BANKING LAWS OF THE PHILIPPINES
1ST EXAM 2. Establishment and Organization of the Bangko Sentral ng Pilipinas
Based on the Lectures of Atty. Raymund Ong Abrantes, CPA
3-MANRESA
November 21, 2018
RA 7653
THE NEW CENTRAL BANK ACT
Essentially, the banking industry is about risk management. They ask you to
give your money to the bank, then they will lend it out.
We have two policies – the fiscal policy and the monetary policy. The banking
is mainly engaged into the monetary policy. The fiscal policy – these are your
taxes.
1. Legal Evolution of Central Banking
Why is it important to have a central bank? The banking industry is you have
to manage the risk. Essentially what the bank does is get money and give you
a certain interest, then they will lend it out. Imagine if there’s no regulator.
Imagine if there are no banking laws. What will happen if you deregulate the
banking industry? Would you think, the banks will be able to repay those who
lent money? There is an immense risk for them to default in their payments.
Why? Because there is no scrutiny on who you will lend to the money.
The central bank laws is the epitome of human experience and the formal
expression of public policies and societal goals. (Zuniga, The Legal Framework
of Central Banking (2009))
Four periods
1. The Spanish Period (1521-1898)
We have the Spanish period, wherein the Philippines was colonized for about
300 years. The problem was that there were so many currencies. There was
even barter. It was really hard to regulate. How much was the value of this
currency compared to that currency? So the Queen Isabela formulated a royal
decree, wherein the peso were minted in the Philippines. But this is not really
sufficient enough. There was no central banking during that time. So yes, there
was stability of the currency, but there were no regulations as to the banking.
2. The American Period (1899-1941)
But then again, we were sold to the Americans in the Treaty of Paris. The
Americans were far advanced than us, so they tried to introduce the concept
of central banking in the Philippines.
3. The Japanese Occupation (1942-1945)
However, when the Japanese came, there was a military note – the Mickey
Mouse note. The problem is that during the Japanese occupation, they did not
allow other currencies to be a medium of exchange. They only allowed the
Mickey Mouse notes.
4. The Philippine Republic
That’s why when we were liberalized, our money had no value. That’s why
they had to put up a central bank. The first central bank law is RA 265 – the
Central Bank of 1948. This was apparently not sufficient enough to control.
That’s why they promulgated RA 7653 – The New Central Bank Act.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
CHAPTER 1
ESTABLISHMENT AND ORGANIZATION
OF THE BANGKO SENTRAL NG PILIPINAS
ARTICLE I
Creation, Responsibilities and Corporate
Powers of the Bangko Sentral
SECTION 1. Declaration of Policy. – The State shall maintain a central
monetary authority that shall function and operate as an independent and
accountable body corporate in the discharge of its mandated
responsibilities concerning money, banking and credit. In line with this
policy, and considering its unique functions and responsibilities, the central
monetary authority established under this Act, while being a government-
owned corporation, shall enjoy fiscal and administrative autonomy.
The main policy of establishing a central bank is actually to function and
operate as an independent and accountable body corporate regarding money,
banking, and credit, and it has fiscal and administrative autonomy.
In this case of Reyes v. Rural Bank of San Miguel, Reyes, he was an officer of
the Central Bank who was examining the Rural Bank of San Miguel. The Rural
Bank of San Miguel is bankrupt. They said, it was a violation of his duty as an
officer because he acted as a broker so he can sell the bank.
However, the Court said no. You cannot put in a cookie cutter the duties of
Central Bank officers, because the Court said—
Reyes v. Rural Bank of San Miguel
G.R. No. 154499
Facts
Reyes is a BSP official who allegedly did brokering, in violation of the standards
of professionalism.
Issue
Whether Reyes conducted himself in an unprofessional manner in doing the
acts imputed to him.
Ruling: No
It appears to the Court that in keeping with the standards of professionalism
and heeding the mandate of his position, he made the telephone introductions
for no other purpose but to pave the way for a possible consolidation or
merger of RBSMI with interested banks. It is the policy of the BSP to promote
mergers and consolidations by providing incentives to banks that would
undergo such corporate combinations. To effectively implement the policy, it
was necessary that the banks be advised and assisted by a person
knowledgeable about the transactions like Reyes.
It cannot be overemphasized that the BSP is an independent body corporate
bestowed under its charter with fiscal and administrative autonomy. As such,
its officials should be granted a certain degree of flexibility in the performance
of their duties and provided insulation from interference and vexatious suits,
especially when moves of the kind are resorted to as counterfoil to the
exercise of their regulatory mandate. Elsewise, the institutional independence
and autonomy of the BSP as the central mandatory authority would be
rendered illusory.
In this particular case, the Court said that he is not liable because he did not
violate his duties as a central bank officer.
The Central Bank actually has fiscal autonomy.
Fiscal autonomy is exemplified in the following instances—
− non-reliance on Congress for budgetary support, as its funds are
generated from its own operations.
− flexibility to fix the remunerations of its personnel
1
 − recruit competent personnel
− prepare its own plantilla without interference from other agencies
of the government
− adoption of an annual budget, with power to authorize
expenditure
Please take note— that the policy under Section 1, Article 1 is to create an
independent and accountable body. How can it be independent when it
depends on Congress? That’s why it has its own laws on creating its own funds.
It also has administrative autonomy, which is the degree of freedom from
intervention and interference by other agencies necessary to ensure the
independence of the BSP. This is illustrated by the fact that it has the flexibility
to establish a human resource management system, while the Governor has
the rank of department head whose appointment is not subject to
confirmation by the CA. And in general, the decisions of the Monetary Board
are not subject to administrative review, and can only be judicially reviewed
by way of certiorari.
UCPB v. E. Ganzon
G.R. No. 168859 & G.R. No. 168897
Issue
Whether the Court of Appeals has jurisdiction over appeals of decisions,
orders and/or resolutions of the BSP Monetary Board on administrative
matters
Ruling: Yes
Truly, there is nothing in RA 7653 which explicitly allows an appeal of the
decisions of the BSP Monetary Board to the Court of Appeals. However, this
shall not mean that said decisions are beyond judicial review.
A perusal of Section 9(3) of BP 129 reveals that the BSP Monetary Board is not
included among the quasi-judicial agencies explicitly named therein, whose
final judgments, orders, resolutions or awards are appealable to the Court of
Appeals. Such omission, however, does not mean that the Court of Appeals
has no appellate jurisdiction over the judgments, resolutions, orders or awards
of the BSP Monetary Board.
The use of the word including in said provision, prior to the naming of several
quasi-judicial agencies, necessarily conveys the very idea of non-exclusivity of
the enumeration. A quasi-judicial agency or body is an organ of government
other than a court and other than a legislature, which affects the rights of
private parties through either adjudication or rule-making.
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising
quasi-judicial powers or functions. As aptly observed by the Court of Appeals,
the BSP Monetary Board is an independent central monetary authority and a
body corporate with fiscal and administrative autonomy, mandated to provide
policy directions in the areas of money, banking, and credit. It has power to
issue subpoena, to sue for contempt those refusing to obey the subpoena
without justifiable reason, to administer oaths and compel presentation of
books, records and others, needed in its examination, to impose fines and
other sanctions, and to issue cease and desist order. Section 37 of RA 7653, in
particular, explicitly provides that the BSP Monetary Board shall exercise its
discretion in determining whether administrative sanctions should be imposed
on banks and quasi-banks, which necessarily implies that the BSP Monetary
Board must conduct some form of investigation or hearing regarding the
same.
So it is independent and it enjoys fiscal and administrative autonomy.
Why is it important for it to be an independent body?
Original Provision
Section 2. Creation of the Bangko Sentral. – There is hereby established an
independent central monetary authority, which shall be a body corporate
known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko
Sentral.
The capital of the Bangko Sentral shall be Fifty billion pesos(P50,000,000,000),
to be fully subscribed by the Government of the Republic, hereafter referred
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
to as the Government, Ten billion pesos (P10,000,000,000) of which shall be
fully paid for by the Government upon the effectivity of this Act and the
balance to be paid for within a period of two (2) years from the effectivity of
this Act in such manner and form as the Government, through the Secretary
of Finance and the Secretary of Budget and Management, may thereafter
determine.
Proposed Amendment
SEC. 2. Creation of the Bangko Sentral. – There is hereby established an
independent central monetary authority, which shall be a body corporate
known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko
Sentral.
The capital of the Bangko Sentral shall be two hundred billion pesos
(P200,000,000,000), to be fully subscribed by the Government of the Republic,
hereafter referred to as the Government.
The unpaid subscription shall be fully paid for by the Government in cash
and/or government securities upon effectivity of this Act. Thereafter the
adequacy of the capitalization shall be subject to review every five (5) years
and adjusted upon joint recommendation by the Secretary of Finance, the
Secretary of Budget and Management and the Monetary Board. The payment
of any unpaid subscription and/or increase in capitalization shall be
automatically appropriated in the annual General Appropriations Act.
Peculiarity of this law: It is entitled the New Central Bank Act, but the body
that was created is not actually Central Bank but Bangko Sentral. Technically,
you don’t refer to our central bank as Central Bank. You refer to our central
bank as Bangko Sentral ng Pilipinas.
Since it is to be established as a body corporate, it must have a capitalization.
Its capitalization is 50 billion, of which 10 billion is the initial paid-up capital.
Original Provision
Section. 3. Responsibility and Primary Objective. – The Bangko Sentral shall
provide policy directions in the areas of money, banking, and credit. It shall
have supervision over the operations of banks and exercise such regulatory
powers as provided in this Act and other pertinent laws over the operations of
finance companies and non-bank financial institutions performing quasi-
banking functions, hereafter referred to as quasi-banks, and institutions
performing similar functions.
The primary objective of the Bangko Sentral is to maintain price stability
conducive to a balanced and sustainable growth of the economy. It shall also
promote and maintain monetary stability and the convertibility of the peso.
Proposed Amendment
Section. 3 Responsibility and Primary Objective. – The Bangko Sentral shall
provide policy directions in the areas of money, banking, and credit. It shall
have supervision over the operations of banks and exercise such regulatory
and examination powers as provided in this Act and other pertinent laws over
the quasi-banking operations of non-bank financial institutions. As may be
determined by the Monetary Board, it shall exercise regulatory and
examination powers over money service businesses, credit granting
businesses, and payment system operators. The Monetary Board is hereby
empowered to authorize entities or persons to engage in money service
businesses.
The primary objective of the Bangko Sentral is to maintain price stability
conducive to a balanced and sustainable growth of the economy. It shall also
promote and maintain monetary stability and the convertibility of the peso.
The Bangko Sentral shall promote financial stability and closely work with
other relevant bodies including, but not limited to, the Securities and Exchange
Commission, the Philippine Deposit Insurance Corporation, and the National
Government.
The Bangko Sentral shall oversee the payment and settlement systems in the
Philippines, including critical financial market infrastructures, in order to
2
 promote sound and prudent practices consistent with the maintenance of
financial stability.
In the attainment of its objectives, the Bangko Sentral shall promote broad
and convenient access to high quality financial services and consider the
interest of the general public.
Maintain price stability – that is the main objective of Bangko Sentral.
It shall also promote and maintain monetary stability and the convertibility of
the peso. So you have—
(1) price stability;
(2) monetary stability;
(3) convertibility of the peso.
Price Stability
Price stability in an economy— means that the general price level in an
economy does not change much over time. In other words, prices neither goes
up or down; there is no significant degree of inflation or deflation.
So the value of your money now should be the value of your money over a
period of time. Why? Is it really bad to have an inflation? It does not mean if
there is inflation, the economy is bad. It may be a means to control prices and
interest rate.
Monetary Policy
The term Monetary Policy refers to the decisions that a government makes
concerning interest rates and the supply of money in an economy. Monetary
policy can be used to try to keep prices stable.
• The Bangko Sentral maintains price stability through responsive
and effective monetary policy.
• The framework for conducting monetary policy formally adopted
by the Bangko Sentral is inflation targeting.
What will happen if the interest is not controlled? It might have an impact on
the supply of money. If the interest rate is too high, what do you think the
people’s reaction would be? Give everything to the banking system. What
would happen to the money in circulation?
Monetary policy instruments
• Operations in gold and foreign exchange
• Regulations of foreign exchange operations of banks
• Loans to banking and other financial institutions
• Open market operations
• Bank reserves
• Moral suasion
• Selective regulation of bank operations
What is moral suasion? It is the act of persuading the person or group to act
in a certain way through rhetorical appeals, persuasion or implicit threats, as
opposed to the use of outright coercion or force. It is commonly used in
reference to central banks.
Monetary stability and convertibility of peso
Monetary stability pertains to the stability of peso and its international value
for current payments for foreign trade and invisibles.
Why is it important to have convertibility of peso or currency? To make it
simple, it is necessary for foreign trade.
You know Renminbi – the currency of China? It’s not really freely traded, that’s
why there’s a problem in getting money in and out. Why is it so hard to get the
money out? It’s not really hard, it’s just that there are severe regulations in
their central bank because the Renminbi is not heavily traded. If it’s heavily
traded, it’s easier.
Let’s say you have a service that you rendered in China. You billed the
company. You receive money. Now it’s so hard for the money to get out of
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
China. What is the source document that you give there? Your service
contract. Now, sham documents are proliferating. That’s why before it gets
out, they will review that properly, then they’ll convert that into dollar.
The central bank there, is very strict because the Renminbi is not heavily
traded. The scrutiny and the review are too long. So if the transaction, is
cleared in two or three months. It’s not heavily traded, so it has to be
converted into dollar (a heavily traded currency), then to your own currency.
What will happen into the three-month period? You have your forex
difference. You can receive 1000, but you’ll end up receiving is 800, because
of the forex difference.
That’s why there are institutions engaged in the service of foreign currency
hedging. Let’s say what you will receive, I will peg at 50 pesos per 1 dollar. So
I would go to the financial institutions, and he will offer hedging. “okay, I will
ensure that you will receive 50. Now, if the value of the dollar goes up, let’s
say it will be 51, I will be the one who will gain. If the value of the dollar goes
down, so I will be the one to give the difference.” So hedging to secure any
foreign currency risk.
Now a good question: Is that tantamount to an allied activity of a banking
institution? We will determine that later on when we go to Allied Activities.
Commissioner of Customs v. Eastern Sea Trading
G.R. No. L-14279
Facts
Eastern Sea Trading was the consignee of several shipments, none of which
had the certificate required by Central Bank Circulars Nos. 44 and 45 for the
release thereof. Thus, the goods were seized and subjected to forfeiture
proceedings.
Eastern Sea Trading argued: that the Central Bank has no authority to regulate
transactions not involving foreign exchange; that the shipments in question
are in the nature of “no-dollar” imports; that, as such, the aforementioned
shipments do not involve foreign exchange.
Issue
Whether the Central Bank has the authority to regulate no-dollar imports
Ruling: Yes
The authority of the Central Bank to regulate no-dollar imports and the validity
of the aforementioned Circular Nos. 44 and 45 have already been passed upon
and repeatedly upheld by this Court for the reasons that the broad powers of
the Central Bank, under its charter, to maintain our monetary stability and to
preserve the international value of our currency, under Section 2 of RA 265, in
relation to Section 14 of said Act – authorizing the bank to issue such rules and
regulations as it may consider necessary for the effective discharge of the
responsibilities and the exercise of the powers assigned to the Monetary
Board and to the Central Bank – connote the authority to regulate no-dollar
imports, owing to the influence and effect that the same may and do have
upon the stability of our peso and its international value.
So even if its no-dollar imports, you have to consider the payments. It still has
to be under the auspices of convertibility of peso.
Central bank supervises and regulates banks. The Bangko Sentral promotes
financial stability and supervision of banks and regulation of finance
companies, quasi-banks, etc.
Coverage of the supervision and regulatory powers of BSP
- banks,
- subsidiaries and affiliates of banks and related allied activities of
quasi banks,
- subsidiaries and affiliates of quasi banks engaged in allied activities
- other institution such as non-stock savings and loans association,
pawnshop, money changers, remittance agents, trust companies
DBP v COA
G.R. No. 88435
Facts
3
 New COA Chair questioned the Central Bank Circular allowing a private
external auditor for DBP which is a government bank. The circular allegedly
encroached upon COA’s constitutional and statutory power to audit
government agencies.
Issue:
Whether or not the constitutional power of the COA to examine and audit the
DBP is exclusive and precludes a concurrent audit of the DBP by a private
external auditor
Ruling: NO
The resolution of the primordial issue of whether or not the COA has the sole
and exclusive power to examine and audit government banks involves an
interpretation of Section 2, Article IX-D of the 1987 Constitution. This Section
provides as follows:
"Sec. 2. (1) The Commission on Audit shall have the power, authority, and duty
to examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned and held
in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned or controlled
corporations with original charters, x x x.
"(2) The Commission shall have the exclusive authority, subject to the
limitations in this Article, to define the scope of its audit and examination,
establish the techniques and methods required therefore, and promulgate
accounting and auditing rules and regulations, including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant,
or unconscionable expenditures, or uses of government funds and
properties."
The COA vigorously asserts that under the first paragraph of Section 2, the COA
enjoys the sole and exclusive power to examine and audit all government
agencies, including the DBP.
The bare language of Section 2, however, shows that the COA's power under
the first paragraph is not declared exclusive, while its authority under the
second paragraph is expressly declared "exclusive." There is a significant
reason for this marked difference in language.
The qualifying word "exclusive" in the second paragraph of Section 2 cannot
be applied to the first paragraph which is another sub-section of Section 2.
Thus, the first paragraph of Section 2 must be read the way it appears, without
the word "exclusive", signifying that non-COA auditors can also examine and
audit government agencies. Besides, the framers of the Constitution
intentionally omitted the word "exclusive" in the first paragraph of Section 2
precisely to allow concurrent audit by private external auditors.
There is another constitutional barrier to the COA's insistence of exclusive
power to examine and audit all government agencies. The COA's claim clashes
directly with the Central Bank's constitutional power of "supervision" over
banks under Section 20, Article XII of the Constitution. This provision states as
follows:
"Sec. 20. The Congress shall establish an independent central monetary
authority, the members of whose governing board must be natural-born
Filipino citizens, of known probity, integrity, and patriotism, the majority of
whom shall come from the private sector. They shall also be subject to such
other qualifications and disabilities as may be prescribed by law. The authority
shall provide policy direction in the areas of money, banking, and credit. It shall
have supervision over the operations of banks and exercise such regulatory
powers as may be provided by law over the operations of finance companies
and other institutions performing similar functions." (Emphasis supplied)
Historically, the Central Bank has been conducting periodic and special
examination and audit of banks to determine the soundness of their
operations and the safety of the deposits of the public. Undeniably, the
Central Bank's power of "supervision" includes the power to examine and
audit banks, as the banking laws have always recognized this power of the
Central Bank.31 Hence, the COA's power to examine and audit government
banks must be reconciled with the Central Bank's power to supervise the same
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
banks. The inevitable conclusion is that the COA and the Central Bank have
concurrent jurisdiction, under the Constitution, to examine and audit
government banks.
In other words, the COA has no exclusive authority to audit government banks.
Why is that so? Isn’t redundant that the COA will audit then BSP will also audit?
They have different objectives/goals—
Objective of COA’s audit: to determine if the expense of the government is
really within the budget allotted to them
Objective of BSP’s audit: to determine the soundness of the bank’s operations
and the safety of the deposits of the public
That’s why they have the right to supervise and regulate banks this is the
objective. Are there operations sound? Are they in compliance with their duty
to the public.
Now, the Central Bank's power of "supervision" includes the power to examine
and audit banks, so BSP has very broad supervisory powers. Now it involves
the audit in relation to its supervisory powers. It just so happens COA also has
the power to audit.
So if you reconcile, that’s the only part where they have concurrent
jurisdiction—the right to audit with regards to the finances because you
cannot supervise to determine the sound practice of a bank or if its provides
safety to the public if you do not audit. In other words, that’s the only time
they overlap.
The right and supervisory powers of BSP are broader than the COA.
The BSP not only audits government banks but also private banks while the
COA only audits government banks because the funds taken by the
government banks came from the coffers of the government. That’s why the
COA audits.
BANKS
- entities engaged in the lending of funds obtained in the form of
deposits
- Universal Banks
- Commercial Banks
- Thrift Banks composed of:
o Savings and mortgage banks
o Stock savings and loans associations and
o Private development bank
- Rural Banks
- Cooperative Banks
- Islamic Banks, and
- Other classifications
We have said earlier there’s a specie called quasi-bank—
QUASI-BANKS
- Entities engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of
deposit substitutes for purposes of re-lending or purchasing
receivables and other obligations
So if you are an entity engaged in discounting of receivables, for example if I
have receivables to someone, you loaned from, I want cash but he hasn’t paid
what will I do? There is this (third person) he will give me cash and I will give
him my receivables)with recourse, you are a quasi-bank. It’s because in effect
you are engaged in the borrowing of funds through the issuance, endorsement
or assignment with recourse.
4
 OFFSHORE BANKING UNITS
- OBUs are branches, subsidiaries, or affiliates of a foreign banking
corporation which are duly authorized by the Bangko Sentral to
transact offshore banking business in the Philippines
So who are the clients of these OBUs? Foreign branch, so let’s say May Bank.
Or let’s say there’s a Bank of the Netherlands, they have branch here and are
engaged in offshore banking. Who are their depositors? Filipinos? NO.
Foreigners as well.
Why does the government allow OBUs to do business in the PH? In fact there’s
a tax incentive because if there are OBUs here in the PH, it means the exchange
of foreign currencies are liquid because they transact here. So that has an
impact on our monetary policy.
Please take note— the reason why OBUs are here because it has a positive
impact in the economy.
If you are employed in the OBUs or Petroleum Corporation, how much is your
income tax rate? Supposedly 15% of your income, that’s why a lot of Filipinos
apply there. Because of the TRAIN law, they’ve abolished that. What
happened, it was vetoed by the President, take it out, the compensation is
already high, what’s the 15% incentive for? But this is only effective to
employees employed to OBUs registered after the effectivity of the TRAIN law
(January 1, 2018). If there are existing registered OBUs, they can use the same
tax rate (15%).
OTHER INSTITUTIONS
- Non-stock savings and loan associations
- Pawnshops
Let’s go to the place of business.
SECTION 4. Place of Business. — The Bangko Sentral shall have its principal
place of business in Metro Manila, but may maintain branches, agencies and
correspondents in such other places as the proper conduct of its business
may require.
Why is it important to have a place of business? Because this will be the basis
for your venue of actions
SECTION 5. Corporate Powers. — The Bangko Sentral is hereby authorized to
adopt, alter, and use a corporate seal which shall be judicially noticed; to enter
into contracts; to lease or own real
and personal property, and to sell or otherwise dispose of the same; to sue
and be sued; and otherwise to do and perform any and all things that may be
necessary or proper to carry out the purposes of this Act.
The Bangko Sentral may acquire and hold such assets and incur such liabilities
in connection with its operations authorized by the provisions of this Act, or
as are essential to the proper conduct of such operations.
The Bangko Sentral may compromise, condone or release, in whole or in part,
any claim of or settled liability to the Bangko Sentral, regardless of the amount
involved, under such terms and conditions as may be prescribed by the
Monetary Board to protect the interests of the Bangko Sentral.
POWERS OF THE BANGKO SENTRAL
- adopt, alter, and use a corporate seal
- enter into contracts;
- lease or own real and personal property,
- sue and be sued
- acquire and hold such assets and incur such liabilities in
connection or as are essential to the conduct of its operations
- compromise, condone or release, in whole or in part, any claim of
or settled liability to the Bangko Sentral,
- do and perform any and all things that may be necessary or
proper to carry out the purposes of RA 7653
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Why is it important to delineate the powers of a body corporate? Because
remember a body corporate is an artificial being created by law. It’s not the
same as humans. it has no heart and body, it has no soul. So the body
corporate also has powers limited by the law or that which created the
corporation. It has to be limited, it cannot have unlimited powers, it has no
carnal body or soul.
To summarize, the BSP has the same powers as any body, corporate or private
corporation.
Let’s go to the monetary board which can be liken to a board of directors of a
corporation
ARTICLE II. THE MONETARY BOARD
SECTION 6. Composition of the Monetary Board. — The powers and functions
of the Bangko Sentral shall be exercised by the Bangko Sentral Monetary
Board, hereafter referred to as the Monetary Board, composed of seven (7)
members appointed by the President of the Philippines for a term of six (6)
years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the
Monetary Board. The Governor of the Bangko Sentral shall be head of a
department and his appointment shall be subject to confirmation by the
Commission on Appointments. Whenever the Governor is unable to attend a
meeting of the Board, he shall designate a Deputy Governor to act as his
alternate: Provided, That in such event, the Monetary Board shall designate
one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the
Philippines. Whenever the designated Cabinet Member is unable to attend a
meeting of the Board, he shall designate
an Undersecretary in his Department to attend as his alternate; and
(c) five (5) members who shall come from the private sector, all of whom shall
serve full-time: Provided, however, That of the members first appointed under
the provisions of this subsection, three (3) shall have a term of six (6) years,
and the other two 2), three (3) years.
No member of the Monetary Board may be reappointed more than once.
On Sec 6(c): So this is what we call rotational system in your Administrative
Law
Take note— no member of the monetary board may be appointed more than
twice.
Calderon vs. Carale
G.R. No. 91636
FACTS:
RA 6715 was passed on 1989 amending PD 442 of the Labor Code. It states
that the NLRC Chairman and Commissioners shall be appointed by the
President subject to the confirmation of the Commission on Appointments.
Calderon questioned the appointment of Carale as NLRC Chair saying that it is
subject to the confirmation of the CA.
ISSUE:
Whether or not Congress may, by law, require confirmation by the
Commission on Appointments of appointments extended by the president to
government officers additional to those expressly mentioned in the first
sentence of Sec. 16, Art. VII of the Constitution whose appointments require
confirmation by the Commission on Appointments.
Ruling: NO
Sec. 16. The President shall nominate and, with the consent of the
Commission on Appointments, appoint the heads of the executive
departments, ambassadors, other public ministers and consuls, or officers of
5
 the armed forces from the rank of colonel or naval captain, and other officers
whose appointments are vested in him in this Constitution. He shall also
appoint all other officers of the Government whose appointments are not
otherwise provided for by law, and those whom he may be authorized by law
to appoint. The Congress may, by law, vest the appointment of other officers
lower in rank in the President alone, in the courts, or in the heads of
departments, agencies, commissions, or boards.
The President shall have the power to make appointments during the recess
of the Congress, whether voluntary or compulsory, but such appointments
shall be effective only until disapproval by the Commission on Appointments
or until the next adjournment of the Congress.
Confirmation by the Commission on Appointments is required only for
presidential appointees mentioned in the first sentence of Section 16, Article
VII, including, those officers whose appointments are expressly vested by the
Constitution itself in the president (like sectoral representatives to Congress
and members of the constitutional commissions of Audit, Civil Service and
Election).
The position of the SC is that those positions subject to the confirmation of the
Commission of Appointments are limited to the first sentence of Sec 16, Art
VII of the 1987 Constitution.
So question, is this valid that the New Central Bank Act provided that the
Governor is subject to the confirmation of the Commission of Appointments?
Student: It is not valid.
Sir: (Referring to the case) It was invalidated, the labor code, because it was
expressly specified in the Constitution. How about his one, is the Governor of
BSP one of those mentioned positions in the Constitution? We have no
jurisprudence for that. But please take note of the Calderon case which is
instructive as to the NLRC Chair position. There is yet no challenge as to the
BSP.
If you’re going to be asked, is it constitutional or unconstitutional?
Esperanza v Castilla
G.R. No. L021810
Facts
Esperanza, a Central Bank employee, was charged of dishonesty and violations
of regulations, as set forth in the letters sent to the CB. He was suspended and
was investigated by a committee as directed by the Governor of the Central
Bank. Esperanza questioned this power and authority of the Governor
Issue
Whether the Governor as the officer-in-charge has the power to discipline as
a department head
Ruling: YES
Indeed, the charter of the Central Bank (Republic Act No. 265) explicitly
provides 4 that the "Governor of the Central Bank shall be the principal
representative of the Monetary Board and of the Bank", and that 5 he "shall
be the chief executive of the Central Bank, with authority, inter alia "to direct
and supervise the operations and internal administration" of the Bank. It is
obvious that, whereas the functions of the Monetary Board may be compared
to those of the Board of Directors of a corporation, the role of the Governor
of the Central Bank may, in turn, be likened to that of president and general
manager of such corporation, with the duties and responsibilities of a
department head of the government.
In fact, the Governor’s duty to direct and supervise the operations and internal
administration of the bank logically entails the power to prefer charges against
erring officials of the Bank and to see to it that said charges are properly
investigated, this being an intrinsic element of the internal administration of
the said institution.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
In effect, the governor is likened to a department head of the government.
So this next case, this could’ve been the answer to the question whether or
not it is constitutional for the governor to be confirmed by the Commission on
Appointment. This should have been the key to answer to that question.
Did it answer the question? NO
Tarrosa v Singson
G.R. No. 111243 (1994)
Facts
A petition for prohibition was filed questioning the appointment of Singson as
Governor of BSP for not having been confirmed by the Commission on
Appointments.
Issue
Whether the the petition should be given due course
Ruling: NO
It is obvious that the instant action was improvidently brought by petitioner.
To uphold the action would encourage every disgruntled citizen to resort to
the courts, thereby causing incalculable mischief and hindrance to the efficient
operation of the governmental machinery (See Roosevelt v. Draper, 7 Abb. Pr.
108, 23 N.Y. 218).
Its capstone having been removed, the whole case of petitioner collapses.
Hence, there is no need to resolve the question of whether the disbursement
of public funds to pay the salaries and emoluments of respondent Singson can
be enjoined. Likewise, the Court refrains from passing upon the
constitutionality of Section 6, R.A. No. 7653 in deference to the principle that
bars a judicial inquiry into a constitutional question unless the resolution
thereof is indispensable for the determination of the case (Fernandez v.
Torres, 215 SCRA 489 [1992]).
However, for the information of all concerned, we call attention to our
decision in Calderon v. Carale, 208 SCRA 254 (1992), with Justice Isagani A.
Cruz dissenting, where we ruled that Congress cannot by law expand the
confirmation powers of the Commission on Appointments and require
confirmation of appointment of other government officials not expressly
mentioned in the first sentence of Section 16 of Article VII of the Constitution.
According to the SC, the petition is actually in the nature of a quo warranto
proceeding. Who should file a quo warranto proceeding? It should have been
commenced by the Solicitor General.
What the Court did, they dismissed the petition due to technicalities. they did
not rule on the merits. It should have been an opportunity for them to clarify
the matter (on the requirement of confirmation) but they did not clarify.
MONETARY BOARD MEMBERSHIP
- Chairman, the Governor is the Chairman of the Monetary Board
- Cabinet Member, Can it be the Secretary of Finance? Yes
- Members of the Private Sector: Fulltime
- Reappointment
- Collegial Body: Members of the Monetary Board has no individual
powers as each of them only act as such member of the Monetary
Board
- Rotational System
SECTION 7. Vacancies. — Any vacancy in the Monetary Board created by the
death, resignation, or removal of any member shall be filled by the
appointment of a new member to complete the unexpired period of the term
of the member concerned.
6

SECTION 8. Qualifications. — The members of the Monetary Board must be
natural-born citizens of the Philippines, at least thirty-five (35) years of age,
with the exception of the Governor who should at least be forty (40) years of
age, of good moral character, of unquestionable integrity, of known probity
and patriotism, and with recognized competence in social and economic
disciplines.
(3) corporation, association or firm of which the stockholder
and/or his spouse and/or the aforementioned relatives own
more than fifty percent (50%) of the total subscribed capital
stock of such corporation, association or firm,
amount to one percent (1%) or more of the total subscribed capital
stock of the Bank

What’s the difference between character and reputation?
In the old law, this is actually specialized, “the member must have recognized
competence in economics, banking, finance, commerce, agriculture or
industry”
Now, what is stated is, “social and economic disciplines”. Apparently, there
are people who have no degrees on those areas but can provide important
inputs, information on policy.
Original Provision
SECTION 9. Disqualifications. — In addition to the disqualifications imposed
by Republic Act No. 6713, a member of the Monetary Board is disqualified
from being a director, officer, employee, consultant, lawyer, agent or
stockholder of any bank, quasi-bank or any other institution which is subject
to supervision or examination by the Bangko Sentral, in which case such
member shall resign from, and divest himself of any and all interests in such
institution before assumption of office as member of the Monetary Board.
The members of the Monetary Board coming from the private sector shall not
hold any other public office or public employment during their tenure.
No person shall be a member of the Monetary Board if he has been connected
directly with any multilateral banking or financial institution or has a
substantial interest in any private bank in the Philippines, within one (1) year
prior to his appointment; likewise, no member of the Monetary Board shall be
employed in any such institution within two (2) years after the expiration of
his term except when he serves as an official representative of the Philippine
Government to such institution.
So you see, how the law tries to maintain the integrity of the Monetary. It is
very restricted, because, of course of its an important function.
What is proxy or voting trust? the stocks are not named in a
member of the Monetary Board but there is a voting rights
agreement. Meaning the shares are held in trust in that particular
member of the monetary Board. Since he is the beneficiary of that
particular stock, he is disqualified. We will discuss extensively proxy
voting rights in Corporation Law.
“amount to one percent (1%) or more of the total subscribed capital
stock of the Bank”, in other words you can own ng 1 share if it does
not amount to 1%. Is that allowed? YES.
If you have a lot of shares, let’s say 200 subscribed capital and you
have 1 share, does it amount to 1%? How much is that? So that’s
.5%. so it does not amount to 1%.
So what will happen if there’s a share like that? What will you do?
You either
o resign if you’re an officer, or
o divest, meaning sell it to somebody else
Divestment is the transfer of title or disposal of interest in property
voluntarily, completely and actually depriving or dispossessing
oneself of his right or title to it in favor of a person other than the
spouse and affinity within the fourth civil degree of consanguinity
or affinity (RA 6713)
please take note, the law which governs divestment is not the
Central Bank but RA 6713 or the Code of Professional Ethics.
So if I will divest then I will sell it to my first cousin, it is still not
considered divesting.

DISQUALIFICATIONS
- Director, officer, employee, consultant, lawyer, agent or
stockholder of any bank, quasi-bank or any other institution which
is subject to supervision or examination by the Bangko Sentral

Meaning, you have conflict of interest, you are disqualified. In

which case such member shall resign from, and divest himself of
any and all interests in such institution.

Please take note— if you’re a stockholder, even if 1 share, you are disqualified.
It is not specified that he must be a majority stockholder.

- BSP Circular 969 Series of 2017

Stockholder shall refer to any stockholder of record in the books of

the Bank acting personally, or through an attorney-in-fact; or any
other person duly authorized by him or through a trustee
designated pursuant to a proxy or voting trust of other similar
contracts, whose stockholdings in the Bank, individual and/or
collectively with the stockholdings of:

(1) his spouse and/or relative within the first degree by

consanguinity or affinity or legal adoption;

