Banking and Finance

ATTY. MARIEL ARIANE MALAKI-MONTON

TOPICS

 The New Central Bank (RA 7653 and RA 11211)

 Law on Secrecy of Bank Deposits (RA 1405)
 General Banking Law of 2000 (RA 8791)
 Philippine
Deposit Insurance Corporation Act (RA 3591,
as amended)
The New Central Bank Act
(RA 7653 and RA 11211)
State policies

 The State shall maintain a central monetary authority that

shall function and operate as an independent and
accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking
and credit.
Nature of the BSP

 A central monetary authority;

 An independent and accountable body; and
 A government-owned corporation but enjoys
fiscal and administrative autonomy.
Responsibility and objective

 Tomaintain price stability conducive to a balanced and

sustainable growth of the economy.
 Topromote and maintain monetary stability and the
convertibility of the peso.
 Toprovide policy directions in the areas of money,
banking, and credit
 To supervise operations of banks
Monetary Board

NOTE:
The body through which the powers and functions of the
Bangko Sentral are exercised
Powers and Functions

 Issue rules and regulations it considers necessary for the

effective discharge of the responsibilities and exercise of
the powers vested in it;
 Direct the management, operations, and administration of
Bangko Sentral, organize its personnel and issue such
rules and regulations as it may deem necessary or
desirable for this purpose;
How the BSP handles banks in distress?

 Liquidity – Ability of an asset to be converted into cash

 Solvency – When liabilities amount to less than total
assets, providing the ability to pay debts
 Insolvency – When the actual market value of assets are
insufficient to pay its liabilities, not considering capital
stock and surplus which are not liabilities for such
purpose
Conservatorship

Applicability:
 when a bank or a quasi-bank is in a state of continuing inability
or unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors
 determination
is to be made by the MB on the basis of a report
submitted by the appropriate supervising or examining
department
Period and Termination:

 Period: shall not exceed 1 year

 The expenses attendant to the conservatorship
shall be borne by the bank or quasi-bank
concerned
Grounds for termination of conservatorship by
MB

 When it is satisfied that the institution can continue to

operate on its own and the conservatorship is no longer
necessary
 When, on the basis of the report of the conservator or of its
own findings, the MB determines that the continuance in
business of the institution would involve probable loss to its
depositors or creditors (the bank or quasi-bank would then be
placed under receivership)
Effects of Conservatorship

 Bank/Quasi-bank retains juridical personality

 Not a precondition to the designation of a
receiver, and;
 Perfected transactions cannot be repudiated
Powers and Duties of a Conservator:

 Totake charge of the assets, liabilities, and the management

thereof
 To reorganize the management
 To collect all monies and debts due said institution, and
 To exercise all powers necessary to restore its viability
 To report and be responsible to the MB
 Tooverrule or revoke the actions of the previous management
and board of directors of the bank or quasi-bank.
Receivership

Grounds: Whenever the MB finds that a bank or quasi-

bank:
 Is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not
include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
 Has insufficient realizable assets, as determined by the
BSP, to meet its liabilities; or
Receivership

Grounds:
 Cannot continue in business without involving probable
losses to its depositors or creditors; or
 Has willfully violated a cease-and-desist order under Sec.
37 that has become final, involving acts or transactions
which amount to fraud or a dissipation of the assets of the
institution
Receiver:

 if a banking institution: the PDIC

 ifa quasi-bank: any person of recognized competence in
banking or finance
Note: The appointment of a receiver shall be vested
exclusively in the MB. And the designation of a conservator
is not a precondition to the designation of a receiver.
Powers and Duties of a Receiver:

 Immediately gather and take charge of all the

assets and liabilities of the institution
 Administer the assets for the benefit of the
creditors
 Exercisethe general powers of a receiver under
the Revised Rules of Court
Powers and Duties of a Receiver:

 Not to pay or commit any act that will involve the transfer or disposition of any
asset of the institution, except:
1. administrative expenditures
2. receiver may deposit or place funds in non- speculative investments
 Subject to prior approval of the MB, determine, as soon as possible, but not later
than 90 days from take-over, whether the institution may be rehabilitated or
otherwise placed in such a condition so that it may be permitted to resume
business with safety to its depositors and creditors and the general public
Liquidation / Closure

 Should the determination be that the institution

cannot be rehabilitated or permitted to resume
business, the MB shall notify in writing the board
of directors of the institution of its findings and
direct the receiver to proceed with the liquidation
of the institution.
Procedure:

