1. By what body are the powers and functions of the Central Bank exercised?

Give
the composition or membership of that body.

ANSWER: The powers and functions of the Central Bank (now Bangko Sentral
ng Pilipinas) are exercised by the Monetary Board. The Monetary Board is
composed of seven (7) members appointed by the President of the Philippines,
as follows:
1. Governor of the Bangko Sentral – Chairman;
2. A members of the Cabinet to be designated by the President of the
Philippines;
3. Five (5) members who shall come from the private sector, all of whom
shall serve full-time.

2. Give the basic requirement to be complied with by the Central Bank (Bangko
Sentral ng Pilipinas) before the Monetary Board can forbid a bank from doing
further business in the Philippines.

ANSWER: The law is explicit as to the conditions prerequisite to the action of the
Monetary Board to forbid the institution to do business in the Philippines and to
appoint a receiver to immediately take charge of the bank’s assets and liabilities.
These are: (1) an examination made by the examining department of the Central
Bank; (b) report by said department to the Monetary Board; and (c) prima facie
showing that its continuance in business would involve probable loss to its
depositors or creditors.

3. True or False. A bank under receivership can still grant new loans and accept
new deposits.

ANSWER: False. When a bank is placed under receivership, it would only not be
able to do new business, that is, to grant new loans or to accept new deposits.
However, the receiver of the bank is in fact obliged to collect debts owing to the
bank, which debts form part of the assets of the bank.

4. Due to the growing financial difficulties, Z Bank was unable to finish construction
of its 21-storey building on a prime lot located in Makati City. Inevitably, the
Bangko Sentral ordered the closure of Z Bank and consequently placed it under
receivership. In a bid to save the bank’s property investment, the President of Z
Bank entered into a financing agreement with a group of investors for the
completion of the construction of the 21-storey building in exchange for a ten
year lease and the exclusive option to purchase the building.
 a) Is the act of the President valid? Why or why not?
b) Will a suit to enforce the exclusive right of the investors to purchase the
property prosper? Reason briefly.

ANSWER: a) The act of the President is not valid. Receivership is equivalent to

an injunction to restrain the bank officers from intermeddling with the property of
the bank in any way. Thus, the appointment of a receiver operates to suspend
the authority of the bank and of its directors and officers over its property and
effects.
b) No, the suit will not prosper. Since the act of the President was invalid, the
exclusive option to purchase the building granted to the investors is like wise
invalid. Also, since the Bank is under receivership, the properties of the Bank
may only be administered for the benefit of its creditors.

5. A bank can be placed under receivership when, if allowed to continue in

business, its depositors or creditors would incur____________

a. Probable losses
b. Inevitable losses
c. Possible losses
d. A slight chance of losses

6. Why is the Bangko Sentral ng Pilipinas considered a lender of last resort?

ANSWER: The BSP is a lender of last resort because any bank or similar
institution under financial distress, which cannot borrow from any other source,
can borrow from the BSP.

7. All senior officers of ABC Bank are entitled to obtain a housing loan. X is an
Executive Vice President for Operations of ABC Bank. She obtained a housing
loan with the ABC Bank. Which statement is most accurate?

a. The housing loan of X requires a guarantor from somebody who is not

connected with the bank
b. The housing loan of X requires the approval of the Board of Directors of the
bank
c. The housing loan of X, being a benefit for employees, does not require (a) but
will require (b)
d. The housing loan of X, being a benefit for employees, will not require (a)
and (b)
8. The government agency granted with the power of supervision and examination
over banks and non-banks financial institutions performing quasi-banking
functions, to ensure that the conduct of its business is on a sound financial basis
that will provide continued solvency and liquidity is –

a. The Philippine Deposit Insurance Corporation

b. The Bangko Sentral ng Pilipinas
c. The Anti-Money Laundering Council
d. The Securities and Exchange Commission

9. What are the rules on secrecy of bank deposits under existing law?

ANSWER: The rules on secrecy of bank deposits are: deposits in banks,

including government banks, cannot be inquired into by any person except in the
following cases: (1) Where the depositor consents in writing; (2) impeachment
cases; (3) by court order in bribery or dereliction of duty cases against public
officials; (4) deposit is subject of litigation; and (5) in anti-graft cases.

10. AAA Corporation is a bank. The operations of AAA Corporation as a bank was
not doing well. So, to avert any bank run, AAA Corporation, with the approval of
the Monetary Board, sold all its assets and liabilities to BBB Banking Corporation
which includes all deposit accounts. In effect then, BBB Corporation will service
all deposits of all depositors of AAA Corporation. Will the sale of all assets and
liabilities of AAA Corporation to BBB Banking Corporation automatically dissolve
or terminate the corporate existence of AAA Corporation? Explain your answer.

