Bridge banking proposed

MANILA, Philippines - The Philippine Deposit Insurance Corp. (PDIC) is introducing bridge banking as an additional liquidation mode for closed banks in its proposed amendments to the charter of the Bangko Sentral ng Pilipinas (BSP). PDIC, as statutory receiver and liquidator of closed banks, is authorized to undertake various modes such as purchase of assets, assumption of liabilities and sale to liquidate closed banks.

A bridge bank refers to a temporary bank established and operated to acquire assets and assume liabilities of a failed bank to facilitate its resolution. The bridge bank will be authorized to purchase assets, assume deposits and other liabilities and perform banking functions.

PDIC president Jose C. Nograles said that a bridge bank as a liquidation method will pave the way for an orderly liquidation of the remaining assets of closed banks. It will also ensure that there will be no disruption in banking services hence, maintain depositor confidence. Nograles stressed that bridge bank is a less costly alternative for the PDIC deposit insurance fund (DIF) than payout. The DIF is the source of funds for payout operations when banks close.

Bridge banking is practiced in matured deposit insurance systems such as in the United States, Japan, Taiwan and Korea.

Under the proposed model patterned after the US’ Federal Deposit Insurance Corp. (FDIC), PDIC will be granted authority to incorporate a bridge bank either as a subsidiary or a corporation. The bridge bank will be activated when a bank fails through a grant of temporary bridge bank license by the BSP. The bridge bank then assumes the good assets and insured deposits of the failed bank from the receiver. In turn, the receiver has the responsibility to take on the bad assets and uninsured deposits of the failed bank to undergo the normal liquidation process.

The bridge bank will operate for not more than two years following the date it was granted a banking license, extendible for another year only to conclude pending negotiations for the sale, merger or acquisition of the bridge bank. Otherwise, the bridge bank will also be liquidated.