(2) a partnership in which the stockholder and/or the spouse

and/or any of the aforementioned relatives is a general
partner; and

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 7

 November 28, 2018
ARTICLE II
THE MONETARY BOARD
Section 6. Composition of the Monetary Board. - The powers and functions of
the Bangko Sentral shall be exercised by the Bangko Sentral Monetary Board,
hereafter referred to as the Monetary Board, composed of seven (7) members
appointed by the President of the Philippines for a term of six (6) years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the
Monetary Board. The Governor of the Bangko Sentral shall be head of a
department and his appointment shall be subject to confirmation by the
Commission on Appointments. Whenever the Governor is unable to attend a
meeting of the Board, he shall designate a Deputy Governor to act as his
alternate: Provided, That in such event, the Monetary Board shall designate
one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the
Philippines. Whenever the designated Cabinet Member is unable to attend a
meeting of the Board, he shall designate an Undersecretary in his Department
to attend as his alternate; and
(c) five (5) members who shall come from the private sector, all of whom shall
serve full-time: Provided, however, That of the members first appointed under
the provisions of this subsection, three (3) shall have a term of six (6) years,
and the other two (2), three (3) years.
No member of the Monetary Board may be reappointed more than
once.
The composition of the Monetary Board—
1. The chairman as the governor;
2. A Cabinet member – he can be the Secretary of Finance because
the law did not prohibit that;
3. Members of the private sector – who must be full-time members.
Members of the MB are appointed but cannot be reappointed – only once
lang. Each of them can only act as members of the MB and they also apply the
rotational system under your Administrative Law.
Section 7. Vacancies. - Any vacancy in the Monetary Board created by the
death, resignation, or removal of any member shall be filled by the
appointment of a new member to complete the unexpired period of the term
of the member concerned.
So, there’s no fresh period.
Section 8. Qualifications. - The members of the Monetary Board must be
natural-born citizens of the Philippines, at least thirty-five (35) years of age,
with the exception of the Governor who should at least be forty (40) years of
age, of good moral character, of unquestionable integrity, of known probity
and patriotism, and with recognized competence in social and economic
disciplines.
With recognized competence in social and economic disciplines
Before, under the old Central Bank Act this phrase used to be “with recognized
competence in economics, banking and finance, commerce and agriculture”,
however they found out that there’s something people who are not within this
field that can contribute in the development of policies in central banking – so
they considered that. For as long as you have a recognized competence in
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
social and economic disciplines, you can be a member of the MB. Kasi, at the
end of the day, you act as a collegiate body.
Section 9. Disqualifications. - In addition to the disqualifications imposed by
Republic Act No. 6713, a member of the Monetary Board is disqualified from
being a director, officer, employee, consultant, lawyer, agent or stockholder
of any bank, quasi-bank or any other institution which is subject to supervision
or examination by the Bangko Sentral, in which case such member shall resign
from, and divest himself of any and all interests in such institution before
assumption of office as member of the Monetary Board.
The members of the Monetary Board coming from the private sector
shall not hold any other public office or public employment during their
tenure.
No person shall be a member of the Monetary Board if he has been
connected directly with any multilateral banking or financial institution or has
a substantial interest in any private bank in the Philippines, within one (1) year
prior to his appointment; likewise, no member of the Monetary Board shall be
employed in any such institution within two (2) years after the expiration of
his term except when he serves as an official representative of the Philippine
Government to such institution.
DISQUALIFICATIONS—
1. Director, officer, employee, consultant, lawyer, agent or
stockholder of any bank, quasi-bank or any other institution which
is subject to supervision or examination by the Bangko Sentral;
2. Stockholders – any stockholder of record in the books of the Bank,
acting personally or through an attorney-in-fact; or any other
person duly authorized by him or through a trustee designated
pursuant to a proxy or voting trust or other similar contracts,
whose stockholdings in the Bank, individual and/or collectively
with the stockholdings of:
a. His spouse and/or relative within the first degree by
consanguinity or affinity or legal adoption;
b. A partnership in which the stockholder and/or the
spouse and/or any of the aforementioned relatives is a
general partner; and
c. A corporation, association or firm of which the
stockholder and/or his spouse and/or the
aforementioned relatives own more than 50% of the
total subscribed capital stock of such corporation,
association or firm.
Which amount to 1% or more of the total subscribed capital stock
of the Bank. (BSP Circular 969 Series of 2017)
So it need not matter if X is a member of the MB but stocks are in the name of
Y – for as long as the beneficial interest is in favor of X. in this particular case,
X is still disqualified from being a member of the MB.
Now, if you are a stockholder – 1 share – would you still be considered as
being disqualified from being a member of the MB?
Take note that the New Central Bank Act did not provide for any percentage.
It only says, “Any stockholder of record” – so it’s possible 1 share. However,
under the BSP Circular No. 969, Series of 2017 – it specifically provides that
the stockholder should amount to 1% of the total subscribed capital stock of
the bank, individually or collectively with the stockholdings of the spouse plus
the relative within the first degree by consanguinity or affinity or legal
adoption, etc. – if it amounts to 1% of the subscribed capital stock, you’re
already disqualified
SUBSCRIBED CAPITAL STOCK – A portion of your authorized capital stock that
is subscribed – meaning covered by subscription agreements. So someone
already owns a portion of that.
8
 What happens if you would like to be a part of the MB yet you have a lot of
shareholdings?
• You resign from, and divest yourself of any and all interests in such
institution.
DIVESTMENT – the transfer of title or disposal of interest in property by
voluntarily, completely and actually depriving or dispossessing oneself of his
right or title to it in favor of a person or persons other than his spouse and
relatives without the 4th civil degree of consanguinity or affinity (RA 6713)
Section 10. Removal. - The President may remove any member of the
Monetary Board for any of the following reasons:
(a) If the member is subsequently disqualified under the provisions of Section
8 of this Act; or
(b) If he is physically or mentally incapacitated that he cannot properly
discharge his duties and responsibilities and such incapacity has lasted for
more than six (6) months; or
(c) If the member is guilty of acts or operations which are of fraudulent or
illegal character or which are manifestly opposed to the aims and interests of
the Bangko Sentral; or
(d) If the member no longer possesses the qualifications specified in Section 8
of this Act.
Letters (a) and (d) – they’re the same.
Letter (c) – take note, the member should be guilty. There has to be conviction
of acts or operations which are of fraudulent or illegal character or which are
manifestly opposed to the aims and interests of the Bangko Sentral.
If you’re going to be disqualified, there has to be due process. There still
administrative proceedings requiring the party to be afforded the opportunity
to be heard – the quantum of proof in administrative proceedings is
substantial evidence – it is under the authority of the President based on its
power to appoint, which includes the power to discipline and the Office of the
Ombudsman has concurrent jurisdiction to discipline members of the MB.
Old Provision
Section 11. Meetings. - The Monetary Board shall meet at least once a week.
The Board may be called to a meeting by the Governor of the Bangko Sentral
or by two (2) other members of the Board.
The presence of four (4) members shall constitute a quorum: Provided, That
in all cases the Governor or his duly designated alternate shall be among the
four (4).
Unless otherwise provided in this Act, all decisions of the Monetary Board shall
require the concurrence of at least four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the
proceedings and deliberations of the Monetary Board, including the tapes and
transcripts of the stenographic notes, either in their original form or in
microfilm.
Proposed Amendment
Section 11. Meetings. - The Monetary Board shall meet at least once a week.
The Board may be called to a meeting by the Governor of the Bangko Sentral
or by two (2) other members of the Board.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
The presence of four (4) members shall constitute a quorum: Provided, That
in all cases the Governor or his duly designated alternate shall be among the
four (4).
Unless otherwise provided in this Act, all decisions of the Monetary Board shall
require the concurrence of at least four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the
proceedings and deliberations of the Monetary Board, including the tapes and
transcripts of the stenographic notes, either in their original form or in
microfilm.
The meetings of the Monetary Board may be conducted through modern
technologies such as, but not limited to, teleconferencing and
videoconferencing.
Why is it stated here, “unless otherwise provided in this Act, all decisions of
the Monetary Board shall require the concurrence of at least four (4)
members.”?
Because you will know later on that in cases of emergency meetings, they have
to decide promptly and they can no longer wait for the other members.
Remember the BSP is established for the protection of the public.
Section 12. Attendance of the Deputy Governors. - The Deputy Governors
may attend the meetings of the Monetary Board with the right to be heard.
Section 13. Salary. - The salary of the Governor and the members of the
Monetary Board from the private sector shall be fixed by the President of the
Philippines at a sum commensurate to the importance and responsibility
attached to the position.
Section 14. Withdrawal of Persons Having a Personal Interest. - In addition to
the requirements of Republic Act No. 6713, any member of the Monetary
Board with personal or pecuniary interest in any matter in the agenda of the
Monetary Board shall disclose his interest to the Board and shall retire from
the meeting when the matter is taken up. The decision taken on the matter
shall be made public. The minutes shall reflect the disclosure made and the
retirement of the member concerned from the meeting.
If there’s an agenda – even if it does not amount to a disqualification, the
member of the MB shall disclose his interest to the Board and shall retire from
the meeting when the matter is taken up.
Old Provision
Section 15. Exercise of Authority. - In the exercise of its authority, the
Monetary Board shall:
(a) issue rules and regulations it considers necessary for the effective discharge
of the responsibilities and exercise of the powers vested upon the Monetary
Board and the Bangko Sentral. The rules and regulations issued shall be
reported to the President and the Congress within fifteen (15) days from the
date of their issuance;
(b) direct the management, operations, and administration of the Bangko
Sentral, reorganize its personnel, and issue such rules and regulations as it may
deem necessary or convenient for this purpose. The legal units of the Bangko
Sentral shall be under the exclusive supervision and control of the Monetary
Board;
(c) establish a human resource management system which shall govern the
selection, hiring, appointment, transfer, promotion, or dismissal of all
personnel. Such system shall aim to establish professionalism and excellence
9
 at all levels of the Bangko Sentral in accordance with sound principles of
management.
A compensation structure, based on job evaluation studies and wage
surveys and subject to the Board's approval, shall be instituted as an integral
component of the Bangko Sentral's human resource development program:
Provided, That the Monetary Board shall make its own system conform as
closely as possible with the principles provided for under Republic Act No.
6758: 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. 6758.
On the recommendation of the Governor, appoint, fix the
remunerations and other emoluments, and remove personnel of the Bangko
Sentral, subject to pertinent civil service laws: Provided, That the Monetary
Board shall have exclusive and final authority to promote, transfer, assign, or
reassign personnel of the Bangko Sentral and these personnel actions are
deemed made in the interest of the service and not disciplinary: Provided,
further, That the Monetary Board may delegate such authority to the
Governor under such guidelines as it may determine.
(d) adopt an annual budget for and authorize such expenditures by the Bangko
Sentral as are in the interest of the effective administration and operations of
the Bangko Sentral in accordance with applicable laws and regulations; and
(e) indemnify its members and other officials of the Bangko Sentral, including
personnel of the departments performing supervision and examination
functions against all costs and expenses reasonably incurred by such persons
in connection with any civil or criminal action, suit or proceedings to which he
may be, or is, made a party by reason of the performance of his functions or
duties, unless he is finally adjudged in such action or proceeding to be liable
for negligence or misconduct.
In the event of a settlement or compromise, indemnification shall be
provided only in connection with such matters covered by the settlement as
to which the Bangko Sentral is advised by external counsel that the person to
be indemnified did not commit any negligence or misconduct.
The costs and expenses incurred in defending the aforementioned
action, suit or proceeding may be paid by the Bangko Sentral in advance of the
final disposition of such action, suit or proceeding upon 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 indemnified as provided in this subsection.
Proposed Amendment
Section 15. Exercise of Authority. - In the exercise of its authority, the
Monetary Board shall:
(e) indemnify its members and other officials of the Bangko Sentral, including
personnel of the departments performing supervision and examination
functions against all costs and expenses reasonably incurred by such persons
in connection with any civil or criminal action, suit or proceedings to which he
may be, or is, made a party by reason of the performance of his functions or
duties, unless he is finally adjudged in such action or proceeding to be liable
for willful violation of this act, performed in evident bad faith or with gross
negligence.
In the event of a settlement or compromise, indemnification shall be
provided only in connection with such matters covered by the settlement as
to which the Bangko Sentral is advised by external counsel that the person to
be indemnified did not commit willful violation of this act, performed in
evident bad faith or with gross negligence.
The costs and expenses incurred in defending the aforementioned
action, suit or proceeding may be paid by the Bangko Sentral in advance of the
final disposition of such action, suit or proceeding upon receipt of an
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
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 indemnified as provided in this subsection.
If you try to look at it, this MB, they back-up on currency stability. That’s why
may issue on cryptocurrency. All of the currencies in different countries are
backed up by a central bank for a reason – which is to monitor. So who back-
ups this cryptocurrency? In my opinion, there will come a time that will
saturate. Okay those who came first they would buy these intangibles and
then sell it.
What if it will reach to a point that the market gets saturated?
Take note under letter (e) – this particular authority of the MB is actually for
the protection of its members because these banks subject to the supervision
of the MB is under regular examination by the people under the Supervision
and Examination Sector.
In practice, when BSP audit banks, banks take care of them so the findings look
good. But, they should be strict in performing their examinations. In the event
that their reports will be detrimental to the bank, of course the bank has its
ammunition of lawyers, now what will happen to people if this provision does
not exist? What will happen? They will get scared. This particular provision is
aimed at protecting those people and indemnifying them for any serious
actions.
Take note of the exception—unless he is finally adjudged in such action or
proceeding to be liable for negligence or misconduct.
So, there has to be a final decision or judgment that there is negligence or
misconduct on the part of the person.
In the event of a settlement or compromise, indemnification shall be provided
only in connection with such matters covered by the settlement as to which
the Bangko Sentral is advised by external counsel that the person to be
indemnified did not commit any negligence or misconduct.
Take note – negligence and misconduct. Other than that, he can be
indemnified.
CENTRAL BANK EMPLOYEES v. BSP
FACTS: On July 3, 1993, RA 7652 (New Central Bank Act) took effect. Eight
years after its effectivity, petitioner filed a petition for prohibition against BSP
and the Executive Secretary to restrain the further implementation of the last
provision in Section 15(c), Article II of RA 7653 on the ground that it is
unconstitutional.
Said provision reads: A compensation structure, based on job evaluation
studies and wage surveys and subject to the Board's approval, shall be
instituted as an integral component of the Bangko Sentral's human resource
development program: Provided, That the Monetary Board shall make its own
system conform as closely as possible with the principles provided for under
Republic Act No. 6758: 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. 6758.
According to petitioners, the proviso makes an unconstitutional cut between
2 classes of employees in the BSP: one is for the BSP officers or those who are
exempted from the coverage of the Salary Standardization Law (SSL) and the
other, the rank-and-file, or those who are not exempted from the SSL.
Further according to petitioner, the proviso is also violative of the equal
protection clause because after it was enacted, the charters of the GSIS, LBP,
DBP and SSS were also amended, but the personnel of the said government
financial institutions (GFI) were all exempted from the coverage of the SSL.
10
 ISSUE: Is the assailed proviso unconstitutional?
RULING: YES.
Note: The SC held that when the law was first enacted in 1993, such was still
constitutional – there was a valid classification as to the different types of
officers since they belong to different positions. However, when the charters
of the different GFI’s (not BSP) were amended which excluded its employees
from the coverage of the SSL, the proviso was then declared as
unconstitutional.
The subsequent charters of the seven other GFIs share this
common proviso: a blanket exemption of all their employees from the
coverage of the SSL, expressly or impliedly.
Thus, eleven years after the amendment of the BSP charter, the rank-
and-file of seven other GFIs were granted the exemption that was specifically
denied to the rank-and-file of the BSP. And as if to add insult to petitioners
injury, even the Securities and Exchange Commission (SEC) was granted the
same blanket exemption from the SSL in 2000! [
The prior view on the constitutionality of R.A. No. 7653 was confined to
an evaluation of its classification between the rank-and-file and the officers
of the BSP, found reasonable because there were substantial distinctions that
made real differences between the two classes.
The above-mentioned subsequent enactments, however, constitute
significant changes in circumstance that considerably alter the reasonability
of the continued operation of the last proviso of Section 15(c), Article II of
Republic Act No. 7653, thereby exposing the proviso to more serious
scrutiny. This time, the scrutiny relates to the constitutionality of the
classification - albeit made indirectly as a consequence of the passage of eight
other laws - between the rank-and-file of the BSP and the seven other
GFIs. The classification must not only be reasonable, but must also apply
equally to all members of the class. The proviso may be fair on its face and
impartial in appearance but it cannot be grossly discriminatory in its
operation, so as practically to make unjust distinctions between persons who
are without differences.
November 28, 2018 – 2nd hour
Original Provision
Section 16. Responsibility. – Members of the Monetary Board, officials,
examiners and employees of the Bangko Sentral who willfully violate this Act
or who are guilty of negligence, abuse or acts of malfeasance or misfeasance
or fail to exercise extraordinary diligence in the performance of his duties shall
be held liable for any loss or injury suffered by the Bangko Sentral or other
banking institutions as a result of such violation, negligence, abuse,
malfeasance, misfeasance, or failure to exercise extraordinary diligence.
Similar responsibility shall apply to members, officers and employees of the
Bangko Sentral for: (1) the disclosure of any information of a confidential
nature, or any information on the discussions or resolutions of the Monetary
Board or about the confidential operations of the Bangko Sentral, unless the
disclosure as in connection with the performance of official functions with the
Bangko Sentral or is with prior authorization of the Monetary Board or the
Governor; or (2) the use of such information for personal gain or to the
detriment of the Government of the Government, the Bangko Sentral or third
parties:
Provided, however, That any data or information required to be submitted to
the President and/or the Congress, or to be published under the provisions of
this Act shall not be considered confidential.
Proposed Amendment
Section 16. Responsibility. — The General rule and the exception therefrom
on the liability of public officers on the liability of public officers as provided in
Sections 38 and 39 of Chapter 9, Book 1 of the Revised Administrative Code of
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
1987 shall apply to the members of the Monetary Board, and other personnel
of the Bangko Sentral.
Similar responsibility shall apply to members of the Monetary Board and other
personnel of the Bangko Sentral for; (1) the disclosure of any information of a
confidential nature, or any information on the discussions or resolutions of the
Monetary Board or about the confidential operations of the Bangko Sentral,
unless the disclosure as in connection with the performance of official
functions with the Bangko Sentral or is with prior authorization of the
Monetary Board or the Governor; or (2) the use of such information for
personal gain or to the detriment of the Government of the Government, the
Bangko Sentral or third parties: Provided, however, That any data or
information required to be submitted to the President and/or the Congress,
or to be published under the provisions of this Act shall not be considered
confidential.
The above notwithstanding, members of the Monetary Board and other
personnel of the Bangko Sentral shall not be subject to any action, claim or
demand in connection with any act done or omitted by them in the
performance of their duties and exercise of their powers except for those
actions and omissions done in evident bad faith or with gross negligence.
Unless the actions or omissions of the Bangko Sentral, members of the
Monetary Board and its other personnel are finally adjudged to be in willful
violation of this act, performed in evident bad faith or with gross negligence,
they are held free and harmless to the fullest extent permitted by law from
any liability and they shall be indemnified for any and all liabilities, losses,
claims, demands, damages deficiencies, costs and expenses whatsoever kind
and nature that may arise in connection with the exercise of their powers and
performance of their duties and functions.
We have the concept of extraordinary diligence, which I’m sure you already
have encountered in your previous cases.
Please take note on the confidential agreement because –
Similar responsibility shall apply to members, officers and employees of the
Bangko Sentral for: (1) the disclosure of any information of a confidential
nature, or any information on the discussions or resolutions of the Monetary
Board or about the confidential operations of the Bangko Sentral, unless the
disclosure as in connection with the performance of official functions with the
Bangko Sentral or is with prior authorization of the Monetary Board or the
Governor; or (2) the use of such information for personal gain or to the
detriment of the Government of the Government, the Bangko Sentral or third
parties:
Provided, however, That any data or information required to be submitted to
the President and/or the Congress, or to be published under the provisions of
this Act shall not be considered confidential.
What happens when – the banks are examined, they get information, they are
required by law actually to give the information to the public. What they do is
they publish collective data. There’s no particular data to what particular bank,
as to its assets, liabilities, collecting data in line with the monetary policy. In
their case, if they disclose information that is confidential then they can be
liable.
Central Bank vs. City Trust Banking Corporation
GR No. 76118
FACTS:
Pursuant to RA. 625, the old Central Bank Law, respondent Citytrust Banking
Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit
account with Central Bank of the Philippines, now BSP.
As required, Citytrust furnished petitioner with the names and
corresponding signatures of five of its officers authorized to sign checks and
serve as drawers and indorsers for its account. And it provided petitioner with
the list and corresponding signatures of its roving tellers authorized to
11
 withdraw, sign receipts and perform other transactions on its
behalf. Petitioner later issued security identification cards to the roving tellers
one of whom was Rounceval Flores (Flores).
On July 15, 1977, Flores presented for payment to petitioner’s
Senior Teller Iluminada dela Cruz (Iluminada) 2 Citytrust checks of even date,
payable to Citytrust, one in the amount of P850,000 and the other in the
amount of P900,000, both of which were signed and indorsed by Citytrusts
authorized signatory-drawers.
After the checks were certified by petitioners Accounting
Department, Iluminada verified them, prepared the cash transfer slip on which
she affixed her signature, stamped the checks with the notation Received
Payment and asked Flores to, as he did, sign on the space above such
notation. Instead of signing his name, however, Flores signed as Rosauro C.
Cayabyab a fact Iluminada failed to notice.
Iluminada thereupon sent the cash transfer slip and checks to
petitioners Cash Department where an officer verified and compared the
drawers signatures on the checks against their specimen signatures provided
by Citytrust, and finding the same in order, approved the cash transfer slip and
paid the corresponding amounts to Flores. Petitioner then debited the amount
of the checks totaling P1,750,000 from Citytrusts demand deposit account.
More than a year and nine months later, Citytrust, by letter dated
April 23, 1979, alleging that the checks were already cancelled because they
were stolen, demanded petitioner to restore the amounts covered thereby to
its demand deposit account. Petitioner did not heed the demand, however.
Citytrust later filed a complaint for estafa, with reservation on the
filing of a separate civil action, against Flores. Flores was convicted. Citytrust
thereafter filed before the (RTC) of Manila a complaint for recovery of sum of
money with damages against petitioner which it alleged erred in encashing the
checks and in charging the proceeds thereof to its account, despite the lack of
authority of Rosauro C. Cayabyab.
ISSUE: Whether the Central Bank is negligent?
RULING: YES.
Given that petitioner is the government body mandated to supervise and
regulate banking and other financial institutions, this Courts ruling in
Consolidated Bank and Trust Corporation v. Court of Appeals is appropriate—
The contract between the bank and its depositor is governed by the provisions
of the Civil Code on simple loan. Article 1980 of the Civil Code expressly
provides that savings, deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loan. There is a debtor-
creditor relationship between the bank and its depositor. The bank is the
debtor and the depositor is the creditor. The depositor lends the bank money
and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of RA 8791 (RA 8791), which took effect on 13 June 2000,
declares that the State recognizes the fiduciary nature of banking that requires
high standards of integrity and performance. This new provision in the general
banking law, introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of
Appeals, holding 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.
This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 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. Section
2 of RA 8791 prescribes the statutory diligence required from banks that banks
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
must observe high standards of integrity and performance in servicing their
depositors. Although RA 8791 took effect almost nine years after the
unauthorized withdrawal of the P300,000 from L.C. Diazs savings account,
jurisprudence at the time of the withdrawal already imposed on banks the
same high standard of diligence required under RA No. 8791.
Citytrust’s failure to timely examine its account, cancel the checks and notify
petitioner of their alleged loss/theft should mitigate petitioners liability, in
accordance with Article 2179 of the Civil Code which provides that if the
plaintiffs negligence was only contributory, the immediate and proximate
cause of the injury being the defendants lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded.
For had Citytrust timely discovered the loss/theft and/or subsequent
encashment, their proceeds or part thereof could have been recovered. In line
with the ruling in Consolidated Bank, the Court deems it proper to allocate the
loss between petitioner and Citytrust on a 60-40 ratio.
ARTICLE III, CHAPTER I
The Governor and Deputy Governors of the Bangko Sentral
Section 17. Powers and Duties of the Governor. –
The Governor shall be the chief executive of the Bangko Sentral.
His powers and duties shall be to:
(a) prepare the agenda for the meetings of the Monetary Board and to
submit for the consideration of the Board the policies and measures
which he believes to be necessary to carry out the purposes and
provisions of this Act;
(b) execute and administer the policies and measures approved by the
Monetary Board;
(c) direct and supervise the operations and internal administration of the
Bangko Sentral. The Governor may delegate certain of his administrative
responsibilities to other officers or may assign specific tasks or
responsibilities to any full-time member of the Monetary Board without
additional remuneration or allowance whenever he may deemed fit or
subject to such rules and regulations as the Monetary Board may
prescribe;
(d) appoint and fix the remunerations and other emoluments of personnel
below the rank and of a department head in accordance with the
position and compensation plans approved by the Monetary Board, as
well as to impose disciplinary measures upon personnel of the Bangko
Sentral, subject to the provisions of Section 15(c) of this Act: Provided,
That removal of personnel shall be with approval of the Monetary Board;
(e) render opinions, decisions or rulings which shall be final and executory
until reversed or modified by the Monetary Board, on matters regarding
application or enforcement of laws pertaining to institutions supervised
by the Bangko Sentral and laws pertaining to quasi-banks, as well as
regulations, policies or instructions issued by the Monetary Board and
the implementation thereof; and
Please take note— the Governor although they act as a collegial body, the
Governor has the power to issue decisions or rulings which are deemed to be
valid until reversed or modified by the Monetary Board on matters regarding
or enforcement of laws pertaining to institutions supervised by Bangko Sentral
and laws pertaining to quasi-banks, as well as regulations, policies or
instructions.
If you have the SEC which render an opinion for corporations, the BIR which
renders an opinion for tax issues, you have the BSP or the Governor or the
Monetary Board which gives out issues or rulings regarding banking, money
credit.
Please take note of that.
12
 (f) exercise such other powers as may be vested in him by the Monetary Why is it necessary to specify to sign the contracts, securities and notes and
Board. he represents the Bangko Sentral? Why is important to be specified? Is it not
implied?

Remember, the board is a collegial body. There must be an agency. If it is not

Section 18. Representation of the Monetary Board and the Bangko Sentral.
– The Governor of the Bangko Sentral shall be the principal representative of
the Monetary Board and of the Bangko Sentral and in, such capacity and in
accordance with the instructions of the Monetary Board, he shall be
empowered to:
The Governor is the principal representative of the Monetary Board (MB) and
as the representative, he has the power to –
specified, what will happen? Every time there is a need to sign a contract,
there has to be a resolution, there has to be a document to serve as a power
of attorney for that particular government to sign contracts, now this is why it
is expressly specified. Why? Because that could be taxing. What will happen
every time there is an emergency situation? They need a board resolution.
In lieu of that, his authority is specified, expressly. He has this authority,
expressly provided by law so it is not necessary for them to convene just to
grant a special power of attorney.

Section 19. Authority of the Governor in Emergencies. – In case of

(a) represent the Monetary Board and the Bangko Sentral in all dealings with emergencies where time is sufficient to call a meeting of the Monetary Board,
other offices, agencies, and instrumentalities of the Government and all the Governor of the Bangko Sentral, with the concurrence of (2) other
other persons or entities, public or private, whether domestic, foreign or members of the Monetary Board, may decide any matter or take any action
international; within the authority of the Board.
(b) sign contracts entered into by the Bangko Sentral, notes and securities
Generally, how many votes are needed for concurrence? (4)
issued by the Bangko Sentral, all reports, balance sheets, profit and loss
statements, correspondence and other documents of the Bangko
In emergency situations, they only need (2) other members to concur for the
Sentral. The signature of the Governor may be in facsimile whenever
authority to be valid but—
appropriate;

The Governor shall submit a report to the President and Congress within 72
Please take note— that is why in your money his signature is there. Look
hours after the action has been taken.
at your money, the Governor is there.
At the soonest possible time, the Governor shall call a meeting of the
(c) represent the Bangko Sentral, either personally or through counsel, Monetary Board to submit his action for ratification.
including private counsel, as may be authorized by the Monetary Board,
in any legal proceedings, action or specialized legal studies; and
Therefore, the authority in this particular case is subject to ratification.
(d) delegate his power to represent the Bangko Sentral, as provided in
What happens if it is not ratified? What happens if there is no ratification?
subsections (a), (b) and (c) of this section, to other officers upon his own
What is the effect of that decision with no ratification?
responsibility: Provided, however, That in order preserve the integrity
and prestige of his office, the Governor of the Bangko Sentral may
Please take note— there is no specific time frame for the Governor to have
choose not to participate in the preliminary decisions with any
the decision ratified. The law gives sufficient leeway for the Governor at the
multilateral banking or financial institution on any negotiations for the
soonest possible time. What is important is the report— the report must be
Government within or outside the Philippines. During the negotiations,
submitted within 72 hours after the action has been taken.
he may instead be represented by a permanent negotiator.
What happens if there is no ratification?
He can delegate his power to represent the Bangko Sentral through his Deputy
Governor, so represent the Monetary Board and the Bangko Sentral. He is If there is no ratification, the decision shall be void and shall have no effect.
appointed as the official representative of the government in all dealings,
negotiations, transactions with the IMF (International Monetary Fund).
Section 20. Outside Interests of the Governor and the Full-time Members of
the Board. – The Governor of the Bangko Sentral and the full-time members
What is the IMF?
of the Board shall limit their professional activities pertaining to those
pertaining directly to their positions with the Bangko Sentral.
The International Monetary Fund (IMF) is an organization working to foster
global monetary cooperation, secure financial stability, facilitate international
Accordingly, they may not accept any other employment, whether public or
trade, promote high employment and sustainable economic growth, and
private, remunerated or ad honorem, with the exception of positions in
reduce poverty around the world.
eleemosynary, civic, cultural or religious organizations or whenever, by
designation of the President, the Governor, or the full-time member is tasked
The IMF functions as an international body with its member-states because
to represent the interest of the Government or other government agencies in
some countries have no capacity to trade, like, let’s say Somalia, South Africa,
matters connected with or affecting the economy or the financial system of
with their currency, they import more, than what they export so with
the country.
developing countries, they import because the balance of payments between
these countries are not enough for their currency to be stabilized so the IMF,
it only gives out assistance— they don’t really force them, because we still They are not allowed to have any other professional activity. This is for the
have the concept of sovereignty. They cannot impose the country to accept purpose of them having their full time given to their employment.
because there is still sovereignty, it still must be equal. They only provide
assistance, they can provide credit. This is the IMF which seeks to stabilize, to Original Provision
achieve macro-economic stability and reduce poverty. Actually, it has a good
objective. Section 21. Deputy Governors. – The Governor of the Bangko Sentral, with
the approval of the Monetary Board, shall appoint not more than 3 Deputy
The Governor is the representative of the Monetary Board in all dealings, Governors who shall perform duties as may be assigned to them by the
transactions with the IMF (International Monetary Fund). Governor and the Board.

He signs contracts with the Bangko Sentral. In the absence of the Governor, a Deputy Governor designated by the
Governor shall act as chief executive of the Bangko Sentral and shall exercise
the powers and perform the duties of the Governor.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 13


Whenever the Government is unable to attend meetings of government
boards, or councils in which he is an ex officio member pursuant to provisions
of special laws, a Deputy Governor as may be designated by the Governor shall
be vested with authority to participate and exercise the right to vote in such
meetings.
Proposed Amendment
Section 21. Deputy Governors. – The Governor of the Bangko Sentral, with
the approval of the Monetary Board, shall appoint not more than FIVE (5)
Deputy Governors who shall perform duties as may be assigned to them by
the Governor and the Board.
In the absence of the Governor, a Deputy Governor designated by the
Governor shall act as chief executive of the Bangko Sentral and shall exercise
the powers and perform the duties of the Governor.
Whenever the Governor is unable to attend meetings of government boards,
or councils in which he is an ex officio member pursuant to provisions of
special laws, a Deputy Governor as may be designated by the Governor shall
be vested with authority to participate and exercise the right to vote in such
meetings.
Is the Deputy Governor counted in determining the majority or quorum when
there is a meeting? Is the Deputy Governor considered in determining a
quorum when there is a meeting to commence?
What if there are 3 members but the Governor is not there because he’s
abroad so he sent the Deputy Governor instead, is he included?
Yes, because the Deputy Governor acts as the representative of the Governor.
If the Governor is there, he (Deputy Governor) cannot act as the
representative, because the principal is there. You have your Law on Agency,
what is the purpose of the agent if the principal is there?
How many members for it there to be a quorum?
FOUR (4).
Is the Deputy Governor part of the 7 members of the Monetary Board? No.
ARTICLE IV, CHAPTER I
OPERATIONS OF THE BANGKO SENTRAL
This is very important. If there is a question in the bar, it would be the functions
and operations of the Bangko Sentral vis-à-vis the different banks or quasi-
banks.
Section 22. Research and Statistics. – The Bangko Sentral shall prepare data
and conduct economic research for the guidance of the Monetary Board in the
formulation and implementation of its policies.
Such data shall include, among others, forecasts of the balance of payments
of the Philippines, statistics on the monthly movement of the monetary
aggregates and of prices and other statistical series and economic studies
useful for the formulation and analysis of monetary, banking, credit and
exchange policies.
For the major factors to consider in formulating monetary policy is, of course,
you must have the latest economic (***) in time. You must have empirical
research also. If you do not have research, you cannot formulate a proper
monetary policy. What they do is they engage in forecasting – these involve
people in econometrics.
Original Provision
Section 23. Authority to Obtain Data and Information. – The Bangko Sentral
shall have the authority to request from government offices and
instrumentalities, or government-owned or controlled corporations, any data
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
which it may require for the proper discharge of its functions and
responsibilities.
The Bangko Sentral through the Governor or in his absence, a duly authorized
representative shall have the power to issue a subpoena for the production
of the books and records for the aforesaid purpose.
Those who refuse to supply the bank with data requested or required, shall be
subject to punishment for contempt in accordance with the provisions of the
Rules of Court.
Data on individual firms, other than banks, gathered by the Department of
Economic Research and other departments or units of the Bangko Sentral shall
not be made available to any person or entity outside of the Bangko Sentral
whether public or private except under order of the court or under such
conditions as may be prescribed by the Monetary Board: Provided, however,
That the collective data on firms may be released to interested persons or
entities: Provided, finally, That in case of data on banks, the provisions of
Section 27 of this Act shall apply.
Proposed Amendment
Section 23. Authority to Obtain Data and Information. – The Bangko Sentral
shall have the authority to require from any person, or entity including
government offices and instrumentalities, or government-owned or
controlled corporations, any data, for statistical and policy development
purposes in relation to the proper discharge of its functions and
responsibilities, provided that disaggregated data gathered are subject to
prevailing confidentiality laws.
The Bangko Sentral through the Governor or in his absence, a duly authorized
representative shall have the power to issue a subpoena for the production of
the books and records for the aforesaid purpose.
Those who refuse the subpoena without justifiable cause, or who refuse to
supply the Bangko Sentral with data required, shall be subject to punishment
for contempt in accordance with the provisions of the Rules of Court.
Data on individuals and firms, other than banks gathered by the Bangko
Sentral shall not be made available to any person or entity outside of the
Bangko Sentral whether public or private except under order of the court or
under such conditions as may be prescribed by the Monetary Board: Provided,
however, That the collective data on firms may be released to interested
persons or entities: Provided, finally, That in case of data on banks, the
provisions of Section 27 of this Act shall apply.
Please take note— the Bangko Sentral shall have the power to issue a
subpoena.
What do you call that subpoena that requires the production of documents?
Subpoena duces tecum. It has the power to issue a
subpoena duces tecum.
Those who refuse to supply the bank with data requested or required, shall be
subject to punishment for contempt in accordance with the provisions of the
Rules of Court.
Remember— that is one power of the Bangko Sentral to ensure they have the
real data in determining their monetary policy.
Can you refuse as a bank to give out information to the Central Bank? Are
there any exceptions on the power of the Bangko Sentral to get information
or data? Or is the data or information comprehensive enough?
It is absolute and comprehensive.
How about non-banks? No.
Is the coverage in examination, the power to examine, supervise of the
Central Bank limited to banks?
14

You will learn that later.
Let’s say manufacturing? Is that still covered by Central Bank? You will figure
that out later. But in this particular case, where there are non-banks, or other
than banks— where the power to require information is not absolute.
Please take note— there is an exception.
Data on individual firms, other than banks, gathered by the Department of
Economic Research and other departments or units of the Bangko Sentral shall
not be made available to any person or entity outside of the Bangko Sentral
whether public or private except under order of the court or under such
conditions as may be prescribed by the Monetary Board: Provided, however,
That the collective data on firms may be released to interested persons or
entities: Provided, finally, That in case of data on banks, the provisions of
Section 27 of this Act shall apply.
It’s not correct to say that the coverage of Bangko Sentral is limited only to
banks, quasi-banks or any financial institution. You will determine later what
are those counter to supervision and examination of banks.
Section 24. Training of Technical Personnel. — The Bangko Sentral shall
promote and sponsor the training of technical personnel in the field of money
and banking.
Toward this end, the Bangko Sentral is hereby authorized to defray the costs
of study, at home or abroad, of qualified employees of the Bangko Sentral,
qualified persons who shall be determined by proper competitive
examinations.
The Monetary Board shall prescribe rules and regulations to govern the
training program of the Bangko Sentral.
This is what I was talking to you about regarding scholarship or study, at home
or abroad. If you really wish to work with Central Bank you need to qualify for
a certain exam. There is an exam. Not everyone gets to pass.
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 subsidiaries and affiliates engaged
in allied activities.
If a bank or quasi-bank has a subsidiary even if it is not engaged in banking or
quasi-banking, it may be covered.
It says here including their subsidiary— if subsidiary, there is no limitation
whether allied or non-allied.
If it is affiliates, it is only for those engaged in allied activities.
If you want to break it down, banks or quasi-banks, they have subsidiaries and
they also have affiliates.
If it’s their subsidiary, regardless of whether or not these allied or non-allied
activities, it is covered by the supervision. If it’s an affiliate, only allied activities
which are covered by the examination and supervision of the Bangko Sentral.
How do we know if it’s a subsidiary or an affiliate?
For purposes of this section, a subsidiary means a corporation more than 50%
of the voting stock of which is owned by a bank or quasi-bank and an affiliate
means a corporation the voting stock of which, to the extent of 50% or less, is
owned by a bank or quasi-bank or which is related or linked to such institution
or intermediary through common stockholders or such other factors as may
be determined by the Monetary Board.
Please take note— if it’s more than 50% it is considered a subsidiary. Below
that, it is considered as an affiliate.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Please take note— it’s already an affiliate if it’s 50% or less. If you try to take
a look at the definition of an affiliate in accounting or even in corporations, it
doesn’t really mean 50% or less because it can be just my 1 share then I can
be an affiliate. No, there’s a threshold. There is an exception, if your share is
not that high but you have the management control meaning your share is not
that high, but you have control then you can be considered an affiliate.
But for purposes of the Central Bank, 50% or less it’s considered an affiliate,
more than 50% it is considered a subsidiary.
The department heads and the examiners of the supervising and/or examining
departments are hereby authorized to administer oaths to any director,
officer, or employee of any institution under their respective supervision or
subject to their examination and to compel the presentation of all books,
documents, papers or records necessary in their judgment to ascertain the
facts relative to the true condition of any institution as well as the books and
records of persons and entities relative to 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 bank deposits as well as investments of private persons,
natural or juridical, in debt instruments issued by the Government.
Why is this important for the supervision and examination requirement to
have this power?
Because you will learn later on, banks in distress, the Central Bank is the care-
taker of this bank. It should have a power to compel, because it looks into the
bank— “is this bank capable of being a creditor?” “can this exist in 1 year or 2
years?” – because if no, the Monetary Board has the right to put that bank in
receivership, conservatorship to have liquidity, or if it cannot handle it
anymore, liquidation, insolvency.
This is the function of the Central Bank because the banking industry itself is
imbued with public interest. What will happen if no one is going to take care
of the banks? Remember, a corporation is an artificial being, meaning they
don’t have a right or source. What is their goal? Their goal is to meet the
objective of the stockholders which is profits. Profit, profit.
Remember the concept of banking? How do they earn? They relend the
money. If what they think about is profit, profit profit, they carelessly market
just to get the profit, if there’s no check and balance to tell them “you’re not
capable to do that!”, “your condition is not like that anymore”, what will
happen? They manage businesses— what will happen? there will be
insolvency, bank-run. What will happen to the public? There will be no money
and so on and so forth.
That is the overview of the function of the Central Bank and because of that
function, the supervising and examining department should have these
powers.
Prohibition on the Issuance of Injunction
• cannot enjoin the Bangko Sentral from examining an institution
unless there is convincing proof that the action is plainly arbitrary
and made in bad faith.
Why?
What will happen? You’re going to require me to give my documents, I’m going
to validate my condition is good in 1 year or 2 years then a lawyer of the bank
will file a restraining order to prohibit you to get my information(s). The
purpose of the Central Bank becomes illusory. That’s why it’s specifically
provided –
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 is convincing proof that the
action of the Bangko Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court in which the
action is pending a bond executed in favor of the Bangko Sentral, in an amount
to be fixed by the court.
15

There is always an exception— Please take note – unless there is
convincing proof that the action is plainly arbitrary and made in bad
faith.
When you file a TRO, you have to file a bond, so, is this bond in compliance
with that bond? Or is this another bond? Is this the same bond?
The provisions of Rule 58 of the New Rules of Court insofar as they are
applicable and not inconsistent with the provisions of this section shall govern
the issuance and dissolution of the restraining order or injunction
contemplated in this section.
You research on that. I will ask that. 
Examination vs. Supervision
Examination— shall refer to an investigation of an institution under the
supervisory authority of the Bangko Sentral ng Pilipinas (BSP) to determine
compliance with laws and regulations. It shall include determination that the
institution is conducting its business on a safe and sound basis.
Regular or periodic examination shall be done once a year, with an interval of
twelve (12) months from the last date thereof. (CIRCULAR NO. 442, Series of
2004)
There has to be examination. Actually, examination is related to audit. When
you examine, you audit. You check if it is in compliance. When you say
examination, the functions are more specific. When you say supervise, this
pertains to the broad powers of the Central Bank because it issues rules of
conduct, it issues prompt corrective actions and examinations if they are in
compliance with the rules and regulations.
When you examine, more or less you have a specific purpose.
Special examination may be conducted earlier, or at a shorter interval, when
authorized by the Monetary Board by an affirmative vote of five (5) members.
(CIRCULAR NO. 442, Series of 2004)
Please take note— although the quorum or majority is FOUR (4) but when you
do a special examination, it must be a concurrence of FIVE (5) members.
4 if it is a simple majority but if you’re going to have a special examination,
there has be to 5 members.
Covered Entities— banks, quasi banks, subsidiaries whether engaged in allied
or non-allied activities and affiliates engaged in allied activities.
If the affiliate is not engaged in allied activities, it is not covered.
“Affiliate” refers to an entity linked directly or indirectly to a bank or other
financial institution through any one or a combination of any of the following:
1) Ownership, control or power to vote, whether by permanent or temporary
proxy or voting trust, or other similar contracts, by a bank or other financial
institution of at least 10% or more of the outstanding voting stock of the
entity, or vice-versa;
2) Interlocking directorship or officership, except in cases involving
independent directors as defined under existing regulations;
3) Common stockholders owning at least ten percent (10%) of the
outstanding voting stock of each financial institution and the entity; or
4) Management contract or any arrangement granting power to the bank or
other financial institution to direct or cause the direction of management and
policies of the entity, or vice-versa. –CIRCULAR NO. 454, Series of 2004
Please take note— “or which is related or linked to such institution or
intermediary...”
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
What does this mean?
You have ownership, control or the power to vote of 10% of the outstanding
stock of the borrowing entity or vice versa.
Illustration:
BANK A –
XY— (owner of BANK A)
B
Bank A does not own directly B but they are linked or related. Let’s say XY owns
10% or more. B can be considered an affiliate or subsidiary depends on the
percentage. If it’s at least 10% it is considered an affiliate through the provision
– “or which is related or linked to such institution or intermediary.” He doesn’t
directly own B but they are linked with a common stockholder of more than
10% of the voting stock. As you can see the power of the Central Bank is very
broad. He can inquire. Why? You don’t know some of the assets in contracts
like B. The financial condition of A through B can be determined if you can look
at all the contracts involving.
What are Interlocking Directorship and/or Officership?
A B
The director here is the same director here. That is what you call interlocking.
They have the same directors. You have an officer in (A), CEO and here (B) Vice
President of Operations— interlocking officership. In that case, these are
considered related parties. If one is not a bank, they might be considered as
covered so the Central Bank can look into it.
10% of the common outstanding voting stock – please take note, it has to be
voting stock only. When you reach Corporations on shares and equity, there
are stocks which are deprived of voting rights. But there are stocks, there is
that one classification of shares that has to have voting rights. But there are
shares that are deprived of voting rights.
Management contract or any arrangement granting power to the bank or
other financial institution to direct or cause the direction of management and
policies of the entity, or vice-versa.
What happens is this—
BANK— (loss position)
B— school (profit position)
Let’s say B is a school and they’re under a conglomerate. BANK is at a loss. B
has revenue. Since we have the same ultimate parent, let’s execute a
management contract. B will manage BANK and they will just pay B,
management fees. What will happen? Bank will have an additional expense
because its paying an expense to avoid tax. B doesn’t pay tax. These are your
mechanisms for you to do tax restructuring. A B are considered conglomerates
even if there is no direct relation.
Ownership, control or power to vote, whether by permanent or temporary
proxy or voting trust, or other similar contracts, by a bank or other financial
institution of at least 10% or more of the outstanding voting stock of the entity,
or vice-versa.
16
 Proposed Amendment

Section 25. Supervision and Examination. – The Bangko Sentral shall have
supervision over and conduct regular or special examinations of, banking
institutions and quasi-banks, including their subsidiaries and affiliates engaged
in allied activities.

For purposes of this section, a subsidiary means a corporation more than 50%
of the voting stock of which is directly or indirectly owned, controlled or held
with power to vote, by a bank or quasi-bank and an affiliate means a
corporation the voting stock of which to the extent of 50% or less is owned by
a bank or quasi-bank or which is related or linked directly or indirectly to such
institution or intermediary through common stockholders or such other
factors as may be determined by the Monetary Board.

The Bangko Sentral shall have regulatory authority over, and conduct regular
or special examinations of entities which under this act or by special laws are
subject to its jurisdiction.

The Bangko Sentral shall also have the power to obtain information from the
parent or other affiliate companies of supervised institutions and examine
transactions between a supervised institution and said entities for supervisory
powers.

A parent company means a corporation which owns or holds with power to

vote directly or indirectly the voting stock of a supervised institution of the
Bangko Sentral sufficient to control its management and operations, subject
to the guidelines issued by the Monetary Board.

As used in this section and section 25-A, and subject to the guidelines issued
by the Monetary Board, control exists when the parent company owns directly
or indirectly more than one half of the of the voting stock of a supervised
institution, control also exists even when the parent company owns one half
or less of the voting stock of the supervised institution when (1) there is power
over more than one half of the voting rights by proxy or by virtue of an
agreement with other investors which thereby enables the parent company to
cast the majority of the votes at meetings of the stockholders of the supervised
institution or to elect the majority of members of the board of directors of the
supervised institution or (2) there is power to determine the financial and
operating policies of the supervised institution or other similar arrangements.

The department heads and the examiners of the supervising and/or examining
departments are hereby authorized to administer oaths to any director,
officer, or employee of any institution under their respective supervision or
subject to their examination, to compel the presentation of all books,
documents, papers or records necessary in their judgment to ascertain the
facts relative to the true condition of any institution as well as the books and
records of persons and entities relative to or in connection with the
operations, activities or transactions of the institution under examination, and
to inquire into bank deposits and investment accounts in the course of an
examination in order to ascertain the compliance with the laws and banking
regulations or in cases where there is reasonable ground to believe that a
fraud, irregularity or unlawful activity has been or is being committed and that
it is necessary to look into the deposit or investment to establish such fraud,
irregularity or unlawful activity.

