BankingTSN Complete Tan

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From the lectures of Fr. Agustin Nazareno | | Ateneo de Davao University | | SY 2015 – 2016
So technically speaking, there is no Central Bank of the

November 12, 2015 Philippines. What is there in the Philippines? Bangko Sentral
ng Pilipinas!
Alright. The laws that we are going to take up in this subject is
te New Central Bank Act, General Banking Law (2000), But then when they go to international conferences and
Secrecy of Bank Deposits Act, Unclaimed Balances Act, AMLA meetings of Central Bank Governors, di man sila mubutang ug
—Anti-Money Laundering Act. Those are the laws that you Sentral Bank ng Pilipinas. Central Bank man ang ilahang
need to read. ibutang. Namakak sila! Because the law says “Bangko Sentral
ng Pilipinas.” [Segue: That is the stupidity of the “Filipino as
We will begin with the New Central Bank Act. National language”. If you are stuck with language, you suffer
the consequences of ignorance.
The New Central Bank Act is an ambition of what Article XII, Philippine Central Bank. Ang uban, mao man sad ang ibutang
Section 20 of our Constitution mandates: diba?]
Section 20. The Congress shall establish an independent
central monetary authority, the members of whose governing Now, why was there a need to pass a new Cenral Bank? There
board must be natural-born Filipino citizens, of known was a need because the old configuration of the Central Bank
probity, integrity, and patriotism, the majority of whom shall was less than independent from the Executive Branch of the
come from the private sector. They shall also be subject to
Government. [Segue: That is why, if you remember—of if you
such other qualifications and disabilities as may be
prescribed by law. The authority shall provide policy direction cared to remember—in the 1986 EDSA Revolution, and when
in the areas of money, banking, and credit. It shall have Marcos fled, there were crates of freshly-minted and printed
supervision over the operations of banks and exercise such peso bills which was confiscated on him in Hawaii. No wonder,
regulatory powers as may be provided by law over the after the day he fled, the exchange rate became from 1:12 or
operations of finance companies and other institutions 1:14 ba to, it became 1 dollar is to 45 pesos. Meralco
performing similar functions. defaulted on its payment in its foreign credits. There were not
Until the Congress otherwise provides, the Central Bank of enough dollars in the country.]
the Philippines operating under existing laws, shall function
as the central monetary authority. Now, the Bangko Sentral Monetary Board is supposed to be
more independent. Why? Because of the composition.
Majority now are composed of non-government employees.
Now, the New Central Bank act was passed and Section 1
There are only 2 government employees—the ex-officio
(Section 2 actually) says:
Central Bank Governor and normally the Secretary of Finance
Section 2. Creation of the Bangko Sentral. - There is hereby
established an independent central monetary authority, as representing the President or the Cabinet. The rest are all
which shall be a body corporate known as the Bangko private citizens. (Section 6, RA 7653)
Sentral ng Pilipinas, hereafter referred to as the Bangko Section 6. Composition of the Monetary Board. - The
Sentral. powers and functions of the Bangko Sentral shall be
exercised by the Bangko Sentral Monetary Board, hereafter
The capital of the Bangko Sentral shall be Fifty billion pesos referred to as the Monetary Board, composed of seven (7)
(P50,000,000,000), to be fully subscribed by the members appointed by the President of the Philippines for a
Government of the Republic, hereafter referred to as the term of six (6) years.
Government, Ten billion pesos (P10,000,000,000) of which
shall be fully paid for by the Government upon the effectivity The seven (7) members are:
of this Act and the balance to be paid for within a period of
(a) the Governor of the Bangko Sentral, who shall
two (2) years from the effectivity of this Act in such manner
be the Chairman of the Monetary Board. The
and form as the Government, through the Secretary of
Governor of the Bangko Sentral shall be head of a
Finance and the Secretary of Budget and Management, may
department and his appointment shall be subject
thereafter determine.
to confirmation by the Commission on
Appointments. Whenever the Governor is unable to
“The body corporate that will be the central monetary attend a meeting of the Board, he shall designate a
authority shall be known as the Bangko Sentral ng Pilipinas.” Deputy Governor to act as his alternate: Provided,
That in such event, the Monetary Board shall
Transcribed By: Knizza Valerie C. Tan

Disclaimer: Use all information at your own risk kay dili ko perfect. - KVTan
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designate one of its members as acting Chairman; of exercise of review. [Segue: That is why PDAP or Dap, the
(b) a member of the Cabinet to be designated by Supreme Court filed a dissent on how PNOY was spending it.
the President of the Philippines. Whenever the That it was not proper. But the Supreme Court did not penalize
designated Cabinet Member is unable to attend a it. Because that was done in good faith. But if you come to
meeting of the Board, he shall designate an think of it, what PNOY did was worse than what Napoles did.
Undersecretary in his Department to attend as his Why? In Napoles, there was a law. But in PNOY, there was no
alternate; and law. Legally speaking, that is worse.]
(c) five (5) members who shall come from the
private sector, all of whom shall serve full-time: What is the difference between that (Fiscal policy) and
Provided, however, That of the members first monetary policy?
appointed under the provisions of this subsection,
three (3) shall have a term of six (6) years, and the Fiscal policy is spending money after raising money. How do
other two (2), three (3) years. you raise money? Through revenue measures.
No member of the Monetary Board may be reappointed more
than once. Again, it deals with the Congress. The Congress passes tax
laws. The tax laws provides measures to facilitate the
You have the Central Bank and it is a Bank. Only that, the
Appropriations Act. Itemized destination of money. That is
depositors are banks also. They do not accept other
Fiscal policy.
depositors from the public. They accept deposits from the
banks. And they lend out to the baks, as well as accept
Monetary policy, on the otherhand, has to do with the peso—
deposits thereon.
its strength, purchasing power, convertibility to other
currencies. It has to do with how much money should there be
How is it governed? It is governed by the Monetary Board. The
in the Philippines—Money supply. Money supply, which
composition and qualifications of which is partly provided for
Economics 101 says, is N1 which is composed of the total
by the Constitution.
coins, notes, bills that are circulating in the Philippines plus all
the so-called demand deposits in the Philippines. Demand
Now, what is the function of the Bangko Sentral? The function
deposits are checking accounts (Google: an account at a bank
is that it acts out monetary policies.
against which checks can be drawn by the account depositor).
That is N1 of the money supply.
What is a monetary policy? The way to know monetary policy
is to distinguish it from fiscal policy.
Expanded money supply includes N2. What is N2? N2 is all
savings deposits, all time deposits in banks. That is N2.
What is Fiscal policy? Fiscal policy is basically legislative. In
the constitution, you know very well that the government can
When you put N2 together with N1, that is the so-called
spend money only if there is legislative authority.
Expanded money supply.
When is there a legislative authority? The expenditures of the
Nganong i-control man na? Muingon ka, “Mas daghan kwarta
government are dictated by the so-called Appropriations Act,
mas maayo.” NO!
which must originate from the House of Representatives and
then it must be decided with the concurrence of the Senate.
When all factors remain equal, the goods and services remain
The Senate also has a hand of the Appropriations Act. Once
the same. And when you increase money supply, there will be
you have an Appropriations Act, it is an authority to spend.
inflation! Too much money chasing after the same amount of
goods and services.
Who spends? It is the Executive. Of course!
So a Bangko Sentral must control the money supply. That is
The Judiciary does not have to wait. It has its own authority.
part of the monetary policy. How does it do that? It does not
Neither department could look as to how it (the Judiciary) its
buy controlling credit. One of the ways that control supply is
spending its money. The Supreme Court, initial review, can
credit.
check a particular action expenditure of the Executive by way

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It is the bank of banks. In other words, the bank of ___. Later have to increase capital in the banks. You know, this is a very
on, you will find out that there is so-called a reserved ___. contentious sector right now. You know why? Last year, two
banking laws were passed.
For every peso that will be deposited in the bank, a portion of
it will be kept in the vault as cash or mere cash. The rest what In 2013, they passed a law. Rural banks, which under the
does the bank do? The bank lends it out to borrowers. So Rural Banks Act could only be owned by Filipinos, can now
please do not think that the bank has a capital in order to lend accept foreign investment up to 60%. They passed that law. At
out. The bank does not lend out its capital. It only lends out that time, that was already a problem because all Rural banks
what other people (the depositors) lends to them. The popular already owned real properties. What happens when you make
term is that you deposit money in the bank. But you very well that 60%? Is that not against the Constitution? Because you
know that that is not a contract of deposit! It is a loan. It is need 60% Filipino ownership in order to own real properties.
mutuum. The depositor is actualy a creditor of the bank. So But then it is still possible to go around that. They could
the bank pays interest to the depositor. Then, with the money assign the real properties to a Filipino, and then the bank
that is deposited in the bank, it is lent out to other third parties lends it, and then the bank continues to be 60% foreign owned
and charges interest. The difference of the interest lent to the and continue its business. But then again, they passed a
third parties and the interest paid to the depositor is the gross second law.
income of the bank. And from that, you deduct other costs of
the bank. From there, you will arrive at the net profit of the The second law that they passed is that foreigners can now
bank. That is the operation of the bank. come in and buy up to 100% of the outstanding capital stock
of a commercial bank, for as long as you only buy one bank.
It is highly regulated because the bank is lending out not its Up to 100%! It was passed, PNOY signed it, and now it is a
own money, but the money which was lent to it. That is why it law. Now that, for me, is already a culpable violation of the
is highly regulated. Constitution which is already an impeachable offense. But the
problem is who will impeach PNOY when it was Congress who
Muingon ka nga “Katong sa pawnshop man lagi...pila may conducted that law? Then you'd ask there must be something
interest nga icharge nako? Nganong mu-charge man lagi silag behind this. Why was Congress obliged to pass this? If it did
tres. 3% a month! Kadako gud ana! Ngano man na? Dili ba na not, then no Filipino bank can do business outside Southeast
sila hunungon sa Central Bank?” Ah! The difference between Asia. Nag-agree na man na there should ne no more
the pawnshop and the bank is that the pawnshop is lending constraints in opening banks in Southeast Asia. Wala na na.
out its own money. The banks are lending out OPM—other So if the Congress did not pass it, Metrobanks in Malaysia and
people's money. It is not lending out its own money. That is in other parts of Asia will be closed. [Segue: sa recent bar
why it (the bank) is highly regulated. graduate. Telling him about what Tan did one week after he
passed the bar. Case of Tan vs Macapagal on when is there an
Now, the Bangko Sentral, under the General Banking Law says exercise of judicial power]
deposit liability is for every peso that is deposited, depending
on the classification as a bank, you have to keep some of it as Banks. That is why the Bangko Sentral has to control because
cash or mere cash in a vault. If you are a Rural bank, you will the Banks have the power to increase money supply.
just keep 4% of the deposit liability. So kada piso, 4 centavos
ang imong ibutang. If you are a Thrift bank, kanang mga Let us just begin with a P100,000.00. That P100,000.00, let
savings bank or development bank, 6%. Kung commercial us say sa Unibank, P13,000.00 will be put in the vault as cash
bank na gani ka, unibank, muabot na nag 12-13%. or mere cash. What is an example of a mere cash? Treasury
bills. If the bank buys treasury bills, that is considered as cash
Now the trouble is, the Federal Reserves just announced that because it can be enchased anywhere.
it will raise its standard in the US. And it is saying that from
now on, the reserve requirements now in the US will be raised So, the bank has P87,000.00 to led out. Supppose, that
to 18%--that is, according to them, will make the bank P87,000.00 was lend out to A. And A, he will deposit it back to
stronger. a lending bank and withdraw as he needs. So he will deposit
P87,000. You segregate 13% of that in the vault and you can
Now if that happens, what will happen to our reserves? We will lend out again. And suppose another one has deposited the

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amount in the same bank. That vault alone can increase China as the biggest single foreign lender of the US.]
money supply in metes and bounds.
The US has a different monetary policy. Why? Because it is the
In other words, if the Bangko Sentral allows the bank to just preferred currency in the world. Oil is reckoned with the price
lend without control, the money supply will run out of control per barrel in US Dollars. So dili sila mahadlok mangutang
and will just increase. And so what does the Bangko Sentral maski asa. Og magkalisod, mag-imprenta ra mi. Because the
do? Sometimes, it raises what it calls its rediscount rate—the money is denominated in their own currency under their
rates which it lends to the banks. monetary control. [Segue continues: About kung musaka ang
exchange rate sa Philippines].
You know, the banks must meet their reserve requirements
everyday. Mao ni ang kinahanglan na naa sa vault. So if the So you know, the public expects lawyers to know something
bank does not meet that, it has to borrow money. Where will it about monetary policies because it is already provided for by
borrow money? It will borrow money from the cheapest place. law. So try to develop an interest. Try to fall in love with
Sometimes it would be other banks. But sometimes, other banking laws.
banks are also tight with their funds. So the last recourse
would be the Bangko Sentral. If the Bangko Sentral's lending
rate is low, then the banks will even borrow more than the November 18, 2015
money they need. Why? Because they can turn around and
lend the money to other third parties. But if the Bangko [Segue: When does the Court issue a per curiam opinion?
Sentral raised its rate, then here will be a commensurate Where there is a death penalty, where there is a removal of a
slowing of the lending rate. judge or justice. But in this case, the court rendered a decision
that is so sudden that nobody has put his name. I am giving
So that is how you direct monetary policy. That is the job of you the notes of the highlights of the Neww banking laws and
the Bangko Sentral Monetary Board. Of course, the Bangko the comments. I am bringing now a bogus copy of the Bangko
Sentral Monetary Board reports annually to Congress and Sentral's New Central bank Act or RA 7653. Before, this copy
makes a suggestion for further legislation that will aid in was P5,000. Now, I think it is P7,000. Of course, the banks
directing a monetary policy. If they do not, they will also make must have a copy of this. This is the official commentary. So if
a report to the President. But it cannot shrink(?) from the duty you want accuracy, you have to go to this. But other
that it was granted under the law that it is the one in charge commentaries are just as valid.]
with monetary policy.
There is one case where the Bangko Sentral and the BIR are
Here comes the issue. In the Constitution or in the New fighting with each other. The BIR does not recognize the ruling
Central Bank Act, it says that it is the duty of the Bangko of the Supreme Court in this case. But the Bangko Sentral
Sentral to maintain the strength of the peso and to make sure respects the ruling of the Supreme Court in this case. I am
that the peso is convertible. Convertible, meaning, that it can telling to you know because it is very important for your
be exchanged with other currencies. personal banking. This is the case of Vitug vs Court of
Appeals (183 SCRA 755 Gr No. 82027 march 29, 1990) . Why
Is that a conscious choice of the Constitition—that part and is that case important?
parcel of the monetary policy is convertibility of our currency?
That is really explicit in the New Central Bank Act and in the It is a case of testate probate. In the will of Mrs. Vitug who
Constitution. That, it is not necessary to, with respect to predeceased Mr. Vitug, there is a note in the will that Mr. Vitug
monetary policies, in further jurisdictions. What is in example? will be an administrator. The relatives of Mrs. Vitug opposed
CHINA. as there was no child left by Mrs. Vitug. As you know, ½ goes
to the husband because it is a conjugal property. The other
In China, their currency is not readily convertible? Why does it half is the subject of the will. And the husband acts as the
not choose to be readily convertible? To be attractive. The administrator and he pays the taxes and other expenses to
other countries and in US, they pay the imports from China to administer the estate. And subsequently, he went to the
Yuans and they can convert their dollars to Yuans. Inevitable presiding judge and asked for the reimbursements.
their currencies with strengthen. [Segue continues about

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Now, the intervenor relatives opposed saying that the money defined as "a personal, solemn, revocable and free act by
used to pay for the expenses came from a joint account of which a capacitated person disposes of his property and
Mrs. Vitug and Mr. Vitug. They had an old account. That old rights and declares or complies with duties to take effect
account was an OR account. It is not Mr. Vitug AND Mrs. after his death." xxx
Vitug. It was an OR account—Mr. Vitug OR Mrs. Vitug. Anyone There is no showing that the funds exclusively belonged to
of the parties can deposit money from the account. Anyone of one party, and hence it must be presumed to be conjugal,
them can withdraw money from the account without limit the having been acquired during the existence of the marital
and here is a crucial statement. There is this so-called relations. Neither is the survivorship agreement a
survivor's clause. That should one of the parties predecease donation inter vivos, for obvious reasons, because it was to
the other, the survivor will have the full ownership of the take effect after the death of one party. Secondly, it is not a
account. That is the survivorship agreement. donation between the spouses because it involved no
conveyance of a spouse's own properties to the other.
Mr. Vitug now says, “I am now the owner of that account by It is also our opinion that the agreement involves no
modification petition of the conjugal partnership, as held by
virtue of this agreement. The intervenors opposed it, saying the Court of Appeals, 21 by "mere stipulation" 22 and that it
that saying that it cannot be his because the only way that it is no "cloak" 23 to circumvent the law on conjugal property
could be his is that it is either mortis causa or donation inter relations. Certainly, the spouses are not prohibited by law to
vivos. If it is mortis causa, that means that it is by will. So it invest conjugal property, say, by way of a joint and several
must conforme with the formalities of the will. There is no bank account, more commonly denominated in banking
formality as in a will in that agreement since it is just a bank parlance as an "and/or" account. In the case at bar, when the
form! If it is donation inter vivos, that is not allowed by law. It spouses Vitug opened savings account No. 35342-038, they
is void! Because husband and wives are prohibited from merely put what rightfully belonged to them in a money-
donatating with each other. So how can you now call that making venture. They did not dispose of it in favor of the
other, which would have arguably been sanctionable as a
bank account your own? prohibited donation. And since the funds were conjugal, it
can not be said that one spouse could have pressured the
The ruling of the RTC was upheld by the Court of Appeals. But other in placing his or her deposits in the money pool.
when it reached the Supreme Court, the Supreme Court
overturned the ruling. It said that Mr. Vitug is correct! How can The validity of the contract seems debatable by reason of its
"survivor-take-all" feature, but in reality, that contract
he be correct? The SC said that Mr. Vitug is the owner of the imposed a mere obligation with a term, the term being death.
entire account by virtue of an aleatory contract. What is an Such agreements are permitted by the Civil Code. 24
aleatory contract?
Under Article 2010 of the Code:
An aleatory contract happens when one of the parties ART. 2010. By an aleatory contract, one
performs all his side of the obligation and then he waits for of the parties or both reciprocally bind
the happening of an event. When that event happens, then it is themselves to give or to do something in
the other side's obligation to perform his side of the matter. consideration of what the other shall
give or do upon the happening of an
Diri, namatay ang usa so imo na tanan. That is the event that event which is uncertain, or which is to
occur at an indeterminate time.
happened.
Under the aforequoted provision, the fulfillment of an
Now the BIR said that mamatay na gani ang co-signatory sa aleatory contract depends on either the happening of an
contract, the survivor is not the owner. All __ must report to event which is (1) "uncertain," (2) "which is to occur at an
the BIR if the other has already died. They must be informed. indeterminate time." A survivorship agreement, the sale of a
sweepstake ticket, a transaction stipulating on the value of
They must report because there must be payment of estate currency, and insurance have been held to fall under the first
tax. The BIR does not draw the line between he decision of the category, while a contract for life annuity or pension under
Supreme Court in Vitug vs CA. Article 2021, et sequentia, has been categorized under the
second. 25 In either case, the element of risk is present. In
From the Full text: the case at bar, the risk was the death of one party and
The conveyance in question is not, first of all, one of mortis survivorship of the other.
causa, which should be embodied in a will. A will has been
However, as we have warned:

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xxx xxx xxx at gross is the expenses for your last illness, funeral expenses,
But although the survivorship agreement tombstone, apparel for the widow. Nakalista na tanan dira
is per se not contrary to law its operation kung unsa ang allowable deductions from the gross estate.
or effect may be violative of the law. For Wala na tong expenses from the funeral kay naa man syay
instance, if it be shown in a given case plan. Naa sad syay “subdivision plan”. What happens if there
that such agreement is a mere cloak to are no claimants? Escheated! The government takes over.
hide an inofficious donation, to transfer
property in fraud of creditors, or to So, if your bank account is only in your name, and you are a
defeat the legitime of a forced heir, it law student, and father Nazareno told you about Vitug vs CA,
may be assailed and annulled upon such
then you are not only stupid. You are a moron!]
grounds. No such vice has been imputed
and established against the agreement
involved in this case. 26 The second best is that your bank account has AND. Kung and
na gani, presumed joint. Tunga dayon na. Kung maigo sa kilat
xxx xxx xxx ang imong partner dira, tunga na.
There is no demonstration here that the survivorship
agreement had been executed for such unlawful purposes, The ideal now is it is OR. And you ask the bank if there is a
or, as held by the respondent court, in order to frustrate our survivorship agreement. Pangutan-a sila kay gamay man
laws on wills, donations, and conjugal partnership. kaayo na. That should anyone of them predecease the other,
The conclusion is accordingly unavoidable that Mrs. Vitug the survivor shall own the entire deposit for the purpose of
having predeceased her husband, the latter has acquired bank deposit. That is the survivorship agreement.
upon her death a vested right over the amounts under
savings account No. 35342-038 of the Bank of America. So let us go to the organ that controls the Bangko Sentral.
Insofar as the respondent court ordered their inclusion in the What is that organ? The Monetary Board.
inventory of assets left by Mrs. Vitug, we hold that the court
was in error. Being the separate property of petitioner, it
The monetary board is, as to the Bangko Sentral, the board of
forms no more part of the estate of the deceased.
directors of a corporation. But what is the difference between
WHEREFORE, the decision of the respondent appellate court, the monetary board vis-a-vis the Bangko Sentral and the
dated June 29, 1987, and its resolution, dated February 9, board of directors vis-a-vis the corporation? What is the
1988, are SET ASIDE. difference?
Tuo na lang mo nako kay niagi na ko ani. [Segue: 3 deaths The difference is that the monetary board is also an
happened within 1 ½ year. Bisan unsang lalis nimo anang instrumentality of the government. They issue rules and
Vitug, mahadlok man nang Bangko. Ingna lang sila na regulations binding on all banks. Binding on all quasi-banks.
itransfer ra sa laing account pero ideposit ra gihapon sa ilaha. And binding on all institutions which by law is under their
Ayaw lang ipahibalo sa BIR. Basta buhata lang immediately supervision and regulation.
thereafter (the death). I have to do it three times.]
Can you sue the monetary board? You cannot sue the
But technically speaking, Bangko Sentral ng Pilipinas, in its monetary board because it is a government. Can you sue the
book, affirms the validity for purposes of directive of the Bangko Sentral? Yes, you can sue the Bangko Sentral because
Bangko Sentral. But the BIR will not follow that. Labi na ning it is a true bank. It is a real bank; only that, the depositors are
BIR ni Kim Henares. banks. That is why you have cases against Bangko Sentral.
[Segue: So, if you have a bank account, and it is only in your So is the Bangko Sentral government? Yes, it is government.
name, then you are stupid. Maigo kag kilat, patay! The bank Is the Bangko Sentral privileged, immune from suit? No, it is
manager has no choice. He will declare it to the BIR. That is not. It can enter into open market transactions and therefore
what happened to Dean Inigo. He had 12Mil in his bank it has shed off its immunity. It can be sued.
account. Siya ra! Ang ultimo na nakiuha sa university kay mao
ra katong expenses sa iyahang illness. Mao ra. Why? Because Can the monetary board be sued? One of the provisions now
under the National Internal Revenue Code, what is dedictible of the New Central Bank Act is “any member of the monetary

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board that is sued because of the exercise of his duties shall are subject of a complaint. Clearly, an investigation does not
be aided by the Bangko Sentral. He can hire a private counsel involve a general evaluation. It does not require a prior
to defend himself at the cost of the BSP. OR they can choose consent or authorization of the monetary board.”
to be reimbursed by the BSP for the litigation expenses. That
is new. That was not there before. [Segue: that is what from the Full Text:
happened to Fernandez. He was the Central banker during the Fact-finding Investigations shall be limited to the particular
deepest crisis of Central bank during the assasssination of acts or omissions subject of a complaint or a Final Report of
Ninoy Aquino. And to counter that, they passed the Jobo Bills Examination.
with a rate of 42% to stop the hemorraging. Wa na. Nag huna- From the above-cited provisions, it is clear that the process
huna na ang mga tao kung unsaon nila paglayas sa Pilipinas.] of examination covers a wider scope than that of
investigation.
So there is a case that I would like you to read. This is the Examination involves an evaluation of the current status of
story of Legacy. Usa ka ka mga Bangko sa Legacy filed a case a bank and determines its compliance with the set
against PDIC—Philippine Deposit Insurance Corporation of the standards regarding solvency, liquidity, asset valuation,
Philippines. PDIC went over to investigate saying, “Nganong operations, systems, management, and compliance with
kalit ra man ni nidaghan ang ilahang coverage sa insurance?” banking laws, rules and regulations.
Kay diay, ang mga tao kung muhatag silag kwarta sa Legacy, Investigation, on the other hand, is conducted based on
they would be referred right away to one of its 13 banks. Put it specific findings of certain acts or omissions which are
as time deposit. Why? Because it is covered by PDIC. subject of a complaint or a Final Report of Examination.
Magduda ba ba mo nga scam ni? Dili! [Segue: At that time the
Clearly, investigation does not involve a general evaluation
coverage was P200,000.00. Now, pila na ang coverage? of the status of a bank.1âwphi1 An investigation zeroes in
P500,000.00. ] Dili lagi ni pyramiding! Ayawg kabalaka. Kung on specific acts and omissions uncovered via an
pyramiding ni, ang gobyerno may mubayad nimo ug examination, or which are cited in a complaint.
P200,000.00. Di nisaka ang ilahang coverage sa PDIC. E di,
PDIC sought to investigate them. So they (Legacy) filed a case An examination entails a review of essentially all the
functions and facets of a bank and its operation. It
for injunction. necessitates poring through voluminous documents, and
requires a detailed evaluation thereof. Such a process then
What is the ground for that opposition? If you are going to involves an intrusion into a bank’s records.
investigate us, then you need an authority from the Monetary
board. You need a prior consent of the Monetary Board. In contrast, although it also involves a detailed evaluation,
an investigation centers on specific acts of omissions and,
thus, requires a less invasive assessment.
Look at article and it says, “An examination of the bank,
unless it is a regular examination, requires the prior consent of The practical justification for not requiring the Monetary
the Monetary Board.” Board approval to conduct an investigation of banks is the
administrative hurdles and paperwork it entails, and the
correspondent time to complete those additional steps or
Sirhan na unta! What happened? The CA issued a restraining requirements. As in other types of investigation, time is
order and after that it issued an injunction! According to the always of essence, and it is prudent to expedite the
CA of Cebu, pareho ra nang duha—ang examination and proceedings if an accurate conclusion is to be arrived at, as
investigation. They are the same banana! And that requires an investigation is only as precise as the evidence on which
prior authorization from the Monetary Board. And it took the it is based. The promptness with which such evidence is
Supreme Court another 4 years to decide it. By the time the gathered is always of utmost importance because evidence,
SC came up with the decision, usa na ka tuig na sirado ang documentary evidence in particular, is remarkably fungible.
Legacy. What is the reason? A PDIC investigation is conducted to "determine[e] whether
the allegations in a complaint or findings in a final report of
examination may properly be the subject of an
The SC says: “From the above-cited provisions, it is clear that
the process of examination covers a wider scope than that of administrative, criminal or civil action." 76 In other words,
an investigation is based on reports of examination and an
investigation. Examination requires prior consent of the
examination is conducted with prior Monetary Board
monetary board. Investigation, on the otherhand, is conducted approval. Therefore, it would be unnecessary to secure a
based on specific findings of certain acts or omissions which separate approval for the conduct of an investigation. Such

BANKING PAGE || 8
would merely prolong the process and provide unscrupulous That in such event, the Monetary Board shall
individuals the opportunity to cover their tracks. designate one of its members as acting Chairman;
Indeed, while in a literary sense, the two terms may be used (b) a member of the Cabinet to be designated by
interchangeably, under the PDIC Charter, examination and the President of the Philippines. Whenever the
investigation refer to two different processes. To reiterate, designated Cabinet Member is unable to attend a
an examination of banks requires the prior consent of the meeting of the Board, he shall designate an
Monetary Board, whereas an investigation based on an Undersecretary in his Department to attend as his
examination report, does not. alternate; and
(c) five (5) members who shall come from the
Too late! Too late! private sector, all of whom shall serve full-time:
Provided, however, That of the members first
“To reiterate, an examination of banks requires the prior appointed under the provisions of this subsection,
three (3) shall have a term of six (6) years, and the
consent of the Monetary board, whereas an investigation, other two (2), three (3) years.
based on an examination report, does not.”
No member of the Monetary Board may be
Hence, the petition is granted and the decision of the Court of reappointed more than once.
Appeals is set aside. Too late!
Now, with the exception of the Cabinet Minister, only 6 of them
[Segue: Hapit na mahapay ang PDIC ani.] can be removed only for cause.
That is the case of PDIC vs Philippine Countryside Rural Bank The New Central bank Act requires that the Central bank
640 SCRA 322 (2010). governor is ex-officio head of the monetary board. He is
appointed by the president. The laws says that he shoould be
I told you about the differences between the Monetary Board subject to confirmation by the Commission on Appointments.
during Marcos' time and this time. That the monetary board But as you know very well, the SC said that the legislature
before was mostly government officials. And since cannot add to the number of officials appointed by the
government officials, they are under the control of the president that must be subjected to the Commission of
President. Appointment's confirmation.
Now, there are only 2 government officials in the Monetary So, the Bangko Sentral governor is no longer subjected to the
Board. The five are from the private sector. They have a fixed confirmation of the Commission on Appointments.
term of 6 years. They are subject to a renewable appointment
but just once. Now, the other government official is one member of the
Article II, Section 6 of RA 7653: President's cabinet. Normally chosen is the Secretary of
Section 6. Composition of the Monetary Board. - The powers Finance. He sits in the monetary board.
and functions of the Bangko Sentral shall be exercised by
the Bangko Sentral Monetary Board, hereafter referred to as
The other five are from the private sectors. To make sure that
the Monetary Board, composed of seven (7) members
appointed by the President of the Philippines for a term of they are independent, one year before their appointment, they
six (6) years. must disinvest. In other words, they must have no other
investment in any bank, quasi-bank or any institution under
The seven (7) members are: supervision by the Bangko Sentral. So you must pull out
(a) the Governor of the Bangko Sentral, who shall investments. You cannot act as consultor, director, etc.
be the Chairman of the Monetary Board. The Section 9:
Governor of the Bangko Sentral shall be head of a Section 9. Disqualifications. - In addition to the
department and his appointment shall be subject disqualifications imposed by Republic Act No. 6713, a
to confirmation by the Commission on member of the Monetary Board is disqualified from being a
Appointments. Whenever the Governor is unable to director, officer, employee, consultant, lawyer, agent or
attend a meeting of the Board, he shall designate a stockholder of any bank, quasi-bank or any other institution
Deputy Governor to act as his alternate: Provided, which is subject to supervision or examination by the

BANKING PAGE || 9
Bangko Sentral, in which case such member shall resign Section 6:

from, and divest himself of any and all interests in such xxx
institution before assumption of office as member of the
Monetary Board. (a) the Governor of the Bangko Sentral, who shall be the
Chairman of the Monetary Board. The Governor of the
The members of the Monetary Board coming from the Bangko Sentral shall be head of a department and his
private sector shall not hold any other public office or public appointment shall be subject to confirmation by the
employment during their tenure. Commission on Appointments. Whenever the Governor is
unable to attend a meeting of the Board, he shall designate a
No person shall be a member of the Monetary Board
Deputy Governor to act as his alternate: Provided, That in
if he has been connected directly with any multilateral
such event, the Monetary Board shall designate one of its
banking or financial institution or has a substantial interest
members as acting Chairman;
in any private bank in the Philippines, within one (1) year
prior to his appointment; likewise, no member of the (b) a member of the Cabinet to be designated by the
Monetary Board shall be employed in any such institution President of the Philippines. Whenever the designated
within two (2) years after the expiration of his term except Cabinet Member is unable to attend a meeting of the Board,
when he serves as an official representative of the Philippine he shall designate an Undersecretary in his Department to
Government to such institution. attend as his alternate; and
xxx
After you end your term, you cannot also be a consultor, etc
for 2 years. So the formula is 1 before and 2 after so that you
The deputies have the right to attend the meetings and be
will be objective in participating in the deliberations of the
there. And if the governor who presides in the board meetings
Monetary board. That insures independence.
is absent, he must choose a deputy that will take his place in
the meetings. Because they meet once a week. To manage the
What are the requirements under the law?
monetary policy in the Philippines, it requires a meeting once
Section 8:
a week of the monetary board.
Section 8. Qualifications. - The members of the Monetary
Board must be natural-born citizens of the Philippines, at
least thirty-five (35) years of age, with the exception of the Section 11:
Governor who should at least be forty (40) years of age, of Section 11. Meetings. - The Monetary Board shall meet at
good moral character, of unquestionable integrity, of known least once a week. The Board may be called to a meeting by
probity and patriotism, and with recognized competence in the Governor of the Bangko Sentral or by two (2) other
social and economic disciplines. members of the Board.
The presence of four (4) members shall constitute a
He must be a natural born Citizen. He must be 35 years old. quorum: Provided, That in all cases the Governor or his duly
But the Bangko Sentral governor must at least be 40 years designated alternate shall be among the four (4).
old. And then, you must have some 10 years experience in Unless otherwise provided in this Act, all decisions of
banking, or credit, or monetary policy. And then there are of the Monetary Board shall require the concurrence of at least
course these requirements that are purely hortatory. What do four (4) members.
you mean by purely hortatory? (Google: Hortatory is a word
used to describe a behavior or action that is encouraging.) The Bangko Sentral shall maintain and preserve a
complete record of the proceedings and deliberations of the
Monetary Board, including the tapes and transcripts of the
[Segue:He must have the boy scout qualities ba. But it cannot stenographic notes, either in their original form or in
be verified. How can you verify it?] microfilm.
Now, in the ordinary board of directors, a member of the board

of directors cannot appoint a proxy to attend a meeting. Now if the Bangko Sentral Governor goes to a conference
Stockholders, in a stock and profit corporation, can appoint a outside the Philippines, and the day falls on a meeting, then
proxy. But a board of director (in the monetary board) cannot the law allows for a substitute. He will designate. Why?
appoint a proxy. But in the monetary board, the deputy Because the law says that for a regular business to be
governors and the Bangko Sentral Governor can appoint a conducted by the monetary board, at least 4 members of the
minimum of 3 deputies. board must vote to approve this measure. And one of the

BANKING PAGE || 10
votes of these 4 votes must be of the Governor of the Bangko the text of the law itself.]
Sentral or his substitute.
What are the powers of the Monetary Board? As we have see,
Let's qualify. Who can call meetings? The Governor of the we have already seen the compositions, qualifications, and
Bangko Sentral or any 2 members of the Bangko Sentral. So, 2 disqualifications of the members of the Monetary Board.
independent members of the monetary board from the private Review:
sector can call for a meeting. And the Bangko Sentral Section 6. Composition of the Monetary Board. - The
governor is forced to intervene. powers and functions of the Bangko Sentral shall be
exercised by the Bangko Sentral Monetary Board, hereafter
Now, in cases of emergency, the Bangko Sentral Governor can referred to as the Monetary Board, composed of seven (7)
act by itself with concurrence of 1 of the members of the members appointed by the President of the Philippines for a
term of six (6) years.
monetary board. Afterwhich, he will convene a meeting and
report on the action he has taken because of an emergency. The seven (7) members are:
Section 19: (a) the Governor of the Bangko Sentral, who shall
Section 19. Authority of the Governor in Emergencies. - In be the Chairman of the Monetary Board. The
case of emergencies where time is sufficient to call a Governor of the Bangko Sentral shall be head of a
meeting of the Monetary Board, the Governor of the Bangko department and his appointment shall be subject
Sentral, with the concurrence of two (2) other members of to confirmation by the Commission on
the Monetary Board, may decide any matter or take any Appointments. Whenever the Governor is unable to
action within the authority of the Board. attend a meeting of the Board, he shall designate a
The Governor shall submit a report to the President Deputy Governor to act as his alternate: Provided,
and Congress within seventy-two (72) hours after the action That in such event, the Monetary Board shall
has been taken. designate one of its members as acting Chairman;
At the soonest possible time, the Governor shall call (b) a member of the Cabinet to be designated by
a meeting of the Monetary Board to submit his action for the President of the Philippines. Whenever the
ratification. designated Cabinet Member is unable to attend a
meeting of the Board, he shall designate an
Undersecretary in his Department to attend as his
The example I give normally is the example of a bank that alternate; and
goes on a bank run. (c) five (5) members who shall come from the
private sector, all of whom shall serve full-time:
[Segue: Muingon gani kag bank run, ang Bangko dili mudagan. Provided, however, That of the members first
Ang mga depositors ang maoy nidagan ngadto sa Bangko.] appointed under the provisions of this subsection,
three (3) shall have a term of six (6) years, and the
If there is a bank run, no bank survives. Why? Because most of other two (2), three (3) years.
the money of the depositors have already been lent out. So no No member of the Monetary Board may be
matter how healthy the bank is, it can never survive a bank reappointed more than once.
run. How does a bank survive a bank run? With wealthy
infusion of cash from the Bangko Sentral. That will be Section 7. Vacancies. - Any vacancy in the Monetary
Board created by the death, resignation, or removal of any
considered as advances or loans by the bank. Who decides member shall be filled by the appointment of a new member
that? The Bangko Sentral Governor can decide that even to complete the unexpired period of the term of the member
without a meeting from the monetary board because it would concerned.
cause a systemic dysfunction of the banking industry. Mag
sunod-sunod unya. So they have to stop a bank run. Section 8. Qualifications. - The members of the
Monetary Board must be natural-born citizens of the
Philippines, at least thirty-five (35) years of age, with the
exception of the Governor who should at least be forty (40)
November 19, 2015 years of age, of good moral character, of unquestionable
integrity, of known probity and patriotism, and with
[Segue: So I gave you those latest legislation on banks and recognized competence in social and economic disciplines.
those critical comments. You should at least be familiar with

BANKING PAGE || 11
Section 9. Disqualifications. - In addition to the approval, shall be instituted as an integral component of the
disqualifications imposed by Republic Act No. 6713, a Bangko Sentral's human resource development program:
member of the Monetary Board is disqualified from being a Provided, That the Monetary Board shall make its own
director, officer, employee, consultant, lawyer, agent or system conform as closely as possible with the principles
stockholder of any bank, quasi-bank or any other institution provided for under Republic Act No. 6758: Provided,
which is subject to supervision or examination by the however, That compensation and wage structure of
Bangko Sentral, in which case such member shall resign employees whose positions fall under salary grade 19 and
from, and divest himself of any and all interests in such below shall be in accordance with the rates prescribed under
institution before assumption of office as member of the Republic Act No. 6758.
Monetary Board.
On the recommendation of the Governor, appoint, fix
The members of the Monetary Board coming from the the remunerations and other emoluments, and remove
private sector shall not hold any other public office or public personnel of the Bangko Sentral, subject to pertinent civil
employment during their tenure. service laws: Provided, That the Monetary Board shall have
exclusive and final authority to promote, transfer, assign, or
No person shall be a member of the Monetary Board if
reassign personnel of the Bangko Sentral and these
he has been connected directly with any multilateral banking
personnel actions are deemed made in the interest of the
or financial institution or has a substantial interest in any
service and not disciplinary: Provided, further, That the
private bank in the Philippines, within one (1) year prior to
Monetary Board may delegate such authority to the Governor
his appointment; likewise, no member of the Monetary Board
under such guidelines as it may determine.
shall be employed in any such institution within two (2)
years after the expiration of his term except when he serves (d) adopt an annual budget for and authorize such
as an official representative of the Philippine Government to expenditures by the Bangko Sentral as are in the
such institution. interest of the effective administration and
operations of the Bangko Sentral in accordance
with applicable laws and regulations; and
What are the powers (of the Monetary Board)? That is Section
15: (e) indemnify its members and other officials of
Section 15. Exercise of Authority. - In the exercise of its the Bangko Sentral, including personnel of the
departments performing supervision and
authority, the Monetary Board shall:
examination functions against all costs and
(a) issue rules and regulations it considers expenses reasonably incurred by such persons in
necessary for the effective discharge of the connection with any civil or criminal action, suit or
responsibilities and exercise of the powers vested proceedings to which he may be, or is, made a
upon the Monetary Board and the Bangko Sentral. party by reason of the performance of his
The rules and regulations issued shall be reported functions or duties, unless he is finally adjudged in
to the President and the Congress within fifteen such action or proceeding to be liable for
(15) days from the date of their issuance; negligence or misconduct.
(b) direct the management, operations, and In the event of a settlement or compromise,
administration of the Bangko Sentral, reorganize indemnification shall be provided only in connection with
its personnel, and issue such rules and regulations such matters covered by the settlement as to which the
as it may deem necessary or convenient for this Bangko Sentral is advised by external counsel that the
purpose. The legal units of the Bangko Sentral person to be indemnified did not commit any negligence or
shall be under the exclusive supervision and misconduct.
control of the Monetary Board;
The costs and expenses incurred in defending the
(c) establish a human resource management aforementioned action, suit or proceeding may be paid by
system which shall govern the selection, hiring, the Bangko Sentral in advance of the final disposition of
appointment, transfer, promotion, or dismissal of such action, suit or proceeding upon receipt of an
all personnel. Such system shall aim to establish undertaking by or on behalf of the member, officer, or
professionalism and excellence at all levels of the employee to repay the amount advanced should it ultimately
Bangko Sentral in accordance with sound be determined by the Monetary Board that he is not entitled
principles of management. to be indemnified as provided in this subsection.
A compensation structure, based on job evaluation
studies and wage surveys and subject to the Board's It can issue rules and regulation and is binding upon all those

BANKING PAGE || 12
entities that are directly under its supervision and regulation. empowered to:
Then it shall direct management operations and regulations of (a) represent the Monetary Board and the Bangko
the Bangko Sentral. It appoints personnel, disciplines Sentral in all dealings with other offices, agencies
personnel, and it can also dismiss a personnel for a cause. and instrumentalities of the Government and all
other persons or entities, public or private, whether
The Monetary Board has the exclusive and final authority to domestic, foreign or international;
promote, transfer, assign, or re-assign a personnel of the (b) sign contracts entered into by the Bangko
Bangko Sentral and this personnel actions are deemed made Sentral, notes and securities issued by the Bangko
in the interest of service and not disciplinary. Provided further Sentral, all reports, balance sheets, profit and loss
that the Monetary Board may delegate such authority to the statements, correspondence and other documents
governor under such guidelines as it may determine. of the Bangko Sentral.
The signature of the Governor may be in
It adopts an annual budget for and authorize such facsimile whenever appropriate;
expenditures by the Bangko Sentral as are in the interest of
the effective administration and operations of the Bangko (c) represent the Bangko Sentral, either personally
or through counsel, including private counsel, as
Sentral in accordance with applicable laws and regulations. may be authorized by the Monetary Board, in any
legal proceedings, action or specialized legal
And then, it shall idemify its members and other officials of studies; and
the Bangko Sentral, including personnel of the departments
performing supervision and examination functions against all (d) delegate his power to represent the Bangko
Sentral, as provided in subsections (a), (b) and (c)
costs and expenses reasonably incurred by such persoons in of this section, to other officers upon his own
connection with any civil or criminal action, suit or responsibility: Provided, however, That in order to
proceedings to which he may be, or is, made a party by reason preserve the integrity and the prestige of his office,
of the performance of his functions or duties, unless he is the Governor of the Bangko Sentral may choose
finally adjudged in such action or proceeding to be liable for not to participate in preliminary discussions with
negligence or misconduct. any multilateral banking or financial institution on
any negotiations for the Government within or
So, the costs and expenses incurred in defending the outside the Philippines. During the negotiations, he
aforementioned suit or action or proceeding will be paid by may instead be represented by a permanent
negotiator.
the Bangko Sentral in advance of the final disposition of such
suit, action or proceeding upon receipt of an undertaking by
or on behalf of the member, officer, or employee to repay the So who represents the monetary board? It is the Bangko
amount advanced should it ultimately be determined by the Sentral Governor. Pag abot na nila didto, Central Bank
Monetary board that he is not entitled to be indemnified as Governor nay tawag sa iyaha didto bisan wala na sya.
provided in this subsection.
He can also sign contracts entered into by the Bangko Sentral,
So those are the powers of the Monetary Board. notes and securities issued by the Bangko Sentral, all reports,
balance sheets, proffit and loss statements, correspondence
The Governor has an enumeration here of specific duties and and other documents of the Bangko Sentral.
powers (such as) to represent the monetary board in all of its
dealings with other offices, agencies and instrumentalities of So who signs the bill? The P100.00 bill? By law, it is the
the Government and all other persons or entities, public or Bangko Sentral Governor. Tan-awa na kung naa ba dira ang
private, whether domestic, foreign or international. iyahang signature. [Segue: Look at it. Who signed it?
Section 18: Titangco?]
Section 18. Representation of the Monetary Board and the
Bangko Sentral. - The Governor of the Bangko Sentral shall So he signs the contracts and he signs notes and securities
be the principal representative of the Monetary Board and of issued by the Bangko Sentral. It is here! He has the power to
the Bangko Sentral and, in such capacity and in accordance sign.
with the instructions of the Monetary Board, he shall be

BANKING PAGE || 13
Now sya ba jud ba ang ni-sign ana? The law says that the eleemonsynary [Segue: charity ba! Limos. E-LIMOS-ynary. ),
signature of the governor may be in facsimile whenever civic, cultural, or religious organizations or whenever, by
appropriate. Kopyahon na ang iyahang signature unya ibutang designation of the President, the Governor, or the full-time
na dira. [Segue: Kung ang presidente man gani diri (sa Ateneo) member is tasked to represent the interest of the Government
di man gani mupirma sa diploma, Central Bank Governor pa or other government agencies in matters connected with or
kaha? Wala na syay mahimo lain ana! That is why the law affecting the economy or the fiinancial system of the country.
provides that his signature may be in facsimile whenever Section 20:
appropriate.] Section 20. Outside Interests of the Governor and the Full-
time Members of the Board. - The Governor of the Bangko
Now, prima facie the moment that signature appears, it is his Sentral and the full-time members of the Board shall limit
signature, unless he later on disavows or disowns it. In which their professional activities to those pertaining directly to
their positions with the Bangko Sentral. Accordingly, they
case, he has the burden of proof. [Segue: Muingon, “nganong may not accept any other employment, whether public or
naa man dira ang imong signature? Wala nimo tagu-i imong private, remunerated or ad honorem, with the exception of
facsimile? Gipamaligya ba daw nimo imong signature?] positions in eleemosynary, civic, cultural or religious
organizations or whenever, by designation of the President,
Now, the Governor may represent the Bangko Sentral, either the Governor or the full-time member is tasked to represent
personally or through counsel, including private counsel, in the interest of the Government or other government agencies
any legal proceedings, action or specialized legal studies. in matters connected with or affecting the economy or the
financial system of the country.
He can also delegate his power to represent the Bangko
Sentral. So he can assign one of his deputies to attend to his How many deputy governors shall there be? Not more than 3
duties for representation. deputy Governors who shall perform duties as may be
assigned to them by the Governor and the Board.
And then here in Section 19, authority of the Governor in case
of Emergencies. Remember, the Deputy Governor can attend the meeting of the
Section 19: board in lieu of the Governor and precide over the Monetary
Section 19. Authority of the Governor in Emergencies. - In Board meeting.
case of emergencies where time is sufficient to call a
meeting of the Monetary Board, the Governor of the Bangko Whenever the Governor is unable to attend meetings of the
Sentral, with the concurrence of two (2) other members of government boards or councils in which he is an ex officio
the Monetary Board, may decide any matter or take any member, a deputy Governor as may be designated by the
action within the authority of the Board. Governor shall be vested with authority to participate and
The Governor shall submit a report to the President exercise the right to vote in such meetings.
and Congress within seventy-two (72) hours after the action Section 21:
has been taken. Section 21. Deputy Governors. - The Governor of the Bangko
Sentral, with the approval of the Monetary Board, shall
At the soonest possible time, the Governor shall call a
appoint not more than three (3) Deputy Governors who shall
meeting of the Monetary Board to submit his action for
perform duties as may be assigned to them by the Governor
ratification.
and the Board.
The example I gave you is in cases of a bank run when the In the absence of the Governor, a Deputy Governor
Governor authorizes to give advances to a bank that is in designated by the Governor shall act as chief executive of
trouble. He can do so in concurrence of 2 members of the the Bangko Sentral and shall exercise the powers and
money board and then later he can make a report in it. When perform the duties of the Governor. Whenever the
time is of the essence. Government is unable to attend meetings of government
boards or councils in which he is an ex officio member
Now, the Governor is limited as to his professional activities— pursuant to provisions of special laws, a Deputy Governor as
limited as to those pertaining directly to the position with the may be designated by the Governor shall be vested with
authority to participate and exercise the right to vote in such
Bangko Sentral. He cannot accept any other employment, meetings.
whether public or private, remunerated or ad honorem, with
the exception of positions in (and these are the exceptions)

BANKING PAGE || 14
Later on, you will find out that the Governor of the Bamo the issuance and dissolution of the restraining order or
Sentral is also the chairman of the Anti-money laundering injunction contemplated in this section.
Committee.
The Bangko Sentral shall have supervision over, and conduct
So kung magdungan ang meeting sa AMLA og sa Monetary periodic or special examinations of, banking institutions and
Board, he (the Governor) can send his deputy in the meeting of quasi-banks, and (again, this is new) including their
either AMLA or Monetary Board. That is why that is allowed subsidiaries and affiliates engaged in allied activities.
because he has many duties.
Before, in the old Central Bank Law, the Central Bank will not
Now, what are the entities that are subject to the supervision audit, examine or investigate subsidiaries of the bank that are
and examination of the Bangko Sentral? not covered by the law which the Bangko Sentral is authorized
Section 25: to supervise and regulate. Now, they are covered for as long
Section 25. Supervision and Examination. - The Bangko as they are affiliates and subsidiaries of the bank that is under
Sentral shall have supervision over, and conduct periodic or
the supervision of the Bangko Sentral.
special examinations of, banking institutions and quasi-
banks, including their subsidiaries and affiliates engaged in
allied activities. Now the law further clarifies that for the purposes of this
setion, a subsidiary means a corporation more than 50% of
For purposes of this section, a subsidiary means a the voting stock of which is owned by a bank or quasi bank.
corporation more than fifty percent (50%) of the voting stock
An affiliate means a corporation the voting stock of which, to
of which is owned by a bank or quasi-bank and an affiliate
means a corporation the voting stock of which, to the extent the extent of 50% or less, is owned by a bank or quasi-bank or
of fifty percent (50%) or less, is owned by a bank or quasi- which is related or linked to such institution or intermediary
bank or which is related or linked to such institution or through common stockholders or such other factors as may
intermediary through common stockholders or such other be determined by the Monetary Board.
factors as may be determined by the Monetary Board.
The department heads and the examiners of the Under the Corporation Law, there are these three (3)
supervising and/or examining departments are hereby categories:
authorized to administer oaths to any director, officer, or 1. Wholly-owned
employee of any institution under their respective 2. Subsidiary or
supervision or subject to their examination and to compel 3. affiliate
the presentation of all books, documents, papers or records
necessary in their judgment to ascertain the facts relative to In wholly-oned, if you own 95% of the outstanding capital
the true condition of any institution as well as the books and
stock of a corporation, that means that it is wholly owned by
records of persons and entities relative to or in connection
with the operations, activities or transactions of the that mother corporation that holds the 95% of the outstanding
institution under examination, subject to the provision of capital stocks.
existing laws protecting or safeguarding the secrecy or
confidentiality of bank deposits as well as investments of If it is 50% + 1 of the outstanding capital stock, then that is a
private persons, natural or juridical, in debt instruments subsidiary.
issued by the Government.
No restraining order or injunction shall be issued by If it is 50% or less, then it is an affiliate.
the court enjoining the Bangko Sentral from examining any
institution subject to supervision or examination by the What is the difference between an affiliate and a subsidiary?
Bangko Sentral, unless there is convincing proof that the The financial statements of a subsidiary is consolidated with
action of the Bangko Sentral is plainly arbitrary and made in the financial statement of the mother corporation. The
bad faith and the petitioner or plaintiff files with the clerk or Affiliate's financial statement cannot be consolidated with the
judge of the court in which the action is pending a bond holding(?) mother corporation. So that's the difference.
executed in favor of the Bangko Sentral, in an amount to be
fixed by the court. The provisions of Rule 58 of the New
Rules of Court insofar as they are applicable and not But if you are a subsidiary or an affiliate of a bank, bisag 10%
inconsistent with the provisions of this section shall govern ra nag shares sa Bangko dira sa corporation, the Bangko

BANKING PAGE || 15
Sentral can go to that affiliate of the corporation and can In approving now of the loan by the board of directors of the
audit that affiliate that affiliate corporation. I'll give you an bank (I am just summarizing now the memos of the Bangko
example. Sentral), the DOSRI individual—his presence in the board
meeting—must not be required to establish a quorum.
BDO. A universal bank. It can engage in an allied banking
business or non-allied. What is an example of an allied Second, his vote must not necessary for the approval of the
business? Thrift bank. BDO is an expanded commercial bank. board. You know, banks. In order to have a hierarchy and
It is a Unibank. It owns another bank. Philippine Savings bank. official(?) function, the board already delegates the executive
It owns another bank. One Network bank. committee of certain loans up to a certain amount. The board
begins only to deal with it once it is P50,000,000.00 and
How about non-allied? Banco de oro owns a leasing company. above. Lower than that, it is the ___ that will handle. Now, if it
Leasing. Mag lease og mga bodega, sakyanan. That is real is a board of director that will borrow less than P50M,
property business. That is not allied to banking. And yet the technically, it should not be reviewed by the board. Now
Bangko Sentral can go in there and check its financial because it is DOSRI, the Central Bank requires that it must be
statements for them to see if it is truly reflected in the approved by the board. Pirmahan man na sa tanang board of
financial statement. directors na mu-approve. And then, the borrower, who is at the
same time a DOSRI, signs a waiver—that he waives his right
Before, you cannot do that. That is not allowed by the old under the secrecy of Bank deposits. That means, all his
Central Bank law. Now, that is explicitly allowed. deposits will be reported to the monetary board. And the
committee there, keeps track of all the DOSRI loans. Kaybalo
Alright. Let's go to this very important topic. Section 26. The sila kung pila imong gihulam unya kabalo sad sila kung pila
short term for this is DOSRI—Director, officer, stockholder, ang imong gideposito.
related interest.
Section 26: So, now it is automatic. No bank of any significant size can
Section 26. Bank Deposits and Investments. - Any director, operate without that special program that takes note of DOSRI
officer or stockholder who, together with his related interest, loans and has a type in fit(?) to the monetary board. Why is
contracts a loan or any form of financial accommodation this necessary? What is the reason behind this?
from: (1) his bank; or (2) from a bank (a) which is a
subsidiary of a bank holding company of which both his
In a business bank, you put up a bank in order to just borrow
bank and the lending bank are subsidiaries or (b) in which a
controlling proportion of the shares is owned by the same from the bank. Muingon ka “Iyaha man nang Bangko kung asa
interest that owns a controlling proportion of the shares of sya muhulam!” Ang kadaot lang kay ang Bangko
his bank, in excess of five percent (5%) of the capital and nagapahulam pero dili sa kwarta sa Bangko. What it lends is
surplus of the bank, or in the maximum amount permitted by other people's money. It is the deposits that are lent out to the
law, whichever is lower, shall be required by the lending bank borrower and the real traditional income of the bank is the
to waive the secrecy of his deposits of whatever nature in all difference between the income in the interest paid to the
banks in the Philippines. Any information obtained from an depositor and the interest received from the borrower. Mao na
examination of his deposits shall be held strictly confidential na ang income sa Bangko. The real strict banking business.
and may be used by the examiners only in connection with
What happened? Ang Bangko na naay capital, nisulod syag
their supervisory and examination responsibility or by the
Bangko Sentral in an appropriate legal action it has initiated laing negosyo—mupalit syag shares, mupalit syag bonds,
involving the deposit account. musulod syag future's contract. That is the job of the treasury.
Ah! Dira na nagkagidlay kay nagduwa an silag subprime
Taas kaayo na provision. Mao ni ang gitawag nga DOSRI. unrelated mortgage. [Segue: mao na ang nahimo sa 2008
tong nagkagidlay ang banking business sa US. Mao ni nisulod
Naa kay director, officer, stockholder, related interest. Pag ang Volcker Rule—Google: A federal regulation that prohibits
hulam sa Bangko, mao na ni ang requirement. No matter how banks from conducting certain investment activities with their
much the loan is, it must be approved by the board of own accounts, and limits their ownership of and relationship
directors of the bank. with hedge funds and private equity funds, also called covered
funds.]

