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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila
NINETEENTH CONGRESS
Second Regular Session
HouseBinNo.   9724
RE6EIVEB
Introduced by
REPRESENTATIVE EDUARDO ROA RAMA, ]R.
2nd District, Cebu City
AN ACT AUTHORIZING LOCAL GOVERNMENT UNITS T0 ENGAGE
IN BANKING ACTIVITIES AND OTHER FINANCIAL TRANSACTIONS
WITH PRIVATE UNIVERSAL AND/OR COMMERCIAL BANKS
EXPLANAT ORY NOTE
The 1987 Philippine Constitution enshrines the principle of local autonomy, acknowledging the
intrinsic rights of Local Government Units qGUs) to exercise authority within their respective
jurisdictions.  This  authority  extends  to  fiscal  management  and  is  governed  by  the  Local
Government Code of 1991, as amended. Nevertheless, the curent banking regulations for LGUs
constrain their fiscal independence and operational efficiency, himiting them to transactions with
government financial institutions (GFls) alone.
GFls in the Philippines, such as the Development Bank of the Philippines @BP) and Land Bank
of the Philippines  qBP), are obligated to  focus  their financial support on designated priority
sectors. Consequently, their investment portfohos may not offer the same breadth of options as
those of private banking institutions, which cater to a more diverse clientele. A more expansive
range of financial options from private banks could potentially offer distinct benefits to LGUs.
This ledslative proposal argues for extending the freedom to LGUs to engage with a variety of
private banking institutions. This will not only diversify their financial options but also enhance
their  revenue-generating  capabihies  and  overall  efficaey  within  their  jurisdictions.  Such  an
approach stands to benefit not only the LGUs but also the fiscal health of the national government
as a whole.
It is worth noting that other countries allow their local governments to deposit public fimds in
private financial institutions, while implementing adequnte safeguards to protect these funds. For
example, in the United States, the Federal Reserve System Q]RS)  collaborates with the Federal
Deposit  Insurance  Corporation  @DIC)  to  insure  local government  deposits.  Similarly, in  the
United Kingdom,  the Chartered Institute of Pubhc Finance and Accountancy  (CIPFA)  issues
guidelines  to  promote  transparent,  accountable,  and  sound  financial  management  by  local
government. Accordingly, this bill mandates the Department of Finance OOF) and the Bangko
Sentral ng Pilipinas  asp)  to establish a comparable   framework for the safekeeping of pubhc
funds in the Philippines.


Given  that  this  bin  introduces  an  innovative  approach,  the  estabhshment  of  an  Oversight
Committee  is  deemed  necessary  to  ensure  its  implementation  aligns  with  the intended  policy
objectives.
Summauly, this leedshtive measure seeks to empower LGUs with the choice to conduct banking
activities with private financial institutions, while instituting adequate safeguards to protect public
funds. It also seeks to bolster local economic development and service delivery by widening access
to various financial options and encouraalng investment.
Thus, support for the enactment of this measure is hereby earnestly sohated.
REP. EDUARDO R. RAMA, TR.
I econd District, City Of Cebu


Repubhc of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila
NINETEENTH CONGRESS
Second Regular Session
HouseBillNo.     9?2'i
Introduced by
REPRESEr`ITATIVE EDUARDO ROA RAMA, TR.
2nd District, Cebu City
AN ACT AUTHORIZING LOCAL GOVERNMENT UNITS TO ENGAGE
IN BANRING Ac'rlvlTIEs AND OTHER FINANclAL TRANSAcrloNs
WITH PRIVATE UNIVERSAL AND/OR COMMERCIAL BANKS
Be it enacted ky the Serlate and House Of Rapreserltatiues Of the Pbiftypim in Cong]resf asseml}led:
SECTION 1.        Short Title. -This Act shall be known as the "LGU Authority
to Bank Act''.
SECTION 2.        Declaration of policy. -It is the pohcy of the state to uphold
and strengthen the local autonomy of local government units qGUs). The State recognizes the
vital  role  of LGUs  as  partners  of the  national  government  in  nation  building  and  national
development goals.
Towards this end, the State also recognizes the role of the private banking sector in
aiding  the  LGUs  to  enhance  its  local  and  fiscal  autonomy,  and  to  improve  efficiency  and
innovation in financial management leading to improved service and economic development at
the local level.
