Starred New Gen Banking Laws

Question 1

What is the degree of diligence required of banks?

Answer 1

As to the fiduciary nature of their relationship with their depositors is concerned – more than that of a good father of a family.
In handling deposits – the GBL of 2000 requires highest standards of integrity and performance.

Question 2

What is the Non-waiver of Bank Liability?

Answer 2

No provision of a contract for a financial product or service shall be lawful or enforceable if such provision waives or otherwise deprives a client of a legal right to sue the financial service provider, receive information, or have their complaints addressed or resolved. (Financial Products and Services Consumer Protection Act)

The banks cannot arbitrarily shift the obligation to their clients and hide behind their policy to renege on their explicit and clear obligation under the law and Bangko Sentral rules and regulations.

Question 3

What is the diligence required of banks in the selection and supervision of their employees?

Answer 3

A bank is expected to exercise highest degree of diligence in the selection and supervision of its employees since its business and industry is imbued with public interest.

By the very nature of its work in handling millions of pesos in daily transactions, the degree of responsibility, care, and trustworthiness expected of bank employees and officials is far greater than those of ordinary clerks and employees.

Question 4

What is the nature of the relationship of the bank and its depositor?

Answer 4

Debtor-Creditor Relationship
The relationship between a bank and its depositors is governed by a contract.
The depositor lends the money and the bank agrees to pay on demand.
The bank, as debtor, has the obligation to pay a certain sum of money to the depositor, as creditor.

Question 5

What are the consequences of the transfer of ownership and title to the bank of money deposited by its clients ?

Answer 5

1. The bank can make use of the money deposited for its ordinary transactions and for the banking business in which it is engaged without the necessity of the depositors’ consent.
2. The bank has the right to invoke the rules on compensation. It can set-off deposits in its hands for the payment of any indebtedness to it on the part of a depositor.

Question 6

ToF. Anonymous Accounts or Accounts under Fictitious Names are allowed

Answer 6

False. They are absolutely prohibited.

Question 7

When is an insured deposit ?

Answer 7

– means the amount due to any bona fide depositor for legitimate deposits in an insured bank as of the date of closure, but not to exceed the maximum deposit insurance coverage of P500,000.

Question 8

when is the PDIC not liable to pay deposit insurance?

Answer 8

The PDIC shall not pay deposit insurance for the following accounts or transactions:
1. Investment products, such as bonds and securities, trust accounts, and other similar instruments.
2. Deposit accounts or transactions that are fictitious or fraudulent as determined by the PDIC, such as splitting of deposits.
3. Deposit accounts or transactions constituting unsafe or unsound banking, as determined by PDIC, in consultation with Bangko Sentral, after due notice and hearing, and publication of a directive to cease and desist issued by the Bangko Sentral against such deposit accounts, transactions, or unsafe or unsound banking.
4. Deposits that are determined to be the proceeds of an unlawful activity as defined under the Anti-Money Laundering Act.

Question 9

What is a bank?

Answer 9

“Banks” shall refer to entities engaged in the lending of funds obtained in the form of deposits.

Question 10

ELEMENTS of a bank

Answer 10

1. The entity is engaged in the lending of funds.
2. Funds obtained from the public, which shall mean twenty (20) or more persons.
3. Funds are obtained in the form of deposits.

Question 11

The two (2) basic functions of banks are:

Answer 11

1. Acceptance of deposits from the public, and
2. Lending of funds obtained from deposits.

Question 12

What are the conditions required for the monetary board to authorize the organization of a bank or quasi bank?

Answer 12

8.1 That the entity is a stock corporation; 8.2 That its funds are obtained from the public, which shall mean twenty (20) or more persons; and 8.3 That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied.

Question 13

What is the composition of the board of directors of a bank?

Answer 13

The provisions of the Corporation Code to the contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen (15) members of the board or directors of a bank , two (2) of whom shall be independent directors.

Question 14

What is an independent director?

