Speccom - NCBA GBL Reviewer
Speccom - NCBA GBL Reviewer
b. Similar responsibility shall apply to members, officers and borrowings are adequately secured, fully disclosed to
employees of the Bangko Sentral for; the Monetary Boar, and shall be subject to such further
1. The disclosure of any information of a confidential rules and regulations as the Monetary Board may
nature, or any information on the discussions or prescribe.
resolutions of the Monetary Board, or about the
confidential operations of the Bangko Sentral, unless the HOW BSP HANDLE BANKS IN DISTRESS
disclosure is in connection with the performance of
official functions with the Bangko Sentral, or is with prior A. CONSERVATORSHIP
authorizaytion of the Monetary Board or the Governor; -a bank or quasi-bank is
or 1. in a state of continuing inability or
2. The use of such information for personal gain or to the 2. unwillingness to maintain a condition of liquidity deemed
detriment of the Government, the Bangko Sentral or adequate to protect the interest of depositors and creditors
third parties. Action of the Monetary Board
The Monetary Board may appoint a conservator (who
c. However, any data or information required to be submitted shall be competent and knowledgeable in bank
to the President and/or Congress, or to be published under operations and management) for a period not exceeding
the provisions of RA 7653 shall not be considered 1 year
confidential. i. take charge of the assets, liabilities and management
of the bank or quasi-bank in question
Outside interests of the Governor and the full-time members of ii. reorganize the management thereof
the Board iii. collect all monies and debts due and
a. The Governor of the Bangko Sentral and the full-time iv. exercise all powers necessary to restore its viability,
members of the Board shall limit their professional activities including the power to overrule or revoke the actions
to those pertaining directly to their positions with the Bangko of the previous management and board of directors
Sentral. While admittedly, the Central Bank gives vast and far-
b. They may not accept any other employment, whether public reaching powers to the conservator, such powers must
or private, remunerated or ad honorem. be related to “preservation of the assets of the bank, the
c. Exceptions: reorganization of the management thereof, and the
1. Positions in eleemosynary, civic, cultural or restoration of its viability. Such powers, enormous and
religious organizations extensive as they are, cannot extend to post-facto
2. Whenever, by designation of the President, repudiation of perfected transactions, otherwise they
the Governor or the full-time member is would infringe against the non-impairment clause of the
tasked to represent the interest of the Constitution.
Government or other government agencies in It merely gives the conservator the power to revoke
matters connected with or affecting the contracts that are under existing law, deemed to be
economy or the financial system of the country defective – i.e. void, voidable, unenforceable or
rescissible. Hence, the conservator merely takes the
Prohibitions on personnel of the Bangko Sentral place of a Bank’s BOD. What the said Board cannot do –
In addition to the prohibitions found in RA 3019 and 6713, such as repudiating a contract validly entered into under
personnel of the Bangko Sentral are hereby prohibited from: the doctrine of implied authority, the conservator
1. Being an officer, director, lawyer or agent, employee, cannot do either. Ineluctably, his power is not unilateral,
consultant or stockholder, directly or indirectly, of any and he cannot simply repudiate valid obligations of the
institution subject to supervision or examination by the Bank. His authority would be only to bring court actions
Bangko Sentral, except non-stock savings and loan to assail such contract – as he has already done so in the
associations and provident funds organized exclusively instant case. (First Phil. Int’l Bank v. CA, 252 SCRA 259)
for employees of the Bangko Sentral, and except as
otherwise provided in RA 7653;
2. Directly or indirectly requesting or receiving any gift,
present or pecuniary or material benefit for himself or
another, from any institution subject to supervision or Termination of Conservatorship
examination by the Bangko Sentral; (a) When MB is satisfied that the institution can
3. Revealing in any manner, except upon orders of the continue to operate on its own and the
court, the Congress or any government office or agency conservatorship is no longer necessary; or
authorized by law, or under such conditions as may be (b) When MB determines that the continuance in
prescribed by the Monetary Board, information relating business of the institution would involve probable
to the condition or business of any such institution. This loss to its depositors or creditors, in which case
prohibition shall not apply to the giving of information to proceedings for receivership and liquidation shall
the Monetary Boar or the Governor of the Bangko be pursued.