SECTION 3.        Definition of Terms. -For purposes of this Act, the following
terms shall be defined as follows:
a.     `U#z.grt7rt4/ Bcz#A" shall refer to an entity engaged in the lending of funds obtained
in the forms of deposits and has the authority to exercise, in addition to the powers
authorized for a commerdal banks as defined in Sec. 3Q) of this Act, the powers
of an investment house as provided in existing laws, the power to invest in non-
allied enterprises as provided in Republic Act No. 8791  or the General Banking
Act of 2000, and under the Bangko Sentral ng Pilipinas Manual of Regulations of
Banks asp MORB), the power to own up to one hundred percent (100%) of the
equity in a Thrift Bank, a Rural Ban]s a financial allied enterprise, of a non-financial
allied enterprise, and in case of publicly-listed universal banks, the power to own
up  to  one  hundred percent  (100%)  of the voting  stock of only one  (1)  other
Universal Bank or Commercial Bank.
b.     "Coz27z77cr#.cz/Bc7#le " shall refer to an entity engaged in the lending of funds obtained
in the form of deposits and have, in addition to the general powers incident to


corporations,  all  such powers  as  may be necessary to  carry on  the business  of
commercial  banking  such  as   accepting  drafts   and  issuing  letters   of  credit;
discounting and negotiating promissory notes, drafts, bills of exchanges, and other
evidences of debt; accepting or creating demand deposits; receiving other types of
deposits and deposit substitute; buying and selling foreign exchange and gold or
silver bullion; acquiring marketable bonds and other debt securities; and extending
credit, subject to such rules as the Monetary Board may promulgate. These rules
may include  the  detemination  of bonds  and  other  debt  securities  eliedble  for
investment, the maturities and aggregate amount of such investment. Commercial
Banks, as provided for under the BSP MORB, may also exercise or perform any
or all of the following: (a) invest in the equities of allied enterprises as provided in
Sections 31 and 32 or Republic Act No. 8791; a) purchase, hold and convey real
estate as specified under Sections 51  and 52 of R.A.  8791; (c) receive in custody
funds, documents, and valuable object; (d) act as financial agent and buy and sell,
by  order  of  and  for  the  account  of  their  customers,  shares,  evidences  of
indebtedness and all types of securides; (e) make collections and payments for the
account of other and perform such other services for their customer as are not
incompatible with  banking business;  (D  upon  prior  approval  of the  Monetary
Board, act as manaalng agent, adviser, consultant or administrator of investment
management/advisory/consultancy accounts;  ©  rent out safety deposit boxes;
and a) engage in quasi-banking functions.
c.      `GoziGowzz7c#Z  Fz.#c7##.cz/  J#ji/z./#/z.o#"  (GFI)   shall   refer   to   financial   institutions   or
corporations in which the government drectly or indirectly owns majority of the
capital stock and which are either: (1) realstered with or directly supervised by the
Bangko   Sentral  ng  Pilipinas;   or  are   (2)   couecting  or  transacting   funds   of
contributions ffom the pubhc and thereafter placing them in financial instruments
or assets such as deposits, loans, bonds and equity, as defined under Section 3(in)
of Republic Act No. 10149 or the GOCC Governance Act of 2011.
SECTION 4.       Authority of Local Government units to Engage in Activities
and Other Financial Transactions with Preferred Private Universal Commercial Banles or
Government Financial Institutions. - LGUs shall be authorized to engage in banking and
other financial transactions with their prefeffed banking or financial institution, whether it is a
private  Universal  and/or  Commercial  Bank  (UCB),  or  a  qualified  Government  Financial
Institution (GFD. Provided, that the private UCB meets the defined criteria set by the Bangko
Sentral ng Pilipinas asp) to qualify for the authority to bank with LGUs.
SECTION 5.        Selection of private universal and/or commercial Banking
Institutions. ~ The Department of Finance OOF) and the BSP shall define specific stringent
crite]:ia that private banking institutions must comply with to be elialble for consideration.  In
addition to a high colnpliance rating as set by the BSP,  the selection shall include factors such as
the UCB's financial stabhity, reputation, experience, technoloedcal capabilities, customer service,
and adherence to regulatory requirements on consumer protection, data privacy, risk management,
and cybersecurity.