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 is convincing proof that the
action of the Bangko Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court in which the
action is pending a bond executed in favor of the Bangko Sentral, in an amount
to be fixed by the court.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 17

 November 30, 2018
Let's go to the coverage of the examination. We discussed this, we will just
continue. Again, if you are a subsidiary of bank or quasi-bank, regardless of the
(indistinct), you are still under the supervision and regulation of the bank.
Allied Activities are further classified into –
1. Financial Allied Undertakings
2. Non-Financial Allied Undertakings
Financial Allied Undertakings – with prior BSP approval banks may invest in
equities of the following financial allied undertakings, subject to the limits
prescribed under Sec. X378.
a. Leasing companies including leasing of stalls and spaces in a
commercial establishment, provided, that bank investment in
acquisition of shares of such leasing company shall be
limited/applicable only in cases of conversion of outstanding loan
obligations into equity.
b. Banks
c. Investment houses
d. Financing companies
e. Credit card companies
f. Financial institutions to small and medium scale industries
including venture capital corporation (VCC), subject to the
provisions under Sec. X379 –
Financial Allied Undertakings, BSP Circular No. 316-02 (January 9,
2007)
g. Companies engaged in stock brokerage/securities dealership, and
h. Companies engaged in foreign exchange dealership/brokerage
• In addition, EKBs may invest in the following as financial allied
undertakings—
a. Insurance companies
b. Holding company, provided that the investments of such
holding company are confined to the equities of allied
undertakings and/or non-allied undertakings of UBs allowed
under BSP regulations.
• The Monetary Board may declare such other activities as financial
allied undertakings of banks
If you go to the General Banking Law, it's only the universal bank that is
allowed to have equity holdings for non-allied. Other banks none, only
universal bank.
How do you determine if it is allied or non-allied activities?
• The determination of whether the corporation is engaged in a financial
allied undertaking shall be based on its primary purpose as stated in
its articles of incorporation and the volume of its principal business.
The Monetary Board declares financial undertakings as allied or non-allied.
How do you determine if it is allied or non-allied? You look at the primary
purpose of the articles of incorporation. So that is the determining factor if it
is engaged in allied or non-allied activities. You have to determine base on the
purpose of the corporation.
Why is it important to know if its allied or non-allied?
It will matter in the coverage of the Bangko Sentral in its examination.
Section X380. Non-Financial Allied Undertakings
• EKBs/KBs and TBs may invest in equities of the following non-
financial allied undertakings:
1. Warehousing companies
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
2. Storage companies
3. Safe deposit box companies
4. Companies primarily engaged in the management of
mutual funds not in the mutual funds themselves.
5. Management corporations engaged or to be engaged in
an activity similar to the management of mutual funds;
6. Companies engaged in providing computer services;
7. Insurance agencies/brokerages
8. Companies engaged in home building and home
development
Sec. 380 for the Manual of Regulation of Bank—
It is still an allied activity even if non-financial. Allied activities, sub-classify it
to financial and non-financial. These commercial banks and thrift banks and
rural banks that's the symbol of these banks. They are only allowed equity
shares for allied undertakings. Even if it's non-financial but still allied. Only the
universal banks which can have equity investment for non-allied undertakings.
Example –
• Management corporations engaged or to be engaged in an activity
similar to the management of mutual funds;
• Companies engaged in providing computer services;
• Insurance agencies/brokerages;
• Companies engaged in home building and home development
• Companies providing drying and/ or milling facilities for agricultural
crops such as rice and corn;
• Bank and service corporation. The Philippine Game House Commission
as central depositor; such other activities under the Bangko Sentral
which the Monetary board declared as non-financial allied
undertakings.
• Service bureaus, organized to perform for and in behalf of banks and
NBFIs the services allowed to be outsourced enumerated in Sec. X162:
Provided, That data processing companies may be allowed to invest up
to forty percent (40%) in the equity of service bureaus;
• Philippine Clearing House Corporation (PCHC), Philippine Central
Depository, Inc. and Fixed Income Exchange; and
• Such other similar activities as the Monetary Board may declare as
non-financial allied undertakings of banks. UBs may further invest in
health maintenance organizations (HMOs). In addition, TBs may also
invest in the equities of companies enumerated in Item “b” of this
Section.
Service bureaus, organized to perform for and in behalf of banks and NBFIs the
services allowed to be outsourced enumerated in Sec. X162: Provided, That
data processing companies may be allowed to invest up to forty percent (40%)
in the equity of service bureaus;
In addition, TBs may also invest in the equities of companies enumerated in
Item “b” of this Section.
RBs/Coop Banks RBs/Coop Banks may invest, as a nonfinancial undertaking, in
the equities of companies engaged in the following—
(1) Warehousing and other postharvest facilities;
(2) Fertilizer and agricultural chemical and pesticides distribution;
(3) Farm equipment distribution;
(4) Trucking and transportation of agricultural products;
(5) Marketing of agricultural products;
(6) Leasing;
(7) Automated Teller Machine (ATM) networks; and
(8) Other undertakings as may be determined by the Monetary Board.
18
 Do you need to memorize these? Of course.
It is still an allied undertaking, meaning ng allied it is related to the banking
industry, but it is non-financial.
Can the Bangko Sentral examine non-banks and non-quasi banks?
As a rule, NO.
But they are allowed but only for the purpose of determining whether such
persons or entities are performing bank or quasi-bank functions without the
authority.
Their right to examine is limited. Technically no. For the purposes of
determining whether they are engaged into banking activities without
authority from the BSP, it’s just up to that. They will determine the purpose or
the business model of the corporation, and they say this is a function of a bank
or a quasi-bank then there is no certificate of authority from the BSP, then it
is only up to that it can examine.
—because we have what you call as two-franchise as in
corporation.
First, is the primary franchise, that is the state giving these group of people
who wish to establish a corporation a franchise to put up a corporation
Second, there are secondary franchise given to close industries that is involved
in business imbued with public interest one of which is the banking industry.
There has to be a certificate of authority from the BSP before you can operate
as a banking institution. Usually you need the endorsement of the BSP, before
the SEC, will receive your documents to operate a bank. The BSP's role in the
examination of non-bank and quasi-bank is only for that purpose.
Whether or not you are functioning as a bank, or not? So as to the details and
financial condition, it doesn’t care anymore. If in the first place, if you're
operating a bank without the authority, there's misrepresentation. There's
fraud to the public so, no need to examine the institution.
You can't enjoin the bank from examining an institution unless the action is
plainly arbitrary.
Consistent with the principle that banking is imbued with public
interest, you cannot render the function of the BSP illusory by
just applying for injunction. So there is an exception, like all rules
there are exceptions, but please take note of the ground.
It must be plainly arbitrary and in bad faith. It must be plainly arbitrary. It is
not enough that it is arbitrary, it must be plainly arbitrary.
BSP vs. Chowking Food Corporation
What's due diligence? We need due diligence when we enter into transactions.
We conduct due diligence in mergers, in consolidations, in buying property.
What's due diligence? Let's say Manny Pangilinan will acquire a hospital? In
Tagum. Due diligence, it will check the financial conditions because they can
say, we're earning this much? How sure is Pangilinan that what they’re saying
is right. Let's say you want to purchase property in Calinan, in Samal. They said
P 20, 000/per sq. meter.
Why is it expensive? Because there are a lot of prospective buyer. So how
would you know that the representations are correct? You do your due
diligence— meaning you examine the representation of the other party.
Diligence only is different, because that is the one required. Due diligence is
also different because those are procedures in ensuring that the
representation made by the other party are correct. Basically this case says
that banking is imbued with public trust.
Borlongan vs. Reyes
Article IV
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Bank Deposits and Investments
Section 26. Bank Deposits and Investments. – Any director, officer or
stockholder who, together with his related interest, contracts a loan or any
form of financial accommodation from: (1) his bank; or (2) from a bank (a)
which is a subsidiary of a bank holding company of which both his bank and
the lending bank are subsidiaries or (b) in which a controlling proportion of the
shares is owned by the same interest that owns a controlling proportion of the
shares of his bank, in excess of five percent (5%) of the capital and surplus of
the bank, or in the maximum amount permitted by law, whichever is lower,
shall be required by the lending bank to waive the secrecy of his deposits of
whatever nature in all banks in the Philippines.
This provision is actually an exception for banks and deposits—
Any information obtained from an examination of his deposits shall be held
strictly confidential and may be used by the examiners only in connection with
their supervisory and examination responsibility or by the Bangko Sentral in
an appropriate legal action it has initiated involving the deposit account.
Basically, this is what you call a DOSRI loan or financial accommodation. Why
DOSRI? We know who is the Director? How would you know that he is the
director? How can you know that he is an officer?
In a corporation, the information will be shown because you are required to
have an election on that. His name is placed there, as a director. The officer,
the director, or the second managers of the corporation. The officers are
actually the one operating the company.
Can the director be an officer?
YES.
When you say director these are members of the board of trustees. These are
the ones who are running the corporation. Stockholder of course, the ones
holding shares.
Who are the related interests?
In the MORB, X326.1 these are considered related interests—
Related interest shall refer to any of the following—
(1) Spouse or relative within the first degree of consanguinity or affinity, or
relative by legal adoption, of a director, officer or stockholder of the bank;
(2) Partnership of which a director, officer, or stockholder of a bank or his
spouse or relative within the first degree of consanguinity or affinity, or
relative by legal adoption, is a general partner;
(3) Co-owner with the director, officer, stockholder or his spouse or relative
within the first degree of consanguinity or affinity, or relative by legal
adoption, of the property or interest or right mortgaged, pledged or assigned
to secure the loans or other credit accommodations, except when the
mortgage, pledge or assignment covers only said co-owner’s undivided
interest;
No. (3) presupposes a situation wherein someone asked for a loan, and the
property is land then there is a co-owner of the land, aside from DOSRI,
somebody else.
Except when the included property in the collateral is only the share of the
DOS. In that case, the other co-owner will not be considered as an agent but
the entire property is the collateral, then any co-owner is considered having
accumulated interest.
19
 (4) Corporation, association, or firm of which a director or officer of the bank,
or his spouse is also a director or officer of such corporation, association or
firm, except (a) where the securities of such corporation, association or firm
are listed and traded in the big board or commercial and industrial board of
domestic stock exchanges and less than fifty percent (50%) of the voting stock
thereof is owned by any one (1) person or by persons related to each other
within the first degree of consanguinity or affinity; or (b) where the director,
officer or stockholder of the bank sits as a representative of the bank in the
board of directors of such corporation:
Provided, That the bank representative shall not have any equity interest in
the borrower corporation except for the minimum shares required by law,
rules and regulations, or by the by-laws of the corporation, or (c) where the
corporation is at least ninety-nine percent (99%) owned by a non-stock
corporation as defined in Section 87 of the Corporation Code of the
Philippines: Provided, That the purpose of the loan is to finance hospitals and
other medical services:
Provided, further, That the loan is fully secured: Provided, furthermore, That
in the case of Items “(a)”, “(b)” and “(c)” above, the borrowing corporation is
not among those mentioned in Items “e(5)”, “e(6)”, “e(7)” and “e(8)” of this
Section;
This is a lot. In practice, you can consider everything as a DOSRI loan because
you have no escape.
(5) Corporation, association or firm of which any or a group of directors,
officers, stockholders of the lending bank and/or their spouses or relatives
within the first degree of consanguinity or affinity, or relative by legal
adoption, hold or own at least twenty percent (20%) of the subscribed capital
of such corporation, or of the equity of such association or firm;
(6) Corporation, association or firm wholly or majority-owned or controlled by
any related entity or a group of related entities mentioned in Items “e(2)”,
“e(4)” and “e(5)” of this Section;
This is already broad.
(7) Corporation, association or firm which owns or controls directly or
indirectly whether singly or as part of a group of Manual of Regulations for
Banks Part III - 1 related interest at least twenty percent (20%) of the
subscribed capital of a substantial stockholder of the lending bank or which
controls majority interest of the bank pursuant to Sub Section X303.1;
(8) Corporation, association or firm which has an existing management
contract or any similar arrangement with the parent of the lending bank; and
(9) Non-governmental organizations (NGOs)/foundations that are engaged in
retail microfinance operations which are incorporated by any of the
stockholders and/or directors and/or officers of related banks.
So that part, the requisites, for you to be considered DOSRI loan financial
obligation. In simple terms, if you’re a director or officer of one bank, then you
ask for a loan from that bank, that is a DOSRI loan.
Why is that regulated?
You could be in better terms than the terms that it could have if it is offered
to a third party. That is why you have to be regulated because you’re the
director you’re the owner, you're an officer, you can that instead of 15%, it
could be10%, I’m the owner of this bank. Then what will happen if they won’t
be regulated? The banks cannot exist if that’s the case.
What are the requisites?
The borrower is a director, officer or stockholder of the bank. He contracts a
loan, or even if it’s not just a loan, any form of financial accommodation. What
other financial accommodations we will name later, apart from loan.
Loan, what else? Credit lines, what else? Financial accommodations. You think
about that, because I might make a question in the exam.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
The loan or financial accommodation is from his bank, please take note of
this— his bank; or from a bank which is a subsidiary of a bank holding
company of which both his bank and the lending bank are subsidiaries or in
which a controlling proportion of the shares is owned by the same interest
that owns a controlling proportion of the shares of his bank,
He is a DOSRI here. It’s okay he loans from there, that's his bank. He can also
borrow from BANK 2. I am a DOS here, then I borrow here. But this a subsidiary
of a bank holding company. That’s the 2nd one. But these are owned by the
same interest that holds the bank of which he is DOS.
in excess of five percent (5%) of the capital and surplus of the bank, or in the
maximum amount permitted by law, whichever is lower, shall be required by
the lending bank to waive the secrecy.
We talked about earlier related interest.
Related interest between the spouse, he is not the DOS, because this is only
the DOS.
Related interest is only material if you want to determine the 5% threshold.
That is the only time it is material. The related interest, is only material to
determine whether the financial accommodation will exceed 5% because it is
allowed when the DOS is the one who asks for a loan "I’m not the stockholder
there" but the spouse, loaned at 10%.
You determine the total financial accommodation you have to consider the
related interest. It has 14. That is the purpose of related interest.
Let's go to the same interest— meaning, these two banks are owned by the
same natural person. or same corporation.
Related interest shall refer to any of the following—
(iv) Corporation, association, or firm of which a director or officer of the bank,
or his spouse is also a director or officer of such corporation, association or
firm, except—
(a) Where the securities of such corporation, association or firm are listed and
traded in the big board or commercial and industrial board of domestic stock
exchanges and less than 50% of the voting stock thereof is owned by any one
person or by persons related to each other within the first degree of
consanguinity or affinity o; or
(b) Where the director, officer or stockholder of the bank sits as a
representative of the bank in the board of directors of such corporation,
provided that the bank representative shall not have any equity interest in the
borrower corporation except for the minimum shares required by law, rules
and regulations, or by the by-laws of the corporation, and provided further,
that the borrowing corporation is not among those mentioned in items e(5),
e(6), e(7) and e(8) of Section X326.1 of the Manual of Regulations for Banks;
(v) Corporation, association or firm of which any or a group of directors,
officers, stockholders of the lending bank and/or their spouses or relatives
within the first degree of consanguinity or affinity, or relative by legal
adoption, hold or own at least 20 % of the subscribed capital of such
corporation, or of the equity of such association or firm;
(vi) Corporation, association or firm wholly or majority-owned or controlled by
any related entity or a group of related entities mentioned in items e(2), e(4)
and e(5)of Section X326.1 of the Manual of Regulations for Banks;
(vii) Corporation, association or firm which owns or controls directly or
indirectly whether singly or as part of a group of related interest at least 20%
of the subscribed capital of a substantial stockholder of the lending bank or
which controls majority interest of the bank pursuant to Subsection X303.1 of
the Manual of Regulations for Banks; and
(viii) Corporation, association or firm which has an existing management
contract or any similar arrangement with the parent of the lending bank. NGO
20
 foundations that are engaged in microfinance, operations which are
incorporated.
What are the Requisites in order to be considered DOSRI Loan or Financial
Accommodation?
In simple terms, you’re a director officer of one bank and you asked for a loan
from that bank, that is DOSRI Loan or Financial Accommodation.
Why is it regulated? You could have better terms than the terms that is offered
by a third party. That is why you have to be regulated because you’re the
director you’re the owner, director officer.
You can say instead of 20% subscription, 10% because you’re the owner of the
bank. What will happen? The bank cannot exist because they will be at a oss.
That is the nature of DOSRI Loan or final accommodation.
a. The borrower is a director, officer or any stockholder of a bank;
b. He contracts a loan or any form of financial accommodation;(loan, credit
lines in the nature of loans)
c. The loan or financial accommodation is from (a) his bank, or (b) a bank that
is a subsidiary of a bank holding company of which both his bank and the
lending bank are subsidiaries, or (c) a bank in which a controlling proportion
of the shares is owned by the same interest that owns a controlling proportion
of the shares of his bank; and
d. The loan or financial accommodation of the director, officer or stockholder,
singly or with that of his related interest, is in excess of 5% of the capital and
surplus of the lending bank or in the maximum amount permitted by law,
whichever is lower.
- related interest is material if you want to determine whether the
accommodation exceed the 5% threshold of the capital stock.
“maximum amount permitted by law” mentioned in this Section— refers to
the limit on the loans that may be extended to a director, officer or
stockholder under Section 36 of RA NO. 8791.
Same interest so this means that these 2 banks are owned by same natural
person or same corporation, partnership or entity. What’s the difference
between the bank and the company?
The term “same interest” in the third element refers to—
i. The same natural person;
ii. The same corporation, partnership or entity;
iii. The same family group, that is, persons related to each other within
the third degree of consanguinity or affinity, including any
corporation majority or all of the equity of which is owned by such
family group; or
iv. The same business group, that is, a group of persons whose
stockholdings altogether constitute a majority or control in one or
more enterprises.
Bank holding company-purpose is to hold banks or investments/shares of
other companies only and not to operate for tax purposes.
Take note— the related interest is only material to consider the 5%. What if
the spouse takes out the loan, can that be considered DOSRI? The maximum
threshold provided by law under the New Central Bank is 5% of the capital and
surplus.
Waiver of Secrecy of Deposit
The lending bank shall require the director, officer, or stockholder to waive the
secrecy or confidentiality of his deposits of whatever nature in all banks in the
Philippines.
Why is it important the waiver of the secrecy of deposit?
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Because here, the supervisor examinee official of BSP will know whether or
not there were concessions made by the bank like lower interest because
without the paper, they cannot look into the deposits.
Penalties
Any lending bank which violates this Section shall be imposed a fine equivalent
to 1/10 of 1% of the amount of loan or financial accommodation per day, from
the time the loan or financial accommodation is granted to the time the waiver
of secrecy of his deposits of whatever nature in all banks in the Philippines is
submitted by the concerned director, officer or stockholder, that is, even if the
loan or financial accommodation has been fully paid, but not to exceed
P30,000 a day, without prejudice to other sanctions prescribed under Section
37 of Republic Act No. 7653.
SECTION 27. Prohibitions. — In addition to the prohibitions found in Republic
Act Nos. 3019 and 6713, personnel of the Bangko Sentral are hereby
prohibited from:
(a) being an officer, director, lawyer or agent, employee, consultant or
stockholder, directly or indirectly, of any institution subject to supervision or
examination by the Bangko Sentral, except non-stock savings and loan
associations and provident funds organized exclusively for employees of the
Bangko Sentral, and except as otherwise provided in this Act;
(b) directly or indirectly requesting or receiving any gift, present or pecuniary
or material benefit for himself or another, from any institution subject to
supervision or examination by the Bangko Sentral;
(c) revealing in any manner, except under orders of the court, the Congress or
any government office or agency authorized by law, or under such conditions
as may be prescribed by the Monetary Board, information relating to the
condition or business of any institution. This prohibition shall not be held to
apply to the giving of information to the Monetary Board or the Governor of
the Bangko Sentral, or to any person authorized by either of them, in writing,
to receive such information; and
(d) borrowing from any institution subject to supervision or examination by
the Bangko Sentral shall be prohibited unless said borrowings are adequately
secured, fully disclosed to the Monetary Board, and shall be subject to such
further rules and regulations as the Monetary Board may prescribe: Provided,
however, That personnel of the supervising and examining departments are
prohibited from borrowing from a bank under their supervision or
examination.
SECTION 27. Prohibitions. — In addition to the prohibitions found in Republic
Act Nos. 3019 and 6713, personnel of the Bangko Sentral are hereby
prohibited from:
(d) borrowing from any institution subject to supervision or examination by
the Bangko Sentral unless said borrowing IS TRANSACTED ON AN ARM’S
LENGTH BASIS, fully disclosed to the Monetary Board, and shall be subject to
such further rules and regulations as the Monetary Board may prescribe.
A. What is non-stock saving and loan association?
These are employees in an organization and you will contribute optional
monthly then if an employee needs to loan from the loan association, it will
loan to an employee with an interest because the interest will be the profit or
it can invest in other any earning investments then at the time the employee
resigns you will receive your share.
This is the non-stock saving and loan association for an employee to save a
portion of his salary.
B. If you have a friend that examines a bank, before there was no prohibition
because it’s not so strict, they go to rural banks, when they get there, there
are foods or gifts, because the rule of the supervising official is really very
crucial to the existence to the bank.
21
 If the report does not look good, they will decide (monetary bank), conservator
or under receiver. But now, you will offer them gifts, they will report that.
C. There is confidentiality. Let us say BSP is examining BANK 1, it finds out that
its becoming insolvent, he’ll say, “depositor of Bank 1, that’s going to be
insolvent” except under orders of the court, the Congress or any government
office or agency authorized by law, or under such conditions as may be
prescribed by the Monetary Board, information relating to the condition or
business of any institution. Kasi they tried to prevent insider thing.
You have information inside then it would affect it if you expose it in the
outside of course.
D. If you are an examiner personnel you are not allowed to borrow from any
borrowing from any institution subject to supervision or examination by the
Bangko Sentral unless said borrowings are adequately secured, fully disclosed
to the Monetary Board, and shall be subject to such further rules and
regulations as the Monetary Board may prescribe. If I’m from the BSP, I am not
allowed to ask for a loan from BPI under supervision of BSP if it is not fully and
adequately secured and disclosed to Monetary Board.
You can ask for a loan as long as adequately secured (has
collateral/security/surety) and fully disclosed to the Monetary Board.
Provided, however, That personnel of the supervising and examining
departments are prohibited from borrowing from a bank under their
supervision or examination.
If you are examining and supervising Bank 1, you cannot borrow from Bank 1,
even if adequately secured and fully disclosed to Monetary Board.
But any institution subject to supervision or examination by the Bangko
Sentral that you don’t directly examine as of this moment, well, it must be
adequately secured and fully disclosed to the Monetary Board.
We have an relative prohibition and absolute prohibition—
1. Relative Prohibition for those not directly under your supervision
and examination; and
2. Absolute Prohibition for those directly under your supervision and
examination in order to avoid conflict of interest – because you’re
examining that bank then you ask for a loan then what if it’s already
insolvent, you won’t report it of course and it will be under
receivership because you asked for a loan from that bank.
SECTION 28. Examination and Fees. — The supervising and examining
department head, personally or by deputy, shall examine the books of every
banking institution once in every twelve (12) months, and at such other times
as the Monetary Board by an affirmative vote of five (5) members, may deem
expedient and to make a report on the same to the Monetary Board: Provided,
That there shall be an interval of at least twelve (12) months between annual
examinations.
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 assets and general condition at any time
during banking hours when requested to do so by the Bangko Sentral:
Provided, however, That none of the reports and other papers relative to such
examinations shall be open to inspection by the public except insofar as such
publicity is incidental to the proceedings hereinafter authorized or is necessary
for the prosecution of violations in connection with the business of such
institutions.
Banking and quasi-banking institutions which are subject to examination by
the Bangko Sentral shall pay to the Bangko Sentral, within the first thirty (30)
days of each year, an annual fee in an amount 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 amounts due from banks, including the Bangko Sentral and
banks abroad.
SECTION 28. Examination and Fees. — The supervising and examining
department head, personally or by deputy, shall examine the OPERATIONS of
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
every bank AND QUASI-BANK, INCLUDING THEIR SUBSIDIARIES AND
AFFILIATES ENGAGED IN ALLIED ACTIVITIES, AND OTHER ENTITIES WHICH
UNDER THIS ACT OR SPECIAL LAWS ARE SUBJECT TO BANGKO SENTRAL
SUPERVISION, IN ACCORDANCE WITH THE GUIDELINES SET BY THE MONETARY
BOARD TAKING INTO CONSIDERATION SOUND AND PRUDENT PRACTICE.
Provided, That there shall be an interval of at least twelve (12) months
between REGULAR examinations; PROVIDED, FURTHER, THAT THE MONETARY
BOARD, BY AN AFFIRMATIVE VOTE OF AT LEAST FIVE (5) MEMBERS, MAY
AUTHORIZE A SPECIAL EXAMINATION IF THE CIRCUMSTANCES WARRANT.
The INSTITUTION concerned shall afford to the head of the appropriate
supervising and examining departments and to his authorized deputies full
opportunity to examine its books AND RECORDS, cash and assets and general
condition AND REVIEW ITS SYSTEMS AND PROCEDURES at any time during
BUSINESS hours when requested to do so by the Bangko Sentral: Provided,
however, That none of the reports and other papers relative to such
examinations shall be open to inspection by the public except insofar as such
publicity is incidental to the proceedings hereinafter authorized or is necessary
for the prosecution of violations in connection with the business of such
institutions.
SUPERVISED INSTITUTIONS shall pay to the Bangko Sentral, NO LATER THAN
MAY 31 OF EACH YEAR, an annual SUPERVISION fee as may be prescribed by
the Monetary Board. IN DETERMINING THE AMOUNT OF THE ANNUAL
SUPERVISION FEE, THE MONETARY BOARD SHALL CONSIDER THE COSTS OF
SUPERVISION.
SECTION 28-A. BANGKO SENTRAL COORDINATION.- THE SUSPENSION OR
REVOCATION OF ANY GOVERNMENT LICENSE NECESSARY FOR THE
OPERATION OF A BANGKO SENTRAL -SUPERVISED ENTITY MUST BE DONE
ONLY WITH PRIOR CONSULTATION WITH THE BANGKO SENTRAL.
The bank will be examined by BSP will pay a fee. If the supervising department
will report— his report, that none of the reports and other papers relative to
such examinations shall be open to inspection by the public except insofar as
such publicity is incidental to the proceedings hereinafter authorized or is
necessary for the prosecution of violations in connection with the business of
such institutions”.
Thus, the report is confidential with 2 exceptions.
Whenever on a basis of the report submitted by the appropriate supervising
or examining department, the Monetary Board finds that a bank or a quasi-
bank is in a state of continuing inability or unwillingness to maintain a
condition of liquidity deemed adequate to protect the interest of depositors
and creditors, the Monetary Board may appoint a conservator with such
powers as the Monetary Board shall deem necessary to take charge of the
assets, liabilities, and the management thereof, reorganize the management,
collect all monies and debts due said institution, and exercise all powers
necessary to restore its viability.
PLEASE MEMORIZE!!!
SECTION 29. Appointment of Conservator. — Whenever, on the basis of a
report submitted by the appropriate supervising or examining department,
the Monetary Board finds that a bank or a quasi-bank is in a state of continuing
inability or unwillingness to maintain a condition of liquidity deemed adequate
to protect the interest of depositors and creditors, the Monetary Board may
appoint a conservator with such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities, and the management
thereof, reorganize the management, collect all monies and debts due said
institution, and exercise all powers necessary to restore its viability. The
conservator shall report and be responsible to the Monetary Board and shall
have the power to overrule or revoke the actions of the previous management
and board of directors of the bank or quasi-bank.
The conservator should be competent and knowledgeable in bank operations
and management. The conservatorship shall not exceed one (1) year.
22
 The conservator shall receive remuneration to be fixed by the Monetary Board
in an amount not to exceed two-thirds (2/3) of the salary of the president of
the institution in one (1) year, payable in twelve (12) equal monthly payments:
Provided, That, if at any time within one-year period, the conservatorship is
terminated on the ground that the institution can operate on its own, the
conservator shall receive the balance of the remuneration which he would
have received up to the end of the year; but if the conservatorship is
terminated on other grounds, the conservator shall not be entitled to such
remaining balance. The Monetary Board may appoint a conservator connected
with the Bangko Sentral, in which case he shall not be entitled to receive any
remuneration or emolument from the Bangko Sentral during the
conservatorship. The expenses attendant to the conservatorship shall be
borne by the bank or quasi-bank concerned.
The Monetary Board shall terminate the conservatorship when it is satisfied
that the institution can continue to operate on its own and the
conservatorship is no longer necessary. The conservatorship shall likewise be
terminated should the Monetary Board, on the basis of the report of the
conservator or of its own findings, determine that the continuance in business
of the institution would involve probable loss to its depositors or creditors, in
which case the provisions of Section 30 shall apply.
Section 28— a state of continuing inability or unwillingness to maintain a
condition of liquidity deemed adequate to protect the interest of depositors
and creditors.
Please memorize that. That is the basis for your conservator.
A state of continuing inability or unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors and creditors.
These are your keywords. This is the basis to appoint a conservator. There is
inability or continuing unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors and creditors.
Question: Inability or continuing unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors and creditors,
does that mean the bank is at a loss? Does that mean the bank is insolvent?
The Monetary Board may appoint a conservator with such powers as the
Monetary Board shall deem necessary to take charge of the assets.
The main role of the conservator is first to take charge of the assets and
liabilities, and the management thereof, reorganize the management, collect
all monies and debts due said institution, and exercise all powers necessary to
restore its viability. The conservator shall report and be responsible to the
Monetary Board and shall have the power to overrule or revoke the actions of
the previous management and board of directors of the bank or quasi-bank.
In effect there is a take-over. Someone is in. You (bank) are not doing your job
someone will take-over. Now, to resume the viability of the bank. This is one
of the remedies of the banks in distress.
There is what we call ‘bank in distress’. In bank in distress, one of the remedies
is conservator. How will he be appointed? There is continuing inability.
The conservator appointed should be competent and knowledgeable in bank
operations and management. The conservator shall not exceed (1) year.
Please take note—does not exceed 1 year. The Conservator has only 1 year
to do his job.
The Conservator shall receive remuneration—take note of the
remuneration—not to exceed 2/3 of the salary of the president of the
institution in one (1) year. Payable in twelve (12) equal monthly payments.
Provided that, please take note—if any time within the one (1) year period the
conservatorship is terminated on the ground that the institution can operate
on its own, the conservator shall receive up to the end of the year.
This serves as a reward or an incentive for the conservator. Speed up your
work because 1 month and he’s fixed it—he will receive rest of the salary for
the year. This is an incentive if the ground for the termination it can be shown
of its viability.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
But if the ground is getting at a loss and its already in liquidation, in receiver
already, what he will receive is already prorated.
The Monetary Board may appoint a conservator connected with the Bangko
Sentral, in which case he shall not entitled to receive any remuneration or
emolument from the Bangko Sentral during the conservatorship. The
expenses attendant to the conservatorship shall be borne by the bank or
quasi-bank concerned.
The Monetary Board shall terminate the conservatorship when it is satisfied
that the institution can continue to operate on its own and the
conservatorship is no longer necessary. Shall likewise be determine that—yon.
It’s okay if it can operate on its own. But if it is terminated on the basis of—
the conservator will report to the Monetary Board in the of the year or earlier
upon basis on his report it can be determine that the continuance in
business—please take note of the reason—the continuance in business of the
institution would involve probable loss to its depositors or creditors.
There seems to be a distinction between creditors and depositors. As all we
know depositors or bank deposits is in the nature of creditor and debtor, while
on deposits you are the creditor.
Why is the creditor or and depositor emphasized? Why can’t it just say,
probable loss to its creditors? Why does it have to be separated?
A: this is in emphasis because there might be a credit that are not in the form
of deposits. So it should be separated. In which case, the provisions of section
30 shall be apply—which is the receivership.
2 reasons for conservator to determine—
1. can continue its operation; or
2. receiver
—and the basis for this, is the report of the conservator.
Please take note.
CONSERVATORSHIP—This is a tool in restoring the viability of banks and quasi-
banks. It consists of carrying out a package of administrative organizational,
financial (because the conservator can reorganize the management.
He can say that you appointed the wrong person in the operations. He doesn’t
know anything. So, I will put people and terminate them so it will be organized.
He can reorganize. That is the role. He acts as if he is the BOT at that point of
time), and/or other measures to address the state of continuing inability or
unwillingness to maintain a condition of liquidity deemed adequate to protect
the interest of depositors and creditors.
There is a report. The supervising department will report to the Central Bank.
The appointed conservator will also report to the Central Bank, either to
terminate it because it can stand on its own or to appoint a receiver. The
finding of the monetary board is based on the state of inability. It’s always the
same— state of unwillingness to maintain.
The BOD must be informed in writing. MBA says let’s put this under
conservatorship. The MBA will inform in writing the BOD –you are under
conservatorship.
Q: Is it a good thing that you are under conservatorship?
NO. not a good thing. What it means is that— you are not doing your job.
But it is one of the ways if you are in business where the State intervene
because the nature of your job is imbued with public interest that is so the
State has the right to intervene to protect the public.
LIQUIDITY—continuing inability or unwillingness to maintain a condition of
liquidity. Therefore, what is liquidity? you’re liquid. It’s not bankrupt but it’s
also not liquid. That is why he needs to sell his properties.
23
 Liquidity is generally understood as the ability to pay off obligations when
they fall due. It refers to that condition wherein a high percentage of the
assets can be quickly converted into cash without involving any considerable
loss by accepting sacrifice prices.
Liquidity in effect— are you liquid. You have enough cash to pay your
obligation. Na you don’t need to sell your other properties. So, that is liquidity.
You have a lot cash and cash interest. Liquid . you don’t need to ask for a loan
or sell non-cash assets. That is the meaning of liquidity. It is different from
SOLVENCY.
Please take note of that.
When we talk of solvency—your liabilities exceed your assets. Whether in the
form of cash or non-cash. That is solvency. So, between liquidity and
solvency—in solvency you really don’t have assets.
In liquidity, you can’t because you don’t have enough cash assets to pay off
your obligation. Financial obligations—liquidity
LIQUIDITY vs. SOLVENCY
• Solvency and liquidity are both terms that refer to an enterprise’s state
of financial health, but with some notable differences.
• Solvency refers to an enterprise’s capacity to meet its long-term
financial commitments.
• Liquidity refers to an enterprise’s ability to pay short-term obligations,
the term also refers to a company’s capability to sell assets quickly to
raise cash.
• A solvent company is one that owns more than it owes; in other words,
it has a positive net worth and a manageable debt load. On the other
hand, a company with adequate liquidity may have enough cash
available to pay its bills, but it may be heading for financial disaster
down the road.
The powers and duties of a conservator
1. Take charge of the assets, liabilities, and the management of the
bank or quasi-bank as may be deemed necessary by the Monetary
Board;
First Philippines International Bank vs. CA
FACTS
Here, in the course of its banking operations, the defendant Producer Bank of
the Philippines acquired six parcels of land with a total area of 101 hectares.
The property used to be owned by BYME Investment and Development
Corporation which had them mortgaged with the bank as collateral for a loan.
The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to
purchase the property and thus initiated negotiations for that purpose.
In the early part of August 1987 said First Philippines International Bank (FPIB),
upon the suggestion of BYME investment's legal counsel, Jose Fajardo, met
with defendant Mercurio Rivera, Manager of the Property Management
Department of the defendant bank. The meeting was held pursuant to
plaintiffs' plan to buy the property. After the meeting, Janolo, following the
advice of defendant Rivera, made a formal purchase offer to the bank through
a letter dated August 30, 1987.
There was no reply to Janolo's foregoing letter of September 17, 1987. What
took place was a meeting on September 28, 1987 between the plaintiffs and
Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo,
the BYME lawyer, attended the meeting. Two days later, or on September 30,
1987, plaintiff Janolo sent to the bank, through Rivera.
Defendant bank, through Rivera, acknowledged receipt of the foregoing letter
in its communication of December 2, 1987 that said letter has been "referred
. . . to the office of our Conservator for proper disposition" However, no
response came from the Acting Conservator.
On December 14, 1987, the plaintiffs made a second tender of payment this
time through the Acting Conservator, defendant Encarnacion. Plaintiffs send
letter to the bank for the alleged perfected contract of sale.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
However, the said letter drew no response for more than four months. Then,
on May 3, 1988, plaintiff, through counsel, made a final demand for
compliance by the bank with its obligations under the considered perfected
contract of sale.
In a reply letter dated May 12, 1988, the defendants through Acting
Conservator Encarnacion repudiated the authority of defendant Rivera and
claimed that his dealings with the plaintiffs, particularly his counter-offer of
P5.5 Million are unauthorized or illegal. On that basis, the defendants justified
the refusal of the tenders of payment and the non-compliance with the
obligations under what the plaintiffs considered to be a perfected contract of
sale.
On May 16, 1988, plaintiffs filed a suit for specific performance with damages
against the bank, its Manager Rivers and Acting Conservator Encarnacion. The
basis of the suit was that the transaction had with the bank resulted in a
perfected contract of sale.
On the other hand, the defendants took the position that there was no such
perfected sale because the defendant Rivera is not authorized to sell the
property, and that there was no meeting of the minds as to the price.
ISSUE
May the Conservator revoke the perfected and enforceable contract?
HELD
NO. The Supreme Court said, it is not disputed that the petitioner Bank was
under a conservator placed by the Central Bank of the Philippines during the
time that the negotiation and perfection of the contract of sale took place.
Petitioners energetically contended that the conservator has the power to
revoke or overrule actions of the management or the board of directors of a
bank, under Section 28-A of Republic Act No. 265 (otherwise known as the
Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising
or examining department, the Monetary Board finds that a bank or a non-bank
financial intermediary performing quasi-banking functions is in a state of
continuing inability or unwillingness to maintain a state of liquidity deemed
adequate to protect the interest of depositors and creditors, the Monetary
Board may appoint a conservator to take charge of the assets, liabilities, and
the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the
institution, reorganize the management thereof, and restore its viability. He
shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or non-bank financial
intermediary performing quasi-banking functions, any provision of law to the
contrary notwithstanding, and such other powers as the Monetary Board shall
deem necessary.
In the first place, this issue of the Conservator's alleged authority to revoke
or repudiate the perfected contract of sale was raised for the first time in
this Petition — as this was not litigated in the trial court or Court of Appeals
In the second place, there is absolutely no evidence that the Conservator, at
the time the contract was perfected, actually repudiated or overruled said
contract of sale. The Bank's acting conservator at the time, Rodolfo Romey,
never objected to the sale of the property to Demetria and Janolo. What
petitioners are really referring to is the letter of Conservator Encarnacion, who
took over from Romey after the sale was perfected on September 30, 1987
which unilaterally repudiated — not the contract — but the authority of Rivera
to make a binding offer — and which unarguably came months after the
perfection of the contract.
In the third place, while admittedly, the Central Bank law gives vast and far-
reaching powers to the conservator of a bank, it must be pointed out that such
powers must be related to the "(preservation of) the assets of the bank, (the
reorganization of) the management thereof and (the restoration of) its
viability." Such powers, enormous and extensive as they are, cannot extend to
the post-facto repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the Constitution. If the
24
 legislature itself cannot revoke an existing valid contract, how can it delegate
such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to
revoke contracts that are, under existing law, deemed to be defective — i.e.,
void, voidable, unenforceable or rescissible.
Hence, the conservator merely takes the place of a bank's board of directors.
What the said board cannot do — such as repudiating a contract validly
entered into under the doctrine of implied authority — the conservator cannot
do either. Ineluctably, his power is not unilateral and he cannot simply
repudiate valid obligations of the Bank. His authority would be only to bring
court actions to assail such contracts — as he has already done so in the instant
case. A contrary understanding of the law would simply not be permitted by
the Constitution. Neither by common sense. To rule otherwise would be to
enable a failing bank to become solvent, at the expense of third parties, by
simply getting the conservator to unilaterally revoke all previous dealings
which had one way or another or come to be considered unfavorable to the
Bank, yielding nothing to perfected contractual rights nor vested interests of
the third parties who had dealt with the Bank.
In this particular case, since the conservator may exercise other powers based
on the powers of the BOD, can revoke perfected and enforceable contract?
The Supreme Court said NO. The power to revoke a contract refers only to
those defective contracts. You have the rule on void, voidable, unenforceable,
and rescissible contracts.
Their power is only up to that. Because otherwise, it will violate the non-
impairment of contracts. the court said, the legislators cannot impair
perfected contract and more so, BOD.
Legislators—Monetary Board—BOD/Conservator. If the source of the power
cannot do then, the delegated power cannot do the same.
The termination, again, cannot exceed 1 year.
Let’s go to the RECEIVER.
Q: if it is fixed, it is okay. if it cannot be prevented that there might be probable
loss to its creditors or depositors we will go to section 30, the receivership.
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon
report of the head 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, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to
meet its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in 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
Insurance Corporation as receiver of the banking institution.
For a quasi-bank, any person of recognized competence in banking or finance
may be designed as receiver.
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors,
and exercise the general powers of a receiver under the Revised Rules of Court
but shall not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of the
institution: Provided, That the receiver may deposit or place the funds of the
institution in non-speculative investments. The receiver shall determine as
soon as possible, but not later than ninety (90) days from take over, whether
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
the institution may be rehabilitated or otherwise placed in such a condition so
that it may be permitted to resume business with safety to its depositors and
creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of
the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors of
its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement
of prior notice or any other action, a petition for assistance in the liquidation
of the institution pursuant to a liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by the Monetary
Board. Upon acquiring jurisdiction, the court shall, upon motion by the
receiver after due notice, adjudicate disputed claims against the institution,
assist the enforcement of individual liabilities of the stockholders, directors
and officers, and decide on other issues as may be material to implement the
liquidation plan adopted. The receiver shall pay the cost of the proceedings
from the assets of the institution.
(2) convert the assets of the institutions to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of the
institution, and with the assistance of counsel as he may retain, institute such
actions as may be 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 hands of
the receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy,
attachment, or execution.
The actions of the Monetary Board taken under this section or under Section
29 of this Act shall be final and executory, and may not be restrained or set
aside by the court except on petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The petition for certiorari may
only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the
appointment of a receiver under 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.
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon
report of the head of the supervising or examining department, the Monetary
Board finds that a bank or quasi-bank:
(a) HAS NOTIFIED THE BANGKO SENTRAL OR PUBLICLY ANNOUNCED A
UNILATERAL CLOSURE, OR HAS BEEN DORMANT FOR AT LEAST SIXTY (60) DAYS
OR IN ANY MANNER HAS SUSPENDED THE PAYMENT OF ITS DEPOSIT
SUBSTITUTE LIABILITIES OR is unable to pay its liabilities as they become due
in the ordinary course of business: Provided, That this shall not include inability
to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to
meet its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in which cases, the Monetary Board
may summarily and without need for prior hearing forbid the institution from
25
 doing business in the Philippines and designate the Philippine Deposit
Insurance Corporation as receiver of the banking institution. IN THE CASE OF
BANKS AND DIRECT THE DPIC TO PROCEED WIT THE LIQUIDATION OF THE
CLOSED BANK PURSUANT TO THIS SECTION AND THE RELEVANT PROVISION
OF RA 3591, AS AMENDED, THE MONETARY BOAD SHALL NOTIFY IN WRITING
THROUGH THE RECEIVER THE BOARD OF DIRECTORS OF THE CLOSED BANK OF
ITS DECISION.
For a quasi-bank, any person of recognized competence in banking or finance
may be designed as receiver.
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors,
and exercise the general powers of a receiver under the Revised Rules of Court
but shall not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of the
institution: Provided, That the receiver may deposit or place the funds of the
institution in non-speculative investments. The receiver shall determine as
soon as possible, but not later than ninety (90) days from take over, whether
the institution may be rehabilitated or otherwise placed in such a condition so
that it may be permitted to resume business with safety to its depositors and
creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of
the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors of
its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement
of prior notice or any other action, a petition for assistance in the liquidation
of the institution pursuant to a liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by the Monetary
Board. Upon acquiring jurisdiction, the court shall, upon motion by the
receiver after due notice, adjudicate disputed claims against the institution,
assist the enforcement of individual liabilities of the stockholders, directors
and officers, and decide on other issues as may be material to implement the
liquidation plan adopted. The receiver shall pay the cost of the proceedings
from the assets of the institution.
(2) convert the assets of the institutions to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of the
institution, and with the assistance of counsel as he may retain, institute such
actions as may be 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 hands of
the receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy,
attachment, or execution.
The actions of the Monetary Board taken under this section or under Section
29 of this Act shall be final and executory, and may not be restrained or set
aside by the court except on petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The petition for certiorari may
only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or conservatorship.
THE AUTHORITY OF THE MONETARY OAD TO SUMMARILY AND WITHOUT
NEED FOR PRIOR HEARING FORBID THE BANK OF QUASI-BANK FROM DOING
BUSINESS IN THE PHILIPPINES AS PROVIDED ABOVE MAY ALSO BE EXERCISED
OVER NON-STOCK SAVINGS AND LOANS ASSOCIATION, BASED ON THE SAME
APPLICABLE GROUNDS.
FOR QUASI-BANKS AND NON-STOCK SAVINGS AND LOANS ASSOCIATION, ANY
PERSON OR RECOGNIZED COMPETENCE IN BANKING, CREDIT OR FINANCE
MAY BE DESIGNATED BY THE BANGKO SENTRAL AS RECIEVER.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
The designation of a conservator under Section 29 of this Act or the
appointment of a receiver under 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.
Section 30— whenever, upon report of the head of the supervising or
examining department.
Please take note— can you go directly to receivership and not go through
conservatorship or is it necessary to go through conservatorship?
Is conservatorship a requisite for a receivership?
The Monetary Board finds that a bank or quasi-bank—
(a) is unable xxx what is the ground for conservatorship to become into
receivership? This is it right? It cannot continue in business without preventing
probable loss to its depositors or creditors. That is for the conservator.
Now, there are other grounds as well. We have unable to pay its liabilities as
they become due in the ordinary course of business: Provided, That this shall
not include inability to pay caused by extraordinary demands induced by
financial panic in the banking community.
Therefore, examining or before the BSP personnel examine the bank it can go
directly to receivership. If it is determined that its continue inability to pay its
liabilities as they become due in the ordinary course of business.
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to
meet its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in 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
Insurance Corporation as receiver of the banking institution.
Please take note of the definition— it is inability to pay its liabilities.
Let’s go to conservatorship. The inability is commenting.
Please take note—conservatorship—the inability of the bank is to maintain
the condition of liquidity. When you reach receivership—the inability is to pay
its liabilities.
So, if conservator, it is only to maintain this cash but in receivership I am
unable to pay my liabilities. So, that is why receivership.
Even letter D— has willfully violated a cease and desist order under Section
37.
Section 37 essentially pertains to those actions including unsound and unsafe
banking practices. If there is unsound and unsafe banking practices and the
MB issued a —cease and desist order. Stop using that because that is unsound
and unsafe. If they still do that, evidently violated the cease and desist order,
so the MB can actually order a receivership.
Please take note— in which cases, in all A B C D cases the MB can summarily
or without prior hearing forbid the institution from doing business in the
Philippines and designate the Philippine Deposit Insurance Corporation as
receiver of the banking institution. So, the default receiver of a banking
institution is the PDIC or the Philippine Deposit Insurance Corporation.
Therefore, if you are under receivership you are considered closed bank.
Closed. You will be in receivership. The MB may forbid the institution from
doing business in the Philippines.
26
 If in conservatorship you are still doing business. The one who manages is the
conservator. Now, if you’re under receivership —you are a CLOSED BANK. For
the reason that you can’t your debts.
For quasi-bank, any person of recognized competence in banking or finance
may be designed as receiver.
For banks—the PDIC. For quasi bank— is any person.
What will the receiver do?
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors,
and exercise the general powers of a receiver under the Revised Rules of
Court.
What kind of proceeding is this, the receivership?
Is this a provisional remedy or a special proceeding?
with the exception of administrative expenditures, pay or commit any act that
will involve the transfer or disposition of any asset of the institution.
Please take note— under the Revised Rules of Court, it shall not pay, or
commit any act that will involve the transfer or disposition of any asset of the
institution.
Under receivership—the receiver cannot transfer or dispose any assets of the
institution. He cannot sell it. Why? Because if he sells, you are under, what?
LIQUIDATION. Remember your partnership. If you’re selling to pay to
liabilities—you’re already liquidating.
In the spectrum of remedies for banks you have—
Conservatorship→ Receivership → Liquidation.
If receiver sells assets to pay the liability—that is not under receivership. That
is now in liquidation.
Please take note of the difference.
The receiver shall not pay or commit any act that will involve the transfer or
disposition of any asset of the institution.
Therefore, what is the work of the receiver?
The receiver can only do an ACT OF ADMINISTRATION. It cannot do an act of
strict dominion.
Provided, That the receiver may deposit or place the funds of the institution in
non-speculative investments. The receiver shall determine as soon as possible,
but not later than ninety (90) days from take over.
If the conservator has 1 year to determine— the receiver has 90 days to take
over whether the institution may be rehabilitated or otherwise placed in such
a condition so that it may be permitted to resume business with safety to its
depositors and creditors and the general public: Provided, That any
determination for the resumption of business of the institution shall be subject
to prior approval of the Monetary Board.
There is a chance. When it comes to the receiver, if it is determined that there
is a chance to resume business with safety to its depositors and creditors and
the general public—it will report to MB and the MB will approve the
resumption of business.
It must be remembered, if you are under receivership you are a closed bank.
So, you can open again. There are a lot of chances.
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors of
its findings and direct the receiver to proceed with the liquidation of the
institution.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Finish. Liquidation.
What will the receiver do?
The receiver shall—
(1) file ex parte with the proper regional trial court, and without requirement
of prior notice or any other action, a petition for assistance in the liquidation
of the institution.
This is what you call—Court Assisted Liquidation.
The court will assist the liquidation. A liquidation plan shall be adopted by the
Philippine Deposit Insurance Corporation (it is the receiver when it is a bank
institution).
If it is a quasi-bank, the liquidation plan shall be adopted by the Monetary
Board but this is upon the recommendation of the one appointed as a receiver.
—because if it is a quasi-bank it is any person who can be a receiver.
They will have a liquidation plan→ submit to the MB→ MB will adopt a
liquidation plan.
Upon acquiring jurisdiction, the court shall, upon motion by the receiver after
due notice, adjudicate disputed claims against the institution, assist the
enforcement of individual liabilities of the stockholders, directors and officers,
and decide on other issues as may be material to implement the liquidation
plan adopted. The receiver shall pay the cost of the proceedings from the
assets of the institution.
What happened in CAP? It asked to be declared in insolvency. If you have a
account there, you will be given notice that you have this particular period to
file a claim. That is the notice that there is an existing plan when it shall be
paid. Just like that—that’s what will happen. That’s why it needs court
assistance.
2) convert the assets of the institutions to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines.
Now, because of this, your Credit Transactions may be asked in your Civil Law
or in your Commercial Law. That is the nature of Credit Transaction.
In the name of the institution, and with the assistance of counsel as he may
retain, institute such actions as may be 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 xxx be exempt from any order of garnishment, levy,
attachment, or execution.
VERY IMPORTANT—the actions of the MB shall be FINAL & EXECUTORY, or
set aside by the court except on petition for certiorari on the ground that the
action taken was in excess of jurisdiction.
Please take note— who is the party in interest.
The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from receipt
by the board of directors of the institution of the order directing receivership,
liquidation or conservatorship.
Why is it the stockholder who should file? Why note the Corporation itself?
There is a separate juridical personality. Why couldn’t the Corporation itself
file the petition for certiorari?
Remember if you are under the receivership—the power of the BOD is
suspended.
The receiver takes over. It is not allowed that the receiver file the
petition in court. I cannot (receiver) file then I contest myself.
27
 That is why this right is given to the stockholders of records
representing the majority – who have majority (50+1).
The designation of a conservator under Section 29 of this Act or the
appointment of a receiver under 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. Because there are other grounds
the receiver may be designated.
FRIA (Financial Rehabilitation and Insolvency Act).
Because if you are a corporation then you’re already bankrupt kana, you have
these FRIA rights. But the law that is governing if you are not a bank or quasi
bank is the FRIA.
Please take note— under section 5, what is excluded under this law term is—
debtor does not include banks, insurance companies, pre-need companies,
and national and local government agencies or units.
RA 10142
Section 5. Exclusions. - The term debtor does not include banks, insurance
companies, pre-need companies, and national and local government
agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is
potentially or actually subject to conservatorship, receivership or
liquidation proceedings under the New Central Bank Act (Republic Act No.
7653) or successor legislation;
(b) Insurance company shall refer to those companies that are potentially
or actually subject to insolvency proceedings under the Insurance Code
(Presidential Decree No. 1460) or successor legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to
sell or offer to sell pre-need plans.
Therefore, the insolvency proceedings of banks is under this Central Bank Act
and not under the FRIA. It is specifically excepted or excluded under the
provisions of FRIA because the process in insolvency or receivership under the
FRIA and the Central Bank.
Rural Bank of Lucena v. Arca
FACTS:
The Monetary Board issue a Resolution No. 928 finding the Rural Bank of
Lucena (Lucena for short), through its officers, directors, and employees,
had committed acts substantially prejudicial to the Government,
depositors, and creditors, and directing Lucena to reorganize its board of
directors; to refrain from granting or renewing loans, or accept new
deposits, and not to issue drafts or make disbursements without the
approval of the supervising Central Bank examiners , and threatening
Lucena that its management would be taken over if the latter should fail to
comply with the resolution.
The Rural Bank of Lucena, Inc. instituted, on June 22, 1961, in the Court of
First Instance of Manila (Civil Case No. 47345) an action to collect damages
and to enjoin the Central Bank from enforcing Resolution No. 928.
While the litigation was still undecided the Monetary Board, having been
informed that the Director of its Department of Rural Banks recommended
the liquidation of Lucena. A Resolution No. 122 by Monetary Board issued
requesting the Solicitor General, to file a petition in the proper courts for
the liquidation of the affairs of Lucena.
Notice was given by Central Bank officials, on February 10, 1962 that the
Lucena bank was temporarily closed pending final decision of the Court,
and that business be transacted with Central Bank representatives only.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Two days later, the Lucena bank filed suit in the Court of First Instance of
Quezon (Tayabas) to enjoin the enforcement of Resolution 122. The court
issued ex parte a writ of preliminary injunction to such effect.
On the same day, the Court of First Instance of Manila per Judge
Gatmaitan, enjoining enforcement of Resolution No. 928 of the Monetary
Board, for having been issued without the prior hearing prescribed by
section 10 of the Rural Bank Act,.
Upon the other hand, the Court of First Instance of Quezon Province,
dissolved its preliminary injunction against the enforcement of Resolution
122 of the Monetary Board.
On the 31st of March 1962, invoking section 29 of Republic Act 265, the
Central Bank, as liquidator, petitioned the Court of First Instance of Manila
for assistance in the liquidation of the Lucena bank. (Civil Case No. 50019).
Upon motion, and after hearing the parties, Judge Arca issued on
interlocutory order the Lucena thru its duly authorized officers or
representatives to turn over to the Central Bank the physical possession of
all of said Rural Bank of Lucena's assets, properties and papers.
The Rural Bank of Lucena resorted to this Court on certiorari, claiming that
Judge Arca gravely abused his discretion in issuing the above order. It
contends that Section 29 of the Central Bank Act (R.A. 265) does not apply
in this case;
ISSUE: W/N Section 29 of Central Bank Act (R.A. 265) is applicable to Rural
banks?
HELD:
Yes. If the Central Bank Act is the applicable law, the hearing requirement
is no longer necessary because it was the findings of the Monetary Board
(ex parte). Whereas, if it is the Rural Bank Act, the hearing is required.
Hence, in this case, there was no hearing the resolution of the MB for the
liquidation of the Rural Bank of Lucena, hence, there was an invalid
resolution.
So, according to the Supreme Court, the Rural Bank of Lucena is also
covered by the Rural Bank Act. However, the Rural Bank Act and the
Central Bank Act they are not exclusive law. The other on is applicable it
does not exclude the application of the other. Because, the provision of the
Rural Bank act provides: The provisions of Republic Acts numbered 265
(Central Bank Act) and 337, in so far as applicable and not in conflict with
any provision of this Act, are hereby made a part of this Act.
Since the 2 laws are different, the SC held that, tt follows that on the
assumption that under section 10 of the Rural Banks Act the Monetary
Board may not take over the management of a rural bank without giving
the latter a hearing, i.e., an opportunity to rebut the charge that it has
contravened applicable laws, rules and regulations to the substantial
prejudice of the government, its depositors and creditors, such a previous
hearing is nowhere required by section 29 of the Central Bank Law.
Manifestly, whether a rural bank's "continuance in business would involve
probable loss" to its clients or creditors and that it "cannot resume
business with safety," is a matter of appreciation and judgment that the
law entrusts primarily to the Monetary Board
Sir: So, what is the Applicable law in this case?
A: the Central Bank Act.
Sir: what is the reason why there is no prior hearing?
A: if the hearing is required, the danger that the law seeks to prevent that
is the dissipation of assets of the banking institution will be defeated
because, it has to comply first. While if it is ex parte, without any delay
the MB may issue resolution for the liquidation.
From the Full text:
28
 We see no irreconcilable conflict between section 10 of Republic Act No.
720 (Rural Banks Act) and section 29 of Republic Act No. 265 (Central
Bank Act). The former provides in substance as follows:
The director of the Department of the Central Bank designated
by the Monetary Board to supervise Rural Banks ... upon proof
that the Rural Bank or its board of directors or officers are
conducting and managing the affairs of the bank in a manner
contrary to laws, orders, instructions, rules and regulations
promulgated by the Monetary Board or in any manner
substantially prejudicial to the interests of the government,
depositors or creditors, to take over the management of such
bank when specifically authorized to do so by the Monetary
Board after due hearing until a new board of directors and
officers are elected and qualified. ...
It is easily seen that what this section authorized is the take over of the
management by the Central Bank, until the governing body of the
offending Rural Bank is recognized with a view to assuring compliance by
it with the laws and regulations.
Upon the other hand, section 29 of the Central Bank Act (R. A. 265) has in
view a much more drastic step, the liquidation of a rural bank by taking
over its assets and converting them into money to pay off its creditors.
Said section prescribes:
SEC. 29. Proceedings upon insolvency. — Whenever, upon
examination by the Superintendent or his examiners or agents
into the condition of any banking institution, it shall be
disclosed that the condition of the same is one of insolvency, or
that its continuance in business would involve probable loss to
its depositors or creditors, it shall be the duty of the
Superintendent forthwith, in writing, to inform the Monetary
Board of the facts, and the Board, upon finding the statement
of the Superintendent to be true, shall forthwith forbid the
institution to do business in the Philippines and shall take
charge of its assets and proceeds according to law.
The Monetary Board shall thereupon determine within thirty
days whether the institution may be reorganized or otherwise
placed in such a condition so that it may be permitted to resume
business with safety to its creditors and shall prescribe the
conditions under which such resumption of business shall take
place. In such case the expenses and fee in the administration
of the institution shall be determined by the Board and shall be
paid to the Central Bank out of the assets of such banking
institution.
At any time within ten days after the Monetary Board has taken
charge of the assets of any banking institution, such institution
may apply to the Court of First Instance for an order requiring
the Monetary Board to show cause why it should not be
enjoined from continuing such charge of its assets, and the
court may direct the Board to refrain from further proceedings
and to surrender charge of its assets.
If the Monetary Board shall determine that the banking
institution cannot resume business with safety to its creditors,
it shall, by the Solicitor General, file a petition in the Court of
First Instance reciting the proceedings which have been taken
and praying the assistance and supervision of the court in the
liquidation of the affairs of the same. The Superintendent shall
thereafter, upon order of the Monetary Board and under the
supervision of the court and with all convenient speed, convert
the assets of the banking institution to money.
Considering that section 27 of the Rural Banks law (R.A. No. 720)
expressly declares that —
The provisions of Republic Acts numbered 265 (Central Bank
Act) and 337, in so far as applicable and not in conflict with
any provision of this Act, are hereby made a part of this Act.
we find no room for questioning the applicability of section 29 of
Republic Act No. 265 (Central Bank Act) to rural banks organized under
Republic Act 720, whenever the Monetary Board should find that the
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
rural bank affected is insolvent, or that its continuance in business would
involve probable loss to its depositors or creditors, and that it
resume business with safety.
It follows that on the assumption that under section 10 of the Rural Banks
Act the Monetary Board may not take over the management of a rural bank
without giving the latter a hearing, i.e., an opportunity to rebut the charge
that it has contravened applicable laws, rules and regulations to the
substantial prejudice of the government, its depositors and creditors, such
a previous hearing is nowhere required by section 29 of the Central Bank
Law. Manifestly, whether a rural bank's "continuance in business would
involve probable loss" to its clients or creditors and that it "cannot resume
business with safety," is a matter of appreciation and judgment that the
law entrusts primarily to the Monetary Board. Equally apparent is that if
the rural bank affected is in the condition previously adverted to, every
minute of delay in securing its assets from dissipation inevitably increases
the danger to the creditors. For this reason, the statute has provided for a
subsequent judicial review of the Monetary Board, in lieu of a previous
hearing.
The Court said, if you de-delay the assets may be dissipated. The Court said,
manifestly, whether a rural bank's continuance in business would involve
probable loss to its clients or creditors, and that "it cannot resume business
with safety", is a matter of appreciation and judgment that the law entrusts
primarily to the Monetary Board. Equally apparent is that if the rural bank
affected is in the condition previously adverted to, every minute of delay in
securing its assets from dissipation inevitably increases the danger to the
creditors. For this reason, the statute has provided for a subsequent judicial
review of the Monetary Board, in lieu of a previous hearing.
Central Bank v. CA
FACTS
Here, based on examination reports submitted by the Supervision and
Examination Sector (SES) of the Central Bank (CB) "that the financial
condition of Triumph Savings Bank (TSB) is one of insolvency and its
continuance in business would involve probable loss to its depositors and
creditors,".
Thus, the Monetary Board (MB) issued Resolution No. 596 ordering the
closure of TSB, forbidding it from doing business in the Philippines, placing
it under receivership, and appointing Ramon V. Tiaoqui as receiver. Tiaoqui
assumed office on 3 June 1985.
On June 11, 1985, TSB filed a complaint with the RTC against Central Bank
and Ramon V. Tiaoqui to annul MB Resolution No. 596, with prayer for
injunction, challenging in the process the constitutionality of Sec. 29 of R.A.
269, otherwise known as "The Central Bank Act," as amended, insofar as it
authorizes the Central Bank to take over a banking institution even if it is
not charged with violation of any law or regulation, much less found guilty
thereof.
On July 1, 1985, the trial court temporarily restrained petitioners from
implementing MB Resolution No. 596 "until further orders", thus
prompting them to move for the quashal of the restraining order (TRO) on
the ground that it did not comply with said Sec. 29, i.e., that TSB failed to
show convincing proof of arbitrariness and bad faith on the part of
petitioners;' and, that TSB failed to post the requisite bond in favor of
Central Bank.
Central Bank moved to dismiss on two grounds; 1. The complaint failed to
state a cause of action; 2. The Triumph Savings Bank was without capacity
to sue except through its appointed receiver.
Now, concerning the first ground, Central Bank themselves admit that the
Monetary Board resolution placing the Triumph Savings Bank under the
receivership of the officials of the Central Bank was done without prior
hearing, that is, without first hearing the side of the bank. They further
admit that said resolution can be the subject of judicial review and may be
set aside should it be found that the same was issued with arbitrariness
and in bad faith.
29
 CONTENTION
TSB: It allege that in the Banco Filipino case, wherein it was held that CB
violated the rule on administrative due process laid down in Ang Tibay vs.
CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628)
which requires that prior notice and hearing be afforded to all parties in
administrative proceedings. Since MB Resolution No. 596 was adopted
without TSB being previously notified and heard, according to TSB, the
same is void for want of due process; consequently, the bank's
management should be restored to its board of directors and officers.
Central Bank: It asserted that it is the essence of Sec. 29 of R.A. 265 that
prior notice and hearing in cases involving bank closures should not be
required since in all probability a hearing would not only cause
unnecessary delay but also provide bank "insiders" and stockholders the
opportunity to further dissipate the bank's resources, create liabilities for
the bank up to the insured amount of P40,000.00, and even destroy
evidence of fraud or irregularity in the bank's operations to the prejudice
of its depositors and creditors. CB further argue that the legislative intent
of Sec. 29 is to repose in the Monetary Board exclusive power to determine
the existence of statutory grounds for the closure and liquidation of banks,
having the required expertise and specialized competence to do so.
ISSUE
Whether or not a Monetary Board can place a rural bank under
receivership even without prior notice.
HELD
Yes. Under Sec. 29 of R.A. 265, the Central Bank, through the Monetary
Board, is vested with exclusive authority to assess, evaluate and determine
the condition of any bank, and finding such condition to be one of
insolvency, or that its continuance in business would involve probable loss
to its depositors or creditors, forbid the bank or non-bank financial
institution to do business in the Philippines; and shall designate an official
of the CB or other competent person as receiver to immediately take
charge of its assets and liabilities. The fourth paragraph, which was then in
effect at the time the action was commenced, allows the filing of a case to
set aside the actions of the Monetary Board which are tainted with
arbitrariness and bad faith.
Contrary to the notion of TSB, Sec. 29 does not contemplate prior notice
and hearing before a bank may be directed to stop operations and placed
under receivership. When par. 4 (now par. 5, as amended by E.O. 289)
provides for the filing of a case within ten (10) days after the receiver takes
charge of the assets of the bank, it is unmistakable that the assailed actions
should precede the filing of the case. Plainly, the legislature could not have
intended to authorize "no prior notice and hearing" in the closure of the
bank and at the same time allow a suit to annul it on the basis of absence
thereof.
In the early case of Rural Bank of Lucena, Inc. v. Arca, We held that a
previous hearing is nowhere required in Sec. 29 nor does the constitutional
requirement of due process demand that the correctness of the Monetary
Board's resolution to stop operation and proceed to liquidation be first
adjudged before making the resolution effective. It is enough that a
subsequent judicial review be provided.
Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not
require a previous hearing before the Monetary Board can implement its
resolution closing a bank, since its action is subject to judicial scrutiny as
provided by law.
It may be emphasized that Sec. 29 does not altogether divest a bank or a
non-bank financial institution placed under receivership of the opportunity
to be heard and present evidence on arbitrariness and bad faith because
within ten (10) days from the date the receiver takes charge of the assets
of the bank, resort to judicial review may be had by filing an appropriate
pleading with the court. Respondent TSB did in fact avail of this remedy by
filing a complaint with the RTC of Quezon City on the 8th day following the
takeover by the receiver of the bank's assets on 3 June 1985.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
This "close now and hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank's assets and
as a valid exercise of police power to protect the depositors, creditors,
stockholders and the general public.
Admittedly, the mere filing of a case for receivership by the Central Bank
can trigger a bank run and drain its assets in days or even hours leading to
insolvency even if the bank be actually solvent. The procedure prescribed
in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the
depositors, creditors and stockholders, the bank itself, and the general
public, and the summary closure pales in comparison to the protection
afforded public interest. At any rate, the bank is given full opportunity to
prove arbitrariness and bad faith in placing the bank under receivership, in
which event, the resolution may be properly nullified and the receivership
lifted as the trial court may determine.
The heavy reliance of respondents on the Banco Filipino case is misplaced
in view of factual circumstances therein which are not attendant in the
present case. We ruled in Banco Filipino that the closure of the bank was
arbitrary and attendant with grave abuse of discretion, not because of the
absence of prior notice and hearing, but that the Monetary Board had no
sufficient basis to arrive at a sound conclusion of insolvency to justify the
closure. In other words, the arbitrariness, bad faith and abuse of discretion
were determined only after the bank was placed under conservatorship
and evidence thereon was received by the trial court. As this Court found
in that case, the Valenzuela, Aurellano and Tiaoqui Reports contained
unfounded assumptions and deductions which did not reflect the true
financial condition of the bank. For instance, the subtraction of an
uncertain amount as valuation reserve from the assets of the bank would
merely result in its net worth or the unimpaired capital and surplus; it did
not reflect the total financial condition of Banco Filipino.
In sum, appeal to procedural due process cannot just outweigh the evil
sought to be prevented; hence, the Court rule that Sec. 29 of R.A. 265 is a
sound legislation promulgated in accordance with the Constitution in the
exercise of police power of the state. Consequently, the absence of notice
and hearing is not a valid ground to annul a Monetary Board resolution
placing a bank under receivership. The absence of prior notice and hearing
cannot be deemed acts of arbitrariness and bad faith. Thus, an MB
resolution placing a bank under receivership, or conservatorship for that
matter, may only be annulled after a determination has been made by the
trial court that its issuance was tainted with arbitrariness and bad faith.
Until such determination is made, the status quo shall be maintained, i.e.,
the bank shall continue to be under receivership.
You have this concept of “close now and hear later” schemes is grounded on
practical and legal considerations to prevent unwarranted dissipation of the
bank’s assets and as a valid exercise of police power to protect the depositors,
creditors stockholders and the general public.
Mind you that this concept is being asked in bar exams. Same scenario,
without prior hearing—is it proper for the MB to close without prior hearing?
So, that was the question of 2007 bar under your commercial law. This is a
very important concept.
Requisites for Receivership
1. Report to the head of the supervising department involving the
bank;
2. Finding of the Monetary Board of the existence of any of the
grounds for receivership;
3. Decision of the Monetary Board to forbid the institution from doing
business; and
4. Notice in writing to the Board of Directors.
30