Answer 14

An “independent director” shall mean a person other than an officer or employee of the bank, its subsidiaries or affiliates or related interests.

They are useful to the corporate entity because of their diligence and independent judgment, regardless of the business interest of the majority.

Question 15

May non-filipino citizens become members of the board of directors bank?

Answer 15

Non-Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721)

Question 16

May non-filipino citizens become members of the board of directors bank?

Answer 16

Non-Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721)

Question 17

What are the powers of the board of directors?

Answer 17

Shall exercise the corporate powers, conduct all business, and control all properties or resources of a bank, quasi-bank, or trust entity.

The powers of the board of directors as conferred by law are original and cannot be revoked by the stockholders.

The board of directors may also assign to the corporate officers other duties relative to the management of the corporation.

Question 18

Who are consideredas board of directors?

Answer 18

The board of directors is primarily responsible for the corporate governance of the bank, quasi-bank, or trust entity. Directors shall include those:

1. Named as such in the articles of incorporation;
2. Duly elected in subsequent meetings of the stockholders or those appointed by virtue of the charter of government-owned BSFIs; and
3. Elected to fill vacancies in the board of directors.

Question 19

What are the GENERAL Duties and Responsibilities of the Board of Directors ?

Answer 19

1. Define the bank, quasi-bank, and trust entity’s corporate culture and values by establishing a code of conduct and ethical standards;
2. Approve the bank, quasi-bank, and trust entity’s objectives and strategies and ensuring management’s implementation thereof;
3. Appoint and select key members of senior management and heads of control functions, and approve a sound remuneration and other incentives policy for personnel; and
4. Approve corporate and risk governance frameworks and oversee their implementation.

Question 20

What on the SPECIFIC Duties and Responsibilities of the Board of Directors?u

Answer 20

1. To remain fit and proper for the position for the duration of his term;
2. Conduct fair business transactions and avoid conflict of interest;
3. Act in the best interest of the institution, its stockholders, and other stakeholders such as its depositors, investors, borrowers, other clients, and the general public;
4. Devote time and attention including attendance and active participation in board meetings;
5. Exercise independent judgment;
6. Act judiciously before coming up with a decision on matters brought before the board;
7. Contribute significantly in the decision-making process of the board;
8. Know the statutory and regulatory requirements affecting the institution; and
9. Observe confidentiality.

Question 21

Who are officers of the bank?

Answer 21

Officers shall include

1. Chief executive officer;
2. Executive vice president;
3. Senior vice president;
4. Vice president;
5. General manager;
6. Treasurer;
7. Secretary;
8. Trust officer;
9. And others mentioned as officers of the BSFI, or those whose duties as such are defined in the by-laws, or are generally known to be the officers of the BSFI (or any of its branches and offices other than the head office) either through announcement, representation, publication, or any kind of communication made by the BSFI.

Question 22

Qualifications of a Director or Officer

Answer 22

In determining whether a person is fit and proper for the position of a director or officer, the following matters must be considered:
1. Integrity or probity;
2. Physical or mental fitness;
3. Relevant education and/or financial literacy or training;
4. Possession of competencies relevant to the job, such as knowledge and experience, skills, diligence, and/or independence of mind; and/or
5. Sufficiency of time to fully carry out responsibilities.

Question 23

Who are permanently disqualified to be board of directors?

Answer 23

Permanently Disqualified

1. Persons who have been convicted by final judgment of a court for offenses involving dishonesty or breach of trust;
2. Persons who have been convicted by final judgment of a court or other tribunal for violation of securities and banking laws, rules, and regulations;
3. Persons who have been convicted by final judgment for cases filed against them for offenses under PDIC Charter;
4. Persons who have been convicted by final judgment of a court for offenses which involves moral turpitude, or for offenses which they were sentenced to serve a term of imprisonment of more than six (6) years;
5. Persons who have been judicially declared with finality as insolvent, spendthrift, or incapacitated to contract.
6. Persons who were found to be culpable for the bank’s closure, as determined by the Monetary Board;
7. Persons found by the Monetary Board to be administratively liable for violation of laws, rules, and regulations implemented by Bangko Sentral, where a penalty of removal from office is imposed, and which resolution of the Monetary Board has become final and executory; and
8. Persons found liable by any government agency or corporation, including government financial institution, for violation of any law, rule, or regulation involving dishonesty, misconduct, or any other grave or less grave classified under Administrative Code of 1987 or Civil Service rules that adversely affects their fitness and propriety as directors or officers, and which finding of said government institution has become final and executory.

