Banking FINALS Reviewer PDF

REVIEW
FOR QUIZ – JULY 29 o Subject to the principles and rulings of Islamic Shari’a
• Others banks:
Q: What is the preamble in GBL [2000] o Philippine Veterans-‐ provide government depository to veterans for appreciation
A: SECTION 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an of grateful nation (RA 3518)
environment conducive to the sustained development of the national economy and the fiduciary o Land bank of the Philippines – finance distribution of estate to resale to small
nature of banking that requires high standards of integrity and performance. In furtherance thereof, landholders (RA 3844)
the State shall promote and maintain a stable and efficient banking and financial system that is o Development Bank of Philippines – provide credit facilities for development in
globally competitive, dynamic and responsive to the demands of a developing economy agriculture, commerce and industry • DBP was previously named as
Rehabilitation Finance Corporation (RFC)
Q: What are the financial allies of the banks? o Non-‐stock savings and loan associations – non-‐ stock, non-‐profit corporation
A: Following are financial allied enterprises: engage in accumulation of savings of its members and loans to meet its members’
1. Leasing companies needs • Confines exclusive membership and cannot transact business with the
2. Banks general public
3. Investment houses • Quasi-‐banks – engaged in borrowing of funds through issuance of deposit substitute for
4. Financing companies purpose of relending or purchasing receivables and other obligations
5. Credit card companies • Offshore Banks – deals with transaction with foreign currencies in receiving funds from
6. Financial institutions external sources and utilization of such
7. Companies in stock brokerage and foreign exchange dealership o Governed by PD 1034
8. Insurance companies
9. Holding company provided that the equities of the entity is confined under universal bank Q: Provide for Section 4: Supervisory and Regulatory Powers of the BSP
BSP regulation A: SECTION 4. Supervisory Powers. — The operations and activities of banks shall be subject to
supervision of the Bangko Sentral. "Supervision" shall include the following:
Q: What are the classes of banks 4.1. The issuance of rules of conduct or the establishment of standards of operation for
A: Classification of Banks (CUT-‐RICO-‐NQU) uniform application to all institutions or functions covered, taking into consideration
• Universal Banks – large commercial banks that can do both commercial and investment the distinctive character of the operations of institutions and the substantive
banking similarities of specific functions to which such rules, modes or standards are to be
o They have the power of both commercial bank and investment house applied;
o Have the power to invest in non-‐allied enterprises 4.2. The conduct of examination to determine compliance with laws and regulations if
• Commercial banks – general powers incident of corporation and can perform commercial the circumstances so warrant as determined by the Monetary Board;
banking 4.3. Overseeing to ascertain that laws and regulations are complied with;
o Does not have the power to invest in non-‐ allied enterprises 4.4. Regular investigation which shall not be oftener than once a year from the last date
• Rural banks – banks that promote rural development of examination to determine whether an institution is conducting its business on a
o They can extend loan or advances to primarily meet the normal credit needs of safe or sound basis: Provided, That the deficiencies/irregularities found by or
farmers, fishermen and their families discovered by an audit shall be immediately addressed;
o Can also deposit in private banks more than the amount prescribed by Single 4.5. Inquiring into the solvency and liquidity of the institution (2-‐D); or
Borrower’s Limit in case there are no government banks 4.6. Enforcing prompt corrective action. (n)
o Rural Banks Act (RA 7353)
• Thrift banks – encourages the industry, frugality and accumulation of savings of the public The Bangko Sentral shall also have supervision over the operations of and exercise regulatory
o To make it within easy reach to the people the credit facilities at reasonable cost powers over quasi-‐banks, trust entities and other financial institutions which under special laws
o Includes: (1) savings and mortgage bank, (2) stock savings and loan associations are subject to Bangko Sentral supervision. (2-‐Ca)
and (3) private development banks For the purposes of this Act, "quasi-‐banks" shall refer to entities engaged in the borrowing of
o Thrift Banks Act (RA 7906) funds through the issuance, endorsement or assignment with recourse or acceptance of deposit
• Cooperative banks – organized by cooperatives to provide financial and credit services to substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank
cooperatives Act") for purposes of relending or purchasing of receivables and other obligations.
o Cooperative Code (RA 6938)
o Membership of a cooperative bank shall include ONL Y cooperative and Q: What is the Function of the Monetary Board
federations of cooperatives A: The Bangko Sentral shall provide policy direction in the areas of money, banking and credit. (n)
• Islamic Banks – promote socio-‐economic development in autonomous region by For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of
performing banking and investment function based on Islamic concept of banking regulation on the different types of accounts and practices of banks and quasi-‐banks which shall, to
o Islamic Bank – RA 6848 the extent feasible, conform to internationally accepted standards, including those of the Bank for
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International Settlements (BIS). The Monetary Board may exempt particular categories of or accept its own shares as a security for a loan, except when authorized by the Monetary Board:
transactions from such ratios, ceilings and limitations, but not limited to exceptional cases or to Provided, That in every case the stock so purchased or acquired shall, within six (6) months from
enable a bank or quasi-‐bank under rehabilitation or during a merger or consolidation to continue in the time of its purchase or acquisition, be sold or disposed of at a public or private sale.
business with safety to its creditors, depositors and the general public.

Q: What is the job/role of the BSP as vanguard of depositor: Q: Can a Foreign Individual invest in local banks? How?
A: SECTION 7. Examination by the Bangko Sentral. — The Bangko Sentral shall, when examining a A: SECTION 11. Foreign Stockholdings. — Foreign individuals and non-‐bank corporations may own
bank, have the authority to examine an enterprise which is wholly or majority-‐owned or controlled or control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply
by the bank. to Filipinos and domestic non-‐bank corporations. (12a; 12-‐Aa)
The percentage of foreign-‐owned voting stocks in a bank shall be determined by the citizenship of
Q: What is the fit and proper rule? the individual stockholders in that bank. The citizenship of the corporation which is a
A: SECTION 16. Fit and Proper Rule. — To maintain the quality of bank management and afford stockholder in a bank shall follow the citizenship of the controlling stockholders of the
better protection to depositors and the public in general, the Monetary Board shall prescribe, pass corporation, irrespective of the place of incorporation
upon and review the qualifications and disqualifications of individuals elected or appointed bank
directors or officers and disqualify those found unfit. After due notice to the board of directors of the Q: What does RA 7721 provide for foreign investors in local banks?
bank, the Monetary Board may disqualify, suspend or remove any bank director or officer who A: REPUBLIC ACT NO. 7721 . AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF
commits or omits an act which render him unfit for the position. In determining whether an FOREIGN BANKS IN THE PHILIPPINES AND FOR OTHER PURPOSES
individual is fit and proper to hold the position of a director or officer of a bank, regard shall be given
to his integrity, experience, education, training, and competence SECTION 1. Declaration of Policy. — The State shall develop a self-‐reliant and independent
national economy effectively controlled by Filipinos and encourage, promote, and maintain a
Q: What is the Bank of International Settlement? stable, competitive, efficient, and dynamic banking and financial system that will stimulate
A: Established on 17 May 1930, the Bank for International Settlements (BIS) is the world's oldest economic growth, attract foreign investments, provide a wider variety of financial services to
international financial organisation. The BIS has 60 member central banks, representing Philippine enterprises, households and individuals, strengthen linkages with global financial
countries from around the world that together make up about 95% of world GDP. centers, enhance the country's competitiveness in the international market and serve as a
channel for the flow of funds and investments into the economy to promote industrialization.
The head office is in Basel, Switzerland and there are two representative offices: in the Hong
Kong Special Administrative Region of the People's Republic of China and in Mexico City. Pursuant to this policy, the Philippine banking and financial system is hereby liberalized to create
a more competitive environment and encourage greater foreign participation through increase in
The mission of the BIS is to serve central banks in their pursuit of monetary and financial ownership in domestic banks by foreign banks and the entry of new foreign bank branches.
stability, to foster international cooperation in those areas and to act as a bank for central
banks. In allowing increased foreign participation in the financial system, it shall be the policy of the
State that the financial system shall remain effectively controlled by Filipinos
Q: What are the conditions for Organization of a bank:
A: SECTION 8. Organization. — The Monetary Board may authorize the organization of a bank or Q: Discuss Banks owned by Family Group.
quasi-‐bank subject to the following conditions: A: SECTION 12. Stockholdings of Family Groups or Related Interests. — Stockholdings of individuals
8.1. That the entity is a stock corporation (7); related to each other within the fourth degree of consanguinity or affinity, legitimate or common-‐law,
8.2. That its funds are obtained from the public, which shall mean twenty (20) or more persons shall be considered family groups or related interests and must be fully disclosed in all transactions
(2-‐Da); and by such an individual with the bank
8.3. That the minimum capital requirements prescribed by the Monetary Board for each category
of banks are satisfied. (n) Q: Who is an independent director? Why is it required in a Bank?
No new commercial bank shall be established within three (3) years from the effectivity of this A: SECTION 15. Board of Directors. — The provisions of the Corporation Code to the contrary
Act. In the exercise of the authority granted herein, the Monetary Board shall take into notwithstanding, there shall be at least five (5), and a maximum of fifteen (15) members of the
consideration their capability in terms of their financial resources and technical expertise and board of directors of bank, two (2) of whom shall be independent directors.
integrity. The bank licensing process shall incorporate an assessment of the bank's ownership
structure, directors and senior management, its operating plan and internal controls as well as its An "independent director" shall mean a person other than an officer or employee of the bank, its
projected financial condition and capital base. subsidiaries or affiliates or related interests. (n)

Q: Can the Bank acquire its own shares? How? Non-‐Filipino citizens may become members of the board of directors of a bank to the extent of
A: SECTION 10. Treasury Stocks. — No bank shall purchase or acquire shares of its own capital stock the foreign participation in the equity of said bank. (Sec. 7, RA 7721)
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• Leasing companies
The meetings of the board of directors may be conducted through modern technologies such as, • Banks
but not limited to, teleconferencing and video-‐conferencing • Investment houses
• Financing companies
Q: Discuss Regulations of Banks owned by Family Groups and Related Interests • Credit card companies
A. SECTION 12. Stockholdings of Family Groups or Related Interests. — Stockholdings of individuals • Financial institutions
related to each other within the fourth degree of consanguinity or affinity, legitimate or common-‐ • Companies in stock brokerage and foreign exchange dealership
law, shall be considered family groups or related interests and must be fully disclosed in all • Insurance companies
transactions by such an individual with the bank.
• Holding company provided that the equities of the entity is confined under universal
bank BSP regulation
SECTION 13. Corporate Stockholdings. — Two or more corporations owned or controlled by the

same family group or same group of persons shall be considered related interests and must be Q: Discuss how Universal Banks can invest in non-‐financial allied sources
fully disclosed in all transactions by such corporations or related groups of persons with the bank
A: Equity investments of universal bank in non-‐financial allied enterprise
• Universal bank may own up to 100% of equity in non-‐financial allied
Q: May an elective official be a director of a bank? Are there exceptions, if any.
• Examples are:
A: SECTION 19. Prohibition on Public Officials. — Except as otherwise provided in the Rural Banks 1. Warehousing companies
Act, no appointive or elective public official, whether full-‐time or part-‐time shall at the same time
2. Storage
serve as officer of any private bank, save in cases where such service is incident to financial 3. Safe deposit box
assistance provided by the government or a government-‐owned or controlled corporation to the
4. Companies engaged in management of mutual funds and not funds itself
bank or unless otherwise provided under existing laws 5. Computer services

6. Home building and development
EXCEPTION: RA 7353 Sec. 5. All members of the Board of Directors of the rural bank shall be
7. Service bureaus
citizens of the Philippines at the time of their assumption to office: Provided, however, That
8. PCHC
nothing in this Act shall be construed as prohibiting any appointive or elective public official from

serving as director, officer, consultant or in any capacity in the bank. Q: Discuss how Universal Banks can invest in non-‐allied sources

A: Equity investment of Universal Bank in Non-‐allied enterprise -‐ Equity investment in a single non-‐
Q: Distinguish Universal Bank from Commercial Bank allied enterprise shall not exceed 35% in total equity or voting stock
A: SECTION 23. Powers of a Universal Bank. — A universal bank shall have the authority to exercise,
• Investments in non-‐allied enterprises
in addition to the powers authorized for a commercial bank in Section 29, the powers of an
• Universal bank may invest in equity of enterprise of eligibles:
investment house as provided in existing laws and the power to invest in non-‐allied enterprises
1. Enterprises engaged in agriculture, mining, quarrying, manufacturing, public utilities
as provided in this Act.
2. Industrial parks