 The receiver shall file ex parte with the proper

RTC, and without requirement of prior notice or
any other action, a petition for assistance in the
liquidation of the institution pursuant to the
liquidation plan adopted by the PDIC (if quasi-
bank, liquidation plan adopted by the MB)
Procedure:

 Upon acquiring jurisdiction, the court shall, upon motion by

the receiver after due notice,
a. adjudicate disputed claims against the institution,
b. assist the enforcement of individual liabilities of the
stockholders, directors, and officers, and
c. decide on other issues as may be material to implement
the liquidation plan
Procedure:

 The receiver shall convert the assets of the

institutions to money, dispose of the same to
creditors and other parties, for the purpose of
paying the debts of such institution in accordance
with the rules on concurrence and preference of
credit under the Civil Code
How the BSP handles exchange crisis?

 Legal Tender Power

All notes and coins issued by the BSP shall be fully
guaranteed by the Government of the Republic of the
Philippines and shall be legal tender in the Philippines for
all debts, both public and private.
How the BSP handles exchange crisis?

 Rate of Exchange
 The MB shall:
1. Determine the exchange rate policy of the country;
2. Determine the rates at which the Bangko Sentral shall buy and sell
spot exchange;
3. Establish deviation limits from the effective exchange rate or rates
as it may deem proper.
4. Determine the rates for other types of foreign exchange transactions
by the BSP, including purchases and sales of foreign notes and coins.
Law on Secrecy of Bank
Deposits (RA 1405)
Purpose

 Togive encouragement to the people to deposit

their money in banking institutions and to
discourage private hoarding; and
 So that the people‘s money may be properly
utilized by banks in authorized loans to assist in
the economic development of the country
Prohibited acts

 Noperson, government official, bureau or office

may examine, inquire into or look into such
deposits; and
 Noofficial or employee of any banking institution
may disclose to any unauthorized person any
misinformation concerning said deposits
Deposits covered

 All deposits of whatever nature with banks or banking

institutions in the Philippines are hereby considered as
of an absolutely confidential nature and may not be
examined.
 Includes investments in bonds issued by the
Philippine Government, its political subdivisions and
its instrumentalities.
Exceptions

 Upon written permission of the depositor;

 In cases of impeachment;
 Upon order of a competent court in cases of:
a. Bribery;
b. dereliction of duty of public officials; or
 Where the money deposited or invested is the subject matter of
the litigation.
Other exceptions:

 Upon order of a competent court in cases of unexplained wealth under

Sec. 8 of RA 3019 or the Anti-Graft and Corrupt Practices Act
 when inquiry is conducted under the authority of the Commissioner of
Internal Revenue into the bank accounts of the following:
1. a decedent in order to determine his gross estate
2. any taxpayer who has filed an application for compromise of his
tax liability
Other exceptions:

 upon order of a competent court in cases under the Anti-Money

Laundering Act of 2001
 BSP inquiry or examination in the course of its periodic or special
examination of the bank
 deposits which have been dormant for at least 10 years,
 The PDIC and/or the BSP can inquire into or examine deposit accounts
and all information related thereto in case there is a finding of unsafe and
unsound banking practice
Garnishment of deposits

 General Rule
The prohibition against examination of or inquiry into a bank deposit
under Republic Act 1405 does not preclude its being garnished to insure
satisfaction of a judgment
 Exception - Foreign Currency Deposits.
The foreign currency deposits shall be exempt from attachment,
garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
 Garnishment of deposits

 Exceptions to exception
1. upon written permission of the depositor
2. upon order of a competent court in cases of violation of the Anti-Money Laundering Act of
2001
3. during Bangko Sentral‘s periodic or special examinations [as in the case of peso deposits)
4. disclosure of the Treasurer of the Philippines when the unclaimed balances law applies
5. BSP/PDIC inquiry if there is a finding of unsafe and unsound banking practice (as in the
case of peso deposits,)
6. In Salvacion vs. CB (1997), where a Filipino child was raped by a foreigner,
General Banking Law (RA
8791)
Policy

 Topromote and maintain a stable and efficient banking

and financial system that is globally competitive,
dynamic and responsive to the demands of a developing
economy.
 Classification of Banks

 Universal Banks. (UB)

These used to be called expanded commercial banks and their operations
are primarily governed by the GBL. They can exercise the powers of an
investment house and invest in non-allied enterprises. They have the
highest capitalization requirement. Ex. BDO, LBP, BPI, MBTC, PNB
 Commercial Banks. (KB)
These are ordinary or regular commercial banks, as distinguished from a
universal bank. They have a lower capitalization requirement than a UB
and cannot exercise the powers of an investment house and invest in non-
allied enterprises. Ex. BDO, LBP, BPI, MBTC, PNB
Classification of Banks

