I. The General Banking Law of 2000 (Republic Act No.

8791)

A. State Policy – Section 2, GBL

SECTION 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking that requires
high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable
and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a
developing economy.

B. Definition and classification of banks – Section 3, GBL

SECTION 3. Definition and Classification of Banks. —

3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits.
3.2. Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of:
(i) Savings and mortgage banks,
(ii) Stock savings and loan associations, and
(iii) Private development banks, as defined in Republic Act No. 7906 (hereafter the "Thrift Banks
Act");
(d) Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks Act");
(e) Cooperative banks, as defined in Republic Act No. 6938 (hereafter the "Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al Amanah
Islamic Investment Bank of the Philippines"; and
(g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas.

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Definitions: A bank is –
(i) A moneyed institute founded to facilitate the borrowing, lending and safe-keeping of money and to deal,
in notes, bills of exchange, and credits.
(ii) An investment company which loans out the money of its customers, collects the interest and charges a
commission to both lender and borrower, is a bank.
(iii) Any person engaged in the business carried on by banks of deposit, of discount, or of circulation is
doing a banking business, although but one of these functions is exercised.
(iv) A financial institution with power to issue its promissory notes intended to circulate as money (known
as bank notes); or to receive the money of others on general deposit, to form a joint fund that shall be
used by the institution for its own benefit, for one or more of the purposes of making temporary loans
and discounts, of dealing in notes, foreign and domestic bills of exchange, coin bullion, credits, and the
remission of money; or with both these powers, and with the privileges, in addition to these basic
powers, of receiving special deposits, and making collection for the holders of negotiable paper, if the
institution sees fit to engage in such business.7 In funding these businesses, the bank invests the money
that it holds in trust of its depositors.

Classifications: (CUT-RICO)
1. Commercial
2. Universal
3. Thrift
4. Rural
5. Islamic
6. Cooperative
7. Other classifications as determined by the Monetary Board of the Bangko Sentral ng Pilipinas
Distinctions
Capitalization – different minimum capitalization requirements
Purpose – some banks have specific purposes and social functions (e.g. Rural banks are meant to hasten rural
development
Powers/functions – there are functions that may be exercised by one but not the others; some banks may
exercise certain powers only upon approval of MB
Examples:
1. Only UB and CB can create and accept demand deposits w/o separate authority from MB, while others need
to secure authority from MB
2. Only UB may act as an investment house
3. GenRule: Only UB and CB may be involved in quasi-banking functions
Who can be directors – Public officers can be directors of Rural banks, but prohibited to be directos or officers
of other types of banks
Incorporators – Gen Rule: Natural persons (Corporation Code); Exception: for rural banks: can be organized or
established by cooperatives and corporations primarily organized to hold equities in rural banks
Foreign equity – Rural Banks: 100% Filipino-owned; Other banks: At least 40% Filipino ownership of voting
stocks.
Necessity of public offering – Universal Bank: public offering of shares is necessay; other banks: not necessary

C. Diligence required of banks

The law imposes on banks high standards in view of the fiduciary nature of banking.

US prevailing rule: (U.S. Supreme Court in Bank of Marin vs. England, 385 U.S. 99 (1966))

The bank-depositor relationship is governed by contract, and the bankruptcy of the depositor does not
alter the relationship unless the bank receives notice of the bankruptcy. However, the Supreme Court of
some states, like Arizona, have held that banks have more than a contractual duty to depositors, and that a
special relationship may create a fiduciary obligation on banks outside of their contract with depositors.

The new provision in the general banking law is a statutory affirmation of Supreme Court decisions that “the
bank is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.” (Simex International vs. Court of Appeals)

Section 2 of the GBL prescribes the statutory diligence required from banks — that banks must observe “high
standards of integrity and performance” in servicing their depositors.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father
of a family. (Article 1173 of the Civil Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family.)

The degree of diligence required of banks, is more than that of a good father of a family where the fiduciary
nature of their relationship with their depositors is concerned (Philippine Bank of Commerce vs. Court of
Appeals).
In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of
care. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as
depositary of the deposits of their depositors. But the same higher degree of diligence is not expected to be
exerted by banks in commercial transactions that do not involve their fiduciary relationship with their
depositors.