BANKING PAGE || 16
Strict banking business, the main banking business, is Alright. You read about DOSRI. Dili lang kay ang tag-iya na. If
monotonous. Kana ra! Walay apil-apil nang shares and bonds it is the majority stockholder of the company who is
even if it is your own money because that is an additional risk. borrowing from another bank with the same holding company,
And the public is entitled to have a stable banking system. that is still DOSRI. Naay mga diagram ana. You have you go to
That is why there is this DOSRI rule. [Segue: Pero unsa may the Circular Bank No. 170 because it is diagramed there of
mahimo. I am Abboitiz. Here is Henry Sy. Here is Lucio Tan. what constitutes DOSRI.
Unsay Bangko ni Lucio Tan? Allied and PNB. Si Henry Sy
unsay Bangko? BDO. Unsay Bangko ni Abboitiz? UnionBank. Date Issued: 08.05.1998
Ostensively, naay muservice sa imong cash requirement. You
have a cash, magbuhat na kag Bangko. Pero kung magbuhat
Number: 0170
kag Bangko unya gamiton nimo imong kwarta, that is DOSRI.
So what do you do? Ah! Magsabot na lang mong tulo! Wa man
na dakpi sa DOSRI. Diba? Walay musulti ana sa inyo sa
commentaries! That is a widespread practice and it does not CIRCULAR NO. 170
get into the radar directly of the Bangko Sentral.] Series of 1998
[Segue: About PLDT/Smart dealing with a lot of amount of Pursuant to Monetary Board Resolution Nos. 832 and 1098 dated
cash. At one time, it has P75Bil. It gets to the point that it is June 10, 1998 and August 5, 1998, respectively, the following
the Bangko Sentral that determines the ceiling of the bank to clarifications and illustrations are hereby issued relative to Section
which it can deposit its cash. Kay mag-away na man na sila. 26 of Republic Act No. 7653:
Nganong di na lang na sya mutukod ug iyahang Bangko?
Because it has experienced a serious bank run.] 1. All banks and their directors, officers or stockholders shall
continue to comply with Section 26 of Republic Act No. 7653, which
Now, the DOSRI solves the problem of the bank owner provides, thus:
borrowing from his own bank. It does not solve the kaban of
bankers lending to each other. It goes below the radar and
"SECTION 26. Bank Deposits and Investments. — Any director,
monitoring of the Bangko Sentral.
officer or stockholder who, together with his related interest,
contracts a loan or any form of financial accommodation from: (1)
Now, you waive your rigt to bank secrecy. You are now in the
his bank; or (2) from a bank (a) which is subsidiary of a bank holding
list that is monitored by the monetary board. Not only your
company of which both his bank and lending bank are subsidiaries
loan that is on the list but your deposits are also listed. What
or (b) in which a controlling proportion of the shares is owned by the
happens when you reneged on your loan? Ang unang mu-act
same interest that owns a controlling proportion of the shares of his
kay ang monetary board. The monetary board will warn you. If
bank, in excess of five percent (5%) of the capital and surplus of the
you will not pay your loan, we (the board) will consider you as
bank, or in the maximum amount permitted by law, whichever is
resigned as member of the board—which is greater pressure.
lower, shall be required by the lending bank to waive the secrecy of
Why? Mahibal-an man sa lain tao na niresign na ka. “Gi-
his deposits of whatever nature in all banks in the Philippines. Any
football tingali ni kay niresign man sya sa Bangko Sentral sa
information obtained from an examination of his deposits shall be
Bangko niya.” That is where the question begins. [Segue: I do
held strictly confidential and may be used by the examiners only in
not know if you are familiar with the Overseas Bank? They (the
connection with their supervisory and examination responsibility or
family) put up a bank so they could finance their real estate
by the Bangko Sentral in an appropriate legal action it has initiated
business. Nag sigi silag hulam sa ilahang Bangko and they are
involving the deposit account."
way too generous sa pag rate sa ilahang pagpahulam. Ang
valuation sa collaterals lahi sad.
2. The following elements must concur for abovequoted Section 26,
Normally dili na nila kinalanglan ug appraiser ana. Republic Act No. 7653 to apply:
Experienced na man sila. Pero when it comes to Intellectual
property, shares of stock which often fluctuates in value, a. The borrower is a director, officer or any stockholder of a
gikinahanglan na nilag third-party appraiser.] bank;
b. He contracts a loan or any form of financial

BANKING PAGE || 17
accommodation; officer of the bank, or his spouse is also director or officer

c. The loan or financial accommodation is from (1) his bank of such corporation, association or firm, except (a) where
or (2) a bank that is a subsidiary of a bank holding the securities of such corporation, association of firm are
company of which both his bank and the lending bank are listed and traded in the big board or commercial and
subsidiaries, or (3) a bank in which a controlling industrial board of domestic stock exchanges and less
proportion of the shares is owned by the same interest than fifty percent (50%) of the voting stock thereof is
that owns a controlling proportion of the shares of his owned by any one person or by persons related to each
bank; and other within the third degree of consanguinity or affinity;
d. The loan or financial accommodation of the director, or (b) where the director, officer or stockholder of the
officer or stockholder, singly or with that of his related lending bank sits as a representative of the bank in the
interest, is in excess of 5% of the capital and surplus of board of directors of such corporation: Provided, That the
the lending bank or in the maximum amount permitted by bank representative shall not have any equity interest in
law, whichever is lower. the borrower corporation except for the minimum shares
required by law, rules and regulations, or by the by-laws of
3. In paragraph 2(a) above, the director, officer or any stockholder the corporation: Provided, further, That the borrowing
should himself be the borrower or recipient of the loan or financial corporation under (a) or (b) is not among those mentioned
accommodation. Thus, if the borrower is the related interest but not in items (5) and (6) hereof.
the director, officer or stockholder himself, the director, officer or 5. Corporation, association or firm of which any or a group of
stockholder is not required to waive the secrecy of his bank directors, officers, stockholders of the lending bank
deposits. The function of the phrase "who, together with his related and/or their spouses or relatives within the first degree of
interest" in abovequoted Section 26 is to determine whether the consanguinity or affinity, or relative by legal adoption,
loan(s) or financial accommodation(s) exceeds the aggregate ceiling hold/own more than twenty percent (20%) of the
prescribed therein. subscribed capital of such corporation, or of the equity of
such association or firm;
Moreover, the term "stockholder" means one as defined in Section
6. Corporation, association or firm wholly or majority-owned
83 of Republic Act No. 337, as amended, and its implementing rules or controlled by any related entity or a group of related
in Part III of the Manual of Regulations for Banks and Other entities mentioned in items (2), (4) and (5) hereof.
Financial Intermediaries, owning two percent (2%) of more of the
subscribed capital stock of the bank. 5. In paragraph 2(b), the terms "loan" or "financial accommodation"
shall refer to transactions which involve the grant, renewal or
4. For purposes of Section 26 of Republic Act No. 7653, the term extension or increase of any loan, discount, credit or advance in any
"related interest" shall include the following: form whatsoever, including the transactions considered as such in
Part III of the Manual of Regulations for Banks and Other Financial
Intermediaries.
1. Spouse or relative within the first degree of consanguinity
or affinity, or relative by legal adoption, of a director,
6. The following are illustrations of paragraphs 2(c)(2) and 2(c)(3)
officer or stockholder of the bank;
2. Partnership of which a director, officer, or stockholder or above:
his spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, is a Paragraph 2(c)(2)
general partner;
3. Co-owner with the director, officer, stockholder or his Thus, if Mr. A, who is a director of Z Bank borrows
spouse or relative within the first degree of consanguinity from Y Bank, he should waive the secrecy of
or affinity, or relative by legal adoption, of the property or deposits of whatever nature in all banks in the
interest or right mortgaged, pledged or assigned to secure Philippines since both Y Bank and Z Bank are
the loans or credit accommodations, except when the subsidiaries of X Holding Company.
mortgage, pledge or assignment covers only said co-
owner's undivided interest;
4. Corporation, association, or firm of which a director or

BANKING PAGE || 18
Paragraph 2(c)(3)
Alright. Now, Section 27 of the New Central Bank Act recites
For purposes of this paragraph, "controlling interest" means the prohibitions that are found specifically for Central Bank
ownership of more than 50% of the voting stock or subscribed personnel. This is in addition to the Anti-Graft and Corrup
capital stock of the bank. practices Act and offical office. So what are these prohibitions
which the BSP personnel are bound?
Section 27:
In the illustration above, the controlling shares in both banks belong
Section 27. Prohibitions. - In addition to the prohibitions
to the "same interest", Owner A. The term "same interest" as used
found in Republic Act Nos. 3019 and 6713, personnel of the
herein shall refer to any of the following: Bangko Sentral are hereby prohibited from:
(a) being an officer, director, lawyer or agent,
a. The same natural person;
employee, consultant or stockholder, directly or
b. The same corporation, partnership or entity; indirectly, of any institution subject to supervision
c. The same family group, i.e., persons related to each other or examination by the Bangko Sentral, except non-
within the third degree of consanguinity or affinity, stock savings and loan associations and provident
including any corporation majority or all of the equity of funds organized exclusively for employees of the
which is owned by such family group; or Bangko Sentral, and except as otherwise provided
d. The same business group, i.e., a group of persons whose in this Act;
stockholdings altogether constitute a majority or control (b) directly or indirectly requesting or receiving any
in one or more enterprises. gift, present or pecuniary or material benefit for
himself or another, from any institution subject to
Thus, if Mr. B., who is a director of Bank Z, borrows from Bank Y, Mr. supervision or examination by the Bangko Sentral;
B should waive the secrecy of his deposits of whatever nature in all (c) revealing in any manner, except under orders of
banks in the Philippines since the controlling shares in both banks the court, the Congress or any government office
belong to the "same interest". or agency authorized by law, or under such
conditions as may be prescribed by the Monetary
Board, information relating to the condition or
7. In paragraph 2(d) above, the phrase "maximum amount permitted
business of any institution. This prohibition shall
by law" refers to the limit on loans that may be extended to a not be held to apply to the giving of information to
director, officer or stockholder under Section 83 of R.A. No. 337, as the Monetary Board or the Governor of the Bangko
amended. Sentral, or to any person authorized by either of
them, in writing, to receive such information; and
8. Violations of Section 26 of Republic Act No. 7653 committed (d) borrowing from any institution subject to
after date of issuance of this Circular, or those committed in supervision or examination by the Bangko Sentral
connection with loans or financial accommodations granted on or shall be prohibited unless said borrowings are
after July 3, 1993 (date of effectivity of Republic Act No. 7653) and adequately secured, fully disclosed to the
which are still outstanding on the date of this Circular, will subject Monetary Board, and shall be subject to such
the offender to the sanctions provided under Section 37 of Republic further rules and regulations as the Monetary
Act No. 7653. Board may prescribe: Provided, however, That
personnel of the supervising and examining
departments are prohibited from borrowing from a
bank under their supervision or examination.
November 25, 2015

So you canot be a director, officer, lawyer, agent, employee or
So we have seen the monetary board, its qualifications and consultant or a stockholder. Do you know how that is
etcetera. The DOSRI. I'll leave you to go through the BSP violated?
Circular No. 170 ha because this is the decision of what
constitutes interrelated interest. There are many kinds of You are a bank. And you want to be a part of a practice. There
relationships. is a prohibition of government offices from depositing their
payroll except with the government banks. Now, that used to

BANKING PAGE || 19
be finebefore because PNB was used to be in a government na di man na balay! Unya kay giclassify na as made of first
bank. It has branches all over the Philippines. What class materials. And fully covered imong loan nga
happened? It became a private bank. So there are no more P600,000.00. Pwede na ka maqualify as townhouse. Macheck
branches in cities where it used to be. So what happens? ba na? Lisod na na macheck. The examiners of the Bangko
Local government offices has to deposit their money from the Sentral, when they examine a bank, what they do is they make
distance. Suppose you are a bank. And then you say “Can we a random checks. Mangita na sila sa ilahang index. Random
deposit the money with you?” You'd day “Maybe we should as ba.
the Bangko Sentral.” Now, if you will go and ask permission,
right away you'd be rejected! But then if you will go to the So these are the prohibitions that are not contained in the
Bangko Sentral and the chief will process this, they will have a Anti-Graft and Corrupt practices Act.
laywer and tell you that you should hire this because he is a
retired officer and he used to be the chairman of this division. Now, what is this examination and fees?
Ato-ato ra ni. Naa syay bahin sa lawyer's fees na imong Section 28.
gibayad. Ma-approve jud ang imong request. That is how it is Section 28. Examination and Fees. - The supervising and
violated. You are not actually an officer or consultant. But you examining department head, personally or by deputy, shall
are in cahoots with another consultant. examine the books of every banking institution once in every
twelve (12) months, and at such other times as the Monetary
Board by an affirmative vote of five (5) members, may deem
What are the other prohibitions? You are directly or indirectly expedient and to make a report on the same to the Monetary
requestinig or receiving any gift, present or pecuniary or Board: Provided, That there shall be an interval of at least
material benefit for himself or another, from any institution twelve (12) months between annual examinations.
subject to the supervision or examination by the Bangko
Sentral. This is always violated. Naay examiner na muanhi. The bank concerned shall afford to the head of the
appropriate supervising and examining departments and to
Imo rang tagaan ug pomelo. [Segue: But there was a decided his authorized deputies full opportunity to examine its books,
case wherein if it is in inconsequential in amouont, then there cash and available assets and general condition at any time
is no violation. P500.00 worth of pomelo, gamay ra na. Kung during banking hours when requested to do so by the Bangko
muabot na nag P5,000.00, lain na.] Sentral: Provided, however, That none of the reports and
other papers relative to such examinations shall be open to
Again, (another violation) revealing in any manner, except inspection by the public except insofar as such publicity is
under orders of the court, the Congress, or any government incidental to the proceedings hereinafter authorized or is
office or agency authoried by law, or under such conditions as necessary for the prosecution of violations in connection
may be prescribed by the Monetary Board, information with the business of such institutions.
relating to the condition or business of any institution. This Banking and quasi-banking institutions which are
prohibition shall not be hel to apply to the giving of subject to examination by the Bangko Sentral shall pay to
information to the Monetary Board or the Governor of the the Bangko Sentral, within the first thirty (30) days of each
Bangko Sentral, or to any person authorized by either of them, year, an annual fee in an amount equal to a percentage as
in writing, to receive such information. This is not secrecy of may be prescribed by the Monetary Board of its average total
assets during the preceding year as shown on its end-of-
bank deposits ha. This is “any information relating to the month balance sheets, after deducting cash on hand and
condition or business of any such institution.” amounts due from banks, including the Bangko Sentral and
banks abroad.
Another one. Borrowing from any institution subject to
supervision or examination by the Bangko Sentral. So if you
are one of the stocks of the examining division of Rural banks, [Father reads the first 2 paragraphs]
you cannot borrow from Rural Banks. What is the whole idea?
Because there can be a conflict of interest. They will give you So, it is somewhat confidential when they examine. When
more favorable terms. What do you mean by that? there is really a major difficulty and the bank is already under
stress, then the results in the examination will be __.
They cannot give you better interest because that is Remember, I referred you to the case of PDIC vs Philippine
monitored. But they can be generous in appraising your Countryside Development Bank. The annual examination does
collateral. Unsa may imong collateral? Imong balay. Unsa man not require any prior authorization by the monetary board

BANKING PAGE || 20
since that is already required by law. But if it is already a My suggestion is you read that because promissory estoppel
comprehensive examination that is not yet 12 months apart is not found in the Civil Code. Estoppel is a very key notion in
from the examination, then that requires a monetary board the civil code. You are estopped from arguing because you
prior authorization. have misled the other party into believing a contrary.
However, an inspection that is made specific—let's say with Before, this bank was operating in such a way that it was on
respect to fraud, with respect to AMLAs—, not just as to the its way to being unable to meet its obligations as they mature.
entire condition of the bank, that does not require a prior Why? Because he was too generous to lending to himself and
authorization of the monetary board. That is the ruling in PDIC his own corporation as well as many surrogates. He violated
vs Philippine Contryside Development Bank. many banking rules. The findings of the examiners were made
known to him and it was submitted to the Monetary Board. He
[Segue: Naabot ug 3 years. Nasamot ug kadaghan ang then went up to the Monetary Board and pleaded with the
depositors sa pyramiding.] Central Bank Governor. The Central Bank Governor gave him
an additional 60 days to raise the additional funds needed. He
Now, we come to the various stages of distress of the bank. must have raised this much so that his bank will not be
Banks in distress. Remember, I told you that banks are not closed.
covered by the Financial Rehabilitation and Insolvency Act of
2012. Banks that are experiencing involvency problems are So Ramos sold many properties and shares of stock. He
directed to the New Central Bank Act. Covered under that law. raised money and infused it. One week after he infused it, the
Monetary Board issued a closure of the bank. And the
So, there are three (3) stages of distress: Supreme Court said that the Central Bank Governor has
1. Conservatorship (Section 29) promised him that they will not close (the bank) if he will fulfill
2. Proceedings in receivership (Section 30) his conditions. He is estopped from closing. That is
3. Liquidatorship promissory estoppel.
Liquidation na gani, terminal na na. Conservator, mahimo pa From the Full text:
na maulian ka. Receiver, mao sad. Mahimo pang maulian ka. Even in the absence of contract, the record plainly shows
that the CB made express representations to petitioners
In Conservatorship, your bank continues to function as a herein that it would support the OBM, and avoid its
liquidation if the petitioners would execute (a) the Voting
bank. And then, a conservator is appointed. He is a third party.
Trust Agreement turning over the management of OBM to the
He can undo, overrule the board of directors and general CB or its nominees, and (b) mortgage or assign their
manager, and he has very wide powers. And within one (1) properties to the Central Bank to cover the overdraft balance
year, he will make a report to the Monetary Board on whether of OBM. The petitioners having complied with these
or not the bank will continue to function or whether it will slide conditions and parted with value to the profit of the CB
to a Receivership. Or even go straight to Liquidation. Or it may (which thus acquired additional security for its own
even go to a financial rehabilitation. advances), the CB may not now renege on its representations
and liquidate the OBM, to the detriment of its stockholders,
Rehabilitation na gani, mura ra nag additional funds will be depositors and other creditors, under the rule of promissory
estoppel.
infused into the bank. (inaudiblle) Syempre the existing
owners will resist that. Maungos man na sila na naay bag-o The broad general rule to the effect that a promise to do or
nga musulod nga mudalag kwarta. Nganog musulod man sila not to do something in the future does not work an estoppel
og magdalag kwarta sa Bangko? Because they will take must be qualified, since there are numerous cases in which
control of the bank! Mao na mag-away na sila. There is a case an estoppel has been predicated on promises or assurances
in this: Ramos vs Central Bank (Gr No. 29352). as to future conduct. The doctrine of "promissory estoppel"
is by no means new, although the name has been adopted
Ramos is Emerito Ramos, the owner of Overseas Bank in only in comparatively recent years. According to that
Manila. That is the time when the Supreme Court came out doctrine, an estoppel may arise from the making of a
promise, even though without consideration, if it was
with a ruling that there is such a thing as promissory estoppel.
intended that the promise should be relied upon and in fact it

BANKING PAGE || 21
was relied upon, and if a refusal to enforce it would be charge of the assets, liabilities, and the management
virtually to sanction the perpetration of fraud or would result thereof, reorganize the management, collect all monies and
in other injustice. In this respect, the reliance by the debts due said institution, and exercise all powers necessary
promisee is generally evidenced by action or forbearance on to restore its viability. The conservator shall report and be
his part, and the idea has been expressed that such action or responsible to the Monetary Board and shall have the power
forbearance would reasonably have been expected by the to overrule or revoke the actions of the previous
promissor. Mere omission by the promisee to do whatever management and board of directors of the bank or quasi-
the promisor promised to do has been held insufficient bank.
"forbearance" to give rise to a promissory estoppel. The conservator should be competent and
knowledgeable in bank operations and management. The
conservatorship shall not exceed one (1) year.
Pasalig diba. Pasaligan. You read that ha! That's when you
The conservator shall receive remuneration to be
realize that the Bangko Sentral is a real bank. It is not
fixed by the Monetary Board in an amount not to exceed
government. It is liable for damages. Now it is very clear here two-thirds (2/3) of the salary of the president of the
in the new Central bank Act that the duties of the Bangko institution in one (1) year, payable in twelve (12) equal
Sentral officials is that they are bound by extraordinary monthly payments: Provided, That, if at any time within one-
diligence. Not just ordinary diligence but extraordinary. Just year period, the conservatorship is terminated on the ground
as banks are bound by extraordinary diligence. that the institution can operate on its own, the conservator
shall receive the balance of the remuneration which he
Masayop ang teller nga forged diay ang cheque. Iyahang gi would have received up to the end of the year; but if the
close ang transaction. Muingon ang teller, “How can I know? I conservatorship is terminated on other grounds, the
conservator shall not be entitled to such remaining balance.
am not an expert!” Edi ayaw paglingkod dira! That is not an
The Monetary Board may appoint a conservator connected
excuse! You stand for and in behalf of the bank. Nagadawat ka with the Bangko Sentral, in which case he shall not be
sa ngalan sa Bangko and nagabayad ka sa ngalan sa Bangko. entitled to receive any remuneration or emolument from the
That is why, in the General Banking law, your services cannot Bangko Sentral during the conservatorship. The expenses
be contracted out. ang ubang services dira, mag mesage- attendant to the conservatorship shall be borne by the bank
message. Computerization. Mahimo nang i-contract out. Pero or quasi-bank concerned.
ikaw, teller na gani ka, you are hired because of certain The Monetary Board shall terminate the
qualities. Sa balaud, mao na imong obligasyon! Ang kabug-at conservatorship when it is satisfied that the institution can
sa imong gidala naa sa imong abaga. Ayawg sig pulbos- continue to operate on its own and the conservatorship is no
pulbos dira! Wa jud na. Makaluluoy. longer necessary. The conservatorship shall likewise be
terminated should the Monetary Board, on the basis of the
Conservatorship. The longest that it can last is one (1) year. report of the conservator or of its own findings, determine
Ang receivership, I think it is 90 days. Mas mubo. Ang that the continuance in business of the institution would
receivership, it has ceased as being a bank. Wala na na nag- involve probable loss to its depositors or creditors, in which
case the provisions of Section 30 shall apply.
operate ang Bangko. Ang conservatorship, the bank is still
operating as a bank.
“That the bank or quasi -bank is in the state of a continuing
What are the grounds? Compare the grounds for inability or unwillingness to maintain a condition of liquidity
conservatorship and the grounds for receivership. deemed adequate to protect the interest of the depositors and
creditors.”
The grounds for conservatorship is only...ONE. Section 29:
Section 29. Appointment of Conservator. - Whenever, on the Technical kaayo na. In a state of continuing inability or
basis of a report submitted by the appropriate supervising or unwillingness to maintain a condition of liquidity deemed
examining department, the Monetary Board finds that a bank adequate to protect the interest of the depositors and
or a quasi-bank is in a state of continuing inability or
creditors. That is conservatorship.
unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors,
the Monetary Board may appoint a conservator with such Can an official of the Bangko Sentral be appointed as a
powers as the Monetary Board shall deem necessary to take conservator? Under the rule, yes. But within the duration of
the appointment of a conservator, he does not receive any

BANKING PAGE || 22
allotment or salary from the Bangko Sentral. and designate the Philippine Deposit Insurance
Corporation as receiver of the banking institution.
Now, how much is a conservator paid? And by whom? For a quasi-bank, any person of recognized
competence in banking or finance may be designed as
He is paid by the bank. And according to the law, the receiver.
conservator shall receive remuneration to be fixed by te The receiver shall immediately gather and take charge
Monetary Board in an amount not to exceed 2/3 of the salary of all the assets and liabilities of the institution, administer
of the president of the institution in 1 year, pyable in 12 equal the same for the benefit of its creditors, and exercise the
monthly payments. 2/3 of the President's salary. [Segue: How general powers of a receiver under the Revised Rules of
much a VP of the top 5 top banks in the Philippines receive? Court but shall not, with the exception of administrative
You are a VP of a unibank. Pilay inyong madawat? They say it expenditures, pay or commit any act that will involve the
is P500,000.00 na. Gross na.] transfer or disposition of any asset of the institution:
Now, if you are a conservator, you will receive 2/3 of the salary Provided, That the receiver may deposit or place the funds of
of the President of the institution. the institution in non-speculative investments. The receiver
shall determine as soon as possible, but not later than ninety
(90) days from take over, whether the institution may be
Now, unsa may incentive aning conservator? Because he is rehabilitated or otherwise placed in such a condition so that
supposed to recommend on whether or not the bank can now it may be permitted to resume business with safety to its
be returned to the normal management or the bank will slide depositors and creditors and the general public: Provided,
into receivership, what is his incentive? If he makes a That any determination for the resumption of business of the
recommendation earlier and return the bank to its normal institution shall be subject to prior approval of the Monetary
operation and management, he can receive the rest of the Board.
balance of his salary. Maayo ba na? [Segue: Di man parehas If the receiver determines that the institution cannot
sa PCGG nga hastang kadugay unya wa jud nasulbad! Karon be rehabilitated or permitted to resume business in
pa nila nakit-an ang pink diamonds ni Imelda!] accordance with the next preceding paragraph, the Monetary
Board shall notify in writing the board of directors of its
What are the grounds for recceivership? Receivership pa na, findings and direct the receiver to proceed with the
the bank is no longer operating. So what are the grounds? liquidation of the institution. The receiver shall:
There are many! It is listed in Section 30. (1) file ex parte with the proper regional trial court,
Section 30. Proceedings in Receivership and Liquidation. - and without requirement of prior notice or any
Whenever, upon report of the head of the supervising or other action, a petition for assistance in the
examining department, the Monetary Board finds that a bank liquidation of the institution pursuant to a
or quasi-bank: liquidation plan adopted by the Philippine Deposit
Insurance Corporation for general application to
(a) is unable to pay its liabilities as they become
all closed banks. In case of quasi-banks, the
due in the ordinary course of business: Provided,
liquidation plan shall be adopted by the Monetary
That this shall not include inability to pay caused
Board. Upon acquiring jurisdiction, the court shall,
by extraordinary demands induced by financial
upon motion by the receiver after due notice,
panic in the banking community;
adjudicate disputed claims against the institution,
(b) has insufficient realizable assets, as assist the enforcement of individual liabilities of
determined by the Bangko Sentral, to meet its the stockholders, directors and officers, and
liabilities; or decide on other issues as may be material to
implement the liquidation plan adopted. The
(c) cannot continue in business without involving
receiver shall pay the cost of the proceedings from
probable losses to its depositors or creditors; or
the assets of the institution.
(d) has willfully violated a cease and desist order
(2) convert the assets of the institutions to money,
under Section 37 that has become final, involving
dispose of the same to creditors and other parties,
acts or transactions which amount to fraud or a
for the purpose of paying the debts of such
dissipation of the assets of the institution; in
institution in accordance with the rules on
which cases, the Monetary Board may summarily
concurrence and preference of credit under the
and without need for prior hearing forbid the
Civil Code of the Philippines and he may, in the
institution from doing business in the Philippines
name of the institution, and with the assistance of

BANKING PAGE || 23
counsel as he may retain, institute such actions as foreclose na? It depends!

may be necessary to collect and recover accounts
and assets of, or defend any action against, the Ang yuta na imong giforeclose kay tua didto sa gipuyuan sa
institution. The assets of an institution under mga way sapatos. Wa na ang unang tag-iya kay gipatay na.
receivership or liquidation shall be deemed in
So diri, it is not a realizable asset!
custodia legis in the hands of the receiver and
shall, from the moment the institution was placed
under such receivership or liquidation, be exempt [Segue: Unsa may CLOA? Title ba nang CLOA? Wala diay moy
from any order of garnishment, levy, attachment, Agrarian reform. Those are titles issued under the Agrarian
or execution. Reform program. There is an absolute prohibition for 10 years
that you cannot sell or mortgage that. Within 10 years from its
The actions of the Monetary Board taken under this
section or under Section 29 of this Act shall be final and issuance. Unya kay gidawat man nimo nag prenda? Kana jud.
executory, and may not be restrained or set aside by the The law prohibits you from doing so unya kay gidawat nimo.]
court except on petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave Third, it cannot continue in business without involving
abuse of discretion as to amount to lack or excess of probable losses to its depositors or creditors.
jurisdiction. The petition for certiorari may only be filed by
the stockholders of record representing the majority of the Fourth, it has willfully violated a cease and desist order under
capital stock within ten (10) days from receipt by the board Section 37 that has become final, involving acts or
of directors of the institution of the order directing
transactions which amounts to fraud or a dissipation of the
receivership, liquidation or conservatorship.
assets of the insttution; in which cases, the Monetary Board
The designation of a conservator under Section 29 of may summarily and without need for prior hearing forbid the
this Act or the appointment of a receiver under this section institution from doing business in the Philippines and
shall be vested exclusively with the Monetary Board. designate the Philippine Deposit Insurance Corporation (PDIC)
Furthermore, the designation of a conservator is not a
as receiver of the banking institution.
precondition to the designation of a receiver.
Receivership na gani, there is only one receiver for banks—and

that is, the PDIC. Musulod na gani nang PDIC, unya muingon
First, it is unable to pay its liabilities as they become due in kag “Ay ako kay depositor. Naa na ang akong kaluwasan!”
the ordinary course of business. What is an example? Cheque Ayaw! Tungaon nila dayon. P5,000.00 and below, mao na sila
na naay pondo. Pag about didto, ipa cash ang cheque. Karon ang unang makadawat. [Segue: Kung P5,000.00 and below,
muingon silag “Di man pwede kay nagbertday man ang asawa mao na sila ang una kay ang kwarta na ilahang gideposit kay
sa cashier dira. Balik na lang pagkahapon.” Unya pagkahapon, those are deposited for sustenance and for the basic needs.]
nadengue nasad. Wa nay mutuo nimo ana. Mao na musugod So kana sila'y unahon. Dugay man nila ma verify na kay dili na
na ang balita ana nga wa nay kwarta ang Bangko! man sila musalig sa records. Naa gani sayop sa imong record,
sa imong age kay wala nimo gibutang, ay wa na. Madugay kay
They are supposed to be due in the ordinary course of questionable na man na sa PDIC.
business. They are called demand deposits. Why are they
called demand deposits? Because upon demand, you can get Ang next step ana kay ang P20,000.00 and below. Pero di
your cash. And now, you cannot get it?! So this is unable to man na masugdan kay ang P5,000.00 and below kay ang
pay its liabilities as they become due in the ordinary course of worst record.
business.
So what is the job of the receiver? To try to retrieve as much
Second ground, it has insufficient realizable assets, as as possible the other properties that are not under the control
determined by the Bangko Sentral, to meet its liabilities. Unsa of the bank. Now, you will ask “How can that be?” You will be
may pasabot anang realizable assets? Assets that can be surprised, especially in Rural banks. [Segue: There are some
turned into cash. They are assets readily convertible into Rural banks that are discovered by the BSP of having two sets
cash. Daghan kaayo silag collateral. Mga baga kaayog mga of depositors. One is for the bank and the other is for the
titulo sa yuta! Daghan kaayog foreclosed assets. Is that what general manager. Na gipautang diay niya ang iyahang own
is referred to as realizable assets kanang yuta nga nakwarta.

BANKING PAGE || 24
Because it has the highest standard of quantum of evidence

Now, within 90 days, the receiver is supposed to determine on to prove a claim. Mao na kaya niya maski unsay jurisdiction.
whether or not the bank can be rehabilitated or otherwise Kung criminal kay proof beyond reasonable doubt. Kung civil
placed in a condition so that it can be permitted to resume its kay preponderance of evidence. Kung Administrative,
business with safety to its depositors and creditors and the substantial evidence. Ang BSP? Substantial evidence ra na
general public. kutob. Only the court is the court of general jurisdiction. The
court, if it does not know, muingon man na dayon nga “We will
If the receiver determines that it cannot be rehabilitated or appoint a commissioner or hearing officer.”
permitted to resume its business in accordance with the next
preceding paragraph, the receiver shall notify, in writing, the That is why, if yyou look at it, the stages of liquidation has
board of directors of its findings and direcct the reciever to been defined by the court in the celebrated case of Pacific
proceed with the liquidation of the institution. Banking Corporation Employers Organization vs CA (Gr No.
109373 March 27, 1998). The nature of the liquiation was
Ang third step kay termination na man na. Liquidation na na. discussed. You have to look at that on what is the first thing
Kamatayon na na sa Bangko. to do, the second, etc.
Now, please remember that BSP has no jurisdiction to preside from the Full Text:
the liquidation of the bank. Why is that? Sya guy in-charge sa A liquidation proceeding is a single proceeding which
Bangko! Supposed to be in charge of the liquidation with the consists of a number of cases properly classified as
bank. Why does the BSP not have a jurisdiction over the "claims." It is basically a two-phased proceeding. The first
liquidation? Ngano man? Because Section 30, letter B (1): phase is concerned with the approval and disapproval of
claims. Upon the approval of the petition seeking the
The receiver shall:
assistance of the proper court in the liquidation of a close
(1) file ex parte with the proper regional trial court, entity, all money claims against the bank are required to be
and without requirement of prior notice or any filed with the liquidation court. This phase may end with the
other action, a petition for assistance in the declaration by the liquidation court that the claim is not
liquidation of the institution pursuant to a proper or without basis. On the other hand, it may also end
liquidation plan adopted by the Philippine Deposit with the liquidation court allowing the claim. In the latter
Insurance Corporation for general application to case, the claim shall be classified whether it is ordinary or
all closed banks. In case of quasi-banks, the preferred, and thereafter included Liquidator. In either case,
liquidation plan shall be adopted by the Monetary the order allowing or disallowing a particular claim is final
Board. Upon acquiring jurisdiction, the court shall, order, and may be appealed by the party aggrieved thereby.
upon motion by the receiver after due notice,
The second phase involves the approval by the Court of the
adjudicate disputed claims against the institution,
distribution plan prepared by the duly appointed liquidator.
assist the enforcement of individual liabilities of
The distribution plan specifies in detail the total amount
the stockholders, directors and officers, and
available for distribution to creditors whose claim were
decide on other issues as may be material to
earlier allowed. The Order finally disposes of the issue of
implement the liquidation plan adopted. The
how much property is available for disposal. Moreover, it
receiver shall pay the cost of the proceedings from
ushers in the final phase of the liquidation proceeding —
the assets of the institution.
payment of all allowed claims in accordance with the order
of legal priority and the approved distribution plan.
Ang reciever, pag human niyag file og liquidation bond, ang Verily, the import of the final character of an Order of
PDIC nay mutake-over. Regular courts! Naunsa na man nang allowance or disallowance of a particular claim cannot be
BSP? Nganong ang BSP kay wa may katungod ana? Because overemphasized. It is the operative fact that constitutes a
the banks, just like you and me, enteres into not only mutuum, liquidation proceeding a "case where multiple appeals are
nominate or innominate contracts. They also enter into other allowed by law." The issuance of an Order which, by its
kinds of contract like sale, lease. Mao ni sya na ang contracts nature, affects only the particular claims involved, and which
are under the jurisdiction of the courts. So ang BSP kay out! may assume finality if no appeal is made therefrom, ipso
Becaus ethe BSP is not a forum of general jurisdiction. factocreates a situation where multiple appeals are allowed.
A liquidation proceeding is commenced by the filing of a
Why is the court a forum of general jurisdiction? Why? single petition by the Solicitor General with a court of

BANKING PAGE || 25
competent jurisdiction entitled, "Petition for Assistance in The stages of bank distress need not be complied with
the Liquidation of e.g., Pacific Banking Corporation. All chronoligically. Dili ka makaingon na you cannot be liquidated
claims against the insolvent are required to be filed with the as a bank unless you go through conservatorship or
liquidation court. Although the claims are litigated in the receivership. No! You can go straight to liquidation. It does not
same proceeding, the treatment is individual. Each claim is
mean that before you go to receivership that you must first go
heard separately. And the Order issued relative to a particular
claim applies only to said claim, leaving the other claims through conservatorship. That is not true. These proceedings,
unaffected, as each claim is considered separate and distinct it seems, enjoy certain independence from the other
from the others. Obviously, in the event that an appeal from proceedings. But it depends on the degree of distress. Why?
an Order allowing or disallowing a particular claim is made, Because if you are in conservatorship, you can continue to
only said claim is affected, leaving the others to proceed with function as a bank. Your doors are still open for business,
their ordinary course. In such case, the original records of although you are under a conservator. The conservator is
the proceeding are not elevated to the appellate court. They minded to maximize the assets of the banks. He will file cases
remain with the liquidation court. In lieu of the original to recover the assets of the bank. He will adopt measures to
record, a record of appeal is instead required to be prepared
save certain assets. Put an end to wasteful expenditures, or
and transmitted to the appellate court.
etcetera. Only that, the Supreme Court has said: The
Inevitably, multiple appeals are allowed in liquidation conservator, as vast as his powers are, he cannot unilaterally
proceedings. Consequently, a record on appeal is necessary renage all valid contractual operations. He can countermand a
in each and every appeal made. Hence, the period to appeal decision of the board when that decision has come to be
therefrom should be thirty (30) days, a record on appeal
extravagant and avoidable(?) to use. But he cannot nenage on
being required.
an obligation that is contractual just because it is under a
conservator. What is the example of the court?
November 26, 2015 Here is a conservator. Nakakita sya diri sa Collective

Bargaining Agreement nga every year there is a uniform
[Segue: You are tired. But consider this as part of your allowance. Paingon na sa tunga sa calendar year pero wala
sanctification. Convince yourself that this is good for you.] gihapoy uniform allowance. Ni-complain karon ang union!
Niingon man ang conservator, “The bank is in trouble
[Segue: One of the questions in the last Bar examination. Karo financially. As much as possible, we must put an end to
kaayo sa Banking ba. Naa na didto ang solution. The bank has unnecessary expenses. Unnecessary man ang uniform. Kung
issued securities that have not been registered with the SEC, di ka tagaan og uniform, maghubo ba diay ka dira?
and sells it to the public. And the SEC found out and filed a Unneccessary.” So wala nila gihatag and the union now files a
case against the bank. Will the case prosper? Later on, you case. It went all the way to the Supreme Court. Is that valid?
will know in your Securities and Exchange code, one of the so- Does the conservator have the power?
called securities that are exempt from registration are those
securities issued by the bank. Codal! It is no longer required The Supreme Court says that he can only countermand valid
to be registered in the SEC because it is already scrutinized by obligations that are embodied in the contracts if in the first
the Bangko Sentral. So the changes of public fraud in selling place that contract is voidable—that which has a defect. But
those securities is very very little. That is the same as if you when you say a valid obligation, (how do you say it is valid? It
are registered because there is already a supervising body is signed by both parties and is certified agreement. A CBA is
which is probable stricter than the SEC. Basic na pangutana!] registered in the Dept. of Labor. So it is a source of a valid
obligation.) therefore, the conservator, as vast as his powers
Alright. We went thrugh the stages of the banks in distress. are, cannot renage from validly contracted obligations.
Remember the stages? Financially distressed banks are not
covered by our laws on bankruptcy. The insolvency law has The conservator has one (1) year to determine either when the
been superceded by the Financial and Rehabilitation and bank proceeds into receivership or when the bank resumes to
Insolvency Act of 2012. This now tells us that it is the Bangko its normal operations without the conservator.
Sentral that overlooks, under the New Central Bank Act, the
banks in distress. In Receivership, the bank is already closed. And there is 90
days to determine whether or not the bank will go ahead with

BANKING PAGE || 26
liquidation (musira na yud na, namatay na jud na, or ilubong The last order is an order of discharge. Mao nay final order sa
na gyud sya) or whether the bank will be financially insolvency. Discharge. [Segue: Si Sarge, gi discharge. LOL]
rehabilited. Ibalik. Financial rehabilitation. That means, you That means that you are free from your obligations kay
need new and fresh capital. Who will bring you fresh capital? gibahin-bahin na ang imong limited resources according to
The receiver will recommend a financial plan for rehabilitation. the concurrence and preference of credits and whether or not
That financial plan will identify the new contributor. What is all your creditors are satisfied. Your estate has been liquidated
the effect of the new contribution? It will oust the former and divided according to the rules on Concurrence and
controlling stockolder of the bank. Preference of Credits. Naa man nay senior creditor, junior
creditor, secured and unsecured creditor. That is a special
Is that former controlling stockholder of the bank given court—just like the family court, intellectual property court,
adequate compensation for being deposed by this new etcetera. Naa na sad karon Financial Rehabilitation and
planner? Ana man jud na. Those will be determined by the Insolvency court.
receiver. [Segue: You know, the difference between this two—
because there is also a financial rehabilitation in FRIAC (?) [Segue: About the substitute trial court judge who overturned
and in the code, in FRIAC, there is what you call a Cramdown the decision of the original judge. Gross ignorance of the law.]
Your Throats Rule. Sa ato pa, kung paimnon kag medisina,
pusgson kag tumar ana. So unsay pasabot ana? What happens when a bank, all of a sudden, declares a bank
holiday? What is a bank holiday?
The creditors. They resist financial rehabilitation. Why?
Because their collateral is more than their obligation of Muingon na sila, “We are closed for today. Happy holidays!”
payment. Di sya gusto mabayran sya kay mas dako pa ang When the bank declares that, what follows is receivership.
iyahang makuha sa yuta. Naa gud sa downtown! Mas dugay Receivership dayon na. That means you cannot meet the
ang utang, mas musaka ang value (sa yuta). Diba? Kung obligations as much as they are already due the moment
icollateral na nimo, ang Bangko kay di sya gusto mabayran they'd do that.
kay mas dako ang iyahang makuha! SO the creditors will
oppose sa liquidation. Now, Section 30 deals with receivership. The one who initiates
the liquidatorship is normally the receiver. He will file,
Another one who will oppose it? The stockholders. Why? according to Section 30 D(1):
Because they will lose control of the bank. Iif they accede to file ex parte with the proper regional trial court, and without
the financial rehabilitation plan, that means that they will let in requirement of prior notice or any other action, a petition for
the new contributor banks. Muingon dayon na sila, “How assistance in the liquidation of the institution pursuant to a
many shares would you want?” Ah kadaghan anang shares. liquidation plan adopted by the Philippine Deposit Insurance
Corporation for general application to all closed banks. In
Ngano man? Pila man nang shares? Per value niini. Below par case of quasi-banks, the liquidation plan shall be adopted by
value na man na kay nagkagidlay na ang Bangko. I need more the Monetary Board. Upon acquiring jurisdiction, the court
shares! E ikaw, controlling stockholder ka unya pagsulod nimo shall, upon motion by the receiver after due notice,
og pagpalit nimog shares kay P100.00 per share ang value sa adjudicate disputed claims against the institution, assist the
shares. Unya ang savior nimo kay ang ihatag ra kay P20.00 ra enforcement of individual liabilities of the stockholders,
per share. Kasakit sa imong dughan ana diba! Magsigi ra kag directors and officers, and decide on other issues as may be
argue ana aron malangan. Karon kay naa na may rule— material to implement the liquidation plan adopted. The
cramdown your throats. If the receiver recommends provided receiver shall pay the cost of the proceedings from the
just the majority of all the creditors, will endorse it and dili pa assets of the institution.
musugot ang controlling stockholder og ang majority
creditors, the rehabilitation recommendation will still be So, it is ultimately the court who will determine the validity of
pushed through. the claims against the bank under liquidation. It is the court.
Tagaan mag notice—newspaper or present address. Asa man
Here (in the New Central Bank Act) there is none of that. It is kuhaon nang present address? Diha na makuha sa imong
possible that the whole prceeding can be delayed because application sa Bangko. Nagkuha man kag time deposit. So
there is still yet no cramdown your throats rule.] tagaan kag notice: “Please Register your claims not later than
60 days from receipt of this notice. You are informed that

BANKING PAGE || 27
beyond such a date, no claims will be entertained.” So there The assets of an institution under receivership or liquidation
are certain number of days. shall be deemed in custodia legis in the hands of the receiver
and shall, from the moment the institution was placed under
Now, the Philippine Depositors Insurance Corporation, their such receivership or liquidation, be exempt from any order of
garnishment, levy, attachment, or execution.
determination as to whether the claim would be honored, is
not final. They are not a court of law. Kanang deposit, that is
in the nature of a mutuum. That is a nominate contract of So if you are the secured creditor and you hold the mortgage
mutuum—loan! All nominate contracts are governed by the as collateral of the property of the bank, you cannot execute.
Civil Code and is under the jurisdiction of the regular courts. That is already in the court. What will you do? You line up
The PDIC is just preliminary. The PDIC is supposed to answer together with the other creditors. You are not exempted from
claims against the bank arising from what contingency? They the proceeding of proving the validity of your claim. And then
will answer for liabilities from the occurrence of a contingency the court will judge your claim according to the concurrence
known as Financial Loss. Kanang danyos na imong giagian and preference of credit.
kay ang Bangko naforeclose. Mao nay contingency.
You are called a senior creditor. Secured ka man. Kinsa man
Now, the PDIC sometimes, magsigi kag file ana. Gamay ra gud ang imong junior? Katong unsecured creditor. Kinsa man nang
na silag personnel. [Segue: Story of Mr. Bartolome of Urban unsecured creditors sa Bangko? Katong ilahang gipulihan nila.
Bank. Where when receivership comes in, they are allowed to Katong gihatagan nilag credit line. Karon kay wala man sila
conduct a banking business and therefore any banking kabayad. Kinsa may labaw sa ilahang duha? Katong naay
business that will be conducted after the final order of closure collateral. Sila kay junior. Naa pa bay labaw sa senior creditor?
is already presumed fraudulent.] Naa! Si baby Henares! (LOL) BIR! Mao na ang kinalabawan sa
tanan. Too bad! Ang secured kay junior lang sa BIR. [Segue:
Now, when you have filed before the judge, the next thing is to Supposed to be, the judge knows that. Don't take the word of
convert the assets of the institution into money. Dispose of the judge for it. Sad to say. Kanang preference of credit,
the same to creditors and to other parties for the purpose of pareho ra na sa penalties. Daghan walay nakahibaw ana!]
paying the debts of such institution in accordance with the
rules of Concurrence and preference of credits under the Civil December 2, 2015
code of the Philippines.
xxx convert the assets of the institutions to money, dispose Is the franchise of a bank that is in liquidation be disposed of
of the same to creditors and other parties, for the purpose of as part of its assests? We know from Corporation law that
paying the debts of such institution in accordance with the there is a difference between the so-called primary franchise
rules on concurrence and preference of credit under the Civil and secondary franchise.
Code of the Philippines xxx
Primary franchise is the franchise the right to exist as a
Mao ni naay civil courts. Di man manghilabot ang Bangko corporation. So it does not belong to the corporation because
Sentral ng Pilipinas. That is when you seek the assisatance of it is already a franchise. In other words, the holder of that
the courts. The liquidation of a bank cannot be done apart right, the seat of that right is pre-incorporation. That is why,
from the courts because of the complexity of the contracts that franchise belongs to the constituents of the corporation.
that the banks have entered into—most of which are nominate So the corporators—whether you are a stockholder in a stock
contracts which are under the jurisdiction of the regular and profit corporation or you are a member. Collectively, you
courts and not of the Bangko Sentral. hold the right to be a corporation. That is a primary franchise.
That is not subject to commerce. You cannot sell that.
(Also, he may) In the name of the institution and with the
assitance of a counsel as he may retain, institute such actions The secondary franchise is the franchise derived to exercise a
as may be necessary to collect and recover accounts and public utility function—like to distribute electricity or to
assets of, or defend any action against, the institution. provide transportation or water. Those are franchises. That is
xxx and he may, in the name of the institution, and with the a right! In Corporation Law, that is a right which is subject of
assistance of counsel as he may retain, institute such approval by the regulating agency. It has a value hence can be
actions as may be necessary to collect and recover accounts bought with the permission from the proper supervising
and assets of, or defend any action against, the institution.

BANKING PAGE || 28
governmental authority. Prankisa ha. is the regular courts because this is a criminal sanction.
Now, naay taxi na naay prankisa. Tigulang na kaayo ang Section 35, another criminal action, when you make a false or
iyahang taxi unya di na sya tugton mupadagan. Pero naa syat a misleadding statement on a material fact to the monetary
franchise—trankisa. Mukuha syag permission sa LTO nga board or to the examiners of the Bangko Sentral. Again, there
ibaligya niya kay naay tao nga mufinance sa iyaha. Maingon is a fineof not less than P100K nore more than P200K or by
ba na? Pwede. You can sell that. improsonment of not more than 5 years, or both, at the
discretion of the court.
But banking license is not subject to the general rule Section 35:
according to Section 33. Section 35. False Statement. - The willful making of a false
Section 33: or misleading statement on a material fact to the Monetary
Section 33. Disposition of Banking Franchise. - The Bangko Board or to the examiners of the Bangko Sentral shall be
Sentral may, if public interest so requires, award to an punished by a fine of not less than One hundred thousand
institution, upon such terms and conditions as the Monetary pesos (P100,000) nor more than Two hundred thousand
Board may approve, the banking franchise of a bank under pesos (P200,000), or by imprisonment of not more than (5)
liquidation to operate in the area where said bank or its years, or both, at the discretion of the court.
branches were previously operating: Provided, That whatever
proceeds may be realized from such award shall be subject Now, there are also aministrative sanctions under Section 37.
to the appropriate exclusive disposition of the Monetary What are these sanctions?
Board. Section 37:
Section 37. Administrative Sanctions on Banks and Quasi-
So the proceeds of the banking franchise will not go to the banks. - Without prejudice to the criminal sanctions against
owner whose bank is liquidated. It goes to the Bangko Sentral. the culpable persons provided in Sections 34, 35, and 36 of
So remember, that is a different rule from the rule on the this Act, the Monetary Board may, at its discretion, impose
disposition of a secondary franchise. upon any bank or quasi-bank, their directors and/or officers,
for any willful violation of its charter or by-laws, willful delay
Now, Section 34 provides for the penalty—a criminal penalty in the submission of reports or publications thereof as
required by law, rules and regulations; any refusal to permit
now—for refusal to allow inspection or refusal to make examination into the affairs of the institution; any willful
reports. making of a false or misleading statement to the Board or
Section 34: the appropriate supervising and examining department or its
Section 34. Refusal to Make Reports or Permit examiners; any willful failure or refusal to comply with, or
Examination. - Any officer, owner, agent, manager, director or violation of, any banking law or any order, instruction or
officer-in-charge of any institution subject to the supervision regulation issued by the Monetary Board, or any order,
or examination by the Bangko Sentral within the purview of instruction or ruling by the Governor; or any commission of
this Act who, being required in writing by the Monetary Board irregularities, and/or conducting business in an unsafe or
or by the head of the supervising and examining department unsound manner as may be determined by the Monetary
willfully refuses to file the required report or permit any Board, the following administrative sanctions, whenever
lawful examination into the affairs of such institution shall applicable:
be punished by a fine of not less than Fifty thousand pesos
(P50,000) nor more than One hundred thousand pesos (a) fines in amounts as may be determined by the
(P100,000) or by imprisonment of not less than one (1) year Monetary Board to be appropriate, but in no case
nor more than five (5) years, or both, in the discretion of the to exceed Thirty thousand pesos (P30,000) a day
court. for each violation, taking into consideration the
attendant circumstances, such as the nature and
When the Bangko Sentral requires the banking institution or gravity of the violation or irregularity and the size
of the bank or quasi-bank;
quasi-banking institution, in writing. This is a sine qua non
requirement. There must be a requirement in writing by the (b) suspension of rediscounting privileges or
monetary board. And if you still refuse it, then you can be access to Bangko Sentral credit facilities;
punished with a fine of not less than P50K or not more than (c) suspension of lending or foreign exchange
P100k or by imprisonment of not less than 1 year nor more operations or authority to accept new deposits or
than 5 years or both in the discretion of the court. Of course, it make new investments;

BANKING PAGE || 29
(d) suspension of interbank clearing privileges; etcetera. But you are not prosecuted criminally under the
and/or jurisdiction of the regular courts. Only with the Bangko
(e) revocation of quasi-banking license. Sentral. You can be slapped with an administrative sanction.
What are these?
Resignation or termination from office shall not
exempt such director or officer from administrative or
1. A fine of P30K a day.
criminal sanctions.
2. A suspension of rediscounting privileges. —
The Monetary Board may, whenever warranted by Remember, the Bangko Sentral is a bank of last
circumstances, preventively suspend any director or officer resort. Any bank, if it cannot go to anywhere else,
of a bank or quasi-bank pending an investigation: Provided,
can go to the Bangko Sentral. This can be
That should the case be not finally decided by the Bangko
Sentral within a period of one hundred twenty (120) days suspended.
after the date of suspension, said director or officer shall be 3. Suspension of lending or foreign exchange
reinstated in his position: Provided, further, That when the operations or authority to accept new deposits or
delay in the disposition of the case is due to the fault, make new investments. — So this is like a
negligence or petition of the director or officer, the period of suspension of your license. Because the banking
delay shall not be counted in computing the period of license is to open your doors to deposits for the
suspension herein provided. public and then you can lend to the others. If that is
The above administrative sanctions need not be suspended, then it is really your banking license that
applied in the order of their severity. is suspended.
4. Suspension of interbank clearing privileges. — Dili
Whether or not there is an administrative proceeding,
if the institution and/or the directors and/or officers dawaton ang mga cheque nimo. Makalulooy ana kay
concerned continue with or otherwise persist in the ang imong depositors because your interbank
commission of the indicated practice or violation, the clearing privileges are suspended. So what will you
Monetary Board may issue an order requiring the institution do? You deposit your clearing cheques to another
and/or the directors and/or officers concerned to cease and bank because they are not suspended. It is you that
desist from the indicated practice or violation, and may is suspended. So mugasto ka. Mubayad ka sa laing
further order that immediate action be taken to correct the Bangko aron mupirma sila sa imong clearance.
conditions resulting from such practice or violation. The 5. Revocation of quasi-banking license. — This is the
cease and desist order shall be immediately effective upon
heaviest. No more banking license.
service on the respondents.
The respondents shall be afforded an opportunity to And the it says that the Monetary Board may, whenever
defend their action in a hearing before the Monetary Board or warranted by circumstances, preventively suspend any
any committee chaired by any Monetary Board member director or officer of a bank or quasi-bank pendding an
created for the purpose, upon request made by the
investigation. For how long can you be suspended? 120 days.
respondents within five (5) days from their receipt of the
order. If no such hearing is requested within said period, the Because (under the law) it says: “Should the case be not
order shall be final. If a hearing is conducted, all issues shall finally decided by the Bangko Sentral within a period of 120
be determined on the basis of records, after which the days after the date of suspension, said director or officer shall
Monetary Board may either reconsider or make final its order. be reinstated to his position.”
The Governor is hereby authorized, at his discretion,
to impose upon banking institutions, for any failure to Now, when the delay of the decision is due to his (the
comply with the requirements of law, Monetary Board director's or officer's) fault, negligence or petition of the
regulations and policies, and/or instructions issued by the director or officer, the period of delay shall not be counted in
Monetary Board or by the Governor, fines not in excess of computing the period of suspension as herein provided.
Ten thousand pesos (P10,000) a day for each violation, the
imposition of which shall be final and executory until Now, the governor is also authorized, at his discretion, to
reversed, modified or lifted by the Monetary Board on appeal. impose on the banking institution, for any failure too comply
with the requirements of the law, Monetary Board regulations
This is for the violations of Sections 34, 35, and 36. The same. and policies, and/or instructions issued by the Monetary
Refusal to make an insepction. Making fraudulent reports, Board or by the goovernor, fines not in excess of P10K a day

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for each violation, the imposition of which shall be final and Unemployment brings untold hardships and sorrows on
executory until reversed, modified, or lifted by the Monetary those dependent on the wage-earner. The misery and pain
Board on appeal. attendant on the loss of jobs then could be avoided if there
be acceptance of the view that under all the circumstances
of this case, petitioners should not be deprived of their
You are sent a letter by the Monetary Board, directing you to means of livelihood. Nor is this to condone what had been
explain why you should not be sanctioned. That is the reason done by them. For all this while, since private respondent
niiini. considered them separated from the service, they had not
been paid. From the strictly juridical standpoint, it cannot be
There was a pyramiding scam that occurred somewhere in too strongly stressed, to follow Davis in his masterly work,
Illigan. After the whole thing blew up, gigukod sya sa NBI tua Discretionary Justice, 32 that where a decision may be made
sa Kuta Kinabalo. Pagdala diay didto kay iyahang igsuon ang to rest an informed judgment rather than rigid rules, all the
police chief. The bank manager was investigated. She was a equities of the case must be accorded their due weight.
very good manager. Pero wa man nya giinbestigahan. Dawat Finally, labor law determinations, to quote from Bultmann,
should be not only secundum rationem but also secundum
ra syag dawat. So finally when she was investigated, the
caritatem.
Bangko Sentral had a feedback that she has to be out of
service. But, there was a decision by the financial committee
Now, if the Bangko Sentral is a true bank, therefore, it can
of the bank that she will be given financial assistance. That
derive profits and also it can incur losses. The question is,
reached the officials of the Bangko Sentral saying that why
“How is the profits of the bank distributed?” Does it come
was she given the financial assistance. The President of the
back to the bank? That is answered by Section 44.
bank was made to respond and to show cause why he should
Section 44:
not be crimminally charged in accordance with the New Section 44. Distribution of Net Profits. - Within the first sixty
Central Bank law within 24 hours. Unsa may tubag ana? That (60) days following the end of each fiscal year, the Monetary
is where your knowledge to the jurisprudence comes in handy Board shall determine and carry out the distribution of the
—the doctrine of Compassionate Justice. This is penned by net profits, in accordance with the following rule:
Justice Enrique Fernando in the case of Almira vs BF Goodrich
Fifty percent (50%) of the net profits shall be carried
Gr. No. L-34974 July 25, 1974. to surplus and the remaining fifty percent (50%) shall revert
back to the National Treasury, except as otherwise provided
Separation from labor of an employee is the capital in the transitory provisions of this Act.
punishment that will be sanctioned and it must be exercised
not only secundum rationem but also secundum caritatem.
Fifty percent (50%) of the net profits shall be carried to
This is from the Supreme Court with the citatation! Dalhon na surplus and shall be listed in the balance sheet of the Bangko
nimo didto (sa Monetary Board). But the Monetary Board ___. Sentral and the remaining fifty percent (50%) shall revert back
He was separated from the service. His name was reported to the National treasury, except as otherwise provided in the
and he is already in your watchlist (because now if your are a transitory provisions of this Act—the transitory provisions of
bank employee and you are dismissed for a cause, and it is this act means the government should give the Bangko
cause related to fraud, AMLA, misrepresentation, theft, and Sentral P50Bil as the subscribed capital. But the government
abuse of confidence, you will be in the watchlist and you did not do that. The government just gave it something like
cannot be hired by any bank anymore.) Because if a bank P20Bil. So mukuha jud sila sa subscribed capital because this
hires you and you will be reported to the Bangko Sentral, the is stated man in the Bangko Sentral (law). And it says that it
bank will be penalized. So the bank officers have to clear with should have P50Bil! Murag namakak ang Central Bank ana.
the Bangko Sentral. Wala man sila taga-i ug P50Bil nga paid up capital.
Fom the Full Text: Balik tag tan-aw ani sa Section 2—Creation of the Bangko
It would imply at the very least that where a penalty less Sentral.
punitive would suffice, whatever missteps may be committed Section 2:
by labor ought not to be visited with a consequence so Section 2. Creation of the Bangko Sentral. - There is hereby
severe. It is not only because of the law's concern for the established an independent central monetary authority,
workingman. There is, in addition, his family to consider. which shall be a body corporate known as the Bangko
Sentral ng Pilipinas, hereafter referred to as the Bangko

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Sentral. Ang imong ginansya, kintahay P4Bil nibagsak ang imong

The capital of the Bangko Sentral shall be Fifty billion assets, imong tangtanga na sa imong profits. Imnbis na
pesos (P50,000,000,000), to be fully subscribed by the naginansya na kag P2Mil, alkansi na nuon ka kag nag write-
Government of the Republic, hereafter referred to as the off man ka. Mao nay tinuod nga storya sa corporation. Ayay!
Government, Ten billion pesos (P10,000,000,000) of which Look at Section 45.
shall be fully paid for by the Government upon the effectivity Section 45, last paragraph:
of this Act and the balance to be paid for within a period of Section 45. Revaluation Profits and Losses. - Profits or
two (2) years from the effectivity of this Act in such manner losses arising from any revaluation of the Bangko Sentral's
and form as the Government, through the Secretary of net assets or liabilities in gold or foreign currencies with
Finance and the Secretary of Budget and Management, may respect to the Philippine peso shall not be included in the
thereafter determine. computation of the annual profits and losses of the Bangko
Sentral. Any profits or losses arising in this manner shall be
offset by any amounts which, as a consequence of such
The capital of the Bangko Sentral shall be P50Bil, to be fully revaluations, are owed by the Philippines to any international
subscribed by the Government of the Philippines. This is the or regional intergovernmental financial institution of which
subscribed capital. The authorized capital is P50Bil. Its the Philippines is a member or are owed by these institutions
subscribed capital ha is also P50Bil. Hereafter referred to as to the Philippines. Any remaining profit or loss shall be
the government. The subscriber is the Government. carried in a special frozen account which shall be named
"Revaluation of International Reserve" and the net balance of
P10Bil of which shall be fully paid for by the government upon which shall appear either among the liabilities or among the
the fffectivity of this act and the balance to be paid for within assets of the Bangko Sentral, depending on whether the
revaluations have produced net profits or net losses.
2 years from the effectivity of this act. This was not complied
with by the Government. The government did not remit to the The Revaluation of International Reserve account
Bangko Sentral the remaining P30Bil. Wala na! [Segue: Now, shall be neither credited nor debited for any purposes other
these past few years, the Bangko Sentral has lost money. than those specifically authorized in this section.
Why? It lost money depending on the peso.] So all the more,
the Bangko Sentral shall refrain from remitting from the
National Treasury. Kana tanan, ibutang na dapat na sa The revaluation of International reserve account shall neither
capitalization because we shall be one of the few Sentral be creddited nor debited for any purpose other than those
Banks of the world that are undercapitalized. But this is the specifically authorized in this section.
provision. 50% goes back to the bank and 50% goes to the
National Treasury. Suspense Accounts under Section 46.
Section 46:
Section 46. Suspense Accounts. - Sections 43 and 43-A of
Now, revaluation profits and losses. You know, the Bangko Republic Act No. 265, as amended, creating the Monetary
Sentral has foreign currency reserves. Let us say it has Adjustment Account (MAA) and the Exchange Stabilization
dollars. Those dollars are carried in the books and balance Adjustment Account (ESAA), respectively, are hereby
sheets of the Bangko Sentral in pesos. In other words, you repealed. Amounts outstanding as of the effective date of
value the dollars into peso. So if the peso devaluates, what this Act based on these accounts shall continue to be for the
happens? Mugamay ang value sa imong foreign currency account of the Central Bank and shall be governed by the
reserves. That is when you incur a loss. You will incur write- transitory provisions of this Act.
offs (naa man ang imong profits dira unya kay ipakang nimo The Revaluation of International Reserve (RIR)
dira kay nigamay man ang imong assets). Lisod sabton? account as of the effective date of this Act of the Central
Bank shall continue to be for the account of the same entity
Think of an oil company. Naa na silay reserves. Naa nay oil and shall be governed by the provisions of Section 44 of
dira. Naa may musuyop ana. Those proven reserves—kanang Republic Act No. 265, as amended, until otherwise provided
naduso (?) nila dira—naa na silay listang balance sheet. for in accordance with the transitory provisions of this Act.
According to the price of the oil at the time it was listed. Say,
$100 per barrel. Kung muubos ang presyo ana, di na nila This means, it is neither creditednor debited. Section 45, in
tilukon. Now you enter into revaluation of your assets. That is the first paragraph ha.
when you suffer write-offs. Unsaon mang pagtangtang ana? “xxx Any profits or losses arising in this manner shall be

