Topic 3 1.

It is established as an independent
The New Central Bank Act central monetary authority.
(R.A. 7653 as amended by R.A. 11211 ) 2. Its capital shall be P50,000,000,000,
P200,000,000,000 to be fully subscribed by
Brief the Philippine Government.
Bangko Sentral ng Pilipinas (BSP) 3. The increase in capitalization shall be
It is the State’s central monetary authority. funded solely from the declared dividends
It is the government agency charged with of the Bangko Sentral in favor of the
the responsibility of administering the National Government.
monetary, banking and credit system of the 4. Any declared dividends of the Bangko
country and is granted the power of Sentral in favor of the National Government
supervision and examination over bank and shall be deposited in a special account in
non-bank financial institutions performing the General Fund, and earmarked for the
quasi-banking functions, including savings payment of Bangko Sentral’s increase in
and loan associations (Busuego v. CA, G.R. capitalization. Such payment shall be

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er as
No. L-48955, June 30, 1987). released and disbursed immediately and
shall continue until the increase in

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Bangko Sentral ng Pilipinas as an

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institution capitalization is fully paid.
The BSP is a government-owned

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Responsibility and primary
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corporation which enjoys fiscal and
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administrative autonomy. objective of the BSP
Responsibilities of BSP (P-S-R)
State Policy 1. To provide policy directions in the areas
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Policy of the state with respect to the of money, banking, and credit.
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creation of the Bangko Sentral ng Pilipinas 2. To supervise bank operations.

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The State shall maintain a central monetary 3. To exercise regulatory and examination
authority that shall function and operate as powers over quasi-banking operations of
an independent and accountable body non-bank financial institutions, money
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corporate in the discharge of its mandated service businesses, credit granting

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responsibilities concerning money, banking businesses and payment system operators.

and credit (NCBA, Sec 2).
While it is a government owned corporation Primary objectives of BSP
it enjoys fiscal and administrative 1. To maintain price stability conducive to a
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autonomy. balanced and sustainable growth of the

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Fiscal – relating to treasury as in the economy; and

monetary board. 2. To promote and maintain monetary
Administrative – being the regulatory stability and the convertibility of the peso
agency in accordance with its policy (NCBA, Sec. 3).
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directions.
Responsibilities of BSP (P-S-R)
Salient considerations on the creation of 1. To provide policy directions in the areas
Bangko Sentral ng Pilipinas of money, banking, and credit.
2. To supervise bank operations.

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 3. To exercise regulatory and examination injunction unless there is convincing proof
powers over quasi-banking operations of that the action of the BSP is plainly arbitrary
non-bank financial institutions, money (NCBA, Sec. 25)
service businesses, credit granting b. Place a bank under receivership or
businesses and payment system operators. liquidation (NCBA, Sec. 30)
c. Initiate criminal prosecution of erring
Primary objectives of BSP officers of banks.
1. To maintain price stability conducive to a 9. Extends discounts, loans and advances to
balanced and sustainable growth of the banking institutions in order to influence
economy; and the volume of credit consistent with
2. To promote and maintain monetary objective of price stability.
stability and the convertibility of the peso
(NCBA, Sec. 3). Note: When availing of the loan facilities of
the BSP, private banks assign to BSP their
Functions of the BSP receivables including the collaterals

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Functions of BSP (BRAGS-CHoBE)
Monetary Board (MB)

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1. Banker of the government – the BSP shall

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be the official depository of the Monetary Board
Government and shall represent it in all It is the body through which the powers and

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monetary fund dealings (NCBA, Secs. 110- functions of the BSP are exercised (NCBA,
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116). Sec 6).
2. Custodian of Reserves (NCBA, Secs. 64- Powers and functions of the Monetary
66, 94, 103) Board (RASBI)
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3. Financial Advisor of the government 1. Issue Rules and regulations it considers

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(NCBA, Secs. 123-124) – Under Article VII, necessary for the effective discharge of the
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Sec. 20 of the 1987 Constitution, the responsibilities and exercise of its powers.
President may contract or guarantee 2. Direct the management, operations, and
foreign loans but with the prior concurrence Administration of the BSP, reorganize its
of the Monetary Board. personnel, and issue such rules and
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4. Government agent (NCBA, Secs. 117- regulations as it may deem necessary or

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122) convenient for this purpose.

