BANKING LAWS

5. To bring court actions to assail

or repudiate contracts entered
into by the bank.

A.THE NEW CENTRAL BANK ACT (RA

7653)

When is conservatorship terminated?

When Monetary Board is satisfied that
the institution can continue to operate on
its own and the conservatorship is no
longer necessary.

What is Bangko Sentral ng Pilipinas

(BSP)?
The states central monetary authority; it is
the government agency charged with the
responsibility of administering the monetary,
banking and credit system of the country
and is granted the power of supervision and
examination over bank and nonbank
financial
institutions
performing
quasi
banking functions, including savings and loan
associations. (Busuego vs. CA, G.R. No. L
48955, June 30, 1987)
Distinguish between the grounds for
conservatorship,
receivership
and
liquidation and their effects.
a.

CONSERVATORSHIP
Who is a conservator?
One appointed if the bank is in the
state of illiquidity or the bank fails or
refuses to maintain a state of liquidity
adequate to protect its depositors and
creditors. The bank still has more assets
than its liabilities but its assets are not
liquid or not in cash thus it cannot pay its
obligation when it falls due. The bank,
not the Central Bank, pays for fees.
What are the powers of a conservator?
1. To take charge of the assets, liabilities,
and the management thereof
2. Recognize the management
3. collect all monies and debts due said
bank
4. Exercise all powers necessary to
restore its viability with the power to
overrule or revoke the actions of the
previous management and board of
directors of the bank or quasibank
(First Philippine International Bank
vs. CA, G.R.
No. 115849, Jan. 24,
1996).
Note: Such powers cannot
extend to post facto repudiation
of perfected transactions. Thus,
the law merely gives
the
conservator power to revoke
contracts that are deemed to be
defective
void,
voidable,
unenforceable or rescissible.
Hence, the conservator merely
takes the place of the banks
board.

Note: When 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
losses
to
its
depositors or creditors, the bank will
go under receivership.
What is the close nowhear later
doctrine?
The law does not contemplate prior
notice and hearing before the bank
may be directed to stop operations
and placed under receivership. The
purpose is to prevent unwarranted
dissipation of the banks assets and
as a valid exercise of police power to
protect the depositors, creditors,
stockholders and the general public.
(Central Bank of the Philippines v.
CA, G.R. No. 76118 Mar. 30, 1993)
Can the closure and liquidation of a
bank, which is considered an exercise of
police power, be the subject of judicial
inquiry?
Yes. While the closure and liquidation of a
bank may be considered an exercise of police
power, the validity of such exercise of police
power is subject to judicial inquiry and could
be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust or
a denial or due process and equal protection
clauses of the Constitution (Central Bank v.
CA, G.R. No. L 5003132, July 27, 1981).
Upon maturity of the time deposit, the
bank failed to remit. By reason of
punitive action taken by Central Bank,
the bank has been prevented from
performing banking operations. Is the
bank still obligated to pay the time
deposits despite the fact that its
operations were suspended by the
Central Bank?
The suspension of operations of a bank
cannot excuse noncompliance with the
obligation to remit the time deposits of
depositors which matured before the banks
closure. (Overseas Bank of Manila v. CA,
G.R. No. 45886, Apr. 19, 1989)
b.

RECEIVERSHIP

Who is a receiver?
One appointed if bank is already
insolvent which means that its liabilities
are greater than its assets.
What are the duties of a receiver?
1. The receiver shall immediately
gather and take charge of all the
assets and liabilities of the
institution.
2. Administer the same for the benefit
of the creditors, and exercise the
general powers of a receiver
under the Revised Rules of Court
3. 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
(Sec 30, NCBA).
Is the receiver authorized to transact
business in connection with the
banks assets and property?
No, the receiver only has authority to
administer the same for the benefit of its
creditors.
(Abacus
Real
Estate
Development Center, Inc. v. Manila
Banking Corp, G.R. No. 162270, Apr. 6,
2005)
c. LIQUIDATION
What is liquidation?
It is an act of settling a debt by
payment or other satisfaction. It is also
the act or process of converting assets
into cash especially to settle debts
(Blacks Law Dictionary).
Can the liquidator of a distressed
bank prosecute and defend suits
against the bank and foreclose
mortgages for and in behalf of the
bank
while
the
issue
on
receivership and liquidation is still
pending?
Yes. The Central Bank is vested with
the authority to take charge and
administer the monetary and banking
systems of the country and this
authority includes the power to
examine and determine the financial
conditions of banks for the purpose of
closure on the ground of insolvency.
Even if the bank is questioning the
validity of its closure, during the
pendency of the case the liquidator can
continue prosecution suits for collection
and foreclosure of mortgages, as they
are acts done in the usual course of

