Banking Law Issues

Banking Law Issues
6. Ownership of Real Property
1. Banks
a. Nature of business
b. Authority to incorporate and operate
c. Classification of Banks
2. Functions of Banks
a. Deposit Function
b. Loan Function
c. Other functions
d. Prohibited Acts
3. Ownership of Banks
a. Foreign Ownership
b. Filipino Stockholdings
c. Stockholdings of Family Groups and related
interests
4. Directors and Officers
a. Composition of Board
b. Meetings
c. Qualifications
5. Liquidity and Security
7. Loan to Banks
a. Loans without collateral
b. Emergency Loans
8. Conservatorship
a. Grounds
b. Powers of Conservatorship
9. Receivership and Liquidation
a. Grounds
b. Duties of Receiver
c. Close Now-Hear Later Scheme
d. Effect of Receivership and Liquidation
10. Trust Operations of Banks
a. Prior Authority
b. Trust Business
c. Powers
d. Separation of Trust Business of Banks
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General Objective:
 To be familiarized with the provisions of the
General Banking Law of 2000, and Basel I, II, and
III, as well as jurisprudence involving the said laws.
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At the end of the report, the participants must
be able to:
 Discuss the policy behind the GBL;
 Define, classify and differentiate banks;
 Identify and discuss the core and other banking
functions;
 Discuss and apply the rules on ownership of banks;
 Describe and evaluate the management of banks; and
 Discuss and apply the rules on conservatorship,
receivership, liquidation, and trust operation of banks
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R.A. 8791
AN ACT PROVIDING FOR THE
REGULATION OF THE ORGANIZATION
AND OPERATIONS OF BANKS, QUASIBANKS, TRUST ENTITIES AND FOR OTHER
PURPOSES
Short Title: General Banking Law of 2000
A. Definition
B. Nature of business
C. Authority to incorporate and operate
D. Classification of Banks
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Banks are entities engaged in:
 the lending of funds
 obtained in the form of deposits
from the public. (Sec. 3.1, GBL)
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Requirements: (Sec. 8, GBL)
 Stock corporation
 Funds obtained from public
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SA Corp. is an investment company;
It established 74 branches throughout the
Philippines;
It managed to induce the public to open
59,463 savings deposit accounts with an
aggregate deposit of P1,689,136.74;
It loans out the money of its customers,
collects the interest and charges a
commission to both lender and borrower;
Is SA Corp. a bank?
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Yes.
Sec. 2, GBL.
Republic v. Security Credit and Acceptance
Corporation.
Funds were derived from the public;
Lent out the deposit to persons;
Violation - engaging in banking without
securing the administrative authority
required in Republic Act No. 337.
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“Quasi-banks” (QB) refer to 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,
GBL)
Quasi-banking function is an inherent power
of Universal Banks and Commercial Banks.
 Policy (Sec. 2, GBL)
 “The State 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.”
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Rule on Strikes and Lockouts (Sec. 22, GBL)
 If unsettled after seven (7) calendar days, Bangko
Sentral reports to the Secretary of Labor who has two
options:
▪ (1) assumption jurisdiction
▪ (2) certify to NLRC for compulsory arbitration.
 The President of the Philippines may, at any time,
intervene and assume jurisdiction over such labor
dispute in order to settle or terminate the same.
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REASON: INDISPENSABLE TO NATIONAL
INTEREST
 TO INCORPORATE: Articles of Incorporation
must be accompanied by a certificate of
authority issued by the MB, under its seal.
 TO OPERATE: Certificate of authority from the
BSP
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Reserve Requirements
Single Borrower’s Limit
Lending Restrictions to Bank Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP – Lender of last resort
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Reserve Requirements
Single Borrower’s Limit
Lending Restrictions to Bank Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP – Lender of last resort
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Reserve Requirements
Single Borrower’s Limit
Lending Restrictions to Bank Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP – Lender of last resort
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Reserve Requirements
Single Borrower’s Limit
Lending Restrictions to Bank Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP – Lender of last resort
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Reserve Requirements
Single Borrower’s Limit
Lending Restrictions to Bank Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP – Lender of last resort
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Reserve Requirements
Single Borrower’s Limit
Lending Restrictions to Bank Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP – Lender of last resort
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Reserve Requirements
Single Borrower’s Limit
Lending Restrictions to Bank Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP – Lender of last resort
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Reserve Requirements
Single Borrower’s Limit
Lending Restrictions to Bank Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP – Lender of last resort
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i. Universal Banks (UB) – banks that have the
authority to exercise, in addition to the
powers authorized for a commercial bank,
the powers of an investment house and the
power to invest in non-allied enterprises.
