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B a n k i n g L a w s

1. General Banking Law Banks refer to entities engaged in the lending of funds obtained in the form
2. Secrecy of deposits (General Banking Law, Sec. 3.1)
3. DCDA
4. PDIC Banks are the most important source of external funds used to finance
5. New CBA businesses.
6. AMLA
7. Truth in Lending Bank is a moneyed institute founded to facilitate the borrowing, lending,
8. Unclaimed Balances Act and safe-keeping of money and to deal in notes, bills of exchange and
9. Thrift Bank credits (Republic v. SCAC, 1967)
10. Rural Bank
11. Cooperative Bank VALUE OF BANKS
The banking system is an indispensable institution in the modern world
INTRODUCTION and play a vital role in the economic life of every civilized nation.

1987 CONSTITUTION Sustained development of the national economy (GBL, Sec. 2)

Article 2 Section 20. Indispensable role of the private sector i.e. banks.  Part of financial institutions
 Facilitate spending and economic growth
FINANCIAL INTERMEDIARIES
DILIGENCE REQUIRED OF BANKS
Definition
These are components that move funds from people who save to people Public confidence is the anchor of any banking system.
who have productive investment opportunities.
The banking business is in the nature of Public Trust.
KINDS
1. Lending Companies Extraordinary Diligence | Utmost Diligence
Engaged in granting loans from funds sources from no more than 19 Utmost diligence in the handling of deposits because of public trust.
persons. Not governed by General Banking Law.
2. Savings and Loan Associations Exportation of Goods. Maintains a checking account in Traders
Sourced from members of associations and lent to members of the Royal Bank, deposited a check of Php100,000 which increase its
association. Governed by RA 8367 balance to Php190,380. It issued check to creditors, it was later
3. Finance Companies dishonored, bounced because of insufficiency. Turns out that the check
By direct lending or by discounting or factoring commercial papers was not credited to its account. Simex sued the bank for damages.
or accounts receivables or by finance leasing. The Court state that the bank is a trusted and active associate that
4. Insurance Companies can help in the running of the affairs. Hence, it is liable to damages, They
Premiums payments should treat the accounts of the depositors with meticulous care,
5. Investment Houses always having in mind the fiduciary nature of their relationship. (Simex
Selling securities of other corporations to other corporations (not to International, 1990)
public)
6. Investment Company Banks failing to qualify as mortgagee in good faith. Banks must look
Investing, reinvesting and trading in securities beyond the title, they must investigate.
7. Pawnshops
Lending money on a personal property delivered as security for a BANKS AND QUASI-BANKS
loan
8. Quasi-Banks Quasi-Banks
Entities do not accept deposits (rather, notes and other proofs of Refer to entities engaged in the borrowing of funds through the issuance,
indebtedness)
9. Trust Corporations with recourse – he remains liable for payment of the instrument even after
Performance of trust and other fiduciary business or to perform indorsement
investment management services. Holding properties in trust.
10. Banks Deposit Substitutes | Section 95, RA 7653
Arteries of Commercial World Alternative form of obtaining funds from the public, other than deposits,
through debt instruments.
PURPOSE
These debt instruments may include bank acceptances, promissory notes,
BANKS participations, certificates of assignment and similar instruments with
recourse, and repurchase agreements.

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B a n k i n g L a w s

Elements of Quasi-Banking (MORB) A bank cannot be a close corporation


a. Borrowing funds for the borrower’s own account; RCP, Section 95 “Any corporation may be incorporated as close
b. Twenty (20) or more lenders at any one time; corporation, except banks”
c. It is the borrowing of debt instruments (not money); and
d. The purpose is (1) relending or (2) purchasing receivables or other Banks cannot be OPC
obligations. RCP, Section 116 “Banks and Quasi-banks… may not incorporate as One
Person Corporations”
ORGANIZATION OF BANKS
Limit of ownership in a Bank
Section 6. There must be authority from the BSP in order to engage in the  PH individual may own up to 40% of the voting stock
business.  Domestic non-corp may own up to 40% of the voting stock

Section 14. SEC will not register unless there is a Certificate of Authority to Rural Banks: Voting Stocks
Register (CAR) issued by the MB under its seal. Can only be for common shares
Preferred shares cannot be converted to a voting share
CAR is the primary license, SEC is secondary.
FOREIGN SHARES OF STOCKS
Requirements | Section 8
1. Stock Corporation Foreigners
2. The fund is obtained from the public (20 persons)  Individuals 40%
3. Minimum Capital Requirement prescribed by the Monetary Board  Foreign non-bank and Foreign Individual 40%
(MB)  Foreign Bank (RA 10641, 2014) 100%, because of expertise in
engaging in bank industry
STOCK CORPORATION
Section 2, RA 10641. Modes of Entry
 Kinds of stocks is dependent on MB The MB may authorize foreign banks to operate in the PH, by
 Par Value stocks only i) by acquiring, purchasing or owning up to one hundred percent
(100%) of the voting stock of an existing bank
MORB Appendix 37 ii) by investing in up to one hundred percent (100%) of the voting stock
 25% of the total ACS shall be subscribed of a new banking subsidiary incorporated under the laws of the
 25% of the subscription shall be paid Philippines
iii) by establishing branches with full banking authority.
Incorporators
Not less than 5 but not more than 15 incorporators. These are people who Determination of
composed the corporation and who are the signatories thereof. Foreign Shares of Stocks

