Congress okays hike in deposit insurance coverage to P250,000

The bicameral conference committee headed by Sen. Sergio Osmeña approved yesterday the amended charter of the Philippine Deposit Insurance Corp. (PDIC), increasing from P100,000 to P250,000 the maximum insurance coverage of bank deposits.

The ratification of the new law, however, drew mixed reactions from the financial sector as banks and bank regulators sorted through the amended charter of the PDIC.

Banking sources said that said while the new law increased banks’ deposit insurance coverage, it limited the power of the PDIC to examine banks and removed the legal protection that would have shielded it from recrimination.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura was guarded but forward-looking, saying that the flesh of the newly-approved law would be in the formulation of the implementing rules and regulations.

"I think there is some flexibility embedded in this law," Buenaventura said. "We will have to examine closely how to formulate it so that the BSP and the PDIC net will expand instead of shrink."

The original proposal was to give the PDIC a separate and independent authority to examine banks in coordination with BSP examiners to avoid duplication.

The ratified version, however, did not reflect this authority although it allowed the PDIC to conduct examination of banks with prior approval of the Monetary Board, provided that no bank would be examined by either PDIC or the BSP more than once a year.

Buenaventura said that at the very least, the PDIC and the BSP could work out a system where more banks would be examined by either agency within a single year.

"Right now, the BSP examines only what it can reasonably handle and there are hundreds of banks that sometimes do not get examined except every two years or so," he said.

If both the PDIC and the BSP are allowed to examine banks, Buenaventura said more banks would be covered by the annual checks of either organization. "We can spread ourselves out," he said.

Osmena, who is also the chairman of the Senate committee on banks, financial institutions and currencies, said the amended charter of the PDIC requires the PDIC to use "relevant reports, information and findings of the BSP during the examination of banks" to avoid overlapping of functions between the BSP and the PDIC.

He said that the amended charter also removed the previous civil, criminal and administrative liabilities of the PDIC directors, officers and employees provided that they performed their actions in good faith.

The bicameral conference committee also removed the provision that allows the PDIC, as the receiver of a closed bank, to immediately sell, transfer or convey any or all of its assets to rehabilitate a distressed bank.

"We have to make our financial sector more transparent and harmonize it with the good governance rules at par with international standards. We are trying people to invest here. We have to assure them that the banks will remain stable," Osmena said.

For his part, PDIC president Ricardo Tan expressed initial disappointment at the version ratified by Congress, but said he was optimistic that further discussions with the BSP could remedy the compromises in the new law.

"Everything is a compromise," Tan said. "There are enough good ideas in this law."

The most unfortunate revision, according to Tan, was the deletion of the provision that gave the PDIC some degree of protection from legal suits from vengeful banks.

The Bankers Association of the Philippines (BAP) said that even banks wanted the BSP and the PDIC to have some degree of protection from recrimination in the performance of their duties.

"Otherwise, it may spawn weaker regulators," said BAP executive director Leonilo Coronel. "It’s the international practice for regulators to be able to do their jobs without fear of recrimination."

Coronel however welcomed the limitations imposed by Congress on the PDIC’s power to examine banks.

"Our only concern was to make sure that no bank gets examined more than once a year," Coronel said. "Examination is a costly and time-consuming process. If banks get examined more than once a year, that’s all we’ll have the time for."