(Sec. 23)
E.g. BDO Unibank, Inc., BPI, RCBC, SBC,
Union Bank, UCPB, Al-Amanah, DBP, LBP,
ANZ Banking, HSBC
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ii. Commercial Banks (CB) – banks that have,
in addition to the general powers incident to
corporations, all such powers as may be
necessary to carry on the business of
commercial banking. (Sec. 29)
E.g.
Bank of Commerce, Citibank, Maybank Phil.,
PBC, Veterans, BDO Private Bank
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iii. Rural Banks – banks that are created to
make needed credit available and readily
accessible in the rural areas for purposes of
promoting comprehensive rural
development. R.A. No. 7353
E.g.
Providence Rural Bank, Rural Bank of
Gattaran, Claveria Rural Bank, Rural Bank of
Sanchez Mira, Rural Bank of Cauayan, Golden
Rural Bank of the Philippines, Banco Agricula
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iv. Thrift Banks – banks that include:
 savings and mortgage banks,
 private development banks, and
 stock savings and loan associations.
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E.g.
Allied Savings Bank, Bank of Makati, BPI
Direct Savings Bank, Century Savings Bank,
Express Savings Bank, Malayan Bank, Win
Bank
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v. Cooperative Banks – banks that primarily
provide financial, banking and credit services
to cooperative organizations and their
members. (Sec. 100, R.A. 6938 as amended
by R.A. 9520)
E.g.
Cooperative Bank of Cagayan, Coop of
Bulacan, Coop of La Union, Coop of Bohol
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vi. Islamic Banks – Charter of Al Amanah
Islamic Investment Bank of the Philippines.
(R.A. 6848)
E.g.
Al-Amanah Islamic Investment Bank of the
Philippines
UNIVERSAL BANKS
COMMERCIAL BANKS
As to Powers
1. The powers authorized for a Commercial Bank;
2. The powers of an investment house
as provided in existing laws;
and
3. The power to invest in non-allied enterprises as
provided in the GBL. (Sec. 23)
1. THE GENERAL POWERS INCIDENT TO
CORPORATIONS,
2. ALL SUCH POWERS AS MAY BE NECESSARY
TO
CARRY
ON
THE
BUSINESS
OF
COMMERCIAL
BANKING,
SUCH
AS
ACCEPTING DRAFTS AND ISSUING LETTERS
OF
CREDIT;
DISCOUNTING
AND
NEGOTIATING PROMISSORY NOTES, DRAFTS,
BILLS
OF
EXCHANGE,
AND
OTHER
EVIDENCES OF DEBT;
3. SUBJECT TO SUCH RULES AS THE MB MAY
PROMULGATE. THESE RULES MAY INCLUDE
THE DETERMINATION OF BONDS AND
OTHER DEBT SECURITIES ELIGIBLE FOR
INVESTMENT,
THE
MATURITIES
AND
AGGREGATE
AMOUNT
OF
SUCH
INVESTMENT. (SEC. 29)
UNIVERSAL BANKS
COMMERCIAL BANKS
As to Equity Investments
A UB MAY INVEST IN THE
EQUITIES
OF
ALLIED
(EITHER
FINANCIAL OR NON-FINANCIAL) AND
NON-ALLIED ENTERPRISES. (SEC. 24)
EXCEPT AS THE MB MAY
OTHERWISE PRESCRIBE:
THE TOTAL INVESTMENT IN
EQUITIES OF ALLIED AND NON-ALLIED
ENTERPRISES SHALL NOT EXCEED 50%
OF THE NET WORTH; AND THE EQUITY
INVESTMENT IN ANY ONE ENTERPRISE,
WHETHER ALLIED OR NON-ALLIED,
SHALL NOT EXCEED 25% OF THE NET
WORTH OF THE BANK (SEC. 24)
A CB MAY INVEST ONLY IN THE
EQUITIES OF ALLIED ENTERPRISES
(EITHER
FINANCIAL
OR
NONFINANCIAL). (SEC. 30)
EXCEPT AS THE MB MAY
OTHERWISE
PRESCRIBE:
THE TOTAL INVESTMENT IN
EQUITIES OF ALLIED ENTERPRISES
SHALL NOT EXCEED 35% OF THE NET
WORTH OF THE BANK; AND
THE EQUITY INVESTMENT IN
ANY ONE ENTERPRISE SHALL NOT
EXCEED 25% OF THE NET WORTH OF
THE BANK.
