CH.

1 TITLE AND CLASSIFICATION OF BANKS

Section 1. Title. The short title of this Act shall
be The General Banking Law of 2000.
Section 2. Declaration of Policy. The State
recognizes the vital role of banks in providing an
environment
conducive
to
the
sustained
development of the national economy and the
fiduciary nature of banking that requires high
standards of integrity and performance. In
furtherance thereof, the State shall promote and
maintain a stable and efficient banking and
financial system that is globally competitive,
dynamic, and responsive to the demands of a
developing economy.
Section 3. Definition and Classification of Banks.
3.1. Banks shall refer to entities engaged in the
lending of funds obtained in the form of
deposits.
3.2. Banks shall be classified into:
(a) Universal Banks;
(b) Commercial Banks;;
(c) Thrift banks, composed of:
(i) Savings and mortgage banks
(ii)
Stock
savings
and
loan
associations; and
(iii) Private development banks, as
defined in the Republic Act No.
7906 (hereafter the Thrift Banks
Act);
(d) Rural banks, as defined in Republic Act
No. 733 (hereafter the Rural Banks
Act);
(e) Cooperative banks, as defined in
Republic Act No. 6938 (hereafter the
Cooperative Code);
(f) Islamic banks as defined in Republic Act
No. 6848, otherwise known as the
Charter
of
Al-Amanah
Islamic
Investment Bank of the Philippines;
(g) Other classifications of banks as
determined by the Monetary Board of
the Bangko Sentral ng Pilipinas.
TITLE
Republic Act No. 8791 - An Act Providing For the
Regulation of the Organization and Operations of
Banks, Quasi-banks, Trust Entities, and For Other
Purposes
DATE OF EFFECTIVITY:
June 13, 2000
PURPOSE: To maintain a strong, safe and sound
banking system that can effectively perform its
five basic functions

Five basic functions of a sound banking system1

1. To mobilize savings
2. To allocate resources
3. To facilitate risk amelioration
4. To facilitate the exchange of goods and
services between sellers and buyers
5. To monitor corporate governance of the
banking or financial institutions
DEFINITION
Banks
Entities engaged in the lending of funds obtained
in the form of deposits
Classical or Core Banking
Mobilizing savings (through deposit-taking) and
allocating resources (trough lending)
i.e., taking of deposits from the public and lending out these
funds

The taking of deposit substitutes for relending

can be classified as core banking when it is done
by universal and commercial banks thru quasibaking inasmuch as these banks need not be
separately licensed or authorized for that
purpose.
BANKING ACTIVITIES
IN GENERAL
1. Deposit-taking
2. Lending
OTHER BANKING ACTIVITIES2
1. Receive in custody funds, documents, and
valuable objects
2. Act as financial agent of their customers (buy
and sell shares, evidences of indebtedness, all
types of securities)
3. Make collections and payments for the
account of others
4. (Upon prior approval of Monetary Board) act
as managing agent, adviser, consultant or
administrator of investment management/
advisory/ consultancy accounts
5. Rent out safety deposit boxes
6. Perform such other services not incompatible
with the banking business
DEGREE OF DILIGENCE REQUIRED
High standards of integrity and performance

1 Sponsorship speech on Senate Bill No.

1519 of of Sen. Raul S. Roco , Chairman of
the Senate Committee on Banks, Financial
Institutions and Currencies (March 17, 1999).
2 Section 53, General Banking Law of 2000
(hereafter referred to as GBL).

the fiduciary relationship between a bank and its

depositor entails the observance by the former of high
standards of integrity and performance xxx fiduciary
nature of banking requires banks to assume a degree
of diligence higher than that of a good father of a
family3
the highest degree of care and diligence is required of
banks4
highest degree of diligence is expected, and high
standards of integrity and performance are even
required of a bank5
in dealing with its depositors, a bank should exercise
its functions not only with the diligence of a good
father of a family but it should do so with the highest
degree of care6
with meticulous care, always having in mind the
fiduciary nature of their relationship 7

