174653219 New Central Bank Act
DISCUSSION OUTLINE OF THE BANGKO SENTRAL NG PILIPINAS LAW REPUBLIC ACT 7653 Preliminaries: 1. The law was enacted on June 14, 1993 and has for its policy the maintenance of a central monetary authority with the power: (a) function and operate as an independent and accountable body in the discharge of its responsibilities concerning money, banking and credit (b) enjoy fiscal and administrative autonomy. 1.1 A central bank is a bank that holds the cash reserves of a country’s commercial banks, performs monetary services for the government, issues bank notes, and makes funds available to commercial banks 1.2 They exist in practically every country as they are first and foremost a banker to the government. It does not lend money to the general public. More importantly, it shall: (a) manage the country’s debt and ensure that it has the currency to pay them. Included is the power to buy and sell foreign exchange (b) carry out a country’s monetary policy, primarily by controlling the money supply, which is the total quantity of money in the country (c) issue currency (d) regulate all the banks or financial institutions of a country 1.3 A central bank can also be said to be the primary instrumentality of a country’s monetary policy or the program that it follows to regulate money supply. A sound and responsive monetary policy is an essential tool to control inflation, or a continuing increase in prices because of higher demand brought about by greater amounts of currency in circulation, wage increases that are not proportional to productivity, which are then recovered through higher prices. These higher prices then result in reduced purchasing power. A country’s monetary policy in inflationary times may cause a reduction of the supply through central bank directives to increase reserves or sale of government securities, which when reduced will rein in spending as there is less to go around. Its significance becomes more pronounced as the other known remedies such as a Government Fiscal Policy would mean less spending but more taxes and Wage and Price Controls, which are hard to establish and enforce are not as effective
2. To create the BSP as an independent and accountable body with fiscal and administrative autonomy, the law: (a) Increased its capital from 10 billion to 50 billion (b) increase private sector representation in the Monetary Board from 3 to 5 (c) Imposed a one reappointment limit (d) Subjects only the Governor and Cabinet Secretary to Commission on Appointments approval (e) Provided for disqualifications for appointment to the Monetary Board if one was connected or had a substantial interest in a bank of financial institution 1 year prior to appointment (f) Provided for a divestment if the appointee is a stockholder, director, officer, employee, consultant, lawyer or agent of a bank, quasi-bank or financial institution before assumption to office (g) Provided for a post appointment restriction to employment within 2 years after the expiration of his term, except when serving as an official representative of the government to such institution (h) Allows the calling of a Monetary Board meeting by two members (i) Allowed the BSP to reorganize its personnel (j) Allowed indemnification for costs and expenses reasonably incurred in connection with any civil or criminal suit arising from the performance of their functions, unless adjudged finally to be guilty of negligence or misconduct 3. The powers and functions of BSP are exercised by the Monetary Board, composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years. It is composed of: (a)The Governor, as Chairman (b) A member of the Cabinet designated by the President of the Philippines (c) Five (5) members who shall come from the private sector, all of whom shall serve full-time. No member of the Board may be reappointed more than once. (Sec. 6) 3.1 In case of emergencies where time is insufficient to call a meeting of the Monetary Board, the Governor with the concurrence of two (2) other members of the Board may decide any matter or take an action within the authority of the Board. He shall thereafter submit a report to the President and Congress within seventy-two (72) hours after the action has been taken. At the soonest possible time, the Governor shall call a meeting of the Monetary Board to submit his action for ratification. (Sec. 19). 3.2 Qualifications of the members of the Monetary Board are: (a) Must be natural-born citizens of the Philippines (b) At least 35 years of age, with the exception of the Governor, who should at least be 40 years of age (c) Of good moral character, of unquestionable integrity, of known probity and patriotism (d) With recognized competence in social and economic disciplines.
