departmenrequired pursuant to a provision of law;

2. Directors who have been absent or who have not participated for whatever reamore than 50% of all meetings, both regular and special, of the board of directors


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their incumbency, and directors who failed to physically attend for whatever reasons in atleast 25% of all boar meeting in any year, except that when a notarized certificationexecuted by the corporate secretary has been submitted attesting the said directors weregiven the agenda materials prior to the meeting and that their decisions thereon weresubmitted for deliberations and were taken up in actual board meeting, said directors shallbe present in the board meeting. This disqualification applies only for purposes of theimmediately succeeding election;

3. Persons who are delinquent in the payment of their obligations.

** one past due obligation to the bank where he/she is a director or office; at least twoobligation with other banks or financial institution)*** obligations shall include all borrowings obtained by: a director, spouse or child of thedirector, any person person whose loan proceeds were used for the benefit of a director oroffice, a partnership where a director or his spouse is the managing or general partner, acorporation, association or firms wholly owned or majority of the capital stocks are ownedby the director or his spouse.

4. Persons who have been convicted by a court for offenses involving dishonesty or breachof trust.

5. Directors and officers of closed banks/quasi-banks/trust entities pending their clearanceby the Monetary Board

6. Directors disqualified for failure to observe their duties and responsibilities prescribedunder existing regulations.

7. Directors who failed to attend the special seminar for board of directors. Thisdisqualification applies until the director concerned has attended such seminar;

8. Persons dismissed from employment for cause, until they have cleared themselves of

involvement in the alleged irregularity.9. Those under preventive suspension10. Persons with derogatory records as certified by the judiciary, NBI, PNP, etc. for

irregularities that would adversely affect the integrity of director/officer, until they havecleared themselves or after the lapse of five years from the time of the complaint.

11. Directors and officers of banks, quasi-bank and trust entities found by the monetary boardas administratively liable for violation of banking laws, rules and regulations where apenalty of removal from office is imposed, and which finding of the monetary board ispending appeal before the appellate court, unless execution is restrained by court.

12. Directors and officers of banks, quasi-banks and trust entities or any person found by themonetary board to be unfit for the position of directors or officers because they were foundadministratively liable by another government agency for violation of banking laws, rulesand regulations or any offense/violation involving dishonesty or breach or trust and whichfinding of said government agency is pending appeal before the appellate court, unlessexecution is restrained by court.

13. Directors and officers of banks, quasi-bank and trust entities found by the monetary boardas administratively liable for violation of banking laws, rules and regulations where apenalty of suspension from office or fine is imposed, regardless whether the finding of themonetary board final and executory or pending appeal before the appellate court, unlessexecution is restrained by court. The disqualification is in effect during the period ofsuspension or so long as the fine is not fully paid.

C. Disqualifications/Prohibitions under the Corporation CodeSec. 27, Corporation Code

D. Disqualifications/Prohibitions under the NCBADisqualification Sec. 9, NCBAProhibitions Sec. 27, NCBA

E. Disqualification/Prohibition under the PDIC LawSec. 17 PDIC Law

F. Disqualification/Prohibition under RA 7353Sec. 5, RA 7353

G. Disqualification/Prohibition under Appendix 38, Manual of Regulations for Banks

H. Prohibitions on Public OfficialsSec 19, GBL

V. Banking Days and Hours

A. Number of Days and HoursThe GBL provides for the following guidelines:

1. Banks shall transact business on all working days for at least six hours a day. Banopen for business on Saturdays, Sundays, or holidays for at least three hours a day

2. Banks which opt to open on days other than working days shall report to the Sentral the additional days during which they or their branches or offices shall tbusiness.

3. Working days mean Mondays to Fridays, except if such days are holidays.

B. Rules and Regulations

1. All banks shall observe for the conduct of their business a regular banking week f(Mondays Fridays), except when such days are holidays.a. For servicing deposits and withdrawals, banks may remain open beyond the m

six hours, even before 8:00am or after 8:00pm.b. For purposes other than servicing deposits and withdrawals, banks may open

the minimum six hours but in no case shall such banking hours start earlie8:00am nor extend beyond 8:00 pm.

c. Branches of banks at any international airport or major fish port are alloflexible baking hours within a twenty-four hour period which shall in no case than six hours per day.

d. The banking days and hours selected for each of the offices of banks sreported in writing to the appropriate supervising and examining departmen


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BSP. Provided, that the change in banking days and hours shall not be made oftenerthan once every thirty days, except during emergencies.

e. Notice on changes in banking days and hours shall be given through the fastestmeans of communication, at least seven days before the intended effectivity inbanking hours or days.

f. In case the bank has to pen outside or close during the banking hours or daysreported to the BSP due to an emergency, a written report submitted within 24 hoursfrom opening or closing will suffice.

2. Subject to compliance with other relevant laws, banks may opt to observe a banking weekin excess of five days after reporting to the BSP the additional days during which suchbanks or their branches or offices shall transact business for at least three hours eachday.

3. Without the need of approval from BSP, banks are allowed to close on certain days incelebration of important historical and/or religious event in the locality where the banksoperate: Provided, that said closure has the prior approval of the bankers association inthe locality: Provided further, that said closure will only be allowed in the municipality orcity where the festivities are centered.

4. Banks shall submit either individually or through their head offices, to the appropriatesupervising and examining department of the BSP a prior notice of their intended closureon account of a special local festivity, together with a copy of the resolution of the localbankers association approving said closure, at least two days after the date of saidresolution.

