banking laws and jurisprudence 2009 party duh notes

8/10/2019 Banking Laws and Jurisprudence 2009 Party Duh Notes

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Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

1PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

BANKING LAWS & JURISPRUDENCE

CHAPTER 1

I. DECLARED POLICY OF THE STATE

The State recognizes the vital role of banks in providing foran environment conducive to the sustained development of thenational economy and the fiduciary nature of banking that requireshigh standards of integrity and performance. In furtherancethereof, the State shall promote and maintain a stable and efficientbanking system that is globally competitive, dynamic andresponsive to the demands of a developing economy. (Sect ion 2of RA 8791, General Banking Law of 2000)

II. DEFINITION OF BANKS

Banks are entities engaged in the lending of funds obtained in the formof deposits.- A moneyed institute founded to facilitate the borrowing, lending and

self-keeping of money and to deal, in notes, bills of exchange, and

credits.

- An investment company which loans out the money of its

customers, collects the interest and charges a commission to both

lender and borrower, is a bank.

- Any person engaged in the business carried on by banks of

deposit, of discount, or of circulation is doing a banking business,although but one of these functions is exercised.

III. NATURE OF BANKING BUSINESS

A. Debtor- Creditor Relationship

Art. 1980. Fixed, savings, and current deposits of moneyin banks and similar institutions shall be governed by the provisionsconcerning loan.

The contract between the bank and its depositor is governed by the

provisions of the Civil Code on simple loan 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. (Consolidated

Bank and Trust Corporation vs. Court of Appeals)

Bank deposits are in the nature of irregular deposits. They are really

loans because they earn interest. (Serrano vs. Central Bank of the

Philippines)

B. Fiduciary Duty

fiduciary nature of banking which requires high standardsof integrity and performance.

Treat the accounts of its depositors with meticulous care, always having

in mind the fiduciary nature of their relationship.

Requires banks to assume a degree of diligence higher than that of a

good father of a family

Higher level of accountability than that expected of a depositor.

C. Not a Trust Agreement

The fiduciary nature of a bank-depositor relationship doesnot convert the contract between the bank and its depositors from asimple loan to a trust agreement, whether express or implied.

Failure by the bank to pay the depositor is failure to pay a simple loan,

and not a breach of trust.

Banks do not accept deposits to enrich depositors but to earn money for

themselves.

D. Indispensable Institution

Plays a vital role in the economic life of every civilizednation.

Banks have become an ubiquitous presence among the people, who

have come to regard them with respect and even gratitude, and most of

all, confidence.

E. Impressed with Public Interest

The stability of banks largely depends on the confidenceof the people in the honesty and efficiency of banks.

In every case, the depositor expects the bank to treat his account with

the utmost fidelity, whether such account consist only of a few hundred

pesos or of millions. The bank must record every single transaction

accurately, down to the last centavo, and as promptly as possible. This

has to be done if the account is to reflect at any given time the amount


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of the money the depositor can dispose of as he sees fit, confident that

the bank will deliver it as and to whomever he directs.

F. Degree of Diligence

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

The bank is under obligation to treat the accounts of its depositors with

meticulous care, always having in mind the fiduciary nature of their

relationship. (Simex Internationsl vs. Court of Appeals)

Degree of diligence higher than that of a good father of a family, as

prescribed by Section 2 of the GBL.

Same higher degree of diligence is not expected to be exerted by banks

in commercial transactions that do not involve their fiduciary relationship

with their depositors.

Diligence extends to financial institutions:

o A government financial institution, like banks, is expected to

exercise greater care and prudence in the dealings, includingthose involving registered lands.

o Due diligence required of banks extend even to persons, or

institutions, regularly engaged in the business of lending

money secured by real estate mortgages.

G. Treatment of Accounts with Meticulous Care

In every case, the depositor expects the bank to treat hisaccount with the utmost fidelity, whether such account consist onlyof a few hundred pesos or of millions.

A blunder on the part of the bank, such as the dishonor of a check

without good reason, can cause the depositor not a little embarrassment

if not also financial loss perhaps even civil and criminal litigation.

No law mandating banks to call up their clients whenever their

representatives withdraw significant amounts from their accounts.

H. Duty to Keep Records

A bank has a fiduciary duty to keep efficiently a record ofits transactions with its depositors. Banks shall have a true andaccurate account, record or statement of their daily transactions,particularly those referring to their deposit liabilities.

Making of any false entry or the willful omissionof entries is a ground for

the imposition of administrative sanctions and the disqualification from

office of any director or officer responsible therefor, without prejudice to

their criminal liability.

I. Banks are not Gratuitous Bailees

Banks are run for gain, and they solicit deposits in orderthat they can use the money for that very purpose.

J. Banks not Expected to be Infallible

However, it must bear the blame for not discoveringmistakes if there are established procedures and the same havenot been followed.

K. Dealing with Registered Lands

Banks should exercise more care and prudence in dealingwith registered lands, than private individuals, for their business isone affected with public interest.

The rule that persons dealing with registered lands can rely solely on

the certificate of title does not apply to banks.

Judicial notice is taken of the standard practice for banks, before

approving a loan, to send representatives to the premises of the land

offered as collateral and to investigate who the real owners thereof are.

A mortgagee-bank must exercise due diligence before entering into said

contracts.

Any investigation previously conducted on the property offered as

collateral does not preclude a bank from considering information on the

same property as security for a subsequent loan. (Sps. Omengan vs.

Philippine National Bank)

L. Banks may Exclude Persons in their Premises

Banks are mandated to exercise a higher degree ofdiligence in the handling of its affairs than that expected of anordinary business enterprise.

Banks may impose reasonable conditions or limitations to access by

non-employees to its premises and records, such as the exclusion of

non-employees from the working areas for employees, even absent any

imminent or actual unlawful aggression on or an invasion of its

properties or usurpation thereof, provided that such limitations are not

contrary to the law.

M. Charging of Interest for Loans


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Very essential and fundamental element of the bankingbusiness; it may be considered to be the very core of the bankingexistence or being.

IV. LIABILITY FOR ACTS OF OFFICERS AND EMPLOYEES

By the very nature of their work the degree of responsibility, careand trustworthiness expected of their employees and officials are far greaterthan those of ordinary clerks and employees. Banks are expected toexercise the highest degree of diligence in the selection and supervision oftheir employees.

A bank is liable for the wrongful acts of its officers done in the interest of

the bank or in their dealings as bank representatives but not for acts

outside the scope of their authority.

A. Negligence of Manager

The bank, as an employer, is liable. Confidence in thebanking system, which necessarily includes reliance on bank

managers, is vital in the economic life of our society.

B. Negligence of Officers

A bank will be held liable for the negligence of its officersor agents when acting within the course and scope of theiremployment.

If a corporation knowingly permits its officer, or any other agent, to

perform acts within the scope of an apparent authority, holding him out

to the public as possessing power to do those acts, the corporation will,

as against any person who has dealt in good faith with the corporation

through such agent, be stopped from denying such authority.

C. Negligence of TellersBanks tellers must exercise a high degree of diligence in

insuring that they return the passbook only to the depositor or hisauthorized representative. The tellers know, or should know, thatthe rules on savings account provide that any person in possessionof the passbook is presumptively its owner.

Appropriation of money by a teller is not estafa. If the teller appropriates

the money for his personal gain, and since he occupies a position of

confidence, the felony of qualified theft would be committed.

D. Right to Recover from Employees

Banks may recover from its employees for any paymentmade in view of the latters negligent or criminal acts.

Whoever pays for the damages caused by his dependents or

employees may recover from the latter what he has paid or delivered in

satisfaction of the claim.

E. Liability for Damages

There must be a breach before damages may be awardedand the breach of such duty should be the proximate cause of theinjury.

1. Actual and Compensatory Damages

(1) when the obligation is breached, and it consists

in the payment of a sum of money, the interest

due should be that which may have been

stipulated in writing. It shall itself earn interest

from the time it is judicially demanded. In the

absence of stipulation, interest must be 12% perannum.

(2) may be imposed at the discretion of the court at

the rate of 6% per annum.

(3) When the judgement of the court awarding a sum

of money becomes final and executor, the rate of

legal interest whether the case falls under (1) or

(2), shall be 12% per annum from such finality

until satisfaction.

2. Exemplary Damages

Law allows the grant of exemplary damages by way of

example for the public good. The public relies on the banksfiduciary duty to observe the highest degree of diligence.

