DEPOSIT INSURANCE

Deposit insurance in the Philippines is governed by R.A. No. 3591

entitled “An Act establishing the Philippine Deposit Insurance Corporation,
Defining its Powers and Duties and For Other Purposes” (otherwise known as
the PDIC Law). R.A. No. 3591 created the Philippine Deposit Insurance
Corporation (PDIC for brevity) that administers the mandatory deposit
insurance system in the country.

Rationale

The purpose of the PDIC is to protect the depositing public in the event
of a bank closure (PDIC v. Citibank, N.A., G.R. No. 170290, April 11, 2012).

Covered banks

All banks and banking institutions, which are engaged in the business
of receiving deposits, are mandatorily insured with the PDIC.

Insured deposit

The insured deposit does not exceed P500,000.00. If the deposit is

P500,000.00 or less, the deposit is covered by the insured up to the full
amount. Foreign currency deposits are covered by the insurance.

Meaning of “Deposit”

It means the “the unpaid balance of money or its equivalent received

by a bank in the usual course of its business and for which it has given or is
obliged to give credit to a commercial, checking, savings, time or thrift
account, evidenced by a passbook, certificate of deposit, or other evidence
of deposit issued in accordance with Bangko Sentral rules and regulations
and other applicable laws, together with such other obligations of a bank,
which, consistent with banking usage and practices, the PDIC Board of
Directors shall determine and prescribe by regulations to be deposit liabilities
of the bank. For any of the purposes of the PDIC Law, unless approved by
the PDIC Board, deposit does not include deposit obligations of a bank which
are payable at the office of the bank located outside the Philippines. (Section
5(g), PDIC Law).

Deposit under PDIC Law has the following elements:

1. A bank received money or its equivalent;
2. There is an unpaid balance of such money or its equivalent;
3. The bank received the money or its equivalent in the ordinary course
of business;
4. The bank has given or is obliged to give credit to a commercial,
checking, savings, time or thrift account together with such other
obligations of a bank;
5. The accounts are evidenced by a passbook, certificate of deposit, or
other evidence of deposit issued in accordance with Bangko Sentral ng
Pilipinas rules and regulations and other applicable laws; and

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 6. As a rule, the deposit is payable at the office of the bank within the
Philippines (Section 5(g), PDIC).

Kind of deposit

The law does not make any distinction as to the type of deposit that is
insured. Thus, the insurance is not limited to savings accounts. The
insurance is not limited to savings accounts. The insurance also covers time
deposits, NOW accounts, checking accounts and other types of deposits.

2010 BAR QUESTION

When OCCIDENTAL Bank folded up to insolvency, Manuel had

the following separate deposits in his name; P200,000 in savings
deposit; P250,000 in time deposit; P50,000 in a current account; P1
M in a trust account; and P3 M in money market placement. Under
the PDIC Act, how much could Manuel recover?

SUGGESTED ANSWER:

Manuel can recover P500,000 because this is the total of his savings
deposit, time deposit and current account. The trust account and the money
market placements are not included in the insured deposits.

Risk insured against

The risks insured against by the deposit insurance are:
1. the closure of the bank by the Monetary Board pursuant to Section
30 of the New Central Bank Act,
2. expiration of the bank’s corporate term, and
3. revocation of the bank’s corporate term (Section 19, PDIC Law).

QUESTION

ABC Bank was forced to close because its building was

destroyed by fire. Mr. A, one of its depositors, filed an insurance
claim with the PDIC. Will the claim prosper?

SUGGESTED ANSWER:

No, the claim will not prosper. Destruction of a bank’s building due to
fire is not a risk insured against by the PDIC deposit insurance. The only risk
insured against by the PDIC is closure and takeover under Section 30 of the
Central Bank Act.

Computation of insurance coverage

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 (OLD LAW) Obligations of the depositors to closed banks are
deducted from the amount to be paid to the depositors.

