What’s happening to Banco Filipino? (Part 3)

With the background information given in Part 1 and Part II of this article on what happened to Banco Filipino, let me now discuss the two cases where Banco Filipino was closed. First closure on January 25, 1985 by the defunct Central Bank created under Republic Act 265 on June 15, 1948. The second closure was on March 17, 2011 by the Bangko Sentral ng Pilipinas (BSP) created by Republic Act No. 7653 on August 14, 1993. From this discussion of the closure of Banco Filipino, we can see what can be characterized as errors of the BSP in handling the Banco Filipino case.

First closure of Banco Filipino

On January 25, 1985, the then Central Bank during the time of Gov. Jose “Jobo” Fernandez ordered the closure of Banco Filipino by issuing Monetary Board Resolution 75 and placed Banco Filipino under receivership.

It will be recalled that earlier on February 14, 1963, the Central Bank issued Monetary Board No. 223 authorizing Banco Filipino to operate as a savings bank. On July 9, 1964 Banco Filipino commenced its operations as a savings bank. At that time, Banco Filipino had 89 operating branches, 46 of which are in Manila, with more than three million depositors. On June 29, 1984, Banco Filipino was granted an emergency advance of 1119.7 million under Monetary Board Resolution No. 839. Later, on July 27, 1984, the then Central Bank granted 1 3 billion credit line to Banco Filipino. On the same date, the then Central Bank placed Banco Filipino under conservatorship. Based on the major findings of examination by the Department of Supervision and Examination of the then Central Bank which indicated insolvency and illiquidity, the then conservator of the Central Bank recommended among others to:

1. Forbid the Bank Filipino Savings & Mortgage Bank to do business in the Philippines effective the beginning of office January 1985, pursuant to Sec. 29 of R.A 265, as amended;

Designate the Head of the Conser2. vator Team at the bank, as Receiver of Banco Filipino Savings & Mortgage Bank, to immediately take charge of the assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of all the creditors, and exercise all the powers necessary for these purposes including but not limited to bringing suits and foreclosing mortgage in the name of the bank. When Monetary Board Resolution No. 75 was issued by the then Central Bank on January 25, 1985 (which ordered the closure of Banco Filipino) – Banco Filipino filed a complaint with the Regional Trial Court of Makati to set aside the action of the Monetary Board placing Banco Filipino on receivership. Later, on February 28, 1985 Banco Filipino filed with the Supreme Court (case docketed as G.R. No. 70054) a petition for certiorari and mandamus under Rule 65 of the Rules of Court seeking to annul the resolution (No. 75) of the then Central Bank on January 28, 1985 – as made without or in excess of jurisdiction or with grave abuse of discretion.

On March 22, 1985, the then Central Bank Filipino issued another resolution placing Banco Filipino under liquidation.

On December 11, 1991, the Supreme Court in an en banc decision NULLIFIED Monetary Resolution No. 75 and ordered the Central Bank and the Monetary Board to reorganize the bank and allowed it to resume business. In the words of the Supreme Court: “The assailed order of the Central Bank and the Monetary Board dated January 25, 1985 is hereby annulled and set aside. The Central and the Monetary Board are ordered to reorganize petitioner Banco Filipino savings and mortgage Bank and allow the latter to resume business in the Philippines under the controllership of both the Central Bank and the Monetary Board and under such conditions as may be prescribed by the latter in connection with its reorganization until such time that the petitioner bank can continue in business with safety to its creditors, depositors and the general public.

After the closure of Banco Filipino was declared void by the Supreme Court, Banco Filipino also filed for damage claims amounting to 118.8 billion to cover actual damages, liquidation expenses, attorney’s fees, interest and other related expenses. To my knowledge this claim of Banco Filipino for damage claims has not yet been resolved by the time Banco Filipino was again closed for the second time by the BSP Monetary Board last March 17, 2011.

Stated in other words, the Supreme Court did not uphold the legality of the FIRST CLOSURE of Banco Filipino. The Supreme Court held that the closure and receivership of Banco Filipino which was ordered by the Monetary Board of the defunct Central Bank on January 25, 1985 is null and void; the Supreme Court held that the closure was arbitrary and committed with grave abuse of discretion.

Significantly, too, the Supreme Court in the FIRST CLOSURE case touched on the issue of solvency/insolvency. From the facts of the case (G.R. No. 70054), one of the then Central Bank Deputy Governor testified that the reason for Banco Filipino’s closure was not unsound, unsafe and fraudulent banking practices but the alleged insolvency of Banco Filipino. The Supreme Court said that:

“Finally, another circumstance which point to the solvency of petitioner bank is the granting by the Monetary Board in favor of the former a credit line in the amount of 13 billion along with the placing of petitioner bank under conservatorship by virtue of M.B Resolution No. 955 dated July 27,1984. This paved the way for the reopening of the bank on August 1, 1984 after a self imposed bank holiday on July 23, 1984.”

“This Court thereby finds that the grant of the said emergency loan was intended from the beginning to fall under the second paragraph of Section 90 of the Central Bank Act, which could not have occurred if the petitioner bank was not solvent. Where notwithstanding knowledge of the irregularities and unsafe banking practices allegedly committed by the petitioner bank, the Central Bank even granted financial support to the latter and placed it under conservatorship, such actuation means that petitioner bank could still be saved from its financial distress by adequate aid and management reform, which was required by Central Bank’s duty to maintain the stability of the banking system and the preservation of public confidence in it (Ramos v. Central Bank, No. L-29352, October 4, 1971, 41 SCRA 565).”

“Granting in gratia argumenti that the closure was based on justified grounds to protect the public, the fact that petitioner bank was suffering from serious financial problems should not automatically lead to its liquidation. Section 29 of the Central Bank provides that a closed bank may be reorganized or otherwise placed in such a condition that it may be permitted to resume business with safety to its depositors, creditors and the general public.”

Section 29 of RA 265 (created the defunct Central Bank), outlined the proceedings upon insolvency. In the first closure case of Banco Filipino it was mentioned that: “It is evident from the foregoing circumstances that the examination contemplated in Sec. 29 of the CB Act as a mandatory requirement was not completely and fully complied with. Despite the existence of the partial list of findings in the examination of the bank, there were still highly significant items to be weighed and determined such as the matter of valuation reserves, before these can be considered in the financial condition of the bank. It would be a drastic move to conclude prematurely that a bank is insolvent of the basis for such conclusion is lacking and insufficient, especially of doubt exits as to whether such bases or findings faithfully represent the real financial status of the bank.”

It is very obvious and very apparent that the decision of the Supreme Court in the First Closure case of Banco Filipino is a victory for Banco Filipino. What happened in the Second Closure case was unexpected and puzzling to many. What needed to be resolved in the second closure case was simply and basically the application of the legal provision on insolvency. Which, unfortunately, did not happen. Tragically, the case went round and round and thereby expanding the legal issues involved. It is saddening to note that up to now the legal battle continues between the BSP and Banco Filipino. More than thirty (30 years) have passed; and the third Central Bank Charter has been promulgated (Republic Act No. 11211)... and the Banco Filipino case is still around.

(To be continued)

Have a joyful day! (For comments/ reactions please send to Ms. Villafuerte’s email: villafuerte_nelly@yahoo.com)