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Banking E1

The document discusses the legal evolution of central banking in the Philippines, including the Spanish, American, and Japanese periods. It also covers key aspects of the central banking system like the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) and its establishment, organization, and fiscal autonomy according to laws like the New Central Bank Act.

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0% found this document useful (0 votes)

309 views92 pages

Banking E1

Uploaded by

Vicco Gerona Piodos

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BANKING LAWS OF THE PHILIPPINES

3Manresa 2018-2019 | First Exam TSN

From the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA

RA 7653 4. The Philippine Republic

THE NEW CENTRAL BANK ACT
That’s why when we were liberalized, walang value yung pera
natin. That’s why they had to put up a central bank. The first
central bank law is RA 265 – the Central Bank of 1948. This was
21 Nov | Grancho & Sillada
apparently not sufficient enough to control. That’s why they
promulgated RA 7653 – The New Central Bank Act.
Essentially, the banking industry is about risk management.
They ask you to give your money to the bank, then they will lend
it out.
2. Establishment and Organization of the Bangko Sentral ng
Pilipinas
We have two policies – the fiscal policy and the monetary policy.
The banking is mainly engaged into the monetary policy. The
CHAPTER 1
fiscal policy – these are your taxes.
ESTABLISHMENT AND ORGANIZATION
OF THE BANGKO SENTRAL NG PILIPINAS
1. Legal Evolution of Central Banking
ARTICLE I
Creation, Responsibilities and Corporate
Why is it important to have a central bank? Diba ang banking
Powers of the Bangko Sentral
industry kasi is you have to manage the risk. Diba essentially
ang ginagawa ng bank is kumukuha ng money and give you a
certain interest, then they will lend it out. Imagine kung walang SECTION 1. Declaration of Policy. – The State shall
regulator. Imagine kung walang banking laws. What will happen maintain a central monetary authority that shall function and
if you deregulate the banking industry? Would you think, pag operate as an independent and accountable body corporate
ganun, the banks will be able to repay dun sa mga naglend ng in the discharge of its mandated responsibilities concerning
money? There is an immense risk for them to default in their money, banking and credit. In line with this policy, and
payments. Why? Kasi wala nang scrutiny kung kanino nila considering its unique functions and responsibilities, the
ilelend ang money. central monetary authority established under this Act, while
being a government-owned corporation, shall enjoy fiscal and
The central bank laws is the epitome of human experience and administrative autonomy.
the formal expression of public policies and societal goals.
(Zuniga, The Legal Framework of Central Banking (2009)) The main policy of establishing a central bank is actually to
function and operate as an independent and accountable body
Four periods corporate regarding money, banking, and credit, and it has fiscal
and administrative autonomy.
1. The Spanish Period (1521-1898)
In this case of Reyes v. Rural Bank of San Miguel, itong si
We have the Spanish period, wherein the Philippines was Reyes, he was an officer of the Central Bank who was
colonized for about 300 years. The problem was that there were examining the Rural Bank of San Miguel. Ang Rural Bank of San
so many currencies. May mga barter pa nga. It was really hard Miguel is bankrupt na. Ang sabi, it was a violation of his duty as
to regulate. How much was the value of this currency compared an officer kasi he acted as a broker para ibenta yung bangko.
to that currency? So the Queen Isabela formulated a royal
decree, wherein the peso were minted in the Philippines. But However, the Court said no. You cannot put in a cookie cutter
this is not really sufficient enough. There was no central banking yung duties ng Central Bank officers, because sabi ng Court:
during that time. So yes, there was stability of the currency, but
there were no regulations as to the banking. Reyes v. Rural Bank of San Miguel
G.R. No. 154499
2. The American Period (1899-1941)
Facts
But then again, we were sold to the Americans in the Treaty of Reyes is a BSP official who allegedly did brokering, in
Paris. The Americans were far advanced than us, so they tried violation of the standards of professionalism.
to introduce the concept of central banking in the Philippines.
Issue
3. The Japanese Occupation (1942-1945) Whether Reyes conducted himself in an unprofessional
manner in doing the acts imputed to him.
However, when the Japanese came, there was a military note –
the Mickey Mouse note. The problem is that during the Ruling: No
Japanese occupation, they did not allow other currencies to be It appears to the Court that in keeping with the standards of
a medium of exchange. They only allowed the Mickey Mouse professionalism and heeding the mandate of his position, he
notes. made the telephone introductions for no other purpose but to
pave the way for a possible consolidation or merger of RBSMI

with interested banks. It is the policy of the BSP to promote

mergers and consolidations by providing incentives to banks A perusal of Section 9(3) of BP 129 reveals that the BSP
that would undergo such corporate combinations. To Monetary Board is not included among the quasi-judicial
effectively implement the policy, it was necessary that the agencies explicitly named therein, whose final judgments,
banks be advised and assisted by a person knowledgeable orders, resolutions or awards are appealable to the Court of
about the transactions like Reyes. Appeals. Such omission, however, does not mean that the
Court of Appeals has no appellate jurisdiction over the
It cannot be overemphasized that the BSP is an independent judgments, resolutions, orders or awards of the BSP
body corporate bestowed under its charter with fiscal and Monetary Board.
administrative autonomy. As such, its officials should be
granted a certain degree of flexibility in the performance of The use of the word including in said provision, prior to the
their duties and provided insulation from interference and naming of several quasi-judicial agencies, necessarily
vexatious suits, especially when moves of the kind are conveys the very idea of non-exclusivity of the enumeration.
resorted to as counterfoil to the exercise of their regulatory A quasi-judicial agency or body is an organ of government
mandate. Elsewise, the institutional independence and other than a court and other than a legislature, which affects
autonomy of the BSP as the central mandatory authority the rights of private parties through either adjudication or rule-
would be rendered illusory. making.

In this particular case, the Court said that he is not liable Undoubtedly, the BSP Monetary Board is a quasi-judicial
because he did not violate his duties as a central bank officer. agency exercising quasi-judicial powers or functions. As aptly
observed by the Court of Appeals, the BSP Monetary Board
The Central Bank actually has fiscal autonomy. Fiscal is an independent central monetary authority and a body
autonomy is exemplified in the following instances: corporate with fiscal and administrative autonomy, mandated
 non-reliance on Congress for budgetary support, as its to provide policy directions in the areas of money, banking,
funds are generated from its own operations. and credit. It has power to issue subpoena, to sue for
 flexibility to fix the remunerations of its personnel contempt those refusing to obey the subpoena without
 recruit competent personnel justifiable reason, to administer oaths and compel
 prepare its own plantilla without interference from other presentation of books, records and others, needed in its
agencies of the government examination, to impose fines and other sanctions, and to
 adoption of an annual budget, with power to authorize issue cease and desist order. Section 37 of RA 7653, in
expenditure particular, explicitly provides that the BSP Monetary Board
shall exercise its discretion in determining whether
Please take note that the policy under Section 1, Article 1 is to administrative sanctions should be imposed on banks and
create an independent and accountable body. How can it be quasi-banks, which necessarily implies that the BSP
independent when it depends on Congress? Kaya siya may Monetary Board must conduct some form of investigation or
sariling laws on creating its own funds. hearing regarding the same.

It also has administrative autonomy, which is the degree of So it is independent and it enjoys fiscal and administrative
freedom from intervention and interference by other agencies autonomy. Why is it important for it to be an independent body?
necessary to ensure the independence of the BSP. This is
illustrated by the fact that it has the flexibility to establish a Original Provision
human resource management system, while the Governor has
the rank of department head whose appointment is not subject SEC. 2. Creation of the Bangko Sentral. – There is hereby
to confirmation by the CA. And in general, the decisions of the established an independent central monetary authority,
Monetary Board are not subject to administrative review, and which shall be a body corporate known as the Bangko Sentral
can only be judicially reviewed by way of certiorari. ng Pilipinas, hereafter referred to as the Bangko Sentral.

UCPB v. E. Ganzon The capital of the Bangko Sentral shall be Fifty billion pesos
G.R. No. 168859 & G.R. No. 168897 (P50,000,000,000), to be fully subscribed by the Government
of the Republic, hereafter referred to as the Government, Ten
Issue billion pesos (P10,000,000,000) of which shall be fully paid
Whether the Court of Appeals has jurisdiction over appeals for by the Government upon the effectivity of this Act and the
of decisions, orders and/or resolutions of the BSP Monetary balance to be paid for within a period of two (2) years from
Board on administrative matters the effectivity of this Act in such manner and form as the
Government, through the Secretary of Finance and the
Ruling: Yes Secretary of Budget and Management, may thereafter
Truly, there is nothing in RA 7653 which explicitly allows an determine.
appeal of the decisions of the BSP Monetary Board to the
Court of Appeals. However, this shall not mean that said Proposed Amendment
decisions are beyond judicial review.

SEC. 2. Creation of the Bangko Sentral. – There is hereby The primary objective of the Bangko Sentral is to maintain
established an independent central monetary authority, price stability conducive to a balanced and sustainable
which shall be a body corporate known as the Bangko Sentral growth of the economy. It shall also promote and maintain
ng Pilipinas, hereafter referred to as the Bangko Sentral. monetary stability and the convertibility of the peso.

The capital of the Bangko Sentral shall be two hundred billion The Bangko Sentral shall promote financial stability and
pesos (P200,000,000,000), to be fully subscribed by the closely work with other relevant bodies including, but not
Government of the Republic, hereafter referred to as the limited to, the Securities and Exchange Commission, the
Government. The unpaid subscription shall be fully paid for Philippine Deposit Insurance Corporation, and the National
by the Government in cash and/or government securities Government.
upon effectivity of this Act. Thereafter the adequacy of the
capitalization shall be subject to review every five (5) years The Bangko Sentral shall oversee the payment and
and adjusted upon joint recommendation by the Secretary of settlement systems in the Philippines, including critical
Finance, the Secretary of Budget and Management and the financial market infrastructures, in order to promote sound
Monetary Board. The payment of any unpaid subscription and prudent practices consistent with the maintenance of
and/or increase in capitalization shall be automatically financial stability.
appropriated in the annual General Appropriations Act.
In the attainment of its objectives, the Bangko Sentral shall
Peculiarity of this law: It is entitled the New Central Bank Act, promote broad and convenient access to high quality
but the body that was created is not actually Central Bank but financial services and consider the interest of the general
Bangko Sentral. Technically, you don’t refer to our central bank public.
as Central Bank. You refer to our central bank as Bangko
Sentral ng Pilipinas. Maintain price stability – that is the main objective of Bangko
Sentral. It shall also promote and maintain monetary stability
Since it is to be established as a body corporate, it must have a and the convertibility of the peso. So you have: (1) price stability,
capitalization. Ang capitalization niya is 50 billion, of which 10 (2) monetary stability, (3) convertibility of the peso.
billion is the initial paid-up capital.
Price stability
Original Provision
Price stability in an economy means that the general price level
SEC. 3. Responsibility and Primary Objective. – The in an economy does not change much over time. In other words,
Bangko Sentral shall provide policy directions in the areas of prices neither goes up or down; there is no significant degree of
money, banking, and credit. It shall have supervision over the inflation or deflation.
operations of banks and exercise such regulatory powers as
provided in this Act and other pertinent laws over the So the value of your money now should be the value of your
operations of finance companies and non-bank financial money over a period of time. Why? Is it really bad to have an
institutions performing quasi-banking functions, hereafter inflation? It does not mean 3ay un may inflation, the economy is
referred to as quasi-banks, and institutions performing similar bad. It may be a means to control prices and interest rates, kasi
functions. anong mangyayari pag hindi kinocontrol yun?

The primary objective of the Bangko Sentral is to maintain Monetary policy

price stability conducive to a balanced and sustainable
growth of the economy. It shall also promote and maintain  The term monetary policy refers to the decisions that a
monetary stability and the convertibility of the peso. government makes concerning interest rates and the
supply of money in an economy. Monetary policy can
Proposed Amendment be used to try to keep prices stable.
 The Bangko Sentral maintains price stability through
SEC. 3 Responsibility and Primary Objective. – The responsive and effective monetary policy.
Bangko Sentral shall provide policy directions in the areas of  The framework for conducting monetary policy formally
money, banking, and credit. It shall have supervision over the adopted by the Bangko Sentral is inflation targeting.
operations of banks and exercise such regulatory and
examination powers as provided in this Act and other Anong mangyayari pag hindi mo kinocontrol ang interest? It
pertinent laws over the quasi-banking operations of non-bank might have an impact on the supply of money. Kasi kung
financial institutions. As may be determined by the Monetary masyadong mataas ang interest rate, what do you think the
Board, it shall exercise regulatory and examination powers people’s reaction would be? Bigay lahat sa banking system.
over money service businesses, credit granting businesses, What would happen to the money in circulation?
and payment system operators. The Monetary Board is
hereby empowered to authorize entities or persons to engage Monetary policy instruments
in money service businesses.
 Operations in gold and foreign exchange

 Regulations of foreign exchange operations of banks Commissioner of Customs v. Eastern Sea Trading
 Loans to banking and other financial institutions G.R. No. L-14279
 Open market operations
 Bank reserves Facts
 Moral suasion Eastern Sea Trading was the consignee of several
 Selective regulation of bank operations shipments, none of which had the certificate required by
Central Bank Circulars Nos. 44 and 45 for the release thereof.
What is moral suasion? It is the act of persuading the person or Thus, the goods were seized and subjected to forfeiture
group to act in a certain way through rhetorical appeals, proceedings.
persuasion or implicit threats, as opposed to the use of outright
coercion or force. It is commonly used in reference to central Eastern Sea Trading argued: that the Central Bank has no
banks. authority to regulate transactions not involving foreign
exchange; that the shipments in question are in the nature of
Monetary stability and convertibility of peso “no-dollar” imports; that, as such, the aforementioned
shipments do not involve foreign exchange.
Monetary stability pertains to the stability of peso and its
international value for current payments for foreign trade and Issue
invisibles. Whether the Central Bank has the authority to regulate no-
dollar imports
Why is it important to have convertibility of peso or currency? To
make it simple, it is necessary for foreign trade. Ruling: Yes
The authority of the Central Bank to regulate no-dollar
You know Renminbi – the currency of China? It’s not really freely imports and the validity of the aforementioned Circular Nos.
traded, that’s why there’s a problem in getting money in and out. 44 and 45 have already been passed upon and repeatedly
Why is it so hard to get the money out? It’s not really hard, its upheld by this Court for the reasons that the broad powers of
just that there are severe regulations sa kanilang central bank the Central Bank, under its charter, to maintain our monetary
because the Renminbi is not heavily traded. Pag heavily traded, stability and to preserve the international value of our
mas madali. currency, under Section 2 of RA 265, in relation to Section 14
of said Act – authorizing the bank to issue such rules and
Let’s say meron kang service na nirender sa China. Nag-bill ka regulations as it may consider necessary for the effective
sa company dun. Siyempre makakareceive ka ng money. Now discharge of the responsibilities and the exercise of the
it’s so hard for the money to get out of China. Kasi ano bang powers assigned to the Monetary Board and to the Central
source document na ibibigay mo dun? Your service contract. Bank – connote the authority to regulate no-dollar imports,
Now, napoproliferate kasi ang mga sham documents. That’s owing to the influence and effect that the same may and do
why bago nila ilalabas yan, they will review that properly, tapos have upon the stability of our peso and its international value.
iconvert into dollar.
So kahit no-dollar imports yan, you have to consider the
Ang central bank dun, sobrang higpit kas inga hindi heavily payments. It still has to be under the auspices of convertibility of
traded ang Renminbi. The scrutiny and the review ay peso.
masyadong matagal. So kung ngayong ang transaction, ma-
clear yan in two or three months. It’s not heavily traded, so it has Again, Central bank supervises and regulates banks. The
to be converted into dollar (a heavily traded currency), then to Bangko Sentral promotes financial stability and supervision of
your own currency. Anong mangyayari dun sa three-month banks and regulation of finance companies, quasi-banks, etc.
period 4ay un? You have your forex difference. So pwede na
ang marereceive mo dapat is 1000, pero ang nareceive 4ay u Coverage of the supervision and regulatory powers of BSP
lang is 800, because of the forex difference. - banks,
- subsidiaries and affiliates of banks and related allied
That’s why there are institutions engaged in the service of activities of quasi banks,
foreign currency hedging. Let’s say ang marereceive ko, i-peg - subsidiaries and affiliates of quasi banks engaged in
ko siya as 50 pesos per 1 dollar. So I would go to the financial allied activities
institutions, mag-ooffer siya ng hedging. “Sige, I will ensure na - other institution such as non-stock savings and loans
50 ang matatanggap mo. Now pag tataas ang value ng dollar, association, pawnshop, money changers, remittance
let’s say magiging 51, ako ang mag-gain. Kung bababa ang agents, trust companies
value ng dollar, ako ang magbibigay sayo ng difference.” So
hedging to secure any foreign currency risk.
DBP v COA
Now a good question: Is that tantamount to an allied activity of G.R. No. 88435
a banking institution? We will determine that later on when we
go to Allied Activities. Facts

New COA Chair questioned the Central Bank Circular Bank’s constitutional power of “supervision” over banks
allowing a private external auditor for DBP which is a under Section 20, Article XII of the Constitution. This
government bank. The circular allegedly encroached upon provision states as follows:
COA’s constitutional and statutory power to audit government
agencies. “Sec. 20. The Congress shall establish an independent
central monetary authority, the members of whose governing
Issue board must be natural-born Filipino citizens, of known probity,
Whether or not the constitutional power of the COA to integrity, and patriotism, the majority of whom shall come
examine and audit the DBP is exclusive and precludes a from the private sector. They shall also be subject to such
concurrent audit of the DBP by a private external auditor other qualifications and disabilities as may be prescribed by
law. The authority shall provide policy direction in the areas
Ruling: NO of money, banking, and credit. It shall have supervision over
the operations of banks and exercise such regulatory powers
The resolution of the primordial issue of whether or not the as may be provided by law over the operations of finance
COA has the sole and exclusive power to examine and audit companies and other institutions performing similar
government banks involves an interpretation of Section 2, functions.” (Emphasis supplied)
Article IX-D of the 1987 Constitution. This Section provides
as follows: Historically, the Central Bank has been conducting
periodic and special examination and audit of banks to
“Sec. 2. (1) The Commission on Audit shall have the power, determine the soundness of their operations and the
authority, and duty to examine, audit, and settle all accounts safety of the deposits of the public. Undeniably, the
pertaining to the revenue and receipts of, and expenditures Central Bank’s power of “supervision” includes the power to
or uses of funds and property, owned and held in trust by, or examine and audit banks, as the banking laws have always
pertaining to, the Government, or any of its subdivisions, recognized this power of the Central Bank.31 Hence, the
agencies, or instrumentalities, including government-owned COA’s power to examine and audit government banks must
or controlled corporations with original charters, x x x. be reconciled with the Central Bank’s power to supervise the
same banks. The inevitable conclusion is that the COA and
“(2) The Commission shall have the exclusive authority, the Central Bank have concurrent jurisdiction, under the
subject to the limitations in this Article, to define the scope of Constitution, to examine and audit government banks.
its audit and examination, establish the techniques and
methods required therefore, and promulgate accounting and
auditing rules and regulations, including those for the In other words, the COA has no exclusive authority to audit
prevention and disallowance of irregular, unnecessary, government banks.
excessive, extravagant, or unconscionable expenditures, or
uses of government funds and properties.” Why is that so? Hindi kaya redundant na mag audit ang COA
tapos mag audit din ang BSP? (They have different
The COA vigorously asserts that under the first paragraph of objectives/goals)
Section 2, the COA enjoys the sole and exclusive power to
examine and audit all government agencies, including the Objective of COA’s audit: to determine if the expense of the
DBP. government is really within the budget allotted to them

The bare language of Section 2, however, shows that the Objective of BSP’s audit: to determine the soundness of the
COA’s power under the first paragraph is not declared bank’s operations and the safety of the deposits of the public
exclusive, while its authority under the second
paragraph is expressly declared “exclusive.” There is a Kaya sila merong right to supervise and regulate banks kasi ito
significant reason for this marked difference in language. yung objective. Are there operations sound? Are they in
The qualifying word “exclusive” in the second paragraph of compliance with their duty to the public.
Section 2 cannot be applied to the first paragraph which is Now, the Central Bank’s power of “supervision” includes the
another sub-section of Section 2. Thus, the first paragraph of power to examine and audit banks, so si BSP masyadong broad
Section 2 must be read the way it appears, without the word ang kanyang supervisory powers. Now it involves the audit in
“exclusive”, signifying that non-COA auditors can also relation to its supervisory powers. Nagkataon lang na si COA
examine and audit government agencies. Besides, the meron ding power to audit.
framers of the Constitution intentionally omitted the word
“exclusive” in the first paragraph of Section 2 precisely to So kung i rereconcile mo sila, don lang sila nagkakaron ng
allow concurrent audit by private external auditors. concurrent jurisdiction—the right to audit with regards to
the finances because you cannot supervise to determine
the sound practice of a bank or if its provides safety to the
There is another constitutional barrier to the COA’s insistence public if you do not audit. In other words, don lang sila nag
of exclusive power to examine and audit all government ooverlap.
agencies. The COA’s claim clashes directly with the Central

The right and supervisory powers of BSP are broader than the u nag ta-transact eh. So that has an impact on our monetary
COA. policy.

The BSP not only audits government banks but also private Please take note, kaya nandito an gang OBUs because it has a
banks while the COA only audits government banks because positive impact in the economy.
the funds taken by the government banks came from the coffers
of the government. That’s why nag au-audit ang COA. If you are employed in the OBUs or Petroleum Corporation, how
much is your income tax rate? Supposedly 15% sa sweldo mo,
kaya maraming nag aaply dyan na mga Pinoy. Because of the
BANKS TRAIN law, they’ve abolished that. Ang nangyari, it was vetoed
- entities engaged in the lending of funds obtained in the by the President, sabi nya tanggalin ito, mataas na nga yung
form of deposits compensation, para saan pa itong 15% na incentive. But this is
only effective to employees employed to OBUs registered after
- Universal Banks the effectivity of the TRAIN law (January 1, 2018). If there are
- Commercial Banks existing registered OBUs, they can use the same tax rate (15%).
- Thrift Banks composed of:
o Savings and mortgage banks
o Stock savings and loans associations and
o Private development bank OTHER INSTITUTIONS
- Rural Banks - Non-stock savings and loan associations
- Cooperative Banks - Pawnshops
- Islamic Banks, and
- Other classifications
Let’s go to the place of business.

We have said earlier there’s a specie called quasi-bank, ano yun SECTION 4. Place of Business. — The Bangko Sentral
murag bangko? shall have its principal place of business in Metro Manila, but
may maintain branches, agencies and correspondents in
QUASI-BANKS such other places as the proper conduct of its business may
- Entities engaged in the borrowing of funds through the require.
issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes for purposes of re- Why is it important to have a place of business? Because this
lending or purchasing receivables and other will be the basis for your venue of actions
obligations

So if you are an entity engaged in discounting of receivables, for SECTION 5. Corporate Powers. — The Bangko Sentral is
example may receivables ako sa kanya, nangutang ka sa akin, hereby authorized to adopt, alter, and use a corporate seal
gusto ko ng cash pero di pa sya makabayad, ang gagawin ko, which shall be judicially noticed; to enter into contracts; to
may isang tao (third person) bigyan nya ako ng cash at ibibigay lease or own real and personal property, and to sell or
ko sa kanya (ang receivables) with recourse, you are a quasi- otherwise dispose of the same; to sue and be sued; and
bank. It’s because in effect you are engaged in the borrowing of otherwise to do and perform any and all things that may be
funds through the issuance, endorsement or assignment with necessary or proper to carry out the purposes of this Act.
recourse.
The Bangko Sentral may acquire and hold such assets and
incur such liabilities in connection with its operations
OFFSHORE BANKING UNITS authorized by the provisions of this Act, or as are essential to
- OBUs are branches, subsidiaries, or affiliates of a the proper conduct of such operations.
foreign banking corporation which are duly authorized
by the Bangko Sentral to transact offshore banking The Bangko Sentral may compromise, condone or release,
business in the Philippines in whole or in part, any claim of or settled liability to the
Bangko Sentral, regardless of the amount involved, under
So sinong mga clients nitong OBUs? Foreign branch sya diba, such terms and conditions as may be prescribed by the
so lets say MayBank. Or let’s say merong Bank of the Monetary Board to protect the interests of the Bangko
Netherlands, tapos may branch sila 6ay u and are engaged in Sentral.
offshore banking. Sino ang mga depositors nila? Mga Pilipino?
Hindi. Mga foreigner din. POWERS OF THE BANGKO SENTRAL
- adopt, alter, and use a corporate seal
Why does the governmet allow OBUs to do business in the PH? - enter into contracts;
In fact may tax incentive pa. Kasi pag may OBUs here in the PH, - lease or own real and personal property,
it means the exchange of foreign currencies are liquid kasi 6ay - sue and be sued

- acquire and hold such assets and incur such liabilities the provisions of this subsection, three (3) shall have
in connection or as are essential to the conduct of its a term of six (6) years, and the other two 2), three
operations (3) years.
- compromise, condone or release, in whole or in part,
any claim of or settled liability to the Bangko Sentral,
- do and perform any and all things that may be No member of the Monetary Board may be reappointed more
necessary or proper to carry out the purposes of RA than once.
7653
On Sec 6©: So this is what we call rotational system in your
Why is it important to delineate the powers of a body corporate? Admin Law
Because remember a body corporate is an artificial being
created by law. It’s not the same as humans. It has no heart and Take note, no member of the monetary board may be appointed
body, it has no soul. So the body corporate also has powers more than twice.
limited by the law or that which created the corporation. It
has to be limited, hindi naman pwedeng may unlimited powers
sila, it has no carnal body or soul. Calderon v Carale
G.R. No. 91636
To summarize, the BSP has the same powers as any body
corporate or private corporation. Facts
RA 6715 was passed on 1989 amending PD 442 of the Labor
Code. It states that the NLRC Chairman and Commissioners
3. The Monetary Board shall be appointed by the President subject to the
confirmation of the Commission on Appointments. Calderon
Let’s go to the monetary board which can be liken to a board of questioned the appointment of Carale as NLRC Chair saying
directors of a corporation that it is subject to the confirmation of the CA.

ARTICLE II Issue
The Monetary Board Whether or not Congress may, by law, require confirmation
by the Commission on Appointments of appointments
extended by the president to government officers additional
SECTION 6. Composition of the Monetary Board. — The to those expressly mentioned in the first sentence of Sec. 16,
powers and functions of the Bangko Sentral shall be Art. VII of the Constitution whose appointments require
exercised by the Bangko Sentral Monetary Board, hereafter confirmation by the Commission on Appointments.
referred to as the Monetary Board, composed of seven (7)
members appointed by the President of the Philippines for a Ruling: NO
term of six (6) years. Sec. 16. The President shall nominate and, with the consent
of the Commission on Appointments, appoint the heads of
The seven (7) members are: the executive departments, ambassadors, other public
(a) the Governor of the Bangko Sentral, who shall be ministers and consuls, or officers of the armed forces from
the Chairman of the Monetary Board. The Governor the rank of colonel or naval captain, and other officers whose
of the Bangko Sentral shall be head of a department appointments are vested in him in this Constitution. He shall
and his appointment shall be subject to confirmation also appoint all other officers of the Government whose
by the Commission on Appointments. Whenever the appointments are not otherwise provided for by law, and
Governor is unable to attend a meeting of the Board, those whom he may be authorized by law to appoint. The
he shall designate a Deputy Governor to act as his Congress may, by law, vest the appointment of other officers
alternate: Provided, That in such event, the lower in rank in the President alone, in the courts, or in the
Monetary Board shall designate one of its members heads of departments, agencies, commissions, or boards.
as acting Chairman;
The President shall have the power to make appointments
(b) a member of the Cabinet to be designated by the during the recess of the Congress, whether voluntary or
President of the Philippines. Whenever the compulsory, but such appointments shall be effective only
designated Cabinet Member is unable to attend a until disapproval by the Commission on Appointments or until
meeting of the Board, he shall designate an the next adjournment of the Congress.
Undersecretary in his Department to attend as his
alternate; and Confirmation by the Commission on Appointments is required
only for presidential appointees mentioned in the first
sentence of Section 16, Article VII, including, those
(c) five (5) members who shall come from the private officers whose appointments are expressly vested by the
sector, all of whom shall serve full-time: Provided, Constitution itself in the president (like sectoral
however, That of the members first appointed under representatives to Congress and members of the

constitutional commissions of Audit, Civil Service and element of the internal administration of the said
Election). institution.

Ang position ng SC ay those positions subject to the In effect, the governor is likened to a department head of the
confirmation of the Comm of Appointments are limited to the first government.
sentence of Sec 16, Art VII of the 1987 Constitution.
So question, is this valid na nilagay sa New Central Bank Act na So this next case, ito sana meron 8ay un8 tayong sagot WON it
ang Governor is subject to the confirmation of the Commission is constitutional for the governor to be confirmed by the
of Appointments? Commission on Appointment. This should have been the key to
answer to that question. Did it answer the question? NO
Student: It is not valid.

Sir: (Referring to the case) It was invalidated, the labor code yun, Tarrosa v Singson
kasi it was expressly specified sa Constitution. Ito kaya, is the G.R. No. 111243 (1994)
Governor of BSP one of those mentioned positions in the
Constitution? We have no jurisprudence for that. But please take Facts
note of the Calderon case which is instructive as to the NLRC A petition for prohibition was filed questioning the
Chair position. There is yet no challenge as to the BSP. appointment of Singson as Governor of BSP for not having
been confirmed by the Commission on Appointments.
So kung tatanungin kayo is it constitutional or unconstitutional?
Issue
WON the petition should be given due course

Esperanza v Castilla Ruling: NO

G.R. No. L021810 It is obvious that the instant action was improvidently brought
by petitioner. To uphold the action would encourage every
Facts disgruntled citizen to resort to the courts, thereby causing
Esperanza, a Central Bank employee, was charged of incalculable mischief and hindrance to the efficient operation
dishonesty and violations of regulations, as set forth in the of the governmental machinery (See Roosevelt v. Draper, 7
letters sent to the CB. He was suspended and was Abb. Pr. 108, 23 N.Y. 218).
investigated by a committee as directed by the Governor of
the Central Bank. Esperanza questioned this power and Its capstone having been removed, the whole case of
authority of the Governor petitioner collapses. Hence, there is no need to resolve the
question of whether the disbursement of public funds to pay
Issue the salaries and emoluments of respondent Singson can be
WON the Governor as the officer-in-charge has the power to enjoined. Likewise, the Court refrains from passing upon the
discipline as a department head constitutionality of Section 6, R.A. No. 7653 in deference to
the principle that bars a judicial inquiry into a constitutional
Ruling: YES question unless the resolution thereof is indispensable for the
determination of the case (Fernandez v. Torres, 215 SCRA
Indeed, the charter of the Central Bank (Republic Act No. 489 [1992]).
265) explicitly provides 4 that the “Governor of the Central
Bank shall be the principal representative of the Monetary However for the information of all concerned, we call attention
Board and of the Bank”, and that 5 he “shall be the chief to our decision in Calderon v. Carale, 208 SCRA 254 (1992),
executive of the Central Bank, with authority, inter alia “to with Justice Isagani A. Cruz dissenting, where we ruled that
direct and supervise the operations and internal Congress cannot by law expand the confirmation powers of
administration” of the Bank. It is obvious that, whereas the the Commission on Appointments and require confirmation of
functions of the Monetary Board may be compared to those appointment of other government officials not expressly
of the Board of Directors of a corporation, the role of the mentioned in the first sentence of Section 16 of Article VII of
Governor of the Central Bank may, in turn, be likened to that the Constitution.
of president and general manager of such corporation, with
the duties and responsibilities of a department head of the
government.
According to the SC, the petition is actually in the nature of a
In fact, the Governor’s duty to direct and supervise the quo warranto proceeding. Sino dapat ang nag file ng quo
operations and internal administration of the bank warranto proceeding? It should have been commenced by the
logically entails the power to prefer charges against Solicitor General.
erring officials of the Bank and to see to it that said
charges are properly investigated, this being an intrinsic

Ang ginawa ng Court, they dismissed the petition due to financial institution or has a substantial interest in any private
technicalities. They did not rule on the merits. It should have bank in the Philippines, within one (1) year prior to his
been an opportunity for them to clarify the matter (on the appointment; likewise, no member of the Monetary Board
requirement of confirmation) pero di nila clinarify. shall be employed in any such institution within two (2) years
after the expiration of his term except when he serves as an
official representative of the Philippine Government to such
institution.
MONETARY BOARD MEMBERSHIP
- Chairman, the Governor is the Chairman of the So you see, how the law tries to manintain the integrity of the
Monetary Board Monetary masyado syang restricted, kasi of course of its
- Cabinet Member, Can it be the Secretary of Finance? important function.
Yes
- Members of the Private Sector: Fulltime
- Reappointment DISQUALIFICATIONS
- Collegial Body: Members of the Monetary Board has - Director, officer, employee, consultant, lawyer, agent
no individual powers as each of them only act as such or stockholder of any bank, quasi-bank or any other
member of the Monetary Board institution which is subject to supervision or
- Rotational System examination by the Bangko Sentral

SECTION 7. Vacancies. — Any vacancy in the Monetary Meaning, you have conflict of interest, you are
Board created by the death, resignation, or removal of any disqualified. In which case such member shall resign
member shall be filled by the appointment of a new member from, and divest himself of any and all interests in such
to complete the unexpired period of the term of the member institution.
concerned.
Please take note, if you’re a stockholder, kahit 1 share,
SECTION 8. Qualifications. — The members of the you are disqualified. Hindi naman specified na majority
Monetary Board must be natural-born citizens of the stockholder ka.
Philippines, at least thirty-five (35) years of age, with the
exception of the Governor who should at least be forty (40) - BSP Circular 969 Series of 2017
years of age, of good moral character, of unquestionable
integrity, of known probity and patriotism, and with Stockholder shall refer to any stockholder of record in
recognized competence in social and economic disciplines. the books of the Bank acting personally, or through an
attorney-in-fact; or any other person duly authorized by
What’s the difference between character and reputation? him or through a trustee designated pursuant to a
proxy or voting trust of other similar contracts, whose
In the old law, this is actually specialized. Ang nakalagay, “the stockholdings in the Bank, individual and/or collectively
member must have recognized competence in economics, with the stockholdings of:
banking, finance, commerce, agriculture or industry”
(1) his spouse and/or relative within the first degree
Pero ngayon, ang nakalagay na lang “social and economic by consanguinity or altinity or legal adoption;
disciplines”. Apparently, meron naming mga taong walang
degree on those areas pero can provide important inputs, (2) a partnership in which the stockholder and/or the
information on policy. spouse and/or any of the aforementioned relatives
is a general partner; and
SECTION 9. Disqualifications. — In addition to the
disqualifications imposed by Republic Act No. 6713, a (3) corporation, association or firm of which the
member of the Monetary Board is disqualified from being a stockholder and/or his spouse and/or the
director, officer, employee, consultant, lawyer, agent or aforementioned relatives own more than fiftv
stockholder of any bank, quasi-bank or any other institution percent (50%) of the total subscribed capital stock
which is subject to supervision or examination by the Bangko of such corporation, association or firm,
Sentral, in which case such member shall resign from, and
divest himself of any and all interests in such institution before amount to one percent (1%) or more of the total
assumption of office as member of the Monetary Board. subscribed capital stock of the Bank

The members of the Monetary Board coming from the private Ano yung proxy or voting trust? Pwede naming di
sector shall not hold any other public office or public nakapangalan sa member of the Monetary Board yung
employment during their tenure. stocks pero may voting rights agreement. Meaning the
shares are held in trust in that particular member of the
No person shall be a member of the Monetary Board if he has monetary Board. Since he is the beneficiary of that
been connected directly with any multilateral banking or

particular stock, disqualified sya. We will discuss 28 Nov | Fabe & Peroy
extensively proxy voting rights in Corporation Law.
Section 10. Removal. - The President may remove any
“amount to one percent (1%) or more of the total member of the Monetary Board for any of the following
subscribed capital stock of the Bank”, in other words reasons:
pwede kang mag own ng 1 share if it does not amount
to 1%. Pwede 10ay un? Pwede (a) If the member is subsequently disqualified under the
provisions of Section 8 of this Act; or
Pag marami kang shares, let’s say 200 ang subscribed
capital and you have 1 share, does it amount to 1%? (b) If he is physically or mentally incapacitated that he
Magkano yun? So that’s .5%. so it does not amount to cannot properly discharge his duties and
1%. responsibilities and such incapacity has lasted for
more than six (6) months; or
So what will happen if may ganong share? What will
you do? You either (c) If the member is guilty of acts or operations which
are of fraudulent or illegal character or which are
o resign if you’re an officer, or manifestly opposed to the aims and interests of the
o divest, meaning ibebenta mo sa iba Bangko Sentral; or

Divestment is the transfer of title or disposal of interest (d) (d) If the member no longer possesses the
in property voluntarily, completely and actually qualifications specified in Section 8 of this Act.
depriving or dispossessing oneself of his right or title to
it in favor of a person other than the spouse and affinity Letters (a) and (d) – parehas lang yan.
within the fourth civil degree of consanguinity or affinity
(RA 6713) Letter (c) – take note, the member should be guilty. There has
to be conviction of acts or operations which are of fraudulent or
please take note, the law which governs divestment is illegal character or which are manifestly opposed to the aims
not the Central Bank but RA 6713 or the Code of and interests of the Bangko Sentral. Of course, pag ididisqualify
Professional Ethics. ka, there has to be due process. Meron pa ring administrative
proceedings requiring the party to be afforded the opportunity to
So if mag divest ako tapos benenta mo sa yong first be heard – the quantum of proof in administrative proceedings
cousin, it is still not considered divesting. is substantial evidence – it is under the authority of the President
based on its power to appoint, which includes the power to
discipline and the Office of the Ombudsman has concurrent
jurisdiction to discipline members of the MB.

Original Provision

Section 11. Meetings. - The Monetary Board shall meet at

least once a week. The Board may be called to a meeting by
the Governor of the Bangko Sentral or by two (2) other
members of the Board.

The presence of four (4) members shall constitute a quorum:

Provided, That in all cases the Governor or his duly
designated alternate shall be among the four (4).

Unless otherwise provided in this Act, all decisions of the

Monetary Board shall require the concurrence of at least four
(4) members.

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 stenographic
notes, either in their original form or in microfilm.

Proposed Amendment

Section 11. Meetings. - The Monetary Board shall meet at Original Provision
least once a week. The Board may be called to a meeting by
the Governor of the Bangko Sentral or by two (2) other Section 15. Exercise of Authority. - In the exercise of its
members of the Board. authority, the Monetary Board shall:

The presence of four (4) members shall constitute a quorum: (a) issue rules and regulations it considers necessary
Provided, That in all cases the Governor or his duly for the effective discharge of the responsibilities and
designated alternate shall be among the four (4). exercise of the powers vested upon the Monetary
Board and the Bangko Sentral. The rules and
regulations issued shall be reported to the President
Unless otherwise provided in this Act, all decisions of the and the Congress within fifteen (15) days from the
Monetary Board shall require the concurrence of at least four date of their issuance;
(4) members.
(b) direct the management, operations, and
The Bangko Sentral shall maintain and preserve a complete administration of the Bangko Sentral, reorganize its
record of the proceedings and deliberations of the Monetary personnel, and issue such rules and regulations as
Board, including the tapes and transcripts of the stenographic it may deem necessary or convenient for this
notes, either in their original form or in microfilm. purpose. The legal units of the Bangko Sentral shall
be under the exclusive supervision and control of
The meetings of the Monetary Board may be conducted the Monetary Board;
through modern technologies such as, but not limited to,
teleconferencing and videoconferencing. (c) establish a human resource management system
which shall govern the selection, hiring,
appointment, transfer, promotion, or dismissal of all
Bakit nakalagay dito na “unless otherwise provided in this Act, personnel. Such system shall aim to establish
all decisions of the Monetary Board shall require the professionalism and excellence at all levels of the
concurrence of at least four (4) members.”? Bangko Sentral in accordance with sound principles
of management.
Because you will know later on that in cases of emergency
meetings, they have to decide promptly and they can no longer A compensation structure, based on job evaluation
wait for the other members. Remember the BSP is established studies and wage surveys and subject to the
for the protection of the public. Board's approval, shall be instituted as an integral
component of the Bangko Sentral's human resource
development program: Provided, That the Monetary
Section 12. Attendance of the Deputy Governors. - The
Board shall make its own system conform as closely
Deputy Governors may attend the meetings of the Monetary as possible with the principles provided for under
Board with the right to be heard.
Republic Act No. 6758: Provided, however, That
compensation and wage structure of employees
Section 13. Salary. - The salary of the Governor and the whose positions fall under salary grade 19 and
members of the Monetary Board from the private sector shall below shall be in accordance with the rates
be fixed by the President of the Philippines at a sum prescribed under Republic Act No. 6758.
commensurate to the importance and responsibility attached
to the position. On the recommendation of the Governor, appoint,
fix the remunerations and other emoluments, and
Section 14. Withdrawal of Persons Having a Personal remove personnel of the Bangko Sentral, subject to
Interest. - In addition to the requirements of Republic Act No. pertinent civil service laws: Provided, That the
6713, any member of the Monetary Board with personal or Monetary Board shall have exclusive and final
pecuniary interest in any matter in the agenda of the authority to promote, transfer, assign, or reassign
Monetary Board shall disclose his interest to the Board and personnel of the Bangko Sentral and these
shall retire from the meeting when the matter is taken up. The personnel actions are deemed made in the interest
decision taken on the matter shall be made public. The of the service and not disciplinary: Provided, further,
minutes shall reflect the disclosure made and the retirement That the Monetary Board may delegate such
of the member concerned from the meeting. authority to the Governor under such guidelines as
it may determine.
So kung may agenda – even if it does not amount to a (d) adopt an annual budget for and authorize such
disqualification, the member of the MB shall disclose his interest expenditures by the Bangko Sentral as are in the
to the Board and shall retire from the meeting when the matter interest of the effective administration and
is taken up. operations of the Bangko Sentral in accordance with
applicable laws and regulations; and

paid by the Bangko Sentral in advance of the final

(e) indemnify its members and other officials of the disposition of such action, suit or proceeding upon
Bangko Sentral, including personnel of the receipt of an undertaking by or on behalf of the
departments performing supervision and member, officer, or employee to repay the amount
examination functions against all costs and advanced should it ultimately be determined by the
expenses reasonably incurred by such persons in Monetary Board that he is not entitled to be
connection with any civil or criminal action, suit or indemnified as provided in this subsection.
proceedings to which he may be, or is, made a party
by reason of the performance of his functions or If you try to look at it, this MB, sila yung back-up on currency
duties, unless he is finally adjudged in such action stability. That’s why may issue on cryptocurrency. All of the
or proceeding to be liable for negligence or currencies in different countries are backed up by a central bank
misconduct. for a reason – which is to monitor. So sino nag baback-up nitong
mga cryptocurrency? In my opinion, there will come a time na
In the event of a settlement or compromise, ma-sasaturate rin yan. Okay yung mga nauna kasi they would
indemnification shall be provided only in connection buy these intangibles and then sell it. What if it will reach to a
with such matters covered by the settlement as to point na mag saturate na yung market?
which the Bangko Sentral is advised by external
counsel that the person to be indemnified did not
commit any negligence or misconduct. Take note under letter (e) – this particular authority of the MB is
actually for the protection of its members because itong mga
The costs and expenses incurred in defending the banks na subject to the supervision of the MB is under regular
aforementioned action, suit or proceeding may be examination by the people under the Supervision and
paid by the Bangko Sentral in advance of the final Examination Sector. In practice naman kasi, kapag nag-aaudit
disposition of such action, suit or proceeding upon ang BSP sa mga bangko, inaalagaan yan sila ng mga bangko
receipt of an undertaking by or on behalf of the para maganda yung findings. But dapat, they should be strict in
member, officer, or employee to repay the amount performing their examinations. In the event that their reports will
advanced should it ultimately be determined by the be detrimental to the bank, of course the bank has its
Monetary Board that he is not entitled to be ammunition of lawyers, now anong mangyayari sa mga tao pag
indemnified as provided in this subsection. wala ito na provision, what will happen? Matatakot at matatakot.
This particular provision is aimed at protecting those people and
Proposed Amendment indemnifying them for any serious actions.

Section 15. Exercise of Authority. - In the exercise of its Take note of the exception: unless he is finally adjudged in
authority, the Monetary Board shall: such action or proceeding to be liable for negligence or
misconduct.
Xxxxx
So there has to be a final decision or judgment that there is
(e) indemnify its members and other officials of the
negligence or misconduct on the part of the person.
Bangko Sentral, including personnel of the
departments performing supervision and
examination functions against all costs and In the event of a settlement or compromise, indemnification shall
expenses reasonably incurred by such persons in be provided only in connection with such matters covered by the
connection with any civil or criminal action, suit or settlement as to which the Bangko Sentral is advised by external
proceedings to which he may be, or is, made a party counsel that the person to be indemnified did not commit any
by reason of the performance of his functions or negligence or misconduct.
duties, unless he is finally adjudged in such action
or proceeding to be liable for willful violation of this Take note – negligence and misconduct lang. Other than that,
act, performed in evident bad faith or with gross pwede siya ma-indemnify.
negligence.
Central Bank Employees v. BSP
In the event of a settlement or compromise,
indemnification shall be provided only in connection G.R. No. 148208
with such matters covered by the settlement as to
FACTS
which the Bangko Sentral is advised by external
On July 3, 1993, RA 7652 (New Central Bank Act) took effect.
counsel that the person to be indemnified did not
commit willful violation of this act, performed in Eight years after its effectivity, petitioner filed a petition for
evident bad faith or with gross negligence. prohibition against BSP and the Executive Secretary to
restrain the further implementation of the last provision in
Section 15(c), Article II of RA 7653 on the ground that it is
The costs and expenses incurred in defending the
aforementioned action, suit or proceeding may be unconstitutional.

