Philippine Deposit Insurance Corporation

What is the purpose of Act No. 3591, amended by RA 7400 and 9302?

The act provides for the creation of the Philippine Deposit Insurance Corporation (PDIC), a government corporation, financed completely by BSP, acting with basic policy to "promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits".

What is the overall mandate of PDIC?

1.  To promote and safeguard the interest of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits

2.  To strengthen public confidence in the banking system to foster financial stability 

Compulsory Insurance of Deposits

It is obligatory for banks to insure their deposits with, and pay premiums thereon to PDIC. 

The deposit liabilities of any bank or banking institution, which is engaged in the business of receiving deposits or which thereafter may engage in the business of receiving deposits shall be insured with the Corporation.

What is the maximum deposit insurance coverage?

Effective June 1, 2009, the maximum deposit insurance coverage is P500,000 per depositor. All deposit accounts by a depositor in a closed bank maintained in the same right and capacity shall be added together. Under R.A. No. 9576, the PDIC may propose to adjust the MDIC, subject to the approval of the President of the Philippines, in case of a condition that threatens the monetary and financial stability of the banking system that may have systemic consequences.

Adverse conditions

In case of a condition that threatens the monetary and financial stability of the banking system that may have systemic consequences, as defined in section 17 hereof, as determined by the Monetary Board, the maximum deposit insurance cover may be adjusted in such amount, for such a period, and/or for such deposit products, as may be determined by a unanimous vote of the Board of Directors in a meeting called for the purpose and chaired by the Secretary of Finance, subject to the approval of the President of the Philippines.

What is an insured deposit?

Insured deposit is the net amount due to any depositor for deposits in an insured bank after deducting unpaid loans and other obligations to the bank as of date of closure, but not to exceed P500,000.00. 

Determination of insured deposit

In determining the insured amount, the outstanding balance of each account is adjusted, such that interests are updated, withholding taxes are deducted, accounts maintained by a depositor in the same right and capacity are added together; and whenever applicable, unpaid loans and other obligations of the depositor are deducted; and in no case shall insured deposit exceed P500,000.

Per depositor, per capacity rule

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

A joint account regardless of whether the conjunction "and," "or," "and/or" is used, shall be insured separately from any individually-owned deposit account: 

(1) 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 stipulated in the document of deposit, 

(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: 

The aggregate of the interest 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 (P500,000.00).

Owner/holder of negotiable certificate of deposit 

The provisions of any law to the contrary notwithstanding, no owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the rights provided in this Act unless his name is registered as owner/holder thereof in the books of the issuing bank.

Deposit accounts not entitled to payment

The Corporation shall not pay deposit insurance for the following accounts or transactions, whether denominated, documented, recorded or booked as deposit by the bank:

1. Investment products such as bonds and securities, trust accounts, and other similar instruments;

2. Deposit accounts or transactions which are unfunded, or that are fictitious or fraudulent;

3. Deposit accounts or transactions constituting or emanating from unsafe and unsound banking practices; and

4. Deposits that are determined to be the proceeds of an unlawful activity as defined under the Anti-Money Laundering Law.

What types of deposits are insured with PDIC?

All peso and foreign currency savings deposit account, time deposit accounts, current or demand deposit or checking accounts are insured with PDIC (demand, savings and time)

Are the deposits of all banks insured with PDIC?

Except for the exclusions stipulated in RA 9576, deposits of all commercial banks, savings and mortgage banks, rural banks, private development banks, cooperative banks, savings and loan associations, as well as branches and agencies in the Philippines of foreign banks and all other corporations authorized to perform banking functions in the Philippines, are insured with PDIC. But PDIC insurance only covers deposits in banks located in the Philippines. Deposits in overseas branches of local banks are not insured with PDIC. As for Philippine banks with branches outside the country, RA 9576 stipulates that subject to the approval of the Board of Directors, any insured bank with branch outside the Philippines may elect to include for insurance its deposit obligations payable at such branch.

Foreign currency deposits are also insured by PDIC pursuant to RA 6426 (“An act instituting a foreign currency deposit system in the Philippines, and for other purposes”) and Central Bank (CB) Circular No. 1389. Depositors may receive payment in the same currency in which the insured deposit is denominated.

Statutory liability

PDIC is primarily governed by the provisions of the law creating it. Hence, liability is statutory and rests upon the existence of deposits with the insured bank. (PDIC vs. CA, December 22, 1997) 

Commencement of liability

The Corporation shall commence the determination of insured deposits due the depositors of a closed bank upon its actual takeover of the closed bank. The Corporation shall give notice to the depositors of the closed bank of the insured deposits due them by whatever means deemed appropriate by the Board of Directors: Provided, That the Corporation shall publish the notice once a week for at least three (3) consecutive weeks in a newspaper of general circulation or, when appropriate, in a newspaper circulated in the community or communities where the closed bank or its branches are located.