administration of the bank. (Banco

Filipino v. Central Bank, G.R. No.
70054, Dec. 11, 1991)
What is the rule of promissory estoppel?
The doctrine was applied in one case where
the SC held that the CB may not thereafter
renege on its representation and liquidate
the bank after majority stockholders of the
bank complied with the conditions and
parted with value to the profit of CB, which
thus acquired additional security for its own
advances, to the detriment of the banks
stockholders, depositors and other creditors.
(Ramos v. Central Bank of the Philippines,
G.R. No. L29352, Oct. 4, 1971)
Can a final and executory judgment
against an insolvent bank be stayed?
Yes, after the Monetary Bank has declared
that a bank is insolvent and has ordered it to
cease operations, the assets of the insolvent
bank are held in trust for the equal benefit of
all creditors.
One cannot obtain an
advantage or preference over another by
attachment, execution or otherwise. The final
judgment against the bank should be stayed
as to execute the judgment would unduly
deplete the assets of the banks to the
obvious prejudice of other depositors and
creditors. (Lipana v. Development Bank of
Rizal, G.R. No. L73884, Sept. 24, 1987)
HOW BSP HANDLES EXCHANGE CRISIS
What is Legal Tender?
All notes and coins issued by the Bangko
Sentral are fully guaranteed by the Republic
and shall be legal tender in the Philippines
for all debts, both public and private (Sec.
52)
What is the legal tender power of coins?
1.) 1Peso, 5Peso and 10Peso coins:
In amounts not exceeding P1,000.00;
2.) 25 centavo coin or less: In amounts
not exceeding P100.00 (Circular No.
537, 2006)
Note: 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.
However, 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
(Sec. 60).
B. SECRECY IN BANK DEPOSITS (R.A.
1405)

What are the purposes of Secrecy in

Bank Deposits?
1.To
encourage
deposit
in
institutions; and
2.To discourage private hoarding
banks may lend such funds and
the economic development
country.

banking
so that
assist in
of the

What are the prohibited acts under the

law?
1.

Examination/inquiry/looking into all

deposits of whatever nature with banks
or banking institutions in the Philippines
(including investment in bonds issued by
the
government)
by
any
person,
government official or office (Sec. 2)
2. Disclosure by any official or employee of
any banking institution to any authorized
person of any information concerning
said deposit (Sec. 3).
What are the kinds of deposits covered?
1. All deposits of whatever nature with banks
or banking institutions found in the
Philippines; or
2. Investments in bonds issued by the
Philippine government, its branches, and
institutions. (Sec. 2, R.A. 1405)
Are foreign currency deposits covered
by the Secrecy in Bank Deposits (R.A.
1405)?
No. Foreign currency deposits are covered by
R.A. 6426 otherwise known as the Foreign
Currency Act. Under the same law, all
authorized foreign currency deposits are
considered of an absolutely confidential
nature and, except upon the written
permission of the depositors, in no instance
shall be examined, inquired or looked into by
any person, government official, bureau or
office whether judicial or administrative
private.
4 .EXCEPTIONS
What
are
the
instances
where
examination or disclosure of information
about deposits can be allowed?
1. Upon written consent of the depositor.
(Sec. 2);
2. In cases of impeachment. (Sec. 2);
3. Upon order of competent court in cases of
bribery or dereliction of duty of public
officials. (Sec. 2);
4. In cases where the money
deposited or invested is the

subject matter of the litigation.