3. Moral Damages

As a general rule, a corporation is not entitled to moraldamages, because it cannot experience physical suffering andmental anguish. However, for the breach of fiduciary dutyrequired of a bank, a coporate client may claim such damageswhen its good reputation is besmirched by such breach, andsocial humiliation results therefrom.

In culpa contractual or breach of contract, moral damages are

recoverable only if the defendant has acted fraudulently or in bad faith,


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or is found guilty of gross negligence amounting to bad faith, or in

wanton (reckless) disregard of his contractual obligations.

Banks may not be held responsible in the absence of bad faith, malice,

or wanton attitude. The law affords no remedy for damages resulting

from an act which does not amount to a legal injury or wrong.

(DAMNUM ABSQUE INJURIA)

INJURY- illegal invasion of a legal right

DAMAGE- the loss, hurt, or harm which results from

the injury

Depositor may recover moral damages even if the banks negligence

may not have been attended with bad faith, if the former suffered mental

anguish, serious anxiety, embarrassment and humiliation. Moral

damages are not meant to enrich a complainant at the expense of the

defendant. It is only intended to alleviate the moral suffering she has

undergone.

F. Respondeat Superior, Diligence in the Selection andSupervision of Employees

o Banks is bound by the negligence of its employees under the

principle of repondeat superior or command responsibility.

o The defense of exercising the required diligence in the

selection and supervision of employees is not a complete

defense in culpa contractual, unlike in culpa aquiliana.

Classification of Banks (CUT-RICO)

a. Commercial Bank/s (C)- Exercise the general powers incident to a corporations

- Shall have all powers as may be necessary to carry on

business of commercial banking:a. Accepting drafts and issuing letters of creditb. Discounting and negotiating promissory notes, drafts,

bills of exchange and other evidence of debtc. Accepting or creating demand depositsd. Receiving other types of deposits and deposits

substitutee. Buying and selling foreign exchange and gold or silver

bullion, acquiring marketable bonds and other debtsecurities

f. Extending credit, subject to such rules as theMonetary Board may promulgate

See section 29 of GBL and chapter 4 fordiscussion of operations.

b. Universal Banks (U)- They are large banks licensed by Bangko Sentral ng Pilipinas

to do both commercial and investment banking.

- In addition to the powers of commercial bank, a universal bank

can exercise the powers of an investment house as well asinvest in non-allied enterprises.

- A universal bank may perform the functions of an investmenteither directly (through a sepatate and distinct department orwithin the unit if the bank) or indirectly (through a separatesubsidiary investment house). In either case, the underwritingof equity securities or securities dealing will be subject topertinent laws, as well as applicable regulations of the SEC.

c. Thrift Banks (T)- Aside from the powers conferred on it by other laws, a thrift

bank namely a savings and mortgage bank, a stock savingsand loan association or a private development bank.

- Recognize the indispensable role of the private sector, toencourage private enterprise and to provide incentives toneeded investment.

- The following are powers of a thrift bank:a. Grant loans, whether secured or notb. Invest marketable bonds and other debt securitiesc. Issue domestic letters of creditd. Extend credit facilities to private and government

employeese. Extend credit against the security of jewelry or other

precious stones.f. Accept savings and time depositsg. Rediscount paper with the Land Bank of the

Philippines, Development Bank of the Philippines andother GOCC

h. Accept foreign currency deposits as provided underForeign Currency Deposit Act

i. Act as correspondent for other financial institutionsj. Purchase, hold and convey real estate as specified in

sections 51 and 52 of GBLk. Offer other banking services as provided in section 53

of GBL.- Thrift banks may perform such services only upon prior

approval of Monetary Board.-

d. Rural Banks (R)


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- Recognizes the need to promote comprehensive ruraldevelopment with the end view of attaining acquitabledistribution of opportunities, income and wealth.

- Encourages and assists in the establishment of rural bankingsystem designed to make needed credit available and readily

accessible in the rural areas on the reasonable terms.- Loans or advances extended by rural banks shall be primarily

for the purpose of meeting the normal credit needs of farmers,fishermen or farm families as well as the normal credit needsof cooperatives and merchants.

e. Islamic (I)- RA 6848 created the Al-Amanah Islamic Investment Bank of

the Philippines. The domicile and place of business is inZamboanga City.

- Primary purpose of the Islamic Bank is to promote andaccelerate the socio-economic development of theAutonomous Region by performing banking, financing andinvestment operations.

f. Cooperative (C)

- Organized by the majority shares of which is owned andcontrolled by cooperatives primarily to provide financial andcredit services to cooperatives.

- May perform all the functions of rural bank.- Membership of cooperative bank shall include only cooperative

and federations of cooperative.g. Other Banks (O)

- The Monetary Board is authorized to make other classificationof banks, as it may deem proper.

- Philippine Veterans Bank, Land Bank of the PhilippinesDevelopment Bank of the Philippines is considered to beGovernment-Owned Banks.

-

OTHER CLASSIFICATION OF BANKS OTHER THAN MENTIONED IN SECTION 31. Non-Stock Savings and Loan Associations

- Is a non-stock, non-profit corporation engaged in the businessof accumulating engaged in the business of accumulating thesavings of its members and using such accumulations forloans to members to service the needs of households byproviding long-term financing for home building anddevelopment and for personal finance.

2. Quasi-Banks- Refers to entities engaged in the borrowing of funds through

the issuance, endorsement or assignment with recourse oracceptance of deposit substitutes for purposes of relending orpurchasing of receivables and other obligations.

3. Offshore Banks

- Refers to the conduct of banking transactions in foreigncurrencies involving the receipt of funds from external sourcesand the utilization of such funds.

Authority to Engage in Banking and Quasi-Banking FunctionsA. Authority from Bangko Sentral ng Pilipinas

- No person or entity shall engage in banking operations orquasi-banking functions without authority from BSP.

- An entity authorized by the BSP to perform universal orcommercial banking the functions shall likewise have theauthority to engage in quasi-banking functions.

- According to the provisions of the Corporation Code that: (a.)no article of incorporation or amendment to articles ofincorporation of banks, banking and quasi-banking institutionxxx governed by special laws shall be accepted by theCommission unless accompanied by a favorablerecommendation of the appropriate government agency to theeffect that such articles or amendment is in accordance withlaw; (b.)the SEC shall not accept for filing the by-laws or anyamendment thereto of any bank, banking institution xxxunless accompanied by a certificate of the appropriategovernment agency to the effect that such by-laws oramendments are in accordance with law.

B. Determination by the Monetary Board- The Monetary Board shall decide the determination of whether

a person or entity is performing banking or quasi-bankingfunctions.

a. To resolve such issue through inspection,investigation and examination.

b. Upon issuance of this authority banking operationsshall continue to do so unless such authority is

revoked, suspended or annulled by BSP.c. Existence of a victim is not necessary to determine

whether an entity is in illegal banking.C. Authority of Supervising and Examining Department

- Department head and examiners are authorized to:a. To administer oaths to any person such as officer or

director.b. To compel the presentation or production of books,

documents, papers or records that are reasonablynecessary to ascertain the facts relative to the truefunctions and operation of entity.

c. Failure or refusal to comply with the requiredpresentation within reasonable time shall subject the


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person responsible for penal sanctions provided in theNCBA (New Central Bank Act).

D. Extension of Examining Powers- BSP shall have the authority to examine an enterprise, which is

wholly, or majority owned or controlled bank. This is available

only when BSP is examining a bank.E. Certificate of Authority to Register

- The SEC shall not register the articles of incorporation of anybank or any amendment unless accompanied by a certificateof authority issued by Monetary Board under its seal.

- Such certificate shall not be issued unless the Monetary Boardis satisfied from the evidence submitted to it: (RPC)

a. All Requirementsof existing laws and regulations toengage in business for which the applicant isproposed to be incorporated have been compliedwith.

b. PublicInterest and economic conditions both generaland local, justify the authorization.

c. Amount of Capital, financing, organization, directionand administration as well as the integrity andresponsibility of the organizers and administratorsreasonably assure the safety of deposits and publicinterest.

- The SEC shall not register the by-laws of any bank unlessaccompanied by a certificate of authority from BSP.

