PDIC studies hike in bank deposit protection

INQUIRER FILE PHOTO

MANILA, Philippines  —Philippine Deposit Insurance Corp. (PDIC) is studying the possibility of beefing up protection for bank deposits, a move that, a senior official said, must be complemented with measures that would improve banks’ discipline when making investment decisions.

At an event in Manila on Tuesday, PDIC president and CEO Roberto Tan said his agency would consult other regulators, including the Bangko Sentral ng Pilipinas (BSP), as it looks into the possibility of hiking the current maximum deposit insurance (MDI) of P500,000 per depositor per bank.

The last time the MDIC increased was in 2009—doubling from P250,000 to P500,000—through an earlier amendment to the PDIC charter.

Timely adjustments

Under its amended charter that lapsed into law in 2022, PDIC, the agency mandated to protect bank deposits, can adjust the MDIC based on inflation and other relevant economic indicators without the need for a new law. The latest amendment to the charter, however, kept the MDIC at P500,000 while giving the PDIC board the power to adjust the amount.

READ: Deposit insurance may be raised for inflation under new PDIC law

The law says that the MDIC may be adjusted “in case a condition occurs that threatens the monetary and financial stability of the banking system that may have systemic consequences.” Any change of the MDIC must have the PDIC board’s unanimous vote.

Also, the MDIC is up for revisiting every three years and the PDIC board of directors is authorized to increase it, if necessary, with the approval of the President.

But before making any moves, Tan said the PDIC would consult the BSP to determine possible measures that would “instill market discipline”.

“For now we are on the process of studying how we will be increasing our insurance coverage, and what measures we need to instill market discipline and avoid moral hazards or riskier behavior by banks as well as depositors in this respect,” Tan said.

For his part, BSP Governor Eli Remolona Jr., who joined Tan in the same event, said protecting bank deposits would unlikely create a moral hazard.

‘Lesson of history’

READ: PH financial system sound and stable, says Bangko Sentral

”Our deposit insurance system was designed for preventing runs on individual banks. It wasn’t designed for systemic risk, it wasn’t designed for a crisis,” Remolona said.

“In the face of a crisis, there’s no such thing as a threshold on deposit insurance, all deposits have to be safe. This is the lesson of history,” he added.