 Thrift Banks.
These are
a. savings and mortgage banks
b. stock savings and loan associations; and
c. private development banks
Example: BPI Family Savings, Rizal MicroBank
Classification of Banks

 Cooperative Banks.
These are banks organized primarily to make financial and
credit services available to cooperative banks. A cooperative
bank is one organized by the majority shares of which is
owned and controlled by cooperatives primarily to provide
financial and credit services to cooperatives. The term
"cooperative bank" shall include cooperative rural banks.
Ex. Consolidated Cooperative Bank
Classification of Banks

 Islamic Banks
These are banks the business dealings and activities of
which are subject to the basic principles and rulings of
Islamic Shari‘a. The Al Amanah Islamic Investment Bank
of the Philippines, which was created by RA 6848, is the
only Islamic bank in the country at this time.
Classification of Banks

 Rural Banks
Mandated to make needed credit available and
readily accessible in the rural areas on reasonable
terms and which are primarily governed by the
Rural Banks Act of 1992 (RA 7353)
Deposit Function:

 GENERAL RULE

Only a Universal Bank (UB) Commercial Bank (KB) can

accept or create demand deposits
 EXCEPTION

Banks other than a UB or KB with prior approval of, and

subject to such conditions and rules as may be prescribed by
the Monetary Boar
Loan Function

 Know your customer‖ rule:

Before granting a loan or other credit
accommodation, a bank must ascertain that the
debtor is capable of fulfilling its commitments to
the bank.
Limit on Loans, Credit Accommodations and
Guarantees:
Diligence required of banks

 Banks should observe the highest degree of

diligence.
 Notwithstanding the degree of diligence required,
a bank is not expected to be infallible
Diligence required of banks

 Under the doctrine of last clear chance, a bank may

be held liable for loss despite the negligence of a
depositor. Examples of these cases are the following:
  For disbursing funds to a dishonest employee
despite the employee‘s failure to strictly abide with the
bank‘s internal procedure.
Single Borrowers‘ Limit

 General Rule
The total loans, credit accommodations and
guarantees that may be extended by a bank to any
person, partnership, association, or corporation or
other entity shall at no time exceed 20% of the net
worth of such bank.
Single Borrowers‘ Limit

Exceptions
 The Monetary Board otherwise prescribes for
reasons of national interest.
 Wholesale lending activities of government banks
to participating institutions for relending to end-
user borrowers: separate limit of 35% net worth.
Restrictions on Bank Exposure to Directors,
Officers, Stockholders and their Related Interests
(DOSRI)

General Rule
 No director or officer of any bank
a. shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank,
nor
b. shall he become a guarantor, endorser or surety for loans
from such bank to others, or in any manner be an obligor or
incur any contractual liability to the bank
Restrictions on Bank Exposure to Directors,
Officers, Stockholders and their Related
Interests (DOSRI)

 Exceptions

1. valid insider lending

2. loans, credit accommodations and guarantees
extended by a cooperative bank to its cooperative
shareholders
Insider lending

 Insider lending occurs when a bank makes a loan

to one or more of its own officers or directors. 
Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
Basic Policy

 Promote and safeguard the interests of the depositing

public by way of providing permanent and continuing
insurance coverage on all insured deposits
Concept of Insured Deposits

 Insured deposit means the amount due to any

bona fide depositor for legitimate deposits in an
insured bank net of any obligation of the
depositor to the insured bank as of the date of
closure, but not to exceed 500,000
Liability of Depositors

 Deposit Liabilities Required to be Insured with PDIC

The deposit liabilities of any bank or banking institution,
which is engaged in the business of receiving deposits on
the effective date of this Act, or which thereafter may
engage in the business of receiving deposits, shall be
insured with the Corporation
Liability of Depositors

 Commencement of Liability
Liability commences upon the approval of
application.
Deposit Account not Entitled to Payment

 Investment products such as bonds and securities, trust accounts,

and other similar instruments;
 Unfunded, fictitious or fraudulent deposit accounts or transactions;
 Deposits accounts or transactions constituting, and/or emanating
from, unsafe and unsound banking practice/s, as determined by
PDIC
 Deposits that are determined to be the proceeds of an unlawful
activity as defined under republic act 9160, as amended.
Maximum Deposit Insurance
Coverage(MDIC)