BANKING PAGE || 32
offset by any amounts which, as a consequence of such experience. Common sense man na, no? But in the old law, it
revaluations, are owed by the Philippines to any did not have to be a certified public accountant. Bag-o ni nga
international or regional intergovernmental financial dapat certified public accountant. So, the ex-officio is a CPA.
institution of which the Philippines is a member or are owed But the representative need not be an accountant! Unsa man
by these institutions to the Philippines. Any remaining profit
na sya? Magician? Karon kay dapat CPA na niini. It seems
or loss shall be carried in a special frozen account which
shall be named "Revaluation of International Reserve" and obvious. But this is a new provision.
the net balance of which shall appear either among the
liabilities or among the assets of the Bangko Sentral, Alright. We will now go to Bangko Sentral and Monetary
depending on whether the revaluations have produced net supply of notes and counts under circulation.
profits or net losses.”
Now, what should the notes of the Bangko Sentral be? The
Ipadaplin na. Magcreate og frozen accounts. Pero strikto denomination should be called “peso”. Di na nimo mailisdan
kaayo sila kung magdalag foreign currencies. Pero kani, ha. Section 48:
ifrozen. Ipadaplin mo. Mao nay special rules sa Bangko Section 48. The Peso. - The unit of monetary value in the
Sentral. Sa tanang instutitions, kanang loans or assets, just Philippines is the "peso," which is represented by the sign
like any bank, these loans are treated out as assets. Once "P."
those assets are impaired, it is the capital that is supposed to The peso is divided into one hundred (100) equal
provision the impairment. Muayo nag impairment. It is the parts called "centavos," which are represented by the sign
capital. You take the capital and provision it for the loss. "c."
Tan-awa ang inyong bill kung peso ba jud. PISO diay!
Now, for the first time, they are saying under Section 47 that
Technically speaking, it is a violation of the law! Just like
the ex-officio of the Bangko Sentral is no one else but the
Central Bank, sayop na! Wala na may Central Bank sa balaud.
chairman of the chairman of Audit. He is the ex-officio auditor
Bangko Sentral man.
of the Bangko Sentral. Karon kkay daghan man kaayo syag
ginabuhat ang COA Chairperson. So he/she must appoint a
So the standard unit is Peso. That is what Section 48 says.
representative to be the auditor of the Bangko Sentral. Just
And it is to be divided into 100 equal parts called centavos,
like in any other government office, no? And in accordance
represented by C. Dili na S ha! And what is controlling are the
with law, appoint and fix the salaries and number of personnel
words and not the denomination.
to assist said representative in his work.
Section 47:
Now, there is a difference between currency and legal tender.
Section 47. Appointment and Personnel. - The Chairman of
the Commission on Audit shall act as the ex officio auditor of The definition of currency is defined under Section 49.
the Bangko Sentral and, as such, he is empowered and Section 49:
authorized to appoint a representative who shall be the Section 49. Definition of Currency. - The word "currency" is
auditor of the Bangko Sentral and, in accordance with law, fix hereby defined, for purposes of this Act, as meaning all
his salary, and to appoint and fix salaries and number of Philippine notes and coins issued or circulating in
personnel to assist said representative in his work. The accordance with the provisions of this Act.
salaries and other emoluments shall be paid by the
Commission. The auditor of the Bangko Sentral and Take note ha. Knanag ga circulate dira na issued by the
personnel under him may be removed only by the Chairman Bangko Sentral is currency, but it need not be legal tender. Are
of the Commission. you kidding me? Do you think that I cannot force the creditor
The representative of the Chairman of the to accept the payment? Yes! Muingon ka nga “Tinonto man
Commission must be a certified public accountant with at na.” Yes, that is true. Suppose your currency still has “Bagong
least ten (10) years experience as such. No relative of any Lipunan”. That is still currency. But it is no longer legal tender
member of the Monetary Board or the Chairman of the because it has been demonetized. It was still issued ha by the
Commission within the sixth degree of consanguinity or Bangko Sentral. Its denomination is still peso. It is still
affinity shall be appointed such representative. currency but it is not legal tender.
The representative of the Chairman of the Commission must Kana tawng naa sa bukid, abi nilag kwarta na. Dugay na nila
be a certified public accountant with at least 10 years gitaguan sa ilawm sa ilahang mga unlan. Pero naa pay

BANKING PAGE || 33
Bagong Lipunan. Patay ka! Just like a japanese money. You more than the US dollars that is in their possession. So it
have not seen a japanese money? I will show you when I found remains a very stable exchange rate.]
a japanese money in the inventory of my mother. That is
currency! [Segue: Japanese occupation during the WW2). Now, so it is the Bangko Sentral that can alone print currency.
[Segue: By the way, now, more than 60% of the countries no
So it says here, it is the Bangko Sentral that has the sole longer produce notes by currency papers. Unsa na man na
power and authority to issue currency, within the territory of karon? Plastic na. Di na mutagiptip. Tan-awa o. Gisi-a ra gud
the Philippines. No other person or entity, public or private, na. Na nay mga watermark. Wala na nang currency papers
may put into curcilation notes, coins, or any other object or because it is getting more and more difficult to counterfeit
document which might circulate as currency, nor reproduce or cellulous than plastic. Mas mahal ra! You cannot print in
imitate the facsimilies of Bangko Sentral notes without prior plastic. It is only when you cover it with a cellulous paper that
authority from the Bangko Sentral. you can print on it.]
Section 50. Exclusive Issue Power. - The Bangko Sentral
shall have the sole power and authority to issue currency, So now, there are instructions here on the printing. But what is
within the territory of the Philippines. No other person or more important is the limit on the legal tender. What is the
entity, public or private, may put into circulation notes, coins limit of coins as legal tender?
or any other object or document which, in the opinion of the
Monetary Board, might circulate as currency, nor reproduce
or imitate the facsimiles of Bangko Sentral notes without Five centavos and below, legal tender is up to 20. If it is 20
prior authority from the Bangko Sentral. and above, legal tender would be up to 50. So it may still be
geuine currencies but above 50, you can no longer force the
The Monetary Board may issue such regulations as it creditor to accept it. Only up to 50 of those coins. That is
may deem advisable in order to prevent the circulation of
aleady the maximum. It is still currency but it ceases to be a
foreign currency or of currency substitutes as well as to
prevent the reproduction of facsimiles of Bangko Sentral legal tender beyond those amounts. That is why not all
notes. currencies are legal tender.
Section 52. Legal Tender Power. - All notes and coins
The Bangko Sentral shall have the authority to issued by the Bangko Sentral shall be fully guaranteed by
investigate, make arrests, conduct searches and seizures in the Government of the Republic of the Philippines and shall
accordance with law, for the purpose of maintaining the be legal tender in the Philippines for all debts, both public
integrity of the currency. and private: Provided, however, That, unless otherwise fixed
Violation of this provision or any regulation issued by by the Monetary Board, coins shall be legal tender in
the Bangko Sentral pursuant thereto shall constitute an amounts not exceeding Fifty pesos (P50.00) for
offense punishable by imprisonment of not less than five (5) denominations of Twenty-five centavos and above, and in
years but not more than ten (10) years. In case the Revised amounts not exceeding Twenty pesos (P20.00) for
Penal Code provides for a greater penalty, then that penalty denominations of Ten centavos or less.
shall be imposed.
December 3, 2015
[Segue: You know, Hong Kong does not have a Central Bank.
So technically speaking, any bank there can issue notes. Our What are the roles that the Central Bank assumes? What are
bills are really notes. It is a promissory note of the Bangko the functions that are imposed by the law upon the Bangko
Sentral. But since it is acceptable to all and it is legal tender Sentral? Sections 49 to Section 60, that delienates the
by law, then as a medium of exchange, it is acceptable to function the sole power to issue the currency. It is the only
everybody. That is really an IOU of the Bangko Sentral. IOU, the note is a promissory note—the principal obligation of
the Bangko Sentral. But that note can be used as a payment
In Hong Kong, all banks can issue notes. But there is only one for all monetary obligations. That is why it is called a legal
bank there that whose acceptance is universal in Hong Kong. tender, because you can compel the creditor to accept it as
That is the Hong Kong-Shanghai bank. That is why, its notes— payment and satisfaction of your obligation.
the Hong Kong dollar—is acceptable to everybody. But that is
because of traditional idea. And the policy of the Hong Kong Notes and coins in the Philiipines are issued by the Bangko
-Shanghai bank is that you cannot print Hong Kong dollars Sentral. Such notes and coins are liabilities of the BSP and it

BANKING PAGE || 34
will be issued only against and in amounts not exceeding the Section 50. Exclusive Issue Power. - The Bangko
assets of the BSP. It constitutes a first and paramount lien on Sentral shall have the sole power and authority to issue
all assets of the Bangko Sentral and it shall be fully currency, within the territory of the Philippines. No other
guaranteed by the government and shall be a legal tender in person or entity, public or private, may put into circulation
notes, coins or any other object or document which, in the
the Philippines for all debts, both public and private, and in opinion of the Monetary Board, might circulate as currency,
such case the coins shall be legal tender in an amounts not nor reproduce or imitate the facsimiles of Bangko Sentral
exceeding P50.00 for denominations of 25 centavos and notes without prior authority from the Bangko Sentral.
above; and P20.00 for demominations of 10 centavos or less.
Section 51. Liability for Notes and Coins. - Notes and coins The Monetary Board may issue such regulations as it
issued by the Bangko Sentral shall be liabilities of the may deem advisable in order to prevent the circulation of
Bangko Sentral and may be issued only against, and in foreign currency or of currency substitutes as well as to
amounts not exceeding, the assets of the Bangko Sentral. prevent the reproduction of facsimiles of Bangko Sentral
Said notes and coins shall be a first and paramount lien on notes.
all assets of the Bangko Sentral. The Bangko Sentral shall have the authority to
The Bangko Sentral's holdings of its own notes and investigate, make arrests, conduct searches and seizures in
coins shall not be considered as part of its currency issue accordance with law, for the purpose of maintaining the
and, accordingly, shall not form part of the assets or integrity of the currency.
liabilities of the Bangko Sentral. Violation of this provision or any regulation issued by
the Bangko Sentral pursuant thereto shall constitute an
offense punishable by imprisonment of not less than five (5)
How about cheques? These are products of banks. They years but not more than ten (10) years. In case the Revised
represent bank deposits. They do not have any legal tender Penal Code provides for a greater penalty, then that penalty
power and their acceptance in payments of debt, both public shall be imposed.
or private, is at the option of the creditor. Whether a cheque
which has been cleared and credited on the account of the Section 51. Liability for Notes and Coins. - Notes and
coins issued by the Bangko Sentral shall be liabilities of the
creditor shall be equivalent to the delivery of cash to the Bangko Sentral and may be issued only against, and in
creditor in the amount equal to the amount credited to his amounts not exceeding, the assets of the Bangko Sentral.
account. Said notes and coins shall be a first and paramount lien on
all assets of the Bangko Sentral.
You are familiar with that already with the credit transactions.
The Bangko Sentral's holdings of its own notes and
Just go look at it with a banking point of view. coins shall not be considered as part of its currency issue
and, accordingly, shall not form part of the assets or
Coins and notes are a very tiny portion of money supply. The liabilities of the Bangko Sentral.
biggest portion is the bank deposits. We are talking about the
primary money supply. The least portion is demand deposits. Section 52. Legal Tender Power. - All notes and coins
issued by the Bangko Sentral shall be fully guaranteed by the
The extended money supply includes time deposits and Government of the Republic of the Philippines and shall be
savings accounts. When you gothem together—demand legal tender in the Philippines for all debts, both public and
deposits and time deposits and savings accounts—that makes private: Provided, however, That, unless otherwise fixed by
up the bulk of the money supply. the Monetary Board, coins shall be legal tender in amounts
not exceeding Fifty pesos (P50.00) for denominations of
Remember, they are all within the purview of the responsibility Twenty-five centavos and above, and in amounts not
of the Bangko Sentral, together with the notes and coins. exceeding Twenty pesos (P20.00) for denominations of Ten
Money supply is the responsibility of the Bangko Sentral. centavos or less.
ARTICLE II Section 53. Characteristics of the Currency. - The
ISSUE OF MEANS OF PAYMENT Monetary Board, with the approval of the President of the
A. CURRENCY Philippines, shall prescribe the denominations, dimensions,
designs, inscriptions and other characteristics of notes
Section 49. Definition of Currency. - The word issued by the Bangko Sentral: Provided, however, That said
"currency" is hereby defined, for purposes of this Act, as notes shall state that they are liabilities of the Bangko
meaning all Philippine notes and coins issued or circulating Sentral and are fully guaranteed by the Government of the
in accordance with the provisions of this Act.

BANKING PAGE || 35
Republic of the Philippines. Said notes shall bear the determine, they may be exchanged at par and without charge
signatures, in facsimile, of the President of the Philippines in the Bangko Sentral and by agents duly authorized by the
and of the Governor of the Bangko Sentral. Bangko Sentral for this purpose. After the expiration of this
latter period, the notes and coins which have not been
Similarly, the Monetary Board, with the approval of the
exchanged shall cease to be a liability of the Bangko Sentral
President of the Philippines, shall prescribe the weight,
and shall be demonetized. The Bangko Sentral shall also
fineness, designs, denominations and other characteristics
demonetize all notes and coins which have been called in
of the coins issued by the Bangko Sentral. In the minting of
and replaced.
coins, the Monetary Board shall give full consideration to the
availability of suitable metals and to their relative prices and B. DEMAND DEPOSITS
cost of minting.
Section 58. Definition. - For purposes of this Act, the
Section 54. Printing of Notes and Mining of Coins. - term "demand deposits" means all those liabilities of the
The Monetary Board shall prescribe the amounts of notes Bangko Sentral and of other banks which are denominated in
and coins to be printed and minted, respectively, and the Philippine currency and are subject to payment in legal
conditions to which the printing of notes and the minting of tender upon demand by the presentation of checks.
coins shall be subject. The Monetary Board shall have the
Section 59. Issue of Demand Deposits. - Only banks
authority to contract institutions, mints or firms for such
duly authorized to do so may accept funds or create
operations.
liabilities payable in pesos upon demand by the presentation
All expenses incurred in the printing of notes and the of checks, and such operations shall be subject to the
minting of coins shall be for the account of the Bangko control of the Monetary Board in accordance with the powers
Sentral. granted it with respect thereto under this Act.
Section 55. Interconvertibility of Currency. - The Section 60. Legal Character. - Checks representing
Bangko Sentral shall exchange, on demand and without demand deposits do not have legal tender power and their
charge, Philippine currency of any denomination for acceptance in the payment of debts, both public and private,
Philippine notes and coins of any other denomination is at the option of the creditor: Provided, however, That a
requested. If for any reason the Bangko Sentral is check which has been cleared and credited to the account of
temporarily unable to provide notes or coins of the the creditor shall be equivalent to a delivery to the creditor of
denominations requested, it shall meet its obligations by cash in an amount equal to the amount credited to his
delivering notes and coins of the denominations which most account.
nearly approximate those requested.
Section 56. Replacement of Currency Unfit for Alright. The second function of the Bangko Sentral: it
Circulation. - The Bangko Sentral shall withdraw from functions as the government banker. It is covered by Sections
circulation and shall demonetize all notes and coins which 110 t0 116.
for any reason whatsoever are unfit for circulation and shall
replace them by adequate notes and coins: Provided,
however, That the Bangko Sentral shall not replace notes and This includes all dealings with the international monetary
coins the identification of which is impossible, coins which fund, the international bank for the construction and
show signs of filing, clipping or perforation, and notes which development (which in short is the World Bank) and the other
have lost more than two-fifths (2/5) of their surface or all of interanational financial institutions and acts as the official
the signatures inscribed thereon. Notes and coins in such depository of the government and its political subdivisions
mutilated conditions shall be withdrawn from circulation and and instumentalities as well as government owned and
demonetized without compensation to the bearer. controlled corporations.
Section 57. Retirement of Old Notes and Coins. - The
Bangko Sentral may call in for replacement notes of any So, who is the banker of the government? Do not say DBP.
series or denomination which are more than five (5) years old They are just approved depositaries of government funds. The
and coins which are more than (10) years old. banker is the Bangko Sentral ng Pilipinas.
Notes and coins called in for replacement in CHAPTER V — FUNCTIONS AS BANKER AND FINANCIAL
accordance with this provision shall remain legal tender for a ADVISOR OF THE GOVERNMENT
period of one (1) year from the date of call. After this period, ARTICLE I
they shall cease to be legal tender but during the following
year, or for such longer period as the Monetary Board may FUNCTIONS AS BANKER OF THE GOVERNMENT

BANKING PAGE || 36
Section 110. Designation of Bangko Sentral as agencies adequately equipped to perform said operations:
Banker of the Government. - The Bangko Sentral shall act as Provided, however, That for fiscal operations in foreign
a banker of the Government, its political subdivisions and countries, the Bangko Sentral may engage the services of
instrumentalities. foreign banking and financial institutions.
Section 111. Representation with the International Section 116. Remuneration for Services. - The
Monetary Fund. - The Bangko Sentral shall represent the Bangko Sentral may charge equitable rates, commissions or
Government in all dealings, negotiations and transactions fees for services which it renders to the Government, its
with the International Monetary Fund and shall carry such political subdivisions and instrumentalities.
accounts as may result from Philippine membership in, or
operations with, said Fund.
Now, the third function of the BSP: The BSP acts as a
Section 112. Representation with Other Financial government agent. That is Sections 117 to 122. This includes
Institutions. - The Bangko Sentral may be authorized by the acting in behalf of or for the government in the issuance of
Government to represent it in dealings, negotiations or
securities representing obligations of the government.
transactions with the International Bank for Reconstruction
and Development and with other foreign or international
financial institutions or agencies. The President may, The government continually issues securities. What is an
however, designate any of his other financial advisors to example of a security? A note. The government, every Monday,
jointly represent the Government in such dealings, it issues treasury bills—90-day teasury bills or 180-day
negotiations or transactions. treasury bills. Then it opens it up for bidding. Why is that?
Section 113. Official Deposits. - The Bangko Sentral That is the way of government of borrowing from the public.
shall be the official depository of the Government, its Why? The expenses of the government are continuous and its
political subdivisions and instrumentalities as well as of taking in of money is sporadic. Ang panahon baya sa
government-owned or controlled corporations and, as a payment of income tax kay Abril raba na. Corporate taxes kay
general policy, their cash balances should be deposited with quarterly. In the meantime, government has billions of ___.
the Bangko Sentral, with only minimum working balances to How does the government then meet its cashflow needs? It
be held by government-owned banks and such other banks borrows. How does it borrow? It asks the Central Bank to run
incorporated in the Philippines as the Monetary Board may the bidding for treasury bills—every Monday it opens up for
designate, subject to such rules and regulations as the Board
bidding.
may prescribe: Provided, That such banks may hold deposits
of the political subdivisions and instrumentalities of the
Government beyond their minimum working balances Let's say, the Bangko Sentral says “we have a P5Bil worth of
whenever such subdivisions or instrumentalities have 90-day treasury banks open for bidding.” And then, all those
outstanding loans with said banks. that are accredited, namely banks and insurance companies
as well as retirement funds (GSIS and SSS), participates in the
The Bangko Sentral may pay interest on deposits of
the Government or of its political subdivisions and bidding. That is because the treasury banks are a Zero-
instrumentalities, as well as on deposits of banks with the coupon rate. Wala may interest dira. There is a base amount
Bangko Sentral. and you would bid via rediscount. Let us sa P100,000.00 90-
day treasury bill, ang bid nimo ana is only P80,000.00. Ang
Section 114. Fiscal Operations. - The Bangko Sentral
ihatag nimo ana kay P80,000.00 unya pagkahinog ana kay
shall open a general cash account for the Treasurer of the
Philippines, in which the liquid funds of the Government ang imong makuha after 90 days kay P100,000.00. Ang
shall be deposited. difference ana kay mao nay interest. So if you bid a
rediscount, zero-interest note na.
Transfers of funds from this account to other
accounts shall be made only upon order of the Treasurer of
Now, if the government believes that your bid is too low—
the Philippines.
which means that its cost of money is too high—the
Section 115. Other Banks as Agents of the Bangko government may nullify the biddings. In which case, the BSP
Sentral. - In the performance of its functions as fiscal agent, will say that they will cancel all the bids. Now, why do banks
the Bangko Sentral may engage the services of other bid for this?
government-owned and controlled banks and of other
domestic banks for operations in localities at home or
abroad in which the Bangko Sentral does not have offices or When the government is one of the lowest cost borrowers in
the market. Kanang treasury bills sa gobyerno, mas inilog na

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kaysa sa notes sa San Miguel Corporation. Ngano man? which the preceding section refers through direct sale to
Nganong daghan mag gusto nga mupalit ana? financial institutions and the public.
The Bangko Sentral shall not be a member of any
No. 1: ang government dili man na makadagan. Di man na stock exchange or syndicate, but may intervene therein for
mahapay. So it's the lowest cost of money. So when they sell the sole purpose of regulating their operations in the placing
to you their treasury bills, you are a lender to the most secured of government securities.
borrower there is within our country. The Government, or its political subdivisions or
instrumentalities, shall reimburse the Bangko Sentral for the
No. 2: If you are a bank, you are required to maintain what is expenses incurred in the placing of the aforesaid securities.
called deposit liabilities. What is that? For every peso that you
Section 119. Servicing and Redemption of the Public
will receive from the public, you know very well that the Debt. - The servicing and redemption of the public debt shall
characterization of that is a loan. You enter into a contract of also be effected through the Bangko Sentral.
a loan and not deposit. So, mubayad kag interest. Pila may
ibayad nimo nga interest? Wa man gani muabot og 1%. Taxan B. BANGKO SENTRAL SUPPORT OF THE
man na sa gobyerno. Pero pila may interest kung ma-max out GOVERNMENT SECURITIES MARKET
na ka (sa credit cards yata ni)? 3.5%! Dako kaayong diprensya. Section 120. The Securities Stabilization Fund. -
Pero naa may rule ang gobyerno. You cannot entirely lend that There shall be established a "Securities Stabilization Fund"
out. You must keep a certain percentage of cash or mere cash. which shall be administered by the Bangko Sentral for the
If you are BDO or a universal bank, 14% should be deposited account of the Government.
as cash (kanang bills or notes) or mere cash (kanang treasury The operations of the Securities Stabilization Fund
bills). That is why, the number one bidders of treasury bills are shall consist of purchases and sales, in the open market, of
banks. Pagkakuha sa proceeds ana, ihatag na sa BSP ngadto bonds and other evidences of indebtedness issued or fully
sa Department of Treasury. Unya ang magdistribute ana for guaranteed by the Government. The purpose of these
purposes of cash flow kay ang Department of Budget and operations shall be to increase the liquidity and stabilize the
Management. Pero kung wa pay Central bank, ang mudisiplina value of said securities in order thereby to promote
investment in government obligations.
aning tanan aron dili sila mag cahoots kay ang Banko Sentral
for and in behalf of the government because the latter does The Monetary Board shall use the resources of the
not have the __ of the process of bidding. Fund to prevent, or moderate, sharp fluctuations in the
quotations of said government obligations, but shall not
So, it acts as the government agent in the issuance of endeavor to alter movements of the market resulting from
basic changes in the pattern or level of interest rates.
securities representing the obligations of the government.
ARTICLE II The Monetary Board shall issue such regulations as
THE MARKETING AND STABILIZATION OF SECURITIES FOR may be necessary to implement the provisions of this
THE ACCOUNT OF THE GOVERNMENT section.
A. THE ISSUE AND PLACING OF GOVERNMENT Section 121. Resources of the Securities Stabilization
SECURITIES Fund. - Subject to Section 132 of this Act, the resources of
the Securities Stabilization Fund shall come from the
Section 117. Issue of Government Obligations. - The
balance of the fund as held by the Central Bank under
issue of securities representing obligations of the
Republic Act No. 265 as of the effective date of this Act.
Government, its political subdivisions or instrumentalities,
may be made through the Bangko Sentral, which may act as Section 122. Profits and Losses of the Fund. - The
agent of, and for the account of, the Government or its Securities Stabilization Fund shall retain net profits which it
respective subdivisions or instrumentality, as the case may may make on its operations, regardless of whether said
be: Provided, however, That the Bangko Sentral shall not profits arise from capital gains or from interest earnings. The
guarantee the placement of said securities, and shall not Fund shall correspondingly bear any net losses which it may
subscribe to their issue except to replace its maturing incur.
holdings of securities with the same type as the maturing
securities.
Another function (fourth function) is that the Bangko Sentral
Section 118. Methods of Placing Government acts as government financial advisor. This includes providing
Securities. - The Bangko Sentral may place the securities to financial advice to the government before it borrows within

BANKING PAGE || 38
the Philippines or undertakes any credit operation abroad. may render an opinion on the probable effects of the
proposed operation on monetary aggregates, the price level,
Karon, mao nay gitawag nga excess liquidity. Nganong excess and the balance of payments.
liquidity man karon? Muingon kag “Liquid ko”. Unsa man na? Section 124. Representation on the National
Daghan kag kwarta. Dili na galaway-laway ka! Liquid is Economic and Development Authority. - In order to assure
money.The world now is in excess of liquidity. Why? Because effective coordination between the economic, financial and
of the financial crisis which began in 2008. [Segue: About the fiscal policies of the Government and the monetary, credit
time when the world is in near financial collapse, labi na ang and exchange policies of the Bangko Sentral, the Deputy
PIGS—Portugal, Ireland, Greece, and Spain. When that Governor designated by the Governor of the Bangko Sentral
shall be an ex officio member of the National Economic and
happened, many US Federal reserve banks kay nibubo og Development Authority Board.
kwarta sa market. Unsa man na? Nienter sila sa market! They
entered basically into a transaction.]
Then, the Bangko Sentral also functions as a custodian (fifth
Now, to put a stop with this excess liquidity (Ngano man function) of the bank's cash reserves. This refers to reserves
istop? Kay this can result to inflation!) muingon na sila na against deposit liabilities. Lain-laing klase sa bangko, lain-lain
maghinay-hinay nag buhat og what is called quantitavive klase sa percentage of deposit reserves and deposit liabilities.
easing. Hinay-hinay tag atras. Di na ta magapil-apil sa Liabilities for deposit substitutes and/or funds which banks
market. Musugod nag kamahal ang cost of money. may be required to maintain with the Bangko Sentral.
So mao nay function sa Bangko Sentral. Muhatag og advice And then, the BSP also acts as the country's custodian of
sa goobyerno. That is advising the government and the international reserves (sixth function). This is Sections 64 to
government needs good avice especially if it is ran by 66. In order to maintain the international stability and
sophomores like PNOY. (haha LOL) [Segue: Pareha anang sa convertibility of the Philippine peso, the Bangko Sentral shall
plate number. Gipaningot na lang kog huwat anang plate maintain international reserves adequate to meet any
number sa LTO! Unsa may problema ana? Wa man jud ko foreseeable net demands on the Bangko Sentral for foreign
kasabot. Sa America og Japan daghan mag sakyanan. Ang currencies.
instik, pikot mang mga mata ana pero naa man silay plate ARTICLE II
number. Pagka way hunungdan! Dili man na rocket science.] INTERNATIONAL MONETARY STABILIZATION
Section 64. International Monetary Stabilization. -
Ang Bangko Sentral ang muhimog bidding ha. Dili ang The Bangko Sentral shall exercise its powers under this Act
DOFinance. Dili sad ang DBM. to preserve the international value of the peso and to
ARTICLE III maintain its convertibility into other freely convertible
FUNCTIONS AS FINANCIAL ADVISOR OF THE GOVERNMENT currencies primarily for, although not necessarily limited to,
current payments for foreign trade and invisibles.
Section 123. Financial Advice on Official Credit
Operations. - Before undertaking any credit operation Section 65. International Reserves. - In order to
abroad, the Government, through the Secretary of Finance, maintain the international stability and convertibility of the
shall request the opinion, in writing, of the Monetary Board Philippine peso, the Bangko Sentral shall maintain
on the monetary implications of the contemplated action. international reserves adequate to meet any foreseeable net
Such opinions must similarly be requested by all political demands on the Bangko Sentral for foreign currencies.
subdivisions and instrumentalities of the Government before
In judging the adequacy of the international reserves,
any credit operation abroad is undertaken by them.
the Monetary Board shall be guided by the prospective
The opinion of the Monetary Board shall be based on receipts and payments of foreign exchange by the
the gold and foreign exchange resources and obligations of Philippines. The Board shall give special attention to the
the nation and on the effects of the proposed operation on volume and maturity of the Bangko Sentral's own liabilities in
the balance of payments and on monetary aggregates. foreign currencies, to the volume and maturity of the foreign
exchange assets and liabilities of other banks operating in
Whenever the Government, or any of its political the Philippines and, insofar as they are known or can be
subdivisions or instrumentalities, contemplates borrowing estimated, the volume and maturity of the foreign exchange
within the Philippines, the prior opinion of the Monetary assets and liabilities of all other persons and entities in the
Board shall likewise be requested in order that the Board Philippines.

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Section 66. Composition of the International cooperation required from other

Reserves. - The international reserves of the Bangko Sentral government agencies for the successful
may include but shall not be limited to the following assets: execution of the policies of the Monetary
Board.
(a) gold; and
If the resultant actions fail to check the deterioration
(b) assets in foreign currencies in the form of:
of the reserve position of the Bangko Sentral, or if the
documents and instruments customarily employed
deterioration cannot be checked except by chronic
for the international transfer of funds; demand and
restrictions on exchange and trade transactions or by
time deposits in central banks, treasuries and
sacrifice of the domestic objectives of a balanced and
commercial banks abroad; foreign government
sustainable growth of the economy, the Monetary Board shall
securities; and foreign notes and coins.
propose to the President, with appropriate notice of the
The Monetary Board shall endeavor to hold the foreign Congress, such additional action as it deems necessary to
exchange resources of the Bangko Sentral in freely restore equilibrium in the international balance of payments
convertible currencies; moreover, the Board shall give of the Philippines.
particular consideration to the prospects of continued
The Monetary Board shall submit periodic reports to
strength and convertibility of the currencies in which the
the President and to Congress until the threat to the
reserve is maintained, as well as to the anticipated demands
international monetary stability of the Philippines has
for such currencies. The Monetary Board shall issue
disappeared.
regulations determining the other qualifications which
foreign exchange assets must meet in order to be included in
the international reserves of the Bangko Sentral. What is the difference between balance of trade and balance
The Bangko Sentral shall be free to convert any of the of payment? Economics 101 ni ha.
assets in its international reserves into other assets as
described in subsections (a) and (b) of this section. Balance of trade, ang imong exports compared to your
imports, mao nay balance of trade. It is just an item in balance
Section 67. Action When the International Stability of
the Peso Is Threatened. - Whenever the international reserve of payment. Because the balance of payment includes
of the Bangko Sentral falls to a level which the Monetary balance of trade + remittances. Kanang magsulod na investor
Board considers inadequate to meet prospective net na magdalag kwarta giikan sa gawas. Unsa man na? Balance
demands on the Bangko Sentral for foreign currencies, or of payment na. OFW, mupadalag kwarta diri. That is part of
whenever the international reserve appears to be in imminent balance of payment. Dili man na balance of trade. Unsa man
danger of falling to such a level, or whenever the guy iyahang gitrade? Wa man. Ang Pilipinas, ang iyahang
international reserve is falling as a result of payments or utang sa World bank, unya magpadalag kwarta gikan diri.
remittances abroad which, in the opinion of the Monetary Unsa man na? Balance of payments. Ang mas dako kay
Board, are contrary to the national welfare, the Monetary
balance of payments.
Board shall:
(a) take such remedial measures as are Now, the Bangko Sentral also acts as banks of rediscount and
appropriate and within the powers granted to the lender of last resort (seventh function). That is Sections 82 to
Monetary Board and the Bangko Sentral under the 84. As part of its normal credit operations, the Bangko Sentral
provisions of this Act; and
may rediscount, discount, buy and sell bills, acceptances,
(b) submit to the President of the Philippines and promissory notes and other credit instuments. The BSP may
to Congress a detailed report which shall include, also grant emergency loans and advances to banks under
as a minimum, a description and analysis of: certain circumstances.
(1) the nature and causes of the existing ARTICLE IV
or imminent decline; LOANS TO BANKING AND OTHER FINANCIAL INSTITUTIONS
(2) the remedial measures already taken A. CREDIT POLICY

or to be taken by the Monetary Board; Section 81. Guiding Principles. - The rediscounts,
(3) the monetary, fiscal or administrative discounts, loans and advances which the Bangko Sentral is
measures further proposed; and authorized to extend to banking institutions under the
provisions of the present article of this Act shall be used to
(4) the character and extent of the influence the volume of credit consistent with the objective

BANKING PAGE || 40
of price stability. prescribe additional safeguards for disbursing

these funds.
B. NORMAL CREDIT OPERATIONS
(d) Advances. - The Bangko Sentral may grant
Section 82. Authorized Types of Operations. - Subject
advances against the following kinds of collaterals
to the principle stated in the preceding section of this Act,
for fixed periods which, with the exception of
the Bangko Sentral may normally and regularly carry on the
advances against collateral named in clause (4) of
following credit operations with banking institutions
the present subsection, shall not exceed one
operating in the Philippines:
hundred eighty (180) days:
(a) Commercial credits. - The Bangko Sentral may
(1) gold coins or bullion;
rediscount, discount, buy and sell bills,
acceptances, promissory notes and other credit (2) securities representing obligations of
instruments with maturities of not more than one the Bangko Sentral or of other domestic
hundred eighty (180) days from the date of their institutions of recognized solvency;
rediscount, discount or acquisition by the Bangko
(3) the credit instruments to which
Sentral and resulting from transactions related to:
reference is made in subsection (a) of
(1) the importation, exportation, this section;
purchase or sale of readily saleable
(4) the credit instruments to which
goods and products, or their
reference is made in subsection (b) of
transportation within the Philippines; or
this section, for periods which shall not
(2) the storing of non-perishable goods exceed three hundred sixty (360) days;
and products which are duly insured and
(5) utilized portions of advances in
deposited, under conditions assuring
current amount covered by regular
their preservation, in authorized bonded
overdraft agreements related to
warehouses or in other places approved
operations included under subsections
by the Monetary Board.
(a) and (b) of this section, and certified
(b) Production credits. - The Bangko Sentral may as to amount and liquidity by the
rediscount, discount, buy and sell bills, institution soliciting the advance;
acceptances, promissory notes and other credit
(6) negotiable treasury bills, certificates
instruments having maturities of not more than
of indebtedness, notes and other
three hundred sixty (360) days from the date of
negotiable obligations of the
their rediscount, discount or acquisition by the
Government maturing within three (3)
Bangko Sentral and resulting from transactions
years from the date of the advance; and
related to the production or processing of
agricultural, animal, mineral, or industrial products. (7) negotiable bonds issued by the
Documents or instruments acquired in accordance Government of the Philippines, by
with this subsection shall be secured by a pledge Philippine provincial, city or municipal
of the respective crops or products: Provided, governments, or by any Philippine
however, That the crops or products need not be Government instrumentality, and having
pledged to secure the documents if the original maturities of not more than ten (10)
loan granted by the Bangko Sentral is secured by a years from the date of advance.
lien or mortgage on real estate property seventy
percent (70%) of the appraised value of which The rediscounts, discounts, loans and advances made in
equals or exceeds the amount of the loan granted. accordance with the provisions of this section may not be
renewed or extended unless extraordinary circumstances
(c) Other credits. - Special credit instruments not fully justify such renewal or extension.
otherwise rediscountable under the immediately
preceding subsections (a) and (b) may be eligible Advances made against the collateral named in
for rediscounting in accordance with rules and clauses (6) and (7) of subsection (d) of this section may not
regulations which the Bangko Sentral shall exceed eighty percent (80%) of the current market value of
prescribe. Whenever necessary, the Bangko Sentral the collateral.
shall provide funds from non-inflationary sources: C. SPECIAL CREDIT OPERATION
Provided, however, That the Monetary Board shall
Section 83. Loans for Liquidity Purposes. - The

BANKING PAGE || 41
Bangko Sentral may extend loans and advances to banking evaluate other assets of the banking institution certified by
institutions for a period of not more than seven (7) days its external auditor to be good and available for collateral
without any collateral for the purpose of providing liquidity to purposes should the release of the subsequent tranche be
the banking system in times of need. thereafter applied for.
D. EMERGENCY CREDIT OPERATION The Monetary Board may, by a vote of at least five (5)
of its members, authorize the release of a subsequent
Section 84. Emergency Loans and Advances. - In
tranche on condition that the principal stockholders of the
periods of national and/or local emergency or of imminent
institution:
financial panic which directly threaten monetary and banking
stability, the Monetary Board may, by a vote of at least five (a) furnish an acceptable undertaking to indemnify
(5) of its members, authorize the Bangko Sentral to grant and hold harmless from suit a conservator whose
extraordinary loans or advances to banking institutions appointment the Monetary Board may find
secured by assets as defined hereunder: Provided, That while necessary at any time; and
such loans or advances are outstanding, the debtor
(b) provide acceptable security which, in the
institution shall not, except upon prior authorization by the
judgment of the Monetary Board, would be
Monetary Board, expand the total volume of its loans or
adequate to supplement, where necessary, the
investments.
assets tendered by the banking institution to
The Monetary Board may, at its discretion, likewise collateralize the subsequent tranche.
authorize the Bangko Sentral to grant emergency loans or
In connection with the exercise of these powers, the
advances to banking institutions, even during normal
prohibitions in Section 128 of this Act shall not apply insofar
periods, for the purpose of assisting a bank in a precarious
as it refers to acceptance as collateral of shares and their
financial condition or under serious financial pressures
acquisition as a result of foreclosure proceedings, including
brought by unforeseen events, or events which, though
the exercise of voting rights pertaining to said shares:
foreseeable, could not be prevented by the bank concerned:
Provided, however, That should the Bangko Sentral acquire
Provided, however, That the Monetary Board has ascertained
any of the shares it has accepted as collateral as a result of
that the bank is not insolvent and has the assets defined
foreclosure proceedings, the Bangko Sentral shall dispose of
hereunder to secure the advances: Provided, further, That a
said shares by public bidding within one (1) year from the
concurrent vote of at least five (5) members of the Monetary
date of consolidation of title by the Bangko Sentral.
Board is obtained.
Whenever a financial institution incurs an overdraft in
The amount of any emergency loan or advance shall
its account with the Bangko Sentral, the same shall be
not exceed the sum of fifty percent (50%) of total deposits
eliminated within the period prescribed in Section 102 of this
and deposit substitutes of the banking institution and shall
Act.
be disbursed in two (2) or more tranches. The amount of the
first tranche shall be limited to twenty-five percent (25%) of
the total deposit and deposit substitutes of the institution So, this is where the bank participates in the open market
and shall be secured by government securities to the extent transactions. Mupahulam sya. Magparediscount. Unsa man
of their applicable loan values and other unencumbered first
nang rediscount? Kanang naay utang nimo unya dugay-dugay
class collaterals which the Monetary Board may approve:
Provided, That if as determined by the Monetary Board, the pa (ang maturity) dayon gusto na nimo kwartahon na (ang
circumstances surrounding the emergency warrant a loan or cheque), mutalikod ka, naa dira ang Bangko Sentral. Ingnan
advance greater than the amount provided hereinabove, the nimo na “Paliti na lang ni. Discountan man ni.” That is one of
amount of the first tranche may exceed twenty-five percent the jobs and functions of the Bangko Sentral.
(25%) of the bank's total deposit and deposit substitutes if
the same is adequately secured by applicable loan values of it acts as a central clearance and settlement (eighth function).
government securities and unencumbered first class The BSP is authorized to established facilities for interbank
collaterals approved by the Monetary Board, and the clearing for clearing of cheques and settlement of interbank
principal stockholders of the institution furnish an
balances. Asa man nimo ibutang ang cheke? Mutagbo na sila
acceptable undertaking to indemnify and hold harmless from
suit a conservator whose appointment the Monetary Board sa Bangko Sentral. Mao nay clearing house.
may find necessary at any time.
And then, another function is that it acts as controller of credit
Prior to the release of the first tranche, the banking (Sections 61 – 63, 81 – 89, and Section 109). The BSP shall
institution shall submit to the Bangko Sentral a resolution of
endeavor the expansion or contraction of credit, consistent
its board of directors authorizing the Bangko Sentral to

BANKING PAGE || 42
with the objective of price stability. It shall conduct normal credit, increases or decreases by more than fifteen percent
credit operations—like rediscounting, commercial credits, (15%), or the cost of living index increases by more than ten
etcetera—and special credit operations—like loans and percent (10%), in relation to the level existing at the end of
advances without any collateral with not more than 7 days to the corresponding month of the preceding year, or even
though any of these quantitative guidelines have not been
provide for liquidity in times of need—and emergency credit reached when in its judgment the circumstances so warrant,
operations to grant extraordinary loans and advances secured the Monetary Board shall submit the reports mentioned in
by certain assets to banks in periods of national and local this section, and shall state therein whether, in the opinion of
emergency. the Board, said changes in the monetary aggregates, credit
ARTICLE I or cost of living represent a threat to the stability of the
DOMESTIC MONETARY STABILIZATION Philippine economy or of important sectors thereof.
Section 61. Guiding Principle. - The Monetary Board The Monetary Board shall continue to submit periodic
shall endeavor to control any expansion or contraction in reports to the President of the Philippines and to Congress
monetary aggregates which is prejudicial to the attainment until it considers that the monetary, credit or price
or maintenance of price stability. disturbances have disappeared or have been adequately
controlled.
Section 62. Power to Define Terms. - For purposes of
this article and of this Act, the Monetary Board shall
formulate definitions of monetary aggregates, credit and
prices and shall make public such definitions and any ARTICLE IV
changes thereof. LOANS TO BANKING AND OTHER FINANCIAL INSTITUTIONS
Section 63. Action When Abnormal Movements Occur A. CREDIT POLICY
in the Monetary Aggregates, Credit, or Price Level. -
Whenever abnormal movements in the monetary aggregates, Section 81. Guiding Principles. - The rediscounts,
in credit, or in prices endanger the stability of the Philippine discounts, loans and advances which the Bangko Sentral is
economy or important sectors thereof, the Monetary Board authorized to extend to banking institutions under the
shall: provisions of the present article of this Act shall be used to
influence the volume of credit consistent with the objective
(a) take such remedial measures as are of price stability.
appropriate and within the powers granted to the
Monetary Board and the Bangko Sentral under the B. NORMAL CREDIT OPERATIONS
provisions of this Act; and Section 82. Authorized Types of Operations. - Subject
(b) submit to the President of the Philippines and to the principle stated in the preceding section of this Act,
the Congress, and make public, a detailed report the Bangko Sentral may normally and regularly carry on the
which shall include, as a minimum, a description following credit operations with banking institutions
and analysis of: operating in the Philippines:
(1) the causes of the rise or fall of the (a) Commercial credits. - The Bangko Sentral may
monetary aggregates, of credit or of rediscount, discount, buy and sell bills,
prices; acceptances, promissory notes and other credit
instruments with maturities of not more than one
(2) the extent to which the changes in hundred eighty (180) days from the date of their
the monetary aggregates, in credit, or in rediscount, discount or acquisition by the Bangko
prices have been reflected in changes in Sentral and resulting from transactions related to:
the level of domestic output,
employment, wages and economic (1) the importation, exportation,
activity in general, and the nature and purchase or sale of readily saleable
significance of any such changes; and goods and products, or their
transportation within the Philippines; or
(3) the measures which the Monetary
Board has taken and the other monetary, (2) the storing of non-perishable goods
fiscal or administrative measures which and products which are duly insured and
it recommends to be adopted. deposited, under conditions assuring
their preservation, in authorized bonded
Whenever the monetary aggregates, or the level of warehouses or in other places approved

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by the Monetary Board. (a) and (b) of this section, and certified
as to amount and liquidity by the
(b) Production credits. - The Bangko Sentral may
institution soliciting the advance;
rediscount, discount, buy and sell bills,
acceptances, promissory notes and other credit (6) negotiable treasury bills, certificates
instruments having maturities of not more than of indebtedness, notes and other
three hundred sixty (360) days from the date of negotiable obligations of the
their rediscount, discount or acquisition by the Government maturing within three (3)
Bangko Sentral and resulting from transactions years from the date of the advance; and
related to the production or processing of
(7) negotiable bonds issued by the
agricultural, animal, mineral, or industrial products.
Government of the Philippines, by
Documents or instruments acquired in accordance
Philippine provincial, city or municipal
with this subsection shall be secured by a pledge
governments, or by any Philippine
of the respective crops or products: Provided,
Government instrumentality, and having
however, That the crops or products need not be
maturities of not more than ten (10)
pledged to secure the documents if the original
years from the date of advance.
loan granted by the Bangko Sentral is secured by a
lien or mortgage on real estate property seventy The rediscounts, discounts, loans and advances made in
percent (70%) of the appraised value of which accordance with the provisions of this section may not be
equals or exceeds the amount of the loan granted. renewed or extended unless extraordinary circumstances
fully justify such renewal or extension.
(c) Other credits. - Special credit instruments not
otherwise rediscountable under the immediately Advances made against the collateral named in
preceding subsections (a) and (b) may be eligible clauses (6) and (7) of subsection (d) of this section may not
for rediscounting in accordance with rules and exceed eighty percent (80%) of the current market value of
regulations which the Bangko Sentral shall the collateral.
prescribe. Whenever necessary, the Bangko Sentral
shall provide funds from non-inflationary sources: C. SPECIAL CREDIT OPERATION
Provided, however, That the Monetary Board shall Section 83. Loans for Liquidity Purposes. - The
prescribe additional safeguards for disbursing Bangko Sentral may extend loans and advances to banking
these funds. institutions for a period of not more than seven (7) days
(d) Advances. - The Bangko Sentral may grant without any collateral for the purpose of providing liquidity to
advances against the following kinds of collaterals the banking system in times of need.
for fixed periods which, with the exception of D. EMERGENCY CREDIT OPERATION
advances against collateral named in clause (4) of
the present subsection, shall not exceed one Section 84. Emergency Loans and Advances. - In
hundred eighty (180) days: periods of national and/or local emergency or of imminent
financial panic which directly threaten monetary and banking
(1) gold coins or bullion; stability, the Monetary Board may, by a vote of at least five
(2) securities representing obligations of (5) of its members, authorize the Bangko Sentral to grant
the Bangko Sentral or of other domestic extraordinary loans or advances to banking institutions
institutions of recognized solvency; secured by assets as defined hereunder: Provided, That while
such loans or advances are outstanding, the debtor
(3) the credit instruments to which institution shall not, except upon prior authorization by the
reference is made in subsection (a) of Monetary Board, expand the total volume of its loans or
this section; investments.
(4) the credit instruments to which The Monetary Board may, at its discretion, likewise
reference is made in subsection (b) of authorize the Bangko Sentral to grant emergency loans or
this section, for periods which shall not advances to banking institutions, even during normal
exceed three hundred sixty (360) days; periods, for the purpose of assisting a bank in a precarious
financial condition or under serious financial pressures
(5) utilized portions of advances in
brought by unforeseen events, or events which, though
current amount covered by regular
overdraft agreements related to
Provided, however, That the Monetary Board has ascertained
operations included under subsections

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that the bank is not insolvent and has the assets defined any of the shares it has accepted as collateral as a result of
hereunder to secure the advances: Provided, further, That a foreclosure proceedings, the Bangko Sentral shall dispose of
concurrent vote of at least five (5) members of the Monetary said shares by public bidding within one (1) year from the
Board is obtained. date of consolidation of title by the Bangko Sentral.
The amount of any emergency loan or advance shall Whenever a financial institution incurs an overdraft in
not exceed the sum of fifty percent (50%) of total deposits its account with the Bangko Sentral, the same shall be
and deposit substitutes of the banking institution and shall eliminated within the period prescribed in Section 102 of this
be disbursed in two (2) or more tranches. The amount of the Act.
first tranche shall be limited to twenty-five percent (25%) of
E. CREDIT TERMS
the total deposit and deposit substitutes of the institution
and shall be secured by government securities to the extent Section 85. Interest and Rediscount. - The Bangko
of their applicable loan values and other unencumbered first Sentral shall collect interest and other appropriate charges
class collaterals which the Monetary Board may approve: on all loans and advances it extends, the closure,
Provided, That if as determined by the Monetary Board, the receivership or liquidations of the debtor-institution
circumstances surrounding the emergency warrant a loan or notwithstanding. This provision shall apply prospectively.
advance greater than the amount provided hereinabove, the
amount of the first tranche may exceed twenty-five percent The Monetary Board shall fix the interest and
(25%) of the bank's total deposit and deposit substitutes if rediscount rates to be charged by the Bangko Sentral on its
the same is adequately secured by applicable loan values of credit operations in accordance with the character and term
government securities and unencumbered first class of the operation, but after due consideration has been given
collaterals approved by the Monetary Board, and the to the credit needs of the market, the composition of the
principal stockholders of the institution furnish an Bangko Sentral's portfolio, and the general requirements of
acceptable undertaking to indemnify and hold harmless from the national monetary policy. Interest and rediscount rates
suit a conservator whose appointment the Monetary Board shall be applied to all banks of the same category uniformly
may find necessary at any time. and without discrimination.
Prior to the release of the first tranche, the banking Section 86. Endorsement. - The documents
institution shall submit to the Bangko Sentral a resolution of rediscounted, discounted, bought or accepted as collateral
its board of directors authorizing the Bangko Sentral to by the Bangko Sentral in the course of the credit operations
evaluate other assets of the banking institution certified by authorized in this article shall bear the endorsement of the
its external auditor to be good and available for collateral institution from which they are received.
purposes should the release of the subsequent tranche be Section 87. Repayment of Credits. - Documents
thereafter applied for. rediscounted, discounted or accepted as collateral by the
The Monetary Board may, by a vote of at least five (5) Bangko Sentral must be withdrawn by the borrowing
of its members, authorize the release of a subsequent institution on the dates of their maturities, or upon
tranche on condition that the principal stockholders of the liquidation of the obligations which they represent or to
institution: which they relate whenever said obligations have been
liquidated prior to their dates of maturity.
(a) furnish an acceptable undertaking to indemnify
and hold harmless from suit a conservator whose Banks shall have the right at any time to withdraw any
appointment the Monetary Board may find documents which they have presented to the Bangko Sentral
necessary at any time; and as collateral, upon payment in full of the corresponding debt
to the Bangko Sentral, including interest charges.
(b) provide acceptable security which, in the
judgment of the Monetary Board, would be Section 88. Other requirements. - The Monetary Board
adequate to supplement, where necessary, the may prescribe, within the general powers granted to it under
assets tendered by the banking institution to this Act, additional conditions which borrowing institutions
collateralize the subsequent tranche. must satisfy in order to have access to the credit of the
Bangko Sentral. These conditions may refer to the rates of
In connection with the exercise of these powers, the interest charged by the banks, to the purposes for which
prohibitions in Section 128 of this Act shall not apply insofar their loans in general are destined, and to any other clearly
as it refers to acceptance as collateral of shares and their definable aspect of the credit policy of the bank.
acquisition as a result of foreclosure proceedings, including
the exercise of voting rights pertaining to said shares: Section 89. Provisional Advances to the National
Provided, however, That should the Bangko Sentral acquire Government. - The Bangko Sentral may make direct

BANKING PAGE || 45
provisional advances with or without interest to the National So we have been taking a look at the various functions of the
Government to finance expenditures authorized in its annual Bangko Sentral in relation to the State. Now, we will tae a look
appropriation: Provided, That said advances shall be repaid at Bangko Sentral's instument of action—how it inserts itself
before the end of three (3) months extendible by another into the open market just like any bank.
three (3) months as the Monetary Board may allow following
the date the National Government received such provisional
advances and shall not, in their aggregate, exceed twenty Now, Sections 69-79 details the bank's gold and foreign
percent (20%) of the average annual income of the borrower exchange operations. And under Section 69, the Bangko
for the last three (3) preceding fiscal years. Sentral may buy and sell gold in any form.
CHAPTER IV — INSTRUMENTS OF BANGKO SENTRAL

ARTICLE IX
ACTION
COORDINATION OF CREDIT POLICIES BY GOVERNMENT
INSTITUTIONS ARTICLE I
GENERAL CRITERION
Section 109. Coordination of Credit Policies. -
Government-owned corporations which perform banking or Section 68. Means of Action. - In order to achieve the
credit functions shall coordinate their general credit policies primary objective of price stability, the Monetary Board shall
with those of the Monetary Board. rely on its moral influence and the powers granted to it under
this Act for the management of monetary aggregates.
Toward this end, the Monetary Board may, whenever it
deems it expedient, make suggestions or recommendations ARTICLE II
to such corporations for the more effective coordination of OPERATIONS IN GOLD AND FOREIGN EXCHANGE
their policies with those of the Bangko Sentral.
Section 69. Purchases and Sales of Gold. - The
Bangko Sentral may buy and sell gold in any form, subject to
Those are very specialized roles—controller of credit. such regulations as the Monetary Board may issue.
The purchases and sales of gold authorized by this
Now, Section 109, requires government and controlled section shall be made in the national currency at the
corpporations to coordinate their general credit policies with prevailing international market price as determined by the
those of the Monetary Board. Why? Because it is the controller Monetary Board.
of credit. Kinahanglan na naay referree ang credit. Section 70. Purchases and Sales of Foreign
Exchange. - The Bangko Sentral may buy and sell foreign
How does credit operate interest rates? Interest rates are notes and coins, and documents and instruments of types
based on bench-marks rate. Unsa man na? A-1 ka na customarily employed for the international transfer of funds.
maghuhulam. Ang interest nimo mao na. Kung naa gani The Bangko Sentral may engage in future exchange
maghulam, ang interest nimo, patas-an na na. Mao na ang operations.
imong bench-mark rate. So, a very established benchmark of The Bangko Sentral may engage in foreign exchange
credit is the LIBOR. [Segue: What is LIBOR? London Interbank transactions with the following entities or persons only:
Offered Rate. When banks in Europe cannot meet their deposit
(a) banking institutions operating in the
liabilities, they'd offer to each other. And the interest rate that Philippines;
they'd give to each other is the bench-mark. So that is the
bench mark. So kintahay corporation ka (ex. Google) unya (b) the Government, its political subdivisions and
muingon ka nga 2-points above LIBOR. Unsa man nang instrumentalities;
points? From 1%-2% kay 100points na. So that is how interest (c) foreign or international financial institutions;
rates are determined. Kung sari-sari store ka ug muhuwam ka,
(d) foreign governments and their
unsaon man nimo na? Fly by night na. Mao nay kapait sa instrumentalities; and
gamay. Your strength is your weakness in the financial world. I
am telling you the facts! That is a fact in the financial world.] (e) other entities or persons which the Monetary
Board is hereby empowered to authorize as foreign
exchange dealers, subject to such rules and
regulations as the Monetary Board shall prescribe.
December 10, 2015
In order to maintain the convertibility of the peso, the

BANKING PAGE || 46
Bangko Sentral may, at the request of any banking institution disposition by the Bangko Sentral of foreign exchange which
operating in the Philippines, buy any quantity of foreign is not freely utilizable in the international market.
exchange offered, and sell any quantity of foreign exchange
Section 74. Exchange Rates. - The Monetary Board
demanded, by such institution, provided that the foreign
shall determine the exchange rate policy of the country.
currencies so offered or demanded are freely convertible into
gold or United States dollars. This requirement shall not The Monetary Board shall determine the rates at
apply to demands for foreign notes and coins. which the Bangko Sentral shall buy and sell spot exchange,
and shall establish deviation limits from the effective
The Bangko Sentral shall effect its exchange
exchange rate or rates as it may deem proper. The Bangko
transactions between foreign currencies and the Philippine
Sentral shall not collect any additional commissions or
peso at the rates determined in accordance with the
charges of any sort, other than actual telegraphic or cable
provisions of Section 74 of this Act.
costs incurred by it.
Section 71. Foreign Asset Position of the Bangko
The Monetary Board shall similarly determine the
Sentral. - The Bangko Sentral shall endeavor to maintain at
rates for other types of foreign exchange transactions by the
all times a net positive foreign asset position so that its
Bangko Sentral, including purchases and sales of foreign
gross foreign exchange assets will always exceed its gross
notes and coins, but the margins between the effective
foreign liabilities. In the event that the equivalent amount in
exchange rates and the rates thus established may not
pesos of the foreign exchange liabilities of the Bangko
exceed the corresponding margins for spot exchange
Sentral exceed twice the equivalent amount in pesos of the
transactions by more than the additional costs or expenses
foreign exchange assets of the bank, the Bangko Sentral
involved in each type of transactions.
shall, within sixty (60) days from the date the limit is
exceeded, submit a report to the Congress stating the origin Section 75. Operations with Foreign Entities. - The
of these liabilities, and the manner in which they will be paid. Monetary Board may authorize the Bangko Sentral to grant
loans to and receive loans from foreign banks and other
Section 72. Emergency Restrictions on Exchange
foreign or international entities, both public and private, and
Operations. - In order to achieve the primary objective of the
may engage in such other operations with these entities as
Bangko Sentral as set forth in Section 3 of this Act, or
are in the national interest and are appropriate to its
protect the international reserves of the Bangko Sentral in
character as a central bank. The Bangko Sentral may also act
the imminence of, or during an exchange crisis, or in time of
as agent or correspondent for such entities.
national emergency and to give the Monetary Board and the
Government time in which to take constructive measures to Upon authority of the Monetary Board, the Bangko
forestall, combat, or overcome such a crisis or emergency, Sentral may pledge any gold or other assets which it
the Monetary Board, with the concurrence of at least five (5) possesses as security against loans which it receives from
of its members and with the approval of the President of the foreign or international entities.
Philippines, may temporarily suspend or restrict sales of
exchange by the Bangko Sentral, and may subject all ARTICLE III
transactions in gold and foreign exchange to license by the REGULATION OF FOREIGN EXCHANGE OPERATIONS OF THE
Bangko Sentral, and may require that any foreign exchange BANKS
thereafter obtained by any person residing or entity Section 76. Foreign Exchange Holdings of the
operating in the Philippines be delivered to the Bangko Banks. - In order that the Bangko Sentral may at all times
Sentral or to any bank or agent designated by the Bangko have foreign exchange resources sufficient to enable it to
Sentral for the purpose, at the effective exchange rate or maintain the international stability and convertibility of the
rates: Provided, however, That foreign currency deposits peso, or in order to promote the domestic investment of bank
made under Republic Act No. 6426 shall be exempt from resources, the Monetary Board may require the banks to sell
these requirements. to the Bangko Sentral or to other banks all or part of their
Section 73. Acquisition of Inconvertible Currencies. - surplus holdings of foreign exchange. Such transfers may be
The Bangko Sentral shall avoid the acquisition and holding of required for all foreign currencies or for only certain of such
currencies which are not freely convertible, and may acquire currencies, according to the decision of the Monetary Board.
such currencies in an amount exceeding the minimum The transfers shall be made at the rates established under
balance necessary to cover current demands for said the provisions of Section 74 of this Act.
currencies only when, and to the extent that, such The Monetary Board may, whenever warranted,
acquisition is considered by the Monetary Board to be in the determine the net assets and net liabilities of banks and
national interest. The Monetary Board shall determine the shall, in making such a determination, take into account the
procedures which shall apply to the acquisition and bank's networth, outstanding liabilities, actual and

