PDIC Act (RA 3591): Protecting Bank Deposits

• aggregate amount of unclaimed balances exceeding P1,000,000.00 should be given to the Treasurer of the Philippines

PDIC Act (RA 3591, as amended)

• The Philippine Deposit Insurance Corporation (PDIC) was created in 1963 by virtue of RA 3591 to insure bank deposits
• PDIC is under the Department of Finance
• RA 10846, signed into law on May 23, 2016, contains the latest amendments to RA 3591
• RA 10846 gave PDIC stronger authorities to protect depositors and promote financial stability
• Provisions in the new law ensure PDIC remains financially and institutionally strong
• PDIC can help depositors access insured deposits quickly if their bank closes
• PDIC can resolve problem banks that are still open
• PDIC can hasten the liquidation process for closed banks
• PDIC can impose sanctions and penalties against those in unsafe banking practices
• Depositors can access insured deposits faster if their bank closes
• PDIC can pay insured deposits without netting out depositors’ loan obligations, and based on deposit evidence, instead of relying on the closed bank's records
• PDIC can promote financial inclusion through early intervention in problem banks or open bank resolution
• The law enhances chances of creditors recovering claims from closed bank assets by preventing asset dissipation during the bank closure to liquidation transition
• The 90-day receivership period is eliminated and PDIC can proceed directly to liquidation

PDIC Functions

• Deposit Insurer: Promote and safeguard the depositing public's interests by providing permanent and continuing insurance coverage on all insured deposits
• Co-regulator of banks: As a bank regulator, PDIC can examine and investigate banks
• Receiver and liquidator of closed banks: PDIC controls, manages, and administers the affairs of the bank as receiver

Insured Deposits

• Amount due to a bona fide depositor for legitimate deposits in an insured bank, net of obligations to the insured bank as of the closure date
• Insurance does not exceed P500,000
• Examples of Deposit Types: Savings Deposit, Special Savings, Demand/Checking Account, Negotiable Order of Withdrawal (NOW), Certificate of Time Deposits, Foreign currency Deposit

Adjustment of Maximum Deposit Insurance

• The amount of coverage may be adjusted
• This is provided if the Monetary Board determines a condition threatens monetary and financial stability of the banking system as defined under RA No. 3591
• This is provided if there is approval by a unanimous vote of the PDIC Board of Directors in a meeting called for the purpose and chaired by the DOF Secretary
• This is provided if the President of the Philippines approves

Systemic Risk (PDIC Charter Section 22)

• Defines "systemic risk" as the possibility of one bank's failure to settle net transactions triggering a chain reaction and a general shutdown of clearing and settlement
• Also describes the likelihood of sudden collapse of confidence in the banking or financial system with potentially large economic effects

Coverage

• Insures deposit liabilities of any bank or banking institution engaged in receiving deposits on the PDIC Act's effective date
• Insures banks or banking institutions which engage receiving deposits thereafter

Deposit Accounts Not Entitled to Payment (SHA OUI)

• Deposit products resulting from splitting of deposit are not entitled to payment

Splitting of Deposit

• Splitting occurs when a deposit account exceeds P500,000, and it is broken down and transferred to two or more accounts in the names of persons or entities who have no beneficial ownership in the transferred deposits
• Splitting is within 120 days immediately preceding or during a bank-declared bank holiday, or immediately preceding a closure order by the Monetary Board
• Splitting occurs for the purpose of availing the maximum deposit insurance coverage
• Splitting is a criminal act punishable by imprisonment (6-12 years) and/or a fine (P50,000-P10,000,000)
• Deposit products or money placements by a foreign bank's head office in its Philippine branch are not entitled to payment
• Deposits that are proceeds of an unlawful activity as defined under RA 9160 (Anti-Money Laundering Act) are not entitled to payment
• Deposits payable outside the Philippines (e.g., in foreign branches) are not entitled to payment
• Deposit accounts or transactions which are unfunded, fictitious, or fraudulent are not entitled to payment
• Deposit accounts from unsafe and unsound banking practice/s, as determined by PDIC with BSP consultation, after due notice, hearing, and publication of a cease and desist order by PDIC, are not entitled to payment
• Investment products like bonds, securities, and trust accounts are not entitled to payment
• Illustration: Mr. X has P250,000 in ABC Bank's Manila branch and P300,000 in ABC Bank's US branch; only the P250,000 is insured

