DEFINITION OF BANK: A bank is a moneyed institute founded to facilitate the borrowing, lending and safekeeping of

money and to deal in notes, bills of exchange and credits. An investment company, which lends out the money of its
customers, collects the interest and charges a commission to both lender and borrower is a bank.

Banks shall refer to entities engaged in the lending of funds obtained in the form of deposits (Sec. 3.1, GBL)

Elements:

i. Engaged in lending of funds

ii. Obtained in the form of deposits
iii. From the public, which shall mean 20 or more persons
(Sec. 8.2, GBL)

REPUBLIC v SECURITY CREDIT AND ACCEPTANCE CORPORATION, 19 SCRA 58 (1967)

FACTS: This is a quo warranto proceeding, initiated by the Solicitor General, to dissolve the Security and Acceptance
Corporation for allegedly engaging in banking operations without the authority required therefor by the General Banking
Act (Republic Act No. 337). Security Credit and Acceptance Corporation is a duly registered corporation with the SEC. Its
articles of incorporation authorize it too engage primarily in financing agricultural, commercial and industrial projects,
and secondarily, in buying and selling stocks and bonds of any corporation. The Superintend of Banks of the Central Bank
of the Philippines thru its legal counsel rendered an opinion that Security Credit and Acceptance Corporation is a
banking institution within the purview of Republic Act No. 337. Central Bank advised the corporation to comply with the
requirements of the General Banking Act. Notwithstanding, the corporation, as well as the members of its Board of
Directors and the officers of the corporation, continued performing the functions and activities which had been declared
to constitute illegal banking operations; the corporation established 74 branches in principal cities and towns
throughout the Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same
had managed to induce the public to open 59,463 savings deposit accounts.

ISSUE: Whether the corporation is engaged in banking

HELD: YES. It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the
General Banking Act. Indeed, a bank has been defined as: ... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328,
347, 348] founded to facilitate the borrowing, lending and safe-keeping of money (Smith vs. Kansas City Title & Trust
Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits (State vs.
Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46).

Moreover, it has been held that: An investment company which loans out the money of its customers, collects the
interest and charges a commission to both lender and borrower is a bank. (Western Investment Banking Co. vs.
Murray, 56 P. 728, 730, 731; 6 Ariz 215.) ... any person engaged in the business carried on by banks of deposit, of
discount, or of circulation is doing a banking business, although but one of these functions is exercised. (MacLaren vs.
State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.) Accordingly, defendant-corporation
has violated the law by engaging in banking without securing the administrative authority required in Republic Act No.
337. That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the
fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it is wilful
and has been repeated 59,463 times, and that its continuance inflicts injury upon the public, owing to the number of
persons affected thereby.
CLASSIFICATION OF BANKS: (Section 3.2, General Banking Laws of 2000-RA 8791)
a) Universal Banks- it is a commercial bank with the additional authority to exercise the powers of an investment house
and invest in non-allied enterprises.

b) Commercial Banks- financial institutions that accept deposits, offer checking account services, and make various
loans.
NOTE: In the  Philippines,  commercial banks  are regulated by the Bangko Sentral ng Pilipinas (BSP). The BSP
imposes various conditions and prescribes the minimum level of capitalization of   banks.

c) Thrift banks, composed of (i) Savings and mortgage banks; (ii) Stock savings and loan associations; and (iii)
Private development banks
Thrift Banks Act- RA 7906
(a) "Thrift banks" shall include savings and mortgage banks, private development banks, and stock savings and loans
associations organized under existing laws, and any banking corporation that may be organized for the following
purposes:

(1) Accumulating the savings of depositors and investing them, together with capital loans secured by bonds, mortgages
in real estate and insured improvements thereon, chattel mortgage, bonds and other forms of security or in loans for
personal or household finance, whether secured or unsecured, or in financing for homebuilding and home development;
in readily marketable and debt securities; in commercial papers and accounts receivables, drafts, bills of exchange,
acceptances or notes arising out of commercial transactions; and in such other investments and loans which the
Monetary Board may determine as necessary in the furtherance of national economic objectives;

(2) Providing short-term working capital, medium- and long-term financing, to businesses engaged in agriculture,
services, industry and housing; and

(3) Providing diversified financial and allied services for its chosen market and constituencies specially for small and
medium enterprises and individuals.