Service of Summons Upon BanksA. Service under the Rules of Court

- Sec 11, Rule 14 of Rules of Court: Service upon domesticprivate juridical entity. When the defendant is a corporation,service may be made on the president, managing partner,general manager, corporate secretary, treasurer or in-house

counsel.- Sec 12, Rule 14 of Rules of Court: Service upon a private

juridical entity. When the defendant is a foreign private juridicalentity, service may be on its resident agent designated inaccordance with law.

B. Strict Compliance is Necessary- Basic is the rule that a strict compliance with the mode of

service is necessary to confer jurisdiction of the court over acorporation.

- The officer upon who services is made must be one who isnamed in the statute otherwise service is insufficient.

- The purpose is to render it reasonably certain that thecorporation will receive prompt and proper notice in actionagainst it.

- Serving of summons on a branch manager is invalid, as statedin the case of BPI vs. Spouses Santiago, the service of

summons on BPIs Branch Manager did not bind thecorporation for the branch manager is not included in theenumeration of the statute of the persons whom service ofsummons can be validly be made in behalf of corporation.Such service is void.


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CHAPTER 2Organization, Management and Administration of Banks,Quasi-Banks and Trust Entities

I. Organization of Banks

A. ConditionsThe Monetary Board may authorize the organization of a bank or

quasi-bank subject to the following conditions: (SPC)1. That the entity is a stockcorporation.2. That its funds are obtained from the public, which shall mean

twenty (20) or more persons.3. That the minimum capital requirements prescribed by the

Monetary Board for each category of banks are satisfied.

B. Capabilities

The Monetary Board shall take into consideration their capability interms of their f inanc ial resources and technical expert ise andintegr i ty. (FTI)

The bank licensing process shall incorporate an assessment of:

a. The banks ownership structureb. Directors and senior managementc. Its operating pland. Internal controle. Its projected financial condition and capital base

C. Capital Requirements1. Minimum capital prescribed by the Monetary Board

TYPE OF BANK

AMOUNTS

(In Million Pesos)

Universal Banks 4950.0

Commercial Banks 2400.0

Thrift banks

- With head office within

Metro Manila 325.0

- With head office outside

Metro Manila 52.0

Rural Banks

- within Metro Manila 26.0

- cities of Cebu and Davao 13.0

- In 1st, 2nd & 3rd class citiesand

first class municipalities 6.5

- in 4th, 5th & 6th class citiesand in

2nd, 3rd & 4th class

municipalities 3.9

- in 5th & 6th classmunicipalities 2.6

2. At least 25% of the total authorized capital stock shall be subscribed bythe subscribers of the proposed bank, and at least 25% of such


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subscription shall be paid-up, provided that in no case shall be thepaid-up capital be less than the minimum required capital statedabove. (25% subscribed and 25% of the subscribed shall be paid andshall not be less than the minimum)

D. Incorporators/Subscribers/Proposed Directors (I/S/PD)

I, S & PD - Must be Persons of integrity and of good credit standing in thebusiness community.

S - Must have adequate financial strength to pay for their proposedsubscriptions in the bank.

I, S & PD must not have been convicted of any crime involving moralturpitude

I, S & PDunless otherwise allowed by law, are not offices and employeesof a government agency, instrumentality, department or office charged with

the supervision of, or granting of loans to banks.

*** A bank may be organized with not less than five (5) nor more thank (15)incorporators. In excess of 15 may be listed among the original subscribers in theArticled of Incorporation.

E. Bank Branches

1. Universal or Commercial banks may open branches or other offices withinor outside the Philippines prior approval of the Bangko Sentral.

2. Branching by all other banks shall be governed by pertinent laws.

*** A bank may use any or all of its branches as outlets for the presentation and/orsale of the financial products of its allied undertaking or of its investment house units.

*** A bank shall be responsible for all business conducted in such branches andoffices to the same extent and in the same manner as though business had all beenconducted in the head office.*** A bank and its branches shall be treated as one unit.

II. Stockholdings

A. Treasury StocksThe GBL provides that no bank shall:

Purchase or acquire shares of its own capital stock Accept its own shares as security for a loan

Exception:

When authorized by the Monetary Board.(The stock so purchases or acquired shall, within

six months from the time of its purchase or acquisition, besold or disposed of at a public or private sale.)

B. Foreign StockholdingsSection 11, GBL

Foreign individuals and non-bank corporations may own or controlup to 40% of the voting stocks of a domestic bank. This rule shallapply to Filipinos and domestic non-bank corporations.

The percentage of foreign-owned voting stocks shall be determinedby the citizenship of the individual stockholders.

The citizenship of the corporation which is a stockholder in a bankshall follow the citizenship of the controlling stockholders of thecorporation, irrespective of the place of incorporation.

controlling stockholders individuals holding more that50% of the voting stock of the corporate stockholders of

the bank.

Commercial bankat least 60% of voting stock shall be owned byFilipino citizens.

Any thrift bank at least 40% of voting stock shall be owned byFilipino citizens.

Rural bank100% shall be owned and held, directly or indirectly,by Filipino citizens or corporations, associations or cooperativesqualified under the Philippine laws to own and hold such capitalstock.

*** Control test is applied in determining the nationality of banks.

C. Acquisition of Voting Stock in a Domestic BankSection 73, GBL

D. Family Groups or Related InterestsIs formed when:

Stockholdings of individuals related to each other within 4thdegree

or consanguinity or affinity, legitimate or common-law; or

Two or more corporations owned and controlled by the same familyor same group of persons.

*** such situations must be fully disclosed in all transactions bysuch corporations or related groups of persons with bank.

III. Board of Directors


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A. Number of DirectorsAt least five (5), and a maximum of fifteen (15) members of the

board of directors of bank, two (2) or whom shall be independent directors.

Independent Director a person other than an officer or employee of thebank, its subsidiaries or affiliates or related interests.1. Is not or has not been an officer or employee of the bank/quasi-

bank/trust entity, its subsidiaries or affiliates or related interests duringthe past three years counted from the date of his election;

2. Is not a director or officerof the related companies of the institutionsmajority stockholder;

3. Is not a majority shareholder of the institution, any of its relatedcompanies, or of its majority shareholder;

4. Is not a relative within the fourth degree of consanguinity or affinity,legitimate or common-law of any director, officer or majority shareholderor the bank/quasi-bank/trust entity, or any of its related companies;

5. Is not acting as a nominee or representative of any director orsubstantial shareholder or the bank/quasi-bank/ trust entity, any of itsrelated companies or any of its substantial shareholders; and

6. Is free from any business or other relations with the institutionorany of its major stockholders which could materially interfere with theexercise of his judgment.

B. Directors of Merged or Consolidated BanksIn the case of a bank merger or consolidation, the number of directorsshall not exceed twenty-one.

C. Meetings

May be conducted through: Teleconferencing

Video-conferencing*** Banks shall include in their bylaws a provision that meetings of board ofdirectors shall be held only within the Philippines.

D. Compensation and other Benefits of Directors and OfficersThe Monetary Board may regulate the payment by the bank to its directorsand officers or compensation, allowance, etc. only in exceptional cases suchas: (CUU)1. When a bank is under comptrollershipor conservatorship;2. When a bank is found by the Monetary Board to be conducting business

in an unsafeor unsound manner;

3. When a bank is found by the Monetary Board to be in anunsatisfactory financial condition.

IV. Fit and Proper Rule

A. Powers of the Monetary BoardThe GBL provides for the following rules:

1. The Monetary Board shall prescribe, pass upon and review thequalifications and disqualifications of individuals elected or appointedbank directors and disqualify those unfit.

2. After due notice to the board of directors of the bank, the MonetaryBoard may disqualify, suspend or remove any bank director or officerwho commits or omits an act which render him unfit for the position

3. CITEEintegrity, experience, education, training and competence ofan individual shall be considered.

B. Disqualificationsa. Permanently disqualified from being directors:1. Persons who have been convicted by final judgment of a court for

offenses involving dishonesty or breach of trust;2. Persons who have been convicted by final judgment of a court

sentencing them to serve a maximum term of imprisonment ofmore than six years;

3. Persons who have been convicted by final judgment of the court forviolation of banking laws, rules and regulations;

4. Persons who have been judicially declared insolvent, spendthrift, orincapacitated to contract;

5. Directors, officers or employees of closed banks, quasi-banks/trustentities who were found to be culpable for such institutions closureas determined by the monetary board.

