Core functions of a bank Under Section 3.

1 of the GBL banks shall refer to entities engaged in the lending of funds obtained in the form of deposits. This describes classical or core banking and highlights the basic banking function of mobilizing savings (through deposit taking) and allocating resources (through lending) Quasi-banking is also an inherent power of universal and commercial banks, since these banks do not need to be separately licensed or authorized for that purpose. Thus the taking of desposit substitutes for relending can be classified too as a core banking function.

entered into by and between the Bangko Sentral ng Pilipinas (BSP) and any authorized agent bank, certificates of assignment or participation and similar instruments with recourse: Provided, however, That debt instruments issued for interbank call loans with maturity of not more than five (5) days to cover deficiency in reserves against deposit liabilities, including those between or among banks and quasi-banks, shall not be considered as deposit substitute debt instruments.

Pari Passu A latin term which means "on equal footing" A pari passu representation means that the loan agreement will be on equal footing in terms of preference of credits, such that in the case of bankruptcy proceedings, each creditor is paid pro rata in accordance with the amount of his claim.

Silent participation Silent participation is when the lender transfers the beneficial title to a loan to a partiticpant, while retaining legal title to the loan, w/out knowledge of the borrower. In such a transaction, the lending bank becomes the collecting bank of the participant. Payment by the borrower extinguishes the obligation and the participant has NO RECOURSE against the borrower.

Systemic risk It is conventional wisdom that a failing or defaulting bank can demolish the aura of confidence for all banks and undermine the stability of the banking system. This is due to the ff: 1. Interbank linkages- if banks have huge interbank deposits with a failed bank, they too can experience liquidity problems 2. Payments systems under a net settlement system, it is possible for a bank not to be able to settle its payment obligations to other banks at the end of the day. This in turn will expose banks to the danger of defaulting on their own payment obligations. This can be resolved by a shift to the real time gross settlement

Deposit substitutes Under the NIRC, The term "deposit substitutes" shall mean an alternative from of obtaining funds from the public (the term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any one time) other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrowers own account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer. These instruments may include, but need not be limited to bankers' acceptances, promissory notes, repurchase agreements, including reverse repurchase agreements

3. Public perception there is loss of confidence in the entire banking system as there is perception that other banks are in the same situation as that of a failed bank Thus certain prudential measures are put in place such as the ff: 1. Reserves 2. Single Borrowers limit 3. DOSRI 4. Loan-loss provision 5. Capital Adequacy 6. Equity Investment Limits 7. PDIC Moral Hazard Moral hazard is the paradox that, when a person is insured against risk, considerations of morality or ethics (which would otherwise restrain him from increasing such risk) are eroded by the very assurance against risk provided by insurer. This can be prevented by the ff: 1. Minimum capital requirements 2. Exposing capital of stockholders to risk of loss in case of bank mismanagement 3. PDIC insurance limits

Universal and Commercial banks A commercial bank exercises its general powers as a stock corporation. In addition, it can: 1. exercise the powers in Sec. 29 of the GBL 2. provide banking services under Sec. 53 3. purchase, hold and convey real estate in Sec 51 and 52 4. invest in allied enterprises In addition to the powers of a commercial bank, a universal bank may perform the functions of an investment house and invest in non-allied enterprises Allied and Non-allied Enterprises The Manual of Regulations for banks lists the ff as possible allied enterprises: 1. leasing 2. banks 3. investment houses 4. financing 5. credit card 6. venture capital 7. stock brokerage 8. forex brokerage 9. insurance companies

RA 8183 RA 8183 repealed the Uniform currency Act. All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment.

10.holding companies 11.warehousing/storage 12.safe deposit 13.management of mutual funds 14.computer services 15.insurance agencies

16.house building and home development 17.drying or milling facilities for agricultural crops 18.service bureaus (outsourcing) 19.HMO

acceleration only where another debt has been accelerated is a cross-acceleration provision.

Cross default clause Common stipulation in loan agreements under which a bank has a right to deny access to balances in any or all loan accounts to a borrower (with several loans at the same bank) even if only one loan goes into default. In fact, a bank can apply all available balance(s) in all account(s) of the borrower to satisfy any loan in default. Bankers justify this clause on the logic that a default sours the bank client relationship, not a just a loan agreement.

All enterprises not otherwise specified as allied would be classified as non-allied ones

Notarization In an omnibus agreement, notarial preference is waived, but only with respect to loan transactions and not to mortgage transactions as notarization is mandatory. This is to prevent violations of the pari parru agreement. For sovereign entitites (i.e. Rep of the Phil)

Yield Protection A lender entering into a loan agreement expects that it will receive a certain return that is usually calculated by reference to an agreed margin over its cost of funds. This pricing model rests on certain assumptions regarding the broader tax and regulatory treatment of both the loan and the lender. If the treatment of either changes so as to make the loan more expensive for the lender or otherwise reduce its rate of return, the lender expects to have the right under the loan agreement to pass on those costs to the borrower and so protect this expected return. Various provisions of a loan agreement relate to such yield protection, with the key provisions being the taxes clause and the increased costs clause.

