Law Summary
State Policy on Deposit Insurance
- The State mandates strengthening mandatory deposit insurance.
- The government supports PDIC in safeguarding depositors and banking soundness.
- PDIC enjoys fiscal and administrative autonomy despite being a government entity.
Board of Directors: Composition and Authority
- Board consists of 7 members: Secretary of Finance (Chair), BSP Governor, PDIC President (Vice Chairman), and 4 private sector appointees.
- Appointed members serve 6-year terms with eligibility for one reappointment.
- Members must meet integrity, competence and age qualifications; barred from holding bank office during and one year after tenure.
- Board approves PDIC policies, regulations, human resource systems, compensation, budget, DIF reserves, organizational setup, early separation plans, training programs.
- Board decisions require quorum of 4 members and majority concurrence.
- Disclosure and recusal rules govern conflicts of interest.
President of the PDIC: Powers and Duties
- Serves as Chief Executive Officer and Vice Chairman of Board.
- Appointed by the President of the Philippines for a 6-year term.
- Salary fixed by the President, higher than any other PDIC executive.
- Represents PDIC in all dealings and legal proceedings.
- Assisted by Vice President and other officers.
Definitions of Key Terms
- Definitions include: assets, bank, closed bank, creditor, deposit, insured bank and deposit, liquidation, receiver, payout, resolution, risk-based assessment, and others.
- Insured deposits capped at PhP 500,000 per depositor including joint accounts.
- Certain deposits excluded from insurance such as investment products, fraudulent accounts, unlawful proceeds.
Deposit Insurance Coverage
- All deposit liabilities of banks receiving deposits are insured.
- Can conduct risk evaluations on capital-deficient banks to assess risks to Deposit Insurance Fund (DIF).
Assessment of Member Banks
- Board sets assessment rate, capped at 0.2% per annum.
- Semi-annual assessments calculated on bank liabilities for deposits.
- Risk-based assessment system may be imposed up to 0.4% per annum.
- Banks failing to pay assessments after notice are subject to legal action and administrative sanctions.
- Corporation authorized to collect special assessments to maintain DIF target.
Sanctions Against Unsafe Banking Practices
- PDIC investigates unsafe or illegal banking practices.
- May issue cease and desist orders requiring correction within 45 or 15 days depending on severity.
- Can terminate insurance status for non-compliance, affecting deposit insurance coverage.
- Deposits made after termination of insured status are not insured.
Authorities and Functions of PDIC Board
- Powers include approving rules, human resources management, compensation, policies on travel and spending, budgeting, target DIF level setting, structural revision, employee separation programs, and sponsoring training.
Legal Assistance to PDIC Personnel
- PDIC may underwrite legal costs for its officials and agents for actions done in good faith related to official duties.
Bank Resolution Process
- Resolution triggered by failure of prompt corrective action or bank request.
- PDIC and BSP coordinate on resolution efforts.
- Resolution methods include purchase and assumption of assets/liabilities, merger, or qualified investor acquisition.
- Resolution decisions consider fair asset valuation, least cost to DIF, and depositor interest.
- PDIC may hire external experts to assist.
- Bank resolution exempted from Bulk Sales Law provisions.
Liquidation of a Closed Bank
- PDIC acts as receiver upon Monetary Board closure order.
- No rehabilitation of closed banks allowed.
- Liquidation modes: conventional or purchase of assets/assumption of liabilities.
- Receiver empowered to control assets, bring legal actions, borrow, pay expenses, modify loans, and distribute assets to creditors.
- Receiver protects privacy of bank assets and documentation.
- Upon closure, bank existence continues only for liquidation purposes; powers of officials terminated.
- Assets in custody of receiver are protected from court processes.
- Employee relations terminated; payment of separation benefits from bank assets.
- Suspension and mediation of pending cases involving closed bank.
- Enforcement of court decisions stayed; claims to be filed with liquidation court.
Notice of Closure and Takeover
- PDIC serves notice of closure to bank officers or posts notice.
- Has authority to take physical possession including use of reasonable force.
- Bank officers and employees must immediately surrender assets and information.
- Law enforcement and local government to assist if requested.
Purchase of Assets and Assumption of Liabilities
- PDIC may facilitate the purchase and assumption by another bank without court approval.
- Branch licenses disposition subject to BSP approval.
- Such PDIC determinations are final and executory.
Conventional Liquidation Procedures
- Receivership includes asset evaluation, verification, management and conversion.
- Receivers may register, inspect, value and dispose assets via bidding or negotiated sale.
- Agencies are directed not to transact assets of closed banks without receiver consent.
- Assets may be invested in government securities or investment-grade instruments.
- Proceeds of sale of bank licenses for creditors.
- Petition for assistance in liquidation filed ex parte with the RTC.
- Claims must be filed with receiver within 60 days; disputed claims adjudicated by liquidation court.
- Contingent claims not paid under final asset distribution plan.
- Six-month winding up period for creditors and stockholders to claim assets; unclaimed assets turn over to Bureau of Treasury.
- Receiver maintains records for six months post-distribution.
Dividend Declaration and Use of Deposit Insurance Fund
- PDIC builds DIF to target levels set by Board, subject to periodic review.
- Dividends remitted to government only after target DIF is reached.
- Assessment collections are not income for dividend computation.
- Dividend rate from other income sources is at least 50%.
Payment of Insured Deposits
- Upon closure, PDIC pays insured deposits by cash or transfer deposit in other bank.
- May require proof of claims or court determination for validity.
- Delay in settlement due to PDIC bad faith or negligence subjects responsible personnel to imprisonment.
Subrogation Rights of PDIC
- Upon deposit payment, PDIC is subrogated to depositor claims against closed bank.
- Depositors retain claim for uninsured portions.
- PDIC payments are preferred credits in liquidation.
Investment and Management of PDIC Funds and Assets
- PDIC invests funds in government obligations and investment-grade foreign securities.
- Bank accounts maintained with BSP or other government fiscal agents.
- PDIC assets exempt from attachment or garnishment.
Authority to Borrow and Issue Bonds
- PDIC may borrow from BSP on agreed terms; interest rate fixed by Monetary Board.
- May borrow from banks for short-term liquidity.
- Authorized to issue bonds and other obligations for liquidity and financial assistance purposes.
- Bonds guaranteed by Government up to twice the DIF amount at issuance.
- Bonds exempt from taxation.
Penalties and Sanctions
- Directors, officers, employees of banks face imprisonment (6-12 years) or fines for offenses including refusal to submit reports, false statements, fraudulent accounts, refusal to turn over records, obstruction, and unsafe practices.
- Depositors and bank officers filing fraudulent claims face penalties ranging from 10 to 20 years imprisonment depending on offense severity and systemic impact.
- Law enforcement or officials who obstruct receivers may be penalized.
Exempting and Transitory Provisions
- PDIC exempted from laws governing salary standardization and position classification.
- Governance Commission oversees performance evaluation and appointments.
- Transitional provisions for current PDIC officials and pending liquidation cases.
Organizational Reorganization and Separation Incentives
- Board may reorganize PDIC with new staffing patterns without preferential rights.
- Separation incentives may be provided in addition to legal benefits.
Separability and Repealing Clauses
- Invalid provisions do not affect the validity of the rest of the Act.
- All inconsistent laws and issuances are repealed.
Effectivity
- The Act takes effect 15 days after publication in official gazette or newspapers.