Banking Laws Chapters 7 - 12

7/30/2019 Banking Laws Chapters 7 - 12

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CREATION, RESPONSIBILITIES AND CORPORATEPOWERS OF THE BSP

DECLARED POLICY OF THE STATE (Section 1, The NewCentral Bank Act RA 7653)

The State shall maintain a central monetaryauthority that shall function and operate as anindependent and accountable body corporate in thedischarge of its mandated responsibilitiesconcerning money, banking and credit. In line withthis policy, and considering its unique functions andresponsibilities, the central monetary authorityestablished under the NCBA, while being a

government-owned corporation, shall enjoy fiscaland administrative autonomy.

CREATION OF THE BSP- Section 2, NCBA: capital is Php50Billion to be fully

subscribed by the Government; Php10Billion of whichshall be fully paid for upon effectivity and balance to bepaid for within a period of 2 years

- Section 4, NCBA: Place of Business: Metro Manila, butmay maintain branches, agencies and correspondentsin other places

- Section20, Article 12of the Constitution: mandated thecreation of an independent central monetary authority(Central Bank of the Philippines), the members of thegoverning board must be:1. Natural-born Filipino citizens2. Of known probity, integrity and patriotism3. Majority to come from private sector4. Other qualifications and disabilities as may be

prescribed by law

RESPONSIBILITY AND PRIMARY OBJECTIVE OF THEBSP

1.

The responsibility of BSP is to provide policydirections in the area ofbanking, money and credit.2. It shall have supervision over the operation of

banks.3. It has regulatory powers over the operations of

finance companies and quasi-banks andinstitutions performing similar functions. (Sec 3,NCBA)

4. Primary Objective: To maintain price stabilityconducive to a balanced and sustainable growth othe economy.

5. To promote and maintain monetary stability andconvertibilityofpeso. (Sec 3, NCBA)

The BSP, through the MB, is the governmenagency charged with the responsibility oadministering the monetary-banking and credisystem of the country and is granted the poweof supervision and examination over banks andquasi-banks of which savings and loanassociations. (Busuego vs. CA)

CORPORATE POWERS OF THE BSP (SCP-SPAL) Sec. 5NCBA

i. Adopt, alter and use a corporate seal which shall bejudicially noticed;

ii.

Enter into contracts;iii. Lease or own real and personal property, and to selor otherwise dispose of the same;

iv. Sue and be sued;v. Do and perform all things that may be necessary o

proper to carry out the purposes of the NCBA;vi. Acquire and hold assets and liabilities in connection

with its operations authorized by the provisions othe NCBA or essential to the proper conduct of suchoperations;

vii. Compromise, condone, or release, in whole or inpart, any claim of or settled liability to the BSP

regardless of amount involved.

POWER TO PROSECUTE

Although BSP and its officials may have the dutyunder law to cause the prosecution of violators obanking laws, there is nothing in the said laws thaimposes a clear, specific duty on BSP to do theactual prosecution.

BSP is limited to its statutory powers and the nearespower to prosecution is its power to sue or be sued

This corporate power of prosecution refers to civicases only

There is also nothing in the law that only BSP cancause the prosecution. Violations are publicoffenses, the prosecution of which is a matter opublic interest hence anyone, even privateindividuals, can denounce such violations before theprosecuting authorities

Mandamus for this purpose against BSP is improper(Perez vs. MB)

CHAPTER 7The Bangko Sentral ng Pilipinas


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NOTE: BSP and members of the MB should not beimpleaded as parties to a case. (BSP vs. RuralBank of San Miguel; Sec. 6, Rule 43 of Rules ofCourt)

ESTOPPEL

BSP circulars/memoranda must be implemented in amanner that would not only safeguard or harmonizebasic principles of fairness and decency under theBill of Rights with government programs designed touplift or promote the countrys level of productionand employment, but at the same time avoidirreparable or grave prejudice to participants of saidprogram

In case banks or banking institutions alreadyfaithfully complied with BSPs directives, BSP isestopped from enforcing circulars that would deny

banks or banking institutions of their rights. (CentralBank of the Phils. vs IAC)

I. AUTHORITY OF THE BSPA. SUPERVISORY POWERS OF THE BSP

1. The operations and activities of banks shall besubject to the supervision of the BSP, whichincludes (REO-ISC):

a. The issuance of rules and conduct or theestablishment of standards of operation foruniform application to all institutions or

functions covered;b. The conduct of examination to determine

compliance with laws and regulations if thecircumstances so warrant as determined byMB;

c. Overseeing to ascertain that laws andregulations are complied with;

d. Regular investigation which shall not beoftener than once a year from the date oflast examination to determine whether aninstitution is conducting its business on a

safe or sound basis;2. The deficiencies/irregularities found be an auditshall be immediately addressed

a. Inquiring into the solvency and liquidity ofthe institution;

b. Enforcing prompt corrective action.3. BSP shall also have supervision over the

operations of and exercise regulatory powers over:(QTF)

a. quasi banksb. trust entities andc. Other financial institutions which unde

special laws are subject to BSP

B. PHASE OUT OF BSP POWERS OVER BUILDING

AND LOAN ASSOCIATIONS to the HomeInsurance and Guaranty Corporation

C. POLICY DIRECTION, RATIOS, CEILINGS ANDLIMITATIONS

The BSP shall provide policy direction in the areasofmoney, banking andcredit.(MBC)

The MB may prescribe ratios, ceiling, limitations oother forms of regulation on the different types oaccounts and practices of banks and quasi-bankswhich shall, to the extent feasible, conform to

internationally accepted standards, including thoseof the Bank for International Settlements

MB may exempt particular categories otransactions from such rations, ceilings andlimitations, but not limited to exceptional cases oto enable a bank or quasi-bank under rehabilitationor during a merger or consolidation to continue inbusiness with safety to its creditors, depositors andthe general public

II. MONETARY BOARDexercises the powers and functions of the BSP

COMPOSITIONThe MB is composed of 7 members appointed bythe President for a term of 6 years

a. Governor of BSP who shall be the chairmanhe shall be head of a department and his

appointment shall be subject to confirmationby the Commission on Appointments

he shall designate a Deputy Governor to acas his alternate in case he is unable to attenda meeting of the Board; in such event, the MB

shall designate one of its members as actingChairman

b. a Member of the Cabinet to be designated bythe President of the Philippines

if unable to attend meeting, shall designateUndersecretary in his Department as hisalternate

c. 5 members who shall come from the privatesector who shall all serve full time


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No member of the MB may be reappointedmore than once (Sec. 6, NCBA)

VACANCIES-created by death, resignation or removal

Shall be filled by the appointment of a new memberto complete the unexpired periodof the term or themember concerned (Sec. 7, NCBA)

QUALIFICATIONS OF THE MEMBERS OF THE MB: (CA-CIPE) (Sec. 8, NCBA)

a. Natural born citizens of the Philippines;b. At least 35 years of age, with the exception of

governor who shall be 40;c. Good moral character;d. Unquestionable integrity;e. Known probity and patriotism;f. Recognized competence in social and economicdiscipline.

DISQUALIFICATIONS OF MB MEMBERS: (DDE-CSE)a. Disqualifications imposed by RA 6713 An AceEstablishing a Code of Conduct and Ethical Standards forPublic Officials and Employeesb. Being a director, officer, employee, consultant, lawyer,agent or stockholder of any bank, quasi bank, or anyother institution which is subject to supervision orexamination by the BSP;(1) In which case the member shall resign/divest himself

of any and all interests in the institution beforeassuming office

c. Members coming from the private sector shall not holdany other public office oremployment during tenure;d. Person is connected directly with any multilateralbanking or financial institution; or has a substantialinterest in any private bank, within 1 year prior to hisappointment;e. No member of the MB shall be employed in any suchinstitution within 2 years after the expiration of his termexcept when he serves as an official representative of the

government. (Sec. 9, NCBA)

GROUNDS FOR REMOVAL OF MB MEMBERS: (SIGN)a. If the member is subsequently disqualified under theprovisions of Sec. 9 of NCBA

b. If he is physically or mentally incapacitated that he cannotproperly discharge his duties and responsibilities and suchincapacity has lasted for more than 6 months;

c. Member is guilty of acts or operations which are ofraudulent or illegal character or which are manifestlyopposed to the aims and interests of the BSP;

d. If memberno longer possess the qualifications specified in

Sec. 8 of NCBA. (Sec 10, NCBA)

MEETINGS, QUORUMS, DECISIONS AND PROCEEDINGSOF THE MB:- MB shall meet at least once a week. May be called to ameeting by the Governor or by 2 other members of theBoard.- Presence of 4 members shall constitute a quorum. In alcases, Governor or his designated alternate shall constitutethe 4.- Unless otherwise provided in NCBA, all decisions of the MB

shall require the concurrence of at least 4 members.-EXCEPTIONS:Sec. 61 GBL, Publication of financial statements. Inperiods of national and/or local emergency or oimminent panic which directly threaten monetary andbanking stability, MB may by a vote of 5 of itsmembers, in special cases and upon application of thebank, quasi-bank or trust entity, may allow such, todefer for a stated period of time the publication of thestatement of financial condition.

1. Sec. 28, NCBA, Examinations and fees

Examination shall be conducted once every 12 monthand at such other times as the MB by an affirmativevote of5 of its members, may deem expedient and tomake a report on the same to the MB.

