Monday, March 06, 2006

The New Central Bank Act

1. The BSP

· The central monetary authority (the Bangko Sentral ng Pilipinas) established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy.

· Responsibility of the BSP:

a) provide policy directions in the areas of money, banking, and credit.

b) supervision over the operations of banks

c) exercise such regulatory powers as provided in this Act and other pertinent laws

· Primary objective:

a) maintain price stability conducive to a balanced and sustainable growth of the economy

b) promote and maintain monetary stability and the convertibility of the peso.

2. The Monetary Board

· The powers and functions of the Bangko Sentral shall be exercised by the Bangko Sentral Monetary Board, hereafter referred to as the Monetary Board which is composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years.

· The seven (7) members are: the Governor of the Bangko Sentral, a member of the Cabinet to be designated by the President of the Philippines and five (5) members who shall come from the private sector.

· No member of the Monetary Board may be reappointed more than once.

· Any vacancy in the Monetary Board shall be filled by the appointment of a new member to complete the unexpired period of the term of the member concerned.

· The President may remove any member of the Monetary Board for any of the following reasons:

a) the member falls under the enumeration of disqualifications

b) 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

c) the member 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

d) the member no longer possesses the qualifications specified in this Act.

3. Operations of the Bangko Sentral

· The Bangko Sentral shall have the authority to request from government offices and instrumentalities, or government-owned or controlled corporations, any data which it may require for the proper discharge of its functions and responsibilities.

· The Bangko Sentral through the Governor or in his absence, a duly authorized representative shall have the power to issue a subpoena for the production of the books and records for the aforesaid purpose.

· Appointment of Conservator:

a) Whenever, the Monetary Board finds that 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,

b) The conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank.
c) The conservator should be competent and knowledgeable in bank operations and management. The conservatorship shall not exceed one (1) year.

d) The conservator shall receive; the Monetary Board may appoint a conservator connected with the Bangko Sentral, in which case he shall not be entitled to receive any remuneration or emolument; the expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned.

e) The Monetary Board shall terminate the conservatorship:

1) when it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary

2) when it is determined that the continuance in business of the institution would involve probable loss to its depositors or creditors

· In these cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution:

(a) 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;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or creditors; or

(d) 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;

· The actions of the Monetary Board regarding rehabilitation and liquidation 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. The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship.

· The Bangko Sentral shall publish a general balance sheet showing the volume and composition of its assets and liabilities as of the last working day of the month within sixty (60) days after the end of each month except for the month of December, which shall be submitted within ninety (90) days after the end hereof.

4. The Auditor

· The Chairman of the Commission on Audit shall act as the ex officio auditor of the Bangko Sentral and, as such, he is empowered and authorized to appoint a representative who shall be the auditor of the Bangko Sentral.

5. Currency

· The unit of monetary value in the Philippines is the "peso," which is represented by the sign "P."

· The Bangko Sentral shall have the sole power and authority to issue currency, within the territory of the Philippines.

· The Bangko Sentral shall have the authority to investigate, make arrests, conduct searches and seizures in accordance with law, for the purpose of maintaining the integrity of the currency.

· Notes and coins issued by the Bangko Sentral shall be liabilities of the Bangko Sentral and may be issued only against, and in amounts not exceeding, the assets of the Bangko Sentral. Said notes and coins shall be a first and paramount lien on all assets of the Bangko Sentral.

· The Bangko Sentral's holdings of its own notes and coins shall not be considered as part of its currency issue and, accordingly, shall not form part of the assets or liabilities of the Bangko Sentral.

· 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

· 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.

· Rules on Retirement of Old Notes and Coins:

a) 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.

b) 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.

c) After this period, they shall cease to be legal tender but during the following year, or for such 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.

d) 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.

e) The Bangko Sentral shall also demonetize all notes and coins which have been called in and replaced.

6. Demand Deposits

· The term "demand deposits" means all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of checks.

· Only banks duly authorized to do so may accept funds or create liabilities payable in pesos upon demand by the presentation of checks, and such operations shall be subject to the control of the Monetary Board in accordance with the powers granted it with respect thereto under this Act.

· Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor:

Provided, however, That 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.

7. Guiding Principles of Monetary Administration by the Bangko Sentral

Action When Abnormal Movements Occur in the Monetary Aggregates, Credit, or Price Level:

(a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral under the provisions of this Act; and

(b) submit to the President of the Philippines and the Congress, and make public, a detailed report which shall include, as a minimum, a description and analysis of:

(1) the causes of the rise or fall of the monetary aggregates, of credit or of prices;

(2) the extent to which the changes in the monetary aggregates, in credit, or in prices have been reflected in changes in the level of domestic output, employment, wages and economic activity in general, and the nature and significance of any such changes; and

(3) the measures which the Monetary Board has taken and the other monetary, fiscal or administrative measures which it recommends to be adopted.

· In order to maintain the international stability and convertibility of the Philippine peso, the Bangko Sentral shall maintain international reserves adequate to meet any foreseeable net demands on the Bangko Sentral for foreign currencies.

· The following are situations which are considered threats to the stability of the Peso:

a) whenever the international reserve of the Bangko Sentral falls to a level which the Monetary Board considers inadequate to meet prospective net demands on the Bangko Sentral for foreign currencies, or

b) whenever the international reserve appears to be in imminent danger of falling to such a level, or

c) whenever the international reserve is falling as a result of payments or remittances abroad which, in the opinion of the Monetary Board, are contrary to the national welfare,

· Action When the International Stability of the Peso Is Threatened

(a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Bangko Sentral under the provisions of this Act; and

(b) submit to the President of the Philippines and to Congress a detailed report of the circumstances of the situation

· If the resultant actions fails, the Monetary Board shall propose to the President, with appropriate notice of the Congress, such additional action as it deems necessary to restore equilibrium in the international balance of payments of the Philippines.

8. Rules on Foreign Exchange Holdings of the Banks:

a) the Monetary Board may require the banks to sell to the Bangko Sentral or to other banks all or part of their surplus holdings of foreign exchange.

b) such transfers may be required for all foreign currencies or for only certain of such currencies, according to the decision of the Monetary Board

c) the transfers shall be made at the rates established under the provisions of this Act

NOTE: The Monetary Board may, whenever warranted, determine the net assets and net liabilities of banks

8. Rules on Issue and Negotiation of Bangko Sentral Obligations:

1) Issuance of such certificates of indebtedness shall be made only in cases of extraordinary movement in price levels.

2) Said evidences of indebtedness may be issued directly against the international reserve of the Bangko Sentral or against the securities which it has acquired or may be issued without relation to specific types of assets of the Bangko Sentral.

3) The Monetary Board shall determine the interest rates, maturities and other characteristics of said obligations of the Bangko Sentral, and may, if it deems it advisable, denominate the obligations in gold or foreign currencies.

4) The evidences of indebtedness of the Bangko Sentral may be acquired by the Bangko Sentral before their maturity, either through purchases in the open market or through redemptions at par and by lot if the Bangko Sentral has reserved the right to make such redemptions.

5) The evidences of indebtedness acquired or redeemed by the Bangko Sentral shall not be included among its assets, and shall be immediately retired and cancelled.

9. Bank Reserves

· All banks operating in the Philippines shall be required to maintain reserves against their deposit liabilities:

Provided, That the Monetary Board may, at its discretion, also require all banks and/or quasi-banks to maintain reserves against funds held in trust and liabilities for deposit substitutes.

· The Monetary Board may exempt from reserve requirements deposits and deposit substitutes with remaining maturities of two (2) years or more, as well as interbank borrowings.

Since the requirement to maintain bank reserves is imposed primarily to control the volume of money, the Bangko Sentral shall not pay interest on the reserves maintained with it unless the Monetary Board decides otherwise as warranted by circumstances.

