Banking Laws and Jurisprudence (Dizon) Summary

Art. 1172 of NCC states that the degree of diligence required of an obligor is that prescribed by law or contract, and in the absence of such, that of a good father to a family NOTE: Due diligence is required of banks extend even to persons or institutions, regularly engaged in the business of lending money secured by real estate mortgage.

Banking Laws - Dizon G. CHAPTER 1 I. DECLARED Policy of the State (Sec. 2, GBL) - The State recognizes the vital role of banks providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy. II. Definition of Banks (Sec. 3.1, GBL) - "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits. Note: Banks may engage in other activities allowed by law. III. Nature of Banking Business

A. B.

C.

D.

Debtor-Creditor Relationship – The relationship existing between a depositor and bank is that of a creditor and debtor. Fiduciary Duty 1. Simex Intl., Inc. vs. CA: The State recognizes the “fiduciary nature of banking that requires high standards of integrity and performance.” Banks are required to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. 2. This bank’s obligation is deemed written into every deposit agreement between a bank and its depositor. Not A Trust Agreement 1. The fiduciary nature of bank-depositor relationship does NOT convert the contract between the bank and its depositors FROM a SIMPLE LOAN TO a TRUST AGREEMENT. This is because Banks do not accept deposits to enrich depositors but to earn money for themselves. 2. Failure by the bank to pay to pay the depositor is failure to pay a simple loan, and NOT a breach of trust. Indispensable Institution 1. Banks is an indispensable institution in the modern world and plays vital role in the economic life of every citizen. People have come to regard them with respect, gratitude, and confidence.

2. 3. 4.

E. F.

Even a humble wage-earner does not hesitate to entrust his life savings An ordinary person usually maintains an account for security and convenience in settling his bills

As for business entities, the bank is trusted to help them in running their affairs, not only in the form of loans, but in their day-to-day transactions like encashing a check. Impressed with Public Interest (Simex vs. CA) – a depositor expects a bank to treat his account with utmost fidelity, whether such account consists only of a few hundred pesos or millions. Degree of Diligence (Simex vs. CA)

H.

I. J.

Treatment of Accounts with Meticulous Care – There is NO LAW mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts. Duty to Keep Records 1. Banks shall have a true and accurate account, record, statement of their daily transactions especially those of deposit liabilities. 2. The making of a false entry or willful omission of entries is a ground for the imposition of administrative sanctions and disqualification from office. Banks are NOT Gratuitous Bailees – Banks solicit deposits in order that they can use the money to gain. Banks are NOT Expected to be Infallible, but must bear the blame for NOT discovering mistakes despite established procedures.

Q: Sps. A and V opened a joint current account in C Bank with an initial deposit of P2,250. Prior thereto, A had a personal account with the same bank. When the spouse opened their joint current account, the “New Accounts” teller pulled out the old signature card of A and placed the old personal account number of A in the deposit slip. V issued two checks and one of these was dishonored for IF. They were deducted P20 from their account. The bank tried to call the spouses, but they were in Pampanga. Is the bank liable for damages? A: Yes. a depositor expects a bank to treat his account with utmost fidelity, whether such account consists only of a few hundred pesos or millions. Bank must record every transaction accurately A blunder on the part of the bank such as dishonor of check without good reason can cause the depositor embarrassment, financial loss, and perhaps civil and criminal litigation Note: Exemplary damages are awarded if there is malice and bad faith. K.

Dealing with Registered Lands – The rule that persons dealing with registered lands can rely solely on the certificate of title does NOT APPLY to banks. Banks should exercise more care and prudence in dealing with registered lands that private individuals, for their business is one affected by public interest. Q: A sold is unregistered parcel of land to B. Subsequently, an Orig. Cert.Title (OCT) was issued. A surrendered it to X bank as a consequence of a mortgage. B died w/o knowing that an OCT has been issued. Upon learning of his right, C (B’s heir) confronted A and went to X bank. C asked to photocopy the owner’s duplicate certificate outside the bank’s premises. C then brought it to the Register of Deeds with the Deed of Sale and he was issued a Transfer Cert of Title. Is the bank liable for damages to A? A: Yes. Bank failed to foresee the risk of its act of entrusting C with the OCT without notifying A and verifying the veracity of C’s claim and character. This acts runs afoul of the bank’s mandate to observe the highest diligence A has also the right to due process. Notice and hearing are indispensable elements of this right which the bank ignored Q: A bank accepted a property as mortgage despite existence of structures and occupants other than the mortgagor. Is the bank negligent? A: Yes. Banks, being in the business of extending loans, are familiar with the rules on land registration. They are expected to exercise more care and prudence in dealing with registered lands that private individuals, for their business is one affected by public interest.

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The bank should have conducted investigation since there occupants other than the owner of the land mortgaged. This constitutes gross negligence amounting to bad faith. L.

Banks may Exclude Persons in their Premises – No employees must be spared by banks and their officers and employees to ensure and preserve the trust and confidence of the general public.

IV. Liability For Acts and Employees – Bank is LIABLE for the wrongful acts of its officers done WITHIN the scope of their authority. A. Negligence of Manager Bank is liable for the negligence or misdeed of the branch manager since confidence in the banking system necessarily includes reliance on bank managers. (BPI vs. First Metro Investment Corp.) B. Negligence of Officers – if within the scope of authority, bank is liable C. Negligence of Tellers – returning the passbook ONLY to the depositor or his authorized representative. If given to the wrong person, bank is liable since they would be clothing that person presumptive ownership of the passbook. Note: Appropriation of money by a bank teller is NOT ESTAFA. Such is only MATERIAL POSSESSION. The bank still has JURIDICAL POSSESSION. If for personal gain, THEFT. If the teller has possession of the money since he occupies a position of confidence, QUALIFIED THEFT. Right to Recover from Employees – Banks may recover from their employees. (Art. 2181 of NCC) E. Liabilities other than Actual 1. Exemplary – by way of example. Malice and bad faith must be attendant 2. Moral – when the good reputation of the client was besmirched or his financial credit Note: Banks are NOT responsible for such damages in the ABSENCE of fraud, bad faith, malice, or wanton attitude. F. Respondeat superior, Diligence in the Selection, and Supervision of Employees - A bank is bound by negligence of its employees under the principle of Respondeat superior or command responsibility.

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Thrift Banks: allowed to use and adopt any name, provide the ff words are affixed: A thrift bank, Saving bank, A Private Development Bank, or A stick Savings and Loan Association

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Rural or Commercial Banks: allowed to use and adopt any name, provide the ff words are affixed: Rural or Coop, A Cooperative Bank, or A Rural Bank. o The size of the letters of such phrase shall be at least ½ of the size of the business name when shown on letterheads, billboards, and other advertising materials.

B. 1. 2. 3.

Universal Banks powers authorized for a commercial bank powers of an investment house power to invest in non-allied enterprises

C. 1.

Commercial Banks general powers incident to corporations

2.

powers of commercial banks: (A BREAD)

D. -

Rural Banks designed to make needed credit available and readily accessible in the rural areas on reasonable terms primary purpose is to meet the normal credit needs of farmers, fishermen, or farm families

D.

V. Classification of Banks (CUT RICO) Sec. 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 development banks, 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, otherwise known as the “Charter of Al Amanah Islamic Investment Bank of the Philippines”; and (g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas. A.

Business Name

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Only a bank that is granted universal/ commercial banking authority may represent itself to the public as such in connection with its business name

E. -

Thrift Banks include savings and mortgage banks, private devt. banks, and stock savings and loans associations.

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Providing short-term working capital, medium and long term financing to business engaged in agriculture, services, industry, and housing Powers of a Thrift Bank:

F. -

G. -

Cooperative Banks one organized by, the majority shares of which is owned and controlled by, cooperatives primarily to provide financial and credit services to cooperatives “cooperative bank” shall include cooperative rural banks Membership shall include ONLY cooperatives and federations of cooperatives Functions of a Cooperative Bank

Islamic Banks (Al-Amanh Islamic Investment Bank of the Philippines) in Zamboanga City primary purpose shall be to promote and accelerate the socio-economic devt of the Autonomous Region by performing banking and financing operations and to establish and participate in the agricultural, commercial, and industrial ventures based on the Islamic concept of banking.

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H. I.

J.

Other Banks Philippine Veterans Bank – private commercial bank owned by veterans Land Bank of the Philippines – finance the acquisition and distribution of agricultural estates fro division and resale to small landholders as well as the purchase of the landholding by the agricultural lessee Development Bank of the Philippines – was created as Rehabilitation Finance Corp. (RFC); took over the functions of Agricultural Industrial Bank Non-Stock Saving And Loan Associations – mean a non-stock, non-profit corp engaged in the business of accumulating the savings of its members and using such accumulations for loans to members for home building or personal finance Quasi-banks – refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of receivables and other obligations "deposit substitutes" is defined as 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.

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The SEC shall not register the articles of corp or any amendment unless accompanied by a certificate of authority issued by the MB, under its seal. The MB shall be satisfied from the evidence submitted to it: (RPC) o All requirements of law have been complied with o Public interest and economic conditions justify the authorization o The amount of capital as well as the integrity of the organizers reasonable assure the safety of deposits and the public interest

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The SEC shall not register the by-laws of any bank or any amendment unless accompanied by a certificate of authority issued by the MB, under its seal.

CHAPTER 2: ORGANIZATION, MANAGEMENT & ADMINISTRATION OF BANKS, QUASIBANKS AND TRUST ENTITIES I.

Organization of Banks

A.

Conditions The MB may authorize the organization of a bank and quasi-bank: 1. Entity is a stock corporation 2. Funds are obtained from the public, 20 o more persons 3. Minimum capital requirements by MB are satisfied

B.

Capabilities The MB shall take into consideration their apability in terms of their financial resources and technical expertise and integrity. 1. Bank’s ownership structure 2. Director’s and senior management 3. Its operating plan 4. Internal control 5. Its projected financial condition and capital base

C.

Capital Requirements 1. Banks shall comply with the required minimum capital by MB: Universal Bank4,950M Commercial Bank2,400M Thrift Banks w/n MM325.0M Outside MM52.0M Rural Banks w/n MM26.0M Cities of Cebu and Davao13.0M In 1st, 2nd & 3rd class cities and 1st class minicipalities6.5M In 4th, 5th & 6th classcities and in the 2nd, 3rd & 4th class municipalities3.9M In 5th & 6th class municipalities- 2.6M

VI. Authority to Engage in Banking and Quasi-Banking (QB) Functions A. Authority from Bangko Sentral -

No person shall engage in banking operations or QB functions WITHOUT authority from the Bangko Sentral

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No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions, building and loan associations, trust companies and other financial intermediaries, insurance companies, public utilities, educational institutions, and other corporations governed by special laws shall be accepted or approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law. (Sec. 17 of BP 68)

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The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any bank, banking institution, building and loan association, trust company, insurance company, public utility, educational institution or other special corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law. (Sec. 46 of BP 68) Whether a person or entity is performing banking or quasi-banking functions W/O the BS authority shall be decided by the Monetary Board by examining and investigating the books and records of such person or entity. Upon issuance of authority, may commence to engage in functions until authority is suspended, revoked or annulled by BS. The dept head and the examiners of the supervising and examining dept shall: administer oath to any such person or entity compel presentation of books, records, and documents a. failure to do so would subject such to appropriate sanctions

B.

C. 1. 2.

D. E.

• • • •

2. BS shall, when examining a bank, have the authority to examine an enterprise which is wholly or majority-owned by the bank. Certificate of Authority to Register

At least 25% of the total authorized capital stock shall be subscribed by the subscribers of the propsed bank, and at least 25% of such subscription shall be paid-up that it must not be less than the minimum required capital.

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D.

Incorporators/ Subscribers 1. Must be persons of integrity and of good credit standing in the business community. Subscribers must have adequate fonancial strength to pay for their propsed subscriptions in the bank. 2. Must not have been convicted of any crime involving moral turpitude unless otherwise allowed. 3. A bank may be organized with not less than 5 or more than 15 persons in organizing or investing in the proposed bank. *if there is excess, may be listed among the original subscribers in the Articles of Corp.

exceed 40% of the outstanding voting stock of the bank. The percentage of foreign-owned voting stock shall be determined by the citizenship of the individual stockholders in the bank. -Filipino individual and domestic non-bank corporation may each own up to 40% o the voting stock of a domestic bank. There shall be no aggregate ceiling on the ownership by such individuals and corporations in a domestic bank. 2.

QUERY: MAY COOPERATIVES ORGANIZE A BANK? Yes, established cooperatives and corporations may organize a bank and/or subscribe to the shares of stock oa any rural bank. Provided, that it shall be subject to special examination and to such rules and regulations prescribed by the MB. E.

II. A.

Bank Branches 1. UB & CB may open branches or other offices within or outside the Philppines upon prior approval of the BS. 2. A bank authorized to branch out shall be responsible for all business conducted in such branches because a bank and its offices shall be treated as one unit. Stockholdings Treasury Stocks 1. No bank shall  Purchase/ acquire shares of its own capital stock or  Accept its own shares as a security for a loan

*CONTROLLING STOCKHOLDER- refer to individuals holding more than 50% of the voting stock of the corporate stockholders of the bank.

3.

3.

B.

C.

Acquisition of Voting Stock in a Domestic Bank 1. Within 7years from the effectivity of the GBL and subject to guidelines issued pursuant to the Foreign Banks Libearlization Act, the MB may authorize a foreign bank to acquire up to 100% of the voting stock of only one bank organized under the laws of the Republic of the Philippines. 2. Within the same period, MB may authorize any foreign bank, which prior to the effectivity of the GBL availed itself of the privilege to acquire upto 60% of the voting stock of a bank under the Foreign Banks Libearlization Act and the Thrift Banks Act, to further acquire voting shares of such bank to the extent necessary for it to own 100% of the voting stock thereof. 3. MB shall adopt measures necessary to ensure that at all times the control of 70% of the resources or assets of teh entire banking system is held by banks which are at keast majority-owned by Filipinos.

D.

Family Grous or Related Interests 1. Stockholdingsn of individuals related to each other within the fourth degree of consanguinity or affinity, legitimater or common-law shall be considered family groups or related interests and must be fullt disclosed in all transactions by such an individual with the bank. 2. Two or more corporations owned or controlled by the same family group or same group of persons shall be considered related interests and must be fullly disclosed in all transactions by such corporations or related groups of persons with the bank.

III.

Board of Directors

At common law, a coprpration has no lien upon the shares of stockholders for any indebtedness of the corporation. Sec.35 of the US National Banking At of 1864, if banking corporations were given a lien on their own stock for the indebtedness of the stockholders, the prohibition against granting loans or discounts upon the security of the stock would become laregly ineffective.

Foreign Stockholdings 1. Foreign inividuals an non-bank corporations may own or control up to 40% of the voting stock of a domestic bank. It shall apply t Filipinos and domestic non-bank cprporations.

QUERY: PROVISION IS AMBIGUOUS. IF IT APPEARS THAT FPREIGN INDIVIDUALS AND NON-BANK COPORATINS MAY ONLY CONTROL UP TO 40% OF THE VOTING STOCK. ON THE OTHER HAND, FILIPINOS AND DOMESTIC NON-BANK CORPORATIONS MAY ALSO CONTROL ONLY UP TO 40% OF THE VOTING STOCK. WHAT HAPPENS THEN TO THE 20%? - Foreign inividuals an non-bank corporations may own or control up to 40% of the voting stock of a domestic bank – Provided, that the aggregate foreign-voting stoks owned by them shall not

At least 60% of voting stock of any commercial bank shall be owned by Filipino citizens. For thrift banks, at least 40% of its voting stock shall be owned by Filipinos. In rural banks,all of the capital stock.

NOTE: In determining the nationality of banks, the CONTROL TEST is applied. The following tests do not: 1. War-time test 2. Investment test 3. Place of incorporation test 4. Grandfather rule 5. Principal place of usiness test

EXCEPT: when authorized by the MB. -stocks purchased shall be sold or disposed of at a public or private sale. 2.

The percentage of foreign-owned voting stock shall be determined by the citizenship of the individual stockholders in the bank – shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation.

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A.

Number of Directors 1. Shall be at least 5, an a maximum of 15 members of the board of directors of bank, 2 shall be independent directors. (except) -all be of legal age -majority are residents of the Phil. -form a private corporation for any lawful purpose 2.

c. 2.

INDEPENDENT DIRECTOR- mean a person other tha an officer or employee of the bank, its subsidiaries or ffiliates or related interests. *Non-Filipino citizens may become members of the bord of directors of a bank to the extent of the foreign participation in the equity of said bank.

a. not or has not been an officer or employee of the bank/quasibank/trust entity, its subsidiaries and affiliates or related interests during the past 3 years conted from the date of his election b. not a director of officer of related companies of the institution’s majority stokholder c. not a majority shareholder of the institutions, any of its related ompanies or of its majority shareholder d. not a relative w/n 4th degree of consanguinity or affinity, legitimate or common law of any director,oficer or majority shareholder of the bank/quasibank/trust entity, its subsidiaries and affiliates or related companies e. not acting as a nominee or representatve of any director or substantial holder f. free from any business or other relationship which could materially interfere with the exerise of his judgment B.

Directors of Merged or Consolidated Banks The number of directors shall not excedd 21.

C.

Meetings 1. May be conducted throuh modern technologies such as teleconferencing and video-conferencing *Banks shall include in theor bylaws a provision taht meetings of their board of directors shall be held only within the Philippines. 2. -

b.

Fit and Proper Rule

A.

Powers of the MB 1. To maintain the quality of bank management and afford better protection to depositors and the public in general. -MB shall prescribe,pass upon and review the qualifications and disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit.

B.

2.

After due notice to the board of directors of the bank, the MB may disqualify, suspend or remove any bank director or officer who commits or omits an act which render himunfit for the position.

3.

If found fit and proper, shall be given to his integrity, experience, education, training and competence.

Disqualification a.

Permanently Disqualified Directors 1. Have been convicted by final judgment of a court for offenses involving dishonesty or breach of trust (ex. Estafa, extortion, forgery, malversation, swindling, BP22) 2. Have been convicted by final judgment of a court sentecing them to serve a maximum term of imprisonment of more than 6 years. 3. Have been convicted by final judgment of a court for violation of banking laws, rules and regulations 4. Those who have been judicially declared insolvent, spendthrit or incapacitated to contract 5. Those directors, officers or emplyees of banks, quasi anks or trust entities who were found to be culpable for such institution’s closure 6. Those directors, officers or emplyees of banks, quasi anks or trust entities who were found by the MB as administratively liable for violation of banking law, rules an regulaitons 7. Those directors, officers or emplyees of banks, quasi anks or trust entities who were found to be unfit for the position of directors nad officers

b.

Temporarily Disqualified Directors: 1. Person who refuses to fully disclose the extent of their business interests to the appropriate suoervising and examining department. 2. Directors who have been absent or who have not participated in more than 50% of all meetings, both regular and special, and those who failed to

Corporate officers, quorum: Immediately after election, directors must formally organize the election of the a. president who shall be thedirector b. treasurer, who may or may not be a director c. secretary who shall be a resident nd citizen of the Philippines d. other officers provided for in the by-laws

*Directors or trustees cannot attend ot vote by proy at board meetings. Compensation and other Benefits of Directors and Officers 1. MB may regulate the payment by the bank to its deirectors and officers of compensation, allowance, fees, bonuses, stock options, proit sharing and fringe benefits only in the exceptional cases and when the circumstances warrant, such as but not limited to the following: a. When a bank is under comptrollership or conservatorship

REMEDY: Sec.30 of the Corporation Code Directors shall not receive any compensation except for reasonable per diems. Provided, taht any such compensation other than per diems maybe granted to directors by the vote of the stockholers representing at least a majority of the outstanding capitl stock at a regular or special stockholder’s meeting. It shall not exceed 10& of the net income before income tax of the corporation durng the preceeding year.

IV.

*Any 2 or more positions may be held concurrently by the same person EXCEPT that no one shall act as a president and secretary or as president and treasurer at the same time.

D.

When found by the MB to be conucting business in an unsafe or unsound manner When found to be an unsatisfactory financial condition.

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3.

4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

physically attend at east 25% of all meetings in an year except those with notarized certification executed by the corporate secretary. Persons who are deinquent in the payment of their obligations: a. DELINQUENT IN THE PAYMENT OF OBLIGATIONS- an obligation of a person with a bank/quasibank/trust entity where he is a director or officer, or at least 2 obligations with other banks/financial institutions, underdifferent credit lines or loan contracts, ar past due. b. Obligations shall include all borrowings from a bank/quasibank obtained by: 1. Director or officer for his own account or acts as guarantor, indorser or surety of loans 2. The spouse or child under the parental authority of the director or officer 3. Any person whose loan proceeds were credited to an acount for the benefit of a director or officer. 4. His spouse is the managing partner or a general partner owning a controlling interest in the partnership 5. A corporation, association or firm whollyowned by any group of persons Have been convicted by final judgment of a court for offenses involving dishonesty or breach of trust (ex. Estafa, extortion, forgery, malversation, swindling, BP22) Directors of officers of closed banks/quasibanks/trust entities pending their clearance by the MB Directors disqualified for failure to observe/discharge their duties & responsibilities Directors who failed to attend the special seminar for board of directors Persons dismissed/terminated from employment for cause. Those under preventive suspension Persons with derogatory records as certified by, or on the official files of, the judiciary, National Bureau of Investigation, Philippine National Police, quasi judicial bodies. Those are administratively liable for violation of banking laws, rules and regulations. Any person found by MB to be unfit for th position of directors or officers. When penalty is suspension from office or fine is imposed, such is found to be administratively liable.

C.

Disqualification/ Prohibitions under the Corporation Code Sec.27. No person convited by fianl judgment of an offense puishable by imprionment for a perios exceeding 6years or a violation of this Code within 5years prior to date of is electiom or appointment shall qualify as a director, trustee or officer of any corporation.

D.

Disqualification? Prohibitions under NCBA

V.

Banking Days and Hours A. Number of Days and Hour 1. Shall transact business on all working days for at least 6 hours a day, even before 8am or after 8pm. May open for business on Sat, Sun or holidays for at least 3 hours a day. 2. If so, must repot to the Bangko Sentrl the additional days

3. 4.

VI.

Working days mean Mon-Fri excpet holidays. Branches at international airport or major fish port are allowed to operate on flexible banking hours provided hat wil inform BSP of the schedule of the banking hours that is not less than 6 hrs a day.

Automated Teller Machines A.

Off-ite Automated Teller Machines (ATMs) 1. Must submit a report to the appropriate department of the BSP on ATMs which they establish 2. Shall be installed only in the centers of activity like shopping, supermarkets, hospitals, university campuses. Provided, that adequate internal control and security measures shall be adopted nd submitted to BSP. 3. Must comply with these, to all to open off site ATMS.

B.