The above-mentioned subsequent enactments,

Said provision reads: A compensation structure, based on job however, constitute significant changes in
evaluation studies and wage surveys and subject to the circumstance that considerably alter the reasonability of
Board's approval, shall be instituted as an integral component the continued operation of the last proviso of Section
of the Bangko Sentral's human resource development 15(c), Article II of Republic Act No. 7653, thereby
program: Provided, That the Monetary Board shall make its exposing the proviso to more serious scrutiny. This time,
own system conform as closely as possible with the principles the scrutiny relates to the constitutionality of the classification
provided for under Republic Act No. 6758: Provided, - albeit made indirectly as a consequence of the passage of
however, That compensation and wage structure of eight other laws - between the rank-and-file of the BSP and
employees whose positions fall under salary grade 19 the seven other GFIs. The classification must not only be
and below shall be in accordance with the rates reasonable, but must also apply equally to all members of
prescribed under Republic Act No. 6758. the class. The proviso may be fair on its face and impartial
in appearance but it cannot be grossly discriminatory in
its operation, so as practically to make unjust distinctions
According to petitioners, the proviso makes an between persons who are without differences.
unconstitutional cut between 2 classes of employees in the
BSP: one is for the BSP officers or those who are exempted
from the coverage of the Salary Standardization Law (SSL)
and the other, the rank-and-file, or those who are not Original Provision
exempted from the SSL.
Section 16. Responsibility. – Members of the Monetary
Further according to petitioner, the proviso is also violative of Board, officials, examiners and employees of the Bangko
the equal protection clause because after it was enacted, the Sentral who willfully violate this Act or who are guilty of
charters of the GSIS, LBP, DBP and SSS were also negligence, abuse or acts of malfeasance or misfeasance or
amended, but the personnel of the said government financial fail to exercise extraordinary diligence in the performance of
institutions (GFI) were all exempted from the coverage of the his duties shall be held liable for any loss or injury suffered by
SSL. the Bangko Sentral or other banking institutions as a result of
such violation, negligence, abuse, malfeasance,
misfeasance, or failure to exercise extraordinary diligence.
ISSUE: Is the assailed proviso unconstitutional?
Similar responsibility shall apply to members, officers and
RULING: YES. employees of the Bangko Sentral for: (1) the disclosure of any
information of a confidential nature, or any information on the
Note: The SC held that when the law was first enacted in discussions or resolutions of the Monetary Board or about the
1993, such was still constitutional – there was a valid confidential operations of the Bangko Sentral, unless the
classification as to the different types of officers since they disclosure as in connection with the performance of official
belong to different positions. However, when the charters of functions with the Bangko Sentral or is with prior authorization
the different GFI’s (not BSP) were amended which excluded of the Monetary Board or the Governor; or (2) the use of such
its employees from the coverage of the SSL, the proviso was information for personal gain or to the detriment of the
then declared as unconstitutional. Government of the Government, the Bangko Sentral or third
parties:
The subsequent charters of the seven other GFIs share
this common proviso: a blanket exemption of all their Provided, however, That any data or information required to
employees from the coverage of the SSL, expressly or be submitted to the President and/or the Congress, or to be
impliedly. published under the provisions of this Act shall not be
considered confidential.
Thus, eleven years after the amendment of the BSP
charter, the rank-and-file of seven other GFIs were
granted the exemption that was specifically denied to the Proposed Amendment
rank-and-file of the BSP. And as if to add insult to
petitioners injury, even the Securities and Exchange Section 16. Responsibility. — The General rule and the
Commission (SEC) was granted the same blanket exemption exception therefrom on the liability of public officers on the
from the SSL in 2000![39] liability of public officers as provided in Sections 38 and 39 of
The prior view on the constitutionality of R.A. No. 7653 Chapter 9, Book 1 of the Revised Administrative Code of
was confined to an evaluation of its classification 1987 shall apply to the members of the Monetary Board, and
between the rank-and-file and the officers of the other personnel of the Bangko Sentral.
BSP, found reasonable because there were substantial
distinctions that made real differences between the two Similar responsibility shall apply to members of the Monetary
classes. Board and other personnel of the Bangko Sentral for; (1) the
disclosure of any information of a confidential nature, or any

information on the discussions or resolutions of the Monetary G.R. No. 76118

Board or about the confidential operations of the Bangko
Sentral, unless the disclosure as in connection with the FACTS:
performance of official functions with the Bangko Sentral or
is with prior authorization of the Monetary Board or the Pursuant to RA. 625, the old Central Bank Law,
Governor; or (2) the use of such information for personal gain respondent Citytrust Banking Corporation (Citytrust),
or to the detriment of the Government of the Government, the formerly Feati Bank, maintained a demand deposit account
Bangko Sentral or third parties: Provided, however, That any with Central Bank of the Philippines, now BSP.
data or information required to be submitted to the President
and/or the Congress, or to be published under the provisions As required, Citytrust furnished petitioner with the
of this Act shall not be considered confidential. names and corresponding signatures of five of its officers
authorized to sign checks and serve as drawers and
The above notwithstanding, members of the Monetary Board indorsers for its account. And it provided petitioner with the
and other personnel of the Bangko Sentral shall not be list and corresponding signatures of its roving tellers
subject to any action, claim or demand in connection with any authorized to withdraw, sign receipts and perform other
act done or omitted by them in the performance of their duties transactions on its behalf. Petitioner later issued security
and exercise of their powers except for those actions and identification cards to the roving tellers one of whom was
omissions done in evident bad faith or with gross negligence. Rounceval Flores (Flores).
Unless the actions or omissions of the Bangko Sentral,
members of the Monetary Board and its other personnel are On July 15, 1977, Flores presented for payment to
finally adjudged to be in willful violation of this act, performed petitioner’s Senior Teller Iluminada dela Cruz (Iluminada) 2
in evident bad faith or with gross negligence, they are held Citytrust checks of even date, payable to Citytrust, one in the
free and harmless to the fullest extent permitted by law from amount of P850,000 and the other in the amount
any liability and they shall be indemnified for any and all of P900,000, both of which were signed and indorsed by
liabilities, losses, claims, demands, damages deficiencies, Citytrusts authorized signatory-drawers.
costs and expenses whatsoever kind and nature that may
arise in connection with the exercise of their powers and After the checks were certified by petitioners
performance of their duties and functions. Accounting Department, Iluminada verified them, prepared
the cash transfer slip on which she affixed her signature,
We have the concept of extraordinary diligence, which I’m sure stamped the checks with the notation Received Payment and
you already have encountered in your previous cases. asked Flores to, as he did, sign on the space above such
notation. Instead of signing his name,
Please take note on the confidential agreement because – however, Flores signed as Rosauro C. Cayabyab a fact
Iluminada failed to notice.
Similar responsibility shall apply to members, officers and
employees of the Bangko Sentral for: (1) the disclosure of any Iluminada thereupon sent the cash transfer slip and
information of a confidential nature, or any information on the checks to petitioners Cash Department where an officer
discussions or resolutions of the Monetary Board or about the verified and compared the drawers signatures on the checks
confidential operations of the Bangko Sentral, unless the against their specimen signatures provided by Citytrust, and
disclosure as in connection with the performance of official finding the same in order, approved the cash transfer slip and
functions with the Bangko Sentral or is with prior authorization paid the corresponding amounts to Flores. Petitioner then
of the Monetary Board or the Governor; or (2) the use of such debited the amount of the checks totaling P1,750,000 from
information for personal gain or to the detriment of the Citytrusts demand deposit account.
Government of the Government, the Bangko Sentral or third
parties: More than a year and nine months later, Citytrust,
by letter dated April 23, 1979, alleging that the checks were
Provided, however, That any data or information required to already cancelled because they were stolen, demanded
be submitted to the President and/or the Congress, or to be petitioner to restore the amounts covered thereby to its
published under the provisions of this Act shall not be demand deposit account. Petitioner did not heed the
considered confidential. demand, however.

What happens when – the banks are examined, they get Citytrust later filed a complaint for estafa, with
information, they are required by law actually to give the reservation on the filing of a separate civil action, against
information to the public. What they do is they publish collective Flores. Flores was convicted. Citytrust thereafter filed before
data. There’s no particular data to what particular bank, as to its the (RTC) of Manila a complaint for recovery of sum of money
assets, liabilities, collecting data in line with the monetary policy. with damages against petitioner which it alleged erred in
In their case, if they disclose information that is confidential then encashing the checks and in charging the proceeds thereof
they can be liable. to its account, despite the lack of authority of Rosauro C.
Cayabyab.
Central Bank v. City Trust Banking Corporation

ISSUE: Whether the Central Bank is negligent? proximate cause of the injury being the defendants lack of
due care, the plaintiff may recover damages, but the courts
RULING: YES. shall mitigate the damages to be awarded. For had Citytrust
timely discovered the loss/theft and/or subsequent
Given that petitioner is the government body mandated to encashment, their proceeds or part thereof could have been
supervise and regulate banking and other financial recovered. In line with the ruling in Consolidated Bank, the
institutions, this Courts ruling in Consolidated Bank and Trust Court deems it proper to allocate the loss between petitioner
Corporation v. Court of Appeals is appropriate— and Citytrust on a 60-40 ratio.

The contract between the bank and its depositor is governed

by the provisions of the Civil Code on simple loan. Article 4. The Governor and Deputy Governors of the Bangko
1980 of the Civil Code expressly provides that savings, Sentral
deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. There is ARTICLE III
a debtor-creditor relationship between the bank and its The Governor and Deputy Governors
depositor. The bank is the debtor and the depositor is the of the Bangko Sentral
creditor. The depositor lends the bank money and the bank
agrees to pay the depositor on demand. The savings deposit Section 17. Powers and Duties of the Governor. – The
agreement between the bank and the depositor is the Governor shall be the chief executive of the Bangko Sentral.
contract that determines the rights and obligations of the His powers and duties shall be to:
parties.
(a) prepare the agenda for the meetings of the Monetary
Board and to submit for the consideration of the Board
The law imposes on banks high standards in view of the the policies and measures which he believes to be
fiduciary nature of banking. Section 2 of RA 8791 (RA 8791), necessary to carry out the purposes and provisions of
which took effect on 13 June 2000, declares that the State this Act;
recognizes the fiduciary nature of banking that requires high
standards of integrity and performance. This new provision in (b) execute and administer the policies and measures
the general banking law, introduced in 2000, is a statutory approved by the Monetary Board;
affirmation of Supreme Court decisions, starting with the
1990 case of Simex International v. Court of Appeals, holding (c) direct and supervise the operations and internal
that the bank is under obligation to treat the accounts of its administration of the Bangko Sentral. The Governor may
depositors with meticulous care, always having in mind the delegate certain of his administrative responsibilities to
fiduciary nature of their relationship. other officers or may assign specific tasks or
responsibilities to any full-time member of the Monetary
Board without additional remuneration or allowance
This fiduciary relationship means that the banks obligation to whenever he may deemed fit or subject to such rules and
observe high standards of integrity and performance is regulations as the Monetary Board may prescribe;
deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking (d) appoint and fix the remunerations and other emoluments
requires banks to assume a degree of diligence higher than of personnel below the rank and of a department head in
that of a good father of a family. Article 1172 of the Civil Code accordance with the position and compensation plans
states that the degree of diligence required of an obligor is approved by the Monetary Board, as well as to impose
that prescribed by law or contract, and absent such disciplinary measures upon personnel of the Bangko
stipulation then the diligence of a good father of a family. Sentral, subject to the provisions of Section 15(c) of this
Section 2 of RA 8791 prescribes the statutory diligence Act: Provided, That removal of personnel shall be with
required from banks that banks must observe high standards approval of the Monetary Board;
of integrity and performance in servicing their depositors.
Although RA 8791 took effect almost nine years after the (e) render opinions, decisions or rulings which shall be final
unauthorized withdrawal of the P300,000 from L.C. Diazs and executory until reversed or modified by the
savings account, jurisprudence at the time of the withdrawal Monetary Board, on matters regarding application or
already imposed on banks the same high standard of enforcement of laws pertaining to institutions supervised
diligence required under RA No. 8791. by the Bangko Sentral and laws pertaining to quasi-
banks, as well as regulations, policies or instructions
issued by the Monetary Board and the implementation
Citytrust’s failure to timely examine its account, cancel the thereof; and
checks and notify petitioner of their alleged loss/theft should
mitigate petitioners liability, in accordance with Article 2179 (f) exercise such other powers as may be vested in him by
of the Civil Code which provides that if the plaintiffs the Monetary Board
negligence was only contributory, the immediate and

Please take note— the Governor although they act as a

collegial body, the Governor has the power to issue decisions or The International Monetary Fund (IMF) is an organization
rulings which are deemed to be valid until reversed or modified working to foster global monetary cooperation, secure financial
by the Monetary Board on matters regarding or enforcement of stability, facilitate international trade, promote high employment
laws pertaining to institutions supervised by Banko Sentral and and sustainable economic growth, and reduce poverty around
laws pertaining to quasi-banks, as well as regulations, policies the world.
or instructions.
The IMF functions as an international body with its member-
If you have the SEC which render an opinion for corporations, states because some countries have no capacity to trade, like,
the BIR which renders an opinion for tax issues, you have the let’s say Somalia, South Africa, with their currency, they import
BSP or the Governor or the Monetary Board which gives out more, than what they export so with developing countries, they
issues or rulings regarding banking, money credit. import because the balance of payments between these
countries are not enough for their currency to be stabilized so
the IMF, it only gives out assistance— they don’t really force
Section 18. Representation of the Monetary Board and them, because we still have the concept of sovereignty. They
the Banko Sentral. – The Governor of the Banko Sentral cannot impose the country to accept because there is still
shall be the principal representative of the Monetary Board sovereignty, it still must be equal. They only provide assistance,
and of the Banko Sentral and in, such capacity and in they can provide credit. This is the IMF which seeks to stabilize,
accordance with the instructions of the Monetary Board, he to achieve macro-economic stability and reduce poverty.
shall be empowered to: Actually, it has a good objective.

(a) represent the Monetary Board and the Banko Sentral in The Governor is the representative of the Monetary Board in all
all dealings with other offices, agencies, and dealings, transactions with the IMF (International Monetary
instrumentalities of the Government and all other Fund).
persons or entities, public or private, whether domestic,
foreign or international; He signs contracts with the Banko Sentral.

(b) sign contracts entered into by the Banko Sentral, notes Why is it necessary to specify to sign the contracts,
and securities issued by the Banko Sentral, all reports, securities and notes and he represents the Banko Sentral?
balance sheets, profit and loss statements, Why is important to be specified? Is it not implied?
correspondence and other documents of the Banko
Sentral. The signature of the Governor may be in Remember, the board is a collegial body. There must be an
facsimile whenever appropriate; agency. If it is not specified, what will happen? Every time there
is a need to sign a contract, there has to be a resolution, there
(c) represent the Banko Sentral, either personally or through has to be a document to serve as a power of attorney for that
counsel, including private counsel, as may be authorized particular government to sign contracts, now this is why it is
by the Monetary Board, in any legal proceedings, action expressly specified. Why? Because that could be taxing. What
or specialized legal studies; and will happen every time there is an emergency situation? They
need a board resolution.
(d) delegate his power to represent the Banko Sentral, as
provided in subsections (a), (b) and (c) of this section, to In lieu of that, his authority is specified, expressly. He has this
other officers upon his own responsibility: Provided, authority, expressly provided by law so it is not necessary for
however, That in order preserve the integrity and them to convene just to grant a special power of attorney.
prestige of his office, the Governor of the Banko Sentral
may choose not to participate in the preliminary Section 19. Authority of the Governor in Emergencies. –
decisions with any multilateral banking or financial In case of emergencies where time is sufficient to call a
institution on any negotiations for the Government within meeting of the Monetary Board, the Governor of the Bangko
or outside the Philippines. During the negotiations, he Sentral, with the concurrence of (2) other members of the
may instead be represented by a permanent negotiator. Monetary Board, may decide any matter or take any action
within the authority of the Board.
Please take note— that is why in your money his signature is
there. Look at your money, the Governor is there. The Governor shall submit a report to the President and
Congress within 72 hours after the action has been taken.
He can delegate his power to represent the Banko Sentral
through his Deputy Governor, so represent the Monetary Board At the soonest possible time, the Governor shall call a
and the Banko Sentral. He is appointed as the official meeting of the Monetary Board to submit his action for
representative of the government in all dealings, negotiations, ratification.
transactions with the IMF (International Monetary Fund).
Generally, how many votes are needed for concurrence? (4)
What is the IMF?

In emergency situations, they only need (2) other members to Whenever the Government is unable to attend meetings of
concur for the authority to be valid but— government boards, or councils in which he is an ex officio
member pursuant to provisions of special laws, a Deputy
The Governor shall submit a report to the President and Governor as may be designated by the Governor shall be
Congress within 72 hours after the action has been taken. vested with authority to participate and exercise the right to
vote in such meetings.
At the soonest possible time, the Governor shall call a
meeting of the Monetary Board to submit his action for Proposed Amendment
ratification.
Section 21. Deputy Governors. – The Governor of the
Therefore, the authority in this particular case is subject to Bangko Sentral, with the approval of the Monetary Board,
ratification. shall appoint not more than FIVE (5) Deputy Governors who
shall perform duties as may be assigned to them by the
What happens if it is not ratified? What happens if there is Governor and the Board.
no ratification? What is the effect of that decision with no
ratification? In the absence of the Governor, a Deputy Governor
designated by the Governor shall act as chief executive of the
Please take note— there is no specific time frame for the Bangko Sentral and shall exercise the powers and perform
Governor to have the decision ratified. The law gives sufficient the duties of the Governor.
leeway for the Governor at the soonest possible time. What is
important is the report— the report must be submitted within 72 Whenever the Governor is unable to attend meetings of
hours after the action has been taken. government boards, or councils in which he is an ex officio
member pursuant to provisions of special laws, a Deputy
What happens if there is no ratification? Governor as may be designated by the Governor shall be
vested with authority to participate and exercise the right to
If there is no ratification, the decision shall be void and shall have vote in such meetings.
no effect.
Is the Deputy Governor counted in determining the majority
Section 20. Outside Interests of the Governor and the or quorum when there is a meeting? Is the Deputy Governor
Full-time Members of the Board. – The Governor of the considered in determining a quorum when there is a
Bangko Sentral and the full-time members of the Board shall meeting to commence?
limit their professional activities pertaining to those pertaining
directly to their positions with the Bangko Sentral. What if there are 3 members but the Governor is not there
because he’s abroad so he sent the Deputy Governor
Accordingly, they may not accept any other employment, instead, is he included?
whether public or private, remunerated or ad honorem, with
the exception of positions in eleemosynary, civic, cultural Yes, because the Deputy Governor acts as the representative
or religious organizations or whenever, by designation of the of the Governor. If the Governor is there, he (Deputy Governor)
President, the Governor, or the full-time member is tasked to cannot act as the representative, because the principal is there.
represent the interest of the Government or other government You have your Law on Agency, what is the purpose of the agent
agencies in matters connected with or affecting the economy if the principal is there?
or the financial system of the country.

They are not allowed to have any other professional activity. How many members for it there to be a quorum? FOUR (4).
This is for the purpose of them having their full time given to their
employment. Is the Deputy Governor part of the 7 members of the
Monetary Board? No.
Original Provision

Section 21. Deputy Governors. – The Governor of the 5. Operations of the Bangko Sentral
Bangko Sentral, with the approval of the Monetary Board,
shall appoint not more than 3 Deputy Governors who shall ARTICLE IV
perform duties as may be assigned to them by the Governor Operations of the Bangko Sentral
and the Board.
This is very important. If there is a question in the bar, it would
In the absence of the Governor, a Deputy Governor be the functions and operations of the Bangko Sentral vis-à-vis
designated by the Governor shall act as chief executive of the the different banks or quasi-banks.
Bangko Sentral and shall exercise the powers and perform
the duties of the Governor. Section 22. Research and Statistics. – The Bangko Sentral
shall prepare data and conduct economic research for the

guidance of the Monetary Board in the formulation and issue a subpoena for the production of the books and records
implementation of its policies. for the aforesaid purpose.

Such data shall include, among others, forecasts of the Those who refuse the subpoena without justifiable cause, or
balance of payments of the Philippines, statistics on the who refuse to supply the Bangko Sentral with data required,
monthly movement of the monetary aggregates and of prices shall be subject to punishment for contempt in accordance
and other statistical series and economic studies useful for with the provisions of the Rules of Court.
the formulation and analysis of monetary, banking, credit and
exchange policies. Data on individuals and firms, other than banks gathered by
the Bangko Sentral shall not be made available to any person
For the major factors to consider in formulating monetary policy or entity outside of the Bangko Sentral whether public or
is, of course, you must have the latest economic (***) in time. private except under order of the court or under such
You must have empirical research also. If you do not have conditions as may be prescribed by the Monetary Board:
research, you cannot formulate a proper monetary policy. What Provided, however, That the collective data on firms may be
they do is they engage in forecasting – these involve people in released to interested persons or entities: Provided, finally,
econometrics. That in case of data on banks, the provisions of Section 27 of
this Act shall apply.
Original Provision
Please take note— the Bangko Sentral shall have the power to
Section 23. Authority to Obtain Data and Information. – issue a subpoena.
The Bangko Sentral shall have the authority to request from
government offices and instrumentalities, or government- What do you call that subpoena that requires the
owned or controlled corporations, any data which it may production of documents? Subpoena duces tecum. It has the
require for the proper discharge of its functions and power to issue a subpoena duces tecum.
responsibilities.
Those who refuse to supply the bank with data requested or
The Bangko Sentral through the Governor or in his absence, required, shall be subject to punishment for contempt in
a duly authorized representative shall have the power to accordance with the provisions of the Rules of Court.
issue a subpoena for the production of the books and
records for the aforesaid purpose. Remember— that is one power of the Bangko Sentral to ensure
they have the real data in determining their monetary policy.
Those who refuse to supply the bank with data requested or
required, shall be subject to punishment for contempt in Can you refuse as a bank to give out information to the
accordance with the provisions of the Rules of Court. Central Bank? Are there any exceptions on the power of the
Bangko Sentral to get information or data? Or is the data or
Data on individual firms, other than banks, gathered by the information comprehensive enough?
Department of Economic Research and other departments or
units of the Bangko Sentral shall not be made available to any It is absolute and comprehensive.
person or entity outside of the Bangko Sentral whether public
or private except under order of the court or under such How about non-banks? No.
conditions as may be prescribed by the Monetary Board:
Provided, however, That the collective data on firms may be Is the coverage in examination, the power to examine,
released to interested persons or entities: Provided, finally, supervise of the Central Bank limited to banks?
That in case of data on banks, the provisions of Section 27 of
this Act shall apply. You will learn that later.

Proposed Amendment Let’s say manufacturing? Is that still covered by Central Bank?
You will figure that out later. But in this particular case, where
Section 23. Authority to Obtain Data and Information. – there are non-banks, or other than banks— where the power to
The Bangko Sentral shall have the authority to require from require information is not absolute.
any person, or entity including government offices and Please take note— there is an exception.
instrumentalities, or government-owned or controlled
corporations, any data, for statistical and policy development Data on individual firms, other than banks, gathered by the
purposes in relation to the proper discharge of its functions Department of Economic Research and other departments or
and responsibilities, provided that disaggregated data units of the Bangko Sentral shall not be made available to any
gathered are subject to prevailing confidentiality laws. person or entity outside of the Bangko Sentral whether public
or private except under order of the court or under such
The Bangko Sentral through the Governor or in his absence, conditions as may be prescribed by the Monetary Board:
a duly authorized representative shall have the power to Provided, however, That the collective data on firms may be
released to interested persons or entities: Provided, finally,

That in case of data on banks, the provisions of Section 27 of unless there is convincing proof that the action of the Bangko
this Act shall apply. Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court
It’s not correct to say that the coverage of Bangko Sentral is in which the action is pending a bond executed in favor of the
limited only to banks, quasi-banks or any financial institution. Bangko Sentral, in an amount to be fixed by the court. The
You will determine later what are those counter to supervision provisions of Rule 58 of the New Rules of Court insofar as
and examination of banks. they are applicable and not inconsistent with the provisions
of this section shall govern the issuance and dissolution of
Section 24. Training of Technical Personnel. — The the restraining order or injunction contemplated in this
Bangko Sentral shall promote and sponsor the training of section.
technical personnel in the field of money and banking.
Proposed Amendment
Toward this end, the Bangko Sentral is hereby authorized to
defray the costs of study, at home or abroad, of qualified Section 25. Supervision and Examination. – The Bangko
employees of the Bangko Sentral, qualified persons who shall Sentral shall have supervision over and conduct regular or
be determined by proper competitive examinations. special examinations of, banking institutions and quasi-
banks, including their subsidiaries and affiliates engaged in
The Monetary Board shall prescribe rules and regulations to allied activities.
govern the training program of the Bangko Sentral.
For purposes of this section, a subsidiary means a
This is what I was talking to you about regarding scholarship or corporation more than 50% of the voting stock of which is
study, at home or abroad. If you really wish to work with Central directly or indirectly owned, controlled or held with power to
Bank you need to qualify for a certain exam. There is an exam. vote, by a bank or quasi-bank and an affiliate means a
Not everyone gets to pass. corporation the voting stock of which to the extent of 50% or
less is owned by a bank or quasi-bank or which is related or
Original Provision linked directly or indirectly to such institution or intermediary
through common stockholders or such other factors as may
Section 25. Supervision and Examination. – The Bangko be determined by the Monetary Board.
Sentral shall have supervision over, and conduct periodic or
special examinations of, banking institutions and quasi- The Bangko Sentral shall have regulatory authority over, and
banks, including their subsidiaries and affiliates engaged in conduct regular or special examinations of entities which
allied activities. under this act or by special laws are subject to its jurisdiction.

For purposes of this section, a subsidiary means a The Bangko Sentral shall also have the power to obtain
corporation more than 50% of the voting stock of which is information from the parent or other affiliate companies of
owned by a bank or quasi-bank and an affiliate means a supervised institutions and examine transactions between a
corporation the voting stock of which, to the extent of 50% or supervised institution and said entities for supervisory
less, is owned by a bank or quasi-bank or which is related or powers.
linked to such institution or intermediary through common
stockholders or such other factors as may be determined by A parent company means a corporation which owns or holds
the Monetary Board. with power to vote directly or indirectly the voting stock of a
supervised institution of the Bangko Sentral sufficient to
The department heads and the examiners of the supervising control its management and operations, subject to the
and/or examining departments are hereby authorized to guidelines issued by the Monetary Board.
administer oaths to any director, officer, or employee of any
institution under their respective supervision or subject to As used in this section and section 25-A, and subject to the
their examination and to compel the presentation of all books, guidelines issued by the Monetary Board, control exists when
documents, papers or records necessary in their judgment to the parent company owns directly or indirectly more than one
ascertain the facts relative to the true condition of any half of the of the voting stock of a supervised institution,
institution as well as the books and records of persons and control also exists even when the parent company owns one
entities relative to or in connection with the operations, half or less of the voting stock of the supervised institution
activities or transactions of the institution under examination, when (1) there is power over more than one half of the voting
subject to the provision of existing laws protecting or rights by proxy or by virtue of an agreement with other
safeguarding the secrecy or confidentiality of bank deposits investors which thereby enables the parent company to cast
as well as investments of private persons, natural or juridical, the majority of the votes at meetings of the stockholders of
in debt instruments issued by the Government. the supervised institution or to elect the majority of members
of the board of directors of the supervised institution or (2)
No restraining order or injunction shall be issued by the court there is power to determine the financial and operating
enjoining the Bangko Sentral from examining any institution policies of the supervised institution or other similar
subject to supervision or examination by the Bangko Sentral, arrangements.

Please take note— it’s already an affiliate if it’s 50% or less. If

The department heads and the examiners of the supervising you try to take a look at the definition of an affiliate in accounting
and/or examining departments are hereby authorized to or even in corporations, it doesn’t really mean 50% or less
administer oaths to any director, officer, or employee of any because it can be just my 1 share then I can be an affiliate. No,
institution under their respective supervision or subject to there’s a threshold. There is an exception, if your share is not
their examination, to compel the presentation of all books, that high but you have the management control meaning your
documents, papers or records necessary in their judgment to share is not that high, but you have control then you can be
ascertain the facts relative to the true condition of any considered an affiliate.
institution as well as the books and records of persons and
entities relative to or in connection with the operations, But for purposes of the Central Bank, 50% or less it’s considered
activities or transactions of the institution under examination, an affiliate, more than 50% it is considered a subsidiary.
and to inquire into bank deposits and investment accounts in
the course of an examination in order to ascertain the The department heads and the examiners of the supervising
compliance with the laws and banking regulations or in cases and/or examining departments are hereby authorized to
where there is reasonable ground to believe that a fraud, administer oaths to any director, officer, or employee of
irregularity or unlawful activity has been or is being committed any institution under their respective supervision or
and that it is necessary to look into the deposit or investment subject to their examination and to compel the
to establish such fraud, irregularity or unlawful activity. presentation of all books, documents, papers or records
necessary in their judgment to ascertain the facts
No restraining order or injunction shall be issued by the relative to the true condition of any institution as well as
court enjoining the Bangko Sentral from examining any the books and records of persons and entities relative to
institution subject to supervision or examination by the or in connection with the operations, activities or
Bangko Sentral, unless there is convincing proof that the transactions of the institution under examination, subject to
action of the Bangko Sentral is plainly arbitrary and made in the provision of existing laws protecting or safeguarding the
bad faith and the petitioner or plaintiff files with the clerk or secrecy or confidentiality of bank deposits as well as
judge of the court in which the action is pending a bond investments of private persons, natural or juridical, in debt
executed in favor of the Bangko Sentral, in an amount to be instruments issued by the Government.
fixed by the court.
Why is this important for the supervision and examination
If a bank or quasi-bank has a subsidiary even if it is not engaged requirement to have this power?
in banking or quasi-banking, it may be covered.
Because you will learn later on, banks in distress, the Central
It says here including their subsidiary— if subsidiary, there is no Bank is the care-taker of this bank. It should have a power to
limitation whether allied or non-allied. compel, because it looks into the bank— “is this bank capable
of being a creditor?” “can this exist in 1 year or 2 years?” –
If it is affiliates, it is only for those engaged in allied activities. because if no, the Monetary Board has the right to put that bank
in receivership, conservatorship to have liquidity, or if it cannot
If you want to break it down, banks or quasi-banks, they have handle it anymore, liquidation, insolvency.
subsidiaries and they also have affiliates.
This is the function of the Central Bank because the banking
If it’s their subsidiary, regardless of whether or not these allied industry itself is imbued with public interest. What will happen if
or non-allied activities, it is covered by the supervision. If it’s an no one is going to take care of the banks? Remember, a
affiliate, only allied activities which are covered by the corporation is an artificial entity, meaning they don’t have a right
examination and supervision of the Bangko Sentral. or source. What is their goal? Their goal is to meet the objective
of the stockholders which is profits. Profit, profit.
How do we know if it’s a subsidiary or an affiliate?
Remember the concept of banking? How do they earn? They
For purposes of this section, a subsidiary means a relend the money. If what they think about is profit, profit profit,
corporation more than 50% of the voting stock of which is they carelessly market just to get the profit, if there’s no check
owned by a bank or quasi-bank and an affiliate means a and balance to tell them “you’re not capable to do that!”, “your
corporation the voting stock of which, to the extent of 50% or condition is not like that anymore”, what will happen? They
less, is owned by a bank or quasi-bank or which is related or manage businesses— what will happen? there will be
linked to such institution or intermediary through common insolvency, bank-run. What will happen to the public? There will
stockholders or such other factors as may be determined by be no money and so on and so forth.
the Monetary Board.
That is the overview of the function of the Central Bank and
Please take note— if it’s more than 50% it is considered a because of that function, the supervising and examining
subsidiary. Below that, it is considered as an affiliate. department should have these powers.

Prohibition on the Issuance of Injunction

When you examine, more or less you have a specific purpose.
 cannot enjoin the Bangko Sentral from examining an
institution unless there is convincing proof that the Special examination may be conducted earlier, or at a shorter
action is plainly arbitrary and made in bad faith. interval, when authorized by the Monetary Board by an
affirmative vote of five (5) members. (CIRCULAR NO. 442,
Why? Series of 2004)

What will happen? You’re going to require me to give my Please take note— although the quorum or majority is FOUR
documents, I’m going to validate my condition is good in 1 year (4) but when you do a special examination, it must be a
or 2 years then a lawyer of the bank will file a restraining order concurrence of FIVE (5) members.
to prohibit you to get my information(s). The purpose of the
Central Bank becomes illusory. That’s why it’s specifically 4 if it is a simple majority but if you’re going to have a special
provided – examination, there has be to 5 members.

No restraining order or injunction shall be issued by the

court enjoining the Bangko Sentral from examining any Covered Entities— banks, quasi banks, subsidiaries whether
institution subject to supervision or examination by the engaged in allied or non-allied activities and affiliates engaged
Bangko Sentral, unless there is convincing proof that the in allied activities.
action of the Bangko Sentral is plainly arbitrary and made in
bad faith and the petitioner or plaintiff files with the clerk or If the affiliate is not engaged in allied activities, it is not covered.
judge of the court in which the action is pending a bond
executed in favor of the Bangko Sentral, in an amount to be
fixed by the court. “Affiliate” refers to an entity linked directly or indirectly to a
bank or other financial institution through any one or a
There is always an exception— Please take note – unless combination of any of the following:
there is convincing proof that the action is plainly arbitrary and
made in bad faith. 1) Ownership, control or power to vote, whether by
permanent or temporary proxy or voting trust, or
When you file a TRO, you have to file a bond, so, is this bond in other similar contracts, by a bank or other financial
compliance with that bond? Or is this another bond? Is this the institution of at least 10% or more of the outstanding
same bond? voting stock of the entity, or vice-versa;

The provisions of Rule 58 of the New Rules of Court insofar 2) Interlocking directorship or officership, except in
as they are applicable and not inconsistent with the cases involving independent directors as defined
provisions of this section shall govern the issuance and under existing regulations;
dissolution of the restraining order or injunction contemplated
in this section. 3) Common stockholders owning at least ten percent
(10%) of the outstanding voting stock of each
You research on that. I will ask that.  financial institution and the entity; or

Examination vs. Supervision 4) Management contract or any arrangement granting

power to the bank or other financial institution to
Examination— shall refer to an investigation of an institution direct or cause the direction of management and
under the supervisory authority of the Bangko Sentral ng policies of the entity, or vice-versa. –CIRCULAR
Pilipinas (BSP) to determine compliance with laws and NO. 454, Series of 2004
regulations. It shall include determination that the institution is
conducting its business on a safe and sound basis. Please take note— “or which is related or linked to such
institution or intermediary...”
Regular or periodic examination shall be done once a year, with
an interval of twelve (12) months from the last date thereof. What does this mean?
(CIRCULAR NO. 442, Series of 2004)
You have ownership, control or the power to vote of 10% of the
There has to be examination. Actually, examination is related to outstanding stock of the borrowing entity or vice versa.
audit. When you examine, you audit. You check if it is in
compliance. When you say examination, the functions are more
specific. When you say supervise, this pertains to the broad Illustration:
powers of the Central Bank because it issues rules of conduct,
it issues prompt corrective actions and examinations if they are BANK A –
in compliance with the rules and regulations.

XY— (owner of BANK A) 30 Nov | Castro, De Castro, Madum, Puerin

B Okay. So we have Revised Corporation Code. Before kasi its

130 sections. So, there is an additional 50 sections. Who among
Bank A does not own directly B but they are linked or related. you here have finished Corporation Code? Because if naka-
Let’s XY owns 10% or more. B can be considered an affiliate or finish ka na, you might want to take it again. Kasi sobrang
subsidiary depends on the percentage. If it’s at least 10% it is substantial yung changes. (Sir goes on telling about the
considered an affiliate through the provision – “or which is changes on the Corporation Code).
related or linked to such institution or intermediary.” He doesn’t
directly own B but they are linked with a common stockholder of So let's go to the coverage of the examination. We discussed
more than 10% of the voting stock. As you can see the power of this, we will just continue. Again, if you are a subsidiary of bank
the Central Bank is very broad. He can inquire. Why? You don’t o quasi-bank, regardless of the (indistinct), you are still under
know some of the assets in contracts like B. The financial the supervision and regulation of the bank. But if you are an
condition of A through B can be determined if you can look at all affiliate, note
the contracts involving.
So Allied Activities. Note that it is further classified into financial
What are Interlocking Directorship and/or Officership? and non-financial allied activities. Example of Allied Financial
Activities eto, it's stated in the Manual of Regulation of Banks: a.
A B Leasing companies including leasing of stalls and spaces in a
commercial establishment; provided, That bank investment
The director here is the same director here. That is what you call in/acquisition of shares of such leasing company shall be
interlocking. They have the same directors. You have an officer limited/applicable only in cases of conversion of outstanding
in (A), CEO and here (B) Vice President of Operations— loan obligations into equity, Banks, Investment houses;
interlocking officership. In that case, these are considered Financing companies, credit card companies, financial
related parties. If one is not a bank, they might be considered as institutions catering to small and medium scale industries
covered so the Central Bank can look into it. including venture capital corporation, companies engaged in
stock brokerage/securities dealership, and dompanies engaged
10% of the common outstanding voting stock – please take in foreign exchange dealership/brokerage.
note, it has to be voting stock only. When you reach
Corporations on shares and equity, there are stocks which are In addition, banks may also invest in the following undertakings:
deprived of voting rights. But there are stocks, there is that one insurance companies, and holding company, provided that the
classification of shares that has to have voting rights. But there investments of such holding company are confined to the
are shares that are deprived of voting rights. equities of allied undertakings and/or non-allied undertakings of
UBs allowed under BSP regulations.
Management contract or any arrangement granting power to
the bank or other financial institution to direct or cause the So, actually if you try to look at the...if you go to the General
direction of management and policies of the entity, or vice- Banking Law, it's only the universal bank that is allowed to have
versa. equity holdings for non-allied. Other banks wala lang, universal
bank lang.
What happens is this—
The Monetary Board declares financial undertakings as allied or
BANK— (loss position) non-allied. How do you determine if it is allied or non-allied? You
look at the primary purpose of the corporation. So that is the
B— school (profit position) determining factor if it is engaged in allied or non-allied activities.
Pero di naman ilalagay dun "Allied". You have to determine base
Let’s say B is a school and they’re under a conglomerate. BANK on the purpose of the corporation.
is at a loss. B has revenue. Since we have the same ultimate
parent, let’s execute a management contract. B will manage Why is it important to know if it is allied? Because it will matter if
BANK and they will just pay B, management fees. What will it'll be on the coverage of the BSP and its examination. So Sec.
happen? Bank will have an additional expense because its 380 for the Manual of Regulation of Bank:
paying an expense to avoid tax. B doesn’t pay tax. These are
your mechanisms for you to do tax restructuring. A B are a. UBs/KBs/TBs UBs/KBs and TBs may invest in equities of the
considered conglomerates even if there is no direct relation. following non-financial allied undertakings: (1) Warehousing
companies; (2) Storage companies; (3) Safe deposit box
Ownership, control or power to vote, whether by permanent companies; (4) Companies primarily engaged in the
or temporary proxy or voting trust, or other similar contracts, management of mutual funds
by a bank or other financial institution of at least 10% or more
of the outstanding voting stock of the entity, or vice-versa. but not in the mutual funds themselves;

So it is still an allied activity pag non-financial. So again, yung It is still an allied undertaking, meaning ng allied it is related to
allied activities, sub class niyo, financial and non-financial. So the banking industry, but it is non financial.
these commercial banks and thrift banks and rural banks that's
the sample of these banks. They are only allowed equity shares So can the Bangko Sentral examine non-banks and non-quasi
for allied undertakings. Yeah it's non-financial but still allied pa banks? So as a rule, hindi. But they are are allowed but only for
rin. Only the universal banks which can have equity investment the purpose of determining whether such persons or entities are
for non-allied undertakings. performing bank or quasi-bank functions without the authority.
So limited lang ang kanilang right to examine. Kasi technically
Example: hindi naman talaga. For the purposes of determining whether
they are engaged into banking activities without authority from
(5) Management corporations engaged or to be engaged in an the BSP, hanggan dun lang. So ide-determine lang nila ang
activity similar to the management of mutual funds; business model ng corporation, and they say this is a function
of a bank or a quasi-bank, tapos walang certificate of authority
(6) Companies engaged in providing computer services; from the BSP, then hanggang dun lang yung kaya i-examine.
But because we have what you call as two-franchise as in
(7) Insurance agencies/brokerages; corporation. The first is the primary franchise, that is the state
giving these group of people who wish to establish a corporation
(8) Companies engaged in home building and home a franchise to put up a corporation. Second there are secondary
development franchise given to close industries that is involved in business
imbued with public interest one of which is the banking industry.
(9) Companies providing drying and/ or milling facilities for So dapat may certificate of authority from the BSP bago ka
agricultural crops such as rice and corn; maka-operate as a banking institution. Usually you need the
endorsement of the BSP, before the SEC, when you need
Bank and service corporation. The Philippine Game House documents to operate a bank. The BSP's role in the examination
Commission as central depositor; such other activities under the of non-bank and quasi-bank is only for that purpose. WON
Bangko Sentral which the Monetary board declared as non- nagfu-function ka ba as a bank, or wala? So as to the details
financial allied undertakings. and financial condition, wala na silang pakialam. Kasi kung dun
palang, if you're operating a bank without the authority, there's
(What Sir did not read, but is in the MORB: misrepresentation. There's fraud to the public. So no need to
examine the institution.
(10) Service bureaus, organized to perform for and in behalf of
banks and NBFIs the services allowed to be outsourced You can't enjoin the bank from examining an institution unless
enumerated in Sec. X162: Provided, That data processing the action is plainly arbitrary. Now, consistent with the principle
companies may be allowed to invest up to forty percent (40%) that banking is imbued with public interest, you cannot render
in the equity of service bureaus; the function of the BSP illusory by just applying for injunction. So
merong exception na man, like all rules there are exceptions,
(11) Philippine Clearing House Corporation (PCHC), Philippine but please take note of the ground. It must be plainly arbitrary
Central Depository, Inc. and Fixed Income Exchange; and and in bad faith. It must be plainly arbitrary. Di enough na
arbitrary lang siya, must be plainly arbitrary.
(12) Such other similar activities as the Monetary Board may
declare as non-financial allied undertakings of banks. UBs may Now, what happened in the case of BSP vs Chowking Food
further invest in health maintenance organizations (HMOs). In Corporation:
addition, TBs may also invest in the equities of companies
enumerated in Item “b” of this Section. b. RBs/Coop Banks Sir Ong: What's due diligence? We need due diligence when we
RBs/Coop Banks may invest, as a nonfinancial undertaking, in enter into transactions. We conduct due diligence in mergers, in
the equities of companies engaged in the following: (1) consolidations, in buying property. What's due diligence? Let's
Warehousing and other postharvest facilities; (2) Fertilizer and say mag-aacquire si Manny Pangilinan ng hospital? In Tagum.
agricultural chemical and pesticides distribution; (3) Farm Due diligence, i-checheck niya yung financial conditions kasi
equipment distribution; (4) Trucking and transportation of pwede namang sabihin "we're earning this much"? So how sure
agricultural products; (5) Marketing of agricultural products; (6) is Pangilinan na tama yung sinasabi ng taong yun. Let's say you
Leasing; §§ X379.2 - X380 09.12.31 Manual of Regulations for want to purchase property in Calinan, in Samal. And ingon sila
Banks (7) Automated Teller Machine (ATM) networks; and (8) P 20k per sqm. Bakit mahal? Kasi maraming prospective buyer
Other undertakings as may be determined by the Monetary daw. So how would you know that the representations are
Board. The guidelines in determining compliance with ceilings correct? So you do your due diligence. Meaning you examine
on equity investments in non-financial allied undertakings are the representation of the other party.
shown in Appendix 79.
So iba yung diligence lang, kasi yun yung required. Iba din yung
Andami nito, Do you need to memorize these? Of course. due diligence kasi those are procedures in ensuring that the
representation made by the other party are correct. Basically this
case says that banking is imbued with public trust.