d) Rural banks-see Rural Banks Act- RA 7353

Support their local economies with secure depositories, saving and access to loans for countless farmers, fishermen
and small entrepreneurs in far-flung communities.

e) Cooperative banks- see Cooperative Code- RA 6938

one which is organized, owned and controlled by cooperative organizations, for the purpose of providing financial
and credit services to cooperatives and their members.

f) Islamic Banks- see Charter of Al Amanah Islamic banks-RA 6848

Islamic banking business, as defined under R.A. No. 11439, refers to a banking business with objectives and
operations that do not involve interest (riba) as prohibited by the  Islamic or Shari'ah Law and which conducts its
business in accordance with the principles of the Shari'ah.

g) Other Classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas (6-Aa)
Distinction of Banks From Quasi-Banks and Trust Entities
An investment company refers to any issuer, which is or holds itself out as being engaged or proposes to engage
primarily in the business of investing, reinvesting or trading in securities. What is prohibited by law is for investment
companies to lend funds obtained from the public through receipts of deposit, which is a function of banking
institutions.

TEODORO BANAS VS. ASIA PACIFIC FINANCE CORPORATION

FACTS: Teodoro Banas issued a Promissory Note (P.N.), amounting to 390k payable in installments, in favor of C. G.
Dizon Construction. Later, Dizon Construction endorsed the P.N to Asia Pacific Finance Corporation, an investment
house. As security for the endorsement, Dizon Construction made a Chattel Mortgage over 3 heavy equipment units. As
additional security, Cenen Dizon, president of Dizon Construction, executed a Continuing Undertaking, bounding himself
to pay the obligation jointly and severally. At first, Dizon Construction complied with the installments. However, it
defaulted in its payment of the remaining installments. Asia Pacific sued Banas and Dizon Construction for payment of
the P.N.. Banas and Dizon Construction argue that the transaction was never intended to be legal but a subterfuge to
conceal the loan of 390k with usurious interest. They both claim that Asia Pacific proposed the scheme with them
involved because Asia Pacific could not engage in banking business. RTC ruled in favor of Asia Pacific. CA affirmed the
decision.

ISSUE : Whether the transaction violated banking laws, hence null and void

HELD: NO, it did not violate banking laws.

An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage
primarily in the business of investing, reinvesting or trading in securities. Securities include commercial papers
evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold,
transferred or in any manner conveyed to another with or without recourse, such as promissory notes. The transaction
between the two was a purchase of receivables at a discount and not a loan. Such act is within the purview of the
functions of an investment company.

Moreover, Sec 2 of the General Banking Act provides;

Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage in the lending of
funds obtained from the public through the receipt of deposits of any kind, and all entities regularly conducting
such operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of
the Central Bank Act, and of other pertinent laws.

What is prohibited by law is for investment companies to lend funds obtained from public through receipts of deposit.
However, the funds obtained by Asia Pacific have not been shown to have been obtained from the public through
deposits. Thus, no banking laws were violated.

BANKING DISTINGUISHED FROM QUASI-BANKING

a. Elements of Quasi-Banking: "Quasi-Banks" shall refer to entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or acceptance of deposit substitutes as defined in Section 95 of
Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes of relending or purchasing of receivables and
other obligations (Sec. 4, Par. 3, GBL)

i. Borrowing of funds for borrower’s own account

ii. From 20 or more lenders at any one time
iii. Through issuance, endorsement or assignment with recourse of acceptance of deposit substitutes (Sec. 95, NCBA)
iv. For purposes of relending or purchasing of receivables and other obligations

b. Requirement of Separate License: No person or entity shall engage in banking operations or quasi-banking functions
without authority from the Bangko Sentral: Provided, however, That an entity authorized by the Bangko Sentral to
perform universal or commercial banking functions shall likewise have the authority to engage in quasi-banking
functions.

The determination of whether a person or entity is performing banking or quasi-banking functions without Bangko
Sentral authority shall be decided by the Monetary Board. To resolve such issue, the Monetary Board may, through the
appropriate supervising and examining department of the Bangko Sentral, examine, inspect or investigate the books and
records of such person or entity. Upon issuance of this authority, such person or entity may commence to engage in
banking operations or quasibanking functions and shall continue to do so unless such authority is sooner surrendered,
revoked, suspended or annulled by the Bangko Sentral in accordance with this Act or other special laws (Sec. 6, Par. 1-2,
GBL)