President Gloria-Macapagal Arroyo today signed into law amendments to the Charter of the Philippine Deposit Insurance Corporation (PDIC), providing greater protection to all 26 million deposit accounts nationwide through an increase in the maximum deposit insurance coverage (MDIC) from P100,000 to P250,000.

Republic Act 9302, which takes effect on August 12, 2004, amended the PDIC Charter and provided depositors deposit insurance protection 2.5 times more than the present insurance coverage. The P250,000 MDIC restored the value of protection of the MDIC at P100,000 in 1992 at today's prices.

The law will now provide full protection to some 96 percent of deposit accounts compared to 91 percent under the previous ceiling of P100,000. As a result of higher MDIC, estimated insured deposits in the banking system increased from P463 billion to P717 billion.

Almost all or 99 percent of deposit accounts in the rural banks will be backed by full insurance protection, from 97 percent at previous insurance coverage. For thrift banks, 96 percent of their deposit accounts will be fully insured, up from 91 percent under the old limit. Some 95% of deposit accounts in commercial banks will be fully insured in contrast to 89% under the old limit.

Aside from the higher level of protection, the new law is also expected to instill greater financial discipline among bank owners and officials due to stiffer penalties for unsafe and unsound practices of up to 12 years in prison and a maximum of P2 million in fines. The measure is thus expected to lower the probability of more of our countrymen going through the pains, troubles, opportunity losses, and confidence erosion associated with bank closures.

The new law also commits to every depositor continued protection guaranteed by deposit insurance, as PDIC's authority to terminate the insurance status of banks, even those with delinquent premium payments, has been revoked. Thus, depositors no need longer worry whether their banks pay PDIC the appropriate amount of premium or not. Instead, the responsibility shifts to the officers and owners of banks as they are liable to stiff fines and penalties for non-payment.

With the coverage more than doubled, coupled with the non-termination of insurance status even for delinquent banks, there is much greater risk posed on the deposit insurance fund.

Thus, the law enhances PDIC's capability to minimize risks to the insurance fund by reinstating PDIC's authority to examine banks with prior approval of the Monetary Board to avoid duplication of work. This authority will fortify the financial system's safety net through complementary surveillance and examination by the Bangko Sentral ng Pilipinas (BSP) and PDIC, allowing prompt remedial intervention that could spare depositors and communities the adverse effects of bank closure.

The law also denounces poor maintenance and tampering of deposit records allowing PDIC to set standard of deposit record-keeping. This will facilitate insurance claims processing in case of bank closure.

The law also promotes greater market discipline as depositors are deterred from splitting large deposit balances in a bank to get around the insurance limit. The new ceiling is now to be applied on the sum of all the shares of a depositor in all joint accounts in a closed bank. Furthermore, depositors will no longer be attracted to abnormally high interest rates. PDIC as receiver now has the authority to reduce interest rates due depositors in closed banks to within industry average.

Additionally, the amended law has given more time to depositors to file their deposit insurance claims, extending the prescriptive period for filing claims from 18 months to 24 months.