Mobile ATMs 1. Should allowed to visit only centers of activity and should confine their itinerary to Metro Manila until futher notice. 2. Shall secure insurance coverage or adopt a self-insurance scheme to protect itself against losses of whatever nature in ita mobile ATM oprations 3. Banks hall notify the supervising and examining department of the BSP of the tual date a mobile ATM become oprational and when terminated.

VII. Independent Auditor 1. MB shall require a bank etc. To engage the services of an independent auditor to be chosen by a bank etc. From a list of certified public accountants acceptable to the MB 2. Term of engagement hall be prescribed by MB, whenther as continuing basis or special engagements. 3. Board of Directors shall also conduct an annual balance sheet audit of the bank etc. To review the internal audit and control system of teh bank etc, and to submit a report of such audit. VIII. Financial Statements Every bank etc. Shall submit to the appropriate supervising and examining dept. Of the BSP fianncial statements. It shall be of a specific date designated by BSP and shall show actual financial conditions of the institution submitting the statements, and of its branhes, offices, subsidiaries and affiliates, and shall contain such informations as required in the BSP regualtions. PUBLICATION: In English or Filipino At least once every quarter in a newspaper of general circulation in the city or province BSP msy prescibe where it shall be published Shall make available to the public an shall prescribe the complete set of its audited financial statements

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If there is local emergency or imminent panic, the MB by vote of at least 5 of its members may allow to defer for a stated period of time the publication of the statement of financial condition.

NOTES: page 54-55 (IMPORTANT) IX.

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It shll not publish the amount of its authorized or subscribed capital stock without indicating at the same tme and with equal prominence, the amount o its capital actually paid-up. No branch of any foreign bank doing business in the Phil shall in any way announce the amount of the capital and surplus of its had office.

Settlement of Disputes -

XI.

Employees of the bank’s cash department/cash units Others employees who have direct and immediate responsibility in the handling of transactions/records pertaining to demand deposits or current accounts. Includes also; The spouse, relatives within 2nd degree of consanguinity and affinity of the officers and employee covered by the prohibition.

Publication of Capital Stock -

X.

b. c.

BSP shall be consulted by other gov. Agencies in actions and proceedings brought before them involving controversies in banks etc. , as well as disputes between any all or all of them which theya re the directors, officers or stockholders.

Strikes and Lockouts A. B.

Unsettles Labor Disputes The banking industry is indispensable to the national interest. If unsettled afer 7 days shall be reported by the BSP to the Sec. Of Labor who may assume jurisdiction over the dispute and decide it or certify the same. The President, may intervene and assume juridiction over suh labor dispute in order to settle and terminate the same. Reports of Strikes and lockouts The bank shal disclose pertinent info: 1. Cause of the strike/lockout and bank management’s position on its legality 2. Bank oprations affected

XII. Laws Governing other Types of Banks -

Thrift Banks Act, Rural Banks Act, Cooperative Code For Islamic banks- special laws For purposes of prescribing the minimum ration which the net worth of a thrift bank must bear to its total risk assets, the provisions of the Gbl shall govern.

CHAPTER 3. DEPOSIT FUNCTIONS OF BANKS Demand deposits – are all those liabilities of the BSP and other banks which are denominated in Phil. Currency and are subject to payment in legal tender upon demand by presentation of checks. The followings are prohibited from maintaining demand deposits or current accounts with the bank office in which they are assigned; a. All officers;

DUTY OF BANK TO HONOR CHECKS Where the bank possesses funds of a depositor it is bound to honor his checks to the extent of the amount of his deposits. Failure of the bank to pay the check, entitles the drawer to substantial damage without any proof of actual damages. RESPONSIBILITY OF THE DRAWER He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain checks he previously issued. DUTY OF BANKS TO KNOW SIGNATURES A bank is bound to know the signatures of its customers. NO OBLI. TO PAY PARTIAL PAYMENT A bank is under no obligation to make part payment on the check up to only the amount of the drawer’s fund where the check is drawn for an amount larger than what the drawer has on deposit. WITHDRAWALS BAKS ARE PROHIBITED FROM ISSUING/ACCEPTING Withdrawals slips without requiring the depositors to present their passbooks and accomplishing necessary withdrawal slips except for banks authorized by BSP to adopt the no passbook withdrawal system. Negotiable order of withdrawal (NOW) – are interest – bearing deposits of accounts that combine the payable on demand feature of the checks and investment feature of a savings acct. Time deposits – one the payment of which cannot legally be required within such a specified number of days. NEGOTIABLE CERTIFICATES OF TIME DEPOSITS (NCTD’s) a. Universal banks / commercial banks may issue NCTDs without approval of BSP b. Thrift banks/Rural banks/Cooperative banks need approval of BSP NON – NEGOTIABLE CTD - Banks may issue long-term negotiable tax exempt certificates of time deposit without approval of the BSP. QUASI – BANKING FUNCTIONS: Essential elements of quasi-banking are: A. borrowing of funds for the borrower’s own account; B. 20 or more lenders at any one time; C. Methods of borrowing are issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits D. The purpose of which is (1) relending, or (2) purchasing receivables or other obligations Any person, natural or juridical may deposit with such Phil. Bank in good standing foreign currencies which are acceptable as part of the international reserve except those which are required by the central bank to be surrendered.

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Anonymous accounts or accounts under fictitious name should not be kept allowed. II. Administration of deposits All banking institutions are required to set a minimum of 3 specimens of their depositors and to update the specimen of signatures every 5 years or sooner, at the discretion of the bank. Minors are vested with special capacity and power to make savings, and withdraw the same without the assistance of their parents or guardians, provided the f requirements are met; 1. 2. 3. 4.

at least 7 years of age; able to read and write; have sufficient discretion; not otherwise disqualified by any other incapacity;

Parents may nevertheless deposit for their minor children and guardians for their wards. Corporations a. Incorporation Stage – payment of subscription is in cash, the SEC requires a bank certificate of deposit of paid-up capital notarized in place where signed. b. Post Incorporation – in opening a bank account, the board of directors issues a resolution authorizing the signatories and specifying the depository bank. Clearing cut –off time General rule: all deposits and withdrawals during regular banking hours shall be credited or debited to deposit liability accounts on the date of receipt or payment thereof; provided, however, that a bank may set a clearing cut –off time for its head office not earlier than 2 hours before the start of clearing at the BSP and not earlier than 3-1/2 hours before the start of clearing for all its branches, agencies, and extension office doing business in the Philippines. Provided, further that banks are located in areas where there are no BSP regional/clearing arrangement may set a clearing cut-off time not earlier than 2 hours before the start of their local clearing after which time, deposits received shall be booked likewise. III. Survivorship Agreement Definition: Joint owners of a deposit agree that either of them could withdraw any part or the whole of said account during the lifetime of both, and the balance, if any, upon the death of either, belonged to the survivor.

C.

IN CASE OF DEATH OF DEPOSITOR National revenue code provides: If a bank has knowledge of the death of the depositor, it shall not allow any withdrawal from said deposit account unless the commissioner has certified that the taxes imposed thereon by this title have been paid. Provided, however, that the administrator of the estate or any 1 of the heirs of the decent may upon authorization of the commissioner withdraw an amount not exceeding 20,000 without the said certification. V. Secrecy of bank Deposits Purposes a. to give encouragement to the people to deposit their money in banking institutions; b. to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the economic development of the country. R.A. 8367 Absolute Confidentiality All deposits of whatever nature with an Association in the Philippines are herby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office except upon; 1. written permission of the depositor; 2. in case of impeachment; 3. upon order of a competent court in cases of bribery or dereliction of duty of public officials; 4. in cases, where the money deposited or invested is the subject matter of the litigation. Authority to inquire into bank deposits under the ANTI MONEY LAUNDERING ACT The AMLC may inquire into or examine any particular deposit or investment with any banking institution or non- bank financial institution upon order of any competent court in cases of violation, when it has been established that; a. there is probable cause that the deposits or investments are related to an unlawful activity; b. a money laundering offense. Authority of the Commissioner of Internal Revenue to inquire into deposits In cases; a. a decedent to determine his gross estate; b. any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability.

Although survivorship agreement is per se not contrary to law, its operation or effect may be violative of the law. CHAPTER 4 IV. Duties of Banks A.

METICULOUS CARE A bank is required to take meticulous care of the deposits of its clients, who have the right to expect high standards of integrity and performance from it. In every case the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. B.

PAYMENT TO PROPER PARTY

Operations of a Universal Bank a. Powers of a commercial bank b. Powers of an inverstment house c. Power to invest in non-allied enterprises II. Equity Investments of a Universal Bank a. Allied or non-allied i. Allied enterprises: financial or non-financial ii. Total investment shall not exceed 50% of the net worth of the bank

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iii.

Total investment in one enterprise shall not exceed 25% of the net worth of the bank

IV.

iv.

Net worth- total of the unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net of valuation, reserves and other adjustments b. Acquisition is subject to prior approval of the Monetary Board III. Equity investments of a Universal Bank in Financial Allied Enterprises a. Can own up to 100% of the equity in a thrift bank, a rural bank or others within this category b. A publicly-listed universal or commercial bank can own only one other universal or commercial bank c. Financial Allied: leasing companies, banks, investment houses, financing companies, credit card companies, insurance companies, holding company, etc. IV. Equity Investments of a Universal Bank in Non-financial allied enterprises a. May own up to 100% b. Warehousing, storage, safe deposit box, management of mutual funds, providing computer services, insurance agencies, home building and home development c. Rural/Cooperative Banks may invest, as a non-financial allied undertaking in the ff: i. Warehousing and postharvest facilities ii. Farm equipment distribution iii. Transportation of agricultural products iv. Marketing of agri products v. Leasing V. Investments in Non-Allied Enterprises a. Shall not exceed 35% of the total equity in that enterprise nor shall it exceed 35% of the voting stock b. Only universal banks can investment in non-allied enterprises: i. Industrial park projects, financial and commercial complex projects, activities in agri, mining, manufacturing,etc. VI. Investments in Quasi-Banks a. Shall not exceed 40% equity Operations of Commercial Banks I. Powers a. Powers incident to corporations b. Such powers necessary to carry on the business of commercial banking: i. Accepting drafts and issuance of letters of credit ii. Accepting or creating demand deposits iii. Receiving deposit substitutes iv. Extending credit v. Buying and selling foreign exchange and gold or silver vi. Discounting negotiating promissory notes, etc. II. Letters of Credit a. 3 relationships created: bank and buyer, bank and seller, buyer and seller b. Independence Principle- assures the seller of prompt payment even if buyer has not yet reimbursed as long as the seller presents the necessary documents III. Investments of a Commercial Bank a. Only equities in allied enterprises: either financial or non-financial b. Total investments in allied enterprises shall not exceed 35% of the net worth of the bank c. Total investment in any one enterprise shall not exceed 25% of the net worth of the bank.

V.

Investments in Financial Allied a. 100% of the equity of a thrift bank or a rural bank b. In other financial allied enterprises, investment shall only be a minority holding Investments in non-financial allied a. May own up to 100%

Risk-Based Capital I. Minimum Ratio- monetary board shall prescribe; ration of the net worth of the bank to its total risk assets which may include contingent accounts a. May be altered or suspended for a maximum of one year when necessary b. Uniformly applied for banks in the same category II. Effect of Non- Compliance a. Limit or prohibit the distribution of net profits b. Restrict or prohibit acquisition of major assets Limits on Loans, Credit Accommodations and Guarantees I. Single Borrower’s Limit- shall not exceed 20% of the net worth of the bank a. Except: i. As provided by the monetary board for reasons of national interest ii. Deposits of rural banks with GOC financial institutions b. The limit maybe increased by 10% provided the additional loans are secured II. SBL should include: a. Direct liability of the maker of paper sold or discounted with the bank b. If the borrower owns ac majority interest in a corporation, the liabilities of said corporation is included c. Liabilities of subsidiaries of a corporation who is borrowing from the bank d. In case of partnership or association, the liabilities of the members thereof III. SBL should exclude: a. Loans secured by the BSP or government b. Loans covered by assignment of deposits maintained in the bank c. Loans under letters of credit covered by margin deposits d. Loans specified as non-risk items IV. Bank Guarantee- irrevocable commitment of bank binding itself to pay in the vent of non-performance by a third party; it shall also be subject to the limits herein prescribed V. Contingent Accounts of borrowers may be included among those subject to the limits VI. Assignment of Credit- agreement by virtue of which the owner of a credit, by a legal cause, such as sales, dation in payment, donation, and without the need of the consent of the debtor, transfers his credit to another who acquires the power to enforce it to the same extent as the creditor could have. VII. Pacto Commissorio- automatic appropriation of the pledged or mortgaged property by the creditor in payment of the loan upon its maturity. It is not allowed in assignment of deposits. DOSRI I. Prohibits the ff: a. Direct or indirectly borrow from the bank b. Become a guarantor or indorses or surety for loans from such bank to others c. Be an obligor to the bank except with the written approval of the majority of all the directors of the bank II. The approval shall entered on the records of the bank

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III. IV.

V.

VI.

Arms Length Rule-Dealings with DOSRI shall be upon terms not less favorable to the bank Directors: a. Names in the articles of incorporation b. Elected in meetings of the stockholders c. Elected to fill vacancies Officers: a. Pres, VP, EVP, Sr. VP, GM, Secretary, Treasurer, Trust Officer b. Chairman, vice-chairman or any other position who performs functions of management Stockholder- stockholder or record in the books of the bank a. Includes:

VI. VII.

i.

VII.

Spouse and/or relative within the 1st degree or consanguinity or affinity ii. Corporation owned by the stockholder or his wife Related Interests

a.

Spouse and/or relative within the 1st degree or consanguinity or affinity partnership where DOSRI of those in a) above are general partners co-owner with a DOSRI or those in a) of a property used as a security Corporation or association where the DOSRI or those in a) are is also a director e. Corporation wholly or majority owned or owned by at least 20% by the DOSRI or those in a) VIII. Effect of Violation- after due notice, the office of the person violating shall be declared vacant and shal be subject to the penal provisions of NCBA Securities on Loans I. Secured by Real Estate a. Shall not exceed 75% of the appraised value plus 60% of the insured improvements II. Secured by Chattels and Intangible Properties a. Shall not exceed to 75% Grant and Purpose of Loans I. Amount and Purpose a. Only in the amount and for the period of time essential for the completion of the operations to be financed. This shall be done consistent with safe and sound banking practice b. The purpose shall be stated in the application c. If the purpose stated was not followed, the bank may terminate the loan and demand immediate repayment II. Requirements: a. Statement of assets and liabilities b. Statement of their income and expenditure c. Other information prescribed by law or by the Monetary Board d. Even in the absence of this provision, the bank may still demand immediate repayment because the borrower has lost the benefit of the period under Art. 1198 of the Civil Code III. Reason for Stringent Rules in Granting Loans- The bank invests the money it holds in trust for the depositors. For this reason, a bank is expected to ascertain the identities of the persons transacting with them to protect both the interest of the bank and the depositors. IV. Unsecured Loans or Other Credit Accommodations- The MB is authorized to issue regulations with respect to unsecured loans V. Other Security Requirements- The MB may prescribe further security requirements shall be subject to. b. c. d.

VIII. IX. X. XI. XII.

Authority to Prescribe Terms and Conditions of Loans Amortization on Loans a. Shall be adapted to the nature o the operations to be financed b. With those whose maturities are more than 5 years- periodic amortization but must be made annually c. Loans are used for purposes not initially producing revenue- amortization may be deferred until such time as said revenues are sufficient but in no case shall it be later than 5 years d. Microfinance- take into consideration the projected cash flow of the borrower e. Escalation clause- raising of interest i. Only allowed when the monetary board has increased the rate of interest provided that there is also a stipulation that interest will be lowered if MB has lowered the rate of interest ii. Both instances should be present before escalation clause is allowed iii. Exception: if the creditor unilaterally decreased the interest even if it was not stipulated, esacalation will be allowed f. Unconscionable and exorbitant interests- SC: 5.5% per month or 66% per annum. Will be considered as void. Hence, the court may reduce the interest rate Prepayment of Loans- prior to the maturity date, borrower may pay subject to such reasonable terms agreed upon with the bank Development Assistance Incentive- BSP shall give incentives to banks who extend loans to education, cooperatives, hospitals, low-cost housing, and LGUs Renewal of Exntension of Loans- maybe regulated by the MB and prescribe conditions and limitations Banks cannot extend peso loans to non-residents Provisions for losses and write-off a. Bad debts- debts due to on which interest is past due and unpaid b. MB shall fix the amount of reserves for bad debts

Truth In Lending (RA 3765- Disclosure of Finance Charges) I. Policy- protect the citizens from a lack of awareness of the true cost of credit by assuring a full disclosure of such cost II. Disclosure shall include: a. The cash price of the property or service to be acquired b. Amounts for downpayment c. Charges which are paid in connection with the transaction d. Amount to be financed e. Finance charge III. Definitions: a. Crediti. any loan, mortgage, deed of trust, advance or discount ii. Any conditional sales contract iii. Rental-purchase contract b. Finance Charge- interest and fees incident to the extension of credit c. Creditor: any person engaged in the business of extending credit who requires as an incident to the extension of credit, the payment of a finance charge IV. Penalty- either civil or criminal (1k-5k fine or imprisonment for 6-12 months, or both) V. Government is exempted from the punishment or penalty Foreclosure of Real Estate

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I.

The mortgagor or debtor has the right within one year after the sale of the real estate, to redeem the property by paying the amount due in the mortgage w/ interest and all the cost and expenses II. However, the purchaser at the auction shall have the right to take possession immediately after the date of the confirmation of the auction sale III. Any petition in court to restrain the auction shall only be given due course upon the filing of a bond in an amount fixed by the court IV. Juridical Persons shall have the right to redeem the property until, but not after, the registration of the certificate of foreclosure with the Register of Deeds within 3 months V. Equity of Redemption v. Right of Redemption a. Right of Redemption exists only in extrajudicial foreclosure sale i. In a judicial foreclosure sale where the mortgagee is the PNB or a banking institution, right of redemption exits ii. Equity of Redemption- right of the mortgagor to extinguish the mortgage and retain ownership by paying the secured debt within a period not less than 90 days nor more than 120 days after the judgment becomes final. (Rule 68, Rules of Court) iii. Right of Redemption may be extended Major Investments I. The MB shall establish a criteria for reviewing major acquisitions by a bank II. Ceiling on Investments a. Acquire real estate necessary for its own use in the conduct of its business i. Bank premises- land, buildings, construction, leasehold rights, improvement, fixtures, furniture ii. Real property, quipmet, chattel purchased by the bank in its name b. Total investment in real estate including improvements shall not exceed 50% of combined capital accounts c. Investments by a bank in a real estate corporation shall be considered as part of the total investment in real estate by the bank III. Acquisition of Real Estate by way of satisfaction of claims a. Notwithstanding the limitations given above, a bank may acquire real estate under the ff circumstances: i. Shall be mortgaged to it in good faith by way of security of debts ii. Conveyed to it in satisfaction of debts previously contracted iii. Purchased at sales under judgments, decrees, mortgages, or trust deeds held by it b. Real Property acquired under this provision shall be disposed by the bank within a period of 5 years c. However, it may continue to hold such property beyond the period given if the limitations given in the previous provision are not yet reached. Other Banking Services I. Receive in custody funds, documents and other objects II. Act as financial agent and buy and sell for their customers III. Make collection and payments for the account of others IV. Act as managing agent, adviser, consultant or administrator of an investment management with the approval of the MB V. Rent out safety deposit boxes VI. Safety Deposit Box- Special Kind of Deposit because it cannot be characterized as a contract of lease since the guard key of the box remains with the bank. VII. If a box is rented by two persons, the agreement between them shall govern VIII. The SC said that the rent of a safety deposit box is that of a bailor an bailee Electronic Transactions

I.

BSP shall have full authority to regulate the use of electronic devices used in connection with the operations of a bank including the delivery of services and products to customers II. Outsourcing of IT systems- can be done with prior approval of the MB except: a. Strategic planning for the use of IT b. Determination of system functionalities c. Change management inclusive of quality assurance and testing d. Service level and contract management e. Security policy and administration Outsourcing of other functions I. With approval of the MB, banks may outsource the ff: a. Data imaging b. Clearing and processing of checks not in the Philippine Clearing House system c. Printing of bank deposit statement, bank loan statements, bank forms and promotional materials d. Credit card services e. Credit investigation f. Janitorial services g. Procurement services h. Legal services Questions: Whether or not an alien-owned bank can acquire ownership of a residential lot by virtue of a deed of transfer as settlement of a debt • No. for the purpose of the constitution is to place and keep in the hands of the people the ownership of private lands in order not to endanger the integrity of the nation

Chapter 5 Sec. 54. Prohibition to Act as Insurer. - A bank shall not directly engage in insurance business as the insurer. *Includes: a) b) c) d)

making or proposing to make, as insurer, any insurance contract making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of the Insurance Code doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of the Insurance Code

Sec. 55. Prohibited Transactions. 55.1. No director, officer, employee, or agent of any bank shall –

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(a) Make false entries in any bank report or statement or participate in any fraudulent transaction, thereby affecting the financial interest of, or causing damage to, the bank or any person; (b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity: Provided, That with respect to bank deposits, the provisions of existing laws shall prevail; (c) Accept gifts, fees, or commissions or any other form of remuneration in connection with the approval of a loan or other credit accommodation from said bank; (d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank; or (e) Outsource inherent banking functions.  refers to any contract between the bank and a service provider for the latter to supply, or any act whereby the latter supplies, the manpower to service the deposit transactions of the former  intended to ensure secrecy of bank deposits 55.2. No borrower of a bank shall (a) Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank; (b) Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing, or increasing a loan or other credit accommodation or extending the period thereof; (c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation; or (d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form of compensation in order to influence such persons into approving a loan or other credit accommodation application. 55.3. No examiner, officer or employee of the Bangko Sentral or of any department, bureau, office, branch or agency of the Government that is assigned to supervise, examine, assist or render technical assistance to any bank shall commit any of the acts enumerated in this Section or aid in the commission of the same. The making of false reports or misrepresentation or suppression of material facts by personnel of the Bangko Sental ng Pilipinas shall be subject to the administrative and criminal sanctions provided under the New Central Bank Act. 55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy Law, no bank shall employ casual or non regular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits. Sec. 56. Conducting Business in an Unsafe or Unsound Manner - In determining whether a particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be deemed as conducting business in an unsafe or unsound manner for purposes of this Section, the Monetary Board shall consider any of the following circumstances:

56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution; . 56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in general; 56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or 56.4.The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby. Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner, the Monetary Board may, without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank Act, take action under Section 30 of the same Act and/or immediately exclude the erring bank from clearing, the provisions of law to the contrary notwithstanding. Sec. 57. Prohibition on Dividend Declaration. – No bank or quasi-bank shall declare dividends, if at the time of declaration: 57.1.

Its

clearing

account

with

the

Bangko

Sentral

is

overdrawn;

or

57.2. It is deficient in the required liquidity floor for government deposits for five (5) or more consecutive days, or . 57.3. It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for purposes of determining funds available for dividend declaration; or 57.4.

