NEW CENTRAL BANK ACT
(Republic Act No. 7653)
I. State Policies
Section 1 - The State shall maintain a central monetary
authority that shall function and operate as an independent
and accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking and
credit. In line with this policy, and considering its unique
functions and responsibilities, the central monetary authority
established under this Act, while being a government-owned
corporation, shall enjoy fiscal and administrative autonomy.
II. Creation of the Bangko Sentral ng Pilipinas
Section 2 - There is hereby established an independent central
monetary authority, which shall be a body corporate known as
the Bangko Sentral ng Pilipinas (Bangko Sentral).
The Bangko Sentral ng Pilipinas is an administrative agency exercising quasijudicial functions through its Monetary Board (UCPB v. Ganzon, 591 SCRA
321).
III. Responsibility and Primary Objectives
1998, 1953 BAR QUESTION
What are the responsibilities and primary objectives of the Bangko
Sentral ng Pilipinas (BSP)
SUGGESTED ANSWER:
The Bangko Sentral ng Pilipinas shall provide policy directions in the
areas of money, banking, and credit. It shall have supervision over the
operations of banks and exercise such regulatory powers as provided in this
Act and other pertinent laws over the operations of finance companies and
non-bank financial institutions performing quasi-banking functions, hereafter
referred to as quasi-banks, and institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain price
stability conducive to a balanced and sustainable growth of the economy. It
shall also promote and maintain monetary stability and the convertibility of
the peso (Section 3, NCBA).
IV. Powers of the Bangko Sentral ng Pilipinas
1968, 1958 BAR QUESTION
1
Mention the corporate powers of the Central Bank(now Bangko
Sentral ng Pilipinas)
SUGGESTED ANSWER:
The Bangko Sentral is hereby authorized to perform the following:
1. to adopt, alter, and use a corporate seal which shall be judicially
noticed;
2. to enter into contracts;
3. to lease or own real and personal property,
4. to sell or otherwise dispose of real and personal property;
5. to sue and be sued;
6. otherwise to do and perform any and all things that may be necessary
or proper to carry out the purposes of the New Central Bank Act;
7. may acquire and hold such assets and incur such liabilities in
connection with its operations authorized by the provisions of the New
Central Bank Act, or as are essential to the proper conduct of such
operations.
8. may compromise, condone or release, in whole or in part, any claim of
or settled liability to the Bangko Sentral, regardless of the amount
involved, under such terms and conditions as may be prescribed by
the Monetary Board to protect the interests of the Bangko Sentral.
(Section 5, NCBA)
V. The Monetary Board of the Bangko Sentral ng Pilipinas
QUESTION
What body exercises the powers and functions of the BSP? What is
its composition?
SUGGESTED ANSWER:
The Monetary Board exercises the powers and functions of the BSP. It is
composed of seven (7) members appointed by the President of the
Philippines for a term of six (6) years:
(1) Governor of the Bangko Sentral - acts as Chairman of the MB; he
shall be head of a department and his appointment is subject to
confirmation by the Commission of Appointments.
(2) Member of the Cabinet; and
(3) Five (5) members coming from the private sector who shall serve
full-time (Sec. 6, NCBA).
QUESTION:
Enumerate the qualifications of the members of the Monetary Board.
SUGGESTED ANSWER:
The members of the Monetary Board must possess the following
qualifications:
1. natural-born citizens of the Philippines;
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2. at least thirty-five (35) years of age, with the exception of the
Governor who should at least be forty (40) years of age;
3. of good moral character;
4. of unquestionable integrity;
5. of known probity and patriotism; and
6. with recognized competence in social and economic disciplines.
VI. How the BSP handles banks in distress
A. Conservatorship
B. Receivership
C. Liquidation
A. Conservatorship (Section 29)
Conservatorship is a tool in restoring the viability of banks and quasi-banks.
It consists of carrying out a package of administrative, organizational,
financial and/or other measures to address the state of continuing inability
or unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors (Banking Laws of the
Philippines, The New Central Bank Act Annotated, BSP, p. 122)
There are three (3) requisites in placing an institution under
conservatorship:
i.
There must be a report submitted by the appropriate supervising
or examining department of the Bangko Sentral.
ii. There must be a finding by the MB based on the report that a bank
or quasi-bank is in a state of continuing inability or unwillingness
to maintain a condition of liquidity deemed adequate to protect the
interest of depositors and creditors.
iii. The Board of Directors must be informed in writing of the order of
the Monetary Board directing conservatorship (ibid., page 123)
Liquidity is the ability to pay off obligations when they fall due. It refers
to that condition wherein high percentage of the assets can be quickly
converted into cash without involving any considerable loss by accepting
sacrifice prices (F.L. Garcia, Glen G. Munn’s Encyclopedia of Banking and
Finance 414).