So let's go that case of Borlongan vs Reyes: No. 3 presupposes a situation wherein nangutang, kinuhang
property, is lupa, tappos may co-owner dun sa lupa, aside sa
Let's go to Article 4\. Bank Deposits and Investments. DOSRI, meron pa. Except when yung sinaling property sa
collateral is only the share of the DOS. In that case, the other
SEC. 26\. Bank Deposits and Investments. _ Any director, officer co-owner will not be considered as a agent. Pero kung buong
or stockholder who, together with his related interest, contracts property ang sinangla kasi collateral, then any co-owner is
a loan or any form of financial accommodation from: (1) his considered having accumulated interest.
bank; or (2) from a bank (a) which is a subsidiary of a bank
holding company of which both his bank and the lending bank (4) Corporation, association, or firm of which a director or officer
are subsidiaries or (b) in which a controlling proportion of the of the bank, or his spouse is also a director or officer of such
shares is owned by the same interest that owns a controlling corporation, association or firm, except (a) where the securities
proportion of the shares of his bank, in excess of five percent of such corporation, association or firm are listed and traded in
(5%) of the capital and surplus of the bank, or in the maximum the big board or commercial and industrial board of domestic
amount permitted by law, whichever is lower, shall be required stock exchanges and less than fifty percent (50%) of the voting
by the lending bank to waive the secrecy of his deposits of stock thereof is owned by any one (1) person or by persons
whatever nature in all banks in the Philippines. related to each other within the first degree of consanguinity or
affinity; or (b) where the director, officer or stockholder of the
So this provision is actually an exception for banks and deposits. bank sits as a representative of the bank in the board of directors
of such corporation: Provided, That the bank representative
Any information obtained from an examination of his deposits shall not have any equity interest in the borrower corporation
shall be held strictly confidential and may be used by the except for the minimum shares required by law, rules and
examiners only in connection with their supervisory and regulations, or by the by-laws of the corporation, or (c) where
examination responsibility or by the Bangko Sentral in an the corporation is at least ninety-nine percent (99%) owned by a
appropriate legal action it has initiated involving the deposit non-stock corporation as defined in Section 87 of the
account. Corporation Code of the Philippines: Provided, That the purpose
of the loan is to finance hospitals and other medical services:
So basically this is what you call a DOSRI loan or financial Provided, further, That the loan is fully secured: Provided,
accommodation. Bakit DOSRI? (Sir spells it out). So alam furthermore, That in the case of Items “(a)”, “(b)” and “(c)” above,
naman natin sino si Director? How would you know that he is the borrowing corporation is not among those mentioned in
the director? Pano mo malaman kung siya ay Officer? Items “e(5)”, “e(6)”, “e(7)” and “e(8)” of this Section;

Now in a corporation, the information will be shown kasi you are Andami nito. In practical, lahat na lang maconsider mo as
required to have an election on that. Nakalagay yung pangalan DOSRI loan. Kasi parang wala kang takas.
niya dun, as a director. Yung officer naman, the director, or the
second managers of the corporation. The officers are actually (5) Corporation, association or firm of which any or a group of
the one operating the company. Pwede bang ang director ay directors, officers, stockholders of the lending bank and/or their
officer? Pwede. When you say director these are members of spouses or relatives within the first degree of consanguinity or
the board of trustees. These are the ones who are running the affinity, or relative by legal adoption, hold or own at least twenty
corporation. Stockholder of course, yun yung may hawak ng percent (20%) of the subscribed capital of such corporation, or
shares. The question now is: who are the related interests? So of the equity of such association or firm;
in the MORB, X 326.1 these are considered related interests:
(6) Corporation, association or firm wholly or majority-owned or
e. Related interest shall refer to any of the following: controlled by any related entity or a group of related entities
mentioned in Items “e(2)”, “e(4)” and “e(5)” of this Section;
(1) Spouse or relative within the first degree of consanguinity or
affinity, or relative by legal adoption, of a director, officer or Eto pa lang, sobrang broad na.
stockholder of the bank;
(7) Corporation, association or firm which owns or controls
(2) Partnership of which a director, officer, or stockholder of a directly or indirectly whether singly or as part of a group of
bank or his spouse or relative within the first degree of Manual of Regulations for Banks Part III - 1 related interest at
consanguinity or affinity, or relative by legal adoption, is a least twenty percent (20%) of the subscribed capital of a
general partner; substantial stockholder of the lending bank or which controls
majority interest of the bank pursuant to Subsec. X303.1;
(3) Co-owner with the director, officer, stockholder or his spouse
or relative within the first degree of consanguinity or affinity, or (8) Corporation, association or firm which has an existing
relative by legal adoption, of the property or interest or right management contract or any similar arrangement with the
mortgaged, pledged or assigned to secure the loans or other parent of the lending bank; and
credit accommodations, except when the mortgage, pledge or
assignment covers only said co-owner’s undivided interest;

(9)Non-governmental organizations (NGOs)/foundations that Now let's go to the same interest. Meaning, these two banks are
are engaged in retail microfinance operations which are owned by the same natural person. or same corporation.
incorporated by any of the stockholders and/or directors and/or
officers of related banks. Related interest Continuation:

So that part, the requisites, for you to be considered DOSRI loan Related interest shall refer to any of the following:
financial obligation. Sa madaling salita, kung director ka o officer
ng isang bank, tapos nangutang ka sa bank na yon, that is a Xxxxx
DOSRI loan. Why is that regulated? Because namunay man mo
sa ilang bangko. You could better terms than the terms that it (iv) Corporation, association, or firm of which a director or officer
could have if it is offered to a third party. So that is why you have of the bank, or his spouse is also a director or officer of such
to be regulated. Kasi director ka ikaw yung may-ari, you're an corporation, association or firm, except:
officer, pwede mong sabihin mo na imbes 15%, 10% na lang,
ako naman may-ari ng bangkong ito. Then what will happen if di (a) Where the securities of such corporation, association or firm
sila maregulate? Diba? The banks cannot exist pag ganon. are listed and traded in the big board or commercial and
industrial board of domestic stock exchanges and less than 50%
So what are the requisites? The borrower is a director, officer or of the voting stock thereof is owned by any one person or by
stockholder of the bank. He contracts a loan, or kahit hindi lang persons related to each other within the first degree of
loan, any form of financial accommodation. What other financial consanguinity or affinity o; or
accommodations we will name later, apart from loan.
(b) Where the director, officer or stockholder of the bank sits as
Loan, ano pa? Credit lines, ano pa? Financial accommodations. a representative of the bank in the board of directors of such
You think about that, because I might make a question in the corporation, provided that the bank representative shall not have
exam. any equity interest in the borrower corporation except for the
minimum shares required by law, rules and regulations, or by
The loan or financial accommodation is from his bank, please the by-laws of the corporation, and provided further, that the
take note of this, his bank; or from a bank which is a subsidiary borrowing corporation is not among those mentioned in items
of a bank holding company of which both his bank and the e(5), e(6), e(7) and e(8)of Section X326.1 of the Manual of
lending bank are subsidiaries or in which a controlling Regulations for Banks;
proportion of the shares is owned by the same interest that owns
a controlling proportion of the shares of his bank, (v) Corporation, association or firm of which any or a group of
directors, officers, stockholders of the lending bank and/or their
(Sir makes drawings on the board). spouses or relatives within the first degree of consanguinity or
affinity, or relative by legal adoption, hold or own at least 20 %
So ito, DOSRI siya nito. Ok lang kung nag-utang siya dito, that's of the subscribed capital of such corporation, or of the equity of
his bank. Pwede din na nagborrow siya sa bank 2\. I am a DOS such association or firm;
here, tapos nag-borrow ako dito. Pero subsidiary pala ito ng
isang bank holding company. Yun yung pangalawa. But these (vi) Corporation, association or firm wholly or majority-owned or
are owned by the same interest that holds the bank of which he controlled by any related entity or a group of related entities
is DOS. mentioned in items e(2), e(4) and e(5)of Section X326.1 of the
Manual of Regulations for Banks;
(Sir continues reading the provision) (vii) Corporation, association or firm which owns or controls
directly or indirectly whether singly or as part of a group of
in excess of five percent (5%) of the capital and surplus of the related interest at least 20% of the subscribed capital of a
bank, or in the maximum amount permitted by law, whichever is substantial stockholder of the lending bank or which controls
lower, shall be required by the lending bank to waive the majority interest of the bank pursuant to Subsection X303.1 of
secrecy. the Manual of Regulations for Banks; and

So we talked about earlier related interest. So related interest (viii) Corporation, association or firm which has an existing
between the spouse hindi siya yung DOS na sinasabi, kasi DOS management contract or any similar arrangement with the
lang to. Now material lang si related interest if you wanna parent of the lending bank. NGO foundations that are engaged
determine the 5% threshold. So dun lang siya material. The in microfinance, operations which are incorporated……….
related interest, is only material to determine whether the
financial accommodation will exceed 5%. Kasi pwede namang What are the Requisites in order to be considered DOSRI Loan
si DOS nangutang lang sabihin niya "Hindi naman ako or Financial Accommodation?
stockholder diyan" pero si spouse, nangutang ng 10%. So you
determine the total financial accommodation you have to Sa madaling salita kung director officer ka ng isang bank tapos
consider the related interest. So meron siyang 14\. That is the nangutang ka sa bank na yon that is DOSRI Loan or Financial
purpose of related interest. Accommodation. Why is it regulated? Because nangunay man
gud sila sa ila bangko. You could have better terms than the

terms that is offered by a third party. So that is why you have to The lending bank shall require the director, officer, or
be regulated kasi director ka eh, ikaw ang may-ari/ director stockholder to waive the secrecy or confidentiality of his
officer. Pwede mo sabihin na instead 20% subscription, 10% na deposits of whatever nature in all banks in the Philippines.
lang kasi ikaw mayari ng bangkong ito. What will happen? The
bank cannot exist kapag ganun kasi malulugi sila. That is the Why is it important the waiver of the secrecy of deposit?
nature of DOSRI Loan or final accommodation. Because ditto malalaman ng supervisor examinee official of
BSP whether or not there were concessions made by the bank
a. The borrower is a director, officer or any stockholder of a like lower interest kasi without the paper, they cannot look into
bank; the deposits.

b. He contracts a loan or any form of financial Penalties

accommodation;(loan, credit lines in the nature of loans)
Any lending bank whick violates this Section shall be imposed a
c. The loan or financial accommodation is from (a) his bank, or fine equivalent to 1/10 of 1% of the amount of loan or financial
(b) a bank that is a subsidiary of a bank holding company of accommodation per day, from the time the loan or financial
which both his bank and the lending bank are subsidiaries, or accommodation is granted to the time the waiver of secrecy of
(c) a bank in which a controlling proportion of the shares is his deposits of whatever nature in all banks in the Philippines is
owned by the same interest that owns a controlling proportion of submitted by the concerned director, officer or stockholder, that
the shares of his bank; and is, even if the loan or financial accommodation has been fully
paid, but not to exceed php 30,000 a day, without prejudice to
d. The loan or financial accommodation of the director, officer or other sanctions prescribed under Section 37 of Republic Act No.
stockholder, singly or with that of his related interest, is in excess 7653.
of 5% of the capital and surplus of the lending bank or in the
maximum amount permitted by law, whichever is lower. Original Provision

-material si related interest if you want to determine whether the SECTION 27. Prohibitions. — In addition to the prohibitions
accommodation exceed the 5% threshold of the capital stock. found in Republic Act Nos. 3019 and 6713, personnel of the
Bangko Sentral are hereby prohibited from:
The “maximum amount permitted by law” mentioned in this
Section refers to the limit on the loans that may be extended to (a) being an officer, director, lawyer or agent, employee,
a director, officer or stockholder under Section 36 of RA NO. consultant or stockholder, directly or indirectly, of any
8791. institution subject to supervision or examination by the
Bangko Sentral, except non-stock savings and loan
Same interest so this means that these 2 banks are owned by associations and provident funds organized exclusively for
same natural person or same corporation, partnership or entity. employees of the Bangko Sentral, and except as otherwise
Ano ang kaibahan ni bank and ni company? provided in this Act;

The term “same interest” in the third element refers to: (b) directly or indirectly requesting or receiving any gift,
present or pecuniary or material benefit for himself or
i. The same natural person; another, from any institution subject to supervision or
ii. The same corporation, partnership or entity; examination by the Bangko Sentral;
iii. The same family group, that is, persons related to each
other within the third degree of consanguinity or affinity, (c) revealing in any manner, except under orders of the court,
including any corporation majority or all of the equity of the Congress or any government office or agency authorized
which is owned by such family group; or by law, or under such conditions as may be prescribed by the
iv. The same business group, that is, a group of persons Monetary Board, information relating to the condition or
whose stockholdings altogether constitute a majority or business of any institution. This prohibition shall not be held
control in one or more enterprises. to apply to the giving of information to the Monetary Board or
v. the Governor of the Bangko Sentral, or to any person
Bank holding company-purpose is to hold banks or authorized by either of them, in writing, to receive such
investments/shares of other companies only and not to operate information; and
for tax purposes. Take note, the related interest is only material
to consider the 5%. Kasi what if ang nangutang is si spouse, (d) borrowing from any institution subject to supervision or
can that be considered DOSRI? The maximum threshold examination by the Bangko Sentral shall be prohibited unless
provided by law under the New Central Bank is 5% of the capital said borrowings are adequately secured, fully disclosed to the
and surplus. Monetary Board, and shall be subject to such further rules
Waiver of Secrecy of Deposit and regulations as the Monetary 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.

or examination. Now, if you are examining and supervising

Bank 1, doon sa Bank 1, hindi ka talaga pwd magborrow even if
Proposed Amendment adequately secured and fully disclosed to Monetary Board. But
any institution subject to supervision or examination by the
SECTION 27. Prohibitions. — In addition to the prohibitions Bangko Sentral na hindi mo directly ineexamine as of this
found in Republic Act Nos. 3019 and 6713, personnel of the moment, well, it must be adequately secured and fully disclosed
Bangko Sentral are hereby prohibited from: to the Monetary Board.

XXXX We have an relative prohibition and absolute prohibition. We

have relative prohibition doon sa hindi directly under your
(d) borrowing from any institution subject to supervision or supervision and examination and absolute prohibition doon sa
examination by the Bangko Sentral unless said borrowing IS directly under your supervision and examination in order to
TRANSACTED ON AN ARM’S LENGTH BASIS, fully avoid conflict of interest kasi nageexamine ka doon na bank
disclosed to the Monetary Board, and shall be subject to such tapos mangungutang ka tapos what if luging lugi na, hindi mo
further rules and regulations as the Monetary Board may yon irereport syempre and i.under receivership kasi nangutang
prescribe. ka doon na bank.

Original Provision
A. What is non-stock saving and loan association? Ito yong mga
empleyado na organization magcontribute ka optional monthly SECTION 28. Examination and Fees. — The supervising
tapos if may nangangailangan na empleyado na mangutang and examining department head, personally or by deputy,
doon sa loan association na yon magpautang sa empleyado at shall examine the books of every banking institution once in
an interest kasi yong interest ang magiging profit or puwede every twelve (12) months, and at such other times as the
iinvest in other any earning investments tapos at the time na Monetary Board by an affirmative vote of five (5) members,
magresign ka matatanggap mo yong share mo. So ito iyong may deem expedient and to make a report on the same to
non-stock saving and loan association for an employee to save the Monetary Board: Provided, That there shall be an interval
a portion of his salary. of at least twelve (12) months between annual examinations.

B. If you have a friend na nageexamine ng bank, before kasi The bank concerned shall afford to the head of the
wala ito na prohibition kasi hindi pa masyado strict, pupunta sila appropriate supervising and examining departments and to
ng mga rural banks, pagdating doon may mga foods or gifts, his authorized deputies full opportunity to examine its books,
kasi the rule of the supervising official is really very crucial to the cash and available assets and general condition at any time
existence to the bank. So kung pangit ang report, magdecide during banking hours when requested to do so by the Bangko
ang monetary bank,oi iconservator or under receiver. But now, Sentral: Provided, however, That none of the reports and
offeran mo sila ng gifts sumbong niya yon. other papers relative to such examinations shall be open to
inspection by the public except insofar as such publicity is
C. So there is confidentiality. Let us say may ineexamine si BSP incidental to the proceedings hereinafter authorized or is
kay Bnak 1, nalaman niya na palugi ng palugi na, hindi niya necessary for the prosecution of violations in connection with
pwede idisclose or ibalandra at sabihin niya “oy depositor ka ba the business of such institutions.
ng Bank 1, palugi na yon” except under orders of the court, the
Congress or any government office or agency authorized by law, Banking and quasi-banking institutions which are subject to
or under such conditions as may be prescribed by the Monetary examination by the Bangko Sentral shall pay to the Bangko
Board, information relating to the condition or business of any Sentral, within the first thirty (30) days of each year, an annual
institution. Kasi they tried to prevent insider thing. Kasi may fee in an amount equal to a percentage as may be prescribed
information ka sa inside tapos it would affect kung ilalabas mo by the Monetary Board of its average total assets during the
outside of course. preceding year as shown on its end-of-month balance sheets,
after deducting cash on hand and amounts due from banks,
D. If you are an examiner personnel you are not allowed to including the Bangko Sentral and banks abroad.
borrow from any borrowing from any institution subject to
supervision or examination by the Bangko Sentral unless said
borrowings are adequately secured, fully disclosed to the Proposed Amendment
Monetary Board, and shall be subject to such further rules and
regulations as the Monetary Board may prescribe. So ako taga SECTION 28. Examination and Fees. — The supervising
BSP, hindi ako pwd mangutang let’s say kay BPI under and examining department head, personally or by deputy,
supervision of BSP kapag hindi fully and adequately secured shall examine the OPERATIONS of every bank AND QUASI-
and disclosed to Monetary Board. Pwede naman mangutang BANK, INCLUDING THEIR SUBSIDIARIES AND
basta adequately secured (has collateral/security/surety) and AFFILIATES ENGAGED IN ALLIED ACTIVITIES, AND
fully disclosed to the Monetary Board. Provided, however, That OTHER ENTITIES WHICH UNDER THIS ACT OR SPECIAL
personnel of the supervising and examining departments are LAWS ARE SUBJECT TO BANGKO SENTRAL
prohibited from borrowing from a bank under their supervision SUPERVISION, IN ACCORDANCE WITH THE

GUIDELINES SET BY THE MONETARY BOARD TAKING collect all monies and debts due said institution, and exercise all
INTO CONSIDERATION SOUND AND PRUDENT powers necessary to restore its viability. PLEASE MEMORIZE!!!
PRACTICE.
SECTION 29. Appointment of Conservator. — Whenever,
Provided, That there shall be an interval of at least twelve (12) on the basis of a report submitted by the appropriate
months between REGULAR examinations; PROVIDED, supervising or examining department, the Monetary Board
FURTHER, THAT THE MONETARY BOARD, BY AN finds that a bank or a quasi-bank is in a state of continuing
AFFIRMATIVE VOTE OF AT LEAST FIVE (5) MEMBERS, inability or unwillingness to maintain a condition of liquidity
MAY AUTHORIZE A SPECIAL EXAMINATION IF THE deemed adequate to protect the interest of depositors and
CIRCUMSTANCES WARRANT. creditors, the Monetary Board may appoint a conservator with
such powers as the Monetary Board shall deem necessary to
The INSTITUTION concerned shall afford to the head of the take charge of the assets, liabilities, and the management
appropriate supervising and examining departments and to thereof, reorganize the management, collect all monies and
his authorized deputies full opportunity to examine its books debts due said institution, and exercise all powers necessary
AND RECORDS, cash and assets and general condition to restore its viability. The conservator shall report and be
AND REVIEW ITS SYSTEMS AND PROCEDURES at any responsible to the Monetary Board and shall have the power
time during BUSINESS hours when requested to do so by the to overrule or revoke the actions of the previous management
Bangko Sentral: Provided, however, That none of the reports and board of directors of the bank or quasi-bank.
and other papers relative to such examinations shall be open
to inspection by the public except insofar as such publicity is The conservator should be competent and knowledgeable in
incidental to the proceedings hereinafter authorized or is bank operations and management. The conservatorship shall
necessary for the prosecution of violations in connection with not exceed one (1) year.
the business of such institutions.
The conservator shall receive remuneration to be fixed by the
SUPERVISED INSTITUTIONS shall pay to the Bangko Monetary Board in an amount not to exceed two-thirds (2/3)
Sentral, NO LATER THAN MAY 31 OF EACH YEAR, an of the salary of the president of the institution in one (1) year,
annual SUPERVISION fee as may be prescribed by the payable in twelve (12) equal monthly payments: Provided,
Monetary Board. IN DETERMINING THE AMOUNT OF THE That, if at any time within one-year period, the
ANNUAL SUPERVISION FEE, THE MONETARY BOARD conservatorship is terminated on the ground that the
SHALL CONSIDER THE COSTS OF SUPERVISION. institution can operate on its own, the conservator shall
receive the balance of the remuneration which he would have
received up to the end of the year; but if the conservatorship
New section: is terminated on other grounds, the conservator shall not be
SECTION 28-A. BANGKO SENTRAL COORDINATION.- entitled to such remaining balance. The Monetary Board may
THE SUSPENSION OR REVOCATION OF ANY appoint a conservator connected with the Bangko Sentral, in
GOVERNMENT LICENSE NECESSARY FOR THE which case he shall not be entitled to receive any
OPERATION OF A BANGKO SENTRAL -SUPERVISED remuneration or emolument from the Bangko Sentral during
ENTITY MUST BE DONE ONLY WITH PRIOR the conservatorship. The expenses attendant to the
CONSULTATION WITH THE BANGKO SENTRAL. conservatorship shall be borne by the bank or quasi-bank
concerned.
Of course ang bangko eexamine ng BSP magbabayad ng fee.
So kung magrereport si supervising department iyong report The Monetary Board shall terminate the conservatorship
niya, “That none of the reports and other papers relative to such when it is satisfied that the institution can continue to operate
examinations shall be open to inspection by the public except on its own and the conservatorship is no longer necessary.
insofar as such publicity is incidental to the proceedings The conservatorship shall likewise be terminated should the
hereinafter authorized or is necessary for the prosecution of Monetary Board, on the basis of the report of the conservator
violations in connection with the business of such institutions”. or of its own findings, determine that the continuance in
Thus, the report is confidential with two exceptions. business of the institution would involve probable loss to its
depositors or creditors, in which case the provisions of
Di ba magrereport and mageexamine ang BSP, whenever on a Section 30 shall apply.
basis of the report submitted by the appropriate supervising or
examining department, ahmm, base sa report tingnan ng Section 28. xxx a state of continuing inability or
Monetary Board, the Monetary Board finds that a bank or a unwillingness to maintain a condition of liquidity deemed
quasi-bank is in a state of continuing inability or unwillingness to adequate to protect the interest of depositors and creditors.
maintain a condition of liquidity deemed adequate to protect the Please memorize that. That is the basis for your conservator.
interest of depositors and creditors, the Monetary Board may
appoint a conservator with such powers as the Monetary Board A state of continuing inability or unwillingness to maintain a
shall deem necessary to take charge of the assets, liabilities, condition of liquidity deemed adequate to protect the interest of
and the management thereof, reorganize the management, depositors and creditors. These are your keywords. If you want
to say it in your own words, baka magkamali pa kayo. This is the

basis to appoint a conservator. There is inability or continuing report to the Monetary Board in the of the year. Or pwede naman
unwillingness to maintain a condition of liquidity deemed earlier upon basis on his report it can be determine that the
adequate to protect the interest of depositors and creditors. continuance in business—please take note of the reason—the
continuance in business of the institution would involve probable
Question: Inability or continuing unwillingness to maintain a loss to its depositors or creditors. Now, there seems to be a
condition of liquidity deemed adequate to protect the interest of distinction between creditors and depositors. Now, as all we
depositors and creditors, does that mean na lugi na ang know depositors or bank deposits is in the nature of creditor and
bangko? Does that mean na insolvent na si bank? debtor, while on deposits you are the creditor.

Sir: the Monetary Board may appoint a conservator with such So, bakit kaya gi-emphasize ang creditor or and depositor?
powers as the Monetary Board shall deem necessary to take Bakit di nalang sinabi na probable loss to its creditors? Bakit
charge of the assets. So, the main role of the conservator is first kailangan ihiwalay?
to take charge of the assets and liabilities, and the management
thereof, reorganize the management, collect all monies and A: this is in emphasis because there might be a credit that are
debts due said institution, and exercise all powers necessary to not in the form of deposits. So dapat ihiwalay. In which case, the
restore its viability. The conservator shall report and be provisions of section 30 shall be apply—which is the
responsible to the Monetary Board and shall have the power to receivership.
overrule or revoke the actions of the previous management and
board of directors of the bank or quasi-bank. 2 reasons for conservator to determine

So, in effect there is a take-over. Someone is in. You (bank) are 1. can continue its operation. Naayos na.; or
not doing your job someone will take-over. Now, to resume the 2. Mag re-receiver na tayo.
viability of the bank. So, this is ONE OF THE REMEDIES of the
banks in distress. And the basis for this is the REPORT of the conservator. Please
So, meron tayong tinatawag na ‘bank in distress’. So, bank in take note.
distress, one of the remedies is conservator. So, paano sya ma-
aapoint? There is continuing inability. What is conservatorship? This is a tool in restoring the viability
of banks and quasi-banks. It consists of carrying out a package
Of course, the conservator appointed should be competent and of administrative organizational, financial (because the
knowledgeable in bank operations and management. The conservator can reorganize the management. Pwede nyang
conservator shall not exceed One (1) year. Please take note— sabihin na mali kasi and in-appoint mo sa operations. Wala
does not exceed 1 year. The Conservator has only 1 year to kasing alam. So, I will put people and terminate them para
do his job. maayos. He can reorganize. That is the role. He acts as if he is
the BOT at that point of time), and/or other measures to address
The Conservator shall receive remuneration—take note of the the state of continuing inability or unwillingness to maintain a
remuneration—not to exceed 2/3 of the salary of the president condition of liquidity deemed adequate to protect the interest of
of the institution in one (1) year. Payable in twelve (12) equal depositors and creditors.
monthly payments. Provided that, please take note—if any time So, there is a report. The supervising department mag report
within the one (1) year period the conservatorship is terminated sya sa Sentral Bank. Tapos ang gi appoint na conservator mag
on the ground that the institution can operate on its own, the re-report din sa Sentral Bank. Either to terminate it because it
conservator shall receive up to the end of the year. This serves can stand on its own or to appoint a receiver. The finding of the
as a reward or an incentive for the conservator. Bilisan mo yang monetary board is based on the state of inability. Pa ulit ulit
work mo kasi 1 month palang naayos na nya—he will receive talaga yan sya. State of unwillingness to maintain.
rest of the salary for the year. So, this is an incentive if the
ground for the termination it can be shown of its viability. But if Now, the BOD must be informed in writing. So, sabi nang MBA
the ground is palugi and pa liquidation, pa receiver na—wala na. i-conservatorship na natin ‘to. The MBA will inform in writing the
prorated na ang kanyang ma receive. BOD na: Oy! you are under conservatorship.

The Monetary Board may appoint a conservator connected with Q: Is it a good thing na under ka nang conservatorship?
the Bangko Sentral, in which case he shall not entitled to receive
any remuneration or emolument from the Bangko Sentral during Sir: NO. not a good thing. Ang ibig sabihin lang yan na—
the conservatorship. The expenses attendant to the you are not doing your job.
conservatorship shall be borne by the bank or quasi-bank
concerned. But it is one of the ways na if you are in business where the State
intervene because the nature of your job is imbued with public
The Monetary Board shall terminate the conservatorship when interest that is so the State has the right to intervene to protect
it is satisfied that the institution can continue to operate on its the public.
own and the conservatorship is no longer necessary. Shall
likewise be determine that—yon. Okay lang if it can operate on LIQUIDITY. Di ba, continuing inability or unwillingness to
its own. But if it is terminated on the basi— si conservator will maintain a condition of liquidity. Therefore, what is liquidity?

Liquid ka. Di sya bankrupt pero din rin sya liquid. That is why he and Jose O. Janolo, wanted to purchase the property and
needs to sell his properties. thus initiated negotiations for that purpose.

Liquidity is generally understood as the ability to pay off In the early part of August 1987 said First Philippines
obligations when they fall due. It refers to that condition International Bank (FPIB), upon the suggestion of BYME
wherein a high percentage of the assets can be quickly investment's legal counsel, Jose Fajardo, met with defendant
converted into cash without involving any considerable Mercurio Rivera, Manager of the Property Management
loss by accepting sacrifice prices. Meaning, liquidity in Department of the defendant bank. The meeting was held
effect— liquid ka ba. You have enough cash to pay your pursuant to plaintiffs' plan to buy the property. After the
obligation. Na you don’t need to sell your other properties. So, meeting, Janolo, following the advice of defendant Rivera,
that is liquidity. Marami kang cash and cash interest. Liquid ka. made a formal purchase offer to the bank through a letter
Di mo kailangan mangutang or mag benta nang non-cash dated August 30, 1987.
assets. So, yan ang ibig sabihin nag liquidity. It is different from
SOLVENCY. Please take note of that. There was no reply to Janolo's foregoing letter of September
17, 1987. What took place was a meeting on September
When we talk of Solvency—your liabilities exceed your assets. 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-
Whether in the form of cash or non-cash. That is solvency. So, President of defendant bank. Rivera as well as Fajardo, the
between liquidity and solvency—ang solvency wala ka talagang BYME lawyer, attended the meeting. Two days later, or on
assets. (Caveat: Sir’s explanation is very confusing from his ppt) September 30, 1987, plaintiff Janolo sent to the bank, through
Rivera.
In liquidity, di ka lang makabayad because you don’t have
enough cash assets to pay off your obligation. Financial Defendant bank, through Rivera, acknowledged receipt of the
obligations—liquidity yan. foregoing letter in its communication of December 2, 1987
that said letter has been "referred . . . to the office of our
LIQUIDITY vs. SOLVENCY Conservator for proper disposition" However, no response
came from the Acting Conservator.
 Solvency and liquidity are both terms that refer to an
enterprise’s state of financial health, but with some On December 14, 1987, the plaintiffs made a second tender
notable differences. Solvency refers to an enterprise’s of payment this time through the Acting Conservator,
capacity to meet its long-term financial commitments. defendant Encarnacion. Plaintiffs send letter to the bank for
Liquidity refers to an enterprise’s ability to pay short- the alleged perfected contract of sale.
term obligations, the term also refers to a company’s
capability to sell assets quickly to raise cash. A solvent However, the said letter drew no response for more than four
company is one that owns more than it owes; in other months. Then, on May 3, 1988, plaintiff, through counsel,
words, it has a positive net worth and a manageable made a final demand for compliance by the bank with its
debt load. On the other hand, a company with obligations under the considered perfected contract of sale.
adequate liquidity may have enough cash available to
pay its bills, but it may be heading for financial disaster In a reply letter dated May 12, 1988, the defendants through
down the road. Acting Conservator Encarnacion repudiated the authority of
defendant Rivera and claimed that his dealings with the
plaintiffs, particularly his counter-offer of P5.5 Million are
unauthorized or illegal. On that basis, the defendants justified
The powers and duties of a conservator the refusal of the tenders of payment and the non-compliance
with the obligations under what the plaintiffs considered to be
1. Take charge of the assets, liabilities, and the a perfected contract of sale.
management of the bank or quasi-bank as may be
deemed necessary by the Monetary Board; On May 16, 1988, plaintiffs filed a suit for specific
performance with damages against the bank, its Manager
So, what happened in the case of First Philippines International Rivers and Acting Conservator Encarnacion. The basis of the
Bank vs. CA? suit was that the transaction had with the bank resulted in a
First Philippines International Bank vs. CA perfected contract of sale.

FACTS On the other hand, the defendants took the position that there
was no such perfected sale because the defendant Rivera is
Here, in the course of its banking operations, the defendant not authorized to sell the property, and that there was no
Producer Bank of the Philippines acquired six parcels of meeting of the minds as to the price.
land with a total area of 101 hectares. The property used to
be owned by BYME Investment and Development ISSUE
Corporation which had them mortgaged with the bank as
collateral for a loan. The original plaintiffs, Demetrio Demetria

May the Conservator revoke the perfected and enforceable valid contract, how can it delegate such non-existent powers
contract? to the conservator under Section 28-A of said law?

HELD Obviously, therefore, Section 28-A merely gives the

conservator power to revoke contracts that are, under
NO. The Supreme Court said, it is not disputed that the existing law, deemed to be defective — i.e., void,
petitioner Bank was under a conservator placed by the voidable, unenforceable or rescissible.
Central Bank of the Philippines during the time that the
negotiation and perfection of the contract of sale took place. Hence, the conservator merely takes the place of a bank's
Petitioners energetically contended that the conservator has board of directors. What the said board cannot do — such as
the power to revoke or overrule actions of the management repudiating a contract validly entered into under the doctrine
or the board of directors of a bank, under Section 28-A of of implied authority — the conservator cannot do either.
Republic Act No. 265 (otherwise known as the Central Bank Ineluctably, his power is not unilateral and he cannot simply
Act) as follows: repudiate valid obligations of the Bank. His authority would
be only to bring court actions to assail such contracts — as
Whenever, on the basis of a report submitted by the he has already done so in the instant case. A contrary
appropriate supervising or examining department, the understanding of the law would simply not be permitted by
Monetary Board finds that a bank or a non-bank financial the Constitution. Neither by common sense. To rule
intermediary performing quasi-banking functions is in a state otherwise would be to enable a failing bank to become
of continuing inability or unwillingness to maintain a state of solvent, at the expense of third parties, by simply getting the
liquidity deemed adequate to protect the interest of conservator to unilaterally revoke all previous dealings which
depositors and creditors, the Monetary Board may appoint a had one way or another or come to be considered
conservator to take charge of the assets, liabilities, and the unfavorable to the Bank, yielding nothing to perfected
management of that institution, collect all monies and debts contractual rights nor vested interests of the third parties who
due said institution and exercise all powers necessary to had dealt with the Bank.
preserve the assets of the institution, reorganize the
management thereof, and restore its viability. He shall have So, okay. In this particular case, since the conservator may
the power to overrule or revoke the actions of the previous exercise other powers based on the powers of the BOD, can
management and board of directors of the bank or non-bank revoke perfected and enforceable contract? The Supreme Court
financial intermediary performing quasi-banking functions, said NO. The power to revoke a contract refers only to those
any provision of law to the contrary notwithstanding, and such defective contracts. You have the rule on void, voidable,
other powers as the Monetary Board shall deem necessary. unenforceable, and rescissible contracts.

In the first place, this issue of the Conservator's alleged So, hanggand doon lang ang power nila. Because otherwise, it
authority to revoke or repudiate the perfected contract of will violate the non-impairment of contracts. Sabi pa nga nang
sale was raised for the first time in this Petition — as this court, di nga pwede ang legislators mag impair nang perfected
was not litigated in the trial court or Court of Appeals contract and BOD pa kaya. Legislators—Monetary Board—
BOD/Conservator. If the source of the power cannot do then, the
In the second place, there is absolutely no evidence that the delegated power cannot do the same.
Conservator, at the time the contract was perfected, actually
repudiated or overruled said contract of sale. The Bank's The termination, again, cannot exceed 1 year.
acting conservator at the time, Rodolfo Romey, never Punta na tayo sa RECEIVER.
objected to the sale of the property to Demetria and Janolo.
What petitioners are really referring to is the letter of Q: if na ayos, okay lang. if it cannot be prevented that there
Conservator Encarnacion, who took over from Romey after might be probable loss to its creditors or depositors we will go to
the sale was perfected on September 30, 1987 which section 30, the receivership.
unilaterally repudiated — not the contract — but the authority
of Rivera to make a binding offer — and which unarguably RA No. 7653
came months after the perfection of the contract.
Section 30. Section 30. Proceedings in Receivership and
In the third place, while admittedly, the Central Bank law Liquidation. - Whenever, upon report of the head of the
gives vast and far-reaching powers to the conservator of a supervising or examining department, the Monetary Board
bank, it must be pointed out that such powers must be related finds that a bank or quasi-bank:
to the "(preservation of) the assets of the bank, (the
reorganization of) the management thereof and (the (a) is unable to pay its liabilities as they become due in the
restoration of) its viability." Such powers, enormous and ordinary course of business: Provided, That this shall not
extensive as they are, cannot extend to the post- include inability to pay caused by extraordinary demands
facto repudiation of perfected transactions, otherwise they induced by financial panic in the banking community;
would infringe against the non-impairment clause of the
Constitution. If the legislature itself cannot revoke an existing

(b) has insufficient realizable assets, as determined by the rules on concurrence and preference of credit under the Civil
Bangko Sentral, to meet its liabilities; or Code of the Philippines and he may, in the name of the
institution, and with the assistance of counsel as he may
(c) cannot continue in business without involving probable retain, institute such actions as may be necessary to collect
losses to its depositors or creditors; or and recover accounts and assets of, or defend any action
against, the institution. The assets of an institution under
(d) has willfully violated a cease and desist order under receivership or liquidation shall be deemed in custodia legis
Section 37 that has become final, involving acts or in the hands of the receiver and shall, from the moment the
transactions which amount to fraud or a dissipation of the institution was placed under such receivership or liquidation,
assets of the institution; in which cases, the Monetary Board be exempt from any order of garnishment, levy, attachment,
may summarily and without need for prior hearing forbid the or execution.
institution from doing business in the Philippines and
designate the Philippine Deposit Insurance Corporation as The actions of the Monetary Board taken under this section
receiver of the banking institution. or under Section 29 of this Act shall be final and executory,
and may not be restrained or set aside by the court except on
For a quasi-bank, any person of recognized competence in petition for certiorari on the ground that the action taken was
banking or finance may be designed as receiver. in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The petition for
The receiver shall immediately gather and take charge of all certiorari may only be filed by the stockholders of record
the assets and liabilities of the institution, administer the representing the majority of the capital stock within ten (10)
same for the benefit of its creditors, and exercise the general days from receipt by the board of directors of the institution of
powers of a receiver under the Revised Rules of Court but the order directing receivership, liquidation or
shall not, with the exception of administrative expenditures, conservatorship.
pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the The designation of a conservator under Section 29 of this Act
receiver may deposit or place the funds of the institution in or the appointment of a receiver under this section shall be
non-speculative investments. The receiver shall determine as vested exclusively with the Monetary Board. Furthermore, the
soon as possible, but not later than ninety (90) days from take designation of a conservator is not a precondition to the
over, whether the institution may be rehabilitated or otherwise designation of a receiver.
placed in such a condition so that it may be permitted to
resume business with safety to its depositors and creditors The proposed amendments (Senate Bill 1297)
and the general public: Provided, That any determination for
the resumption of business of the institution shall be subject Section 30. Section 30. Proceedings in Receivership and
to prior approval of the Monetary Board. Liquidation. - Whenever, upon report of the head of the
supervising or examining department, the Monetary Board
If the receiver determines that the institution cannot be finds that a bank or quasi-bank:
rehabilitated or permitted to resume business in accordance
with the next preceding paragraph, the Monetary Board shall (a) HAS NOTIFIED THE BANGKO SENTRAL OR PUBLICLY
notify in writing the board of directors of its findings and direct ANNOUNCED A UNILATERAL CLOSURE, OR HAS BEEN
the receiver to proceed with the liquidation of the institution. DORMANT FOR AT LEAST SIXTY (60) DAYS OR IN ANY
The receiver shall: MANNER HAS SUSPENDED THE PAYMENT OF ITS
DEPOSIT SUBSTITUTE LIABILITIES OR is unable to pay its
(1) file ex parte with the proper regional trial court, and without liabilities as they become due in the ordinary course of
requirement of prior notice or any other action, a petition for business: Provided, That this shall not include inability to pay
assistance in the liquidation of the institution pursuant to a caused by extraordinary demands induced by financial panic
liquidation plan adopted by the Philippine Deposit Insurance in the banking community;
Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by (b) has insufficient realizable assets, as determined by the
the Monetary Board. Upon acquiring jurisdiction, the court Bangko Sentral, to meet its liabilities; or
shall, upon motion by the receiver after due notice, adjudicate
disputed claims against the institution, assist the enforcement (c) cannot continue in business without involving probable
of individual liabilities of the stockholders, directors and losses to its depositors or creditors; or
officers, and decide on other issues as may be material to
implement the liquidation plan adopted. The receiver shall (d) has willfully violated a cease and desist order under
pay the cost of the proceedings from the assets of the Section 37 that has become final, involving acts or
institution. transactions which amount to fraud or a dissipation of the
assets of the institution; in which cases, the Monetary Board
(2) convert the assets of the institutions to money, dispose of may summarily and without need for prior hearing forbid the
the same to creditors and other parties, for the purpose of institution from doing business in the Philippines and
paying the debts of such institution in accordance with the designate the Philippine Deposit Insurance Corporation as

receiver of the banking institution. IN THE CASE OF BANKS receivership or liquidation shall be deemed in custodia legis
AND DIRECT THE DPIC TO PROCEED WIT THE in the hands of the receiver and shall, from the moment the
LIQUIDATION OF THE CLOSED BANK PURSUANT TO institution was placed under such receivership or liquidation,
THIS SECTION AND THE RELEVANT PROVISION OF RA be exempt from any order of garnishment, levy, attachment,
3591, AS AMENDED, THE MONETARY BOAD SHALL or execution.
NOTIFY IN WRITING THROUGH THE RECEIVER THE
BOARD OF DIRECTORS OF THE CLOSED BANK OF ITS The actions of the Monetary Board taken under this section
DECISION. or under Section 29 of this Act shall be final and executory,
and may not be restrained or set aside by the court except on
For a quasi-bank, any person of recognized competence in petition for certiorari on the ground that the action taken was
banking or finance may be designed as receiver. in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The petition for
The receiver shall immediately gather and take charge of all certiorari may only be filed by the stockholders of record
the assets and liabilities of the institution, administer the representing the majority of the capital stock within ten (10)
same for the benefit of its creditors, and exercise the general days from receipt by the board of directors of the institution of
powers of a receiver under the Revised Rules of Court but the order directing receivership, liquidation or
shall not, with the exception of administrative expenditures, conservatorship.
pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the THE AUTHORITY OF THE MONETARY OAD TO
receiver may deposit or place the funds of the institution in SUMMARILY AND WITHOUT NEED FOR PRIOR HEARING
non-speculative investments. The receiver shall determine as FORBID THE BANK OF QUASI-BANK FROM DOING
soon as possible, but not later than ninety (90) days from take BUSINESS IN THE PHILIPPINES AS PROVIDED ABOVE
over, whether the institution may be rehabilitated or otherwise MAY ALSO BE EXERCISED OVER NON-STOCK SAVINGS
placed in such a condition so that it may be permitted to AND LOANS ASSOCIATION, BASED ON THE SAME
resume business with safety to its depositors and creditors APPLICABLE GROUNDS.
and the general public: Provided, That any determination for
the resumption of business of the institution shall be subject FOR QUASI-BANKS AND NON-STOCK SAVINGS AND
to prior approval of the Monetary Board. LOANS ASSOCIATION, ANY PERSON OR RECOGNIZED
COMPETENCE IN BANKING, CREDIT OR FINANCE MAY
If the receiver determines that the institution cannot be BE DESIGNATED BY THE BANGKO SENTRAL AS
rehabilitated or permitted to resume business in accordance RECIEVER.
with the next preceding paragraph, the Monetary Board shall
notify in writing the board of directors of its findings and direct The designation of a conservator under Section 29 of this Act
the receiver to proceed with the liquidation of the institution. or the appointment of a receiver under this section shall be
The receiver shall: vested exclusively with the Monetary Board. Furthermore, the
designation of a conservator is not a precondition to the
(1) file ex parte with the proper regional trial court, and without designation of a receiver.
requirement of prior notice or any other action, a petition for
assistance in the liquidation of the institution pursuant to a Section 30. xxx whenever, upon report of the head of the
liquidation plan adopted by the Philippine Deposit Insurance supervising or examining department. Please take note, pwede
Corporation for general application to all closed banks. In bang dumeretso sa receivership at di na dumaan sa
case of quasi-banks, the liquidation plan shall be adopted by conservatorship? Or kailangan bang dadaan sa
the Monetary Board. Upon acquiring jurisdiction, the court conservatorship?
shall, upon motion by the receiver after due notice, adjudicate
disputed claims against the institution, assist the enforcement Is conservatorship a requisite for a receivership?
of individual liabilities of the stockholders, directors and
officers, and decide on other issues as may be material to The Monetary Board finds that a bank or quasi-bank:
implement the liquidation plan adopted. The receiver shall
pay the cost of the proceedings from the assets of the (a) is unable xxx what is the ground for conservatorship to
institution. become into receivership? Ito yo di ba? It cannot continue in
business without preventing probable loss to its depositors or
(2) convert the assets of the institutions to money, dispose of creditors. Yan yong sa conservator. Now, may other grounds pa.
the same to creditors and other parties, for the purpose of We have unable to pay its liabilities as they become due in the
paying the debts of such institution in accordance with the ordinary course of business: Provided, That this shall not include
rules on concurrence and preference of credit under the Civil inability to pay caused by extraordinary demands induced by
Code of the Philippines and he may, in the name of the financial panic in the banking community.
institution, and with the assistance of counsel as he may
retain, institute such actions as may be necessary to collect So, therefore, examining or before the BSP personnel examine
and recover accounts and assets of, or defend any action sa bank pwedeng dumeretso sa receivership. If it is determined
against, the institution. The assets of an institution under

that its continue inability to pay its liabilities as they become due What kind of proceeding is this, the receivership? Is this a
in the ordinary course of business. provisional remedy or a special proceeding?

(b) has insufficient realizable assets, as determined by the Xxx with the exception of administrative expenditures, pay or
Bangko Sentral, to meet its liabilities; or commit any act that will involve the transfer or disposition of any
asset of the institution. Please take note, under the Revised
(c) cannot continue in business without involving probable Rules of Court, it shall not pay, or commit any act that will involve
losses to its depositors or creditors; or the transfer or disposition of any asset of the institution. So,
under receivership—the receiver cannot transfer or dispose any
(d) has willfully violated a cease and desist order under Section assets of the institution. Hindi nya pwede I benta. Why?
37 that has become final, involving acts or transactions which Because if nagbenta na sya you are under, what?
amount to fraud or a dissipation of the assets of the institution; LIQUIDATION. Di ba, remember your partnership. If
in which cases, the Monetary Board may summarily and without nagbebenta ka na to pay to liabilities—nag li-liquidate ka na.
need for prior hearing forbid the institution from doing business
in the Philippines and designate the Philippine Deposit So, in the spectrum of remedies for banks you have: 1.
Insurance Corporation as receiver of the banking institution. Conservatorship 2. Receivership  3. Liquidation.

Please take note of the definition ha? Its inability to pay its So, kung si receiver nagbenta nang assets para ipambayad
liabilities. Let’s go to conservatorship. The inability is doon sa mga liability—that is not under receivership. That is now
commenting. Please take note—conservatorship—the inability in liquidation. Please take note of the difference.
of the bank is to maintain the condition of liquidity. Pagdating mo
sa receivership—the inability is to pay its liabilities. The receiver shall not pay or commit any act that will
involve the transfer or disposition of any asset of the
So, pag conservator is only to maintain this cash pero doon sa institution.
receivership I am unable to pay my liabilities. So, kaya So, therefore, ano lang ang work ni receiver?
receivership sya. Even letter D— has willfully violated a cease
and desist order under Section 37. Now, Section 37 essentially The receiver can only do an ACT OF ADMINISTRATION. It
pertains to those actions including unsound and unsafe banking CANNOT do an act of strict dominion.
practices. Kung may unsound and unsafe banking practices and
ginawa nang MB—cease and desist order. Stop using that Xxx Provided, That the receiver may deposit or place the funds
because that is unsound and unsafe. If they still do that, of the institution in non-speculative investments. The receiver
evidently violated the cease and desist order, so the MB can shall determine as soon as possible, but not later than ninety
actually order a receivership. (90) days from take over. So, if the conservator has 1 year to
determine— the receiver has 90 days to take over whether the
Please take note, in which cases, in all A B C D cases the MB institution may be rehabilitated or otherwise placed in such a
can SUMMARILY or without prior hearing forbid the institution condition so that it may be permitted to resume business with
from doing business in the Philippines and designate the safety to its depositors and creditors and the general public:
Philippine Deposit Insurance Corporation as receiver of the Provided, That any determination for the resumption of business
banking institution. So, the default receiver of a banking of the institution shall be subject to prior approval of the
institution is the PDIC or the Philippine Deposit Insurance Monetary Board.
Corporation. Therefore, if you are under receivership you are
considered closed bank. Sirado, I re-receiver ka. The MB may So, there is a chance. Pagdating kay receiver if it is determined
forbid the institution from ding business in the Philippines. that there is a chance to resume business with safety to its
So, if in conservatorship ka pa you are still doing business. Iba depositors and creditors and the general public—it will report to
lang yong nag ma-manage si conservator. Now, if kapag MB and the MB will approve the resumption of business.
receivership ka—you are a CLOSED BANK. For a reason na di
ka na makakabayad nang utang. It must be remembered, if you are under receivership you are a
closed bank. So, pwede kang mag open uli. So, maraming
For quasi bank, any person of recognized competence in chances.
banking or finance may be designed as receiver.
If the receiver determines that the institution cannot be
For banks—the PDIC. For quasi bank— is any person. rehabilitated or permitted to resume business in accordance
with the next preceding paragraph, the Monetary Board shall
So, anong gagawin ni receiver? notify in writing the board of directors of its findings and direct
the receiver to proceed with the liquidation of the institution. So
The receiver shall immediately gather and take charge of all the ito na—wala na. Finish na sya. Liquidation na.
assets and liabilities of the institution, administer the same for
the benefit of its creditors, and exercise the general powers of a What the receiver do?
receiver under the Revised Rules of Court.
The receiver shall:

naman pwede si receiver mag file nang petition sa court. Hindi

(1) file ex parte with the proper regional trial court, and without pwede ako (receiver) and magpa file tapos I co-contest ko yong
requirement of prior notice or any other action, a petition for sarili ko. That is why this right is given to the stockholders of
assistance in the liquidation of the institution. This is what you records representing the majority. Who have majority (50+1).
call, COURT ASSISTED LIQUIDATION. The court will assist the
liquidation. A liquidation plan shall be adopted by the Philippine The designation of a conservator under Section 29 of this Act or
Deposit Insurance Corporation (it is the receiver when it is a the appointment of a receiver under this section shall be vested
bank institution). If it is a quasi-bank, the liquidation plan shall exclusively with the Monetary Board. Furthermore, the
be adopted by the Monetary Board but this is upon the designation of a conservator is not a precondition to the
recommendation of the one appointed as a receiver. Because if designation of a receiver. Because there are other grounds the
it is a quasi-bank it is any person who can be a receiver. So, receiver may be designated.
magkakaroon sila nang liquidation plan isa-submit nila sa
MB si MB ang mag a-adopt nang liquidation plan. Look at FRIA (Financial Rehabilitation and Insovency Act)g.
Because if you are a corporation tapos bankrupt kana, meron ka
Upon acquiring jurisdiction, the court shall, upon motion by the nito FRIA rights. Pero the law that is governing if you are not a
receiver after due notice, adjudicate disputed claims against the bank or quasi bank is the FRIA. Please take note under section
institution, assist the enforcement of individual liabilities of the 5, what is excluded under this law term is— debtor does not
stockholders, directors and officers, and decide on other issues include banks, insurance companies, pre-need companies, and
as may be material to implement the liquidation plan adopted. national and local government agencies or units. Xxx
The receiver shall pay the cost of the proceedings from the
assets of the institution. (RA No.10142) Section 5. Exclusions. - The term debtor does
not include banks, insurance companies, pre-need
What happened in CAP? Nagpa declare nang insolvency. companies, and national and local government agencies or
Tapos kung meron kayong account doon, bibigyan kayo nang units.
notice na you have this particular period to file a claim. Yon yong
notice na there is an existing plan kung kalian babayaran. Just For purposes of this section:
like that—yon ang mangyayari. Kaya kailangan nang court
assistance. (a) Bank shall refer to any duly licensed bank or quasi-bank
that is potentially or actually subject to conservatorship,
2) convert the assets of the institutions to money, dispose of the receivership or liquidation proceedings under the New
same to creditors and other parties, for the purpose of paying Central Bank Act (Republic Act No. 7653) or successor
the debts of such institution in accordance with the rules on legislation;
concurrence and preference of credit under the Civil Code of the
Philippines. Now, because of this, your Credit Transactions may (b) Insurance company shall refer to those companies that
be asked in your Civil Law or in your Commercial Law. So, yon are potentially or actually subject to insolvency proceedings
yong nature nag Cred Trans. So, in the name of the institution, under the Insurance Code (Presidential Decree No. 1460) or
and with the assistance of counsel as he may retain, institute successor legislation; and
such actions as may be necessary to collect and recover
accounts and assets of, or defend any action against, the (c) Pre-need company shall refer to any corporation
institution. The assets of an institution under receivership or authorized/licensed to sell or offer to sell pre-need plans.
liquidation shall be deemed in custodia legis xxx be exempt from
any order of garnishment, levy, attachment, or execution. Therefore, the insolvency proceedings of banks is under this
Central Bank Act and not under the FRIA. It is specifically
Now, very important—the actions of the MB shall be FINAL and excepted or excluded under the provisions of FRIA. Kasi iba
EXECUTORY. Or set aside by the court except on petition for yong process sa insolvency or receivership sa FRIA at sa
certiorari on the ground that the action taken was in excess of Central Bank.
jurisdiction. Please take note, who is the party in interest. The
petition for certiorari may only be filed by the stockholders of So, you have the case of Rural Bank of Lucena v. Arca
record representing the majority of the capital stock within ten
(10) days from receipt by the board of directors of the institution Rural Bank of Lucena v. Arca
of the order directing receivership, liquidation or
conservatorship.
FACTS:
Bakit ang stockholder ang magpa file? Bakit hindi mismo si
Corporation? Di ba, there is a separate juridical personality. The Monetary Board issue a Resolution No. 928 finding the
Bakit hindi si Corporation ang magpa file nang petition for Rural Bank of Lucena (Lucena for short), through its officers,
certiorari? directors, and employees, had committed acts substantially
prejudicial to the Government, depositors, and creditors, and
Now, remember if you are under the receivership—the POWER directing Lucena to reorganize its board of directors; to refrain
of the BOD is SUSPENDED. Gi take over nang receiver. Hindi from granting or renewing loans, or accept new deposits, and

not to issue drafts or make disbursements without the Rural Bank Act, the hearing is required. Hence, in this case,
approval of the supervising Central Bank examiners , and there was no hearing the resolution of the MB for the
threatening Lucena that its management would be taken over liquidation of the Rural Bank of Lucena, hence, there was an
if the latter should fail to comply with the resolution. invalid resolution.

