Increase Deposit Insurance and Strengthen PDIC

PDIC Charter amendments—deposit concept

Section 2 amends Section 4(f) of Republic Act No. 3591 (PDIC Charter) by defining “deposit” as the unpaid balance of money or its equivalent received by a bank in the usual course of business for which it has given or is obliged to give credit to specified deposit accounts, including accounts issued under Bangko Sentral rules and regulations.
Section 2 provides that the PDIC Board of Directors may prescribe, by regulation, other bank obligations that constitute deposit liabilities of the bank consistent with banking usage and practices.
Section 2 excludes from “deposit” any bank obligation payable at the office of the bank located outside of the Philippines for purposes of the Act or for inclusion in total deposits or insured deposits.
Section 2 allows an insured Philippine-incorporated bank, subject to Board approval, to elect to include for insurance deposit obligations payable only at its branch outside the Philippines.
Section 2 states that PDIC does not pay deposit insurance for:
- (1) investment products such as bonds and securities, trust accounts, and other similar instruments;
- (2) deposit accounts or transactions that are unfunded, or fictitious or fraudulent;
- (3) deposit accounts or transactions that constitute and/or emanate from unsage and unsound banking practice/s, as determined by PDIC in consultation with the BSP, after due notice and hearing and publication of a cease and desist order issued by PDIC; and
- (4) deposits determined to be proceeds of an unlawful activity as defined in Republic Act No. 9160, as amended.
Section 2 makes PDIC actions under this provision final and executory and not subject to restraint or setting aside by courts except through a petition for certiorari for actions taken in excess of jurisdiction or with grave abuse of discretion amounting to lack/excess of jurisdiction.
Section 2 imposes a 30-day deadline to file a petition for certiorari, counted from notice of denial of claim for deposit insurance.

Insured deposits and limits

Section 3 amends Section 4(g) of Republic Act No. 3591 to define “insured deposit” as the amount due to a bona fide depositor for legitimate deposits in an insured bank, net of any obligation of the depositor to the insured bank as of the date of closure, but not exceeding Five hundred thousand pesos (P500,000.00).
Section 3 requires PDIC to determine the net amount using regulations prescribed by the Board of Directors.
Section 3 requires aggregation of all deposits in the bank maintained in the same right and capacity for the depositor’s benefits, whether in the depositor’s own name or in the name of others.
Section 3 provides that a joint account is insured separately from individually-owned deposit accounts, regardless of whether the conjunction used is and, or, or and/or.
Section 3 mandates the P500,000.00 maximum insured deposit treatment for joint accounts:
- If held jointly by two or more natural persons or two or more juridical persons or entities, the maximum insured deposit is divided into as many equal shares as there are individuals, juridical persons, or entities, unless a different sharing is stipulated in the deposit document.
- If held by a juridical person or entity jointly with one or more natural persons, maximum insured deposits are presumed entirely belonging to the juridical person or entity.
- The aggregate interest of each co-owner over several joint accounts is subject to the P500,000.00 maximum.
Section 3 denies depositor recognition for negotiable certificates of deposit: no owner/holder of a negotiable certificate of deposit is recognized as a depositor entitled to rights under the Act unless the owner/holder’s name is registered in the issuing bank’s books.
Section 3 allows adjustment of maximum insurance cover during systemic conditions: if a condition threatens monetary and financial stability with systemic consequences (as defined in Section 17), determined by the Monetary Board, the maximum deposit insurance cover may be adjusted in amount, for a period, and/or for such deposit products by a unanimous vote of the Board of Directors in a meeting chaired by the Secretary of Finance, subject to President of the Philippines approval.

Who bears insurance payments

Section 4 provides that the P500,000.00 maximum deposit insurance coverage under Section 4(g) is paid by PDIC.
Section 4 establishes a funding rule for the first three (3) years from the Act’s effectivity:
- The first P250,000.00 of deposit insurance coverage is for the account of PDIC.
- Any amount in excess of P250,000.00 but not more than P500,000.00 is for the account of the National Government.
Section 4 requires Congress to annually appropriate the necessary funding to reimburse PDIC for payments to insured depositors made in excess of P250,000.00.

PDIC examinations and access

Section 5 amends Section 8, paragraph Eighth of Republic Act No. 3591 for bank examinations by PDIC.
Section 5 provides that examinations require prior approval of the Monetary Board.
Section 5 prohibits PDIC examinations within twelve (12) months from the last examination date.
Section 5 authorizes a special examination, in coordination with BSP, if there is a threatened or impending closure of a bank, upon an affirmative vote of a majority of all PDIC Board members.
Section 5 permits, notwithstanding enumerated laws including Republic Act No. 1405, Republic Act No. 6426, Republic Act No. 8791, and other laws, PDIC and/or BSP to inquire into or examine deposit accounts and all information related thereto when there is a finding of unsafe or unsound banking practice.
Section 5 requires maximizing efficient use of relevant BSP reports, information, and findings made available to PDIC, to avoid overlapping efforts.

