BANKING LAWS TABLE OF CONTENTS A. The New Central Bank Act Republic Act No. 7653 B.

The General Banking Act Republic Act No. 337 In General Establishment of Domestic Banks Licensing of Foreign Banks Commercial Banking Corporations and Universal Banks Thrift Banks Act of 1996 Republic Act No. 7906 Building and Loans Associations Rural Banks Act of 1992 Republic Act No. 7353 C. An Act Liberalizing the Entry of Foreign Banks Republic Act No. 7721 D. Offshore Banking System Law Pres. Decree No. 1034 E. Foreign Currency Deposits Act Republic Act No. 6426, as amended F. An Act Creating the PDIC Republic Act No. 3531 G. The Truth in Lending Act Republic Act No. 3765 H. Law on Secrecy of Bank Deposits Republic Act No. 1405 Note: We have included several banking laws which are not in the bar coverage. Likewise, we have incorporated several laws on non-bank financial intermediarie s. Since they are not covered by the bar exam, the reviewee has the option of no t reading them. BANKING AND FINANCE IN GENERAL Two types of financing 1. equity 2. debt-financing * A cross-breed of the two may also occur. Intermediaries 1. Banks 2. Non-bank financial intermediaries 3. Exchanges 4. Others i.e. secondary markets Function of intermediaries 1. Brokering or matching investors with those in need of financing 2. Help in diminishing risks to investors 3. Provide liquidity NEW CENTRAL BANK ACT Republic Act No. 7653 Approved 14 June 1993 IN GENERAL Mandate * The Bangko Sentral ng Pilipinas is the State s central monetary authority, manda ted in the 1987 Constitution, which shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilitie s concerning money, banking and credit. [Section 1, RA 7653] * The Bangko Sentral shall enjoy fiscal and administrative autonomy. [Section 1, RA 7653] Objectives 1. The primary objective of the Bangko Sentral is to maintain price stabili ty conducive to a balanced and sustainable growth of the economy. 2. It shall also promote and maintain monetary stability and the convertibi lity of the peso. 3. It shall also provide policy directions in the areas of money, banking a nd credit.

4. It has supervision over banks and has regulatory powers over the operati ons of finance companies and non-bank financial intermediaries performing quasibanking functions. [Section 3, RA 7653] Typical functions of the Bangko Sentral 1. Supervision over banks and regulation of non-bank financial intermediari es engaged in quasi-banking functions 2. Bank of issue: as such, it has the sole power and authority to issue cur rency 3. Custodian of the nation s reserves of foreign currency As such, it ensures convertibility of the peso and backs up Philippine currency. 4. It has control of credit a. regulating money supply i.e. reserve requirements for banks b. open market operations i.e. Tbills c. controlling interest rate 5. Lender of last resort It has a "rediscounting window, allowing banks to sell their promissory n otes to it. 6. Custodian of cash reserves of banks 7. Government banker, agent and advisor 8. Central clearance and settlement agency Fiscal policy v. monetary policy * Fiscal policy is concerned with revenue generation and expenditure while monet ary policy involves regulating money supply and price stability. * The Bangko Sentral will now concentrate on monetary policy and shed off fiscal responsibilities which in the past had distracted it from its primary function. [Section 129, RA 7653] MONETARY BOARD AND GOVERNOR Monetary Board * The powers and functions of the Bangko Sentral are exercised by the Monetary B oard. * The Board is composed of seven (7) members appointed by the President for a te rm of six (6) years. No member may be reappointed more than once. * The seven members are: 1. The Governor as Chairman; 2. A member of the Cabinet designated by the President; and 3. Five (5) members who shall come from the private sector, all of whom sha ll serve full-time. Qualifications of the members of the Monetary Board 1. Must be natural born citizens of the Philippines 2. At least thirty five (35) years of age, with the exception of the Govern or who should at least be forty (40) years old 3. Good moral character 4. Of unquestionable integrity 5. Of known probity and patriotism 6. With recognized competence in social and economic disciplines Disqualifications * In addition to the disqualifications imposed by Republic Act No. 6713, a membe r of the Monetary Board is disqualified from being a director, officer, employee , consultant, lawyer, agent or stockholder of any bank, quasi-bank or any other institution which is subject to supervision or examination by the Bangko Sentral , in which case such member shall resign from, and divest himself of any and all interests in such institution before assumption of office as member of the Mone tary Board. * The member of the Monetary Board coming from the private sector shall not hold any other public office or public employment during their tenure.

* No person shall be a member of the Monetary Board if he has been connected wit h any multilateral banking or financial institution or has a substantial interes t in any private bank in the Philippines, within one (1) year prior to his appoi ntment; likewise, no member of the Monetary Board shall be employed in any such institution within two (2) years after the expiration of his term except when he serves as an official representative of the Philippine Government to such insti tution. Quorum in the Monetary Board * The presence of four (4) members shall constitute a quorum. However, in all ca ses, the Governor or his duly designated alternate shall be among the four. Withdrawal of persons having a personal interest * In addition to the requirements of Republic Act No. 6713, any member of the Mo netary Board with personal or pecuniary interest in any matter in the agenda of the Monetary Board shall disclose his interest to the Board and shall retire fro m the meeting when the matter is taken up. The decision taken on the matter shal l be made public. The minutes shall reflect the disclosure made and the retireme nt of the member concerned from the meeting. Responsibility and liability of the members of the Monetary Board * Members of the Monetary Board, officials, examiners, and employees of the Bang ko Sentral who willfully violate RA 7653 or who are guilty of negligence, abuses or acts of malfeasance or misfeasance or fail to exercise extraordinary diligen ce in the performance of his duties shall be held liable for any loss or injury suffered by the Bangko Sentral or other banking institutions as a result of such violation, negligence, abuse, malfeasance, misfeasance or failure to exercise e xtraordinary diligence. * Similar responsibility shall apply to members, officers and employees of the B angko Sentral for; 1. The disclosure of any information of a confidential nature, or any infor mation on the discussions or resolutions of the Monetary Board, or about the con fidential operations of the Bangko Sentral, unless the disclosure is in connecti on with the performance of official functions with the Bangko Sentral, or is wit h prior authorizaytion of the Monetary Board or the Governor; or 2. The use of such information for personal gain or to the detriment of the Government, the Bangko Sentral or third parties. * However, any data or information required to be submitted to the President and /or Congress, or to be published under the provisions of RA 7653 shall not be co nsidered confidential. Authority of Governor to render opinions, decisions or rulings * The Governor of the Bangko Sentral shall have the power to render opinions, de cisions, or rulings which shall be final and executory, until reversed or modifi ed by the Monetary Board, on matters regarding application or enforcement of law s pertaining to institutions supervised by the Bangko Sentral and laws pertainin g to quasi-banks, as well as regulations, policies or instructions issued by the Monetary Board, and the implementation thereof. [Section 17(e), RA 7653] Authority of the Governor in emergencies * In case of emergencies where time is insufficient to call a meeting of the Mon etary Board, the governor with the concurrence of two other members of the Board may decide any matter or take an action within the authority of the Board. * He shall thereafter submit a report to the President and Congress within 72 ho urs after the action has been taken. * At the soonest possible time, the Governor shall call a meeting of the Monetar y board to submit his action for ratification. [Section 19, RA 7653] Outside interests of the Governor and the full-time members of the Board * The Governor of the Bangko Sentral and the full-time members of the Board shal

l limit their professional activities to those pertaining directly to their posi tions with the Bangko Sentral. * They may not accept any other employment, whether public or private, remunerat ed or ad honorem. * Exceptions: 1. Positions in eleemosynary, civic, cultural or religious organizations 2. Whenever, by designation of the President, the Governor or the full-time member is tasked to represent the interest of the Government or other governmen t agencies in matters connected with or affecting the economy or the financial s ystem of the country CERTAIN OPERATIONS OF THE BANGKO SENTRAL Supervision and examination * The Bangko Sentral shall have supervision over, and conduct periodic or specia l examination of, banking institutions and quasi-banks, including their subsidia ries and affiliates engaged in allied activities. * This power however is subject to the provision of existing laws protecting or safeguarding the secrecy or confidentiality of bank deposits as well as investme nts of persons, natural or juridical, in debt instruments issued by the Governme nt. [Section 25, RA 7653] Subsidiary and affiliate * A subsidiary means a corporation more than fifty percent (50%) of the voting s tock of which is owned by a bank or quasi-bank and an affiliate means a corporat ion the voting stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasi-bank or which is related or linked to such institution or intermediary through common stockholders or such other factors as may be dete rmined by the Monetary Board. No restraining order on power of examination * No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from examining any institution subject to supervision or examinat ion by the Bangko Sentral, unless there is convincing proof that the action of t he Bangko Sentral is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is p ending a bond executed in favor of the Bangko Sentral, in an amount to be fixed by the court. [Section 25, RA 7653] Prohibitions on personnel of the Bangko Sentral * In addition to the prohibitions found in RA 3019 and 6713, personnel of the Ba ngko Sentral are hereby prohibited from: 1. Being an officer, director, lawyer or agent, employee, consultant or sto ckholder, directly or indirectly, of any institution subject to supervision or e xamination by the Bangko Sentral, except non-stock savings and loan associations and provident funds organized exclusively for employees of the Bangko Sentral, and except as otherwise provided in RA 7653; 2. Directly or indirectly requesting or receiving any gift, present or pecu niary or material benefit for himself or another, from any institution subject t o supervision or examination by the Bangko Sentral; 3. Revealing in any manner, except upon orders of the court, the Congress o r any government office or agency authorized by law, or under such conditions as may be prescribed by the Monetary Board, information relating to the condition or business of any such institution. This prohibition shall not apply to the giv ing of information to the Monetary Boar or the Governor of the Bangko Sentral, o r to any person authorized by either of them, in writing, to receive such inform ation; and 4. Borrowing from any institution subject to supervision or examination by the Bangko Sentral unless said borrowings are adequately secured, fully disclose d to the Monetary Boar, and shall be subject to such further rules and regulatio ns as the Monetary Board may prescribe.

CONSERVATORSHIP V. RECEIVERSHIP CONSERVATOR Grounds for appointment of conservator * The Monetary Board may appoint a conservator whenever it finds that a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors a nd creditors. [Section 29, RA 7653] * The conservator should be competent and knowledgeable in bank operations and m anagement. The conservatorship shall not exceed one (1) year. Powers of conservator 1. Take charge of the assets, liabilities and management of the bank or qua si-bank 2. Reorganize the management 3. Collect all monies and debts due said institution 4. Exercise all powers necessary to restore its viability Extent of the power of the conservator * The conservator has the power to overrule or revoke the actions of the previou s management and board of directors of the bank or quasi-bank. * However, the power cannot extend to the post-facto repudiation of perfected tr ansactions, otherwise they would infringe against the non-impairment clause of t he Constitution. * Section 28-A of RA No. 265 merely gives the conservator the power to revoke co ntracts that are deemed to be defective under existing law (i.e., void, voidable , unenforceable, or rescissible); hence, the conservator merely takes the place of a bank s board of directors. What the board of directors cannot do, such as rep udiating a contract validly entered into under the doctrine of implied authority , the conservator cannot do either. [First Philippine International Bank v. CA, 252 SCRA 255 (1986)] Termination of conservatorship * The Monetary Board shall terminate the conservatorship when it is satisfied th at the institution can continue to operate on its own and the conservatorship is no longer necessary. * The conservatorship shall likewise be terminated should the Monetary Board det ermine that the continuance in business of the institution would involve probabl e loss to its depositors or creditors, in which case proceedings for receivershi p and liquidation shall be pursued. [Section 29, RA 7653] PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION Grounds for proceedings in receivership and liquidation * The Monetary Board shall institute proceedings for receivership whenever it fi nds that a bank or quasi-bank: 1. Is unable to pay its liabilities as they become due in the ordinary cour se of business; provided that this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community; 2. Has insufficient realizable assets to meet its liabilities; 3. Cannot continue in business without involving probable loss to its depos itors or creditors; or 4. Has willfully violated a cease and desist order that has become final, i nvolving acts or transactions which amount to fraud or a dissipation of the asse ts of the institution. No need of prior notice and hearing * In such cases, the Monetary Board may summarily and without need for prior hea ring, forbid the institution from doing business in the Philippines and designat e the Philippine Deposit Insurance Corporation as receiver of the banking instit ution. [Section 30, RA 7653]

Who acts as receiver * For a bank, the Philippine Deposit Insurance Corporation shall serve as receiv er; for a quasi-bank, any person of recognized competence in banking or finance may be designated as receiver. Tasks of the receiver * The receiver shall immediately (1) gather and take charge of all assets and li abilities of the institution, (2) administer the same for the benefit of its cre ditors, and (3) exercise the general powers of a receiver. (4) The receiver shal l determine as soon as possible, but not later than ninety (90) days from takeov er, whether the institution may be rehabilitated or otherwise placed in such a c ondition so that it may be permitted to resume business with safety to its depos itors and creditors and the general public. Resumption * Any determination for the resumption of business of the institution shall be s ubject to prior approval of the Monetary Board. Liguidation * If the receiver determines that the institution cannot be rehabilitated or per mitted to resume business, the Monetary Board shall notify in writing the board of directors of its findings and direct the receiver to proceed with the liquida tion of the institution. Procedure for liquidation * The receiver shall then: 1. File ex parte with the proper regional trial court, and without the requ irement of prior notice or any other action, a petition for assistance in the li quidation of the institution pursuant to a liquidation plan adopted by the Phili ppine Deposit Insurance Corporation in the case of a bank or by the Monetary Boa rd in the case of a quasi-bank; 2. Upon acquiring jurisdiction, the court shall, upon motion by the institu tion, assist the enforcement of individual liabilities of the stockholders, dire ctors and officers, and decide on other issues as may be material to implement t he liquidation plan adopted; and 3. Convert the assets of the institution to money, dispose of the same to c reditors and other parties, for the purpose of paying the debts of such institut ion in accordance with the rules on concurrence and preference of credit under t he Civil Code of the Philippines and he may, in the name of the institution, ins titute such actions as may be necessary to collect and recover accounts and asse ts of, or defend any action against, the institution. Custodia legis and exemption from levy, attachment or execution * The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall, from the moment the i nstitution was placed under such receivership or liquidation, be exempt from any order of garnishment, levy, attachment, or execution. [Section 30, RA 7653] Actions of Monetary Board final and may be questioned only through certiorari * The actions of the Monetary Board taken regarding the designation of a conserv ator and appointment of a receiver shall be final and executory and may not be r estrained or set aside by the court except on petition for certiorari on the gro und that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. * The petition for certiorari may only be filed by the stockholders of record re presenting the majority of the capital stock within ten (10) days from receipt b y the board of directors of the institution of the order directing receivership, liquidation or conservatorship.

