Commercial Law Reviewer: Banking and Allied Laws

STUDY GUIDE ON BANKING AND RELATED LAWS*

Comment [WU1]:

I BANGKO SENTRAL NG PILIPINAS LAW RA 7653 (1993).

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Topics State policies (Sec. 1) SECTION 1. DECLARATION OF POLICY. - THE STATE SHALL MAINTAIN A CENTRAL MONETARY AUTHORITY THAT SHALL— A. FUNCTION AND OPERATE AS AN INDEPENDENT AND ACCOUNTABLE BODY CORPORATE IN THE DISCHARGE OF ITS MANDATED RESPONSIBILITIES CONCERNING MONEY, BANKING AND CREDIT.

B. IN LINE WITH THIS POLICY, AND CONSIDERING ITS UNIQUE FUNCTIONS AND RESPONSIBILITIES, THE CENTRAL MONETARY AUTHORITY ESTABLISHED UNDER THIS ACT, WHILE BEING A GOVERNMENT-OWNED CORPORATION, ENJOY FISCAL AND ADMINISTRATIVE AUTONOMY. How State policies are to be achieved (compare, e.g., Secs. 2, 6, 9, 11, 15, 16, 18 and 47 of RA 7653 with similar provisions in RA 265) [SEE PAGE 2 OF BOOK] A. Capital [Sec. 2] SECTION 2. CREATION OF THE BANGKO SENTRAL. - THE CAPITAL OF THE BANGKO SENTRAL SHALL BE FIFTY BILLION PESOS (P50,000,000,000. B. MB Composition [Sec. 6] SECTION 6. COMPOSITION OF THE MONETARY BOARD. - (C) FIVE (5) MEMBERS WHO SHALL COME FROM THE PRIVATE SECTOR, ALL OF WHOM SHALL SERVE FULLTIME: PROVIDED, HOWEVER, THAT OF THE MEMBERS FIRST APPOINTED UNDER THE PROVISIONS OF THIS SUBSECTION, THREE (3) SHALL HAVE A TERM OF SIX (6) YEARS, AND THE OTHER TWO (2), THREE (3) YEARS. C. Reappointment of MB Members [Sec. 6] SECTION 6. COMPOSITION OF THE MONETARY BOARD. - NO MEMBER OF THE MONETARY BOARD MAY BE REAPPOINTED MORE THAN ONCE.

*

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

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D. Additional disqualifications for MB Members [Sec. 9]; Divestment requirement [Sec. 9]; Post-BSP restriction [Sec. 9] SECTION 9. DISQUALIFICATIONS. - IN ADDITION TO THE DISQUALIFICATIONS IMPOSED BY REPUBLIC ACT NO. 6713, A MEMBER OF THE MONETARY BOARD IS DISQUALIFIED FROM BEING A DIRECTOR, OFFICER, EMPLOYEE, CONSULTANT, LAWYER, AGENT OR STOCKHOLDER OF ANY BANK, QUASI-BANK OR ANY OTHER

INSTITUTION WHICH IS SUBJECT TO SUPERVISION OR EXAMINATION BY THE BANGKO SENTRAL, IN WHICH CASE SUCH MEMBER SHALL RESIGN FROM, AND DIVEST HIMSELF OF ANY AND ALL INTERESTS IN SUCH INSTITUTION BEFORE ASSUMPTION OF OFFICE AS MEMBER OF THE MONETARY BOARD.

THE MEMBERS OF THE MONETARY BOARD COMING FROM THE PRIVATE SECTOR

SHALL NOT HOLD ANY OTHER PUBLIC OFFICE OR PUBLIC EMPLOYMENT DURING THEIR TENURE.

NO PERSON SHALL BE A MEMBER OF THE MONETARY BOARD IF HE HAS BEEN CONNECTED DIRECTLY WITH ANY MULTILATERAL BANKING OR FINANCIAL INSTITUTION OR HAS A SUBSTANTIAL INTEREST IN ANY PRIVATE BANK IN THE PHILIPPINES, WITHIN ONE (1) YEAR PRIOR TO HIS APPOINTMENT; LIKEWISE, NO MEMBER OF THE MONETARY BOARD SHALL BE EMPLOYED IN ANY SUCH INSTITUTION WITHIN TWO (2) YEARS AFTER THE EXPIRATION OF HIS TERM EXCEPT WHEN HE SERVES AS AN OFFICIAL REPRESENTATIVE OF THE PHILIPPINE GOVERNMENT TO SUCH INSTITUTION.

E. Who can call meetings [Sec. 11] SECTION 11. MEETINGS. - THE MONETARY BOARD SHALL MEET AT LEAST ONCE A WEEK. THE BOARD MAY BE CALLED TO A MEETING BY THE GOVERNOR OF THE BANGKO SENTRAL OR BY TWO (2) OTHER MEMBERS OF THE BOARD. F. Reorganization of personnel [Sec. 15] G. Indemnification [Sec. 15(e)] SECTION 15. EXERCISE OF AUTHORITY. - IN THE EXERCISE OF ITS AUTHORITY, THE MONETARY BOARD SHALL: (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.

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 COUNSEL THAT THE PERSON TO BE INDEMNIFIED DID NOT COMMIT ANY NEGLIGENCE OR MISCONDUCT.

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H. Greater responsibility [Sec. 16] I. Transparency [Sec. 16] How the BSP handles banks in distress Emergency loans and advances (Sec. 84) SECTION 84. EMERGENCY LOANS AND ADVANCES. – 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— 1. IN PERIODS OF NATIONAL AND/OR LOCAL EMERGENCY OR 2. OF IMMINENT FINANCIAL PANIC WHICH DIRECTLY THREATEN MONETARY AND BANKING STABILITY

PROVIDED, THAT WHILE SUCH LOANS OR ADVANCES ARE OUTSTANDING, THE DEBTOR INSTITUTION SHALL NOT, EXCEPT UPON PRIOR AUTHORIZATION BY THE MONETARY BOARD, EXPAND THE TOTAL VOLUME OF ITS LOANS OR INVESTMENTS. SECTION 84. EMERGENCY LOANS AND ADVANCES. – 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— 1. IN A PRECARIOUS FINANCIAL CONDITION OR 2. UNDER SERIOUS FINANCIAL PRESSURES BROUGHT BY UNFORESEEN EVENTS, OR 3. EVENTS WHICH, THOUGH FORESEEABLE, COULD NOT BE PREVENTED BY THE BANK CONCERNED: PROVIDED, HOWEVER— 1. THAT A CONCURRENT VOTE OF AT LEAST FIVE (5) MEMBERS OF THE MONETARY BOARD IS OBTAINED. 2. THAT THE MONETARY BOARD HAS ASCERTAINED THAT THE BANK IS NOT INSOLVENT AND HAS THE ASSETS DEFINED HEREUNDER TO SECURE THE ADVANCES.

SECTION 84. EMERGENCY LOANS AND ADVANCES. – 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. XXX.

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Conservatorship (Sec. 29; Sec, 67, RA 8791) SECTION 29. APPOINTMENT OF CONSERVATOR. - WHENEVER, ON THE BASIS OF A REPORT SUBMITTED BY THE APPROPRIATE SUPERVISING OR EXAMINING DEPARTMENT, THE MONETARY BOARD FINDS THAT A BANK OR A QUASI-BANK IS IN A STATE OF CONTINUING INABILITY OR UNWILLINGNESS TO MAINTAIN A CONDITION OF LIQUIDITY DEEMED ADEQUATE TO PROTECT THE INTEREST OF DEPOSITORS AND CREDITORS, THE MONETARY BOARD MAY APPOINT A CONSERVATOR WITH SUCH POWERS AS THE MONETARY BOARD SHALL DEEM NECESSARY TO:

1. TAKE CHARGE OF THE ASSETS, LIABILITIES, AND THE MANAGEMENT THEREOF, 2. REORGANIZE THE MANAGEMENT, 3. COLLECT ALL MONIES AND DEBTS DUE SAID INSTITUTION, AND 4. EXERCISE ALL POWERS NECESSARY TO RESTORE ITS VIABILITY. THE CONSERVATOR SHALL REPORT AND BE RESPONSIBLE TO THE MONETARY BOARD AND SHALL HAVE THE POWER TO OVERRULE OR REVOKE THE ACTIONS OF THE PREVIOUS MANAGEMENT AND BOARD OF DIRECTORS OF THE BANK OR QUASI-BANK.

THE CONSERVATOR SHOULD BE COMPETENT AND KNOWLEDGEABLE IN BANK OPERATIONS AND MANAGEMENT. THE CONSERVATORSHIP SHALL NOT EXCEED ONE (1) YEAR. XXX. 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. THE CONSERVATORSHIP SHALL 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 OF SECTION 30 SHALL APPLY.

SECTION

67, R.A.8791 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. (N) SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. – THE ACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDER SECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BE RESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FOR CERTIORARI ON THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OF JURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TO LACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLY BE FILED BY THE STOCKHOLDERS OF RECORD REPRESENTING THE MAJORITY OF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARD OF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP, LIQUIDATION OR CONSERVATORSHIP.

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Comment [WU2]: Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective — i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of directors. What the said board cannot do — such as repudiating a contract validly entered into under the doctrine of implied authority — the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts — as he has already done so in the instant case. [First Bank v. CA, 1996]

THE DESIGNATION OF A CONSERVATOR UNDER SECTION 29 OF THIS ACT OR THE APPOINTMENT OF A RECEIVER UNDER THIS SECTION SHALL BE VESTED EXCLUSIVELY WITH THE MONETARY BOARD. FURTHERMORE, THE DESIGNATION OF A CONSERVATOR IS NOT A PRECONDITION TO THE DESIGNATION OF A RECEIVER.

Closure (Sec. 30; Secs. 53 and 56.4, RA 8791) Receivership (Sec. 30; Secs. 69-70, RA 8791) SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. – THE MONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR PRIOR HEARING FORBID THE INSTITUTION FROM DOING BUSINESS IN THE PHILIPPINES AND DESIGNATE THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS RECEIVER OF THE BANKING INSTITUTION. [FOR A QUASI-BANK, ANY PERSON OF RECOGNIZED COMPETENCE IN BANKING OR FINANCE MAY BE DESIGNED AS RECEIVER.] WHENEVER, UPON REPORT OF THE HEAD OF THE SUPERVISING OR EXAMINING DEPARTMENT, THE MONETARY BOARD FINDS THAT A BANK OR QUASI-BANK:

(A) IS UNABLE TO PAY ITS LIABILITIES AS THEY BECOME DUE IN THE ORDINARY COURSE OF BUSINESS: PROVIDED, THAT THIS SHALL NOT INCLUDE INABILITY TO PAY CAUSED BY EXTRAORDINARY DEMANDS INDUCED BY FINANCIAL PANIC IN THE BANKING COMMUNITY;

(B) HAS INSUFFICIENT REALIZABLE ASSETS, AS DETERMINED BY THE BANGKO SENTRAL, TO MEET ITS LIABILITIES; OR (C) CANNOT CONTINUE IN BUSINESS WITHOUT INVOLVING PROBABLE LOSSES TO ITS DEPOSITORS OR CREDITORS; OR (D) HAS WILLFULLY VIOLATED A CEASE AND DESIST ORDER UNDER SECTION 37 THAT HAS BECOME FINAL, INVOLVING ACTS OR TRANSACTIONS WHICH AMOUNT TO FRAUD OR A DISSIPATION OF THE ASSETS OF THE INSTITUTION;

SECTION 53. RA 8791. OTHER BANKING SERVICES. - IN CASE A BANK OR QUASI-BARK NOTIFIES THE BANGKO SENTRAL OR PUBLICLY ANNOUNCES A BANK HOLIDAY, OR IN ANY MANNER SUSPENDS THE PAYMENT OF ITS DEPOSIT LIABILITIES CONTINUOUSLY FOR MORE THAN THIRTY (30) DAYS, THE MONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR PRIOR HEARING CLOSE SUCH BANKING INSTITUTION AND PLACE IT UNDER RECEIVERSHIP OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION. (72A)

SECTION 56. RA 8791. CONDUCTING BUSINESS IN AN UNSAFE OR UNSOUND MANNER - W HENEVER 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. 5 of 89

Comment [WU3]: In RA 7653, only a "report of the head of the supervising or examining department" is necessary. It is an established rule in statutory construction that where the words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation.Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature and what its wisdom dictates. The lawmakers could have easily retained the word "examination" (and in the process also preserved the jurisprudence attached to it) but they did not and instead opted to use the word "report." The insistence on an examination is not sanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it a requirement when such is not supported by the language of the law.

Comment [O4]: 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, quasibank or trust entity, whether or not the director or officer profited or will profit thereby.

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. - THE RECEIVER SHALL : 1. IMMEDIATELY GATHER AND TAKE CHARGE OF ALL THE ASSETS AND LIABILITIES OF THE INSTITUTION, 2. ADMINISTER THE SAME FOR THE BENEFIT OF ITS CREDITORS, 3. AND EXERCISE THE GENERAL POWERS OF A RECEIVER UNDER THE REVISED RULES OF COURT 4. BUT SHALL NOT, WITH THE EXCEPTION OF ADMINISTRATIVE EXPENDITURES, PAY OR COMMIT ANY ACT THAT WILL INVOLVE THE TRANSFER OR DISPOSITION OF ANY ASSET OF THE INSTITUTION: PROVIDED, THAT THE RECEIVER MAY DEPOSIT OR PLACE THE FUNDS OF THE INSTITUTION IN NON-SPECULATIVE INVESTMENTS. THE RECEIVER SHALL DETERMINE AS SOON AS POSSIBLE, BUT NOT LATER THAN NINETY (90) DAYS FROM TAKE OVER, WHETHER THE INSTITUTION MAY BE REHABILITATED OR OTHERWISE PLACED IN SUCH A CONDITION SO THAT IT MAY BE PERMITTED TO RESUME BUSINESS WITH SAFETY TO ITS DEPOSITORS AND CREDITORS AND THE GENERAL PUBLIC: PROVIDED, THAT ANY DETERMINATION FOR THE RESUMPTION OF BUSINESS OF THE INSTITUTION SHALL BE SUBJECT TO PRIOR APPROVAL OF THE MONETARY BOARD.

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. – THE ACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDER SECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BE RESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FOR CERTIORARI ON THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OF JURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TO LACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLY BE FILED BY THE STOCKHOLDERS OF RECORD REPRESENTING THE MAJORITY OF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARD OF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP, LIQUIDATION OR CONSERVATORSHIP.

THE DESIGNATION OF A CONSERVATOR UNDER SECTION 29 OF THIS ACT OR THE APPOINTMENT OF A RECEIVER UNDER THIS SECTION SHALL BE VESTED EXCLUSIVELY WITH THE MONETARY BOARD. FURTHERMORE, THE DESIGNATION OF A CONSERVATOR IS NOT A PRECONDITION TO THE DESIGNATION OF A RECEIVER.

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BAR Q [2009]: TRUE OF FALSE—A BANK UNDER RECEIVERSHIP CAN STILL GRANT NEW LOANS AND ACCEPT NEW DEPOSITS. SUGGESTED ANSWER: FALSE. During the receivership, the assets and properties of the corporation into cash in preparation for distribution to creditors. Granting new loans and accepting new deposits would constitute doing business for the bank in the ordinary course of business which is contrary to the nature and purpose of a receivership proceeding. BAR Q [2009]: MAHARLIKANG PILIPINO BANKING CORPORATION [MPBC] OPERATES SEVERAL BRANCHES OF MAHARLIKANG PILIPINO RURAL BANK IN EASTERN VISAYAS. ALMOST ALL THE BRANCH MANAGERS ARE CLOSE RELATIVES OF THE MEMBERS OF THE BOARD OF DIRECTORS OF THE CORPORATION. MANY UNDESERVING RELATIVES OF THE BRANCH MANAGERS WERE GRANTED LOANS. IN TIME, THE BRANCHES COULD NOT SETTLE THEIR OBLIGATIONS TO DEPOSITORS AND CREDITORS. RECEIVING REPORTS OF THESE IRREGULARITIES, THE SUPERVISING AND EXAMINING DEPARTMENT [SED] OF THE MONETARY BOARD PREPARED A DETAILED REPORT SPECIFYING THE FACTS AND THE CHRONOLOGY OF EVENTS RELATIVE TO THE PROBLEMS THAT BESET MPBC RURAL BANK BRANCHES. THE REPORT CONCLUDED THAT THE BANK BRANCHES WERE UNABLE TO PAY THEIR LIABILITIES AS THEY FELL DUE, AND COULD NOT POSSIBLY CONTINUE IN BUSINESS WITHOUT INCURRING SUBSTANTIAL LOSSES TO ITS DEPOSITORS.

A. MAY THE MONETARY BOARD ORDER THE CLOSURE OF THE MPBC RURAL BANKS RELYING ONLY ON THE SED REPORT, WITHOUT NEED OF AN EXAMINATION? B. IF MPBC HIRES YOU AS A LAWYER BECAUSE THE MONETARY BOARD HAS FORBIDDEN IT FROM CARRYING ON ITS BUSINESS DUE TO ITS IMMINENT INSOLVENCY, WHAT ACTION WILL YOU INSTITUTE TO QUESTION THE MONETARY BOARD’S ORDER?

SUGGESTED ANSWER: A. Yes. Upon receipt of the report of the SED, the Monetary Board is authorized to take any of the actions enumerated under the Sec. 30, RA 7653, otherwise known as the New Central Bank Act, leading to the receivership and liquidation of a bank or quasi-bank. There is no requirement that an examination be first conducted before a banking institution may be placed under receivership. [RURAL BANK OF SAN MIGUEL V. MONETARY BOARD, 2007] B. The order of the Monetary Board may be questioned on a petition for certiorari on the ground that the action taken was in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction. The petition of certiorari may only be filed by the stockholders representing the majority of the capital stock within 10 days from receipt by the board of directors of MPBC of the order directing receivership, liquidation or conservatorship. [SEC. 30, PAR. [2], RA 7653]

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BAR Q [2002]: DISTINGUISH BETWEEN THE ROLE OF A CONSERVATOR AND THAT OF A RECEIVER OF A BANK. SUGESTED ANSWER: The Conservator is appointed for a period not exceeding one (1) year, to take charge of the assets, liabilities, and the management of a bank or a quasi-bank in a state of continuing inability, or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. On the other hand, the Receiver is appointed to manage a bank or quasi-bank that is unable to pay its liabilities in the ordinary course of business, or has insufficient realizable assets to meet its liabilities, or cannot continue in business without probable losses to its depositors or creditors; or has willfully violated a final cease and desist order, involving acts or transactions amounting to fraud or a dissipation of the assets of the institution. The main purpose of the Receiver is to recommend the rehabilitation or liquidation of the bank.

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Liquidation (Sec. 30; Sec. 69, RA 8791) SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. -IF THE RECEIVER DETERMINES THAT THE INSTITUTION CANNOT BE REHABILITATED OR PERMITTED TO RESUME BUSINESS IN ACCORDANCE WITH THE NEXT PRECEDING PARAGRAPH, THE MONETARY BOARD SHALL NOTIFY IN WRITING THE BOARD OF DIRECTORS OF ITS FINDINGS AND DIRECT THE RECEIVER TO PROCEED WITH THE LIQUIDATION OF THE INSTITUTION. THE RECEIVER SHALL:

(1) FILE EX PARTE WITH THE PROPER REGIONAL TRIAL COURT, AND WITHOUT REQUIREMENT OF PRIOR NOTICE OR ANY OTHER ACTION, A PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE INSTITUTION PURSUANT TO A LIQUIDATION PLAN ADOPTED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION FOR GENERAL APPLICATION TO ALL CLOSED BANKS. IN CASE OF QUASI-BANKS, THE LIQUIDATION PLAN SHALL BE ADOPTED BY THE MONETARY BOARD. UPON ACQUIRING JURISDICTION, THE COURT SHALL, UPON MOTION BY THE RECEIVER AFTER DUE NOTICE, ADJUDICATE DISPUTED CLAIMS AGAINST THE INSTITUTION, ASSIST THE ENFORCEMENT OF INDIVIDUAL LIABILITIES OF THE STOCKHOLDERS, DIRECTORS AND OFFICERS, AND DECIDE ON OTHER ISSUES AS MAY BE MATERIAL TO IMPLEMENT THE LIQUIDATION PLAN ADOPTED. THE RECEIVER SHALL PAY THE COST OF THE PROCEEDINGS FROM THE ASSETS OF THE INSTITUTION.

(2) CONVERT THE ASSETS OF THE INSTITUTIONS TO MONEY, DISPOSE OF THE SAME TO CREDITORS AND OTHER PARTIES, FOR THE PURPOSE OF PAYING THE DEBTS OF SUCH INSTITUTION IN ACCORDANCE WITH THE RULES ON CONCURRENCE AND PREFERENCE OF CREDIT UNDER THE CIVIL CODE OF THE PHILIPPINES AND HE MAY, IN THE NAME OF THE INSTITUTION, AND WITH THE ASSISTANCE OF COUNSEL AS HE MAY RETAIN, INSTITUTE SUCH ACTIONS AS MAY BE NECESSARY TO COLLECT AND RECOVER ACCOUNTS AND ASSETS OF, OR DEFEND ANY ACTION AGAINST, THE INSTITUTION. THE ASSETS OF AN INSTITUTION UNDER RECEIVERSHIP OR LIQUIDATION SHALL BE DEEMED IN CUSTODIA LEGIS IN THE HANDS OF THE RECEIVER AND SHALL, FROM THE MOMENT THE INSTITUTION WAS PLACED UNDER SUCH RECEIVERSHIP OR LIQUIDATION, BE EXEMPT FROM ANY ORDER OF GARNISHMENT, LEVY, ATTACHMENT, OR EXECUTION.

THE ACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDER SECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BE RESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FOR CERTIORARI ON THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OF JURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TO LACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLY BE FILED BY THE STOCKHOLDERS OF RECORD REPRESENTING THE MAJORITY OF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARD OF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP, LIQUIDATION OR CONSERVATORSHIP.

SECTION 69. RA 8791. RECEIVERSHIP AND INVOLUNTARY LIQUIDATION. - THE GROUNDS AND PROCEDURES FOR PLACING A BANK UNDER RECEIVERSHIP OR LIQUIDATION, AS WELL AS THE POWERS AND DUTIES OF THE RECEIVER OR LIQUIDATOR APPOINTED FOR THE BANK SHALL BE GOVERNED BY THE PROVISIONS OF SECTIONS 30, 31, 32, AND 33 OF THE NEW CENTRAL BANK

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ACT: PROVIDED, THAT THE PETITIONER OR PLAINTIFF FILES WITH THE CLERK OR JUDGE OF THE COURT IN WHICH THE ACTION IS PENDING A BOND, EXECUTED IN FAVOR OF THE BANGKO SENTRAL, IN AN AMOUNT TO BE FIXED BY THE COURT. THIS SECTION SHALL ALSO APPLY TO THE EXTENT POSSIBLE TO THE RECEIVERSHIP AND LIQUIDATION PROCEEDINGS OF QUASI-BANKS. (N) SECTION 70. RA 8791. 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. (85A)

How the BSP handles exchange crises (Sec. 72) SECTION 72. EMERGENCY RESTRICTIONS ON EXCHANGE OPERATIONS. - IN ORDER TO ACHIEVE THE PRIMARY OBJECTIVE OF THE BANGKO SENTRAL AS SET FORTH IN SECTION 3 OF THIS ACT, OR PROTECT THE INTERNATIONAL RESERVES OF THE BANGKO SENTRAL IN THE IMMINENCE OF, OR DURING AN EXCHANGE CRISIS, OR IN TIME OF NATIONAL EMERGENCY AND 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— 1. TEMPORARILY SUSPEND OR RESTRICT SALES OF EXCHANGE BY THE BANGKO SENTRAL, AND 2. MAY SUBJECT ALL TRANSACTIONS IN GOLD AND FOREIGN EXCHANGE TO LICENSE BY THE BANGKO SENTRAL, AND 3. MAY REQUIRE THAT ANY FOREIGN EXCHANGE THEREAFTER OBTAINED 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: PROVIDED, HOWEVER, THAT FOREIGN CURRENCY DEPOSITS MADE UNDER REPUBLIC ACT NO. 6426 SHALL BE EXEMPT FROM THESE REQUIREMENTS.

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Functions of the BSP (e.g., Secs. 49-60; 61-63, 81-89, 109; 64-66; 82-84; 94 and 103; 102; 110-116; 117-122; 123-124) Exclusive issue power (Sec. 50); liability for notes and coins (Sec. 51); legal tender power (Sec. 53) SECTION 50. EXCLUSIVE ISSUE POWER. - THE BANGKO SENTRAL SHALL HAVE THE SOLE POWER AND AUTHORITY TO ISSUE CURRENCY, WITHIN THE TERRITORY OF THE PHILIPPINES. NO OTHER PERSON OR ENTITY, PUBLIC OR PRIVATE, MAY PUT INTO CIRCULATION NOTES, COINS OR ANY OTHER OBJECT OR DOCUMENT WHICH, IN THE OPINION OF THE MONETARY BOARD, MIGHT CIRCULATE AS CURRENCY, NOR REPRODUCE OR IMITATE THE FACSIMILES OF BANGKO SENTRAL NOTES WITHOUT PRIOR AUTHORITY FROM THE BANGKO SENTRAL. XXX. SECTION 51. LIABILITY FOR NOTES AND COINS. - NOTES AND COINS ISSUED BY THE BANGKO SENTRAL SHALL BE LIABILITIES OF THE BANGKO SENTRAL AND MAY BE ISSUED ONLY AGAINST, AND IN AMOUNTS NOT EXCEEDING, THE ASSETS OF THE BANGKO SENTRAL. SAID NOTES AND COINS SHALL BE A FIRST AND PARAMOUNT LIEN ON ALL ASSETS OF THE BANGKO SENTRAL. 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 BANGKO SENTRAL. SECTION 52. LEGAL TENDER POWER. - ALL NOTES AND COINS ISSUED BY THE BANGKO SENTRAL SHALL BE FULLY GUARANTEED BY THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES AND SHALL BE LEGAL TENDER IN THE PHILIPPINES FOR ALL DEBTS, BOTH PUBLIC AND PRIVATE: PROVIDED, HOWEVER, THAT, UNLESS OTHERWISE FIXED BY THE MONETARY BOARD, COINS SHALL BE LEGAL TENDER IN AMOUNTS NOT EXCEEDING FIFTY PESOS (P50.00) FOR DENOMINATIONS OF TWENTY-FIVE CENTAVOS AND ABOVE, AND IN AMOUNTS NOT EXCEEDING TWENTY PESOS (P20.00) FOR DENOMINATIONS OF TEN CENTAVOS OR LESS. DTC SUPPLEMENT TO PARAGRAPH 1.17 (A), PP. 12-13 On account of the issuance by the BSP of new coins in higher denominations after the affectivity of the BSP Law in 1993, the BSP, pursuant to Section 52 of the BSP Law and Monetary Board Resolution No. 862, dated July 6, 2006, issued Circular No. 537, dated July 18, 2006, which adjusted the maximum amount of coins to be considered as legal tender as follows: 1.

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

2.

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

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

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Setting of bank reserve requirements (Secs. 94-103) SECTION 94. RESERVE REQUIREMENTS. - IN ORDER TO CONTROL THE VOLUME OF MONEY CREATED BY THE CREDIT OPERATIONS OF THE BANKING SYSTEM, ALL BANKS OPERATING IN THE PHILIPPINES SHALL BE REQUIRED TO MAINTAIN RESERVES AGAINST THEIR DEPOSIT LIABILITIES: PROVIDED, THAT THE MONETARY BOARD MAY, AT ITS DISCRETION, ALSO REQUIRE ALL BANKS AND/OR QUASI-BANKS TO MAINTAIN RESERVES AGAINST FUNDS HELD IN TRUST AND LIABILITIES FOR DEPOSIT SUBSTITUTES AS DEFINED IN THIS ACT. THE REQUIRED RESERVES OF EACH BANK SHALL BE PROPORTIONAL TO THE VOLUME OF ITS DEPOSIT LIABILITIES AND SHALL ORDINARILY TAKE THE FORM OF A DEPOSIT IN THE BANGKO SENTRAL. RESERVE REQUIREMENTS SHALL BE APPLIED TO ALL BANKS OF THE SAME CATEGORY UNIFORMLY AND WITHOUT DISCRIMINATION.

RESERVES AGAINST DEPOSIT SUBSTITUTES, IF IMPOSED, SHALL BE DETERMINED IN THE SAME MANNER AS PROVIDED FOR RESERVE REQUIREMENTS AGAINST REGULAR BANK DEPOSITS, WITH RESPECT TO THE IMPOSITION, INCREASE, AND COMPUTATION OF RESERVES.

THE MONETARY BOARD MAY EXEMPT FROM RESERVE REQUIREMENTS DEPOSITS AND DEPOSIT SUBSTITUTES WITH REMAINING MATURITIES OF TWO (2) YEARS OR MORE, AS WELL AS INTERBANK BORROWINGS.

SINCE THE REQUIREMENT TO MAINTAIN BANK RESERVES IS IMPOSED PRIMARILY TO CONTROL THE VOLUME OF MONEY, THE BANGKO SENTRAL SHALL NOT PAY INTEREST ON THE RESERVES MAINTAINED WITH IT UNLESS THE MONETARY BOARD DECIDES OTHERWISE AS WARRANTED BY CIRCUMSTANCES.

SECTION 95. DEFINITION OF DEPOSIT SUBSTITUTES. - THE TERM "DEPOSIT SUBSTITUTES" IS DEFINED AS— 1. AN ALTERNATIVE FORM OF OBTAINING FUNDS FROM THE PUBLIC, OTHER THAN DEPOSITS, 2. THROUGH THE ISSUANCE, ENDORSEMENT, OR ACCEPTANCE OF DEBT INSTRUMENTS

3. FOR THE BORROWER'S OWN ACCOUNT, 4. FOR THE PURPOSE OF RELENDING OR PURCHASING OF RECEIVABLES AND OTHER OBLIGATIONS. THESE INSTRUMENTS MAY INCLUDE, BUT NEED NOT BE LIMITED TO, 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 NONFINANCIAL COMPANIES FOR THE LIMITED PURPOSE OF FINANCING THEIR OWN NEEDS OR THE NEEDS OF THEIR AGENTS OR DEALERS SHALL NOT BE COVERED BY THE PROVISIONS OF SECTION 94 OF THIS ACT.

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SECTION 96. REQUIRED RESERVES AGAINST PESO DEPOSITS. - THE MONETARY BOARD MAY FIX AND, WHEN IT DEEMS NECESSARY, ALTER THE MINIMUM RESERVE RATIOS TO PESO DEPOSITS, AS WELL AS TO DEPOSIT SUBSTITUTES, WHICH EACH BANK AND/OR QUASI-BANK MAY MAINTAIN, AND SUCH RATIO SHALL BE APPLIED UNIFORMLY TO ALL BANKS OF THE SAME CATEGORY AS WELL AS TO QUASI-BANKS.

SECTION 97. REQUIRED RESERVES AGAINST FOREIGN CURRENCY DEPOSITS. THE MONETARY BOARD IS SIMILARLY AUTHORIZED TO PRESCRIBE AND MODIFY THE MINIMUM RESERVE RATIOS APPLICABLE TO DEPOSITS DENOMINATED IN FOREIGN CURRENCIES.