December 5, 2018
ORIGINAL PROVISION
SEC. 2. Creation of the Bangko Sentral. _ There is hereby established an
independent central monetary authority, which shall be a body corporate
known as the Bangko Sentral ng Pilipinas, hereafter referred to as the
Bangko Sentral.
The capital of the Bangko Sentral shall be Fifty billion pesos
(P50,000,000,000), to be fully subscribed by the Government of the
Republic, hereafter referred to as the Government, Ten billion pesos
(P10,000,000,000) of which shall be fully paid for by the Government upon
the effectivity of this Act and the balance to be paid for within a period of
two (2) years from the effectivity of this Act in such manner and form as
the Government, through the Secretary of Finance and the Secretary of
Budget and Management, may thereafter determine.
PROPOSED AMENDMENT
SEC. 2. Creation of the Bangko Sentral. _ There is hereby established an
independent central monetary authority, which shall be a body corporate
known as the Bangko Sentral ng Pilipinas, hereafter referred to as the
Bangko Sentral.
The capital of the Bangko Sentral shall be TWO HUNDRED billion pesos
(P200,000,000,000), to be fully subscribed by the Government of the
Republic, hereafter referred to as the Government, THE UNPAID
SUBSCRIPTION shall be fully paid for by the Government IN CASH AND/OR
GOVERNMENT SECURITIES UPPON EFFECTIVITY OF THIS ACT.
THEREAFTER THE ADEQUACY OF THE CAPITALIZATION SHALL BE SUBJECT
TO REVIEW EVERY FIVE (5) YEARS AND ADJUSTED UPON JOINT
RECOMMENDATION BY THE SECRETARY OF FINANCE, THE SECRETARY OF
BUDGET AND MANAGEMENT AND THE MONETARY BOARD. THE
PAYMENT OF ANY UNPAID SUBSCRIPTION AND/OR INCREASE IN
CAPITALIZATION SHALL BE AUTOMATICALLY APPROPRIATED IN THE
ANNUAL GENERAL APPROPRIATIONS ACT.
The capital is now 200 billion pesos at the ratification. The sources for the
subscription of the 200 billion will be the detention of the dividends. In the
Senate Bill, it has to be taken from the taxes. The bicameral says, let’s not take
the budget from the Government. So let’s go with the undeclared or detained
dividends. That’s what we will use to increase the capital.
OLD PROVISION
Section. 3. Responsibility and Primary Objective. – The Bangko Sentral shall
provide policy directions in the areas of money, banking, and credit. It shall
have supervision over the operations of banks and exercise such regulatory
powers as provided in this Act and other pertinent laws over the operations of
finance companies and non-bank financial institutions performing quasi-
banking functions, hereafter referred to as quasibanks, and institutions
performing similar functions. The primary objective of the Bangko Sentral is to
maintain price stability conducive to a balanced and sustainable growth of the
economy. It shall also promote and maintain monetary stability and the
convertibility of the peso.
PROPOSED AMENDMENT
Section 3. Responsibility and Primary Objective. – The Bangko Sentral shall
provide policy directions in the areas of money, banking, and credit. It shall
have supervision over the operations of banks and exercise such regulatory
AND EXAMINATION powers as provided in this Act and other pertinent laws
over the QUASI-BANKING operations of non-bank financial institutions. AS
MAY BE DETERMINED BY THE MONETARY BOARD, IT SHALL LIKEWISE
EXERCISE REGULATORY AND EXAMINATION POWERS OVER MONEY SERVICE
BUSINESSES, CREDIT GRANTING BUSINESSES, AND PAYMENT SYSTEM
OPERATORS. THE MONETARY BOARD IS HEREBY EMPOWERED TO
AUTHORIZE ENTITIES OR PERSONS TO ENGAGE IN MONETARY SERVICE
BUSINESSES.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
The primary objective of the Bangko Sentral is to maintain price stability
conducive to a balanced and sustainable growth of the economy. It shall also
promote and maintain monetary stability and the convertibility of the peso.
THE BANGKO SENTRAL SHALL PROMOTE FINANCIAL STABILITY AND CLOSEY
WORK WITH OTHER RELEVANT BODIES INCLUDING, BUT NOT LIMITED TO,
THE SECURITIES AND EXCHANGE COMMISSION, THE INSURANCE
COMMISSION, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AND
THE NATIONAL GOVERNMENT.
THE BANGKO SENTRAL SHALL OVERSE THE PAYMENT AND SETTLEMENT
SYSTEMS IN THE PHILIPPINES, INCLUDING CRITICAL FINANCIAL MARKET
INFRASTRUCTURES, IN ORDER TO PROMOTE SOUND AND PRUDENT
PRACTICES CONSISTENT WITH THE MAINTENANCE OF FINANCIAL STABILITY.
IN THE ATTAINMENT OF ITS OBJECTIVES, THE BANGKO SENTRAL SHALL
PROMOTE BROAD AND COVENIENT ACCESS TO HIGH QUALITY FINANCIAL
SERVICES AND CONSIDERTHE INTEREST OF THE GENERAL PUBLIC.
The coverage before was only for banks and quasi-banks. But now, it includes
money service businesses, credit granting businesses, and payment system
operations (ex. pay later). The regulatory and examination powers of Bangko
Sentral has been broadened.
The reason of which is from 1993 until now, there has been numerous changes
for the business model of banking. This amendment is geared to address the
issues of the disruptions.
Section 4. Place of Business. – The Bangko Sentral shall have its principal place
of business in Metro Manila, but may maintain branches, agencies and
correspondents in such other places as the proper conduct of its business may
require.
Section 5. Corporate Powers. – The Bangko Sentral is hereby authorized to
adopt, alter, and use a corporate seal which shall be judicially noticed; to enter
into contracts; to lease or own real and personal property, and to sell or
otherwise dispose of the same; to sue and be sued; and otherwise to do and
perform any and all things that may be necessary or proper to carry out the
purposes of this Act. The Bangko Sentral may acquire and hold such assets and
incur such liabilities in connection with its operations authorized by the
provisions of this Act, or as are essential to the proper conduct of such
operations. The Bangko Sentral may compromise, condone or release, in
whole or in part, any claim of or settled liability to the Bangko Sentral,
regardless of the amount involved, under such terms and conditions as may
be prescribed by the Monetary Board to protect the interests of the Bangko
Sentral.
ARTICLE II
THE MONETARY BOARD
Section. 6. Composition of the Monetary Board. – The powers and functions
of the Bangko Sentral shall be exercised by the Bangko Sentral Monetary
Board, hereafter referred to as the Monetary Board, composed of seven (7)
members appointed by the President of the Philippines for a term of six (6)
years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the
Monetary Board. The Governor of the Bangko Sentral shall be head of a
department and his appointment shall be subject to confirmation by the
Commission on Appointments. Whenever the Governor is unable to attend a
meeting of the Board, he shall designate a Deputy Governor to act as his
alternate: Provided, That in such event, the Monetary Board shall designate
one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the
Philippines. Whenever the designated Cabinet Member is unable to attend a
meeting of the Board, he shall designate an Undersecretary in his Department
to attend as his alternate; and (c) five (5) members who shall come from the
31
 private sector, all of whom shall serve full-time: Provided, however, That of
the members first appointed under the provisions of this subsection, three (3)
shall have a term of six (6) years, and the other two (2), three (3) years.
No member of the Monetary Board may be reappointed more than once.
Section. 7. Vacancies. – Any vacancy in the Monetary Board created by the
death, resignation, or removal of any member shall be filled by the
appointment of a new member to complete the unexpired period of the term
of the member concerned.
Section 8. Qualifications. – The members of the Monetary Board must be
natural-born citizens of the Philippines, at least thirty-five (35) years of age,
with the exception of the Governor who should at least be forty (40) years of
age, of good moral character, of unquestionable integrity, of known probity
and patriotism, and with recognized competence in social and economic
disciplines.
Section 9. Disqualifications. – In addition to the disqualifications imposed by
Republic Act No. 6713, a member of the Monetary Board is disqualified from
being a director, officer, employee, consultant, lawyer, agent or stockholder
of any bank, quasi-bank or any other institution which is subject to supervision
or examination by the Bangko Sentral, in which case such member shall resign
from, and divest himself of any and all interests in such institution before
assumption of office as member of the Monetary Board.
The members of the Monetary Board coming from the private sector shall not
hold any other public office or public employment during their tenure.
No person shall be a member of the Monetary Board if he has been connected
directly with any multilateral banking or financial institution or has a
substantial interest in any private bank in the Philippines, within one (1) year
prior to his appointment; likewise, no member of the Monetary Board shall be
employed in any such institution within two (2) years after the expiration of
his term except when he serves as an official representative of the Philippine
Government to such institution.
Section 10. Removal. – The President may remove any member of the
Monetary Board for any of the following reasons:
(a) If the member is subsequently disqualified under the provisions of Section
8 of this Act; or
(b) If he is physically or mentally incapacitated that he cannot properly
discharge his duties and responsibilities and such incapacity has lasted for
more than six (6) months; or
(c) If the member is guilty of acts or operations which are of fraudulent or
illegal character or which are manifestly opposed to the aims and interests of
the Bangko Sentral; or (d) If the member no longer possesses the qualifications
specified in Section 8 of this Act.
ORIGINAL PROVISION
Section. 11. Meetings. – The Monetary Board shall meet at least once a week.
The Board may be called to a meeting by the Governor of the Bangko Sentral
or by two (2) other members of the Board.
The presence of four (4) members shall constitute a quorum: Provided, That
in all cases the Governor or his duly designated alternate shall be among the
four (4).
Unless otherwise provided in this Act, all decisions of the Monetary Board shall
require the concurrence of at least four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the
proceedings and deliberations of the Monetary Board, including the tapes and
transcripts of the stenographic notes, either in their original form or in
microfilm.
PROPOSED AMENDMENT
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
SEC. 11. Meetings. _ The Monetary Board shall meet at least once a week. The
Board may be called to a meeting by the Governor of the Bangko Sentral or by
two (2) other members of the Board.
The presence of four (4) members shall constitute a quorum: Provided, That
in all cases the Governor or his duly designated alternate shall be among the
four (4).
Unless otherwise provided in this Act, all decisions of the Monetary Board shall
require the concurrence of at least four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the
proceedings and deliberations of the Monetary Board, including the tapes and
transcripts of the stenographic notes, either in their original form or in
microfilm.
THE MEETINGS OF THE MONETARY BOARD MAY BE CONDUCTED THROUGH
MODERN TECHNOLOGIES SUCH AS, BUT NOT LIMITED TO,
TELECONFERENCING AND VIDEOCONFERENCING.
This is an adaptation of the amendment in the Revised Corporation Code
(RCC). In the revised corporation code, there is also voting in absentia as one
of the changes. Before, teleconferencing is actually allowed but there is a
separate rule sanctioned by the SEC. But now, it is inserted as a provision in
the RCC and is adopted by the Monetary Board.
Section. 12. Attendance of the Deputy Governors. – The Deputy Governors
may attend the meetings of the Monetary Board with the right to be heard.
Section. 13. Salary. – The salary of the Governor and the members of the
Monetary Board from the private sector shall be fixed by the President of the
Philippines at a sum commensurate to the importance and responsibility
attached to the position.
Section 14. Withdrawal of Persons Having a Personal Interest. – In addition
to the requirements of Republic Act No. 6713, any member of the Monetary
Board with personal or pecuniary interest in any matter in the agenda of the
Monetary Board shall disclose his interest to the Board and shall retire from
the meeting when the matter is taken up. The decision taken on the matter
shall be made public. The minutes shall reflect the disclosure made and the
retirement of the member concerned from the meeting.
Section 15. Exercise of Authority. – In the exercise of its authority, the
Monetary Board shall:
(a) issue rules and regulations it considers necessary for the effective
discharge of the responsibilities and exercise of the powers vested upon
the Monetary Board and the Bangko Sentral. The rules and regulations
issued shall be reported to the President and the Congress within fifteen
(15) days from the date of their issuance;
(b) direct the management, operations, and administration of the Bangko
Sentral, reorganize its personnel, and issue such rules and regulations as it
may deem necessary or convenient for this purpose. The legal units of the
Bangko Sentral shall be under the exclusive supervision and control of the
Monetary Board;
(c) establish a human resource management system which shall govern the
selection, hiring, appointment, transfer, promotion, or dismissal of all
personnel. Such system shall aim to establish professionalism and
excellence at all levels of the Bangko Sentral in accordance with sound
principles of management.
A compensation structure, based on job evaluation studies and wage
surveys and subject to the Board's approval, shall be instituted as an
integral component of the Bangko Sentral's human resource development
program: Provided, That the Monetary Board shall make its own system
conform as closely as possible with the principles provided for under
Republic Act No. 6758: 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. 6758.
32
 On the recommendation of the Governor, appoint, fix the remunerations
and other emoluments, and remove personnel of the Bangko Sentral,
subject to pertinent civil service laws: Provided, That the Monetary Board
shall have exclusive and final authority to promote, transfer, assign, or
reassign personnel of the Bangko Sentral and these personnel actions are
deemed made in the interest of the service and not disciplinary: Provided,
further, That the Monetary Board may delegate such authority to the
Governor under such guidelines as it may determine.
(d) adopt an annual budget for and authorize such expenditures by the
Bangko Sentral as are in the interest of the effective administration and
operations of the Bangko Sentral in accordance with applicable laws and
regulations; and
(e) indemnify its members and other officials of the Bangko Sentral,
including personnel of the departments performing supervision and
examination functions against all costs and expenses reasonably incurred
by such persons in connection with any civil or criminal action, suit or
proceedings to which he may be, or is, made a party by reason of the
performance of his functions or duties, unless he is finally adjudged in such
action or proceeding to be liable for negligence or misconduct. WILLFULL
VIOLATION OF THIS ACT, PERFORMED IN EVIDENT BAD FAITH OR WITH
GROSS NEGLIGENCE.
In the event of a settlement or compromise, indemnification shall be
provided only in connection with such matters covered by the settlement
as to which the Bangko Sentral is advised by external counsel that the
person to be indemnified did not commit any negligence or misconduct.
WILLFULL VIOLATION OF THIS ACT, PERFORMED IN EVIDENT BAD FAITH
OR WITH GROSS NEGLIGENCE.
The cost and expenses incurred in defending the aforementioned action,
suit or proceeding may be paid by the Bangko Sentral in advance of the
final disposition of such action, suit or proceeding upon 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 indemnified as provided in this
subsection.
Before, even simple negligence could make them liable, but now it requires
one to be with gross negligence and evident bad faith, and willful violation.
This amendment would actually help the officers in performing their job
because this will afford more protection for them.
SEC. 16. Responsibility. _ THE GENERAL RULE AND THE EXCEPTION
THEREFROM ON THE LIABILITY OF PUBLIC OFFICERS AS PROVIDED IN
SECTIONS 38 AND 39 OF CHAPTER 9, BOOK 1 OF THE REVISED
ADMINISTRATIVE CODE OF 1987 SHALL APPLYTO THE members of the
Monetary Board, officials, examiners, and employees AND OTHER
PERSONNEL of the Bangko Sentral who willfully violate this Act or who are
guilty of negligence, abuses or acts of malfeasance or misfeasance or fail
to exercise extraordinary diligence in the performance of his duties shall
be held liable for any loss or injury suffered by the Bangko Sentral or other
banking institutions as a result of such violation, negligence, abuse,
malfeasance, misfeasance or failure to exercise extraordinary diligence.
Similar responsibility shall apply to members OF THE MONETARY BOARD
officers, and employees AND OTHER PERSONNEL of the Bangko Sentral
for: (1) the disclosure of any information of a confidential nature, or any
information on the discussions or resolutions of the Monetary Board, or
about the confidential operations of the Bangko Sentral, unless the
disclosure is in connection with the performance of official functions with
the Bangko Sentral, or is with prior authorization of the Monetary Board or
the Governor; or (2) the use of such information for personal gain or to the
detriment of the Government, the Bangko Sentral or third parties:
Provided, however, That any data or information required to be submitted
to the President and/or the Congress, or to be published under the
provisions of this Act shall not be considered confidential.
THE ABOVE NOTWITHSTANDING, MEMBERS OF THE MONETARY BOARD
AND OTHER PERSONNEL OF THE BANGKO SENTRAL SHALL NOT BE
SUBJECTED TO ANY ACTION, CLAIM OR DEMAND IN CONNECTION WITH
ANY ACT DONE OR OMITTED BY THEM IN THE PERFORMANCE OF THEIR
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
DUTIES AND EXERCISE OF THEIR POWERS EXCEPT FOR THOSE ACTIONS
AND OMISSIONS DONE IN EVIDENT BAD FAITH OR WITH GROSS
NEGLIGENCE. UNLESS THE ACTIONS OR OMISSIONS OF THE BANGKO
SENTRAL, MEMBERS OF THE MONETARY BOARD AND ITS OTHER
PERSONNEL ARE FINALLY ADJUDGED TO BE IN WILLFUL VIOLATION OF
THIS ACT, PERFORMED IN EVIDENT BAD FAITH OR WITH GROSS
NEGLIGENCE, THEY ARE HELD FREE AND HARMLESS TO THE FULEST
EXTENT PERMITTED BY LAW FROM ANY LIABILITY, AND THEY SHALL BE
INDEMNIFIED FOR ANY AND ALL LIABLITIES, LOSSES, CLAIMS, DEMANDS,
DAMAGES, DEFICIENCIES, COSTS AND EXPENSES OF WHATSOEVER KIND
AND NATURE THAT MAY ARISE IN CONNECTION WITH THE EXERCISE OF
THEIR POWERS AND PERFORMANCE OF THEIR DUTIES AND FUNCTIONS.
So, in your Admin. Law, the strike-out ones, that’s gone.
ARTICLE III
The Governor and Deputy Governors
of the Bangko Sentral
Section. 17. Powers and Duties of the Governor. _ The Governor shall be the
chief executive officer of the Bangko Sentral. His powers and duties shall be
to:
(a) prepare the agenda for the meetings of the Monetary Board and to submit
for the consideration of the Board the policies and measures which he believes
to be necessary to carry out the purposes and provisions of this Act;
(b) execute and administer the policies and measures approved by the
Monetary Board;
(c) direct and supervise the operations and internal administration of the
Bangko Sentral. The Governor may delegate certain of his administrative
responsibilities to other officers or may assign specific tasks or responsibilities
to any fulltime member of the Monetary Board without additional
remuneration or allowance whenever he may deem fit or subject to such rules
and regulations as the Monetary Board may prescribe;
(d) appoint and fix the remunerations and other emoluments of personnel
below the rank of a department head in accordance with the position and
compensation plans approved by the Monetary Board, as well as to impose
disciplinary measures upon personnel of the Bangko Sentral, subject to the
provisions of Section 15(c) of this Act: Provided, That removal of personnel
shall be with the approval of the Monetary Board;
(e) render opinions, decisions, or rulings, which shall be final and executory
until reversed or modified by the Monetary Board, on matters regarding
application or enforcement of laws pertaining to institutions supervised by the
Bangko Sentral and laws pertaining to quasi-banks, as well as regulations,
policies or instructions issued by the Monetary Board, and the implementation
thereof; and
(f) exercise such other powers as may be vested in him by the Monetary Board.
Section. 18. Representation of the Monetary Board and the Bangko Sentral.
– The Governor of the Bangko Sentral shall be the principal representative of
the Monetary Board and of the Bangko Sentral and, in such capacity and in
accordance with the instructions of the Monetary Board, he shall be
empowered to:
(a) represent the Monetary Board and the Bangko Sentral in all dealings with
other offices, agencies and instrumentalities of the Government and all other
persons or entities, public or private, whether domestic, foreign or
international;
(b) sign contracts entered into by the Bangko Sentral, notes and securities
issued by the Bangko Sentral, all reports, balance sheets, profit and loss
statements, correspondence and other documents of the Bangko Sentral. The
signature of the Governor may be in facsimile whenever appropriate;
(c) represent the Bangko Sentral, either personally or through counsel,
including private counsel, as may be authorized by the Monetary Board, in any
legal proceedings, action or specialized legal studies; and
33

