126981583 banking-laws-and-jurisprudence-reviewer mhughbsena

San Beda College of Law, Mendiola
BANKING LAWS AND JURISPRUDENCE
By: Efren L. Dizon and Efren Vincent M. Dizon
This Reviewer is made by:
MANILA, ANTONIO CEASAR
BERNARDO, JANSEN
INTIG, JOY ESTELA
DE JESUS, TRACY ANN.
FROM SECTION 2S
AY 2011-2012
Topic Page
Chapter 1- Banks and Business of Banking 2
Chapter 2 - Organization, Management, Administration Of Banks 5
Chapter 3 - Deposit Functions Of Banks 8
Chapter 4 - Investments, Loans and Other Bank Functions 12
Chapter 5 - Prohibited Transactions and Cessation Of Banking Business 24
Chapter 6 - Foreign Banks and Trust Operations 29
MIDTERM COVERAGE: Chapter 1 - 6
Chapter 7 - The Banko Sentral ng Pilipinas 36
Chapter 8- Currency, Monetary Stabilization and Functions of BSP 44
Chapter 9 - Unclaimed Balances and Trust Receipts 56
Chapter 10 - Deposit Insurance 61
Chapter 11 - Anti-Money Laundering 69
Chapter 12 – Special Purpose Vehicle 75
FINALS COVERAGE: Chapter 7 - 12

San Beda College of Law
Banking Laws
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CHAPTER 1 – Banks and Business of Banking
· Declaration of the state with regards to banking –
recognize vital role of the banks to provide
environment conducive to development of national
economy
o It also states that banks need high
standards of integrity and performance
· Banks – entities engaged in the lending of funds
obtained in the form of deposits (borrowing,
lending, safe-keeping)
· Banks may engage in other activities allowed by
the law other than lending
Nature of Banking Business
1. Debtor-Creditor Relationship
· It is a contract of loan and not deposit
· Contract between bank and depositor is
governed by the provisions of the NCC on
simple loan (Consolidated Bank and Trust
Corp vs. CA)
2. Fiduciary duty
· Fiduciary relationship – bank’s obligation
to observe high standard of integrity and
performance (Phil. Banking Corp. vs. CA)
3. Not a trust agreement
· It is not a trust agreement and failure to
pay a loan is not a breach of trust
· It is not a trust agreement because banks
do not accept deposits to enrich depositors
but to earn for themselves
4. Indispensable Institution
· Has a vital role in economic life
· Significance of banking institution to
commercial transactions (Metropolitan
Bank & Trust Co. vs. Cabilzo)
5. Impressed with public interest
· Has public interest because people depend
on the honesty and efficiency of banks
· Stability of banks largely depends on the
confidence of the people in the honesty
and efficiency of banks.
6. Degree of diligence
· Diligence higher than that of a good father.
It must be extraordinary diligence
· In Simex International vs. CA, the bank is
under obligation to treat the accounts of its
depositors with meticulous care and
always have in mind the fiduciary nature
of banks
· Not enough that he exerted reasonable
diligence to ascertain the safety of his
clients
· Such diligence is only required in its
fiduciary relationship with its depositors
and not to other transactions such as sale
of foreign exchange demand draft
· Sec 2 of GBL prescribes the statutory
diligence required from banks – “high
standards of integrity and performance” in
serving its depositors.
· Diligence required of banks is more than
that of a good father (PBCom vs. CA)
· Diligence extends to financial institutions
(e.g. GSIS)
7. Treatment of accounts with meticulous care
· Must treat every account with utmost
fidelity regardless of amount
· There is no law mandating banks to call
up their clients whenever a significant
amount shall be withdrawn from their
account
8. Duty to keep records
9. Banks are not gratuitous bailees
10. Banks not expected to be infallible
· However, they must bear the loss for not
discovering mistakes if there are
established procedures not followed
11. Dealing with registered lands
· General Rule: mortgagee can rely on title
and does not need to investigate further
· Exception: mortgagee cannot close his
eyes to facts which should put a
reasonable man on his guard, and yet
claim that he is in good faith
· With banking institutions, mere reliance
on the title is not enough as they need to
investigate also
· Doctrine of the “mortgagee in good faith”
– all persons dealing with property
covered by the Torrens Certificates of
Title are not required to go beyond what
appears on the face of the title. (Cavite
Development Bank vs. Spouses Lim)
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN.
FROM SECTION 2S - SAN BEDA COLLEGE OF LAW, MENDIOLA: AY 2011-2012. REFERENCE: BANKING LAWS & JURISPRUDENCE BY DIZON.

Banking Laws
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· The business o a bank is one affected with
public interest, for which reason ghe bank
should guard against loss due to
negligence or bad faith (Sps. Omengan vs.
PNB)
· Where the mortgagee does not directly
deal with the registered owner of real
property, the law requires higher degree of
prudence be exercised by the mortgagee
(Abad vs. Guimba)
12. Banks may exclude persons in their premises
13. Charging interest for loans
· It is considered the very core of the
banking’s very existence
Liability for Acts of Officers and Employees
· A bank is liable for the wrongful acts of its
officers done in the interest of the bank or dealings
as bank representatives but not for acts outside the
scope of their authority.
1. Negligence of Manager – employer is liable to the
acts of the manager
2. Negligence of officer – general rule: tortious acts
of officers within their scope of employment shall
make banks liable
3. Negligence of tellers – tellers must exercise high
degree of diligence
· Teller should not give passbook to wrong
person as a person in possession of
passbook is presumed the owner
· Appropriation of deposited money by the
teller is not estafa but considered as theft
as the client only had material possession
of it. Such deposit money are considered
owned by the bank
4. Right to recover from employees
5. Liability for damages
· Actual, exemplary, moral
· Actual and compensatory – the interest
due shall itself earn interest from the time
it is judicially demanded
· 12% - legal interest when judgment
becomes final and executory
· 6% - interest for obligations not
constituting a loan or forbearance of
money
· Moral damages
· Gen. Rule – a corporation is not entitled
to moral damages
· Exception – when its good reputation is
besmirched by breach of fiduciary duty.
· In culpa contractual – recoverable if
there is fraud or bad faith
· Depositor may recover even if bank’s
negligence not attended by bad faith if he
suffered mental anguish, serious anxiety,
etc.
6. Respondeat superior of employees
· Command responsibility
· A bank is bound by the negligence of its
employees
Classification of Banks (CUT-RICO-NQU)
1. Universal Banks – large commercial banks that
can do both commercial and investment banking
· They have the power of both commercial
bank and investment house
· Have the power to invest in non-allied
enterprises
2. Commercial banks – general powers incident of
corporation and can perform commercial banking
· Does not have the power to invest in non-allied
enterprises
3. Rural banks – banks that promote rural
development
· They can extend loan or advances to
primarily meet the normal credit needs of
farmers, fishermen and their families
· Can also deposit in private banks more
than the amount prescribed by Single
Borrower’s Limit in case there are no
government banks
· Rural Banks Act (RA 7353)
4. Thrift banks – encourages the industry, frugality
and accumulation of savings of the public
· To make it within easy reach to the people
the credit facilities at reasonable cost
· Includes: (1) savings and mortgage bank,
(2) stock savings and loan associations
and (3) private development banks
· Thrift Banks Act (RA 7906)

Banking Laws
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5. Cooperative banks – organized by cooperatives to
provide financial and credit services to
cooperatives
· Cooperative Code (RA 6938)
· Membership of a cooperative bank shall
include ONLY cooperative and
federations of cooperatives
6. Islamic Banks – promote socio-economic
development in autonomous region by performing
banking and investment function based on Islamic
concept of banking
· Islamic Bank – RA 6848
· Subject to the principles and rulings of
Islamic Shari’a
7. Others banks:
· Philippine Veterans Bank – created to
provide government depository to veterans
for appreciation of grateful nation (RA
3518)
· Land bank of the Philippines – finance
distribution of estate to resale to small
landholders (RA 3844)
· Development Bank of Philippines –
provide credit facilities for development in
agriculture, commerce and industry
· DBP was previously named as
Rehabilitation Finance
Corporation (RFC)
8. Non-stock savings and loan associations – non-stock,
non-profit corporation engage in
accumulation of savings of its members and loans
to meet its members’ needs
· Confines exclusive membership and
cannot transact business with the general
public
9. Quasi-banks – engaged in borrowing of funds
through issuance of deposit substitute for purpose
of relending or purchasing receivables and other
obligations
10. Offshore Banks – deals with transaction with
foreign currencies in receiving funds from external
sources and utilization of such
· Governed by PD 1034
Authority to Engage in Banking and Quasi-Banking
Functions
· No person or entity shall engage in baking
operations without authority from Bangko Sentral
· Universal or commercials banks may engage in
quasi-banking functions
· Under Corporation Code:
o No articles of incorporation or amendment
of banks shall be given unless
accompanied by recommendation of
appropriate government agency (MB)
· The determination whether the person or entity is
performing banking or quasi-banking functions
without authority of BSP shall be determined by
MB
o MB may examine the books and records
to achieve this purpose
· The department head and examiners can
administer oaths and compel presentation of books,
documents or records
· BSP can examine a bank or an enterprise that is
wholly or majority-owned by the bank
o This can only be done when BSP is
examining bank
· SEC shall not register articles of incorporation of
bank unless it is accompanied by authority of MB
· SEC shall not register by-laws of bank unless
accompanied by authority of BSP
Service of summons upon banks
o May be made on the president, managing partner,
general manager, corporate secretary, treasurer,
in-house counsel (domestic)
o Upon resident agent or BSP (foreign bank)
· As long as institute loans out money to its
customers and collect the interest and charges a
commission to lender and banker, it is a bank
· Investment company engages primarily in the
investing or trading of securities and is not a bank
Bank name
· Only universal and commercial banks may
represent itself to the public as such in connection
with its business name
· Thirft banks can be allowed to have a business
name of its own provided that “A thrift bank,
savings bank or private development bank” shall
be added
· Above rule is also available to Rural/Coop