3. Commercial project with government privatization program
SECTION 29. Powers of a Commercial Bank. — A commercial bank shall have, in addition to the
• Equity investment in Quasi-‐banks – universal bank can only invest up to 40% in equity of
general powers incident to corporations, all such powers as may be necessary to carry on the
quasi-‐banks
business of commercial banking, such as accepting drafts and issuing letters of credit;

discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of
Q: Discuss the SINGLE-‐BORROWERS LIMIT
debt; accepting or creating demand deposits; receiving other types of deposits and deposit
A: SECTION 35. Limit on Loans, Credit Accommodations and Guarantees
substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring marketable
35.1 Except as the Monetary Board may otherwise prescribe for reasons of national interest, the
bonds and other debt securities; and extending credit, subject to such rules as the Monetary
total amount of loans, credit accommodations and guarantees as may be defined by the Monetary
Board may promulgate. These rules may include the determination of bonds and other debt
Board that may be extended by a bank to any person, partnership, association, corporation or
securities eligible for investment, the maturities and aggregate amount of such investment.
other entity shall at no time exceed twenty percent (20%) of the net worth of such bank. The

basis for determining compliance with single-‐borrower limit is the total credit commitment of
Q: Discuss how Universal Banks can invest in financial allied sources
the bank to the borrower.
A: Equity investments of Universal bank in Financial Allied enterprise

1. Universal bank can own 100% of the equity in a thrift, rural bank or financial allied
• Total amount of loans, credits accommodation and guarantees extended to any person,
enterprise
partnership or corporation shall not exceed 20% of net worth of bank
2. Publicly-‐listed universal or commercial bank may own 100% of voting stock of another
• In Circular 425 of 2004 of BSP, the SBL was increased to 25%
universal or commercial bank
• Exceptions to SBL:
3. If not publicly-‐list then only 49% own
1. MB may otherwise prescribe for reasons of national interest
4. Following are financial allied enterprises:
2. Deposit of rural banks with GOC financial institutions such as LB, DBP and PNB
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• Basis for determining SBL is the total credit commitment of bank to borrower where Philippines is shareholder such as ADB
• Loans -‐ to all accounts under loan portfolio 6. Loans and credit accommodations with valuation reserves provided that bank has
• Credit accommodations -‐ to credit and market risk exposure of banks arising from no unbooked valuation reserves
accommodation other than the loan Loans and credit accommodations as a result of underwriting agreement of debt securities not
• Total credit commitment -‐ include loans, credit accommodation, deferred letters of credit exceeding 30 days
less margin deposits and guarantees
• Total credit commitment can be increased by 10% provided additional liabilities are Q: What are included and excluded from the SBL
secured by trust receipts, shipping documents or readily marketable goods A:
• Readily marketable goods – articles of commerce, agriculture or industry as constant Inclusion to Limit -‐ The following shall be included :
dealings in ready market and price is easily ascertainable and disposable 1. Maker, acceptor of paper discounted and general indorser, drawer or guarantor
• Parent corporation’ s total credit commitment shall also include its subsidiaries’ if it 2. Individual who controls majority interest in corporation
guarantees, accommodate or subsidiary is merely a department of it 3. In case of corporation, all liabilities to such bank of all subsidiaries it has majority interest
• Wholesale lending of government banks shall not exceed 35% of net worth to participating 4. Partnership, liabilities of members
financial institutions Also includes parent coporations with majority interest

• PFI – institutions for relending to end-‐user borrowers
Exclusion to limit – The following are excluded from the limit:
• The end-‐user borrower shall be subject to the 25% SBL
1. Loans and credit accommodations secured by BSP or RP. State is always solvent
• In municipalities where there are no government banks, deposits of rural and coop banks
2. Loans and credit accommodations guaranteed by government
in private banks shall not be subject to SBL
3. Loans and credit accommodations covered by assigned of deposits by lending bank
• Deposit in private depository bank used by thrift, rural and coop banks, with authority to
4. Loans and credit accommodations under letters of credit covered by margin deposits
accept demand deposits, after being cleared, shall be exempted from SBL
5. Loans and credit accommodations determined by MB as non-‐risk items
• Bank guarantee – irrevocable commitment of a bank binding to pay a sum of money in
event of non-‐performance of third party Q: Discuss Applicability of DOSRI Rules and Regulations
• Credit Risk Transfer – arrangement that allows the bank to transfer the credit risk A: SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related
associated with its loan or other credit accommodation to a third party Interests. — No director or officer of any bank shall, directly or indirectly, for himself or as the
• Control of majority interest or controlling interest – parent owns, directly or indirectly representative or agent of others, borrow from such bank nor shall he become a guarantor,
through its subsidiaries, more than half of voting power ofenterprise indorser or surety for loans from such bank to others, or in any manner be an obligor or incur
o Even if less than half of said voting power, it shall still have controlling any contractual liability to the bank except with the written approval of the majority of all the
interest if: directors of the bank, excluding the director concerned: Provided, That such written approval
1. Agreement with investors shall not be required for loans, other credit accommodations and advances granted to officers
2. Govern financial and operations under a fringe benefit plan approved by the Bangko Sentral. The required approval shall be
3. Can appoint majority of directors entered upon the records of the bank and a copy of such entry shall be transmitted forthwith to
4. Cast majority vote on meetings the appropriate supervising and examining department of the Bangko Sentral.
• Subsidiary – corporation where more than 50% of the voting stock is owned by a parent
corporation Restriction on Bank Exposure to Directors, Officers, Stockholder and related interests (DOSRI)
• Bill of exchange drawn in good faith against actually existing values – drawn by a seller on • No DOSRI can directly or indirectly borrow from such bank or become a guarantor,
the purchase for the price of commodity sold indorser or surety for loan
• Commercial paper owned by person negotiating the same – paper arising from business • Exception is when there is a written approval of the majority of all directors of the bank
transaction excluding the DOSRI concerned
• Exclusion from SBL include the following: • Such approval is not required if it is under a fringe benefit plan approved by BSP
1. Discount bills of exchange and discount commercial paper • Directors include those named in incorporations, elected or filled
2. Credit accommodation to finance importation of rice or corn up to 100% net worth • Officers shall include any person who performs function of management
of bank • Stockholder – stockholder of record in the books of the bank
Must be approved by NEDA st
3. Loans and credit accommodation guaranteed by Industrial Guarantee and Loan • Related interest includes souse or relative within 1 degree or by legal adoption. This
Fund includes partnership, co-‐ownership of DOSRIs
4. Liabilities of commercial paper issuer for commercial paper held by UB as firm • Corporations where the above mentioned owns 20% of subscribed capital, then the
underwriter. Only 180 days and not exceed 5% from normal SBL prohibition shall apply
5. Loans and credit accommodations covered by international or regional institutions • Can also be less than 50% if the DOS sits as representative of the bank in the board of such
corporation
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52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds
Effect of violation : The director or officer who violates may be declared vacant and subject to held by it and such as it shall purchase to secure debts due it.
penal provisions of NCBA Limit on loans : MB can limit the valid loan given to DOSRI provided
that it shall be based on their unencumbered deposits and book value of their paid in capital Any real property acquired or held under the circumstances enumerated in the above paragraph
contribution shall be disposed of by the bank within a period of five (5) years or as may be prescribed by the
Monetary Board: Provided, however, That the bank may, after said period, continue to hold the
Exclusion to Limit: property for its own use, subject to the limitations of the preceding Section. (25a)
• Loans and credit accommodations considered as non-‐risk
• Loans and credit accommodations to officers in for of fringe benefits Limit on loans and Q: Discuss the Confidentiality Rule in All Bank Transactions
credit accommodations shall not apply on those extended by coop bank to its coop A: SECTION 55. Prohibited Transactions. —
shareholders 55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks
Secrecy Law, no bank shall employ casual or nonregular personnel or too lengthy probationary
Applicability of DOSRI Rules and Regulation to Government Borrowings: personnel in the conduct of its business involving bank deposits
• Circular 547 of 2006 provides that DOSRI rules shall also apply to loans and credit
accommodations granted to RP , subdivisions, instrumentalities and GOCCs REPUBLIC ACT NO.1405 -‐ AN ACT PROHIBITING DISCLOSURE OF OR INQUIRY INTO, DEPOSITS
• Exceptions would be: WITH ANY BANKING INSTITUTION AND PROVIDING PENALTY THEREFOR
1.Loans and credit accommodations that are non-‐risk and not subject to ceiling
2.Those made by BSP SECTION 1. It is hereby declared to be the policy of the Government to give encouragement to the
3.LGU due to full autonomy in their propriety function people to deposit their money in banking institutions and to discourage private hoarding so that
4.Director who acts as government the same may be properly utilized by banks in authorized loans to assist in the economic
development of the country.
Q: Discuss Microfinancing
A: CIRCULAR NO. 272 [Series of 2001 ] Pursuant to Monetary Board Resolution No. 40 dated SECTION 2. All deposits of whatever nature with banks or banking institutions in the Philippines
January 11, 2001, the following guidelines shall be observed in implementing the provisions of including investments in bonds issued by the Government of the Philippines, its political
Sections 40, 43 and 44 of the General Banking Law of 2000 with respect to microfinancing loans: subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential
1. Microfinancing loans are small loans granted to the basic sectors, as defined in the Social nature and may not be examined, inquired or looked into by any person, government official,
Reform and Poverty Alleviation Act of 1997 (Republic Act 8425), and other loans granted to bureau or office, except upon written permission of the depositor, or in cases of impeachment, or
upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in
the poor and low-‐income households for their microenterprises and small businesses so as to cases where the money deposited or invested is the subject matter of the litigation.
enable them to raise their income levels and improve their living standards. These loans are
granted on the basis of the borrowers’ cash flow and are typically unsecured. SECTION 3. It shall be unlawful for any official or employee of a banking institution to disclose to
2. The maximum principal amount of microfinance loans shall not exceed P150,000. This is any person other than those mentioned in Section two hereof any information concerning said
deposits.
equivalent to the maximum capitalization of microenterprise under R.A. 8425.

Q: What is the purpose of the GBL?
Q: Can the Bank acquire Real Estate:
A: The GBL of 2000 as well as improving market access, upgraded the rules governing the operation
A: SECTION 51. Ceiling on Investments in Certain Assets. — Any bank may acquire real estate as
of the BSP to conform to international banking standards. The aim was to “ promote and maintain a
shall be necessary for its own use in the conduct of its business: Provided, however, That the total
stable and efficient banking and financial system that is globally competitive, dynamic, and
investment in such real estate and improvements thereof, including bank equipment, shall not
responsive to the demands of a developing economy”
exceed fifty percent (50%) of combined capital accounts: Provided, further, That the equity

investment of a bank in another corporation engaged primarily in real estate shall be considered
ADDITIONAL QUESTIONS FOR MIDTERM REVIEW
as part of the bank's total investment in real estate, unless otherwise provided by the Monetary

Board. (25a)
Q: What are the functions that a bank can outsource?