(NEW LAW) RA 10846, amending RA 3591, which became effective

on 11 June 2016, the obligations of a depositor are no longer netted out
from his/her total deposits in the closed bank for purposes of computing
insured deposit.

Separate deposits in branches

1. The sum of all deposits in all branches in the Philippines shall be used
in determining if the deposit exceeds P500,000.

Example: All the deposits of a person in the Davao, Cebu, and Manila
City Branches of the same closed bank shall be added to determine if
the same exceeds P500,000.

NOTE: Deposits in foreign branches of the same bank are EXCLUDED.

HOWEVER, subject to the approval of the Board of the PDIC, an
insured bank may elect to separately insure a branch outside the
Philippines.

[A/N: Before proceeding to the discussion on the computation of maximum

deposit insurance coverage, it is best that we acquaint ourselves with the
different types of account according to its name.]

Classification of accounts according to name in which the accounts

are held

1. Single Account – a bank account in the name of a single person,

whether natural or juridical

2. Joint Account – in the name of two or more persons

It may further be classified based on AUTHORITY TO WITHDRAW:

a. If the account is an “and/or” account, any one of the depositors

may withdraw funds therefrom and the signature of one is enough
to authorize the bank to allow such withdrawal.

b. If the account is an “and” account, the depositor are joint creditors

of the bank and the signatures of all depositors are necessary to
allow withdrawal.

As to OWNERSHIP:

The presumption is that the depositors own equal shares in the

deposit, consistent with Article 485 of the Civil Code which provides:
“portions belonging to the co-owners in the co-ownership shall be
presumed equal, unless the contrary is proved.”

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 In case of death of one of the depositors, the share belonging to the
deceased depositor forms part of his/her estate. The authority
previously given to the co-depositor to withdraw from the “and/or”
account ceases upon the death of the other co-depositor.

3. “By”, “In Trust For” (ITF), “For the Account of” (FAO) Accounts

In general, in a By, ITF, and FAO account the named beneficiary is

considered the depositor.

Examples:

Mr. A by Mr. B
Mr. B in trust for Mr. A
Mr. B in the account of Mr. A

In the foregoing examples, Mr. A is the depositor, not Mr. B. Mr. B is

merely acting as representative or agent or intermediary of the depositor
– Mr. A.

NOTE: ITF deposit Account is different from a trust account with a

bank’s trust department.

ITF deposit account Trust Account

Debtor-creditor relationship Trustee- trustor relationship
Covered by the mandatory deposit Excluded from coverage
insurance by the PDIC

4. Anonymous Account – prohibited under Sec. 9(a) of AMLA of 2001

EXCEPTION: Peso/Foreign numbered non-checking accounts

5. Numbered Account –

Numbered prohibited under Sec. 9(a) of AMLA of 2001 (together

checking with Anonymous accounts, account with fictitious names)
account
Numbered allowed, subject to the rules on customer identification
non- and verification and enhanced due diligence.
checking
account

“Same right and capacity” required

In determining such amount due to any depositor, the PDIC will add all
deposits in the bank maintained in the same right and capacity for his
benefit either in his own name or in the name of others. For example,
an account maintained by one person in his own name will not be
added to the account that he opened as an agent of another person.
However, an account in his own name will be added to the account
where he is the beneficiary-trustor.

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 2012 BAR QUESTION

X is a depositor of AAA Bank. She has three deposit accounts all

under her name. One account is a checking account, another one is a
savings account, and the third one is a time deposit account. Each
account has a balance of P250,000. AAA Bank became insolvent.
PDIC closed the Bank. X therefore is unable to withdraw from all of
the accounts. She then filed her claims with the PDIC. How much can
X claim?

SUGGESTED ANSWER:

X can claim a total of P500,000 for all the three accounts. The law
provides that the term “insured deposit” means the amount due to any bona
fide depositor for legitimate deposits in an insured bank net of any obligation
of the depositor to the insured bank as of date of closure, but not to exceed
P500,000. In determining such amount due to any depositor, there shall be
added together all deposits in the bank maintained in the same right and
capacity for his benefit either in his own name or in the name of others.