5. The required notice shall be supported by certification that:

a. On the date of temporary closure, the bank and/or branch will maintain a skeletalforce to handle out-of-town clearing items

b. The notice of the banks closure and the reason thereof shall be postedconspicuously in the banks premises

c. For branches of banks, the closure has the prior approval of their respective headoffices.

VI. Automated Teller Machines

A. Off-Site Automated Teller Machines (ATMs)Banks may establish off-site ATMs, subject to the following conditions:1. Banks shall submit a report to the appropriated department of the BSP on ATMs which

they establish;2. ATMs shall be installed in centers of activity like supermarkets, etc. Provided, that security

measures shall be adopted.3. Only banks which have shown general compliance with laws, rules and regulations shall

be allowed to open off-site ATMs.B. Mobile ATMs

Banks may also establish mobile ATM, subject to the following conditions:

1. The mobile ATMs should be allowed to visit only centers of activity as mentionedA(2) above and should confine their itinerary to Metro Manila until further notice;

2. The bank shall secure insurance coverage or adopt a self-insurance scheme toitself against losses of whatever nature in its immobile ATM operations;

3. The bank shall notify the supervising and examining department of the BSP of thdate a mobile ATM becomes operational and when no longer in operation.

VII. Independent AuditorThe following are the rules with respect to financial aud it of banks:

1. The Monetary Board may require a bank, quasi-bank or trust entity to engage the seran independent auditor to be chosen by the bank, quasi-bank or trust entity concernedlist of certified public accountants acceptable to the Monetary Board.

2. The term of the engagement shall be prescribed by the Monetary Board which may eon a continuing basis where the auditor shall act as resident examiner, or on the bspecial engagements, but in any case, the independent auditor shall be responsiblebanks, quasi-banks or trust entitys board of directors. A copy of the report shall be futo the Monetary Board.

3. The Monetary Board may also direct the board of directors of a bank, quasi-bank, truand/or the individual members thereof, to conduct, either personally or by a committee by the board, an annual balance sheet audit of the bank, quasi-bank or trust entity tothe internal audit and control system of the bank, quasi-bank or trust entity and to sreport of such audit.

VIII. FINANCIAL STATEMENTS

A. Publication of Financial Statements:

The following are rules regarding publication of financial statements: Sec. 61, GBL

** Every bank, quasi-bank or trust entity, shall publish a statement of its financial conditi

such terms understandable to the layman

in such frequency as may be prescribed by the Bangko Sentral

in English or Filipino

at least once every quarter in a newspaper or general circulation in the place whbank is located

** In periods of national and/or local emergency or of imminent panic which directly threaten m

and banking stability, the Monetary Board, by a vote of at least five of its members, in special caupon application of the bank, quasi-bank or trust entity, may allow such bank, quasi-bank or trusto defer for a stated period of time the publication of the statement of financial condition required

IX. Publication of Capital Stock


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A bank, quasi-bank or trust entity shall shot publish the amount of its authorized or subscribedcapital stock without indicating at the same time and with equal prominence, the amount of itscapital actually paid-up.

X. Settlement of Disputes

A. Unsettled Labor Disputes

Any strike o r lockout involving banks, if unsettled after seven calendar days shall be reportedby the Bangko Sentral to the Secretary of Labor who may assume jurisdiction over the disputeand decide it or certify the same to the NLRC for compulsory arbitration. However, thePresident may intervene and assume jurisdiction over such labor dispute in order to settle orterminate the same.

B. Reports of Strike and Lockouts

The bank shall disclose the following pertinent information on the strike/lockout:a. Cause of the strike/lockout and bank managements position on its legality;b. Bank operations affected.

XI. Laws Governing Other Types of Banks

Thrift banks Thrift Banks Act

Rural Bank Rural Banks Act

Cooperative Cooperative Code

Islamic Banks special laws

** GBL shall likewise apply to thrift banks, rural banks and cooperative banks insofar as they are not inconflict.

** GBL shall govern for purposes of prescribing the minimum ratio which the net worth of a thrift bankmust bear to its total risk assets.


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CHAPTER 3Deposit Function of Banks

Kinds of Deposits

1) Demand Deposits all those liabilities of the Bangko Sentral and of other banks which aredenominated in Philippine currency and are subject to payment in legal tender upon demand by thepresentation of (depositors) checks.

Universal and Commercial banks may create or accept demand deposits subject to withdrawalby check WITHOUT prior authority from BSP.

Thrift Bank, Rural Bank, Cooperative Bank may create or accept demand deposits suwithdrawal by check WITH prior authority from BSP.

Manner of making the deposit

In Philippine Bank of Commerce vs CA the Supreme Court observed:

In the ordinary and usual course of banking operations, current account deposits are a

by the bank on the basis of deposit slips prepared and signed by the depositor, or the latters arepresentative, who indicates therein the current account number to which the deposit is to be crthe name of the depositor or current account holder, the name of the deposit and the amoundeposit either in cash or checks. The deposit slip has an upper portion or stub, which is detachgiven to the depositor or his agent; the lower portion is retained by the bank. In some inhowever, the deposit slips are prepared in duplicate by the depositor. The original of the deposiretained by the bank, while the duplicate copy is returned or given to the depositor.