6. Directors and officers of banks, quasi-bank and trust entities foundby the monetary board as administratively liable for violation ofbanking laws, rules and regulations where a penalty of removalfrom office is imposed, and which finding of the monetary board hasbecome final and executory;

7. Directors and officers of banks, quasi-banks and trust entities orany person found by the monetary board to be unfit for the positionof directors or officers because they were found administrativelyliable by another government agency for violation of banking laws,rules and regulations or any offense/violation involving dishonestyor breach or trust and which finding of said government agency hasbecome final and executory.


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b. Temporarily disqualified from being directors:1. Persons who full refuse to fully disclose the extent of their business

interest or any material information to the appropriate supervising andexamining department when required pursuant to a provision of law;

2. Directors who have been absent or who have not participated for

whatever reasons on more than 50% of all meetings, both regular andspecial, of the board of directors during their incumbency, and directorswho failed to physically attend for whatever reasons in at least 25% ofall boar meeting in any year, exceptthat when a notarized certificationexecuted by the corporate secretary has been submitted attesting thesaid directors were given the agenda materials prior to the meeting andthat their decisions thereon were submitted for deliberations and weretaken up in actual board meeting, said directors shall be present in theboard meeting. This disqualification applies only for purposes of theimmediately succeeding election;

3. Persons who are delinquent in the payment of their obligations.** one past due obligation to the bank where he/she is a director oroffice; at least two obligation with other banks or financial institution)*** obligations shall include all borrowings obtained by: a director,spouse or child of the director, any person person whose loan proceedswere used for the benefit of a director or office, a partnership where adirector or his spouse is the managing or general partner, a corporation,association or firms wholly owned or majority of the capital stocks areowned by the director or his spouse.

4. Persons who have been convicted by a court for offenses involvingdishonesty or breach of trust.

5. Directors and officers of closed banks/quasi-banks/trust entities pendingtheir clearance by the Monetary Board

6. Directors disqualified for failure to observe their duties andresponsibilities prescribed under existing regulations.

7. Directors who failed to attend the special seminar for board of directors.This disqualification applies until the director concerned has attended

such seminar;8. Persons dismissed from employment for cause, until they have cleared

themselves of involvement in the alleged irregularity.9. Those under preventive suspension10. Persons with derogatory records as certified by the judiciary, NBI, PNP,

etc. for irregularities that would adversely affect the integrity ofdirector/officer, until they have cleared themselves or after the lapse offive years from the time of the complaint.

11. Directors and officers of banks, quasi-bank and trust entities found bythe monetary board as administratively liable for violation of bankinglaws, rules and regulations where a penalty of removal from office isimposed, and which finding of the monetary board is pending appealbefore the appellate court, unless execution is restrained by court.

12. Directors and officers of banks, quasi-banks and trust entities or anyperson found by the monetary board to be unfit for the position ofdirectors or officers because they were found administratively liable byanother government agency for violation of banking laws, rules andregulations or any offense/violation involving dishonesty or breach or

trust and which finding of said government agency is pending appealbefore the appellate court, unless execution is restrained by court.13. Directors and officers of banks, quasi-bank and trust entities found by

the monetary board as administratively liable for violation of bankinglaws, rules and regulations where a penalty of suspension from office orfine is imposed, regardless whether the finding of the monetary boardfinal and executory or pending appeal before the appellate court,unless execution is restrained by court. The disqualification is in effectduring the period of suspension or so long as the fine is not fully paid.

C. Disqualifications/Prohibitions under the Corporation CodeSec. 27, Corporation Code

D. Disqualifications/Prohibitions under the NCBA

Disqualification Sec. 9, NCBAProhibitions Sec. 27, NCBA

E. Disqualification/Prohibition under the PDIC LawSec. 17 PDIC Law

F. Disqualification/Prohibition under RA 7353Sec. 5, RA 7353

G. Disqualification/Prohibition under Appendix 38, Manual of Regulationsfor Banks

H. Prohibitions on Public Officials

Sec 19, GBL

V. Banking Days and Hours

A. Number of Days and HoursThe GBL provides for the following guidelines:1. Banks shall transact business on all working days for at least six hours

a day. Banks may open for business on Saturdays, Sundays, orholidays for at least three hours a day.

2. Banks which opt to open on days other than working days shall report tothe Bangko Sentral the additional days during which they or theirbranches or offices shall transact business.


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3. Working days mean Mondays to Fridays, except if such days areholidays.

B. Rules and Regulations

1. All banks shall observe for the conduct of their business a regularbanking week five days (Mondays Fridays), except when such daysare holidays.a. For servicing deposits and withdrawals, banks may remain open

beyond the minimum six hours, even before 8:00am or after8:00pm.

b. For purposes other than servicing deposits and withdrawals, banksmay open beyond the minimum six hours but in no case shall suchbanking hours start earlier than 8:00am nor extend beyond 8:00pm.

c. Branches of banks at any international airport or major fish port areallowed on flexible baking hours within a twenty-four hour periodwhich shall in no case be less than six hours per day.

d. The banking days and hours selected for each of the offices ofbanks shall be reported in writing to the appropriate supervisingand examining department of the BSP. Provided, that the change inbanking days and hours shall not be made oftener than once everythirty days, except during emergencies.

e. Notice on changes in banking days and hours shall be giventhrough the fastest means of communication, at least seven daysbefore the intended effectivity in banking hours or days.

f. In case the bank has to pen outside or close during the bankinghours or days reported to the BSP due to an emergency, a writtenreport submitted within 24 hours from opening or closing willsuffice.

2. Subject to compliance with other relevant laws, banks may opt to

observe a banking week in excess of five days after reporting to theBSP the additional days during which such banks or their branches oroffices shall transact business for at least three hours each day.

3. Without the need of approval from BSP, banks are allowed to close oncertain days in celebration of important historical and/or religious eventin the locality where the banks operate: Provided, that said closure hasthe prior approval of the bankers association in the locality: Providedfurther, that said closure will only be allowed in the municipality or citywhere the festivities are centered.

4. Banks shall submit either individually or through their head offices, tothe appropriate supervising and examining department of the BSP aprior notice of their intended closure on account of a special localfestivity, together with a copy of the resolution of the local bankers

association approving said closure, at least two days after the date ofsaid resolution.

5. The required notice shall be supported by certification that:a. On the date of temporary closure, the bank and/or branch will

maintain a skeletal force to handle out-of-town clearing items

b. The notice of the banks closure and the reason thereof shall beposted conspicuously in the banks premisesc. For branches of banks, the closure has the prior approval of their

respective head offices.

VI. Automated Teller Machines

A. Off-Site Automated Teller Machines (ATMs)Banks may establish off-site ATMs, subject to the following conditions:1. Banks shall submit a report to the appropriated department of the BSP

on ATMs which they establish;2. ATMs shall be installed in centers of activity like supermarkets, etc.

Provided, that security measures shall be adopted.3. Only banks which have shown general compliance with laws, rules and

regulations shall be allowed to open off -site ATMs.B. Mobile ATMs

Banks may also establish mobile ATM, subject to the following conditions:1. The mobile ATMs should be allowed to visit only centers of activity as

mentioned in Item A(2) above and should confine their itinerary to MetroManila until further notice;

2. The bank shall secure insurance coverage or adopt a self-insurancescheme to protect itself against losses of whatever nature in itsimmobile ATM operations;

3. The bank shall notify the supervising and examining department of theBSP of the actual date a mobile ATM becomes operational and when nolonger in operation.

VII. Independent AuditorThe following are the rules with respect to financial audit of banks:

1. The Monetary Board may require a bank, quasi-bank or trust entity toengage the services of an independent auditor to be chosen by the bank,quasi-bank or trust entity concerned from a list of certified public accountantsacceptable to the Monetary Board.

2. The term of the engagement shall be prescribed by the Monetary Boardwhich may either be on a continuing basis where the auditor shall act asresident examiner, or on the basis of special engagements, but in any case,the independent auditor shall be responsible to the banks, quasi-banks or


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trust entitys board of directors. A copy of the report shall be furnished to theMonetary Board.

3. The Monetary Board may also direct the board of directors of a bank, quasi-bank, trust entity and/or the individual members thereof, to conduct, eitherpersonally or by a committee created by the board, an annual balance sheet

audit of the bank, quasi-bank or trust entity to review the internal audit andcontrol system of the bank, quasi-bank or trust entity and to submit a reportof such audit.