Joint accounts (Section 5(j), PDIC, as amended)

The following are rules involving joint accounts

1. A joint account regardless of whether the conjunction ‘and’, ‘or’, ‘and/or’

is used, shall be insured separately from any individually-owned deposit
account;

2. If the account is held jointly by two or more natural persons, or by two

or more juridical persons or entities, the maximum insured deposit shall
be divided into as many equal shares as there are individuals, juridical
persons or entities, unless a different sharing is sharing is stipulated in
the document of deposit;

3. If the account is held by a juridical person or entity jointly with one or

more natural persons, the maximum insured deposit shall be presumed
to belong entirely to such juridical person or entity; and

4. The aggregate of the interests of each co-owner over several joint

accounts, whether owned by the same or different combinations of
individuals, juridical persons or entities, shall likewise be subject to the
maximum insured deposit of Five Hundred Thousand Pesos (P500,000).

QUESTION

XY was closed by the MB and the PDIC took over its properties
on July 10, 2009. At that time, Mr. A had three accounts in XY Bank –
Savings Account in the amount of P360,000, Checking Account in
the amount of P120,000 and Time Deposit in the amount of
P150,000. Assuming that the same amounts are already adjusted

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amounts (accrued interest are already added and there is no
pending obligations to the bank), how much is the effective
insurance coverage of Mr. A?

SUGGESTED ANSWER:

The insurance coverage is P500,000. Since the accounts all belong to

Mr. A, all accounts shall be added together because they are maintained in
the same right and capacity. Although the total deposit of Mr. A is P630,000,
the insured deposit should not exceed P500,000. Thus, Mr. A has an
uninsured deposit in the amount of P130,000.

NOTE: Under RA 10846, amending RA 3591, the pending

obligations of a depositor are no longer netted out from his/her
total deposits in the closed bank for purposes of computing
insured deposit.

QUESTION

XY Bank was closed by the MB and the PDIC took over its
properties on July 10, 2009. At that time, Mr. A had three accounts
in XY Bank – Savings Account in the amount of P160,000 in the
Manila Branch; Checking Account in the amount of P120,000 in the
Cebu Branch; and Time Deposit in the amount of US$50,000 in the
New York, USA Branch. Assuming that the same amounts are already
adjusted amounts (accrued interest are already added and there is
no pending obligations to the bank), how much is the effective
insurance coverage of Mr. A?

SUGGESTED ANSWER:

The insurance coverage is up to P280,000. All the deposits in the

Philippines will be added while the deposit in the branch in New York is not
covered by the deposit insurance of the PDIC. However, the deposit in the
New York branch will be covered by PDIC insurance if XY Bank elected to
include for insurance its deposit obligations at such branch with the approval
of the PDIC Board of Directors. This is pursuant to Section 5(g) of the PDIC
Charter, as amended which provides in part that “subject to the approval of
the Board of Directors, any insured bank which is incorporated under the
laws of the Philippines which maintains a branch outside the Philippines may
elect to include for insurance its deposit obligations payable only at such
branch.”

QUESTION

Mr. A, Mr. B and Mr. C have the following accounts in the closed
XY Bank: Account No. 1 in the name of Mr. A, P150,000, Account No.
2 in the name of “Mr. A in trust for Mr. B”, P350,000, Account No. 3

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in the name of “Mr. A by Mr. C”, P200,000. How much is the insured
and uninsured deposit of Mr. A, Mr. B and Mr. C with the PDIC?

SUGGESTED ANSWER:

The insured deposit of Mr. A is P350,000. The balance of Account No. 1

should be added to the balance in Account No. 3 in order to determine the
total deposit because the same accounts are maintained in the same right
and capacity for his benefit. The deposit in trust for Mr. B cannot be covered
because A does not hold it in his own right and capacity.