It has committed a major violation as may be determined by the Bangko Sentral.

Sec. 64. Unauthorized Advertisement or Business Representation. – No person, association, or corporation unless duly authorized to engage in the business of a bank, quasi-bank, trust entity, or savings and loan association as defined in this Act, or other banking laws, shall advertise or hold itself out as being engaged in the business of such bank, quasi-bank, trust entity, or association, or use in connection with its business title, the word or words “bank,” “banking,” “banker,” “quasi-bank,” “quasi-banking,” “quasi-banker,” “savings and loan association,” “trust corporation,” “trust company” or words of similar import or transact in any manner the business of any such bank, corporation or association. Sec. 67. Conservatorship. – The grounds and procedures 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 two paragraphs of Section 30 of the New Central Bank Act: Provided, That this Section shall also apply to conservatorship proceedings of quasi-banks. *Grounds for appointment of conservator Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or quasi-bank is in a state of:

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1. 2.

continuing inability, or unwillingness to maintain a condition of liquidity deemed adequate to protect the interests of depositors and creditors,

the Monetary Board may appoint a conservator with such powers as the Monetary Board shall deem necessary to: 1. 2. 3. 4.

take charge of the assets, liabilities, and the management thereof, reorganize the management, collect all monies and debts due said institutions, and exercise all powers necessary to restore its viability.

*Grounds for receivership and liquidation: The bank or quasi-bank: 1. is unable to pay its liabilities as they become due in the ordinary course of business 2. has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities 3. cannot continue in business without involving probable losses to its depositors or creditors 4. 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 *Powers of a receiver:

The conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank. *Liquidity – the ability of an asset to be converted into cash quickly and without any price discount

a. b. c. d.

*Solvency – the condition that exists when liabilities amount to less than total assets, thus providing the ability to pay debts

e. f. g. h.

*Qualifications of conservator: 1. competent 2. knowledgeable in bank operations and management

i.

to bring and defend, in such capacity, actions in his own name to take and keep possession of the property in controversy to receive rents to collect debts due to himself as receiver or to the fund, property, estate, person, or corporation of which he is the receiver to compound for and compromise the same to make transfers to pay outstanding debts to divide the money and other property that shall remain among the persons legally entitled to receive the same generally to do such acts respecting the property as the court may authorize

*Prohibited acts: *Period of conservatorship – shall not exceed 1 year *Termination of conservatorship:

Any director or officer of a bank declared insolvent or placed under receivership by the Monetary Board shall not commit any of the ff:

1.

The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary.

a. b. c.

2.

It should likewise be terminated should the Monetary Board, on the basis of the report of the conservator or of its own findings, determine that the continuance in business of the institution would involve probable loss to its depositors or creditors, in which case the provisions on receivership and liquidation shall apply.

d.

*Powers of conservator cannot impair the obligations of contracts – the law merely gives him the power to revoke contracts that are, under existing law, deemed to be defective. Sec. 68. Voluntary Liquidation. – In case of voluntary liquidation of any bank organized under the laws of the Philippines, or of any branch or office in the Philippines of a foreign bank, written notice of such liquidation shall be sent to the Monetary Board before such liquidation shall be sent to the Monetary Board before such liquidation is undertaken, and the Monetary Board shall have the right to intervene and take such steps as may be necessary to protect the interests of creditors.  may be undertaken by the bank itself through its board of directors, by a trustee appointed by the bank, or by a receiver appointed by the bank  no voluntary dissolution shall be undertaken by a bank without prior approval of the Monetary Board, provided further, that it shall be accompanied by a liquidation plan and written notice

e. f.

refusing to turn over the bank’s records and assets to the designated receiver tampering with bank records appropriating for himself or another party, or destroying or causing misappropriation and destruction of the bank’s assets receiving or permitting or causing to be received in said bank any deposit, collection of loans, and/or receivables paying out or permitting or causing to be paid out any funds of said bank transferring or permitting or causing to be transferred any securities or property of said bank

*”Close now hear later” scheme – the law does not contemplate prior notice and hearing before a bank may be directed to stop operations and placed under receivership. This is to prevent unwarranted dissipation of the bank’s assets and is a valid exercise of police power to protect the creditors, depositors, stockholders, and the general public. A hearing may be subsequent to the closure. *Effects of receivership and liquidation: 1. 2. 3. 4. 5. 6.

retention of juridical personality not liable to pay interest assets are deemed under custodia legis stay of execution of judgment restriction of bank’s capacity to act exclusive jurisdiction of liquidation court

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Sec. 70. Penalty for Transactions After a Bank Becomes Insolvent. – Any director or officer of any bank declared insolvent or placed under receivership by the Monetary Board who refuses to turn over the bank’s records and assets to the designated receivers, or who tampers with banks records, or who appropriates for himself for another party or destroys or causes the misappropriation and destruction of the bank’s assets, or who receives or permits or causes to be received in said bank any deposit, collection of loans and/or receivables, or who pays out or permits or causes to be transferred any securities or property of said bank shall be subject to the penal provisions of the New Central Bank Act.

Sec. 133. Doing business without a license – foreign corporation transacting business in Phil. may maintain or intervene in any action, suit or proceeding in any court or adm. Agency n Phil but cannot sue before Phil. courts though on any valid cause. -

If “without license”,no access to our courts and cannot transact business in Phil. By securing a license, a foreign entity would be giving assurance that it wll abide by the decisions of our courts, even if adverse to it. Primary purpose of Statute: to compel foreign corp. if it desires to do business here, to submit itself to the jurisdiction of courts of the Phils.

**Problems** The conservator of B bank revoked a contract previously entered into by the bank on the ground that the lands subject of said contract presently commanded a much higher price than when it was sold. Is the revocation valid?  No. Power of conservator cannot impair the obligations of contracts. A contract of sale entered into by a bank cannot be revoked if at the time of the transaction, the price agreed upon was reasonable. A buyer offered to buy the property of a bank which the latter accepted. However, the bank became insolvent before the buyer learned of the acceptance. Was there a perfected contract?  None. The accepted offer became ineffective when the bank became insolvent before the bank’s acceptance of said offer came to the offeror’s knowledge. C deposited money with O bank. Before said deposits could be withdrawn, the BSP passed a resolution suspending the bank’s operations. The SC, howver, annulled said resolution, for which reason O bank is ready to accept its liability for the payment to C of the balance of the principal amount deposited with it. Is O bank liable for interest thereon during the period it was closed?  No. What enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation, it is able to generate funds to cover the payment of such interest. If it is closed, it cannot generate such funds, hence it cannot pay the interest.

Consistent with Corporation Code….. Sec. 128. Resident agent; service of process: SEC shall require foreign bank to file with SEC a written power of atty. designating a resident of the Phil. whom summons must be served, before it issues a license for it to transact business in Phil. Foreign bank shall execute and file with SEC an agreement. If summons be made with SEC, latter shall transmit it by mail to the head office of such bank, within 10 days. In case of change of address of resident agent, shall notify SEC in writing. Acquisition of Voting Stock in a Domestic Bank: 1. Wthin 7 yrs from effectivitiy of GBL, MB may authorize foreign bank to acquire up to 100% of voting stock of ONLY one bank organized under laws of RP. 2. Within same period, MB may authorize those foreign bank which prior to effectivity of GBL availed itself of 60% of voting stock of a bank under FBLA and Thrift Banks Act, to further acquire voting shares to extent necessary for it to own up to 100%. 3. MB shall adopt measures to the control of 70% of resources and assets of entire banking system is held by banks which are majority owned by Filipinos. 4. Any right or incentive granted to foreign bank shall be equally enjoyed by banks organized under laws of RP. NOTES: -

Chapter 6: Foreign Banks and Trust Operations I. Foreign Banks – entry to Phils. thru establishments of branches governed by Foreign Bank Liberazation Act. Offshore Banking – governed by Offshore Banking System Decree conduct of banking transactions in foreign currency involving receipt of funds from external sources and its utilization. Offshore banking unit – branch, subsidiary, affiliate of a foreign banking corporation authorized to transact offshore banking business in Phil. Notes: Corporation Code

all branches of foreign bank shall be treated as one unit for purpose of GBL; and all reference to Phil. branches of foreign banks shall be held to refer to such unit. To protect interests of depositors and creditors of Phil. branches of FB, their head office shall fully guarantee prompt payment of all liabilities of its Phil. branch. Residents and citizens of the Phil. who are creditors shall have preferential rights to assets of such branch.

Summons and Legal Process: If served on agent or head of foreign bank, - our courts acquires jurisdiction over such bank. - binds the bank which it represents. If authority of agent or head revoked; or he became mentally incompetent, bank shall designate a new one. File with SEC a duly authenticated nomination of such agent. In absence of agent or head; or no person authorized , summons and legal process and notices be made upon Bangko Sentral Deputy Governor In-Charge of the supervising and examining departments. The latter upon receipt, shall transmit by mail to president or secretary of bank at its head or principal office a duly certified copy. Sending of copy is necessary part of services and shall complete service. Registry receipt is prima facie evidence of transmission.

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-

All costs incurred in transmission shall be paid in advance by the party whose instance the service is made.

Revocation of license of Foreign Bank: By Monetay Board. If insolvent, in imminent danger, or its continuance will involve probable loss to those it transacts business with. After revocation, it cannot transact business unless license is renewed or reissued. After revocation. BSP shall take action to protect creditors and public. New Central Bank Act provides the sanction and penalties.

Capital Requirements: 1. Locally Incorporated Subsidiaries - minimum capital equal to that prescribed by MB for domestic banks of same category.

2.

Foreign Bank Branches (entry under the 3rd mode) not less than US dollar equal to P210,000,000 and shall be entitled to 3 branches o capital shall include those permanently assigned plus net due to head office outside the Philippines, 15% of which shall be inwardly remitted and converted into Philippine currency, provided that amounts invested in productive or export activities shall not be subject to conversion.

II. Liberalized Entry of Foreign Banks: Purpose: 1. to create more competitive environment. 2. to encourage greater foreign participation

Establishment of Additional Branches 1. FB can open three additional branches by inwardly remitting and converting into Philippine currency as permanently assigned capital, P35 Million per additional branch.

Policies: 1. 2. 3. 4.

Head Office Guarantee- shall guarantee prompt payment of all liabilities of its Philippine branches Board of Directors- aliens may become members of the Board of a bank to the extent of the foreign participation in the equity of said bank.

develop self-reliant economy controlled by Filipinos. promote a competitive and stable banking system provide a wider variety of financial services enhance competitiveness in international market to promote industrialization.

Modes of Entry: a. acquiring up to 60% of voting stocks of an existing bank b. investing up to 60% of voting stocks of new banking subsidiary incorporated under Phil. laws. c. Establishing branches with full banking authority. -

FB may avail only 1 mode Only those included in top 150 FB in the world or top 5 banks in their country of origin allowed to mode (b) and (c). To establish a branch or subsidiary, it must be widely-owned and publicly listed in its country of origin, unless owned by govt. of its country. FB shall be allowed entry under 3rd mode within 5 yrs. From effectivity of RA 7721. 6 FB may be allowed by MB. Additional 4 may be allowed on recommendation by MB and approval of President. FB may open 3 branches in location of their choice, 3 branches in locations designated by MB to insure balanced economic development in all regions.

Guidance for Approval: MB shall 1. ensure geographic representation. 2. consider strategic trade and investment relationship between Phil. and country of FB. 3. study capacity, global reputation and stability in competitive environment of applicant. 4. ensure reciprocity rights are enjoyed by Phil banks in applicant’s country. 5. consider willingness to fully share their technology. Adoption of measures: MB adopt those which 1. ensures that 70% of resources and assets is held by domestic bank majority owned by Filipinos 2. prevents dominant market position by one bank 3. secures the listing in SEC of shares of stocks

Equal treatment- foreign banks shall also be subject to limitations imposed upon a Philippine bank such as the SBL, capital to risk asset ratio, development loans incentives etc. Trust Operations I. Authority to engage only a stock corporation or a person duly authorized by the MB shall act as a trustee the cardinal principle is fidelity Trust business- refers to any activity resulting from a trustor-trustee relationship involving the appointment of a trustee for the administration of funds and/or properties of the trustor for the benefit of the latter. II. Conduct of Trust business Administer with diligence that a prudent man would exercise in the conduct of an enterprise No transaction within the same trust entity will be allowed except when the transaction is authorized by the trustor and the relationship of the trustee and the other party involved is fully disclosed III. Registration of Articles of incorporation and by-laws The SEC shall not register the same or any amendment thereto, unless accompanied by a certificate of authority issued by the BSP IV. Minimum Capital- trust entity shall comply with the minimum paid-in capital requirements which will be determined by the MB. V. Powers of a trust entity: Powers incident to a corporation Act as trustee on any mortgage or bond issued by any body politic and to accept and execute ant trust consistent with law Act as an administrator of a minor or incompetent upon the order of a court Act as the executor of any will if named as the executor Act as the administrator of any deceased person Accept and execute and trust for the holding and administration of any estate including the rents and profits thereof Establish and manage common trust funds

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VI. Transactions requiring prior authority Lend, sell, transfer or assign money or property to those related to the trustee Purchase or acquire property or debt instruments to those related to the trustee Invest in equities I which the trustee owns 50% of the capital Sell transfer assign or lend from one trust account to another VII. Deposit for faithful performance of trust duties Before transacting any business, there shall be a deposit made with the BSP cash or securities approved by the MB an amount not less that P500,000 This deposit can be increased by the MB whenever it is necessary The paid-in capital and surplus of the entity should be at least equal to the amount required to be deposited A trust entity has the right to collect the interest earned on such deposit All claims arising out of the trust business shall have priority over all other claims as regards the deposits. Bond of certain person required for the faithful performance of duties I.

II.

Requirements a. Those appointed by the court shall file a bond in such sum as the court may require b. Upon application in the court, the subject matter of the trust or any part thereof be deposited with a trust entity c. Upon presentation of a proof that the subject matter has been deposited with a trust entity, the court may order reduction in the amount of the bond given d. The reduced bond shall be adequate to secure the proper administration of the property Exemption from Bond Requirement a. Trust entities required by the court to be an administrator, etc are not required to give a bond

Operations of Trust Entity I. Separation of Trust Business from General Business Shall be kept physically separated and distinct from the accounts of the general business of the trust entity II. Investment limitations of a trust entity Limited to those loans or investments prescribed by law, MB or any court of competent jurisdiction, unless directed by the instrument creating the trust III. Real Estate acquired by a trust entity Unless otherwise directed by the trustor or the nature of the trust, real estate acquired by the trust entity shall be acquired, hold, or conveyed under the ff circumstances: o Mortgaged to it in good faith by way of security for debts o Conveyed to it in satisfaction of debts previously contracted o Purchased at sales under judgments, decrees, mortgages, or trust deeds These properties shall be conveyed within 5 years However, it may continue to hold it beyond the period when: o It shall not exceed 50% of the combined capital accounts of the entity o The investment of a bank in another corporation engaged in real estate shall be considered as part of the total investment IV. Investment in non-trust funds b. Shall be governed by the GBL an other applicable laws

V. Sanctions and Penalties- those who violate the pertinent provisions of the GBL shall be subject to sanctions and penalties VI. Exemption of Trust Assets from claims • Those assets held by a trust entity shall not be subject to any claims other those of the parties interested in the trusts VI. Establishment of Branches • Shall be in the place of business stated in the articles of incorporation • Additional branches can be established with the approval of the MB • The trust entity and its branches should be considered as one unit VII. Advertisement of Services • In a dignified manner • Ready and willing to give full disclosure of services being offered • Conduct its dealings with transparency VIII. Money of Government • Banks may not receive or hold as trustee any money from the government o Except: government-owned banks with respect to the ff:  Funds of LGUs for long term investments in securities and other evidences guaranteed by the national government.  Funds of the government which are authorized by special laws to be placed in trust

Chapter 7 The Bangko Sentral ng Pilipinas I. Creation, Responsibilities and corporate Powers of the Banko Sentral A.

Declared Policy of the state •

B.

The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under the NCBA, while being a government owned corporation, shall enjoy fiscal and administrative autonomy. (Section 1, NCBA)

Creation of the bangko Sentral ng Pilipinas •

Section 2 & 4 of NCBA: SECTION 2 Creation of the Bangko Sentral. – There is hereby established an independent central monetary authority, which shall be a body corporate known as the Bangko SEntral ng Pilipinas.

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The capital of the Bangko Sentral shall be Fifty Billion Pesos, to be fully subscribed by the Government of the Republic,

4.

Primary objective of BSP – maintain price stability conducive to a balanced and sustainable growth in the economy.

Ten Billion of which shall be fully paid for by the government upon effectivity of this act

5.

It shall also promote and maintain monetary stability and the convertibility of the peso.

In such manner and form as the Government, through the Secretary of Finance and the Secretary of Budget and Management, may thereafter determine.

D.

SECTION 4 Place of Business. – The Bangko SEntral shall have its principal place of business in Metro Manila, but may maintain branches, agencies and correspondents in such other places as the proper conduct of its business may require.

•

Mandate by the Constitution: The Congress shall establish an independent central monetary authority, the members of whose governing board must be natural-born Filipino citizens, of known probity, integrity, and patriotism, the majority of whom shall come from the private sector. They shall also be subject to such other qualifications and disabilities as may be prescribed by law. The authority shall provide policy direction in the areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.

E.

Corporate Powers of the Bngko Sentral 1.

Adopt, alter and use a corporate seal

2.

Enter into contracts

3.

Lease or own real and personal property, and to dispose of the same

4.

Sue and be sued

5.

Perform all things necessary to carry out the purposes of the NCBA

6.

Acquire and hold assets and incur liabilities in connection with its operation as authorized by the NCBA, or a s essential to the proper conduct of such operations

7.

Compromise, condone, or release any claim of or settled liability to the Bangko Sentral , regardless of the amount involved, under such terms and conditions as maybe prescribed by the monetary board.

Power to Prosecute •

BSP has no power to prosecute; it is a government corporation created principally to administer the monetary and banking System of the Philippines and not a prosecution authority like the fiscal’s office. But BSP and its officials have the duty to cause the prosecution of those who violate the banking laws.

•

BSP is an artificial person limited to its statutory powers. The closest it can get to prosecuting is its power to sue and be sued (civil cases only).

•

Prosecution of violation of banking laws is not exclusive to BSP, anyone can denounce this to any prosecuting authority because said violations constitute a public offense and is a matter of public interest.

Until the congress otherwise provides, the Central bank of the Philippines operating under existing laws, shall function as the central monetary authority.

C.

Responsibility and Primary Objectives of the bangko Sentral 1.

Responsibility of BSP - provide policy directions in the areas of money, banking, and credit.

2.

It shall have supervision over operations of banks.

3.

It shall also exercise regulatory powers over the operations of finance companies and non-bank financial institutions performing quasi-banking functions, and institutions performing similar functions.

F.

Estoppel

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•

BSP is committed to maintain the stability of the country’s foreign exchange reserve position. Underlying this commitment however is the government’s strict and faithful adherence to basic principles of fairness and decency under the Bill of Rights. Hence BSP circulars/ memoranda must be implemented in a manner that would not only safeguard or harmonize them with government programs designed to uplift or promote the country’s level of production and employment, but at the same time avoid irreparable or grave prejudice to participants of said program.

•

BSP shall provide policy direction in the areas of Money, Banking and Credit

•

Monetary Board may prescribe ratios, ceilings, and limitations or other forms of regulation on the different types of accounts and practices of banks and quasi-banks which shall conform to internationally accepted standards, including those of the Bank of International Settlements.

•

Monetary Board may exempt particular categories of transactions from such ratios, ceilings and limitations, but not limited to exceptional cases or to enable a bank or quasi-bank under rehabilitation or during a merger or consolidation to continue business with safety to its creditors, depositors and the general public.

Thus in case banks or banking institutions already faithfully complied with BASP’s directives, BSP is stopped from enforcing circulars that would deny banks or banking institutions of their rights. III.

II.

•

The Monetary Board

Authority of the Bangko Sentral A.

Supervisory Powers of the bangko Sentral •

•

The powers and functions of the bangko Sentral may be exercised by the BAngko SEntral Monetary Board.

A.

Composition

Supervisory powers include the following: I.

II.

Issuance of rules of conduct or the establishment of standards of operation for uniform application to all institutions and functions covered. Conduct of examination to determine compliance with the laws and regulations if the circumstances so warrant and determined by the monetary board.

III.

Overseeing to ascertain that laws are complied with.

IV.

Regular investigation which shall not be oftener than once a year

V.

Inquiry into the solvency and liquidity of the institution

VI.

Enforcing prompt corrective action.

•

Composed of 7 members appointed by the president of the Philippines for a term of 6 years. The members are:

•

Governor

• B.

Phase out of Bangko Sentral Powers Over Building Loan and Association •

C.

Within 3 years form effectivity of GBl, the BSP shall phase out and transfer its supervising and regulatory powers over building and loan associations to the Home Insurance and Guarantee Corporation.

Policy Direction; Ratios, Ceilings and Limitations

o

Chairman of the monetary board

o

Appointment subject to confirmation of the Commission on Appointments

o

If governor cannot attend a meeting of the board, he shall designate a Deputy Governor to act as his alternate. In such event, the Monetary Board shall designate one of its members as acting chairman.

A member of the cabinet to be designated by the President. o

•

Whenever such cabinet cannot attend a meeting of the board, he shall designate a Undersecretary in his department to attend as his alternate.

5 members shall come from the private sector, all of whom shall serve fulltime. o

Of the members first appointed, 3 shall have a term of 6 years and the other 2, 3 years.

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serves as an official representative of the Government to such Institution. (section 9 NCBA) B.

Vacancies •

Cause of vacancy: death, resignation, removal

•

A new member shall be appointed who shall serve the unexpired term of the member concerned.

E.

C.

D.

Grounds for removal of Monetary Board members •

The president may remove any member of the monetary board for these reasons : i.

Member is subsequently disqualified under section 9 of NCBA

ii.

Physically or mentally incapacitatedtaht he cannot properly discharge his duties and responsibilities as such incapacity a\has lasted for more than 6 months.

iii.

Guilty of fraudulent or illegal acts or which are manifestly opposed to the aims and interests of the bangko sentral.

iv.

Member no longer possesses the qualifications.

Qualifications of the Members of the monetary Board i.

Natural born citizen

ii.

35 yrs old; chairman 40yrs old

iii.

Good moral character

iv.

Known probity and patriotism

v.

Unquestionable integrity

vi.

Recognized competence in social and economic disciplines.

Disqualifications of Monetary board Members i.

Disqualifications imposed by RA 6713

F.

Meetings, Quorum, Decisions and Proceedings of the Monetary board i.

The Monetary Bard shall meet at least once a week. The board may be called to a meeting by the governor of the bangko sentral or by 2 other members of the board

ii.