Liability protection for PDIC actors

Section 6 adds Section 9(h) to Republic Act No. 3591, creating an immunity and indemnification rule.
Section 6 states that PDIC, its directors, officers, employees, and agents are held free and harmless to the fullest extent permitted by law from liability when their actions are not found to be:
- willful violation of the Act,
- performed in bad faith,
- with malice and/or
- with gross negligence.
Section 6 requires indemnification of PDIC actors for liabilities, losses, claims, demands, damages, deficiencies, costs, and expenses arising in connection with performance of functions, without prejudice to criminal liability under existing laws.

Adjusted PDIC numbering

Section 7 renumbers Section 9(h) of Republic Act No. 3591 as Section 9(i).

Deposit Insurance Fund tax treatment

Section 8 adds a new paragraph to Section 17 of Republic Act No. 3591 after subparagraph (b).
Section 8 declares PDIC’s Deposit Insurance Fund must be preserved and maintained at all times.
Section 8 charges all tax obligations of the corporation for a period of five (5) years, reckoned from the Act’s effectivity, to the Tax Expenditure Fund (TEF) in the annual General Appropriation Act, under Executive Order No. 93, series of 1986.
Section 8 grants tax exemption starting on the 6th year and thereafter, exempting PDIC from:
- income tax,
- final withholding tax,
- value-added tax on assessments collected from member banks, and
- local taxes.
Section 9 renumbers Section 17(c) as Section 17(d).

PDIC bond authority and government guarantee

Section 10 amends Section 19 of Republic Act No. 3591 to authorize PDIC, with Presidential approval, to issue bonds, debentures, and other obligations (local or foreign).
Section 10 states issuance may be used for liquidity for settlement of insured deposits in closed banks and for financial assistance as provided in the Charter.
Section 10 requires the PDIC Board of Directors to determine the interest rates, maturity, and other requirements of the obligations.
Section 10 requires PDIC to provide appropriate reserves for redemption or retirement.
Section 10 provides that PDIC notes, debentures, bonds, and other obligations are exempt from taxation as to both principal and interest.
Section 10 requires full guarantee by the Government of the Republic of the Philippines; the guarantee must be expressed on the face of the obligation.
Section 10 caps the government guarantee so that it shall not exceed two times the Deposit Insurance Fund as of the date of debt issuance.
Section 10 grants the PDIC Board power to prescribe rules for issuance, reissuance, servicing, placement, redemption, and registration at the request of holders.

Fraud prevention—deposit splitting

Section 11 amends Section 21, paragraph (f)(5) of Republic Act No. 3591 by expressly including splitting of deposits within prohibited conduct.
Section 11 defines splitting of deposits as when a deposit account with an outstanding balance of more than the statutory maximum insured deposit is broken down and transferred into two (2) or more accounts in the names of persons/entities with no beneficial ownership.
Section 11 limits the prohibited timing window for splitting:
- within one hundred twenty (120) days immediately preceding or during a bank-declared bank holiday, or
- immediately preceding a closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas for availing of the maximum deposit insurance coverage.

PDIC organizational authority

Section 12 adds a new paragraph under Section 2 of Republic Act No. 3591 granting the Board of Directors additional authority.
Section 12 authorizes the Board, as part of its powers, to review the organizational set-up of PDIC and adopt a new or revised organizational structure necessary to undertake its mandate and functions.
Section 12 places this authority within Section 2, item (7).

Joint congressional oversight

Section 13 creates a Joint Congressional Oversight Committee to oversee implementation of the Act.
Section 13 specifies the committee composition:
- chairpersons of the Senate Committee on Banks, Financial Institutions and Currencies and the Committee on Finance,
- five (5) senators appointed by the President of the Senate,
- chairpersons of the House Committee on Banks and Financial Intermediaries and the Committee on Appropriations, and
- five (5) members appointed by the Speaker of the House of Representatives.

Savings, repeal, and effectivity

Section 14 contains a separability rule: invalidity of any provision or application does not affect remaining provisions or their application to other persons or circumstances.
Section 15 provides a repealing clause for inconsistent acts, parts of acts, executive orders, and administrative orders, including parts thereof.
Section 16 provides for effectivity fifteen (15) days after completion of publication in the Official Gazette or in two (2) newspapers of general circulation.

Issuance details

The Act is Republic Act No. 9576, titled “AN ACT INCREASING THE MAXIMUM DEPOSIT INSURANCE COVERAGE, AND IN CONNECTION THEREWITH, TO STRENGTHEN THE REGULATORY AND ADMINISTRATIVE AUTHORITY, AND FINANCIAL CAPABILITY OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC), AMENDING FOR THIS PURPOSE REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED NINETY-ONE, AS AMENDED, OTHERWISE KNOWN AS THE PDIC CHARTER, AND FOR OTHER PURPOSES.”
Republic Act No. 9576 was approved on April 29, 2009.
Section 16 sets the effectivity timing rule using publication completed in the Official Gazette or two (2) newspapers of general circulation, with effectivity after fifteen (15) days.
The Act consolidated Senate Bill No. 2964 and House Bill No. 5911 and was finally passed by the Senate on March 5, 2009 and by the House of Representatives on March 4, 2009.