 PDIC shall pay deposit insurance on all valid

deposits up to the Maximum Deposit Insurance
Coverage of Php500,000, per depositor, of a closed
bank. Accounts maintained in the same right and
capacity for a depositor’s benefit, whether in his
own name or in the name of others, are covered by
deposit insurance.
PDIC Member Banks

 PDIC member banks include the following institutions

authorized by the Bangko Sentral ng Pilipinas (BSP) to perform
banking functions in the Philippines:
• Banks incorporated under Philippine laws, such as commercial
banks, savings banks, mortgage banks, development banks, rural
banks and cooperative banks and stock savings and loan
associations.
• Domestic branches of foreign banks
What are covered by PDIC deposit
insurance?

PDIC insures valid deposits in domestic

offices of its member banks.
 Types of Deposit and Account

By Deposit Type: By Deposit Account:

• Savings • Single Account
• Special Savings • Joint Account
• Demand/ Checking • Account “By”, “In Trust For” (ITF) or “For the Account
of” (FAO) another person
• Negotiable Order of
Withdrawal (NOW) By Currency:
• Certificate of Time • Philippine peso
Deposits • Foreign currencies considered as part of BSP’s
international reserves
Types of Deposit and Account

 Single Accounts are individually-owned accounts or

accounts held under one name, either as natural person
or juridical entity.
• Natural Person refers to any individual person. Single
proprietors are considered natural persons.
• Juridical entity refers to a corporation, partnership or
cooperative.
Types of Deposit and Account

 Joint Accounts are accounts held under more than one name.
• The total shares of a co-owner in several joint accounts may
exceed Php500,000 but will only be insured up to the
Maximum Deposit Insurance Coverage of Php500,000.
• Joint accounts held in the names of a juridical entity and a
natural person shall be presumed to belong solely to the
juridical entity.
Types of Deposit and Account

• In a “By” account, A by B, A is the depositor.

• In an “In Trust For” (ITF) account, A In Trust For B, B is
the depositor.
• In a “For the Account of” (FAO) account, A For the
Account of B, B is the depositor.
Types of Deposit and Account

In the case where a depositor is the sole beneficial owner of

a single, “For the Account of”, “By”, and “In Trust For”
accounts, the consolidated balances of these accounts shall
be insured up to Php500,000.
The depositor’s total shares in his/her joint accounts shall
be separately insured up to Php500,000.
Types of Deposit and Account

A depositor with single accounts and joint accounts may

have insured deposits of up to Php1,000,000.
For purposes of computing the insured deposits, all
obligations or loans of the depositor with the closed bank,
as of bank closure, shall be deducted from the depositor’s
total deposits with the said bank. (PDIC Regulatory
Issuance No. 2011-04)
 How much is A’s insured deposit if she has the
following four deposit accounts in the same
bank?

Account Name Deposit Insured Deposit

(in Php) of A

A 100,000 100,000
B For the Account of A 100,000 100,000
C In Trust For A 100,000 100,000
A’s Store (Sole Proprietor) 700,000 200,000
Total 1,000,000 500,000
 How much is A’s insured deposit if she has the
following three joint accounts in the same
bank?

Account Name Deposit Insured Deposit

(in Php) of A

A or B 500,000 250,000
A and C 1,000,000 250,000
A and/or D 1,000,000 *
Total 2,500,000 500,000
*A does not have any insured deposit share since she already has P500,000 in total shares in the two joint accounts
A has with B and C.
 How much is A’s insured deposit if she has the
following three joint accounts in the same
bank?

Account Name Deposit Insured Deposit

(in Php) of A

A or B 500,000 250,000
A and C 1,000,000 250,000
A and/or D 1,000,000 *
Total 2,500,000 500,000
*A does not have any insured deposit share since she already has P500,000 in total shares in the two joint accounts
A has with B and C.
 How much is A’s insured deposit for all her
single and joint accounts in the same bank?

Account Name Deposit Insured Deposit

(in Php) of A

All single accounts of A in Q1 1,000,000 500,000

All joint accounts of A in Q2 2,500,000 500,000
Total 3,500,000 1,000,000
When are claims filed?

Claims are filed during the claims settlement operations

period, as announced in the Notice to Depositors published
in national or local newspapers, or posted in the bank
premises and conspicuous places within the locality, and in
the PDIC website. Depositors have two (2) years from
PDIC’s takeover of the closed bank to file their deposit
insurance claims.
END OF SLIDE