Considering the foregoing, a bank is not required to exert more than the diligence of a good father of a family in
regard to the sale and issuance of foreign exchange demand draft. It does not involve the handling of deposit, if
any, with the bank. Instead, the relationship involved was that of a buyer and seller, that is, between the bank as
the seller of the foreign exchange demand draft, and the buyer of the same.
Note: Diligence Extends to Financial Institutions:
 1. A government financial institution (e.g., GSIS), like banks, is expected to exercise greater care and prudence
in its dealings, including those involving registered lands.
2. Due diligence required of banks extend even to persons, or institutions, regularly engaged in the business of
lending money secured by real estate mortgages.

Meticulous care:
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. A blunder on the part of the bank, such as the dishonor of a
check without good reason, can cause the depositor not a little embarrassment if not also financial loss and
perhaps even civil and criminal litigation.

But there is no law mandating banks to call up their clients whenever their representatives withdraw significant
amounts from their accounts. (?)

Duty to keep records:

A bank has a fiduciary duty to keep efficiently a record of its transactions with its depositors.
Banks shall have a true and accurate account, record or statement of their daily transactions, particularly those
referring to their deposit liabilities.
The making of any false entry or the willful omission of entries relevant to any transaction, is a ground for the
imposition of administrative sanctions and the disqualification from office of any director or officer responsible
therefor. (This is without prejudice to their criminal liability under the New Central Bank Act (NCBA) and/or
the applicable provisions of the Revised Penal Code.)

