Published 26 April 2019, The Daily Tribune
As a private practitioner and law professor, I have seen, handled, and read through the years cases involving bank closures. In theory, banks should not collapse. They presumably are backed-up by adequate financial resources and ably managed by competent professionals. In actuality though, banks do often fail. Foreign banks are no exception.
Simple but practical advice then – choose your depository bank well. You don’t want your hard-earned money down the drain due to erroneous choice of bank. In one case, a litigant obtained a favorable judgment after a decade of protracted dispute resolution but made the costly mistake of depositing his money judgment in a bank which collapsed. I have a friend who placed his savings in a bank after being dazzled by its freebie promos. He enjoyed the freebies alright but not his money after the bank suffered a financial meltdown.
There is also this law firm which entrusted its retirement fund with a bank that subsequently folded-up. I can go on and on and on but I think I already made my point on the prudent choice of depository bank. Among the banks with perceived solid reputation for sound management, adequate resources and fiscal discipline, and therefore a prudent choice as keeper of your deposits, are BDO, Union Bank, ICBC, PBCom, East West Bank, PNB, Security Bank, UCPB and Equicom Savings Bank I am sure reasons can be given to favorably endorse other banks. However, I cannot speak for them for lack of privity of relationship.
Banks are ordered closed by their regulator, Bangko Sentral ng Pilipinas (BSP), generally due to insolvency or continuing state of illiquidity. A bank is insolvent if the realizable value of its assets is less than its liabilities. Illiquidity is a financial condition where the bank does not have adequate cash or assets easily convertible to cash to safeguard the interests of its stakeholders. When BSP shuts down a bank, the Philippine Deposit Insurance Corporation (PDIC) takes over and assumes control of such bank. PDIC was created, among others, to promote and safeguard the interest of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits.
What do you do then if BSP forbids your bank from doing business and eventually ordered liquidated? Simply claim your insured deposit from PDIC and participate in the liquidation proceedings to recover your bank deposit in excess of the statutory maximum insurance coverage. Here are a few reminders on claiming insured deposits with PDIC.
The term “insured deposits” means the amount due to any bona fide depositor for legitimate deposits in an insured bank net of any obligation of the depositor to the insured bank as of the date of the closure but not to exceed P 500,000.
In order for the claim for deposit insurance with the PDIC to prosper, it is necessary that the corresponding deposit must be placed in and actually received by the insured bank and the latter is eventually ordered closed by BSP.
In one case, an investor placed his funds in a money market placement with a finance company. On maturity, the invested funds cannot be paid owing to the insolvency of the finance company but the latter referred the investor to its bank- affiliate which thereafter issued a certificate of deposit to the same investor. The deposit was likewise not paid because the bank eventually closed. The investor filed an insurance claim covering the supposed deposit. PDIC denied it. The legality of the denial was thereafter assailed. The High Court sustained the PDIC, ruling that the liability of PDIC is statutory. It is based on the actual receipt by the bank of deposits not on a mere certification on the existence of deposit. (PDIC vs Court of Appeals 283 SCRA 462)
In another case, PDIC also denied the insurance claim when it discovered that the money allegedly placed with the insured bank was actually credited to the personal account of the bank President and the certificates of time deposit ( CTD) were not duly issued by the bank but were mere replicas of unissued CTDs in the inventory submitted by the bank with PDIC. The Supreme Court found no grave abuse of discretion on the part of PDIC, holding that PDIC’s acts were consistent with law. ( Spouses Chugani vs Philippine Deposit Insurance Corporation, GR No. 230037, March 19, 2018 )
The term “ deposit “ means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings time or thrift account. The deposit must give rise to creditor-debtor relationship between the bank and the depositor. It also includes foreign currency deposits, as well as deposits with branches and subsidiaries of foreign banks licensed by BSP to perform banking functions in the Philippines. Incidentally, deposits in a branch of domestic bank outside the Philippines shall not be covered unless the insured bank elects to include the same for insurance subject to approval of the PDIC.
PDIC shall commence the determination of insured deposits due to the depositors of the closed bank upon its actual take-over of the closed bank.
Deposit accounts not entitled to payment
PDIC shall not pay deposit insurance for the following accounts or transactions whether denominated, documented, recorded or booked as deposit by the bank:
- investment products such as bonds and securities, trust accounts, and other similar instruments;
- deposit accounts or transactions which are unfunded, or that are fictitious or fraudulent;
- deposit accounts or transactions constituting unsafe and unsound banking practices as determined by PDIC, in consultation with BSP, after due notice and hearing, and publication of a cease and desist order issued by the PDIC against such deposit accounts or transactions; and
- deposits that are determined to be the proceeds of an unlawful activity as defined under the Anti-Money Laundering law .
In my next article, I will discuss the nitty gritty of filing and processing of insurance claim with PDIC. For comments and questions, please send an email to email@example.com.