General Banking Law Reviewer

8/9/2019 General Banking Law Reviewer

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STUDY GUIDE ON BANKING AND RELATED LAWS*

I

BANGKO SENTRAL NG PILIPINAS LAWRA 7653 (1993).

1.1 Topics

State policies (Sec. 1)

SECTION 1. DECLARATION OF POLICY . - THE STATE SHALL MAINTAIN A CENTRALMONETARY AUTHORITY THAT SHALL—

A. FUNCTION AND OPERATE AS AN INDEPENDENT AND ACCOUNTABLE BODYCORPORATE IN THE DISCHARGE OF ITS MANDATED RESPONSIBILITIES

CONCERNING MONEY, BANKING AND CREDIT.

B. IN LINE WITH THIS POLICY, AND CONSIDERING ITS UNIQUE FUNCTIONS ANDRESPONSIBILITIES, THE CENTRAL MONETARY AUTHORITY ESTABLISHEDUNDER THIS ACT, WHILE BEING A GOVERNMENT-OWNED CORPORATION,ENJOY FISCAL AND ADMINISTRATIVE AUTONOMY.

How State policies are to be achieved (compare, e.g., Secs. 2, 6, 9, 11, 15, 16,18 and 47 of RA 7653 with similar provisions in RA 265) [SEE PAGE 2 OF BOOK]

A. Capital [Sec. 2]

SECTION 2. C REATION OF THE B ANGKO SENTRAL. - THE CAPITAL OF THE B ANGKOSENTRAL SHALL BE FIFTY BILLION PESOS (P50,000,000,000.

B. MB Composition [Sec. 6]

SECTION 6. C OMPOSITION OF THE M ONETARY BOARD. - (C) FIVE (5) MEMBERSWHO SHALL COME FROM THE PRIVATE SECTOR, ALL OF WHOM SHALL SERVE FULL-TIME: PROVIDED, HOWEVER, THAT OF THE MEMBERS FIRST APPOINTED UNDERTHE PROVISIONS OF THIS SUBSECTION, THREE (3) SHALL HAVE A TERM OF SIX (6)YEARS, AND THE OTHER TWO (2), THREE (3) YEARS.

C. Reappointment of MB Members [Sec. 6]

SECTION 6. C OMPOSITION OF THE M ONETARY BOARD. - NO MEMBER OF THEMONETARY BOARD MAY BE REAPPOINTED MORE THAN ONCE.

* Expanded Outline (based on Banking Study Guide by Prof. Tristan A. Catindig)

Comment [WU1]:


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D. Additional disqualifications for MB Members [Sec. 9]; Divestment requirement[Sec. 9]; Post-BSP restriction [Sec. 9]

SECTION 9. DISQUALIFICATIONS. - IN ADDITION TO THE DISQUALIFICATIONSIMPOSED BY REPUBLIC ACT NO. 6713, A MEMBER OF THE MONETARY BOARD ISDISQUALIFIED FROM BEING A DIRECTOR, OFFICER, EMPLOYEE, CONSULTANT,LAWYER, AGENT OR STOCKHOLDER OF ANY BANK, QUASI-BANK OR ANY OTHERINSTITUTION WHICH IS SUBJECT TO SUPERVISION OR EXAMINATION BY THE

B ANGKO SENTRAL, IN WHICH CASE SUCH MEMBER SHALL RESIGN FROM, ANDDIVEST HIMSELF OF ANY AND ALL INTERESTS IN SUCH INSTITUTION BEFORE

ASSUMPTION OF OFFICE AS MEMBER OF THE MONETARY BOARD.

THE MEMBERS OF THE MONETARY BOARD COMING FROM THE PRIVATE SECTORSHALL NOT HOLD ANY OTHER PUBLIC OFFICE OR PUBLIC EMPLOYMENT DURING

THEIR TENURE.

NO PERSON SHALL BE A MEMBER OF THE MONETARY BOARD IF HE HAS BEENCONNECTED DIRECTLY WITH ANY MULTILATERAL BANKING OR FINANCIAL

INSTITUTION OR HAS A SUBSTANTIAL INTEREST IN ANY PRIVATE BANK IN THEPHILIPPINES, WITHIN ONE (1) YEAR PRIOR TO HIS APPOINTMENT; LIKEWISE, NOMEMBER OF THE MONETARY BOARD SHALL BE EMPLOYED IN ANY SUCHINSTITUTION WITHIN TWO (2) YEARS AFTER THE EXPIRATION OF HIS TERM EXCEPTWHEN HE SERVES AS AN OFFICIAL REPRESENTATIVE OF THE PHILIPPINEGOVERNMENT TO SUCH INSTITUTION.

E. Who can call meetings [Sec. 11]

SECTION 11. M EETINGS. - THE MONETARY BOARD SHALL MEET AT LEAST ONCE AWEEK. THE BOARD MAY BE CALLED TO A MEETING BY THE GOVERNOR OF THEB ANGKO SENTRAL OR BY TWO (2) OTHER MEMBERS OF THE BOARD.

F. Reorganization of personnel [Sec. 15]

G. Indemnification [Sec. 15(e)]

SECTION 15. E XERCISE OF AUTHORITY . - IN THE EXERCISE OF ITS AUTHORITY,THE MONETARY BOARD SHALL: (E) INDEMNIFY ITS MEMBERS AND OTHEROFFICIALS OF THE B ANGKO SENTRAL, INCLUDING PERSONNEL OF THEDEPARTMENTS PERFORMING SUPERVISION AND EXAMINATION FUNCTIONS AGAINST

ALL COSTS AND EXPENSES REASONABLY INCURRED BY SUCH PERSONS IN

CONNECTION WITH ANY CIVIL OR CRIMINAL ACTION, SUIT OR PROCEEDINGS TOWHICH HE MAY BE, OR IS, MADE A PARTY BY REASON OF THE PERFORMANCE OFHIS FUNCTIONS OR DUTIES, UNLESS HE IS FINALLY ADJUDGED IN SUCH ACTION ORPROCEEDING TO BE LIABLE FOR NEGLIGENCE OR MISCONDUCT.

IN THE EVENT OF A SETTLEMENT OR COMPROMISE , INDEMNIFICATION SHALL BEPROVIDED ONLY IN CONNECTION WITH SUCH MATTERS COVERED BY THE

SETTLEMENT AS TO WHICH THE B ANGKO SENTRAL IS ADVISED BY EXTERNALCOUNSEL THAT THE PERSON TO BE INDEMNIFIED DID NOT COMMIT ANY

NEGLIGENCE OR MISCONDUCT.


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H. Greater responsibility [Sec. 16]

I. Transparency [Sec. 16]

How the BSP handles banks in distress

Emergency loans and advances (Sec. 84)

SECTION 84. E MERGENCY LOANS AND ADVANCES. – THE MONETARY BOARDMAY, BY A VOTE OF AT LEAST FIVE (5) OF ITS MEMBERS, AUTHORIZE THEBANGKO SENTRAL TO GRANT EXTRAORDINARY LOANS OR ADVANCES TOBANKING INSTITUTIONS SECURED BY ASSETS AS DEFINED HEREUNDER—

1. IN PERIODS OF NATIONAL AND / OR LOCAL EMERGENCY OR2. OF IMMINENT FINANCIAL PANIC WHICH DIRECTLY THREATEN MONETARY

AND BANKING STABILITY

PROVIDED, THAT WHILE SUCH LOANS OR ADVANCES ARE OUTSTANDING, THE

DEBTOR INSTITUTION SHALL NOT, EXCEPT UPON PRIOR AUTHORIZATION BYTHE MONETARY BOARD, EXPAND THE TOTAL VOLUME OF ITS LOANS ORINVESTMENTS.

SECTION 84. E MERGENCY LOANS AND ADVANCES. – THE MONETARY BOARDMAY, AT ITS DISCRETION, LIKEWISE AUTHORIZE THE BANGKO SENTRAL TOGRANT EMERGENCY LOANS OR ADVANCES TO BANKING INSTITUTIONS, EVENDURING NORMAL PERIODS, FOR THE PURPOSE OF ASSISTING A BANK—

1. IN A PRECARIOUS FINANCIAL CONDITION OR2. UNDER SERIOUS FINANCIAL PRESSURES BROUGHT BY UNFORESEEN

EVENTS, OR3. EVENTS WHICH, THOUGH FORESEEABLE, COULD NOT BE PREVENTED

BY THE BANK CONCERNED:

PROVIDED, HOWEVER—

1. THAT A CONCURRENT VOTE OF AT LEAST FIVE (5) MEMBERS OF THEMONETARY BOARD IS OBTAINED.

2. THAT THE MONETARY BOARD HAS ASCERTAINED THAT THE BANK ISNOT INSOLVENT AND HAS THE ASSETS DEFINED HEREUNDER TO

SECURE THE ADVANCES.

SECTION 84. E MERGENCY LOANS AND ADVANCES. – THE AMOUNT OF ANYEMERGENCY LOAN OR ADVANCE SHALL NOT EXCEED THE SUM OF FIFTY

PERCENT (50%) OF TOTAL DEPOSITS AND DEPOSIT SUBSTITUTES OF THEBANKING INSTITUTION AND SHALL BE DISBURSED IN TWO (2) OR MORETRANCHES. XXX.


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Conservatorship (Sec. 29; Sec, 67, RA 8791)

SECTION 29. APPOINTMENT OF CONSERVATOR. - WHENEVER, ON THE BASIS

OF A REPORT SUBMITTED BY THE APPROPRIATE SUPERVISING OR EXAMININGDEPARTMENT, THE MONETARY BOARD FINDS THAT A BANK OR A QUASI-BANKIS IN A STATE OF CONTINUING INABILITY OR UNWILLINGNESS TO MAINTAIN A

CONDITION OF LIQUIDITY DEEMED ADEQUATE TO PROTECT THE INTEREST OF

DEPOSITORS AND CREDITORS, THE MONETARY BOARD MAY APPOINT ACONSERVATOR WITH SUCH POWERS AS THE MONETARY BOARD SHALL DEEMNECESSARY TO:

1. TAKE CHARGE OF THE ASSETS, LIABILITIES, AND THE MANAGEMENTTHEREOF,

2. REORGANIZE THE MANAGEMENT,3. COLLECT ALL MONIES AND DEBTS DUE SAID INSTITUTION, AND4. EXERCISE ALL POWERS NECESSARY TO RESTORE ITS VIABILITY.

THE CONSERVATOR SHALL REPORT AND BE RESPONSIBLE TO THE MONETARY

BOARD AND SHALL HAVE THE POWER TO OVERRULE OR REVOKE THE ACTIONSOF THE PREVIOUS MANAGEMENT AND BOARD OF DIRECTORS OF THE BANK OR

QUASI-BANK.

THE CONSERVATOR SHOULD BE COMPETENT AND KNOWLEDGEABLE IN BANKOPERATIONS AND MANAGEMENT. THE CONSERVATORSHIP SHALL NOT EXCEEDONE (1) YEAR. XXX.

THE MONETARY BOARD SHALL TERMINATE THE CONSERVATORSHIP WHEN IT ISSATISFIED THAT THE INSTITUTION CAN CONTINUE TO OPERATE ON ITS OWN

AND THE CONSERVATORSHIP IS NO LONGER NECESSARY. THECONSERVATORSHIP SHALL LIKEWISE BE TERMINATED SHOULD THE MONETARYBOARD, ON THE BASIS OF THE REPORT OF THE CONSERVATOR OR OF ITS OWNFINDINGS, DETERMINE THAT THE CONTINUANCE IN BUSINESS OF THE

INSTITUTION WOULD INVOLVE PROBABLE LOSS TO ITS DEPOSITORS ORCREDITORS, IN WHICH CASE THE PROVISIONS OF SECTION 30 SHALL APPLY.

SECTION 67, R.A.8791 CONSERVATORSHIP. - THE GROUNDS ANDPROCEDURES FOR PLACING A BANK UNDER CONSERVATORSHIP, AS WELL AS,THE POWERS AND DUTIES OF THE CONSERVATOR APPOINTED FOR THE BANK

SHALL BE GOVERNED BY THE PROVISIONS OF SECTION 29 AND THE LAST TWOPARAGRAPHS OF SECTION 30 OF THE NEW CENTRAL BANK ACT: PROVIDED,THAT THIS SECTION SHALL ALSO APPLY TO CONSERVATORSHIP PROCEEDINGSOF QUASI-BANKS. (N)

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. – THEACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDERSECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BERESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FOR

CERTIORARI ON THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OF

JURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TO

LACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLYBE FILED BY THE STOCKHOLDERS OF RECORD REPRESENTING THE MAJORITY

OF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARDOF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP,LIQUIDATION OR CONSERVATORSHIP.

Comment [WU2]: Section 28-A merelythe conservator power to revoke contracare, under existing law, deemed to be de— i.e., void, voidable, unenforceable orrescissible. Hence, the conservator meretakes the place of a bank's board of direWhat the said board cannot do — such repudiating a contract validly entered intthe doctrine of implied authority — theconservator cannot do either. Ineluctablypower is not unilateral and he cannot simrepudiate valid obligations of the Bank. Hauthority would be only to bring court acassail such contracts — as he has alreaso in the instant case. [First Bank v. CA,


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THE DESIGNATION OF A CONSERVATOR UNDER SECTION 29 OF THIS ACT ORTHE APPOINTMENT OF A RECEIVER UNDER THIS SECTION SHALL BE VESTED

EXCLUSIVELY WITH THE MONETARY BOARD. FURTHERMORE, THEDESIGNATION OF A CONSERVATOR IS NOT A PRECONDITION TO THE

DESIGNATION OF A RECEIVER.

