Monday, October 5, 2009

How Safe is your Money in the Bank?

http://pinoy-business.com/content/view/785/59/.
posted 2008 september 14.
Written by Pinoy Entrepreneur, on 14-09-2008
A bank run is a financial crisis, a panic which occurs when a large number of customers of a bank fear it is insolvent and withdraw their deposits. You may still remember the bank run suffered by Urban Bank some years back. It's also a rude awakening that even big banks suffer a financial crisis which adversely affects its depositors. Incidentally, and by way of update, even giant US financial institutions like Fannie Mae and Freddie Mac had to be bailed out; Lehman Brothers is having serious problems and AIG is fighting to survive. (See the poll at the left side of this blog: Are you comfortable right now with your money in the bank? See initial results here.).

If that level of financial crisis could hit big banks, it could definitely hit smaller banks. Only a month or two ago, the Philippine Deposit Insurance Corporation (PDIC) announced that the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) placed the Sandigan Savings Bank, Inc. under receivership. The PDIC took over Sandigan Savings Bank and its branches, assets, records and affairs on 24 August 2007. The PDIC also took over Rural Bank of Sebaste (Antique), Inc. (RBSI) and Maranao Rural Bank, Inc. (MRBI), both of which were also ordered closed by the BSP. In light of these closures, let's discuss the insurance coverage of your money in the bank.

The PDIC is the government agency that provides for insurance of bank deposits. Since all operating banks are required to be members of PDIC, deposits in all banks are insured. All peso and foreign currency savings deposit accounts, time deposit accounts, current or demand deposit or checking accounts in a bank are insured. If deposits are covered by insurance, then there's no need to worry, right? Well, yes, but there are things you might want to know.
The insurance coverage is based on the net amount, after deducting withholding taxes and the depositor's unpaid loans and other obligations, if any, to the bank. Also, if you have millions of deposit with a bank, not all of the amount is covered by insurance. The maximum deposit insurance coverage is only P250,000. This is the maximum coverage for each depositor, and all deposit accounts by a depositor in the same right and capacity are be added together. It doesn't really make a difference if you have two accounts, perhaps a dollar account and a peso account, or a savings account and a time deposit account. (Note: In October 2008, Pres. Arroyo approved the proposal to increase the insurance coverage to P1 Million, but this requires legislation fromCongress. This will definitely sustain the confidence of accountholders. Let's see if this will materialize.)

The insurance covers "deposits". This includes, peso and foreign currency savings deposit accounts, time deposit accounts, and current or demand deposit or checking accounts. On the other hand, investments like a Unit Investment Trust Fund or UITF (an open-end trust fund), is NOT considered as a deposit and is, therefore, NOT covered by PDIC insurance. Still, this discussion should not deter you from supporting the "Mag-impok sa Bangko" campaign. Savings are equally important as investments in the life of the Pinoy Entrepreneur.

(By the way, the poll that ran from 16-29 September 2008 -- "Comfortable with your money in the bank?" -- got a modest 14 votes: 71.4% says "No" and 28.6% says "Yes".) You could still expres your opinion through the comment section below.)

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