SECTION 98. RESERVES AGAINST UNUSED BALANCES OF OVERDRAFT LINES. IN ORDER TO FACILITATE BANGKO SENTRAL CONTROL OVER THE VOLUME OF BANK CREDIT, THE MONETARY BOARD MAY ESTABLISH MINIMUM RESERVE REQUIREMENTS FOR UNUSED BALANCES OF OVERDRAFT LINES. THE POWERS OF THE MONETARY BOARD TO PRESCRIBE AND MODIFY RESERVE REQUIREMENTS AGAINST UNUSED BALANCES OF OVERDRAFT LINES SHALL BE THE SAME AS ITS POWERS WITH RESPECT TO RESERVE REQUIREMENTS AGAINST DEMAND DEPOSITS.

SECTION 99. INCREASE IN RESERVE REQUIREMENTS. - WHENEVER IN THE OPINION OF THE MONETARY BOARD IT BECOMES NECESSARY TO INCREASE RESERVE REQUIREMENTS AGAINST EXISTING LIABILITIES, THE INCREASE SHALL BE MADE IN A GRADUAL MANNER AND SHALL NOT EXCEED FOUR PERCENTAGE POINTS IN ANY THIRTY-DAY PERIOD. BANKS AND OTHER AFFECTED FINANCIAL INSTITUTIONS SHALL BE NOTIFIED REASONABLY IN ADVANCE OF THE DATE ON WHICH SUCH INCREASE IS TO BECOME EFFECTIVE.

SECTION 100. COMPUTATION ON RESERVES. - THE RESERVE POSITION OF EACH BANK OR QUASI-BANK SHALL BE CALCULATED DAILY ON THE BASIS OF THE AMOUNT, AT THE CLOSE OF BUSINESS FOR THE DAY, OF THE INSTITUTION'S RESERVES AND THE AMOUNT OF ITS LIABILITY ACCOUNTS AGAINST WHICH RESERVES ARE REQUIRED TO BE MAINTAINED: PROVIDED, THAT WITH REFERENCE TO HOLIDAYS OR NON-BANKING DAYS, THE RESERVE POSITION AS CALCULATED AT THE CLOSE OF THE BUSINESS DAY IMMEDIATELY PRECEDING SUCH HOLIDAYS AND NON-BANKING DAYS SHALL APPLY ON SUCH DAYS.

FOR THE PURPOSE OF COMPUTING THE RESERVE POSITION OF EACH BANK OR QUASI-BANK, ITS PRINCIPAL OFFICE IN THE PHILIPPINES AND ALL ITS BRANCHES AND AGENCIES LOCATED THEREIN SHALL BE CONSIDERED AS A SINGLE UNIT.

SECTION 101. RESERVE DEFICIENCIES. - WHENEVER THE RESERVE POSITION OF ANY BANK OR QUASI-BANK, COMPUTED IN THE MANNER SPECIFIED IN THE PRECEDING SECTION OF THIS ACT, IS BELOW THE REQUIRED MINIMUM, THE BANK OR QUASI-BANK 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: PROVIDED, HOWEVER, THAT BANKS AND QUASI-BANKS SHALL ORDINARILY BE PERMITTED TO OFFSET ANY RESERVE DEFICIENCY OCCURRING ON ONE OR MORE DAYS OF THE WEEK WITH ANY

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EXCESS RESERVES WHICH THEY MAY HOLD ON OTHER DAYS OF THE SAME WEEK AND SHALL BE REQUIRED TO PAY THE PENALTY ONLY ON THE AVERAGE DAILY DEFICIENCY DURING THE WEEK. IN CASES OF ABUSE, THE MONETARY BOARD MAY DENY ANY BANK OR QUASI-BANK THE PRIVILEGE OF OFFSETTING RESERVE DEFICIENCIES IN THE AFORESAID MANNER.

IF A BANK OR QUASI-BANK CHRONICALLY HAS A RESERVE DEFICIENCY, THE MONETARY BOARD MAY LIMIT OR PROHIBIT THE MAKING OF NEW LOANS OR INVESTMENTS BY THE INSTITUTION AND MAY REQUIRE THAT PART OR ALL OF THE NET PROFITS OF THE INSTITUTION BE ASSIGNED TO SURPLUS.

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

SECTION 102. INTERBANK SETTLEMENT. - THE BANGKO SENTRAL SHALL ESTABLISH FACILITIES FOR INTERBANK CLEARING UNDER SUCH RULES AND REGULATIONS AS THE MONETARY BOARD MAY PRESCRIBE: PROVIDED, THAT THE BANGKO SENTRAL MAY CHARGE ADMINISTRATIVE AND OTHER FEES FOR THE MAINTENANCE OF SUCH FACILITIES.

THE DEPOSIT RESERVES MAINTAINED BY THE BANKS IN THE BANGKO SENTRAL IN ACCORDANCE WITH THE PROVISIONS OF SECTION 94 OF THIS ACT SHALL SERVE AS BASIS FOR THE CLEARING OF CHECKS AND THE SETTLEMENT OF INTERBANK BALANCES, SUBJECT TO SUCH RULES AND REGULATIONS AS THE MONETARY BOARD MAY ISSUE WITH RESPECT TO SUCH OPERATIONS: PROVIDED, THAT 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: PROVIDED, FURTHER, THAT 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 PURSUANT TO THE PROVISIONS OF SECTION 84 OF THIS ACT: PROVIDED, FINALLY, THAT THE APPROPRIATE CLEARING OFFICE SHALL BE OFFICIALLY NOTIFIED OF BANKS WITH OVERDRAWN BALANCES. BANKS WITH EXISTING OVERDRAFTS WITH THE BANGKO SENTRAL AS OF THE EFFECTIVITY OF THIS ACT SHALL, WITHIN SUCH PERIOD AS MAY BE PRESCRIBED BY THE MONETARY BOARD, EITHER CONVERT THE OVERDRAFT INTO AN EMERGENCY LOAN OR ADVANCE WITH A PLAN OF PAYMENT, OR SETTLE SUCH OVERDRAFTS, AND THAT, UPON FAILURE TO SO COMPLY HEREWITH, THE BANGKO SENTRAL SHALL TAKE SUCH ACTION AGAINST THE BANK AS MAY BE WARRANTED UNDER THIS ACT.

SECTION 103. EXEMPTION FROM ATTACHMENT AND OTHER PURPOSES. DEPOSITS MAINTAINED BY BANKS WITH THE BANGKO SENTRAL AS PART OF THEIR RESERVE REQUIREMENTS SHALL BE EXEMPT FROM ATTACHMENT, GARNISHMENTS, OR ANY OTHER ORDER OR PROCESS OF ANY COURT, 14 of 89

GOVERNMENT AGENCY OR ANY OTHER ADMINISTRATIVE BODY ISSUED TO SATISFY THE CLAIM OF A PARTY OTHER THAN THE GOVERNMENT, OR ITS POLITICAL SUBDIVISIONS OR INSTRUMENTALITIES.

Control of bank credit (Secs. 104-108; Secs. 37-38 and 43, RA 8791) SECTION 104. GUIDING PRINCIPLE. - THE MONETARY BOARD SHALL USE 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.

Moral influence (Sec. 68) SECTION 68. MEANS OF ACTION. - IN ORDER TO ACHIEVE THE PRIMARY OBJECTIVE OF PRICE STABILITY, THE MONETARY BOARD SHALL RELY ON ITS MORAL INFLUENCE AND THE POWERS GRANTED TO IT UNDER THIS ACT FOR THE MANAGEMENT OF MONETARY AGGREGATES.

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1.2

Cases

Authority of conservator to revoke contracts FIRST PHILIPPINE INTERNATIONAL BANK VS. CA, ET AL., G.R. 115849, JANUARY 24, 1996. FACTS: First Bank is refusing the tender of payment being made by the private respondents for an alleged perfected sale of certain parcels of land owned by First Bank. To justify its refusal, First Bank brought forth the argument that the person whom the private respondents have been negotiating with had no authority to represent First Bank; that at the time the negotiations between First Bank and the private respondents took place, its appointed conservator [First Bank has been placed by the Central Bank under conservatorship] had already repudiated the authority of said person. ISSUE: Was the repudiation valid? HELD: NO. It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended that the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act). While admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability." Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution. If the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law? Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective — i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of directors. What the said board cannot do — such as repudiating a contract validly entered into under the doctrine of implied authority — the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts — as he has already done so in the instant case.

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No need for prior hearing RURAL BANK OF BUHI VS. CA, G.R. L-61689, JUNE 20, 1988

FACTS: On January 10, 1980, a general examination of the bank's affairs and operations was conducted and there were found by the Rural Banks and Savings and Loan Association [DRBSLA] represented byConsolacion V. Odra, Director of DRBSLA, among others, massive irregularities in its operations consisting of loans to unknown and fictitious borrowers, where the sum of P 1,704,782.00 was past due and another sum of P1,130,000.00 was also past due in favor of the Central Bank. The promissory notes evidencing these loans were rediscounted with the Central Bank for cash. As a result thereof, the bank became insolvent and prejudiced its depositors and creditors. Consolacion V. Odra, submitted a report recommending to the Monetary Board of the Central Bank the placing of Buhi under receivership in accordance with Section 29 of Republic Act No. 265, as amended, the designation of the Director, DRBSLA, as receiver thereof. On March 28, 1980, the Monetary Board, finding the report to be true, adopted Resolution No. 583 placing Buhi, petitioner herein, under receivership and designated respondent, Consolacion V. Odra, as Receiver, pursuant to the provisions of Section 29 of Republic Act No. 265 as amended. Ïssue: Petitioner Rural Bank's position is to the effect that due process was not observed by the Monetary Board before said bank was placed under receivership. Said Rural Bank claimed that it was not given the chance to deny and disprove such claim of insolvency and/or any other ground which the Monetary Board used in justification of its action. HELD: Prior hearing not required under the law. It will be observed from the foregoing provision of law, that there is no requirement whether express or implied, that a hearing be first conducted before a banking institution may be placed under receivership. On the contrary, the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities. They are: (a) an examination made by the examining department of the Central Bank; (b) report by said department to the Monetary Board; and (c) prima facie showing that the bank is in a condition of insolvency or so situated that its continuance in business would involve probable loss to its depositors or creditors. Due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out, and disillusionment will run the gamut of the entire banking community.

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Section 30 of the BSP Law merely requires a report, not an examination, by the head of the supervising or examining department before a bank could be closed RURAL BANK OF SAN MIGUEL, ET AL. VS. MONETARY BOARD, ET AL., G.R. 150886, FEBRUARY 16, 2007. FACTS: On the basis of the comptrollership/monitoring report as of October 31, 1999 as reported by Mr. Wilfredo B. Domo-ong, Director, Department of Rural Banks, in his memorandum dated January 20, 2000, which report showed that [RBSM] (a) is unable to pay its liabilities as they become due in the ordinary course of business; (b) cannot continue in business without involving probable losses to its depositors and creditors; that the management of the bank had been accordingly informed of the need to infuse additional capital to place the bank in a solvent financial condition and was given adequate time within which to make the required infusion and that no infusion of adequate fresh capital was made, Monetary Board (MB), the governing board of respondent Bangko Sentral ng Pilipinas (BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the Philippines, placing it under receivership and designating respondent Philippine Deposit Insurance Corporation (PDIC) as receiver. ISSUE: Petitioners argue that Resolution No. 105 was bereft of any basis considering that no complete examination had been conducted before it was issued. This case essentially boils down to one core issue: whether Section 30 of RA 7653 (also known as the New Central Bank Act) and applicable jurisprudence require a current and complete examination of the bank before it can be closed and placed under receivership. HELD: In RA 7653, only a "report” of the head of the supervising or examining department" is necessary. It is an established rule in statutory construction that where the words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature and what its wisdom dictates. The lawmakers could have easily retained the word "examination" (and in the process also preserved the jurisprudence attached to it) but they did not and instead opted to use the word "report." The insistence on an examination is not sanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it a requirement when such is not supported by the language of the law.

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BSP, not RTC, has jurisdiction over acts complained of that pertain to bank’s business KORUGA VS. ARCENAS, ET AL., G.R. 168332, JUNE 19, 2009. FACTS: Koruga’s Complaint charged defendants with violation of Sections 31 to 34 of the Corporation Code, prohibiting self-dealing and conflict of interest of directors and officers; invoked her right to inspect the corporation’s records under Sections 74 and 75 of the Corporation Code; and prayed for Receivership and Creation of a Management Committee, pursuant to Rule 59 of the Rules of Civil Procedure, the Securities Regulation Code, the Interim Rules of Procedure Governing Intra-Corporate Controversies, the General Banking Law of 2000, and the New Central Bank Act. ISSUE: Who has jurisdiction over the complaint [BSP or RTC]? HELD: Whether the loans referred to in Koruga’s complaint are covered by the prohibition on self-dealing or not is a matter for the BSP to determine [not the RTC]. These are not ordinary intra-corporate matters. The acts complained of pertain to the conduct of Banco Filipino’s banking business. A bank, as defined in the General Banking Law, refers to an entity engaged in the lending of funds obtained in the form of deposits. The law vests in the BSP the supervision over operations and activities of banks. Also, it is the BSP [and not the RTC] which has jurisdiction to hear and decide the suit that seeks to place Banco Filipino under receivership. Following the principle of “generalia specialibus non derogant,” is not the Interim Rules of Procedure on Intra-Corporate Controversies nor Rule 59 of the Rules of Civil Procedure on Receivership, that would apply to this case. Instead, Sections 29 and 30 of the New Central Bank Act should be followed. Crystal clear in Section 30 is the provision that says the "appointment of a receiver under this section shall be vested exclusively with the Monetary Board." The term "exclusively" connotes that only the Monetary Board can resolve the issue of whether a bank is to be placed under receivership and, upon an affirmative finding, it also has authority to appoint a receiver. This is further affirmed by the fact that the law allows the Monetary Board to take action "summarily and without need for prior hearing." And, as a clincher, the law explicitly provides that "actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory, and may not be restrained or set aside by the court except on a petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction."

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“Close now, hear later” doctrine BANGKO SENTRAL, ET AL. VS. VALENZUELA, ET AL., G.R. 184778, OCTOBER 2, 2009. FACTS: Acting on a BSP Report of Examination [on the books of the private respondents], the BSP required the private respondents to undertake certain remedial measures. Private respondents are asking for the nullification of a BSP Report of Examination (ROE) and the issuance of a writ of preliminary investigation on the ground that they were not furnished copies of the ROE, despite the fact that they’ve been requesting for copies of the said report. The lower court nevertheless granted the request. ISSUE: Was the issuance of the writ valid? HELD: NO. The respondent banks have shown no necessity for the writ of preliminary injunction to prevent serious damage. The serious damage contemplated by the trial court was the possibility of the imposition of sanctions upon respondent banks, even the sanction of closure. Under the law, the sanction of closure could be imposed upon a bank by the BSP even without notice and hearing. The apparent lack of procedural due process would not result in the invalidity of action by the MB. This "close now, hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank’s assets and as a valid exercise of police power to protect the depositors, creditors, stockholders, and the general public. The writ of preliminary injunction cannot, thus, prevent the MB from taking action, by preventing the submission of the ROEs and worse, by preventing the MB from acting on such ROEs. The "close now, hear later" doctrine has already been justified as a measure for the protection of the public interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire straits. Unless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of the government. 1.3

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

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

2.1

Topics State policy SECTION 2. DECLARATION OF POLICY. - 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. (N)

Concept of intermediation Distinction between banks (Sec. 3) and quasi-banks (Sec. 4) SECTION 3.1. "BANKS" SHALL REFER TO ENTITIES ENGAGED IN THE LENDING OF FUNDS OBTAINED IN THE FORM OF DEPOSITS. (2A) SECTION 4. FOR THE PURPOSES OF THIS ACT, "QUASI-BANKS" SHALL REFER TO ENTITIES ENGAGED IN THE BORROWING OF FUNDS THROUGH THE ISSUANCE, ENDORSEMENT OR ASSIGNMENT WITH RECOURSE OR ACCEPTANCE OF DEPOSIT SUBSTITUTES AS DEFINED IN SECTION 95 OF REPUBLIC ACT NO. 7653 (HEREAFTER THE "NEW CENTRAL BANK ACT") FOR PURPOSES OF RE-LENDING OR PURCHASING OF RECEIVABLES AND OTHER OBLIGATIONS. (2-DA)

SECTION 95. RA 7653. DEFINITION OF DEPOSIT SUBSTITUTES. - THE TERM "DEPOSIT SUBSTITUTES" IS DEFINED AS— 1. AN ALTERNATIVE FORM OF OBTAINING FUNDS FROM THE PUBLIC, OTHER THAN DEPOSITS, 2. THROUGH THE ISSUANCE, ENDORSEMENT, OR ACCEPTANCE OF DEBT INSTRUMENTS

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

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Classification of banks (Secs. 3.2 and 71) SECTION. 3.2. BANKS SHALL BE CLASSIFIED INTO: (A) UNIVERSAL BANKS; (B) COMMERCIAL BANKS; (C) THRIFT BANKS, COMPOSED OF: (I) SAVINGS AND MORTGAGE BANKS, (II) STOCK SAVINGS AND LOAN ASSOCIATIONS, AND (III) PRIVATE 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. (6-AA) SECTION 71. OTHER BANKING LAWS. - THE ORGANIZATION, THE OWNERSHIP AND CAPITAL REQUIREMENTS, POWERS, SUPERVISION AND GENERAL CONDUCT OF BUSINESS OF THRIFT BANKS, RURAL BANKS AND COOPERATIVE BANKS SHALL BE GOVERNED BY THE PROVISIONS OF THE THRIFT BANKS ACT, THE RURAL BANKS ACT, AND THE COOPERATIVE CODE, RESPECTIVELY. THE ORGANIZATION, OWNERSHIP AND CAPITAL REQUIREMENTS, POWERS, SUPERVISION AND GENERAL CONDUCT OF BUSINESS OF ISLAMIC BANKS SHALL BE GOVERNED BY SPECIAL LAWS. THE PROVISIONS OF THIS ACT, HOWEVER, INSOFAR AS THEY ARE NOT IN CONFLICT WITH THE PROVISIONS OF THE THRIFT BANKS ACT, THE RURAL BANKS ACT, AND THE COOPERATIVE CODE SHALL LIKEWISE APPLY TO THRIFT BANKS, RURAL BANKS, AND COOPERATIVE BANKS, RESPECTIVELY. HOWEVER, FOR PURPOSES OF PRESCRIBING THE MINIMUM RATIO WHICH THE NET WORTH OF A THRIFT BANK MUST BEAR TO ITS TOTAL RISK ASSETS, THE PROVISIONS OF SECTION 33 OF THIS ACT SHALL GOVERN. (N)

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Distinction between universal banks and commercial banks (Secs. 23, 24 and 30) SECTION 23. POWERS OF A UNIVERSAL BANK - A UNIVERSAL BANK SHALL HAVE THE AUTHORITY TO EXERCISE, IN ADDITION TO THE POWERS AUTHORIZED FOR A COMMERCIAL BANK IN SECTION 29, 1. THE POWERS OF AN INVESTMENT HOUSE AS PROVIDED IN EXISTING LAWS AND

2. THE POWER TO INVEST IN NON-ALLIED ENTERPRISES AS PROVIDED IN THIS ACT. (21-B) SECTION 30. EQUITY INVESTMENTS OF A COMMERCIAL BANK. - A COMMERCIAL BANK MAY, SUBJECT TO THE CONDITIONS STATED IN THE SUCCEEDING PARAGRAPHS, INVEST ONLY IN THE EQUITIES OF ALLIED ENTERPRISES AS MAY BE DETERMINED BY THE MONETARY BOARD. SECTION 24. EQUITY INVESTMENTS OF A UNIVERSAL BANK. - A UNIVERSAL BANK MAY, SUBJECT TO THE CONDITIONS STATED IN THE SUCCEEDING PARAGRAPH, INVEST IN THE EQUITIES OF ALLIED AND NON-ALLIED ENTERPRISES AS MAY BE DETERMINED BY THE MONETARY BOARD. SECTION 24. EQUITY INVESTMENTS OF A UNIVERSAL BANK. - EXCEPT AS THE MONETARY BOARD MAY OTHERWISE PRESCRIBE:

SECTION 30. EQUITY INVESTMENTS OF A COMMERCIAL BANK. - EXCEPT AS THE MONETARY BOARD MAY OTHERWISE PRESCRIBE:

24.1. THE TOTAL INVESTMENT IN EQUITIES OF ALLIED AND NON-ALLIED ENTERPRISES SHALL NOT EXCEED FIFTY PERCENT (50%) OF THE NET WORTH OF THE BANK; AND

30.1. THE TOTAL INVESTMENT IN EQUITIES OF

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

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

THE ACQUISITION OF SUCH EQUITY OR EQUITIES

THE ACQUISITION OF SUCH EQUITY OR EQUITIES

IS SUBJECT TO THE PRIOR APPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATE APPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENTS. (21-BA)

IS SUBJECT TO THE PRIOR APPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATE APPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENT.(2LA-A; 21-CA)

ALLIED ENTERPRISES SHALL NOT EXCEED THIRTY-FIVE PERCENT (35%) OF THE NET WORTH OF THE BANK; AND

AS USED IN THIS ACT, "NET WORTH" SHALL MEAN THE TOTAL OF THE UNIMPAIRED PAID-IN CAPITAL INCLUDING— 1. PAID-IN SURPLUS, 2. RETAINED EARNINGS AND 3. UNDIVIDED PROFIT, NET OF VALUATION RESERVES AND OTHER ADJUSTMENTS AS MAY BE REQUIRED BY THE BANGKO SENTRAL.

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Distinction between universal or commercial banks and other banks (Sec. 33) SECTION 33. ACCEPTANCE OF DEMAND DEPOSITS. - A BANK OTHER THAN A UNIVERSAL OR COMMERCIAL BANK CANNOT ACCEPT OR CREATE DEMAND DEPOSITS EXCEPT UPON PRIOR APPROVAL OF, AND SUBJECT TO SUCH CONDITIONS AND RULES AS MAY BE PRESCRIBED BY THE MONETARY BOARD. (72AA)

SECTION 59. RA 7653 ISSUE OF DEMAND DEPOSITS. - ONLY BANKS DULY AUTHORIZED TO DO SO MAY ACCEPT FUNDS OR CREATE LIABILITIES PAYABLE IN PESOS UPON DEMAND BY THE PRESENTATION OF CHECKS, AND SUCH OPERATIONS SHALL BE SUBJECT TO THE CONTROL OF THE MONETARY BOARD IN ACCORDANCE WITH THE POWERS GRANTED IT WITH RESPECT THERETO UNDER THIS ACT.

SECTION 58, RA 7653. DEFINITION. - FOR PURPOSES OF THIS ACT, THE TERM "DEMAND DEPOSITS" MEANS ALL THOSE LIABILITIES OF THE BANGKO SENTRAL AND OF OTHER BANKS WHICH ARE DENOMINATED IN PHILIPPINE CURRENCY AND ARE SUBJECT TO PAYMENT IN LEGAL TENDER UPON DEMAND BY THE PRESENTATION OF CHECKS.

SECTION 60. RA 7653. LEGAL CHARACTER. - CHECKS REPRESENTING DEMAND DEPOSITS DO NOT HAVE LEGAL TENDER POWER AND THEIR ACCEPTANCE IN THE PAYMENT OF DEBTS, BOTH PUBLIC AND PRIVATE, IS AT THE OPTION OF THE CREDITOR: PROVIDED, HOWEVER, THAT A CHECK WHICH HAS BEEN CLEARED AND CREDITED TO THE ACCOUNT OF THE CREDITOR SHALL BE EQUIVALENT TO A DELIVERY TO THE CREDITOR OF CASH IN AN AMOUNT EQUAL TO THE AMOUNT CREDITED TO HIS ACCOUNT.

Distinction between allied and non-allied enterprises (Secs. 23, et seq.) SECTION 25. EQUITY INVESTMENTS OF A UNIVERSAL BANK IN FINANCIAL ALLIED ENTERPRISES. - A UNIVERSAL BANK CAN OWN UP TO ONE HUNDRED PERCENT (100%) OF THE EQUITY IN A THRIFT BANK, A RURAL BANK OR A FINANCIAL ALLIED ENTERPRISE. A PUBLICLY-LISTED UNIVERSAL OR COMMERCIAL BANK MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THE VOTING STOCK OF ONLY ONE OTHER UNIVERSAL OR COMMERCIAL BANK. (21-B; 21-CA) SECTION 26. EQUITY INVESTMENTS OF A UNIVERSAL BANK IN NON-FINANCIAL ALLIED ENTERPRISES. - A UNIVERSAL BANK MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THE EQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (21BA) SECTION 27. EQUITY INVESTMENTS OF A UNIVERSAL BANK IN NON-ALLIED ENTERPRISES. - THE EQUITY INVESTMENT OF A UNIVERSAL BANK, OR OF ITS WHOLLY OR MAJORITY-OWNED SUBSIDIARIES, IN A SINGLE NON-ALLIED ENTERPRISE SHALL NOT EXCEED THIRTY-FIVE PERCENT (35%) OF THE TOTAL EQUITY IN THAT ENTERPRISE NOR SHALL IT EXCEED THIRTY-FIVE PERCENT (35%) OF THE VOTING STOCK IN THAT ENTERPRISE. (21-B) SECTION

28. EQUITY INVESTMENTS IN QUASI-BANKS. - TO PROMOTE COMPETITIVE CONDITIONS IN FINANCIAL MARKETS, THE MONETARY BOARD MAY 24 of 89

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

Institutions subject to BSP supervisory and regulatory powers (Sec. 4; see Sec. 25, RA 7653) SECTION 4. SUPERVISORY POWERS. THE OPERATIONS AND ACTIVITIES OF BANKS SHALL BE SUBJECT TO SUPERVISION OF THE BANGKO SENTRAL. THE BANGKO SENTRAL SHALL ALSO HAVE SUPERVISION OVER THE OPERATIONS OF AND EXERCISE REGULATORY POWERS OVER QUASI-BANKS, TRUST ENTITIES AND OTHER FINANCIAL INSTITUTIONS WHICH UNDER SPECIAL LAWS ARE SUBJECT TO BANGKO SENTRAL SUPERVISION. (2-CA)

SECTION 25, RA 7653. SUPERVISION AND EXAMINATION. - THE BANGKO SENTRAL SHALL HAVE SUPERVISION OVER, AND CONDUCT PERIODIC OR SPECIAL EXAMINATIONS OF, BANKING INSTITUTIONS AND QUASI-BANKS, INCLUDING THEIR SUBSIDIARIES AND AFFILIATES ENGAGED IN ALLIED ACTIVITIES. FOR PURPOSES OF THIS SECTION, A SUBSIDIARY MEANS A CORPORATION MORE THAN FIFTY PERCENT (50%) OF THE VOTING STOCK OF WHICH IS OWNED BY A BANK OR QUASI-BANK AND AN AFFILIATE MEANS A CORPORATION THE VOTING STOCK OF WHICH, TO THE EXTENT OF FIFTY PERCENT (50%) OR LESS, IS OWNED BY A BANK OR QUASI-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 MONETARY BOARD.

SECTION 25, RA 7653. SUPERVISION AND EXAMINATION. - NO RESTRAINING ORDER OR INJUNCTION SHALL BE ISSUED BY THE COURT ENJOINING THE BANGKO SENTRAL FROM EXAMINING ANY INSTITUTION SUBJECT TO SUPERVISION OR EXAMINATION BY THE BANGKO SENTRAL, UNLESS— 1. THERE IS CONVINCING PROOF THAT THE ACTION OF THE BANGKO SENTRAL IS PLAINLY ARBITRARY AND MADE IN BAD FAITH AND

2. THE PETITIONER OR PLAINTIFF FILES WITH THE CLERK OR JUDGE OF THE COURT IN WHICH THE ACTION IS PENDING A BOND EXECUTED IN FAVOR OF THE BANGKO SENTRAL, IN AN AMOUNT TO BE FIXED BY THE COURT.

THE PROVISIONS OF RULE 58 OF THE NEW RULES OF COURT INSOFAR AS THEY ARE APPLICABLE AND NOT INCONSISTENT WITH THE PROVISIONS OF THIS SECTION SHALL GOVERN THE ISSUANCE AND DISSOLUTION OF THE RESTRAINING ORDER OR INJUNCTION CONTEMPLATED IN THIS SECTION.

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Authority to engage in banking functions (Sec. 6) SECTION 6. AUTHORITY TO ENGAGE IN BANKING AND QUASI-BANKING FUNCTIONS. - NO PERSON OR ENTITY SHALL ENGAGE IN BANKING OPERATIONS OR QUASI-BANKING FUNCTIONS WITHOUT AUTHORITY FROM THE BANGKO SENTRAL: PROVIDED, HOWEVER, THAT AN ENTITY AUTHORIZED BY THE BANGKO SENTRAL TO PERFORM UNIVERSAL OR COMMERCIAL BANKING FUNCTIONS SHALL LIKEWISE HAVE THE AUTHORITY TO ENGAGE IN QUASI-BANKING FUNCTIONS.

THE DETERMINATION OF WHETHER A PERSON OR ENTITY IS PERFORMING BANKING OR QUASI-BANKING FUNCTIONS WITHOUT BANGKO SENTRAL AUTHORITY SHALL BE DECIDED BY THE MONETARY BOARD. TO RESOLVE SUCH ISSUE, THE MONETARY BOARD MAY; THROUGH THE APPROPRIATE SUPERVISING AND EXAMINING DEPARTMENT OF THE BANGKO SENTRAL, EXAMINE, INSPECT OR INVESTIGATE THE BOOKS AND RECORDS OF SUCH PERSON OR ENTITY. UPON ISSUANCE OF THIS AUTHORITY, SUCH PERSON OR ENTITY MAY COMMENCE TO ENGAGE IN BANKING OPERATIONS OR QUASI-BANKING FUNCTION AND SHALL CONTINUE TO DO SO UNLESS SUCH AUTHORITY IS SOONER SURRENDERED, REVOKED, SUSPENDED OR ANNULLED BY THE BANGKO SENTRAL IN ACCORDANCE WITH THIS ACT OR OTHER SPECIAL LAWS. XXX. PERSONS OR ENTITIES FOUND TO BE PERFORMING BANKING OR QUASI-BANKING FUNCTIONS WITHOUT AUTHORITY FROM THE BANGKO SENTRAL SHALL BE SUBJECT TO APPROPRIATE SANCTIONS UNDER THE NEW CENTRAL BANK ACT AND OTHER APPLICABLE LAWS. (4A) Stock corporation (Sec. 8) SECTION 8. ORGANIZATION. - THE MONETARY BOARD MAY AUTHORIZE THE ORGANIZATION OF A BANK OR QUASI-BANK SUBJECT TO THE FOLLOWING CONDITIONS: 8.1 THAT THE ENTITY IS A STOCK CORPORATION (7); 8.2 THAT ITS FUNDS ARE OBTAINED FROM THE PUBLIC, WHICH SHALL MEAN TWENTY (20) OR MORE PERSONS (2-DA); AND 8.3 THAT THE MINIMUM CAPITAL REQUIREMENTS PRESCRIBED BY THE MONETARY BOARD FOR EACH CATEGORY OF BANKS ARE SATISFIED. (N) NO NEW COMMERCIAL BANK SHALL BE ESTABLISHED WITHIN THREE (3) YEARS FROM THE EFFECTIVITY OF THIS ACT. IN THE EXERCISE OF THE AUTHORITY GRANTED HEREIN, THE MONETARY BOARD SHALL TAKE INTO CONSIDERATION THEIR CAPABILITY IN TERMS OF THEIR FINANCIAL RESOURCES AND TECHNICAL EXPERTISE AND INTEGRITY. THE BANK LICENSING PROCESS SHALL INCORPORATE AN ASSESSMENT OF THE BANK'S OWNERSHIP STRUCTURE, DIRECTORS AND SENIOR MANAGEMENT, ITS OPERATING PLAN AND INTERNAL CONTROLS AS WELL AS ITS PROJECTED FINANCIAL CONDITION AND CAPITAL BASE.

