Deposit Functions Of Banks.docx

DEPOSIT FUNCTIONS OF BANKS I.

Kinds of Deposit A. Demand Deposits  Definition- all those liabilities of Bangko Sentral and other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of (depositor’s) check. (Sec.58, NCBA)  A bank other than Universal and Commercial Bank cannot accept or create demand deposits subject to withdrawal of check, without prior authority from the BSP. (Section 33, GBL)  Temporary Overdrawings against current account shall not be allowed, unless caused by normal bank charges and other fees incidental to handling accounts. Violations shall be subject to a fine. Drawings Against Uncollected Deposits (DAUD) shall be prohibited except when the drawings are made against uncollected deposits representing manager’s/cashier’s/treasurer’s checks, treasury warrants postal money orders and duly funded “on us” checks which may be permitted at the discretion of each bank.  Bank officers, employees of cash department/cash unit and others having direct and immediate duty in handling transactions/records are prohibited from maintaining demand deposits or current accounts of the banking office they are assigned. Prohibition includes their spouses and relatives within second degree of consanguinity and affinity and business interests in partnership, single proprietorship, or corporation to which such persons control at least majority capital stock.  A Check is a bill of exchange drawn on a bank payable on demand.  A Cross-check has the following effects: (1) may not be encashed but only deposited in bank; (2) may be negotiated only onece – to one who has account with the bank; and (3) the act of crossing the check serves as warning to the holder that it has been issued for a definite purpose so that the holder must inquire has been received pursuant to its purpose.  A Cashier’s Check is really the bank’s own check and may be treated as promissory note with the bank as maker.  Duty of Banks: o To honor checks; and o To know signatures  Banks have no obligation to: o Make partial payments; and o Make up deficiency from other accounts

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Responsibilities of Drawer: Personally keep track of available balance and not rely on the bank to notify him of the necessity of a check to be funded. Legal Character of Checks Representing Demand Deposits: do not have legal tender power and their acceptance in the payment of debts, public or private is the option of creditor. Provided, however,that a check declared and credited to the account of the creditor shall be equivalent to delivery to creditor in the amount equal that credited to his account. (Section 60, NCBA) Set-of- Banks may debit the personal account of depositor for an amount erroneously credited to depositor' s sole proprietorship account because the latter being sole proprietorship has no separate and distinct personality from the depositor. Relation between Payee or Holder and the Bank - in absence of an agreement the relation is that of principal and agent. A bank which receives the paper for collection is the agent of the payee or holder. Encashment of Check- one who first encashes and negotiates the check must take precautions of its genuineness. If there is assistance to encash a forged check, he should not be permitted to retain the proceeds of check from drawee whose fault was it did not discover the fraud.

B. Savings Deposits  Servicing Deposits Outside Bank Premises -Banks may be authorized by the BSP to solicit and accept deposits outside their bank premises, subject to some conditions. 1. Financial condition of bank is sound; 2. Proposed area is defined clearly; 3. Solicitation confined in the locality where no other bank operates; and 4. Maintain the minimum safeguards.  Individual and Joint accounts -A deposit may be individual or joint account. A joint account may be an "and" or an "and/or" account. In an "and" account the signature of both co-depositors are required for withdrawals. In an "and/or" account either may deposit without knowledge or consent of the other.  Withdrawal -Banks are prohibited from issuing/accepting withdrawal slips or any other similar instruments designed to effect withdrawals of savings deposits without requiring depositors to present passbooks and accomplishing necessary withdrawal slips,

except banks authorized by BSP to adopt no passbook withdrawal system. C. Negotiable Order of Withdrawal (NOW) Accounts  Definition: NOW accounts are interest-bearing deposit accounts that combine the payable on demand feature of checks and investment feature of savings accounts.  A Universal/Commercial bank may offer NOW accounts without prior authority of the Monetary Board. A Thrift/Rural/Cooperative Bank may accept NOW accounts upon prior approval of Monetary Board.  Rules on Servicing NOW Accounts: 1. Prior or simultaneous with opening NOW accounts, bank shall inform the depositor of the terms and conditions; 2. Bank shall be responsible for identification of depositors (2 specimen signatures and pertinent informations); 3. Deposits be covered by slips in duplicate validated by the teller and a copy of the deposit slip be furnished to the depositor; 4. NOW accounts shall be kept separately from regular savings; 5. Blank NOW accounts shall be prenumbered and controlled as the case of unissued blank checks; 6. A blank statement shall be sent to each depositor at the end of each month for confirmation of balance; and 7. Banks must use the form prescribed by present rules for NOW accounts. D. Time Deposits  Definition: Time Deposit is defined as “one the payment of which cannot legally be required within such specified number of days.” It is issued for a specific period of term.  Rules in the issuance of CTD: - Negotiable Certificates of Time Deposit NCTDs  A Universal/Commercial bank may issue NCTDs without prior authority of the BSP.  A Thrift/Rural/Cooperative Bank may issue NCTDs upon prior approval of BSP. - Non- Negotiable Certificates of Time Deposit NCTDs  Banks may issue long-term non-negotiable tax-exempt certificates of time deposit without approval of BSP. E. Deposit Substitute Operations (Quasi-Banking Functions)  Elements: a) Borrowing funds for the borrower’s own account; b) 20 or more lenders at any one time; c) Methods of borrowing are issuance, endorsement or acceptances, promissory notes,

participations, certificates of assignments or similar instruments with recourse, trust certificates, repurchase agreements, and such other instruments as Monetary Board may determine; and d) The purpose of which is (1) lending, or (2) purchasing receivables or other obligations. F. Foreign Currency Deposits  Any person natural or juridical may deposit with such Philippine banks in good standing, as may, upon application, be designated by the Central Bank for the purpose, foreign currencies acceptable as part of the international reserve, except those which are required by the Central Bank to be surrendered.  There is no restriction on the withdrawal by the depositor of his deposit or on the transferability of the same abroad except those arising from the contract between the depositor and the bank. G. Anonymous and Numbered Accounts  Anonymous accounts or those under fictitious names should not be kept or allowed. In case where numbered accounts is allowed (i.e., foreign currency deposits), bank/non-bank financial institutions should ensure that the client has identified in an official or other documents.  Related laws: a. Revised Penal Code (Art. 178) - Using fictitous name and concealing true names (aresto mayor and fine not exceeding 500 pesos; b. Civil Code (Art. 379 and Art. 380)- employment of pen names or stage names may be permitted provided it is done in good faith and no injury to third persons; anf c. Commonwealth Act No. 142 as amended by RA 6085. Carissa Lyka G. Miranda LLB-4