RATIONALE
1. Public interest surrounding
industry
2. Fiduciary nature of banking

the

banking

LIABILITY OF BANKS FOR BREACH

1. Moral damages (for besmirch reputation of
client)8
2. Exemplary damages (ineptness or error in not
crediting deposit rightfully due to client
constitutes wanton manner)9
REMEDY OF BANKS

3 Consolidated Bank and Trust Corporation v

Court of Appeals, 410 SCRA 562 (2003).
4 Samsung Construction Company
Philippines, Inc. v Far East Bank and Trust
Company, 436 SCRA 402 (2004).
5 Heirs of Eduardo Manlapat v Court of
Appeals, 459 SCRA 412 (2005).
6 Bank of the Philippine Islands v Court of
Appeals, 326 SCRA 641 (2000).
7 Bank of the Philippine Islands v
Intermediate Appellate Court, 206 SCRA 408
(1992).
8 Simex International (Manila), Inc. v Court of
Appeals, 183 SCRA 360 (1990).

Reimbursement from their erring employees for

what it paid to the depositor/ client as damages,
by virtue of Art. 2181 of the Civil Code10
ENTITIES INTERESTED IN BANKS
1. State (compliance with terms and conditions
for regulations)
2. Depositors (stabilities of banks by return of
funds)
3. Investors (risk-takers)
4. Creditors other than depositors
5. Borrowers
CLASSIFICATIONS
Universal Banks
1. Powers of a commercial bank11
- General
powers
incident
to
corporations
- Accepting drafts
- Issuing letters of credit
- Discounting
and
negotiating
promissory notes, drafts, bills of
exchange, and other evidences of debt
- Accepting or creating demand deposits
- Receiving other types of deposits and
deposit substitutes
- Buying and selling foreign exchange
and gold or silver bullion
- Acquiring marketable bonds and other
debt securities
- Extending credit subject to the rules of
the Monetary Board
2. Powers of an investment house
- Directly
(through
a
separate
department within the bank) or
indirectly
(through
a
separate
subsidiary investment house), but
cannot be directly or indirectly at the
same time
3. Invest in allied enterprises and non-allied
enterprises12
Allied enterprises may be
(1) Financial
(2) Non-financial
Restrictions
(1) Should not exceed 50% of the net
worth of the bank

10 Art. 2181. Whoever pays for the damage

caused by his dependents or employees may
recover from the latter what he has paid or
delivered in satisfaction of the claim.
11 GBL 29.

9 Simex International (Manila), Inc. v Court of

Appeals, 183 SCRA 360 (1990).

12 GBL 24.

(2) Equity investments in any one

enterprise should not exceed 25% of
the net worth of the bank
Net Worth total of the unimpaired
paid-in
capital
including
paid-in
surplus,
retained
earnings
and
undivided profit, net of valuations
reserves and other adjustments as
may be required by the Bangko
Sentral
Commercial Banks
Thrift Banks
Rural Banks
Cooperative Banks
Islamic Banks
Other Banks
Other classifications of banks that the Monetary
Board is authorized to make
e.g. Development Bank of the Philippines
Land Bank of the Philippines
- Both were characterized as special
and
unique
government
banks
subject to supervision and regulation
of the Bangko Sentral pursuant to
Section 25 of the New Central Bank
Act13
CH. 2 AUTHORITY OF THE BANGKO SENTRAL
Section 4. Supervisory Powers. The operations
and activities of banks shall be subject to
supervision of the Bangko Sentral. Supervision
shall include the following:
4.1. The issuance of rules of, conduct or the
establishment of standards of operation for
uniform application to all institutions or functions
covered, taking into consideration the distinctive
character of the operations of institutions and the
substantive similarities of specific functions to
which such rules, modes or standards are to be
applied;
4.2. The conduct of examination to
determine compliance with laws and regulations
if the circumstances so warrant as determined by
the Monetary Board;
4.3. Overseeing to ascertain that laws and
regulations are complied with;

13 Section 25. Supervision and Examination.

The Bangko Sentral shall have supervision
over, and conduct periodic or special
examinations of, banking institutions and
quasi-banks, including their subsidiaries and
affiliates engaged in allied activities.