Negative Pledge This is a clause to secure the loan, as to prevent the assumption of future preferred loans. Here, the borrower promises that he will not secure other loans it has or will have with a pledge. It also contemplates the situation where the borrower will enter into a preferential agreement with a creditor w/out offer to other creditors the benefit of the same.

Cross acceleration clause A provision in a debt instruments that allows it to be accelerated if there is a default or acceleration in another debt instrument. A cross-default clause can more narrowly be defined as one that allows acceleration if there is a default by another instrument. The more precise term for a clause that allows Sharing clause A fundamental element of a loan syndication is that all payments made by the borrower must be distributed pro rata to each syndicate member according to their individual participation percentages. This is usually

achieved through the mechanism of a 'sharing clause' in the loan agreement. A sharing clause aims to: (a) prohibit the borrower from discriminating against the lenders by making payments to only some and not all the lenders; and (b) discourage a syndicate member from unilaterally enforcing its rights under the loan syndication since it will be liable to share the proceeds of the litigation.

inquired, or looked into by any person, govt official, bureau, or office. Exceptions are the ff: 1. Upon written permission of the depositor 2. Impeachment 3. Order of competent court in cases of bribery, dereliction of duty or where money deposited is subject of litigation 4. Prosecution for unexplained wealth under RA 3019 (Anti-graft and corrupt practices Act) 5. Upon order of competent court in cases of violation of Anti-Money laundering Act. However, no court order required for kidnapping, drugs, hijacking, murder 6. BSPs periodic inquiry 7. Inquiry by CIR for purpose of determining gross estate of decedent 8. Disclosure of dormant bank deposits to the Treasurer of the Phil in Sworn statement FCDU deposits may examined only under No. 1, 5-8.

Material Adverse Change Default Clause Commercial lenders often include Material Adverse Change (MAC) clauses in their loan documents, especially in transactions involving the release of funds over time, such as credit facilities, revolving lines of credit or cash advances on asset-based transactions or in real estate transactions, earn-outs or some other form of future funding. A MAC clause is typically broad and provides that the occurrence of a "material adverse change" constitutes an event of default by the borrower under the loan documents. A material adverse change is then defined to include changes in business, operations or the financial condition of the borrower.

Judgement Currency Clause Used in eurocredit and eurobond transactions to protect lenders against losses coming from the loan or security being denominated in one currency but where legal decisions may be made in another currency. This arises from the fact that a commercial court can only award settlements in the legal tender of the country in which it has jurisdiction. Independence principle A letter of credit is described as documentary because the parties thereto only deal with documents to demand or make payment, without regard to the underlying transaction involving goods or services. Provided that the beneficiary has strictly complied with the terms of the letter of credit, , the issuing or paying bank has no recourse but to pay the beneficiary, not withstanding any disagreement arising from the underlying transaction. The exception of course, is in the case of fraud (Transfield v Luzon Hydro)

Bank Secrecy Law (RA 1405) Under the law, those deposits (in Pesos) and investments (in bonds issued by Phil Govt in ANY currency) , may not be examined,

Survivorship arrangement Under Section 97 of the NIRC, if a bank has knowledge of the death of a person who has a deposit account, it must not allow any withdrawal from the said account, unless the CIR has certified that the estate tax has been paid. The CIR may also authorize a withdrawal an amount not exceeding 20K upon request by the administrator of estate or heirs. Said section will not apply if there is a survivorship agreement. As enunciated in the Ana Rivera v Peoples Bank case, the SC declared that survivorship agreements are valid aleatory contracts supported by lawful consideration. As an aleatory contract, performance is suspended until the expiration of the term, in this case, the death of one of the joint depositors. There is mutual agreement between the joint depositors to withdraw the deposit during the lifetime, and transferring the same to the survivor upon the death of one of them.

be of a proportional amount in accordance with the ration of its term in number of days to three hundred sixty-five (365) days: Provided, further, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan. (RA 9243)

Sec X238, Manual of Regulations for Banks No bank shall sell, discount, assign or negotiate in whole or in part, any notes, receivables, debt instruments or any type of financial asset or claim EXCEPT GOVERNMENT SECURITIES on a without recourse basis unless registered with SEC.

Documentary Stamp Tax "Sec. 179. Stamp Tax on All Debt Instruments. - On every original issue of debt instruments, there shall be collected a documentary stamp tax on One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, of the issue price of any such debt instruments: Provided, That for such debt instruments with terms of less than one (1) year, the documentary stamp tax to be collected shall