D. Bank Powers and liabilities

POWERS

Commercial Banks Universal Banks Cooperative Banks

Section 29, GBL Section 23, GBL
1. general powers incident to 1. powers of an investment 1. carry on banking and credit services for
corporations house, as provided under the cooperatives
2. accepting drafts existing laws 2. receive financial aid or loans from the
3. issuing letters of credit 2. power to invest in non-allied Government and the Central Bank of the
4. discounting and enterprises Philippines for and in behalf of the
negotiationg PN, drafts, 3. power to own up to 100% of cooperative banks and primary
BOE, and other evidences the equity in a cooperatives and their federations
of debt a. thrift bank engaged in business and to supervise the
5. accepting or creating b. rural bank lending and collection of loans
demand deposits c. financial allied 3. mobilize savings of its members for the
6. receiving other types of enterprise benefit of the cooperative movement
deposits and deposit d. non-financial allied 4. act as a balancing medium for the surplus
substitutes enterprise funds of cooperatives and their
7. buying and selling foreign 4. for publicly listed universal federations
exchange and gold or silver banks: power to own up to 5. discount bills and promissory notes
bullion 100% of the voting stock of issued and drawn by cooperatives
8. acquiring marketable only one other universal bank 6. issue negotiable instruments to facilitate
bonds and other debt or commercial bank the activities of cooperatives
securities 7. issue debentures, subject to the approval
9. extending credit, subject to of and under conditions and guarantees
such rules as the Monetary to be prescribed by the Government
Board may promulgate 8. borrow money from banks and other
financial institutions, within the limit to
be prescribed by the Central Bank
9. carry out all other functions as may be
prescribed by the Cooperative
 Development Authority: Provided, That
the performance of any banking function
shall be subject to prior approval by the
Central Bank of the Philippines.
Rural Banks
Without Separate BSP Authority With Prior MB Approval
1. extend loans and advances primarily for the purpose of meeting the normal 1. accept current or
credit needs of farmers, fishermen or farm families, as well as cooperatives, checking accounts
merchants, private and public employees (provided the rural bank
2. accept savings and time deposits has net assets of at least
3. act as correspondent of other financial institutions 5M)
4. rediscount paper with the LBP, DBP, or any other bank, including its branches 2. accept NOW accounts
and agencies. 3. act as trustee over estates
5. act as collection agent or properties of farmers
6. offer other banking services, as provided for under Section 53 of GBL and merchants
a. receive in custody funds, documents and valuable objects 4. act as official depository
b. act as financial agent and buy and sell, by order of and for the account of their of municipal, city, or
customers, shares, evidences of indebtedness and all types of securities provincial funds in the
c. make collections and payments for the account of others and perform such municipality, city, or
other services for their customers as are not incompatible with banking province where it is
business; located
d. act as managing agent, adviser, consultant or administrator of investment 5. sell domestic drafts
management/advisory/consultancy accounts (upon prior approval of the 6. invest in allied
Monetary Board) undertakings
e. rent out safety deposit boxes.
Thrift Banks
Without Separate BSP Authority With Prior MB Approval
(+Circular No. 271, S.2001)
1. grant loans, whether secured or unsecured 1. open current or checking accounts (provided the
2. invest in readily marketable bonds and other debt thrift bank has net assets of at least 20M)
securities, commercial papers, and accounts 2. act as collection agent for government entities,
receivable, drafts, BOE, accpetances or notes arising including but not limited to, the BIR, SSS, BOC
out of commercial transactions 3. act as official depository of national agencies and
3. issue domestic letters of credit of municipal, city or provincial funds in the
4. extend credit facilities to private and government municipality, city or province where the thrift
employees bank is located, subject to such guidelines as may
5. extend credit against the security of jewelry, be established by the MB
precious stones and articles of similar nature, subject 4. issue mortgage and chattel mortgage certificates,
to such rules and regulations as the MB may buy and sell them for its own account or for the
prescribe account of others, or accept and receive them in
6. accept savings and time deposits payment or as amortization of its loan
7. rediscount paper with the PNB, LBP, DBP, and other 5. engage in trust, quasi-banking and money market
GOCCs operations
8. accept foreign currency deposits, as provided under 6. invest in equity of allied undertakings
RA No. 6426, as amended (Foreign Currency Deposit
Act of the Philippines, 1974)
9. act as correspondent for other financial institutions
10. purchase, hold and convey real estate under the
same conditions as those governing commercial
banks (Sec. 51&52 of GBL)
11. other banking services (Sec. 53 of GBL)
Islamic Banks
1. general powers incident to corporations
2. open savings account for safekeeping or custody with no participation in profit and losses except unless
otherwise authorized by the account holders to be invested
 3. accpet foreign currency deposits from banks, companies, organizations and individuals, including foreign
governments
4. buy and sell foreign exchange
5. act as correspondent of banks and institutions to handle remittances or any fund transfers
6. accept drafts and issue letters of credit, letters of guarantee, negotiate notes and BOE, and other evidence of
indebtedness under the universally-accepted Islamic financial instruments
7. act as collection agent insofar as the payment orders, BOE, or other commercials documents are exclusive of
riba or interest prohibitions
8. provide financing, with or without collateral, by way of leasing, sale and leaseback, or cost plus profit sales
arrangement
9. handle storage operations of goods or commodity financing secured by warehouse receipts presented to the
bank
10. issue shares for the account of institutions and companies assisted by the bank in meeting subscription calls
or augmenting their capital and or fund requirements, as may be allowed by law
11. undertake various investments in all transactions allowed by the Islamic Sharia un such a way that shall not
permit the haram (forbidden) nor forbid the halal (permissible)
12. act as an official government depository, or its branches, subdivisions and instrumentalities and of GOCCs,
particularly those doing business in the autonomous region
13. issue investment participation certficates, muquarada (non-interest-bearing bonds), debentures, collaterals,
and/or the renewal and refinancing of the same with the approval of the MB to be used by the Islamic Bank
in its financing operations for projects that will promote the economic development primarily of the
Autonomous Region
14. carry out financing and joint investment operations by way of mudarabh purchasing for others on a cost plus
financing arrangement, and invest funds directly in various projects or thru the use of funds, whose owners
desire to invest jountly with other resources available to the Islamic Bank on a joint mudarabh basis
15. invest in equiteies in the following allied undertakings:
a. warehousing companies
b. leasing companies
c. storage companies
d. companies engaged in the management of mutual funds but not in the mutual funds themselves
e. such other similar activities, as the MB has declared or may declare as appropriate from time to time,
subject to exisiting limitations imposed by law