ANSWER: No, the sale of all the corporate assets and liabilities of AAA
Corporation, which is a bank, to BBB Banking Corporation will not automatically
dissolve or terminate the corporate existence of the said bank. The General
Banking Law prescribes certain requirements for cessation of banking business.
11. The Bank Secrecy Law (RA 1405) prohibits disclosing any information about
deposit records of an individual without court order, except ----

a) In an examination to determine gross estate of a decedent

b) In an investigation for violation of Anti-Graft and Corrupt Practices
c) In an investigation by the Ombudsman
d) In an impeachment proceeding

12. Pending is a preliminary investigation for estafa filed by Dario against his
employee Noli. The estafa complaint alleges that Noli deposited Dario’s checks
to his personal bank account instead of Dario’s account as was instructed. Is it
 proper for the investigating fiscal to subpoena the production fo Noli’s bank
deposit ledger and related bank record?

ANSWER: No, the investigating fiscal may not issue a subpoena for Noli’s bank
deposit ledger and related bank records. While the money deposited is the
subject of the litigation, only the court can issue the subpoena.

13. X, a public official, is charged with violation of the Anti-Graft for unexplained
wealth. The prosecuting official learned that X maintains a safety deposit box at
United Bank. May the officials of the bank be subpoenaed and examined about
the safety deposit box?

ANSWER: The officials of the United Bank may be subpoenaed and examined
about the safety deposit box of X, who is accused of unexplained wealth.
A deposit in the safety deposit box in a bank is a bank deposit. The non-
disclosure of deposits law includes all deposits of whatever nature with banks
and banking institutions, The rule against non-disclosure provides an exception –
where the depositor is accused in an Anti-Graft case. As the exception operates
against X, his safety deposit box may be the subject of inquiry by the court trying
him. Hence, the officials of said bank may be subpoenaed for the purpose.

14. X, a private individual, maintains a dollar deposit with ABC Bank. X is suspected
to be the leader of a Kidnap for Ransom Gang and he is suspected of depositing
all ransom money in said deposit account which are all in US Dollars. The police
want to open said account to know if they are really deposit in big amounts.
Which statement is most accurate?

a. The same rules under Secrecy of Bank Deposit Act will apply
b. An approval from the Monetary Board is necessary to open the account
c. Because the deposit is in US Dollars, it is covered by the Foreign Currency
Deposit Act which allows disclosure only upon the written permission of the
depositor
d. Approval from the Court is necessary to order disclosure of the account

15. If the Ombudsman is convinced that there is a violation of law after investigating
a complaint alleging illicit bank deposits of public officer, the Ombudsman may
order the bank concerned to allow in camera inspection of bank records and
documents.
 ANSWER: False. The Bank Secretary Law prohibits the inspection of a bank
account unless the permission of the account holder is obtained, or upon lawful
order of the court or when the deposit is the subject of litigation. Investigation by
the Ombudsman is not considered as a pending litigation to allow the
examination of the bank records and documents

16. Briefly describe the ff. types of banks:

(A) Universal bank
(B) Commercial bank
(C) Thrift bank
(D) Rural Bank
(E) Cooperative Bank

ANSWER:

(A) A universal bank is a commercial bank with 2 additional powers, namely: (1)
the power of an investment house and (2) the power to invest in non-allied
enterprises (Section 23, Rep. Act No. 8791, “The General Banking Law of
2000”).

(B) A commercial bank is a bank that can: (1) accept drafts; (2) issue letters of
credit; (3) discount and negotiate promissory notes, drafts, bills of exchange, and
other evidence of debt; (4) accept or create demand deposits; (5) receive other
types of deposits, as well as deposit substitutes; (6) buy and sell foreign
exchange, as well as gold or silver bullion; (7) acquire marketable bonds and
other debts securities; and (8) extend credit, subject to such rules promulgated
by the Monetary Board (Section 29, Rep. Act No. 8791, “The General Banking
Law of 2000”).

(C) A thrift bank is one established as a savings and mortgage bank, a stock
savings and loan association, or a private development bank, for the purpose of:
(1) accumulating the savings of depositors and investing them in outlets
determined by the Monetary Board as necessary in the furtherance of national
economic objectives; (2) providing short-term working capital, medium and long-
term financing, to business engaged in agriculture, services, industry and
housing; and (3) providing diversified financial and allied services for its chosen
market and constituencies specially for small and medium enterprises and
individuals (Section 3 (a), Rep. Act No. 7906 “Thrift Banks Act of 1995”).

(D) A rural bank is one established to provide credit facilities to farmers and
merchants or their cooperatives and, in general to the people of the rural
communities (Section 3, Rep. Act No. 7353, “The Rural Banks Act of 1992”).

(E) A cooperative bank is organized under the Cooperative Code to provide

financial and credit services to cooperatives. It may perform any or all the
services offered by a rural bank, including the operation of a Foreign Currency
 Deposit Unit subject to certain conditions (Section 100, Rep. Act No.6938, “The
Cooperative Code of the Philippines”).

17. Why are banks required to maintain reserves against their deposits and deposit
substitutes? State one of three purposes for these reserves.