The Rural Bank of Lucena, Inc. instituted, on June 22, 1961, So, according to the Supreme Court, the Rural Bank of
in the Court of First Instance of Manila (Civil Case No. 47345) Lucena is also covered by the Rural Bank Act. However, the
an action to collect damages and to enjoin the Central Rural Bank Act and the Central Bank Act they are not
Bank from enforcing Resolution No. 928. exclusive law. The other on is applicable it does not exclude
the application of the other. Because, the provision of the
While the litigation was still undecided the Monetary Board, Rural Bank act provides: The provisions of Republic Acts
having been informed that the Director of its Department of numbered 265 (Central Bank Act) and 337, in so far as
Rural Banks recommended the liquidation of Lucena. A applicable and not in conflict with any provision of this Act,
Resolution No. 122 by Monetary Board issued requesting are hereby made a part of this Act.
the Solicitor General, to file a petition in the proper courts for
the liquidation of the affairs of Lucena. Since the 2 laws are different, the SC held that, tt follows that
on the assumption that under section 10 of the Rural Banks
Notice was given by Central Bank officials, on February 10, Act the Monetary Board may not take over the management
1962 that the Lucena bank was temporarily closed pending of a rural bank without giving the latter a hearing, i.e., an
final decision of the Court, and that business be transacted opportunity to rebut the charge that it has contravened
with Central Bank representatives only. applicable laws, rules and regulations to the substantial
prejudice of the government, its depositors and creditors,
Two days later, the Lucena bank filed suit in the Court of First such a previous hearing is nowhere required by section 29 of
Instance of Quezon (Tayabas) to enjoin the enforcement of the Central Bank Law. Manifestly, whether a rural bank's
Resolution 122. The court issued ex parte a writ of "continuance in business would involve probable loss" to its
preliminary injunction to such effect. clients or creditors and that it "cannot resume business with
safety," is a matter of appreciation and judgment that the law
On the same day, the Court of First Instance of Manila per entrusts primarily to the Monetary Board
Judge Gatmaitan, enjoining enforcement of Resolution No.
928 of the Monetary Board, for having been issued without Sir: So, what is the Applicable law in this case?
the prior hearing prescribed by section 10 of the Rural Bank
Act,. A: the Central Bank Act.

Upon the other hand, the Court of First Instance of Quezon Sir: what is the reason bakit walang prior hearing?
Province, dissolved its preliminary injunction against the
enforcement of Resolution 122 of the Monetary Board. A: if the hearing is required, the danger that the law seeks
to prevent that is the dissipation of assets of the banking
On the 31st of March 1962, invoking section 29 of Republic institution will be defeated because, it has to comply
Act 265, the Central Bank, as liquidator, petitioned the Court first. While if it is ex parte, without any delay the MB may
of First Instance of Manila for assistance in the liquidation of issue resolution for the liquidation.
the Lucena bank. (Civil Case No. 50019). Upon motion, and
after hearing the parties, Judge Arca issued on interlocutory From the Full text:
order the Lucena thru its duly authorized officers or
representatives to turn over to the Central Bank the physical We see no irreconcilable conflict between section 10 of
possession of all of said Rural Bank of Lucena's assets, Republic Act No. 720 (Rural Banks Act) and section 29 of
properties and papers. Republic Act No. 265 (Central Bank Act). The former
The Rural Bank of Lucena resorted to this Court provides in substance as follows:
on certiorari, claiming that Judge Arca gravely abused his The director of the Department of the Central Bank
discretion in issuing the above order. It contends that Section designated by the Monetary Board to supervise
29 of the Central Bank Act (R.A. 265) does not apply in this Rural Banks ... upon proof that the Rural Bank or its
case; board of directors or officers are conducting and
managing the affairs of the bank in a manner
ISSUE: W/N Section 29 of Central Bank Act (R.A. 265) is contrary to laws, orders, instructions, rules and
applicable to Rural banks? regulations promulgated by the Monetary Board or
in any manner substantially prejudicial to the
HELD: interests of the government, depositors or creditors,
to take over the management of such bank when
Yes. If the Central Bank Act is the applicable law, the hearing specifically authorized to do so by the Monetary
requirement is no longer necessary because it was the Board after due hearing until a new board of
findings of the Monetary Board (ex parte). Whereas, if it is the directors and officers are elected and qualified. ...

Considering that section 27 of the Rural Banks law (R.A.

It is easily seen that what this section authorized is the take No. 720) expressly declares that —
over of the management by the Central Bank, until the The provisions of Republic Acts numbered 265
governing body of the offending Rural Bank is recognized (Central Bank Act) and 337, in so far as
with a view to assuring compliance by it with the laws and applicable and not in conflict with any provision
regulations. of this Act, are hereby made a part of this Act.

Upon the other hand, section 29 of the Central Bank Act (R. we find no room for questioning the applicability of
A. 265) has in view a much more drastic step, the liquidation section 29 of Republic Act No. 265 (Central Bank Act) to
of a rural bank by taking over its assets and converting rural banks organized under Republic Act 720, whenever
them into money to pay off its creditors. Said section the Monetary Board should find that the rural bank
prescribes: affected is insolvent, or that its continuance in business
would involve probable loss to its depositors or
SEC. 29. Proceedings upon insolvency. — creditors, and that it
Whenever, upon examination by the Superintendent resume business with safety.
or his examiners or agents into the condition of any
banking institution, it shall be disclosed that the It follows that on the assumption that under section 10 of the
condition of the same is one of insolvency, or that its Rural Banks Act the Monetary Board may not take over the
continuance in business would involve probable management of a rural bank without giving the latter a
loss to its depositors or creditors, it shall be the duty hearing, i.e., an opportunity to rebut the charge that it has
of the Superintendent forthwith, in writing, to inform contravened applicable laws, rules and regulations to the
the Monetary Board of the facts, and the Board, substantial prejudice of the government, its depositors and
upon finding the statement of the Superintendent to creditors, such a previous hearing is nowhere required by
be true, shall forthwith forbid the institution to do section 29 of the Central Bank Law. Manifestly, whether a
business in the Philippines and shall take charge of rural bank's "continuance in business would involve probable
its assets and proceeds according to law. loss" to its clients or creditors and that it "cannot resume
business with safety," is a matter of appreciation and
The Monetary Board shall thereupon determine judgment that the law entrusts primarily to the Monetary
within thirty days whether the institution may be Board. Equally apparent is that if the rural bank affected is in
reorganized or otherwise placed in such a condition the condition previously adverted to, every minute of delay in
so that it may be permitted to resume business with securing its assets from dissipation inevitably increases the
safety to its creditors and shall prescribe the danger to the creditors. For this reason, the statute has
conditions under which such resumption of business provided for a subsequent judicial review of the Monetary
shall take place. In such case the expenses and fee Board, in lieu of a previous hearing.
in the administration of the institution shall be
determined by the Board and shall be paid to the Okay. So, ang sabi nang Court, kung ma de-delay the assets
Central Bank out of the assets of such banking may be dissipated. The Court said, manifestly, whether a rural
institution. bank's continuance in business would involve probable loss to
At any time within ten days after the Monetary Board its clients or creditors, and that "it can not resume business with
has taken charge of the assets of any banking safety", is a matter of appreciation and judgment that the law
institution, such institution may apply to the Court of entrusts primarily to the Monetary Board. Equally apparent is
First Instance for an order requiring the Monetary that if the rural bank affected is in the condition previously
Board to show cause why it should not be enjoined adverted to, every minute of delay in securing its assets from
from continuing such charge of its assets, and the dissipation inevitably increases the danger to the creditors. For
court may direct the Board to refrain from further this reason, the statute has provided for a subsequent judicial
proceedings and to surrender charge of its assets. review of the Monetary Board, in lieu of a previous hearing.

If the Monetary Board shall determine that the What happened in Central Bank v. CA?
banking institution cannot resume business with
safety to its creditors, it shall, by the Solicitor Central Bank v. CA
General, file a petition in the Court of First Instance
reciting the proceedings which have been taken and FACTS
praying the assistance and supervision of the court
in the liquidation of the affairs of the same. The Here, based on examination reports submitted by the
Superintendent shall thereafter, upon order of the Supervision and Examination Sector (SES) of the Central
Monetary Board and under the supervision of the Bank (CB) "that the financial condition of Triumph Savings
court and with all convenient speed, convert the Bank (TSB) is one of insolvency and its continuance in
assets of the banking institution to money. business would involve probable loss to its depositors and
creditors,".

Thus, the Monetary Board (MB) issued Resolution No. 596 to the prejudice of its depositors and creditors. CB further
ordering the closure of TSB, forbidding it from doing business argue that the legislative intent of Sec. 29 is to repose in the
in the Philippines, placing it under receivership, and Monetary Board exclusive power to determine the existence
appointing Ramon V. Tiaoqui as receiver. Tiaoqui assumed of statutory grounds for the closure and liquidation of banks,
office on 3 June 1985. having the required expertise and specialized competence to
do so.
On June 11, 1985, TSB filed a complaint with the RTC
against Central Bank and Ramon V. Tiaoqui to annul MB ISSUE
Resolution No. 596, with prayer for injunction, challenging in
the process the constitutionality of Sec. 29 of R.A. 269, Whether or not a Monetary Board can place a rural bank
otherwise known as "The Central Bank Act," as amended, under receivership even without prior notice.
insofar as it authorizes the Central Bank to take over a
banking institution even if it is not charged with violation of HELD
any law or regulation, much less found guilty thereof.
Yes. Under Sec. 29 of R.A. 265, the Central Bank, through
On July 1, 1985, the trial court temporarily restrained the Monetary Board, is vested with exclusive authority to
petitioners from implementing MB Resolution No. 596 "until assess, evaluate and determine the condition of any bank,
further orders", thus prompting them to move for the quashal and finding such condition to be one of insolvency, or that its
of the restraining order (TRO) on the ground that it did not continuance in business would involve probable loss to its
comply with said Sec. 29, i.e., that TSB failed to show depositors or creditors, forbid the bank or non-bank financial
convincing proof of arbitrariness and bad faith on the part of institution to do business in the Philippines; and shall
petitioners;' and, that TSB failed to post the requisite bond in designate an official of the CB or other competent person as
favor of Central Bank. receiver to immediately take charge of its assets and
liabilities. The fourth paragraph, which was then in effect at
Central Bank moved to dismiss on two grounds; 1. The the time the action was commenced, allows the filing of a
complaint failed to state a cause of action; 2. The Triumph case to set aside the actions of the Monetary Board which are
Savings Bank was without capacity to sue except through its tainted with arbitrariness and bad faith.
appointed receiver.
Contrary to the notion of TSB, Sec. 29 does not
Now, concerning the first ground, Central Bank themselves contemplate prior notice and hearing before a bank may
admit that the Monetary Board resolution placing the be directed to stop operations and placed under
Triumph Savings Bank under the receivership of the receivership. When par. 4 (now par. 5, as amended by E.O.
officials of the Central Bank was done without prior 289) provides for the filing of a case within ten (10) days after
hearing, that is, without first hearing the side of the bank. the receiver takes charge of the assets of the bank, it is
They further admit that said resolution can be the subject of unmistakable that the assailed actions should precede the
judicial review and may be set aside should it be found that filing of the case. Plainly, the legislature could not have
the same was issued with arbitrariness and in bad faith. intended to authorize "no prior notice and hearing" in the
closure of the bank and at the same time allow a suit to annul
CONTENTION it on the basis of absence thereof.

TSB: It allege that in the Banco Filipino case,Wherein it was In the early case of Rural Bank of Lucena, Inc. v. Arca [1965],
held that CB violated the rule on administrative due process We held that a previous hearing is nowhere required in Sec.
laid down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern 29 nor does the constitutional requirement of due process
Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which requires demand that the correctness of the Monetary Board's
that prior notice and hearing be afforded to all parties in resolution to stop operation and proceed to liquidation be first
administrative proceedings. Since MB Resolution No. 596 adjudged before making the resolution effective. It is enough
was adopted without TSB being previously notified and that a subsequent judicial review be provided.
heard, according to TSB, the same is void for want of due
process; consequently, the bank's management should be Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A.
restored to its board of directors and officers. 265 does not require a previous hearing before the Monetary
Board can implement its resolution closing a bank, since its
Central Bank: It asserted that it is the essence of Sec. 29 action is subject to judicial scrutiny as provided by law.
of R.A. 265 that prior notice and hearing in cases
involving bank closures should not be required since in It may be emphasized that Sec. 29 does not altogether divest
all probability a hearing would not only cause a bank or a non-bank financial institution placed under
unnecessary delay but also provide bank "insiders" and receivership of the opportunity to be heard and present
stockholders the opportunity to further dissipate the evidence on arbitrariness and bad faith because within ten
bank's resources, create liabilities for the bank up to the (10) days from the date the receiver takes charge of the
insured amount of P40,000.00, and even destroy assets of the bank, resort to judicial review may be had by
evidence of fraud or irregularity in the bank's operations filing an appropriate pleading with the court. Respondent TSB

did in fact avail of this remedy by filing a complaint with the Okay. You have this concept of “close now and hear later”
RTC of Quezon City on the 8th day following the takeover by schemes is grounded on practical and legal considerations to
the receiver of the bank's assets on 3 June 1985. prevent unwarranted dissipation of the bank’s assets and as a
valid exercise of police power to protect the depositors, creditors
This "close now and hear later" scheme is grounded on stockholders and the general public.
practical and legal considerations to prevent unwarranted
dissipation of the bank's assets and as a valid exercise of Mind you that this concept is being asked in bar exams. Same
police power to protect the depositors, creditors, stockholders scenario, without prior hearing—is it proper for the MB to close
and the general public. without prior hearing? So, that was the question of 2007 bar
under your commercial law. This is a very important concept.
Admittedly, the mere filing of a case for receivership by the
Central Bank can trigger a bank run and drain its assets in Requisites for Receivership
days or even hours leading to insolvency even if the bank be
actually solvent. The procedure prescribed in Sec. 29 is truly 1. Report o the head of the supervising department
designed to protect the interest of all concerned, i.e., the involving the bank;
depositors, creditors and stockholders, the bank itself, and
the general public, and the summary closure pales in 2. Finding of the Monetary Board of the existence of any
comparison to the protection afforded public interest. At any of the grounds for receivership;
rate, the bank is given full opportunity to prove arbitrariness
and bad faith in placing the bank under receivership, in which 3. Decision of the Monetary Board to forbid the institution
event, the resolution may be properly nullified and the from doing business; and
receivership lifted as the trial court may determine.
4. Notice in writing to the Board of Directors.
The heavy reliance of respondents on the Banco Filipino case
is misplaced in view of factual circumstances therein which
are not attendant in the present case. We ruled in Banco
Filipino that the closure of the bank was arbitrary and
attendant with grave abuse of discretion, not because of the
absence of prior notice and hearing, but that the Monetary
Board had no sufficient basis to arrive at a sound conclusion
of insolvency to justify the closure. In other words, the
arbitrariness, bad faith and abuse of discretion were
determined only after the bank was placed under
conservatorship and evidence thereon was received by the
trial court. As this Court found in that case, the Valenzuela,
Aurellano and Tiaoqui Reports contained unfounded
assumptions and deductions which did not reflect the true
financial condition of the bank. For instance, the subtraction
of an uncertain amount as valuation reserve from the assets
of the bank would merely result in its net worth or the
unimpaired capital and surplus; it did not reflect the total
financial condition of Banco Filipino.

In sum, appeal to procedural due process cannot just

outweigh the evil sought to be prevented; hence, the Court
rule that Sec. 29 of R.A. 265 is a sound legislation
promulgated in accordance with the Constitution in the
exercise of police power of the state. Consequently, the
absence of notice and hearing is not a valid ground to annul
a Monetary Board resolution placing a bank under
receivership. The absence of prior notice and hearing cannot
be deemed acts of arbitrariness and bad faith. Thus, an MB
resolution placing a bank under receivership, or
conservatorship for that matter, may only be annulled after a
determination has been made by the trial court that its
issuance was tainted with arbitrariness and bad faith. Until
such determination is made, the status quo shall be
maintained, i.e., the bank shall continue to be under
receivership.

5 Dec (1 of 2) | Andit referred to as quasibanks, and institutions performing similar

functions. The primary objective of the Bangko Sentral is to
ORIGINAL PROVISION maintain price stability conducive to a balanced and
sustainable growth of the economy. It shall also promote and
SEC. 2. Creation of the Bangko Sentral. _ There is hereby maintain monetary stability and the convertibility of the peso.
established an independent central monetary authority,
which shall be a body corporate known as the Bangko Sentral PROPOSED AMENDMENT
ng Pilipinas, hereafter referred to as the Bangko Sentral. SEC. 3. Responsibility and Primary Objective. _ The Bangko
Sentral shall provide policy directions in the areas of money,
The capital of the Bangko Sentral shall be Fifty billion pesos banking, and credit. It shall have supervision over the
(P50,000,000,000), to be fully subscribed by the Government operations of banks and exercise such regulatory AND
of the Republic, hereafter referred to as the Government, Ten EXAMINATION powers as provided in this Act and other
billion pesos (P10,000,000,000) of which shall be fully paid pertinent laws over the QUASI-BANKING operations of non-
for by the Government upon the effectivity of this Act and the bank financial institutions. AS MAY BE DETERMINED BY
balance to be paid for within a period of two (2) years from THE MONETARY BOARD, IT SHALL LIKEWISE
the effectivity of this Act in such manner and form as the EXERCISE REGULATORY AND EXAMINATION POWERS
Government, through the Secretary of Finance and the OVER MONEY SERVICE BUSINESSES, CREDIT
Secretary of Budget and Management, may thereafter GRANTING BUSINESSES, AND PAYMENT SYSTEM
determine. OPERATORS. THE MONETARY BOARD IS HEREBY
EMPOWERED TO AUTHORIZE ENTITIES OR PERSONS
PROPOSED AMENDMENT TO ENGAGE IN MONETARY SERVICE BUSINESSES.

SEC. 2. Creation of the Bangko Sentral. _ There is hereby The primary objective of the Bangko Sentral is to maintain
established an independent central monetary authority, price stability conducive to a balanced and sustainable
which shall be a body corporate known as the Bangko Sentral growth of the economy. It shall also promote and maintain
ng Pilipinas, hereafter referred to as the Bangko Sentral. monetary stability and the convertibility of the peso.

The capital of the Bangko Sentral shall be TWO HUNDRED THE BANGKO SENTRAL SHALL PROMOTE FINANCIAL
billion pesos (P200,000,000,000), to be fully subscribed by STABILITY AND CLOSEY WORK WITH OTHER
the Government of the Republic, hereafter referred to as the RELEVANT BODIES INCLUDING, BUT NOT LIMITED TO,
Government, THE UNPAID SUBSCRIPTION shall be fully THE SECURITIES AND EXCHANGE COMMISSION, THE
paid for by the Government IN CASH AND/OR INSURANCE COMMISSION, THE PHILIPPINE DEPOSIT
GOVERNMENT SECURITIES UPPON EFFECTIVITY OF INSURANCE CORPORATION AND THE NATIONAL
THIS ACT. THEREAFTER THE ADEQUACY OF THE GOVERNMENT.
CAPITALIZATION SHALL BE SUBJECT TO REVIEW
EVERY FIVE (5) YEARS AND ADJUSTED UPON JOINT THE BANGKO SENTRAL SHALL OVERSE THE
RECOMMENDATION BY THE SECRETARY OF FINANCE, PAYMENT AND SETTLEMENT SYSTEMS IN THE
THE SECRETARY OF BUDGET AND MANAGEMENT AND PHILIPPINES, INCLUDING CRITICAL FINANCIAL
THE MONETARY BOARD. THE PAYMENT OF ANY MARKET INFRASTRUCTURES, IN ORDER TO PROMOTE
UNPAID SUBSCRIPTION AND/OR INCREASE IN SOUND AND PRUDENT PRACTICES CONSISTENT WITH
CAPITALIZATION SHALL BE AUTOMATICALLY THE MAINTENANCE OF FINANCIAL STABILITY.
APPROPRIATED IN THE ANNUAL GENERAL
APPROPRIATIONS ACT. IN THE ATTAINMENT OF ITS OBJECTIVES, THE
BANGKO SENTRAL SHALL PROMOTE BROAD AND
So ang ginawa, the capital is now 200 billion pesos at the COVENIENT ACCESS TO HIGH QUALITY FINANCIAL
ratification. The sources for the subscription of the the 200 billion SERVICES AND CONSIDERTHE INTEREST OF THE
will be the detention of the dividends. Kasi in the Senate Bill, it GENERAL PUBLIC.
has to be taken from the taxes. Pero sabi ng bicam let’s not take
the budget from the Government. So dun nalang sa mga The coverage before was only for banks and quasi-banks. But
undeclared or detained dividends. Yun nalang ang gagamitin to now, it includes money service businesses, credit granting
increase the capital. businesses, and payment system operations (ex. Pay maya).
So, the regulatory and examination powers of Bangko Sentral
OLD PROVISION has been broadened.
SEC. 3. Responsibility and Primary Objective. _ The Bangko The reason of which is from 1993 until now, there has been
Sentral shall provide policy directions in the areas of money, numerous changes for the business model of banking. This
banking, and credit. It shall have supervision over the amendment is geared to address the issues of the disruptions.
operations of banks and exercise such regulatory powers as
provided in this Act and other pertinent laws over the SEC. 4. Place of Business. _ The Bangko Sentral shall have
operations of finance companies and non-bank financial its principal place of business in Metro Manila, but may
institutions performing quasi-banking functions, hereafter maintain branches, agencies and correspondents in such

other places as the proper conduct of its business may SEC. 8. Qualifications. _ The members of the Monetary
require. Board must be natural-born citizens of the Philippines, at
least thirty-five (35) years of age, with the exception of the
SEC. 5. Corporate Powers. _ The Bangko Sentral is hereby Governor who should at least be forty (40) years of age, of
authorized to adopt, alter, and use a corporate seal which good moral character, of unquestionable integrity, of known
shall be judicially noticed; to enter into contracts; to lease or probity and patriotism, and with recognized competence in
own real and personal property, and to sell or otherwise social and economic disciplines.
dispose of the same; to sue and be sued; and otherwise to
do and perform any and all things that may be necessary or SEC. 9. Disqualifications. _ In addition to the disqualifications
proper to carry out the purposes of this Act. The Bangko imposed by Republic Act No. 6713, a member of the
Sentral may acquire and hold such assets and incur such Monetary Board is disqualified from being a director, officer,
liabilities in connection with its operations authorized by the employee, consultant, lawyer, agent or stockholder of any
provisions of this Act, or as are essential to the proper bank, quasi-bank or any other institution which is subject to
conduct of such operations. The Bangko Sentral may supervision or examination by the Bangko Sentral, in which
compromise, condone or release, in whole or in part, any case such member shall resign from, and divest himself of
claim of or settled liability to the Bangko Sentral, regardless any and all interests in such institution before assumption of
of the amount involved, under such terms and conditions as office as member of the Monetary Board.
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 during their tenure.
ARTICLE II. THE MONETARY BOARD
No person shall be a member of the Monetary Board if he has
SEC. 6. Composition of the Monetary Board. _ The powers been connected directly with any multilateral banking or
and functions of the Bangko Sentral shall be exercised by the financial institution or has a substantial interest in any private
Bangko Sentral Monetary Board, hereafter referred to as the bank in the Philippines, within one (1) year prior to his
Monetary Board, composed of seven (7) members appointed appointment; likewise, no member of the Monetary Board
by the President of the Philippines for a term of six (6) years. shall be employed in any such institution within two (2) years
after the expiration of his term except when he serves as an
The seven (7) members are: official representative of the Philippine Government to such
institution.
(a) the Governor of the Bangko Sentral, who shall be the
Chairman of the Monetary Board. The Governor of the SEC. 10. Removal. _ The President may remove any
Bangko Sentral shall be head of a department and his member of the Monetary Board for any of the following
appointment shall be subject to confirmation by the reasons:
Commission on Appointments. Whenever the Governor is
unable to attend a meeting of the Board, he shall designate a (a) If the member is subsequently disqualified under the
Deputy Governor to act as his alternate: Provided, That in provisions of Section 8 of this Act; or
such event, the Monetary Board shall designate one of its (b) If he is physically or mentally incapacitated that he cannot
members as acting Chairman; properly discharge his duties and responsibilities and such
(b) a member of the Cabinet to be designated by the incapacity has lasted for more than six (6) months; or
President of the Philippines. Whenever the designated (c) If the member is guilty of acts or operations which are of
Cabinet Member is unable to attend a meeting of the Board, fraudulent or illegal character or which are manifestly
he shall designate an Undersecretary in his Department to opposed to the aims and interests of the Bangko Sentral; or
attend as his alternate; and (c) five (5) members who shall (d) If the member no longer possesses the qualifications
come from the private sector, all of whom shall serve full-time: specified in Section 8 of this Act.
Provided, however, That of the members first appointed
under the provisions of this subsection, three (3) shall have a ORIGINAL PROVISION
term of six (6) years, and the other two (2), three (3) years.
SEC. 11. Meetings. _ The Monetary Board shall meet at least
No member of the Monetary Board may be reappointed more once a week. The Board may be called to a meeting by the
than once. Governor of the Bangko Sentral or by two (2) other members
of the Board.
SEC. 7. Vacancies. _ Any vacancy in the Monetary Board
created by the death, resignation, or removal of any member The presence of four (4) members shall constitute a quorum:
shall be filled by the appointment of a new member to Provided, That in all cases the Governor or his duly
complete the unexpired period of the term of the member designated alternate shall be among the four (4).
concerned.

Unless otherwise provided in this Act, all decisions of the minutes shall reflect the disclosure made and the retirement
Monetary Board shall require the concurrence of at least four of the member concerned from the meeting.
(4) members.
SEC. 15. Exercise of Authority. _ In the exercise of its
The Bangko Sentral shall maintain and preserve a complete authority, the Monetary Board shall:
record of the proceedings and deliberations of the Monetary
Board, including the tapes and transcripts of the stenographic (a) issue rules and regulations it considers necessary for the
notes, either in their original form or in microfilm. effective discharge of the responsibilities and exercise of the
powers vested upon the Monetary Board and the Bangko
Sentral. The rules and regulations issued shall be reported to
PROPOSED AMENDMENT the President and the Congress within fifteen (15) days from
the date of their issuance;
SEC. 11. Meetings. _ The Monetary Board shall meet at least
once a week. The Board may be called to a meeting by the (b) direct the management, operations, and administration of
Governor of the Bangko Sentral or by two (2) other members the Bangko Sentral, reorganize its personnel, and issue such
of the Board. rules and regulations as it may deem necessary or
convenient for this purpose. The legal units of the Bangko
The presence of four (4) members shall constitute a quorum: Sentral shall be under the exclusive supervision and control
Provided, That in all cases the Governor or his duly of the Monetary Board;
designated alternate shall be among the four (4).
(c) establish a human resource management system which
Unless otherwise provided in this Act, all decisions of the shall govern the selection, hiring, appointment, transfer,
Monetary Board shall require the concurrence of at least four promotion, or dismissal of all personnel. Such system shall
(4) members. aim to establish professionalism and excellence at all levels
of the Bangko Sentral in accordance with sound principles of
The Bangko Sentral shall maintain and preserve a complete management.
record of the proceedings and deliberations of the Monetary
Board, including the tapes and transcripts of the stenographic A compensation structure, based on job evaluation studies
notes, either in their original form or in microfilm. and wage surveys and subject to the Board's approval, shall
be instituted as an integral component of the Bangko
THE MEETINGS OF THE MONETARY BOARD MAY BE Sentral's human resource development program: Provided,
CONDUCTED THROUGH MODERN TECHNOLOGIES That the Monetary Board shall make its own system conform
SUCH AS, BUT NOT LIMITED TO, TELECONFERENCING as closely as possible with the principles provided for under
AND VIDEOCONFERENCING. Republic Act No. 6758: Provided, however, That
compensation and wage structure of employees whose
This is an adaptation of the amendment in the Revised positions fall under salary grade 19 and below shall be in
Corporation Code (RCC). In the revised corporation code, there accordance with the rates prescribed under Republic Act No.
is also voting in absentia as one of the changes. Before, 6758.
teleconferencing is actually allowed but there is a separate rule
sanctioned by the SEC. But now, it is inserted as a provision in On the recommendation of the Governor, appoint, fix the
the RCC and is adopted by the Monetary Board. remunerations and other emoluments, and remove personnel
of the Bangko Sentral, subject to pertinent civil service laws:
SEC. 12. Attendance of the Deputy Governors. _ The Deputy Provided, That the Monetary Board shall have exclusive and
Governors may attend the meetings of the Monetary Board final authority to promote, transfer, assign, or reassign
with the right to be heard. personnel of the Bangko Sentral and these personnel actions
are deemed made in the interest of the service and not
SEC. 13. Salary. _ The salary of the Governor and the disciplinary: Provided, further, That the Monetary Board may
members of the Monetary Board from the private sector shall delegate such authority to the Governor under such
be fixed by the President of the Philippines at a sum guidelines as it may determine.
commensurate to the importance and responsibility attached
to the position. (d) adopt an annual budget for and authorize such
expenditures by the Bangko Sentral as are in the interest of
SEC. 14. Withdrawal of Persons Having a Personal Interest. the effective administration and operations of the Bangko
_ In addition to the requirements of Republic Act No. 6713, Sentral in accordance with applicable laws and regulations;
any member of the Monetary Board with personal or and
pecuniary interest in any matter in the agenda of the
Monetary Board shall disclose his interest to the Board and (e) indemnify its members and other officials of the Bangko
shall retire from the meeting when the matter is taken up. The Sentral, including personnel of the departments performing
decision taken on the matter shall be made public. The supervision and examination functions against all costs and
expenses reasonably incurred by such persons in connection

with any civil or criminal action, suit or proceedings to which Congress, or to be published under the provisions of this Act
he may be, or is, made a party by reason of the performance shall not be considered confidential.
of his functions or duties, unless he is finally adjudged in such
action or proceeding to be liable for negligence or THE ABOVE NOTWITHSTANDING, MEMBERS OF THE
misconduct. WILLFULL VIOLATION OF THIS ACT, MONETARY BOARD AND OTHER PERSONNEL OF THE
PERFORMED IN EVIDENT BAD FAITH OR WITH GROSS BANGKO SENTRAL SHALL NOT BE SUBJECTED TO
NEGLIGENCE. ANY ACTION, CLAIM OR DEMAND IN CONNECTION
WITH ANY ACT DONE OR OMITTED BY THEM IN THE
In the event of a settlement or compromise, indemnification PERFORMANCE OF THEIR DUTIES AND EXERCISE OF
shall be provided only in connection with such matters THEIR POWERS EXCEPT FOR THOSE ACTIONS AND
covered by the settlement as to which the Bangko Sentral is OMISSIONS DONE IN EVIDENT BAD FAITH OR WITH
advised by external counsel that the person to be indemnified GROSS NEGLIGENCE. UNLESS THE ACTIONS OR
did not commit any negligence or misconduct. WILLFULL OMISSIONS OF THE BANGKO SENTRAL, MEMBERS OF
VIOLATION OF THIS ACT, PERFORMED IN EVIDENT THE MONETARY BOARD AND ITS OTHER PERSONNEL
BAD FAITH OR WITH GROSS NEGLIGENCE. ARE FINALLY ADJUDGED TO BE IN WILLFUL
VIOLATION OF THIS ACT, PERFORMED IN EVIDENT
The cost and expenses incurred in defending the BAD FAITH OR WITH GROSS NEGLIGENCE, THEY ARE
aforementioned action, suit or proceeding may be paid by the HELD FREE AND HARMLESS TO THE FULEST EXTENT
Bangko Sentral in advance of the final disposition of such PERMITTED BY LAW FROM ANY LIABILITY, AND THEY
action, suit or proceeding upon receipt of an undertaking by SHALL BE INDEMNIFIED FOR ANY AND ALL LIABLITIES,
or on behalf of the member, officer, or employee to repay the LOSSES, CLAIMS, DEMANDS, DAMAGES,
amount advanced should it ultimately be determined by the DEFICIENCIES, COSTS AND EXPENSES OF
Monetary Board that he is not entitled to be indemnified as WHATSOEVER KIND AND NATURE THAT MAY ARISE IN
provided in this subsection. CONNECTION WITH THE EXERCISE OF THEIR POWERS
AND PERFORMANCE OF THEIR DUTIES AND
So before, even simple negligence could make them liable, but FUNCTIONS.
now it requires one to be with gross negligence and evident bad
faith, and willful violation. This amendment would actually help So, in your admin law, yang nakacrash out wala na yan.
the officers in performing their job because this will afford more
protection for them. ARTICLE III
The Governor and Deputy Governors
SEC. 16. Responsibility. _ THE GENERAL RULE AND THE of the Bangko Sentral
EXCEPTION THEREFROM ON THE LIABILITY OF
PUBLIC OFFICERS AS PROVIDED IN SECTIONS 38 AND SEC. 17. Powers and Duties of the Governor. _ The
39 OF CHAPTER 9, BOOK 1 OF THE REVISED Governor shall be the chief executive officer of the Bangko
ADMINISTRATIVE CODE OF 1987 SHALL APPLYTO THE Sentral. His powers and duties shall be to:
members of the Monetary Board, officials, examiners, and
employees AND OTHER PERSONNEL of the Bangko (a) prepare the agenda for the meetings of the Monetary
Sentral who willfully violate this Act or who are guilty of Board and to submit for the consideration of the Board the
negligence, abuses or acts of malfeasance or misfeasance policies and measures which he believes to be necessary to
or fail to exercise extraordinary diligence in the performance carry out the purposes and provisions of this Act;
of his duties shall be held liable for any loss or injury suffered
by the Bangko Sentral or other banking institutions as a result (b) execute and administer the policies and measures
of such violation, negligence, abuse, malfeasance, approved by the Monetary Board;
misfeasance or failure to exercise extraordinary diligence.
(c) direct and supervise the operations and internal
Similar responsibility shall apply to members OF THE administration of the Bangko Sentral. The Governor may
MONETARY BOARD officers, and employees AND OTHER delegate certain of his administrative responsibilities to other
PERSONNEL of the Bangko Sentral for: (1) the disclosure of officers or may assign specific tasks or responsibilities to any
any information of a confidential nature, or any information on fulltime member of the Monetary Board without additional
the discussions or resolutions of the Monetary Board, or remuneration or allowance whenever he may deem fit or
about the confidential operations of the Bangko Sentral, subject to such rules and regulations as the Monetary Board
unless the disclosure is in connection with the performance may prescribe;
of official functions with the Bangko Sentral, or is with prior
authorization of the Monetary Board or the Governor; or (2) (d) appoint and fix the remunerations and other emoluments
the use of such information for personal gain or to the of personnel below the rank of a department head in
detriment of the Government, the Bangko Sentral or third accordance with the position and compensation plans
parties: Provided, however, That any data or information approved by the Monetary Board, as well as to impose
required to be submitted to the President and/or the disciplinary measures upon personnel of the Bangko Sentral,
subject to the provisions of Section 15(c) of this Act:

Provided, That removal of personnel shall be with the At the soonest possible time, the Governor shall call
approval of the Monetary Board; a meeting of the Monetary Board to submit his action for
(e) render opinions, decisions, or rulings, which shall be final ratification.
and executory until reversed or modified by the Monetary
Board, on matters regarding application or enforcement of Section 20. Outside Interests of the Governor and the Full-
laws pertaining to institutions supervised by the Bangko time Members of the Board. - The Governor of the Bangko
Sentral and laws pertaining to quasi-banks, as well as Sentral and the full-time members of the Board shall limit their
regulations, policies or instructions issued by the Monetary professional activities to those pertaining directly to their
Board, and the implementation thereof; and positions with the Bangko Sentral. Accordingly, they may not
accept any other employment, whether public or private,
(f) exercise such other powers as may be vested in him by remunerated or ad honorem, with the exception of positions
the Monetary Board. in eleemosynary, civic, cultural or religious organizations or
whenever, by designation of the President, the Governor or
SEC. 18. Representation of the Monetary Board and the the full-time member is tasked to represent the interest of the
Bangko Sentral. _ The Governor of the Bangko Sentral shall Government or other government agencies in matters
be the principal representative of the Monetary Board and of connected with or affecting the economy or the financial
the Bangko Sentral and, in such capacity and in accordance system of the country.
with the instructions of the Monetary Board, he shall be
empowered to: Section 21. Deputy Governors. - The Governor of the
Bangko Sentral, with the approval of the Monetary Board,
(a) represent the Monetary Board and the Bangko Sentral in shall appoint not more than three (3) FIVE (5) Deputy
all dealings with other offices, agencies and instrumentalities
Governors who shall perform duties as may be assigned to
of the Government and all other persons or entities, public or
them by the Governor and the Board.
private, whether domestic, foreign or international;

(b) sign contracts entered into by the Bangko Sentral, notes In the absence of the Governor, a Deputy Governor
and securities issued by the Bangko Sentral, all reports, designated by the Governor shall act as chief executive of the
balance sheets, profit and loss statements, correspondence Bangko Sentral and shall exercise the powers and perform
and other documents of the Bangko Sentral. The signature of the duties of the Governor. Whenever the Government
the Governor may be in facsimile whenever appropriate; GOVERNOR is unable to attend meetings of government
boards or councils in which he is an ex officio member
(c) represent the Bangko Sentral, either personally or through pursuant to provisions of special laws, a Deputy Governor as
counsel, including private counsel, as may be authorized by may be designated by the Governor shall be vested with
the Monetary Board, in any legal proceedings, action or authority to participate and exercise the right to vote in such
specialized legal studies; and meetings.

(d) delegate his power to represent the Bangko Sentral, as Take note. If before, the Deputy Governors are not more than 3,
provided in subsections (a), (b) and (c) of this section, to other ngayon not more than 5 na.
officers upon his own responsibility: Provided, however, That
in order to preserve the integrity and the prestige of his office, ARTICLE IV
the Governor of the Bangko Sentral may choose not to Operations of the Bangko Sentral
participate in preliminary discussions with any multilateral
banking or financial institution on any negotiations for the Section 22. Research and Statistics. - The Bangko Sentral
Government within or outside the Philippines. During the shall prepare data and conduct economic research for the
negotiations, he may instead be represented by a permanent guidance of the Monetary Board in the formulation and
negotiator. implementation of its policies. Such data shall include, among
others, forecasts of the balance of payments of the
Philippines, statistics on the monthly movement of the
Section 19. Authority of the Governor in Emergencies. - In monetary aggregates and of prices and other statistical series
and economic studies useful for the formulation and analysis
case of emergencies where time is sufficient to call a meeting
of monetary, banking, credit and exchange policies.
of the Monetary Board, the Governor of the Bangko Sentral,
with the concurrence of two (2) other members of the
Monetary Board, may decide any matter or take any action Section 23. Authority to Obtain Data and Information. - The
within the authority of the Board. Bangko Sentral shall have the authority to request REQUIRE
from ANY PERSON OR ENTITY, INCLUDING government
offices and instrumentalities, or government-owned or
The Governor shall submit a report to the President
controlled corporations, any data which it may, FOR
and Congress within seventy-two (72) hours after the action
STATISTICAL AND POLICY DEVELOPMENT
has been taken.
PURPORSES require for IN RELATION TO the proper
discharge of its functions and responsibilities, PROVIDED,

THAT DISAGGREGATED DATA GATHERED ARE intermediary through common stockholders or such other
SUBJECT TO PREVAILING CONFIDENTIALITY LAWS. factors as may be determined by the Monetary Board.
The Bangko Sentral through the Governor or in his absence,
a duly authorized representative shall have the power to THE BANGKO SENTRAL SHALL HAVE REGULATORY
issue a subpoena for the production of the books and records AUTHORITY OVER, AND CONDUCT REGULAR OR
for the aforesaid purpose. Those who refuse the subpoena SPECIAL EXAMINATIONS OF, ENTITIES WHICH UNDER
without justifiable cause, or who refuse to supply the bank THIS ACT OR BY SPECIAL LAWS ARE SUBJECT TO ITS
BANGKO SENTRAL with data requested or required, shall JURISDICTION.
be subject to punishment for contempt in accordance with the
provisions of the Rules of Court.
THE BANGKO SENTRAL SHALL ALSO HAVE THE
POWER TO OBTAIN INFORMATION FROM THE PARENT
Data on individualS AND firms, other than banks, OR OTHER AFFILIATE COMPANIES OF SUPERVISED
gathered by the Department of Economic Research and other INSTITUTIONS AND EXAMINE TRANSACTIONS
departments or units of the Bangko Sentral shall not be made BETWEEN A SUPERVISED INSTITUTION AND SAID
available to any person or entity outside of the Bangko ENTITIES, FOR SUPERVISORY PURPOSES.
Sentral whether public or private except under order of the
court or under such conditions as may be prescribed by the
Monetary Board: Provided, however, That the collective data A PARENT COMPANY MEANS A CORPORATION WHICH
on firms may be released to interested persons or entities: OWNS OR HOLDS WITH POWER TO VOTE DIRECTLY OR
Provided, finally, That in the case of data on banks, the INDIRECTLY THE VOITNG STOCK OF A SUPERVISED
provisions of Section 27 of this Act shall apply. INSTITUTION OF THE BANGKO SENTRAL SUFFICIENT
TO CONROL ITS MANAGEMENT AND OPERATIONS,
The Bangko Sentral now has the power to REQUIRE (not just SUBJECT TO THE GUIDELINES ISSUED BY THE
request) so mandatory. The difference is that if you request, MONETARY BOARD.
pwedeng madeny. If require, kelangan i comply.
Dati it is just the government offices and instrumentalities. AS USED IN THGIS SECTION AND SECTION 25-A, AND
Ngayon, it is from any person or entity including government SUBJET TO THE GUIDELINES ISSUED BY THE
offices, instrumentalities, GOCC’s. Provided, the data gathered MONETARY BOARD, CONTROL EXISTS WHEN THE
is subject to the existing confidentiality laws. PARENT COMPANY OWNS DIRECTLY OR INDIRECTLY
The banks kasi are required to publish information regarding the MORE THAN ONE HALF OF THE VOTING STOCK OF A
banking industry. But they cannot publish data which are SUPERVISED INSTITUTION. CONTROL ALSO EXISTS
disaggregated. (Ex. Si BDO ganito, si BPI ganyan) what EVEN WHEN THE PARENT COMPANY OWNS ONE HALF
information can they publish is only those of the banking industry OR LESS OF THE VOTING STOCK OF THE SUPERVISED
as a whole. INSTITUTION WHEN: (1) THERE IS POWER OVER MORE
Section 24. Training of Technical Personnel. - The Bangko THAN ONE HALF OF THE VOTING RIGHTS BY PROXY
Sentral shall promote and sponsor the training of technical OR BY VIRTUE OF AN AGREEMENT WITH OTHER
personnel in the field of money and banking. Toward this end, INVESTORS WHICH THEREBY ENABLES THE PARENT
the Bangko Sentral is hereby authorized to defray the costs COMPANY TO CAST THE MAJORITY OF VOTES AT
of study, at home or abroad, of qualified employees of the MEETINGS OF THE STOCKHOLDERS OF THE
Bangko Sentral, of promising university graduates or of any SUPERVISED INSTITUTION OR TO ELECT THE
other qualified persons who shall be determined by proper MAJORITY OF MEMBERS OF THE BOARD OF
competitive examinations. The Monetary Board shall DIRECTORS OF THE SUPERVISED INSTITUTION, OR (2)
prescribe rules and regulations to govern the training THERE IS POWER TO DTERMINE THE FINANCIAL AND
program of the Bangko Sentral. OPERATING POLICIES OF THE SUPERVISED
INSTITUTION, OR OTHER SIMILAR ARRANGEMENTS.
Section 25. Supervision and Examination. - The Bangko
Sentral shall have supervision over, and conduct periodic The department heads and the examiners of the
REGULAR or special examinations of, banking institutions supervising and/or examining departments are hereby
and quasi-banks, including their subsidiaries and affiliates authorized to administer oaths to any director, officer, or
engaged in allied activities. employee of any institution under their respective supervision
or subject to their examination, and to compel the
For purposes of this section, a subsidiary means a presentation of all books, documents, papers or records
corporation more than fifty percent (50%) of the voting stock necessary in their judgment to ascertain the facts relative to
of which is DIRECTLY OR INDIRECTLY owned, the true condition of any institution as well as the books and
CONTROLLED OR HELD WITH POWER TO VOTE by a records of persons and entities relative to or in connection
bank or quasi-bank and an affiliate means a corporation the with the operations, activities or transactions of the institution
voting stock of which, to the extent of fifty percent (50%) or under examination, AND TO INQUIRE INTO BANK
less, is owned by a bank or quasi-bank or which is related or DEPOSITSS AND INVESTMENT ACCOUNTS IN THE
linked DIRECTLY OR INDIRECTLY to such institution or COURS OF AN EXAMINATION IN ORDER TO ASCERTAIN
COMPLIANCE WITH THE LAWS AND BANKING

REGULATIONS, OR IN CASES WHERE THERE IS acquisition of shares or series of transfers or acquisition of

REASONABLE GROUND TO BELIEVE THAT A FRAUD, shares in banks and quasi-banks.
IRREGULARITY OR UNLAWFUL ACTIVITY HAS BEEN
OR IS BEING COMMITTED AND THAT IT IS NECESSARY Transfers or acquisitions, or a series thereof, of at least ten
TO LOOK INTO THE DEPOSIT OR INVESTMENT TO percent (10%) of the voting shares in banks or quasi-banks shall
ESTABLISH SUCH FRAUD, IREEGULARITY OR require the prior approval of the Bangko Sentral.
UNLAWFUL ACTIVITY. subject to the provision of existing Example: If Metrobank, BPI, and Allied Bank magtatransfer sila
laws protecting or safeguarding the secrecy or confidentiality ng at least 10% of the voting share it now requires the approval
of bank deposits as well as investments of private persons, of the Central Bank. Again, this is a specific addition to the New
natural or juridical, in debt instruments issued by the Central Bank Act.
Government. Kung may existing stockholder, let’s say “A” is an owner of a
bank. May ari sya ng 20% of voting shares. Tapos ibebenta nya
No restraining order or injunction shall be issued by kay “B”. ngayon, si BSP ang mag aaprove. BSP would look into
the court enjoining the Bangko Sentral from examining any the fitness of “B” who is an incoming stockholder. Based on:
institution subject to supervision or examination by the  Integrity
Bangko Sentral, unless there is convincing proof that the  Reputation
action of the Bangko Sentral is plainly arbitrary and made in  Financial Capacity
bad faith and the petitioner or plaintiff files with the clerk or
judge of the court in which the action is pending a bond Therefore, hindi pwede pulubi. (lol sir)
executed in favor of the Bangko Sentral, in an amount to be If there is no approval by the BSP, no transger shall have legal
fixed by the court. The provisions of Rule 58 of the New Rules effect nor shall the same be recognized in the books of the
of Court insofar as they are applicable and not inconsistent institutions or by any government agency, and the transferor-
with the provisions of this section shall govern the issuance stockholders shall remain accountable and responsible
and dissolution of the restraining order or injunction therefore.
contemplated in this section. Bakit “SHALL NOT BE RECOGNIZED IN THE BOOKS OF
THE INSTITUTION”? Kasi if you transfer share, you need to
They now changed the periodic examination to REGULAR register that with the corporate secretary. Who has the custody
examination. of the corporate books. Kung walang approval from the BSP, the
They also added a subsidiary. Means a corporation with 50% of corporate secretary will not change the names of the holder of
the voting stock of which is directly or indirectly owned or that stock.
controlled or held with power. It doesn’t automatically mean that Bakit may nakalagay na “ANY GOVERNMENT AGENCY”?
you have the power to vote if you are a stockholder because Kasi may mga government owned naman na banks. Kasali parin
stocks may be classified into different types. sya dun.
It could be that you are a holder of stocks that don’t have the Bakit “and the transferor-stockholders shall remain
power to vote. accountable and responsible therefore.”? It means that if
It also added a new provision which is SEC. 25-A. Authority to there is no approval, it is as if there is no transfer. The transferor
Approve Transfer of Shares. is of the moment, still the owner of the stocks.
Section 25-A. Authority to approve transfer of shares. – “TRANSFER OF ACTUAL CONTROL OR MANAGEMENT OF
Transfers or acquisitions, or a series thereof, or at least ten THE INSTITUTION TO THE NEW STOCKHOLDERS OR
percent (10%) of the voting shares in banks or quasi-banks THEIR REPRESENTATIVES PRIOR TO BANGKO SENTRAL
shall require the prior approval of the Bangko Sentral. The APPROVAL SHALL MAKE THE TRANSFEROR, THE
selling or conveying stockholder shall submit such transfer or TRANSFEREE” This presupposes a scenario wherein walang
acquisition for approval by the Bangko Sentral within such BSP approval. By the books, si transferor parin ang owner but
period as may be prescribed by the Monetary Board. In ang nag cocontrol na si transferee na.
approving such transfers or acquisitions, regard shall be So, transfer of actual control without BSP approval would make
given by the Bangko Sentral to the fitness of the incoming the transferor, transferee, and their representatives liable under
stockholders as may be indicated in their integrity, reputation Sections 36 and 37 of this Act.
and financial capacity. Without Bangko Sentral approval, no
such transfer or acquisition shall have legal effect nor shall Section 26. Bank Deposits and Investments. - Any director,
the same be recognized in the books of the institution or by officer or stockholder who, together with his related interest,
any government agency, and the transferor-stockholders contracts a loan or any form of financial accommodation from:
shall remain accountable and responsible therefor. Transfer (1) his bank; or (2) from a bank (a) which is a subsidiary of a
of actual control or management of the institution to the new bank holding company of which both his bank and the lending
stockholders or their representatives prior to the Bangko bank are subsidiaries or (b) in which a controlling proportion
Sentral approval shall make the transferor, the transferee and of the shares is owned by the same interest that owns a
any person responsible therefor liable under Sections 36 and controlling proportion of the shares of his bank, in excess of
37 of this Act. Notwithstanding any provision of the law to the five percent (5%) of the capital and surplus of the bank, or in
contrary, the Bangko Sentral may share with the Philippine the maximum amount permitted by law, whichever is lower,
Deposit Insurance Corporation any information that the shall be required by the lending bank to waive the secrecy of
Bangko Sentral may obtain pertaining to transfer or his deposits of whatever nature in all banks in the Philippines.