A: BSP Circular 765, pursuant to the Money Board Resolution No. 1179 dated July 19, 2012, approved
SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. — Notwithstanding the
the revisions to the outsourcing framework of banks, amending the entirety of relevant sections and
limitations of the preceding Section, a bank may acquire, hold or convey real property under the
other provisions of the Manual of Regulations for Banks. An amended Section X162.2 on the
following circumstances:
Prohibition against outsourcing of inherent banking functions. No bank shall outsource functions
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
such as:
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the
1. Services normally associated with placement of deposits and withdrawals including the
course of its dealings; or
recognition based on recording of movements in the deposit accounts;
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2. Granting of loans and extension of other credit exposures A: In PNB vs. CA & Pujol the depositor opened a checking account together with a savings account
3. Position taking and market risk taking activities under what is known as “Combination Deposit Plan” or “Combo Account” under which checks drawn
4. Managing of risk exposures; and against the checking account shall be charged automatically against the savings account. The
5. Strategic decision making operation and effectivity of the automatic transfer arrangement (ATA) was however subject to the
submission of certain documents, like business permit and the like. Notwithstanding the non-‐
Q: What is the degree of diligence required of Banks to be exercised? submission of the documentary requirements the bank staff already stamped on the passbook
A: The time-‐honored, and still current, judicial doctrine on the degree of bank diligence is that every “Combo Deposit Plan” which led depositor to believe that the ATA was already in effect. Depositor
bank, in dealing with the public must exercise the highest degree of diligence, the highest degree of then issued two checks which the bank dishonored for insufficiency of funds. In the suit for damages
care or extra-‐ordinary diligence. The diligence of an ordinary prudent man, or ordinary diligence, is against the bank, the Court ruled that PNB was in estoppel, i.e., estopped to deny the existence and
not enough. The reasons for the strict and highest standard required are the following: (1) the perfection of the ATA because by stamping “Combo Deposit Plan” on the passbook, depositor was led
business of banking is so impressed with public interest; (2) trust and confidence of the public in to believe that the ATA was already effective. The Court ruled “that a bank is under obligation to treat
general is of paramount interest, and (3) the fiduciary nature of its function. With particular the accounts of its depositors with meticulous care whether such account consists a few hundred
reference to deposits, the doctrine is “a bank is under obligation to treat the accounts of its pesos or millions of pesos.” The Court continued that while the bank’s negligence may not have been
depositors with meticulous care, always having in mind the fiduciary nature of their relationship,” attended by malice or bad faith, nevertheless it caused serious anxiety, embarrassment and
whether such account consists only of a few hundred pesos or of millions of pesos. humiliation to the depositor which entitled her to moral damages.

The point is that as a business affected with public interest and because of the nature of its functions, In Prudential Bank vs. CA & Valenzuela, 7 depositor maintained current and savings accounts with
the bank is under obligation to treat the account of its depositors with meticulous care, always automatic transfer arrangement. The bank misposted depositor’s check deposit to the savings
having in mind the fiduciary nature of their relationship. account for P35,993.48 made on June 1, 1988 to another account. The mistake was corrected and
“In the recent case of Philippine National Bank vs. Court of Appeals, we held that ‘a bank is under credited only on June 24, or after 23 days. In the meantime, a check issued by the depositor was
obligation to treat the accounts of its depositors with meticulous care whether such account consists dishonored for insufficiency of funds. In awarding damages in favor of the depositor, the Court ruled
only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the “that the misposting of plaintiff’s check deposit to another account and the delayed posting of the
performance of every kind of obligation is demandable. While petitioner’s negligence in this case may same x x x is a clear proof of lack of supervision on the part of the bank x x x while it may true that
not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, the bank’s negligence in dishonoring the properly funded check x x x might not have been attended
embarrassment and humiliation.’ with malice and bad faith, x x x nevertheless, it is the result of lack of due care and caution expected
of an employee of a firm engaged in so sensitive and accurately demanding task as banking.”
Hence we ruled that the offended party in said case was entitled to recover reasonable moral
damages.” Q: When a bank grants a securitized or collateralized loan, what is the duty of the bank in
relation to the Certificate of Title?
Q: What is the nature of the depositor – bank relationship? A: It is the duty of the bank to confirm that the COT provided by the person applying for a loan is
A: SECTION 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an clean, by comparing the title submitted to that which is in the Register of Deeds, in order to verify the
environment conducive to the sustained development of the national economy and the fiduciary existence of tax liens, and/or adverse claims that may be attached to the title. The bank also has the
nature of banking that requires high standards of integrity and performance. duty to register the mortgage/lien obtained by the person applying for the same, in order to bind the
It is impressed with public interest where the trust and confidence of the public in general is of land.
paramount importance such that:
Q: Reconcile the law on secrecy of bank deposits and survivorship agreements with regard to
1. The appropriate standard of diligence must be very high, if not the highest, degree of deposit accounts.
diligence; highest degree of care (PCI Bank vs. CA, 350 SCRA 446, PBCom vs. CA, G.R. A: A survivorship agreement is an aleatory contract supported by a lawful consideration -‐ the mutual
No.121413, 29 Jan. 2001) agreement of the joint depositors permitting either of them to withdraw the whole during their
>> This applies only to cases where banks are acting in their fiduciary capacity, that is, as lifetime, and transferring the balance to the survivor upon the death of one of them. But while the
depository of the deposits of their depositors (Reyes vs. CA, G.R. No.118492, 15 Aug. 2001) survivorship agreement is per se not contrary to law, its operation or effect may be violative of law
where it is shown that such agreement is a mere cloak to hide an inofficious donation to transfer
2. Subject to reasonable regulation under the police power of the state property in fraud of creditors, or to defeat the legitime of a forced heir.

Q: Reconcile the situation where in a combination account (deposit and current/checking Section 97, NIRC provide that If a bank has knowledge of the death of a person, who has a deposit
account), an officer of the bank is not alert enough to transfer funds from the deposit account account with it alone or jointly with another, it must not allow any withdrawal from said account,
to the current account which leads to the dishonoring of the check issued by the depositor in unless the Commissioner of Internal Revenue certified that the estate tax thereon has been paid.
BP 22 cases.

AKD BANKING 2015 6

Considering that the joint account is co-‐owned by the depositors, there is a presumption that they The Monetary Board shall promulgate such rules and regulations as may be necessary to prevent
owned it equally or in 50/50 shares, in which case, the transfer of the remaining balance of the whole circumvention of this prohibition or the evasion of the responsibility herein imposed on a trust entity
deposit to the surviving co-‐depositor/s upon death of the other co-‐depositor pursuant to their
Survivorship Agreement is a transfer made by the said depositor in contemplation of death, as Q: Discuss the powers of a trust entity.
provided under Section 85(B) of the 1997 Tax Code, viz: A: SECTION 83. Powers of a Trust Entity. – A trust entity, in addition to the general powers
incident to corporations, shall have the power to:
“(B) Transfer in Contemplation of Death – To the extent of any interest therein of which the decedent 83.1 Act as trustee on any mortgage or bond issued by any municipality, corporation, or any
has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect body politic and to accept and execute any trust consistent with law;
in possession or enjoyment at or after death, or of which he has at any time made a transfer, by trust 83.2 Act under the order or appointment of any court as guardian, receiver, trustee, or
or otherwise, under which he has retained for his life or for any period which does not in fact end depositary of the estate of any minor or other incompetent person, and as receiver and
before his death (1) the possession or enjoyment of, or the right to the income from the property, or depositary of any moneys paid into court by parties to any legal proceedings and of property of
(2) the right, either alone or in conjunction with any person, to designate the person who shall any kind which may be brought under the jurisdiction of the court;
possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an 83.3. Act as the executor of any will when it is named the executor thereof;
adequate and full consideration in money or money’s worth.” 83.4 Act as administrator of the estate of any deceased person, with the will annexed, or as
administrator of the estate of any deceased person when there is no will;
Thus, upon the death of the co-‐depositors, the 50% share of the deceased co-‐depositor in the deposit 83.5. Accept and execute any trust for the holding, management, and administration of any
shall be included in computing the value of his gross estate. Hence, the funds in the joint deposit estate, real or personal, and the rents, issues and profits thereof; and
account cannot be withdrawn by the surviving co-‐depositor/s unless the Commissioner has certified 83.6. Establish and manage common trust funds, subject to such rules and regulations as may
that the taxes imposed thereon by Title III of the 1997 Tax Code have been paid; Provided, however, be prescribed by the Monetary Board.
That the administrator of
the estate or any one (1) of the heirs of the deceased co-‐depositor may, upon the authorization by the Q: Discuss duties of trust entities to minor beneficiaries.
Commissioner, withdraw an amount not exceeding Twenty thousand pesos (P20,000.00) without the A: Testamentary Trust -‐ As its name implies, it is a trust whereby the trustor transfers his property
said certification. in trust through his will and testament and this is to take effect only upon his death. It is a part of the
will and testament itself and is not a separate legal document.
Section 97 does not apply when there is a survivorship agreement between the co-‐depositors and it This is for clients who intend to accumulate all their assets as may be allowed by law into one fund to
is known to the bank. be managed by a competent and responsible trustee, specially if the trustor feels that he will be
survived by heirs who would still be minors, or who are incapacitated or not competent to manage
Q: Provide the exceptions to RA 1405 (Secrecy of Bank Deposits) their own affairs or the properties they stand to inherit from the trustor. This prevents the
A: Section 2 of RA 1405 provides: All deposits of whatever nature with banks or banking institutions unnecessary division of the trustor’s estate and the consequent loss of earning power through
in the Philippines including investments in bonds issued by the Government of the Philippines, its unwise management or dissipation. Depending on how it is drafted, the testamentary trust can also
political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential minimize or avoid a second tax on the family estate as it is transferred from the surviving spouse to
nature and may not be examined, inquired or looked into by any person, government official, bureau the children.
or office, except upon written permission of the depositor, or in cases of impeachment, or upon order
of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the Living or “Inter Vivos” Trust
money deposited or invested is the subject matter of the litigation. This trust, which is created by a trust agreement, starts to operate during the lifetime of the trustor.
Under this arrangement, the trustor transfers assets to a trustee for the latter to manage as the trust
Q: Discuss the duties of a Trust Entity agreement dictates. The functions and authorities to be exercised by the trustee are defined in the
A: SECTION 79. Authority to Engage in Trust Business. — Only a stock corporation or a person duly trust agreement. These would include : (1) the scope or extent of the trustee’s investment powers;
authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any (2) the beneficiaries; (3) the terms and conditions under which the income and/or principal of the
trust or hold property in trust or on deposit for the use, benefit, or behoof of others. For purposes of trust is to be paid or to be disposed of ultimately.
this Act, such a corporation shall be referred to as a trust entity.
SECTION 80. Conduct of Trust Business. — A trust entity shall administer the funds or property Q: Discuss a TRUST BOND.
under its custody with the diligence that a prudent man would exercise in the conduct of an A: SECTION 85. Bond of Certain Persons for the Faithful Performance of Duties. — Before an
enterprise of a like character and with similar aims. No trust entity shall, for the account of the trust executor, administrator, guardian, trustee, receiver or depositary appointed by the court enters upon
or or the beneficiary of the trust, purchase or acquire property from, or sell, transfer, assign or lend the execution of his duties, he shall, upon order of the court, file a bond in such sum, as the court may
money or property to, or purchase debt instruments of, any of the departments, directors, officers, direct. Upon the application of any executor, administrator, guardian, trustee, receiver, depositary or
stockholders, or employees of the trust entity, relatives within the first degree of consanguinity or any other person in interest, the court may, after notice and hearing, order that the subject matter of
affinity, or the related interests, of such directors, officers and stockholders, unless the transaction is the trust or any part thereof be deposited with a trust entity. Upon presentation of proof to the court
specifically authorized by the trust or and the relationship of the trustee and the other party involved that the subject matter of the trust has been deposited with a trust entity, the court may order that
in the transaction is fully disclosed to the trust or or beneficiary of the trust prior to the transaction. the bond given by such persons for the faithful performance of their duties be reduced to such sums
AKD BANKING 2015 7