Termination of conservatorship
1. when the Monetary Board is satisfied that the institution can continue to
operate on its own and the conservatorship is no longer necessary.
2. when the Monetary Board, on the basis of the report of the conservator
or of its own findings, determines that the continuance in business of the
institution would involve probable loss to its depositors or creditors
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QUESTION
Distinguish between conservatorship from receivership
Ground/s
CONSERVATORSHIP
RECEIVERSHIP
a state of continuing Under the NCBA:
inability or unwillingness 1. is unable to pay its liabilities as
to maintain a condition
they become due in the
of
liquidity
deemed
ordinary course of business; or
adequate to protect the
interest of depositors 2. by the Bangko Sentral, to meet
and creditors
its liabilities; or
3.
cannot continue in business
without
involving
probable
losses to its depositors or
creditors; or
4. has willfully violated a cease and
desist order that has become
final,
involving
acts
or
transactions which amount to
fraud or a dissipation of the
assets of the institution; or
Under the GBL:
5. When a bank notifies the BSP or
publicly announces a bank
holiday
(Sec.
53,
last
paragraph, GBL).
[NOTE: In the event of a bank
holiday, the MB may summarily
and without need for prior
hearing close such banking
institution and place it under
receivership of the PDIC].
Insolvency (of Bank) refers to a
situation when the realizable assets
of a bank are insufficient to meet its
liabilities.
Bank Holiday refers to a situation
where a bank or quasi-bank
suspends the payment of its deposit
liabilities continuously for more
than [30] day.
The test of insolvency laid down in
Section 30 of the NCBA is measured
by
determining
whether
the
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realizable assets, realizable within a
reasonable time by a reasonable
prudent person of a bank are less
than its liabilities.
6. Whenever a bank, quasi-bank or
trust
entity
persists
in
conducting its business in an
unsafe or unsound manner
(Sec. 56, GBA)
Duration
Effects
7. suspends the payment of its
deposit liabilities continuously
for more than thirty (30) days
(Sec. 53, GBA)
Ninety (90) days from take over
Conservatorship
shall not exceed
one (1) year.
1. A bank placed under 1.
conservatorship
by
the BSP retains its
juridical
personality
(Central v. CA, 208
SCRA 652).
The
appointment
of
a
receiver does not dissolve
the corporation nor does it
interfere with the exercise of
corporate rights. (Manalo v. CA,
G.R. No. 141297, Oct. 8,
2001).
2. The designation of a
conservator is not a
precondition to the 2. Thus, the appointment of a
designation
of
a
receiver
operates
to
receiver.
suspend the authority of the
bank and of its directors and
officers over its property
and effects, such authority
being reposed in the receiver,
and in this respect, the
receivership is equivalent to an
injunction to restrain the bank
officers from intermeddling with
the property of the bank in any
way.
(Abacus
Real
Estate
Development Center, Inc. vs.
The
Manila
Banking
Corporation, G.R. No. 162270.
April 06, 2005)
3.
When a bank is placed under
receivership, it would only not
be
able
to
do
new
business, that is, to grant
new loans or to accept
new deposits (Spouses Aguilar
5
v.
The
Manila
Banking
Corporation, G.R. No. 157911,
September 19, 2006).
4. The insolvency of a bank and the
consequent appointment of a
receiver restrict the bank’s
capacity to act, especially in
relation
to
its
property
(Villanueva v. CA, 244 SCRA
395).
Where a bank became insolvent
before its acceptance of an
offer
came
into
the
knowledge of the offeror, the
offer became ineffective (ibid.).
NOTE: Under Article 1323 of
the Civil Code, an offer
becomes ineffective upon the
death,
civil
interdiction,
insanity, or insolvency of
either party before acceptance
is conveyed.
RATIONALE: The contract is
not perfected except by the
concurrence of two wills which
exist and continue until the
moment that they occur. The
contract is not yet perfected at
any time before acceptance is
conveyed;
hence,
the
disappearance of either party or
his loss of capacity before
perfection
prevents
the
contractual tie from being
formed.
5. The assets of the bank shall be
deemed in custodia legis in the
hands of the receiver and shall,
from the moment the bank was
placed under receivership or
liquidation, be exempt from any
order of garnishment, levy,
attachment, or execution (Phil.
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Veterans Bank vs. NLRC, G.R.
No. 13039. October 26, 1999).
6. The bank cannot foreclose any
mortgage (Provident Savings
Bank vs. CA, 222 SCRA 125).