Regulations on Temporary Overdrawings and Drawings against Uncollected Deposits (DAUD)

TEMPORARY OVERDRAWINGS against current account SHALL NOT BE ALLUNLESS caused by normal bank charges and other fees incidental to handling such accounts.

Violation:

Fine of one-tenth of one percent (1/10 of 1%) per day of violation, computed on the the amount of overdrawing or fines in amounts as may be determined by the Monetarybut not to exceed P30,000 a day for each violation whichever is lower.

Technical overdrawings arising from force posting in clearing checks shall be debitedunder Returned Checks and Other Cash Items Not in Process of Collection which is part oAssets in the Statement Condition. Items to be lodged under this account shall consist onlclearing checks which may result in technical overdrawn accounts and shall immediately revethe following day. The checks lodged under Returned Checks etc. shall either be returned or hthe following day before clearing. The items to be used as cover for honored checks should onlyof any of the following:

Cash

Cashiers, Managers or Certified Checks

Bank Drafts

Postal Money Orders

Treasury Warrants

Duly funded On us checks

Fund transfers or credit memos within the same bank representing proceeds of loans under existing regulations

NOTE:

Peso demand deposit accounts maintained by foreign correspondent banks with commerciashall NOT be subject to the above-mentioned regulations PROVIDED:


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The maintenance of non-resident correspondent banks peso checking accounts andoverdrawings therefrom are covered by reciprocal arrangement

Temporary overdrawings are covered within 15 days from the date overdrawings are incurred

Such accounts are credited only through foreign exchange inward remittance

DRAWINGS AGAINST UNCOLLECTED DEPOSITS (DAUDs) shall be PROHIBITED except whenthe drawings are made against uncollected deposits representing managers/cashiers/treasurerschecks, treasurer warrants, postal money orders and duly funded on us c hecks which may be

permitted at the discretion of each bank.

Current Accounts of Banks Officers and Employees

The following officers and employees of banks are PROHIBITED from maintaining demanddeposits or current accounts with the banking office in which they are assigned:

All officers

Employees of the banks cash department/ cash units

Other employees who have direct and immediate responsibility in the handling of transactionsand/or records pertaining to demand deposits or current accounts.

Includes spouses and relatives within second degree of consanguinity and affinity

Check is a bill of exchange drawn on a bank payable on demand.

Fixed savings and current deposits of money shall be governed by the provision so simple loan

Duty of Banks to honor checks Banks are bound to honor checks to the extent of the amount of his (the depositor) deposits.

Failure of the bank to honor entitles the drawer to substantial damages without any proof ofactual damages

Banks must ensure that the amount of the check should be paid only to its designated payee.The fact that the drawee bank did not discover the irregularity seasonably constitutesnegligence.

Responsibility of Drawer

The drawer must personally keep track of his available balance in the bank.

Duty of Banks to Know Signatures

A bank is bound to know the signatures of its customers

If it pays a forged check, it must be considered as making the payment out of its own fundsand cannot ordinarily charge the amount so paid to the account of the depositor whose name

was forged.

Banks are under no obligation to make part payment on a check, up to only the amount of the drawersfunds.

Banks are under no duty to make up deficiency from the savings account. If a depositor has 2 acwith a bank, an open account and a savings account, and draws a check upon the open accomore money than the account contains.

Checks do not have legal tender power and their acceptance in the payment of debts is at the othe creditor.

Effects if a cross check

In State Investment House vs IAC, the SC enumerated the different effects of crocheck:

1. That the check may not be encashed but only deposited in the bank2. That the check may be negotiated only once to one who has an account with a bank3. That the act of crossing the check serves as a warning to the holder that the check ha

issued for a definite purpose so that such holder must inquire if the check has been repursuant to that purpose.

Cashiers Check is really the banks own check and may be treated as a promissory note wbank as the maker.

In New Pacific Timber and supply Co. Inc. vs Seeris cashier check is deemed as cas

Set-off

A bank may debit the personal account of a depositor for an amount erroneously crethe depositors sole proprietorship account because the latter being a sole proprietorsno separate and distinct personality from the depositor.

Art. 1980 and Art. 1278 of the Civil Code

The law imposes a duty of diligence on the collecting bank to scrutinize checks deposiit, for the purpose of determining their genuineness and regularity.

Crossing of the check with the phrase Payees Account Only is a warning that theshould be deposited only in the account of the payee. It is the duty of the bank to ascert

Relationship of payee or holder and the bank

Principal and agent.

The bank which receives such paper for collection is the agent of the payee or holder.

Encashment of checks

Banking business requires that the one who first cashes and negotiates the check musome precautions to learn whether or not it is genuine.

2) Savings Deposits

Servicing deposits

Banks may be authorized by the BSP to solicit and accept deposits outside thepremises, subject to ff: conditions:


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1. The financial condition of the banks is sound and the operations and the quality of themanagement thereof could reasonably assure the safety of the funds which may beentrusted to its deposit collectors and/or agents

2. Proposed area is clearly defined3. Solicitation shall be only confined within a locality where there are NO BANKS IN

OPERATION or where it can be established that the deposit potentials in the saidlocality are still untapped

4. Institute and maintain following minimum safeguards:

Deposit solicitors shall be initially bonded for at least P1,000 subject to theincrease thereof to approximate their daily collections

Deposit solicitors shall be provided with proper identification cards withphotograph and signature, certified by appropriate officer of the bank

Secure adequate insurance coverage for funds Deposit slips shall be in booklet form, prenumbered and in triplicate (3)

copies. The original issued to the depositor, second used for postingreference and third retained in the booklet.

