Bank Liquidation Process in the Philippines
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Questions and Answers

What governs universal and commercial banking in the Philippines?

  • The New Central Bank Act (correct)
  • The Manual of Regulations for Banks
  • The Philippine Cooperative Code of 2008
  • Special laws or charters

    • Which entity recognizes the primacy of the GBL in regulating cooperative banks?

  • BSP
  • Manual of Regulations for Banks
  • Special laws or charters
  • Philippine Deposit Insurance Corporation (correct)

    • What is the role of the BSP in banking regulation in the Philippines?

  • Primary overseer of banks (correct)
  • Prudential regulator
  • Insurance provider
  • Secondary overseer of banks

    • Which entity is responsible for insuring bank deposits in the Philippines?

    <p>Philippine Deposit Insurance Corporation</p> Signup and view all the answers

    What is the significance of an effective prudential regulator in a banking system?

    <p>It contributes to a safe and sound banking system</p> Signup and view all the answers

    In what document are the rules implementing various banking laws in the Philippines embodied?

    <p>Manual of Regulations for Banks</p> Signup and view all the answers

    What is the purpose of the leverage ratio requirement imposed on banks?

    <p>To restrict the build-up of leverage by banks</p> Signup and view all the answers

    What is the composition of the capital conservation buffer required by the BSP?

    <p>Common Equity Tier 1 (CET1) capital</p> Signup and view all the answers

    How does the BSP ensure that domestically systematically important banks have higher loss absorbency?

    <p>By requiring a higher share of their balance sheets to be funded by resilient instruments</p> Signup and view all the answers

    What is the purpose of the liquidity coverage ratio requirement set by the BSP?

    <p>To ensure banks can withstand significant liquidity shocks for 30 days</p> Signup and view all the answers

    Which type of banks are covered under the Basel 1.5 framework by the BSP?

    <p>Thrift banks, rural banks, and cooperative banks not subsidiaries of universal and commercial banks</p> Signup and view all the answers

    What does the 5 per cent leverage ratio apply to in banks, as per BSP regulations?

    <p>Total exposure measure</p> Signup and view all the answers

    What is the maximum percentage that unsecured credit accommodations must not exceed of the total DOSRI Limit?

    <p>30%</p> Signup and view all the answers

    What does the aggregate ceiling for credit accommodations to DOSRI refer to?

    <p>15% of the total loan portfolio or 100% of net worth, whichever is lower</p> Signup and view all the answers

    What is required before a bank can extend a DOSRI loan?

    <p>Resolution passed by the board of directors</p> Signup and view all the answers

    Where must a copy of the resolution for extending a DOSRI loan be transmitted within how many banking days?

    <p>To the BSP within 20 days</p> Signup and view all the answers

    Which document contains the guidelines for setting up allowances for credit losses for banks?

    <p>Manual of Regulations for Banks</p> Signup and view all the answers

    What determines how much universal and commercial banks can invest in equities of enterprises?

    <p>Equity Investment Limit</p> Signup and view all the answers

    What type of petition does the receiver file in court for assistance in the liquidation of the bank?

    <p>Ex parte petition</p> Signup and view all the answers

    What is the purpose of converting the assets of the bank to money during the liquidation process?

    <p>To pay debts following rules on concurrence and preference of credits</p> Signup and view all the answers

    What type of legal action may be undertaken if the actions of the Monetary Board are believed to be in excess of jurisdiction or done with grave abuse of discretion?

    <p>Petition for certiorari</p> Signup and view all the answers

    According to the amended PDIC Charter, what happens to a bank ordered to be closed by the Monetary Board?

    <p>It will proceed with liquidation without consent from stakeholders</p> Signup and view all the answers

    What does Section 2 of the GBL require banks to exercise in their operations?

    <p>'High standards of integrity and performance'</p> Signup and view all the answers

    In what circumstances may a court restrain or set aside actions taken by the Monetary Board?

    <p>On petition for certiorari if actions were taken within jurisdiction</p> Signup and view all the answers

    What is the purpose of the DOSRI limit?

    <p>To level the lending field between insiders and outsiders.</p> Signup and view all the answers

    What condition must be met for an incremental SBL of 10% of the bank's net worth to be provided?

    <p>Liabilities must be insured and secured by marketable, non-perishable goods.</p> Signup and view all the answers

    What is the aim of the DOSRI rules regarding lending terms?