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Not a close corporation (Sec. 96, Corporation Code) SECTION 96. DEFINITION AND APPLICABILITY OF TITLE. - ANY CORPORATION MAY BE INCORPORATED AS A CLOSE CORPORATION, EXCEPT MINING OR OIL COMPANIES, STOCK EXCHANGES, BANKS, INSURANCE COMPANIES, PUBLIC UTILITIES, EDUCATIONAL INSTITUTIONS AND CORPORATIONS DECLARED TO BE VESTED WITH PUBLIC INTEREST IN ACCORDANCE WITH THE PROVISIONS OF THIS CODE.

Par value stock (Sec. 9) SECTION 9. ISSUANCE OF STOCKS. - THE MONETARY BOARD MAY PRESCRIBE RULES AND REGULATIONS ON THE TYPES OF STOCK A BANK MAY ISSUE, INCLUDING THE TERMS THEREOF AND RIGHTS APPURTENANT THERETO TO DETERMINE COMPLIANCE WITH LAWS AND REGULATIONS GOVERNING CAPITAL AND EQUITY STRUCTURE OF BANKS; PROVIDED, THAT BANKS SHALL ISSUE PAR VALUE STOCKS ONLY.

Ownership of shares (Sec. 11) SECTION 11. FOREIGN STOCKHOLDINGS. - FOREIGN INDIVIDUALS AND NONBANK CORPORATIONS MAY OWN OR CONTROL UP TO FORTY PERCENT (40%) OF THE VOTING STOCK OF A DOMESTIC BANK. THIS RULE SHALL APPLY TO FILIPINOS AND DOMESTIC NON-BANK CORPORATIONS. (12A; 12-AA) THE PERCENTAGE OF FOREIGN-OWNED VOTING STOCKS IN A BANK SHALL BE DETERMINED BY THE CITIZENSHIP OF THE INDIVIDUAL STOCKHOLDERS IN THAT BANK. THE CITIZENSHIP OF THE CORPORATION WHICH IS A STOCKHOLDER IN A BANK SHALL FOLLOW THE CITIZENSHIP OF THE CONTROLLING STOCKHOLDERS OF THE CORPORATION, IRRESPECTIVE OF THE PLACE OF INCORPORATION.

MB certificate of authority

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Powers of a universal bank (Secs. 23-29, 53) SECTION 23. POWERS OF A UNIVERSAL BANK - A UNIVERSAL BANK SHALL HAVE THE AUTHORITY TO EXERCISE THE POWERS OF AN INVESTMENT HOUSE AS PROVIDED IN EXISTING LAWS; AND— POWERS AUTHORIZED FOR A COMMERCIAL BANK IN SECTION 29,

POWER TO INVEST ENTERPRISES

SECTION 29. POWERS OF COMMERCIAL BANK. -

SECTION 25. UP TO 100% OF THE EQUITY IN A THRIFT BANK, A RURAL

A

A

COMMERCIAL BANK SHALL HAVE, IN ADDITION TO THE GENERAL POWERS INCIDENT TO CORPORATIONS, ALL SUCH POWERS AS MAY BE NECESSARY TO CARRY ON THE BUSINESS OF COMMERCIAL BANKING SUCH AS –

1. ACCEPTING DRAFTS AND ISSUING LETTERS OF CREDIT; 2. DISCOUNTING AND NEGOTIATING PROMISSORY NOTES, DRAFTS, BILLS OF EXCHANGE, AND OTHER EVIDENCES OF DEBT; 3. ACCEPTING

OR DEMAND DEPOSITS;

CREATING

4. RECEIVING OTHER

TYPES OF DEPOSIT

DEPOSITS AND SUBSTITUTES;

5. BUYING AND SELLING FOREIGN EXCHANGE AND GOLD OR SILVER BULLION;

6. ACQUIRING MARKETABLE BONDS AND OTHER DEBT SECURITIES; 7. EXTENDING CREDIT, SUBJECT TO SUCH RULES AS THE MONETARY BOARD MAY PROMULGATE. THESE RULES MAY INCLUDE THE DETERMINATION OF BONDS AND OTHER DEBT SECURITIES ELIGIBLE FOR INVESTMENT, THE MATURITIES AND AGGREGATE AMOUNT OF SUCH INVESTMENT.

BANK OR A ENTERPRISE.

IN

FINANCIAL

ALLIED

ALLIED

A PUBLICLY-LISTED UNIVERSAL OR COMMERCIAL BANK MAY OWN UP TO 100% OF THE VOTING STOCK OF ONLY ONE OTHER UNIVERSAL OR COMMERCIAL BANK.

POWER TO INVEST IN NON-ALLIED ENTERPRISES

SECTION

27. THE EQUITY INVESTMENT OF A UNIVERSAL BANK, OR OF ITS WHOLLY OR MAJORITY-OWNED SUBSIDIARIES, IN A SINGLE NON-ALLIED ENTERPRISE SHALL NOT EXCEED 35% OF THE TOTAL EQUITY IN THAT ENTERPRISE NOR SHALL IT EXCEED 35% OF THE VOTING STOCK IN THAT ENTERPRISE. (21B)

SECTION 26. UP TO 100% OF THE EQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (21-BA) SECTION 28. THE MONETARY BOARD MAY FURTHER LIMIT TO 40% EQUITY INVESTMENTS OF UNIVERSAL BANKS IN QUASI-BANKS. THIS RULE SHALL ALSO APPLY IN THE CASE OF COMMERCIAL BANKS. SECTION 24. EQUITY INVESTMENTS OF A UNIVERSAL BANK. 24.1. THE TOTAL INVESTMENT IN EQUITIES OF ALLIED AND NON-ALLIED ENTERPRISES SHALL NOT EXCEED FIFTY PERCENT (50%) OF THE NET WORTH OF THE BANK; AND 24.2. THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE, WHETHER ALLIED OR NON-ALLIED, SHALL NOT EXCEED TWENTY-FIVE PERCENT (25%) OF THE NET WORTH OF THE BANK. AS USED IN THIS ACT, "NET WORTH" SHALL MEAN THE TOTAL OF THE UNIMPAIRED PAID-IN CAPITAL INCLUDING PAID-IN SURPLUS, RETAINED EARNINGS AND UNDIVIDED PROFIT, NET OF VALUATION RESERVES AND OTHER ADJUSTMENTS AS MAY BE REQUIRED BY THE BANGKO SENTRAL. THE ACQUISITION OF SUCH EQUITY OR EQUITIES IS SUBJECT TO THE PRIOR APPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATE APPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENTS. (21-BA)

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SECTION 53. OTHER BANKING SERVICES. - IN ADDITION TO THE OPERATIONS SPECIFICALLY AUTHORIZED IN THIS ACT, A BANK MAY PERFORM THE FOLLOWING SERVICES: 53.1. RECEIVE IN CUSTODY FUNDS, DOCUMENTS AND VALUABLE OBJECTS; 53.2. ACT AS FINANCIAL AGENT AND BUY AND SELL, BY ORDER OF AND FOR THE ACCOUNT OF THEIR CUSTOMERS, SHARES, EVIDENCES OF INDEBTEDNESS AND ALL TYPES OF SECURITIES; 53.3. MAKE COLLECTIONS AND PAYMENTS FOR THE ACCOUNT OF OTHERS AND

PERFORM SUCH OTHER SERVICES FOR THEIR CUSTOMERS AS ARE NOT INCOMPATIBLE WITH BANKING BUSINESS;

53.4 UPON PRIOR APPROVAL OF THE MONETARY BOARD, ACT AS MANAGING AGENT, ADVISER, CONSULTANT OR ADMINISTRATOR OF INVESTMENT MANAGEMENT/ADVISORY/CONSULTANCY ACCOUNTS; AND 53.5. RENT OUT SAFETY DEPOSIT BOXES.

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Powers of a commercial bank (Secs. 29-32, 53) SECTION 29. POWERS OF A COMMERCIAL BANK. - A COMMERCIAL BANK SHALL HAVE, IN ADDITION TO THE GENERAL POWERS INCIDENT TO CORPORATIONS, ALL SUCH POWERS AS MAY BE NECESSARY TO CARRY ON THE BUSINESS OF COMMERCIAL BANKING SUCH AS

1. ACCEPTING DRAFTS AND ISSUING LETTERS OF CREDIT; 2. DISCOUNTING AND NEGOTIATING PROMISSORY NOTES, DRAFTS, BILLS OF EXCHANGE, AND OTHER EVIDENCES OF DEBT; 3. ACCEPTING OR CREATING DEMAND DEPOSITS; 4. RECEIVING OTHER TYPES OF DEPOSITS AND DEPOSIT SUBSTITUTES; 5. BUYING AND SELLING FOREIGN EXCHANGE AND GOLD OR SILVER BULLION; 6. ACQUIRING MARKETABLE BONDS AND OTHER DEBT SECURITIES; AND 7. EXTENDING CREDIT, SUBJECT TO SUCH RULES AS THE MONETARY BOARD MAY PROMULGATE. THESE RULES MAY INCLUDE THE DETERMINATION OF BONDS AND OTHER DEBT SECURITIES ELIGIBLE FOR INVESTMENT, THE MATURITIES AND AGGREGATE AMOUNT OF SUCH INVESTMENT. SECTION 30. EQUITY INVESTMENTS OF A COMMERCIAL BANK. - A COMMERCIAL BANK MAY, SUBJECT TO THE CONDITIONS STATED IN THE SUCCEEDING PARAGRAPHS, INVEST ONLY IN THE EQUITIES OF ALLIED ENTERPRISES AS MAY BE DETERMINED BY THE MONETARY BOARD. ALLIED ENTERPRISES MAY EITHER BE FINANCIAL OR NON-FINANCIAL. EXCEPT AS THE MONETARY BOARD MAY OTHERWISE PRESCRIBE: 30.1. THE TOTAL INVESTMENT IN EQUITIES OF ALLIED ENTERPRISES SHALL NOT EXCEED THIRTY-FIVE PERCENT (35%) OF THE NET WORTH OF THE BANK; AND

30.2. THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE SHALL NOT EXCEED TWENTY-FIVE PERCENT (25%) OF TILE NET WORTH OF THE BANK. THE ACQUISITION OF SUCH EQUITY OR EQUITIES IS SUBJECT TO THE PRIOR APPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATE APPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENT.(2LA-A; 21-CA)

SECTION 31. EQUITY INVESTMENTS OF A COMMERCIAL BANK IN FINANCIAL ALLIED ENTERPRISES. - A COMMERCIAL BANK MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THE EQUITY OF A THRIFT BANK OR A RURAL BANK. W HERE THE EQUITY INVESTMENT OF A COMMERCIAL BANK IS IN OTHER FINANCIAL ALLIED ENTERPRISES, INCLUDING ANOTHER COMMERCIAL BANK, SUCH INVESTMENT SHALL REMAIN A MINORITY HOLDING IN THAT ENTERPRISE. (21-AA; 21-CA)

SECTION 32. EQUITY INVESTMENTS OF A COMMERCIAL BANK IN NON-FINANCIAL ALLIED ENTERPRISES. A COMMERCIAL BANK MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THE EQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (21AA) ARTICLE III. PROVISIONS APPLICABLE TO ALL BANKS, QUASI-BANKS, AND TRUST ENTITIES

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SECTION 53. OTHER BANKING SERVICES. - IN ADDITION TO THE OPERATIONS SPECIFICALLY AUTHORIZED IN THIS ACT, A BANK MAY PERFORM THE FOLLOWING SERVICES: 53.1. RECEIVE IN CUSTODY FUNDS, DOCUMENTS AND VALUABLE OBJECTS; 53.2. ACT AS FINANCIAL AGENT AND BUY AND SELL, BY ORDER OF AND FOR THE ACCOUNT OF THEIR CUSTOMERS, SHARES, EVIDENCES OF INDEBTEDNESS AND ALL TYPES OF SECURITIES; 53.3. MAKE COLLECTIONS AND PAYMENTS FOR THE ACCOUNT OF OTHERS AND

PERFORM SUCH OTHER SERVICES FOR THEIR CUSTOMERS AS ARE NOT INCOMPATIBLE WITH BANKING BUSINESS;

53.4 UPON PRIOR APPROVAL OF THE MONETARY BOARD, ACT AS MANAGING AGENT, ADVISER, CONSULTANT OR ADMINISTRATOR OF INVESTMENT MANAGEMENT/ADVISORY/CONSULTANCY ACCOUNTS; AND 53.5. RENT OUT SAFETY DEPOSIT BOXES. Areas of supervision and regulation of banks Acquisition by bank of own shares (Sec. 10) SECTION 10. TREASURY STOCKS. - NO BANK SHALL PURCHASE OR ACQUIRE

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

Stockholdings of family groups and related interests (Secs. 12-13) SECTION 12. STOCKHOLDINGS OF FAMILY GROUPS OF RELATED INTERESTS. STOCKHOLDINGS OF INDIVIDUALS RELATED TO EACH OTHER WITHIN THE FOURTH DEGREE OF CONSANGUINITY OR AFFINITY, LEGITIMATE OR COMMON-LAW , SHALL BE CONSIDERED FAMILY GROUPS OR RELATED INTERESTS AND MUST BE FULLY DISCLOSED IN ALL TRANSACTIONS BY SUCH CORPORATIONS OR RELATED GROUPS OF PERSONS WITH THE BANK. (12-BA)

SECTION 13. CORPORATE STOCKHOLDINGS. - 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 FULLY DISCLOSED IN ALL TRANSACTIONS BY SUCH CORPORATIONS OR RELATED GROUP OF PERSONS WITH THE BANK. (12-BA)

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Independent directors (Sec. 15) SECTION 15. BOARD OF DIRECTORS. - THE PROVISIONS OF THE CORPORATION CODE TO THE CONTRARY NOTWITHSTANDING, THERE SHALL BE AT LEAST FIVE (5), AND A MAXIMUM OF FIFTEEN (15) MEMBERS OF THE BOARD OR DIRECTORS OF A BANK, TWO (2) OF WHOM SHALL BE INDEPENDENT DIRECTORS. AN "INDEPENDENT DIRECTOR" SHALL MEAN A PERSON OTHER THAN AN OFFICER OR EMPLOYEE OF THE BANK, ITS SUBSIDIARIES OR AFFILIATES OR RELATED INTERESTS. (N) NONFILIPINO CITIZENS MAY BECOME MEMBERS OF THE BOARD OF DIRECTORS OF A BANK TO THE EXTENT OF THE FOREIGN PARTICIPATION IN THE EQUITY OF SAID BANK. (SEC. 7, RA 7721) THE MEETINGS OF THE BOARD OF DIRECTORS MAY BE CONDUCTED THROUGH MODERN TECHNOLOGIES SUCH AS, BUT NOT LIMITED TO, TELECONFERENCING AND VIDEO-CONFERENCING. (N)

Qualifications of directors and officers: the fit and proper rule (Sec. 16) SECTION 16. FIT AND PROPER RULE. - TO MAINTAIN THE QUALITY OF BANK

MANAGEMENT AND AFFORD BETTER PROTECTION TO DEPOSITORS AND THE PUBLIC IN GENERAL THE MONETARY BOARD SHALL PRESCRIBE, PASS UPON AND REVIEW THE QUALIFICATIONS AND DISQUALIFICATIONS OF INDIVIDUALS ELECTED OR APPOINTED BANK DIRECTORS OR OFFICERS AND DISQUALIFY THOSE FOUND UNFIT. AFTER DUE NOTICE TO THE BOARD OF DIRECTORS OF THE BANK, THE MONETARY BOARD MAY DISQUALIFY, SUSPEND OR REMOVE ANY BANK DIRECTOR OR OFFICER WHO COMMITS OR OMITS AN ACT WHICH RENDER HIM UNFIT FOR THE POSITION. IN DETERMINING WHETHER AN INDIVIDUAL IS FIT AND PROPER TO HOLD THE POSITION OF A DIRECTOR OR OFFICER OF A BANK, REGARD SHALL BE GIVEN TO HIS INTEGRITY, EXPERIENCE, EDUCATION, TRAINING, AND COMPETENCE. (9-AA)

Prohibition on public officials (Sec. 19) SECTION 19. PROHIBITION ON PUBLIC OFFICIALS. - EXCEPT AS OTHERWISE PROVIDED IN THE RURAL BANKS ACT, NO APPOINTIVE OR ELECTIVE PUBLIC OFFICIAL WHETHER FULL-TIME OR PART-TIME SHALL AT THE SAME TIME SERVE AS OFFICER OF ANY PRIVATE BANK, SAVE IN CASES WHERE SUCH SERVICE IS

INCIDENT TO FINANCIAL ASSISTANCE PROVIDED BY THE GOVERNMENT OR A GOVERNMENT OWNED OR CONTROLLED CORPORATION TO THE BANK OR UNLESS OTHERWISE PROVIDED UNDER EXISTING LAWS. (13)

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Compensation and other benefits of directors and officers (Sec. 18) SECTION 18. COMPENSATION AND OTHER BENEFITS OF DIRECTORS AND OFFICERS. TO PROTECT THE FINDS OF DEPOSITORS AND CREDITORS THE MONETARY BOARD MAY REGULATE THE PAYMENT BY THE BARK TO ITS DIRECTORS AND OFFICERS OF COMPENSATION, ALLOWANCE, FEES, BONUSES, STOCK OPTIONS, PROFIT SHARING AND FRINGE BENEFITS ONLY IN EXCEPTIONAL CASES AND WHEN THE CIRCUMSTANCES WARRANT, SUCH AS BUT NOT LIMITED TO THE FOLLOWING: 18.1. W HEN A BANK IS UNDER COMPTROLLERSHIP OR CONSERVATORSHIP; OR 18.2. W HEN A BANK IS FOUND BY THE MONETARY BOARD TO BE CONDUCTING BUSINESS IN AN UNSAFE OR UNSOUND MANNER; OR 18.3. W HEN A BANK IS FOUND BY THE MONETARY BOARD TO BE IN AN UNSATISFACTORY FINANCIAL CONDITION. (N) Ratio of net worth to total risk assets (Sec. 34); the Basle Accord SECTION 34. RISK-BASED CAPITAL. - THE MONETARY BOARD SHALL PRESCRIBE

THE MINIMUM RATIO WHICH THE NET WORTH OF A BANK MUST BEAR TO ITS TOTAL RISK ASSETS WHICH MAY INCLUDE CONTINGENT ACCOUNTS. FOR PURPOSES OF THIS SECTION, THE MONETARY BOARD MAY REQUIRE SUCH RATIO BE DETERMINED ON THE BASIS OF THE NET WORTH AND RISK ASSETS OF A BANK AND ITS SUBSIDIARIES, FINANCIAL OR OTHERWISE, AS WELL AS PRESCRIBE THE COMPOSITION AND THE MANNER OF DETERMINING THE NET WORTH AND TOTAL RISK ASSETS OF BANKS AND THEIR SUBSIDIARIES:

PROVIDED, THAT IN THE EXERCISE OF THIS AUTHORITY, THE MONETARY BOARD SHALL, TO THE EXTENT FEASIBLE CONFORM TO INTERNATIONALLY ACCEPTED STANDARDS, INCLUDING THOSE OF THE BANK FOR INTERNATIONAL SETTLEMENTS(BIS), RELATING TO RISK-BASED CAPITAL REQUIREMENTS: PROVIDED FURTHER, THAT IT MAY ALTER OR SUSPEND COMPLIANCE WITH SUCH RATIO WHENEVER NECESSARY FOR A MAXIMUM PERIOD OF ONE (1) YEAR: PROVIDED, FINALLY, THAT SUCH RATIO SHALL BE APPLIED UNIFORMLY TO BANKS OF THE SAME CATEGORY. IN CASE A BANK DOES NOT COMPLY WITH THE PRESCRIBED MINIMUM RATIO, THE MONETARY BOARD MAY LIMIT OR PROHIBIT THE

DISTRIBUTION OF NET PROFITS BY SUCH BANK AND MAY REQUIRE THAT PART OR ALL OF THE NET PROFITS BE USED TO INCREASE THE CAPITAL ACCOUNTS OF THE BANK UNTIL THE MINIMUM REQUIREMENT HAS BEEN MET.

THE MONETARY BOARD MAY, FURTHERMORE, RESTRICT OR PROHIBIT THE ACQUISITION OF MAJOR ASSETS AND THE MAKING OF NEW INVESTMENTS BY THE BANK, WITH THE EXCEPTION OF PURCHASES OF READILY MARKETABLE EVIDENCES OF INDEBTEDNESS OF THE REPUBLIC OF THE PHILIPPINES AND OF THE BANGKO SENTRAL AND ANY OTHER EVIDENCES OF INDEBTEDNESS OR OBLIGATIONS THE SERVICING AND REPAYMENT OF WHICH ARE FULLY GUARANTEED BY THE REPUBLIC

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OF THE PHILIPPINES, UNTIL THE MINIMUM REQUIRED CAPITAL RATIO HAS BEEN RESTORED.

IN CASE OF A BANK MERGER OR CONSOLIDATION, OR WHEN A BANK IS UNDER REHABILITATION UNDER A PROGRAM APPROVED BY THE BANGKO SENTRAL, MONETARY BOARD MAY TEMPORARILY RELIEVE THE SURVIVING BANK, CONSOLIDATED BANK, OR CONSTITUENT BANK OR CORPORATIONS UNDER REHABILITATION FROM FULL COMPLIANCE WITH THE REQUIRED CAPITAL RATIO UNDER SUCH CONDITIONS AS IT MAY PRESCRIBE.

BEFORE THE EFFECTIVITY OF RULES WHICH THE MONETARY BOARD IS AUTHORIZED TO PRESCRIBE UNDER THIS PROVISION, SECTION 22 OF THE GENERAL BANKING ACT, AS AMENDED, SECTION 9 OF THE THRIFT BANKS ACT, AND ALL PERTINENT RULES ISSUED PURSUANT THERETO, SHALL CONTINUE TO BE IN FORCE. (22A) Limits on loans: the SBL rules (Sec. 35) SECTION 35. LIMIT ON LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES 35.1 EXCEPT AS THE MONETARY BOARD MAY OTHERWISE PRESCRIBE FOR REASONS OF NATIONAL INTEREST, THE TOTAL AMOUNT OF LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES AS MAY BE DEFINED BY THE MONETARY BOARD THAT MAY BE EXTENDED BY A BANK TO ANY PERSON, PARTNERSHIP, ASSOCIATION, CORPORATION OR OTHER ENTITY SHALL AT NO TIME EXCEED TWENTY PERCENT (20%) OF THE NET WORTH OF SUCH BANK. THE BASIS FOR DETERMINING COMPLIANCE WITH SINGLE BORROWER LIMIT IS THE TOTAL CREDIT COMMITMENT OF THE BANK TO THE BORROWER.

35.2. UNLESS THE MONETARY BOARD PRESCRIBES OTHERWISE, THE TOTAL AMOUNT OF LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES PRESCRIBED IN THE PRECEDING PARAGRAPH MAY BE INCREASED BY AN ADDITIONAL TEN PERCENT (10%) OF THE NET WORTH OF SUCH BANK PROVIDED THE ADDITIONAL LIABILITIES OF ANY BORROWER ARE ADEQUATELY SECURED BY TRUST RECEIPTS, SHIPPING DOCUMENTS, WAREHOUSE RECEIPTS OR OTHER SIMILAR DOCUMENTS TRANSFERRING OR SECURING TITLE COVERING READILY MARKETABLE, NONPERISHABLE GOODS WHICH MUST BE FULLY COVERED BY INSURANCE.

35.3 THE ABOVE PRESCRIBED CEILINGS SHALL INCLUDE— 1. THE DIRECT LIABILITY OF THE MAKER OR ACCEPTOR OF PAPER

2. 3. 4.

DISCOUNTED WITH OR SOLD TO SUCH BANK AND THE LIABILITY OF A GENERAL ENDORSER, DRAWER OR GUARANTOR WHO OBTAINS A LOAN OR OTHER CREDIT ACCOMMODATION FROM OR DISCOUNTS PAPER WITH OR SELLS PAPERS TO SUCH BANK; IN THE CASE OF AN INDIVIDUAL WHO OWNS OR CONTROLS A MAJORITY INTEREST IN A CORPORATION, PARTNERSHIP, ASSOCIATION OR ANY OTHER ENTITY, THE LIABILITIES OF SAID ENTITIES TO SUCH BANK; IN THE CASE OF A CORPORATION, ALL LIABILITIES TO SUCH BANK OF ALL SUBSIDIARIES IN WHICH SUCH CORPORATION OWNS OR CONTROLS A MAJORITY INTEREST; AND IN THE CASE OF A PARTNERSHIP, ASSOCIATION OR OTHER ENTITY, THE LIABILITIES OF THE MEMBERS THEREOF TO SUCH BANK.

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35.4. EVEN IF A PARENT CORPORATION, PARTNERSHIP, ASSOCIATION, ENTITY OR

AN INDIVIDUAL WHO OWNS OR CONTROLS A MAJORITY INTEREST IN SUCH ENTITIES HAS NO LIABILITY TO THE BANK, THE MONETARY BOARD MAY PRESCRIBE THE COMBINATION OF THE LIABILITIES OF SUBSIDIARY CORPORATIONS OR MEMBERS OF THE PARTNERSHIP, ASSOCIATION, ENTITY OR SUCH INDIVIDUAL UNDER CERTAIN CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO ANY OF THE FOLLOWING SITUATIONS—

1. THE PARENT CORPORATION, PARTNERSHIP, ASSOCIATION, ENTITY OR INDIVIDUAL GUARANTEES THE REPAYMENT OF THE LIABILITIES; 2. THE LIABILITIES WERE INCURRED FOR THE ACCOMMODATION OF THE 3. 35.5.

PARENT CORPORATION OR ANOTHER SUBSIDIARY OR OF THE PARTNERSHIP OR ASSOCIATION OR ENTITY OR SUCH INDIVIDUAL; OR THE SUBSIDIARIES THOUGH SEPARATE ENTITIES OPERATE MERELY AS DEPARTMENTS OR DIVISIONS OF A SINGLE ENTITY.

FOR PURPOSES OF THIS SECTION, LOANS, ACCOMMODATIONS AND GUARANTEES SHALL EXCLUDE—

OTHER

CREDIT

1. LOANS AND OTHER CREDIT ACCOMMODATIONS SECURED BY OBLIGATIONS OF THE BANGKO SENTRAL OR OF THE PHILIPPINE GOVERNMENT: 2. LOANS AND OTHER CREDIT ACCOMMODATIONS FULLY GUARANTEED BY THE GOVERNMENT AS TO THE PAYMENT OF PRINCIPAL AND INTEREST; 3. LOANS AND OTHER CREDIT ACCOMMODATIONS COVERED BY ASSIGNMENT 4. 5.

OF DEPOSITS MAINTAINED IN THE LENDING BANK AND HELD IN THE PHILIPPINES; LOANS, CREDIT ACCOMMODATIONS AND ACCEPTANCES UNDER LETTERS OF CREDIT TO THE EXTENT COVERED BY MARGIN DEPOSITS; AND OTHER LOANS OR CREDIT ACCOMMODATIONS WHICH THE MONETARY BOARD MAY FROM TIME TO TIME, SPECIFY AS NON-RISK ITEMS.

35.6. LOANS AND OTHER CREDIT ACCOMMODATIONS, DEPOSITS MAINTAINED WITH, AND USUAL GUARANTEES BY A BANK TO ANY OTHER BANK OR NON-BANK ENTITY, WHETHER LOCALLY OR ABROAD, SHALL BE SUBJECT TO THE LIMITS AS HEREIN PRESCRIBED. 35.7. CERTAIN TYPES OF CONTINGENT ACCOUNTS OF BORROWERS MAY BE

INCLUDED AMONG THOSE SUBJECT TO THESE PRESCRIBED LIMITS AS MAY BE DETERMINED BY THE MONETARY BOARD.(23A)

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Restrictions on bank exposure: the DOSRI rules (Sec. 36) SECTION 36. RESTRICTION ON BANK EXPOSURE TO DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIR RELATED INTERESTS. - NO DIRECTOR OR OFFICER OF ANY BANK SHALL, DIRECTLY OR INDIRECTLY, FOR HIMSELF OR AS THE REPRESENTATIVE OR AGENT OF OTHERS— 1. BORROW FROM SUCH BANK 2. NOR SHALL HE BECOME A GUARANTOR, ENDORSER OR SURETY FOR LOANS FROM SUCH BANK TO OTHERS, OR 3. IN ANY MANNER BE AN OBLIGOR OR INCUR ANY CONTRACTUAL LIABILITY TO THE BANK EXCEPT WITH THE WRITTEN APPROVAL OF THE MAJORITY OF ALL THE DIRECTORS OF THE BANK, EXCLUDING THE DIRECTOR CONCERNED: PROVIDED, THAT SUCH WRITTEN APPROVAL SHALL NOT BE REQUIRED FOR LOANS, OTHER CREDIT ACCOMMODATIONS AND ADVANCES GRANTED TO OFFICERS UNDER A FRINGE BENEFIT PLAN APPROVED BY THE BANGKO SENTRAL. THE REQUIRED APPROVAL SHALL BE ENTERED UPON THE RECORDS OF THE BANK AND A COPY OF SUCH ENTRY SHALL BE TRANSMITTED FORTHWITH TO THE APPROPRIATE SUPERVISING AND EXAMINING DEPARTMENT OF THE BANGKO SENTRAL.

DEALINGS OF A BANK WITH ANY OF ITS DIRECTORS, OFFICERS OR STOCKHOLDERS

AND THEIR RELATED INTERESTS SHALL BE UPON TERMS NOT LESS FAVORABLE TO THE BANK THAN THOSE OFFERED TO OTHERS.

AFTER DUE NOTICE TO THE BOARD OF DIRECTORS OF THE BANK, THE OFFICE OF

ANY BANK DIRECTOR OR OFFICER WHO VIOLATES THE PROVISIONS OF THIS SECTION MAY BE DECLARED VACANT AND THE DIRECTOR OR OFFICER SHALL BE SUBJECT TO THE PENAL PROVISIONS OF THE NEW CENTRAL BANK ACT.

THE MONETARY BOARD MAY REGULATE THE AMOUNT OF LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES THAT MAY BE EXTENDED, DIRECTLY OR INDIRECTLY, BY A BANK TO ITS DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIR RELATED INTERESTS, AS WELL AS INVESTMENTS OF SUCH BANK IN ENTERPRISES OWNED OR CONTROLLED BY SAID DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIR RELATED INTERESTS. HOWEVER,

THE OUTSTANDING LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES WHICH A BANK MAY EXTEND TO EACH OF ITS STOCKHOLDERS, DIRECTORS, OR OFFICERS AND THEIR RELATED INTERESTS, SHALL BE LIMITED TO AN AMOUNT EQUIVALENT TO THEIR RESPECTIVE UNENCUMBERED DEPOSITS AND BOOK VALUE OF THEIR PAID-IN CAPITAL CONTRIBUTION IN THE BANK:

1. PROVIDED, HOWEVER, THAT LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES SECURED BY ASSETS CONSIDERED AS NON-RISK BY THE MONETARY BOARD SHALL BE EXCLUDED FROM SUCH LIMIT: 2. PROVIDED, FURTHER, THAT LOANS, CREDIT ACCOMMODATIONS AND ADVANCES TO OFFICERS IN THE FORM OF FRINGE BENEFITS GRANTED IN ACCORDANCE WITH RULES AS MAY BE PRESCRIBED BY THE MONETARY BOARD SHALL NOT BE SUBJECT TO THE INDIVIDUAL LIMIT.