VIII. FINANCIAL STATEMENTS

A. Publication of Financial Statements:The following are rules regarding publication of financial statements: Sec.61, GBL

** Every bank, quasi-bank or trust entity, shall publish a statement of itsfinancial condition

such terms understandable to the layman

in such frequency as may be prescribed by the Bangko Sentral

in English or Filipino

at least once every quarter in a newspaper or general circulation in theplace where the bank is located

** In periods of national and/or local emergency or of imminent panic which directlythreaten monetary and banking stability, the Monetary Board, by a vote of at least fiveof its members, in special cases and upon application of the bank, quasi-bank or trustentity, may allow such bank, quasi-bank or trust entity to defer for a stated period oftime the publication of the statement of financial condition required herein.

IX. Publication of Capital Stock

A bank, quasi-bank or trust entity shall shot publish the amount of its authorizedor subscribed capital stock without indicating at the same time and with equalprominence, the amount of its capital actually paid-up.

X. Settlement of Disputes

A. Unsettled Labor DisputesAny strike or lockout involving banks, if unsettled after seven calendar daysshall be reported by the Bangko Sentral to the Secretary of Labor who mayassume jurisdiction over the dispute and decide it or certify the same to theNLRC for compulsory arbitration. However, the President may intervene and

assume jurisdiction over such labor dispute in order to settle or terminate thesame.

B. Reports of Strike and Lockouts

The bank shall disclose the following pertinent information on thestrike/lockout:a. Cause of the strike/lockout and bank managements position on its

legality;b. Bank operations affected.

XI. Laws Governing Other Types of Banks

Thrift banksThrift Banks Act

Rural BankRural Banks Act

CooperativeCooperative Code

Islamic Banksspecial laws

** GBL shall likewise apply to thrift banks, rural banks and cooperative banks insofaras they are not in conflict.

** GBL shall govern for purposes of prescribing the minimum ratio which the net worthof a thrift bank must bear to its total risk assets.


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CHAPTER 3Deposit Function of Banks

Kinds of Deposits

1) Demand Depositsall those liabilities of the Bangko Sentral and of other bankswhich are denominated in Philippine currency and are subject to payment in legaltender upon demand by the presentation of (depositors) checks.

Universal and Commercial banks may create or accept demand depositssubject to withdrawal by check WITHOUT prior authority from BSP.

Thrift Bank, Rural Bank, Cooperative Bank may create or accept demanddeposits subject to withdrawal by check WITH prior authority from BSP.

Manner of making the deposit

In Philippine Bank of Commerce vs CAthe Supreme Court observed:

In the ordinary and usual course of banking operations, current accountdeposits are accepted by the bank on the basis of deposit slips prepared and signedby the depositor, or the latters agent or representative, who indicates therein the


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current account number to which the deposit is to be credited, the name of thedepositor or current account holder, the name of the deposit and the amount of thedeposit either in cash or checks. The deposit slip has an upper portion or stub, whichis detached and given to the depositor or his agent; the lower portion is retained bythe bank. In some instances however, the deposit slips are prepared in duplicate by

the depositor. The original of the deposit slip is retained by the bank, while theduplicate copy is returned or given to the depositor.

Regulations on Temporary Overdrawings and Drawings against Uncollected Deposits(DAUD)

TEMPORARY OVERDRAWINGS against current account SHALL NOT BEALLOWED, UNLESS caused by normal bank charges and other fees incidental tohandling such accounts.

Violation:

Fine of one-tenth of one percent (1/10 of 1%) per day of violation, computedon the basis of the amount of overdrawing or fines in amounts as may bedetermined by the Monetary Board, but not to exceed P30,000 a day foreach violation whichever is lower.

Technical overdrawings arising from force posting in clearing checks shallbe debited banks under Returned Checks and Other Cash Items Not in Pro cess ofCollection which is part of Other Assets in the Statement Condition. Items to belodged under this account shall consist only of in-clearing checks which may result intechnical overdrawn accounts and shall immediately reversed in the following day.The checks lodged under Returned Checks etc. shall either be returned or honoredthe following day before clearing. The items to be used as cover for honored checksshould only consist of any of the following:

Cash

Cashiers, Managers or Certified Checks

Bank Drafts

Postal Money Orders Treasury Warrants

Duly funded On us checks

Fund transfers or credit memos within the same bank representing proceedsof loans granted under existing regulations

NOTE:Peso demand deposit accounts maintained by foreign correspondent banks with

commercial banks shall NOT be subject to the above-mentioned regulationsPROVIDED:

The maintenance of non-resident correspondent banks peso checkingaccounts and overdrawings therefrom are covered by reciprocalarrangement

Temporary overdrawings are covered within 15 days from the dateoverdrawings are incurred

Such accounts are credited only through foreign exchange inwardremittance

DRAWINGS AGAINST UNCOLLECTED DEPOSITS (DAUDs) shall bePROHIBITED except when the drawings are made against uncollected depositsrepresenting managers/cashiers/treasurers checks, treasurer warrants, postalmoney orders and duly funded on us checks which may be permitted at thediscretion of each bank.

Current Accounts of Banks Officers and Employees

The following officers and employees of banks are PROHIBITED frommaintaining demand deposits or current accounts with the banking office in whichthey are assigned:

All officers

Employees of the banks cash department/ cash units

Other employees who have direct and immediate responsibility in thehandling of transactions and/or records pertaining to demand deposits orcurrent accounts.

Includes spouses and relatives within second degree of consanguinity andaffinity

Checkis a bill of exchange drawn on a bank payable on demand.

Fixed savings and current deposits of money shall be governed by theprovision so simple loan

Duty of Banks to honor checks Banks are bound to honor checks to the extent of the amount of his (the

depositor) deposits.

Failure of the bank to honor entitles the drawer to substantial damageswithout any proof of actual damages

Banks must ensure that the amount of the check should be paid only to itsdesignated payee. The fact that the drawee bank did not discover theirregularity seasonably constitutes negligence.

Responsibility of Drawer

The drawer must personally keep track of his available balance in the bank.

Duty of Banks to Know Signatures

A bank is bound to know the signatures of its customers


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If it pays a forged check, it must be considered as making the payment outof its own funds and cannot ordinarily charge the amount so paid to theaccount of the depositor whose name was forged.

Banks are under no obligation to make part payment on a check, up to only the

amount of the drawers funds.

Banks are under no duty to make up deficiency from the savings account. If adepositor has 2 accounts with a bank, an open account and a savings account, anddraws a check upon the open account for more money than the account contains.

Checks do not have legal tender power and their acceptance in the payment of debtsis at the option of the creditor.

Effects if a cross check

In State Investment House vs IAC, the SC enumerated the different effectsof crossing a check:

1. That the check may not be encashed but only deposited in the bank2. That the check may be negotiated only once to one who has an account

with a bank3. That the act of crossing the check serves as a warning to the holder that the

check has been issued for a definite purpose so that such holder mustinquire if the check has been received pursuant to that purpose.

Cashiers Check is really the banks own check and may be treated as a promissorynote with the bank as the maker.

In New Pacific Timber and supply Co. Inc. vs Seeris cashier check isdeemed as cash

Set-off

A bank may debit the personal account of a depositor for an amount

erroneously credited to the depositors sole proprietorship account becausethe latter being a sole proprietorship has no separate and distinct personalityfrom the depositor.

Art. 1980 and Art. 1278 of the Civil Code

The law imposes a duty of diligence on the collecting bank to scrutinizechecks deposited with it, for the purpose of determining their genuinenessand regularity.

Crossing of the check with the phrase Payees Account Only is a warningthat the check should be deposited only in the account of the payee. It is theduty of the bank to ascertain it.

Relationship of payee or holder and the bank

Principal and agent.

The bank which receives such paper for collection is the agent of the payeeor holder.

Encashment of checks

Banking business requires that the one who first cashes and negotiates thecheck must take some precautions to learn whether or not it is genuine.