LIABILITY FOR ACTS OF OFFICERS AND EMPLOYEES

Primary and vicarious
Nonetheless: the defense of exercise of due diligence in the selection and supervision of its employees is of no
moment
Banks are expected to exercise the highest degree of diligence in the selection and supervision of their
employees - Banks handle daily transactions involving millions of pesos. By the very nature of their work the
degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than
those of ordinary clerks and employees.
o not only exercise “high standards of integrity and performance,” but also insure that its employees do
likewise because this is the only way to insure that the bank will comply with its fiduciary duty
o a bank is liable for the wrongful acts of its officers done in the interest of the bank or in their dealings as
bank representatives but not for acts outside the scope of their authority.
Negligence of manager - the bank, as employer, is liable for the negligence or the misdeed of its branch manager
Negligence of officers – Gen Rule: a banking corporation is liable for the wrongful or tortious acts and
declarations of its officers or agents within the course and scope of their employment
o If a corporation knowingly permits its officer, or any other agent, to perform acts within the scope
of an apparent authority, holding him out to the public as possessing power to do those acts, the
corporation will, as against any person who has dealt in good faith with the corpora- tion through
such agent, be estopped from denying such authority
Negligence of tellers - bank’s tellers must exercise a high degree of diligence in insuring that they return the
passbook only to the depositor or his authorized representative.
Liability for damages
o Actual or compensatory
o Exemplary
o Moral

E. Distinction of banks from quasi-banks and trust entities

Quasi-banks refer to entities engaged in the borrowing of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of
receivables and other obligations.

deposit substitutes is an alternative form of obtaining funds from the public, other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrower’s own account, for the purpose of
relending or purchasing of receivables and other obligations. These instruments may include, but need not be
limited to:
 bankers acceptances
 promissory notes participations
 certificates of assignment
 similar instruments with recourse
 repurchase agreements

Trust entity shall refer to a:

(1) bank or an NBFI, through its specifically designated business unit to perform trust functions; or
(2) trust corporation, authorized by the Bangko Sentral to engage in trust and other fiduciary business under
Section 79 of GBL or to perform investment management services under Section 53 GBL

Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust banks do not
accept deposits to enrich depositors but to earn money for themselves
The interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of
banks

F. Authority of the Bangko Sentral ng Pilipinas – Chapter 2, GBL

Supervisory Power (Section 4)

o issuance of rules of conduct or the establishment of standards of operation for uniform application to all
institutions or functions covered
o conduct of examination to determine compliance with laws and regulations if the circumstances so warrant
as determined by the MB
o overseeing to ascertain that laws and regulations are complied with
o regular investigation which shall not be oftener than once a year from the last date of examination - to
determine whether an institution is conducting its business on a safe or sound basis
Provided, that the deficiencies/irregularities found by or discovered by an audit shall be immediately
addressed
o inquiring into the solvency and liquidity of the institution
o enforcing prompt corrective action

o Supervision over the operations of and exercise regulatory powers over quasi-banks, trust entities and
other financial institutions which, under special laws, are subject to Bangko Sentral supervision

Policy Direction – ratios, ceilings, limitations (Section 5)

o In the areas of money, banking and credit
o MB may prescribe ratios, ceilings, limitations, or other forms of regulation on the different types of
accounts and practices of banks and quasi-banks which shall, to the extent feasible, conform to
internationally accepted standards
o may exempt particular categories of transactions from such ratios, ceilings and limitations, but not limited
to exceptional cases or to enable a bank or quasi-bank under rehabilitation or during a merger or
consolidation to continue in business with safety to its creditors, depositors and the general public

Authority to engage in banking and quasi-banking functions (Section 6)

o gives authority to person or entity to engage in banking operations or quasi-banking functions
o when authorized to perform universal or commercial banking functions – shall have the authority to
engage in quasi-banking functions
o MB – decides on the determination of whether a person or entity is performing banking or quasi-banking
functions without Bangko Sentral authority
MB can examine, inspect or investigate the books and records of such person or entity
o can annul, suspend, or revoke the authority
o department head and the examiners of the appropriate supervising and examining department –
authorized to
 administer oaths to any such person, employee, officer, or director of any such entity
 compel the presentation or production of such books, documents, papers or records that are
reasonably necessary to ascertain the facts relative to the true functions and operations of such
person or entity

Examination (Section 7)
o When examining a bank: have the authority to examine an enterprise which is wholly or majority-owned or
controlled by the bank

G. Organization, Management and Administration of Banks, Quasi-Banks and Trust Entities

1) Organization – Section 8, GBL

Conditions:
o entity is a stock corporation
o funds are obtained from the public (meaning 20 or more persons)
o minimum capital requirements prescribed by the MB for each category of banks are satisfied

For assessment:
o ownership structure
o directors and senior management
o operating plan
o internal controls
o projected financial condition
o capital base
a. http://www.bsp.gov.ph/publications/media.asp?id=3561
Amended Minimum Capital Requirements for Banks

2) Stockholdings
Treasury Stocks (Section 10)
No bank shall:
o purchase or acquire shares of its own capital stock, or
o accept its own shares as a security for a loan.

