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April 24, 2024

PDIC studies higher bank deposit protection amid calls for improved market discipline

The Philippine Deposit Insurance Corp. (PDIC) initiated a study to potentially enhance the protection afforded to bank deposits.

The endeavor, according to a senior official, necessitates concurrent efforts to enhance the prudence of banks in their investment decisions.

PDIC president and CEO Roberto Tan said the agency intends to engage with various regulatory bodies, including the Bangko Sentral ng Pilipinas (BSP), to explore the feasibility of increasing the prevailing maximum deposit insurance (MDI) set at P500,000 per depositor per bank.

The last adjustment to the MDIC occurred in 2009 when it doubled from P250,000 to P500,000 through an earlier amendment to the PDIC charter.

Under the revised charter, effective since its enactment in 2022, PDIC has been granted the authority to revise the MDIC based on inflation and pertinent economic indicators without necessitating new legislation. The recent amendment maintained the MDIC at P500,000 while empowering the PDIC board to effect changes.

According to the legislation, adjustments to the MDIC may be warranted “in case a condition occurs that threatens the monetary and financial stability of the banking system that may have systemic consequences,” requiring unanimous approval from the PDIC board.

The MDIC undergoes review every three years, with the PDIC board empowered to escalate it if deemed necessary, subject to the President’s endorsement.

Prior to any decision-making process, Tan emphasized PDIC’s intention to collaborate with the BSP to identify potential measures aimed at fostering market discipline.

“For now, we are in the process of evaluating how to expand our insurance coverage and determining the measures needed to promote market discipline, thereby mitigating moral hazards or riskier behaviors among banks and depositors,” said Tan.

Echoing Tan’s sentiments, BSP Governor Eli Remolona Jr., present at the same event, expressed confidence that enhancing bank deposit protection would not inadvertently encourage moral hazards.

“Our deposit insurance system was conceived to prevent runs on individual banks. It was not designed to address systemic risks or crises,” said Remolona.

“In times of crisis, deposit insurance must ensure the safety of all deposits without exception. This is a lesson drawn from history,” he said.