(R.A. No. 7653) STATE POLICIES
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. (Sec. 1)
SALIENT FEATURES
(1) Assurance of BSP independence by providing for the majority of the members of the Monetary Board to come from the private sector. (Sec. 6, NCBA)
(2) The BSP may now concentrate on monetary policy, and will shed itself of fiscal agency functions and its responsibilities in respect of finance companies without quasi-banking functions, which in the past, had distracted it from its primary function. (Secs. 3, 129, &
130, NCBA)
(3) Provides safeguards to ensure that unlike the old Central Bank which sustained huge losses, the BSP would have a positive net income position by the following provisions:
(a) Capitalization of P50B ; (Sec.2, NCBA)
(b) Maintenance of positive net foreign asset position;
(Sec.71, NCBA)
(c) Charging interests on all loans and advances to banks;
(Sec. 85, NCBA)
(d) Authority to collect interests on loans and advances to closed financial institutions; and
(e) BSP can’t acquire shares in banking enterprise, in development banking and financing (Sec. 128, NCBA) CREATION OF THE BANGKO SENTRAL
NG PILIPINAS (BSP)
NATURE OF THE BSP
(1) A central monetary authority;
(2) An independent and accountable body; and
(3) A government-owned corporation but enjoys fiscal and administrative autonomy. (Secs. 1 & 2, NCBA)
The BSP shall have a capitalization of P50B to be fully subscribed by the Government. (Sec. 2)
RESPONSIBILITY AND PRIMARY OBJECTIVE
PRIMARY OBJECTIVES
(1) To maintain price stability conducive to a balanced and sustainable growth of the economy.
(2) To promote and maintain monetary stability and the convertibility of the peso.
OTHER RESPONSIBILITIES
(1) To provide policy directions in the areas of money, banking, and credit
(2) To supervise operations of banks (Sec. 3, NCBA) All powers, duties and functions vested by law in the Central Bank of the Philippines not inconsistent with the NCBA shall be deemed transferred to the BSP. All references to the Central Bank of the Philippines in any law or special
charters shall be deemed to refer to the BSP. (Sec. 136, NCBA)
MONETARY BOARD
The body through which the powers and functions of the Bangko Sentral are exercised (Sec 6, NCBA)
POWERS AND FUNCTIONS
(1) Issue rules and regulations it considers necessary for the effective discharge of the responsibilities and exercise of the powers vested in it;
(2) Direct the management, operations, and administration of Bangko Sentral, organize its personnel and issue such rules and regulations as it may deem necessary or desirable for this purpose;
(3) Establish a human resource management system which governs the selection, hiring, appointment, transfer, promotion, or dismissal of all personnel;
(4) Adopt an annual budget for and authorize such expenditures by Bangko Sentral as are in the interest of the effective administration and operations of Bangko Sentral in accordance with applicable laws and regulations; and
(5) Indemnify its members and other officials of Bangko Sentral, including personnel of the departments performing supervision and examination functions, against all costs and expenses reasonably incurred by such persons in connection with any civil or criminal action, suit or proceeding, to which any of them may be made a party by reason of the performance of his functions or duties, unless such members or other officials is found to be liable for negligence or misconduct. (Sec. 15, NCBA)
COMPOSITION
The MB shall be composed of 7 members appointed by the President with a 6-year term. (Sec. 6, NCBA)
MEMBERS
(1) The BSP Governor or his designated alternate (a deputy governor);
(2) A Cabinet member to be designated by the President or his designated alternate (an Undersecretary in his department); and
(3) 5 members from the private sector (Sec. 6, NCBA) No member of the MB may be reappointed more than once.
QUALIFICATIONS
(1) Natural-born citizens of the Philippines;
(2) At least 35 years old (the Governor must be at least 40 years old);
(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. (Sec. 8, NCBA)
DISQUALIFICATIONS
In addition to the disqualifications under the Code of Conduct and Ethical Standards for Public Officials and Employees (RA 6713), a member of the Monetary Board is disqualified:
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(1) Direct connection with any multilateral banking or financial institution; or
(2) Substantial interest in any private bank in the Philippines, within 1 year prior to his appointment (Sec.
9, NCBA)
PROHIBITION ON MEMBERS OF THE MB
(1) To be a director, officer, employee, consultant, lawyer, agent or stockholder of any bank, quasi-bank, or any other institution which is subject to supervision or examination by the BSP;
(2) To hold any other public office or public employment during their tenure; and
(3) To be employed in any multilateral banking or financial institution within 2 years after the expiration of his term.