3.3 Primary Powers and Functions of the Governor are: (a)He shall be head of a department and his appointment shall be subject to confirmation by the Commission on Appointments (b) He shall be BSP Chief Executive Officer (c)He shall be the principal representative of the Monetary Board and of the BSP 3.4 Disqualifications imposed upon the Governor and the Board Members: (a) Disqualified from being director, officer, employee, consultant, lawyer, agent or stockholder of any bank, quasi-bank or any other institution which is subject to BSP supervision, in which case such member shall resign from, and divest himself of any and all interests in such institution before assumption of office (b)Those coming from the private sectors shall not hold any other public office or public employment during their tenure (c)Cannot be connected directly with any multilateral banking or financial institution or has a substantial interest in any private bank in the Philippines, within one (1) year prior to his appointment (d) Cannot be employed in any such institution within two (2) years after the expiration of his term except when he serves as an official representative of the Government in such institution (e) The Governor and the full-time members of the Board shall limit their professional activities to those pertaining directly to their position with BSP, and may not accept any other employment, whether public or private, remunerated or ad honorem, with the exception of positions in eleemosynary, civic, cultural or religious organizations or whenever, by designation of the President, the Governor or full-time member is tasked to represent the interest of the Government 3.5 Any member of the Monetary Board shall inhibit himself when he has a personal or pecuniary interest in any matter in the agenda of the Monetary Board, which he should disclose and shall retire from the meeting when the matter is taken up. 3.6 The Governor or any member may be removed by the President on the gorund of: (a) Subsequent disqualification (b)Physical or mental incapacity that he cannot properly discharge his duties and responsibilities and such incapacity ahs lasted for more than six (6) months (c) Guilty of acts or operations which are of fraudulent or illegal character or which are manifestly opposed to the aims and interests of BSP; or (d) No longer possessing qualifications specified in the Act. 4. Other BSP Officers and employees on the other hand, have the primary responsibility and liability: (a) Not to who willfully violate the Act or (b) in the performance of their functions, not to commit negligent acts, abuses or acts of malfeasance or misfeasance, or fail to exercise extraordinary diligence in the performance of their duties
otherwise they shall be held liable for any loss or injury suffered by BSP, or other banking institution as a result thereof. 4.1 They shall further not make any (a)Disclosure of any information of a confidential nature, or any information on the discussions of resolutions of the Monetary Board, or about the confidential operations of BSP, unless the disclosures is in connection with the performance of official functions with BSP, or is with prior authorization of the Monetary Board or the Governor, or (b)Use such information for personal gain or to the detriment of the Government, BSP or third parties. The BSP’s responsibilities and objectives in general: 1. The primary responsibilities of the BSP are: (a) provide policy directions in the area of money, banking and credit (b) supervise bank operations (c) regulate the operation of finance companies and nonbank financing institutions performing quasi-banking functions and other similar functions. 2.
The primary objectives of the BSP are:
2.1 To maintain price stability conducive to a balanced and sustainable growth of the economy. In essence, the price referred to is the composite or weighted average of the prices of commodities and services, which should be maintained at a minimal inflation level, balanced referring to one that is neutral to all sectors of the economy, and sustainable referring to the maintenance of a certain level of growth 2.2 To promote and maintain the monetary stability and the convertibility of the peso 2.3 To provide policy directions in the areas of money, banking, and credit, with supervision over the operations of banks and with regulatory powers over the operations of finance companies and nonbank financial institutions performing quasi-banking functions Specific Functions and Powers of the BSP: 1. The BSP can be said to be functioning specifically as a: 1.1 As bank of issue under Sections 49 to 60 as it has the sole power to issue currency, i.e., notes and coins, in the Philippines. Such notes and coins: (a) are liabilities of the BSP; (b) may be issued only against, and in amounts not exceeding, the assets of the BSP; (c) constitute a first and paramount lien on all BSP assets; (d) shall be fully guaranteed
by the Government; (e) shall be legal tender in the Philippines for all debts, both public and private. In the latter case, coins shall be legal tender in amounts not exceeding P50.00, for denominations of twentyfive centavos and above, and P20.00 for denominations of ten centavos or less. Note though that checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor. However, a check which has been cleared and credited 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. 1.2 As Government banker under Sections 110-116 as it (a) represents the Government in all dealings with the International Monetary Fund, the International Bank for Reconstruction and Development (i.e., the World Bank), and other international financial institutions (b) acts as the official depository of the Government and its political subdivisions and instrumentalities, as well as governmentowned or controlled corporations. 1.3 As Government agent under Sections 117-122 as it acts on behalf, or for the account, of the Government in the issuance of securities representing obligations of the Government. 1.4 As Government financial advisor under Sections 123-124 as it provides financial advice to the Government before it borrows within the Philippines or undertakes any credit operation abroad. 1.5 As custodian of banks’ cash reserves under Sections 94 and 103 referring to the reserves against deposit liabilities, liabilities for deposit substitutes, and/or funds held in trust which banks may be required to maintain with the BSP. 1.6 As custodian of country’s international reserves under Sections 64-66 in order to maintain the international stability and convertibility of the Philippine Peso, the BSP is required to maintain international reserves adequate to meet any foreseeable net demands on itself for foreign currencies. 1.7 As a bank of rediscount and lender of last resort under Sections 82-84 as part of its normal credit operations, the BSP may rediscount, discount, buy, and sell bills, acceptances, promissory notes and other credit instruments held by banks. The BSP may also grant emergency loans and advances to banks under certain circumstances.
