ANTI MONEY LAUNDERING LAW

4. Jewelry dealers in precious metals, who, as a business,

Policy of the law trade in precious metals, for transactions in excess of One
To protect and preserve the integrity and confidentiality million pesos (P1,000,000.00);
of bank accounts and to ensure that the Philippines shall 5.Jewelry dealers in precious stones, who, as a business,
not be used as a money laundering site for the proceeds trade in precious stones, for transactions in
of any unlawful activity. 6.Company service providers which, as a business,
2.To pursue the States foreign policy to extend provide any of the following services to third parties:
cooperation in transnational investigation and a) Acting as a formation agent of juridical persons;
prosecutions of persons involved in money laundering b) Acting as (or arranging for another person to act as) a
activities wherever committed director or corporate secretary of a company, a partner
(RA 9160,Sec.2). of a partnership, or a similar position in relation to other
juridical persons;
Covered institutions c) Providing a registered office, business address or
NOTE: Covered "Institutions was changed to Covered accommodation, correspondence or administrative
"Persons" under RA 10365. address for a company, a partnership or any other legal
person or arrangement; and
Covered persons, natural or juridical, refer to (RA 10365, d)Acting as (or arranging for another person to act as) a
Sec. 1, amending RA 9160,Sec. 3[a]): nominee shareholder for another person; and

1.Banks,non-banks,quasi-banks,trust entities, foreign The term "covered persons" shall exclude lawyers and
exchange dealers, pawnshops, money changers, accountants
remittance and transfer companies and other similar These persons must be acting as independent legal
entities and all other persons and their subsidiaries and professionals in relation to information concerning their
affiliates supervised or regulated by the Bangko Sentral clients or where disclosure of information would
ng Pilipinas (BSP): compromise client confidences or the attorney-client
relationship 3[al).
2.Insurance companies, pre-need companies and all
other persons supervised or regulated by the Insurance
Commission (IC); Requisites for exclusion:
1.They must be acting as independent legal professionals;
3.(i) Securities dealers, brokers, salesmen, investment 2.Authorized to practice in the Philippines; and
houses and other similar persons managing securities or 3. Continue to be subject to the provisions of their
rendering services as investment agent, adviser, or respective codes of conduct and/or professional
consultant, responsibility or any of its amendments (lbid).
(a)Mutual funds, close-end investment companies, NOTE: Lawyers and accountants acting as independent
common trust funds, and other similar persons, and legal professionals are not required to report covered and
()Other entities administering or otherwise dealing in suspicious transactions it the relevant information was
currency, commodities or financial derivatives based obtained in circumstances where they are subject to
thereon, valuable objects ,cash substitutes and other professional secrecy or legal professional privilege.
similar monetary instruments or property supervised or
regulated by the Securities and Exchange Commission Obligations of covered institutions
(SEC); Section 9 of RA 9160
1.Customer Identification-Covered institutions shall:
Covered persons, natural or juridical, refer to (RA 10365, a) Establish and record the true identity of its clients
Sec. 1,amending RA 9160,Sec. 3[a]): based on official documents.
b)Maintain a system of verifying the true identity of their 2 Foreign Currency Deposit Act or RA No. 6426,as
clients ;and amended,
c)In case of corporate clients, require a system of 3.General Banking Lovis or RA 8791;and
verifying their legal existence and organizational 4.Other similar laws.
structure, as well as the authority and ldentification of all
persons purporting to act on their behalf. Prohibited communications
Officers and employees of covered institution shall no:
NOTE: The BSP may conduct annual testing solely limited 1.Communicating, directly or indirectly, in any manner or
to the determination of the existence and true ldentity of by an means, to any person, the tact that a covered or
the owners of such accounts. suspicious transaction report was made, the contents
Anonymous accounts, accounts under fictitious thereof, or any other information in relation thereof.
names, and al other similar accounts shall no absolutely
prohibited. Peso and foreign currency non-checking NOTE: It the reporting is done by any person in the
numbered accounts shat be allowed. regular performance of his duties in good administrative,
criminal or civil proceedings shall lo against sold person,
2. Record Keeping-All records of all transactions of whether or not such reporting results in any criminal
covered institutions shall be maintained and stored for prosecution under this Act of any other law (Safe harbor
five (5) years from the date of transactions. provision).

NOTE: With respect to closed accounts, the records shall 2.Communicating,dirocthy or indirectly, in any manner or
be preserved and safety stored for at least five (5) years by any moans, to any person or entity, the mode ,the fact
from the dates when they wore closed. that a covered or suspicious transaction has been
reported or is about to be reported,t he contents of
3. Reporting of Covered and Suspicious Transactions. thereof or any other information in relation thereto.
3.Pubishing or airing in any manner or form by the mass
GR: Covered persons shall report to the AMLC all covered media, electronic similar devices.
transactions and suspicious transactions within five (5) In case of violation of these prohibitions, the concerned
working days from occurrence thereof. officer and employee of the covered person and media
shall be held criminally liable (Sec.7,RA 10365 amending
XPN: The AMLC proscribes a different period not Sec. 9,RA 9160)
exceeding fifteen (15)working days.
Covered Transaction
NOTE: Should a transaction be determined to be both a
covered transaction and a suspicious transaction, the A transaction in cash or other equivalent monetary
covered Institution shall be required to report the same instrument involving a total amount in excess of 500,000
as a suspicious transaction. within ! banking day (RA 9160, Sec 3)

No Mobility In reporting covered and suspicious Suspicious transactions

transactions.
A transaction with covered institutions, regardless of the
When reporting covered or suspicious transactions to the amounts involved, where any of the following
AMLC, covered Institutions and their officers and circumstances exist:
employees shall not be deemed to have violated: 1. There is no underlying legal or trade obligation,
purpose or economic justification;
1.The Law on Secrecy of Bank Deposits or Ra 1405, as
amended; 2. The client is not properly identified;
 the Anti-Money Laundering Council (AMLC),falls to do so
3.The amount involved is not commensurate with the (Sec. 4,RA 10365,amending Sec.4,RA 9160).
business or financial capacity of the client;
Anti-Money Laundering Council(AMLC)
4.Taking into account all known circumstances, it may be The AMLC shall be composed of:
perceived that the client's transaction is structured in 1.The Governor of the Bangko Sentral ng Pilipinas (BSP)as
order to avoid being the subject of reporting Chairman:
requirements under the Act: 2.The Commissioner of the Insurance Commission as
member and
5.Any circumstances relating to the transaction which is 3.The Chairman of the Securities and Exchange
observed to deviate from the profile of the client and/or Commission (SEC) as member (RA 9160,as amended by
the client's past transactions with the covered institution; RA 9194, Sec. 7).

