Chapter 1 - Banks & Other Financial Intermediaries: 19 Persons

LAW ON BANKING AND FINANCE CHAPTER 1 – BANKS & OTHER FINANCIAL INTERMEDIARIES 1. Financial Intermediaries- person or entities (Natural/juridical) whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them either for their own account or for the account of others. Financial intermediaries may be banks and nonbanks. (Banks/non-banks) Non-banks: insurance companies, financing companies, credit and loan association, mutual companies, investment houses, lending corporations, pawnshops and quasi-banking institution (they may exercise banking but not all characteristics of banks). They all participate in financial markets. 2. Financial Markets- (institution itself) is an agglomeration of financial transactions in securities performed by market participants that works to transfer the funds from the surplus units (they have the funds to be invested) (investor/lender) to those who need them (borrowers). FM aims to channel funds to people who are in need may be accomplished through financial markets. Money market- short term flow of money, transaction done w/in a year Capital market- long term Primary markets- facilitates the issuance of new securities. (Issuers & Investors) initial/first transaction you enter into. Secondary Markets- facilitates the trading/existing securities. (Investors) One basic function, quick mobilization of money from investors/lender to the borrower. XXX Fund Transfer accomplished in 3 ways: DSI  Direct Financing- borrower and lender meet each other and exchange funds in return for financial assets.

 Semi- Direct Financing- a securities broker or dealer brings surplus and deficit units together, thereby reducing information costs.  Indirect Financial Transactions- the limitations of both direct and semi-direct finance. 3. KINDS OF FINANCIAL INTEMEDIARIES  Lending Companies (RA 9474) – do not include banking institution, shall refer to a corporation engaged in granting loans from its own capital funds or from funds sourced from not more than 19 persons. It shall not be deemed to include banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law.  Savings and Loan Associations (RA 8367) – a non-stock, non-profit corporation engaged in the business of accumulating the savings of its members and using such accumulations for loans to members to service the needs of household by providing long term financing for home building and development and for personal finance. The non-stock savings and loan association is not allowed to transact business with the general public. Are only for their members, to support the needs of their members. Only members can avail. “well-defined group” – Employees, officers and directors including member-retirees; Government employees; Immediate members of the families of the above (up to 2nd degree of consanguinity). 

Financing Companies (RA 8556)- organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, by direct lending or by discounting or factoring commercial paper or accounts receivable or by buying and selling contracts, leases chattel mortgages or other evidences of indebtedness, or by financial leasing of movable as well as immovable property. Transactions entered into are financial lease, assignment of credit and receivable financing.  Financial lease- is mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the

instance of the lessee, machinery, equipment, motor vehicles, appliances, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least 70% of the purchase price or acquisition cost. (lessor will sell to financial lease at a discounted price so that financial lease will profit)  Assignment of credit- is an act of transferring, either onerously or gratuitously, the right of an assignor to assignee who would then be capable of proceeding against the debtor for enforcement of the credit. ‘credit’ shall mean any loan, mortgage, financial lease, deed of trust, advance or discount, any conditional sales contract, contract to sell, or sale etc. under which part of all or the price is payable subsequent to the making of such sale or contract.  Receivable financing – is a mode of extending credit through the purchase by assignment to, a financing company for evidence of indebtedness or open accounts by discounting or factoring.  

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Insurance Companies- are regulated by insurance code. Investment Houses( PD 129 )- underwriters of treasury bills(loan of government), assists to distribute security of government Investment Company – (arranged, how to distribute bills granted by government) is a corporation primarily engaged or holds itself out as being engaged primarily in the business of investing, reinvesting and trading in securities. Pawnshops- (personal property only, only those that can be brought to them) a person or entity engaged in the business of lending money on pp delivered as security for loans. Quasi-Banks- (20 or more) non-bank financial institutions authorized by the BSP to engage in quasi-banking functions and to borrow funds from more than 19 lenders through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes. Trust corporations (trustor/beneficiary-trustee relation is fiduciary) engaged in trust and

fiduciary business to perform investment management services.

