BSP won't oppose PDIC's 'bridge banking' proposal

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said it has no opposition to the plan of the Philippine Deposit Insurance Corp. to do bridge banking as a method to liquidate the assets of failed banks.

BSP Deputy Governor Nestor Espenilla Jr. said monetary authorities see the wisdom in PDIC’s proposal. “We do not have any opposition to that. PDIC wants to do something that will allow it to get more value,” Espenilla said.

The authority to do “bridge banking” is one of the amendments sought by PDIC from Congress.

Bridge banking, practiced in many other countries such as Japan and Korea, refers to the method by which a temporary bank is put in place by regulators to administer the deposits and liabilities of a failed bank.

Under the practice, the assets of a failed bank are divided into good and bad assets. The good assets are put in the bridge bank temporarily until a “white knight” comes to take over.

According to PDIC, a bridge bank will enable the PDIC to help continue the bank’s critical functions by acquiring the assets and assuming the liabilities of a failed bank until there is a white knight that will take over the bank or a final resolution to the situation.

Bridge banking as a method of transition for failed banks is included in the 21 Core Principles for Effective Deposit Insurance Systems published by the International Association of Deposit Insurers. (IADI), a worldwide organization of 52 deposit insurers, with PDIC as one of its founding members.

Last year, PDIC got some of the measures it sought from authorities aimed at strengthening its operations including the increase in the maximum insurance coverage to P500,000 from P250,000 previously under Republic Act 3591.

At the P500,000 level, 97.2 percent of all deposit accounts are fully covered by insurance, compared to 95.1 percent at the previous level. The balance of 2.8 percent are partially covered by insurance with respect to the first P500,000 of the deposit account.