UNIVERSAL BANKS
COMMERCIAL BANKS
Equity Investments in Financial Allied Enterprises
A UB CAN OWN UP TO 100% OF THE
EQUITY IN…
A THRIFT BANK,
A RURAL BANK OR
A FINANCIAL ALLIED
ENTERPRISE. (SEC. 25)
A KB MAY OWN UP TO 100% OF THE
EQUITY OF A THRIFT BANK OR A RURAL
BANK. (SEC. 31)
WHERE THE EQUITY INVESTMENT OF A
CB IS IN OTHER FINANCIAL ALLIED
ENTERPRISES, INCLUDING ANOTHER
COMMERCIAL BANK, SUCH
INVESTMENT SHALL REMAIN A
MINORITY HOLDING IN THAT
ENTERPRISE. (SEC. 31)
UNIVERSAL BANKS
COMMERCIAL BANKS
Equity Investments in Non-Financial Allied Enterprises
A UB OR KB MAY OWN UP TO ONE
HUNDRED PERCENT (100%) OF THE
EQUITY IN A NON-FINANCIAL ALLIED
ENTERPRISE. (SEC. 26 AND 32)
A UB OR KB MAY OWN UP TO ONE
HUNDRED PERCENT (100%) OF THE
EQUITY IN A NON-FINANCIAL ALLIED
ENTERPRISE. (SEC. 26 AND 32)
UNIVERSAL BANKS
COMMERCIAL BANKS
Equity Investments in QBs
TO PROMOTE COMPETITIVE
CONDITIONS IN FINANCIAL MARKETS,
THE MB MAY FURTHER LIMIT TO 40%
EQUITY INVESTMENTS OF UBS AND
CBS IN QBS. (SEC. 28)
A UB OR CB MAY OWN UP TO ONE
HUNDRED PERCENT (100%) OF THE
EQUITY IN A NON-FINANCIAL ALLIED
ENTERPRISE. (SEC. 26 AND 32)
UNIVERSAL BANKS
COMMERCIAL BANKS
Equity Investments in Non-Allied Enterprises
THE EQUITY INVESTMENT OF A UB, OR
OF ITS WHOLLY OR MAJORITY-OWNED
SUBSIDIARIES, IN A SINGLE NONALLIED ENTERPRISE
1. shall not exceed 35% of the total
equity in that enterprise nor
2. shall it exceed 35% of the voting
stock in that enterprise. (Sec. 27)
A. Deposit Function
B. Loan Function
C. Other functions
D. Prohibited Acts
 Simple Loan
 Fixed, savings and current deposits of money in
banks and similar institutions shall be governed by
the provisions concerning simple loan (Article
1980, Civil Code of the Philippines).
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A deposited in Bank X;
Bank used the money;
A would like to withdraw but the Bank cannot
pay;
Is the Bank liable for estafa?
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No.
Guingona v. City Fiscal of Manila, 128 SCRA
577
Since the bank is the borrower, it can make
use as its own the money deposited, and the
amount is not held in trust for the depositor
nor is it kept for safekeeping. (Tang TiongTick
v. American Aphothecaries, 65 Phil. 414)
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A deposited in Bank X;
B alleges that the money deposited by A
belongs to him;
A withdraws from the bank;
Is Bank X liable?
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No.
Third persons who may have the right to the
money deposited cannot hold the bank
responsible unless there is a court order or
garnishment, since the duty of the bank is to
the creditor-depositor and not to third
persons.
Fulton Iron Work v. Chinabank, 55 Phil. 208
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A deposits in Bank X;
Bank X loans out money to A;
If A defaults in payment, can Bank X off of the
deposits in its hands for the payment of A’s
indebtedness?