6. The transactions is in a way related to an unlawful The AMLC shall act unanimously in the discharge of its
activity or offense under this Act that is about to be, is functions as defined hereunder.
being or has been committed;or
1.To require and received covered or suspicious
7.Any transactions that is simitar or analogous to any of transaction reports from covered institutions;
the foregoing (RA 9160 as amended by RA 9194, Sec.3(b- 2.To issue orders addressed to the appropriate
1D. Supervising Authority or the covered institutions to
determine the true Identity of the owner of any
How money laundering is committed? monetary instrument or property subject of a covered
transaction or suspicious transaction report or request
Money laundering is committed by any person who, for assistance from a foreign State, or believed by the
knowing that any monetary instrument or property Council, on the basis for substantial evidence, to be ,in
represents, involves, or relates to the proceeds of any whole or in part, wherever located, representing,
unlawful activity: involving, or related to directly or indirectly, in any
manner or by any means, the proceeds of an unlawful
a. Transacts sold monetary instrument or property: activity.
b. Converts, transfers, disposes of. moves, acquires, 3. To institute civil forfeiture proceedings and all other
possesses or uses sold monetary instrument or property: remedial proceedings through the Office of the Solicitor
c. Conceals or disguises the true nature, source ,location, General;
disposition, movement or ownership of or rights with 4. To cause the of complaints with the Department of
respect to said monetary instrument or property: Justice or the Ombudsman for the prosecution of money
d. Attempts or conspires to commit money laundering laundering offenses;
offenses referred to in paragraphs (a). (b) or (c); 5.To investigate suspicious transactions and covered
c. Aids, abouts, assists in or counsels the commission of transactions deemed suspicious after an investigation by
the money laundering offenses referred to in paragraphs AMLC. money laundering activities and other violations
(a). (b) or (c) above; and of this Act:
f. Performs or falls to perform any act as a result of which 6.To apply before the Court of Appeals, ex parte ,for the
he the offense of money laundering referred to in freezing of any monetary instrument or property alleged
paragraphs (a), (b) or (c) above. to be laundered, proceeds from, or Instrumental used in
Money laundering is also committed by any covered or intended for use in any unlawful activity as detained
person who, knowing that a covered or suspicious in Section 30) hereof;
transaction is required under this Act to be reported to 7.To implement such measures as may be necessary and
justice under this Act to counteract money laundering:
8.To receive and take action in respect of, any request laundering activities (Republic v.Cabrini Green & Ramos,
from foreign states for assistance in their own anti- G.R. No. 154522, May 5, 2006).
money laundering operations provided in this Act;
The AMLC shall act unanimously in the discharge of iss Probable cause under AMLA
functions as defined hereunder:
9. To develop educational programs on the pernicious It includes such facts and circumstances which would
effects of money laundering ,the methods and lead a reasonably discreet, prudent or cautious man to
techniques used in the money laundering, the viable believe that an unlawful activity and/or a money
means of preventing money laundering and the effective laundering offense is about to be, is being or has been
ways of prosecuting and punishing offenders; committed and that the account or any monetary
10. To enlist the assistance of any branch, department, instrument or property subject thereof sought to be
bureau, office ,agency .or instrumentality of the frozen is in any way related to sold
government including government-owned and- unlawful activity and/or money laundering offense (R.A.
controlled corporations, in undertaking any and all anti- 9194, as amended, Rule 10.2).
money laundering operations, which may include the use
of is personnel, facilities and resources for the more Freezing of monetary instrument or property
resolute prevention, detection, and investigation of
money laundering offenses and prosecution of offenders; Remedy of the person whose account has been frozen
11.To impose administrative sanctions for the violation of A person whose account has been frozen may file a
laws, rules, regulations, and orders and resolutions motion to lt the freeze order and the court must resolve
issued pursuant thereof this motion before the expiration of the freeze order.
12. To require the Land Registration Authority and all its
Registries of Deeds to submit to the AMLC, reports on all NOTE: No court shall lssue a temporary restraining order
real estate transactions involving an amount in excess of or a writ of injunction against any freeze order, except the
Five hundred thousand pesos (P500,000.00)within Supreme Court(Sea,8,RA 10365,amonding RA 9160)
fifteen (15) days from the date of registration of the
transaction, in a form to be prescribed by the AMLC. The Nature of a Freeze Order
AMLC may also require the Land Registration Authority A freeze order is an extraordinary and interim relief
and all its Registries of Deeds to submit copies of relevant issued by the Court of Appeals to prevent the dissipation,
documents of all real estate transactions.(Sec.6,RA 10355 removal, or disposal of properties that are suspected to
amending Sec.7,RA 9160). be the proceeds of, or related to unlawful activities as
defined in Sec.30) of R.A. 9160,as amended. The primary
Freezing of monetary instrument or property objective of a freeze order is to temporarily preserve
monetary instruments or property that are in any way
When may freeze order be issued. related to an unlawful activity or money laundering, by
1. The AMLC ,thru the OSG, shall file a verified ex parte preventing the owner from utilizing them during the
(one party) petition before the Court of Appeals. duration of the freeze order.(Ligot v.Republic 692 SCRA
2.The CA should determine if probable cause codsts that 509)
any monetary instrument or property is in any way
related to an unlawful activity as defined in Section 3() Freezing of monetary instrument or property
hereof.
NOTE: It is solely the CA which has the authority to issue Effectivity of Freeze Order
a freeze order. It also has the exclusive jurisdiction to As a rule, the effectivity of a freeze order may be
extend existing freeze orders previously issued by the extended by the Court of Appeals for a period not
AMLC vis-a-vis accounts and deposits related to money- excluding 6
months. However, should it become completely
necessary for the Republic to further extend the
The New Central Bank
duration of the freeze order, it should file the necessary
motion before the expiration of the six month period and At brief
explain the reason or reasons for its failure to file an Bangko Sentral ng Pilipinas (BSP)
appropriate case and justify the period of extension It is the State's central monetary authority. It is the
sought. government agency charged with the responsibility of
While Sec. 10 of AMLA uses specific language to administering the monetary, banking and credit system
authorize an ex parte application for the provisional relief of the country and is granted the power of supervision
for a freeze and examination over bank and non-bank financial
order, nothing in Soo.11 similarly authorizes an ex parte institutions performing quasi-banking functions,
application for the issuance of an order to examine bank including savings and loan associations (Busuego v. CA,
accounts. Consequently, courts revolving the application G.R. No. L-48955, June 30, 1987).
for inquiry order cannot simply take AMLC's word that Bangko Sentral ng Pilipinas as an institution
probable cause exists that the deposits or investments The BSP is a government-owned corporation which
are related to an unlawful activity. enjoys fiscal and administrative autonomy.

Authority to inquire into bank deposits State policy

The AMLC may inquire into or examine any particular Policy of the state with respect to the creation of the
deposit or investment ,including related accounts, with Bangko Sentral ng Pilipinas.
any banking institution or non-bank financial institution The State shall maintain a central monetary authority
provided: that shall function and operate as an independent and
1. It is upon order of any competent court; accountable body corporate in the discharge of its
2.Based on an ex parte application; and mandated responsibilities concerning money, banking
3.In cases of violations of this Act, when it has been and credit (NCBA, Sec 2).
estabished that there is probable cause that the deposits While it is a government owned corporation it enjoys
or investments, including related accounts involved, are fiscal and administrative autonomy.
related to an unlawful activity as defined in Section 3( Fiscal - relating to treasury as in the monetary board.
hereof or a money laundering offense under Section 4 Administrative - being the regulatory agency in
hereof. accordance with its policy directions