1.8 As bank of central clearance and settlement under Section 102, it is authorized to establish facilities for interbank clearing, i.e., for clearing of checks and the settlement of interbank balances. 1.9 As controller of credit under Sections 61-63; 81-89; 109, it shall endeavor to control the expansion or contraction of credit consistent with the objective of price stability. 2. To carry out its multiple functions, the BSP has the following statutory powers or instruments of action: 2.1 Gold and foreign exchange operations under Sections 69-79 as it may buy and sell gold in any form (Section 69); foreign notes and coins (Section 70); and spot exchange (Section 74). It may also grant loans to and receive loans from, and act as agent or correspondent for, foreign banks and other foreign or international entities, both public and private (Section 75) 2.2
Credit operations under Sections 81-89;93
2.3 Open market operations under Sections 90-92 referring to the purchases and sales of securities by the BSP with the primary objective of achieving price stability 2.4 Reserve requirements under Sections 94-103, the purpose of which is to control the volume of money created by the credit operations of the banking system. Since the requirement to maintain bank reserves is imposed primarily to control the volume of money, the BSP shall not pay interest on the reserves maintained by banks with it unless the MB decides otherwise as warranted by circumstances (Section 94). These deposits maintained by banks with the BSP as part of their reserve requirements shall be exempt from attachment, garnishment or any other order or process of any court, government agency or other administrative body issued to satisfy the claim of a part other than the Government or its political subdivisions or instrumentalities (Section 103) 2.5 Selective regulation of bank operations under Sections 104-108 as aside from its interest rate policy, the BSP may use the following other credit control instrument to support its objectives: (a) margin requirements against letters of credit; (b) maximum permissible maturities of loans and investments; (c) kind and amount of security against bank loans; (d) loans and investment portfolio ceilings; and (e) minimum capital ratios.
2.6 Moral influence under Section 68 referring to the persuasive power of the BSP to influence the course of bank action. Example: When some banks attempted several years ago to charge fees for ATM withdrawals, the BSP used its moral influence over the said banks to dissuade them from carrying out their plan. 2.7 In the imminence of, or during an exchange crisis, or in time of national emergency, what could the BSP do to give itself and the Government time in which to forestall, combat or overcome such a crisis or emergency under Section 72, the Monetary Board, with the concurrence of at least 5 of its members and with the approval of the President of the Philippines, may (a) temporarily suspend or restrict sales of exchange by the BSP, like disallowing the opening of foreign letters of credit (b) subject all transactions in gold and foreign exchange to license by the BSP, thereby limiting who may deal in foreign exchange, and (c) require that any foreign exchange thereafter obtained by any person residing or entity operating in the Philippines be delivered to the BSP or to any bank designated by the BSP for the purpose, at the effective exchange rate or rates, like requiring overseas Filipino workers to remit their salaries to accounts maintained by their recipients in local banks and to convert such remittances to Pesos. Power of Supervision over Banks 1. Generally, the BSP shall have supervision over, and conduct periodic or special examinations of, banking institution and quasibanks, including their subsidiaries (a corporation more than fifty percent (50%) of the voting stock of which is owned by a bank or quasi-bank) and affiliates (a corporation the voting stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasibank or which is related or linked or such other factors as may be determined by the Monetary Board) engaged in allied activities. 2. When exercising its supervisory powers, no restraining order or injunction shall be issued by the court enjoining BSP from examining any institution subject to supervision or examination by BSP, unless there is convincing proof that the action of the BSP is plainly arbitrary and made in bad faith and the petitioner or plaintiff files a bond executed in favor of BSP, in an amount to be fixed by the court (Section 25). 3. The refusal of any officer, owner, agent, manager, director or officer-in-charge of any institution subject to the supervision or examination by BSP to make reports or permit examination is
criminally punishable under the Act and may also subject the violator to the following administrative sanctions (a) Fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed P30,000 a day for each violation (b) Suspension of rediscounting privileges or access to BSP credit facilities (c)Suspension of lending or foreign privileges or make new investments (d) Suspension of interbank clearing privileges; and/or (e) Revocation of quasi-banking license.
