Philippine deposit insurance corporation: Overview

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Introduction The Philippine Deposit Insurance Corporation, abbreviated as PDIC is a government-run Philippine deposit insurance fund. It was established on June 22, 1963 by Republic Act 3591. It guarantees deposits up to P500,000. PDIC exists to protect depositors by providing permanent and continuing deposit insurance coverage for the depositing public and help promote financial stability. PDIC has a multi-faceted role of being Depositor Insurer, Co-regulator of Banks, and Receiver and Liquidator of Closed Banks.

As Depositor Insurer, it safeguards and builds up the Depositor Insurance Fund (DIF) and ensures prompt payment of insured deposit. As Co-regulator, it exercises complimentary supervision of banks and adopts responsive resolution methods. And as Receiver and Liquidator of closed banks, it applies efficient management of receivership and liquidation function. The Bangko Sentral ng Pilipinas which is also known as BSP is the central bank of the Philippines. It was established on July 3, 1993, pursuant to the provision of Republic Act 7653 or the New Central Bank Act of 1993.

The BSP’s primary objective is to maintain price stability conducive to a balanced and sustainable economic growth. The BSP also aims to promote and preserve monetary stability and the convertibility of the national currency. The BSP provides policy directions in the areas of money, banking and credit. It supervises operations of banks and exercises regulatory powers over non-bank financial institutions with quasi-banking functions. Discussion In the Philippine Star article entitled BSP backs changes in PDIC charter last February 1, 2014 by Kathleen A.

Martin, it was indicated there that the Bangko Sentral ng Pilipinas has expressed support in the state deposit insurer’s proposal to amend its charter to better handle problematic banks. BSP Deputy Governor Nestor A. Espenilla Jr. told reporters the proposed amendments to RA 3591 or the Philippine Deposit Insurance Corp. (PDIC) Charter will benefit depositors and clients of shuttered banks. “The valuable role of the PDIC is in the resolution of the problem bank… and I think the most important (proposed amendment) is the additional resolution of creating a bridge bank as a way of resolving problem banks,” Espenilla said.

A bridge bank, as appointed by other state deposit insurers, acts as a shell company that absorbs the assets and liabilities of an insolvent bank. It does so until the insolvent bank is ready for acquisition or for liquidation. Espenilla explained that if the PDIC will be allowed by law to create one, it will be able to position a shuttered bank better in the market to fetch a fair price when bidding it out. The PDIC is mandated by law to act as the receiver of banks ordered closed by the central bank.

This means the PDIC takes charge of the shuttered bank’s assets and liabilities, examines and investigates any irregularities in the bank’s records, and pays out deposit insurance claims of the clients. In paying out deposit insurance claims, the PDIC liquidates closed banks’ assets or puts up the shuttered bank for auction. Espenilla also said that having a bridge bank will cut costs for the PDIC when it liquidates closed banks’ assets or bids out the shuttered bank. Last year, a total of 18 banks were ordered closed and placed under the receivership of the PDIC. Conclusion

Therefore, a decision for having additional resolution of creating bridge bank according to BSP Deputy Governor Nestor A. Espenilla is right especially for the PDIC for them to lessen their load of responsibilities since the role of PDIC is in the resolution of the problem bank. Whereas many financial banking institution closed and it is the PDIC responsibilities to took care of it where they are the one who liquidates closed banks assets or puts up shuttered bank for auction. This bridges bank acts as a shell company that absorbs the assets and liabilities of an insolvent bank.

It does so until the insolvent bank is ready for acquisition or for liquidation. And by creating bridges bank, it won’t be too expensive for the PDIC because there would be another company that will be responsible for the liquidation of assets and liabilities of those closed or insolvent banks. And also it can lower the cost of resolution where you have enough time to establish fair value and you have time to run a competitive bid. But then since we don’t have a bridge bank yet, so a lot of closed banks result in pay out. And it is a must to create a bridge bank for the better.

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