CHAPTER 4
BANK
SUPERVISION
AND
EXAMINATION
Bank • Done Externally and
Supervision Internally
• Ensures the safe and
and efficient operations of
Examination any bank.
• Find out whether banks are
Purpose of doing their business in
Examination and conformity with the banking
laws
Supervision • Determine how sound the bank
is financially
• Maintaining discipline on the
part of the banks
External Supervisions
• In the Philippines, the
Major Function of Supervision and
Supervision and Examination
Examination Sector
Sector of the Bangko Sentral is
charged with the responsibility of
• Chartering of banks
conducting spot and regular
• Supervision
checks on all banking institutions
• Examination of banking and
• Headed by a Deputy Governor
other non-bank financial
• Staffed by examiners and other
institutions
administrative personnel
New Central Bank Act under Chapter I, Article IV -
B
Sec. 25 Supervision and Sec. 26 Bank Deposit and
Examination Investments
Directors, officers, or stockholders
The Bangko Sentral shall have
who contract loans or financial
supervision over, and conduct
accommodations from their banks or
periodic or special examination of,
subsidiaries must waive deposit
banking institutions and quasi-banks,
secrecy in all Philippine banks.
including their subsidiaries and
Deposit examination information is
affiliates engaged in allied activities.
strictly confidential and can only be
used for supervisory purposes or
legal action initiated by the Bangko
Sentral.
New Central Bank Act under Chapter I, Article IV -
B
Sec. 27 Prohibition
Personnel of the Bangko Sentral are hereby prohibited from:
• being an officer, director, lawyer or agent, employee, consultant or
stockholder, directly or indirectly, of any institution
• directly or indirectly requesting or receiving any gift, present or pecuniary or
material benefit for himself or another, from any institution
• revealing in any manner, except under orders of the court, the Congress or
any government office or agency authorised by law
• borrowing from any institution subject to supervision or examination by the
Bangko Sentral shall be prohibited
New Central Bank Act under Chapter I, Article IV -
B
Sec. 28 Examination and Fees Sec. 29 Appointment of
Monetary BoardConservator
may appoint a conservator
The head of relevant departments with such power as the Monetary Board shall
must conduct supervision and deem necessary to take charge of the assets,
liabilities, and the management
examinations at least once every
12 months and at other times by Conservator receive remuneration to be fixed
an affirmative vote of five by the Monetary Board in an amount not to
members, either personally or by exceed two-thirds (⅔) of the salary of the
president of the institution in one year,
deputy. payable in 12 equal monthly payments.
New Central Bank Act under Chapter I, Article IV -
B
Sec. 30 Proceedings in Receivership and Liquidation
Monetary Boards finds out that a bank or quasi-bank is:
• Unable to pay its liabilities as they become due
• Has insufficient realisable assets - as determined by BSP - to meet its
liabilities.
• Cannot continue business without involving probable losses to its
depositors or creditors.
• Willfully violated a cease and desist order under Section 37 (Administrative
Sanctions in Banks and Quasi-banks) that has become final
New Central Bank Act under Chapter I, Article IV -
B
Sec. 30 Proceedings in Receivership and Liquidation
If the receiver determines that the institution cannot be rehabilitated, the
receiver shall:
• File ex parte the proper regional trial court, and without requirement of prior
notice or any other action, 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.
• Convert the assets of the institution to money, dispose of the same to
creditors and other parties.
• The assets of an institution under receivership or liquidation shall be deemed
in custodia legis in the hands of the receiver.
New Central Bank Act under Chapter I, Article IV -
B
Sec. 31 Distribution of Assets Sec. 32 Disposition of Revenues
and Earnings
In the event of a bank or quasi- The receiver of any bank or quasi-
bank's liquidation, the receiver bank under this Act must use all
must pay the court's costs, revenues and earnings to manage
including reasonable expenses and its affairs and assets, including the
fees, and the institution's debts costs, fees, and expenses
under court order, following the mentioned above, as well as
rules on concurrence and salaries of personnel required for
preferences of credit outlined in liquidation and other additional
the Civil Code. expenses.
New Central Bank Act under Chapter I, Article IV -
B
Sec. 33 Disposition of Banking Sec. 34 Refusal to Make Reports or
Franchise Permit Examination
Refusing to submit the required report
The Bangko Sentral can grant a or allow any lawful investigation into
bank's liquidation franchise to an the operations of the institution may
institution, subject to approval by result in a fine of not less than fifty
the Monetary Board, if public thousand pesos (P50,000) or more
interest necessitates it, to operate than one hundred thousand pesos
in the area where the bank or its (P100,000), or, at the judge's
branches were previously located. discretion, in jail for not less than one
(1) year or more than five (5) years.
New Central Bank Act under Chapter I, Article IV -
B
Sec. 36 Proceedings Upon Violation of
Sec. 35 False Statement
this Act and Other Banking Laws,
False or misleading statements Rules, Regulations, Orders or
made to the Monetary Board or Instructions
Whenever a bank or quasi-bank or any
Bangko Sentral examiners can person or entity that willfully violates
result in a fine of P100,000 to the banking laws enforced by the
P200,000, imprisonment of up to Bangko Sentral and the Monetary
five years, or both, at the Board, faces a fine of P50,000 to
discretion of the court. P200,000, imprisonment of two to ten
years, or both, depending on the
court's decision.
New Central Bank Act under Chapter I, Article IV -
B
Sec. 37 Administrative Sanctions and Bank and Quasi-Banks
• Monetary Board can impose sanctions on banks for willful violations of
charter or by-laws, delay in reporting, and refusal to allow
examination.
• Fines may be imposed, not exceeding P30,000 per day for each
violation.
• Suspension of rediscounting privilege, access to Bangko Sentral credit
facilities, lending or foreign exchange operations, authority to accept
new deposits or investments, interbank clearing privileges, and/or
revocation of quasi-banking license.
Mechanics of
Examination
• Bank examiners inspect the bank's books and documents during banking
hours.
• Examiners take possession of books and collateral, including vaults and
tellers’ cages.
• After verification, books and documents are handed over to bank employees
for daily banking functions.
• Immediate asset analysis is rather impractical, if not possible, as this phase of
work requires a more leisurely pace in order to arrive at reasonable
judgement
• Analysis involves classifying assets based on quality, valuation, and
assurance.
• The examiners conclude on the bank’s compliance with rules, regulations,
management efficiency, and policy effectiveness.
Internal Controls
• A Committee on examination and supervision is usually created to
effect internal controls.
• The embezzlements, defalcations, and frauds cannot be entirely
eradicated since the business of banks is in the hands of human
beings of diverse natures.
• Some directors take a "hands off" policy in connection with audits
and control one reason or another.
• Marshall C. Corns
Programming of
Controls
The development of an effective audit and control system should cover all
operations and bank personnel, requiring definition of terms:
• Embezzlement involves taking funds from depositors and customers,
while defalcation involves misappropriating funds from stockholders.
• Peculation includes all types of these crimes, with the perpetrator
being a "peculator."
• Examination is the review and analysis of a bank's assets and
liabilities to determine their existence, values, and true ownership.
Audits confirm that assets and liabilities are normal business
transactions, not just recorded facts.
Causes of Peculation
Some of the known causes that lead to peculation are the following:
• Gambling
• Pride and Envy
• Living beyond one's income
• Unsound salary policies
• Poor employee relations
• Immorality
Preventive Measures
• First part is setting up procedures of proof and that one person
should be checked and proven by another
• Second part constitutes of procedures and routines to determine
that the work performed balances and that everything is in order
in relation to the general ledger accounts.