NOTE: The inquiry conducted by the AMLC is not violated Salient considerations on the creation of Bangko
of The Law on Secrecy of Bank Deposits or Ra 1405, 8s Sentral no Pilipinas
amended ;Foreign Currency Deposit Act or RA No. 6426, 1. It is established as an independent central
as amended; General Banking Laws or RA 8791;and other monetary authority.
similar laws. 2. Its capital shall be P50,000,000,000,
P200,000,000,000 to be fully subscribed by the Philippine
The Court of Appeals shall act on the application to Government.
inquire into or examine any deposit or investment with 3. The increase in capitalization shall be funded
any banking institution or non-bank financial institution solely from the declared dividends of the Bangko Sentral
within twenty-four (24) hours from fling of the in favor of the National Government.
application. 4. Any declared dividends of the Bangko Sentral in
favor of the National Government shall be deposited in a
special account in the General Fund, and earmarked for
the payment of Bangko Sentral's increase in Constitution, the President may contract or guarantee
capitalization. foreign loans but with the prior concurrence of the
Such payment shall be released and disbursed Monetary Board.
immediately and shall continue until the increase in 1. Government agent (NCBA, Secs. 117-122)
capitalization is fully paid.
2. Source of credit (NCBA, Secs. 61-63, 81-89, 109)
Responsibility and primary objective of the BSP 3. Issuer of Currency (NCBA, Sec. 49-60)
1. To provide policy directions in the areas of 4. Clearing channel or House; especially where the
money, banking, and credit. PCHC does not operate (NCBA, Sec. 102)
2. To supervise bank operations. 5. Supervisor of the Banking system (NCBA, Sec. 25)
3. To exercise regulatory and examination powers shall include the power to:
over quasi-banking operations of non-bank financial Cont'd
institutions, money service businesses, credit granting a. Examine, which power extends to enterprises wholly
businesses and payment system operators. or majority-owned or controlled by the bank (GBL, Sec.
7); this power may not be restrained by a writ of
Primary obiectives. of BSP injunction unless there is convincing proof that the action
1. To maintain price stability conducive to a of the BSP is plainly arbitrary (NCBA, Sec. 25)
balanced and sustainable growth of the economy; and b. Place a bank under receivership or liquidation (NCBA,
2. To promote and maintain monetary stability and Sec. 30)
the convertibility of the peso (NCBA, Sec. 3). c. Initiate criminal prosecution of erring officers of banks
9. Extends discounts, loans and advances to banking
Responsibilities of BSP (P.S-R) institutions in order to influence the volume of credit
1. To provide policy directions in the areas of consistent with objective of price stability.
money, banking, and credit. Note: When availing of the loan facilities of the BSP,
2. To supervise bank operations. private banks assign to BS their receivables including the
3. To exercise regulatory and examination powers collaterals
over quasi-banking operations of non-bank financial
institutions, money service businesses, credit granting Monetary Board (MB)
businesses and payment system operators. It is the body through which the powers and functions of
the BSP are exercised (NCBA, Sec 6).
Primary objectives of BSP
1. To maintain price stability conducive to a Powers and functions of the Monetary Board (RASBI)
balanced and sustainable growth of the economy; and 1. Issue Rules and regulations it considers
2. To promote and maintain monetary stability and necessary for the effective discharge of the
the convertibility of the peso (NCBA, Sec. 3). responsibilities and exercise of its powers.
2. Direct the management, operations, and
Functions of the BSP Administration of the BS, reorganize its personnel, and
issue such rules and regulations as it may deem
Eunctions of BSP (BRAGS-CHOBE. necessary or convenient for this purpose.
1. Banker of the government - the BSP shall be the 3. Establish a human resource management
official depository of the Government and shall represent System.
it in all monetary fund dealings (NCBA, Secs. 110- 116). 4. Adopt an annual Budget for and authorize such
2. Custodian of Reserves (NCBA, Secs. 64-66, 94, expenditures by the BS as are in the interest of the
103) effective administration and operations of the BSP in
3. Financial Advisor of the government (NCBA, Secs. accordance with applicable laws and regulations.
123-124) - Under Article VII, Sec. 20 of the 1987
5. Indemnity its members and other officials of the other officers subject to such rules and regulations as the
BS, including personnel of the departments performing Monetary Board may prescribe;
supervision and examination functions against all costs 4. appoint and fix the remunerations and other
and expenses reasonably incurred by such persons in emoluments of personnel below the rank of a
connection with any civil or criminal action (NCBA, Sec department head, as well as to impose disciplinary
15). measures upon personnel of the Bangko Sentral.
5. render opinions, decisions, or rulings, which shall
be final and executory until reversed or modified by the
Composition of the Monetary Board Monetary Board, on matters regarding application or
The MB shall be composed of 7 members appointed by enforcement of pertinent banking laws.
the President with a 6-year term.No member of the MB 6. exercise such other powers as may be vested in
may be reappointed more than once(NCBA, Sec. 6). him by the Monetary Board.

Members Liabilities of the members of the Monetary Board

1. The BSP Governor or his designated alternate (a Members of the Monetary Board, officials, examiners,
deputy governor); and employees of the BSP who:
2. A Cabinet member to be designated by the 1. Wilfully violate RA 7653;
President or his designated alternate (an undersecretary 2. Are guilty of negligence, abuses or acts of
in his department); malfeasance or misfeasance; or
3. 5 members from the private sector 3. Fail to exercise extraordinary diligence in the
performance of his duties
Qualifications
1. Citizenship- natural-born citizens of the Shall be held liable for any loss or injury suffered by the
Philippines BS or other banking institutions as a result of such
2. Age GR: at least 35 years old violation, negligence, abuse, malfeasance, misfeasance
XPN: Governor must be at least 40 years old; or failure to exercise extraordinary diligence (NCBA,
3. Of good moral character Sec 16).
4. Of unquestionable integrity
5. Of known probity and patriotism; The BSP and bank in distress
6. With recognized competence in social and In case of a distressed bank, the BSP appoints a
economic disciplines (NCBA, Sec. 8). conservator or receiver for closure of the bank.

Powers of the Governor Illiquidity

The Governor shall be the chief executive officer of the This occurs when the bank is not liquid. It means that the
Bangko Sentral. His powers and duties shall be to: bank cannot meet its current liabilities. It is handled by
(PEDARE) conservatorship.
1. prepare the agenda for the meetings of the
Monetary Board and to submit for the consideration of Liquidity
the Board the policies and measures which he believes to It is the ability of an asset to be converted into cash. An
be necessary to carry out the purposes and provisions of entity is liquid when it is able to pay its liabilities when
this Act; they fall due.
2. execute and administer the policies and
measures approved by the Monetary Board; Insolvency
3. direct and supervise the operations and internal This occurs when the actual market value of assets is
administration of the Bangko Sentral. The Governor may insufficient to pay its liabilities, not considering capital
delegate certain of his administrative responsibilities to stock and surplus which are not liabilities for such
purpose. An entity is insolvent when it is unable to meet Sec. 30 [a]).
current and long-term obligations. It is handled by 2. Balance sheet test - Insufficiency of realizable
receivership or closure. assets to meet its liabilities (NCBA, Sec 30 (b]).
The duration of conservatorship shall not exceed 1 year 3. Inability to continue business without involving
(NCBA probable losses to its depositors and creditors (NCBA, Sec
Sec. 29) 30 [c]).
4. Willful violation of a cease and desist order under
1. Conservatorship Section 37 that has become final, involving acts or
Conservator transactions which amount to fraud or a dissipation of
One appointed if the bank is in the state of illiquidity or the assets (NCBA, Sec 30 (d)).
the bank fails or refuses to maintain a state of liquidity 5. Notification to the BSP or public announcement
adequate to protect its depositors and creditors. The of a bank holiday (GBL, Sec 53).
bank still has more assets than its liabilities but its assets 6. Suspension of payment of its deposit liabilities
are not liquid or not in cash thus it cannot pay its continuously for more than 30 days (GBL, Sec 53).
obligation when it falls due. The bank, not the BSP, pays 7. Persisting in conducting its business in an unsafe
for fees. or unsound manner (GBL, Sec 56).