Exception: When he serves as an official representative of the government to such institution. (Sec. 9, NCBA)
GROUNDS FOR REMOVAL OF ANY MEMBER OF THE MB
(1) If the member is subsequently disqualified under Sec. 8;
(2) If he is physically or mentally incapacitated that he cannot properly discharge his duties and responsibilities and such incapacity has lasted for more than 6 months;
(3) If he is guilty of acts or operations which are of fraudulent or illegal character or which are manifestly opposed to the aims and interests of the BSP; and (4) If he no longer possesses the qualifications under Sec.
8. (Sec. 10, NCBA)
VACANCIES, HOW FILLED
Cause: death, resignation, or removal of any member Effect: a new member will be appointed to complete the unexpired period of the term of the member concerned.
(Sec. 7, NCBA)
SALARIES
Fixed by the Phil. President at a sum commensurate to the importance and responsibility attached (Sec. 13, NCBA)
MEETINGS
(1) Held at least once a week;
(2) Called by the Governor or by 2 MB members;
(3) The complete records of the proceedings and deliberations of the MB including the tapes and transcripts of stenographic notes are to be maintained and preserved;
(4) Four (4) members constitute a quorum; and
(5) All decisions by the MB shall require the concurrence of four (4) of its members unless otherwise provided by the NCBA (Sec. 11, NCBA);
(a) Deputy governors may attend (Sec. 12, NCBA).
(b) Any member with personal or pecuniary interest in any matter in the agenda shall disclose his interest and shall retire from the meeting when the matter is taken up (Sec. 14, NCBA).
CIVIL LIABILITY OF MEMBERS OF THE MB
Members of the MB, officials, examiners, and employees of the BSP are liable when:
(1) They willfully violate the provisions of the NCBA;
(2) They are guilty of negligence, abuses or acts of malfeasance or misfeasance; or
(3) Fail to exercise extraordinary diligence in the performance of his duties. (Sec. 16, NCBA)
HOW THE BSP HANDLES BANKS IN DISTRESS
Liquidity – Ability of an asset to be converted into cash. An entity is liquid when it is able to pay its liabilities when they fall due.
Solvency – When current assets are more than current liabilities, providing the ability to pay debts. An entity is solvent when it is able to meet its long term obligations/liabilities.
Insolvency – When the actual market value of assets are insufficient to pay its liabilities, not considering capital stock and surplus which are not liabilities for such purpose. An entity is insolvent when it is unable to meet current and long-term obligations.
CONSERVATORSHIP
Applicability
(1) When a bank or a 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 (Sec. 29)
(2) Determination is to be made by the MB on the basis of a report submitted by the appropriate supervising or examining department (Sec. 29)
Period and termination
(1) Period: shall not exceed 1 year (Sec. 29)
(2) The expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned (Sec. 29) (3) Grounds for termination of conservatorship by MB:
(a) When it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary
(b) When, on the basis of the report of the conservator or of its own findings, the MB determines that the continuance in business of the institution would involve probable loss to its depositors or creditors (the bank or quasi-bank would then be placed under receivership) (Sec. 29)
Effects of conservatorship
(1) Bank/Quasi-bank retains juridical personality
(2) Not a precondition to the designation of a receiver, and;
(3) Perfected transactions cannot be repudiated Qualifications of a conservator
The conservator should be competent and knowledgeable in bank operations and management. (Sec. 29)
The appointment of a conservator shall be vested exclusively in the MB. (Sec. 30)
Powers and duties of a conservator
(1) To take charge of the assets, liabilities, and the management thereof
(2) To reorganize the management
(3) To collect all monies and debts due said institution, and (4) To exercise all powers necessary to restore its viability (5) To report and be responsible to the MB
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(6) To overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank. (Sec. 29)
While the Central Bank law gives vast and far reaching powers to the conservator of a bank, such powers must be related to the preservation of the assets of the bank, the reorganization of the management and the restoration of viability. Such powers cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution. (First Philippine International Bank v. CA, 1996) Remunerations
General rule: The conservator shall receive remuneration in an amount not to exceed 2/3 of the salary of the president of the institution in 1 year, payable in 12 equal monthly payments.
Exception: A conservator connected with the BSP, in which case said conservator shall not be entitled to receive any remuneration or emolument. (Sec. 29, NCBA)
RECEIVERSHIP
Grounds
Whenever the MB finds that a bank or quasi-bank:
(1) Is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community;
(2) Has insufficient realizable assets, as determined by the BSP, to meet 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 under Sec. 37 that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution
Receiver
(1) If a banking institution: the PDIC
(2) If a quasi-bank: any person of recognized competence in banking or finance
The appointment of a receiver shall be vested exclusively in the MB. And the designation of a conservator is not a precondition to the designation of a receiver.
Powers and duties of a receiver
(1) Immediately gather and take charge of all the assets and liabilities of the institution
(2) Administer the assets for the benefit of the creditors (3) Exercise the general powers of a receiver under the
Revised Rules of Court
(4) Not to pay or commit any act that will involve the transfer or disposition of any asset of the institution, except:
(a) Administrative expenditures
(b) Receiver may deposit or place funds in non-speculative investments
(5) Subject to prior approval of the MB, determine, as soon as possible, but not later than 90 days from take-over,
whether the institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public.
The assets of the institution under receivership and liquidation shall be deemed in custodia legis and shall be exempt from any order of garnishment, levy, attachment, or execution.
Close now, hear later scheme
Sec. 29 of the Central Bank Act does NOT contemplate prior notice and hearing before a bank may be directed to stop operations and placed under receivership. It is enough that such action is made subject of a subsequent judicial review.
When the law provides for the filing of a case within 10 days after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case. The legislature could not have intended to authorize “no prior notice and hearing” in the bank’s closure and at the same time allow a suit to annul it on the basis of absence thereof (Central Bank vs. Cam GR No. 76118, March 30, 1993)
LIQUIDATION/CLOSURE
Should the determination be that the institution cannot be rehabilitated or permitted to resume business, the MB shall notify in writing the board of directors of the institution of its findings and direct the receiver to proceed with the liquidation of the institution.
Procedure
(1) The receiver shall file ex parte with the proper RTC, and without requirement of prior notice or any other action, a petition for assistance in the liquidation of the institution pursuant to the liquidation plan adopted by the PDIC (if quasi-bank, liquidation plan adopted by the MB)
(2) Upon acquiring jurisdiction, the court shall, upon motion by the receiver after due notice,
(a) Adjudicate disputed claims against the institution, (b) Assist the enforcement of individual liabilities of the
stockholders, directors, and officers, and
(c) Decide on other issues as may be material to implement the liquidation plan
(3) The receiver shall convert 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 in accordance with the rules on concurrence and preference of credit under the Civil Code
The assets of the institution under receivership and liquidation shall be deemed in custodia legis and shall be exempt from any order of garnishment, levy, attachment, or execution.
Dispositions
In case of a liquidation of a bank or quasi-bank, after payment of the cost of proceedings, including reasonable expenses and fees of the receiver to be allowed by the court, the receiver shall pay the debts of such institution, under order of the court, in accordance with the rules on concurrence and preference of credit in the Civil Code. (Sec.
31, NCBA)
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All revenues and earnings realized by the receiver in winding up the affairs and administering the assets of any bank or quasi-bank shall be used to pay the costs of proceedings, salaries of such personnel whose employment is rendered necessary in the discharge of the liquidation together with other additional expenses caused thereby.
The balance of revenues and earnings, after the payment of all said expenses, shall form part of the assets available to creditors. (Sec. 32, NCBA)
Effects of Appointment of Receiver/Liquidation (1) Retention of juridical personality
(2) Suspension of operations/ Stoppage of business (3) Assets are deemed in custodial legis, i.e., exempt from
garnishment, levy or execution
(4) Stay of execution of judgment to prevent depletion of bank assets
(5) Bank is not liable to pay interest on deposits which accrued during the period of suspension of operation (6) Restriction of bank’s capacity to do new business (new
loans, deposits) but with obligation to collect pre-existing debts
HOW THE BSP HANDLES EXCHANGE CRISIS
LEGAL TENDER POWER
All notes and coins issued by the BSP 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.
Limitation: Coins shall be legal tender in amounts not exceeding P50 for denominations of 25 centavos and above, and in amounts not exceeding P20 for denominations of 10 centavos or less unless otherwise fixed by the MB.
The maximum amount of coins to be considered as legal tender is: [BSP Circular 537 (2006) ]
1. P1,000.00 for denominations of 1-Piso, 5-Piso and 10-Piso coins; and
2. P100.00 for denominations of 1-sentimo, 5-sentimo, 10-sentimo, and 25-sentimo coins. (Sec. 52)
RATE OF EXCHANGE
The MB shall:
(1) Determine the exchange rate policy of the country;
(2) Determine the rates at which the Bangko Sentral shall buy and sell spot exchange;
(3) Establish deviation limits from the effective exchange rate or rates as it may deem proper.
(4) Determine the rates for other types of foreign exchange transactions by the BSP, including purchases and sales of foreign notes and coins.
Limitation: The margins between the effective exchange rates and the rates established by the MB may not exceed the corresponding margins for spot exchange transactions by more than the additional costs or expenses involved in each type of transactions. (Sec. 74)