BANKING PAGE || 47
contingent, or such other financial or performance ratios as Then it may also grant to and receive loans from an __ agent
may be appropriate under the circumstances. Any such or correspondent for foreign banks and other foreign and
determination of net assets and net liabilities shall be international entities, both public and private. This is
applied in all banks uniformly and without discrimination. especially if the transaction is by the bank. It is the
Section 77. Requirement of Balanced Currency correspondent bank. Let's say in the Philippines wins this
Position. - The Monetary Board may require the banks to JACA funding for the railway from Aparri to Bulacan. It is
maintain a balanced position between their assets and equivalent to P80Bil but it is in Yen because the Japanese
liabilities in Philippine pesos or in any other currency or would also like to get something out of it—they would like that
currencies in which they operate. The banks shall be granted a good portion of the loan be used to buy the materials from
a reasonable period of time in which to adjust their currency
Japan. And so it is in Yen. They would buy the railings from
positions to any such requirement.
Japan. So who facilitates that? It is the Bangko Sentral to
The powers granted under this section shall be produce the Yen to facilitate the transactions to buy the
exercised only when special circumstances make such materials for that project.
action necessary, in the opinion of the Monetary Board, and
shall be applied to all banks alike and without discrimination.
Credit operations. Discount rates, loans to banks, loans of the
Section 78. Regulation of Non-spot Exchange government guaranteed by the Bangko Sentral, etcetera.
Transactions. - In order to restrain the banks from taking These are all detailed in Sections 51 – 89 (But it is only until
speculative positions with respect to future fluctuations in Section 59) , Sections 93 (I think it is Section 83).
foreign exchange rates, the Monetary Board may issue such Section 51. Liability for Notes and Coins. - Notes and coins
regulations governing bank purchases and sales of non-spot
issued by the Bangko Sentral shall be liabilities of the
exchange as it may consider necessary for said purpose.
Bangko Sentral and may be issued only against, and in
Section 79. Other Exchange Profits and Losses. - The amounts not exceeding, the assets of the Bangko Sentral.
banks shall bear the risks of non-compliance with the terms Said notes and coins shall be a first and paramount lien on
of the foreign exchange documents and instruments which all assets of the Bangko Sentral.
they buy and sell, and shall also bear any other typically
The Bangko Sentral's holdings of its own notes and
commercial or banking risks, including exchange risks not
coins shall not be considered as part of its currency issue
assumed by the Bangko Sentral under the provisions of the
and, accordingly, shall not form part of the assets or
preceding section.
liabilities of the Bangko Sentral.
Section 52. Legal Tender Power. - All notes and coins
issued by the Bangko Sentral shall be fully guaranteed by the
It used to be that the Bangko Sentral which is the only one Government of the Republic of the Philippines and shall be
that couldd buy gold in the Philippines. Now, it is just one of legal tender in the Philippines for all debts, both public and
the couriers but it does not do well because just like the NFA private: Provided, however, That, unless otherwise fixed by
[Segue: the NFA ___ out to rice and corn farmers (?) who are the Monetary Board, coins shall be legal tender in amounts
the Chinese. The Chinese Traders buys your rice maski dili not exceeding Fifty pesos (P50.00) for denominations of
kaayo uga. ] wala man ka kakita na naglinya dirag gold miners Twenty-five centavos and above, and in amounts not
gikan sa Mt. Diwalwal na naglinya sa BSP. So that is the exceeding Twenty pesos (P20.00) for denominations of Ten
problem. Technically speaking, they can intervene in the centavos or less.
buying and selling of gold in the open market. Section 53. Characteristics of the Currency. - The
Monetary Board, with the approval of the President of the
Foreign notes and coins—they also buy and sell foreign notes Philippines, shall prescribe the denominations, dimensions,
and coins—, Stock exchanges. Where do you go if you need designs, inscriptions and other characteristics of notes
Yuan? You need to buy a certain large amount of Yuan. Then issued by the Bangko Sentral: Provided, however, That said
go to the Bangko Sentral with all the more reason that Yuan notes shall state that they are liabilities of the Bangko
Sentral and are fully guaranteed by the Government of the
now is included in one of the international currencies. It can Republic of the Philippines. Said notes shall bear the
be part of the foreiign reserves that the Bangko Sentral can signatures, in facsimile, of the President of the Philippines
keep since it is now considered as an international currency, and of the Governor of the Bangko Sentral.
as agreed upon by the United Nations.
President of the Philippines, shall prescribe the weight,

BANKING PAGE || 48
fineness, designs, denominations and other characteristics demonetize all notes and coins which have been called in
of the coins issued by the Bangko Sentral. In the minting of and replaced.
coins, the Monetary Board shall give full consideration to the
B. DEMAND DEPOSITS
availability of suitable metals and to their relative prices and
cost of minting. Section 58. Definition. - For purposes of this Act, the
term "demand deposits" means all those liabilities of the
Section 54. Printing of Notes and Mining of Coins. -
Bangko Sentral and of other banks which are denominated in
The Monetary Board shall prescribe the amounts of notes
Philippine currency and are subject to payment in legal
and coins to be printed and minted, respectively, and the
tender upon demand by the presentation of checks.
conditions to which the printing of notes and the minting of
coins shall be subject. The Monetary Board shall have the Section 59. Issue of Demand Deposits. - Only banks
authority to contract institutions, mints or firms for such duly authorized to do so may accept funds or create
operations. liabilities payable in pesos upon demand by the presentation
of checks, and such operations shall be subject to the
All expenses incurred in the printing of notes and the
control of the Monetary Board in accordance with the powers
minting of coins shall be for the account of the Bangko
granted it with respect thereto under this Act.
Sentral.
Section 60. Legal Character. - Checks representing
Section 55. Interconvertibility of Currency. - The
demand deposits do not have legal tender power and their
Bangko Sentral shall exchange, on demand and without
acceptance in the payment of debts, both public and private,
charge, Philippine currency of any denomination for
is at the option of the creditor: Provided, however, That a
Philippine notes and coins of any other denomination
check which has been cleared and credited to the account of
requested. If for any reason the Bangko Sentral is
the creditor shall be equivalent to a delivery to the creditor of
temporarily unable to provide notes or coins of the
cash in an amount equal to the amount credited to his
denominations requested, it shall meet its obligations by
account.
delivering notes and coins of the denominations which most
nearly approximate those requested.
C. SPECIAL CREDIT OPERATION
Section 56. Replacement of Currency Unfit for
Circulation. - The Bangko Sentral shall withdraw from Section 83. Loans for Liquidity Purposes. - The
circulation and shall demonetize all notes and coins which Bangko Sentral may extend loans and advances to banking
for any reason whatsoever are unfit for circulation and shall institutions for a period of not more than seven (7) days
replace them by adequate notes and coins: Provided, without any collateral for the purpose of providing liquidity
however, That the Bangko Sentral shall not replace notes and to the banking system in times of need.
coins the identification of which is impossible, coins which
show signs of filing, clipping or perforation, and notes which
have lost more than two-fifths (2/5) of their surface or all of And then the open market operations under Sections 90-92.
the signatures inscribed thereon. Notes and coins in such
this refers to the purchase and sale of securities by the
mutilated conditions shall be withdrawn from circulation and
demonetized without compensation to the bearer. Bangko Sentral with the primary objective of achieving price
stability.
Section 57. Retirement of Old Notes and Coins. - The
Bangko Sentral may call in for replacement notes of any
series or denomination which are more than five (5) years ARTICLE V
old and coins which are more than (10) years old. OPEN MARKET OPERATIONS FOR THE ACCOUNT OF THE
BANGKO SENTRAL
Notes and coins called in for replacement in
accordance with this provision shall remain legal tender for a Section 90. Principles of Open Market Operations. -
period of one (1) year from the date of call. After this period, The open market purchases and sales of securities by the
they shall cease to be legal tender but during the following Bangko Sentral shall be made exclusively in accordance with
year, or for such longer period as the Monetary Board may its primary objective of achieving price stability.
determine, they may be exchanged at par and without charge Section 91. Purchases and Sales of Government
in the Bangko Sentral and by agents duly authorized by the Securities. - In order to achieve the objectives of the national
Bangko Sentral for this purpose. After the expiration of this monetary policy, the Bangko Sentral may, in accordance with
latter period, the notes and coins which have not been the principle stated in Section 90 of this Act and with such
exchanged shall cease to be a liability of the Bangko Sentral rules and regulations as may be prescribed by the Monetary
and shall be demonetized. The Bangko Sentral shall also Board, buy and sell in the open market for its own account:

BANKING PAGE || 49
(a) evidences of indebtedness issued directly by that you'd get the deposits, you'd pay interest to the deposits,
the Government of the Philippines or by its and you turn around and lend those deposits to borrowers.
political subdivisions; and And then the difference between the interest that you gain and
(b) evidences of indebtedness issued by the interest that you have to pay to the depositors is the
government instrumentalities and fully guaranteed interest profit that you gain as a bank. That is the real
by the Government. banking business.
The evidences of indebtedness acquired under the
provisions of this section must be freely negotiable and What banks now earn, as many say, ½ of the profits, are no
regularly serviced and must be available to the general longer from the strict banking business. Who earns for the
public through banking institutions and local government bank? It is only the Treasury Department. The treasury
treasuries in denominations of a thousand pesos or more. department then enters into the financial transactions in the
Section 92. Issue and Negotiation of Bangko Sentral open market. They'd speculate on the foreign exchage. They'd
Obligations. - In order to provide the Bangko Sentral with buy and sell bonds and notes. They'd lend to each other. Now
effective instruments for open market operations, the that is not banking! What is that? That is the work of any
Bangko Sentral may, subject to such rules and regulations as investment trader, etcetera.
the Monetary Board may prescribe and in accordance with
the principles stated in Section 90 of this Act, issue, place, Now, because of what happened in 2008, all of a sudden, after
buy and sell freely negotiable evidences of indebtedness of the investigations, they came up with a legislation in the
the Bangko Sentral: Provided, That issuance of such United States that is called a and Dodd-Frank Wall Street
certificates of indebtedness shall be made only in cases of
Reform and Consumer Protection Act.
extraordinary movement in price levels. Said evidences of
indebtedness may be issued directly against the
international reserve of the Bangko Sentral or against the Now, a good comparison of this law is the Sarbanes-Oxley
securities which it has acquired under the provisions of Law, which came about because of the excesses of
Section 91 of this Act, or may be issued without relation to corporations. In the 1980s when so many corporations folded
specific types of assets of the Bangko Sentral. up, they passed this law. In your study of the Corporation Law,
The Monetary Board shall determine the interest I pointed to you some features that came from the Sarbanes-
rates, maturities and other characteristics of said obligations Oxley. That is the reason now why many corporations,
of the Bangko Sentral, and may, if it deems it advisable, especially if you are a public corporation, there are so-called
denominate the obligations in gold or foreign currencies. compliance officers. Officers in the corporation that makes
sure that you comply with this new Sarbanes-Oxley Law. Even
Subject to the principles stated in Section 90 of this
Act, the evidences of indebtedness of the Bangko Sentral to if you are a Philippine corporate, you have to comply if you
which this section refers may be acquired by the Bangko have securities being traded in the United States. What
Sentral before their maturity, either through purchases in the corporations are they? ABS-CBN, PLDT, Meralco, Del Monte.
open market or through redemptions at par and by lot if the All those different corporations and they float a security in the
Bangko Sentral has reserved the right to make such US, you have to comply. Because if not, you will be thrown out
redemptions. The evidences of indebtedness acquired or of the market and you cannot sell your securities. So, most
redeemed by the Bangko Sentral shall not be included corporations now, have what they call compliance officers.
among its assets, and shall be immediately retired and
cancelled.
Now, similarly in banking, a feature in the Banking Law , which
is the Dodd-Frank, is Section 619 which many say is the
The Bangko Sentral can enter into an open market Volcker Rule. I am giving you a preceiling (?) of the Volcre Rule
transactions. It can sell bonds, both public and privately because I have a suspicion where sooner or later this will
issued bonds. It can buy and sell foreign exchange, dollars, come up in the bar examinations. This is because they are
brought in by the OFWs coming in. And eventually it lands to now cooking up a law to resonate the grand mishap in the US.
the Bangko Sentral. Because once it is given to a bank, the
bank might as well sell/return it to the Bangko Sentral. So, Now, what is this so-called Volcker Rule? (Google: A federal
just like any bank, they can go into banking transactions. regulation that prohibits banks from conducting certain
investment activities with their own accounts, and limits their
Now, I told you that the heart and soul of banking business is ownership of and relationship with hedge funds and private

BANKING PAGE || 50
equity funds, also called covered funds. Volcker was the 2008 crisis. This book is entitled “The Courage to Act.” Now, I
federal reserve chairman before Allan Greenspan who is the am giving you also an assessment by Mr. Paul Krugman's
Federal reserve Chairman who opened up banking. So the “The Not so Bad Economy.”
banks entered into a non-traditionall banking system. And this
is what, as many say, is the reason of the 2008 Financial Now, why is this so important? Now, policy wise, there is a
Crisis. conondromy (?) The financial problem was caused by banks
doing non-traditional banking transactions. And the only way
Now, the Volcker rule introduced Section 619 of the Dodd- to solve it was that the mother bank entered into non-banking
Frank Act which is to bring back the bank to just getting the functions.]
deposits and ___. It is to make banking boring again. (Google:
Section 619 of the Dodd-Frank Wall Street Reform and And now, they prescribe the Volcker rule. Go back to banking
Consumer Protection Act, commonly referred to as the Volcker as banking was known traditionally. No more open-market
rule, generally prohibits insured depository institutions and transactions. But the referee himself, the federal reserve for
any company affiliated with an insured depository institution the Central Bank, continues to enter into open market
from engaging in proprietary trading and from acquiring or transactions. What is the difference between the Bangko
retaining ownership interests in, sponsoring, or having certain Sentral entering into an open market transaction and an
relationships with a hedge fund or private equity fund. These ordinary bank entering into an open market transaction?
prohibitions are subject to a number of statutory exemptions,
restrictions, and definitions. The Federal Reserve Board is Kung mupalit ang Bangko Sentral dira og bonds and foreign
working closely with the other agencies charged with exchange, unya ang Metrobank kay musulod sag ana nga
implementing the requirements of section 619, including the transactions? Nganong ang usa kay dili okay musulod nga ani
Office of the Comptroller of the Currency, the Federal Deposit nga transactions and ang isa kay okay ra? Technically
Insurance Corporation, the Securities and Exchange speaking, when the federal reserve enteres into money market
Commission, and the Commodity Futures Trading or open market transactions, it is for the purpose of the good
Commission.) of the market, is it not? If an ordinary bank enteres into an
open market transactions—buys bonds, foreign exchange, and
Now, another terminology that you should be familiar with is sells bonds etcetera—it is for profit. But the Bangko Sentral
Moral Hazard. What is Moral hazard? In banking, the way it is makes profits. In law, the profits of the Bangko Sentral must
placed is this: You have a bank that has become so big, that if be divided (½ goes to the bank itself and the other half goes to
you allow it to fail, it migt bring so many other entities with it the treasury). That is the system. Pareha ra nag basketball ba.
that the whole economy itself is in danger. [Segue: That is Ang kanang player usahay mamangil sya. Tawgon sya sa
what happened to AIG—American Insurance Group.] So the referee. Pero ang referee sad kay magduwa man. Mao na niini.
government has no choce but to help it. Inject more money Syay maghatag sa loans pero magduwa sad sya. How is that?
into it. But then there is a question of moral hazard. There is Can they really enforce the Volcker Rule if the federal reserve
that danger, but by helping this bank, you might be of the Bangko Sentral is still allowed to play in open market
encouraging the same problem from occuring again because transactions? That is the basic argument.
everybody will be saying that “If you are just too big to fail,
you will not fail because the government is always there to [Segue: Now, I am bring you this big picture because aron naa
help you.” So by helping this bank, you are encouraging the kay hanaw ba! But this is crucial to understand the bigger
same practices that are not desirable from happening again picture. Very few realize that our Bangko Sentral has already
that will cause the same problem. That is the moral hazard— lost P100Bil equivalent just this past year. They want to
that by doing some assistance, the State encourages the defend our stability.]
happening of the same effect that will cause and revive an old
problem which you do not want to happen again. Reserve requirements under Sections 94 – 103.
ARTICLE VII
[Segue: So, that is essentially what happened in the 2008 BANK RESERVES
crisis. So I am giving you a copy of the review of the book of Section 94. Reserve Requirements. - In order to
Ben Bernanke, the federal reserve chairman who just retired control the volume of money created by the credit operations
and who was the federal reserve chairman at the time of the of the banking system, all banks operating in the Philippines

BANKING PAGE || 51
shall be required to maintain reserves against their deposit currencies.

liabilities: Provided, That the Monetary Board may, at its
Section 98. Reserves Against Unused Balances of
discretion, also require all banks and/or quasi-banks to
Overdraft Lines. - In order to facilitate Bangko Sentral control
maintain reserves against funds held in trust and liabilities
over the volume of bank credit, the Monetary Board may
for deposit substitutes as defined in this Act. The required
establish minimum reserve requirements for unused
reserves of each bank shall be proportional to the volume of
balances of overdraft lines.
its deposit liabilities and shall ordinarily take the form of a
deposit in the Bangko Sentral. Reserve requirements shall be The powers of the Monetary Board to prescribe and
applied to all banks of the same category uniformly and modify reserve requirements against unused balances of
without discrimination. overdraft lines shall be the same as its powers with respect
to reserve requirements against demand deposits.
Reserves against deposit substitutes, if imposed, shall
be determined in the same manner as provided for reserve Section 99. Increase in Reserve Requirements. -
requirements against regular bank deposits, with respect to Whenever in the opinion of the Monetary Board it becomes
the imposition, increase, and computation of reserves. necessary to increase reserve requirements against existing
liabilities, the increase shall be made in a gradual manner
The Monetary Board may exempt from reserve
and shall not exceed four percentage points in any thirty-day
requirements deposits and deposit substitutes with
period. Banks and other affected financial institutions shall
remaining maturities of two (2) years or more, as well as
be notified reasonably in advance of the date on which such
interbank borrowings.
increase is to become effective.
Since the requirement to maintain bank reserves is
Section 100. Computation on Reserves. - The reserve
imposed primarily to control the volume of money, the
position of each bank or quasi-bank shall be calculated daily
Bangko Sentral shall not pay interest on the reserves
on the basis of the amount, at the close of business for the
maintained with it unless the Monetary Board decides
day, of the institution's reserves and the amount of its
otherwise as warranted by circumstances.
liability accounts against which reserves are required to be
Section 95. Definition of Deposit Substitutes. - The maintained: Provided, That with reference to holidays or non-
term "deposit substitutes" is defined as an alternative form banking days, the reserve position as calculated at the close
of obtaining funds from the public, other than deposits, of the business day immediately preceding such holidays
through the issuance, endorsement, or acceptance of debt and non-banking days shall apply on such days.
instruments for the borrower's own account, for the purpose
For the purpose of computing the reserve position of
of relending or purchasing of receivables and other
each bank or quasi-bank, its principal office in the
obligations. These instruments may include, but need not be
Philippines and all its branches and agencies located therein
limited to, bankers acceptances, promissory notes,
shall be considered as a single unit.
participations, certificates of assignment and similar
instruments with recourse, and repurchase agreements. The Section 101. Reserve Deficiencies. - Whenever the
Monetary Board shall determine what specific instruments reserve position of any bank or quasi-bank, computed in the
shall be considered as deposit substitutes for the purposes manner specified in the preceding section of this Act, is
of Section 94 of this Act: Provided, however, That deposit below the required minimum, the bank or quasi-bank shall
substitutes of commercial, industrial and other non-financial pay the Bangko Sentral one-tenth of one percent (1/10 of
companies for the limited purpose of financing their own 1%) per day on the amount of the deficiency or the prevailing
needs or the needs of their agents or dealers shall not be ninety-one-day treasury bill rate plus three percentage
covered by the provisions of Section 94 of this Act. points, whichever is higher: Provided, however, That banks
and quasi-banks shall ordinarily be permitted to offset any
Section 96. Required Reserves Against Peso
reserve deficiency occurring on one or more days of the week
Deposits. - The Monetary Board may fix and, when it deems
with any excess reserves which they may hold on other days
necessary, alter the minimum reserve ratios to peso
of the same week and shall be required to pay the penalty
deposits, as well as to deposit substitutes, which each bank
only on the average daily deficiency during the week. In
and/or quasi-bank may maintain, and such ratio shall be
cases of abuse, the Monetary Board may deny any bank or
applied uniformly to all banks of the same category as well
quasi-bank the privilege of offsetting reserve deficiencies in
as to quasi-banks.
the aforesaid manner.
Section 97. Required Reserves Against Foreign
If a bank or quasi-bank chronically has a reserve
Currency Deposits. - The Monetary Board is similarly
deficiency, the Monetary Board may limit or prohibit the
authorized to prescribe and modify the minimum reserve
making of new loans or investments by the institution and
ratios applicable to deposits denominated in foreign

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may require that part or all of the net profits of the institution control the volume of money created by credit corporations or
be assigned to surplus. bank system. Since the requirement of bank reserve is
The Monetary Board may modify or set aside the imposed primarily to control the volume of money, the Bangko
reserve deficiency penalties provided in this section, for part Sentral shall not pay the interest on the reserves maintained
or the entire period of a strike or lockout affecting a bank or a by the banks with it, unless the monetary board decides
quasi-bank as defined in the Labor Code, or of a national otherwise as warranted by circumstances. Deposits
emergency affecting operations of banks or quasi-banks. maintained by banks in the Bangko Sentral as part of their
The Monetary Board may also modify or set aside reserved reserve requirement shall be exempt from attachment, or
deficiency penalties for rehabilitation program of a bank. garnishment or any other order or process of any court,
Section 102. Interbank Settlement. - The Bangko government agency, or other administrative body issued to
Sentral shall establish facilities for interbank clearing under satisfy claims of a party other than the government or any of
such rules and regulations as the Monetary Board may its political subdivisions or instrumentalities. These are the
prescribe: Provided, That the Bangko Sentral may charge so-called opem market transactions and instruments of the
administrative and other fees for the maintenance of such Bangko Sentral.
facilities.
The deposit reserves maintained by the banks in the Definitions.
Bangko Sentral in accordance with the provisions of Section
94 of this Act shall serve as basis for the clearing of checks What are demand deposits? They are defined in Section 58.
and the settlement of interbank balances, subject to such Demand deposits are the liabilities of the Bangko Sentral and
rules and regulations as the Monetary Board may issue with
of other banks with are denominated in Philippine currency
respect to such operations: Provided, That any bank which
incurs on overdrawing in its deposit account with the Bangko and are subject to payment in legal tender upon demand by
Sentral shall fully cover said overdraft, including interest the presentation of checks.
thereon at a rate equivalent to one-tenth of one percent Section 58. Definition. - For purposes of this Act, the term
(1/10 of 1%) per day or the prevailing ninety-one-day "demand deposits" means all those liabilities of the Bangko
treasury bill rate plus three percentage points, whichever is Sentral and of other banks which are denominated in
higher, not later than the next clearing day: Provided, further, Philippine currency and are subject to payment in legal
That settlement of clearing balances shall not be effected for tender upon demand by the presentation of checks.
any account which continues to be overdrawn for five (5)
consecutive banking days until such time as the overdrawing So a checking account is a demand deposit. Why is a demand
is fully covered or otherwise converted into an emergency deposit so important? Because it belongs to the core of
loan or advance pursuant to the provisions of Section 84 of money supply. Demand deposits + coins in circulation is the
this Act: Provided, finally, That the appropriate clearing office core of money supply. The larger money supply includes
shall be officially notified of banks with overdrawn balances. savings accounts, time deposits, and other special drawing
Banks with existing overdrafts with the Bangko Sentral as of
rights that are in demands. Placements.
the effectivity of this Act shall, within such period as may be
prescribed by the Monetary Board, either convert the
overdraft into an emergency loan or advance with a plan of Now, what special prohibitions are imposed by the New
payment, or settle such overdrafts, and that, upon failure to Central Bank Act on BSP personnel?
so comply herewith, the Bangko Sentral shall take such Section 27. Prohibitions. - In addition to the prohibitions
action against the bank as may be warranted under this Act. found in Republic Act Nos. 3019 and 6713, personnel of the
Bangko Sentral are hereby prohibited from:
Section 103. Exemption from Attachment and Other
Purposes. - Deposits maintained by banks with the Bangko (a) being an officer, director, lawyer or agent,
Sentral as part of their reserve requirements shall be exempt employee, consultant or stockholder, directly or
from attachment, garnishments, or any other order or indirectly, of any institution subject to supervision
process of any court, government agency or any other or examination by the Bangko Sentral, except non-
administrative body issued to satisfy the claim of a party stock savings and loan associations and provident
other than the Government, or its political subdivisions or funds organized exclusively for employees of the
instrumentalities. Bangko Sentral, and except as otherwise provided
in this Act;
Banks is supposed to comply with the reserve requirements to (b) directly or indirectly requesting or receiving any
gift, present or pecuniary or material benefit for

BANKING PAGE || 53
himself or another, from any institution subject to charge of Rural banks, that no employee borrow from Rural
supervision or examination by the Bangko Sentral; banks. They can only borrow from a Thrift bank but not Rural
(c) revealing in any manner, except under orders of banks. And so on. And when they do so, they are asked to
the court, the Congress or any government office waive their right of secrecy of bank deposits. And their
or agency authorized by law, or under such borrowings are monitored by the Monetary Board because
conditions as may be prescribed by the Monetary that is still an indication for the temptation for a conflict of
Board, information relating to the condition or interest.
business of any institution. This prohibition shall
not be held to apply to the giving of information to So we are done with the New Central Bank Act. But just
the Monetary Board or the Governor of the Bangko
another addition. The Volcker Rule Article 619 is an
Sentral, or to any person authorized by either of
them, in writing, to receive such information; and amendment of Dodd-Frank (?) Act Section 13. And there are
several implementors. And it took 4 years to determine the
(d) borrowing from any institution subject to implementing rules.
supervision or examination by the Bangko Sentral
shall be prohibited unless said borrowings are
[Segue: The Implementing rules consist of over 1000 pages.
adequately secured, fully disclosed to the
Monetary Board, and shall be subject to such Why? Because it is not easy to control banks. For instance,
further rules and regulations as the Monetary they are the correspondent bank of the government when it
Board may prescribe: Provided, however, That lens out to, let us say the Dominican Republic. They will __ to
personnel of the supervising and examining the US government. They are exposed to many current
departments are prohibited from borrowing from a currencies. The normal practice is to hendge the risk. So they
bank under their supervision or examination. buy notes to hedge the risk. Is that a prohibited transaction in
the open amrket of the banks? That is considered an
First, they cannot be an officer, director, lawyer, agent, exception.
consultant, or stockholder, directly or indirectly, of any
institution subject to supervision and examination by the Who monnitors that? The one who monitors that is the
Bangko Sentral, except non-stock loans and savings controller of the foreign currency, which is the Bureau of
associations and provident funds organized exclusively for Treasury ___. That is just one of the rules. They are many rules
employees of the Bangko Sentral, and except as otherwise which you consider as not covered by the ___. It is in the
provided in this Act. internet.]
They cannot be consultants of government financial REPUBLIC ACT No. 7653

institutions, like LandBank and DBP, but not private banks. THE NEW CENTRAL BANK ACT
CHAPTER I — ESTABLISHMENT AND ORGANIZATION OF THE
Another prohibition is that they cannot directly or indirectly BANGKO SENTRAL NG PILIPINAS
receive any gift, present, or pecuniary or material benefit for
himself or another, from any institution subject to supervision ARTICLE I
or examination by the Bangko Sentral. CREATION, RESPONSIBILITIES AND CORPORATE POWERS OF THE
BANGKO SENTRAL
Third. They cannot reveal in any manner any information Section 1. Declaration of Policy. - The State shall maintain a
relation to the condition or business of any institution, except central monetary authority that shall function and operate as an
under orders of the court. independent and accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking and credit. In
line with this policy, and considering its unique functions and
Fourth: they cannot borrow from any institution subject to responsibilities, the central monetary authority established under
supervision or examination by the BSP, unless said borrowings this Act, while being a government-owned corporation, shall enjoy
are adequately secured, fully disclosed to the monetary board, fiscal and administrative autonomy.
and otherwise in compliance with such any other rules as the
Monetary board ay prescribe. Section 2. Creation of the Bangko Sentral. - There is hereby
established an independent central monetary authority, which shall
be a body corporate known as the Bangko Sentral ng Pilipinas,
Normally, a BSP employee—let's say, in the department in-

BANKING PAGE || 54
hereafter referred to as the Bangko Sentral. (a) the Governor of the Bangko Sentral, who shall be the
Chairman of the Monetary Board. The Governor of the
The capital of the Bangko Sentral shall be Fifty billion pesos
Bangko Sentral shall be head of a department and his
(P50,000,000,000), to be fully subscribed by the Government of the
appointment shall be subject to confirmation by the
Republic, hereafter referred to as the Government, Ten billion pesos
Commission on Appointments. Whenever the Governor is
(P10,000,000,000) of which shall be fully paid for by the Government
unable to attend a meeting of the Board, he shall designate
upon the effectivity of this Act and the balance to be paid for within a
a Deputy Governor to act as his alternate: Provided, That in
period of two (2) years from the effectivity of this Act in such manner
such event, the Monetary Board shall designate one of its
and form as the Government, through the Secretary of Finance and
members as acting Chairman;
the Secretary of Budget and Management, may thereafter determine.
(b) a member of the Cabinet to be designated by the
Section 3. Responsibility and Primary Objective. - The Bangko
President of the Philippines. Whenever the designated
Sentral shall provide policy directions in the areas of money, banking,
Cabinet Member is unable to attend a meeting of the
and credit. It shall have supervision over the operations of banks and
Board, he shall designate an Undersecretary in his
exercise such regulatory powers as provided in this Act and other
Department to attend as his alternate; and
pertinent laws over the operations of finance companies and non-
bank financial institutions performing quasi-banking functions, (c) five (5) members who shall come from the private
hereafter referred to as quasi-banks, and institutions performing sector, all of whom shall serve full-time: Provided,
similar functions. however, That of the members first appointed under the
provisions of this subsection, three (3) shall have a term of
The primary objective of the Bangko Sentral is to maintain
six (6) years, and the other two (2), three (3) years.
price stability conducive to a balanced and sustainable growth of the
economy. It shall also promote and maintain monetary stability and No member of the Monetary Board may be reappointed more
the convertibility of the peso. than once.
Section 4. Place of Business. - The Bangko Sentral shall have Section 7. Vacancies. - Any vacancy in the Monetary Board
its principal place of business in Metro Manila, but may maintain created by the death, resignation, or removal of any member shall be
branches, agencies and correspondents in such other places as the filled by the appointment of a new member to complete the
proper conduct of its business may require. unexpired period of the term of the member concerned.
Section 5. Corporate Powers. - The Bangko Sentral is hereby Section 8. Qualifications. - The members of the Monetary
authorized to adopt, alter, and use a corporate seal which shall be Board must be natural-born citizens of the Philippines, at least
judicially noticed; to enter into contracts; to lease or own real and thirty-five (35) years of age, with the exception of the Governor who
personal property, and to sell or otherwise dispose of the same; to should at least be forty (40) years of age, of good moral character, of
sue and be sued; and otherwise to do and perform any and all things unquestionable integrity, of known probity and patriotism, and with
that may be necessary or proper to carry out the purposes of this recognized competence in social and economic disciplines.
Act.
Section 9. Disqualifications. - In addition to the
The Bangko Sentral may acquire and hold such assets and disqualifications imposed by Republic Act No. 6713, a member of
incur such liabilities in connection with its operations authorized by the Monetary Board is disqualified from being a director, officer,
the provisions of this Act, or as are essential to the proper conduct of employee, consultant, lawyer, agent or stockholder of any bank,
such operations. quasi-bank or any other institution which is subject to supervision or
examination by the Bangko Sentral, in which case such member shall
The Bangko Sentral may compromise, condone or release, in
resign from, and divest himself of any and all interests in such
whole or in part, any claim of or settled liability to the Bangko
institution before assumption of office as member of the Monetary
Sentral, regardless of the amount involved, under such terms and
Board.
conditions as may be prescribed by the Monetary Board to protect
the interests of the Bangko Sentral. The members of the Monetary Board coming from the private
sector shall not hold any other public office or public employment
ARTICLE II
during their tenure.
THE MONETARY BOARD
No person shall be a member of the Monetary Board if he has
Section 6. Composition of the Monetary Board. - The powers
been connected directly with any multilateral banking or financial
and functions of the Bangko Sentral shall be exercised by the
institution or has a substantial interest in any private bank in the
Bangko Sentral Monetary Board, hereafter referred to as the
Philippines, within one (1) year prior to his appointment; likewise, no
Monetary Board, composed of seven (7) members appointed by the
member of the Monetary Board shall be employed in any such
President of the Philippines for a term of six (6) years.
institution within two (2) years after the expiration of his term except
The seven (7) members are: when he serves as an official representative of the Philippine

BANKING PAGE || 55
Government to such institution. the effective discharge of the responsibilities and exercise
of the powers vested upon the Monetary Board and the
Section 10. Removal. - The President may remove any
Bangko Sentral. The rules and regulations issued shall be
member of the Monetary Board for any of the following reasons:
reported to the President and the Congress within fifteen
(a) If the member is subsequently disqualified under the (15) days from the date of their issuance;
provisions of Section 8 of this Act; or
(b) direct the management, operations, and administration
(b) If he is physically or mentally incapacitated that he of the Bangko Sentral, reorganize its personnel, and issue
cannot properly discharge his duties and responsibilities such rules and regulations as it may deem necessary or
and such incapacity has lasted for more than six (6) convenient for this purpose. The legal units of the Bangko
months; or Sentral shall be under the exclusive supervision and
control of the Monetary Board;
(c) If the member is guilty of acts or operations which are
of fraudulent or illegal character or which are manifestly (c) establish a human resource management system which
opposed to the aims and interests of the Bangko Sentral; shall govern the selection, hiring, appointment, transfer,
or promotion, or dismissal of all personnel. Such system shall
aim to establish professionalism and excellence at all
(d) If the member no longer possesses the qualifications levels of the Bangko Sentral in accordance with sound
specified in Section 8 of this Act. principles of management.
Section 11. Meetings. - The Monetary Board shall meet at A compensation structure, based on job evaluation studies
least once a week. The Board may be called to a meeting by the and wage surveys and subject to the Board's approval, shall be
Governor of the Bangko Sentral or by two (2) other members of the instituted as an integral component of the Bangko Sentral's human
Board. resource development program: Provided, That the Monetary Board
The presence of four (4) members shall constitute a quorum: shall make its own system conform as closely as possible with the
Provided, That in all cases the Governor or his duly designated principles provided for under Republic Act No. 6758: Provided,
alternate shall be among the four (4). however, That compensation and wage structure of employees
whose positions fall under salary grade 19 and below shall be in
Unless otherwise provided in this Act, all decisions of the accordance with the rates prescribed under Republic Act No. 6758.
Monetary Board shall require the concurrence of at least four (4)
members. On the recommendation of the Governor, appoint, fix the
remunerations and other emoluments, and remove personnel of the
The Bangko Sentral shall maintain and preserve a complete Bangko Sentral, subject to pertinent civil service laws: Provided, That
record of the proceedings and deliberations of the Monetary Board, the Monetary Board shall have exclusive and final authority to
including the tapes and transcripts of the stenographic notes, either promote, transfer, assign, or reassign personnel of the Bangko
in their original form or in microfilm. Sentral and these personnel actions are deemed made in the interest
Section 12. Attendance of the Deputy Governors. - The of the service and not disciplinary: Provided, further, That the
Deputy Governors may attend the meetings of the Monetary Board Monetary Board may delegate such authority to the Governor under
with the right to be heard. such guidelines as it may determine.
Section 13. Salary. - The salary of the Governor and the (d) adopt an annual budget for and authorize such
members of the Monetary Board from the private sector shall be expenditures by the Bangko Sentral as are in the interest of
fixed by the President of the Philippines at a sum commensurate to the effective administration and operations of the Bangko
the importance and responsibility attached to the position. Sentral in accordance with applicable laws and
regulations; and
Section 14. Withdrawal of Persons Having a Personal
Interest. - In addition to the requirements of Republic Act No. 6713, (e) indemnify its members and other officials of the
any member of the Monetary Board with personal or pecuniary Bangko Sentral, including personnel of the departments
interest in any matter in the agenda of the Monetary Board shall performing supervision and examination functions against
disclose his interest to the Board and shall retire from the meeting all costs and expenses reasonably incurred by such
when the matter is taken up. The decision taken on the matter shall persons in connection with any civil or criminal action, suit
be made public. The minutes shall reflect the disclosure made and or proceedings to which he may be, or is, made a party by
the retirement of the member concerned from the meeting. reason of the performance of his functions or duties,
unless he is finally adjudged in such action or proceeding
Section 15. Exercise of Authority. - In the exercise of its to be liable for negligence or misconduct.
authority, the Monetary Board shall:
In the event of a settlement or compromise, indemnification
(a) issue rules and regulations it considers necessary for

BANKING PAGE || 56
shall be provided only in connection with such matters covered by Board without additional remuneration or allowance
the settlement as to which the Bangko Sentral is advised by external whenever he may deem fit or subject to such rules and
counsel that the person to be indemnified did not commit any regulations as the Monetary Board may prescribe;
negligence or misconduct.
(d) appoint and fix the remunerations and other
The costs and expenses incurred in defending the emoluments of personnel below the rank of a department
aforementioned action, suit or proceeding may be paid by the head in accordance with the position and compensation
Bangko Sentral in advance of the final disposition of such action, plans approved by the Monetary Board, as well as to
suit or proceeding upon receipt of an undertaking by or on behalf of impose disciplinary measures upon personnel of the
the member, officer, or employee to repay the amount advanced Bangko Sentral, subject to the provisions of Section 15(c)
should it ultimately be determined by the Monetary Board that he is of this Act: Provided, That removal of personnel shall be
not entitled to be indemnified as provided in this subsection. with the approval of the Monetary Board;
Section 16. Responsibility. - Members of the Monetary Board, (e) render opinions, decisions, or rulings, which shall be
officials, examiners, and employees of the Bangko Sentral who final and executory until reversed or modified by the
willfully violate this Act or who are guilty of negligence, abuses or Monetary Board, on matters regarding application or
acts of malfeasance or misfeasance or fail to exercise extraordinary enforcement of laws pertaining to institutions supervised
diligence in the performance of his duties shall be held liable for any by the Bangko Sentral and laws pertaining to quasi-banks,
loss or injury suffered by the Bangko Sentral or other banking as well as regulations, policies or instructions issued by
institutions as a result of such violation, negligence, abuse, the Monetary Board, and the implementation thereof; and
malfeasance, misfeasance or failure to exercise extraordinary
(f) exercise such other powers as may be vested in him by
diligence.
the Monetary Board.
Similar responsibility shall apply to members, officers, and
Section 18. Representation of the Monetary Board and the
employees of the Bangko Sentral for: (1) the disclosure of any
Bangko Sentral. - The Governor of the Bangko Sentral shall be the
information of a confidential nature, or any information on the
principal representative of the Monetary Board and of the Bangko
discussions or resolutions of the Monetary Board, or about the
Sentral and, in such capacity and in accordance with the instructions
confidential operations of the Bangko Sentral, unless the disclosure
of the Monetary Board, he shall be empowered to:
is in connection with the performance of official functions with the
Bangko Sentral, or is with prior authorization of the Monetary Board (a) represent the Monetary Board and the Bangko Sentral
or the Governor; or (2) the use of such information for personal gain in all dealings with other offices, agencies and
or to the detriment of the Government, the Bangko Sentral or third instrumentalities of the Government and all other persons
parties: Provided, however, That any data or information required to or entities, public or private, whether domestic, foreign or
be submitted to the President and/or the Congress, or to be international;
published under the provisions of this Act shall not be considered
confidential. (b) sign contracts entered into by the Bangko Sentral,
notes and securities issued by the Bangko Sentral, all
ARTICLE III reports, balance sheets, profit and loss statements,
THE GOVERNOR AND DEPUTY GOVERNORS OF THE BANGKO correspondence and other documents of the Bangko
SENTRAL Sentral.
Section 17. Powers and Duties of the Governor. - The The signature of the Governor may be in facsimile
Governor shall be the chief executive officer of the Bangko Sentral. whenever appropriate;
His powers and duties shall be to:
(c) represent the Bangko Sentral, either personally or
(a) prepare the agenda for the meetings of the Monetary through counsel, including private counsel, as may be
Board and to submit for the consideration of the Board the authorized by the Monetary Board, in any legal
policies and measures which he believes to be necessary proceedings, action or specialized legal studies; and
to carry out the purposes and provisions of this Act;
(d) delegate his power to represent the Bangko Sentral, as
(b) execute and administer the policies and measures provided in subsections (a), (b) and (c) of this section, to
approved by the Monetary Board; other officers upon his own responsibility: Provided,
however, That in order to preserve the integrity and the
(c) direct and supervise the operations and internal
prestige of his office, the Governor of the Bangko Sentral
administration of the Bangko Sentral. The Governor may
may choose not to participate in preliminary discussions
delegate certain of his administrative responsibilities to
with any multilateral banking or financial institution on any
other officers or may assign specific tasks or
negotiations for the Government within or outside the
responsibilities to any full-time member of the Monetary

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Philippines. During the negotiations, he may instead be offices and instrumentalities, or government-owned or controlled
represented by a permanent negotiator. corporations, any data which it may require for the proper discharge
of its functions and responsibilities. The Bangko Sentral through the
Section 19. Authority of the Governor in Emergencies. - In
Governor or in his absence, a duly authorized representative shall
case of emergencies where time is sufficient to call a meeting of the
have the power to issue a subpoena for the production of the books
Monetary Board, the Governor of the Bangko Sentral, with the
and records for the aforesaid purpose. Those who refuse the
concurrence of two (2) other members of the Monetary Board, may
subpoena without justifiable cause, or who refuse to supply the bank
decide any matter or take any action within the authority of the
with data requested or required, shall be subject to punishment for
Board.
contempt in accordance with the provisions of the Rules of Court.
The Governor shall submit a report to the President and
Data on individual firms, other than banks, gathered by the
Congress within seventy-two (72) hours after the action has been
Department of Economic Research and other departments or units of
taken.
the Bangko Sentral shall not be made available to any person or
At the soonest possible time, the Governor shall call a meeting entity outside of the Bangko Sentral whether public or private except
of the Monetary Board to submit his action for ratification. under order of the court or under such conditions as may be
prescribed by the Monetary Board: Provided, however, That the
Section 20. Outside Interests of the Governor and the Full- collective data on firms may be released to interested persons or
time Members of the Board. - The Governor of the Bangko Sentral entities: Provided, finally, That in the case of data on banks, the
and the full-time members of the Board shall limit their professional provisions of Section 27 of this Act shall apply.
activities to those pertaining directly to their positions with the
Bangko Sentral. Accordingly, they may not accept any other Section 24. Training of Technical Personnel. - The Bangko
employment, whether public or private, remunerated or ad honorem, Sentral shall promote and sponsor the training of technical
with the exception of positions in eleemosynary, civic, cultural or personnel in the field of money and banking. Toward this end, the
religious organizations or whenever, by designation of the President, Bangko Sentral is hereby authorized to defray the costs of study, at
the Governor or the full-time member is tasked to represent the home or abroad, of qualified employees of the Bangko Sentral, of
interest of the Government or other government agencies in matters promising university graduates or of any other qualified persons who
connected with or affecting the economy or the financial system of shall be determined by proper competitive examinations. The
the country. Monetary Board shall prescribe rules and regulations to govern the
training program of the Bangko Sentral.
Section 21. Deputy Governors. - The Governor of the Bangko
Sentral, with the approval of the Monetary Board, shall appoint not Section 25. Supervision and Examination. - The Bangko
more than three (3) Deputy Governors who shall perform duties as Sentral shall have supervision over, and conduct periodic or special
may be assigned to them by the Governor and the Board. examinations of, banking institutions and quasi-banks, including
their subsidiaries and affiliates engaged in allied activities.
In the absence of the Governor, a Deputy Governor designated
by the Governor shall act as chief executive of the Bangko Sentral For purposes of this section, a subsidiary means a
and shall exercise the powers and perform the duties of the corporation more than fifty percent (50%) of the voting stock of
Governor. Whenever the Government is unable to attend meetings of which is owned by a bank or quasi-bank and an affiliate means a
government boards or councils in which he is an ex officio member corporation the voting stock of which, to the extent of fifty percent
pursuant to provisions of special laws, a Deputy Governor as may be (50%) or less, is owned by a bank or quasi-bank or which is related
designated by the Governor shall be vested with authority to or linked to such institution or intermediary through common
participate and exercise the right to vote in such meetings. stockholders or such other factors as may be determined by the
Monetary Board.
ARTICLE IV
OPERATIONS OF THE BANGKO SENTRAL The department heads and the examiners of the supervising
and/or examining departments are hereby authorized to administer
Section 22. Research and Statistics. - The Bangko Sentral oaths to any director, officer, or employee of any institution under
shall prepare data and conduct economic research for the guidance their respective supervision or subject to their examination and to
of the Monetary Board in the formulation and implementation of its compel the presentation of all books, documents, papers or records
policies. Such data shall include, among others, forecasts of the necessary in their judgment to ascertain the facts relative to the true
balance of payments of the Philippines, statistics on the monthly condition of any institution as well as the books and records of
movement of the monetary aggregates and of prices and other persons and entities relative to or in connection with the operations,
statistical series and economic studies useful for the formulation activities or transactions of the institution under examination,
and analysis of monetary, banking, credit and exchange policies. subject to the provision of existing laws protecting or safeguarding
Section 23. Authority to Obtain Data and Information. - The the secrecy or confidentiality of bank deposits as well as
Bangko Sentral shall have the authority to request from government investments of private persons, natural or juridical, in debt
instruments issued by the Government.

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No restraining order or injunction shall be issued by the court examination by the Bangko Sentral shall be prohibited
enjoining the Bangko Sentral from examining any institution subject unless said borrowings are adequately secured, fully
to supervision or examination by the Bangko Sentral, unless there is disclosed to the Monetary Board, and shall be subject to
convincing proof that the action of the Bangko Sentral is plainly such further rules and regulations as the Monetary Board
arbitrary and made in bad faith and the petitioner or plaintiff files may prescribe: Provided, however, That personnel of the
with the clerk or judge of the court in which the action is pending a supervising and examining departments are prohibited
bond executed in favor of the Bangko Sentral, in an amount to be from borrowing from a bank under their supervision or
fixed by the court. The provisions of Rule 58 of the New Rules of examination.
Court insofar as they are applicable and not inconsistent with the
Section 28. Examination and Fees. - The supervising and
provisions of this section shall govern the issuance and dissolution
examining department head, personally or by deputy, shall examine
of the restraining order or injunction contemplated in this section.
the books of every banking institution once in every twelve (12)
Section 26. Bank Deposits and Investments. - Any director, months, and at such other times as the Monetary Board by an
officer or stockholder who, together with his related interest, affirmative vote of five (5) members, may deem expedient and to
contracts a loan or any form of financial accommodation from: (1) make a report on the same to the Monetary Board: Provided, That
his bank; or (2) from a bank (a) which is a subsidiary of a bank there shall be an interval of at least twelve (12) months between
holding company of which both his bank and the lending bank are annual examinations.
subsidiaries or (b) in which a controlling proportion of the shares is
The bank concerned shall afford to the head of the
owned by the same interest that owns a controlling proportion of the
appropriate supervising and examining departments and to his
shares of his bank, in excess of five percent (5%) of the capital and
authorized deputies full opportunity to examine its books, cash and
surplus of the bank, or in the maximum amount permitted by law,
available assets and general condition at any time during banking
whichever is lower, shall be required by the lending bank to waive the
hours when requested to do so by the Bangko Sentral: Provided,
secrecy of his deposits of whatever nature in all banks in the
however, That none of the reports and other papers relative to such
Philippines. Any information obtained from an examination of his
examinations shall be open to inspection by the public except insofar
deposits shall be held strictly confidential and may be used by the
as such publicity is incidental to the proceedings hereinafter
examiners only in connection with their supervisory and examination
authorized or is necessary for the prosecution of violations in
responsibility or by the Bangko Sentral in an appropriate legal action
connection with the business of such institutions.
it has initiated involving the deposit account.
Banking and quasi-banking institutions which are subject to
Section 27. Prohibitions. - In addition to the prohibitions
examination by the Bangko Sentral shall pay to the Bangko Sentral,
found in Republic Act Nos. 3019 and 6713, personnel of the Bangko
within the first thirty (30) days of each year, an annual fee in an
Sentral are hereby prohibited from:
amount equal to a percentage as may be prescribed by the Monetary
(a) being an officer, director, lawyer or agent, employee, Board of its average total assets during the preceding year as shown
consultant or stockholder, directly or indirectly, of any on its end-of-month balance sheets, after deducting cash on hand
institution subject to supervision or examination by the and amounts due from banks, including the Bangko Sentral and
Bangko Sentral, except non-stock savings and loan banks abroad.
associations and provident funds organized exclusively for
Section 29. Appointment of Conservator. - Whenever, on the
employees of the Bangko Sentral, and except as otherwise
basis of a report submitted by the appropriate supervising or
provided in this Act;
examining department, the Monetary Board finds that a bank or a
(b) directly or indirectly requesting or receiving any gift, quasi-bank is in a state of continuing inability or unwillingness to
present or pecuniary or material benefit for himself or maintain a condition of liquidity deemed adequate to protect the
another, from any institution subject to supervision or interest of depositors and creditors, the Monetary Board may appoint
examination by the Bangko Sentral; a conservator with such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities, and the
(c) revealing in any manner, except under orders of the
management thereof, reorganize the management, collect all monies
court, the Congress or any government office or agency
and debts due said institution, and exercise all powers necessary to
authorized by law, or under such conditions as may be
restore its viability. The conservator shall report and be responsible
prescribed by the Monetary Board, information relating to
to the Monetary Board and shall have the power to overrule or revoke
the condition or business of any institution. This
the actions of the previous management and board of directors of
prohibition shall not be held to apply to the giving of
the bank or quasi-bank.
information to the Monetary Board or the Governor of the
Bangko Sentral, or to any person authorized by either of The conservator should be competent and knowledgeable in
them, in writing, to receive such information; and bank operations and management. The conservatorship shall not
exceed one (1) year.
(d) borrowing from any institution subject to supervision or

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The conservator shall receive remuneration to be fixed by the Provided, That the receiver may deposit or place the funds of the
Monetary Board in an amount not to exceed two-thirds (2/3) of the institution in non-speculative investments. The receiver shall
salary of the president of the institution in one (1) year, payable in determine as soon as possible, but not later than ninety (90) days
twelve (12) equal monthly payments: Provided, That, if at any time from take over, whether the institution may be rehabilitated or
within one-year period, the conservatorship is terminated on the otherwise placed in such a condition so that it may be permitted to
ground that the institution can operate on its own, the conservator resume business with safety to its depositors and creditors and the
shall receive the balance of the remuneration which he would have general public: Provided, That any determination for the resumption
received up to the end of the year; but if the conservatorship is of business of the institution shall be subject to prior approval of the
terminated on other grounds, the conservator shall not be entitled to Monetary Board.
such remaining balance. The Monetary Board may appoint a
If the receiver determines that the institution cannot be
conservator connected with the Bangko Sentral, in which case he
rehabilitated or permitted to resume business in accordance with the
shall not be entitled to receive any remuneration or emolument from
next preceding paragraph, the Monetary Board shall notify in writing
the Bangko Sentral during the conservatorship. The expenses
the board of directors of its findings and direct the receiver to
attendant to the conservatorship shall be borne by the bank or
proceed with the liquidation of the institution. The receiver shall:
quasi-bank concerned.
(1) file ex parte with the proper regional trial court, and
The Monetary Board shall terminate the conservatorship when
without requirement of prior notice or any other action, a
it is satisfied that the institution can continue to operate on its own
petition for assistance in the liquidation of the institution
and the conservatorship is no longer necessary. The conservatorship
pursuant to a liquidation plan adopted by the Philippine
shall likewise be terminated should the Monetary Board, on the basis
Deposit Insurance Corporation for general application to
of the report of the conservator or of its own findings, determine that
all closed banks. In case of quasi-banks, the liquidation
the continuance in business of the institution would involve probable
plan shall be adopted by the Monetary Board. Upon
loss to its depositors or creditors, in which case the provisions of
acquiring jurisdiction, the court shall, upon motion by the
Section 30 shall apply.
receiver after due notice, adjudicate disputed claims
Section 30. Proceedings in Receivership and Liquidation. - against the institution, assist the enforcement of individual
Whenever, upon report of the head of the supervising or examining liabilities of the stockholders, directors and officers, and
department, the Monetary Board finds that a bank or quasi-bank: decide on other issues as may be material to implement
the liquidation plan adopted. The receiver shall pay the
(a) is unable to pay its liabilities as they become due in the
cost of the proceedings from the assets of the institution.
ordinary course of business: Provided, That this shall not
include inability to pay caused by extraordinary demands (2) convert the assets of the institutions to money, dispose
induced by financial panic in the banking community; of the same to creditors and other parties, for the purpose
of paying the debts of such institution in accordance with
(b) has insufficient realizable assets, as determined by the
the rules on concurrence and preference of credit under
Bangko Sentral, to meet its liabilities; or
the Civil Code of the Philippines and he may, in the name
(c) cannot continue in business without involving probable of the institution, and with the assistance of counsel as he
losses to its depositors or creditors; or may retain, institute such actions as may be necessary to
collect and recover accounts and assets of, or defend any
(d) has willfully violated a cease and desist order under action against, the institution. The assets of an institution
Section 37 that has become final, involving acts or under receivership or liquidation shall be deemed in
transactions which amount to fraud or a dissipation of the custodia legis in the hands of the receiver and shall, from
assets of the institution; in which cases, the Monetary the moment the institution was placed under such
Board may summarily and without need for prior hearing receivership or liquidation, be exempt from any order of
forbid the institution from doing business in the garnishment, levy, attachment, or execution.
Philippines and designate the Philippine Deposit Insurance
Corporation as receiver of the banking institution. The actions of the Monetary Board taken under this section or
under Section 29 of this Act shall be final and executory, and may
For a quasi-bank, any person of recognized competence in not be restrained or set aside by the court except on petition for
banking or finance may be designed as receiver. certiorari on the ground that the action taken was in excess of
The receiver shall immediately gather and take charge of all jurisdiction or with such grave abuse of discretion as to amount to
the assets and liabilities of the institution, administer the same for lack or excess of jurisdiction. The petition for certiorari may only be
the benefit of its creditors, and exercise the general powers of a filed by the stockholders of record representing the majority of the
receiver under the Revised Rules of Court but shall not, with the capital stock within ten (10) days from receipt by the board of
exception of administrative expenditures, pay or commit any act that directors of the institution of the order directing receivership,
will involve the transfer or disposition of any asset of the institution: liquidation or conservatorship.

