Lenders support bills to raise deposit insurance coverage
JOHANNA CAMILLE SISANTE, GMANews.TV
11/11/2008 | 06:28 PM
MANILA, Philippines - Philippine financial institutions on Tuesday supported legislation seeking to raise the current P250,000 maximum deposit insurance coverage (MDIC) in light of the global financial crisis but set varying conditions on how the increase will be implemented.
During the hearing of the committee on banks and financial intermediaries, the Bangko Sentral ng Pilipinas (BSP), the Philippine Deposit Insurance Corporation, and the Chamber of Thrift Banks all said raising the MDIC would help boost depositor confidence in banks, but said certain reforms must accompany the increase.
In a position paper signed by deputy governor Nestor Espenilla Jr, the BSP said that even though the country's banking system is still stable, it would support a permanent increase to P500,000, as proposed in House Bills 5315 and 5384.
However, Espenilla said that the corporate structure of the PDIC must be strengthened by expanding its capital base to allow it to cover the proposed increase.
The BSP official likewise said any increase beyond P500,000 should be “considered only as limited and time-bound relief to present market conditions."
“Beyond P500,000, however, cost considerations become significant and must be borne either by an ever larger capital base for PDIC or as an increased cost to depositors. Either of this spillover effect can easily be counterproductive to the intended gains from the legislated initiative," said Espenilla.
Espenilla added there is a so-called moral hazard that must be taken into consideration, saying that as the covered MDIC increases, the fiduciary responsibility of banks is “intrinsically weakened" and depositors lose their incentive to pro-actively monitor their own savings or banks’ quality of service.
The PDIC, meanwhile, said in a statement that it fully backs a three-year increase in the MDIC to as high as P1 million as long as the national government shoulders the P750,000 increase.
The PDIC said that while the three-year period may be extended further, the MDIC increase in other countries covers two to three years only.
The PDIC further said any MDIC increase, even though temporary, should come with reforms "to ensure that the Corporation remains financially secure and operationally adept to fulfill its mandate."
The PDIC sought a P24 billion increase in its capital base, saying that as of December 2007 the Deposit Insurance Funds from which deposit insurance claims are sourced amounts only to P54.3 billion.
“Clearly, there is a need to provide PDIC with additional funding to give the corporation the financial capability to cover the deposit liabilities of banks at any given time even with multiple bank closures. To cover the required insurance reserves for the existing MDIC at P250,000, P24 billion is still needed," said the PDIC.
The PDIC also pushed for its exemption from all taxes on assessment collections. It likewise sought for the clear recognition of its authority to determine what deposit products may be covered by deposit insurance; to conduct independent special examination of banks; to implement an additional mode of liquidation through bridge banking; and to modify its existing corporate structure.
The Chamber of Thrift Banks (CTB), for its part, said they support the increase in the MDIC as long as it will not entail any increase in the premium that will be paid by the banks to the PDIC.
“We believe that the proposed measures will shore up public confidence in the Philippine baking system, especially during this period of financial crisis," said CTB President Alfredo Yao. - GMANews.TV
During the hearing of the committee on banks and financial intermediaries, the Bangko Sentral ng Pilipinas (BSP), the Philippine Deposit Insurance Corporation, and the Chamber of Thrift Banks all said raising the MDIC would help boost depositor confidence in banks, but said certain reforms must accompany the increase.
In a position paper signed by deputy governor Nestor Espenilla Jr, the BSP said that even though the country's banking system is still stable, it would support a permanent increase to P500,000, as proposed in House Bills 5315 and 5384.
However, Espenilla said that the corporate structure of the PDIC must be strengthened by expanding its capital base to allow it to cover the proposed increase.
The BSP official likewise said any increase beyond P500,000 should be “considered only as limited and time-bound relief to present market conditions."
“Beyond P500,000, however, cost considerations become significant and must be borne either by an ever larger capital base for PDIC or as an increased cost to depositors. Either of this spillover effect can easily be counterproductive to the intended gains from the legislated initiative," said Espenilla.
Espenilla added there is a so-called moral hazard that must be taken into consideration, saying that as the covered MDIC increases, the fiduciary responsibility of banks is “intrinsically weakened" and depositors lose their incentive to pro-actively monitor their own savings or banks’ quality of service.
The PDIC, meanwhile, said in a statement that it fully backs a three-year increase in the MDIC to as high as P1 million as long as the national government shoulders the P750,000 increase.
The PDIC said that while the three-year period may be extended further, the MDIC increase in other countries covers two to three years only.
The PDIC further said any MDIC increase, even though temporary, should come with reforms "to ensure that the Corporation remains financially secure and operationally adept to fulfill its mandate."
The PDIC sought a P24 billion increase in its capital base, saying that as of December 2007 the Deposit Insurance Funds from which deposit insurance claims are sourced amounts only to P54.3 billion.
“Clearly, there is a need to provide PDIC with additional funding to give the corporation the financial capability to cover the deposit liabilities of banks at any given time even with multiple bank closures. To cover the required insurance reserves for the existing MDIC at P250,000, P24 billion is still needed," said the PDIC.
The PDIC also pushed for its exemption from all taxes on assessment collections. It likewise sought for the clear recognition of its authority to determine what deposit products may be covered by deposit insurance; to conduct independent special examination of banks; to implement an additional mode of liquidation through bridge banking; and to modify its existing corporate structure.
The Chamber of Thrift Banks (CTB), for its part, said they support the increase in the MDIC as long as it will not entail any increase in the premium that will be paid by the banks to the PDIC.
“We believe that the proposed measures will shore up public confidence in the Philippine baking system, especially during this period of financial crisis," said CTB President Alfredo Yao. - GMANews.TV