Question 24

What is the fit and proper rule?

Answer 24

The Monetary Board ensures the quality of bank management and protects depositors and the public by setting and reviewing qualifications for bank directors and officers. It may disqualify, suspend, or remove individuals deemed unfit due to actions or omissions, considering factors such as integrity, experience, education, training, and competence

To maintain the quality of bank management and afford better protection to depositors and the public in general, the Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit. After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank director or officer who commits or omits an act which render him unfit for the position. In determining whether an individual is fit and proper to hold the position of a director or officer of a bank, regard shall be given to his integrity, experience, education, training, and competence.

The Fit and Proper Rule will ensure that bank directors and officers will
always be conscious of the need to take prudent decisions bearing in mind that banking is based on trust and confidence of the general public.

Question 25

ToF. no appointive or elective public official whether full-time or part-time shall at the same time serve as officer of any private bank,

Answer 25

True. Except as otherwise provided in the Rural Banks Act, no appointive or elective public official whether full-time or part-time shall at the same time serve as officer of any private bank, save in cases where such service is incident to financial assistance provided by the government or a government owned or controlled corporation to the bank or unless otherwise provided under existing laws.

Question 26

What are the powers of a universal bank?

Answer 26

A universal bank shall have the authority to exercise the following: 1. The powers of a commercial bank; 2. The powers of an investment house as provided under existing laws; 3. The power to invest as follows: . a. The power to invest in non-allied enterprises; b. The power to own up to 100% of the equity of a thrift bank, a rural bank or a financial allied enterprise c. The power to own up to 100% of the equity in a non-financial allied enterprise; and D. In case of a publicly-listed universal bank, the power to own up to 100% of the voting stock of only one (1) other universal bank or commercial bank.

Question 27

What is an investment house? An

Answer 27

Is an enterprise that engages in the underwriting of securities of other corporations. Is authorized to do, among other things, the following: 1. Arrange to distribute on a guaranteed basis securities of other corporations and of 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 purchase and sell on a best-efforts basis securities of other corporations, and of the government or its instrumentalities.

Question 28

What are the powers of a commercial bank?

Answer 28

A commercial bank may perform the following: 1. Accept savings and time deposits; 2. Accept or create demand deposits; 3. Accept Negotiable Order of Withdrawal (NOW) Accounts; 4. Accept drafts; 5. Issue letters or credit; 6. Discount and negotiate promissory notes, drafts, bills of exchange, and other evidences of debt; 7. Receive other types of deposits and deposit substitutes; 8. Buy and sell foreign exchange and gold or silver bullion; 9. Engage in money market operations, acquire marketable bonds, and other debt securities; 10. Extend credit; 11. Invest in the equities of allied enterprises; 12. Purchase, hold, and convey real estate; 13. Engage in quasi-banking functions; 14. Operate an expanded Foreign Currency Deposit Unit (FCDU); 15. Act as depository of the government, its political subdivisions, instrumentalities, and GOCCs; 16. Sell financial products of its allied undertaking; 17. Issue electronic money products; 18. Issue credit cards; 19. Engage in derivative transactions. A commercial bank may also perform these other banking services: 1. Receive in custody funds, documents, and valuable objects. 2. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidence of indebtedness, and all types of securities; 3. Make collections and payments for the account of others, and perform such other services for their customers as are not incompatible with banking business; 4. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant, or administrator of investment management, advisory, or consultancy accounts; and 5. Rent out safety deposit boxes.

