Llanos, Aliya Cassandra L.

FM 2 - 3096
BSBA – FM 1 February 8, 2023

MILAN ACTIVITY 1

In 2022, Bangko Sentral ng Pilipinas shuts down 9 (nine) “problematic” banks including Rural
Bank of Galimuyod (Ilocos Sur) Inc., Rural Bank of Polomolok (South Cotabato), Banco Rural De
General Tinio in Nueva Ecija, Farmers Savings and Loan Bank based in Bulacan, Metro-Cebu Public
Savings Bank, Rural Bank of Mahaplag (Leyte), Rural Bank of Salcedo (Ilocos Sur), Rural Bank of San
Lorenzo Ruiz (Siniloan), and Rural Bank of San Nicolas (Pangasinan) where BSP’s bank closure orders
almost tripled from the 5 (five) bank closure orders in 2020 (Agcaoili, 2023). With the prevailing collapse
of banks in the industry, clients and depositors become worrisome and fearsome of the possibility that
they will be left with nothing when banks are incapacitated to address their liabilities to clients. Thus, the
Philippine Deposit Insurance Corporation was created through Republic Act No. 3591 of 1963 to provide
insurance for all deposits of all banks in the country to protect depositors by providing the amount
recoverable. PDIC ensures the prompt payment of the insured deposits, oversees bank operations, and
applies efficient management of receivership and liquidation functions of closed banks (ordered by the
BSP) that no longer may be rehabilitated, re-opened, or permitted to resume banking business. All
operating banks are members of PDIC as membership to the corporation is mandatory; hence, the
reassurance of the insurance coverage.

To strengthen the implementation of the PDIC charter, Republic Act No. 9576 of 2009 accounts
for the amendments of the PDIC Charter (Republic Act No. 10846) that seeks an increase of the
maximum deposit insurance coverage to protect the depositors’ money in the unlikely event of a bank
failure or incapable of meeting the withdrawal demands (such as insolvency and bankruptcy). The
amendment’s essentiality lies on the additional measures and extended scope of responsibility of the
PDIC to aid in its role to boost public confidence in the banking industry, to protect the banking industry
and its depositors from illegal machinations and closures, and attain economic stability. Salient amended
provisions that ensures the fulfillment of PDIC’s tasks are as follows:

A) The corporation shall pay deposit insurance on valid deposits (in reference to C) up to Php
500,000 per depositor of a closed bank. The initiative brought about by Section 4 (g) of RA
3591 where the corporation and national government halve the insurance payment in the first
3 (three) years of its implementation benefits the corporation, congress, and the depositor in
testing the Charter’s effectivity.

B) The corporation may adjust the Maximum Deposit Insurance Coverage (MDIC), subject to
the approval of the President of the Philippines, insofar that the nation is experiencing an
economic crisis that threatens the monetary and financial stability of the banking system.
Through observation, the provision is silent in regard to the limits and range of the increase
or decrease of the MDIC to account for economic phenomena, however, the MDIC
amounting to Php 500,000 may have already accounted and contemplated for the possibility
of these phenomena.

C) The corporation may determine the type of deposits covered by the deposit insurance; the law
stipulates deposit transactions not qualified for insurance coverage as it is not covered by the
Charter nor the amendment:
 i. Investment products or marketable securities such as bonds, trust accounts, and other
similar instruments.
ii. Accounts and transactions that are fictitious and fraudulent.
iii. Accounts emanating from unsafe, unsound, and suspicious banking practices in
consultation with the BSP.
iv. Deposits that are identified to be proceeds from an unlawful activity.

D) The reclassification of the corporation’s operation under the Department of Finance where
the BSP and PDIC may optimize regulatory coordination efficiency and adopt responsive
resolution methods.

E) The corporation must provide insurance coverage to Islamic banks.

F) The corporation is authorized to sell closed bank assets to FISTCs or Financial Institution
Strategic Transfer Corporations.

G) The corporation is authorized to issue bonds, debentures, and other obligations as a necessity
to provide liquidity for settlement of insured deposits and financial assistance with the
approval of the President of the Philippines. It was stipulated further that the corporation shall
determine the requirements of said obligations.

With the increasing scope of jurisdiction and accumulating obligations to fulfill, RA 9576 further
amended the definition of “deposits” and “insured deposits” where evidence and records of both must
present a corresponding inflow of cash. Its primary dissimilarities are found in its origin and intention,
while deposits are referred to as any unpaid obligation of the bank to the depositor, insured deposits refer
to legitimate unpaid obligation of the bank to any bona fide depositor not exceeding Php 500,000. Further
examination of the PDIC Charter reveals classification of insured deposits which are as follows:

By Deposit Type By Deposit Account By Currency

Savings Single Account Philippine peso
Special Savings Joint Account Foreign currencies considered as part
of BSP’s international reserves
Demand/Checking Account “By”, “In Trust For” or “For the
Account of” another person
Negotiable Order of Withdrawal
Certificate of Time Deposits