Banking Laws
5
CHAPTER 2 – Organization, Management,
Administration of Banks
Organization of Banks
· MB can authorize the organization of a bank based
on the following conditions:
1. Entity is a stock corporation (par value
stocks only)
2. Funds are obtained from the public which
shall mean twenty persons or more
3. Minimum capital requirement prescribed
by MB shall be satisfied
· MB shall take into consideration the capabilities of
the entity in terms of their financial resources,
technical expertise and integrity
· Bank licensing process shall incorporate
assessment of:
1. Banks’ ownership structure
2. Director management
3. Operating plan
4. Internal controls
5. Projected financial condition
· Capital requirements:
Type of Bank Amount (M)
Universal 4,950
Commercial 2,400
Thrift banks
1. Head office in Manila 325
2. Otherwise 52
1. Within Manila 26
2. Cebu/Davao 13
3. 1st-3rd class city and 1st class
municipality
6.5
4. 4th-6th class city and 2-4th class
municipality
3.9
5. 5th-6th class municipality 2.6
· At least 25% of total authorized capital stock shall
be subscribed by subscribers of proposed bank
· 25% of such subscription shall be paid-up. It shall
not be less than the minimum capital requirement
· Incorporators/subscribers and proposed directors
and officers must be (2) persons of integrity and
(1) good credit standing
· Such persons must (1) not be convicted of crime
involving moral turpitude and (2) not officers of
government agency or department charged with
granting loans to banks
· Bank is organized 5-15 people (incorporators)
· Cooperatives may organized a rural bank upon
consultation with the rural banks in the area
· Bank and its branches shall be treated as one unit
· Universal and commercial banks may open
branches within or outside the Philippines upon
prior approval of BSP
· Other banks shall be governed by their pertinent
laws
Stockholdings
1. Treasury Stocks
· GBL provides that NO bank shall:
i. Purchase or acquire shares of its
own capital stock
ii. accept own shares as security for
loan
1. Except if it approved by
MB and will be returned
in 6 months
· Reason: if banks were allowed to have a
lien in their own stocks for indebtedness
of stockholders, prohibition against
granting loans or discounts upon security
would become ineffective
2. Foreign stockholdings:
· Foreign individuals and non-banks can
own 40% of voting stock of domestic
bank.(aggregate foreign voting stocks)
· A Filipino individual and domestic non-bank
may each own up to 40% of the
voting stock (no aggregate ceiling)
· Citizenship of the corporation shall follow
the citizenship of the controlling
stockholders (>50%)
· The percentage of foreign-owned voting
stocks in a bank shall be determined by
the citizenship of individual stockholders
· At least 60% of voting stock in any
commercial bank shall be owned by
Filipino citizens
· In thrift banks, it shall be at least 40%
· Rural banks, 100% Filipinos
Rural Banks

Banking Laws
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· In determining nationality of banks,
control test is applied
· Family groups or related interest must be
fully disclosed in all transactions of the
individual
Board of Directors
· According to Corporation Code, there shall be at
least five and maximum of 15 board of directors of
bank
· Two of such shall be independent directors.
Independent director – person other than officer or
employee of bank
· All must be of legal age and majority of them are
residents of the Philippines
· Non-Filipino citizens may become members of
board of directors of bank up to the extent of
allowed foreign participation
· Directors of merged or consolidated banks shall
not exceed 21
· Election: President, Treasurer (director or not),
Secretary (resident citizen). Not allowed position:
President/Secretary, President/Treasurer
· Meetings may be conducted through modern
technologies
· A foreigner may be a member of the Board of
directors of a rural bank at the time of their
assumption of office
· To protect funds of depositors and creditors, MB
shall regulate payment of directors under certain
circumstances:
1. Comptrollership
2. Business in unsafe or unsound manner
3. Bank is found to be in an unsatisfactory
financial condition
Fit and Proper Rule
· Powers of MB against directors:
a. Review qualifications and DQs of
directors
b. After due notice, may disqualify, suspend
or remove director
c. Fit and proper rule shall be determine by -
integrity, experience, education, training,
competence of the director
· Disqualifications of directors:
a. Convicted of final judgment involving
dishonesty or breach of trust
b. Persons convicted of final judgment with a
maximum imprisonment term of more
than 6 years
c. Convicts of banking laws
d. Persons judicially declared insolvent
e. Culpable of bank’s closure
f. Administratively liable for violation of
banking laws with penalty of removal
from office
g. Found unfit for position
· There can be also temporary disqualifications and
shall exist until DQ is gone
· Under CC (Corporation Code) disqualification is
only with (1) imprisonment more than 6 years or
(2) violation of code committed within 5 years
· NCBA also provides DQ for members of MB that
is connected with bank under supervision or
examination of BSP
· Public officials cannot also be an officer of any
private bank unless position is incidental to office
· Rural Banks Act – public official may be director
(exception)
· PDIC – conviction of any criminal offenses
involving breach of trust
Banking Days and Hours
· At least 6 hours a day on working days (Mon-Fri
except holidays)
· May open in Saturdays, Sundays and holidays for
3 hours (to report to BSP)
· For purposes of deposits and withdrawals, bank
can extend beyond or early of 8AM and 8PM
· If it is for other purposes, they can exceed 6 hours
minimum but not extend beyond or early of 8AM
and 8PM
· Banks in airports or major fish ports can open
24hours
· Changes in banking days and hours can be made
once every 30 days except during emergencies
ATMs
· Classes: 1.) Offsite 2.) Mobile
· Banks may establish off-site ATMS provided that
there is report on BSP and adequate security

Banking Laws
7
measures. They are installed only in centers of
activity
· Mobile ATMS are allowed to visit places with
large crowds of people provided it has adequate
security
Independent Auditor
· MB may require bank to engage services of
independent auditor from list of CPA acceptable to
MB
Financial Statements
· Every bank, quasi-bank or trust entity shall submit
to the BSP its financial statements
· Such statements must show the actual financial
condition of its institution, including its operations
· Must publish such in an understandable
knowledge once every quarter in a newspaper of
general circulation
· Consolidated financial statement – combined
statement of balance sheet and income expenses of
two or more corporate entity
· Subsidiary – corporation where more 50% of its
voting stock is owned by a bank
· Affiliate – linked directly/indirectly to the bank by
1.) 10% ownership or control 2.) interlocking
directorship 3.) common stockholders owning
10% of each intermediary 4.) management
contract 5.) permanent proxy or voting trust of
10%
Publication of Capital Stocks
· Bank, quasi-bank or trust entity shall not publish
the amount of its subscribed capital stock without
indicating the amount of its capital actually paid-up
Settlement of Disputes
· BSP shall be consulted by (1) government
agencies in actions initiated or brought before
them by banks and (2) disputes between any of
them which they are directors, officers, or
stockholders
Strike and Lockouts
· Any unsettled strike or lockouts involving banks
after 7 days shall be reported by BSP to DOLE
who will assume jurisdiction
· Banks, through their president, shall inform BSP
of the cause of the strike and the operations
affected

Banking Laws
8
CHAPTER 3 – Deposit Functions of Banks
I. Kinds of Deposits
1. Demand deposits
· All those liabilities of BSP and of other banks
which are denominated in Philippine currency and
are subject to payment in legal tender upon
demand by presentation of checks
· Only universal and commercial banks may accept
or create demand deposits without prior authority
from BSP
· Other types of bank require such authority. This
considered as the current account in the bank
1.a. Temporary over drawings and DAUD
· Temporary overdrawings are not allowed except
normal bank charges and other fees incidental to
handling such accounts
· Violations of temporary overdrawings will cause
(1/10 of 1%) fine per day computed on the basis of
the amount of overdrawn but not to exceed
P30,000.00 per day
· Drawings against uncollected deposits (DAUD) –
prohibited. Exception: made against uncollected
deposits representing manager’s, cashier’s,
treasury warrants, postal money order and on us
check
1.b. Current accounts of officers
· All officers, employees of bank in cash
departments and other employees who have direct
responsibility in handling deposit transactions are
not allowed to maintain demand deposits or
current accounts
· A written order addressed to a bank or person
carrying banking business, by a party having
money in their hands, requesting them to pay on
presentment, to a person named therein or to
bearer or to order, a named sum of money (Moran
vs. CA)
1.d. Duty of bank to honor checks
· When bank sees that depositor’s account has
sufficient amount, then it shall honor such
· If there is sufficient amount but bank dishonored,
then bank is liable. Otherwise if there is no
sufficient amount
· Banks must ensure that the check is only paid to
its designated payee
· Drawer must remember every time he issues a
check and a bank must know the former’s
signature
· A bank is under no obligation to make partial
payment on the check only upon the amount in the
drawer’s funds
· The cannot also compensate the lack of money in
the deposit account to the savings account
· Cross-check must be: (1) may not be encashed but
only deposited (2) check negotiated only once – to
one who has an account with a bank and (3) serves
as warning to holder (State Investment House vs.
IAC)
· Cashier’s check – bank’s own check and is treated
as PN with the bank as maker
· - deemed as cash (New Pacific Timber & Supply
Co. Inc. Cs. Señeris)
1.d. Set off Rule
· A bank can set off or compensate by debiting a
personal account of depositor for an amount
erroneously credits to the person’s proprietorship
account
1.e. Relationship of Payee or Holder and the Bank
· Principal and agent – relationship between payee
or holder of commercial paper and the bank to
which it is sent for collection (PCIB vs. CA)
2. Savings Deposits
· Banks may be authorized by the BSP to solicit and
accept deposits outside their bank premises
2.a. Individual and Joint Accounts
· If the joint account is “and”, both signatures of co-depositors
are required before withdrawals
· If “and/or” either their signature is sufficient
1.c. Checks

