The Philippine Deposit Insurance Corp (PDIC) [link] said that it is conducting a study to determine if the current protection limit of P500,000 should be increased along with the introduction of other measures to “instill market discipline”. The last time the protection limit was increased was back in 2009, when it was bumped up from P250,000 by way of an amendment to the PDIC charter which also gave the PDIC board the power to re-adjust that amount in the future without the need to pass a new law. The PDIC President, Roberto Tan, said that they needed to study the adjustment and the “market discipline” measures they’d introduce alongside it to “avoid moral hazards or riskier behavior by banks as well as depositors”. BSP Governor Eli Remolona said that an increase in the PDIC protection amount was unlikely to create a moral hazard, and added that the PDIC system was “designed for preventing runs on individual banks,” adding that it “wasn’t designed for systemic risk” or to address “a crisis”.MB BOTTOM-LINE: The amount of the protection provided by PDIC would need to be adjusted to P837,000 just to keep pace with the inflation that we’ve suffered through to the end of 2023. I rather liked Mr. Remolona’s take on the issue, when he said: “In the face of a crisis, there’s no such thing as a threshold on deposit insurance; all deposits have to be safe. This is the lesson of history.” I think that’s the real truth right there. Set the amount high enough that we don't have concerned citizens opening up multiple bank accounts just to spread bank failure risk. What regular person has the ability to reasonably judge that risk anyway? Put the limit at P20,000,000 and work hard at the systemic level to make a world where nobody even really needs to think about PDIC again.
