BANKING
CHAPTER 2 - GENERAL CONCEPTS
 The fact that operations of banks are imbued with public interest
warrants this legislative solicitude.
 Laws and regulations concerning banks serve a 2-fold purpose:
o To protect the public that banks serve;
o To attain and preserve a dependable and sound banking
system, thereby promoting a stable and robust economy.
1. DEFINTION AND BASIC FUNCTION.
BANKS
 Refer to entities engaged in the lending of funds obtained in the
form of deposits/
 Must be a stock corporation and its funds must be obtained from
the public, meaning deposits of 20 or more persons.
 Republic Vs. Security Credit and Acceptance Corporation:
Bank
 a moneyed institute founded to facilitate the borrowing, lending and
safekeeping of money and to deal in notes, bills of exchange, and
credit.
 Any person engaged in the business on by banks of deposit, of
discount, or of circulation is doing a banking business, although but
one of these functions is exercised.
 The very business of a bank is to have a place where deposits are
received and paid out and where money is loaned on security.
 Even if the entity is referred to by a different name, it is still
considered a bank if it performs such basic functions.
 An investment company which loans out the money of its
customers, collects the interests, and charges a commission to both
lender and borrower is engaged in banking.
 It should be noted that investment companies are separate types of
entities under existing law.
 They may be considered as engaged in banking function if they
accept deposits and loan out the money they receive.
 A stock corporation may be considered engaged in banking if it is
lending money to shareholders who are required to deposit certain
sums as security.
 An entity is engaged in banking if it receives deposits in small
amounts from recent immigrants to be sent, when they reach
sufficient amount, to the country of the depositor.
 Where a department store received deposits up to a certain
amount, issues passbooks therefor, pays interest on the amount
deposited and pays the principal with interest on demand in money
or in goods.
 Banas vs Asia Pacific Finance Corporation.
 Held: banking laws are inapplicable to the respondent corporation
because it was not established that the respondent was engaged in
banking functions.
 The respondent was organized as an investment house and it was
engaged in “investing, reinvesting or trading in securities”
 What is prohibited is for investment companies to lend funds
obtained from the public through receipt of deposits.
1.01 ADDITIONAL FUNCTIONS.
 Banks now offer diverse services and perform functions that are
unheard of in the years past.
 Banks retain and must actually retain the core functions of deposit
taking and lending; otherwise, the entity cannot be considered a
bank.
a) PAYMENT FUNCTION
 One of the primary means employed in the performance of a bank’s
payment function is the drawing of checks.
 Banks may be drawee banks of checks issued by its customers that
are used in paying obligations.
 Banks may issue manager’s checks, cashier’s checks, traveler’s
checks or demand drafts that will be used for the same purpose.
b) OTHER FUNCTIONS.
 Include quasi-banking, provider of safety deposit boxes,
performance of the functions of investment house, performance of
allied and non-allied financial services, financial agent, buying and
selling by order of and for the account of their customers, shares,
evidences of indebtedness and all types of securities and other
functions.
1.02 QUASI-BANKING
 Entities that do not accept deposits.
 Refers to borrowing of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit substitutes for
 purpose of relending or purchasing of receivables and other
obligations.
a) Deposit substitute
 Alternative forms 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.
b) Certain banks are allowed under existing laws to engage in quasi-
banking in addition to their banking functions.
 Universal banks and commercial banks may exercise quasi-
banking funcyions without securing prior authority from the
Monetary Board, while other banks must secure such prior MB
authority.
c) Subsection X234.1 of the Manual regulations for banks (
MORB): elements of quasi banking:
1. Borrowing funds for the borrower’s own account
2. 20 or more lenders at any one time
3. Methods of borrowing are issuances, endorsement or
acceptance or debt instruments of any kinds, other than
deposits, such as acceptances, promissory notes, participations
certificates of assignments or similar instruments with recourse,
trust certificates, repurchase agreements and such other
instruments as the MB may determine
4. The purpose of which is
a. Relending
b. Purchasing receivables or other obligations
d) Purchasing of receivables or other obligations
 Refer to acquisition of claims collectible in money, including
interbank borrowings or borrowings between financial institutions,
or of acquisition of securities, of any amount and maturity from
domestic or foreign sources.
Relending means extension of loan by an institution with
antecedent borrowing transactions.
e) Its is not quasi-banking if commercial, industrial and other non-
financial companies borrow for the limited purpose of financing their
own needs or the needs of their agents or dealer.