Banking Laws
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2.b. Withdrawals
· There must always be a presentation of passbook
and accomplishing necessary withdrawal slips
before withdrawal except if authorized by BSP
3. Negotiable Order of Withdrawal Accounts
· NOW accounts are interest bearing deposit
accounts that combine the payable on demand
feature of checks and investment feature of
savings account
· Universal and Commercial banks may offer NOW
accounts but other banks need prior approval of
MB
4. Time Deposits
· Time deposits – one the payment of which cannot
be legally required within such specified number
of days
· Special time deposits from the Agrarian Reform
Fund Commission with lower interest shall be
exempt from legal reserve requirements
· Certificated of Time Deposits can either be
negotiable or non-negotiable. Only Universal or
commercial banks can issue negotiable CTDs
without prior approval of BSP
5. Deposit Substitute (Quasi-Banking Function)
Essential Elements of quasi-banking are:
1. Borrowing funds for the borrower’s account
2. Twenty or more lenders at any one time
3. Methods of borrowing are issuance, endorsement
or acceptance of debt instruments
4. Purpose is for relending and purchasing
receivables
· Borrowing – all forms of obtaining or raising
funds
· For the borrower’s own account – assumption of
liability in one’s own capacity
· Relending – refer to the extension of loans by an
institution with antecedent borrowing transactions
6. Foreign Currency Deposits
· Any person, natural or juridical may deposit with
such any bank in good standing designated by BSP,
foreign currencies which are acceptable as part of
international reserve, except those which are
required by BSP to be surrendered
· Such banks can accept deposits and accept foreign
currencies in trust
1. Numbered accounts for recording and
servicing of deposits are allowed
· The depository bank shall
1. Maintain at all times a 100% foreign
currency cover for their liabilities
2. 15% of such must be in the form of
foreign currency deposit with BSP
3. The balance shall be in form of foreign
currency loans/securities which are short-term
maturities and readily marketable
4. Such loans can be extended to domestic
enterprises to cover the 100% foreign
currency cover
· Depository banks under the expanded foreign
currency deposit system shall be exempt from the
15% requirement of deposit with BSP
· There is no restriction on withdrawals by depositor
of his deposit of the same abroad except does
arising from contract of depositor and bank
7. Anonymous and Numbered accounts
· Such accounts are not allowed. Numbered
accounts is only allowed in foreign currency
deposits
· However, banks/non-banks should ensure that the
client is identified in an official document
II. Administration of Deposits
1. Specimen signature, ID photos
· All banking institutions are required to set a
minimum of 3 specimen signature from their
depositors every 5 years or sooner
· Banks may also require submission of ID photos
· First time depositors require the presentation of at
least 2 valid phot-bearing Ids
· Students who are beneficiaries of OFW are also
required to present 2 Ids
· Submission is one-time basis only
2. Minors and Corporations as Depositors

Banking Laws
10
· Minors can have savings and time deposit
accounts without assistance of parents
1. Must be at least 7 yrs old
2. Able to read and write
3. Sufficient discretion
4. Not otherwise DQed by law
· Parents can still deposit money to minor
· For deposits of minors in thrift banks, guardian
may make notice that payment (deposits, interest,
dividends) be made to him and not to the minor
· Corporations may open bank accounts as follows:
(1) Incorporation stage and (2) Post incorporation
stage
3. Time of payment of interest in time deposits
· Interest on time deposit may be paid upon
maturity, withdrawal or advance provided that the
interest paid in advance shall not exceed interest
for one year
4. Treatment of matured time deposits
· Time deposits not withdrawn or renewed on its
due date shall be treated as a savings deposit and
shall earn interest until actual withdrawal with
rates of savings deposit
· Deposit substitute not withdrawn shall have a
maturity rate applicable to a deposit substitute
5. Clearing Cut-off Time
· General rule: all deposits and withdrawals during
regular banking hours shall be credited/debited to
accounts on date of receipt or payment
· If there is BSP clearing arrangement, not earlier
than 2 hours before BSP clearing time in head
offices and 3.5 hours in branches
· If there is no BSP clearing arrangement 2 hours
before local clearing time
6. Booking Cash Deposits
· Cash deposits received after clearing cut-off time
shall be book as deposits on day of receipt
7. Booking Non-cash Deposits
· “on us” checks, manager’s/cashier’s checks,
demand drafts received after clearing cut-off time
may, at the option of the bank, be booked on the
day of receipt. Other non-cash deposits are treated
as contingent accounts on the day of receipt and
shall be booked as deposits the following day
8. Booking Deposits after regular banking hours
· Deposits, whether cash or not, received after close
of regular banking hours shall be treated as
contingent accounts and booked the following day
9. Average Daily Balance
· Banks may impose and collect service charge or
maintenance fee on savings and current accounts
that fall below minimum monthly average daily
balance (ADB)
· must be properly disclosed in the terms of deposit
· For dormant accounts: fall below 2 consecutive
months
III. Survivorship Agreement
· There is survivorship agreement when joint
owners of a deposit agree that either of them could
withdraw any part or whole of account during
lifetime of both and the balance upon death of
either belongs to the survivor
· It is an aleatory contract
· Survivorship agreement is per se not contrary to
law but may be violative
· Agreement can be a mere cloak to hide in
inofficious donation to transfer property in fraud
IV. Nature of Bank Deposits
1. Deposits are considered simple loans and not
preferred credits
2. Bank deposits are in the nature of irregular
deposits as they are loans who earn interest (BPI
vs. CA)
3. Relationship between depositor and Savings and
Loan Association is that of creditor and debtor
4. Contract between bank and its depositors are
governed by NCC
5. Bank ultimately acquires ownership of deposits
but has obligation to pay back equal amount
6. Banks can set-off or compensate

Banking Laws
11
V. Duties of Banks
· Meticulous care with deposits of clients due to
fiduciary relationship
· Banks must give payment to the proper party, thus
collecting bank has obligation to ascertain that the
drawer truly intended that the depositor is the
payee
· In case of death of depositor and the bank knew of
it, there shall be no further withdrawal
· Administrators or heirs can withdraw up to 20k
without certification of CIR
VI. Secrecy of Bank Deposits
· Purpose is to (1) give encouragement to the people
to deposit their money in banking institution and
(2) discourage private hoarding of depositors so
that could be used in economic development
· All deposits of whatever nature with bas including
investment bonds are considered absolutely
confidential and may not be examined, inquired or
looked into even by government officials
· RA 8367 prohibits inquire or disclosure of
deposits
· Exception: (1) written permission of depositor, (2)
impeachment, (3) order of court in case of bribery
or dereliction or (4) subject matter of litigation
· It shall also apply to foreign currency deposits
with the only exception of written permission
· In Islamic banks that only exceptions are: (1)
inspection of bank auditor, (2) written permission
by depositor (3) subject matter of litigation
VII. Exceptions to Secrecy of Deposits
· They are already stated above
· Accounts can be garnished to insure satisfaction of
judgment as there is no real inquiry and some
disclosure are merely incidental
· Congress not intended for debtors to escape
· General exemption against garnishment shall not
apply to foreign transients
· Foreign currency deposits of a foreigner who was
convicted of crime of rape may be garnished to
satisfy judgment
· Under RA 1405 and Anti-Money Laundering Act,
the secrecy of deposits do not apply
· BSP can also inquire in deposits for periodic and
special examinations
· Ombudsman has the In-Camera Inspection power
to look into deposits provided that there is a
pending case is court and 1.) the account must be
properly identified 2.) inspection limited to the
subject matter
· CIR can also look into deposits to determine gross
estate of a decedent or he has applied for
compromise tax liability

Banking Laws
12
CHAPTER 4 – Investments, Loans and Other Bank
Functions
I. Universal Operation of Universal banks
Powers of Universal bank
1. Commercial bank
2. Investment house
3. Invest in non-allied enterprises
Equity Investments of Universal bank
· Allied enterprises are those which enhance or
complement banking
· If it is a financial allied enterprise, then it involves
money matters. Otherwise it shall be non-financial
· Total investments in equities of allied and non-allied
enterprises shall not exceed 50% of the net
worth of the bank
· Equity investment in any one enterprise, whether
allied or non, shall not exceed 25%
· Net worth – total of the unimpaired paid in capital
including paid-in surplus, retained earnings and
undivided profit
Equity investments of Universal bank in Financial Allied
enterprise
· Universal bank can own 100% of the equity in a
thrift, rural bank or financial allied enterprise
· Publicly-listed universal or commercial bank may
own 100% of voting stock of another universal or
commercial bank
· If not publicly-list then only 49% own
· Following are financial allied enterprises:
1. Leasing companies
2. Banks
3. Investment houses
4. Financing companies
5. Credit card companies
6. Financial institutions
7. Companies in stock brokerage and foreign
exchange dealership
8. Insurance companies
9. Holding company provided that the
equities of the entity is confined under
universal bank BSP regulation
Equity investments of universal bank in non-financial
allied enterprise
· Universal bank may own up to 100% of equity in
non-financial allied
· Examples are:
1. Warehousing companies
2. Storage
3. Safe deposit box
4. Companies engaged in management of
mutual funds and not funds itself
5. Computer services
6. Home building and development
7. Service bureaus
8. PCHC
· Rural and cooperative banks can invest in non-financial
allied enterprises such as:
1. Warehousing
2. Fertilize and agricultural chemical
3. Farm equipments
4. Trucking and transportation
5. Marketing agricultural products
6. Leasing
Equity investment of Universal Bank in Non-allied
enterprise
· Equity investment in a single non-allied enterprise
shall not exceed 35% in total equity or voting
stock
Investments in non-allied enterprises
· Universal bank may invest in equity of enterprise
of eligibles:
1. Enterprises engaged in agriculture, mining,
quarrying, manufacturing, public utilities
2. Industrial parks
3. Commercial project with government
privatization program
· Equity investment in Quasi-banks – universal bank
can only invest up to 40% in equity of quasi-banks
II. Operations of Commercial Banks
Powers of Commercial banks
1. General powers incident to corporations
2. All power necessary to carry business of
commercial banking such as:

Banking Laws
13
a. Accepting draft and issuing letters of
credit
b. Discounting
c. Creating demand deposits
d. Buy and selling Forex
Issuance of Letters of Credit
· Letter of credit – financial device developed by
merchants as convenient mode of dealing with
sales of goods
· The buyer will apply for a letter of credit in the
issuing bank
· The seller will then send the goods to the carrier
and he will make a draft, called bill of exchange
· Seller will present the draft and the necessary
documents, such as bill of lading to issuing bank
to receive the payment
· While the goods are in transit, it shall be owned by
issuing bank
· When the goods arrived at the port of the buyer,
the buyer will pay the corresponding payment and
also gain the documents
· Since the buyer gain the documents, he can now
acquire the delivered goods
· Independence principle – bank determines
compliance with letter of credit only by examining
shipping documents presented and need not
examine the goods
· There are three contracts:
1. buyer-seller
2. buyer-bank
3. seller-bank
· There can be other parties such as notifying bank
(inform seller), confirming bank (lend credence to
letter of credit), paying bank and negotiating bank
(discounter)
Equity investments on commercial bank
· Commercial bank may invest only in equities of
allied enterprises
· Total investment in equities of allied enterprises
shall not exceed 35%
· Equity investment in one enterprise shall not
exceed 25%
Equity investment of commercial bank on financial allied
enterprises
· Can own up to 100% in equity of thrift and rural
bank
· However cannot own 100% of equity of financial
allied enterprise other than above banks
Equity investment in commercial bank on non-financial
allied enterprises
· Can own 100% of said enterprises
III. Risk-Based Capital
Minimum Ratio
· MB shall prescribe minimum ratio
· It will be based on the net worth and risk assets of
a banks well as its compositions
· It may alter compliance with ratio for a max
period of 1 year
· Ratio shall be uniformly applied to banks of same
category
Effect of Non-compliance
· If a bank does not comply then the MB can:
1. Limit distribution of net profits and be
used to increase capital accounts until
minimum requirement is met
2. Restrict acquisition of major assets and
new investments except with purchase of
readily marketable evidence of
indebtedness of RP BSP
· In case of merger, rehabilitation, MB may
temporarily relieve such bank with compliance
with capital ratio
IV. Limit on loans, credit accommodation and guarantees
Single Borrowers Limit
· Total amount of loans, credits accommodation and
guarantees extended to any person, partnership or
corporation shall not exceed 20% of net worth of
bank
· In Circular 425 of 2004 of BSP, the SBL was
increased to 25%
· Exceptions to SBL:

Banking Laws
14
1. MB may otherwise prescribe for reasons
of national interest
2. Deposit of rural banks with GOC financial
institutions such as LB, DBP and PNB
· Basis for determining SBL is the total credit
commitment of bank to borrower
· Loans - to all accounts under loan portfolio
· Credit accommodations - to credit and market risk
exposure of banks arising from accommodation
other than the loan
· Total credit commitment - include loans, credit
accommodation, deferred letters of credit less
margin deposits and guarantees
· Total credit commitment can be increased by 10%
provided additional liabilities are secured by trust
receipts, shipping documents or readily marketable
goods
· Readily marketable goods – articles of commerce,
agriculture or industry as constant dealings in
ready market and price is easily ascertainable and
disposable
· Parent corporation’s total credit commitment shall
also include its subsidiaries’ if it guarantees,
accommodate or subsidiary is merely a department
of it
· Wholesale lending of government banks shall not
exceed 35% of net worth to participating financial
institutions
· PFI – institutions for relending to end-user
borrowers
· The end-user borrower shall be subject to the 25%
· In municipalities where there are no government
banks, deposits of rural and coop banks in private
banks shall not be subject to SBL
· Deposit in private depository bank used by thrift,
rural and coop banks, with authority to accept
demand deposits, after being cleared, shall be
exempted from SBL
· Bank guarantee – irrevocable commitment of a
bank binding to pay a sum of money in event of
non-performance of third party
· Credit Risk Transfer – arrangement that allows the
bank to transfer the credit risk associated with its
loan or other credit accommodation to a third party
· Control of majority interest or controlling interest
– parent owns, directly or indirectly through its
subsidiaries, more than half of voting power of
enterprise
· Even if less than half of said voting power, it shall
still have controlling interest if:
1. Agreement with investors
2. Govern financial and operations
3. Can appoint majority of directors
4. Cast majority vote on meetings
· Subsidiary – corporation where more than 50% of
the voting stock is owned by a parent corporation
· Bill of exchange drawn in good faith against
actually existing values – drawn by a seller on the
purchase for the price of commodity sold
· Commercial paper owned by person negotiating
the same – paper arising from business transaction
· Exclusion from SBL:
1. Discount bills of exchange and discount
commercial paper
2. Credit accommodation to finance
importation of rice or corn up to 100% net
worth of bank
Must be approved by NEDA
3. Loans and credit accommodation
guaranteed by Industrial Guarantee and
Loan Fund
4. Liabilities of commercial paper issuer for
commercial paper held by UB as firm
underwriter. Only 180 days and not
exceed 5% from normal SBL
5. Loans and credit accommodations covered
by international or regional institutions
where Philippines is shareholder such as
ADB
6. Loans and credit accommodations with
valuation reserves provided that bank has
no unbooked valuation reserves
7. Loans and credit accommodations as a
result of underwriting agreement of debt
securities not exceeding 30 days
Violations
· Monetary penalties – 1/10 of 1% of excess over
the ceiling but not exceed 30k per day
· If bank resource is less than 50M, then only a max
penalty of P500 shall be imposed
· There will also be reprimand to directors/officers
SBL
FROM SECTION 2S - SAN BEDA COLLEGE OF LAW, MENDIOLA: AY 2011-2012. REFERENCE: BANKING LAWS JURISPRUDENCE BY DIZON.

Banking Laws
15
· In subsequent offense, a 1k fine shall be imposed
on the directors who approved it
· There can also be suspension of bank’s branching
privilege and rediscounting facility of BSP
Inclusion to Limit
· The following shall be included
1. Maker, acceptor of paper discounted and
general indorser, drawer or guarantor
2. Individual who controls majority interest
in corporation
3. In case of corporation, all liabilities to
such bank of all subsidiaries it has
majority interest
4. Partnership, liabilities of members
· Also includes parent coporations with majority
interest
Exclusion to limit
1. Loans and credit accommodations secured by
BSP or RP. State is always solvent
2. Loans and credit accommodations guaranteed by
government
3. Loans and credit accommodations covered by
assigned of deposits by lending bank
4. Loans and credit accommodations under letters of
credit covered by margin deposits
5. Loans and credit accommodations determined by
MB as non-risk items
Assignment of Credits
· It is the agreement where the owner of credit,
know as assignor, by legal cause, transfer his
credit to another, known as assignee without need
of consent of debtor
· Assignee acquires powers of assignor
· There is no new obligation in assignment
· However, there must be a notice given to debtor so
that he will know whom to pay
· Consent is not necessary in order that assignment
may fully produce legal effects (Sison Sison vs.
Yap Tico and Avanceña)
Pacto commisorio
· Appropriating a thing given by pledge or
mortgage
· It is not allowed. Encashment of deposit
certificates is not pacto commissorio
· It is intended to protect the obligor against being
overreached by creditor
V. Restriction on Bank Exposure to Directors, Officers,
Stockholder and related interests (DOSRI)
· No DOSRI can directly or indirectly borrow from
such bank or become a guarantor, indorser or
surety for loan
· Exception is when there is a written approval of
the majority of all directors of the bank excluding
the DOSRI concerned
· Such approval is not required if it is under a fringe
benefit plan approved by BSP
· Directors include those named in incorporations,
elected or filled
· Officers shall include any person who performs
function of management
· Stockholder – stockholder of record in the books
of the bank
· Related interest includes souse or relative within
1st degree or by legal adoption. This includes
partnership, co-ownership of DOSRIs
· Corporations where the above mentioned owns
20% of subscribed capital, then the prohibition
shall apply
· Can also be less than 50% if the DOS sits as
representative of the bank in the board of such
corporation
Effect of violation
· The director or officer who violates may be
declared vacant and subject to penal provisions of
NCBA
Limit on loans
· MB can limit the valid loan given to DOSRI
provided that it shall be based on their
unencumbered deposits and book value of their
paid in capital contribution