Powers of a conservator Close now hear later doctrine

1. Collect all monies and debts due to the said ban The doctrine is founded on practical and legal
2. To take charge of the Assets, liabilities, and the considerations to obviate unwarranted dissipation of the
management thereof bank's assets and as a valid exercise of police power to
3. REorganize, the management thereof protect the depositors, creditors, stockholders, and the
4. And such other powers as the monetary Board general public. The law does not contemplate prior
deems necessary notice and hearing before the bank may be directed to
5. Exercise all powers necessary to restore its stop operations and placed under receivership (Central
viability, with the power to overrule or revoke the actions Bank of the Philippines v. CA, G.R. No. 76118 Mar. 30,
of the previous management and board of directors of 1993).
the bank or quasi-bank Swift, adequate and determined actions must be taken
6. To bring court actions to Assail or Repudiate contracts against financially distressed and mismanaged banks by
entered into by the bank (First Philippine International government agencies lest the public faith in the banking
Bank v. CA, G.R. No. 115849, Jan. 24, 1996). system deteriorate to the prejudice of the national
economy (Vivas v. The Monetary Board of the Bangko
Powers of a conservator do not extend to the revocation Sentral ng Pilipinas, G.R. No. 191424, August 07, 2013).
of valid and perfected contracts. VONVE
The powers of a conservator cannot extend to post facto BSP may order the closure of the bank even without prior
repudiation of valid and perfected transactions. Thus, the hearing. BSP may rely on the report of either the
law merely gives the conservator power to revoke conservator, receiver or the head of the supervising and
contracts that are deemed to be defective- void, examining department. It is not required to conduct a
voidable, unenforceable or rescissible. Hence, the thorough audit of the bank before ordering its closure.
conservator merely takes the place of the bank's board The "close now, hear later" doctrine justifies BSP in
(First Philippine International Bank v. CA, supra.). ordering bank closures even without prior hearing. Thus,
injunction does not lie against BSP in the exercise of the
2. Closure power and function. A contrary rule may lead to
Grounds for closure of a bank or a quasi-bank dissipation of assets and trigger bank run. Judicial review
1. Cash Flow test - Inability to pay liabilities as they comes only after action of the Monetary Board if the
become due in the ordinary course of business (NCBA, same was attended with bad faith and grave abuse of
discretion (BSP v. Valenzuela, G.R. No. 184778, October control into the possession and control of the receiver
2, 2009). whose duty it is to administer the assets for the benefit
of the creditors of the bank. Thus, the appointment of a
3. Receivership receiver operates to suspend the authority of the bank
and of its directors and officers over its property and
Receiver effects, such authority being reposed in the receiver
One appointed if the bank is already insolvent which (Villanueva v. CA, G.R. No.
means that its liabilities are greater than its assets. The 114870, May 26, 1995).
Court has no authority to appoint a receiver for a bank if
the latter will function as such under BSP law. The power The receiver is not authorized to transact business in
to appoint belongs to BSP. connection with the bank's assets and property
NOTE: For banks, the receiver would be the Philippine A receiver can only perform acts of administration and
Deposit Insurance Corporation; for quasi-banks, it could not acts of dominion. The receiver cannot approve an
be any person of recognized competence in banking or option to purchase real property. He has only the
finance (NCBA, Sec. 30). authority to administer the same for the benefit of its
creditors (Abacus Real Estate Development Center, Inc. v.
Duties of a receiver Manila Banking Corp, G.R. No. 162270, Apr. 6, 2005)
The receiver shall: (IAN-WIDE) Nature of order of receivership
While resolutions of the Monetary Board forbidding a
1. Immediately gather and take charge of all the bank to do business on account of a condition of
assets and liabilities of the institution; insolvency and appointing a receiver to take charge of the
2. Administer the same for the benefit of the bank's assets or determining whether the bank may be
creditors and exercise the general powers of a receiver rehabilitated or should be liquidated are by law "final and
under the Revised Rules of Court; executory." However, they can be set aside by the court
3. Not, with the exception of administrative on one specific ground - if the action is plainly arbitrary
expenditures, pay or commit any act that will involve the and made in bad faith. Such contention can be asserted
transfer or disposition of any asset of the institution: as an affirmative defense or a counterclaim in the
Provided that the receiver may deposit or place the funds proceeding for assistance in liquidation (Salud v.
of the institution in non-speculative investments; Central Bank, G.R. No. L-17630, August 19, 1986).
4. Within 90 days from the take-over, the receiver
shall determine whether the institution may be 4. Liquidation
rehabilitated or otherwise placed in such a condition that
it may be permitted to resume business with safety to its Liquidation of a bank
depositors and creditors and the general public; and Acts of liquidation are those which constitute the
5. If the receiver determines that the institution conversion of the assets of the banking institution to
cannot be rehabilitated or permitted to resume business, money or the sale, assignment or disposition of the same
then the Monetary Board shall notify in writing the board to creditors and other parties for the purpose of paying
of directors of the institution of its findings and direct the debts of such institution (Banco Filipino v.
receiver to proceed with liquidation of the institution Central Bank, G.R. No. 70054, December 11, 1991).
(NCBA, Sec 30).
Liquidator of a distressed bank can prosecute and
The insolvency of a bank and the consequent defend suits against the bank
appointment of a receiver restrict the bank's capacity to Prosecution of suits, collection and the foreclosure of
act, especially in relation to its property. mortgages against debtors of the bank by the liquidator
Where upon the insolvency of a bank, a receiver therefor are among the usual and ordinary transactions pertaining
is appointed, the assets of the bank pass beyond its
to the administration of a bank (Banco Filipino v. Central Section 30 of the New Central Bank Act, which does not
Bank, ibid). require that a tax clearance be secured from the BIR. Only
a final tax return is required to satisfy the interest of the
Liquidation proceedings may be carried out with or BIR in the liquidation of a closed bank. It is unreasonable
without tax clearance for the liquidation court to require that a tax clearance be
Unlike in a voluntary dissolution of a corporation under first secured as a condition for the approval of project of
the Corporation Code, BSP can liquidate the bank with or distribution of a bank under liquidation (PDIC v. BIR, G.R.
without tax clearance (GBL). No. 172892, June 13, 2013).
Banks under liquidation by the PDIC as ordered by the
Monetary Board constitute a special case governed by Conservatorship vs. Receivership vs. Liquidation
the special rules and procedures provided under
Section 30 of the New Central Bank Act, which does not Conversation Receiversh Liquidati
require that a tax clearance be secured from the BIR. Only ip on
Grounds 1. Continuin 1. Inability 1.
a final tax return is required to satisfy the interest of the
g inability to pay Insolvency
BIR in the liquidation of a closed bank. It is unreasonable 2. Unwilling liabilities as due e.g:
for the liquidation court to require that a tax clearance be ness to they fall bank run,
first secured as a condition for the approval of project of maintain rumors,
distribution of a bank under liquidation (PDIC v. BIR, G.R. condition 2. Assets etc.
No. 172892, June 13, 2013). of are less
liquidity than its 2.
liabilities Continuan
Filing of the claims against the insolvent bank
3. Cannot ce would
continue involve
GR: All claims against the insolvent bank should be filed business probable
in the liquidation proceeding. It is not necessary that a loss to its
claim be initially disputed in a court or agency before it is 4. without creditors
filed with the liquidation court (Ong v. CA G.R. No. causing
112830, Feb. 1, 1996). damage; 3. Bank
cannot be
5. Violation rehabilitat
XPN: Where it is the bank that files a claim against ed
of a cease
another person or legal entity, the claim should be filed and desist
in the regular courts. order