Designation of conservator not precondition to designation of receiver * The designation of a conservator or the appointment of a receiver shall be ves ted exclusively with the Monetary Board. * The designation of a conservator is not a precondition to the designation of a receiver. THE BANGKO SENTRAL AND THE MEANS OF PAYMENT Unit of monetary value * The unit of monetary value in the Philippines is the peso. Currency * The word "currency" is hereby defined as meaning all Philippine notes and coin s issued or circulating in accordance with the provisions of RA 7653. Bank of issue * The Bangko Sentral has the sole power and authority to issue currency within t he territory of the Philippines [Section 50, RA 7653] * Notes and coins issued by the BSP shall be liabilities of the BSP and may be i ssued only against and in amounts not exceeding, the assets of the BSP. Said no tes and coins shall be a first and paramount lien on all assets of the BSP [Sec tion 51, RA 7653] * All notes and coins issued by the BSP are fully guaranteed by the RP and shall be legal tender in the Philippines for all debts, both public and private. [Sec tion 52, RA 7653] Demand deposits * "Demand deposits" means all those liabilities of the Bangko Sentral and of oth er banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of checks. Issue of demand deposits * Only banks duly authorized to do so may accept funds or create liabilities pay able in pesos upon demand by the presentation of checks, and such operations sha ll be subject to the control of the Monetary Board in accordance with the powers granted it with respect thereto under RA 7653. Legal character of checks * Checks representing demand deposits do not have legal tender power and their a cceptance in the payment of debts, both public and private, is at the option of the creditor. [Section 60, RA 7653] * However, a check which has been cleared and credited to the account of the cre ditor shall be equivalent to a delivery to the creditor of cash in an amount equ al to the amount credited to his account. [Section 60, RA 7653] DOMESTIC MONETARY STABILIZATION Guiding principle * The Monetary Board shall endeavor to control any expansion or contraction in m onetary aggregates which is prejudicial to the attainment or maintenance of pric e stability. Action when abnormal movements occur in the monetary aggregates, credit, or pric e level * Whenever abnormal movements in the monetary aggregates, in credit, or in price s endanger the stability of the Philippine economy or important sectors thereof, the Monetary Board shall: 1. Take such remedial measures as are appropriate and within the powers gra nted to the Monetary Board and the Bangko Sentral; 2. Submit to the President of the Philippines and the Congress, and make pu blic, a detailed report which shall includes, as a minimum, a description and an alysis of:

a. The causes of the rise or fall of the monetary aggregates, of credit or of prices; b. The extent to which the changes in the monetary aggregates, in credit, o r in prices have been reflected in changes in the level of domestic output, empl oyment, wages, and economic activity in general and the nature and significance of any such changes; and c. The measures which the Monetary Board has taken and the other monetary, fiscal or administrative measures which it recommends to be adopted. INTERNATIONAL MONETARY STABILIZATION International monetary stabilization * The Bangko Sentral shall exercise its powers to preserve the international val ue of the pesos and to maintain its convertibility into other freely convertible currencies primarily for, although not necessarily limited to, current payments for foreign trade and invisibles. [Section 64, RA 7653] International reserves * In order to maintain the international stability and convertibility of the Phi lippine peso, the Bangko Sentral shall maintain international reserves adequate to meet any foreseeable net demands on the Bangko Sentral for foreign currencies . [Section 65, RA 7653] Composition of the international reserves 1. Gold 2. Assets in foreign currencies Action when international stability of the pesos is threatened * Whenever the international reserve of the Bangko Sentral falls to a level whic h the Monetary Board considers inadequate to meet the prospective net demands on the Bangko for foreign currencies, or whenever the international reserve appear s to be in imminent danger of falling to such a level, or whenever the internati onal reserve is falling as a result of payments or remittances abroad which, in the opinion of the Monetary Board, are contrary to the national welfare, the Mon etary Board shall: 1. Take such remedial measures as are appropriate and within the powers gra nted to the Monetary Board and the Bangko Sentral; 2. Submit to the President of the Philippines and the Congress, and make pu blic, a detailed report which shall includes, as a minimum, a description and an alysis of: a. The nature and causes of the existing or imminent decline; b. The remedial measures already taken or to be taken by the Monetary Board ; c. The monetary, fiscal or administrative measures further proposed; and d. The character and extent of the cooperation required from other governme nt agencies for the successful execution of the policies of the Monetary Board. INSTRUMENTS OF BANGKO SENTRAL ACTION Means of action * In order to achieve the primary objective of price stability, the Monetary Boa rd shall rely on its moral influence and the powers granted to it under RA 7653 for the management of monetary aggregates. Purchases and sales of gold * The Bangko Sentral may buy and sell gold in any form. Purchases and sales of foreign exchange * The Bangko sentral may buy and sell foreign notes and coins, and documents and instruments of types customarily employed for the international transfe rof fun ds. * The Bangko Sentral may engage in future exchange operations.

To whom can engage * The Bangko Sentral may engage in foreign transactions with the following entit ies or persons only: 1. Banking institutions operating in the Philippines; 2. The Government, its political subdivisions and instrumentalities; 3. Foreign or international financial institutions; 4. Foreign governments and their instrumentalities; and 5. Other entities or persons which the Monetary Board is hereby empowered t o authorize as foreign exchange dealers. Foreign asset position of the Bangko Sentral * The Bangko Sentral shall endeavor to maintain at all times a net positive fore ign asset position so that its gross foreign exchange assets will always exceed its gross foreign liabilities. Emergency restrictions on foreign exchange operations * Emergency restrictions on foreign exchange operations include: 1. Temporarily suspending or restricting sales of foreign exchange by the B angko Sentral; 2. Subjecting all transactions in gold and foreign exchange to license by t he Bangko Sentral; and 3. Requiring that any foreign exchange thereafter obtained by any person re siding or entity operating in the Philippines be delivered to the Bangko Sentral or to any bank or agent designated by the Bangko Sentral for the purpose, at th e effective exchange rate or rates. [Section 72, RA 7653] * Emergency restrictions may be imposed for the following purposes: 1. In order to achieve the primary objective of the Bangko Sentral; 2. To protect the international reserves of the Bangko Sentral in the immin ence of, or during an exchange crisis, or in time of national emergency; and 3. To give the Monetary Board and the Government time in which to take cons tructive measures to forestall, combat, or overcome such a crisis or emergency. [Section 72, RA 7653] * Such measures may be adopted with the concurrence of at least five (5) members of the Monetary Board and with the approval of the President of the Philippines . [Section 72, RA 7653] Exchange rates * The Bangko Sentral shall determine the exchange rate policy of the country. Foreign exchange holdings of the banks * In order that the Bangko Sentral may at all times have foreign exchange resour ces sufficient to enable it to maintain the international stability and converti bility of the peso, or in order to promote the domestic investment of bank resou rces, the Monetary Board may require the banks to sell to the Bangko Sentral or to other banks all or part of their surplus holdings of foreign exchange. [Secti on 76, RA 7653] LOANS TO BANKING AND OTHER FINANCIAL INSTITUTIONS Guiding principles * The rediscounts, discounts, loans and advances, which the Bangko Sentral is au thorized to extend to banking institutions, shall be used to influence the volum e of credit consistent with the objective of price stability. Types of credit operations 1. Normal credit operations 2. Special credit operations 3. Emergency credit operations Normal credit operations

1. 2. 3.

Commercial credits Production credits Other credits

Commercial credits * The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances, promissory notes and other credit instruments with maturities of not more than o ne hundred eighty (180) days from the date of their rediscount, discount or acqu isition by the Bangko Sentral and resulting from transactions related to: 1. The importation, exportation, purchase or sale of readily saleable goods and products, or their transportation within the Philippines; or 2. The storing of non-perishable goods and products which are duly insured and deposited, under conditions assuring their preservation in authorized bonded warehouses or in other places approved by the Monetary Board. Production credits * The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances, promissory notes and other credit instruments having maturities of not more than three hundred sixty (360) days from the date of their rediscount, discount or a cquisition by the Bangko Sentral and resulting from transactions related to the production or processing of agricultural, animal, mineral, or industrial product s. Other credits * Special credit instruments not otherwise rediscountable under commercial and p roduction credits may be eligible for rediscounting in accordance with the rules and regulations which the Bangko Sentral shall prescribe. Special credit operation 1. Loans for liquidity purposes Loans for liquidity purposes * The Bangko Sentral may extend loans and advances to banking institutions for a period of not more than seven (7) days without any collateral for the purpose o f providing liquidity to the banking system in times of need. [Section 83, RA 76 53] Emergency loans and advances * In periods of national and/or local emergency or of imminent financial panic w hich directly threaten monetary and banking stability, the Monetary Board may, b y a vote of at least five (5) of its members, authorize the Bangko Sentral to gr ant extraordinary loans or advances to banking institutions secured by assets. [ Section 84, RA 7653] * The Monetary Board may, at its discretion, likewise authorize the Bangko Sentr al to grant emergency loans or advances to banking institutions, even during nor mal periods, for the purpose of assisting a bank in a precarious financial condi tion or under serious financial pressures brought by unforeseen events, or event s which, though foreseeable, could not be prevented by the bank concerned. This requires that the Monetary Board has ascertained that the bank is not insolvent and has the assets to secure the advances and that the concurrent vote of at lea st five (5) members of the Monetary Board is obtained. [Section 84, RA 7653] OPEN MARKET OPERATIONS FOR THE ACCOUNT OF THE BANGKO SENTRAL Principle of open market operations * The open market purchases and sales of securities by the Bangko Sentral shall be made exclusively in accordance with its primary objective of achieving price stability. * In pursuit of this principle, the Bangko Sentral may engage in the purchase an d sale of government securities as well as issue and negotiate obligations of th e Bangko Sentral.

BANK RESERVES Reserve requirements * In order to control the volume of money created by the credit operations of th e banking system, all banks operating in the Philippines shall be required to ma intain reserves against their deposit liabilities. * The required reserves of each bank shall be proportional to the volume of its deposit liabilities and shall ordinarily take the form of a deposit in the Bangk o Sentral. [Section 94, RA 7653] No interest on bank reserves * Since the requirement to maintain bank reserves is imposed primarily to contro l the volume of money, the Bangko Sentral shall not pay interest on the reserves maintained with it unless the Monetary Board decides otherwise as warranted by circumstances. [Section 94, RA 7653] Deposit substitutes * The term "deposit substitutes" is defined as an alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, o r acceptance of debt instruments for the borrower's own account, for the purpose of re-lending or purchasing of receivables and other obligations. Required reserves against foreign currency * The Monetary Board is similarly authorized to prescribe and modify the minimum reserve ratios authorized applicable to deposits denominated in foreign currenc ies. Increase in reserve requirements * Whenever in the opinion of the Monetary Board it becomes necessary to increase reserve requirements against existing liabilities, the increase shall be made i n a gradual manner and shall not exceed four percentage points in any thirty-day period. * Banks and other affected financial institutions shall be notified reasonably i n advance of the date on which such increase is to become effective. Exemption from attachment and other purposes of reserves * Deposits maintained by banks with the Bangko Sentral as part of their reserve requirements shall be exempt from attachment, garnishment, or any other order or process of any court, government agency or any other administrative body issued to satisfy the claim of a party other than the Government, or its political sub division or instrumentalities. SELECTIVE REGULATION OF BANK OPERATIONS Guiding principle * The Monetary Board shall use the powers granted to it under RA 7653 to ensure that the supply, availability and cost of money are in accord with the needs of the Philippine economy and that bank credit is not granted for speculative purpo ses prejudicial to the national interests. * Regulations on bank operations shall be applied to all banks of the same categ ory uniformly and without discrimination. Margin requirements against letters of credit * The Monetary Board may at any time prescribe minimum cash margins for the open ing of letters of credit, and may related the size of the required margin to the nature of the transaction to be financed. FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OF THE GOVERNMENT Designation of Bangko Sentral as banker of the government * The Bangko Sentral shall act as a banker of the Government, its political subd ivisions and instrumentalities.