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THE MONETARY BOARD SHALL DEFINE THE TERM "RELATED INTERESTS." THE LIMIT ON LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES PRESCRIBED HEREIN SHALL NOT APPLY TO LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES EXTENDED BY A COOPERATIVE BANK TO ITS COOPERATIVE SHAREHOLDERS. (83A)

BAR Q [2006]: PIO IS THE PRESIDENST OF WESTERN BANK. HIS WIFE APPLIED FOR A LOAN WITH THE SAID BANK TO FINANCE AN INTERNET CAFE. THE LOAN OFFICER TOLD HER THAT HER APPLICATION WILL NOT BE APPROVED BECAUSE THE GRANT OF LOANS TO RELATED INTERESTS OF BANK DIRECTORS, OFFICERS, AND STOCKHOLDERS IS PROHIBITED BY THE GENERAL BANKING LAW. EXPLAIN WHETHER THE LOAN OFFICER IS CORRECT. (5%)

SUGGESTED ANSWER: Section 36 of the General Banking Law of 2000 does not entirely prohibit directors or officers of the bank, directly or indirectly, from borrowing from the bank. In this case, Pio is the president of Western Bank, which makes him an officer, director and stockholder of the said bank. The General Banking Law provides for additional restrictions to the bank before it can lend to its directors or officers. A written approval of the majority vote of all the directors of the bank, excluding the director concerned, is required. Furthermore, such dealings must be upon terms not less favorable to the bank than those offered to others (Section 1326, Central Bank's "Manual of Regulations for Banks and Other Financial Intermediaries, cited in Ranioso v. CA, G.R. No. 117416, December 8, 2000). A violation of this provision will cause his or her position to be declared vacant and the erring director or officer subjected to the penal provisions of the New Central Bank Act. Microfinancing (Secs. 40, 43-44) SECTION 40. REQUIREMENT FOR GRANT OF LOANS OR 0THER CREDIT ACCOMMODATIONS. - BEFORE GRANTING A LOAN OR OTHER CREDIT ACCOMMODATION, A BANK MUST ASCERTAIN THAT THE DEBTOR IS CAPABLE OF FULFILLING HIS COMMITMENTS TO THE BANK. TOWARD THIS END, A BANK MAY DEMAND FROM ITS CREDIT APPLICANTS A

STATEMENT OF THEIR ASSETS AND LIABILITIES AND OF THEIR INCOME AND EXPENDITURES AND SUCH INFORMATION AS MAY BE PRESCRIBED BY LAW OR BY RULES AND REGULATIONS OF THE MONETARY BOARD TO ENABLE THE BANK TO PROPERLY EVALUATE THE CREDIT APPLICATION WHICH INCLUDES THE CORRESPONDING FINANCIAL STATEMENTS SUBMITTED FOR TAXATION PURPOSES TO THE BUREAU OF INTERNAL REVENUE. SHOULD SUCH STATEMENTS PROVE TO BE FALSE OR INCORRECT IN ANY MATERIAL DETAIL, THE BANK MAY TERMINATE ANY LOAN OR OTHER CREDIT ACCOMMODATION GRANTED ON THE BASIS OF SAID STATEMENTS AND SHALL HAVE THE RIGHT TO DEMAND IMMEDIATE REPAYMENT OR LIQUIDATION OF THE OBLIGATION. IN FORMULATING RULES AND REGULATIONS UNDER THIS SECTION, THE MONETARY BOARD SHALL RECOGNIZE THE PECULIAR CHARACTERISTICS OF MICRO FINANCING, SUCH AS CASH FLOW -BASED LENDING TO THE BASIC SECTORS THAT ARE NOT COVERED BY TRADITIONAL COLLATERAL. (76A)

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SECTION 43. AUTHORITY TO PRESCRIBE TERMS AND CONDITIONS OF LOANS AND OTHER CREDIT ACCOMMODATIONS. - THE MONETARY BOARD, MAY, SIMILARLY IN ACCORDANCE WITH THE AUTHORITY GRANTED TO IT IN SECTION 106 OF THE NEW CENTRAL BANK ACT, AND TAKING INTO ACCOUNT THE REQUIREMENTS OF THE ECONOMY FOR THE EFFECTIVE UTILIZATION OF LONG-TERM FUNDS, PRESCRIBE THE MATURITIES, AS WELL AS RELATED TERMS AND CONDITIONS FOR VARIOUS TYPES OF BANK LOANS AND OTHER CREDIT ACCOMMODATIONS. ANY CHANGE BY THE BOARD IN THE MAXIMUM MATURITIES, AS WELL AS RELATED TERMS AND

CONDITIONS FOR VARIOUS TYPES OF BANK LOANS AND OTHER CREDIT ACCOMMODATIONS. ANY CHANGE BY THE BOARD IN THE MAXIMUM MATURITIES SHALL APPLY ONLY TO LOANS AND OTHER CREDIT ACCOMMODATIONS MADE AFTER THE DATE OF SUCH ACTION. THE MONETARY BOARD SHALL REGULATE THE INTEREST IMPOSED ON MICRO FINANCE BORROWERS BY LENDING INVESTORS AND SIMILAR LENDERS SUCH AS, BUT NOT LIMITED TO, THE UNCONSCIONABLE RATES OF INTEREST COLLECTED ON SALARY LOANS AND SIMILAR CREDIT ACCOMMODATIONS. (78A)

SECTION 44. AMORTIZATION ON LOANS AND OTHER CREDIT ACCOMMODATIONS. THE AMORTIZATION SCHEDULE OF BANK LOANS AND OTHER CREDIT

ACCOMMODATIONS SHALL BE ADAPTED TO THE NATURE OF THE OPERATIONS TO BE FINANCED. IN CASE OF LOANS AND OTHER CREDIT ACCOMMODATIONS WITH MATURITIES OF MORE THAN FIVE (5) YEARS, PROVISIONS MUST BE MADE FOR PERIODIC AMORTIZATION PAYMENTS, BUT SUCH PAYMENTS MUST BE MADE AT LEAST ANNUALLY: PROVIDED, HOWEVER, THAT WHEN THE BORROWED FUNDS ARE TO BE USED FOR PURPOSES WHICH DO NOT INITIALLY PRODUCE REVENUES ADEQUATE FOR REGULAR AMORTIZATION PAYMENTS THEREFROM, THE BANK MAY PERMIT THE INITIAL AMORTIZATION PAYMENT TO BE DEFERRED UNTIL SUCH TIME AS SAID REVENUES ARE SUFFICIENT FOR SUCH PURPOSE, BUT IN NO CASE SHALL THE INITIAL AMORTIZATION DATE BE LATER THAN FIVE (5) YEARS FROM THE DATE ON WHICH THE LOAN OR OTHER CREDIT ACCOMMODATION IS GRANTED. (79A) IN CASE OF LOANS AND OTHER CREDIT ACCOMMODATIONS TO MICRO FINANCE SECTORS, THE SCHEDULE OF LOAN AMORTIZATION SHALL TAKE INTO CONSIDERATION THE PROJECTED CASH FLOW OF THE BORROWER AND ADOPT THIS INTO THE TERMS AND CONDITIONS FORMULATED BY BANKS. (N)

Prepayment of loans (Sec. 45) SECTION 45. PREPAYMENT OF LOANS AND OTHER CREDIT ACCOMMODATIONS. A BORROWER MAY AT ANY TIME PRIOR TO THE AGREED MATURITY DATE PREPAY, IN WHOLE OR IN PART , THE UNPAID BALANCE OF ANY BANK LOAN AND OTHER CREDIT ACCOMMODATION, SUBJECT TO SUCH REASONABLE TERMS AND CONDITIONS AS MAY BE AGREED UPON BETWEEN THE BANK AND ITS BORROWER. (80A) Real estate investments and acquisitions (Secs. 51-52) SECTION 51. CEILING ON INVESTMENTS IN CERTAIN ASSETS. - ANY BANK MAY ACQUIRE REAL ESTATE AS SHALL BE NECESSARY FOR ITS OWN USE IN THE CONDUCT OF ITS BUSINESS: PROVIDED, HOWEVER, THAT THE TOTAL INVESTMENT IN SUCH REAL ESTATE AND IMPROVEMENTS THEREOF INCLUDING BANK EQUIPMENT, SHALL NOT EXCEED FIFTY PERCENT (50%) OF COMBINED CAPITAL ACCOUNTS: PROVIDED, FURTHER, THAT THE EQUITY INVESTMENT OF A BANK IN ANOTHER CORPORATION ENGAGED PRIMARILY IN REAL ESTATE SHALL BE

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CONSIDERED AS PART OF THE BANK'S TOTAL INVESTMENT IN REAL ESTATE, UNLESS OTHERWISE PROVIDED BY THE MONETARY BOARD. (25A)

SECTION 52. ACQUISITION OF REAL ESTATE BY WAY OF SATISFACTION OF CLAIMS. - NOTWITHSTANDING THE LIMITATIONS OF THE PRECEDING SECTION, A BANK MAY ACQUIRE, HOLD OR CONVEY REAL PROPERTY UNDER THE FOLLOWING CIRCUMSTANCES: 52.1. SUCH AS SHALL BE MORTGAGED TO IT IN GOOD FAITH BY WAY OF SECURITY FOR DEBTS; 52.2. SUCH AS SHALL BE CONVEYED TO IT IN SATISFACTION OF DEBTS PREVIOUSLY CONTRACTED IN THE COURSE OF ITS DEALINGS, OR 52.3. SUCH AS IT SHALL PURCHASE AT SALES UNDER JUDGMENTS, DECREES, MORTGAGES, OR TRUST DEEDS HELD BY IT AND SUCH AS IT SHALL PURCHASE TO SECURE DEBTS DUE IT. ANY REAL PROPERTY ACQUIRED OR HELD UNDER THE CIRCUMSTANCES

ENUMERATED IN THE ABOVE PARAGRAPH SHALL BE DISPOSED OF BY THE BANK WITHIN A PERIOD OF FIVE (5) YEARS OR AS MAY BE PRESCRIBED BY THE MONETARY BOARD: PROVIDED, HOWEVER, THAT THE BANK MAY, AFTER SAID PERIOD, CONTINUE TO HOLD THE PROPERTY FOR ITS OWN USE, SUBJECT TO THE LIMITATIONS OF THE PRECEDING SECTION. (25A)

Outsourcing of bank functions (Sec. 55.1[e]) SECTION 55. PROHIBITED TRANSACTIONS. 55.1. NO DIRECTOR, OFFICER, EMPLOYEE, OR AGENT OF ANY BANK SHALL - (E) OUTSOURCE INHERENT BANKING FUNCTIONS

Employment of casual and probationary personnel (Sec. 55.4) Section 55. Prohibited Transactions. 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. Declaration of dividends (Sec. 57) SECTION 57. PROHIBITION ON DIVIDEND DECLARATION. - NO BANK OR QUASIBANK 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

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57.4 IT HAS COMMITTED A MAJOR VIOLATION AS MAY BE DETERMINED BY THE BANGKO SENTRAL (84A) Authority to engage in trust business (Sec. 79, et seq.) Trust entity (Sec. 79) SECTION 79. AUTHORITY TO ENGAGE IN TRUST BUSINESS. - ONLY A STOCK CORPORATION OR A PERSON DULY AUTHORIZED BY THE MONETARY BOARD TO ENGAGE IN TRUST BUSINESS SHALL ACT AS A TRUSTEE OR ADMINISTER ANY TRUST OR HOLD PROPERTY IN TRUST OR ON DEPOSIT FOR THE USE, BENEFIT, OR BEHOOF OF OTHERS. FOR PURPOSES OF THIS ACT, SUCH A CORPORATION SHALL BE REFERRED TO AS A TRUST ENTITY. (56A; 57A)

Diligence required (Sec. 80) SECTION 80. CONDUCT OF TRUST BUSINESS. - A TRUST ENTITY SHALL

ADMINISTER THE FUNDS OR PROPERTY UNDER ITS CUSTODY WITH THE DILIGENCE THAT A PRUDENT MAN WOULD EXERCISE IN THE CONDUCT OF AN ENTERPRISE OF A LIKE CHARACTER AND WITH SIMILAR AIMS. NO TRUST ENTITY SHALL, FOR THE ACCOUNT OF THE TRUSTOR OR THE BENEFICIARY OF THE TRUST, PURCHASE OR ACQUIRE PROPERTY FROM, OR SELL, TRANSFER, ASSIGN, OR LEND MONEY OR PROPERTY TO, OR PURCHASE DEBT INSTRUMENTS OF, ANY OF THE DEPARTMENTS, DIRECTORS, OFFICERS, STOCKHOLDERS, OR EMPLOYEES OF THE TRUST ENTITY, RELATIVES WITHIN THE FIRST DEGREE OF CONSANGUINITY OR AFFINITY, OR THE RELATED INTERESTS, OF SUCH DIRECTORS, OFFICERS AND STOCKHOLDERS, UNLESS THE TRANSACTION IS SPECIFICALLY AUTHORIZED BY THE TRUSTOR AND THE RELATIONSHIP OF THE TRUSTEE AND THE OTHER PARTY INVOLVED IN THE TRANSACTION IS FULLY DISCLOSED TO THE TRUSTOR OF BENEFICIARY OF THE TRUST PRIOR TO THE TRANSACTION. THE MONETARY BOARD SHALL PROMULGATE SUCH RULES AND REGULATIONS AS MAY BE NECESSARY TO PREVENT CIRCUMVENTION OF THIS PROHIBITION OR THE EVASION OF THE RESPONSIBILITY HEREIN IMPOSED ON A TRUST ENTITY. (56)

Deposit required as security for faithful performance of trust duties (Sec. 84) SECTION 84. DEPOSIT FOR THE FAITHFUL PERFORMANCE OF TRUST DUTIES. BEFORE TRANSACTING TRUST BUSINESS, EVERY TRUST ENTITY SHALL DEPOSIT WITH THE BANGKO SENTRAL, AS SECURITY FOR THE FAITHFUL PERFORMANCE OF ITS TRUST DUTIES, CASH OR SECURITIES APPROVED BY THE MONETARY BOARD IN AN AMOUNT EQUAL TO OR NOT LESS THAN FIVE HUNDRED THOUSAND PESOS (P500,000.00) OR SUCH HIGHER AMOUNT AS MAY FIXED BY THE MONETARY BOARD: PROVIDED, HOWEVER, THAT THE MONETARY BOARD SHALL REQUIRE

EVERY TRUST ENTITY TO INCREASE THE AMOUNT OF ITS CASH OR SECURITIES ON DEPOSIT WITH THE BANGKO SENTRAL IN ACCORDANCE WITH THE PROVISIONS OF THIS PARAGRAPH. SHOULD THE CAPITAL AND SURPLUS FALL BELOW SAID AMOUNT, THE MONETARY BOARD SHALL HAVE THE SAME AUTHORITY AS THAT GRANTED TO IT UNDER THE PROVISIONS OF THE FIFTH PARAGRAPH OF SECTION 34 OF THIS ACT. A TRUST ENTITY SO LONG AS IT SHALL CONTINUE TO BE SOLVENT AND COMPLY WITH LAWS OR REGULATIONS SHALL HAVE THE RIGHT TO COLLECT THE INTEREST EARNED ON SUCH SECURITIES DEPOSITED WITH THE BANGKO SENTRAL

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AND, FROM TIME TO TIME, WITH THE APPROVAL OF THE BANGKO SENTRAL, TO EXCHANGE THE SECURITIES FOR OTHERS. IF THE TRUST ENTITY FAILS TO COMPLY WITH ANY LAW OR REGULATION, THE BANGKO SENTRAL SHALL RETAIN SUCH INTEREST ON THE SECURITIES DEPOSITED WITH IT FOR THE BENEFIT OF RIGHTFUL CLAIMANTS. AL CLAIMS RISING OUT OF THE TRUST BUSINESS OF A TRUST ENTITY SHALL HAVE PRIORITY OVER ALL OTHER CLAIMS AS REGARDS THE CASH OR SECURITIES DEPOSITED AS ABOVE PROVIDED. THE MONETARY BOARD MAY NOT PERMIT THE CASH OR SECURITIES DEPOSITED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION TO BE REDUCED BELOW THE PRESCRIBED MINIMUM AMOUNT UNTIL THE DEPOSITING ENTITY SHALL DISCONTINUE ITS TRUST BUSINESS AND SHALL SATISFY THE MONETARY BOARD THAT IT HAS COMPLIED WITH ALL ITS OBLIGATIONS IN CONNECTION WITH SUCH BUSINESS. (65A)

Separation of trust business from general business (Sec. 87) SECTION 87. SEPARATION OF TRUST BUSINESS FROM GENERAL BUSINESS. - THE TRUST BUSINESS AND ALL FUNDS, PROPERTIES OR SECURITIES RECEIVED BY ANY TRUST ENTITY AS EXECUTOR, ADMINISTRATOR, GUARDIAN, TRUSTEE, RECEIVER, OR DEPOSITARY SHALL BE KEPT SEPARATE AND DISTINCT FROM THE GENERAL BUSINESS INCLUDING ALL OTHER FUNDS, PROPERTIES, AND ASSETS OF SUCH TRUST ENTITY. THE ACCOUNTS OF ALL SUCH FUNDS, PROPERTIES, OR SECURITIES SHALL LIKEWISE BE KEPT SEPARATE AND DISTINCT FROM THE ACCOUNTS OF THE GENERAL BUSINESS OF THE TRUST ENTITY. (61)

Exemption of trust assets from claims (Sec. 92) SECTION 92. EXEMPTION OF TRUST ASSETS FROM CLAIMS. - NO ASSETS HELD BY A TRUST ENTITY IN ITS CAPACITY AS TRUSTEE SHALL BE SUBJECT TO ANY CLAIMS OTHER THAN THOSE OF THE PARTIES INTERESTED IN THE SPECIFIC TRUSTS. (65)

Penalties for violations Fine, imprisonment, etc. (Secs. 34-37, RA 7653) Suspension or removal of director or officer (Sec. 66) Dissolution of bank (Sec. 66) SECTION 66. PENALTY FOR VIOLATION OF THIS ACT. - 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. (87)

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2.2

Cases Fiduciary nature of banking requires high standards of integrity and performance Philippine Banking Corporation vs. CA, G.R. 127469, January 15, 2004.

The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note. The BANK’s failure to explain the absence of the original documents and to maintain a record of the offsetting of this loan with the time deposits bring to fore the BANK’s dismal failure to fulfill its fiduciary duty to Marcos. Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this fiduciary duty on banks when it declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." This statutory declaration merely echoes the earlier pronouncement of the Supreme Court in Simex International (Manila) Inc. v. Court of Appeals requiring banks to "treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship." The Court reiterated this fiduciary duty of banks in subsequent cases. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Thus, the BANK’s fiduciary duty imposes upon it a higher level of accountability than that expected of Marcos, a businessman, who negligently signed blank forms and entrusted his certificates of time deposits to Pagsaligan without retaining copies of the certificates. As the BANK’s depositor, Marcos had the right to expect that the BANK was accurately recording his transactions with it. Upon the maturity of his time deposits, Marcos also had the right to withdraw the amount due him after the BANK had correctly debited his outstanding obligations from his time deposits. By the very nature of its business, the BANK should have had in its possession the original copies of the disputed promissory note and the records and ledgers evidencing the offsetting of the loan with the time deposits of Marcos. The BANK inexplicably failed to produce the original copies of these documents. Clearly, the BANK failed to treat the account of Marcos with meticulous care.

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Banks have the duty to exercise the highest degree of diligence when transacting with the public Solidbank Corporation, et al. vs. Spouses Tan, G.R. 167346, April 2, 2007. FACTS: The private respondents are accusing Solidbank Corp. of negligence as the latter allegedly lost one of 10 checks they were trying to deposit with the bank. [Private respondents delivered 10 checks; but only 9 checks were credited to their account.] The lost check was later on discovered to have been deposited by a certain Dolores Lagsac in Premier Bank in San Pedro, Laguna. The lower court found Solidbank negligent; it awarded exemplary damages to the Spouses Tan, among others. Petitioner argues the award of exemplary damages was without basis. According to it, such award is justified only when the act complained of was done in a wanton, fraudulent and oppressive manner. ISSUE: W/N THE SPOUSES TAN ARE ENTITLED TO EXEMPLARY DAMAGES? HELD: As to the award of exemplary damages, the law allows it by way of example for the public good. The business of banking is impressed with public interest and great reliance is made on the bank’s sworn profession of diligence and meticulousness in giving irreproachable service. For petitioner’s failure to carry out its responsibility and to account for respondents’ lost check, we hold that the lower courts did not err in awarding exemplary damages to the latter. Interpretation of Section 83 of RA 337 (now Sec. 36 of RA 8791) Go vs. Bangko Sentral, G.R. 178429, October 23, 2009. FACTS: Go, President and CEO of Oriental Bank] was charged with violating Section 83 of RA 337 [for being a borrower and/or a guarantor for loans borrowed from Oriental Bank without Board approval]. He filed a motion to quash on the ground that the facts allged do not constitute a crime. According to him, Sec. 83 of RA 337 penalized only directors and officers of banking institutions who acted either as borrower or as guarantor, but not as both. Go further pointed out that the Information failed to state that his alleged act of borrowing and/or guarantying was not among the exceptions provided for in the law. According to Go, the second paragraph of Section 83 allowed banks to extend credit accommodations to their directors, officers, and stockholders, provided it is "limited to an amount equivalent to the respective outstanding deposits and book value of the paid-in capital contribution in the bank." Extending credit accommodations to bank directors, officers, and stockholders is not per se prohibited, unless the amount exceeds the legal limit. Since the Information failed to state that the amount he purportedly borrowed and/or guarantied was beyond the limit set by law, Go insisted that the acts so charged did not constitute an offense. HELD: MOTION TO QUASH WITHOUT MERIT. 43 of 89

Under Section 83, RA 337, the following elements must be present to constitute a violation of its first paragraph: 1. the offender is a director or officer of any banking institution; 2. the offender, either directly or indirectly, for himself or as representative or agent of another, performs any of the following acts: a. he borrows any of the deposits or funds of such bank; or b. he becomes a guarantor, indorser, or surety for loans from such bank to others, or c. he becomes in any manner an obligor for money borrowed from bank or loaned by it 3. the offender has performed any of such acts without the written approval of the majority of the directors of the bank, excluding the offender, as the director concerned. A simple reading of the above elements easily rejects Go’s contention that the law penalizes a bank director or officer only either for borrowing the bank’s deposits or funds or for guarantying loans by the bank, but not for acting in both capacities. The essence of the crime is becoming an obligor of the bank without securing the necessary written approval of the majority of the bank’s directors. The second element merely lists down the various modes of committing the offense. The third mode, by declaring that "[no director or officer of any banking institution shall xxx] in any manner be an obligor for money borrowed from the bank or loaned by it," in fact serves a catch-all phrase that covers any situation when a director or officer of the bank becomes its obligor. The prohibition is directed against a bank director or officer who becomes in any manner an obligor for money borrowed from or loaned by the bank without the written approval of the majority of the bank’s board of directors. To make a distinction between the act of borrowing and guarantying is therefore unnecessary because in either situation, the director or officer concerned becomes an obligor of the bank against whom the obligation is juridically demandable. The language of the law is broad enough to encompass either act of borrowing or guaranteeing, or both. The approval requirement (found in the first sentence of the first paragraph of the law) refers to the written approval of the majority of the bank’s board of directors required before bank directors and officers can in any manner be an obligor for money borrowed from or loaned by the bank. Failure to secure the approval renders the bank director or officer concerned liable for prosecution and, upon conviction, subjects him to the penalty provided in the third sentence of first paragraph of Section 83. As to his second ground for the quashal: Credit accommodation limit is not an exception nor is it an element of the offense. Contrary to Go’s claims, the second paragraph of Section 83, RA 337 does not provide for an exception to a violation of the first paragraph thereof, nor does it constitute as an element of the offense charged. Section 83 of RA 337 actually imposes three restrictions: approval, reportorial, and ceiling requirements. The reportorial requirement, on the other hand, mandates that any such approval should be entered upon the records of the corporation, and a copy of the entry be transmitted to the appropriate supervising department. The reportorial requirement is addressed to the bank itself, which, upon its failure to do so, subjects it to quo warranto proceedings under Section 87 of RA 337. The ceiling requirement under the second paragraph of Section 83 regulates the amount of credit accommodations that banks may extend to their directors or officers by limiting these to an amount equivalent to the respective outstanding deposits and book value of the paid-in 44 of 89

capital contribution in the bank. Again, this is a requirement directed at the bank. In this light, a prosecution for violation of the first paragraph of Section 83, such as the one involved here, does not require an allegation that the loan exceeded the legal limit. Even if the loan involved is below the legal limit, a written approval by the majority of the bank’s directors is still required; otherwise, the bank director or officer who becomes an obligor of the bank is liable. Compliance with the ceiling requirement does not dispense with the approval requirement. Evidently, the failure to observe the three requirements under Section 83 paves the way for the prosecution of three different offenses, each with its own set of elements.

PNB not a mortgagee in good faith for failure to conduct exhaustive investigation of mortgagor’s title before extending a loan PNB vs. Corpuz, G.R. 180945, February 12, 2010. ISSUE: The sole issue presented in this case is whether or not petitioner PNB is a mortgagee in good faith, entitling it to its lien on the title to the property in dispute. Petitioner PNB points out that, since it did a credit investigation, inspected the property, and verified the clean status of the title before giving out the loan to the Songcuans, it should be regarded as a mortgagee in good faith. PNB claims that the precautions it took constitute sufficient compliance with the due diligence required of banks when dealing with registered lands. HELD: As a rule, the Court would not expect a mortgagee to conduct an exhaustive investigation of the history of the mortgagor’s title before he extends a loan. But petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be more cautious than ordinary individuals in dealing with lands, even registered ones, since the business of banks is imbued with public interest. It is of judicial notice that the standard practice for banks before approving a loan is to send a staff to the property offered as collateral and verify the genuineness of the title to determine the real owner or owners. One of the CA’s findings in this case is that in the course of its verification, petitioner PNB was informed of the previous TCTs covering the subject property. And the PNB has not categorically contested this finding. It is evident from the faces of those titles that the ownership of the land changed from Corpuz to Bondoc, from Bondoc to the Palaganases, and from the Palaganases to the Songcuans in less than three months and mortgaged to PNB within four months of the last transfer. The above information in turn should have driven the PNB to look at the deeds of sale involved. It would have then discovered that the property was sold for ridiculously low prices: Corpuz supposedly sold it to Bondoc for justP50,000.00; Bondoc to the Palaganases for just P15,000.00; and the Palaganases to the Songcuans also for justP50,000.00. Yet the PNB gave the property an appraised value of P781,760.00. Anyone who deliberately ignores a significant fact that would create suspicion in an otherwise reasonable person cannot be considered as an innocent mortgagee for value.

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2.3

Additional Materials (a) BSP Circulars Nos. 488 (issued June 21, 2005), 493 (issued September 16, 2005), 543 (issued September 8, 2006), 548 (issued September 25, 2006), and 642 (issued January 30, 2009) re functions that banks could outsource; (b) BSP Circular No. 341 (issued August 6, 2002) and 640 (issued January 16, 2009) re unsafe and unsound banking practices; (c) BSP Circular No. 650 (issued March 9, 2009) re authority of thrift banks to issue foreign letters of credit, etc.

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III PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT RA 3591 (1963), as amended by RA 6037 (1969), PD 120 (1973), PD 1094 (1977), PD 1451 (1978), PD 1935 (1984), RA 7400 (1992), RA 8791 (2000), RA 9302 (2004), and RA 9576 (2009).

3.1

Topics Basic policy (Sec. 1) SECTION 1. THERE IS HEREBY CREATED A PHILIPPINE DEPOSIT INSURANCE CORPORATION HEREINAFTER REFERRED TO AS THE “CORPORATION” WHICH SHALL INSURE, AS HEREIN PROVIDED, THE DEPOSITS OF ALL BANKS WHICH ARE ENTITLED TO THE BENEFITS OF INSURANCE UNDER THIS ACT, AND WHICH SHALL HAVE THE POWERS HEREINAFTER GRANTED.

Comment [WU5]: The purpose of the law is to create a government-owned and controlled entity, the Philippine Deposit Insurance Corporation, which shall insure the deposit liabilities of all banks entitled to the benefits of insurance under the Act. Such insurance is intended to protect depositors from situations that prevent banks from paying out deposits, as in bank failures or closures, and to encourage people to deposit in banks.

THE CORPORATION SHALL, AS A BASIC POLICY, PROMOTE AND SAFEGUARD THE INTERESTS OF THE DEPOSITING PUBLIC BY WAY OF PROVIDING PERMANENT AND CONTINUING INSURANCE COVERAGE ON ALL INSURED DEPOSITS.

Main functions Insurance of banks (Sec. 5, et seq.) SECTION 5. THE DEPOSIT LIABILITIES OF ANY BANK OR BANKING INSTITUTION,

WHICH IS ENGAGED IN THE BUSINESS OF RECEIVING DEPOSITS AS HEREIN DEFINED ON THE EFFECTIVE DATE OF THIS ACT, OR WHICH THEREAFTER MAY ENGAGE IN THE BUSINESS OF RECEIVING DEPOSITS, SHALL BE INSURED WITH THE CORPORATION. (AS AMENDED BY R.A. 6037, 04 AUGUST 1969; RENUMBERED FROM SEC. 4 BY R.A. 9302, 12 AUGUST 2004)

Examination of banks (Secs. 8 and 9) SECTION 8.THE CORPORATION AS A CORPORATE BODY SHALL HAVE THE POWER - EIGHTH – TO CONDUCT EXAMINATION OF BANKS WITH PRIOR APPROVAL OF THE MONETARY BOARD: PROVIDED, THAT NO EXAMINATION CAN BE CONDUCTED WITHIN TWELVE (12) MONTHS FROM THE LAST EXAMINATION DATE: PROVIDED, HOWEVER, THAT THE CORPORATION MAY, IN COORDINATION WITH THE BANGKO SENTRAL, CONDUCT A SPECIAL EXAMINATION AS THE BOARD OF DIRECTORS, BY AN AFFIRMATIVE VOTE OF A MAJORITY OF ALL OF ITS MEMBERS, IF THERE IS A THREATENED OR IMPENDING CLOSURE OF A BANK; PROVIDED, FURTHER, THAT, NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHER LAWS, THE CORPORATION AND/OR THE BANGKO SENTRAL, MAY INQUIRE INTO OR EXAMINE DEPOSIT ACCOUNTS AND ALL INFORMATION RELATED THERETO IN CASE THERE IS A FINDING OF UNSAFE OR UNSOUND BANKING PRACTICE; PROVIDED, FINALLY, THAT TO AVOID OVERLAPPING OF EFFORTS, THE EXAMINATION SHALL MAXIMIZE THE EFFICIENT USE OF THE RELEVANT REPORTS, INFORMATION, AND FINDINGS OF THE BANGKO SENTRAL, WHICH IT SHALL MAKE AVAILABLE TO THE CORPORATION;

Rehabilitation of banks (Sec. 17) 47 of 89

Comment [WU6]: Insurance of banks (Sec. 5, et seq.) – The PDIC insures the deposit liabilities of banks. For this purpose, it assesses and collects insurance assessments from member-banks. Whenever an insured bank is closed, the PDIC processes and services claims of insured deposits.

Comment [WU7]: The PDIC may examine a bank with the prior approval of the Monetary Board of the Bangko Sentral ng Pilipinas. Such examination may extend to all the affairs of the bank and includes the authority to investigate frauds, irregularities and anomalies committed in the bank.