2. Sec. 72 NCBA, Emergency Restrictions onExchange operations. To achieve the primaryobjective of the BSP, or protect international reserves inthe imminence of, or during an exchange crisis, or intime of national emergency and to give the MB and theGovernment time in which to take constructivemeasures to forestall, combat or overcome such a crisisor emergency, the MB with the concurrence of at least 5of its members and with the approval of the Presidentmay temporarily suspend or restrict sales of exchangeby the BSP, and may subject all transactions in goldand foreign exchange to license by the BSP and mayrequire that any foreign exchange thereafter obtained byany person residing or entity operating in the Philippinesbe delivered to the BSP or any bank or agent


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designated by the BSP for the purpose, at the effectiveexchange rate or rates; foreign currency deposits areexempt from these requirements

3. Sec. 84 NCBA, Emergency loans and advances.Inperiods of national and/or local emergency or of

imminent financial panic which directly threatenmonetary and banking stability, the MB may by a vote of5 of its members authorize the BSP to grantextraordinary loans or advances to banks secured byassets defined hereunder.

MB may, at its discretion, authorize BSP to grantemergency loans during normal periods, for the purposeof assisting a bank in a precarious financial institution orunder serious financial pressure broughtby unforeseenevents, or events which, though foreseeable, could notbe prevented. Provided

MB has ascertained that the bank is not insolvent andhas the assets defined to secure the advances and thata concurrent vote of at least 5 members of the MB isobtained.

The MB may, by a vote of at least 5 of its members,authorize the release of a subsequent tranche oncondition that the principal stockholders of theinstitution.BSP shall maintain and preserve a complete record ofthe proceedings and deliberations of the MB includingtapes and transcripts of the stenographic notes, either in

their original form or in microfilm. (Sec. 11, NCBA)

B. Deputy Governors may Attend Meetings of the MBwith the right to be heard (Sec. 12, NCBA)

C. Salaries of the Governor and Members of the MBshall be fixed by the President at the sumcommensurate to the importance and responsibilityattached to the petition (Sec. 13, NCBA)

PERSONAL OR PECUNIARY INTEREST (DR-PR)-In addition to requirements of RA 6713, any member of theMB with personal or pecuniary interest in any matter in theagenda of the MB:

a. Shall disclose his interest to the Board andb. Shall retire from the meeting when the matter is takenup.c. The decision taken on the matter shall be made public.d. The minutes shall reflect the disclosure made and theretirement of the member concerned from the meeting.(Sec. 14, NCBA)

SCOPE OF AUTHORITY OF THE MB: (IDEA-I)a. Issue rules and regulations it considers necessary for theeffective discharge of the responsibilities and exercise of thepowers vested upon the MB and the BSP;

-Rules and regulations issued shall be reported to

the President and Congress within 15 days from the date oftheir issuance

b. Direct the management, operations, and administration othe BSP, reorganize its personnel, and issue such rules andregulations as it may deem necessary and convenient forsuch purpose;

-The legal units of the BSP shall be under exclusivesupervision and control of the MB

c. Establish a human resource management system which

shall govern the selection, hiring, appointment, transferpromotion or dismissal of all personnel. Such system shalaim to establish professionalism and excellence at all levelsof the BSP in accordance with principles of management(Sec. 15, NCBA)

-A compensation structure, based on job evaluationstudies and wage surveys shall be instituted as anintegral component of BSPs human resourcedevelopment program, in conformity with RA 6758(Compensation and Position Classification Act o1989). The compensation and wage structure ofemployees falling under salary grade 19 and below

shall be in accordance with RA 6758.-Upon recommendation of the Governor, appoint, fixthe remunerations and other emoluments andremove personnel of the BSP, subject to pertinencivil service laws.

d. Adopt an annual budget for and authorize suchexpenditures by the BS;

e. Indemnify its members and other official of the BSPagainst all costs and expenses reasonably incurred by themin connection with any criminal or civil action, made by thereason of the performance of his functions or duties unlessfinally adjudged as liable for negligence or misconduct.

Central Bank Employees Assoc. Inc. vs. BSP andthe Executive Secretary declared the foregoingprovision (particularly letter c) unconstitutional fobeing violative of the equal protection clause.


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RESPONSIBILITY OF THE MEMBERS OF THE MB,OFFICIALS, EXAMINERS, AND EMPLOYEES OF THEBSP:

a. If anyone of them willfully violates NCBA or is guilty ofnegligence, abuse or acts malfeasance ormisfeasanceor fails to exercise extraordinary diligence in the

performance of his duties shall be held liable for anyloss or injury suffered by the BSP (VNAMMFe)

b. Similar responsibility shall also apply to members,officers, and employees of the BSP for:

-Disclosure of any information of a confidentialnature or about the confidential operations of the BS,unless such disclosure is in connection with theperformance of the official functions of the BSP or withprior authorization of MB or Governor

-The use of such information for personal gain or

to the detriment of the government.But data requiredto be submitted to Congress or the President orpublished as provided in NCBA shall not beconsidered confidential.

-The legal obligations of diligence and good faiththat BSP officials owe to the public under NCBA startwith the official acts of the MB which, right or wrong,are the cause of loss or injury to third parties, not anypreparatory report or recommendation. (Borlonganvs. Reyes)

THE GOVERNOR AND DEPUTY GOVERNORS OF THE

BSP

POWERS AND DUTIES OF THE GOVERNOR:The governor shall be the chief executive officerof the BSPwith the following powers and duties: (CEO: PEDARE)

1. Prepare the agenda for the meetings of the MB andto submit for the consideration of the board policiesand measures which is necessary to carry out thepurposes and provisions of NCBA;

2. Execute and administer policies approved by theMB;

3. Direct and supervise the operations and internaladministration of the BS.

The Governor may delegate certain of hisadministrative responsibilities to other officerswithout additional remuneration or allowancewhenever he may deem fit

4. Appoint and fix the remunerations and otheremoluments of personnel below the rank ofdepartment head and impose disciplinary measures.

Removal of personnel shall be with the approval ofthe MB.

5. Render opinions, decisions, or rulings, which shalbe final and executory until reversed or modified bythe MB on matters regarding application orenforcement of laws pertaining to institutions

supervised by the BSP and laws pertaining to quasibanks.

6. Exercise such other powers as may be vested in himby the MB

POWERS OF THE GOVERNOR AS REPRESENTATIVE OFMB AND THE BS: (RS-RD)1. Represent the MB and the BSP in all dealings with othe

officers, agencies and instrumentalities of theGovernment and all other persons or entities, public oprivate, whether domestic, foreign or international;

2.

Sign contracts entered into by the BS, notes andsecurities issued by the BS, all reports, balance sheetsprofit and loss statements, correspondents and othedocuments;

3. Represent the BSP in any legal proceedings, personallyor through counsel, action or specialized legal studies;

4. Delegate his power to represent the BS, as provided in1-3, to other officers upon his own responsibility.

To preserve integrity and prestige of his office, theGovernor may choose not to participate inpreliminary discussions with any multilateral bankingor financial institution on any negotiations for the

Government within and outside the Philippines andmay instead be represented by a permanennegotiator. (Sec. 18, NCBA)

EMERGENCIES (CRM)a. In case of emergencies where time is sufficient to call ameeting of the MB, the governor, with the concurrence of 2members of MB, may decide any matter or take any actionwithin the authority of the MB.b. The governor shall submit a report to the President andthe Congress within 72 hours after the action has been

taken.c. Governor shall call a meeting of the MB to submit hisaction for ratification.

LIMITATIONS ON OUTSIDE INTERESTS OF THEGOVERNOR AND THE FULL TIME MEMBERS OF THEBOARD

a. Limit their professional activities to those pertainingdirectly to their position with the BSP.


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b. Not accept any other employment, whether public orprivate, remunerated or ad honorem, with the exceptionsof the positions in eleemosynary, civic, cultural andreligious organizations or whenever by designation ofthe president, the governor or the full time member istasked to represent the interest of the government or

other government agencies in matters connected with oraffecting the economy or financial system of the country.(Exceptions: ECCR-D)

NUMBER AND FUNCTIONS OF DEPUTY GOVERNORS-The Governor of the BSP, with approval of the MB, shall

appoint not more than three (3) Deputy Governors whoshall perform duties assigned to them by the Governorandthe Board.

-In the absence of the Governor, a Deputy Governormaybe designated by the Governor to act as chief executive

of the BSP and exercise the powers and perform theduties of the Governor. A deputy governor also hasauthority to participate and exercise the right to votewhere the Governor is an ex officio member.

OPERATIONS OF THE BSP

RESEARCH AND STATISTICS OF THE BS-The BSP shall prepare data and conduct economic

research for the guidance of the MB in the formulationand implementation of its policies. Such data shallinclude, among others

a. forecasts of the balance of payments of thePhilippines,b. statistics on the monthly movement of the monetaryaggregates and of prices andc. Other statistical series and economic studies usefulfor the formulation and analysis of monetary, banking,credit and exchange policies.

SCOPE OF AUTHORITY OF BSP TO OBTAIN DATA ANDINFORMATION

a. The BSP shall have the authority to request fromgovernment offices and instrumentalities, or GOCCs, anydata which it may require for the proper discharge of itsfunctions and responsibilities.

b. The BSP through the Governor or in his absence, aduly authorized representative shall have the power to issuea subpoena for the production of the books and recordsfor the aforesaid purpose. Those who refuse the subpoenawithout justifiable cause, or who refuse to supply the bankwith data requested or required, shall be subject to

punishment forcontempt in accordance with the provisionsof the Rules of Court. (Sec. 23, NCBA)

c. Data on individual firms, other than banks, gathered bythe Department of Economic Research and othedepartments or units of the BSP shall not be made availableto any person or entity outside of the BSP whether public or

private except under order of the court or under conditionsprescribed by the MB. The collected data on firms may bereleased to interested persons or entities. In the case ofdataon banks, the provisions of Section 27 of the NCBA shalapply (See prohibitions against Personnel of BS, infra).

TRAINING OF TECHNICAL PERSONNELThe BSP shall promote and sponsor the training oftechnical personnel in the field of money and bankingThe BSP is authorized to defray the costs of study, ahome or abroad, of qualified employees of the BSP, o

promising university graduates or of any other qualifiedpersons who shall be determined by proper competitiveexaminations.

SCOPE OF THE SUPERVISION AND EXAMINATION BYTHE BSP

a. The BSP shall have supervision over, and conducperiodic or special examination of, banking institutions andquasi-banks, including their subsidiaries and affiliatesengaged in allied activities.

i. Subsidiary more than 50% of the voting stock isowned by a bank

ii. Affiliate 50% or less, is owned by a bank or quasibank or which is related or linked to such institution orintermediary through common stockholders or suchother factors as may be determined by the MB.

b. The department heads and the examiners of thesupervising and/or examining departments are authorized to

i. administer oaths to any director, officer, or employeeof any institution under their respective supervision osubject to their examination and to

ii. compel the presentation of all books, documents, papers or records

necessary in their judgment to ascertain the factsrelative to the true condition of any institution

books and records of persons and entitiesrelative to or in connection with the operationsactivities or transactions of the institution undeexaminationThis is subject to the provision of existing lawsprotecting or safeguarding the secrecy oconfidentiality of bank and investments of private


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persons, natural or juridical, in debt instrumentsissued by the Government.

RESTRAINING ORDER OR INJUNCTIONa. Court cannot order restraining order prohibiting the

BSP from examining any institution subject to the supervision

and examination of the BSP.i. Exception: there is convincing proof that the

action of the BSP is plainly arbitraryand made inbad faith and the petitioner or plaintiff files with theclerk or judge of the court in which the action ispending a bondis executed in favor of the BSP inthe amount fixed by court.

b. Provisions of the Rules of court regarding PreliminaryInjunction, in so far as they are applicable, and notinconsistent shall govern the issuance and dissolution of therestraining order or injunction.

DIRECTOR, OFFICER OR STOCKHOLDER ANDRELATED INTERESTS

CONTRACTING LOANS- Any director, officer or stockholder who, together with

his related interest, contracts a loan or any form offinancial accommodation from:iii. his bank; oriv. from a bank1. which is a subsidiaryof a bank holding company of

which both his bank and the lending bank are

subsidiaries or2. in which a controlling proportion of the shares is

owned by the same interest that owns a controllingproportion of the shares of his bank, in excess of5% of the capital and surplus of the bank, or in themaximum amount permitted by law, whichever islower shall be required by the lending bank towaive the secrecy of his deposits of whatevernature in all banks in the Philippines.

- Any information obtained from an examination of hisdeposits shall be held strictly confidential and may beused by the examiners only in connection with theirsupervisory and examination responsibility or by theBSP in an appropriate legal action it has initiatedinvolving the deposit account. (Sec. 26, NCBA)

PROHIBITIONS AGAINST PERSONNEL OF THE BSP (P-ORBB)

- In addition to those found in RA 3019 and 6713 (Codeof Conduct and Ethical Standards), personnel areprohibited from:

1. Being an officer, director, lawyer or agentemployee, consultant or stockholder of any institutionsubject to supervision and examination by the BSP

except non-stock savings and loan associations andprovident funds organized exclusively for employeesof BSP and except as provided in NCBA;2. Directly or indirectly requesting or receiving any giftpresent or pecuniary or material benefit for himself oanother, from any institution subject to supervision oexamination by the BSP;3. Revealing in any manner, except under orders ofthe court, the Congress or any government office oagency authorized by law, or under such conditions asmay be prescribed by the MB information relating to

the condition or business of any institution. Does noapply to the giving of information to the MB oGovernor or person authorized to receive suchinformation.4. Borrowing from any institution is prohibited unlessadequately secured, fully disclosed to the MB andsubject to rules and regulations of MB. Personnel ofthe supervising and examining departments areprohibited from borrowing from a bank under theirsupervision or examination.

EXAMINATION OF BANKING INSTITUTIONS

FREQUENCY OF EXAMINATION- Once in every 12 months by the supervising and

examining department, and at such other times as theMB by an affirmative vote of 5 members, may deemexpedient and to make a report on the same to the MBProvided, That there shall be an interval of at least 12months between annual examinations.

AFFORDING OPPORTUNITY TO EXAMINE- Bank concerned shall afford the head of the appropriate

supervising andexamining departments full opportunityto examine Books Cash and available assets General condition

- Anytime during the banking hours when requested byBSP.

- The reports on the examinations will not be open to thepublic unless incidental to any proceedings authorized


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or is necessary for the prosecution of violations inconnection with the business of such institutions.

SERVICE FEES- Banks and quasi-banks subject to examination of the

BSP shall pay the BSP within 30 days of each year, anannual fee.

- Amount of fee is prescribed by the MB. It would be apercentage of its average total assets during the precedingyear as shown by its end of month balance sheets, afterdeducting cash on hand and the amount due from banks,including the BSP and the banks abroad.

ADMINISTRATION

OPERATING DEPARTMENTS OF THE BSPThe MB shall determine and provide for such operatingdepartments and other offices, including a Public

Information Office, of the BSP as it deems convenient.Their functions and duties shall be determined by the MB.

REQUIRED REPORTS AND PUBLICATIONS OF THEBSP

a. The BSP shall publish a general balance sheetwithin 60 days after theend of each month exceptDecember, which shall be submitted 90days afterend of month, containing the volume andcompositions of its assets and liabilities as of thelast working day of the month.

b. MB shall publish the following reports and submitthem to the President and toCongress:i. Analysis of economic and financial

developments, including the condition of netinternational reserves and monetaryaggregate.(90 days after end of each quarter)

ii. Preceding years budget and profit and lossstatement of the BSP showing in reasonabledetail the result of its operations. (within 90days after end of year)

iii. Review of the state of the financial system (120days afterend of semester)

iv. Abnormal movements in monetary aggregatesand the general price level. (as soon aspracticable), and remedial measures inresponse to such abnormal movements (notlater than 72 hours)

ANNUAL REPORT OF THE BSP- Before the end of March of each year, the BSP shall

publishand submit to the President and the Congress

an annual report on the condition of the BSPincluding a review of the policies andmeasures adoptedby the MB during the past year and ananalysis of theeconomic and financial circumstances which gave riseto said policies and measures.

- The annual report shall also include a statement of thefinancialcondition of the BSP and a statistical appendixwhich shallpresent, as a minimum, the following data:i. the monthly movement of monetary aggregates

and theircomponents;ii. the monthly movement of purchases and sales o

foreignexchange and of the international reservesof the BSP;

iii. the balance of payments of the Philippines;iv. monthly indices of consumer prices and of impor

and export prices;v. the monthly movement, in summary form, o

exports and imports, by volume and value;vi. the monthly movement of the accounts of the BSPand of other banks;

vii. the principal data on government receipts andexpenditures and on the status of the public debtboth domestic and foreign; and

viii. The texts of the major legal and administrativemeasures adopted by the Government and the MBduring the year which relate to the functions ooperations of the BSP or of the financial system.

- The BSP shall publish another version of the annuareport in terms understandable to the layman.

- Failure to comply without justifiable reason shall causethe withholding of the salary of the personnel concerneduntil the requirements are complied with.

SIGNATURES ON STATEMENTSBalance sheets and statements shall be signed by theofficers responsible for their preparation, Governor, andthe auditorof the BSP.

PROFITS, LOSSES, AND SPECIAL ACCOUNTSA. Fiscal Year shall begin on January 1 and end on

December 31 of each year.B. Computation of Profits and LossesWithin the first 30 days following the end of each yearthe BSPshall determine its net profits or losses. In thecalculation of net profits, theBSP shall make adequateallowance or establish adequate reserves for bad anddoubtful accounts.

C. Distribution of Net Profits


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Within the first 60 days following the end of each fiscalyear, the MB shall determine and carry out thedistribution of the net profits, in accordance with thefollowing rule:a. 50% of the net profits shall be carried to surplusb. The remaining 50% shall revert back to the

National Treasury, except as otherwise provided inthe transitory provisions of the NCBA.

D. Revaluation of Profits and Lossesa. Profits or losses arising from any revaluation of the

BSP's net assets or liabilities in gold or foreigncurrencies with respect to thePhilippine peso shallnot be included in the computation of the annualprofits and losses of the BSP.

b. Any profits or losses arising in this manner(revaluation) shall be offset by anyamounts which,

as a consequence of such revaluations, are owedby the Philippines to any international or regionalintergovernmental financial institution of which thePhilippines is a member or are owed by theseinstitutions to the Philippines.

c. Any remaining profit or loss shall be carried in aspecial frozen account which shall be named"Revaluation of International Reserve" and thenetbalance of which shall appear either among theliabilities or among the assets of the BSP,depending on whether the revaluations haveproduced net profits or net losses.

The Revaluation of International Reserve account shallbe neither credited nor debited for any purposes otherthan those specifically authorized in the NCBA.

THE AUDITOR- The Chairman of the Commission on Audit shall act

as the ex officio auditorofthe BSP. He is authorized toappoint arepresentative who shall be the auditorof theBSP and, in accordancewith law, fix his salary, and toappoint and fix salaries and number of personnel to assist said representative in his work. The salaries andother emoluments shall be paid by the Commission.The auditor of the BSP and personnel under him maybe removed only by the Chairman of the Commission.

- The representative of the Chairman of the Commissionmust be a CPA with at least 10 years experience assuch. No relative of any member of the MB or theChairman of the Commission within the 6th degree ofconsanguinity or affinity shall be appointed suchrepresentative.

PENALTY FOR VIOLATION (Sec. 66 GBL)Unless otherwise herein provided, the violation of any othe provisions of this Actshall be subject to Sections 3435, 36 and 37 of the New Central Bank Act. If theoffendeis a director or officer of a bank, quasi-bank or trust entity

the MB may also suspend or remove such director oofficer. If the violation iscommitted by a corporation, suchcorporation may be dissolved by quo warrantoproceedings instituted by the Solicitor General.

PENALTY FOR REFUSAL TO MAKE REPORTS (Sec. 34)Any officer, owner, agent, manager, director or officer-incharge of any institution subject to the supervision oexamination by the BSP within the purview of this Acwho, being required in writingby the MB or by the head othe supervising and examining department willfully

refuses to file the required report orpermit any lawfuexamination into the affairs of such institution shall bepunished by afine of not less than P50,000 nor more thanP100,000 or by imprisonment of not less than 1 year nomore than 5 years, or both, in the discretion of the court.

PENALTY FOR WILLFUL MAKING OF A FALSE ORMISLEADING STATEMENT ON A MATERIAL FACT (Sec35)

Punished by a fine of not less than P100,000 nor morethan P200,000, or by imprisonment of not more than 5years, or both, at the discretion of the court.

PROCEEDINGS UPON AND PENALTY FOR VIOLATIONOF NCBA AND OTHER BANKING LAWS. RULESREGULATIONS, ORDERS OR INSTRUCTIONS (Sec. 36)

a. A bank, quasi-bank, person, or any entity who willfullyviolates the NCBA or otherbanking laws implementedby BSP, or any order, instruction, rule or regulationissued by the MB, shall be punished by a fine notlessthan P50,000 and not more than P200,000 oimprisonment of not less than 2 years but not morethan 10 years.

b. Carrying on business in an unlawful and unsafemanner, the MB may, without prejudice to thepenalties provided in the preceding paragraph andadmin sanctions in Sec. 37 (see below), take actionunder Sec. 30 (Receivership and Liquidation) of theNCBA.

ADMINISTRATIVE SANCTIONS ON BANKS AND QUASBANKS (Sec. 37)


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- Administrative violation and penalties: (CDR-FLIB)a. Any willful violation of its charter or by-lawsb. Willful delay in the submission of required reports and

publicationsc. Refusal to permit examination into the affairs of the

institution

d. Willful making of false or misleading statement to theboard or the appropriate supervising and examiningdepartment examiners.

e. Any willful failure or refusal to comply with, or violationof any banking law or any order, instruction or regulationissued by the MB, or any order, instruction or ruling by thegovernor

f. Any commission ofirregularitiesg. Conducting business in an unsafe or unsound manner

as may be determined by the MB.

IMPOSABLE SANCTIONS:- Fines not exceeding P30,000 for each day of violation.MB would take into consideration the attendantcircumstances, such as the nature and gravity of theviolation or irregularity and the size of the bank.

- Suspension of rediscounting privileges or access toBSPcredit facilities

- Suspension of lending or foreign exchange operationsor authority to accept new deposits or make newinvestments;

- Suspension of interbank clearing privileges; and/or- Revocation of quasi-banking license.

Notes:1. Resignation or termination does not exempt the

director or officer from admin or criminal sanctions2. The MB may, when warranted, preventively suspend

any director or officer pending investigation. If case is notfinally decided within 120 days, he shall be reinstated. Whenthe delay is due of his fault, negligence or petition, it shall notbe counted in computing the period of suspension.

3. The sanctions need not be applied in the order of theirseverity

ADMINISTRATIVE PROCEEDINGS- Whether or not there is an administrative proceeding, if

the institution and/or the directors and/or officersconcerned persist in the commission of the violation, theMB may issue an order requiring those concerned tocease and desist from such practice or violation, andmay further order that immediate action be taken tocorrect the conditions resulting from such practice or

violation. The cease and desist order shall beimmediately effective upon service on the respondents.

- The respondents shall be afforded an opportunity todefend their action in a hearing before the MB or anycommittee chaired by any MB member created for thepurpose, upon request made by the respondents within

5 days from their receipt of the order.- If no such hearing is requested within said period, the

order shall be final.- If a hearing is conducted, all issues shall be determined

on the basis of records, after which the MB may eitherreconsider or make final its order.

- The Governor is authorized, at his discretion, to imposeupon banking institutions, for any failure to comply withthe requirements of law, MB regulations and policiesand/or instructions issued by the MB or by theGovernor, fines not in excess of P10,000 a day for each

violation, the imposition of which shall be final andexecutory until reversed, modified or lifted by the MB onappeal.

THE UNIT OF MONETARY VALUEPESO the unit of monetary value in the Philippines is

peso which is represented by sign Pthe peso is divided into one hundred equal parts calledCENTAVOS which is represented by c

- All monetary obligations shall be settled in the Philippinecurrency which is the legal tender in the PhilippinesHowever, the parties may agree that the obligation besettled in any other currency.

CURRENCY- means all Philippine notes and coins issued o

circulating in accordance with the provisions of the

NCBA.VALUE OF CURRENCY

- A currency has value because people are willing toaccept it in exchange for goods and services and in paymentfor debts.

- Money has no value as commodity but it has value tothose willing to use it as a medium of exchange.

CHAPTER 8Currency, Monetary Stabilization and

Functions of the Bangko Sentral ng Pilipinas


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- if goods and services are available in return for a definitemedium of exchange, the value of all goods and servicesnecessarily will be measured in terms of that medium.

ISSUE OF MEANS OF PAYMENT

EXCLUSIVE ISSUE POWERa. Bangko Sentral (BS) shall have the sole power andauthority to issue currency within the territory of thePhilippines.b. MB may issue regulations as it may deem advisable inorder to prevent the circulation of foreign currency or ofcurrency substitutes as well as to prevent the reproductionof the facsimiles of the of Bangko Sentral Notesc. The BS shall have the authority to investigate, makearrests, conduct searches and seizures for the purposeof maintaining the integrity of the currency.

LIABILITIES FOR NOTES AND COINSa. Notes and coins issued by the BS shall be liabilities of

the BS and may be issued only against, and in amounts notexceeding the assets of the bankgo sentral.

b. The bangko sentrals holding of its own notes and coinsshall not be considered as part of its currency issue and shallnot form part of the assets and liabilities of the BS.

c.Violation of regulations issued by BS shall constitute anoffense punishable by imprisonment of not less than 5 years

but not more than 10 years.

- An Exception to Territoriality of Penal LawsArticle 2, Revised Penal CodeExcept as provided in the treaties and laws of preferentialapplication, the provisions of this Code shall be enforcednot only within the Philippine Archipelago, including itsatmosphere, its interior waters and maritime zone, butalso outside of its jurisdiction, against those who:1. Should commit an offense while on a Philippine ship orairship2. Should forge or counterfeit any coin or currency note ofthe Philippine Islands or obligations and securities issuedby the Government of the Philippine Islands;3. Should be liable for acts connected with theintroduction into these islands of the obligations andsecurities mentioned in the presiding number;4. While being public officers or employees, shouldcommit an offense in the exercise of their functions;

5. Should commit any of the crimes against nationasecurity and the law of nations, defined in Title One oBook Two of this Code.

*Related Crimes under the RPC1. Art. 163. Making and Importing and Uttering False Coins2. Art. 164. Mutilation of Coins; Importation and Utterance o

Mutilated Coins3. Art. 165. Selling of Flase or Mutilated Coin, WithouConnivance4. Art. 166. Forging Treasury or Bank Notes on OtheDocuments Payable to Bearer;Importing, and Uttering Such False or Forged Notes andDocuments5. Art. 167. Counterfeiting, Importing and UtteringInstruments Not Payable to Bearer6. Art. 168. Illegal Possession and Use of False Treasury oBank Notes and Other Instruments of Credit

7. Art. 169. How forgery is committed. The forgery referredto in this section may be committed by any of the followingmeans:

1. By giving to a treasury or bank note or any instrumentpayable to bearer or order mentioned therein, theappearance of a true genuine document.2. By erasing, substituting, counterfeiting or altering byany means the figures, letters, words or signs containedtherein.

LIABILITY FOR NOTES AND COINS(i) Notes and coins issued by the BSP shall be

liabilities of the BSP.Such may be issued only against, and in amounts noexceeding, the assets of the BSP. Such shall be a first andparamount lien onall assets of the BSP.

(ii) The Bangko Sentrals holdings of its own notesand coins shall not be considered as part of its currencyissue and, accordingly, shall not form part of the assets oliabilities of the BSP.

LEGAL TENDER POWER-all notes and coins issued by the BSP shall be fully

guaranteed by the government of the Republic of thePhilippines and shall be Legal Tender for all debts, bothpublic and private*coins: a. 25c and above denominations shall not exceedP50.00b. 10c or less denominations shall not exceed P20.00


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- CHECKS representing demand deposits do nothave legal tender power and their acceptance in thepayment of debt is at the option of the creditor.*a check cleared and credited to the account of the creditor isequivalent to delivery of cash to such creditor.

MAXIMUM AMOUNT OF COINS TO BE CONSIDERED ASLEGAL TENDER

P1000- P1, P5, P10 coinsP100- 1c, 5c, 10c, 25c

*Related Civil Code ProvisionsArt. 1249. The payment of debts in money shall be made inthe currency stipulated, and if it is not possible to deliver suchcurrency, then in the currency which is legal tender in thePhilippines. The delivery of promissory notes payable toorder, or bills of exchange or other mercantile documents

shall produce the effect of payment only when they havebeen cashed, or when through the fault of the creditor theyhave been impaired. In the meantime, the action derivedfrom the original obligation shall be held in the abeyance.

Art. 1250. In case an extraordinary inflation or deflation of thecurrency stipulated should supervene, the value of thecurrency at the time of the establishment of the obligationshall be the basis of payment, unless there is an agreementto the contrary.

CHARACTERISTICS OF THE CURRENCY

(i) Monetary Board, with approval of the President,shall prescribe:

1. Denominations2. Designs3. Inscriptions4. Other characteristics of notes

- provided that: the notes state that they are liabilities of theBSP and are guaranteed by the Government; also shall bearthe signatures of the President of the Philippines and theGovernor of the BSP.

(ii) Monetary Board, with approval of the President,shall prescribe:

1. Weight2. Fineness3. Designs4. Denominations5. Other characteristics of the coins

The MB shall consider the availability of suitable metals andtheir relative prices and cost of minting

PRINTING OF NOTES AND MINTING OF COINS(i) The MB shall prescribe the amount and

conditions of notes and coins to be printed and minted. Ishall also have the authority to contract institutions, mints orfirms for such operations.

(ii)All Expenses incurred in the printing of notes andminting of coins shall be for the account of BSP.

INTERCONVERTIBILITY OF CURRENCY-BSP shall exchange, on demand and with no chargePhilippine currency of any denomination to any othedenomination of such currency. If BSP is temporarily unableto do so, shall deliver the notes and coins of thedenominations which most nearly approximate thoserequested.

REPLACEMENT OF CURRENCY UNFIT FORCIRCULATION-BSP shall withdraw from circulation and demonetize alnotes and coins which for any reason whatsoever are unfifor circulaton and shall replace them by adequate notes andcoinsBSP shall not replace: notes and coins, the identification ofwhich is impossible; filed, clipped, perforated coins; noteswhich have lost 2/5 of their surface or all of the signaturestherein.-Notes and coins in mutilated conditions shall be withdrawnfrom circulation and demonitize without compensation.

RETIREMENT OF OLD NOTES AND COINS(i) The BSP may call in for replacement notes of any

series which are more than, 5 years old and coins morethan 10 years old

(ii) Such notes called in for replacement shall remainlegal tender forone year since the date of the call. Lapseof one year, may be exchanged at par and without chargeduring the following year or for a period determined by theMB. Lapse of such period, the notes and coins shall cease tobe a liability of the BSP and shall be demonitized. The calledin notes and coins shall likewise be demonitized.

DOMESTIC MONETARY STABILIZATION

GUIDING PRINCIPLE ON MONETARY STABILIZATION-the MB shall endeavor to control any expansion ocontraction in monetary aggregates which is prejudicial tothe attainment or maintenanceof price stability.


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POWER TO DEFINE TERMS-MB shall formulate definitions of monetary aggregates,credit and prices and shall make public such definitions andany changes thereof.

ACTION WHEN ABNORMAL MOVEMENTS OCCUR IN

THE MONETARY AGGREGATES,CREDIT, OR PRICELevel

(i) Whenever abnormal movements in the monetaryaggregates, in credit, or in prices endanger the stability of thePhilippine economy or important sectors, the MB shall:

a) Take appropriate remedial measuresb) Submit a report to the President and the

Congress (also made public, a description and analysis of):1. Causes of the rise or fall of such

monetary aggregates;

2. Extent to which such changes have beenreflected in the level of domestic output,employment, wages and economic activity ingeneral, and the nature and significance of any suchchanges;

3. Measures taken and measures proposedto be adopted.

(ii) Whenever:a. The monetary aggregates, or the level of credit,

increases or decreases by more than 15%,b. The cost of living index increases by more than10%, or

c. When in its judgment, the circumstances warrant,(With respect to a-c) the MB shall submit reports and statewhether such changes represent a threat to the stability ofthe economy or of its important sectors.

(iii) The MB shall continue to make periodic reports until thedisturbances have disappeared or have been controlled.

INTERNATIONAL MONETARY STABILIZATION- BSP has power to preserve the international value of pesoand maintain convertibility into other currencies primarily forforeign trade and invisibles.

INTERNATIONAL RESERVESPurpose: to maintain the international stability andconvertibility of the Philippine Peso (adequate to meetforeseeable net demands on the BSP for foreign currencies.)

-MB shall judge such adequacy of international reservesbased on prospective receipts and payments of ForEx by thePhilippines.-MB shall pay special attention to the volume and maturity of:

1. BSPs own liabilities in foreign currencies2. ForEx assets and liabilities of other banks

operating in thePhilippines

3. ForEx assets and liabilities of all other personsand entities in the Philippines

COMPOSITION OF THE INTERNATIONAL RESERVES (ofthe BSP):(i) May include, but not limited to:

a. Goldb. Assets in foreign currencies in the form of:

1. Documents and instruments customarily

employed for the international transfer of funds2. Demand and time deposits in centrabanks, treasuries and commercial banks abroad

3. Foreign government securities4. Foreign notes and coins

(ii) The MB shall:a. Endeavour to hold the ForEx resources of the

BSPb. Give particular consideration to the prospects o

continued strength and convertibility of the currenciesc. Give particular consideration to the anticipated

demands

(iii) The MB shall issue regulations determining the othequalifications which the ForEx assets must meet in order tobe included in the international reserves of the BSP.

(iv) BSP is free to convert any asset in its internationareserves into other assets as described in a. and b. above

ACTION WHEN THE INTERNATIONAL STABILITY OFTHE PESO IS THREATENED:(i) Whenever:

1) The international reserve falls to a level the MBconsiders inadequate to meet prospective net demands onBSP for foreign currencies, or

2) The international reserves appear to be imminenin falling to such level, or

3) The international reserve is falling as a result ofpayments or remittances abroad which are contrary to thenational welfare


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- The MB shall:a. Take appropriate remedial measuresb. Submit a report to the President and the Congress:

1. Nature and causes of the existing or imminentdecline

2. Measures already taken or to be taken by the MB3. Measures proposed4. Cooperation required from other government

agencies for the execution of policies of the MB

(ii) If such actions fail, the MB shall propose to the President,with notice to the Congress, additional action it deemsnecessary to restore international balance of payments in thePhilippines

(iii) The MB shall submit periodic reports until the threat to

international monetary stability has disappeared.

MEANS OF ACTION-MB shall rely on its moral influence and the powersgranted to it under the NCBA for the management ofmonetary aggregates.

OPERATIONS IN GOLD AND FOREIGN EXCHANGE

PURCHASES AND SALES OF GOLD-BSP may buy and sell gold in any form, subject to

such regulations as the Monetary Board may issue

-purchase and sale of gold shall be made in thenational currency at the prevailing international market priceas determined by the MB.

PURCHASES AND SALES OF FOREX-BSP may buy and sell foreign notes and coins,

documents and instruments of types customarily employedfor the international transfer of funds.

-BSP may engage in future exchange operations.-BSP may engage in ForEx tansactions with the

following entities or persons only: (BIG-FO)1. Banking institutions within the Philippines2. Government and its subdivisions and

instrumentalities3. Foreign governments4. International Financial Institutions5. Others authorized by the MB

-the BSP may buy or sell any quantity of ForEx upon demandor request by any banking institution in the Philippines.Provided, that such are freely convertible into gold or US

dollars. However, this is not applicable to demands forforeign notes and coins-exchange transactions between foreign currencies andPhilippine Peso shall be based on the NCBA.

FOREIGN ASSET POSITION OF THE BANGKO SENTRAL

-BSP shall maintain NET POSITIVE FOREIGN ASSETPOSITION so that its Gross ForEx assets will always exceedits Gross ForEx liabilities.In the event that the equivalent amount in pesos of the ForExliabilities of the BSP exceed twice the equivalent amount inpesos of the foreign exchange assets of the bank, the BSPshall within 60 days from the date the limit exceeded, submia report to Congress stating the origin of these liabilities andmanner in which they will paid.

EMERGENCY RESTRICTIONS ON EXCHANGE

OPERATIONSIn order to:(i) Achieve the primary objective of the BSP(ii) Protect international reserves in the imminence or duringand exchange crisis(iii) Give time to the MB and the Government to takemeasures to forestall or overcome such crisis

- The MB with the concurrence of at least 5 members andwith the approval of the President of the Philippines may:1. Temporarily suspend sales of exchange2. Subject all gold and ForEx transactions to license

3. Require that any ForEx obtained by any person or entity inthe Philippines be delivered to the BSP at the exchangerates. (Foreign currency deposits made under RA 6426exempt from this requirements)

ACQUISITION OF INCONVERTIBLE CURRENCIES

-BSP shall be avoid the acquisition and holding ifcurrencies which are not freely convertible and mayacquire such currencies in an amount exceeding theminimum balance necessary to cover current demands fosuch currencies only when considered by the MB to be in thenational interest.-MB shall determine the procedure that shall apply to theacquisition and disposition by the BSP of ForEx not freelyutilized

EXCHANGE RATES-exchange rate policy is determined by the MB


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-MB shall determine the rates at which BSP shall buy andsell spot exchange and may establish deviation limits fromthe exchange rates-MB shall determine the rates for other types of ForExtransactions by BSP. But the margins between the effectiveexchange rates and the rates established may not exceed

the margins for spot exchange by more than the additionalcosts involved in each type of transactions

OPERATIONS WITH FOREIGN ENTITIES-MB may authorize the BSP to grant loans to and toreceive loans from foreign banks or international entities.The BSP may also act as agent for such entities.-MB may authorize the BSP to pledge any gold or otherassets as securities against loans which it receives fromforeign entities.

REGULATION OF FOREIGN EXCHANGE OPERATIONSOF THE BANKS

FOREIGN EXCHANGE HOLDINGS OF THE BANKS-MB may require the banks to sell to the BSP or to otherbanks all or part of their surplus holdings of ForEx tomaintain international stability and convertibility of the Peso.Such transfers shall be at the established rates and may berequired of certain currencies only.

-MB may determine the net assets and liabilities of banksand consider the banks networth, outstanding liabilities, or

other ratios it may deem appropriate. Such determinationshall be applied in all banks uniformly.

REQUIREMENT OF BALANCED CURRENCY POSITION-MB may require banks to maintain a balanced positionbetween theirassets and liabilities in Philippine Peso or inany other currency. They shall be granted reasonable time toadjust their currency positions to any such requirement.-such powers shall be exercised only under specialcircumstances which warrant the same

REGULATION OF NON-SPOT EXCHANGETRANSACTION-MB may issue regulations governing bank purchases andsales of non-spot exchange in order to restrain banks fromtaking speculating positions with respect to future fluctuationsin ForEx rates.

OTHER EXCHANGE PROFITS AND LOSSES-banks bear the risks of

1. Non-compliance with the terms of the ForEx documentsand instruments they buy and sell.2. Other commercial or other banking risks3. Exchange risks not assumed by the BSP regarding non-spot exchange transaction

INFORMATION ON EXCHANGE OPERATIONS:

a. Banks shall report to the BSP the volume and compositionof their purchases and sales of gold and ForEx each dayand must furnish requested additional info.b. The MB may also require other persons and entities toreport to it all transactions as stated above. It shall prescribethe form such declarations must be made. The BSP mayinspect such declarations for verification.

LOANS TO BANKING AND OTHER FINANCIAL

INSTITUTIONS

GUIDING PRINCIPLES-rediscounts, discounts, loans and advances which the BSPis authorized to extend under Art 4 of NCBA shall be usedto influence the volume of credit consistent with theobjective of price stability.

AUTHORIZED TYPES OF CREDIT OPERATIONS

-The BSP carried on the ff credit operations with bankinginstitutions in the Philippines: (CPOA)

a. Commercial Credits- BSP may rediscountdiscount, buy and sell bills, acceptances, promissory notesand other credit instruments with maturities of not more than180 days from the date of rediscount, discount or acquisitionand resulting from transactions related to:

1. The importation, exportation, purchase or saleof readily saleable goods and products, or theitransportation within the Philippines; or(PESTI)2. The storing of non-perishable goods and

products, duly insuredand deposited.

b. Production Credits- BSP may rediscountdiscount, buy and sell bills, acceptances, promissory notesand other credit instruments with maturities of not more than360 days from the date of rediscount, discount or acquisitionand resulting from transactions related to the production orprocessing of agricultural, animal, mineral or industriaproducts.Must be secured by:


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1. A pledge of the crops or products or2. A lien or mortgage on real prop, 70% of the appraisedvalue of which equals or exceeds the amount of the loangranted.

c. Other credits- special credit instruments not

otherwise rediscountable under a and b (re: commercial andproduction credits) may be rediscounted in accordance withBSP rules and regulations.- when necessary, BSP may provide funds fromnoninflationarysources; MB shall prescribes for additional safeguards forthe same.

d. Advances- BSP may grant advances against thefollowing kinds of collaterals for fixed periods with exceptionof advances against the collaterals named in clause 4 of the

presen t siubsection (d), shall not exceed 180 days : (GSC-CUNN)1. Gold coins or bullions2. Securities representing obligations of the BSP or ofotherdomestic institutions of recognized solvency3. Commercial credits4. Production credits5. Utilized portions of advances in current amount covered byregular overdraft agreements related to commercial andproduction credits, and certified as to the amount and liquidityby the institution soliciting the advance6. Negotiable treasury bills, cert of indebtedness, notes and

other negotiable obligations of the Govt maturing within 3 yrsfrom the date of the advance7. Negotiable bonds issued by the Govt and its subdivisionsand instrumentalities having maturities of not more than 10years from the date of the advance

Notes:(i) The rediscounts, discounts, loans and advances made inaccordance with the above provisions may not be renewed orextended unless extraordinary circumstances fully justifysuch renewal or extension.(ii) Advances made against the collateral in 6 and 7 may notexceed 80% of the current market value of the collateral

LOANS FOR LIQUIDITY PURPOSES-BSP may extend loans and advances to banks for a periodnot exceeding 7 days without collateral to provide liquidity intimes of need

EMERGENCY LOANS AND ADVANCES

NATURE OF EMERGENCY LOANS OR ADVANCES

An emergency loan or advance is a credit facility that isintended to assist a bank experiencing serious liquidityproblems arising from causes not attributable to or beyond

the control of the bank management.-the grant is discretion of MB-only a temporary remedial measure to help the bankovercome liquidity problems-must be on a fully secured basis

WHEN GRANTEDa. Whole banking community is threatened with the

financial crisis-national/local emergency or imminent financial panic-directly threatening the monetary and banking stability

The MB (vote of 5 members) authorize the BSP to granextraordinary loans or advances to banking institutions.While such loans are outstanding, the debtor cannot expandthe total volume of its loan or investments withouauthorization from the MB

b. Bank with uncertain financial condition but is noinsolvent

-MB may authorize the BSP to extend such loans evenduring normal times to assist a bank in a precariousfinancial condition brought by unforeseen events othough foreseeable, cannot be prevented.

-MB must first ascertain that the bank is not insolvent andhas assets to secure theadvances.-5 votes of MB members must concur

LIMITS-amount of any emergency loan must shall not exceed 50%of total deposits or deposit substitutes of a bank andshall be disbursed in 2 or more tranches

FIRST TRANCHE1. The amount of the first tanche is limited to 25% of the totadeposits or deposit substitutes-secured by govt securities and other unencumbered firsclass collaterals the MB may approve2. If MB determined that the emergency warrant a greateloan, it may exceed 25%-must be secured by govt securities and other unencumberedfirst class collaterals the MB may approve.


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-principal stockholders must furnish an acceptableundertaking to indemnify and hold harmless from suit aconservator appointed by MB3. Prior to the release of the first tranche , the bank mustsubmit to the BSP a resolution by its board authorizing theBSP to evaluate their assets certified by an external auditor

to be good and available for collateral purposes.

SECOND TRANCHE-vote of 5 MB members may authorize the release of asecond tranche on condition that the principal stockholders ofthe institution:1. Furnish the undertaking the same as in number 2 above2. Provide acceptable security adequate (in the opinion of theMB) to supplement the assets tendered by the bank tocollateralize the subsequent tranche.

SHARES AS COLLATERALThe prohibitions of section 128 shall not apply insofar as itrefers to acceptance as collateral of shares and theiracquisition as a result of foreclosure proceedings. If the BSPacquired any of such shares, suchshall be disposed in a public bidding within one year from thedate of consolidation of title by theBSP.

Section 128. Prohibitions. The Bangko Sentral shall notacquire shares of any kind or accept them as collateral, andshall not participate in the ownership or management of any

enterprise, either directly or indirectly. The Bangko Sentralshall not engage in development banking or financing:Provided, however,That outstanding loans obtained or extended fordevelopment financing shall not be affected by the prohibitionof this section.

OVERDRAFT-whenever a financial institution incurs an overdraft it shall beeliminated within 5 consecutive banking days

CREDIT TERMS

INTEREST AND REDISCOUNT-The BSP shall collect interest and other charges on loansand advances it extends, the closure, receivership orliquidation of the bank notwithstanding.-The MB shall fix the interest and rediscount rates (applieduniformly to banks of the same category)

ENDORSEMENT-the documents rediscounted, discounted, bought oaccepted as collateral by the BSP shall bear theendorsement of the institution from which they are received.