It shall conduct normal credit operations (rediscounting, etc. of commercial credits production credits and other credits, and advances against collaterals of not more than 180 days), special credit operations (loans and advances without any collateral of not more than 7 days to provide liquidity in times of need) and emergency credit operations (grant of extraordinary loans or advances secured by certain assets to banks in periods of national or local emergency or of imminent financial panic, or to banks in precarious financial condition or under serious financial pressure, even during normal periods). Note that Section 84 (Section 90 of RA 265) has been expanded to provide for a ceiling on the total amount of loans or advances that could be given to a bank and on the amount of first tranche. Note also the requirement that the principal stockholders of the bank execute an undertaking to indemnify and hold harmless from suit the conservator the MB may find necessary to appoint in case a loan or advance greater than the amount provided in Section 84 is warranted under the circumstances. Further note the new provision added to Section 85 (Section 91 of RA 265) making it clear that the BSP could collect interest on the loans and advances it may extend to a bank notwithstanding the closure, receivership or liquidation of the bank (although the provision is applicable prospectively). Also note the changes to Section 89 (Section 95 of RA 265) making it clear that provisional advances to the National Government may be with or without interest, eliminating the “political subdivisions”
from entitlement to the said advances, and providing for different repayment terms. Finally, note the new Section 109 requiring government-owned corporations to coordinate their general credit policies with those of the M.B. Foreign currency deposits made under Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines, are exempt from these requirements. 1. In relation to the maintenance of price stability conducive to a balanced and sustainable growth of the economy, the BSP has: a. The sole power and authority to issue currency, within the territory of the Philippines. The Bangko Sentral shall have the authority to investigate, make arrests, conduct searches and seizures in accordance with law person or any entity who may put into circulation notes, coins or any other object or document without prior authority from the Bangko Sentral (Section 50, R.A. 7653). All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private (Section 52), subject however to the limitation that coins with face value of 25 centavos and above shall be legal tender only up to P 50.00, while those with a face value of 10 centavos or below shall be legal tender only up to P 20.00 (2) b. The sole authority to replace currency unfit for circulation and retire or call in for replacement all types of notes which are more than five years old and coins which are more than 10 years old. The BSP shall withdraw from circulation and shall demonetize all notes and coins which for any reason are unfit for circulation and shall replace them by adequate notes and coins except those mutilated in condition which shall also be withdrawn in circulation without compensation to bearer (Sections 56 and 57) 2. In relation to the need to promote and maintain the monetary stability and the convertibility of the peso, the BSP is mandated to: a. Control any expansion or contraction in monetary aggregates which is prejudicial to the attainment or maintenance of prior stability (Section 61, R.A. 7653)
b. Exercise its powers to preserve the international value of the peso and maintain its convertibility into other freely convertible concurrencies by maintaining international reserves adequate to meet any forseeable net demands on the it for foreign currencies (Sections 64 and 65). The BSP, through the Monetary Board is authorized to license or to restrict or regulate foreign exchange; said act does not authorize it to commandeer foreign exchange earned by exporters and pay for it the price it fixes, later selling it to importers at the same rate of purchase. The power to commandeer amounts to confiscatory power that may not be exercised under its charter; such confiscatory measures if justified by a monetary crisis can be adopted by the legislature alone under its police power (Bacolod-Murcia vs. CB, 9 SCRA 268) c. Buy and sell gold in any form in the national currency at the prevailing international market price as