Closure (Sec. 30; Secs. 53 and 56.4, RA 8791)

Receivership (Sec. 30; Secs. 69-70, RA 8791)

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. –

THE MONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR PRIORHEARING FORBID THE INSTITUTION FROM DOING BUSINESS IN THE PHILIPPINESAND DESIGNATE THE PHILIPPINE DEPOSIT INSURANCE CORPORATION ASRECEIVER OF THE BANKING INSTITUTION. [FOR A QUASI-BANK, ANY PERSON OFRECOGNIZED COMPETENCE IN BANKING OR FINANCE MAY BE DESIGNED AS

RECEIVER.] WHENEVER, UPON REPORT OF THE HEAD OF THE SUPERVISING OREXAMINING DEPARTMENT, THE MONETARY BOARD FINDS THAT A BANK ORQUASI-BANK:

(A) IS UNABLE TO PAY ITS LIABILITIES AS THEY BECOME DUE IN THEORDINARY COURSE OF BUSINESS: PROVIDED, THAT THIS SHALL NOTINCLUDE INABILITY TO PAY CAUSED BY EXTRAORDINARY DEMANDS

INDUCED BY FINANCIAL PANIC IN THE BANKING COMMUNITY;

(B) HAS INSUFFICIENT REALIZABLE ASSETS, AS DETERMINED BY THEBANGKO SENTRAL, TO MEET ITS LIABILITIES; OR

(C) CANNOT CONTINUE IN BUSINESS WITHOUT INVOLVING PROBABLELOSSES TO ITS DEPOSITORS OR CREDITORS; OR

(D) HAS WILLFULLY VIOLATED A CEASE AND DESIST ORDER UNDERSECTION 37 THAT HAS BECOME FINAL, INVOLVING ACTS OR TRANSACTIONSWHICH AMOUNT TO FRAUD OR A DISSIPATION OF THE ASSETS OF THE

INSTITUTION;

SECTION 53. RA 8791. OTHER B ANKING SERVICES. - IN CASE A BANK ORQUASI-BARK NOTIFIES THE BANGKO SENTRAL OR PUBLICLY ANNOUNCES ABANK HOLIDAY, OR IN ANY MANNER SUSPENDS THE PAYMENT OF ITS DEPOSITLIABILITIES CONTINUOUSLY FOR MORE THAN THIRTY (30) DAYS, THEMONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR PRIOR HEARINGCLOSE SUCH BANKING INSTITUTION AND PLACE IT UNDER RECEIVERSHIP OF

THE PHILIPPINE DEPOSIT INSURANCE CORPORATION. (72A)

SECTION 56. RA 8791. C ONDUCTING BUSINESS IN AN U NSAFE OR U NSOUND

M ANNER - WHENEVER A BANK, QUASI-BANK OR TRUST ENTITY PERSISTS INCONDUCTING ITS BUSINESS IN AN UNSAFE OR UNSOUND MANNER, THEMONETARY BOARD MAY, WITHOUT PREJUDICE TO THE ADMINISTRATIVESANCTIONS PROVIDED IN SECTION 37 OF THE NEW CENTRAL B ANK ACT, TAKE

ACTION UNDER SECTION 30 OF THE SAME ACT AND/OR IMMEDIATELY EXCLUDETHE ERRING BANK FROM CLEARING, THE PROVISIONS OF LAW TO THECONTRARY NOTWITHSTANDING.

Comment [WU3]: In RA 7653, only a "of the head of the supervising or examindepartment" is necessary. It is an establrule in statutory construction that where words of a statute are clear, plain and freambiguity, it must be given its literal meaand applied without a ttemptedinterpretation.Laying down the requisitesclosure of a bank under the law is theprerogative of the legislature and what itwisdom dictates. The lawmakers could heasily retained the word "examination" (athe process also preserved the jurisprudattached to it) but they did not and insteaopted to use the word "report." The insison an examination is not sanctioned by R7653 and we would be guilty of judiciallegislation were we to make it a requiremwhen such is not supported by the languthe law.

Comment [O4]: 56.1 The act or omissresulted or may result in material loss ordamage, or abnormal risk or danger to thsafety, stability, liquidity or solvency of thinstitution;

56.2 The act or omission has resulted orresult in material loss or damage or abnorisk to the institution's depositors, creditoinvestors, stockholders or to the Bangkoor to the public in general;

56.3 The act or omission has caused aninjury, or has given any unwarranted benadvantage or preference to the bank or a

party in the discharge by the director or oof his duties and responsibilities throughmanifest partiality, evident bad faith or ginexcusable negligence; or

56.4 The act or omission involves enteriany contract or transaction manifestly angrossly disadvantageous to the bank, qubank or trust entity, whether or not the dor officer profited or will profit thereby.


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SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. - THERECEIVER SHALL :

1. IMMEDIATELY GATHER AND TAKE CHARGE OF ALL THE ASSETS ANDLIABILITIES OF THE INSTITUTION,

2. ADMINISTER THE SAME FOR THE BENEFIT OF ITS CREDITORS,3. AND EXERCISE THE GENERAL POWERS OF A RECEIVER UNDER THE

REVISED RULES OF COURT4. BUT SHALL NOT, WITH THE EXCEPTION OF ADMINISTRATIVE

EXPENDITURES, PAY OR COMMIT ANY ACT THAT WILL INVOLVE THETRANSFER OR DISPOSITION OF ANY ASSET OF THE INSTITUTION:

PROVIDED, THAT THE RECEIVER MAY DEPOSIT OR PLACE THE FUNDS OF THEINSTITUTION IN NON-SPECULATIVE INVESTMENTS. THE RECEIVER SHALLDETERMINE AS SOON AS POSSIBLE, BUT NOT LATER THAN NINETY (90) DAYSFROM TAKE OVER, WHETHER THE INSTITUTION MAY BE REHABILITATED OROTHERWISE PLACED IN SUCH A CONDITION SO THAT IT MAY BE PERMITTED TO

RESUME BUSINESS WITH SAFETY TO ITS DEPOSITORS AND CREDITORS ANDTHE GENERAL PUBLIC: PROVIDED, THAT ANY DETERMINATION FOR THERESUMPTION OF BUSINESS OF THE INSTITUTION SHALL BE SUBJECT TO PRIOR

APPROVAL OF THE MONETARY BOARD.

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. – THEACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDERSECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BERESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FOR




OF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARDOF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP,LIQUIDATION OR CONSERVATORSHIP.

THE DESIGNATION OF A CONSERVATOR UNDER SECTION 29 OF THIS ACT ORTHE APPOINTMENT OF A RECEIVER UNDER THIS SECTION SHALL BE VESTED

EXCLUSIVELY WITH THE MONETARY BOARD. FURTHERMORE, THEDESIGNATION OF A CONSERVATOR IS NOT A PRECONDITION TO THE

DESIGNATION OF A RECEIVER.


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BAR Q [2009]: TRUE OF FALSE—A BANK UNDER RECEIVERSHIP CAN STILLGRANT NEW LOANS AND ACCEPT NEW DEPOSITS.

SUGGESTED ANSWER: FALSE. During the receivership, the assets andproperties of the corporation into cash in preparation for distribution tocreditors. Granting new loans and accepting new deposits wouldconstitute doing business for the bank in the ordinary course of businesswhich is contrary to the nature and purpose of a receivership proceeding.

BAR Q [2009]: MAHARLIKANG PILIPINO BANKING CORPORATION [MPBC]OPERATES SEVERAL BRANCHES OF MAHARLIKANG PILIPINO RURAL BANK INEASTERN VISAYAS. ALMOST ALL THE BRANCH MANAGERS ARE CLOSE RELATIVESOF THE MEMBERS OF THE BOARD OF DIRECTORS OF THE CORPORATION. MANYUNDESERVING RELATIVES OF THE BRANCH MANAGERS WERE GRANTED LOANS. INTIME, THE BRANCHES COULD NOT SETTLE THEIR OBLIGATIONS TO DEPOSITORSAND CREDITORS.

RECEIVING REPORTS OF THESE IRREGULARITIES, THE SUPERVISING ANDEXAMINING DEPARTMENT [SED] OF THE MONETARY BOARD PREPARED ADETAILED REPORT SPECIFYING THE FACTS AND THE CHRONOLOGY OF EVENTS

RELATIVE TO THE PROBLEMS THAT BESET MPBC RURAL BANK BRANCHES. THEREPORT CONCLUDED THAT THE BANK BRANCHES WERE UNABLE TO PAY THEIR

LIABILITIES AS THEY FELL DUE, AND COULD NOT POSSIBLY CONTINUE IN BUSINESSWITHOUT INCURRING SUBSTANTIAL LOSSES TO ITS DEPOSITORS.

A. MAY THE MONETARY BOARD ORDER THE CLOSURE OF THE MPBC RURALBANKS RELYING ONLY ON THE SED REPORT, WITHOUT NEED OF ANEXAMINATION?

B. IF MPBC HIRES YOU AS A LAWYER BECAUSE THE MONETARY BOARD HASFORBIDDEN IT FROM CARRYING ON ITS BUSINESS DUE TO ITS IMMINENT

INSOLVENCY, WHAT ACTION WILL YOU INSTITUTE TO QUESTION THE

MONETARY BOARD’S ORDER?

SUGGESTED ANSWER:

A. Yes. Upon receipt of the report of the SED, the Monetary Board isauthorized to take any of the actions enumerated under the Sec. 30,RA 7653, otherwise known as the New Central Bank Act, leading tothe receivership and liquidation of a bank or quasi-bank. There is norequirement that an examination be first conducted before a bankinginstitution may be placed under receivership. [RURAL BANK OF SANMIGUEL V. MONETARY BOARD, 2007]

B. The order of the Monetary Board may be questioned on a petition forcertiorari on the ground that the action taken was in excess of

jurisdiction or with grave abuse of discretion amounting to lack orexcess of jurisdiction. The petition of certiorari may only be filed by thestockholders representing the majority of the capital stock within 10days from receipt by the board of directors of MPBC of the orderdirecting receivership, liquidation or conservatorship. [SEC. 30, PAR.[2], RA 7653]


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BAR Q [2002]: DISTINGUISH BETWEEN THE ROLE OF A CONSERVATOR AND THATOF A RECEIVER OF A BANK.

SUGESTED ANSWER: The Conservator is appointed for a period notexceeding one (1) year, to take charge of the assets, liabilities, andthe management of a bank or a quasi-bank in a state of continuinginability, or unwillingness to maintain a condition of liquidity deemedadequate to protect the interest of depositors and creditors.

On the other hand, the Receiver is appointed to manage a bank orquasi-bank that is unable to pay its liabilities in the ordinary course ofbusiness, or has insufficient realizable assets to meet its liabilities, orcannot continue in business without probable losses to its depositorsor creditors; or has willfully violated a final cease and desist order,involving acts or transactions amounting to fraud or a dissipation ofthe assets of the institution. The main purpose of the Receiver is torecommend the rehabilitation or liquidation of the bank.


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Liquidation (Sec. 30; Sec. 69, RA 8791)

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. -IF THE

RECEIVER DETERMINES THAT THE INSTITUTION CANNOT BE REHABILITATED ORPERMITTED TO RESUME BUSINESS IN ACCORDANCE WITH THE NEXT

PRECEDING PARAGRAPH, THE MONETARY BOARD SHALL NOTIFY IN WRITINGTHE BOARD OF DIRECTORS OF ITS FINDINGS AND DIRECT THE RECEIVER TO

PROCEED WITH THE LIQUIDATION OF THE INSTITUTION. THE RECEIVER SHALL:

(1) FILE EX PARTE WITH THE PROPER REGIONAL TRIAL COURT, ANDWITHOUT REQUIREMENT OF PRIOR NOTICE OR ANY OTHER ACTION, APETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE INSTITUTION

PURSUANT TO A LIQUIDATION PLAN ADOPTED BY THE PHILIPPINE DEPOSITINSURANCE CORPORATION FOR GENERAL APPLICATION TO ALL CLOSEDBANKS. IN CASE OF QUASI-BANKS, THE LIQUIDATION PLAN SHALL BEADOPTED BY THE MONETARY BOARD. UPON ACQUIRING JURISDICTION,THE COURT SHALL, UPON MOTION BY THE RECEIVER AFTER DUE NOTICE,ADJUDICATE DISPUTED CLAIMS AGAINST THE INSTITUTION, ASSIST THE

ENFORCEMENT OF INDIVIDUAL LIABILITIES OF THE STOCKHOLDERS,DIRECTORS AND OFFICERS, AND DECIDE ON OTHER ISSUES AS MAY BEMATERIAL TO IMPLEMENT THE LIQUIDATION PLAN ADOPTED. THE RECEIVERSHALL PAY THE COST OF THE PROCEEDINGS FROM THE ASSETS OF THE

INSTITUTION.

(2) CONVERT THE ASSETS OF THE INSTITUTIONS TO MONEY, DISPOSE OFTHE SAME TO CREDITORS AND OTHER PARTIES, FOR THE PURPOSE OFPAYING THE DEBTS OF SUCH INSTITUTION IN ACCORDANCE WITH THE

RULES ON CONCURRENCE AND PREFERENCE OF CREDIT UNDER THE CIVILCODE OF THE PHILIPPINES AND HE MAY, IN THE NAME OF THE INSTITUTION,AND WITH THE ASSISTANCE OF COUNSEL AS HE MAY RETAIN, INSTITUTESUCH ACTIONS AS MAY BE NECESSARY TO COLLECT AND RECOVER

ACCOUNTS AND ASSETS OF, OR DEFEND ANY ACTION AGAINST, THEINSTITUTION. THE ASSETS OF AN INSTITUTION UNDER RECEIVERSHIP ORLIQUIDATION SHALL BE DEEMED IN CUSTODIA LEGIS IN THE HANDS OF THE

RECEIVER AND SHALL, FROM THE MOMENT THE INSTITUTION WAS PLACEDUNDER SUCH RECEIVERSHIP OR LIQUIDATION, BE EXEMPT FROM ANYORDER OF GARNISHMENT, LEVY, ATTACHMENT, OR EXECUTION.

THE ACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION ORUNDER SECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAYNOT BE RESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FOR




OF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARDOF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP,

LIQUIDATION OR CONSERVATORSHIP.