(Sec. 2);
5.Upon
order
of
the
Commissioner
of
Internal
Revenue in respect of the bank
deposits of a decedent for the
purpose of determining such
decedents gross estate. (Sec.
6[F][1], NIRC);
6. Upon the order of the
Commissioner
of
Internal
Revenue in respect of bank
deposits of a taxpayer who has
filed
an
application
for
compromise of his tax liability
by
reason
of
financial
incapacity to pay his tax
liability. (Sec. 6[f][1],NIRC);
7.In
case
of
dormant
accounts/deposits for at least
10 years under the Unclaimed
Balances Act. (Sec. 2, Act No.
3936);
8. When the examination is made
by
the
BSP
to
insure
compliance with the AML Law
in the course of a periodic or
special examination;
9. With court order:
a. In cases of unexplained
wealth under Sec. 8 of the
AntiGraft and Corrupt
Practices Act (PNB v.
Gancayco, L18343, Sept.
30, 1965);
b. In cases filed by the
Ombudsman and upon the
latters
authority
to
examine and have access
to bank accounts and
records
(Marquez
v.
Desierto,
GR
138569,
Sept. 11, 2003).
10. Without court order:
If the AMLC determines that a particular
deposit or investment with any
banking institution is related to the
following:
a. Hijacking;
b. Kidnapping;
c. Murder;
d. Destructive Arson; and
e. Violation of the Dangerous
Drugs Act. (2004, 2006 Bar
Question)
What are the requisites before the
Ombudsman may examine deposits?
1. There is a pending case before court of
competent jurisdiction;
2. The account must be clearly identified;
3. There is notice upon the
account
holder
and
bank

personnel of their
during inspection.

presence

Note: The inspection must cover

only the account identified in the
pending
case.
(Marquez
v.
Desierto, G.R. No. 138569, Sept.
11, 2003)
Can a bank be compelled to disclose the
records of the accounts of a depositor
under the investigation for unexplained
wealth?
Since cases of unexplained wealth are similar
to cases of bribery, dereliction of duty, no
reason is seen why it cannot be exempted
from the rule making bank deposits
confidential. In this connection, inquiry into
illegally acquired property in antigraft cases
extends to cases where such property is
concealed by being held or recorded in the
name of other persons. This is also because
the AntiGraft and Corrupt Practices Act,
bank
deposits
shall
be
taken
into
consideration in determining whether or not
a public officer has acquired property
manifestly out of proportion with his lawful
income. (PNB v. Gancayco, G.R. No. L
18343, Sept. 30, 1965)
In an action filed by the bank to recover
the money transmitted by mistake, can
the bank be allowed to present the
accounts
which
it
believed
were
responsible for the acquisition of the
money?
Yes, R.A. 1405 allows the disclosure of bank
deposits in cases where the money deposited
is the subject matter of litigation. In an
action filed by the bank to recover the
money transmitted by mistake, necessarily,
an inquiry into the whereabouts of the
amount extends to whatever is concealed by
being held or recorded in the name of the
persons other than the one responsible for
the illegal acquisition. (Mellon Bank, N.A. v.
Magsino, G.R. No. 71479, Oct. 18, 1990)
The Law on Secrecy of Bank Deposits
provides that all deposits of whatever
nature
with
banks
or
banking
institutions are absolutely confidential
in nature and may not be examined,
inquired or looked into by any person,
governmental official, bureau or office.
However, the law provides exceptions in
certain
instances.
Which
of
the
following may not be among the
exceptions?
1. in cases of impeachment
2. in cases involving bribery
3. in cases involving BIR
inquiry
4. in cases of antigraft and
corrupt practices

