Overview of the New Central Bank Act

Aug 24, 2024

Lecture Notes: Republic Act 7653 - The New Central Bank Act

Introduction to the New Central Bank Act

  • Republic Act 7653: Amended by Republic Act 11211
  • Establishes the structure and governance of the Bangko Sentral ng Pilipinas (BSP).
  • BSP is the central monetary authority in the Philippines.

Functions and Responsibilities of BSP

  • Administers the monetary, banking, and credit system of the country.
  • Supervises and examines banks and non-bank financial institutions performing quasi-banking functions.
    • Supreme Court case reference: Vesugao vs. Court of Appeals (1987).
    • BSP comparable to the Federal Reserve in the U.S.

Classification and Autonomy

  • BSP is classified as a government-owned corporation (GOCC).
    • Enjoys fiscal and administrative autonomy.
    • Fiscal autonomy: Can decide on its budget without the Department of Budget and Management (DBM) oversight.

State Policy Behind the New Central Bank Act

  • BSP operates as an independent and accountable corporate body.
  • Maintains a central monetary authority to manage money banking and credit.
  • Initial capitalization set at P200 billion.

Primary Objectives of BSP

  1. Policy Directions: In areas of money, banking, and credit.
  2. Supervision: Monitors bank operations and compliance.
  3. Price Stability: Maintains price stability conducive to balanced economic growth.
  4. Monetary Stability: Maintains the convertibility and stability of the Philippine peso.
  5. Chief Banker: Acts as the official depository of the government and custodian of foreign currency reserves.

Monetary Board

  • The body through which BSP's powers are exercised.
  • Composed of 7 members, appointed by the President of the Philippines for a 6-year term.
    • Includes the BSP Governor and a cabinet member as representatives.

Powers of the Monetary Board

  • Issues rules and regulations for effective discharge of responsibilities.
  • Directs management and administration of BSP.
  • Responsible for establishing HR management systems and annual budgets.

BSP Governor

  • Chief executive officer of the BSP.
  • Responsibilities include:
    • Preparing agendas for Monetary Board meetings.
    • Executing approved policies.
    • Directing internal operations.

Distress and Recovery of Banks

Conservatorship vs. Receivership

  • Conservatorship: For illiquid banks; appointed conservator to manage assets.
  • Receivership: For insolvent banks; appointed receiver for closure and liquidation.
  • Liquidation: Conversion of assets to cash for the benefit of creditors.

Grounds for Closure of Banks

  1. Illiquidity: Inability to meet current liabilities.
  2. Insolvency: Assets insufficient to meet liabilities.
  3. Violations: Failure to comply with regulatory orders.

Legal Framework and Judicial Process

  • BSP can close banks without prior notice or hearing.
  • Judicial review possible only if actions are proven to be in bad faith.

Summary of Key Points

  • Conservatorship: Retains juridical personality; management changes.
  • Receivership: Suspension of operations; assets under custody.
  • Liquidation: Bank loses juridical personality; assets converted to cash.
  • Strict timelines for conservatorship (1 year) and receivership (90 days).

Conclusion

  • Understanding BSP's regulatory functions is crucial for the stability of the Philippine banking system.
  • Importance of adherence to the New Central Bank Act for the sustainability of banking operations.