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Yes.
“A bank has a right of set off of the deposits
in its hands for the payment of any
indebtedness to it on the part of a depositor.”
Gullas v. PNB, 1935
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1. Demand deposits
 The depositor can take out his funds any time.
 No interest is paid by the bank
 The depositor can withdraw the money he
deposited on the very same day.
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2. Savings Account
 Evidenced by a passbook
 Has interest rate, but not as high as time deposits.
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3. Time Deposit
 Has a fixed term
 Money deposited cannot be withdrawn within a
certain period
 Has a higher rate of interest than saving account.
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4. Negotiable Order of Withdrawal (NOW)
Account is an interest-bearing deposit
account that combines the payable on
demand feature of checks and investment
feature of savings accounts.
5. Other Account is one that may be
opened by one individual or by two or more
persons. Whenever two or more persons
open an account, the same may be an “and/or
account” or an “and” account.
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Safety Deposit Boxes
 Special kind of deposit
 Not an ordinary contract of lease
 Bailer and bailee
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Basic Rules and Restrictions
Risk-Based Capital Ratio
Single Borrower’s Limit
DORSI Restrictions
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Not exceed 25% of the net worth of bank
Basis: total credit commitment of the bank to
the borrower
GBL provides that the total amount of loans,
etc. may be increased by an additional 10% of
the net worth of such bank provided:
 The additional liabilities of any borrower are
adequately secured
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Sec. 35.2
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GENERAL RULE:
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CANNOT BECOME AN OBLIGOR OF THE BANK.
 cannot borrow from bank;
 cannot become a guarantor, indorser or surety for
loans from such bank to others;
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EXCEPTION:
 written approval of the majority of all the
directors
 entered upon the records of the bank
 copy of such entry transmitted to BSP.
▪ Such written approval shall not be required for loans,
other credit accommodations and advances granted to
officers under a fringe benefit plan approved by the
BSP.
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Individual lending ceiling =
 insider’s unencumbered deposit + book value of
his paid-in capital contribution
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Aggregate Ceiling =
 Whichever is lower between 15% of the total loan
portfolio and 100% of combined capital accounts
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Unsecured portion of the loan =
 It should not exceed 30% of the loan of the insider
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real estate (collateral)
 not exceed 75% of its appraised value
 plus 60% of the appraised value of the insured
improvements,
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Chattels and intangibles (collateral)
 not exceed 75% of the appraised value of the
security
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Debtor has the right to redeem real property
within 1 year from sale of real estate.
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Right to take possession by the purchaser
from date of confirmation of auction sale.
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UB and CB may also exercise any of the following
functions:
 i. Receive in custody funds, documents and valuable objects;
 ii. Act as financial agent and buy and sell, by order of and for the
account of their customers, shares, evidences of indebtedness
and all types of securities;
 iii. Make collections and payments for the account of others and
perform such other services for their customers as are not
incompatible with baking business;
 iv. Upon prior approval of the MB, act as managing agent,
adviser, consultant of administrator of investment
management/advisory/consultancy accounts; and
 v. Rent out safety deposit boxes.
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Engaging in insurance
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Directors, Officers, Employees, Agents
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Borrowers of Banks
A. Foreign Ownership
B. Filipino Stockholdings
C. Stockholdings of Family Groups and Related
Interests
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Foreign stockholdings
 Up to 40% of the voting stock of domestic banks
 Foreigners - total equity participation
 Corporate stockholder – citizenship is determined
by citizenship of controlling stockholders
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Filipino stockholdings
 Section 11 of the GBL applies to Filipinos and
domestic non-bank corporations.
 individual equity participation should not exceed
40% of the voting shares
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No prohibition
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Full disclosure
A. Composition of Board
B. Meetings
C. Qualifications
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At least five (5), and a maximum of fifteen
(15) members of the BOD of bank, two (2) of
whom shall be independent directors.
 Non-Filipino (restriction, equity participation)
 Public Officials (prohibition)
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conducted through modern technologies
 E.g. teleconferencing and video-conferencing.
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Fit and Proper Rule
 integrity,
 experience,
 education,
 training, and
 competence