Banking Laws Summary
Banking Laws Summary
BANKING LAWS
The New Central Bank Act
(R.A. No. 7653)
Felipe M. Medalla
Executive Management Services– a collective term for all departments/offices directly reporting to the
Monetary Board or to the Governor
•Functional Sectors
• Monetary Stability Sector- mainly responsible for the operations/activities related to monetary policy
formulation and implementation
• Supervision and Examination Sector– mainly responsible for the regulation of banks and other
BSP-supervised financial institutions
• Resource Management Sector– mainly responsible for the management of human, financial, and
physical resources of the Bank
• Security Plant Complex– responsible for the production of Philippine currency, security documents,
and commemorative medals and medallions
HOW BSP HANDLE BANKS IN DISTRESS
A. CONSERVATORSHIP
-a bank or quasi-bank is
1. in a state of continuing inability or
2. unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors
and creditors
Action of the Monetary Board
• The Monetary Board may appoint a conservator (who shall be
competent and knowledgeable in bank operations and management)
for a period not exceeding 1 year
i. take charge of the assets, liabilities and management of the bank or
quasi-bank in question
ii. reorganize the management thereof
iii. collect all monies and debts due and
iv. exercise all powers necessary to restore its viability, including the
power to overrule or revoke the actions of the previous management
and board of directors
Termination of Conservatorship
(a) When MB is satisfied that the institution can continue to operate on
its own and the conservatorship is no longer necessary; or
(b) When MB determines that the continuance in business of the
institution would involve probable loss to its depositors or creditors, in
which case proceedings for receivership and liquidation shall be pursued.
CLOSURE
-prohibit a bank or quasi-bank from doing business in the Philippines
Second: Approval by the court of the distribution plan prepared by the duly
appointed liquidator
(a) order disposes of the issue of how much property is available for disposal
(b) payment of all allowed claims
DISTINGUISH BETWEEN LIQUIDATION AND REHABILITATION
Sec. 29 of the Central Bank Act does not contemplate prior notice and hearing before a bank
is placed under receivership. It is enough that such action is made the subject of a
subsequent judicial review. The “Close now and hear later” scheme under the Act is for the
purpose of protecting the depositors, creditors, stockholders and the general public.
(Central Bank vs. CA, 220 SCRA 536)
LIQUIDATION REHABILITATION
Is a winding up of settling with creditors Connotes a reopening or reorganization. It
and debtors. It is the winding up of a contemplates a continuance of corporate
corporation so that assets are distributed life and activities in an effort to restore
to those entitled to receive them. It is the and reinstate the
process of reducing assets to cash,
corporation to its former position of
discharging liabilities and dividing surplus
successful operation and solvency.
or loss.
Effects of Liquidation of a Bank or a Quasi-Bank
(a) After payment of the cost of the proceedings, including reasonable
expenses and fees of the receiver to be allowed by the court, the receiver
shall pay the debts of such institution, under order of the court, in
accordance with the rules on concurrence and preference of credit as
provided in the Civil Code. (Sec. 31)
(b) All revenues and earnings realized by the receiver in winding up the
affairs and administering the assets of any bank or quasi-bank within the
purview of this Act shall be used to pay the costs, fees and expenses
mentioned in the preceding section, salaries of such personnel whose
employment is rendered necessary in the discharge of the liquidation
together with the other additional expenses caused thereby. (Sec.3)
The balance of revenues and earnings, after the payment of all said expenses,
shall form part of the assets available for payment of creditors.
A liquidation proceeding is a single proceeding.
Although the claims are litigated in the same proceeding, the treatment is
individual. And the Order issued relative to a particular claim applies only to
said claim, leaving the other claims unaffected, as each claim is considered
separate and distinct from the others.
The exclusive jurisdiction of the liquidation courts pertains only to the
adjudication of claims against the bank, and does not cover the reverse
situation where it is the bank which files a claim against another person.