7. The receivership of a bank with
express
prohibition
from
transacting
business
is
considered as force majeure. –
legally
interrupted
the
prescriptive period to foreclose.
(Provident Savings Bank vs. CA,
222 SCRA 125).
Powers
1. to take charge of the
assets, liabilities, and
the
management
thereof,
2.
reorganize
the
management,
3. collect all monies and
debts
due
said
institution, and
4. exercise all powers
necessary to restore
its viability.
5. to overrule or revoke
the actions of the
previous
management
and
board of directors of
the bank or quasibank.
NOTE: Section 28-A
merely
gives
the
conservator power to
revoke contracts that
are, under existing
law, deemed to be
defective
—
i.e.,
void, voidable, etc.
Hence,
the
conservator merely
takes the place of a
bank's
board
of
directors. What the
said board cannot do
—
such
as
repudiating
a
contract
validly
entered into under
1. to immediately gather and take
charge of all the assets and
liabilities of the institution,
administer the same for the
benefit of its creditors, and
2. exercise the general powers of a
receiver under the Revised Rules
of Court
3. may deposit or place the funds of
the institution in nonspeculative
investments.
4. shall determine as soon as
possible, but not later than
ninety (90) days from take over,
whether the institution may be
rehabilitated or liquidated.
The concept of liquidation is
diametrically
opposed
or
contrary to the concept of
rehabilitation, such that both
cannot be undertaken at the
same time.
Liquidation connotes a winding
up or setting with creditors and
debtors. It is the winding up of a
corporation so that assets are
distributed to those entitled to
receive them. It is the process
of reducing assets to case,
discharging
liabilities
and
dividing surplus or loss. On the
opposite end of the spectrum is
rehabilitation which connotes a
reopening or reorganization.
Rehabilitation contemplates a
continuance of corporate life and
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the
doctrine
of
implied authority —
the
conservator
cannot do either.
Ineluctably,
his
power
is
not
unilateral
and
he
cannot
simply
repudiate
valid
obligations of the
Bank.
(First
Philippine
International Bank v.
CA, 252 SCRA 259)
activities in an effort to restore
and reinstate the corporation to
its former position of successful
operation and solvency (Phil.
Veterans Bank Union v. Vega,
360 SCRA 33, 28 June 2001).
B. Receivership (Section 30)
Receivership is the summary closure of a bank by the BSP without prior
notice and hearing after a finding that the continuance in business would
involve probable loss to its depositors and creditors (Central Bank v. Court
of Appeals, 220 SCRA 536).
For banks: Philippine Deposit Insurance Corporation (PDIC) is the
designated receiver.
For quasi-banks: any person of recognized competence in banking or
finance may be designed as receiver.
2009 BAR QUESTION
TRUE OR FALSE. A bank under receivership can still grant new loans
and accept new deposits
SUGGESTED ANSWER:
FALSE. When a bank is placed under receivership, it would only not be
able to do new business, that is, to grant new loans or to accept
new deposits. However, the receiver of the bank is obliged to collect debts
owing to the bank, which debts form part of the assets of the bank.
Consequence on Receivership on Interests
1. On interest on debt owed to the bank
The receiver of the bank is obliged to collect debts owing to the bank, which
debts form part of the assets of the bank. Thus, borrowers’ obligation to
pay interest subsists even when respondent was placed under
receivership. The bank's receivership is an extraneous circumstance and
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has no effect on borrowers’ obligation (Spouses Aguilar v. The Manila
Banking Corporation, G.R. No. 157911, September 19, 2006).
2. On interest on debt owed by the bank
Bank is not liable to pay interest on deposits during the period of suspension
of operation (Overseas Bank v. CA, 113 SCRA 778[1982]).
HOWEVER, interests on loans extended by the BSP are still demandable
(Sec. 82, NCBA).
2007 BAR QUESTION
Due to growing financial difficulties, Z Bank was unable to finish
construction of its 21-storey building on a prime lot located in
Makati City. Inevitably, the Bangko Sentral ordered the closure of Z
Bank and consequently placed it under receivership. In a bid to save
the bank's property investment, the President of Z Bank entered into
a financing agreement with a group of investors for the completion
of the construction of the 21-storey building in exchange for a ten
year lease and the exclusive option to purchase the building.
a. Is the act of the President valid? Why or why not?
b. Will a suit to enforce the exclusive right of the investors to
purchase the property prosper? Reason briefly.
SUGGESTED ANSWER:
a.
No, the act of the President is not valid. Receivership is equivalent to
an injunction to restrain the bank officers from intermeddling with the
property of the bank in any way. Thus, the appointment of a receiver
operates to suspend the authority of the bank and of its directors and
officers over its property and effects (Villanueva v. CA, 244 SCRA 395).
b.