Comment [WU8]: – Upon determination by the PDIC that (i) a bank is in danger of closing, (ii) the continued operation of such bank is essential to provide adequate banking service in the community or maintain financial stability in the economy, and (iii) the actual liquidation and payoff of the bank will be more expensive than the extension of financial assistance to the bank, it may make loans to, purchase the assets or assume the liabilities of, or make deposits in, said bank to prevent its closing. Authority may also be exercised by the PDIC over a closed bank.

Receivership of closed banks (Secs. 8 and 10; see also Sec. 30, RA 7653) SECTION 8.THE CORPORATION AS A CORPORATE BODY SHALL HAVE THE POWER -NINTH - TO ACT AS RECEIVER; SECTION 10. a. THE PROVISIONS OF OTHER LAWS, GENERAL OR SPECIAL, TO THE CONTRARY OTWITHSTANDING, WHENEVER IT SHALL BE APPROPRIATE FOR THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS TO APPOINT A RECEIVER OF ANY BANKING INSTITUTION PURSUANT TO EXISTING LAWS, THE MONETARY BOARD SHALL GIVE PRIOR NOTICE AND APPOINT THE CORPORATION AS RECEIVER. (AS AMENDED/RENUMBERED FROM SEC. 9-A BY R.A. 9302, 12 AUGUST 2004) b. THE CORPORATION AS RECEIVER SHALL CONTROL, MANAGE AND ADMINISTER THE AFFAIRS OF THE CLOSED BANK. EFFECTIVE IMMEDIATELY UPON TAKEOVER AS RECEIVER OF SUCH BANK, THE POWERS, FUNCTIONS AND DUTIES, AS WELL AS ALL ALLOWANCES, REMUNERATIONS AND PERQUISITES OF THE DIRECTORS, OFFICERS, AND STOCKHOLDERS OF SUCH BANK ARE SUSPENDED, AND THE RELEVANT PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF THE CLOSED BANK ARE LIKEWISE DEEMED SUSPENDED. (AS ADDED BY R.A. 9302, 12 AUGUST 2004) THE ASSETS OF THE CLOSED BANK UNDER RECEIVERSHIP SHALL BE DEEMED IN CUSTODIA LEGIS IN THE HANDS OF THE RECEIVER. FROM THE TIME THE CLOSED BANK IS PLACED UNDER SUCH RECEIVERSHIP, ITS ASSETS SHALL NOT BE SUBJECT TO ATTACHMENT, GARNISHMENT, EXECUTION, LEVY OR ANY OTHER COURT PROCESSES. THEREFORE, A JUDGE, OFFICER OF THE COURT OR ANY PERSON WHO SHALL ISSUE, ORDER, PROCESS OR CAUSE THE ISSUANCE OR IMPLEMENTATION OF THE WRIT OF GARNISHMENT, LEVY, ATTACHMENT OR EXECUTION SHALL BE LIABLE UNDER SECTION 21 HEREOF. (AS ADDED BY R.A. 9302, 12 AUGUST 2004) c. IN ADDITION TO THE POWERS OF A RECEIVER PURSUANT TO EXISTING LAWS, THE CORPORATION IS EMPOWERED TO: 1. BRING SUITS TO ENFORCE LIABILITIES TO OR RECOVERIES OF THE CLOSED BANK; (AS AMENDED BY R.A. 9302, 12 AUGUST 2004) 2. APPOINT AND HIRE PERSONS OR ENTITIES OF RECOGNIZED

3.

4.

COMPETENCE IN BANKING OR FINANCE AS ITS DEPUTIES AND ASSISTANTS, TO PERFORM SUCH POWERS AND FUNCTIONS OF THE CORPORATION AS RECEIVER OR LIQUIDATOR OF THE CLOSED BANK; (AS AMENDED BY R.A. 9302, 12 AUGUST 2004) SUSPEND OR TERMINATE THE EMPLOYMENT OF OFFICERS AND EMPLOYEES OF THE CLOSED BANK:PROVIDED, THAT PAYMENT OF SEPARATION PAY OR BENEFITS SHALL BE MADE ONLY AFTER THE CLOSED BANK HAS BEEN PLACED UNDER LIQUIDATION PURSUANT TO THE ORDER OF THE MONETARY BOARD UNDER SECTION 30 OF R.A. 7653, AND THAT SUCH PAYMENT SHALL BE MADE FROM AVAILABLE FUNDS OF THE BANK AFTER DEDUCTING REASONABLE EXPENSES FOR RECEIVERSHIP AND LIQUIDATION; (AS ADDED BY R.A. 9302, 12 AUGUST 2004) PAY ACCRUED UTILITIES, RENTALS AND SALARIES OF PERSONNEL OF THE CLOSED BANK, FOR A PERIOD NOT EXCEEDING THREE (3)

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Comment [WU9]: (Secs. 8 and 10; see also Sec. 30, RA 7653) – As receiver, the PDIC shall control, manage and administer the affairs of the closed bank for the purpose of preserving its assets for the benefit of bank creditors .

5.

6. 7.

8.

9.

MONTHS, FROM AVAILABLE FUNDS OF THE CLOSED BANK; (AS ADDED BY R.A. 9302, 12 AUGUST 2004) COLLECT LOANS AND OTHER CLAIMS OF THE CLOSED BANK, AND FOR THE PURPOSE, MODIFY, COMPROMISE OR RESTRUCTURE THE TERMS AND CONDITIONS OF SUCH LOANS OR CLAIMS AS MAY BE DEEMED ADVANTAGEOUS TO THE INTEREST OF THE CREDITORS AND CLAIMANTS OF THE CLOSED BANK; (AS ADDED BY. R.A. 9302,12 AUGUST 2004) HIRE OR RETAIN PRIVATE COUNSELS AS MAY BE NECESSARY; (AS ADDED BY R.A. 9302, 12 AUGUST 2004) BORROW OR OBTAIN A LOAN, OR MORTGAGE, PLEDGE OR ENCUMBER ANY ASSET OF THE CLOSED 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; (AS ADDED BY R.A. 9302, 12 AUGUST 2004) IF THE STIPULATED INTEREST ON DEPOSITS IS UNUSUALLY HIGH COMPARED WITH THE PREVAILING APPLICABLE INTEREST RATE, THE CORPORATION AS RECEIVER MAY EXERCISE SUCH POWERS WHICH MAY INCLUDE A REDUCTION OF THE INTEREST RATE TO A REASONABLE RATE: PROVIDED, THAT ANY MODIFICATION OR REDUCTION SHALL APPLY ONLY TO UNPAID INTEREST; (AS ADDED BY R.A. 9302, 12 AUGUST 2004) AND EXERCISE SUCH OTHER POWERS AS ARE INHERENT AND NECESSARY FOR THE EFFECTIVE DISCHARGE OF THE DUTIES OF THE CORPORATION AS A RECEIVER. (AS ADDED BY R.A. 9302, 12 AUGUST

2004)

THE BOARD OF DIRECTORS SHALL ADOPT SUCH POLICIES AND GUIDELINES AS

MAY BE NECESSARY FOR THE PERFORMANCE OF THE ABOVE POWERS BY PERSONNEL, DEPUTIES AND AGENTS OF THE CORPORATION. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

Liquidation of closed banks (Sec. 30, RA 7653) SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. - W HENEVER, UPON REPORT OF THE HEAD OF THE SUPERVISING OR EXAMINING DEPARTMENT, THE MONETARY BOARD FINDS THAT A BANK OR QUASI-BANK: (A) IS UNABLE TO PAY ITS LIABILITIES AS THEY BECOME DUE IN THE ORDINARY COURSE OF BUSINESS: PROVIDED, THAT THIS SHALL NOT INCLUDE INABILITY TO PAY CAUSED BY EXTRAORDINARY DEMANDS INDUCED BY FINANCIAL PANIC IN THE BANKING COMMUNITY;

(B) HAS INSUFFICIENT REALIZABLE ASSETS, AS DETERMINED BY THE BANGKO SENTRAL, TO MEET ITS LIABILITIES; OR (C) CANNOT CONTINUE IN BUSINESS WITHOUT INVOLVING PROBABLE LOSSES TO ITS DEPOSITORS OR CREDITORS; OR (D) HAS WILLFULLY VIOLATED A CEASE AND DESIST ORDER UNDER SECTION 37 THAT HAS BECOME FINAL, INVOLVING ACTS OR TRANSACTIONS WHICH AMOUNT TO FRAUD OR A DISSIPATION OF THE ASSETS OF THE INSTITUTION; IN WHICH 49 of 89

Comment [WU10]: If the closed bank cannot be rehabilitated, the PDIC would proceed with its liquidation. This would involve the conversion of the assets of the bank into cash for distribution to the creditors in accordance with the provisions of the NCC on concurrence and preference of credits.

CASES, THE MONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR PRIOR HEARING FORBID THE INSTITUTION FROM DOING BUSINESS IN THE PHILIPPINES AND DESIGNATE THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS RECEIVER OF THE BANKING INSTITUTION.

FOR A QUASI-BANK, ANY PERSON OF RECOGNIZED COMPETENCE IN BANKING OR FINANCE MAY BE DESIGNED AS RECEIVER. THE RECEIVER SHALL IMMEDIATELY GATHER AND TAKE CHARGE OF ALL THE ASSETS AND LIABILITIES OF THE INSTITUTION, ADMINISTER THE SAME FOR THE BENEFIT OF ITS CREDITORS, AND EXERCISE THE GENERAL POWERS OF A RECEIVER UNDER THE REVISED RULES OF COURT BUT SHALL NOT, WITH THE EXCEPTION OF ADMINISTRATIVE EXPENDITURES, PAY OR COMMIT ANY ACT THAT WILL INVOLVE THE TRANSFER OR DISPOSITION OF ANY ASSET OF THE INSTITUTION: PROVIDED, THAT THE RECEIVER MAY DEPOSIT OR PLACE THE FUNDS OF THE INSTITUTION IN NON-SPECULATIVE INVESTMENTS. THE RECEIVER SHALL DETERMINE AS SOON AS POSSIBLE, BUT NOT LATER THAN NINETY (90) DAYS FROM TAKE OVER, WHETHER THE INSTITUTION MAY BE REHABILITATED OR OTHERWISE PLACED IN SUCH A CONDITION SO THAT IT MAY BE PERMITTED TO RESUME BUSINESS WITH SAFETY TO ITS DEPOSITORS AND CREDITORS AND THE GENERAL PUBLIC: PROVIDED, THAT ANY DETERMINATION FOR THE RESUMPTION OF BUSINESS OF THE INSTITUTION SHALL BE SUBJECT TO PRIOR APPROVAL OF THE MONETARY BOARD.

IF THE RECEIVER DETERMINES THAT THE INSTITUTION CANNOT BE REHABILITATED OR PERMITTED TO RESUME BUSINESS IN ACCORDANCE WITH THE NEXT PRECEDING PARAGRAPH, THE MONETARY BOARD SHALL NOTIFY IN WRITING THE BOARD OF DIRECTORS OF ITS FINDINGS AND DIRECT THE RECEIVER TO PROCEED WITH THE LIQUIDATION OF THE INSTITUTION. THE RECEIVER SHALL:

(1) FILE EX PARTE WITH THE PROPER REGIONAL TRIAL COURT, AND WITHOUT REQUIREMENT OF PRIOR NOTICE OR ANY OTHER ACTION, A PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE INSTITUTION PURSUANT TO A LIQUIDATION PLAN ADOPTED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION FOR GENERAL APPLICATION TO ALL CLOSED BANKS. IN CASE OF QUASI-BANKS, THE LIQUIDATION PLAN SHALL BE ADOPTED BY THE MONETARY BOARD. UPON ACQUIRING JURISDICTION, THE COURT SHALL, UPON MOTION BY THE RECEIVER AFTER DUE NOTICE, ADJUDICATE DISPUTED CLAIMS AGAINST THE INSTITUTION, ASSIST THE ENFORCEMENT OF INDIVIDUAL LIABILITIES OF THE STOCKHOLDERS, DIRECTORS AND OFFICERS, AND DECIDE ON OTHER ISSUES AS MAY BE MATERIAL TO IMPLEMENT THE LIQUIDATION PLAN ADOPTED. THE RECEIVER SHALL PAY THE COST OF THE PROCEEDINGS FROM THE ASSETS OF THE INSTITUTION.

(2) CONVERT THE ASSETS OF THE INSTITUTIONS TO MONEY, DISPOSE OF THE SAME TO CREDITORS AND OTHER PARTIES, FOR THE PURPOSE OF PAYING THE DEBTS OF SUCH INSTITUTION IN ACCORDANCE WITH THE RULES ON CONCURRENCE AND PREFERENCE OF CREDIT UNDER THE CIVIL CODE OF THE PHILIPPINES AND HE MAY, IN THE NAME OF THE INSTITUTION, AND WITH THE ASSISTANCE OF COUNSEL AS HE MAY RETAIN, INSTITUTE SUCH ACTIONS AS MAY BE NECESSARY TO COLLECT AND RECOVER ACCOUNTS AND ASSETS OF, OR DEFEND ANY ACTION AGAINST, THE INSTITUTION. THE ASSETS OF AN INSTITUTION UNDER RECEIVERSHIP OR LIQUIDATION SHALL BE DEEMED IN CUSTODIA LEGIS IN THE HANDS OF THE RECEIVER AND SHALL, FROM THE MOMENT THE INSTITUTION WAS PLACED UNDER SUCH RECEIVERSHIP OR

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LIQUIDATION, BE EXEMPT FROM ANY ORDER OF GARNISHMENT , LEVY, ATTACHMENT, OR EXECUTION.

THE ACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDER SECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BE

RESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FOR CERTIORARI ON THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OF JURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TO LACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLY BE FILED BY THE STOCKHOLDERS OF RECORD REPRESENTING THE MAJORITY OF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARD OF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP, LIQUIDATION OR CONSERVATORSHIP.

THE DESIGNATION OF A CONSERVATOR UNDER SECTION 29 OF THIS ACT OR THE APPOINTMENT OF A RECEIVER UNDER THIS SECTION SHALL BE VESTED EXCLUSIVELY WITH THE MONETARY BOARD. FURTHERMORE, THE DESIGNATION OF A CONSERVATOR IS NOT A PRECONDITION TO THE DESIGNATION OF A RECEIVER.

Concept of insured deposits (Sec. 4[g]) SECTION 4. AS USED IN THIS ACT - (RENUMBERED FROM SEC. 3 BY R.A. 9302, 12 AUGUST 2004) [G] THE TERM “INSURED DEPOSIT” MEANS THE AMOUNT DUE TO ANY BONA FIDE DEPOSITOR FOR LEGITIMATE DEPOSITS IN AN INSURED BANK NET OF ANY OBLIGATION OF THE DEPOSITOR TO THE INSURED BANK AS OF THE DATE OF CLOSURE, BUT NOT TO EXCEED FIVE HUNDRED THOUSAND PESOS (P500,000.00).2 SUCH NET AMOUNT SHALL BE DETERMINED ACCORDING TO SUCH REGULATIONS AS THE BOARD OF DIRECTORS MAY PRESCRIBE. IN DETERMINING SUCH AMOUNT DUE TO ANY DEPOSITOR, THERE SHALL BE ADDED TOGETHER ALL DEPOSITS IN THE BANK MAINTAINED IN THE SAME RIGHT AND CAPACITY FOR HIS BENEFIT EITHER IN HIS OWN NAME OR IN THE NAME OF OTHERS. A JOINT ACCOUNT REGARDLESS OF WHETHER THE CONJUNCTION "AND," "OR," "AND/OR" IS USED, SHALL BE INSURED SEPARATELY FROM ANY INDIVIDUALLY-OWNED DEPOSIT ACCOUNT: PROVIDED, THAT (1) IF THE ACCOUNT IS HELD JOINTLY BY TWO OR MORE NATURAL PERSONS, OR BY TWO OR MORE JURIDICAL PERSONS OR ENTITIES, THE MAXIMUM INSURED DEPOSIT SHALL BE DIVIDED INTO AS MANY EQUAL SHARES AS THERE ARE INDIVIDUALS, JURIDICAL PERSONS OR ENTITIES, UNLESS A DIFFERENT SHARING IS STIPULATED IN THE DOCUMENT OF DEPOSIT , AND (2) IF THE ACCOUNT IS HELD BY A JURIDICAL PERSON OR ENTITY JOINTLY WITH ONE OR MORE NATURAL PERSONS, THE MAXIMUM INSURED DEPOSIT SHALL BE PRESUMED TO BELONG ENTIRELY TO SUCH JURIDICAL PERSON OR ENTITY: PROVIDED, FURTHER, THAT THE AGGREGATE OF THE INTEREST OF EACH CO-OWNER OVER SEVERAL JOINT ACCOUNTS, WHETHER OWNED BY THE SAME OR DIFFERENT COMBINATIONS OF INDIVIDUALS, JURIDICAL PERSONS OR ENTITIES, SHALL LIKEWISE BE SUBJECT TO THE MAXIMUM INSURED DEPOSIT OF FIVE HUNDRED THOUSAND PESOS (P500,000.00): PROVIDED, FURTHERMORE, THAT THE PROVISIONS OF ANY LAW TO THE CONTRARY NOTWITHSTANDING, NO OWNER/HOLDER OF ANY NEGOTIABLE CERTIFICATE OF DEPOSIT SHALL BE RECOGNIZED AS A DEPOSITOR ENTITLED TO THE RIGHTS PROVIDED IN THIS ACT UNLESS HIS NAME IS REGISTERED AS OWNER/HOLDER THEREOF IN THE BOOKS OF THE ISSUING BANK: PROVIDED, FINALLY, THAT, IN CASE OF A CONDITION THAT THREATENS THE MONETARY AND FINANCIAL STABILITY OF THE BANKING SYSTEM THAT MAY HAVE SYSTEMIC

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Comment [WU11]: An insured deposit is the amount due any depositor for deposits in an insured bank net of any matured or unmatured obligation of the depositor to the insured bank as of the date of closure but not to exceed P250,000. In determining s depositor’s insured deposit, the PDIC shall add together all deposits in the bank maintained by the depositor in the same right and capacity for his benefit either in his own name or in the name of others. The outstanding balance of each account would also be adjusted to take into account any interest earned by the account as of the date of closure of the bank less any withholding tax due on such interest.

CONSEQUENCES, AS DEFINED IN SECTION 17 HEREOF, AS DETERMINED BY THE MONETARY BOARD, THE MAXIMUM DEPOSIT INSURANCE COVER MAY BE ADJUSTED IN SUCH AMOUNT, FOR SUCH A PERIOD, AND/OR FOR SUCH DEPOSIT PRODUCTS, AS MAY BE DETERMINED BY A UNANIMOUS VOTE OF THE BOARD OF DIRECTORS IN A MEETING CALLED FOR THE PURPOSE AND CHAIRED BY THE SECRETARY OF FINANCE, SUBJECT TO THE APPROVAL OF THE PRESIDENT OF THE PHILIPPINES. (AS AMENDED BY R.A. 9302, 12 AUGUST 2004; R.A. 9576, 2009)

Liability to depositors Deposit liabilities required to be insured with PDIC (Sec. 5) SECTION 5. THE DEPOSIT LIABILITIES OF ANY BANK OR BANKING INSTITUTION,

WHICH IS ENGAGED IN THE BUSINESS OF RECEIVING DEPOSITS AS HEREIN DEFINED ON THE EFFECTIVE DATE OF THIS ACT, OR WHICH THEREAFTER MAY ENGAGE IN THE BUSINESS OF RECEIVING DEPOSITS, SHALL BE INSURED WITH THE CORPORATION. (AS AMENDED BY R.A. 6037, 04 AUGUST 1969; RENUMBERED FROM SEC. 4 BY R.A. 9302, 12 AUGUST 2004)

Commencement of liability (Sec. 14) SECTION 14. W HENEVER AN INSURED BANK SHALL HAVE BEEN CLOSED BY THE MONETARY BOARD PURSUANT TO SECTION 30 OF R.A. 7653, PAYMENT OF THE INSURED DEPOSITS ON SUCH CLOSED BANK SHALL BE MADE BY THE CORPORATION AS SOON AS POSSIBLE EITHER (1) BY CASH OR (2) BY MAKING AVAILABLE TO EACH DEPOSITOR A TRANSFERRED DEPOSIT IN ANOTHER INSURED BANK IN AN AMOUNT EQUAL TO INSURED DEPOSIT OF SUCH DEPOSITOR: PROVIDED, HOWEVER, THAT THE CORPORATION, IN ITS DISCRETION, MAY REQUIRE PROOF OF CLAIMS TO BE FILED BEFORE PAYING THE INSURED DEPOSITS, AND THAT IN ANY CASE WHERE THE CORPORATION IS NOT SATISFIED AS TO THE VIABILITY OF A CLAIM FOR AN INSURED DEPOSIT , IT MAY REQUIRE FINAL DETERMINATION OF A COURT OF COMPETENT JURISDICTION BEFORE PAYING SUCH CLAIM: PROVIDED, FURTHER, THAT FAILURE TO SETTLE THE CLAIM, WITHIN SIX (6) MONTHS FROM THE DATE OF FILING OF CLAIM FOR INSURED DEPOSIT, WHERE SUCH FAILURE WAS DUE TO GRAVE ABUSE OF DISCRETION, GROSS NEGLIGENCE, BAD FAITH, OR MALICE, SHALL, UPON CONVICTION, SUBJECT THE DIRECTORS, OFFICERS OR EMPLOYEES OF THE CORPORATION RESPONSIBLE FOR THE DELAY, TO IMPRISONMENT FROM SIX (6) MONTHS TO ONE (1) YEAR: PROVIDED, FURTHERMORE, THAT THE PERIOD SHALL NOT APPLY IF THE VALIDITY OF THE CLAIM REQUIRES THE RESOLUTION OF ISSUES OF FACTS AND OR LAW BY ANOTHER OFFICE, BODY OR AGENCY INCLUDING THE CASE MENTIONED IN THE FIRST PROVISO OR BY THE CORPORATION TOGETHER WITH SUCH OTHER OFFICE, BODY OR AGENCY. (AS AMENDED BY R.A. 9302, 12 AUGUST 2004)

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Comment [WU12]: When an insured bank is closed, how will payment of the insured deposits in such bank be made by the PDIC? (Sec. 14) The PDIC shall pay either (i) in cash or (ii) by making available to each depositor a transferred deposit in another insured bank in an amount equal to the insured deposit

Comment [WU13]: When PDIC required to settle a claim for an insured deposit? (Sec. 14) The PDIC is required to settle the claim within 6 months from the date of filing thereof provided that the claim was filed within 2 years from actual takeover of the closed bank by PDIC. The 6-month period shall not apply if the documents of the claimant are incomplete or the validity of the claim requires the resolution of issues of facts or law by another office, body or agency, independently or in coordination with the PDIC.

Deposit accounts not entitled to payment (Sec. 4[f], as amended by Sec. 2, RA 9576) SECTION 4. [F] THE TERM “DEPOSIT” MEANS THE UNPAID BALANCE OF MONEY OR

ITS EQUIVALENT RECEIVED BY A BANK IN THE USUAL COURSE OF BUSINESS AND FOR WHICH IT HAS GIVEN OR IS OBLIGED TO GIVE CREDIT TO A COMMERCIAL, CHECKING, SAVINGS, TIME OR THRIFT ACCOUNT, OR ISSUED IN ACCORDANCE WITH BANGKO SENTRAL RULES AND REGULATIONS AND OTHER APPLICABLE LAWS, TOGETHER WITH SUCH OTHER OBLIGATIONS OF A BANK, WHICH, CONSISTENT WITH BANKING USAGE AND PRACTICES, THE BOARD OF DIRECTORS SHALL DETERMINE AND PRESCRIBE BY REGULATIONS TO BE DEPOSIT LIABILITIES OF THE BANK: PROVIDED, THAT ANY OBLIGATION OF A BANK WHICH IS PAYABLE AT THE OFFICE OF THE BANK LOCATED OUTSIDE OF THE PHILIPPINES SHALL NOT BE A DEPOSIT FOR ANY OF THE PURPOSES OF THIS ACT OR INCLUDED AS PART OF THE TOTAL DEPOSITS OR OF INSURED DEPOSIT: PROVIDED, FURTHER, THAT, SUBJECT TO THE APPROVAL OF THE BOARD OF DIRECTORS, ANY INSURED BANK WHICH IS INCORPORATED UNDER THE LAWS OF THE PHILIPPINES WHICH MAINTAINS A BRANCH OUTSIDE THE PHILIPPINES MAY ELECT TO INCLUDE FOR INSURANCE ITS DEPOSIT OBLIGATIONS PAYABLE ONLY AT SUCH BRANCH.

THE CORPORATION SHALL NOT PAY DEPOSIT INSURANCE FOR THE FOLLOWING ACCOUNTS OR TRANSACTIONS, WHETHER DENOMINATED, DOCUMENTED, RECORDED OR BOOKED AS DEPOSIT BY THE BANK: 1. INVESTMENT PRODUCTS SUCH AS BONDS AND SECURITIES, TRUST ACCOUNTS, AND OTHER SIMILAR INSTRUMENTS; 2. DEPOSIT ACCOUNTS OR TRANSACTIONS WHICH ARE UNFUNDED, OR THAT ARE FICTITIOUS OR FRAUDULENT; 3. DEPOSIT ACCOUNTS OR TRANSACTIONS CONSTITUTING, AND/OR EMANATING FROM, UNSAFE AND UNSOUND BANKING PRACTICE/S, AS DETERMINED BY THE CORPORATION, IN CONSULTATION WITH THE BSP, AFTER DUE NOTICE AND HEARING, AND PUBLICATION OF A CEASE AND DESIST ORDER ISSUED BY THE CORPORATION AGAINST SUCH DEPOSIT ACCOUNTS OR TRANSACTIONS; AND 4. DEPOSITS THAT ARE DETERMINED TO BE THE PROCEEDS OF AN UNLAWFUL ACTIVITY AS DEFINED UNDER REPUBLIC ACT 9160, AS AMENDED. THE ACTIONS OF THE CORPORATION TAKEN UNDER THIS SECTION SHALL BE FINAL AND EXECUTORY, AND MAY NOT BE RESTRAINED OR SET ASIDE BY THE COURT,

EXCEPT ON APPROPRIATE PETITION FOR CERTIORARI ON THE GROUND THAT THE ACTION WAS TAKEN IN EXCESS OF JURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TO A LACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLY BE FILED WITHIN THIRTY (30) DAYS FROM NOTICE OF DENIAL OF CLAIM FOR DEPOSIT INSURANCE. (AS AMENDED BY P.D. 1940, 27 JUNE 1984; R.A. 7400, 13 APRIL 1992; R.A. 9302, 12 AUGUST 2004; R.A. 9576, 29 APRIL 2009)

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Extent of liability (Sec. 4[g], as amended by Sec. 3, RA 9576) Liability for contents of safety deposit box Determination of insured deposits (Sec. 16)

Comment [WU14]: Is the PDIC required to notify the depositors of a closed bank of the fact of such closure and the need to file their claims? (Sec. 16)

SECTION 16. a. THE CORPORATION SHALL COMMENCE THE DETERMINATION OF INSURED DEPOSITS DUE THE DEPOSITORS OF A CLOSED BANK UPON ITS ACTUAL TAKEOVER OF THE CLOSED BANK. THE CORPORATION SHALL GIVE NOTICE TO THE DEPOSITORS OF THE CLOSED BANK OF THE INSURED DEPOSITS DUE THEM BY WHATEVER MEANS DEEMED APPROPRIATE BY THE BOARD OF DIRECTORS: PROVIDED, THAT THE CORPORATION SHALL PUBLISH THE NOTICE ONCE A WEEK FOR AT LEAST THREE (3) CONSECUTIVE WEEKS IN A NEWSPAPER OF GENERAL CIRCULATION OR, WHEN APPROPRIATE, IN A NEWSPAPER CIRCULATED IN THE COMMUNITY OR COMMUNITIES WHERE THE CLOSED BANK OR ITS BRANCHES ARE LOCATED. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

b. PAYMENT OF AN INSURED DEPOSIT TO ANY PERSON BY THE CORPORATION SHALL DISCHARGE THE CORPORATION, AND PAYMENT OF TRANSFERRED DEPOSIT TO ANY PERSON BY THE NEW BANK OR BY AN INSURED BANK IN WHICH A TRANSFERRED DEPOSIT HAS BEEN MADE AVAILABLE SHALL DISCHARGE THE CORPORATION AND SUCH NEW BANK OR OTHER INSURED BANK, TO THE SAME EXTENT THAT PAYMENT TO SUCH PERSON BY THE CLOSED BANK WOULD HAVE DISCHARGED IT FROM LIABILITY FOR THE INSURED DEPOSIT. (RENUMBERED FROM SEC. 11 (A) BY R.A. 9302, 12 AUGUST 2004)

Yes, The PDIC shall publish the notice to depositors once a week for (3) consecutive weeks in a newspaper of general circulation or, in a newspaper circulated in the community or communities where the closed bank or its branches are located.

Comment [WU15]: Effect of payment to the depositor of his insured deposit? (Sec. 16[b]) It (i) discharges the PDIC from any further liability to the depositor, and (ii) subrogates the PDIC to all the rights of the depositor against the closed bank to the extent of such payment.

c. EXCEPT AS OTHERWISE PRESCRIBED BY THE BOARD OF DIRECTORS, NEITHER THE CORPORATION NOR SUCH OTHER INSURED BANK SHALL BE REQUIRED TO

RECOGNIZE AS THE OWNER OF ANY PORTION OF A DEPOSIT APPEARING ON THE RECORDS OF THE CLOSED BANK UNDER A NAME OTHER THAN THAT OF THE CLAIMANT, ANY PERSON WHOSE NAME OR INTEREST AS SUCH OWNER IS NOT DISCLOSED ON THE RECORDS OF SUCH CLOSED BANK AS PART OWNER OF SAID DEPOSIT, IF SUCH RECOGNITION WOULD INCREASE THE AGGREGATE AMOUNT OF THE INSURED DEPOSITS IN SUCH CLOSED BANK. (RENUMBERED FROM SEC. 11 (B) BY R.A. 9302, 12 AUGUST 2004)

d. THE CORPORATION MAY WITHHOLD PAYMENT OF SUCH PORTION 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 OF ANY LIABILITY OF SUCH DEPOSITOR TO THE CLOSED BANK OR 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 THEREFOR. (RENUMBERED FROM SEC. 11 (C) BY R.A. 9302, 12 AUGUST 2004)

e. UNLESS OTHERWISE WAIVED BY THE CORPORATION, IF THE DEPOSITOR IN THE

CLOSED BANK SHALL FAIL TO CLAIM HIS INSURED DEPOSITS WITH THE CORPORATION WITHIN TWO (2) YEARS FROM ACTUAL TAKEOVER OF THE CLOSED BANK BY THE RECEIVER, OR DOES NOT ENFORCE HIS CLAIM FILED WITH THE CORPORATION WITHIN TWO (2) YEARS AFTER THE TWO-YEAR PERIOD TO FILE A CLAIM AS MENTIONED HEREINABOVE, ALL RIGHTS OF THE

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Comment [WU16]: Is there a prescriptive period for the filing of claims with the PDIC by the depositors of a closed bank? (Sec. 16[e]) Yes. A depositor of a closed bank must file his claim with the PDIC within 2 years from actual takeover of the closed bank by PDIC. If he does not, all his rights against the PDIC in respect of the insured deposits shall be barred. However, all the rights of the depositor against the closed bank and its shareholders or the receivership estate to which PDIC may have become subrogated shall thereupon revert to the depositor

DEPOSITOR AGAINST THE CORPORATION WITH RESPECT TO THE INSURED DEPOSIT SHALL BE BARRED; HOWEVER, ALL RIGHTS OF THE DEPOSITOR AGAINST THE CLOSED BANK AND ITS SHAREHOLDERS OR THE RECEIVERSHIP ESTATE TO WHICH THE CORPORATION MAY HAVE BECOME SUBROGATED, SHALL THEREUPON REVERT TO THE DEPOSITOR. THEREAFTER, THE CORPORATION SHALL BE DISCHARGED FROM ANY LIABILITY ON THE INSURED DEPOSIT. (AS AMENDED BY R.A. 9302, 12 AUGUST 2004)

Calculation of liability (Sec. 4[g]; see also PDIC Bulletin No. 2004-04, dated August 12, 2004) Per depositor, per capacity rule Joint accounts A JOINT ACCOUNT, REGARDLESS OF WHETHER THE CONJUNCTION “AND”, “OR”, OR “AND/OR” IS USED, SHALL BE INSURED SEPARATELY FROM ANY INDIVIDUALLY-OWNED DEPOSIT ACCOUNT. THE MAXIMUM INSURED DEPOSIT OF P250,000 SHALL BE DIVIDED INTO AS MANY EQUAL SHARES AS THERE ARE DEPOSITORS UNLESS A DIFFERENT SHARING IS STIPULATED IN THE DOCUMENT OF DEPOSIT.