2) Savings Deposits

Servicing deposits

Banks may be authorized by the BSP to solicit and accept deposits outsidetheir bank premises, subject to ff: conditions:

1. The financial condition of the banks is sound and the operationsand the quality of the management thereof could reasonably assurethe safety of the funds which may be entrusted to its depositcollectors and/or agents

2. Proposed area is clearly defined

3. Solicitation shall be only confined within a locality where there areNO BANKS IN OPERATION or where it can be established thatthe deposit potentials in the said locality are still untapped

4. Institute and maintain following minimum safeguards: Deposit solicitors shall be initially bonded for at least

P1,000 subject to the increase thereof to approximate theirdaily collections

Deposit solicitors shall be provided with properidentification cards with photograph and signature,certified by appropriate officer of the bank

Secure adequate insurance coverage for funds Deposit slips shall be in booklet form, prenumbered and in

triplicate (3) copies. The original issued to the depositor,second used for posting reference and third retained in the

booklet. All collections shall be turned over to the cashier at the

end of each day accompanied by a COLLECTIONSUMMARY REPORT which shall contain the followinginformation.

Date

Name and address of the depositors

Deposit slip no.s

Amount of deposit

Savings account and passbook numbers

Name and signature of solicitor rendering thereport


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Depositors shall be required to accomplish a SIGNATURECARD when opening an accountused as a reference inchecking the genuineness and authenticity of signatures inwithdrawals

Deposits/withdrawals shall be recorded by the bookkeeper

or any ledger clerk At the end of each month, depositors shall be advised IN

WRITING if the balances of their deposits. Advise slipsshall NEVER be handcarried by the solicitor themselves

Place of assignments of banks solicitors shall be rotated atleast quarterly.

Individual and Joint accounts

Joint accountmay be an and account or an and/or account

And account signature of BOTH co-depositor are required for withdrawal

And/or account either one of the co-depositors may deposit and withdrawfrom the account without the knowledge, consent and signature of the other.

Withdrawals

Banks are prohibited from issuing or accepting withdrawal slips withoutrequiring depositors concerned to present their passbooks except for banksauthorized by BSP.

NOTE: There is now law mandating banks to call up their clients whenever theirrepresentatives withdraw significant amounts from their accounts.

3) Negotiable Order of Withdrawal (NOW) Accounts

NOW accounts interest bearing accounts that combine the payable on demandfeature of checks and investment feature of savings account.

Universal/Commercial Bank may offer NOW accounts WITHOUT priorauthority of the monetary board

Thrift/Rural/Cooperative Bank may offer UPON prior approval of themonetary board.

Rules on servicing NOW accounts

Prior to or simultaneous with the opening of a NOW account, the bank shallinform the depositor of its terms and conditions

Banks shall be responsible for the proper identification of its depositors andrequire 2 specimen signatures and such other pertinent information

Deposit shall be covered by deposit slips in duplicate duly validated andinitialed by the teller received the deposit

NOW accounts shall be kept and maintained separately from the regularsavings deposits

Blank NOW forms shall be prenumbered and shall be controlled as in thecase of unissued blank checks

A bank statement shall be sent to each depositor at the end of each month

for confirmation of balances Banks must use the form prescribed by the present rules for NOW accounts.

4) Time Depositsone the payment of which cannot legally be required within sucha specified number of days.

Time deposits shall be issued for a specific period of term

Authority shall be automatically granted to any accredited banking institutionto accept SPECIAL TIME DEPOSITS from the Agrarian Reform FundCommission with interest lower than the rate allowed on time depositsaccepted from the general public.

Rules regarding issuance of Certificates of Time Deposit (CTD)

Negotiable Certificates on Time Deposit (NCTD)

o Universal/Commercial Banks may issue WITHOUT prior approvalof BSP

o Thrift/Rural/Cooperative Banks may issue UPON THE PRIORapproval of BSP

Non-Negotiable Certificates of Time Deposito Bank may issue long-term non-negotiable tax-exempt certificates to

time deposit without prior approval of the BSP

5) Deposit Substitute Operations (Quasi-Banking Functions)

Elements:1. Borrowing funds for the borrowers own account2. 20 or more lenders at any one time

3. Methods of borrowing are issuance, endorsement or acceptance of debtinstruments of any kind4. Purpose of which is relending or purchasing receivables or other obligations

NOTE:1. Borrowing shall refer to all forms of obtaining or raising funds through any of

the methods and for any purposes provided in no.4 above2. Purchasing receivables or other obligations shall refer to the acquisition of

claims collectible in money3. Relending shall refer to the extension of loans by an institution with

antecedent borrowing transactions. Relending is presumed when theinstitution is regularly engaged in lending


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4. Regularly engaged in lending shall refer to the practice of extending loans,advances, discounts or rediscounts as a matter of business

6) Foreign Currency Deposits

Authority to deposit foreign currencies- Any person may deposit with such Phil. Banks in good standing.

Authority of Banks to accept foreign currency deposits:

Banks designated by Central Bank shall have the authority to:1. Accept Deposits and to accept foreign currencies in trust.

Numbered accounts for recording and servicing of said deposits areallowed.

2. Issue certificates to evidence such deposits.3. Discount said certificates4. Accept said deposits as collateral for loans subject to such rules

and regulations5. Pay interest in foreign currency on such deposits

Foreign Currency Cover Requirements:Depository banks shall:

1. Maintain at all times a 100% foreign currency cover for their liabilities2. Of which cover at least 15% shall be in the form of foreign currency deposit

with the Central Bank3. The balance in the form of the foreign currency loans or securities, which

loan or securities shall be of short-term maturities and readily marketable4. Such foreign currency loans may include loans to domestic enterprises

which are export-oriented or registered with the Board of Investments5. Foreign Currency cover shall be in the same currency as that of the

corresponding foreign currency deposit liability6. Central Bank may pay interest on the foreign currency deposit and if

requested shall exchange the foreign currency notes and coins into foreigncurrency instruments drawn on its depository banks.

Depository banks on account of networth, resources, past performance or otherpertinent criteria, have been qualified by the Monetary board to function under anexpanded foreign currency deposit system shall be exempt in no.2 above.

There is no restriction on the withdrawal by the depositor of his deposit or on thetransferability of the same abroad EXCEPT those arising from the contract bet. thedepositor and the bank.

7) Anonymous and Numbered Accountsshould not be allowed

In case where numbered accounts are allowed, banks or financialinstitutions should ensure that the client is identified in an official or other identifyingdocuments.

Related Laws:

Art 178 RPC Art 379, Art 380 of Civil Code

Commonwealth Act 142 as amended by Republic Act No. 6085

Administration of Deposits

All banking institutions are required to set a minimum of 3 specimen signatures tobe simultaneously required from each of their depositors and to update the specimensignatures of their depositors every 5 years or sooner.

BSP Circular No. 564 Series of 2007 provides for a valid list of identificationcards

Students who are beneficiaries of an OFW and not on voting age shall be

required of 2 valid ID The requirement on presenting 2 valid IDs shall on 1 time basis only or at

the commencement of business relationship.

Financial transactions may include remittances

Minors are vested with special capacity and power to make savings or timedeposits with and withdraw the same as well as receive interest thereon.

Requirements:

At least 7 years of age

Able to read and write

Sufficient discretion

Not otherwise disqualified by any other incapacity

If a guardian shall give notice in writing to any thrift bank not to make paymentsof deposits dividends or interest to the minor of whom he is the guardian, then suchpayment shall be made only to the guardian.

Corporations may open bank accounts as follows:1) Incorporation Stage2) Post Incorporation

Interest or yield on time deposit/deposit substitute may be paid at the maturity orupon withdrawal or in advance PROVIDED, it shall not exceed the interest in 1 year.


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A time deposit not withdrawn or renewed on its due date shall be treated as asavings deposit and shall earn interest from maturity to the date of actual withdrawalor renewal at a rate applicable to savings deposits.

Deposit substitute instrument not withdrawn or renewed on its maturity date shallfrom said date become payable on demand and shall earn an interest or yield from

maturity to actual withdrawal or renewal at a rate applicable to a deposit substitutewith a maturity of 15 days.

All deposits and withdrawals during regular banking hours shall be credited ordebited to deposit liability accounts on the day receipt or payment thereof.

Provided:That a bank may set clearing cut-off time for its head office not earlier than 2

hours before the start of clearing at BSP and not earlier than 3 hours before thestart of clearing of all its branches, agencies and extension offices

Provided further:That banks which are located in areas where there are no BSP regional/clearing

arrangements may set a clearing cut-off time not earlier than 2 hours before the startof their local clearing after which time deposits received shall be booked likewise ashereinafter provided.

Cash deposits received after the selected clearing cut-off time shall be booked sdeposits on the day of receipt.

Deposits on checks including on us checks etc. may be booked as deposits onthe day of receipt.

