The Philippine Deposit Insurance Corp. (PDIC) said it supports a proposal to increase bank deposit insurance up to P1 million but stressed regulatory measures are needed to address the “moral hazards” that might arise.
PDIC president Jose C. Nograles said the PDIC new regulatory issuances (RIs) are being drafted to mitigate the danger of changing depositor behavior so that they would no longer exercise caution when choosing which bank to do business with.
Moral hazard, Nograles explained, occurs when an individual or institution would tend to behave recklessly because the risks are borne by another party.
In the case of bank deposit insurance, the threat of moral hazard is heightened when there is an increase in deposit insurance coverage. According to Nograles, however, it is the nature of insurance to recognize, address and minimize such risks.
“We are looking at measures to strengthen our oversight function as co-regulator of banks as well as reviewing existing regulations and creating new ones,” he said.
Nograles said the proposed increase in the maximum deposit insurance coverage (MDIC) hastened the need to issue the appropriate RIs to strengthen PDIC’s co-regulatory functions.
He said among the RIs under review are related to deposit record-keeping, beneficial ownership of deposits and bank examination.
The regulation on deposit record-keeping provided for standards in record-keeping of bank deposits, and would identify the required documents for submission to PDIC and the criminal liability of bank directors, officers, employees and agents found to have willfully failed or refused to submit said documents as provided in the PDIC Charter.
Nograles said this is a significant RI aimed at assisting PDIC evaluate the financial health of banks and help in risk management. Proper record-keeping, he added, would also benefit depositors by assuring them that their bank transactions are accurately recorded.
The RI on beneficial ownership, on the other hand, would provide a set of guidelines to determine beneficial ownership of deposits and weed out fictitious accounts. PDIC has the power to sanction bank officials violating RIs.
Moreover, Nograles said PDIC is also preparing new RIs aimed at determining which financial instruments are deemed deposit products and are therefore covered by insurance.
“This will guard against moral hazard by classifying the types of deposits eligible for deposit insurance coverage,” he said.