No, the suit will not prosper. Since the act of the President was invalid,
the exclusive option to purchase the building granted to the investors is
likewise invalid. Also, since the Bank is under receivership, the properties of
the Bank may only be administered for the benefit of its creditors.
“Close Now, Hear Later” Scheme
Under the law, the sanction of closure could be imposed upon a bank by the
BSP even without notice and hearing. The apparent lack of procedural due
process would not result in the invalidity of action by the MB. This "close
now, hear later" scheme is grounded on practical and legal considerations to
prevent unwarranted dissipation of the bank’s assets and as a valid exercise
of police power to protect the depositors, creditors, stockholders, and the
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general public (BSP MB v. Antonio-Valenzuela, G.R. No. 184778, October 2,
2009).
The respondent banks cannot prevent their closure by the MB. Their remedy
is a subsequent one, which will determine whether the closure of the bank
was attended by grave abuse of discretion. Judicial review enters the picture
only after the MB has taken action; it cannot prevent such action by the MB.
The threat of the imposition of sanctions, even that of closure, does not
violate their right to due process.
The "close now, hear later" doctrine has already been justified as a measure
for the protection of the public interest. Swift action is called for on the part
of the BSP when it finds that a bank is in dire straits. Unless adequate and
determined efforts are taken by the government against distressed and
mismanaged banks, public faith in the banking system is certain to
deteriorate to the prejudice of the national economy itself, not to mention
the losses suffered by the bank depositors, creditors, and stockholders, who
all deserve the protection of the government (Rural Bank of Lucena v. Arca,
G.R. No. L-21146, Sept. 20, 1965).
C. Liquidation (Section 30)
Ground:
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business
Procedure:
The Monetary Board shall notify in writing the board of directors of its
findings and direct the receiver to proceed with the liquidation of the
institution.
1. The receiver shall file ex parte with the proper regional trial court (RTC), a
petition for assistance in the liquidation of the institution pursuant to a
liquidation plan adopted by the Philippine Deposit Insurance Corporation
for general application to all closed banks. In case of quasi-banks, the
liquidation plan shall be adopted by the Monetary Board.
2. The receiver converts the assets of the institutions to money, dispose of
the same to creditors and other parties, for the purpose of paying the
debts of such institution
3. Payment of debts shall be in accordance with the rules on concurrence
and preference of credit under the Civil Code of the Philippines.
Effects of appointment of receiver/liquidation
1. Suspension of operation
2. Assets of an institution under receivership or liquidation shall be deemed
in custodia legis in the hands of the receiver and shall, from the moment
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the institution was placed under such receivership or liquidation, be
exempt from any order of garnishment, levy, attachment, or execution.
(Sec. 30, NCBA).
3. Bank is not liable to pay interest on deposits during the period of
suspension of operation (Overseas Bank v. CA, 113 SCRA 778[1982]).
However, interests on loans extended by the BSP are still
demandable (Sec. 82, NCBA).
4. The corporation retains its legal personality.
5. Deposits do not become preferred credits (CB v. Morfe, 20 SCRA 507
[1967]).
The remedy of the depositors in case of liquidation proceedings. The
remedy of the depositors is to intervene in liquidation proceedings. There
will be no preference even if the claimant-depositor obtained a writ of
preliminary attachment (Provident Savings Bank v. CA, 222 SCRA 125).
Liquidation does not diminish power of liquidator. A bank’s closure
does not diminish the authority and powers of the designated liquidator to
effectuate and carry on the administration of the bank (Bacolor v. BF
Savings, 515 SCRA 79[2007]).
Judicial Review
1. Remedy under Section 30 of NCBA
The actions of the Monetary Board taken under Section 30 or under
Section 29 of the NCBA shall be final and executory, and may not be
restrained or set aside by the court except on petition for certiorari on
the ground that the action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or excess of
jurisdiction.
2. Ground: Grave abuse of Discretion
3. Who may question
Section 30 of the NCBA provides that the petition for certiorari may
only be filed by the stockholders of record representing the majority of
the capital stock. The petition may not be filed by the receiver or the
conservator that was appointed.
VII. Legal Tender
Legal Tender Power
Legal tender is the currency which the debtor can compel the creditor to
accept in payment of a debt when tendered for the right amount.
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Section 52 - All notes and coins issued by the Bangko Sentral
shall be fully guaranteed by the Government of the Republic of
the Philippines and shall be legal tender in the Philippines for
all debts, both public and private: Provided, however, That,
unless otherwise fixed by the Monetary Board, coins shall be
legal tender in amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above, and in
amounts
not
exceeding
Twenty
pesos
(P20.00)
for
denominations of Ten centavos or less.
