PDIC Law (Republic Act 3591, As Amended)

BRIEF BACKGROUND
• Government instrumentality created in 1963 by virtue of R.A. 3591
• PDIC is an attached agency of the Department of Finance
• Latest amendments are contained in R.A.10846
 empowered PDIC with stronger authorities to protect the depositing public and promote
financial stability
 PDIC now has the authority
 Help depositors to have quicker access to their insured deposits should their bank close
 Resolve problem banks while still open
 Hasten liquidation process for closed banks
 Mete out stiffer sanctions and penalties against those who engage in unsafe and
unsound banking practices

PURPOSE OF THE LAW

• Insure the deposits of all banks which are entitled to the benefits of insurance
• Promote and safeguard the interests of the depositing public
• Providing insurance coverage on all insured deposits
• Helping maintain a sound and stable banking system

FUNCTIONS OF PDIC
To act as:
1. deposit insurer
- PDIC as a basic policy, promote and safeguard the interest of the depositing public by way of
providing permanent and continuing insurance coverage on all insured.
2. co-regulator of banks
- Empowered to examine and investigate banks.

Examination of Banks:
 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.
 Such process involves an intrusion into a bank’s records.

Investigation of Banks:
 Conducted based on specific findings of certain acts or omissions which are subject of a
complaint or a Final Report Examination made by PDIC.
 Does not involve a general evaluation of the status of a bank but zeroes in on specific acts and
omissions uncovered via an examination, or which are cited in a complaint.
3. receiver and liquidator of closed banks
- PDIC as receiver shall control, manage and administer the affairs of the closed bank.

COVERAGE OF PDIC
 Deposit liabilities of any bank or banking institution, which is engaged in the business of receiving
deposits.

DEPOSIT
• Unpaid balance of money or its equivalent received by a bank in the usual course of business
• For which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift
account
• Evidenced by passbook, certificate of deposit or other evidence of deposit

INSURED DEPOSIT
• 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 P500,000.
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 Examples of types of deposits covered:
1. Savings Deposit
2. Special Savings
3. Demand/Checking Account
4. Negotiable Order of Withdrawal (NOW)
5. Certificate of Time Deposits
6. Foreign Currency Deposits

Can the maximum deposit insurance be adjusted?

• Yes, it may be adjusted in such amount, for such a period, and/or for such deposit products provided
the following are complied with
i. The Monetary Board has determined that there is a condition that threatens the monetary and
financial stability of the banking system
ii. The adjustments is approved by a unanimous vote of the BoDs of PDIC in a meeting called for the
purpose and chaired by the Sec. of Finance
iii. Adjustments are approved by the President of the Phils.

Systemic Risk
 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 normal clearing and
settlement activity.
 It is the likelihood of a sudden, unexpected collapse of confidence in a significant portion of the
banking or financial system with potentially large real economic effects.

Deposits Accounts Not Entitled to Payment

1. Deposit products that resulted from splitting of deposit.

Splitting of Deposit
 This occurs whenever
 A deposit account with an outstanding balance of more than P500,000 is broken down and
transferred to two or more accounts in the name of persons or entities who have no beneficial
ownership in the transferred deposits in their names.
 Within 120 days immediately preceding or during a bank-declared bank holiday or
immediately preceding a closure issued by the Monetary Board
 For the purpose of availing the maximum deposit insurance coverage.

 This is considered as a criminal act punishable by imprisonment of not less than 6 years but not more
than 12 years or a fine of not less than P50,000 but not more than P10,000,000 or both at the
discretion of the court.

2. Deposit products or money placements by the head office of a foreign bank in its branch in the Philippines
because there is only one entity.
3. Deposits that are determined to be the proceeds of an unlawful activity as defined under the Anti-Money
Laundering Act as amended
4. Deposits payable in a place outside the Philippines (like those in foreign branches)

Sioux maintains P200,000 in BDO Bank’s Cebu branch and P250,000 in BDO Bank’s US Branch. In the
event of a closure of BDO Bank, how much is Sioux’s insured deposit?

P200,000. The P250,000 deposited in BDO bank’s US Branch is not covered being payable outside of the
Phils.

5. Deposit accounts or transactions which are unfunded and that are fictitious or fraudulent
6. Deposit accounts or transactions constituting and/or emanating from unsafe and unsound banking
practice/s, as determined by PDIC, in consultation with BSP, after due notice and hearing, and publication of
a cease and desist order issued by PDIC against such deposit accounts or transactions.
7. Investment products such as bonds and securities, trust accounts and other similar instruments.

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MAXIMUM LIABILITY

Per Bank

The entitlement to deposit insurance is on a per bank basis

If Peony has a deposit with BPI Bank and CBC Bank and both banks closed, Peony is entitled to
P500,000 insurance coverage for each bank.