(d) delegate his power to represent the Bangko Sentral, as provided in
subsections (a), (b) and (c) of this section, to other officers upon his own
responsibility: Provided, however, That in order to preserve the integrity and
the prestige of his office, the Governor of the Bangko Sentral may choose not
to participate in preliminary discussions with any multilateral banking or
financial institution on any negotiations for the Government within or outside
the Philippines. During the negotiations, he may instead be represented by a
permanent negotiator.
Section 19. Authority of the Governor in Emergencies. - In case of emergencies
where time is sufficient to call a meeting of the Monetary Board, the Governor
of the Bangko Sentral, with the concurrence of two (2) other members of the
Monetary Board, may decide any matter or take any action within the
authority of the Board.
The Governor shall submit a report to the President and Congress within
seventy-two (72) hours after the action has been taken.
At the soonest possible time, the Governor shall call a meeting of the
Monetary Board to submit his action for ratification.
Section 20. Outside Interests of the Governor and the Full-time Members of
the Board. - The Governor of the Bangko Sentral and the full-time members of
the Board shall limit their professional activities to those pertaining directly to
their positions with the Bangko Sentral. Accordingly, they may not accept any
other employment, whether public or private, remunerated or ad honorem,
with the exception of positions in eleemosynary, civic, cultural or religious
organizations or whenever, by designation of the President, the Governor or
the full-time member is tasked to represent the interest of the Government or
other government agencies in matters connected with or affecting the
economy or the financial system of the country.
Section 21. Deputy Governors. - The Governor of the Bangko Sentral, with
the approval of the Monetary Board, shall appoint not more than three (3)
FIVE (5) Deputy Governors who shall perform duties as may be assigned to
them by the Governor and the Board.
In the absence of the Governor, a Deputy Governor designated by
the Governor shall act as chief executive of the Bangko Sentral and shall
exercise the powers and perform the duties of the Governor. Whenever
the Government GOVERNOR is unable to attend meetings of government
boards or councils in which he is an ex officio member pursuant to
provisions of special laws, a Deputy Governor as may be designated by the
Governor shall be vested with authority to participate and exercise the
right to vote in such meetings.
Take note— If before, the Deputy Governors are not more than 3, now not
more than 5.
ARTICLE IV
Operations of the Bangko Sentral
Section 22. Research and Statistics. - The Bangko Sentral shall prepare data
and conduct economic research for the guidance of the Monetary Board in the
formulation and implementation of its policies. Such data shall include, among
others, forecasts of the balance of payments of the Philippines, statistics on
the monthly movement of the monetary aggregates and of prices and other
statistical series and economic studies useful for the formulation and analysis
of monetary, banking, credit and exchange policies.
Section 23. Authority to Obtain Data and Information. - The Bangko Sentral
shall have the authority to request REQUIRE from ANY PERSON OR ENTITY,
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
INCLUDING government offices and instrumentalities, or government-owned
or controlled corporations, any data which it may, FOR STATISTICAL AND
POLICY DEVELOPMENT PURPORSES require for IN RELATION TO the proper
discharge of its functions and responsibilities, PROVIDED, THAT
DISAGGREGATED DATA GATHERED ARE SUBJECT TO PREVAILING
CONFIDENTIALITY LAWS. The Bangko Sentral through the Governor or in his
absence, a duly authorized representative shall have the power to issue a
subpoena for the production of the books and records for the aforesaid
purpose. Those who refuse the subpoena without justifiable cause, or who
refuse to supply the bank BANGKO SENTRAL with data requested or required,
shall be subject to punishment for contempt in accordance with the provisions
of the Rules of Court.
Data on individualS AND firms, other than banks, gathered by the
Department of Economic Research and other departments or units of the
Bangko Sentral shall not be made available to any person or entity outside of
the Bangko Sentral whether public or private except under order of the court
or under such conditions as may be prescribed by the Monetary Board:
Provided, however, That the collective data on firms may be released to
interested persons or entities: Provided, finally, That in the case of data on
banks, the provisions of Section 27 of this Act shall apply.
The Bangko Sentral now has the power to REQUIRE (not just request) so
mandatory. The difference is that if you request, it can be denied. If require,
you have to comply.
Before, it is just the government offices and instrumentalities. NOW, it is from
any person or entity including government offices, instrumentalities, GOCC’s.
Provided, the data gathered is subject to the existing confidentiality laws.
The banks are required to publish information regarding the banking industry.
But they cannot publish data which are disaggregated. (Ex. BDO is like this, BPI
is like that) what information can they publish is only those of the banking
industry as a whole.
Section 24. Training of Technical Personnel. - The Bangko Sentral shall
promote and sponsor the training of technical personnel in the field of
money and banking. Toward this end, the Bangko Sentral is hereby
authorized to defray the costs of study, at home or abroad, of qualified
employees of the Bangko Sentral, of promising university graduates or of
any other qualified persons who shall be determined by proper
competitive examinations. The Monetary Board shall prescribe rules and
regulations to govern the training program of the Bangko Sentral.
Section 25. Supervision and Examination. - The Bangko Sentral shall have
supervision over, and conduct periodic REGULAR or special examinations
of, banking institutions and quasi-banks, including their subsidiaries and
affiliates engaged in allied activities.
For purposes of this section, a subsidiary means a corporation more
than fifty percent (50%) of the voting stock of which is DIRECTLY OR
INDIRECTLY owned, CONTROLLED OR HELD WITH POWER TO VOTE by a
bank or quasi-bank and an affiliate means a corporation the voting stock
of which, to the extent of fifty percent (50%) or less, is owned by a bank or
quasi-bank or which is related or linked DIRECTLY OR INDIRECTLY to such
institution or intermediary through common stockholders or such other
factors as may be determined by the Monetary Board.
THE BANGKO SENTRAL SHALL HAVE REGULATORY AUTHORITY OVER,
AND CONDUCT REGULAR OR SPECIAL EXAMINATIONS OF, ENTITIES
WHICH UNDER THIS ACT OR BY SPECIAL LAWS ARE SUBJECT TO ITS
JURISDICTION.
THE BANGKO SENTRAL SHALL ALSO HAVE THE POWER TO OBTAIN
INFORMATION FROM THE PARENT OR OTHER AFFILIATE COMPANIES OF
SUPERVISED INSTITUTIONS AND EXAMINE TRANSACTIONS BETWEEN A
SUPERVISED INSTITUTION AND SAID ENTITIES, FOR SUPERVISORY
PURPOSES.
34
 A PARENT COMPANY MEANS A CORPORATION WHICH OWNS OR HOLDS
WITH POWER TO VOTE DIRECTLY OR INDIRECTLY THE VOITNG STOCK OF
A SUPERVISED INSTITUTION OF THE BANGKO SENTRAL SUFFICIENT TO
CONROL ITS MANAGEMENT AND OPERATIONS, SUBJECT TO THE
GUIDELINES ISSUED BY THE MONETARY BOARD.
AS USED IN THGIS SECTION AND SECTION 25-A, AND SUBJET TO THE
GUIDELINES ISSUED BY THE MONETARY BOARD, CONTROL EXISTS WHEN
THE PARENT COMPANY OWNS DIRECTLY OR INDIRECTLY MORE THAN
ONE HALF OF THE VOTING STOCK OF A SUPERVISED INSTITUTION.
CONTROL ALSO EXISTS EVEN WHEN THE PARENT COMPANY OWNS ONE
HALF OR LESS OF THE VOTING STOCK OF THE SUPERVISED INSTITUTION
WHEN: (1) THERE IS POWER OVER MORE THAN ONE HALF OF THE VOTING
RIGHTS BY PROXY OR BY VIRTUE OF AN AGREEMENT WITH OTHER
INVESTORS WHICH THEREBY ENABLES THE PARENT COMPANY TO CAST
THE MAJORITY OF VOTES AT MEETINGS OF THE STOCKHOLDERS OF THE
SUPERVISED INSTITUTION OR TO ELECT THE MAJORITY OF MEMBERS OF
THE BOARD OF DIRECTORS OF THE SUPERVISED INSTITUTION, OR (2)
THERE IS POWER TO DTERMINE THE FINANCIAL AND OPERATING
POLICIES OF THE SUPERVISED INSTITUTION, OR OTHER SIMILAR
ARRANGEMENTS.
The department heads and the examiners of the supervising and/or
examining departments are hereby authorized to administer oaths to any
director, officer, or employee of any institution under their respective
supervision or subject to their examination, and to compel the
presentation of all books, documents, papers or records necessary in their
judgment to ascertain the facts relative to the true condition of any
institution as well as the books and records of persons and entities relative
to or in connection with the operations, activities or transactions of the
institution under examination, AND TO INQUIRE INTO BANK DEPOSITSS
AND INVESTMENT ACCOUNTS IN THE COURS OF AN EXAMINATION IN
ORDER TO ASCERTAIN COMPLIANCE WITH THE LAWS AND BANKING
REGULATIONS, OR IN CASES WHERE THERE IS REASONABLE GROUND TO
BELIEVE THAT A FRAUD, IRREGULARITY OR UNLAWFUL ACTIVITY HAS
BEEN OR IS BEING COMMITTED AND THAT IT IS NECESSARY TO LOOK
INTO THE DEPOSIT OR INVESTMENT TO ESTABLISH SUCH FRAUD,
IREEGULARITY OR UNLAWFUL ACTIVITY. subject to the provision of
existing laws protecting or safeguarding the secrecy or confidentiality of
bank deposits as well as investments of private persons, natural or
juridical, in debt instruments issued by the Government.
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 is
convincing proof that the action of the Bangko Sentral is plainly arbitrary
and made in bad faith and the petitioner or plaintiff files with the clerk or
judge of the court in which the action is pending a bond executed in favor
of the Bangko Sentral, in an amount to be fixed by the court. The provisions
of Rule 58 of the New Rules of Court insofar as they are applicable and not
inconsistent with the provisions of this section shall govern the issuance
and dissolution of the restraining order or injunction contemplated in this
section.
They now changed the periodic examination to REGULAR examination.
They also added a subsidiary— means a corporation with 50% of the voting
stock of which is directly or indirectly owned or controlled or held with power.
It doesn’t automatically mean that you have the power to vote if you are a
stockholder because stocks may be classified into different types.
It could be that you are a holder of stocks that don’t have the power to vote.
It also added a new provision which is SEC. 25-A. Authority to Approve
Transfer of Shares.
Section 25-A. Authority to approve transfer of shares. – Transfers or
acquisitions, or a series thereof, or at least ten percent (10%) of the voting
shares in banks or quasi-banks shall require the prior approval of the Bangko
Sentral. The selling or conveying stockholder shall submit such transfer or
acquisition for approval by the Bangko Sentral within such period as may be
prescribed by the Monetary Board. In approving such transfers or acquisitions,
regard shall be given by the Bangko Sentral to the fitness of the incoming
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
stockholders as may be indicated in their integrity, reputation and financial
capacity. Without Bangko Sentral approval, no such transfer or acquisition
shall have legal effect nor shall the same be recognized in the books of the
institution or by any government agency, and the transferor-stockholders shall
remain accountable and responsible therefor. Transfer of actual control or
management of the institution to the new stockholders or their
representatives prior to the Bangko Sentral approval shall make the transferor,
the transferee and any person responsible therefor liable under Sections 36
and 37 of this Act. Notwithstanding any provision of the law to the contrary,
the Bangko Sentral may share with the Philippine Deposit Insurance
Corporation any information that the Bangko Sentral may obtain pertaining to
transfer or acquisition of shares or series of transfers or acquisition of shares
in banks and quasi-banks.
Transfers or acquisitions, or a series thereof, of at least ten percent (10%) of
the voting shares in banks or quasi-banks shall require the prior approval of
the Bangko Sentral.
Example— If Metrobank, BPI, and Allied Bank transfer at least 10% of the
voting share it now requires the approval of the Central Bank. Again, this is a
specific addition to the New Central Bank Act.
If there’s an existing stockholder, let’s say “A” is an owner of a bank. He owns
20% of voting shares. He will sell it to “B”. Now, BSP will be the one to approve.
BSP would look into the fitness of “B” who is an incoming stockholder. Based
on:
• Integrity
• Reputation
• Financial Capacity
Therefore, it can’t be poor.
If there is no approval by the BSP, no transfer shall have legal effect nor shall
the same be recognized in the books of the institutions or by any government
agency, and the transferor-stockholders shall remain accountable and
responsible therefore.
Why is it, that it “shall not be recognized in the books of the institution”?
because if you transfer share, you need to register that with the corporate
secretary. Who has the custody of the corporate books. If there’s no approval
from the BSP, the corporate secretary will not change the names of the holder
of that stock.
Why is it placed there, “any government agency”?
There are government owned banks. That’s still included.
Why is it, “and the transferor-stockholders shall remain accountable and
responsible therefore.”?
It means that if there is no approval, it is as if there is no transfer. The
transferor is of the moment, still the owner of the stocks.
TRANSFER OF ACTUAL CONTROL OR MANAGEMENT OF THE INSTITUTION TO
THE NEW STOCKHOLDERS OR THEIR REPRESENTATIVES PRIOR TO BANGKO
SENTRAL APPROVAL SHALL MAKE THE TRANSFEROR, THE TRANSFEREE
This presupposes a scenario wherein there is no BSP approval. By the books,
transferor is still the owner but the in control is already the transferee.
Transfer of actual control without BSP approval would make the transferor,
transferee, and their representatives liable under Sections 36 and 37 of this
Act.
Section 26. Bank Deposits and Investments. - Any director, officer or
stockholder who, together with his related interest, contracts a loan or any
form of financial accommodation from: (1) his bank; or (2) from a bank (a)
which is a subsidiary of a bank holding company of which both his bank and
the lending bank are subsidiaries or (b) in which a controlling proportion of the
shares is owned by the same interest that owns a controlling proportion of the
shares of his bank, in excess of five percent (5%) of the capital and surplus of
the bank, or in the maximum amount permitted by law, whichever is lower,
shall be required by the lending bank to waive the secrecy of his deposits of
35
 whatever nature in all banks in the Philippines. Any information obtained from
an examination of his deposits shall be held strictly confidential and may be
used by the examiners only in connection with their supervisory and
examination responsibility or by the Bangko Sentral in an appropriate legal
action it has initiated involving the deposit account.
Section 27. Prohibitions. - In addition to the prohibitions found in Republic Act
Nos. 3019 and 6713, personnel of the Bangko Sentral are hereby prohibited
from:
(a) being an officer, director, lawyer or agent, employee, consultant or
stockholder, directly or indirectly, of any institution subject to supervision or
examination by the Bangko Sentral, except non-stock savings and loan
associations and provident funds organized exclusively for employees of the
Bangko Sentral, and except as otherwise provided in this Act;
(b) directly or indirectly requesting or receiving any gift, present or pecuniary
or material benefit for himself or another, from any institution subject to
supervision or examination by the Bangko Sentral;
(c) revealing in any manner, except under orders of the court, the Congress or
any government office or agency authorized by law, or under such conditions
as may be prescribed by the Monetary Board, information relating to the
condition or business of any institution. This prohibition shall not be held to
apply to the giving of information to the Monetary Board or the Governor of
the Bangko Sentral, or to any person authorized by either of them, in writing,
to receive such information; and
(d) borrowing from any institution subject to supervision or examination by
the Bangko Sentral shall be prohibited unless said borrowing IS TRANSACTED
ON AN ARM’S LENGTH BASIS are adequately secured, fully disclosed to the
Monetary Board, and shall be subject to such further rules and regulations as
the Monetary Board may prescribe: Provided, however, That personnel of the
supervising and examining departments are prohibited from borrowing from
a bank under their supervision or examination.
Before there is an absolute prohibition to borrow from the bank that you are
examining or supervising. But there is relative prohibition with regard a bank
under the BSP. It has to be fully secured.
Now, in the amendment, what is prohibited is borrowing from any institution
under the BSP’s supervision or examination. UNLESS— the borrowing is
transacted in an ARMS LENGTH basis, fully disclosed to the Monetary Board,
and shall be subject to such further rules and regulations as the Monetary
Board may prescribe.
Here, there is no relative prohibition. It is okay to borrow from the banks that
the BSP is examining as long as it is ARMS LENGTH and FULLY DISCLOSED.
TRANSFER PRICING VIS A VIS ARMS LENGTH
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Example— Z owns Y and X companies. In order to avoid tax, X enters into a
management contract or any transfer with Y to try and dilute the profits and
avoid tax.
Transfer pricing states that when you have any contract between related
parties, it has to be at arms-length pricing.
This is because most of the time what companies do, they sell between related
parties not in arms-length to avoid tax.
Basically, ARMS LENGTH theory suggests that if we are not related parties,
would I be priced the same way? If we are not sister companies, would you
still sell me this marker at 10 pesos each? Or is because we are sister
companies that I can buy this from you at 10 pesos?
You take out the related interests between parties and see if the pricing is
still the same. Because if it is, then you pass the transfer pricing regulation.
Now, our current regulation does not require that if you have this private
contract you submit it with the BIR for approval. It’s just that in the event that
the BIR audits you, you have to have a basis for your pricing. You have to show
documents proving that the prices are at ARMS LENGTH.
Generally, it’s okay if the transaction involves goods that has a market. You are
selling goods. If you’re the manufacturer then you’ll also distribute. Because
that has a market value so you have already have a basis. That is what you call
BENCHMARKING.
But what if customized?
You’re the one building for your products. That’s the hard part. It’s hard to
convince the authorities.
There are sophisticated models that refer to the pricing, but anyway that is far
from our topic.
So if the bargain is arms-length, meaning if I won’t examine this bank , would
I get the same terms and conditions that I am getting now. That’s arms-length.
Are you giving me this low interest because I am examining you?
Original Provision
SECTION 28. Examination and Fees. — The supervising and examining
department head, personally or by deputy, shall examine the books of every
banking institution once in every twelve (12) months, and at such other times
as the Monetary Board by an affirmative vote of five (5) members, may deem
expedient and to make a report on the same to the Monetary Board: Provided,
That there shall be an interval of at least twelve (12) months between annual
examinations.
36
 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 assets and general condition at any time
during banking hours when requested to do so by the Bangko Sentral:
Provided, however, That none of the reports and other papers relative to such
examinations shall be open to inspection by the public except insofar as such
publicity is incidental to the proceedings hereinafter authorized or is necessary
for the prosecution of violations in connection with the business of such
institutions.
Banking and quasi-banking institutions which are subject to examination by
the Bangko Sentral shall pay to the Bangko Sentral, within the first thirty (30)
days of each year, an annual fee in an amount 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 amounts due from banks, including the Bangko Sentral and
banks abroad.
Proposed Amendment
SEC. 28. Examination and Fees. — The supervising and examining department
head, personally or by deputy, shall examine the [books] OPERATIONS of every
bank[ing] AND QUASIBANK, INCLUDING THEIR SUBSIDIARIES AND AFFILIATES
ENGAGED IN ALLIED ACTIVITIES, AND OTHER ENTITIES WHICH UNDER THIS
ACT OR SPECIAL LAWS ARE SUBJECT TO BANGKO SENTRAL SUPERVISION, IN
ACCORDANCE WITH THE GUIDELINES SET BY THE MONETARY BOARD TAKING
INTO CONSIDERATION SOUND AND PRUDENT PRACTICES, [once in every-
twelve (12) months, and at such other times as the Monetary Board by an
affirmative vote of five (5) members, may deem expedient and to make a
report on the same to the Monetary Board;] Provided, That there shall be an
interval of at least twelve (12) months between [annual] REGULAR
examinations; PROVIDED, FURTHER, THAT THE MONETARY BOARD, BY AN
AFFIRMATIVE VOTE OF AT LEAST FIVE (5) MEMBERS, MAY AUTHORIZE A
SPECIAL EXAMINATION IF THE CIRCUMSTANCES WARRANT.
The INSTITUTION [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 AND RECORDS, cash and [available] assets
and general condition AND REVIEW ITS SYSTEMS AND PROCEDURES at any
time during BUSINESS [banking] hours when requested to do so by the Bangko
Sentral. Provided, however, That none of the reports and other papers relative
to such examinations shall be open to inspection by the public except insofar
as such publicity is incidental to the proceedings hereinafter authorized or is
necessary for the prosecution of violations in connection with the business of
such institutions.
[Banking and qusi-banking institutions which are subject to examination by
the Banko Sentral] SUPERVISED INSTITUTIONS shall pay to the Bangko Sentral,
NO LATER THAN MAY 31 OF EACH YEAR [within the first thirty (30) days of each
year], an annual SUPERVISION fee [in an amount 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 amounts due from banks, including the Bangko
Sentral and banks abroad.] IN DETERMINING THE AMOUNT OF THE ANNUAL
SUPERVISION FEE, THE MONETARY BOARD SHALL CONSIDER THE COSTS OF
SUPERVISION.”
So, still the same you have at least an affirmative vote of 5 members for you
to conduct special examination.
What it did there it just rephrased it.
“The INSTITUTION [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 AND RECORDS, cash and
[available] assets and general condition AND REVIEW ITS SYSTEMS AND
PROCEDURES” – now this gives broader powers to the BSP because that’s not
only the general condition, financial statements, or assets it will monitor, also
its system and procedures.
In other words, the BSP now has the right to look into the system…how it
approve approves the loan, what is your basis, etc.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
This amendment makes it more difficult for the banking industry…..well not
really difficult. It just makes their operations more regulated… and for a
reason.
Did you know that when you deposit in dollars you have to pay a certain fee?
Now, if you deposit to a dollar account you will be the one to pay. Well, this is
actually a monetary policy. You are trying to combat inflation…the forex, we
will go to that later.
What you call those under the coverage of BSP ay supervised institutions.
These includes banks, quasi-banks, subsidiaries, and affiliates engaged in allied
activities…shall pay to the Banko Sentral a supervision fee. In determining the
amount of the annual supervision fee, the Monetary Board shall consider the
cost of supervision.
Before, what’s the basis? – it’s the percentage of its average total assets during
the preceding year.
Now what if the salary of the person examining is bigger than the total assets
of the bank, they’re at the shorter end. Now, they consider the costs of
supervision.
Now, additional provisions—
Section. 28-A. BANGKO SENTRAL COORDINATION. - THE SUSPENSION OR
REVOCATION OF ANY GOVERNMENT LICENSE NECESSARY FOR THE
OPERATION OF A BANGKO SENTRAL SUPERVISED ENTITY MUST BE DONE ONLY
WITH PRIOR ENTITY MUST BE DONE ONLY WITH PRIOR CONSULTATION WITH
THE BANKGKO SENTRAL.”
Therefore in the event that there is violation under the corporation code, (so
who has the authority? – the SEC) to revoke, the SEC should consult first the
BSP.
Not only that, what other licenses? Business permit (the bank is in Davao, so
there is a business permit in Davao). Before it is revoked by the Mayor it
requires prior consultation. NOT approval, just consultation.
There’s no changes in conservatorship—
SECTION 29. Appointment of Conservator. — Whenever, on the basis of a
report submitted by the appropriate supervising or examining department,
the Monetary Board finds that a bank or a quasi-bank is in a state of continuing
inability or unwillingness to maintain a condition of liquidity deemed adequate
to protect the interest of depositors and creditors, the Monetary Board may
appoint a conservator with such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities, and the management
thereof, reorganize the management, collect all monies and debts due said
institution, and exercise all powers necessary to restore its viability. The
conservator shall report and be responsible to the Monetary Board and shall
have the power to overrule or revoke the actions of the previous management
and board of directors of the bank or quasi-bank
The conservator should be competent and knowledgeable in bank operations
and management.
The conservatorship shall not exceed one (1) year.
The conservator shall receive remuneration to be fixed by the Monetary Board
in an amount not to exceed two-thirds (2/3) of the salary of the president of
the institution in one (1) year, payable in twelve (12) equal monthly payments:
Provided, That, if at any time within one-year period, the conservatorship is
terminated on the ground that the institution can operate on its own, the
conservator shall receive the balance of the remuneration which he would
have received up to the end of the year; but if the conservatorship is
terminated on other grounds, the conservator shall not be entitled to such
remaining balance. The Monetary Board may appoint a conservator connected
with the Bangko Sentral, in which case he shall not be entitled to receive any
remuneration or emolument from the Bangko Sentral during the
conservatorship. The expenses attendant to the conservatorship shall be
borne by the bank or quasi-bank concerned.
37
 The Monetary Board shall terminate the conservatorship when it is satisfied
that the institution can continue to operate on its own and the
conservatorship is no longer necessary. The conservatorship shall likewise be
terminated should the Monetary Board, on the basis of the report of the
conservator or of its own findings, determine that the continuance in business
of the institution would involve probable loss to its depositors or creditors, in
which case the provisions of Section 30 shall apply.
This one has a change. Proceedings in Receivership and Liquidation—
It added actually another ground for it to be subject to receivership.
Original Provision
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever,
upon report of the head 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, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking community;
(b) by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution;
In 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 Insurance Corporation as receiver of the
banking institution.
For a quasi-bank, any person of recognized competence in banking or finance
may be designed as receiver.
The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors,
and exercise the general powers of a receiver under the Revised Rules of Court
but shall not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of the
institution: Provided, That the receiver may deposit or place the funds of the
institution in nonspeculative investments. The receiver shall determine as
soon as possible, but not later than ninety (90) days from take over, whether
the institution may be rehabilitated or otherwise placed in such a condition so
that it may be permitted to resume business with safety to its depositors and
creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of
the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors of
its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:
1. file ex parte with the proper regional trial court, and without requirement
of prior notice or any other action, a petition for assistance in the liquidation
of the institution pursuant to a liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by the Monetary
Board. Upon acquiring jurisdiction, the court shall, upon motion by the
receiver after due notice, adjudicate disputed claims against the institution,
assist the enforcement of individual liabilities of the stockholders, directors
and officers, and decide on other issues as may be material to implement the
liquidation plan adopted. The receiver shall pay the cost of the proceedings
from the assets of the institution.
2. convert the assets of the institutions to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of the
institution, and with the assistance of counsel as he may retain, institute such
actions as may be 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 hands of
the receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy,
attachment, or execution.
The actions of the Monetary Board taken under this section or under Section
29 of this Act shall be final and executory, and may not be restrained or set
aside by the court except on petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The petition for certiorari may
only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the
appointment of a receiver under 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.
Proposed Amendment
Section 30. Proceedings in Receivership and Liquidation -Whenever, upon
report of the head of the supervising or examining department, the Monetary
Board finds that a bank or quasi-bank:
(a) HAS NOTIFIED THE BANGKO SENTRAL OR PUBLICLY ANNOUNCED A
UNILATERAL CLOSURE, OR HAS BEEN DORMANT FOR AT LEAST SIXTY (60) DAYS
OR IN ANY MANNER HAS SUSPENDED THE PAYMENT OF ITS DEPOSIT/DEPOSIT
SUBSTITUTE LIABILITIES, OR is unable to pay its liabilities as they become due
in the ordinary course of business: Provided, That this shall not include inability
to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral to
meet its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution;
In which cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and IN THE
CASE OF BANKS, designate the Philippine Deposit Insurance Corporation
(PDIC) as receiver [of the banking institution] AND DIRECT THE PDIC TO
PROCEED WITH THE LIQUIDATION OF THE CLOSED BANK PURSUANT TO THIS
SECTION AND THE RELEVANT PROVISIONS OF REPUBLIC ACT NO. 3591, AS
AMENDED. THE MONETARY BOARD SHALL NOTIFY IN WRITING THE BOARD OF
DIRECTORS OF THE CLOSED BANK OF ITS DECISION.
[For a quasi-bank, any person of recognized competence in banking or finance
may be designed as receiver.]
[The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors,
and exercise the general powers of a receiver under the Revised Rules of Court
but shall not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of the
institution: Provided, That the receiver may deposit or place the funds of the
institution in non-speculative investments. The receiver shall determine as
soon as possible, but not later than ninety (90) days from take over, whether
the institution may be rehabilitated or otherwise placed in such a condition so
that it may be permitted to resume business with safety to its depositors and
creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of
the Monetary Board.]
38

[If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors of
its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:]
[1. file ex parte with the proper regional trial court, and without requirement
of prior notice or any other action, a petition for assistance in the liquidation
of the institution pursuant to a liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted
by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon
motion by the receiver after due notice, adjudicate disputed claims against the
institution, assist the enforcement of individual liabilities of the stockholders,
directors and officers, and decide on other issues as may be material to
implement the liquidation plan adopted. The receiver shall
pay the cost of the proceedings from the assets of the institution.]
[2. convert the assets of the institutions to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in
the name of the institution, and with the assistance of counsel as he may
retain, institute such actions as may be 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 hands of the receiver and shall, from the moment the
institution was placed under such receivership or liquidation, be exempt from
any order of garnishment, levy, attachment, or execution.]
The actions of the Monetary Board taken under this section or under Section
29 of this Act shall be final and executory, and may not be restrained or set
aside by the court except on petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The petition for certiorari may
only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or
conservatorship. The designation of a conservator under Section 29 of this Act
or the appointment of a receiver under 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.
THE AUTHORITY OF THF MONETARY BOARD TO SUMMARILY AND WITHOUT
NEED FOR PRIOR HEARING FORBID THE BANK OR QUASI-BANK FROM DOING
BUSINESS IN THE PHILIPPINES AS PROVIDED ABOVE MAY ALSO BE EXERCISED
OVER NON-STOCK SAVINGS AND LOAN ASSOCIATIONS, BASED ON THE SAME
APPLICABLE GROUNDS. FOR QUASI-BANKS AND NON-STOCK SAVINGS AND
LOAN ASSOCIATIONS, ANY PERSON OF RECOGNIZED COMPETENCE IN
BANKING, CREDIT OR FINANCE MAY BE DESIGNATED BY THE BANGKO
SENTRAL AS A RECEIVER.
(a) HAS NOTIFIED THE BANGKO SENTRAL OR PUBLICLY ANNOUNCED A
UNILATERAL CLOSURE, OR HAS BEEN DORMANT FOR AT LEAST SIXTY (60) DAYS
OR IN ANY MANNER HAS SUSPENDED THE PAYMENT OF ITS DEPOSIT/DEPOSIT
SUBSTITUTE LIABILITIES, OR
BEFORE, it’s just this – “is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not include inability to
pay caused by extraordinary demands induced by financial panic in the
banking community;”
NOW, they placed “voluntary.
This is letter A; the changes is as if the bank admitted that they close; notified
the BSP that they will close, or the bank has BEEN DORMANT FOR AT LEAST
SIXTY (60) DAYS OR IN ANY MANNER HAS SUSPENDED THE PAYMENT OF ITS
DEPOSIT/DEPOSIT SUBSTITUTE LIABILITIES; thus they can be subject to
receivership.
That is the additional ground. So you gave up, just go under receiver.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Please take note— the Monetary Board may summarily and without need for
prior hearing forbid the institution from doing business in the Philippines and
IN THE CASE OF BANKS, designate the Philippine Deposit Insurance
Corporation (PDIC) as receiver [of the banking institution] AND DIRECT THE
PDIC TO PROCEED WITH THE LIQUIDATION OF THE CLOSED BANK PURSUANT
TO THIS SECTION AND THE RELEVANT PROVISIONS OF REPUBLIC ACT NO.
3591, AS AMENDED. THE MONETARY BOARD SHALL NOTIFY IN WRITING THE
BOARD OF DIRECTORS OF THE CLOSED BANK OF ITS DECISION.
Now this process was deleted.
[For a quasi-bank, any person of recognized competence in banking or finance
may be designed as receiver.]
[The receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors,
and exercise the general powers of a receiver under the Revised Rules of Court
but shall not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of the
institution: Provided, That the receiver may deposit or place the funds of the
institution in non-speculative investments. The receiver shall determine as
soon as possible, but not later than ninety (90) days from take over, whether
the institution may be rehabilitated or otherwise placed in such a condition so
that it may be permitted to resume business with safety to its depositors and
creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of
the Monetary Board.]
[If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors of
its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:]
[1. file ex parte with the proper regional trial court, and without requirement
of prior notice or any other action, a petition for assistance in the liquidation
of the institution pursuant to a liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by the Monetary
Board. Upon acquiring jurisdiction, the court shall, upon motion by the
receiver after due notice, adjudicate disputed claims against the institution,
assist the enforcement of individual liabilities of the stockholders, directors
and officers, and decide on other issues as may be material to implement the
liquidation plan adopted. The receiver shall pay the cost of the proceedings
from the assets of the institution.]
[2. convert the assets of the institutions to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of the
institution, and with the assistance of counsel as he may retain, institute such
actions as may be 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 hands of
the receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy,
attachment, or execution.]
This one is the additional—
THE AUTHORITY OF THF MONETARY BOARD TO SUMMARILY AND WITHOUT
NEED FOR PRIOR HEARING FORBID THE BANK OR QUASI-BANK FROM DOING
BUSINESS IN THE PHILIPPINES AS PROVIDED ABOVE MAY ALSO BE EXERCISED
OVER NON-STOCK SAVINGS AND LOAN ASSOCIATIONS, BASED ON THE SAME
APPLICABLE GROUNDS. FOR QUASI-BANKS AND NON-STOCK SAVINGS AND
LOAN ASSOCIATIONS, ANY PERSON OF RECOGNIZED COMPETENCE IN
BANKING, CREDIT OR FINANCE MAY BE DESIGNATED BY THE BANGKO
SENTRAL AS A RECEIVER.
The right for them to close banks and quasi-banks is applicable to non-stock,
savings and loan associations. So it actually added the coverage for the
summarily closing of an institution.
39
 …and for a reason, there are a lot of non-stock, savings and loan associations The court said, for you to apply this exclusionary clause you have to be in the
that mismanages, sometimes it becomes part of the salary ng employees. first place a solvent bank; It’s just that you cannot claim because there is a
Nami-mismanage. bank run – there is an extraordinary demand in the banking community.

For banks the receiver is PDIC— Therefore if there’s no extraordinary demand in the banking community you
are an otherwise non-insolvent bank, so you are a solvent bank

For quasi-banks and the new ones (non-stock, savings and loan associations) -
ANY PERSON OF RECOGNIZED COMPETENCE IN BANKING, CREDIT OR FINANCE
MAY BE DESIGNATED BY THE BANGKO SENTRAL AS A RECEIVER.
Central Bank v. CA
In this case, the bank cannot apply the clause because it is literally insolvent.
For you to apply the exception you have to be a solvent bank.
The court said, because of your unsafe and unsound banking practices you are
insolvent whether or not there is an extraordinary demand.

In this particular case they tried to question the resolution. They say, it’s plainly
arbitrary and in bad faith because there’s no prior notice and hearing. The
court said, the prior notice and hearing is not a requirement and is not stated
in the law. It is for a reason, because this close now, hear later scheme is
grounded on practical considerations to prevent further dissipation of the
bank assets; which is a valid exercise of police power to protect the depositors,
creditors, stockholders and the general public.
You have the differences between a receivership and a conservatorship.
Now why did the court say that you are an insolvent?
It’s because you have unsound banking practices (DOSRI loans)
That is why the DOSRI financial accommodations and loans, these are very
important because sometimes because of these loans that’s why there is
insolvency because sometimes the financial accommodations, it’s too
beneficial for directors, stockholders, officers

Can you go directly to receivership without going through? conservatorship?

- A receiver is appointed based on the grounds under Section 30.
- A conservator is appointed when a bank or a quasi-bank is in a state of
continuing inability or unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors and creditors.

Please take note— a conservator has 1 year to restore the bank or quasi-bank
to its viability or the receiver must determine as soon as possible but not later
than 90 days from takeover to proceed with the rehabilitation of the
bank/institution.

CASE: Rural Bank of San Miguel v. Monetary Board

The conservator submits a report evaluating the bank and placing it for
receivership. The bank is contending, the report is not the basis. Its saying,
Section 25 says the BSP has the power to examine; that therefore the report
that is found in Section 25-A, should be made as a result of the examination.
Its saying there’s that difference between just reporting and examining.
Because examining requires investigation.

In Section 30; … Whenever, upon report…it doesn’t say upon examination or

upon investigation. The court said, the report not the examination.

The petitioner’s contention— should this be under the power of the BSP in its
examination, regulatory powers over banks. Shouldn’t the report that will be
submitted should be related to the right to examine, so therefore the report
must be the product of examination which requires in-depth investigation; you
closed us but you just submitted a report, it didn’t investigate thoroughly.

The Supreme Court here ruled that you would be guilty of judicial usurpation
if you would construe the report as an examination.

Why did it say, report, and not whenever on the basis of an examination
submitted by the….what do you think is the reason?

To expedite the process. Based again on the ground that if you delay this, the
owners of the bank will have the opportunity to dissipate the assets subject to
receivership.

General Bank and Trust Co. v. Central Bank

Overdrafts – you exceeded your account, that is what you call overdrafts,
occurs when money is withdrawn from a bank account and the
available balance goes below zero.

In this case the court said, this exclusionary provision/clause will only apply if
you are an otherwise non-insolvent bank. What is the meaning of an otherwise
non insolvent bank?