Any information obtained from an examination of his deposits borrow from the banks that the BSP is examining as long as it is
shall be held strictly confidential and may be used by the ARMS LENGTH and FULLY DISCLOSED.
examiners only in connection with their supervisory and
examination responsibility or by the Bangko Sentral in an TRANSFER PRICING VIS A VIS ARMS LENGTH
appropriate legal action it has initiated involving the deposit
account.

Section 27. Prohibitions. - In addition to the

prohibitions found in Republic Act Nos. 3019 and 6713,
personnel of the Bangko Sentral are hereby prohibited from:

(a) being an officer, director, lawyer or agent,

employee, consultant or stockholder, directly or
indirectly, of any institution subject to supervision or
examination by the Bangko Sentral, except non-
stock savings and loan associations and provident
funds organized exclusively for employees of the
Bangko Sentral, and except as otherwise provided
in this Act;

(b) directly or indirectly requesting or receiving any

gift, present or pecuniary or material benefit for
himself or another, from any institution subject to
Example: Z owns Y and X companies. In order to avoid tax, X
supervision or examination by the Bangko Sentral;
enters into a management contract or any transfer with Y to try
and dilute the profits and avoid tax.
(c) revealing in any manner, except under orders of Transfer pricing states that when you have any contract
the court, the Congress or any government office or between related parties, it has to be at arms length pricing.
agency authorized by law, or under such conditions This is because most of the time ang ginagawa ng mga
as may be prescribed by the Monetary Board, companies, nagbebenta between related parties not in arms
information relating to the condition or business of length to avoid tax.
any institution. This prohibition shall not be held to Basically, ARMS LENGTH theory suggests that if we are not
apply to the giving of information to the Monetary related parties, would I be priced the same way? If we are
Board or the Governor of the Bangko Sentral, or to not sister companies, would you still sell me this marker at
any person authorized by either of them, in writing, 10 pesos each? Or is because we are sister companies that
to receive such information; and I can buy this from you at 10 pesos?
So, you take out the related interests between parties and
(d) borrowing from any institution subject to see if the pricing is still the same. Because if it is, then you
supervision or examination by the Bangko Sentral pass the transfer pricing regulation.
shall be prohibited unless said borrowing IS Ngayon, our current regulation does not require that if you have
TRANSACTED ON AN ARM’S LENGTH BASIS this private contract you submit it with the BIR for approval. It’s
are adequately secured, fully disclosed to the just that in the event na pag iaaudit ka ni BIR, you have to have
Monetary Board, and shall be subject to such further a basis for your pricing. Dapat may maipakita kang documents
rules and regulations as the Monetary Board may proving that yung prices naming kay ARMS LENGTH man.
prescribe: Provided, however, That personnel of the Generally, okay lang if the transaction involves goods na may
supervising and examining departments are market. You are selling goods. Kung ikaw yung
prohibited from borrowing from a bank under their nagmamanufacture tsaka ikaw din nagdidistribute. Kasi may
supervision or examination. market value yan sya so may basis ka na. That is what you call
BENCHMARKING.
So, before there is an absolute prohibition to borrow from the
bank that you are examining or supervising. But there is relative But what if customized sya?
prohibition with regard a bank under the BSP. Dapat fully
secured.
Now, in the amendment, prohibited ang borrowing from any
institution under the BSP’s supervision or examination. Unless,
the borrowing is transacted in an ARMS LENGTH basis, fully
disclosed to the Monetary Board, and shall be subject to such
further rules and regulations as the Monetary Board may
prescribe. So here, wala ng relative prohibition. It is okay na to

5 Dec (2 of 2) | Abonado PRACTICES, [once in every-twelve (12) months, and at such

other times as the Monetary Board by an affirmative vote of
…or ano siya customized. Yung ikaw lang yung nagbi-build for five (5) members, may deem expedient and to make a report
your products. Yun yung medyo mahirap. on the same to the Monetary Board;] Provided, That there
mahirap i-convince ang mga authorities na yun yung shall be an interval of at least twelve (12) months between
_____(32:14) [annual] REGULAR examinations; PROVIDED, FURTHER,
So there are sophisticated models that refer to the pricing, but THAT THE MONETARY BOARD, BY AN AFFIRMATIVE
anyway that is far from our topic. VOTE OF AT LEAST FIVE (5) MEMBERS, MAY
So if the bargain is arms-length, meaning kung hindi ko ba AUTHORIZE A SPECIAL EXAMINATION IF THE
inexamine ang banko nato, would I get the same terms and CIRCUMSTANCES WARRANT.
conditions that I am getting now. So yun yung arms-length.
Are you giving me this low interest because I am examining you? The INSTITUTION [bank] concerned shall afford to the head
Section 28. Examination and fees of the appropriate supervising and examining departments
Original Provision and to his authorized deputies full opportunity to examine its
books AND RECORDS, cash and [available] assets and
SECTION 28. Examination and Fees. — The supervising general condition AND REVIEW ITS SYSTEMS AND
and examining department head, PROCEDURES at any time during BUSINESS [banking]
personally or by deputy, shall examine the books of every hours when requested to do so by the Bangko Sentral.
banking institution once in every twelve (12) months, and at Provided, however, That none of the reports and other papers
such other times as the Monetary Board by an affirmative relative to such examinations shall be open to inspection by
vote of five (5) members, may deem expedient and to make the public except insofar as such publicity is incidental to the
a report on the same to the Monetary Board: Provided, That proceedings hereinafter authorized or is necessary for the
there shall be an interval of at least twelve (12) months prosecution of violations in connection with the business of
between annual examinations. such institutions.

The bank concerned shall afford to the head of the [Banking and qusi-banking institutions which are subject to
appropriate supervising and examining examination by the Banko Sentral] SUPERVISED
departments and to his authorized deputies full opportunity to INSTITUTIONS shall pay to the Bangko Sentral, NO LATER
examine its books, cash and available THAN MAY 31 OF EACH YEAR [within the first thirty (30)
assets and general condition at any time during banking days of each year], an annual SUPERVISION fee [in an
hours when requested to do so by the Bangko Sentral: amount equal to a percentage,]as may be prescribed by the
Provided, however, That none of the reports and other papers Monetary Board. [ ,of its average total assets during the
relative to such examinations shall be open to inspection by preceding year as shown on its end of month balance sheets,
the public except insofar as such publicity is incidental to the after deducting cash on hand and amounts due from banks,
proceedings hereinafter authorized or is necessary for the including the Bangko Sentral and banks abroad.] IN
prosecution of violations in connection with the business of DETERMINING THE AMOUNT OF THE ANNUAL
such institutions. SUPERVISION FEE, THE MONETARY BOARD SHALL
CONSIDER THE COSTS OF SUPERVISION.”
Banking and quasi-banking institutions which are subject to
examination by the Bangko Sentral So same parin you have at least an affirmative vote of 5
shall pay to the Bangko Sentral, within the first thirty (30) days members for you to conduct special examination.
of each year, an annual fee in an amount equal to a Ginawa lang diyan nirephrase lang siya.
percentage as may be prescribed by the Monetary Board of “The INSTITUTION [bank] concerned shall afford to the head of
its average total assets during the preceding year as shown the appropriate supervising and examining departments and to
on its end-of-month balance sheets, after deducting cash on his authorized deputies full opportunity to examine its books
hand and amounts due from banks, including the Bangko AND RECORDS, cash and [available] assets and general
Sentral and banks abroad. condition AND REVIEW ITS SYSTEMS AND PROCEDURES”
– now this gives broader powers to the BSP. Because hindi lang
Proposed Amendment naman yung general condition, financial statements, or assets
ang kanyang imo-monitor, pati yung system and procedures.
SEC. 28. Examination and Fees. — The supervising and So in other words, the BSP now has the right to look into the
examining department head, personally or by deputy, shall system…paano niyo ba ina-approve yung loan, ano ba yung
examine the [books] OPERATIONS of every bank[ing] AND basis niyo, etc.
QUASIBANK, INCLUDING THEIR SUBSIDIARIES AND So this amendment makes it more difficult for the banking
AFFILIATES ENGAGED IN ALLIED ACTIVITIES, AND industry…..hindi naman talaga difficult. It just makes their
OTHER ENTITIES WHICH UNDER THIS ACT OR SPECIAL operations more regulated… and for a reason.
LAWS ARE SUBJECT TO BANGKO SENTRAL Did you know that when you deposit in dollars you have to pay
SUPERVISION, IN ACCORDANCE WITH THE a certain fee? Ngayon kung mag deposit ka ng dollar account
GUIDELINES SET BY THE MONETARY BOARD TAKING ikaw pa yung magbabayad. Well, this is actually a monetary
INTO CONSIDERATION SOUND AND PRUDENT

policy. You are trying to combat inflation…the forex, we will go institution can operate on its own, the conservator
to that later. shall receive the balance of the remuneration which he would
Ang tawag sa mga under the coverage of BSP ay supervised have received up to the end of the year;
institutions. These includes banks, quasi-banks, subsidiaries, but if the conservatorship is terminated on other grounds, the
and affiliates engaged in allied activities…shall pay to the Banko conservator shall not be entitled to such
Sentral a supervision fee. In determining the amount of the remaining balance. The Monetary Board may appoint a
annual supervision fee, the Monetary Board shall consider the conservator connected with the Bangko
cost of supervision. Sentral, in which case he shall not be entitled to receive any
Kasi before, what’s the basis? – it’s the percentage of its remuneration or emolument from the
average total assets during the preceding year. Bangko Sentral during the conservatorship. The expenses
Now what if mas malaki yung sweldo nung taong pinapa- attendant to the conservatorship shall be
examine mo dun kesa sa total assets ni bank, edi lugi sila. Eh borne by the bank or quasi-bank concerned.
ngayon kino-consider yung costs of supervision.
Now, additional provisions. The Monetary Board shall terminate the conservatorship
“SEC. 28-A. BANGKO SENTRAL COORDINATION. - THE when it is satisfied that the institution
SUSPENSION OR REVOCATION OF ANY GOVERNMENT can continue to operate on its own and the conservatorship
LICENSE NECESSARY FOR THE OPERATION OF A is no longer necessary. The
BANGKO SENTRAL SUPERVISED ENTITY MUST BE conservatorship shall likewise be terminated should the
DONE ONLY WITH PRIOR ENTITY MUST BE DONE ONLY Monetary Board, on the basis of the report of
WITH PRIOR CONSULTATION WITH THE BANKGKO the conservator or of its own findings, determine that the
SENTRAL.” continuance in business of the institution would
involve probable loss to its depositors or creditors, in which
Therefore in the event that there is violation under the case the provisions of Section 30 shall
corporation code, (so sino may authority? - si SEC) to revoke, apply.
the SEC should consult first the BSP.
Hindi lang yun, what other licenses? Business permit (ang bank
naa sa Davao, so naay business permit sa Davao. So bago siya Eto may change. Proceedings in Receivership and Liquidation
irevoke ni Mayor it requires prior consultation. Hindi naman It added actually another ground for it to be subject to
approval, just consultation.) receivership.
There’s no changes in conservatorship. So okay lang.
SECTION 29. Appointment of Conservator. — Whenever, Original Provision
on the basis of a report submitted
by the appropriate supervising or examining department, the SECTION 30. Proceedings in Receivership and Liquidation.
Monetary Board finds that a bank or a — Whenever, upon report of
quasi-bank is in a state of continuing inability or unwillingness the head of the supervising or examining department, the
to maintain a condition of liquidity Monetary Board finds that a bank or quasibank:
deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a (a) is unable to pay its liabilities as they become due in the
conservator with such powers as the Monetary Board shall ordinary course of business: Provided,
deem necessary to take charge of the That this shall not include inability to pay caused by
assets, liabilities, and the management thereof, reorganize extraordinary demands induced by
the management, collect all monies and financial panic in the banking community;
debts due said institution, and exercise all powers necessary
to restore its viability. The conservator (b) by the Bangko Sentral, to meet its liabilities; or
shall report and be responsible to the Monetary Board and
shall have the power to overrule or revoke (c) cannot continue in business without involving probable
the actions of the previous management and board of losses to its depositors or creditors; or
directors of the bank or quasi-bank.
The conservator should be competent and knowledgeable in (d) has willfully violated a cease and desist order under
bank operations and management. Section 37 that has become final, involving
acts or transactions which amount to fraud or a dissipation of
The conservatorship shall not exceed one (1) year. the assets of the institution;

The conservator shall receive remuneration to be fixed by the In which cases, the Monetary Board may summarily and
Monetary Board in an amount not without need for prior hearing forbid the
to exceed two-thirds (2/3) of the salary of the president of the institution from doing business in the Philippines and
institution in one (1) year, payable in designate the Philippine Deposit Insurance Corporation as
twelve (12) equal monthly payments: Provided, That, if at any receiver of the banking institution.
time within one-year period, the
conservatorship is terminated on the ground that the

For a quasi-bank, any person of recognized competence in action against, the institution. The assets of an institution
banking or finance may be designed under receivership or liquidation
as receiver. shall be deemed in custodia legis in the hands of the receiver
and shall, from the moment the
The receiver shall immediately gather and take charge of all institution was placed under such receivership or liquidation,
the assets and liabilities of the be exempt from any order of
institution, administer the same for the benefit of its creditors, garnishment, levy, attachment, or execution.
and exercise the general powers of a
receiver under the Revised Rules of Court but shall not, with The actions of the Monetary Board taken under this section
the exception of administrative or under Section 29 of this Act shall
expenditures, pay or commit any act that will involve the be final and executory, and may not be restrained or set aside
transfer or disposition of any asset of the by the court except on petition for
institution: Provided, That the receiver may deposit or place certiorari on the ground that the action taken was in excess
the funds of the institution in nonspeculative investments. The of jurisdiction or with such grave abuse of
receiver shall determine as soon as possible, but not later discretion as to amount to lack or excess of jurisdiction. The
than ninety (90) days from take over, whether the institution petition for certiorari may only be filed by
may be rehabilitated or otherwise placed in such a condition the stockholders of record representing the majority of the
so that it may be permitted to resume business with safety to capital stock within ten (10) days from receipt by the board of
its depositors and creditors and the general public: Provided, directors of the institution of the order directing receivership,
That any determination for the resumption of business of the liquidation or
institution shall be subject to prior approval of the Monetary conservatorship. The designation of a conservator under
Board. Section 29 of this Act or the appointment of a receiver under
this section shall be vested exclusively with the Monetary
If the receiver determines that the institution cannot be Board. Furthermore, the designation of a conservator is not a
rehabilitated or permitted to resume precondition to the designation of a receiver.
business in accordance with the next preceding paragraph,
the Monetary Board shall notify in writing Proposed Amendment
the board of directors of its findings and direct the receiver to
proceed with the liquidation of the SEC- 30- Proceedings in Receivership and Liquidation -
institution. The receiver shall: Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank
1. file ex parte with the proper regional trial court, and without or quasi-bank:
requirement of prior notice or any
other action, a petition for assistance in the liquidation of the (a) HAS NOTIFIED THE BANGKO SENTRAL OR PUBLICLY
institution pursuant to a ANNOUNCED A UNILATERAL CLOSURE, OR
liquidation plan adopted by the Philippine Deposit Insurance HAS BEEN DORMANT FOR AT LEAST SIXTY (60) DAYS
Corporation for general OR IN ANY MANNER HAS SUSPENDED THE PAYMENT
application to all closed banks. In case of quasi-banks, the OF ITS DEPOSIT/DEPOSIT SUBSTITUTE LIABILITIES, OR
liquidation plan shall be adopted is unable to pay its liabilities as they become due in the
by the Monetary Board. Upon acquiring jurisdiction, the court ordinary course of business: Provided, That this shall not
shall, upon motion by the include inability to pay caused by extraordinary demands
receiver after due notice, adjudicate disputed claims against induced by financial panic in the banking community;
the institution, assist the
enforcement of individual liabilities of the stockholders, (b) has insufficient realizable assets, as determined by the
directors and officers, and decide on Bangko Sentral to meet its liabilities; or
other issues as may be material to implement the liquidation
plan adopted. The receiver shall (c) cannot continue in business without involving probable
pay the cost of the proceedings from the assets of the losses to its depositors or creditors; or
institution.
(d) has willfully violated a cease and desist order under
2. convert the assets of the institutions to money, dispose of Section 37 that has become final, involving acts or
the same to creditors and other transactions which amount to fraud or a dissipation of the
parties, for the purpose of paying the debts of such institution assets of the institution;
in accordance with the rules on
concurrence and preference of credit under the Civil Code of In which cases, the Monetary Board may summarily and
the Philippines and he may, in without need for prior hearing forbid the institution from doing
the name of the institution, and with the assistance of counsel business in the Philippines and IN THE CASE OF BANKS,
as he may retain, institute such designate the Philippine Deposit Insurance Corporation
actions as may be necessary to collect and recover accounts (PDIC) as receiver [of the banking institution] AND DIRECT
and assets of, or defend any THE PDIC TO PROCEED WITH THE LIQUIDATION OF THE

CLOSED BANK PURSUANT TO THIS SECTION AND THE concurrence and preference of credit under the Civil Code of
RELEVANT PROVISIONS OF REPUBLIC ACT NO. 3591, the Philippines and he may, in
AS AMENDED. THE MONETARY BOARD SHALL NOTIFY the name of the institution, and with the assistance of counsel
IN WRITING THE BOARD OF DIRECTORS OF THE as he may retain, institute such
CLOSED BANK OF ITS DECISION. actions as may be necessary to collect and recover accounts
and assets of, or defend any
[For a quasi-bank, any person of recognized competence in action against, the institution. The assets of an institution
banking or finance may be designed under receivership or liquidation
as receiver.] shall be deemed in custodia legis in the hands of the receiver
and shall, from the moment the
[The receiver shall immediately gather and take charge of all institution was placed under such receivership or liquidation,
the assets and liabilities of the be exempt from any order of
institution, administer the same for the benefit of its creditors, garnishment, levy, attachment, or execution.]
and exercise the general powers of a
receiver under the Revised Rules of Court but shall not, with The actions of the Monetary Board taken under this section
the exception of administrative or under Section 29 of this Act shall
expenditures, pay or commit any act that will involve the be final and executory, and may not be restrained or set aside
transfer or disposition of any asset of the by the court except on petition for
institution: Provided, That the receiver may deposit or place certiorari on the ground that the action taken was in excess
the funds of the institution in nonspeculative investments. The of jurisdiction or with such grave abuse of
receiver shall determine as soon as possible, but not later discretion as to amount to lack or excess of jurisdiction. The
than ninety (90) days from take over, whether the institution petition for certiorari may only be filed by
may be rehabilitated or otherwise placed in such a condition the stockholders of record representing the majority of the
so that it may be permitted to resume business with safety to capital stock within ten (10) days from receipt by the board of
its depositors and creditors and the general public: Provided, directors of the institution of the order directing receivership,
That any determination for the resumption of business of the liquidation or
institution shall be subject to prior approval of the Monetary conservatorship. The designation of a conservator under
Board.] Section 29 of this Act or the appointment of a receiver under
this section shall be vested exclusively with the Monetary
[If the receiver determines that the institution cannot be Board. Furthermore, the
rehabilitated or permitted to resume designation of a conservator is not a precondition to the
business in accordance with the next preceding paragraph, designation of a receiver.
the Monetary Board shall notify in writing
the board of directors of its findings and direct the receiver to THE AUTHORITY OF THF MONETARY BOARD TO
proceed with the liquidation of the SUMMARILY AND WITHOUT NEED FOR PRIOR HEARING
institution. The receiver shall:] FORBID THE BANK OR QUASI-BANK FROM DOING
BUSINESS IN THE PHILIPPINES AS PROVIDED ABOVE
[1. file ex parte with the proper regional trial court, and without MAY ALSO BE EXERCISED OVER NON-STOCK SAVINGS
requirement of prior notice or any AND LOAN ASSOCIATIONS, BASED ON THE SAME
other action, a petition for assistance in the liquidation of the APPLICABLE GROUNDS. FOR QUASI-BANKS AND NON-
institution pursuant to a STOCK SAVINGS AND LOAN ASSOCIATIONS, ANY
liquidation plan adopted by the Philippine Deposit Insurance PERSON OF RECOGNIZED COMPETENCE IN BANKING,
Corporation for general CREDIT OR FINANCE MAY BE DESIGNATED BY THE
application to all closed banks. In case of quasi-banks, the BANGKO SENTRAL AS A RECEIVER.
liquidation plan shall be adopted
by the Monetary Board. Upon acquiring jurisdiction, the court (a) HAS NOTIFIED THE BANGKO SENTRAL OR PUBLICLY
shall, upon motion by the ANNOUNCED A UNILATERAL CLOSURE, OR
receiver after due notice, adjudicate disputed claims against HAS BEEN DORMANT FOR AT LEAST SIXTY (60) DAYS OR
the institution, assist the IN ANY MANNER HAS SUSPENDED THE PAYMENT OF ITS
enforcement of individual liabilities of the stockholders, DEPOSIT/DEPOSIT SUBSTITUTE LIABILITIES, OR
directors and officers, and decide on Dati kasi ito lang yun – “is unable to pay its liabilities as they
other issues as may be material to implement the liquidation become due in the ordinary course of business: Provided, That
plan adopted. The receiver shall this shall not include inability to pay caused by extraordinary
pay the cost of the proceedings from the assets of the demands induced by financial panic in the banking community;”
institution.] Ngayon nilagay yung voluntary.
Etong letter A; yung changes is as if inadmit na mismo nung
[2. convert the assets of the institutions to money, dispose of bangko na magko-close na sila; notified the BSP na magko-
the same to creditors and other close na sila, or the bank has BEEN DORMANT FOR AT LEAST
parties, for the purpose of paying the debts of such institution SIXTY (60) DAYS OR IN ANY MANNER HAS SUSPENDED
in accordance with the rules on

THE PAYMENT OF ITS DEPOSIT/DEPOSIT SUBSTITUTE the assistance of counsel as he may retain, institute such
LIABILITIES; thus they can be subject to receivership. actions as may be necessary to collect and recover accounts
So that is the additional ground. So sumuko ka na, magpa and assets of, or defend any action against, the institution. The
receiver ka nalang. assets of an institution under receivership or liquidation shall be
Please take note: the Monetary Board may summarily and deemed in custodia legis in the hands of the receiver and shall,
without need for prior hearing forbid the institution from doing from the moment the institution was placed under such
business in the Philippines and IN THE CASE OF BANKS, receivership or liquidation, be exempt from any order of
designate the Philippine Deposit Insurance Corporation (PDIC) garnishment, levy, attachment, or execution.]
as receiver [of the banking institution] AND DIRECT THE PDIC Eto additional:
TO PROCEED WITH THE LIQUIDATION OF THE CLOSED THE AUTHORITY OF THF MONETARY BOARD TO
BANK PURSUANT TO THIS SECTION AND THE RELEVANT SUMMARILY AND WITHOUT NEED FOR PRIOR HEARING
PROVISIONS OF REPUBLIC ACT NO. 3591, AS AMENDED. FORBID THE BANK OR QUASI-BANK FROM DOING
THE MONETARY BOARD SHALL NOTIFY IN WRITING THE BUSINESS IN THE PHILIPPINES AS PROVIDED ABOVE MAY
BOARD OF DIRECTORS OF THE CLOSED BANK OF ITS ALSO BE EXERCISED OVER NON-STOCK SAVINGS AND
DECISION. LOAN ASSOCIATIONS, BASED ON THE SAME APPLICABLE
Now itong process ngayon…dinelete. GROUNDS. FOR QUASI-BANKS AND NON-STOCK SAVINGS
[For a quasi-bank, any person of recognized competence in AND LOAN ASSOCIATIONS, ANY PERSON OF
banking or finance may be designed as receiver.] RECOGNIZED COMPETENCE IN BANKING, CREDIT OR
FINANCE MAY BE DESIGNATED BY THE BANGKO
[The receiver shall immediately gather and take charge of all the SENTRAL AS A RECEIVER.
assets and liabilities of the institution, administer the same for So the right for them to close banks and quasi-banks is
the benefit of its creditors, and exercise the general powers of a applicable to non-stock, savings and loan associations. So it
receiver under the Revised Rules of Court but shall not, with the actually added the coverage for the summarily closing of an
exception of administrative expenditures, pay or commit any act institution.
that will involve the transfer or disposition of any asset of the …and for a reason, kasi andaming mga non-stock, savings and
institution: Provided, That the receiver may deposit or place the loan associations na name-mismanage. Minsan nagiging part
funds of the institution in nonspeculative investments. The ng mga salary ng employees. Nami-mismanage.
receiver shall determine as soon as possible, but not later than Again for banks the receiver is PDIC
ninety (90) days from take over, whether the institution may be For quasi-banks and the new ones (non-stock, savings and loan
rehabilitated or otherwise placed in such a condition so that it associations) - ANY PERSON OF RECOGNIZED
may be permitted to resume business with safety to its COMPETENCE IN BANKING, CREDIT OR FINANCE MAY BE
depositors and creditors and the general public: Provided, That DESIGNATED BY THE BANGKO SENTRAL AS A RECEIVER.
any determination for the resumption of business of the
institution shall be subject to prior approval of the Monetary CASE: Central Bank v. CA
Board.]
[If the receiver determines that the institution cannot be In this particular case they tried to question the resolution. Sabi
rehabilitated or permitted to resume business in accordance nila it’s plainly arbitrary and in bad faith kasi walang prior notice
with the next preceding paragraph, the Monetary Board shall and hearing. Sabi ng court, the prior notice and hearing is not a
notify in writing the board of directors of its findings and direct requirement and is not stated in the law. It is for a reason,
the receiver to proceed with the liquidation of the institution. The because this close now, hear later scheme is grounded on
receiver shall:] practical considerations to prevent further dissipation of the
bank assets; which is a valid exercise of police power to protect
[1. file ex parte with the proper regional trial court, and without the depositors, creditors, stockholders and the general public.
requirement of prior notice or any other action, a petition for You have the differences between a receivership and a
assistance in the liquidation of the institution pursuant to a conservatorship.
liquidation plan adopted by the Philippine Deposit Insurance So pwede bang dumiretso sa receivership na hindi na dumaan
Corporation for general application to all closed banks. In case sa conservatorship?
of quasi-banks, the liquidation plan shall be adopted by the - A receiver is appointed based on the grounds under Section
Monetary Board. Upon acquiring jurisdiction, the court shall, 30.
upon motion by the receiver after due notice, adjudicate - A conservator is appointed when a bank or a quasi-bank is
disputed claims against the institution, assist the enforcement of in a state of continuing inability or unwillingness to maintain a
individual liabilities of the stockholders, directors and officers, condition of liquidity deemed adequate to protect the interest of
and decide on other issues as may be material to implement the depositors and creditors.
liquidation plan adopted. The receiver shall pay the cost of the
proceedings from the assets of the institution.] Please take note a conservator has 1 year to restore the bank
[2. convert the assets of the institutions to money, dispose of the or quasi-bank to its viability
same to creditors and other parties, for the purpose of paying Or the receiver must determine as soon as possible but not later
the debts of such institution in accordance with the rules on than 90 days from takeover to proceed with the rehabilitation of
concurrence and preference of credit under the Civil Code of the the bank/institution.
Philippines and he may, in the name of the institution, and with

CASE: Rural Bank of San Miguel v. Monetary Board 12 Dec (1 of 2) | Chanyee

Dito yung conservator nag submit ng report evaluating the bank So the franchise to operate as a bank may be awarded, may be
and placing it for receivership. Ang question dito ang sabi nung sold to a different institution.
taga bangko, hindi lang naman yung report yung basis. Sabi
niya, Section 25 says the BSP has the power to examine; that This pertains to the secondary franchise.
therefore yung report na sinasabi dun sa Section 12-A, should
be made as a result of the examination. Section 33. Disposition of Banking Franchise. — The
Sabi niya there’s that difference between just reporting and Bangko Sentral may, if public interest so requires, award to
examining. Because examining requires investigation. an institution, upon such terms and conditions as the
In Section 30; … Whenever, upon report…hindi sinabi upon Monetary Board may approve, the banking franchise of a
examination or upon investigation. Sabi ng court ditto report bank under liquidation to operate in the area where said bank
naman yung sinabi hindi naman examination. or its branches were previously operating:
Sabi ng petitioner: should this be under the power of the BSP in
its examination, regulatory powers over banks. Diba dapat yung Provided, That whatever proceeds may be realized from such
report na isu-submit should be related to the right to examine, award shall be subject to the appropriate exclusive
so therefore the report must be the product of examination which disposition of the Monetary Board.
requires in-depth investigation; pina close niyo kami eh nag
submit lang naman siya ng report, hindi naman siya nag
investigate thoroughly.
The Supreme Court here ruled that you would be guilty of judicial We all know that the primary franchise is given to?
usurpation if you would construe the report as an examination.
Bakit sa tingin niyo report yung sinabi sa law, hindi sinabing
A: The persons composing the corporation.
whenever on the basis of an examination submitted by
the….what do you think is the reason?
- To expedite the process. Based again on the ground that kung The secondary franchise belongs to the Corporation and can be
patagalin pa to the owners of the bank will have the opportunity taken away.
to dissipate the assets subject to receivership.
- Section 34. Refusal to Make Reports or Permit
Examination. — Any officer, owner, agent, manager,
CASE: General Bank and Trust Co. v. Central Bank director or officer-in-charge of any institution subject to the
supervision or examination by the Bangko Sentral within the
*Overdrafts – nag over ka sa imong account, that is what you purview of this Act who, being required in writing by the
call overdrafts. * occurs when money is withdrawn from Monetary Board or by the head of the supervising and
a bank account and the available balance goes below zero. examining department willfully refuses to file the required
In this case sabi ng court this exclusionary provision/clause will report or permit any lawful examination into the affairs of such
only apply if you are an otherwise non-insolvent bank. So ano institution shall be punished by a fine of not less than Fifty
meaning nun, otherwise non insolvent bank? – solvent.(?) thousand pesos (P50,000) nor more than One hundred
Sabi ng court for you to apply this exclusionary clause you have thousand pesos (P100,000) or by imprisonment of not less
to be in the first place a solvent bank; Its just that you cannot than one (1) year nor more than five (5) years, or both, in the
claim because there is a bankrun – there is an extraordinary discretion of the court.
demand in the banking community.
Therefore kung walang extraordinary demand in the banking
community you are an otherwise non-insolvent bank, so you are Before the penalty is just 100, 000php but the amendment
a solvent bank . proposed is now 2 million.
In this case, the bank cannot apply the clause because literally
insolvent na siya. For you to apply the exception you have to be Proposed Amendment
a solvent bank.
Sabi ng court, because of your unsafe and unsound banking Sec 16. Sec 34 of this Act is hereby amended as follows:
practices you are insolvent whether or not there is an
extraordinary demand.
Now why did the court say that you are an insolvent? Section 34. Refusal to Make Reports or Permit
It’s because you have unsound banking practices (DOSRI Examination. — Any officer, owner, agent, manager,
loans) director or officer-in-charge of any institution subject to the
That is why the DOSRI financial accommodations and loans, supervision or examination by the Bangko Sentral within the
these are very important. Kasi sometimes because of these purview of this Act who, being required in writing by the
loans kaya nagkakaroon ng insolvency. Kasi sobrang mababa Monetary Board or by the head of the supervising and
or sobrang beneficial sa directors, stockholders, officers yung examining department WITHIN THE PURIEW OF THIS ACT
AND RELEVANT LAWS willfully refuses to file the required
mga financial accomodations.
report or permit any lawful examination into the affairs of such
institution shall be punished by a fine of not less than Fifty

thousand pesos (P50,000) nor more than One hundred provided in this Act be punished by a fine of not less than Fifty
thousand pesos (P100,000) 2 MILLION or by imprisonment thousand pesos (P50,000) nor more than Two hundred
of not less than one (1) year nor more than five (5) years, or thousand pesos (P200,000) or by imprisonment of not less
both, in at the discretion of the court. than two (2) years nor more than ten (10) years, or both, at
the discretion of the court.

So the amendments actually gave more teeth to the provisions Whenever a bank or quasi-bank persists in carrying on its
of the New Central Bank Act. business in an unlawful or unsafe manner, the Board may,
without prejudice to the penalties provided in the preceding
Please take note of the additions: paragraph of this section and the administrative sanctions
provided in Section 37 of this Act, take action under Section
30 of this Act.
“THIS SHALL ALSO APPLY TO THE OFFICER, OWNER,
AGENT,MANAGER,DIRECTOR OR OFFICER-IN CHARGE
OF THE AFFILLIATE COMPANY/IES AND PARENT
COMPANY OF A BANK OR QUASI-BANK, AS WELL AS Please take note of this Sec 36 last paragraph:
THE AFFILIATES OF SUCH PARENT COMPANY, WHOSE
TRANSACTIONS ARE SUBJECT TOO THE Whenever a bank or quasi-bank persists in carrying on its
EXAMINATION UNDER THIS LAW.” business in an unlawful or unsafe manner, the Board may,
without prejudice to the penalties provided in the preceding
paragraph of this section and the administrative sanctions
So this contemplates a situation wherein there’s a bank under provided in Section 37 of this Act, take action under Section
30 of this Act.
examination tapos there are transactions between that bank and
the affiliate of that bank. So the officer, agent, manager xxx of
that bank even though it is not engaged in any banking activities The board may take action under Sec 30:
may be penalized if there is refusal to file or permit any lawful
examination. Section 30. Proceedings in Receivership and
Liquidation. — Whenever, upon report of the head of the
Please take note of the addition. supervising or examining department, the Monetary Board
finds that a bank or quasi-bank:
Section 35. False Statement. — The willful making of a false
or misleading statement on a material fact to the Monetary (a) is unable to pay its liabilities as they become due in
Board or to the examiners of the Bangko Sentral shall be the ordinary course of business: Provided, That this
punished by a fine of not less than One hundred thousand shall not include inability to pay caused by
pesos (P100,000) nor more than Two hundred thousand extraordinary demands induced by financial panic in
pesos (P200,000), or by imprisonment of not more than (5) the banking community;
years, or both, at the discretion of the court.
(b) has insufficient realizable assets, as determined by
the Bangko Sentral, to meet its liabilities; or
Sec 17.Sec 35 of this Act is hereby amended as follows:
(c) cannot continue in business without involving
probable losses to its depositors or creditors; or
Section 35. False Statement. — The willful making of a false
or misleading statement on a material fact to the Monetary
(d) has willfully violated a cease and desist order under
Board or to the examiners of the Bangko Sentral shall be
Section 37 that has become final, involving acts or
punished by a fine of not less than One hundred thousand
transactions which amount to fraud or a dissipation
pesos (P100,000) nor more than Two hundred thousand
pesos (P200,000), 2 MILLION (P 2,000,000) or by of the assets of the institution; in which cases, the
Monetary Board may summarily and without need
imprisonment of not more than (5) years, or both, at the
for prior hearing forbid the institution from doing
discretion of the court.
business in the Philippines and designate the
Philippine Deposit Insurance Corporation as
receiver of the banking institution.
Section 36. Proceedings Upon Violation of This Act and
Other Banking Laws, Rules, Regulations, Orders or xxx
Instructions. — Whenever a bank or quasi-bank, or
whenever any person or entity willfully violates this Act or
other pertinent banking laws being enforced or implemented
So pwede if the bank or quasi-bank is engaged or persistently
by the Bangko Sentral or any order, instruction, rule or
regulation issued by the Monetary Board, the person or engaged in or carries the business in unlawful or unsafe manner,
persons responsible for such violation shall unless otherwise pwede nilang ipareceivership.

Sec 18.Sec 36 of this Act is hereby amended as follows: Section 50. Exclusive Issue Power. — The Bangko
Sentral shall have the sole power and authority to issue
Section 36. Proceedings Upon Violation of This Act and currency, within the territory of the Philippines. No other
Other Banking Laws, Rules, Regulations, Orders or person or entity, public or private, may put into circulation
Instructions. — Whenever a bank or quasi-bank, notes, coins or any other object or document which, in the
INCLUDING THEIR SUBSIDIARIES OR AFFILIATES OR opinion of the Monetary Board, might circulate as
OTHER ENTITY WHICH UNDER THIS ACT OR SPECIAL currency, nor reproduce or imitate the facsimiles of
LAWS IS SUBJECT TO BANKO CENTRAL SUPERVISION Bangko Sentral notes without prior authority from the
or whenever any person or entity willfully violates this Act or Bangko Sentral.
other pertinent banking laws being enforced or implemented
by the Bangko Sentral or any order, instruction, rule or XXX
regulation issued by the Monetary Board, the person or
persons responsible for such violation shall unless otherwise
provided in this Act be punished by a fine of not less than Fifty
thousand pesos (P50,000) nor more than Two hundred
thousand pesos (P200,000) TWO MILLION PESOS (P CONTINUATION OF THE AMENDMENT
2,000,000) or by imprisonment of not less than two (2) years
nor more than ten (10) years, or both, at the discretion of the “THE MONETARY BOARD IS HEREBY AUTHORIZED TO
court. PROMULGATE THE IMPLEMENTING GUIDELINES FOR
THE GRANT OF THE INFORMER’S REWARD, WHICH IN
Whenever AN ENTITY UNDER BANK SENTRAL NO CASE SHALL EXCEED ONE MILLION PESOS (P
SUPERVISION a bank or quasi-bank persists in carrying on 1,000,000.)
its business in an unlawful or unsafe manner, the Board may,
without prejudice to the penalties provided in the preceding SAID GUIDELINES MAY PROVIDE FOR THE
paragraph of this section and the administrative sanctions ADDITIONAL QUALIFICATIONS AND
provided in Section 37 of this Act, take action under Section DISQUALIFICATION OF INFORMANTS AS WELL AS THE
30 of this Act. FORM AND MINIMUM CONTENT OF THE INFORMATION
GIVEN.”

So this a new addition: informer’s reward. This is similar to the “THE CASH REWARD OF INFORMERS SHALL BE
informer’s reward under the Tax Code. SUBJECT TO APPLICABLE WITHHOLDING TAXES.”

So if you gave information except of course if, _, your

information must be definite information not yet in the Please take note of the reward, it’s 1 million pesos. But of course
possession of the BSP leading to: (A & B below) it is subject to the applicable withholding tax.

“THE BANKO SENTRAL MAY GRANT INFORMER’S Which is how many %?

REWARD TO ANY PERSON, EXCEPT AN OFFFICER OR
EMPLOYEE OF THE BANKO SENTRAL OR ANY A: 20%
INTELLIGENCE OR LAW ENFORCEMENT AGENCY,
INCLUDING THE RELATIVES OF SUCH OFFICER OR *silence + kroo2 haha* (kalimot name Tax 1 Sir) haha
EMPLOYEE WITHIN THE THIRD DEGREE OF
CONSANGUINITY OR AFFINITY, WHO VOLUNTARILY UNSAFE BANKING PRACTICE
GIVE DEFINITE INFORMATION NOT YET IN THE
POSSESSION OF THE BANKO SENTRAL LEADING TO  Diba sabi sa provision Whenever a bank or quasi-bank
THE:
persists in carrying on its business in an unlawful
ARREST OF A BANK DIRECTORS OR OFFICERS or unsafe manner, the Board may, without prejudice
AND/OR BSP PERSONNEL FOR VIOLATION OF THIS to the penalties provided in the preceding paragraph of
ACT OR ANY BANKING OR LAWS IMPLEMENTED OR this section and the administrative sanctions provided
ENFORCED BY THE BANKO SENTRAL, OR FOR in Section 37 of this Act, take action under Section 30
VIOLATION OF OTHER PENAL LAWS COMMITTED IN of this Act.
CONNECTION WITH THEIR EMPLOYMENT OR How do we know if it is unsafe/unlawful banking practice?
FUNCTIONS; OR
There is no exact definition under the New Central Bank Act but
FILING OF CRIMINAL CHARGES AGAINST ANY PERSON
FOR VIOLATION OF SEC 50 OF THIS ACT under RA 8791

GENERAL BANKING LAW provides for what may be it’s not only the Monetary Board who can determine practices
deemed conducting business in an unsafe banking that are unsafe and unsound.
manner:
The PDIC and its charter has the power to determine whether
Sec 56 of RA 8791 the bank is engaged in an unsafe or unsound practice.

Sec. 56. Conducting Business in an Unsafe or Unsound The next provisions are actually very boring but kaylangan natin
Manner - In determining whether a particular act or omission, itackle.
which is not otherwise prohibited by any law, rule or
regulation affecting banks, quasi-banks or trust entities, may Section 37. Administrative Sanctions on Banks and
be deemed as conducting business in an unsafe or unsound Quasi-banks. —
manner for purposes of this Section, the Monetary Board
shall consider any of the following circumstances: Without prejudice to the criminal sanctions against the
culpable persons provided in Sections 34, 35, and 36 of this
56.1. The act or omission has resulted or may result in Act, the Monetary Board may, at its discretion, impose upon
material loss or damage, or abnormal risk or danger to the any bank or quasi-bank, their directors and/or officers, for any
safety, stability, liquidity or solvency of the institution; . willful violation of its charter or by-laws, willful delay in the
submission of reports or publications thereof as required by
law, rules and regulations; any refusal to permit examination
56.2. The act or omission has resulted or may result in into the affairs of the institution;
material loss or damage or abnormal risk to the institution's
depositors, creditors, investors, stockholders or to the any willful making of a false or misleading statement to the
Bangko Sentral or to the public in general; Board or the appropriate supervising and examining
department or its examiners; any willful failure or refusal to
comply with, or violation of, any banking law or any order,
56.3. The act or omission has caused any undue injury, or instruction or regulation issued by the Monetary Board, or any
has given any unwarranted benefits, advantage or order, instruction or ruling by the Governor;
preference to the bank or any party in the discharge by the
director or officer of his duties and responsibilities through or any commission of irregularities, and/or conducting
manifest partiality, evident bad faith or gross inexcusable business in an unsafe or unsound manner as may be
negligence; or determined by the Monetary Board, the following
administrative sanctions, whenever applicable:

56.4. The act or omission involves entering into any contract (a) fines in amounts as may be determined by the Monetary
or transaction manifestly and grossly disadvantageous to the Board to be appropriate, but in no case to exceed Thirty
bank, quasi-bank or trust entity, whether or not the director or thousand pesos (P30,000) a day for each violation, taking
officer profited or will profit thereby. into consideration the attendant circumstances, such as the
nature and gravity of the violation or irregularity and the size
Whenever a bank, quasi-bank or trust entity persists in of the bank or quasi-bank;
conducting its business in an unsafe or unsound manner, the
Monetary Board may, without prejudice to the administrative (b) suspension of rediscounting privileges or access to
sanctions provided in Section 37 of the New Central Bank Bangko Sentral credit facilities;
Act, take action under Section 30 of the same Act and/or
immediately exclude the erring bank from clearing, the (c) suspension of lending or foreign exchange operations or
provisions of law to the contrary notwithstanding. authority to accept new deposits or make new investments;
chan robles virtual law library

So the unsafe banking practice is very broad. That is the reason (d) suspension of interbank clearing privileges; and/or
why the New Central Bank Act did not give a definite definition.
So that it won’t be able to box that particular practice. (e) revocation of quasi-banking license.