REPAYMENT OF CREDITS

a. the documents rediscounted, discounted, bought oaccepted as collateral by the BSP must be withdrawn by thebank on maturity date or upon the liquidation of the obligationwhich they represent

b. Banks have the right to withdraw such collaterals uponpayment of the debt and its interest

OTHER REQUIREMENTS-MB may prescribe additional requirements which borrowinginstitutions must satisfy in order to have access to the credi

of BSP.-these conditions may refer to the rates of interest chargedby banks, to the purposes for which their loans in general aredestined and to any other clearly definable aspect of thecredit policy of the bank.

PROVISIONAL ADVANCES TO THE NATIONALGOVERNMENT-BSP may direct provisional advances with or without interesto the National Government to finance expendituresauthorized in its annual appropriation.Provided that the advances be:

1. repaid within 3 months (may be extended up to the sameperiod if allowed by the MB) from the date such advances arereceived by the National Govt2. shall not, aggregately, exceed 20 % of the average annuaincome of the borrower for the last 3 preceding years.

OPEN MARKET OPERATIONS FOR THE ACCOUNT OFTHE BANGKO SENTRAL

PRINCIPLES OF OPEN MARKET OPERATIONSThe open market purchases and sales securities by the BSPshall be made exclusively in accordance with the objective ofachieving price stability

PURCHASES AND SALES OF GOVERNMENTSECURITIES-BSP may buy and sell in open market for its own account:a. evidences of indebtedness issued directly by the Govand its subdivisions


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b. evidences of indebtedness issued by govtinstrumentalities and guaranteed by the Govt-such evidences must be freely negotiable, regularlyserviced, available to the public in denominations ofthousand pesos or more.

ISSUE AND NEGOTIATION OF THE BSP OBLIGATIONS-in order to provide the BSP with effective instrument foropen market operations, BSP may issue, place, buy and sellfreely negotiable evidences of indebtedness of the BangkoSentral- issuance of such certificates of indebtedness shall be madeonly in cases ofextraordinary movement in price levels.-MB may determine the interest rates, maturities and othercharacteristics of said obligations of the BSP and maydenominate the obligations in gold orforeign currencies.-acquired by the BSP through purchases or redemptions.

-shall not be included among its assets, and shall beimmediately retired and cancelled.

COMPOSITION OF THE BSPS PORTFOLIOAt least once every month the MB shall Review of theBSPs Portfolio-by the MB in relation to its future credit policy-MB shall consider whether a sufficiently large part of theportfolio consists of assets with early maturities, in order thata contraction in BSP credit may be effected promptlywhenever the national monetary policy so requires

BANK RESERVES

RESERVE REQUIREMENTS

-in order to control the volume of money created by the creditoperations of the banking system, all banks are required tomaintain reserves against their deposit liabilities-MB may also require all banks and/or quasi-banks tomaintain reserves against funds held in trust and liabilities fordeposit substitutes-the required reserves of each bank shall be proportionalto the volume of its deposit liabilities and shall ordinarilytake the form of a deposit in the BSP- Reserves against deposit substitutes shall bedetermined in the same manner as provided for reserverequirements against regular bank deposits-MB may exempt from the reserve requirements depositsand deposit substitutes with remaining maturities of 2yrs or more and interbank borrowings

-Maintenance of bank reserves is for the purpose ocontrolling the volume of money-BSP shall not pay interest unless required by the MB

DEFINITION OF DEPOSIT SUBSTITUTES

Section 95. Definition of Deposit Substitutes. The term"deposit substitutes" is defined as an alternative form oobtaining funds from the public, other than deposits, throughthe issuance, endorsement, or acceptance of debinstrumentsfor the borrower's own account, for the purposeof relending or purchasing of receivables and otheobligations. These instruments may include, but need not belimited to,

a. bankers acceptances,b. promissory notes,c. participations,d.

certificates of assignment and similar instrumentswith recourse,

e. and repurchase agreements.The Monetary Board shall determine what specificinstruments shall be considered as deposit substitutes for thepurposes of Section 94 of this Act:Provided, however, That deposit substitutes ocommercial, industrial and other non-financiacompanies for the limited purpose of financing their ownneeds or the needs of their agents or dealers shall not becovered by the provisions of Section 94 of this Act.

REQUIRED RESERVES AGAINST PESO DEPOSIT-The MB may fix and alter the minimum reserve ratios topeso deposits as well as to deposit substitutes, which eachbank and quasi-bank may maintain and such ratio be applieduniformly to all banks of the same category as well as toquasi-banks

REQUIRED RESERVES AGAINST FOREIGN CURRENCYDEPOSITS- MB authorized to prescribe and modify the minimumreserve ratios applicable to deposits denominated in foreigncurrencies

RESERVES AGAINST UNUSED BALANCES OFOVERDRAFT LINES-MB may establish minimum reserve requirements founused balances of overdraft lines


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INCREASE IN RESERVE REQUIREMENTSWhen in the opinion of MB it is necessary to increase reserverequirements, the increase must be gradual and shall notexceed four percentage points in any thirty-day period.-banks shall be notified in advance as to when it will takeeffect

COMPUTATION ON RESERVES- calculated daily on the basis of the amount, at the close ofbusiness for the day, of the institution's reserves and theamount of its liability accounts against which reserves arerequired to be maintained-holidays or non-banking days: the reserve position ascalculated at the close of the business day immediatelypreceding such holidays and non-banking days shall applyon such days.-for computation of reserve position of bank or QB = its

principal office and all its branches and agencies locatedtherein shall be considered as SINGLE UNIT

RESERVE DEFICIENCIES-if reserve position is below the minimum required: shall paythe Bangko Sentral one-tenth of one percent (1/10 of 1%) perday on the amount of the deficiency or the prevailing ninety-one-day treasury bill rate plus three percentage points,whichever is higher.-excess may offset deficiencies (of the same week)-MB may deny such privilege in case of abuse

-if a bank chronically has a reserve deficiency, MB maylimit or prohibit the making of new loans or investments andmay require the net profits be assigned to surplus

- MB may modify or set aside the reserve deficiencypenalties provided in this section, for part or the entire periodof a strike or lockout affecting a bank or a quasi-bank or ofa national emergency affecting operations of banks orquasibanks.The MB may also modify or set aside reserved deficiencypenalties for rehabilitation program of a bank.

INTERBANK SETTLEMENT-BSP shall establish facilities for interbank clearing underprescribed rules and regulations of the MB. BSP may chargefees.-Deposit reserves maintained by banks in BSP shall serveas basis for check clearing and settlement of interbankbalances

- any bank which incurs on overdrawing in its deposit accounwith the Bangko Sentral shall fully cover said overdraftincluding interest thereon at a rate equivalent to one-tenth ofone percent (1/10 of 1%) per day or the prevailing ninetyone-day treasury bill rate plus three percentage pointswhichever is higher, not later than the next clearing day.

- settlement of clearing balances shall not be effected for anyaccount which continues to be overdrawn for five (5consecutive banking days until such time as the overdrawingis fully covered or otherwise converted into an emergencyloan or advance.-the appropriate clearing office shall be officially notified obanks with overdrawn balances.-banks with existing overdrafts with BSP as may beprescribed by MB, either convert the overdraft into anemergency loan or advance with a plan of payment, settlesuch overdrafts and that upon failure to so comply, the BSP

shall take such action against the bank as may be warrantedunder the NCBA.

EXEMPTION FROM ATTACHMENT-deposits maintained by banks with the BSP as part of theirreserve requirements shall be exempt from attachmentsgarnishments or any other order or process of any courtgovernment agency or any other administrative body issuedto satisfy claim of a party other than the Government or itspolitical subdivisions or instrumentalities.

SELECTIVE REGULATION OF BANK OPERATIONS

Section 104. Guiding Principle. The Monetary Boardshall use the powers granted to it under this Act to ensurethat the supply, availability and cost of money are in accordwith the needs of the Philippine economy and that bankcredit is not granted for speculative purposes prejudicial tothe national interests. Regulations on bank operations shalbe applied to all banks of the same category uniformly andwithout discrimination.

Section 105. Margin Requirements Against Letters oCredit. The Monetary Board may at any time prescribeminimum cash margins for the opening of letters of creditand may relate the size of the required margin to the natureof the transaction to be financed.

Section 106. Required Security Against Bank Loans. In order to promote liquidity and solvency of the bankingsystem, the Monetary Board may issue such regulations as imay deem necessary with respect to the maximumpermissible maturities of the loans and investments which the


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banks may make, and the kind and amount of security to berequired against the various types of credit operations of thebanks.

Section 107. Portfolio Ceilings. Whenever the MonetaryBoard considers it advisable to prevent or check an

expansion of bank credit, the Board may place an upper limiton the amount of loans and investments which the banksmay hold, or may place a limit on the rate of increase of suchassets within specified periods of time. The Monetary Boardmay apply such limits to the loans and investments of eachbank or to specific categories thereof.In no case shall the Monetary Board establish limits whichare below the value of the loans or investments of the bankson the date on which they are notified of such restrictions.The restrictions shall be applied to all banks uniformly andwithout discrimination.

Section 108. Minimum Capital Ratios. The MonetaryBoard may prescribe minimum ratios which the capital andsurplus of the banks must bear to the volume of their assets,or to specific categories thereof, and may alter said ratioswhenever it deems necessary.

Coordination of Credit Policies. Government-ownedcorporations which perform banking or credit functions shallcoordinate their general credit policies with those of theMonetary Board.Toward this end, the Monetary Board may, whenever it

deems it expedient, make suggestions or recommendationsto such corporations for the more effective coordination oftheir policies ith those of the Bangko Sentral.

FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OFTHE GOVERNMENT

DESIGNATION OF BANGKO SENTRAL AS BANKER OFTHE GOVERNMENT. The Bangko Sentral shall act as a banker of theGovernment, its political subdivisions and instrumentalities.

REPRESENTATION WITH THE INTERNATIONALMONETARY FUND. The Bangko Sentral shall representthe Government in all dealings, negotiations and transactionswith the International Monetary Fund and shall carry suchaccounts as may result from Philippine membership in, oroperations with, said Fund.

REPRESENTATION WITH OTHER FINANCIALINSTITUTIONS. The Bangko Sentral may be authorizedby the Government to represent it in dealings, negotiations ortransactions with the International Bank for Reconstructionand Development and with other foreign or internationafinancial institutions or agencies. The President may

however, designate any of his other financial advisors tojointly represent the Government in such dealingsnegotiations or transactions.

Section 113. Official Deposits. The Bangko Sentrashall be the official depository of theGovernment, its political subdivisions and instrumentalitiesas well as of government-owned or controlled corporationsand, as a general policy, their cash balances should bedeposited with the Bangko Sentral, with only minimumworking balances to be held by government-owned banks

and such other banks incorporated in the Philippines as theMonetary Board may designate, subject to such rules andregulations as the Board may prescribe: Provided, That suchbanks may hold deposits of the political subdivisions andinstrumentalities of the Government beyond their minimumworking balances whenever such subdivisions oinstrumentalities have outstanding loans with said banks.The Bangko Sentral may pay interest on deposits of theGovernment or of its political subdivisions andinstrumentalities, as well as on deposits of banks with theBangko Sentral.

FISCAL OPERATIONS The Bangko Sentral shall open a general cash accounfor the Treasurer of the Philippines, in which the liquidfunds of the Government shall be deposited.Transfers of funds from this account to other accounts shalbe made only upon order of the Treasurer of the Philippines.

Section 115. Other Banks as Agents of the BangkoSentral. In the performance of its functions as fiscaagent, the Bangko Sentral may engage the services of othergovernmentowned and controlled banks and of othedomestic banks for operations in localities at home or abroadin which the Bangko Sentral does not have offices oragencies adequately equipped to perform said operationsProvided, however, That for fiscal operations in foreigncountries, the Bangko Sentral may engage the services offoreign banking and financial institutions.

Section 116. Remuneration for Services. The BangkoSentral may charge equitable rates, commissions or fees fo


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services which it renders to the Government, its politicalsubdivisions and instrumentalities.

THE MARKETING AND STABILIZATION OF SECURITIESFOR THE ACCOUNT OF THE GOVERNMENT

Section 117. Issue of Government Obligations. Theissue of securities representing obligations of theGovernment, its political subdivisions or instrumentalities,may be made through the Bangko Sentral, which may act asagent of, and for the account of, the Government or itsrespective subdivisions or instrumentality, as the case maybe: Provided, however, That the Bangko Sentral shall notguarantee the placement of said securities, and shall notsubscribe to their issue except to replace its maturingholdings of securities with the same type as the maturingsecurities.

Section 118. Methods of Placing Government Securities. The Bangko Sentral may place the securities to which thepreceding section refers through direct sale to financialinstitutions and the public.The Bangko Sentral shall not be a member of any stockexchange or syndicate, but may intervene therein for the solepurpose of regulating their operations in the placing ofgovernment securities.The Government, or its political subdivisions orinstrumentalities, shall reimburse the Bangko Sentral for theexpenses incurred in the placing of the aforesaid securities.

Section 119. Servicing and Redemption of the PublicDebt. The servicing and redemption of the public debtshall also be effected through the Bangko Sentral.

Section 120. The Securities Stabilization Fund. Thereshall be established a "Securities Stabilization Fund" whichshall be administered by the Bangko Sentral for the accountof the Government. The operations of the SecuritiesStabilization Fund shall consist of purchases and sales, inthe open market, of bonds and other evidences ofindebtedness issued or fully guaranteed by the Government.The purpose of these operations shall be to increase theliquidity and stabilize the value of said securities in orderthereby to promote investment in government obligations.The Monetary Board shall use the resources of the Fund toprevent, or moderate, sharp fluctuations in the quotations ofsaid government obligations, but shall not endeavor to altermovements of the market resulting from basic changes in thepattern or level of interest rates.

The Monetary Board shall issue such regulations as may benecessary to implement the provisions of this section.

Section 121. Resources of the Securities StabilizationFund. Subject to Section 132 of thisAct, the resources of the Securities Stabilization Fund shal

come from the balance of the fund as held by the CentraBank under Republic Act No. 265 as of the effective date ofthis Act.

Section 122. Profits and Losses of the Fund. TheSecurities Stabilization Fund shall retain net profits which imay make on its operations, regardless of whether saidprofits arise from capital gains or from interest earnings. TheFund shall correspondingly bear any net losses which it mayincur.

FUNCTIONS AS FINANCIAL ADVISOR OF THEGOVERNMENT

Section 123. Financial Advice on Official CrediOperations. Before undertaking any credit operationabroad, the Government, through the Secretary of Financeshall request the opinion, in writing, of the Monetary Board onthe monetary implications of the contemplated action. Suchopinions must similarly be requested by all politicasubdivisions and instrumentalities of the Government beforeany credit operation abroad is undertaken by them.The opinion of the Monetary Board shall be based on the

gold and foreign exchange resources and obligations of thenation and on the effects of the proposed operation on thebalance of payments and on monetary aggregates.Whenever the Government, or any of its political subdivisionsor instrumentalities, contemplates borrowing within thePhilippines, the prior opinion of the Monetary Board shallikewise be requested in order that the Board may render anopinion on the probable effects of the proposed operation onmonetary aggregates, the price level, and the balance ofpayments.

*the president may contract or guarantee foreign loanson behalf of the republic of the Philippines with priorconcurrence of the MB.

Section 124. Representation on the National Economicand Development Authority. In order to assure effectivecoordination between the economic, financial and fiscapolicies of the Government and the monetary, credit andexchange policies of the Bangko Sentral, the Deputy


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Governor designated by the Governor of the Bangko Sentralshall be an ex officio member of the National Economic andDevelopment Authority Board.

PRIVILEGESSection 125. Tax Exemptions. The Bangko Sentral shall

be exempt for a period of five (5) years from the approval ofthis Act from all national, provincial, municipal and city taxes,fees, charges and assessments.

The exemption authorized in the preceding paragraph of thissection shall apply to all property of the Bangko Sentral, tothe resources, receipts, expenditures, profits and income ofthe Bangko Sentral, as well as to all contracts, deeds,documents and transactions related to the conduct of thebusiness of the Bangko Sentral: Provided, however, Thatsaid exemptions shall apply only to such taxes, fees, charges

and assessments for which the Bangko Sentral itself wouldotherwise be liable, and shall not apply to taxes, fees,charges, or assessments payable by persons or otherentities doing business with the Bangko Sentral: Provided,further, That foreign loans and other obligations of theBangko Sentral shall be exempt, both as to principal andinterest, from any and all taxes if the payment of such taxeshas been assumed by the Bangko Sentral.

Section 126. Exemption from Customs Duties. Theprovision of any general or special law to the contrarynotwithstanding, the importation and exportation by the

Bangko Sentral of notes and coins, and of gold and othermetals to be used for purposes authorized under this Act,and the importation of all equipment needed for bank noteproduction, minting of coins, metal refining and other securityprinting operations shall be fully exempt from all customsduties and consular fees and from all other taxes,assessments and charges related to such importation orexportation.

Section 127. Applicability of the Civil Service Law. Appointments in the Bangko Sentral, except as to thosewhich are policy-determining, primarily confidential or highlytechnical in nature, shall be made only according to the CivilService Law and regulations: Provided, That no qualificationrequirements for positions in the Bangko Sentral shall beimposed other than those set by the Monetary Board:Provided, further, That, the Monetary Board or Governor, inaccordance with Sections 15(c) and 17(d) of this Act,respectively, may without need of obtaining prior approvalfrom any other government agency, appoint personnel in the

Bangko Sentral whose services are deemed necessary inorder not to unduly disrupt the operations of the BangkoSentral.Officers and employees of the Bangko Sentral, including almembers of the Monetary Board, shall not engage directly oindirectly in partisan activities or take part in any election

except to vote.

TRANSITORY PROVISIONS

Section 129. Phase-out of Fiscal Agency Functions. Unless circumstances warrant otherwise and approved bythe Congress Oversight Committee, the Bangko Sentrashall, within a period of three (3) years but in no case longerthan five (5) years from the approval of this Act, phase out alfiscal agency functions provided for in Sections 117, 118

119, and 120 as well as in other pertinent provisions of thisAct and transfer the same to the Department of Finance.Section 130. Phase-out of Regulatory Powers Over theOperations of Finance Corporations and OtherInstitutions Performing Similar Functions. The BangkoSentral shall, within a period of five (5) years from theeffectivity of this Act, phase out its regulatory powers overfinance companies without quasi-banking functions and otheinstitutions performing similar functions as provided inexisting laws, the same to be assumed by the Securities andExchange Commission. chan robles virtual law librarySection 131. Implementing Details. The Bangko Sentra

shall be made operati