Presence of 4 members constitutes a quorum. Provided that the governor is always among those 4

iii.

Decisions of MB shall require concurrence of 4 members.

(An act establishing a code of conduct and ethical standards for public officials and employees) ii.

Being a director, officer, employee, consultant, lawyer., agent, stockholder of any bank or any other institution under the supervision of the bangko Sentral; he must resign first to assume office as member of the monetary board

i. iii.

Holding public office or public employment during their tenure.

iv.

Person connected directly with any multilateral banking or financial institution.

v.

Having a substantial interest in any private bank in the Philippines, within 0ne year prior to his appointment

vi.

No member of the monetary board shall be employed in any such institution within two years after expiration of his term except when he

o

Exceptions ( 5 votes are needed in these cases):

Sec 61 GBL - In allowing banks to delay publication of its statements of financial condition in periods of national or local emergency, or imminent panic which directly monetary and banking stability, upon application of a bank.

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o

Section 28 NCBA. Examination and Fees. — The supervising and examining department head, personally or by deputy, shall examine the books of every banking institution once in every twelve (12) months, and at such other times as the Monetary Board by an affirmative vote of five (5) members, may deem expedient and to make a report on the same to the Monetary Board: Provided, That there shall be an interval of at least twelve (12) months between annual examinations.

o

o

Section 72 NCBA. - in the imminence of, or during an exchange crisis, or in time of national emergency to give the Monetary Board and the Government 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 the approval of the President of the Philippines, may temporarily suspend or restrict sales of exchange by the Bangko Sentral, and may subject all transactions in gold and foreign exchange to license by the Bangko Sentral, and may require that any foreign exchange thereafter obtained by any person residing or entity operating in the Philippines be delivered to the Bangko Sentral or to any bank or agent designated by the Bangko Sentral for the purpose, at the effective exchange rate or rates.

That a concurrent vote of at least five (5) members of the Monetary Board is obtained. The amount of any emergency loan or advance shall not exceed the sum of fifty percent (50%) of total deposits and deposit substitutes of the banking institution and shall be disbursed in two (2) or more tranches. The amount of the first tranche shall be limited to twenty-five percent (25%) of the total deposit and deposit substitutes of the institution and shall be secured by government securities to the extent of their applicable loan values and other unencumbered first class collaterals which the Monetary Board may approve: Provided, That if as determined by the Monetary Board, the circumstances surrounding the emergency warrant a loan or advance greater than the amount provided hereinabove, the amount of the first tranche may exceed twenty-five percent (25%) of the bank's total deposit and deposit substitutes if the same is adequately secured by applicable loan values of government securities and unencumbered first class collaterals approved by the Monetary Board, and the principal stockholders of the institution furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator whose appointment the Monetary Board may find necessary at any time. Prior to the release of the first tranche, the banking institution shall submit to the Bangko Sentral a resolution of its board of directors authorizing the Bangko Sentral to evaluate other assets of the banking institution certified by its external auditor to be good and available for collateral purposes should the release of the subsequent tranche be thereafter applied for. The Monetary Board may, by a vote of at least five (5) of its members, authorize the release of a subsequent tranche on condition that the principal stockholders of the institution:

Section 84. Emergency Loans and Advances. — In periods of national and/or local emergency or of imminent financial panic which directly threaten monetary and banking stability, the Monetary Board may, by a vote of at least five (5) of its members, authorize the Bangko Sentral to grant extraordinary loans or advances to banking institutions secured by assets as defined hereunder: Provided, That while such loans or advances are outstanding, the debtor institution shall not, except upon prior authorization by the Monetary Board, expand the total volume of its loans or investments. The Monetary Board may, at its discretion, likewise authorize the Bangko Sentral to grant emergency loans or advances to banking institutions, even during normal periods, for the purpose of assisting a bank in a precarious financial condition or under serious financial pressures brought by unforeseen events, or events which, though foreseeable, could not be prevented by the bank concerned: Provided, however, That the Monetary Board has ascertained that the bank is not insolvent and has the assets defined hereunder to secure the advances: Provided, further,

(a) furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator whose appointment the Monetary Board may find necessary at any time; and (b) provide acceptable security which, in the judgment of the Monetary Board, would be adequate to supplement, where necessary, the assets tendered by the banking institution to collateralize the subsequent tranche. In connection with the exercise of these powers, the prohibitions in Section 128 of this Act shall not apply insofar as it refers to acceptance as collateral of shares and their acquisition as a result of foreclosure proceedings, including the exercise of voting rights pertaining to said shares: Provided, however, That should the Bangko Sentral acquire any of the shares it has accepted as

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collateral as a result of foreclosure proceedings, the Bangko Sentral shall dispose of said shares by public bidding within one (1) year from the date of consolidation of title by the Bangko Sentral

G.

ii.

On the recommendation of the Governor, appoint, fix the remunerations and other emoluments, and remove personnel of the Bangko Sentral, subject to pertinent civil service laws: Provided, That the Monetary Board shall have exclusive and final authority to promote, transfer, assign, or reassign personnel of the Bangko Sentral and these personnel actions are deemed made in the interest of the service and not disciplinary: Provided, further, That the Monetary Board may delegate such authority to the Governor under such guidelines as it may determine.

Salaries shall be fixed by the president at an amount commensurate to the importance and responsibility attached to the position.

Personal or Pecuniary Interest •

J.

A compensation structure, based on job evaluation studies and wage surveys and subject to the Board's approval, shall be instituted as an integral component of the Bangko Sentral's human resource development program: Provided, That the Monetary Board shall make its own system conform as closely as possible with the principles provided for under Republic Act No. 6758: Provided, however, That compensation and wage structure of employees whose positions fall under salary grade 19 and below shall be in accordance with the rates prescribed under Republic Act No. 6758.

He may attend with the right to be heard

Salaries of the Governor and Members of the Monetary Board •

I.

i.

Deputy Governors may Attend Meetings of the Monetary Board •

H.

establish professionalism and excellence in all levels of BSP in accordance with the sound principles of management.

Any member of the MB with personal or pecuniary interest in any matter in the agenda of the monetary board shall disclose his interest to the board and shall retire from the meeting when the matter is taken up. The decision taken on the matter shall be made public. The minutes shall reflect the disclosure made and the retirement of the member concerned from the meeting.

d.

adopt an annual budget for and authorize such expenditures by the Bangko Sentral as are in the interest of the effective administration and operations of the Bangko Sentral in accordance with applicable laws and regulations; and

e.

indemnify its members and other officials of the Bangko Sentral, including personnel of the departments performing supervision and examination functions against all costs and expenses reasonably incurred by such persons in connection with any civil or criminal action, suit or proceedings to which he may be, or is, made a party by reason of the performance of his functions or duties, unless he is finally adjudged in such action or proceeding to be liable for negligence or misconduct.

Scope of the Authority of the Monetary Board a.

Issue rules and regulations it considers necessary for the effective discharge of the responsibilities and exercise of the powers vested upon the Monetary Board and the Bangko Sentral.

b.

Direct the management, operations, and administration of the Bangko Sentral, reorganize its personnel and issue such rules and regulations as it may deem necessary or convenient for this purpose.

i. c.

Establish a Human Resource management system which shall govern the selection, hiring, or dismissal of all personnel. Such system shall aim to

In the event of a settlement or compromise, indemnification shall be provided only in connection with such matters covered by the settlement as to which the Bangko Sentral is advised by external

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counsel that the person to be indemnified did not commit any negligence or misconduct. A.

ii.

G.

The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the Bangko Sentral in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the member, officer, or employee to repay the amount advanced should it ultimately be determined by the Monetary Board that he is not entitled to be indemnified as provided in this subsection.

Responsibilities of the Members of the Monetary Board, Officials, Examiners, and Employees of the Bangko Sentral

a.

b.

Members of the Monetary Board, officials, examiners, and employees of the Bangko Sentral who willfully violate this Act or who are guilty of negligence, abuses or acts of malfeasance or misfeasance or fail to exercise extraordinary diligence in the performance of his duties shall be held liable for any loss or injury suffered by the Bangko Sentral or other banking institutions as a result of such violation, negligence, abuse, malfeasance, misfeasance or failure to exercise extraordinary diligence.

Powers and Duties of the Governor a. prepare the agenda for the meetings of the monetary board and to submit for the consideration of the monetary board the policies and measures which he believes to be necessary to carry out the purposes and provisions of this act

b.

execute and administer the policies and measures approved by the Monetary Board;

c.

direct and supervise the operations and internal administration of the Bangko Sentral. The Governor may delegate certain of his administrative responsibilities to other officers or may assign specific tasks or responsibilities to any full-time member of the Monetary Board without additional remuneration or allowance whenever he may deem fit or subject to such rules and regulations as the Monetary Board may prescribe;

Similar responsibility shall apply to members, officers, and employees of the Bangko Sentral for:

d.

IV.

i.

the disclosure of any information of a confidential nature, or any information on the discussions or resolutions of the Monetary Board, or about the confidential operations of the Bangko Sentral, unless the disclosure is in connection with the performance of official functions with the Bangko Sentral, or is with prior authorization of the Monetary Board or the Governor; or

ii.

the use of such information for personal gain or to the detriment of the Government, the Bangko Sentral or third parties: Provided, however, That any data or information required to be submitted to the President and/or the Congress, or to be published under the provisions of this Act shall not be considered confidential.

appoint and fix the remunerations and other emoluments of personnel below the rank of a department head in accordance with the position and compensation plans approved by the Monetary Board, as well as to impose disciplinary measures upon personnel of the Bangko Sentral, subject to the provisions of Section 15(c) of this Act: Provided, That removal of personnel shall be with the approval of the Monetary Board;

e. render opinions, decisions, or rulings, which shall be final and executory until reversed or modified by the Monetary Board, on matters regarding application or enforcement of laws pertaining to institutions supervised by the Bangko Sentral and laws pertaining to quasi-banks, as well as regulations, policies or instructions issued by the Monetary Board, and the implementation thereof; and

The Governor and Deputy Governors of the Bangko Sentral •

Governor shall be chief executive officer of the Bangko Sentral ng Pilipinas.

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a.

In case of emergencies where time is sufficient to call a meeting of the Monetary Board, the Governor of the Bangko Sentral, with the concurrence of two (2) other members of the Monetary Board, may decide any matter or take any action within the authority of the Board.

b.

The Governor shall submit a report to the President and Congress within seventy-two (72) hours after the action has been taken.

c.

At the soonest possible time, the Governor shall call a meeting of the Monetary Board to submit his action for ratification.

f. exercise such other powers as may be vested in him by the Monetary Board.

B.

Powers of the Governor as Representative of the Monetary Board and the Bangko Sentral •

The Governor of the Bangko Sentral shall be the principal representative of the Monetary Board and of the Bangko Sentral and, in such capacity and in accordance with the instructions of the Monetary Board, with the following powers:

D. a. represent the Monetary Board and the Bangko Sentral in all dealings with other offices, agencies and instrumentalities of the Government and all other persons or entities, public or private, whether domestic, foreign or international

•

b. sign contracts entered into by the Bangko Sentral, notes and securities issued by the Bangko Sentral, all reports, balance sheets, profit and loss statements, correspondence and other documents of the Bangko Sentral. The signature of the Governor may be in facsimile whenever appropriate

c. represent the Bangko Sentral, either personally or through counsel, including private counsel, as may be authorized by the Monetary Board, in any legal proceedings, action or specialized legal studies

d. delegate his power to represent the Bangko Sentral, as provided in subsections (a), (b) and (c) of this section, to other officers upon his own responsibility: Provided, however, That in order to preserve the integrity and the prestige of his office, the Governor of the Bangko Sentral may choose not to participate in preliminary discussions with any multilateral banking or financial institution on any negotiations for the Government within or outside the Philippines. During the negotiations, he may instead be represented by a permanent negotiator.

Limitations on outside interests of the governor and the Full-time Members of the Board

E.

The governor of the Bangko Sentral and the full-time members of the Board shall: a.

limit their professional activities to those pertaining directly to their positions with the Bangko Sentral.

b.

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 the full-time member is tasked to represent the interest of the Government or other government agencies in matters connected with or affecting the economy or the financial system of the country.

Number and Functions of Deputy Governors

a. C.

Emergencies

The Governor of the Bangko Sentral, with the approval of the Monetary Board, shall appoint not more than three (3) Deputy Governors who shall perform duties as may be assigned to them by the Governor and the Board.

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released to interested persons or entities: provided finally, theth the case of data on banks, the provisions of section 27 shall apply.

b.

V.

In the absence of the Governor, a Deputy Governor designated by the Governor shall act as chief executive of the Bangko Sentral and shall exercise the powers and perform the duties of the Governor. Whenever the Government is unable to attend meetings of government boards or councils in which he is an ex officio member pursuant to provisions of special laws, a Deputy Governor as may be designated by the Governor shall be vested with authority to participate and exercise the right to vote in such meetings. Operations of the Bangko Sentral A.

C.

•

Research and statistics of the bangko Sentral •

The Bangko Sentral shall prepare data and conduct economic research for the guidance of the Monetary Board in the formulation and implementation of its policies. Such data shall include, among others, forecasts of the balance of payments of the Philippines, statistics on the monthly movement of the monetary aggregates and of prices and other statistical series and economic studies useful for the formulation and analysis of monetary, banking, credit and exchange policies.

Training of technical Personnel

D.

The Bangko Sentral shall promote and sponsor the training of technical personnel in the field of money and banking. Toward this end, the Bangko Sentral is hereby authorized to defray the costs of study, at home or abroad, of qualified employees of the Bangko Sentral, of promising university graduates or of any other qualified persons who shall be determined by proper competitive examinations. The Monetary Board shall prescribe rules and regulations to govern the training program of the Bangko Sentral.

Scope of the Supervision and Examination by the bangko Sentral a.

B.

Scope of authority of bangko Sentral to Obtain data and Information a.

b.

c.

The Bangko Sentral shall have the authority to request from government offices and instrumentalities, or government-owned or controlled corporations, any data which it may require for the proper discharge of its functions and responsibilities.

The Bangko Sentral through the Governor or in his absence, a duly authorized representative shall have the power to issue a subpoena for the production of the books and records for the aforesaid purpose. Those supply the bank with data requested or required, shall be subject to punishment for contempt in accordance with the provisions of the Rules of Court.

Data on individual firms, other htan banks, gathered by the Department of Economic Research and other departments or units of the Bangko Sentral shall not be made available to any person or entity outside of the Bangko Sentral whether public or private escept under order of the court or under such conditions as may be prescribed by the monetary board: Provided however, that the collected data on firms may be

b.

The BSP shall have supervision over, and conduct periodic or special examination of, banking institutions and quasi-banks, including their subsidiaries and affiliates. i.

Subsidiary – more than 50% of the voting stock is owned by a bank

ii.

Affiliate – 50% or less, is owned by a bank or which is related or linked to such institution or intermediary through common stockholders or such other factors as may be determined by the MB.

The department heads and the examiners of the supervising and/or examining departments are hereby authorized to i.

administer oaths to any director, officer, or employee of any institution under their respective supervision or subject to their examination and to

ii.

compel the presentation of all books, documents, papers or records necessary in their judgment to ascertain the facts relative to the true condition of any institution as well as the books and records of persons and entities relative to or in connection with the operations, activities or transactions of the institution under examination, subject to the provision of existing laws protecting or safeguarding the secrecy or

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confidentiality of bank deposits as well as investments of private persons, natural or juridical, in debt instruments issued by the Government.

E.

shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the Philippines. b. Any information obtained from an examination of his deposits shall be held strictly confidential and may be used by the examiners only in connection with their supervisory and examination responsibility or by the Bangko Sentral in an appropriate legal action it has initiated involving the deposit account.

Restraining Order or Injunction a.

B.

Court cannot order restraining order prohibiting the BSP from examining any institution subject to the supervision and examination of the BSP. i.

Exception: there is convincing proof that the action of the BSP is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond is executed infavor of the BSP in the amount fixed by court.

Prohibitions Against Personnel of the Bangko Sentral

(same as disqualifications of MB Member)

VII.

Examination of Banking Institutions A.

Frequency of Examination

• b.

VI.

Provisions of the Rules of court regarding Preliminary injunction, in so far as they are applicable, and not inconsistent shall govern the issuance and dissolution of the restraining order or injunction.

The supervising and examining department head, personally or by deputy, shall examine the books of every banking institution once in every twelve (12) months, and at such other times as the Monetary Board by an affirmative vote of five (5) members, may deem expedient and to make a report on the same to the Monetary Board: Provided, That there shall be an interval of at least twelve (12) months between annual examinations.

Director, Officer or Stockholder and Related Interests A.

B.

Contracting Loans a.

•

Any director, officer or stockholder who, together with his related interest, contracts a loan or any form of financial accommodation from: i.

his bank; or

ii.

from a bank 1.

2.

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 five percent (5%) of the capital and surplus of the bank, or in the maximum amount permitted by law, whichever is lower,

Affording Opportunity to Examine

•

C.

Bank concerned shall afford the head of the appropriate supervising and examining departments full opportunity to examine •

Books

•

Cash and available assets

•

General condition

Anytime during the banking hours when requested by BSP The reports on the examinations will not be open to the public unless incidental to any proceedings authorized or is necessary for the prosecution of violations in connection with the business of such institutions.

Service Fees

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VIII.

•

Banks and quasi-banks subject to examination of the BSP shall pay the BSP within 30 days of each year, an annual fee.

•

Amount of fee is prescribed by the MB. It would be a percentage of its average total assets during the preceding year as shown by its end of month balance sheets, after deducting cash on hand and the amount due from banks, including the bangko sentral and the banks abroad.

Administration A.

C.

The Monetary Board shall, in accordance with its authority under this Act, determine and provide for such operating departments and other offices, including a public information office, of the Bangko Sentral as it deems convenient for the proper and efficient conduct of the operations and the accomplishment of the objectives of the Bangko Sentral. The functions and duties of such operating departments and other offices shall be determined by the Monetary Board.

a.

Before the end of March of each year, the Bangko Sentral shall publish and submit to the President and the Congress an annual report on the condition of the Bangko Sentral including a review of the policies and measures adopted by the Monetary Board during the past year and an analysis of the economic and financial circumstances which gave rise to said policies and measures.

b.

The annual report shall also include a statement of the financial condition of the Bangko Sentral and a statistical appendix which shall present, as a minimum, the following data: i. the monthly movement of monetary aggregates and their components; ii. the monthly movement of purchases and sales of foreign exchange and of the international reserves of the Bangko Sentral; iii. the balance of payments of the Philippines;

Required Reports and Publications of the Bangko Sentral a.

The BSP shall publish a general balance sheet within 60 days after the end of each month except December, which shall be submitted 90 days after end of month.

iv.

It shall contain the volume and compositions of its assets and liabilities as of the last working day of the month.

b.

MB shall publish the ff reports and submit them to the President and to congress. i.

Analysis of economic and financial developments, including the condition of net international reserves and monetary aggregate. (90 days after end of each quarter)

ii.

Preceeding year’s budget and profit and loss statement of the bankgo sentral showing in reasonable detail the result of its operations. (within 90 days after end of year)

iii.

Review of the state of the financial system ( 120 days after end of semester)

Abnormal movements in monetary aggregates and the general price level. (as soon as practicable), and remedial measures in response to such abnormal movements (not later than 27 hours)

Annual Report of the Bangko Sentral

Operating Departments of the Bangko Sentral •

B.

iv.

c. d.

monthly indices of consumer prices and of import and export prices; v. the monthly movement, in summary form, of exports and imports, by volume and value; vi. the monthly movement of the accounts of the Bangko Sentral and of other banks; vii. the principal data on government receipts and expenditures and on the status of the public debt, both domestic and foreign; and viii. the texts of the major legal and administrative measures adopted by the Government and the Monetary Board during the year which relate to the functions or operations of the Bangko Sentral or of the financial system. The Bangko Sentral shall publish another version of the annual report in terms understandable to the layman. Failure to comply with the reportorial requirements pursuant to this article without justifiable reason as may be determined by the Monetary Board shall cause the withholding of the salary of the personnel concerned until the requirements are complied with.

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D.

Signatures on Statements

D.

Balance sheets and statements shall be signed by the officers responsible for their preparation.

Revaluation of Profits and Losses a.

b. IX.

Profits, Losses, and Special accounts A.

Fiscal Year a.

b.

c.

c.

Profits or losses arising from any revaluation of the Bangko Sentral's net assets or liabilities in gold or foreign currencies with respect to the Philippine peso shall not be included in the computation of the annual profits and losses of the Bangko Sentral. Any profits or losses arising in this manner shall be offset by any amounts which, as a consequence of such revaluations, are owed by the Philippines to any international or regional intergovernmental financial institution of which the Philippines is a member or are owed by these institutions to the Philippines. Any remaining profit or loss shall be carried in a special frozen account which shall be named "Revaluation of International Reserve" and the net balance of which shall appear either among the liabilities or among the assets of the Bangko Sentral, depending on whether the revaluations have produced net profits or net losses.

E.

The Revaluation of International Reserve (RIR) account as of the effective date of this Act of the Central Bank shall continue to be for the account of the same entity and shall be governed by the provisions of Section 44 of Republic Act No. 265, as amended, until otherwise provided for in accordance with the transitory provisions of this Act.

Computation of Profits and Losses

Distribution of Net Profits

•

Within the first sixty (60) days following the end of each fiscal year, the Monetary Board shall determine and carry out the distribution of the net profits, in accordance with the following rule: a.

Fifty percent (50%) of the net profits shall be carried to surplus

b.

the remaining fifty percent (50%) shall revert back to the National Treasury, except as otherwise provided in the transitory provisions of this Act.

Suspense Accounts Amounts outstanding as of the effective date of this Act based on these accounts shall continue to be for the account of the Central Bank and shall be governed by the transitory provisions of this Act.

Within the first thirty (30) days following the end of each year, the Bangko Sentral shall determine its net profits or losses. In the calculation of net profits, the Bangko Sentral shall make adequate allowance or establish adequate reserves for bad and doubtful accounts. C.

Any remaining profit or loss shall be carried in a special frozen account which shall be named "Revaluation of International Reserve" and the net balance of which shall appear either among the liabilities or among the assets of the Bangko Sentral, depending on whether the revaluations have produced net profits or net losses.

The Revaluation of International Reserve account shall be neither credited nor debited for any purposes other than those specifically authorized in this section.

The Revaluation of International Reserve account shall be neither credited nor debited for any purposes other than those specifically authorized in this section. B.

Profits or losses arising from any revaluation of the Bangko Sentral's net assets or liabilities in gold or foreign currencies with respect to the Philippine peso shall not be included in the computation of the annual profits and losses of the Bangko Sentral. Any profits or losses arising in this manner shall be offset by any amounts which, as a consequence of such revaluations, are owed by the Philippines to any international or regional intergovernmental financial institution of which the Philippines is a member or are owed by these institutions to the Philippines.

F.