Any act or omission which will result to this particular Resignation or termination from office shall not exempt such
director or officer from administrative or criminal sanctions.
enumeration,that may be considered as unsafe banking
practice. So this is evidentiary. The Monetary Board may, whenever warranted by
circumstances, preventively suspend any director or officer of
The PDIC has concurrent power to determine whether a bank is a bank or quasi-bank pending an investigation: Provided,
engaged in unsafe banking practice. So please take note that That should the case be not finally decided by the Bangko
Sentral within a period of one hundred twenty (120) days after

the date of suspension, said director or officer shall be any willful violation of its charter or by-laws, willful delay in the
reinstated in his position: submission of reports or publications thereof as required by
law, rules and regulations;
Provided, further, That when the delay in the disposition of
the case is due to the fault, negligence or petition of the
director or officer, the period of delay shall not be counted in any refusal to permit examination into the affairs of the
computing the period of suspension herein provided. institution;

The above administrative sanctions need not be applied in any willful making of a false or misleading statement to the
the order of their severity. Board or the appropriate supervising and examining
department or its examiners; any willful failure or refusal to
Whether or not there is an administrative proceeding, if the comply with, or violation of, any banking law or any order,
institution and/or the directors and/or officers concerned instruction or regulation issued by the Monetary Board, or any
continue with or otherwise persist in the commission of the order, instruction or ruling by the Governor;
indicated practice or violation, the Monetary Board may issue
an order requiring the institution and/or the directors and/or or any commission of irregularities, and/or conducting
officers concerned to cease and desist from the indicated business in an unsafe or unsound manner as may be
practice or violation, and may further order that immediate determined by the Monetary Board, the following
action be taken to correct the conditions resulting from such administrative sanctions, whenever applicable:
practice or violation. The cease and desist order shall be
immediately effective upon service on the respondents. (a) fines in amounts as may be determined by the
Monetary Board to be appropriate, but in no case to
The respondents shall be afforded an opportunity to defend exceed Thirty thousand pesos (P30,000) ONE
their action in a hearing before the Monetary Board or any MILLION PESOS (P 1,000,000) FOR EACH
committee chaired by any Monetary Board member created TRANSACTION VIOLATION OR ONE HUNDRED
for the purpose, upon request made by the respondents THOUSAND(P 100,000) PER CALENDAR a day
within five (5) days from their receipt of the order. If no such for each violationS OF A CONTINUING NATURE,
hearing is requested within said period, the order shall be taking into consideration the attendant
final. If a hearing is conducted, all issues shall be determined circumstances, such as the nature and gravity of the
on the basis of records, after which the Monetary Board may violation or irregularity and the size of the
either reconsider or make final its order. INSTITUTION bank or quasi-bank

The Governor is hereby authorized, at his discretion, to PROVIDED THAT:IN CASE PROFIT IS GAINED OR LOSS
impose upon banking institutions, for any failure to comply IS AVOIDED AS A RESULT OF THE VIOLATION, A FINE
with the requirements of law, Monetary Board regulations and NO MORE THAN THREE TIMES(3) OF THE PROFIT OF
policies, and/or instructions issued by the Monetary Board or THE GAINED OR LOSS AVOIDED MAY ALSO BE
by the Governor, fines not in excess of Ten thousand pesos IMPOSED.
(P10,000) a day for each violation, the imposition of which
shall be final and executory until reversed, modified or lifted (b) suspension of rediscounting privileges or access to
by the Monetary Board on appeal. Bangko Sentral credit facilities;

(c) suspension of lending or foreign exchange operations or

authority to accept new deposits or make new investments;
Sec 19.Sec 37 of this Act is hereby amended as follows: chan robles virtual law library

Section 37. Administrative Sanctions on Banks and (d) suspension of interbank clearing privileges; and/or
Quasi-banks. SUPERVISED ENITIES — Without prejudice
to the criminal sanctions against the culpable persons (e) SUSPENSION OR revocation of quasi-banking OR
provided in Sections 34, 35, and 36 of this Act, the Monetary OTHER SPECIAL licenseS
Board may, at its discretion, impose upon any bank or quasi-
bank, INCLUDING THEIR SUBSIDIARIES AND Resignation or termination from office shall not exempt such
AFFILIATES ENGAGED IN ALLIED ACTIVITIES OR director or officer OR EMPLOYEE from administrative or
OTHER ENTITY WHICH UNDER THIS ACT OR SPECIAL criminal sanctions.
LAWS ARE SUBJECT THE BANKO SENTRAL
SUPERVISION AND/OR their directors and/or officers OR The Monetary Board may, whenever warranted by
EMPLOYEES, for circumstances, preventively suspend any director or officer
OR EMPLOYEE of a bank or quasi-bank INSTITUTION
pending an investigation: Provided, That should the case be
not finally decided by the Bangko Sentral within a period of
one hundred twenty (120) days after the date of suspension,

said director or officer shall be reinstated in his position: violation of a continuing nature meaning if the violation persists
Provided, further, That when the delay in the disposition of in such a way that you cannot really determine the loss to the
the case is due to the fault, negligence or petition of the Banko Sentral or to the Institution it is considered as a continuing
director or officer OR EMPLOYEE, the period of delay shall nature. So per day yung violation.
not be counted in computing the period of suspension herein
provided.
Now please take note of the last sentence in this slide:
The above administrative sanctions need not be applied in
the order of their severity. Resignation or termination from office shall not exempt
such director or officer OR EMPLOYEE from administrative
Whether or not there is an administrative proceeding, if the or criminal sanctions.
institution and/or the directors and/or officers OR
EMPLOYEES concerned continue with or otherwise persist So this is similar to your Admin Law. There is also a preventive
in the commission of the indicated practice or violation, the suspension pending investigation.
Monetary Board may issue an order requiring the institution
and/or the directors and/or officers concerned to cease and Kunwari, the MB can issue a cease and desist order effective
desist from the indicated practice or violation, and may further
immediately.
order that immediate action be taken to correct the conditions
resulting from such practice or violation. The cease and
COVERED INSTITUTION
desist order shall be immediately effective upon service on
the respondents.
 you have your bank,quasi-bank, expressly provided in
The respondents shall be afforded an opportunity to defend the amendment non-stock savings and loan
their action in a hearing before the Monetary Board or any associations, pawnshops, foreign exchange dealer,
committee chaired by any Monetary Board member created trust entities.
for the purpose, upon request made by the respondents
within five (5) days from their receipt of the order. If no such
To summarize, these are the grounds for the imposition of
hearing is requested within said period, the order shall be
final. If a hearing is conducted, all issues shall be determined administrative penalties:
on the basis of records, after which the Monetary Board may
either reconsider or make final its order. Section 38. Operating Departments of the Bangko
Sentral. — The Monetary Board shall, in accordance with its
The Governor is hereby authorized, at his discretion, to authority under this Act, determine and provide for such
impose upon banking institutions, BANK AND QUASI- operating departments and other offices, including a public
BANKS, INCLUDING THEIR SUSBIDIARIES AND information office, of the Bangko Sentral as it deems
AFFILIATES ENGAGED IN ALLIED ACTIVITIES, AND convenient for the proper and efficient conduct of the
OTHER ENTITIES WHICH UNDER THIS ACT OR SPECIAL operations and the accomplishment of the objectives of the
LAWS ARE SUBJECT TO THE BANKO SENTRAL Bangko Sentral. The functions and duties of such operating
SUPERVISION for any failure to comply with the departments and other offices shall be determined by the
requirements of law, Monetary Board regulations and Monetary Board.
policies, and/or instructions issued by the Monetary Board or
by the Governor, fines not in excess of Ten thousand pesos *no amendment proposed
(P10,000) ONE HUNDRED THOUSAND (P100,000) FOR
EACH TRANSACTIONAL VIOLATION OR THIRTY
THOUSAND PESOS (P 30,000) PER CALENDAR a day for So to summarize, the operating departments of the Banko
each violationS OF A CONTINUING NATURE, the Sentral shall be composed of these sectors:
imposition of which shall be final and executory until
reversed, modified or lifted by the Monetary Board on appeal. 1. Supervision and Examination Sector
Now this sector, ito yung mga nag eexamine ng mga banking
institution.
Under Sec 37,it increased the sanction to;
2. Resource Management Sector
ONE HUNDRED THOUSAND (P100,000) FOR EACH
This is in-charge of the human resource management of the
TRANSACTIONAL VIOLATION OR THIRTY THOUSAND
Banko Sentral. They provide scholarships, continuing education
PESOS (P 30,000) PER CALENDAR a day for each violationS
for the people of the BSP.
OF A CONTINUING NATURE
3. Executive Management Sector
Now before the intended amendment, it was a per day violation
or a per day penalty. Now they qualify the “per day” if it is a
4. Security Plan Office

By the term itself, sila yung namamahala nung mismong facility, Sec 2 of Art VIII
nung plant. Kaya mapansin mo, yung mga Banko Sentral
sobrang secured for a reason naman kasi they are the ones Section 2. The Congress shall have the power to define,
printing currencies. prescribe, and apportion the jurisdiction of the various courts
but may not deprive the Supreme Court of its jurisdiction over
cases enumerated in Section 5 hereof.
Now an addition for the intended amended is the issuance of
injunctive relief. xxx

Please take note that it is specifically provided for in the

amendment that, again ang hirap nito. Paano tayo mag-eexam ARTICLE V
kasi di natin alam kung iveveto ba tong provision nato. Reports and Publications

But for purposes of exam, I will not ask you of those Section 39. Reports and Publications. — The Bangko
amendments kasi di mo alam kung maveveto din sya eventually. Sentral shall publish a general balance sheet showing the
volume and composition of its assets and liabilities as of the
But the principle, I will ask that. last working day of the month within sixty (60) NINETY(90)
DAYS days after the end of each month, WHICH MAY BE
(nasakpan ni sir akong violent reaction lol) REASONABLY EXTENDED BY THE BANKO SENTRAL
AS WARRANTED except for the month of December, which
shall be submitted within ninety (90) days after the end
So in this particular amendment, no court other than the SC or
hereof.
the CA can issue a TRO or PI.
The Monetary Board shall publish and submit the following
Sec 20. A new section entitled Sec 38-A is hereby included reports to the President and to the Congress:
in the same Act to read as follows:
(a) not later than ninety (90) days after the end of each
SEC 38-A.ISSUANCE OF INJUNCTIVE RELIEF AGAINST quarter, an analysis of economic and financial developments,
BANKO SENTRAL ACTIONS- including the condition of net international reserves and
monetary aggregates;
NO COURT, OTHER THAN THE COURT OF APPEALS
AND THE SUPREME COURT, SHALL ISSUE ANY (b) within ninety (90) days after the end of the year, WHICH
TEMPORARY RESTRAINING ORDER, PRELIMINARY MAY BE REASONABLY EXTENDED BY THE BANKO
INJUNCTION, PRELIMINARY MANDATORY INJUNCTION SENTRAL AS WARRANTED the preceding year's budget
AGAINST THE BANKO SENTRAL FOR ANY ACTION and profit and loss statement of the Bangko Sentral showing
UNDER THIS ACT. in reasonable detail the result of its operations;

“ANY RESTRAINING ORDER OR INJUNCTION ISSUED IN (c) one hundred twenty (120) days after the end of each
VIOLATION OF THIS SECTION IS VOID AND OF NO semester, a review of the state of the financial system; and
FORCE AND EFFECT.”
(d) as soon as practicable, abnormal movements in monetary
“THE PROVISIONS OF THE RULES OF COURT ON aggregates and the general price level, and, not later than
INJUNCTIONS INSOFAR AS THESE ARE APPLICABLE seventy-two (72) hours after they are taken, remedial
AND NOT INCONSISTENT WITH THE PROVISIONS OF measures in response to such abnormal movements.
THIS ACT SHALL GOVERN THE ISSUANCE AND
DISSOLUTION OF RESTRAINING ORDERSAND Section 40. Annual Report.— Before the end of March
INJUNCTINS AGAINST THE BANKO SENTRAL.” (JUNE) of each year, the Bangko Sentral shall publish and
submit to the President and the Congress an annual report
on the condition of the Bangko Sentral including a review of
the policies and measures adopted by the Monetary Board
Now is this Constitutional? during the past year and an analysis of the economic and
financial circumstances which gave rise to said policies and
What do you think? measures.

The annual report shall also include a statement of the

Can they limit the jurisdiction of the courts?
financial condition of the Bangko Sentral and a statistical
appendix which shall present, as a minimum, the following
So check your Constitution. data:
Under the Constitution

(a) the monthly movement of monetary aggregates and Fiscal year, of course Jan-Dec
their components;
Section 42. Fiscal Year. — The fiscal year of the Bangko
(b) the monthly movement of purchases and sales of Sentral shall begin on January first and end on December
foreign exchange and of the international reserves thirty-first of each year.
of the Bangko Sentral;

(c) the balance of payments of the Philippines; Now please take note, of the computation of the profits and
losses. This is actually modified how do you consider a profit for
(d) monthly indices of consumer prices and of import
and export prices; the profit or loss.

(e) the monthly movement, in summary form, of exports Section 43. Computation of Profits and Losses. — Within
and imports, by volume and value; the first thirty (30) days following the end of each year, the
Bangko Sentral shall determine its net profits or losses. In the
(f) the monthly movement of the accounts of the calculation of net profits, the Bangko Sentral shall make
Bangko Sentral and of other banks; adequate allowance or establish adequate reserves for bad
and doubtful accounts.
(g) the principal data on government receipts and
expenditures and on the status of the public debt,
both domestic and foreign; and So just like any other corporation, the Banko Sentral is reporting
for its profits and losses, the balance sheets, the assets that it
(h) the texts of the major legal and administrative owns or the liabilities na meron sya.
measures adopted by the Government and the
Monetary Board during the year which relate to the So please take note:
functions or operations of the Bangko Sentral or of
the financial system. THE NET PROFIT OF THE BANKO SENTRAL AFTER
ALLOWING FOR EXPENSES OF OPERATION, ADEQUATE
The Bangko Sentral shall publish another version of the ALLOWANCES AND PROVISIONS FOR BAD AND
annual report in terms understandable to the layman. DOUBTFUL DEBTS, DEPRECIATION IN ASSETS, AND
SUCH ALLOWANCES AND PROVISIONS FOR
Failure to comply with the reportorial requirements pursuant CONTINGENCIES OR OTHER PURPOSES AS THE
to this article without justifiable reason as may be determined MONETARY BOARD MAY DETERMINE IN ACCORDANCE
by the Monetary Board shall cause the withholding of the WITH PRUDENT FINANCIAL AND EFFECTIVE CENTRAL
salary of the personnel concerned until the requirements are BANKING OPERATIONS.”
complied with.
THE NET PROFIT OF THE BANKO SENTRAL AFTER
*NOTE: I just incorporated the amendment immediately
ALLOWING FOR EXPENSES OF OPERATION, ADEQUATE
because it is only minor and the provision is very long.
ALLOWANCES AND PROVISIONS FOR BAD AND
DOUBTFUL DEBTS, DEPRECIATION IN ASSETS, AND
SUCH ALLOWANCES AND PROVISIONS FOR
Of course, inextend lang. Dati 60 days, now it’s 90 days. CONTINGENCIES OR OTHER PURPOSES AS THE
MONETARY BOARD MAY DETERMINE IN ACCORDANCE
Now please take note: WITH PRUDENT FINANCIAL AND EFFECTIVE CENTRAL
BANKING OPERATIONS.”
Section 41. Signatures on Statements. — The balance
sheets and other financial statements of the Bangko Sentral
shall be signed by the officers responsible for their Please take note of the framework in which it prepares its
preparation, by the Governor, and by the auditor of the financial statement: based on prudent financial management
Bangko Sentral. and effective Sentral Bank Operations.

Section 44. Distribution of Net Profits. — Within the first

Who is the auditor of the Banko Sentral?
sixty (60) days following the end of each fiscal year, the
Monetary Board shall determine and carry out the distribution
A: COA of the net profits, in accordance with the following rule:

Fifty percent (50%) of the net profits shall be carried to

ARTICLE VI surplus and the remaining fifty percent (50%) shall revert
Profits, Losses, and Special Accounts

back to the National Treasury, except as otherwise provided AND PROVISIONS FOR CONTINGENCIES OR OTHER
in the transitory provisions of this Act. PURPOSES AS THE MONETARY BOARD MAY
DETERMINE IN ACCORDANCE WITH PRUDENT
Section 45. Revaluation Profits and Losses. — Profits or FINANCIAL AND EFFECTIVE CENTRAL BANKING
losses arising from any revaluation of the Bangko Sentral's OPERATIONS.”
net assets or liabilities in gold or foreign currencies with
respect to the Philippine peso shall not be included in the
computation of the annual profits and losses of the Bangko
Sentral. Any profits or losses arising in this manner shall be So if a bank would speculate the BSP should be prudent on
offset by any amounts which, as a consequence of such handling its finances and it shall establish a research fund.
revaluations, are owed by the Philippines to any international
or regional intergovernmental financial institution of which the So this is an addition for the intended amendment. But there has
Philippines is a member or are owed by these institutions to
the Philippines. to be a research fund.

Any remaining profit or loss shall be carried in a special To mitigate future risks such as but not limited to the impact of
frozen account which shall be named "Revaluation of FOREX and price fluctuations and to address other
International Reserve" and the net balance of which shall contingencies as the MB deems prudent or necessary.
appear either among the liabilities or among the assets of the
Bangko Sentral, depending on whether the revaluations have How does it distributes its profits?
produced net profits or net losses.
Section 44. Distribution of Net Profits. — Within the first sixty
The Revaluation of International Reserve account shall be (60) days following the end of each fiscal year, the Monetary
neither credited nor debited for any purposes other than
Board shall determine and carry out the distribution of the net
those specifically authorized in this section.
profits, in accordance with the following rule:
Section 46. Suspense Accounts. — Sections 43 and 43-A
of Republic Act No. 265, as amended, creating the Monetary
Adjustment Account (MAA) and the Exchange Stabilization
Adjustment Account (ESAA), respectively, are hereby Fifty percent (50%) of the net profits shall be carried to
repealed. Amounts outstanding as of the effective date of this surplus and the remaining fifty percent (50%) shall revert
Act based on these accounts shall continue to be for the back to the National Treasury, except as otherwise
account of the Central Bank and shall be governed by the provided in the transitory provisions of this Act.
transitory provisions of this Act.
So in other words it shall revert to the Government, the 50%
The Revaluation of International Reserve (RIR) account as of
the effective date of this Act of the Central Bank shall because diba when we discussed about the capitalization of the
continue to be for the account of the same entity and shall be BSP, it is funded by the money of the Government. It is owned
governed by the provisions of Section 44 of Republic Act No. and subscribed by the Government. Therefore, sya din yung
265, as amended, until otherwise provided for in accordance dapat na kumuha ng profit.
with the transitory provisions of this Act.
Sec 24.A new section entitled Sec 43-A is hereby included
to read as follows:

Sec 23. Sec 43 of the same Act is hereby amended as SEC 43-A. CENTRAL BANK RESERVE FUND-
follows:
“THE BANKO SENTRAL SHALL ESTABLISH A RESERVE
Section 43. Computation of Profits and Losses. — Within the FUND TO MITIGATE FUTURE RISKS AND
first thirty (30) SIXTY(60) DAYS days following the end of CONTINGENCIES INHERENT IN CARRYING OUT THE
each year, the Bangko Sentral shall determine its net profits BANKO SENTRAL- MANDATED FUNCTIONS AS
or losses. In the calculation of net profits, the Bangko Sentral CENTRAL MONETARY AUTHORITY.”
shall make adequate allowance or establish adequate
reserves for bad and doubtful accounts. “THE RESERVE FUND SHALL CONSIST OF
FLUCTUATION RESERVE, CONTINGENCY RESERVE
“NOTWITHSTANDING ANY PROVISION OF THE LAW TO AND SUCH OTHER RESERVES AS THE MONETARY
THE CONTRARY, THE NET PROFIT OF THE BANKO BOARD DEEMS PRUDENT OR NECESSARY.”
SENTRAL AFTER ALLOWING FOR EXPENSES OF
OPERATION, ADEQUATE ALLOWANCES AND “THE FLUCTUATION RESERVE SHALL COVER LOSSES
PROVISIONS FOR BAD AND DOUBTFUL DEBTS, FROM EXCHANGE RATE AND PRICE VOLATILITY AND
DEPRECIATION IN ASSETS, AND SUCH ALLOWANCES SHALL BE DERIVED FROM THE NET PROFITS BEFORE

DISTRIBUTION AS PROVIDED UNDER SEC 44 OF THIS purposes other than those specifically authorized in this
ACT.” section.

Section 44. Distribution of Net Profits. — Within the first

sixty (60) days following the end of each fiscal year, the
Monetary Board shall determine and carry out the So what derivative instrument did we discuss?
distribution of the net profits, in accordance with the sa Corpo:
following rule:
 Rappler’s PDR- it is a derivative instrument because
Fifty percent (50%) of the net profits shall be carried to
surplus and the remaining fifty percent (50%) shall revert the underlying instrument is your equity
back to the National Treasury, except as otherwise  Any derivative instrument, may unrealized profit ka
provided in the transitory provisions of this Act. nun, it is considered
With respect to movement of prices and exchange rate from _
currency shall not be included in the computation of the annual
profit.

Please take note of the unrealized profits. So pag-annual profit, the unrealized is not included in your
profits. So it is just carried in the account and evaluation of
Sec 25. Sec 45 of the same Act is hereby amended as
international research.
follows;
We will go to that.
Section 45. Revaluation Profits and Losses. —
*Note: from Sec 46-60, there are no proposed amendments
UNREALIZED profits or losses arising from any revaluation
of the Bangko Sentral's net assets or liabilities OR
DERIVATIVE INSTRUMENTS DENOMINATED in gold or
foreign currencies with respect to the MOVEMENTS AND
PRICES AND EXCHANGE RATES FROM THIRD Section 46. Suspense Accounts. —
CURRENCIES TO Philippine peso shall not be included in
the computation of the annual profits and losses of the Sections 43 and 43-A of Republic Act No. 265, as amended,
Bangko Sentral. Any profits or losses arising in this manner creating the Monetary Adjustment Account (MAA) and the
shall be offset by any amounts which, as a consequence of Exchange Stabilization Adjustment Account (ESAA),
such revaluations, are owed by the Philippines to any respectively, are hereby repealed. Amounts outstanding as
international or regional intergovernmental financial of the effective date of this Act based on these accounts shall
institution of which the Philippines is a member or are owed continue to be for the account of the Central Bank and shall
by these institutions to the Philippines. be governed by the transitory provisions of this Act.

Any remaining UNREALIZED profit or loss shall be carried in The Revaluation of International Reserve (RIR) account as of
aN special frozen account which shall be named the effective date of this Act of the Central Bank shall
"Revaluation of International Reserve" and the net balance of continue to be for the account of the same entity and shall be
which shall appear either among the liabilities or among the governed by the provisions of Section 44 of Republic Act No.
assets of the Bangko Sentral, depending on whether the 265, as amended, until otherwise provided for in accordance
revaluations have produced net profits or net losses. with the transitory provisions of this Act.

The Revaluation of International Reserve RIR account shall

be neither credited nor debited for THE PERIODIC
REVALUATION AS AUTHORIZED IN THIS SECTION AND ARTICLE VII
TO REFLECT THE CORRESPONDING ADJUSTMENT The Auditor
RESULTING TO THE REDUCTION OF BANKO
SENTRAL’S NET FOREIGN ASSETS, LIABIITIES AND Section 47. Appointment and Personnel. —
FOREIGN CURRENCY-DENOMINATED DERIVATIVE
INSTRUMENTS. THE RIR SHAL BE ADJUSTED AND The Chairman of the Commission on Audit shall act as the ex
RECOGNIZED IN THE INCOME STATEMENT UPON SALE officio auditor of the Bangko Sentral and, as such, he is
OF GOLD AND FOREIGN SECURITIES, OR THE empowered and authorized to appoint a representative who
FOREIGN CURRENCY IS REPATRIATED TO LOCAL shall be the auditor of the Bangko Sentral and, in accordance
CURRENCY OR IS USED TO PAY FOREIGN with law, fix his salary, and to appoint and fix salaries and
OBLIGATIONS, OR UPON MATURITY OF A FOREIGN- number of personnel to assist said representative in his work.
CURRENYCY DENOMINATED FORWARD OR OPTION
CONTRACT INVOLVING THE PHILIPPINE PESO any

The salaries and other emoluments shall be paid by the Section 49. Definition of Currency. — The word "currency"
Commission. The auditor of the Bangko Sentral and is hereby defined, for purposes of this Act, as meaning all
personnel under him may be removed only by the Chairman Philippine notes and coins issued or circulating in accordance
of the Commission. with the provisions of this Act.

The representative of the Chairman of the Commission must

be a certified public accountant with at least ten (10) years So the exclusive power to issue coins and notes is given to the
experience as such. No relative of any member of the Banko Sentral.
Monetary Board or the Chairman of the Commission within
the sixth degree of consanguinity or affinity shall be appointed Therefore:
such representative.
No other person or entity, public or private, may put into
circulation notes, coins or any other object or document
Please take note of the qualifications:
xxx
The representative of the Chairman of the Commission
If you violate:
must be a certified public accountant with at least ten (10)
years experience as such. No relative of any member of the
shall constitute an offense punishable by imprisonment of
Monetary Board or the Chairman of the Commission within not less than five (5) years but not more than ten (10) years.
the sixth degree of consanguinity or affinity shall be In case the Revised Penal Code provides for a greater
appointed such representative. penalty, then that penalty shall be imposed.

6. issue of Means of Payment So relate this with your provisions of the RPC.

CHAPTER ii Section 50. Exclusive Issue Power. — The Bangko Sentral

THE BANGKO SENTRAL shall have the sole power and authority to issue currency,
AND THE MEANS OF PAYMENT within the territory of the Philippines. No other person or
entity, public or private, may put into circulation notes, coins
ARTICLE i or any other object or document which, in the opinion of the
The Unit of Monetary Value Monetary Board, might circulate as currency, nor reproduce
or imitate the facsimiles of Bangko Sentral notes without prior
Section 48. The Peso. – The unit of monetary value in the authority from the Bangko Sentral.
Philippines is the “peso,” which is represented by the sign “P.”
The Monetary Board may issue such regulations as it may
The peso is divided into one hundred (100) equal parts called deem advisable in order to prevent the circulation of foreign
“centavos,” which are represented by the sign “c.” currency or of currency substitutes as well as to prevent the
reproduction of facsimiles of Bangko Sentral notes.
The unit of monetary value is of course the peso, represented
by the sign P with dalawang strikethroughs. The Bangko Sentral shall have the authority to investigate,
make arrests, conduct searches and seizures in accordance
The peso is divided into 100 equal parts called the centavo with law, for the purpose of maintaining the integrity of the
represented by the sign C. currency.

So what other countries do have a monetary value of peso Violation of this provision or any regulation issued by the
Bangko Sentral pursuant thereto shall constitute an offense
din?
punishable by imprisonment of not less than five (5) years but
not more than ten (10) years. In case the Revised Penal Code
A: Mexico provides for a greater penalty, then that penalty shall be
imposed.

ARTICLE ii
Issue of Means of Payment Section 51. Liability for Notes and Coins. — Notes and
coins issued by the Bangko Sentral shall be liabilities of the
A. Currency Bangko Sentral and may be issued only against, and in
amounts not exceeding, the assets of the Bangko Sentral.
So what is currency?
Said notes and coins shall be a first and paramount lien on
all assets of the Bangko Sentral.

The Bangko Sentral's holdings of its own notes and coins

shall not be considered as part of its currency issue and, However, in the case of coins in denomination of 1-, 5-
accordingly, shall not form part of the assets or liabilities of and 10-Piso they shall be legal tender in amounts not
the Bangko Sentral. exceeding P1,000.00 while coins in denomination of 1-,
5- and 10- and 25-Sentimo shall be legal tender in
amounts not exceeding P100.00, pursuant to BSP
So you see, these coins and notes, these are actually backed Circular No. 537, Series of 2006.
up by the assets of the Banko Sentral.

This is my problem with cryptocurrency, what Central Bank So example, tigpipiso, tigsisingko, tigdidiyes, hanggang 1
backs it up? thousand lang. So kung ang pambayad mo ng obligation is 2
thousand composed of 1 pesos, so pwedeng irefuse ni creditor
If all assets in the world are backed up by their respective yun kasi hanggang 1 thousand lang ang legal tender nito. I have
Central Banks, what happens to these cryptocurrencies? the right to refuse kasi 1 thousand lang.
Kaninong banko to? Kaninong currency?
How about for
That’s my problem with cryptocurrency.
 1 centavo
Section 52. Legal Tender Power. — All notes and coins  10 centavos
issued by the Bangko Sentral shall be fully guaranteed by the  25 centavos?
Government of the Republic of the Philippines and shall be
legal tender in the Philippines for all debts, both public and
It is only legal tender up to the amount of P100. So kapag
private:
nagbayad ka,inis na inis ka sa inutangan mo, ngayon
Provided, however, That, unless otherwise fixed by the magbabayad ka na tapos binuak(lol). So kumuha ka ng
Monetary Board, coins shall be legal tender in amounts not alkansya tapos kumuha ka ng tag 25 centavos may utang pa na
exceeding Fifty pesos (P50.00) for denominations of Twenty- P200, yun yung pinambayad mo, so pwedeng irefuse kasi
five centavos and above, and in amounts not exceeding hanggang P 100 lang.
Twenty pesos (P20.00) for denominations of Ten centavos or
less. Again pag

 1 peso
So may guarantor ka. Again what happens to cryptocurrency?
 5 pesos
Sino nagaguarantee non?
 10 pesos
In the event na pwede mo sya iexchange, may assets na Hanggang P1,000 lang.
nakataya dun.
So again, legal tender can be used for the payment of debts
Provided, however, That, unless otherwise fixed by the which cannot be refused by the creditor.
Monetary Board, coins shall be legal tender in amounts not
exceeding Fifty pesos (P50.00) for denominations of So if hindi sya legal tender, the creditor can actually refuse.
Twenty-five centavos and above, and in amounts not
exceeding Twenty pesos (P20.00) for denominations of Ten Section 53. Characteristics of the Currency. —
centavos or less. The Monetary Board, with the approval of the President of the
Philippines, shall prescribe the denominations, dimensions,
So this is actually amended by circular number 537 Series of designs, inscriptions and other characteristics of notes issued
by the Bangko Sentral:
2006:
Provided, however, That said notes shall state that they are
Is there a limit to the legal tender power of Philippine liabilities of the Bangko Sentral and are fully guaranteed by
currency notes and coins? the Government of the Republic of the Philippines. Said notes
shall bear the signatures, in facsimile, of the President of the
Philippine currency notes have no limit to their legal tender Philippines and of the Governor of the Bangko Sentral.
power. In particular, all notes and coins issued by the BSP
shall be fully guaranteed by the Government of the Republic Similarly, the Monetary Board, with the approval of the
of the Philippines and shall be legal tender in the Philippines President of the Philippines, shall prescribe the weight,
for all debts, both public and private, as stipulated under fineness, designs, denominations and other characteristics of
Section 52 of the New Central Bank Act. the coins issued by the Bangko Sentral. In the minting of

coins, the Monetary Board shall give full consideration to the So what they do is nakaserial number yun, so if it is already unfit
availability of suitable metals and to their relative prices and for circulation, you have to surrender it. So idedemonitize nila
cost of minting. yun and magprint sila ng coins and notes.

Please take note that:

Section 54. Printing of Notes and Mining of Coins. —
That the Bangko Sentral shall not replace notes and coins
The Monetary Board shall prescribe the amounts of notes the identification of which is impossible, coins which show
and coins to be printed and minted, respectively, and the
signs of filing, clipping or perforation(butas2), and notes
conditions to which the printing of notes and the minting of
coins shall be subject. The Monetary Board shall have the which have lost more than two-fifths (2/5) of their surface or
authority to contract institutions, mints or firms for such all of the signatures inscribed thereon.
operations.
So the BSP is not obliged to replace those notes.
All expenses incurred in the printing of notes and the minting
of coins shall be for the account of the Bangko Sentral. Notes and coins in such mutilated conditions shall be
withdrawn from circulation and demonetized without
So it is the MB that can prescribe. compensation to the bearer.

Section 55. Interconvertibility of Currency. — So eg. meron kang P1,000, tapos napunit, nilagyan mo ng tape.
Tapos pinambayad mo.
The Bangko Sentral shall exchange, on demand and without
charge, Philippine currency of any denomination for
Tapos sabi ng tinder, di nay an matatanggap sa banko.
Philippine notes and coins of any other denomination
requested.
What do you think?
If for any reason the Bangko Sentral is temporarily unable to
provide notes or coins of the denominations requested, it So we actually have 2 kinds:
shall meet its obligations by delivering notes and coins of the
denominations which most nearly approximate those This is the doctrine of clean note or the clean-note policy.
requested.
Section 56. Replacement of Currency Unfit for 1. Unfit for circulation
Circulation. — 2. Mutilated coins or notes
The Bangko Sentral shall withdraw from circulation and shall Pag unfit sya, okay lang. Papalitan lang ni BSP. idedemonetize
demonetize all notes and coins which for any reason lang then papalitan. Pag mutilated sya, papalitan hindi?
whatsoever are unfit for circulation and shall replace them by
adequate notes and coins:
A: You have to determine. Kasi nakalagay sa last sentence:
Provided, however, That the Bangko Sentral shall not replace
notes and coins the identification of which is impossible, coins Notes and coins in “such mutilated conditions” shall be
which show signs of filing, clipping or perforation, and notes withdrawn from circulation and demonetized without
which have lost more than two-fifths (2/5) of their surface or compensation to the bearer
all of the signatures inscribed thereon. Notes and coins in
such mutilated conditions shall be withdrawn from circulation So the such there refers to the previous sentence which
and demonetized without compensation to the bearer. provides that:

the identification of which is impossible, coins which show

There was time diba in the recent history that they actually signs of filing, clipping or perforation(butas2), and notes
require yung mga old money to be surrendered kasi which have lost more than two-fifths (2/5) of their surface or
idedemonetized. all of the signatures

Hindi po pwedeng, common diba yung bata kappa: So if it is mutilated, pag hindi sya mapalitan you must determine
first if:
Kung may problema sila, bakit di nalang sila magprint ng
money? Magprint nalang pala sila ng machine. 1. the identification of which is impossible,

Di ganun kadali ang buhay.lol

2. the mutilation causes the loss more than two-fifths (2/5)
of their surface or all of the signatures

So hindi pwedeng just because it is mutilated, hindi mo na sya Third: it is scorched or burned to such an extent that although
pwedeng palitan. The mutilation should be to the effect that the recognizable as such, has become frail and brittle as to render
loss is more than two-fifths (2/5) of their surface or all of the the handling thereof impossible without disintegration.
signatures.
It has split _ or has lost all the signatures inscribed therein. So
Pagnapunit ang P1,000,niagay mo tapos nilagyan mo ng these are the examples of mutilation which cannot be replaced.
scotch tape, papalitan,hindi?
Section 57. Retirement of Old Notes and Coins. — The
A: Pwede pa yung palitan. Pwede pa yun maging legal tender Bangko Sentral may call in for replacement notes of any
kung andun pa lahat. series or denomination which are more than five (5) years old
and coins which are more than (10) years old.
So example of those unfit:
Notes and coins called in for replacement in accordance with
this provision shall remain legal tender for a period of one (1)
1. if the currency contains heavy creasing which breaks
year from the date of call. After this period, they shall cease
the fiber of the paper and indicate that the to be legal tender but during the following year, or for such
disintegration has begun. longer period as the Monetary Board may determine, they
Kana ganing sa dulo, kanang makita na nimu tong violet2 lol may be exchanged at par and without charge in the Bangko
Sentral and by agents duly authorized by the Bangko Sentral
Provided however that mere creasing or wrinkling, kanang for this purpose.
gikumot which does not weaken the note does not render the
note unfit for circulation. After the expiration of this latter period, the notes and coins
which have not been exchanged shall cease to be a liability
of the Bangko Sentral and shall be demonetized. The Bangko
So kung gikumot lang sya, dili pwedeng iadto nimu sa BSP
Sentral shall also demonetize all notes and coins which have
tapos ilisan. Pero pag meron na syang heavy creases, been called in and replaced.
nagstatart na magdisintegrate, pwede na sya. It is now
considered as unfit for circulation.
B. Demand Deposits
Other example of unfit for circulation:
Section 58. Definition. — For purposes of this Act, the term
 badly soiled or contaminated or with writings, yung may "demand deposits" means all those liabilities of the Bangko
mga sulat-sulat(CP number lol) Sentral and of other banks which are denominated in
 it presents a limp or raglike appearance: ano kaya Philippine currency and are subject to payment in legal tender
itsura non upon demand by the presentation of checks.

When can it be considered a currency note mutilated?

So ito yung mga deposits,_ legal character.
A: When torn parts of the notes are joined together with
Now checks representing demand deposits who do not have
adhesive tape in manner which tries to preserve as nearly as
legal tender power and their acceptance as payment of debts
possible the original and the size of the note.
both public and private is at the option of the creditor.
So yung may mga scotch tape.
So you already know this in your OBLICON.
It is mutilated but can you replace it without compensation?
Section 59. Issue of Demand Deposits. — Only banks duly
authorized to do so may accept funds or create liabilities
A: it really depends. payable in pesos upon demand by the presentation of
checks, and such operations shall be subject to the control of
If nawala ang 2/5 of the surface or wala na yung mga signature. the Monetary Board in accordance with the powers granted it
with respect thereto under this Act.
Second:the original size of the note has been lost or reduced to
wear and tear or otherwise xxx or has been perforated through
action by insects, chemicals or other causes. Section 60. Legal Character. — Checks representing
demand deposits do not have legal tender power and their
Diba meron talagang pera na pagsobrang tagal lumiliit. It is acceptance in the payment of debts, both public and private,
considered mutilated. is at the option of the creditor:

Provided, however, That a check which has been cleared and The payment of debts in money shall be made in the currency
credited to the account of the creditor shall be equivalent to a stipulated, and if it is not possible to deliver such currency,
delivery to the creditor of cash in an amount equal to the then in the currency which is legal tender in the Philippines.
amount credited to his account.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
So we have the case of PAL v CA through the fault of the creditor they have been impaired.

PAL v. CA In the meantime, the action derived from the original

G.R. No. L-49188 obligation shall be held in abeyance.

Facts In the absence of an agreement, either express or implied,

payment means the discharge of a debt or obligation in
On October 11, 1977, a judgement was rendered by the RTC money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and
wherein it issued its order of execution with the corresponding unless the parties so agree, a debtor has no rights, except at
writ in favor of the Amelia Tan. his own peril, to substitute something in lieu of cash as
medium of payment of his debt (Anderson v. Gill, 79 Md.. 312,
The writ was duly referred to Deputy Sheriff Emilio Z. Reyes 29 A 527, 25 LRA 200,47 Am. St. Rep. 402).
of Branch 13 of the Court of First Instance of Manila for
enforcement. Consequently, unless authorized to do so by law or by
consent of the obligee a public officer has no authority to
Four months later, on February 11, 1978, respondent Amelia accept anything other than money in payment of an obligation
Tan moved for the issuance of an alias writ of execution under a judgment being executed. Strictly speaking, the
stating that the judgment rendered by the lower court, and acceptance by the sheriff of the petitioner's checks, in the
affirmed with modification by the Court of Appeals, remained case at bar, does not, per se, operate as a discharge of the
unsatisfied. judgment debt.

On March 3,1978, the Court of Appeals denied the issuance Since a negotiable instrument is only a substitute for money
of the alias writ for being premature, ordering the executing and not money, the delivery of such an instrument does not,
sheriff Emilio Z. Reyes to appear with his return and explain by itself, operate as payment (See. 189, Act 2031 on Negs.
the reason for his failure to surrender the amounts paid to him Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American
by petitioner PAL. Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L.
60, 61).
However, the order could not be served upon Deputy Sheriff
Reyes who had absconded or disappeared. The payment A check, whether a manager's check or ordinary cheek, is not
was made to the absconding sheriff with a check in his own legal tender, and an offer of a check in payment of a debt is
name. not a valid tender of payment and may be refused receipt by
the obligee or creditor. Mere delivery of checks does not
Issue discharge the obligation under a judgment. The obligation is
WON the payment of the check in the name of not extinguished and remains suspended until the payment
Reyes(Sheriff) would be considered legal tender? by commercial document is actually realized (Art. 1249, Civil
Code, par. 3).
Ruling
NO If bouncing checks had been issued in the name of Amelia
Tan and not the Sheriff's, there would have been no payment.
From full text: After dishonor of the checks, Ms. Tan could have run after
other properties of PAL. The theory is that she has received
There are circumstances in this case, however, which no value for what had been awarded her. Because the checks
compel a different conclusion. were drawn in the name of Emilio Z. Reyes, neither has she
received anything. The same rule should apply.
The payment made by the petitioner to the absconding
sheriff was not in cash or legal tender but in checks. The It is argued that if PAL had paid in cash to Sheriff Reyes, there
checks were not payable to Amelia Tan or Able Printing Press would have been payment in full legal contemplation. The
but to the absconding sheriff. reasoning is logical but is it valid and proper? Logic has its
limits in decision making. We should not follow rulings to their
Did such payments extinguish the judgment debt? logical extremes if in doing so we arrive at unjust or absurd
results.
Article 1249 of the Civil Code provides:
In the first place, PAL did not pay in cash. It paid in checks.

misappropriate the proceeds thereof to his exclusive

And second, payment in cash always carries with it certain personal benefit. For the prejudice that resulted, the petitioner
cautions. Nobody hands over big amounts of cash in a himself must bear the fault. The judicial guideline which we
careless and inane manner. Mature thought is given to the take note of states as follows:
possibility of the cash being lost, of the bearer being waylaid
or running off with what he is carrying for another. As between two innocent persons, one of whom must suffer
the consequence of a breach of trust, the one who made it
Payment in checks is precisely intended to avoid the possible by his act of confidence must bear the loss.
possibility of the money going to the wrong party. The (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935, 61
situation is entirely different where a Sheriff seizes a car, a Phil. 625)
tractor, or a piece of land. Logic often has to give way to
experience and to reality. Having paid with checks, PAL Having failed to employ the proper safeguards to protect
should have done so properly. itself, the judgment debtor whose act made possible the loss
had but itself to blame.
Payment in money or cash to the implementing officer may Although payment by checks is encouraged, there must be
be deemed absolute payment of the judgment debt but the proper safeguards on the part of the payor so that the
Court has never, in the least bit, suggested that judgment encashment by another person be prevented.
debtors should settle their obligations by turning over huge
amounts of cash or legal tender to sheriffs and other
executing officers. Payment in cash would result in damage
or interminable litigations each time a sheriff with huge
amounts of cash in his hands decides to abscond. Far East Bank v. Diaz Realty
G.R. No. 138588

Facts
As a protective measure, therefore, the courts encourage the
practice of payments by check provided adequate controls Sometime in August 1973, Diaz and Company got a loan
are instituted to prevent wrongful payment and illegal from the former PaBC [Pacific Banking Corporation] in the
withdrawal or disbursement of funds. If particularly big amount of P720,000.00, with interest at 12% per annum, later
amounts are involved, escrow arrangements with a bank and increased to 14%, 16%, 18% and 20%.
carefully supervised by the court would be the safer
procedure. Actual transfer of funds takes place within the
safety of bank premises. These practices are perfectly legal. In 1981, Allied Banking Corporation rented an office space in
The object is always the safe and incorrupt execution of the the building constructed on the properties covered by the
judgment. mortgage contract, with the conformity of mortgagee PaBC,
whereby the parties agreed that the monthly rentals shall be
It is, indeed, out of the ordinary that checks intended for a paid directly to the mortgagee for the lessors account, either
particular payee are made out in the name of another. Making to partly or fully pay off the aforesaid mortgage indebtedness.
the checks payable to the judgment creditor would have
prevented the encashment or the taking of undue advantage Pursuant to such contract, Allied Bank paid the monthly
by the sheriff, or any person into whose hands the checks rentals to PaBC instead of to the plaintiffs.
may have fallen, whether wrongfully or in behalf of the
creditor. The issuance of the checks in the name of the sheriff On July 5, 1985, the Central Bank closed PaBC, placed it
clearly made possible the misappropriation of the funds that under receivership, and appointed Renan Santos as its
were withdrawn. liquidator.

As explained and held by the respondent court: Sometime in December 1986, appellant FEBTC purchased
the credit of Diaz & Company in favor of PaBC, but it was not
... [K]nowing as it does that the intended payment was for the until March 23, 1988 that Diaz was informed about it.
private party respondent Amelia Tan, the petitioner
corporation, utilizing the services of its personnel who are or According to the plaintiff as alleged in the complaint and
should be knowledgeable about the accepted procedures testified to by Antonio Diaz (President of Diaz & Company
and resulting consequences of the checks drawn, and Vice-President of Diaz Realty),
nevertheless, in this instance, without prudence, departed
from what is generally observed and done, and placed as 2. on March 23, 1988 he went to office of PaBC which
payee in the checks the name of the errant Sheriff and not by then housed FEBTC and was told that the latter
the name of the rightful payee. had acquired PaBC;

Petitioner thereby created a situation which permitted the 3. that Cashier Ramon Lim told him that as of such
said Sheriff to personally encash said checks and date, his loan was P1,447,142.03;

First Issue: Tender of Payment

4. that on December 14, 1988,[6] Diaz tendered to
FEBTC the amount of P1,450,000.00 through an Petitioner resolutely argues that the CA erred in upholding
Interbank check, in order to prevent the the validity of the tender of payment made by respondent.
imposition of additional interests, penalties and What the latter had tendered to settle its outstanding
surcharges on its loan; obligation, it points out, was a check which could not be
considered legal tender.
5. that FEBTC did not accept it as payment(check)
We disagree.
6. that instead, Diaz was asked to deposit the
amount with the defendants Davao City Branch The records show that petitioner bank purchased
Office, allegedly pending the approval of Central respondent's account from PaBC in December 1986, and that
Bank Liquidator Renan Santos; the latter was notified of the transaction only on March 23,
1988. Thereafter, Antonio Diaz, president of respondent
corporation, inquired from petitioner on the status and the
7. that when there was still no news from the amount of its obligation.
defendant whether or not it [would] accept his
tender of payment, he filed this case at the He was informed that the obligation summed up to
Regional Trial Court of Davao City. P1,447,142.03. On November 14, 1988, petitioner; received
from respondent Interbank Check No. 81399841 dated
In its responsive pleading, the defendant set up the following November 13, 1988, bearing the amount of P1,450,000, with
special/affirmative defenses: the notation "Re: Full Payment of Pacific Bank Account now
turn[ed] over to Far East Bank."10 The check was
1. that sometime in December 1986, FEBTC subsequently cleared and honored by Interbank, as shown
purchased from the PaBC the account of the by the Certification it issued on January 20, 1992.11
plaintiffs for a total consideration of P1,828,875.00;
True, jurisprudence holds that, in general, a check does not
2. that despite such purchase, PaBC Davao Branch constitute legal tender, and that a creditor may validly refuse
continued to collect interests and penalty it.12 It must be emphasized, however, that this dictum does
charges on the loan from January 6, 1987 to July not prevent a creditor from accepting a check as payment. In
8, 1988; other words, the creditor has the option and the discretion of
refusing or accepting it.
3. that it was therefore not FEBTC which collected
the interest rates mentioned in the complaint, "In the present case, petitioner bank did not refuse
but PaBC; respondent's check. On the contrary, it accepted the check
which, it insisted, was a deposit. As earlier stated, the check
4. that as a matter of fact, after the transfer of plaintiffs proved to be fully funded and was in fact honored by the
account, it sought to negotiate with the plaintiffs, drawee bank. Moreover, petitioner was in possession of the
and in fact, negotiations were made for a money for several months.
settlement and possible reduction of charges;
In further contending that there was no valid tender of
5. that FEBTC has no knowledge of the rates of payment, petitioner emphasizes our pronouncement in
interest imposed and collected by PaBC prior to Roman Catholic Bishop of Malolos, Inc. v. Intermediate
the purchase of the account from the latter, hence Appellate Court,13 as follows:
it could not be held responsible for those
transactions which transpired prior to the purchase; "Tender of payment involves a positive and unconditional act
and that the defendant acted at the opportune time for the by the obligor of offering legal tender currency as payment to
settlement of the account, albeit exercising prudence in the the obligee for the former's obligation and demanding that the
handling of such account. latter accept the same.

xxx xxx xxx

Issue
WON there was valid tender of payment "Thus, tender of payment cannot be presumed by a mere
inference from surrounding circumstances. At most,
Ruling sufficiency of available funds is only affirmative of the
Yes there was a valid tender of payment capacity or ability of the obligor to fulfill his part of the bargain.
But whether or not the obligor avails himself of such funds to
settle his outstanding account remains to be proven by
From full text: independent and credible evidence.