Mr. B’s deposit in Account No. 2 is insured in the full amount of

P350,000 because he is the real owner of Account No. 2. Mr. A is holding it
in trust for his principal, Mr. B.

Mr. C has no insured deposit. Although the third account is in the

name of “Mr. A by Mr. C,” the same only means that Mr. A is the real owner
because he is the principal of Mr. C. Mr. C is only his agent in opening the
account.

QUESTION

The following accounts are maintained in the closed ABC Bank

by Mr. X, Mr. Y and Mr. Z: (1) Savings account in the amount of
P600,000 in the name of “X & Y”; (2) Time Deposit in the amount of
P700,000 in the name of “Y and/or Z.” How much is the effective
insurance coverage of each with the PDIC?

SUGGESTED ANSWER:

Mr. X has an insurance coverage of P250, 000 constituting his share in the
savings account. A joint account like the accounts involved in the present
case is considered shared among the co-depositors unless otherwise
expressly stipulated. Nevertheless, the savings account is insured only up to
P500,000 and not up to the full amount of P600,000.

Mr. Y has a total insured deposit of P500,000, which includes P250,000 in

the savings account and P250,000 in the time deposit. The maximum
insurance coverage of P500,000 applies to the sum of the share of Mr. Y in
the insured portion of both the savings account and the time deposit.

Mr. Z has a total insured deposit of P250,000, representing his share in the
time deposit.

QUESTION

XYZ Corporation has two savings accounts in ABC Bank. The

first account with a balance of P700,000 is in the name of XYZ
Corporation alone. Another account with a balance of P200,000 is in
the following name: “XYZ Corporation and/or Juan Dela Cruz.” How
much is the insured deposit of XYZ Corporation and Juan Dela Cruz?

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SUGGESTED ANSWER:

XYZ’s insured deposit is P500,000 while Juan Dela Cruz has no insured
deposit.

The law provides that a joint account of a juridical person like XYZ
Corporation and a natural person like Juan Dela Cruz, shall be presumed to
belong to the juridical person.

Hence, the two accounts involved in the case are presumed to belong
to XYZ and shall therefore be added in order to determine the insurance
coverage. Since the total of the deposits of XYZ Corporation is P900,000,
only a portion thereof of P500,000 is insured while the balance of P400,000
is uninsured.

QUESTION

Mr. A, Mr. B and Mr. C are depositors in the closed XYZ bank with the
following accounts:
(1) Account 1 – P500,000 in the name of Mr. A;
(2) Account 2 – P600,000 in the name of “Mr. A and Mr. B”;
(3) Account 3 – P700,000 in the name of Mr. C;
(4) Account 4 – P500,000 in the name of “Mr. A and/or Mr. C”;
(5) Account 5 – P300,000 in the name of “Mr. A or Mr. B or Mr. C”
How much is the insured deposit of each of them?

SUGGESTED ANSWER:

The total insured deposit of Mr. A is P500,000 for the account which is
solely in his name and P500,000 for his share in the joint accounts. Each
joint account is equally shared by the co-depositors. It should be noted that
the PDIC provides that joint accounts shall be insured separately. However,
the total amount of the share in each joint-account should not exceed
P500,000.

The insured deposit of Mr. B is P350,000 which consists of his share in

Account 2, the joint account with Mr. A (P250,000) and his share in Account
5 (P100,000).

The insured deposit of Mr. C is P850,000, which consists of his insured

deposit in Account 3, which is solely in his name (P500,000) and his share in
the joint accounts amounting to P350,000 (P250,000 in Account 4 and
P100,000 in Account 5).

Accounts/deposits not covered by insurance

R.A. No. 3591 expressly excludes the following deposits, contracts,

and transactions from the mandatory deposit insurance:

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 1. The amount of deposits in excess of the Five Hundred Thousand
Pesos (P500,000);

2. Deposit in foreign branches (branches located outside the

Philippines);

NOTE: It is not insured because it is payable outside of the

Philippines, it is not considered a deposit pursuant to Section 3(f) of the
PDIC Charter.