Deposits received after the close of the regular banking hours shall be booked asdeposits the following banking day.

Banks impose and collect service charges on savings and demands deposits that fallbelow the required minimum monthly average daily balance (ADB) subject to ff:conditions:

The imposition of such charges is clearly stated among the terms andconditions of the depositor

The rate or amount of such charges or fees is properly disclosed among theterms and conditions of the deposit

The deposit account balances have fallen below the required minimummonthly ADB for dormant account and for at least 2 consecutive months foractive accounts

The required minimum monthly ADB of deposits are properly disclosedamong the terms and conditions of the deposit.

Any change in the terms and conditions for the imposition of service chargesand/or maintenance fees shall take effect only after due notice to the depositor.

PROVIDED

Information by regular mail, electronic mail, statement of account messagesor alternative modes of communication on the depositors last known address atleast 60 days prior to implementation shall be considered sufficient notice.

PROVIDED FURTHERFailure of the depositor to manifest or register his objection to the new

service within 30 days from receipt shall be deemed acceptance of such changes

Banks shall likewise post said information on their respective websites, ATMon-screen messages and in conspicuous places within the bank premises atleast 60 days prior to implementation.

III. Survivorship Agreement

- when joint (and several) owners of a deposit agree that either of them couldwithdraw any part or the whole of said account during the lifetime of bothand the balance, if any, upon the death of either, belonged to the survivor.

- an ALEATORY CONTRACT (Art. 1790), by which the mutual agreement ofthe joint depositors permitting either of them to withdraw the whole depositduring their lifetime and transferring the balance to the survivor upon the

death of one of them.

Survivorship agreement not invalid per se but may be violative of law, suchinstances:- a mere cloak to hide an inofficious donation- to transfer property in fraud of creditors- to defeat the legitime of a forced heir

IV. Nature of Bank Deposits

A. Nature

1. Fixed, savings and current deposits of money in banks and similar

institutions are the true deposits and are considered simple loans.2. Irregular deposits in nature for they are really loans because they earn

interest.- In reality: depositor is the creditor while bank is the debtor.- Failure of the bank to honor the time deposit is failure to pay itsobligation as a debtor and not a breach of trust arising froma depositorys failure to return the subject matter of the deposit.

3. The relationship between the depositor and the Savings and LoanAssociation is that of creditor and debtor.

- Bank has the obligation to return the amount deposited, however,it has no obligation to return or deliver the same money that wasdeposited. (Principle of Non-Fungible)


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- It shall be exempt from attachment, garnishment or any other order orprocess of any court, legislative body, government agency or anyadministrative body whatsoever.

3. Confidentiality of Deposits in Islamic Banks

- All deposits of whatever nature are confidential EXCEPT:1. inspection by the banks auditor2. upon written permission by the depositor3. in cases where the money deposited or the transaction

concerned is the subject matter of a court order

VII. Exceptions to Secrecy of DepositsA. Exceptions to the Bank Secrecy Law:

1. Upon written permission of the depositor2. In cases of impeachment3. Upon order of a competent court in cases of bribery or dereliction of

duty of public officials4. In cases where the money deposited or invested is the subject matter of

litigation

B. Garnishment- A legal proceeding by which the officer may levy on debts due thejudgment obligor and other credits, including bank deposits, financialinterests, royalties, commissions and other personal property not capable ofmanual delivery in the possession or control of third parties.- Levy shall be made by serving NOTICE upon the person owing such debtsor having in his possession or control such credits to which the judgmentobligor is entitled.- The garnishment shall cover only such amount as will satisfy the judgmentand all lawful fees.

Property exempt from execution/garnishment:1. Family home or the homestead in which he resides.

2. Ordinary tools and implements personally used in his trade,employment or livelihood.

3. Three horses, or (3) cows, or (3) carabaos, or there beasts of burdennecessarily used by him in his ordinary occupation.

4. Necessary clothing and articles for ordinary personal use, excludingjewelry.

5. Household furnitures and utensils used for housekeeping not exceedingP100,000.

6. Provisions for individual or family use sufficient for four months.7. Professional libraries and equipment not exceeding P300,000 in value.8. One fishing boat and accessories not exceeding the total value of

P100,000 and by the lawful use of which he earns his livelihood asfisherman.

9. Salaries, wages or earnings within the four months preceding the levyas are necessary for the support of his family.

10. Lettered gravestones.11. Monies benefits, privileges or annuities accruing or in any manner

growing out of any life insurance.

12. The right to receive legal support or money or property obtained as suchsupport or any pension or gratuity from the Government.13. Properties especially exempt by law.

C. Secrecy and Exemption from Attachment and Garnishment of ForeignCurrency Deposits cannot be used as Device for Wrongdoing

D. Graft and Corruption- The Anti-Graft Law directs in mandatory terms that bank deposits shall betaken into consideration in its enforcement, notwithstanding any provision oflaw to the contrary.

E. Authority to Inquire into Bank Deposits under the Anti-Money laundering Act- AMLC may inquire into or examine any particular deposit r investment with

any banking institution or non-bank financial institution upon order of anycompetent court in cases of violation, when it has established that:

a. there is probable cause that the deposits or investments are relatedto an unlawful activity; or

b. a money laundering offense

F. Periodic or Special Examination- BSP may inquire into or examine any deposit or investment with anybanking institutions or non-bank financial institution when the examination ismade in the course of a periodic or special examination, in accordance withthe rules of examination of BSP.- If authorized by the Monetary Board to satisfy a reasonable ground tobelieve that a bank fraud or serious irregularity has been or is being

committed and that it is necessary to look into the deposit to establish suchfraud or irregularity.- Examination made by an independent auditor hired by the bank to conductits regular audit provide that the examination is for audit purposes only andthe results thereof shall be for the exclusive use of the bank.

G. In Camera Inspection by the Ombudsman- Section 15(8) of republic Act No. 6770 (The Ombudsman Act of 1989)provides as one of the powers of the Ombudsman:

(8) Administer oaths, issue subpoena and subpoenaduces tecum, and take

testimony in any investigation or inquiry,including the power to


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examine and have access to bank accounts andrecords.

- Before in camera inspection may be allowed, there must be a pending casebefore a court of competent jurisdiction. The account must clearly beidentified. The bank personnel and the account holder must be notified to be

present during the inspection and such inspection may cover only theaccount identified in the pending case.

H. Preliminary Attachment- Section 10, Rule 57 of the Rules of Court is compatible with the law onsecrecy of bank deposits because it provides an exception in cases wherethe money deposited or invested is the subject matter of the litigation.

I. Disclosure of Dormant Accounts- Section 2 of Act No. 3996 (An Act Requiring Banks and BankingInstitutions of Every Kind to Transfer Unclaimed Balances held by them tothe Insular Treasury and for Other Purposes)

o All banks shall forward to the Insular Treasurer a statement underoath of their respective managing officers, of all credits and

deposits held by them in favor of persons known to be dead, or whohave not made further deposits or withdrawals during the precedingten years or more, arranged in alphabetical order according to thenames of depositors.

o Upon receipt by the Insular Treasurer, it shall publish the sameonce a week for three consecutive weeks in at least twonewspapers of general circulation in the locality where the bank orbanks are situated.

J. Authority of the Commissioner of Internal Revenue to Inquire into Deposits- Section 6 of the 1997 National Internal Revenue Code provides:

(F) Authority of the Commissioner to inquire into Bank DepositAccounts. Notwithstanding any contrary provision of Republic Act No.1405 and other general or special laws, the Commissioner is hereby

authorized to inquire into the bank deposits of:

(1) a decedent to determine his gross estate; and(2) any taxpayer who has filed an application for

compromise of his tax liability under Sec. 204(A)(2)of this Code by reason of financial incapacity to payhis tax liability.

K. Waiver by DOSRI

Section 26 (NCBA). Bank Deposits andInvestments.Any director, officer or stockholderwho, together with his related interest, contractsa loan or any form of financial accommodation

from: (1) his bank; or (2) from a bank: (a) which isa subsidiary of a bank holding company of whichboth his bank and the lending bank aresubsidiaries; or (b) in which a controllingproportion of the shares is owned by the same

interest that owns a controlling proportion of theshares of his bank, in excess of 5% of the capitaland surplus of the bank, or in the maximumamount permitted by law, whichever is lower,shall be required by the lending bank to waive thesecrecy of his deposits of whatever nature in allbanks in the Philippines.

