To prevent bank crisis: Deposit insurers advised to strengthen measures

CEBU, Philippines - The International Association of Deposit Insurers (IADI) urged deposit insurers to strengthen preventive measures to avoid financial crisis, most specifically to prevent banking institutions from collapsing, which can be a deterrent factor to the depositing public.

The Philippine Deposit Insurance Corporation (PDIC) hosted a two-day International Summit Conference and Seminar on deposit insurance held at the Shangri-La’s Mactan Island Resort and Spa.

Dubbed as the Summit Conference on Strengthening Deposit Insurance Systems in Crisis and Post-Crisis situations, the event brought together heads and representatives of member-deposit insurers of the IADI from the Asia Pacific, North America, Europe and Africa to discuss and assess critical actions implemented by deposit insurers during the height of the global financial crisis in 2008 and after the crisis.

PDIC president Jose C. Nograles, in an interview said that one of the highlights of the discussion was to encourage deposit insurers from 14 countries to give more focus on bank-crisis prevention.

The case of the Legacy financial scandal was cited during the discussions among the representatives.

However, Nograles said the Legacy ordeal was a different case because it was not a “crisis related” problem, although it happened at the height of the global economic recession.

Nograles, who is also a member of the IADI governing body, and executive council and chairman of the IADI Audit Committee, shared with international deposit insurers PDIC’s Legacy experience, and how they are managing it, wherein PDIC had to shell out P14.4 billion for the deposit insurance claims of 135 thousand Legacy depositors.

“We also agreed to cooperate with one another on how to cope with severe crisis. Cooperation among bank insurers around the world is very important,” Nograles said.

After the conference, a Seminar on Claims Management and Payout Operations was conducted. PDIC shared insights and ongoing innovations and business process re-engineering on its claims settlement operations with the participants who were senior technical officers of different deposit insurers.

In his presentation, Nograles said that PDIC will continue to pursue reforms geared towards protecting depositor interests, maintaining public confidence in the financial system and promoting financial stability in the economy.

PDIC is a member of the IADI, an organization of 60 deposit insurers that aims to enhance the effectiveness of deposit insurance system by promoting guidance and international cooperation.

At the height of the global financial crisis, deposit insurers worldwide implemented various measures to strengthen public confidence in the financial system.

Some moved for increased deposit insurance coverages for specific periods and some indefinitely. Others, implemented blanket guarantees.

In the Philippines, PDIC supported calls for increased maximum deposit insurance coverage (MDIC) and lobbied for the inclusion of corollary measures that comprised of institutional and financial strengthening measures to help enhance deposit insurer’s oversight and regulatory functions mitigate moral hazards and protect the Deposit Insurance Fund.

Republic Act 9576, the law that amended the PDIC Charter that took effect on June 1, 2009, also granted PDIC the flexibility mechanism to adjust the maximum deposit insurance level when the situation calls for it.

Aside from the Philippines, deposit insurance agencies from the United States, Japan, Korea, Taiwan, Thailand, Indonesia, India, Vietnam, Russia and Nigeria shared their responses to the financial crisis and valuable lessons learned.