5. Source of credit (NCBA, Secs. 61-63, 81- 3. Establish a human resource management
89, 109) System.
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6. Issuer of Currency (NCBA, Sec. 49-60) 4. Adopt an annual Budget for and
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7. Clearing channel or House; especially authorize such expenditures by the BSP as

where the PCHC does not operate (NCBA, are in the interest of the effective
Sec. 102) administration and operations of the BSP in
8. Supervisor of the Banking system (NCBA, accordance with applicable laws and
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Sec. 25) – shall include the power to: regulations.

a. Examine, which power extends to 5. Indemnify its members and other officials
enterprises wholly or majority-owned or of the BSP, including personnel of the
controlled by the bank (GBL, Sec. 7); this departments performing supervision and
power may not be restrained by a writ of examination functions against all costs and

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 expenses reasonably incurred by such c. direct and supervise the operations and
persons in connection with any civil or internal administration of the Bangko
criminal action (NCBA, Sec 15). Sentral. The Governor may delegate certain
of his administrative responsibilities to
Composition of the Monetary Board other officers subject to such rules and
The MB shall be composed of 7 members regulations as the Monetary Board may
appointed by the President with a 6-year prescribe;
term.No member of the MB may be d. appoint and fix the remunerations and
reappointed more than once(NCBA, Sec. 6). other emoluments of personnel below the
Members rank of a department head, as well as to
1. The BSP Governor or his designated impose disciplinary measures upon
alternate (a deputy governor); personnel of the Bangko Sentral.
2. A Cabinet member to be designated by e. render opinions, decisions, or rulings,
the President or his designated alternate which shall be final and executory until
(an undersecretary in his department); reversed or modified by the Monetary

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3. 5 members from the private sector Board, on matters regarding application or
Qualifications enforcement of pertinent banking laws.

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1. Citizenship- natural-born citizens of the f. exercise such other powers as may be
Philippines vested in him by the Monetary Board.

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2. Age GR: at least 35 years old
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XPN: Governor must be at least 40 years Liabilities of the members of the Monetary
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old; Board
3. Of good moral character Members of the Monetary Board, officials,
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4. Of unquestionable integrity examiners, and employees of the BSP who:

5. Of known probity and patriotism; 1. Willfully violate RA 7653;
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6. With recognized competence in social 2. Are guilty of negligence, abuses or acts of

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and economic disciplines (NCBA, Sec. 8). malfeasance or misfeasance; or

3. Fail to exercise extraordinary diligence in
Powers of the Governor the performance of his duties
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Powers of the Governor Shall be held liable for any loss or injury
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The Governor shall be the chief executive suffered by the BSP or other banking
officer of the Bangko Sentral. His powers institutions as a result of such violation,
and duties shall be to: (PEDARE) negligence, abuse, malfeasance,
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a. prepare the agenda for the meetings of misfeasance or failure to exercise

extraordinary diligence (NCBA, Sec 16).
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the Monetary Board and to submit for the

consideration of the Board the policies and
measures which he believes to be necessary The BSP and bank in distress
to carry out the purposes and provisions of In case of a distressed bank, the BSP
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this Act; appoints a conservator or receiver for

b. execute and administer the policies and closure of the bank.
measures approved by the Monetary Illiquidity
Board; This occurs when the bank is not liquid. It
means that the bank cannot meet its

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 current liabilities. It is handled by bank (First Philippine International Bank v.
conservatorship. CA, G.R. No. 115849, Jan. 24, 1996).
Liquidity Powers of a conservator do not extend to
It is the ability of an asset to be converted the revocation of valid and perfected
into cash. An entity is liquid when it is able contracts
to pay its liabilities when they fall due. The powers of a conservator cannot extend
Insolvency to post facto repudiation of valid and
This occurs when the actual market value of perfected transactions. Thus, the law
assets is insufficient to pay its liabilities, not merely gives the conservator power to
considering capital stock and surplus which revoke contracts that are deemed to be
are not liabilities for such purpose. An entity defective- void, voidable, unenforceable or
is insolvent when it is unable to meet rescissible. Hence, the conservator merely
current and long-term obligations. It is takes the place of the bank’s board (First
handled by receivership or closure. Philippine International Bank v. CA,
The duration of conservatorship shall not supra.).