SECTION 69. RA 8791. RECEIVERSHIP AND INVOLUNTARY LIQUIDATION. - THEGROUNDS AND PROCEDURES FOR PLACING A BANK UNDER RECEIVERSHIP OR

LIQUIDATION, AS WELL AS THE POWERS AND DUTIES OF THE RECEIVER ORLIQUIDATOR APPOINTED FOR THE BANK SHALL BE GOVERNED BY THE

PROVISIONS OF SECTIONS 30, 31, 32, AND 33 OF THE NEW CENTRAL BANK


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ACT: PROVIDED, THAT THE PETITIONER OR PLAINTIFF FILES WITH THE CLERKOR JUDGE OF THE COURT IN WHICH THE ACTION IS PENDING A BOND ,EXECUTED IN FAVOR OF THE BANGKO SENTRAL, IN AN AMOUNT TO BE FIXEDBY THE COURT. THIS SECTION SHALL ALSO APPLY TO THE EXTENT POSSIBLETO THE RECEIVERSHIP AND LIQUIDATION PROCEEDINGS OF QUASI-BANKS. (N)

SECTION 70. RA 8791. PENALTY FOR T RANSACTIONS AFTER A B ANK BECOMES INSOLVENT . - ANY DIRECTOR OR OFFICER OF ANY BANK DECLAREDINSOLVENT OR PLACED UNDER RECEIVERSHIP BY THE MONETARY BOARD WHOREFUSES TO TURN OVER THE BANK'S RECORDS AND ASSETS TO THEDESIGNATED RECEIVERS, OR WHO TAMPERS WITH BANKS RECORDS, OR WHOAPPROPRIATES FOR HIMSELF FOR ANOTHER PARTY OR DESTROYS OR CAUSES

THE MISAPPROPRIATION AND DESTRUCTION OF THE BANK'S ASSETS, OR WHORECEIVES OR PERMITS OR CAUSES TO BE RECEIVED IN SAID BANK ANY

DEPOSIT, COLLECTION OF LOANS AND / OR RECEIVABLES, OR WHO PAYS OUTOR PERMITS OR CAUSES TO BE TRANSFERRED ANY SECURITIES OR PROPERTY

OF SAID BANK SHALL BE SUBJECT TO THE PENAL PROVISIONS OF THE NEWCENTRAL BANK ACT. (85A)

How the BSP handles exchange crises (Sec. 72)

SECTION 72. E MERGENCY RESTRICTIONS ON E XCHANGE OPERATIONS. - IN ORDERTO ACHIEVE THE PRIMARY OBJECTIVE OF THE BANGKO SENTRAL AS SET FORTH INSECTION 3 OF THIS ACT, OR PROTECT THE INTERNATIONAL RESERVES OF THEBANGKO SENTRAL IN THE IMMINENCE OF, OR DURING AN EXCHANGE CRISIS, OR INTIME OF NATIONAL EMERGENCY AND TO GIVE THE MONETARY BOARD AND THEGOVERNMENT TIME IN WHICH TO TAKE CONSTRUCTIVE MEASURES TO FORESTALL,COMBAT, OR OVERCOME SUCH A CRISIS OR EMERGENCY, THE MONETARY BOARD,WITH THE CONCURRENCE OF AT LEAST FIVE (5) OF ITS MEMBERS AND WITH THEAPPROVAL OF THE PRESIDENT OF THE PHILIPPINES, MAY—

1. TEMPORARILY SUSPEND OR RESTRICT SALES OF EXCHANGE BY THE

BANGKO SENTRAL, AND2. MAY SUBJECT ALL TRANSACTIONS IN GOLD AND FOREIGN EXCHANGE TO

LICENSE BY THE BANGKO SENTRAL, AND

3. MAY REQUIRE THAT ANY FOREIGN EXCHANGE THEREAFTER OBTAINED BYANY PERSON RESIDING OR ENTITY OPERATING IN THE PHILIPPINES BEDELIVERED TO THE BANGKO SENTRAL OR TO ANY BANK OR AGENTDESIGNATED BY THE BANGKO SENTRAL FOR THE PURPOSE, AT THEEFFECTIVE EXCHANGE RATE OR RATES:

PROVIDED, HOWEVER, THAT FOREIGN CURRENCY DEPOSITS MADE UNDERREPUBLIC ACT NO. 6426 SHALL BE EXEMPT FROM THESE REQUIREMENTS.


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Functions of the BSP (e.g., Secs. 49-60; 61-63, 81-89, 109; 64-66; 82-84; 94 and103; 102; 110-116; 117-122; 123-124)

Exclusive issue power (Sec. 50); liability for notes and coins (Sec. 51); legaltender power (Sec. 53)

SECTION 50. E XCLUSIVE ISSUE POWER. - THE BANGKO SENTRAL SHALL HAVETHE SOLE POWER AND AUTHORITY TO ISSUE CURRENCY, WITHIN THETERRITORY OF THE PHILIPPINES. NO OTHER PERSON OR ENTITY, PUBLIC ORPRIVATE, MAY PUT INTO CIRCULATION NOTES, COINS OR ANY OTHER OBJECTOR DOCUMENT WHICH, IN THE OPINION OF THE MONETARY BOARD, MIGHTCIRCULATE AS CURRENCY, NOR REPRODUCE OR IMITATE THE FACSIMILES OFBANGKO SENTRAL NOTES WITHOUT PRIOR AUTHORITY FROM THE BANGKOSENTRAL. XXX.

SECTION 51. LIABILITY FOR NOTES AND COINS. - NOTES AND COINS ISSUEDBY THE BANGKO SENTRAL SHALL BE LIABILITIES OF THE BANGKO SENTRALAND MAY BE ISSUED ONLY AGAINST, AND IN AMOUNTS NOT EXCEEDING, THEASSETS OF THE BANGKO SENTRAL. SAID NOTES AND COINS SHALL BE A FIRSTAND PARAMOUNT LIEN ON ALL ASSETS OF THE BANGKO SENTRAL.

THE BANGKO SENTRAL'S HOLDINGS OF ITS OWN NOTES AND COINS SHALL NOTBE CONSIDERED AS PART OF ITS CURRENCY ISSUE AND , ACCORDINGLY, SHALLNOT FORM PART OF THE ASSETS OR LIABILITIES OF THE BANGKO SENTRAL.

SECTION 52. LEGAL T ENDER P OWER . - ALL NOTES AND COINS ISSUED BY THEB ANGKO SENTRAL SHALL BE FULLY GUARANTEED BY THE GOVERNMENT OFTHE REPUBLIC OF THE PHILIPPINES AND SHALL BE LEGAL TENDER IN THEPHILIPPINES FOR ALL DEBTS, BOTH PUBLIC AND PRIVATE: PROVIDED,HOWEVER, THAT, UNLESS OTHERWISE FIXED BY THE MONETARY BOARD,COINS SHALL BE LEGAL TENDER IN AMOUNTS NOT EXCEEDING FIFTY PESOS(P50.00) FOR DENOMINATIONS OF TWENTY-FIVE CENTAVOS AND ABOVE, AND

IN AMOUNTS NOT EXCEEDING TWENTY PESOS (P20.00) FOR DENOMINATIONSOF TEN CENTAVOS OR LESS.

DTCSUPPLEMENT TO PARAGRAPH 1.17 (A), PP. 12-13

On account of the issuance by the BSP of new coins in higherdenominations after the affectivity of the BSP Law in 1993, the BSP,pursuant to Section 52 of the BSP Law and Monetary BoardResolution No. 862, dated July 6, 2006, issued Circular No. 537,dated July 18, 2006, which adjusted the maximum amount of coins tobe considered as legal tender as follows:

1. (P1,000) for denominations of 1-Piso, 5-Piso and 10-Piso coins;and

2. (P100) for denominations of 1-sentimo, 5-sentimo, 10-sentimo,and 25-sentimo

Instruments of action (e.g., Secs. 68; 69-79; 81-89, 93; 90-92; 94-103; 104-108)


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Setting of bank reserve requirements (Secs. 94-103)

SECTION 94. RESERVE REQUIREMENTS. - IN ORDER TO CONTROL THE VOLUME

OF MONEY CREATED BY THE CREDIT OPERATIONS OF THE BANKING SYSTEM,ALL BANKS OPERATING IN THE PHILIPPINES SHALL BE REQUIRED TO MAINTAINRESERVES AGAINST THEIR DEPOSIT LIABILITIES: PROVIDED, THAT THEMONETARY BOARD MAY, AT ITS DISCRETION, ALSO REQUIRE ALL BANKSAND / OR QUASI-BANKS TO MAINTAIN RESERVES AGAINST FUNDS HELD IN TRUSTAND LIABILITIES FOR DEPOSIT SUBSTITUTES AS DEFINED IN THIS ACT. THEREQUIRED RESERVES OF EACH BANK SHALL BE PROPORTIONAL TO THE

VOLUME OF ITS DEPOSIT LIABILITIES AND SHALL ORDINARILY TAKE THE FORM

OF A DEPOSIT IN THE BANGKO SENTRAL. RESERVE REQUIREMENTS SHALL BEAPPLIED TO ALL BANKS OF THE SAME CATEGORY UNIFORMLY AND WITHOUT

DISCRIMINATION.

RESERVES AGAINST DEPOSIT SUBSTITUTES, IF IMPOSED, SHALL BEDETERMINED IN THE SAME MANNER AS PROVIDED FOR RESERVE

REQUIREMENTS AGAINST REGULAR BANK DEPOSITS, WITH RESPECT TO THE

IMPOSITION, INCREASE, AND COMPUTATION OF RESERVES.

THE MONETARY BOARD MAY EXEMPT FROM RESERVE REQUIREMENTSDEPOSITS AND DEPOSIT SUBSTITUTES WITH REMAINING MATURITIES OF TWO

(2) YEARS OR MORE, AS WELL AS INTERBANK BORROWINGS.

SINCE THE REQUIREMENT TO MAINTAIN BANK RESERVES IS IMPOSEDPRIMARILY TO CONTROL THE VOLUME OF MONEY, THE BANGKO SENTRALSHALL NOT PAY INTEREST ON THE RESERVES MAINTAINED WITH IT UNLESS THE

MONETARY BOARD DECIDES OTHERWISE AS WARRANTED BYCIRCUMSTANCES.

SECTION 95. DEFINITION OF DEPOSIT SUBSTITUTES. - THE TERM "DEPOSITSUBSTITUTES" IS DEFINED AS—

1. AN ALTERNATIVE FORM OF OBTAINING FUNDS FROM THE PUBLIC,OTHER THAN DEPOSITS,

2. THROUGH THE ISSUANCE, ENDORSEMENT, OR ACCEPTANCE OF DEBTINSTRUMENTS

3. FOR THE BORROWER'S OWN ACCOUNT,4. FOR THE PURPOSE OF RELENDING OR PURCHASING OF RECEIVABLES

AND OTHER OBLIGATIONS.

THESE INSTRUMENTS MAY INCLUDE, BUT NEED NOT BE LIMITED TO, BANKERSACCEPTANCES, PROMISSORY NOTES, PARTICIPATIONS, CERTIFICATES OFASSIGNMENT AND SIMILAR INSTRUMENTS WITH RECOURSE, AND REPURCHASEAGREEMENTS. THE MONETARY BOARD SHALL DETERMINE WHAT SPECIFICINSTRUMENTS SHALL BE CONSIDERED AS DEPOSIT SUBSTITUTES FOR THE

PURPOSES OF SECTION 94 OF THIS ACT: PROVIDED, HOWEVER, THAT

DEPOSIT SUBSTITUTES OF COMMERCIAL, INDUSTRIAL AND OTHER NON-FINANCIAL COMPANIES FOR THE LIMITED PURPOSE OF FINANCING THEIR OWN

NEEDS OR THE NEEDS OF THEIR AGENTS OR DEALERS SHALL NOT BE COVERED

BY THE PROVISIONS OF SECTION 94 OF THIS ACT.


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SECTION 96. REQUIRED RESERVES AGAINST PESO DEPOSITS. - THEMONETARY BOARD MAY FIX AND, WHEN IT DEEMS NECESSARY, ALTER THEMINIMUM RESERVE RATIOS TO PESO DEPOSITS, AS WELL AS TO DEPOSITSUBSTITUTES

,WHICH EACH BANK AND

/ OR QUASI

-BANK MAY MAINTAIN

,AND

SUCH RATIO SHALL BE APPLIED UNIFORMLY TO ALL BANKS OF THE SAME

CATEGORY AS WELL AS TO QUASI-BANKS.

SECTION 97. REQUIRED RESERVES AGAINST F OREIGN CURRENCY DEPOSITS. -THE MONETARY BOARD IS SIMILARLY AUTHORIZED TO PRESCRIBE AND MODIFYTHE MINIMUM RESERVE RATIOS APPLICABLE TO DEPOSITS DENOMINATED IN

FOREIGN CURRENCIES.

SECTION 98. RESERVES AGAINST UNUSED B ALANCES OF OVERDRAFT LINES. -IN ORDER TO FACILITATE BANGKO SENTRAL CONTROL OVER THE VOLUME OFBANK CREDIT, THE MONETARY BOARD MAY ESTABLISH MINIMUM RESERVEREQUIREMENTS FOR UNUSED BALANCES OF OVERDRAFT LINES.

THE POWERS OF THE MONETARY BOARD TO PRESCRIBE AND MODIFYRESERVE REQUIREMENTS AGAINST UNUSED BALANCES OF OVERDRAFT LINES

SHALL BE THE SAME AS ITS POWERS WITH RESPECT TO RESERVE

REQUIREMENTS AGAINST DEMAND DEPOSITS.

SECTION 99. INCREASE IN RESERVE REQUIREMENTS. - WHENEVER IN THEOPINION OF THE MONETARY BOARD IT BECOMES NECESSARY TO INCREASERESERVE REQUIREMENTS AGAINST EXISTING LIABILITIES, THE INCREASE SHALLBE MADE IN A GRADUAL MANNER AND SHALL NOT EXCEED FOUR PERCENTAGE

POINTS IN ANY THIRTY-DAY PERIOD. BANKS AND OTHER AFFECTED FINANCIALINSTITUTIONS SHALL BE NOTIFIED REASONABLY IN ADVANCE OF THE DATE ON

WHICH SUCH INCREASE IS TO BECOME EFFECTIVE.

SECTION 100. COMPUTATION ON RESERVES. - THE RESERVE POSITION OFEACH BANK OR QUASI-BANK SHALL BE CALCULATED DAILY ON THE BASIS OF

THE AMOUNT, AT THE CLOSE OF BUSINESS FOR THE DAY , OF THEINSTITUTION'S RESERVES AND THE AMOUNT OF ITS LIABILITY ACCOUNTSAGAINST WHICH RESERVES ARE REQUIRED TO BE MAINTAINED: PROVIDED,THAT WITH REFERENCE TO HOLIDAYS OR NON-BANKING DAYS, THE RESERVEPOSITION AS CALCULATED AT THE CLOSE OF THE BUSINESS DAY IMMEDIATELY

PRECEDING SUCH HOLIDAYS AND NON-BANKING DAYS SHALL APPLY ON SUCHDAYS.

FOR THE PURPOSE OF COMPUTING THE RESERVE POSITION OF EACH BANK ORQUASI-BANK, ITS PRINCIPAL OFFICE IN THE PHILIPPINES AND ALL ITSBRANCHES AND AGENCIES LOCATED THEREIN SHALL BE CONSIDERED AS A

SINGLE UNIT.