The Auditor The Chairman of the Commission on Audit shall act as the ex officio auditor of the Bangko Sentral and, as such, he is empowered and authorized to appoint a representative who shall be the auditor of the Bangko Sentral and, in accordance with law, fix his salary, and to appoint and fix salaries and number of personnel to assist said representative in his work. The salaries and other emoluments shall be paid by the Commission. The auditor of the Bangko Sentral and personnel under him may be removed only by the Chairman of the Commission. The representative of the Chairman of the Commission must be a certified public accountant with at least ten (10) years experience as such. No relative of any

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member of the Monetary Board or the Chairman of the Commission within the sixth degree of consanguinity or affinity shall be appointed such representative.

X.

implemented by the Bangko Sentral or any order, instruction, rule or regulation issued by the Monetary Board, the person or persons responsible for such violation shall unless otherwise provided in this Act be punished by a fine of not less than Fifty thousand pesos (P50,000) nor more than Two hundred thousand pesos (P200,000) or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court.

Penalty for Violation Unless otherwise herein provided, the violation of any of the provisions of this Act shall be subject to Sections 34, 35, 36 and 37 of the New Central Bank Act. If the offender is a director or officer of a bank, quasi-bank or trust entity, the Monetary Board may also suspend or remove such director or officer. If the violation is committed by a corporation, such corporation may be dissolved by quo warranto proceedings instituted by the Solicitor General.

D.

Administrative Sanctions on Banks and Quasi Banks a.

Administrative violation and penalties: Grounds for administrative sanctions imposable by the MB to any bank or quasi-bank:

A.

Penalty for Refusal to make Reports Any officer, owner, agent, manager, director or officer-in-charge of any institution subject to the supervision or examination by the Bangko Sentral within the purview of this Act who, being required in writing by the Monetary Board or by the head of the supervising and examining department willfully refuses to file the required report or permit any lawful examination into the affairs of such institution shall be punished by a fine of not less than Fifty thousand pesos (P50,000) nor more than One hundred thousand pesos (P100,000) or by imprisonment of not less than one (1) year nor more than five (5) years, or both, in the discretion of the court.

B.

Any willful violation of its charter or by-laws

ii.

Willful delay in the submission of required reports and publications

iii.

Refusal to permit examination into the affairs of the institution

iv.

Willful making of false or misleading statement to the board or the appropriate supervising and examining department examiners.

v.

Any willful failure or refusal to comply with, or violation of any banking law or any rder, instruction or regualtin issued by the Monetary Board, or any order, instruction or ruling by the governor

vi.

Conducting business in an unsafe or unsound manner as may be determined by the MB.

Penalty for Willful Making of a False or Misleading Statement on a Material Fact •

C.

i.

punished by a fine of not less than One hundred thousand pesos (P100,000) nor more than Two hundred thousand pesos (P200,000), or by imprisonment of not more than (5) years, or both, at the discretion of the court.

Proceedings Upon and Penalty for Violation of NCBA and Other banking laws. Rules Regulations, Orders or Instructions a.

b.

A bank, quasi-bank, person, or any entity who willfully the NCBA or other banking laws implemented by BSP, or any order, instruction, rule or regulation issued by the monetary board, shall be punished by a fine not less than 50, 000 and not more than 200,000 or imprisonment of not less than 2 years. but not more than 10 years. Whenever a bank or quasi-bank, or whenever any person or entity willfully violates this Act or other pertinent banking laws being enforced or

Imposable sanctions: i. Fines not exceeding 30,000 for each day of violation. Mb would take into consideration the attendant circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank. ii.

Suspension of rediscounting privileges or access to BSP credit facilities

iii.

suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments;

iv. v.

suspension of interbank clearing privileges; and/or revocation of quasi-banking license.

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II.

b.

Whether or not there is an administrative proceeding, if the institution and/or the directors and/or officers concerned continue with or otherwise persist in the commission of the indicated practice or violation, the Monetary Board may issue an order requiring the institution and/or the directors and/or officers concerned to cease and desist from the indicated practice or violation, and may further order that immediate action be taken to correct the conditions resulting from such practice or violation. The cease and desist order shall be immediately effective upon service on the respondents.

c.

The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary Board or any committee chaired by any Monetary Board member created for the purpose, upon request made by the respondents within five (5) days from their receipt of the order. If no such hearing is requested within said period, the order shall be final. If a hearing is conducted, all issues shall be determined on the basis of records, after which the Monetary Board may either reconsider or make final its order.

d.

The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any failure to comply with the requirements of law, Monetary Board regulations and policies, and/or instructions issued by the Monetary Board or by the Governor, fines not in excess of Ten thousand pesos (P10,000) a day for each violation, the imposition of which shall be final and executory until reversed, modified or lifted by the Monetary Board on appeal.

Chapter 8: Currency, Monetary Stabilization and Functions of the BSP I. The Unit of Monetary Value A. The Peso (P) -unit of monetary value in the Philippines -divided into 100 equal parts: centavos (c) -legal tender; all monetary obligations shall be settled in Philippine currency  parties may agree to settle such obligation in any other currency at the time of the payment. B. Currency, defined -all Philippine notes and coins issued or circulating in accordance with the NCBA. C. Value of Currency -has value because people are willing to accept it in exchange of goods, services or payment of debts.

Issue of Means of Payment A. Exclusive Issue Power (i) Bangko Sentral- SOLE power to issue currency (ii) Monetary Board- may issue regulations to prevent circulation of foreign currency, currency substitutes, or to prevent the reproduction of facsimiles of Bangko Sentral notes. (iii) Bangko Sentral- has authority to investigate, arrest, search and seize for the purpose of maintaining the integrity of the currency. (iv) Violation: imprisonment of not less than five years but not more than ten years. In case the RPC provides for a greater penalty, the latter shall prevail. *An Exception to Territoriality of Penal Laws (RPC) Art. 2. Application of its provisions. — Except as provided in the treaties and laws of preferential application, the provisions of this Code shall be enforced not only within the Philippine Archipelago, including its atmosphere, its interior waters and maritime zone, but also outside of its jurisdiction, against those who: 1. Should commit an offense while on a Philippine ship or airship 2. Should forge or counterfeit any coin or currency note of the Philippine Islands or obligations and securities issued by the Government of the Philippine Islands;chan robles virtual law library 3. Should be liable for acts connected with the introduction into these islands of the obligations and securities mentioned in the presiding number; 4. While being public officers or employees, should commit an offense in the exercise of their functions; or 5. Should commit any of the crimes against national security and the law of nations, defined in Title One of Book Two of this Code. *Related Crimes under the RPC 1. Art. 163. Making and Importing and Uttering False Coins 2. Art. 164. Mutilation of Coins; Importation and Utterance of Mutilated Coins 3. Art. 165. Selling of Flase or Mutilated Coin, Without Connivance 4. Art. 166. Forging Treasury or Bank Notes on Other Documents Payable to Bearer; Importing, and Uttering Such False or Forged Notes and Documents 5. Art. 167. Counterfeiting, Importing and Uttering Instruments Not Payable to Bearer 6. Art. 168. Illegal Possession and Use of False Treasury or Bank Notes and Other Instruments of Credit 7. Art. 169. How forgery is committed. — The forgery referred to in this section may be committed by any of the following means: 1. By giving to a treasury or bank note or any instrument, payable to bearer or order mentioned therein, the appearance of a true genuine document. 2. By erasing, substituting, counterfeiting or altering by any means the figures, letters, words or signs contained therein. B. Liability for Notes and Coins (i) Notes and coins issued by the BSP shall be liabilities of the BSP. Such may be issued only against, and in amounts not exceeding, the assets of the BSP. Such shall be a first and paramount lien on all assets of the BSP. (ii) The Bangko Sentral’s holdings of its own notes and coins shall not be considered as part of its currency issue and, accordingly, shall not form part of the assets or liabilities of the BSP. C. Legal Tender Power -all notes and coins issued by the BSP= Legal Tender for all debts *coins: a. 25c and above denominations shall not exceed P50.00 b. 10c or less denominations shall not exceed P20.00

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-checks representing demand deposits do not have legal tender power: one cannot be compelled to accept the same. *a check cleared and credited to the account of the creditor = delivery of cash to such creditor. *Related Civil Code Provisions Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in the abeyance. Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. D. Characteristics of the Currency (i) Monetary Board, with approval of the President, shall prescribe: 1. Denominations 2. Designs 3. Inscriptions 4. Other characteristics of notes Provided that: the notes state that they are liabilities of the BSP and are guaranteed by the Government; also shall bear the signatures of the President of the Philippines and the Governor of the BSP. (ii) Monetary Board, with approval of the President, shall prescribe: 1. Weight 2. Fineness 3. Designs 4. Denominations 5. Other characteristics of the coins The MB shall consider the availability and cost of materials E. Printing of Notes and Minting of Coins (i) The MB shall prescribe the amount and conditions of notes and coins to be printed and minted. It shall also have the authority to contract institutions, mints or firms for such operations. (ii) Expenses incurred for the operations shall be for the account of the BSP. F. Interconvertibility of Currency -BSP shall exchange, on demand and with no charge, Philippine currency of any denomination to any other denomination of such currency. If BSP is temporarily unable to do so, shall deliver the notes and coins of the denominations which most nearly approximate those requested. G. Replacement of Currency Unfit for Circulation -shall be withdrawn and demonitized by the BSP from circulation and replace them with adequate ones. shall not replace: notes and coins, the identification of which is impossible; filed, clipped, perforated coins; notes which have lost 2/5 of their surface or all of the signatures therein. (mutilated conditions) H. Retirement of Old Notes and Coins (i) The BSP may call in for replacement: notes, 5 years old; coins, 10 years old

(ii)

III.

IV.

Such notes called in for replacement shall remain legal tender for one year since the date of the call. Lapse of one year, may be exchanged at par and without charge during the following year or for a period determined by the MB. Lapse of such period, the notes and coins shall cease to be a liability of the BSP and shall be demonitized. The called in notes and coins shall likewise be demonitized. Domestic Monetary Stabilization A. Guiding Principle on Monetary Stabilization -the MB shall endeavour to control any expansion or contraction in monetary aggregates which is prejudicial to the attainment or maintenance of price stability. B. Power to Define Terms -MB shall formulate definitions of monetary aggregates, credit and prices and shall make public such definitions and any changes thereof. C. Action When Abnormal Movements Occur in the Monetary Aggregates, Credit, or Price Level (i) Whenever abnormal movements in the monetary aggregates, in credit, or in prices endanger the stability of the Philippine economy or important sectors, the MB shall: a) Take appropriate remedial measures b) Submit a report to the President and the Congress (also made public, a description and analysis: 1. Causes of the rise or fall of such monetary aggregates; 2. Extent to which such changes have been reflected in the level of domestic output, employment, wages and economic activity in general, and the nature and significance of any such changes; 3. Measures taken and measures proposed to be adopted. (ii) Whenever: a. The monetary aggregates, or the level of credit, increases or decreases by more than 15%, b. The cost of living index increases by more than 10%, or c. When in its judgment, the circumstances warrant, (With respect to a-c) the MB shall submit reports and state whether such changes represent a threat to the stability of the economy or of its important sectors. (iii) The MB shall continue to make periodic reports until the disturbances have disappeared or have been controlled. International Monetary Stabilization A. International Monetary Stabilization -preserved by the BSP -maintain convertibility into other currencies primarily for foreign trade and invisibles. B. International Reserves -Purpose: to maintain the international stability and convertibility of the Philippine Peso (adequate to meet foreseeable net demands on the BSP for foreign currencies.) -MB shall judge such adequacy based on: prospective receipts and payments of ForEx by the Philippines. -MB shall pay special attention to the volume and maturity of: 1. BSP’s own liabilities in foreign currencies 2. ForEx assets and liabilities of other banks operating in the Philippines

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C.

D.

V.

3. ForEx assets and liabilities of all other persons and entities in the Philippines Composition of the International Reserves (of the BSP): (i) May include, but not limited to: a. Gold b. Assets in foreign currencies in the form of: 1. Documents and instruments customarily employed for the international transfer of funds 2. Demand and time deposits in central banks, treasuries and commercial banks abroad 3. Foreign government securities 4. Foreign notes and coins (ii) The MB shall: a. Endeavour to hold the ForEx resources of the BSP b. Give particular consideration to the prospects of continued strength and convertibility of the currencies c. Give particular consideration to the anticipated demands (iii) The MB shall issue regulations determining the other qualifications which the ForEx must meet in order to be included in the international reserves of the BSP. (iv) BSP is free to convert any asset in its international reserves into other assets as described in a. and b. Action when the international stability of the peso is threatened: (i) Whenever: 1) The international reserve falls to a level the MB considers inadequate to meet prospective net demands, or 2) The international reserves appear to be imminent in falling to such level, or 3) The international reserve is falling as a result of payments or remittances abroad which are contrary to the national welfare

The MB shall: a. Take appropriate remedial measures b. Submit a report to the President and the Congress: 1. Nature and causes of the existing or imminent decline 2. Measures already taken or to be taken by the MB 3. Measures proposed 4. Cooperation required from other government agencies for the execution of policies of the MB (ii) If such actions fail, the MB shall propose to the President, with notice to the Congress, additional action it deems necessary to restore international balance of payments in the Philippines (iii) The MB shall submit periodic reports until the threat to international monetary stability has disappeared. E. Means of Action -MB shall rely on its moral influence and the powers granted to it under the NCBA. Operations in Gold and Foreign Exchange A. Purchases and Sales of Gold -by the BSP subject to the regulations of MB -made in the national currency at the prevailing international market price as determined by the MB. B. Purchases and Sales of ForEx -by the BSP

VI.

-with the following entities or persons only: 1. Banking institutions within the Philippines 2. Government and its subdivisions and instrumentalities 3. Foreign governments 4. International Financial Institutions 5. Others authorized by the MB -the BSP may buy or sell any quantity of ForEx upon demand or request by any banking institution in the Philippines. Provided, that such are freely convertible into gold or US dollars. (not applicable to demands for foreign notes and coins) -exchange transactions shall be based on the NCBA. C. Foreign Asset Position of the Bangko Sentral -BSP shall maintain NET POSITIVE FOREIGN ASSET POSITION (Gross ForEx assets>Gross ForEx liabilities. -If ForEx liabilities (in Pesos) > twice the ForEx assets (in Pesos), BSP shall report to the Congress the origin of the liabilities and the manner it shall be paid. (made within 60 days from the date of the occurrence. D. Emergency Restrictions on Exchange Operations In order to: (i) Achieve the primary objective of the BSP (ii) Protect international reserves in the imminence or during and exchange crisis (iii) Give time to the MB and the Government to take measures to forestall or overcome such crisis 5 members of the MB and the President of the Philippines may: 1. Temporarily suspend sales of exchange 2. Subject all gold and ForEx transactions to license 3. Require that any ForEx obtained by any person or entity in the Philippines be delivered to the BSP at the exchange rates. (Foreign currency deposits made under RA 6426, exempt from this requirements) E. Acquisition of Inconvertible Currencies -shall be avoided -may acquire more than the minimum balance necessary to cover current demands for such currencies only when considered by the MB to be in the national interest. -MB shall determine the procedure F. Exchange Rates -determined by the MB -MB shall determine the rates for buying and selling spot exchange and may establish deviation limits from the exchange rates -MB shall determine the rates for other types of ForEx transactions. But the margins between the effective exchange rates and the rates established may not exceed the margins for spot exchange by more than the additional costs involved in each type of transactions G. Operations with Foreign Entities -MB may authorize the BSP to transact with foreign banks or entities. The BSP may also act as agent for such. -MB may authorize the BSP to pledge any gold or other assets as securities against loans which it receives from foreign entities. Regulation of Foreign Exchange Operations Of the Banks A. Foreign Exchange Holdings of the Banks -MB may require the banks to sell to the BSP or to other banks all or part of their surplus holdings of ForEx to maintain international stability and

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convertibility of the Peso. Such transfers shall be at the established rates and may be required of certain currencies only. -MB may determine the net assets and liabilities of banks and consider the bank’s networth, outstanding liabilities, or other ratios it may deem appropriate. Such determination shall be applied in all banks uniformly. B. Requirement of Balanced Currency Position -MB may require banks to maintain a balanced position between their assets and liabilities. They shall be granted reasonable time to adjust. -such powers shall be exercised only under special circumstances which warrant the same C. Regulation of Non-spot Exchange Transaction -MB may issue regulations on such transaction to restrain banks from speculating future fluctuations in ForEx D. Othe Exchange Profits and Losses -banks bear the risks of 1. Non-compliance with the terms of the ForEx documents and instruments they buy and sell. 2. Other commercial or other banking risks 3. Exchange risks not assumed by the BSP regarding non-spot exchange transaction E. Information on Exchange Operations: a. Banks shall report to the BSP the volume and composition of their purchases and sales of gold and ForEx each day, and must furnish requested additional info. b. The MB may also require other persons and entities to report to it all transactions as stated above. It shall prescribe the form such declarations must be made. The BSP may inspect such declarations for verification. VII. Loans To Banking And Other Financial Institutions A. Guiding Priciples -rediscounts, discounts, loans and advances which the BSP is authorized to extend shall be used to influence the volume of credit consistent with the objective of price stability. B. Authorized Types of Credit Operations -carried on by the BSP with banks a. Commercial Credits- BSP may rediscount, discount, buy and sell bills, acceptances, promissory notes and other credit instruments with maturities of not more than 180 days from the date of rediscount, discount or acquisition and resulting from transactions related to: 1. The importation, exportation, purchase or sale of readily saleable goods and products, or their transportation within the Philippines; or 2. The storing of non-perishable goods and products, duly insured and deposited. b. Production Credits- *same* with maturities of not more than 360 days *same* and resulting from transactions related to the production or processing of agricultural, animal, mineral or industrial products. Must be secured by: 1. A pledge of the crops or products or 2. A lien or mortgage on real prop, 70% of the appraised value of which equals or exceeds the amount of the loan granted. c. Other credits- credit instruments not rediscountable under a and b may be rediscounted in accordance with BSP rules and regulations.

d.

- when necessary, BSP may provide funds from noninflationary sources; MB shall prescribes for additional safeguards for the same. Advances- BSP may grant advances against the following for fixed periods not exceeding 180 days except number 4 (360 days): 1. Gold coins or bullions 2. Securities representing obligations of the BSP or of other domestic institutions of recognized solvency 3. Commercial credits 4. Production credits 5. Utilized portions of advances in current amount covered by regular overdraft agreements related to commercial and production credits, and certified as to the amount and liquidity by the institution soliciting the advance 6. Negotiable treasury bills, cert of indebtedness, notes and other negotiable obligations of the Govt maturing within 3 yrs from the date of the advance 7. Negotiable bonds issued by the Govt and its subdivisions and instrumentalities having maturities of not more tan 10 years from the date of the advance

Notes: (i)

The rediscounts, discounts, loans and advances made in accordance with the above provisions may not be renewed or extended unless extraordinary circumstances fully justify such renewal or extension. (ii) Advances made against the collateral in 6 and 7 may not exceed 80% of the current market value of the collateral C. Loans for Liquidity Purposes -BSP may extend loans and advances to banks for a period not exceeding 7 days without collateral to provide liquidity in times of need VIII. Emergency Loans and Advances A. Nature of Emergency Loans or Advances -intended to assist a bank with serious liquidity problems arising from causes beyond the control of the management. -discretion of MB -only a temporary remedial measure -must be on a fully secured basis B. When Granted a. Whole banking community is threatened with the financial crisis -national/local emergency or imminent financial panic -directly threatening the monetary and banking stability The MB (vote of 5 members) authorize the BSP to grant the same. While such loans are outstanding, the debtor cannot expand the total volume of its loan or investments without authorization from the MB b. Bank with uncertain financial condition but is not insolvent -MB may authorize the BSP to extend such loans even during normal times to assist a bank in a precarious financial condition brought by unforeseen events or though foreseeable, cannot be prevented. -MB must first ascertain that the bank is not insolvent and has assets to secure the advances. -5 votes of MB members must concur C. Limits -amount o loan must not exceed 50% of total deposits or deposit substitutes of a bank -shall be disbursed in 2 or more tranches D. First Tranche 1. Limited to 25% of the total deposits or deposit substitutes

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-secured by govt securities and other unencumbered first class collaterals the MB may approve 2. If MB determined that the emergency warrant a greater loan, it may exceed 25% -must be secured by govt securities and other unencumbered first class collaterals the MB may approve. -principal stockholders must furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator appointed by MB 3. Prior to the release of the first tranche, the bank must submit to the BSP a resolution by its board authorizing the BSP to evaluate their assets certified by an external auditor to be good and available for collateral purposes. E. Second Tranche -vote of 5 MB members may authorize the release of a second tranche on condition that the principal stockholders of the institution: 1. Furnish the undertaking the same as in number 2 above 2. Provide acceptable security adequate (in the opinion of the MB) to supplement the assets tendered by the bank to collateralize the subsequent tranche. F. Shares as Collateral Section 128. Prohibitions. — The Bangko Sentral shall not 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. The Bangko Sentral shall not engage in development banking or financing: Provided, however, That outstanding loans obtained or extended for development financing shall not be affected by the prohibition of this section. -This provision shall not be applicable to acceptance as collateral of shares and their acquisition as a result f foreclosure proceeding. If the BSP acquired any of such shares, such shall be disposed in a public bidding within one year from the date of consolidation of title by the BSP. G. Overdraft -shall be eliminated within 5 consecutive banking days IX. Credit Terms A. Interest and Rediscount -The BSP shall collect interest and other charges on loans it extends notwithstanding the closure, receivership or liquidation of the bank. This shall apply prospectively. -The MB shall fix the interest and rediscount rates (applied uniformly to banks of the same category) B. Endorsement -the documents rediscounted, discounted, bought or accepted as collateral by the BSP shall bear the endorsement of the bank. C. Repayment of Credits a. The collaterals must be withdrawn by the bank on maturity date or upon the liquidation of the obligation which they represent b. Banks have the right to withdraw such collaterals upon payment of the debt and its interest D. Other Requirements -MB may prescribe additional requirements to obtain loan from the BSP. E. Provisional Advances to the National Government -may be made with or without interest by the BSP to finance expenditures authorized in its annual operations. Provided that the advances be: 1. repaid within 3 months (may be extended up to the same period if allowed by the MB) from the date such advances are received by the National Govt 2. shall not, aggregately, exceed 20 % of the average annual income of the borrower for the last 3 preceding years. F. Prohibitions

Section 128, supra Open Market Operations For The Account Of The Bangko Sentral A. Principles of Open Market Operations -made exclusively in accordance with the objective of achieving price stability B. Purchases and Sales of Government Securities -BSP may purchase and sell in open market: a. evidences of indebtedness issued directly by the Govt and its subdivisions b. evidences of indebtedness issued by govt instrumentalities and guaranteed by the Govt -such evidences must be freely negotiable, regularly serviced, available to the public in denominations of thousand pesos or more. C. Issue and Negotiation of the BSP Obligations -BSP may issue, place, buy and sell freely negotiable evidences of indebtedness of the Bangko Sentral - issuance of such certificates of indebtedness shall be made only in cases of extraordinary movement in price levels. -MB may determine the interest rates, maturities and other characteristics of said obligations of the BSP and may denominate the obligations in gold or foreign currencies. -acquired by the BSP through purchases or redemptions. -shall not be included among its assets, and shall be immediately retired and cancelled. XI. Composition of the BSP’s Portfolio Review of the BSP’s Portfolio -by the MB in relation to its future credit policy -shall consider whether a sufficiently large part of the portfolio consists of assets with early maturities, in order that a contraction in BSP credit may be effected promptly whenever the national monetary policy so requires XII. Bank Reserves A. Reserve Requirements -banks are required to maintain reserves against their deposit liabilities -MB may also require all banks and/or quasi-banks to maintain reserves against funds held in trust and liabilities for deposit substitutes -proportional to the volume of its deposit liabilities and shall ordinarily take the form of a deposit in the BSP - Reserves against deposit substitutes shall be determined in the same manner as provided for reserve requirements against regular bank deposits -MB may exempt from the reserve requirements those with remaining maturities of 2 yrs or more and interbank borrowings -Maintenance of bank reserves is for the purpose of controlling the volume of money -BSP shall not pay interest unless required by the MB B. Definition of Deposit Substitutes Section 95. Definition of Deposit Substitutes. — The term "deposit substitutes" is defined as 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. The Monetary Board shall determine what specific instruments 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 X.