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exceed 1 year (NCBA, Sec. 29)
2. Closure

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1. Conservatorship Grounds for closure of a bank or a quasi-
Conservator bank

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One appointed if the bank is in the state of 1. Cash Flow test - Inability to pay liabilities
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illiquidity or the bank fails or refuses to as they become due in the ordinary course
maintain a state of liquidity adequate to of business (NCBA, Sec. 30 [a]).
protect its depositors and creditors. The 2. Balance sheet test – Insufficiency of
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bank still has more assets than its liabilities realizable assets to meet its liabilities
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but its assets are not liquid or not in cash (NCBA, Sec 30 [b]).
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thus it cannot pay its obligation when it falls 3. Inability to continue business without
due. The bank, not the BSP, pays for fees. involving probable losses to its depositors
Powers of a conservator (CARe BEAr) and creditors (NCBA, Sec 30 [c]).
1. Collect all monies and debts due to the 4. Willful violation of a cease and desist
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said bank order under Section 37 that has become

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2. To take charge of the Assets, liabilities, final, involving acts or transactions which
and the management thereof amount to fraud or a dissipation of the
3. REorganize, the management thereof assets (NCBA, Sec 30 [d]).
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4. And such other powers as the monetary 5. Notification to the BSP or public
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Board deems necessary announcement of a bank holiday (GBL, Sec

5. Exercise all powers necessary to restore 53).
its viability, with the power to overrule or 6. Suspension of payment of its deposit
revoke the actions of the previous liabilities continuously for more than 30
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management and board of directors of the days (GBL, Sec 53).

bank or quasi-bank 7. Persisting in conducting its business in an
6. To bring court actions to Assail or unsafe or unsound manner (GBL, Sec 56).
Repudiate contracts entered into by the
Close now-hear later doctrine

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 The doctrine is founded on practical and greater than its assets. The Court has no
legal considerations to obviate unwarranted authority to appoint a receiver for a bank if
dissipation of the bank’s assets and as a the latter will function as such under BSP
valid exercise of police power to protect law. The power to appoint belongs to BSP.
the depositors, creditors, stockholders, and NOTE: For banks, the receiver would be the
the general public. The law does not Philippine Deposit Insurance Corporation;
contemplate prior notice and hearing for quasi-banks, it could be any person of
before the bank may be directed to stop recognized competence in banking or
operations and placed under receivership finance (NCBA, Sec. 30).
(Central Bank of the Philippines v. CA, G.R. Duties of a receiver
No. 76118 Mar. 30, 1993). The receiver shall: (IAN-WiDE)
Swift, adequate and determined actions 1. Immediately gather and take charge of all
must be taken against financially distressed the assets and liabilities of the institution;
and mismanaged banks by government 2. Administer the same for the benefit of
agencies lest the public faith in the banking the creditors, and exercise the general

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system deteriorate to the prejudice of the powers of a receiver under the Revised
national economy (Vivas v. The Monetary Rules of Court;

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Board of the Bangko Sentral ng Pilipinas,
G.R. No. 191424, August 07, 2013). 3. Not, with the exception of administrative

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expenditures, pay or commit any act that
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BSP may order the closure of the bank even will involve the transfer or disposition
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without prior hearing. BSP may rely on the of any asset of the institution: Provided that
report of either the conservator, receiver or the receiver may deposit or place the funds
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the head of the supervising and examining of the institution in non-speculative

department. It is not required to conduct a investments;
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thorough audit of the bank before ordering 4. Within 90 days from the take-over, the
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its closure. The "close now, hear later’’ receiver shall determine whether the
doctrine justifies BSP in ordering bank institution may be rehabilitated or
closures even without prior hearing. Thus, otherwise placed in such a condition that it
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injunction does not lie against BSP in the may be permitted to resume business with
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exercise of the power and function. A safety to its depositors and creditors and
contrary rule may lead to dissipation of the general public; and
assets and trigger bank run. Judicial review 5. If the receiver determines that the
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comes only after action of the Monetary institution cannot be rehabilitated or

Board if the same was attended with bad permitted to resume business, then the
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faith and grave abuse of discretion (BSP v. Monetary Board shall notify in writing the
Valenzuela, G.R. No. 184778, October 2, board of directors of the institution of its
2009). findings and direct the receiver to proceed
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with liquidation of the institution (NCBA,

3. Receivership Sec 30).
Receiver
One appointed if the bank is already The insolvency of a bank and the
insolvent which means that its liabilities are consequent appointment of a receiver

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 restrict the bank's capacity to act, especially 4. Liquidation
in relation to its property. Liquidation of a bank
Where upon the insolvency of a bank, a Acts of liquidation are those which
receiver therefor is appointed, the assets of constitute the conversion of the assets of
the bank pass beyond its control into the the banking institution to money or the
possession and control of the receiver sale, assignment or disposition of the same
whose duty it is to administer the assets for to creditors and other parties for the
the benefit of the creditors of the bank. purpose of paying debts of such institution
Thus, the appointment of a receiver (Banco Filipino v. Central Bank, G.R. No.
operates to suspend the authority of the 70054, December 11, 1991).
bank and of its directors and officers over Liquidator of a distressed bank can
its property and effects, such authority prosecute and defend suits against the
being reposed in the receiver (Villanueva v. bank
CA, G.R. No. 114870, May 26, 1995). Prosecution of suits, collection and the
The receiver is not authorized to transact foreclosure of mortgages against debtors of

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business in connection with the bank’s the bank by the liquidator are among the
assets and property

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usual and ordinary transactions pertaining

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A receiver can only perform acts of to the administration of a bank (Banco
administration and not acts of dominion. Filipino v. Central Bank, ibid).