Determination of the Amount Due

• Entitlement to deposit insurance is on a per bank basis
• Each bank account is insured up to P500,000
• All deposits in the bank maintained in the same right and capacity for depositor's benefit are added together in determining the insured amount regardless of account type
• "By" Account: Juan by Pedro - Juan is the depositor
• "ITF" Account: Juan ITF Pedro - Pedro is the depositor
• "FAO" Account: Juan FAO Pedro - Pedro is the depositor
• All individual accounts of a depositor are insured up to a maximum of P500,000

Joint Accounts

• Joint accounts are insured separately from individually owned deposit accounts
• If held by two or more natural/juridical persons, the maximum insured deposit is equally divided, unless there is a different sharing stipulation documented
• If held by a juridical person/entity jointly with one or more natural persons, the maximum insured deposit is presumed to belong entirely to the juridical entity
• The aggregate interest of each co-owner over several joint accounts is subject to the maximum insured deposit of P500,000
• P500,000 entitlement to joint deposits is separate from the P500,000 entitlement to individually owned accounts
• Maximum insurance coverage is P1,000,000

Procedure for the PDIC

• PDIC starts determining insured deposits due after actual takeover of the closed bank
• PDIC provides notice to depositors of the closed bank regarding insured deposits
• PDIC publishes the notice once a week for at least three consecutive weeks in a newspaper of general circulation

Certificate of Deposit

• No owner/holder of any negotiable certificate of deposit shall be recognized as a depositor unless registered as owner/holder in the books of the issuing bank

Claim

• Claims are filed during claims settlement operations period, announced in Notice to Depositors
• Those required to file claims: Depositors with balances of more than Php100,000; Depositors with obligations with the closed bank; Depositors with balances less than Php100,000 with no updated addresses; Depositors who maintain their accounts in business entities names; Depositors with accounts not eligible for early payment
• Those NOT required to file claims: Depositors with balances of Php100,000 or below, with no obligations, and complete/updated addresses
• Small depositors are entitled to immediate/early payment of deposit insurance via postal money orders

Who Should Sign the Insurance Claim?

• Depositor if 18 years or older
• Parent if depositor is below 18 years old
• Agent in "By" accounts
• Trustee in "In Trust for (ITF)" accounts
• Each depositor in joint accounts ("Or", "And/Or", "And")

Period to File and Enforce Claim

• Period to file claim - 2 years from actual takeover of the closed bank
• Period to enforce claim - 2 years after the 2-year period to file a claim
• PDIC may require proof of claims
• PDIC may require court determination

Effects of Non-Filing

• All rights against PDIC are barred
• All rights against the closed bank and its shareholders revert to the depositor
• PDIC is discharged from any liability

Modes of Payment

• By cash
• By transferred deposit in another insured bank

Withholding of Payment

• PDIC may withhold payment for liability of depositor as stockholder or liability to the closed bank/receiver

Effect of Payment

• PDIC is subrogated to all rights of the depositor against the closed bank

Dividends and Payments

• PDIC can receive dividends and payments from assets of closed bank and recoveries on stockholder's liability
• Depositor retains claim for uninsured portion

PDIC Charter Section 21

• Payment by PDIC, and payment of transferred deposit shall discharge PDIC and new bank

Preference

• Payments by PDIC are considered preferred credit similar to taxes due to the National Government
• Preference is effective upon liquidation proceedings already commenced

Period for PDIC to Settle Claim

• 6 months from the date of filing the claim
• Failure to settle the claim within 6 months because of abuse, negligence, or bad faith can lead to imprisonment (6 months to 1 year) for responsible directors, officers, or employees
• The period does not apply if the claim's validity requires resolution by another office, body, or agency

The Philippine Deposit Insurance Corporation (PDIC) insures bank deposits, created in 1963 by RA 3591. RA 10846 contains the latest amendments. It gives PDIC stronger powers to protect depositors, resolve troubled banks, and hasten liquidation, promoting financial stability.