Neither could there be a quasi-banking if an institution is engaged
in buying and selling of “without recourse” instruments.
2. NATURE OF BUSINESS
General Banking Law of 2000 (GBL)
 Recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy
and the fiduciary nature of banking that requires high standards of
integrity and performance.
 Public confidence is the anchor of any banking system.
 The banking business itself is in the nature of public trust.
 Banks acquire the confidence of the public and become the
depositories of thousands who are not engaged in active business,
including those who may be considered wards of the State.
 Banking business is properly subject to reasonable regulation under
the police power of the state because of it nature and relation to the
fiscal affairs of the people and revenues of the state.
2.01 UTMOST DILIGENCE.
 SC: imposed the duty to exercise extraordinary diligence although
there is not statutory provision expressly imposing such degree of care
on banks.
 The diligence required of banks is more than that of a good father of a
family.
Simex vs CA
DILIGENCE OF NON-DEPOSIT FUNCTIONS
 The duty to exercise the highest degree of care is not limited to the
handling of deposits.
 Thus the duty of banks is not satisfied if it prematurely foreclosed the
mortgage although the borrower was not yet in default.
 Similarly, abank must exercise due care in the processing of loan
documents.
Reyes vs CA
 The highest degree of diligence applies “only to cases where banks
act under their fiduciary capacity, that is, as depositary of the deposits
of their depositors.
 But the same higher degree of diligence is not expected to be exerted
by banks in commercial transactions that do not involve their fiduciary
relationship with their depositors.
 STRIKES AND LOCKOUTS
 Section 22 of GBL
 Banking industry as indispensable to the national interest and
notwithstanding the provisions of any law to the contrary, any
strike or lockout involving banks, if unsettled after 7 calendar
days shall be:
a. Reported by the BSP to the Secretary of Labor who may
assume jurisdiction over the dispute or
b. Decide it or certify the same to the NLRC for compulsory
arbitration.
 The law allows the President to, at any time, intervene and
assume jurisdiction over such labor dispute in order to settle
or terminate the same.
 The Presidents or Chief Executive Officers of banks are
required to immediately inform the Deputy Governor of the
Supervision and Examination Section of the BSP on the status
of the strike or lockout in their bank stating the cause thereof, the
bank’s position on its legality and the bank operations affected
thereby.
GOVERNING LAW/GENERAL BANKING LAW
 Banks are governed by RA 8791 “An Act Providing for the
Regulation of the Organization and Operation of Banks, Quasi-
banks, Trust Entities and Other Purposes.
 Otherwise known as the GENERAL BANKING LAW OF 2000.
 Provisions which are not in conflict with the specific laws on thrift
banks, rural banks, cooperative banks, and Islamic banks are
likewise applicable to said banks.
 Section 71 of the GBL
 Section 71. Other Banking Laws. - The organization, the
ownership and capital requirements, powers, supervision and
general conduct of business of thrift banks, rural banks and
cooperative banks shall be governed by the provisions of the
Thrift Banks Act, the Rural Banks Act, and the Cooperative
Code, respectively. The organization, ownership and capital
requirements, powers, supervision and general conduct of
business of Islamic banks shall be governed by special laws.
The provisions of this Act, however, insofar as they are not in
conflict with the provisions of the Thrift Banks Act, the Rural
Banks Act, and the Cooperative Code shall likewise apply to
thrift banks, rural banks, and cooperative banks, respectively.
However, for purposes of prescribing the minimum ratio
which the net worth of a thrift bank must bear to its total risk
assets, the provisions of Section 33 of this Act shall govern.
 New Central Bank Act
 Passed on June 14, 1993.
 Prevails over the general laws, like corporation code, in the
regulation of banks.
 Rural Banks Act and Thrift Banks Act
 The primary law for Rural Banks is R.A. No. 7353 (Rural Banks
Act of 1992, as amended by RA 10574 (An Act Allowing
Infusion of Foreign Equity in the Capital of Rural Banks)
 RA 7906 (Thrift Banks Act of 1995) – the primary law for Thrift
Banks (w/c include savings and mortgage banks, stock savings
and loan associations, and private development banks).
 Cooperative Code
 RA 6938, as amended by RA 9520 - For cooperative banks, the
relevant law is Chapter XII (Cooperative Banks) of the Philippine
Cooperative Code of 2008.
