Professional Documents
Culture Documents
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TOPICS UNDER THE SYLLABUS
VIII. Banking Laws
A. The New Central Banking Act (R.A. 7653)
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A. The New Central Banking Act (R.A. 7653)
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Term: 6 years
Qualifications of the Members of the Board:
a. Must be a natural-born citizens of the Philippines;
b. At least 35 years of age with the exception of the Governor,
who should at least be 40 years of age;
c. Of good moral character, of unquestionable integrity, of
known probity and patriotism.
d. With recognized competence in social and economic
disciplines.
Grounds for Removal of a Member of the Board:
The President may remove any member of the Board for any of
the following reasons:
a. Subsequent disqualification
b. Physical or mental incapacity that he cannot properly
discharge his duties and responsibilities and such incapacity
has lasted for more than 6 months.
c. Guilty of acts or operations which are of fraudulent or illegal
character or which are manifestly opposed to the aims and
interests of the BSP;
d. No longer possessing qualifications specified in the Act.
The major functions of the Monetary Board include the power
to:
1. Issue rules and regulations it considers necessary for the
effective discharge of the responsibilities and exercise of
the powers vested in it;
2. Direct the management, operations, and administration
of Bangko Sentral, organize its personnel and issue such
rules and regulations as it may deem necessary or
desirable for this purpose;
3. Establish a human resource management system which
governs the selection, hiring, appointment, transfer,
promotion, or dismissal of all personnel;
4. Adopt an annual budget for and authorize such
expenditures by Bangko Sentral as are in the interest of
the effective administration and operations of Bangko
Sentral in accordance with applicable laws and
regulations; and
5. Indemnify its members and other officials of Bangko
Sentral, including personnel of the departments
performing supervision and examination functions,
against all costs and expenses reasonably incurred by
such persons in connection with any civil or criminal
action, suit or proceeding, to which any of them may be
made a party by reason of the performance of his
functions or duties, unless such members or other
officials is found to be liable for negligence or
misconduct..
The Governors Powers and Duties as a Chief Executive Officer:
The Governor is the chief executive officer of BSP and is required
to direct and supervise the operations and internal administration
of BSP. Specifically, the Governor:
1. prepares the agenda for the meetings of the Monetary
Board and submits policy recommendations for
consideration of the Board;
2. executes and administers policies and measures
approved by the Monetary Board;
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Disqualifications:
1. In addition to the disqualifications imposed by Republic Act
No. 6713, a member of the Monetary Board is disqualified
from being a director, officer, employee, consultant, lawyer,
agent or stockholder of any bank, quasi-bank or any other
institution which is subject to supervision or examination by
the Bangko Sentral, in which case such member shall resign
from, and divest himself of any and all interests in such
institution before assumption of office as member of the
Monetary Board.
2. The member of the Monetary Board coming from the private
sector shall not hold any other public office or public
employment during their tenure.
3. No person shall be a member of the Monetary Board if he has
been connected with any multilateral banking or financial
institution or has a substantial interest in any private bank in
the Philippines, within one (1) year prior to his appointment;
likewise, no member of the Monetary Board shall be
employed in any such institution within two (2) years after
the expiration of his term except when he serves as an official
representative of the Philippine Government to such
institution.
Responsibility and liability of the members of the Monetary
Board
a. Members of the Monetary Board, officials, examiners, and
employees of the Bangko Sentral who willfully violate RA
7653 or who are guilty of negligence, abuses or acts of
malfeasance or misfeasance or fail to exercise extraordinary
diligence in the performance of his duties shall be held liable
for any loss or injury suffered by the Bangko Sentral or other
banking institutions as a result of such violation, negligence,
abuse, malfeasance, misfeasance or failure to exercise
extraordinary diligence.
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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.
B. CLOSURE
-prohibit a bank or quasi-bank from doing business in
the Philippines
Grounds for Closure
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(a) Unable to pay its liabilities as they become due in the
ordinary course of business (cash flow test)
BUT: shall not include inability to pay caused by extraordinary
demands induced by financial panic in the banking community.