(Manalo vs. CA, 366 SCRA 752)
The actions of the MB under Sec. 29 (appointing a conservator) and Sec. 30
(closing a bank) are final and executory and may not be restrained or set aside
by a court
EXCEPT:
on petition for certiorari on the ground of excess of jurisdiction or with
grave abuse of discretion filed by stockholders of record representing the
majority of the capital stock within 10 days from receipt by the BOD of the
institution of the order directing conservatorship, receivership or
liquidation.
Note that the twin requirement of majority of stockholders and filing
within 10 days should be observed or else action will be dismissed.
A bank ordered closed by the MB retains its juridical personality which can
sue or be sued through its liquidator.
HOW THE BSP HANDLES EXCHANGE CRISIS
A.LEGAL TENDER POWER – when the currency is offered
in payment of a debt, public or private, the same must be
accepted.
All notes and coins issued by the Bangko Sentral shall be
fully guaranteed by the Government of the Republic of
the Philippines and shall be legal tender in the Philippines
for all debts, both public and private.
However: unless otherwise fixed by the Monetary Board, coins shall
be legal tender in amountsnot exceeding Fifty pesos P50 for
denominations of 25 centavos and above, andin amounts not
exceeding P20 for denominations of 10 centavos or less. (Sec. 52)
• Aside from the SBL, banks have continuously undergone stress tests in
order to see how possible write-downs could affect their stability.
• Latest data (2014) showed universal and commercial banks have improved
their capital ratios as of end-September last year even under the stricter
Basel 3.
The new rules also raised limits for loans granted to subsidiaries and affiliates
undertaking PDP/PIP infrastructure projects.
However, banks must still subject loan applications from related parties to
internal risk management protocols to comply with rules introduced by the BSP
last December to prevent so-called sweetheart deals that could imperil their
financial position. In particular, banks and other supervised financial entities
must adopt “strong” measures to protect their financial footing before granting
any loan, such as a pledge over the borrower’s shares, assignment over the
borrower’s assets, assignment of all revenues and cash waterfall accounts, and
assignment of project documents.
The BSP also fine-tuned definitions of “related interest” and “affiliates” in
order to calibrate prudential requirements with the perceived degree of
potential abuse.
• Aside from the SBL, banks have continuously undergone stress tests in
order to see how possible write-downs could affect their stability.
• Latest data (2014) showed universal and commercial banks have improved
their capital ratios as of end-September last year even under the stricter
Basel 3.
The new rules also raised limits for loans granted to subsidiaries and affiliates
undertaking PDP/PIP infrastructure projects.
However, banks must still subject loan applications from related parties to
internal risk management protocols to comply with rules introduced by the BSP
last December to prevent so-called sweetheart deals that could imperil their
financial position. In particular, banks and other supervised financial entities
must adopt “strong” measures to protect their financial footing before granting
any loan, such as a pledge over the borrower’s shares, assignment over the
borrower’s assets, assignment of all revenues and cash waterfall accounts, and
assignment of project documents.
The BSP also fine-tuned definitions of “related interest” and “affiliates” in
order to calibrate prudential requirements with the perceived degree of
potential abuse.
• And to promote responsible lending, the BSP said banks have to deduct
from their capital any credit extended to DOSRI which did not observe
the “arm’s length” rule.
Number of local banks are owned by conglomerates, some of which are
also engaged in infrastructure development under the PPP (Public-Private
Partnership) scheme. These include listed BDO Unibank, Inc. and China
Banking Corp. which are both owned by the Sy family’s SM Investments
Corp.; Metropolitan Bank and Trust Co. and its subsidiary Philippine
Savings Bank under taipan George S.K. Ty’s GT Capital Holdings, Inc.; Ayala
Corp.’s Bank of the Philippine Islands (BPI); Aboitiz Equity Ventures, Inc.’s
Union Bank of the Philippines; East West Banking Corp. of the Gotianun’s
Filinvest Development Corp.; Rizal Commercial Banking Corp. of the
Yuchengco Group of Companies; Robinsons Bank Corp. of Gokongwei-led
JG Summit Holdings, Inc.; Asia United Bank of the Rebisco group; the San
Miguel Corp. group’s Bank of Commerce; and Philippine National Bank of
Lucio C. Tan’s LT Group, Inc.