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BSP at the first line of depositors’ defense

(Article published in the Nov 11, 2009 issue of Manila Standard Today) 

The case of Bangko Sentral ng Pilipinas, et al vs Hon. Nina G. Antonio-Valenzuela, et al, G.R. No. 184778, promulgated October 2, 2009, subject of this column last week for the Supreme Court’s reminder that the judiciary ought not impede the administrative mechanism to protect the depositing public, had an additional and deeper pronouncement.  It named who in the administrative system was tasked to look after the depositors on a day to day basis. It is the BSP, or more precisely, the Monetary Board (MB), who has the duty to do so and is thus necessarily the rightful wielder of the extraordinary “close how, hear later” authority.

 The Supreme Court observed in BSP vs Antonio-Valenzuela that RA 7653 (the new Central Bank Act) gave the MB power to act expeditiously upon being fully appraised by the results of examinations of banks.  Section 29, for instance, permits the Monetary Board when it finds, on the basis of a report submitted by the appropriate or examining department, that a bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors, to appoint a conservator who in effect takes charge of the assets, liabilities and management of the bank. 

Section 30, by way of further illustration, permits the MB, upon report of the head of the supervising and examining departments of the BSP that a bank is unable to pay its liabilities as they become due in the ordinary course of business as well as in other meritorious cases, to summarily and without need for prior hearing forbid the ailing bank from doing business in the Philippines.


The exercise of these prerogatives, it was further noted, “may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction.”

The practical impact of these provisions on the power of the courts to step in on the basis of allegations of impending injury is precisely to take away their discretion to issue preliminary injunctions against the MB actions specified in Sections 29 and 30.  Stated positively, the Supreme Court recognized the prerogative of the MB to take action, without having to worry about the prospect of judicial interference, whenever it deems necessary to do so in order to meet the exigencies of a specific situation it finds the banking industry in. This is known as the “close now, hear later” scheme.

Undoubtedly, the “close now, hear later” scheme is, except for those specializing in banking law, difficult for many to accept.  As early as at law school proper, law students are taught that injunctive relief is generally  available whenever a party is threatened to be seriously injured by an imminent act of another. An ounce of prevention, they are instructed, is better than a pound of cure. They are thus are told that it is in their clients’ interest (as well as their own professional development) to always consider the advisability of asking for the provisional remedy of injunction to get their clients out of harm’s way.

Traditional wisdom, however, works very well only in traditional cases and often flounders in exceptional situations.  In cases of A vs B where both A and B are both private persons fighting over a matter that is strictly private, age-old adages apply. But when a case involves an issue bigger than the interests of the parties, exceptions creep in and soon qualifications need to be made to the general rule.  Thus, in the field of taxation, it has become an accepted principle that injunction, which generally lies against a threatened government action, will not lie to restrain the collection of taxes. 

The “close now, hear later” scheme is, similarly, an exception to the general availability of injunction against a threatened injury. Such scheme, said the court, “is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank’s assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and the general public.”

“Swift action,” the court further explained, “is called for on the part of the BSP when it finds that a bank is in dire straits.  Unless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors and stockholders, who all deserve the protection of the government.”

Banking is an industry imbued with the public interest.  The business of banking is conducted within the rubric of  rules and regulations that are meant not only to serve the interest of the individual parties involved but of society at large.  Thus, acts of private parties, even those that are on the surface limited in scope to amongst themselves, are tested not merely against the standards of justice that apply to each of them as individuals but also against the norms and principles that are required to be pursued for the good of the society itself.  That testing role, in the first instance, is lodged with the BSP.