Sentral, or to any person authorized by either of them, in B. CLOSURE
writing, to receive such information; and -prohibit a bank or quasi-bank from doing business in
4. Borrowing from any institution subject to supervision or the Philippines
examination by the Bangko Sentral unless said Grounds for Closure
4
(a) Unable to pay its liabilities as they become due in the from intermeddling with the property of the bank in any
ordinary course of business (cash flow test) way.
BUT: shall not include inability to pay caused by extraordinary The receiver only has the authority to administer the
demands induced by financial panic in the banking community. properties of the bank for the benefit of the creditors.
(b) Insufficient realizable assets to meet its liabilities Consequently, the receiver has no authority to approve
(balance sheet test) the acts of ownership, such as the grant of “exclusive
(c) Cannot continue in business without involving probable option to purchase” a particular property of the bank.
losses to its depositors and creditors (Abacus Real Estate Dev. Center vs. Manila Banking
(d) Willfully violated a cease and desist order under Sec. 37 Corp., 452 SCRA 97)
(administrative sanctions) that has become final and
involves acts or transactions which amount to fraud or D. LIQUIDATION
dissipation of assets -from the determination of receiver if institution cannot
(e) Notifies the BSP or publicly announces a bank holiday be rehabilitated or permitted to resume business
(f) Suspends the payment of its deposit liabilities Duties of the Receiver/Liquidator
continuously for more than 30 days (1) File ex parted with the RTC a petition for assistance in
(g) Persists in conducting its business in an unsafe or the liquidation of the institution pursuant to a
unsound manner liquidation plan adopted by the PDIC for banks, and by
MB for quasi-banks
This may be done summarily and without need of prior (2) Upon motion by receiver, upon RTC’s acquisition of
hearing. jurisdiction, RTC shall assist enforcement of the
Note that during conservatorship, no claims can be paid. individual liabilities of the stockholders, directors, and
officers and decide on other issues as may be material to
Sec. 29 of the Central Bank Act does not contemplate the liquidation plan adopted
prior notice and hearing before a bank is placed under (3) Receiver shall convert the assets to money and proceeds
receivership. It is enough that such action is made the shall be applied in paying the debts of the institution in
subject of a subsequent judicial review. The “Close now accordance with rules on concurrence and preference of
and hear later” scheme under the Act is for the purpose credit
of protecting the depositors, creditors, stockholders and (4) Receiver shall institute such actions as may be necessary
the general public. (Central Bank vs. CA, 220 SCRA 536)
The assets under receivership or liquidation deemed in
C. RECEIVERSHIP custodia legis, in the hands of the receiver and shall be
Who are Receivers? exempt from any order of garnishment, levy, attachment
(a) For Banks –PDIC or execution
(b) For Quasi-Banks – Any person of recognized competence Phases of Liquidation Proceeding (Pacific Banking vs.
in banking or finance CA, GR 109373, March 20, 1995)
Functions of Receiver First: Approval and disapproval of claims
(a) Immediately gather and take charge of all the assets and (a) all money claims against the bank are required to be
liabilities of the institution, administer the same for the filed with the liquidation court
benefit of its creditors e.g.