Banking Laws
16
Exclusion to the Limit
· Loans and credit accommodations considered as
non-risk
· Loans and credit accommodations to officers in
for of fringe benefits
· Limit on loans and credit accommodations shall
not apply on those extended by coop bank to its
coop shareholders
Applicability of DOSRI rules and regulation to
government borrowing
· Circular 547 of 2006 provides that DOSRI rules
shall also apply to loans and credit
accommodations granted to RP, subdivisions,
instrumentalities and GOCCs
· Exceptions would be:
1. Loans and credit accommodations that are
non-risk and not subject to ceiling
2. Those made by BSP
3. LGU due to full autonomy in their
propriety function
4. Director who acts as government
representative
VI. Securities on Loans and credit accommodations
Loans and credit accommodations against real estate
· Shall not exceed 75% of appraised value of
respective real estate security plus 60% of the
appraised value of the insure improvements
Loans and credit accommodations on security of chattels
and intangible properties
· Shall also not exceed 75% of the appraised value
of the security
Join and Solidary agreement
· JSA is surety and not guarantee. It is an agreement
where parties consent to be solidarily liable
· As a contract of adhesion, JSA should be taken
contra proferentum against the party who may
have caused any ambiguity therein.
Effect of Surety Agreement
· Agreement is onerous and construed against
credtor
· Requires that creditor obtain consent of the surety
before there can be material alteration to the loan
· If surety director is not anymore party of the board
then he cannot be held liable
· Surety cannot extend to more than what is
stipulated
· Joint and solidary signature of major stockholder
or officer constitutes as an additional security for
loans granted to corporations (Security Bank
Trust Company vs. Cuenca)
· Joint and solidary agreement – agreement where
the contracting parties consent to be jointly and
severally liable in a loan obligation
VII. Grant and purposes of loans and credit
accommodations
Amount and purpose of loan
· Bank must grant loans and credit accommodations
only in amounts and for period of time essential
for effective completion
· Must be consistent with safe and sound banking
practice
· Purpose of loan shall be stated in application
· If bank finds that proceeds have been employed
without its approval, the bank shall have the right
to terminate the loan and demand immediate
repayment
Requirement for grant of loan
· Bank must first ascertain if debtor is capable of
fulfilling his commitments to the bank. It must
consists of:
1. Statement of assets and liabilities
2. Statement of income and expenditure
3. Prescribed by law and MB to evaluate
credit application
· Even in the absence of such provision in GBL, Art
1198 of the NCC allows the creditor to demand
full payment when debtor is insolvent, fails to give
guarantee, impaired guarantee, lost thing through
fortuitous event, violate undertaking or attempts to
abscond

Banking Laws
17
· MB shall recognize peculiar characteristic of
micro financing such as cash flow-based lending
· Microfinancing loans – small loans granted to
basic sectors usually unsecured and given to small
businesses
Reason for stringent rule in granting loans
· Banking corporation holds the money of the
depositors. Due to the nature that it is affected
public interest, the bank must ensure that the loan
shall be repaid
Unsecured loans and other credit accommodation
· MB shall authorize regulations with respect to
Other security requirements for bank credits
· MB may prescribe security requirements to which
bank credits shall be subject and reduce or
increase maximum ratio
Authority to prescribe terms and condition of loans and
other credit accommodations
· MB may prescribe maturities as well as related
conditions of varios bank loans and credit
accommodations
· Any change in maximum maturity shall only apply
to those made after such action
Amortization on loans and other credit accommodations
· Amortization schedule of bank loans and other
credit accommodations shall be adopted based on
nature of operation
· If loans and other credit accommodations has
maturity of more than 5 years, must have periodic
amortization payments and must be made annually
· If borrowed funds are to be used for purposes
which do not initially produce revenues for
payment of regular amortization, bank may defer
such time until revenues are sufficient. In no case
shall initial amortization date be later than 5 years
· In case of loans and other credit accommodations
to microfinance sectors, schedule shall consider
cash flow of borrowers
Escalation Clause
· Parties to an agreement pertaining to loan of may
agree upon an increase in the event that the
applicable maximum interest is increased by MB
· PROVIDED: such stipulation shall only be valid if
there is also a stipulation that the interest rate
agreed upon shall be reduced in the even
maximum interest rate is also reduced by MB
· Escalation clause are not void per se
· It is void when it grants creditor unbridled right to
adjust interest independently, completely
depriving debtor of right to assent
· Such clause violate the mutuality of contracts
· In escalation clause there should be:
1. Increase in interest if increased by law or
MB (escalation clause)
2. Include provision for reduction of
stipulated interest in the event maximum
interest is also reduced by law or MB (de-escalation
clause)
· Purpose of including de-escalation clause –
prevent one-sidedness in favour of lender an
repugnant to mutuality of contracts
· Absence of de-escalation clause will render
escalation clause void
Effect of annulment of escalation clause
· In case the escalation clause is annulled, principal
amount of loan is subject to original interest rate
Exception
· If there is no de-escalation clause, the escalation
clause is still valid if the creditor unilaterally and
actually decreased the interest charges whenever
the interest rate is reduced by law or MB (Llorin
vs. CA)
Unilateral increase of rates
· Such violates the principle of mutuality of
contracts in Art 1308 of NCC
· Any contract which appears to be heavily weighed
in favour of any one party that will lead to
unconscionable result is void
such

Banking Laws
18
· Escalation clause are valid to maintain fiscal
stability and retain the value of money on long-term
contracts
· However, other party there must be right to assent
to an important modification of contract
· Contract of adhesion – parties do not bargain on
equal footing, the weaker party’s participation
being reduced to a take or leave it
Iniquitous, unconscionable and exorbitant interests
· Though usury law is not inexistent, interest may
be agreed upon by lender and borrower
· However, the same must be equitable reduced for
being iniquitious, unconscionable and exorbitant
· In Medel vs. CA, SC found that 66% interest rate
per anum is unconscionable
· In Cuaton vs. Salud, interest rate was 120% per
annum interest rate is unconscionable and should
be lowered to 12% per annum interest rate
· Dio vs. Virgilio, interest rate was 120% per annum
also, reduction of interest must be made
· Bacolor vs. Banco Filipino, a 24% interest rate per
annum is not unconscionable or excessive
Effect of void interest rate
· If interest rate is void, it is as if no express contract
thereon and court may reduce
Prepayment of loans and other credit accommodations
· A borrower may at any time prior to agreed
maturity date, prepay in whole or in part the
unpaid balance subject to reasonable terms
Legal compensation
· Under Art. 1278, compensation can take place
where the parties are creditors and debtors of each
other
· A person who secures a loan of money acquires
ownership and is bond to pay the creditor an equal
amount
· Deposits in bank can be set-off against obligation
of depositor
· Subsidiary has an independent and separate
juridical personality from parent company and any
claim against the subsidiary is not a claim against
the parent
Development assistance incentives
· BSP shall provide incentives to banks, without
government guarantee, which extend loans to
financial educational institutions, cooperatives,
hospitals
Banks cannot extend peso loans to non-resident
· Reason for this:
1. To curb undue speculation in foreign
exchange market
2. Further reinforce memorandum that peso
deposits should be funded inward foreign
exchange remittances
· OFWs are residents and can avail peso loans
Provisions for losses and write-offs
· Bad debts - all debts due to any bank on which
interest is past due and unpaid
Extraordinary inflation or deflation
· Under Art 1250 of NCC, in case of extraordinary
inflation or deflation of currency stipulated, value
of currency at time of establishment of contract
shall be the basis of payment
· For extraordinary inflation or deflation to affect
obligation, the following must be proven:
1. There must first be official declaration
from BSP
2. Obligation is contractual
3. Parties expressly agreed to considered
effects of extraordinary inflation or
deflation
· Extraordinary Inflation exist when there is an
unusual decrease in the purchasing power of the
currency and such decrease could not be
reasonably foreseen or was manifest beyond the
contemplation of the parties at the time of the
obligation
Purpose of Attorney’s Fees

Banking Laws
19
· Attorney’s fees are not integral part of cost of
borrow but arise when collecting upon the Notes
becomes necessary
VIII. Truth in Lending
Policy
· Protect citizen from lack of awareness of trust cost
of credit to the user by assuring full disclosure of
such cost and prevent uninformed use of credit
· The creditor shall furnish the debtor a clear
statement in writing setting forth the following:
1. Cash price or delivered price to be
acquired
2. Amount to be credited as DP
3. Difference between 1 and 2
4. Charges individually itemized
5. Total amount to be financed
6. Finance charge
7. Percentage that finance bears to the total
amount to the financed
· Rationale: protect users of credit from lack of
awareness of true cost
· Credit – any loan, mortgage, deed of trsust,
advance, conditional sale contract, rental
· Finance charge – interest, fees, service charges,
discounts and other charges incident to extension
of credit
· Creditor – any person engaged in business of
extending credit who requires finance charge
1. Civil – any creditor who fails to disclose shall be
liable for P100 or amount equal to twice of finance
charge required
a. Whichever is higher
b. Liability shall not exceed 2k
c. Must be brought within 1 year from date
of occurrence
2. Criminal – fine not less than 1k or not more than
5k or imprisonment for not less than 6 mos nor
more than 1 year or both
· Both actions can be instituted independently of
each other
· But there can also be a joinder of cause
Effect of violation
· Violation shall not affect the validity or
enforceability of any contract
· In Consolidated Bank vs. CA, SC said that lender
cannot charge interests not stipulated in
promissory note
· In UCP vs. Beluso, interest rate provisions are
illegal due to violation of mutuality of contracts
and also violate TILA
Exemption of government
· TILA shall not apply to Philippine Government
Required disclosure on consumer loans not under open-end
credit plan
· Any creditor extending consumer loan or
transaction which neither consumer credit sale nor
open-end consumer credit plan shall also need to
disclose information
Exempted transactions
· Disclosure requirement on consumer credit
transactions shall not apply to those extension of
credits for business or commercial purpose or to
government
IX. Foreclosure of real estate mortgage
Procedure
· In the event of foreclosure of any mortgage, the
mortgagor has the right to redeem the property
within one year after sale of real estate
· Purchaser at auction sale shall have the right to
enter upon and take possession of such after date
of confirmation of auction sale
· In GBL, if purchased y banks, they are not
required to set up bond before they can enter the
property immediately during redemption period
Disclosure
Definition
Penalties

