Immediate passage of proposed amendments to Central Bank Act sought

MANILA, Philippines - A member of the Monetary Board (MB) called on Congress yesterday to immediately pass the proposed amendments to the New Central Bank Act to prevent future collapse of banks and pre-need firms like what happened to the Legacy Group of Companies owned by Celso de los Angeles.

MB member Ignacio Bunye said the multi-billion-peso collapse of the Legacy Group caused “a stronger sense of urgency to prevent Legacy-type operations from victimizing more innocent depositors and investors in the future.”

He said even before the Legacy scam, the Bangko Sentral ng Pilipinas (BSP), as regulator of all banks in the country, had repeatedly stressed the importance of amending its charter to enable it to effectively perform its duty.

“If there is one good thing that came out of the Legacy mess, it is the heightened awareness among Filipinos that they should be more prudent in dealing with unscrupulous syndicates posing as respectable institutions,” Bunye said.

The proposed amendments to the BSP charter seek to strengthen the BSP’s supervisory powers, empower the BSP in improving the quality of bank ownership, governance and capitalization, enhance the BSP’s administration of the monetary, credit and banking system, and provide a more responsive BSP organization.

 A more salient proposed amendment also has to do with the transfer of ownership of banks, Bunye said.

Under an amended Section 25 of Republic Act 7653 or the New Central Bank Act, transfers of substantial shares in banks shall require prior approval of the BSP, he said.

He added that the BSP would also take into consideration the “fitness” of the incoming stockholders as may be indicated by their financial capacity and integrity.

The BSP’s role in bank ownership transfers will ensure integrity among bank owners, he said.

“ A stronger BSP, with the power to approve or disapprove the transfer of ownership of banks, could have prevented Legacy group owners from buying ailing rural banks that were eventually used to victimize depositors,” Bunye said.

“In the case of Legacy, not only did the De Los Angeles group not seek BSP approval of the acquisition of such banks. The acquisitions were even kept secret,” he lamented.

Other proposals

The BSP also proposed that, as an exception to the Bank Deposit’s Secrecy Law, its examiners be given authority to verify suspicious bank accounts generated through deceitful schemes.

The proposed amendments also seek to indemnify bank examiners for legal expenses incurred in work-related cases unless examiners are adjudged to be have acted in bad faith, with malice, gross negligence, or gross misconduct, Bunye said.

The present charter exposes bank examiners to harassment lawsuits, he added.

Another proposed amendment seeks to limit the authority to issue temporary restraining orders (TROs) to the Court of Appeals, he said.

“Experience has shown the relative ease by which TROs are applied for and granted. The banks under investigation easily obtain the TROs by simply alleging to the court that the BSP’s investigations have begun to trouble depositors and that continued investigation could trigger panic withdrawals and possible bank failure,” he said.

Under the proposed charter amendments, only the Court of Appeals can issue restraining orders to halt the investigation of suspiciously fraudulent banks. Even then, the BSP will have the right to go ahead with its examination after posting a bond, Bunye said.

The BSP also proposed that it be given authority to direct a distressed bank to accept investors for rehabilitation.

“If the adjusted capital accounts of a bank or quasi-bank are lower than the minimum capital required, the BSP is proposing that the MB be authorized to direct the stockholders of ailing banks to infuse capital within 90 days,” Bunye said.

In case of inability or unwillingness of the distressed institution to infuse the needed capital, the MB may direct the distressed bank to accept investments from qualified investors, to merge with a qualified financial institution, or to effect quasi-reorganization.

The MB may also prescribe a higher capital adequacy ratio for banks exposed to more than normal risks, Bunye said.

He also cited a proposal for steeper fines for violations of banking laws.

The BSP proposed the original maximum penalty be increased from P200,000 to P2 million, while the fines, which could be imposed by the BSP governor, should now be raised from P10,000 to P100,000. – Paolo Romero