Collect pre-existing debts (b) phase may end with the declaration by the court
Foreclose mortgages security whether claim is with basis or not; if with basis, classified
(b) Exercise the general powers of a receiver whether ordinary or preferred
(c) Determine as soon as possible, but not late than 90 days
from takeover, whether the institution can be (c) order by court is final and may be appealed by the party
rehabilitated or otherwise placed in such a condition so aggrieved
that it may be permitted to resume business with safety Second: Approval by the court of the distribution plan
to its depositors and creditors, and the general public. prepared by the duly appointed liquidator
BUT: any determination for resumption of business shall be (a) order disposes of the issue of how much property is
subject to the prior approval of the Monetary Board. available for disposal
(b) payment of all allowed claims
If the receiver determines that the institution cannot be
rehabilitated or permitted to resume business, then the MB shall DISTINGUISH BETWEEN LIQUIDATION AND
notify in writing the board of directors of the institution of its REHABILITATION
findings and direct the receiver to proceed with the liquidation of LIQUIDATION REHABILITATION
the institution. Is a winding up of Connotes a reopening
settling with creditors or reorganization. It
Appointment of a receiver operates to suspend the and debtors. It is the contemplates a
authority of a bank and its directors and officers over its winding up of a continuance of
properties and effects, such authority being reposed in corporation so that corporate life and
the receiver, and in this respect, the receivership is assets are distributed activities in an effort
equivalent to an injunction to restrain the bank officers to those entitled to to restore and
receive them. It is the reinstate the
5
process of reducing corporation to its However: unless otherwise fixed by the Monetary
assets to cash, former position of Board, coins shall be legal tender in amounts
discharging liabilities successful operation not exceeding Fifty pesos P50 for denominations of 25
and dividing surplus and solvency. centavos and above, and
or loss. in amounts not exceeding P20 for denominations of 10
centavos or less. (Sec. 52)
Philippine currency notes have no limit to their legal
Effects of Liquidation of a Bank or a Quasi-Bank tender power. Pursuant to BSP Circular No. 537, Series
of 2006, coins in denomination of
(a) After payment of the cost of the proceedings, including 1-, 5- and 10-piso shall be legal tender in amounts not
reasonable expenses and fees of the receiver to be exceeding P1,000 while
allowed by the court, the receiver shall pay the debts of 1-, 5- and 10- and 25-sentimo shall be legal tender in
such institution, under order of the court, in accordance amounts not exceeding P100
with the rules on concurrence and preference of credit B. RATE OF EXCHANGE – The MB shall determine the
as provided in the Civil Code. (Sec. 31) exchange rate policy of the country to ensure orderly
(b) All revenues and earnings realized by the receiver in conditions in the market
winding up the affairs and administering the assets of BSP maintains a floating exchange rate system. Exchange
any bank or quasi-bank within the purview of this Act rates are determined on the basis of supply and demand
shall be used to pay the costs, fees and expenses in the foreign exchange market.
mentioned in the preceding section, salaries of such C. EMERGENCY RESTRICTIONS ON EXCHANGE
personnel whose employment is rendered necessary in OPERATIONS: To give MB and the Government time in
the discharge of the liquidation together with the other which to forestall, combat or overcome such crisis or
additional expenses caused thereby. (Sec.32) emergency, MB with concurrence of at least 5 of its
members and with the approval of the President may:
The balance of revenues and earnings, after the (a) temporarily suspend or restrict sales of exchange by BSP
payment of all said expenses, shall form part of the (b) subject all transactions in gold and foreign exchange to
assets available for payment of creditors. license by the BSP; and
(c) may require that any foreign exchange obtained by any
A liquidation proceeding is a single proceeding person residing or entity operating in the Philippines be
Although the claims are litigated in the same proceeding, delivered to the BSP or to any bank or agent designated
the treatment is individual. And the Order issued relative by the BSP
to a particular claim applies only to said claim, leaving HOWEVER: foreign currency deposit made under FCDU
the other claims unaffected, as each claim is considered Law shall be exempt from these requirements
separate and distinct from the others. D. SECTION 105. The Monetary Board may at any time
The exclusive jurisdiction of the liquidation courts prescribe minimum cash margins for the opening of
pertains only to the adjudication of claims against the letters of credit, and may relate the size of required
bank, and does not cover the reverse situation where it margin to the nature of the transaction to be financed.
is the bank which files a claim against another person.