Reason: The judicial liquidation is intended to provide an 6."Bank

orderly mode for payment of all claims. In addition, such holiday" for
more than
petition is not in the nature of a disputed claim against
30 days
the bank.
(NCBA, Sec.
30).
Liquidation proceedings may be carried out with or
without tax clearance Effects 1. Juridical 1. Juridical 1. Juridical
Unlike in a voluntary dissolution of a corporation under personality is personality personalit
the Corporation Code, BSP can liquidate the bank with or retained. is retained y is
retained
without tax clearance (GBL).
2. Perfected 2.
Banks under liquidation by the PDIC as ordered by the
transactions Suspension 2.
Monetary Board constitute a special case governed by cannot be of Perfected
the special rules and procedures provided under repudiated operation transactio
ns cannot
 /stoppage be • The PDIC is also authorized to conduct independent
retained. repudiate special examination of banks and may inquire into or
d examine deposit accounts of ailing banks in the event
3.Assets there is a finding of unsafe and unsound banking
deemed in
practices.
custodia
legis(Domin • Part of the financial strengthening measures for the
go v. NLRC, PDIC, on the other hand, include exemptior from
G.R. taxes and the authority to issue sovereign bonds,
156761, debentures and other debt issuances.
October 17, • The PDIC is an attached agency of the Department of
2006)
Finance.
When After 1 year Within 90 When
terminat days if debts
ed liquidation have been PDIC's overall mandate
is decided paid in ➢ PDIC exists to provide permanent and continuing
upon; accordanc deposit insurance coverage for the depositing public
e with the to help promote public confidence and stability in the
liquidation
economy.
plan
➢ it ensures prompt payment of insured deposits,
Until the
bank is exercises complementary supervision of banks,
viable adopts responsive resolution methods, and applies
again, efficient management of receivership and liquidation
ifrehabilitati functions.
on is
decided Functions of PDIC
upon
• Deposit Insurer
• Co-regulator of Banks
• Receiver and Liquidator of Closed Banks
Philippine Deposit Insurance
Maximum Deposit Insurance Coverage (MDIC)
Corporation (PDIC)
Effective June 1, 2009, PDIC shall pay deposit insurance
on all valid deposits up to the Maximum Deposit
PDIC is a government instrumentality created in 1963 by Insurance Coverage of Php500,000, per depositor, of a
virtue of Republic Act 3591 to insure the deposits of all closed bank. Accounts maintained in the same right and
banks which are entitled to the benefits of insurance. capacity for a depositor's benefit, whether in his own
name or in the name of others, are covered by deposit
• The latest amendments to RA 3591 are contained in insurance.
RA 9576 signed into law on April 29, 2009. Deposits are considered valid upon the determination by
RA 9576 increased the maximum deposit insurance the PDIC, based on bank records, that the deposits were
coverage to P500,000.00. made with a corresponding inflow of cash.
• The new law also includes important provisions to PINAS
ensure that the PDIC remains financially and Under R.A. No. 9576, the PDIC may propose to adjust the
institutionally strong to fulfill its mandate under its MDIC, subject to the approval of the President of the
Charter. Philippines, in case of a condition that threatens the
to fulfill its monetary and financial stability of the banking system
• The PDIC now has the authority to determine which that may have systemic consequences.
deposit products are covered by insurance.
 PDIC Member Banks What are deposits?
The unpaid balance of money or its equivalent received
PDIC member banks include the following institutions by a bank in the usual course of business and for which it
authorized by the Bangko Sentral ng Pilipinas has given or is obliged to give credit to a commercial,
checking, savings, time or thrift account, or issued in
• (BSP) to perform banking functions in the Philippines: accordance with Bangko Sentra/ rules and regulations
Banks incorporated under Philippine laws, such as and other applicable laws, together with such other
commercial banks, savings banks, mortgage banks, obligations of a bank, which, consistent with banking
development banks, rural banks and cooperative banks usage and practices, the Board of Directors shall
and stock savings and loan associations. determine and prescribe by regulations to be deposit
• Domestic branches of foreign banks liabilities of the bank: Provided, That any obligation of a
bank which is payable at the office of the bank located
Insured Deposit outside of the Philippines shall NOT be a deposit for any
The term 'insured deposit means the amount due to any of the purposes of this Act or included as part of the total
bona fide depositor for legitimate deposits in an insured deposits or of insured deposit: Provided, further, That,
bank net of any obligation of the depositor to the insured subject to the approval of the Board of Directors, any
bank as of date of closure, but not to exceed insured bank which is incorporated under the laws of the
P500,000.00. Philippines which maintains a branch outside the
A joint account shall be insured separately from any Philippines may elect to include for insurance its deposit
individually -owned deposit account. obligations payable only at such branch. (Section 3(9) of
RA 3591 as amended by Section 2 of RA
Classification of insured deposits 9576)

By Deposit Type: Types of deposits are insured by PDIC

• Savings
• Special Savings Except for the exclusions stipulated in RA 9576, deposits
• Demand/ Checking of all commercial banks, savings and mortgage banks,
• Negotiable Order of Withdrawal (NOW) Certificate of rural banks, private development banks, cooperative
Time Deposits banks, savings and loan associations, as well as
branches and agencies in the Philippines of foreign
By Deposit Account: banks and all other corporations authorized to perform
• Single Account banking functions in the Philippines, are insured with
• Joint Account PDIC.
• Account "By'. "In Trust For' (ITF) or "For the Account As for Philippine banks with branches outside the
of (FAO) another person country, RA 9576 stipulates that subject to the approval
of the Board of Directors, any insured bank with branch
By Currency: outside the Philippines may elect to include for insurance
its deposit obligations payable at such branch.
• Philippine peso
• Foreign currencies considered as part of BSP's
Foreign currency deposits are also insured by PDIC
interational reserves
pursuant to RA 6426 ("An act instituting a foreign
currency deposit system in the Philippines, and for other
Are all banks members of PDIC?
purposes") and Central Bank (CB)
Membership of banks to PDIC is mandatory; hence, all
Circular No. 1389. Depositors may receive payment in the
operating banks are members of PDIC.
same currency in which the insured deposit is
denominated.
 trust funds) and approval of the Liquidation Court. The
schedule of payment beyond the P500.000.00 maximum
NOT covered by PDIC deposit insurance insurance shall be based on priorities set by law.
The following, whether denominated, documented,
recorded or booked as deposit by the bank, are excluded SECRECY OF BANK DEPOSITS
from PDIC deposit insurance (Section 4 (f) of the PDIC
Charter):
• Investment products such as bonds and
securities, trust accounts and other similar instruments Purpose
• Deposit accounts or transactions that:
o Are unfunded, fictitious or fraudulent The purposes of RA 1405 are:
o Constitute and/or emanate from unsafe and 1. Encourage deposit in banking institutions; and
unsound banking practice/s3 as determined by the 2. Discourage private hoarding so that banks may
PDIC, in consultation with the BSP, after due notice and lend such funds and assist in the economic development
hearing and publication of PDIC's cease & desist order of the country.
against such deposit accounts/transactions
• Are determined to be proceeds of an unlawful Prohibited acts
activity as defined in the Anti Money Laundering The following are the prohibited acts in RA 1405:
Act (Republic Act 9160, as amended) 1. Examination/inquiry/looking into all deposits of
whatever nature with banks or banking institutions in the
FAQ Philippines (including investment in bonds issued by the
What specific risks to a bank does PDIC cover? government) by any person,
PDIC covers only the risk of a bank closure ordered by the government official or office (RA 1405, Sec. 2).
Monetary Board. Thus, bank losses due to theft, fire, 2. Disclosure by any official or employee of any banking
closure by reason of strike or existence of public disorder, institution to any unauthorized person of any information
revolution or civil war, are not covered by PDIC. concerning said deposit (RA
1405, Sec. 3).
Can PDIC insurance coverage be increased by having
several accounts in the same name in an insured bank? Acts not covered by the prohibition
No. Deposit insurance coverage is not determined on a *Non-bank official or employee is not covered by the
per-account basis. The type of account (whether prohibition. Neither is disclosure by a bank official or
checking. savings, time or other form of deposit) has no employee of information about bank deposit in favor of
bearing on the amount of insurance coverage. a co-employee in the course of the performance of his
duties covered by the prohibition.
If the deposit account in a closed bank is more than
P500.000.00, what happens to the excess of the Question:
maximum amount of insured deposit? Manosa, a newspaper columnist, while making a
If the closed bank is not rehabilitated or taken over by deposit in a bank, overheard a pretty bank teller
another bank, amount in excess of the P500,000 informing a co-employee that Gigi, a well-known public
coverage can still be claimed upon the final liquidation of official, has just a few hundred pesos in her bank
the remaining assets of the closed bank. account and that her check will in all probability
bounce. Manosa wrote this information in his
The claim may be filed with the Liquidator of the closed newspaper column. Thus, Gigi filed a complaint with the
bank but payment of the said claim will depend on the City Fiscal of Manila for unlawfully disclosing
bank's available assets to settle its preferred claims information about her bank account.
(Government taxes, labor claims, secured credits and
a. Will the said suit prosper? Explain your answer. “Meaning of the phrase "of whatever nature and kind"

