Philippine Deposit Insurance Corporation (PDIC) President Jose C. Nograles said that the proposed temporary four-fold increase in the maximum deposit insurance coverage (MDIC) from P250,000 to P1 million will require the support of institutional and financial strengthening measures to adequately protect depositors and mitigate moral hazard.

Guesting recently over NBN 4’s Congress in Action public service program, Nograles said that PDIC supports a temporary increase in the MDIC to P1 million for a period of three years, extendable if warranted. Rep. Jaime Lopez, Chairman of the House Committee on Banks and Financial Institutions and BSP Deputy Governor Nestor A. Espenilla, Jr., who also guested in the program, agreed that there is a need to increase deposit insurance levels as a preemptive measure given the current financial crisis.

Under the PDIC proposal, the state deposit insurer will cover P250,000 insurance, and the P750,000 will be paid the National Government (NG). He said that PDIC is proposing the adoption of institutional and financial strengthening measures to buttress the quadrupling of the MDIC, citing the need to take confidence-building measures in response to the global financial crisis. Among the institutional strengthening measures being proposed to mitigate moral hazard and strengthen oversight function are to grant PDIC authority to determine insured deposits, authority to conduct independent special limited bank examination, authority to organize bridge bank and immunity from suit.

Nograles said that the proposed institutional strengthening measures will be complemented by financial strengthening initiatives that will shore up the Deposit Insurance Fund (DIF) thereby bolstering confidence in the banking system and sending a strong signal that the country will be ready in case it is adversely affected by the global crisis. These financial strengthening measures are increase in NG contribution to the Deposit Insurance Fund (DIF) by P24 billion, grant of tax-exempt status and sovereign guarantee on PDIC’s borrowings.

The PDIC President noted that the crisis is temporary and nobody knows its depth and breadth hence, the imperative to put in place a flexible, quick response mechanism to react to any eventuality. He expressed optimism that the increase in MDIC together with the proposed corollary measures will further contribute to the stability of the financial system.