    <p>To prevent banks from becoming the primary source of finance for DOSRI.</p> Signup and view all the answers

    What are the three distinct ceilings set by the DOSRI rules?

    <p>Individual ceiling, aggregate ceiling, ceiling on unsecured loans.</p> Signup and view all the answers

    What determines the total allowable outstanding direct credit accommodation to a DOSRI under the individual ceiling?

    <p>Both the individual's unencumbered deposits in the lending bank and the book value of the paid-capital contribution.</p> Signup and view all the answers

    Why is it important for loans to DOSRI to be in the regular course of business under the DOSRI rules?

    <p>To maintain fairness and non-preferential treatment between insiders and outsiders.</p> Signup and view all the answers

    Section 4 of the GBL grants the Bangko Sentral the authority to issue visitorial powers to banks.

    <p>True</p> Signup and view all the answers

    The BSP is only allowed to carry out regular investigations of banks once every two years.

    <p>False</p> Signup and view all the answers

    The PDIC Charter allows the PDIC to examine banks annually without requiring prior approval from the BSP.

    <p>False</p> Signup and view all the answers

    The BSP has no authority to conduct examinations on enterprises that are majority-owned by banks.

    <p>False</p> Signup and view all the answers

    The Monetary Board needs at least 4 members to order a special examination of a bank.

    <p>False</p> Signup and view all the answers

    The BSP is primarily responsible for ensuring compliance with banking regulations in the Philippines.

    <p>True</p> Signup and view all the answers

    The PDIC can institute corrective action against a bank if the Monetary Board fails to act within 30 days of receiving a report of examination.

    <p>False</p> Signup and view all the answers

    At least three independent directors are required to be part of the board of directors of a locally incorporated bank.

    <p>False</p> Signup and view all the answers

    Foreign nationals are not allowed to become bank directors if the bank is a subsidiary of a foreign bank.

    <p>False</p> Signup and view all the answers

    The election of bank directors must be confirmed by the BSP, not the Monetary Board.

    <p>False</p> Signup and view all the answers

    All board meetings of a bank must be held physically in one room to be considered valid.

    <p>False</p> Signup and view all the answers

    The fit and proper rule for bank directors focuses on integrity, gender, age, and competence of the individual concerned.

    <p>False</p> Signup and view all the answers

    The BSP requires each bank to appoint a part-time chief compliance officer.

    <p>False</p> Signup and view all the answers

    The Monetary Board may regulate the payment of compensation to bank directors and officers only in unsatisfactory financial conditions.

    <p>False</p> Signup and view all the answers

    The Monetary Board mandates the deduction of unbooked valuation reserves and deferred charges from the total income of the bank during profit sharing.

    <p>True</p> Signup and view all the answers

    The Monetary Board never intervenes to reduce excessive compensation packages of bank directors and officers.

    <p>False</p> Signup and view all the answers

    The BSP requires each bank to appoint a chief financial officer to manage business risks.

    <p>False</p> Signup and view all the answers

    Profit-sharing may lead to an increase in the total compensation package of bank directors and officers.

    <p>False</p> Signup and view all the answers

    The Secrecy of Bank Deposits Law prohibits examination of deposits and investments by any person, except in cases of impeachment.

    <p>False</p> Signup and view all the answers

    The Anti-Graft and Corrupt Practices Act is an additional exception to the Secrecy of Bank Deposits Law.

    <p>True</p> Signup and view all the answers

    The Anti-Money Laundering Act of 2001 is not a basis for examining bank deposits under the exceptions to the Secrecy of Bank Deposits Law.

    <p>False</p> Signup and view all the answers

    The BSP's enquiry into bank deposits is only allowed during special examinations of a bank.

    <p>False</p> Signup and view all the answers

    The Commissioner of Internal Revenue can examine a decedent's deposits to determine the decedent's net worth.

    <p>False</p> Signup and view all the answers

    Bank deposits dormant for at least 5 years must be disclosed to the Treasurer of the Philippines according to the Secrecy of Bank Deposits Law.

    <p>False</p> Signup and view all the answers

    Foreign individuals and non-bank corporations can collectively own up to 50% of the voting stock of a domestic bank.

    <p>False</p> Signup and view all the answers

    There is a ceiling on the aggregate ownership by Filipino individuals and domestic non-bank corporations in a domestic bank.

    <p>False</p> Signup and view all the answers

    Qualified foreign banks are allowed to own or control up to 100% of the voting stock of a domestic bank.