Based on the predetermined criteria and the operational capacity of the UCBs, the
BSP   shall  create  an  initial  shortlist  of  private  banks   that  meet  the  established  elisibhity
requirements. The shortlist of banks authorized to transact with LGUs shall be pubhshed on the
BSP's official website. The shortlist shall be subject to periodic review and updates as deemed
necessary by the BSP.


The predetermined criteria mentioned above is a continuing requirement for a UCB
to be  authorized to  transact with an LGU.  The BSP  shall establish  a monitoring and review
mechanism to ensure that the UCBs on the shortlist continue to meet the established criteria.
Subject to Section 8 hereof, the BSP shall have the authority to remove a UCB from the shortlist
once it is found to be non-compliant with the estabrished criteria.
SECTION 6.        Roles  of  Private  Universal  and/or  Commercial  Banhing
Institutions. -Private banks, by engaalrig in transactions with LGUs, hereby undertake to fulfill
these  roles  and  responsibihies  to  ensure  transparency,  accountability,  and  prudent  financial
management.  They  shall prioritize  the protection  of LGUs'  funds  and assets  and uphold  the
highest standards of integrity in their dealings with LGUs.
UCBs   shall  implement  robust  risk  management  measures  to  safeguard  against
unauthorized access, fraud, and cybersecurity threats. Further, they shall maintain accurate records
of LGUs'  financial  transactions  and  make  them  available  for  examination  and  audit  by  the
appropriate regulatory bodies or oversight committees. Finally, private banking institutions shall
cooperate with  the oversight committee, regulatory bodies, and LGUs in providing necessary
information,  reports,  and  data  related  to  LGUs'  transactions,  ensuring  transparency,  and
facilitating effective monitoring and evaluation.
SECTION 7.       Authorized Bank Reporting Requirement. ~ Private banking
institutions conducting transactions with LGUs sham be mandated to submit regular reports to the
BSP. These reports shall include detailed records of transacdons, interest rates, fees, and other
relevant financial data.
SECTION 8.        Revocation  of  Bank  Authority;   Removal  from   Shortlist;
Continuation of Pending Transactions. - In the event that a private banking institution is
removed from the rist of authorized banks to engage with LGUs, the removed private banking
institution shall promptly notify all affected LGUs of the revocation of its authority to conduct
banking transactions. This notificadon shall include a proposed plan for the completion of any
pending transactions within one (1) year from the date of revocation, and the procedures necessary
for the transfer of funds and financial records.
The  plan   for  completion  of  pending  transactions  must  comply  with  existing
contractual obhgations under Philippines law and shall be subject to approval by the BSP. Failure
to complete pending transactions within the stipulated one-year period will result in additional
actions and/or penalties as prescribed by the BSP.
For any financial transactions initiated prior to the revocation of banking authority
which cannot be completed within the one-year period, the affected LGU shall have the option to
select  an  alternative  accredited  private  banking institution  to  assume  responsibihty  for  these
pending transactions. Such a transition shall also be in strict comphance with existing contractual
obligations and commercial laws, and with prior notification to the BSP.
In the event that the affected LGU shooses to transition to an alternative authorized
private banking institudon, the removed private banking institution is mandated to cooperate fully
in transferring all pending transactions, funds, and financial records to the selected alternative
insrfution.


Any  outstanding  balance  must  be  transferred  to  the  alternate  authorized  private
banking institution, fonowing procedures approved by the BSP, within the rermining period of
the stipulated one-year timefinne.
Upon the successful transfer of all responsibihies and outstanding balances  to the
altemative authorized banking insrfution, or upon completion of all pending transactions within
the one-year period, the removed private banking institution must submit a comprehensive report
to the BSP, the Commission on Audit (COA), and the affected LGUs. This report shall detail the
status  of  all  pending  and  completed  transactions,  any  outstanding  balances,  and  the  final
disposition of funds.
SECTION 9.        Provision of a Regulatory Framework. -The Department of
Finance OOF), in coordination with the Bureau of Local Government Finance @LGF), and the
BSP, independently or jointly, shall provide for the regulatory framework under which LGUs shall
be authorized to enter into banking and other financial transactions with their prefelfed UCB or
GFI, in comphance with the dechred pdicies of this Act.
SECTION10.       Oversight    Committee.    -    In    ahignment    with    existing
constitutional and statutory provisions, an Oversight Committee sham be established to ensure the
proper implementadon, monitoring, and enforcement of the provisions of this Act.
