Banking Law Reviewer To promote & maintain a stable & efficient banking and financial system that is globally

competitive, dynamic and responsive to the demands of a developing economy.

I. General Banking Laws:
1. GBL Why are banks impressed with public interest?
2. NCBA Because of the fiduciary nature of banking that requires high standards of integrity and
performance. Of paramount importance is the trust and confidence of the general public in
II. Special laws: the banking industry. Thus, it is subject to reasonable regulation by the Police Power of the
1. New Rural Banks Act State.
2. Private Devt Banks Act
3. Savings & Loan Association Act Can banks engage in other types of business?
4. Trift Banks Act It depends of the Monetary Board approves it.

III. Other Laws: Can banks engage in insurance?

1. Secrecy of Bank Deposits Law No, banks cannot directly engaged in insurance business as the insurer.
2. Foreign Deposit Act (Sec 54 of the GBL)
3. Unclaimed Balances Law
4. Phil Deposit Insurance Corp Act Distinguish:
5. AMLA Corporation Banking
6. Civil Code It may be a stock or non-stock Must generally be a stock
corporation corporation
Definition of Bank May be registered with the SEC Must secure a Cert of Authority
Sec 3 of GBL: Banks shall refer to entities engaged in the lending of funds obtained in the without any certificate of authority from the Monetary Board before it
form of deposits from the public. issued by a govt agency can register with SEC