as it may deem proper: Provided, however, That the reduced bond shall be sufficient to secure Facts: Franco opened 3 accounts with BPI with the total amount of P2,000,000.00. The said amount
adequately the proper administration and care of any property remaining under the control of such used to open these accounts is traceable to a check issued by Tevesteco. The funding for the
persons and the proper accounting for such property. Property deposited with any trust entity in P2,000,000.00 check was part of the P80,000,000.00 debited by BPI from FMIC’s account (with a
conformity with this Section shall be held by such entity under the orders and direction of the court deposit of P100,000,000.00) and credited to Tevesteco’s account pursuant to an Authority to Debit
which was allegedly forged as claimed by FMIC.
CASES Tevesteco effected several withdrawals already from its account amounting to P37,455,410.54
1. SIMEX INTERNATIONAL (MANILA) V. CA including the P2,000,000.00 paid to Franco.
A bank may be held liable for damages by reason of its unjustified dishonor of a check, which Franco issued two checks which were dishonoured upon presentment for payment due to
caused damage to its client’s credit standing. The bank must record every single transaction garnishment of his account filed by BPI.
accurately, down to the last centavo, and as promptly as possible. This has to be done if the BPI claimed that it had a better right to the amounts which consisted of part of the money allegedly
account is to reflect at any given time the amount of money the depositor can dispose of as he sees fraudulently withdrawn from it by Tevesteco and ending up in Franco’s account. BPI urges us that
fit, confident that the bank will deliver it as and to whomever he directs. The bank is a fiduciary of the legal consequence of FMIC’s forgery claim is that the money transferred by BPI to Tevesteco is its
the depositor’s money. own, and considering that it was able to recover possession of the same when the money was
redeposited by Franco, it had the right to set up its ownership thereon and freeze Franco’s accounts.
Facts: Simex International is a private corporation engaged in the exportation of food products. It
buys these products from various local suppliers and then sells them abroad to the Middle East and Issue: WON the bank has a better right to the deposits in Franco’s account.
the United States. Most of its exports are purchased by the petitioner on credit. Simex was a
depositor of the Far East Savings Bank and maintained a checking account in its branch in Cubao, Held: No. Significantly, while Article 559 permits an owner who has lost or has been unlawfully
Quezon City which issued several checks against its deposit but was surprised to learn later that deprived of a movable to recover the exact same thing from the current possessor, BPI simply claims
they had been dishonored for insufficient funds. As a consequence, several suppliers sent a letter of ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited
demand to the petitioner, threatening prosecution if the dishonored check issued to it was not made from FMIC’s account and credited to Tevesteco’s, and subsequently traced to Franco’s account.
good and also withheld delivery of the order made by the petitioner. One supplier also cancelled the Money bears no earmarks of peculiar ownership, and this characteristic is all the more manifest in
petitioner’s credit line and demanded that future payments be made by it in cash or certified check. the instant case which involves money in a banking transaction gone awry. Its primary function is to
The petitioner complained to the respondent bank. Investigation disclosed that the sum of pass from hand to hand as a medium of exchange, without other evidence of its title. Money, which
P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was had been passed through various transactions in the general course of banking business, even if of
rectified only a month after, and the dishonored checks were paid after they were re-‐deposited. The traceable origin, is no exception.
petitioner then filed a complaint in the then Court of First Instance of Rizal against the bank for its
gross and wanton negligence. BPI v. CA [G.R. No. 104612, May 10, 1994]
DAVIDE, JR., J.
Issue: Whether or not the bank can be held liable for negligence by reason of its unjustified
dishonor of a check FACTS:
Private respondents Eastern and Lim, an officer and stockholder of Eastern, held at least one joint
Held: The depositor expects the bank to treat his account with the utmost fidelity whether such bank account with the Commercial Bank and Trust Co. (CBTC), the predecessor-‐in-‐interest of
account consists only of a few hundred pesos or of millions. The bank must record every single petitioner BPI. Sometime in March 1975, a joint checking account ("and" account) with Lim in the
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if amount of P120,000.00 was opened by Mariano Velasco. When Velasco died, an Indemnity
the account is to reflect at any given time the amount of money the depositor can dispose of as he Undertaking was executed by Lim for himself and as President and GM of Eastern, wherein one-‐half
sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the outstanding balance was provisionally released and transferred to one of the bank accounts of
of the bank, such as the dishonour of a check without good reason, can cause the depositor not a Eastern with CBTC. Later on, Eastern obtained a loan of P73,000.00 from CBTC as "Additional
little embarrassment if not also financial loss and perhaps even civil and criminal litigation. Working Capital," evidenced by the "Disclosure Statement on Loan/Credit Transaction". The loan
was payable on demand with interest at 14% per annum. For this loan, Eastern issued on the same
Article 2205 of the Civil Code provides that actual or compensatory damages may be received day a negotiable promissory note which was signed by Lim both in his own capacity and as President
“(2) for injury to the plaintiff s business standing or commercial credit.” There is no question that and General Manager of Eastern. No reference to any security for the loan appears on the note. In
the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of addition, Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement,"
the loss having been established “absolute certainty as to its amount is not required.” 7 Such injury wherein it was stated that as security for the Loan [Lim and Eastern] have offered [CBTC] and the
should bolster all the more the demand of the petitioner for moral damages and justifies the latter accepts a holdout on said Current Account in the joint names of Lim and Velasco. After CBTC
examination by this Court of the validity and reasonableness of the said claim. was merged with BPI, BPI filed a complaint against Lim and Eastern demanding payment of the
promissory note for P73,000.00. Defendants Lim and Eastern, in turn, filed a counterclaim against
2. BPI CASES BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the
BPI vs FRANCO Court of Appeals, GR No. 123498, November 23, 2007 interests thereon after deducting the amount due on the promissory note.
AKD BANKING 2015 8

and sustainable growth of the economy. It shall also promote and maintain monetary stability and
ISSUE: the convertibility of the peso. [Sec 3[2] NCBA]
Whether BPI can demand payment of the loan of P73,000.00 despite the existence of the Holdout
Agreement. Q: What are the functions and the responsibilities of the BSP
Whether or not BPI is still liable to the private respondents on the account subject of the Holdout 1. It provides policy directions in the areas of money, credit, and banking;
Agreement after its withdrawal by the heirs of Velasco. 2. It shall have supervision over the operations of banks
3. It shall exercise regulatory powers over the operations of finance companies and non bank
HELD: financial institutions performing quasi banking functions
The deposit under the questioned account was an ordinary bank deposit; hence, it was payable on 4. It shall have the sole power and authority to issue currency within the territory of the
demand of the depositor. When the ownership of a particular property is disputed, the determination republic of the Philippines
by a probate court of whether that property is included in the estate of a deceased is merely 5. The power to issue regulations to prevent the circulation of foreign currencies or currency
provisional in character and cannot be the subject of execution. substitutes as well as the reproduction of facsimiles of BSP notes.
The payment of the money deposited with BPI that will extinguish its obligation to the creditor-‐ 6. It has the power to investigate, make arrest, conduct searches and seizure for maintaining
depositor is payment to the person of the creditor or to one authorized by him or by the law to the integrity of currency
receive it. 7. To engage in foreign exchange transactions to maintain price stability
• Payment made by the debtor to the wrong party does not extinguish the obligation as to 8. To make rediscounts, discounts, loans and advances to banking and other financial
the creditor who is without fault or negligence, even if the debtor acted in utmost good institutions to influence the volume of credit consistent with the objectives of price stability
faith and by mistake as to the person of the creditor, or through error induced by fraud of a 9. To engage in open market operations – purchase and sale securities – exclusively in
third person accordance with its objective of achieving price stability
10. To act as the banker of government
BPI v. Roxas GR 157833 11. To engage in marketing and stabilization of securities for the account of the government
Macalinao vs. BPI GR 175490 12. To act as financial advisor of the government

POST MIDTERMS: Chapters 7,8,9,10, & 11 Q: What are the responsibilities of the BSP?
A: Responsibilities-‐ The BSP provides policy directions in the areas of money, banking and credit. It
Chapter 7: THE BANGKO SENTRAL NG PILIPINAS supervises operations of banks and exercises regulatory powers over non-‐bank financial institutions
Q: What is the Declared Policy of the State with quasi-‐banking functions.
A: 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 Under the New Central Bank Act, the BSP performs the following functions, all of which relate to its
concerning its unique functions and responsibilities, the central monetary authority established status as the Republic’s central monetary authority.
under the NCBA, while being a government owned corporation, shall enjoy fiscal and administrative
autonomy [Sec. 1 NCBA} Liquidity Management. The BSP formulates and implements monetary policy aimed at influencing
money supply consistent with its primary objective to maintain price stability.
Q: What are the changes made to the BSP by virtue of the NCBA? Currency issue. The BSP has the exclusive power to issue the national currency. All notes and coins
A: SEC. 2. Creation of the Bangko Sentral. _ There is hereby established an independent central issued by the BSP are fully guaranteed by the Government and are considered legal tender for all
monetary authority, which shall be a body corporate known as the Bangko Sentral ng Pilipinas, private and public debts.
hereafter referred to as the Bangko Sentral. As mandated by Sec 20, Art. XII of the 1987 Constitution, Lender of last resort. The BSP extends discounts, loans and advances to banking institutions for
Congress shall establish an independent central monetary authority, the members of whose liquidity purposes.
governing board must be natural-‐born Filipino citizens, of known probity, integrity, and patriotism, Financial Supervision. The BSP supervises banks and exercises regulatory powers over non-‐bank
the majority of whom shall come from the private sector. They shall also be subject to such other institutions performing quasi-‐banking functions.
qualifications and disabilities as may be prescribed by law. The authority shall provide policy Management of foreign currency reserves. The BSP seeks to maintain sufficient international
direction in the areas of money, banking, and credit. It shall have supervision over the operations of reserves to meet any foreseeable net demands for foreign currencies in order to preserve the
banks and exercise such regulatory powers as may be provided by law over the operations of finance international stability and convertibility of the Philippine peso.
companies and other institutions performing similar functions. Determination of exchange rate policy. The BSP determines the exchange rate policy of the
Philippines. Currently, the BSP adheres to a market-‐oriented foreign exchange rate policy such that
Until the Congress otherwise provides, the Central Bank of the Philippines operating under existing the role of Bangko Sentral is principally to ensure orderly conditions in the market.
laws, shall function as the central monetary authority. Other activities. The BSP functions as the banker, financial advisor and official depository of the
Government, its political subdivisions and instrumentalities and government-‐owned and -‐controlled
Q: What is the primary objective of the BSP? corporations.
A: The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced
AKD BANKING 2015 9

Q: What are the corporate powers of the BSP: Q: What is the Function of the Monetary Board
A: The BSP is a government owned and controlled corporation that is invested by law with corporate A: The Bangko Sentral shall provide policy direction in the areas of money, banking and credit. (n)
powers. The corporate powers specified in Sec. 5 of the NCBA are as follows: For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of
1. the power to adopt, alter, and use a corporate seal which shall be judicially noticed. regulation on the different types of accounts and practices of banks and quasi-‐banks which shall, to
2. The enter into contracts the extent feasible, conform to internationally accepted standards, including those of the Bank for
3. To lease or own real and personal property. International Settlements (BIS). The Monetary Board may exempt particular categories of
4. To sell or otherwise dispose of its real and personal property transactions from such ratios, ceilings and limitations, but not limited to exceptional cases or to
5. To sue and be sued enable a bank or quasi-‐bank under rehabilitation or during a merger or consolidation to continue in
6. To perform any and all things that may be necessary or proper to carry out the purposes of business with safety to its creditors, depositors and the general public.
the NCBA
7. To compromise, condone or release, in whole or in part, any claim or settled liability. Q: Provide for the composition of the Monetary Board
A: SEC. 6. Composition of the Monetary Board. -‐ The powers and functions of the Bangko Sentral shall
Q: Provide for Section 4 GBL: Supervisory and Regulatory Powers of the BSP be exercised by the Bangko Sentral Monetary Board, hereafter referred to as the Monetary Board,
A: SECTION 4. Supervisory Powers. — The operations and activities of banks shall be subject to composed of seven (7) members appointed by the President of the Philippines for a term of six (6)
supervision of the Bangko Sentral. "Supervision" shall include the following: years.
4.1. The issuance of rules of conduct or the establishment of standards of operation for
uniform application to all institutions or functions covered, taking into consideration the The seven (7) members are:
distinctive character of the operations of institutions and the substantive similarities of (a) the Governor of the Bangko Sentral, who shall be the Chairman of the Monetary Board. The
specific functions to which such rules, modes or standards are to be applied; Governor of the Bangko Sentral shall be head of a department and his appointment shall be subject to
4.2. The conduct of examination to determine compliance with laws and regulations if the confirmation by the Commission on Appointments. Whenever the Governor is unable to attend a
circumstances so warrant as determined by the Monetary Board; meeting of the Board, he shall designate a Deputy Governor to act as his alternate: Provided, That in
4.3. Overseeing to ascertain that laws and regulations are complied with; such event, the Monetary Board shall designate one of its members as acting Chairman;
4.4. Regular investigation which shall not be oftener than once a year from the last date of (b) a member of the Cabinet to be designated by the President of the Philippines. Whenever the
examination to determine whether an institution is conducting its business on a safe or designated Cabinet Member is unable to attend a meeting of the Board, he shall designate an
sound basis: Provided, That the deficiencies/irregularities found by or discovered by an Undersecretary in his Department to attend as his alternate; and
audit shall be immediately addressed; (c) five (5) members who shall come from the private sector, all of whom shall serve full-‐time:
4.5. Inquiring into the solvency and liquidity of the institution (2-‐D); or Provided, however, That of the members first appointed under the provisions of this subsection,
4.6. Enforcing prompt corrective action. (n) three (3) shall have a term of six (6) years, and the other two (2), three (3) years.