Banking Laws
20
· Writ of possession may also be issued after
consolidation of ownership of property in name of
buyer
· Buyer becomes absolute owner of property if not
redeemed during the 1 year after registration of
sale
· If the property extrajudicially foreclosed belong to
a juridical persons, right to redeem property shall
be counted until, not after, the registration of the
certificate of foreclosure
· It shall be no more than 3 months after foreclosure
whichever is earlier
· Accessory contract of real mortgage is used as
security for fulfilment of principal obligation
· A loan value is only 70 percent of the appraised
value so that a low bid price will be made and will
be easier to redeem
· Real property may be mortgaged to aliens
· Redemption period is counted from date of
registration of the certificate of sale with register
of deeds
· An action for annulment of mortgage does not stop
the running of the period of redemption
· Otherwise there shall be frivolous suits instigated
to give mortgagor more time to redeem
· The amount redeemable is the amount under the
mortgage deed or the outstanding obligation plus
interest and expense in Sec 47 of GBL
· No personal notice in required in extrajudicial
foreclosure of sale since it is action in rem
Demand before foreclosure essential
· There must first be demand before there can be
foreclosure as where demand was not made, the
loan shall not become due and demandable
Equity of redemption vs. Right of redemption
· Where foreclosure is judicially made, no right of
redemption exist in case the mortgagee is not a
PNB or bank
· In such a case, the mortgagor is given the right to
extinguish the mortgage and retain ownership of
property by paying debt within 90 days after
judgment
Right of redemption may be extended by agreement
Estoppel
· Bank or any purchaser is deemed consented to
extension of redemption if it had time to object but
it did not
Redemption after prescriptive period
· Right to redeem becomes functus officio on the
date of its expiry
· Redemption is by force of law, the buyer is bound
to accept redemption
· However, there can be right to repurchase
depending on the will of buyer
· The buyer is not bound to accept repurchase unlike
in redemption
· The buyer shall also not be bound by the bid price
as it now belongs to him
· An alien-owned bank cannot acquire ownership of
residential lot by virtue of deed of transfer as
settlement of debt
· Transfer of ownership, even for a limited period or
in foreclosure, cannot be made to alien
Offer to repurchase not waiver to question sale
· If there was an offer to repurchase, it shall not be
construed as waiver of right to question
foreclosure sale
· Mortgagee has no right to recover the deficiency
from the mortgagor of value of loan if foreclosure
is invalid
Preferred status of banks not impaired in case borrower
under rehabilitation
· In case of rehabilitation of corporation debtor, the
right of a creditor bank is merely suspended
Writ of possession
· After consolidation of title in buyer’s name due to
failure of mortgage to redeem, the writ of
possession becomes a matter of right and its
issuance in a extra-judicial foreclosure is merely
ministerial
· Injunction to prohibit issuance of writ of
possession is utterly out of place
· Proceeding in petition for writ of possession is ex-parte
and summary in nature

Banking Laws
21
· However, mortgagor still have right of recourse to
petition to set aside foreclosure sale and cancel
writ of possession in same proceeding
X. Major investments
· MB shall establish criteria for reviewing major
acquisitions or investments of bank
Ceiling on investments in certain assets
· Bank may acquire real estate as necessary for its
conduct of business
· Total investment on such real estate shall not
exceed 50% of capital accounts
· Equity investment of a bank in another corporation
engaged in real estate shall be considered part of
investment in real estate
· In determining compliance with the ceiling, the
following shall apply
o Investment shall include real estate and
equipment necessary for bank use such as
bank premises and real property of bank
under its name
o The cost of real estate leased by bank from
corporation and amount of equity in lessor
shall also be included
· In case of Tala vs. Banco Filipino, BF reached its
maximum 50% capacity in real estate and Tala
was created by major stockholders to buyer bak
sites of BF and leases it back to them. However,
BF defaulted and Tala wants the payment of rents
· The court rules that Tala cannot be allowed to
collect rent as it clearly shows that the tried to
circumvent the real estate investment limit in GBL
Acquisition of real estate by way of satisfaction of claims
· Notwithstanding the limitations, bank may still
acquire the following property:
1. Mortgage to it in good faith for security
2. Conveyed for satisfaction of debt
3. Purchase under judgement or mortgage
· Any real property held in such circumstance must
be disposed within 5 years
· After said period, those properties shall now be
included in the 50% limitation
XI. Other Banking Services
· A bank may also perform the following services:
1. Receive custody of funds, documents and
other valuable objects
2. Act as financial agent to buy and sell for
their customers
3. Make collection for accounts of other
4. Act as managing agent of investment
management accounts
5. Rent out safety deposit boxes
· Bank shall perform 1-4 as a depositary or as an
agent
· It shall be duly separated from bank’s own assets
and liabilities
Safety deposit box
· It is considered as a special kind of deposit
· It cannot be an ordinary contract of lease because
the absolute control and possession of safety
deposit box is not given to renters
· The guard key remains with bank and renters key
remain in customer
· Where the renter keys are duplicated, the bank is
not liable to either renters in case of loss
attributable to them
· The SC said that it can be considered as a bailor
and bailee relationship
· Duties of the parties may be defined by them
· The company renting safe-deposit boxed cannot
exempt itself from liability due to fault of its own
agents
· In Sia vs. CA, a bank was held liable for not
immediately informing the customer that his safety
deposit box was flooded which caused damage to
the items of the customer
XII. Electronic transactions
· BSP shall have full authority to regulate use of
electronic devices in connection with bank
operations
XIII. Outsourcing of information technology
· Bank may outsource information technology
systems and processes except inherent banking
functions
· Functions that are not outsourced:
1. Strategic planning for use of IT

Banking Laws
22
2. Determination of system functionalities
3. Change management inclusive of quality
assurance
4. Service level and contract management
5. Security policy and administration
XIV. Outsourcing of other functions
· Subject to prior approval of MB, banks may
outsource data imaging, storage, retrieval and
other related systems
· Banks may outsource credit card services
XV. Credit Card Transactions
General policy
· BSP shall develop consumer credit through
innovative products
Definition of terms
· Credit card – any card, plate, coupon book or
other credit device for the purpose of obtaining
money, property, labor or credit
· Credit card receivables – total outstanding balance
of cardholders
· Minimum amount due - minimum amount that
cardholder needs to pay on due date
· Default – non-payment of minimum amount due
within two cycle dates
· Acceleration clause – gives bank the right to
demand obligation in full in case of default
Risk management system
· System that shall safeguard interests, banks and
subsidiary credit card companies
Minimum requirements
· Before issuing credit cards, banks must exercise
proper diligence by ascertaining applicant possess
good credit standing and are financially capable to
fulfil payments
· All applications must go under strict credit risk
assessment process
Information to be disclosed
· Banks shall disclose to each prospective
cardholder non-financial charges, percentage of
interests, interest rate per annum, instalment
details, default fees, etc.
Accrual of interest earned
· Interest accrued shall be reserved and no accrual
shall be allowed 90 days after credit card
receivable has become past due
Finance charges – interest charged to cardholder
Deferral charges
· Parties can agree to a deferral of all or partly of
unpaid instalments and will subsequently collect
deferral charge
Late payment and penalty fees
· No late payment or penalty fee shall be collected
unless it is fully disclosed in the contract
Confidentiality if information
· Banks shall keep strictly confidential data on
cardholder except when there is consent, exchange
of information with other credit card companies,
disclosure to collecting agent
Suspension, termination of effectivity and reactivation
· banks shall formulate parameters for such
Inspection of records covering credit card truncations
· banks shall make available for inspection credit
card information to BSP
Offset
· Banks can offset their obligations with cardholder
with the latter’s debts provided there is notice
Handling of complaints
· bank shall give cardholder 20 days to examine
charges and after 2 billing cycles, bank can correct
error
Unfair collection practices

Banking Laws
23
· banks shall resort to legally permissible means to
collect amount due under credit card agreement
· There shall be no use of threat or violence to
coerce payment and no false representation
Additional deposit does not increase credit limit
Contract of adhesion
· Contract between cardholders and credit card
companies are contract of adhesion becomes they
are prepared only by one party and the other party
only signifies
Blanket freedom from liability is invalid
· The credit card company cannot excuse itself from
liability completely as with blanket of freedom
XVI. Rules of Price tags
One price tag requirement
· Every retailer is required to display price tag to
indicate price of good or service
· Price tag must be written clearly indicating the
price including VAT. Service charge shall not be
included in price tag
Mode of payment
· It is necessary to consider business practices
relative to mode of payment under Price Tag Law
· When consumer pays in cash, he shall only pay the
price indicated
· When consumer pays through credit/ATM/debit
card, he shall only pay price indicated in tag
· When retailer offers consumer option to pay in
cash or card, the same is allowed provided that
options are disclosed by separate information but
not on the price tag
· Price that indicates separate cash price and regular
cash price is not allowed
· Price tag that indicates separate price tag and card
price is also not allowed
Prohibition against surcharging
· Retailers who honor credit/ATM/debit cards for
payment shall not require payment of surcharge
over and above the price tag