Answer: R.A. 1405 is no longer limited to deposits governed by the

a. NO. The suit will not prosper. It is clear as provided in law on loans giving rise to creditor-debtor relationship
section 3 of R.A. 1405 that it shall be unlawful for any but it covers fund of whatever nature so long as the bank
official or employee of a banking institution to disclose to may use and utilize it in authorized loans.
any person other than those mentioned in section two of
the said law any information concerning said deposits. Deposits in the context of the Secrecy of Philippine
Manosa, as a columnist, is not one of those persons currency deposits include deposits of whatever nature
contemplated under the law. and kind. They include funds deposited in the bank giving
Furthermore, he merely overheard what appeared to be rise to creditor-debtor relationship, as well as funds
a vague remark of the bank teller therefore is not in a invested in the bank like trust acconts (Ejercito v.
sense an inquiry or a disclosure. Sandiganbayan, G.R. No. 157294-95, November 30,
2006).
Question:
Manosa, a newspaper columnist, while making a The money deposited under the trust agreement (*Trust
deposit in a bank, overheard a pretty bank teller account*) is intended not merely to remain with the bank
informing a co-employee that Gigi, a well-known public but to be invested by it elsewhere. To hold that this type
official, has just a few hundred pesos in her bank of account is not protected by R.A. 1405 would
account and that her check will in all probability encourage private hoarding of funds that could
bounce. Manosa wrote this information in his otherwise be invested by banks in other ventures,
newspaper column. Thus, Gigi filed a complaint with the contrary to the policy behind the law (Ejercito v.
City Fiscal of Manila for unlawfully disclosing Sandiganbayan, G.R. No. 157294-95, November 30,
information about her bank account. 2006).

b. Supposing that Gigi is charged with unlawfully NOTE: Despite such pronouncement that trust funds are
acquiring wealth under R.A. 1379 and that the fiscal considered deposits, trust funds remain not covered by
issued a subpoena duces tecum for the records of the PDIC.
bank account of Gigi. May Gigi validly oppose the said
issuance on the ground that the same violated the law on Confidentiality granted by RA 1405 does NOT extend to
secrecy of bank deposits? Explain your answer. Letters of Credit and Trust Receipts