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The designation of a conservator under Section 29 of this Act responsible for such violation shall unless otherwise provided in this
or the appointment of a receiver under this section shall be vested Act be punished by a fine of not less than Fifty thousand pesos
exclusively with the Monetary Board. Furthermore, the designation of (P50,000) nor more than Two hundred thousand pesos (P200,000)
a conservator is not a precondition to the designation of a receiver. or by imprisonment of not less than two (2) years nor more than ten
(10) years, or both, at the discretion of the court.
Section 31. Distribution of Assets. - In case of liquidation of a
bank or quasi-bank, after payment of the cost of proceedings, Whenever a bank or quasi-bank persists in carrying on its
including reasonable expenses and fees of the receiver to be allowed business in an unlawful or unsafe manner, the Board may, without
by the court, the receiver shall pay the debts of such institution, prejudice to the penalties provided in the preceding paragraph of this
under order of the court, in accordance with the rules on concurrence section and the administrative sanctions provided in Section 37 of
and preference of credit as provided in the Civil Code. this Act, take action under Section 30 of this Act.
Section 32. Disposition of Revenues and Earnings. - All Section 37. Administrative Sanctions on Banks and Quasi-
revenues and earnings realized by the receiver in winding up the banks. - Without prejudice to the criminal sanctions against the
affairs and administering the assets of any bank or quasi-bank culpable persons provided in Sections 34, 35, and 36 of this Act, the
within the purview of this Act shall be used to pay the costs, fees and Monetary Board may, at its discretion, impose upon any bank or
expenses mentioned in the preceding section, salaries of such quasi-bank, their directors and/or officers, for any willful violation of
personnel whose employment is rendered necessary in the discharge its charter or by-laws, willful delay in the submission of reports or
of the liquidation together with other additional expenses caused publications thereof as required by law, rules and regulations; any
thereby. The balance of revenues and earnings, after the payment of refusal to permit examination into the affairs of the institution; any
all said expenses, shall form part of the assets available for payment willful making of a false or misleading statement to the Board or the
to creditors. appropriate supervising and examining department or its examiners;
any willful failure or refusal to comply with, or violation of, any
Section 33. Disposition of Banking Franchise. - The Bangko
banking law or any order, instruction or regulation issued by the
Sentral may, if public interest so requires, award to an institution,
Monetary Board, or any order, instruction or ruling by the Governor;
upon such terms and conditions as the Monetary Board may
or any commission of irregularities, and/or conducting business in
approve, the banking franchise of a bank under liquidation to operate
an unsafe or unsound manner as may be determined by the
in the area where said bank or its branches were previously
Monetary Board, the following administrative sanctions, whenever
operating: Provided, That whatever proceeds may be realized from
applicable:
such award shall be subject to the appropriate exclusive disposition
of the Monetary Board. (a) fines in amounts as may be determined by the
Monetary Board to be appropriate, but in no case to exceed
Section 34. Refusal to Make Reports or Permit Examination. -
Thirty thousand pesos (P30,000) a day for each violation,
Any officer, owner, agent, manager, director or officer-in-charge of
taking into consideration the attendant circumstances,
any institution subject to the supervision or examination by the
such as the nature and gravity of the violation or
Bangko Sentral within the purview of this Act who, being required in
irregularity and the size of the bank or quasi-bank;
writing by the Monetary Board or by the head of the supervising and
examining department willfully refuses to file the required report or (b) suspension of rediscounting privileges or access to
permit any lawful examination into the affairs of such institution Bangko Sentral credit facilities;
shall be punished by a fine of not less than Fifty thousand pesos
(c) suspension of lending or foreign exchange operations
(P50,000) nor more than One hundred thousand pesos (P100,000) or
or authority to accept new deposits or make new
by imprisonment of not less than one (1) year nor more than five (5)
investments;
years, or both, in the discretion of the court.
(d) suspension of interbank clearing privileges; and/or
Section 35. False Statement. - The willful making of a false or
misleading statement on a material fact to the Monetary Board or to (e) revocation of quasi-banking license.
the examiners of the Bangko Sentral shall be punished by a fine of
not less than One hundred thousand pesos (P100,000) nor more Resignation or termination from office shall not exempt such
than Two hundred thousand pesos (P200,000), or by imprisonment director or officer from administrative or criminal sanctions.
of not more than (5) years, or both, at the discretion of the court. The Monetary Board may, whenever warranted by
Section 36. Proceedings Upon Violation of This Act and Other circumstances, preventively suspend any director or officer of a bank
Banking Laws, Rules, Regulations, Orders or Instructions. - Whenever or quasi-bank pending an investigation: Provided, That should the
a bank or quasi-bank, or whenever any person or entity willfully case be not finally decided by the Bangko Sentral within a period of
violates this Act or other pertinent banking laws being enforced or one hundred twenty (120) days after the date of suspension, said
implemented by the Bangko Sentral or any order, instruction, rule or director or officer shall be reinstated in his position: Provided,
regulation issued by the Monetary Board, the person or persons further, That when the delay in the disposition of the case is due to

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the fault, negligence or petition of the director or officer, the period of developments, including the condition of net international
delay shall not be counted in computing the period of suspension reserves and monetary aggregates;
herein provided.
(b) within ninety (90) days after the end of the year, the
The above administrative sanctions need not be applied in the preceding year's budget and profit and loss statement of
order of their severity. the Bangko Sentral showing in reasonable detail the result
of its operations;
Whether or not there is an administrative proceeding, if the
institution and/or the directors and/or officers concerned continue (c) one hundred twenty (120) days after the end of each
with or otherwise persist in the commission of the indicated practice semester, a review of the state of the financial system; and
or violation, the Monetary Board may issue an order requiring the
(d) as soon as practicable, abnormal movements in
institution and/or the directors and/or officers concerned to cease
monetary aggregates and the general price level, and, not
and desist from the indicated practice or violation, and may further
later than seventy-two (72) hours after they are taken,
order that immediate action be taken to correct the conditions
remedial measures in response to such abnormal
resulting from such practice or violation. The cease and desist order
movements.
shall be immediately effective upon service on the respondents.
Section 40. Annual Report. - Before the end of March of each
The respondents shall be afforded an opportunity to defend
year, the Bangko Sentral shall publish and submit to the President
their action in a hearing before the Monetary Board or any committee
and the Congress an annual report on the condition of the Bangko
chaired by any Monetary Board member created for the purpose,
Sentral including a review of the policies and measures adopted by
upon request made by the respondents within five (5) days from their
the Monetary Board during the past year and an analysis of the
receipt of the order. If no such hearing is requested within said
economic and financial circumstances which gave rise to said
period, the order shall be final. If a hearing is conducted, all issues
policies and measures.
shall be determined on the basis of records, after which the
Monetary Board may either reconsider or make final its order. The annual report shall also include a statement of the
financial condition of the Bangko Sentral and a statistical appendix
The Governor is hereby authorized, at his discretion, to
which shall present, as a minimum, the following data:
impose upon banking institutions, for any failure to comply with the
requirements of law, Monetary Board regulations and policies, and/or (a) the monthly movement of monetary aggregates and
instructions issued by the Monetary Board or by the Governor, fines their components;
not in excess of Ten thousand pesos (P10,000) a day for each
violation, the imposition of which shall be final and executory until (b) the monthly movement of purchases and sales of
reversed, modified or lifted by the Monetary Board on appeal. foreign exchange and of the international reserves of the
Bangko Sentral;
Section 38. Operating Departments of the Bangko Sentral. -
The Monetary Board shall, in accordance with its authority under this (c) the balance of payments of the Philippines;
Act, determine and provide for such operating departments and other (d) monthly indices of consumer prices and of import and
offices, including a public information office, of the Bangko Sentral export prices;
as it deems convenient for the proper and efficient conduct of the
operations and the accomplishment of the objectives of the Bangko (e) the monthly movement, in summary form, of exports
Sentral. The functions and duties of such operating departments and and imports, by volume and value;
other offices shall be determined by the Monetary Board. (f) the monthly movement of the accounts of the Bangko
ARTICLE V Sentral and of other banks;
REPORTS AND PUBLICATIONS (g) the principal data on government receipts and
Section 39. Reports and Publications. - The Bangko Sentral expenditures and on the status of the public debt, both
shall publish a general balance sheet showing the volume and domestic and foreign; and
composition of its assets and liabilities as of the last working day of (h) the texts of the major legal and administrative
the month within sixty (60) days after the end of each month except measures adopted by the Government and the Monetary
for the month of December, which shall be submitted within ninety Board during the year which relate to the functions or
(90) days after the end hereof. operations of the Bangko Sentral or of the financial
The Monetary Board shall publish and submit the following system.
reports to the President and to the Congress: The Bangko Sentral shall publish another version of the
(a) not later than ninety (90) days after the end of each annual report in terms understandable to the layman.
quarter, an analysis of economic and financial Failure to comply with the reportorial requirements pursuant

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to this article without justifiable reason as may be determined by the The Revaluation of International Reserve (RIR) account as of
Monetary Board shall cause the withholding of the salary of the the effective date of this Act of the Central Bank shall continue to be
personnel concerned until the requirements are complied with. for the account of the same entity and shall be governed by the
provisions of Section 44 of Republic Act No. 265, as amended, until
Section 41. Signatures on Statements. - The balance sheets
otherwise provided for in accordance with the transitory provisions
and other financial statements of the Bangko Sentral shall be signed
of this Act.
by the officers responsible for their preparation, by the Governor, and
by the auditor of the Bangko Sentral. ARTICLE VII
THE AUDITOR
ARTICLE VI
PROFITS, LOSSES, AND SPECIAL ACCOUNTS Section 47. Appointment and Personnel. - The Chairman of
the Commission on Audit shall act as the ex officio auditor of the
Section 42. Fiscal Year. - The fiscal year of the Bangko
Bangko Sentral and, as such, he is empowered and authorized to
Sentral shall begin on January first and end on December thirty-first
appoint a representative who shall be the auditor of the Bangko
of each year.
Sentral and, in accordance with law, fix his salary, and to appoint and
Section 43. Computation of Profits and Losses. - Within the fix salaries and number of personnel to assist said representative in
first thirty (30) days following the end of each year, the Bangko his work. The salaries and other emoluments shall be paid by the
Sentral shall determine its net profits or losses. In the calculation of Commission. The auditor of the Bangko Sentral and personnel under
net profits, the Bangko Sentral shall make adequate allowance or him may be removed only by the Chairman of the Commission.
establish adequate reserves for bad and doubtful accounts.
The representative of the Chairman of the Commission must
Section 44. Distribution of Net Profits. - Within the first sixty be a certified public accountant with at least ten (10) years
(60) days following the end of each fiscal year, the Monetary Board experience as such. No relative of any member of the Monetary
shall determine and carry out the distribution of the net profits, in Board or the Chairman of the Commission within the sixth degree of
accordance with the following rule: consanguinity or affinity shall be appointed such representative.
Fifty percent (50%) of the net profits shall be carried to CHAPTER II — THE BANGKO SENTRAL AND THE MEANS OF
surplus and the remaining fifty percent (50%) shall revert back to the PAYMENT
National Treasury, except as otherwise provided in the transitory
ARTICLE I
provisions of this Act.
THE UNIT OF MONETARY VALUE
Section 45. Revaluation Profits and Losses. - Profits or losses
Section 48. The Peso. - The unit of monetary value in the
arising from any revaluation of the Bangko Sentral's net assets or
Philippines is the "peso," which is represented by the sign "P."
liabilities in gold or foreign currencies with respect to the Philippine
peso shall not be included in the computation of the annual profits The peso is divided into one hundred (100) equal parts called
and losses of the Bangko Sentral. Any profits or losses arising in this "centavos," which are represented by the sign "c."
manner shall be offset by any amounts which, as a consequence of
ARTICLE II
such revaluations, are owed by the Philippines to any international or
ISSUE OF MEANS OF PAYMENT
regional intergovernmental financial institution of which the
Philippines is a member or are owed by these institutions to the A. CURRENCY
Philippines. Any remaining profit or loss shall be carried in a special
frozen account which shall be named "Revaluation of International Section 49. Definition of Currency. - The word "currency" is
Reserve" and the net balance of which shall appear either among the hereby defined, for purposes of this Act, as meaning all Philippine
liabilities or among the assets of the Bangko Sentral, depending on notes and coins issued or circulating in accordance with the
whether the revaluations have produced net profits or net losses. provisions of this Act.
The Revaluation of International Reserve account shall be Section 50. Exclusive Issue Power. - The Bangko Sentral shall
neither credited nor debited for any purposes other than those have the sole power and authority to issue currency, within the
specifically authorized in this section. territory of the Philippines. No other person or entity, public or
private, may put into circulation notes, coins or any other object or
Section 46. Suspense Accounts. - Sections 43 and 43-A of document which, in the opinion of the Monetary Board, might
Republic Act No. 265, as amended, creating the Monetary circulate as currency, nor reproduce or imitate the facsimiles of
Adjustment Account (MAA) and the Exchange Stabilization Bangko Sentral notes without prior authority from the Bangko
Adjustment Account (ESAA), respectively, are hereby repealed. Sentral.
Amounts outstanding as of the effective date of this Act based on
these accounts shall continue to be for the account of the Central The Monetary Board may issue such regulations as it may
Bank and shall be governed by the transitory provisions of this Act. deem advisable in order to prevent the circulation of foreign currency
or of currency substitutes as well as to prevent the reproduction of

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facsimiles of Bangko Sentral notes. of coins shall be for the account of the Bangko Sentral.
The Bangko Sentral shall have the authority to investigate, Section 55. Interconvertibility of Currency. - The Bangko
make arrests, conduct searches and seizures in accordance with law, Sentral shall exchange, on demand and without charge, Philippine
for the purpose of maintaining the integrity of the currency. currency of any denomination for Philippine notes and coins of any
other denomination requested. If for any reason the Bangko Sentral
Violation of this provision or any regulation issued by the
is temporarily unable to provide notes or coins of the denominations
Bangko Sentral pursuant thereto shall constitute an offense
requested, it shall meet its obligations by delivering notes and coins
punishable by imprisonment of not less than five (5) years but not
of the denominations which most nearly approximate those
more than ten (10) years. In case the Revised Penal Code provides
requested.
for a greater penalty, then that penalty shall be imposed.
Section 56. Replacement of Currency Unfit for Circulation. -
Section 51. Liability for Notes and Coins. - Notes and coins
The Bangko Sentral shall withdraw from circulation and shall
issued by the Bangko Sentral shall be liabilities of the Bangko
demonetize all notes and coins which for any reason whatsoever are
Sentral and may be issued only against, and in amounts not
unfit for circulation and shall replace them by adequate notes and
exceeding, the assets of the Bangko Sentral. Said notes and coins
coins: Provided, however, That the Bangko Sentral shall not replace
shall be a first and paramount lien on all assets of the Bangko
notes and coins the identification of which is impossible, coins
Sentral.
which show signs of filing, clipping or perforation, and notes which
The Bangko Sentral's holdings of its own notes and coins have lost more than two-fifths (2/5) of their surface or all of the
shall not be considered as part of its currency issue and, accordingly, signatures inscribed thereon. Notes and coins in such mutilated
shall not form part of the assets or liabilities of the Bangko Sentral. conditions shall be withdrawn from circulation and demonetized
without compensation to the bearer.
Section 52. Legal Tender Power. - All notes and coins issued
by the Bangko Sentral shall be fully guaranteed by the Government Section 57. Retirement of Old Notes and Coins. - The Bangko
of the Republic of the Philippines and shall be legal tender in the Sentral may call in for replacement notes of any series or
Philippines for all debts, both public and private: Provided, however, denomination which are more than five (5) years old and coins which
That, unless otherwise fixed by the Monetary Board, coins shall be are more than (10) years old.
legal tender in amounts not exceeding Fifty pesos (P50.00) for
Notes and coins called in for replacement in accordance with
denominations of Twenty-five centavos and above, and in amounts
this provision shall remain legal tender for a period of one (1) year
not exceeding Twenty pesos (P20.00) for denominations of Ten
from the date of call. After this period, they shall cease to be legal
centavos or less.
tender but during the following year, or for such longer period as the
Section 53. Characteristics of the Currency. - The Monetary Monetary Board may determine, they may be exchanged at par and
Board, with the approval of the President of the Philippines, shall without charge in the Bangko Sentral and by agents duly authorized
prescribe the denominations, dimensions, designs, inscriptions and by the Bangko Sentral for this purpose. After the expiration of this
other characteristics of notes issued by the Bangko Sentral: latter period, the notes and coins which have not been exchanged
Provided, however, That said notes shall state that they are liabilities shall cease to be a liability of the Bangko Sentral and shall be
of the Bangko Sentral and are fully guaranteed by the Government of demonetized. The Bangko Sentral shall also demonetize all notes
the Republic of the Philippines. Said notes shall bear the signatures, and coins which have been called in and replaced.
in facsimile, of the President of the Philippines and of the Governor
B. DEMAND DEPOSITS
of the Bangko Sentral.
Section 58. Definition. - For purposes of this Act, the term
"demand deposits" means all those liabilities of the Bangko Sentral
President of the Philippines, shall prescribe the weight, fineness,
and of other banks which are denominated in Philippine currency and
designs, denominations and other characteristics of the coins issued
are subject to payment in legal tender upon demand by the
by the Bangko Sentral. In the minting of coins, the Monetary Board
presentation of checks.
shall give full consideration to the availability of suitable metals and
to their relative prices and cost of minting. Section 59. Issue of Demand Deposits. - Only banks duly
authorized to do so may accept funds or create liabilities payable in
Section 54. Printing of Notes and Mining of Coins. - The
pesos upon demand by the presentation of checks, and such
Monetary Board shall prescribe the amounts of notes and coins to be
operations shall be subject to the control of the Monetary Board in
printed and minted, respectively, and the conditions to which the
accordance with the powers granted it with respect thereto under
printing of notes and the minting of coins shall be subject. The
this Act.
Monetary Board shall have the authority to contract institutions,
mints or firms for such operations. Section 60. Legal Character. - Checks representing demand
deposits do not have legal tender power and their acceptance in the
All expenses incurred in the printing of notes and the minting
payment of debts, both public and private, is at the option of the

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creditor: Provided, however, That a check which has been cleared and credit or cost of living represent a threat to the stability of the
credited to the account of the creditor shall be equivalent to a Philippine economy or of important sectors thereof.
delivery to the creditor of cash in an amount equal to the amount
The Monetary Board shall continue to submit periodic reports
credited to his account.
to the President of the Philippines and to Congress until it considers
CHAPTER III — GUIDING PRINCIPLES OF MONETARY that the monetary, credit or price disturbances have disappeared or
ADMINISTRATION BY THE BANGKO SENTRAL have been adequately controlled.
ARTICLE I ARTICLE II
DOMESTIC MONETARY STABILIZATION INTERNATIONAL MONETARY STABILIZATION
Section 61. Guiding Principle. - The Monetary Board shall Section 64. International Monetary Stabilization. - The
endeavor to control any expansion or contraction in monetary Bangko Sentral shall exercise its powers under this Act to preserve
aggregates which is prejudicial to the attainment or maintenance of the international value of the peso and to maintain its convertibility
price stability. into other freely convertible currencies primarily for, although not
necessarily limited to, current payments for foreign trade and
Section 62. Power to Define Terms. - For purposes of this
invisibles.
article and of this Act, the Monetary Board shall formulate definitions
of monetary aggregates, credit and prices and shall make public Section 65. International Reserves. - In order to maintain the
such definitions and any changes thereof. international stability and convertibility of the Philippine peso, the
Bangko Sentral shall maintain international reserves adequate to
Section 63. Action When Abnormal Movements Occur in the
meet any foreseeable net demands on the Bangko Sentral for foreign
Monetary Aggregates, Credit, or Price Level. - Whenever abnormal
currencies.
movements in the monetary aggregates, in credit, or in prices
endanger the stability of the Philippine economy or important In judging the adequacy of the international reserves, the
sectors thereof, the Monetary Board shall: Monetary Board shall be guided by the prospective receipts and
payments of foreign exchange by the Philippines. The Board shall
(a) take such remedial measures as are appropriate and
give special attention to the volume and maturity of the Bangko
within the powers granted to the Monetary Board and the
Sentral's own liabilities in foreign currencies, to the volume and
Bangko Sentral under the provisions of this Act; and
maturity of the foreign exchange assets and liabilities of other banks
(b) submit to the President of the Philippines and the operating in the Philippines and, insofar as they are known or can be
Congress, and make public, a detailed report which shall estimated, the volume and maturity of the foreign exchange assets
include, as a minimum, a description and analysis of: and liabilities of all other persons and entities in the Philippines.
(1) the causes of the rise or fall of the monetary Section 66. Composition of the International Reserves. - The
aggregates, of credit or of prices; international reserves of the Bangko Sentral may include but shall
not be limited to the following assets:
(2) the extent to which the changes in the
monetary aggregates, in credit, or in prices have (a) gold; and
been reflected in changes in the level of
(b) assets in foreign currencies in the form of: documents
domestic output, employment, wages and
and instruments customarily employed for the
economic activity in general, and the nature and
international transfer of funds; demand and time deposits
significance of any such changes; and
in central banks, treasuries and commercial banks abroad;
(3) the measures which the Monetary Board has foreign government securities; and foreign notes and
taken and the other monetary, fiscal or coins.
administrative measures which it recommends
The Monetary Board shall endeavor to hold the foreign
to be adopted.
exchange resources of the Bangko Sentral in freely convertible
Whenever the monetary aggregates, or the level of credit, currencies; moreover, the Board shall give particular consideration to
increases or decreases by more than fifteen percent (15%), or the the prospects of continued strength and convertibility of the
cost of living index increases by more than ten percent (10%), in currencies in which the reserve is maintained, as well as to the
relation to the level existing at the end of the corresponding month of anticipated demands for such currencies. The Monetary Board shall
the preceding year, or even though any of these quantitative issue regulations determining the other qualifications which foreign
guidelines have not been reached when in its judgment the exchange assets must meet in order to be included in the
circumstances so warrant, the Monetary Board shall submit the international reserves of the Bangko Sentral.
reports mentioned in this section, and shall state therein whether, in
The Bangko Sentral shall be free to convert any of the assets
the opinion of the Board, said changes in the monetary aggregates,
in its international reserves into other assets as described in

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subsections (a) and (b) of this section. Sentral may buy and sell gold in any form, subject to such
regulations as the Monetary Board may issue.
Section 67. Action When the International Stability of the
Peso Is Threatened. - Whenever the international reserve of the The purchases and sales of gold authorized by this section
Bangko Sentral falls to a level which the Monetary Board considers shall be made in the national currency at the prevailing international
inadequate to meet prospective net demands on the Bangko Sentral market price as determined by the Monetary Board.
for foreign currencies, or whenever the international reserve appears
Section 70. Purchases and Sales of Foreign Exchange. - The
to be in imminent danger of falling to such a level, or whenever the
Bangko Sentral may buy and sell foreign notes and coins, and
international reserve is falling as a result of payments or remittances
documents and instruments of types customarily employed for the
abroad which, in the opinion of the Monetary Board, are contrary to
international transfer of funds. The Bangko Sentral may engage in
the national welfare, the Monetary Board shall:
future exchange operations.
(a) take such remedial measures as are appropriate and
The Bangko Sentral may engage in foreign exchange
within the powers granted to the Monetary Board and the
transactions with the following entities or persons only:
Bangko Sentral under the provisions of this Act; and
(a) banking institutions operating in the Philippines;
(b) submit to the President of the Philippines and to
Congress a detailed report which shall include, as a (b) the Government, its political subdivisions and
minimum, a description and analysis of: instrumentalities;
(1) the nature and causes of the existing or (c) foreign or international financial institutions;
imminent decline;
(d) foreign governments and their instrumentalities; and
(2) the remedial measures already taken or to be
taken by the Monetary Board; (e) other entities or persons which the Monetary Board is
hereby empowered to authorize as foreign exchange
(3) the monetary, fiscal or administrative dealers, subject to such rules and regulations as the
measures further proposed; and Monetary Board shall prescribe.
(4) the character and extent of the cooperation In order to maintain the convertibility of the peso, the Bangko
required from other government agencies for the Sentral may, at the request of any banking institution operating in
successful execution of the policies of the the Philippines, buy any quantity of foreign exchange offered, and
Monetary Board. sell any quantity of foreign exchange demanded, by such institution,
provided that the foreign currencies so offered or demanded are
If the resultant actions fail to check the deterioration of the
freely convertible into gold or United States dollars. This requirement
reserve position of the Bangko Sentral, or if the deterioration cannot
shall not apply to demands for foreign notes and coins.
be checked except by chronic restrictions on exchange and trade
transactions or by sacrifice of the domestic objectives of a balanced The Bangko Sentral shall effect its exchange transactions
and sustainable growth of the economy, the Monetary Board shall between foreign currencies and the Philippine peso at the rates
propose to the President, with appropriate notice of the Congress, determined in accordance with the provisions of Section 74 of this
such additional action as it deems necessary to restore equilibrium Act.
in the international balance of payments of the Philippines.
Section 71. Foreign Asset Position of the Bangko Sentral. -
The Monetary Board shall submit periodic reports to the The Bangko Sentral shall endeavor to maintain at all times a net
President and to Congress until the threat to the international positive foreign asset position so that its gross foreign exchange
monetary stability of the Philippines has disappeared. assets will always exceed its gross foreign liabilities. In the event
that the equivalent amount in pesos of the foreign exchange
CHAPTER IV — INSTRUMENTS OF BANGKO SENTRAL ACTION
liabilities of the Bangko Sentral exceed twice the equivalent amount
ARTICLE I in pesos of the foreign exchange assets of the bank, the Bangko
GENERAL CRITERION Sentral shall, within sixty (60) days from the date the limit is
exceeded, submit a report to the Congress stating the origin of these
Section 68. Means of Action. - In order to achieve the primary
liabilities, and the manner in which they will be paid.
objective of price stability, the Monetary Board shall rely on its moral
influence and the powers granted to it under this Act for the Section 72. Emergency Restrictions on Exchange
management of monetary aggregates. Operations. - In order to achieve the primary objective of the Bangko
Sentral as set forth in Section 3 of this Act, or protect the
ARTICLE II
international reserves of the Bangko Sentral in the imminence of, or
OPERATIONS IN GOLD AND FOREIGN EXCHANGE
during an exchange crisis, or in time of national emergency and to
Section 69. Purchases and Sales of Gold. - The Bangko give the Monetary Board and the Government time in which to take

BANKING PAGE || 66
constructive measures to forestall, combat, or overcome such a order that the Bangko Sentral may at all times have foreign exchange
crisis or emergency, the Monetary Board, with the concurrence of at resources sufficient to enable it to maintain the international stability
least five (5) of its members and with the approval of the President and convertibility of the peso, or in order to promote the domestic
of the Philippines, may temporarily suspend or restrict sales of investment of bank resources, the Monetary Board may require the
exchange by the Bangko Sentral, and may subject all transactions in banks to sell to the Bangko Sentral or to other banks all or part of
gold and foreign exchange to license by the Bangko Sentral, and may their surplus holdings of foreign exchange. Such transfers may be
require that any foreign exchange thereafter obtained by any person required for all foreign currencies or for only certain of such
residing or entity operating in the Philippines be delivered to the currencies, according to the decision of the Monetary Board. The
Bangko Sentral or to any bank or agent designated by the Bangko transfers shall be made at the rates established under the provisions
Sentral for the purpose, at the effective exchange rate or rates: of Section 74 of this Act.
Provided, however, That foreign currency deposits made under
The Monetary Board may, whenever warranted, determine the
Republic Act No. 6426 shall be exempt from these requirements.
net assets and net liabilities of banks and shall, in making such a
Section 73. Acquisition of Inconvertible Currencies. - The determination, take into account the bank's networth, outstanding
Bangko Sentral shall avoid the acquisition and holding of currencies liabilities, actual and contingent, or such other financial or
which are not freely convertible, and may acquire such currencies in performance ratios as may be appropriate under the circumstances.
an amount exceeding the minimum balance necessary to cover Any such determination of net assets and net liabilities shall be
current demands for said currencies only when, and to the extent applied in all banks uniformly and without discrimination.
that, such acquisition is considered by the Monetary Board to be in
Section 77. Requirement of Balanced Currency Position. - The
the national interest. The Monetary Board shall determine the
Monetary Board may require the banks to maintain a balanced
procedures which shall apply to the acquisition and disposition by
position between their assets and liabilities in Philippine pesos or in
the Bangko Sentral of foreign exchange which is not freely utilizable
any other currency or currencies in which they operate. The banks
in the international market.
shall be granted a reasonable period of time in which to adjust their
Section 74. Exchange Rates. - The Monetary Board shall currency positions to any such requirement.
determine the exchange rate policy of the country.
The powers granted under this section shall be exercised only
The Monetary Board shall determine the rates at which the when special circumstances make such action necessary, in the
Bangko Sentral shall buy and sell spot exchange, and shall establish opinion of the Monetary Board, and shall be applied to all banks alike
deviation limits from the effective exchange rate or rates as it may and without discrimination.
deem proper. The Bangko Sentral shall not collect any additional
Section 78. Regulation of Non-spot Exchange Transactions. -
commissions or charges of any sort, other than actual telegraphic or
In order to restrain the banks from taking speculative positions with
cable costs incurred by it.
respect to future fluctuations in foreign exchange rates, the
The Monetary Board shall similarly determine the rates for Monetary Board may issue such regulations governing bank
other types of foreign exchange transactions by the Bangko Sentral, purchases and sales of non-spot exchange as it may consider
including purchases and sales of foreign notes and coins, but the necessary for said purpose.
margins between the effective exchange rates and the rates thus
Section 79. Other Exchange Profits and Losses. - The banks
established may not exceed the corresponding margins for spot
shall bear the risks of non-compliance with the terms of the foreign
exchange transactions by more than the additional costs or
exchange documents and instruments which they buy and sell, and
expenses involved in each type of transactions.
shall also bear any other typically commercial or banking risks,
Section 75. Operations with Foreign Entities. - The Monetary including exchange risks not assumed by the Bangko Sentral under
Board may authorize the Bangko Sentral to grant loans to and the provisions of the preceding section.
receive loans from foreign banks and other foreign or international
Section 80. Information on Exchange Operations. - The banks
entities, both public and private, and may engage in such other
shall report to the Bangko Sentral the volume and composition of
operations with these entities as are in the national interest and are
their purchases and sales of gold and foreign exchange each day,
appropriate to its character as a central bank. The Bangko Sentral
and must furnish such additional information as the Bangko Sentral
may also act as agent or correspondent for such entities.
may request with reference to the movements in their accounts in
Upon authority of the Monetary Board, the Bangko Sentral foreign currencies.
may pledge any gold or other assets which it possesses as security
The Monetary Board may also require other persons and
against loans which it receives from foreign or international entities.
entities to report to it currently all transactions or operations in gold,
ARTICLE III in any shape or form, and in foreign exchange whether entered into
REGULATION OF FOREIGN EXCHANGE OPERATIONS OF THE BANKS or undertaken by them directly or through agents, or to submit such
data as may be required on operations or activities giving rise to or in
Section 76. Foreign Exchange Holdings of the Banks. - In

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connection with or relating to a gold or foreign exchange transaction. (c) Other credits. - Special credit instruments not
The Monetary Board shall prescribe the forms on which such otherwise rediscountable under the immediately preceding
declarations must be made. The accuracy of the declarations may be subsections (a) and (b) may be eligible for rediscounting in
verified by the Bangko Sentral by whatever inspection it may deem accordance with rules and regulations which the Bangko
necessary. Sentral shall prescribe. Whenever necessary, the Bangko
Sentral shall provide funds from non-inflationary sources:
ARTICLE IV
Provided, however, That the Monetary Board shall
LOANS TO BANKING AND OTHER FINANCIAL INSTITUTIONS
prescribe additional safeguards for disbursing these funds.
A. CREDIT POLICY
(d) Advances. - The Bangko Sentral may grant advances
Section 81. Guiding Principles. - The rediscounts, discounts, against the following kinds of collaterals for fixed periods
loans and advances which the Bangko Sentral is authorized to which, with the exception of advances against collateral
extend to banking institutions under the provisions of the present named in clause (4) of the present subsection, shall not
article of this Act shall be used to influence the volume of credit exceed one hundred eighty (180) days:
consistent with the objective of price stability.
(1) gold coins or bullion;
B. NORMAL CREDIT OPERATIONS
(2) securities representing obligations of the
Section 82. Authorized Types of Operations. - Subject to the Bangko Sentral or of other domestic institutions
principle stated in the preceding section of this Act, the Bangko of recognized solvency;
Sentral may normally and regularly carry on the following credit
(3) the credit instruments to which reference is
operations with banking institutions operating in the Philippines:
made in subsection (a) of this section;
(a) Commercial credits. - The Bangko Sentral may
(4) the credit instruments to which reference is
rediscount, discount, buy and sell bills, acceptances,
made in subsection (b) of this section, for
promissory notes and other credit instruments with
periods which shall not exceed three hundred
maturities of not more than one hundred eighty (180) days
sixty (360) days;
from the date of their rediscount, discount or acquisition
by the Bangko Sentral and resulting from transactions (5) utilized portions of advances in current
related to: amount covered by regular overdraft agreements
related to operations included under subsections
(1) the importation, exportation, purchase or
(a) and (b) of this section, and certified as to
sale of readily saleable goods and products, or
amount and liquidity by the institution soliciting
their transportation within the Philippines; or
the advance;
(2) the storing of non-perishable goods and
(6) negotiable treasury bills, certificates of
products which are duly insured and deposited,
indebtedness, notes and other negotiable
under conditions assuring their preservation, in
obligations of the Government maturing within
authorized bonded warehouses or in other
three (3) years from the date of the advance; and
places approved by the Monetary Board.
(7) negotiable bonds issued by the Government
(b) Production credits. - The Bangko Sentral may
of the Philippines, by Philippine provincial, city
rediscount, discount, buy and sell bills, acceptances,
or municipal governments, or by any Philippine
promissory notes and other credit instruments having
Government instrumentality, and having
maturities of not more than three hundred sixty (360) days
maturities of not more than ten (10) years from
from the date of their rediscount, discount or acquisition
the date of advance.
by the Bangko Sentral and resulting from transactions
related to the production or processing of agricultural, The rediscounts, discounts, loans and advances made in accordance
animal, mineral, or industrial products. Documents or with the provisions of this section may not be renewed or extended
instruments acquired in accordance with this subsection unless extraordinary circumstances fully justify such renewal or
shall be secured by a pledge of the respective crops or extension.
products: Provided, however, That the crops or products
Advances made against the collateral named in clauses (6)
need not be pledged to secure the documents if the
and (7) of subsection (d) of this section may not exceed eighty
original loan granted by the Bangko Sentral is secured by a
percent (80%) of the current market value of the collateral.
lien or mortgage on real estate property seventy percent
(70%) of the appraised value of which equals or exceeds C. SPECIAL CREDIT OPERATION
the amount of the loan granted.
Section 83. Loans for Liquidity Purposes. - The Bangko

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Sentral may extend loans and advances to banking institutions for a condition that the principal stockholders of the institution:
period of not more than seven (7) days without any collateral for the
(a) furnish an acceptable undertaking to indemnify and
purpose of providing liquidity to the banking system in times of
hold harmless from suit a conservator whose appointment
need.
the Monetary Board may find necessary at any time; and
D. EMERGENCY CREDIT OPERATION
(b) provide acceptable security which, in the judgment of
Section 84. Emergency Loans and Advances. - In periods of the Monetary Board, would be adequate to supplement,
national and/or local emergency or of imminent financial panic where necessary, the assets tendered by the banking
which directly threaten monetary and banking stability, the Monetary institution to collateralize the subsequent tranche.
Board may, by a vote of at least five (5) of its members, authorize the
In connection with the exercise of these powers, the
Bangko Sentral to grant extraordinary loans or advances to banking
prohibitions in Section 128 of this Act shall not apply insofar as it
institutions secured by assets as defined hereunder: Provided, That
refers to acceptance as collateral of shares and their acquisition as a
while such loans or advances are outstanding, the debtor institution
result of foreclosure proceedings, including the exercise of voting
shall not, except upon prior authorization by the Monetary Board,
rights pertaining to said shares: Provided, however, That should the
expand the total volume of its loans or investments.
Bangko Sentral acquire any of the shares it has accepted as
The Monetary Board may, at its discretion, likewise authorize collateral as a result of foreclosure proceedings, the Bangko Sentral
the Bangko Sentral to grant emergency loans or advances to banking shall dispose of said shares by public bidding within one (1) year
institutions, even during normal periods, for the purpose of assisting from the date of consolidation of title by the Bangko Sentral.
a bank in a precarious financial condition or under serious financial
Whenever a financial institution incurs an overdraft in its
pressures brought by unforeseen events, or events which, though
account with the Bangko Sentral, the same shall be eliminated within
the period prescribed in Section 102 of this Act.
Provided, however, That the Monetary Board has ascertained that the
bank is not insolvent and has the assets defined hereunder to secure E. CREDIT TERMS
the advances: Provided, further, That a concurrent vote of at least
five (5) members of the Monetary Board is obtained. Section 85. Interest and Rediscount. - The Bangko Sentral
shall collect interest and other appropriate charges on all loans and
The amount of any emergency loan or advance shall not advances it extends, the closure, receivership or liquidations of the
exceed the sum of fifty percent (50%) of total deposits and deposit debtor-institution notwithstanding. This provision shall apply
substitutes of the banking institution and shall be disbursed in two prospectively.
(2) or more tranches. The amount of the first tranche shall be limited
to twenty-five percent (25%) of the total deposit and deposit The Monetary Board shall fix the interest and rediscount rates
substitutes of the institution and shall be secured by government to be charged by the Bangko Sentral on its credit operations in
securities to the extent of their applicable loan values and other accordance with the character and term of the operation, but after
unencumbered first class collaterals which the Monetary Board may due consideration has been given to the credit needs of the market,
approve: Provided, That if as determined by the Monetary Board, the the composition of the Bangko Sentral's portfolio, and the general
circumstances surrounding the emergency warrant a loan or requirements of the national monetary policy. Interest and
advance greater than the amount provided hereinabove, the amount rediscount rates shall be applied to all banks of the same category
of the first tranche may exceed twenty-five percent (25%) of the uniformly and without discrimination.
bank's total deposit and deposit substitutes if the same is Section 86. Endorsement. - The documents rediscounted,
adequately secured by applicable loan values of government discounted, bought or accepted as collateral by the Bangko Sentral
securities and unencumbered first class collaterals approved by the in the course of the credit operations authorized in this article shall
Monetary Board, and the principal stockholders of the institution bear the endorsement of the institution from which they are received.
furnish an acceptable undertaking to indemnify and hold harmless
from suit a conservator whose appointment the Monetary Board may Section 87. Repayment of Credits. - Documents rediscounted,
find necessary at any time. discounted or accepted as collateral by the Bangko Sentral must be
withdrawn by the borrowing institution on the dates of their
Prior to the release of the first tranche, the banking institution maturities, or upon liquidation of the obligations which they
shall submit to the Bangko Sentral a resolution of its board of represent or to which they relate whenever said obligations have
directors authorizing the Bangko Sentral to evaluate other assets of been liquidated prior to their dates of maturity.
the banking institution certified by its external auditor to be good
and available for collateral purposes should the release of the Banks shall have the right at any time to withdraw any
subsequent tranche be thereafter applied for. documents which they have presented to the Bangko Sentral as
collateral, upon payment in full of the corresponding debt to the
The Monetary Board may, by a vote of at least five (5) of its Bangko Sentral, including interest charges.
members, authorize the release of a subsequent tranche on

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Section 88. Other requirements. - The Monetary Board may reserve of the Bangko Sentral or against the securities which it has
prescribe, within the general powers granted to it under this Act, acquired under the provisions of Section 91 of this Act, or may be
additional conditions which borrowing institutions must satisfy in issued without relation to specific types of assets of the Bangko
order to have access to the credit of the Bangko Sentral. These Sentral.
conditions may refer to the rates of interest charged by the banks, to
The Monetary Board shall determine the interest rates,
the purposes for which their loans in general are destined, and to any
maturities and other characteristics of said obligations of the
other clearly definable aspect of the credit policy of the bank.
Bangko Sentral, and may, if it deems it advisable, denominate the
Section 89. Provisional Advances to the National obligations in gold or foreign currencies.
Government. - The Bangko Sentral may make direct provisional
Subject to the principles stated in Section 90 of this Act, the
advances with or without interest to the National Government to
evidences of indebtedness of the Bangko Sentral to which this
finance expenditures authorized in its annual appropriation:
section refers may be acquired by the Bangko Sentral before their
Provided, That said advances shall be repaid before the end of three
maturity, either through purchases in the open market or through
(3) months extendible by another three (3) months as the Monetary
redemptions at par and by lot if the Bangko Sentral has reserved the
Board may allow following the date the National Government
right to make such redemptions. The evidences of indebtedness
received such provisional advances and shall not, in their aggregate,
acquired or redeemed by the Bangko Sentral shall not be included
exceed twenty percent (20%) of the average annual income of the
among its assets, and shall be immediately retired and cancelled.
borrower for the last three (3) preceding fiscal years.
ARTICLE VI
ARTICLE V
COMPOSITION OF BANGKO SENTRAL'S PORTFOLIO
OPEN MARKET OPERATIONS FOR THE ACCOUNT OF THE BANGKO
SENTRAL Section 93. Review of the Bangko Sentral's Portfolio. - At
least once every month the Monetary Board shall review the portfolio
Section 90. Principles of Open Market Operations. - The open
of the Bangko Sentral in relation to its future credit policy.
market purchases and sales of securities by the Bangko Sentral shall
be made exclusively in accordance with its primary objective of In reviewing the Bangko Sentral's portfolio, the Monetary
achieving price stability. Board shall especially consider whether a sufficiently large part of
the portfolio consists of assets with early maturities, in order that a
Section 91. Purchases and Sales of Government Securities. -
contraction in Bangko Sentral credit may be effected promptly
In order to achieve the objectives of the national monetary policy, the
whenever the national monetary policy so requires.
Bangko Sentral may, in accordance with the principle stated in
Section 90 of this Act and with such rules and regulations as may be ARTICLE VII
prescribed by the Monetary Board, buy and sell in the open market BANK RESERVES
for its own account:
Section 94. Reserve Requirements. - In order to control the
(a) evidences of indebtedness issued directly by the volume of money created by the credit operations of the banking
Government of the Philippines or by its political system, all banks operating in the Philippines shall be required to
subdivisions; and maintain reserves against their deposit liabilities: Provided, That the
Monetary Board may, at its discretion, also require all banks and/or
(b) evidences of indebtedness issued by government
quasi-banks to maintain reserves against funds held in trust and
instrumentalities and fully guaranteed by the Government.
liabilities for deposit substitutes as defined in this Act. The required
The evidences of indebtedness acquired under the provisions reserves of each bank shall be proportional to the volume of its
of this section must be freely negotiable and regularly serviced and deposit liabilities and shall ordinarily take the form of a deposit in the
must be available to the general public through banking institutions Bangko Sentral. Reserve requirements shall be applied to all banks
and local government treasuries in denominations of a thousand of the same category uniformly and without discrimination.
pesos or more.
Reserves against deposit substitutes, if imposed, shall be
Section 92. Issue and Negotiation of Bangko Sentral determined in the same manner as provided for reserve requirements
Obligations. - In order to provide the Bangko Sentral with effective against regular bank deposits, with respect to the imposition,
instruments for open market operations, the Bangko Sentral may, increase, and computation of reserves.
subject to such rules and regulations as the Monetary Board may
The Monetary Board may exempt from reserve requirements
prescribe and in accordance with the principles stated in Section 90
deposits and deposit substitutes with remaining maturities of two (2)
of this Act, issue, place, buy and sell freely negotiable evidences of
years or more, as well as interbank borrowings.
indebtedness of the Bangko Sentral: Provided, That issuance of such
certificates of indebtedness shall be made only in cases of Since the requirement to maintain bank reserves is imposed
extraordinary movement in price levels. Said evidences of primarily to control the volume of money, the Bangko Sentral shall
indebtedness may be issued directly against the international not pay interest on the reserves maintained with it unless the

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Monetary Board decides otherwise as warranted by circumstances. bank or quasi-bank, its principal office in the Philippines and all its
branches and agencies located therein shall be considered as a
Section 95. Definition of Deposit Substitutes. - The term
single unit.
"deposit substitutes" is defined as an alternative form of obtaining
funds from the public, other than deposits, through the issuance, Section 101. Reserve Deficiencies. - Whenever the reserve
endorsement, or acceptance of debt instruments for the borrower's position of any bank or quasi-bank, computed in the manner
own account, for the purpose of relending or purchasing of specified in the preceding section of this Act, is below the required
receivables and other obligations. These instruments may include, minimum, the bank or quasi-bank shall pay the Bangko Sentral one-
but need not be limited to, bankers acceptances, promissory notes, tenth of one percent (1/10 of 1%) per day on the amount of the
participations, certificates of assignment and similar instruments deficiency or the prevailing ninety-one-day treasury bill rate plus
with recourse, and repurchase agreements. The Monetary Board three percentage points, whichever is higher: Provided, however, That
shall determine what specific instruments shall be considered as banks and quasi-banks shall ordinarily be permitted to offset any
deposit substitutes for the purposes of Section 94 of this Act: reserve deficiency occurring on one or more days of the week with
Provided, however, That deposit substitutes of commercial, industrial any excess reserves which they may hold on other days of the same
and other non-financial companies for the limited purpose of week and shall be required to pay the penalty only on the average
financing their own needs or the needs of their agents or dealers daily deficiency during the week. In cases of abuse, the Monetary
shall not be covered by the provisions of Section 94 of this Act. Board may deny any bank or quasi-bank the privilege of offsetting
reserve deficiencies in the aforesaid manner.
Section 96. Required Reserves Against Peso Deposits. - The
Monetary Board may fix and, when it deems necessary, alter the If a bank or quasi-bank chronically has a reserve deficiency,
minimum reserve ratios to peso deposits, as well as to deposit the Monetary Board may limit or prohibit the making of new loans or
substitutes, which each bank and/or quasi-bank may maintain, and investments by the institution and may require that part or all of the
such ratio shall be applied uniformly to all banks of the same net profits of the institution be assigned to surplus.
category as well as to quasi-banks.
The Monetary Board may modify or set aside the reserve
Section 97. Required Reserves Against Foreign Currency deficiency penalties provided in this section, for part or the entire
Deposits. - The Monetary Board is similarly authorized to prescribe period of a strike or lockout affecting a bank or a quasi-bank as
and modify the minimum reserve ratios applicable to deposits defined in the Labor Code, or of a national emergency affecting
denominated in foreign currencies. operations of banks or quasi-banks. The Monetary Board may also
modify or set aside reserved deficiency penalties for rehabilitation
Section 98. Reserves Against Unused Balances of Overdraft
program of a bank.
Lines. - In order to facilitate Bangko Sentral control over the volume
of bank credit, the Monetary Board may establish minimum reserve Section 102. Interbank Settlement. - The Bangko Sentral shall
requirements for unused balances of overdraft lines. establish facilities for interbank clearing under such rules and
regulations as the Monetary Board may prescribe: Provided, That the
The powers of the Monetary Board to prescribe and modify
Bangko Sentral may charge administrative and other fees for the
reserve requirements against unused balances of overdraft lines
maintenance of such facilities.
shall be the same as its powers with respect to reserve requirements
against demand deposits. The deposit reserves maintained by the banks in the Bangko
Sentral in accordance with the provisions of Section 94 of this Act
Section 99. Increase in Reserve Requirements. - Whenever in
shall serve as basis for the clearing of checks and the settlement of
the opinion of the Monetary Board it becomes necessary to increase
interbank balances, subject to such rules and regulations as the
reserve requirements against existing liabilities, the increase shall be
Monetary Board may issue with respect to such operations:
made in a gradual manner and shall not exceed four percentage
Provided, That any bank which incurs on overdrawing in its deposit
points in any thirty-day period. Banks and other affected financial
account with the Bangko Sentral shall fully cover said overdraft,
institutions shall be notified reasonably in advance of the date on
including interest thereon at a rate equivalent to one-tenth of one
which such increase is to become effective.
percent (1/10 of 1%) per day or the prevailing ninety-one-day
Section 100. Computation on Reserves. - The reserve position treasury bill rate plus three percentage points, whichever is higher,
of each bank or quasi-bank shall be calculated daily on the basis of not later than the next clearing day: Provided, further, That
the amount, at the close of business for the day, of the institution's settlement of clearing balances shall not be effected for any account
reserves and the amount of its liability accounts against which which continues to be overdrawn for five (5) consecutive banking
reserves are required to be maintained: Provided, That with reference days until such time as the overdrawing is fully covered or otherwise
to holidays or non-banking days, the reserve position as calculated converted into an emergency loan or advance pursuant to the
at the close of the business day immediately preceding such provisions of Section 84 of this Act: Provided, finally, That the
holidays and non-banking days shall apply on such days. appropriate clearing office shall be officially notified of banks with
overdrawn balances. Banks with existing overdrafts with the Bangko
For the purpose of computing the reserve position of each Sentral as of the effectivity of this Act shall, within such period as

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may be prescribed by the Monetary Board, either convert the COORDINATION OF CREDIT POLICIES BY GOVERNMENT
overdraft into an emergency loan or advance with a plan of payment, INSTITUTIONS
or settle such overdrafts, and that, upon failure to so comply
Section 109. Coordination of Credit Policies. - Government-
herewith, the Bangko Sentral shall take such action against the bank
owned corporations which perform banking or credit functions shall
as may be warranted under this Act.
coordinate their general credit policies with those of the Monetary
Section 103. Exemption from Attachment and Other Board.
Purposes. - Deposits maintained by banks with the Bangko Sentral
Toward this end, the Monetary Board may, whenever it deems
as part of their reserve requirements shall be exempt from
it expedient, make suggestions or recommendations to such
attachment, garnishments, or any other order or process of any
corporations for the more effective coordination of their policies with
court, government agency or any other administrative body issued to
those of the Bangko Sentral.
satisfy the claim of a party other than the Government, or its political
subdivisions or instrumentalities. CHAPTER V — FUNCTIONS AS BANKER AND FINANCIAL ADVISOR
OF THE GOVERNMENT
ARTICLE VIII
SELECTIVE REGULATION OF BANK OPERATIONS ARTICLE I
Section 104. Guiding Principle. - The Monetary Board shall FUNCTIONS AS BANKER OF THE GOVERNMENT
use the powers granted to it under this Act to ensure that the supply,
availability and cost of money are in accord with the needs of the Section 110. Designation of Bangko Sentral as Banker of the
Philippine economy and that bank credit is not granted for Government. - The Bangko Sentral shall act as a banker of the
speculative purposes prejudicial to the national interests. Government, its political subdivisions and instrumentalities.
Regulations on bank operations shall be applied to all banks of the Section 111. Representation with the International Monetary
same category uniformly and without discrimination. Fund. - The Bangko Sentral shall represent the Government in all
Section 105. Margin Requirements Against Letters of Credit. - dealings, negotiations and transactions with the International
The Monetary Board may at any time prescribe minimum cash Monetary Fund and shall carry such accounts as may result from
margins for the opening of letters of credit, and may relate the size of Philippine membership in, or operations with, said Fund.
the required margin to the nature of the transaction to be financed. Section 112. Representation with Other Financial
Section 106. Required Security Against Bank Loans. - In order Institutions. - The Bangko Sentral may be authorized by the
to promote liquidity and solvency of the banking system, the Government to represent it in dealings, negotiations or transactions
Monetary Board may issue such regulations as it may deem with the International Bank for Reconstruction and Development and
necessary with respect to the maximum permissible maturities of with other foreign or international financial institutions or agencies.
the loans and investments which the banks may make, and the kind The President may, however, designate any of his other financial
and amount of security to be required against the various types of advisors to jointly represent the Government in such dealings,
credit operations of the banks. negotiations or transactions.
Section 107. Portfolio Ceilings. - Whenever the Monetary Section 113. Official Deposits. - The Bangko Sentral shall be
Board considers it advisable to prevent or check an expansion of the official depository of the Government, its political subdivisions
bank credit, the Board may place an upper limit on the amount of and instrumentalities as well as of government-owned or controlled
loans and investments which the banks may hold, or may place a corporations and, as a general policy, their cash balances should be
limit on the rate of increase of such assets within specified periods deposited with the Bangko Sentral, with only minimum working
of time. The Monetary Board may apply such limits to the loans and balances to be held by government-owned banks and such other
investments of each bank or to specific categories thereof. banks incorporated in the Philippines as the Monetary Board may
designate, subject to such rules and regulations as the Board may
In no case shall the Monetary Board establish limits which are prescribe: Provided, That such banks may hold deposits of the
below the value of the loans or investments of the banks on the date political subdivisions and instrumentalities of the Government
on which they are notified of such restrictions. The restrictions shall beyond their minimum working balances whenever such
be applied to all banks uniformly and without discrimination. subdivisions or instrumentalities have outstanding loans with said
banks.
Section 108. Minimum Capital Ratios. - The Monetary Board
may prescribe minimum ratios which the capital and surplus of the The Bangko Sentral may pay interest on deposits of the
banks must bear to the volume of their assets, or to specific Government or of its political subdivisions and instrumentalities, as
categories thereof, and may alter said ratios whenever it deems well as on deposits of banks with the Bangko Sentral.
necessary.
Section 114. Fiscal Operations. - The Bangko Sentral shall
ARTICLE IX open a general cash account for the Treasurer of the Philippines, in

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which the liquid funds of the Government shall be deposited. Government.

Transfers of funds from this account to other accounts shall The operations of the Securities Stabilization Fund shall
be made only upon order of the Treasurer of the Philippines. consist of purchases and sales, in the open market, of bonds and
other evidences of indebtedness issued or fully guaranteed by the
Section 115. Other Banks as Agents of the Bangko Sentral. -
Government. The purpose of these operations shall be to increase
In the performance of its functions as fiscal agent, the Bangko
the liquidity and stabilize the value of said securities in order thereby
Sentral may engage the services of other government-owned and
to promote investment in government obligations.
controlled banks and of other domestic banks for operations in
localities at home or abroad in which the Bangko Sentral does not The Monetary Board shall use the resources of the Fund to
have offices or agencies adequately equipped to perform said prevent, or moderate, sharp fluctuations in the quotations of said
operations: Provided, however, That for fiscal operations in foreign government obligations, but shall not endeavor to alter movements
countries, the Bangko Sentral may engage the services of foreign of the market resulting from basic changes in the pattern or level of
banking and financial institutions. interest rates.
Section 116. Remuneration for Services. - The Bangko Sentral The Monetary Board shall issue such regulations as may be
may charge equitable rates, commissions or fees for services which necessary to implement the provisions of this section.
it renders to the Government, its political subdivisions and
Section 121. Resources of the Securities Stabilization Fund. -
instrumentalities.
Subject to Section 132 of this Act, the resources of the Securities
ARTICLE II Stabilization Fund shall come from the balance of the fund as held
THE MARKETING AND STABILIZATION OF SECURITIES FOR THE by the Central Bank under Republic Act No. 265 as of the effective
ACCOUNT OF THE GOVERNMENT date of this Act.
A. THE ISSUE AND PLACING OF GOVERNMENT SECURITIES Section 122. Profits and Losses of the Fund. - The Securities
Stabilization Fund shall retain net profits which it may make on its
Section 117. Issue of Government Obligations. - The issue of
operations, regardless of whether said profits arise from capital
securities representing obligations of the Government, its political
gains or from interest earnings. The Fund shall correspondingly bear
subdivisions or instrumentalities, may be made through the Bangko
any net losses which it may incur.
Sentral, which may act as agent of, and for the account of, the
Government or its respective subdivisions or instrumentality, as the ARTICLE III
case may be: Provided, however, That the Bangko Sentral shall not FUNCTIONS AS FINANCIAL ADVISOR OF THE GOVERNMENT
guarantee the placement of said securities, and shall not subscribe
Section 123. Financial Advice on Official Credit Operations. -
to their issue except to replace its maturing holdings of securities
Before undertaking any credit operation abroad, the Government,
with the same type as the maturing securities.
through the Secretary of Finance, shall request the opinion, in
Section 118. Methods of Placing Government Securities. - writing, of the Monetary Board on the monetary implications of the
The Bangko Sentral may place the securities to which the preceding contemplated action. Such opinions must similarly be requested by
section refers through direct sale to financial institutions and the all political subdivisions and instrumentalities of the Government
public. before any credit operation abroad is undertaken by them.
The Bangko Sentral shall not be a member of any stock The opinion of the Monetary Board shall be based on the gold
exchange or syndicate, but may intervene therein for the sole and foreign exchange resources and obligations of the nation and on
purpose of regulating their operations in the placing of government the effects of the proposed operation on the balance of payments
securities. and on monetary aggregates.
The Government, or its political subdivisions or Whenever the Government, or any of its political subdivisions
instrumentalities, shall reimburse the Bangko Sentral for the or instrumentalities, contemplates borrowing within the Philippines,
expenses incurred in the placing of the aforesaid securities. the prior opinion of the Monetary Board shall likewise be requested
in order that the Board may render an opinion on the probable effects
Section 119. Servicing and Redemption of the Public Debt. -
of the proposed operation on monetary aggregates, the price level,
The servicing and redemption of the public debt shall also be
and the balance of payments.
effected through the Bangko Sentral.
Section 124. Representation on the National Economic and
B. BANGKO SENTRAL SUPPORT OF THE GOVERNMENT
Development Authority. - In order to assure effective coordination
SECURITIES MARKET
between the economic, financial and fiscal policies of the
Section 120. The Securities Stabilization Fund. - There shall Government and the monetary, credit and exchange policies of the
be established a "Securities Stabilization Fund" which shall be Bangko Sentral, the Deputy Governor designated by the Governor of
administered by the Bangko Sentral for the account of the the Bangko Sentral shall be an ex officio member of the National

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Economic and Development Authority Board. acquire shares of any kind or accept them as collateral, and shall not
participate in the ownership or management of any enterprise, either
CHAPTER VI — PRIVILEGES AND PROHIBITIONS
directly or indirectly.
ARTICLE I
The Bangko Sentral shall not engage in development banking
PRIVILEGES
or financing: Provided, however, That outstanding loans obtained or
Section 125. Tax Exemptions. - The Bangko Sentral shall be extended for development financing shall not be affected by the
exempt for a period of five (5) years from the approval of this Act prohibition of this section.
from all national, provincial, municipal and city taxes, fees, charges
CHAPTER VII — TRANSITORY PROVISIONS
and assessments.
Section 129. Phase-out of Fiscal Agency Functions. - Unless
The exemption authorized in the preceding paragraph of this
circumstances warrant otherwise and approved by the Congress
section shall apply to all property of the Bangko Sentral, to the
Oversight Committee, the Bangko Sentral shall, within a period of
resources, receipts, expenditures, profits and income of the Bangko
three (3) years but in no case longer than five (5) years from the
Sentral, as well as to all contracts, deeds, documents and
approval of this Act, phase out all fiscal agency functions provided
transactions related to the conduct of the business of the Bangko
for in Sections 117, 118, 119, and 120 as well as in other pertinent
Sentral: Provided, however, That said exemptions shall apply only to
provisions of this Act and transfer the same to the Department of
such taxes, fees, charges and assessments for which the Bangko
Finance.
Sentral itself would otherwise be liable, and shall not apply to taxes,
fees, charges, or assessments payable by persons or other entities Section 130. Phase-out of Regulatory Powers Over the
doing business with the Bangko Sentral: Provided, further, That Operations of Finance Corporations and Other Institutions
foreign loans and other obligations of the Bangko Sentral shall be Performing Similar Functions. - The Bangko Sentral shall, within a
exempt, both as to principal and interest, from any and all taxes if the period of five (5) years from the effectivity of this Act, phase out its
payment of such taxes has been assumed by the Bangko Sentral. regulatory powers over finance companies without quasi-banking
functions and other institutions performing similar functions as
Section 126. Exemption from Customs Duties. - The provision
provided in existing laws, the same to be assumed by the Securities
of any general or special law to the contrary notwithstanding, the
and Exchange Commission.
importation and exportation by the Bangko Sentral of notes and
coins, and of gold and other metals to be used for purposes Section 131. Implementing Details. - The Bangko Sentral
authorized under this Act, and the importation of all equipment shall be made operational by the performance of the following acts:
needed for bank note production, minting of coins, metal refining and
(a) the President shall constitute the Monetary Board by
other security printing operations shall be fully exempt from all
appointing the members thereof within sixty (60) days
customs duties and consular fees and from all other taxes,
from the effectivity of this Act; and
assessments and charges related to such importation or exportation.
(b) the transfer of such assets and liabilities from the
Section 127. Applicability of the Civil Service Law. -
Central Bank to the Bangko Sentral as provided in Section
Appointments in the Bangko Sentral, except as to those which are
132 shall be completed within ninety (90) days from the
policy-determining, primarily confidential or highly technical in
constitution of the Monetary Board.
nature, shall be made only according to the Civil Service Law and
regulations: Provided, That no qualification requirements for All incumbent personnel in the Central Bank as of the date of
positions in the Bangko Sentral shall be imposed other than those the approval of this Act shall continue to exercise their duties and
set by the Monetary Board: Provided, further, That, the Monetary functions as personnel of the Bangko Sentral subject to the
Board or Governor, in accordance with Sections 15(c) and 17(d) of provisions of Section 133: Provided, That such personnel in the
this Act, respectively, may without need of obtaining prior approval Central Bank as may be necessary for the purpose of implementing
from any other government agency, appoint personnel in the Bangko Section 132 may be assigned by the Bangko Sentral Monetary Board
Sentral whose services are deemed necessary in order not to unduly to the Central Bank.
disrupt the operations of the Bangko Sentral.
Section 132. Transfer of Assets and Liabilities. - Upon the
Officers and employees of the Bangko Sentral, including all effectivity of this Act, three (3) members of the Monetary Board,
members of the Monetary Board, shall not engage directly or which may include the Governor, in representation of the Bangko
indirectly in partisan activities or take part in any election except to Sentral, the Secretary of Finance and the Secretary of Budget and
vote. Management in representation of the National Government, and the
Chairmen of the Committees on Banks of the Senate and the House
ARTICLE II
of Representatives shall determine the assets and liabilities of the
PROHIBITIONS
Central Bank which may be transferred to or assumed by the Bangko
Section 128. Prohibitions. - The Bangko Sentral shall not Sentral. The Committee shall complete its work within ninety (90)

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days from the constitution of the Monetary Board submitting a to retention in the Bangko Sentral or in any position which may be
comprehensive report with all its findings and justification. created in the new staffing pattern, even if he should be the
incumbent of a similar position prior to organization. The
The following guidelines shall be strictly observed in the
formulation of the program of organization shall be completed within
determination of which assets and liabilities shall be transferred to
six (6) months after the effectivity of this Act, and shall be fully
the Bangko Sentral:
implemented within a period of six (6) months thereafter. Personnel
(a) the Monetary Board and the Secretary of Finance shall who may not be retained are deemed separated from the service.
have primary responsibility for working out creative
Section 134. Separation Benefits. - Pursuant to Section 15 of
monetary and financial solutions to retire the Central Bank
this Act, the Monetary Board is authorized to provide separation
liabilities and losses at the least cost to the Government;
incentives, and all those who shall retire or be separated from the
(b) the Bangko Sentral shall remit seventy-five percent service on account of reorganization under the preceding section
(75%) of its net profits to a special deposit account shall be entitled to such incentives, which shall be in addition to all
(sinking fund) until such time as the net liabilities of the gratuities and benefits to which they may be entitled under existing
Central Bank shall have been liquidated through generally laws.
accepted finance mechanisms such as, but not limited to,
Section 135. Repealing Clause. - Except as may be provided
write-offs, set-offs, condonation, collections, reappraisal,
for in Section 46 and 132 of this Act, Republic Act No. 265, as
revaluation and bond issuance by the National
amended, the provisions of any other law, special charters, rule or
Government, or to the National Government as dividends;
regulation issued pursuant to said Republic Act No. 265, as
(c) the assets and liabilities to be transferred shall be amended, or parts thereof, which may be inconsistent with the
limited to an amount that will enable the Bangko Sentral to provisions of this Act are hereby repealed. Presidential Decree No.
perform its responsibilities adequately and operate on a 1792 is likewise repealed.
viable basis: Provided, That the assets shall exceed the
Section 136. Transfer of Powers. - All powers, duties and
liabilities as certified by the Commission on Audit (COA),
functions vested by law in the Central Bank of the Philippines not
by an initial amount of Ten billion pesos
inconsistent with the provisions of this Act shall be deemed
(P10,000,000,000);
transferred to the Bangko Sentral ng Pilipinas. All references to the
(d) liabilities to be assumed by the Bangko Sentral shall Central Bank of the Philippines in any law or special charters shall be
include liability for notes and coins in circulation as of the deemed to refer to the Bangko Sentral.
effective date of this Act; and
Section 137. Separability Clause. - If any provision or section
(e) any asset or liability of the Central Bank not transferred of this Act or the application thereof to any person or circumstance
to the Bangko Sentral shall be retained and administered, is held invalid, the other provisions or sections of this Act, and the
disposed of and liquidated by the Central Bank itself which application of such provision or section to other persons or
shall continue to exist as the CB Board of Liquidators only circumstances, shall not be affected thereby.
for the purposes provided in this paragraph but not later
Section 138. Effectivity Clause. - This Act shall take effect
than twenty-five (25) years or until such time that
fifteen (15) days following its publication in the Official Gazette or in
liabilities have been liquidated: Provided, That the Bangko
two (2) national newspapers of general circulation.
Sentral may financially assist the Central Bank of
Liquidators in the liquidation of CB liabilities: Provided, Approved: June 14, 1993
finally, That upon disposition of said retained assets and
liquidation of said retained liabilities, the Central Bank
shall be deemed abolished.
All actions taken by the Bangko Sentral Monetary Board under January 6, 2016
this section shall be reported to Congress and the President within
thirty (30) days.
We will take up our second banking law—RA 8791 or The General
Section 133. Mandate to Organize. - The Bangko Sentral shall
Banking Law of 2000. That is what Section 1 says:
be organized by the Monetary Board without being subject to the
Section 1. Title. The short title of this Act shall be "The
provisions of Republic Act No. 7430, by adopting if it so desires, an
General Banking Law of 2000." (1a)
entirely new staffing pattern on organizational structure to suit the
operations of the Bangko Sentral under this Act. No preferential or
Does it souond very short, diba? The General Banking Law 2000—this
priority right shall be given to or enjoyed by any personnel for
takes your breath away. :)
appointment to any position in the new staffing pattern, nor shall any
personnel be considered as having prior or vested rights with respect