(b) Insufficient realizable assets to meet its liabilities
(balance sheet test)
(c) Cannot continue in business without involving probable
losses to its depositors and creditors
(d) Willfully violated a cease and desist order under Sec. 37
(administrative sanctions) that has become final and
involves acts or transactions which amount to fraud or
dissipation of assets
(e) Notifies the BSP or publicly announces a bank holiday
(f) Suspends the payment of its deposit liabilities
continuously for more than 30 days
(g) Persists in conducting its business in an unsafe or
unsound manner
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D. LIQUIDATION
-from the determination of receiver if institution cannot
be rehabilitated or permitted to resume business
Duties of the Receiver/Liquidator
File ex parted with the RTC a petition for assistance in
the liquidation of the institution pursuant to a
liquidation plan adopted by the PDIC for banks, and by
MB for quasi-banks
Upon motion by receiver, upon RTCs acquisition of
jurisdiction, RTC shall assist enforcement of the
individual liabilities of the stockholders, directors, and
officers and decide on other issues as may be material to
the liquidation plan adopted
Receiver shall convert the assets to money and proceeds
shall be applied in paying the debts of the institution in
accordance with rules on concurrence and preference of
credit
Receiver shall institute such actions as may be necessary
C. RECEIVERSHIP
Who are Receivers?
(a) For Banks PDIC
(b) For Quasi-Banks Any person of recognized competence
in banking or finance
Functions of Receiver
(a) Immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the
benefit of its creditors e.g.
LIQUIDATION
AND
REHABILITATION
Connotes a reopening
or reorganization. It
contemplates
a
continuance
of
corporate life and
activities in an effort
to
restore
and
reinstate
the
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process of reducing
assets
to
cash,
discharging liabilities
and dividing surplus
or loss.
corporation to its
former position of
successful operation
and solvency.
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C. GENERAL BANKING LAW OF 2000 (R.A. NO. 8791)
b. TRUST ENTITIES
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a. QUASI-BANKS
i. 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 R.A. 7653 for
purposes of relending or purchasing of receivables and
other obligations (Sec. 4 par. 3 GBL).
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b. BANKING AND INCIDENTAL POWERS
All such powers as may be necessary to carry on the business of
commercial banking (Sec. 29).
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Accepting drafts
Issuing letters of credit
Discounting and negotiating promissory notes, drafts,
bills of exchange and other evidence 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
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Relevant Jurisprudence
The bank can make use as its own the money deposited
(Tan Tiong Tick v. American Apothecaries 65 Phil 414,
1938). Said amount is not being held in trust for the
depositor nor is it being kept for safekeeping.
Bank as a Debtor
Deposit is a voluntary agreement, Know Your
Customer standards
Bank acquires ownership of money deposited; obligation
to pay amount, but not obligation to return the same
money (Guingona, Jr. v. City Fiscal of Manila 128 SCRA
577, 1984)
Payment to proper party-depositor (Fulton Iron Works
Co. V. China Banking Corp. 58 Phil. 206, 1930)
Deposits are not preferred credits (Central Bank v.
Morfe 63 SCRA 114, 1975
Bank has right to compensation (Gullas v. PNB 62 Phil.
519, 1935)
No breach of trust - mandamus not a remedy (Lucman
v. Malawi 511 SCRA 268, 2006).
6. STIPULATION ON INTEREST
Interests on Deposits
The Monetary Board has declared that the interest on
deposits are not subject to ceilings (Section 242, MORB).
Interest or yield on time deposit/deposit substitute may
be paid at maturity or upon withdrawal or in advance.
However, interest or yield paid in advance shall not
exceed the interest for one year (Section 242.1, MORB)
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(ii)
Interest on Loans
While the Usury Law ceiling on interest rates was lifted
by Central Bank Circular 905, nothing in the said circular
grants lenders carte blanche authority to raise interest
rate to levels which will either enslave their borrowers
or lead to a hemorrhaging of their assets (Solangon v.
Salazar 360 SCRA 379).
Effect of Excessive interest Rates:
Art. 1229. The judge shall equitably reduce the penalty
when the principal has been partly or irregularly or
partly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced
by the courts if it is iniquitous or unconscionable.
Escalation Clause
Agreement by the Bank and the borrower that the
obligation shall become due and demandable upon
default of the latter.
While such a agreement is valid, the bank cannot be
given unbridled right to adjust the interest rate
independently and upwardly. Such would negate the
mutuality of contracts Floirendo v. Metropolitan Bank,
G.R. No. 148325 September 3, 2007).
Floating Rate of Interest
While it may be acceptable, for practical reasons given
the fluctuating economic conditions, for banks to
stipulate that interest rate on a loan not be fixed and
instead be made dependent upon prevailing market
conditions, there should always be a reference rate upon
which to peg such variable interest rates (Consolidated
Bank and Trust Corporation (Solid Bank) v. CA 356 SCRA
671).
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interest in such entities has no liability to the bank, the
Monetary Board may prescribe the combination of the
liabilities of subsidiary corporations or members of the
partnership, association, entity or such individual under
certain circumstances, including but not limited to any of
the following situations: