Banking Law Issues. 1. Banks a. Nature of business b. Authority to incorporate and operate c....

GENERAL BANKING LAW

Banking Law Issues

Topics1. Banks

a. Nature of businessb. Authority to incorporate

and operatec. Classification of Banks

2. Functions of Banksa. Deposit Functionb. Loan Functionc. Other functionsd. Prohibited Acts

3. Ownership of Banksa. Foreign Ownershipb. Filipino Stockholdingsc. Stockholdings of Family

Groups and related interests

4. Directors and Officersa. Composition of Boardb. Meetingsc. Qualifications

5. Liquidity and Security

6. Ownership of Real Property

7. Loan to Banksa. Loans without collateral

b. Emergency Loans

8. Conservatorshipa. Grounds

b. Powers of Conservatorship

9. Receivership and Liquidationa. Grounds

b. Duties of Receiver

c. Close Now-Hear Later Scheme

d. Effect of Receivership and Liquidation

10. Trust Operations of Banksa. Prior Authority

b. Trust Business

c. Powers

d. Separation of Trust Business of Banks

Objectives

General Objective: To be familiarized with the provisions of

the General Banking Law of 2000, and Basel I, II, and III, as well as jurisprudence involving the said laws.

Objectives

At the end of the report, the participants must be able to: Discuss the policy behind the GBL; Define, classify and differentiate banks; Identify and discuss the core and other banking

functions; Discuss and apply the rules on ownership of banks; Describe and evaluate the management of banks;

and Discuss and apply the rules on conservatorship,

receivership, liquidation, and trust operation of banks

GENERAL BANKING LAW

R.A. 8791AN ACT PROVIDING FOR THE

REGULATION OF THE ORGANIZATION AND OPERATIONS OF BANKS, QUASI-BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES

Short Title: General Banking Law of 2000

1. BanksA. DefinitionB. Nature of businessC. Authority to incorporate and operateD. Classification of Banks

A. Definition

Banks are entities engaged in: the lending of funds obtained in the form of

deposits from the public. (Sec. 3.1, GBL)

Requirements: (Sec. 8, GBL) Stock corporation Funds obtained from public

Problem

SA Corp. is an investment company; It established 74 branches throughout

the Philippines; It managed to induce the public to open

59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74;

It loans out the money of its customers, collects the interest and charges a commission to both lender and borrower;

Is SA Corp. a bank?

Answer

Yes. Sec. 2, GBL. Republic v. Security Credit and

Acceptance Corporation. Funds were derived from the public; Lent out the deposit to persons; Violation - engaging in banking

without securing the administrative authority required in Republic Act No. 337.

A. Definition

“Quasi-banks” (QB) refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of receivables and other obligations. (Sec. 4, GBL)

Quasi-banking function is an inherent power of Universal Banks and Commercial Banks.

B. Nature of Business

Policy (Sec. 2, GBL) “The State recognizes the vital role of

banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance.”

B. Nature of Business

Rule on Strikes and Lockouts (Sec. 22, GBL) If unsettled after seven (7) calendar days, Bangko

Sentral reports to the Secretary of Labor who has two options: ▪ (1) assumption jurisdiction▪ (2) certify to NLRC for compulsory arbitration.

The President of the Philippines may, at any time, intervene and assume jurisdiction over such labor dispute in order to settle or terminate the same.

REASON: INDISPENSABLE TO NATIONAL INTEREST

C. Authority to Incorporate and Operate

TO INCORPORATE: Articles of Incorporation must be accompanied by a certificate of authority issued by the MB, under its seal.

TO OPERATE: Certificate of authority from the BSP

Prudential Measures

Reserve Requirements Single Borrower’s Limit Lending Restrictions to Bank Insiders

(DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort

Prudential Measures

Reserve RequirementsSingle Borrower’s Limit Lending Restrictions to Bank Insiders

(DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort

Prudential Measures

Reserve Requirements Single Borrower’s LimitLending Restrictions to Bank

Insiders (DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort

Prudential Measures


(DORSI)Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort

Prudential Measures


(DORSI) Loan-Loss ProvisionsDeposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort

Prudential Measures


(DORSI) Loan-Loss Provisions Deposit InsuranceEquity Investment Limits Capital Adequacy BSP – Lender of last resort

Prudential Measures


(DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment LimitsCapital Adequacy BSP – Lender of last resort

D. Classification of Banks

i. Universal Banks (UB) – banks that have the authority to exercise, in addition to the powers authorized for a commercial bank, the powers of an investment house and the power to invest in non-allied enterprises. (Sec. 23)

E.g. BDO Unibank, Inc., BPI, RCBC, SBC, Union Bank, UCPB, Al-Amanah, DBP, LBP, ANZ Banking, HSBC

D. Classification of Banks ii. Commercial Banks (CB) – banks that

have, in addition to the general powers incident to corporations, all such powers as may be necessary to carry on the business of commercial banking. (Sec. 29)

E.g. Bank of Commerce, Citibank, Maybank

Phil., PBC, Veterans, BDO Private Bank

D. Classification of Banks iii. Rural Banks – banks that are created to

make needed credit available and readily accessible in the rural areas for purposes of promoting comprehensive rural development. R.A. No. 7353

E.g. Providence Rural Bank, Rural Bank of

Gattaran, Claveria Rural Bank, Rural Bank of Sanchez Mira, Rural Bank of Cauayan, Golden Rural Bank of the Philippines, Banco Agricula


iv. Thrift Banks – banks that include: savings and mortgage banks, private development banks, and stock savings and loan associations.

E.g. Allied Savings Bank, Bank of Makati,

BPI Direct Savings Bank, Century Savings Bank, Express Savings Bank, Malayan Bank, Win Bank

D. Classification of Banks v. Cooperative Banks – banks that

primarily provide financial, banking and credit services to cooperative organizations and their members. (Sec. 100, R.A. 6938 as amended by R.A. 9520)

E.g. Cooperative Bank of Cagayan, Coop of

Bulacan, Coop of La Union, Coop of Bohol


vi. Islamic Banks – Charter of Al Amanah Islamic Investment Bank of the Philippines. (R.A. 6848)

E.g. Al-Amanah Islamic Investment Bank

of the Philippines


UNIVERSAL BANKS COMMERCIAL BANKS

As to Powers1. The powers authorized for a Commercial Bank;2. The powers of an investment houseas provided in existing laws;and3. The power to invest in non-allied enterprises as provided in the GBL. (Sec. 23)

1. THE GENERAL POWERS INCIDENT TO CORPORATIONS,2. ALL SUCH POWERS AS MAY BE NECESSARY TO CARRY ON THE BUSINESS OF COMMERCIAL BANKING, SUCH AS ACCEPTING DRAFTS AND ISSUING LETTERS OF CREDIT; DISCOUNTING AND NEGOTIATING PROMISSORY NOTES, DRAFTS, BILLS OF EXCHANGE, AND OTHER EVIDENCES OF DEBT;3. SUBJECT TO SUCH RULES AS THE MB MAY PROMULGATE. THESE RULES MAY INCLUDE THE DETERMINATION OF BONDS AND OTHER DEBT SECURITIES ELIGIBLE FOR INVESTMENT, THE MATURITIES AND AGGREGATE AMOUNT OF SUCH INVESTMENT. (SEC. 29)

Classification of Banks


As to Equity Investments A UB MAY INVEST IN THE EQUITIES OF ALLIED (EITHER FINANCIAL OR NON-FINANCIAL) AND NON-ALLIED ENTERPRISES. (SEC. 24) EXCEPT AS THE MB MAY OTHERWISE PRESCRIBE: THE TOTAL INVESTMENT IN EQUITIES OF ALLIED AND NON-ALLIED ENTERPRISES SHALL NOT EXCEED 50% OF THE NET WORTH; AND THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE, WHETHER ALLIED OR NON-ALLIED, SHALL NOT EXCEED 25% OF THE NET WORTH OF THE BANK (SEC. 24)

A CB MAY INVEST ONLY IN THE EQUITIES OF ALLIED ENTERPRISES (EITHER FINANCIAL OR NON-FINANCIAL). (SEC. 30) EXCEPT AS THE MB MAY OTHERWISEPRESCRIBE: THE TOTAL INVESTMENT IN EQUITIES OF ALLIED ENTERPRISES SHALL NOT EXCEED 35% OF THE NET WORTH OF THE BANK; AND THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE SHALL NOT EXCEED 25% OF THE NET WORTH OF THE BANK.



Equity Investments in Financial Allied Enterprises A UB CAN OWN UP TO 100% OF THE EQUITY IN… A THRIFT BANK,A RURAL BANK ORA FINANCIAL ALLIEDENTERPRISE. (SEC. 25)

A KB MAY OWN UP TO 100% OF THE EQUITY OF A THRIFT BANK OR A RURAL BANK. (SEC. 31)

WHERE THE EQUITY INVESTMENT OF A CB IS IN OTHER FINANCIAL ALLIED ENTERPRISES, INCLUDING ANOTHER COMMERCIAL BANK, SUCH INVESTMENT SHALL REMAIN A MINORITY HOLDING IN THAT ENTERPRISE. (SEC. 31)



Equity Investments in Non-Financial Allied Enterprises

A UB OR KB MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THEEQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (SEC. 26 AND 32)

A UB OR KB MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THEEQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (SEC. 26 AND 32)



Equity Investments in QBs

TO PROMOTE COMPETITIVE CONDITIONS IN FINANCIAL MARKETS, THE MB MAY FURTHER LIMIT TO 40% EQUITY INVESTMENTS OF UBS ANDCBS IN QBS. (SEC. 28)

A UB OR CB MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THEEQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (SEC. 26 AND 32)



Equity Investments in Non-Allied Enterprises

THE EQUITY INVESTMENT OF A UB, OR OF ITS WHOLLY OR MAJORITY-OWNED SUBSIDIARIES, IN A SINGLE NON-ALLIED ENTERPRISE 1. shall not exceed 35% of the totalequity in that enterprise nor2. shall it exceed 35% of the votingstock in that enterprise. (Sec. 27)

2. Functions of BanksA. Deposit FunctionB. Loan FunctionC. Other functionsD. Prohibited Acts

A. Deposit Function

Simple Loan Fixed, savings and current deposits of

money in banks and similar institutions shall be governed by the provisions concerning simple loan (Article 1980, Civil Code of the Philippines).

Problem

A deposited in Bank X; Bank used the money; A would like to withdraw but the

Bank cannot pay; Is the Bank liable for estafa?

Answer

No. Guingona v. City Fiscal of Manila, 128

SCRA 577 Since the bank is the borrower, it can

make use as its own the money deposited, and the amount is not held in trust for the depositor nor is it kept for safekeeping. (Tang Tiong Tick v. American Aphothecaries, 65 Phil. 414)

Problem

A deposited in Bank X; B alleges that the money deposited

by A belongs to him; A withdraws from the bank; Is Bank X liable?

Answer

No. Third persons who may have the

right to the money deposited cannot hold the bank responsible unless there is a court order or garnishment, since the duty of the bank is to the creditor-depositor and not to third persons.

Fulton Iron Work v. Chinabank, 55 Phil. 208

Problem

A deposits in Bank X; Bank X loans out money to A; If A defaults in payment, can Bank X

off of the deposits in its hands for the payment of A’s indebtedness?

Answer

Yes. “A bank has a right of set off of the

deposits in its hands for the payment of any indebtedness to it on the part of a depositor.” Gullas v. PNB, 1935

Kinds of Deposit

1. Demand deposits The depositor can take out his funds any

time. No interest is paid by the bank The depositor can withdraw the money

he deposited on the very same day.