Question 29

Distinguish equity of redemption and right of redemption.

Answer 29

In relation to mortgage, the right of redemption exists in extra-judicial foreclosure; while equity of redemption exists only in judicial foreclosure. In extrajudicial foreclosure, the mortgagor may exercise his right of redemption within 1 year from the registration of the sale in the Office of the Registry of Deeds; while in judicial foreclosure, the mortgagor may exercise his equity of redemption during the period of not less than 90 days nor more than 120 days from entry of judgment of foreclosure or even after the foreclosure sale but before the judicial confirmation of the sale. There is no right of redemption in judicial foreclosure of mortgage, except only if the mortgagee is the Philippine National Bank or any banking institution. Thus, in judicial foreclosure of mortgage where the mortgagee is the Philippine National Bank or any banking institution, there exist both equity of redemption and right of redemption. (HUERTA ALBA RESORT V. CA, GR [2000]).

Question 30

What is the redemption period granted to a mortgagor or debtor to reclaim their foreclosed real estate property after a judicial or extra-judicial foreclosure sale?

Answer 30

In the event of foreclosure, whether judicially or extra-judicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom.

Question 31

What right does the purchaser at an auction sale acquire immediately after the confirmation of a judicial or extra-judicial foreclosure sale?

Answer 31

The right to immediately take possession and administer the property However, the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding. 

Question 32

Discuss the differences in redemption rights between individual borrowers and juridical persons in the context of extra-judicial foreclosure in the Philippines. How does the limitation on the redemption period for juridical persons impact financial institutions and corporate borrowers? Do you think this rule is fair? Justify your answer.

Answer 32

In the Philippines, redemption rights allow borrowers to reclaim their foreclosed properties by repaying their outstanding obligations within a specified period. However, the law distinguishes between individual borrowers and juridical persons (such as corporations, partnerships, or associations) in terms of the redemption period. For individual borrowers, whether the foreclosure is judicial or extra-judicial, they have one (1) year from the date of sale to redeem the property. This provides ample time for individuals to gather funds and repurchase their foreclosed property. For juridical persons, the redemption period in extra-judicial foreclosure is significantly shorter. They may redeem the foreclosed property only until the registration of the certificate of foreclosure sale with the Register of Deeds, or three (3) months after foreclosure, whichever comes first. This means the redemption period could be as short as a few days if the sale is promptly registered.

Question 33

what is the Ceiling on Investments in real estate?. 

Answer 33

Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business: Provided, however, That the total investment in such real estate and improvements thereof including bank equipment, shall not exceed fifty percent (50%) of combined capital accounts: Provided, further, That the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank's total investment in real estate, unless otherwise provided by the Monetary Board.

Question 34

What are the exceptions to the limitations on acquiring real estate?

Answer 34

Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or convey real property under the following circumstances: 52.1. Such as shall be mortgaged to it in good faith by way of security for debts; 52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings, or 52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due it.

Question 35

what are the rules on Acquisition of Real Estate by Way of Satisfaction of Claims.

Answer 35

Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That the bank may, after said period, continue to hold the property for its own use, subject to the limitations of the preceding Section.

Question 36

What other services may a bank provide?

Answer 36

In addition to the operations specifically authorized in this Act, a bank may perform the following services: 53.1. Receive in custody funds, documents and valuable objects; 53.2. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities; 53.3. Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business; 53.4 Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts; and 53.5. Rent out safety deposit boxes.

Question 37

Discuss the provisions concerning the duties of a bank acting as a depositary or agent, especially in terms of its responsibility to keep funds and assets separate from its own, and the actions the Monetary Board can take if the bank faces a crisis situation such as a bank holiday or suspension of payment of deposit liabilities. What measures does this ensure for the protection of depositors and creditors?

