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Banking Laws

Table of Contents

A.The New Central Bank Act
Republic Act No. 7653

B.The General Banking Act
Republic Act No. 337

In General
Establishment of Domestic Banks
Licensing of Foreign Banks
Commercial Banking Corporations and Universal Banks Thrift Banks Act of 1996
Republic Act No. 7906
Building and Loans Associations
Rural Banks Act of 1992
Republic Act No. 7353

C.An Act Liberalizing the Entry of Foreign Banks
Republic Act No. 7721

D.Offshore Banking System Law
Pres. Decree No. 1034

E.Foreign Currency Deposits Act
Republic Act No. 6426, as amended

F.An Act Creating the PDIC
Republic Act No. 3531

G.The Truth in Lending Act
Republic Act No. 3765

H.Law on Secrecy of Bank Deposits
Republic Act No. 1405

Note:We have included several banking laws which are not in the bar coverage. Likewise, we have incorporated several laws on non-bank financial intermediaries. Since they are not covered by the bar exam, the reviewee has the option of not reading them.

Banking and Finance in General

Two types of financing

1.equity

2.debt-financing

• A cross-breed of the two may also occur.

Intermediaries

1.Banks

2.Non-bank financial intermediaries

3.Exchanges

4.Others i.e. secondary markets

Function of intermediaries

1.“Brokering” or matching investors with those in need of financing

2.Help in diminishing risks to investors

3.Provide liquidity

New Central Bank Act

Republic Act No. 7653
Approved 14 June 1993

In General

Mandate

• The Bangko Sentral ng Pilipinas is the State’s central monetary authority, mandated in the 1987 Constitution, which shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. [Section 1, RA 7653]

• The Bangko Sentral shall enjoy fiscal and administrative autonomy. [Section 1, RA 7653]

Objectives

1.The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and sustainable growth of the economy.

2.It shall also promote and maintain monetary stability and the convertibility of the peso.

3.It shall also provide policy directions in the areas of money, banking and credit.

4.It has supervision over banks and has regulatory powers over the operations of finance companies and non-bank financial intermediaries performing quasi-banking functions. [Section 3, RA 7653]

Typical functions of the Bangko Sentral

1.Supervision over banks and regulation of non-bank financial intermediaries engaged in quasi-banking functions

2.Bank of issue: as such, it has the sole power and authority to issue currency

3.Custodian of the nation’s reserves of foreign currency

As such, it ensures convertibility of the peso and backs up Philippine currency.

4.It has control of credit

a. regulating money supply i.e. reserve requirements for banks

b.open market operations i.e. Tbills

c.controlling interest rate

5.Lender of last resort

It has a "rediscounting window,” allowing banks to sell their promissory notes to it.

6.Custodian of cash reserves of banks

7.Government banker, agent and advisor

8.Central clearance and settlement agency

Fiscal policy v. monetary policy

• Fiscal policy is concerned with revenue generation and expenditure while monetary policy involves regulating money supply and price stability.

• The Bangko Sentral will now concentrate on monetary policy and shed off fiscal responsibilities which in the past had distracted it from its primary function. [Section 129, RA 7653]

Monetary Board and Governor

Monetary Board

• The powers and functions of the Bangko Sentral...
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