House approves doubled amount of insured bank deposits

MANILA, Philippines - Despite findings that the Legacy group of rural banks exploited the deposit insurance law, the House of Representatives approved on final reading last night the proposed doubling of the amount of insured bank deposits to P500,000.

The proposal to double the amount of deposits insured by the state-owned Philippine Deposit Insurance Corp. (PDIC) is contained in a bill whose principal author is Speaker Prospero Nograles.

Before congressmen approved the Speaker’s proposal, opposition Rep. Rufus Rodriguez of Cagayan de Oro introduced an amendment that would prohibit PDIC from paying fraudulent deposits of failed banks.

Under the amendment, PDIC would be authorized to settle only “legitimate” bank deposits.

“This will prevent a repeat of the Legacy scandal, which involved the splitting of accounts so depositors can go around the deposit insurance law,” Rodriguez said.

Citing findings by the Bangko Sentral ng Pilipinas, he said Legacy depositors were told to split their deposits into not more than P250,000 in each account so these would be covered by PDIC.

He said unless PDIC insurance is limited to legitimate deposits, unscrupulous bankers would find a way of going around the new higher level of insured accounts to rob their banks.

“It will then be the taxpayers, through the PDIC, who will be left holding the empty bag,” he stressed.

He pointed out that in the case of the shuttered Legacy group of 12 rural banks, the PDIC is spending nearly P14 billion to pay depositors.

Upon the prodding of congressmen, PDIC president Jose Nograles, brother of the Speaker, promised to scrutinize each depositor’s insurance claim that his agency would settle.

However, he said the Bank Secrecy Law prohibits them from opening the accounts even if the banks have already been closed.

Besides Rodriguez, other congressmen warned their colleagues that doubling the amount of insured bank deposits might send the wrong signal that something is wrong with the banking system.

Makati Rep. Teodoro Locsin Jr. said the banking system “is stable, thanks to President Arroyo, whether the opposition agrees or not.”

He said it is the senators who are pressing congressmen for the approval of the higher deposit insurance.

“I cannot understand why they are so hungry, in fact very hungry, for this proposal,” he said.

Several economists and former finance officials, including Ernest Leung, former finance secretary and PDIC president, have opposed the increase in the amount of insured bank deposits.

The increase would be an incentive for crooks in the banking system to steal deposits and have PDIC bail them out, Leung said.                                – Jess Diaz