SECTION 101. RESERVE DEFICIENCIES. - WHENEVER THE RESERVE POSITIONOF ANY BANK OR QUASI-BANK, COMPUTED IN THE MANNER SPECIFIED IN THEPRECEDING SECTION OF THIS ACT, IS BELOW THE REQUIRED MINIMUM, THEBANK OR QUASI-BANK SHALL PAY THE BANGKO SENTRAL ONE-TENTH OF ONEPERCENT (1/10 OF 1%) PER DAY ON THE AMOUNT OF THE DEFICIENCY OR THEPREVAILING NINETY-ONE-DAY TREASURY BILL RATE PLUS THREE PERCENTAGEPOINTS, WHICHEVER IS HIGHER: PROVIDED, HOWEVER, THAT BANKS ANDQUASI-BANKS SHALL ORDINARILY BE PERMITTED TO OFFSET ANY RESERVEDEFICIENCY OCCURRING ON ONE OR MORE DAYS OF THE WEEK WITH ANY


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EXCESS RESERVES WHICH THEY MAY HOLD ON OTHER DAYS OF THE SAME

WEEK AND SHALL BE REQUIRED TO PAY THE PENALTY ONLY ON THE AVERAGE

DAILY DEFICIENCY DURING THE WEEK. IN CASES OF ABUSE, THE MONETARYBOARD MAY DENY ANY BANK OR QUASI-BANK THE PRIVILEGE OF OFFSETTINGRESERVE DEFICIENCIES IN THE AFORESAID MANNER.

IF A BANK OR QUASI-BANK CHRONICALLY HAS A RESERVE DEFICIENCY, THEMONETARY BOARD MAY LIMIT OR PROHIBIT THE MAKING OF NEW LOANS ORINVESTMENTS BY THE INSTITUTION AND MAY REQUIRE THAT PART OR ALL OF

THE NET PROFITS OF THE INSTITUTION BE ASSIGNED TO SURPLUS.

THE MONETARY BOARD MAY MODIFY OR SET ASIDE THE RESERVE DEFICIENCYPENALTIES PROVIDED IN THIS SECTION, FOR PART OR THE ENTIRE PERIOD OF ASTRIKE OR LOCKOUT AFFECTING A BANK OR A QUASI-BANK AS DEFINED IN THELABOR CODE, OR OF A NATIONAL EMERGENCY AFFECTING OPERATIONS OFBANKS OR QUASI-BANKS. THE MONETARY BOARD MAY ALSO MODIFY OR SETASIDE RESERVED DEFICIENCY PENALTIES FOR REHABILITATION PROGRAM OF A

BANK.

SECTION 102. INTERBANK SETTLEMENT . - THE BANGKO SENTRAL SHALLESTABLISH FACILITIES FOR INTERBANK CLEARING UNDER SUCH RULES AND

REGULATIONS AS THE MONETARY BOARD MAY PRESCRIBE: PROVIDED, THATTHE BANGKO SENTRAL MAY CHARGE ADMINISTRATIVE AND OTHER FEES FORTHE MAINTENANCE OF SUCH FACILITIES.

THE DEPOSIT RESERVES MAINTAINED BY THE BANKS IN THE BANGKO SENTRALIN ACCORDANCE WITH THE PROVISIONS OF SECTION 94 OF THIS ACT SHALLSERVE AS BASIS FOR THE CLEARING OF CHECKS AND THE SETTLEMENT OF

INTERBANK BALANCES, SUBJECT TO SUCH RULES AND REGULATIONS AS THEMONETARY BOARD MAY ISSUE WITH RESPECT TO SUCH OPERATIONS:PROVIDED, THAT ANY BANK WHICH INCURS ON OVERDRAWING IN ITS DEPOSITACCOUNT WITH THE BANGKO SENTRAL SHALL FULLY COVER SAID OVERDRAFT,INCLUDING INTEREST THEREON AT A RATE EQUIVALENT TO ONE-TENTH OF ONEPERCENT (1/10 OF 1%) PER DAY OR THE PREVAILING NINETY-ONE-DAYTREASURY BILL RATE PLUS THREE PERCENTAGE POINTS, WHICHEVER ISHIGHER, NOT LATER THAN THE NEXT CLEARING DAY: PROVIDED, FURTHER,THAT SETTLEMENT OF CLEARING BALANCES SHALL NOT BE EFFECTED FOR ANYACCOUNT WHICH CONTINUES TO BE OVERDRAWN FOR FIVE (5) CONSECUTIVEBANKING DAYS UNTIL SUCH TIME AS THE OVERDRAWING IS FULLY COVERED OR

OTHERWISE CONVERTED INTO AN EMERGENCY LOAN OR ADVANCE PURSUANT

TO THE PROVISIONS OF SECTION 84 OF THIS ACT: PROVIDED, FINALLY, THATTHE APPROPRIATE CLEARING OFFICE SHALL BE OFFICIALLY NOTIFIED OF BANKS

WITH OVERDRAWN BALANCES. BANKS WITH EXISTING OVERDRAFTS WITH THEBANGKO SENTRAL AS OF THE EFFECTIVITY OF THIS ACT SHALL, WITHIN SUCHPERIOD AS MAY BE PRESCRIBED BY THE MONETARY BOARD, EITHER CONVERTTHE OVERDRAFT INTO AN EMERGENCY LOAN OR ADVANCE WITH A PLAN OF

PAYMENT, OR SETTLE SUCH OVERDRAFTS, AND THAT, UPON FAILURE TO SO

COMPLY HEREWITH, THE BANGKO SENTRAL SHALL TAKE SUCH ACTIONAGAINST THE BANK AS MAY BE WARRANTED UNDER THIS ACT.

SECTION 103. E XEMPTION FROM ATTACHMENT AND OTHER PURPOSES. -DEPOSITS MAINTAINED BY BANKS WITH THE BANGKO SENTRAL AS PART OFTHEIR RESERVE REQUIREMENTS SHALL BE EXEMPT FROM ATTACHMENT,GARNISHMENTS, OR ANY OTHER ORDER OR PROCESS OF ANY COURT,


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GOVERNMENT AGENCY OR ANY OTHER ADMINISTRATIVE BODY ISSUED TO

SATISFY THE CLAIM OF A PARTY OTHER THAN THE GOVERNMENT, OR ITSPOLITICAL SUBDIVISIONS OR INSTRUMENTALITIES.

Control of bank credit (Secs. 104-108; Secs. 37-38 and 43, RA 8791)

SECTION 104. GUIDING PRINCIPLE . - THE MONETARY BOARD SHALL USE THEPOWERS GRANTED TO IT UNDER THIS ACT TO ENSURE THAT THE SUPPLY,AVAILABILITY AND COST OF MONEY ARE IN ACCORD WITH THE NEEDS OF THE

PHILIPPINE ECONOMY AND THAT BANK CREDIT IS NOT GRANTED FORSPECULATIVE PURPOSES PREJUDICIAL TO THE NATIONAL INTERESTS.REGULATIONS ON BANK OPERATIONS SHALL BE APPLIED TO ALL BANKS OF THESAME CATEGORY UNIFORMLY AND WITHOUT DISCRIMINATION.

SECTION 105. M ARGIN REQUIREMENTS AGAINST LETTERS OF CREDIT . - THEMONETARY BOARD MAY AT ANY TIME PRESCRIBE MINIMUM CASH MARGINS FORTHE OPENING OF LETTERS OF CREDIT, AND MAY RELATE THE SIZE OF THEREQUIRED MARGIN TO THE NATURE OF THE TRANSACTION TO BE FINANCED.

SECTION 106. REQUIRED SECURITY AGAINST B ANK LOANS. - IN ORDER TOPROMOTE LIQUIDITY AND SOLVENCY OF THE BANKING SYSTEM, THEMONETARY BOARD MAY ISSUE SUCH REGULATIONS AS IT MAY DEEMNECESSARY WITH RESPECT TO THE MAXIMUM PERMISSIBLE MATURITIES OF

THE LOANS AND INVESTMENTS WHICH THE BANKS MAY MAKE, AND THE KINDAND AMOUNT OF SECURITY TO BE REQUIRED AGAINST THE VARIOUS TYPES OF

CREDIT OPERATIONS OF THE BANKS.

SECTION 107. PORTFOLIO CEILINGS. - WHENEVER THE MONETARY BOARDCONSIDERS IT ADVISABLE TO PREVENT OR CHECK AN EXPANSION OF BANK

CREDIT, THE BOARD MAY PLACE AN UPPER LIMIT ON THE AMOUNT OF LOANSAND INVESTMENTS WHICH THE BANKS MAY HOLD, OR MAY PLACE A LIMIT ONTHE RATE OF INCREASE OF SUCH ASSETS WITHIN SPECIFIED PERIODS OF TIME.

THE MONETARY BOARD MAY APPLY SUCH LIMITS TO THE LOANS ANDINVESTMENTS OF EACH BANK OR TO SPECIFIC CATEGORIES THEREOF.

IN NO CASE SHALL THE MONETARY BOARD ESTABLISH LIMITS WHICH AREBELOW THE VALUE OF THE LOANS OR INVESTMENTS OF THE BANKS ON THE

DATE ON WHICH THEY ARE NOTIFIED OF SUCH RESTRICTIONS. THERESTRICTIONS SHALL BE APPLIED TO ALL BANKS UNIFORMLY AND WITHOUT

DISCRIMINATION.

SECTION 108. MINIMUM C APITAL R ATIOS. - THE MONETARY BOARD MAYPRESCRIBE MINIMUM RATIOS WHICH THE CAPITAL AND SURPLUS OF THE BANKS

MUST BEAR TO THE VOLUME OF THEIR ASSETS, OR TO SPECIFIC CATEGORIESTHEREOF, AND MAY ALTER SAID RATIOS WHENEVER IT DEEMS NECESSARY .

Moral influence (Sec. 68)

SECTION 68. MEANS OF ACTION. - IN ORDER TO ACHIEVE THE PRIMARYOBJECTIVE OF PRICE STABILITY, THE MONETARY BOARD SHALL RELY ON ITSMORAL INFLUENCE AND THE POWERS GRANTED TO IT UNDER THIS ACT FORTHE MANAGEMENT OF MONETARY AGGREGATES.


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1.2 Cases

Authority of conservator to revoke contracts

FIRST PHILIPPINE INTERNATIONAL BANK VS. CA, ET AL.,G.R. 115849, JANUARY 24, 1996.

FACTS: First Bank is refusing the tender of payment being made by the private respondentsfor an alleged perfected sale of certain parcels of land owned by First Bank.To justify its refusal, First Bank brought forth the argument that the person whom the privaterespondents have been negotiating with had no authority to represent First Bank; that at thetime the negotiations between First Bank and the private respondents took place, itsappointed conservator [First Bank has been placed by the Central Bank underconservatorship] had already repudiated the authority of said person.

ISSUE: Was the repudiation valid?

HELD: NO. It is not disputed that the petitioner Bank was under a conservator placed by theCentral Bank of the Philippines during the time that the negotiation and perfection of thecontract of sale took place. Petitioners energetically contended that the conservator has thepower to revoke or overrule actions of the management or the board of directors of a bank,under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act).

While admittedly, the Central Bank law gives vast and far-reaching powers to theconservator of a bank, it must be pointed out that such powers must be related to the"(preservation of) the assets of the bank, (the reorganization of) the management thereofand (the restoration of) its viability." Such powers, enormous and extensive as they are,cannot extend to the post-facto repudiation of perfected transactions, otherwise they wouldinfringe against the non-impairment clause of the Constitution. If the legislature itself cannotrevoke an existing valid contract, how can it delegate such non-existent powers to theconservator under Section 28-A of said law?

Obviously, therefore, Section 28-A merely gives the conservator power to revokecontracts that are, under existing law, deemed to be defective — i.e., void, voidable,unenforceable or rescissible. Hence, the conservator merely takes the place of a bank'sboard of directors. What the said board cannot do — such as repudiating a contract validlyentered into under the doctrine of implied authority — the conservator cannot do either.Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of theBank. His authority would be only to bring court actions to assail such contracts — as he hasalready done so in the instant case.


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No need for prior hearing

RURAL BANK OF BUHI VS. CA,

G.R. L-61689, JUNE 20, 1988

FACTS: On January 10, 1980, a general examination of the bank's affairs and operations wasconducted and there were found by the Rural Banks and Savings and Loan Association[DRBSLA] represented byConsolacion V. Odra, Director of DRBSLA, among others,massive irregularities in its operations consisting of loans to unknown and fictitiousborrowers, where the sum of P 1,704,782.00 was past due and another sumof P1,130,000.00 was also past due in favor of the Central Bank. The promissory notesevidencing these loans were rediscounted with the Central Bank for cash. As a resultthereof, the bank became insolvent and prejudiced its depositors and creditors.

Consolacion V. Odra, submitted a report recommending to the Monetary Board of theCentral Bank the placing of Buhi under receivership in accordance with Section 29 ofRepublic Act No. 265, as amended, the designation of the Director, DRBSLA, as receiverthereof. On March 28, 1980, the Monetary Board, finding the report to be true, adoptedResolution No. 583 placing Buhi, petitioner herein, under receivership and designatedrespondent, Consolacion V. Odra, as Receiver, pursuant to the provisions of Section 29 ofRepublic Act No. 265 as amended.

Ïssue: Petitioner Rural Bank's position is to the effect that due process was not observed bythe Monetary Board before said bank was placed under receivership. Said Rural Bankclaimed that it was not given the chance to deny and disprove such claim of insolvencyand/or any other ground which the Monetary Board used in justification of its action.

HELD: Prior hearing not required under the law.

It will be observed from the foregoing provision of law, that there is no requirement whether

express or implied, that a hearing be first conducted before a banking institution may beplaced under receivership. On the contrary, the law is explicit as to the conditionsprerequisite to the action of the Monetary Board to forbid the institution to do business in thePhilippines and to appoint a receiver to immediately take charge of the bank's assets andliabilities. They are: (a) an examination made by the examining department of the CentralBank; (b) report by said department to the Monetary Board; and (c) prima facie showing thatthe bank is in a condition of insolvency or so situated that its continuance in business wouldinvolve probable loss to its depositors or creditors.

Due process does not necessarily require a prior hearing; a hearing or an opportunity to beheard may be subsequent to the closure. One can just imagine the dire consequences of aprior hearing: bank runs would be the order of the day, resulting in panic and hysteria. In theprocess, fortunes may be wiped out, and disillusionment will run the gamut of the entirebanking community.


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Section 30 of the BSP Law merely requires a report, not an examination, by the head of thesupervising or examining department before a bank could be closed

RURAL BANK OF SAN MIGUEL, ET AL. VS. MONETARY BOARD, ET AL.,G.R. 150886, FEBRUARY 16, 2007.