Entities primarily interested: Pawnshop – person/ entity which lends money using its own funds
1. Government
2. Bank NOTE: Are pawnshops considered a bank? NO. funds are not from public purpose.
3. Investor
4. Depositor Financial Intermediaries – persons/ entities whose principal functions include the
5. Borrower lending, investing or placement of funds on evidences of indebtedness or equity deposited
6. Creditor with them, acquired by them, or otherwise coursed through them, either for their own
account or for the account of others.
State Policy:
Sec 2: The State shall recognized the vital role of banks in providing an environment 5/6 Bombay Lending– also known as shadow banking. This is lending by unregistered
conducive to sustained development of the national economy and fiduciary nature of and unregulated individuals who charged high interest (20% per month)
banking that requires high standards of integrity and performance.
Purpose of GBL: Relationship of bank with the depositor:
Debtor-Creditor relationship – the cx bet’n the bank and the depositor Rural – these are mandated to make needed credit available and easily accessible in rural
areas on reasonable terms and primarily governed by the Rural Banks Act.
Characteristics of banks:
1. In the nature of irregular deposits Islamic – its dealings and activities are subject to the principles and rules of Islamic
2. It is like a loan to a bank because the bank can use the money an it earns interest Shari’a
3. The money deposited commingled with other funds, constitution a common fund
Cooperative – banks organized by, majority of the stocks are owned and controlled by,
What diligence is required from a bank? cooperatives with the primary purpose of providing financial and credit services to
- Utmost diligence or extraordinary diligence cooperatives.
- With meticulous care
- Fiduciary nature of their relationship Distinguish:
- Impressed with public interest Universal Bank Commercial Bank
Has the highest capitalization W/ lower capitalization requirement
Classifications of Banks: CUTRICO requirement
1. Commercial Has the power of an investment No power of an investment house
2. Universal house and investment in non-allied and investment in non-allied
3. Thrift enterprises. enterprises.
4. Rural Can invest both in allied financial Can invest only in allied financial
5. Islamic and non-financial. and non-financial.
6. Cooperative
7. Other:
a. PNB Offshore banking – conduct of banking transaction in foreign currencies involving the
b. PVB receipt of funds from external sources and utilization of such banks.
c. DBP
Offshore banking unit – a branch of a foreign banking corporation duly authorized by
Definition: BSP to transact offshore banking in the Phils
Commercial – with lower capitalization requirement than UB and can neither exercise
powers of an investment house or investment in non-allied enterprises. Non-stock savings corporation - non-stock, non-profit corporations engaged in the
business of accumulating the savings of its members and using such accumulations for
Universal – has the highest capitalization requirement and has the power of an extending credit to them.
investment house and investment in non-allied enterprises.
Allied Enterprises – entities which are substantially connected in banking services. It
Thrift – these are enhances or complements banking enterprises.
1. Savings and mortgage banks a. Financial AE – involves money matters
2. Stock savings and loan associations Ex: credit card companies
3. Private devt banks b. Non-financial AE – does not involve money matters
which are governed by thrift banks act. Ex: storage companies
 Foreclosure Proceedings
Non Allied Enterprises – not connected in banking services. Rules:
a. Financial NAE - 1. Foreign banks authorized to do banking shall be allowed to bid and participate in
b. Non-financial AE - the foreclosure;
2. They can take possession of the property for a period not exceeding 5years;
3. They must transfer ownership to a qualified Filipino national within 5years
ORGANIZATION, MANAGEMENT & OPERATIONS
A. The SEC shall not register the by-laws or any amendment thereto without Cert of Foreign stockholdings
Authority from the Monetary Board. foreign individual & non-bank foreign corporations – they can own & control up to 40% (in
Requirements for the issuance of Cert of Authority: RPC total)
1. All the requirements of existing laws and regulations to engage in the
business to which the applicant is proposed to be incorporated has been FUNCTIONS OF BANKS:
complied with; 1. Loan function
2. The public interest and economic conditions, both in general and local, justify 2. Deposit function
the authorization;
3. The amount of capital, financing, organization, and administration, including LOAN FUNCTION
integrity and responsibility of the organizers and administrators, reasonably Rules: ASA
assure the safety of deposits and the public interest. 1. The bank must grant loans & other credit accommodations only in the amounts
and periods necessary for the effective completion of the project to be financed;
B. Other conditions: SPC 2. It must consistent with safe and sound banking practices; and
1. The entity is a stock corporation; 3. Before granting loans & other credit accommodations, the bank must ascertain
2. The funds are obtained from the public that the debtor is capable of fulfilling his obligations to the bank
3. The minimum capital requirement required by the MB are satisfied
CLASSES of LOANS:
FOREIGN BANKS IN THE PHILIPPINES (RA 10641) 1. Unclassified – do not have a greater than normal risk & the borrower has the
apparent ability to satisfy it in full and no loss in collection is anticipated
Modes on Entry: Sec 1 2. Classified – have extraordinary risk of loss in collection due to some defects such
1. By acquiring, purchasing, or owning up to 100% of the voting stocks of an existing as bad debts and those under litigation
bank; Bad debts – debts that cannot be recovered
2. By investing up to 100% of the voting stocks of a new banking subsidiary
incorporated under Phil laws; LIMITATIONS ON LOANS, ACCOMMODATIONS & GUARANTEES (Sec 35 of
3. By establishing branches in the Phil with full banking authority GBL)
1. Single Borrower’s Limit (SBL) Rule
Note: 2. Joint ND Solidary Signature (JSS) Practice
 Only established, reputable, and financially sound foreign banks shall be allowed 3. Restrictions on Bank Exposure to Directors, Officers, Stockholders and Related
entry (Sec 3) Interests (DOSRI) Accounts
 Equal treatment of foreign banks (sec 5)
1. Single Borrower’s Limit (SBL) Rule
GR: The total loans, cr accommodations and guarantees by a bank to any person, 2. JSS practice
partnership, association, corp, or other entity shall in no time exceeds 25% of A common banking practice requiring as an additional security for a loan granted to a
the net worth of the said bank. corporation the joint and solidary signature of a major stockholder or corporate officer of
the borrowing corp.
EXN:
1. When the MB provides otherwise for reasons of national interest; and Reasons:
2. Deposits of rural banks with govt owned and controlled financial institutions 1. Surety would be compelled to ensure that the loan will be use for the intended
purpose; and
Note: 2. In case of default, the cr’s recourse will not only be limited to corporate props but
It may be increased by an additional 10% of the net worth of the bank, provided that the extends to the personal props of the surety
additional liabilities of the borrower is fully secured by trust receipts, xxx, etc, transferring
or securing title covering readily marketable and non-perishable goods w/c must be fully
insured. 3. Restriction on Bank Exposure to DOSRI accounts
EXN: when the MB provides otherwise Requisites:

EXCLUSIONS FROM SBL – Non-Risk Loans

1. Loans secured by obligations of the BSP
2. Loans guaranteed by the govt
3. Loans covered by assignment of deposits held in the Phils
4. Loans under letters of cr to the extent covered by margin deposits
5. Other non risk items specified by the MB

ESCALATION CLAUSE
The parties can agree that they may increase the interest rate in case the MB increases
the maximum interest rate.
Note: In order to become effective, it must also provide that:
1. In case the MB decreases the maximum interest rate, the interest rate agreed
upon shall also be decreased.
2. Any increase/ decrease shall take effect only on or after the effectivity of the
increase/decrease in the max int rate.

In the event the escalation clause is annulled, the original interest rate agreed upon shall
be used.