The Oversight Committee shall be comprised of the fonowing:
a.    One (1) representative from the DOF, designated by the Secretary of Finance;
b.    One (1) representative from the BSP, designated by the Governor of the BSP;
c.    One   (1)   representative   from   the   Department   of  the   Interior   and   Local
Government @ILG), designated by the Secretary of the DILG;
d.    One (1) advisory representative from the  COA, designated by the Chalxperson of
the COA, to provide experise on best practices for auditing and accountabihty;
e.    One (1) advisory pardcipant from private banking institutions, nominated by the
Bankers Association of the Philippines, to offer industry expertise and insights;
and
f.    One (1) advisory participant from a recognized non-governmental organization or
advocacy  group   focusing   on   financial  inclusion   and   consumer  protection,
nominated  by  the  DOF,  BSP,  and  DILG,    to  ensure  good  governance  and
transpareney.
The Oversisht Committee shall have the following functions and responsibilities :
a.    Monitor  the  compliance  of private  banking  insrfutions  and  LGUs  with  the
provisions of this Act and any implementing guidelines or regulations.
b.   Except representatives acting in an advisory capacity, coordinate with the BSP and
other involved agencies to conduct regular audits of the authorized private banling
institutions    and    their    transactions    with   LGUs    to    ensure    transparency,
accountability, and prudent financial management. Provided, that the audits and
monitoring  of  the  Oversight  Committee  are  supplementary  to,  and  not  a
replacement   for,   the   independent   audits   conducted   by   consrfutional   and
regulatory bodies.
c.    Collaborate    with    relevant    government    agencies,    regulatory    bodies,    and
stakeholders   to   promote   knowledge   sharing,   capacity   building,   and   the
dissemination of best practices in LGUs' engagement with UCBs.


d.   Recommend  penalties  for  non-compliance  and  provide  advisory  notices  for
corrective measures, in line with constitutional and statutory limitations.
e.    Review and suggest amendments to this Act, as necessary, to ensure relevance and
effectiveness.
f.    Provide   annual   reports   to   the   relevant   lealslative   bodies,   outlining   the
performance, challenges, and recommendations related to the implementation of
this Act.
SECTI0N11.       Transparency    and    Accountability.    -   The    successful
implementation of this Act rehes on the conective commitment to transparency and accountabihty
by all parties involved, including private banking institutions, LGUs and the relevant government
agencies.
LGUs shall ensure transparency and accountability in their financial transactions with
private banking institutions. They shall adopt proper financial management practices, maintain
accurate records, and submit necessary reports to regulatory bodies or oversight committees, as
required.
There  shall be regular reporting,  disclosure, periodic  audits,  and  dissemination  of
information shall be encouraged among all paries involved to foster a culture of transparency and
accountability in LGUs' banking activities.
SEC'I'ION 12.       Prohibition  on  Conffict  of Interest.  -No  private  banking
insrfution shall be granted authority to engage in financial transactions with an LGU if any elected
official of the relevant LGU is within the fourth civil degree of consanguinity or affinity with any
official or major shareholder of the private banking institution. Any private banking institution
authorized  to  transact with LGUs  but has  subsequently violated this  provision  shall have its
authority revoked.
SECTION 13.       Financial Literacy and capacity-Building. -The DOF, in
coordinadon with the BLGF, shall provide capacity-building programs, training, and technical
assistance to LGUs to enhance their financial management skills, and to enable LGUs to make
informed decisions, effectively manage their finances and engage in productive partnerships with
the qualified private banhing institutions.
SECTION14.       Implementing  Rules  and  Regulations.  -The  DOF,  in
coordination with the BLGF and the BSP, shall promulgate the rules and regulations to implement
this Act within ninety (90) days from the effectivity of this Act.
SECTION 15.       Repealing clause. -An laws, decrees, executive orders, rules
and regulations, or parts thereof inconsistent with the provisions of this Act are hereby repealed
or modified accordingly.
SECTION 16.       Separability clause. -If, for any reason, any section of this Act
shall be deemed unconsrfutional or invalid, the other sections or provisions shall not be affected
and shall remain in force and in effect.
SECTION 17.        Effectivity clause. -This Act sham take effect after fifteen (15)
days  from its publication in the Official Gazette or in at least two  (2)  national newspapers  of
general circulation, whichever comes earlier.
A|Jproued.