authorized by the Monetary Board. It may also buy and sell foreign notes and coins and documents and instruments employed for the international transfer of funds from banking institutions operating in the Philippines, the Government, its political subdivisions and instrumentalities, foreign financial institutions, foreign governments and their instrumentalities and other entities or persons which the Monetary Board authorizes as for foreign exchange dealers. The Monetary Board shall determine the exchange rate policy of the country (Sections 69, 70 and 74) d. To control the volume of money created by the credit operations of the banking system, all banks operating in the Philippines shall maintain reserves against their deposit liabilities. Banks and/or quasibanks may also be required by the Monetary Board to maintain reserves against funds held in trust and liabilities for deposit substitutes (Section 94). Deposit substitutes is an alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement or acceptance of debt instruments for the borrower’s own account for the purpose of relending or purchasing of receivables and other obligations. These instruments may include, but need not be limited to bankers acceptances, promissory notes, participations, certificates of assignment and similar instruments with recourse, and repurchase agreements (Section 95)
EFFECT ON DOSRI ACCOUNTS
Any director, officer or stockholder who, together with his related interest, contracts a loan or any form of financial accommodation from: (a) (b)
His bank; or From a bank – Which is a subsidiary of a bank holding company of which both his bank and the lending bank are subsidiaries; or In which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank;
in excess of 5% of the capital and surplus of the bank, or in the maximum amount permitted by law, whichever is lower, shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the Philippines. (Sec. 26). PROHIBITIONS ON BANK OFFICERS, DIRECTORS, LAWYERS, AGENTS BSP Personnel are prohibited from: (a)
Being an officer, director, lawyer or agent, employee, consultant or stockholder, directly or indirectly, of any institution subject to BSP supervision or examination; EXCEPT: provident
Non-stock savings an loan associations and funds organized exclusively for employees of
Directly or indirectly requesting or receiving any gift, present or pecuniary or material benefit for himself or another, from any institution subject to BSP supervision or examination;
Revealing in any manner, except under orders of the court, the Congress or any government office or agency authorized by law, information relating to the condition or business of any such institution; and
Borrowing from any such institution, unless said borrowings are adequately secured, fully disclosed to the Monetary Board. (Sec. 27).
Conservatorship 1. The appointintment by the Monetary Board of a conservator takes place whenever a bank or quasi-bank is 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 appointed conservator is to take charge of the assets, liabilities, and the management thereof for a period not exceeding one (1) year 2. In addition, the Monetary Board may also: (a) Reorganize the management (b) Collect all monies and debts due said bank, and (c) Exercise all powers necessary to restore its viability, with power to overrule or rebuke the actions of the previous management and board of directors of the bank or quasi-bank 3. A conservator may take over a bank or quasi-bank without the need of first declaring the bank insolvent (P.D. 1937, June 27, 1984). Nonetheless, the designation of a conservator is not a precondition to the designation of a receiver (Section 30)
4. The in the exercise of the power of the conservator as to item (c), it must be it must be pointed out that such powers must be related to “preservation of the assets of the bank (the reorganization of), the management thereof and (the restoration of) its viability.” Such powers, enormous and extensive as they are, cannot extend to postfacto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution. If legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator. Obviously, therefore, Sec. 28-A merely gives the conservator power to revoke contracts 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’s Board of Directors. What the said board cannot do – such as repudiating a contract validly entered 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 the Bank. His authority would be only to bring court actions to assail such contract – as he has already do so in the instant case (First Phil. Int’l Bank v. Court of Appeals,252 SCRA 259)
