2. Banks, Quasi-banks, and Trust Entities Distinguished

Quasi-Banks

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 NCBA, Sec. 95¹ for purposes of relending or purchasing of receivables and other obligations. (Sec. 4[3])²

Deposit Substitutes

An alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations. (NCBA, Sec. 95)³

The phrase “obtaining funds from the public” shall mean borrowing from twenty (20) or more lenders at any one time. (Id.)

For this purpose, “lenders” shall refer to individuals and corporate entities that are not acting as financial intermediaries, subject to the safeguards and regulations issued by the Monetary Board. (Id.)

Note: The definition of deposit substitutes in the banking laws was brought about by an observation that banks and non-bank financial intermediaries have increasingly resorted to issuing a variety of debt instruments, other than bank deposits, to obtain funds from the public. (De Oro v. Republic, G.R. No. 198756)⁴

Under the NIRC, deposit substitutes include not only the issuances and sales of banks and quasibanks for relending or purchasing receivables and other similar obligations, but also debt instruments issued by commercial, industrial, and other non-financial companies to finance their own needs or the needs of their agents or dealers. (Id.)

To determine whether the financial assets are deposit substitutes, the “20 or more individual or corporate lenders” rule must apply. (Id.)

When the Government Securities Eligible Dealer (GSED) sells the government securities to 20 or more investors, the government securities are deemed to be in the nature of a deposit substitute. (BDO v. Republic, G.R. No. 198756)⁵

Trust Entities

A stock corporation, or a person duly authorized by the Monetary Board to engage in trust business, and act as a trustee, administer any trust or hold property in trust or on deposit, for use, benefit or behoof of another (GBL. Sec. 79)⁶

Bank, Quasi-Bank, and Trust Entity