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C. D. E. F.

G.

H.

I.

J.

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. Required Reserves Against Peso Deposit -fixed by MB -may alter the minimum reserve ratios Required Reserves Against Foreign Currency Deposits -fixed by MB Reserves against Unused Balances of Overdraft Lines -MB may establish minimum reserve requirements Increase in Reserve Requirements -increase must be gradual -shall not exceed four percentage points in any thirty-day period -banks shall be notified in advance as to when it will take effect Computation on Reserves - calculated daily on the basis of the amount of the institution's reserves and the amount of its liability accounts against which reserves are required to be maintained -holidays or non-banking days: the reserve position of the day immediately preceding the same shall apply -principal office + branches + agencies =SINGLE UNIT Reserve Deficiencies -if reserve position is below the minimum required: shall pay the Bangko Sentral one-tenth of one percent (1/10 of 1%) per day on the amount of the deficiency or the prevailing ninety-one-day treasury bill rate plus three percentage points, whichever is higher. -excess may offset deficiencies (of the same week) -MB may deny such privilege in case of abuse -if a bank chronically has a reserve deficiency, MB may limit or prohibit the making of new loans or investments and may require the net profits be assigned to surplus - MB may modify or set aside the reserve deficiency penalties provided in this section, for part or the entire period of a strike or lockout affecting a bank or a quasi-bank or of a national emergency affecting operations of banks or quasibanks. The MB may also modify or set aside reserved deficiency penalties for rehabilitation program of a bank. Interbank Settlement -BSP shall establish facilities for interbank clearing under prescribed rules and regulations of the MB. BSP may charge fees. -Deposit reserves- basis for check clearing and settlement of interbank balances - any bank which incurs on overdrawing in its deposit account with the Bangko Sentral shall fully cover said overdraft, including interest thereon at a rate equivalent to one-tenth of one percent (1/10 of 1%) per day or the prevailing ninety-one-day treasury bill rate plus three percentage points, whichever is higher, not later than the next clearing day. - settlement of clearing balances shall not be effected for any account which continues to be overdrawn for five (5) consecutive banking days until such time as the overdrawing is fully covered or otherwise converted into an emergency loan or advance. -the appropriate clearing office shall be officially notified of banks with overdrawn balances. Exemption from attachment -deposits maintained by banks with the BSP as part of their reserve requirements shall be exempted to satisfy a claim of any party except the Government, its subdivisions and instrumentalities.

XIII. Selective Regulation of Bank Operations [just for now] Section 104. Guiding Principle. — The Monetary Board shall use the powers 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 for speculative purposes prejudicial to the national interests. Regulations on bank operations shall be applied to all banks of the same category uniformly and without discrimination. Section 105. Margin Requirements Against Letters of Credit. — The Monetary Board may at any time prescribe minimum cash margins for the opening of letters of credit, and may relate the size of the required margin to the nature of the transaction to be financed. Section 106. Required Security Against Bank Loans. — In order to promote liquidity and solvency of the banking system, the Monetary Board may issue such regulations as it may deem necessary with respect to the maximum permissible maturities of the loans and investments which the banks may make, and the kind and amount of security to be required against the various types of credit operations of the banks. Section 107. Portfolio Ceilings. — Whenever the Monetary Board considers it advisable to prevent or check an expansion of bank credit, the Board may place an upper limit on the amount of loans and investments which the banks may hold, or may place a limit on the rate of increase of such assets within specified periods of time. The Monetary Board may apply such limits to the loans and investments of each bank or to specific categories thereof. In no case shall the Monetary Board establish limits which are below the value of the loans or investments of the banks on the date on which they are notified of such restrictions. The restrictions shall be applied to all banks uniformly and without discrimination. Section 108. Minimum Capital Ratios. — The Monetary Board may prescribe minimum ratios which the capital and surplus of the banks must bear to the volume of their assets, or to specific categories thereof, and may alter said ratios whenever it deems necessary. ARTICLE IX COORDINATION OF CREDIT POLICIES BY GOVERNMENT INSTITUTIONS Section 109. Coordination of Credit Policies. — Government-owned corporations which perform banking or credit functions shall coordinate their general credit policies with those of the Monetary Board. Toward this end, the Monetary Board may, whenever it deems it expedient, make suggestions or recommendations to such corporations for the more effective coordination of their policies with those of the Bangko Sentral. CHAPTER V FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OF THE GOVERNMENT ARTICLE I - FUNCTIONS AS BANKER OF THE GOVERNMENT Section 110. Designation of Bangko Sentral as Banker of the Government. — The Bangko Sentral shall act as a banker of the Government, its political subdivisions and instrumentalities. Section 111. Representation with the International Monetary Fund. — The Bangko Sentral 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. Section 112. Representation with Other Financial Institutions. — The Bangko Sentral 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

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financial institutions or agencies. The President may, however, designate any of his other financial advisors to jointly represent the Government in such dealings, negotiations or transactions. Section 113. Official Deposits. — The Bangko Sentral shall be the official depository of the Government, its political subdivisions and instrumentalities as well as of government-owned or controlled corporations and, as a general policy, their cash balances should be deposited with the Bangko Sentral, 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 designate, subject to such rules and regulations as the Board may prescribe: Provided, That such banks may hold deposits of the political subdivisions and instrumentalities of the Government beyond their minimum working balances whenever such subdivisions or instrumentalities have outstanding loans with said banks. The Bangko Sentral may pay interest on deposits of the Government or of its political subdivisions and instrumentalities, as well as on deposits of banks with the Bangko Sentral. Section 114. Fiscal Operations. — The Bangko Sentral shall open a general cash account for the Treasurer of the Philippines, in which the liquid funds of the Government shall be deposited. Transfers of funds from this account to other accounts shall be made only upon order of the Treasurer of the Philippines. Section 115. Other Banks as Agents of the Bangko Sentral. — In the performance of its functions as fiscal agent, the Bangko Sentral may engage the services of other governmentowned and controlled banks and of other domestic banks for operations in localities at home or abroad in which the Bangko Sentral does not have offices or agencies adequately equipped to perform said operations: Provided, however, That for fiscal operations in foreign countries, the Bangko Sentral may engage the services of foreign banking and financial institutions. Section 116. Remuneration for Services. — The Bangko Sentral may charge equitable rates, commissions or fees for services which it renders to the Government, its political subdivisions and instrumentalities. ARTICLE II THE MARKETING AND STABILIZATION OF SECURITIES FOR THE ACCOUNT OF THE GOVERNMENT A. THE ISSUE AND PLACING OF GOVERNMENT SECURITIES Section 117. Issue of Government Obligations. — The issue of securities representing obligations of the Government, its political subdivisions or instrumentalities, may be made through the Bangko Sentral, which may act as agent of, and for the account of, the Government or its respective subdivisions or instrumentality, as the case may be: Provided, however, That the Bangko Sentral shall not guarantee the placement of said securities, and shall not subscribe to their issue except to replace its maturing holdings of securities with the same type as the maturing securities. Section 118. Methods of Placing Government Securities. — The Bangko Sentral may place the securities to which the preceding section refers through direct sale to financial institutions and the public. The Bangko Sentral shall not be a member of any stock exchange or syndicate, but may intervene therein for the sole purpose of regulating their operations in the placing of government securities. The Government, or its political subdivisions or instrumentalities, shall reimburse the Bangko Sentral for the expenses incurred in the placing of the aforesaid securities. Section 119. Servicing and Redemption of the Public Debt. — The servicing and redemption of the public debt shall also be effected through the Bangko Sentral. B. BANGKO SENTRAL SUPPORT OF THE GOVERNMENT SECURITIES MARKET

Section 120. The Securities Stabilization Fund. — There shall be established a "Securities Stabilization Fund" which shall be administered by the Bangko Sentral for the account of the Government. chan robles virtual law library The operations of the Securities Stabilization Fund shall consist of purchases and sales, in the open market, of bonds and other evidences of indebtedness issued or fully guaranteed by the Government. The purpose of these operations shall be to increase the liquidity and stabilize the value of said securities in order thereby to promote investment in government obligations. The Monetary Board shall use the resources of the Fund to prevent, or moderate, sharp fluctuations in the quotations of said government obligations, but shall not endeavor to alter movements of the market resulting from basic changes in the pattern or level of interest rates. The Monetary Board shall issue such regulations as may be necessary to implement the provisions of this section. Section 121. Resources of the Securities Stabilization Fund. — Subject to Section 132 of this Act, the resources of the Securities Stabilization Fund shall come from the balance of the fund as held by the Central Bank under Republic Act No. 265 as of the effective date of this Act. Section 122. Profits and Losses of the Fund. — The Securities Stabilization Fund shall retain net profits which it may make on its operations, regardless of whether said profits arise from capital gains or from interest earnings. The Fund shall correspondingly bear any net losses which it may incur. ARTICLE III FUNCTIONS AS FINANCIAL ADVISOR OF THE GOVERNMENT Section 123. Financial Advice on Official Credit Operations. — Before undertaking any credit operation abroad, the Government, through the Secretary of Finance, shall request the opinion, in writing, of the Monetary Board on the monetary implications of the contemplated action. Such opinions must similarly be requested by all political subdivisions and instrumentalities of the Government before any credit operation abroad is undertaken by them. The opinion of the Monetary Board shall be based on the gold and foreign exchange resources and obligations of the nation and on the effects of the proposed operation on the balance of payments and on monetary aggregates. Whenever the Government, or any of its political subdivisions or instrumentalities, contemplates borrowing within the Philippines, the prior opinion of the Monetary Board shall likewise be requested in order that the Board may render an opinion on the probable effects of the proposed operation on monetary aggregates, the price level, and the balance of payments. Section 124. Representation on the National Economic and Development Authority. — In order to assure effective coordination between the economic, financial and fiscal policies of the Government and the monetary, credit and exchange policies of the Bangko Sentral, the Deputy Governor designated by the Governor of the Bangko Sentral shall be an ex officio member of the National Economic and Development Authority Board. CHAPTER VI PRIVILEGES AND PROHIBITIONS ARTICLE I PRIVILEGES Section 125. Tax Exemptions. — The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and assessments.

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The exemption authorized in the preceding paragraph of this section shall apply to all property of the Bangko Sentral, to the resources, receipts, expenditures, profits and income of the Bangko Sentral, as well as to all contracts, deeds, documents and transactions related to the conduct of the business of the Bangko Sentral: Provided, however, That said exemptions shall apply only to such taxes, fees, charges and assessments for which the Bangko Sentral itself would otherwise be liable, and shall not apply to taxes, fees, charges, or assessments payable by persons or other entities doing business with the Bangko Sentral: Provided, further, That foreign loans and other obligations of the Bangko Sentral shall be exempt, both as to principal and interest, from any and all taxes if the payment of such taxes has been assumed by the Bangko Sentral. Section 126. Exemption from Customs Duties. — The provision of any general or special law to the contrary notwithstanding, the importation and exportation by the Bangko Sentral of notes and coins, and of gold and other metals to be used for purposes authorized under this Act, and the importation of all 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. Section 127. Applicability of the Civil Service Law. — Appointments in the Bangko Sentral, except as to those which are policy-determining, primarily confidential or highly technical in nature, shall be made only according to the Civil Service Law and regulations: Provided, That no qualification requirements for positions in the Bangko Sentral shall be imposed other than those set by the Monetary Board: Provided, further, That, the Monetary Board or Governor, in accordance with Sections 15(c) and 17(d) of this Act, respectively, may without need of obtaining prior approval from any other government agency, appoint personnel in the Bangko Sentral whose services are deemed necessary in order not to unduly disrupt the operations of the Bangko Sentral. Officers and employees of the Bangko Sentral, including all members of the Monetary Board, shall not engage directly or indirectly in partisan activities or take part in any election except to vote. ARTICLE II PROHIBITIONS Section 128. Prohibitions. — The Bangko Sentral shall not 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. The Bangko Sentral shall not engage in development banking or financing: Provided, however, That outstanding loans obtained or extended for development financing shall not be affected by the prohibition of this section.

Chapter 9 (incomplete)

F. Rights of the Entruster 1.

The Entruster shall be entitled:  To the proceed of the sale of GDI  To the return of the GDI incase of non-sale\  To the enforcemet of all rights conferred on him in the trust receipt provided such are not contrary to law

2.

The Entruster may cancel the trust and take possession of the GDI OR of the proceeds at any time upon default or failure to comply with the terms and conditions or

agreement, and  Give notice to the Entrustee on or after default of the intention to SELL and may, NOT LESS THAN 5 DAYS, after serving such, sell the GDI at a PUBLIC or PRIVATE SALE. The Entruster may be the purchaser.  Notice of Sale shall be deemed sufficient if given in writing and either: ■ served personally to the entrustee, or ■ sent by post-paid ordinary mail to the the entrustee's last known bsiness address



The proceeds of such sales shall be applied: ■ To the payment of the expenses thereof ■ To the payment of the expenses of re-taking, keeping and storing the GDI ■ To the satisfaction of the entrustee's indebtedness to the entruster  The Entrustee shall receive any surpus but shall be liable for any deficiency to the Entruster

G. Entruster NOT Responsible on Sale by Entrustee The Entruster, holding security interest or has given the entrustee the liberty to sell or dispose of the GDI, is NOT responsible as a principal or as a vendor in a sale or contract to sell made by the entrustee. H. Obligations of the Entrustee The entrustee shall: 1. Hold the GDI and shall dispose of them in accordance with the terms and conditions of the trust receipt; 2. Receive the proceeds in trust for the entruster and turnover the same to the entruster to the extent of the amount owing the entruster or as appears on the trust receipt; 3. Insure the GOODS for their total value against loss from fire, theft, pilferage, or other casualties; 4. Keep said goods adn proceeds thereof whether in money or whatever form, separate and capable of identification as property of the entruster; and 5. Observe all other terms and conditions of the trust receipt not contrary to the provisions of the law. I. Liability of Entrustee for Loss  Risk of Loss shall be borne by the Entrustee.  The loss of the GDI pending their disposition, whether or not the entrustee is at fault or negligent, it shall NOT extinguish his obligation to teh entruster for the value thereof J. Rights of the Purchaser for Value and Good Faith  If the entrustee has the right to sell then a purchaser of value and good faith acquires the GDI free from the entruster's security interest K. Validity of Entruster's Security Interest as Against Creditors  The Entruster's security interest in GDI pursuant to the written terms of a trust receipt shall be VALID against all creditors of the Entrustee for the duratioon fo the trust receipt agreement L. Violation of the Trust Receipts Law (Malum Prohibitum--intent is immaterial)  When the Entrustee fails to:  turn over the proceeds of the sale of the goods

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   

return the goods covered by the trust receipt if the goods are not sold

Failure to account, upon demand, for the goods received in trust is evidence of conversion or misappropriation--constitutes estafa. The Trust Receipts Law punishes dishonesty and abuse of confidence in handling of money or goods to the prejudice of pubic order. Mere failure to deliver the proceeds or return the goods constitutes a criminal offense the causes prejudice not only to the creditors, but to the public interest.

M. Penalty  Punished under Art. 315 par. 1 (b) of the RPC or RA 3815  If vilaotion is committed by corporations, partnerships, associations, or other juridical entities, penalty shall be imposed on the directors, officers, employees,or other officials or persons therein responsible for the offense, w/o prejudice to the civil liabilities  Reason: Corporation and other juridical entities CANNOT be put into jail. But they are LIABLE for the civil liabilities because of the clause, "w/o prejudice to the civil liabilities."

(iv)

(v) (vi) (vii)

C. Refund and Credit PDIC may: 1. refund to an IB any payment of assessment in excess of the amount due 2. credit such excess toward the payment of the assessment next becoming due from such bank and upon succeeding assessments until the credit is exhausted. D. Termination

Chapter 10 (incomplete)

-

G. Duty to Indicate Insurance on Deposits

-

All banks shall indicate the coverage of the PDIC in each passbook, CTD and/or cover of checkbook for demand deposit/NOW accounts stating, inter alia, the maximum amount of insurance. VI. Assessment A. Assessment Rate -

shall be determined by the Board of Directors shall not exceed 1/5 of 1% per annum; semi-assessment rate for each insured bank shall be in the amount of the product of ½ the assessment rate multiplied by the assessment base but in no case shall it be less than P250. the assessment base shall be the amount of the liability of he bank for deposits without any deduction for indebtedness of depositors.

B. Certified Statement of Assessment Base and Assessment Due (i)

(ii)

(iii)

On or before July 31 of each year, each insured bank shall file with the Corp. a certified statement showing for the 6 months ending on the preceding June 30 the amount of the assessment base and the amount of the semiannual assessment due to PDIC for the period ending on the following Dec. 31, determined in accordance with (a) above which shall contain or be verified by a written declaration that it is made under the penalties of perjury. On or before Jan. 31 of each year, each insured bank shall file with the PDIC a similar certified statement for the 6 months ending on the preceding Dec. 31 and shall pay the amount of the semiannual assessment for the period ending in the following June 30 which it is required to certify. Each bank which becomes an insured bank shall not be required to file any certified statement for the semiannual period in which it becomes as insured bank.

On the expiration of such period, each such bank shall comply with (b) above except that the semiannual assessment base for its first certified statement shall be the assessment base of the bank as of the close of business on the preceding June 30 or Dec. 31, whichever is applicable, determined in accordance with (a) above. If such bank has assumed the liabilities for deposits of another bank or banks, it shall include such liabilities in its assessment base. The assessment payments required from the insured banks shall be made in such manner as the Board shall prescribe, provided it shall not be later than 60 days after filing the certified statement setting forth the amount of assessment. Any insured bank which fails to pay any certified statement may be compelled to do so by mandatory injunction or other appropriate remedy .

PDIC shall not terminate the insured status of any bank which continues to operate or receive deposits Should any IB fail or refuse to pay any assessment required, and should not correct such failure of refusal within 30 days after written notice has been given to an officer of the bank, and stating that the bank has failed or refused to pay, PDIC may, at its discretion, file a case for collection without prejudice to the imposition of administrative sanctions

E. Trust Funds -

means funds held by an insured bank in a fiduciary capacity and includes, without being limited to, funds held as trustee, executor, administrator, guardian, or agent shall be insured like other forms of deposits, in an amount not to exceed P10,000 for each trust estate, and when deposited by the fiduciary bank in another IB, such funds shall be similarly insured to the FB according to the trust estates represented the amount so held by other IBs on deposit shall not for the purpose of any certified statement be considered to be a deposit liability of the FB, but shall be considered to be a deposit liability of the IB

F. Payment of Dividends and/or Interests -

no insured bank shall pay any dividend on its capital stock or interest on its capital notes or debentures or distribute any of its capital assets while it remains in default in the payment of any assessment due if such default is due to a dispute between the insured bank and PDIC over the amount of such assessment, this rule shall not apply if such bank shall deposit security satisfactory to PDIC for payment upon final determination of the issue

VII. Deposit Insurance Fund -

the permanent insurance fund shall be P3 billion the DIF shall be the capital account of PDIC and shall principally consist of the ff: a. the PIF b. assessment collections, subject to the charges

37 | P a g e

-

-

-

-

c. reserves for insurance and financial assistance losses d. retained earnings PDIC may, within 2 years from the passage of the PDIC Law, and every 5 years thereafter, conduct a study on the need to adjust the amount of the PIF, insurance cover, assessment rate and assessment base, and thereafter make the necessary recommendation to Congress All assessment collections and income from operations after expenses and charges shall be added to the DIF. Such expenses and charges are: a. the operating costs and expenses of the Corp. for the calendar year b. additions to reserve to provide for insurance and financial assistance losses, net of recoverable amounts from applicable assets and collaterals, during the calendar year c. the net insurance and financial assistance losses sustained in said calendar year In a suit, PDIC is entitled to recover from any insured bank the amount of any unpaid assessment lawfully payable by such insured bank, whether or not such bank shall have filed any such certified statement and whether or not suit shall have been brought to compel the bank to file any such statement No action or proceeding shall be brought for recovery of any assessment due of for the recovery of any amount paid in excess of the amount due, unless it has been brought within 5 years after the right accrued for which the claim is made

X. Prohibitions on PDIC Personnel -

-

-

if no such action is taken within 45 days from submission of the report, the BoD shall motu proprio institute corrective action which it deems necessary (BoD may issue a cease-and-desist order, and require the bank or its directors or agents concerned to correct the practices or violations within 45 days) if the practice or violation is likely to cause insolvency or substantial dissipation of assets or earnings of the bank, or is likely to seriously weaken the condition of the bank or otherwise seriously prejudice the interests of its depositors and the Corp., the period to take corrective action shall not be more than 15 days. The order may also include the imposition of fines

What may be violated: 1. 2. 3.

any provision of the PDIC Law any order, rule or instruction issued by PDIC any written condition imposed in connection with any transaction with or granted by PDIC

IX. Reports by Insured Banks -

each IB shall make to PDIC reports of conditions in such form and at such times as the BoD may require such reports to be published in such manner not inconsistent with any applicable law as it may direct PDIC shall have access to reports of examination made by, and report of conditions made to the BSP or its appropriate supervising dept., and the BSP shall also have access to such reports made by and to PDIC Each IB shall keep and maintain a true and accurate record or statement of its daily deposit transactions consistent with the standards set by the BSP and PDIC

revealing in any manner, except as provided by law or under court order, information relating to the condition or business of any bank  shall not apply to the giving of information to the BoD, the President of the Corp., Congress, any agency of govt. authorized by law, or to any person authorized by either of them in writing to receive such information

XI. Legal Assistance

-

-

VIII. Unsound Practice In case of commission of unsafe or unsound practices by an IB or its officers, the Board of Directors shall: submit the report of the examination to the MB to secure corrective action thereon

being an officer, director, consultant, employee or stockholder, directly or indirectly, of any bank or banking institution except as otherwise provided by law receiving any gift or thing of value from any officer, director, or employee of any bank

PDIC shall underwrite or advance litigation costs and expenses, or provide legal assistance to its directors, officers, employees, or agents in connection with any civil, criminal, administrative, or any other action to which such director etc. is made a party by reason of or in connection with the exercise of authority or performance of functions and duties  does not apply against actions initiated by PDIC against such director etc. Applies also to those who resigned, retired, or transferred to another agency, in connection with acts done during their tenure or employment with PDIC

XII. Dealings by PDIC Personnel with Banks A. Designation as Directors and Officers of Banks Members of the BoD and personnel of PDIC may become directors and officers of any bank or banking institution and of any entity related to such institution in connection with financial assistance extended by PDIC to such institution and when, in the opinion of the Board, it is appropriate to make such designation to protect the interest of PDIC. B. Borrowing from Banks -

shall be prohibited only with respect to the particular institution in which they are assigned, or are conducting an examination

-

personnel are likewise prohibited from borrowing from any bank or banking institution during the time that a transaction of such institution with PDIC is being evaluated, processed, or acted upon by such personnel XIII. Receivership A. Appointment -

whenever it shall be appropriate for the MB of the BSP to appoint a receiver of any banking institution pursuant to existing laws, the MB shall give prior notice and appoint PDIC as receiver “receiver” includes a receiver, commission, person, or other agency charged by law with the duty to take charge of the assets and liabilities of a bank which has been forbidden fro doing business in the Phil, as well as the duty to gather, preserve and administer such assets and liabilities for the benefit of the depositors and creditors of dais bank, and to continue into liquidation whenever authorized under the law, and to dispose of the assets and to wind up the affairs of such bank

B. Powers

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•

As receiver, it shall control, manage and administer the affairs of the closed bank. Effective immediately upon takeover as receiver of such bank: -

-

2.

the powers, functions and duties, as well as all allowances, remunerations, and perquisites of the directors, officers, and stockholders of such bank are suspended the relevant provisions of the Articles of Incorporation and By-laws of the closed bank are likewise suspended the assets shall be deemed in custodia legis in the hands of the receiver from the time the bank is placed under receivership, its assets shall not be subject to attachment, garnishment, execution, levy or any other court processes

After payment of all liabilities and claims against closed bank, PDIC shall pay any surplus dividends at the legal rate of interest from the date of takeover to the date of distribution, to creditors and claimants in accordance with legal priority before distribution to the shareholders.