Tender of payment presupposes not only that the obligor is Intent of payment must be coupled with?
able, ready, and willing, but more so, in the act of performing
his obligation. Ab posse ad actu non vale illatio. 'A proof that A: intent, ability and capability to make good such offer, which
an act could have been done is no proof that it was actually must be absolute and must cover the amount due.
done."'

In other words, tender of pament is the definitive act of

offering the creditor what is due him or her, together with the 7. Guiding Principles of Monetary Administration by the
demand that the creditor accept the same. More important,
Bangko Sentral
there must be a fusion of intent, ability and capability to
make good such offer, which must be absolute and must
CHAPTER III
cover the amount due.
GUIDING PRINCIPLES OF MONETARY ADMINISTRATION
BY THE BANGKO SENTRAL
That respondent intended to settle its obligation with
petitioner is evident from the records of the case. After ARTICLE I
learning that its loan balance was P1,447,142.03, it Domestic Monetary Stabilization
presented to petitioner a check in the amount of P1,450,000,
with the specific notation that it was for full payment of its
Section 61. Guiding Principle. — The Monetary Board shall
Pacific Bank account that had been purchased by petitioner.
endeavor to control any expansion or contraction in monetary
aggregates which is prejudicial to the attainment or
The latter accepted the check, even if it now insists that it
maintenance of price stability.
considered the same as a mere deposit. The check was
sufficiently funded, as in fact it was honored by the drawee
bank. When petitioner refused to release the mortgage,
respondent instituted the present case to compel the bank to Sec 26. Sec 61 of the same act is hereby amended to read
acknowledge the tender of payment, accept payment and as follows
cancel the mortgage.
Proposed Amendment
These acts demonstrate respondent's intent, ability and
capability to fully settle and extinguish its obligation to Section 61. Guiding Principle. — THE MONETARY
petitioner. BOARD SHALL REGULARY ASSESS PRICE
DEVELOPMENTS AND OUTLOOK AND, BASED ON ITS
That respondent subsequently withdrew the money from ANALYSIS AND EVALUATIONOF INFLATIONARY
petitioner-bank is of no moment, because such withdrawal PRESSURES, USE ITS POLICY INSTRUMENTS TO
would not affect the efficacy or the legal ramifications of the ATTAIN AND MAINTAIN PRICE STABILITY. The Monetary
tender of payment made on November 14, 1988. As already Board shall endeavor to control any expansion or contraction
discussed, the tender of payment to settle respondent's in monetary aggregates which is prejudicial to the attainment
obligation as computed by petitioner was accepted, the check or maintenance of price stability.
given in payment thereof converted into money, and the So here we are talking about money aggregates which are
money kept in petitioner's possession for several months. equivalent to your supplies. I’m sure in your basic economics
you were taught what money supply is.
Finally, petitioner points out that, in any case, tender of
payment extinguishes the obligation only after proper
So may mga different classification of money supply.
consignation, which respondent did not do.

The argument does not persuade. For a consignation to be 1. M1: currency in the circulation
necessary, the creditor must have refused, without just 2. M2: currency in the circulation+ pesos savings + time
cause, to accept the debtor's payment. However, as pointed deposits
out earlier, petitioner accepted respondent's check. 3. M3: M2 + peso deposit substitutes
4. M4:M3+ transferable deposits and foreign supply
To iterate, the tender was made by respondent for the These are the money supplies which is going to be the basis for
purpose of settling its obligation. It was incumbent upon
petitioner to refuse, or accept it as payment. The latter did not the monetary policy of the BSP.
have the right or the option to accept and treat it as a deposit.
Thus, by accepting the tendered check and converting it into The monetary policy could either be:
money, petitioner is presumed to have accepted it as
payment. To hold otherwise would be inequitable and unfair 1. Contractionary
to the obligor. 2. Expansionary
Now if the Banko Sentral belives that __(inaudible;nagrap si Sir)

Again, how do we measure inflationary weight? So imagine pag itataas yan, ito nalang ang icicirulate mo. So
increasing the reserve requirement of banks actually reduces
What do we do? Ano ang ginagawa ng BSP? the circulation in the economy. So ganun lang yan.

Diba inflation targeting? Sabi nila ang target 5 % n gating So when it requires balancing, you have to balance it out.
inflation. May mga country naman that does not do inflation
targeting. But in the Philippines, we do that. Section 62. Power to Define Terms. — For purposes of this
article and of this Act, the Monetary Board shall formulate
Sabihin natin, dapat ang inflation within the year is nasa 5-7% definitions of monetary aggregates, credit and prices and
lang. So if the BSP believes that the actual inflation rate is in shall make public such definitions and any changes thereof.
excess of the targeted so it can contract or reduce liquidity. So *NO amendment
irereduce nya yung circulation ng pera sa ekonomiya. So yun
yung contraction which could actually result in a lower inflation
Section 63. Action When Abnormal Movements Occur in
value. the Monetary Aggregates, Credit, or Price Level. —
Whenever abnormal movements in the monetary
So that is why pag nagbibuild build-build ka talaga ng aggregates, in credit, or in prices endanger the stability of the
infrastructure, natural effect is inflation kasi andaming pera ang Philippine economy or important sectors thereof, the
nagcicirculate sa economy. Monetary Board shall:

Pero dapat itong natural effect should be countered by a (a) take such remedial measures as are appropriate and
monetary policy which seeks to reduce the liquidity to an within the powers granted to the Monetary Board and the
Bangko Sentral under the provisions of this Act; and
adjusted level.
(b) submit to the President of the Philippines and the
Now if it believes that the inflationary rate is at a comfortable
Congress, and make public, a detailed report which shall
with the desired level, it can again raise the amount of liquidity include, as a minimum, a description and analysis of:
in the economy.
(1) the causes of the rise or fall of the monetary
So how does the BSP do that? aggregates, of credit or of prices;

Merong monetary policy intruments (2) the extent to which the changes in the monetary
aggregates, in credit, or in prices have been
1. Policy interest rates and open market liquidation/ reflected in changes in the level of domestic output,
2. Reserve requirements employment, wages and economic activity in
general, and the nature and significance of any such
3. Inaudible huhu
changes; and
So the basic and most commonly used is the policy interest
rates. (3) the measures which the Monetary Board has taken
and the other monetary, fiscal or administrative
Policy Interest Rate measures which it recommends to be adopted.

What would happen if increase ni BSP ang interest rate? Whenever the monetary aggregates, or the level of credit,
increases or decreases by more than fifteen percent (15%),
Effect: si tao gusto nya magdeposit kasi mataas ang interest or the cost of living index increases by more than ten percent
rate. So pag idedeposit nya, ano mangyayari? (10%), in relation to the level existing at the end of the
corresponding month of the preceding year, or even though
Effect: malolower ang currency or money in circulation. any of these quantitative guidelines have not been reached
when in its judgment the circumstances so warrant, the
Monetary Board shall submit the reports mentioned in this
Reserve Requirement
section, and shall state therein whether, in the opinion of the
Board, said changes in the monetary aggregates, credit or
Pagreserve requirement naman tataasan yung reserve ng bank. cost of living represent a threat to the stability of the Philippine
Just like itong ink, ang reserve requirement mo hanggang dito. economy or of important sectors thereof.
Your reserve requirement is that amount na hindi mo pwedeng
icirculate as credit. The Monetary Board shall continue to submit periodic reports
to the President of the Philippines and to Congress until it
considers that the monetary, credit or price disturbances
have disappeared or have been adequately controlled.

Proposed Amendment
The Bangko Sentral shall exercise its powers under this Act
Sec 27. Sec 63 of the same Act is hereby amended to read to preserve the international value of the peso and to maintain
as follows: its convertibility into other freely convertible currencies
primarily for, although not necessarily limited to, current
Section 63. Action When Abnormal Movements Occur in payments for foreign trade and invisibles.
the Monetary Aggregates, Credit, or Price Level. —
Whenever abnormal movements in the monetary
aggregates, in credit, or in prices endanger the stability of the Section 65. International Reserves. —
Philippine economy or important sectors thereof, the
Monetary Board shall: In order to maintain the international stability and
convertibility of the Philippine peso, the Bangko Sentral shall
(a) take such remedial measures as are appropriate and maintain international reserves adequate to meet any
within the powers granted to the Monetary Board and the foreseeable net demands on the Bangko Sentral for foreign
Bangko Sentral under the provisions of this Act; and currencies.

(b) submit to the President of the Philippines and the In judging the adequacy of the international reserves, the
Congress, and make public, a detailed report which shall Monetary Board shall be guided by the prospective receipts
include, as a minimum, a description and analysis of: and payments of foreign exchange by the Philippines.

(1) the causes of the rise or fall of the monetary The Board shall give special attention to the volume and
aggregates, of credit or of prices; maturity of the Bangko Sentral's own liabilities in foreign
currencies, to the volume and maturity of the foreign
(2) the extent to which the changes in the monetary exchange assets and liabilities of other banks operating in the
aggregates, in credit, or in prices have been Philippines and, insofar as they are known or can be
reflected in changes in the level of domestic output, estimated, the volume and maturity of the foreign exchange
employment, wages and economic activity in assets and liabilities of all other persons and entities in the
general, and the nature and significance of any such Philippines.
changes; and

(3) the measures which the Monetary Board has taken So meron rin tayong mga international reserves. So in judging
and the other monetary, fiscal or administrative the adequacy of these reserves, the monetary board shall be
measures which it recommends to be adopted. guided by prospective receipts and payments of foreign
exchange by the fields? or the balance of payments.
Whenever the monetary aggregates, or the level of credit,
increases or decreases by more than fifteen percent (15%),
or the cost of living index increases by more than ten percent Kaya nga yung mga OFW ay tinatawag na new heroes kasi they
(10%), in relation to the level existing at the end of the allow our currecy to ba stabilized kasi marami silang papasok.
corresponding month of the preceding year, or even though
any of these THIS quantitative guidelines have HAS not Gross international reserves are foreign assets of the BSP
been reached when in its judgment the circumstances so serves as a standby fund to finance the deficit that may arise
warrant, the Monetary Board shall submit the reports _(inadudible) we have the national monetary stabilization
mentioned in this section, and shall state therein whether, in composed of the reserves, international reserves these are
the opinion of the Board, said changes in the monetary composed of gold and assets in foreign currencies.
aggregates, credit or cost of living represent a threat to the
stability of the Philippine economy or of important sectors
So may mga deposits _.
thereof.

The Monetary Board shall continue to submit periodic reports Section 66. Composition of the International Reserves.
to the President of the Philippines and to Congress until it —
considers that the monetary, credit or price disturbances
have disappeared or have been adequately controlled. The international reserves of the Bangko Sentral may include
but shall not be limited to the following assets:
NOTE: The next amendment is under Sec 81 (a) gold; and
(b) assets in foreign currencies in the form of:
documents and instruments customarily employed
for the international transfer of funds; demand and
time deposits in central banks, treasuries and
ARTICLE II
commercial banks abroad; foreign government
International Monetary Stabilization
securities; and foreign notes and coins.
Section 64. International Monetary Stabilization. —

The Monetary Board shall endeavor to hold the foreign The Monetary Board shall submit periodic reports to the
exchange resources of the Bangko Sentral in freely President and to Congress until the threat to the international
convertible currencies; moreover, the Board shall give monetary stability of the Philippines has disappeared.
particular consideration to the prospects of continued
strength and convertibility of the currencies in which the
reserve is maintained, as well as to the anticipated demands That’s why sa news kung may mga topic on inflation, issue on
for such currencies. The Monetary Board shall issue poverty level, lagi talagang may comment si Governor of the
regulations determining the other qualifications which foreign
BSP. Diba? Lagi syang may mga interviews kasi required din
exchange assets must meet in order to be included in the
international reserves of the Bangko Sentral. sya.

The Bangko Sentral shall be free to convert any of the assets We have this recent debate diba whether to take out the ban on
in its international reserves into other assets as described in rice. Mga last month lang.Nag-import ng rice tapos parang
subsections (a) and (b) of this section. nagkagulo si Piñol, Del Rosario which is the Governor. Basta
nagkagulo sila kasi may impact sya on the stability.

Section 67. Action When the International Stability of the The balance of payments, again, this is the summary of the
Peso Is Threatened. — economic transactions of a country between the rest of the
world. So the country with the rest of the world. We are talking
Whenever the international reserve of the Bangko Sentral
about imports and exports. So that is the balance. Kaylangan
falls to a level which the Monetary Board considers
inadequate to meet prospective net demands on the Bangko balance.
Sentral for foreign currencies, or whenever the international
reserve appears to be in imminent danger of falling to such a Lahat ng bagay kaylangan balance. Wag puro aral, matulog din.
level, or whenever the international reserve is falling as a Wag puro tulog, mag-aral din.
result of payments or remittances abroad which, in the
opinion of the Monetary Board, are contrary to the national So this is an example; structured and current report, the balance
welfare, the Monetary Board shall: of payment requirement. The country’s balance of payment
position or the BOP post it a higher deficit of 2 billion dollars _
(a) take such remedial measures as are appropriate and
compared to the 1.2 billion deficit from the previous quarter
within the powers granted to the Monetary Board and the
Bangko Sentral under the provisions of this Act; and mainly from the current account which refers to the deficit as the
trade and goods, the deficits widened in the net receipts in the
(b) submit to the President of the Philippines and to primary account import on goods on the import of goods
Congress a detailed report which shall include, as a continue to expand driven mainly by the increase in domestic
minimum, a description and analysis of: production and consumption brought about by the _(inaudible
jud huhu nagrap si sir)
(1) the nature and causes of the existing or imminent
decline;
Meanwhile the _, account also the inflows. So that is just an
(2) the remedial measures already taken or to be taken example of your report.
by the Monetary Board;

(3) the monetary, fiscal or administrative measures

further proposed; and 8. Instruments of Bangko Sentral Action

(4) the character and extent of the cooperation required CHAPTER IV

from other government agencies for the successful INSTRUMENTS OF BANGKO SENTRAL ACTION
execution of the policies of the Monetary Board.
ARTICLE I
If the resultant actions fail to check the deterioration of the General Criterion
reserve position of the Bangko Sentral, or if the deterioration
cannot be checked except by chronic restrictions on Section 68. Means of Action. —
exchange and trade transactions or by sacrifice of the
domestic objectives of a balanced and sustainable growth of In order to achieve the primary objective of price stability, the
the economy, the Monetary Board shall propose to the Monetary Board shall rely on its moral influence and the
President, with appropriate notice of the Congress, such powers granted to it under this Act for the management of
additional action as it deems necessary to restore equilibrium monetary aggregates.
in the international balance of payments of the Philippines.

So this is what you call MORAL SUASION. So it uses its moral The BSP participates in the Forex market by buying and selling
influence dun sa mga banks. foreign exchange to ensure order and temporary destabilization
swings and exchange rate.
So paano sya nagkakaroon ng moral suasion?
So the BSP can actually enter into foreign exchange
A: it is an influence that the Central Bank tries to induce or to transactions.
convince banks to conduct operations in a manner that would
contribute to the attainment of its monetary goals. So what are the main foreign exchange transactions?

So that might be not be supportive of profit or that may even 1. Foreign Exchange Forward
contradict profit maximization which is the objective of banks. 2. Foreign Exchange Swag

So to tell you, these banks are Corporations din. So these are actually what you call derivative contracts. These
are foreign derivative forex kasi they derive value on an
So what are their goal? underlying instrument.

A: profits of course for the stockholders In this particular case, the foreign currencies.

Between their interest of profit and between their interest of What is foreign exchange contract or foreign exchange
helping the economy, alin yung mas, ipaprioritize nila? forward?

A: of course yung profit A: It shall refer to contract to purchase and sell a specified
amount of currency against another having specified the foreign
That’s why, meron right si BSP to influence them morally.
exchange rate for deliverance at a specified future date _.
So moral suasion.
So let’s say bili ako ng 100 dollar at 55 peso per dollar,
Paano nya to ginagawa? determined.

A: may mga dialogues. They conduct symposiums and Specified exchange rate for delivery after 3 days. Now kung
dialogues with the head of the banks. They will say na ito yung tataas ang value after that day, lugi ka. Kung bababa, kumita ka.
goal natin, we need to do this altogether. Please take note of that.

Sa economy ganito ang mangyayari, so madadamay din kayo. What is foreign exchange swag?
Yan yung tinatawag na moral suasion.
A: This actually refers to a transaction involving an actual
They use their moral influence through inter-bank dialogue exchange. Meron talagang exchange of 2 currencies and its
through the executives of the banks. specified rate at a date _(inaudible again)

ARTICLE II And reverse of the same, nagpalitan kayo. Example peso and
Operations in Gold and Foreign Exchange Thai Baht. Nag exchange kayo tapos after a specified date nag-
exchange na naman kayo at a specific rate.
Section 69. Purchases and Sales of Gold. —
Please take not that the rate on your second exchange must be
The Bangko Sentral may buy and sell gold in any form, different from the rate applied to the first.
subject to such regulations as the Monetary Board may issue.
Bakit kung pareha pala?
The purchases and sales of gold authorized by this section
shall be made in the national currency at the prevailing A: Eh di para na kayong tanga pareha lang ng exchange rate. It
international market price as determined by the Monetary
has to be different.
Board.
So nag-exchange kayo at 55 ngayon tapos tomorrow, nag-
FOREX Stability exchange na naman kayo at 55. Tanga lang diba? Lol. So dapat
iba din ang rate on the second exchange.

Foreign Exchange Dealers

 Ito yung mga money changers. Yung mga nasa This is what you call the registration document. PSRD is one of
Aldevinco. They are regulated by the BSP. prescribed documents to support an application to buy FEx
 Are those regularly engaged in the business of buying to__(inaudible)
and selling foreign currencies
 These are you money changers or MCs So you need your PSRD to funnel your repatriation in the
I would like to draw your attention to foreign creditors. Kapag Philippine banking system.
meron kang Corporations in the Philippines tapos ang
Section 70. Purchases and Sales of Foreign Exchange.
magfufund us from outside the Philippines, syempre
—
magkakaroon ng direct investment(fund-in).
The Bangko Sentral may buy and sell foreign notes and
Let’s say mag-iinvest dito ng 1 million USD. The encouragement coins, and documents and instruments of types customarily
of the BSP is to register the foreign investment with BSP or with employed for the international transfer of funds. The Bangko
the investors designated by the BSP. Sentral may engage in future exchange operations.

But this is optional. So kung mag-iincrease ako ng investment in The Bangko Sentral may engage in foreign exchange
the Philippines, kaylangan koi register. But that is only optional. transactions with the following entities or persons only:
(a) banking institutions operating in the Philippines;
Why? Bakit optional lang yung pag-register? (b) the Government, its political subdivisions and
instrumentalities;
A: Kasi the reason why kaylangan syang iregister sa BSP is
(c) foreign or international financial institutions;
because when you repatriate the profit, nag-invest si
stockholder ng 1 million dito. After a year, gusto na nya kunin (d) foreign governments and their instrumentalities; and
ang dividends.
(e) other entities or persons which the Monetary Board is
So that is what you call repatriation. hereby empowered to authorize as foreign exchange dealers,
subject to such rules and regulations as the Monetary Board
Now hindi lang yan sya dividends. Pwede rin yan sya yang shall prescribe.
nagpautang. Nagpautang ako sa Pilipinas kasi poor sila haha
In order to maintain the convertibility of the peso, the Bangko
ng 1 million USD tapos yung interest. So maningil akong
Sentral may, at the request of any banking institution
interest. So babayaran ka din ng pera sa mga Pilipinas(unsa sir? operating in the Philippines, buy any quantity of foreign
Huhu) for the interest in USD. exchange offered, and sell any quantity of foreign exchange
demanded, by such institution, provided that the foreign
Now the problem of not registering it with the BSP is that hindi currencies so offered or demanded are freely convertible into
nya pwede gamitin ang banking system to funnel the currency. gold or United States dollars. This requirement shall not apply
to demands for foreign notes and coins.
Ang mangyayari nyan is that dun sya bibili sa mga small money
changer ng currency. Kaya sya optional kasi malay mo may The Bangko Sentral shall effect its exchange transactions
between foreign currencies and the Philippine peso at the
bank account kayo in USD. So hindi mo kaylangang ifunnel sya
rates determined in accordance with the provisions of Section
sa banking system. 74 of this Act.

The registration is only for purposes of funnelling the repatriation

in the Philippine banking system. It is convenient to register it Section 71. Foreign Asset Position of the Bangko
kasi hindi ka na mamomoblema when you try to repatriate your Sentral. — The Bangko Sentral shall endeavor to maintain at
investment. all times a net positive foreign asset position so that its gross
foreign exchange assets will always exceed its gross foreign
But it is only optional kasi you have the right to go to the money liabilities. In the event that the equivalent amount in pesos of
changer kung gusto mo talagang maghirap sa buhay or baka the foreign exchange liabilities of the Bangko Sentral exceed
twice the equivalent amount in pesos of the foreign exchange
meron ka talagang sariling foreign currency account.
assets of the bank, the Bangko Sentral shall, within sixty (60)
days from the date the limit is exceeded, submit a report to
So that is the reason. The benefit again, this will authorize the
the Congress stating the origin of these liabilities, and the
foreign investor to repatriate capital and remit dividends manner in which they will be paid.
accruing in the BSP _

12 Dec (2 of 2) | Fabe & Peroy foreign exchange. It required consolidation of bank and its
subsidiaries and required banks to submit forms for all purposes.
Section 72. Emergency Restrictions on Exchange
Operations. — In order to achieve the primary objective of Bacolod Murcia Milling v. Central Bank
the Bangko Sentral as set forth in Section 3 of this Act, or G.R. No. L-12610
protect the international reserves of the Bangko Sentral in the
imminence of, or during the an exchange crisis, or in time of On or about December 17, 1956, Bacolod Murcia Milling sold
national emergency and to give the Monetary Board and the and exported to Olavarria & Co., Inc. of New York 3,000 tons
Government time in which to take constructive measures to of sugar for the total price of $416,640.00 and drew against
forestall, combat, or overcome such a crisis or emergency, said Olavarria & Co., Inc. two (2) drafts for the total sum of
the Monetary Board, with the concurrence of at least 5 of $336,995.40 to cover an initial payment of 95% which was
its members and with the approval of the President of the then entrusted and delivered for collection to the Philippine
Philippines, may temporarily suspend or restrict sales of Bank of Commerce.
exchange by the Bangko Sentral, and may subject all
transactions in gold and foreign exchange to license by the PBC called the attention of Bacolod that under existing rules
Bangko Sentral, and may require that any foreign exchange and regulations all exchange proceeds of the drafts must be
thereafter obtained by any person residing or entity operating sold to the Central Bank authorities at the prevailing rate of
in the Philippines be delivered to the Bangko Sentral or to any exchange set up by the Central Bank at the rate also of 2 to
bank or agent designated by the Bangko Sentral for the 1. Plaintiff wrote to the defendant Central Bank questioning
purpose, at the effective exchange rate or rates: Provided, the legality of the rules.
however, That foreign currency deposits made under RA No.
6426 shall be exempt from these requirements. Bacolod brought this special civil action for prohibition in
order to stop the defendant Central Bank from taking: further
Please take note of the approval requirement— it has to be action to enforce Circular No. 20. Plaintiff says that the forced
approved by the 5 members of the Monetary Board (MB) and sale of foreign exchange to the Central Bank required in
with the approval of the President of the Philippines. Circular No. 20 is 'ultra vires'; and that the practice of the
Central Bank in paying for such exchange only at the legal
What are these contemplated emergencies? parity rate with the purpose of reselling the same to other
private parties at the same rate is a confiscation of private
We are talking about international monetary crisis, coup d’état, property not for public use nor for just compensation.
civil war or banking crisis.
According to the Central Bank, Circular No. 20 is presumed
Case in point is the 1997 Asian Financial Crisis. There are a lot to be valid and the Philippines being a signatory member to
of commentaries on that. It actually started, when the Thai the IMF Agreement, such is bound to respect and maintain
government sought the aid of the IMF to help them, to rescue the par value of the Philippine currency, and that Circular No.
them out because the problem here is that the Asian countries’ 20 was approved in an exchange crisis; that the powers of
currency really went down against the USD. They Japayuki took the Central Bank to curtail, regulate and license the use of
out loans until the value of their loans ballooned, 10x, 12x, 20x, foreign exchange include the right to require that all foreign
and they couldn’t keep up with it because the currency exchange be surrendered and that the plaintiff has not
depreciated. exhausted all the administrative remedies available in the
ordinary course of law, etc.
What did our Government do to temper that down—
because this is one that we can consider an international RTC: found that there is a monetary crisis, that the export of
monetary crisis? sugar by plaintiff was a transaction on foreign exchange; that
while plaintiff would stand to lose by the operation of the
Section 72 says, the Monetary Board, with the concurrence of exchange control circular, the enactment of a law on currency
at least 5 of its members and with the approval of the President and even the issuance of paper money as legal tender are
of the Philippines, can temporarily suspend or restrict sales of attributes of the sovereign power.
foreign exchange.
ISSUE: Whether the exchange control provision contained in
What they did, it required prior clearance on the sale of the non- Section 4 (a) of Central Bank Circular No. 20, may be
available contracts to non-business including off-shore banking considered as sufficiently authorized by the provisions of the
units. So, they limited foreign exchange on shore. It adjusted the Charter.
allowable overhaul foreign exchange position of banks for not
more than 12, 20-10. Further, it justified impaired capital. So, RUING: The disputed Section 4 (a) of Circular No. 20 of the
they couldn’t sell foreign exchange during that time. It lowered Central Bank is beyond the power of the Central Bank to
the ceiling of allowable over the counter dollar exchange in adopt under the provisions of its Charter, particularly Section
banks without need of documentation. Before 10, 000 USD 74 thereof.
without need of documentation. They really restrict the selling of

The provisions of Republic Act 265 are so broad and

encompassing with respect to the Bank's powers that it is The Central Bank Act merely authorizes the Monetary
difficult to believe that exchange control was not authorized Board to license or to restrict or regulate foreign
within the scope of the Charter. exchange; said Act does not authorize it to commandeer
foreign exchange earned by exporters and pay for it the price
In Section 70, the Central Bank shall take remedial measures it fixes, later selling it to importers at the same rate of
as are appropriate and within the powers granted whenever purchase. The power to commandeer amounts to a
the international reserve falls "to an amount which the confiscatory power that may not be exercised by the Central
Monetary Board considers inadequate to meet the Bank under its Charter; that such confiscatory measures if
prospective net demands on the Central Bank for foreign justified by a monetary crisis can be adopted by the
currencies, or whenever the international reserve appears to legislature alone under its police power.
be in imminent danger of falling to such a level, or whenever
the international reserve is falling as a result of payments or Therefore, the disputed Section 4 (a) of Circular No. 20 of
remittances abroad, which, in the opinion of the Monetary the Central Bank is beyond the power of the Central Bank
Board, are contrary to the national welfare." It is recognized to adopt under the provisions of its Charter, particularly
that a body created by law has the power to promulgate rules Section 74 thereof. (Now Sec 72.)
and regulations to implement a given legislation and
effectuate its policies. Emergency Restrictions on Exchange Operations. — In
order to achieve the primary objective of the Bangko Sentral
Under Section 14 the Monetary Board is given the authority as set forth in Section 3 of this Act, or protect the international
to "prepare and issue such rules and regulations as it reserves of the Bangko Sentral in the imminence of, or during
considers necessary for the effective discharge of the an exchange crisis, or in time of national emergency and to
responsibilities and exercise the powers assigned to the give the Monetary Board and the Government time in which
Monetary Board and to the Central Bank." to take constructive measures to forestall, combat, or
overcome such a crisis or emergency, the Monetary Board,
The forcible sale of foreign exchange to the Central Bank, in with the concurrence of at least five (5) of its members and
relation to the powers and responsibilities given to it in Secs. with the approval of the President of the Philippines, may
2, 14, 64, 68, 70, 74 and other sections of R. A. No. 265 can temporarily suspend or restrict sales of exchange by the
be regarded as falling within the category of "implied powers" Bangko Sentral, and may subject all transactions in gold and
as those necessary for the effective discharge of its foreign exchange to license by the Bangko Sentral, and may
responsibilities. require that any foreign exchange thereafter obtained by any
person residing or entity operating in the Philippines be
"Implied powers are such as are necessary to carry into effect delivered to the Bangko Sentral or to any bank or agent
those which are expressly granted, and which must therefore designated by the Bangko Sentral for the purpose, at the
be presumed to have been within the intention of the effective exchange rate or rates: Provided, however, That
legislative grant." foreign currency deposits made under Republic Act No. 6426
shall be exempt from these requirements.
Under Section 70 of the Central Bank Charter the Bank may
adopt such remedial measures as are appropriate to maintain That exchange control helped to ward off the exchange crisis
the international reserve to a desired level, as directed in is true; but it was by no means the only way to do so. It was
Section 70 of the Charter, which provides: not necessary for the bank to commandeer all foreign
exchange to maintain the international monetary reserve.
"Sec. 70. Action when the international stability of the peso is This could be done by mere licensing of the sale of foreign
threatened. Whenever the international reserve of the Central exchange, directing those that earn the dollars, for example,
Bank falls to an amount which the Monetary Board considers to sell to those that are licensed to import the foreign
inadequate to meet the prospective net demands on the commodities needed by the country's population and
Central Bank for foreign currencies, or whenever the economy. As the exports are to be licensed also, the bank
international reserve appears to be in imminent danger of could merely restrict the freedom of the exporter holding the
falling to such a level, or whenever the international reserve foreign exchange, requiring him to sell the foreign exchange
is falling as a result of payments or remittances abroad which, to the licensed importer.
in the opinion of the Monetary Board, are contrary to the
national welfare, the Monetary Board shall: The petition was dismissed. The writer said commandeering is
not allowed because it is tantamount to a confiscatory of power
"(a) Take such remedial measures as are appropriate and which they cannot implement. It is confiscatory in nature. They
within the powers granted to the Monetary Board and the exported and they wanted to pay under their own currency,
Central Bank under the provisions of this Act." USD. Now, they are made to sell to the Central Bank at a fixed
rate. Now, they have the short end of the bargain because there
However, the Central Bank can not be said to have been is BSP Circular No. 20. The court said the commandeering of
given the authority to pass or enact by law the exchange foreign currency is beyond the authority of the Central Bank.
control provision that it had established. What is the authority of the Central Bank? The authority is

merely to license and to restrict. So, they cannot force them to The Monetary Board shall determine the rates at which the
sell to the Central Bank. In fact, the writer said, what will happen Bangko Sentral shall buy and sell spot exchange, and shall
if you commandeer the foreign exchange? What will happen to establish deviation limits from the effective exchange rate or
the exporter? The profit will be consumed by foreign exchange. rates as it may deem proper.
It will restrict trading. Your profit will be consumed by foreign
exchange. What will happen? There will be more imports than The Bangko Sentral shall not collect any additional
exports. It will destabilize the monetary currency. The point of commissions or charges of any sort, other than actual
BSP is that they want to control the foreign currency so that they telegraphic or cable costs incurred by it.
could properly allocate it to the importers. Importers need
foreign currency because they are paying in USD. The exporters The Monetary shall similarly determine the rates for other
are paying you (BSP) in dollars. It stabilizes. Commandeering or types of foreign exchange transactions by the Bangko
controlling the foreign currency is not part of the power of the Sentral, including purchases and sales of foreign notes and
Bangko Sentral. The Bangko Sentral can only license. coins, but the margins between the effective exchange rates
and the rates thus established may not exceed the
Section 73. Acquisition of Incontrovertible Currencies. – corresponding margins for spot exchange transactions by
The Bangko Sentral shall avoid acquisition and holding of more than additional costs or expenses involved in each type
currencies which are not freely convertible, and may acquire of transactions.
such currencies in an amount exceeding the minimum
balance necessary to cover current demands for said
currencies only when, and to the extent that, such acquisition 1. Fix Exchange Rate—
is considered by the Monetary Board to be in the national
interest. 2. Floating Exchange Rate –

The Monetary Board shall determine the procedures which 3. Semi-Fixed or Mixed Exchange Rate –
shall apply to the acquisition and disposition by the Bangko
Sentral of foreign exchange which is not freely utilizable in Usually we go with the Floating Exchange Rate— what
the international market. is in the market.

Not all currencies around the world are convertible in our Section 75. Operations with Foreign Entities. – The
country. These are the only convertible currencies right now— Monetary Board may authorize the Bangko Sentral to grant
loans and receive loans from foreign banks and other foreign
1. UNITED STATES or international entities, both public and private, may engage
2. JAPAN in such other operations with these entities as are in the
3. UNITED KINGDOM national interest and are appropriate to its character as a
4. HONGKONG central bank. The Bangko Sentral may also act as agent or
5. SWITZERLAND correspondent for such entities.
6. CANADA
7. SINGAPORE Upon authority of the Monetary Board, the Bangko Sentral
8. AUSTRALIA may pledge any gold or other assets which it possesses as
9. BAHRAIN security against loans which it receives from foreign or
10. KUWAIT international entities.
11. SAUDI ARABIA
12. BRUNEI
13. INDONESIA ARTICLE III
14. THAILAND Regulation of Foreign Exchange Operations
15. UNITED ARAB EMIRATES of the Banks
16. EUROPEAN MONETARY UNION
17. KOREA Section 76. Foreign Exchange Holdings of the Banks. –
18. CHINA In order that the Bangko Sentral may at all times have foreign
exchange resources sufficient to enable it to maintain the
Surprisingly, we don’t have a Malaysian currency. It is not a international stability and convertibility of the peso, or in order
convertible currency. We have it in Aldevinco. to promote the domestic investment of bank resources, the
Monetary Board may require the banks to sell to the Bangko
What will happen if there’s no currency there? They convert it to Sentral or to other banks all or part of their surplus holdings
a convertible currency. There is dual conversion. of foreign exchange. Such transfers may be required for all
foreign currencies or for only certain of such currencies,
Section 74. Exchange Rates. — The Monetary Board shall according to the decision of the Monetary Board. The
determine the exchange rate policy of the country. transfers shall be made at the rates established under the
provisions of Section 74 of this Act.

The Monetary Board may, whenever warranted, determine Section 80. Information on Exchange Operations. – The
the net assets and liabilities of banks and shall in making banks shall report to the Bangko Sentral the volume and
such a determination take into account the bank’s net worth, composition of their purchases and sales of gold and
outstanding liabilities, actual and contingent or such other exchange each day, and must furnish additional information
financial or performance ratios as may be appropriate under as to the Bangko Sentral may request with reference to the
the circumstances. Any such determination of net assets and movements in their accounts in foreign currencies.
net liabilities shall be applied in all banks uniformly and
without discrimination. The Monetary may also require other persons and entities to
report to it currently all transactions or operations in gold, in
Section 77. Requirement of Balanced Currency Position. any shape or form, and in foreign exchange whether entered
– The Monetary Board may require the banks to maintain a into or undertaken by them directly or through agents, or to
balanced position between their assets and liabilities in submit such data as may be required on operations or
Philippine pesos or in any other currency or currencies in activities giving rise to or in connection with or relating to a
which they operate. The banks shall be granted a reasonable gold or foreign exchange transaction. The Monetary Board
period of time in which to adjust their currency positions to shall prescribe the forms in which such declarations must be
any such requirement. made.

The powers granted under this section shall be exercised The accuracy of the declarations may be verified by the
only when special circumstances make such action Bangko Sentral by whatever inspection it may deem
necessary, in the opinion of the Monetary Board, and shall be necessary.
applied to all banks alike and without discrimination.

Open Foreign Exchange Position ARTICLE IV

— Refers to the extent that the banks’ foreign exchange Loans to Banking and Other Financial Institutions
assets do not match their foreign exchange liabilities.
A. Credit Policy
Allowable open FX position - Banks' allowable open FX position
(either overbought or oversold) shall be the lower of 20 percent Original Provision
(20%) of their unimpaired capital or US$50 million. Any excess
beyond the allowable limit shall be settled on a daily basis Section 81. Guiding Principles. – The rediscounts,
(MORFXT Section 98) discounts, loans and advances which the Bangko Sentral is
authorized to extend to banking institutions under the
provisions of the present article of this Act shall be used to
Can the BSP regulate the non-spot exchange transaction? influence the volume of credit consistent with the objective of
price stability.
Section 78. Regulation of Non-spot Exchange
Transactions. – In order to restrain the banks from taking Proposed Amendment
speculative positions with respect to future fluctuations in
foreign exchange rates, the Monetary Board may issue such Section 81. Guiding Principles. – The rediscounts,
regulations governing bank purchases and sales of non-spot discounts, loans and advances which the Bangko Sentral is
exchange as it may consider necessary for said purpose. authorized to extend to banking institutions under the
provisions of the present article of this Act shall be used to
Why is this important? influence the volume of credit consistent with the objective of
price stability and maintenance of financial stability.
Banks are driven purely for profit. It is possible that it’s
investment is purely speculative. It will enter into foreign Credit Policy
currency swaps or foreign currency forward-contracts and the
bulk of our investments is in that contract so what well deposited Discount— bank loan with interest deducted from the face
in their bank and they will place it there. What if it’s risky and it amount of the note when the credit is extended. It is also
all goes down? It’s like an all-or-nothing game. described as interest paid in advance or interest paid at the
beginning of a loan based upon the sum to be repaid at its
Section 79. Other Exchange Profits and Losses. – The maturity.
banks shall bear the risks of non-compliance with the terms
of the foreign exchange documents and instruments which Rediscount— process by which the Bangko Sentral discounts
they buy and sell, shall also bear any other typically a negotiable instrument or commercial finance paper that are
commercial or banking risks, including exchange risks not already discounted at the bank.
assumed by the Bangko Sentral under the provisions of the
preceding section. Loans and advances are contracts where one of the parties
loans another, money or other consumable thing, upon the

condition the same amount of the same kind and quantity shall named in clause (4) of the present subsection, shall not
be paid. exceed one hundred eighty (180) days:

Self-explanatory. (1) gold coins or bullion;

(2) securities representing obligations of the Bangko Sentral

or of other domestic institutions of recognized solvency;

B. Normal Credit Operations (3) the credit instruments to which reference is made in
subsection (a) of this section;
Section 82. Authorized Type of Operations. – Subject to
the principle stated in the preceding section of this Act, the (4) the credit instruments to which reference is made in
Bangko Sentral may normally and regularly carry on the subsection (b) of this section, for periods which shall not
following credit operations with banking institutions operating exceed three hundred sixty (360) days;
in the Philippines:
(5) utilized portions of advances in current amount covered
(a) Commercial credits. — The Bangko Sentral may by regular overdraft agreements related to operations
rediscount, discount, buy and sell bills, acceptances, included under subsections (a) and (b) of this section, and
promissory notes and other credit instruments with maturities certified as to amount and liquidity by the institution soliciting
of not more than one hundred eighty (180) days from the date the advance;
of their rediscount, discount or acquisition by the Bangko
Sentral and resulting from transactions related to: (6) negotiable treasury bills, certificates of indebtedness,
notes and other negotiable obligations of the Government
(1) the importation, exportation, purchase or sale of readily maturing within three (3) years from the date of the advance;
saleable goods and products, or their transportation within and
the Philippines; or
(7) negotiable bonds issued by the Government of the
(2) the storing of non-perishable goods and products which Philippines, by Philippine provincial, city or municipal
are duly insured and deposited, under conditions assuring governments, or by any Philippine Government
their preservation, in authorized bonded warehouses or in instrumentality, and having maturities of not more than ten
other places approved by the Monetary Board. (10) years from the date of advance.

(b) Production credits. — The Bangko Sentral may The rediscounts, discounts, loans and advances made in
rediscount, discount, buy and sell bills, acceptances, accordance with the provisions of this section may not be
promissory notes and other credit instruments having renewed or extended unless extraordinary circumstances
maturities of not more than three hundred sixty (360) days fully justify such renewal or extension.
from the date of their rediscount, discount or acquisition by
the Bangko Sentral and resulting from transactions related to Advances made against the collateral named in clauses (6)
the production or processing of agricultural, animal, mineral, and (7) of subsection (d) of this section may not exceed
or industrial products. Documents or instruments acquired in eighty percent (80%) of the current market value of the
accordance with this subsection shall be secured by a pledge collateral.
of the respective crops or products: Provided, however, That
the crops or products need not be pledged to secure the The Bangko Sentral extend loans to banks for the bank to
documents if the original loan granted by the Bangko Sentral survive. That is its work as a Central Bank.
is secured by a lien or mortgage on real estate property
seventy percent (70%) of the appraised value of which equals
or exceeds the amount of the loan granted. C. Special Credit Operations

(c) Other credits. — Special credit instruments not otherwise Section 83. Loans for Liquidity Purposes. – The Bangko
rediscountable under the immediately preceding subsections Sentral may extend loans and advances to banking
(a) and (b) may be eligible for rediscounting in accordance institutions for a period of not more than (7) days without any
with rules and regulations which the Bangko Sentral shall collateral for the purpose of providing liquidity to the banking
prescribe. Whenever necessary, the Bangko Sentral shall system in times of need.
provide funds from non-inflationary sources: Provided,
however, That the Monetary Board shall prescribe additional
safeguards for disbursing these funds. D. Emergency Credit Operation

(d) Advances. — The Bangko Sentral may grant advances Original Provision
against the following kinds of collaterals for fixed periods
which, with the exception of advances against collateral

Section 84. Emergency Loans and Advances. – In periods (a) furnish an acceptable undertaking to indemnify and hold
of national and/or local emergency or of imminent financial harmless from suit a conservator whose appointment the
panic which directly threaten monetary and banking stability, Monetary Board may find necessary at any time; and
the Monetary Board may, by a vote of at least five (5) of its
members, authorize the Bangko Sentral to grant (b) provide acceptable security which, in the judgment of the
extraordinary loans or advances to banking institutions Monetary Board, would be adequate to supplement, where
secured by assets as defined hereunder: Provided, That necessary, the assets tendered by the banking institution to
while such loans or advances are outstanding, the debtor collateralize the subsequent tranche.
institution shall not, except upon prior authorization by the
Monetary Board, expand the total volume of its loans or In connection with the exercise of these powers, the
investments. prohibitions in Section 128 of this Act shall not apply insofar
as it refers to acceptance as collateral of shares and their
The Monetary Board may, at its discretion, likewise authorize acquisition as a result of foreclosure proceedings, including
the Bangko Sentral to grant emergency loans or advances to the exercise of voting rights pertaining to said shares:
banking institutions, even during normal periods, for the Provided, however, That should the Bangko Sentral acquire
purpose of assisting a bank in a precarious financial condition any of the shares it has accepted as collateral as a result of
or under serious financial pressures brought by unforeseen foreclosure proceedings, the Bangko Sentral shall dispose of
events, or events which, though foreseeable, could not be said shares by public bidding within one (1) year from the
prevented by the bank concerned: Provided, however, That date of consolidation of title by the Bangko Sentral.
the Monetary Board has ascertained that the bank is not
insolvent and has the assets defined hereunder to secure the Whenever a financial institution incurs an overdraft in its
advances: Provided, further, That a concurrent vote of at account with the Bangko Sentral, the same shall be
least five (5) members of the Monetary Board is obtained. eliminated within the period prescribed in Section 102 of this
Act.
The amount of any emergency loan or advance shall not
exceed the sum of fifty percent (50%) of total deposits and
deposit substitutes of the banking institution and shall be Proposed Amendment
disbursed in two (2) or more tranches. The amount of the first
tranche shall be limited to twenty-five percent (25%) of the Section 84. Emergency Loans and Advances. – In periods
total deposit and deposit substitutes of the institution and of national and/or local emergency or of imminent financial
shall be secured by government securities to the extent of panic which directly threaten monetary and financial stability,
their applicable loan values and other unencumbered first the Monetary Board may, by a vote of at least 5 of its
class collaterals which the Monetary Board may approve: members, authorize the Bangko Sentral to grant
Provided, That if as determined by the Monetary Board, the extraordinary loans or advances to banking institutions,
circumstances surrounding the emergency warrant a loan or secured by assets as defined hereunder: Provided, That
advance greater than the amount provided hereinabove, the while such loans or advances are outstanding, the debtor
amount of the first tranche may exceed twenty-five percent institution shall not, except upon prior authorization by the
(25%) of the bank’s total deposit and deposit substitutes if the Monetary Board, expand the total volume of its loans or
same is adequately secured by applicable loan values of investments.
government securities and unencumbered first class
collaterals approved by the Monetary Board, and the principal The Monetary Board may, at its discretion, likewise authorize
stockholders of the institution furnish an acceptable the Bangko Sentral to grant emergency loans or advances to
undertaking to indemnify and hold harmless from suit a banking institutions, even during normal periods, for the
conservator whose appointment the Monetary Board may purpose of assisting a bank in a precarious financial condition
find necessary at any time. or under serious financial pressures brought by unforeseen
events, or events which, though foreseeable, could not be
Prior to the release of the first tranche, the banking institution prevented by the bank concerned: Provided, however, That
shall submit to the Bangko Sentral a resolution of its board of the Monetary Board has ascertained that the bank is not
directors authorizing the Bangko Sentral to evaluate other insolvent and has the assets defined hereunder to secure the
assets of the banking institution certified by its external advances: Provided, further, That a concurrent vote of at
auditor to be good and available for collateral purposes least five (5) members of the Monetary Board is obtained.
should the release of the subsequent tranche be thereafter
applied for. The amount of any emergency loan or advance shall not
exceed the sum of fifty percent (50%) of total deposits and
The Monetary Board may, by a vote of at least five (5) of its deposit substitutes of the banking institution and shall be
members, authorize the release of a subsequent tranche on disbursed in two (2) or more tranches. The amount of the first
condition that the principal stockholders of the institution: tranche shall be limited to twenty-five percent (25%) of the
total deposit and deposit substitutes of the institution and
shall be secured by (a) government securities, (b) acceptable
guarantees backed up by the national government or its

securities; (c) other unencumbered first class collaterals and (b) acceptable guarantees backed up by the national
(d) other kinds of collaterals as may be authorized by the government or its securities;
Monetary Board in accordance with sound risk management (c) other unencumbered first class collaterals and (d) other kinds
principles: Provided, That if as determined by the Monetary of collaterals as may be authorized by the Monetary Board in
Board, the circumstances surrounding the emergency accordance with sound risk management principles
warrant a loan or advance greater than the amount provided
hereinabove, the amount of the first tranche may exceed
twenty-five percent (25%) of the bank’s total deposit and E. Credit Terms
deposit substitutes if the same is adequately secured by any
of the collaterals set forth above as approved by the Monetary Section 85. Interest and Rediscount. — The Bangko
Board, and the principal stockholders of the institution furnish Sentral shall collect interest and other appropriate charges on
an acceptable undertaking to indemnify and hold harmless all loans and advances it extends, the closure, receivership
from suit a conservator whose appointment the Monetary or liquidations of the debtor-institution notwithstanding. This
Board may find necessary at any time. provision shall apply prospectively.

Prior to the release of the first tranche, the banking institution The Monetary Board shall fix the interest and rediscount rates
shall submit to the Bangko Sentral a resolution of its board of to be charged by the Bangko Sentral on its credit operations
directors authorizing the Bangko Sentral to evaluate other in accordance with the character and term of the operation,
assets of the banking institution certified by its external but after due consideration has been given to the credit needs
auditor to be good and available for collateral purposes of the market, the composition of the Bangko Sentral’s
should the release of the subsequent tranche be thereafter portfolio, and the general requirements of the national
applied for. monetary policy. Interest and rediscount rates shall be
applied to all banks of the same category uniformly and
The Monetary Board may, by a vote of at least five (5) of its without discrimination.
members, authorize the release of a subsequent tranche on
condition that the principal stockholders of the institution: Section 86. Endorsement. – The documents rediscounted,
discounted, bought or accepted as collateral by the Bangko
(a) furnish an acceptable undertaking to indemnify and hold Sentral in the course of the credit operations authorized in
harmless from suit a conservator whose appointment the this article shall bear the endorsement of the institution from
Monetary Board may find necessary at any time; and which they are received.

