AN ACT CREATING THE REHABILITATION FINANCE CORPORATION

Case Overview and Summary

Summary of Republic Act No. 85 (as amended)

Establishment and Functions:
- Creates the Development Bank of the Philippines (DBP) to provide credit facilities for rehabilitation, development, and expansion of agriculture, industry, reconstruction of war-damaged property, and diversification of the national economy. (Section 1)
- Grants DBP the power to:
    - Grant loans for home building, agriculture, industry, public utilities, mining, livestock, and fishing. (Section 2a)
    - Purchase preferred shares, securities, and obligations, and grant loans to agricultural and industrial enterprises. (Section 2b)
    - Grant loans to provincial, city, and municipal governments for public markets, irrigation, waterworks, toll bridges, slaughterhouses, cadastral surveys, and other self-liquidating or income-producing services. (Section 2c)
    - Grant loans to cooperative associations. (Section 2d)
    - Grant loans to employees of government-owned or private corporations for buying shares of stock. (Section 2e)
    - Underwrite, purchase, own, sell, mortgage, or dispose of stocks, bonds, debentures, securities, and other evidences of indebtedness. (Section 2f)
    - Issue bonds, debentures, securities, collaterals, and other obligations, guaranteed by the Philippine government. (Section 2g)
    - Adopt a corporate seal, make contracts, borrow money, own property, sue and be sued, employ personnel, and perform necessary acts. (Section 2h)
    - Subscribe to the capital stock of private provincial and city development banks, up to 25 million pesos. (Section 2i)
    - Rediscount intermediate and long-term notes, loans, and mortgages of the Philippine National Bank. (Section 2j)
    - Guarantee acceptance credits, loans, transactions, or obligations for the development and expansion of agriculture or industry. (Section 2k)
    - Limit total liabilities of any person, company, corporation, or government subdivision to 30% of DBP's paid-in capital and surplus, excluding guarantees. (Section 2l)
- Sets DBP's capital stock at 3 billion pesos, fully subscribed by the Philippine government. (Section 3)
- Limits the allocation of DBP's authorized capital stock for different loan types: 45% for industrial loans, 35% for agricultural loans, and 20% for miscellaneous loans, including home building loans. (Section 4)
- Requires 25% of investible funds of the Government Service Insurance System and Social Security System to be invested in DBP bonds. (Section 5)

Private Development Banks:
- Encourages the establishment of private development banks in provinces and cities, with three categories based on paid-up capital: Class A (4 million pesos), Class B (2 million pesos), and Class C (1 million pesos). (Sections 6-7)
- Allows existing domestic banks to convert into private development banks, with at least 60% of capital stock owned by Filipino citizens. (Section 8)
- Requires at least 60% of private development bank capital stock to be owned by Filipino citizens, with DBP subscribing to preferred shares if private subscription is insufficient. (Section 9)
- Specifies naming conventions for private development banks based on location and order of establishment. (Section 10)
- Allows the Central Bank to advance up to 10 million pesos for the trust fund to pay for the organization of private development banks. (Section 11)
- Outlines the use of the trust fund by DBP to assist private development banks through subscription to preferred shares and rediscounting of promissory notes and credit instruments. (Section 12)
- Applies provisions of Republic Act No. 337 to private development banks, where applicable. (Section 13)

Officers and Employees:
- Establishes a Board of Governors consisting of a Chairman and six members appointed by the President, with staggered 7-year terms. (Section 14)
- Grants the Board of Governors powers to prescribe by-laws, fix interest rates, establish branches, and appoint personnel. (Section 15)
- Designates the Chairman as the chief executive officer with direction and control over DBP's business. (Section 16)
- Appoints the Secretary of Justice as ex officio legal adviser, with a representative as legal counsel. (Section 17)
- Appoints the Auditor General as ex officio auditor, with a representative as auditor in charge, who reports quarterly to the President, Congress, Secretary of Finance, and Board of Governors. (Section 18)
- Transfers functions, assets, liabilities, and personnel of the Agricultural and Industrial Bank to DBP. (Section 19)

Miscellaneous Provisions:
- Transfers authority, control, and administration of rehabilitation funds for domestic banks and insurance companies to DBP. (Section 20)
- Allows DBP obligations to be lawful investments and accepted as security for fiduciary, insurance, trust, and public funds. (Section 21)
- Prohibits DBP officials from participating in decisions affecting their personal interests, with penalties for violation. (Section 22)
- Prohibits DBP officers, employees, and government officials from borrowing from DBP, with penalties for violation. (Section 23)
- Prohibits DBP from granting loans to corporations where a Board member is a shareholder, agent, or employee, except with unanimous Board approval and Presidential approval. (Section 24)
- Prohibits fees, commissions, gifts, or charges for obtaining DBP loans, with penalties for violation. (Section 25)
- Penalizes providing false information to obtain loans, with imprisonment and fines. (Section 26)
- Penalizes violation of any provision not specifically punished, with fines and imprisonment. (Section 27)
- Clarifies that references to "Rehabilitation Finance Corporation" and "corporation" mean "Development Bank of the Philippines" and "Bank," respectively. (Section 28)
- Prohibits layoffs or separation of Rehabilitation Finance Corporation personnel due to this Act. (Section 29)
- Includes a severability clause. (Section 30)
- Sets the effective date upon approval. (Section 31)