XIV. Payment of Insured Deposits A. Manner of Payment 1.

In addition to the powers of a receiver pursuant to existing laws, PDIC is empowered to: 1. 2. 3. 4. 5. 6. 7.

8.

9.

bring suit to enforce liabilities to or recoveries of the closed bank appoint and hire persons and entities of recognized competence in banking or finance as its deputies and assistants, to perform such powers and functions of PDIC as receiver and liquidator of the closed bank suspend or terminate the employment of officers and employees of the bank  payment of separation pay or benefits shall be made only after the bank has been placed under liquidation pay accrued utilities, rentals and salaries of personnel of the bank for a period not exceeding 3 months from available funds of the bank collect loans and other claims of the bank, and for the purpose, modify, compromise or restructure the terms and conditions of such loans or claims as ma be deemed advantageous to the interest of the creditors and claimants of the bank hire or retain private counsels as ma be necessary borrow or obtain a loan, or mortgage, pledge, or encumber any asset of the bank, when necessary to preserve or prevent dissipation of the assets, or to redeem foreclosed assets of the closed bank, or to minimize losses to the depositors and creditors if the stipulated interest on deposits is unusually high compared with the prevailing applicable interest rate, PDIC as receiver may exercise such powers which may include a reduction of the interest rate to a reasonable rate. Any modification or reduction shall apply only to unpaid interest exercise such other powers as are inherent and necessary for the effective discharge of the duties of PDIC as receiver

C. Suits filed by PDIC (i) (ii)

In all cases filed by PDIC as receiver for the recovery of or involving any asset of the closed bank, payment of all docket and other court fees shall be deferred until the action is terminated with finality. Any such fees shall constitute as a first lien on any judgment in favor of the closed bank or in case of unfavorable judgment, such fees shall be paid as administrative expenses during the distribution of the assets of the closed bank.

B.

D. Distribution of Assets 1. Before any distribution of assets of the closed bank, PDIC shall charge against such assets: •

Reasonable receivership expenses (subject to approval of court)

Reasonable liquidation expenses

C.

Whenever an insured bank shall have been closed by the Monetary Board, payment of the insured deposits on such closed banks shall be made by the PDIC by: i.

Cash

ii.

Transferred deposit

2.

Transfer deposit – deposit in an insured bank made available to a depositor by PDIC as payment of insured deposit of such depositor in a closed bank. Not to exceed two hundred fifty thousand (250,000)

3.

A joint account shall be insured separately from any individually owned deposit account.

4.

Maximum insured deposits of Joint accounts shall be divided into as many equal shares as there are co-owners, unless a different sharing is stipulated in the document of deposit.

5.

If an account is held by a juridical person jointly with an individual, it is presumed that the maximum insured deposit belongs to the juridical person.

6.

The aggregate of the interests of each co-owner over several joint accounts shall likewise not exceed 250,000

7.

No owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the rights provided unless his name is registered in the books of the issuing bank.

Proof of Claims 1.

PDIC may require proof of claims to be filed before paying the insured deposits.

2.

It may require final determination by the courts if not satisfied to the viability of the claim.

Settlement Period and Penalties in Case of Failure to Settle

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D.

1.

Failure to settle claim within six months from the date of filing claim due to grave abuse of discretion, gross negligence, bad faith, or malice shall subject the directors, employees, or officers of PDIC Responsible for the delay to imprisonment from six months to one year.

2.

Period shall not apply if the validity of the claim depends on resolution of issues of fact or law by another office.

3.

Upon payment to such depositor, PDIC shall be subrogated to all of the rights of the depositor to the extent of such payment.

4.

Such subrogation shall include the right to receive the same dividends from the proceeds of the assets of the closed bank. But such depositor shall retain his claim for any uninsured portion of his deposit.

•

All rights of the depositor subrogated to PDIC shall thereupon revert back to the depositor. PDIC shall be discharged from any liability. XV. Investment by PDIC A. Money of the PDIC not otherwise employed shall be invested in obligations of the Republic of the Philippines or by obligations guaranteed by it.

Notice 1.

PDIC shall commence the determination of insured deposits due to depositors of the closed bank upon its actual takeover of the closed bank.

2.

PDIC shall publish the notice once a week for at least 3 consecutive weeks in a newspaper of general circulation or newspaper circulated in the community where the closed bank or its branches are located.

E.

Discharge

F.

Payment of an insured deposit shall discharge PDIC. And payment of a transferred deposit by the new bank in which a transferred deposit has been made available shall discharge PDIC and the new bank. Recognition of Owner

G.

PDIC cannot recognize as the owner any person, whose name or interest as such owner is not disclosed on the records of a closed bank, as part owner of any portion of a deposit appearing on the records of the closed bank under a name other than that of the claimant. Withholding of Payment

H.

PDIC may withhold payment of such portions of the insured deposit of any depositor in a closed bank as may be required to provide for the payment of any liability of such depositor as a stockholder of the closed bank, or any liability of such depositor to the closed bank or to its receiver, which is not offset against a claim due from such bank, pending the determination and payment of such liability by such depositor or any other liable therefore. Prescription

Or does not enforce his claim within two years after the filing a claim Unless otherwise waived by PDIC.

B.

1.

It shall not sell or purchase any such obligation for its own account or in its own right and interest in any one time aggregating in excess of 100,000 without approval of the Insurance Commissioner.

2.

Insurance Commissioner may waive the requirement of his approval as he may determine.

The banking or checking account of PDIC shall be kept in:

1.

BSP

2.

PNB

3.

Any bank designated as fiscal agent or depository of RP

XVI. Extension of Loans A. In order to prevent an insured bank from closing, PDCI may make loans, purchase the assets, assume liability, or make deposits in such insured bank, upon such conditions as the Board of Directors may prescribe, the operations of such bank is essential to provide adequate banking service in the community or maintain financial stability in the economy. a.

b.

Such power may also be exercised in case of a closed insured bank if: i.

the resumption of the operations of said bank is vital to the interest of the community

ii.

Severe financial climate exists

Reopening of said bank is subject to the approval of the Monetary Board.

All rights of a depositor with respect to the insured deposit shall be barred if: B. •

He fails to file a claim within two years from actual take-over of the closed bank by the receiver.

PDIC may provide any corporation acquiring control of, merging or consolidating with or acquiring the assets of an insured bank in order to prevent such closing or of a closed insured bank in order to restore it to normal operation

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a.

Within 60 days from date of assistance, PDIC shall submit a report to MB

C.

PDIC shall determine the actual payoff and liquidation thereof will be more expensive than the exercise of its power prior to exercise of its powers.

D.

PDIC may grant financial assistance to insured banks, with systemic consequences with a probable failure or closure, as may be necessary to prevent its failure or closure. – subject to the approval of the Monetary Board. a.

“systemic risk” – possibility that failure of one bank to settle net transactions with other banks will trigger a chain reaction, depriving other banks of funds leading to a general shutdown of normal clearing and settlement activity. -

E.

F.

A.

PDIC shall annually make a report of its operations to the Congress as soon s practicable after Jan 1

B.

Financial transactions shall be audited by the COA in accordance with principles and processes and procedures applicable to commercial corporate transactions. Audit shall be conducted in places where the accounts of the corporation are normally kept.

C.

COA shall have access to all books, accounts, records, reports, files, and all other papers belonging to PDIC pertaining to its financial transactions. Except as to matters relating to the Function of the PDIC which shall be subject to visitorial audit only.

XX. Miscellaneous A. Signs

Likelihood of a sudden unexpected collapse of confidence in a significant portion of the banking or financial system with potentially large real economic effects.

PDIC may not purchase the voting or common stock of an insured bank but it can enter into or force agreements that it determines to be necessary to protect its financial interests.

B.

a.

Insured banks shall place signs in all place of business and in its statements that its deposits are insured by PDIC.

b.

BoD may exempt from this requirement advertisements not relating to deposits.

Merger or consolidation of insured banks Upon consent of PDIC, banks may:

Financial assistance may take the form of equity or quasi-equity of insured banks as may be deemed necessary by the Board of Directors with concurrence by the MB. The corporation shall dispose of such equity as soon as practicable.

XVII. Borrowings A. PDIC is authorized to borrow from the BSP on such terms as may be agreed by them. Such loans granted by the BSP shall be consistent with monetary policy, the interest rate thereon shall not exceed the treasury bill rate. B.

When in the Judgment of the Board of Directors, the PDIC has insufficient funds to attain its purpose, PDIC shall be authorized to borrow money, obtain loans, or arrange credit lines or other credit accommodations from any bank designated as depository or fiscal agent by the RP.

C.

XVII. Issuance of Bonds With approval of the President of RP, PDIC is authorized to issue bonds, debentures, and other obligations necessary fro the purpose of settlement of insured deposits in closed banks as well as for financial assistance. a. BoD shall determine interest rate and other requirements of such obligation. b.

PDIC shall provide appropriate reserves for the redemption of said obligation.

1.

Merge or consolidate with an uninsured bank

2.

Assume liability to pay any deposits made in noninsured bank

3.

Transfer assets to any noninsured bank

Protection Against Losses a.

PDIC may require an insured bank to provide protection and indemnity against burglary, defalcation, losses arising from discharge of duties, by particular acts of its directors, employees, officres

b.

BoD shall determine the bonding requirement referring to directors, officers, anfd employees of an insured bank

c.

If insured bank refuse to comply with any such requirement, PDIC may add the cost thereof to the assessment otherwise payable to such bank.

XIX. Reports and Audit D.

Directors, Officers and employees of Insured banks

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a.

No person shall be a director, officer, or employee of an insured bank who has been convicted of any criminal offense involving dishonesty of breach of trust.

b.

Penalty for violation of this prohibition: the bank will be subject to penalty of not more than 100 for every day of violation.

XXI. Criminal Penalties A. Punishable by prision mayor or a fine of 50,000-2,000,000,000 or both, any director, officer, employee or agent of bank who: 1.

Willful refusal to submit reports

2.

Unjustified refusal to permit examination and audit of records as required by law, rules, and regulations

3.

Willful making of false statement or entry in any bank report or document

4.

Submission of false material information in connection with or in relation to any financial assistance extended to the bank

5.

Splitting of deposits or creation of fictitious loans or deposit accounts i.

Splitting deposits – deposit accounts with an outstanding balance of more than the statutory maximum amount of insured deposit maintained under the name of a person is broken down and transferred into two or more accounts in the names of persons who have no beneficial ownership on transferred deposits in their names within 30 days preceding or during a bank declared holiday, or preceding a closure order issued by the MB for the purpose of availing of the maximum deposit insurance coverage.

6.

Refusal to allow PDIC to takeover a closed bank placed under its receivership

7.

Refusal to turnover or destroying or tampering bank records

8.

Fraudulent disposal , transfer or concealment of any asset, property, liability of the closed bank under the receivership of the PDIC

9.

A.

Chap 11 – Anti- Money Laundering ( RA 9160) I. CONCEPTS A.

B.

C.

D.

Violation, or causing a person to violate, the exemption of garnishment, levy attachment, or execution provided under the PDIC Law and the NCBA

10. Willful failure or refusal to comply with, or violation of any provision of eh PDIC Law, or commission of any other irregularities and/or conducting business in an unsafe or unsound manner. E. XXII. FINES

BOD is authorized to impose administrative fines for violation of any other instruction, rule, or regulation issued by PDIC, against a bank or any of its directors, officers, or agents responsible for such act, omission, or violation. In no case such fine exceed 3times the amount of the damages or costs caused by the transaction for each day that the violation subsist.

Policies i. To protect and preserve the integrity and confidentiality of bank accounts ii. Ensure that the Philippines shall not be used as a money laundering site for the proceeds of any unlawful activity. iii. Cooperation in transnational investigation and prosecution of persons involved in money laundering Covered Institutions i. Banks, non-banks, quasi-banks, trust entities ad all other institutions regulated by the BSP ii. Insurance companies and all other institutions regulated by the insurance commission iii. Securities, brokers, salesmen, investment house and other entities managing securities or service as agent, advisor, consultant iv. Mutual funds, closed-end investment company, common trust fund and preneed companies v. Foreign exchange corporations, money changers, money payments, remittance, and transfer companies vi. Those administering or dealing in currency, commodities, financial derivatives or other monetary instruments or property supervised by the SEC Covered and Suspicious transaction i. Transaction in cash or monetary instrument exceeding P500,000 in one banking day ii. Suspicious transactions regardless of the amount a. No legal or trade obligation, purpose or economic justification b. Client is not properly identified c. Amount is not commensurate with the client’s financial capacity d. Structured transactions to avoid being the subject of reporting required under the act e. Those which deviate from the profile of the client or past transactions f. Related to any unlawful activity or offense g. Any transaction that is similar to any of the foregoing Monetary instrument i. Coins/currency of legal tender of the Phil. Or any country ii. Drafts, checks and notes iii. Securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts, trading orders, transaction tickets, confirmation of sale money market instruments iv. Other similar instruments when title passes to another by endorsement, assignment or delivery Unlawful Activities i. Kidnapping for ransom under Art.267 of RPC

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ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. xiii. xiv. xv.

F.

Secs. 4-6, 8-10, 12-16 of the Dangerous Drugs Act of 2002 Sec.3 par b, c, e, g, h, I of the Anti-Graft and Corrupt Practices Act Plunder under RA 7080 Robbery and extortion under Arts. 294-296, 299-302 of the RPC Jueteng and Masiao under PD 1602 Piracy on high seas under RPC and PD 532 Qualified theft under Art.310 of RPC Swindling under Art.315 of RPC Smuggling under RA 455 and 1937 Violations of Electronic Commerce Act of 2000 Hijacking and other violations of RA 6235 Destructive arson and murder under RPC Fraudulent practices under Securities Regulation Code of 2000 Felonies or offenses of similar nature punishable under penal laws of other countries Money Laundering Offense- is a crime whereby the proceeds of an unlawful activity are transacted, thereby making them appear to have originated from legitimate sources. It can be committed by the ff: i. Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property ii. Any person knowing any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to above iii. Any person knowing that any monetary instrument or property is required to be disclosed and filed with the Anti-Money Laundering Council, fails to do so

v. vi. vii. viii. ix. x. xi. xii.

IV. Prevention of Money Laundering A.

II. Jurisdiction and Prosecution B. A.

B.

Jurisdiction i. Private persons- RTC ii. Public persons and private persons in conspiracy with the formerSandiganbayan Prosecution i. Any person may be charged of both money laundering and the unlawful activity ii. Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation w/o prejudice to the freezing and other remedies

C.

III. Anti-Money Laundering Council A.

B.

Composition i. Governor of he BSP as chairman ii. Commissioner of the Insurance Commission iii. Chairman of the SEC Functions i. Require and receive covered or suspicious transaction reports from covered institutions ii. Issue orders addressed to the supervising authority of the institution to determine the true owner of a covered or suspicious transaction report or request assistance on the basis of substantial evidence iii. Institute civil forfeiture proceedings through the OSG iv. Cause the filing of complaints with the DOJ or Ombudsman

Investigate suspicious and covered transactions Apply before the CA ex parte, for the freezing of any monetary instrument or property Implement measures as may be necessary to counteract money laundering Receive and take action any request of assistance from foreign states in their own anti-money laundering operations Develop educational programs on the effects, methods, and means to prevent money laundering Enlist assistance from government instrumentality for any anti-money laundering operation Impose administrative sanctions for violation of laws, rules, regulations and orders issued pursuant thereto Establish a secretariat a. Member of the Bar b. 35 years of age c. GMC d. Unquestionable integrity and known probity

D.

E.

Customer Identification i. Institutions shall establish and record the true identity of its clients based on office documents ii. Maintain a system of verifying the identity and legal existence of their clients iii. Anonymous, fictitious an similar accounts are prohibited iv. Peso and foreign currency non-checking accounts shall be allowed which will be subject to test by the BSP to determine the existence and identity of the owners Record Keeping i. Records of transactions shall be maintained and stored from 5 years from the date of transaction ii. For closed accounts, its records shall also be stored for 5 years from the date it was closed Reporting of Covered and Suspicious Transaction i. Shall be reported to AMLC within 5 working days from the occurrence thereof, unless supervising authority prescribes a longer period not exceeding 10 days ii. Should a transaction be determined a a covered and suspicious transaction, it shall be required to report the same iii. Such reporting shall not be considered as a violation of RA 1405, RA 6426, RA 8791, but are prohibited to communicate to any other person iv. In case of violation of the prohibition above, they shall be criminally liable v. Reporting to the AMLC is also prohibited to be disclosed to the media or any other person or entity Freezing of Monetary Instrument or Property i. To the CA, upon application ex parte by the AMLC and after determination that probable cause exists, may issue a freeze order ii. Such order shall be for 20 days unless extended by the Court Authority to inquire into bank deposits i. The AMLC may inquire upon order of any competent court when it has been established that: a. There is probable cause that the deposit or investment s related to any unlawful activity; or b. A money laundering offense

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ii.

No court order shall be required in the following activities a. Kidnapping for ransom b. Violations of Dangerous Drug Act of 2002 c. Hijacking and other violations of RA 6235 d. Destructive arson and murder including those perpetrated by terrorists

a. b.

E.

V. Forfeiture A. B.

C.

Civil forfeiture a. When there is a report made, and the Court, in a petition filed for the purpose of seizure, the Rules of Court on civil forfeiture applies Claim on Forfeiture Assets a. Those claiming an interest may apply, by verified petition, for a declaration that the seized instrument or property legitimately belongs to him and pray for the segregation and exclusion b. It shall be filed with the court which rendered the judgment of forfeiture within 15 days from the order of forfeiture Payment in lieu of forfeiture a. Is allowed because forfeiture cannot be enforced due to the ff: i. With due diligence, it cannot be located ii. Substantially altered, destroyed, diminished in value or rendered worthless by any act or omission attributable to the offender iii. Concealed, removed, converted or transferred to prevent from being found or avoid forfeiture iv. Located outside the Philippine or outside the jurisdiction of the court v. Commingled with other instrument or property rendering it difficult to be identified or segregated

F.

G.

When it contravenes the constitution Prejudicial to the interest of the Philippines i. Except: if there is a treaty between the Phil. And the requesting State relating to the provisions of assistance in money laundering offense Requirement for request from a foreign state a. Confirm that an investigation or prosecution is being conducted b. State the grounds on which any person is being investigated or prosecuted for c. Give sufficient particulars as to the identity of the person d. Give particulars sufficient to identify the institution believed to have any info e. Ask from the institution for any info which may be of assistance to the investigation or prosecution f. Specify the manner in which such info will be obtained or produced g. Give all the particulars necessary for the issuance by the court in the requested state of the orders needed by th requesting state h. Contain other info as may assist in the execution of the request Authentication of documents a. Signed or certified by a judge or equivalent officer in or of the requesting state b. Authenticated by the oath or affirmation of a witness or sealed with an official seal of a minister or secretary of the government of the requesting state c. By the secretary of embassy, consul general, consul or any officer in the foreign service of the Philippines stationed in the foreign state Extradition a. Negotiate for the inclusion of money laundering offenses among extraditable offenses

VII. Penalties VI. Mutual assistance among states A. A. B.

C.

D.

Request for assistance from a foreign state a. The AMLC may execute or refuse to execute such request and inform the state of any valid reason for not executing such request Powers of the AMLC to act on a request for assistance a. May execute a request by: i. Tracking down, freezing, restraining and seizing assets ii. Give information needed iii. Apply for an order of forfeiture b. Court will issue such order only when accompanied by: i. Authenticated copy of the order of a court in the requesting state ordering the forfeiture ii. Certification or affidavit of a competent officer of the requesting stat that the conviction and order of forfeiture are final Obtaining assistance from foreign state a. Tracking down, freezing, restraining and seizing assets b. Obtain info that it needs relating to covered transaction and money laundering offense c. Enter into the premises belonging to or in the possession of the persons named in the request, to the extent allowed by the law of the foreign state d. Apply for an order of forfeiture and must be accompanied by the order of the RTC and an affidavit of the Clerk of Court that the conviction and forfeiture are final Limitations on request

B. C.

Crime of money laundering a. Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property i. Imprisonment of 7 to 14 years and a fine not less than P3M b. Any person knowing any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to above i. 4-7 years and fin not less than P1.5M not more than P3M c. Any person knowing that any monetary instrument or property is required to be disclosed and filed with the Anti-Money Laundering Council, fails to do so i. 6m-4years or fine not less than P100,000 not more than P500,000, or both Failure to keep records a. 6m-1year or fine not less than P100,000 not more than P500,000, or both Malicious reporting a. Any person who, with malice or bad faith, reports a completely unwarranted or false info relative to money laundering i. 6m-4years and a fine not less than P100,000 not more than P500,000 ii. If corporation- upon the responsible officers iii. Juridical person- suspend or revoke its license iv. Alien- deportation

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•

v.