5. The conservatorship is terminated when: (a) When Monetary Board is satisfied that institution can continue to operate on its own and the conservatorship is no longer necessary (b) Should Monetary Board determine that the continuance in business of the institution would involve probable loss to its depositors or creditors, in which case proceedings for receivership and liquidation shall be pursued. (Sec. 29). Proceedings in Receivership: 1. Receivership ensues whenever the Monetary Board finds that a bank or quasi-bank: (a) Is unable to pay its liabilities as they become due in the ordinary course of business BUT: Shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community (b) Has insufficient realizable assets to meet its liabilities (c) Cannot continue in business without involving probable losses to its depositors or creditors; or (d) Has willfully violated a cease and desist order that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution; 1.1 In which cases, the Monetary Board may summarily and without need for prior hearing, forbid the institution from doing business in the Philippines and designate the PDIC as receiver of the banking institution. 1.2 There is not requirement that a hearing be first conducted before a banking institution may be placed under receivership. The appointment of a receiver may be made by the Monetary Board without notice and hearing but its action is subject to judicial inquiry( Rural Bank of Buhi v. Court of Appeals,162 SCRA 288) 1.3 The Central Bank, through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank and if it finds the condition to be one of insolvency, or its continuance in business would involve probable loss to creditors and depositors, it can forbid the bank to do business and can designate a receiver to take charge of its assets and liabilities. Sec. 29 of the Central Bank Act does not contemplate prior notice and hearing before a bank is placed under receivership. It is enough that such action is made the subject of a subsequent judicial review. “Close now and hear later” scheme under the Act is for the purpose of protecting the depositors, creditors, stockholders and general public (Central Bank v. Court of Appeals, 220 SCRA 536)
1.4 Prior notice and hearing is not required before placement of bank under receivership. Section 29 does not contemplate prior notice and hearing before a bank may be directed to stop operation and placed under receivership. When paragraph 4 (now paragraph 5 as amended by E.O. 289) provides for the filing of a case within ten (10) days after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case. Plainly, the legislature could not have intended to authorize “no prior notice and hearing” in the closure of the bank and at the same time allow a suit to annul it on the basis of absence thereof (CB vs. CA, 220 SCRA 539) 1.5 Judicial review is allowed to determine the presence of arbitrariness and bad faith in placing bank under receivership. Admittedly, the mere filing of a case for receivership by Central Bank can trigger a bank run. The procedure prescribed in Section 29 is truly designed to protect the interest of all concerned, and the summary closure pales in comparison to the protection afforded public interest. At any rate, the bank is given full opportunity to prove arbitrariness and bad faith in placing the bank under receivership, in which event, the resolution may be properly nullified and the receivership lifted as the trial court may determine. Until such determination is made, the status quo shall be maintained, i.e., the bank shall continue to be under receivership. 1.6 Receivership is equivalent to an injunction to restrain in the bank officers from intermeddling with the property of the bank in any way. Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects (Villanueva vs. CA, 244 SCRA 395)
2. The Functions and Obligations of a Receiver are: (a) Immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors (b)Exercise the general powers of a receiver (c) Determine as soon as possible, but not later than ninety (90) days from take-over, whether the institution may be rehabilitated or otherwise place in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public BUT: Any determination for the resumption of business of the institution shall be subject to prior approval of the Monetary Board.
