PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT

CONCEPTS AND IDEAS

Philippine Deposit Insurance Corporation

-is a government instrumentality created in 1963 by virtue of Republic Act 3591

- an attachment agency of the Department of Finance

Purpose of the Law

- to ensure the deposits of all banks which are entitled to the benefits of insurance

PDIC has the authority to:

● to help depositors have quicker access to their insured deposits in the event of bank
closure
○ Upon amendment, depositors would have quicker access to their insured deposits
in the event of bank closure since PDIC now has the authority to pay insured
deposits without netting out depositors’ loan obligations with the closed banks, and
based on evidence of deposits and not on the closed bank’s records alone
● resolve problem banks while still open
○ With enhanced resolution authorities, PDIC would also be able to more effectively
promote financial inclusion through early intervention in problem banks or open
bank resolution
● hasten the liquidation process for closed banks
○ The new law does away with the 90-day receivership period and allows PDIC to
proceed directly to liquidation
● give stiffer sanctions and penalties against those who engage in unsafe and unsound
banking practices

Function of the Law

1. Deposit Insurer - the PDIC shall promote and safeguard the interests of the depositing
public by way of providing permanent and continuing insurance coverage on all insured
deposits
2. Co-regulator of banks - as a bank regulator, the PDIC is empowered to examine and
investigate banks
3. Receiver and liquidator of closed banks - the PDIC as receiver shall control, manage
and administer the affairs of the bank.
Period for the depositor to file and enforce claim

1. Period to file claim - 2 years from actual takeover of the closed bank
2. Period to enforce claim - 2 years after the 2-year period to file claim

Proof of Claim

- The PDIC, in its discretion, may require proof of claims to be filed before paying the insured
deposits
- Iin any case where the PDIC is not satisfied as to the validity of the claim, it may require
final determination of a court of competent jurisdiction before paying such claim

Modes of payment (made soon as possible either:)

1. By cash
2. By making available to each depositor a transferred deposit in another insured bank in an
amount equal to insured deposit of such depositor

Withholding of payment

The PDIC may withhold payment of such portion of the insured deposit for the payment of
any liability of such depositor as a stockholder of the closed bank, or of any liability of such
depositor to the closed bank or its receiver, which is not offset against a claim due from such
bank, pending determination and payment of such liability by such depositor or any other liable
therefore.

Effect of payment

- PDIC shall be subrogated to all rights of the depositor against the closed bank to
the extent of such payment.
- Such subrogation shall include the right on the part of PDIC to receive the same
dividends and payments from the proceeds of the assets of such closed bank and
recoveries on account of stockholders’ liability as would have been payable to the
depositor on a claim for the insured deposits, but such depositor shall retain his
claim for any uninsured portion of his deposit.

Preference

All payments by PDIC of insured deposits in closed banks partake of the nature of public
funds, and as such, must be considered a preferred credit similar to taxes due to the National
Government in the order of preference under Article 2244(9) of NCC, provided further, that this
preference shall be likewise effective upon liquidation proceedings already commenced and
pending as of the approval of PDIC Act, where no distribution of assets has been made.
DEFINITION OF TERMS

Bank/Banking Institution- shall be synonymous and interchangeable and shall include banks,
commercial banks, savings bank, mortgage banks, rural banks, development banks,
cooperative banks, stock savings and loan associations and branches and agencies in the
Philippines of foreign banks and all other corporations authorized to perform banking functions
in the Philippines.

Closed bank- refers to a bank placed under liquidation by the Monetary Board.

Deposit- means the unpaid balance of money or its equivalent received by a bank in the usual
course of business and for which it has given or is obliged to give credit to a commercial,
checking, savings, time or thrift account, or issued in accordance with Bangko Sentral rules and
regulations and other applicable.

Insured bank- means any bank the deposits of which are insured in accordance with the
provisions of this Act.

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 the date of closure,
but not to exceed Five Hundred Thousand Pesos (P500,000.00). A joint account regardless of
whether the conjunction "and" "or," "and/or" is used, shall be insured separately from any
individually-owned deposit account.

Joint account- is an account held jointly by two or more natural persons, or by two or more
juridical persons or entities. Joint account regardless of whether the conjunction "and" "or,"
"and/or" is used, shall be insured separately from any single or singly-owned deposit account.

Maximum Deposit Insurance Coverage (MDIC)- is the maximum amount covered by the
insurance, it is P500,000 per depositor per bank.

Receiver- refers to the Corporation or any of its duly authorized agents acting as receiver of a
closed bank..

Single accounts- are accounts maintained solely by a depositor (natural person or juridical
entity/organization). In-Trust-For (ITF) and By Accounts are also considered single accounts.