* The Bangko Sentral shall represent the government with the International Monet ary Fund and other financial institutions. Official deposits * The Bangko Sentral shall be the official depository of the Government, its pol itical subdivisions and instrumentalities as well as of government-owned or cont rolled corporations. THE MARKETING AND STABILIZATION OF SECURITIES FOR THE ACCOUNT OF THE GOVERNMENT Issue of government obligations * The issue of securities representing obligations of the Government, its politi cal subdivisions or instrumentalities may be made through the Bangko Sentral, wh ich may act as agent of, and for the account of, the Government or its respectiv e subdivisions or instrumentality, as the case may be. * The Bangko Sentral shall not be a member of any stock exchange or syndicate, b ut may intervene therein for the sole purpose of regulating their operations in the placing of government securities. [Section 118, RA 7653] Servicing and redemption of public debt * The servicing and redemption of the public debt shall also be effected through the Bangko Sentral. Financial advice on official credit operations * Before undertaking any credit operation abroad, the Government, through the Se cretary of Finance, shall request the opinion, in writing, of the Monetary Board on the monetary implications of the contemplated action. Such opinion must simi larly be requested by all political subdivisions and instrumentalities of the Go vernment before any credit operation abroad is undertaken by them. * Whenever the Government, or any of its political subdivisions or instrumentali ties, contemplates borrowing within the Philippines, the prior opinion of the Mo netary Board shall likewise be requested in order that the Board may render an o pinion on the probable effects of the proposed operation on monetary aggregates, the price level, and the balance of payments. * In order to assure effective coordination between the economic, financial and fiscal policies of the government and the monetary, credit and exchange policies of the Bangko Sentral, the Deputy Governor designated by the Governor of the Ba ngko Sentral shall be an ex officio member of the National Economic and Developm ent Authority Board. PROHIBITIONS Prohibitions * The Bangko Sentral shall not acquire shares of any kind or accept them as cool ateral, and shall not participate in the ownership or management of any enterpri se, either directly or indirectly. * The Bangko Sentral shall not engage in development banking or financing. TRANSITORY PROVISIONS Phaseout of fiscal agency functions * Unless circumstances warrant otherwise and approved by the Congress Oversight Committee, the Bangko Sentral shall within a period of three (3) years but in no case longer than five (5) years from the approval of RA 7653, phase out all fis cal agency functions, and transfer the same to the Department of Finance. [Secti on 129, RA 7653] Phaseout of regulatory powers over the operations of finance corporations and ot her institutions performing similar functions * The Bangko Sentral shall within a period of five (5) years from the effectivit y of RA 7653 phase out its regulatory powers over finance companies without quas i-banking functions and other institutions performing similar functions, the sam e to be assumed by the Securities and Exchange Commission. [Section 130, RA 7653

] GENERAL BANKING ACT Republic Act No. 337, as amended An act regulating banks and banking institutions and for other purposes Approved 23 February 1995 IN GENERAL Rule on bank operations * Only entities duly authorized by the Monetary Board of the Bangko Sentral may engage in the lending of funds obtained from the public through the receipt of d eposits of any kind and all entities regularly conducting such operations shall be considered as banking institutions. Banks or banking institutions * Entities engaged in the lending of funds obtained from the public through the receipt of deposits of any kind, and all entities regularly conducting such oper ation. * Banks or banking institutions must be duly authorized by the Monetary Board of the Central Bank. * Public shall mean twenty or more lenders. Quasi-banking functions * Quasi-banking functions shall mean borrowing funds, for the borrower s own account , through the issuance, endorsement or acceptance of debt instruments of any kin d other than deposits, or through the issuance of participations, certificates o f assignment, or similar instruments with recourse, trust certificates, or of re purchase agreements, from twenty or more lenders at any one time, for purposes o f re-lending or purchasing of receivables and other obligations. * However, commercial, industrial, and other non-financial companies, which borr ow funds through any of these means for the limited purposes of financing their own needs or the needs of their agents or dealers, shall not be considered as pe rforming quasi-banking functions. Financial intermediaries * Financial intermediaries shall mean persons or entities whose principal function s include the lending, investing or placement of funds or evidence of indebtedne ss or equity deposited with them, acquired by them or otherwise coursed through them, either for their own account or for the account of others. Non-banking financial institutions performing quasi-banking functions * The following entities shall not be considered as banking institutions but sha ll be subject to regulation by the Monetary Board: 1. Entities regularly engaged in the lending of funds or purchasing of rece ivables or other obligations with funds obtained from the public through the iss uance, endorsement or acceptance of debt instruments of any kind for their own a ccount, or through the issuance of certificates of assignment or similar instrum ents with recourse, trust certificates, or of repurchase agreements, whether any of these means of obtaining funds from the public is done on a regular basis or occasionally. 2. Entities regularly engaged in the lending of funds which receive deposit s occasionally. 3. Trust companies, building and loan associations, and non-stock savings a nd loan associations. * These entities will be subject to regulation by the Monetary Board which may i nclude, but need not be limited to: 1. the imposition of net worth to risk assets ratios; 2. reserve requirements; 3. interest rate ceilings; 4. methods of computation thereof;

5. 6. 7.

prescribing charges which may be collected; minimum capitalization; and submission of statistical reports.

Non-bank financial intermediaries * The operations and activities of non-bank financial intermediaries, except ins urance companies, shall be subject to regulation by the Monetary Board which may include, but need not be limited to, the imposition of constraints covering the : 1. minimum size of funds received; 2. methods of marketing and distribution; 3. terms and maturities of funds received; and 4. uses of funds. * If such entities are authorized by the Central Bank to perform quasi-banking f unctions, they may be further subject to regulation as discussed below. Note: Se c. 130 of the CB Act phasing out the regulation of MB over NBFCs not engaged in quasi-banking functions. Determination of functions * The determination of whether a person or an entity is a) performing banking or quasi-banking functions; or b) engaged in other types of financial intermediati on shall be decided by the Monetary Board, subject to judicial review. Regulation * Regulation shall mean the issuance of rules of conduct or the establishment of m odes or standards of operation for uniform application to all institutions or fu nctions covered, taking into consideration in determining such coverage the dist inctive character of the operations of institutions and the substantive similari ties of specific functions to which such rules, modes or standards are to be app lied. In some instances, these entities may be subject to special examination. Supervision * Supervision shall include not only the issuance of rules but also the overseeing to ascertain that regulations are complied with, investigating or examining to determine whether an institution is conducting its business on a sound financial basis, and inquiring into the solvency and liquidity of the institution. Relationship between bank and depositor * Fixed savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. In other words, the relationship between the bank and the depositor is that of a debtor and credito r. * In the case of rent of safety deposit box. The contract is a special kind of deposit and cannot be characterized as an ordinary contract of lease because the full and absolute possession and control of the deposit box is not given to the renters. The prevailing rule is that the relation between the bank renting out and the renter is that of bailer and bailee the bailment being for hire and mut ual benefiit. [CA Agro-industrial Dev. Corp. v. CA, 219 SCRA 426 (1983)] Types of deposits 1. Time Deposit-Interest rate stipulated depending on the number of days. During this period, the money deposited cannot be withdrawn. The bank uses this money to lend to others. That is why in these accounts, the depositor is paid higher rates of interest for the use of the money. 2. Savings deposit-Interest fixed under the fine prints, if one deposits to day, he cannot withdraw the amount not until 60 days later. The bank can lend out such funds; that is why it pays interests on such deposits. 3. Demand deposit or current accounts- No interest is fixed by the bank bec ause the depositor can take out his funds any time. It is called demand deposit because the depositor can withdraw the money deposited on the very same day whe

n he deposited emand deposits n rural banks, apitalizaition

it. Note: As a general rule, only commercial banks can accept d on checking accounts. By way of exception, savings banks and eve are allowed by the CB to accept checking accounts because their c may be large.

Money market transactions * Money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a mediator or dealer in the open market. * It involves commercial papers which are instruments evidencing indebtedness of an y person or entity which are issued, endorsed, sold or transferred or in any mann er conveyed to another person or entity, with or without recourse. * The fundamental function of the money market devise in its operation is to mat ch and bring together in a most impersonal manner both the fund users and the fund suppliers. * The money market is an impersonal market free from personal considerations. The market mechanism is intended to provide quick mobility of money and securities. The General Banking Act discriminates against banks in two aspects 1. Period- Under the Civil Code, a period is presumed to be for the benefi t of both parties. Insofar as banks are concerned, the period is always for the benefit of the debtor if the bank is the creditor. The debtor can compel the c reditor bank to accept payment of a debt before it is due, and recover interest deducted in advance. 2. Foreclosure of mortgage* The general rule is that there is no right of redemption in judicial foreclosu re of mortgage. There is only 90 day equity redemption period. * The exception is with the banks aside from the 90-day equity redemption period , banks are required to give a one-year redemption period. Alien bank mortgage * An alien bank can bid in a public auction of mortgaged property if such proper ty was mortgage to it in the course of an ordinary banking transaction. If the mortgage was not within the normal banking transaction, it must be prohibited fr om bidding. Mortgage loans * Loans against real estate security shall not exceed 70% of the appraised value of the real estate security, plus 70 %of the appraised value of the improvement s with title to the property being with the mortgagor. * Loans on the security of chattels shall not exceed 50% of the appraised value of the security. Classification of banks 1. Commercial banks 2. Thrift banks a. Savings and mortgage banks b. Stock savings and loan associations c. Private development banks 3. Rural banks Indispensable to the national interest * The banking industry is hereby declared as indispensable to the national inter est and, notwithstanding the provisions of any law to the contrary, any strike o r lockout involving banks, if unsettled after seven (7) calendar days, shall be reported by the Central Bank to the Preside who shall immediately certify the sa me to the appropriate court, government agency or commission for resolution. ESTABLISHMENT OF DOMESTIC BANKS

Form of organization * Domestic banking institutions, except building and loan associations, shall be organized in the form of stock corporations. * No banking institution shall issue no-par value stock. * The Securities and Exchange Commission shall not register the articles of inco rporation of any bank, or any amendment thereto, unless accompanied by a certifi cate of authority issued by the Monetary Board, under its official seal. * At least two thirds of the members of the board of directors of any bank or ba nking institution which may be established after the approval of this Act shall be Filipino citizens. Requisites for issuance of certificate of authority * Such certificate shall not issue unless the Monetary Board is satisfied from t he evidence submitted to it: 1. that all the requirements of existing laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been co mplied with; 2. that the public interest and economic conditions, both general and local , justify the authorization; and 3. that the amount of capital, the financing organization, direction and ad ministration, as well as the integrity and responsibility of the organizers and administrators reasonably assure the safety of the interests which the public ma y entrust to them. Receipt and disposition of deposits * No bank which may be established and licensed to do business in the Philippine s shall receive deposits, unless incorporated under the laws of the Republic of the Philippines. * This prohibition, however, shall not apply to branches and agencies of foreign banks which, at the time of approval of the General Banking Act, are actually r eceiving deposits. * After approval of the Act, all deposits so received by such branches and agenc ies of foreign bank shall not be invested in any manner outside the territorial limits of the Republic of the Philippines. Voting stock requirements * At least seventy percent (70%) of the voting stock of any banking institution which may be established after the approval of the Act shall be owned by citizen s of the Philippines, except where a new bank is established as a result of: a) the local incorporation of any of the existing branches or agencies of foreign b anks in the Philippines; or b) the consolidation of existing banks in any of whi ch there are foreign owned voting stocks at the time of consolidation. * The Monetary Board may, with the approval of the President, increase the perce ntage of foreign-owned voting stocks in any domestic bank from thirty percent (3 0%) to forty percent (40%). * The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual stockholders in that bank. In the case of cor porations owning bank shares, the citizenship of each stockholder in that corpor ation shall be the basis of computing the percentage. Ownership of stocks in banks by corporations * The total voting stocks which any corporation, including its wholly or majorit y owned subsidiaries, may own in any bank shall not exceed thirty percent (30%) of the voting stock of that bank. * In the case of a corporation which is wholly owned, or the majority of the vot ing stock of which is owned, by any one person or by persons related to each oth er within the third degree of consanguinity or affinity, that corporation may ow n not more than twenty percent (20%) of the voting stock of any bank. LICENSING OF FOREIGN BANKS

License to conduct business * No foreign bank or banking corporation formed, organized or existing under any law other than those of the Philippines shall be permitted to transact business in the Philippines, or maintain by itself or assignee any suit for the recovery of any debt, claims, or demand whatsoever, until after it shall have obtained, upon order of the Monetary Board, a license for that purpose from the Securities and Exchange Commission. * No foreign building and loan association or building and loan association not formed, organized, or existing under the laws of the Philippines shall be permit ted to transact business in the Philippines. Requisites for issuance of license 1. Public and economic conditions, both general and local, justify the issu ance of such order. 2. The foreign bank or banking corporation is solvent and in sound financia l condition. 3. A duly appointed agent in the Philippines has been authorized to accept summons and legal processes. Investment rights 1. Foreign banking institutions without branches in the Philippines, includ ing their wholly or majority owned subsidiaries and their holding companies havi ng majority holding in such foreign banking institutions, may invest, with prior approval of the Monetary Board, in equities of local companies engaged in finan cial allied undertakings. However, they shall maintain minority participation in such enterprise. 2. With prior approval of the Central Bank, these foreign entities may also purchase equities in domestic banks, subject to restrictions. Revocation of license 1. The foreign bank is in imminent danger of insolvency. 2. Its continuance in business will involve probable loss to those transact ing business with it. CLASSIFICATION OF PRIVATE BANKS COMMERCIAL BANKING CORPORATIONS AND UNIVERSAL BANKS Commercial bank * A commercial banking corporation, in addition to the general powers incident t o corporations, shall have all such powers as shall be necessary to carry on the business of commercial banking: 1. by accepting drafts and issuing letters of credit, by discounting and ne gotiating promissory notes, drafts, bills of exchange, and other evidences of de bts; 2. by receiving deposits; 3. by buying and selling foreign exchange and gold or silver bullion; and 4. by lending money against personal security or against securities consist ing of personal property of mortgages on improved real estate and the insured im provements thereon. * A commercial bank may also accept or create demand deposits subject to withdra wal by check. * A commercial bank may offer NOW accounts (special types of savings deposit whi ch can be withdrawn by means of a Negotiable Order of Withdrawal and is offered only to natural persons). * A commercial bank may likewise acquire readily marketable bonds and other debt securities subject to such rules as the Monetary Board may promulgate. * A commercial bank, finally, may invest to the extent allowed under applicable law and regulations in equities of allied undertaking, whether financial or nonfinancial. Investment in allied undertakings

