Banks; Classifications of Banks

MERCANTILE LAW QUESTION 2002

There are six (6) classes of banks identified in the General Banking Law of 2000. Name at least four (4) of them and explain the distinguishing characteristic or function of each one.

SUGGESTED ANSWER:

Any four (4) of the following six (6) classes of banks identified in the General Banking Law of 2002, to wit:

1              Universal Banks – These are those which used to be called expanded commercial banks and the operations of which are now primarily governed by the General Banking Law of 2002. They can exercise the powers of an investment house and invest in non-allied enterprises. They have the highest capitalization requirement.

2              Commercial Banks – These are ordinary or regular commercial banks, as distinguished from a universal bank. They have a lower capitalization requirement than universal banks and cannot exercise the powers of an investment house and invest in non-allied enterprises.

3              Thrift Banks – These banks (such as savings and mortgage banks, stock savings and loan associations, and private development banks) may exercise most of the powers and functions of a commercial bank except that they cannot, among others, open current or check accounts without prior Monetary Board approval, and they cannot issue letters of credit. Their operations are governed primarily by the Thrift Banks Act of 1995 (RA 7906).

4              Rural Banks – these are those which are organized primarily to extend loans and other credit facilities to farmers, fishermen or farm families, as well as cooperatives, merchants, and private and public employees and whose operations are primarily governed by the Rural Banks Act of 1992 (RA 7353).

5              Cooperative Banks – these are those which are organized primarily to provide financial and credit services to cooperatives and whose operations are primarily governed by the Cooperative Code of the Philippines (RA 6938).

6              Islamic Banks – these are those which are organized primarily to provide financial and credit services in a manner or transaction consistent with the Islamic Shari’ah. At present, only the Al Amanah Islamic Investment Bank of the Philippines has been organized as an Islamic Bank