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 40


December 12, 2018
So the franchise to operate as a bank may be awarded, may be sold to a
different institution.
This pertains to the secondary franchise.
We all know that the primary franchise is given to?
A: The persons composing the corporation.
The secondary franchise belongs to the Corporation and can be taken away.
Section 34. Refusal to Make Reports or Permit Examination. — Any officer,
owner, agent, manager, director or officer-in-charge of any institution subject
to the supervision or examination by the Bangko Sentral within the purview of
this Act who, being required in writing by the Monetary Board or by the head
of the supervising and examining department willfully refuses to file the
required report or permit any lawful examination into the affairs of such
institution shall be punished by a fine of not less than Fifty thousand pesos
(P50,000) nor more than One hundred thousand pesos (P100,000) or by
imprisonment of not less than one (1) year nor more than five (5) years, or
both, in the discretion of the court.
Before the penalty is just P 100, 000 but the amendment proposed is now 2
million.
Proposed Amendment
Section 34. Refusal to Make Reports or Permit Examination. — Any officer,
owner, agent, manager, director or officer-in-charge of any institution subject
to the supervision or examination by the Bangko Sentral within the purview of
this Act who, being required in writing by the Monetary Board or by the head
of the supervising and examining department WITHIN THE PURIEW OF THIS
ACT AND RELEVANT LAWS willfully refuses to file the required report or
permit any lawful examination into the affairs of such institution shall be
punished by a fine of not less than Fifty thousand pesos (P50,000) nor more
than One hundred thousand pesos (P100,000) 2 MILLION or by imprisonment
of not less than one (1) year nor more than five (5) years, or both, in at the
discretion of the court.
So the amendments actually gave more teeth to the provisions of the New
Central Bank Act.
Please take note of the additions—
“THIS SHALL ALSO APPLY TO THE OFFICER, OWNER, AGENT,
MANAGER,DIRECTOR OR OFFICER-IN CHARGE OF THE AFFILLIATE
COMPANY/IES AND PARENT COMPANY OF A BANK OR QUASI-BANK, AS
WELL AS THE AFFILIATES OF SUCH PARENT COMPANY, WHOSE
TRANSACTIONS ARE SUBJECT TOO THE EXAMINATION UNDER THIS LAW.”
So this contemplates a situation wherein there’s a bank under examination
then there are transactions between that bank and the affiliate of that bank.
So the officer, agent, manager xxx of that bank even though it is not engaged
in any banking activities may be penalized if there is refusal to file or permit
any lawful examination.
Please take note of the addition—
Section 35. False Statement. — The willful making of a false or misleading
statement on a material fact to the Monetary Board or to the examiners of the
Bangko Sentral shall be punished by a fine of not less than One hundred
thousand pesos (P100,000) nor more than Two hundred thousand pesos
(P200,000), or by imprisonment of not more than (5) years, or both, at the
discretion of the court.
Section 35. False Statement. — The willful making of a false or misleading
statement on a material fact to the Monetary Board or to the examiners of the
Bangko Sentral shall be punished by a fine of not less than One hundred
thousand pesos (P100,000) nor more than Two hundred thousand pesos
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
(P200,000), 2 MILLION (P 2,000,000) or by imprisonment of not more than (5)
years, or both, at the discretion of the court.
Section 36. Proceedings Upon Violation of This Act and Other Banking Laws,
Rules, Regulations, Orders or Instructions. — Whenever a bank or quasi-bank,
or whenever any person or entity willfully violates this Act or other pertinent
banking laws being enforced or implemented by the Bangko Sentral or any
order, instruction, rule or regulation issued by the Monetary Board, the person
or persons responsible for such violation shall unless otherwise provided in
this Act be punished by a fine of not less than Fifty thousand pesos (P50,000)
nor more than Two hundred thousand pesos (P200,000) or by imprisonment
of not less than two (2) years nor more than ten (10) years, or both, at the
discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its business in an
unlawful or unsafe manner, the Board may, without prejudice to the penalties
provided in the preceding paragraph of this section and the administrative
sanctions provided in Section 37 of this Act, take action under Section 30 of
this Act.
Please take note of this Section 36 last paragraph—
Whenever a bank or quasi-bank persists in carrying on its business in an
unlawful or unsafe manner, the Board may, without prejudice to the penalties
provided in the preceding paragraph of this section and the administrative
sanctions provided in Section 37 of this Act, take action under Section 30 of
this Act.
The board may take action under Section 30—
Section 30. Proceedings in Receivership and Liquidation. — Whenever, upon
report of the head 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, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to
meet its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in 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
Insurance Corporation as receiver of the banking institution.
xxx
So if the bank or quasi-bank is engaged or persistently engaged in or carries
the business in unlawful or unsafe manner, they can put it in receivership.
Section 36. Proceedings Upon Violation of This Act and Other Banking Laws,
Rules, Regulations, Orders or Instructions. — Whenever a bank or quasi-bank,
INCLUDING THEIR SUBSIDIARIES OR AFFILIATES OR OTHER ENTITY WHICH
UNDER THIS ACT OR SPECIAL LAWS IS SUBJECT TO BANKO CENTRAL
SUPERVISION or whenever any person or entity willfully violates this Act or
other pertinent banking laws being enforced or implemented by the Bangko
Sentral or any order, instruction, rule or regulation issued by the Monetary
Board, the person or persons responsible for such violation shall unless
otherwise provided in this Act be punished by a fine of not less than Fifty
thousand pesos (P50,000) nor more than Two hundred thousand pesos
(P200,000) TWO MILLION PESOS (P 2,000,000) or by imprisonment of not less
than two (2) years nor more than ten (10) years, or both, at the discretion of
the court.
Whenever AN ENTITY UNDER BANK SENTRAL SUPERVISION a bank or quasi-
bank persists in carrying on its business in an unlawful or unsafe manner, the
Board may, without prejudice to the penalties provided in the preceding
41
 paragraph of this section and the administrative sanctions provided in Section
37 of this Act, take action under Section 30 of this Act.
So this a new addition: informer’s reward. This is similar to the informer’s
reward under the Tax Code.
So if you gave information except of course if, your information must be
definite information not yet in the possession of the BSP leading to:
(A & B below)
“THE BANKO SENTRAL MAY GRANT INFORMER’S REWARD TO ANY PERSON,
EXCEPT AN OFFFICER OR EMPLOYEE OF THE BANKO SENTRAL OR ANY
INTELLIGENCE OR LAW ENFORCEMENT AGENCY, INCLUDING THE RELATIVES
OF SUCH OFFICER OR EMPLOYEE WITHIN THE THIRD DEGREE OF
CONSANGUINITY OR AFFINITY, WHO VOLUNTARILY GIVE DEFINITE
INFORMATION NOT YET IN THE POSSESSION OF THE BANKO SENTRAL
LEADING TO THE:
ARREST OF A BANK DIRECTORS OR OFFICERS AND/OR BSP PERSONNEL FOR
VIOLATION OF THIS ACT OR ANY BANKING OR LAWS IMPLEMENTED OR
ENFORCED BY THE BANKO SENTRAL, OR FOR VIOLATION OF OTHER PENAL
LAWS COMMITTED IN CONNECTION WITH THEIR EMPLOYMENT OR
FUNCTIONS; OR
FILING OF CRIMINAL CHARGES AGAINST ANY PERSON FOR VIOLATION OF
SEC 50 OF THIS ACT
Section 50. Exclusive Issue Power. — The Bangko Sentral shall have the sole
power and authority to issue currency, within the territory of the Philippines.
No other person or entity, public or private, may put into circulation notes,
coins or any other object or document which, in the opinion of the Monetary
Board, might circulate as currency, nor reproduce or imitate the facsimiles of
Bangko Sentral notes without prior authority from the Bangko Sentral.
XXX
CONTINUATION OF THE AMENDMENT
“THE MONETARY BOARD IS HEREBY AUTHORIZED TO PROMULGATE THE
IMPLEMENTING GUIDELINES FOR THE GRANT OF THE INFORMER’S REWARD,
WHICH IN NO CASE SHALL EXCEED ONE MILLION PESOS (P 1,000,000.)
SAID GUIDELINES MAY PROVIDE FOR THE ADDITIONAL QUALIFICATIONS
AND DISQUALIFICATION OF INFORMANTS AS WELL AS THE FORM AND
MINIMUM CONTENT OF THE INFORMATION GIVEN.”
“THE CASH REWARD OF INFORMERS SHALL BE SUBJECT TO APPLICABLE
WITHHOLDING TAXES.”
Please take note of the reward— it’s 1MILLION pesos. But of course it is
subject to the applicable withholding tax.
Which is how many %?
A: 20%
UNSAFE BANKING PRACTICE
• The provision says, Whenever a bank or quasi-bank persists in carrying
on its business in an unlawful or unsafe manner, the Board may, without
prejudice to the penalties provided in the preceding paragraph of this
section and the administrative sanctions provided in Section 37 of this
Act, take action under Section 30 of this Act.
How do we know if it is unsafe/unlawful banking practice?
There is no exact definition under the New Central Bank Act but under RA
8791.
GENERAL BANKING LAW provides for what may be deemed conducting
business in an unsafe banking manner:
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Sec. 56. Conducting Business in an Unsafe or Unsound Manner - In
determining whether a particular act or omission, which is not otherwise
prohibited by any law, rule or regulation affecting banks, quasi-banks or trust
entities, may be deemed as conducting business in an unsafe or unsound
manner for purposes of this Section, the Monetary Board shall consider any of
the following circumstances:
56.1. The act or omission has resulted or may result in material loss or
damage, or abnormal risk or danger to the safety, stability, liquidity or
solvency of the institution; .
56.2. The act or omission has resulted or may result in material loss or damage
or abnormal risk to the institution's depositors, creditors, investors,
stockholders or to the Bangko Sentral or to the public in general;
56.3. The act or omission has caused any undue injury, or has given any
unwarranted benefits, advantage or preference to the bank or any party in the
discharge by the director or officer of his duties and responsibilities through
manifest partiality, evident bad faith or gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or transaction
manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity,
whether or not the director or officer profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business
in an unsafe or unsound manner, the Monetary Board may, without prejudice
to the administrative sanctions provided in Section 37 of the New Central Bank
Act, take action under Section 30 of the same Act and/or immediately exclude
the erring bank from clearing, the provisions of law to the contrary
notwithstanding.
So the unsafe banking practice is very broad. That is the reason why the New
Central Bank Act did not give a definite definition. So that it won’t be able to
box that particular practice.
Any act or omission which will result to this particular enumeration, that may
be considered as unsafe banking practice. So this is evidentiary.
The PDIC has concurrent power to determine whether a bank is engaged in
unsafe banking practice.
Please take note— that it’s not only the Monetary Board who can determine
practices that are unsafe and unsound.
The PDIC and its charter has the power to determine whether the bank is
engaged in an unsafe or unsound practice.
The next provisions are actually very boring but we have to tackle them.
Section 37. Administrative Sanctions on Banks and Quasi-banks. —
Without prejudice to the criminal sanctions against the culpable persons
provided in Sections 34, 35, and 36 of this Act, the Monetary Board may, at its
discretion, impose upon any bank or quasi-bank, their directors and/or
officers, for any willful violation of its charter or by-laws, willful delay in the
submission of reports or publications thereof as required by law, rules and
regulations; any refusal to permit examination into the affairs of the
institution;
any willful making of a false or misleading statement to the Board or the
appropriate supervising and examining department or its examiners; any
willful failure or refusal to comply with, or violation of, any banking law or any
order, instruction or regulation issued by the Monetary Board, or any order,
instruction or ruling by the Governor;
or any commission of irregularities, and/or conducting business in an unsafe
or unsound manner as may be determined by the Monetary Board, the
following administrative sanctions, whenever applicable:
42
 (a) fines in amounts as may be determined by the Monetary Board to be
appropriate, but in no case to exceed Thirty thousand pesos (P30,000) a day
for each violation, taking into consideration the attendant circumstances, such
as the nature and gravity of the violation or irregularity and the size of the
bank or quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit
facilities;
(c) suspension of lending or foreign exchange operations or authority to accept
new deposits or make new investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.
Resignation or termination from office shall not exempt such director or
officer from administrative or criminal sanctions.
The Monetary Board may, whenever warranted by circumstances,
preventively suspend any director or officer of a bank or quasi-bank pending
an investigation: Provided, That should the case be not finally decided by the
Bangko Sentral within a period of one hundred twenty (120) days after the
date of suspension, said director or officer shall be reinstated in his position:
Provided, further, That when the delay in the disposition of the case is due to
the fault, negligence or petition of the director or officer, the period of delay
shall not be counted in computing the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their
severity.
Whether or not there is an administrative proceeding, if the institution and/or
the directors and/or officers concerned continue with or otherwise persist in
the commission of the indicated practice or violation, the Monetary Board may
issue an order requiring the institution and/or the directors and/or officers
concerned to cease and desist from the indicated practice or violation, and
may further order that immediate action be taken to correct the conditions
resulting from such practice or violation. The cease and desist order shall be
immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a
hearing before the Monetary Board or any committee chaired by any
Monetary Board member created for the purpose, upon request made by the
respondents within five (5) days from their receipt of the order. If no such
hearing is requested within said period, the order shall be final. If a hearing is
conducted, all issues shall be determined on the basis of records, after which
the Monetary Board may either reconsider or make final its order.
The Governor is hereby authorized, at his discretion, to impose upon banking
institutions, for any failure to comply with the requirements of law, Monetary
Board regulations and policies, and/or instructions issued by the Monetary
Board or by the Governor, fines not in excess of Ten thousand pesos (P10,000)
a day for each violation, the imposition of which shall be final and executory
until reversed, modified or lifted by the Monetary Board on appeal.
Section 37. Administrative Sanctions on Banks and Quasi-banks. SUPERVISED
ENITIES — Without prejudice to the criminal sanctions against the culpable
persons provided in Sections 34, 35, and 36 of this Act, the Monetary Board
may, at its discretion, impose upon any bank or quasi-bank, INCLUDING THEIR
SUBSIDIARIES AND AFFILIATES ENGAGED IN ALLIED ACTIVITIES OR OTHER
ENTITY WHICH UNDER THIS ACT OR SPECIAL LAWS ARE SUBJECT THE BANKO
SENTRAL SUPERVISION AND/OR their directors and/or officers OR
EMPLOYEES, for
any willful violation of its charter or by-laws, willful delay in the submission of
reports or publications thereof as required by law, rules and regulations;
any refusal to permit examination into the affairs of the institution;
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
any willful making of a false or misleading statement to the Board or the
appropriate supervising and examining department or its examiners; any
willful failure or refusal to comply with, or violation of, any banking law or any
order, instruction or regulation issued by the Monetary Board, or any order,
instruction or ruling by the Governor;
or any commission of irregularities, and/or conducting business in an unsafe
or unsound manner as may be determined by the Monetary Board, the
following administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be
appropriate, but in no case to exceed Thirty thousand pesos (P30,000)
ONE MILLION PESOS (P 1,000,000) FOR EACH TRANSACTION VIOLATION
OR ONE HUNDRED THOUSAND(P 100,000) PER CALENDAR a day for each
violationS OF A CONTINUING NATURE, taking into consideration the
attendant circumstances, such as the nature and gravity of the violation
or irregularity and the size of the INSTITUTION bank or quasi-bank
PROVIDED THAT:IN CASE PROFIT IS GAINED OR LOSS IS AVOIDED AS A
RESULT OF THE VIOLATION, A FINE NO MORE THAN THREE TIMES(3) OF THE
PROFIT OF THE GAINED OR LOSS AVOIDED MAY ALSO BE IMPOSED.
(b) suspension of rediscounting privileges or access to Bangko Sentral credit
facilities;
(c) suspension of lending or foreign exchange operations or authority to accept
new deposits or make new investments;
(d) suspension of interbank clearing privileges; and/or
(e) SUSPENSION OR revocation of quasi-banking OR OTHER SPECIAL licenses
Resignation or termination from office shall not exempt such director or
officer OR EMPLOYEE from administrative or criminal sanctions.
The Monetary Board may, whenever warranted by circumstances,
preventively suspend any director or officer OR EMPLOYEE of a bank or quasi-
bank INSTITUTION pending an investigation: Provided, That should the case
be not finally decided by the Bangko Sentral within a period of one hundred
twenty (120) days after the date of suspension, said director or officer shall be
reinstated in his position: Provided, further, That when the delay in the
disposition of the case is due to the fault, negligence or petition of the director
or officer OR EMPLOYEE, the period of delay shall not be counted in computing
the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their
severity.
Whether or not there is an administrative proceeding, if the institution and/or
the directors and/or officers OR EMPLOYEES concerned continue with or
otherwise persist in the commission of the indicated practice or violation, the
Monetary Board may issue an order requiring the institution and/or the
directors and/or officers concerned to cease and desist from the indicated
practice or violation, and may further order that immediate action be taken to
correct the conditions resulting from such practice or violation. The cease and
desist order shall be immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a
hearing before the Monetary Board or any committee chaired by any
Monetary Board member created for the purpose, upon request made by the
respondents within five (5) days from their receipt of the order. If no such
hearing is requested within said period, the order shall be final. If a hearing is
conducted, all issues shall be determined on the basis of records, after which
the Monetary Board may either reconsider or make final its order.
The Governor is hereby authorized, at his discretion, to impose upon banking
institutions, BANK AND QUASI-BANKS, INCLUDING THEIR SUSBIDIARIES AND
AFFILIATES ENGAGED IN ALLIED ACTIVITIES, AND OTHER ENTITIES WHICH
UNDER THIS ACT OR SPECIAL LAWS ARE SUBJECT TO THE BANKO SENTRAL
SUPERVISION for any failure to comply with the requirements of law,
Monetary Board regulations and policies, and/or instructions issued by the
Monetary Board or by the Governor, fines not in excess of Ten thousand pesos
43
 (P10,000) ONE HUNDRED THOUSAND (P100,000) FOR EACH TRANSACTIONAL
VIOLATION OR THIRTY THOUSAND PESOS (P 30,000) PER CALENDAR a day
for each violations OF A CONTINUING NATURE, the imposition of which shall
be final and executory until reversed, modified or lifted by the Monetary Board
on appeal.
Under Section 37, it increased the sanction to—
ONE HUNDRED THOUSAND (P100,000) FOR EACH TRANSACTIONAL
VIOLATION OR THIRTY THOUSAND PESOS (P 30,000) PER CALENDAR a day
for each violations OF A CONTINUING NATURE
Now before the intended amendment, it was a per day violation or a per day
penalty. Now they qualify the “per day” if it is a violation of a continuing nature
meaning if the violation persists in such a way that you cannot really determine
the loss to the Bangko Sentral or to the Institution it is considered as a
continuing nature. So the violation is per day.
Please take note of the last sentence in this particular slide—
Resignation or termination from office shall not exempt such director or
officer or employee from administrative or criminal sanctions.
So this is similar to your Administrative Law. There is also a preventive
suspension pending investigation.
EXAMPLE— the MB can issue a cease and desist order effective immediately.
COVERED INSTITUTION
• you have your bank, quasi-bank, expressly provided in the amendment
non-stock savings and loan associations, pawnshops, foreign exchange
dealer, trust entities.
To summarize, these are the grounds for the imposition of administrative
penalties—
Section 38. Operating Departments of the Bangko Sentral. — The Monetary
Board shall, in accordance with its authority under this Act, determine and
provide for such operating departments and other offices, including a public
information office, of the Bangko Sentral as it deems convenient for the proper
and efficient conduct of the operations and the accomplishment of the
objectives of the Bangko Sentral. The functions and duties of such operating
departments and other offices shall be determined by the Monetary Board.
So to summarize, the operating departments of the Bangko Sentral shall be
composed of these sectors—
1. Supervision and Examination Sector
Now this sector, this will examine banking institutions.
2. Resource Management Sector
This is in-charge of the human resource management of the Bangko Sentral.
They provide scholarships, continuing education for the people of the BSP or
employees of the BSP.
3. Executive Management Sector
4. Security Plan Office
By the term itself, they are in charge of the facility itself, the plant. If you can
notice, the ones in the Bangko Sentral are so secured for a reason because
they are the ones printing currencies.
Now an addition for the intended amended is the issuance of injunctive relief.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Please take note—that it is specifically provided for in the amendment, no
court other than the SUPREME COURT or the COURT OF APPEALS can issue a
TRO or PI.
But for purposes of exam, I will not ask you of those amendments. But the
principle, I will ask that.
SEC 38-A.ISSUANCE OF INJUNCTIVE RELIEF AGAINST BANKO SENTRAL
ACTIONS-
NO COURT, OTHER THAN THE COURT OF APPEALS AND THE SUPREME COURT,
SHALL ISSUE ANY TEMPORARY RESTRAINING ORDER, PRELIMINARY
INJUNCTION, PRELIMINARY MANDATORY INJUNCTION AGAINST THE BANKO
SENTRAL FOR ANY ACTION UNDER THIS ACT.
ANY RESTRAINING ORDER OR INJUNCTION ISSUED IN VIOLATION OF THIS
SECTION IS VOID AND OF NO FORCE AND EFFECT.
THE PROVISIONS OF THE RULES OF COURT ON INJUNCTIONS INSOFAR AS
THESE ARE APPLICABLE AND NOT INCONSISTENT WITH THE PROVISIONS OF
THIS ACT SHALL GOVERN THE ISSUANCE AND DISSOLUTION OF RESTRAINING
ORDERSAND INJUNCTINS AGAINST THE BANKO SENTRAL.
Now is this Constitutional? What do you think? Can they limit the jurisdiction
of the courts? So check your Constitution.
Sec 2 of Art VIII
Section 2. The Congress shall have the power to define, prescribe, and
apportion the jurisdiction of the various courts but may not deprive the
Supreme Court of its jurisdiction over cases enumerated in Section 5 hereof.
xxx
ARTICLE V
REPORTS AND PUBLICATIONS
Section 39. Reports and Publications. — The Bangko Sentral shall publish a
general balance sheet showing the volume and composition of its assets and
liabilities as of the last working day of the month within sixty (60) NINETY(90)
DAYS after the end of each month, WHICH MAY BE REASONABLY EXTENDED
BY THE BANKO SENTRAL AS WARRANTED except for the month of December,
which shall be submitted within ninety (90) days after the end hereof.
The Monetary Board shall publish and submit the following reports to the
President and to the Congress:
(a) not later than ninety (90) days after the end of each quarter, an analysis of
economic and financial developments, including the condition of net
international reserves and monetary aggregates;
(b) within ninety (90) days after the end of the year, WHICH MAY BE
REASONABLY EXTENDED BY THE BANKO SENTRAL AS WARRANTED the
preceding year's budget and profit and loss statement of the Bangko Sentral
showing in reasonable detail the result of its operations;
(c) one hundred twenty (120) days after the end of each semester, a review of
the state of the financial system; and
(d) as soon as practicable, abnormal movements in monetary aggregates and
the general price level, and, not later than seventy-two (72) hours after they
are taken, remedial measures in response to such abnormal movements.
Section 40. Annual Report.— Before the end of March (JUNE) of each year,
the Bangko Sentral shall publish and submit to the President and the Congress
an annual report on the condition of the Bangko Sentral including a review of
the policies and measures adopted by the Monetary Board during the past
44
 year and an analysis of the economic and financial circumstances which gave
rise to said policies and measures.
The annual report shall also include a statement of the financial condition of
the Bangko Sentral and a statistical appendix which shall present, as a
minimum, the following data:
(a) the monthly movement of monetary aggregates and their components;
(b) the monthly movement of purchases and sales of foreign exchange and of
the international reserves of the Bangko Sentral;
(c) the balance of payments of the Philippines;
(d) monthly indices of consumer prices and of import and export prices;
(e) the monthly movement, in summary form, of exports and imports, by
volume and value;
(f) the monthly movement of the accounts of the Bangko Sentral and of other
banks;
(g) the principal data on government receipts and expenditures and on the
status of the public debt, both domestic and foreign; and
(h) the texts of the major legal and administrative measures adopted by the
Government and the Monetary Board during the year which relate to the
functions or operations of the Bangko Sentral or of the financial system.
The Bangko Sentral shall publish another version of the annual report in terms
understandable to the layman.
Failure to comply with the reportorial requirements pursuant to this article
without justifiable reason as may be determined by the Monetary Board shall
cause the withholding of the salary of the personnel concerned until the
requirements are complied with.
They extended it. BEFORE, 60 days. NOW— it’s 90 days.
Please take note—
Section 41. Signatures on Statements. — The balance sheets and other
financial statements of the Bangko Sentral shall be signed by the officers
responsible for their preparation, by the Governor, and by the auditor of the
Bangko Sentral.
Who is the auditor of the Bangko Sentral?
A: COA
ARTICLE VI
PROFITS, LOSSES, AND SPECIAL ACCOUNTS
Fiscal year, of course January-December.
Section 42. Fiscal Year. — The fiscal year of the Bangko Sentral shall begin on
January first and end on December thirty-first of each year.
Please take note— of the computation of the profits and losses. This is actually
modified how do you consider a profit for the profit or loss.
Section 43. Computation of Profits and Losses. — Within the first thirty (30)
days following the end of each year, the Bangko Sentral shall determine its net
profits or losses.
In the calculation of net profits, the Bangko Sentral shall make adequate
allowance or establish adequate reserves for bad and doubtful accounts.
So just like any other corporation, the Bangko Sentral is reporting for its profits
or losses, the balance sheets, the assets that it owns or the liabilities that it
has.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Please take note—
THE NET PROFIT OF THE BANKO SENTRAL AFTER ALLOWING FOR EXPENSES
OF OPERATION, ADEQUATE ALLOWANCES AND PROVISIONS FOR BAD AND
DOUBTFUL DEBTS, DEPRECIATION IN ASSETS, AND SUCH ALLOWANCES AND
PROVISIONS FOR CONTINGENCIES OR OTHER PURPOSES AS THE MONETARY
BOARD MAY DETERMINE IN ACCORDANCE WITH PRUDENT FINANCIAL AND
EFFECTIVE CENTRAL BANKING OPERATIONS.”
THE NET PROFIT OF THE BANKO SENTRAL AFTER ALLOWING FOR EXPENSES
OF OPERATION, ADEQUATE ALLOWANCES AND PROVISIONS FOR BAD AND
DOUBTFUL DEBTS, DEPRECIATION IN ASSETS, AND SUCH ALLOWANCES AND
PROVISIONS FOR CONTINGENCIES OR OTHER PURPOSES AS THE MONETARY
BOARD MAY DETERMINE IN ACCORDANCE WITH PRUDENT FINANCIAL AND
EFFECTIVE CENTRAL BANKING OPERATIONS.”
Please take note— of the framework in which it prepares its financial
statement: based on prudent financial management and effective Sentral
Bank Operations.
ARTICLE VI
PROFITS, LOSSES, AND SPECIAL ACCOUNTS
Section 44. Distribution of Net Profits. — Within the first sixty (60) days
following the end of each fiscal year, the Monetary Board shall determine and
carry out the distribution of the net profits, in accordance with the following
rule:
Fifty percent (50%) of the net profits shall be carried to surplus and the
remaining fifty percent (50%) shall revert back to the National Treasury, except
as otherwise provided in the transitory provisions of this Act.
Section 45. Revaluation Profits and Losses. — Profits or losses arising from
any revaluation of the Bangko Sentral's net assets or liabilities in gold or
foreign currencies with respect to the Philippine peso shall not be included in
the computation of the annual profits and losses of the Bangko Sentral. Any
profits or losses arising in this manner shall be offset by any amounts which,
as a consequence of such revaluations, are owed by the Philippines to any
international or regional intergovernmental financial institution of which the
Philippines is a member or are owed by these institutions to the Philippines.
Any remaining profit or loss shall be carried in a special frozen account which
shall be named "Revaluation of International Reserve" and the net balance of
which shall appear either among the liabilities or among the assets of the
Bangko Sentral, depending on whether the revaluations have produced net
profits or net losses.
The Revaluation of International Reserve account shall be neither credited nor
debited for any purposes other than those specifically authorized in this
section.
Section 46. Suspense Accounts. — Sections 43 and 43-A of Republic Act No.
265, as amended, creating the Monetary Adjustment Account (MAA) and the
Exchange Stabilization Adjustment Account (ESAA), respectively, are hereby
repealed. Amounts outstanding as of the effective date of this Act based on
these accounts shall continue to be for the account of the Central Bank and
shall be governed by the transitory provisions of this Act.
The Revaluation of International Reserve (RIR) account as of the effective date
of this Act of the Central Bank shall continue to be for the account of the same
entity and shall be governed by the provisions of Section 44 of Republic Act
No. 265, as amended, until otherwise provided for in accordance with the
transitory provisions of this Act.
Section 43. Computation of Profits and Losses. — Within the first thirty (30)
SIXTY(60) DAYS following the end of each year, the Bangko Sentral shall
45
 determine its net profits or losses. In the calculation of net profits, the Bangko
Sentral shall make adequate allowance or establish adequate reserves for bad
and doubtful accounts.
“NOTWITHSTANDING ANY PROVISION OF THE LAW TO THE CONTRARY, THE
NET PROFIT OF THE BANKO SENTRAL AFTER ALLOWING FOR EXPENSES OF
OPERATION, ADEQUATE ALLOWANCES AND PROVISIONS FOR BAD AND
DOUBTFUL DEBTS, DEPRECIATION IN ASSETS, AND SUCH ALLOWANCES AND
PROVISIONS FOR CONTINGENCIES OR OTHER PURPOSES AS THE MONETARY
BOARD MAY DETERMINE IN ACCORDANCE WITH PRUDENT FINANCIAL AND
EFFECTIVE CENTRAL BANKING OPERATIONS.”
So if a bank would speculate the BSP should be prudent on handling its
finances and it shall establish a research fund.
So this is an addition for the intended amendment. But there has to be a
research fund.
To mitigate future risks such as but not limited to the impact of FOREX and
price fluctuations and to address other contingencies as the MB deems
prudent or necessary.
How does it distributes its profits?
Section 44. Distribution of Net Profits. — Within the first sixty (60) days
following the end of each fiscal year, the Monetary Board shall determine and
carry out the distribution of the net profits, in accordance with the following
rule:
Fifty percent (50%) of the net profits shall be carried to surplus and the
remaining fifty percent (50%) shall revert back to the National Treasury,
except as otherwise provided in the transitory provisions of this Act.
So in other words it shall revert to the Government, the 50%, because when
we discussed about the capitalization of the BSP, it is funded by the money of
the Government. It is owned and subscribed by the Government. Therefore, it
(government) should also get the profit.
SEC 43-A. CENTRAL BANK RESERVE FUND-
“THE BANKO SENTRAL SHALL ESTABLISH A RESERVE FUND TO MITIGATE
FUTURE RISKS AND CONTINGENCIES INHERENT IN CARRYING OUT THE
BANKO SENTRAL- MANDATED FUNCTIONS AS CENTRAL MONETARY
AUTHORITY.”
“THE RESERVE FUND SHALL CONSIST OF FLUCTUATION RESERVE,
CONTINGENCY RESERVE AND SUCH OTHER RESERVES AS THE MONETARY
BOARD DEEMS PRUDENT OR NECESSARY.”
“THE FLUCTUATION RESERVE SHALL COVER LOSSES FROM EXCHANGE RATE
AND PRICE VOLATILITY AND SHALL BE DERIVED FROM THE NET PROFITS
BEFORE DISTRIBUTION AS PROVIDED UNDER SEC 44 OF THIS ACT.”
Section 44. Distribution of Net Profits. — Within the first sixty (60) days
following the end of each fiscal year, the Monetary Board shall determine and
carry out the distribution of the net profits, in accordance with the following
rule:
Fifty percent (50%) of the net profits shall be carried to surplus and the
remaining fifty percent (50%) shall revert back to the National Treasury, except
as otherwise provided in the transitory provisions of this Act.
Please take note of the unrealized profits—
Section 45. Revaluation Profits and Losses. — UNREALIZED profits or losses
arising from any revaluation of the Bangko Sentral's net assets or liabilities OR
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
DERIVATIVE INSTRUMENTS DENOMINATED in gold or foreign currencies with
respect to the MOVEMENTS AND PRICES AND EXCHANGE RATES FROM
THIRD CURRENCIES TO Philippine peso shall not be included in the
computation of the annual profits and losses of the Bangko Sentral. Any profits
or losses arising in this manner shall be offset by any amounts which, as a
consequence of such revaluations, are owed by the Philippines to any
international or regional intergovernmental financial institution of which the
Philippines is a member or are owed by these institutions to the Philippines.
Any remaining UNREALIZED profit or loss shall be carried in aN special frozen
account which shall be named "Revaluation of International Reserve" and the
net balance of which shall appear either among the liabilities or among the
assets of the Bangko Sentral, depending on whether the revaluations have
produced net profits or net losses.
The Revaluation of International Reserve RIR account shall be neither credited
nor debited for THE PERIODIC REVALUATION AS AUTHORIZED IN THIS
SECTION AND TO REFLECT THE CORRESPONDING ADJUSTMENT RESULTING
TO THE REDUCTION OF BANKO SENTRAL’S NET FOREIGN ASSETS, LIABIITIES
AND FOREIGN CURRENCY-DENOMINATED DERIVATIVE INSTRUMENTS. THE
RIR SHAL BE ADJUSTED AND RECOGNIZED IN THE INCOME STATEMENT
UPON SALE OF GOLD AND FOREIGN SECURITIES, OR THE FOREIGN CURRENCY
IS REPATRIATED TO LOCAL CURRENCY OR IS USED TO PAY FOREIGN
OBLIGATIONS, OR UPON MATURITY OF A FOREIGN-CURRENYCY
DENOMINATED FORWARD OR OPTION CONTRACT INVOLVING THE
PHILIPPINE PESO any purposes other than those specifically authorized in this
section.
What derivative instrument did we discuss in Corporation Law?
• Rappler’s PDR- it is a derivative instrument because the underlying
instrument is your equity
• Any derivative instrument, there is unrealized profit there, it is
considered
With respect to movement of prices and exchange rate from third currency
shall not be included in the computation of the annual profit.
So if there’s annual profit, the unrealized is not included in your profits. So it
is just carried in the account and evaluation of international research.
We will go to that.
RIR— Revaluation of International Reserve
Section 46. Suspense Accounts. — Sections 43 and 43-A of Republic Act No.
265, as amended, creating the Monetary Adjustment Account (MAA) and the
Exchange Stabilization Adjustment Account (ESAA), respectively, are hereby
repealed. Amounts outstanding as of the effective date of this Act based on
these accounts shall continue to be for the account of the Central Bank and
shall be governed by the transitory provisions of this Act.
The Revaluation of International Reserve (RIR) account as of the effective date
of this Act of the Central Bank shall continue to be for the account of the same
entity and shall be governed by the provisions of Section 44 of Republic Act
No. 265, as amended, until otherwise provided for in accordance with the
transitory provisions of this Act.
I will not ask that.
ARTICLE VII
THE AUDITOR
Section 47. Appointment and Personnel. —
The Chairman of the Commission on Audit shall act as the ex officio auditor of
the Bangko Sentral and, as such, he is empowered and authorized to appoint
a representative who shall be the auditor of the Bangko Sentral and, in
accordance with law, fix his salary, and to appoint and fix salaries and number
of personnel to assist said representative in his work.
46
 The salaries and other emoluments shall be paid by the Commission. The
auditor of the Bangko Sentral and personnel under him may be removed only
by the Chairman of the Commission.
The representative of the Chairman of the Commission must be a certified
public accountant with at least ten (10) years experience as such. No relative
of any member of the Monetary Board or the Chairman of the Commission
within the sixth degree of consanguinity or affinity shall be appointed such
representative.
Please take note of the qualifications—
The representative of the Chairman of the Commission must be a certified
public accountant with at least ten (10) years experience as such. No relative
of any member of the Monetary Board or the Chairman of the Commission
within the sixth degree of consanguinity or affinity shall be appointed such
representative.
ISSUE OF MEANS OF PAYMENT
The unit of monetary value is of course the peso, represented by the sign P
with the 2 strikethroughs.
The peso is divided into 100 equal parts called the centavo represented by the
sign C.
So what other countries do have a monetary value of peso din?
A: Mexico
ARTICLE II
ISSUE OF MEANS OF PAYMENT
A. CURRENCY
What is currency?
Section 49. Definition of Currency. — The word "currency" is hereby defined,
for purposes of this Act, as meaning all Philippine notes and coins issued or
circulating in accordance with the provisions of this Act.
The exclusive power to issue coins and notes is given to the Bangko Sentral.
Therefore—
No other person or entity, public or private, may put into circulation notes,
coins or any other object or document xxx
If you violate— shall constitute an offense punishable by imprisonment of not
less than five (5) years but not more than ten (10) years. In case the Revised
Penal Code provides for a greater penalty, then that penalty shall be imposed.
Correlate this with your provisions of the RPC.
Section 50. Exclusive Issue Power. — The Bangko Sentral shall have the sole
power and authority to issue currency, within the territory of the Philippines.
No other person or entity, public or private, may put into circulation notes,
coins or any other object or document which, in the opinion of the Monetary
Board, might circulate as currency, nor reproduce or imitate the facsimiles of
Bangko Sentral notes without prior authority from the Bangko Sentral.
The Monetary Board may issue such regulations as it may deem advisable in
order to prevent the circulation of foreign currency or of currency substitutes
as well as to prevent the reproduction of facsimiles of Bangko Sentral notes.
The Bangko Sentral shall have the authority to investigate, make arrests,
conduct searches and seizures in accordance with law, for the purpose of
maintaining the integrity of the currency.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Violation of this provision or any regulation issued by the Bangko Sentral
pursuant thereto shall constitute an offense punishable by imprisonment of
not less than five (5) years but not more than ten (10) years. In case the
Revised Penal Code provides for a greater penalty, then that penalty shall be
imposed.
Section 51. Liability for Notes and Coins. — Notes and coins issued by the
Bangko Sentral shall be liabilities of the Bangko Sentral and may be issued only
against, and in amounts not exceeding, the assets of the Bangko Sentral. Said
notes and coins shall be a first and paramount lien on all assets of the Bangko
Sentral.
The Bangko Sentral's holdings of its own notes and coins shall not be
considered as part of its currency issue and, accordingly, shall not form part of
the assets or liabilities of the Bangko Sentral.
So you see, these coins and notes, these are actually backed up by the assets
of the Bangko Sentral.
This is my problem with cryptocurrency, what Central Bank backs it up?
If all assets in the world are backed up by their respective Central Banks, what
happens to these cryptocurrencies? Whose bank is this? Whose currency?
That’s my problem with cryptocurrency.
Section 52. Legal Tender Power. — All notes and coins issued by the Bangko
Sentral shall be fully guaranteed by the Government of the Republic of the
Philippines and shall be legal tender in the Philippines for all debts, both public
and private:
Provided, however, That, unless otherwise fixed by the Monetary Board, coins
shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above, and in amounts not
exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less.
You have a guarantor.
Again what happens to cryptocurrency? Who guarantees that? In the event
that you can exchange, there are assets at stake there. Something is
guaranteed there.
Provided, however, That, unless otherwise fixed by the Monetary Board,
coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above, and in amounts not
exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less.
This is actually amended by Circular No., 537 Series of 2006—
Is there a limit to the legal tender power of Philippine currency notes and
coins?
Philippine currency notes have no limit to their legal tender power. In
particular, all notes and coins issued by the BSP shall be fully guaranteed by
the Government of the Republic of the Philippines and shall be legal tender in
the Philippines for all debts, both public and private, as stipulated under
Section 52 of the New Central Bank Act.
However, in the case of coins in denomination of 1-, 5- and 10-Piso they shall
be legal tender in amounts not exceeding P1,000.00 while coins in
denomination of 1-, 5- and 10- and 25-Sentimo shall be legal tender in
amounts not exceeding P100.00, pursuant to BSP Circular No. 537, Series of
2006.
So example, 1 peso 5 pesos 10 centavos, only until 1 thousand. So the payment
of your obligation is 2 thousand composed of 1 peso, so it can be refused by
47
 the creditor because it should only be until 1 thousand which is the legal
tender. I have the right to refuse because it is only up to 1 thousand.
How about for?
• 1 centavo
• 10 centavos
• 25 centavos?
It is only legal tender up to the amount of P100. So when you pay, you’re so
annoyed with your creditor, now you pay in bits. So you get a piggy bank then
you get 25 centavos, then your debt is worth P200, which you used in paying,
so that can be refused because it is only up to P 100
Again if –
• 1 peso
• 5 pesos
• 10 pesos
until P1,000 only.
Legal tender can be used for the payment of debts which cannot
be refused by the creditor.
Please take note of that— If it’s not legal tender, the creditor can
actually refuse.
Section 53. Characteristics of the Currency. — The Monetary Board, with the
approval of the President of the Philippines, shall prescribe the
denominations, dimensions, designs, inscriptions and other characteristics of
notes issued by the Bangko Sentral:
Provided, however, That said notes shall state that they are liabilities of the
Bangko Sentral and are fully guaranteed by the Government of the Republic of
the Philippines. Said notes shall bear the signatures, in facsimile, of the
President of the Philippines and of the Governor of the Bangko Sentral.
Similarly, the Monetary Board, with the approval of the President of the
Philippines, shall prescribe the weight, fineness, designs, denominations and
other characteristics of the coins issued by the Bangko Sentral. In the minting
of coins, the Monetary Board shall give full consideration to the availability of
suitable metals and to their relative prices and cost of minting.
Section 54. Printing of Notes and Mining of Coins. — The Monetary Board
shall prescribe the amounts of notes and coins to be printed and minted,
respectively, and the conditions to which the printing of notes and the minting
of coins shall be subject. The Monetary Board shall have the authority to
contract institutions, mints or firms for such operations.
All expenses incurred in the printing of notes and the minting of coins shall be
for the account of the Bangko Sentral.
It is the MB that can prescribe.
Section 55. Interconvertibility of Currency. — The Bangko Sentral shall
exchange, on demand and without charge, Philippine currency of any
denomination for Philippine notes and coins of any other denomination
requested.
If for any reason the Bangko Sentral is temporarily unable to provide notes or
coins of the denominations requested, it shall meet its obligations by
delivering notes and coins of the denominations which most nearly
approximate those requested.
Section 56. Replacement of Currency Unfit for Circulation. — The Bangko
Sentral shall withdraw from circulation and shall demonetize all notes and
coins which for any reason whatsoever are unfit for circulation and shall
replace them by adequate notes and coins:
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Provided, however, That the Bangko Sentral shall not replace notes and coins
the identification of which is impossible, coins which show signs of filing,
clipping or perforation, and notes which have lost more than two-fifths (2/5)
of their surface or all of the signatures inscribed thereon. Notes and coins in
such mutilated conditions shall be withdrawn from circulation and
demonetized without compensation to the bearer.
There was a time in the recent history that they actually require the old money
to be surrendered because it will be demonetized.
So what they do is it is in a serial number, so if it is already unfit for circulation,
you have to surrender it. So they will demonetize t and they will print coins
and notes.
Please take note that— the Bangko Sentral shall not replace notes and coins
the identification of which is impossible, coins which show signs of filing,
clipping or perforation (holes), and notes which have lost more than two-fifths
(2/5) of their surface or all of the signatures inscribed thereon.
The BSP is not obliged to replace those notes.
Notes and coins in such mutilated conditions shall be withdrawn from
circulation and demonetized without compensation to the bearer.
Example— You have P1,000, then it got ripped, and it was taped. Then you
used it to pay.
The seller said, the bank won’t accept that.
What do you think?
We actually have (2) kinds—
This is the Doctrine of Clean Note or the Clean-Note Policy—
1. Unfit for circulation
2. Mutilated coins or notes
If it is unfit, it’s okay. BSP will just replace it. They will demonetize then
exchange it. If it is mutilated will they exchange it?
A: You have to determine, because the last sentence states—
Notes and coins in “such mutilated conditions” shall be withdrawn from
circulation and demonetized without compensation to the bearer
So the “such” there refers to the previous sentence which provides that—
The identification of which is impossible, coins which show signs of filing,
clipping or perforation (holes), and notes which have lost more than two-
fifths (2/5) of their surface or all of the signatures
If it is mutilated, it won’t be exchanged, you must determine first if—
1. the identification of which is impossible,
2. the mutilation causes the loss more than two-fifths (2/5) of their surface
or all of the signatures
So it’s not allowed, just because it is mutilated, you can’t exchange it
anymore. The mutilation should be to the effect that the loss is more
than (2/5) of their surface or all of the signatures.
Q: When the P1,000, is ripped, you placed scotch tape, replaceable or not?
A: YES. That is still legal tender because everything is still there.
Example of those unfit—
1. if the currency contains heavy creasing which breaks the fiber of the
paper and indicate that the disintegration has begun.
48
 That one in the end, when you can already see the violet2x.
Provided however that mere creasing or wrinkling--- the one that’s crumpled,
which does not weaken the note does not render the note unfit for circulation.
So if it just crumpled, you can’t go to the BSP then ask for it to be replaced.
But if it has heavy creases, it starts to disintegrate, yes you can do that. It is
now considered as unfit for circulation.
Other example of unfit for circulation—
• badly soiled or contaminated or with writings, the one with writings
• it presents a limp or rag-like appearance
When can it be considered a currency note mutilated?
A: When torn parts of the notes are joined together with adhesive tape in
manner which tries to preserve as nearly as possible the original and the size
of the note.
The ones with the scotch tape.
It is mutilated but can you replace it without compensation?
A: it really depends.
If the 2/5 of the surface is missing or there is no signature anymore.
Second: the original size of the note has been lost or reduced to wear and tear
or has been otherwise xxx or has been perforated through action by insects,
chemicals or other causes.
There are some money the more time passes by it becomes
smaller. It is considered mutilated.
Third: it is scorched or burned to such an extent that although recognizable as
such, has become frail and brittle as to render the handling thereof impossible
without disintegration.
It has split lengthwise or has lost all the signatures inscribed therein.
Please take note of that— so these are the examples of mutilation which
cannot be replaced.
Section 57. Retirement of Old Notes and Coins. — The Bangko Sentral may
call in for replacement notes of any series or denomination which are more
than five (5) years old and coins which are more than (10) years old.
Notes and coins called in for replacement in accordance with this provision
shall remain legal tender for a period of one (1) year from the date of call. After
this period, they shall cease to be legal tender but during the following year,
or for such longer period as the Monetary Board may determine, they may be
exchanged at par and without charge in the Bangko Sentral and by agents duly
authorized by the Bangko Sentral for this purpose.
After the expiration of this latter period, the notes and coins which have not
been exchanged shall cease to be a liability of the Bangko Sentral and shall be
demonetized. The Bangko Sentral shall also demonetize all notes and coins
which have been called in and replaced.
B. DEMAND DEPOSITS
Section 58. Definition. — For purposes of this Act, the term "demand
deposits" means all those liabilities of the Bangko Sentral and of other banks
which are denominated in Philippine currency and are subject to payment in
legal tender upon demand by the presentation of checks.
These are deposits, *** demand deposits, legal character.
Checks representing demand deposits who do not have legal tender power
and their acceptance as payment of debts both public and private is at the
option of the creditor.
You already know this in your Obligations & Contracts.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Section 59. Issue of Demand Deposits. — Only banks duly authorized to do
so may accept funds or create liabilities payable in pesos upon demand by the
presentation of checks, and such operations shall be subject to the control of
the Monetary Board in accordance with the powers granted it with respect
thereto under this Act.
Section 60. Legal Character. — Checks representing demand deposits do not
have legal tender power and their acceptance in the payment of debts, both
public and private, is at the option of the creditor:
Provided, however, That a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor of cash
in an amount equal to the amount credited to his account.
G.R. No. L-49188
January 30, 1990
PHILIPPINE AIRLINES, INC., petitioner, vs. HON. COURT OF APPEALS, HON.
JUDGE RICARDO D. GALANO, Court of First Instance of Manila, Branch XIII,
JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and
AMELIA TAN, respondents.
Facts:
On October 11, 1977, a judgement was rendered by the RTC wherein it issued
its order of execution with the corresponding writ in favor of the Amelia Tan.
The writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of
the Court of First Instance of Manila for enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan moved for
the issuance of an alias writ of execution stating that the judgment rendered
by the lower court, and affirmed with modification by the Court of Appeals,
remained unsatisfied.
On March 3,1978, the Court of Appeals denied the issuance of the alias writ
for being premature, ordering the executing sheriff Emilio Z. Reyes to appear
with his return and explain the reason for his failure to surrender the amounts
paid to him by petitioner PAL.
However, the order could not be served upon Deputy Sheriff Reyes who had
absconded or disappeared. The payment was made to the absconding sheriff
with a check in his own name.
Issue: Whether the payment of the check in the name of Reyes(Sheriff) would
be considered legal tender?
Ruling: NO.
There are circumstances in this case, however, which compel a different
conclusion.
The payment made by the petitioner to the absconding sheriff was not in
cash or legal tender but in checks. The checks were not payable to Amelia Tan
or Able Printing Press but to the absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they
have been cashed, or when through the fault of the creditor they have been
impaired.
49
 In the meantime, the action derived from the original obligation shall be held
in abeyance.
In the absence of an agreement, either express or implied, payment means
the discharge of a debt or obligation in money (US v. Robertson, 5 Pet. [US]
641, 8 L. ed. 257) and unless the parties so agree, a debtor has no rights, except
at his own peril, to substitute something in lieu of cash as medium of payment
of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep.
402).
Consequently, unless authorized to do so by law or by consent of the obligee
a public officer has no authority to accept anything other than money in
payment of an obligation under a judgment being executed. Strictly speaking,
the acceptance by the sheriff of the petitioner's checks, in the case at bar, does
not, per se, operate as a discharge of the judgment debt.
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment.
A check, whether a manager's check or ordinary cheek, is not legal tender, and
an offer of a check in payment of a debt is not a valid tender of payment and
may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan and not the
Sheriff's, there would have been no payment. After dishonor of the checks,
Ms. Tan could have run after other properties of PAL. The theory is that she
has received no value for what had been awarded her. Because the checks
were drawn in the name of Emilio Z. Reyes, neither has she received anything.
The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been
payment in full legal contemplation. The reasoning is logical but is it valid and
proper? Logic has its limits in decision making. We should not follow rulings to
their logical extremes if in doing so we arrive at unjust or absurd results.
In the first place, PAL did not pay in cash. It paid in checks.
And second, payment in cash always carries with it certain cautions. Nobody
hands over big amounts of cash in a careless and inane manner. Mature
thought is given to the possibility of the cash being lost, of the bearer being
waylaid or running off with what he is carrying for another.
Payment in checks is precisely intended to avoid the possibility of the money
going to the wrong party. The situation is entirely different where a Sheriff
seizes a car, a tractor, or a piece of land. Logic often has to give way to
experience and to reality. Having paid with checks, PAL should have done so
properly.
Payment in money or cash to the implementing officer may be deemed
absolute payment of the judgment debt but the Court has never, in the least
bit, suggested that judgment debtors should settle their obligations by turning
over huge amounts of cash or legal tender to sheriffs and other executing
officers. Payment in cash would result in damage or interminable litigations
each time a sheriff with huge amounts of cash in his hands decides to abscond.
As a protective measure, therefore, the courts encourage the practice of
payments by check provided adequate controls are instituted to prevent
wrongful payment and illegal withdrawal or disbursement of funds. If
particularly big amounts are involved, escrow arrangements with a bank and
carefully supervised by the court would be the safer procedure. Actual transfer
of funds takes place within the safety of bank premises. These practices are
perfectly legal. The object is always the safe and incorrupt execution of the
judgment.
It is, indeed, out of the ordinary that checks intended for a particular payee
are made out in the name of another. Making the checks payable to the
judgment creditor would have prevented the encashment or the taking of
undue advantage by the sheriff, or any person into whose hands the checks
may have fallen, whether wrongfully or in behalf of the creditor. The issuance
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
of the checks in the name of the sheriff clearly made possible the
misappropriation of the funds that were withdrawn.
As explained and held by the respondent court—
Knowing as it does that the intended payment was for the private party
respondent Amelia Tan, the petitioner corporation, utilizing the services of its
personnel who are or should be knowledgeable about the accepted
procedures and resulting consequences of the checks drawn, nevertheless, in
this instance, without prudence, departed from what is generally observed
and done, and placed as payee in the checks the name of the errant Sheriff
and not the name of the rightful payee.
Petitioner thereby created a situation which permitted the said Sheriff to
personally encash said checks and misappropriate the proceeds thereof to his
exclusive personal benefit. For the prejudice that resulted, the petitioner
himself must bear the fault. The judicial guideline which we take note of states
as follows:
As between two innocent persons, one of whom must suffer the consequence
of a breach of trust, the one who made it possible by his act of confidence
must bear the loss.
Having failed to employ the proper safeguards to protect itself, the judgment
debtor whose act made possible the loss had but itself to blame.
Although payment by checks is encouraged, there must be proper safeguards
on the part of the payor so that the encashment by another person be
prevented.
FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ REALTY INC.,
respondents.
Facts:
Sometime in August 1973, Diaz and Company got a loan from the former PaBC
[Pacific Banking Corporation] in the amount of P720,000.00, with interest at
12% per annum, later increased to 14%, 16%, 18% and 20%.
In 1981, Allied Banking Corporation rented an office space in the building
constructed on the properties covered by the mortgage contract, with the
conformity of mortgagee PaBC, whereby the parties agreed that the monthly
rentals shall be paid directly to the mortgagee for the lessors account, either
to partly or fully pay off the aforesaid mortgage indebtedness.
Pursuant to such contract, Allied Bank paid the monthly rentals to PaBC
instead of to the plaintiffs.
On July 5, 1985, the Central Bank closed PaBC, placed it under receivership,
and appointed Renan Santos as its liquidator.
Sometime in December 1986, appellant FEBTC purchased the credit of Diaz &
Company in favor of PaBC, but it was not until March 23, 1988 that Diaz was
informed about it.
According to the plaintiff as alleged in the complaint and testified to by
Antonio Diaz (President of Diaz & Company and Vice-President of Diaz Realty),
2. on March 23, 1988 he went to office of PaBC which by then housed
FEBTC and was told that the latter had acquired PaBC;
3. that Cashier Ramon Lim told him that as of such date, his loan was
P1,447,142.03;
4. that on December 14, 1988,[6] Diaz tendered to FEBTC the amount of
P1,450,000.00 through an Interbank check, in order to prevent the
imposition of additional interests, penalties and surcharges on its loan;
5. that FEBTC did not accept it as payment(check)
50
 6. that instead, Diaz was asked to deposit the amount with the
defendants Davao City Branch Office, allegedly pending the approval of
Central Bank Liquidator Renan Santos;
7. that when there was still no news from the defendant whether or not
it [would] accept his tender of payment, he filed this case at the
Regional Trial Court of Davao City.
In its responsive pleading, the defendant set up the following
special/affirmative defenses:
1. that sometime in December 1986, FEBTC purchased from the PaBC the
account of the plaintiffs for a total consideration of P1,828,875.00;
2. that despite such purchase, PaBC Davao Branch continued to collect
interests and penalty charges on the loan from January 6, 1987 to July
8, 1988;
3. that it was therefore not FEBTC which collected the interest rates
mentioned in the complaint, but PaBC;
4. that as a matter of fact, after the transfer of plaintiffs account, it sought
to negotiate with the plaintiffs, and in fact, negotiations were made for
a settlement and possible reduction of charges;
5. that FEBTC has no knowledge of the rates of interest imposed and
collected by PaBC prior to the purchase of the account from the latter,
hence it could not be held responsible for those transactions which
transpired prior to the purchase; and that the defendant acted at the
opportune time for the settlement of the account, albeit exercising
prudence in the handling of such account.
Issue: Whether there was valid tender of payment?
Ruling:
Yes, there was a valid tender of payment.
First Issue: Tender of Payment
Petitioner resolutely argues that the CA erred in upholding the validity of the
tender of payment made by respondent. What the latter had tendered to
settle its outstanding obligation, it points out, was a check which could not be
considered legal tender.
We disagree.
The records show that petitioner bank purchased respondent's account from
PaBC in December 1986, and that the latter was notified of the transaction
only on March 23, 1988. Thereafter, Antonio Diaz, president of respondent
corporation, inquired from petitioner on the status and the amount of its
obligation.
He was informed that the obligation summed up to P1,447,142.03.
On November 14, 1988, petitioner; received from respondent Interbank Check
No. 81399841 dated November 13, 1988, bearing the amount of P1,450,000,
with the notation "Re: Full Payment of Pacific Bank Account now turned over
to Far East Bank."
The check was subsequently cleared and honored by Interbank, as shown by
the Certification it issued on January 20, 1992.11
In general, a check does not constitute legal tender, and that a creditor may
validly refuse it. It must be emphasized, however, that this dictum does not
prevent a creditor from accepting a check as payment. In other words, the
creditor has the option and the discretion of refusing or accepting it.
"In the present case, petitioner bank did not refuse respondent's check. On
the contrary, it accepted the check which, it insisted, was a deposit. As earlier
stated, the check proved to be fully funded and was in fact honored by the
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
drawee bank. Moreover, petitioner was in possession of the money for several
months.
In further contending that there was no valid tender of payment, petitioner
emphasizes our pronouncement in Roman Catholic Bishop of Malolos, Inc. v.
Intermediate Appellate Court, as follows:
"Tender of payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the former's
obligation and demanding that the latter accept the same.
xxx xxx xxx
"Thus, tender of payment cannot be presumed by a mere inference from
surrounding circumstances. At most, sufficiency of available funds is only
affirmative of the capacity or ability of the obligor to fulfill his part of the
bargain. But whether or not the obligor avails himself of such funds to settle
his outstanding account remains to be proven by independent and credible
evidence.
Tender of payment presupposes not only that the obligor is able, ready, and
willing, but more so, in the act of performing his obligation. Ab posse ad actu
non vale illatio. 'A proof that an act could have been done is no proof that it
was actually done."'
In other words, tender of payment is the definitive act of offering the creditor
what is due him or her, together with the demand that the creditor accept the
same. More important, there must be a fusion of intent, ability and capability
to make good such offer, which must be absolute and must cover the amount
due.
That respondent intended to settle its obligation with petitioner is evident
from the records of the case. After learning that its loan balance was
P1,447,142.03, it presented to petitioner a check in the amount of P1,450,000,
with the specific notation that it was for full payment of its Pacific Bank
account that had been purchased by petitioner.
The latter accepted the check, even if it now insists that it considered the same
as a mere deposit. The check was sufficiently funded, as in fact it was honored
by the drawee bank. When petitioner refused to release the mortgage,
respondent instituted the present case to compel the bank to acknowledge
the tender of payment, accept payment and cancel the mortgage.
These acts demonstrate respondent's intent, ability and capability to fully
settle and extinguish its obligation to petitioner.
That respondent subsequently withdrew the money from petitioner-bank is of
no moment, because such withdrawal would not affect the efficacy or the legal
ramifications of the tender of payment made on November 14, 1988. As
already discussed, the tender of payment to settle respondent's obligation as
computed by petitioner was accepted, the check given in payment thereof
converted into money, and the money kept in petitioner's possession for
several months.
Finally, petitioner points out that, in any case, tender of payment extinguishes
the obligation only after proper consignation, which respondent did not do.
The argument does not persuade. For a consignation to be necessary, the
creditor must have refused, without just cause, to accept the debtor's
payment. However, as pointed out earlier, petitioner accepted respondent's
check.
To iterate, the tender was made by respondent for the purpose of settling its
obligation. It was incumbent upon petitioner to refuse, or accept it as
payment. The latter did not have the right or the option to accept and treat it
as a deposit. Thus, by accepting the tendered check and converting it into
money, petitioner is presumed to have accepted it as payment. To hold
otherwise would be inequitable and unfair to the obligor.
Intent of payment must be coupled with?
A: intent, ability and capability to make good such offer, which must be
absolute and must cover the amount due.
51
 CHAPTER III
GUIDING PRINCIPLES OF MONETARY ADMINISTRATION
BY THE BANGKO SENTRAL
ARTICLE I - DOMESTIC MONETARY STABILIZATION
Section 61. Guiding Principle. — The Monetary Board shall endeavor to
control any expansion or contraction in monetary aggregates which is
prejudicial to the attainment or maintenance of price stability.
Section 61. Guiding Principle. — THE MONETARY BOARD SHALL REGULARLY
ASSESS PRICE DEVELOPMENTS AND OUTLOOK AND, BASED ON ITS ANALYSIS
AND EVALUATION OF INFLATIONARY PRESSURES, USE ITS POLICY
INSTRUMENTS TO ATTAIN AND MAINTAIN PRICE STABILITY. The Monetary
Board shall endeavor to control any expansion or contraction in monetary
aggregates which is prejudicial to the attainment or maintenance of price
stability.
We are talking about money aggregates which are equivalent to your supplies.
I’m sure in your basic economics you were taught what money supply is.
So there are different classification of money supply—
1. M1: currency in the circulation
2. M2: currency in the circulation+ pesos savings + time deposits
3. M3: M2 + peso deposit substitutes
4. M4:M3+ transferable deposits and foreign supply
These are the money supplies which is going to be the basis for the monetary
policy of the BSP.
The monetary policy could either be—
1. Contractionary
2. Expansionary
Now if the Bangko Sentral believes that the inflationary rate is in excess of the
desired rate—
How do we measure inflationary weight? What do we do? What does the
BSP do?
Inflation targeting, right? They said the target is 5 % of our inflation. There are
countries that do not do inflation targeting. But in the Philippines, we do that.
Let’s say the inflation within the year should be only 5-7%. If the BSP believes
that the actual inflation rate is in excess of the targeted so it can contract or
reduce liquidity. So it will reduce the circulation of money in the economy. So
that is the contraction which could actually result in a lower inflation value.
That is why if you build-build infrastructures, natural effect is inflation because
a lot of money are circulating in the economy. But this natural effect should
be countered by a monetary policy which seeks to reduce the liquidity to an
adjusted level. Otherwise, the poor get poorer.
Now if it believes that the inflationary rate is at a comfortable with the desired
level, it can again raise the amount of liquidity in the economy.
How does the BSP do that?
There are monetary policy instruments— It could either do –
1. Policy interest rates and open market liquidation
2. Reserve requirements
3. Special deposit credit, discounts, savings
Monetary Policy Instruments
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
1. Operations in gold and foreign exchange
2. Regulations of foreign exchange operations of banks
3. Loans to banking and other financial institutions
4. Open market operations
5. Bank reserves
6. Moral suasion
7. Selective regulation of bank operations
So the basic and most commonly used is the policy interest rates is the reserve
requirement.
Policy Interest Rate
What would happen if BSP increases the interest rate?
Effect: A person wants to deposit because the interest rate is high. If he
deposits, what will happen?
Effect: the currency or money will be lower in circulation.
Reserve Requirement
When it’s reserve requirement the bank increases the reserve. Just like this
ink, the reserve requirement is up to this. Your reserve requirement is that
amount that you can’t circulate as credit.
So imagine if that goes up, this is how much you will only circulate. Increasing
the reserve requirement of banks actually reduces the circulation in the
economy.
So when it requires balancing, you have to balance it out.
Section 62. Power to Define Terms. — For purposes of this article and of this
Act, the Monetary Board shall formulate definitions of monetary aggregates,
credit and prices and shall make public such definitions and any changes
thereof.
Domestic Monetary Stabilization
Section 63. Action When Abnormal Movements Occur in the Monetary
Aggregates, Credit, or Price Level. — Whenever abnormal movements in the
monetary aggregates, in credit, or in prices endanger the stability of the
Philippine economy or important sectors thereof, the Monetary Board shall:
(a) take such remedial measures as are appropriate and within the powers
granted to the Monetary Board and the Bangko Sentral under the provisions
of this Act; and
(b) submit to the President of the Philippines and the Congress, and make
public, a detailed report which shall include, as a minimum, a description and
analysis of:
(1) the causes of the rise or fall of the monetary aggregates, of credit or of
prices;
(2) the extent to which the changes in the monetary aggregates, in credit, or
in prices have been reflected in changes in the level of domestic output,
employment, wages and economic activity in general, and the nature and
significance of any such changes; and
(3 the measures which the Monetary Board has taken and the other
monetary, fiscal or administrative measures which it recommends to be
adopted.
Whenever the monetary aggregates, or the level of credit, increases or
decreases by more than fifteen percent (15%), or the cost of living index
increases by more than ten percent (10%), in relation to the level existing at
the end of the corresponding month of the preceding year, or even though any
52
 of these quantitative guidelines have not been reached when in its judgment
the circumstances so warrant, the Monetary Board shall submit the reports
mentioned in this section, and shall state therein whether, in the opinion of
the Board, said changes in the monetary aggregates, credit or cost of living
represent a threat to the stability of the Philippine economy or of important
sectors thereof.
The Monetary Board shall continue to submit periodic reports to the President
of the Philippines and to Congress until it considers that the monetary, credit
or price disturbances have disappeared or have been adequately controlled.
Proposed Amendment
Section 63. Action When Abnormal Movements Occur in the Monetary
Aggregates, Credit, or Price Level. — Whenever abnormal movements in the
monetary aggregates, in credit, or in prices endanger the stability of the
Philippine economy or important sectors thereof, the Monetary Board shall:
(a) take such remedial measures as are appropriate and within the powers
granted to the Monetary Board and the Bangko Sentral under the provisions
of this Act; and
(b) submit to the President of the Philippines and the Congress, and make
public, a detailed report which shall include, as a minimum, a description and
analysis of:
(1) the causes of the rise or fall of the monetary aggregates, of credit or of
prices;
(2) the extent to which the changes in the monetary aggregates, in credit, or
in prices have been reflected in changes in the level of domestic output,
employment, wages and economic activity in general, and the nature and
significance of any such changes; and
(3 the measures which the Monetary Board has taken and the other
monetary, fiscal or administrative measures which it recommends to be
adopted.
Whenever the monetary aggregates, or the level of credit, increases or
decreases by more than fifteen percent (15%), or the cost of living index
increases by more than ten percent (10%), in relation to the level existing at
the end of the corresponding month of the preceding year, or even though any
of these THIS quantitative guidelines have HAS not been reached when in its
judgment the circumstances so warrant, the Monetary Board shall submit the
reports mentioned in this section, and shall state therein whether, in the
opinion of the Board, said changes in the monetary aggregates, credit or cost
of living represent a threat to the stability of the Philippine economy or of
important sectors thereof.
The Monetary Board shall continue to submit periodic reports to the President
of the Philippines and to Congress until it considers that the monetary, credit
or price disturbances have disappeared or have been adequately controlled.
ARTICLE II
INTERNATIONAL MONETARY STABILIZATION
Section 64. International Monetary Stabilization. — The Bangko Sentral shall
exercise its powers under this Act to preserve the international value of the
peso and to maintain its convertibility into other freely convertible currencies
primarily for, although not necessarily limited to, current payments for foreign
trade and invisibles.
Section 65. International Reserves. — In order to maintain the international
stability and 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.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
In judging the adequacy of the international reserves, the Monetary Board
shall be guided by the prospective receipts and payments of foreign exchange
by the Philippines.
The Board shall give special attention to the volume and maturity of the
Bangko Sentral's own liabilities in foreign currencies, to the volume and
maturity of the foreign exchange assets and liabilities of other banks operating
in the Philippines and, insofar as they are known or can be estimated, the
volume and maturity of the foreign exchange assets and liabilities of all other
persons and entities in the Philippines.
So we have international reserves. So in judging the adequacy of these
reserves, the monetary board shall be guided by prospective receipts and
payments of foreign exchange by the fields or the balance of payments.
That’s why OFW are new heroes because they allow our currency to be
stabilized because a lot of money are entering the country.
Gross International Reserves are foreign assets of the BSP serves as a standby
fund to finance the deficit that may arise from the combined current capital of
international transactions.
We have the national monetary stabilization composed of the reserves,
international reserves – these are composed of gold and assets in foreign
currencies.
So there are deposits and foreign currencies.
Section 66. Composition of the International Reserves. —
The international reserves of the Bangko Sentral may include but shall not be
limited to the following assets:
(a) gold; and
(b) assets in foreign currencies in the form of: documents and instruments
customarily employed for the international transfer of funds; demand and
time deposits in central banks, treasuries and commercial banks abroad;
foreign government securities; and foreign notes and coins.
The Monetary Board shall endeavor to hold the foreign exchange resources of
the Bangko Sentral in freely convertible currencies; moreover, the Board shall
give particular consideration to the prospects of continued strength and
convertibility of the currencies in which the reserve is maintained, as well as
to the anticipated demands for such currencies. The Monetary Board shall
issue regulations determining the other qualifications which foreign exchange
assets must meet in order to be included in the international reserves of the
Bangko Sentral.
The Bangko Sentral shall be free to convert any of the assets in its international
reserves into other assets as described in subsections (a) and (b) of this
section.
Section 67. Action When the International Stability of the Peso Is
Threatened. —
Whenever the international reserve of the Bangko Sentral falls to a level which
the Monetary Board considers inadequate to meet prospective net demands
on the Bangko Sentral for foreign currencies, or whenever the international
reserve appears to be in imminent danger of falling to such a level, or
whenever the international reserve is falling as a result of payments or
remittances abroad which, in the opinion of the Monetary Board, are contrary
to the national welfare, the Monetary Board shall:
(a) take such remedial measures as are appropriate and within the powers
granted to the Monetary Board and the Bangko Sentral under the provisions
of this Act; and
(b) submit to the President of the Philippines and to Congress a detailed report
which shall include, as a minimum, a description and analysis of:
(1) the nature and causes of the existing or imminent decline;
53
 (2) the remedial measures already taken or to be taken by the Monetary
Board;
(3) the monetary, fiscal or administrative measures further proposed; and
(4) the character and extent of the cooperation required from other
government agencies for the successful execution of the policies of the
Monetary Board.
If the resultant actions fail to check the deterioration of the reserve position
of the Bangko Sentral, or if the deterioration cannot be checked except by
chronic restrictions on exchange and trade transactions or by sacrifice of the
domestic objectives of a balanced and sustainable growth of the economy, the
Monetary Board shall propose to the President, with appropriate notice of
the Congress, such additional action as it deems necessary to restore
equilibrium in the international balance of payments of the Philippines.
The Monetary Board shall submit periodic reports to the President and to
Congress until the threat to the international monetary stability of the
Philippines has disappeared.
That’s why in the news and there is a topic on inflation, issue on poverty level,
there is always a comment from the Governor of the BSP. He always has
interviews because he is required.
We have this recent debate whether to take out the ban on rice, around last
month. Imported rice then an argument came between Piñol, Del Rosario
which is the Governor. There was chaos because it has an impact on the
stability.
The balance of payments, again, this is the summary of the economic
transactions of a country between the rest of the world. So the country with
the rest of the world. We are talking about imports and exports. So that is the
balance. There has to be a balance.
“Lahat ng bagay kaylangan balance. Wag puro aral, matulog din. Wag puro
tulog, mag-aral din.”
So this is an example— structured and current report, the balance of payment
development.
The country’s balance of payments position (BOP) posted a higher deficit of
US$2 billion in Q2 2018 compared to the US$1.2 billion deficit in the previous
quarter. This development stemmed mainly from the current account, which
reversed to a deficit of US$2.9 billion as the trade-in-goods deficit widened
and the net receipts in the primary income account declined. Imports of goods
continued to expand, driven mainly by increasing domestic production and
consumption brought about by the country’s solid growth dynamics.
Meanwhile, the financial account posted net inflows— BALANCE OF
PAYMENTS DEVELOPMENTS, 2nd Quarter 2018 Developments
That is just an example of your BOP.
CHAPTER IV
INSTRUMENTS OF BANGKO SENTRAL ACTION
ARTICLE I - GENERAL CRITERION
Section 68. Means of Action. — In order to achieve the primary objective of
price stability, the Monetary Board shall rely on its moral influence and the
powers granted to it under this Act for the management of monetary
aggregates.
This is what you call MORAL SUASION. So it uses its moral influence on the
banks.
How can it have moral suasion?
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Moral Suasion— it is an influence that the Central Bank tries to induce or to
convince banks to conduct operations in a manner that would contribute to
the attainment of its monetary goals.
So that might be not be supportive of profit or that may even contradict profit
maximization which is the objective of banks. So to tell you, these banks are
Corporations as well.
What is their goal?
A: profits of course for the stockholders
Between their interest of profit and between their interest of helping the
economy, which one will they prioritize?
A: PROFIT.
That’s why, the BSP has the right to influence them morally. So moral suasion.
How does it do it?
A: there are dialogues. They conduct symposiums and dialogues with the head
of the banks. They will say this is our goal, we need to do this altogether.
In the economy this is what will happen, so you’ll be affected. That’s what we
call moral suasion. They use their moral influence through inter-bank dialogue
through the executives of the banks.
ARTICLE II
OPERATIONS IN GOLD AND FOREIGN EXCHANGE
Section 69. Purchases and Sales of Gold. — The Bangko Sentral may buy and
sell gold in any form, subject to such regulations as the Monetary Board may
issue.
The purchases and sales of gold authorized by this section shall be made in the
national currency at the prevailing international market price as determined
by the Monetary Board.
FOREX Stability
The BSP participates in the Forex market by buying and selling foreign
exchange to ensure order and temporary destabilization swings and exchange
rate.
The BSP can actually enter into foreign exchange transactions.
What are the main foreign exchange transactions?
1. Foreign Exchange Forward
2. Foreign Exchange Swap
These are actually what you call Derivative Contracts because they derive
value on an underlying instrument.
In this particular case, the foreign currencies.
What is Foreign Exchange Contract or Foreign Exchange Forward?
A: It shall refer to contract to purchase and sell a specified amount of currency
against another having specified the foreign exchange rate for deliverance at
a specified future date for 3 or more business days. ***
Let’s say I will buy 100 dollar at 55 peso per dollar, determined.
Specified exchange rate for delivery after 3 days. Now if the value increases
after that day, you’re at a loss. If it goes down, you have a gain.
Please take note of that.
What is Foreign Exchange Swap?
54
 A: This actually refers to a transaction involving an actual exchange. There is
an exchange of 2 currencies and its specified rate at a date.
This is what you call the registration document.
And reverse of the same, you guys exchanged.