The Bangko Sentral shall also have supervision over the operations of and exercise regulatory No member of the Monetary Board may be reappointed more than once.
powers over quasi-‐banks, trust entities and other financial institutions which under special laws
are subject to Bangko Sentral supervision. (2-‐Ca) At present, the following comprises the MB:
For the purposes of this Act, "quasi-‐banks" shall refer to entities engaged in the borrowing of Chairman: Amando M. Tetangco, Jr.
funds through the issuance, endorsement or assignment with recourse or acceptance of deposit Members:
substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank Cesar V. Purisima
Act") for purposes of relending or purchasing of receivables and other obligations. Alfredo C. Antonio
Juan D. De Zuñiga, Jr.
Q: What is the role of BSP as Banker and Financial Adviser of the Government Valentin A. Araneta
A: The BSP is designated as the official depository of the Government, its political subdivisions and Felipe M. Medalla
instrumentalities [Sec. 113 NCBA]. It is authorized to engage the services of the other banking Armando L. Suratos
institutions to act as its agent [Sec 115 NCBA]. It is also authorized to act as agent of the
Government, its instrumentalities and subdivisions in the issuance of securities representing the Q: What are the qualifications for the Members of the Monetary Board
obligations of the Government, its instrumentalities or subdivisions [Sec 117-‐119 NCBA]. The A: 1. Natural born citizens
BSP is likewise the financial advisor of the Government. Section 123 of the NCBA provides that 2. At least 35 years of age, Governor must be 40 years old
before undertaking any credit operation abroad, the Government, through the Secretary of 3. Good moral character
Finance, shall request the opinion, in writing of the Monetary Board and the monetary 4. Integrity
implications of the contemplated action. 5. Probity and patriotism
6. Recognized competence in social and economic disciplines

AKD BANKING 2015 10

Q: What are the powers of the monetary board misconduct.
A: Corporate powers of BSP (SCP-‐SPAL)
1. Use corporate seal In the event of a settlement or compromise, indemnification shall be provided only in connection
2. Enter contracts with such matters covered by the settlement as to which the Bangko Sentral is advised by external
3. Lease or own personal and real property and may dispose the same counsel that the person to be indemnified did not commit any negligence or misconduct.
4. Sue and be sued
5. Perform any thing that may be necessary to carry out purpose of NCBA The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be
6. Acquire and hold assets and incur liabilities in connection with NCBA paid by the Bangko Sentral in advance of the final disposition of such action, suit or proceeding upon
7. Comprise or release claim or settled liability to BSP regardless of amount involved receipt of an undertaking by or on behalf of the member, officer, or employee to repay the amount
advanced should it ultimately be determined by the Monetary Board that he is not entitled to be
Exercise of Authority of Monetary Board indemnified as provided in this subsection.
SECTION 15. Exercise of Authority. — In the exercise of its authority, the Monetary Board shall:
Q: Provide for the role of Conservators in situations of delinquent banks
(a) issue rules and regulations it considers necessary for the effective discharge of the A: SECTION 29. Appointment of Conservator. — Whenever, on the basis of a report submitted by the
responsibilities and exercise of the powers vested upon the Monetary Board and the Bangko Sentral. appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-‐
The rules and regulations issued shall be reported to the President and the Congress within fifteen bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed
(15) days from the date of their issuance; adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a
(b) direct the management, operations, and administration of the Bangko Sentral, reorganize its conservator with such powers as the Monetary Board shall deem necessary to take charge of the
personnel, and issue such rules and regulations as it may deem necessary or convenient for this assets, liabilities, and the management thereof, reorganize the management, collect all monies and
purpose. The legal units of the Bangko Sentral shall be under the exclusive supervision and control of debts due said institution, and exercise all powers necessary to restore its viability. The conservator
the Monetary Board; shall report and be responsible to the Monetary Board and shall have the power to overrule or
(c) establish a human resource management system which shall govern the selection, hiring, revoke the actions of the previous management and board of directors of the bank or quasi-‐bank.
appointment, transfer, promotion, or dismissal of all personnel. Such system shall aim to establish The conservator should be competent and knowledgeable in bank operations and management. The
professionalism and excellence at all levels of the Bangko Sentral in accordance with sound conservatorship shall not exceed one (1) year.
principles of management. The powers that may be conferred to the conservator are such powers as may be necessary for the
following purposes:
A compensation structure, based on job evaluation studies and wage surveys and subject to the 1. To take charge of assets, liabilities, and the management thereof
Board's approval, shall be instituted as an integral component of the Bangko Sentral's human 2. TO reorganize the management of the subject bank
resource development program: Provided, That the Monetary Board shall make its own system 3. To collect all monies and debts due said institution
conform as closely as possible with the principles provided for under Republic Act No. 6758: 4. To exercise all powers necessary to restore its viability.
Provided, however, That compensation and wage structure of employees whose positions fall under
salary grade 19 and below shall be in accordance with the rates prescribed under Republic Act No. Application in the case of Banco Filipino vs MB G.R. No. 70054, December 11, 1991
6758.
Facts: Banco Filipino filed the petition for certiorari questioning the validity of the resolutions
On the recommendation of the Governor, appoint, fix the remunerations and other emoluments, and [finding Banco Filipino insolvent and placing it under receivership and subsequently placing the
remove personnel of the Bangko Sentral, subject to pertinent civil service laws: Provided, That the bank under liquidation and designated a liquidator] issued by the Monetary Board authorizing the
Monetary Board shall have exclusive and final authority to promote, transfer, assign, or reassign receivership and liquidation of Banco Filipino.A temporary restraining order was issued enjoining
personnel of the Bangko Sentral and these personnel actions are deemed made in the interest of the the respondents from executing further acts of liquidation of the bank. However, acts and other
service and not disciplinary: Provided, further, That the Monetary Board may delegate such authority transactions pertaining to normal operations of a bank are not enjoined. Subsequently, Top
to the Governor under such guidelines as it may determine. Management and Pilar Development failed to pay their loans on the due date. Hence, the law firm of
Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of the liquidator, applied for
(d) adopt an annual budget for and authorize such expenditures by the Bangko Sentral as are in the extra-‐judicial foreclosure of the mortgage over Top Management and Pilar Development’s properties.
interest of the effective administration and operations of the Bangko Sentral in accordance with Thus, the Ex-‐Officio Sheriff of the Regional Trial Court of Cavite issued a notice of extra-‐judicial
applicable laws and regulations; and foreclosure sale of the properties. Top Management and Pilar Development filed 2 separate petitions
for injunction and prohibition with the respondent appellate court seeking to enjoin the Regional
(e) indemnify its members and other officials of the Bangko Sentral, including personnel of the Trial Court of Cavite, the ex-‐officio sheriff of said court and Sycip, Salazar, et al. from proceeding with
departments performing supervision and examination functions against all costs and expenses foreclosure sale which were subsequently dismissed by the court. Hence this petition
reasonably incurred by such persons in connection with any civil or criminal action, suit or
proceedings to which he may be, or is, made a party by reason of the performance of his functions or Issues:
duties, unless he is finally adjudged in such action or proceeding to be liable for negligence or
AKD BANKING 2015 11

1) Whether or not the liquidator has the authority to prosecute as well as to defend suits and to bank’s assets and as a valid exercise of police power to protect the depositors, creditors, stockholders
foreclose mortgages for and behalf of the bank while the issue on the validity of the receivership and and the general public. (Central Bank of the Philippines v. CA, G.R. No. 76118 Mar. 30, 1993)
liquidation is still pending resolution.
Is the “Close now, Hear later” scheme a valid practice?
Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that This close now, hear later scheme is grounded on practical and legal considerations to prevent
when a bank is forbidden to do business in the Philippines and placed under receivership, the person unwarranted dissipation of the banks assets and as a valid exercise of police power to protect the
designated as receiver shall immediately take charge of the bank’s assets and liabilities, as depositors, creditors, stockholders, and the general public.
expeditiously as possible, collect and gather all the assets and administer the same for the benefit of
its creditors, and represent the bank personally or through counsel as he may retain in all actions or The close now, hear later doctrine has already been justified as a measure for the protection of the
proceedings for or against the institution, exercising all the powers necessary for these purposes public interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire
including, but not limited to, bringing and foreclosing mortgages in the name of the bank. If the straits. Unless adequate and determined efforts are taken by the government against distressed and
Monetary Board shall later determine and confirm that banking institution is insolvent or cannot mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the
resume business safety to depositors, creditors and the general public, it shall, public interest national economy itself, not to mention the losses suffered by the bank depositors, creditors, and
requires, order its liquidation and appoint a liquidator who shall take over and continue the stockholders, who all deserve the protection of the government.
functions of receiver previously appointed by Monetary Board. The liquid for may, in the name of the
bank and with the assistance counsel as he may retain, institute such actions as may necessary in the Q: What is the role of PDIC in close coordination with the BSP & MB?
appropriate court to collect and recover a counts and assets of such institution or defend any action A: PDIC was created to “promote and safeguard the interests of the depositing public by way of
ft against the institution. providing permanent and continuing insurance coverage on all insured deposits.” The PDIC also aims
to strengthen the mandatory deposit insurance coverage system to generate, preserve, and maintain
Pendency of the case did not diminish the powers and authority of the designated liquidator to faith and confidence in the country’s banking system, and protect it from illegal schemes and
effectuate and carry on the administration of the bank. The Court did not prohibit however acts a as machinations.
receiving collectibles and receivables or paying off credits claims and other transactions pertaining
to normal operate of a bank. There is no doubt that the prosecution of suits collection and the Consistent with its public policy objectives, the PDIC has the following mandates:
foreclosure of mortgages against debtors the bank by the liquidator are among the usual and II. Examination and Resolution. The PDIC works closely with the Bangko Sentral ng Pilipinas (BSP) in
ordinary transactions pertaining to the administration of a bank. strengthening and maintaining the stability of the banking system. PDIC is authorized to issue
regulations to implement its Charter, conduct bank examinations and investigations to determine
2) Whether or not the closure of the bank based on the Tiaoqui report is correct. banks’ financial health and their adherence to rules and regulations on banking and deposit
insurance, and extend financial assistance to eligible distressed banks.
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly
concluded therein that the latter’s financial status was one of insolvency or illiquidity. In the instant Q: Explain the movement made to buy weak banks – strengthening program for rural banks
case, the basic standards of substantial due process were not observed. Time and again, We have and incentives given to buyer-‐banks
held in several cases, that the procedure of administrative tribunals must satisfy the fundamentals of
fair play and that their judgment should express a well-‐supported conclusion. The test of insolvency Pursuant to Philippine Deposit Insurance Corporation (PDIC) Board Resolution No. 2012-‐04-‐103
laid down in Section 29 of the Central Bank Act is measured by determining whether the realizable dated 25 April 2012 and Bangko Sentral ng Pilipinas (BSP) Monetary Board (MB) Resolution No. 759
assets of a bank are leas than its liabilities. Hence, a bank is solvent if the fair cash value of all its dated 10 May 2012, approving the Strengthening Program for Rural Banks Plus (SPRB Plus), this
assets, realizable within a reasonable time by a reasonable prudent person, would equal or exceed its implementing guidelines (the “Guidelines”) for availment of the SPRB Plus Financial Assistance (FA)
total liabilities exclusive of stock liability; but if such fair cash value so realizable is not sufficient to and regulatory reliefs/incentives is hereby issued.
pay such liabilities within a reasonable time, the bank is insolvent.
The BSP’s Monetary Board extended the validity of the program until the end of 2014.
Examination appraises the soundness of the institution’s assets, the quality and character of
management and determines the institution’s compliance with laws, rules and regulations. Audit is a “SPRB-‐Plus aims to strengthen the banking system and to minimize bank closures,” the BSP said in a
detailed inspection of the institution’s books, accounts, vouchers, ledgers, etc. to determine the weekend statement.
recording of all assets and liabilities. Hence, examination concerns itself with review and appraisal,
while audit concerns itself with verification. SPRB-‐Plus—a modified version of the original SPRB—is a joint project between the BSP and the
Philippine Deposit Insurance Corp. (PDIC), which acts as receiver for shuttered banks.
Q: What is the ‘ close now, hear later’ scheme?
A: The law does not contemplate prior notice and hearing before the bank may be directed to stop It provides incentives for “white knight” investors to acquire smaller banks and encourage
operations and placed under receivership. The purpose is to prevent unwarranted dissipation of the consolidation within the sector that caters to the most sensitive segment of the economy. The
previous SPRB rules limited the definition of white knights to rural banks. SPRB-‐Plus expands this to
AKD BANKING 2015 12