Qualifications Foreign Individuals


 Moral Turpitude Governed by Lex Nationalis
 Not officers of the government agency charged with the
supervision of, or the granting of loans to bank i.e. BSP officers Corporation
Controlling SH of the Corporation
Treasury Stocks
SS which are issued and fully paid for, but subsequently reacquired by the Place of Incorporation
issuing corporations through some other lawful means. It may be Not basis for Citizenship; you need to look into the ownership and not the
disposed of again for a reasonable price fixed by the BOD. place

GR: Purchase/Acquisition is not allowed Banks are in a way Public utility because of Public Interest. In, Gamboa v.
XPN: Except allowed by the MB Teves, applying by analogy, “Capital” refers to the voting stock or
If authorized, within 6 months from purchase of acquisition, be sold or controlling interest of a corporation. SS entitled to vote in the election of
disposed of at a public or private sale. director. In this case, the preferred shares of stocks with the right to vote
are considered as part of the capital.
[Google Classroom]
“Capital Stock” is that having full beneficial ownership of stocks, coupled
Kinds of Shares with appropriate voting rights is essential (ROY III v. Herbosa). Hence, it
Treasurey Shares – includes all types of stocks.
Treasury Stocks (Section 10) Not allowed unless there is an authority by
the MB In banks: Controlling SH
SH holding more than 50% of the voting stock of the corporate SH of the
bank.
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B a n k i n g L a w s

It must include thrift bank, savings bank, private dev’t bank, stock savings
Related Interests and loan association, last year stock and savings loan association

There must be disclosure in the relationship; any change must be RB/Coop Bank
disclosed No need for rural or coop be included
But it should follow the name (wtf?!)
Family Groups or Related Interest (Sec. 12) “Last Year, A Rural Bank”
1. SH related to each other within the 4th degree of consanguinity or
affinity, legitimate or common law (i.e. mistress, girlfriend) MANAGEMENT OF BANKS AND
2. Two or more corporations owned by the same family group or same
QUASI BANKS
group or persons
MORB (Sec. 122h)
 Two or more Corporations only up to 40% EACH BOARD OF DIRECTORS
 Individual and corporation only up to 40% TOGETHER
Powers
OBTAIN FUNDING FROM THE PUBLIC  Exercise Corporate
 Conducts Business
Public/Subscribers  Controls Bank Resource

20 or more persons Number of Directors


Where? Agreement to Organize a _____ Bank GR: 5 to 15
XPN: May be increase to 21 if there is Merger or Consolidation
Incorporators Note: Percentage of Foreign Equity – Percentage of Foreign Director
5-15 persons
Where? Articles of Incorporation Composition of BOD
 Independent Directors – not charged in the day to day operation;
MINIMUM CAPITAL REQUIREMENTS may serve more than one bank
 Non-Executive Directors
UB  BOD – charged in the day-to-day operation; may not serve more than
Head Office Only 3B one bank

TB Independent Directors
NCR  At least 1/3 should be ID, but not less than 2
600M  Persons other than officer or EE
Outside NCR  May only hold office for 9 years
200M  Paid higher than the other directors

RB QUALIFICATIONS
NCR 50m
1st to 3rd class 20M Compliance with the fit and proper rule
4th to 6th 10M
Fit and Proper Rule
Purpose  Integrity
Support a threshold scale of operations; withstand risks  Physical and Mental Fitness
 Relevant Education and Financial Literacy
Supported by  Possession of Competencies relevant to the job
Credit reports, bank deposits, investments, real estate and others  Sufficiency of time to fully carry out responsibilities

Added requirement for UB Monetary Board


 Required to publicly offer at least 10% of its capital requirements Has the atuhotiry to pass upon and review the Q and DQ of BOD
prior to organizing as a UB
 List shares in the PSE
Public Officials as BOD
GR: Public Official Cannot be Officers of a Bank
Names of Banks
XPN: (1) The bank is under a financial assistance or (2) a GOCC to the bank
WON appointed or elected, part time or full time
UB/KB
Only ones may use “universal bank” or “commercial bank”
Compensation of BOD
TB

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B a n k i n g L a w s

GR: Banks are left alone to set their renumeration i.e. compensation, Permanent Closure of Branches
allowances, fees, bonuses, stock options, profit sharing and fringe benefits More than 1 year
XPN: Must be with the approval of the BSP
1. Bank under Comptrollership or Conservatorship Opening again, likened to opening again
2. Bank is found by the MB to be conducting business in an Unsafe or
Unsound Manner Approval Bankers Association + Head Office
3. Found by the MB to be in an Unsatisfactory financial condition Celebration of important local historical holidays or events