    <p>True</p> Signup and view all the answers

    Transactions involving voting shares of a bank require prior approval from the Monetary Board if they will result in ownership or control of more than 30% of voting shares by any person.

    <p>False</p> Signup and view all the answers

    Individuals and corporations wholly or majority-owned by him or her can own or control up to a combined 50% of the voting stock of a domestic bank.

    <p>False</p> Signup and view all the answers

    A person can elect or be elected as a director of a bank without requiring prior approval from the Monetary Board.

    <p>False</p> Signup and view all the answers

    The Efficiency Ratio is calculated by dividing Non-interest Expense by Interest Revenue.

    <p>False</p> Signup and view all the answers

    Total Deposits exceed Total Loans in the Loan to Deposit Ratio calculation.

    <p>True</p> Signup and view all the answers

    The NPL Ratio is calculated by dividing Nonperforming Loans by Total Deposits.

    <p>False</p> Signup and view all the answers

    The Return on Equity is calculated by dividing Net Income by Average Equity.

    <p>True</p> Signup and view all the answers

    The Capital Adequacy Ratio measures a bank's available capital expressed as a percentage of its total assets.

    <p>False</p> Signup and view all the answers

    The Loan to Deposit Ratio is inversely related to the Capital Adequacy Ratio.

    <p>False</p> Signup and view all the answers

    Capital Adequacy Ratio is calculated by dividing Capital Risk-weighted assets by Risk-weighted assets.

    <p>False</p> Signup and view all the answers

    Basel II uses an external risk-based approach.

    <p>False</p> Signup and view all the answers

    The Capital Min. Ratio to RWA for Tier 2 Debt is 7.5% according to the BSP Circular.

    <p>True</p> Signup and view all the answers

    The BSP is primarily responsible for ensuring compliance with banking regulations in the Philippines.

    <p>False</p> Signup and view all the answers

    Bank directors are not required to have their election confirmed by the Monetary Board.

    <p>True</p> Signup and view all the answers

    The maximum coverage provided by the Philippine Deposit Insurance Corporation per deposit per bank is P500,000.

    <p>True</p> Signup and view all the answers

    Adverse selection occurs after a transaction has taken place.

    <p>False</p> Signup and view all the answers

    Moral Hazard refers to a situation where one party takes excessive risks because it knows another party will bear the consequences.

    <p>True</p> Signup and view all the answers

    Government Financial Statements are a solution to moral hazard in banking.

    <p>False</p> Signup and view all the answers

    Borrowers knowing their ability to pay a loan while lenders do not is an example of moral hazard.

    <p>False</p> Signup and view all the answers

    Free collection rider problem is a solution to adverse selection in banking.

    <p>False</p> Signup and view all the answers

    Investors preferring to take on risky projects when borrowing funds is an example of adverse selection.

    <p>False</p> Signup and view all the answers

    Banks create money through the fractional reserve banking system by keeping 100% of the initial deposit as reserves.

    <p>False</p> Signup and view all the answers

    Bank B has a loan receivable of P81 after the initial deposit of P100 with a 10% reserve requirement.

    <p>True</p> Signup and view all the answers

    Bank C's reserves after the initial deposit of P100 and two rounds of lending in a 10% reserve requirement system would be P8.1.

    <p>False</p> Signup and view all the answers

    The multiplier in the example scenario with a 10% reserve requirement is 1.

    <p>False</p> Signup and view all the answers

    Bank Financial Statement Analysis commonly includes ratios specific to banks.

    <p>True</p> Signup and view all the answers

    The process of money creation through fractional reserve banking can continue indefinitely without any limits.

    <p>False</p> Signup and view all the answers

    The Reserve Requirement Ratio for banks is set at 12%

    <p>True</p> Signup and view all the answers

    The maximum imprisonment for willful violation of banking laws is up to 5 years

    <p>False</p> Signup and view all the answers

    Banks are required to disclose Know-Your-Customer (KYC) requirements to clients

    <p>True</p> Signup and view all the answers

    Consumer Protection Standards emphasize unfair treatment towards clients

    <p>False</p> Signup and view all the answers

    The Data Privacy Act is not a consideration in Bank Regulation

    <p>False</p> Signup and view all the answers

    What is the primary issue addressed by the concept of adverse selection in banking?