HOWEVER, Section 52 of the NCBA was amended by BSP Circular No.
537, series of 2006. Accordingly, coins issued by BSP shall have legal
tender power only for the following amounts:
1. One peso coins and coins of higher peso value are legal tender for
obligations not exceeding P 1,000; and
2. Twenty-five cents and coins of lower value are legal tender for
obligations not exceeding P 100.
[A/N: There is no limit to the legal tender power of notes.]
QUESTION
Can a debtor compel his creditor to accept payment of a P50.00 debt
in the following denomination?
P
0.05 coins
P10.00
0.10 coins
P30.00
0.25 coins
P60.00
1.00 coins
P200.00
5.00 coins
P300.00
10.00 coin
P500.00
SUGGESTED ANSWER:
Yes, the debtor can compel his creditor to accept payment of the
foregoing coins. All notes and coins issued by the Bangko Sentral shall be
fully guaranteed by the Government of the Republic of the Philippines and
shall be legal tender in the Philippines for all debts, both public and private;
provided that, unless otherwise fixed by the Monetary Board, coins shall be
legal tender in amounts not exceeding One Thousand Pesos (P1000.00) for
denominations of P1.00 and above, and in amounts not exceeding One
Hundred Pesos (P100.00) for denominations of Twenty-five Centavos or less.
(Sec. 52, NCBA as amended).
1975 BAR QUESTION
Can a creditor be compelled to accept payment all in 25 centavo
Central Bank coins of a forty (P40.00) peso debt? Explain briefly.
SUGGESTED ANSWER:
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YES. Under Section 52 of the New Central Bank Act, as amended,
coins with denominations from P0.25 and below are legal tender in amounts
not exceeding One Hundred Pesos (P100.00).
[A/N: This question was answered using BSP Circular No. 537 series of
2006.]
2000 BAR QUESTION
After many years of shopping in the Metro Manila area, housewife
HW has developed the sound habit of making cash purchases only,
none on credit. In one shopping trip to Mega Mall, she got the shock
of her shopping life for the first time, a store’s smart salesgirl
refused to accept her coins in payment for a purchase worth not
more than P100. HW was paying P70 in 25-centavo coins and P25 in
10-centavo coins. Strange as it may seem, the salesgirl told HW that
her coins were not “legal tender”. Do you agree with the salesgirl in
respect of her understanding of “legal tender”? Explain.
SUGGESTED ANSWER:
No. The salesgirl’s understanding that coins are not legal tender is not
correct. Coins are legal tender in amounts not exceeding P1000 for
denominations from 1-peso and above, and in amounts not exceeding P100
for denominations 25-centavos and less.
SECTION 56. Replacement of Currency Unfit for Circulation. —
The Bangko Sentral shall withdraw from circulation and shall
demonetize all notes and coins which for any reason
whatsoever are unfit for circulation and shall replace them by
adequate notes and coins: Provided, however, That the Bangko
Sentral shall not replace notes and coins the identification of
which is impossible, coins which show signs of filing, clipping
or perforation, and notes which have lost more than two-fifths
(2/5) of their surface or all of the signatures inscribed thereon.
Notes and coins in such mutilated conditions shall be
withdrawn from circulation and demonetized without
compensation to the bearer.
SECTION 57. Retirement of Old Notes and Coins. — The
Bangko Sentral may call in for replacement notes of any
series or denomination which are more than five (5) years old
and coins which are more than (10) years old.
Notes and coins called in for replacement in accordance with
this provision shall remain legal tender for a period of one (1)
year from the date of call. After this period, they shall cease
to be legal tender but during the following year, or for such
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longer period as the Monetary Board may determine, they may
be exchanged at par and without charge in the Bangko Sentral
and by agents duly authorized by the Bangko Sentral for this
purpose. After the expiration of this latter period, the notes
and coins which have not been exchanged shall cease to be a
liability of the Bangko Sentral and shall be demonetized. The
Bangko Sentral shall also demonetize all notes and coins
which have been called in and replaced.
Demonetization is the process of removing the monetary value of a legal
tender currency by the issuing authority.
QUESTION:
Do checks have legal tender power?
SUGGESTED ANSWER:
No, checks representing demand deposits do not have legal tender
power and their acceptance in payment of debts, both public and private, is
at the option of the creditor. However, a check which has been cleared and
credited to the account of the creditor shall be equivalent to a delivery to the
creditor of cash in an amount equal to the amount credited to his account
(Sec. 60, NCBA).
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