Kinds of Deposit

2. Savings Account Evidenced by a passbook Has interest rate, but not as high as time

deposits. 3. Time Deposit

Has a fixed term Money deposited cannot be withdrawn

within a certain period Has a higher rate of interest than saving

account.

Kinds of Deposit

4. Negotiable Order of Withdrawal (NOW) Account is an interest-bearing deposit account that combines the payable on demand feature of checks and investment feature of savings accounts.

5. Other Account is one that may be opened by one individual or by two or more persons. Whenever two or more persons open an account, the same may be an “and/or account” or an “and” account.

Kinds of Deposit

Safety Deposit Boxes Special kind of deposit Not an ordinary contract of lease Bailer and bailee

Loan Function

Basic Rules and RestrictionsRisk-Based Capital RatioSingle Borrower’s LimitDORSI Restrictions

Single Borrower’s Limit

Not exceed 25% of the net worth of bank Basis: total credit commitment of the

bank to the borrower GBL provides that the total amount of

loans, etc. may be increased by an additional 10% of the net worth of such bank provided: The additional liabilities of any borrower are

adequately secured Sec. 35.2

DORSI Account

GENERAL RULE: CANNOT BECOME AN OBLIGOR OF THE BANK. cannot borrow from bank; cannot become a guarantor, indorser or

surety for loans from such bank to others;

DORSI Account

EXCEPTION: written approval of the majority of all the

directors entered upon the records of the bank copy of such entry transmitted to BSP. ▪ Such written approval shall not be required

for loans, other credit accommodations and advances granted to officers under a fringe benefit plan approved by the BSP.

DORSI Account

Individual lending ceiling = insider’s unencumbered deposit + book

value of his paid-in capital contribution Aggregate Ceiling =

Whichever is lower between 15% of the total loan portfolio and 100% of combined capital accounts

Unsecured portion of the loan = It should not exceed 30% of the loan of

the insider

Limits on Loans and other CA

real estate (collateral) not exceed 75% of its appraised value plus 60% of the appraised value of the

insured improvements, Chattels and intangibles (collateral)

not exceed 75% of the appraised value of the security

Foreclosure of Mortgage

Debtor has the right to redeem real property within 1 year from sale of real estate.

Right to take possession by the purchaser from date of confirmation of auction sale.

Other Functions

UB and CB may also exercise any of the following functions: i. Receive in custody funds, documents and valuable

objects; ii. 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;

iii. Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with baking business;

iv. Upon prior approval of the MB, act as managing agent, adviser, consultant of administrator of investment management/advisory/consultancy accounts; and

v. Rent out safety deposit boxes.

Prohibited Acts

Engaging in insurance

Directors, Officers, Employees, Agents

Borrowers of Banks

3. Ownership of BanksA. Foreign OwnershipB. Filipino StockholdingsC. Stockholdings of Family Groups and Related Interests

Foreign Ownership

Foreign stockholdings Up to 40% of the voting stock of

domestic banks Foreigners - total equity participation Corporate stockholder – citizenship is

determined by citizenship of controlling stockholders

Filipino Ownership

Filipino stockholdings Section 11 of the GBL applies to Filipinos

and domestic non-bank corporations. individual equity participation should not

exceed 40% of the voting shares

Family Groups and Related Interests

No prohibition

Full disclosure

4. Directors and Officers

A. Composition of BoardB. MeetingsC. Qualifications

Composition of BOD

At least five (5), and a maximum of fifteen (15) members of the BOD of bank, two (2) of whom shall be independent directors. Non-Filipino (restriction, equity

participation) Public Officials (prohibition)

Meetings

conducted through modern technologies E.g. teleconferencing and video-

conferencing.

Qualifications

Fit and Proper Rule integrity, experience, education, training, and competence

Banking Law Issues. 1. Banks a. Nature of business b. Authority to incorporate and operate c....

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