include bigger thrift, and universal and commercial lenders. Along with the extension, the BSP’s plan adopted by the Philippine Deposit Insurance Corporation for general application to all closed
Monetary Board also approved certain changes to the SPRB-‐Plus rules. This includes the relaxation of banks. In case of quasi-‐banks, the liquidation plan shall be adopted by the Monetary Board. Upon
the required ownership level of white knights in banks being rescued. From the previous 67 percent, acquiring jurisdiction, the court shall, upon motion by the receiver after due notice, adjudicate
acquiring banks now need to only acquire 60 percent of a smaller bank to be eligible for the SPRB-‐ disputed claims against the institution, assist the enforcement of individual liabilities of the
Plus incentives. Apart from making it easier for mergers to take place, this relaxation also puts the stockholders, directors and officers, and decide on other issues as may be material to implement the
rules in line with the recently passed Rural Banks Act, which allows foreign firms to acquire as much liquidation plan adopted. The receiver shall pay the cost of the proceedings from the assets of the
as 60 percent of rural banks in the country. The BSP and PDIC also incorporated incentives for institution.
mergers involving banks that were affected by Supertyphoon “Yolanda.” The PDIC will now pay for
100 percent of the required additional capital to restore a bank’s operations, if that bank was affected (2) convert the assets of the institutions to money, dispose of the same to creditors and other parties,
by the recent calamity. Under normal circumstances, the deposit insurer’s financial assistance would for the purpose of paying the debts of such institution in accordance with the rules on concurrence
be limited to 50 percent. Existing incentives in the SPRB-‐Plus program include the relaxation of rules and preference of credit under the Civil Code of the Philippines and he may, in the name of the
for branch expansions, and temporary regulatory relief such as on capitalization requirements, institution, and with the assistance of counsel as he may retain, institute such actions as may be
among others. necessary to collect and recover accounts and assets of, or defend any action against, the institution.
The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the
Q: Discuss Receivership hands of the receiver and shall, from the moment the institution was placed under such receivership
A: SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head or liquidation, be exempt from any order of garnishment, levy, attachment, or execution.
of the supervising or examining department, the Monetary Board finds that a bank or quasi-‐bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be
That this shall not include inability to pay caused by extraordinary demands induced by final and executory, and may not be restrained or set aside by the court except on petition for
financial panic in the banking community; certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be
(c) cannot continue in business without involving probable losses to its depositors or creditors; or filed by the stockholders of record representing the majority of the capital stock within ten (10) days
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving from receipt by the board of directors of the institution of the order directing receivership,
acts or transactions which amount to fraud or a dissipation of the assets of the institution; in liquidation or conservatorship.
which cases, the Monetary Board may summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the Philippine Deposit The designation of a conservator under Section 29 of this Act or the appointment of a receiver under
Insurance Corporation as receiver of the banking institution. this section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.
For a quasi-‐bank, any person of recognized competence in banking or finance may be designed as
receiver. Q: Discuss Conservatorship:
A: SECTION 29. Appointment of Conservator. — Whenever, on the basis of a report submitted by the
The receiver shall immediately gather and take charge of all the assets and liabilities of the appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-‐
institution, administer the same for the benefit of its creditors, and exercise the general powers of a bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed
receiver under the Revised Rules of Court but shall not, with the exception of administrative adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a
expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the conservator with such powers as the Monetary Board shall deem necessary to take charge of the
institution: Provided, That the receiver may deposit or place the funds of the institution in non-‐ assets, liabilities, and the management thereof, reorganize the management, collect all monies and
speculative investments. The receiver shall determine as soon as possible, but not later than ninety debts due said institution, and exercise all powers necessary to restore its viability. The conservator
(90) days from take over, whether the institution may be rehabilitated or otherwise placed in such a shall report and be responsible to the Monetary Board and shall have the power to overrule or
condition so that it may be permitted to resume business with safety to its depositors and creditors revoke the actions of the previous management and board of directors of the bank or quasi-‐bank.
and the general public: Provided, That any determination for the resumption of business of the
institution shall be subject to prior approval of the Monetary Board. The conservator should be competent and knowledgeable in bank operations and management. The
conservatorship shall not exceed one (1) year.
Q: Discuss the procedure in the liquidation of banks placed under receivership.
A: If the receiver determines that the institution cannot be rehabilitated or permitted to resume The powers that may be conferred to the conservator are such powers as may be necessary for the
business in accordance with the next preceding paragraph, the Monetary Board shall notify in following purposes:
writing the board of directors of its findings and direct the receiver to proceed with the liquidation of 1. To take charge of assets, liabilities, and the management thereof
the institution. The receiver shall: 2. TO reorganize the management of the subject bank
3. To collect all monies and debts due said institution
(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any 4. To exercise all powers necessary to restore its viability.
other action, a petition for assistance in the liquidation of the institution pursuant to a liquidation
AKD BANKING 2015 13

Q: Discuss the major role of the BSP to examine books of banks: CHAPTER 8: CURRENCY, MONETARY STABILIZATION FUNCTIONS OF THE BSP
A: SECTION 25. Supervision and Examination. — The Bangko Sentral shall have supervision over, and
conduct periodic or special examinations of, banking institutions and quasi-‐banks, including their Q: Define currency
subsidiaries and affiliates engaged in allied activities. A: Currency is defined as all Philippine notes and coins issued in accordance with NCBA

For purposes of this section, a subsidiary means a corporation more than fifty percent (50%) of the Q: What is Legal Tender
voting stock of which is owned by a bank or quasi-‐bank and an affiliate means a corporation the A: All notes and coins issued by the Bangko Sentral are fully guaranteed by the Republic and shall be
voting stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasi-‐bank legal tender in the Philippines for all debts, both public and private [Sec. 52]
or which is related or linked to such institution or intermediary through common stockholders or
such other factors as may be determined by the Monetary Board. Q: What are Characteristics of the currency
A: MB with approval of President shall prescribe denominations, dimensions, designs of notes:
The department heads and the examiners of the supervising and/or examining departments are • Notes shall state that they are liabilities of BSP and fully guaranteed by government
hereby authorized to administer oaths to any director, officer, or employee of any institution under • Notes shall bear signature, in facsimile, of President and BSP Governor
their respective supervision or subject to their examination and to compel the presentation of all • MB with approval of President shall prescribe weight, fitness, design and denomination of
books, documents, papers or records necessary in their judgment to ascertain the facts relative to the coins
true condition of any institution as well as the books and records of persons and entities relative to • In minting of coins, availability of metals and its price shall be considered
or in connection with the operations, activities or transactions of the institution under examination,
subject to the provision of existing laws protecting or safeguarding the secrecy or confidentiality of Q: Provide for the reserve requirement of money currency
bank deposits as well as investments of private persons, natural or juridical, in debt instruments A: SECTION 65. International Reserves. — In order to maintain the international stability and
issued by the Government. convertibility of the Philippine peso, the Bangko Sentral shall maintain international reserves
adequate to meet any foreseeable net demands on the Bangko Sentral for foreign currencies.
No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from
examining any institution subject to supervision or examination by the Bangko Sentral, unless there In judging the adequacy of the international reserves, the Monetary Board shall be guided by the
is convincing proof that the action of the Bangko Sentral is plainly arbitrary and made in bad faith prospective receipts and payments of foreign exchange by the Philippines. The Board shall give
and the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a special attention to the volume and maturity of the Bangko Sentral's own liabilities in foreign
bond executed in favor of the Bangko Sentral, in an amount to be fixed by the court. The provisions of currencies, to the volume and maturity of the foreign exchange assets and liabilities of other banks
Rule 58 of the New Rules of Court insofar as they are applicable and not inconsistent with the operating in the Philippines and, insofar as they are known or can be estimated, the volume and
provisions of this section shall govern the issuance and dissolution of the restraining order or maturity of the foreign exchange assets and liabilities of all other persons and entities in the
injunction contemplated in this section. Philippines.

SECTION 28. Examination and Fees. — The supervising and examining department head, personally SECTION 66. Composition of the International Reserves. — The international reserves of the
or by deputy, shall examine the books of every banking institution once in every twelve (12) months, Bangko Sentral may include but shall not be limited to the following assets:
and at such other times as the Monetary Board by an affirmative vote of five (5) members, may deem (a) gold; and
expedient and to make a report on the same to the Monetary Board: Provided, That there shall be an (b) assets in foreign currencies in the form of: documents and instruments customarily employed for
interval of at least twelve (12) months between annual examinations. the international transfer of funds; demand and time deposits in central banks, treasuries and
commercial banks abroad; foreign government securities; and foreign notes and coins.
The bank concerned shall afford to the head of the appropriate supervising and examining
departments and to his authorized deputies full opportunity to examine its books, cash and available The Monetary Board shall endeavor to hold the foreign exchange resources of the Bangko Sentral in
assets and general condition at any time during banking hours when requested to do so by the freely convertible currencies; moreover, the Board shall give particular consideration to the
Bangko Sentral: Provided, however, That none of the reports and other papers relative to such prospects of continued strength and convertibility of the currencies in which the reserve is
examinations shall be open to inspection by the public except insofar as such publicity is incidental to maintained, as well as to the anticipated demands for such currencies. The Monetary Board shall
the proceedings hereinafter authorized or is necessary for the prosecution of violations in connection issue regulations determining the other qualifications which foreign exchange assets must meet in
with the business of such institutions. order to be included in the international reserves of the Bangko Sentral.

Banking and quasi-‐banking institutions which are subject to examination by the Bangko Sentral shall The Bangko Sentral shall be free to convert any of the assets in its international reserves into other
pay to the Bangko Sentral, within the first thirty (30) days of each year, an annual fee in an amount assets as described in subsections (a) and (b) of this section.
equal to a percentage as may be prescribed by the Monetary Board of its average total assets during
the preceding year as shown on its end-‐of-‐month balance sheets, after deducting cash on hand and SECTION 67. Action When the International Stability of the Peso Is Threatened. — Whenever
amounts due from banks, including the Bangko Sentral and banks abroad. the international reserve of the Bangko Sentral falls to a level which the Monetary Board considers
AKD BANKING 2015 14

inadequate to meet prospective net demands on the Bangko Sentral for foreign currencies, or A: "Sec. 1. "Unclaimed balances", within the meaning of this Act, shall include credits or deposits of
whenever the international reserve appears to be in imminent danger of falling to such a level, or money, bullion, security or other evidence of indebtedness of any kind, and interest thereon with
whenever the international reserve is falling as a result of payments or remittances abroad which, in banks, buildings and loan associations, and trust corporations, as hereinafter defined, in favor of any
the opinion of the Monetary Board, are contrary to the national welfare, the Monetary Board shall: person known to be dead or who has not made further deposits or withdrawals during the preceding
ten years or more. Such unclaimed balances, together with the increase and proceeds thereof, shall
(a) take such remedial measures as are appropriate and within the powers granted to the Monetary be deposited with the Treasurer of the Philippines to the credit of the Government of the Republic of
Board and the Bangko Sentral under the provisions of this Act; and the Philippines to be used as the National Assembly may direct.