BANKS- the largest group of entities that are engaged in financial intermediation in the PH. State Policies- supervisions of banks and other financial institutions are provided in 1987 PH CONSTI. Sec 20 Art XII of the 1987 PH CONSTI, Authority form the BSP. RA 7653 (New Central Bank Act) BSP- independent central monetary authority, which shall be a body corporate. Issues manual regulations for banks (MORB,MORNBFI) RA 8991 (General Banking Law of 2000)- expresses state policies concerning banks. RA 7721 (Act liberalizing the entry and scope of operations of foreign banks in the Philippines) – OFFSHORE BANKS, registered abroad, but still regulated by the BSP. RA 3591 (The PDIC-Law) – stable banking system ti the country’s economy. RA 1405 (Law on Secrecy of Bank deposit) RA 9160 (Anti-Money Laundering Act of 2001) AMLA CHAPTER 2 – General Concepts Banks- refer to entities engaged in ending of funds obtained in the form of deposits. A bank must be a stock Corporation and its funds must be obtained from the public, deposits of 20 or more persons. The very business of banks is to have a place where deposits are received and paid out and where money is loaned on security. Exercised banking functions and deposits. Payment Functions, drawing of check are from banks. Check book is form of payment to obligations. Banks are obliged to pay to the bearer of instrument. Quasi-Banking- entities that do not accept deposits. Refers to borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of receivables and other obligations. Elements:

1. Borrowing funds for the borrower’s own account 2. Twenty or more lenders at any one time. 3. Methods of borrowing are issuances etc. 4. Purpose of which is relending, purchasing receivables or other obligations Purchasing of receivables or other obligations refer to the acquisition of claims collectible in money, including interbank borrowings or borrowings between financial institution or of acquisition of securities, of any amount and maturity from domestic or foreign sources. Relending- extension of loan by an institution with antecedent borrowing transactions.

NATURE OF BUSINESS “banks are to the commercial world what arteries are to the human system. Through them passes the vitalizing lifegiving medium of exchange, and upon their healthy condition commercial activity and prosperity will depend. Nature of public trust. UTMOST DILIGENCE bank is required to exercise utmost diligence in handling of the deposits. The diligence required therefore is more than that of a good father of a family. Depositor expects the bank to treat his account with utmost fidelity. DILIGENCE FOR NON-DEPOSIT FUNCTIONS “the highest degree of diligence applies only to cases where banks act under fiduciary capacity, that is as depositary of deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors. “The better rule is that banks are required to exercise utmost diligence in ALL of its transactions with the public, not just in the handling of the deposits. The reason is that the bank plays a pivotal role in the economy. STRIKES AND LOCKOUTS “any strikes or lockouts involving banks, if unsettled after seven calendar days shall be reported by the BSP to the Sec of Labor who may assume jurisdiction over the dispute or decide or certify the same to the NLRC for compulsory arbitration. GOVERNING LAW/GENERAL BANKING LAW banks are governed by RA 8791, GBL of 2000. An act providing for

the regulation of the organization and operations of banks, quasi-banks, trust entities and other purposes. OTHER BANKING LAWS |new central bank act r.a 7653 | rural banks act and thrift banks act r.a 7353 | Cooperative Code | R.A 6848 (Islamic banks) | R.A 6426 (Foreign currency deposit act) | PDIC Law R.A 3591 (Philippine Deposit Insurance Coporation) | Law on Foreign Banks R.A 10641 | BSP Rules and Regulations | AUTHORITY TO OPERATE banking or quasi-banking corporations cannot be incorporated without authority from the BSP. Thus, AOI must be filed with the SEC accompanied by favorable recommendation by the BSP, otherwise it shall not be accepted or approved. Certificate of authority issued by the MB, under its seal. OPERATION if an entity performs banking and quasibanking functions without the required certificate of authority, officers concerned may be subject to criminal prosecution AOI of corporation may be revoked. NAME section 64 of GBL disallows the use of the name “bank” if it is not engaged in the banking business. CHAPTER 3 CLASSIFICATION OF BANKS Banks are classified under Sec 3.2 of the GBL : 1. Universal Banks 2. Commercial Banks 3. Thrift Banks (Savings and mortgage banks, stock savings and loans assoc. and Private Development banks) 4. Rural Banks 5. Cooperative Banks 6. Islamic Banks 7. Other Classifications of Banks determined by MB of BSP. UNIVERSAL BANKS are banks that have the authority to exercise, in addition to the powers of a commercial bank, the power of an investment house and the power to invest in non-allied enterprises. The power to own up to 100% of the equity in a thrift bank, rural bank, a financial/non-financial allied enterprise. The power to own up to 100% of the voting stock of only one other universal bank or commercial. Investment House, is any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in underwriting of securities of another person or

enterprise, including securities of the government and its instrumentalities. Underwriting securities- is the act or process of guaranteeing distribution of sale within PH of securities of the Government or its instrumentalities. NON-ALLIED ENTERPRISES