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The receiver cannot approve an option to
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purchase real property. He has only the
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Liquidation proceedings may be carried out
authority to administer the same for the with or without tax clearance
benefit of its creditors (Abacus Real Estate Unlike in a voluntary dissolution of a
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Development Center, Inc. v. Manila Banking corporation under the Corporation Code,
Corp, G.R. No. 162270, Apr. 6, 2005).
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BSP can liquidate the bank with or without

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tax clearance (GBL).

Nature of order of receivership Banks under liquidation by the PDIC as
While resolutions of the Monetary Board ordered by the Monetary Board constitute a
forbidding a bank to do business on account special case governed by the special rules
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of a condition of insolvency and appointing and procedures provided under Section 30

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a receiver to take charge of the bank’s of the New Central Bank Act, which does
assets or determining whether the bank not require that a tax clearance be secured
may be rehabilitated or should be from the BIR. Only a final tax return is
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liquidated are by law “final and executory.” required to satisfy the interest of the BIR in
However, they can be set aside by the court
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the liquidation of a closed bank. It is

on one specific ground - if the action is unreasonable for the liquidation court to
plainly arbitrary and made in bad faith. Such require that a tax clearance be first secured
contention can be asserted as an as a condition for the approval of project of
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affirmative defense or a counterclaim in the distribution of a bank under liquidation

proceeding for assistance in liquidation (PDIC v. BIR, G.R. No. 172892, June 13,
(Salud v. Central Bank, G.R. No. L-17630, 2013).
August 19, 1986).

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 Filing of the claims against the insolvent
bank
GR: All claims against the insolvent bank
should be filed in the liquidation
proceeding. It is not necessary that a claim
be initially disputed in a court or agency
before it is filed with the liquidation court
(Ong v. CA, G.R. No. 112830, Feb. 1, 1996).
XPN: Where it is the bank that files a claim
against another person or legal entity, the
claim should be filed in the regular courts.
Reason: The judicial liquidation is intended
to provide an orderly mode for payment of
all claims. In addition, such petition is not in
the nature of a disputed claim against the

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bank.

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Liquidation proceedings may be carried out
with or without tax clearance

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Unlike in a voluntary dissolution of a
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corporation under the Corporation Code,
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BSP can liquidate the bank with or without
tax clearance (GBL).
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Banks under liquidation by the PDIC as

ordered by the Monetary Board constitute a
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special case governed by the special rules

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and procedures provided under Section 30

of the New Central Bank Act, which does
not require that a tax clearance be secured
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from the BIR. Only a final tax return is

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required to satisfy the interest of the BIR in

the liquidation of a closed bank. It is
unreasonable for the liquidation court to
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require that a tax clearance be first secured

as a condition for the approval of project of
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distribution of a bank under liquidation

(PDIC v. BIR, G.R. No. 172892, June 13,
2013).
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 Conservatorship vs.
Receivership vs. Liquidation
CONSERVATORSHIP RECEIVERSHIP LIQUIDATION

Grounds 1. Continuing inability 1. Inability to pay liabilities 1. Insolvency

2. Unwillingness to as they fall due e.g: bank 2. Continuance
maintain condition of run, rumors, etc. would involve
liquidity 2. Assets are less than its probable loss to its
liabilities creditors
3. Cannot continue 3. Bank cannot be
business rehabilitated
4. without causing
damage;

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5. Violation of a cease and
desist order

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6. “Bank holiday” for more
than 30 days (NCBA, Sec.

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Effects 1. Juridical personality is 1. Juridical personality is 1. Juridical
retained. retained personality is
2. Perfected transactions 2. Suspension of operation retained.
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cannot be repudiated /stoppage of business 2. Perfected

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3. Assets deemed in transactions cannot

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custodia legis(Domingo v. be repudiated

NLRC, G.R. 156761,
October 17, 2006)
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When After 1 year Within 90 days if When debts have

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terminated liquidation is decided been paid in

upon; accordance with the
Until the bank is viable liquidation plan
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again, if rehabilitation is
decided upon
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