5. in cases where the money

involved is the subject of
litigation?
Under Section 6(F) of the National Internal
Revenue Code, the Commissioner of Internal
Revenue can inquire into the deposits of a
decedent for the purpose of determining the
gross estate of such decedent. Apart from
this case, a BIR inquiry into bank deposits
cannot be made.
Thus, exception 3 may not always be
applicable. Turning to exception 4, an inquiry
into bank deposits is possible only in
prosecutions for unexplained wealth under
the Antigraft and Corrupt Practices Act.
However, all other cases of antigraft and
corrupt practices will not warrant an inquiry
into bank deposits. Thus, exception 4 may
not always be applicable. Like any other
exception, it must be interpreted strictly.
Exceptions 1, 2, and 5 on the other hand,
are provided expressly in the Law on Secrecy
of Bank Deposits. They are available to
depositors at all times. (2004 Bar Question)
GARNISHMENT
OF
DEPOSITS,
INCLUDING FOREIGN DEPOSITS
Does garnishment of a bank deposit
violate the law?
No, the prohibition against examination does
not preclude its being garnished for
satisfaction of judgment. The disclosure is
purely incidental to the execution process
and it was not the intention of the legislature
to place bank deposits beyond the reach of
judgment creditor. (PCIB v. CA, G.R. No.
84526, Jan. 28, 1991)
How about foreign currency deposits,
can they be subject to garnishment?
GR: Foreign currency deposits shall be
exempt from attachment, garnishment, or
any other order or process of any court,
legislative body, government agency or any
administrative body whatsoever. (Sec 8. R.A.
6426)
XPN: The application of Section 8 of R.A.
6426 depends on the extent of its justice.
The garnishment of a foreign currency
deposit should be allowed to prevent
injustice
and
for
equitable
grounds,
otherwise, it would negate Article 10 of the
New Civil Code which provides that in case
of doubt in the interpretation or application
of laws, it is presumed that the lawmaking
body intended right and justice to prevail.
(Salvacion vs. Central Bank of the
Philippines, G.R. 94723, August 21, 1997)
Can the foreign currency deposit of a
transient
foreigner
who
illegally
detained and raped a minor Filipina, be

garnished to satisfy the award for

damages to the victim?
The exemption from garnishment of foreign
currency deposits under R.A. 6426 cannot be
invoked to escape liability for the damages to
the victim. The garnishment of the transient
foreigners foreign currency deposit should
be allowed to prevent injustice and for
equitable grounds. The law was enacted to
encourage foreign currency deposit and not
to benefit a wrongdoer. (Salvacion vs.
Central Bank of the Philippines, G.R. 94723,
August 21, 1997)
C. GENERAL BANKING ACT (R.A. 8791)
DEFINITION AND CLASSIFICATION OF
BANKS
What are banks?
Entities engaged in the lending of funds
obtained through deposits from public.
Give the classifications of banks and
their definition.
1. Universal banks Primarily governed by
the General Banking Law (GBL), can
exercise the powers of an investment
house and invest in nonallied enterprises
and have the highest capitalization
requirement.
2. Commercial banks Ordinary banks
governed by the GBL which have a lower
capitalization requirement than universal
banks and can neither exercise the powers
of an investment house nor invest in non
allied enterprises.
3. Thrift banks These are:
a) Savings and mortgage banks;
b) Stock savings and loan associations;
c) Private development banks, which
are primarily governed by the Thrift
Banks Act (R.A. 7906).
4. Rural banks Mandated to make needed
credit available and readily accessible in
the rural areas on reasonable terms and
which are primarily governed by the Rural
Banks Act of 1992 (RA 7353).
5. Cooperative banks Those banks
organized whose majority shares are
owned and controlled by cooperatives
primarily to provide financial and credit
services to cooperatives.
It shall include
cooperative
rural
banks.
They
are
governed primarily by the Cooperative
Code (RA 6938).
6. Islamic banks Banks whose business
dealings and activities are subject to the
basic principles and rulings of Islamic
Shari a, such as the Al Amanah Islamic
Investment Bank of the Philippines which
was created by RA 6848.
7.
Other
classification
of
banks
as
determined by the Monetary Board of the
Bangko Sentral ng Pilipinas.