BANKING PAGE || 75
Then it says declaration of Policy. No 6938 (hereafter the "Cooperative Code");

Section 2. Declaration Of Policy. - The State recognizes the
(f) Islamic banks as defined in Republic Act No.
vital role of banks providing an environment conducive to the
6848, otherwise known as the "Charter of Al
sustained development of the national economy and the
Amanah Islamic Investment Bank of the
fiduciary nature of banking that requires high standards of
Philippines"; and
integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking (g) Other classifications of banks as determined by
and financial system that is globally competitive, dynamic the Monetary Board of the Bangko Sentral ng
and responsive to the demands of a developing economy. (n) Pilipinas. (6-Aa)
“The state recognizes the vital role of banks providing an

environment conducive to the sustained development of the national “Banks shall refer to entities engaged in the lending of funds
economy xxx.” This is...the banks do not provide an environment like obtained in the form of deposits.” What is lacking in this definition?
a coffee house. Whoever wrote this..well, it provides money for you to
borrow. But before they can do that, they have to accept deposits. In the old law, you were deemed to be engaged in banking business if
you accept deposits from at least 20 people. The nnuber 20 is no
“Conducive to the sustained development of the national economy longer placed here. So porke ba nga nidawat kag deposits sa 19 ka
and the fiduciary nature of banking that requires high standards of tao (that is less than 20 ha), and you are charged under the general
integrity and performance. In furtherance thereof, the state shall banking law at that time, you can still be acquitted since the number
promote and maintain a stable and efficient banking and financial of deposits does not comply with what the law says. At that time, to
system that is globally competitive, dynamic and responsive to the engage in banking is to accept deposits from at least 20 people.
demands of a developing economy.” These are all motherhood
statements. Now, then the subsequent characterization of the court is that it is
not reall deposits. It is a loan. Where did the court say that? Do you
It is in Section 3 where the legislature is contending with the general remember the ratiotination of the court? The court said, if it were a
environment at that time. Around the year 2000 when this was deposit in the manner and definition of the civil code of the deposit,
passed, Banking underwent deregulation in many parts of the world— the one who deposits gets back the same thing that he deposits.
principally the United States. The whole idea was customer-centric.
You serve the customer. So you do not make the customer go from Imong sakyanan, ideposito nimo dira kang Park and Travel. Mulupad
place to place. Just to one stop! You can get everything there. So ka didto sa Manila. And mobalik ka and you'd get back the same
proliferation of the so-called “Non-banking service” is already thing that you deposited. Kung muadto ka sa bangko, ug modeposito
obtainable from the banks. kag P10,000, maski pag isuwat nimo ang serial number ana, karon
kung manginahanglan ka ug kuhaon nimo ang katong katunga,
So as a consequence, we actually have in Section 3, an enumeration ipakita nimo “O nara ang mga serial number o!” Mao ba na? You will
and not so much a definition. The first definition made in here is not get the same thing that you deposited. What do you get? Just the
taken from the old law. It says: equivalent number. What is that called in civil law? The cardinal
Section 3. Definition and Classification of Banks. - principle that you do not deposit from ___. You do not give back the
same thing that you desposited.
3.1. "Banks" shall refer to entities engaged in the lending of
funds obtained in the form of deposits. (2a) So the Supreme court says that it is not a contract of deposit. In fact,
it is a contract of loan. You lend to the bank this amount equivalent
3.2. Banks shall be classified into:
to your deposit. And the bank, in the meantime, can lend that to a
(a) Universal banks; third party. That is banking business. Two activities—it accepts
deposits from the public. People who will go to the banks and then
(b) Commercial banks;
deposits are not classified. Mag tsinelas ka, mag tiniil ka, mag
(c) Thrift banks, composed of: (i) Savings and basketball uniform ka. [Segue: Some say, that is the Philippines'
mortgage banks, (ii) Stock savings and loan greatest invention in men's wear. Bisag asa ka. Naa ra kay numero.
associations, and (iii) Private development banks, Musuot ka ana bisan asa—restaurant, bangko. The wear-all attire.]
as defined in the Republic Act No. 7906 (hereafter
the "Thrift Banks Act"); Now, that is the old law—that it accepts deposits from the bank. Now
that has been modified by the AMLA law. Because all bankers now
(d) Rural banks, as defined in Republic Act No. are under strict obligation to follow the rules of KYC—Know Your
73S3 (hereafter the "Rural Banks Act"); Client. Ayawg kalimti na kay AMLA na na. Kinahanglan mahibaw-an
(e) Cooperative banks, as defined in Republic Act nimo ang imong kliyente. Wa gani ka kahibaw sa iyahang negosyo,
and he brings lots of money to deposit to lend to you (bank), you are

BANKING PAGE || 76
negligent in your function as a banker if you just accept it. Unsa man the form of deposits. This definition is also very important. Because,
ning tawhana nga naga-chaleco lang og nag-basketball shorts pero what I have already told you, of this renewed emphasis now of the
daghan kaayog kwarta! Pilit-pilit pa kaayo ang uban! The bank so-called Volcker Rule.
manager is under the obligation to scrutinize. He has to know the
client. “Unsa may negosyo nimo sir?” “Basta. Negosyante man ko.” [Segue: With the near collapse of international finance in 2008, the
“Unsa may negosyo nimo?” “I am a gambler. And I never lose. I old Federal Reserve Chairman, Paul Volcker, reviewed his report: That
always win!” “Unsa man na imong gambling?” Ana sya nga “Kuan sa banks should no longer engage in a non-banking financial market
sabungan. Unya kay dili man gyud ko mapildi.” What is the banker to with the use of its capital. Banks should be returned to their original
do with that kind of information? Will he take that at face value? functions, namely: to just get deposits and lend to the people. That is
Muabot man gyud ang panahon nga mahurot na ilahang kwarta. the basic banking function. Do not go into buying and selling foreign
[Segue: Mag sigi ra na silag kanta anang There is a House. Taas currencies. Do not go into buying and selling of securities. Do not go
kaayo na.] into other credit functions sunch as debit cards and credit cards.
Because that is against a kernel(?) of the banking function.
The story of the client is far from the ordinary experience of man.
What are the twwo important rules with respect to evidence? When is When banks lend, they lend other people's money. But why is their
testimony be proper given credits? When is it proper object of lending safe? Because they do not lend without collateral. In credit
credits? card, there is no collateral! And that is why, they say, that the interest
is also very high since there is no collateral. So you again cover the
Testimonial evidence—the queen of all evidence—when is it the losses. [Segue: Pila na may interest karon sa credit card? Kinsa na
proper object of credits? 2 rules: man diri ang nakka-max out na?] And it becomes like a ___. Patong
1. It must come from a credible source—if the one testfying patong na ang interest. So, daghan kag interest nga bayran diri. So
has been convicted of perjury, unsaon pa man nimo pagtuo muhuwan kag interest sa lain aron mabayran ang imong interest. So
ana? what is that called? What is the name of that practice? Have you
2. The content of the testimony does not do violence to the heard if the term Kiting. That is called Kiting. [Google: Kiting – The
ordinary known experience of man. act of misrepresenting the value of a financial instrument for the
purpose of extending credit obligations or increasing financial
Ordinary known experience of man. “Asa man na gikan na imong leverage. It is also a fradulent act involving the alteration or issuance
kwarta?” “Sa akoa. Gihaguan nako na.” “Unsa may imong trabaho?” of a check or draft with insufficient funds.] Dili na tabanog-tabanog
“Nanugal. Gambling.” “Nganong daghan man kag kwarta?” “Di man ha! :)
ko mapildi!” This defies the ordinary experience of man. [Segue:
Kinsa may imong nahibaw-an nga sugarol nga wa gyud mapildi? [Segue: Nganong mahimo man na nimo? Kay daghan mag bangko!
Kinsa man? Kana ra si Kenny Rogers nga mukanta while playing on a Now, it is more difficult to do that because the clearing now is
poker's table! Kana ra! Kanta ra na! Sa pagkatinood, kana ra na. shorter. Sa una, layo-layo man ang bangko. Makabanos-banos ka.
Pildihon na. Mukatawa ra nang tag-iya ana. Karon, mas paspas na man ang clearing. Lisod na.]
You know what is the Number 1 rule if you are a manager of a So that is the essence of the banking function.
casino? Or if you are a big boss on the floor? What is the number 1
rule of Mr. Win? The number 1 rule is: You do not ever Gamble! If you Now, the Bangko Sentral also supervises nt only banks but also
are a manager of a casino, then you are dismissed. Nisalig pa sila quasi-banks. Nganong gitawag man na silag quasi-banks? Do they
nianang duwa dira nga that is wholesome, edi kanang ilahang mga accept deposits from the public? Ah~ Dili na sila mu-accept ug
kuan dira, ilaha sad na iencourage nga mugamble. Pero kung Big deposits from the public. They accept deposit substitutes. And then,
Boss gani ka or a Casino manager, you are dismissed! Mahibaw-an they lend the proceeds of the deposit substitutes to others.
na gani ka, wa na! You are out.]
So, the structure of their activity is similar to banks but they are not
So, this acceptance of deposits from the public has been modified by the same. What is the difference? Ah~ the difference is the so-called
the AMLA law, which came much later. This is now international deposit. Diba? It is a deposit and the other is a deposit substitute.
standards because of the widespread phenomenon of money What is a deposit substitute? Mao na karon ang pangutana. And this
laundering. Di na man na mahimo ron. Kung muabri kag account, di is the structure: (Father Nazareno draws something on the board)
na man na mahimo. Bank personnel are taught to know your client.
An in knowing and you'll find out that your client has no acceptable Quasi-bank ni. Source of Funds. In the other side , borrower of Funds.
explanation of his wealth, then he is suspect. Those are proceeds of Source of Funds—example niini kay NCCC. Kada-adlaw man na sila
some nefarious activity. naay gasulod nga kwarta. Ikaw mupalit kag tig-tulo ra ka lata nga
BearBrand. Sila kay usa ka libo nga karton nga BearBrand. So
So, banks shall refer to entities engaged in lending of funds made in muingon ang Nestle nga “O sige. 60-days ka or 90-days.” [Segue:

BANKING PAGE || 77
60-days 90-days pa usa sila makabayad! Ikaw nga tig-tulo ra gani associations, and (iii) Private development banks,
ka lata pero bayad ka dayon! Kay ngano man? Kay gamay ra man ka. as defined in the Republic Act No. 7906 (hereafter
Pero kung dako gani ka, nahalin na lang na imong mga 1000 ka the "Thrift Banks Act");
gatas pero wala pa gihapon sila namayad! Labi na kung pasko, a dali
(d) Rural banks, as defined in Republic Act No.
ra mahalin.] Ang ilahang cash, kung ilahang ibutang sa bangko
73S3 (hereafter the "Rural Banks Act");
gamay ra man kaayog interest. SO muanhi na lang sila diri sa quasi-
bank. Mobuhat silag placement. [Google: Placement – The sale of (e) Cooperative banks, as defined in Republic Act
securities to a small number of private investors instead of to the No 6938 (hereafter the "Cooperative Code");
general investing public.]
(f) Islamic banks as defined in Republic Act No.
Kinsa may nanginahanglan og kwarta? Kanan short term. Kinsa 6848, otherwise known as the "Charter of Al
man? HR Construction Inc. nga nakakuhag kontrata sa DPWH nga Amanah Islamic Investment Bank of the
padak-an ang kalsada sa Davao. Unsa kay kada semana kay naa Philippines"; and
silay bayran—payroll, gasolina. Unya ang gobyerno tig-dugay (g) Other classifications of banks as determined by
manghatag sa ilaha og kwarta. Asa man na sila mangadto? Dili sila the Monetary Board of the Bangko Sentral ng
makadagan sa bangko kay nangutang na sila sa bangko. Mudagan Pilipinas. (6-Aa)
na sila diri sa quasi-bank. Pakit-an na nila ang contract nga naa mi
gipaabot gikan kay PNOY nga bayron mi. So we are willing to sign
this note. So pirma sila. Muhuwam mig P100Mil. 30-days. Ang nag- There are Universal banks, Commercial banks, Thrift banks,, Rural
andam niana kay ang quasi-bank. banks, Cooperative banks, Islamic Banks, and other classification of
banks as determined by the Monetary Board of the Bangko Sentral
Now, this instrument, the quasi-bank is really accepting their ng Pilipinas.
receivables. Based on that, muhulam silag kwarta nga gikan niini
(from NCCC). Butangan na nilag duha ka linya (ang instrument). Unsa What are the other classifications? Karon naa na silay micro-lending
may buhat pasabot niini? When the check is crossed unsa may banks. Unsa man diay na? Magpahuwam nga walay collateral. Mga
meaning ana? That it cannot be encashed without the intervention of gagmay. That is the momst dangerous lending. [Segue: Take that
the drawer. So dili na sya maencash without the intervention of the from me. Niagi kog kasakit ana. Muingon kag “We go to the far areas.
payee. We lend t the ones who really need.” Okay. Then forget about it!
Because chances are, if the banks have not been there, then they
When you have something like this issued by a quasi-bank, this is should not be there at all. Ang kana ganing founder ana sa Pakistan,
called With Recourse. What is the meaning of with recourse? If this wala na. Nadiscover na na sa UN, daghan didto nga wa bayri.
borrower fails to pay, then they will have a recourse against the Nagkagidlay diay. Gihatagan pa syag Nobel Prize. Pero palpak! Wa
quasi-bank. Which means, that the interst that they will pay for this magsilbi.]
borrowee, if the lender insists that it is with recourse, it means that it
is a little bit higher. If no recourse, gamay-gamay ra ang interest.
Now, is there a collateral? No there is none! This is a money-market January 7, 2016

transaction. This is within 1 year. So it does not follow strict bank
rules. That is why it is called a quasi-bank. General Banking Law 2000 provides for many kinds of banks, many
kinds of banks.
Kung bangko pa ni, meaning this (lender) is the public. And there is a
collateral. But here (in his example) there is no collateral. But this is The enumeration that is found in Section 3 is arranged according to
also within the supervision of the Bangko Sentral. size and importance.
Section 3. Definition and Classification of Banks. -
Ayaw kalimti ninyo ha. Kaybaw na mog with recourse, Kiting. 3.1. "Banks" shall refer to entities engaged in the lending of
funds obtained in the form of deposits. (2a)
Alright. Section 3, in defining the banks, gives us the classification of
banks. 3.2. Banks shall be classified into:
3.2. Banks shall be classified into:
(a) Universal banks;
(a) Universal banks;
(c) Thrift banks, composed of: (i) Savings and
(c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings and loan
mortgage banks, (ii) Stock savings and loan associations, and (iii) Private development banks,

BANKING PAGE || 78
as defined in the Republic Act No. 7906 (hereafter Mu-ripoff sa electricity.

the "Thrift Banks Act");
This morning when the market was already selling off, paspas kayo,
(d) Rural banks, as defined in Republic Act No.
it was going down already to 3%. The first circuit breaker was called.
73S3 (hereafter the "Rural Banks Act");
There was an order stop trading. They say stop trading, 3% naman.
(e) Cooperative banks, as defined in Republic Act So they stop 15 minutes. Balik nasad trading. What is the purpose of
No 6938 (hereafter the "Cooperative Code"); stopping the trading? Kay naay mga tao nga madala sa herd
mentality ba. Kung nay gubot sa Cotabato, angunang madala sa herd
(f) Islamic banks as defined in Republic Act No. mentality kay ang mga bul-anon, sibat tanan, pamatyon na to ini,
6848, otherwise known as the "Charter of Al baligya tanan. That is the whole idea why is there a circuit breaker.
Amanah Islamic Investment Bank of the Stop.
Philippines"; and
(g) Other classifications of banks as determined by After 15 minutes, trading na sad, samot 7% ang down wa na. The
the Monetary Board of the Bangko Sentral ng second circuit breaker was closed the market is closed for the day,
Pilipinas. (6-Aa) goodbye pamanguli namo.
Tomorrow evening, it wil again open. I don’t know what will happen?
Foremost of which is the Universal Bank. Universal Bank is also It’s a record 630 billion dollars disappeared in 15 minutes of trading
called an Expanded Commercial Bank. in Shanghai stock market. Each share means foreign investors can
buy credit. It has a contagious event. Sa Philippines, daut sad ta.
What is the difference between Universal Bank and Commercial Japan stock market. Nikkai is also down. Singapore is also down.
Bank? Australia is down. Hong Kong stock market is down. That is the
effect of contagious event.]
The basic difference is that they [Universal Bank] have much bigger
capital than Commercial Bank. Why? Because Universal Bank is But if you are a bank, naa kay madawat na deposito. Unya way
allowed to engage in non-allied enterprises—the enterprises that are manghuwam? Sige na nimo paghaylo ang mga tao car loan, home
non-allied to banking business. improvement loan. Pero wala gihapon manghuwam. Naa man ka
stock market. Dili ka madintal na imunang gamiton sa paginvest ana.
For Instance, a Universal Bank is allowed to invest in stock Namalit kag shares, pagpalit mo shares, kalit mibagsak. What will
brokerage. Stock brokerage is no longer under the supervision of happen?
Bangko Sentral. Stock Brokerage is already under the supervision of
Securities and Exchange Commission. They cannot engage in stock But now, that can happen because Universal Bank are [now] allowed
brokerage business but they can invest in and control the stock to engage in enterprises that are not allied with banking.
brokerage.
Now. Commercial banks are smaller. They are allowed to enter into
Now can you imagine if a bank has a stock brokerage. [It is] very easy businesses that are allied with banking. They are not strictly banking
for the bank to also play the market, isn’t it? That is the danger. That but are allied with banking. Give an example of a business that is
is why, before, the banks were not allowed to enter the stock allied with banking.
brokerage business because they might start investing the money of
the depositors in stock brokerage. Commercial banking can issue debit cards, credit cards. What is the
difference between a debit card and a credit card?
[Segue: By the way, how many of you have paid attention to the stock
market in the last three years. Today, they say, is a record day Debit card- gi pondohan na nimo ang mamaligya na mudawat ug
because never has it happens that so much money disappeared in so debit card sigurado na syana naay pondo. Kanang credit card, wa pa
short time. That is in stock market in China. In 15 minutes, over 630 may pondo. Kanang credit limit na gihatag nila nimo mao nay
billion dollars disappeared. You know since last August, the analysts amount at which the credit card company is willing to lend you at a
use certain interpretation. The new normal now is uncertain volatility. specified interest rate. So that's the difference.
Volatile na, uncertain pa gyud. Di kahibawun kanus-a musaka kanus-
a mudaog. Is that still lending? Yes, that is still allied to banking. That is still
lending, although a little different from the normal banking practice
The Chinese government—it is a one-party government—they say of lending because the normal banking practice is always with
derives its legitimacy in being able to provide their people with better collateral. The bank is not allowed to lend without security. There
economy. So the’re trying to control the market. Sige naman ubos must be a security. That is the general rule in banking.
ang sa stock sa China. So they have instituted what they call
financial circuit breakers . Murag bana circuit breakers sa electricity.

BANKING PAGE || 79
[How about] Operating a brokerage? That is not related to banking And then, there is the Rural bank created by the Rural Banks Act
anymore. which is supposed to provide for countryside lending. Most of the
countryside lending is agricultural lending. An agricultural lending is
A Universal Bank may also be allowed to operate an investment one of the most risky lending loan.
house. Investment banking—which is not really banking. Investment
banking is into capitalization of businesses and that is included in So who lends the agriculture? Normally, it is just the government and
the Universal Banking license. So kitaay mu-abre ka ug muhuwam ka the government needs an arm, needs a facility. So kanang mga crop
sa bangko Universal Banking sya. Muingon ang bangko “Unsay loans, naay pahuwam thru the rural banks. [Segue: Can you believe it
imong collateral? Kining imohang balay kini imong mortgage.” that the original rural banks act only provided that you need only
100,000 to open a rural bank? Gilaliman ka ana. 100,000 lang ang
Kung magmortgage ka kinahanglan ka ng insurance sa imong kinahanglan maka abre kana ug rural bank. Why? Because the
mortgage. And the mortgagee steps into the shoes of the mortgagor Central bank, at that time, taking with a counterpart of 100,000. So
and collects the proceeds if the mortgage property is consumed by 200,000 lang ang imong capital, ka abre kana ug rural bank. Unya
fire. Kinahanglan man na nimo i-insure. Who furnishes the mudawat ka lang sa gobyerno ug kwarta arun ipahuwam nimo.
insurance? Most universal banks, they have also investment in an
insurance company. Di na nimo kinahanglan nga muadto pa sa lain Pareha tong Masagana 1990. Unsa tong Masagana 1990? That was
kay naa na mi ana diri. the program of the Martial Law Government to win over the country
side. Pautang ka and you will be supported with technology plus part
Karon mihuwam kag kwarta arun magtukod ka ug trucking business. inputs so that your production per hectare, if you are a rice farmer,
Nganong nagtukod ug trucking business? Kay nakakuha ka ng will not be less than 99 cavans of rice per hectare. Kinsa man nay
kontrata sa San Miguel Corporation na ikaw na ang gisaligan nila magprocess ana? Rural Banks. What is the result? More than 70% of
magdala sa beer ug sakto coca-cola didto sa probinsiya ni Pacquiao the rural banks went into trouble, nagka problema.
didto sa Saranggani. Bayran ka nya unya wa pa man kay truck.
Kinahanglan na mupalit kag truck. Leasing na sad ka. Unsa man na? Remember, this is the time of the First birth of OPEC (Oil Producing
wa pa kay bodega. Kinahanglan sad ka warehousing. Ayaw na lakad Exporting Countries). Members are Suadi Arabia, Iran, Iraq, Kuwait,
sa layo naa sad mi leasing. naa sad mi equipment. Procurement di UAE. Sila ang mga original members. Daghan silag kwarta. Unsaon
ba? Kung naa na silay contact sa Subic, dina kinahanglan na muadto man nila? Mao nang muinvest sila sa ilang kaugalingong desert.
ka sa Subic, sila nay mudeliver sa forward, sa ten wheeler. Sila nay Nangadto sila sa New York. Nagdeposito silag kwarta. Ingon ang
muhatag ana. Universal banks, they have all the authority to do that. banko “unsa may buhaton nato daghan man kwarta ini? Magsigeg ta
bayad ug interest.” Nagcontact silag mga gobyerno—South America,
Commercial bank must be related to the order. The license of a Asia, Africa, uh ang Pilipinas sad kay “aaah yeeh!” Tagaan mo ug
commercial bank is to operate commercial banking. What is the loans, preferential loans to improve your economy.
essence of commercial banking? The essence of commercial banking
is to deal with demand deposits, checking account. Mao nay essence We thought that they were doing us a favor. WE were doing them a
sa commercial banking. favor! Kay wala silang mapuntahan sa ilang kwarta kanang mga
lopsided occurrences. Farmers, Masagana 99. Fishermen, Biyayang
“Allied with” is letters of credit, irrevocable letters of credit, Dagat.
correspondent bank. Mao nay trabaho sa commercial bank. Muingon
ka: “Unsa man nang thrift bank, savings bank, nga naa man sad silay The problem was karun kuno, ang technician mauna syay salesmen.
check?” Ah kana sila gitagaan sila ug separate license to engage in Ang technician na mutudlo sa mga farmers sa pagtanum ug rice. Ang
checking, demand deposits. That is NOT included in their license to technician, syay taga komisyon kung ang farmer muhuwam. Tan awa
operate as a savings bank because a savings bank, the essence of ra! So the technician became no longer objective. Kahit na bato pa
their practice, is mortgage loans or homes. Mag sige kag sale2x arun ang itanim na hindi tutubo, papahiramin pa rin ang farmers kay may
makautang ka para pambuhat sa imong balay. Loans and savings komisyon man ang technician. Pagkadakong Tinunto! That’s why
association. Mao nay essence. mao nay imong lisensya—to daghang wa kabayad sa loan. Muingon ka “total gamay collateral.”
encourage people na damgo na jud sa tao na makapalit sya ug Rural bank nimo, unsa may personal sa rural bank? You execute for a
kaugalingong balay. That is the main business of a savings bank. loan and the collateral tan-awa kung makuha pa nimo. Try mog
Smaller capitalization. You borrow, you lend, in another bank and the iexecute kung hindi ka habulin ng sundang ng borrower. Ingnan kag
others will borrow it for the purchase of their first home or the “hala subukan mo! Magkamatayan tayo!”
enlargement of their first home. Dugangan nilag kwarto. Patas-an
nilang balay para nay second floor, ngano man? Kay bahaon sila. That’s why in the rural bank, musugot kag ana? Isuwat dayon nimo
Unya kinahanglan isaka ang kanilang refrigerator sa second floor kay “cannot be collected.” Good intention but it did not work. They forgot
bahaon man ang lugar nila. that actually you are demanding that the farmer becomes
entrepreneur. Farming is a business and a very risky business. In

BANKING PAGE || 80
farming business, there are many variables that you should consider magka fever.] So they help each other. Dili gane makabayad ang isa,
weather, tubig, yuta, market. And farmer na wa kaeskwela, hindi then that is the problem of all five. Tabangan nila aron makabayad.
MBA , gawin mong manager ng business. Harsh realities!] And they watch out each other that’s why the mechanism of
microlending.
There is category here of a bank which is very controversial. What is
that? The Amanah Islamic bank. Kung naay Islamic Bank, ngano wa Remember wa nay collateral. Ngano man? Because these people
may catholic bank? Ngano wa may protestant bank? Or for that cannot afford collateral. They don’t have anything of value by which
matter Quiboloy bank? Nganong wala man? they can submit as security. So that is already an exception to
recognized accepted banking practice. Wa nay collateral. That’s why
There is an Islamic bank because Islamic faith has a peculiar small amounts. The moment you increase the amount, then the
problem with lending out with interest. If tenets of Islam really temptation not to pay is proportionately the same as the size of the
prohibit lending with interest. Now, that prohibition is universal of loan. That’s the tenet of Microlending.
religions spreading out from the Middle East. That is prohibited also
for the Jews. That is also prohibited in the Old Testament of the Now, the Bangko Sentral has supervisory powers over the operations,
Catholic faith. Tan-awa sa gospel, tan-awa sa ingon sa Ginoo. The activities of banks and quasi banking institutions. What if it is a
most precious collateral is your faith. [Segue: Kung sa ato pa, Universal bank and it is engaged in non allied banking enterprises?
malong, pwede mahimong kasilyas, raincoat. All purpose na! Does the Bangko Sentral still have authority to investigate, examine,
and audit these non allied banking entities? That is the issue.
During our Lord’s time, kung manghuwam ka, kanang imong
buhatong collateral, dayon lukaton na nimo. Kay kung mutuug ka, The law now gives Bangko Sentral authority to look into, investigate,
you need that. The bible has this exhortation that if you are God and audit the non allied banking entities. Before wa man na, di na
fearing and you are a lender, at night you will give back this coat so mahimo, mao tong daghang kaayog failure. Karon, the Bangko
that the borrower will have a good sleep at night. Kinabukasan, Sentral can go in as long as the owner is a bank under its
kuhaon mo balik. Do not charge an exorbitant interest. Sa Islam, wa supervision. By way of its extension, they can now investigate.
man nay matangtang. It is there. So they have devised ways by
which there is no outright payment of interest. Daghan silag papeles Bangko. nagpahuwam kining mga planters. Sugar planters
na pirmahan. Kintahay, muhuwam kag kwarta arun magtukod kag nagpahuwam sila. Hain man ang ilang sugar? Ila man nilang gitigom
balay. Ang mahitabo ana, naay kay equivalent na papeles na you are kay naa may sila cooperative. Naa sa warehouse, nya mao nay ilang
at loss. It is acircumulous(?) way by which bank constructs the gamiton. Tagaan man silag quedan. Mao nay certain unit of number
house. It owns the house and you buy it from the bank for installment of sugar that they have in the bodega. [Segue: By the way the sugar
together with a loan and interest. Daghan kaayo na papeles na is reckoned in terms of piculs. Kanang piculs mas gamay na kaysa
pirmahan. Because a simple loan with collateral becomes four or five usa ka sako nga bigas. Dili na tong ginabutang nimo sa hamburger.]
contracts. So that you will not be charged as lending out with interest
on tenets of Prophet of Islam. So that is the reason. Because there is Now, the Bangko Sentral, in supervising the lending establishment
no such problem in Catholic, there is no Catholic bank.] which is the bank, can even go into the warehouse of the cooperative
of which the borrower is a member. Imbintaryuhun na niya.
Now, other classification of Banks as determined by the Bangko Mahimong tan-awon na niya kung unsa may tinuod. Tinuod ba ni na
Sentral. Microlending. asukal na gi-pile dinha o bunbun na gisuod sa sako then gipile? They
can go enter and examine. Before, they do not do that. That’s why
Microlending is characterized as lending with small amounts, not just there’s so much irregularity in sugar production lending but that is
to one person but to these persons as a member of an aggrupation. the power now of the Bangko Sentral:
Lima, unum sila. Mostly these borrowers are women. That is • conduct examination to determine compliance with laws
specified in the law of microlending, WOMEN! And they cooperate and regulations if the circumstances so warrant as
with each other. They help each other. They encourage each other. determined by the Monetary Board;
Let us say the whole idea is to borrow money in order to buy a goat • oversee to ascertain that laws are complied with;
for milking. Part of it will be used to feed the children, the excess will • regular investigation which shall not be often than once a
be sold in the market. So double target—to improve the nutrition in year on the last date of examination to determine whether
the family and you also earn. You share best practices— five women. an institution is conducting its business in a safe and
You share! sound basis; provided, that deficiencies and irregularities
found by or discovered in an audit shall be immediately
[Segue: How do you take care of the goat? Dapat ang goat hindi addressed;
matulog sa gabi sa lupa. Kaylangan papasukin mo sa bahay. Hindi • inquiring into the solvency and liquidity of these
magkalevel ang goat sa iring o iro. Oo, hindi naliligo ang kambing institutions, enforcing prompt , corrective action.
pero dapat papasukin mo pa rin sa home sweet home mo para hindi

BANKING PAGE || 81
by the Bank for each withdrawal transaction unless it is for

Kada violate nimo, issuehan ka dayon major infractions, minor the purpose of closing the savings account. Whenever the
infractions or corrective action. Kanus-a man nimo aksyunan? Within interest of the banks so warrants the bank reserves the right
a day, within a week, within a month. Bangko Sentral man na. to require 60 day written notice in advance for any
withdrawal. In absence however of written notice of loss of
So quasi banks, trust entities, financial institutions. Quasi banks— the passbook, payment by the bank to the person presenting
entities engaged in the borrowing of funds through the issuance, the passbook shall be good and valid against the depositor.
endorsement or assignment with recourse or acceptance of a deposit
substitutes as defined in Section 95 of Republic Act 7653, New Xxx
Central Bank Act for purposes of re-lending or purchasing of
receivables and other obligations. This is the new Bangko Sentral Withdrawals are allowed against cleared balances only.
expanded____ because the banking practice has been supplanted. Deposits become cleared funds only after the completion of
clearing or holding periods as may be reasonably determined
by the bank. No maximum limit is set by the frequency of
January 13, 2016 withdrawals that can be made for the account during the
calendar month however the depositor may be requested to
The last time we went through the different kinds of banks. [Segue: I give at least one day written notice in advance of any
am spending time in it because this has come out twice in the bar withdrawal where the interest of the bank or the depositor so
examination. They ask this question, what are the kinds of banks dictates.”
provided for under the law? Makakuha mo anang questiona unsa
inyong buhaton? Tan awa ang katapusan pila ka points. So give away So you will be given one day IF it is savings account. Remember, no
question ra na. So what are they? Phrase lang. matter where the savings account is, whether it be in BDO which is a
universal bank or ONB which is a rural bank, the same holds true. It’s
Universal bank, its bad debt. Commercial bank can do the investment the nature of the deposit. It is not a demand deposit. Demand deposit
in non allied business. Commercial bank there basic authority is to is a checking account.
accept demand deposits, savings account usually a mortgage bank
with a community to provide credit to those who are seeking to Now I told you already. What is the rule now with respect to
acquire there first home mortgage bank mao na ang mga thrift anonymous accounts, or accounts under fictitious name?
banks.]
Ikaw niadto ka sa bank ingon ka “ako tag iya ani, unya akoa ibutang
Now where did I get this definition? Nia ra man na sa balaod. Basaha pangalan Jose Vilarde. Akoa nang account.” Unya ngano man
na ninyo. Ako na lang gi explain ninyo. But to show you that we are musugot ang bank? Kay tingali president ka sa Pilipinaas or dako
not inventing, what is the difference between savings account that kayo ang kwarta na ibutang nimo diha. Before, that could pass. What
you open in bank and the so called demand deposits? does it say now?
Demand deposits are withdrawn upon the presentation of checks or This is the official word from the 2nd volume of the banking laws of
demand papers. So, naa kay kwarta sa banko. Musuwat gani kag the Philippines. Official commentary of the General Banking Law.
payable to cash dayon ug muwidraw ka, diha-diha daun hatagan ka Foreworded by governor Titangco and indorsed by then Chief Justice
nila. Now, savings deposits in savings banks, they might give you Renato Corona. It says “The provisions of existing laws to the
right away. But that is the option of the bank. Actually they can ask contrary notwithstanding, the use of anonymous accounts, accounts
for a day. Unsa man ang authority nako? (Father asks to read the under fictitious names, and all other similar accounts shall be
bank passbook) absolutely prohibited. What is the authority for central bank to say
that? The authority is The Anti Money Laundering Act of 2001.
“A withdrawal must be made by the depositor personally or Katong gibuhat ni Estrada.
by his duly authorized representative. Withdrawal shall be
allowed by the bank only upon presentation of the passbook Now deceased depositors. What is the law on deceased depositors?
and withdrawal slip duly signed by the depositor and if
necessary upon the submission of proof of authority as the It says here: “If a bank has a knowledge of the death of a person who
Bank or the applicable laws may so require for such maintain a bank deposit account, alone or jointly with another, it
withdrawals. shall not allow any withdrawal from the said deposit account unless
the commissioner of the BIR certifies that the estate taxes imposed
No depositor shall be allowed to withdraw from his savings there on have been paid.” What is the authority of that? Foot note
account any amount in excess of the cleared balance to his 138, NIRC of 1997 RA 8424, Sec 97:
credit or any sum lower than the minimum amount required

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“SEC. 97. Payment of Tax Antecedent to the Transfer of limit it for only 500,000.
Shares, Bonds or Rights.- There shall not be transferred 2. For actual funeral expenses or in an amount equal to five
to any new owner in the books of any corporation, percent (5%) of the gross estate, whichever is lower, but in
sociedad anonima, partnership, business, or industry no case to exceed Two hundred thousand pesos
organized or established in the Philippines any share, (P200,000) - The decided cases in deduction for the
obligation, bond or right by way of gift inter vivos or proper cost of funerals is accorded to the stature of the
mortis causa, legacy or inheritance, unless a deceased. Pari sya, free man ang St. Peters, edi wala na
certification from the Commissioner that the taxes fixed syay deduction. Free. Ang haya dira. That's half a million
in this Title and due thereon have been paid is shown. If na. Lungon, kandila, haya.
a bank has knowledge of the death of a person, who 3. For judicial expenses of the testamentary or intestate
maintained a bank deposit account alone, or jointly with proceedings
another, it shall not allow any withdrawal from the said 4. For claims against the estate: Provided, That at the time
deposit account, unless the Commissioner has certified the indebtedness was incurred the debt instrument was
that the taxes imposed thereon by this Title have been duly notarized and, if the loan was contracted within three
paid: Provided, however, That the administrator of the (3) years before the death of the decedent (Fr comments
estate or any one (1) of the heirs of the decedent may, so that’s where the hospital can bill you)
upon authorization by the Commissioner, withdraw an
5. For claims of the deceased against insolvent persons
amount not exceeding Twenty thousand pesos
where the value of decedent's interest therein is included in
(P20,000) without the said certification.
the value of the gross estate
For this purpose, all withdrawal slips shall contain a 6. For unpaid mortgages upon, or any indebtedness in
statement to the effect that all of the joint depositors are respect to, property where the value of decedent's interest
still living at the time of withdrawal by any one of the therein, undiminished by such mortgage or indebtedness,
joint depositors and such statement shall be under oath is included in the value of the gross estate, but not
by the said depositors.” including any income tax upon income received after the
death of the decedent, or property taxes not accrued
It is an exception but still with authorization from Commissioner. before his death, or any estate tax
How can that be?! So it is not an exception. An exception is where 7. An amount equivalent to the current fair market value of
upon the authorization of a commissioner the administrator of the the decedent's family home: Provided, however, That if the
estate or any one of the heirs of the deceased or the decedent may said current fair market value exceeds One million pesos
withdraw an amount not exceeding 20,000 without the said (P1,000,000), the excess shall be subject to estate tax
certification. 8. Standard Deduction. - An amount equivalent to One million
pesos (P1,000,000). Fr comments, there is one deduction
Why is 20,000 allowed? The Central Bank is not telling us the that is obvious but it is not there the payment of the estate
complete story. Because you know from the computation of the tax, asa man d I na kuhaa? It will be taken from the gross
taxable estate, you compute it from the gross estate. Deductible from estate. They tax only net estate and it will be deducted
gross estate is 1. expense of the last illness. It is presumed that the from there because nothing is supposed to be left out of
hospital on the strength of the word of the bank manager (but the estate.]
without disclosing the exact amount of the deposit due to bank
secrecy) treats the decedent until his death, it will be deducted from Now, if the bank account is part of the estate, then it should be
your gross estate . The expenses of your last illness. Can you find the subject to the deductions that are allowed by law.
computation of your net estate?
Now, I told you already about a survivorship agreement. Here is an
[Segue: What are the deductibles from the gross estate? explanation of the survivorship agreement with the citation of Vitug v
1. Medical Expenses incurred by the decedent within one (1) CA 183 S 755, 1990 case.
year prior to his death which shall be duly substantiated
with receipts: Provided, That in no case shall the Now this is the official word of the BSP:
deductible medical expenses exceed Five Hundred “A survivorship agreement is an aleatory contract supported
Thousand Pesos (P500,000). - Sus! Di kaabot! ICU na lang by a lawful consideration the mutual agreeement of joint
daan, 5K na. Kada tupo ana, gadugang. Ang oxygen, depositors permitting either of them to withdraw the whole
depende sa consumption nimo. Unya ang kining makina deposit during their lifetime, and transferring the balance to
para pag ginhawa nimo. Naa nay bayad tanan! Gamay the survivor upon the death of one of them. A survivorship
nang 10K nimo. Within 1 year man kaha nga expenses, so agreement is valid, the validity of contract seems debatable
365 days. Unya 10K. So 3Milyon! Hayahay kaayo. And they by reason of its survivor take all feature. But in reality that

BANKING PAGE || 83
contract imposes a mere obligation with a term and a term garnishment. What is garnishment?
being death. Such agreement is permitted by the Civil Code
under article 2010 which provides that: By an aleatory It is not beyond the reach for execution for the bnak deposit to
contract one of the parties binds himself, or both, satisfy final judgment. The prohibition against the examination of or
reciprocally for that which the other party reciprocally binds inquiring into a bank deposit under the law does not include
themselves to give or to do something as an equivalent to garnishment to ensure satisfaction of the judgment. Because there is
which the other party is to give or to do in case of the no real inquiry in such a case. If the existence of a deposit is
occurrence of an event which is uncertain or will happen at disclosed, the disclosure is purely incidental to the execution of the
an indeterminate time such contract as any other contract is process. It is not within the intention of congress to enable debtors
binding upon the parties. to evade payment of the just debts even if ordered by the court
through the expedience of converting the assets into cash and
Then this is the paragraph that is quoted from the SC decision: deposit the same in the bank.
“A bank account may be so created that 2 persons shall be What are the exceptions to garnishment of deposit?
joint owners thereof during their mutual lives and the
survivor take the whole on the death of the other. The right to 1. Receivership or liquidation
make such joint deposits has not been removed by statutes If the deposits are part of the corpus that is under receivership or is
(note from the full text, the exact words used were “has under liquidation, then it is no longer subject to garnishment. Why?
generally been held not to be done with by statutes”) Because those funds will be subjected to concurrence and preference
abolishing joint tenancy and survivorship generally as they of credits to their lawful claimants. The law says, RA 7653, sec 148
existed at common law.” (Fr mentioned sec 148, but based on the law it is sec 30) “The assets
of an institution under receivership or liquidation shall be deemed in
So, that is the problem because the ruling of the SC, as quoted here custodia legis in the hands of the receiver and shall, from the
by the Central Bank, is in opposition to sec 97 of the NIRC. Because moment the institution was placed under such receivership or
you cannot withdraw if you are 2 in 1 guys, it is supposed to be you liquidation, be exempt from any order of garnishment, levy,
declare that the other signatories of the account are still living to attachment, or execution. Because it is already under the law to be
withdraw. You can only withdraw it if there is a certification from the disposed to the one who has better claim to those deposits in
commissioner na nabayran na ang tanan na mga taxes. Wala pa gani, accordance with the concurrence and preference of credits.
apil na sa estate. Kinsa may mupatigbabaw niini? The Central Bank
and the SC or Ms. Henares of the Commissioner of the Internal 2. In exceptional case with respect to foreign currency deposits.
Revenue? Pangutan-on gani ka ani sa bar, nganha jud makit an ang Foreign currency deposits cannot be the subject of garnishment.
gilas nimo. Directive of law.
[Segue: That is the claim of Renato Corona because his money was in
[Segue: Now, set aside the bar examination. We are talking about foreign currency.]
reality… Kung naa gani tigulang, unya kabalo ka naa sya joint
account, ablihi daun ug laing na account ang survivor in the same The exception to this exception is the case of Greg Bartelli (an
bank. I-transfer daun tanan amount didto. Dili nimo kinahanglan na American tourist) who was convicted of child abuse, 12 year old
sirhan na. Bilini ra ug minimum ang old account. Filipina whom he convinced to go to his apartment where she was
raped 10 times for 4 consecutive days. So he was convicted. And
Or on the day of the death itself, if it is a banking day, I-transfer daun. then, for some reason or another, he was able to fly away. Ang
Ayaw lang pahibal-a ang bank. What is the obligation of the bank? nahibilin na lang niya ang iyahang foreign currency deposit. So the
Ingon dinhi “if the bank has the knowledge of the death of the guardians of the rape victim filed this petition for forfeiture.
person.” Knowledge, what is that knowledge? When can the bank no
longer deny that it has knowledge? If there is an obituary published in Now the defense claimed that this cannot be the subject to
a news paper because it is equivalent to public notice. Naa na na. garnishment and execution because it is foreign currency. What is
Dili na makabalibad ang bank ana. Pero if there is no publication or the ruling of the court?
before the publication, you already go there and the bank will even
help you. Transfer daun. This is not tax evasion. This is tax “In fine, the application of the law depends on the extent of
avoidance. That is my advice because this is in the state of its justice. Eventually, if we rule that the questioned Section
uncertainty right now. And the General Banking Law has been further 113 of Central Bank Circular No. 960 which exempts foreign
amended or affected by the later laws that have been passed like the currency deposits from attachment, garnishment, or any
AMLA. (Fr distributed notes)] other order or process of any court. Legislative body,
government agency or any administrative body whatsoever,
Alright. Bank deposits, being property, can also be subject to is applicable to a foreign transient, injustice would result

BANKING PAGE || 84
especially to a citizen aggrieved by a foreign guest like Without giving advance notice, this kind of deposit shall be issued for
accused Greg Bartelli. This would negate Article 10 of the a specific period of term.
New Civil Code which provides that in case of doubt in the
interpretation or application of laws, it is presumed that the So you agree on term, so one month, 30 days. That is locked in there.
law making body intended right and justice to prevail. But no bank will prohibit you from withdrawing. They will just enforce
Ninguno non deue enriquecerse tortizerzmente con damo de the penalty. In other words you will not get the agreed upon interest.
otro. Simply stated, when the statute is silent or ambiguous, Again, its useless because the difference between interest on savings
this is one of those fundamental solutions that would account and time deposit is not really different and it is also subject
respond to the vehement urge of conscience. (Padilla vs. to withholding tax, capital gains 20%.
Padilla, 74 Phil. 377)”
You have heard of this other kinds of deposit. Long term deposit,
So the Court ruled that this amount of foreign deposit in the bank can negotiable certificates of deposit. This refers to interest bearing
be executed upon based on the judgment of the court. So that it negotiable certificate of deposit, the minimum maturity of 5 years,
Salvacion v Central Bank. long term negotiable certificates of deposit.
What is the 2nd exception to the exception? That is In Re: So those are the various kinds of deposits that you … it is actually a
Impeachment proceedings of chief justice Renato Corona. Because loan ha. The SC said it is actually mutuum, not commodatum.
the senate order and the court did not stop the senate. In cases of Commodatum is free. Lending out fungible subjects, exchangeables.
impeachment, the bank deposit, even though in foreign currency That’s commodatum, it’s free. If it is with interest, then it becomes
deposit, may be looked into by the senate or congress. mutuum. [Segue: Nganong mutuon man ka sa terms na na? Kay sa
bar examination that counts if you use this term. Muingon gani ka
Now, what are the other kinds of deposits? mutuum, ang SC maka ingon “Ah! Kaning tawhana nagbasa jud ni sa
civil code. Katong mga lawom nga commentary sa civil code. He can
We have seen demand deposits, savings deposits. Have you heard of connect civil code and banking laws, commercial laws.
negotiable order of withdrawal accounts? This refers to interest Commodatum and mutuum are Latin, not Spanish.
bearing savings deposits which are withdrawable by means of
negotiable orders of withdrawal (the acronym is NOW—Negotiable
orders of Withdrawal).
January 14, 2016
NOW accounts are deposit accounts that combine the payable on
demand feature of checks and the investment feature of savings Powers and authority of the Bangko Central.
account. The NOW accounts. Mao man na ang count on sa banko.
Diba mo deposito ka para sa checke unya ang imong checking Its authority is divided into supervisory powers, set policy directions
account di na man na mg gain ug interest. So ingnon ka nila and power and authority to engage in banking and quasi banking
butangan nato ni ug kaluha diha, savings account. Pag sulod sa functions and conduct examinations.
check kulang gani ang pondo, it is understood na mukuha gikan sa
savings account by order. So mao na ang ginatawag ug negotiable 1st supervisory powers - supervises banks, quasi banks, trust
order of withdrawal. Katong check nimo, kuwang man ang deposit entities, financial institutions.
nimo sa current account nimo mukuha sila daun diri as imong
savings. Kung di pa na mahimo, tanan imo savings mabutang sa Financial institutions are under special laws, make subject to Banko
current, dili na mu gain ug interest. Pero that makes sense before Sentral supervisions.
when there was a substantial rate of interest. Now, the rate of
interest is negligible. Savings, dili na muabot ug 1%. So magbuhat Quasi banks, I explained to you why they are called quasi banks.
ka anang arrangement just to get less than 1%? Annual man nang Because they entertain deposit substitutes. Instead of deposits from
rate of interest. Ang imong 100pesos, pilay makuha nimo na at the the public, deposit substitutes from those who can excess on cash
end of 1 year? Less than 1peso. Kay naa may 20% tax. So pila may and they mediate it by lending it through the purchase of receivables
makuha? 80 cents. Mao nay imong haguan. Mao nay too much of so called borrower institutions.
trouble about nothing. Musayop2x pa ka ana.
Trust entities may be also be banks. But they need not be banks.
Alright. There is also this kind of deposit. Time certificate of deposit. That’s why they are called Metro Bank and Trust Company. So beside
This refers to interest bearing deposits with specific maturity rates being a bank, Metro Bank is a Trust institution. What is the fuction of
and evidence by certificates issued by the bank. Time deposit is a a trust institution?
deposit account paying interest for fixed term, with the
understanding that accounts cannot be withdrawn before maturity. They are a party to the trusteeship. What is a trusteeship? It is an

BANKING PAGE || 85
express trust. Most of what you are deemed therewith in the civil creating the trust that you can only invest in such companies. The
code is an implied trust. When does an implied trust occur? Give an trustee cannot dig a hole in the ground and hide their money. The
instance in the civil law where an implied trust occurs. trustee as is the practice on the investing public. He must invest
wisely the corpus that will answer for the retirement.
When you make a payment and the one you paid it to has no longer
the right to receive payment kay nabayran na diay. Or there was no Who is the trustee? Only those that are registered with the BSP
obligation. What is that called? That is called in civil law as debt not qualified. Di mn ka mahimo ang president sa company “AH mao
owing, and it creates a right upon the one who made the non naang buhaton na trustee.” You cannot do that! That is conflict of
obligatory payment the right of solutio indebiti. And you can file an interest so this trustee. Trust entities are the ones that are given the
action. And the one who made the payment to which was not owing responsibility to manage trust funds, retirement funds required by
receives it but he has the implied duty to hold on to it for safe law to be placed on trust funds.
keeping in your favor. Pag balik nimo unya pangayuon nimo,
kinahanglan i-uli niya. He has the implied trust. Temporaryo lang na Question: If a bank that is also a trust entity licensed by the Banko
gikuptan niya, but he must return it to you. That is solutio indebiti. It Central goes bankrupt, what happens to the trust funds that it holds?
is an implied trust. The law itself says that it is not included in the assets of a bank. The
bank does not own it. Legally it may be in the name of the bank
Express trust. Here is a company that gives out retirement benefits because the trustor creates a deed of assignment to place the corpus
and its retirement benefits is composed of solely contributions from subject to the trust relation with the trustee so that he can properly
the company, not from the employees. It has its own retirement invest it. And investing is not an act of administration. What is it? In
benefits that are better than what the law grants because it gives out civil law, it is an act of disposition.
1.5 times your monthly salary for every year of service. [Segue:
Pagkanindot ana. Because what does your labor code say about Mao na naa nay special power of attorney. Mupautang gani ka, mupa
retirement benefit? 1/2 of 1 for every year of service. And in that, you mortgage gani ka, mu prenda gani ka and you are not the owner of
have to add 1/12 for every year of service. That is the legal the property, you are to have a special power of attorney. That is not
requirement.] included in the usual agency of administration. That is why it is
called special power of attorney. It is an act of disposition. It is not
Now it registers its retirement fund with the BIR. The moment it implied in acts of administration.
registers it what happens? It becomes tax free. It becomes a separate
corpus from the company itself. If it places it in the bank the interest Kung naa kay gibinlan sa imong yuta “Ikaw nay bahala ani, kay
that it earns from the bank can no longer be deducted for taxes of the muadto ko abroad, didto ko mutrabaho. Naay mangahan diha
company. Because it is tax free. The payments made out to it is tax kalubin-an ug uban pa klaseng tanom diha.” Ingon ang gibinlan, “Ako
free to the recepients because it is registered with the BIR. ni I prenda.” Makahimo sya ana? Ma-lease ba niya ang property? To
administer lang man ang iyaha. Acts of administration does not
Now, the requirement though is that it is irrevocable. The company include acts of disposition. That is why the trustee becomes the legal
cannot after making contributions, all of the sudden changes its holder of the corpus of the trust. If there are properties there, the
mind and say “Nagkinahanglan man tag kwarta. Ato nang kuhaan na trustor must execute the proper deed of conveyance to the trustee.
nato kay to man na kwarta.” It becomes irrevocable. That’s number How do you transfer to a trustee? Deed of Sale? Dili! Ma-sya na diay
one. ang tag iya? Mao na naay deed of assignment by way of trusteeship.
Mao nay diprensya sa deed of assignment and deed of sale.
Second, for the safety of the beneficiaries, the company must make
the governing body of trust a composite of workers representative, Unsay deperensya sa deed of assignment ug deed of sale? Deed of
supervisors and managerial representative and the employers assignment: kung kwarta na ang gibutang niya sa deed of
representative. And then, governing body must choose a professional assignment he can dispose of that money, he can lend it, it is an act
trust retirement manager. So it cannot manage itself. The company of disposition, he can invest it. He has the authority to do that but it
cannot manage it itself. Why? Why is that a form of protection of the must be in accordance to the deed of trust creating the trust. When
beneficiaries? the trustee goes bankrupt and he is a bank, the corpus of the trust he
holds is not included in the assets of the bank. It is separate and
Ang companya muingon, “Ah sos nia diay ning atong kwartaha, wa na distinct. Because even if it is in his name he does not own it. He is a
man namalit sa atoang shares of stock. Paliton nato ni kaning trustee. So way labot. And that must be proven in the bankruptcy
atoang retirement funds ang atoang shares of stock aron musaka forum, whether it be in regular courts which will be in liquidation or
atong shares.” Dili na mahimo! It is self serving the company. It must receivership, the Banko Central ng Piipinas, Philippine Depositors
be a third party who will be the trustee. Mao na mangita silag BDO Insurance Corporation. Because it is usually the receiver, is it not? Or
ba, Metrobank ba, China Bank and Trust Company ba. And the trustee you have already forgotten that?
is guided by the declaration of trust that is given to the trustee

BANKING PAGE || 86
The receiver of banks is normally the PDIC. So in the PDIC, you prove removed kay mao man na ang nakalangan sa daghan kaau na. The
that this corpus of money is not deposits. This is trust. Wa ni labot legislators are saying the reviewing function of the court, judicial
kay di man ni gipanag-iya sa bank. Trust entitites. review of the court remains because it is already in the Constitution,
we should not put it here to be a window for unlawful banking
Remember when the corporation issues a bond, it must appoint a activities to continue just because they have filed an appeal to the
trustee. 3 man jud na ka tao pirmi, parties to the bond when a bond is SC. [Segue: You know, there are many rural banks who have been
issued. The issuer corporation that issues the bond, the public that found out by the Banko Sentral that they have two books. Rural bank
buys the bond (equivalently lend money to the corporation), trustee sya since the license to operate a rural bank is location specific. You
of the bond. What is the function of the trustee? The trustee holds are in this town nag open ka diri they have another town. Those who
the mortgage, the collateral of the bond because the lenders are so have opened accounts in the bank sometimes they move to another
many and so fragmented. It is the trustee who holds it for them. town and keep their books there. So ang ibutang nila didto ang maau
Come maturity date when the issuer cannot pay the bondholders, the na accounts ug kanang dagko ug balances kay ngano man ang
trustee will foreclose on the mortgage. And the proceeds realized, he president tag iya sa rural bank sya man ang una mugamit sa kwarta
will distribute to the bondholder in accordance with the amount of nga gi deposit, dili man ang bank, 2 ka libro ilang gi kuptan. Kadto as
the bond holdings. That’s a function of the trustee. Who can do that? the president of the bank, he operates another license of the bank
A trust entity under supervision of the Banko Central. Bili na Bank ha. but there in another town he is engaged in unlicensed banking. The
Quasi banks, trust entities and other financial institutions. moment he has 50 or more depositors account with him he is already
engaged in unlicensed banking. That’s why it’s very important to
Now, it says here: know the weight of this legal provisions kay kaning mga gagmay na
“SECTION 6. Authority to Engage in Banking and Quasi- bank they can do that—to engage in unauthorized license banking in
Banking Functions. — No person or entity shall engage another place using the bank as there contributor.]
in banking operations or quasi-banking functions
without authority from the Bangko Sentral: Provided, Now:
however, That an entity authorized by the Bangko “Persons or entities found to be performing banking or
Sentral to perform universal or commercial banking quasi-banking functions without authority from the Bangko
functions shall likewise have the authority to engage in Sentral shall be subject to appropriate sanctions under the
quasi-banking functions.” New Central Bank Act and other applicable laws.”
Exception na ha. Kinahanglan naa kay license to banking function The department head and the examiners of the appropriate
separate sa license to perform quasi banking function. Pero universal supervising and examining department are hereby
banking gani ka, or expanded commercial bank , naa anang duha (I authorized to administer oaths to any such person,
think fr refers to the 2 licenses) by mere license to open a universal employee, officer, or director of any such entity and to
bank. Unsa man nang mga universal bank? BDO, BPI, Metro, compel the presentation or production of such books,
Eastwest, Unionbank… Daghan na sila. Certain capitalization. documents, papers or records that are reasonably necessary
to ascertain the facts relative to the true functions and
Then, it also says: operations of such person or entity. Failure or refusal to
“The determination of whether a person or entity is comply with the required presentation or production of such
performing banking or quasi-banking functions without books, documents, papers or records within a reasonable
Bangko Sentral authority shall be decided by the time shall subject the persons responsible therefore to the
Monetary Board. penal sanctions provided under the New Central Bank Act.”
To resolve such issue, the Monetary Board may, through That is with respect to doing banking without the proper license.
the appropriate supervising and examining department
of the Bangko Sentral, examine, inspect or investigate “The Bangko Sentral shall provide policy direction in the
the books and records of such person or entity. Upon areas of money, banking and credit. For this purpose, the
issuance of this authority, such person or entity may Monetary Board may prescribe ratios, ceilings, limitations, or
commence to engage in banking operations or quasi- other forms of regulation on the different types of accounts
banking functions and shall continue to do so unless and practices of banks and quasi-banks which shall, to the
such authority is sooner surrendered, revoked, extent feasible, conform to internationally accepted
suspended or annulled by the Bangko Sentral in standards, including those of the Bank for International
accordance with this Act or other special laws.” Settlements (BIS). The Monetary Board may exempt
particular categories of transactions from such ratios,
Now, in the old law it says “that the determination of the monetary ceilings and limitations, but not limited to exceptional cases
authority is subject to review by the court” . That phrase has been or to enable a bank or quasi-bank under rehabilitation or

BANKING PAGE || 87
during a merger or consolidation to continue in business with Section 4. Supervisory Powers. The operations and
safety to its creditors, depositors and the general public.” activities of banks shall be subject to supervision of the
Bangko Sentral. "Supervision" shall include the
Now: following:
Section 5. Policy Direction; Ratios, Ceilings and
4.1. The issuance of rules of, conduct or the
Limitations. - The Bangko Sentral shall provide policy
establishment standards of operation for uniform
direction in the areas of money, banking and credit. (n)
application to all institutions or functions covered,
For this purpose, the Monetary Board may prescribe ratios, taking into consideration the distinctive character of the
ceilings, limitations, or other forms of regulation on the operations of institutions and the substantive
different types of accounts and practices of banks and similarities of specific functions to which such rules,
quasi-banks which shall, to the extent feasible, conform to modes or standards are to be applied;
internationally accepted standards, including of the Bank for
4.2 The conduct of examination to determine
International Settlements (BIS). The Monetary Board may
compliance with laws and regulations if the
exempt particular categories of transactions from such
circumstances so warrant as determined by the
ratios, ceilings. and limitations, but not limited to
Monetary Board;
exceptional cases or to enable a bank or quasi-bank under
rehabilitation or during a merger or consolidation to 4.3 Overseeing to ascertain that laws and regulations
continue in business, with safety to its creditors, depositors are complied with;
and the general public. (2-Ca)
4.4 Regular investigation which shall not be oftener than
once a year from the last date of examination to
The Banko Sentral has the right to prescribe ratios, ceilings, determine whether an institution is conducting its
limitations or other forms of regulation. Naay ceiling na ibutang sa business on a safe or sound basis: Provided, That the
Banko Sentral. Dili gani ni tumanon in violation ka na. This is the deficiencies/irregularities found by or discovered by an
meaning. Ingnan nimo ug buhat-buhat ra na nila. No! That is already audit shall be immediately addressed;
a violation and you will be penalized. Give an example of a ceiling the
Banko Sentral sets. An example is single borrower’s limit. If I'm not 4.5 Inquiring into the solvency and liquidity of the
mistaken, no bank can lend to a single borrower more than 20% of institution (2-D); or
the net worth of such bank. 4.6 Enforcing prompt corrective action. (n)
SECTION 35. Limit on Loans, Credit Accommodations The Bangko Sentral shall also have supervision over the
and Guarantees. — operations of and exercise regulatory powers over
35.1. Except as the Monetary Board may otherwise quasi-banks, trust entities and other financial
prescribe for reasons of national interest, the total institutions which under special laws are subject to
amount of loans, credit accommodations and Bangko Sentral supervision. (2-Ca)
guarantees as may be defined by the Monetary Board For the purposes of this Act, "quasi-banks" shall refer to
that may be extended by a bank to any person, entities engaged in the borrowing of funds through the
partnership, association, corporation or other entity issuance, endorsement or assignment with recourse or
shall at no time exceed twenty percent (20%) of the net acceptance of deposit substitutes as defined in Section
worth of such bank. The basis for determining 95 of Republic Act No. 7653 (hereafter the "New Central
compliance with single-borrower limit is the total credit Bank Act") for purposes of re-lending or purchasing of
commitment of the bank to the borrower. receivables and other obligations. (2-Da)
xxx
Now suppose you overrule that. Then that is already a violation.