Answer 37

The bank shall perform the services permitted under Subsections 53.1, 53.2,53.3 and 53.4 as depositary or as an agent. Accordingly, it shall keep the funds, securities and other effects which it receives duly separate from the bank's own assets and liabilities: The Monetary Board may regulate the operations authorized by this Section in order to ensure that such operations do not endanger the interests of the depositors and other creditors of the bank. In case a bank or quasi-bark notifies the Bangko Sentral or publicly announces a bank holiday, or in any manner suspends the payment of its deposit liabilities continuously for more than thirty (30) days, the Monetary Board may summarily and without need for prior hearing close such banking institution and place it under receivership of the Philippine Deposit Insurance Corporation.

Question 38

May a bank engage in the insurance business as an insurer?

Answer 38

No. A bank shall not directly engage in insurance business as the insurer.

Question 39

What are prohibited transactions for the directors, officials an employees?

Answer 39

55.1. No director, officer, employee, or agent of any bank shall - (a) Make false entries in any bank report or statement or participate in any fraudulent transaction, thereby affecting the financial interest of, or causing damage to, the bank or any person; (b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity: Provided, That with respect to bank deposits, the provisions of existing laws shall prevail; (c) Accept gifts, fees, or commissions or any other form of remuneration in connection with the approval of a loan or other credit accommodation from said bank; (d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank; or (e) Outsource inherent banking functions.

Question 40

What are prohibited transactions for the borrowers?

Answer 40

55.2. No borrower of a bank shall - (a) Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank; (b) Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing, or increasing a loan or other credit accommodation or extending the period thereof; (c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation; or (d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form of compensation in order to influence such persons into approving a loan or other credit accommodation application.

Question 41

What are prohibited transactions for examiner, officers or employee of Bangko Sentral?

Answer 41

55.3 No examiner, officer or employee of the Bangko Sentral or of any department, bureau, office, branch or agency of the Government that is assigned to supervise, examine, assist or render technical assistance to any bank shall commit any of the acts enumerated in this Section or aid in the commission of the same. The making of false reports or misrepresentation or suppression of material facts by personnel of the Bangko Sental ng Pilipinas shall be subject to the administrative and criminal sanctions provided under the New Central Bank Act

Question 42

Under Republic Act No. 1405, also known as the Banks Secrecy Law, banks are prohibited from employing casual, non-regular, or lengthy probationary personnel in their operations involving bank deposits to ensure the confidentiality and security of depositors' information.

Answer 42

True. 55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy Law, no bank shall employ casual or non regular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits.

Question 43

Grounds for Revocation of License of a foreign bank

Answer 43

The Monetary Board may revoke a foreign bank branch’s license to do business in the Philippines on the following grounds: Insolvency; Imminent danger of insolvency; or Continuance in business will involve probable loss to those transacting business with it. When its license is revoked by the Monetary Board, the foreign bank may request for renewal or reissuance of the license.

Question 44

What are the powers of a trust entity?

Answer 44

A trust entity, in addition to the general powers incident to corporations, shall have the power to: 83.1 Act as trustee on any mortgage or bond issued by any municipality, corporation, or any body politic and to accept and execute any trust consistent with law; 83.2 Act under the order or appointment of any court as guardian, receiver, trustee, or depositary of the estate of any minor or other incompetent person, and as receiver and depositary of any moneys paid into court by parties to any legal proceedings and of property of any kind which may be brought under the jurisdiction of the court; 83.3. Act as the executor of any will when it is named the executor thereof; 83.4 Act as administrator of the estate of any deceased person, with the will annexed, or as administrator of the estate of any deceased person when there is no will; 83.5. Accept and execute any trust for the holding, management, and administration of any estate, real or personal, and the rents, issues and profits thereof; and 83.6. Establish and manage common trust funds, subject to such rules and regulations as may be prescribed by the Monetary Board.

Question 45

what are the classifications of the power of a trust entity?

Answer 45

Express or special powers – conferred by the terms of the trust agreement, statute, or judicial authority; Implied, general, or inherent powers - those that are implied from the terms, and normally necessary or appropriate for efficient trust administration, even if the trust agreement is silent.