Bank Basics

The General Banking Law (RA 8791) defines a bank as an entity that lends money from deposits it obtains from the public. "Public" refers to twenty (20) ore more people.

A quasi-bank (also known as a finance corporation) borrows money from the public through deposit substitutes which it lends or uses to buy receivables or other obligations.

Banks and quasi-banks have the following requirements:

1.) They must be stock corporation. The must be of par value. Banks can't buy their own shares or accept them as security for a loan unless authorized by the Monetary Board of the Central Bank. If allowed, they must be sold or disposed of within six (6) months of purchase or acquisition.

2.) Its money must come from the public. Remember the definition of "Public."

3.) It must meet the minimum requirements prescribed by the Monetary Board for the category it belongs to (thrift, rural, commercial...)

4.) The Board of Directors should have a minimum of five (5) and a maximum of fifteen (15) members, two (2) of whom should be independent (meaning someone who isn't an officer of the bank, its subsidiaries, affiliates or related interests.

Banks cannot go into the insurance business. Hiring casual employees for positions involving deposits in also prohibited. Banks are also not subject to Central Bank Circular 416; other rules dictate their interest rates on loans.