(b) submit to the President of the Philippines and to Congress a detailed report which shall include, Q: What is the rationale behind the unclaimed balances law
as a minimum, a description and analysis of: A: As a general rule, everything owned by all persons is also owned by the State.
(1) the nature and causes of the existing or imminent decline;
(2) the remedial measures already taken or to be taken by the Monetary Board; Q: What are the elements of unclaimed balances in order to be subject to escheat proceedings.
(3) the monetary, fiscal or administrative measures further proposed; and A: 1 . There must be a claim or deposit of:
(4) the character and extent of the cooperation required from other government agencies for a. Money;
the successful execution of the policies of the Monetary Board. b. Bullion;
c. Security; or
If the resultant actions fail to check the deterioration of the reserve position of the Bangko Sentral, or d. other evidence of indebtedness.
if the deterioration cannot be checked except by chronic restrictions on exchange and trade 2. The credit or deposit must be with a bank, building and loan association, or trust corporation;
transactions or by sacrifice of the domestic objectives of a balanced and sustainable growth of the 3. The credit or deposit is in favor of a person:
economy, the Monetary Board shall propose to the President, with appropriate notice of the a. who is dead, or
Congress, such additional action as it deems necessary to restore equilibrium in the international b. who has not made further deposits or withdrawals during the preceding 10 years or more
balance of payments of the Philippines.
Q: Provide for the procedure that the Bank undergoes in processing unclaimed balances.
The Monetary Board shall submit periodic reports to the President and to Congress until the threat A: Initially, there should be notice to the depositor of the unclaimed balance. Thereafter, the bank
to the international monetary stability of the Philippines has disappeared. [including building and loan associations and trust companies] is required to submit a sworn
statement to the Treasurer of the Philippines of the existence of such deposits. The treasurer will
Q: Discuss International Reserves then inform the Solicitor General who will then initiate the proper escheat proceedings in Court.
A: International reserves – must be maintained adequately to meet foreseeable net demands for Publication of the list of unclaimed balances is aslo required in order to safeguard the right of the
foreign currencies depositors, heirs, and successors in interest to due process. Such unclaimed balances together wit the
Adequacy of international reserves – MB shall be guided by prospective receipts and payments of increase and proceeds thereof shall be deposited with the Treasurer of the Philippines to credit the
foreign exchange Govt. of the Philippines to be used as Congress may direct.
MB shall give special attention to volume and maturity of the following:
o Liability of BSP in foreign currency Q: Provide for the Rules in Escheat Proceedings
o Foreign exchange assets and liabilities of other banks and all other persons Composition A: Escheats under Rules of Court : Rule 91 of ROC applied in case a person died intestate and left
of International Reserves properties in the Philippines
Sec 1 – when person died intestate, left properties and has no heir, SG may file petition in C
International reserve shall include but not limited to: FI of province where deceased last resided or where he had estate
• Gold Sec 2 – court shall release order of hearing that shall fix date and place of hearing not more than 6
• Assets in foreign currencies which include months after entry of order and shall direct publication in newspaper once a week for 6
(1) documents of international transfer of funds, consecutive weeks
(2) demand and time deposits of banks abroad and Sec 3 – upon arrival of date fixed and no sufficient cause shown to the contrary, court shall adjudge
(3) foreign government securities and notes estate, after payment of just debts and charges, escheated
• MB shall hold the FOREX resource of BSP in freely convertible currencies o Personal estate assigned to city or municipality deceased last resided
• MB shall issue regulations that FOREX assets must meet o Real estate assigned to city or municipality property is situated
• BSP shall be free to convert any asset in international reserves into other assets o If deceased never resided here, whole estate shall be assigned to city or municipality
where it is situated
CHAPTER 9: UNCLAIMED BALANCES LAW [RA 3936] o Such estate shall be for benefit of public schools and charity
Sec 4 – if devisee, legatee, heir, widow, widower or other person entitled to estate claim such
Q. Provide for the definition of unclaimed balances within 5 years from date of judgment, he shall have title of such
o If already sold, municipality or city shall be accountable to proceeds
AKD BANKING 2015 15

o If claim not made within said time, he shall forever be barred The relationship of the buyer and the bank is separate and distinct from the relationship of the buyer
Sec 5 – actions for reversion or escheat of properties in violation of constitution, shall be governed and seller in the main contract; the bank is not required to investigate if the contract underlying the
by this Rule LC has been fulfilled or not because in transactions involving LC, banks deal only with documents and
not goods (BPI v. De Reny Fabric Industries, Inc., L-‐-‐‐2481, Oct. 16, 1970). In effect, the buyer has no
TRUST RECEIPTS LAW [PD 115] course of action against the issuing bank.

Q: Provide for the TRUST OPERATION OF BANKS Q: What is a Trust Receipt Transaction under PD 115
Trust business-‐ refers to any activity resulting from a trustor-‐trustee relationship involving the A: A Trust receipt transaction is any transaction by and between entruster and entrustee where
appointment of a trustee for the administration, holding, management of funds and/or properties of entruster hold absolute title or security interest over goods, documents or instruments, releases the
the trustor for the benefit of the latter. A trust-‐licensed bank may also be involved in other fiduciary same to the entrustee.
business which refer to any activity resulting from a contract or agreemebt whereby the bank binds
itself to render series or to act in a representative capacity such as in agency, guardianship, Trust receipt need not be in any particular form but every trust receipt must contain:
administratorship, or wills, properties or estates, executorship, receivership and other similar 1. Description of goods, documents or instruments
services which do not creat or result in a trusteeship. Only a stock corporation or a person duly 2. Total invoice value
authorized by the MB shall act as a trustee. The cardinal principle in trust operation is fidelity. 3. Undertaking of entrustee
4. To hold in trust, sell or return for the entruster the goods, documents or instruments
The law prohibits the integration of the properties and funds of all other businesses of the bank with
those of the trust business. The trust business and all funds, properties, or securities received by any May contain other terms not contrary to TRL or laws
trust entity as executor, administrator, guardian, trustee, receiver, or depositary shall be kept
separate and distinct from the general business including all other funds, properties and assets of Q: Provide for the rights of entruster
such trust entity. A: Rights of Entruster
1. Entitled to proceeds to the extent of the amount owing to the entruster or in case of non-‐sale
Q: Provide for the powers of a trust entity: return of goods
A: The following are powers of a trust entity: 2. Entruster may cancel trust and take possession of goods, documents or instruments at any time
1. Powers incident to a corporation upon default or failure of entrustee to comply with obligation
2. Act as trustee on any mortgage or bond issued by any body politic and to accept and a. Entruster now in possession may give notice to entrustee of intention to sell
execute ant trust consistent with law b. May, not less than 5 days after serving notice, sell such in public or private sale
3. Act as an administrator of a minor or incompetent upon the order of a court c. Entruster in public sale can become a purchaser
4. Act as the executor of any will if named as the executor 3. Proceeds of sale shall be applied to:
5. Act as the administrator of any deceased person a. Payment of expenses thereof
6. Accept and execute and trust for the holding and administration of any estate including the b. Payment of expenses of retaking, keeping and storing goods, documents or instruments
rents and profits thereof c. Satisfaction entrustee’ s indebtedness
7. Establish and manage common trust funds 4. The entrustee shall receive any surplus but shall be liable t the entruster for deficiency

Q: What is a Letter of Credit Q: Provide for the Obligations of the Entrustee
A: It is a guarantee issued by the bank to clients interested in purchasing objects abroad. It is a letter A: Obligations of Entrustee
issued by a bank to another bank (typically in a different country) to serve as a guarantee for 1. Hold the goods and shall dispose them in accordance with conditions of trust receipts
payments made to a specified person under specified conditions. 2. Receive proceeds in trust and turn over to entruster
3. Insure the goods against loss
Q: What is the Independence Principle in case of Letters of Credit 4. Keep said goods or proceeds separate and capable of identification
A: The “independence principle” is the fundamental principle of the letter of credit system, which 5. Return goods in event of non-‐sale or demand of entruster
prohibits banks from looking beyond facial compliance of the documents, and therefore exclude 6. Observe all other terms provided
whether or not there is actual performance by the seller-‐beneficiary. Generally, letter of credit is a
contract between the issuer and the beneficiary independent of the underlying contract between the Liability of Entrustee for Loss
applicant and the beneficiary. An exception to the general rule has been recognized for the case of • Risk of loss shall be borne by entrustee.
fraud by the beneficiary of the credit which has been sufficiently brought to the knowledge of the • Loss of goods, documents or instruments irrespective of WON it was due to the fault or negligence
bank before payment of the draft or demonstrated to a court called on by the customer of the bank to of entrustee shall not extinguish his obligation
issue an interlocutory injunction to restrain the bank from honoring the draft.

AKD BANKING 2015 16

Q: Provide for the consequence of nonpayment of trust receipt A: The maximum deposit insurance is up to P500,000. It may be adjusted in such amount, for a
A: Section 13. Penalty clause. The failure of an entrustee to turn over the proceeds of the sale of the period, and or for such deposit products provided that the following are complied with:
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the 1. the MB has determined that there is a condition that threatens the monetary and financial
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they stability of the banking system that may have systemic consequences, as defined in Sec. 17 of RA
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the 3591.
crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one 2. The adjustments are approved by a unanimous vote of the Board of Directors of the PDIC in a
(b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the meeting called for the purpose and chaired by the Secretary of Finance.
Revised Penal Code. If the violation or offense is committed by a corporation, partnership, 3. The adjustments are approved by the President of the Philippines.
association or other juridical entities, the penalty provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials or persons therein responsible for the offense, Q: What financial transactions are not covered by Insurance:
without prejudice to the civil liabilities arising from the criminal offense. A: The PDIC shall not pay deposit insurance for the following accounts or transactions, whether
denominated, documented, recorded, or booked as deposit by the bank:
Q: Provide for violations of PD 115 1. The amount in excess of insured deposit of P500,000.
A: TRL is violated whenever entrustee fails to: 2. Deposit payable in a place outside the Philippines [foreign branches]
1. Turn over proceeds 3. Investment products such as bonds and securities, trust accounts, and other similar instruments
2. Return goods in non-‐sale 4. Deposit accounts or transactions which are unfounded, or that are fictitious and fraudulent
Mere failure to account or return gives rise to the crime -‐ malum prohibitum 5. Deposit accounts or transactions constituting and or emanating from unsafe and unsound bank
There is no requirement to prove intent to defraud (Ong vs. CA and Colinares vs. CA). practices
What the law punishes is the dishonest and abuse of confidence in handling money, where there was 6. Deposits that are determined to be proceeds from unlawful activity as defined under the AMLA
intent to misuse or misappropriate goods should be prove. 7. Deposit accounts that resulted from splitting of deposits
Mere failure to account for goods constitute Par 1(b) of Estafa (Ong vs. CA) 8. Money placements by the head office of a foreign bank in its branch in the Philippines.
Failure to deliver proceeds cause prejudice not only to the creditor but also to the public interest
Q: Discuss splitting of deposit
CHAPTER 10: PDIC [RA 3591 as amended] A: This occurs whenever a deposit account with an outstanding balance of more than P500,000.00
under the name of a person is broken down and transferred to two or more accounts in the name of
All deposits in bank are insured with the Philippine Deposit Insurance Corporation [PDIC]. persons or entities who have no beneficial ownership in the transferred deposits in their names
within 120 days immediately preceding or during a bank-‐declared holiday or immediately preceding
Q: What are the primary functions of the PDIC. a closure order issued by the MB for purpose of availing the maximum deposit insurance coverage.
A: The following are the primary functions of the PDIC: This is a criminal act and the deposits are not entitled to any insurance payment.
1. to act as deposit insurer
2. to act as co-‐regulator of banks Q: When payment of deposit insurance is made
3. to act as receiver and liquidator of closed banks A: The proceeds of the insurance shall be paid by the PDIC to the depositor whenever the insured
bank is closed on account of insolvency. An insured bank shall be deemed to have been closed on
Q: Provide for the function of PDIC as deposit insurer. account of insolvency when ordered closed by the MB of the BSP.
A: The PDIC shall, as a basic policy, promote and safeguard the interest of the depositing public by The claim must be filed within 2 years from actual takeover by the receiver.
way of providing permanent and continuing insurance coverage on all insured deposit.
Q: Provide for the PDIC function as regulator of the bank.
Q: Provide for the concept of an insured deposit. A: As a bank regulator, the PDIC is empowered to examine and investigate banks. These are two
A: Deposit is the unpaid balance of money or its equivalent received by a bank in the usual course of different processes:
business and for which it has given or is obliged to give credit to a commercial, checking, savings,
time or thrift account, or issued in accordance with BSP rules and regulations and other applicable Examination involves an evaluation of the current status of a bank and determines its compliance
laws. Additionally, this may also include such other obligations of a bank, which, consistent with with the set standards regarding solvency, liquidity, asset valuation, operations, systems
banking usage and practices, the PDIC Board shall determine and prescribe by regulation to be management, and compliance with banking laws, rules and regulations. Such a process then involves
deposit liabilities of the bank. an intrusion into a bank’s records. An examination requires prior consent of the MB.

