MANILA, Philippines?State-owned Philippine Deposit Insurance Corp. (PDIC) has expressed support for proposals to double the maximum deposit insurance coverage to P500,000 per depositor from the present P250,000, alongside five-pronged reforms to strengthen its capability as a co-regulator of the banking system.

PDIC estimates that with bank deposits insured up to P500,000 per depositor, 97.2 percent of all deposit accounts in the banking system would be insured, compared with 95.1 percent in the present maximum coverage.

?There is a need for a package of five corollary measures to beef up PDIC reserves and strengthen its regulatory and oversight functions as a proactive move in view of the present financial turmoil overseas,? PDIC president Jose Nograles said in a statement Thursday.

Nograles said these reforms were needed to ensure that an increase in deposit insurance coverage would ?effectively translate to enhanced depositor protection, depositor confidence, and a stronger banking system.?

Nograles made the statement in response to a proposal of Governor Jose Salceda of Albay province, who is an informal economic adviser to President Gloria Macapagal-Arroyo, and to House Bill No. 5315 sponsored by his brother, Speaker Prospero Nograles, and Manila Representative Jaime Lopez.

These proposals call for such an increase in deposit insurance coverage through an amendment of the PDIC charter.

?We are not looking at additional assessment on banks but an increase in government contribution,? Nograles said, supporting Salceda?s proposal to beef up PDIC?s capitalization through an increase in government contribution.

He said this was needed so that PDIC?s Deposit Insurance Fund (DIF), the source of insurance payments, would remain sufficient to meet potential demands at a higher level of insurance.

PDIC ruled out charging Philippine banks a higher premium to insure deposits. Instead, it is seeking an additional P45 billion in fresh contribution from the government to bring the DIF to around P100 billion.

PDIC?s audited financial statements at end-2007 showed the DIF amounted to P54.3 billion, of which government contribution was P3.0 billion.

Nograles said that to guard against moral hazard and to strengthen oversight, PDIC would need authority to conduct independent examination of banks.

Under present rules, bank examination cannot be done within one year from the last examination date. PDIC also needs approval of the central bank?s policymaking Monetary Board before it can do its own examination.

The inability of the PDIC to move swiftly increases its risk exposure, Nograles said.

PDIC is seeking authority to assess risk premium over and above the existing flat rate of 20 basis points on banks found to be at risk as a result of its independent examination. Imposing additional risk premium when warranted will enable the PDIC to manage its risks as an insurer.

It also wants authority to determine which deposit products are insured, to better manage its risks in the light of new and complex products.

A fifth measure sought by the PDIC is authority to organize a ?bridge bank? as a method for orderly liquidation of failed banks.

Bridge banking, which is practiced in such countries as Japan, South Korea and Taiwan, refers to a temporary bank created by regulators to administer the deposits and liabilities of a failed bank.

A bridge bank will enable the PDIC to help preserve critical banking functions by acquiring the assets and assuming the liabilities of a failed bank until a final resolution can be reached, Nograles said.

The bridge bank authority is one of the 21 Core Principles for Effective Deposit Insurance Systems published by the International Association of Deposit Insurers, an organization of 52 deposit insurers set up to contribute to stability of financial systems worldwide. PDIC is the group?s founding members and Nograles is a member of the policymaking executive council.

Government documents show PDIC had an audited after-tax net income of P1.23 billion in 2007, compared with P445.22 million in 2006.

Last year, the central bank closed down 17 banks, mostly small rural banks, and placed them under PDIC receivership and liquidation. PDIC shelled out P1.3 billion to pay insured deposits. Edited by INQUIRER.net