 Islamic Banks
 RA 6848 – Charter of Al Amanah Islamic Investment Bank of
the Philippines.
 Foreign Currency Deposit
 RA 6426- Foreign Currency Deposit Act of the Philippines, as
amended is the law instituting foreign currency deposit system in
the PH.
 The law governs foreign currency deposits and the authority of the
banks designated by the BSP to accept foreign currency deposits.
 PDIC LAW
 RA 3591, as amended
 The act that established the Philippine Deposit Insurance
Corporation.
 PDIC - the corporation mandated to provide mandatory deposit
insurance coverage for the deposit liabilities of banks engaged in
the business of receiving deposits.
 Law on Foreign Banks
 RA 10641, was approved on July 14, 2014, amended specific
provisions of RA 7721 (An Act Liberalizing The Entry and
Scope of Operations of Foreign Banks in the Philippines And
For Other Purposes)
  Allowing full entry of foreign banks in the Philippines.
 Other Laws
 RA 1405, as amended - Law on Secrecy of Bank Deposits
 RA 3936, as amended – Unclaimed Balances Act
 RA 9160, as amended by RA 9194 and RA 10167 – Anti-Money
Laundering Act of 2001.
 BSP Rules and Regualtions
 The applicable laws are implemented by the Manual of
Regulations for Banks (MORB), as well as circulars issued by
the BSP.
 While the responsibility to conduct the business of the bank is
reposed on its Board of Directors, officer and other personnel,
 the BSP, which is the Government entity charged with bank
supervision, is mandated
 to keep abreast with the condition and operations of banks,
 to provide guidelines on the management of risks and the
conduct of safe banking operations,
 as well as to provide for and assist in the correction of unsound
banking conditions and practices.
 BSP regulations have been issued to meet this mandate.
AUTHORITY TO INCORPORATE
 A banking or quasi-banking corporation cannot be
incorporated without the authority from the BSP.
 Thus, AOI to be filed with the SEC should be accompanied by the
favourable recommendation of the BSP, otherwise, it shall not be
accepted or approved.
 A new banking organization must have
 suitable/fit shareholders,
 adequate financial strength,
 a legal structure in line with its operational structure,
 a management with sufficient expertise and integrity to operate
the bank in a sound and prudent manner.
 Section X103 of the MORD provides:
Certificate of authority to register.- The SEC shall not register the
articles of incorporation and by-laws of any bank, or any amendment
thereto, unless accompanied by a certificate of authority issued by the
Bangko Sentral, under its seal. The certificate shall not be issued
unless the Monetary Board is satisfied from the evidence submitted
that:
a. All requirements of existing laws and regulations to engage in
the business for which the applicant is proposed to be
incorporated have been complied with;
b. The public interest and economic conditions, both general and
local, justify the authorization; and
c. The amount of capital, the financing, organization, direction and
administration, as well as the integrity and responsibility of the
organizers and administrators reasonably assure the safety of
deposits and the public interest.
Likewise, the SEC shall not register the by-laws of any bank, or any
amendment thereto, unless accompanied by a certificate of authority
from the Bangko Sentral (as amended by CL-1008-078, 15 Dec 2008)
 OPERATION
 An entity that is performing banking or quasi-banking function
cannot operate without a certificate of authority from the BSP.
 If an entity performs banking or quasi-banking functions w/o the
required COA, the officer concerned may be subject to criminal
prosecution and the AOI of the corporation may be revoked.
 The monetary board determines whether a person or entity is
performing banking o quasi-banking functions w/o BSP authority.
 The monetary board may thru the appropriate supervising and
examining department of the BSP, examine, inspect or
investigate the books and records of such person or entity.
 NAME
 Section 64 of the GBL, disallows the use of the name “bank” if an
entity is not engaged in banking business.
Section 64. Unauthorized Advertisement or Business Representation. -
No person, association, or corporation unless duly authorized to
engage in the business of a bank, quasi-bank, trust entity, or savings
and loan association as defined in this Act, or other banking laws, shall
advertise or hold itself out as being engaged in the business of such
bank, quasi-bank, trust entity, or association, or use in connection with
its business title, the word or words "bank", "banking", "banker",
"quasi-bank", "quasi-banking", "quasi-banker", "savings and loan
association", "trust corporation", "trust company" or words of similar
import or transact in any manner the business of any such bank,
corporation or association.
CASES: RP VS Security Credit and Acceptance Corp.
 Central bank of the PH vs Morfe.