Example: Pedro and Mario have P400,000 in a joint savings account with ABC Bank. Pedro also has P300,000 in another savings account that he maintains with the same bank solely in his name. Mario’s total deposit is P200,000 while that of Pedro is P500,000. If ABC Bank were closed, Mario could claim P125,000 from PDIC (representing his 50% share of the maximum insured deposit of the joint account with Pedro) while Pedro could claim a total of P250,000 (P125,000, representing his 50% share of the maximum insured deposit of the joint account with Mario), plus P125,000 out of the savings account solely in his name. IF THE ACCOUNT WERE HELD BY A JURIDICAL PERSON JOINTLY WITH ONE OR MORE NATURAL PERSONS, THE MAXIMUM INSURED DEPOSIT SHALL BE PRESUMED TO BELONG ENTIRELY TO SUCH JURIDICAL PERSON OR ENTITY. Example: XYZ Corporation and Pedro have P250,000 in a joint savings account with ABC Bank. Pedro also has P250,000 in another savings account that he maintains with the same bank solely in his name. If ABC Bank were closed, XYZ Corporation could claim P250,000 from PDIC. The P250,000 in the joint account would be presumed to belong entirely to XYZ Corporation. IN CASE ONE OF THE CO-DEPOSITORS IN A JOINT “AND/OR” OR “OR” ACCOUNT HAS AN OBLIGATION TO THE CLOSED BANK COVERED BY A HOLD-OUT AGREEMENT (I.E., A SECURITY ARRANGEMENT WHEREBY THE OBLIGATION IS SECURED BY THE ACCOUNT), THE OBLIGATION SECURED BY THE AGREEMENT SHALL BE DEDUCTED FROM THE BALANCE OF THE JOINT ACCOUNT REGARDLESS OF THE FACT THAT ONLY ONE OF THE CO-DEPOSITORS IS INDEBTED TO THE BANK.

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Example: Pedro and Mario have P200,000 in a joint “and/or” savings account with ABC Bank. Pedro borrowed P50,000 from the bank and secured it with a hold-out on the joint “and/or” savings account. If ABC Bank were closed, Pedro and Mario could each claim only P75,000 from the PDIC. IN CASE THE DEPOSIT IS A JOINT “AND” ACCOUNT, THE OBLIGATION SHALL BE DEDUCTED ONLY FROM THE SHARE OF THE INDEBTED CO-DEPOSITOR UNLESS THE OTHER CO-DEPOSITOR IS HIMSELF A CO-SIGNATORY TO THE HOLD-OUT AGREEMENT. Example: If the account in the immediately preceding problem were a joint “and” account, Pedro could claim only P50,000 from the PDIC. Mario could claim P100,000. (e) Where the deposit is not covered by a hold-out agreement, the obligation shall be deducted only from the share of the indebted codepositor regardless of whether the deposit is a joint “and”, “or”, or “and/or” account. Mode of payment (Sec. 14) Concept of transferred deposit (Sec. 4[h]) SECTION 4 [H] – THE TERM “TRANSFER DEPOSIT” MEANS A DEPOSIT IN AN INSURED BANK MADE AVAILABLE TO A DEPOSITOR BY THE CORPORATION AS PAYMENT OF INSURED DEPOSIT OF SUCH DEPOSITOR IN A CLOSED BANK AND ASSUMED BY ANOTHER INSURED BANK.

Effect of payment of insured deposit (Secs. 15 and 16[b]) It (i) discharges the PDIC from any further liability to the depositor, and (ii) subrogates the PDIC to all the rights of the depositor against the closed bank to the extent of such payment.

Payments of insured deposits as preferred credit under Art. 2244, Civil Code (Sec. 15) All payments by the PDIC of insured deposits in closed banks partake of the nature of public funds, as such, must be considered a preferred credit similar to taxes due to the National Government in the order of preference under Article 2244 of the NCC. Failure of depositor to claim insured deposit (Sec. 16[e]); Is there a prescriptive period for the filing of claims with the PDIC by the depositors of a closed bank? (Sec. 16[e]) Yes. A depositor of a closed bank must file his claim with the PDIC within 2 years from actual takeover of the closed bank by PDIC. If he does not, all his rights against the PDIC in respect of the insured deposits shall be barred. However, all the rights of the depositor against the closed bank 56 of 89

Comment [WU17]: It is a deposit in an insured bank made available to a depositor by the PDIC as payment of the insured deposit of such depositor in a closed bank and assumed by another insured bank. By paying its liabilities to depositors in this manner, the PDIC hopes to persuade these depositors to keep their savings in banks where such funds could be lent out, rather than hoarded and kept out of the banking system

and its shareholders or the receivership estate to which PDIC may have become subrogated shall thereupon revert to the depositor Examination of banks and deposit accounts (Sec. 8, Paragraph 8, as amended by Sec. 5, RA 9576) SECTION 8.THE CORPORATION AS A CORPORATE BODY SHALL HAVE THE POWER - EIGHTH – TO CONDUCT EXAMINATION OF BANKS WITH PRIOR APPROVAL OF THE MONETARY BOARD: PROVIDED, THAT NO EXAMINATION CAN BE CONDUCTED WITHIN TWELVE (12) MONTHS FROM THE LAST EXAMINATION DATE: PROVIDED, HOWEVER, THAT THE CORPORATION MAY, IN COORDINATION WITH THE BANGKO SENTRAL, CONDUCT A SPECIAL EXAMINATION AS THE BOARD OF DIRECTORS, BY AN AFFIRMATIVE VOTE OF A MAJORITY OF ALL OF ITS MEMBERS, IF THERE IS A THREATENED OR IMPENDING CLOSURE OF A BANK; PROVIDED, FURTHER, THAT, NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHER LAWS, THE CORPORATION AND/OR THE BANGKO SENTRAL, MAY INQUIRE INTO OR EXAMINE DEPOSIT ACCOUNTS AND ALL INFORMATION RELATED THERETO IN CASE THERE IS A FINDING OF UNSAFE OR UNSOUND BANKING PRACTICE; PROVIDED, FINALLY, THAT TO AVOID OVERLAPPING OF EFFORTS, THE EXAMINATION SHALL MAXIMIZE THE EFFICIENT USE OF THE RELEVANT REPORTS, INFORMATION, AND FINDINGS OF THE BANGKO SENTRAL, WHICH IT SHALL MAKE AVAILABLE TO THE CORPORATION; (AS AMENDED BY R.A. 9302, 12 AUGUST 2004, R.A. 9576,29 APRIL 2009)

Other powers of PDIC (Secs. 8, 9[f], 10[b] and 11) SECTION 9[F]. THE CORPORATION SHALL UNDERWRITE OR ADVANCE LITIGATION COSTS AND EXPENSES, INCLUDING LEGAL FEES AND OTHER EXPENSES OF EXTERNAL COUNSEL, OR PROVIDE LEGAL ASSISTANCE TO, DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS OF THE CORPORATION IN CONNECTION WITH ANY CIVIL, CRIMINAL, ADMINISTRATIVE OR ANY OTHER ACTION OR PROCEEDING, TO WHICH SUCH DIRECTOR, OFFICER, EMPLOYEE OR AGENT IS MADE A PARTY BY REASON OF, OR IN CONNECTION WITH, THE EXERCISE OF AUTHORITY OR PERFORMANCE OF FUNCTIONS AND DUTIES UNDER THIS ACT: PROVIDED, THAT SUCH LEGAL PROTECTION SHALL NOT APPLY TO ANY CIVIL, CRIMINAL, ADMINISTRATIVE OR ANY ACTION OR PROCEEDING THAT MAY BE INITIATED BY THE CORPORATION, IN WHATEVER CAPACITY, AGAINST SUCH DIRECTOR, OFFICER, EMPLOYEE OR AGENT:PROVIDED, FURTHER, THAT DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS WHO SHALL RESIGN, RETIRE, TRANSFER TO ANOTHER AGENCY OR BE SEPARATED FROM THE SERVICE, SHALL CONTINUE TO BE PROVIDED WITH SUCH LEGAL PROTECTION IN CONNECTION WITH ANY ACT DONE OR OMITTED TO BE DONE BY THEM IN GOOD FAITH DURING THEIR TENURE OR EMPLOYMENT WITH THE CORPORATION: PROVIDED, FINALLY, THAT 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 CORPORATION IS ADVISED BY COUNSEL THAT THE PERSONS TO BE INDEMNIFIED DID NOT COMMIT ANY NEGLIGENCE OR MISCONDUCT. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

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SECTION 10[B]. HE CORPORATION AS RECEIVER SHALL CONTROL, MANAGE AND ADMINISTER THE AFFAIRS OF THE CLOSED BANK. EFFECTIVE IMMEDIATELY UPON TAKEOVER AS RECEIVER OF SUCH BANK, THE POWERS, FUNCTIONS AND DUTIES, AS WELL AS ALL ALLOWANCES, REMUNERATIONS AND PERQUISITES OF THE DIRECTORS, OFFICERS, AND STOCKHOLDERS OF SUCH BANK ARE SUSPENDED, AND THE RELEVANT PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF THE CLOSED BANK ARE LIKEWISE DEEMED SUSPENDED. (AS ADDED BY R.A. 9302, 12 AUGUST 2004) THE ASSETS OF THE CLOSED BANK UNDER RECEIVERSHIP SHALL BE DEEMED IN CUSTODIA LEGIS IN THE HANDS OF THE RECEIVER. FROM THE TIME THE CLOSED BANK IS PLACED UNDER SUCH RECEIVERSHIP, ITS ASSETS SHALL NOT BE SUBJECT TO ATTACHMENT, GARNISHMENT, EXECUTION, LEVY OR ANY OTHER COURT PROCESSES. THEREFORE, A JUDGE, OFFICER OF THE COURT OR ANY PERSON WHO SHALL ISSUE, ORDER, PROCESS OR CAUSE THE ISSUANCE OR IMPLEMENTATION OF THE WRIT OF GARNISHMENT, LEVY, ATTACHMENT OR EXECUTION SHALL BE LIABLE UNDER SECTION 21 HEREOF. (AS ADDED BY R.A. 9302, 12 AUGUST 2004) SECTION 11. IN ALL CASES OR ACTIONS FILED BY THE CORPORATION 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. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

Prohibition against splitting of deposits (Sec. 21[f][5], as amended by Sec. 11, RA 9576)

SECTION 21. [F][5]. THE PENALTY OF PRISION MAYOR OR A FINE OF NOT LESS THAN FIFTY THOUSAND PESOS (P50,000.00) BUT NOT MORE THAN TWO MILLION PESOS (P2,000,000.00), OR BOTH, AT THE DISCRETION OF THE COURT, SHALL BE IMPOSED UPON ANY DIRECTOR, OFFICER, EMPLOYEE OR AGENT OF A BANK: (AS AMENDED BY R.A. 9302, 12 AUGUST 2004) SPLITTING OF DEPOSITS OR CREATION OF FICTITIOUS LOANS OR DEPOSIT ACCOUNTS. (AS ADDED BY R.A. 9302, 12 AUGUST 2004) SPLITTING OF DEPOSITS OCCURS WHENEVER A DEPOSIT ACCOUNT WITH AN OUTSTANDING BALANCE OF MORE THAN THE STATUTORY MAXIMUM AMOUNT OF INSURED DEPOSIT MAINTAINED UNDER THE NAME OF NATURAL OR JURIDICAL PERSONS IS BROKEN DOWN AND TRANSFERRED INTO TWO (2) OR MORE ACCOUNTS IN THE NAME/S OF NATURAL OR JURIDICAL PERSONS OR ENTITIES WHO HAVE NO BENEFICIAL OWNERSHIP ON TRANSFERRED DEPOSITS IN THEIR NAMES WITHIN ONE HUNDRED TWENTY (120) DAYS IMMEDIATELY PRECEDING OR DURING A BANKDECLARED BANK HOLIDAY, OR IMMEDIATELY PRECEDING A CLOSURE ORDER ISSUED BY THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS FOR THE PURPOSE OF AVAILING OF THE MAXIMUM DEPOSIT INSURANCE COVERAGE; (AS ADDED BY R.A. 9302, 12 AUGUST 2004; AS AMENDED BY R.A. 9576, 29 APRIL 2009)

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Prohibition against issuance of TROs, etc. (Sec. 22)

SECTION 22. NO COURT, EXCEPT THE COURT OF APPEALS, SHALL ISSUE ANY TEMPORARY RESTRAINING ORDER, PRELIMINARY INJUNCTION OR PRELIMINARY MANDATORY INJUNCTION AGAINST THE CORPORATION FOR ANY ACTION UNDER THIS ACT. (AS ADDED BY R.A. 9302, 12 AUGUST 2004) THIS PROHIBITION SHALL APPLY IN ALL CASES, DISPUTES OR CONTROVERSIES INSTITUTED BY A PRIVATE PARTY, THE INSURED BANK, OR ANY SHAREHOLDER OF THE INSURED BANK. (AS ADDED BY R.A. 9302, 12 AUGUST 2004) THE SUPREME COURT MAY ISSUE A RESTRAINING ORDER OR INJUNCTION WHEN THE MATTER IS OF EXTREME URGENCY INVOLVING A CONSTITUTIONAL ISSUE, SUCH THAT UNLESS A TEMPORARY RESTRAINING ORDER IS ISSUED, GRAVE INJUSTICE AND IRREPARABLE INJURY WILL ARISE. THE PARTY APPLYING FOR THE ISSUANCE OF A RESTRAINING ORDER OR INJUNCTION SHALL FILE A BOND IN AN AMOUNT TO BE FIXED BY THE SUPREME COURT, WHICH BOND SHALL ACCRUE IN FAVOR OF THE CORPORATION IF THE COURT SHOULD FINALLY DECIDE THAT THE APPLICANT WAS NOT ENTITLED TO THE RELIEF SOUGHT. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

ANY RESTRAINING ORDER OR INJUNCTION ISSUED IN VIOLATION OF THIS SECTION IS VOID AND OF NO FORCE AND EFFECT AND ANY JUDGE WHO HAS ISSUED THE SAME SHALL SUFFER THE PENALTY OF SUSPENSION OF AT LEAST SIXTY (60) DAYS WITHOUT PAY. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

3.2

Case Nature of liquidation proceedings Pacific Banking Corporation Employees Organization, et al. vs. CA, et al., G.R. 109373, March 20, 1995.

ISSUE: The principal question involved is the same: whether a petition for liquidation under §29 of Rep. Act No. 265, otherwise known as the Central Bank Act, is a special proceeding or an ordinary civil action. [This is relevant to determine the proper period to be followed in making an appeal.] If it were a special proceeding, the period for appealing from any decision or final order rendered therein is 30 days [and the party appealing must, in addition to a notice of appeal, file with the trial court a record on appeal in order to perfect his appeal]. If it were a liquidation proceeding, the period for appealing from any decision or final order rendered therein is 15 days since a liquidation proceeding is an ordinary action. HELD: Considering this distinction, a petition for liquidation of an insolvent corporation should be classified a special proceeding and not an ordinary action. Such petition does not seek

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the enforcement or protection of a right nor the prevention or redress of a wrong against a party. It does not pray for affirmative relief for injury arising from a party's wrongful act or omission nor state a cause of action that can be enforced against any person. What it seeks is merely a declaration by the trial court of the corporation's insolvency so that its creditors may be able to file their claims in the settlement of the corporation's debts and obligations. Put in another way, the petition only seeks a declaration of the corporation's debts and obligations. Put in another way, the petition only seeks a declaration of the corporation's state of insolvency and the concomitant right of creditors and the order of payment of their claims in the disposition of the corporation's assets. Contrary to the rulings of the Fourteenth Division, liquidation proceedings do not resemble petitions for interpleader. Rather, a liquidation proceeding resembles the proceeding for the settlement of state of deceased persons under Rules 73 to 91 of the Rules of Court. The two have a common purpose: the determination of all the assets and the payment of all the debts and liabilities of the insolvent corporation or the estate. The Liquidator and the administrator or executor are both charged with the assets for the benefit of the claimants. In both instances, the liability of the corporation and the estate is not disputed. The court's concern is with the declaration of creditors and their rights and the determination of their order of payment As in the settlement of estates, multiple appeals are allowed in proceedings for liquidation of an insolvent corporation. As the Fifth Division of the Court of Appeals, quoting the Liquidator, correctly noted: A liquidation proceeding is a single proceeding which consists of a number of cases properly classified as "claims." It is basically a two-phased proceeding. The first phase is concerned with the approval and disapproval of claims. Upon the approval of the petition seeking the assistance of the proper court in the liquidation of a close entity, all money claims against the bank are required to be filed with the liquidation court. This phase may end with the declaration by the liquidation court that the claim is not proper or without basis. On the other hand, it may also end with the liquidation court allowing the claim. In the latter case, the claim shall be classified whether it is ordinary or preferred, and thereafter included Liquidator. In either case, the order allowing or disallowing a particular claim is final order, and may be appealed by the party aggrieved thereby. The second phase involves the approval by the Court of the distribution plan prepared by the duly appointed liquidator. The distribution plan specifies in detail the total amount available for distribution to creditors whose claim were earlier allowed. The Order finally disposes of the issue of how much property is available for disposal. Moreover, it ushers in the final phase of the liquidation proceeding — payment of all allowed claims in accordance with the order of legal priority and the approved distribution plan. Verily, the import of the final character of an Order of allowance or disallowance of a particular claim cannot be overemphasized. It is the operative fact that constitutes a liquidation proceeding a "case where multiple appeals are allowed by law." The issuance of an Order which, by its nature, affects only the particular claims involved, and which may assume finality if no appeal is made therefrom, ipso facto creates a situation where multiple appeals are allowed.

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A liquidation proceeding is commenced by the filing of a single petition by the Solicitor General with a court of competent jurisdiction entitled, "Petition for Assistance in the Liquidation of e.g., Pacific Banking Corporation. All claims against the insolvent are required to be filed with the liquidation court. Although the claims are litigated in the same proceeding, the treatment is individual. Each claim is heard separately. And the Order issued relative to a particular claim applies only to said claim, leaving the other claims unaffected, as each claim is considered separate and distinct from the others. Obviously, in the event that an appeal from an Order allowing or disallowing a particular claim is made, only said claim is affected, leaving the others to proceed with their ordinary course. In such case, the original records of the proceeding are not elevated to the appellate court. They remain with the liquidation court. In lieu of the original record, a record of appeal is instead required to be prepared and transmitted to the appellate court. Inevitably, multiple appeals are allowed in liquidation proceedings. Consequently, a record on appeal is necessary in each and every appeal made. Hence, the period to appeal therefrom should be thirty (30) days, a record on appeal being required. (Record pp. 162-164).

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IV LAW ON SECRECY OF BANK DEPOSITS RA 1405 (1955), as amended by PD 1792 (1981), RA 6832 (1990) and RA 7653 (1993); see also Sec. 6 (f), NIRC, and Sec. 15 (8), RA 6770 (Ombudsman Act of 1989); Sec. 11, RA 9160 (Anti-Money Laundering Act of 2001), as amended by Sec. 8 of RA 9194 (2003); and RA 9576 (2009).

4.1

Topics Purpose SECTION 1. IT IS HEREBY DECLARED TO BE THE POLICY OF THE GOVERNMENT TO GIVE ENCOURAGEMENT TO THE PEOPLE TO DEPOSIT THEIR MONEY IN BANKING INSTITUTIONS AND 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.

Prohibited acts SECTION 2. ALL DEPOSITS OF WHATEVER NATURE WITH BANKS OR BANKING INSTITUTIONS IN THE PHILIPPINES INCLUDING INVESTMENTS IN BONDS ISSUED BY THE GOVERNMENT OF THE PHILIPPINES, ITS POLITICAL SUBDIVISIONS AND ITS INSTRUMENTALITIES, ARE HEREBY 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 WRITTEN PERMISSION OF THE DEPOSITOR, OR IN CASES OF IMPEACHMENT, OR UPON ORDER OF A COMPETENT COURT IN CASES OF BRIBERY OR DERELICTION OF DUTY OF PUBLIC OFFICIALS, OR IN CASES WHERE THE MONEY DEPOSITED OR INVESTED IS THE SUBJECT MATTER OF THE LITIGATION.

SECTION 3. IT SHALL BE UNLAWFUL FOR ANY OFFICIAL OR EMPLOYEE OF A BANKING INSTITUTION TO DISCLOSE TO ANY PERSON OTHER THAN THOSE MENTIONED IN SECTION TWO HEREOF ANY INFORMATION CONCERNING SAID DEPOSITS.

Exceptions SECTION 2. XXX EXCEPT UPON— 1. WRITTEN PERMISSION OF THE DEPOSITOR, OR 2. IN CASES OF IMPEACHMENT, OR 3. UPON ORDER OF A COMPETENT COURT IN CASES OF BRIBERY OR DERELICTION OF DUTY OF PUBLIC OFFICIALS, OR 4. IN CASES WHERE THE MONEY DEPOSITED OR INVESTED IS THE SUBJECT MATTER OF THE LITIGATION. SEC. 6, NIRC. (F) AUTHORITY OF THE COMMISSIONER TO INQUIRE INTO BANK DEPOSIT ACCOUNTS. - NOTWITHSTANDING ANY CONTRARY PROVISION OF REPUBLIC ACT NO. 1405 AND OTHER GENERAL OR SPECIAL LAWS, THE COMMISSIONER IS HEREBY AUTHORIZED TO INQUIRE INTO THE BANK DEPOSITS OF:(1) A DECEDENT TO DETERMINE HIS GROSS ESTATE; AND(2) ANY TAXPAYER 62 of 89

WHO HAS FILED AN APPLICATION FOR COMPROMISE OF HIS TAX LIABILITY UNDER SEC. 204 (A) (2) OF THIS CODE BY REASON OF FINANCIAL INCAPACITY TO PAY HIS TAX LIABILITY.IN CASE A TAXPAYER FILES AN APPLICATION TO COMPROMISE THE PAYMENT OF HIS TAX LIABILITIES ON HIS CLAIM THAT HIS FINANCIAL POSITION DEMONSTRATES A CLEAR INABILITY TO PAY THE TAX ASSESSED, HIS APPLICATION SHALL NOT BE CONSIDERED UNLESS AND UNTIL HE WAIVES IN WRITING HIS PRIVILEGE UNDER REPUBLIC ACT NO. 1405 OR UNDER OTHER GENERAL OR SPECIAL LAWS, AND SUCH WAIVER SHALL CONSTITUTE THE AUTHORITY OF THE COMMISSIONER TO INQUIRE INTO THE BANK DEPOSITS OF THE TAXPAYER.

SECTION 15, RA 6770. POWERS, FUNCTIONS AND DUTIES. — THE OFFICE OF THE OMBUDSMAN SHALL HAVE THE FOLLOWING POWERS, FUNCTIONS AND DUTIES: (8) ADMINISTER OATHS, ISSUE SUBPOENA AND SUBPOENA DUCES TECUM, AND TAKE TESTIMONY IN ANY INVESTIGATION OR INQUIRY, INCLUDING THE POWER TO EXAMINE AND HAVE ACCESS TO BANK ACCOUNTS AND RECORDS;

SEC. 11, RA 9160. AUTHORITY TO INQUIRE INTO BANK DEPOSITS. -NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHER LAWS, 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 OF THIS ACT, WHEN IT HAS BEEN ESTABLISHED THAT THERE IS PROBABLE CAUSE THAT THE DEPOSITS OR INVESTMENTS ARE RELATED TO AN UNLAWFUL ACTIVITIES AS DEFINED IN SECTION 3(I) HEREOF OR A MONEY LAUNDERING OFFENSE UNDER SECTION 4 HEREOF, EXCEPT THAT NO COURT ORDER SHALL BE REQUIRED IN CASES INVOLVING UNLAWFUL ACTIVITIES DEFINED IN SECTIONS 3(I)1, (2) AND

(12).

TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS (BSP) MAY INQUIRE INTO OR EXAMINE ANY DEPOSIT OF INVESTMENT WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION WHEN THE EXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION, IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP. SEC. 8 (8), RA 3591. — EIGHTH - TO CONDUCT EXAMINATION OF BANKS WITH PRIOR APPROVAL OF THE MONETARY BOARD: PROVIDED, THAT NO EXAMINATION CAN BE CONDUCTED WITHIN TWELVE (12) MONTHS FROM THE LAST EXAMINATION DATE: PROVIDED, HOWEVER, THAT THE CORPORATION MAY, IN COORDINATION WITH THE BANGKO SENTRAL, CONDUCT A SPECIAL EXAMINATION AS THE BOARD OF DIRECTORS, BY AN AFFIRMATIVE VOTE OF A MAJORITY OF ALL OF ITS MEMBERS, IF THERE IS A THREATENED OR IMPENDING CLOSURE OF A BANK: PROVIDED, FURTHER, THAT NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHER LAWS, THE CORPORATION AND/OR BANGKO SENTRAL MAY INQUIRE INTO OR EXAMINE DEPOSIT ACCOUNTS AND ALL INFORMATION RELATED THERETO IN CASE THERE IS A FINDING OF UNSAFE OR UNSOUND BANKING PRACTICE: PROVIDED, FINALLY, THAT TO AVOID OVERLAPPING OF EFFORTS, THE EXAMINATION SHALL MAXIMIZE THE EFFICIENT USE OF THE RELEVANT REPORTS, INFORMATION, AND FINDINGS OF THE BANGKO SENTRAL, WHICH IT SHALL MAKE AVAILABLE TO THE CORPORATION.

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Garnishment of deposits Safety deposit box 4.2

Cases Unexplained wealth exception PNB vs. Gancayco, G.R. No. L-18343, September 30, 1965

ISSUE: The principal question presented in this case is whether a bank can be compelled to disclose the records of accounts of a depositor who is under investigation for unexplained wealth. Defendants cite the Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) in support of their claim of authority— SEC. 8. Dismissal due to unexplained wealth. — If in accordance with the provisions of RA 1379, a public official has been found to have acquired during his incumbency, whether in his name or in the name of other persons, an amount of property and/or money manifestly out of proportion to his salary and to his other lawful income, that fact shall be a ground for dismissal or removal. Properties in the name of the spouse and unmarried children of such public official may be taken into consideration, when their acquisition through legitimate means cannot be satisfactorily shown. Bank deposits shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary. HELD: YES; THE BANK MAY BE COMPELLED TO DISCLOSE SUCH BANK RECORDS. RA 1405 and RA 3019 [with respect to secrecy of bank accounts] are so repugnant to each other than no reconciliation is possible. Thus, while Republic Act No. 1405 provides that bank deposits are "absolutely confidential ... and [therefore] may not be examined, inquired or looked into," except in those cases enumerated therein, the Anti-Graft Law directs in mandatory terms that bank deposits "shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary." The only conclusion possible is that section 8 of the Anti-Graft Law is intended to amend section 2 of Republic Act No. 1405 by providing additional exception to the rule against the disclosure of bank deposits. With regard to the claim that disclosure would be contrary to the policy making bank deposits confidential, it is enough to point out that while section 2 of Republic Act 1405 declares bank deposits to be "absolutely confidential," it nevertheless allows such disclosure in the following instances: (1) Upon written permission of the depositor; (2) In cases 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 is the subject matter of the litigation. Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen why these two classes of cases cannot be excepted from the rule making bank deposits confidential.

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Garnishment of deposit China Banking vs. Ortega, G.R. L-34964, January 31, 1973 ISSUE: Whether or not a banking institution may validly refuse to comply with a court process garnishing the bank deposit of a judgment debtor, by invoking the provisions of Republic Act No. 1405. The petitioners argue that the disclosure of the information required by the court does not fall within any of the four (4) exceptions enumerated in Section 2, and that if the questioned orders are complied with Tan Kim Liong may be criminally liable under Section 5 and the bank exposed to a possible damage suit by B & B Forest Development Corporation. Specifically referring to this case, the position of the petitioners is that the bank deposit of judgment debtor B & B Forest Development Corporation cannot be subject to garnishment to satisfy a final judgment against it in view of the aforequoted provisions of law. HELD: A BANK MAY NOT REFUSE TO COMPLY WITH ORDER OF GARNISHMENT SIMPLY BY INVOKING THE SECRECY OF BANK ACCOUNTS UNDER RA 1405. The lower court, in issuing an order of garnishment, did not order an examination of or inquiry into the deposit of B & B Forest Development Corporation, as contemplated in the law. It merely required Tan Kim Liong to inform the court whether or not the defendant B & B Forest Development Corporation had a deposit in the China Banking Corporation only for purposes of the garnishment issued by it, so that the bank would hold the same intact and not allow any withdrawal until further order. Indeed there is no real inquiry in such a case, and if the existence of the deposit is disclosed the disclosure is purely incidental to the execution process. It will be noted from the discussion of the conference committee report on Senate Bill No. 351 and House Bill No. 3977, which later became Republic Act 1405, that it was not the intention of the lawmakers to place bank deposits beyond the reach of execution to satisfy a final judgment. It is hard to conceive that it was ever within the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the Court, through the expedient of converting their assets into cash and depositing the same in a bank.