Banking Laws
24
CHAPTER 5 – Prohibited Transactions and Cessation
of Banking Business
I. Prohibited Transactions
Prohibited to act as insurer
· Bank shall not directly engage in insurance
business as insurer
· Insurance act shall include making insurance
contract, surety contract, doing business of
reinsurance
· Fact that no profit is derived shall not be deemed
conclusive to show that there is no insurance
business
Prohibited acts
· No director shall:
1. Make false entries in any bank report
2. Without order of court, disclose to an
unauthorized persons an information
relative to funds or properties in custody
of customers
3. Accept gifts, fees or commission in
connection for approval of loan
4. Overvalue a security for purpose of
influencing actions of bank
5. Outsource inherent banking functions
This is to ensure secrecy of bank
deposits
· No borrow shall
1. Fraudulently overvalue security for loan
2. Furnish false material facts to obtain or
increase loan
3. Attempt to defraud bank in event of court
action to recover loan
4. Offer any DOE any gift, fee, commission
to influence person to approve loan
· No examiner, officer or employee of BSP assigned
to supervise, examiner rendering technical
assistance to bank shall commit the foregoing acts
· No bank shall employ causal or non-regular
personnel or too lengthy probationary personnel in
business involving bank deposits
Prohibition against Outsourcing Certain Banking
Functions
· Outsourcing inherent banking function shall
refer to any contract between the bank and
service provider for the latter to supply, or any
act whereby the latter supplies, the manpower
to service the deposit transaction of the former.
II. Conducting business in an unsafe or unsound manner
· To determine whether act or omission is
considered unsafe or unsound for banking, the
following shall be considered:
1. Resulted in material damage or abnormal
risk to stability, solvency of bank
2. Resulted damage in depositors, creditors,
investor or public
3. Cause undue injury or unwarranted
benefits to any party
4. Involves entering contract manifestly
disadvantageous to bank regardless if DO
will profit
· MB can take action and exclude erring bank from
clearing
III. Prohibition on dividend declaration
· No bank shall declare dividends greater than its
accumulated net profits on hand, deducting its
losses and bad debts
· The bank shall also not declare dividends if at time
there is:
o Clearing account in BSP is overdrawn
o Deficient in require liquidity floor for 5 or
more consecutive days
o Does not comply with liquidity standards
o Committed major violation
· Banks are entities exempted from improperly
accumulated earnings tax (10% of said income) by
NIRC
IV. Unauthorized advertisement or business representation

Banking Laws
25
· No persons or corporation shall engage in banking
business shall advertise that it has a business of a
bank, quasi-bank or trust entity
V. Placement under conservatorship
Grounds for appointment of conservator
· Whenever the MB finds the bank in a state of:
1. Continuing inability or
2. Unwillingness to maintain a condition of
liquidity deemed adequate to protect
depositors and creditors
· MB may appoint conservator with following
powers:
1. Take charge of assets, liabilities and
management thereof
2. Reorganize management
3. Collect monies and debs due
4. Exercise all powers necessary to restore
viability
· Conservator shall report to MB and shall have the
power to overrule or revoke actions of previous
management
· Rehabilitation proceedings provide for equitable
distribution of insolvent debtor’s remaining assets
to its creditors and give debtor a fresh start by
relieving them of the weight of their debts
· Liquidity – ability of an asset to be converted in
cash quickly and without discount
· Solvency – liabilities amount to less than total
assets providing ability to pay debts
· Test of insolvency – determining realizable assets
of bank is less than its liabilities
· Insolvency of bank occurs when actual cash
market value of its asset is insufficient to pay its
liabilities
· BSP is vested with exclusive authority to assess,
evaluate and determine condition of a bank
whether it is insolvent or not. If insolvent,
receivership proceedings
Qualification of conservator
· Conservator must be competent and
knowledgeable in bank operations and
management
· Period of conservatorship shall not exceed 1 year
Remuneration
· Conservator shall receive remuneration to be fixed
by MB in an amount not to exceed 2/3 the salary
of president of bank in 1 year, payable in 12 equal
instalments
· If within one year the conservatorship is
terminated on ground that institution can operate
on its own, conservator shall receive balance
· But if it is terminated on some other ground,
conservator shall not be entitled to remaining
balance
· MB can appoint conservator connected to BSP in
which case he shall not receive remuneration from
BSP
Expenses of conservatorship
· It shall be borne by bank concerned
Terminations of conservatorship
· MB shall terminate the conservatorship is it is
satisfied that bank can continue operations
· Conservatorship can also be terminated on basis of
report of conservator or its own findings would
involve loss
· In such as case, there shall be receivership or
liquidation
Final and executory
· Action of MB shall be final except on petition for
certiorari in case of grave abuse of discretion
· It shall be filed within 10 days from receipt of
notice of board of directors of conservatorship,
receivership or liquidation
Exclusive power to appoint conservator shall lie in MB
Designation of conservator is not precondition to
designation of receiver
Power of conservator cannot impair obligations of
contracts
· Conservator power to revoke contracts cannot
post-facto affect perfected transaction as it would
infringe non-impairment clause

Banking Laws
26
· Conservator is given power to revoke contracts
only those that are defect (void, voidable,
unenforceable, rescissible)
· Conservator merely takes place of board of
directors
· Conservator cannot simply repudiate valid
obligations of the bank and must bring them to
court actions
· In FPIB vs. CA the court ruled that the conservator
cannot revoke a previously valid contract entered
by the bank even though the object of the contract
has a higher price
· In conservatorship, the banking functions continue
unlike in receivership and liquidation
VI. Cessation of banking business
Voluntary liquidation
· In voluntary liquidation, bank sends to MB notice
of liquidation
· No voluntary dissolution shall be undertaken by a
bank without prior approval of MB. Request of
voluntary dissolution shall be accompanied by
liquidation plan
Receivership and liquidation
· The MB can summarily and without need of prior
hearing forbid the institution from doing business
and designate PDIC as receiver
· Grounds for receivership and liquidation:
1. Unable to pay liabilities that are due. This
shall not include inability to pay cause by
extraordinarily demands by financial panic
2. Insufficient realizable assets
3. Cannot continue business without
involving probable loss to depositors or
creditors
4. Wilfully violated cease and desist order
involving transactions of fraud
5. In case a bank notifies BSP or public
announces bank holiday where it suspends
payment of its deposit liabilities
continuously for more than 30 days
· For quasi-banks any persons recognize in
competence in banking may be designated as
receiver
1. Current and complete examination not necessary
· In Rural Bank of San Miguel vs. MB, the SC ruled
that there is no need for complete examination
because it only needs a report
· A report is something that gives information while
examination is a search, investigation or scrutiny
· Absence of examination before closure of bank
does not mean that there is no basis for closure
2. Procedure
· Receiver shall immediately:
1. Take charge of all assets and liabilities
2. Administer the same for benefit of
creditors
3. Exercise general power of receiver under
ROC
4. Shall not pay or any act that involves
transfer of asset of bank
· Receiver may deposit or place funds of bank in
non-speculative investments
· Receiver shall determine within 90 days from
takeover, whether institution may be rehabilitated
or otherwise
· Determination of resumption of business is subject
to approval of MB
· In Teal Motor vs. CFI, receiver was defined as a
indifferent person appoint by the court to preserve
the funds of the in litigation pendent lite
· He is not an agent or representative of any party
3. Prohibited acts
· Any director or officer declared insolvent or under
receivership shall not commit:
1. Refuse to turn over bank records and
assets to receiver
2. Tamper with bank records
3. Appropriate for himself or other party
assets of bank
4. Receive bank deposits or collect loans
5. Paying funds of bank
6. Transferring security of bank
4. When institution cannot be rehabilitated

Banking Laws
27
· If receiver determines that bank cannot be
rehabilitated, MB shall notify the board of
directors that it shall proceed with liquidation
· The receiver shall file ex parte with RTC a petition
for assistance in the liquidation of the bank
pursuant to liquidation plan of PDIC
· Court shall adjudicate disputed claims, assist the
enforcement of liabilities
· Receiver shall pay cost of proceedings from assets
of institution
· Receiver shall convert assets of institution to
money and dispose the same to creditors and other
parties to pay bank debts
5. Final and executory
· Just like in the case of conservatorship, the action
of MB shall be final and executor unless there has
been certiorari
· In Rural Bank of San Miguel vs. MB, closure of a
bank is an exercise of police power
· In only stockholders of bank can file action for
annulment of MB resolution of placing bank in
receivership
Close Now Hear Later Scheme
· The law does not contemplate prior notice and
hearing before bank may be directed to stop
operations and placed under receivership
· Previous hearing before closure is not required in
the law and does not infringe due process
· However, bank can question the receivership
within 10 days after receivership
· Close now hear later – practical consideration to
prevent unwarranted dissipation of bank’s assets
and valid exercise of police power to protect
depositors, creditors and public
· If otherwise, there mere filing of receivership by
BSP can trigger bank run and drain its assets in
days or hour leading to insolvency
Effect of filing petition for review
· Pendency of case questioning receivership does
not diminish of receiver to administer bank’s
transactions pertaining to normal operations of the
bank
Reasons behind receivership and involuntary liquidation
1. Banking business is subject to regulation under
police power and are affected with public interest
2. It is the government responsibility to see that
financial interest of depositors and others are
protected. Done through BSP
3. Public faith in banking system may deteriorate if
depositors, creditors are not protected. BSP shall
step in and salvage remaining resources of bank
4. Absence of notice and hearing is not a groun to
annul MB resolution
Effects of receivership
1. Retention of juridical personality
· There shall be retention of judicial personality
even though it is ordered closed by MB
· The suing must be done through the liquidator
2. Not liable to pay interest
· Banks declared insolvent and ordered closed by
BSP cannot be held liable to pay interest
· When bank is closed, it cannot lend money,
engage in transactions or any banking activities
where it can derive income from
· Thus there is no way the bank can pay the interest
the accrues in favour of its depositors
· However, there are two types of deposits that earn
interest. The first one, deposit that earn from the
existence until the bank cease to operate. This one
must be paid. The second interest earned from the
time the bank closed until payment of deposits.
The interest here must not be paid
3. Assets deemed under Custodia Legis
· Assets if the bank becomes beyond its control.
Receiver operates to suspend the authority of the
bank to its properties
· Assets of bank shall be custodia legis in hands of
receiver and exempted from garnishment, levy,
attachment
· Liquidator – task is to dispose all assets of the
bank and effect partial payments of banks
obligations
4. Stay of execution