3. Investment products such as bonds and securities, trust accounts,

and other similar instruments;

Trust accounts referred to here are investments made through the trust
department of a bank. This does not include bank deposits that are
opened in trust for a beneficiary, wherein a debtor-creditor relationship
exists between the bank and the client (depositor-beneficiary). The latter,
more commonly known as “In Trust For” (ITF) deposit accounts, are
included as insured deposits of the trustor-beneficiary.

RECALL: ITF deposit Account is different from a trust account with a

bank’s trust department.

ITF deposit account Trust Account

Debtor-creditor relationship Trustee- trustor relationship
Covered by the mandatory deposit Excluded from coverage
insurance by the PDIC

4. Deposit accounts or transactions which are unfunded, or that are

fictitious or fraudulent;

5. Deposit accounts or transactions constituting, and/or emanating

from, unsafe and unsound banking practice/s; and

6. Deposits that are determined to be the proceeds of an unlawful

activity as defined under R.A. No. 9160, as amended, or the Anti-Money
Laundering Law;

7. Deposit accounts that resulted from splitting of deposit.

“Splitting of deposit”

Splitting of deposits occurs whenever a deposit account with an outstanding

balance of more than the statutory maximum amount of insured deposit
maintained under the name of natural or juridical persons is broken down
and transferred into two or more accounts in the name/s of natural or
juridical persons or entities who have no beneficial ownership on transferred
deposits in their names within 120 days immediately preceding or during a
bank-declared holiday, or immediately preceding a closure order issued by

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the Monetary Board of the BSP for the purpose of availing of the maximum
deposit insurance coverage.

Element

1. Existence of source account/s in a bank with a balance or aggregate

balance of more than the maximum deposit insurance coverage
(MDIC);

2. There is a break up and transfer of said account/s into two or more

existing or new accounts in the name of another person/s or
entity/entities;

3. The transferee/s have no Beneficial Ownership over the transferred

funds; and

4. Transfer occurred within 120 days immediately preceding or during a

bank-declared bank holiday, or immediately preceding bank closure.

Filing of claim

The PDIC shall commence the determination of insured deposits due the
depositors of a closed bank upon its actual takeover of the closed bank. The
depositor is required to file a claim within two years from actual takeover of
the bank.

Takeover means “the act of physically taking possession and control of

the premises, assets and affairs of a closed bank for the purpose of
liquidating the bank.

Period to settle

If such a claim is made, the PDIC is required to pay the depositor or settle
the claim within the six months from the filing of the claim. The responsible
PDIC officer may be held criminally liable if the claim is not settled within
such period.

How settlement is made

The PDIC will settle the claim either: (1) by cash or (2) by making available
to each depositor a transferred deposit in another insured bank in an
amount equal to the insured deposit of the depositor.

Transfer deposit means a deposit in an insured bank made available to

a depositor by the PDIC as payment of the insured deposit of such depositor
in a closed bank and assumed by another bank.

Remedy for denial of insurance claim

• The denial of an insurance claim is not appealable. The only remedy

available is a special civil action for certiorari under Rule 65 of the

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 Rules of Civil Procedure. Under Section 5(g) of R.A. No. 3591, the
period of filing the Petition for Certiorari is 30 days from notice of
denial of insurance claim. [A/N: This is in contrast with the prescriptive
period for filing a Petition for Certiorari under Rule 65 of the Rules of
Civil Procedure which is 60 days.

Remedy of depositors for amount in excess of coverage

If PDIC paid the insurance claim of P500,000 but the deposit is more than
such amount, the depositor may claim the balance from the remaining
assets upon liquidation of the closed bank. The claim for the balance filed
with the liquidator of the closed bank. The settlement of credit is subject to
the approval of the Liquidation court.

Right of subrogation

After payment of the depositor, the PDIC is subrogated to the rights of the
depositor. However, the PDIC must also claim reimbursement out of the
remaining assets of the closed bank.

PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)

Primary Functions

The PDIC is empowered to act as

1. deposit insurer (Sec. 1, R.A. 3591)
2. receiver and liquidator of closed banks (NCBA)
3. co-regulator of banks
The powers of the PDIC as co-regulator prevent or lessen its
exposure to payment of insurance claims. Such powers include examination,
investigation and resolution.

A. Examination

Examination involves an evaluation of the current status of a bank and

determines its compliance with the set standards regarding solvency,
liquidity, asset valuation, operations, systems, management, and compliance
with banking laws, rules and regulations. (PDIC vs. Philippine Countryside
Rural Bank, Inc., G.R. No. 176438, January 24, 2011).

Types of examination

Section 2 of the RI No. 2009-05 (or the Rules and Regulations on

Examination of Banks) differentiated between the two types of examination
as follows:

Section 2. Types of Examination

a. Regular Examination - An examination conducted independently or

jointly with the BSP. It requires the prior approval of the PDIC
Board of Directors and the Monetary Board (MB). It may be
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 conducted only after an interval of at least twelve (12) months from
the closing date of the last Regular Examination.

b. Special Examination – An examination conducted at any time in

coordination with the BSP, by an affirmative vote of a majority of all
the members of the PDIC Board of Directors, without need of prior
MB approval, if there is a threatened or impending bank closure as
determined by the PDIC Board of Directors.

B. Investigation

Investigation is conducted based on specific findings of certain acts or

omissions which are subject of a complaint or a Final Report of Examination.

As a bank regulator, the PDIC is empowered to examine and investigate

banks. These are the two different processes.

Examination and Investigation Distinguished

POINT OF EXAMINATION INVESTIGATION

DISTINCTION
Nature involves an evaluation of
the current status of a
bank and determines its
compliance with the set
standards regarding
solvency, liquidity, asset
valuation, operations,
systems, management,
and compliance with
banking laws, rules and
regulations.
Scope It entails a review of
essentially all the functions detailed evaluation, an
and facets of a bank and
its operation. It
necessitates poring
through voluminous
documents, and requires a
detailed evaluation
thereof. Such a process
then involves an intrusion
into a bank’s records.
Prior consent Requires prior Monetary
of Monetary Board approval
Board
It is conducted based on
specific findings of certain acts
or omissions which are subject
of a complaint or a Final
Report of Examination.
It does not involve a general
evaluation of the status of a
bank. It zeroes in on specific
acts and omissions uncovered
via an examination, or which
are cited in a complaint.
Although it also involves a
investigation centers on
specific acts of omissions and,
thus, requires a less invasive
assessment.
Does not require prior
Monetary Board approval

(PDIC vs. Philippine Countryside Rural Bank, Inc., G.R. No. 176438, January
24, 2011).

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 C. Bank Resolution

Section 11 of the PDIC Law provides that the PDIC in coordination with the
BSP, may commence the resolution of a bank upon:
1. Failure of prompt corrective action as declared by the MB; or
2. Request by the bank to be placed under resolution.

Resolution refers to the actions undertaken by the Corporation to:

1. Protect depositors, creditors and the Deposit Insurance Fund (DIF);
2. Safeguard the continuity of essential banking services or maintain
financial stability; and
3. Prevent deterioration or dissipation of bank assets. (Section 11, RA
3591)

Resolution Package

Within 180 days from a bank’s entry into resolution, the PDIC, through the
affirmative vote of at least five (5) members of the PDIC Board, shall
determine whether the bank may be resolved through the purchase of all its
assets and assumption of all its liabilities, or merger or consolidation with, or
its acquisition, by a qualified investor.

Failure of resolution

Upon a determination by the PDIC that the bank may not be resolved, the
MB may act in accordance with Section 30 of the NCBA, that is to initiate
proceedings on receivership and liquidation. The MB may summarily and
without need for prior hearing forbid the institution from doing business in
the Philippines and designate the PDIC as receiver of the banking institution.

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