10. BSP as the Banker of the Government

Functions of the Bangko Sentral:

a) shall act as a banker of the Government, its political subdivisions and instrumentalities.

b) shall represent the Government in all dealings, negotiations and transactions with the International Monetary Fund

c) may be authorized by the Government to represent it in dealings with other foreign or international financial institutions

d) shall be the official depository of the Government

e) shall open a general cash account for Treasurer of the Philippines, in which liquid funds of the Government shall be deposited; transfers of funds from this account to other accounts shall be made only upon order of Treasurer of the Philippines

· The Bangko Sentral may engage the services of other government-owned and controlled banks and of other domestic banks for operations in localities at home or abroad in which the Bangko Sentral does not have offices or agencies adequately equipped to perform said operations:

Provided, however, That for fiscal operations in foreign countries, the Bangko Sentral may engage the services of foreign banking and financial institutions.

· The issue of securities representing obligations of the Government, its political subdivisions or instrumentalities, may be made through the Bangko Sentral

Provided, however, That the Bangko Sentral shall not guarantee the placement of said securities, and shall not subscribe to their issue except to replace its maturing holdings of securities with the same type as the maturing securities.

11. BSP as the Financial Advisor of the Government

· The Government, through the Secretary of Finance, shall request the opinion, in writing, of the Monetary Board on the monetary implications of the following actions:

a) Before undertaking any credit operation abroad

b) Before any credit operation abroad is undertaken by all political subdivisions and instrumentalities of the Government.

c) Whenever the Government, or any of its political subdivisions or instrumentalities, contemplates borrowing within the Philippines

12. Privileges and Prohibitions

· The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and assessments.

· The exemption authorized in the preceding paragraph shall apply:

a) to all property of the Bangko Sentral,

b) to the resources, receipts, expenditures, profits and income of the Bangko Sentral,

c) to all contracts, deeds, documents and transactions related to the conduct of the business of the Bangko Sentral

· Said exemptions shall apply only to such taxes, fees, charges and assessments for which the Bangko Sentral itself would otherwise be liable, and shall not apply to taxes, fees, charges, or assessments payable by persons or other entities doing business with the Bangko Sentral

· Foreign loans and other obligations of the Bangko Sentral shall be exempt, both as to principal and interest, from any and all taxes if the payment of such taxes has been assumed by the Bangko Sentral.

· The importation and exportation by the Bangko Sentral of notes and coins, and of gold and other metals to be used for purposes authorized under this Act, and the importation of all equipment needed for bank note production, minting of coins, metal refining and other security printing operations shall be fully exempt from all customs duties and consular fees and from all other taxes, assessments and charges related to such importation or exportation.

· Appointments in the Bangko Sentral, except as to those which are policy-determining, primarily confidential or highly technical in nature, shall be made only according to the Civil Service Law and regulations

· Officers and employees of the Bangko Sentral, including all members of the Monetary Board, shall not engage directly or indirectly in partisan activities or take part in any election except to vote.

· The Bangko Sentral shall not acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either directly or indirectly.

· The Bangko Sentral shall not engage in development banking or financing: Provided, however, That outstanding loans obtained or extended for development financing shall not be affected by the prohibition

13. Transitory Provisions

· Within a period of three (3) years but in no case longer than five (5) years from the approval of this Act, the Bangko Sentral shall phase out all fiscal agency functions transfer the same to the Department of Finance.

· The Bangko Sentral shall, within a period of five (5) years from the effectivity of this Act, phase out its regulatory powers over finance companies without quasi-banking functions and other institutions performing similar functions as provided in existing laws, the same to be assumed by the Securities and Exchange Commission. .

· No preferential or priority right shall be given to or enjoyed by any personnel for appointment to any position in the new staffing pattern, nor shall any personnel be considered as having prior or vested rights with respect to retention in the Bangko Sentral or in any position which may be created in the new staffing pattern, even if he should be the incumbent of a similar position prior to organization.
All powers, duties and functions vested by law in the Central Bank of the Philippines not inconsistent with the provisions of this Act shall be deemed transferred to the Bangko Sentral ng Pilipinas. All references to the Central Bank of the Philippines in any law or special charters shall be deemed to refer to the Bangko Sentral.

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