All collections shall be turned over to the cashier at the end of each dayaccompanied by a COLLECTION SUMMARY REPORT which shall containthe following information.

Date

Name and address of the depositors

Deposit slip no.s

Amount of deposit

Savings account and passbook numbers

Name and signature of solicitor rendering the report Depositors shall be required to accomplish a SIGNATURE CARD when

opening an account used as a reference in checking the genuineness andauthenticity of signatures in withdrawals

Deposits/withdrawals shall be recorded by the bookkeeper or any ledgerclerk

At the end of each month, depositors shall be advised IN WRITING if thebalances of their deposits. Advise slips shall NEVER be handcarried by thesolicitor themselves

Place of assignments of banks solicitors shall be rotated at least quarterly.

Individual and Joint accounts

Joint accountmay be an and account or an and/or account

And account signature of BOTH co-depositor are required for withdrawal

And/or account either one of the co-depositors may deposit and withdraw from the accountwithout the knowledge, consent and signature of the other.

Withdrawals

Banks are prohibited from issuing or accepting withdrawal slips without requiring depconcerned to present their passbooks except for banks au thorized by BSP.

NOTE: There is now law mandating banks to call up their clients whenever their represenwithdraw significant amounts from their accounts.

3) Negotiable Order of Withdrawal (NOW) Accounts

NOW accounts interest bearing accounts that combine the payable on demand feature of cheinvestment feature of savings account.

Universal/Commercial Bank may offer NOW accounts WITHOUT prior authority monetary board

Thrift/Rural/Cooperative Bank may offer UPON prior approval of the monetary board.

Rules on servicing NOW accounts

Prior to or simultaneous with the opening of a NOW account, the bank shall infodepositor of its terms and conditions

Banks shall be responsible for the proper identification of its depositors and reqspecimen signatures and such other pertinent information

Deposit shall be covered by deposit slips in duplicate duly validated and initialed by threceived the deposit

NOW accounts shall be kept and maintained separately from the regular savings depos

Blank NOW forms shall be prenumbered and shall be controlled as in the case of u

blank checks A bank statement shall be sent to each depositor at the end of each month for confirma

balances

Banks must use the form prescribed by the present rules for NOW accounts.

4) Time Deposits one the payment of which cannot legally be required within such a snumber of days.

Time deposits shall be issued for a specific period of term

Authority shall be automatically granted to any accredited banking institution to SPECIAL TIME DEPOSITS from the Agrarian Reform Fund Commission with interesthan the rate allowed on time deposits accepted from the general public.

Rules regarding issuance of Certificates of Time Deposit (CTD)

Negotiable Certificates on Time Deposit (NCTD)o Universal/Commercial Banks may issue WITHOUT prior approval of BSPo Thrift/Rural/Cooperative Banks may issue UPON THE PRIOR approval of BSP

Non-Negotiable Certificates of Time Deposito Bank may issue long-term non-negotiable tax-exempt certificates to time

without prior approval of the BSP

5) Deposit Substitute Operations (Quasi-Banking Functions)


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Elements:1. Borrowing funds for the borrowers own account2. 20 or more lenders at any one time3. Methods of borrowing are issuance, endorsement or acceptance of debt instruments of any

kind4. Purpose of which is relending or purchasing receivables or other obligations

NOTE:1. Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and

for any purposes provided in no.4 above2. Purchasing receivables or other obligations shall refer to the acquisition of claims collectible in

money3. Relending shall refer to the extension of loans by an institution with antecedent borrowing

transactions. Relending is presumed when the institution is regularly engaged in lending4. Regularly engaged in lending shall refer to the practice of extending loans, advances,

discounts or rediscounts as a matter of business

6) Foreign Currency Deposits

Authority to deposit foreign currencies- Any person may deposit with such Phil. Banks in good standing.

Authority of Banks to accept foreign currency deposits: Banks designated by Central Bank shall have the authority to:

1. Accept Deposits and to accept foreign currencies in trust. Numbered accounts forrecording and servicing of said deposits are allowed.

2. Issue certificates to evidence such deposits.3. Discount said certificates4. Accept said deposits as collateral for loans subject to such rules and regulations5. Pay interest in foreign currency on such deposits

Foreign Currency Cover Requirements:Depository banks shall:

1. Maintain at all times a 100% foreign currency cover for their liabilities2. Of which cover at least 15% shall be in the form of foreign currency deposit with the Central

Bank3. The balance in the form of the foreign currency loans or securities, which loan or securities

shall be of short-term maturities and readily marketable4. Such foreign currency loans may include loans to domestic enterprises which are export-

oriented or registered with the Board of Investments5. Foreign Currency cover shall be in the same currency as that of the corresponding foreign

currency deposit liability

6. Central Bank may pay interest on the foreign currency deposit and if requested shall exthe foreign currency notes and coins into foreign currency instruments drawn on its debanks.

Depository banks on account of networth, resources, past performance or other pertinent criteribeen qualified by the Monetary board to function under an expanded foreign currency deposit shall be exempt in no.2 above.

There is no restriction on the withdrawal by the depositor of his deposit or on the transferabilitsame abroad EXCEPT those arising from the contract bet. the depositor and the bank.