Answer: The confidentiality granted by the law does NOT extend

b. NO. Gigi cannot oppose the said issuance because the to other documents and records like L/C's, TR's, bank
law provides as an exception from the coverage of R.A. drafts and promissory notes
1405 that upon order of a competent court in cases of
anti-graft and corruption cases, the examination of the (Opinion of the Secretary of Justice No. 5, Series of
deposits may be allowed. 1982; Opinion of the Secretary of Justice No. 126, Series
of 1989).
Deposits discovered
1. All deposits of whatever nature with banks or Exceptions
banking institutions found in the Philippines. Other Instances:
2. Investments in bonds issued by the Philippine H. The PDIC and the BSP may examine deposit
government, its branches, and institutions (R.A. accounts and all information related to them in case of a
1405, Sec. 2). finding of unsafe or unsound banking practices (RA 3591,
3. Trust accounts as amended, Sec. 8)
 currency deposits are not subject to court order except
I. With court order: for violation of the anti-money laundering law (GS/S v.
a. In cases of unexplained wealth under Sec. 8 of the Anti- Court of Appeals GR 189206, June 8, 2011, in Divina,
Graft and Corrupt Practices Act (PNB V. 2014).
Gancayco, L-18343, September 30, 1965)
b. In cases filed by the Ombudsman and upon the latter's
authority to examine and have access to bank accounts Exceptions to secrecy of foreign currency deposits
and records (Marquez v. Desierto, GR 138569, September XPNs:
11, 2003) 1. The depositor has given his written permission.
J. Without court order: If the AMLC determines that a 2. Where the funds deposited in a joint foreign
particular deposit or investment with any banki currency savings account belonged exclusively to one of
institution is related to the following (HK-MADS): the depositors and were held in trust for him by the other
1. Hijacking, depositor and the other depositor unilaterally closed the
2. Kidnapping. joint account and transferred the funds to her personal
3. Murder, account, the latter cannot invoke the exemption from
4. Destructive Arson, and court processes under RA 6426 because she is not the
5. Violation of the Dangerous Drugs Act. owner of the deposit in the account. Consequently, the
6. Acts of Terrorism or in violation of Human depositor who owned the funds can have her enjoined
Security Act. from making withdrawals from her personal account (Van
k. In case the law is repealed, superseded or modified by Twest v. Court of Appeals, G.R. No. 106235, February 10,
any law to the contrary. 1994).
3. A father who sued his daughter for illegally
Foreign currency deposits withdrawing funds from his foreign currency deposit and
transferring to another bank in the name of her sister, can
Foreign currency deposits are covered by R.A. 6426 inquire into the deposit of the sister, because the money
otherwise known as the "Foreign Currency Deposits Act deposited belongs to him (China Banking Corp. v. CA, G.R.
No. 140687, December 18, 2006).
Secrecy of foreign currency deposits 4. The exemption from court process of foreign
currency deposits under RA 6426 cannot be invoked by a
GR: Foreign currency deposits cannot be inquired or foreign transient who raped a minor, escaped and was
looked into. All foreign currency deposits are absolutely held liable for damages to the victim. The garnishment of
confidential (RA 6426, Sec. 8). his foreign currency deposit should be allowed to prevent
an injustice and for equitable grounds. The law was
RA 6426 is a special law designed especially for foreign enacted to encourage foreign currency deposit and not
currency deposits in the Philippines. RA 1405 which to benefit a wrongdoer (Salvacion v. Central Bank of the
covers all bank deposits in the Philippines is the general Philippines, G 94723, August 21, 1997).
law which does not nullify the special law on foreign 5. The Commissioner of Internal Revenue is authorized to
currency deposits. inquire into bank deposits of the following:
The surety which issued a bond to secure the obligation • A decedent to determine his estate; and
of the principal debtor cannot inquire into the foreign • Any taxpayer who has filed for an application for
currency deposits of the debtor even if its purpose is to compromise of his tax liability
determine whether or not the loan proceeds were used • A specific taxpayer upon request for tax
for the purpose specified in the surety agreement. The information from a foreign tax authority pursuant to an
foreign currency deposits cannot be examined without international convention or agreement on tax matters to
the written consent of the depositor. The subpoena which the Philippines is a party (NIRC, Sec. 6 [T).
issued by the bank should be quashed because foreign
6. AMLC may inquire into any deposit with a bank or NOTE: A transaction involving not a loan but purchase of
financial institution in case of violation of RA 9160 if there receivables at a discount within the purview of investing
is probable cause that it is related to an unlawful activity reinvesting, or trading in securities which an investment
company may perform is not banking.
(RA 9160, Sec. 11).
Extent ot ownershlo of torelon inchividunks and non-
7. Upon ex parte application by a law enforcer authorized bank corporations in a bank.
by the Anti-Terrorism Council, the justices of the CA Foreign individuals may own or control up to forty
designated as special court to handle anti-terrorism cases percent (409%) of the voting stock of a domestic bank
may authorize the examination of deposits in a financial (GBL, Sec 2).
institution upon finding probable cause of the
commission of terrorism or conspiracy to commit NOTE: RA 10641 alows the entry of more foreign banks
in the country. Moreover, this allows foreign banks to
terrorism (RA 9372, Sec. 27-28).
buy as much as 100 percent of a local bank, amending
8. PDIC and BSP may examine deposit accounts and all Section 2 of Republic Act No. 7721 (law liberalizing
information related to them in case of a finding of unsafe operations of foreign banks in the Phippines),
or unsound banking practices (RA 3591, as amended, Sec.
9. AMLC can investigate (a) any property of funds related Extent ofownership.of a.non-banking_corporation.In a
to financing terrorism; (b) property or funds of any bank.
person if there is probable cause to believe he is
GR: A corporation may only own forty percent (409) of
committing or attempting or conspiring to commit
the bank
terrorism or financing terrorism (RA 10158, Sec 10). XPNs:
1. A universal bank can own up to 100% of a thrift
bank:
2. A corporation whose shares are listed in the
THE GENERAL BANKING LAW stock exchange can own up to 60% of the bank;
NOTE: This privilege can be exercised only once.
Policy of the law
3. If the corporation is in existence for 10 years it
The State recognizes the vital role of banks in providing
can own up to 60% of the bank; and NOTE: This
an environment conducive to the sustained
privilege can be exercised only once.
development of the national economy and the fiduciary
4. Under Foreign Bank Liberalization Law (RA
nature of banking that requires high standards of
7721), the Monetary Board may authorize
integrity and performance.
foreign banks to operate in the Philippines.
In furtherance thereol, the State shall promote and
maintain a stable and efficient banking and financial
Classifications of banks
system that is globally competitive, dynamic and
responsive to the demands of a developing economy (RA
1. Universal banks - Primarily governed by the GBL.
8791, Sec 2).
They can exercise the powers of an investment
house and invest in non-allied enterprises and
have the highest capitalization.
Definition and classification of banks (1/4)
2. Commercial banks - Ordinary banks governed by
the GBL which have a lower capitalization
Bank
requirement than universal banks and can
A bank is an entity engaged in the landing of tunds
neither exercise the powers of an investment
obtained from the public in the form of deposits.
house nor invest in non-allied enterprises.
Elements for an entity to be considered doing business
3. Thrift banks - These are:
as a bank
1. Savings and mortgage banks:
1. The ontity is engaged in the landing of funds
2. Stock savings and loan assoclations; and
2. Funds obtained from the public with at least 20
3. Private development banks, which are primarily
depositors
governed by the Thrift Banks Act (RA 7906).
3. Funds are in the form of deposits
4. Rural banks - These are mandated to make
needed credit available and readily accessible in
 the rural areas on reasonable terms and which certificates of assignment and similar instruments with
are primarily govemed by the Rural Banks Act of recourse, and repurchase agreements,
1992 (RA 7353).
5. Cooperative banks - Barks whose majority shares Corporate powers
are owned and controlled by cooperatives 1. All powers provided by the corporation code,
primarily to provide financial and credit services Fike issuance of stocks and entering into merger
to cooperatives. it shall include cooperative rural or consolidation with other corporation or
banks. They are governed primarily by the banks.
Cooperative Code (RA 6938). 2. It can only acquire real property when it is
6. Islamic banks - Barks whose business dealings needed for business, in settlement of debt
and activities are subject to the baakc principles incurred in the course of the business, property
and rulings of Islamic Shari' a, such as the Al as may be mortgaged to it to secure a debt in
Amanah Islamic investment Bank of the good faith and property it may acquire during
Phippines which was created by RA 6848 exocution sale to satisty judgment. Banks cannot
7. Other classification of banks as determined by acquire real property in settiement of a civil
the Monetary Board of the BSP liablity arising from crime.
3. A universal and commercial bank can both invest
Distinction of banks from other forms in equity but only universal bank is allowed to
invest in equity of non-allied enterprises.
Quasi-bank.
These are entities engaged in the assignment with Banking powers
recourse or acceptance of deposit substitutes for
purposes of re-lending or purchasing of receivables Certificate of Authority to Register
borrowing of funds through the issuance, endorsement
or and other obligations (GBL, Sec 4). Unlike banks, quasi- This is a requirement before a bank may rogister or
banks do not accept deposits. Neither are funds obtained amend their articles of incorporation with SEC. It is issued
insured with the PDIC. by the Monetary Board (GBL, Sec. 14). The following
must be proven by the bank to satisfy the Monetary
Trust entities. Board and in order for the latter to grant such certificate:
These are entities engaged in trust business that act as a 1. All requirements of existing laws and regulations
trustee or administer any trust or hold property in trust to engage in the business for which the applicant
or on deposit for the use, benefit, or behalf of others is proposed to be incorporated have been
/GBL, Sec. 79). A bank does not act as a trustee. complied with;
2. That the public interest and economic
Financial Intermediaries. conditions, both general and local, justify the
Persons or entities whose principal functions include the authorization; and
lending, investing, or placement of funds on pieces of 3. The amount of capital, the financing,
evidence of indebtedness or equity deposited with them, organization, direction and administration, as
acquired by them or otherwise coursed through them, well as the integrity and responsibility of the
either for their own account or for the account of others, organizers and administrators reasonably assure
e.g., pawnshops. the safety of deposits and the public interest
(Abid).
Deposit substitutes.
It is an alternalive form of obtaining tunds from the General powers and functions of a bank
public, other than deposts, trough the issuance,
endorsement, or acceptance of debt instruments. for the 1. Accepting drafts and issuing letters of credit
2. Discounting and negotiating promissory notes,
borrower's own account, for the purpose of relanding or
drafts, bils of exchange and other instrument
purchasing of evidencing debt
3. Accepting or creating demand deposits,
receivables and other obligations. These instruments receiving other types of deposit and deposit
may include, but need not be limited to, banker's substitutes
acceptances, promissory notes, participations,
 4. Buying and selling FOREX and gold or silver or related group of persons with the bank (GBL,