* Commercial banks, including Government banks and foreign banks with existing l ocal branches, may invest in equities of allied undertakings. * Equity investments shall not be permitted in non-related activities. * Limitations on investments in allied undertakings: 1. The total investment in equities shall not exceed twenty five percent (2 5%) of the net worth of the bank. 2. The equity investment in any one enterprise shall not exceed fifteen per cent (15%) of the net worth of the bank; 3. The total equity investment of the bank in any single enterprise shall r emain a minority holding in that enterprise; and 4. The equity investment in other banks shall be deducted from the investin g bank s net worth for purposes of computing the prescribed ratio of net worth to risk assets. * Financial allied undertakings 1. Leasing companies 2. Banks 3. Investment houses 4. Financing companies 5. Credit card operations 6. Financial institutions catering to small and medium scale enterprises * Non-financial allied undertakings 1. Warehousing companies 2. Storage companies 3. Safe deposit box companies 4. Companies engaged in the management of mutual funds but not in the mutua l funds themselves 5. Management corporations engaged or to be engaged in activity similar to the engagement of mutual funds 6. Companies engaged in the provision of computer services 7. Insurance agencies 8. Companies engaged in home building and home development 9. Companies providing drying and/or milling facilities for agricultural cr ops Universal bank or expanded commercial banking authority * The Monetary Board may authorize -- to further national development objectives or support national priority projects -- a commercial bank, a bank authorized t o provide commercial banking services, as well as a government owned and control led bank, to operate under an expanded commercial banking authority. * By virtue of such expanded power, the universal bank may, in addition to power s authorized for commercial banks: 1. exercise the power of an Investment House as provided in PD 129; 2. invest in the equity of a non-allied undertaking; or 3. own a majority or all of the equity in a financial intermediary other th an a commercial bank or a bank authorized to provide commercial banking services . Limitations on exercise of power as investment house * Universal bank may perform the functions of an investment house either directl y OR indirectly through a subsidiary investment house (it cannot perform such fu nctions both directly and indirectly). * If performed directly, such functions shall be undertaken by a separate and di stinct department in the bank. * If performed indirectly through an investment house, universal bank may not di rectly exercise such powers as are exclusively reserved to investment houses. Limitations on equity investment of a universal bank 1. The total investment in equities shall not exceed fifty percent (50%) of the net worth of the bank. 2. The equity investment in any one enterprise whether allied or non-allied

shall not exceed fifteen percent (15%) of the net worth of the bank. 3. The equity investment of the bank, or of its wholly- or majority-owned s ubsidiary, in a single non-allied undertaking shall not exceed thirty five perce nt (35%) of the total equity in the enterprise nor shall it exceed thirty five p ercent (35%) of the voting stock in that enterprise. 4. The equity investment in other banks shall be deducted from the investin g bank s net worth for purposes of computing the prescribed ratio of net worth to risk assets. Capitalization Commercial bank Universal bank P 2 billion P 4.5 billion

Ownership in a thrift bank or rural bank * A commercial bank or any bank authorized to provide commercial banking service s, or to operate under an expanded commercial banking authority may own more tha n thirty percent (30%) of the voting stock of a thrift bank or a rural bank up t o a majority or all of the equity thereof. * Subject to the prior approval of the Monetary Board. Combined capital accounts * The combined capital accounts of each commercial bank shall not be less than a n amount equal to ten percent (10%) of its risk assets * Risk assets is defined as its total assets minus the following assets: 1. Cash on hand; 2. Amounts due from the Central Bank; 3. Evidence of indebtedness of the Philippine Government or Central Bank or any other evidence of indebtedness fully guaranteed by the Philippine Governmen t; 4. Loans to the extend covered by hold-out on, or assignment of, deposits m aintained in the lending bank and held in the Philippines; 5. Loans or acceptances under letters of credit to the extend covered by ma rginal deposits; and 6. Other non-risk items which the Monetary Board may, from time to time, au thorize to be deducted from total assets. Purchase, holding or conveyance of real estate * Any commercial bank may purchase, hold, and convey real estate for the followi ng purposes: 1. Such as shall be necessary for its immediate accommodation in the transa ction of its business; 2. Such as shall be mortgaged to it in good faith by way of security for de bts; 3. Such as shall be conveyed to it in satisfaction of debts previously cont racted in the course of its dealings; and 4. Such as its shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due to it. * However, no such bank shall hold the possession of any real estate under mortg age or trust deed, or the title and possession of any real estate purchased to s ecure any debt due to it, for a longer period than five years. Establishment of branches * Any commercial bank organized under Philippine laws may, with the prior approv al of the Monetary Board, establish branches in the Philippines or branches and agencies outside the Philippines, and the bank shall be responsible for all busi ness conducted in such branches to the same extent and in the same manner as tho ugh such business had all been conducted in the head office. * A bank and its branches shall be treated as a unit.

THRIFT BANKS Thrift banks * Thrift banks shall include savings and mortgage banks, private development banks , and stock savings and loan associations organized under existing laws and any banking corporation that may be organized for the following purposes: 1. Accumulating the savings of depositors and investing them together with capital loans secured by bonds, mortgages in real estate and insured improvement s thereon, chattel mortgage, bonds, and other forms of security or in loans for personal and household finance, whether secured or unsecured, or in financing fo r home building and home development, in readily marketable and debt securities; in commercial papers, and accounts receivables, drafts, bills of exchange, acce ptances or notes arising out of commercial transactions; and in such other inves tments and loans which the Monetary Board will determine as necessary in the fur therance of national economic objectives; 2. Providing short term working capital, or medium- and long-term financing to businesses engaged in agriculture, services, industry and housing; and 3. Providing diversified financial and allied services for its chosen marke t and constituencies especially for small and medium enterprises and individuals . Scope of authority * Thrift banks may: 1. Accept savings and time deposits; 2. Act as correspondent for other financial institutions; 3. Purchase, hold and convey real estate; 4. Open letters of credit; 5. extend credit facilities to private and government employees; 6. Extend credit against the security of jewelry, precious stones and simil ar articles; 7. Accept foreign currency deposits; 8. Invest in equity of allied undertakings; 9. Rediscount papers with the PNB, LBP, DBP, and other GOCCs; 10. Issue domestic letters of credit; 11. Invest in marketable bonds and other debt securities; 12. Grant loans, secured or not secured; and 13. With prior approval of the Monetary Board: a. Open current or checking accounts; b. Act as collection agent for government entities; c. Act as official depository of national agencies and municipal, city or p rovincial funds where the bank is located; d. Issue mortgage and chattel certificates; e. Engage in quasi-banking and money market operations; and f. Offer NOW accounts. * Thrift banks may perform services similar to those offered by commercial banks under an expanded authority when permitted by the Bangko Sentral ng Pilipinas. Capitalization * Capitalization may vary according to the location of the head office: Within Metro Manila P250 million Outside Metro Manila P 40 million Incentives and exemptions 1. Reserve requirement differential 2. Liberalized branching rules 3. Notices of statement of condition 4. Tax exemptions 5. Exemption from publication requirement 6. Exemption from notarial charges 7. Exemption from registration fees

Equity ownership * At least 40% of the voting stock of a thrift bank shall be owned by Filipino c itizens. * Exception: In case of merger or consolidation of existing Thrift Banks with f oreign holdings, the resulting holding shall not be increased but may be reduced and, once reduced, shall not be increased thereafter beyond 60% of the voting stock of the Thrift Bank. Minors as depositors * Minors in their own rights and in their own names may make deposits and withdr aw the same, and may receive dividends and interests. * If the guardian shall give notice in writing to any thrift bank not to make pa yments of deposits, dividends or interest to the minor of whom he is the guardia n, then such payment shall be made only to the guardian. BUILDING AND LOAN ASSOCIATIONS Building and loan associations * Building and loan associations are corporations whose capital stock is require d or is permitted to be paid in by the stockholders in regular, equal periodical payments and whose purpose is: 1. to accumulate the savings of its stockholders; 2. to repay to said stockholders their accumulated savings and profits upon surrender of their shares; 3. to encourage industry, frugality, and home building among its stockholde rs; and 4. to loan its funds, and funds borrowed for the purpose, to stockholders o n the security of unencumbered real estate and with the pledge of shares of the capital stock owned by such stockholders as collateral security. Prohibition * It shall be unlawful for any building and loan association to make any loan up on property that is suitable for us only as theatre, public hall, church, conven t, school, club, hotel, garage, or other public building. Monetary Board may gra nt exemptions in cases of public hall, school, hotel and other public buildings to facilitate the investment of idle funds. Investment in bonds * With the approval of the Monetary Board, a building and loan association may a lso invest such of its funds as may otherwise remain idle in bonds and obligatio ns of the Republic of the Philippines or any of its subdivisions, or GOCCs. Capital stock * The capital stock of such associations shall be paid in by the stockholders in regular, equal, periodical payments known as dues, at such times and in such am ounts as shall be provided in their by laws. * The dues on each share of stock subscribed for by a stockholder shall continue to be paid by the stockholder to the association until the share has been duly withdrawn, cancelled, or forfeited or until the share has reached its matured va lue. * Matured value is when the due paid on each share and the net earnings thereof, in accordance with the by laws, shall amount to the matured of the share. Certificates of stock * Certificates of stock shall be issued to each stockholder upon the payment of the membership fees and first installment of the dues. Installment shares v. paid-up shares * While still being paid, the shares are called installment shares. After they are fully paid, they are called paid-up shares. * Once paid-up, relationship between the association and stockholder is changed

into that of debtor and creditor. Free shares and pledged shares * Shares which have not been pledged as security for the payment of a loan shall be called free shares, and shares which have been so pledged shall be called d shares.

pledge

Surrender of shares * Stockholders may surrender their shares and withdraw from the association afte r paying twelve (12) monthly installment of dues upon giving sixty (60) days noti ce in writing to the board of directors and the withdrawal value shall be the to tal sum of the dues paid thereon plus not less than ninety percent (90%) of all dividends earned by such shares up to the end of the last preceding fiscal perio d plus such interest for the time elapsed since the end of the period as shall b e allowed by the board of directors. * Stockholders who have not paid twelve (12) monthly installments of dues may, a fter giving sixty (60) days notice to the board, surrender their shares and withd raw from the association, and the withdrawal value shall be the total sum of the due paid thereon plus such dividend or interest as may be allowed by the board of directors. RURAL BANKS Scope of authority * A rural bank may perform any or all of the following services: 1. Extend loans and advances primarily for the purpose of meeting the norma l and credit needs of farmers, fishermen, or farm families as well as cooperativ es, merchants, private and public employees; 2. Accept savings and time deposits; 3. Ac as correspondent bank of other financial institutions; 4. Rediscount paper with the LBP, DBP, or any other bank, including its bra nches and agencies. 5. Act as a collection agent; 6. Offer other banking services as provided in Section 772 of RA 337, as am ended; 7. Extend financial assistance to private and public employees in accordanc e with RA 3779, as amended; and 8. With prior approval of the Monetary Board: a. Accept current or checking accounts; b. Accept NOW accounts; c. Act as trustee over estates or properties of farmers and merchants; d. Act as official government depository; e. Sell domestic drafts; and f. Invest in allied undertakings. Rationale * The rationale behind rural banking system is the need to promote comprehensive rural development with the end in view of the following: 1. A more equitable distribution of opportunities, income and wealt h; 2. A sustained increase of goods and services produced by the natio n for the benefit of the people; and 3. An expanding productivity as a key to raising the quality of lif e for all. * This can be achieved by making credit available and readily accessible in the rural areas. Capital stock * With the exception of shareholdings of corporations organized primarily to hol d equities in rural banks, and of Filipino-controlled domestic banks, the capita l stock of any rural bank shall be fully-owned and held by Philippine citizens o

r entities qualified under Phil. law to own and hold such capital stock. Board * All members of the BOD shall be Filipino citizens. * However, there is no prohibition against any appointive or elective public off icial from serving as director, officer, consultant or in any capacity in the ba nk. Incentives * Foreclosure of mortgages exempt from newspaper publication requirements if the loan, excluding interest due and unpaid, does not exceed P100,000. * Exempt from payment of all taxes, fees and charges of whatever nautre and des cription, except corporate income taxes and local taxes, fees and charges for a period of five years from the date of commencement of operations. * Free from notarization fees * Free from registration fees and DST in RD. ACT LIBERALIZING ENTRY OF FOREIGN BANKS Republic Act No. 7721 An act liberalizing the entry and scope of operations of foreign banks in the Ph ilippines and for other purposes Declaration of policy * The State shall: 1. Develop a self-reliant and independent national economy effectively cont rolled by Filipinos; and 2. Encourage, promote and maintain a stable, competitive, efficient and dyn amic banking and financial system. * Pursuant to this policy, the Philippine banking and financial system is hereby liberalized to create a more competitive environment and encourage greater fore ign participation through increase in ownership in domestic banks by foreign ban ks and the entry of new foreign bank branches. * In allowing increased foreign participation in the financial system, it shall be the policy of the State that the financial system shall remain effectively co ntrolled by Filipinos. Three (3) modes of entry for foreign banks * The Monetary Board may authorize foreign banks to operate in the Philippine ba nking system through any of the following modes of entry: 1. by acquiring, purchasing or owning up to sixty percent (60%) of the voti ng stock of an existing bank; 2. by investing in up to sixty percent (60%) of the voting stock of a new b anking subsidiary incorporated under Philippine laws; or 3. by establishing branches with full banking authority. * A foreign bank or a Philippine corporation, however, may own up to sixty perce nt (60%) of the voting stock of only one domestic bank or new banking subsidiary . Guidelines for entry * In approving entry applications of foreign banks, the Monetary Board shall: 1. ensure geographic representation and complementation; 2. consider strategic trade and investment relationships between the Philip pines and the country of incorporation of the foreign bank; 3. study the demonstrated capacity, global reputation for financial innovat ions and stability in a competitive environment of the applicant; 4. see to it that reciprocity rights are enjoyed by Philippine banks in the applicant s country; and 5. consider willingness to fully share their technology. * Only those among the top one hundred fifty (150) foreign banks in the world or the top five (5) banks in their country of origin as of the date of application shall be allowed entry in (b) and (c) of modes of entry.