ANSWER: Any one of the following 4 purposes for requiring banks to maintain
reserves against their deposits and deposit substitutes will suffice:

(1) One of the purposes of the requirement to maintain bank reserves is to

control the volume of money created by the credit operations of the banking
system (Section 94 of the New Central Bank Act);

(2) It is to enable the banks to answer any withdrawal;

(3) To help Government to finance its operation;

(4) To help the Government control money supply.

18. On December 4, 2003, RED Corporation executed a real estate mortgage in

favor of BLUE Bank. RED Corporation defaulted in the payment of its loan.
Consequently, on June 4, 2004, BLUE Bank extra judicially foreclosed the
property. Being the highest bidder in the auction sale conducted, the Bank was
issued a Certificate of Sale which was registered on August 4, 2004. Does RED
Corporation still have the right to redeem the property as of September 14,
2007?

ANSWER: No, RED Corporation has lost its right to redeem the property.
Juridical persons whose property is sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property until registration of the certificate of
sale with the Register of Deeds, which shall in no case be more than three
months after foreclosure, whichever is earlier (Section 47, General Banking Law).

19. May a publicly listed universal bank own 100% of the voting stocks in another
universal bank and in a commercial bank?
ANSWER: No, since under the law, the 100% ownership on voting stocks must
be in either bank only.

20. A commercial bank wants to acquire shares in a cement manufacturing

company. Do you think it can do that? Why or why not?

ANSWER: A commercial bank cannot acquire shares in a cement manufacturing

company because it may, subject to conditions, invest only in the equities of
allied undertakings, either financial or non-financial. Allied undertakings refer to
those related to banking.
21. What is the single borrower’s limit?

ANSWER: The single borrower’s limit provides that the total amount of loans,
credit accommodation and guarantee that may be extended by a bank to any
person, partnership, association, corporation or other entity shall at no time
exceed 25% of the net worth of such bank.

22. A court found the interest charged by a bank as excessive and unconscionable
and struck down the contractual stipulation on interest. If you were the judge,
what would you impose as the applicable interest rate?

ANSWER: I will impose interest of 6% per annum only because this is the legal
rate approved by the Monetary Board of the Bangko Sentral ng Pilipinas.

23. XYZ Corporation is engaged in lending funds to small vendors in various public
markets. To fund the lending, XYZ Corporation raised funds through borrowings
from friends and investors. Which statement is most accurate?

a. XYZ Corporation is a bank

b. XYZ Corporation is a quasi-bank
c. XYZ Corporation is an Investment Company
d. XYZ Corporation is none of the above.

24. X maintains a savings deposit in the amount of Php 1 Million with ABC Bank
Corporation. X also has obtained a loan from ABC Bank Corporation in the
amount of Php 1 Million. In case of default,

a. ABC Bank can set-off the loan from the savings account being
maintained by X with ABC Bank
b. Set-off is not possible because legal compensation is not allowed in banking
transaction
c. Deposit accounts are usually earmarked for specific purpose, hence offsetting
is not legally possible
d. Off-setting is not possible because the obligation of X is a simple loan

25. A bank may acquire real property ________________________________

a. By purchase at a public sale of properties levied to satisfy tax delinquencies;

b. By purchase from a real estate corporation in the ordinary course of the
bank’s business
c. Through dacion en pago in satisfaction of a debt in favor of the bank
d. In exchange for the purchase of shares of stock of the bank
e. All of the above
f. None of the above
26. How much is the Maximum Deposit Insurance Coverage under the PDIC under
RA 3591 and what is its purpose?

ANSWER: RA 9576, effective June 1, 2009 doubled the Maximum Deposit

Insurance Coverage (MDIC) from Php 250,000 to Php 500,000. It was said to be
a means to promote and safeguard the interests of the depositing public.

27. What is an Insured Deposit?

ANSWER: The amount due to any bonafide depositor for legitimate deposits in
an insured bank as of the date of closure but not to exceed Php 500,000.
28. When does Splitting of Deposits occur? Is it allowed?

ANSWER: Occurs when a deposit account of more than Php 500,000 is broken
down and transferred into two or more accounts in the names of person or
entities with no beneficial ownership on transfer deposits. Under RA 9576,
splitting is prohibited within a 120 day-window immediately preceding a bank-
declared bank holiday or closure order by the Monetary Board up from 30 days in
the old PDIC Charter.

29. When a bank is determined by the BSP to be a capital deficient, PDIC may
conduct an Insurance Risk Evaluation on the bank to enable it to access the risk
to the Deposit Insurance Fund (DIF). Evaluation may include the determination of
what?

ANSWER:
1. Fair market value of the assets and liabilities of a bank;
2. Risk Classification of a bank;
3. Possible resolution modes, subject to such terms and conditions as
PDIC Board may prescribe.

30. What is the composition of PDIC?

ANSWER:
 Secretary of Finance – ex officio Chairman of the Board without
compensation;
 Governor of the Banko Sentral ng Pilipinas – ex-officio member
without compensation;
 President of the Corporation – appointed by the President;
 Four (4) members from the Private Sector appointed by the President.