Liquidation: 1. Liquidation shall take place is the receiver determines that the institution cannot be rehabilitated or permitted to resume business, the Monetary Board shall notify in writing the Board of Directors of its findings and direct the receiver to proceed with the liquidation of the institution. 2. The following are the mandatory requirements to be complied with before a bank found to be insolvent can be ordered close: (1) an examination shall be conducted by the appropriate CB department as to the condition of the bank (2) disclosed in the examination is that the condition of the bank is one of insolvency (3) the director shall inform the Monetary Board in writing of such fact, and (4) the Monetary Board shall find the statement of the department to be true (Banco Filipino vs. Monetary Board, 204 SCRA 767) 3. The test of insolvency laid down in Section 29 of the Central Bank Act (now Section 30 of the New Central Bank Act) is measured by determining whether the realizable assets, realizable within a reasonable time by a reasonably prudent person of a bank are less than its liabilities, not considering capital stock and surplus which are not liabilities for such purpose. (Ibid) 4. Upon liquidation, the receiver shall then: (a) File ex parte with Regional Trial Court, and without the requirement of prior notice or any other action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by PDIC (b) Upon acquiring jurisdiction, RTC shall, upon motion by the institution, assist the enforcement of individual liabilities of the stockholders, directors and officers, and decide on other issues as may be material to implement the liquidation plan adopted (c)Convert the assets of the institution to money, dispose of the same to creditors and other parties, for the purpose of paying the debts of such institution in accordance with the rules on concurrence and preference of credit under the Civil Code (d) Institute such actions as may be necessary to collect and recover accounts and assets of, or defend any action against, the institution Selected Issues involving Receivership and Liquidation: 1. If the Central Bank (now Bangko Sentral) through its Monetary Board has promised to rehabilitate the distressed bank, and the stockholders on said assurance proceeded to mortgage their real properties to guarantee CB promised loan advances to said bank, CB cannot renege on said promise, under the doctrine of promissory
estoppel, and cannot insist in its liquidation (Ramos vs. CB, 41 SCRA 565) 2. Where the Central Bank, in the course of the rehabilitation of a commercial bank, extended loans and advances, but subsequently the bank was forced by CB to close, and subsequently allowed to reopen, interest due on said loans and advances, cannot be collected because it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on a deposit ceases from the moment the operation of the bank is completely suspended by the duly constituted authority the Central Bank (Ibid,; Overseas Bank vs. CA, 105 SCRA 49) 3. The prescriptive period to institute the foreclosure proceeding was legally interrupted when the mortgagee-bank was placed under receivership with express prohibition from transacting business, a circumstance considered as force majeure (Provident vs. CA, 222 SCRA 125) 4. While the closure and liquidation of a bank may be considered an exercise of police power, the validity of its exercise is subject to judicial determination, and could be set aside, if it is capricious, discriminatory, whimsical, arbitrary, unjust or a denial of the due process and equal protection clauses of the Constitution (CB vs. CA, 106 SCRA 143) 5. A deposit in a distressed bank already forbidden by CB to do business does not become a preferred credit simply because some depositors went to court and were able to secure judgments against the bank (CB vs. Morfe, 63 SCRA 114) 6. Where in the course of bank’s distressed condition, the Central Bank gave financial assistance to restore the bank’s viability, but that inspite of these moves, the bank was closed by CB on August 1968, and allowed to reopen on January 8, 1981, under a new name, Commercial Bank of Manila, the obligation by the bank to pay interest on the CB advances remained suspended during the whole period of its closure, following the ruling in OBM vs. CA and Tapia (105 SCRA 49). Hence, the interest obligation starts to run from the date of the reopening of the bank on January 8, 1981 (Ramos vs. CB, 137 SCRA 685) Conservatorship and Receivership of Banks May a Monetary Board Resolution placing a private bank under receivership be annulled on the ground of lack of prior notice and hearing? Is absence of prior notice and hearing constitutive of acts of
arbitrariness and bad faith? Under Section 29 of R.A. 265 (now RA 7653), the Central Bank (now Bangko Sentral), through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, forbid the bank or nonblank financial institution to do business in the Philippines and shall designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities. Answer: If I were the judge, I will not issue the two orders. Respecting the move to restrain CB from closing Family Bank, it will not prosper because three prerequisites should be present for the restraining purpose: (1) the action should be filed by stockholders of record representing majority capital stock; (2) the petition should be filed within 10 days from receipt by the board of directors of the order directing receivership, liquidation or conservatorship; and (3) the action of the Monetary Board was in excess of jurisdiction or with grave abuse of discretion amounting to lack of jurisdiction. No mention is at all made of existence of all these prerequisites in the problem above. The court therefore should