    <p>Lenders not knowing borrowers' ability to pay</p> Signup and view all the answers

    How is moral hazard typically manifested in lending transactions?

    <p>Borrowers taking excessive risks after receiving a loan</p> Signup and view all the answers

    In the context of information asymmetry, what is the key challenge faced by lenders?

    <p>Borrowers knowing their ability to pay</p> Signup and view all the answers

    What is a common solution to the adverse selection problem in banking?

    <p>Government screening</p> Signup and view all the answers

    How does moral hazard differ from adverse selection in banking transactions?

    <p>Moral hazard occurs before a transaction, adverse selection after</p> Signup and view all the answers

    Why do banks exist in the context of the capital allocation process?

    <p>To facilitate the allocation of excess funds to those in need</p> Signup and view all the answers

    What percentage does the Capital Adequacy Ratio aim to measure in relation to a bank's risk-weighted assets?

    <p>Equity capital as a percentage of risk-weighted assets</p> Signup and view all the answers

    Under Basel III, what is the purpose of the Capital Conservation Buffer added to the minimum capital requirements for banks?

    <p>To absorb losses during economic downturns</p> Signup and view all the answers

    What is the primary goal of the Basel Accords in relation to the banking industry?

    <p>Strengthen bank capital requirements</p> Signup and view all the answers

    What is the risk weighting applied to Nonperforming assets in calculating the Risk-weighted assets of a bank?

    <p>1.0</p> Signup and view all the answers

    In the context of bank regulation in the Philippines, what is the purpose of the Manual of Regulation for Banks (MORB)?

    <p>Ensure compliance with banking laws</p> Signup and view all the answers

    What entity in the Philippines has the authority to oversee and examine banks as outlined in the provided text?

    <p>Monetary Board via BSP</p> Signup and view all the answers

    What is the formula to calculate Return on Equity?

    <p>Net Income / Average Equity</p> Signup and view all the answers

    What does the Efficiency Ratio measure?

    <p>Operational efficiency of a bank</p> Signup and view all the answers

    How is the Nonperforming Loans (NPL) ratio calculated?

    <p>(Nonperforming Loans / Total Loans) * 100%</p> Signup and view all the answers

    What does the Loan to Deposit Ratio indicate?

    <p>Bank's liquidity position</p> Signup and view all the answers

    What is the purpose of the Capital Adequacy Ratio?

    <p>Evaluate capital strength relative to risk exposure</p> Signup and view all the answers

    Which statement accurately describes the Efficiency Ratio?

    <p>A lower ratio reflects better operational efficiency.</p> Signup and view all the answers

    What is the maximum fine imposed for willful violation of banking laws under the Bank Regulation mentioned?

    <p>P50,000 - P200,000</p> Signup and view all the answers

    Under the Bank Regulation, what is the imprisonment duration for willful misleading misstatements?

    <p>1 - 5 years</p> Signup and view all the answers

    What action may lead to a fine and imprisonment of 2 - 10 years as per the Bank Regulation mentioned?

    <p>Willful violation of banking laws</p> Signup and view all the answers

    What is the minimum fine imposed for willful violation of banking laws under the Bank Regulation discussed?

    <p>P50,000 - P100,000</p> Signup and view all the answers

    In the context of the Reserve Requirement Ratio set at 12%, what does this ratio indicate?

    <p>Liquidity reserve maintained by banks</p> Signup and view all the answers

    What does the Reserve Requirement Ratio of 10% mean for banks?

    <p>Banks must keep 10% of total deposits as reserves.</p> Signup and view all the answers

    In a fractional reserve banking system with a Reserve Requirement of 10%, what will be Bank B's new loan amount after lending out 90% of its initial P100 deposit?

    <p>P64.8</p> Signup and view all the answers

    What would be the expected outcome if Bank C continues the lending process after Bank B in the fractional reserve banking system scenario?

    <p>Deposits will start exceeding loans.</p> Signup and view all the answers

    What happens to the money supply if the Reserve Requirement Ratio is lowered from 10% to 5% in a fractional reserve banking system?

    <p>Money supply increases.</p> Signup and view all the answers

    What role does the Reserve Requirement Ratio play in controlling money creation by banks?

    <p>It limits the maximum amount a bank can lend out.</p> Signup and view all the answers

    How does the concept of 'multiplier' relate to money creation in a fractional reserve banking system?

    <p>'Multiplier' denotes the number of times initial deposits can be lent out.</p> Signup and view all the answers

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