* In approving entry, Monetary Board shall adopt such measures as may be necessa ry: 1. to ensure that, at all times, the control of seventy (70%) of the resour ces or assets of the entire banking system is held by domestic banks which are a t least majority-owned by Filipinos; 2. prevent a dominant market position by one bank or the concentration of e conomic power in one or more financial institutions, or in corporations, partner ships, groups or individuals with related interests; and 3. secure the listing in the Philippine Stock Exchange of the shares of sto cks of banking corporations established under (a) and (b) modes of entry. * To qualify to establish a branch or subsidiary, the foreign bank applicant mus t be widely-owned and publicly-listed in its country of origin, unless the forei gn bank applicant is owned by the government of its country of origin. Capital requirements * Locally incorporated subsidiaries shall have the same minimum capital requirem ents as domestic banks of the same category. * For foreign bank branches, they shall permanently assign capital of not less t han the U.S. dollar equivalent of P210,000,000.00 at the exchange rate on the da te of effectivity of this law. * The permanently assigned capital shall be inwardly remitted and converted into Philippine currency. Branches * A foreign bank shall be entitled to three (3) branches upon remittance of mini mum capital requirement. * A foreign bank may open three (3) additional branches in locations designated by the Monetary Board by inwardly remitting and converting into Philippine curre ncy as permanently assigned capital the U.S. dollar equivalent of P35,000,000.00 per additional branch at the exchange rate on the date of effectivity of this l aw. * Total number of branches for each new foreign bank entrant shall not exceed si x (6). Head office guarantee * The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches. Equal treatment * Foreign banks authorized to operate under the law shall perform the same funct ions, enjoy the same privileges, and be subject to the same limitations imposed upon a Philippine bank of the same category. * These limits include, among others, the single borrower s limit and capital to r isk asset ratio as well as the capitalization required for expanded commercial b anking activities under the General Banking Act and other related laws of the Ph ilippines. OFFSHORE BANKING SYSTEM LAW Presidential Decree No. 1034 Authorizing the establishment of an offshore banking system in the Philippines Approved 30 September 1976 Offshore banking * Offshore banking shall refer to the conduct of banking transactions in foreign currencies involving the receipt of funds from external sources and the utiliza tion of such funds in transactions with non-residents or other offshore banking units. Offshore banking unit * Offshore banking unit shall mean a branch, subsidiary or affiliate of a foreig n banking corporation which is duly authorized by the Central Bank to transact o

ffshore banking business in the Philippines. Deposits * Deposits shall mean funds in foreign currencies which are accepted and held by an offshore banking unit in the regular course of business, with the obligation to return an equivalent amount to the owner thereof, with or without interest. Who are qualified to operate an offshore banking unit? * Only banks which are organized under any law other than those of the Republic of the Philippines, their branches, subsidiaries or affiliates, shall be qualifi ed to operate offshore banking units in the Philippines. * Local branches of foreign banks already authorized to accept foreign currency deposits under RA 6426 may opt to apply for authority to operate an offshore ban king unit under PD 1034. However, upon their receipt of a corresponding certific ate of authority to operate as an offshore banking unit, the license to transact business under RA 6426 shall be deemed automatically withdrawn. Certificate of authority to operate * The Monetary Board is authorized to issue certificates of authority to operate offshore banking units. * In issuing such certificate, the Monetary Board shall take into consideration the applicant s: 1. liquidity and solvency position; 2. net worth and resources; 3. management; 4. international banking expertise; 5. contribution to the Philippine economy; and 6. other relevant factors such as participation in equity of local commerci al banks and appropriate geographic representation. * The Central Bank is authorized to collect a fee of not less than US $20,000 up on issuing any certificate of authority to operate and annually thereafter on th e anniversary date of such certificate. Corporate undertaking * No application to operate as an offshore banking unit shall be considered unle ss the applicant shall have first submitted to the Central Bank a sworn undertak ing of its head office or parent or holding company, duly supported by an approp riate resolution of its board of directors, that, among other things: 1. it will, on demand, provide the necessary specified currencies to cover liquidity needs that may arise or other shortfall that its offshore banking unit may incur; 2. the operations of its offshore banking unit shall be managed soundly and with prudence; 3. it will train and continually educate a specific number of Filipinos in international banking and foreign exchange trading with a view to reducing the n umber of expatriates; 4. it will provide and maintain in its offshore banking unit net office fun ds in the minimum amount of US $ 1,000,000; and 5. it will start operations of its offshore banking unit within 180 days fr om receipt of its certificate of authority to operate such unit. Transactions of offshore banking units * Transactions of offshore banking units with non-residents or with other offsho re banking units shall be freely allowed, but safeguards will be established to prevent circumvention of foreign exchange regulations. * Transactions of offshore banking units with residents of the Philippines, incl uding those with local commercial banks and local branches of foreign banks auth orized to receive foreign currency deposits under RA 6426, shall be subject to a pplicable law and regulations.

Tax and other incentives * The provisions of any law to the contrary notwithstanding, the transactions of offshore banking units with non-residents and other offshore banking units shal l be subject to a five percent (5%) tax on the net income from such transactions which shall be in lieu of all taxes on the said transactions. * The transactions of offshore banking units with local commercial banks, includ ing branches of foreign banks that may be authorized by the Central Bank to tran sact business with offshore banking units, shall likewise be subject to the same tax, except net income from such transactions as may be specified by the Secret ary of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks. * Any income of non-residents from transactions with said offshore banking units shall be exempt from any tax. * In the case of transaction with residents (other than other offshore banking u nits or local commercial banks including local branches of foreign banks that ma y be authorized by the Central Bank to transact business with offshore banking u nits), interest income from loans granted to such residents shall be subject onl y to a ten percent (10%) withholding tax as final tax. Effect of certain laws * The Usury Law, Uniform Currency Law, and PDIC law shall not apply to transacti ons and/or deposits in offshore banking units in the Philippines. * The provisions of RA 1405 or the Law on Secrecy of Bank Deposits shall apply t o deposits in offshore banking units. FOREIGN CURRENCY DEPOSIT ACT Republic Act No. 6426, as amended An act instituting a foreign currency deposit system in the Philippines and for other purposes Approved 04 April 1974 Authority to deposit foreign currencies * Any person, natural or juridical, may deposit with such Philippine banks in go od standing, as may upon application be designated by the Central Bank for the p urpose, foreign currencies which are acceptable as part of the international res erve. Exception * Foreign currencies which are required by the Central Bank to be surrendered in accordance with the provisions of RA 7653 may not be deposited. Authority of the banks to accept foreign currency deposits * The banks designated by the Central Bank shall have the authority: 1. To accept deposits and to accept foreign currencies in trust; 2. To issue certificates to evidence such deposits; 3. To discount said certificates; 4. To accept said deposits as collaterals for loans subject to such rules a nd regulations as may be promulgated by the Central Bank; and 5. To pay interest in foreign currency on such deposits. Foreign currency cover requirements * Depositary banks shall maintain at all times a one hundred percent (100%) fore ign currency cover for their liabilities, except as the Monetary Board may other wise prescribe or allow. * At least fifteen percent (15%) of such cover shall be in the form of foreign c urrency deposit with the Central Bank and the balance in the form of foreign cur rency loans or securities, which loans or securities shall be of short term matu rities and readily marketable. * Foreign currency cover shall be in the same currency as that of the correspond ing foreign currency deposit liability, unless the Monetary Board may otherwise prescribe or allow.

* The Central Bank may pay interest on the foreign currency deposit, and if requ ested, shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depositary banks. * Central Bank may exempt from the 15% foreign currency cover in the form of for eign currency deposit with the Central Bank in cases of depository banks which, on account of their net worth, resources, past performance, or other pertinent c riteria, have been qualified by the Monetary Board to function under an expanded foreign currency deposit system. * Said banks may also be exempt from the limitations on the maturity periods for loans and securities subject to prior approval by the Central Bank. Withdrawability and transferability of deposits * There shall be no restriction on the withdrawal by the depositor of his deposi t or on the transferability of the same abroad except those arising from the con tract between the depositor and the bank. Tax exemption * All foreign currency deposits made under RA 6426, as amended, as well as forei gn currency deposits authorized under PD 1304, including interest and all other income or earnings of such deposits, are hereby exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents o r non-residents so long as the deposits are eligible or allowed under the said l aws and, in the case of non-residents, irrespective of whether or not they are e ngaged in trade or business in the Philippines. Secrecy of foreign currency deposits * All foreign currency deposits authorized under RA 6426, as amended by PD 1305, as well as foreign currency deposits authorized under PD 1034, are hereby decla red as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency depos its be examined, inquired or looked into by any person, government official, bur eau or entity whether public or private. * Unlike the Law on Secrecy of Banks Deposits Act, there is only one exception f or foreign currency deposits and that is when there is a written permission from the depositor. Exemption from attachment, garnishment and other process * Foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency, or an y administrative body whatsoever. Salvacion v. Central Bank of the Philippines 278 SCRA 27 FACTS: Greg Bartelli, an American tourist, was arrested for committing four coun ts of rape and serious illegal detention against Karen Salvacion. Police recover ed from him several dollar checks and a dollar account in the China Banking Corp . He was, however, able to escape from prison. In a civil case filed against him , the trial court awarded Salvacion moral, exemplary and attorney s fees amounting to almost P1,000,000.00. Salvacion tried to execute the judgment on the dollar deposit of Bartelli with t he China Banking Corp. but the latter refused arguing that Section 11 of Central Bank Circular No. 960 exempts foreign currency deposits from attachment, garnis hment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. Salvacion therefore filed this action for declaratory relief in the Supreme Cour t. ISSUE: Should Section 113 of Central Bank Circular No. 960 and Section 8 of Repu blic Act No. 6426, as amended by PD 1246, otherwise known as the Foreign Currenc y Deposit Act be made applicable to a foreign transient? HELD:The provisions of Section 113 of Central Bank Circular No. 960 and PD No. 1 246, insofar as it amends Section 8 of Republic Act No. 6426, are hereby held to

be INAPPLICABLE to this case because of its peculiar circumstances. Respondents are hereby required to comply with the writ of execution issued in the civil ca se and to release to petitioners the dollar deposit of Bartelli in such amount a s would satisfy the judgment. RATIO: Supreme Court ruled that the questioned law makes futile the favorable ju dgment and award of damages that Salvacion and her parents fully deserve. It the n proceeded to show that the economic basis for the enactment of RA No. 6426 is not anymore present; and even if it still exists, the questioned law still denie s those entitled to due process of law for being unreasonable and oppressive. Th e intention of the law may be good when enacted. The law failed to anticipate th e iniquitous effects producing outright injustice and inequality such as the cas e before us. The SC adopted the comment of the Solicitor General who argued that the Offshore Banking System and the Foreign Currency Deposit System were designed to draw de posits from foreign lenders and investors and, subsequently, to give the latter protection. However, the foreign currency deposit made by a transient or a touri st is not the kind of deposit encouraged by PD Nos. 1034 and 1035 and given ince ntives and protection by said laws because such depositor stays only for a few d ays in the country and, therefore, will maintain his deposit in the bank only fo r a short time. Considering that Bartelli is just a tourist or a transient, he i s not entitled to the protection of Section 113 of Central Bank Circular No. 960 and PD No. 1246 against attachment, garnishment or other court processes. Further, the SC said: In fine, the application of the law depends on the extent o f its justice. Eventually, if we rule that the questioned Section 113 of Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any admini strative body whatsoever, is applicable to a foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest like accused Greg Ba rtelli. This would negate Article 10 of the New Civil Code which provides that in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail. Deposit insurance coverage * The deposits under RA 6426 shall be insured under the provisions of RA 3591, a s amended, or the Charter of the Philippine Deposit Insurance Corporation. * Insurance payment shall be in the same currency in which the insured deposits are denominated. ACT CREATING THE PHILIPPINE DEPOSIT INSURANCE CORPORATION Republic Act No. 3591 An act establishing the Philippine Deposit Insurance Corporation, defining its p owers and duties and for other purposes 22 June 1963 Creation of PDIC * There is hereby created a Philippine Deposit Insurance System which shall insu re the deposits of all banks which are entitled to the benefits of insurance und er RA 3591. * PDIC may also be appointed as receiver of a banking institution. Deposit * The term deposit means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or wh ich is evidenced by a passbook, check and/or certificate of deposit, printed or issue in accordance with Central Bank rules and regulations and other applicable laws, together with such other obligations of the bank which, consistent with b anking usages and practices, the Board of Directors shall determine and prescrib e by regulations to be deposit liabilities of the bank. * Provided that any obligation of a bank which is payable at the office of the b

ank located outside of the Philippines shall not be a deposit for any of the pur poses of this Act or included as part of the total deposits or of insured deposi ts. * Provided further, that, subject to the approval of the Board of Directors, any insured bank which is incorporated under the laws of the Philippines which main tains a branch outside the Philippines may elect to include for insurance its de posit obligations payable only at such branch. Insured deposit * The term insured deposit means the net amount due to any depositor for deposits in an insured bank (after deducting offsets) less any part thereof which is in e xcess of one hundred thousand pesos (P100,000). Therefore, the maximum amount of insured deposit for every depositor is only P100,000. * All these types of deposits are covered: demand, savings and time deposits; if a depositor has all three types of accounts, he can only recover up to P100,0 00. He is considered as one depositor. * In determining such amount due to any depositor, there shall be added together all deposits in the bank maintained in the same capacity and the same right for his benefit either in his own name or in the name of others. Banks and its br anches considered as one unit. * The provisions of any law to the contrary notwithstanding, an owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitle d to the rights provided in this Act unless his name is registered as owner/hold er thereof in the books of the issuing bank. Insurance of deposits in foreign currency * Deposit obligations in foreign currency of any insured bank are likewise insur ed. * Deposit insurance coverage and payment for insured deposits maintained in fore ign currencies in a closed insured bank shall be determined in accordance with t he following rules: 1. The deposit in foreign currency shall be converted into its equivalent a mount in Philippine pesos at the interbank rate obtaining on the date the bank w as closed or on insolvency, and the insurance coverage shall extend to such comp uted amount, but in no case to exceed P40,000 for each depositor; and 2. The liability of PDIC to each depositor shall be payable in Philippine p esos in the amount of insurance coverage as computed above. Trust funds * The term means funds held by an insured bank in a fiduciary capacity and inclu de, without being limited to, funds as trustee, executor, administrator, guardia n or agent. * Trust funds are not considered as insured deposits. Deposit insurance coverage * The deposit liabilities of any bank or banking institution, which is engaged i n the business of receiving deposits, shall be insured with the PDIC. * Coverage is compulsory. Termination of insured status * Two instances: when it fails or refuses to pay assessment and when it becomes insolvent. * Should any bank fail or refuse to pay any assessment required to be paid by su ch bank, and should the bank not correct such failure or refusal within 30 days after written notice has been given by the PDIC, the insured status of such bank shall be terminated by the Board of Directors. * The bank shall give written notice of such termination to each of the deposito rs and the PDIC shall publish the notice of the termination of the insured statu s of the bank. * After the termination of the insured status of the bank, deposits of each depo

