MANILA, Philippines - The Philippine Deposit Insurance Corp. (PDIC) has issued Regulatory Issuance (RI) 2009-03 on the Determination of Beneficial Ownership of Legitimate Deposits recently to address the risk of moral hazard posed by deposit splitting.
Splitting of deposit occurs when a deposit account of more than the maximum deposit insurance coverage, under the name of a natural or juridical person is broken down and transferred into two or more accounts in the names of person or entities with no beneficial ownership on the transferred deposits within 120 days immediately preceding or during a bank-declared holiday.
This period is longer than the previous 30 days under the old Charter.
In cases of splitting, the transferee does not really own the deposit account, even if it is in his name. This practice is resorted to by putting money in risky instruments masquerading as deposits. Instead of bearing the higher risk associated with higher interest, they shift the risk to PDIC, by resorting to splitting so that each split account will be within the maximum deposit insurance coverage. This is a circumvention of the deposit insurance law and poses undue risk to the DIF.
Non-compliance with or violation of the provisions of the RI on beneficial ownership and deposit splitting would subject the bank and its responsible directors, officers, employees, or agents to the imposition of the penalty of prision mayor or a fine of not less than P50,000 but not more than P2 million or both, at the discretion of the court, and without prejudice to imposition of administrative fines.
According to the issuance, legitimate deposits refer to money or its equivalent received by a bank as deposits in the usual course of business and recorded in the books of the bank as such, and opened in accordance with established forms and requirements of the Bangko Sentral ng Pilipinas (BSP) and/or the PDIC. A natural or juridical person, or entity who/which is the owner of a deposit as determined by PDIC under the said issuance, and whose deposit is recorded in the books of the bank is considered a bona fide depositor.
Meanwhile, qualified relative refers to a relative within the second degree of consanguinity or affinity. The state insurer said that on the basis of deposit account records, it would determine depositors of the bank who are entitled to the deposit insurance. The issuance also specifies that all legitimate deposits in a bank over which a depositor has beneficial ownership would be subject of consolidation for insurance purposes, and the depositor will be paid the maximum deposit insurance coverage of P500,000.