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President Aquino signs law enhancing depositor protection

President Benigno Aquino III signed Republic Act No. 10846 amending the Charter of the Philippine Deposit Insurance Corporation (PDIC) or the deposit insurance law. The depositing public, consisting of approximately 50 million deposit account holders as of December 2015, stands to benefit from the amendments which further enhanced PDIC's authority to provide depositor protection. The law also gives PDIC fiscal and administrative autonomy and authority to resolve problem banks while still open. R.A. 10846 will take effect 15 days following the publication in the Official Gazette or in two (2) newspapers of general circulation.

R.A. No. 10846 is a product of the painstaking work undertaken by the authors in both Houses of Congress - Senator Sergio R. OsmeƱa III, as Chairman of the Senate Committee on Banks, Financial Institutions and Currencies, and by Rep. Nelson P. Collantes, Chairman of the Committee on Banks and Other Financial Intermediaries of the House of Representatives.

PDIC President Cristina Que Orbeta welcomed the passage of the law. "The amendments to the deposit insurance law will ultimately redound to the benefit of the depositing public. The enhanced authorities will afford depositors better protection as PDIC may now address risks posed by problem banks early on. This will also enable PDIC to perform its role in maintaining financial stability and managing the Deposit Insurance Fund (DIF)," Orbeta said.

Under the law, depositors will 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 bank, and based on evidence of deposits and not on the closed bank's records alone. To further protect depositors from unsafe and unsound banking practices of some banks, the law also restored PDIC's authority to terminate the insured status of banks that engage in unsafe and unsound banking practices.

With its enhanced resolution authorities, PDIC will also be able to more effectively promote financial inclusion through early intervention in problem banks or open bank resolution.

In cases where bank closure becomes inevitable, R.A. 10846 enhanced the chances of recovery by creditors of their claims against the assets of the closed bank by preventing the further dissipation of these assets through seamless transition from bank closure to liquidation. The law does away with the 90-day receivership period and allows PDIC to proceed directly to liquidation. The immediate assignment of encumbered assets to closed bank creditors, adoption of purchase of assets and assumption of liabilities as a mode of liquidation, and express prohibition on reopening of banks ordered closed by the Monetary Board will help enhance recovery rate for creditors of closed banks.

R.A. 10846 also strengthened PDIC's institutional and governance framework to align it with international best practices.

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The Philippine Deposit Insurance Corporation (PDIC) was established on June 22, 1963 by Republic Act 3591 to provide depositor protection and help maintain stability in the financial system by providing permanent and continuing deposit insurance. 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. A joint account shall be insured separately from any individually-owned deposit account.

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PDIC is a government instrumentality created in
1963 by virtue of Republic Act 3591, as amended,
to insure the deposits of all banks. PDIC exists to
protect depositors by providing deposit insurance coverage for the depositing public and help promote financial stability
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