Banking Laws
28
· Stay of execution is warrant if bank is placed
under receivership
· To execute a judgment against a bank under
receivership would unduly deplete its assets to the
prejudice of depositors and creditors
5. Restriction of bank’s capacity to Act
· Insolvency of bank restricts its capacity to act
· Bank cannot make new business such as accept
new deposits or grant loans. But receiver must
collect debts in favour of the bank that will form
part on bank asset
· Foreclosure falls within board definition of “doing
business”
· Doing business - continuity of commercial
dealings and arrangements incident to object of
organization
· However, it shall not be included in those act
prohibited from doing business
· Thus even if there is receivership or liquidation,
the period of prescription to foreclose continues to
run
· In BF vs. Ybanez, the court ruled that receiver ca
still collect interest on loans during period of
closure
6. Exercise of jurisdiction of liquidation court
· All claims of bank must be filed in BSP
· It is to prevent multiplicity of against bank
· Exclusive jurisdiction of liquidation court pertains
only to adjudication claims against bank and does
not cover reverse situation
· Not necessary that claim is initially disputed
before it is filed
· In Ong vs. CA, if buyer bought a property from
the bank who is already declared insolvent, sale is
void
VII. Disposition and distribution of assets
· In case of liquidation, after payment of cost of
proceedings, receiver shall pay debts of institution
in accordance with preference of credit in NCC
· Current accounts and savings accounts are not
preferred credits in cases involving insolvency
where there are various creditors
Disposition of revenues and earnings
· All revenues and earning realized by receiver
during receivership shall be used to pay costs of
proceedings
· The balance of revenues shall form part of assets
available to payment of creditors
Disposition of banking franchise
· BSP, if public interest requires, award to another
institution the banking franchise under liquidation
· Whatever proceeds may be realized from award
shall be subject to exclusive disposition of MB
Liabilities
· Bank is bound by the acts or failure to act of
receiver
· Receiver is liable to bank for culpable and
negligent failure to collect and safeguard assets of
such banks

Banking Laws
29
CHAPTER 6 – Foreign Banks and Trust Operations
I. Foreign Banks
Transacting business in the Philippines
· RA 7721 – Foreign Banks Liberalization Act
· PD 1034 – Conduct of offshore banking business
· Offshore banking – conduct of banking transaction
in foreign currencies
· Offshore banking unit – branch of a foreign baking
corporation authorized by BSP to transact offshore
banking
· Foreign corporation doing business in the
Philippines are required to obtain a license
· However, even if foreign corporations do not have
a license, they can still be sued or be sued
· License is only necessary if it is for transacting or
doing business in the country
Acquisition of voting stock in domestic bank
· Foreign banks are allowed entry in the Philippines
subject to the following rules
1. Within 7 years from effectivity of GBL,
MB shall authorize foreign banks to
acquire 100% voting stock of 1 domestic
bank
2. Within same period, MB may allow
foreign bank which prior to GBL has
already acquired 60% voting stock can
now acquire 100%
3. MB must ensure that 70% of resources of
banking system are held by majority-owned
Filipinos
Local branches of foreign banks
· Foreign banks which has more than 1 branch in
the Philippines, all such branches shall be treated
as 1 unit
Head office guarantee
· Head office shall fully guarantee prompt payment
of all liabilities of its Philippines branch
· Residents and citizens of the Philippines that are
creditors of foreign banks shall have preferential
right to assets of such banks
· Under RA 7721, foreign banks have three modes
of entry in the country:
1. Acquiring 60 of voting stock of existing
bank
2. Investing 60% of voting stock of new
banking subsidiary incorporated in
Philippines
3. Establishing branches with full baking
authority
· A foreign bank may only avail only 1 mode of
entry
· GBL only stated that branches of foreign banks
will be treated as one and shall have the head
office guarantee to creditor Filipino citizens
· However, there is nothing in the law that states
that citizens that are debtors to foreign bank local
branches shall also be debtors to the head office
· There is also nothing in the law that the head
office and its local foreign branches shall be
treated as one
· Thus, compensation with Philippine branches with
foreign branches cannot be effected as they cannot
be considered creditors and debtors of each other
Summons and legal process
· Summons must be given to the Philippine agent or
head of foreign bank to have jurisdiction
· If there is no agent, summons may be made upon
BSP deputy governor in-charge
· Once given, it shall be effect as if made upon bank
or agent
· BSP deputy governor in-charge shall mail it to the
bank and sending copy is a necessary part to
complete service.
· In the corporation code, the service, in case of
absence of agent, shall be given to SEC
Laws applicable
· Foreign banks shall be governed by GBL and
other applicable laws such as Corporation Code
Revocation of license of foreign banks

Banking Laws
30
· MB may revoke license if it find foreign bank
insolvent or imminent danger of insolvency and
will involve probable loss
· After revocation, it shall be unlawful for foreign
bank to transact business in the Philippines
II. Entry of Foreign Banks
· State shall devote self-reliant and independent
national economy
· Guidelines for approval:
1. Ensure geographic representation
2. Consider strategic trade relationships
3. Study demonstrated capacity
4. See reciprocity of right
5. Consider willingness to fully share
technology
· Only those belonging to top 150 in the world or
top 5 banks in their country of origin shall be
allowed entry
· To establish a branch or subsidiary, foreign bank
must be widely-owned and publicly listed in its
country origin unless government owned
· Capital requirement:
1. For locally incorporated subsidiaries –
same minimum capital with domestic
banks
2. Foreign bank branches – US dollar
equivalent of P219M at exchange rate
during effectivity of Act. The foreign bank
shall be entitle to 3
3. Foreign banks may open 3 additional
branches designated by MB – P35M per
additional branches
· Foreign banks within 5 year from effectivity of
this act is only allowed 6 foreign bank to enter the
country
· An additional 4 foreign banks may be allowed
entry by recommendation of MB
· Non-Filipino citizens can be members of board of
directors up to the extent of the allowed foreign
participation
· Philippine corporations who have listed share of
stock in PSE or long standing for 10 year shall
have right to own 60% voting stock of a domestic
bank
· Existing local branches of foreign banks shall be
given 1.5 years to comply with minimum capital
requirement
· RA 7721 was approved on May 18, 1994
III. Trust Operations
Authority to engage in trust business
· Trust business – any activity resulting in trustor-trustee
relationship involving appointment of a
trustee by a trustor for the administration, holding,
management of funds or properties of trustor by
the trustee
· It is for the use, benefit or advantage of the trustor
or other beneficiaries
· Cardinal principle of trust and other fiduciary
relationship is fidelity
Conduct of trust business
· Trust entity shall administer the funds or property
under its custody with diligence that a prudent
man would exercise
· Trust entity – stock corporation or person
authorized by MB to engage in trust business shall
act as trustee or administer any trust or hold
property in trust
· No trust entity shall for the account of the trustor
or beneficiary,
1. purchase, acquire, sell, property
2. transfer or purchase money or debt
instruments from/to DORSI of trust entity
and relatives of first civil degree
3. unless authorized by the trustor after prior
full disclosure of transaction
Registration of articles of incorporation and by-laws of
trust entity
· SEC shall not register such unless accompanied by
certificate of authority from BSP
· A trust business shall start from the moment their
articles of incorporations are registered
Minimum capitalization

Banking Laws
31
· A trust entity, before engage in trust business,
shall comply with minimum paid-in capital
requirement by MB
Powers of trust entity
1. Act as trustee on any mortgage or bond and accept
and execute any trust consistent with law
2. Act under order of any court as guardian, receiver,
trustee or depositary of estate of minor or
incompetent person
3. Act as executor of any will
4. Act as executor of estate of any deceased person
with a will or administrator without a will
5. Accept and execute trust for holding, management,
administration of estate and rents, issues, profits
thereof
6. Establish and manage common trust funds
Transactions requiring prior authority
· Trustee or trust entity shall not undertake any of
the following transactions for the account of the
client unless there is prior full disclosure and
authorization by client
1. Lend, sell, transfer or assign money or
property to DOSRI of trustee, relatives of
trustee or related interest of such DOSRI
where trustee owns at least 50% of voting
stock
2. Purchase and acquire property or debt
instrument in the same manner
3. Invest in equities or in securities
underwritten by trustee in which trustee
has interest
4. Sell, transfer, assign or lend money or
property from one trust account to another
account
Deposit for the faithful performance of trust duties
· Before transacting trust business, they must
deposit to BSP for faithful performance of trust
duties an amount not less than 500k or higher as
may be fixed by BSP
· MB shall require trust entity to increase the
amount whenever the increase is necessary by
reason of trust business
· Paid-in capital and surplus of each entity must be
equal to the amount required to be deposited in
BSP
· In case it shall not meet the required paid-in
capital, the MB shall limit or prohibit distribution
of profits by trust entity until minimum
requirement is met
· Trust entity, as long as solvent and comply with
laws, shall have the right to collect interest earned
on security deposited to BSP
· If trust entity fails to comply with law, BSP shall
retain interest of securities for benefit of rightful
claimants
· All claims arising from trust business shall have
priority over all claims as regard to the security
deposited
IV. Bond of Certain Persons for the Faithful Performance
of Duties
Bond requirement
1. Before executor, administrator, guardian, trustee,
receiver or depositary appointed by the court enter
upon execution of dues, court may order bond
2. Upon application of such persons, after notice and
hearing, court shall order that subject matter of
trust be deposited with trust entity
3. Upon presentation of proof that subject matter
have been deposited to trust entity, court may
order that bond be given by such persons for
faithful performance
4. Reduce bond shall be sufficient to secure
adequately the proper administration of any
property
Exemption of trust entity from bond requirement
· No bond shall be required by court from trust
entity for faithful performance
· However court may order bond for the protection
of funds or property confided
V. Operations of Trust Entity
Separation of trust business from general business

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