sitor in the bank, less all subsequent withdrawals from any deposits of such dep ositor, shall continue to be insured for a period of 90 days. Unsafe or unsound practices * These refer to any action or lack of action which is contrary to generally acc epted standards of prudent operation, the possible consequences of which, if con tinued, would result in abnormal risk of loss or damage to a bank, depositors an d its shareholders or even the depletion of the Insurance Fund administered by t he PDIC. Cease and desist order (CDO) * A cease and desist order shall refer to the Order issued by PDIC, through its Board of Directors, to a member insured bank, or its directors or agents to corr ect (a) unsafe or unsound practices in conducting the business of the bank, (b) violations of any law or regulation to which the insured bank is subject, or (c) violations of the provisions of RA 3591, as amended or any order, rule or instr uction issued by the PDIC or any written condition imposed by PDIC in connection with any transaction with or grant by the PDIC. * The object of the CDO is to protect depositors and the PDIC against existing o r potential risk exposures from said practices or violations. Payment of insured deposit * An insured bank shall be deemed closed on account of insolvency when ordered c losed by the Monetary Board. * Whenever an insured bank shall have been closed on account of insolvency, paym ent of insured deposits in such bank shall be made by PDIC as soon as possible e ither (1) by cash or (2) making available to each depositor a transferred deposi t in another insured bank in an amount equal to the insured deposit of such depo sitor. * Proof of claims may be required by PDIC before payment. If it is not satisfied , PDIC may require the final determination of a court of competent jurisdiction before paying such claim. * Depositor shall retain his claim against the bank for any uninsured portion of his deposit. Bar of claim by depositor * If, after the PDIC shall have given at least three months notice to the deposit or by mailing a copy thereof to his last known address appearing on the records of the closed bank, the depositor in the closed bank shall fail to file a claim for his insured deposit from the PDIC within eighteen (18) months after the Mone tary Board shall have ordered the closure of said bank, all rights of the deposi tor against the PDIC with respect to the insured deposit shall be barred, and al l rights of the depositor against the closed bank and its shareholders or the re ceivership estate to which the PDIC may have become subrogated, shall thereupon revert to the depositor. * Provided, that the claimant shall enforce his duly filed claim against the PDI C within one year after the eighteen-month period heretofore mentioned. Subrogation * The PDIC, upon payment, shall be subrogated to all rights of the depositor aga inst the closed bank to the extent of such payment. * Payments made by PDIC shall be considered as a preferred credit similar to tax es. Discharge of the PDIC * The PDIC shall be discharged from its obligation to a depositor upon payment o f an insured deposit by itself or upon payment of a transferred deposit to any p erson by the new bank or by an insured bank in which a transferred deposit has b een made available.

Other powers of PDIC 1. Provide financial assistance to an insured bank in danger of closing. 2. Borrow from the Central Bank and from any bank designated as depository or fiscal agent of the Philippine Government. 3. Issue bonds, debentures and other obligations with the approval of the P resident of the Philippines. 4. Act as receiver of any banking corporation. Receiver * Receiver includes a receiver, commission, person, or other agency charged by l aw with the duty to take charge of the assets and liabilities of a bank which ha s been forbidden from doing business in the Philippines, as well as the duty to gather, preserve, and administer such assets and liabilities for the benefit of the depositors and creditors of said bank, and to continue into liquidation when ever authorized under RA 3591, as amended, or other laws, and to dispose of the assets and to wind up the affairs of such bank. THE TRUTH IN LENDING ACT Republic Act No. 3765 An act to require the disclosure of finance charges in connection with extension s of credit Approved 22 June 1963 Declaration of policy * It is hereby declared to be the policy of the State to protect its citizens fr om a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. Finance charge * Finance charge includes interest, fees, service charges discounts, and such othe r charges incident to the extension of credit. Credit * Credit means any loan, mortgage, deed of trust, advance, or discount; any condit ional sales contract; any contract to sell, or sale or contract of sale of prope rty or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; any r ental purchase contract; any contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge of other claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of, any obligation or claim arising out of any o f the foregoing; and any transaction or series of transactions having a similar purpose or effect. Creditor * Creditor means any person engaged in the business of extending credit (including any person who, as a regular business practice, makes loans or sells or rents p roperty or services on a time, credit, or installment basis, either as principal or as agent) who requires as an incident to the extension of credit the payment of a finance charge. Disclosure of finance charges * Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of transaction, a clear statement in writing setting forth the following information: 1. the cash price or delivered price of the property or service to be acqui red; 2. the amounts, if any, to be credited as downpayment and/or trade in; 3. the difference between the amounts set forth under clauses (1) and (2); 4. the charges, individually itemized, which are paid or to be paid by such

person in connection with the transaction but which are not incident to the ext ension of credit; 5. the total amount to be financed; 6. the finance charge expressed in terms of pesos and centavos; and 7. the percentage that the finance charge bears to the total amount to be f inanced expressed as a simple annual rate on the outstanding unpaid balance of t he obligation. Penalty for failure to disclose prescribed information * Any creditor who, in connection with any credit transaction, fails to disclose to any person any information in violation of Republic Act No. 3765 or any regu lation issued pursuant thereto shall be liable to such person in the amount of P 100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is greater, except that such liab ility shall not exceed P2000 on any credit transaction. Action to recover such penalty * Action to recover such penalty may be brought by such person within one year f rom the date of occurrence of the violation in any court of competent jurisdicti on. * In any such action in which any person is entitled to a recovery, the creditor shall be liable for reasonable attorney s fees and court costs as determined by t he court. Effect of non-disclosure on contract or transaction * It shall not affect the validity or enforceability of any contract or transact ion. Willful violation of the law * Any person who willfully violates any provision of this Act or any regulation extended thereto shall be fined by not less than P1000 nor more than P5000, or i mprisonment for not less than six (6) months nor more than one year, or both. Consolidated Bank and Trust Corporation v. Court of Appeals G.R. No. 91494, 14 July 1995 Banks are allowed to collect handling charges on loans over P500,000 with a matu rity of 730 days or less. However, in the case at bar, Consolidated Bank was not allowed to collect from the private respondents handling charges because it fai led to conform to the Truth in Lending Act. All banks and non-bank financial intermediaries authorized to engage in quasi-ba nking functions are required to strictly adhere to the provisions of Republic Ac t No. 3765, otherwise known as the Truth in Lending Act, and shall make the true and effective cost of borrowing an integral part of every loan contract. The pr omissory notes signed by private respondents do not contain any stipulation on t he payment of handling charges. Petitioner bank, therefore, cannot charge privat e respondent such handling charges.

International Harvester Macleod, Inc. v. Medina G.R. No. 33623, 22 March 1990 Mariano Medina, Jr. purchase on installment 24 truck engines from International Harvester Macleod, Inc. (IHMI). The latter imposed and collected the total sum o f P325,596 as finance charges on the installment sales as evidenced by a Retail Notes Analysis and covering transmittal letters, which were prepared by IHMI, de livered to, and signed by Medina. In the Retail Notes Analysis, IHMI used the wo rks Finance Income Unearned, Finance Rate, Rate per year, Total Amount Finance, and Finance Begun, to denote certain entries therein. The trial court ruled that IHMI imposed and collected the amount of P325,596 pur ely as financing charges and this is conclusive of the fact that it engaged in t he business of a financing company without authority from the Securities and Exc hange Commission in gross violation of Republic Act No. 5980 or the Finance Comp

any Act. The Supreme Court reversed, ruling that IHMI is not engaged in the business of a financing company. Evidently, the financing transactions that is regulated by Republic Act No. 5980 involves the buying, discounting or factoring of promissory notes and sales on credit or installment. IHMI did not purchase from itself the Retail Notes Analys is executed by Medina. IHMI only extended credit to Medina by allowing him to pa y for the 24 truck engines in installment. While the increased price of the sale included a financing charge, that charge was simply another name for the interest to be paid by the installment buyer on the deferred payment of the purchase pri ce of the vehicles sold and delivered to him by IHMI. The use of the words finance charge, financing, or finance operation in the documents prepared and letters sent by IHMI to Medina was in compliance with the Truth in Lending Act which requires a creditor (or seller) to fully disclose to the debto r (or buyer) the true cost of credit with a view of preventing the uninformed use of credit to the detriment of the national economy. IHMI used the word finance charge instead of interest in the Retail Notes Analysis w hich it delivered to Medina because that is the term used in the Truth in Lendin g Act. IHMI correctly pointed out that its transaction with Medina differs from a finan cing transaction under Republic Act No. 5980 in that there were only two parties in its transaction with Medina, namely: IHMI and Medina; while in a financing t ransaction under Republic Act No. 5980, there are three parties involved, namely : (1) the installment buyer; (2) the seller; and (3) the financing company. The buyer executes a note or notes for the unpaid balance of the price of the thing purchased by him on installment. The seller assigns the notes or discounts them with a financing company which is subrogated in the place of the seller as credi tor of the installment buyer. The transaction between IHMI and Medina did not involve any discounting, factori ng or assignment of IHMI s credit against Medina to a finance company. The transac tion was bilateral, not trilateral. No financing company stepped into the shoes of IHMI as assignee or purchaser of IHMI s credit against Medina. Medina himself, not a financing company, paid IHMI for the truck engines. Medina made his instal lment payments or amortization to IHMI and not to a financing company. Since IHMI s business of selling trucks in installment is not the business of a fi nancing company under Republic Act No. 5980, it did not need SEC authorization t o engage in it. LAW ON SECRECY OF BANK DEPOSITS Republic Act No. 1405, as amended An act prohibiting disclosure of or inquiry into, deposits with any banking inst itution and providing penalty therefor Policy of the law * It is hereby declared to be the policy of the Government to to the people to deposit their money in banking institutions private hoarding so that the same may be properly utilized by d loans to assist in the economic development of the country. 5] give encouragement and to discourage banks in authorize [Section 1, RA 140

General rule * All deposits of whatever nature with banks or banking institutions in the Phil ippines including investments in bonds issued by the Government of the Philippin es, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or loo ked into by any person, government official, bureau or office. [Section 2, RA 14 05] It shall be unlawful for any official or employee of a bank to disclose to any person, other than those mentioned in Section 2 hereof, any information c oncerning said deposits. [Section 3, RA 1405]

Exceptions 1. Upon written permission of the depositor, including: a. in determining estate of a decedent; and b. tax compromise cases; 2. In cases of impeachment; 3. Upon order of a competent court in cases of bribery or dereliction of du ty of public officials; 4. In cases where the money deposited or invested is the subject matter of the litigation; and 5. Cases of unexplained wealth under Republic Act No. 3019 or the Anti-Graf t and Corrupt Practices Act. Penalty for violation of law * Any violation of this law will subject offender upon conviction to an imprison ment of not more than five (5) years or a fine of not more than twenty thousand pesos (P20,000) or both, in the discretion of the court. [Section 5, RA 1405] Tatalon Barrio Council v. Chief Accountant, et. al. GR No. 18360, 31 January 1963 In this case, the Supreme Court ruled that savings and current accounts are priv ileged documents which fall within the protection of Republic Act No. 1405, and their disclosure can only be justified under any of the cases enumerated in Sect ion 2 of the Act, which do not include the prosecution of criminal actions for v iolation of the provisions of the Anti-Graft and Corrupt Practices Act and of Ar ticle 216 of the Revised Penal Code. This has since been overturned by the case of PNB v. Gancayco. Philippine National Bank v. Gancayco GR No. 18343, 30 September 1965 FACTS: Emilio Gancayco and Florentino Flor, as special prosecutors of the Depart ment of Justice, required the Philippine National Bank to produce at a hearing t he records of the bank deposits of Ernesto Jimenez, former administrator of the Agricultural Credit and Cooperative Administration, who was then under investiga tion for unexplained wealth. PNB refused to disclose his bank deposits, invoking Section 2 of Republic Act No . 1405. On the other hand, the prosecutors cited the Anti-Graft and Corrupt Prac tices Act, particularly Section 8 therewith, to wit: Section 8. Dismissal due to unexplained wealth. - If in accordance with the provi sions of RA 1379, a public official has been found to have acquired during his i ncumbency, whether in his name or in the name of other persons, an amount of pro perty and/or money manifestly out of proportion to his salary and to his other l awful income, that fact shall be a ground for dismissal or removal. Properties i n the name of the spouse and unmarried children of such public official, may be taken into consideration, when their acquisition through legitimate means cannot be satisfactorily shown. Bank deposits shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contra ry. PNB then filed an action for declaratory judgment in the CFI of Manila which rul ed that Section 8 of the Anti-Graft and Corrupt Practices Act clearly intended t o provide an additional ground for the examination of bank deposits. Hence, this appeal. ISSUE: Whether or not a bank can be compelled to disclose the records of account s of a depositor who is under investigation for unexplained wealth? HELD: Yes. Republic Act No. 3019 provided another exception to Section 2 of Repu blic Act No. 1405. RATIO: No reconciliation is possible between Republic Act No. 1405 and Republic Act No. 3019 as the two laws are so repugnant to each other. Thus, while Section 2 of Republic Act No. 1405 provides that bank deposits are absolutely confidenti al and, therefore, may not be examined, inquired or looked into, except in those