(Manalo vs. CA, 366 SCRA 752) E. SECTION 106. In order to promote the liquidity and
The actions of the MB under Sec. 29 (appointing a solvency of the banking system, the Monetary Board
conservator) and Sec. 30 (closing a bank) are final and may issue such regulations as it may deem necessary
executory and may not be restrained or set aside by a with respect to the maximum permissible maturities of
court the loans and investments which the banks may make,
EXCEPT:on petition for certiorari on the ground of excess of and the kind and amount of security to be required
jurisdiction or with grave abuse of discretion filed by stockholders against various types of credit operations of the banks.
of record representing the majority of the capital stock within 10 DEMAND DEPOSITS – this term refers to all those
days from receipt by the BOD of the institution of the order liabilities of the BSP and of other banks, which are
directing conservatorship, receivership or liquidation denominated in Philippine currency, and are subject to
Note that the twin requirement of majority of payment in legal tender upon demand by the
stockholders and filing within 10 days should be presentation of checks (Sec. 58). Only banks duly
observed or else action will be dismissed. authorized may accept funds, or create liabilities payable
A bank ordered closed by the MB retains its juridical in pesos upon demand by presentation of checks, and
personality which can sue or be sued through its such operations shall be subject to the control of the
liquidator Monetary Board.
HOW THE BSP HANDLES EXCHANGE CRISIS LEGAL CHARACTER OF CHECKS – the checks
A.LEGAL TENDER POWER – when the currency is offered representing demand deposits do not have legal tender
in payment of a debt, public or private, the same must power, and their acceptance in the payment of debts;
be accepted. both public and private, is at the option of the creditor.
All notes and coins issued by the Bangko Sentral shall be However, a check which has been cleared and credited
fully guaranteed by the Government of the Republic of to the account of the creditor, shall be equivalent to a
the Philippines and shall be legal tender in the delivery to the creditor of cash in an amount equal to
Philippines for all debts, both public and private. the amount credited to his account. (Sec.60)
6
1. DEFINITION AND CLASSIFICATION OF BANKS i. Any bank, investment house or a stock corporation duly
authorized by the Monetary Board to engage in trust,
a. UNIVERSAL BANKS – these used to be called expanded investment management and fiduciary business
commercial banks and their operations are primarily governed by methodology.
the General Banking laws. They can exercise the powers of an
investment house and invest in non-allied enterprises. They have A trust business is any activity resulting from trusteeship
the highest capitalization requirement. involving the appointment of a trustee by a trustor for the
administration, holding, management of funds and/or
b. COMMERCIAL BANKS – these are ordinary or regular properties of the trustor by the trustee for the use, benefit
commercial banks, as distinguished from a universal bank. They or advantage of the trustor or of beneficiaries.
have a lower capitalization requirement than a universal bank and
cannot exercise the powers of an investment house and invest in 3. BANK POWERS AND LIABILITIES
non-allied enterprises.
a. CORPORATE POWERS – these are the powers enumerated
c. THRIFT BANKS – shall include savings and mortgage banks, under the Corporation Code. Section 36 of the Corporation Code
private development banks, and stock savings and loans provides that every corporation incorporated under this Code has
association organized under existing laws. the power and capacity:
d. RURAL BANKS - banks which are designed to make needed i. To sue and be sued in its corporate name;
credit available and readily accessible in the rural areas on ii. Of succession by its corporate name for the period of
reasonable terms. time stated in the articles of incorporation and the
certificate of incorporation;
e. COOPERATIVE BANKS – one organized, the majority share of iii. To adopt and use a corporate seal;
which is owned and controlled by cooperatives, primarily to iv. To amend its articles of incorporation in accordance with
provide financial and credit services to cooperatives. the provisions of this Code;
v. To adopt by-laws, not contrary to law, morals, or public
f. ISLAMIC BANKS – these are banks the business dealings and
policy, and to amend or repeal the same in accordance
activities of which are subject to the basic principles and rulings of
with this Code;
Islamic Shari’a. The Al Amanah Islamic Investment Bank of the
vi. In case of stock corporations, to issue or sell stocks to
Philippines, which was created by RA 6848, is the only Islamic bank
subscribers and to sell treasury stocks in accordance
in the country at this time.