FACTS: On the basis of the comptrollership/monitoring report as of October 31, 1999 asreported by Mr. Wilfredo B. Domo-ong, Director, Department of Rural Banks, in hismemorandum dated January 20, 2000, which report showed that [RBSM] (a) is unable topay its liabilities as they become due in the ordinary course of business; (b) cannot continuein business without involving probable losses to its depositors and creditors; that themanagement of the bank had been accordingly informed of the need to infuse additionalcapital to place the bank in a solvent financial condition and was given adequate time withinwhich to make the required infusion and that no infusion of adequate fresh capital wasmade, Monetary Board (MB), the governing board of respondent Bangko Sentral ng Pilipinas(BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the Philippines,placing it under receivership and designating respondent Philippine Deposit InsuranceCorporation (PDIC) as receiver.

ISSUE: Petitioners argue that Resolution No. 105 was bereft of any basis considering that nocomplete examination had been conducted before it was issued. This case essentially boilsdown to one core issue: whether Section 30 of RA 7653 (also known as the New CentralBank Act) and applicable jurisprudence require a current and complete examination of thebank before it can be closed and placed under receivership.

HELD: In RA 7653, only a "report” of the head of the supervising or examining department"is necessary. It is an established rule in statutory construction that where the words of astatute are clear, plain and free from ambiguity, it must be given its literal meaning andapplied without attempted interpretation.

Laying down the requisites for the closure of a bank under the law is the prerogative of thelegislature and what its wisdom dictates. The lawmakers could have easily retained the word

"examination" (and in the process also preserved the jurisprudence attached to it) but theydid not and instead opted to use the word "report." The insistence on an examination is notsanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it arequirement when such is not supported by the language of the law.


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BSP, not RTC, has jurisdiction over acts complained of that pertain to bank’sbusiness

KORUGA VS. ARCENAS, ET AL.,G.R. 168332, JUNE 19, 2009.

FACTS: Koruga’s Complaint charged defendants with violation of Sections 31 to 34 of theCorporation Code, prohibiting self-dealing and conflict of interest of directors and officers;invoked her right to inspect the corporation’s records under Sections 74 and 75 of theCorporation Code; and prayed for Receivership and Creation of a Management Committee,pursuant to Rule 59 of the Rules of Civil Procedure, the Securities Regulation Code, theInterim Rules of Procedure Governing Intra-Corporate Controversies, the General BankingLaw of 2000, and the New Central Bank Act.

ISSUE: Who has jurisdiction over the complaint [BSP or RTC]?

HELD: Whether the loans referred to in Koruga’s complaint are covered by the prohibitionon self-dealing or not is a matter for the BSP to determine [not the RTC]. These are notordinary intra-corporate matters. The acts complained of pertain to the conduct of BancoFilipino’s banking business. A bank, as defined in the General Banking Law, refers to anentity engaged in the lending of funds obtained in the form of deposits. The law vests in theBSP the supervision over operations and activities of banks.

Also, it is the BSP [and not the RTC] which has jurisdiction to hear and decide the suit thatseeks to place Banco Filipino under receivership. Following the principle of “generaliaspecialibus non derogant,” is not the Interim Rules of Procedure on Intra-CorporateControversies nor Rule 59 of the Rules of Civil Procedure on Receivership, that would applyto this case. Instead, Sections 29 and 30 of the New Central Bank Act should be followed.

Crystal clear in Section 30 is the provision that says the "appointment of a receiver underthis section shall be vested exclusively with the Monetary Board." The term "exclusively"connotes that only the Monetary Board can resolve the issue of whether a bank is to be

placed under receivership and, upon an affirmative finding, it also has authority to appoint areceiver. This is further affirmed by the fact that the law allows the Monetary Board to takeaction "summarily and without need for prior hearing." And, as a clincher, the law explicitlyprovides that "actions of the Monetary Board taken under this section or under Section 29 ofthis Act shall be final and executory, and may not be restrained or set aside by the courtexcept on a petition for certiorari on the ground that the action taken was in excess of

jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction."


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“Close now, hear later” doctrine

BANGKO SENTRAL, ET AL. VS. VALENZUELA, ET AL.,

G.R. 184778, OCTOBER 2, 2009.

FACTS: Acting on a BSP Report of Examination [on the books of the private respondents],the BSP required the private respondents to undertake certain remedial measures. Privaterespondents are asking for the nullification of a BSP Report of Examination (ROE) and theissuance of a writ of preliminary investigation on the ground that they were not furnishedcopies of the ROE, despite the fact that they’ve been requesting for copies of the said report.The lower court nevertheless granted the request.

ISSUE: Was the issuance of the writ valid?

HELD: NO.

The respondent banks have shown no necessity for the writ of preliminary injunction toprevent serious damage. The serious damage contemplated by the trial court was the

possibility of the imposition of sanctions upon respondent banks, even the sanction ofclosure. Under the law, the sanction of closure could be imposed upon a bank by the BSPeven without notice and hearing. The apparent lack of procedural due process would notresult in the invalidity of action by the MB. This "close now, hear later" scheme is groundedon practical and legal considerations to prevent unwarranted dissipation of the bank’s assetsand as a valid exercise of police power to protect the depositors, creditors, stockholders, andthe general public. The writ of preliminary injunction cannot, thus, prevent the MB fromtaking action, by preventing the submission of the ROEs and worse, by preventing the MBfrom acting on such ROEs.

The "close now, hear later" doctrine has already been justified as a measure for theprotection of the public interest. Swift action is called for on the part of the BSP when it findsthat a bank is in dire straits. Unless adequate and determined efforts are taken by thegovernment against distressed and mismanaged banks, public faith in the banking system is

certain to deteriorate to the prejudice of the national economy itself, not to mention thelosses suffered by the bank depositors, creditors, and stockholders, who all deserve theprotection of the government.

1.3 Additional Materials

BSP Circular No. 537, dated July 18, 2006, re adjustment of maximum amount ofcoins to be considered as legal tender.


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II

THE GENERAL BANKING LAW OF 2000RA 8791 (2000).

2.1 Topics

State policy

SECTION 2. DECLARATION OF POLICY . - THE STATE RECOGNIZES THE VITAL ROLEOF BANKS PROVIDING AN ENVIRONMENT CONDUCIVE TO THE SUSTAINED

DEVELOPMENT OF THE NATIONAL ECONOMY AND THE FIDUCIARY NATURE OF

BANKING THAT REQUIRES HIGH STANDARDS OF INTEGRITY AND PERFORMANCE. INFURTHERANCE THEREOF, THE STATE SHALL PROMOTE AND MAINTAIN A STABLEAND EFFICIENT BANKING AND FINANCIAL SYSTEM THAT IS GLOBALLY COMPETITIVE,DYNAMIC AND RESPONSIVE TO THE DEMANDS OF A DEVELOPING ECONOMY. (N)

Concept of intermediation

Distinction between banks (Sec. 3) and quasi-banks (Sec. 4)

SECTION 3.1. "BANKS" SHALL REFER TO ENTITIES ENGAGED IN THE LENDING OFFUNDS OBTAINED IN THE FORM OF DEPOSITS. (2A)

SECTION 4. FOR THE PURPOSES OF THIS ACT, "QUASI-BANKS" SHALL REFER TOENTITIES ENGAGED IN THE BORROWING OF FUNDS THROUGH THE ISSUANCE,ENDORSEMENT OR ASSIGNMENT WITH RECOURSE OR ACCEPTANCE OF DEPOSIT

SUBSTITUTES AS DEFINED IN SECTION 95 OF REPUBLIC ACT NO. 7653(HEREAFTER THE "NEW CENTRAL BANK ACT") FOR PURPOSES OF RE-LENDING ORPURCHASING OF RECEIVABLES AND OTHER OBLIGATIONS. (2-DA)

SECTION 95. RA 7653. DEFINITION OF DEPOSIT SUBSTITUTES. - THE TERM"DEPOSIT SUBSTITUTES" IS DEFINED AS—

1. AN ALTERNATIVE FORM OF OBTAINING FUNDS FROM THE PUBLIC, OTHERTHAN DEPOSITS,

2. THROUGH THE ISSUANCE, ENDORSEMENT, OR ACCEPTANCE OF DEBTINSTRUMENTS

3. FOR THE BORROWER'S OWN ACCOUNT,4. FOR THE PURPOSE OF RELENDING OR PURCHASING OF RECEIVABLES AND

OTHER OBLIGATIONS.


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Classification of banks (Secs. 3.2 and 71)

SECTION. 3.2. BANKS SHALL BE CLASSIFIED INTO:

(A) UNIVERSAL BANKS;

(B) COMMERCIAL BANKS;

(C) THRIFT BANKS, COMPOSED OF: (I) SAVINGS AND MORTGAGE BANKS, (II)STOCK SAVINGS AND LOAN ASSOCIATIONS, AND (III) PRIVATE DEVELOPMENTBANKS, AS DEFINED IN THE REPUBLIC ACT NO. 7906 (HEREAFTER THE"THRIFT BANKS ACT");

(D) RURAL BANKS, AS DEFINED IN REPUBLIC ACT NO. 73S3 (HEREAFTER THE"RURAL BANKS ACT");

(E) COOPERATIVE BANKS, AS DEFINED IN REPUBLIC ACT NO 6938(HEREAFTER THE "COOPERATIVE CODE");

(F) ISLAMIC BANKS AS DEFINED IN REPUBLIC ACT NO. 6848, OTHERWISEKNOWN AS THE "CHARTER OF AL AMANAH ISLAMIC INVESTMENT BANK OF THEPHILIPPINES"; AND

(G) OTHER CLASSIFICATIONS OF BANKS AS DETERMINED BY THE MONETARYBOARD OF THE BANGKO SENTRAL NG PILIPINAS. (6-AA)

SECTION 71. OTHER B ANKING L AWS. - THE ORGANIZATION, THE OWNERSHIP ANDCAPITAL REQUIREMENTS, POWERS, SUPERVISION AND GENERAL CONDUCT OFBUSINESS OF THRIFT BANKS, RURAL BANKS AND COOPERATIVE BANKS SHALL BEGOVERNED BY THE PROVISIONS OF THE THRIFT BANKS ACT, THE RURAL BANKSACT, AND THE COOPERATIVE CODE, RESPECTIVELY. THE ORGANIZATION,OWNERSHIP AND CAPITAL REQUIREMENTS, POWERS, SUPERVISION AND GENERAL

CONDUCT OF BUSINESS OF ISLAMIC BANKS SHALL BE GOVERNED BY SPECIALLAWS. THE PROVISIONS OF THIS ACT, HOWEVER, INSOFAR AS THEY ARE NOT INCONFLICT WITH THE PROVISIONS OF THE THRIFT BANKS ACT, THE RURAL BANKSACT, AND THE COOPERATIVE CODE SHALL LIKEWISE APPLY TO THRIFT BANKS,RURAL BANKS, AND COOPERATIVE BANKS, RESPECTIVELY. HOWEVER, FORPURPOSES OF PRESCRIBING THE MINIMUM RATIO WHICH THE NET WORTH OF A

THRIFT BANK MUST BEAR TO ITS TOTAL RISK ASSETS, THE PROVISIONS OFSECTION 33 OF THIS ACT SHALL GOVERN. (N)


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Distinction between universal banks and commercial banks (Secs. 23, 24 and 30)

SECTION 23. POWERS OF A UNIVERSAL B ANK - A UNIVERSAL BANK SHALL HAVE

THE AUTHORITY TO EXERCISE, IN ADDITION TO THE POWERS AUTHORIZED FOR ACOMMERCIAL BANK IN SECTION 29,

1. THE POWERS OF AN INVESTMENT HOUSE AS PROVIDED IN EXISTING LAWSAND

2. THE POWER TO INVEST IN NON-ALLIED ENTERPRISES AS PROVIDED IN THISACT. (21-B)

SECTION 30. E QUITY INVESTMENTS OF A COMMERCIAL B ANK . - A COMMERCIALBANK MAY, SUBJECT TO THE CONDITIONS STATED IN THE SUCCEEDINGPARAGRAPHS, INVEST ONLY IN THE EQUITIES OF ALLIED ENTERPRISES AS MAY BEDETERMINED BY THE MONETARY BOARD.

SECTION 24. E QUITY INVESTMENTS OF A UNIVERSAL B ANK . - A UNIVERSAL BANKMAY, SUBJECT TO THE CONDITIONS STATED IN THE SUCCEEDING PARAGRAPH,INVEST IN THE EQUITIES OF ALLIED AND NON-ALLIED ENTERPRISES AS MAY BEDETERMINED BY THE MONETARY BOARD.

SECTION 24. E QUITY INVESTMENTS OF AUNIVERSAL B ANK . - EXCEPT AS THE MONETARYBOARD MAY OTHERWISE PRESCRIBE:

SECTION 30. E QUITY INVESTMENTS OF ACOMMERCIAL B ANK . - EXCEPT AS THEMONETARY BOARD MAY OTHERWISE PRESCRIBE:

24.1. THE TOTAL INVESTMENT IN EQUITIES OFALLIED AND NON-ALLIED ENTERPRISES SHALLNOT EXCEED FIFTY PERCENT (50%) OF THENET WORTH OF THE BANK; AND

30.1. THE TOTAL INVESTMENT IN EQUITIES OFALLIED ENTERPRISES SHALL NOT EXCEED

THIRTY-FIVE PERCENT (35%) OF THE NETWORTH OF THE BANK; AND

24.2. THE EQUITY INVESTMENT IN ANY ONEENTERPRISE, WHETHER ALLIED OR NON-

ALLIED, SHALL NOT EXCEED TWENTY-FIVEPERCENT (25%) OF THE NET WORTH OF THEBANK.

30.2. THE EQUITY INVESTMENT IN ANY ONEENTERPRISE SHALL NOT EXCEED TWENTY-

FIVE PERCENT (25%) OF TILE NET WORTH OFTHE BANK.

THE ACQUISITION OF SUCH EQUITY OR EQUITIESIS SUBJECT TO THE PRIOR APPROVAL OF THE

MONETARY BOARD WHICH SHALL PROMULGATEAPPROPRIATE GUIDELINES TO GOVERN SUCH

INVESTMENTS. (21-BA)

THE ACQUISITION OF SUCH EQUITY OR EQUITIESIS SUBJECT TO THE PRIOR APPROVAL OF THE

MONETARY BOARD WHICH SHALL PROMULGATEAPPROPRIATE GUIDELINES TO GOVERN SUCH

INVESTMENT.(2LA-A; 21-CA)

AS USED IN THIS ACT, "NET WORTH" SHALL MEANTHE TOTAL OF THE UNIMPAIRED PAID-IN CAPITALINCLUDING—

1. PAID-IN SURPLUS,2. RETAINED EARNINGS AND3. UNDIVIDED PROFIT,

NET OF VALUATION RESERVES AND OTHER

ADJUSTMENTS AS MAY BE REQUIRED BY THE

BANGKO SENTRAL.


