Banking Laws

Question:
Does a bank closure also means the permanent loss of the depositor’s
money?
Philippine Deposit Insurance Corporation
Act (RA 3591, as amended)
PDIC is a government instrumentality created in 1963 by virtue of
Republic Act 3591 to insure the deposits of all banks which are entitled
to the benefits of insurance. The latest amendments to RA 3591 are
contained in RA 10846 signed into law on May 23, 2016.

RA 10846 empowered PDIC with stronger authorities to protect the

depositing public and promote financial stability. The new law also
includes important provisions to ensure that the PDIC remains
financially and institutionally strong to fulfill its mandate under its
Charter.
Philippine Deposit Insurance Corporation
Act (RA 3591, as amended)
The PDIC now has the authority to help depositors have quicker access
to their insured deposits should their bank close; resolve problem banks
while still open; hasten the liquidation process for closed banks; and
mete out stiffer sanctions and penalties against those who engage in
unsafe and unsound banking practices.

Note: The PDIC is an attached agency of the Department of Finance.

Philippine Deposit Insurance Corporation
Act (RA 3591, as amended)
Simply speaking, PDIC performs three basic functions acting as:

deposit insurer co-regulator of banks receiver and liquidator of closed banks.

Philippine Deposit Insurance Corporation
Act (RA 3591, as amended)
INSURED DEPOSITS
This means the amount due to any bona fide depositor for legitimate
deposits in an insured bank.

Maximum deposit insurance coverage

PDIC shall pay deposit insurance on all valid deposits up to the
maximum deposit insurance coverage of P500,000.00 per depositor of a
closed bank.
Philippine Deposit Insurance Corporation Act
Accounts maintained in the same right and capacity for a depositor’s
benefit, whether in his own name or in the name of others, are covered
by deposit insurance.

Deposits are considered valid upon the determination by the PDIC,

based on bank records, that the deposits were made with a
corresponding inflow of cash.
Philippine Deposit Insurance Corporation Act
COVERAGE| By Deposit Types:
• Savings
• Special Savings
• Demand / Checking
• Negotiable Order of Withdrawal (NOW)
• Time Deposits
Philippine Deposit Insurance Corporation Act
COVERAGE| By Deposit Account:
• Single Account
• Joint Account
• Account “By”, “In Trust For” (ITF),
and “For the Account of” (FAO)
Philippine Deposit Insurance Corporation Act
COVERAGE| By Currency:
• Philippine Peso
• Foreign currencies considered as part of BSP’s international reserves
Philippine Deposit Insurance Corporation Act
What is not covered?
• Investment products such as bonds, securities and trust accounts.
• Deposit accounts which are unfunded, fictitious or fraudulent.
• Deposit products constituting or emanating from unsafe and unsound
banking practices.
• Deposits that are determined to be proceeds of an unlawful activity as
defined under the Anti-Money Laundering Law.
Philippine Deposit Insurance Corporation Act
What are unsafe banking practices?
• Solicitation and acceptance of deposits outside bank premises,
including branches, without BSP authority.
• Non-compliance with minimum identification and documentation
requirements from depositors in the opening of deposit accounts
(Anti-Money Laundering Law).
Philippine Deposit Insurance Corporation Act
What are unsafe banking practices?
• Allowing depositors to deposit, withdraw, and/or transfer funds
without proper documentation such as duly accomplished deposit or
withdrawal forms.
• Granting high interest rates, when bank has: (i) negative unimpaired
capital, and (ii) either a liquid assets-to-deposits ratio of less than 10%
or an operating loss.
Philippine Deposit Insurance Corporation Act
What is not covered?
Note: bank losses due to theft, fire, closure by reason of strike or
existence of public disorder, revolution or civil war, are not covered by
PDIC.
Philippine Deposit Insurance Corporation Act
FILING:
Claims must be filed with the closed bank within sixty (60) days from publication of
notice of closure. However, payment of said claim will depend on the bank’s available
assets and approval of the Liquidation Court.

The claim for insured deposit should be settled within six (6) months from the date of
filing provided all requirements are met but the claim must be filed within twenty-four
(24) months after bank takeover.

The six-month period shall not apply if the documents of the claimant are incomplete or if
the validity of the claim requires the resolution of issues of facts and law by another
office, body or agency, independently or in coordination with PDIC.
 APEX Bancrights holdings v. Bangko Sentral
(J.Perlas-Bernabe)
The Monetary Board has the power and authority to close banks and
liquidate them when public interest so requires and such finding will be
final and executory and it cannot be set aside unless the MB acted with
grave abuse of discretion.
 APEX Bancrights holdings v. Bangko Sentral
(J.Perlas-Bernabe)
The power and authority of the MB to close banks and liquidate them
thereafter when public interest so requires is an exercise of the police
power of the State. Police power, however, is subject to judicial inquiry.
It may not be exercised arbitrarily or unreasonably and could be set
aside if it is either capricious, discriminatory, whimsical, arbitrary,
unjust, or is tantamount to a denial of due process and equal protection
clause of the Constitution.
APEX Bancrights holdings v. Bangko Sentral
(J.Perlas-Bernabe)
The actions of the MB shall be final and executory and may not be
restrained or set aside by the court except on petition for certiorari on
the ground that the action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or excess of
jurisdiction.