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G.R. 84526, January 28, 1991. ISSUE: Whether or not a bank violates Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act, when it allowes the sheriff to garnish the deposit of one of its depositors. HELD: NO VIOLATION The Court in China Banking Corporation vs. Ortega had the occasion to dispose of this issue when it stated, thus: t is clear from the discussion of the conference committee report on Senate Bill No. 351 and House Bill No. 3977, which later became Republic Act 1405, that the prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a case, and if existence of the deposit is disclosed the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever within the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the Court, through the expedient of converting their assets into cash and depositing the same in a bank. Since there is no evidence that the petitioners themselves divulged the information that the private respondent had an account with the petitioner bank and it is undisputed that the said account was properly the object of the notice of garnishment and writ of execution carried out by the deputy sheriff, a duly authorized officer of the court, we can not therefore hold the petitioners liable under R.A. 1405. Concealment of illegally acquired property Banco Filipino vs. Purisima, G.R. No. L-56429, May 28, 1988 ISSUE: WHETHER OR NOT INQUIRY MAY BE MADE WITH RESPECT TO THE BANK ACCOUNTS OF PERSONS OTHER THAN THE PERSON UNDER INVESTIGATION UNDER THE ANTI-GRAFT AND CORRUPT PRACTICES ACT? HELD: INQUIRY MAY EXTEND TO BANK ACCOUNTS OF PEOPLE OTHER THAN PERSON BEING INVESTIGATED; ACCOUNTS OF RESPONDENTS’ SPOUSE, ASCENDANTS, DESCENDANTS, RELATIVES, OR ANY OTHER PERSONS MAY BE INQUIRED INTO. The inquiry into illegally acquired property — or property NOT "legitimately acquired" — extends to cases where such property is concealed by being held by or recorded in the name of other persons. This proposition is made clear by R.A. No. 3019 which quite categorically states that the term, "legitimately acquired property of a public officer or employee shall not include property unlawfully acquired by the respondent, but its ownership is concealed by its being recorded in the name of, or held by, respondent's spouse, ascendants, descendants, relatives or any other persons." To sustain the petitioner's theory, and restrict the inquiry only to property held by or in the name of the government official or employee, or his spouse and unmarried children is 66 of 89

unwarranted in the light of the provisions of the statutes in question, and would make available to persons in government who illegally acquire property an easy and fool-proof means of evading investigation and prosecution; all they would have to do would be to simply place the property in the possession or name of persons other than their spouse and unmarried children. This is an absurdity that we will not ascribe to the lawmakers. Mellon Bank vs. Magsino, et al., G.R. No. 71479, October 18, 1990 FACTS: MELLON bank inadvertently caused the transfer of US$1,000,000.00 [instead of only US$1,000.00] into Victoria Javier’s account. Victoria Javier, transferred the wrongfully transferred amount into several new accounts. Eventually, the amount was converted into several cashier’s checks, which Javier used to pay several of her obliglations. Mellon Bank now wants to inquire into the bank accounts of the people who transacted with Javier [and who deposited the cashier’s checks received from her]; it filed Civil Case No. 26899. ISSUE: WOULD THE INQUIRY INTO THE BANKS ACCOUNTS OF PEOPLE WHO WERE NOT RESPONSIBLE FOR THE ‘ILLEGAL ACQUISITION’ VIOLATE THE BANK SECRECY LAW? HELD: NO. Section 2 of RA 1405 allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation. Inasmuch as Civil Case No. 26899 is aimed at recovering the amount converted by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts of the illegally acquired amount extends to whatever is concealed by being held or recorded in the name of persons other than the one responsible for the illegal acquisition. Case pending in court required before Ombudsman can examine bank accounts Marquez vs. Desierto, et al., G.R. 135882, June 27, 2001. The order of the Ombudsman to produce for in camera inspection the subject accounts with the Union Bank of the Philippines, Julia Vargas Branch, is based on a pending investigation at the Office of the Ombudsman against Amado Lagdameo, et. al. for violation of R.A. No. 3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement between the Public Estates Authority and AMARI. We rule that before an in camera inspection may be allowed, there must be a pending case before a court of competent jurisdiction. Further, the account must be clearly identified, the inspection limited to the subject matter of the pending case before the court of competent jurisdiction. The bank personnel and the account holder must be notified to be present during the inspection, and such inspection may cover only the account identified in the pending case. In the case at bar, there is yet no pending litigation before any court of competent authority. What is existing is an investigation by the Office of the Ombudsman. In short, what the office of the ombudsman would wish to do is to fish for additional evidence to formally charge

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Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case in court which would warrant the opening of the bank account for inspection. Zone of privacy are recognized and protected in our laws. The Civil Code provides that" [e]very person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons" and punishes as actionable torts several acts for meddling and prying into the privacy of another. It also holds public officer or employee or any private individual liable for damages for any violation of the rights and liberties of another person, and recognizes the privacy of letters and other private communications. The Revised Penal Code makes a crime of the violation of secrets by an officer, revelation of trade and industrial secrets, and trespass to dwelling. Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law, the Secrecy of Bank Deposits Act, and the Intellectual Property Code.

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4.3

Related statutes (a) Foreign Currency Deposit Act - RA 6426 (1972), as amended by PD 1035 (1976), PD 1246 (1977), PD 1453 (1978), and Sec. 11, RA 9160, as amended by Sec. 8 of RA 9194 (2003); SECTION 8, FCDA. SECRECY OF FOREIGN CURRENCY DEPOSITS. – ALL FOREIGN CURRENCY DEPOSITS AUTHORIZED UNDER THIS ACT, AS AMENDED BY PD NO. 1035, AS WELL AS FOREIGN CURRENCY DEPOSITS AUTHORIZED UNDER PD NO. 1034, ARE HEREBY DECLARED AS AND CONSIDERED OF AN ABSOLUTELY CONFIDENTIAL NATURE AND, EXCEPT UPON THE WRITTEN PERMISSION OF THE DEPOSITOR, IN NO INSTANCE SHALL FOREIGN CURRENCY DEPOSITS BE EXAMINED, INQUIRED OR LOOKED INTO BY ANY PERSON, GOVERNMENT OFFICIAL, BUREAU OR OFFICE WHETHER JUDICIAL OR ADMINISTRATIVE OR LEGISLATIVE, OR ANY OTHER ENTITY WHETHER PUBLIC OR PRIVATE; PROVIDED, HOWEVER, THAT SAID FOREIGN CURRENCY DEPOSITS SHALL BE EXEMPT FROM ATTACHMENT, GARNISHMENT, OR ANY OTHER ORDER OR PROCESS OF ANY COURT, LEGISLATIVE BODY, GOVERNMENT AGENCY OR ANY ADMINISTRATIVE BODY WHATSOEVER. (AS AMENDED BY PD NO. 1035, AND FURTHER AMENDED BY PD NO. 1246, PROM. NOV. 21, 1977.)

SEC. 11. AUTHORITY TO INQUIRE INTO BANK DEPOSITS. -- NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHER LAWS, 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 OF THIS ACT, WHEN IT HAS BEEN ESTABLISHED THAT THERE IS PROBABLE CAUSE THAT THE DEPOSITS OR INVESTMENTS ARE RELATED TO AN UNLAWFUL ACTIVITIES AS DEFINED IN SECTION 3(I) HEREOF OR A MONEY LAUNDERING OFFENSE UNDER SECTION 4 HEREOF, EXCEPT THAT NO COURT ORDER SHALL BE REQUIRED IN CASES INVOLVING UNLAWFUL ACTIVITIES DEFINED IN SECTIONS 3(I)1, (2) AND (12).

TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS (BSP) MAY INQUIRE INTO OR EXAMINE ANY DEPOSIT OF INVESTMENT WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION WHEN THE EXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION, IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP.

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Salvacion, et al. vs. Central Bank, et al., G.R. 94723, August 21, 1997. FACTS: Salvacion is trying to garnish the dollar accounts of Greg Bartelli to satisfy the judgment for damages rendered by the RTC of Makati against the latter. [Damages were sought for because Greg Bartelli raped and illegally detained Salvacion] Issue: China Bank refuses to comply with the writ of execution issued by the RTC of Makati arguing that Section 11 of Central Bank Circular No. 960 exempts foreign currency deposits from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. HELD: China Bank must comply with the writ of execution. If Karen's sad fate had happened to anybody's own kin, it would be difficult for him to fathom how the incentive for foreign currency deposit could be more important than his child's rights to said award of damages; in this case, the victim's claim for damages from this alien who had the gall to wrong a child of tender years of a country where he is a mere visitor. This further illustrates the flaw in the questioned provisions. It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the country's economy was in a shambles; when foreign investments were minimal and presumably, this was the reason why said statute was enacted. But the realities of the present times show that the country has recovered economically; and even if not, the questioned law still denies those entitled to due process of law for being unreasonable and oppressive. The intention of the questioned law may be good when enacted. The law failed to anticipate the iniquitous effects producing outright injustice and inequality such as the case before us. In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section 113 of Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever, is applicable to a foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that "in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail. "Ninguno non deue enriquecerse tortizeramente con dano de otro." Simply stated, when the statute is silent or ambiguous, this is one of those fundamental solutions that would respond to the vehement urge of conscience. (Padilla vs. Padilla, 74 Phil. 377). It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be used as a device by accused Greg Bartelli for wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent. Call it what it may — but is there no conflict of legal policy here? Dollar against Peso? Upholding the final and executory judgment of the lower court against the Central Bank Circular protecting the foreign depositor? Shielding or protecting the dollar deposit of a transient alien depositor against injustice to a national and victim of a crime? This situation calls for fairness against legal tyranny. We definitely cannot have both ways and rest in the belief that we have served the ends of justice

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(b) Human Security Act – RA 9372 (2007) (i) Judicial authorization to examine bank deposits, accounts, and records (Sec. 27) SEC. 27. JUDICIAL AUTHORIZATION REQUIRED TO EXAMINE BANK DEPOSITS, ACCOUNTS, AND RECORDS. - THE PROVISIONS OF REPUBLIC ACT NO. 1405 AS AMENDED, TO THE CONTRARY NOTWITHSTANDING, THE JUSTICES OF THE COURT OF APPEALS DESIGNATED AS A SPECIAL COURT TO HANDLE ANTITERRORISM CASES AFTER SATISFYING THEMSELVES OF THE EXISTENCE OF PROBABLE CAUSE IN A HEARING CALLED FOR THAT PURPOSE THAT:

1. A PERSON CHARGED WITH OR SUSPECTED OF THE CRIME OF TERRORISM OR, CONSPIRACY TO COMMIT TERRORISM, 2. OF A JUDICIALLY DECLARED AND OUTLAWED TERRORIST ORGANIZATION, ASSOCIATION, OR GROUP OF PERSONS; AND 3. OF A MEMBER OF SUCH JUDICIALLY DECLARED AND OUTLAWED ORGANIZATION, ASSOCIATION, OR GROUP OF PERSONS, MAY AUTHORIZE IN WRITING ANY POLICE OR LAW ENFORCEMENT OFFICER AND THE MEMBERS OF HIS/HER TEAM DULY AUTHORIZED IN WRITING BY THE ANTI-TERRORISM COUNCIL TO:

A. EXAMINE, OR CAUSE THE EXAMINATION OF, THE DEPOSITS, PLACEMENTS, TRUST ACCOUNTS, ASSETS AND RECORDS IN A BANK OR FINANCIAL INSTITUTION; AND B. GATHER OR CAUSE THE GATHERING OF ANY RELEVANT INFORMATION ABOUT SUCH DEPOSITS, PLACEMENTS, TRUST ACCOUNTS, ASSETS, AND RECORDS FROM A BANK OR FINANCIAL INSTITUTION. THE BANK OR FINANCIAL INSTITUTION CONCERNED, SHALL NOT REFUSE TO ALLOW SUCH EXAMINATION OR TO PROVIDE THE DESIRED INFORMATION, WHEN SO, ORDERED BY AND SERVED WITH THE WRITTEN ORDER OF THE COURT OF APPEALS. (ii)

Application to examine bank deposits, accounts, and records (Sec. 28)

SEC. 28. APPLICATION TO EXAMINE BANK DEPOSITS, ACCOUNTS, AND RECORDS. - THE WRITTEN ORDER OF THE COURT OF APPEALS AUTHORIZING THE EXAMINATION OF BANK DEPOSITS, PLACEMENTS, TRUST ACCOUNTS, ASSETS, AND RECORDS: 1. OF A PERSON CHARGED WITH OR SUSPECTED OF THE CRIME OF TERRORISM OR CONSPIRACY TO COMMIT TERRORISM; 2. OF ANY JUDICIALLY DECLARED AND OUTLAWED TERRORIST ORGANIZATION, ASSOCIATION, OR GROUP OF PERSONS, 3. OF ANY MEMBER OF SUCH ORGANIZATION, ASSOCIATION, OR GROUP OF PERSONS IN A BANK OR FINANCIAL INSTITUTION, AND THE GATHERING OF ANY RELEVANT INFORMATION ABOUT THE SAME FROM SAID BANK OR FINANCIAL INSTITUTION, SHALL ONLY BE GRANTED BY THE AUTHORIZING DIVISION OF THE COURT OF APPEALS UPON AN EX PARTE APPLICATION TO THAT EFFECT OF A POLICE OR OF A LAW ENFORCEMENT OFFICIAL WHO HAS BEEN DULY AUTHORIZED IN

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WRITING TO FILE SUCH EX PARTE APPLICATION BY THE ANTITERRORISM COUNCIL CREATED IN SECTION 53 OF THIS ACT TO FILE SUCH EX PARTE APPLICATION, AND UPON EXAMINATION UNDER OATH OR AFFIRMATION OF THE APPLICANT AND, THE WITNESSES HE MAY PRODUCE TO ESTABLISH THE FACTS THAT WILL JUSTIFY THE NEED AND URGENCY OF EXAMINING AND FREEZING THE BANK DEPOSITS, PLACEMENTS, TRUST ACCOUNTS, ASSETS, AND RECORDS: (1) OF THE PERSON CHARGED WITH OR SUSPECTED OF THE CRIME OF TERRORISM OR CONSPIRACY TO COMMIT TERRORISM; (2) OF A JUDICIALLY DECLARED AND OUTLAWED TERRORIST ORGANIZATION, ASSOCIATION OR GROUP OF PERSONS; OR (3) OF ANY MEMBER OF SUCH ORGANIZATION, ASSOCIATION, OR GROUP OF PERSONS.

(iii)

Effective period of court authorization to examine and obtain information on bank deposits, accounts, and records (Sec. 30)

SEC. 30. EFFECTIVE PERIOD OF COURT AUTHORIZATION TO EXAMINE AND OBTAIN INFORMATION ON BANK DEPOSITS, ACCOUNTS, AND RECORDS. - THE AUTHORIZATION ISSUED OR GRANTED BY THE AUTHORIZING DIVISION OF THE COURT OF APPEALS TO EXAMINE OR CAUSE THE EXAMINATION OF AND TO FREEZE BANK DEPOSITS, PLACEMENTS, TRUST ACCOUNTS, ASSETS, AND RECORDS, OR TO GATHER INFORMATION ABOUT THE SAME, SHALL BE EFFECTIVE FOR THE LENGTH OF TIME SPECIFIED IN THE WRITTEN ORDER OF THE AUTHORIZING DIVISION OF THE COURT OF APPEALS, WHICH SHALL NOT EXCEED A PERIOD OF THIRTY (30) DAYS FROM THE DATE OF RECEIPT OF THE WRITTEN ORDER OF THE AUTHORIZING DIVISION OF THE COURT OF APPEALS BY THE APPLICANT POLICE OR LAW ENFORCEMENT OFFICIAL.

THE AUTHORIZING DIVISION OF THE COURT

OF APPEALS MAY EXTEND OR RENEW THE SAID AUTHORIZATION FOR ANOTHER PERIOD, WHICH SHALL NOT EXCEED THIRTY (30) DAYS RENEWABLE TO ANOTHER THIRTY (30) DAYS FROM THE EXPIRATION OF THE ORIGINAL PERIOD: PROVIDED, THAT THE AUTHORIZING DIVISION OF THE COURT OF APPEALS IS SATISFIED THAT SUCH EXTENSION OR RENEWAL IS IN THE PUBLIC INTEREST : AND, PROVIDED, FURTHER, THAT THE APPLICATION FOR EXTENSION OR RENEWAL, WHICH MUST BE FILED BY THE ORIGINAL APPLICANT , HAS BEEN DULY AUTHORIZED IN WRITING BY THE ANTITERRORISM COUNCIL.

IN

CASE OF DEATH OF THE ORIGINAL APPLICANT OR IN CASE HE IS PHYSICALLY DISABLED TO FILE THE APPLICATION FOR EXTENSION OR RENEWAL, THE ONE NEXT IN RANK TO THE ORIGINAL APPLICANT AMONG THE MEMBERS OF THE REAM NAMED IN THE ORIGINAL WRITTEN ORDER OF THE AUTHORIZING DIVISION OF THE COURT OF APPEALS SHALL FILE THE APPLICATION FOR EXTENSION OR RENEWAL: 72 of 89

PROVIDED, THAT,

WITHOUT PREJUDICE TO THE LIABILITY OF THE POLICE OR LAW ENFORCEMENT PERSONNEL UNDER SECTION 19 HEREOF, THE APPLICANT POLICE OR LAW ENFORCEMENT OFFICIAL SHALL HAVE THIRTY (30) DAYS AFTER THE TERMINATION OF THE PERIOD GRANTED BY THE COURT OF APPEALS AS PROVIDED IN THE PRECEDING PARAGRAPHS WITHIN WHICH TO FILE THE APPROPRIATE CASE BEFORE THE PUBLIC PROSECUTOR'S OFFICE FOR ANY VIOLATION OF THIS ACT.

IF

NO CASE IS FILED WITHIN THE THIRTY (30)-DAY PERIOD, THE APPLICANT POLICE OR LAW ENFORCEMENT OFFICIAL SHALL IMMEDIATELY NOTIFY IN WRITING THE PERSON SUBJECT OF THE BANK EXAMINATION AND FREEZING OF BANK DEPOSITS, PLACEMENTS, TRUST ACCOUNTS, ASSETS AND RECORDS. THE PENALTY OF TEN (10) YEARS AND ONE DAY TO TWELVE (12) YEARS OF IMPRISONMENT SHALL BE IMPOSED UPON THE APPLICANT POLICE OR LAW ENFORCEMENT OFFICIAL WHO FAILS TO NOTIFY IN WRITING THE PERSON SUBJECT OF THE BANK EXAMINATION AND FREEZING OF BANK DEPOSITS, PLACEMENTS, TRUST ACCOUNTS, ASSETS AND RECORDS.

ANY

PERSON, LAW ENFORCEMENT OFFICIAL OR JUDICIAL AUTHORITY WHO VIOLATES HIS DUTY TO NOTIFY IN WRITING AS DEFINED ABOVE SHALL SUFFER THE PENALTY OF SIX YEARS AND ONE DAY TO EIGHT YEARS OF IMPRISONMENT.

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V TRUTH IN LENDING ACT RA 3765 (1963).

5.1

Topics Purpose SECTION 2. DECLARATION OF POLICY. IT IS HEREBY DECLARED TO BE THE POLICY OF THE STATE TO PROTECT ITS CITIZENS FROM A LACK OF AWARENESS OF THE TRUE COST OF CREDIT TO THE USER BY ASSURING A FULL DISCLOSURE OF SUCH COST WITH A VIEW OF PREVENTING THE UNINFORMED USE OF CREDIT TO THE DETRIMENT OF THE NATIONAL ECONOMY.

Obligation of creditors SEC. 4. ANY CREDITOR SHALL FURNISH TO EACH PERSON TO WHOM CREDIT IS EXTENDED, PRIOR TO THE CONSUMMATION OF THE TRANSACTION, A CLEAR STATEMENT IN WRITING SETTING FORTH, TO THE EXTENT APPLICABLE AND IN ACCORDANCE WITH RULES AND REGULATIONS PRESCRIBED BY THE BOARD, THE FOLLOWING INFORMATION: 1. THE CASH PRICE OR DELIVERED PRICE OF THE PROPERTY OR SERVICE TO BE ACQUIRED;

2. THE AMOUNTS, IF ANY, TO BE CREDITED AS DOWN PAYMENT AND/OR TRADE-IN;

3. THE DIFFERENCE BETWEEN THE AMOUNTS SET FORTH UNDER CLAUSES (1) AND (2);

4. THE CHARGES, INDIVIDUALLY ITEMIZED, WHICH ARE PAID OR TO BE PAID BY

5. 6. 7.

SUCH PERSON IN CONNECTION WITH THE TRANSACTION BUT WHICH ARE NOT INCIDENT TO THE EXTENSION OF CREDIT; THE TOTAL AMOUNT TO BE FINANCED; THE FINANCE CHARGE EXPRESSED IN TERMS OF PESOS AND CENTAVOS; AND THE PERCENTAGE THAT THE FINANCE BEARS TO THE TOTAL AMOUNT TO BE FINANCED EXPRESSED AS A SIMPLE ANNUAL RATE ON THE OUTSTANDING UNPAID BALANCE OF THE OBLIGATION.

Covered and excluded transactions SECTION 3. AS USED IN THIS ACT, THE TERM: (2) "CREDIT" MEANS ANY LOAN, MORTGAGE, DEED OF TRUST, ADVANCE, OR DISCOUNT; ANY CONDITIONAL SALES CONTRACT; ANY CONTRACT TO SELL, OR SALE OR CONTRACT OF SALE OF PROPERTY OR SERVICES, EITHER FOR PRESENT OR FUTURE DELIVERY, UNDER

WHICH PART OR ALL OF THE PRICE IS PAYABLE SUBSEQUENT TO THE MAKING OF SUCH SALE OR CONTRACT; ANY RENTAL-PURCHASE CONTRACT; ANY CONTRACT OR ARRANGEMENT FOR THE HIRE, BAILMENT, OR LEASING OF PROPERTY; ANY OPTION, DEMAND, LIEN, PLEDGE, OR OTHER CLAIM AGAINST, OR FOR THE DELIVERY OF, PROPERTY OR MONEY; ANY PURCHASE, OR OTHER ACQUISITION OF, OR ANY CREDIT UPON THE SECURITY OF, ANY OBLIGATION OF CLAIM ARISING OUT OF ANY OF THE FOREGOING; AND ANY TRANSACTION OR SERIES OF TRANSACTIONS HAVING A SIMILAR PURPOSE OR EFFECT .

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Comment [WU18]: Penalty charge, which is liquidated damages resulting from a breach, falls under item (6) or finance charge. A finance charge “represents the amount to be paid by the debtor incident to the extension of credit.” The lender may provide for a penalty clause so long as the amount or rate of the charge and the conditions under which it is to be paid are disclosed to the borrower before he enters into the credit agreement.

Finance and non-finance charges SECTION 3. AS USED IN THIS ACT, THE TERM: (3) "FINANCE CHARGE" INCLUDES INTEREST, FEES, SERVICE CHARGES, DISCOUNTS, AND SUCH OTHER CHARGES INCIDENT TO THE EXTENSION OF CREDIT AS THE BOARD MAY BE REGULATION PRESCRIBE. Consequences of non-compliance with obligation SECTION 6. (A) ANY CREDITOR WHO IN CONNECTION WITH ANY CREDIT

TRANSACTION FAILS TO DISCLOSE TO ANY PERSON ANY INFORMATION IN VIOLATION OF THIS ACT OR ANY REGULATION ISSUED THEREUNDER SHALL BE LIABLE TO SUCH PERSON IN THE AMOUNT OF P100 OR IN AN AMOUNT EQUAL TO TWICE THE FINANCE CHARGED REQUIRED BY SUCH CREDITOR IN CONNECTION WITH SUCH TRANSACTION, WHICHEVER IS THE GREATER, EXCEPT THAT SUCH LIABILITY SHALL NOT EXCEED P2,000 ON ANY CREDIT TRANSACTION. ACTION TO RECOVER SUCH PENALTY MAY BE BROUGHT BY SUCH PERSON WITHIN ONE YEAR FROM THE DATE OF THE OCCURRENCE OF THE VIOLATION, IN ANY COURT OF COMPETENT JURISDICTION. IN ANY ACTION UNDER THIS SUBSECTION IN WHICH ANY PERSON IS ENTITLED TO A RECOVERY, THE CREDITOR SHALL BE LIABLE FOR REASONABLE ATTORNEY'S FEES AND COURT COSTS AS DETERMINED BY THE COURT.

(B) EXCEPT AS SPECIFIED IN SUBSECTION (A) OF THIS SECTION, NOTHING CONTAINED IN THIS ACT OR ANY REGULATION CONTAINED IN THIS ACT OR ANY REGULATION THEREUNDER SHALL AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY CONTRACT OR TRANSACTIONS.

(C) ANY PERSON WHO WILLFULLY VIOLATES ANY PROVISION OF THIS ACT OR ANY REGULATION ISSUED THEREUNDER SHALL BE FINED BY NOT LESS THAN P1,00 OR MORE THAN P5,000 OR IMPRISONMENT FOR NOT LESS THAN 6 MONTHS, NOR MORE THAN ONE YEAR OR BOTH. (D) NO PUNISHMENT OR PENALTY PROVIDED BY THIS ACT SHALL APPLY TO THE PHILIPPINE GOVERNMENT OR ANY AGENCY OR ANY POLITICAL SUBDIVISION THEREOF. (E) A FINAL JUDGMENT HEREAFTER RENDERED IN ANY CRIMINAL PROCEEDING UNDER THIS ACT TO THE EFFECT THAT A DEFENDANT HAS WILLFULLY VIOLATED THIS ACT SHALL BE PRIMA FACIE EVIDENCE AGAINST SUCH DEFENDANT IN AN ACTION OR PROCEEDING BROUGHT BY ANY OTHER PARTY AGAINST SUCH DEFENDANT UNDER THIS ACT AS TO ALL MATTERS RESPECTING WHICH SAID JUDGMENT WOULD BE AN ESTOPPEL AS BETWEEN THE PARTIES THERETO.

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5.2

Cases Excessive interests, penalties and other charges not revealed in disclosure statements issued by banks, even if stipulated in the promissory notes, cannot be given effect under the Truth in Lending Act NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC., ET AL. VS. PNB, G.R. 148753, JULY 30, 2004.

ISSUE: Whether or not PNB may collect penalty charges contained in the Promissory Notes, but not in the Disclosure Statements issued prior to the execution of the notes. HELD: No penalty charges or increases thereof appear either in the Disclosure Statements or in any of the clauses in the second and the third Credit Agreements earlier discussed. While a standard penalty charge of 6 percent per annum has been imposed on the amounts stated in all three Promissory Notes still remaining unpaid or unrenewed when they fell due, there is no stipulation therein that would justify any increase in that charges. The effect, therefore, when the borrower is not clearly informed of the Disclosure Statements -- prior to the consummation of the availment or drawdown -- is that the lender will have no right to collect upon such charge or increases thereof, even if stipulated in the Notes. Although the first Disclosure Statement was furnished Petitioner NSBCI prior to the execution of the transaction, it is not a contract that can be modified by the related Promissory Note, but a mere statement in writing that reflects the true and effective cost of loans from respondent. Novation can never be presumed, and the animus novandi “must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.” To allow novation will surely flout the “policy of the State to protect its citizens from a lack of awareness of the true cost of credit.”

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Failure to disclose required information in disclosure statement cured by disclosure thereof in loan transaction documents DBP vs. Arcilla, G.R. 161397 and G.R. 161426, June 30, 2005. FACTS: Arcilla availed of of a loan under the Individual Housing Project of DBP. The Disclosure Statement made by DBP did not include some of the required items under R.A. No. 3765 and CB Circular No. 158. These infromation were, however, indicated in the other documents that were executed pursuant to the Individual Housing Project [Deed of Conditional Sale, Promissory Notes, etc.] ISSUE: Arcilla avers that the disclosure of the details of the loan contained in the deed of conditional sale and the supplement thereto, the promissory notes and release sheet, do not constitute substantial compliance with the law and the CB Circular. HELD: Under Circular 158 of the Central Bank, the lender is required to include the information required by R.A. 3765 in the contract covering the credit transaction or any other document to be acknowledged and signed by the borrower. In the present case, DBP failed to disclose the requisite information in the disclosure statement form authorized by the Central Bank, but did so in the loan transaction documents between it and Arcilla. Furthermore, the Court is convinced that Arcilla’s claim of not having been furnished the data/information required by R.A. No. 3765 and CB Circular No. 158 was but an afterthought. The appellee had been sufficiently informed of the terms and the requisite charges necessarily included in the subject loan. It must be stressed that the Truth in Lending Act (R.A. No. 3765), was enacted primarily “to protect its citizens from a lack of awareness of the true cost of credit to the user by using a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy” Contrary to appellee’s claim that he was not sufficiently informed of the details of the loan, the records disclose that the required information were readily available in the 3 promissory notes he executed. Precisely, the said promissory notes were executed to apprise appellee of the remaining balance on his loan when the same was converted into a regular housing loan. And on its face, the promissory notes signed by no less than the appellee readily shows all the data required by the Truth in Lending Act (R.A. No. 3765). Appellee, a lawyer, would not be so gullible or negligent as to sign documents without knowing fully well the legal implications and consequences of his actions, and that appellee was a former employee of appellant. As such employee, he is as well presumed knowledgeable with matters relating to appellant’s business and fully cognizant of the terms of the loan he applied for, including the charges that had to be paid. It might have been different if the borrower was, say, an ordinary employee eager to buy his first house and is easily lured into accepting onerous terms so long as the same is payable on installments. In such cases, the Court would be disposed to be stricter in the application of the Truth in Lending Act, insisting that the borrower be fully informed of what he is entering into. But in the case at bar, considering appellee’s education and training, We must hold, in the light of the evidence at hand, that he was duly informed of the necessary charges and fully understood their implications and effects. Consequently, the trial court’s annulment of the rescission anchored on this ground was unjustified. 77 of 89

Arcilla decision followed BPI v. Spouses Yu, G.R. No. 184122, January 20, 2010 FACTS: BPI failed to state the penalty charges in the disclosure statement, the promissory note that the Yus signed, on the same date as the disclosure statement, however, contained a penalty clause that said: “I/We jointly and severally, promise to further pay a late payment charge on any overdue amount herein at the rate of 3% per month.” ISSUE: Whether or not the reference to the penalty charges in the promissory note constitutes substantial compliance with the disclosure requirement of the Truth in Lending Act. HELD: The Court has affirmed that financial charges are amply disclosed if stated in the promissory note in the case of Development Bank of the Philippines v. Arcilla, Jr. The Court there said, “Under Circular 158 of the Central Bank, the lender is required to include the information required by R.A. 3765 in the contract covering the credit transaction or any other document to be acknowledged and signed by the borrower. In addition, the contract or document shall specify additional charges, if any, which will be collected in case certain stipulations in the contract are not met by the debtor.” In this case, the promissory notes signed by the Yus contained data, including penalty charges, required by the Truth in Lending Act. They cannot avoid liability based on a rigid interpretation of the Truth in Lending Act that contravenes its goal. NOTE: The court said that the New Samaguita case [first TILA case in the outline] is not applicable to the facts of the case: “What New Sampaguita disallowed, because it was not mentioned either in the disclosure statement or in the promissory note, was the unilateral increase in the rates of penalty charges that the creditor imposed on the borrower.” But if I read the case correctly, the penalty charges being contested in that case were contained in the Promissory Notes, though not in the Disclosure Statements issued prior to the execution of the notes.

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5.3

Additional materials (a) Implementing Rules: CB Circular No. 158-63, dated October 29, 1963; (b) Additional Implementing Rules: CB Circular No. 431-74, dated September 2, 1974.

5.4

Related statute Access Devices Regulation Act of 1998 (RA 8484) (a) Disclosure required upon application or solicitation (Sec. 4); SECTION 4. CREDIT CARD APPLICATION AND SOLICITATION. – ANY APPLICATION TO OPEN A CREDIT CARD ACCOUNT FOR ANY PERSON UNDER AN OPEN-END CREDIT PLAN OR A SOLICITATION TO OPEN SUCH AN ACCOUNT, EITHER BY MAIL, TELEPHONE OR OTHER MEANS, SHALL DISCLOSE IN WRITING OR ORALLY, AS THE CASE MAY BE, THE FOLLOWING INFORMATION: (A) ANNUAL PERCENTAGE RATE 1) EACH ANNUAL PERCENTAGE RATE OF INTEREST ON THE AMOUNT

2)

OF CREDIT OBTAINED BY THE CREDIT CARD HOLDER UNDER SUCH CREDIT PLAN. WHERE AN EXTENSION OF CREDIT IS SUBJECT TO A VARIABLE RATE, THE FACT THAT THE RATE IS VARIABLE, AND THE ANNUAL PERCENTAGE RATE IN EFFECT AT THE TIME OF THE MAILING. WHERE MORE THAN ONE RATE APPLIES, THE RANGE OF BALANCES TO WHICH EACH RATE APPLIES.