DISTINCTION OF BANKS FROM QUASI

BANKS AND TRUST ENTITIES
What is a quasibank?
These are entities engaged in the borrowing
of funds through the issuance, endorsement
or assignment with recourse or acceptance of
deposit substitutes for purposes of relending
or purchasing of receivables and other
obligations (Sec 4). Unlike banks, quasi
banks do not accept deposits.
What are trust entities?
These are entities engaged in trust business
that act as a trustee or administer any trust
or hold property in trust or on deposit for the
use, benefit, or behoof of others (Sec. 79). A
bank does not act as a trustee.
What are financial intermediaries?
Persons or entities whose principal functions
include the lending, investing, or placement
of funds on pieces of evidence of
indebtedness or equity deposited with them,
acquired by them or otherwise coursed
through them, either for their own account
or for the account of others. Q: What are
deposit substitutes? A: It is an alternative
form of obtaining funds from the public,
other than deposits, through the issuance,
endorsement,
or
acceptance
of
debt
instruments, for the borrower's own account,
for the purpose of relending or purchasing of
receivables and other obligations. These
instruments may include, but need not be
limited to, bankers acceptances, promissory
notes,
participations,
certificates
of
assignment and similar instruments with
recourse, and repurchase agreements
DILIGENCE REQUIRED BY BANKS
What is the degree of diligence required
of banks in handling deposits?
Extraordinary diligence. The appropriate
standard of diligence must be very high, if
not the highest, degree of diligence; highest
degree of care (PCI Bank vs. CA, 350 SCRA
446, PBCom vs. CA, G.R. No. 121413, 29
Jan. 2001)
This applies only to cases where
banks are acting in their fiduciary
capacity, that is, as depository of the
deposits of their depositors. (Reyes v.
CA, G.R. No. 118492, Aug. 15, 2001)
Does the bank need to exercise extra
ordinary diligence in all commercial
transactions?
No, the degree of diligence required of
banks, is more than that of a good father of
the family where the fiduciary nature of their
relationship
with
their
depositors
is
concerned, that is, depositary of deposits.

But the same higher degree of diligence is

not expected to be exerted by banks in
commercial transactions that do not involve
their
fiduciary
relationship
with
their
depositors, such as sale and issuance of
foreign exchange demand draft. (Reyes v.
CA, G.R. No. 118492, Aug. 15, 2001)
What is the effect when the teller gave
the passbook to a wrong person?
If the teller gives the passbook to the wrong
person, they would be clothing that person
presumptive ownership of the passbook,
facilitating unauthorized withdrawals by that
person. For failing to return the passbook to
authorized representative of the depositor,
the bank presumptively failed to observe
such high degree of diligence in safeguarding
the passbook and insuring its return to the
party authorized to receive the same. The
banks liability, however, is mitigated by the
depositors
contributory
negligence
in
allowing a withdrawal slip signed by
authorized signatories to fall into the hands
of an impostor. (Consolidated Bank and Trust
Corporation vs. CA, GR No, 138569,
September 11, 2003).
Did a bank exercise the diligence
required when the pretermination of the
account is allowed despite discrepancies
in the signature and photograph of the
person claiming to be the depositor and
failure
to
surrender
the
original
certificate of time deposit?
No. The bank is negligent because the
depositor did not present the certificate of
deposit
(Citybank,
N.A.,
vs.
Sps.
Cabamongan, G.R. No. 146918, May 2,
2006).
Is the bank liable when an employee
encashed a check without the requisite
of endorsement?
Yes. The fiduciary nature of the relationship
between the bank and the depositors must
always be of paramount concern. (Philippine
Savings Bank vs. Chowking, G.R. No.
177526, July 04, 2008).
NATURE OF BANK FUNDS AND BANK
DEPOSITS
What is the deposit function of banks?
The function of the bank to receive a thing,
primarily money, from depositors with the
obligation of safely keeping it and returning
the same.
What are the kinds of deposits between
a bank and its depositors?
1. As debtorcreditor:
a. Demand deposits all those liabilities
of banks which are denominated in
the Philippine
currency and are
subject to payment in legal tender

