Bank depositors entitled to enhanced protection
Under new law
Depositors will have enhanced deposit insurance protection with the signing of the amended Philippine Deposit Insurance Corp. (PDIC) Charter, one of the last laws signed before President Benigno Aquino III steps down next month.
Republic Act No. 10846 or the amended PDIC law not only allowed for the quick release of depositors’ money after bank closure but also empowered PDIC by giving back its authority to terminate the insured status of banks found to have violated the central bank’s unsafe and unsound banking practices.
PDIC President Cristina Que Orbeta said the amended law also gives them more leeway in boosting its deposit insurance fund (DIF) to ensure that more depositors are protected.
“The amendments to the deposit insurance law will ultimately redound to the benefit of the depositing public,” said Orbeta in a statement yesterday.
“The enhanced authorities will afford depositors better protection as PDIC may now address risks posed by problem banks early on,” she said. “This will also enable PDIC to perform its role in maintaining financial stability and managing the DIF.”
PDIC has explained that under the law, depositors will have “quicker access to their insured deposits in the event of bank closure.”
“(This is possible) since PDIC now has the authority to pay insured deposits without netting out depositors’ loan obligations with the closed bank, and based on evidence of deposits and not on the closed bank’s records alone,” said PDIC.
To further protect depositors from unsafe and unsound banking practices of some banks, it helped that the amended law “restored” PDIC’s former authority to un-insure banks guilty of unsafe and unsound banking practices.
Both PDIC and co-regulator Bangko Sentral ng Pilipinas (BSP) have enhanced resolution authorities in that PDIC – by intervention – could detect problematic banks (or banks with capital deficiency) sooner. “(This) will also be able to more effectively promote financial inclusion.”
Under the amended law, creditors will also have a better chance of claiming the assets of a problematic bank which is almost assured of being closed. This should prevent “further dissipation (of close banks’) assets through seamless transition from bank closure to liquidation.”
“The law does away with the 90-day receivership period and allows PDIC to proceed directly to liquidation,” said PDIC. “The immediate assignment of encumbered assets to closed bank creditors, adoption of purchase of assets and assumption of liabilities as a mode of liquidation, and express prohibition on reopening of banks ordered closed by the Monetary Board (of the BSP) will help enhance recovery rate for creditors of closed banks.”