Example peso and Thai Baht. You exchange then after a specified date you So you need your BSRD to funnel your repatriation in the Philippine banking
exchange again at a specific rate. system.

Please take note—that the rate on your second exchange must be different
from the rate applied to the first.
Why is it, if it’s the same?
A: It has to be different.
You guys exchange at 55 today, then tomorrow, you exchange again at 55. So
the rate has to be different the second exchange.
Section 70. Purchases and Sales of Foreign Exchange. — The Bangko Sentral
may buy and sell foreign notes and coins, and documents and instruments of
types customarily employed for the international transfer of funds. The
Bangko Sentral may engage in future exchange operations.
The Bangko Sentral may engage in foreign exchange transactions with the
following entities or persons only:
(a) banking institutions operating in the Philippines;
(b) the Government, its political subdivisions and instrumentalities;

Foreign Exchange Dealers (c) foreign or international financial institutions;

• money changers. They are regulated by the BSP.
• Are those regularly engaged in the business of buying and selling foreign
currencies
• These are you money changers or MCs
I would like to draw your attention to foreign creditors. If you have
Corporations in the Philippines then the person who will fund us is from
outside the Philippines, there is direct investment (fund-in).
Let’s say it will invest 1 million USD. The encouragement of the BSP is to
register the foreign investment with BSP or with the investors designated by
the BSP.
But this is optional. If I will increase my investment in the Philippines, I have
to register. But that is only optional.
Why is it only optional when you register?
A: the reason why it needs to register with the BSP is because when you
repatriate the profit, stockholder invests 1 million here. After a year, he wants
to get his dividends.
(d) foreign governments and their instrumentalities; and
(e) other entities or persons which the Monetary Board is hereby empowered
to authorize as foreign exchange dealers, subject to such rules and regulations
as the Monetary Board shall prescribe.
In order to maintain the convertibility of the peso, the Bangko Sentral may, at
the request of any banking institution operating in the Philippines, buy any
quantity of foreign exchange offered, and sell any quantity of foreign exchange
demanded, by such institution, provided that the foreign currencies so offered
or demanded are freely convertible into gold or United States dollars. This
requirement shall not apply to demands for foreign notes and coins.
The Bangko Sentral shall effect its exchange transactions between foreign
currencies and the Philippine peso at the rates determined in accordance with
the provisions of Section 74 of this Act.

So that is what you call Repatriation.
That’s not just dividends. He can loan. I will loan to the Philippines because
they’re poor for 1 million USD and then interest. So I will demand interest. You
will be paid in money from the Philippines for the interest in USD.
Now the problem of not registering it with the BSP is that he can’t use the
banking system to funnel the currency.
Section 71. Foreign Asset Position of the Bangko Sentral. — The Bangko
Sentral shall endeavor to maintain at all times a net positive foreign asset
position so that its gross foreign exchange assets will always exceed its gross
foreign liabilities. In the event that the equivalent amount in pesos of the
foreign exchange liabilities of the Bangko Sentral exceed twice the equivalent
amount in pesos of the foreign exchange assets of the bank, the Bangko
Sentral shall, within sixty (60) days from the date the limit is exceeded, submit
a report to the Congress stating the origin of these liabilities, and the manner
in which they will be paid.

What will happen is that he will buy from the small money changer of currency.
That’s why it’s optional because you never know you have bank account in
USD. You don’t need to funnel it in the banking system.

The registration is only for purposes of funneling the repatriation in the

Philippine banking system. It is convenient to register it because you won’t
have a problem when you try to repatriate your investment.

But it is only optional because you have the right to go to the money changer
if you want to or if you have your own foreign currency account.

That is the reason.

Benefit of Registering FDI

BSP registration will authorize the foreign investor or his duly authorized
representative to purchase FX from AABs/AAB-forex corps to repatriate capital
and/or remit dividends/profits/earnings accruing on BSP-registered
investments in FX. The Bangko Sentral Registration Document is one of the
prescribed documents to support an application to buy FX from AABs/AAB-
forex corps in the Philippines for these purposes.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 55

 December 12, 2018 (2nd Hour)
Section 72. Emergency Restrictions on Exchange Operations. — In order to
achieve the primary objective of the Bangko Sentral as set forth in Section 3 of
this Act, or protect the international reserves of the Bangko Sentral in the
imminence of, or during the an exchange crisis, or in time of national
emergency and to give the Monetary Board and the Government time in
which to take constructive measures to forestall, combat, or overcome such a
crisis or emergency, the Monetary Board, with the concurrence of at least 5
of its members and with the approval of the President of the Philippines,
may temporarily suspend or restrict sales of exchange by the Bangko Sentral,
and may subject all transactions in gold and foreign exchange to license by the
Bangko Sentral, and may require that any foreign exchange thereafter
obtained by any person residing or entity operating in the Philippines be
delivered to the Bangko Sentral or to any bank or agent designated by the
Bangko Sentral for the purpose, at the effective exchange rate or rates:
Provided, however, That foreign currency deposits made under RA No. 6426
shall be exempt from these requirements.
Please take note of the approval requirement— it has to be approved by the
5 members of the Monetary Board (MB) and with the approval of the
President of the Philippines.
What are these contemplated emergencies?
We are talking about international monetary crisis, coup d’état, civil war or
banking crisis.
Case in point is the 1997 Asian Financial Crisis. There are a lot of commentaries
on that. It actually started, when the Thai government sought the aid of the
IMF to help them, to rescue them out because the problem here is that the
Asian countries’ currency really went down against the USD. They Japayuki
took out loans until the value of their loans ballooned, 10x, 12x, 20x, and they
couldn’t keep up with it because the currency depreciated.
What did our Government do to temper that down— because this is one that
we can consider an international monetary crisis?
Section 72 says, the Monetary Board, with the concurrence of at least 5 of its
members and with the approval of the President of the Philippines, can
temporarily suspend or restrict sales of foreign exchange.
What they did, it required prior clearance on the sale of the non-available
contracts to non-business including off-shore banking units. So, they limited
foreign exchange on shore. It adjusted the allowable overhaul foreign
exchange position of banks for not more than 12, 20-10. Further, it justified
impaired capital. So, they couldn’t sell foreign exchange during that time. It
lowered the ceiling of allowable over the counter dollar exchange in banks
without need of documentation. Before 10, 000 USD without need of
documentation. They really restrict the selling of foreign exchange. It required
consolidation of bank and its subsidiaries and required banks to submit forms
for all purposes.
BACOLOD MURCIA MILLING CO., INC. VS. CENTRAL BANK OF THE
PHILIPPINES,
[ G.R. No. L-12610, October 25, 1963 ]
On or about December 17, 1956, Bacolod Murcia Milling sold and exported to
Olavarria & Co., Inc. of New York 3,000 tons of sugar for the total price of
$416,640.00 and drew against said Olavarria & Co., Inc. two (2) drafts for the
total sum of $336,995.40 to cover an initial payment of 95% which was then
entrusted and delivered for collection to the Philippine Bank of Commerce.
PBC called the attention of Bacolod that under existing rules and regulations
all exchange proceeds of the drafts must be sold to the Central Bank
authorities at the prevailing rate of exchange set up by the Central Bank at the
rate also of 2 to 1. Plaintiff wrote to the defendant Central Bank questioning
the legality of the rules.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Bacolod brought this special civil action for prohibition in order to stop the
defendant Central Bank from taking: further action to enforce Circular No. 20.
Plaintiff says that the forced sale of foreign exchange to the Central Bank
required in Circular No. 20 is 'ultra vires'; and that the practice of the Central
Bank in paying for such exchange only at the legal parity rate with the purpose
of reselling the same to other private parties at the same rate is a confiscation
of private property not for public use nor for just compensation.
According to the Central Bank, Circular No. 20 is presumed to be valid and the
Philippines being a signatory member to the IMF Agreement, such is bound to
respect and maintain the par value of the Philippine currency, and that Circular
No. 20 was approved in an exchange crisis; that the powers of the Central Bank
to curtail, regulate and license the use of foreign exchange include the right to
require that all foreign exchange be surrendered and that the plaintiff has not
exhausted all the administrative remedies available in the ordinary course of
law, etc.
RTC: found that there is a monetary crisis, that the export of sugar by plaintiff
was a transaction on foreign exchange; that while plaintiff would stand to lose
by the operation of the exchange control circular, the enactment of a law on
currency and even the issuance of paper money as legal tender are attributes
of the sovereign power.
ISSUE: Whether the exchange control provision contained in Section 4 (a) of
Central Bank Circular No. 20, may be considered as sufficiently authorized by
the provisions of the Charter.
RUING: The disputed Section 4 (a) of Circular No. 20 of the Central Bank is
beyond the power of the Central Bank to adopt under the provisions of its
Charter, particularly Section 74 thereof.
The provisions of Republic Act 265 are so broad and encompassing with
respect to the Bank's powers that it is difficult to believe that exchange control
was not authorized within the scope of the Charter.
In Section 70, the Central Bank shall take remedial measures as are
appropriate and within the powers granted whenever the international
reserve falls "to an amount which the Monetary Board considers inadequate
to meet the prospective net demands on the Central Bank for foreign
currencies, or whenever the international reserve appears to be in imminent
danger of falling to such a level, or whenever the international reserve is falling
as a result of payments or remittances abroad, which, in the opinion of the
Monetary Board, are contrary to the national welfare." It is recognized that a
body created by law has the power to promulgate rules and regulations to
implement a given legislation and effectuate its policies.
Under Section 14 the Monetary Board is given the authority to "prepare and
issue such rules and regulations as it considers necessary for the effective
discharge of the responsibilities and exercise the powers assigned to the
Monetary Board and to the Central Bank."
The forcible sale of foreign exchange to the Central Bank, in relation to the
powers and responsibilities given to it in Secs. 2, 14, 64, 68, 70, 74 and other
sections of R. A. No. 265 can be regarded as falling within the category of
"implied powers" as those necessary for the effective discharge of its
responsibilities.
"Implied powers are such as are necessary to carry into effect those which are
expressly granted, and which must therefore be presumed to have been within
the intention of the legislative grant."
Under Section 70 of the Central Bank Charter the Bank may adopt such
remedial measures as are appropriate to maintain the international reserve to
a desired level, as directed in Section 70 of the Charter, which provides:
"Sec. 70. Action when the international stability of the peso is threatened.
Whenever the international reserve of the Central Bank falls to an amount
which the Monetary Board considers inadequate to meet the prospective net
demands on the Central Bank for foreign currencies, or whenever the
international reserve appears to be in imminent danger of falling to such a
level, or whenever the international reserve is falling as a result of payments
or remittances abroad which, in the opinion of the Monetary Board, are
contrary to the national welfare, the Monetary Board shall:
56

"(a) Take such remedial measures as are appropriate and within the powers
granted to the Monetary Board and the Central Bank under the provisions of
this Act."
However, the Central Bank can not be said to have been given the authority to
pass or enact by law the exchange control provision that it had established.
minimum balance necessary to cover current demands for said currencies only
when, and to the extent that, such acquisition is considered by the Monetary
Board to be in the national interest.
The Monetary Board shall determine the procedures which shall apply to the
acquisition and disposition by the Bangko Sentral of foreign exchange which is
not freely utilizable in the international market.

The Central Bank Act merely authorizes the Monetary Board to license or to Not all currencies around the world are convertible in our country. These are
restrict or regulate foreign exchange; said Act does not authorize it to the only convertible currencies right now—
commandeer foreign exchange earned by exporters and pay for it the price it
fixes, later selling it to importers at the same rate of purchase. The power to
commandeer amounts to a confiscatory power that may not be exercised by 1. UNITED STATES
the Central Bank under its Charter; that such confiscatory measures if justified 2. JAPAN
by a monetary crisis can be adopted by the legislature alone under its police 3. UNITED KINGDOM
power. 4. HONGKONG
5. SWITZERLAND
Therefore, the disputed Section 4 (a) of Circular No. 20 of the Central Bank is 6. CANADA
beyond the power of the Central Bank to adopt under the provisions of its 7. SINGAPORE
Charter, particularly Section 74 thereof. (Now Sec 72.) 8. AUSTRALIA
9. BAHRAIN
Emergency Restrictions on Exchange Operations. — In order to achieve the 10. KUWAIT
primary objective of the Bangko Sentral as set forth in Section 3 of this Act, or 11. SAUDI ARABIA
protect the international reserves of the Bangko Sentral in the imminence of, 12. BRUNEI
or during an exchange crisis, or in time of national emergency and to give the 13. INDONESIA
Monetary Board and the Government time in which to take constructive 14. THAILAND
measures to forestall, combat, or overcome such a crisis or emergency, the 15. UNITED ARAB EMIRATES
Monetary Board, with the concurrence of at least five (5) of its members and 16. EUROPEAN MONETARY UNION
with the approval of the President of the Philippines, may temporarily suspend 17. KOREA
or restrict sales of exchange by the Bangko Sentral, and may subject all 18. CHINA
transactions in gold and foreign exchange to license by the Bangko Sentral,
and may require that any foreign exchange thereafter obtained by any person Surprisingly, we don’t have a Malaysian currency. It is not a convertible
residing or entity operating in the Philippines be delivered to the Bangko currency. We have it in Aldevinco.
Sentral or to any bank or agent designated by the Bangko Sentral for the
purpose, at the effective exchange rate or rates: Provided, however, That What will happen if there’s no currency there? They convert it to a convertible
foreign currency deposits made under Republic Act No. 6426 shall be exempt currency. There is dual conversion.
from these requirements.
Section 74. Exchange Rates. — The Monetary Board shall determine the
That exchange control helped to ward off the exchange crisis is true; but it was exchange rate policy of the country.
by no means the only way to do so. It was not necessary for the bank to
commandeer all foreign exchange to maintain the international monetary The Monetary Board shall determine the rates at which the Bangko Sentral
reserve. This could be done by mere licensing of the sale of foreign exchange, shall buy and sell spot exchange, and shall establish deviation limits from the
directing those that earn the dollars, for example, to sell to those that are effective exchange rate or rates as it may deem proper.
licensed to import the foreign commodities needed by the country's
population and economy. As the exports are to be licensed also, the bank The Bangko Sentral shall not collect any additional commissions or charges of
could merely restrict the freedom of the exporter holding the foreign any sort, other than actual telegraphic or cable costs incurred by it.
exchange, requiring him to sell the foreign exchange to the licensed importer.
The Monetary shall similarly determine the rates for other types of foreign
exchange transactions by the Bangko Sentral, including purchases and sales of
foreign notes and coins, but the margins between the effective exchange rates
and the rates thus established may not exceed the corresponding margins for
The petition was dismissed. The writer said commandeering is not allowed spot exchange transactions by more than additional costs or expenses
because it is tantamount to a confiscatory of power which they cannot involved in each type of transactions.
implement. It is confiscatory in nature. They exported and they wanted to pay
under their own currency, USD. Now, they are made to sell to the Central Bank
at a fixed rate. Now, they have the short end of the bargain because there is 1. Fix Exchange Rate
BSP Circular No. 20. The court said the commandeering of foreign currency is
beyond the authority of the Central Bank. What is the authority of the Central 2. Floating Exchange Rate
Bank? The authority is merely to license and to restrict. So, they cannot force
them to sell to the Central Bank. In fact, the writer said, what will happen if 3. Semi-Fixed or Mixed Exchange Rate
you commandeer the foreign exchange? What will happen to the exporter?
The profit will be consumed by foreign exchange. It will restrict trading. Your Usually we go with the Floating Exchange Rate— what is in the market.
profit will be consumed by foreign exchange. What will happen? There will be
more imports than exports. It will destabilize the monetary currency. The point
of BSP is that they want to control the foreign currency so that they could
properly allocate it to the importers. Importers need foreign currency because
Section 75. Operations with Foreign Entities. – The Monetary Board may
they are paying in USD. The exporters are paying you (BSP) in dollars. It
authorize the Bangko Sentral to grant loans and receive loans from foreign
stabilizes. Commandeering or controlling the foreign currency is not part of
banks and other foreign or international entities, both public and private, may
the power of the Bangko Sentral. The Bangko Sentral can only license.
engage in such other operations with these entities as are in the national
interest and are appropriate to its character as a central bank. The Bangko
Section 73. Acquisition of Incontrovertible Currencies. – The Bangko Sentral Sentral may also act as agent or correspondent for such entities.
shall avoid acquisition and holding of currencies which are not freely
convertible, and may acquire such currencies in an amount exceeding the

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 57

 Upon authority of the Monetary Board, the Bangko Sentral may pledge any
gold or other assets which it possesses as security against loans which it
receives from foreign or international entities.
ARTICLE III
REGULATION OF FOREIGN EXCHANGE OPERATIONS OF THE BANKS
Section 76. Foreign Exchange Holdings of the Banks. – In order that the
Bangko Sentral may at all times have foreign exchange resources sufficient to
enable it to maintain the international stability and convertibility of the peso,
or in order to promote the domestic investment of bank resources, the
Monetary Board may require the banks to sell to the Bangko Sentral or to
other banks all or part of their surplus holdings of foreign exchange. Such
transfers may be required for all foreign currencies or for only certain of such
currencies, according to the decision of the Monetary Board. The transfers
shall be made at the rates established under the provisions of Section 74 of
this Act.
The Monetary Board may, whenever warranted, determine the net assets and
liabilities of banks and shall in making such a determination take into account
the bank’s net worth, outstanding liabilities, actual and contingent or such
other financial or performance ratios as may be appropriate under the
circumstances. Any such determination of net assets and net liabilities shall be
applied in all banks uniformly and without discrimination.
ARTICLE III
REGULATION OF FOREIGN EXCHANGE OPERATIONS OF THE BANKS
Section 77. Requirement of Balanced Currency Position. – The Monetary
Board may require the banks to maintain a balanced position between their
assets and liabilities in Philippine pesos or in any other currency or currencies
in which they operate. The banks shall be granted a reasonable period of time
in which to adjust their currency positions to any such requirement.
The powers granted under this section shall be exercised only when special
circumstances make such action necessary, in the opinion of the Monetary
Board, and shall be applied to all banks alike and without discrimination.
Open Foreign Exchange Position
— Refers to the extent that the banks’ foreign exchange assets do
not match their foreign exchange liabilities.
Allowable open FX position - Banks' allowable open FX position (either
overbought or oversold) shall be the lower of 20 percent (20%) of their
unimpaired capital or US$50 million. Any excess beyond the allowable limit
shall be settled on a daily basis (MORFXT Section 98)
Can the BSP regulate the non-spot exchange transaction?
Section 78. Regulation of Non-spot Exchange Transactions. – In order to
restrain the banks from taking speculative positions with respect to future
fluctuations in foreign exchange rates, the Monetary Board may issue such
regulations governing bank purchases and sales of non-spot exchange as it
may consider necessary for said purpose.
Why is this important?
Banks are driven purely for profit. It is possible that it’s investment is purely
speculative. It will enter into foreign currency swaps or foreign currency
forward-contracts and the bulk of our investments is in that contract so what
well deposited in their bank and they will place it there. What if it’s risky and
it all goes down? It’s like an all-or-nothing game.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Section 79. Other Exchange Profits and Losses. – The banks shall bear the risks
of non-compliance with the terms of the foreign exchange documents and
instruments which they buy and sell, shall also bear any other typically
commercial or banking risks, including exchange risks not assumed by the
Bangko Sentral under the provisions of the preceding section.
Section 80. Information on Exchange Operations. – The banks shall report to
the Bangko Sentral the volume and composition of their purchases and sales
of gold and exchange each day, and must furnish additional information as to
the Bangko Sentral may request with reference to the movements in their
accounts in foreign currencies.
The Monetary may also require other persons and entities to report to it
currently all transactions or operations in gold, in any shape or form, and in
foreign exchange whether entered into or undertaken by them directly or
through agents, or to submit such data as may be required on operations or
activities giving rise to or in connection with or relating to a gold or foreign
exchange transaction. The Monetary Board shall prescribe the forms in which
such declarations must be made.
The accuracy of the declarations may be verified by the Bangko Sentral by
whatever inspection it may deem necessary.
ARTICLE IV
LOANS TO BANKING AND OTHER FINANCIAL INSTITUTIONS
Section 81. Guiding Principles. – The rediscounts, discounts, loans and
advances which the Bangko Sentral is authorized to extend to banking
institutions under the provisions of the present article of this Act shall be used
to influence the volume of credit consistent with the objective of price
stability.
Proposed Amendment
Section 81. Guiding Principles. – The rediscounts, discounts, loans and
advances which the Bangko Sentral is authorized to extend to banking
institutions under the provisions of the present article of this Act shall be used
to influence the volume of credit consistent with the objective of price stability
and maintenance of financial stability.
Credit Policy
Discount— bank loan with interest deducted from the face amount of the note
when the credit is extended. It is also described as interest paid in advance or
interest paid at the beginning of a loan based upon the sum to be repaid at its
maturity.
Rediscount— process by which the Bangko Sentral discounts a negotiable
instrument or commercial finance paper that are already discounted at the
bank.
Loans and advances are contracts where one of the parties loans another,
money or other consumable thing, upon the condition the same amount of
the same kind and quantity shall be paid.
Self-explanatory.
B. NORMAL CREDIT OPERATIONS
Section 82. Authorized Type of Operations. – Subject to the principle stated
in the preceding section of this Act, the Bangko Sentral may normally and
regularly carry on the following credit operations with banking institutions
operating in the Philippines:
58
 (a) Commercial credits. — The Bangko Sentral may rediscount, discount, buy
and sell bills, acceptances, promissory notes and other credit instruments with
maturities of not more than one hundred eighty (180) days from the date of
their rediscount, discount or acquisition by the Bangko Sentral and resulting
from transactions related to:
(1) the importation, exportation, purchase or sale of readily saleable goods
and products, or their transportation within the Philippines; or
C. SPECIAL CREDIT OPERATIONS
Section 83. Loans for Liquidity Purposes. – The Bangko Sentral may extend
loans and advances to banking institutions for a period of not more than (7)
days without any collateral for the purpose of providing liquidity to the
banking system in times of need.

(2) the storing of non-perishable goods and products which are duly insured
and deposited, under conditions assuring their preservation, in authorized D. EMERGENCY CREDIT OPERATION
bonded warehouses or in other places approved by the Monetary Board.
Section 84. Emergency Loans and Advances. – In periods of national and/or
(b) Production credits. — The Bangko Sentral may rediscount, discount, buy
local emergency or of imminent financial panic which directly threaten
and sell bills, acceptances, promissory notes and other credit instruments
monetary and banking stability, the Monetary Board may, by a vote of at least
having maturities of not more than three hundred sixty (360) days from the
five (5) of its members, authorize the Bangko Sentral to grant extraordinary
date of their rediscount, discount or acquisition by the Bangko Sentral and
loans or advances to banking institutions secured by assets as defined
resulting from transactions related to the production or processing of
hereunder: Provided, That while such loans or advances are outstanding, the
agricultural, animal, mineral, or industrial products. Documents or
debtor institution shall not, except upon prior authorization by the Monetary
instruments acquired in accordance with this subsection shall be secured by a
Board, expand the total volume of its loans or investments.
pledge of the respective crops or products: Provided, however, That the crops
or products need not be pledged to secure the documents if the original loan
The Monetary Board may, at its discretion, likewise authorize the Bangko
granted by the Bangko Sentral is secured by a lien or mortgage on real estate
Sentral to grant emergency loans or advances to banking institutions, even
property seventy percent (70%) of the appraised value of which equals or
during normal periods, for the purpose of assisting a bank in a precarious
exceeds the amount of the loan granted.
financial condition or under serious financial pressures brought by unforeseen
events, or events which, though foreseeable, could not be prevented by the
(c) Other credits. — Special credit instruments not otherwise rediscountable
bank concerned: Provided, however, That the Monetary Board has
under the immediately preceding subsections (a) and (b) may be eligible for
ascertained that the bank is not insolvent and has the assets defined
rediscounting in accordance with rules and regulations which the Bangko
hereunder to secure the advances: Provided, further, That a concurrent vote
Sentral shall prescribe. Whenever necessary, the Bangko Sentral shall provide
of at least five (5) members of the Monetary Board is obtained.
funds from non-inflationary sources: Provided, however, That the Monetary
Board shall prescribe additional safeguards for disbursing these funds.
The amount of any emergency loan or advance shall not exceed the sum of
fifty percent (50%) of total deposits and deposit substitutes of the banking
(d) Advances. — The Bangko Sentral may grant advances against the following
institution and shall be disbursed in two (2) or more tranches. The amount of
kinds of collaterals for fixed periods which, with the exception of advances
the first tranche shall be limited to twenty-five percent (25%) of the total
against collateral named in clause (4) of the present subsection, shall not
deposit and deposit substitutes of the institution and shall be secured by
exceed one hundred eighty (180) days:
government securities to the extent of their applicable loan values and other
unencumbered first class collaterals which the Monetary Board may approve:
(1) gold coins or bullion;
Provided, That if as determined by the Monetary Board, the circumstances
surrounding the emergency warrant a loan or advance greater than the
(2) securities representing obligations of the Bangko Sentral or of other
amount provided hereinabove, the amount of the first tranche may exceed
domestic institutions of recognized solvency;
twenty-five percent (25%) of the bank’s total deposit and deposit substitutes
if the same is adequately secured by applicable loan values of government
(3) the credit instruments to which reference is made in subsection (a) of this
securities and unencumbered first class collaterals approved by the Monetary
section;
Board, and the principal stockholders of the institution furnish an acceptable
undertaking to indemnify and hold harmless from suit a conservator whose
(4) the credit instruments to which reference is made in subsection (b) of this
appointment the Monetary Board may find necessary at any time.
section, for periods which shall not exceed three hundred sixty (360) days;
Prior to the release of the first tranche, the banking institution shall submit to
(5) utilized portions of advances in current amount covered by regular
the Bangko Sentral a resolution of its board of directors authorizing the Bangko
overdraft agreements related to operations included under subsections (a)
Sentral to evaluate other assets of the banking institution certified by its
and (b) of this section, and certified as to amount and liquidity by the
external auditor to be good and available for collateral purposes should the
institution soliciting the advance;
release of the subsequent tranche be thereafter applied for.
(6) negotiable treasury bills, certificates of indebtedness, notes and other
The Monetary Board may, by a vote of at least five (5) of its members,
negotiable obligations of the Government maturing within three (3) years
authorize the release of a subsequent tranche on condition that the principal
from the date of the advance; and
stockholders of the institution:
(7) negotiable bonds issued by the Government of the Philippines, by
(a) furnish an acceptable undertaking to indemnify and hold harmless from
Philippine provincial, city or municipal governments, or by any Philippine
suit a conservator whose appointment the Monetary Board may find
Government instrumentality, and having maturities of not more than ten (10)
necessary at any time; and
years from the date of advance.
(b) provide acceptable security which, in the judgment of the Monetary Board,
The rediscounts, discounts, loans and advances made in accordance with the
would be adequate to supplement, where necessary, the assets tendered by
provisions of this section may not be renewed or extended unless
the banking institution to collateralize the subsequent tranche.
extraordinary circumstances fully justify such renewal or extension.
In connection with the exercise of these powers, the prohibitions in Section
Advances made against the collateral named in clauses (6) and (7) of
128 of this Act shall not apply insofar as it refers to acceptance as collateral of
subsection (d) of this section may not exceed eighty percent (80%) of the
shares and their acquisition as a result of foreclosure proceedings, including
current market value of the collateral.
the exercise of voting rights pertaining to said shares: Provided, however, That
should the Bangko Sentral acquire any of the shares it has accepted as
The Bangko Sentral extend loans to banks for the bank to survive. That is its collateral as a result of foreclosure proceedings, the Bangko Sentral shall
work as a Central Bank.