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Distinction between universal or commercial banks and other banks (Sec. 33)

SECTION 33. ACCEPTANCE OF DEMAND DEPOSITS. - A BANK OTHER THAN A

UNIVERSAL OR COMMERCIAL BANK CANNOT ACCEPT OR CREATE DEMANDDEPOSITS EXCEPT UPON PRIOR APPROVAL OF, AND SUBJECT TO SUCHCONDITIONS AND RULES AS MAY BE PRESCRIBED BY THE MONETARY BOARD. (72-AA)

SECTION 59. RA 7653 ISSUE OF DEMAND DEPOSITS. - ONLY BANKS DULYAUTHORIZED TO DO SO MAY ACCEPT FUNDS OR CREATE LIABILITIES PAYABLE IN

PESOS UPON DEMAND BY THE PRESENTATION OF CHECKS, AND SUCH OPERATIONSSHALL BE SUBJECT TO THE CONTROL OF THE MONETARY BOARD IN ACCORDANCEWITH THE POWERS GRANTED IT WITH RESPECT THERETO UNDER THIS ACT.

SECTION 58, RA 7653. DEFINITION. - FOR PURPOSES OF THIS ACT, THE TERM"DEMAND DEPOSITS" MEANS ALL THOSE LIABILITIES OF THE BANGKO SENTRAL ANDOF OTHER BANKS WHICH ARE DENOMINATED IN

PHILIPPINE CURRENCY AND ARE

SUBJECT TO PAYMENT IN LEGAL TENDER UPON DEMAND BY THE PRESENTATION OF

CHECKS.

SECTION 60. RA 7653. LEGAL CHARACTER. - CHECKS REPRESENTING DEMANDDEPOSITS DO NOT HAVE LEGAL TENDER POWER AND THEIR ACCEPTANCE IN THE

PAYMENT OF DEBTS, BOTH PUBLIC AND PRIVATE, IS AT THE OPTION OF THECREDITOR: PROVIDED, HOWEVER, THAT A CHECK WHICH HAS BEEN CLEARED ANDCREDITED TO THE ACCOUNT OF THE CREDITOR SHALL BE EQUIVALENT TO A

DELIVERY TO THE CREDITOR OF CASH IN AN AMOUNT EQUAL TO THE AMOUNT

CREDITED TO HIS ACCOUNT.

Distinction between allied and non-allied enterprises (Secs. 23, et seq.)

SECTION 25. E QUITY I NVESTMENTS OF A U NIVERSAL B ANK IN F INANCIAL ALLIEDE NTERPRISES. - A UNIVERSAL BANK CAN OWN UP TO ONE HUNDRED PERCENT(100%) OF THE EQUITY IN A THRIFT BANK, A RURAL BANK OR A FINANCIAL ALLIEDENTERPRISE. A PUBLICLY-LISTED UNIVERSAL OR COMMERCIAL BANK MAY OWN UPTO ONE HUNDRED PERCENT (100%) OF THE VOTING STOCK OF ONLY ONE OTHERUNIVERSAL OR COMMERCIAL BANK. (21-B; 21-C A)

SECTION 26. E QUITY I NVESTMENTS OF A U NIVERSAL B ANK IN N ON -F INANCIAL ALLIED E NTERPRISES. - A UNIVERSAL BANK MAY OWN UP TO ONE HUNDREDPERCENT (100%) OF THE EQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (21-B A)

SECTION 27. E QUITY I NVESTMENTS OF A U NIVERSAL B ANK IN N ON -ALLIEDE NTERPRISES. - THE EQUITY INVESTMENT OF A UNIVERSAL BANK, OR OF ITS

WHOLLY OR MAJORITY-OWNED SUBSIDIARIES, IN A SINGLE NON- ALLIEDENTERPRISE SHALL NOT EXCEED THIRTY-FIVE PERCENT (35%) OF THE TOTALEQUITY IN THAT ENTERPRISE NOR SHALL IT EXCEED THIRTY-FIVE PERCENT (35%)OF THE VOTING STOCK IN THAT ENTERPRISE. (21-B)

SECTION 28. E QUITY I NVESTMENTS IN QUASI -B ANKS. - TO PROMOTECOMPETITIVE CONDITIONS IN FINANCIAL MARKETS, THE MONETARY BOARD MAY


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FURTHER LIMIT TO FORTY PERCENT (40%) EQUITY INVESTMENTS OF UNIVERSALBANKS IN QUASI-BANKS. THIS RULE SHALL ALSO APPLY IN THE CASE OFCOMMERCIAL BANKS. (12-E) ARTICLE II. OPERATIONS OF COMMERCIAL B ANKS

Institutions subject to BSP supervisory and regulatory powers (Sec. 4; see Sec. 25,RA 7653)

SECTION 4. SUPERVISORY POWERS. THE OPERATIONS AND ACTIVITIES OF BANKSSHALL BE SUBJECT TO SUPERVISION OF THE BANGKO SENTRAL.

THE BANGKO SENTRAL SHALL ALSO HAVE SUPERVISION OVER THE OPERATIONSOF AND EXERCISE REGULATORY POWERS OVER QUASI-BANKS, TRUST ENTITIESAND OTHER FINANCIAL INSTITUTIONS WHICH UNDER SPECIAL LAWS ARE SUBJECT

TO BANGKO SENTRAL SUPERVISION. (2-CA)

SECTION 25, RA 7653. SUPERVISION AND E XAMINATION. - THE BANGKO SENTRALSHALL HAVE SUPERVISION OVER, AND CONDUCT PERIODIC OR SPECIALEXAMINATIONS OF, BANKING INSTITUTIONS AND QUASI-BANKS, INCLUDING THEIRSUBSIDIARIES AND AFFILIATES ENGAGED IN ALLIED ACTIVITIES .

FOR PURPOSES OF THIS SECTION, A SUBSIDIARY MEANS A CORPORATION MORETHAN FIFTY PERCENT (50%) OF THE VOTING STOCK OF WHICH IS OWNED BY ABANK OR QUASI-BANK AND AN AFFILIATE MEANS A CORPORATION THE VOTINGSTOCK OF WHICH, TO THE EXTENT OF FIFTY PERCENT (50%) OR LESS, IS OWNEDBY A BANK OR QUASI-BANK OR WHICH IS RELATED OR LINKED TO SUCHINSTITUTION OR INTERMEDIARY THROUGH COMMON STOCKHOLDERS OR SUCH

OTHER FACTORS AS MAY BE DETERMINED BY THE MONETARY BOARD.

SECTION 25, RA 7653. SUPERVISION AND E XAMINATION. - NO RESTRAININGORDER OR INJUNCTION SHALL BE ISSUED BY THE COURT ENJOINING THE BANGKOSENTRAL FROM EXAMINING ANY INSTITUTION SUBJECT TO SUPERVISION OREXAMINATION BY THE BANGKO SENTRAL, UNLESS—

1. THERE IS CONVINCING PROOF THAT THE ACTION OF THE BANGKO SENTRALIS PLAINLY ARBITRARY AND MADE IN BAD FAITH AND

2. THE PETITIONER OR PLAINTIFF FILES WITH THE CLERK OR JUDGE OF THECOURT IN WHICH THE ACTION IS PENDING A BOND EXECUTED IN FAVOR OF

THE BANGKO SENTRAL, IN AN AMOUNT TO BE FIXED BY THE COURT.

THE PROVISIONS OF RULE 58 OF THE NEW RULES OF COURT INSOFAR AS THEYARE APPLICABLE AND NOT INCONSISTENT WITH THE PROVISIONS OF THIS SECTION

SHALL GOVERN THE ISSUANCE AND DISSOLUTION OF THE RESTRAINING ORDER OR

INJUNCTION CONTEMPLATED IN THIS SECTION.


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Authority to engage in banking functions (Sec. 6)

SECTION 6. AUTHORITY TO E NGAGE IN B ANKING AND QUASI-B ANKING

F UNCTIONS. - NO PERSON OR ENTITY SHALL ENGAGE IN BANKING OPERATIONS ORQUASI-BANKING FUNCTIONS WITHOUT AUTHORITY FROM THE BANGKO SENTRAL:PROVIDED, HOWEVER, THAT AN ENTITY AUTHORIZED BY THE BANGKO SENTRAL TOPERFORM UNIVERSAL OR COMMERCIAL BANKING FUNCTIONS SHALL LIKEWISE

HAVE THE AUTHORITY TO ENGAGE IN QUASI-BANKING FUNCTIONS.

THE DETERMINATION OF WHETHER A PERSON OR ENTITY IS PERFORMING BANKINGOR QUASI-BANKING FUNCTIONS WITHOUT BANGKO SENTRAL AUTHORITY SHALL BEDECIDED BY THE MONETARY BOARD. TO RESOLVE SUCH ISSUE, THE MONETARYBOARD MAY; THROUGH THE APPROPRIATE SUPERVISING AND EXAMININGDEPARTMENT OF THE BANGKO SENTRAL, EXAMINE, INSPECT OR INVESTIGATE THEBOOKS AND RECORDS OF SUCH PERSON OR ENTITY. UPON ISSUANCE OF THISAUTHORITY, SUCH PERSON OR ENTITY MAY COMMENCE TO ENGAGE IN BANKINGOPERATIONS OR QUASI-BANKING FUNCTION AND SHALL CONTINUE TO DO SOUNLESS SUCH AUTHORITY IS SOONER SURRENDERED, REVOKED, SUSPENDED OR

ANNULLED BY THE BANGKO SENTRAL IN ACCORDANCE WITH THIS ACT OR OTHERSPECIAL LAWS. XXX.

PERSONS OR ENTITIES FOUND TO BE PERFORMING BANKING OR QUASI-BANKINGFUNCTIONS WITHOUT AUTHORITY FROM THE BANGKO SENTRAL SHALL BE SUBJECTTO APPROPRIATE SANCTIONS UNDER THE NEW CENTRAL BANK ACT AND OTHERAPPLICABLE LAWS. (4A)

Stock corporation (Sec. 8)

SECTION 8. ORGANIZATION. - THE MONETARY BOARD MAY AUTHORIZE THEORGANIZATION OF A BANK OR QUASI-BANK SUBJECT TO THE FOLLOWINGCONDITIONS:

8.1 THAT THE ENTITY IS A STOCK CORPORATION (7);

8.2 THAT ITS FUNDS ARE OBTAINED FROM THE PUBLIC, WHICH SHALL MEANTWENTY (20) OR MORE PERSONS (2-DA); AND

8.3 THAT THE MINIMUM CAPITAL REQUIREMENTS PRESCRIBED BY THEMONETARY BOARD FOR EACH CATEGORY OF BANKS ARE SATISFIED. (N)

NO NEW COMMERCIAL BANK SHALL BE ESTABLISHED WITHIN THREE (3) YEARSFROM THE EFFECTIVITY OF THIS ACT. IN THE EXERCISE OF THE AUTHORITYGRANTED HEREIN, THE MONETARY BOARD SHALL TAKE INTO CONSIDERATIONTHEIR CAPABILITY IN TERMS OF THEIR FINANCIAL RESOURCES AND TECHNICAL

EXPERTISE AND INTEGRITY. THE BANK LICENSING PROCESS SHALLINCORPORATE AN ASSESSMENT OF THE BANK'S OWNERSHIP STRUCTURE,DIRECTORS AND SENIOR MANAGEMENT, ITS OPERATING PLAN AND INTERNALCONTROLS AS WELL AS ITS PROJECTED FINANCIAL CONDITION AND CAPITAL

BASE.


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Not a close corporation (Sec. 96, Corporation Code)

SECTION 96. DEFINITION AND APPLICABILITY OF T ITLE . - ANY CORPORATION

MAY BE INCORPORATED AS A CLOSE CORPORATION, EXCEPT MINING OR OILCOMPANIES, STOCK EXCHANGES, BANKS, INSURANCE COMPANIES, PUBLICUTILITIES, EDUCATIONAL INSTITUTIONS AND CORPORATIONS DECLARED TO BEVESTED WITH PUBLIC INTEREST IN ACCORDANCE WITH THE PROVISIONS OF

THIS CODE.

Par value stock (Sec. 9)

SECTION 9. ISSUANCE OF STOCKS. - THE MONETARY BOARD MAY PRESCRIBERULES AND REGULATIONS ON THE TYPES OF STOCK A BANK MAY ISSUE ,INCLUDING THE TERMS THEREOF AND RIGHTS APPURTENANT THERETO TO

DETERMINE COMPLIANCE WITH LAWS AND REGULATIONS GOVERNING CAPITAL

AND EQUITY STRUCTURE OF BANKS; PROVIDED, THAT BANKS SHALL ISSUE PARVALUE STOCKS ONLY.

Ownership of shares (Sec. 11)

SECTION 11. F OREIGN STOCKHOLDINGS. - FOREIGN INDIVIDUALS AND NON-BANK CORPORATIONS MAY OWN OR CONTROL UP TO FORTY PERCENT (40%)OF THE VOTING STOCK OF A DOMESTIC BANK. THIS RULE SHALL APPLY TOFILIPINOS AND DOMESTIC NON-BANK CORPORATIONS. (12A; 12-AA) THEPERCENTAGE OF FOREIGN-OWNED VOTING STOCKS IN A BANK SHALL BEDETERMINED BY THE CITIZENSHIP OF THE INDIVIDUAL STOCKHOLDERS IN THAT

BANK. THE CITIZENSHIP OF THE CORPORATION WHICH IS A STOCKHOLDER IN ABANK SHALL FOLLOW THE CITIZENSHIP OF THE CONTROLLING STOCKHOLDERS

OF THE CORPORATION, IRRESPECTIVE OF THE PLACE OF INCORPORATION.