with the provisions of this Code; and to admit members
to the corporation if it be a non-stock corporation;
Created by Congress to promote and accelerate socio-economic
vii. To purchase, receive, take or grant, hold, convey, sell,
development of the Autonomous Region by performing banking,
lease, pledge, mortgage and otherwise deal with such
financing and investment operations and to establish and
real and personal property, including securities and
participate in agricultural, commercial and industrial ventures
bonds of other corporations, as the transaction of the
based on the Islamic concept of banking. (Sec. 3 RA. 6848).
lawful business of the corporation may reasonably and
g. Other Classification of banks as determined by the Monetary necessarily require, subject to the limitations prescribed
Board. by law and the Constitution;
viii. To enter into merger or consolidation as provided in this
2. DISTINCTION OF BANKS FROM QUASI-BANKS AND TRUST Code;
ENTITIES ix. To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural,
a. QUASI-BANKS scientific, civic, or similar purposes: Provided, that no
corporation, domestic or foreign, shall give donations in
i. “Quasi-Banks” shall refer to entities engaged in the
aid of any political party or candidate or for purposes of
borrowing of funds through the issuance, endorsement or
partisan political activity;
assignment with recourse or acceptance of deposit
x. To establish pension, retirement, and other plans for the
substitutes as defined in Section 95 of R.A. 7653 for
benefit of its directors, trustees, officers and employees;
purposes of relending or purchasing of receivables and
and
other obligations (Sec. 4 par. 3 GBL).
xi. To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated
in the articles of incorporation.
7
b. BANKING AND INCIDENTAL POWERS employees may be the ones negligent, a bank’s liability
as obligor is not merely vicarious, but primary, as banks
All such powers as may be necessary to carry on the business of are expected to exercise the highest degree of diligence
commercial banking (Sec. 29). in the selection and supervision of their employees.
Banks are required to exercise the highest degree of Dealings with Registered Land
diligence.
Ursal v. CA 473 SCRA 52, 2005
Fiduciary Nature of Banks
Banks cannot merely rely on certificates of title in
Failure on the part of the bank to satisfy the degree of ascertaining the status of mortgaged properties. As
diligence required of banks may warrant the award of their business is impressed with public interest, they are
damages. expected to exercise more care and prudence in their
Under Sec. 2, the degree of diligence is “high dealings than private individuals. Indeed, the rule that
standards of integrity and performance”. persons dealing with registered land can rely solely on
the certificate of tile does not apply to banks.
Fiduciary Obligation of Banks
Degree of Diligence Required of Banks as Lenders-
BPI v. Lifetime Marketing Corp. 555 SCRA 373, 2008 Mortgagees
The degree of diligence required of banks is more than Consolidated Rural Bank (Cagayan Valley) v. CA 448
that of a reasonable man or a good father of a family. In SCRA 347, 2005
view of the fiduciary nature of their relationship with
Banks, their business being impressed with public
their depositors, banks are duty-bound to treat the
interest [in this case taking-up real estate mortgages to
accounts of their clients with the highest degree of care.
secure the loans given], are expected to exercise more
Fiduciary Obligation of Bank Employees care and prudence than private individual in their
dealings, even those involving registered lands. Hence,
PNB v. Pike 470 SCRA 328 for merely relying on the certificates of title and for its
failure to ascertain the status of the mortgaged
It bears emphasizing that the negligence of banking properties as is the standard procedure in its operations,
institutions should never be countenance. Although its the bank is a mortgagee in bad faith.
8
Relevant Jurisprudence enforce those exceptions and inquire into bank deposits.