Chapter 4Investments, Loans and Other Functions of Banks

I. Operations of Universal Banks

A. Powers of a Universal Banksi. Powers authorized for a commercial bankii. Powers of an investment houseiii. Power to invest in a non-allied enterprise

B. Equity Investments of a Universal Banki. May invest in the equities of allied and non-allied

enterprise as may be determined by the monetary board

May either by financial or non-financiala. Total investment in equities of allied and

non-allied enterprise should not

exceed 50% of the net worth of the bankb. Equity investment should not exceed25% of net worth

c. Net worth- totatl of unimpaired paid-incapital as may be required by BSP

C. Equity of Investments of a universal Bank n Financial AlliedEnterprises

i. Can own up to 100% of equity in a thrift bank, ruralbank or a financial allied enterprise

ii. Publicly-listed universal or commercial bank- 100% ofvoting stock of only one other universal or commercialbank


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Financial Allied Undertakingsa. Leasing companies- bank investment of

shares shall be limited only in cases ofconversion of outstanding loanobligations into equity

b. Banksc. Investing housesd. Financing companiese. Credit Card companiesf. Financial institutions catering to small

and medium scale industriesg. Companies engaged in stock

brokerage/securities dealershiph. Companies engaged in foreign

exchange dealership/brokeragei. In addition:

i. Insurance companiesj. Holding companies - investment of

shares shall be limited only in cases of

conversion of outstanding loanobligations into equity

D. Equity Investments of a universal Bank in Non-allied Enterprisesup to 100%

i. Examples of Non Finacial Allied undertakings

Warehousing companies

Storage companies

Safe deposit box companies

Companies engaged in management of mutualfunds but not in the mutual funds themselves

Corporations engaged in any activity similar tomanagement of mutual funds

Companies engaged in providing computerservices

Insurance Agencies/brokerages

Companies engaged in home building anddevelopment

Companies providing drying and/or millingfacilities for agricultural crops

Service bureaus for outsourcing services

Those declared by the Monetary Board

E. Equity Investments of a Universal Bank in Non-Allied enterpriseshall not exceed 35% of total equity and voting stock

F. Investments in Non-Allied or Non-Related Undertakings onlyUniversal banks may invest

i. Examples of non-Allied undertakings

Enterprise engaged in physically productiveactivities ina. Agricultureb. Mining and quarryingc. Manufacturingd. Public utilitiese. Constructionf. Wholesale tradeg. Community and Social services

ii. Industrial park/real estate projectsiii. Financial and commercial complex projects in connection

with the Governments privtization programiv. Others declared by Monetary Board

G. Equity Investments in Quasi-Banks to promote competitiveconditions in financial markets, may own up to 40 % equityinvestments, also applicable in the case of commercial banks

II. Operations of Commercial Banks

A. Powers of Commercial Banksi. General powers incident to corporatonii. Powers necessary to carry out commercial banking

Accepting drafts and issuing LOC

Negotiating promissory notes, bills of exchangeand other evidences of debt

Accepting or creating demand deposits

Receiving other types of deposits and depositsubstitutes

Buying and selling foreign exchange, gold andsilver bullion; acquiring marketable bonds andother debt securities

Extending credit

B. Issuance of Letters of Crediti. Nature - developed by merchants as a convenient and

relatively safe mode of dealing with sales of goods tosatisfy the seemingly irreconcilable interests of a seller,who refuses to part with his goods before he is paid and a


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i. Shall not exceed 20% if Net Worth of the Bank

Exceptions:a. Reasons of national interestb. Deposits of Rural Banks with

government-owned or controlled

financial institutions are exemptedc. May be increased by 10% provided theadditional liabilities of any borrower areadequately secured by securing titles

As amended by Circular no. 425, SBL must notexceed 23%, still subject to such exceptions

B. Inclusion to the Limiti. Prescribed Ceilings shall include:

Direct liability of the maker or acceptor of paperdiscounted with or sold to such bank and liabilityof a general indorser, drawer or guarantor whoobtains a loan or other credit accommodation

Liabilities of individuals who own or control amajority interest in a corporation

Corporation- all liabilities to such bank of allsubsidiaries

Partnershipliabilities of the membersii. Control of majority interest or Controlling interest when

parent owns directly of indirectly through subsidiariesmore than one half of the voting power of an enterprise

iii. Even if a parent corporation who owns a majority interesthas no liabilities, Monetary Board may prescribecombination of liabilities in certain situations

C. Exclusion to the LimitLoans and other accommodations -

i. Secured by obligations of BSP or of the PhilippineGovernment

Reason: The state undoubtedly is always solventii. Fully guaranteed by the government as to payment of

pricipal and Interestiii. Covered by assignment of deposits maintained in the

lending bank and held in the Philippinesiv. Under letters of credit to the extend covered by margin

depositsv. Specified by Monetary Board as non-risk items

D. Bank Guaranteeirrevocable commitment of a bank binding itselfto pay a sum of money in the event of non-performance of a

contract by a third party. Distinct from principal debt or contract.Subject to such limits.

E. Contingent Accounts are also subject to such limits

F. Assignment of Creditsagreement by virtue of which the owner ofa credit by a legal cause, transfers his credit and its accessoryrights to an assignee.

G. No Pacto Commissorio in Assignment of Deposits

i. Pacto commisorio automatic appropriation of thepledged or mortgaged property by the creditor in paymentof the loan upon its maturity

V. Restriction on Bank Exposure to Directors, Officers, Stockholders andtheir Related Interests

A. Approval and Other Requirements

i. No director or officer of any bank shall: Directly or indirectly for himself or as an agent of

others borrow from such bank

Become a guarantor, indorser or surety for loansfrom such bank

An obligor who would incur contractual liability tothe bank

Exception: written approval of the majority of allthe directors of the bank

ii. Approval shall be entered upon the records of the bankiii. Dealing shall be upon terms not less favorable to the bank

than those offered to others

B. Directorsi. Named as such in the articles of incorporationii. Duly elected in subsequent meetings of stockholdersiii. Elected to fill the vacancies

C. Officersi. President, EVP, SVP, General Manager, Secretary,

treasurer, trust officer and others whose duties as suchare defined in the by-laws or are generally known to beofficers of the bank

ii. Chairman, Vice-chairman or any other position of theboardwho also performs functions of management such asthose ordinarily performed by regular officers


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D. Stockholderi. Any stockholder of record in the books acting personally or

through an attorney-in-factii. Any other person duly authorized by him or through a

trustee His spouse/ relative within 1

st degree of

consanguinity or affinity or legal adoption

Partnership in which stockholder/spouse/relativeis a general partner

Corporation, association or firm of which thosementioned persons own more than 50% of totalsubscribed capital stock

E. Related Interestsi. Spouse/Relative within 1

st degree of consanguinity or

affinity, relative by legal adoption of a director, officer orstockholder of the bank

ii. Partnership of which a director, officer, or stockholder of a

bank or Spouse/Relative within 1st degree ofconsanguinity or affinity, relative by legal adoption

iii. Co-owner of the property or interest or right mortgagediv. Corporation, association, or firm of which a director or

officer of the bank, or his spouse is also a director orofficer of such corporation, association or firm, except:

Securities are listed and traded in the big boardof domestic stock exchange and less than 50% ofvoting stock is owned by 1 person or by personsrelated to each other within 1

st degree of

consanguinity or affinity

Director, officer or stockholder sits as arepresentative of the bank in the board of

directors of such corporationa. Provided that the bank representative

shall not have any equity interest in theborrower corporation except for theminimum shares required by law

b. Provided that the borrowing corporationis not among those mentioned in items5,6,7 and 8 below

v. Corporation, association or firm of which any or a group ofdirectors, officers, stockholders of the lending bank and/ortheir spouses or relatives within the first degree ofconsanguinity or affinity, or relative by legal adoption, hold

or own at least 20% of the subscribed capital of suchcorporation, or of the equity of such association or firm

vi. Corporation, association or firm wholly or majority-ownedor controlled by any related entity or a group of relatedentities mentioned in Items 2, 4, and 5

vii. Corporation, association or firm which owns or controlsdirectly or indirectly whether singly or as part of a group ofrelated interest at least 20% of the subscribed capital of asubstantial stockholder of the lending

banking laws and jurisprudence 2009 party duh notes

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