MB certificate of authority


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Powers of a universal bank (Secs. 23-29, 53)

SECTION 23. POWERS OF A UNIVERSAL B ANK - A UNIVERSAL BANK SHALL HAVE

THE AUTHORITY TO EXERCISE THE POWERS OF AN INVESTMENT HOUSE ASPROVIDED IN EXISTING LAWS; AND—

POWERS AUTHORIZED FOR A

COMMERCIAL BANK IN SECTION 29,POWER TO INVEST IN ALLIED

ENTERPRISES

POWER TO INVEST IN NON-ALLIEDENTERPRISES

SECTION 29. P OWERS OF AC OMMERCIAL B ANK . - ACOMMERCIAL BANK SHALL HAVE, IN

ADDITION TO THE GENERAL POWERS

INCIDENT TO CORPORATIONS, ALLSUCH POWERS AS MAY BE

NECESSARY TO CARRY ON THE

BUSINESS OF COMMERCIAL BANKING

SUCH AS –

1. ACCEPTING DRAFTS AND ISSUINGLETTERS OF CREDIT;

2. DISCOUNTING AND NEGOTIATINGPROMISSORY NOTES, DRAFTS,BILLS OF EXCHANGE, AND OTHEREVIDENCES OF DEBT;

3. ACCEPTING OR CREATINGDEMAND DEPOSITS;

4. RECEIVING OTHER TYPES OFDEPOSITS AND DEPOSIT

SUBSTITUTES;

5. BUYING AND SELLING FOREIGNEXCHANGE AND GOLD OR SILVER

BULLION;

6. ACQUIRING MARKETABLE BONDS AND OTHER DEBT SECURITIES;

7. EXTENDING CREDIT, SUBJECT TOSUCH RULES AS THE MONETARYBOARD MAY PROMULGATE.THESE RULES MAY INCLUDE THEDETERMINATION OF BONDS AND

OTHER DEBT SECURITIES

ELIGIBLE FOR INVESTMENT, THEMATURITIES AND AGGREGATE

AMOUNT OF SUCH INVESTMENT.

SECTION 25. UP TO 100% OF THEEQUITY IN A THRIFT BANK, A RURALBANK OR A FINANCIAL ALLIED

ENTERPRISE.

A PUBLICLY-LISTED UNIVERSAL ORCOMMERCIAL BANK MAY OWN UP

TO 100% OF THE VOTING STOCKOF ONLY ONE OTHER UNIVERSAL

OR COMMERCIAL BANK.

SECTION 26. UP TO 100% OF THEEQUITY IN A NON-FINANCIAL ALLIEDENTERPRISE. (21-B A)

SECTION 28. THE MONETARYBOARD MAY FURTHER LIMIT TO40% EQUITY INVESTMENTS OFUNIVERSAL BANKS IN QUASI-BANKS.THIS RULE SHALL ALSO APPLY INTHE CASE OF COMMERCIAL BANKS.

SECTION 27. THE EQUITYINVESTMENT OF A UNIVERSAL

BANK, OR OF ITS WHOLLY ORMAJORITY-OWNED SUBSIDIARIES,IN A SINGLE NON- ALLIEDENTERPRISE SHALL NOT EXCEED

35% OF THE TOTAL EQUITY INTHAT ENTERPRISE NOR SHALL IT

EXCEED 35% OF THE VOTINGSTOCK IN THAT ENTERPRISE. (21-

B)

SECTION 24. E QUITY I NVESTMENTS OF A U NIVERSAL B ANK .

24.1. THE TOTAL INVESTMENT IN EQUITIES OF ALLIED AND NON- ALLIED

ENTERPRISES SHALL NOT EXCEED FIFTY PERCENT (50%) OF THE NETWORTH OF THE BANK; AND

24.2. THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE, WHETHER ALLIED OR NON- ALLIED, SHALL NOT EXCEED TWENTY-FIVE PERCENT(25%) OF THE NET WORTH OF THE BANK.

AS USED IN THIS ACT, "NET WORTH" SHALL MEAN THE TOTAL OF THEUNIMPAIRED PAID-IN CAPITAL INCLUDING PAID-IN SURPLUS, RETAINEDEARNINGS AND UNDIVIDED PROFIT, NET OF VALUATION RESERVES ANDOTHER ADJUSTMENTS AS MAY BE REQUIRED BY THE B ANGKO SENTRAL.

THE ACQUISITION OF SUCH EQUITY OR EQUITIES IS SUBJECT TO THEPRIOR APPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATE

APPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENTS. (21-B A)


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SECTION 53. OTHER B ANKING SERVICES. - IN ADDITION TO THE OPERATIONSSPECIFICALLY AUTHORIZED IN THIS ACT, A BANK MAY PERFORM THE FOLLOWINGSERVICES:

53.1. RECEIVE IN CUSTODY FUNDS, DOCUMENTS AND VALUABLE OBJECTS;

53.2. ACT AS FINANCIAL AGENT AND BUY AND SELL , BY ORDER OF AND FORTHE ACCOUNT OF THEIR CUSTOMERS, SHARES, EVIDENCES OF INDEBTEDNESS

AND ALL TYPES OF SECURITIES;

53.3. M AKE COLLECTIONS AND PAYMENTS FOR THE ACCOUNT OF OTHERS ANDPERFORM SUCH OTHER SERVICES FOR THEIR CUSTOMERS AS ARE NOT

INCOMPATIBLE WITH BANKING BUSINESS;

53.4 UPON PRIOR APPROVAL OF THE MONETARY BOARD, ACT AS MANAGING AGENT, ADVISER, CONSULTANT OR ADMINISTRATOR OF INVESTMENTMANAGEMENT/ ADVISORY/CONSULTANCY ACCOUNTS; AND

53.5. RENT OUT SAFETY DEPOSIT BOXES.


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Powers of a commercial bank (Secs. 29-32, 53)

SECTION 29. P

OWERS OF A C

OMMERCIAL B

ANK . - A

COMMERCIAL BANK SHALL

HAVE, IN ADDITION TO THE GENERAL POWERS INCIDENT TO CORPORATIONS , ALLSUCH POWERS AS MAY BE NECESSARY TO CARRY ON THE BUSINESS OF

COMMERCIAL BANKING SUCH AS

1. ACCEPTING DRAFTS AND ISSUING LETTERS OF CREDIT;2. DISCOUNTING AND NEGOTIATING PROMISSORY NOTES, DRAFTS, BILLS OF

EXCHANGE, AND OTHER EVIDENCES OF DEBT;3. ACCEPTING OR CREATING DEMAND DEPOSITS;4. RECEIVING OTHER TYPES OF DEPOSITS AND DEPOSIT SUBSTITUTES ;5. BUYING AND SELLING FOREIGN EXCHANGE AND GOLD OR SILVER BULLION;6. ACQUIRING MARKETABLE BONDS AND OTHER DEBT SECURITIES; AND7. EXTENDING CREDIT, SUBJECT TO SUCH RULES AS THE MONETARY BOARD

MAY PROMULGATE. THESE RULES MAY INCLUDE THE DETERMINATION OFBONDS AND OTHER DEBT SECURITIES ELIGIBLE FOR INVESTMENT, THE

MATURITIES AND AGGREGATE AMOUNT OF SUCH INVESTMENT.

SECTION 30. E QUITY I NVESTMENTS OF A C OMMERCIAL B ANK . - A COMMERCIALBANK MAY, SUBJECT TO THE CONDITIONS STATED IN THE SUCCEEDINGPARAGRAPHS, INVEST ONLY IN THE EQUITIES OF ALLIED ENTERPRISES AS MAY BEDETERMINED BY THE MONETARY BOARD. ALLIED ENTERPRISES MAY EITHER BEFINANCIAL OR NON-FINANCIAL. EXCEPT AS THE MONETARY BOARD MAYOTHERWISE PRESCRIBE:

30.1. THE TOTAL INVESTMENT IN EQUITIES OF ALLIED ENTERPRISES SHALLNOT EXCEED THIRTY-FIVE PERCENT (35%) OF THE NET WORTH OF THE BANK;

AND

30.2. THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE SHALL NOT EXCEEDTWENTY-FIVE PERCENT (25%) OF TILE NET WORTH OF THE BANK. THE

ACQUISITION OF SUCH EQUITY OR EQUITIES IS SUBJECT TO THE PRIOR

APPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATE APPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENT.(2L A- A; 21-C A)

SECTION 31. E QUITY I NVESTMENTS OF A C OMMERCIAL B ANK IN F INANCIAL ALLIEDE NTERPRISES. - A COMMERCIAL BANK MAY OWN UP TO ONE HUNDRED PERCENT(100%) OF THE EQUITY OF A THRIFT BANK OR A RURAL BANK . WHERE THE EQUITYINVESTMENT OF A COMMERCIAL BANK IS IN OTHER FINANCIAL ALLIED

ENTERPRISES, INCLUDING ANOTHER COMMERCIAL BANK, SUCH INVESTMENT SHALLREMAIN A MINORITY HOLDING IN THAT ENTERPRISE. (21-A A; 21-C A)

SECTION 32. E QUITY I NVESTMENTS OF A C OMMERCIAL B ANK IN N ON -F INANCIAL ALLIED E NTERPRISES. A COMMERCIAL BANK MAY OWN UP TO ONE HUNDREDPERCENT (100%) OF THE EQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (21-

A A) ARTICLE III. PROVISIONS APPLICABLE TO ALL B ANKS, QUASI-B ANKS, ANDTRUST ENTITIES


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SECTION 53. OTHER B ANKING SERVICES. - IN ADDITION TO THE OPERATIONSSPECIFICALLY AUTHORIZED IN THIS ACT, A BANK MAY PERFORM THE FOLLOWINGSERVICES:

53.1. RECEIVE IN CUSTODY FUNDS, DOCUMENTS AND VALUABLE OBJECTS;

53.2. ACT AS FINANCIAL AGENT AND BUY AND SELL , BY ORDER OF AND FORTHE ACCOUNT OF THEIR CUSTOMERS, SHARES, EVIDENCES OF INDEBTEDNESS

AND ALL TYPES OF SECURITIES;

53.3. M AKE COLLECTIONS AND PAYMENTS FOR THE ACCOUNT OF OTHERS ANDPERFORM SUCH OTHER SERVICES FOR THEIR CUSTOMERS AS ARE NOT

INCOMPATIBLE WITH BANKING BUSINESS;

53.4 UPON PRIOR APPROVAL OF THE MONETARY BOARD, ACT AS MANAGING AGENT, ADVISER, CONSULTANT OR ADMINISTRATOR OF INVESTMENTMANAGEMENT/ ADVISORY/CONSULTANCY ACCOUNTS; AND

53.5. RENT OUT SAFETY DEPOSIT BOXES.

Areas of supervision and regulation of banks

Acquisition by bank of own shares (Sec. 10)

SECTION 10. T REASURY STOCKS. - NO BANK SHALL PURCHASE OR ACQUIRESHARES OF ITS OWN CAPITAL STOCK OR ACCEPT ITS OWN SHARES AS A SECURITY

FOR A LOAN, EXCEPT WHEN AUTHORIZED BY THE MONETARY BOARD: PROVIDED,THAT IN EVERY CASE THE STOCK SO PURCHASED OR ACQUIRED SHALL, WITHIN SIX(6) MONTHS FROM THE TIME OF ITS PURCHASE OR ACQUISITION, BE SOLD ORDISPOSED OF AT A PUBLIC OR PRIVATE SALE. (24 A)

Stockholdings of family groups and related interests (Secs. 12-13)

SECTION 12. STOCKHOLDINGS OF F AMILY GROUPS OF R ELATED I NTERESTS. -STOCKHOLDINGS OF INDIVIDUALS RELATED TO EACH OTHER WITHIN THE FOURTHDEGREE OF CONSANGUINITY OR AFFINITY, LEGITIMATE OR COMMON-LAW, SHALLBE CONSIDERED FAMILY GROUPS OR RELATED INTERESTS AND MUST BE FULLY

DISCLOSED IN ALL TRANSACTIONS BY SUCH CORPORATIONS OR RELATED GROUPS

OF PERSONS WITH THE BANK. (12-B A)

SECTION 13. C ORPORATE STOCKHOLDINGS. - TWO OR MORE CORPORATIONSOWNED OR CONTROLLED BY THE SAME FAMILY GROUP OR SAME GROUP OF

PERSONS SHALL BE CONSIDERED RELATED INTERESTS AND MUST BE FULLY

DISCLOSED IN ALL TRANSACTIONS BY SUCH CORPORATIONS OR RELATED GROUP

OF PERSONS WITH THE BANK. (12-B A)


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Independent directors (Sec. 15)

SECTION 15. BOARD OF DIRECTORS. - THE PROVISIONS OF THE CORPORATION

CODE TO THE CONTRARY NOTWITHSTANDING, THERE SHALL BE AT LEAST FIVE (5), AND A MAXIMUM OF FIFTEEN (15) MEMBERS OF THE BOARD OR DIRECTORS OF ABANK, TWO (2) OF WHOM SHALL BE INDEPENDENT DIRECTORS. AN "INDEPENDENTDIRECTOR" SHALL MEAN A PERSON OTHER THAN AN OFFICER OR EMPLOYEE OFTHE BANK, ITS SUBSIDIARIES OR AFFILIATES OR RELATED INTERESTS. (N) NON-FILIPINO CITIZENS MAY BECOME MEMBERS OF THE BOARD OF DIRECTORS OF ABANK TO THE EXTENT OF THE FOREIGN PARTICIPATION IN THE EQUITY OF SAID

BANK. (SEC. 7, RA 7721) THE MEETINGS OF THE BOARD OF DIRECTORS MAY BECONDUCTED THROUGH MODERN TECHNOLOGIES SUCH AS, BUT NOT LIMITED TO,TELECONFERENCING AND VIDEO-CONFERENCING. (N)

Qualifications of directors and officers: the fit and proper rule (Sec. 16)

SECTION 16. F IT AND P ROPER R ULE . - TO MAINTAIN THE QUALITY OF BANK

MANAGEMENT AND AFFORD BETTER PROTECTION TO DEPOSITORS AND THE PUBLICIN GENERAL THE MONETARY BOARD SHALL PRESCRIBE, PASS UPON AND REVIEWTHE QUALIFICATIONS AND DISQUALIFICATIONS OF INDIVIDUALS ELECTED OR

APPOINTED BANK DIRECTORS OR OFFICERS AND DISQUALIFY THOSE FOUND UNFIT. AFTER DUE NOTICE TO THE BOARD OF DIRECTORS OF THE BANK , THE MONETARYBOARD MAY DISQUALIFY, SUSPEND OR REMOVE ANY BANK DIRECTOR OR OFFICERWHO COMMITS OR OMITS AN ACT WHICH RENDER HIM UNFIT FOR THE POSITION. INDETERMINING WHETHER AN INDIVIDUAL IS FIT AND PROPER TO HOLD THE POSITION

OF A DIRECTOR OR OFFICER OF A BANK, REGARD SHALL BE GIVEN TO HISINTEGRITY, EXPERIENCE, EDUCATION, TRAINING, AND COMPETENCE. (9-A A)

Prohibition on public officials (Sec. 19)

SECTION 19. P ROHIBITION ON P UBLIC OFFICIALS. - EXCEPT AS OTHERWISEPROVIDED IN THE

RURAL

B ANKS

ACT

,NO APPOINTIVE OR ELECTIVE PUBLIC

OFFICIAL WHETHER FULL-TIME OR PART-TIME SHALL AT THE SAME TIME SERVE ASOFFICER OF ANY PRIVATE BANK, SAVE IN CASES WHERE SUCH SERVICE ISINCIDENT TO FINANCIAL ASSISTANCE PROVIDED BY THE GOVERNMENT OR A

