Bangko Sentral officials appeal suspension

Bangko Sentral ng Pilipinas deputy governor Alberto Reyes asked the Court of Appeals yesterday to reverse and set aside its ruling suspending him and BSP governor Rafael Buenaventura for one year for the closure of Urban Bank of the Philippines in 2000.

Other BSP officials who were also suspended are Maria Dolores Yuvienco, Candon Guerrero, and Tomas Aure.

In a 13-page motion for reconsideration, Reyes and Aure, a retired BSP director, also sought to dismiss the complaint filed against them by former Urban Bank president Teodoro Borlongan and warned it was setting a dangerous precedent.

The BSP officials said the appellate court erred in punishing them since they did not vio-late any laws when Urban Bank was placed under receivership after it declared a bank holiday.

According to the BSP General Counsel, a bank holiday "is a situation equivalent to the inability to pay its liabilities as they become due in the ordinary course of business," as stated in Section 30 of Republic Act 7653 or the New Central Bank Act.

The BSP officials said Urban Bank’s closure was meant to protect the public. They explained that the bank’s unilateral declaration of a bank holiday might eventually lead to losses for its depositors and creditors, and the deterioration of its liquidity.

They said there was no basis for the Court of Appeals to conclude that a bank holiday was merely a temporary suspension of banking activities since Urban Bank officials did not state when the holiday would be lifted.

An indefinite period of cessation of business would be grossly disadvantageous to the public, the officials said.

"It is (an) error to assume that a bank that has run out of cash does no harm to the public when it unilaterally declares a bank holiday, closes its doors and refuses payment of liabilities to depositors and creditors," the motion read.

The BSP officials added that Urban Bank and its subsidiaries were not closed due to insolvency alone but due to their admitted inability to pay their liabilities as they become due.

Urban Bank and its subsidiaries could not continue business without involving probable losses to its depositors and creditors, they said.

Reyes and Aure also contended Borlongan did not offer any evidence to disprove that Urban Bank and its subsidiaries were no longer in good financial condition.

The BSP officials said that unlike other cases, there was no question that Urban Bank was in such financial distress that it needed a "white knight" to come in and enable it to operate without danger to the public.

However, the officials said what is more disturbing is the appellate court’s assertion that it is "tasked to determine whether or not the public officials behind the bank’s closure acted in the manner asked of them under the law."

"This assertion entails serious repercussions, as it may be interpreted to mean that the (Court of Appeals) arrogated unto itself the task of scrutinizing how BSP officials should discharge and exercise their mandate as an independent central monetary authority under Republic Act 7653," the motion read.

The BSP officials added that the appellate court’s decision "may even scare BSP officials in the discharge of their functions as they are forever threatened by lawsuits filed by owners of closed banks who can always wangle favorable decisions."

They said the Court of Appeal’s decision "intruded into a highly technical domain such as the supervision and regulation of the country’s banking system where they lack expertise and have substituted (their) own judgment for the findings of the concerned BSP officials who are knowledgeable and specifically trained for the positions which they hold."

The Court of Appeals should not give credit to Urban Bank’s "valuation reserves" since it is immaterial to determining the bank’s ability to pay its liabilities as they fall due in the ordinary course of business, the BSP officials said.

The BSP officials said the administrative case was brought against them by Borlongan, "an unqualified petitioner," long after the allowable period to file such an action.

They said the move "was a disguised attempt to raise the issue on the legality" of placing Urban Bank and its subsidiaries under receivership.

The 19-page Court of Appeals decision was penned by Associate Justice Eugenio Labitoria, who said the BSP should have exercised due diligence in accordance with the procedure on ordering the closure of banks as outlined in the New Central Bank Act of 1993.

In its decision the CA reversed a ruling by the Office of the Ombudsman when it found Buenaventura "administratively liable of gross neglect of duty" when the BSP ordered the closure of Urban Bank.

The medium-sized financial institution was closed in April 2000 after a series of massive withdrawals.

"The closure of Urban Bank Inc., Urbancorp Development Bank and Urbancorp Investments Inc. was done in an arbitrary manner violative of fair play and committed with grave abuse of discretion," the CA said in the ruling it issued dated Aug. 13.

The CA said the BSP ordered the permanent closure of the three companies and placed them under receivership just one day after Urban Bank informed monetary authorities it had declared a temporary closure after suffering liquidity problems.

The BSP had offered an emergency loan of P800 million — equivalent to $14.6 million at current exchange rates — to Urban Bank at the height of its liquidity problems.

But the bank’s management turned down the offer and decided to declare a bank holiday. At the time, Urban Bank was in merger talks with Banco de Oro Universal Bank.

Urban Bank has since been bought by Export and Industry Bank Inc.

Just before it declared temporary closure, Urban Bank had withdrawals of around P5 billion in about a month from a deposit base that had stood at more than P9 billion.