7) Anonymous and Numbered Accounts should not be allowed

In case where numbered accounts are allowed, banks or financial institutions should that the client is identified in an official or other identifying documents.

Related Laws:

Art 178 RPC

Art 379, Art 380 of Civil Code

Commonwealth Act 142 as amended by Republic Act No. 6085

Administration of Deposits

All banking institutions are required to set a minimum of 3 specimen signaturessimultaneously required from each of their depositors and to update the specimen signatures depositors every 5 years or sooner.

BSP Circular No. 564 Series of 2007 provides for a valid list of identification cards

Students who are beneficiaries of an OFW and not on voting age shall be required of 2 v

The requirement on presenting 2 valid IDs shall on 1 time basis only or at the commenof business relationship.

Financial transactions may include remittances

Minors are vested with special capacity and power to make savings or time deposits wwithdraw the same as well as receive interest thereon.

Requirements:

At least 7 years of age

Able to read and write

Sufficient discretion

Not otherwise disqualified by any other incapacity

If a guardian shall give notice in writing to any thrift bank not to make payments of ddividends or interest to the minor of whom he is the guardian, then such payment shall be made the guardian.


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Corporations may open bank accounts as follows:1) Incorporation Stage2) Post Incorporation

Interest or yield on time deposit/deposit substitute may be paid at the maturity or upon withdrawalor in advance PROVIDED, it shall not exceed the interest in 1 year.

A time deposit not withdrawn or renewed on its due date shall be treated as a savings deposit andshall earn interest from maturity to the date of actual withdrawal or renewal at a rate applicable tosavings deposits.

Deposit substitute instrument not withdrawn or renewed on its maturity date shall from said datebecome payable on demand and shall earn an interest or yield from maturity to actual withdrawal orrenewal at a rate applicable to a deposit substitute with a maturity of 15 days.

All deposits and withdrawals during regular banking hours shall be credited or debited to depositliability accounts on the day receipt or payment thereof.

Provided:

That a bank may set clearing cut-off time for its head office not earlier than 2 hours before the startof clearing at BSP and not earlier than 3 hours before the start of clearing of all its branches,agencies and extension offices

Provided further:That banks which are located in areas where there are no BSP regional/clearing arrangements

may set a clearing cut-off time not earlier than 2 hours before the start of their local clearing after which

time deposits received shall be booked likewise as hereinafter provided.

Cash deposits received after the selected clearing cut-off time shall be booked s deposits on theday of receipt.

Deposits on checks including on us checks etc. may be booked as deposits on the day of receipt.

Deposits received after the close of the regular banking hours shall be booked as deposits thefollowing banking day.

Banks impose and collect service charges on savings and demands deposits that fall below therequired minimum monthly average daily balance (ADB) subject to ff: conditions:

The imposition of such charges is clearly stated among the terms and conditions of thedepositor

The rate or amount of such charges or fees is properly disclosed among the terms andconditions of the deposit

The deposit account balances have fallen below the required minimum monthly ADB fordormant account and for at least 2 consecutive months for active accounts

The required minimum monthly ADB of deposits are properly disclosed among the terms andconditions of the deposit.

Any change in the terms and conditions for the imposition of service chargesmaintenance fees shall take effect only after due notice to the depositor.

PROVIDED

Information by regular mail, electronic mail, statement of account messages or altemodes of communication on the depositors last known address at least 60 days pimplementation shall be considered sufficient notice.

PROVIDED FURTHERFailure of the depositor to manifest or register his objection to the new service within 3

from receipt shall be deemed acceptance of such changes

Banks shall likewise post said information on their respective websites, ATM onmessages and in conspicuous places within the bank premises at least 60 days implementation.

III. Survivorship Agreement

- when joint (and several) owners of a deposit agree that either of them could withdraw aor the whole of said account during the lifetime of both and the balance, if any, upon thof either, belonged to the su rvivor.

- an ALEATORY CONTRACT (Art. 1790), by which the mutual agreement of the joint depermitting either of them to withdraw the whole deposit during their lifetime and transferbalance to the survivor upon the death of one of them.

Survivorship agreement not invalid per se but may be violative of law, such instances:

- a mere cloak to hide an inofficious donation- to transfer property in fraud of creditors- to defeat the legitime of a forced heir

IV. Nature of Bank Deposits

A. Nature

1. Fixed, savings and current deposits of money in banks and similar institutions are deposits and are considered simple loans.

2. Irregular deposits in nature for they are really loans because they earn interest.- In reality: depositor is the creditor while bank is the debtor.- Failure of the bank to honor the time deposit is failure to pay its obligatiodebtor and not a breach of trust arising from a depositorys failure to resubject matter of the deposit.

3. The relationship between the depositor and the Savings and Loan Association is

creditor and debtor.- Bank has the obligation to return the amount deposited, however, it obligation to return or deliver the same moneythat was deposited. (Principle Fungible)


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- Failure of the bank the amount deposited will not constitute estafa throughmisappropriation but it will only give rise to civil liability.

4. The contract between the bank and its depositor is governed by the provisions of the CivilCode on simple loan.

5. A bank ultimately acquires ownership of the deposits but such ownership is coupled with acorresponding obligation to pay the depositor an equal amount on demand.

- A bank does not have unilateral right to freeze the accounts of depositor based onits mere suspicion, granting such rights would open the floodgates of public distrust in

banking industry. (BPI Family Bank vs. Franco)

B. Set-Off

General Rule: When a depositor is indebted to a bank, and the debts are mutual, the bank mayapply the deposit or such portion thereof as may be necessary to the payment of the debt dueit by the depositor.