not restrain the closure made by the CB of the bank. Respecting withdrawal by the distressed bank of its deposits during the pendency of the case, the same should likewise not be allowed by the court. Once the petition for assistance in the liquidation of the bank is filed in court, the receiver shall immediately gather all the assets and liabilities of the bank, administer the same for the benefit of its creditors, and except for administrative expenditures, it shall not pay or commit any act that will involve the transfer or disposition of any asset of the institution, deposits included. Hence, the withdrawal of money from its deposits cannot be allowed. (Note: Answered under R.A. 7653) Bar Question: Give the basic requirements to be complied with by the Central Bank (Bangko Sentral ng Pilipinas) before the Monetary Board can declare a bank insolvent, order it closed and forbid it from doing further business in the Philippines (1997 Bar) Answer: The law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to immediately take charge of the banks’ assets and liabilities. These are: (a) an examination made by the examining department of the Central Bank; (b) report by said department to the Monetary Board; and (c) prima facie showing that its
continuance in business would involve probable loss to its depositors or creditors (CB vs. CA, 220 SCRA 539; Rural Bank vs. CA, 162 SCRA 288) Bar Question: Under what circumstances may a bank be ordered liquidated and what is the procedure prescribed by law for the purpose? (1969 Bar) Answer: The circumstances to justify the liquidation of a bank are: a. The condition of the bank is one of insolvency or that its continuance would involve probable loss to its depositors and creditors. b. A determination by the Monetary Board that the bank cannot resume business with safety to its creditors. The procedure prescribed by the law for the liquidation of a bank is as follows: a. The receiver files ex parte with the proper regional trial court a petition for assistance in the liquidation of the institution; b. The receiver converts the assets of the institution to money; c. The receiver shall pay the debts of the institution in accordance with the rules on concurrence and preference of credit as provided in the Civil Code; d. The receiver shall pay the cots, fees and expenses of the institution in the order of their legal priority; e. The Bangko Sentral, if public interest so requires, awards to an institution as approved by the Monetary Board the banking franchise of a bank under liquidation to operate in the area where said bank or its branches were previously operating (Note: Answered under R.A. 7653) NOTE: BSP has authority to request from government offices and instrumentalities, or government-owned or controlled corporations, data which it may require for the proper discharge of its functions and responsibilities, with power to issue subpoena for the production of books and records. 2.
Roles of the Bangko Sentral
a. Designation as Banker of Government – BSP shall act as a banker of the Government, its political subdivisions and instrumentalities (Sec. 110), and their cash balances should be deposited to BSP, with only minimum working balances to be held by government-owned banks and such other banks incorporated in the Philippines as the Monetary Board may prescribe. (Sec. 113).
b. Representation with International Monetary Board – BSP shall represent the Government in all dealings, negotiations and transactions with the International Monetary Fund and shall carry such accounts as may result from Philippine membership in, or operations with, said Fund. (Sec. 111). c. Representation with Other Financial Institutions – BSP may be authorized by the Government to represent it in dealings, negotiations or transactions with the International Bank for Reconstruction and Development and with other foreign or international financial institutions or agencies. (Sec. 112). d. Fiscal Operation – BSP shall open a general cash account for the Treasurer of the Philippines, in which the liquid funds of the Government shall be deposited. Transfer of funds from this account to other accounts shall be made only upon the order of the Treasurer of the Philippines. (Sec. 114). Privileges Given and Prohibitions/Limitations Imposed: 1. The privileges enjoyed are: (a) Tax Exemption – BSP shall be exempt for a period of five (5) years from the approval of the Act from all national, provincial, municipal and city taxes, fees, charges and assessments (b)Exemption from Customs Duties – The importation and exportation by BSP of notes and coins, and of gold and other metals, and the importation and equipment needed for bank note production, minting of coins, metal refining and other security printing operations shall be fully exempt from all customs duties and consular fees and from all other taxes, assessments and charges related to such importation or exportation. 2. The prohibitions imposed on the BSP are: (a) It cannot acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either directly or indirectly. BSP cannot engage in development banking or financing (b) Phase-out of Fiscal Agency Functions – Unless circumstances warrant otherwise and approved by the Congress Oversight Committee, BSP shall, within three (3) years but in no case longer than five (5) years from the approval of the Act, phase out all fiscal agency functions and transfer the same to the Department of Finance (c) Phase-out of Regulatory Powers Over the Operations of Finance Corporations and Other Institutions – BSP shall, within five (5) years from the effectivity of the Act, phase out its regulatory powers over finance companies without quasi-banking functions, the same to be assumed by SEC. (Sec. 130).
The Monetary Board