bullion Sec 13).
5. Acquiring marketable bonds and other debt
securtes
6. Extending credit Instances when a bank is prohibited from declaring
7. Determination of bonds and other debt dividends
securities eligible for investment including
maturities and aggregate amount of such 1. Its clearing account with the Bangko Sentral is
investment, subject to such rules as the overdrawn
Monetary Board may promulgate. 2. It is deficient in the required liquidity floor for
8. And all other powers as may be necessary to government deposits for five or more
carry on the business of a bank (GBL, Sec. 29). consecutive days
3. It does not comply with the liquidity
standards/ratios prescribed by the Bangko
Rules regarding the Issuance of stocks by a bank. Sentral for purposes of determining funds
available for dividend decaration
1. The Monetary Board may prescribe rules and 4. It has committed a major violation as may be
regulations on the types of stock a bank may determined by the Bangko Sentral (GBL, Sec. 57).
issue.
2. Banks shal issue par value stocks only (GBL, Soc. Independent directors In banks.
9).
3. GR: No bank shall purchase or acquire shares of Independent director - a person other than an officer or
its own capital stock or accept its own shares as employee of the bank, its subsidiaries or affiliates or
a security for a Joan. related interests.
XPN: When authorized by the Monetary Board. NOTE: Irrespective of the number of members of the
NOTE: That in every case the stock so purchased or board, two (2) of them shall be independent directors
acquired shall, within six months from the time of its
purchase or acquisition, be sold or disposed of at a public Degree of diligence required of banks in handling
or private sale (GBL Sec. 10). deposits
4. Foreign individuals and non-bank corporations
may own or control up to 40%% of the voting Banks are expected to exercise extraordinary diligence in
stock of a domestic bank. This rule shall apply to its dealings with depositors.
Filipinos and domestic non-bank corporations. Consequently, the diligence required of banks is more
NOTE: The percentage of foreign-owned voting stocks in than that of a Roman pater famitias or a good father of a
a bank shall be determined by the citizenship of the family (PCI Bank v Balcameda G.R.
individual stockholders in that bank. The citizenship of No. 158143, September 21, 2011)
the corporation which is a stockholder in a bark shall
follow the chizenship of the controlling stockholders of Nature of bank funds and bank deposits
the corporation, irrespoctive of the place of
incorporation (GBL, Sec 17). Depositfunction of banks.
5. Slockholdings of individuals related to each other The function of the bank to receive a thing, primarily
within the fourth degree of consanguinity or money, from depositors with the obligation of safely
affinity, legitimate or common-law, shal be keeping it and returning the same.
considered tamily groups or related interests Kinds of deposits between bank andlite depositors.
and must be fully disclosed in all transactions by 1. As debtor-creditor:
such corporations or rolated groups of persons 2. Specisl Kinds of Deposits
with the bank (GBL, Sec 12). a) Demand deposits - all those liabiles of banks
6. Two ar more corporations owned or controlled which are denominated in the Philippine
by the same family group or same group of currency and are subject to payment in legal
persons (Corporate Stockholdings) shall be tender upon demand by reprosentation of
considered rotated interests and must be fully checks.
disclosed in all transactions by such corporations b) Savings deposits - the most common type of
deposit and is usually evidenced by a passbook.
NOTE: The requiremenk of presentation of passbooks is Net worth
required by the Manual of Regulations for Barks. A bank The total of the unimpaired paid-in surplus, retained
is negligent it it allows the withdrawal without requiring earnings and undivided peofit, net of valuation reserves
the presentation of passbook (BP v. CA, GR and other adjustments as may be required by the BSP
No. 112392, Fabruary 29, 2000). (GBL, Sec. 24.2)
c) Nogobabile ordor of withdrawal account
(NOW/A) - Interest-bearing deposit accounts Risked based capital
that combine the payable on demand feature of The minimum ratio prescribed by the Monetary Board
checks and investment feature of saving which the net worth of a bank must bear to its total risk
accounts. assets which may include contingent accounts.
d) Time deposit - an account with fixed term: NOTE: The Monetary Board may require or suspend
payment of which cannot be logaily required complance with such ratio whenever necessary for a
within such a specified number of days. maximum period of one year and that such ratio shall be
3. As trustee-trustor: applied uniformly to banks of the same category
Trust account - a savings account, established under a (GBL,Sec. 34).
trust agreement containing funds administered by the
bank for the benefit of the trustor or another person or Effect of non-compliance with the ratio.
persons. 1. Distribution of net profits may be limited or
4. As agent-principat prohibited and MB may require that part or all of
a) Deposit of checks for collaction the net profes be used to increase the capital
b) Deposit for specific purpose accounts of the bank unhi the minimum
c) Depost for safekeeping requicement has been met; or
2. GR: Acquisition of major assats and making af
Stipulation on interests new investments may be restricted.
XPN: Purchases of evidence of indebtedness
Rules.on stipulation of interests. guaranteed by the Government can be exempted
from restrictions (GBL Sec. 341
OLD RULE
1. Central Bank Circular 416 - 12% per annum in cases of Single borrower's limit (1/2)
a) Loans;
b) Forbearance of money, goods and credits; and Limitations imposed upon banks with respect to its loan
c) Judgment involving such loan or forbearance, in funstion.
the absence of express agreement as to such 1. GR. Single borrowers limit - The total amount of loans,
rate of credit accommodations and guarantees that the bank
Interest could grunt should at no time exceed 25% of the bank's
2. Interest accruing from unpaid interest- interest due net worth (GBL, Sec 35.1, amended by BSP Circular 779
shall earn interest from the time it is judicially demanded s. 2013).
although the obligation may be silent upon this point. (2002 Bar. 2015 Bar)
XPN
NEW RULE a) As the Monetary Board may otherwise prescribe
Through Circular No. 799, the Monetary Board declared for reasons of national interest
that effective July 1, 2013 the rate of interest for the loan b) Deposits of rural banks with GOCC financial
or forbearance of any money, goods or credits and the institutions like LBP, DBP, and PNB.
rate allowed in judgments, in the absence of an express
contract as to such rate of interest, shall be 8% per 3. The total amount of loans, credit
annum (Section 1, Circular 799, Series of 2013 amending accommodations and guarantees preserbed in
Secton 2 of Circufar No. 905, Series of 1982). (a) may be increased by an additional 10% of the
This means that if the parties fail to state in writing the net worth of such bank provided that additional
interest payable on any of the transactions mentioned, kablities are adequately secured by trust receipt,
or on account of a court judgment involving a related shipping documents, warehouse receipts and
money other simiar documents which must be fully
covered by an insurance (GBL. Sec. 35.2).
Ratio of net worth to total risk assets
 3. Loans and other credt accommodatons secured GiR: No director or officer of any bank shall, directly or
by REM shall not exceed 75% of the appraised indienchy, for himself or as the representative or agent
value of the real estatis security plus 60% of the of othors:
appraised value of the insured improvements 1. borrow from such bank;
(GBL, Sec. 37) CMintangible peoperty such as 2. become a guarantor, endorser or surety for loans
patents, trademarks, etc. shall not exceed 75% of from such banks to others: or
the appraised value of the security (GBL, Sec. 38). 3. in any manner be an obligor or incur any
contractual lablity to the bank (GBL, Sec. 36).
4. Loans being contractual, the period of payment
may be subject to stipulation by the parties. In XPN: There is a written approval of the majority of all the
the case of amortization, the amortization directors of the bank, excluding the director concerned.
schedule has no fixed period as it depends on the
project to be financed such that if it was capable Requirements that must be complied with in case of
of raising revenues, it should be at least once a DOSRI accounts
year with a grace period of 3 years *the project
to be financed is not that profitable which could 1. Procedural requirement - Loan must be
be deferred up to 5 years if the project was not approved by the majority of all the directors not
capable of raising revenues (GBL, Sec. 44). including the director concemned. CB approval is
5. Loans granted to DOSRI not necessary, however, there is a need to
a) Director inform them prior to the transaction. Loan trust
b) Officer be entered in the books of the corporation (GBL,
c) Stockholder, having at least 1% ownership over Sec. 36).
the bank 2. Substansive requirement - Loan must not exceed
d) Related Interests, such as DOS's spouses, their the paid in contribution and unencumbered
relatives within the first degree whether by deposits. (Not to exceed 15% of the portfolio or
consanguinity or affinity partnership whereby 100% of the net worth, whichever is lower) (GBL,
DOS is a partner or a corporation where DOS Sec. 36 (4]).
owns at last 20%
Exclusions from the aforesaid loan limitations. In the case of Go vs. Bangko Sentral ng Pilipinas, G.R. No.
Non-risk loans, such as: 178428, October 23, 2009, it was held that the
1. Loans secured by obligations of the BSP or the requirements are:
Philippine Govermment a) Approval requirement - which means that the
2. Loans futy guaranteed by the Goverment DOSRI transaction must be approved by at least
3. Loans covered by assignment of deposits majorty of the directors excluding the director
maintained in the lending bank and held in the concerned.
Phippines b) Reportorial requirement - means that the
4. Loans, credit accommodations and acceptances transaction must be recorder in the books of the
under letters of credit to the exent covered by bank and reported to the BSP; and
margin deposits
5. Other loans or cred accommodations which the 3. Celing requirement • which means that the
MB may specity as non-risk items. amount of the loan shall not exceed the book
valued of the paid in contribution and the
Joint and solidary signature (JSS) practice amount of the unancumbered deposits.
It is a common banking practice requiring as an
additional securty for a loan granted to a corporation the Three different offerses are committed by those who fail
joint and solidary signature of a major stockholder or to observe the board ap
corporate officer of the borrowing corporation (Security
Bank v. Cuenca, G.R. No. 138544, October 3, 20001. Effect of non-compliance with the foregoing
requirement
Restrictions to DOSRI
Three restrictions imposed by law on DOSRI transactions Violation of DOSRLisa-crime_.and cacrios_with.it penal
sanction
It does not make the transaction void but only renders
the responsible officers and direciors criminally liable
(Republic v. Sandiganbayan, G.R. No. 166859, 169203,
180702, April 12, 2011)
A loan transaction within the ambit of the DOSRI
regulation could also be the subject of Estafa under
Article 315(1Xb) of the Revised Penal Code (Soriano V
People of the Philippines, G.R. No. 162338, February
1. 2010, Del Castillo, J.).

Transactions covered by the DOSRIregulation.

The transactions covered are loan and credt
accommodation. Not being a loan, the celing will not
apply to loase and saie. However, it should stil comply
with the procedumi requirement.

Arms-length cule.
It provides that any dealings of a bank with any of its
DOSRI shall be upon terms not less favorable to the bank
than those offered to others (GBL, Sec. 36 (2]).

The bank may terminate the loan and domand

immediato payment if the borrowor used the funds for
purposes other than that agreed upon.

If the bank finds that the borrower has not employed the
funds borrowed for the purpose agreed upon between
the bank and the borrower, the bank may terminate the
loan and demand immediate payment (Banco de Oro v.
Bayuga, G.R. No. L-49568, Oct.
17, 1979).