Extent of liability

PDIC covers only the risk of a bank closure ordered by the Monetary Board. Thus, bank losses due to theft, fire, closure by reason of strike or existence of public disorder, revolution or civil war, are not covered by PDIC.

Mode of payment

Whenever an insured bank shall have been closed by the Monetary Board pursuant to Section 30 of R.A. 7653, payment of the insured deposits on such closed bank shall be made by the Corporation as soon as possible either 

(1) by cash or 

(2) by making available to each depositor a transferred deposit in another insured bank in an amount equal to insured deposit of such depositor.

Provided, however, That the Corporation, in its discretion, may require proof of claims to be filed before paying the insured deposits, and that in any case where the Corporation is not satisfied as to the viability of a claim for an insured deposit, it may require final determination of a court of competent jurisdiction before paying such claim.

Transfer deposit

“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.

Trust fund

“trust funds” means funds held by an insured bank in a fiduciary capacity and includes without being limited to, funds held as trustee, executor, administrator, guardian or agent.

Effect of payment of insured deposit

The Corporation, upon payment of any depositor, 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 the Corporation 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.

Payment of insured deposits is considered preferred credit

All payments by the Corporation 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 of the New Civil Code: Provided, further, That this preference shall be likewise effective upon liquidation proceedings already commenced and pending as of the approval of this Act, where no distribution of assets has been made.

Failure of depositor to claim insured deposits

Unless otherwise waived by the Corporation, if the depositor in the closed bank shall fail to claim his insured deposits with the Corporation within two (2) years from actual takeover of the closed bank by the receiver, or does not enforce his claim filed with the corporation within two (2) years after the two-year period to file a claim as mentioned hereinabove, 

1. all rights of the depositor against the Corporation with respect to the insured deposit shall be barred; 

2. however, all rights of the depositor against the closed bank and its shareholders or the receivership estate to which the Corporation may have become subrogated, shall thereupon revert to the depositor. Thereafter, the Corporation shall be discharged from any liability on the insured deposit.

Failure to settle the claim

That failure to settle the claim, within six (6) 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 the Corporation responsible for the delay, to imprisonment from six (6) months to one year. 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 including the case mentioned in the first proviso or by the Corporation together with such other office, body or agency. 

Prohibition against splitting of deposits

Splitting of deposits or creation of fictitious loans or deposit accounts is prohibited. Any director, officer, employee or agent of a bank found violating this rule will be penalized with prision mayor or a fine of not less than P50,000.00 but not more than 2 million pesos, or both, at the discretion of the court.

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 (2) 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 bank holiday, or immediately preceding a closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas for the purpose of availing of the maximum deposit insurance coverage. 

Prohibition against issuance of TROs, etc.

No court, except the Court of Appeals, shall issue any temporary restraining order, preliminary injunction or preliminary mandatory injunction against the Corporation for any action under this Act. (As added by R.A. 9302, 12 August 2004)

This prohibition shall apply in all cases, disputes or controversies instituted by a private party, the insured bank, or any shareholder of the insured bank. (As added by R.A. 9302, 12 August 2004)

The Supreme Court may issue a restraining order or injunction when the matter is of extreme urgency involving a constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable injury will arise. The party applying for the issuance of a restraining order or injunction shall file a bond in an amount to be fixed by the Supreme Court, which bond shall accrue in favor of the Corporation if the court should finally decide that the applicant was not entitled to the relief sought. 
(As added by R.A. 9302, 12 August 2004).

Any restraining order or injunction issued in violation of this Section is void and of no force and effect and any judge who has issued the same shall suffer the penalty of suspension of at least sixty (60) days without pay. 

Bar Questions

Q: What may be insured by the banks with PDIC? What may not be insured with the corporation?

A: The deposits of the banks that may give rise to deposit liabilities are: demand, saving and time deposits. If depositor has three of these deposits, he can only recover to the maximum of P500,000.00 for he is considered only as one depositor.  Trust funds deposited with an insured bank and bearer time deposit certificates with no registered payee are excluded from the insurance coverage.

Q: The Deposit Insurance Law insures deposits up to P100,000.00, per depositor. X has three separate deposits in a single bank, namely: P150,000.00- savings deposit; P150,000.00 time deposits; and P150,000.00 checking deposit. Later on, the bank ran into financial trouble and was ordered by the Central Bank to close and liquidate. How much may X recover? Answer with reasons (BAR Q, 1977,1985).

A: His recovery is limited to P100,000.00 which is the maximum ceiling.

Q: An. employee of a large manufacturing firm earns a salary which is just a bit more than what he needs for a comfortable living. He is thus able to still maintain a P10,000.00 saving account, P20,000.00 checking account, a P30,000.00 money market placement and P40,000.00 trust fund in a medium-size commercial bank. State which of the four accounts are deemed insured by the Philippine Deposit Insurance Corporation (BAR Q. 1997).

A: Of the four accounts, the recoverable accounts are only two: the saving and the checking. The last two accounts are excluded, not being covered by the term deposit.