Exception:- There is no express agreement.- The deposit is not specifically applicable to some other particular purpose.

V. Duties of Banks

A. Meticulous Care- Knowing the signatures of its clients.- Depositors are not estopped from questioning wrongful withdrawals, even if they failed to

question those errors in the statements sent by the bank to them for verification.

B. Payment to Proper Party- The bank has no right to pay to persons other than those in whose favor the obligation wasconstituted or whose right or authority to receive payment is indisputable.- Payment made by the debtor (bank) to the wrong party does not extinguish the obligation asto the creditor (depositor) who is without fault or negligence, even if the debtor acted in utmostgood faith and by mistake as to the person of the creditor or through error induced by fraud ofa third person.

C. In Case of Death of DepositorNational Internal Revenue Code provides:

If a bank has knowledge of death of a person, who maintained a bankdeposit account alone, it shall not allow any withdrawal from the saiddeposit account, UNLESS the Commissioner has certified the taxesimposed thereon by this title have been paid: Provided, however, that the

administrator of the estate or any one of the heirs of decedent may uponauthorization by the Commissioner, withdraw an amount not exceedingP20,000 without the said certification.

VI. Secrecy of Bank Deposits

A. Purposes

1. To give encouragement to the people to deposit their money in banking institutions2. To discourage private hoarding so that the same may be utilized by banks in au

loans to assist in the economic development of the country.

B. Privacy- Civil Code provides that every person shall respect the dignity, personality, priva

peace of mind of his neighbors and the other persons and punishes as actionabseveral acts for meddling and prying into the privacy of another.- It also holds public officer or employee or any private individual liable for damages violation of the rights and liberties of another person, and recognizes the privacy of lettother private communications.

C. Absolute Confidentiality- All deposits of whatever nature with banks or banking institutions in the Philippinconsidered as of an absolutely confidential nature and may not be examined, inqulooked into by any person, government official, bureau or office.

1. Prohibition against inquiry into or disclosure of deposits under republic Act No. 8Act Providing for the Regulation of the Organization and Operation of Non-Stock and Loan Associations) all deposits of whatever nature are considered abconfidential in nature EXCEPT, (1) upon written permission of the depositor; (2) inof impeachment; (3) upon order of a competent court in cases of bribery or dereli

duty of public officials; and (4) in cases where the money deposited or investedsubject matter of litigation.

2. Foreign Currency Deposits- All foreign currency deposits are of an absolutely confidential in nature EXCEPTthe written permission of the depositors.- It shall be exempt from attachment, garnishment or any other order or processcourt, legislative body, government agency or any administrative body whatsoever.

3. Confidentiality of Deposits in Islamic Banks- All deposits of whatever nature are confidential EXCEPT:

1. inspection by the banks auditor2. upon written permission by the depositor3. in cases where the money deposited or the transaction concerned is the

matter of a court order

VII. Exceptions to Secrecy of DepositsA. Exceptions to the Bank Secrecy Law:

1. Upon written permission of the depositor2. In cases of impeachment3. Upon order of a competent court in cases of bribery or dereliction of duty of public


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4. In cases where the money deposited or invested is the subject matter of litigationB. Garnishment

- A legal proceeding by which the officer may levy on debts due the judgment obligor and othercredits, including bank deposits, financial interests, royalties, commissions and other personalproperty not capable of manual delivery in the possession or control of third parties.- Levy shall be made by serving NOTICE upon the person owing such debts or having in hispossession or control such credits to which the judgment obligor is entitled.- The garnishment shall cover only such amount as will satisfy the judgment and all lawful fees.

Property exempt from execution/garnishment:1. Family home or the homestead in which he resides.2. Ordinary tools and implements personally used in his trade, employment or livelihood.3. Three horses, or (3) cows, or (3) carabaos, or there beasts of burden necessarily used by

him in his ordinary occupation.4. Necessary clothing and articles for ordinary personal use, excluding jewelry.5. Household furnitures and utensils used for housekeeping not exceeding P100,000.6. Provisions for individual or family use sufficient for four months.7. Professional libraries and equipment not exceeding P300,000 in value.8. One fishing boat and accessories not exceeding the total value of P100,000 and by the

lawful use of which he earns his livelihood as fisherman.9. Salaries, wages or earnings within the four months preceding the levy as are necessary

for the support of his family.10. Lettered gravestones.11. Monies benefits, privileges or annuities accruing or in any manner growing out of any life

insurance.12. The right to receive legal support or money or property obtained as such support or any

pension or gratuity from the Government.13. Properties especially exempt by law.

C. Secrecy and Exemption from Attachment and Garnishment of Foreign Currency Depositscannot be used as Device for Wrongdoing

D. Graft and Corruption- The Anti-Graft Law directs in mandatory terms that bank deposits shall be taken intoconsideration in its enforcement, notwithstanding any provision of law to the contrary.