INDEPENDENT AUDITOR Any deviance, must be with the approval of the BSP

 May be chosen by the bank STRIKES AND LOCKOUTS


 Required to audit the UIT fund; trust operations
Strike
Nowadays, the subcommittee of the BOD may form an Audit department  By SEBA by filing notice with the NCMB Regional Branch
 For ULP or Deadlock in CB
ADMINISTRATION OF BANKS  Cooling off period
AND QUASI BANKS
Lockout
By ER because of unresolved economic issues in collective bargaining in
BANK BRANCHES
non-vital interests

Purpose
GBL, Sec. 22
For efficient and competitive banking services
Banks are indispensable to national interest
Return to Work initiated
Kinds
1. Branches – permanent office or place of business in the PH, it has its
Unresolved for 7 days
own books
 BSP reports to SOLE
2. Branch lites – permanent office, it does not have its own books,
 SOLE assumes jurisdiction/certifies for compulsory certification;
limited banking activities and records its transactions in the books of
after, return of bank
the head office (i.e. getting deposits and withdrawals)

Report of Bank
Section 20
a. Cause of the strike/lockout and bank management’s position on its
A bank and its branches and offices shall be treated as one unit
legality
b. Bank operations affected
UB/KB | Approval of the BSP
May open branches here and outside the PH, provided there is approval of
PROHIBITION TO ACT AS INSURER
the BSP

Section 54
TB/RB
A bank shall not directly engage in insurance business as the insurer
May open branches here and outside the PH, provided there is approval of
the BSP
Bancassurance
COOP  Presentation and sale to bank customers by an Insurance Company
GR: Only within the Province of its insurance products within the premises of its head office
XPN: May only branch outside the province, if there are no other Coop  Permitted by the MORB
Banks head office/branch/branch-lite units  It is not selling Insurance
 Limited only to EEs referring depositors to the Insurance
BANKING DAY AND HOURS
CLASSIFICATIONS OF BANKS
MORB
Working days - should be opened for at least 5 hear a day POWERS OF BANKS
Sat, Sun or Holidays – may open for 3 hours
Commercial Banks
Any deviation would be upon approval of the BSP 1. Accepting Bank Drafts
 Drafts are representation of a promise to pay
Temporary Closure of branches  Bank pays the payee from its own account
 If it will open within 1 year from closure i.e. renovation 2. Issuing Letters of Credit
 Must notify BSP and proceed with closure without notice of approval  LOC – guaranty by a bank that a buyer’s payment to a seller will
from BSP be received on time and for the correct amount
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B a n k i n g L a w s

3. Discount and negotiate debt instruments Limitation of KB


 Purchase by the bank of the promissory notes in exchange for Allied Enterprises - Total 35% of net worth of the bank
cash less the discount fee Total Equity in one enterprise – 25% of net worth of Bank
4. Demand Deposits Possible investment in equity in RB or TB – 100%
 Checking Accounts; 0% Possible investment in Non0financial allied enterprises – 100%
 Account with a bank or other financial institution that allows
the depositor to withdraw his or her funds from the account Universal Banks
without warning or with less than seven days’ notice
 Best if there are several accounts KB with additional powers
 Under MORB, Sec 201
Approval of BSP
For KBs and UBs, approval of the BSP is not required
5. Receiving other types of deposits and deposit substitutes
a. Saving Deposits
 Interest bearing deposit
b. Time Deposits
 Cannot be withdrawn earlier than date of maturity
 May be negotiable or non-negotiable i.e. Negotiable
Certificate of Time Deposit
o Minimum of 731 days
c. NOW Deposits
 Features of checks and investments
 Negotiable Order of Withdrawal
d. Deposit Substitute
 Funding from sources other than money; sold, passed and
transferred to someone with recourse or liability
6. Buying and Selling foreign exchange, gold or silver bullion
 Buy foreign exchange for a lower price; sell at a higher price
7. Acquiring marketable bonds and other debt securities
 Government Bond
 Corporate Bond
 Certificate of Deposits
 Municipal Bond
Certificate Deposit
Offers an interest rate premium in exchange for the customer
agreeing to a lump sum deposit untouched for a predetermined
period of time
8. Extending Credit
 Granting of loans – salary-based general-purpose consumption
loans
9. Make investment in equities of allied enterprises
 Allied enterprises
Financial – business of making money i.e.
a. leasing companies,
b. banks,
c. Investment Houses,
d. Financing companies,
e. credit card companies
It should remain as minority
Non-Financial
Limited to the following:
a. Warehousing companies
b. Storage Companies
c. Insurance companies
d. Home developments
 Non-Allied Enterprieses
 Those activities that has no relation at all to banking

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