Exception: when otherwise authorized by the MB

In every case, the stock so purchased or acquired shall be sold or disposed of at a public or private sale
within six (6) months from the time of its purchase or acquisition

Foreign Stockholdings (Section 11)

o Domestic Bank: Foreign individuals and non-bank corporations may own up to 40% of the voting stocks
o Percentage – shall be determined by the citizenship of the individual stockholders in that bank
o Citizenship of the corporation-stockholder – shall follow the citizenship of the controlling stockholders of
the corporation, irrespective od the place of incorporation

Family Groups or Related Interests (Section 12)

o Stockholdings of individuals related to each other within the fourth degree of consanguinity or affinity,
legitimate or common-law = family groups or related interests
 must be fully disclosed in all transactions by such an individual with the bank
o Two or more corporations owned or controlled by the same family group or same group of persons =
related interests
 must be fully disclosed in all transactions by such corporations or related groups of persons with
the bank

3) Fit and proper rule – Section 16, GBL

Powers of MB
o To maintain the quality of bank management and afford better protection to depositors and the public in
general:
 shall prescribe, pass upon and re- view the qualifications and disqualifications of individuals elected or
appointed bank directors or officers and dis- qualify those found unfit
o After due notice to the board of directors of the bank
 may disqualify, suspend or remove any bank director or officer who commits or omits an act which
render him unfit for the position
o Fit and proper to hold the position of a director or officer of a bank: (CITEE)
 Competence
 Integrity
 Training
 Experience
 Education

4) Limitation on compensation and benefits of directors and officers

To protect the funds of depositors and creditors, the MB may regulate the payment by the bank to its directors
and officers of compensation, allowance, fees, bonuses, stock options, profit sharing and fringe benefits only in
exceptional cases and when the circumstances warrant, such as but not limited to the following: (CUU)
a. When a bank is under comptrollership or conservatorship
b. When a bank is found by the MB to be conducting business in an unsafe or unsound manner
c. When a bank is found by the MB to be in an unsatisfactory financial condition. (Section 18, GBL)

5) Prohibition on public officials – Section 19, GBL

no appointive or elective public official, whether full-time or part-time shall at the same timeserve as officer of
any private bank, except for Rural Banks, and save in cases where such service is incident to financial assistance
provided by the government or a government-owned or controlled corporation to the bank or unless otherwise
provided under existing laws

6) Branches – Section 20, GBL

 UB/CB – branches or offices within the Philippines upon prior approval of the Bangko Sentral.

Bank and its branches – shall be treated as one unit.

Subject to prior approval of the MB: Bank may use any or all of the branches as outlets for the presentation
and/or sale of the financial products of its allied undertaking or of its investment house unit.

When authorized to establish branches or offices: bank shall be responsible for all businesses conducted in such
branches and offices to the same extent and in the same manner as though such
business had all been conducted in the head office

7) Banking days - Section 21, GBL

all working days, for at least 6 hours a day

may open for business on Saturdays, Sundays or holidays for at least three (3) hours a day
o Provided, that banks which opt to open on days other than working days shall report to the Bangko Sentral
the additional days during which they or their branches or offices shall transact business.
working days – Mondays to Fridays, except if such days are holidays

8) Rule on Strikes and Lockouts – Section 22, GBL

Unsettled Labor Dispute
The banking industry is indispensable to the national interest and, notwithstanding the provisions of any law to
the contrary, any strike or lockout involving banks, if unsettled after seven (7) calendar days shall be reported
by the Bangko Sentral to the Secretary of Labor
2 options of the Sec of Labor:
(1) may assume jurisdiction over the dispute and decide it
(2) certify the same to the National Labor Relations Commission for compulsory arbitration.

However, the President of the Philippines may at any time intervene and assume jurisdiction over such labor
dispute in order to settle or terminate the same.

Reports of Strike and Lockouts

Banks through their president or chief executive officer shall immediately apprise the Deputy Governor of
the Supervision and Examination Sector of the BSP on the status of strikes/lockouts involving their banks, if
unsettled after seven (7) calendar days.
The bank shall disclose the following pertinent information on the strike/ lockout:
a. Cause of the strike/lockout and bank management’s position on its legality; and
b. Bank operations affected.