The Department of Finance (DOF) is backing a legislative measure that seeks to provide the Philippine Deposit Insurance Corp. (PDIC) the flexibility to adjust its maximum deposit insurance coverage based on prevailing economic indicators, along with other amendments to the institution’s charter that aim to boost public confidence in the banking system and broaden financial inclusion.
Finance Secretary Carlos Dominguez III said that the PDIC Board should be given this flexibility without having to get a law passed to do it.
He also backed the proposed amendments to the PDIC Charter that aim to clearly delineate the functions of the PDIC and the Bangko Sentral ng Pilipinas (BSP) to ensure that the former focuses on its primary functions of being a “pay box” for deposit insurance claims and a liquidator of failed banks.
The BSP, in turn, will take over all of PDIC’s regulatory functions, such as the issuance of cease-and-desist orders relating to unsound banking practices, to help prevent confusing functions and sending confounding signals to the banking industry, Dominguez said.
For better coordination between the two agencies, the PDIC will be transferred from the DOF to the BSP as an attached corporation.
These proposed reforms in the PDIC Charter are outlined in Senate Bill (SB) No. 2089 filed by Sen. Juan Edgardo Angara and SB No. 1260 by Sen. Ramon Revilla Jr.
“We can further enhance the vital role played by the PDIC in our economy to boost the public’s confidence in the banking system, especially during these challenging times as mentioned by Senator Revilla,” Dominguez said in Friday’s Senate hearing on the proposed PDIC Charter amendments.
“Overall, the proposed amendments are reasonable. These will ensure that the PDIC will be fully capable of protecting our people’s hard-earned savings. The bill will also help in revitalizing our economy over the long term,” he added.
Dominguez recalled that it was more than a decade ago when the PDIC last increased its deposit insurance coverage from P250,000 to P500,000 through the effort of Angara’s father, the late former Senate President Edgardo Angara.
It took the passage of the elder Angara’s bill into law—Republic Act (RA) No.9576—to have the PDIC’s deposit insurance coverage increased amid the uncertainties triggered by the 2008 financial crisis.
“The proposed amendments remove the tedious process of passing a law each time the maximum coverage needs to be adjusted. They will also do away with the requirement of a BSP-determined financial crisis to make a routine adjustment in the insurance coverage levels. In other words, the proposed bill will make the PDIC more responsive to the constantly changing financial landscape,” Dominguez said during the joint hearing.
The hearing was presided by Angara, the vice chairperson of the Senate Committee on Banks, Financial Institutions and Currencies.
Dominguez said giving the PDIC the authority to adjust its insurance coverage levels will make it better capable of fulfilling its mandate of protecting small depositors and supporting a sound and stable banking system.
“As an institution, it will be more nimble and adept in responding to prevailing economic conditions, such as elevated inflation rates or sharp currency fluctuations,” Dominguez said.
Dominguez said the DOF is also backing the proposed amendments to the PDIC Charter that will provide its board of directors with the flexibility to set up insurance coverage for new technology-driven financial products, as well as for depositors in Islamic banks.
He said this flexibility will ensure that the PDIC is able to adequately protect depositors in the Islamic banking system and in other financial services.
“This has the potential to expand banking services in the country and broaden financial inclusion among all our people,” Dominguez added.
Dominguez also backed a provision in Angara’s bill that aims to align the compensation structure of the PDIC with other government-owned and -controlled corporations (GOCCs) through a framework that will provide for base pay structures that are comparable with those in the private sector.
“This will take into consideration the PDIC’s unique function, the complexity of its operations as well as its financial capacity and sustainability. With the proposal, the government will be able to adhere to its policy of equal pay for work of equal value,” Dominguez said.
Dominguez said the bill’s proposed amendments will also clarify how the Dividend Law (RA 7656) applies to the PDIC in remitting portions of its income to the Bureau of the Treasury (BTr).
A new clause on dividend remittances will be added to the PDIC Charter to provide the institution the flexibility it needs to ensure that its Deposit Insurance Fund is always sufficient to pay insurance claims, if and when needed.
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