House panel favors P500,000-deposit insurance

MANILA, Philippines - The House committee on banks and financial intermediaries on Tuesday said it favors a 100% increase in the deposit insurance coverage, although it would still study the state deposit insurer’s proposal to raise this by 300%.

Manila Rep. Jaime C. Lopez, the committee chairman, said "the committee is leaning towards granting a permanent increase in the insured deposit ceiling to P500,000."

"We believe that P500,000 is enough to cover majority of bank accounts. However, we will still study the proposals submitted," he added.

Mr. Lopez and House Speaker Prospero C. Nograles filed House Bill 5315 last month, which sought to double the insured deposit ceiling to P500,000 from P250,000 to raise the public’s confidence in local banks given the spate of bank failures in developed economies. Malacañang said it favors raising the ceiling to P1 million.

At Tuesday’s hearing, the Philippine Deposit Insurance Corp. (PDIC) proposed adopting a P1-million maximum coverage for three years, subject to a three-year extension, along with other reform measures to strengthen its role as co-regulator of banks.

PDIC President Jose C. Nograles, the brother of Speaker Nograles, also said P250,000 of the increase should be borne by PDIC, while the remaining P750,000 would be guaranteed by the national government.

"PDIC believes that the increase in deposit insurance coverage is only a temporary measure meant to address the effects of the global financial crisis. Imposing a permanent increase in deposit insurance coverage may not be the appropriate response to a temporary condition," he told legislators.

Along with the increase, PDIC proposed the following reforms:

an increase in PDIC’s capitalization by P24 billion;

authority to determine which deposits may be covered by deposit insurance;

authority to conduct independent special bank examinations;

a bridge bank authority, which would allow the government to take over a failed bank by acquiring its assets and assuming the liabilities until a final resolution is reached; and

authority to reorganize its existing corporate structure.

The additional capital is meant to ensure that the deposit insurance fund, from which insurance payments are sourced, remains healthy.

Nestor A. Espenilla, Jr., Bangko Sentral ng Pilipinas deputy governor, said the central bank is amenable to a P500,000 deposit insurance coverage. A P1 million coverage should just be a time-bound measure, he added.

"Beyond P500,000, cost considerations become significant and must be borne either by an even 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 of the legislated initiative," he said in a position paper.

"Also, as the covered amount increases, the fiduciary responsibility bestowed upon banks is intrinsically weakened. Depositors also lose the incentive to proactively monitor their own savings and/or deal with banks that competitively provide quality service since any difficulty appears to be cured by the insurance proceeds," Mr. Espenilla added.

Amb. Alfredo M. Yao, Chamber of Thrift Banks president, said his sector supports the proposed increase in deposit insurance coverage to P500,000 provided that the increase in insurance coverage will not entail any increase in the premium to be paid by the banks to the PDIC.