E. Authority to Inquire into Bank Deposits under the Anti-Money laundering Act- AMLC may inquire into or examine any particular deposit r investment with any bankinginstitution or non-bank financial institution upon order of any competent court in cases ofviolation, when it has established that:

a. there is probable cause that the deposits or investments are related to an unlawfulactivity; or

b. a money laundering offense

F. Periodic or Special Examination

- BSP may inquire into or examine any deposit or investment with any banking institunon-bank financial institution when the examination is made in the course of a perspecial examination, in accordance with the rules of examination of BSP.- If authorized by the Monetary Board to satisfy a reasonable ground to believe that fraud or serious irregularity has been or is being committed and that it is necessary to lothe deposit to establish such fraud or irregularity.- Examination made by an independent auditor hired by the bank to conduct its regulaprovide that the examination is for audit purposes only and the results thereof shall be

exclusive use of the bank.

G. In Camera Inspection by the Ombudsman- Section 15(8) of republic Act No. 6770 (The Ombudsman Act of 1989) provides as onepowers of the Ombudsman:

(8) Administer oaths, issue subpoena and subpoena duces tecum, andtake

testimony in any investigation or inquiry, including the power toexamine and have access to bank accounts and records.

- Before in camera inspection may be allowed, there must be a pending case before a competent jurisdiction. The account must clearly be identified. The bank personnel aaccount holder must be notified to be present during the inspection and such inspecticover only the account identified in the pending case.

H. Preliminary Attachment- Section 10, Rule 57 of the Rules of Court is compatible with the law on secrecy o

deposits because it provides an exception in cases where the money deposited or invthe subject matter of the litigation.

I. Disclosure of Dormant Accounts- Section 2 of Act No. 3996 (An Act Requiring Banks and Banking Institutions of Every Transfer Unclaimed Balances held by them to the Insular Treasury and for Other Purpos

o All banks shall forward to the Insular Treasurer a statement under oath respective managing officers, of all credits and deposits held by them in fpersons known to be dead, or who have not made further deposits or withduring the preceding ten years or more, arranged in alphabetical order accorthe names of depositors.

o Upon receipt by the Insular Treasurer, it shall publish the same once a week foconsecutive weeks in at least two newspapers of general circulation in the where the bank or banks are situated.

J. Authority of the Commissioner of Internal Revenue to Inquire into Deposits- Section 6 of the 1997 National Internal Revenue Code provides:

(F) Authority of the Commissioner to inquire into Bank Deposit AccoNotwithstanding any contrary provision of Republic Act No. 1405 and other general orlaws, the Commissioner is hereby authorized to inquire into the bank deposits of:

(1) a decedent to determine his gross estate; and


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(2) any taxpayer who has filed an application for compromise of his taxliability under Sec. 204(A)(2) of this Code by reason of financialincapacity to pay his tax liability.

K. Waiver by DOSRI

Section 26 (NCBA). Bank Deposits and Investments. Anydirector, officer or stockholder who, together with his relatedinterest, contracts a loan or any form of financial accommodation

from: (1) his bank; or (2) from a bank: (a) which is a subsidiary of abank holding company of which both his bank and the lending bankare subsidiaries; or (b) in which a controlling proportion of theshares is owned by the same interest that owns a controllingproportion of the shares of his bank, in excess of 5% of the capitaland surplus of the bank, or in the maximum amount permitted bylaw, whichever is lower, shall be required by the lending bank towaive the secrecy of his deposits of whatever nature in all banks inthe Philippines.

Chapter 4Investments, Loans and Other Functions of Banks

I. Operations of Universal Banks

A. Powers of a Universal Banksi. Powers authorized for a commercial bankii. Powers of an investment houseiii. Power to invest in a non-allied enterprise

B. Equity Investments of a Universal Banki. May invest in the equities of allied and non-allied enterprise as may be

determined by the monetary board

May either by financial or non-financiala. Total investment in equities of allied and non-allied

enterprise should not exceed 50% of the net worth of thebank

b. Equity investment should not exceed 25% of net worthc. Net worth- totatl of unimpaired paid-in capital as may be

required by BSP

C. Equity of Investments of a universal Bank n Financial Allied Enterprisesi. Can own up to 100% of equity in a thrift bank, rural bank or a financial

allied enterprise

ii. Publicly-listed universal or commercial bank- 100% of voting stockone other universal or commercial bank

Financial Allied Undertakingsa. Leasing companies- bank investment of shares s

limited only in cases of conversion of outstandiobligations into equity

b. Banksc. Investing houses

d. Financing companiese. Credit Card companiesf. Financial institutions catering to small and mediu

industriesg. Companies engaged in stock brokerage/se

dealershiph. Companies engaged in foreign ex

dealership/brokeragei. In addition:

i. Insurance companiesj. Holding companies - investment of shares shall be

only in cases of conversion of outstanding loan oblinto equity

D. Equity Investments of a universal Bank in Non-allied Enterprises up to 100%i. Examples of Non Finacial Allied undertakings

Warehousing companies Storage companies

Safe deposit box companies

Companies engaged in managementof mutual funds but nomutual funds themselves

Corporations engaged in any activity similar to managemmutual funds

Companies engaged in providing computer services

Insurance Agencies/brokerages

Companies engaged in home building and development

Companies providing drying and/or milling facilities for agrcrops

Service bureaus for outsourcing services

Those declared by the Monetary Board

E. Equity Investments of a Universal Bank in Non-Allied enterprise shall not 35% of total equity and voting stock

F. Investments in Non-Allied or Non-Related Undertakings only Universal baninvest


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i. Examples of non-Allied undertakings

