Introduction

SEC. 20, ART.
XII of the 1987 Constitution

Section 20. The Congress shall establish an independent central monetary authority, the members of whose
governing board must be natural-born Filipino citizens, of known probity, integrity, and patriotism, the majority of
whom shall come from the private sector. They shall also be subject to such other qualifications and disabilities as may
be prescribed by law. The authority shall provide policy direction in the areas of money, banking, and credit. It shall
have supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the
operations of finance companies and other institutions performing similar functions.
Until the Congress otherwise provides, the Central Bank of the Philippines operating under existing laws, shall function
as the central monetary authority.
Police Power of the State as basis

Due to the nature of their transactions and functions, the banking industry is affected with public interest and banks
can properly be subject to reasonable regulation under the police power of the State. It is the Government's responsibility to
see to it that the financial interests of those who deal with banks and banking institutions are protected.
The law vests in the BSP the supervision over operations and activities of banks. The New Central Bank Act
provides: Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and conduct periodic
or special examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied
activities. Furthermore, the authority to determine whether a bank is conducting business in an unsafe or unsound manner
is also vested in the Monetary Board as provided in sec. 56 of The General Banking Law of 2000.
The Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank
Act regulates specifically banks and other financial institutions, including the dissolution and liquidation thereof. As
between a general and special law, the latter shall prevail – generalia specialibus non derogant.
NATURE OF BANKING BUSINESS

It must be stressed in this connection that the banking business is properly subject to reasonable regulation
under the police power of the state because of its nature and relation to the fiscal affairs of the people and the revenues of
the state. Banks are affected with public interest because they receive funds from the general public in the form of
deposits. Due to the nature of their transactions and functions, a fiduciary relationship is created between the banking
institutions and their depositors. Therefore, banks are under the obligation to treat with meticulous care and utmost fidelity
the accounts of those who have reposed their trust and confidence in them.
In this country, that task is delegated to the Central Bank which, pursuant to its Charter, is authorized to administer
the monetary, banking and credit system of the Philippines. Under both the 1973 and 1987 Constitutions, the Central Bank
is tasked with providing policy direction in the areas of money, banking and credit; also, it shall have supervision over the
operations of banks. Under its charter, the CB is further authorized to take the necessary steps against any banking
institution if its continued operation would cause prejudice to its depositors, creditors and the general public as well. This
power has been expressly recognized by this Court.
It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance
is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is
more than that of a good father of a family. The highest degree of diligence is expected. In its declaration of policy, the
General Banking Law of 2000 requires of banks the highest standards of integrity and performance. The fiduciary nature of
the relationship between the bank and the depositors must always be of paramount concern.
Extraordinary diligence. In the case of banks and other financial institutions, however, greater care and due
diligence are required since they are imbued with public interest, failing which renders the mortgagees in bad faith. Thus,
before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection
of the property offered for mortgage and to verify the genuineness of the title to determine the real owner(s) thereof. The
apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as innocent third parties with
a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto. (Philippine
Banking Corp. v. Dy)
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the
last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A
blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal litigation.
Diligence for non-deposit function. But the same higher degree of diligence is not expected to be exerted by banks
in commercial transactions that do not involve their fiduciary relationship with their depositors. Considering the foregoing,
the respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and
issuance of the subject foreign exchange demand draft.
Banks; Diligence Required (Bar 1992)
Placido, a bank depositor, left his checkbook on his desk at his house. Unknown to him, a visitor at the time,
noticing the same, took a check therefrom, filled it up in the amount of P3,000.00 and succeeded in encashing the
check on the same day. Placido‘s account was thereby debited in the same amount.
Discovering the erroneous debit, Placido demanded that the bank credit him with a like amount. The bank refused
on the ground that Placido was negligent in leaving his checkbook on his desk so that he could not put up the
defense of forgery or want of authority under the NIL.
The Facts disclose that even to the naked eye, there were marked differences between Placido‘s signature and the
one in the check forged by the visitor. As between Placido and the bank, who should bear the loss? Explain.
SUGGESTED ANSWER: The bank should bear the loss. A drawee bank must exercise the highest diligence in
safeguarding the accounts of its client-depositors. The bank is also charged with genuineness of the signatures of
its current account holders. But what can be more striking is that there were marked differences between Placido‘s
signature and the one in the check forged by the visitor. Certainly, Placido was not negligent in leaving his
checkbook in his own desk (PNB v Quimpo 158 SCRA 582)
IMPORTANT PROVISIONS:
1. General Banking Law
-sec. 47
2. PDIC
-sec. 4
3. NCBA
-sec. 30
4. AMLA
-sec. 4
-sec. 10
-sec. 11
-penal sanctions

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SEC. 20, ART.

XII of the 1987 Constitution

Police Power of the State as basis

NATURE OF BANKING BUSINESS

Banks; Diligence Required (Bar 1992)

1. General Banking Law

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