D.

Public official- perpetual or temporary absolute disqualification from office vi. Public official who refuses to testify- same penalties above Breach of Confidentiality a. 3-8years and fine P500,000- P1M b. If disclosed to media- reporter, writer, publisher, manager, editor

VIII. Prohibitions against political harassment A. shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce B. no case may be filed against and no assets shall be frozen or forfeited to the prejudice of a candidate for electoral office during election period

4.

Reasonable liquidation expenses

After payment of all liabilities and claims against closed bank, PDIC shall pay any surplus dividends at the legal rate of interest from the date of takeover to the date of distribution, to creditors and claimants in accordance with legal priority before distribution to the shareholders.

XIV. Payment of Insured Deposits I. Manner of Payment 1.

IX. Implementing rules and Regulations

Whenever an insured bank shall have been closed by the Monetary Board, payment of the insured deposits on such closed banks shall be made by the PDIC by:

A. The BSP, IC, and SEC shall promulgate rules to effectively implement this Act. These rules shall be submitted to the congressional oversight committee for approval. B. Covered institutions shall formulate their own prevention programs

i.

Cash

ii.

Transferred deposit

X. Congressional Oversight Committee A.

B.

Composition a. 7 members from the Senate and 7 members from the House of Representatives b. Shall be appointed by the Senate President and the Speaker, respectively, based on proportional representation of parties Powers a. Power to promulgate rules to overse the implementation of the law and to review and revise the rules issued by the AMLC within 30 days from promulgation

XI. Rules and Regulation for banks and non-financial institutions to combat money laundering 1. Take reasonable measures to establish and record the true identity and legal existence of their clients 2. in case of doubt, obtain the true identity of the persons on whose behalf an account is opened 3. anonymous or fictitious accounts should not be allowed 4. identity of clients should be updated 5. necessary records of transactions should be maintained 6. special attention should be given to complex, unusual large transactions and all unusual patterns of transaction 7. other suspicious transactions not involving deposit should be reported 8. Banks should avoid business with criminals 9. Programs against money laundering- employee training, audit function, development of internal policies.

J.

D. Distribution of Assets 3. Before any distribution of assets of the closed bank, PDIC shall charge against such assets: •

Reasonable receivership expenses (subject to approval of court)

K.

2.

Transfer deposit – deposit in an insured bank made available to a depositor by PDIC as payment of insured deposit of such depositor in a closed bank. Not to exceed two hundred fifty thousand (250,000)

3.

A joint account shall be insured separately from any individually owned deposit account.

4.

Maximum insured deposits of Joint accounts shall be divided into as many equal shares as there are co-owners, unless a different sharing is stipulated in the document of deposit.

5.

If an account is held by a juridical person jointly with an individual, it is presumed that the maximum insured deposit belongs to the juridical person.

6.

The aggregate of the interests of each co-owner over several joint accounts shall likewise not exceed 250,000

7.

No owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the rights provided unless his name is registered in the books of the issuing bank.

Proof of Claims 1.

PDIC may require proof of claims to be filed before paying the insured deposits.

2.

It may require final determination by the courts if not satisfied to the viability of the claim.

Settlement Period and Penalties in Case of Failure to Settle

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L.

1.

Failure to settle claim within six months from the date of filing claim due to grave abuse of discretion, gross negligence, bad faith, or malice shall subject the directors, employees, or officers of PDIC Responsible for the delay to imprisonment from six months to one year.

2.

Period shall not apply if the validity of the claim depends on resolution of issues of fact or law by another office.

3.

Upon payment to such depositor, PDIC shall be subrogated to all of the rights of the depositor to the extent of such payment.

4.

Such subrogation shall include the right to receive the same dividends from the proceeds of the assets of the closed bank. But such depositor shall retain his claim for any uninsured portion of his deposit.

•

All rights of the depositor subrogated to PDIC shall thereupon revert back to the depositor. PDIC shall be discharged from any liability. XV. Investment by PDIC C. Money of the PDIC not otherwise employed shall be invested in obligations of the Republic of the Philippines or by obligations guaranteed by it.

Notice 1.

PDIC shall commence the determination of insured deposits due to depositors of the closed bank upon its actual takeover of the closed bank.

2.

PDIC shall publish the notice once a week for at least 3 consecutive weeks in a newspaper of general circulation or newspaper circulated in the community where the closed bank or its branches are located.

M.

Discharge

N.

Payment of an insured deposit shall discharge PDIC. And payment of a transferred deposit by the new bank in which a transferred deposit has been made available shall discharge PDIC and the new bank. Recognition of Owner

O.

PDIC cannot recognize as the owner any person, whose name or interest as such owner is not disclosed on the records of a closed bank, as part owner of any portion of a deposit appearing on the records of the closed bank under a name other than that of the claimant. Withholding of Payment

P.

PDIC may withhold payment of such portions of the insured deposit of any depositor in a closed bank as may be required to provide for the payment of any liability of such depositor as a stockholder of the closed bank, or any liability of such depositor to the closed bank or to its receiver, which is not offset against a claim due from such bank, pending the determination and payment of such liability by such depositor or any other liable therefore. Prescription

Or does not enforce his claim within two years after the filing a claim Unless otherwise waived by PDIC.

D.

1.

It shall not sell or purchase any such obligation for its own account or in its own right and interest in any one time aggregating in excess of 100,000 without approval of the Insurance Commissioner.

2.

Insurance Commissioner may waive the requirement of his approval as he may determine.

The banking or checking account of PDIC shall be kept in:

1.

BSP

2.

PNB

3.

Any bank designated as fiscal agent or depository of RP

XVI. Extension of Loans G. In order to prevent an insured bank from closing, PDCI may make loans, purchase the assets, assume liability, or make deposits in such insured bank, upon such conditions as the Board of Directors may prescribe, the operations of such bank is essential to provide adequate banking service in the community or maintain financial stability in the economy. a.

b.

Such power may also be exercised in case of a closed insured bank if: i.

the resumption of the operations of said bank is vital to the interest of the community

ii.

Severe financial climate exists

Reopening of said bank is subject to the approval of the Monetary Board.

All rights of a depositor with respect to the insured deposit shall be barred if: H. •

He fails to file a claim within two years from actual take-over of the closed bank by the receiver.

PDIC may provide any corporation acquiring control of, merging or consolidating with or acquiring the assets of an insured bank in order to prevent such closing or of a closed insured bank in order to restore it to normal operation

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a.

Within 60 days from date of assistance, PDIC shall submit a report to MB

I.

PDIC shall determine the actual payoff and liquidation thereof will be more expensive than the exercise of its power prior to exercise of its powers.

J.

PDIC may grant financial assistance to insured banks, with systemic consequences with a probable failure or closure, as may be necessary to prevent its failure or closure. – subject to the approval of the Monetary Board. a.

“systemic risk” – possibility that failure of one bank to settle net transactions with other banks will trigger a chain reaction, depriving other banks of funds leading to a general shutdown of normal clearing and settlement activity. -

K.

L.

PDIC shall annually make a report of its operations to the Congress as soon s practicable after Jan 1

E.

Financial transactions shall be audited by the COA in accordance with principles and processes and procedures applicable to commercial corporate transactions. Audit shall be conducted in places where the accounts of the corporation are normally kept.

F.

COA shall have access to all books, accounts, records, reports, files, and all other papers belonging to PDIC pertaining to its financial transactions. Except as to matters relating to the Function of the PDIC which shall be subject to visitorial audit only.

XX. Miscellaneous E. Signs

Likelihood of a sudden unexpected collapse of confidence in a significant portion of the banking or financial system with potentially large real economic effects.

PDIC may not purchase the voting or common stock of an insured bank but it can enter into or force agreements that it determines to be necessary to protect its financial interests.

F.

a.

Insured banks shall place signs in all place of business and in its statements that its deposits are insured by PDIC.

b.

BoD may exempt from this requirement advertisements not relating to deposits.

Merger or consolidation of insured banks Upon consent of PDIC, banks may:

Financial assistance may take the form of equity or quasi-equity of insured banks as may be deemed necessary by the Board of Directors with concurrence by the MB. The corporation shall dispose of such equity as soon as practicable.

XVII. Borrowings C. PDIC is authorized to borrow from the BSP on such terms as may be agreed by them. Such loans granted by the BSP shall be consistent with monetary policy, the interest rate thereon shall not exceed the treasury bill rate. D.

D.

G.

When in the Judgment of the Board of Directors, the PDIC has insufficient funds to attain its purpose, PDIC shall be authorized to borrow money, obtain loans, or arrange credit lines or other credit accommodations from any bank designated as depository or fiscal agent by the RP.

XVII. Issuance of Bonds With approval of the President of RP, PDIC is authorized to issue bonds, debentures, and other obligations necessary fro the purpose of settlement of insured deposits in closed banks as well as for financial assistance. a. BoD shall determine interest rate and other requirements of such obligation. b.

PDIC shall provide appropriate reserves for the redemption of said obligation.

XIX. Reports and Audit

H.

4.

Merge or consolidate with an uninsured bank

5.

Assume liability to pay any deposits made in noninsured bank

6.

Transfer assets to any noninsured bank

Protection Against Losses a.

PDIC may require an insured bank to provide protection and indemnity against burglary, defalcation, losses arising from discharge of duties, by particular acts of its directors, employees, officres

b.

BoD shall determine the bonding requirement referring to directors, officers, anfd employees of an insured bank

c.

If insured bank refuse to comply with any such requirement, PDIC may add the cost thereof to the assessment otherwise payable to such bank.

Directors, Officers and employees of Insured banks a.

No person shall be a director, officer, or employee of an insured bank who has been convicted of any criminal offense involving dishonesty of breach of trust.

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b.

Penalty for violation of this prohibition: the bank will be subject to penalty of not more than 100 for every day of violation.

XXI. Criminal Penalties B. Punishable by prision mayor or a fine of 50,000-2,000,000,000 or both, any director, officer, employee or agent of bank who: 1.

Willful refusal to submit reports

2.

Unjustified refusal to permit examination and audit of records as required by law, rules, and regulations

3.

Willful making of false statement or entry in any bank report or document

4.

Submission of false material information in connection with or in relation to any financial assistance extended to the bank

5.

Splitting of deposits or creation of fictitious loans or deposit accounts

3times the amount of the damages or costs caused by the transaction for each day that the violation subsist.

Chap 11 – Anti- Money Laundering ( RA 9160) I. CONCEPTS G.

H.

i.

Splitting deposits – deposit accounts with an outstanding balance of more than the statutory maximum amount of insured deposit maintained under the name of a person is broken down and transferred into two or more accounts in the names of persons who have no beneficial ownership on transferred deposits in their names within 30 days preceding or during a bank declared holiday, or preceding a closure order issued by the MB for the purpose of availing of the maximum deposit insurance coverage.

6.

Refusal to allow PDIC to takeover a closed bank placed under its receivership

7.

Refusal to turnover or destroying or tampering bank records

8.

Fraudulent disposal , transfer or concealment of any asset, property, liability of the closed bank under the receivership of the PDIC

9.

Violation, or causing a person to violate, the exemption of garnishment, levy attachment, or execution provided under the PDIC Law and the NCBA

I.

J.

10. Willful failure or refusal to comply with, or violation of any provision of eh PDIC Law, or commission of any other irregularities and/or conducting business in an unsafe or unsound manner. XXII. FINES B. BOD is authorized to impose administrative fines for violation of any other instruction, rule, or regulation issued by PDIC, against a bank or any of its directors, officers, or agents responsible for such act, omission, or violation. In no case such fine exceed

K.

Policies i. To protect and preserve the integrity and confidentiality of bank accounts ii. Ensure that the Philippines shall not be used as a money laundering site for the proceeds of any unlawful activity. iii. Cooperation in transnational investigation and prosecution of persons involved in money laundering Covered Institutions i. Banks, non-banks, quasi-banks, trust entities ad all other institutions regulated by the BSP ii. Insurance companies and all other institutions regulated by the insurance commission iii. Securities, brokers, salesmen, investment house and other entities managing securities or service as agent, advisor, consultant iv. Mutual funds, closed-end investment company, common trust fund and preneed companies v. Foreign exchange corporations, money changers, money payments, remittance, and transfer companies vi. Those administering or dealing in currency, commodities, financial derivatives or other monetary instruments or property supervised by the SEC Covered and Suspicious transaction i. Transaction in cash or monetary instrument exceeding P500,000 in one banking day ii. Suspicious transactions regardless of the amount a. No legal or trade obligation, purpose or economic justification b. Client is not properly identified c. Amount is not commensurate with the client’s financial capacity d. Structured transactions to avoid being the subject of reporting required under the act e. Those which deviate from the profile of the client or past transactions f. Related to any unlawful activity or offense g. Any transaction that is similar to any of the foregoing Monetary instrument i. Coins/currency of legal tender of the Phil. Or any country ii. Drafts, checks and notes iii. Securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts, trading orders, transaction tickets, confirmation of sale money market instruments iv. Other similar instruments when title passes to another by endorsement, assignment or delivery Unlawful Activities i. Kidnapping for ransom under Art.267 of RPC ii. Secs. 4-6, 8-10, 12-16 of the Dangerous Drugs Act of 2002 iii. Sec.3 par b, c, e, g, h, I of the Anti-Graft and Corrupt Practices Act iv. Plunder under RA 7080 v. Robbery and extortion under Arts. 294-296, 299-302 of the RPC

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vi. vii. viii. ix. x. xi. xii. xiii. xiv. xv.

L.

Jueteng and Masiao under PD 1602 Piracy on high seas under RPC and PD 532 Qualified theft under Art.310 of RPC Swindling under Art.315 of RPC Smuggling under RA 455 and 1937 Violations of Electronic Commerce Act of 2000 Hijacking and other violations of RA 6235 Destructive arson and murder under RPC Fraudulent practices under Securities Regulation Code of 2000 Felonies or offenses of similar nature punishable under penal laws of other countries Money Laundering Offense- is a crime whereby the proceeds of an unlawful activity are transacted, thereby making them appear to have originated from legitimate sources. It can be committed by the ff: i. Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property ii. Any person knowing any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to above iii. Any person knowing that any monetary instrument or property is required to be disclosed and filed with the Anti-Money Laundering Council, fails to do so

xx. xxi. xxii. xxiii. xxiv.

IV. Prevention of Money Laundering F.

II. Jurisdiction and Prosecution G. C.

D.

Jurisdiction i. Private persons- RTC ii. Public persons and private persons in conspiracy with the formerSandiganbayan Prosecution i. Any person may be charged of both money laundering and the unlawful activity ii. Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation w/o prejudice to the freezing and other remedies

H.

III. Anti-Money Laundering Council C.

D.

Composition iv. Governor of he BSP as chairman v. Commissioner of the Insurance Commission vi. Chairman of the SEC Functions xiii. Require and receive covered or suspicious transaction reports from covered institutions xiv. Issue orders addressed to the supervising authority of the institution to determine the true owner of a covered or suspicious transaction report or request assistance on the basis of substantial evidence xv. Institute civil forfeiture proceedings through the OSG xvi. Cause the filing of complaints with the DOJ or Ombudsman xvii. Investigate suspicious and covered transactions xviii. Apply before the CA ex parte, for the freezing of any monetary instrument or property xix. Implement measures as may be necessary to counteract money laundering

Receive and take action any request of assistance from foreign states in their own anti-money laundering operations Develop educational programs on the effects, methods, and means to prevent money laundering Enlist assistance from government instrumentality for any anti-money laundering operation Impose administrative sanctions for violation of laws, rules, regulations and orders issued pursuant thereto Establish a secretariat a. Member of the Bar b. 35 years of age c. GMC d. Unquestionable integrity and known probity

I.

J.

Customer Identification v. Institutions shall establish and record the true identity of its clients based on office documents vi. Maintain a system of verifying the identity and legal existence of their clients vii. Anonymous, fictitious an similar accounts are prohibited viii. Peso and foreign currency non-checking accounts shall be allowed which will be subject to test by the BSP to determine the existence and identity of the owners Record Keeping iii. Records of transactions shall be maintained and stored from 5 years from the date of transaction iv. For closed accounts, its records shall also be stored for 5 years from the date it was closed Reporting of Covered and Suspicious Transaction vi. Shall be reported to AMLC within 5 working days from the occurrence thereof, unless supervising authority prescribes a longer period not exceeding 10 days vii. Should a transaction be determined a a covered and suspicious transaction, it shall be required to report the same viii. Such reporting shall not be considered as a violation of RA 1405, RA 6426, RA 8791, but are prohibited to communicate to any other person ix. In case of violation of the prohibition above, they shall be criminally liable x. Reporting to the AMLC is also prohibited to be disclosed to the media or any other person or entity Freezing of Monetary Instrument or Property iii. To the CA, upon application ex parte by the AMLC and after determination that probable cause exists, may issue a freeze order iv. Such order shall be for 20 days unless extended by the Court Authority to inquire into bank deposits iii. The AMLC may inquire upon order of any competent court when it has been established that: a. There is probable cause that the deposit or investment s related to any unlawful activity; or b. A money laundering offense iv. No court order shall be required in the following activities a. Kidnapping for ransom b. Violations of Dangerous Drug Act of 2002 c. Hijacking and other violations of RA 6235

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d.

Destructive arson and murder including those perpetrated by terrorists

V. Forfeiture D. E.

F.

Civil forfeiture a. When there is a report made, and the Court, in a petition filed for the purpose of seizure, the Rules of Court on civil forfeiture applies Claim on Forfeiture Assets a. Those claiming an interest may apply, by verified petition, for a declaration that the seized instrument or property legitimately belongs to him and pray for the segregation and exclusion b. It shall be filed with the court which rendered the judgment of forfeiture within 15 days from the order of forfeiture Payment in lieu of forfeiture a. Is allowed because forfeiture cannot be enforced due to the ff: i. With due diligence, it cannot be located ii. Substantially altered, destroyed, diminished in value or rendered worthless by any act or omission attributable to the offender iii. Concealed, removed, converted or transferred to prevent from being found or avoid forfeiture iv. Located outside the Philippine or outside the jurisdiction of the court v. Commingled with other instrument or property rendering it difficult to be identified or segregated

i.

L.

M.

N.

Except: if there is a treaty between the Phil. And the requesting State relating to the provisions of assistance in money laundering offense Requirement for request from a foreign state a. Confirm that an investigation or prosecution is being conducted b. State the grounds on which any person is being investigated or prosecuted for c. Give sufficient particulars as to the identity of the person d. Give particulars sufficient to identify the institution believed to have any info e. Ask from the institution for any info which may be of assistance to the investigation or prosecution f. Specify the manner in which such info will be obtained or produced g. Give all the particulars necessary for the issuance by the court in the requested state of the orders needed by th requesting state h. Contain other info as may assist in the execution of the request Authentication of documents a. Signed or certified by a judge or equivalent officer in or of the requesting state b. Authenticated by the oath or affirmation of a witness or sealed with an official seal of a minister or secretary of the government of the requesting state c. By the secretary of embassy, consul general, consul or any officer in the foreign service of the Philippines stationed in the foreign state Extradition a. Negotiate for the inclusion of money laundering offenses among extraditable offenses

VI. Mutual assistance among states VII. Penalties H. I.

J.

K.

Request for assistance from a foreign state a. The AMLC may execute or refuse to execute such request and inform the state of any valid reason for not executing such request Powers of the AMLC to act on a request for assistance a. May execute a request by: i. Tracking down, freezing, restraining and seizing assets ii. Give information needed iii. Apply for an order of forfeiture b. Court will issue such order only when accompanied by: i. Authenticated copy of the order of a court in the requesting state ordering the forfeiture ii. Certification or affidavit of a competent officer of the requesting stat that the conviction and order of forfeiture are final Obtaining assistance from foreign state a. Tracking down, freezing, restraining and seizing assets b. Obtain info that it needs relating to covered transaction and money laundering offense c. Enter into the premises belonging to or in the possession of the persons named in the request, to the extent allowed by the law of the foreign state d. Apply for an order of forfeiture and must be accompanied by the order of the RTC and an affidavit of the Clerk of Court that the conviction and forfeiture are final Limitations on request a. When it contravenes the constitution b. Prejudicial to the interest of the Philippines

E.

F. G.

Crime of money laundering a. Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property i. Imprisonment of 7 to 14 years and a fine not less than P3M b. Any person knowing any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to above i. 4-7 years and fin not less than P1.5M not more than P3M c. Any person knowing that any monetary instrument or property is required to be disclosed and filed with the Anti-Money Laundering Council, fails to do so i. 6m-4years or fine not less than P100,000 not more than P500,000, or both Failure to keep records a. 6m-1year or fine not less than P100,000 not more than P500,000, or both Malicious reporting a. Any person who, with malice or bad faith, reports a completely unwarranted or false info relative to money laundering i. 6m-4years and a fine not less than P100,000 not more than P500,000 ii. If corporation- upon the responsible officers iii. Juridical person- suspend or revoke its license iv. Alien- deportation v. Public official- perpetual or temporary absolute disqualification from office

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H.

vi. Public official who refuses to testify- same penalties above Breach of Confidentiality a. 3-8years and fine P500,000- P1M b. If disclosed to media- reporter, writer, publisher, manager, editor

VIII. Prohibitions against political harassment C. shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce D. no case may be filed against and no assets shall be frozen or forfeited to the prejudice of a candidate for electoral office during election period IX. Implementing rules and Regulations A. The BSP, IC, and SEC shall promulgate rules to effectively implement this Act. These rules shall be submitted to the congressional oversight committee for approval. B. Covered institutions shall formulate their own prevention programs X. Congressional Oversight Committee C.

D.

Composition a. 7 members from the Senate and 7 members from the House of Representatives b. Shall be appointed by the Senate President and the Speaker, respectively, based on proportional representation of parties Powers a. Power to promulgate rules to overse the implementation of the law and to review and revise the rules issued by the AMLC within 30 days from promulgation

XI. Rules and Regulation for banks and non-financial institutions to combat money laundering 1. Take reasonable measures to establish and record the true identity and legal existence of their clients 2. in case of doubt, obtain the true identity of the persons on whose behalf an account is opened 3. anonymous or fictitious accounts should not be allowed 4. identity of clients should be updated 5. necessary records of transactions should be maintained 6. special attention should be given to complex, unusual large transactions and all unusual patterns of transaction 7. other suspicious transactions not involving deposit should be reported 8. Banks should avoid business with criminals 9. Programs against money laundering- employee training, audit function, development of internal policies.

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