GOVERNMENT OWNED OR CONTROLLED CORPORATION TO THE BANK OR UNLESS

OTHERWISE PROVIDED UNDER EXISTING LAWS. (13)


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Compensation and other benefits of directors and officers (Sec. 18)

SECTION 18. C OMPENSATION AND OTHER BENEFITS OF DIRECTORS AND

OFFICERS. TO PROTECT THE FINDS OF DEPOSITORS AND CREDITORS THEMONETARY BOARD MAY REGULATE THE PAYMENT BY THE BARK TO ITS DIRECTORS AND OFFICERS OF COMPENSATION, ALLOWANCE, FEES, BONUSES, STOCKOPTIONS, PROFIT SHARING AND FRINGE BENEFITS ONLY IN EXCEPTIONAL CASES

AND WHEN THE CIRCUMSTANCES WARRANT, SUCH AS BUT NOT LIMITED TO THEFOLLOWING:

18.1. WHEN A BANK IS UNDER COMPTROLLERSHIP OR CONSERVATORSHIP; OR

18.2. WHEN A BANK IS FOUND BY THE MONETARY BOARD TO BE CONDUCTINGBUSINESS IN AN UNSAFE OR UNSOUND MANNER; OR

18.3. WHEN A BANK IS FOUND BY THE MONETARY BOARD TO BE IN ANUNSATISFACTORY FINANCIAL CONDITION. (N)

Ratio of net worth to total risk assets (Sec. 34); the Basle Accord

SECTION 34. R ISK -B ASED C APITAL. - THE MONETARY BOARD SHALL PRESCRIBETHE MINIMUM RATIO WHICH THE NET WORTH OF A BANK MUST BEAR TO ITS TOTAL

RISK ASSETS WHICH MAY INCLUDE CONTINGENT ACCOUNTS. FOR PURPOSES OFTHIS SECTION, THE MONETARY BOARD MAY REQUIRE SUCH RATIO BE DETERMINEDON THE BASIS OF THE NET WORTH AND RISK ASSETS OF A BANK AND ITS

SUBSIDIARIES, FINANCIAL OR OTHERWISE, AS WELL AS PRESCRIBE THECOMPOSITION AND THE MANNER OF DETERMINING THE NET WORTH AND TOTAL

RISK ASSETS OF BANKS AND THEIR SUBSIDIARIES:

PROVIDED, THAT IN THE EXERCISE OF THIS AUTHORITY, THE MONETARY BOARDSHALL, TO THE EXTENT FEASIBLE CONFORM TO INTERNATIONALLY ACCEPTEDSTANDARDS, INCLUDING THOSE OF THE B ANK FOR INTERNATIONALSETTLEMENTS(BIS), RELATING TO RISK-BASED CAPITAL REQUIREMENTS:

PROVIDED FURTHER, THAT IT MAY ALTER OR SUSPEND COMPLIANCE WITH SUCHRATIO WHENEVER NECESSARY FOR A MAXIMUM PERIOD OF ONE (1) YEAR:

PROVIDED, FINALLY, THAT SUCH RATIO SHALL BE APPLIED UNIFORMLY TO BANKSOF THE SAME CATEGORY. IN CASE A BANK DOES NOT COMPLY WITH THEPRESCRIBED MINIMUM RATIO, THE MONETARY BOARD MAY LIMIT OR PROHIBIT THEDISTRIBUTION OF NET PROFITS BY SUCH BANK AND MAY REQUIRE THAT PART OR

ALL OF THE NET PROFITS BE USED TO INCREASE THE CAPITAL ACCOUNTS OF THE

BANK UNTIL THE MINIMUM REQUIREMENT HAS BEEN MET .

THE MONETARY BOARD MAY, FURTHERMORE, RESTRICT OR PROHIBIT THE ACQUISITION OF MAJOR ASSETS AND THE MAKING OF NEW INVESTMENTS BY THE

BANK, WITH THE EXCEPTION OF PURCHASES OF READILY MARKETABLE EVIDENCESOF INDEBTEDNESS OF THE REPUBLIC OF THE PHILIPPINES AND OF THE B ANGKOSENTRAL AND ANY OTHER EVIDENCES OF INDEBTEDNESS OR OBLIGATIONS THESERVICING AND REPAYMENT OF WHICH ARE FULLY GUARANTEED BY THE REPUBLIC


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OF THE PHILIPPINES, UNTIL THE MINIMUM REQUIRED CAPITAL RATIO HAS BEENRESTORED.

IN CASE OF A BANK MERGER OR CONSOLIDATION , OR WHEN A BANK IS UNDERREHABILITATION UNDER A PROGRAM APPROVED BY THE B ANGKO SENTRAL,MONETARY BOARD MAY TEMPORARILY RELIEVE THE SURVIVING BANK,CONSOLIDATED BANK, OR CONSTITUENT BANK OR CORPORATIONS UNDERREHABILITATION FROM FULL COMPLIANCE WITH THE REQUIRED CAPITAL RATIO

UNDER SUCH CONDITIONS AS IT MAY PRESCRIBE.

BEFORE THE EFFECTIVITY OF RULES WHICH THE MONETARY BOARD IS AUTHORIZED TO PRESCRIBE UNDER THIS PROVISION, SECTION 22 OF THEGENERAL B ANKING ACT, AS AMENDED, SECTION 9 OF THE THRIFT B ANKS ACT,

AND ALL PERTINENT RULES ISSUED PURSUANT THERETO, SHALL CONTINUE TO BEIN FORCE. (22 A)

Limits on loans: the SBL rules (Sec. 35)

SECTION 35. LIMIT ON LOANS, C REDIT ACCOMMODATIONS AND GUARANTEES

35.1 EXCEPT AS THE MONETARY BOARD MAY OTHERWISE PRESCRIBE FORREASONS OF NATIONAL INTEREST, THE TOTAL AMOUNT OF LOANS, CREDIT

ACCOMMODATIONS AND GUARANTEES AS MAY BE DEFINED BY THE MONETARYBOARD THAT MAY BE EXTENDED BY A BANK TO ANY PERSON, PARTNERSHIP,

ASSOCIATION, CORPORATION OR OTHER ENTITY SHALL AT NO TIME EXCEEDTWENTY PERCENT (20%) OF THE NET WORTH OF SUCH BANK. THE BASIS FORDETERMINING COMPLIANCE WITH SINGLE BORROWER LIMIT IS THE TOTAL CREDIT

COMMITMENT OF THE BANK TO THE BORROWER.

35.2. UNLESS THE MONETARY BOARD PRESCRIBES OTHERWISE, THE TOTAL AMOUNT OF LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES PRESCRIBED INTHE PRECEDING PARAGRAPH MAY BE INCREASED BY AN ADDITIONAL TEN PERCENT

(10%) OF THE NET WORTH OF SUCH BANK PROVIDED THE ADDITIONAL LIABILITIESOF ANY BORROWER ARE ADEQUATELY SECURED BY TRUST RECEIPTS, SHIPPINGDOCUMENTS, WAREHOUSE RECEIPTS OR OTHER SIMILAR DOCUMENTSTRANSFERRING OR SECURING TITLE COVERING READILY MARKETABLE, NON-PERISHABLE GOODS WHICH MUST BE FULLY COVERED BY INSURANCE .

35.3 THE ABOVE PRESCRIBED CEILINGS SHALL INCLUDE—

1. THE DIRECT LIABILITY OF THE MAKER OR ACCEPTOR OF PAPERDISCOUNTED WITH OR SOLD TO SUCH BANK AND THE LIABILITY OF A

GENERAL ENDORSER, DRAWER OR GUARANTOR WHO OBTAINS A LOAN OROTHER CREDIT ACCOMMODATION FROM OR DISCOUNTS PAPER WITH OR

SELLS PAPERS TO SUCH BANK;2. IN THE CASE OF AN INDIVIDUAL WHO OWNS OR CONTROLS A MAJORITY

INTEREST IN A CORPORATION, PARTNERSHIP, ASSOCIATION OR ANY OTHERENTITY, THE LIABILITIES OF SAID ENTITIES TO SUCH BANK;3. IN THE CASE OF A CORPORATION, ALL LIABILITIES TO SUCH BANK OF ALL

SUBSIDIARIES IN WHICH SUCH CORPORATION OWNS OR CONTROLS A

MAJORITY INTEREST; AND4. IN THE CASE OF A PARTNERSHIP, ASSOCIATION OR OTHER ENTITY, THE

LIABILITIES OF THE MEMBERS THEREOF TO SUCH BANK.


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35.4. EVEN IF A PARENT CORPORATION, PARTNERSHIP, ASSOCIATION, ENTITY OR AN INDIVIDUAL WHO OWNS OR CONTROLS A MAJORITY INTEREST IN SUCH ENTITIES

HAS NO LIABILITY TO THE BANK, THE MONETARY BOARD MAY PRESCRIBE THECOMBINATION OF THE LIABILITIES OF SUBSIDIARY CORPORATIONS OR MEMBERS OF

THE PARTNERSHIP, ASSOCIATION, ENTITY OR SUCH INDIVIDUAL UNDER CERTAINCIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO ANY OF THE FOLLOWINGSITUATIONS—

1. THE PARENT CORPORATION, PARTNERSHIP, ASSOCIATION, ENTITY ORINDIVIDUAL GUARANTEES THE REPAYMENT OF THE LIABILITIES;

2. THE LIABILITIES WERE INCURRED FOR THE ACCOMMODATION OF THEPARENT CORPORATION OR ANOTHER SUBSIDIARY OR OF THE

PARTNERSHIP OR ASSOCIATION OR ENTITY OR SUCH INDIVIDUAL; OR3. THE SUBSIDIARIES THOUGH SEPARATE ENTITIES OPERATE MERELY AS

DEPARTMENTS OR DIVISIONS OF A SINGLE ENTITY.

35.5. FOR PURPOSES OF THIS SECTION, LOANS, OTHER CREDIT ACCOMMODATIONS AND GUARANTEES SHALL EXCLUDE—

1. LOANS AND OTHER CREDIT ACCOMMODATIONS SECURED BY OBLIGATIONSOF THE B ANGKO SENTRAL OR OF THE PHILIPPINE GOVERNMENT:

2. LOANS AND OTHER CREDIT ACCOMMODATIONS FULLY GUARANTEED BYTHE GOVERNMENT AS TO THE PAYMENT OF PRINCIPAL AND INTEREST;

3. LOANS AND OTHER CREDIT ACCOMMODATIONS COVERED BY ASSIGNMENTOF DEPOSITS MAINTAINED IN THE LENDING BANK AND HELD IN THE

PHILIPPINES;4. LOANS, CREDIT ACCOMMODATIONS AND ACCEPTANCES UNDER LETTERS

OF CREDIT TO THE EXTENT COVERED BY MARGIN DEPOSITS ; AND5. OTHER LOANS OR CREDIT ACCOMMODATIONS WHICH THE MONETARY

BOARD MAY FROM TIME TO TIME, SPECIFY AS NON-RISK ITEMS.

35.6. LOANS AND OTHER CREDIT ACCOMMODATIONS, DEPOSITS MAINTAINED WITH, AND USUAL GUARANTEES BY A BANK TO ANY OTHER BANK OR NON-BANK ENTITY,WHETHER LOCALLY OR ABROAD, SHALL BE SUBJECT TO THE LIMITS AS HEREINPRESCRIBED.

35.7. CERTAIN TYPES OF CONTINGENT ACCOUNTS OF BORROWERS MAY BEINCLUDED AMONG THOSE SUBJECT TO THESE PRESCRIBED LIMITS AS MAY BE

DETERMINED BY THE MONETARY BOARD.(23 A)


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Restrictions on bank exposure: the DOSRI rules (Sec. 36)

SECTION 36. R ESTRICTION ON B ANK E XPOSURE TO DIRECTORS, OFFICERS,

STOCKHOLDERS AND T HEIR R ELATED I NTERESTS. - NO DIRECTOR OR OFFICER OF ANY BANK SHALL, DIRECTLY OR INDIRECTLY, FOR HIMSELF OR AS THEREPRESENTATIVE OR AGENT OF OTHERS—

1. BORROW FROM SUCH BANK

2. NOR SHALL HE BECOME A GUARANTOR, ENDORSER OR SURETY FOR LOANSFROM SUCH BANK TO OTHERS, OR

3. IN ANY MANNER BE AN OBLIGOR OR INCUR ANY CONTRACTUAL LIABILITY TOTHE BANK

EXCEPT WITH THE WRITTEN APPROVAL OF THE MAJORITY OF ALL THE DIRECTORS

OF THE BANK, EXCLUDING THE DIRECTOR CONCERNED: PROVIDED, THAT SUCHWRITTEN APPROVAL SHALL NOT BE REQUIRED FOR LOANS , OTHER CREDIT

ACCOMMODATIONS AND ADVANCES GRANTED TO OFFICERS UNDER A FRINGE

BENEFIT PLAN APPROVED BY THE B ANGKO SENTRAL. THE REQUIRED APPROVALSHALL BE ENTERED UPON THE RECORDS OF THE BANK AND A COPY OF SUCH

ENTRY SHALL BE TRANSMITTED FORTHWITH TO THE APPROPRIATE SUPERVISING

AND EXAMINING DEPARTMENT OF THE B ANGKO SENTRAL.

DEALINGS OF A BANK WITH ANY OF ITS DIRECTORS, OFFICERS OR STOCKHOLDERS AND THEIR RELATED INTERESTS SHALL BE UPON TERMS NOT LESS FAVORABLE TO

THE BANK THAN THOSE OFFERED TO OTHERS.

AFTER DUE NOTICE TO THE BOARD OF DIRECTORS OF THE BANK , THE OFFICE OF ANY BANK DIRECTOR OR OFFICER WHO VIOLATES THE PROVISIONS OF THIS

SECTION MAY BE DECLARED VACANT AND THE DIRECTOR OR OFFICER SHALL BESUBJECT TO THE PENAL PROVISIONS OF THE NEW CENTRAL B ANK ACT.

THE MONETARY BOARD MAY REGULATE THE AMOUNT OF LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES THAT MAY BE EXTENDED, DIRECTLY ORINDIRECTLY, BY A BANK TO ITS DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIRRELATED INTERESTS, AS WELL AS INVESTMENTS OF SUCH BANK IN ENTERPRISESOWNED OR CONTROLLED BY SAID DIRECTORS, OFFICERS, STOCKHOLDERS ANDTHEI

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General Banking Law Reviewer