Understanding Deposit Insurance

Understanding
Deposit Insurance
Maximum Deposit Insurance Coverage (MDIC)
> Philippine Deposit Insurance Corporation (PDIC) pays deposit
insurance on all valid deposits up to the Maximum Deposit Insurance
Coverage (MDIC) of Php500,000 per depositor of a closed bank.
> Why does the PDIC limit the insurance coverage?

◦So as not to encourage risky banking activities;
◦To limit “moral hazard” in banking
What are covered by PDIC deposit insurance?
Deposits of
-all Philippine commercial banks, savings and mortgage banks, rural banks, private
development banks, cooperative banks, savings and loan associations
-branches and agencies in the Philippines of foreign banks
-all other corporations authorized to perform banking functions in the Philippines
Any insured bank with branch outside the Philippines may elect to include for insurance its
deposit obligations payable at such branch.
Foreign currencies which are acceptable as part of the international reserve are also insured.
- insurance payment shall be in the same currency in which the insured deposits are
denominated
What are NOT covered by PDIC deposit insurance?
1. Investment products such as bonds and securities, trust accounts and other similar
instruments
2. Fictitious or fraudulent deposit accounts
3. Constitute and/or emanate from unsafe and unsound banking practice/s as determined
by the PDIC
4. Are determined to be proceeds of an unlawful activity as defined in the Anti-Money

Laundering Act
Under PDIC Regulatory Issuance No. 2011-01, the
following are examples of banking practices that may be
considered unsafe and/or unsound:
> Solicitation and acceptance of deposits outside bank premises, including branches,
without BSP authority
> Non-compliance with minimum identification and documentation requirements
from depositors in the opening of deposits accounts (Anti-Money Laundering Law)
> Allowing depositors to deposit, withdraw and/or transfer funds without proper
documentation such as duly accomplished deposit or withdrawal forms
> Granting high interest rates, when bank has: (i) negative unimpaired capital, and (ii)
either a liquid assets-to-deposits ratio of less than 10% or an operating loss.
What specific risks to a bank does PDIC cover?
> PDIC covers only the risk of a bank closure ordered by the Monetary
Board.
> Thus, bank losses due to theft, fire, closure by reason of strike or
existence of public disorder, revolution or civil war, are not covered by
PDIC
How to compute insurance?
> For purposes of computing deposit insurance, accounts maintained in the same right
and capacity for a depositor’s benefit, whether in his own name or in the name of others,
are added together and in no case shall exceed the MDIC.
> Likewise, for purposes of computing the insured deposits, all obligations or loans of
the depositor with the closed bank, as of bank closure, shall be deducted from the
depositor’s total deposits with the said bank.
Single Accounts
> Single Accounts are individually-owned accounts or accounts held

under one name, either as natural person or juridical entity.
> Natural person refers to any individual person. Single Proprietors are
considered natural persons.
> Juridical Entity refers to a corporation, partnership or cooperative,

including registered association.
“BY”, “ITF” or “FAO” Accounts
> In a “By” account, Ana by Ben, Ana is the depositor.
> In an “In Trust For” (ITF) account, Ana In Trust For Ben, Ben is the
depositor.
> In a “For the Account of” (FAO) account, Ana For the Account of Ben, Ben
is the depositor.
> In an account with combined Joint and FAO/ITF, Ana and/or David In Trust
For Ben, Ben is the depositor.
How to compute for single accounts?

> If a depositor is the sole beneficial owner of a single, “For the Account of”,
“By”, and “In Trust For” accounts, the consolidated balances of these accounts
shall be insured up to Php500,000.
Joint Accounts
> MDIC of Php500,000 shall be divided equally between or among co-

owners of a joint account.
◦Unless a different sharing is stipulated
◦Even if total share of a co-owner in several joint accounts exceeds
Php500,000
> Joint Accounts held in the names of a juridical entity and a natural
person shall be presumed to belong solely to the juridical entity.
What if a client has both single and joint accounts?
> A joint account shall be insured separately from single accounts.
> A depositor with single accounts and joint accounts may have a
combined insured deposits of up to Php1,000,000
EXAMPLE 1:
> Fe Santos has the following accounts in the same bank:
Account name Deposit

Fe Santos 100,000
Ben Santos FAO Fe Santos 100,000
Charlie Santos ITF Fe Santos 100,000
Fe’s Store (Sole Proprietor) 700,000
TOTAL 1,000,000
> How much MDIC is Fe Santos entitled to?

Fe Santos’ insured deposit if she has the following
four deposit accounts in the same bank:
Account Name Deposit Insured Deposit
(in Php) of Fe Santos (in Php)
Fe Santos 100,000 100,000
Ben Santos 100,000 100,000
For the Account of
Fe Santos
Charlie Santos 100,000 100,000
In Trust For
Fe Santos
Fe's Santos 700,000 200,000
(Sole Proprietor)
Total 1,000,000 500,000
1. Fe Santos is entitled to a maximum deposit insurance coverage of

Php500,000 – after determination that she is the sole beneficial owner
of the four accounts.
EXAMPLE 2:
> Fe Santos has the following joint accounts in the same bank:
Account name Deposit

Fe Santos or Ben Santos 500,000
Fe Santos and Charlie Santos 1,000,000
Fe Santos and/or Divina 1,000,000

Santos
TOTAL 2,500,000
> How much MDIC is Fe Santos entitled to?

Fe Santos’ insured deposit if she has the following
three joint accounts in the same bank:
Account Name Deposit Fe's Share in the
(in Php) Insured Deposit
(in Php)
Fe Santos or 500,000 250,000
Ben Santos
Fe Santos and 1,000,000 250,000

Charlie Santos
Fe Santos and/or 1,000,000 O

Divina Santos
Total 2,500,000 500,000
2. Fe Santos does not have any insured deposit share since she has reached the maximum
insurance coverage totaling Php500,000 in the two joints accounts she has with Ben and Charlie
Santos.
Fe Santos’ insured deposit for all her single and
joint accounts in the same bank:
Account Name Deposit Fe's Share in the

(in Php) Insured Deposit
(in Php)
All single accounts 1,000,000 500,000
of Fe Santos in Q1
All joint accounts of 2,500,000 500,000
Fe Santos in Q2
Total 2,500,000 1,000,000

Understanding Deposit Insurance

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Understanding

> Why does the PDIC limit the insurance coverage?

2. Fictitious or fraudulent deposit accounts

4. Are determined to be proceeds of an unlawful activity as defined in the Anti-Money

> Single Accounts are individually-owned accounts or accounts held

> Juridical Entity refers to a corporation, partnership or cooperative,

How to compute for single accounts?

> MDIC of Php500,000 shall be divided equally between or among co-

> A joint account shall be insured separately from single accounts.

> Fe Santos has the following accounts in the same bank:

Account name Deposit

> How much MDIC is Fe Santos entitled to?

1. Fe Santos is entitled to a maximum deposit insurance coverage of

Account name Deposit

Fe Santos and Charlie Santos 1,000,000

Fe Santos and/or Divina 1,000,000

> How much MDIC is Fe Santos entitled to?

Fe Santos and 1,000,000 250,000

Fe Santos and/or 1,000,000 O

Total 2,500,000 500,000

Account Name Deposit Fe's Share in the

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