Enterprise engaged in physically productive activities ina. Agricultureb. Mining and quarryingc. Manufacturingd. Public utilitiese. Construction

f. Wholesale tradeg. Community and Social services

ii. Industrial park/real estate projectsiii. Financial and commercial complex projects in connection with the

Governments privtization programiv. Others declared by Monetary Board

G. Equity Investments in Quasi-Banks to promote competitive conditions in financialmarkets, may own up to 40 % equity investments, also applicable in the case ofcommercial banks

II. Operations of Commercial Banks

A. Powers of Commercial Banksi. General powers incident to corporatonii. Powers necessary to carry out commercial banking

Accepting drafts and issuing LOC Negotiating promissory notes, bills of exchange and other

evidences of debt

Accepting or creating demand deposits

Receiving other types of deposits and deposit substitutes

Buying and selling foreign exchange, gold and silver bullion;acquiring marketable bonds and other debt securities

Extending credit

B. Issuance of Letters of Crediti. Nature - developed by merchants as a convenient and relatively safe mode

of dealing with sales of goods to satisfy the seemingly irreconcilableinterests of a seller, who refuses to part with his goods before he is paid anda buyer who wants to have control of the goods before paying

The buyer may be required to contract a bank to issue a letter ofcredit in favor of the seller so that, by virtue of the letter of credit,the issuing bank can authorize the seller to draw drafts and engageto pay them upon presentment simultaneously with the tender ofdocuments required by the letter of credit.

ii. Characteristics what sets it apart from other accessory contractsengagement of the issuing bank to pay the seller once the draft arequired shipping documents are presented to it.

Independence Principle assures the seller of prompt pindependent of any breach of the main sales contract.

iii. Intertwined Relationships 3 distinct but intertwined relationships

1st

contract relationship links the party applying for LOC party for whose benefit LOC is issued

2nd

contract relationship between the accounting party issuing bank. Accounting party applies for LOC and agreimburse the bank for amounts paid by t hat bank.

3rd

contract relationship between the issuing banbeneficiary. Pay certain monies to the beneficiary to suppcontract.

iv. Parties 3 parties, may be increased in most cases of international tr

Buyer procures LOC and obliges himself to reimburse theback upon receiptof documents of title

Bank issuing LOC and undertakes to pay the seller uponof the draft and proper documents of titles and to surrendocuments to the buyer upon reimbursement

Seller in compliance with the contract of sale ships the gthe buyers and delivers the documents of title and draftissuing bank to recover payment

C. Equity Investments of a Commercial Bank may invest only in the equities oenterprise (financial or non-financial) as may be determined by the Monetary B

i. Total investment in equities shall not exceed 35% of the net worthii. Equity investment in any one enterprise shall not 25% net worth

D. Equity Investments of a Commercial Bank in Financial Allied Enterprisesi. May own up to 100% equity ONLY of thrift bank or rural bankii. Other financial allied enterprises minority holding

E. Equity Investments of a Commercial Bank in Non- Financial Allied Enterprisesown up to 100% of the equity in a non-financial allied enterprise

III. Risk- Based Capital

A. Minimum Ratio minimum ratio which the net worth of a bank must bear to risk assets shall be determined by the Monetary Board

i. On the basis of the net worth and risk assets of a bank and its subsidii. Monetary Board shall conform to internationally accepted standard

exercise of such authorityiii. Alter or suspend compliance with such ratio for a maximum period of


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iv. Ratio shall be applied uniformly to banks of the same category

B. Effect of Non-Compliancei. Monetary Board may limit r prohibit the distribution of net profits by such

bank and may require that all of the net profits be used to increase thecapital accounts of the bank until minimum requirement is reached

ii. Restrict or prohibit the acquisition of major assets and the making of newinvestments by the bank until the minimum required ratio has been restored

IV. Limit on Loans, Credit Accomodation And GuaranteesA. Single Borrowers Limit

i. Shall not exceed 20% if Net Worth of the Bank

Exceptions:a. Reasons of national interestb. Deposits of Rural Banks with government-owned or

controlled financial institutions are exemptedc. May be increased by 10% provided the additional liabilities

of any borrower are adequately secured by securing titles

As amended by Circular no. 425, SBL must not exceed 23%, stillsubject to such exceptions

B. Inclusion to the Limit

i. Prescribed Ceilings shall include: Direct liability of the maker or acceptor of paper discounted with or

sold to such bank and liability of a general indorser, drawer orguarantor who obtains a loan or other credit accommodation

Liabilities of individuals who own or control a majority interest in acorporation

Corporation- all liabilities to such bank of all subsidiaries

Partnership liabilities of the membersii. Control of majority interest or Controlling interest when parent owns

directly of indirectly through subsidiaries more than one half of the votingpower of an enterprise

iii. Even if a parent corporation who owns a majority interest has no liabilities,Monetary Board may prescribe combination of liabilities in certain situations

C. Exclusion to the Limit Loans and other accommodations -i. Secured by obligations of BSP or of the Philippine Government

Reason: The state undoubtedly is always solventii. Fully guaranteed by the government as to payment of pricipal and Interestiii. Covered by assignment of deposits maintained in the lending bank and held

in the Philippinesiv. Under letters of credit to the extend covered by margin deposits

v. Specified by Monetary Board as non-risk items

D. Bank Guarantee irrevocable commitment of a bank binding itself to pay a money in the event of non-performance of a contract by a third party. Distinprincipal debt or c

Documents

Banking Laws Reviewer-partyduh Notes (2)