4.4. Regular investigation which shall not

be oftener that once a year from the last date of
examination to determine whether an institution
is conducting its business on a safe or sound
basis:
Provided,
That
the
deficiencies/
irregularities found by or discovered by an audit
shall be immediately addressed;
4.5. Inquiring into the
liquidity of the institution; or

solvency

and

4.6. Enforcing prompt corrective action.

The Bangko Sentral shall also have
supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities
and other financial institutions which under
special laws are subject to Bangko Sentral
Supervision.
For the purposes of this Act, quasi-banks
shall refer to entities engaged in the borrowing of
funds through the issuance, endorsement or
assignment with recourse or acceptance of
deposit substitutes as defined in Section 95 of
Republic Act No. 7653 (hereafter the New
Central Bank Act) for purposes of relending or
purchasing of receivables and other obligations.
Section 5. Policy Direction; Ratios, Ceilings and
Limitations. The Bangko Sentral shall provide
policy direction in the areas of money, banking
and credit.
For this purpose, the Monetary Board may
prescribe rations, ceilings, limitations, or other
forms of regulation on the different types of
accounts and practices of banks and quasi-banks
which shall, to the extent feasible, conform to
internationally accepted standards, including
those of the Bank for International Settlements
(BIS). The Monetary Board may exempt particular
categories of transactions from such ratios,
ceilings and limitations, but not limited to
exceptional cases or to enable a bank or quasibank under rehabilitation or during a merger or
consolidation to continue in business, with safety
to its creditors, depositors and the general public.
Section 6. Authority to Engage in Banking and
Quasi-Banking Functions. No person or entity
shall engage in banking operations or quasibanking functions without authority from the
Bangko Sentral: Provided, however, That an entity
authorized by the Bangko Sentral to perform
universal or commercial banking functions shall
likewise have the authority to engage in quasibanking functions.

The determination of whether a person or

entity is performing Banking or quasi-banking
functions without Bangko Sentral authority shall
be decided by the Monetary Board. To resolve
such issue, the Monetary Board may, through the
appropriate
supervising
and
examining
department of the Bangko Sentral, examine,
inspect or investigate the books and records of
such person or entity. Upon issuance of this
authority, such person or entity may commence
to engage in banking operations or quasi-banking
function and shall continue to do so unless such
authority is sooner surrendered, revoked,
suspended, or annulled by the Bangko Sentral in
accordance with this Act or other special laws.
The department head and the examiners
of the appropriate supervising and examining
department are hereby authorized to administer
oaths to any such person, employee, officer, or
director of any such entity and to compel the
presentation or production of such books,
documents, papers or records that are reasonably
necessary to ascertain the facts relative to the
true functions and operations of such person or
entity. Failure or refusal to comply with the
required presentation or production of such
books, documents, papers or records within a
reasonable time shall subject the persons

responsible therefor to the penal sanctions

provided under the New Central Bank Act.
Persons or entities found to be performing
banking or quasi-banking functions without
authority from the Bangko Sentral shall be
subject to appropriate sanctions under the New
Central Bank Act and other applicable laws.
Section 7. Examination by the Bangko Sentral.
The Bangko Sentral shall, when examining a
bank, have the authority to examine an
enterprise which is wholly or majority-owned or
controlled by the bank.
CH. 3 ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND
TRUST ENTITIES
CH. 4 DEPOSITS, LOANS AND OTHER OPERATIONS
CH. 5 PLACEMENT UNDER CONSERVATORSHIP
CH. 6 CESSATION OF BANKING BUSINESS
CH. 7 LAWS GOVERNING OTHER TYPES OF BANKS
CH. 8 FOREIGN BANKS
CH. 9 TRUST OPERATIONS
CH. 10 FINAL PROVISIONS