Per Depositor, Per Capacity Rule:

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 shall be added together in determining the insured amount, and regardless of the type of
account.

Accounts “By”, “In Trust For (ITF)” or “For The Account of (FAO)” another person:
1. In a “By” account (Claes by Bjork) – Claes is the depositor.
2. “ITF” account (Claes ITF Bjork) - Bjork is the depositor
3. “FAO” account (Claes FAO Bjork) - Bjork is the depositor

Individual Accounts:
All individual accounts of a depositor, including those where ownership is vested, shall be insured to a
maximum of P500,000.

How much is Steff Go’s insured deposit if she has the following deposits in the same bank?

Account Name Deposit in Php Insured Deposit of Steff

Steff Go 100,000 100,000
Elmer Go For the Account of Steff Go 100,000 100,000
Steff Go In Trust For Roberto Dy 50,000 n/a
Glenda Sy In Trust For Steff Go 100,000 100,000
Steff Go For the Account of Rose Mi 75,000 n/a
Steff Go’s Sunday Dress Store (Sole Proprietorship) 700,000 200,000
Total 1,125,000 500,000

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, provided that:

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; 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.

Provided, further, that 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 P500,000.

The P500,000 entitlement to joint deposits is separate from the P500,000 applicable to the individually
owned accounts by the depositor, giving him a maximum of P1,000,000 insurance coverage.

Thus, a depositor who maintains both individual and joint accounts maybe insured up to a total of
P1,000,000: P500,000 for all his individual accounts, P500,000 for all his joint accounts.

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Illustration:

Marcus Ty maintains the following accounts with CBC Bank:

Account Name Type of Deposit Balance

Marcus Ty Savings P800,000
Marcus Ty AND Sandra Li Demand 500,000
Marcus Ty OR Danilo Yu Time 1,000,000

1. How much is the total insured and uninsured deposit of Marcus Ty?

Account Name Type of Deposit Balance Insured Uninsured

Marcus Ty Savings 800,000 P500,000 P300,000
Marcus Ty AND Sandra Li Demand 500,000 250,000 0
Marcus Ty OR Danilo Yu Time 1,000,000 250,000 250,000
P1,000,000 P550,000

2. If Marcus Ty had another joint account with Rolando, the balance of which is P700,000, how much is the
total insured and uninsured deposit of Marcus Ty?

Marcus Ty’s share of the balance will be P350,000 but there is no more insurance coverage for Marcus since
he already exhausted the P500,000 insurance coverage with the first two joint accounts.

PROCEDURE FOR THE PDIC

1. PDIC shall commence the determination of insured deposits due the depositors of a closed bank upon its
actual takeover of the closed bank.
2. PDIC 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.
3. PDIC shall publish the notice once a week for at least 3 consecutive weeks in a newspaper of general
circulation in the community where the closed bank or its branches are located.

CERTIFICATE OF DEPOSIT
The name of the owner/holder of any negotiable certificate of deposit shall be registered as owner/holder in
the books of the issuing bank.
Otherwise, the depositor will not be recognized as a depositor entitled to the rights in PDIC Act.

CLAIMS
These are filed during the claims settlement operations period, as announced in the Notice to Depositors
published in national or local newspapers, or posted in the bank premises and conspicuous places within the
locality and in the PDIC website.

Those required to file claims:

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 Mailing Address Update Form (MAUF) issued by
the PDIC.
4. Depositors who maintain their accounts under the name of business, regardless of the type of account and
account balance.
5. Depositors with accounts not eligible for early payment, 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
Provided:
 no obligations with the closed bank
 have complete and updated addresses in the bank records or have updated these through
MAUF issued by PDIC.

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These depositors are entitled to immediate/early payment of deposit insurance claim as part of PDIC’s
initiative to provide convenience to small depositors.

Payments are sent to the depositor’s mailing address as postal money orders.

Who should sign the insurance claim?

Depositor For depositors who are 18 years old and above
Parent If the depositor is below 18 years old
Agent For “By” accounts
Trustee For “In Trust For” ITF accounts
Each Depositor For joint accounts

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 a claim

Proof of claim
 PDIC may require proof of claims to be filed before paying the insured deposits
 In any case where PDIC is not satisfied as to the validity of a claim
- It may require final determination of a court of competent jurisdiction before paying.

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

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

Modes of payment
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
 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
 Any liability of such depositor to the closed bank or its receiver which is not offset against a
claim due from such bank

Effect of payment
 PDIC shall be subrogated to all rights of the depositor against the closed bank to the extent of such
payment

Period for the PDIC to settle claim

 6 months from the date of filing of the claim
 Failure to settle the claim within the said period due to grave abuse of discretion, gross negligence,
bad faith or malice
- Upon conviction, will be subjected to imprisonment from 6 months to 1 year
- EXC: 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

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