Immediately the Banko Sentral will inquire on the bank to do prompt Muingon daun ang Banko Sentral, “You have been reported by the
corrective action. What is a prompt corrective action if you have examining division that you have lent out to one borrower in excess
exceeded the single borrowers limit? of the SBL (Single Borrower’s Limit) as follows: (ibutang daun nila),
prompt corrective action is required. Be guided accordingly. Signed:
Ingnon nimo ang bank, “Pa bayri na, paubsan nato or dugangan nimo deputy so and so for the monetary board. Correct daun na nimo. Dili
ang capital aron mudugang ang imong net worth. That is prompt gani problema imo liscense, daghan problema.
corrective action.
Another ceiling or ratio or limitation. The bank cannot lend more
Sec 4.6, Supervisory powers, Enforcing prompt corrective action. than its deposits. Muingon ang bank “Naa bitaw koy capital! Unibank

BANKING PAGE || 88
na ko ang capital nako is 4B. Naa miy capital.” The limit of a bank in ron. Tan-awon nila kanang giingon nila ug CAMELS.
its lending power is its deposits. Kana gihuwam sa public, mao na
ang iyang ipahuwam. What is the capital for? Capital Adequacy –the Banko Sentral will examine your asset
adequacy
The capital is for provisioning bad debts. Naa man gyud mupaltos
anang imo gipahuwam. Mao nay mutapak ba. Non performing na Assets – sa general accounting ang asset nimo physical asset man
gani ang loans, pangayuan na ka sa Banko Sentral ana ug na. Sa bangko, ang asset bank ang loans. Asset man na. Receivables
provisioning. Mao na ang gamit sa imo capital. Dili ipa huwam ang na. You look at the quality of your assets, the quality of your loan
imo capital. Mao na nang logic sa banking. You do not use your portfolio. Naa may klase na kung ibutang ug … example 30% of the
capital to loan. [Segue: Mao na ang mahitabo sa financial crisis kay loan portfolio is not performing. Nagkagidlay ba. Wa na man na.
ngano man the bank started from earning more from non banking Alarm system man na sa Banko Sentral. Unsay buhaton sa bank aron
activities than for banking activities. Ang earnings sa bank is the muubos ni? Mu loan ug dugang sa uban aron musaka ang total
difference between the interest earned from loans and the interest number of loans. Instead 30%, mahimo na lang 15%. Pero mao ra
they pay for the deposit. Ang interest from loans (P5) less interest for gud gihapon. Pero muabot gihapon kung pa daghanon nimo ang
deposits (P1) so P4. Ang P4 kuhaan nimo na ug operating expenses, loans, pa sakahon nimo ang loans sa uban, the total amount of loans
insurance, after deducting that mao na ang net profits. Now most increases so your bad loans decreases and they do that towards the
banks were earning money not because of banking functions end of the fiscal year aron mu gwapo ba. Mao na ang gitawag sa
because their treasurer was engaged in risking for profit accounting ug window dressing. [Segue: It comes from retail
commissions. Example is treasurer ka sa bank. Dako inyo capital 5M. practice, kanang mga department store gani. Paghuman sa Pasko
Ang inyo net profit sige ug dungag ang inyo kwarta sige ug dungag. you hold manipulation, window dressing na.] Ang solution niini
Unsa man ang buhaton ninyo niini. I deposit sa Central Bank? Gamay kubrahon! Asa man ang collateral ana? I-foreclose ang mortgage. Edi
ra man ang interest. So mamalit na lang ta ug dollars. Mamalit ta ug paspas. Essentially your loan portfolio has the same number of bad
Yen kay ng kataas ang value sa Yen unya ang atoa Peso nag ka ut-ut, debts, only in relation to the entirety murag nigamay, gi patas an man
Peso ra man ni atoa capital. Yen na ta. nimo, gipa daghan nimo ang total loans.
Karon ni kalit ug bali na purdoy andg Yen, nisaka ang Peso. Sayop Management – kadaghan ug required seminar sa Banko Sentral!
imo pusta, diba? That’s very risky! When the bank plays the forein Paattenon ka sa seminar. Example seminar sa New Central Bank Act.
exchange game. Kasagaran ang gina pangita kay US dollars diba? Bisan naga tudlo ka ana na law mag seminar gihapon ka because you
Namalit ang bank ug US dollars. How do you report that to the Banko are not certified as informed of the banking laws unless you go
Sentral? Your capital is impaired because you engaged in foreign through a seminar with a body that is accredited in the Central Bank
exchange transactions.] as competent to grant the seminars. Tanan, if you are member of the
board, seminar ka. Ang tag iya sa bank, mag seminar pud. That is
Now if you are a universal bank you can do that, but indirectly you how they make sure that the management. They (the monetary
form an investment bank. Naa kay gi separate, kuan na board) can add qualifications. And then, they can pass judgment on
capitalization. You can do that but not as a bank. single concrete board members that is called think and proper
liabilityy. Example, they can pass judgment. Nisuwat rag kalit ang isa
Commercial bank, new commercial bank, you cannot do that. So that ka board member: “One of your members of the board of directors
is why when the examiners come, tan aw nila ang uban cash. “Asa has been seen to frequent the gallera. This behavior does not
ani nia ang mga loans?” I-classify man na nila—big, medium, small engender trust on your part. Prompt corrective action is required.”
loans. Unsa man ilaha buhaton? Mag random checking daun na sila, Kung dili pa gani, sige pa gani didto kay wa man kuno sya sala, the
check ug papers…Oh ngano gipahuwam man ni sila nga wa man gani bank will be fined. Now you ask “why is this director always in the
pirmahi ang loan agreement? Ka dakong sala ana! Dako kaayog gallera?” Ingon sya “Dili man ko musabong. Ang akoang asawa,
multa. Ngano mahitabo man na mag pahuwam wala pirmahi sa caterer diha. Akoa sya kuahon dayon ihatod sa iyaha I cater. Sala ba
president sa corporation? Tungod lagi sa ka daghan sa loan nianang na nako na muadto? Wa man ko manghuwam.” The monetary board
companyaha sa bank. Wa na maka attend ang banks sa mga papers says, yes because your behavior when seen the innocent by standers
sa kadaghan sa trabaho. Naa man 1st trans, 2nd trans and 3rd trans. to have interpreted your behavior according to what they see.
Technically speaking they can say “We did not borrow that we are not Earnings
committed. The corporation has not entered in to that agreement
because the officer of the corporation did not sign that.” Ig-on ka ana Liquidity
sa examiiner. Daghan makit-an sa pag examine.
Stability
But what you have to remember is the standard now of the
international bank all over the world, kay risk based auditing na man

BANKING PAGE || 89
Yesterday, we talked about accounts—and/or accounts. What is the

January 20, 2016 law with respect to minors opening an account? It is governed by
circulars issued by the Bangko Sentral pursuant to the authority
[Segue: Every year the Bangko Sentral makes a report on the status granted to them by law. RA 337 Sec. 35 is a provision applicable to
of banking and credit and financial status as a special phenomenon minors and grants them the right, in their own right and in their own
in the Philippines. They entitled their report this year as Financial names, to open savings and time deposits. This provision lumps
Inclusive Initiatives of 2015. It’s good for you to go over the report. minors with married women. This is before married women were
We have some statistical figures. 4 out of 10 save money according recognized as having their own independence.
to the Bangko Sentral. 24.5% of Filipino adults never save. How can “Married women and minors in their own right and in their
they arrive at that conclusion? Just because you don’t put money in own names make deposits and withdraw the same and they
the bank that means you do not save? But when they say 49.3 million receive dividends and interest. Provided, however, that if any
have deposit accounts in the Philippines, 39.2 million depositors. So guardian shall give notice in writing to any savings bank not
there are some depositors who have more than one deposit account to make payments of deposits of dividends and interest to
because the deposit accounts are 49.3 million which are accurate the minor of whom he is a guardian, then such payment shall
figures. be made only to the guardian.”
Pero 4 out 10 save money, 24.5% never save. Lisod kaayo na tuohan! So, the authority of the parent or the guardian is by way of exception.
Kung ikaw nagbayad ka ug balay, low-cost housing. Ang imong sige The common rule is the minor can open.
ug bayad, nagtubo ang equity ana imong balaya. Is that not savings?
Kung ma-cancel kana, mahimo nimo na mabaligya, unya gastuhon Now, how minor is the minor? Pila may edad sa minor? Again we
nimo ang kwarta, diba? Savings man na. Unya wala daw kay savings. resort to the special law PD 734. Sec. 1 which modified the authority
Ngano man? Kay security guard lang ka unya imong asawa naninda granted to minors of RA 337. Sec. 1.
ra. Wala moy savings pero gabayad ka anang balaya, then you “Minors who are at least 7 years of age, are able to read and
accumulate equity on that ground. That’s savings. write, have sufficient discretion, and are not otherwise
disqualified by any other incapacity are hereby vested with
Why am I discussing this? Kay kamo, pagka-abogado ninyo, you will special capacity and power in their own right and in their
not just be litigating on the law. Naa ka sa legislative staff sa isa ka own names to make savings or time deposits and can
congressman. Unsa ng balaod, that’s a way looking at the law withdraw the same as well as receive interests thereon from
different from litigation and you need these figures to craft good banking institutions without the assistance of parents or
laws, reasonable laws, laws that address the country as it is. Kining guardians, the provisions of existing laws and regulations to
Banking nato, kung makig-away ka, pildi na ka. There’s a saying a the contrary notwithstanding. Parents may nevertheless
business na you do not chase good money with bad money. Kaso ka, deposit for their minor children and guardians for their
it’s better to settle out of court. It’s good to go over and realize what wards.”
are the nitty-gritty facts in our society for purposes of arriving sound
laws. And then, there is this addition. Sec. 22 of the Thrift Banks’ Act of
1995.
There are 10, 482 banking offices. The 16, 316 ATMs. That’s about “If any guardian shall give notice in writing to any thrift bank
the number of barangays in the Philippines. 1 barangay, 1 ATM. not to make payments or deposits, dividends or interest to
Muingon mo na sobra ran na. No. There are many remittances being the minor of whom he is a guardian then such payment shall
sent from Middle East to the farthest barrios. The farther the receiver, be made only to the guardian.”
the more expensive for him to get the remittance. Mulakaw pa man
siya. Kung tua ka sa Antipas, North Cotabato unya makadawat ka ug So you know. 7 years of age can open. The requirements are the
USD20 sa sobre sa suwat gikan sa Saudi Arabia. Ang problema ana same as the candidacy for the Office of the President—able to read
ka yang pagbaylo into pesos. Ang imong baylo ana igo ra pamasahe and write, has a sufficient discretion, etc. So, that is the rule with
sa Kidapawan. You see why the poor need the financial access respect to minors.
institution. Financial access points.
Now, there is this Central Bank additional requirement with respect to
Kanang Palawan, that’s doing a very good service. This is the story of the opening of an account. What is that? This is known as the
banking and financial access in the Philipines. 63% of cities or customer acceptance policy.
municipalities have banking presence. 57% of cities or municipalities “Pursuant to Anti-Money Laundering Act, the Bangko Sentral
have at least one financial access. Mura na ug Palawan Express.] has developed the following customer acceptance policy
which banks must observe:
Let us go back to the General Banking Law.
Sec. 806.1 of the Anti-Money Laundering Act of 2005.

BANKING PAGE || 90
Every covered institution shall develop clean, written

and graduated acceptance policies and procedures that Country of origin, residence of operations. There is a particular
will ensure that the financially or socially disadvantaged country, the citizens of which are all congregated to this particular
are not denied access to financial services while at the business. This business is dominated by this kind of foreigners. I am
same time prevent suspicious individuals or entities referring to chop-chop second-hand vehicles. Kinsa man nagkuan
from opening an account. In line with this aforesaid ana? Dili Japanese. Pakistani. Tan-awa, dili na sila magpakita sa
policy, banks are mandated to specify the criteria and atubangan. Naa na sila sa luyo. Sila may musukol didtog bid sa
description of the type of customers that are likely to Japan. Dinhi na sila gabaligya. Unya naa na silay Filipino fronts.
pose low, dormant or high-risk to their operations as Why? Because they do not have the correct license and visas to
well as the standards in applying reduced, averaged and engage in business here. They are simply on tourist visa. Renew-
enhanced due diligence, including the set of conditions renew lang na sila. E di naa jud sila na front na Filipino na
for the denial of account opening. In designing the mupadagan ana. The banks have to know that because there is a
customer acceptance policy, the following factors shall possibility of money laundering.
be taken into account.”
When do you launder money? You launder money when it is dirty
Then, the banks have to rank them according to whether they are low, money. When is it dirty money? When it is part of the proceeds of a
normal or high-risk. And then also, with respect to the criteria that crime or illegality. Kanang ibutang ninyo sa picture kanang mafia sa
we will read later, whether reduced, average and enhanced due Chicago selling opium, cocaine, etc. Baligya na sila sa streets. Dad-
diligence are required. Ngano man? on sa boss tagsa-tagsa. Retail man na didto, pag-abot hugaw na
mga dollar, nagpilit na mga kwarta. Literally, hugaw ng kwarta.
Si Mrs. Binay mukanaog didto sa Cebu. Unsa man na? The customer Legally, hugaw ng kwartaha because it is a product of a crime. Dili na
acceptance policy will require, magbantay ka ana. Election baya ron. sila kaadto sa US bank to deposit that money, ngano man?
Tingali ang kwarta ana gikan sa hain dapita. Mu-deposit siya ana. Pangutan-on man na sila ngano pilit man ni kaayo? Where is the
You cannot just treat her as an ordinary low-risk depositor and source of these funds? Maayo mag makaingon na sila didto nga naa
accept everything that she deposits. She is classified as a high-risk may Gallera didto. Di man na mahimo didto kay cruelty to animals
depositor because she is a politically exposed person. So, the banks man na!
are mandated to gradate the response and also to classify people.
According to what criteria? So kanang kwartaha, dad-on na sa boss. Imong boss suguon ka adto
1. Background and source of funds; sa Mexico City from Chicago. Then as you pass through towns, you
2. Country of origin and residence of operations—country of buy money orders addressed to a bank sa Mexico City. So kadaghan
origin. Muingon kag, “Unsa man ni? Dili ba ni siya racial post office na maagian nimo. Kada town. Unya sige ka pamalit og
profiling?” Sa America ni, musinggit ang tao ani na racial money order. Hantod pag-abot nimo sa Mexico, wala nay nahibilin
profiling ni. Pero diri, dili ni. Bangko Sentral ni. nimong kwarta. Pag-abot didto, kay tigumon na sad na kay isa ra
3. Public or high-profile position of the customer or its man ka account ang gipadad-an, imo na sad ng ipadala sa imong
directors, trustees, stockholders or its officers or mafia boss sa Chicago. Limpyo na!
authorized signatories—high profile positions.
4. Lead? accounts—somebody who has multiple accounts; It’s clean money already. It has an origin, Mexico City. It has
5. Watchlist of individuals and entities engaged in illegal undergone cleansing. It has been laundered. Nahugasan na.
activities or terrorist-related activities as circularized by
Bangko Sentral and the Anti-Money Laundering Council, Anywhere in the world has anti-money laundering laws because it
and other international entities and organizations such as has been a conspiracy to stop illegal money. Part of the policy of
the Office of Foreign Assets Control, the US Department of accepting depositors is [to] not to facilitate money laundering. That
Treasury and United Nations sanction list; is why you must inquire as to the source of the money.
6. Business activities; and
7. Type of services or products to be entered with the covered You classify the applicant. Is he a politically-exposed person? Is he a
institutions. high-risk person? High-profile person. Si Willie Revillame muadto na
nimo, magdeposit ug kwarta. High-profile na siya. Multiple accounts
Background and source of funds. So, the banks now, kalimti na ng na. Examinon na nimo maayo because you are required to have due
mga panahon na pangutan-on ka na “Diin gikan ning kwarta?” “Buot diligence there. Kinsa man kalaban nimo kung pasagad lang ka ug
ka!” tubagon nimo. Tingali dili ka maka-open sa imong account. The accept niya? Kalaban nimo ang BIR! Kay kana si Willie Revillame
banks have to verify now. Background and source of funds. daghan na ug side shows. Naa mubayad ug cash niya unya diretso i-
Pangutan-on ka, “Diin man gikan ning kwartaha?” Tubag ka na gikan deposit. Suko na BIR ana kay wala na kabayad ug tax.
sa pikas bangko. Malipay na na sila kay nibalhin ka. Dili na ka
pangutan-on ug dugang pa. That is why you have to rank. Is he low, normal or high-risk? Sulod ka

BANKING PAGE || 91
nakabasketball jersey sa bangko. Magdeposito ka. Nagtsinelas unya into the operations and books of institutions and shall
pilit-pilit ang kwarta na daghan kaayo. Open siya ug account. include, but need not be limited to the following:
1. Determination of the bank’s solvency and
Banker: Diin man gikan ning kwarta? liquidity position;
Client: Sa akong negosyo. 2. Evaluation of asset quality, as well as
B: Unsa man negosyo nimo? determination of sufficiency of valuation reserves on
C: Sa pagpamukpok nako. loans and other risk assets;
B: Itom-itom. Dili ni sa pagpamanday. 3. Review of all aspects of VAT operations;
C: Mao ning kwarta sa pag-ihaw ni ug baka. 4. Assessment of risk management systems
including the evaluation of the effectiveness of bank
Unya naa man nahulog na papeleta dinha, daghan kaayo. Dili ka mu- management’s oversight functions, policies, procedures,
suspect ana? Kana imong papel-papel na ginagmay gani nga nay internal control and audit;
number o dili kaya record sa iyang gamay na notebook. Unsa man na 5. Appraisal of overall management profile; and
siya? Masiao usher. 6. Review of the compliance of the applicable
laws, rules and regulations and any other activities
Ayuha nimo pagpangutana. Kay ngano man? Because you are relevant to the account.”
apprised by the law that you should not deny access to financial
service to the socially disadvantaged. At the same time, you must That is the scope of the examination of a bank. You know, now they
prevent suspicious individuals or entities from opening an account. put it in terms of risk factor: financial risk, reputational risk,
management risk, and so on. They have put it in a risk-basis
The banks are considered first filter points for illegal funds, funds auditing. Mao na man nay gisunod sa Bangko Sentral—risk-basis
that are used in crimes or proceeds of crimes. That is anti-money auditing. Very exciting. Makapabuhi jud og dugo.
laundering. Mao na ron, the Bangko Sentral requires tellers to have
uniform seminars by accredited people who will give them seminars.
Because they have to comply with this. They accept money and
customers or depositors for and in behalf of the bank. So these rules January 21, 2016
are taught. These rules are called KYC rules. Know-your-client rules.
Those terminologies are used in the memoranda of the Bangko I have this news item: Congress moves forward on foreign ownership
Sentral. liberalization measures.
Now, not only are the opening of accounts with the bank are covered The PH senate has approved on third reading senate bill #3023, “An
by rules. The bank themselves, too, are examined to see whether they Act Amending the Foreign Ownership Restrictions on Financing and
are in compliance with the rules. That is why the Bangko Sentral, Lending Houses and Investment houses.” The bill lifts foreign
under the mandate of the Monetary Board, they are given the powers ownership restrictions on adjustments companies (known as
to examine and investigate. appraisers), lending companies, financing companies and investment
houses.
According to the General Banking Law, examination and investigation
of banks is a function of supervision. Supervision is to find out So, we already learned that foreign banks can buy up to 100 %
whether a person or entity is complying with the requirements of the universal bank or commercial bank or thrift bank even rural bank.
law. That is the function of supervision. Provided, if it is universal bank, it can only buy 1 bank. You cannot
“Supervision is an active power that includes the buy more than one. A Filipino controlling interest can only have 2, not
capacity to inquire into facts and conditions in order to more than 2 commercial banks. But now, it includes lending
render the power real and effective. Supervisors must companies, financing companies, investment houses, adjustment
have a means of validating supervisory information to companies.
fall sight investigations. These examinations provide the
invited supervisor with the means of clarifying or More or less, that completes the array of institutions under the
assisting a range of matters including the accuracy of supervision of the Bangko Sentral. Almost all of the institutions
reports received from the bank, the overall operations, under the supervision of the Bangko Sentral can now be owned by
and condition of the bank and the adequacy of foreigners.
accounting and managing of information systems,
issues identified in off-site or previous on-site Is it possible that all banks in the PH will be foreign owned? Possible.
supervisory processes. Each foreigner will own 1 bank? It’s possible. Will it hold the Filipinos
hostage? I don’t think so. All Congress has to do is to amend the
An examination requires full and comprehensive looking rules, All Filipinos. Wa may makapugos nila. Baligya unya sibat na

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sila diha. LIMIT mahimo na. Naa kay negosyo magtukod ka ug bangko aron di
naka mulinya kay ikaw man sad tag-iya sa bangko. E di ikaw
But banking is for business. And the business should be for long makahuwam kay ikaw may tag-iya sa bangko. Di na mahimo kay naa
term. may Single Borrower’s limit. That is how the Bangko Sentral prohibits
so-called in-house financing bank (erecting your own bank to answer
So, we have seen different kinds of banks under operations. I spent your own credit needs). You cannot do that because there is Single
time on that because it has been asked twice in the bar examination. Borrower’s limit.
What has not been asked is the question why is there no Catholic
bank when there is an Islamic bank? According to Section 35, the current limit is 20% of the net worth of
the bank concerned subject to possible increase by an additional
Whether you are an Islam, member of Islam faith, catholic faith, you 10% under certain conditions.
need credit. The catholic faith has no problem with loans of interest.
The Islam faith has a problem that is why the government seeks to SECTION 35. Limit on Loans, Credit Accommodations
address it by creating the Islamic bank such that under different and Guarantees.
formalities the credit needs are answered without violating their —
religious belief. In consonance with their religious belief. That is what 35.1. Except as the Monetary Board may otherwise
the Islamic bank does. prescribe for reasons of national interest, the total
amount of loans, credit accommodations and
POLICY RATIO CEILINGS guarantees as may be defined by the Monetary Board
that may be extended by a bank to any person,
One important ratio or ceiling is what I told you, the Single Borrower’s partnership, association, corporation or other entity
limit that is section 35. shall at no time exceed twenty percent (20%) of the net
worth of such bank. The basis for determining
What does Single Borrower’s limit tell you? compliance with single-borrower limit is the total credit
A bank cannot lend all its loanable funds to just one borrower, commitment of the bank to the borrower.
whether it is a natural person or a corporation. The bank cannot do
that because there is a Single Borrower’s limit. What is the xxx
presumption/assumption, behind the singles borrowers limit?
The assumption is that just like in any business, you do not put all That is section 35. 1 says.
your eggs in one basket. Because if something goes wrong with the
basket, all your assets go. And yet there are contrarians in business Now, Section 35.2 says:
who do exactly the opposite. They concentrate on one product and
they improve it so that no one can compete against them. xxx
35.2. Unless the Monetary Board prescribes otherwise,
Do you know of any such business applied venture? Usa ra jud and the total amount of loans, credit accommodations and
they'd concentrate on it. Wa nay magkalupig nila kay giayo gyud nila guarantees prescribed in the preceding paragraph may
ug maayo ilang produkto kana lang ilang gibuhat, wana silay lain. be increased by an additional ten percent (10%) of the
Naa moy nailhan? Opposite ba anang the common wisdom of a net worth of such bank provided the additional liabilities
business is imong iseparate kay kung mapildi ang usa, naa pay uban. of any borrower are adequately secured by trust
Common sense man na. [Segue: Who has heard of Akerlund and receipts, shipping documents, warehouse receipts or
Rausing? They are the inventors of tetra pack. Mga juice, gatas, that other similar documents transferring or securing title
is the package company that produces in Japan, Asia, America. covering readily marketable, non-perishable goods
Those two are PHDs in chemistry they invented tetra pack. And then which must be fully covered by insurance.
before they launched it, they opened, they went into debt put(?)
capacity so that they could supply, no one can come in. 1960s up to 35.3. The above prescribed ceilings shall include:
now. Now they are beginning to put all their defenses because of the (a) the direct liability of the maker or acceptor of paper
whole movement from being biodegradable. They have a problem of discounted with or sold to such bank and the liability of
the biodegradability of their packaging.] a general indorser, drawer or guarantor who obtains a
loan or other credit accommodation from or discounts
So, the SINGLE BORROWER’S LIMIT tells you that a bank has to have paper with or sells papers to such bank;
more than one borrower. This ceiling indirectly tells you that a (b) in the case of an individual who owns or controls a
conglomerate controlling shareholder cannot put up a bank in order majority interest in a corporation, partnership,
just to finance himself. Because if there is no SINGLE BORROWER’S association or any other entity, the liabilities of said

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entities to such bank; of a single entity.

(c) in the case of a corporation, all liabilities to such 35.5. For purposes of this Section, loans, other credit
bank of all subsidiaries in which such corporation owns accommodations and guarantees shall
or controls a majority interest; and exclude:
(d) in the case of a partnership, association or other
entity, the liabilities of the members thereof to such (a) loans and other credit accommodations secured by
bank. obligations of the Bangko Sentral or
xxx of the Philippine Government; (b) loans and other credit
accommodations fully guaranteed by the
So very comprehensive. If you are a corporation, included in the government as to the payment of principal and interest; (c)
determination of your Single Borrower’s limit of 20% of the net worth loans and other credit accommodations
of the bank is not only your direct loan. If you guaranteed somebody covered by assignment of deposits maintained in the lending
else’s loan, then that is included as also a loan. If you have a bank and held in the Philippines; (d)
subsidiary corporation and that subsidiary is owned by you loans, credit accommodations and acceptances under
(corporation), majority 50 +1, its borrowings is included in the 20% letters of credit to the extent covered by
Single Borrower’s limit of the net worth of the bank. So very margin deposits; and (e) other loans or credit
comprehensive. Dili ka makapasikot-sikot ana. You cannot. accommodations which the Monetary Board may from
time to time, specify as non-risk items.
You are an individual, nihuwam ka sa bangko. Ang imong inahan
nihuwam sad. Unya ang imong inahan kay 85 year old naman murag 35.6. Loans and other credit accommodations, deposits
nanimaho na ug yuta. Ingnon ka sa bangko , “Co-maker ka.” Apil na maintained with, and usual guarantees by
sa pagkwenta sa over all 20% of the net worth of the bank. Dili lang a bank to any other bank or non-bank entity, whether locally
katong imong loan. or abroad, shall be subject to
the limits as herein prescribed.
So, you can see how the list is very long. The coverage of the
determination. So what do corporations do to maximize their 35.7. Certain types of contingent accounts of borrowers may
borrowing capacity from the bank? That is why many of them are be included among those subject to
forced to borrow through a bond. Because there is such limit if it is a these prescribed limits as may be determined by the
bond. They make the bank the trustee of the bond and the bank Monetary Board. (23a)
floats the bond, and it is the public who buys the bond. The public
who buys the bond is the public that lends the issuer the money
corresponding to the amount of the bond. The bank is only a trustee What are the restrictions on Bank Exposure to Directors, Officers,
that holds the collateral from the bond. There is no limit to the Stockholders and Their Related Interests? That is found in Section
amount. There is no 20% limit of the net worth of the bank. 36.
xxx SECTION 36. Restriction on Bank Exposure to Directors,

Officers, Stockholders and Their Related Interests. — No
35.4. Even if a parent corporation, partnership, association, director or officer of any bank shall, directly or indirectly, for
entity or an individual who owns or himself or as the representative or agent of others, borrow
controls a majority interest in such entities has no liability to from such bank nor shall he become a guarantor, indorser or
the bank, the Monetary Board surety for loans from such bank to others, or in any manner
may prescribe the combination of the liabilities of subsidiary be an obligor or incur any contractual liability to the bank
corporations or members of the except excluding the director concerned: Provided, That such
partnership, association, entity or such individual under written approval shall not be required for loans, other credit
certain circumstances, including but accommodations and advances granted to officers under a
not limited to any of the following situations: (a) the parent fringe benefit plan approved by the Bangko Sentral. The
corporation, partnership, required approval shall be entered upon the records of the
association, entity or individual guarantees the repayment of bank and a copy of such entry shall be transmitted forthwith
the liabilities; (b) the liabilities to the appropriate supervising and examining department of
were incurred for the accommodation of the parent the Bangko Sentral.
corporation or another subsidiary or of
the partnership or association or entity or such individual; or RESTRICTIONS:
(c) the subsidiaries though
separate entities operate merely as departments or divisions 1. With the written approval of the majority of all the

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directors of the banks, excluding the director concerned. requirement. Tungod kay director siya wa na diay interest, or the
terms of the bank pay when able. [Segue: Pareha na sa utang nimo
You know, the bank normally has a protocol for the approval of loans. sa imong inahan pay when able. Dili na. That is not an arm lengths
Certain amounts only the executive committee may approve the loan. transaction, that is a transaction of the heart (<3). Mangutang kasa
I-release na na. Higher than that amount, it will have to be the BOD. If mong gf, pay when able man na.]
it is the Director who borrows and the amount is within the executive
committee to approve, it must still be approved by the BOD. 5.
xxx
Majority of all the directors of the bank the outstanding loans, credit accommodations and
guarantees which a bank may extend to each of its
What is that majority? Majority of the quorum? Absolute majority. All stockholders, directors, or officers and their related
the members of the director. Kung 11 ang directors kinahanglan 6 interests, shall be limited to an amount equivalent to
ang muboto. Way labot ang director nga mihuwam. Let us say, unom their respective unencumbered deposits and book value
ra ang present unya apil pa jud didto ang director nga mihuram. Dili of their paid-in capital contribution in the bank.
siya kavote bisan quorum pa. The vote of the borrowing director xxx
must not be included in the quorum and in the vote of approval. Must
be at least 7 present kay way labot ang director nga nihuwam. So, this is another ceiling. Dili mulabaw sa iyang stockholdings kung
stockholder siya, OR Unencumbered deposits, if he has deposits in
xxx excluding the director concerned: Provided, That such the bank. It will not exceed. Even if it is lower than the SINGLE
written approval shall not be required for loans, other BORROWER’S LIMIT. Sa ato pa, duha na man ni ka limit na atong gi-
credit accommodations and advances granted to officers kuan.
under a fringe benefit plan approved by the Bangko
Sentral. xxx SINGLE BORROWER’S LIMIT is 20% of the net worth of the bank you
cannot lend to anybody. If you are the DOSRI you cannot borrow
Fringe Benefit Plan: Let us say all officers of the bank as part of their more than the deposits that you have and or market value of your
compensation package have a housing privilege loan not to exceed shares of stocks with the bank. K intahay Mas mubo ni kaysa SINGLE
300K. They can now borrow. Bisan naa na silay house ila diay BORROWER’S LIMIT. Which will prevail? Single Borrower’s limit? NO.
iextend ilang balay. That is not included as DOSRI loans because it is It will be this limit—the limit of you deposits and or your book value
a form of benefit granted to all the officers of the bank that is what of your paid in capital of contribution to the bank. That is one last
the law says. requirement with respect to DOSRI.
2. Second requirement:
xxx
xxx The required approval shall be entered upon the
records of the bank. After due notice to the board of directors of the bank, the
office of any bank director or officer who violates the
3. provisions of this Section may be declared vacant and the
director or officer shall be subject to the penal provisions of
xxx and a copy of such entry shall be transmitted the New Central Bank Act.
forthwith to the appropriate supervising and examining
department of the Bangko Sentral. xxx The Monetary Board may regulate the amount of loans,
credit accommodations and guarantees that may be
The loan must be recorded and that record is immediately extended, directly or indirectly, by a bank to its directors,
transmitted to the examining division of Bangko Sentral. officers, stockholders and their related interests, as well as
investments of such bank in enterprises owned or controlled
4. by said directors, officers, stockholders and their related
xxx interests. However, the outstanding loans, credit
Dealings of a bank with any of its directors, officers or accommodations and guarantees which a bank may extend
stockholders and their related interests shall be upon to each of its stockholders, directors, or officers and their
terms not less favorable to the bank than those offered related interests, shall be limited to an amount equivalent to
to others. their respective unencumbered deposits and book value of
xxx their paid-in capital contribution in the bank: Provided,
however, That loans, credit accommodations and guarantees
What is this requirement called? This is called the ARMS-LENGTH secured by assets considered as non-risk by the Monetary

BANKING PAGE || 95
Board shall be excluded from such limit: Provided, further, seventy-five percent (75%) of the appraised value of the
That loans, credit accommodations and advances to officers security, and such loans and other credit accommodations
in the form of fringe benefits granted in accordance with may be made to the title-holder of the chattels and
rules as may be prescribed by the Monetary Board shall not intangible properties or his assignees. (78a)
be subject to the individual limit.
75% of intangibles. Kinsa magbuot anang 75%? Appraisers. 75% of
The Monetary Board shall define the term "related interests." the appraised value.
The limit on loans, credit accommodations and guarantees Mangutang ang coca-cola unya kay ilang i-collateral ang patent nila
prescribed herein shall not apply to loans, credit sa coca-cola. Kinsa man mu-appraise ana? Because Coca-cola is
accommodations and guarantees extended by a cooperative everywhere—it is in Russia, US, PH. Unsa may value ana? Di man na
bank to its cooperative shareholders. (83a) maingon nimo nga ang patent nako sa PH lang mao na akong i-
collateral. Dili man. A patent is an indivisible property. There is no
appraiser in the PH who is qualified. Mao gani kung muingon ka nga
And REMEMBER ha, you waive your secrecy of bank deposits. You mu-file sya for patent and kung ang appraiseer niya kay Local, I
allow your deposits to be monitored by the monetary board. doubt it! She is not qualified!
LIMITS Now, Section 39:

SECTION 39. Grant and Purpose of Loans and Other
What is your limit? Your collateral is your real estate. What are the Credit Accommodations.— A bank shall grant loans and
limits with respect to real estate and your collateral is the real other credit accommodations only in amounts and for
estate? Section 37: the periods of time essential for the effective completion
of the operations to be financed. Such grant of loans
SECTION 37. Loans and Other Credit Accommodations and other credit accommodations shall be consistent
Against Real Estate. — Except as the Monetary Board may with safe and sound banking practices. (75a)
otherwise prescribe, loans and other credit accommodations
against real estate shall not exceed seventy-five percent The purpose of all loans and other credit
(75%) of the appraised value of the respective real estate accommodations shall be stated in the application and
security, plus sixty percent (60%) of the appraised value of in the contract between the bank and the borrower. If
the insured improvements, and such loans may be made to the bank finds that the proceeds of the loan or other
the owner of the real estate or to his assignees. (78a) credit accommodation have been employed, without its
approval, for purposes other than those agreed upon
Balikon nako ha. 75% of the appraised value of the real estate with the bank, it shall have the right to terminate the
security + 60% of the appraised value of the insured improvements. loan or other credit accommodation and demand
immediate repayment of the obligation. (77)
Ang yuta 75% ang giconstruct nimo nga building 60%. Ang koral
walay labot kay wa may market value ang stone fence nimo or So, a borrower does not have the luxury to change the purpose of the
barbed wire. Muingon kag, “naa man nay value. Dili man ka loan. Sometimes you have a general credit line. But you still have to
makatukod ana kay naa man nay fee og permit.” Not included! Pero include a purpose.
ang building, 60%. Ang yuta kay 75%.
For instance, you have a credit line for working capital. That means, it
Take note of that because that is the highest percentage of loanable is to be used in an existing business. You might buy more materials.
collateral. Basta naay commercial value. Residential gani lain ang You might hire more marketing people etc. You can vary it within the
value. purpose for working capital. But you cannot borrow for working
capital to construct the building. That is a violation of the purpose.
Now, let us go to loans and other credit accomodations of Security of And the bank can demand immediate pre-payment for violation of
chattels and intangiible properties. Unsa man ng chattel? Kotse, the terms of the contract. Bag-o ni nga gipang-add. Kay ngano man?
motor. Intangible properties? Patents, trademarks. This is to make sure that there is no laundering of money. You do not
SECTION 38. Loans and Other Credit Accommodations on use this to launder money.
Security of Chattels and Intangible Properties. — Except as
the Monetary Board may otherwise prescribe, loans and Again, the bank cannot lend without security. There must be
other credit accommodations on security of chattels and collateral.
intangible properties, such as, but not limited to, patents,
trademarks, trade names, and copyrights shall not exceed SECTION 40. Requirement for Grant of Loans or Other

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Credit Accommodations.— Before granting a loan or

other credit accommodation, a bank must ascertain that So, the bank cannot prevent you from pre-payment of the loan even if
the debtor is capable of fulfilling his commitments to there is no such agreement at the inception of the loan. It is better to
the bank. agree as to the fee that is to be paid in case you are capable of pre-
payment.
Toward this end, a bank may demand from its credit
applicants a statement of their assets and liabilities and Let us say, 5 year loan. Sa ika-duha ka tuig, you have enough pay.
of their income and expenditures and such information You go to the bank and I say “I will pay the balance of my loan ahead
as may be prescribed by law or by rules and regulations of time”. Then the bank will ask for a fee. They call it pre-payment
of Monetary Board to enable the bank to properly penalty. Pero the rules say fee dili penalty. Mura kag gikastigo kay
evaluate the credit application which includes the muingon ang bangko nga, “Nangong nibayad ka ug sayo . Mawad-an
corresponding financial statements submitted for mig interest ana.” That is the term that banks use but actually the
taxation purposes to the Bureau of Internal Revenue. rule say it is just fee and the fee must be reasonable such that it will
Should such statements prove to be false or incorrect in discourage you from pre-payment of the loan. All the bank has to do
any material detail, the bank may terminate any loan or is to exact a pre-payment fee subject to such reasonable terms and
other credit accommodation granted on the basis of conditions as may be agreed upon between the bank and its
said statements and shall have the right to demand borrower.
immediate repayment or liquidation of the obligation.
Daghan kaayog ang mga ignorante nga di pa ta mubayad kay di man
In formulating rules and regulations under this Section, ta pabayron. Makalolooy. The bank cannot do that. They cannot
the Monetary Board shall recognize the peculiar prevent you from pre-payment of a loan. [Segue: Ateneo, when
characteristics of microfinancing, such as cash flow- Finster hall was constructed pay a front fee for prepayment. It is
based lending to the basic sectors that are not covered cheaper to agree from the start. If later on when you want to pay
by traditional collateral. (76a) prepayment, adto ka pa magsige haggle pila imong bayran. Agree
right from the start as to how much is the prepayment fee.]
Microfinancing—this is the only exception that you can lend out
without collateral. If you are engage in the approved program of the
Bangko Sentral in micro financing. Small amounts lend to
supplement income generating activities, usually to groups, cells of January 27, 2016
women. Women are preferred borrowers/beneficiaries of
microfinancing. Pahuwamon nimo aron makapalit ug baka. Unsa [Segue: Fr Gus - Article from New York Times, someone who believes
man ning baka? Aron buhaton niya ug gatasan. Lima sila kabuok, that the same malady before the financial crisis of 2008 still
unya kada usa nila magpalit ug baka. Magtinabangay sila lima continues to exist. What is that malady? That is the malady knows as
kabuok pero wala silay collateral. Di man na pareho sa kotse. Wa na “too big to fail” banks. So big that he cannot allow it to fail because it
silay chattel. Silay magtinabangay. DIli gani na kabayad ang usa, will bring down too many industries, too many businesses and of
tawgon sa bangko sila lima. Pangutan-on mo nga “Nganong wala course too many people with it.]
man mo kabayad? Kaybaw ba mo nga wa sya kabayad?” It operates
according to cells. Why use a cells/groupings? To help each other. So now the battle cry is do not make the banks too big. How do you
Peer pressure. Tabangan nimo siya. Iya ganing gastuhon ug lain ang keep banks from being too big?
halin sa gatas sa baka, xxx . That’s the whole point because that is
the strength of the borrowing scheme. It is not the Collateral. It is the Let us go on to the rule on real estate. What is the rule with respect to
united efforts of the cell to repay the loan. That is the strength of how much land a bank can hold or own? Rule numbers BF Homes. Its
microfinancing. own body is Aguirre’s but it is allied with Banco Filipino. That’s why it
is called BF Homes. Lands that are foreclosed by the bank, they are
Now, can the bank stop a creditor from paying the loan earlier than auctioned and it’s the majority owner that won the foreclosed
the term? That is called prepayment of a loan. Section 45: collaterals. The assets are foreclosed. That’s why it is called BF
Homes because it came from BF Homes.
SECTION 45. Prepayment of Loans and Other Credit
Accommodations. Like for instance, unbeknownst to many, the Tuazons begun to own
— A borrower may at any time prior to the agreed maturity lands here in Mindanao because they had a bank. And the bank is
date prepay, in whole or in part, the unpaid balance of any called Commercial Bank and Trust Company (CBTC). Di namo kaila
bank loan and other credit accommodation, subject to such sa bangkoha na na no? It was bought by BPI. Now, Hijo's Plantation
reasonable terms and conditions as may be agreed upon used to be owned by International Harvester – an American
between the bank and its borrower. (80a) corporation. American corporations, because of the Parity provision

BANKING PAGE || 97
in our Constitution, had the same rights as Filipino businessmen. however, That the total investment in such real estate
They could own real property until 50 years of the duration of that and improvements thereof including bank equipment,
Constitutional privilege elapsed. They were developing Hijo shall not exceed fifty percent (50%) of combined capital
Plantation. [Segue: What was originally planted there? Abaca was the accounts: Provided, further, That the equity investment
original plant. It was an attempt to the Americans to compete with of a bank in another corporation engaged primarily in
the Japanese (Japanese were planting abaca) eventually both of the real estate shall be considered as part of the bank's total
lost. Why? Because abaca cannot be like bananas—a monoculture. investment in real estate, unless otherwise provided by
You cannot plant it in vast numbers all along by itself. There is a the Monetary Board. (25a)
certain blight(?) in abaca that attacks it and then everything dies.]
So, you know that a universal bank can enter into a business that is
[Segue continues: The Philippines had an interest because Manila not allied (with banking.) If a bank invests in a real property company,
Hemp was the rope of all ships prior to World War II and because that investment is counted as real estate held by the bank. Combine
abaca became _ trouble, the Philippines cannot supply hemp all the real estate of the bank – its biddings and lands, its foreclosed
anymore. And that is why the synthetic rope was developed. That is collateral (Naa silay collateral na naforeclosed. Gikuptan na na nila
the plant of Hijo Plantation. And when the blight(?) started to hit na wala pa nila gisubasta. Mao nang ginatawag na REPOA/ROPOA?
abaca, Hijo started to lose money until finally they could not pay their – Repossessed Real Property), that is also part of their investment in
debt with CBTC. CBTC foreclosed on the farm itself, Hijo Plantation. property. It must not be more than 50% of the bank’s combined
Nobody bidded for it because it was considered in the hinterlands. capital accounts.
Now, the majority owner of CBTC decided since there is very low What are the combined capital accounts? Common stock, preferred
dividend for it, he will therefore bid for it. So he won. When he won, stock, unrestricted retained earnings, premium on stock – those are
he said I need sum a little to run in this condition. So the VP of CBTC all capital accounts. Where are capital accounts found? Capital
Jesus de Ayala. He says “Can you set up a business there? Just for accounts are found in the BALANCE SHEET. Pangitaon na nimo sa
one year and set up a business—bananas—and then you can come balance sheet. Naa na sa katapusan sa balance sheet. Adding all
back here.” So, the bank from real property was able to enter into that, the 50% of that is the limit that the real estate that the bank
agriculture. The controlling interest is the bank because there were holds.
no bidders and he bidded and the bid could have been acceptable
because it made also *inaudible voice*. You can notice the corporate But is that the total exposure of the bank in real estate?
structure. The controlling interest of the bank has the control to
whom the bid will be awarded and the bidder was also the one who _ Example: Let us say, Henry Sy – BDO. BDO has very big real property.
bid because it was the Tuazons the same controlling owner as CBTC So its controlling interest of BDO is involved in real estate. Let us say,
and that is how Ayala came over here and he started managing Hijo.] mangutang sad silag DOSRI from BDO real property. Primero, ang
collateral nila is raw land. Wa pay development dinha. But then let us
Is it good for a bank to go on to real estate? Certainly, the banking say, they have a land worth 20 million for a 200 million project. The
business does not include real estate except indirectly. Because the first collateral they submit to BDO is a 20 million piece of land and
mandate of the bank is to do bank lend unless there is collateral. they can put it by way of deed of sale covering the land. They borrow
200 million to bid for that land. Now, the collateral is commensurate
Now, the most common collateral is land. Because it is secured than with the amount of money borrowed. Why? Because the land which is
real property. Land and real property are not synonymous. Land is 20 million, on it is constructed 200 million worth of improvements
the basis of real property. And land maybe in earthquake, floods, fire, and so it is now 220 million enough to secure a 200 million loan.
it will remain. But the improvement on land, which is also classified
as real property, maybe lost but not the land itself. But suppose, what they build is a residential condominium project.
Muingon kag ang ilahang investment – the land – the real estate
Question: How much land can a bank own? Kung ikaw pareha kang company is counted as part of their holdings of real estate which
Henry Sy na naa sa real estate unya naa sad sa banking, mahimo na must not exceed 50% of their combined capital accounts. But as they
magpapildi ka sa banking pero muganar ka sa land. Bati ang mga are constructing this condominium, it is to their interest that the
loans na imong gipanghatag basta gwapo nang land dinha ang condominium unit is bought. Ang tanan dinha na mupalit, gamay
location unya dili ka makabayad sa loan imong iforeclose ikaw sad lang dinha ang cash na bayran tanan. Mangutang man na sila. Asa
ang mu-bid. Makuha na nimo ang tanang land. Mahimo ba na sila mangutang? Ila silang itunol diri sa BDO. Mingon na na “Adto kag
ing.ana? How much land can a bank own? That is answered by process didto sa BDO. Ang bayran nimo installment ang BDO. Ang
Section 51 of the General Banking Law: BDO ang mubayad sa SMDC.” Now, unsa may collateral? Ang
Section 51. Ceiling on Investments in Certain Assets. - collateral ang condominium unit nasad which is valuated at the
Any bank may acquire real estate as shall be necessary amount of the take out loan. Is that counted as exposure to real
for its own use in the conduct of its business: Provided, property 50% that must not be exceeded to their capital accounts?

BANKING PAGE || 98
That it not yet counted. Wala pa man na-foreclose. Any real property acquired or held under the circumstances
enumerated in the above paragraph shall be disposed of by
So, what is counted as part of real estate that the bank holds is the the bank within a period of five (5) years or as may be
Land, buildings and/or equipment that the company owns for its own prescribed by the Monetary Board: Provided, however, That
use. [Also] the lands that have been repossessed because the loan the bank may, after said period, continue to hold the
has been foreclosed. [Another is] the amount of money that is in a property for its own use, subject to the limitations of the
real property corporation that the bank invests in that venture. That preceding Section (Section 51). (25a)
is included in the counting of real property. BUT, as I've already told
you, a bank can be more exposed to real property than the reckoning
So, you can exceed the limitation provided it is foreclosure and
of Section 51.
provided you do not exceed the holding of the real property for 5
years. That is true for ordinary banks and that is true for wholly-
owned foreign banks.
Now, here is another collateral issue with respect to the amount to
real property that a bank can hold. What is that?
Now, what are the services that a commercial bank can perform?
Section 29, these are the powers of the commercial bank aisde from
You know very well that foreign interests ownership can be 100% of a
taking deposits from the public and lending the same to third party
bank now. Provided, that the foreign interest can only own one (1)
borrowers:
bank.
Section 29. Powers of a Commercial Bank. - A commercial
bank shall have, in addition to the general powers incident
Now, let us assume that it is just doing banking business. So it is not
to corporations, all such powers as may be necessary to
purchasing real property because they don’t want to contravene the
carry on the business of commercial banking such as
Constitution which requires 60% Filipino ownership and 40%
accepting drafts and issuing letters of credit; discounting
maximum ownership). This foreign interest has already bought 100%
and negotiating promissory notes, drafts, bills of exchange,
of the bank, but they do not have any lands. What happens if they
and other evidences of debt; accepting or creating demand
foreclose on a non-performing loan and they execute a public sale on
deposits; receiving other types of deposits and deposit
the collateral (which is right!) and there is no bidder in the execution?
substitutes; buying and selling foreign exchange and gold
What happens? The bank itself becomes a default bidder. And this
or silver bullion; acquiring marketable bonds and other debt
100% foreign ownership bank being the purchaser of a foreclosed
securities; and extending credit, subject to such rules as the
property, such that is it now in violation of the Constitution? And the
Monetary Board may promulgate. These rules may include
answer is YES. That is explicit in the law.
the determination of bonds and other debt securities
eligible for investment, the maturities and aggregate
The law says that 100% foreign ownership banks cannot purchase
amount of such investment.
foreclosed collateral lands and hold it. They can hold it. How come
they can hold? The same requirement of limitation as other banks
First: Accepting drafts and issuing letters of credit – That is really
because banks can exceed 50% of combined capital assets of their
part and parcel of the commercial banking.
holdings of land provided it is foreclosed land. If it is bought at public
auction (foreclosed). Even if they exceed, they can hold it for as long
Second: DISCOUNTING and negotiating promissory notes, drafts,
as 5 years, within which they must dispose of the real property. That
bills of exchange and other evidences of indebtedness.
is what Section 52 [provides].
So discounting. Eg. Naa kay note na naay bayrunon nimo si Mr. A,
Section 52. Acquisition of Real Estate by Way of
Kung sa ato pay ikaw ang creditor. Di naka makahulat ingana na mga
Satisfaction of Claims. - Notwithstanding the limitations of
panahuna. It’s one year na. It’s a million pesos bayrunon niya nimo.
the preceding Section (Section 51), a bank may acquire,
Pero ang imong gihatag niya (Mr. A) P800,000 lang. Pagmature na 1
hold or convey real property under the following
year from now ang imong kuhaon niya 1 million. Sa ato pa, deducted
circumstances:
na daan ang interest.
52.1. Such as shall be mortgaged to it in good faith by way
of security for debts; [Segue: Pila ang interest rate? Ayaw ingna na 20% ha because that is
not the interest rate. What is the interest rate? Because that is
52.2. Such as shall be conveyed to it in satisfaction of debts
already deducted before it is issued. That’s why 200 divided by 800
previously contracted in the course of its dealings, or
– that is the effective interest rate.]
52.3. Such as it shall purchase at sales under judgments,
decrees, mortgages, or trust deeds held by it and such as it Now, you have that loan. Gusto ka na cash. You go to the bank and
shall purchase to secure debts due it. you discount it. Muingon ang bangko na “Nanginahanglan man kaha
ka. Pila na kabulan…” So, tagaan ka nila 700,000 for the note. Pila

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kubrahon sa bangko ani at the end of the year? 1 million. 1 million as are not incompatible with banking business;
man na ang face value sa note. That is REDISCOUNTING. That is one
53.4 Upon prior approval of the Monetary Board, act as
of the things a commercial bank can do.
managing agent, adviser, consultant or administrator of
investment management/advisory/consultancy accounts;
Now, the banks also will go to the Bangko Sentral holding that note
and
and further rediscount it with the BSP. You can do that.
53.5. Rent out safety deposit boxes.
What else can the commercial bank do?
The bank shall perform the services permitted under
Third: ACCEPTING or CREATING BANK DEPOSITS. We have explained Subsections 53.1, 53.2,53.3 and 53.4 as depositary or as an
this already – checking accounts, demand deposits. agent. Accordingly, it shall keep the funds, securities and
other effects which it receives duly separate from the bank's
Fourth: Receiving other types of deposits and deposit substitutes – own assets and liabilities: The Monetary Board may regulate
accepting scheduled payables, accepting other kinds of deposits and the operations authorized by this Section in order to ensure
placements. that such operations do not endanger the interests of the
depositors and other creditors of the bank. In case a bank or
Fifth: “buying and selling foreign exchange and gold or silver bullion” quasi-bark notifies the Bangko Sentral or publicly
– When a bank exchanges your dollar with pesos, it is actually buying announces a bank holiday, or in any manner suspends the
foreign exchange. Now, if it can hold it longer because let us say the payment of its deposit liabilities continuously for more than
US dollar—and the US dollar is strengthening—it will stop to gain and thirty (30) days, the Monetary Board may summarily and
disposes the foreign exchange they can hold the dollars longer. without need for prior hearing close such banking institution
Foreign exchange can be like a group that you can also sell, it has its and place it under receivership of the Philippine Deposit
cost/ price. Insurance Corporation. (72a)
FIRST:
Sixth: Acquiring marketable bonds and other debt securities – A [53.1] Receive in custody funds, documents and valuable objects –
commercial bank can participate in acquiring debt securities of the The bank can be a custodian. An escrow agent. Upon the happening
government. The government bids out treasury bills and the bank can of the condition, it will turn over this documents to the rightful
bid. It is buying the debt of the government. What is the incentive of claimant.
commercial bank by buying the debt? The treasure bills are counted
as equivalent to cash which the bank is mandated to maintain a Eg. You are buyer of a land and the seller says “Sige musugot kog
portion of its deposit liabilities. So that is one of the ways of which partial payment pero ang titulo kay dili nako ihatag nimo. Mudagan
the bank can acquire debt securities or marketable bonds. It can buy pa lang ka unya di ka mubayad. I not give the certified duplicate copy
the bonds of San Miguel. of the title until you will finish paying the value of the land.” The
seller will let the bank hold the title until the buyer can pay the
Seventh: Extending credit, subject to the rules that the Monetary amount. Naay third party—ang bank. If the buyer delays the payment
Board may promulgate – It can extend credit. It can give a credit line of the amount, the bank will compute for the interest. Pagbayad
to a particular business man. And the businessman can exhaust the nimo, buhian na sa bangko ang titulo. That is an escrow agreement.
entire credit line or just a portion of it at a pre-agreed interest rates.
SECOND:
Now, other services that the Bank can perform in addition to those [53.2] Act as financial agent and buy and sell, by order of and for the
acts in Section 21 which is a commercial bank proper functions. This account of their customers, shares, evidences of indebtedness and
is kind of in excess of commercial banking functions: (Under Section all types of securities – Unsa may example ani? Eg. IPO price of
53) Double Dragon Corporation. [Segue: What is Double Dragon
Section 53. Other Banking Services. - In addition to the Corporation? That is the former owner of Mang Inasal and one of the
operations specifically authorized in this Act, a bank may children of Henry Sy and Daughter/son of Unilab. And they are
perform the following services: putting up Small malls. Hapit na sila mutukod diri sa Davao and it
53.1. Receive in custody funds, documents and valuable seems to be clicking.] Kung IPO sila, adto ka mubayad sa bangko.
objects; Mupirma ka. Kung gusto kag certificate of stock, didto ka sa bangko.
53.2. Act as financial agent and buy and sell, by order of and The bank is the financial agent, buy and sell for the account of others
for the account of their customers, shares, evidences of —shares, evidences of indebtedness if it is a promissory note.
indebtedness and all types of securities; Remember, notes in usual parlance now matures in less than 1 year.
Lampas na ingana – bonds.
53.3. Make collections and payments for the account of
others and perform such other services for their customers

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THIRD: because she wears a much shorter skirt and a more plunging
[53.3.] Make collections and payments for the account of others and neckline. She actually has no business there. Her business is to
perform such other services for their customers as are not attract people to get insurance in AXA Insurance, which is also
incompatible with banking business – The banks can make controlled by George Ty of Metrobank.
collections and payments for the account of others and perform
other services for their customers as are not incoompatible with The same is true with BDO. There is also a separate desk and it’s an
banking business. Collections – Davao Light, bayad naka didto sa insurance company controlled by the Sy’s. If you also go to BPI, the
bangko. Tubig, elektrisidad, hatagan nimo sila listahan sa imong same. Pareho!
bayranan. They can do it for you for a fee.
Universal banks. They are not allowed to engage in an insurance
FOURTH:
business but they can INVEST in an insurance company.
[53.4] Upon prior approval of the Monetary Board, act as managing
agent, adviser, consultant or administrator of investment
Why was it prohibited before? Because of the potential for conflict of
management or advisory or consultancy accounts – This is a little bit
interest.
more complicated. They will engineer their source in the banks.
Mao ni ang bangko. Mupahuwan siya sa imuha ug housing loan. So
FIFTH (and finally):
naa nakay balay kay gipahuwam man ka niya. Necessarily, part and
[53.5.] Rent out safety deposit boxes – How does it operate, the
parcel of a loan, is a subsidiary contract of insurance. Who gets the
Safety deposit boxes? Matod pa nila, kung naa kay safety deposit box
insurance? The borrower purchases insurance. They contract this
– 1 year ang bayad. You have a key, they also have a key. If you want
insurance company. Why? Because if the house burns, that is the
to open your safety deposit box, you report to the officer that you are
collateral of the loan from the bank. To safeguard the interest of the
going to open your box. Then, they will log what time/date you
bank. What happens? SUBROGATION.
opened the box. They will accompany you to your safety deposit box.
Your key and the bank’s key will be inserted into the keyhole then
Kanang insurance paying ban na niining magtiayon na mawad-an ka
twist, open! If there is only 1 key, the safety deposit box cannot be
ug balay? Payong ba na nila? DILI! Payong na sa nagpahulam. Why?
opened. After opening, the bank officer will leave you. If you are done,
Kay pagkasunog ana, the bank is subrogated into the interest of the
you can lock it with one key but you cannot open it with just one key.
one who bought the insurance. He collects to the extent of his loss.
When you step outside, the bank officer will call you again and will let
Whatever remains, anha pa na muadto nimo. The larger your equity in
you sign for tracing. (Translated)
the bank, the greater your potential to collect substantially from the
insurance. But if the insurance is young (?) as the loan and the fire
[Segue: Remember that a safety deposit box is certified as really happened at the same time, wala pa kay nabutang dinha na
fireproof. Mao nay tinuod nga fireproof nga safety deposit box. pambayad, almost entirely, it is the bank who collects from the
Mupalit gani kag mga Mosler Safety deposit box, ayaw na! Kay ako, I proceeds of the insurance. Do you see the conflict?
lost my pants there. (Stories about Father’s burned pants in relation
to “fireproof”.)] Suppose, you cancel this (insurance company) and it is also the bank
that insures, what happens? In the first place, in the determination of
the premium of the insurance, he has to determine this: Kinsa man
January 28, 2016 akong padag-on? Insurance company (kay ako man sad na) O ako ba
na bangko na nagpahulam ug kwarta?
Let us continue with our discussion of the General banking Law of
2000. Kung mahalon nako ang insurance, kinsa may malipay? ANG
INSURANCE. Kining bangko, dili malipay. Kay ang mga tao muhulam,
Can a bank engage in an insurance business? Under Section 54, the “Uy! Mahala sa insurance uy. Di ta muhulam dinha!” Mangadto ug
bank cannot directly engage in the insurance business. But if it is a laing bangko. Kung baratuhon niyag maayo ang insurance, mas
universal bank, it can invest in the equity of an insurance company. mudaghan ang loan. Kinsa may mudaog? ANG BANGKO kay daghan
Section 54. Prohibition to Act as Insurer. - A bank shall not mag loans sa bangko. Pero ang insurance, the moment that there is
directly engage in insurance business as the insurer. (73) this contingency that occurs, it loses.
So if you go into Metrobank, there is a desk in every branch where The question of premiums in insurance is ACTUARIALLY determined
there is AXA Insurance. Because Metrobank is a universal bank is but there is a corridor of discretion. Mulampas na gani na kay gusto
invested in AXA Insurance. ka mudako imong balance, pero dili diay igo na. Kay kung
muincrease ra ang gamay pobability unya kung mangasunog na
So they'll try to get your business as an insurance. But it is a tanan? Patay ka. Kung ikaw mismo ang bangko unya ikaw pa ang
separate desk. The lady sitting down there is a distinguished insurer, patay ka.