cases enumerated therein, Section 8 of Republic Act No. 3019 (Anti-graft law) di rects in mandatory terms that bank deposits shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the con trary. The only conclusion possible is that Section 8 of the Anti-Graft Law is in tended to amend Section 2 of Republic Act No. 1405 by providing an additional ex ception to the rule against the disclosure of bank deposits. With regard to the claim that disclosure would be contrary to the policy making bank deposits confidential, it is enough to point out that while Section 2 of Re public Act No. 1405 declares bank deposits to be absolutely confidential, it never theless allows such disclosure in the following instances: (1) Upon written perm ission of the depositor; (2) In cases of impeachment; (3) Upon order of a compet ent court in cases of bribery or dereliction of duty of public officials; (4) In cases where the money deposited is the subject of the litigation. Cases of unexplained wealth are similar to cases of bribery or dereliction of du ty and no reason is seen why these two classes of cases cannot be excepted from the rule making bank deposits confidential. The policy as to one cannot be diffe rent from the policy as to the other. This policy expresses the notion that a pu blic office is a public trust and any person who enters upon its discharge does so with the full knowledge that his life, so far as relevant to his duty, is ope n to public scrutiny. Banco Filipino Savings and Mortgage Bank v. Purisima GR No. 56429, 28 May 1988 The Bureau of Internal Revenue accused Customs special agent Manuel Caturla befo re the Tanodbayan of having illegal acquired property manifestly out of proporti on to his salary and other lawful income. During the preliminary investigation, the Tanodbayan issued a subpoena duces tecum to the Banco Filipino Savings and M ortgage Bank, commanding its representative to appear at a specified time at the Office of the Tanodbayan and furnish the latter with duly certified copies of t he records in all its branches and extension offices of the loans, savings and t ime deposits and other banking transactions, in the names of Caturla, his wife, Purita, their children, and/or Pedro Escuyos. Caturla moved to quash the subpoena for violating Sections 2 and 3 of RA 1405 wh ich was denied by the Tanodbayan. In fact, the Tanodbayan issued another subpoen a which expanded its scope including the production of bank records not only of the persons enumerated above but of additional persons and entities as well. The Banco Filipino filed an action for declaratory relief with the CFI of Manila which was denied by the lower court. Thus this special civil action of certiora ri in the SC. The issue here is whether or not the Law on Secrecy of Bank Deposits precludes p roduction by subpoena duces tecum of bank records of transactions by or in the n ames of the wife, children and friends of a special agent of the Bureau of Custo ms accused before the Tanodbayan of having allegedly acquired property manifestl y out of proportion to his salary and other lawful income in violation of RA 301 9? The Supreme Court ruled in the negative. In PNB v. Gancayco, we ruled that: while Section 2 of Republic Act No. 1405 provi des that bank deposits are absolutely confidential and, therefore, may not be exa mined, inquired or looked into, except in those cases enumerated therein, Section 8 of Republic Act No. 3019 (Anti-graft law) directs in mandatory terms that ban k deposits shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary. The only conclusion possibl e is that Section 8 of the Anti-Graft Law is intended to amend Section 2 of Repu blic Act No. 1405 by providing an additional exception to the rule against the d isclosure of bank deposits. The inquiry into illegally acquired property - or property not legitimately acqu ired - extends to cases where such property is concealed by being held by or rec orded in the name of other persons. This proposition is made clear by RA 3019 wh ich quite categorically states that the term legitimately acquired property of a public officer or employee shall not include property unlawfully acquired by the

respondent, but its ownership is concealed by its being recorded in the name of , of held by, respondent s spouse, ascendants, descendants, relatives or any other persons. To sustain the petitioner s theory, and restrict the inquiry only to property held by or in the name of the government official or employee, or his spouse and unm arried children is unwarranted in the light of the provisions of the statutes in question, and would make available to persons in government who illegally acqui re property an easy and fool-proof means of evading investigation and prosecutio n; all they have to do would be to simply place the property in the possession o r name of persons other than their spouse and unmarried children. This is an abs urdity that we will not ascribe to the lawmakers. Philippine Commercial & Industrial Bank, et. al. v. Court of Appeals, et. al. GR no. 84526, 28 January 1991 A group of laborers obtained a favorable judgment against the Marinduque Mining and Industrial Corporation for the payment of backwages amounting to P205,853 be fore the National Labor Relations Commission. A writ of execution was issued and the Deputy Sheriff served the writ, but it was unsatisfied. The sheriff prepare d on his own a Notice of Garnishment addressed to six banks in Bacolod City, inc luding petitioner PCIB, directing the bank concerned to issue a check in satisfa ction of the judgment. While the in house lawyer of the Corporation warned the PCIB to withhold any rel ease of its deposit with the bank, the bank issued a manager s check in the amount of P37,466 which was the exact balance of the private respondent s account as of that day. The said check was also encashed by the sheriff the next day. Marinduque Mining thus filed a complaint before the RTC of Manila against PCIB a nd the deputy sheriff, alleging that its current deposit with the petitioner ban k was levied upon, garnished, and with undue haste unlawfully allowed to be with drawn, and notwithstanding the alleged unauthorized disclosure of the said curre nt deposit and unlawful release thereof, the latter have failed and refused to r estore the amount of P37,466 to the former s account despite repeated demands. Trial court rendered judgment in favor of Marinduque Mining Corporation. On appe al, the Court of Appeals initially reversed the trial court s order but later affi rmed it. Thus, this petition to the SC. The issue is whether or not the petitioners violated RA 1405, otherwise known as the Secrecy of Bank Deposits Act, when they allowed the sheriff to garnish the deposit of Marinduque Mining Corporation? SC held no. The SC first ruled that the release of the deposit by the bank was not done in u ndue and indecent haste. We find the immediate release of the funds by the petit ioner bank on the strength of the notice of garnishment and writ of execution, w hose issuance, absent any patent defect, enjoys the presumption of regularity. The SC likewise did not find any violation whatsoever by the petitioners of RA 1 405, otherwise known as the Secrecy of Bank Deposits Act. The Court, in China Ba nking Corporation v. Ortega, had the occasion to dispose of this issue when it s tated, to wit: It is clear from the discussion of the conference committee report on Senate Bill No. 351 and House Bill No. 3977, which later became Republic Act No. 1405, that the prohibition against examination of or inquiry into a bank deposit under Rep ublic Act No. 1405 does not preclude its being garnished to insure satisfaction of a judgment. Indeed, there is no real inquiry in such a case, and if existence of the deposit is disclosed, the disclosure is purely incidental to the executi on process. It is hard to conceive that it was ever within the intention of Cong ress to enable debtors to evade payment of their just debts, even if ordered by the Court, through the expedient of converting their assets into cash and deposi ting the same in a bank. Since there is no evidence that the petitioners themselves divulged the informat ion that the private respondent had an account with the petitioner bank and it i s undisputed that the said account was properly the object of the notice of garn ishment and writ of execution carried out by the deputy sheriff, a duly authoriz ed officer of the court, we cannot therefore hold the petitioners liable under R

A 1405. Mellon Bank v. Magsino et. al. GR No. 71479, 18 October 1990 This case involves the erroneous transfer of US $1,000,000 to Victoria Javier in stead of US $1,000 only. Dolores Ventosa requested the transfer of $1000 from th e First National Bank of West Virginia, USA to Victoria Javier in Manila through the Prudential Bank. Accordingly, the First National Bank requested the petitio ner, Mellon Bank, to effect the transfer. Unfortunately, the wire sent by Mellon Bank to Manufacturers Hanover Bank, a correspondent of Prudential Bank, indicat ed the amount transferred as US $1,000,000.00 instead of US $1,000.00. Hence, Manu facturers Hanover Bank transferred one million dollars less bank charges of $6.3 0 to the Prudential Bank for the account of Victoria Javier. Javier opened a new dollar account in Prudential Bank and deposited $999,943. Im mediately, thereafter, Javier and her husband made withdrawals from the account, deposited them in several banks only to withdraw them later in an apparent plan to conceal, launder and dissipate the erroneously sent amount. One of the thing s they bought was real property in California, USA which was the subject of an a ction for recovery by Mellon Bank. Later, it filed a case in the Philippines for the recovery of the whole amount, including the purchase price of the real prop erty located in the US. Among other things, private respondents raised the issue of whether or not, by v irtue of the principle of election of remedies, an action filed in California, U SA, to recover real property located therein and to constitute a constructive tr ust on said property precludes the filing in our jurisdiction of an action to re cover the purchase price of said real property. SC ruled that the filing of a re covery suit in the US does not preclude the filing of an action in the Philippin es for the recovery of the purchase price. With regard to our subject matter, Erlinda Baylosis of the Philippine Veteran s Ba nk and Pilologo Red, Jr. of Hongkong and Shanghai Banking Corporation were requi red to give testimonies with regard to the deposits and checks issued by the pri vate respondents Javier, et. al.. These testimonies were questioned for being im material and irrelevant as well as covered by RA 1405 on confidentiality. SC said: Private respondents protestations that to allow the questioned testimoni es to remain on record would be in violation of the provisions of RA 1405 on the secrecy of bank deposits is unfounded. Section 2 of said law allows the disclos ure of bank deposits in cases where the money deposited is the subject matter of the litigation. Inasmuch as the civil case is aimed at recovering the amount co nverted by the Javiers for their own benefit, necessarily, an inquiry into the w hereabouts of the illegally acquired amount extends to whatever is concealed by being held or recorded in the name of persons other than the one responsible for the illegal acquisition. NON-BANK FINANCIAL INTERMEDIARIES NON-BANK FINANCIAL INTERMEDIARIES 1. The Investment House Law Pres. Decree 129 2. Investment Company Act Republic Act No. 2629 3. Financing Company Act Republic Act No. 5580, as amended 4. Pawnshops Pres. Decree No. 114 5. Trust Corporations Chapter VII, General Banking Act THE INVESTMENT HOUSES LAW Presidential Decree No. 129 Governing the establishment, operation and regulation of Investment Houses 15 February 1973 Investment houses * An investment house is any enterprise which engages in the underwriting of sec urities of other corporations. * Under its Rules and Regulations, an investment house is defined an any enterpri se which engages or purports to engage, whether regularly or on an isolated basi

s, in the underwriting of securities of another person or enterprise, including securities of the Government and its instrumentalities. Underwriting * Underwriting is the act or process of guaranteeing the distribution and sale w ithin the Philippines of securities of any kind issued by another corporation. T he distribution and sale may be on public or private placement basis. Private placement * Refers to the underwritten sale of securities to less than 20 persons or enter prises. Public placement * Refers to the underwritten sale of securities to at least 20 persons or enterp rises. Organization and citizenship requirements * Investment Houses shall be organized in the form of stock corporations. * At least forty percent (40%) of the voting stock of any Investment House shall be owned by citizens of the Philippines. * In determining the percentage of foreign-owned voting stocks in Investment Hou ses, the basis for the computation shall be the citizenship of each stockholder, and, if the stockholder is a corporation, the citizenship of the individual sto ckholders holding voting rights in that corporation. * In approving foreign equity applications in Investment Houses, the SEC shall a pprove such applications only if the same or similar rights are enjoyed by Phili ppine nationals in the applicant s country. * Foreign nationals may become members of the board of directors to the extent o f the foreign participation in the equity of said enterprise. Capital requirements * In the case of newly-organized Investment Houses, the minimum paid-in capital shall be three hundred million pesos (P300,000,000). * The Monetary Board may prescribe a higher minimum capitalization in order to p romote and ensure the stability of the Philippine capital market and the competi tiveness of the investment house industry in line with the national economic goa ls. Requirements for registration * The Securities and Exchange Commission shall not register the articles of inco rporation of any Investment House, or any amendment thereto, unless it is satisf ied from the evidence submitted to it: a. That all the requirements of the PD 129 and of existing laws or regulati ons to engage in the business have been complied with; b. That the proposed enterprise will not be in conflict with public interes t and economic growth; and c. That the amount of capital, the proposed organization, direction and adm inistration, as well as the integrity, experience and expertise of the organizer s and the proposed managerial staff, provide reasonable assurance that the enter prise will be conducted with financial prudence. Prohibition * No Investment House shall engage in banking operations as defined in Section 2 of Republic Act No. 337, as amended. Powers of investment houses * In addition to the powers granted to corporations in general, an Investment Ho use is authorized to do the following: 1. Arrange to distribute on a guaranteed basis securities of other corporat ions and of the Government or its instrumentalities.

2. Participate in a syndicate undertaking to purchase and sell, distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities. 3. Arrange to distribute or participate in a syndicate undertaking to purch ase and sell on a best-efforts basis securities of other corporations and of the Government or its instrumentalities. 4. Participate as soliciting dealer or selling group member in tender offer s, block sales, or exchange offering of securities; deal in options, right or wa rrants relating to securities and such other powers which a dealer may exercise under the Securities Act. 5. Promote, sponsor, or otherwise assist and implement ventures, projects a nd programs that contribute to the economy s development. 6. Act as financial consultant, investment adviser, or broker. 7. Act as portfolio manager and/or financial agent. 8. Subject to prior approval by the Monetary Board, the provisions of Chapt er IV of the Central Bank Charter, and such rules and regulations as may be issu ed by the Monetary Board, engage in foreign exchange operations. 9. Act as trustee of a trust fund or trust property, subject to the provisi ons of the General Banking Act. Conversion into a commercial bank * An Investment House may be converted into a commercial bank authorized to oper ate under an expanded commercial banking authority, subject to applicable laws a nd regulations and with prior approval of the Monetary Board. Central Bank regulatory powers * Investment Houses shall be subject to such regulations of the Central Bank on non-bank financial intermediaries as may be promulgated. * The regulations which may include, but need not be limited to a) minimum size of fund acceptance or receipt, b) methods of marketing and distribution, c) term s of placement and maturities, and d) uses of funds may be modified by the Monet ary Board insofar as they apply to Investment Houses. Quasi-banking powers * The Monetary Board may, at its discretion, determine whether Investment Houses may be permitted to perform quasi-banking functions. * If the Monetary Board decides to permit Investment Houses to engage in quasi-b anking functions, the Board may require as a condition precedent the obtaining o f a certificate of authority for the purpose from the Monetary Board. * Whenever the Monetary Board authorizes an Investment House to engage in quasibanking functions, it may subject said Investment House to further regulations, which may include but need not necessarily be limited to a) liquidity reserve re quirements; b) capital-to-risk assets ratios; c) interest rate ceilings; and d) such other constraints as the Board may deem necessary. Dealer or broker * An Investment House may engage in the business of a dealer or a broker under t he Securities Act without obtaining a separate license for the purpose. Use of the term Investment House * No person, association, partnership or corporation other than those duly licen sed as an Investment House shall advertise or hold itself out as being engaged i n the business of an Investment House. INVESTMENT COMPANY ACT Republic Act No. 2629 Approved 18 June 1960 Investment company * Any issuer which is or holds itself out as being engaged primarily in the busi ness of investing, reinvesting, or trading in securities.