Splitting of Deposits – occurs whenever a deposit account/s with an outstanding balance of

more than the statutory maximum amount of insured deposit is/are broken down and transferred
into two or more accounts in the name/s of natural or juridical person/s or entity/entities who
have no beneficial ownership on transferred deposits in their names within one hundred twenty
(120) days immediately preceding or during a bank-declared bank holiday, or immediately
preceding a closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas
(BSP) for the purpose of availing of the maximum deposit insurance coverage.
Surplus dividends- refers to the remaining assets of the closed bank after satisfaction in full of
all the liquidation costs, fees and expenses, and valid claims.

Systemic Risk- refers to the possibility of failure of one bank to settle net transactions with
other banks will trigger a chain reaction, depriving other banks of funds leading to a general
shutdown of a normal clearing and settlement activity.

Takeover- refers to 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.

Transfer deposit- means a deposit in an insured bank made available to a depositor by the
Corporation as payment of insured deposit of such depositor in a closed bank and assumed by
another insured bank..

Unsafe and/or Unsound Banking Practices – refers to the activities, transactions, or

omissions as defined under PDIC Regulatory Issuance No. 2011-01. Example of unsafe and
unsound banking practices are, performance of any deposit-related practice, activity, or
transaction without the requisite approvals or without adequate controls, failure to keep bank
records (printed and/or electronic) within the bank premises and granting high interest rates
when the bank has: (i) negative unimpaired capital and (ii) either a liquid assets-to-deposits ratio
of less than 10% or an operating loss.

Valid claim- refers to the claim recognized by the receiver or allowed by the liquidation court.

DEPOSITS COVERED BY PDIC

GENERAL RULE: PDIC shall insure deposit liabilities of any bank or any banking institution which
is engaged in the business of receiving deposit as herein defined on the effective date of the PDIC
act, or thereafter may engage in the business of receiving deposits.

Examples of type of deposits covered:

● · Savings Deposit
● · Special Savings
● · Demand/Checking accounts
● · Negotiable Order of Withdrawal
● · Certificate of Deposits
● · Foreign Currency Deposit

EXCEPTIONS TO THE RULES: Owner/Holder of Certificate of Deposit- No owner/holder of

any negotiable certificate of deposit shall be recognized as a depositor entitled to the rights in the
PDIC Act unless his name is registered as owner/holder thereof in the books of the issuing bank.
DEPOSITS NOT ENTITLED TO PAYMENT

1. Deposit products that resulted from splitting of deposit.

2. Deposit products or money placement made by the head office of a bank to its branch in
the Philippines.
3. Deposits that are determined to be a proceeds of an unlawful activity as defined under RA
9160 or the Anti-Money Laundering Act, as amended.
4. Deposits that are payable in a place outside of the Philippines.
5. Deposit accounts and transactions that are unfunded and that are fictitious and fraudulent.
6. Deposit accounts and transactions constituting and/or emanating from unsafe and
unsound banking practices, as determined by PDIC in coordination with BSP, after due
notice and hearing, and after publication of cease and desist order issued by PDIC against
such deposit accounts and transactions.
7. Investment products such as bonds and securities, trust accounts, and other similar
instruments.

DETERMINATION OF AMOUNTS DUE

GENERAL RULE: A depositor who maintains both individual and joint accounts may be insured
for a total of P1,000,000; P500,000 for all his individual accounts, P500,000 for all his joint
accounts.

INDIVIDUAL ACCOUNTS

Per Bank: The entitlement to deposit insurance is on a per bank basis. If a depositor has deposits
for two or more different banks, each is entitled to P500,000 insurance coverage.

Per Depositor, Per Capacity rule: All deposits in the bank maintained in the same right and
same capacity for his benefit either in his own name or in the name of others shall be added
together in determining the insured amount, regardless of the type of account.

*Note: All individual accounts of the depositor either on a per bank or per depositor, per
capacity rule, or both, shall be insured to a MAXIMUM INSURANCE DEPOSIT OF P500,000.

JOINT ACCOUNTS

Regardless of whether the conjunction “and”, “or”, “and/or” is used shall be insured
separately from any individually owned deposit account, provided that:

1. If the account is jointly owned by two or more natural persons or two or more juridical
persons or entities, the maximum insured deposit shall be divided as many equal shares
as there are individuals, juridical persons or entities, unless a different sharing is stipulated
in the document of deposit, and
2. 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.
*Note: Provided, further, that the aggregate of the interest of each co-owner 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 P500,000.