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55.2. No borrower of a bank shall -

If you want so much market shares, pahuramon nimo ug mupaubos
(a) Fraudulently overvalue property offered as
kag taman sa imong premium shares, kay gusto ka mudako imong
security for a loan or other credit accommodation
negosyo, you are risking yourself actuarially. Mag-ampo ka sa Ginoo
from the bank;
na walay sunog. Pero makitabo mna gyud na. So if the bank itself is
the insurer, patay ka. Wa ka kahibaw. Statistically, 50:50 man gyud (b) Furnish false or make misrepresentation or
na. Mag sigi kag toss coin—sigi rag korona, korona. Unya kung suppression of material facts for the purpose of
magsunod-sunod na gani nag korona, naa na jud nay mahitabo. Kay obtaining, renewing, or increasing a loan or other
statistically, 50:50 man jud na. credit accommodation or extending the period
thereof;
That is why, it was denied before. How come they allowed it now?
(c) Attempt to defraud the said bank in the event of
Because the tremendous movement for the convenience of the a court action to recover a loan or other credit
consumers. One-stop shop. Pag-adto nimo sa bangko, ang accommodation; or
Insurance naa na. Dili na mugawas pa sa bangko. Notaryo? Sila na (d) Offer any director, officer, employee or agent of
muprovide. Dili naka mangita ug abogado. One-stop shop banking. a bank any gift, fee, commission, or any other form
All your financial needs naa na. It’s the “Dodd-Frank Act”. There is of compensation in order to influence such
now a demand to return to the boring life of banking brought by the persons into approving a loan or other credit
financial fiasco of 2010. accommodation application.
So, back to the question: CAN A BANK ENGAGE IN THE INSURANCE 55.3 No examiner, officer or employee of the Bangko Sentral
BUSINESS? NO, it cannot. BUT IT CAN INVEST IN AN INSURANCE or of any department, bureau, office, branch or agency of the
COMPANY. So, it’s a legal fiction that the bank is not actually Government that is assigned to supervise, examine, assist or
engaged in insurance but the insurer is under the control, render technical assistance to any bank shall commit any of
investment-wise, of the bank. the acts enumerated in this Section or aid in the commission
of the same. (87-Aa)
Alright. There is a provision for secrecy and confidentiality that is The making of false reports or misrepresentation or
found in the General Banking Law. That is Section 55.1 (b)(b): suppression of material facts by personnel of the Bangko
Section 55. Prohibited Transactions. Sental ng Pilipinas shall be subject to the administrative and
55.1. No director, officer, employee, or agent of any bank criminal sanctions provided under the New Central Bank Act.
shall - 55.4. Consistent with the provisions of Republic Act No.
(a) Make false entries in any bank report or 1405, otherwise known as the Banks Secrecy Law, no bank
statement or participate in any fraudulent shall employ casual or non regular personnel or too lengthy
transaction, thereby affecting the financial interest probationary personnel in the conduct of its business
of, or causing damage to, the bank or any person; involving bank deposits.
(b) Without order of a court of competent

jurisdiction, disclose to any unauthorized person You know that a bank under the Secrecy of Bank Deposits Act, is
any information relative to the funds or properties required that all its personnel maintains confidentiality of the
in the custody of the bank belonging to private deposits of their clients. That is the rule under the Secrecy of Bank
individuals, corporations, or any other entity: Deposits Act. Secrecy of Bank Deposits Act which is RA 1405.
Provided, That with respect to bank deposits, the
provisions of existing laws shall prevail; But in Section 55.1 (b) of the General Banking Law,
(c) Accept gifts, fees, or commissions or any other “xxx a bank cannot disclose to any unauthorized person any
form of remuneration in connection with the information relative to the funds or properties belonging to
approval of a loan or other credit accommodation the private individuals, corporations, or any other entity.
from said bank; Provided, That with respect to bank deposits, the provisions
of existing laws shall prevail.”
(d) Overvalue or aid in overvaluing any security for
the purpose of influencing in any way the actions In other words, a bank is required to keep secret or confidential not
of the bank or any bank; or only information relative to deposits but also information about
(e) Outsource inherent banking functions. funds or properties belonging to private entities in the custody of the
bank such as, for example, those held in its capacity as trustee or

BANKING PAGE || 102
escrow agent. of this circular, outsourcing of inherent banking functions shall

refer to any contract between the bank and a service provider for
So, if you work in a bank, especially if you are an officer of the bank, the latter to supply, or any act whereby the latter supplies, the
you will be suffering a lot if you are a “chismis-type” of person. manpower to service the deposit transactions of the former.
Magpugong jud ka sa imong kaugalingon. Kung ganahan kaayo kag Section 2.2 Banks cannot outsource management functions
chismis, unya mangatol na imong ngabil ug dili ka makasultig except as may be authorized by the Monetary Board when
chismis, you should not be a banker. You should not work in a bank. circumstances justify.
Otherwise, you will be violating the all-embracing law on
confidentiality and secrecy of bank deposits. But not only as to
Section 3. Outsourcing of Information Technology
deposits! All other matters not only to deposits but also to other
Systems/Processes. Subject to prior approval of the Monetary
funds and matters.
Board, banks may outsource all information technology systems
and processes except for functions excluded in Section 3.1.
Alright. What functions can a bank contract out? That is sectiion
55.1 (e), as implemented by BSP Circular No. 268: Section 3.1 Certain functions affecting the ability of the bank to
Section 55. Prohibited Transactions. ensure the fit of technology services deployed to meet its
strategic and business objectives and to comply with all
55.1. No director, officer, employee, or agent of any bank pertinent banking laws and regulations, such as but not limited
shall - to strategic planning for the use of information technology;
xxx (e) Outsource inherent banking functions. determination of system functionalities; change management
inclusive of quality assurance and testing; service level and
contract management; and security policy and administration,
may not be outsourced. Subject to prior approval of the Monetary
CIRCULAR NO. 268 Board and submission of the same documentary requirements in
Series of 2000 Section 3.2 hereof, consultants and/or service providers may be
engaged to provide assistance/support to the bank personnel
Pursuant to Monetary Board Resolution No. 2076 dated assigned to perform such functions.
November 24, 2000, the following rules and regulations are Section 3.2 A bank intending to outsource information
hereby issued to implement Section 55.1(e) of Republic Act technology systems and processes shall submit the following
(R.A.) No. 8791, the General Banking Law of 2000. documents to BSP which shall treat the same as strictly
confidential:
Section 1. Duties and Responsibilities of Banks and their (1) Proposed contract between the bank and the service
Directors/Officers in All Cases of Outsourcing of Banking provider which should, at a minimum, include all the following:
Functions. When outsourcing of banking functions is allowed by a. Complete description of the work to be performed or
law and under this circular, all banks concerned shall: services to be provided;
(1) carry out the same in accordance with proper standards, b. Fee structure;
ensuring the integrity of the data, systems and controls of the c. Provisions regarding on-line communication
banks and subject to the supervisory, regulatory and availability, transmission line security, and transaction
administrative authority of the Bangko Sentral ng Pilipinas (BSP) authentication;
over the banks and their directors/officers;
d. Responsibilities regarding hardware, software and
(2) be responsible for the performance thereof in the same infrastructure upgrades;
manner and to the same extent as it was before the outsourcing;
e. Provisions governing amendment and pretermination
(3) comply with all laws and regulations governing the banking of contract;
activities/services performed by the qualified service providers in
f. Mandatory notification by the service provider of all
its behalf such as but not limited to keeping of records and
systems changes that will affect the bank;
preparation of reports, signing authorities, internal control and
clearing regulations; and g. Details of all security procedures and standards;
(4) manage, monitor and review on an ongoing basis the h. Responsibility, fines, penalties and accountability of
performance by the qualified service providers of the outsourced the service provider for errors, omissions and frauds;
banking activities/services. i. Confidentiality clause covering all data and
information; solidary liability of service provider and
bank for any violation of R.A. No. 1405, the Bank
Section 2. Prohibition Against Outsourcing Certain Banking
Deposits Secrecy Law; actions that the bank may take
Functions.
against the service provider for breach of
Section 2.1 No bank or any director, officer, employee, or agent confidentiality or any form of disclosure of confidential
thereof shall outsource inherent banking functions. For purposes

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information; and the applicable penalties; monitoring of the applications/operations of the

j. Segregation of the data of the bank from that of the service provider to ensure that the same is in
service provider and its other clients; accordance with the existing information technology
k. Disaster recovery/business continuity contingency initiatives, policies and guidelines of the bank; the list
plans and procedures; of the members of such committee, its organizational
l. Adequate insurance for fidelity and fire liability; chart, and a detailed description of the roles and
responsibilities of its members must be included in the
m. Ownership/maintenance of the computer hardware,
Minutes of the Meeting or submitted as attachments
software (program source code), user and system
thereto;
documentation, master and transaction data files;
d. The creation, organization and membership of a help
n. Guarantee that the service provider will provide
desk to resolve all queries, problems and other
necessary levels of transition assistance if the bank
concerns arising from the applications/operations
decides to convert to other service providers or other
rendered by the service provider; and
arrangements;
e. The systems and user acceptance tests that will be
o. Access to the financial information of the service
conducted by the service provider before full
provider;
implementation of the outsourced systems/processes
p. Access of internal and external auditors to and the unsatisfactory results of which shall be valid
information regarding the outsourced ground to rescind the contract with the service
activities/services which they need to fulfill their provider.
respective responsibilities;
(3) Profile of the selected service provider or the non-bank
q. Access of BSP to the operations of the service provider partner, in case of joint ventures and other similar arrangements,
in order to review the same in relation to the which should include:
outsourced activities/services;
a. Most recent and complete financial and operational
r. Provision which requires the service provider to information;
immediately take the necessary corrective measures
b. Track record;
to satisfy the findings and recommendations of BSP
examiners and those of the internal and/or external c. List of clientele, particularly banks and the services
auditors of the bank and/or the service provider; and provided thereto by the service provider; and
s. (Remedies for the bank in the event of change of d. At the option of the service provider or non-bank
ownership, assignment, attachment of assets, partner, other documents demonstrative of its
insolvency, or receivership of the service provider. competence and reputation in the field of information
technology as applied to banking operations.
(2) Minutes of Meetings of the Board of Directors of the bank
concerned signed by majority thereof, certified by the Secretary
and attested by the President documenting their discussions on Section 4. Outsourcing of Other Banking Functions.
the following: Section 4.1 Subject to prior approval of the Monetary Board,
a. The benefits and advantages of outsourcing with banks may outsource data imaging, storage, retrieval and other
respect to, among others, its role and contribution to related systems; clearing and processing of checks not included
the accomplishment of the strategic and business in the Philippine Clearing House System; printing of bank deposit
plans of the bank as well as the economy, efficiency statements; and such other activities as may be determined by
and quality of its over-all operations; the Monetary Board. The bank concerned must submit the same
b. The careful and diligent evaluation, prior to selecting documentary requirements listed in Section 3.2 hereof, except
the service provider with which it is entering into an where they exclusively pertain to information technology
outsourcing contract, by the bank of various service operations.
providers and their proposals, including their Section 4.2. Banks may outsource credit card services; printing
reputation, financial condition, cost for development, of bank loan statements and other non-deposit records, bank
maintenance and support, internal controls, recovery forms and promotional materials; credit investigation and
processes, service level agreements, availability of collection; processing of export, import and other trading
competent, technically qualified and experienced transactions; transfer agent services for debt and equity
personnel, strategic or convenient location of support securities; property appraisal; property management services;
services and such similar other considerations; messenger, courier and postal services; security guard services;
c. The creation, organization and membership of a vehicle service contracts; janitorial services; and such other
senior management oversight committee to handle activities as may be determined by the Monetary Board.
and oversee the efficient implementation and

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Section 5. Service Providers. When allowed by law and under this

circular, banks may enter into outsourcing contracts only with 2. Data imaging, storage, retrieval and other related
service providers with demonstrable technical and financial systems – All checks that the bank processes are recorded with
capability commensurate to the services to be rendered. pictures. So they have data as to the checks, the signatures, who
approved it. Have you noticed that recently, if you deposit your check,
duha na ka signature and kinahanglan sa bangko. Laliman ka ana!
Section 6. Review of Subsisting Outsourcing Contracts. Within
six (6) months from the effectivity of this circular:
3. Clearing and processing of checks not included in the
(1) all banks should submit a list of all their existing contracts
Philippine Clearing House System
with service providers, detailing the:
a. Services/activities being outsourced; 4. printing of bank deposit statements
b. Terms of the contracts;
c. Measures, if any, undertaken by the bank and/or 5. credit card services
service provider to ensure the secrecy of bank
deposits and confidentiality of all other data and 6. printing of bank loan statements and other non-deposit
information; and records, bank forms and promotional materials
d. Such other information as may be necessary to show
compliance with the pertinent provisions of this 7. credit investigation and collection
circular or be required by the Monetary Board; and
(2) for outsourcing contracts not in accordance with this 8. processing of export, import and other trading
circular, the following alternative courses of action are available transactions
to the bank concerned:
a. preterminate said contracts; 9. transfer agent services for debt and equity securities
b. renegotiate or remedy the same to comply with this
10. property appraisal
circular and submit the amendments thereto or new
contracts to the BSP; or
11. property management services – Ngano’ng mukuha
c. submit a program of compliance to the BSP. man ang bangko ug property management services? Kung naa diay
sila’y na forclose nga building. Pahimuslan nila ang ilang gi forclose.
Section 7. Penalties. Violation of this circular shall be subject to
Sections 34, 35, 36 and 37 of R.A. No. 7653, the New Central 12. messenger, courier and postal services – I should like
Bank Act. If the offender is a director or officer or a bank, the to add because the PBCom case, the messenger or courier is the one
Monetary Board may also suspend or remove such director or who really goes out of the bank. The messenger sulod sa bangko nga
officer. premises. They are not messengers. They are under the control of the
bank. SO, they are regular employees. They cannot be contracted out.
Section 8. Repeal of Section X169 of the Manual of Regulations
for Banks (MORB). This circular supersedes the provisions of 13. security guard services
Section X169 of the MORB.
14. vehicle service contracts
Section 9. Effectivity. This circular shall take effect immediately.
15. janitorial services
A bank may not outsource inherent banking functions. That is, the
16. and such other services as may be determined by the
bank may not enter into contract by its service providers to supply
Monetary Board.
the manpower of tellers in its deposit transactions so as not to
violate the Secrecy of Bank Deposits Law. But subject to prior
Now, there is a general prohibition on extended casual probationary
approval of the MB, the bank may outsource the following:
status of the employees in the bank. That is Section 55.4:
1. All information and technology system and processes
xxx 55.4. Consistent with the provisions of Republic Act No.
except for certain functions insuring the ability of the bank to ensure
1405, otherwise known as the Banks Secrecy Law, no bank
the fit of technology services deployed to meet its strategic and
shall employ casual or non regular personnel or too lengthy
business objectives – So generally, all information technology.
probationary personnel in the conduct of its business
Installation of your programs, maintenance of your database, etc.
involving bank deposits.
That is fast changing, fast moving. You have to outsource that. You
So, at most is 6 months. You cannot continually extend probationary
can outsource that.

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services because these people inside the bank are privy to records There was a gain.]
affecting deposits which are supposed to be kept confidential.
Alright, apart from the limitations under the Corporation Code, does
Alright. Section 56. What circumstances that the Monetary Board the GBL impose any further limitations to the ability of banks to
consider in determining a particular act or omission which is not declare dividends? YES, IT DOES. Under section 57:
probihited by any law, rule or regulation affecting banks, quasi banks
or trust entities? Section 57. Prohibition on Dividend Declaration. - No bank
Section 56. Conducting Business in an Unsafe or Unsound or quasi-bank shall declare dividends, if at the time of
Manner - In determining whether a particular act or declaration:
omission, which is not otherwise prohibited by any law, rule
57.1 Its clearing account with the Bangko Sentral is
or regulation affecting banks, quasi-banks or trust entities,
overdrawn; or
may be deemed as conducting business in an unsafe or
unsound manner for purposes of this Section, the Monetary 57.2 It is deficient in the required liquidity floor for
Board shall consider any of the following circumstances: government deposits for five (5) or more consecutive
days, or
These are grounds for receivership. They are the following under
Section 56: 57.3 It does not comply with the liquidity standards/ratios
56.1 The act or omission has resulted or may result in prescribed by the Bangko Sentral for purposes of
material loss or damage, or abnormal risk or danger to the determining funds available for dividend declaration; or
safety, stability, liquidity or solvency of the institution; 57.4 It has committed a major violation as may be
56.2 The act or omission has resulted or may result in determined by the Bangko Sentral (84a)
material loss or damage or abnormal risk to the institution's
depositors, creditors, investors, stockholders or to the Even if it has profits ha. If those things (mentioned above) occur, the
Bangko Sentral ng Pilipinas or to the public in general; bank is supposed to be prohibited from declaring dividends.
56.3 The act or omission has caused any undue injury, or
has given any unwarranted benefits, advantage or preference Acts or omissions of directors, officers after bank is declared
to the bank or any party in the discharge by the director or insolvent or placed under receivership by the MB, which are
officer of his duties and responsibilities through manifest prohibited and penalized. - If you do this after the bank has been
partiality, evident bad faith or gross inexcusable negligence; declared under receivership, it means it’s no longer functioning as a
or bank.
56.4 The act or omission involves entering into any contract And you still do these, then these are criminal violations:
or transaction manifestly and grossly disadvantageous to 1. Refusal to turn-over records of assets to the
the bank, quasi-bank or trust entity, whether or not the designated receiver
director or officer profited or will profit thereby. 2. Tampering with the bank’s records
3. Appropriating for another party, or reserve or
Whenever a bank, quasi-bank or trust entity persists in
destroying the bank's assets
conducting its business in an unsafe or unsound manner, the
4. Receiving or permitting or causing to be received
Monetary Board may, without prejudice to the administrative
in said bank any deposit collection of loans or
sanctions provided in Section 37 of the New Central Bank
receivables
Act, take action under Section 30 of the same Act and/or
5. Paying-out or permitting or causing to be paid-
immediately exclude the erring bank from clearing, the
out any funds of said bank
provisions of law to the contrary notwithstanding. (n)
6. Transferring or permitting or causing to be
transferred any securities or property of the said
[Segue: These last two were the charged against Roberto Ongpin and bank.
the Board of DBP. (Stories about Ongpin) Ongpin loaned in the DBP to
buy the shares. So, DBP provided Ongpin the money to buy the [Segue: The president of Urban Bank was put under receivership
shares of Philex Mining. But six months later, Ongpin turns around because it declared a banking holiday. (Chika about the 3 musketeers
and sold the shares to Manny Pangilinan for 26 pesos per share who all came from Citibank.) It is a universal bank. Then, they
(from 5). Nindot sad. Lipay na kaayo ang mga tao. Gibandera na nila convinced San Miguel Corporation to include Urban Bank to be one
sa newspapers kay dako kaayo silag ginansya. Gikiha karon si of its depositories. On the day that the bank was to declare a holiday,
Ongpin ug grossly disadvantageous. Na acquit man siya. Wa may therefore placed under receivership, Mr Esmendi (SMC) was out of
disadvantage dira. What is the disadvantage? There is no material the country. And the president of Urban Bank wanted to save his
loss or damage. The Board of Landbank did not cause any damage. friends. Gi-withdraw ang kwarta. Dili niya matawagan si Esmendi kay

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abroad man. So nagkuha siyag withdrawal slip unya naghuwat siya

muabot si Esmendi. Gitagpo niya sa airport. Esmendi refused to sign. Now, to encourage people, the secrecy of their deposits is
That was one of the charges against the president of the Urban guaranteed by the law. No one will know how much you have in the
Bank.He committed suicide. Nikuha sya sa iyahang .45. Unya kay bank because there is secrecy. So you are encouraged to put your
PAK! He was copied by Secretary Reyes.] money in the bank.
The Bank as Trust Entity Now, fast forward—some years later. The thinking now is the secrecy
The Bank may be authorized by the Monetary Board to engage in the of bank deposits is no longer that iron-clad because there are certain
trust business. There is a degree of prudence that is required which general welfare aspects that has higher importance than secrecy of
Is much higher because you are in the custody not of your own funds bank deposits. So, there are many exceptions now on the secrecy of
but the funds of another. bank deposits.
If that entity becomes insolvent, the assets and the trusts are not So, to repeat. The purpose of the law is to discourage private
considered as part of the assets to be liquidated and distributed to hoarding so that banks may gather most of the cash and may be able
the creditors of the bank. Then the nature of the relationship between to lend it out to those who are requiring cash in the conduct of their
the bank and the depositors is one of creditor-debtor. The failure of businesses. That is the purpose.
the bank to honor the deposit is a failure to return the subject matter
to the depositor which constitutes a breach of trust. What is prohibited by the Act? Section 2 of the Act prohibits the
examination and inquiry or looking into of deposits of whatever
nature with banks in the Philippines, including investments in bonds
issued by the Government or its political subdivisions and
instrumentalities, by any person, government official, bureau or
FEBRUARY 4, 2016 office. It cannot look into the records of the bank to discover how
much you have there.
So now, we are going to take up the smaller banking laws. By smaller, Section 2. All deposits of whatever nature with banks or banking
it is not the smaller banks; but it is the smaller laws. Because there institutions in the Philippines including investments in bonds
are laws for smaller banks—like rural banks act, thrift banks act, the issued by the Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby considered as of
Amanah Islamic Bank Act which is pretty much a repeat of the
an absolutely confidential nature and may not be examined,
General Banking Law with specific concentration on the limited inquired or looked into by any person, government official, bureau
operations of the so-called smaller banks. or office, except upon written permission of the depositor, or in
cases of impeachment, or upon order of a competent court in cases
Let us take the smaller laws. Like: of bribery or dereliction of duty of public officials, or in cases where
1. The Truth in Lending Act. You should see that in—or an the money deposited or invested is the subject matter of the
absract if it—in every bank. If they don't have it, they are in litigation.
violation of the law.
2. Unclaimed Balances Act. And what is prohibited also is the disclosure of any official or
employee of any bank to any unauthozed person of any information
3. Secrecy of Bank Deposits Act.
concerning the said deposits.
4. Anti-Money Laundering Law. Section 3. It shall be unlawful for any official or employee of a
5. Philippine Depositor's Insurance Act – this is the charter of banking institution to disclose to any person other than those
Philippine Depositors Insurance Corporation mentioned in Section two hereof any information concerning said
6. and other smaller laws deposits.
So we will take up first the most prevalent of these smaller laws—that Alright. What are the exceptions? There are at least something like 12
is, the Secrecy of Bank Deposits Act. or 13 exceptions to the general rule.
The Secrecy of Bank Deposits Law, in its original, was passed RA 1. Section 2 - “Upon written permission of the depositor”
1405 in 1955. the whole idea of the law is to encourage people to
make use of the banks. It is to put all of their money in the bank and You know very well that in DOSRI, when he borrows money from the
not under their mattress or in their pillow case. [Segue: Mukatawa bank (DOSRI—meaning Director, Officer, Stockholder, or Related
mo. But believe it or not, when I went to ___ in the year 2000, I Interest. What is a related interest? The wife of the president of the
discovered that there is a priest there who does not believe in the bank. That is a related interest.) . If his loan is granted by the bank,
banks. He keeps the money literally in his pillowcase. All his then he MUST waive his right to secrecy of bank deposits. He must
collections, he puts it in there. He does not believe in banks. There sign it. Then he will be allowed to borrow money in the bank. Because
must be something wrong there.] there is a potential for an abuse. The highest official in the bank is

BANKING PAGE || 107
the president. He might not pay! Or he can borrow more than his evidence and you still have to make a mental logical process, then
capacity to pay. That is why, for the sake of the public, the Bangko that is an indirect evidence. If you no longer have to go through a
Sentral keeps tract of these loans. Who keeps track? The Monetary mental logical process, that is direct evidence.
Board. It is not juts the Bangko Sentral but the Monetary Board. So
the Monetary Board has an assigned staff to monitor all those DOSRI Smoking gun evidence: Naay namatay dira nga tao. Unya nakit-an
loans all over the Philippines. Because certainly, the Monetary Board sya nga nagtupok og gun unya nag-smoke ang gun, unya bag-o pa
does not have the time to monitor all those DOSRI loans. So there is man sya namatay. Do you still have to make a mental logical
a representative or a staff that the DOSRI must promise or grant in process? “Ah kana nagsmoke, mao na ang nakapatay.” Or you can
writing the permission to look into his/her deposit account. just say, “Ah! Siya ang nagpatay! Nakit-an nako!” Will you still
undergo “Ah siya ang nag-patay. Therefore, nakit-an niya.” Nakit-an
2. Again in Section 2 - “In cases of impeachment” na man jud na niya! Unsa pa may mental process ana nga wala na!
That is why, smoking gun evidence is a misnomer. It is good for
Then here, you can no longer claim the secrecy of bank deposits. novelists but it is not good for people who have not studied evidence.
What is the very famous case? Chief Justice Renato Corona. And his
deposits was not Philippine Peso. It was in US Dollars. And in the Unsaon man nimo na pag impeach? Carisa (?) Ocampo told them, “I
provision in the US Foreign Deposits Act is even more strict than the told you I was beside him signing the signature cards!” How do you
Secrecy of Bank Deposits Act. Deposits in foreign currency are not overturn that statement? By direct evidence.
covered by the Secrecy of Bank Deposits (RA 1405, as amended). It
is covered by the Foreign Currency Act. So, he (Corona) claimed that Another example of direct evidence. There is a fellow charged with
privilege. mutiilation. Unsa man nang mutilation? In what way was it
committed? The accused in the case was charged with biting. He had
Remember, that he was asked, “Why did you not reveal these one witness. Nag-away sila (accused and victim) unya syay (witness)
deposits which went into a couple of million dollars? Why did you not nakakita nga nag-away. Niiingon sya, “mao na sya ang nipaak.”
put this in your SALN?” What was his reason? [Segue: You should not “Nganong naka ingon man ka nga syay nagpaak? Nakit-an nimo?”
forget that case because that is a matter of argument.] What was his “Wala.” “Unya nganong niingon man ka nga sya ang nipaak?” “Giluwa
reason? He said that a good part of it is not his. Therefore, he cannot man niya.” Murag si Tyson ba. Si Tyson kay nakit-an man jud sya sa
put it in the SALN—Statement of assets, liabilities and net worth. mga tao nga gipaak niya. Diri, wala niya makit-an. Nakit-an niya nga
giluwa ang dalunggan nga gipaak. Sayop to sa cross-examination.
[Segue: So, when you complete your SALN, is everything that you put When you ask too many questions in cross-examination, then you
in there are yours? Mubutang ko didto nga naa koy bayronon nga are bound to hang yourself.
P500. Is that still yours? No more, isn't it? That already belongs to
somebody because that is a libility. If a good part of this deposit is Undang na unta siya sa “Did you see him bite?” “No.” So counsel
not yours, then that is a liability. You put it in trust for somebody. would rest your Honor. Wala man makit-an. Pero iyaha pa man gud
That is why you put it up as liability. That is the meaning of SALN— gisumpayan for emphasis. Gidukol na niya sa ulo, gibunalan pa jud.
Statement of Assets, Liability, and Net Worth. Simple! In argument, “Why do you say that he bit the victim when you in fact did not see?”
that is called Laying the excuse. Nakimpang ba. Kung kimpang, dili “Because I saw him spit it out!” When you have this kind of indirect
makatindog. So Laying the excuse.] evidence, it is even stronger than direct evidence. Ngano man? Why
is it heavier than the direct evidence of biting? Because it is not only
So in cases of impeachment, everything is open. evidence which primarily alone is biting, but it is also an evidence of
the consummation of the act! So you do not have to prove the stages
[Segue: Estrada. Why was he impeached? It was also because of this! of the crime kay gibuhat na jud niya.]
Secrecy of bank deposits. They were able to produce a bank account
—Jose Velarde. It was in someone else's name. It was a fictitious So, impeachment. There are many and enough cases for you to say
name. But in the real account, there is real money there! Now, this when secrecy of bank deposits is excluded.
fictitious name of Jose Velarde stands for whom? Joseph Estrada.
How was it proven? Because the vice president of Equitable bank 3. Upon order of the competent court in cases of bribery,
testified that that is Estrada. How did she know that it was Estrada? dereliction of public duties of officials.
She was sitting next to him when he signed the signature cards. Can
you imagine? That is what is called Smoking gun evidence. So right away, kung mu-commit ka. “Hain na man ang kwarta?”
Pangitaon na sa prosecution. “Mao ni. Naa diri ang kwarta.” [Segue:
What is direct evidence as opposed to indirect evidence? What is the Prime Minister of Malaysia. Just a litte below $1Million. Gi-deposit
difference between direct and indirect evidence? Mawala na gani nya in his own account. Nasayop diay to. It should not have been
nang smoking gun evidence—Smoking Gun evidence is still an there. Ang iyahang gisugo, mao na tong nasayop. Kung gisugo nimo,
indirect evidence. If in order to arrive at a probative value of the klaruha kung asa nimo ipadeposit. Kung muingon kag i-deposit nimo

BANKING PAGE || 108
ni, unya kay gideposit diay to sa kasilyas! $900 na gud na. Dugay na in the following instances: (1) Upon written permission of the
kaayo na. Sugod pa na ni Mahatir. Mudagan si Mahatir, wala man depositor; (2) In cases of impeachment; (3) Upon order of a
nidaog. Ngano man? Sudomy. How can you be convicted of sudomy competent court in cases of bribery or dereliction of duty of public
officials; (4) In cases where the money deposited is the subject
when there is no medical examination? Pareha anang rape. Wala
matter of the litigation. Cases of unexplained wealth are similar to
gani nay medical examination, there should be a good reason why cases of bribery or dereliction of duty and no reason is seen why
there was none.] these two classes of cases cannot be excepted from the rule making
bank deposits confidential. The policy as to one cannot be different
Bribery or Dereliction of duty that becomes part of the subject from the policy as to the other. This policy express the motion that a
matter. public office is a public trust and any person who enters upon its
discharge does so with the full knowledge that his life, so far as
relevant to his duty, is open to public scrutiny.” [PNB VS GANCAYCO
4. In case where the money deposited or invested is the
GR NO. L-18343 September 30, 1965]
subject matter of the litigation
6. Section 6 (f)(1) of the National Internal Reveue Code –
Sum of money. The complainant says, “Wa pa ko bayri.” The defense
Upon the order of the Commissioner of the Internal
says, “Ningbayad na ko.” “Unsa may imong proof nga nibayad na
Revenue of the deposits of the decedent for the purpose of
ka?” “Dara ang akong check o. Cancelled na ning check.” So
determining such decedent's gross estate
muingon dayon ang abogado, “Move to disclose the account.” To
prove that it really went into his account because the check returned
So the Commissioner can go into that and say, “This person is dead.
came from his account.
Is there any account under his name? Give me the records of the
accounts under his name.”
How will you go to the courts to get the banking records of the
depositor? You can. You can compel the bank. Why? Because the
Does the Commissioner do that for every dead person? No! They will
money that was deposited is the subject matter of the litigation. That
just go to those dead prominent people, who is known, kanang naay
is the meaning of “subject matter of the litigation.” Gibbayran na.
mga dagko kaayog obituary sa periodico. Ah~ mao na tong mga naay
Mao ni ang cheke. Ang cheke didto has been encashed. How?
dagkong accounts. Pabutang-butang pa mog obituary dira.
Because it was already deposited in the complainant's account.
So, gross estate.
5. Section 8 of the Anti-Graft and Corrupt Practices Act – Section 6. Power of the Commissioner to Make assessments and
Upon order of the court in cases of unexplained wealth Prescribe additional Requirements for Tax Administration and
Enforcement. -
Unexplained wealth. Normally, it is the prosecution who will ask for
xxx
the records from the court. So the court issues an order. Pag issue sa
order, i-challenge dayon na. That order is an interlocutory order. So it (F) Authority of the Commissioner to inquire into Bank Deposit
stops the case. Normally that's the case. So you must have a very Accounts. - Notwithstanding any contrary provision of Republic Act
good reason to say that this is not grave abuse of discretion to issue No. 1405 and other general or special laws, the Commissioner is
this order. Under the Anti-Graft and Corrupt practices act, that is hereby authorized to inquire into the bank deposits of:
covered by Section 8 of the Act and then you cite the case of PNB vs (1) a decedent to determine his gross estate;
Gancayco (1965). and
Section 8. Dismissal due to unexplained wealth. If in accordance
with the provisions of Republic Act Numbered One thousand three xxx
hundred seventy-nine, a public official has been found to have
acquired during his incumbency, whether in his name or in the name
of other persons, an amount of property and/or money manifestly
7. Section 6 (f)(2) of the National Internal Reveue Code –
out of proportion to his salary and to his other lawful income, that Upon order of the Commissioner of the Internal revenue
fact shall be a ground for dismissal or removal. Properties in the with respect to the bank deposits of a taxpayer who filed
name of the spouse and unmarried children of such public official an application for a compromise of his tax liability by
may be taken into consideration, when their acquisition through reason of his incapacity to pay his tax liability
legitimate means cannot be satisfactorily shown. Bank deposits
shall be taken into consideration in the enforcement of this section, Mag-file ka karon sa imong SALN. You hold nothing. It is notarized
notwithstanding any provision of law to the contrary. [Section 8 of
and filed it before the Commissioner. You say, “I cannot pay my taxes
RA 3019]
because I have no money.” Then the Internal Reveue finds that you
“With regard to the claim that disclosure would be contrary to the have a money in the bank. So they can order for that. Does that
policy making bank deposits confidential, it is enough to point out happen? Kanang dili sila kabayad? You read the case of JBL Reyes
that while section 2 of Republic Act 1405 declares bank deposits to vs Commissioner of Internal Reveue (1991).
be "absolutely confidential," it nevertheless allows such disclosure

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JBL Reyes. Former Justice of the Supreme Court. Di makabayad sa that there can be no reasonable basis for the conclusion that these
iyahang assessment! Downtown Metro Manila ang iyahang balay. Gi- properties were comparable with other residential properties not
assess niyag tax. Mahal kaayo sa tanan. Ingon siya, “Dili ko kabayad. burdened by P.D. 20. Neither can the given circumstances be
nonchalantly dismissed by public respondents as imposed under
Ang akong retirement, igo ra ni sa tambal, hospital nako.” “Unsay dili
distressed conditions clearly implying that the same were merely
kabayad nga kamahal anang imong yuta!” “Di man ni ga-income kay temporary in character. At this point in time, the falsity of such
ako ra may gapuyo. Naa koy anak nga nagbantay nako. Patay na premises cannot be more convincingly demonstrated by the fact
akong asawa. Mao wala ko kabayad.” that the law has existed for around twenty (20) years with no end to
it in sight.” [JBL Reyes vs CIR]
Actually, he was challenging the comparable earnings method to
arrive at the value of the property. [Segue: How does the BIR arrive at
the value of the property? Ang tupad, tan-awon niya if there was a 8. Upon order of the Court in cases filed by the Ombudsman
sale of the same property that was sold. Kung pila ang iyahang upon the latter's authority to examine and have access to
gideclare nga earnings. Mao na ang ilahang method for determining bank accounts and records in relation to Section 15 (8) of
the value of the property.] Ingon si Reyes, that is a faulty menthod in the Anti-Graft an Corrupt Practices Act
his return. Why? “I am not renting out. I am just living there. It is not
earning.” The comparable earnings method. Basta court of justice na *[NOTE: Father said Section 15(8) of the Anti-Graft and Corrupt
gani, ingon sa Supreme Court “Direct question of law!” Practices Act. But I think he is referring to Section 15 (8) of RA 6770
or the Ombudsman Act and not RA 3019 or the Anti-Graft and
[Segue: There are 2 cases filed by JBL Reyes wherein the court said Corrupt Practices Act. There is no Section 15 (8) in the latter, while
that it is a direct question of law. One is the tax case an the other was in the former, Section 15(8) says:
Reyes vs Bagatsing. Hinumduma na. Landmark case. The Supreme Section 15. Powers, Functions and Duties. — The Office of the
Court in that case said that the Court can regulate but it cannot Ombudsman shall have the following powers, functions and duties:
prevent you from marching. It can never prevent the exercise the xxx
right to peaceful assembly to xxx That is direct question of law! (8) Administer oaths, issue subpoena and subpoena duces tecum,
and take testimony in any investigation or inquiry, including the
power to examine and have access to bank accounts and records;
Mao ni sila ang tinuod nga xxx sa law. They are no more richer when xxx
they left public service than when they entered it. That is the [end note]*
yardstick. Mubiya gani ka sa serbisyo publiko unya mas dato pa ka
kaysa katong pagsulod nimo, kawatan ka! Kawatan ka. Simple ra Mao na. Lifestyle check. Tan-awa. Ang examiners. Daghan kaayo na
man na kaayo. Di na ka kinahanglan i-explain. It is not rocket nga wala kapasa sa lifestyle check. And some of them were my
science. It is elementary, as Watson would say.] former students. I am sad. :(
Section 6. Power of the Commissioner to Make assessments and
Prescribe additional Requirements for Tax Administration and
Enforcement. - Court orders. Ombudsman.
xxx 9. Section 2 of Act 3936 – In cases of unclaimed balances.

(F) Authority of the Commissioner to inquire into Bank Deposit
Accounts. - Notwithstanding any contrary provision of Republic Act [Segue: The Unclaimed Balances Act was still a law passed by the
No. 1405 and other general or special laws, the Commissioner is Americans. When it says Act, it is an act of the Congress in the
hereby authorized to inquire into the bank deposits of: United States. Kung muingon gani kag Republic Act, atoa na.
xxx Commonwealth Act, maguwang ra na kay Commonwealth pa na.
(2) any taxpayer who has filed an application for compromise of his Naa pa ba moy maremember nga Commonwealth Act? CA 141. Ayaw
tax liability under Sec. 204 (A) (2) of this Code by reason of financial
jud nag kalimti! Mao nay mode of acquisition of public lands—ma-
incapacity to pay his tax liability.
sale, homestead, etc. Ayaw jud nag biyai doh! Kay mao nay daghan
muingon nga kaybaw sila ana pero sa tinuod kay wala jud na sila
kaybaw.]
“Ironically, in the case at bar, not even the factors determinant of the
assessed value of subject properties under the "comparable sales
approach" were presented by the public respondents, namely: (1) Unclaimed Balances Act. When is that an unclaimed balance? Kanus-
that the sale must represent abonafide arm's length transaction a man na nga ma-unclaimed balance? 10 years when there is no
between a willing seller and a willing buyer and (2) the property movement in an account—no deposit, no withdrawal. Nagpabilin na
must be comparable property (Rollo, p. 27). Nothing can justify or ang imong account dira, unclaimed balance na na.
support their view as it is of judicial notice that for properties
covered by P.D. 20 especially during the time in question, there were Now, the bank is obliged to report it to the Treasury of the
hardly any willing buyers. As a general rule, there were no takers so Philippines, copyfurnished to the Solicitor General. Ready na nang

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Solictor General. Unsa may kaso ang iyahang i-file? A special Now, this latest amendment, it adds a new list of so-called covered
proceeding known as Escheat. Escheat proceedings. Kanang persons. One of the covered persons is a Bank. And if you are a
pinakadakong Tikas. Es-CHEAT! (LOL) Kuhaon na sa gobyerno. highly politicalized person, and you will make deposits, the bank
must scrutinize on whether or not it is connected with certain corrupt
The big commercial banks—the big 5: BPI, BDO, MetroBank, practices. So in a way, they are exempt from the secrecy of bank
UnionBank, PNB—pila ang balance nga kinahanglan? Minimum deposits. That is why it is important to harmonize these. The primer
balance nimo is P10,000 per savings account. Muubos na gani ka was dated April 10, 2012. So the new amendment of the Anti-Money
niana, magbayad ka na. Kuhaan na nang imong account every month laundering law, that is dated July 23, 2012 has not been included in
ug service fee. this primer.
Kung Rural bank gani, pila may minimum nimo ana? P100 lang. Now, So this primer and this recent law, plus the primers of the Anti-Money
makit-an na sa Solicitor General nga P2.00 na lang ang imong Laundering law and the Secrecy of Bank Deposits Act, I will give it to
balance, di na na malihok sa Solicitor general kay wala nay you. You are responsible for it.
madaginot ana. Wa gyud. Di na na malihok. Ari na na siya sa
commercial bank kay dako-dako na man na. Get this down as well as the Truth in Lending Act which we will take
up tomorrow. OKAY. Reflect on that. (LOL)
Ang P10,000 nimo kung walay lihok in 10 years, mahurot na! Kay ang
charges sa bangko, kada bulan man mu-deduct. Kung P100 ang
ilahang i-deduct, mahurot na in 10 years. FEBRUARY 18, 2016
[Segue: Now, I will tell you. Last week, the only country in the world to The law we will take up today is Truth in Lending Act.
apply the so-called negative interest to bank accounts is Japan.
Bisan unsa ka pa nga deposito, they will charge you every month to Is there an untruth in lending? YES! There is untruth in lending.
maintain your account in the bank. Dili na gani ka hatagan ug Consider this: Let's say you borrow P100 from the bank. And then the
interest, mubayad pa ka. Before it was zero-interest rate.] [Story bank would say, “Our charge would be 12% interest.” But then, before
continues about his brother when he was in Japan and about they release the P100, they will already deduct the 12%. Pila na may
groceries and brownout.] imong madawat? You will just receive P88. Nominally, P100 ang
imong gihulam. Pero kay gi-deduct na man nila ang interest—12%
interest which is P12.00 payable in one year—is there truth in the
FEBRUARY 17, 2016 declaration of the bank that there is a 12% interest? Namakak ang
bangko! Why?
*[NOTE: You may or may not read this part. xD BUT! Father
mentioned some important points here which we could take note of Pagbayad nimo ana P100. Di na ka mubayad sa interest kay gi-
for the third exam coverage. [end note]* deduct na man. Bayad nimo P100. Pero actually, what you borrowed
is only P88.00. Pag human, ang net proceeds nio kay P88.00 man.
Now, these are primers with respect to the laws that we are taking up. 12 divided by 88, pila may interest rate? 13.64% diay ang interest.
That is the effective rate of interest. Dili 12%. That is why, you must
We have the Secrecy of Bank Deposits which have undergone so be conscious of the nominal rate of interest and the effective rate of
many amendments. And I reckon that the best way is to follow the interest.
Bangko Sentral which is the agency that is in-charge of enforcing
this particular law. Nominal. Kana tong ilahang gibuhat nga rate of interest. Kana tong
tinuod nga interest. Ang effective rate of interest kay ang rate of
Now the Bangko Sentral has put out a primer on the secrecy of Bank interest which is what you are actually paying.
deposits. What is so special about this primer? It incorporates case
law and incorporates the Secrecy of bank Deposits Act and it P88.00 ray imong gidawat. P12.00 ang imong gibayad nga interest.
harmonizes it with the provisions with the General Banking Law and Deducted pa na at source kay bayaran man nimo daan. So 13.6%
with the exception of the lastest amendment of the Anti-Money diay ang imong interest rate kay mao na ang imong giibayran. That is
Laundering Law which missed this primer by 2 months. This primer why, there is this law. The law is called Truth in Lending Act.
would have been complete. So I will give you this primer and multiply
it—I will hold you responsible for it—plus a copy of the recent When was this effective—the Truth in Lending Act? June 22, 1963.
amendment to the Anti-Money Laundering law. This amendment (RA
10365) plus a primer of the Anti-Money laundering Act of 2001. Now, this is the only Act covered by a memorandum of the Bangko
2001 has been amended twice. 2004 and 2012. Sentral ng Pilipinas dictating that not only it should be placed visibly
in all branches of the bank, but also the size of the print. I will give

BANKING PAGE || 111
you a copy of the memorandum of the Bangko Sentral. payments of the purchase price of the vehicle.” And in the last
Memorandum No. M-2012-030: month, they will make a so-called Balloon payment. Dako-dako na
nga amount. Unya i-transfer na nimo. Mao na ang gitawag nga Lease
Pursuant to Section 4 of Circular No. 730 and Section 5 of Circular Purchase Agreement.
No. 754, dated July 20, 2011, and April 17, 2012, respectively,
which require banks and non-bank financial institutions to post the
rationale and importance of the truth and transparenccy in loan This is covered by the need for truth in lending. Ther is a need for
transactions, the following are the standard format of the poster: disclosure. You have to disclose it. What needs to be disclosed? Ato
1. Adobe Photoshop generated text and format shouldd have the ning tan-awon. This is already summarized ha:
following fonts/type face, font sizes andd color speccifications: • The total amount to be financed;
a) Header – Eurostile, font size 75 pts; font style bold; color • the finance charges and all other charges incident to the
#ffffff for the title, and font size 45 pts; fornt style bold; color loan;
#000000 for the subtitle wth background color #01b0ff; • net proceeds of the Loan;
b) Footer – Eurostyle, font size 45 pts; font style bold; color
• the schedule of payments;
#000000; and
c) Body – Adobe Caslon Pro, font size 13 pts; font style • the percentage that the finance charged bears of the total
regular; color #000000. amount to be financed, expressed as an effective interest
2. The prescribed dimension is 60 cm wide and 75 cm long. rate. EIR—Effective interest rate.
Attached is the sample poster which is downloadable at the Bsp So what the law is concerned is the Effective rate of interest and not
website at www.bsp.gov.oh the nominal rate of interest.
For guidance and implementation. Musulod gani kag bangko, pangitaon nimo ini. Hain man niini? Truth
(sgd. Nestor A. Espenilla, Jr. - Deputy Governor) in Lending Act. Wala gani, tawaga ang Bangko Sentral. “I am here
July 3, 2012 now in this bank. I have searched high and low, including their toilet.
There is no Truth in Lending Act in violation of your Circular No.
*[NOTE: refer to the handouts given]* 2012-030.”
Naa gyud! Niara. This is already simplified. Mao na man ni—kanang gi-explain nilag font size, etc. Mao na man
ni.
Now, what is the purpose of the Truth in Lending Act? According to
the law, the purpose of the Truth in Lending Act is to protect users of So, if you are a leasing company and you engaged in a contract of
credit from a lack of awareness of thr true cost of such credit by lease purchase agreement or leasing agreement, okay ra (?). [Segue:
assuring a full dislosure of such cost. The law assumes that the Now, just for your information, kanang mu-enter into a lease
uniformed use of credit is detrimental to the national economy. purchase agreement, kanang mga company nga nag lease ug kwarta,
Section 2. Declaration of Policy. It is hereby declared to be the policy
of the State to protect its citizens from a lack of awareness of the
ayawg tuo ana. Kanang mupahiram ug daghan kwarta, daghan man
true cost of credit to the user by assuring a full disclosure of such na sila. Kanang ginabayran nila kada bulan sa stretch pa sa lease is
cost with a view of preventing the uninformed use of credit to the expense. Taken away from gross. So expense. At the end, pag
detriment of the national economy. balloon payment ana, maimo na no? Pag imo na, ipareappraise pa na
nimo. Ngano man? For purposes of insurance. Pag reappraise ana,
Alright. What are the credit transactions covered by the scope of the naa nasad na sa imong libiro as asset. Pag naa na na sa imo as
act? The following: asset, imo nasad na i-deduct. Unsa man nga process? I-depreciate
1. any loans, mortgages, dates(?) of trust, advances and nasad na nimo. Mu-deduct nasad ka kada bulan. You treat the entire
disccounts. amount as asset.
2. Any conditional sales contracts and contract to sell or sale
of property or services, either for present or future delivery Dapat, expense na man na nimo kay gi-lease na man na nimo.
under which part of the cost of the price is payable Mubalik nasad na. E di mugamay ang imong taxable income. Mao na
subsequent to the making of such sale or contract. ang ginabuhat sa lease purchase agreement. Kanang naay dakong
3. Any rental purchase contract ginansya nga kompanya, mao nay musulod ug ingon ani. Tax
avoidance of the income tax.
Unsa man ning rental purchase contract? Or otherwise called Lease
Now, ang balaud, wala maluoy sa mga tao nga muusulod ana. Wala
Sale Agreement. Kanang mga leasing company gani. Factory ka unya
sila kaybaw nga kini diay siya, mao ni ang gakupit sa gobyerno nga
magsabot mo, “Ikaw magpalit sa truck. Unya i-endorse nimo. Unya
kada kuha nila, i-deduct na nila sa ilahang cost. By this rubric of
among abanga (?). Kada bulan, we will pay. At the end of 3-year
lease purchase agreement.
period nga nagsigi mig rrent nimo, I will have a choice (ang lessee
ang naay choice) to consider all the rental payments as installment

BANKING PAGE || 112
Diba irony? Nga gipalipdan (?) sila pero sila diay ang magpahimulos (4) the charges, individually itemized, which are paid or
kay mas gamay ra ang tax nga ilahang gibayran.] to be paid by such person in connection with the
transaction but which are not incident to the extension of
credit;
Again, what contracts are covered?
4. A contract for the hire, payment, or leasing of property (5) the total amount to be financed;
5. Any option, demand, lien, pledge, or other claim against or (6) the finance charge expressed in terms of pesos and
for delivery of property or money centavos; and
6. any purchase or other acquisition of or any credit of a (7) the percentage that the finance bears to the total
security of any obligation or claim arising out of any coourt amount to be financed expressed as a simple annual rate
ruling; and on the outstanding unpaid balance of the obligation.
7. any transaction or series of transactions having similar
purpose or effect.
So, kung muadto kag EMCOR, or sa DIMDI, or sa MotorStar City kay These are the following:
mupalit kay motor, refrigerator. Credit man na. Those who extend 1. The cash or delivered price of the property or service to be
credit—covered! They must have Truth in Lending Act dira. They must acquired. – This is total amount to be financed.
have it. Daghan violation ini. Tan-awa pa gud nang DIMDI kanang sa
mga diser dira kung mangutana kag pila man ang inyong bulan (nga 2. The amounts, if any, to be credited as downpayment or
bayronon). Ang motor nga P60-68K ra, unya paghuman sa lima ka paid-in value. – I-deduct man na sa imong utangon nga
tuig nimog bayad, wa na. Abot nag P150 na. Mahimo nag katulo! Wa amount.
na. Ang effective rate of interest ana, perting dagkua! And that
continues. 3. The difference between the amounts in items A and B. –
The cash value of the ___ or service less the downpayment
The right of the consumer is the right to—tan-awa na ninyo sa ubos or trade-in value. Mupalit ka ba ug GE nga refrigerator.
o. In Bold letters: IMPORTANT NOTICE: The borrower has the right rro Unya kay naa man kay karaan nga GE refrigerator. Then
demand a copy of the disclosure statement. ingnan ka sa dealer nga tanan nga GE ilahang dawaton. O
edi ilisdan man nag bag-o. “Pila may dawat nimo ini?” Apil
He has a right to demand a copy according to the law aron na sa disclosure. I-deduct man na nimo sa amount nga
makaybaw jud ka ug pila ang cost of credit nimo. Pero no choice man imong giutang kay nakwarta na man na nila. Gidawat na
ang kadaghanan ron. Dako jud ang interest. man na nila. I-less na sa amount nga imong giutang o
utangon nimo. Less.
What are the other credit transactions that are outside the scope of
this Act? 4. Charges
1. Those that do not involve the payment of any financed
charge indicator There are two kinds of charges: Financed charge and the Non-
2. Those in which the debtor is the one specifying the definite financial charges.
and fixed set of credit terms, such as: bank deposits,
insurance contracts, sale of bonds. What is an example of a Financed charge? Financed charge is
defined as amounts to be paid by the debtor incident to the extension
It is the debtor who fixes the fixed rate of interest. of credit. For instance: Interest, discount, collection fees, credit
investigation fees, attorney's fees. Muingon kag, “Nganong unsa man
Alright. What has to be revealed? nang attorney's fees?” Ah~ Kanang kung naay kay chattel mortgage.
Section 4. Any creditor shall furnish to each person to whom credit Mag execute man kag chattel mortgage unya mucharge man nag
is extended, prior to the consummation of the transaction, a clear abogado. Finance charge na. Incident to the credit.
statement in writing setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the Board, the What are the examples of Non-financed charges which you also have
following information: to disclose? Example: Kung muutang ka unya mupalit kag kotse.
(1) the cash price or delivered price of the property or Kanang insurance premium sa kotse sa imong insurance ana, that is
service to be acquired; a non-financed charge.
(2) the amounts, if any, to be credited as down payment
and/or trade-in; Kanang registration fee sa kotse. That is also a non-financed charge.
Bayran gihapon na nimo. Pero imo na man nang ___. That is for the
(3) the difference between the amounts set forth under account of the debtor.
clauses (1) and (2);

BANKING PAGE || 113
So: (review) [Segue: Now, mao man ning rules sa bangko. Usa ka tuig gani nga
1. Total amount to be financed way withdraw and way deposit, i-classify dayon na sa bangko nga
2. Finance charges and all other charges incident to the loan Dormant account. Naa gani tao nga musulod sa bangko nga
3. net proceeds of the Loan – kung pila jud ang imong magwithdraw ana, ang teller dili maka-decide ana. Mangadto na sa
nadawat. Pila jud ang imong nakumkom na imong gigamit. manager. Ang manager mucheck sa accountant. Unya silang tulo—
ang manager, teller, and accountant—will decide. Interbyuhon na nila
4. Schedule of payments;
ang tao. Because a dormant account is normally the account in
5. percentage that the finance charged – mao ni ang effective which the inner officials steal from it. Wala man ka kahibaw.
interest rate.
Tan-awa na kung dili i-follow ang procedure. Kung ako magbantay
Dili lang kay sulti-an ka nga, “Taga-i kog kopya ana.” Sultiii kay ko. Usa ka tuig na ni kay dormant na ni. Musugo kog isa ka tao nga
usahay tinonto jud ni. Ipakita na nimo. Mao na. Kinahanglan nga “Kani, depositohi ra gud ni.” Pag deposit, ma-active na. Pag na-
tagaan kag kopya. You have the right to demand a copy. “Nanong active na, sa sunod, siya nasad ang muadto. Siya nag mudeposit ana.
wala man ka taga-i?” “Wala man sya mudemand.” Tan-awa ra gud Di na kabantay ang bangko ana.]
na. Wala man muingon ang law nga “You MUST be given a copy.” Wa
man. Niingon man lang nga “You have a right to demand.” Mao ni So 1 year nga walay withdraw, walay deposit—dormant account na.
ang weakness aning balaura. [Segue: Pangutan-a pa gud nang tanan Sa unclaimed balances act, walay withdraw, walay deposit—10 years.
nga nangutang ug motor kung kaybaw ba sila sa interest rate. Di man Kana, times 10 na gud. Naa nay mas dakong kawatan: ang gobyerno.
na sila kaybaw. Wa gyud kaybaw! Pangutan-a anang nipalit sa low-
cost housing kung kaybaw ba sila kung pila jud ang ilahang giutang Do you see the logic?
ug ang pila ang bayran nila nga interest rate. Wala! Kaybaw sila sa
amount nga ilahang bayronon pero wala jud na sila kaybaw sa So, we are finished with Banking Laws. :)
effective interest rate. That is the weakness of the law. In the end, it
boils down to education. You trust me. This is the reason why you I just want to give you an analysis of the so-called Escalating interest
should know your decimals and fractions. Unya kung absent ka ato. rates. Is that legal—the escalation clause? Escalation clause means
Di na ka kaybaw sa imong fractions o kung unsa ba nimo pagdivide that you have agreed as to the initial interest rate of the loan. But
sa decimals.] then you also agreed that in the succeeding years, the interest rate
can be raised depending on the criteria. Is that valid? Basaha ni ninyo
All those who lend their credit are covered by the Truth in Lending ning inyong mga kaso ha. The analysis here.
Act. Karon ang bag-ong title karon because of the enhanced
implementation, it is now called Truth and Transparency in Lending Because, especially in this latest case of Spouses Juico vs China
Act. [Segue: Nag dugang-dugang pag words. Kung truth gani, Banking Corporation (April 10, 2013) , ni sign na siya. Kada tuig
transparent na.] ginatawagan na sya sa bangko nga musaka ang interest rate. The
escalation clause is void according to the Supreme Court.
So we are finished with the Truth in Lending Act! (YEY!) “This notwithstanding, we hold that the escalation clause is still
void because it grants respondent the power to impose an increased
We have gone through Anti-Money Laundering—the stages in the rate of interest without a written notice to petitioners and their
primer. Then, we have the exceptions to the Secrecy of Bank Deposits written consent. Respondent’s monthly telephone calls to
Act. And then we took up Truth in Lending Act. petitioners advising them of the prevailing interest rates would not
suffice. A detailed billing statement based on the new imposed
interest with corresponding computation of the total debt should
We also took up Unclaimed Balances Act. If you have a bank account
have been provided by the respondent to enable petitioners to make
—a savings account in the bank—and there is no withdrawal and no an informed decision. An appropriate form must also be signed by
deposit for 10 years, it becomes an unclaimed balance. The bank the petitioners to indicate their conformity to the new rates.
does not violate the secrecy of bank deposits if it inserts that Compliance with these requisites is essential to preserve the
account to a new name to the Solicitor General. Because the duty of mutuality of contracts. For indeed, one-sided impositions do not
the Solicitor General is to file an escheat case aron ma-gobyero na have the force of law between the parties, because such impositions
na. An escheat case is a forfeiture case valid against the whole are not based on the parties’ essential equality.
world. So naa nay publictation. Dili gani ka mutungha para mukuha
ana, you lose your right. Then the local government will appropriate
Modifications in the rate of interest for loans pursuant to an
it. escalation clause must be the result of an agreement between the
parties. Unless such important change in the contract terms is
Now, it is the Solicitor General who files the case. Makakita sya sa mutually agreed upon, it has no binding effect.46 In the absence of
imong deposit. Is there a violation of the secrecy? NO! Because the consent on the part of the petitioners to the modifications in the
Unclaimed Balances Act requires that. interest rates, the adjusted rates cannot bind them. Hence, we

BANKING PAGE || 114
consider as invalid the interest rates in excess of 15%, the rate

charged for the first year.”
Bisan ni-agree ka sa loan agreement, each time there is an increase,

there must be a written notice and there must be a written consent.
Daghan nitikangkang nga bangko niini. Mangita mog kaso ani.
Sigurado ang Attorney's fees. Ang bangko may mubayad ana. That is
collection of sum of money.
Wala na. Bangkero na mo tanan. Mu-istambay na mo sa

Bangkerohan. (LOL!)


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BANKING PAGE || 1

So technically speaking, there is no Central Bank of the

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Bangko Sentral, in which case such member shall resign Section 6:

Now, in the ordinary board of directors, a member of the board

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accommodation; officer of the bank, or his spouse is also director or officer

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November 25, 2015

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counsel as he may retain, institute such actions as foreclose na? It depends!

Receivership na gani, there is only one receiver for banks—and

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Because it has the highest standard of quantum of evidence

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November 26, 2015 Here is a conservator. Nakakita sya diri sa Collective

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Sentral. Ang imong ginansya, kintahay P4Bil nibagsak ang imong

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Section 66. Composition of the International cooperation required from other

(2) the remedial measures already taken A. CREDIT POLICY

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of price stability. prescribe additional safeguards for disbursing

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CHAPTER IV — INSTRUMENTS OF BANGKO SENTRAL

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