(B) ANNUAL AND OTHER FEES 1) ANY ANNUAL FEE, OTHER PERIODIC FEE, OR MEMBERSHIP FEE IMPOSED FOR THE ISSUANCE OR AVAILABILITY OF A CREDIT CARD,

2) 3) 4)

INCLUDING ANY ACCOUNT MAINTENANCE FEE OR ANY OTHER CHARGE IMPOSED BASED ON ACTIVITY OR INACTIVITY FOR THE ACCOUNT DURING THE BILLING CYCLE. ANY MINIMUM FINANCE CHARGE IMPOSED FOR EACH PERIOD DURING WHICH ANY EXTENSION OF CREDIT WHICH IS SUBJECT TO A FINANCE CHARGE IS OUTSTANDING. ANY TRANSACTION CHARGE IMPOSED IN CONNECTION WITH USE OF THE CARD TO PURCHASE GOODS OR SERVICES. ANY FEE, PENALTY OR SURCHARGE IMPOSED FOR THE DELAY IN PAYMENT OF AN ACCOUNT.

(C) BALANCE CALCULATION METHOD – THE NAME OR A DETAILED EXPLANATION OF THE BALANCE CALCULATION METHOD USED IN DETERMINING THE BALANCE UPON WHICH THE FINANCE CHARGE IS COMPUTED.

(D) CASH ADVANCE FEE – ANY FEE IMPOSED FOR AN EXTENSION OF CREDIT IN THE FORM OF CASH.

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(E) OVER-THE-LIMIT-FEE – ANY FEE IMPOSED IN CONNECTION WITH AN EXTENSION OF CREDIT IN EXCESS OF THE AMOUNT OF CREDIT AUTHORIZED TO BE EXTENDED WITH RESPECT TO SUCH AMOUNT: PROVIDED, HOWEVER, THAT IN CASE THE APPLICATION OR SOLICITATION TO OPEN A CREDIT CARD ACCOUNT FOR ANY PERSON UNDER AN OPEN-END CONSUMER CREDIT PLAN BE MADE THROUGH CATALOGS, MAGAZINES, OR OTHER PUBLICATIONS, THE FOLLOWING ADDITIONAL INFORMATION SHALL BE DISCLOSED:

1) A STATEMENT, IN A CONSPICUOUS AND PROMINENT LOCATION ON THE APPLICATION OR SOLICITATION, THAT: I) THE INFORMATION IS ACCURATE AS OF THE DATE THE APPLICATION OR SOLICITATION WAS PRINTED; II) THE INFORMATION CONTAINED IN THE APPLICATION OR SOLICITATION IS SUBJECT TO CHANGE AFTER SUCH DATE; III) THE APPLICANT SHOULD CONTACT THE CREDITOR FOR INFORMATION ON ANY CHANGE IN THE INFORMATION CONTAINED IN THE APPLICATION OR SOLICITATION SINCE IT WAS PRINTED;

2) THE DATE THE APPLICATION OR SOLICITATION WAS PRINTED; AND 3) IN A CONSPICUOUS AND PROMINENT LOCATION ON THE APPLICATION OR SOLICITATION, A TOLL FREE TELEPHONE NUMBER OR MAILING ADDRESS WHICH THE APPLICANT MAY CONTACT TO OBTAIN ANY CHANGE IN THE INFORMATION PROVIDED IN THE APPLICATION OR SOLICITATION SINCE IT WAS PRINTED.

(b) Detailed explanation and clear illustration of computation of charges and fees (Sec. 5); SECTION 5. COMPUTATIONS. – IN ADDITION TO THE FOREGOING, A CREDIT CARD ISSUER MUST, TO THE EXTENT PRACTICABLE, PROVIDE A DETAILED EXPLANATION AND A CLEAR ILLUSTRATION OF THE MANNER BY WHICH ALL CHARGES AND FEES ARE COMPUTED.

(c) Exceptions to the disclosure requirement (Sec. 6);

SECTION 6. EXCEPTIONS. – THE DISCLOSURES REQUIRED UNDER SECTION 4 OF THIS ACT MAY BE OMITTED IN ANY TELEPHONE SOLICITATION OR APPLICATION IF THE CREDIT CARD ISSUER: (A) DOES NOT IMPOSE ANY FEE IN CONNECTION WITH PARAGRAPH (B)(1), SECTION 4 OF THIS ACT; (B) DOES NOT IMPOSE ANY FEE IN CONNECTION WITH TELEPHONE SOLICITATION UNLESS THE CONSUMER SIGNIFIES ACCEPTANCE BY USING THE CARD;

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(C) DISCLOSES CLEARLY THE INFORMATION DESCRIBED IN SECTION 4 OF THIS ACT IN WRITING WITHIN THIRTY (30) DAYS AFTER THE CONSUMER REQUESTS THE CARD, BUT IN NO EVENT LATER THAN THE DATE OF DELIVERY OF THE CARD; AND (D) DISCLOSES CLEARLY THAT THE CONSUMER IS NOT OBLIGATED TO ACCEPT THE CARD OR ACCOUNT AND THE CONSUMER WILL NOT BE OBLIGATED TO PAY ANY FEES OR CHARGES DISCLOSED UNLESS THE CONSUMER ELECTS TO ACCEPT THE CARD OR ACCOUNT BY USING THE CARD.

(d) Disclosure required prior to renewal (Sec. 7); SECTION 7. DISCLOSURE PRIOR TO RENEWAL. – EXCEPT IN TELEPHONE SOLICITATIONS A CARD ISSUER THAT IMPOSES ANY FEE DESCRIBED IN SECTION 4 SHALL TRANSMIT TO A CONSUMER'S CREDIT CARD ACCOUNT A CLEAR AND CONSPICUOUS DISCLOSURE OF: (A) THE DATE BY WHICH, THE MONTH BY WHICH, OR THE BILLING PERIOD AT THE CLOSE OF WHICH, THE ACCOUNT WILL EXPIRE IF NOT RENEWED; (B) THE INFORMATION DESCRIBED IN SECTION 4 WHICH SHALL BE TRANSMITTED TO A CONSUMER AT LEAST THIRTY (30) DAYS PRIOR TO THE SCHEDULED RENEWAL DATE OF THE CONSUMER'S CREDIT CARD ACCOUNT; (C) THE INFORMATION DESCRIBED IN SECTION 4 (A) (1) WHICH SHALL BE TRANSMITTED TO A CONSUMER'S CREDIT CARD ACCOUNT; AND (D) THE METHOD BY WHICH THE CONSUMER MAY TERMINATE CONTINUED CREDIT AVAILABILITY UNDER THE ACCOUNT: PROVIDED, THAT THE DISCLOSURES REQUIRED BY THIS SECTION MUST BE MADE PRIOR TO POSTING A FEE DESCRIBED IN SECTION 4 (B) (1) TO THE ACCOUNT, OR WITH THE PERIODIC BILLING STATEMENT FIRST DISCLOSING THAT THE FEE HAS BEEN POSTED TO THE ACCOUNT SUBJECT TO THE CONDITION THAT THE CONSUMER IS GIVEN THIRTY (30) DAY PERIOD TO AVOID PAYMENT OF THE FEE OR TO HAVE THE FEE RECREDITED TO THE ACCOUNT IN ANY CASE WHERE THE CONSUMER DOES NOT WISH TO CONTINUE THE AVAILABILITY OF THE CREDIT.

(e) Penalty for failure to disclose (Sec. 8). SECTION 8. FAILURE TO DISCLOSE. – CREDIT CARD COMPANIES WHICH SHALL FAIL TO DISCLOSE THE INFORMATION REQUIRED UNDER SECTIONS 4, 5 AND 7 OF THIS ACT, AFTER DUE NOTICE AND HEARING, SHALL BE SUBJECT TO SUSPENSION OR CANCELLATION OF THEIR AUTHORITY TO ISSUE CREDIT CARDS BY THE BANGKO SENTRAL NG PILIPINAS, SECURITIES AND EXCHANGE COMMISSION AND SUCH OTHER GOVERNMENT AGENCIES.

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VI ANTI-MONEY LAUNDERING ACT RA 9160 (2001), as amended by RA 9194 (2003).

6.1

Topics Background on money laundering and RAs 9160 and 9194; Common stages of money laundering (i.e., placement, layering, and integration); Covered institutions (Sec. 3[a]); SECTION 3. DEFINITIONS. FOR PURPOSES OF THIS ACT, THE FOLLOWING TERMS ARE HEREBY DEFINED AS FOLLOWS: (A) "COVERED INSTITUTION" REFERS TO: 1. BANKS, NON-BANKS, QUASI-BANKS, TRUST ENTITIES, AND ALL OTHER INSTITUTIONS AND THEIR SUBSIDIARIES AND AFFILIATES SUPERVISED OR REGULATED BY THE BANGKO SENTRAL NG PILIPINAS (BSP);

2. INSURANCE COMPANIES AND ALL OTHER INSTITUTIONS SUPERVISED OR REGULATED BY THE INSURANCE COMMISSION; AND 3. (I) SECURITIES DEALERS, BROKERS, SALESMEN, INVESTMENT HOUSES AND OTHER SIMILAR ENTITIES MANAGING SECURITIES OR RENDERING SERVICES AS INVESTMENT AGENT , ADVISOR, OR CONSULTANT, (II) MUTUAL FUNDS, CLOSE AND INVESTMENT COMPANIES, COMMON TRUST FUNDS, PRE-NEED COMPANIES AND OTHER SIMILAR ENTITIES, (III) FOREIGN EXCHANGE CORPORATIONS, MONEY CHANGERS, MONEY PAYMENT, REMITTANCE, AND TRANSFER COMPANIES AND OTHER SIMILAR ENTITIES, AND (IV) OTHER ENTITIES ADMINISTERING OR OTHERWISE DEALING IN CURRENCY, COMMODITIES OR FINANCIAL DERIVATIVES BASED THEREON, VALUABLE OBJECTS, CASH SUBSTITUTES AND OTHER SIMILAR MONETARY INSTRUMENTS OR PROPERTY SUPERVISED OR REGULATED BY SECURITIES AND EXCHANGE COMMISSION.

Covered transactions (Sec. 3[b]); SECTION 3. DEFINITIONS. (B) 'COVERED TRANSACTION' IS A TRANSACTION IN

CASH OR OTHER EQUIVALENT MONETARY INSTRUMENT INVOLVING A TOTAL AMOUNT IN EXCESS OF FIVE HUNDRED THOUSAND PESOS (PHP 500,000.00) WITHIN ONE (1) BANKING DAY.

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Suspicious transactions (Sec. 3[b-1]); SECTION

3. DEFINITIONS. (B) "(B-1) 'SUSPICIOUS TRANSACTION' ARE TRANSACTIONS WITH COVERED INSTITUTIONS, REGARDLESS OF THE AMOUNTS INVOLVED, WHERE ANY OF THE FOLLOWING CIRCUMSTANCES EXIST: 1. THERE IS NO UNDERLYING LEGAL OR TRADE OBLIGATION, PURPOSE OR ECONOMIC JUSTIFICATION; 2. THE CLIENT IS NOT PROPERLY IDENTIFIED; 3. THE AMOUNT INVOLVED IS NOT COMMENSURATE WITH THE BUSINESS OR FINANCIAL CAPACITY OF THE CLIENT; 4. TAKING INTO ACCOUNT ALL KNOWN CIRCUMSTANCES, IT MAY BE PERCEIVED THAT THE CLIENT'S TRANSACTION IS STRUCTURED IN ORDER 5. 6. 7.

TO AVOID BEING THE SUBJECT OF REPORTING REQUIREMENTS UNDER THE ACT; ANY CIRCUMSTANCES RELATING TO THE TRANSACTION WHICH IS OBSERVED TO DEVIATE FROM THE PROFILE OF THE CLIENT AND/OR THE CLIENT'S PAST TRANSACTIONS WITH THE COVERED INSTITUTION; THE TRANSACTIONS IS IN A WAY RELATED TO AN UNLAWFUL ACTIVITY OR OFFENSE UNDER THIS ACT THAT IS ABOUT TO BE, IS BEING OR HAS BEEN COMMITTED; OR ANY TRANSACTIONS THAT IS SIMILAR OR ANALOGOUS TO ANY OF THE FOREGOING."

Unlawful activities or predicate crimes (Sec. 3[i]);

SECTION 3. DEFINITIONS. "(I) 'UNLAWFUL ACTIVITY' REFERS TO ANY ACT OR OMISSION OR SERIES OR COMBINATION THEREOF INVOLVING OR HAVING DIRECT RELATION TO FOLLOWING:

1. KIDNAPPING FOR RANSOM UNDER ARTICLE 267 OF ACT NO. 3815, OTHERWISE KNOWN AS THE REVISED PENAL CODE, AS AMENDED; 2. SECTIONS 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, AND 16 OF REPUBLIC ACT NO. 9165, OTHERWISE KNOWN AS THE COMPREHENSIVE DANGEROUS ACT OF 2002; 3. SECTION 3 PARAGRAPHS B, C, E, G, H AND I OF REPUBLIC ACT NO. 3019, AS AMENDED, OTHERWISE KNOWN AS THE ANTI-GRAFT AND CORRUPT PRACTICES ACT; 4. PLUNDER UNDER REPUBLIC ACT NO. 7080, AS AMENDED; 5. ROBBERY AND EXTORTION UNDER ARTICLES 294, 295, 296, 299, 300, 301 AND 302 OF THE REVISED PENAL CODE, AS AMENDED; 6. JUETENG AND MASIAO PUNISHED AS ILLEGAL GAMBLING UNDER PRESIDENTIAL DECREE NO. 1602; 7. PIRACY ON THE HIGH SEAS UNDER THE REVISED PENAL CODE, AS AMENDED AND PRESIDENTIAL UNDER THE REVISED PENAL CODE, AS AMENDED AND PRESIDENTIAL DECREE NO. 532; 8. QUALIFIED THEFT UNDER ARTICLE 310 OF THE REVISED PENAL CODE, AS AMENDED; 9. SWINDLING UNDER ARTICLE 315 OF THE REVISED PENAL CODE, AS AMENDED; 10. SMUGGLING UNDER REPUBLIC ACT NOS. 455 AND 1937;

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11. VIOLATIONS UNDER REPUBLIC ACT NO. 8792, OTHERWISE KNOWN AS THE ELECTRINIC COMMERCE ACT OF 2000; 12. HIJACKING AND OTHER VIOLATIONS UNDER REPUBLIC ACT NO. 6235; DESTRUCTIVE ARSON AND MURDER, AS DEFINED UNDER THE REVISED PENAL CODE, AS AMENDED, INCLUDING THOSE PERPETRATED BY TERRORISTS AGAINST NON-COMBATANT PERSONS AND SIMILAR TARGETS; 13. FRAUDULENT PRACTICES AND OTHER VIOLATIONS UNDER REPUBLIC ACT NO. 8799, OTHERWISE KNOWN AS THE SECURITIES REGULATION CODE OF 2000; 14. FELONIES OR OFFENSES OF A SIMILAR NATURE THAT ARE PUNISHABLE UNDER THE PENAL LAWS OF OTHER COUNTRIES."

Money laundering offenses (Sec. 4);

SEC. 4. MONEY LAUNDERING OFFENSE. -- MONEY LAUNDERING IS A CRIME WHEREBY THE PROCEEDS OF AN UNLAWFUL ACTIVITY AS HEREIN DEFINED ARE TRANSACTED, THEEBY MAKING THEM APPEAR TO HAVE ORIGINATED FROM LEGITIMATE SOURCES. IT IS COMMITTED BY THE FOLLOWING:

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 TRANSACTS SAID MONETARY INSTRUMENT OR PROPERTY. b. ANY PERSON KNOWING THAT ANY MONETARY INSTRUMENT OR PROPERTY INVOLVES THE PROCEEDS OF ANY UNLAWFUL ACTIVITY, PERFORMS OR

c.

FAILS TO PERFORM ANY ACT AS A RESULT OF WHICH HE FALICITATES THE OFFENSE OF MONEY LAUNDERING REFERRED TO IN PARAGRAPH (A) ABOVE. ANY PERSON KNOWING THAT ANY MONETARY INSTRUMENT OR PROPERTY IS REQUIRED UNDER THIS ACT TO BE DISCLOSED AND FILED WITH THE ANTI-MONEY LAUNDERING COUNCIL (AMLC), FAILS TO DO SO.

Anti-Money Laundering Council (Sec. 7); SEC.7. CREATION OF ANTI-MONEY LAUNDERING COUNCIL (AMLC). -- THE ANTIMONEY LAUNDERING COUNCIL IS HEREBY CREATED AND SHALL BE COMPOSED OF THE GOVERNOR OF THE BANGKO SENTRAL NG PILIPINAS AS CHAIRMAN, THE COMMISSIONER OF THE INSURANCE COMMISSION AND THE CHAIRMAN OF THE SECURITIES AND EXCHANGE COMMISSION AS MEMBER. THE AMLC SHALL SHALL ACT UNANIMOUSLY HEREUNDER:

IN

THE

DISCHARGE

OF

ITS

FUNCTIONS

AS

DEFINED

"(1) TO REQUIRE AND RECEIVE COVERED OR SUSPICIOUS TRANSACTION REPORTS FROM COVERED INSTITUTIONS; "(2) TO ISSUE ORDERS ADDRESSED TO THE APPROPRIATE SUPERVISING AUTHORITY OR THE COVERED INSTITUTIONS TO DETERMINE THE TRUE IDENTITY OF THE OWNER OF ANY MONETARY INSTRUMENT OR PREPERTY SUBJECT OF A COVERED TRANSACTION OR SUSPICIOUS TRANSACTION REPORT OR REQUEST FOR ASSISTANCE FROM A FOREIGN STATE, OR

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BELIEVED BY THE COUNCIL, ON THE BASIS FO SUBSTANTIAL EVIDENCE, TO BE, IN WHOLE OR IN PART, WHEREVER LOCATED, REPRESENTING, INVOLVING, OR RELATED TO DIRECTLY OR INDIRECTLY, IN ANY MANNER OR BY ANY MEANS, THE PROCEEDS OF AN UNLAWFUL ACTIVITITY.

"(3) TO INSTITUTE CIVIL FORFEITURE PROCEEDINGS AND ALL OTHER REMEDIAL PROCEEDINGS THROUGH THE OFFICE OF TH SOLICITOR GENERAL; "(4) TO CAUSE THE FILING OF COMPLAINTS WITH THE DEPARTMENT OF JUSTICE OR THE OMBUDSMAN FOR THE PROSECUTION OF MONEY LAUNDERING OFFENSES; "(5) TO INVESTIGATE SUSPICIOUS TRANSACTIONS AND COVERED TRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION BY AMLC, MONEY LAUNDERING ACTIVITIES AND OTHER VIOLATIONS OF THIS ACT; "(6) TO APPLY BEFORE THE COURT OF APPEALS, EX PARTE, FOR THE FREEZING OF ANY MONETARY INSTRUMENT OR PROPERTY ALLEGED TO BE THE PROCEEDS OF ANY UNLAWFUL ACTIVITY AS DEFINED IN SECTION 3(I) HEREOF;

"(7) TO IMPLEMENT SUCH MEASURES AS MAY BE NECESSARY AND JUSTIFIED UNDER THIS ACT TO COUNTERACT MONEY LAUNDERING; "(8) TO RECEIVE AND TAKE ACTION IN RESPECT OF, ANY REQUEST FROM FOREIGN STATES FOR ASSISTANCE IN THEIR OWN ANTI-MONEY LAUNDERING OPERATIONS PROVIDED IN THIS ACT; "(9) TO DEVELOP EDUCATIONAL PROGRAMS ON THE PERNICIOUS EFFECTS OF MONEY LAUNDERING, THE METHODS AND TECHNIQUES USED IN THE MONEY LAUNDERING, THE VIABLE MEANS OF PREVENTING MONEY LAUNDERING AND THE EFFECTIVE WAYS OF PROSECUTING AND PUNISHING OFFENDERS;

"(10) TO ENLIST THE ASSISTANCE OF ANY BRANCH, DEPARTMENT, BUREAU, OFFICE, AGENCY, OR INSTRUMENTALITY OF THE GOVERNMENT, INCLUDING GOVERNMENT-OWNED AND -CONTROLLED CORPORATIONS, IN UNDERTAKING ANY AND ALL ANTI-MONEY LAUNDERING OPERATIONS, WHICH MAY INCLUDE THE USE OF ITS PERSONNEL, FACILITIES AND RESOURCES FOR THE MORE RESOLUTE PREVENTION, DETECTION, AND INVESTIGATION OF MONEY LAUNDERING OFFENSES AND PROSECUTION OF OFFENDERS; AND

"(11) TO IMPOSE ADMINISTRATIVE SANCTIONS FOR THE VIOLATION OF LAWS, RULES, REGULATIONS, AND ORDERS AND RESOLUTIONS ISSUED PURSUANT THERETO."

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Basic activities required of covered institutions to prevent money laundering (Sec. 9);

SECTION 9. PREVENTION OF MONEY LAUNDERING; CUSTOMER IDENTIFICATION REQUIREMENTS AND RECORD KEEPING. – a. CUSTOMER IDENTIFICATION, - COVERED INSTITUTIONS SHALL ESTABLISH AND RECORD THE TRUE IDENTITY OF ITS CLIENTS BASED ON OFFICIAL DOCUMENTS. THEY SHALL MAINTAIN A SYSTEM OF VERIFYING THE TRUE IDENTITY OF THEIR CLIENTS AND, IN CASE OF CORPORATE CLIENTS, REQUIRE A SYSTEM OF VERIFYING THEIR LEGAL EXISTENCE AND ORGANIZATIONAL STRUCTURE, AS WELL AS THE AUTHORITY AND IDENTIFICATION OF ALL PERSONS PURPORTING TO ACT ON THEIR BEHALF.

THE

PROVISIONS OF EXISTING LAWS TO THE CONTRARY NOTWITHSTANDING, ANONYMOUS ACCOUNTS, ACCOUNTS UNDER FICTITIOUS NAMES, AND ALL OTHER SIMILAR ACCOUNTS SHALL BE ABSOLUTELY PROHIBITED. PESO AND FOREIGN CURRENCY NON-CHECKING NUMBERED ACCOUNTS SHALL BE ALLOWED. THE BSP MAY CONDUCT ANNUAL TESTING SOLELY LIMITED TO THE DETERMINATION OF THE EXISTENCE AND TRUE IDENTITY OF THE OWNERS OF SUCH ACCOUNTS.

b. RECORD KEEPING – ALL RECORDS OF ALL TRANSACTIONS OF COVERED INSTITUTIONS SHALL BE MAINTAINED AND SAFELY STORED FOR FIVE (5) YEARS FROM THE DATE OF TRANSACTIONS. WITH RESPECT TO CLOSED ACCOUNTS, THE RECORDS ON CUSTOMER IDENTIFICATION, ACCOUNT FILES AND BUSINESS CORRESPONDENCE, SHALL BE PRESERVED AND SAFETY STORED FOR AT LEAST FIVE (5) YEARS FROM THE DATES WHEN THEY WERE CLOSED. c. REPORTING OF COVERED AND SUSPICIOUS TRANSACTIONS. -- COVERED INSTITUTIONS SHALL REPORT TO THE AMLC ALL COVERED TRANSACTIONS AND SUSPICIOUS TRANSACTIONS WITHIN FIVE(5) WORKING DAYS FROM OCCURRENCES THEREOF, UNLESS THE SUPERVISING AUTHORITY PRESCRIBES A LONGER PERIOD NOT EXCEEDING TEN (10) WORKING DAYS. SHOULD A TRANSACTION BE DETERMINED TO BE BOTH A COVERED TRANSACTION AND A SUSPICIOUS TRANSACTION, THE COVERED INSTITUTION SHALL BE REQUIRED TO REPORT THE SAME AS A SUSPICIOUS TRANSACTION.

WHEN REPORTING COVERED OR SUSPICIOUS TRANSACTIONS TO THE AMLC, COVERED INSTITUTIONS AND THEIR OFFICERS AND EMPLOYEES SHALL NOT BE DEEMED TO HAVE VIOLATED REPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO. 8791 AND OTHER SIMILAR LAWS, BUT ARE PROHIBITED FROM COMMUNICATING, DIRECTLY OR INDIRECTLY, IN ANY MANNER OR BY AN MEANS, TO ANY PERSON, THE FACT THAT A COVERED OR SUSPICIOUS TRANSACTION REPORT WAS MADE, THE CONTENTS THEREOF, OR ANY OTHER INFORMATION IN RELATION THERETO. IN CASE OF VIOLATION THEREOF, THE CONCERNED OFFICER AND EMPLOYEE OF THE COVERED INSTITUTION SHALL BE CRIMINALLY LIABLE. HOWEVER, NO ADMINISTRATIVE, CRIMINAL OR CIVIL PROCEEDINGS, SHALL LIE AGAINST ANY PERSON FOR HAVING MADE A COVERED OR SUSPICIOUS TRANSACTION

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REPORT IN THE REGULAR PERFORMANCE OF HIS DUTIES IN GOOD FAITH, WHETHER OR NOT SUCH REPORTING RESULTS IN ANY CRIMINAL PROSECUTION UNDER THIS ACT OF ANY OTHER LAW.

WHEN REPORTING COVERED OR SUSPICIOUS TRANSACTIONS TO THE AMLC, COVERED INSTITUTING AND THEIR OFFICERS AND EMPLOYEES ARE PROHIBITED FROM COMMUNICATING DIRECTLY OR INDIRECTLY, IN ANY MANNER OR BY ANY MEANS, TO ANY PERSON OR ENTITY, THE MEDIA, THE FACT THAT A COVERED OR SUSPICIOUS TRANSACTION REPORT WAS MADE, THE CONTENTS THEREOF, OR ANY OTHER INFORMATION IN RELATION THERETO. NEITHER MAY SUCH REPORTING BE PUBLISHED OR AIRED IN ANY MANNER OR FORM BY THE MASS MEDIA, ELECTRONIC MAIL, OR OTHER SIMILAR DEVICES. IN CASE OF VIOLATION THEREOF, THE CONCERNED OFFICER AND EMPLOYEE OF THE COVERED INSTITUTION AND MEDIA SHALL BE HELD CRIMINALLY LIABLE.

Freezing of monetary instrument or property (Sec. 10);

SEC 10. FREEZING OF MONETARY INSTRUMENT OR PROPERTY. -- THE COURT OF APPEALS, UPON APPLICATION EX PARTE BY THE AMLC AND AFTER DETERMINATION THAT PROBABLE CAUSE EXISTS THAT ANY MONETARY INSTRUMENT OR PROPERTY IS IN ANY WAY RELATED TO AN UNLAWFUL ACTIVITY AS DEFINED IN SECTION 3(I) HEREOF, MAY ISSUE A FREEZE ORDER WHICH SHALL BE EFFECTIVE IMMEDIATELY. THE FREEZE ORDER SHALL BE FOR A PERIOD OF TWENTY (20) DAYS UNLESS EXTENDED BY THE COURT.

Authority to inquire into bank deposits (Sec. 11);

SEC. 11. AUTHORITY TO INQUIRE INTO BANK DEPOSITS. -- NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHER LAWS, 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 OF THIS ACT, WHEN IT HAS BEEN ESTABLISHED THAT THERE IS PROBABLE CAUSE THAT THE DEPOSITS OR INVESTMENTS ARE RELATED TO AN UNLAWFUL ACTIVITIES AS DEFINED IN SECTION 3(I) HEREOF OR A MONEY LAUNDERING OFFENSE UNDER SECTION 4 HEREOF, EXCEPT THAT NO COURT ORDER SHALL BE REQUIRED IN CASES INVOLVING UNLAWFUL ACTIVITIES DEFINED IN SECTIONS 3(I)1, (2) AND (12).

TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS (BSP) MAY INQUIRE INTO OR EXAMINE ANY DEPOSIT OF INVESTMENT WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION WHEN THE EXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION, IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP.

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Penal provisions (Sec. 14); Prohibitions against political harassment (Sec. 16). SECTION 16. PROHIBITIONS AGAINST POLITICAL HARASSMENT. – THIS ACT SHALL NOT BE USED FOR POLITICAL PROSECUTION OR HARASSMENT OR AS AN INSTRUMENT TO HAMPER COMPETITION IN TRADE AND COMMERCE.

NO CASE FOR MONEY LAUNDERING MAY BE FILED AGAINST AND NO ASSETS SHALL BE FROZEN, ATTACHED OR FORFEITED TO THE PREJUDICE OF A CANDIDATE FOR AN ELECTORAL OFFICE DURING AN ELECTION PERIOD. 6.2

Case: Bank inquiry order under Section 11 cannot be made ex parte Republic vs. Eugenio, et al., G.R. 174269, February 14, 2008

ISSUE1: Respondents posit that a bank inquiry order under Section 11 may be obtained only upon the pre-existence of a money laundering offense case already filed before the courts. The conclusion is based on the phrase “upon order of any competent court in cases of violation of this Act,” the word “cases” generally understood as referring to actual cases pending with the courts. HELD1: We are unconvinced by this proposition, and agree instead with the then Solicitor General who conceded that the use of the phrase “in cases of” was unfortunate, yet submitted that it should be interpreted to mean “in the event there are violations” of the AMLA, and not that there are already cases pending in court concerning such violations. If the contrary position is adopted, then the bank inquiry order would be limited in purpose as a tool in aid of litigation of live cases, and wholly inutile as a means for the government to ascertain whether there is sufficient evidence to sustain an intended prosecution of the account holder for violation of the AMLA. Should that be the situation, in all likelihood the AMLC would be virtually deprived of its character as a discovery tool, and thus would become less circumspect in filing complaints against suspect account holders. After all, under such set-up the preferred strategy would be to allow or even encourage the indiscriminate filing of complaints under the AMLA with the hope or expectation that the evidence of money laundering would somehow surface during the trial. Since the AMLC could not make use of the bank inquiry order to determine whether there is evidentiary basis to prosecute the suspected malefactors, not filing any case at all would not be an alternative. Such unwholesome set-up should not come to pass. Thus Section 11 cannot be interpreted in a way that would emasculate the remedy it has established and encourage the unfounded initiation of complaints for money laundering. ISSUE2: Petitioner argues that a bank inquiry order necessitates a finding of probable cause, a characteristic similar to a search warrant which is applied to and heard ex parte. HELD2: Still, even if the bank inquiry order may be availed of without need of a preexisting case under the AMLA, it does not follow that such order may be availed of ex parte. Such orders cannot be issued unless notice is given to the owners of the account, allowing them the opportunity to contest the issuance of the order. Without such a consequence, the legislated distinction between ex parte proceedings under Section 10 and those which are not ex parte under Section 11 would be lost and rendered useless. 88 of 89

Furthermore, the Court is unconvinced by the supposed analogy between a search warrant and a bank inquiry forwarded by petitioner. The Constitution and the Rules of Court prescribe particular requirements attaching to search warrants that are not imposed by the AMLA with respect to bank inquiry orders. A constitutional warrant requires that the judge personally examine under oath or affirmation the complainant and the witnesses he may produce such examination being in the form of searching questions and answers. Those are impositions which the legislative did not specifically prescribe as to the bank inquiry order under the AMLA, and we cannot find sufficient legal basis to apply them to Section 11 of the AMLA. Simply put, a bank inquiry order is not a search warrant or warrant of arrest as it contemplates a direct object but not the seizure of persons or property. Even as the Constitution and the Rules of Court impose a high procedural standard for the determination of probable cause for the issuance of search warrants which Congress chose not to prescribe for the bank inquiry order under the AMLA, Congress nonetheless disallowed ex parte applications for the inquiry order. We can discern that in exchange for these procedural standards normally applied to search warrants, Congress chose instead to legislate a right to notice and a right to be heard— characteristics of judicial proceedings which are not ex parte. Absent any demonstrable constitutional infirmity, there is no reason for us to dispute such legislative policy choices.

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