Insured deposit is the amount due to any bona fide depositor for legitimate deposits in an insured Investigation is conducted based on specific findings of certain acts or omissions which are subject of
bank net of any obligation of a depositor to the insured bank as of the date of closure, but not to a complaint or a Final Report of Examination made by the PDIC. Investigation does not involve a
exceed P500,000. general evaluation of the status of the bank. It zeroes in on specific acts and omissions uncovered via
an examination or which are cited in a complaint. Although it also involves a detailed evaluation, an
Q: What is the maximum deposit insurance? Is it absolute?
AKD BANKING 2015 17

investigation centers on specific acts or omissions and therefore requires a less invasive assessment. the purpose of any certified statement be considered to be a deposit liability of the FB, but shall be
Investigation does not require prior consent of the MB. considered to be a deposit liability of the IB

Q: Why is the need of Prior Consent from MB is not necessary in investigation Q: What are the Prohibitions on PDIC Personnel
1. Time is always of the essence, and it is prudent to expedite the proceedings, if an accurate A: PDIC Personnel are prohibited from:
conclusion is to be arrived at, as an investigation is only as précises as the evidence on which it 1. Being an officer, director, consultant, employee or stockholder, directly or indirectly, of any bank
is based. or banking institution except as otherwise provided by law
2. An investigation is based on reports on examination and an examination was conducted 2. Receiving any gift or thing of value from any officer, director, or employee of any bank
pursuant to a prior MB approval. 3. Revealing in any manner, except as provided by law or under court order, information relating to
3. A lengthy process could provide unscrupulous individuals an opportunity to cover their tracks. the condition or business of any bank. However this shall not apply to the giving of information
to the BoD, the President of the Corp., Congress, any agency of govt. authorized by law, or to any

person authorized by either of them in writing to receive such information
Q: Provide for the function of the PDIC as receiver of banks.

A: The PDIC as receiver shall control, manage, and administer the affairs of a closed bank.
Q: Discuss Dealings by PDIC Personnel with Banks
a. Suspension of Powers and Benefits – effective immediately upon takeover as receiver of such
A: Designation as Directors and Officers of Banks -‐ Members of the BoD and personnel of PDIC may become
bank, the powers, functions and duties, as well as all allowances, remunerations, and directors and officers of any bank or banking institution and of any entity related to such institution in
perquisites of the directors, officers, and stockholders of such bank are suspended, and the connection with financial assistance extended by PDIC to such institution and when, in the opinion of the
relevant provisions of the Articles of Incorporation and By-‐laws of the closed bank are Board, it is appropriate to make such designation to protect the interest of PDIC.
likewise deemed suspended
The Borrowing of PDIC Personnel from Banks
b. Properties in Custodia Legis – The assets of a closed bank under receivership shall be - shall be prohibited only with respect to the particular institution in which they are assigned, or
deemed in custodial egis in the hands of the receiver. From the time the closed bank is are conducting an examination
placed under receivership, its assets shall not be subject to any attachment, garnishment, - personnel are likewise prohibited from borrowing from any bank or banking institution during
execution, levy or any other court processes. A judge, officer of the court, or any person the time that a transaction of such institution with PDIC is being evaluated, processed, or acted
who shall issue, order, or process or cause the issuance or implementation of the writ of upon by such personnel
garnishment, levy, attachment, or execution shall be criminally liable.
Q: What are the criminal violations of RA 3591.
c. The power of PDIC as receiver includes the power to: A: Punishable by prision mayor or a fine of 50,000-‐2,000,000,000 or both, any director, officer, employee or
a. Collect loans and other claims of the closed bank, and for the purpose, modify, agent of bank who:
compromise, or restructure terms and conditions of such loans or claims as may 1. Willful refusal to submit reports
be deemed advantageous to the interest of creditors and claimants of the closed 2. Unjustified refusal to permit examination and audit of records as required by law, rules, and
regulations
bank.
3. Willful making of false statement or entry in any bank report or document
b. If the stipulated interest on deposits is unusually high compared with the
4. Submission of false material information in connection with or in relation to any financial
applicable interest rates, the PDIC as receiver may exercise such powers which assistance extended to the bank
may include reduction of interest rate to a reasonable rate; any modification or 5. Splitting of deposits or creation of fictitious loans or deposit accounts
reduction shall only apply to unpaid interest. 6. Refusal to allow PDIC to takeover a closed bank placed under its receivership
7. Refusal to turnover or destroying or tampering bank records
Q: Provide for the assessment rates: 8. Fraudulent disposal , transfer or concealment of any asset, property, liability of the closed bank
A: The Board of Directors of the PDIC shall determine the assessment rate. It shall not exceed 1/5 of
under the receivership of the PDIC
1% per annum; semi-‐assessment rate for each insured bank shall be in the amount of the product of
9. Violation, or causing a person to violate, the exemption of garnishment, levy attachment, or
½ the assessment rate multiplied by the assessment base but in no case shall it be less than P250. the
assessment base shall be the amount of the liability of he bank for deposits without any deduction for execution provided under the PDIC Law and the NCBA
indebtedness of depositors. 10. Willful failure or refusal to comply with, or violation of any provision of eh PDIC Law, or
commission of any other irregularities and/or conducting business in an unsafe or unsound
Q: What are trust funds. manner.
A: Trust Funds means funds held by an insured bank in a fiduciary capacity and includes, without
being limited to, funds held as trustee, executor, administrator, guardian, or agent. Trust funds shall The BOD is authorized to impose administrative fines for violation of any other instruction, rule, or
be insured like other forms of deposits, in an amount not to exceed P10,000 for each trust estate, and regulation issued by PDIC, against a bank or any of its directors, officers, or agents responsible for such
when deposited by the fiduciary bank in another IB, such funds shall be similarly insured to the FB act, omission, or violation. In no case such fine exceed 3times the amount of the damages or costs caused
according to the trust estates represented. The amount so held by other IBs on deposit shall not for by the transaction for each day that the violation subsist.
AKD BANKING 2015 18

CHAPTER 11: ANTI MONEY LAUNDERING ACT [RA 9160] A: Covered Transactions are transactions in cash or monetary instrument exceeding P500,000 in one
banking day.
Q: What is Money Laundering. Suspicious transactions are transactions with covered institutions, regardless of the amount, where any
A. Money Laundering-‐ is a crime whereby the proceeds of an unlawful activity are transacted, thereby of the following circumstances exist:
making them appear to have originated from legitimate sources. It can be committed by the ff: a. No legal or trade obligation, purpose or economic justification
i. Any person knowing that any monetary instrument or property represents, involves, or relates to, b. Client is not properly identified
the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument c. Amount is not commensurate with the client’s financial capacity
or property d. Structured transactions to avoid being the subject of reporting required under the act
ii. Any person knowing any monetary instrument or property represents, involves, or relates to, the e. Those which deviate from the profile of the client or past transactions
proceeds of any unlawful activity, performs or fails to perform any act as a result of which he f. Related to any unlawful activity or offense
facilitates the offense of money laundering referred to above g. Any transaction that is similar to any of the foregoing
iii. Any person knowing that any monetary instrument or property is required to be disclosed and
filed with the Anti-‐Money Laundering Council, fails to do so Q: Discuss the instruments covered under the AMLA
A: Monetary instrument
Q: What are unlawful activities i. Drafts, checks and notes
A: Unlawful Activities – any act or omission or series or combination thereof involving or having relation to ii. Securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust
the following: certificates, custodial receipts, trading orders, transaction tickets, confirmation of sale money
i. Kidnapping for ransom under Art.267 of RPC market instruments
ii. Secs. 4-‐6, 8-‐10, 12-‐16 of the Dangerous Drugs Act of 2002 iii. Other similar instruments when title passes to another by endorsement, assignment or delivery
iii. Sec.3 par b, c, e, g, h, I of the Anti-‐Graft and Corrupt Practices Act iv. Coins/currency of legal tender of the Phil. Or any country
iv. Plunder under RA 7080
v. Robbery and extortion under Arts. 294-‐296, 299-‐302 of the RPC Q: Discuss the Jurisdiction and Prosecution of violation of AMLA
vi. Jueteng and Masiao under PD 1602 A:
vii. Piracy on high seas under RPC and PD 532 • Jurisdiction
viii. Qualified theft under Art.310 of RPC i. Private persons-‐ RTC
ix. Swindling under Art.315 of RPC ii. Public persons and private persons in conspiracy with the former-‐ Sandiganbayan
x. Smuggling under RA 455 and 1937 • Prosecution
xi. Violations of Electronic Commerce Act of 2000 i. Any person may be charged of both money laundering and the unlawful activity
xii. Hijacking and other violations of RA 6235 ii. Any proceeding relating to the unlawful activity shall be given precedence over the
xiii. Destructive arson and murder under RPC prosecution of any offense or violation w/o prejudice to the freezing and other
xiv. Fraudulent practices under Securities Regulation Code of 2000 remedies
xv. Felonies or offenses of similar nature punishable under penal laws of other countries
Q: Discuss the prevention of money laundering
Q: What is the purpose of AMLA A: The following are methods of prevention of money laundering:
i. To protect and preserve the integrity and confidentiality of bank accounts i. Customer Identification -‐ Institutions shall establish and record the true identity of its clients based
ii. Ensure that the Philippines shall not be used as a money laundering site for the proceeds of any on office documents. They shall maintain a system of verifying the identity and legal existence of
unlawful activity. their clients. In case of corporate clients, require a system of verifying their legal existence and
iii. Cooperation in transnational investigation and prosecution of persons involved in money organizational structures as well as proper authority and identification of persons acting on their
laundering behalf. Any anonymous, fictitious an similar accounts are prohibited. Peso and foreign currency non-‐
checking accounts shall be allowed which will be subject to test by the BSP to determine the
Q: What are the covered institutions by AMLA existence and identity of the owners
A: Covered Institutions or covered entities are the following: ii. Record Keeping – All records of transactions shall be maintained and stored from 5 years from the
i. Banks, non-‐banks, quasi-‐banks, trust entities ad all other institutions regulated by the BSP date of transaction. For closed accounts, its records shall also be stored for 5 years from the date it
ii. Insurance companies and all other institutions regulated by the insurance commission was closed
iii. Securities, brokers, salesmen, investment house and other entities managing securities or service as iii. Reporting of Covered and Suspicious Transaction
agent, advisor, consultant • Shall be reported to AMLC within 5 working days from the occurrence thereof, unless
iv. Mutual funds, closed-‐end investment company, common trust fund and pre-‐need companies supervising authority prescribes a longer period not exceeding 10 days
v. Foreign exchange corporations, money changers, money payments, remittance, and transfer • Should a transaction be determined a a covered and suspicious transaction, it shall be required
companies to report the same
vi. Those administering or dealing in currency, commodities, financial derivatives or other monetary • Such reporting shall not be considered as a violation of RA 1405, RA 6426, RA 8791, but are
instruments or property supervised by the SEC prohibited to communicate to any other person
• In case of violation of the prohibition above, they shall be criminally liable
Q: Discuss covered and suspicious transactions:
AKD BANKING 2015 19

• Reporting to the AMLC is also prohibited to be disclosed to the media or any other person or
entity
iv. Freezing of Monetary Instrument or Property
• To the CA, upon application ex parte by the AMLC and after determination that probable cause
exists, may issue a Freeze Order
• Such order shall be for 20 days unless extended by the Court
v. Authority to inquire into bank deposits
• The AMLC may inquire upon order of any competent court when it has been established that:
a. There is probable cause that the deposit or investment s related to any unlawful
activity; or
b. A money laundering offense
• No court order shall be required in the following activities
a. Kidnapping for ransom
b. Violations of Dangerous Drug Act of 2002
c. Hijacking and other violations of RA 6235
d. Destructive arson and murder including those perpetrated by terrorists

Q: What is the safe harbor doctrine.
A: Safe Harbor Provisions. – No administrative, criminal or civil proceedings, shall lie against any person for
having made a covered transaction report OR A SUSPICIOUS transaction report in the regular performance
of his duties and in good faith, whether or not such reporting results in any criminal prosecution under this
Act or any other Philippine law. [Rules 9.3.e Rules in Implementing RA 9160]

BSP CIRCULAR 706: UPDATED ANTI-‐MONEY LAUNDERING RULES AND REGULATIONS

Q: What is the Money Laundering and Terrorist Financing Prevention Program
A: All covered institutions shall adopt a comprehensive and risk-‐based MLPP geared toward the promotion
of high ethical and professional standards and the prevention of the bank beings used, intentionally or
unintentionally, for money laundering and terrorism financing. The MLPP shall be consistent with the
AMLA as amended, and the provisions set out in the rules and designed according to the covered
institution’s corporate structure and risk profile. It shall be in writing, approved by the BD or by the
country/regional head or its equivalent for foreign banks, and well disseminated to all officers and staff
who are obligated by law and by their program to implement the same.

AKD BANKING 2015 20

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