Nature and purpose * Investment companies are financial institutions that raise funds by selling th eir own issues of securities to individual investors. The funds obtained will be used to invest in securities of other enterprises. * The objective of an investment company is to provide individual investors with safe and profitable use of their savings and to relieve them of the burden of d irect responsibility of managing their own savings. Types of investment companies 1. Open-end company - also called mutual funds 2. Closed-end company Powers and functions 1. Offer for sale, sell, or deliver after sale, within the Philippines, any security or any interest in any security, whether the issuer of such security i s the investment company or another person. 2. Purchase, redeem, retire, or otherwise acquire or attempt to acquire, wi thin the Philippines, any security, or any interest in any security, whether the issuer of such security is such investment company or another person. Security * Any note, stock, treasury stock, bond, debenture, evidence of indebtedness, ce rtificate of interest or participation in any profit-sharing agreement, collater al trust certificate, pre-organization certificate or subscription, investment c ontract, voting trust certificate, certificate of deposit for a security, fracti onal undivided interest in oil, gas, or other mineral rights, or, in general, an y interest or instrument commonly known as a security or any certificate of intere st or participation in, temporary or interim certificate for, receipt for, guara ntee of, or warrant or right to subscribe to or purchase, any of the foregoing. (Section 3(bb), RA 2629). * Note that there is an expanded definition under the Revised Securities Act. Form * All shares of its capital stock shall be common and voting shares. Capitalization * No public offering may be made unless the investment company has a paid up cap ital of at least P500,000 (Section 13(1), RA 2629). However, Rule 2.1 provides t hat the minimum subscribed and paid in capital should be at least 50 million. FINANCING COMPANY ACT Republic Act No. 5980, as amended An Act Regulating the Organization and Operation of Financing Companies Declaration of policy * It is hereby declared to be the policy of the State to regulate the activities of financing and leasing companies: 1. to place their operations on a sound, competitive, stable and efficient basis as other financial institutions; 2. to recognize and strengthen their critical role in providing medium and long-term credit for investments in capital goods and equipment especially by sm all and medium enterprises particularly in the countryside; and 3. to curtail and prevent acts or practices prejudicial to the public inter est. * As such, they may be in a better position to extend efficient service in a fai r manner to the general public and to industry, commerce and agriculture and the reby more fully contribute to the sound development of the national economy. Financing companies * Financing companies are corporations, except banks, investment houses, savings

and loans associations, insurance companies, cooperatives, and other financial institutions organized or operating under special laws, which are primarily orga nized for the purpose of extending credit facilities to consumers and to industr ial, commercial, or agricultural enterprises. * It may extend such credit: 1. by direct lending; or 2. by discounting or factoring commercial papers or accounts receivable; or 3. by buying and selling contracts, leases, chattel mortgages, or other evi dences of indebtedness; or 4. by financial leasing of movable as well as immovable property. Financial leasing * Financial leasing is a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the l essee, machinery, equipment, motor vehicles, appliances, business and office mac hines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy percent (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years. * During the two-year period, the lessee has the right to hold and use the lease d property with the right to expense the lease rentals paid to the lessor. Lesse e also bears the cost of repairs, maintenance, insurance and preservation of the leased property. * However, lessee has no obligation or option to purchase the leased property fr om the owner-lessor at the end of the lease contract. Liability of lessors * Financing companies shall not be liable for loss, damage or injury caused by a motor vehicle, aircraft, vessel, equipment, machinery or other property leased to a third person or entity except where the motor vehicle, aircraft, vessel, eq uipment, machinery or other property is operated by the financing company, its e mployees or agents at the time of the loss, damage or injury. Rights and powers of financing companies * Financing companies shall have the following powers, in addition to those gran ted by this Act and by other laws: 1. Engage in quasi-banking and money market operations with the prior appro val of the Bangko Sentral. 2. Engage in trust operations subject to the provisions of the General Bank ing Act upon prior approval of the Bangko Sentral. 3. Issue bonds and other capital instruments subject to pertinent rules and regulations of the Bangko Sentral. 4. Rediscount their paper with governmental financial institutions subject to relevant laws, rules and regulations. 5. Participate in special loan or credit programs sponsored by or made avai lable through governmental financial institutions. 6. Provide foreign currency loans and leases to enterprises who earn foreig n currency by exports or other means, subject to existing laws and rules and reg ulations of the Bangko Sentral. Form of organization and capital requirements * Financing companies shall be organized in the form of stock corporations at le ast forty percent (40%) of the voting stock of which is owned by citizens of the Philippines. * They shall have paid-up capital of not less than ten million pesos (P10,000,00 0) in case the financing company is located in Metro Manila and first class citi es, five million pesos (P5,000,000) in other classes of cities, and two million five hundred thousand pesos (P2,500,000) in municipalities.

* No foreign national may be allowed to own stock in any financing company unles s the country of which he is a national accords the same reciprocal rights to Fi lipinos in the ownership of financing companies or their counterpart entities in such country. Requirements for registration * Aside from requiring compliance with the provisions of the Corporation Code, t he SEC shall not register the articles of incorporation of any financing company unless its office is satisfied on the evidence submitted to it, that: 1. All the requirements of existing laws to engage in the business for whic h the applicant is proposed to be incorporated or organized have been complied w ith; 2. The organization, direction and administration, as well as the integrity and responsibility of the organizers and administrators reasonably assure the p rotection of the interest of the general public; and 3. All the requirements of RA 5980 have been complied with. Revocation and suspension of registration 1. Financing company is insolvent 2. It violated any provision of the law Supervision and regulation * The SEC is empowered to enforce the provisions of RA 5980, as amended, and iss ue implementing regulations except insofar as the Bangko Sentral may have superv isory authority for financing companies licensed to perform quasi-banking functi ons, and insofar as the Monetary Board has authority to prescribe financing comp any rates and charges. Prohibited acts * The Act imposes a fine of not less than P10,000 but not more than P100,000, or imprisonment of not more than six(6)months or both, at the discretion of the co urt, on "persons, associations, partnerships or corporations, including managing officers thereof," upon the following unlawful acts: 1. Engaging in the business of finance companies without authority from th e SEC through advertisement in whatever from, or through other representations w ithout authority. 2. Using trade or firm name containing the words "financing company" or "le asing company" or "finance and leasing company" or "finance and investment comp any" or any other designation that would give the public the impression that it is engaged in the business of a financing company or leasing company without au thority. 3. Holding themselves out to be financing companies without authority from the SEC. 4. Any officer, employee, or agent of a financing company who shall knowing ly and willingly make any statement in any application, report or document requi red to be filed under the Act, which is false or misleading with respect to any material fact, or overvalue or aid in overvaluing any securities for the purpose of influencing in any way the action of the company on any loan, or discounting . 5. Any officer, employee or examiner of the SEC directly charged with the i mplementation of the Act who shall commit, connive, aid or assist in the commis sion of acts enumerated above. PAWNSHOPS Presidential Decree 114 in relation to CB Circular No. 374 Pawnshop * A pawnshop is a person (single proprietorship) or entity (corporation/partners hip) engaged in the business of lending money on personal property delivered as security for loans.

Purpose of the law * To regulate the establishement of pawnshops and to place their operation on an y sound and stable basis: 1. To derive maximum benefit as source of credit 2. To prevent and mitigate practices prejudicial to the public; and 3. To prescribe minimum requirements Requirements for establishing a pawnshop 1. Registration a. With DTI if single proprietorship b. With SEC if corporation or partnership c. In all cases, with the BSP d. With the Board of Investments if there is foreign equity participation 2. Secure a license to operate from the LGU concerned 3. Minimum paid in capital of P100,000 4. Citizenship a. If single proprietor, must be a Filipino b. If partnership, 70% of capital owned by Filipinos c. If corporation, 70% of voting capital should be owned by Filipinos d. If no voting stock, 70% of members entitled to vote should be Filipinos General requirements as to operation * Owner who has other businesses not directly related or incidental to his pawns hop business must keep the latter separate from his other businesses. * Maintain adequate security i.e. fire and burglar proof safe where pawns/record s are kept. * Insure place of business and pawns against fire and burglars. * Accountable officers/employees shall be bonded. * Accounting records * Loans cannot be less than 30% of the appraised value of the personal property unless the borrower stipulated in writing that he is borrowing a lesser amount. * In addition to interest charges, pawnshops may impose a maximum service charge of P5.00 but in no case to exceed 1% of the principal loan. No other charges, fees, and commissions shall be collected by pawnshop i n connection with the loan transaction or payment thereof. Borrower shall not pa y insurance premiums. Conduct of business 1. Borrower offers to pledge personal property as security for loan. 2. Property is appraised. 3. Loan agreement is entered into. 4. Pawnshop issues receipt (pawn ticket). 5. Pawnshop lends money to pawner. 6. Pawner pays charges not to exceed P5.00. 7. Pawned property is placed in vault/safe. 8. If upon maturity, borrower fails to pay, pawnshop will wait for 90 days after maturity before it can sell the thing pledged at a public auction. 9. Pawnshop has to comply with notice requirements, to wit: a. Before the 90-day period expires, notice to the borrower that the pawn w ill be sold if not redeemed within 90 days from maturity specifying time, date, and place of auction sale. b. If there is no redemption, pawnshop will sell the pawn after publishing a notice of sale in at least two newspapers in the city/municipality of operatio n six (6) days before the date of sale. In remote areas where there is no newspa per, by posting at City Hall or Municipal Building and two other conspicuous pub lic places where pawnshop operates. c. Sale of pawn by auctioneer/notary public to higher bidder. Supervisory powers of the Bangko Sentral * BSP official in charge of non-bank financial intermediaries or authorized agen

t may inspect, examine, and investigate the records of pawnshop to ensure compli ance with PD 114. * Said official or agent makes recommendations to the Monetary Board. * Impose penalties for violation of PD 114. TRUST CORPORATIONS Chapter VII General Banking Act Trust corporation * A trust corporation is any corporation formed or organized for the purpose of acting as trustee, administering any trust or holding property in trust or on de posit for the use, benefit or behoof of others. * A corporation or a bank may engage in the business of a trust corporation. Standard of care * A trust company or any bank authorized to engaged in the business of a trust c ompany shall administer the funds or property under its custody with the skill, care, prudence and diligence necessary under the circumstances then prevailing t hat a prudent man, acting under like capacity and familiar with such matters, wo uld exercise in the conduct of an enterprise of a like character and with simila r aims. * No trust company or bank engaged in the business of a trust company shall, for the account of the trustor or the beneficiary of the trust, purchase or acquire property from, or sell, transfer, assign or lend money or property to, or purch ase debt instruments of any of the departments, directors, officers, stockholder s, or employees of the trust company or bank, or relatives within the first degr ee of consanguinity or affinity, or the related interests, of such director, off icers, and stockholders, unless the transaction is specifically authorized by th e trustor and the relationship of the trustee and the other party involved in th e transaction is fully disclosed to the trustor or beneficiary of the trust prio r to the transaction. Powers (in addition to general powers incident to corporations) 1. To act as trustee on any mortgage or bond issued by any municipality, co rporation, or any body politic and to accept and execute any other municipal or corporate trust not inconsistent with law. 2. To act under the order or appointment of any court of record as guardian , receiver, trustee or depository of the estate of any minor, insane person, idi ot, habitual drunkard, or other incompetent or irresponsible person, and as rece iver and depository of any moneys paid into court by parties to any legal procee dings and of property of any kind which may be brought under the jurisdiction of the court by property legal proceedings. 3. To act as the executor of any last will or testament when it is named in the last will and testament as the executor thereof. 4. To act under appointment of a court of competent jurisdiction as adminis trator of the estate of any deceased person, with the will annexed, or as admini strator of the estate of any deceased person when there is no will, and when in either case there is no person qualified, competent, willing, able and entitled to accept such administration. 5. To accept and execute any legal trust confided to it by any court of rec ord or by any person or corporation for the holding, management, and administrat ion of any estate, real or personal, and the rents, issues, and profits thereof. 6. To establish and manage common trust funds, subject to such rules and re gulations as may be prescribed by the Monetary Board. Commercial banking activity * A trust company may, with the approval of the Monetary Board, do a commercial banking business, but such business must be kept separate and distinct from its trust business. * Any banking corporation may, with the approval of the Monetary Board, be autho rized to engage in the business of a trust company, but it shall be subject to t he provisions on trust operations.

Bond/security requirements and paid in capital * Except as may otherwise be provided in this Act, no bond or other security sha ll be required from any trust company for the faithful performance of its duties as trustee, executor, administrator, guardian, receiver or depositary. * However, the court officer appointing such company as trustee, executor, admin istrator, guardian, receiver or depositary may, upon proper application, showing special cause therefor, require any corporation which shall seek to be or shall have been so appointed to give adequate security for the protection of the fund s or property confided to the corporation and, upon failure of such corporation to give the security required, its appointment as trustee, executor, administrat or, guardian, receiver or depositary shall be revoked. * Section 65, however, provides: As security for the faithful performance of its trust duties, every trust company, before transacting trust business, shall carr y on deposit with the Central Bank, cash or securities approved by the Monetary Board in an amount equal to not less than two hundred and fifty thousands pesos (P250,000). This may be increased by the Central Bank. * Paid in capital and surplus of the company must be at least equal to the amoun t required to be deposited with the central Bank. Separation of trust funds and property * All moneys, properties, or securities received by any trust company shall be k ept separate and distinct from all other funds, properties and assets of its gen eral business. * The accounts of all such moneys, properties or securities shall likewise be ke pt separate and distinct from the accounts of its general business. Capital stock may be invested * The capital stock and funds of a trust company may be loaned or otherwise inve sted as its by laws prescribe; if it does a commercial banking business in addit ion to its trust business, the investment of its funds other than trust funds sh all be governed by the relevant provisions of the General Banking Act. Surplus and dividend * Every trust company, before the distribution of a dividend, shall carry to sur plus 10% of its net profits accruing since the last preceding dividend until the surplus shall amount to 20% of its authorized capital stock and no part of the surplus shall at any time be paid out in dividends, but losses accruing in the c ourse of its business may be charged against the surplus. ?? ?? ?? ?? Banking Laws