(b) provide acceptable security which, in the judgment of the Section 87. Repayment of Credits. – Documents
Monetary Board, would be adequate to supplement, where rediscounted, discounted or accepted as collateral by the
necessary, the assets tendered by the banking institution to Bangko Sentral must be withdrawn by the borrowing
collateralize the subsequent tranche. institution on the dates of their maturities, or upon liquidation
of the obligations which they represent or to which they relate
In connection with the exercise of these powers, the whenever said obligations have been liquidated prior to their
prohibitions in Section 128 of this Act shall not apply insofar dates of maturity.
as it refers to acceptance as collateral of shares and their
acquisition as a result of foreclosure proceedings, including Banks shall have the right at any time to withdraw any
the exercise of voting rights pertaining to said shares: documents which they have presented to the Bangko Sentral
Provided, however, That should the Bangko Sentral acquire as collateral, upon payment in full of the corresponding debt
any of the shares it has accepted as collateral as a result of to the Bangko Sentral, including interest charges.
foreclosure proceedings, the Bangko Sentral shall dispose of
said shares by public bidding within one (1) year from the Section 88. Other Requirements. – The Monetary Board
date of consolidation of title by the Bangko Sentral. may prescribe, within the general powers granted to it under
this Act, additional conditions which borrowing institutions
Whenever a financial institution incurs an overdraft in its must satisfy in order to have access to the credit of the
account with the Bangko Sentral, the same shall be Bangko Sentral. These conditions may refer to the rates of
eliminated within the period prescribed in Section 102 of this interest charged by the banks, to the purposes for which their
Act. loans in general are destined, and to any other clearly
definable aspect of the credit policy of the bank.
Let’s say during receivership, can there be emergency credit?
Yes. This is one of the ways in which it can help the bank Additional Provisions—
survive.
Section 88-A. Exemption of Collaterals from
Up to the amount 50%. Attachments, Executions and Other Restrictions. —
Collaterals on loans and advances granted by the Bangko
Please take note— these loans must be secured by— Sentral, whether or not the interest of the Bangko Sentral is
(a) government securities; registered, shall not be subject to attachment, execution, or

any other court processes or administrative restrictions on Redemption shall be effected by paying the principal,
land use, nor shall they be included in the property of interests, charges, commissions and all claims of whatever
insolvent persons or institutions. nature of the Bangko Sentral outstanding and due as of the
date of foreclosure sale, including all costs and other
These are exempt assets from attachment, execution, etc. expenses incurred by reason of the foreclosure sale and
custody of the property.
Section 88-B. Deputization of Legal Staff in Case of
Foreclosures. – In case of an extrajudicial foreclosure of The Bangko Sentral as purchaser in the foreclosure sale and
mortgage in connection with loans and advances under this without need of posting a bond, may take possession of the
article, the Bangko Sentral may deputize any of its lawyers to foreclosed property during the redemption period. The
conduct the public auction pursuant to Act No. 3135, as Bangko Sentral shall be entitled to the fruits of the property,
amended. the same to be applied against the redemption price.

Likewise, in case of a judicial foreclosure in connection with Your law on Credit Transactions on Right of Redemption,
loans and advances under this Article, the Bangko Sentral Equity Redemption.
may, with the approval of the court, deputize any of its
lawyers to act as Special Sheriff in the sale of a debtor’s Please take note. VERY IMPORTANT.
properties and in the enforcement of court writs and
processes related thereto. The Special Sherriff of the Bangko Section 88-D. Unsecured Bangko Sentral Claims. – All
Sentral shall make a report to the proper court after any unsecured claims of the Bangko Sentral shall be considered
action has been taken by him, which court shall treat such preferred credits similar to taxes due to the national
action as if it were an act of its own sheriff in all aspects. government in the order of preference under Article 2244 of
the New Civil Code.
No restraining order or injunction shall be issued by the court
enjoining the Bangko Sentral from proceeding with the Once again, the order is once again disordered.
foreclosure of the mortgage unless a bond is posted in favor
of the Bangko Sentral in an amount equivalent to the total The Bangko Sentral is the last resort.
claim of the Bangko Sentral. The restraining order or
injunction shall be refused, or if granted, shall be dissolved, RCBC Fiasco case story.
upon filing by the Bangko Sentral of a bond, which shall be in
the form of a Bangko Sentral check, in an amount twice the Section 89-A. Financial Facilities For Islamic Banks. – The
amount of the original bond posted conditioned that the Bangko Sentral may, taking into consideration the peculiar
Bangko Sentral will pay the damages which the party may characteristics of Islamic banking, formulate rules and
suffer by the refusal or dissolution of the injunction. regulations for the extension of financial facilities to Islamic
Banks provided such exposures shall be properly secured.
The provisions of the Rules of Court on injunctions insofar as
they are applicable and not inconsistent with the provisions They don’t consider profit in money-lending. They loan money
of this section shall govern the issuance and dissolution of but let’s do a joint venture. I will profit not from the interest but
the restraining order or injunction contemplated in this from a trading activity. Money is considered a medium of
section. exchange not a source of profit. That is the peculiar
characteristic of Islamic banking. It re-defines the banking
This provision will be questioned. concept.

Section 88-C. Right of Redemption of Foreclosed Real That’s the peculiar characteristic of banking. It defines the
Property; Right of Possession during Redemption concept of banking in its traditional sense.
Period. – In the event of foreclosure, whether judicially or
extrajudicially, the mortgagor, who is a natural person, shall Original Provision
have the right to redeem the property within 1 year from the
date of foreclosure sale. Section 89. Provisional Advances to the National
Government. - The Bangko Sentral may make direct
In case the mortgagor is a juridical person, the mortgagor provisional advances with or without interest to the National
shall have the right to redeem the property sold in a judicial Government to finance expenditures authorized in its annual
foreclosure sale within 1 year from the date of foreclosure appropriation: Provided, That said advances shall be repaid
sale, provided that in case of an extrajudicial foreclosure, before the end of three (3) months extendible by another three
notwithstanding Act No. 3135, the mortgagor shall have the (3) months as the Monetary Board may allow following the date
right to redeem the property sold within 90 days from the the National Government received such provisional advances
foreclosure sale but not later than the registration of the and shall not, in their aggregate, exceed twenty percent (20%)
certificate of foreclosure sale. of the average annual income of the borrower for the last three
(3) preceding fiscal years.

Proposed Amendment
So government treasury bills and government funds – we can
Section 89. Provisional Advances to the National actually trade, purchase and sell government securities.
Government. - The Bangko Sentral may make direct
provisional advances with or without interest to the National Original Provision
Government to finance expenditures authorized in its annual
appropriation: Provided, That said advances shall be repaid Section 92. Issue and Negotiation of Bangko Sentral
before the end of three (3) months extendible by another three Obligations. - In order to provide the Bangko Sentral with
(3) months as the Monetary Board may allow following the date effective instruments for open market operations, the Bangko
the National Government received such provisional advances Sentral may, subject to such rules and regulations as the
and shall not, in their aggregate, exceed twenty percent (20%) Monetary Board may prescribe and in accordance with the
of the average annual income of the borrower for the last three principles stated in Section 90 of this Act, issue, place, buy and
(3) preceding fiscal years. sell freely negotiable evidences of indebtedness of the Bangko
Sentral: Provided, That issuance of such certificates of
Section 89-A. Financial Facilities For Islamic Banks. – The indebtedness shall be made only in cases of extraordinary
Bangko Sentral may, taking into consideration the peculiar movement in price levels. Said evidences of indebtedness may
characteristics of Islamic banking, formulate rules and be issued directly against the international reserve of the
regulations for the extension of financial facilities to Islamic Bangko Sentral or against the securities which it has acquired
Banks provided such exposures shall be properly secured. under the provisions of Section 91 of this Act, or may be issued
without relation to specific types of assets of the Bangko Sentral.
Section 89-B. Loans to the Philippine Deposit Insurance
Corporation. – The Bangko Sentral, pursuant to its mandate of The Monetary Board shall determine the interest rates,
maintaining financial stability, may lend funds to the Philippine maturities and other characteristics of said obligations of the
Deposit Insurance Corporation for insurance purposes and in Bangko Sentral, and may, if it deems it advisable, denominate
cases of financial assistance that the latter is authorized to the obligations in gold or foreign currencies.
extend under Section 22(E) of Republic Act No. 3591, as
amended, notwithstanding Section 23 of Republic Act No. 3591, Subject to the principles stated in Section 90 of this Act,
as amended, the Monetary Board shall prescribe interest rates the evidences of indebtedness of the Bangko Sentral to which
and such other terms and conditions of the loan. this section refers may be acquired by the Bangko Sentral
before their maturity, either through purchases in the open
Please take note of that. market or through redemptions at par and by lot if the Bangko
Sentral has reserved the right to make such redemptions. The
ARTICLE V evidences of indebtedness acquired or redeemed by the
Open Market Operations for the Account Bangko Sentral shall not be included among its assets, and shall
of the Bangko Sentral be immediately retired and cancelled.

Section 90. Principles of Open Market Operations. - The Proposed Amendment

open market purchases and sales of securities by the Bangko
Sentral shall be made exclusively in accordance with its primary Section 92. Issue and Negotiation of Bangko Sentral
objective of achieving price stability. Obligations. - In order to provide the Bangko Sentral with
effective instruments for open market operations, the Bangko
Sentral may, subject to such rules and regulations as the
Section 91. Purchases and Sales of Government
Monetary Board may prescribe and in accordance with the
Securities. - In order to achieve the objectives of the national
principles stated in Section 90 of this Act, issue, place, buy and
monetary policy, the Bangko Sentral may, in accordance with sell freely negotiable evidences of indebtedness of the Bangko
the principle stated in Section 90 of this Act and with such rules Sentral: Provided, That issuance of such certificates of
and regulations as may be prescribed by the Monetary Board, indebtedness shall be made only in cases of extraordinary
buy and sell in the open market for its own account: movement in price levels. Said evidences of indebtedness may
be issued directly against the international reserve of the
(a) evidences of indebtedness issued directly by the Bangko Sentral or against the securities which it has acquired
Government of the Philippines or by its political subdivisions; under the provisions of Section 91 of this Act, or may be issued
and without relation to specific types of assets of the Bangko Sentral.
(b) evidences of indebtedness issued by government The Monetary Board shall determine the interest rates,
instrumentalities and fully guaranteed by the Government. maturities and other characteristics of said obligations of the
Bangko Sentral, and may, if it deems it advisable, denominate
The evidences of indebtedness acquired under the the obligations in gold or foreign currencies.
provisions of this section must be freely negotiable and regularly
serviced and must be available to the general public through Subject to the principles stated in Section 90 of this Act,
banking institutions and local government treasuries in the evidences of indebtedness of the Bangko Sentral to which
denominations of a thousand pesos or more.

this section refers may be acquired by the Bangko Sentral must keep on hand or in deposit with the Bangko Sentral – this
before their maturity, either through purchases in the open is not available for lending to the public.
market or through redemptions at par and by lot if the Bangko
Sentral has reserved the right to make such redemptions. The What will happen pag tataasan yung reserve? Kokonti nalang
evidences of indebtedness acquired or redeemed by the yung available for circulation or for credit. This is actually one of
Bangko Sentral shall not be included among its assets, and shall the instruments for monetary policies in the Philippines.
be immediately retired and cancelled.
May interest ba ang reserves? Kasi pine-prevent mo kami from
circulating it eh. Kasi kung hindi mo kami pine-prevent from
ARTICLE VI circulating it, we could have earned interest on that particular
Composition of Bangko Sentral’s Portfolio reserve. Now, the Bangko Sentral is not obliged to pay interest
on reserves, unless the Monetary Board decides otherwise as
Section 93. Review of the Bangko Sentral's Portfolio. - At provided by circumstances.
least once every month the Monetary Board shall review the
portfolio of the Bangko Sentral in relation to its future credit Original Provision
policy.
Section 95. Definition of Deposit Substitutes. - The term
In reviewing the Bangko Sentral's portfolio, the Monetary Board "deposit substitutes" is defined as an alternative form of
shall especially consider whether a sufficiently large part of the obtaining funds from the public, other than deposits, through the
portfolio consists of assets with early maturities, in order that a issuance, endorsement, or acceptance of debt instruments for
contraction in Bangko Sentral credit may be effected promptly the borrower's own account, for the purpose of relending or
whenever the national monetary policy so requires. purchasing of receivables and other obligations. These
instruments may include, but need not be limited to, bankers
acceptances, promissory notes, participations, certificates of
ARTICLE VII assignment and similar instruments with recourse, and
Bank Reserves repurchase agreements. The Monetary Board shall determine
what specific instruments shall be considered as deposit
Section 94. Reserve Requirements. - In order to control the substitutes for the purposes of Section 94 of this Act: Provided,
volume of money created by the credit operations of the banking however, That deposit substitutes of commercial, industrial and
other non-financial companies for the limited purpose of
system, all banks operating in the Philippines shall be required
financing their own needs or the needs of their agents or dealers
to maintain reserves against their deposit liabilities: Provided,
That the Monetary Board may, at its discretion, also require all shall not be covered by the provisions of Section 94 of this Act.
banks and/or quasi-banks to maintain reserves against funds
Proposed Amendment
held in trust and liabilities for deposit substitutes as defined in
this Act. The required reserves of each bank shall be
Section 95. Definition of Deposit Substitutes. - The term
proportional to the volume of its deposit liabilities and shall
ordinarily take the form of a deposit in the Bangko Sentral. "deposit substitutes" is defined as an alternative form of
Reserve requirements shall be applied to all banks of the same obtaining funds from the public, other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for
category uniformly and without discrimination.
the borrower's own account, for the purpose of relending or
Reserves against deposit substitutes, if imposed, shall purchasing of receivables and other obligations. These
be determined in the same manner as provided for reserve instruments may include, but need not be limited to, bankers
acceptances, promissory notes, participations, certificates of
requirements against regular bank deposits, with respect to the
assignment and similar instruments with recourse, and
imposition, increase, and computation of reserves.
repurchase agreements. The phrase ‘obtaining funds from the
The Monetary Board may exempt from reserve public’ shall mean borrowing from twenty (20) or more lenders
at any time, and, for this purpose, “lenders” shall refer to
requirements deposits and deposit substitutes with remaining
individuals and corporate entities that are not acting as financial
maturities of two (2) years or more, as well as interbank
borrowings. intermediaries, subject to the safeguards and regulations issued
by the Monetary Board. The Monetary Board shall determine
what specific instruments shall be considered as deposit
Since the requirement to maintain bank reserves is
substitutes for the purposes of Section 94 of this Act: Provided,
imposed primarily to control the volume of money, the Bangko
Sentral shall not pay interest on the reserves maintained with it however, That deposit substitutes of commercial, industrial and
unless the Monetary Board decides otherwise as warranted by other non-financial companies for the limited purpose of
financing their own needs or the needs of their agents or dealers
circumstances.
shall not be covered by the provisions of Section 94 of this Act.
There’s always a portion of the reserves of the money in the
REQUISITES:
bank that is restricted. That percentage of bank deposits,
deposit substitute, liabilities and funds held in trust that banks
1. Funds obtained through forms other than deposits;

immediately preceding such holidays and non-banking days

2. Obtained funds evidenced by debt instruments issued, shall apply on such days.
indorsed, and/or accepted and may include bankers
acceptances, promissory notes, participations, certificates of For the purpose of computing the reserve position of each bank
assignment and similar instruments with recourse, and or quasi-bank, its principal office in the Philippines and all its
repurchase agreements; branches and agencies located therein shall be considered as a
single unit.
3. Involves borrowing of funds for the borrower’s account;
and Original Provision

4. Purpose is for relending or purchasing of receivables Section 101. Reserve Deficiencies. - Whenever the reserve
and other obligations. position of any bank or quasi-bank, computed in the manner
specified in the preceding section of this Act, is below the
For it to be considered as a deposit substitute, it must be an required minimum, the bank or quasi-bank shall pay the Bangko
alternative form of obtaining funds from the public – the term Sentral one-tenth of one percent (1/10 of 1%) per day on the
public refers to 20 or more members. So kung less than that, amount of the deficiency or the prevailing ninety-one-day
you are not engaged in quasi-banking. Therefore, you are not treasury bill rate plus three percentage points, whichever is
covered by the Central Bank. higher: Provided, however, That banks and quasi-banks shall
ordinarily be permitted to offset any reserve deficiency occurring
Section 96. Required Reserves Against Peso Deposits. - on one or more days of the week with any excess reserves
The Monetary Board may fix and, when it deems necessary, which they may hold on other days of the same week and shall
alter the minimum reserve ratios to peso deposits, as well as to be required to pay the penalty only on the average daily
deposit substitutes, which each bank and/or quasi-bank may deficiency during the week. In cases of abuse, the Monetary
maintain, and such ratio shall be applied uniformly to all banks Board may deny any bank or quasi-bank the privilege of
of the same category as well as to quasi-banks. offsetting reserve deficiencies in the aforesaid manner.

Section 97. Required Reserves Against Foreign Currency If a bank or quasi-bank chronically has a reserve
Deposits. - The Monetary Board is similarly authorized to deficiency, the Monetary Board may limit or prohibit the making
prescribe and modify the minimum reserve ratios applicable to of new loans or investments by the institution and may require
deposits denominated in foreign currencies. that part or all of the net profits of the institution be assigned to
surplus.
Section 98. Reserves Against Unused Balances of
Overdraft Lines. - In order to facilitate Bangko Sentral control The Monetary Board may modify or set aside the reserve
over the volume of bank credit, the Monetary Board may deficiency penalties provided in this section, for part or the entire
establish minimum reserve requirements for unused balances of period of a strike or lockout affecting a bank or a quasi-bank as
overdraft lines. defined in the Labor Code, or of a national emergency affecting
operations of banks or quasi-banks. The Monetary Board may
also modify or set aside reserved deficiency penalties for
The powers of the Monetary Board to prescribe and
modify reserve requirements against unused balances of rehabilitation program of a bank.
overdraft lines shall be the same as its powers with respect to
Proposed Amendment
reserve requirements against demand deposits.
Section 101. Reserve Deficiencies. - Whenever the reserve
Section 99. Increase in Reserve Requirements. - Whenever position of any bank or quasi-bank, computed in the manner
in the opinion of the Monetary Board it becomes necessary to specified in the preceding section of this Act, is below the
increase reserve requirements against existing liabilities, the required minimum, the bank or quasi-bank shall pay the Bangko
increase shall be made in a gradual manner and shall not Sentral monetary penalty as may be prescribed by the Monetary
exceed four percentage points in any thirty-day period. Banks Board: Provided, however, That banks and quasi-banks shall
and other affected financial institutions shall be notified ordinarily be permitted to offset any reserve deficiency occurring
reasonably in advance of the date on which such increase is to on one or more days of the week with any excess reserves
become effective. which they may hold on other days of the same week and shall
be required to pay the penalty in accordance with the
Section 100. Computation on Reserves. - The reserve mechanism approved by the Monetary Board. In cases of
position of each bank or quasi-bank shall be calculated daily on abuse, the Monetary Board may deny any bank or quasi-bank
the basis of the amount, at the close of business for the day, of the privilege of offsetting reserve deficiencies in the aforesaid
the institution's reserves and the amount of its liability accounts manner.
against which reserves are required to be maintained: Provided,
That with reference to holidays or non-banking days, the reserve If a bank or quasi-bank chronically has a reserve
position as calculated at the close of the business day deficiency, the Monetary Board may limit or prohibit the making
of new loans or investments by the institution and may require

that part or all of the net profits of the institution be assigned to Section 104. Guiding Principle. - The Monetary Board shall
surplus. use the powers granted to it under this Act to ensure that the
supply, availability and cost of money are in accord with the
The Monetary Board may modify or set aside the reserve needs of the Philippine economy and that bank credit is not
deficiency penalties provided in this section, for part or the entire granted for speculative purposes prejudicial to the national
period of a strike or lockout affecting a bank or a quasi-bank as interests. Regulations on bank operations shall be applied to all
defined in the Labor Code, or of a national emergency affecting banks of the same category uniformly and without
operations of banks or quasi-banks, or in such other instances discrimination.
where the grant of waiver of penalties is determined by the
Monetary Board to be justifiable. The Monetary Board may also Proposed Amendment
modify or set aside reserved deficiency penalties for
rehabilitation program of a bank. Section 104. Guiding Principle. - The Monetary Board shall
use the powers granted to it under this Act to ensure that the
Section 102. Interbank Settlement. - The Bangko Sentral shall supply, availability and cost of money are in accord with the
establish facilities for interbank clearing under such rules and needs of the Philippine economy and that bank credit is not
regulations as the Monetary Board may prescribe: Provided, granted for speculative purposes prejudicial to the national
That the Bangko Sentral may charge administrative and other interests. Regulations on bank operations shall be applied to all
fees for the maintenance of such facilities. banks of the same category, as may be defined by the Monetary
Board, uniformly and without discrimination.
The deposit reserves maintained by the banks in the
Bangko Sentral in accordance with the provisions of Section 94 Section 105. Margin Requirements Against Letters of
of this Act shall serve as basis for the clearing of checks and the Credit. - The Monetary Board may at any time prescribe
settlement of interbank balances, subject to such rules and minimum cash margins for the opening of letters of credit, and
regulations as the Monetary Board may issue with respect to may relate the size of the required margin to the nature of the
such operations: Provided, That any bank which incurs on transaction to be financed.
overdrawing in its deposit account with the Bangko Sentral shall
fully cover said overdraft, including interest thereon at a rate Section 106. Required Security Against Bank Loans. - In
equivalent to one-tenth of one percent (1/10 of 1%) per day or order to promote liquidity and solvency of the banking system,
the prevailing ninety-one-day treasury bill rate plus three the Monetary Board may issue such regulations as it may deem
percentage points, whichever is higher, not later than the next necessary with respect to the maximum permissible maturities
clearing day: Provided, further, That settlement of clearing of the loans and investments which the banks may make, and
balances shall not be effected for any account which continues the kind and amount of security to be required against the
to be overdrawn for five (5) consecutive banking days until such various types of credit operations of the banks.
time as the overdrawing is fully covered or otherwise converted
into an emergency loan or advance pursuant to the provisions
Section 107. Portfolio Ceilings. - Whenever the Monetary
of Section 84 of this Act: Provided, finally, That the appropriate
clearing office shall be officially notified of banks with overdrawn Board considers it advisable to prevent or check an expansion
balances. Banks with existing overdrafts with the Bangko of bank credit, the Board may place an upper limit on the amount
Sentral as of the effectivity of this Act shall, within such period of loans and investments which the banks may hold, or may
as may be prescribed by the Monetary Board, either convert the place a limit on the rate of increase of such assets within
overdraft into an emergency loan or advance with a plan of specified periods of time. The Monetary Board may apply such
payment, or settle such overdrafts, and that, upon failure to so limits to the loans and investments of each bank or to specific
comply herewith, the Bangko Sentral shall take such action categories thereof.
against the bank as may be warranted under this Act.
In no case shall the Monetary Board establish limits which
are below the value of the loans or investments of the banks on
Section 103. Exemption from Attachment and Other Purposes. - the date on which they are notified of such restrictions. The
Deposits maintained by banks with the Bangko Sentral as part restrictions shall be applied to all banks uniformly and without
of their reserve requirements shall be exempt from attachment, discrimination.
garnishments, or any other order or process of any court,
government agency or any other administrative body issued to
Original Provision
satisfy the claim of a party other than the Government, or its
political subdivisions or instrumentalities.
Section 108. Minimum Capital Ratios. - The Monetary Board
may prescribe minimum ratios which the capital and surplus of
the banks must bear to the volume of their assets, or to specific
ARTICLE VIII
categories thereof, and may alter said ratios whenever it deems
Selective Regulation of Bank Operations
necessary.
Original Provision Proposed Amendment

Section 108. Minimum Capital Ratios. - The Monetary Board any of his other financial advisors to jointly represent the
may prescribe minimum risk-based capital adequacy ratios Government in such dealings, negotiations or transactions.
based on internationally accepted standards, and may alter said
ratios whenever it deems necessary. In the exercise of its Original Provision
authority under this section, the Monetary Board may require
banks to hold capital beyond the minimum requirements Section 113. Official Deposits. - The Bangko Sentral shall be
commensurate to their risk profile. the official depository of the Government, its political
subdivisions and instrumentalities as well as of government-
Ito yung mga risk-based capital adequacy. May mga minimum owned or controlled corporations and, as a general policy, their
requirements kasi yan – the ratio between your assets and cash balances should be deposited with the Bangko Sentral,
liabilities. But I’m not gonna ask you that. with only minimum working balances to be held by government-
owned banks and such other banks incorporated in the
Philippines as the Monetary Board may designate, subject to
ARTICLE IX such rules and regulations as the Board may prescribe:
Coordination of Credit Policies by Provided, That such banks may hold deposits of the political
Government Institutions subdivisions and instrumentalities of the Government beyond
their minimum working balances whenever such subdivisions or
Section 109. Coordination of Credit Policies. - Government- instrumentalities have outstanding loans with said banks.
owned corporations which perform banking or credit functions
shall coordinate their general credit policies with those of the The Bangko Sentral may pay interest on deposits of the
Monetary Board. Government or of its political subdivisions and instrumentalities,
as well as on deposits of banks with the Bangko Sentral.
Toward this end, the Monetary Board may, whenever it deems
it expedient, make suggestions or recommendations to such Proposed Amendment
corporations for the more effective coordination of their policies
with those of the Bangko Sentral. Section 113. Official Deposits. - The Bangko Sentral shall be
the official depository of the Government, its political
subdivisions and instrumentalities as well as of government-
9. Functions as Banker and Financial Advisor of the owned or controlled corporations. and, as As a general policy,
Government their cash balances should be deposited with the Bangko
Sentral, with only minimum working balances to be held by
CHAPTER V government-owned banks and such other banks licensed to
FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OF operate in the Philippines as the Monetary Board may authorize.
THE GOVERNMENT subject to such rules and regulations as the Board may
prescribe: Provided, That such banks may hold deposits of the
ARTICLE I political subdivisions and instrumentalities of the Government
Functions as Banker of the Government beyond their minimum working balances whenever such
subdivisions or instrumentalities have outstanding loans with
Section 110. Designation of Bangko Sentral as Banker of said banks.
the Government. - The Bangko Sentral shall act as a banker of
The Bangko Sentral may accept deposits and pay interest on
the Government, its political subdivisions and instrumentalities.
such deposits and other similar placements of the Government
or of its political subdivisions and instrumentalities, banks, and
Section 111. Representation with the International other Bangko Sentral-supervised institutions.
Monetary Fund. - The Bangko Sentral shall represent the
Government in all dealings, negotiations and transactions with
Section 114. Fiscal Operations. - The Bangko Sentral shall
the International Monetary Fund and shall carry such accounts
as may result from Philippine membership in, or operations with, open a general cash account for the Treasurer of the
said Fund. Philippines, in which the liquid funds of the Government shall be
deposited.
The International Monetary Fund is a specialized agency of the Transfers of funds from this account to other accounts shall be
United Nations, but it has its own charter and structure in made only upon order of the Treasurer of the Philippines.
finances provided by its members.

Section 112. Representation with Other Financial Section 115. Other Banks as Agents of the Bangko
Institutions. - The Bangko Sentral may be authorized by the Sentral. - In the performance of its functions as fiscal agent, the
Government to represent it in dealings, negotiations or Bangko Sentral may engage the services of other government-
owned and controlled banks and of other domestic banks for
transactions with the International Bank for Reconstruction and
operations in localities at home or abroad in which the Bangko
Development and with other foreign or international financial
institutions or agencies. The President may, however, designate Sentral does not have offices or agencies adequately equipped
to perform said operations: Provided, however, That for fiscal

operations in foreign countries, the Bangko Sentral may engage The Monetary Board shall use the resources of the Fund
the services of foreign banking and financial institutions. to prevent, or moderate, sharp fluctuations in the quotations of
said government obligations, but shall not endeavor to alter
Section 116. Remuneration for Services. - The Bangko movements of the market resulting from basic changes in the
Sentral may charge equitable rates, commissions or fees for pattern or level of interest rates.
services which it renders to the Government, its political
subdivisions and instrumentalities. The Monetary Board shall issue such regulations as may
be necessary to implement the provisions of this section.

ARTICLE II Section 121. Resources of the Securities Stabilization

The Marketing and Stabilization of Securities Fund. - Subject to Section 132 of this Act, the resources of the
for the Account of the Government Securities Stabilization Fund shall come from the balance of the
fund as held by the Central Bank under Republic Act No. 265 as
A. The Issue and Placing of Government Securities of the effective date of this Act.

Section 117. Issue of Government Obligations. - The issue Section 122. Profits and Losses of the Fund. - The Securities
of securities representing obligations of the Government, its Stabilization Fund shall retain net profits which it may make on
political subdivisions or instrumentalities, may be made through its operations, regardless of whether said profits arise from
the Bangko Sentral, which may act as agent of, and for the capital gains or from interest earnings. The Fund shall
account of, the Government or its respective subdivisions or correspondingly bear any net losses which it may incur.
instrumentality, as the case may be: Provided, however, That
the Bangko Sentral shall not guarantee the placement of said
securities, and shall not subscribe to their issue except to ARTICLE III
replace its maturing holdings of securities with the same type as Functions as Financial Advisor of the Government
the maturing securities.
Original Provision
Section 118. Methods of Placing Government Securities. -
The Bangko Sentral may place the securities to which the Section 123. Financial Advice on Official Credit
preceding section refers through direct sale to financial Operations. - Before undertaking any credit operation abroad,
institutions and the public. the Government, through the Secretary of Finance, shall request
the opinion, in writing, of the Monetary Board on the monetary
The Bangko Sentral shall not be a member of any stock implications of the contemplated action. Such opinions must
exchange or syndicate, but may intervene therein for the sole similarly be requested by all political subdivisions and
purpose of regulating their operations in the placing of instrumentalities of the Government before any credit operation
government securities. abroad is undertaken by them.

The Government, or its political subdivisions or The opinion of the Monetary Board shall be based on the
instrumentalities, shall reimburse the Bangko Sentral for the gold and foreign exchange resources and obligations of the
expenses incurred in the placing of the aforesaid securities. nation and on the effects of the proposed operation on the
balance of payments and on monetary aggregates.
Section 119. Servicing and Redemption of the Public Debt. -
The servicing and redemption of the public debt shall also be Whenever the Government, or any of its political
effected through the Bangko Sentral. subdivisions or instrumentalities, contemplates borrowing within
the Philippines, the prior opinion of the Monetary Board shall
B. Bangko Sentral Support of the Government likewise be requested in order that the Board may render an
Securities Market opinion on the probable effects of the proposed operation on
monetary aggregates, the price level, and the balance of
payments.
Section 120. The Securities Stabilization Fund. - There shall
be established a "Securities Stabilization Fund" which shall be Proposed Amendment
administered by the Bangko Sentral for the account of the
Government. Section 123. Financial Advice on Official Credit
Operations. - Before undertaking any credit operation abroad,
The operations of the Securities Stabilization Fund shall the Government, through the Secretary of Finance, shall request
consist of purchases and sales, in the open market, of bonds the opinion, in writing, of the Monetary Board on the monetary
and other evidences of indebtedness issued or fully guaranteed implications of the contemplated action. Such opinions must
by the Government. The purpose of these operations shall be to similarly be requested by all political subdivisions and
increase the liquidity and stabilize the value of said securities in instrumentalities of the Government before any credit operation
order thereby to promote investment in government obligations. abroad is undertaken by them.

The opinion of the Monetary Board shall be based on the

gold and foreign exchange resources and obligations of the Section 125. Tax Exemptions. - The Bangko Sentral shall be
nation and on the effects of the proposed operation on the exempt for a period of five (5) years from the approval of this Act
balance of payments and on monetary aggregates. from all national, provincial, municipal and city taxes, fees,
charges and assessments.
Whenever the Government, or any of its political
subdivisions or instrumentalities, contemplates borrowing within The exemption authorized in the preceding paragraph of
the Philippines, the prior opinion of the Monetary Board shall this section shall apply to all property of the Bangko Sentral, to
likewise be requested in order that the Board may render an the resources, receipts, expenditures, profits and income of the
opinion on the probable effects of the proposed operation on Bangko Sentral, as well as to all contracts, deeds, documents
monetary aggregates, the price level, and the balance of and transactions related to the conduct of the business of the
payments. Bangko Sentral: Provided, however, That said exemptions shall
apply only to such taxes, fees, charges and assessments for
A credit operation or borrowing as provided herein may take the which the Bangko Sentral itself would otherwise be liable, and
form of different credit facilities such as but not limited to a single shall not apply to taxes, fees, charges, or assessments payable
loan, series of loans under a borrowing program, or credit lines. by persons or other entities doing business with the Bangko
No prior Monetary Board Opinion shall be required for individual Sentral: Provided, further, That foreign loans and other
drawdowns or borrowings within approved credit lines or obligations of the Bangko Sentral shall be exempt, both as to
borrowing programs. principal and interest, from any and all taxes if the payment of
such taxes has been assumed by the Bangko Sentral.
This is in compliance with Article VII, Section 20 of the 1987
Constitution: Proposed Amendment

Section 125. Tax Exemptions. - The Bangko Sentral shall be

Section 20. The President may contract or guarantee
foreign loans on behalf of the Republic of the Philippines exempt for a period of five (5) years from the approval of this Act
with the prior concurrence of the Monetary Board, and from all national, provincial, municipal and city taxes, fees,
subject to such limitations as may be provided by law. The charges and assessments.
Monetary Board shall, within thirty days from the end of every
quarter of the calendar year, submit to the Congress a complete The exemption authorized in the preceding paragraph of
report of its decision on applications for loans to be contracted this section shall apply to all property of the Bangko Sentral, to
or guaranteed by the Government or government-owned and the resources, receipts, expenditures, profits and income of the
controlled corporations which would have the effect of Bangko Sentral, as well as to all contracts, deeds, documents
increasing the foreign debt, and containing other matters as may and transactions related to the conduct of the business of the
be provided by law. Bangko Sentral: Provided, however, That said exemptions shall
apply only to such taxes, fees, charges and assessments for
which the Bangko Sentral itself would otherwise be liable, and
Section 124. Representation on the National Economic and shall not apply to taxes, fees, charges, or assessments payable
Development Authority. - In order to assure effective by persons or other entities doing business with the Bangko
coordination between the economic, financial and fiscal policies Sentral: Provided, further, That foreign loans and other
of the Government and the monetary, credit and exchange obligations of the Bangko Sentral shall be exempt, both as to
policies of the Bangko Sentral, the Deputy Governor designated principal and interest, from any and all taxes if the payment of
by the Governor of the Bangko Sentral shall be an ex officio such taxes has been assumed by the Bangko Sentral.
member of the National Economic and Development Authority
Board. It is only exempt on its income derived from its government
functions, specifically, income from its activities and transactions
So as a financial advisor, the Deputy Governor designated by exercised in the supervision and operations of banks, and
the Governor of the BSP shall be an ex-officio member of the income in pursuant to its primary objective to maintain price
NEDA. Mag cocoordinate sila. The NEDA is the authority which stability. So all other incomes, shall be considered as proprietary
recommends for the restrictions on foreign equity investments. income, and shall be subject to tax.

So kung si Central Bank may property, tapos nagpa-renta sa 7-

10. Privileges and Prohibitions 11, the income derived from the lease shall be subject to the
corresponding taxes. Because it is not derived from its
CHAPTER VI governmental functions, but from its proprietary function.
PRIVILEGES AND PROHIBITIONS
Section 126. Exemption from Customs Duties. - The
ARTICLE I
provision of any general or special law to the contrary
Privileges
notwithstanding, the importation and exportation by the Bangko
Sentral of notes and coins, and of gold and other metals to be
Original Provision used for purposes authorized under this Act, and the importation

of all equipment needed for bank note production, minting of DEVELOPMENT BANK – ito yung mga nag fifinance ng mga
coins, metal refining and other security printing operations shall long-term government projects and infrastructures.
be fully exempt from all customs duties and consular fees and
from all other taxes, assessments and charges related to such Why is the BSP prohibited from engaging in development
importation or exportation. banking? The policy of the BSP is to have prudent financial
management. Kaya hindi siya pwede mag-enter into high-risk
Section 127. Applicability of the Civil Service Law. - financial transactions kasi nasa charter niya ang to engage in
Appointments in the Bangko Sentral, except as to those which prudent financial management – and development banking
are policy-determining, primarily confidential or highly technical involves long-term financing.
in nature, shall be made only according to the Civil Service Law
and regulations: Provided, That no qualification requirements for
positions in the Bangko Sentral shall be imposed other than CHAPTER VII
those set by the Monetary Board: Provided, further, That, the TRANSITORY PROVISIONS
Monetary Board or Governor, in accordance with Sections 15(c)
and 17(d) of this Act, respectively, may without need of obtaining Section 129. Phase-out of Fiscal Agency Functions. -
prior approval from any other government agency, appoint Unless circumstances warrant otherwise and approved by the
personnel in the Bangko Sentral whose services are deemed Congress Oversight Committee, the Bangko Sentral shall, within
necessary in order not to unduly disrupt the operations of the a period of three (3) years but in no case longer than five (5)
Bangko Sentral. years from the approval of this Act, phase out all fiscal agency
functions provided for in Sections 117, 118, 119, and 120 as well
Officers and employees of the Bangko Sentral, including as in other pertinent provisions of this Act and transfer the same
all members of the Monetary Board, shall not engage directly or to the Department of Finance.
indirectly in partisan activities or take part in any election except
to vote. Section 130. Phase-out of Regulatory Powers Over the
Operations of Finance Corporations and Other Institutions
Performing Similar Functions. - The Bangko Sentral shall,
ARTICLE II within a period of five (5) years from the effectivity of this Act,
Prohibitions phase out its regulatory powers over finance companies without
quasi-banking functions and other institutions performing similar
Original Provision functions as provided in existing laws, the same to be assumed
by the Securities and Exchange Commission.
Section 128. Prohibitions. - The Bangko Sentral shall not
acquire shares of any kind or accept them as collateral, and shall Section 131. Implementing Details. - The Bangko Sentral
not participate in the ownership or management of any shall be made operational by the performance of the following
enterprise, either directly or indirectly. acts:

The Bangko Sentral shall not engage in development (a) the President shall constitute the Monetary Board by
banking or financing: Provided, however, That outstanding loans appointing the members thereof within sixty (60) days from the
obtained or extended for development financing shall not be effectivity of this Act; and
affected by the prohibition of this section.
(b) the transfer of such assets and liabilities from the Central
Proposed Amendment Bank to the Bangko Sentral as provided in Section 132 shall be
completed within ninety (90) days from the constitution of the
Section 128. Prohibitions. - The Bangko Sentral shall not Monetary Board.
acquire shares of any kind or accept them as collateral, and shall
not participate in the ownership or management of any All incumbent personnel in the Central Bank as of the
enterprise, either directly or indirectly: Provided, that this date of the approval of this Act shall continue to exercise their
prohibition shall not apply whenever the Monetary Board, by a duties and functions as personnel of the Bangko Sentral subject
vote of at least five (5) of its members, (1) deems an acquisition to the provisions of Section 133: Provided, That such personnel
or investment to be necessary to qualify or as required for in the Central Bank as may be necessary for the purpose of
membership in international and regional organizations; or (2) implementing Section 132 may be assigned by the Bangko
determines that investing in and/or operating an enterprise will Sentral Monetary Board to the Central Bank.
be consistent with the effective fulfillment of its mandate and will
not constitute any conflict of interest. Section 132. Transfer of Assets and Liabilities. - Upon the
effectivity of this Act, three (3) members of the Monetary Board,
The Bangko Sentral shall not engage in development which may include the Governor, in representation of the
banking or financing: Provided, however, That outstanding loans
Bangko Sentral, the Secretary of Finance and the Secretary of
obtained or extended for development financing shall not be
Budget and Management in representation of the National
affected by the prohibition of this section. Government, and the Chairmen of the Committees on Banks of

the Senate and the House of Representatives shall determine or vested rights with respect to retention in the Bangko Sentral
the assets and liabilities of the Central Bank which may be or in any position which may be created in the new staffing
transferred to or assumed by the Bangko Sentral. The pattern, even if he should be the incumbent of a similar position
Committee shall complete its work within ninety (90) days from prior to organization. The formulation of the program of
the constitution of the Monetary Board submitting a organization shall be completed within six (6) months after the
comprehensive report with all its findings and justification. effectivity of this Act, and shall be fully implemented within a
period of six (6) months thereafter. Personnel who may not be
The following guidelines shall be strictly observed in the retained are deemed separated from the service.
determination of which assets and liabilities shall be transferred
to the Bangko Sentral: Section 134. Separation Benefits. - Pursuant to Section 15 of
this Act, the Monetary Board is authorized to provide separation
(a) the Monetary Board and the Secretary of Finance shall have incentives, and all those who shall retire or be separated from
primary responsibility for working out creative monetary and the service on account of reorganization under the preceding
financial solutions to retire the Central Bank liabilities and losses section shall be entitled to such incentives, which shall be in
at the least cost to the Government; addition to all gratuities and benefits to which they may be
entitled under existing laws.
(b) the Bangko Sentral shall remit seventy-five percent (75%) of
its net profits to a special deposit account (sinking fund) until
Section 135. Repealing Clause. - Except as may be provided
such time as the net liabilities of the Central Bank shall have
been liquidated through generally accepted finance for in Section 46 and 132 of this Act, Republic Act No. 265, as
mechanisms such as, but not limited to, write-offs, set-offs, amended, the provisions of any other law, special charters, rule
condonation, collections, reappraisal, revaluation and bond or regulation issued pursuant to said Republic Act No. 265, as
issuance by the National Government, or to the National amended, or parts thereof, which may be inconsistent with the
Government as dividends; provisions of this Act are hereby repealed. Presidential Decree
No. 1792 is likewise repealed.
(c) the assets and liabilities to be transferred shall be limited to
an amount that will enable the Bangko Sentral to perform its Section 136. Transfer of Powers. - All powers, duties and
responsibilities adequately and operate on a viable basis: functions vested by law in the Central Bank of the Philippines
Provided, That the assets shall exceed the liabilities as certified not inconsistent with the provisions of this Act shall be deemed
by the Commission on Audit (COA), by an initial amount of Ten transferred to the Bangko Sentral ng Pilipinas. All references to
billion pesos (P10,000,000,000); the Central Bank of the Philippines in any law or special charters
shall be deemed to refer to the Bangko Sentral.
(d) liabilities to be assumed by the Bangko Sentral shall include
liability for notes and coins in circulation as of the effective date Section 137. Separability Clause. - If any provision or section
of this Act; and of this Act or the application thereof to any person or
circumstance is held invalid, the other provisions or sections of
(e) any asset or liability of the Central Bank not transferred to this Act, and the application of such provision or section to other
the Bangko Sentral shall be retained and administered, persons or circumstances, shall not be affected thereby.
disposed of and liquidated by the Central Bank itself which shall
continue to exist as the CB Board of Liquidators only for the Section 138. Effectivity Clause. - This Act shall take effect
purposes provided in this paragraph but not later than twenty-
fifteen (15) days following its publication in the Official Gazette
five (25) years or until such time that liabilities have been
or in two (2) national newspapers of general circulation.
liquidated: Provided, That the Bangko Sentral may financially
assist the Central Bank of Liquidators in the liquidation of CB
liabilities: Provided, finally, That upon disposition of said Approved: June 14, 1993
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 this section shall be reported to Congress and the
President within thirty (30) days.

Section 133. Mandate to Organize. - The Bangko Sentral shall

be organized by the Monetary Board without being subject to the
provisions of Republic Act No. 7430, by adopting if it so desires,
an entirely new staffing pattern on organizational structure to
suit the operations of the Bangko Sentral under this Act. No
preferential or priority right shall be given to or enjoyed by any
personnel for appointment to any position in the new staffing
pattern, nor shall any personnel be considered as having prior

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Banking E1

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BANKING LAWS OF THE PHILIPPINES

3Manresa 2018-2019 | First Exam TSN

RA 7653 4. The Philippine Republic

with interested banks. It is the policy of the BSP to promote

The primary objective of the Bangko Sentral is to maintain Monetary policy

Esperanza v Castilla Ruling: NO

Section 11. Meetings. - The Monetary Board shall meet at

The presence of four (4) members shall constitute a quorum:

Unless otherwise provided in this Act, all decisions of the

The Bangko Sentral shall maintain and preserve a complete

paid by the Bangko Sentral in advance of the final

The above-mentioned subsequent enactments,

information on the discussions or resolutions of the Monetary G.R. No. 76118

The contract between the bank and its depositor is governed

Please take note— the Governor although they act as a

Please take note— it’s already an affiliate if it’s 50% or less. If

Prohibition on the Issuance of Injunction

No restraining order or injunction shall be issued by the

Examination vs. Supervision 4) Management contract or any arrangement granting

XY— (owner of BANK A) 30 Nov | Castro, De Castro, Madum, Puerin

B Okay. So we have Revised Corporation Code. Before kasi its

b. He contracts a loan or any form of financial Penalties

or examination. Now, if you are examining and supervising

XXXX We have an relative prohibition and absolute prohibition. We

HELD Obviously, therefore, Section 28-A merely gives the

naman pwede si receiver mag file nang petition sa court. Hindi

Considering that section 27 of the Rural Banks law (R.A.

In sum, appeal to procedural due process cannot just

5 Dec (1 of 2) | Andit referred to as quasibanks, and institutions performing similar

REGULATIONS, OR IN CASES WHERE THERE IS acquisition of shares or series of transfers or acquisition of

Section 27. Prohibitions. - In addition to the

(a) being an officer, director, lawyer or agent,

(b) directly or indirectly requesting or receiving any

5 Dec (2 of 2) | Abonado PRACTICES, [once in every-twelve (12) months, and at such

CASE: Rural Bank of San Miguel v. Monetary Board 12 Dec (1 of 2) | Chanyee

So if you gave information except of course if, _, your

“THE BANKO SENTRAL MAY GRANT INFORMER’S Which is how many %?

(c) suspension of lending or foreign exchange operations or

Please take note that it is specifically provided for in the

The annual report shall also include a statement of the

Section 44. Distribution of Net Profits. — Within the first

Fifty percent (50%) of the net profits shall be carried to

Section 44. Distribution of Net Profits. — Within the first

The Revaluation of International Reserve RIR account shall

The representative of the Chairman of the Commission must

CHAPTER ii Section 50. Exclusive Issue Power. — The Bangko Sentral

The Bangko Sentral's holdings of its own notes and coins

Please take note that:

the identification of which is impossible, coins which show

Di ganun kadali ang buhay.lol

When can it be considered a currency note mutilated?

PAL v. CA In the meantime, the action derived from the original

Facts In the absence of an agreement, either express or implied,

misappropriate the proceeds thereof to his exclusive

First Issue: Tender of Payment

xxx xxx xxx

In other words, tender of pament is the definitive act of

(3) the monetary, fiscal or administrative measures

(4) the character and extent of the cooperation required CHAPTER IV

Foreign Exchange Dealers

The registration is only for purposes of funnelling the repatriation

The provisions of Republic Act 265 are so broad and

Open Foreign Exchange Position ARTICLE IV

Self-explanatory. (1) gold coins or bullion;

(2) securities representing obligations of the Bangko Sentral

Section 90. Principles of Open Market Operations. - The Proposed Amendment

immediately preceding such holidays and non-banking days

ARTICLE II Section 121. Resources of the Securities Stabilization

The opinion of the Monetary Board shall be based on the

Section 125. Tax Exemptions. - The Bangko Sentral shall be

So kung si Central Bank may property, tapos nagpa-renta sa 7-

All actions taken by the Bangko Sentral Monetary Board

Section 133. Mandate to Organize. - The Bangko Sentral shall

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