IMF backs PDIC on additional powers

MANILA, Philippines - State-run Philippine Deposit Insurance Corp. (PDIC) said the International Monetary Fund (IMF) is supporting the agency’s proposal to scrap the 90-day rehabilitation window after bank closures and instead establish a bridge bank authority.

PDIC president Jose Nograles said in a statement that the support was contained in IMF’s latest Financial System Stability Assessment Update on the Philippines wherein the IMF’s Monetary and Capital Markets and Asia and Pacific Departments recommended key measures to address most of the remaining constraints in regulation and to further strengthen the current prompt and corrective action (PCA) framework.

Nograles pointed out that the IMF stated in the update that the conservator or receiver should be allowed to take full control to restructure a bank without shareholder approval. 

He added that the IMF report also stressed that the rehabilitation period allowed owners during receivership should be eliminated and called for the establishment of a bridge bank resolution mechanism and that PDIC be protected against litigation. 

The PDIC chief welcomed the IMF report and added that it was timely in ushering in a second wave of legislative banking reforms after the passage of the amended deposit insurance law last year. 

Nograles said bank rehabilitation should take place during the PCA period when the bank is still in operation and not after closure. 

“Under the present system, a bank found in early stages of distress and non-compliance with standard conditions and ratings is placed under PCA. When all options of rehabilitation have failed, the bank is ordered closed by the Monetary Board and placed under the receivership of PDIC,” he added.

However, Nograles said the PDIC is mandated by existing regulations to accept rehabilitation proposals from previous owners and stockholders of the closed bank during the 90-day receivership period. 

He explained that PDIC could quickly undertake liquidation of the closed bank without the mandatory rehabilitation option after bank closure.

The state deposit insurer have three options to liquidate closed banks including the purchase of assets and assumption of liabilities, to organize a bridge bank, and the outright sale of the closed bank’s assets.

A bridge bank refers to a temporary bank set up and operated to acquire assets and assume liabilities of a failed bank to facilitate its resolution. 

The bridge bank would be authorized to purchase assets, assume deposits, and other liabilities and perform banking functions. 

Nograles said PDIC as a statutory receiver and liquidator of closed banks has proposed to undertake the aforementioned functions.

“A bridge bank will ensure that there will be no disruption in banking services hence, maintain depositor confidence,” he explained. 

According to him, the bridge bank is a less costly alternative for the PDIC Deposit Insurance Fund (DIF) than payout.