upon demand by representation of

checks;
b. Savings deposits the most
common type of deposit and is
usually evidenced by a passbook.
Note:
The
requirement
of
presentation of passbooks is
usually included in the terms and
conditions
printed
in
the
passbooks. A bank is negligent if
it allows the withdrawal without
requiring the presentation of
passbook (BPI v. CA, GR No.
112392, Feb. 29, 2000).
c. Negotiable order of withdrawal
account (NOWA) Interestbearing
deposit accounts that combine he
payable on demand feature of checks
and investment feature of saving
accounts;
d. Time deposit an account with fixed
term; payment of which cannot be
legally required within such a specified
number of days.
2. As trusteetrustor: Trust account a
savings account, established under a trust
agreement containing funds administered
by the bank for the benefit of the trustor
or another person or persons.
3. As agentprincipal:
a.Deposit of checks for collection;
b. Deposit for specific purpose;
c. Deposit for safekeeping.
What
are
the
types
of
deposit
accounts?
1. Individual; or
2. Joint:
a. And account the signature of
both codepositors are required for
withdrawals;
b. And/or account either one of the
codepositors
may
deposit
and
withdraw from the account without the
knowledge consent and signature of
the other.
Is an anonymous account prohibited?
GR: Anonymous accounts or those under
fictitious names are prohibited. (R.A. 9160
as amended by by R.A. 9194; BSP Circular
No. 251, July 21, 2000)
XPN: In case where numbered accounts is
allowed such as in foreign currency deposits.
However,
banks/nonbank
financial
institutions should ensure that the client is
identified in an official or other identifying
documents. (Sec. 8, R.A. 6426 as amended,
FCDA)
What is the nature of a bank deposit?

All kinds of bank deposits are loan. The bank

can make use as its own the money
deposited. Said amount is not being held in
trust for the depositor nor is it being kept for
safekeeping. (Tang Tiong Tick v. American
Apothecaries, G.R. No. 43682, Mar. 31,
1938)
Is a safety deposit box a form of deposit
or lease?
The contract for the use of a safe deposit box
should be governed by the law on lease.
Under the old banking law, a safety deposit
box is a special deposit. However, the new
General Banking Law, while retaining the
renting of safe deposit box as one of the
services that the bank may render, deleted
reference to depository function. (Divina,
Handbook on Philippine Commercial Law)
STIPULATION ON INTERESTS
What are the rules on stipulation of
interests?
1. Central Bank Circular 416 12% per
annum in cases of:
a. Loans;
b. Forbearance of money, goods and
credits;
c. Judgment involving such loan or
forbearance, in the absence of
express agreement as to such rate of
interest.
What are the limitations imposed upon
banks with respect to its loan function?
1. GR: Single borrowers limit The total
amount of loans, credit accommodations and
guarantees that the bank could grant should
at no time exceed 25% of the banks net
worth. (Sec 35.1, GBL)
XPN:a. As the Monetary Board may
otherwise prescribe for reasons of national
interest;
b. Deposits of rural banks with
governmentowned or controlled
financial institutions like LBP, DBP,
and PNB.
2. The total amount of loans, credit
accommodations and guarantees
prescribed in (a) may be increased
by an additional 10% of the net
worth of such bank provided that
additional liabilities are adequately
secured by trust receipt, shipping
documents, warehouse receipts
and other similar documents which
must be fully covered by an
insurance. (Sec. 35.2, GBL);
3.Loans
and
other
credit
accommodations secured by REM

shall not exceed 75% of the

appraised value of the real estate
security plus 60% of the appraised
value of the insured improvements
(Sec. 37, GBL) CM/intangible
property
such
as
patents,
trademarks, etc. shall not exceed
75% of the appraised value of the
security (Sec. 38, GBL);
4. Loans being contractual, the period
of payment may be subject to
stipulation by the parties.
In the
case
of
amortization,
the
amortization schedule has no fixed
period as it depends on the project
to be financed such that if it was
capable of raising revenues, it
should be at least once a year with
a grace period of 3 years if the
project to be financed is not that
profitable which could be deferred
up to 5 years if the project was not
capable of raising revenues. (Sec.
44, GBL)
5. Loans granted to DOSRI:
a. Director;
b. Officer;
c. Stockholder, which should at
least 1% (if below 1% not
anymore covered)
d. Related Interests, such as
DOSs
spouses,
their
relatives within the first
degree
whether
by
consanguinity
or
affinity,
partnership whereby DOS is
a partner or a corporation
where DOS owns at least
20%.
What are excluded from such loan
limitations?
Nonrisk loans, such as:
1. Loans secured by obligations of the
Bangko Sentral ng Pilipinas or the
Philippine Government;
2. Loans fully guaranteed by the
Government;
3. Loans covered by assignment of
deposits maintained in the lending
bank and held in the Philippines;
4. Loans, credit accommodations and
acceptances under letters of credit to
the extent covered by margin
deposits;
5. Other loans or credit accommodations
which the MB may specify as nonrisk
items.