ADJUSTMENT TO MAXIMUM DEPOSIT INSURANCE- The amount of coverage may be

coverage may be adjusted in such amount, for such a period, and/or for such deposit
products, provided:

1. The Monetary Board has determined that there is a condition that threatens the monetary
and financial stability of the banking system that may have systematic consequences as
defined under RA No. 3591;
2. Approval by unanimous vote of the Board of Directors of the PDIC in a meeting called for
the purpose and chaired by the DOF Secretary;
3. Approval of the President of the Philippines.

CLAIMS: Claims are filed during the claims settlement operations period, as announced in
the Notice to Depositor.

Those required to file claim:

1. Depositors with valid deposit accounts with balances of more than P100,000.
2. Depositors who have outstanding obligations with the closed bank regardless of
amount of deposits.
3. Depositors with account balances of less than P100,000, who have no updated
addresses in the bank records or who have not updated their addresses through
the Mailing Address Update Form (MAUF) issued by PDIC.
4. Depositors who maintain their accounts under the name of business entities,
regardless of type of account and account balance.
5. Depositors with accounts not eligible for early payments, regardless of type of
account and account balance per advice of PDIC.

Those not required to file claims:

1. Depositors with valid deposit accounts with balances of P100,000 and below.
2. Depositors who have no obligation with the closed bank.
3. Depositors who have complete and updated addresses in the bank records or have
updated these through the Mailing Address Update Form (MAUF) issued by the
PDIC.

Who should sign the insurance claim?

1. Depositor of the account- for depositors 18 years old and above.

2. Parent- if the depositor is below 18 years old.
3. Agent- in the case of “By” accounts.
4. Trustees- in the case of “In Trust For” (ITF) accounts.
 5. Each Depositor- in the case of joint accounts such as “Or”, “And/Or” or “And”
accounts.

Effects of non-filing or non-enforcement of claim within the prescribed period:

1. All rights of the depositor against the PDIC with respect to the insured deposit shall be
barred.
2. All rights of the depositor against the closed banks and its shareholders or the receivership
estate to which the PDIC may have become subrogated, shall thereupon revert to the
depositor.
3. PDIC shall be discharged from any liability on the insured deposit.

Period for the PDIC to settle claims:

GENERAL RULE: PDIC has six (6) months from the date of filing of the claim. Failure to settle
the claim within six months from the date of filing of claim for insured deposit, where such failure
was due to grave abuse of discretion, gross negligence, bad faith or malice, shall upon conviction,
subject the directors, officers, or employees of PDIC responsible for the delay, to imprisonment
from six months to one year.

EXCEPTIONS TO THE RULES: That the period shall not apply if the validity of the claim requires
the resolution of issues of facts and/or law by another office, body or agency.

Distinction / Example Scenarios

Can PDIC insurance coverage be increased by having several accounts in the same name in an
insured bank?

- No. Deposit insurance coverage is not determined on a per-account basis. The type of
account (whether checking, savings, time or other form of deposit) has no bearing on the
amount of insurance coverage. Say for example, Mr. Park has a checking account with an
amount of P 1,000,000.00 in a bank, and at the same time, he has a savings account in the
same bank with an amount of P 2,000,000.00. With regard to the provisions of this Act, Mr.
Park’s insurance coverage is only for P 500,000.00 which is for both of the accounts held.

If the deposit account in a closed bank is more than P 500,000.00, what happens to the excess
of the maximum amount of insured deposit?

- If the closed bank is not rehabilitated or taken over by another bank, an amount in excess
of the P 500,000.00 coverage can still be claimed upon the final liquidation of the remaining
 assets of the closed bank. The claim may be filed with the Liquidator of the closed bank but
payment of the said claim will depend on the bank's available assets to settle its preferred
claims (Government taxes, labor claims, secured credits and trust funds) and approval of the
Liquidation Court. The schedule of payment beyond the P 500,000.00 maximum insurance
shall be based on priorities set by law.

Example scenario

If a depositor is the sole beneficial owner of a single, “For the Account of”, “By”, and “In Trust For”
accounts, the consolidated balances of these accounts shall be insured up to P 500,000.00. The
depositor’s total shares in all his/her joint accounts shall be separately insured up to P 500,000.00.
A depositor with single accounts and joint accounts may have insured deposits of up to P
1,000,000.00.

Fe Santos’s insured deposit if she has the following four deposit accounts in the same bank:

Mrs. Fe Santos is entitled to a maximum deposit insurance coverage of P 500,000.00 – after

determination that she is the sole beneficial owner of the four accounts.
Fe Santos’s insured deposit if she has the following three joint accounts in the same bank:

Mrs. Fe Santos does not have any insured deposit share since she has reached the maximum
insurance coverage totaling P 500,000.00 in the two joint accounts she has with Ben and Charlie
Santos.

Fe Santos’s insured deposit for all her single and joint accounts in the same bank:

PDIC Law QUIZ

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