If there are doubts in upholding the absolutely
Simex International v. CA, 1990 confidential nature of bank deposits against the
affirming authority to inquire into such accounts, then
As a business affected with public interest and because such doubts must be resolved in favor of the former.
of the nature of its functions, the bank is under Such a stance would persist unless Congress passes a law
obligation to treat the accounts of its depositors with reversing the general state policy of preserving the
meticulous care, always having in mind the fiduciary absolutely confidential nature of Philippine bank
nature of their relationship. deposits.
BSP Group, Inc. v. Go, 2010
PCI Bank v. CA, 2001
It is conceded that while the fundamental law has not
Banks are expected to exercise the highest degree of bothered with the triviality of specifically addressing
diligence in the selection and supervision of their privacy rights relative to banking accounts, there,
employees. nevertheless, exists in our jurisdiction a legitimate
expectation of privacy governing such accounts. The
PS Bank v. Chowking Food Corp., 2008 source of this right of expectation is statutory, and is
found in R.A.No. 1405, otherwise known as the Bank
It cannot be overemphasized that the banking business Secrecy Act of 1955.
is impressed with public interest. Of paramount Subsequent statutory enactments have expanded the
importance is the trust and confidence of the public in list of exceptions to this policy yet the secrecy of bank
general in the banking industry. Consequently, the deposits still lies as the general rule, falling as it does
diligence required of banks is more than that of the within the legally recognized zones of privacy. There is,
Roman pater familias or a good father of a family. The in fact, much disfavor to construing these primary and
highest degree of diligence is expected. supplemental exceptions in a manner that would
authorize unbridled discretion, whether governmental
Bank of America NT&SA v. Philippine Racing Club, 2009 or otherwise, in utilizing these exceptions as authority to
unwarranted inquiry into bank accounts. It is then
The banking business is so impressed with public interest
perceivable that the present legal order is obliged to
where the trust and confidence of the public in general
conserve the absolutely confidential nature of bank
is of paramount importance such that the appropriate
deposits.
standard of diligence must be high degree of diligence, if
not the utmost diligence.
Bank as a Debtor
Deposit is a voluntary agreement, “Know Your
Customer” standards
5. NATURE OF BANK FUNDS AND BANK DEPOSITS Bank acquires ownership of money deposited; obligation
to pay amount, but not obligation to return the same
The bank can make use as its own the money deposited money (Guingona, Jr. v. City Fiscal of Manila 128 SCRA
577, 1984)
(Tan Tiong Tick v. American Apothecaries 65 Phil 414,
Payment to proper party-depositor (Fulton Iron Works
1938). Said amount is not being held in trust for the
Co. V. China Banking Corp. 58 Phil. 206, 1930)
depositor nor is it being kept for safekeeping. Deposits are not preferred credits (Central Bank v.
Art. 1990 (Civil Code). Fixed, savings, and current Morfe 63 SCRA 114, 1975
deposits of money in banks and similar institutions shall Bank has right to compensation (Gullas v. PNB 62 Phil.
be governed by the provisions concerning simple loan. 519, 1935)
No breach of trust - mandamus not a remedy (Lucman
v. Malawi 511 SCRA 268, 2006).
Confidentiality of Bank Deposits
The prevailing policy of the matter is to preserve the
6. STIPULATION ON INTEREST
absolute confidentiality enjoyed by bank deposits.
Interests on Deposits
Republic v. Eugenio, 2008
The Monetary Board has declared that the interest on
Indeed, by force of statute, all bank deposits are
deposits are not subject to ceilings (Section 242, MORB).
absolutely confidential, and that nature is unaltered
Interest or yield on time deposit/deposit substitute may
even by the legislated exceptions referred to above.
be paid at maturity or upon withdrawal or in advance.
There is disfavor towards construing these exceptions in
However, interest or yield paid in advance shall not
such a manner that would authorize unlimited discretion
exceed the interest for one year (Section 242.1, MORB)
on the part of the government or of any party seeking to
9