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 59

 dispose of said shares by public bidding within one (1) year from the date of
consolidation of title by the Bangko Sentral.
Whenever a financial institution incurs an overdraft in its account with the
Bangko Sentral, the same shall be eliminated within the period prescribed in
Section 102 of this Act.
Proposed Amendment
Section 84. Emergency Loans and Advances. – In periods of national and/or
local emergency or of imminent financial panic which directly threaten
monetary and financial stability, the Monetary Board may, by a vote of at least
5 of its members, authorize the Bangko Sentral to grant extraordinary loans or
advances to banking institutions, secured by assets as defined hereunder:
Provided, That while such loans or advances are outstanding, the debtor
institution shall not, except upon prior authorization by the Monetary Board,
expand the total volume of its loans or investments.
The Monetary Board may, at its discretion, likewise authorize the Bangko
Sentral to grant emergency loans or advances to banking institutions, even
during normal periods, for the purpose of assisting a bank in a precarious
financial condition or under serious financial pressures brought by unforeseen
events, or events which, though foreseeable, could not be prevented by the
bank concerned: Provided, however, That the Monetary Board has
ascertained that the bank is not insolvent and has the assets defined
hereunder to secure the advances: Provided, further, That a concurrent vote
of at least five (5) members of the Monetary Board is obtained.
The amount of any emergency loan or advance shall not exceed the sum of
fifty percent (50%) of total deposits and deposit substitutes of the banking
institution and shall be disbursed in two (2) or more tranches. The amount of
the first tranche shall be limited to twenty-five percent (25%) of the total
deposit and deposit substitutes of the institution and shall be secured by (a)
government securities, (b) acceptable guarantees backed up by the national
government or its securities; (c) other unencumbered first class collaterals and
(d) other kinds of collaterals as may be authorized by the Monetary Board in
accordance with sound risk management principles: Provided, That if as
determined by the Monetary Board, the circumstances surrounding the
emergency warrant a loan or advance greater than the amount provided
hereinabove, the amount of the first tranche may exceed twenty-five percent
(25%) of the bank’s total deposit and deposit substitutes if the same is
adequately secured by any of the collaterals set forth above as approved by
the Monetary Board, and the principal stockholders of the institution furnish
an acceptable undertaking to indemnify and hold harmless from suit a
conservator whose appointment the Monetary Board may find necessary at
any time.
Prior to the release of the first tranche, the banking institution shall submit to
the Bangko Sentral a resolution of its board of directors authorizing the Bangko
Sentral to evaluate other assets of the banking institution certified by its
external auditor to be good and available for collateral purposes should the
release of the subsequent tranche be thereafter applied for.
The Monetary Board may, by a vote of at least five (5) of its members,
authorize the release of a subsequent tranche on condition that the principal
stockholders of the institution:
(a) furnish an acceptable undertaking to indemnify and hold harmless from
suit a conservator whose appointment the Monetary Board may find
necessary at any time; and
(b) provide acceptable security which, in the judgment of the Monetary Board,
would be adequate to supplement, where necessary, the assets tendered by
the banking institution to collateralize the subsequent tranche.
In connection with the exercise of these powers, the prohibitions in Section
128 of this Act shall not apply insofar as it refers to acceptance as collateral of
shares and their acquisition as a result of foreclosure proceedings, including
the exercise of voting rights pertaining to said shares: Provided, however, That
should the Bangko Sentral acquire any of the shares it has accepted as
collateral as a result of foreclosure proceedings, the Bangko Sentral shall
dispose of said shares by public bidding within one (1) year from the date of
consolidation of title by the Bangko Sentral.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Whenever a financial institution incurs an overdraft in its account with the
Bangko Sentral, the same shall be eliminated within the period prescribed in
Section 102 of this Act.
Let’s say during receivership, can there be emergency credit? Yes. This is one
of the ways in which it can help the bank survive.
Up to the amount 50%.
Please take note— these loans must be secured by—
(a) government securities;
(b) acceptable guarantees backed up by the national government or its
securities;
(c) other unencumbered first class collaterals and (d) other kinds of collaterals
as may be authorized by the Monetary Board in accordance with sound risk
management principles
E. CREDIT TERMS
Section 85. Interest and Rediscount. — The Bangko Sentral shall collect
interest and other appropriate charges on all loans and advances it extends,
the closure, receivership or liquidations of the debtor-institution
notwithstanding. This provision shall apply prospectively.
The Monetary Board shall fix the interest and rediscount rates to be charged
by the Bangko Sentral on its credit operations in accordance with the character
and term of the operation, but after due consideration has been given to the
credit needs of the market, the
composition of the Bangko Sentral’s portfolio, and the general requirements
of the national monetary policy. Interest and rediscount rates shall be applied
to all banks of the same category uniformly and without discrimination.
Section 86. Endorsement. – The documents rediscounted, discounted,
bought or accepted as collateral by the Bangko Sentral in the course of the
credit operations authorized in this article shall bear the endorsement of the
institution from which they are received.
Section 87. Repayment of Credits. – Documents rediscounted, discounted or
accepted as collateral by the Bangko Sentral must be withdrawn by the
borrowing institution on the dates of their maturities, or upon liquidation of
the obligations which they represent or to which they relate whenever said
obligations have been liquidated prior to their dates of maturity.
Banks shall have the right at any time to withdraw any documents which they
have presented to the Bangko Sentral as collateral, upon payment in full of the
corresponding debt to the Bangko Sentral, including interest charges.
Section 88. Other Requirements. – The Monetary Board may prescribe, within
the general powers granted to it under this Act, additional conditions which
borrowing institutions must satisfy in order to have access to the credit of the
Bangko Sentral. These conditions may refer to the rates of interest charged by
the banks, to the purposes for which their loans in general are destined, and
to any other clearly definable aspect of the credit policy of the bank.
Additional Provisions—
Section 88-A. Exemption of Collaterals from Attachments, Executions and
Other Restrictions. — Collaterals on loans and advances granted by the
Bangko Sentral, whether or not the interest of the Bangko Sentral is
registered, shall not be subject to attachment, execution, or any other court
processes or administrative restrictions on land use, nor shall they be included
in the property of insolvent persons or institutions.
These are exempt assets from attachment, execution, etc.
60
 Section 88-B. Deputization of Legal Staff in Case of Foreclosures. – In case of formulate rules and regulations for the extension of financial facilities to
an extrajudicial foreclosure of mortgage in connection with loans and Islamic Banks provided such exposures shall be properly secured.
advances under this article, the Bangko Sentral may deputize any of its lawyers
to conduct the public auction pursuant to Act No. 3135, as amended. They don’t consider profit in money-lending. They loan money but let’s do a
joint venture. I will profit not from the interest but from a trading activity.
Likewise, in case of a judicial foreclosure in connection with loans and Money is considered a medium of exchange not a source of profit. That is the
advances under this Article, the Bangko Sentral may, with the approval of the peculiar characteristic of Islamic banking. It re-defines the banking concept.
court, deputize any of its lawyers to act as Special Sheriff in the sale of a
debtor’s properties and in the enforcement of court writs and processes
related thereto. The Special Sherriff of the Bangko Sentral shall make a report
to the proper court after any action has been taken by him, which court shall
treat such action as if it were an act of its own sheriff in all aspects.

No restraining order or injunction shall be issued by the court enjoining the

Bangko Sentral from proceeding with the foreclosure of the mortgage unless
a bond is posted in favor of the Bangko Sentral in an amount equivalent to the
total claim of the Bangko Sentral. The restraining order or injunction shall be
refused, or if granted, shall be dissolved, upon filing by the Bangko Sentral of
a bond, which shall be in the form of a Bangko Sentral check, in an amount
twice the amount of the original bond posted conditioned that the Bangko
Sentral will pay the damages which the party may suffer by the refusal or
dissolution of the injunction.

The provisions of the Rules of Court on injunctions insofar as they are

applicable and not inconsistent with the provisions of this section shall govern
the issuance and dissolution of the restraining order or injunction
contemplated in this section.

This provision will be questioned.

Section 88-C. Right of Redemption of Foreclosed Real Property; Right of

Possession during Redemption Period. – In the event of foreclosure, whether
judicially or extrajudicially, the mortgagor, who is a natural person, shall have
the right to redeem the property within 1 year from the date of foreclosure
sale.

In case the mortgagor is a juridical person, the mortgagor shall have the right
to redeem the property sold in a judicial foreclosure sale within 1 year from
the date of foreclosure sale, provided that in case of an extrajudicial
foreclosure, notwithstanding Act No. 3135, the mortgagor shall have the right
to redeem the property sold within 90 days from the foreclosure sale but not
later than the registration of the certificate of foreclosure sale.

Redemption shall be effected by paying the principal, interests, charges,

commissions and all claims of whatever nature of the Bangko Sentral
outstanding and due as of the date of foreclosure sale, including all costs and
other expenses incurred by reason of the foreclosure sale and custody of the
property.

The Bangko Sentral as purchaser in the foreclosure sale and without need of
posting a bond, may take possession of the foreclosed property during the
redemption period. The Bangko Sentral shall be entitled to the fruits of the
property, the same to be applied against the redemption price.

Your law on Credit Transactions on Right of Redemption, Equity Redemption.

Please take note. VERY IMPORTANT.

Section 88-D. Unsecured Bangko Sentral Claims. – All unsecured claims of the
Bangko Sentral shall be considered preferred credits similar to taxes due to
the national government in the order of preference under Article 2244 of the
New Civil Code.

Once again, the order is once again disordered.

The Bangko Sentral is the last resort.

RCBC Fiasco case story.

Section 89-A. Financial Facilities For Islamic Banks. – The Bangko Sentral may,
taking into consideration the peculiar characteristics of Islamic banking,

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 61

 LAST 25 MINUTES
That’s the peculiar characteristic of banking. It defines the concept of banking
in its traditional sense.
Original Provision
Section 89. Provisional Advances to the National Government. - The Bangko
Sentral may make direct provisional advances with or without interest to the
National Government to finance expenditures authorized in its annual
appropriation: Provided, That said advances shall be repaid before the end of
three (3) months extendible by another three (3) months as the Monetary
Board may allow following the date the National Government received such
provisional advances and shall not, in their aggregate, exceed twenty percent
(20%) of the average annual income of the borrower for the last three (3)
preceding fiscal years.
Proposed Amendment
Section 89. Provisional Advances to the National Government. - The Bangko
Sentral may make direct provisional advances with or without interest to the
National Government to finance expenditures authorized in its annual
appropriation: Provided, That said advances shall be repaid before the end of
three (3) months extendible by another three (3) months as the Monetary
Board may allow following the date the National Government received such
provisional advances and shall not, in their aggregate, exceed twenty percent
(20%) of the average annual income of the borrower for the last three (3)
preceding fiscal years.
Section 89-A. Financial Facilities For Islamic Banks. – The Bangko Sentral may,
taking into consideration the peculiar characteristics of Islamic banking,
formulate rules and regulations for the extension of financial facilities to
Islamic Banks provided such exposures shall be properly secured.
Section 89-B. Loans to the Philippine Deposit Insurance Corporation. – The
Bangko Sentral, pursuant to its mandate of maintaining financial stability, may
lend funds to the Philippine Deposit Insurance Corporation for insurance
purposes and in cases of financial assistance that the latter is authorized to
extend under Section 22(E) of Republic Act No. 3591, as amended,
notwithstanding Section 23 of Republic Act No. 3591, as amended, the
Monetary Board shall prescribe interest rates and such other terms and
conditions of the loan.
Please take note of that.
ARTICLE V
OPEN MARKET OPERATIONS FOR THE ACCOUNT OF THE BANGKO SENTRAL
Section 90. Principles of Open Market Operations. - The open market
purchases and sales of securities by the Bangko Sentral shall be made
exclusively in accordance with its primary objective of achieving price stability.
Section 91. Purchases and Sales of Government Securities. - In order to
achieve the objectives of the national monetary policy, the Bangko Sentral
may, in accordance with the principle stated in Section 90 of this Act and with
such rules and regulations as may be prescribed by the Monetary Board, buy
and sell in the open market for its own account:
(a) evidences of indebtedness issued directly by the Government of the
Philippines or by its political subdivisions; and
(b) evidences of indebtedness issued by government instrumentalities and
fully guaranteed by the Government.
The evidences of indebtedness acquired under the provisions of this
section must be freely negotiable and regularly serviced and must be available
to the general public through banking institutions and local government
treasuries in denominations of a thousand pesos or more.
So government treasury bills and government funds – we can actually trade,
purchase and sell government securities.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Original Provision
Section 92. Issue and Negotiation of Bangko Sentral Obligations. - In order to
provide the Bangko Sentral with effective instruments for open market
operations, the Bangko Sentral may, subject to such rules and regulations as
the Monetary Board may prescribe and in accordance with the principles
stated in Section 90 of this Act, issue, place, buy and sell freely negotiable
evidences of indebtedness of the Bangko Sentral: Provided, That issuance of
such certificates of indebtedness shall be made only in cases of extraordinary
movement in price levels. Said evidences of indebtedness may be issued
directly against the international reserve of the Bangko Sentral or against the
securities which it has acquired under the provisions of Section 91 of this Act,
or may be issued without relation to specific types of assets of the Bangko
Sentral.
The Monetary Board shall determine the interest rates, maturities and
other characteristics of said obligations of the Bangko Sentral, and may, if it
deems it advisable, denominate the obligations in gold or foreign currencies.
Subject to the principles stated in Section 90 of this Act, the evidences
of indebtedness of the Bangko Sentral to which this section refers may be
acquired by the Bangko Sentral before their maturity, either through
purchases in the open market or through redemptions at par and by lot if the
Bangko Sentral has reserved the right to make such redemptions. The
evidences of indebtedness acquired or redeemed by the Bangko Sentral shall
not be included among its assets, and shall be immediately retired and
cancelled.
Proposed Amendment
Section 92. Issue and Negotiation of Bangko Sentral Obligations. - In order to
provide the Bangko Sentral with effective instruments for open market
operations, the Bangko Sentral may, subject to such rules and regulations as
the Monetary Board may prescribe and in accordance with the principles
stated in Section 90 of this Act, issue, place, buy and sell freely negotiable
evidences of indebtedness of the Bangko Sentral: Provided, That issuance of
such certificates of indebtedness shall be made only in cases of extraordinary
movement in price levels. Said evidences of indebtedness may be issued
directly against the international reserve of the Bangko Sentral or against the
securities which it has acquired under the provisions of Section 91 of this Act,
or may be issued without relation to specific types of assets of the Bangko
Sentral.
The Monetary Board shall determine the interest rates, maturities and
other characteristics of said obligations of the Bangko Sentral, and may, if it
deems it advisable, denominate the obligations in gold or foreign currencies.
Subject to the principles stated in Section 90 of this Act, the evidences
of indebtedness of the Bangko Sentral to which this section refers may be
acquired by the Bangko Sentral before their maturity, either through
purchases in the open market or through redemptions at par and by lot if the
Bangko Sentral has reserved the right to make such redemptions. The
evidences of indebtedness acquired or redeemed by the Bangko Sentral shall
not be included among its assets, and shall be immediately retired and
cancelled.
ARTICLE VI
COMPOSITION OF BANGKO SENTRAL'S PORTFOLIO
Section 93. Review of the Bangko Sentral's Portfolio. - At least once every
month the Monetary Board shall review the portfolio of the Bangko Sentral in
relation to its future credit policy.
In reviewing the Bangko Sentral's portfolio, the Monetary Board shall
especially consider whether a sufficiently large part of the portfolio consists of
assets with early maturities, in order that a contraction in Bangko Sentral
credit may be effected promptly whenever the national monetary policy so
requires.
ARTICLE VII
BANK RESERVES
62
 Section 94. Reserve Requirements. - In order to control the volume of money
created by the credit operations of the banking system, all banks operating in
the Philippines shall be required to maintain reserves against their deposit
liabilities: Provided, That the Monetary Board may, at its discretion, also
require all banks and/or quasi-banks to maintain reserves against funds held
in trust and liabilities for deposit substitutes as defined in this Act. The
required reserves of each bank shall be proportional to the volume of its
deposit liabilities and shall ordinarily take the form of a deposit in the Bangko
Sentral. Reserve requirements shall be applied to all banks of the same
category uniformly and without discrimination.
Reserves against deposit substitutes, if imposed, shall be determined in
the same manner as provided for reserve requirements against regular bank
deposits, with respect to the imposition, increase, and computation of
reserves.
The Monetary Board may exempt from reserve requirements deposits
and deposit substitutes with remaining maturities of two (2) years or more, as
well as interbank borrowings.
Since the requirement to maintain bank reserves is imposed primarily
to control the volume of money, the Bangko Sentral shall not pay interest on
the reserves maintained with it unless the Monetary Board decides otherwise
as warranted by circumstances.
There’s always a portion of the reserves of the money in the bank that is
restricted. That percentage of bank deposits, deposit substitute, liabilities and
funds held in trust that banks must keep on hand or in deposit with the Bangko
Sentral – this is not available for lending to the public.
What will happen if reserve goes up? The available ones shall go lower for
circulation or for credit. This is actually one of the instruments for monetary
policies in the Philippines.
Does the reserves have interest? Because you prevent us from circulating it.
Because you won’t -prevent us from circulating it, we could have earned
interest on that particular reserve. Now, the Bangko Sentral is not obliged to
pay interest on reserves, unless the Monetary Board decides otherwise as
provided by circumstances.
Original Provision
Section 95. Definition of Deposit Substitutes. - The term "deposit substitutes"
is defined as 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 and similar instruments with
recourse, and repurchase agreements. The Monetary Board shall determine
what specific instruments shall be considered as deposit substitutes for the
purposes of Section 94 of this Act: Provided, however, That deposit substitutes
of commercial, industrial and other non-financial companies for the limited
purpose of financing their own needs or the needs of their agents or dealers
shall not be covered by the provisions of Section 94 of this Act.
Proposed Amendment
Section 95. Definition of Deposit Substitutes. - The term "deposit substitutes"
is defined as 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 and similar instruments with
recourse, and repurchase agreements. The phrase ‘obtaining funds from the
public’ shall mean borrowing from twenty (20) or more lenders at any time,
and, for this purpose, “lenders” shall refer to individuals and corporate entities
that are not acting as financial intermediaries, subject to the safeguards and
regulations issued by the Monetary Board. The Monetary Board shall
determine what specific instruments shall be considered as deposit
substitutes for the purposes of Section 94 of this Act: Provided, however, That
deposit substitutes of commercial, industrial and other non-financial
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
companies for the limited purpose of financing their own needs or the needs
of their agents or dealers shall not be covered by the provisions of Section 94
of this Act.
REQUISITES:
1. Funds obtained through forms other than deposits;
2. Obtained funds evidenced by debt instruments issued, indorsed, and/or
accepted and may include bankers acceptances, promissory notes,
participations, certificates of assignment and similar instruments with
recourse, and repurchase agreements;
3. Involves borrowing of funds for the borrower’s account; and
4. Purpose is for relending or purchasing of receivables and other
obligations.
For it to be considered as a deposit substitute, it must be an alternative form
of obtaining funds from the public – the term public refers to 20 or more
members. So less than that, you are not engaged in quasi-banking. Therefore,
you are not covered by the Central Bank.
Section 96. Required Reserves Against Peso Deposits. - The Monetary Board
may fix and, when it deems necessary, alter the minimum reserve ratios to
peso deposits, as well as to deposit substitutes, which each bank and/or quasi-
bank may maintain, and such ratio shall be applied uniformly to all banks of
the same category as well as to quasi-banks.
Section 97. Required Reserves Against Foreign Currency Deposits. - The
Monetary Board is similarly authorized to prescribe and modify the minimum
reserve ratios applicable to deposits denominated in foreign currencies.
Section 98. Reserves Against Unused Balances of Overdraft Lines. - In order
to facilitate Bangko Sentral control over the volume of bank credit, the
Monetary Board may establish minimum reserve requirements for unused
balances of overdraft lines.
The powers of the Monetary Board to prescribe and modify reserve
requirements against unused balances of overdraft lines shall be the same as
its powers with respect to reserve requirements against demand deposits.
Section 99. Increase in Reserve Requirements. - Whenever in the opinion of
the Monetary Board it becomes necessary to increase reserve requirements
against existing liabilities, the increase shall be made in a gradual manner and
shall not exceed four percentage points in any thirty-day period. Banks and
other affected financial institutions shall be notified reasonably in advance of
the date on which such increase is to become effective.
Section 100. Computation on Reserves. - The reserve position of each bank or
quasi-bank shall be calculated daily on the basis of the amount, at the close of
business for the day, of the institution's reserves and the amount of its liability
accounts against which reserves are required to be maintained: Provided, That
with reference to holidays or non-banking days, the reserve position as
calculated at the close of the business day immediately preceding such
holidays and non-banking days shall apply on such days.
For the purpose of computing the reserve position of each bank or quasi-bank,
its principal office in the Philippines and all its branches and agencies located
therein shall be considered as a single unit.
Original Provision
Section 101. Reserve Deficiencies. - Whenever the reserve position of any
bank or quasi-bank, computed in the manner specified in the preceding
section of this Act, is below the required minimum, the bank or quasi-bank
shall pay the Bangko Sentral one-tenth of one percent (1/10 of 1%) per day on
the amount of the deficiency or the prevailing ninety-one-day treasury bill rate
plus three percentage points, whichever is higher: Provided, however, That
banks and quasi-banks shall ordinarily be permitted to offset any reserve
deficiency occurring on one or more days of the week with any excess reserves
which they may hold on other days of the same week and shall be required to
pay the penalty only on the average daily deficiency during the week. In cases
63
 of abuse, the Monetary Board may deny any bank or quasi-bank the privilege
of offsetting reserve deficiencies in the aforesaid manner.
If a bank or quasi-bank chronically has a reserve deficiency, the
Monetary Board may limit or prohibit the making of new loans or investments
by the institution and may require that part or all of the net profits of the
institution be assigned to surplus.
The Monetary Board may modify or set aside the reserve deficiency
penalties provided in this section, for part or the entire period of a strike or
lockout affecting a bank or a quasi-bank as defined in the Labor Code, or of a
national emergency affecting operations of banks or quasi-banks. The
Monetary Board may also modify or set aside reserved deficiency penalties for
rehabilitation program of a bank.
Proposed Amendment
Section 101. Reserve Deficiencies. - Whenever the reserve position of any
bank or quasi-bank, computed in the manner specified in the preceding
section of this Act, is below the required minimum, the bank or quasi-bank
shall pay the Bangko Sentral monetary penalty as may be prescribed by the
Monetary Board: Provided, however, That banks and quasi-banks shall
ordinarily be permitted to offset any reserve deficiency occurring on one or
more days of the week with any excess reserves which they may hold on other
days of the same week and shall be required to pay the penalty in accordance
with the mechanism approved by the Monetary Board. In cases of abuse, the
Monetary Board may deny any bank or quasi-bank the privilege of offsetting
reserve deficiencies in the aforesaid manner.
If a bank or quasi-bank chronically has a reserve deficiency, the
Monetary Board may limit or prohibit the making of new loans or investments
by the institution and may require that part or all of the net profits of the
institution be assigned to surplus.
The Monetary Board may modify or set aside the reserve deficiency
penalties provided in this section, for part or the entire period of a strike or
lockout affecting a bank or a quasi-bank as defined in the Labor Code, or of a
national emergency affecting operations of banks or quasi-banks, or in such
other instances where the grant of waiver of penalties is determined by the
Monetary Board to be justifiable. The Monetary Board may also modify or set
aside reserved deficiency penalties for rehabilitation program of a bank.
Section 102. Interbank Settlement. - The Bangko Sentral shall establish
facilities for interbank clearing under such rules and regulations as the
Monetary Board may prescribe: Provided, That the Bangko Sentral may charge
administrative and other fees for the maintenance of such facilities.
The deposit reserves maintained by the banks in the Bangko Sentral in
accordance with the provisions of Section 94 of this Act shall serve as basis for
the clearing of checks and the settlement of interbank balances, subject to
such rules and regulations as the Monetary Board may issue with respect to
such operations: Provided, That any bank which incurs on overdrawing in its
deposit account with the Bangko Sentral shall fully cover said overdraft,
including interest thereon at a rate equivalent to one-tenth of one percent
(1/10 of 1%) per day or the prevailing ninety-one-day treasury bill rate plus
three percentage points, whichever is higher, not later than the next clearing
day: Provided, further, That settlement of clearing balances shall not be
effected for any account which continues to be overdrawn for five (5)
consecutive banking days until such time as the overdrawing is fully covered
or otherwise converted into an emergency loan or advance pursuant to the
provisions of Section 84 of this Act: Provided, finally, That the appropriate
clearing office shall be officially notified of banks with overdrawn balances.
Banks with existing overdrafts with the Bangko Sentral as of the effectivity
of this Act shall, within such period as may be prescribed by the Monetary
Board, either convert the overdraft into an emergency loan or advance with
a plan of payment, or settle such overdrafts, and that, upon failure to so
comply herewith, the Bangko Sentral shall take such action against the bank
as may be warranted under this Act.
Section 103. Exemption from Attachment and Other Purposes. - Deposits
maintained by banks with the Bangko Sentral as part of their reserve
requirements shall be exempt from attachment, garnishments, or any other
order or process of any court, government agency or any other administrative
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
body issued to satisfy the claim of a party other than the Government, or its
political subdivisions or instrumentalities.
ARTICLE VIII
SELECTIVE REGULATION OF BANK OPERATIONS
Original Provision
Section 104. Guiding Principle. - The Monetary Board shall use the powers
granted to it under this Act to ensure that the supply, availability and cost of
money are in accord with the needs of the Philippine economy and that bank
credit is not granted for speculative purposes prejudicial to the national
interests. Regulations on bank operations shall be applied to all banks of the
same category uniformly and without discrimination.
Proposed Amendment
Section 104. Guiding Principle. - The Monetary Board shall use the powers
granted to it under this Act to ensure that the supply, availability and cost of
money are in accord with the needs of the Philippine economy and that bank
credit is not granted for speculative purposes prejudicial to the national
interests. Regulations on bank operations shall be applied to all banks of the
same category, as may be defined by the Monetary Board, uniformly and
without discrimination.
Section 105. Margin Requirements Against Letters of Credit. - The Monetary
Board may at any time prescribe minimum cash margins for the opening of
letters of credit, and may relate the size of the required margin to the nature
of the transaction to be financed.
Section 106. Required Security Against Bank Loans. - In order to promote
liquidity and solvency of the banking system, the Monetary Board may issue
such regulations as it may deem necessary with respect to the maximum
permissible maturities of the loans and investments which the banks may
make, and the kind and amount of security to be required against the various
types of credit operations of the banks.
Section 107. Portfolio Ceilings. - Whenever the Monetary Board considers it
advisable to prevent or check an expansion of bank credit, the Board may place
an upper limit on the amount of loans and investments which the banks may
hold, or may place a limit on the rate of increase of such assets within specified
periods of time. The Monetary Board may apply such limits to the loans and
investments of each bank or to specific categories thereof.
In no case shall the Monetary Board establish limits which are below
the value of the loans or investments of the banks on the date on which they
are notified of such restrictions. The restrictions shall be applied to all banks
uniformly and without discrimination.
Original Provision
Section 108. Minimum Capital Ratios. - The Monetary Board may prescribe
minimum ratios which the capital and surplus of the banks must bear to the
volume of their assets, or to specific categories thereof, and may alter said
ratios whenever it deems necessary.
Proposed Amendment
Section 108. Minimum Capital Ratios. - The Monetary Board may prescribe
minimum risk-based capital adequacy ratios based on internationally
accepted standards, and may alter said ratios whenever it deems necessary.
In the exercise of its authority under this section, the Monetary Board may
require banks to hold capital beyond the minimum requirements
commensurate to their risk profile.
These are the risk-based capital adequacy. There minimum requirements
because there – the ratio between your assets and liabilities. But I’m not going
to ask you that.
64
 ARTICLE IX
COORDINATION OF CREDIT POLICIES BY GOVERNMENT INSTITUTIONS
Section 109. Coordination of Credit Policies. - Government-owned
corporations which perform banking or credit functions shall coordinate their
general credit policies with those of the Monetary Board.
Toward this end, the Monetary Board may, whenever it deems it expedient,
make suggestions or recommendations to such corporations for the more
effective coordination of their policies with those of the Bangko Sentral.
CHAPTER V — FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OF THE
GOVERNMENT
ARTICLE I
FUNCTIONS AS BANKER OF THE GOVERNMENT
Section 110. Designation of Bangko Sentral as Banker of the Government. -
The Bangko Sentral shall act as a banker of the Government, its political
subdivisions and instrumentalities.
Section 111. Representation with the International Monetary Fund. - The
Bangko Sentral shall represent the Government in all dealings, negotiations
and transactions with the International Monetary Fund and shall carry such
accounts as may result from Philippine membership in, or operations with,
said Fund.
The International Monetary Fund is a specialized agency of the United Nations,
but it has its own charter and structure in finances provided by its members.
Section 112. Representation with Other Financial Institutions. - The Bangko
Sentral may be authorized by the Government to represent it in dealings,
negotiations or transactions with the International Bank for Reconstruction
and Development and with other foreign or international financial
institutions or agencies. The President may, however, designate any of his
other financial advisors to jointly represent the Government in such
dealings, negotiations or transactions.
Original Provision
Section 113. Official Deposits. - The Bangko Sentral shall be the official
depository of the Government, its political subdivisions and instrumentalities
as well as of government-owned or controlled corporations and, as a general
policy, their cash balances should be deposited with the Bangko Sentral, with
only minimum working balances to be held by government-owned banks and
such other banks incorporated in the Philippines as the Monetary Board may
designate, subject to such rules and regulations as the Board may prescribe:
Provided, That such banks may hold deposits of the political subdivisions and
instrumentalities of the Government beyond their minimum working balances
whenever such subdivisions or instrumentalities have outstanding loans with
said banks.
The Bangko Sentral may pay interest on deposits of the Government or of its
political subdivisions and instrumentalities, as well as on deposits of banks
with the Bangko Sentral.
Proposed Amendment
Section 113. Official Deposits. - The Bangko Sentral shall be the official
depository of the Government, its political subdivisions and instrumentalities
as well as of government-owned or controlled corporations. and, as As a
general policy, their cash balances should be deposited with the Bangko
Sentral, with only minimum working balances to be held by government-
owned banks and such other banks licensed to operate in the Philippines as
the Monetary Board may authorize. subject to such rules and regulations as
the Board may prescribe: Provided, That such banks may hold deposits of the
political subdivisions and instrumentalities of the Government beyond their
minimum working balances whenever such subdivisions or instrumentalities
have outstanding loans with said banks.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
The Bangko Sentral may accept deposits and pay interest on such deposits
and other similar placements of the Government or of its political
subdivisions and instrumentalities, banks, and other Bangko Sentral-
supervised institutions.
Section 114. Fiscal Operations. - The Bangko Sentral shall open a general
cash account for the Treasurer of the Philippines, in which the liquid funds
of the Government shall be deposited.
Transfers of funds from this account to other accounts shall be made only
upon order of the Treasurer of the Philippines.
Section 115. Other Banks as Agents of the Bangko Sentral. - In the
performance of its functions as fiscal agent, the Bangko Sentral may engage
the services of other government-owned and controlled banks and of other
domestic banks for operations in localities at home or abroad in which the
Bangko Sentral does not have offices or agencies adequately equipped to
perform said operations: Provided, however, That for fiscal operations in
foreign countries, the Bangko Sentral may engage the services of foreign
banking and financial institutions.
Section 116. Remuneration for Services. - The Bangko Sentral may charge
equitable rates, commissions or fees for services which it renders to the
Government, its political subdivisions and instrumentalities.
ARTICLE II
THE MARKETING AND STABILIZATION OF SECURITIES FOR THE ACCOUNT OF
THE GOVERNMENT
A. THE ISSUE AND PLACING OF GOVERNMENT SECURITIES
Section 117. Issue of Government Obligations. - The issue of securities
representing obligations of the Government, its political subdivisions or
instrumentalities, may be made through the Bangko Sentral, which may act as
agent of, and for the account of, the Government or its respective subdivisions
or instrumentality, as the case may be: Provided, however, That the Bangko
Sentral shall not guarantee the placement of said securities, and shall not
subscribe to their issue except to replace its maturing holdings of securities
with the same type as the maturing securities.
Section 118. Methods of Placing Government Securities. - The Bangko Sentral
may place the securities to which the preceding section refers through direct
sale to financial institutions and the public.
The Bangko Sentral shall not be a member of any stock exchange or syndicate,
but may intervene therein for the sole purpose of regulating their operations
in the placing of government securities.
The Government, or its political subdivisions or instrumentalities, shall
reimburse the Bangko Sentral for the expenses incurred in the placing of the
aforesaid securities.
Section 119. Servicing and Redemption of the Public Debt. - The servicing and
redemption of the public debt shall also be effected through the Bangko
Sentral.
B. BANGKO SENTRAL SUPPORT OF THE GOVERNMENT SECURITIES MARKET
Section 120. The Securities Stabilization Fund. - There shall be established a
"Securities Stabilization Fund" which shall be administered by the Bangko
Sentral for the account of the Government.
The operations of the Securities Stabilization Fund shall consist of
purchases and sales, in the open market, of bonds and other evidences of
indebtedness issued or fully guaranteed by the Government. The purpose of
these operations shall be to increase the liquidity and stabilize the value of
said securities in order thereby to promote investment in government
obligations.
The Monetary Board shall use the resources of the Fund to prevent,
or moderate, sharp fluctuations in the quotations of said government
65
 obligations, but shall not endeavor to alter movements of the market
resulting from basic changes in the pattern or level of interest rates.
The Monetary Board shall issue such regulations as may be necessary
to implement the provisions of this section.
Section 121. Resources of the Securities Stabilization Fund. - Subject to
Section 132 of this Act, the resources of the Securities Stabilization Fund shall
come from the balance of the fund as held by the Central Bank under
Republic Act No. 265 as of the effective date of this Act.
Section 122. Profits and Losses of the Fund. - The Securities Stabilization
Fund shall retain net profits which it may make on its operations, regardless
of whether said profits arise from capital gains or from interest earnings. The
Fund shall correspondingly bear any net losses which it may incur.
ARTICLE III
FUNCTIONS AS FINANCIAL ADVISOR OF THE GOVERNMENT
Original Provision
Section 123. Financial Advice on Official Credit Operations. - Before
undertaking any credit operation abroad, the Government, through the
Secretary of Finance, shall request the opinion, in writing, of the Monetary
Board on the monetary implications of the contemplated action. Such opinions
must similarly be requested by all political subdivisions and instrumentalities
of the Government before any credit operation abroad is undertaken by them.
The opinion of the Monetary Board shall be based on the gold and
foreign exchange resources and obligations of the nation and on the effects of
the proposed operation on the balance of payments and on monetary
aggregates.
Whenever the Government, or any of its political subdivisions or
instrumentalities, contemplates borrowing within the Philippines, the prior
opinion of the Monetary Board shall likewise be requested in order that the
Board may render an opinion on the probable effects of the proposed
operation on monetary aggregates, the price level, and the balance of
payments.
Proposed Amendment
Section 123. Financial Advice on Official Credit Operations. - Before
undertaking any credit operation abroad, the Government, through the
Secretary of Finance, shall request the opinion, in writing, of the Monetary
Board on the monetary implications of the contemplated action. Such opinions
must similarly be requested by all political subdivisions and instrumentalities
of the Government before any credit operation abroad is undertaken by them.
The opinion of the Monetary Board shall be based on the gold and
foreign exchange resources and obligations of the nation and on the effects of
the proposed operation on the balance of payments and on monetary
aggregates.
Whenever the Government, or any of its political subdivisions or
instrumentalities, contemplates borrowing within the Philippines, the prior
opinion of the Monetary Board shall likewise be requested in order that the
Board may render an opinion on the probable effects of the proposed
operation on monetary aggregates, the price level, and the balance of
payments.
A credit operation or borrowing as provided herein may take the form of
different credit facilities such as but not limited to a single loan, series of loans
under a borrowing program, or credit lines. No prior Monetary Board Opinion
shall be required for individual drawdowns or borrowings within approved
credit lines or borrowing programs.
This is in compliance with Article VII, Section 20 of the 1987 Constitution:
Section 20. The President may contract or guarantee foreign loans on behalf
of the Republic of the Philippines with the prior concurrence of the Monetary
Board, and subject to such limitations as may be provided by law. The
Monetary Board shall, within thirty days from the end of every quarter of the
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
calendar year, submit to the Congress a complete report of its decision on
applications for loans to be contracted or guaranteed by the Government or
government-owned and controlled corporations which would have the effect
of increasing the foreign debt, and containing other matters as may be
provided by law.
Section 124. Representation on the National Economic and Development
Authority. - In order to assure effective coordination between the economic,
financial and fiscal policies of the Government and the monetary, credit and
exchange policies of the Bangko Sentral, the Deputy Governor designated by
the Governor of the Bangko Sentral shall be an ex officio member of the
National Economic and Development Authority Board.
So as a financial advisor, the Deputy Governor designated by the Governor of
the BSP shall be an ex-officio member of the NEDA. Mag cocoordinate sila. The
NEDA is the authority which recommends for the restrictions on foreign equity
investments.
CHAPTER VI — PRIVILEGES AND PROHIBITIONS
ARTICLE I
PRIVILEGES
Original Provision
Section 125. Tax Exemptions. - The Bangko Sentral shall be exempt for a
period of five (5) years from the approval of this Act from all national,
provincial, municipal and city taxes, fees, charges and assessments.
The exemption authorized in the preceding paragraph of this section
shall apply to all property of the Bangko Sentral, to the resources, receipts,
expenditures, profits and income of the Bangko Sentral, as well as to all
contracts, deeds, documents and transactions related to the conduct of the
business of the Bangko Sentral: Provided, however, That said exemptions shall
apply only to such taxes, fees, charges and assessments for which the Bangko
Sentral itself would otherwise be liable, and shall not apply to taxes, fees,
charges, or assessments payable by persons or other entities doing business
with the Bangko Sentral: Provided, further, That foreign loans and other
obligations of the Bangko Sentral shall be exempt, both as to principal and
interest, from any and all taxes if the payment of such taxes has been assumed
by the Bangko Sentral.
Proposed Amendment
Section 125. Tax Exemptions. - The Bangko Sentral shall be exempt for a
period of five (5) years from the approval of this Act from all national,
provincial, municipal and city taxes, fees, charges and assessments.
The exemption authorized in the preceding paragraph of this section
shall apply to all property of the Bangko Sentral, to the resources, receipts,
expenditures, profits and income of the Bangko Sentral, as well as to all
contracts, deeds, documents and transactions related to the conduct of the
business of the Bangko Sentral: Provided, however, That said exemptions shall
apply only to such taxes, fees, charges and assessments for which the Bangko
Sentral itself would otherwise be liable, and shall not apply to taxes, fees,
charges, or assessments payable by persons or other entities doing business
with the Bangko Sentral: Provided, further, That foreign loans and other
obligations of the Bangko Sentral shall be exempt, both as to principal and
interest, from any and all taxes if the payment of such taxes has been assumed
by the Bangko Sentral.
It is only exempt on its income derived from its government functions,
specifically, income from its activities and transactions exercised in the
supervision and operations of banks, and income in pursuant to its primary
objective to maintain price stability. So all other incomes, shall be considered
as proprietary income, and shall be subject to tax.
If the Central Bank has property, then it rents out to 7-11, the income derived
from the lease shall be subject to the corresponding taxes. Because it is not
derived from its governmental functions, but from its proprietary function.
Section 126. Exemption from Customs Duties. - The provision of any general
or special law to the contrary notwithstanding, the importation and
66
 exportation by the Bangko Sentral of notes and coins, and of gold and other
metals to be used for purposes authorized under this Act, and the importation
of all equipment needed for bank note production, minting of coins, metal
refining and other security printing operations shall be fully exempt from all
customs duties and consular fees and from all other taxes, assessments and
charges related to such importation or exportation.
Section 127. Applicability of the Civil Service Law. - Appointments in the
Bangko Sentral, except as to those which are policy-determining, primarily
confidential or highly technical in nature, shall be made only according to the
Civil Service Law and regulations: Provided, That no qualification requirements
for positions in the Bangko Sentral shall be imposed other than those set by
the Monetary Board: Provided, further, That, the Monetary Board or
Governor, in accordance with Sections 15(c) and 17(d) of this Act, respectively,
may without need of obtaining prior approval from any other government
agency, appoint personnel in the Bangko Sentral whose services are deemed
necessary in order not to unduly disrupt the operations of the Bangko Sentral.
Officers and employees of the Bangko Sentral, including all members of
the Monetary Board, shall not engage directly or indirectly in partisan activities
or take part in any election except to vote.
ARTICLE II
PROHIBITIONS
Original Provision
Section 128. Prohibitions. - The Bangko Sentral shall not acquire shares of
any kind or accept them as collateral, and shall not participate in the
ownership or management of any enterprise, either directly or indirectly.
The Bangko Sentral shall not engage in development banking or
financing: Provided, however, That outstanding loans obtained or extended
for development financing shall not be affected by the prohibition of this
section.
Proposed Amendment
Section 128. Prohibitions. - The Bangko Sentral shall not acquire shares of any
kind or accept them as collateral, and shall not participate in the ownership or
management of any enterprise, either directly or indirectly: Provided, that this
prohibition shall not apply whenever the Monetary Board, by a vote of at least
five (5) of its members, (1) deems an acquisition or investment to be necessary
to qualify or as required for membership in international and regional
organizations; or (2) determines that investing in and/or operating an
enterprise will be consistent with the effective fulfillment of its mandate and
will not constitute any conflict of interest.
The Bangko Sentral shall not engage in development banking or
financing: Provided, however, That outstanding loans obtained or extended
for development financing shall not be affected by the prohibition of this
section.
DEVELOPMENT BANK – it finances long-term government projects and
infrastructures.
Why is the BSP prohibited from engaging in development banking? The policy
of the BSP is to have prudent financial management. That’s why it can’t enter
into high-risk financial transactions because its charter says to engage in
prudent financial management – and development banking involves long-term
financing.
CHAPTER VII — TRANSITORY PROVISIONS
Section 129. Phase-out of Fiscal Agency Functions. - Unless circumstances
warrant otherwise and approved by the Congress Oversight Committee, the
Bangko Sentral shall, within a period of three (3) years but in no case longer
than five (5) years from the approval of this Act, phase out all fiscal agency
functions provided for in Sections 117, 118, 119, and 120 as well as in other
pertinent provisions of this Act and transfer the same to the Department of
Finance.
BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW
Section 130. Phase-out of Regulatory Powers Over the Operations of Finance
Corporations and Other Institutions Performing Similar Functions. - The
Bangko Sentral shall, within a period of five (5) years from the effectivity of
this Act, phase out its regulatory powers over finance companies without
quasi-banking functions and other institutions performing similar functions as
provided in existing laws, the same to be assumed by the Securities and
Exchange Commission.
Section 131. Implementing Details. - The Bangko Sentral shall be made
operational by the performance of the following acts:
(a) the President shall constitute the Monetary Board by appointing the
members thereof within sixty (60) days from the effectivity of this Act; and
(b) the transfer of such assets and liabilities from the Central Bank to the
Bangko Sentral as provided in Section 132 shall be completed within ninety
(90) days from the constitution of the Monetary Board.
All incumbent personnel in the Central Bank as of the date of the
approval of this Act shall continue to exercise their duties and functions as
personnel of the Bangko Sentral subject to the provisions of Section 133:
Provided, That such personnel in the Central Bank as may be necessary for the
purpose of implementing Section 132 may be assigned by the Bangko Sentral
Monetary Board to the Central Bank.
Section 132. Transfer of Assets and Liabilities. - Upon the effectivity of this
Act, three (3) members of the Monetary Board, which may include the
Governor, in representation of the Bangko Sentral, the Secretary of Finance
and the Secretary of Budget and Management in representation of the
National Government, and the Chairmen of the Committees on Banks of the
Senate and the House of Representatives shall determine the assets and
liabilities of the Central Bank which may be transferred to or assumed by the
Bangko Sentral. The Committee shall complete its work within ninety (90) days
from the constitution of the Monetary Board submitting a comprehensive
report with all its findings and justification.
The following guidelines shall be strictly observed in the determination
of which assets and liabilities shall be transferred to the Bangko Sentral:
(a) the Monetary Board and the Secretary of Finance shall have primary
responsibility for working out creative monetary and financial solutions to
retire the Central Bank liabilities and losses at the least cost to the
Government;
(b) the Bangko Sentral shall remit seventy-five percent (75%) of its net profits
to a special deposit account (sinking fund) until such time as the net liabilities
of the Central Bank shall have been liquidated through generally accepted
finance mechanisms such as, but not limited to, write-offs, set-offs,
condonation, collections, reappraisal, revaluation and bond issuance by the
National Government, or to the National Government as dividends;
(c) the assets and liabilities to be transferred shall be limited to an amount that
will enable the Bangko Sentral to perform its responsibilities adequately and
operate on a viable basis: Provided, That the assets shall exceed the liabilities
as certified by the Commission on Audit (COA), by an initial amount of Ten
billion pesos (P10,000,000,000);
(d) liabilities to be assumed by the Bangko Sentral shall include liability for
notes and coins in circulation as of the effective date of this Act; and
(e) any asset or liability of the Central Bank not transferred to the Bangko
Sentral shall be retained and administered, disposed of and liquidated by the
Central Bank itself which shall continue to exist as the CB Board of Liquidators
only for the purposes provided in this paragraph but not later than twenty-five
(25) years or until such time that liabilities have been liquidated: Provided,
That the Bangko Sentral may financially assist the Central Bank of Liquidators
in the liquidation of CB liabilities: Provided, finally, That upon disposition of
said retained assets and liquidation of said retained liabilities, the Central Bank
shall be deemed abolished.
All actions taken by the Bangko Sentral Monetary Board under this
section shall be reported to Congress and the President within thirty (30) days.
67
 Section 133. Mandate to Organize. - The Bangko Sentral shall be organized by
the Monetary Board without being subject to the provisions of Republic Act
No. 7430, by adopting if it so desires, an entirely new staffing pattern on
organizational structure to suit the operations of the Bangko Sentral under this
Act. No preferential or priority right shall be given to or enjoyed by any
personnel for appointment to any position in the new staffing pattern, nor
shall any personnel be considered as having prior or vested rights with respect
to retention in the Bangko Sentral or in any position which may be created in
the new staffing pattern, even if he should be the incumbent of a similar
position prior to organization. The formulation of the program of organization
shall be completed within six (6) months after the effectivity of this Act, and
shall be fully implemented within a period of six (6) months thereafter.
Personnel who may not be retained are deemed separated from the service.

Section 134. Separation Benefits. - Pursuant to Section 15 of this Act, the

Monetary Board is authorized to provide separation incentives, and all those
who shall retire or be separated from the service on account of reorganization
under the preceding section shall be entitled to such incentives, which shall be
in addition to all gratuities and benefits to which they may be entitled under
existing laws.

Section 135. Repealing Clause. - Except as may be provided for in Section 46

and 132 of this Act, Republic Act No. 265, as amended, the provisions of any
other law, special charters, rule or regulation issued pursuant to said Republic
Act No. 265, as amended, or parts thereof, which may be inconsistent with the
provisions of this Act are hereby repealed. Presidential Decree No. 1792 is
likewise repealed.

Section 136. Transfer of Powers. - All powers, duties and functions vested by
law in the Central Bank of the Philippines not inconsistent with the provisions
of this Act shall be deemed transferred to the Bangko Sentral ng Pilipinas. All
references to the Central Bank of the Philippines in any law or special charters
shall be deemed to refer to the Bangko Sentral.

Section 137. Separability Clause. - If any provision or section of this Act or the
application thereof to any person or circumstance is held invalid, the other
provisions or sections of this Act, and the application of such provision or
section to other persons or circumstances, shall not be affected thereby.

Section 138. Effectivity Clause. - This Act shall take effect fifteen (15) days
following its publication in the Official Gazette or in two (2) national
newspapers of general circulation.

Approved: June 14, 1993

BELLE | ATENEO DE DAVAO UNIVERSITY SCHOOL OF LAW 68