Philippine Deposit Insurance Corporation (PDIC) President Jose C. Nograles said that the state deposit insurer will institutionalize new rules to help prevent deposit splitting which poses undue risk to the Deposit Insurance Fund (DIF). The DIF is the funding source for payouts of valid deposit insurance claims.

Splitting of deposit occurs when a deposit account of more than the maximum deposit insurance coverage under the name of a natural or juridical person is broken down and transferred into two or more accounts in the names of persons or entities with no beneficial ownership on the transferred deposits. This means that the transferee does not really own the deposit account, even if it is in his name and is only acting as a “dummy”. This practice is resorted to by individuals who put their money in risky instruments masquerading as deposits. Instead of bearing the higher risk associated with higher interest, they shift the risk to PDIC, by resorting to splitting so that each split account will be within the maximum deposit insurance coverage. This is what is known as moral hazard.

Nograles said among the measures being studied by the PDIC is the inclusion of a sworn statement in the claim form for deposit insurance. This will make the false “transferees” or dummies criminally liable for any misrepresentation concerning the claim for deposit insurance, particularly with regard to ownership of the deposit. Introducing the risk of criminal liability is intended to discourage persons willing to act as dummies. “PDIC will also adopt payment of valid deposit insurance claims through registered mail as a standard payment system not only for faster service to depositors, but to ascertain that only valid deposit insurance claims are paid. Mailing the checks to claimants on record will also make it difficult for a depositor of split accounts to control receipt of the payments by their dummies,” Nograles said.

Under the new PDIC Charter (as revised by RA 9576) which increases deposit insurance coverage from P250,000 to P500,000 effective June 1, 2009, the Corporation was granted institutional strengthening powers to deal with the risks associated with higher deposit insurance coverage. This includes more stringent rules on splitting of accounts.

The new law prohibits splitting of deposits within 120 days from bank closure or declaration of bank holiday. Under the old law, deposit splitting is not allowed within 30 days from bank closure. “The longer window set by law along with the new rules will help ensure that benefits of deposit insurance are not abused,” Nograles said.